1903	----	None 
14762	----	NOW OR NEVER Or, The Adventures of Bobby Bright. A Story for Young Folks by OLIVER OPTIC Author of _The Boat Club_, _All Aboard_, _In Doors and Out_, etc. Boston: Lee and Shepard, Publishers. New York: Lee, Shepard & Dillingham, 49 Greene Street 1872 TO MY NEPHEW, CHARLES HENRY POPE. This Book IS AFFECTIONATELY DEDICATED. PREFACE The story contained in this volume is a record of youthful struggles, not only in the world without, but in the world within; and the success of the little hero is not merely a gathering up of wealth and honors, but a triumph over the temptations that beget the pilgrim on the plain of life. The attainment of worldly prosperity is not the truest victory, and the author has endeavored to make the interest of his story depend more on the hero's devotion to principles than on his success in business. Bobby Bright is a smart boy; perhaps the reader will think he is altogether too smart for one of his years. This is a progressive age, and any thing which Young America may do need not surprise any person. That little gentleman is older than his father, knows more than his mother, can talk politics, smoke cigars, and drive a 2:40 horse. He orders "one stew" with as much ease as a man of forty, and can even pronounce correctly the villanous names of sundry French and German wines and liqueurs. One would suppose, to hear him talk, that he had been intimate with Socrates and Solon, with Napoleon and Noah Webster; in short, that whatever he did not know was not worth knowing. In the face of these manifestations of exuberant genius, it would be absurd to accuse the author of making his hero do too much. All he has done is to give this genius a right direction; and for politics, cigars, 2:40 horses, and "one stew," he has substituted the duties of a rational and accountable being, regarding them as better fitted to develop the young gentleman's mind, heart, and soul. Bobby Bright is something more than a smart boy. He is a good boy, and makes a true man. His daily life is the moral of the story, and the author hopes that his devotion to principle will make a stronger impression upon the mind of the young reader, than even the most exciting incidents of his eventful career. WILLIAM T. ADAMS. DORCHESTER, Nov. 15, 1856. CONTENTS. CHAP. I.--In which Bobby goes a fishing, and catches a Horse. CHAP. II.--In which Bobby blushes several Times, and does a Sum in Arithmetic. CHAP. III.--In which the Little Black House is bought, but not paid for. CHAP. IV.--In which Bobby gets out of one Scrape, and into another. CHAP. V.--In which Bobby gives his Note for Sixty Dollars. CHAP. VI.--In which Bobby sets out on his Travels. CHAP. VII.--In which Bobby stands up for certain "Inalienable Rights." CHAP. VIII.--In which Mr. Timmins is astonished, and Bobby dines in Chestnut Street. CHAP. IX.--In which Bobby opens various Accounts, and wins his first Victory. CHAP X.--In which Bobby is a little too smart. CHAP. XI.--In which Bobby strikes a Balance, and returns to Riverdale. CHAP. XII.--In which Bobby astonishes sundry Persons, and pays Part of his Note. CHAP. XIII.--In which Bobby declines a Copartnership, and visits B---- again. CHAP. XIV.--In which Bobby's Air Castle is upset, and Tom Spicer takes to the Woods. CHAP. XV.--In which Bobby gets into a Scrape, and Tom Spicer turns up again. CHAP. XVI.--In which Bobby finds "it is an ill wind that blows no one any good." CHAP. XVII.--In which Tom has a good Time, and Bobby meets with a terrible Misfortune. CHAT. XVIII.--In which Bobby takes French Leave, and camps in the Woods. CHAP. XIX.--In which Bobby has a narrow Escape, and goes to Sea with Sam Ray. CHAP. XX.--In which the Clouds blow over, and Bobby is himself again. CHAP. XXI.--In which Bobby steps off the Stage, and the Author must finish "Now or Never." CHAPTER I. IN WHICH BOBBY GOES A FISHING, AND CATCHES A HORSE. "By jolly! I've got a bite!" exclaimed Tom Spicer, a rough, hard-looking boy, who sat on a rock by the river's side, anxiously watching the cork float on his line. "Catch him, then," quietly responded Bobby Bright, who occupied another rock near the first speaker, as he pulled up a large pout, and, without any appearance of exultation, proceeded to unhook and place him in his basket. "You are a lucky dog, Bob," added Tom, as he glanced into the basket of his companion, which now contained six good-sized fishes. "I haven't caught one yet." "You don't fish deep enough." "I fish on the bottom." "That is too deep." "It don't make any difference how I fish; it is all luck." "Not all luck, Tom; there is something in doing it right." "I shall not catch a fish," continued Tom, in despair. "You'll catch something else, though, when you go home." "Will I?" "I'm afraid you will." "Who says I will?" "Didn't you tell me you were 'hooking jack'? "Who is going to know any thing about it?" "The master will know you are absent." "I shall tell him my mother sent me over to the village on an errand." "I never knew a fellow to 'hook jack,' yet, without getting found out." "I shall not get found out unless you blow on me; and you wouldn't be mean enough to do that;" and Tom glanced uneasily at his companion. "Suppose your mother should ask me if I had seen you." "You would tell her you have not, of course." "Of course?" "Why, wouldn't you? Wouldn't you do as much as that for a fellow?" "It would be a lie." "A lie! Humph!" "I wouldn't lie for any fellow," replied Bobby, stoutly, as he pulled in his seventh fish, and placed him in the basket. "Wouldn't you?" "No, I wouldn't." "Then, let me tell you this; if you peach on me I'll smash your head." Tom Spicer removed one hand from the fish pole and, doubling his fist, shook it with energy at his companion. "Smash away," replied Bobby, coolly. "I shall not go out of my way to tell tales; but if your mother or the master asks me the question, I shall not lie." "Won't you?" "No, I won't." "I'll bet you will;" and Tom dropped his fish pole, and was on the point of jumping over to the rock occupied by Bobby, when the float of the former disappeared beneath the surface of the water. "You have got a bite," coolly interposed Bobby, pointing to the line. Tom snatched the pole, and with a violent twitch, pulled up a big pout; but his violence jerked the hook out of the fish's mouth, and he disappeared beneath the surface of the river. "Just my luck!" muttered Tom. "Keep cool, then." "I will fix you yet." "All right; but you had better not let go your pole again, or you will lose another fish." "I'm bound to smash your head, though." "No, you won't." "Won't I?" "Two can play at that game." "Do you stump me?" "No; I don't want to fight; I won't fight if I can help it." "I'll bet you won't!" sneered Tom. "But I will defend myself." "Humph!" "I am not a liar, and the fear of a flogging shall not make me tell a lie."' "Go to Sunday school--don't you?" "I do; and besides that, my mother always taught me never to tell a lie." "Come! you needn't preach to me. By and by, you will call me a liar." "No, I won't; but just now you told me you meant to lie to your mother, and to the master." "What if I did? That is none of your business." "It is my business when you want me to lie for you, though; and I shall not do it." "Blow on me, and see what you will get." "I don't mean to blow on you." "Yes you do." "I will not lie about it; that's all." "By jolly! see that horse!" exclaimed Tom, suddenly, as he pointed to the road leading to Riverdale centre. "By gracious!" added Bobby, dropping his fish pole, as he saw the horse running at a furious rate up the road from the village. The mad animal was attached to a chaise, in which was seated a lady, whose frantic shrieks pierced the soul of our youthful hero. The course of the road was by the river's side for nearly half a mile, and crossed the stream at a wooden bridge but a few rods from the place where the boys were fishing. Bobby Bright's impulses were noble and generous; and without stopping to consider the peril to which the attempt would expose him, he boldly resolved to stop that horse, or let the animal dash him to pieces on the bridge. "Now or never!" shouted he, as he leaped from the rock, and ran with all his might to the bridge. The shrieks of the lady rang in his ears, and seemed to command him, with an authority which he could not resist, to stop the horse. There was no time for deliberation; and, indeed, Bobby did not want any deliberation. The lady was in danger; if the horse's flight was not checked, she would be dashed in pieces; and what then could excuse him for neglecting his duty? Not the fear of broken limbs, of mangled flesh, or even of a sudden and violent death. It is true Bobby did not think of any of these things; though, if he had, it would have made no difference with him. He was a boy who would not fight except in self-defence, but he had the courage to do a deed which might have made the stoutest heart tremble with terror. Grasping a broken rail as he leaped over the fence, he planted himself in the middle of the bridge, which was not more than half as wide as the road at each end of it, to await the coming of the furious animal. On he came, and the piercing shrieks of the affrighted lady nerved him to the performance of his perilous duty. The horse approached him at a mad run, and his feet struck the loose planks of the bridge. The brave boy then raised his big club, and brandished it with all his might in the air. Probably the horse did not mean any thing very bad; was only frightened, and had no wicked intentions towards the lady; so that when a new danger menaced him in front, he stopped suddenly, and with so much violence as to throw the lady forward from her seat upon the dasher of the chaise. He gave a long snort, which was his way of expressing his fear. He was evidently astonished at the sudden barrier to his further progress, and commenced running back. "Save me!" screamed the lady. "I will, ma'am; don't be scared!" replied Bobby, confidently, as he dropped his club, and grasped the bridle of the horse, just as he was on the point of whirling round to escape by the way he had come. "Stop him! Do stop him!" cried the lady. "Whoa!" said Bobby, in gentle tones, as he patted the trembling horse on his neck. "Whoa, good horse! Be quiet! Whoa!" The animal, in his terror, kept running backward and forward; but Bobby persevered in his gentle treatment, and finally soothed him, so that he stood quiet enough for the lady to get out of the chaise. "What a miracle that I am alive!" exclaimed she when she realized that she stood once more upon the firm earth. "Yes, ma'am, it is lucky he didn't break the chaise. Whoa! Good horse! Stand quiet!" "What a brave little fellow you are!" said the lady, as soon as she could recover her breath so as to express her admiration of Bobby's bold act. "O, I don't mind it," replied he, blushing like a rose in June. "Did he run away with you?" "No; my father left me in the chaise for a moment while he went into a store in the village, and a teamster who was passing by snapped his whip, which frightened Kate so that she started off at the top of her speed. I was so terrified, that I screamed with all my might, which frightened her the more. The more I screamed, the faster she ran." "I dare say. Good horse! Whoa, Kate!" "She is a splendid creature; she never did such a thing before. My father will think I am killed." By this time, Kate had become quite reasonable, and seemed very much obliged to Bobby for preventing her from doing mischief to her mistress; for she looked at the lady with a glance of satisfaction, which her deliverer interpreted as a promise to behave better in future. He relaxed his grasp upon the bridle, patted her upon the neck, and said sundry pleasant things to encourage her in her assumed purpose of doing better. Kate appeared to understand Bobby's kind words, and declared as plainly as a horse could declare that she would be sober and tractable. "Now, ma'am, if you will get into the chaise again, I think Kate will let me drive her down to the village." "O, dear! I should not dare to do so." "Then, if you please, I will drive down alone, so as to let your father know that you are safe." "Do." "I am sure he must feel very bad, and I may save him a great deal of pain, for a man can suffer a great deal in a very short time." "You are a little philosopher, as well as a hero, and if you are not afraid of Kate, you may do as you wish." "She seems very gentle now;" and Bobby turned her round, and got into the chaise. "Be very careful," said the lady. "I will." Bobby took the reins, and Kate, true to the promise she had virtually made, started off at a round pace towards the village. He had not gone more than a quarter of a mile of the distance when he met a wagon containing three men, one of whom was the lady's father. The gestures which he made assured Bobby he had found the person whom he sought, and he stopped. "My daughter! Where is she?" gasped the gentleman, as he leaped from the wagon. "She is safe, sir," replied Bobby, with all the enthusiasm of his warm nature. "Thank God!" added the gentleman, devoutly as he placed himself in the chaise by the side of Bobby. CHAPTER II. IN WHICH BOBBY BLUSHES SEVERAL TIMES, AND DOES A SUM IN ARITHMETIC. Mr. Bayard, the owner of the horse, and the father of the lady whom Bobby had saved from impending death, was too much agitated to say much, even to the bold youth who had rendered him such a signal service. He could scarcely believe the intelligence which the boy brought him; it seemed too good to be true. He had assured himself that Ellen--for that was the young lady's name--was killed, or dreadfully injured. Kate was driven at the top of her speed, and in a few moments reached the bridge, where Ellen was awaiting his arrival. "Here I am, father, alive and unhurt!" cried Ellen, as Mr. Bayard stopped the horse. "Thank Heaven my child!" replied the glad father, embracing his daughter. "I was sure you were killed." "No, father; thanks to this bold youth, I am uninjured." "I am under very great obligations to you, young man," continued Mr. Bayard, grasping Bobby's hand. "O, never mind, sir;" and Bobby blushed just as he had blushed when the young lady spoke to him. "We shall never forget you--shall we, father?" added Ellen. "No, my child; and I shall endeavor to repay, to some slight extent, our indebtedness to him. But you have not yet told me how you were saved." "O, I merely stopped the horse; that's all," answered Bobby, modestly. "Yes, father, but he placed himself right before Kate when she was almost flying over the ground. When I saw him, I was certain that he would lose his life, or be horribly mangled for his boldness," interposed Ellen. "It was a daring deed, young man, to place yourself before an affrighted horse in that manner," said Mr. Bayard. "I didn't mind it, sir." "And then he flourished a big club, almost as big as he is himself, in the air, which made Kate pause in her mad career, when my deliverer here grasped her by the bit and held her." "It was well and bravely done." "That it was, father; not many men would have been bold enough to do what he did," added Ellen, with enthusiasm. "Very true; and I feel, that I am indebted to him for your safety. What is your name, young man?" "Robert Bright, sir." Mr. Bayard took from his pocket several pieces of gold, which he offered to Bobby. "No, I thank you, sir," replied Bobby, blushing. "What! as proud as you are bold?" "I don't like to be paid for doing my duty." "Bravo! You are a noble little fellow! But you must take this money, not as a reward for what you have done, but as a testimonial of my gratitude." "I would rather not, sir." "Do take it, Robert," added Ellen. "I don't like to take it. It looks mean to take money for doing one's duty." "Take it, Robert, to please me;" and the young lady smiled so sweetly that Bobby's resolution began to give way. "Only to please me, Robert." "I will, to please you; but I don't feel right about it." "You must not be too proud, Robert," said Mr. Bayard, as he put the gold pieces into his hand. "I am not proud, sir; only I don't like to be paid for doing my duty." "Not paid, my young friend. Consider that you have placed me under an obligation to you for life. This money is only an expression of my own and my daughter's feelings. It is but a small sum, but I hope you will permit me to do something more for you, when you need it. You will regard me as your friend as long as you live." "Thank you, sir." "When you want any assistance of any kind, come to me. I live in Boston; here is my business card." Mr. Bayard handed him a card, on which Bobby read, "F. Bayard & Co., Booksellers and Publishers, No. ---- Washington Street, Boston." "You are very kind, sir." "I want you should come to Boston and see us too," interposed Ellen. "I should be delighted to show you the city, to take you to the Athenaeum and the Museum." "Thank you." Mr. Bayard inquired of Bobby about his parents, where he lived, and about the circumstances of his family. He then took out his memorandum book, in which he wrote the boy's name and residence. "I am sorry to leave you now, Robert, but I have over twenty miles to ride to-day. I should be glad to visit your mother, and next time I come to Riverdale, I shall certainly do so." "Thank you, sir; my mother is a very poor woman, but she will be glad to see you." "Now, good by, Robert." "Good by," repeated Ellen. "Good by." Mr. Bayard drove off, leaving Bobby standing on the bridge with the gold pieces in his hand. "Here's luck!" said Bobby, shaking the coin. "Won't mother's eyes stick out when she sees these shiners? There are no such shiners in the river as these." Bobby was astonished, and the more he gazed at the gold pieces, the more bewildered he became. He had never held so much money in his hand before. There were three large coins and one smaller one. He turned them over and over, and finally ascertained that the large coins were ten dollar pieces, and the smaller one a five dollar piece. Bobby was not a great scholar, but he knew enough of arithmetic to calculate the value of his treasure. He was so excited, however, that he did not arrive at the conclusion half so quick as most of my young readers would have done. "Thirty-five dollars!" exclaimed Bobby, when the problem was solved. "Gracious!" "Hallo, Bob!" shouted Tom Spicer, who had got tired of fishing; besides, the village clock was just striking twelve, and it was time for him to go home. Bobby made no answer, but hastily tying the gold pieces up in the corner of his handkerchief, he threw the broken rail he had used in stopping the horse where it belonged, and started for the place where he had left his fishing apparatus. "Hallo, Bob!" "Well, Tom?" "Stopped him--didn't you?" "I did." "You were a fool; he might have killed you." "So he might; but I didn't stop to think of that. The lady's life was in danger." "What of that?" "Every thing, I should say." "Did he give you any thing?" "Yes;" and Bobby continued his walk down to the river's side. "I say, what did he give you, Bobby?" persisted Tom, following him. "O, he gave me a good deal of money." "How much?" "I want to get my fish line now; I will tell you all about it some other time," replied Bobby, who rather suspected the intentions of his companion. "Tell me now; how much was it?" "Never mind it now." "Humph! Do you think I mean to rob you?" "No." "Ain't you going halveses?" "Why should I?" "Wasn't I with you?" "Were you?" "Wasn't I fishing with you?" "You did not do any thing about stopping the horse." "I would, if I hadn't been afraid to go up to the road." "Afraid?" "Somebody might have seen me, and they would have known that I was hooking jack." "Then you ought not to share the money." "Yes, I had. When a fellow is with you, he ought to have half. It is mean not to give him half." "If you had done any thing to help stop the horse, I would have shared with you. But you didn't." "What of that?" Bobby was particularly sensitive in regard to the charge of meanness. His soul was a great deal bigger than his body, and he was always generous, even to his own injury, among his companions. It was evident to him that Tom had no claim to any part of the reward; but he could not endure the thought even of being accused of meanness. "I'll tell you what I will do, if you think I ought to share with you. I will leave it out to Squire Lee; and if he thinks you ought to have half, or any part of the money, I will give it to you." "No, you don't; you want to get me into a scrape for hooking jack. I see what you are up to." "I will state the case to him without telling him who the boys are." "No, you don't! You want to be mean about it. Come, hand over half the money." "I will not," replied Bobby, who, when it became a matter of compulsion, could stand his ground at any peril. "How much have you got?" "Thirty-five dollars." "By jolly! And you mean to keep it all yourself?" "I mean to give it to my mother." "No, you won't! If you are going to be mean about it, I'll smash your head!" This was a favorite expression with Tom Spicer, who was a noted bully among the boys of Riverdale. The young ruffian now placed himself in front of Bobby, and shook his clinched fist in his face. "Hand over." "No, I won't. You have no claim to any part at the money; at least, I think you have not. If you have a mind to leave it out to Squire Lee, I will do what is right about it." "Not I; hand over, or I'll smash your head!" "Smash away," replied Bobby, placing himself on the defensive. "Do you think you can lick me?" asked Tom, not a little embarrassed by this exhibition of resolution on the part of his companion. "I don't think any thing about it; but you don't bully me in that kind of style." "Won't I?" "No." But Tom did not immediately put his threat in execution, and Bobby would not be the aggressor; so he stepped one side to pass his assailant. Tom took this as an evidence of the other's desire to escape, and struck him a heavy blow on the side of the head The next instant the bully was floundering in the soft mud of a ditch; Bobby's reply was more than Tom had bargained for, and while he was dragging himself out of the ditch, our hero ran down to the river, and got his fish pole and basket. "You'll catch it for that!" growled Tom. "I'm all ready, whenever it suits your convenience," replied Bobby. "Just come out here and take it in fair fight," continued Tom, who could not help bullying, even in the midst of his misfortune. "No, I thank you; I don't want to fight with any fellow. I will not fight if I can help it." "What did you hit me for, then?" "In self-defence." "Just come out here, and try it fair?" "No;" and Bobby hurried home, leaving the bully astonished, and discomfited by the winding up of the morning's sport. CHAPTER III. IN WHICH THE LITTLE BLACK HOUSE IS BOUGHT BUT NOT PAID FOR. Probably my young readers have by this time come to the conclusion that Bobby Bright was a very clever fellow--one whose acquaintance they would be happy to cultivate. Perhaps by this time they have become so far interested in him as to desire to know who his parents were, what they did, and in what kind of a house he lived. I hope none of my young friends will think any less of him when I inform them that Bobby lived in an old black house which had never been painted, which had no flower garden in front of it, and which, in a word, was quite far from being a palace. A great many very nice city folks would not have considered it fit to live in, would have turned up their noses at it, and wondered that any human beings could be so degraded as to live in such a miserable house. But the widow Bright, Bobby's mother, thought it was a very comfortable house, and considered herself very fortunate in being able to get so good a dwelling. She had never lived in a fine house, knew nothing about velvet carpets, mirrors seven feet high, damask chairs and lounges, or any of the smart things which very rich and very proud city people consider absolutely necessary for their comfort. Her father had been a poor man, her husband had died a poor man, and her own life had been a struggle to keep the demons of poverty and want from invading her humble abode. Mr. Bright, her deceased husband, had been a day laborer in Riverdale. He never got more than a dollar a day, which was then considered very good wages in the country. He was a very honest, industrious man, and while he lived, his family did very well. Mrs. Bright was a careful, prudent woman, and helped him support the family. They never knew what it was to want for any thing. Poor people, as well as rich, have an ambition to be something which they are not, or to have something which they have not. Every person, who has an energy of character, desires to get ahead in the world. Some merchants, who own big ships and big warehouses by the dozen, desire to be what they consider rich. But their idea of wealth is very grand. They wish to count it in millions of dollars, in whole blocks of warehouses; and they are even more discontented than the day laborer who has to earn his dinner before he can eat it. Bobby's father and mother had just such an ambition, only it was so modest that the merchant would have laughed at it. They wanted to own the little black house in which they resided, so that they could not only be sure of a home while they lived, but have the satisfaction of living in their own house. This was a very reasonable ideal, compared with that of the rich merchants I have mentioned; but it was even more difficult for them to reach it, for the wages were small, and they had many mouths to feed. Mr. Bright had saved up fifty dollars; and he thought a great deal more of this sum than many people do of a thousand dollars. He had had to work very hard and be very prudent in order to accumulate this sum, which made him value it all the more highly. With this sum of fifty dollars at his command, John Bright felt rich; and then, more than ever before, he wanted to own the little black house. He felt as grand as a lord; and as soon as the forty-nine dollars had become fifty, he waited upon Mr. Hardhand, a little crusty old man, who owned the little black house, and proposed to purchase it. The landlord was a hard man. Every body in Riverdale said he was mean and stingy. Any generous-hearted man would have been willing to make an easy bargain with an honest, industrious, poor man, like John Bright, who wished to own the house in which he lived; but Mr. Hardhand, although he was rich, only thought how he could make more money. He asked the poor man four hundred dollars for the old house and the little lot of land on which it stood. It was a matter of great concern to John Bright. Four hundred dollars was a "mint of money," and he could not see how he should ever be able to save so much from his daily earnings. So he talked with Squire Lee about it, who told him that three hundred was all it was worth. John offered this for it, and after a month's hesitation, Mr. Hardhand accepted the offer, agreeing to take fifty dollars down and the rest in semi-annual payments of twenty-five dollars each, until the whole was paid. I am thus particular in telling my readers about the bargain, because this debt which his father contracted was the means of making a man of Bobby, as will be seen in his subsequent history. John Bright paid the first fifty dollars; but before the next instalment became due, the poor man was laid in his cold and silent grave. A malignant disease carried him off, and the hopes of the Bright family seemed to be blasted. Four children were left to the widow. The youngest was only three years old, and Bobby, the oldest, was nine, when his father died. Squire Lee, who had always been a good friend of John Bright, told the widow that she had better go to the poorhouse, and not attempt to struggle along with such a fearful odds against her. But the widow nobly refused to become a pauper, and to make paupers of her children, whom she loved quite as much as though she and they had been born in a ducal palace. She told the squire that she had two hands, and as long as she had her health, the town need not trouble itself about her support. Squire Lee was filled with surprise and admiration at the noble resolution of the poor woman; and when he returned to his house, he immediately sent her a cord of wood, ten bushels of potatoes, two bags of meal, and a firkin of salt pork. The widow was very grateful for these articles, and no false pride prevented her from accepting the gift of her rich and kind-hearted neighbor. Riverdale centre was largely engaged in the manufacturing of boots and shoes, and this business gave employment to a large number of men and women. Mrs. Bright had for several years "closed" shoes--which, my readers who do not live in "shoe towns" may not know, means sewing or stitching them. To this business she applied herself with renewed energy. There was a large hotel in Riverdale centre, where several families from Boston spent the summer. By the aid of Squire Lee, she obtained the washing of these families, which was more profitable than closing shoes. By these means she not only supported her family very comfortably, but was able to save a little money towards paying for the house. Mr. Hardhand, by the persuasions of Squire Lee, had consented to let the widow keep the house, and pay for it as she could. John Bright had been dead four years at the time we introduce Bobby to the reader. Mrs. Bright had paid another hundred dollars towards the house, with the interest; so there was now but one hundred due. Bobby had learned to "close," and helped his mother a great deal; but the confinement and the stooping posture did not agree with his health, and his mother was obliged to dispense with his assistance. But the devoted little fellow found a great many ways of helping her. He was now thirteen, and was as handy about the house as a girl. When he was not better occupied, he would often go to the river and catch a mess of fish, which was so much clear gain. The winter which had just passed, had brought a great deal of sickness to the little black house. The children all had the measles, and two of them the scarlet fever, so that Mrs. Bright could not work much. Her affairs were not in a very prosperous condition when the spring opened; but the future was bright, and the widow, trusting in Providence, believed that all would end well. One thing troubled her. She had not been able to save any thing for Mr. Hardhand. She could only pay her interest; but she hoped by the first of July to give him twenty-five dollars of the principal. But the first of July came, and she had only five dollars of the sum she had partly promised her creditor. She could not so easily recover from the disasters of the hard winter, and she had but just paid off the little debts she had contracted. She was nervous and uneasy as the day approached. Mr. Hardhand always abused her when she told him she could not pay him, and she dreaded his coming. It was the first of July on which Bobby caught those pouts, caught the horse, and on which Tom Spicer had "caught a Tartar." Bobby hastened home, as we said at the conclusion of the last chapter. He was as happy as a lord. He had fish enough in his basket for dinner, and for breakfast the next morning, and money enough in his pocket to make his mother as happy as a queen, if queens are always happy. The widow Bright, though she had worried and fretted night and day about the money which was to be paid to Mr. Hardhand on the first of July, had not told her son any thing about it. It would only make him unhappy, she reasoned, and it was needless to make the dear boy miserable for nothing; so Bobby ran home all unconscious of the pleasure which was in store for him. When he reached the front door, as he stopped to scrape his feet on the sharp stone there, as all considerate boys who love their mothers do, before they go into the house, he heard the angry tones of Mr. Hardhand. He was scolding and abusing his mother because she could not pay him the twenty-five dollars. Bobby's blood boiled with indignation, and his first impulse was to serve him as he had served Tom Spicer, only a few moments before; but Bobby, as we have before intimated, was a peaceful boy, and not disposed to quarrel with any person; so he contented himself with muttering a few hard words. "The wretch! What business has he to talk to my mother in that style?" said he to himself. "I have a great mind to kick him out of the house." But Bobby's better judgment came to his aid; and perhaps he realized that he and his mother would only get kicked out in return. He could battle with Mr. Hardhand, but not with the power which his wealth gave him; so, like a great many older persons in similar circumstances, he took counsel of prudence rather than impulse. "Bear ye one another's burdens," saith the Scripture; but Bobby was not old enough or astute enough to realize that Mr. Hardhand's burden was his wealth, his love of money; that it made him little better than a Hottentot; and he could not feel as charitably towards him as a Christian should towards his erring, weak brother. Setting his pole by the door, he entered the room where Hardhand was abusing his mother. CHAPTER IV. IN WHICH BOBBY GETS OUT OF ONE SCRAPE, AND INTO ANOTHER. Bobby was so indignant at the conduct of Mr. Hardhand, that he entirely forgot the adventure of the morning; and he did not even think of the gold he had in his pocket. He loved his mother; he knew how hard she had worked for him and his brother and sisters; that she had burned the "midnight oil" at her clamps; and it made him feel very bad to near her abused as Mr. Hardhand was abusing her. It was not her fault that she had not the money to pay him. She had been obliged to spend a large portion of her time over the sick beds of her children, so that she could not earn so much money as usual; while the family expenses were necessarily much greater. Bobby knew also that Mr. Hardhand was aware of all the circumstances of his mother's position, and the more he considered the case the more brutal and inhuman was his course. As our hero entered the family room with the basket of fish on his arm, the little crusty old man fixed the glance of his evil eye upon him. "There is that boy, marm, idling away his time by the river, and eating you out of house and home," said the wretch. "Why don't you set him to work, and make him earn something?" "Bobby is a very good boy," meekly responded the widow Bright. "Humph! I should think he was. A great lazy lubber like him, living on his mother!" and Mr. Hardhand looked contemptuously at Bobby. "I am not a lazy lubber," interposed the insulted boy with spirit. "Yes, you are. Why don't you go to work?" "I do work." "No, you don't; you waste your time paddling in the river." "I don't." "You had better teach this boy manners too, marm," said the creditor, who, like all men of small souls, was willing to take advantage of the power which the widow's indebtedness gave him. "He is saucy." "I should like to know who taught you manners, Mr. Hardhand," replied Bobby, whose indignation was rapidly getting the better of his discretion. "What!" growled Mr. Hardhand, aghast at this unwonted boldness. "I heard what you said before I came in; and no decent man would go to the house of a poor woman to insult her." "Humph! Mighty fine," snarled the little old man, his gray eyes twinkling with malice. "Don't Bobby; don't be saucy to the gentleman," interposed his mother. "Saucy, marm? You ought to horsewhip him for it. If you don't, I will." "No, you won't!" replied Bobby, shaking his head significantly. "I can take care of myself." "Did any one ever hear such impudence!" gasped Mr. Hardhand. "Don't, Bobby, don't," pleaded the anxious mother. "I should like to know what right you have to come here and abuse my mother," continued Bobby, who could not restrain his anger. "Your mother owes me money, and she don't pay it, you young scoundrel!" answered Mr. Hardhand, foaming with rage. "That is no reason why you should insult her. You can call _me_ what you please, but you shall not insult my mother while I'm round." "Your mother is a miserable woman, and--" "Say that again, and though you are an old man, I'll hit you for it. I'm big enough to protect my mother, and I'll do it." Bobby doubled up his fists and edged up to Mr. Hardhand, fully determined to execute his threat if he repeated the offensive expression, or any other of a similar import. He was roused to the highest pitch of anger, and felt as though he had just as lief die as live in defence of his mother's good name. I am not sure that I could excuse Bobby's violence under any other circumstances. He loved his mother--as the novelists would say, he idolized her; and Mr. Hardhand had certainly applied some very offensive epithets to her--epithets which no good son could calmly bear applied to a mother. Besides, Bobby, though his heart was a large one, and was in the right place, had never been educated into those nice distinctions of moral right and wrong which control the judgment of wise and learned men. He had an idea that violence, resistance with blows, was allowable in certain extreme cases; and he could conceive of no greater provocation than an insult to his mother. "Be calm, Bobby; you are in a passion," said Mrs. Bright. "I am surprised, marm," began Mr. Hardhand, who prudently refrained from repeating the offensive language--and I have no doubt he was surprised; for he looked both astonished and alarmed. "This boy has a most ungovernable temper." "Don't you worry about my temper, Mr. Hardhand; I'll take care of myself. All I want of you is not to insult my mother. You may say what you like to me; but don't you call her hard names." Mr. Hardhand, like all mean, little men, was a coward; and he was effectually intimidated by the bold and manly conduct of the boy. He changed his tone and manner at once. "You have no money for me, marm?" said he, edging towards the door. "No, sir; I am sorry to say that I have been able to save only five dollars since I paid you last; but I hope--" "Never mind, marm, never mind; I shall not trouble myself to come here again, where I am liable to be kicked by this ill-bred cub. No, marm, I shall not come again. Let the law take its course." "O, mercy! See what you have brought upon us, Bobby," exclaimed Mrs. Bright, bursting into tears. "Yes, marm, let the law take its course." "O Bobby! Stop a moment, Mr. Hardhand; do stop a moment." "Not a moment, marm. We'll see;" and Mr. Hardhand placed his hand upon the latch string. Bobby felt very uneasy, and very unhappy at that moment. His passion had subsided, and he realized that he had done a great deal of mischief by his impetuous conduct. Then the remembrance of his morning, adventure on the bridge came like a flash of sunshine to his mind, and he eagerly drew from his pocket the handkerchief in which he had deposited the precious gold,--doubly precious now, because it would enable him to retrieve the error into which he had fallen, and do something towards relieving his mother's embarrassment. With a trembling hand he untied the knot which secured the money. "Here, mother, here is thirty-five dollars;" and he placed it in her hand. "Why, Bobby!" exclaimed Mrs. Bright. "Pay him, mother, pay him, and I will tell you all about it by and by." "Thirty-five dollars! and all in gold! Where did you get it, Bobby?" "Never mind it now, mother." Mr. Hardhand's covetous soul had already grasped the glittering gold; and removing his hand from the latch string, he approached the widow. "I shall be able to pay you forty dollars now," said Mrs. Bright, taking the five dollars she had saved from her pocket. "Yes, marm." Mr. Hardhand took the money, and seating himself at the table, indorsed the amount on the back of the note. "You owe me sixty more," said he, maliciously, as he returned the note to his pocket book. "It must be paid immediately." "You must not be hard with me now, when I have paid more than you demanded." "I don't wish to come here again. That boy's impudence has put me all out of conceit with you and your family," replied Mr. Hardhand, assuming the most benevolent look he could command. "There was a time when I was very willing to help you. I have waited a great while for my pay for this house; a great deal longer than I would have waited for anybody else." "Your interest has always been paid punctually," suggested the widow, modestly. "That's true; but very few people would have waited as long as I have for the principal. I wanted to help you--" "By gracious!" exclaimed Bobby, interrupting him. "Don't be saucy, my son, don't," said Mrs. Bright, fearing a repetition of the former scene. "_He_ wanted to help us!" ejaculated Bobby. It was a very absurd and hypocritical expression on the part of Mr. Hardhand; for he never wanted to help any one but himself; and during the whole period of his relations with the poor widow, he had oppressed, insulted, and abused her to the extent of his capacity, or at least as far as his interest would permit. He was a malicious and revengeful man. He did not consider the great provocation he had given Bobby for his violent conduct, but determined to be revenged, if it could be accomplished without losing any part of the sixty dollars still due him. He was a wicked man at heart, and would not scruple to turn the widow and her family out of house and home. Mrs. Bright knew this, and Bobby knew it too; and they felt very uneasy about it. The wretch still had the power to injure them, and he would use it without compunction. "Yes, young man, I wanted to help you, and you see what I get for it--contempt and insults! You will hear from me again in a day or two. Perhaps you will change your tune, you young reprobate!" "Perhaps I shall," replied Bobby, without much discretion. "And you too, marm; you uphold him in his treatment of me. You have not done your duty to him. You have been remiss, marm!" continued Mr. Hardhand, growing bolder again, as he felt the power he wielded. "That will do, sir; you can go!" said Bobby, springing from his chair, and approaching Mr. Hardhand. "Go, and do your worst!" "Humph! you stump me--do you?" "I would rather see my mother kicked out of the house than insulted by such a dried-up old curmudgeon as you are. Go along!" "Now, don't, Bobby," pleaded his mother. "I am going; and if the money is not paid by twelve o'clock to-morrow, the law shall lake its course;" and Mr. Hardhand rushed out of the house, slamming the door violently after him. "O Bobby, what have you done?" exclaimed Mrs. Bright, when the hard-hearted creditor had departed. "I could not help it, mother; don't cry. I cannot bear to hear you insulted and abused; and I thought when I heard him do it a year ago, that I couldn't stand it again. It is too bad." "But he will turn us out of the house; and what shall we do then?" "Don't cry, mother; it will come round all right. I have friends who are rich and powerful, and who will help us." "You don't know what you say, Bobby. Sixty dollars is a great deal of money, and if we should sell all we have, it would scarcely bring that." "Leave it all to me, mother; I feel as though I could do something now. I am old enough to make money." "What can you do?" "Now or never!" replied Bobby, whose mind had wandered from the scene to the busy world, where fortunes are made and lost every day. "Now or never!" muttered he again. "But Bobby, you have not told me where you got all that gold." "Dinner is ready, I see, and I will tell you while we eat." Bobby had been a fishing, and to be hungry is a part of the fisherman's luck; so he seated himself at the table, and gave his mother a full account of all that had occurred at the bridge. The fond mother trembled when she realized the peril her son had incurred for the sake of the young lady; but her maternal heart swelled with admiration in view of the generous deed, and she thanked God that she was the mother of such a son. She felt more confidence in him then than she had ever felt before, and she realized that he would be the stay and the staff of her declining years. Bobby finished his dinner, and seated himself on the front door step. His mind was absorbed, by a new and brilliant idea; and for half an hour he kept up a most tremendous thinking. "Now or never!" said he, as he rose and walked down the road towards Riverdale Centre. CHAPTER V. IN WHICH BOBBY GIVES HIS NOTE FOR SIXTY DOLLARS. A great idea was born in Bobby's brain. His mother's weakness and the insecurity of her position were more apparent to him than they had ever been before. She was in the power of her creditor, who might turn her out of the little black house, sell the place at auction, and thus, perhaps, deprive her of the whole or a large part of his father's and her own hard earnings. But this was not the peculiar hardship of her situation, as her devoted son understood it. It was not the hard work alone which she was called upon to perform, not the coarseness of the fare upon which they lived, not the danger even of being turned out of doors, that distressed Bobby; it was that a wretch like Mr. Hardhand could insult and trample upon his mother. He had just heard him use language to her that made his blood boil with indignation, and he did not, on cool, sober, second thought, regret that he had taken such a decided stand against it. He cared not for himself. He could live on a crust of bread and a cup of water from the spring; he could sleep in a barn; he could wear coarse and even ragged clothes; but he could not submit to have his mother insulted, and by such a mean and contemptible person as Mr. Hardhand. Yet what could he do? He was but a boy, and the great world would look with contempt upon his puny form. But he felt that he was not altogether insignificant. He had performed an act, that day, which the fair young lady, to whom he had rendered the service, had declared very few men would have undertaken. There was something in him, something that would come out, if he only put his best foot forward. It was a tower of strength within him. It told him that he could do wonders; that he could go out into the world and accomplish all that would be required to free his mother from debt, and relieve her from the severe drudgery of her life. A great many people think they can "do wonders." The vanity of some very silly people makes them think they can command armies, govern nations, and teach the world what the world never knew before, and never would know but for them. But Bobby's something within him was not vanity. It was something more substantial. He was not thinking of becoming a great man, a great general, a great ruler, or a great statesman; not even of making a great fortune. Self was not the idol and the end of his calculations. He was thinking of his mother, and only of her; and the feeling within him was as pure, and holy, and beautiful as the dream of an angel. He wanted to save his mother from insult in the first place, and from a life of ceaseless drudgery in the second. A legion of angels seemed to have encamped in his soul to give him strength for the great purpose in his mind. His was a holy and a true purpose, and it was this that made him think he could "do wonders." What Bobby intended to do the reader shall know in due time. It is enough now that he meant to do something. The difficulty with a great many people is, that they never resolve to do something. They wait for "something to turn up;" and as "things" are often very obstinate, they utterly refuse to "turn up" at all. Their lives are spent in waiting for a golden opportunity which never comes. Now, Bobby Bright repudiated the Micawber philosophy. He would have nothing to do with it. He did not believe corn would grow without being planted, or that pouts would bite the bare hook. I am not going to tell my young readers now how Bobby made out in the end; but I can confidently say that, if he had waited for "something to turn up," he would have become a vagabond, a loafer, out of money, out at the elbows, and out of patience with himself and all the world. It was "now or never" with Bobby. He meant to do something; and after he had made up his mind how and where it was to be done, it was no use to stand thinking about it, like the pendulum of the "old clock which had stood for fifty years in a farmer's kitchen, without giving its owner any cause of complaint." Bobby walked down the road towards the village with a rapid step. He was thinking very fast, and probably that made him step quick. But as he approached Squire Lee's house, his pace slackened, and he seemed to be very uneasy. When he reached the great gate that led up to the house, he stopped for an instant, and thrust his hands down very deep into his trousers pockets. I cannot tell what the trousers pockets had to do with what he was thinking about; but if he was searching for any thing in them, he did not find it; for after an instant's hesitation he drew out his hands, struck one of them against his chest, and in an audible voice exclaimed,-- "Now or never." All this pantomime, I suppose, meant that Bobby had some misgivings as to the ultimate success of his mission at Squire Lee's, and that when he struck his breast and uttered his favorite expression, they were conquered and driven out. Marching with a bold and determined step up to the squire's back door--Bobby's idea of etiquette would not have answered for the meridian of fashionable society--he gave three smart raps. Bobby's heart beat a little wildly as he waited a response to his summons. It seemed that he still had some doubts as to the practicability of his mission; but they were not permitted to disturb him long, for the door was opened by the Squire's pretty daughter Annie, a young miss of twelve. "O Bobby, is it you? I am so glad you have come!" exclaimed the little lady. Bobby blushed--he didn't know why, unless it was that the young lady desired to see him. He stammered out a reply, and for the moment forgot the object of his visit. "I want you to go down to the village for me, and get some books the expressman was to bring up from Boston for me. Will you go?" "Certainly, Miss Annie, I shall be very glad to go for _you_," replied Bobby with an emphasis that made the little maiden blush in her turn. "You are real good, Bobby; but I will give you something for going." "I don't want any thing," said Bobby, stoutly. "You are too generous! Ah, I heard what you did this forenoon; and pa says that a great many men would not have dared to do what you did. I always thought you were as brave as a lion; now I know it." "The books are at the express office, I suppose," said Bobby, turning as red as a blood beet. "Yes, Bobby; I am so anxious to get them that I can't wait till pa goes down this evening." "I will not be gone long." "O, you needn't run, Bobby; take your time." "I will go very quick. But, Miss Annie, is your father at home?" "Not now; he has gone over to the wood lot; but he will be back by the time you return." "Will you please to tell him that I want to see him about something very particular, when he gets back?" "I will, Bobby." "Thank you, Miss Annie;" and Bobby hastened to the village to execute his commission. "I wonder what he wants to see pa so very particularly for," said the young lady to herself, as she watched his receding form. "In my opinion, something has happened, at the little black house, for I could see that he looked very sober." Either Bobby had a very great regard for the young lady, and wished to relieve her impatience to behold the coveted books, or he was in a hurry to see Squire Lee; for the squire's old roan horse could hardly have gone quicker. "You should not have run, Bobby," said the little maiden when he placed the books in her hand; "I would not have asked you to go if I had thought you would run all the way. You must be very tired." "Not at all; I didn't run, only walked very quick," replied he; but his quick breathing indicated that his words or his walk had been very much exaggerated. "Has your father returned?" "He has; he is waiting for you in the sitting room. Come in, Bobby." Bobby followed her into the room, and took the chair which Annie offered him. "How do you do, Bobby? I am glad to see you," said the squire, taking him by the hand, and bestowing a benignant smile upon him--a smile which cheered his heart more than any thing else could at that moment. "I have heard of you before to-day." "Have you?" "I have, Bobby; you are a brave little fellow." "I came over to see you, sir, about something very particular," replied Bobby, whose natural modesty induced him to change the topic. "Indeed; well, what can I do for you?" "A great deal, sir; perhaps you will think I am very bold, sir, but I can't help it." "I know you are a very bold little fellow, or you would not have done what you did this forenoon," laughed the squire. "I didn't mean that, sir," answered Bobby, blushing up to the eyes. "I know you didn't; but go on." "I only meant that you would think me presuming, or impudent, or something of that kind." "O, no, far from it. You cannot be presuming or impudent. Speak out, Bobby; any thing under the heavens that I can do for you, I shall be glad to do." "Well, sir, I am going to leave Riverdale." "Leave Riverdale!" "Yes, sir; I am going to Boston, where I mean to do something to help mother." "Bravo! you are a good lad. What do you mean to do?" "I was thinking I should go into the book business." "Indeed!" and Squire Lee was much amused by the matter-of-fact manner of the young aspirant. "I was talking with a young fellow who went through the place last spring, selling books. He told me that some days he made three or four dollars, and that he averaged twelve dollars a week." "He did well; perhaps, though, only a few of them make so much." "I know I can make twelve dollars a week," replied Bobby, confidently, for that something within him made him feel capable of great things. "I dare say you can. You have energy and perseverance, and people take a liking to you." "But I wanted to see you about another matter. To speak out at once, I want to borrow sixty dollars of you;" and Bobby blushed, and seemed very much embarrassed by his own boldness. "Sixty dollars!" exclaimed the squire. "I knew you would think me impudent," replied our hero, his heart sinking within him. "But I don't, Bobby. You want this money to go into business with--to buy your stock of books?" "O, no, sir; I am going to apply to Mr. Bayard for that." "Just so; Mr. Bayard is the gentleman whose daughter you saved?" "Yes, sir. I want this money to pay off Mr. Hardhand. We owe him but sixty dollars now, and he has threatened to turn us out, if it is not paid by tomorrow noon." "The old hunks!" Bobby briefly related to the squire the events or the morning, much to the indignation and disgust of the honest, kind-hearted man. The courageous boy detailed more clearly his purpose, and doubted not he should be able to pay the loan in a few months. "Very well, Bobby, here is the money;" and the squire took it from his wallet, and gave it to him. "Thank you, sir. May Heaven bless you! I shall certainly pay you." "Don't worry about it, Bobby. Pay it when you get ready." "I will give you my note, and--" The squire laughed heartily at this, and told him, that, as he was a minor, his note was not good for any thing. "You shall see whether it is, or not," returned Bobby. "Let me give it to you, at least, so that we can tell how much I owe you from time to time." "You shall have your own way." Annie Lee, as much amused as her father at Bobby's big talk, got the writing materials, and the little merchant in embryo wrote and signed the note. "Good, Bobby! Now promise that you will come and see me every time you come home, and tell me how you are getting along." "I will, sir, with the greatest pleasure;" and with a light heart Bobby tripped away home. CHAPTER VI. IN WHICH BOBBY SETS OUT ON HIS TRAVELS. Squire Lee, though only a plain farmer, was the richest man in Riverdale. He had taken a great fancy to Bobby, and often employed him to do errands, ride the horse to plough in the cornfields, and such chores about the place as a boy could do. He liked to talk with Bobby because there was a great deal of good sense in him, for one with a small head. If there was any one thing upon which the squire particularly prided himself, it was his knowledge of human nature. He declared that he only wanted to look a man in the face to know what he was; and as for Bobby Bright, he had summered him and wintered him, and he was satisfied that he would make something in good time. He was not much astonished when Bobby opened his ambitious scheme of going into business for himself. But he had full faith in his ability to work out a useful and profitable, if not a brilliant life. He often said that Bobby was worth his weight in gold, and that he would trust him with any thing he had. Perhaps he did not suspect that the time was at hand when he would be called upon to verify his words practically; for it was only that morning, when one of the neighbors told him about Bobby's stopping the horse, that he had repeated the expression for the twentieth time. It was not an idle remark. Sixty dollars was hardly worth mentioning with a man of his wealth and liberal views, though so careful a man as he was would not have been likely to throw away that amount. But as a matter of investment,--Bobby had made the note read "with interest,"--he would as readily have let him have it, as the next richest man in the place, so much confidence had he in our hero's integrity, and so sure was he that he would soon have the means of paying him. Bobby was overjoyed at the fortunate issue of his mission, and he walked into the room where his mother was closing shoes, with a dignity worthy a banker or a great merchant. Mrs. Bright was very sad. Perhaps she felt a little grieved that her son, whom she loved so much, had so thoughtlessly plunged her into a new difficulty. "Come, cheer up, mother; it is all right," said Bobby in his usual elastic and gay tones; and at the same time he took the sixty dollars from his pocket and handed it to her. "There is the money, and you will be forever quit of Mr. Hardhand to-morrow." "What, Bobby! Why, where did you get all this money?" asked Mrs. Bright, utterly astonished. In a few words the ambitious boy told his story, and then informed his mother that he was going to Boston the next Monday morning, to commence business for himself. "Why, what can you do, Bobby?" "Do? I can do a great many things;" and he unfolded his scheme of becoming a little book merchant. "You are a courageous fellow! Who would have thought of such a thing?" "I should, and did." "But you are not old enough." "O, yes, I am." "You had better wait a while." "Now or never, mother! You see I have given my note, and my paper will be dishonored, if I am not up and doing." "Your paper!" said Mrs. Bright, with a smile. "That is what Mr. Wing, the boot manufacturer, calls it." "You needn't go away to earn this money; I can pay it myself." "This note is my affair, and I mean to pay it myself with my own earnings. No objections, mother." Like a sensible woman as she was, she did not make any objections. She was conscious of Bobby's talents; she knew that he had a strong mind of his own, and could take care of himself. It is true, she feared the influence of the great world, and especially of the great city, upon the tender mind of her son; but if he was never tempted, he would never be a conqueror over the foes that beset him. She determined to do her whole duty towards him, and she carefully pointed out to him the sins and the moral danger to which he would be exposed, and warned him always to resist temptation. She counselled him to think of her when he felt like going astray. Bobby declared that he would try to be a good boy. He did not speak contemptuously of the anticipated perils, as many boys would have done, because he knew that his mother would not make bugbears out of things which she knew had no real existence. The next day, Mr. Hardhand came; and my young readers can judge how astonished and chagrined he was, when the widow Bright offered him the sixty dollars. The Lord was with the widow and the fatherless, and the wretch was cheated out of his revenge. The note was given up, and the mortgage cancelled. Mr. Hardhand insisted that she should pay the interest on the sixty dollars for one day, as it was then the second day of July; but when Bobby reckoned it up, and found it was less than one cent, even the wretched miser seemed ashamed of himself, and changed the subject of conversation. He did not dare to say any thing saucy to the widow this time. He had lost his power over her, and there stood Bobby, who had come to look just like a young lion to him, coward and knave as he was. The business was all settled now, and Bobby spent the rest of the week in getting ready for his great enterprise. He visited all his friends, and went each day to talk with Squire Lee and Annie. The little maiden promised to buy a great many books of him, if he would bring his stock to Riverdale, for she was quite as much interested in him as her father was. Monday morning came, and Bobby was out of bed with the first streak of dawn. The excitement of the great event which was about to happen had not permitted him to sleep for the two hours preceding; yet when he got up, he could not help feeling sad. He was going to leave the little black house, going to leave his mother, going to leave the children, to depart for the great city. His mother was up before him. She was even more sad than he was, for she could see plainer than he the perils that environed him, and her maternal heart, in spite of the reasonable confidence she had in his integrity and good principles, trembled for his safety. As he ate his breakfast, his mother repeated the warnings and the good lessons she had before imparted. She particularly cautioned him to keep out of bad company. If he found that his companions would lie and swear, he might depend upon it they would steal, and he had better forsake them at once. This was excellent advice, and Bobby had occasion at a later period to call it to his sorrowing heart. "Here is three dollars, Bobby; it is all the money I have. Your fare to Boston will be one dollar, and you will have two left to pay the expenses of your first trip. It is all I have now," said Mrs. Bright. "I will not take the whole of it. You will want it yourself. One dollar is enough. When I find Mr. Bayard, I shall do very well." "Yes, Bobby, take the whole of it." "I will take just one dollar, and no more," replied Bobby, resolutely, as he handed her the other two dollars. "Do take it, Bobby." "No, mother; it will only make me lazy and indifferent." Taking a clean shirt, a pair of socks, and a handkerchief in his bundle, he was ready for a start. "Good by, mother," said he, kissing her and taking her hand. "I shall try and come home on Saturday, so as to be with you on Sunday." Then kissing the children, who had not yet got up, and to whom he had bidden adieu the night before, he left the house. He had seen the flood of tears that filled his mother's eyes, as he crossed the threshold; and he could not help crying a little himself. It is a sad thing to leave one's home, one's mother, especially, to go out into the great world; and we need not wonder that Bobby, who had hardly been out of Riverdale before, should weep. But he soon restrained the flowing tears. "Now or never!" said he, and he put his best foot forward. It was an epoch in his history, and though he was too young to realize the importance of the event, he seemed to feel that what he did now was to give character to his whole future life. It was a bright and beautiful morning--somehow, it is always a bright and beautiful morning when boys leave their homes to commence the journey of life; it is typical of the season of youth and hope, and it is meet that the sky should be clear, and the sun shine brightly, when the little pilgrim sets out upon his tour. He will see clouds and storms before he has gone far--let him have a fair start. He had to walk five miles to the nearest railroad station. His road lay by the house of his friend, Squire Lee; and as he was approaching it, he met Annie. She said she had come out to take her morning walk; but Bobby knew very well that she did not usually walk till an hour later; which, with the fact that she had asked him particularly, the day before, what time he was going, made Bobby believe that she had come out to say good by, and bid him God speed on his journey. At any rate, he was very glad to see her. He said a great many pretty things to her, and talked so big about what he was going to do, that the little maiden could hardly help laughing in his face. Then at the house he shook hands with the squire and shook hands again with Annie, and resumed his journey. His heart felt lighter for having met them, or at least for having met one of them, if not both; for Annie's eyes were so full of sunshine that they seemed to gladden his heart, and make him feel truer and stronger. After a pleasant walk, for he scarcely heeded the distance, so full was he of his big thoughts, he reached the railroad station. The cars had not yet arrived, and would not for half an hour. "Why should I give them a dollar for carrying me to Boston, when I can just as well walk? If I get tired, I can sit down and rest me. If I save the dollar, I shall have to earn only fifty-nine more to pay my note. So here goes;" and he started down the track. CHAPTER VII. IN WHICH BOBBY STANDS UP FOR "CERTAIN INALIENABLE RIGHTS." Whether it was wise policy, or "penny wise and pound foolish" policy for Bobby to undertake such a long walk, is certainly a debatable question; but as my young readers would probably object to an argument, we will follow him to the city, and let every one settle the point to suit himself. His cheerful heart made the road smooth beneath his feet. He had always been accustomed to an active, busy life, and had probably often walked more than twenty miles in a day. About ten o'clock, though he did not feel much fatigued, he seated himself on a rock by a brook from which he had just taken a drink, to rest himself. He had walked slowly so as to husband his strength; and he felt confident that he should be able to accomplish the journey without injury to himself. After resting for half an hour, he resumed his walk. At twelve o'clock he reached a point from which he obtained his first view of the city. His heart bounded at the sight, and his first impulse was to increase his speed so that he should the sooner gratify his curiosity; but a second thought reminded him that he had eaten nothing since breakfast; so, finding a shady tree by the road side, he seated himself on a stone to eat the luncheon which his considerate mother had placed in his bundle. Thus refreshed, he felt like a new man, and continued his journey again till he was on the very outskirts of the city, where a sign, "No passing over this bridge," interrupted his farther progress. Unlike many others, Bobby took this sign literally, and did not venture to cross the bridge. Having some doubts as to the direct road to the city, he hailed a man in a butcher's cart, who not only pointed the way, but gave him an invitation to ride with him, which Bobby was glad to accept. They crossed the Milldam, and the little pilgrim forgot the long walk he had taken--forgot Riverdale, his mother, Squire Lee, and Annie, for the time, in the absorbing interest of the exciting scene. The Common beat Riverdale Common all hollow; he had never seen any thing like it before. But when the wagon reached Washington Street, the measure of his surprise was filled up. "My gracious! how thick the houses are!" exclaimed he, much to the amusement of the kind-hearted butcher. "We have high fences here," he replied. "Where are all these folks going to?" "You will have to ask them, if you want to know." But the wonder soon abated, and Bobby began to think of his great mission in the city. He got tired of gazing and wondering, and even began to smile with contempt at the silly fops as they sauntered along, and the gayly-dressed ladies, that flaunted like so many idle butterflies, on the sidewalk. It was an exciting scene; but it did not look real to him. It was more like Herr Grunderslung's exhibition of the magic lantern, than any thing substantial. The men and women were like so many puppets. They did not seem to be doing any thing, or to be walking for any purpose. He got out of the butcher's cart at the Old South. His first impression, as he joined the busy throng, was, that he was one of the puppets. He did not seem to have any hold upon the scene, and for several minutes this sensation of vacancy chained him to the spot. "All right!" exclaimed he to himself at last. "I am here. Now's my time to make a strike. Now or never." He pulled Mr. Bayard's card from his pocket, and fixed the number of his store in his mind. Now, numbers were not a Riverdale institution, and Bobby was a little perplexed about finding the one indicated. A little study into the matter, however, set him right, and he soon had the satisfaction of seeing the bookseller's name over his store. "F. Bayard," he read; "this is the place." "Country!" shouted a little ragged boy, who dodged across the street at that moment. "Just so, my beauty!" said Bobby, a little nettled at this imputation of verdancy. "What a greeny!" shouted the little vagabond from the other side of the street. "No matter, rag-tag! We'll settle that matter some other time." But Bobby felt that there was something in his appearance which subjected him to the remarks of others, and as he entered the shop, he determined to correct it as soon as possible. A spruce young gentleman was behind the counter, who cast a mischievous glance at him as he entered. "Mr. Bayard keep here?" asked Bobby. "Well, I reckon he does. How are all the folks up country?" replied the spruce clerk, with a rude grin. "How are they?" repeated Bobby, the color flying to his cheek. "Yes, ha-ow do they dew?" "They behave themselves better than they do here." "Eh, greeny?" "Eh, sappy?" repeated Bobby, mimicking the soft, silky tones of the young city gentleman. "What do you mean by sappy?" asked the clerk, indignantly. "What do you mean by greeny?" "I'll let you know what I mean!" "When you do, I'll let you know what I mean by sappy." "Good!" exclaimed one of the salesmen, who had heard part of this spirited conversation. "You will learn better by and by, Timmins, than to impose upon boys from out of town." "You seem to be a gentleman, sir," said Bobby, approaching the salesman. "I wish to see Mr. Bayard." "You can't see him!" growled Timmins. "Can't I?" "Not at this minute; he is engaged just now," added the salesman, who seemed to have a profound respect for Bobby's discrimination. "He will be at liberty in a few moments." "I will wait, then," said Bobby, seating himself on a stool by the counter. Pretty soon the civil gentleman left the store to go to dinner, and Timmins, a little timid about provoking the young lion, cast an occasional glance of hatred at him. He had evidently found that "Country" was an embryo American citizen, and that he was a firm believer in the self-evident truths of the Declaration of Independence. Bobby bore no ill will towards the spruce clerk, ready as he had been to defend his "certain inalienable rights." "You do a big business here," suggested Bobby, in a conciliatory tone, and with a smile on his face which ought to have convinced the uncourteous clerk that he meant well. "Who told you so?" replied Timmins, gruffly. "I merely judged from appearances. You have a big store, and an immense quantity of books." "Appearances are deceitful," replied Timmins; and perhaps he had been impressed by the fact from his experience with the lad from the country. "That is true," added Bobby, with a good-natured smile, which, when interpreted, might have meant, "I took you for a civil fellow, but I have been very much mistaken." "You will find it out before you are many days older." "The book business is good just now, isn't it?" continued Bobby, without clearly comprehending the meaning of the other's last remark. "Humph! What's that to you?" "O, I intend to go into it myself." "Ha, ha, ha! Good! You do?" "I do," replied Bobby, seemingly unconcerned at the taunts of the clerk. "I suppose you want to get a place here," sneered Timmins, alarmed at the prospect. "But let me tell you, you can't do it. Bayard has all the help he wants; and if that is what you come for, you can move on as fast as you please." "I guess I will see him," added Bobby quietly. "No use." "No harm in seeing him." As he spoke he took up a book that lay on the counter, and began to turn over the leaves. "Put that book down!" said the amiable Mr. Timmins. "I won't hurt it," replied Bobby, who had just fixed his eye upon some very pretty engravings in the volume. "Put it down!" repeated Mr. Timmins, in a loud, imperative tone. "Certainly I will, if you say so," said Bobby, who, though not much intimidated by the harsh tones of the clerk, did not know the rules of the store, and deemed it prudent not to meddle. "I _do_ say so!" added Mr. Timmins, magnificently; "and what's more, you'd better mind me, too." Bobby had minded, and probably the stately little clerk would not have been so bold if he had not. Some people like to threaten after the danger is over. Then our visitor from the country espied some little blank books lying on the counter. He had already made up his mind to have one, in which to keep his accounts; and he thought, while he was waiting, that he would purchase one. He meant to do things methodically; so when he picked up one of the blank books, it was with the intention of buying it. "Put that book down!" said Mr. Timmins, encouraged in his aggressive intentions by the previous docility of our hero. "I want to buy one." "No, you don't: put it down.". "What is the price of these?" asked Bobby, resolutely. "None of your business!" CHAPTER VIII. IN WHICH MR. TIMMINS IS ASTONISHED, AND BOBBY DINES IN CHESTNUT STREET. It was Mr. Bayard. He had finished his business with the gentleman by his side, and hearing the noise of the scuffle, had come to learn the occasion of it. "This impudent young puppy wouldn't let the books alone!" began Mr. Timmins. "I threatened to turn him out if he didn't; and I meant to make good my threat. I think he meant to steal something." Bobby was astonished and shocked at this bold imputation; but he wished to have his case judged on its own merits; so he turned his face away, that Mr. Bayard might not recognize him. "I wanted to buy one of these blank books," added Bobby, picking up the one he had dropped on the floor in the struggle. "All stuff!" ejaculated Timmins. "He is an impudent, obstinate puppy! In my opinion he meant to steal that book." "I asked him the price, and told him I wanted to buy it," added Bobby, still averting his face. "Well, I told him; and he said it was too high." "He asked me twenty-five cents for it." "Is this true, Timmins?" asked Mr. Bayard, sternly. "No, sir, I told him fourpence," replied Timmins boldly. "By gracious! What a whopper!" exclaimed Bobby, startled out of his propriety by this monstrous lie. "He said twenty-five cents; and I told him I could buy one up in Riverdale, where I came from, for six cents. Can you deny that?" "It's a lie!" protested Timmins. "Riverdale," said Mr. Bayard. "Are you from Riverdale, boy?" "Yes, sir, I am; and if you will look on your memorandum book you will find my name there." "Bless me! I am sure I have seen that face before," exclaimed Mr. Bayard, as he grasped the hand of Bobby, much to the astonishment and consternation of Mr. Timmins. You are--" "Robert Bright, sir." "My brave little fellow! I am heartily glad to see you;" and the bookseller shook the hand he held with hearty good will. "I was thinking of you only a little while ago." "This fellow calls me a liar," said Bobby, pointing to the astonished Mr. Timmins, who did not know what to make of the cordial reception which "Country" was receiving from his employer. "Well, Robert, we know that he is a liar; this is not the first time he has, been caught in a lie. Timmins, your time is out." The spruce clerk hung his head with shame and mortification. "I hope, sir, you will--" he began, but pride or fear stopped him short. "Don't be hard with him, sir, if you please," said Bobby. "I suppose I aggravated him." Mr. Bayard looked at the gentleman who stood by his side, and a smile of approbation lighted up his face. "Generous as he is noble! Butler, this is the boy that saved Ellen." "Indeed! He is a little giant!" replied Mr. Butler, grasping Bobby's hand. Even Timmins glanced with something like admiration in his looks at the youth whom he had so lately despised. Perhaps, too, he thought of that Scripture wisdom about entertaining angels unawares. He was very much abashed, and nothing but his silly pride prevented him from acknowledging his error, and begging Bobby's forgiveness. "I can't have a liar about me," said Mr. Bayard. "There may be some mistake," suggested Mr. Butler. "I think not. Robert Bright couldn't lie. So brave and noble a boy is incapable of a falsehood. Besides, I got a letter from my friend Squire Lee by this morning's mail, in which he informed me of my young friend's coming." Mr. Bayard took from his pocket a bundle of letters, and selected the squire's from among them. Opening it, he read a passage which had a direct bearing upon the case before him. "'I do not know what Bobby's faults are,'"--the letter said,--"'but this I do know: that Bobby would rather be whipped than tell a lie. He is noted through the place for his love of truth.'--That is pretty strong testimony; and you see, Bobby,--that's what the squire calls you,--your reputation has preceded you." Bobby blushed, as he always did when he was praised, and Mr. Timmins was more abashed than ever. "Did you hear that, Timmins? Who is the liar now?" said Mr. Bayard, turning to the culprit. "Forgive me, sir, this time. If you turn me off now, I cannot get another place, and my mother depends upon my wages." "You ought to have thought of this before." "He aggravated me, sir, so that I wanted to pay him off." "As to that, he commenced upon me the moment I came into the store. But don't turn him off, if you please, sir," said Bobby, who even now wished no harm to his discomfited assailant. "He will do better hereafter: won't you, Timmins?" Thus appealed to, Timmins, though he did not relish so direct an inquiry, and from such a source, was compelled to reply in the affirmative; and Mr. Bayard graciously remitted the sentence he had passed against the offending clerk. "Now, Robert, you will come over to my house and dine with me. Ellen will be delighted to see you." "Thank you, sir," replied Bobby, bashfully, "I have been to dinner",--referring to the luncheon he had eaten at Brighton. "But you must go to the house with me." "I should be very glad to do so, sir, but I came on business. I will stay here with Mr. Timmins till you come back." The truth is, he had heard something about the fine houses of the city, and how stylish the people were, and he had some misgivings about venturing into such a strange and untried scene as the parlor of a Boston merchant. "Indeed, you must come with me. Ellen would never forgive you or me, if you do not come." "I would rather rest here till you return," replied Bobby, still willing to escape the fine house and the fine folks. "I walked from Riverdale, sir, and I am rather tired." "Walked!" exclaimed Mr. Bayard. "Had you no money?" "Yes, sir, enough to pay my passage; but Dr. Franklin says that 'a penny saved is a penny earned,' and I thought I would try it. I shall get rested by the time you return." "But you must go with me. Timmins, go and get a carriage." Timmins obeyed, and before Mr. Bayard had finished asking Bobby how all the people in Riverdale were, the carriage was at the door. There was no backing out now, and our hero was obliged to get into the vehicle, though it seemed altogether too fine for a poor boy like him. Mr. Bayard and Mr. Butler (whom the former had invited to dine with him) seated themselves beside him, and the driver was directed to set them down at No. ---- Chestnut Street, where they soon arrived. Though my readers would, no doubt, be very much amused to learn how carefully Bobby trod the velvet carpets, how he stared with wonder at the drapery curtains, at the tall mirrors, the elegant chandeliers, and the fantastically shaped chairs and tables that adorned Mr. Bayard's parlor, the length of our story does not permit us to pause over these trivial matters. When Ellen Bayard was informed that her little deliverer was in the house, she rushed into the parlor like a hoiden school girl, grasped both his hands, kissed both his rosy cheeks, and behaved just as though she had never been to a boarding school in her life. She had thought a great deal about Bobby since that eventful day, and the more she thought of him, the more she liked him. Her admiration of him was not of that silly, sentimental character which moon-struck young ladies cherish towards those immaculate young men who have saved them from drowning in a horse pond, pulled them back just as they were tumbling over a precipice two thousand five hundred feet high, or rescued them from a house seven stories high, bearing them down a ladder seventy-five odd feet long. The fact was, Bobby was a boy of thirteen and there was no chance for much sentiment; so the young lady's regard was real, earnest, and lifelike. Ellen said a great many very handsome things; but I am sure she never thought of such a thing as that he would run away with her, in case her papa was unneccessarily obstinate. She was very glad to see him, and I have no doubt she wished Bobby might be her brother, it would be so glorious to have such a noble little fellow always with her. Bobby managed the dinner much better than he had anticipated; for Mr. Bayard insisted that he should sit down with them, whether he ate any thing or not. But the Rubicon passed, our hero found that he had a pretty smart appetite, and did full justice to the viands set before him. It is true the silver forks, the napkins, the finger bowls, and other articles of luxury and show, to which he had been entirely unaccustomed, bothered him not a little; but he kept perfectly cool, and carefully observed how Mr. Butler, who sat next to him, handled the "spoon fork," what he did with the napkin and the finger bowl, so that, I will venture to say, not one in ten would have suspected he had not spent his life in the parlor of a _millionnaire_. Dinner over, the party returned to the parlor, where Bobby unfolded his plan for the future. To make his story intelligible, he was obliged to tell them all about Mr. Hardhand. "The old wretch!" exclaimed Mr. Bayard. "But, Robert, you must let me advance the sixty dollars, to pay Squire Lee." "No, sir; you have done enough in that way. I have given my note for the money." "Whew;" said Mr. Butler. "And I shall soon earn enough to pay it." "No doubt of it. You are a lad of courage and energy, and you will succeed in every thing you undertake." "I shall want you to trust me for a stock of books on the strength of old acquaintance," continued Bobby, who had now grown quite bold, and felt as much at home in the midst of the costly furniture, as he did in the "living room" of the old black house. "You shall have all the books you want." "I will pay for them as soon as I return. The truth is, Mr. Bayard, I mean to be independent. I didn't want to take that thirty-five dollars, though I don't know what Mr. Hardhand would have done to us, if I hadn't." "Ellen said I ought to have given you a hundred, and I think so myself." "I am glad you didn't. Too much money makes us fat and lazy." Mr. Bayard laughed at the easy self-possession of the lad--at his big talk; though, big as it was, it meant something. When he proposed to go to the store, he told Bobby he had better stay at the house and rest himself. "No, sir; I want to start out to-morrow, and I must get ready to-day." "You had better put it off till the next day; you will feel more like it then." "Now or never," replied Bobby. "That is my motto, sir. If we have any thing to do, now is always the best time to do it. Dr. Franklin says, 'Never put off till to-morrow what you can do to day.'" "Right, Robert! you shall have your own way. I wish my clerks would adopt some of Dr. Franklin's wise saws. I should be a great deal better off in the course of a year if they would." CHAPTER IX. IN WHICH BOBBY OPENS VARIOUS ACCOUNTS, AND WINS HIS FIRST VICTORY. "Now, Bobby, I understand your plan," said Mr. Bayard, when they reached the store; "but the details must be settled. Where do you intend to go?" "I hardly know, sir. I suppose I can sell books almost any where." "Very true; but in some places much better than in others." Mr. Bayard mentioned a large town about eighteen miles from the city, in which he thought a good trade might be carried on, and Bobby at once decided to adopt the suggestion. "You can make this place your head quarters for the week; if books do not sell well right in the village, why, you can go out a little way, for the country in the vicinity is peopled by intelligent farmers, who are well off, and who can afford to buy books." "I was thinking of that; but what shall I take with me, sir?" "There is a new book just published, called 'The Wayfarer,' which is going to have a tremendous run. It has been advertised in advance all over the country, so that you will find a ready sale for it. You will get it there before any one else, and have the market all to yourself." "The Wayfarer? I have heard of it myself." "You shall take fifty copies with you, and if you find that you shall want more, write, and I will send them." "But I cannot carry fifty copies." "You must take the cars to B----, and have a trunk or box to carry your books in. I have a stout trunk down cellar which you shall have." "I will pay for it, sir." "Never mind that, Bobby; and you will want a small valise or carpet bag to carry your books from house to house. I will lend you one." "You are very kind, sir; I did not mean to ask any favors of you except to trust me for the books until my return." "All right, Bobby." Mr. Bayard called the porter and ordered him to bring up the trunk, in which he directed Mr. Timmins to pack fifty "Wayfarers." "Now, how much will these books cost me apiece?" asked Bobby. "The retail price is one dollar; the wholesale price is one third off; and you shall have them at what they cost me." "Sixty-seven cents," added Bobby. "That will give me a profit of thirty-three cents on each book." "Just so." "Perhaps Mr. Timmins will sell me one of those blank books now; for I like to have things down in black and white." "I will furnish you with something much better than that;" and Mr. Bayard left the counting room. In a moment he returned with a handsome pocket memorandum book, which he presented to the little merchant. "But I don't like to take it unless you will let me pay for it," said Bobby, hesitating. "Never mind it, my young friend. Now you can sit down at my desk and open your accounts. I like to see boys methodical, and there is nothing like keeping accounts to make one accurate. Keep your books posted up, and you will know where you are at any time." "I intend to keep an account of all I spend and all I receive, if it is no more than a cent." "Right, my little man. Have you ever studied book-keeping?" "No, sir, I suppose I haven't; but there was a page of accounts in the back part of the arithmetic I studied, and I got a pretty good idea of the thing from that. All the money received goes on one side, and all the money paid out goes on the other." "Exactly so; in this book you had better open a book account first. If you wish, I will show you how." "Thank you, sir; I should be very glad to have you;" and Bobby opened the memorandum book, and seated himself at the desk. "Write 'Book Account' at the top of the pages, one word on each. Very well. Now write 'To fifty copies of Wayfarer, at sixty-seven cents, $33.50,' on the left hand page, or debit side of the account." "I am not much of a writer," said Bobby, apologetically. "You will improve. Now, each day you will credit the amount of sales on the right hand page, or credit side of the account; so, when you have sold out, the balance due your debit side will be the profit on the lot. Do you understand it?" Bobby thought a moment before he could see through it; but his brain was active, and he soon managed the idea. "Now you want a personal account;" and Mr. Bayard explained to him how to make this out. He then instructed him to enter on the debit-side all he spent for travel, board, freight, and other charges. The next was the "profit and loss" account, which was to show him the net profit of the business. Our hero, who had a decided taste for accounts, was very much pleased with this employment; and when the accounts were all opened, he regarded them with a great deal of satisfaction. He longed to commence his operations, if it were only for the pleasure of making the entries in this book. "One thing I forgot," said he, as he seized the pen, and under the cash account entered, "To Cash from mother, $1.00." "Now I am all right, I believe." "I think you are. Now, the cars leave at seven in the morning. Can you be ready for a start as early as that?" asked Mr. Bayard. "O, yes, sir, I hope so. I get up at half past four at home." "Very well; my small valise is at the house; but I believe every thing else is ready. Now, I have some business to attend to; and if you will amuse yourself for an hour or two, we will go home then." "I shall want a lodging-place when I am in the city; perhaps some of your folks can direct me to one where they won't charge too much." "As to that, Bobby, you must go to my house whenever you are in the city." "Law, sir! you live so grand, I couldn't think of going to your house. I am only a poor boy from the country, and I don't know how to behave myself among such nice folks." "You will do very well, Bobby. Ellen would never forgive me if I let you go any where else. So that is settled; you will go to my house. Now, you may sit here, or walk out and see the sights." "If you please, sir, if Mr. Timmins will let me look at some of the books, I shouldn't wish for any thing better. I should like to look at the Wayfarer, so that I shall know how to recommend it." "Mr. Timmins _will_ let you," replied Mr. Bayard, as he touched the spring of a bell on his desk. The dapper clerk came running into the counting-room to attend the summons of his employer. "Mr. Timmins," continued Mr. Bayard, with a mischievous smile, "bring Mr. Bright a copy of 'The Wayfarer.'" Mr. Timmins was astonished to hear "Country" called "Mister," astonished to hear his employer call him "Mister," and Bobby was astonished to hear himself called "Mister;" nevertheless, our hero enjoyed the joke. The clerk brought the book; and Bobby proceeded to give it a thorough, critical examination. He read the preface, the table of contents, and several chapters of the work, before Mr. Bayard was ready to go home "How do you like it, Bobby?" asked the bookseller. "First rate." "You may take that copy in your hand; you will want to finish it." "Thank you, sir; I will be careful of it." "You may keep it. Let that be the beginning of your own private library." His own private library! Bobby had not got far enough to dream of such a thing yet; but he thanked Mr. Bayard, and put the book under his arm. After tea, Ellen proposed to her father that they should all go to the Museum. Mr. Bayard acceded, and our hero was duly amazed at the drolleries perpetrated there. He had a good time; but it was so late when he went to bed, that he was a little fearful lest he should oversleep himself in the morning. He did not, however, and was down in the parlor before any of the rest of the family were stirring. An early breakfast was prepared for him, at which Mr. Bayard, who intended to see him off, joined him. Depositing his little bundle and the copy of "The Wayfarer" in the valise provided for him, they walked to the store. The porter wheeled the trunk down to the railroad station, though Bobby insisted upon doing it himself. The bookseller saw him and his baggage safely aboard of the cars, gave him a ticket, and then bade him an affectionate adieu. In a little while Bobby was flying over the rail, and at about eight o'clock, reached B----. The station master kindly permitted him to deposit his trunk in the baggage room, and to leave it there for the remainder of the week. Taking a dozen of the books from the trunk, and placing them in his valise, he sallied out upon his mission. It must be confessed that his heart was filled with a tumult of emotions. The battle of life was before him. He was on the field, sword in hand, ready to plunge into the contest. It was victory or defeat. "March on, brave youth! the field of strife With peril fraught before thee lies; March on! the battle plain of life Shall yield thee yet a glorious prize." It was of no use to shrink then, even if he had felt disposed to do so. He was prepared to be rebuffed, to be insulted, to be turned away from the doors at which he should seek admission; but he was determined to conquer. He had reached a house at which he proposed to offer "The Wayfarer" for sale. His heart went pit pat, pit pat, and he paused before the door. "Now or never!" exclaimed he, as he swung open the garden gate, and made his way up to the door. He felt some misgivings. It was so new and strange to him that he could hardly muster sufficient resolution to proceed farther. But his irresolution was of only a moment's duration. "Now or never!" and he gave a vigorous knock at the door. It was opened by an elderly lady, whose physiognomy did not promise much. "Good morning, ma'am. Can I sell you a copy of 'The Wayfarer' to-day? a new book, just published." "No; I don't want none of your books. There's more pedlers round the country now than you could shake a stick at in a month," replied the old lady petulantly. "It is a very interesting book, ma'am; has an excellent moral." Bobby had read the preface, as I before remarked. "It will suit you, ma'am; for you look just like a lady who wants to read something with a moral." Bravo, Bobby! The lady concluded that her face had a moral expression, and she was pleased with the idea. "Let me see it;" and she asked Bobby to walk in and be seated, while she went for her spectacles. As she was looking over the book, our hero went into a more elaborate recommendation of its merits. He was sure it would interest the young and the old; it taught a good lesson; it had elegant engravings; the type was large, which would suit her eyes; it was well printed and bound; and finally, it was cheap at one dollar. "I'll take it," said the old lady. "Thank you, ma'am." Bobby's first victory was achieved "Have you got a dollar?" asked the lady, as she handed him a two dollar bill. "Yes, ma'am;" and he gave her his only dollar, and put the two in its place, prouder than a king who has conquered an empire. "Thank you, ma'am." Bidding the lady a polite good morning, he left the house, encouraged by his success to go forward in his mission with undiminished hope. CHAPTER X. IN WHICH BOBBY IS A LITTLE TOO SMART. The clouds were rolled back, and Bobby no longer had a doubt as to the success of his undertaking. It requires but a little sunshine to gladden the heart, and the influence of his first success scattered all the misgivings he had cherished. Two New England shillings is undoubtedly a very small sum of money; but Bobby had made two shillings, and he would not have considered himself more fortunate if some unknown relative had left him a fortune. It gave him confidence in his powers, and as he walked away from the house, he reviewed the circumstances of his first sale. The old lady had told him at first she did not wish to buy a book, and, moreover, had spoken rather contemptuously of the craft to which he had now the honor to belong. He gave himself the credit of having conquered the old lady's prejudices. He had sold her a book in spite of her evident intention not to purchase. In short, he had, as we have before said, won a glorious victory, and he congratulated himself accordingly. But it was of no use to waste time in useless self-glorification, and Bobby turned from the past to the future. There were forty-nine more books to be sold, so that the future was forty-nine-times as big as the past. He saw a shoemaker's shop ahead of him; and he was debating with himself whether he should enter and offer his books for sale. It would do no harm, though he had but slight expectations of doing any thing. There were three men at work in the shop--one of them a middle-aged man, the other two young men. They looked like persons of intelligence, and as soon as Bobby saw them his hopes grew stronger. "Can I sell you any books to-day?" asked the little merchant, as he crossed the threshold. "Well, I don't know; that depends upon how smart you are," replied the eldest of the men. "It takes a pretty smart fellow to sell any thing in this shop." "Then I hope to sell each of you a book," added Bobby, laughing at the badinage of the shoemaker. Opening his valise he took out three copies of his book, and politely handed one to each of the men. "It isn't every book pedler that comes along who offers you such a work as that. 'The Wayfarer' is decidedly _the_ book of the season." "You don't say so!" said the oldest shoemaker, with a laugh. "Every pedler that comes along uses those words, precisely." "Do they? They steal my thunder then." "You are an old one." "Only thirteen. I was born where they don't fasten the door with a boiled carrot." "What do they fasten them with?" "They don't fasten them at all." "There are no book pedlers round there, then;" and all the shoemakers laughed heartily at this smart sally. "No; they are all shoemakers in our town." "You can take my hat, boy." "You will want it to put your head in; but I will take one dollar for that book instead." The man laughed, took out his wallet, and handed Bobby the dollar, probably quite as much because he had a high appreciation of his smartness, as from any desire to possess the book. "Won't you take one?" asked Bobby, appealing to another of the men, who was apparently not more than twenty-four years of age. "No; I can't read," replied he, roguishly. "Let your wife read it to you then." "My wife?" "Certainly; she knows how to read, I will warrant." "How do you know I have got a wife?" "O, well, a fellow as good looking and good natured as you are could not have resisted till this time." "Has you, Tom," added the oldest shoemaker. "I cave in;" and he handed over the dollar, and laid the book upon his bench. Bobby looked at the third man with some interest. He had said nothing, and scarcely heeded the fun which was passing between the little merchant and his companions. He was apparently absorbed in his examination of the book. He was a different kind of person from the others, and Bobby's instinctive knowledge of human nature assured him that he was not to be gained by flattery or by smart sayings; so he placed himself in front of him, and patiently waited in silence for him to complete his examination. "You will find that he is a hard one," put in one of the others. Bobby made no reply, and the two men who had bought books resumed their work. For five minutes our hero stood waiting for the man to finish his investigation into the merits of "The Wayfarer." Something told him not to say any thing to this person; and he had some doubts about his purchasing. "I will take one," said the last shoemaker, as he handed Bobby the dollar. "I am much obliged to you, gentlemen," said Bobby, as he closed his valise. "When I come this way again I shall certainly call." "Do; you have done what no other pedler ever did in this shop." "I shall take no credit to myself. The fact is, you are men of intelligence, and you want good books." Bobby picked up his valise and left the shop, satisfied with those who occupied it, and satisfied with himself. "Eight shillings!" exclaimed he, when he got into the road. "Pretty good hour's work, I should say." Bobby trudged along till he came to a very large, elegant house, evidently dwelt in by one of the nabobs of B----. Inspired by past successes, he walked boldly up to the front door, and rang the bell. "Is Mr. Whiting in?" asked Bobby, who had read the name on the door plate. "Colonel Whiting _is_ in," replied the servant, who had opened the door. "I should like to see him for a moment, if he isn't busy." "Walk in;" and for some reason or other the servant chuckled a great deal as she admitted him. She conducted him to a large, elegantly furnished parlor, where Bobby proceeded to take out his books for the inspection of the nabob, whom the servant promised to send to the parlor. In a moment Colonel Whiting entered. He was a large, fat man, about fifty years old. He looked at the little book merchant with a frown that would have annihilated a boy less spunky than our hero. Bobby was not a little inflated by the successes of the morning, and if Julius Caesar or Napoleon Bonaparte had stood before him then, he would not have flinched a hair--much less in the presence of no greater magnate than the nabob of B----. "Good morning, Colonel Whiting. I hope you are well this beautiful morning," Bobby began. I must confess I think this was a little too familiar for a boy of thirteen to a gentleman of fifty, whom he had never seen before in his life; but it must be remembered that Bobby had done a great deal the week before, that on the preceding night he had slept in Chestnut Street, and that he had just sold four copies of "The Wayfarer." He was inclined to be smart, and some folks hate smart boys. The nabob frowned; his cheek reddened with anger; but he did not condescend to make any reply to the smart speech. "I have taken the liberty to call upon you this morning, to see if you did not wish to purchase a copy of 'The Wayfarer'--a new book just issued from the press, which people say is to be the book of the season." My young readers need not suppose this was an impromptu speech, for Bobby had studied upon it all the time he was coming from Boston in the cars. It would be quite natural for a boy who had enjoyed no greater educational advantages than our hero to consider how he should address people into whose presence his calling would bring him; and he had prepared several little addresses of this sort, for the several different kinds of people whom he expected to encounter. The one he had just "got off" was designed for the "upper crust." When he had delivered the speech, he approached the indignant, frowning nabob, and with a low bow, offered him a copy of "The Wayfarer." "Boy," said Colonel Whiting, raising his arm with majestic dignity, and pointing to the door,--"boy, do you see that door?" Bobby looked at the door, and, somewhat astonished replied that he did see it, that it was a very handsome door, and he would inquire whether it was black walnut, or only painted in imitation thereof. "Do you see that door?" thundered the nabob, swelling with rage at the cool impudence of the boy. "Certainly I do, sir; my eyesight is excellent." "Then use it!" "Thank you, sir; I have no use for it. Probably it will be of more service to you than to me." "Will you clear out, or shall I kick you out?" gasped the enraged magnate of B----. "I will save you that trouble, sir; I will go, sir. I see we have both made a mistake." "Mistake? What do you mean by that, you young puppy? You are a little impudent, thieving scoundrel!" "That's your mistake, sir. I took you for a gentleman, sir; and that was my mistake." "Ha, ha, ha!" laughed a sweet, musical voice, and at that moment a beautiful young lady rushed up to the angry colonel, and threw her arms around his neck. "The jade!" muttered he. "I have caught you in a passion again, uncle;" and the lady kissed the old gentleman's anger-reddened cheek, which seemed to restore him at once to himself. "It was enough to make a minister swear," said he, in apology. "No, it wasn't, uncle; the boy was a little pert, it is true; but you ought to have laughed at him, instead of getting angry. I heard the whole of it." "Pert?" said Bobby to himself. "What the deuse does she mean by that?" "Very well, you little minx; I will pay the penalty." "Come here, Master Pert," said the lady to Bobby. Bobby bowed, approached the lady, and began to feel very much embarrassed. "My uncle,", she continued, "is one of the best hearted men in the world--ain't you, uncle?" "Go on, you jade!" "I love him, as I would my own father; but he will sometimes get into a passion. Now, you provoked him." "Indeed, ma'am, I hadn't the least idea of saying any thing uncivil," pleaded Bobby. "I studied to be as polite as possible." "I dare say. You were too important, too pompous, for a boy to an old gentleman like uncle, who is really one of the best men in the world. Now, if you hadn't studied to be polite, you would have done very well." "Indeed, ma'am, I am a poor boy, trying to make a little money to help my mother. I am sure I meant no harm." "I know you didn't. So you are selling books to help your mother?" "Yes, ma'am." She inquired still further into the little merchant's history, and seemed to be very much interested in him. In a frolic, a few days before, Bobby learned from her, Colonel Whiting had agreed to pay any penalty she might name, the next time he got into a passion. "Now, young man, what book have you to sell?" asked the lady. "'The Wayfarer.'" "How many have you in your valise?" "Eight." "Very well; now, uncle, I decree, as the penalty of your indiscretion, that you purchase the whole stock." "I submit." "'The Wayfarer' promises to be an excellent book: and I can name at least half a dozen persons who will thank you for a copy, uncle." Colonel Whiting paid Bobby eight dollars, who left the contents of his valise on the centre table, and then departed, astounded at his good fortune, and fully resolved never to be too smart again. CHAPTER XI. IN WHICH BOBBY STRIKES A BALANCE, AND RETURNS TO RIVERDALE. Our hero had learned a lesson which experience alone could teach him. The consciousness of that "something within him" inclined him to be a little too familiar with his elders; but then it gave him confidence in himself, and imparted courage to go forward in the accomplishment of his mission. His interview with Colonel Whiting and the gentle but plain rebuke of his niece had set him right, and he realized that, while he was doing a man's work, he was still a boy. He had now a clearer perception of what is due to the position and dignity of those upon whom fortune has smiled. Bobby wanted to be a man, and it is not strange that he should sometimes fancy he was a man. He had an idea, too, that "all men are born free and equal;" and he could not exactly see why a nabob was entitled to any more respect and consideration than a poor man. It was a lesson he was compelled to learn, though some folks live out their lifetimes without ever finding out that. "'Tis wealth, good sir, makes honorable men." Some people think a rich man is no better than a poor man, except so far as he behaves himself better. It is strange how stupid some people are! Bobby had no notion of cringing to any man, and he felt as independent as the Declaration of Independence itself. But then the beautiful lady had told him that he was pert and forward; and when he thought it over, he was willing to believe she was right, Colonel Whiting was an old man, compared with himself; and he had some faith, at least in theory, in the Spartan virtue of respect for the aged. Probably the nabob of B---- would have objected to being treated with respect on account of his age; and Bobby would have been equally unwilling to acknowledge that he treated him with peculiar respect on account of his wealth or position. Perhaps the little merchant had an instinctive perception of expediency--that he should sell more books by being less familiar: at any rate he determined never again to use the flowery speeches he had arranged for the upper crust. He had sold a dozen books; and possibly this fact made him more willing to compromise the matter than he would otherwise have been. This was, after all, the great matter for congratulation, and with a light heart he hurried back to the railroad station to procure another supply. We cannot follow him into every house where his calling led him. He was not always as fortunate as in the instances we have mentioned. Sometimes all his arguments were unavailing, and after he had spent half an hour of valuable time in setting forth the merits of "The Wayfarer," he was compelled to retire without having effected a sale. Sometimes, too, he was rudely repulsed; hard epithets were applied to him; old men and old women, worried out by the continued calls of pedlers, sneered at him, or shut the door in his face; but Bobby was not disheartened. He persevered, and did not allow these little trials to discompose or discourage him. By one o'clock on the first day of his service he had sold eighteen books, which far exceeded even his most sanguine expectations. By this time he began to feel the want of his dinner; but there was no tavern or eating house at hand, and he could not think of leaving the harvest to return to the railroad station; so he bought a sheet of gingerbread and a piece of cheese at a store, and seating himself near a brook by the side of the road, he bolted his simple meal, as boys are very apt to do when they are excited. When he had finished, he took out his account book, and entered, "Dinner, 10 cents." Resuming his business, he disposed of the remaining six books in his valise by the middle of the afternoon, and was obliged to return for another supply. About six o'clock he entered the house of a mechanic, just as the family were sitting down to tea. He recommended his book with so much energy that the wife of the mechanic took a fancy to him, and not only purchased one, but invited him to tea. Bobby accepted the invitation, and in the course of the meal, the good lady drew from him the details of his history, which he very modestly related, for though he sometimes fancied himself a man, he was not the boy to boast of his exploits. His host was so much pleased with him, that he begged him to spend the night with them. Bobby had been thinking how and where he should spend the night, and the matter had given him no little concern. He did not wish to go to the hotel, for it looked like a very smart house, and he reasoned that he should have to pay pretty roundly for accommodations there. These high prices would eat up his profits, and he seriously deliberated whether it would not be better for him to sleep under a tree than pay fifty cents for a lodging. If I had been there I should have told him that a man loses nothing in the long run by taking good care of himself. He must eat well and sleep well, in order to do well and be well. But I suppose Bobby would have told me that it was of no use to pay a quarter extra for sleeping on a gilded bedstead, since the room would be so dark he could not see the gilt even if he wished to do so. I could not have said any thing to such a powerful argument; so I am very glad the mechanic's wife set the matter at rest by offering him a bed in her house. He spent a very pleasant evening with the family, who made him feel entirely at home, they were so kind and so plain spoken. Before he went to bed, he entered under the book account, "By twenty-six Wayfarers, sold this day, $26.00." He had done a big day's work, much bigger than he could hope to do again. He had sold more than one half of his whole stock, and at this rate he should be out of books the next day. At first he thought he would send for another lot; but he could not judge yet what his average daily sales would be, and finally concluded not to do so. What he had might last till Friday or Saturday. He intended to go home on the latter day, and he could bring them with him on his return without expense. This was considerable of an argument for a boy to manage; but Bobby was satisfied with it, and went to sleep, wondering what his mother, Squire Lee, and Annie were thinking of about that time. After breakfast the next morning he resumed his travels. He was as enthusiastic as ever, and pressed "The Wayfarer" with so much earnestness that he sold a book in nearly every house he visited. People seemed to be more interested in the little merchant than in his stock, and taking advantage of this kind feeling towards him, he appealed to them with so much eloquence that few could resist it. The result of the day's sales was fifteen copies, which Bobby entered in the book account with the most intense satisfaction. He had outdone the boy who had passed through Riverdale, but he had little hope that the harvest would always be so abundant. He often thought of this boy, from whom he had obtained the idea he was now carrying out. That boy had stopped over night at the little black house, and slept with him. He had asked for lodging, and offered to pay for it, as well as for his supper and breakfast. Why couldn't he do the same? He liked the suggestion, and from that time, wherever he happened to be, he asked for lodging, or the meal he required, and he always proposed to pay for what he had, but very few would take any thing. On Friday noon he had sold out. Returning to the railroad station, he found that the train would not leave for the city for an hour; so he improved the time in examining and balancing his accounts. The book sales amounted to just fifty dollars, and after his ticket to Boston was paid for, his expenses would amount to one dollar and fifty cents, leaving a balance in his favor of fifteen dollars. He was overjoyed with the result, and pictured the astonishment with which his mother, Squire Lee, and Annie would listen to the history of his excursion. After four o'clock that afternoon he entered the store of Mr. Bayard, bag and baggage. On his arrival in the city, he was considerably exercised in mind to know how he should get the trunk to his destination. He was too economical to pay a cartman a quarter; but what would have seemed mean in a man was praiseworthy in a boy laboring for a noble end. Probably a great many of my young readers in Bobby's position, thinking that sixteen dollars, which our hero had in his pocket, was a mint of money, would have been in favor of being a little magnificent--of taking a carriage and going up-town in state. Bobby had not the least desire to "swell," so he settled the matter by bargaining with a little ragged fellow to help him carry the trunk to Mr. Bayard's store for fourpence. "How do you do, Mr. Timmins?" said Bobby to the spruce clerk, as he deposited the trunk upon the floor, and handed the ragged boy the four-pence. "Ah, Bobby!" exclaimed Mr. Timmins. "Have you sold out?" "All clean. Is Mr. Bayard in?" "In the office. But how do you like it?" "First rate." "Well, every one to his taste; but I don't see how any one who has any regard for his dignity can stick himself into every body's house. I couldn't do it, I know." "I don't stand for the dignity." "Ah, well, there is a difference in folks." "That's a fact," replied Bobby, as he hurried to the office of Mr. Bayard, leaving Mr. Timmins to sun himself in his own dignity. The bookseller was surprised to see him so soon, but he gave him a cordial reception. "I didn't expect you yet," said he. "Why do you come back? Have you got sick of the business?" "Sick of it! No, sir." "What have you come back for then?" "Sold out, sir." "Sold out! You have done well!" "Better than I expected." "I had no idea of seeing you till to-morrow night; and I thought you would have books enough to begin the next week with. You have done bravely." "If I had had twenty more, I could have sold them before to-morrow night. Now, sir, if you please, I will pay you for those books--thirty-three dollars and fifty cents." "You had better keep that, Bobby. I will trust you as long as you wish." "If you please, sir, I had rather pay it;" and the little merchant, as proud as a lord, handed over the amount. "I like your way of doing business, Bobby. Nothing helps a man's credit so much as paying promptly. Now tell me some of your adventures--or we will reserve them till this evening, for I am sure Ellen will be delighted to hear them." "I think I shall go to Riverdale this afternoon. The cars leave at half past five." "Very well; you have an hour to spare." Bobby related to his kind friend the incidents of his excursion, including his interview with Colonel Whiting and his niece, which amused the bookseller very much. He volunteered some good advice, which Bobby received in the right spirit, and with a determination to profit by it. At half past five he took the cars for home, and before dark was folded in his mother's arms. The little black house seemed doubly dear to him now that he bad been away from it a few days. His mother and all the children were so glad to see him that it seemed almost worth his while to go away for the pleasure of meeting them on his return. CHAPTER XII. IN WHICH BOBBY ASTONISHES SUNDRY PERSONS AND PAYS PART OF HIS NOTE. "Now tell me, Bobby, how you have made out," said Mrs. Bright, as the little merchant seated himself at the supper table. "You cannot have done much, for you have only been gone five days." "I have done pretty well, mother," replied Bobby, mysteriously; "pretty well, considering that I am only a boy." "I didn't expect to see you till to-morrow night." "I sold out, and had to come home." "That may be, and still you may not have done much." "I don't pretend that I have done much." "How provoking you are! Why don't you tell me, Bobby, what you have done?" "Wait a minute, mother, till I have done my supper, and then I will show you the footings in my ledger." "Your ledger!" "Yea, my ledger. I keep a ledger now." "You are a great man, Mr. Robert Bright," laughed his mother. "I suppose the people took their hats off when they saw you coming." "Not exactly, mother." "Perhaps the governor came out to meet you when he heard you was on the road." "Perhaps he did; I didn't see him, however. This apple pie tastes natural, mother. It is a great luxury to get home after one has been travelling." "Very likely." "No place like home, after all is done and said. Who was the fellow that wrote that song, mother?" "I forget; the paper said he spent a great many years in foreign parts. My sake! Bobby; one would think by your talk that you had been away from home for a year." "It seems like a year," said he, as he transferred another quarter of the famous apple pie to his plate. "I miss home very much. I don't more than half like being among strangers so much." "It is your own choice; no one wants you to go away from home." "I must pay my debts, any how. Don't I owe Squire Lee sixty dollars?" "But I can pay that." "It is my affair, you see." "If it is your affair, then I owe you sixty dollars." "No, you don't; I calculate to pay my board now. I am old enough and big enough to do something." "You have done something ever since you was old enough to work." "Not much; I don't wonder that miserable old hunker of a Hardhand twitted me about it. By the way, have you heard any thing from him?" "Not a thing." "He has got enough of us, I reckon." "You mustn't insult him, Bobby, if you happen to see him." "Never fear me." "You know the Bible says we must love our enemies, and pray for them that despitefully use us and persecute us." "I should pray that the Old Nick might get him." "No, Bobby; I hope you haven't forgot all your Sunday school lessons." "I was wrong, mother," replied Bobby, a little moved. "I did not mean so. I shall try to think as well of him as I can; but I can't help thinking, if all the world was like him, what a desperate hard time we should have of it." "We must thank the Lord that he has given us so many good and true men." "Such as Squire Lee, for instance," added Bobby, as he rose from the table and put his chair back against the wall. "The squire is fit to be a king; and though I believe in the Constitution and the Declaration of Independence, I wouldn't mind seeing a crown upon his head." "He will receive his crown in due time," replied Mrs. Bright, piously. "The squire?" "The crown of rejoicing, I mean." "Just so; the squire is a nice man; and I know another just like him." "Who!" "Mr. Bayard; they are as near alike as two peas." "I am dying to know about your journey." "Wait a minute, mother, till we clear away the supper things;" and Bobby took hold, as he had been accustomed, to help remove and wash the dishes. "You needn't help now, Bobby." "Yes, I will, mother." Some how our hero's visit to the city did not seem to produce the usual effect upon him; for a great many boys, after they had been abroad, would have scorned to wash dishes and wipe them. A week in town has made many a boy so smart that you couldn't touch him with a ten foot pole. It starches them up so stiff that sometimes they don't know their own mothers, and deem it a piece of condescension to speak a word to the patriarch in a blue frock who had the honor of supporting them in childhood. Bobby was none of this sort. We lament that he had a habit of talking big--that is, of talking about business affairs in a style a little beyond his years. But he was modest to a fault, paradoxical as it may seem. He was always blushing when any body spoke a pretty thing about him. Probably the circumstances of his position elevated him above the sphere of the mere boy; he had spent but little time in play, and his attention had been directed at all times to the wants of his mother. He had thought a great deal about business, especially since the visit of the boy who sold books to the little black house. Some boys are born merchants, and from their earliest youth have a genius for trade. They think of little else. They "play shop" before they wear jackets, and drive a barter trade in jackknives, whistles, tops, and fishing lines long before they get into their teens. They are shrewd even then, and obtain a taste for commerce before they are old enough to know the meaning of the word. We saw a boy in school, not long since, give the value of eighteen cents for a little stunted quince--boys have a taste for raw quinces, strange as it may seem. Undoubtedly he had no talent for trade, and would make a very indifferent tin pedler. Our hero was shrewd. He always got the best end of the bargain; though, I am happy to say, his integrity was too unyielding to let him cheat his fellows. We have made this digression so that my young readers may know why Bobby was so much given to big talk. The desire to do something worthy of a good son turned his attention to matters above his sphere; and thinking of great things, he had come to talk great things. It was not a bad fault, after all. Boys need not necessarily be frivolous. Play is a good thing, an excellent thing, in its place, and is as much a part of the boy's education as his grammar and arithmetic. It not only develops his muscles, but enlarges his mental capacity; it not only fills with excitement the idle hours of the long day, but it sharpens the judgment, and helps to fit the boy for the active duties of life. It need not be supposed, because Bobby had to turn his attention to serious things, that he was not fond of fun; that he could not or did not play. At a game of round ball, he was a lucky fellow who secured him upon his side; for the same energy which made him a useful son rendered him a desirable hand in a difficult game. When the supper things were all removed, the dishes washed and put away, Bobby drew out his pocket memorandum book. It was a beautiful article, and Mrs. Bright was duly astonished at its gilded leaves and the elegant workmanship. Very likely her first impulse was to reprove her son for such a piece of reckless extravagance; but this matter was set right by Bobby's informing her how it came into his possession. "Here is my ledger, mother," he said, handing her the book. Mrs. Bright put on her spectacles, and after bestowing a careful scrutiny upon the memorandum book, turned to the accounts. "Fifty books!" she exclaimed, as she read the first entry. "Yes, mother; and I sold them all." "Fifty dollars!" "But I had to pay for the books out of that." "To be sure you had; but I suppose you made as much as ten cents a piece on them, and that would be--let me see; ten times fifty--" "But I made more than that, I hope." "How much?" The proud young merchant referred her to the profit and loss account, which exhibited a balance of fifteen dollars. "Gracious! Three dollars a day!" "Just so, mother. Now I will pay you the dollar I borrowed of you when I went away." "You didn't borrow it of me." "But I shall pay it." Mrs. Bright was astonished at this unexpected and gratifying result. If she had discovered a gold mine in the cellar of the little black house, it could not have afforded her so much satisfaction; for this money was the reward of her son's talent and energy. Her own earnings scarcely ever amounted to more than three or four dollars a week, and Bobby, a boy of thirteen, had come home with fifteen for five days' work. She could scarcely believe the evidence other own senses, and she ceased to wonder that he talked big. It was nearly ten o'clock when the widow and her son went to bed, so deeply were they interested in discussing our hero's affairs. He had intended to call upon Squire Lee that night, but the time passed away so rapidly that he was obliged to defer it till the next day. After breakfast the following morning, he hastened to pay the intended visit. There was a tumult of strange emotions in his bosom as he knocked at the squire's door. He was proud of the success he had achieved, and even then his cheek burned under the anticipated commendations which his generous friend would bestow upon him. Besides, Annie would be glad to see him, for she had expressed such a desire when they parted on the Monday preceding. I don't think that Bobby cherished any silly ideas, but the sympathy of the little maiden fell not coldly or unwelcomely upon his warm heart. In coming from the house he had placed his copy of "The Wayfarer" under his arm, for Annie was fond of reading; and on the way over, he had pictured to himself the pleasure she would derive from reading his book. Of course he received a warm welcome from the squire and his daughter. Each of them had bestowed more than a thought upon the little wanderer as he went from house to house, and more than once they had conversed together about him. "Well, Bobby, how is trade in the book line?" asked the squire, after the young pilgrim had been cordially greeted. "Pretty fair," replied Bobby, with as much indifference as he could command, though it was hard even to seem indifferent then and there. "Where have you been travelling?" "In B----." "Fine place. Books sell well there?" "Very well; in fact, I sold out all my stock by noon yesterday." "How many books did you carry?" "Fifty." "You did well." "I should think you did!" added Annie, with an enthusiasm which quite upset all Bobby's assumed indifference. "Fifty books!" "Yes, Miss Annie; and I have brought you a copy of the book I have been selling; I thought you would like to read it. It is a splendid work, and will be _the_ book of the season." "I shall be delighted to read it," replied Annie, taking the proffered volume. "It looks real good," she continued, as she turned over the leaves. "It is first rate; I have read it through." "It was very kind of you to think of me when you have so much business on your mind," added she, with a roguish smile. "I shall never have so much business on my mind that I cannot think of my friends," replied Bobby, so gallantly and so smartly that it astonished himself. "I was just thinking what I should read next; I am so glad you have come." "Never mind her, Bobby; all she wanted was the book," interposed Squire Lee, laughing. "Now, pa!" "Then I shall bring her one very often." "You are too bad, pa," said Annie, who, like most young ladies just entering their teens, resented any imputation upon the immaculateness of human love, or human friendship. "I have got a little money for you, Squire Lee," continued Bobby, thinking it time the subject was changed. He took out his gilded memorandum book, whose elegant appearance rather startled the squire, and from its "treasury department" extracted the little roll of bills, representing an aggregate of ten dollars which he had carefully reserved for his creditor. "Never mind that, Bobby," replied the squire. "You will want all your capital to do business with." "I must pay my debts before I think of any thing else." "A very good plan, Bobby, but this is an exception to the general rule." "No, sir, I think not. If you please, I insist upon paying you tea dollars on my note." "O, well, if you insist, I suppose I can't help myself." "I would rather pay it, I shall feel so much better." "You want to indorse it on the note, I suppose." That was just what Bobby wanted. Indorsed on the note was the idea, and our hero had often passed that expression through his mind. There was something gratifying in the act to a man of business integrity like himself; it was discharging a sacred obligation,--he had already come to deem it a sacred duty to pay one's debts,--and as the squire wrote the indorsement across the back of the note, he felt more like a hero than ever before. "'Pay as you go' is an excellent idea; John Randolph called it the philosopher's stone," added Squire Lee, as he returned the note to his pocket book. "That is what I mean to do just as soon as I can." "You will do, Bobby." The young merchant spent nearly the whole forenoon at the squire's, and declined an invitation to dinner only on the plea that his mother would wait for him. CHAPTER XIII. IN WHICH BOBBY DECLINES A COPARTNERSHIP AND VISITS B---- AGAIN. After dinner Bobby performed his Saturday afternoon chores as usual. He split wood enough to last for a week, so that his mother might not miss him too much, and then, feeling a desire to visit his favorite resorts in the vicinity, he concluded to go a fishing. The day was favorable, the sky being overcast and the wind very light. After digging a little box of worms in the garden back of the house, he shouldered his fish pole; and certainly no one would have suspected that he was a distinguished travelling merchant. He was fond of fishing, and it is a remarkable coincidence that Daniel Webster, and many other famous men, have manifested a decided passion for this exciting sport. No doubt a fondness for angling is a peculiarity of genius; and if being an expert fisherman makes a great man, then our hero was a great man. He had scarcely seated himself on his favorite rock, and dropped his line into the water, before he saw Tom Spicer approaching the spot. The bully had never been a welcome companion. There was no sympathy between them. They could never agree, for their views, opinions, and tastes were always conflicting. Bobby had not seen Tom since he left him to crawl out of the ditch on the preceding week, and he had good reason to believe that he should not be regarded with much favor. Tom was malicious and revengeful, and our hero was satisfied that the blow which had prostrated him in the ditch would not be forgotten till it had been atoned for. He was prepared, therefore, for any disagreeable scene which might occur. There was another circumstance also which rendered the bully's presence decidedly unpleasant at this time--an event that had occurred during his absence, the particulars of which he had received from his mother. Tom's father, who was a poor man, and addicted to intemperance, had lost ten dollars. He had brought it home, and, as he affirmed, placed it in one of the bureau drawers. The next day it could not be found. Spicer, for some reason, was satisfied that Tom had taken it; but the boy stoutly and persistently denied it. No money was found upon him, however, and it did not appear that he had spent any at the stores in Riverdale Centre. The affair created some excitement in the vicinity, for Spicer made no secret of his suspicions, and publicly accused Tom of the theft. He did not get much sympathy from any except his pot companions; for there was no evidence but his bare and unsupported statement to substantiate the grave accusation. Tom had been in the room when the money was placed in the drawer, and, as his father asserted, had watched him closely while he deposited the bills under the clothing. No one else could have taken it. These were the proofs. But people generally believed that Spicer had carried no money home, especially as it was known that he was intoxicated on the night in question; and that the alleged theft was only a ruse to satisfy certain importunate creditors. Every body knew that Tom was bad enough to steal, even from his father; from which my readers can understand that it is an excellent thing to have a good reputation. Bobby knew that he would lie and use profane language; that he spent his Sundays by the river, or in roaming through the woods; and that he played truant from school as often as the fear of the rod would permit; and the boy that would do all these things certainty would steal if he got a good chance. Our hero's judgment, therefore, of the case was not favorable to the bully, and he would have thanked him to stay away from the river while he was there. "Hallo, Bob! How are you?" shouted Tom, when he had come within hailing distance. "Very well," replied Bobby, rather coolly. "Been to Boston, they say." "Yes." "Well, how did you like it?" continued Tom as he seated himself on the rock near our hero. "First rate." "Been to work there?" "No." "What have you been doing?" "Travelling about." "What doing?" "Selling books." "Was you, though? Did you sell any?" "Yes, a few." "How many?" "O, about fifty." "You didn't, though--did you? How much did you make?" "About fifteen dollars." "By Jolly! You are a smart one, Bobby. There are not many fellows that would have done that." "Easy enough," replied Bobby, who was not a little surprised at this warm commendation from one whom he regarded as his enemy. "Yon had to buy the books first--didn't you?" asked Tom, who began to manifest a deep interest in the trade. "Of course; no one will give you the books." "What do you pay for them?" "I buy them so as to make a profit on them," answered Bobby, who, like a discreet merchant, was not disposed to be too communicative. "That business would suit me first rate." "It is pretty hard work." "I don't care for that. Don't you believe I could do something in this line?" "I don't know; perhaps you could." "Why not, as well as you?" This was a hard question; and, as Bobby did not wish to be uncivil, he talked about a big pout he hauled in at that moment, instead of answering it. He was politic, and deprecated the anger of the bully; so, though Tom plied him pretty hard, he did not receive much satisfaction. "You see, Tom," said he, when he found that his companion insisted upon knowing the cost of the books, "this is a publisher's secret; and I dare say they would not wish every one to know the cost of books. We sell them for a dollar apiece." "Humph! You needn't be so close about it. I'll bet I can find out." "I have no doubt you can; only, you see, I don't want to tell what I am not sure they would be willing I should tell." Tom took a slate pencil from his pocket, and commenced ciphering on the smooth rock upon which he sat. "You say you sold fifty books?" "Yes." "Well; if you made fifteen dollars out of fifty, that is thirty cents apiece." Bobby was a little mortified when he perceived that he had unwittingly exposed the momentous secret. He had not given Tom credit for so much sagacity as he had displayed in his inquiries; and as he had fairly reached his conclusion, he was willing he should have the benefit of it. "You sold them at a dollar apiece. Thirty from a hundred leaves seventy. They cost you seventy cents each--didn't they?" "Sixty-seven," replied Bobby, yielding the point. "Enough said, Bob; I am going into that business, any how." "I am willing." "Of course you are; suppose we go together," suggested Tom, who had not used all this conciliation without having a purpose in view. "We could do nothing together." "I should like to get out with you just once, only to see how it is done." "You can find out for yourself, as I did." "Don't be mean, Bob." "Mean? I am not mean." "I don't say you are. We have always been good friends, you know." Bobby did not know it; so he looked at the other with a smile which expressed all he meant to say. "You hit me a smart dig the other day, I know; but I don't mind that. I was in the wrong then, and I am willing to own it," continued Tom, with an appearance of humility. This was an immense concession for Tom to make, and Bobby was duly affected by it. Probably it was the first time the bully had ever owned he was in the wrong. "The fact is, Bob, I always liked you; and you know I licked Ben Dowse for you." "That was two for yourself and one for me; besides, I didn't want Ben thrashed." "But he deserved it. Didn't he tell the master you were whispering in school?" "I was whispering; so he told the truth." "It was mean to blow on a fellow, though." "The master asked him if I whispered to him; of course he ought not to lie about it. But he told of you at the same time." "I know it; but I wouldn't have licked him on my own account." "_Perhaps_ you wouldn't." "I know I wouldn't. But, I say, Bobby, where do you buy your books?" "At Mr. Bayard's, in Washington Street." "He will sell them to me at the same price, won't he?" "I don't know." "When are you going again?" "Monday." "Won't you let me go with you, Bob?" "Let you? Of course you can go where you please; it is none of my business." Bobby did not like the idea of having such a co-partner as Tom Spicer, and he did not like to tell him so. If he did, he would have to give his reasons for declining the proposition, and that would make Tom mad, and perhaps provoke him to quarrel. The fish bit well, and in an hour's time Bobby had a mess. As he took his basket and walked home, the young ruffian followed him. He could not get rid of him till he reached the gate in front of the little black house; and even there Tom begged him to stop a few moments. Our hero was in a hurry, and in the easiest manner possible got rid of this aspirant for mercantile honors. We have no doubt a journal of Bobby's daily life would be very interesting to our young readers; but the fact that some of his most stirring adventures are yet to be related admonishes us to hasten forward more rapidly. On Monday morning Bobby bade adieu to his mother again, and started for Boston. He fully expected to encounter Tom on the way, who, he was afraid, would persist in accompanying him on his tour. As before, he stopped at Squire Lee's to bid him and Annie good by. The little maiden had read "The Wayfarer" more than half through, and was very enthusiastic in her expression of the pleasure she derived from it. She promised to send it over to his house when she had finished it, and hoped he would bring his stock to Riverdale, so that she might again replenish her library. Bobby thought of something just then, and the thought brought forth a harvest on the following Saturday, when he returned. "When he had shaken bands with the squire and was about to depart, he received a piece of news which gave him food for an hour's serious reflection. "Did you hear about Tom Spicer?" asked Squire Lee. "No, sir; what about him?" "Broken his arm." "Broken his arm! Gracious! How did it happen?" exclaimed Bobby, the more astonished because he had been thinking of Tom since he had left home. "He was out in the woods yesterday, where boys should not be on Sundays, and, in climbing a tree after a bird's nest, he fell to the ground." "I am sorry for him," replied Bobby, musing. "So am I; but if he had been at home, or at church, where he should have been, it would not have happened. If I had any boys, I would lock them up in their chambers if I could not keep them at home Sundays." "Poor Tom!" mused Bobby, recalling the conversation he had had with him on Saturday, and then wishing that he had been a little more pliant with him. "It is too bad; but I must say I am more sorry for his poor mother than I am for him," added the squire. "However, I hope it will do him good, and be a lesson he will remember as long as he lives." Bobby bade the squire and Annie adieu again, and resumed his journey towards the railroad station. His thoughts were busy with Tom Spicer's case. The reason why he had not joined him, as he expected and feared he would, was now apparent. He pitied him, for he realized that he must endure a great deal of pain before he could again go out; but he finally dismissed the matter with the squire's sage reflection, that he hoped the calamity would be a good lesson to him. The young merchant did not walk to Boston this time, for he had come to the conclusion that, in the six hours it would take him to travel to the city on foot, the profit on the books he could sell would be more than enough to pay his fare, to say nothing of the fatigue and the expense of shoe leather. Before noon he was at B---- again, as busy as ever in driving his business. The experience of the former week was of great value to him. He visited people belonging to all spheres in society, and, though he was occasionally repulsed or treated with incivility, he was not conscious in a single instance of offending any person's sense of propriety. He was not as fortunate as during the previous week, and it was Saturday noon before he had sold out the sixty books he carried with him. The net profit for this week was fourteen dollars, with which he was abundantly pleased. Mr. Bayard again commended him in the warmest terms for his zeal and promptness. Mr. Timmins was even more civil than the last time, and when Bobby asked the price of Moore's Poems, he actually offered to sell it to him for thirty-three per cent. less than the retail price. The little merchant, was on the point of purchasing it, when Mr. Bayard inquired what he wanted. "I am going to buy this book," replied Bobby. "Moore's Poems?" "Yes, sir." Mr. Bayard took from a glass case an elegantly bound copy of the same work--morocco, full gilt--and handed it to our hero. "I shall make you a present of this. Are you an admirer of Moore?" "No, sir; not exactly--that is, I don't know much about it; but Annie Lee does, and I want to get the book for her." Bobby's checks reddened as he turned the leaves of the beautiful volume, putting his head down to the page to hide his confusion. "Annie Lee?" said Mr. Bayard with a quizzing smile. "I see how it is. Rather young, Bobby." "Her father has been very good to me and to my mother; and so has Annie, for that matter. Squire Lee would be a great deal more pleased if I should make Annie a present than if I made him one. I feel grateful to him, and I want to let it out some how." "That's right, Bobby; always remember your friends. Timmins, wrap up this book." Bobby protested with all his might; but the bookseller insisted that he should give Annie this beautiful edition, and he was obliged to yield the point. That evening he was at the little black house again, and his mother examined his ledger with a great deal of pride and satisfaction. That evening, too, another ten dollars was indorsed on the note, and Annie received that elegant copy of Moore's Poems. CHAPTER XIV. IN WHICH BOBBY'S AIR CASTLE IS UPSET AND TOM SPICER TAKES TO THE WOODS. During the next four weeks Bobby visited various places in the vicinity of Boston; and at the end of that time he had paid the whole of the debt he owed Squire Lee. He had the note in his memorandum book, and the fact that he had achieved his first great purpose afforded him much satisfaction. Now he owed no man any thing, and he felt as though he could hold up his head among the best people in the world. The little black house was paid for, and Bobby was proud that his own exertions had released his mother from her obligation to her hard creditor. Mr. Hardhand could no longer insult and abuse her. The apparent results which Bobby had accomplished; however, were as nothing compared with the real results. He had developed those energies of character which were to make him, not only a great business man, but a useful member of society. Besides, there was a moral grandeur in his humble achievements which was more worthy of consideration than the mere worldly success he had obtained. Motives determine the character of deeds. That a boy of thirteen should display so much enterprise and energy was a great thing; but that it should be displayed from pure, unselfish devotion to his mother was a vastly greater thing. Many great achievements are morally insignificant, while many of which the world never hears mark the true hero. Our hero was not satisfied with what he had done, and far from relinquishing his interesting and profitable employment, his ambition suggested new and wider fields of success. As one ideal, brilliant and glorious in its time, was reached, another more brilliant and more glorious presented itself, and demanded to be achieved. The little black house began to appear rusty and inconvenient; a coat of white paint would marvellously improve its appearance; a set of nice Paris-green blinds would make a palace of it, and a neat fence around it would positively transform the place into a paradise. Yet Bobby was audacious enough to think of these things, and even to promise himself that they should be obtained. In conversation with Mr. Bayard a few days before, that gentleman had suggested a new field of labor; and it had been arranged that Bobby should visit the State of Maine the following week. On the banks of the Kennebec were many wealthy and important towns, where the intelligence of the people created a demand for books. This time the little merchant was to take two hundred books, and be absent until they were all sold. On Monday morning he started bright and early for the railroad station. As usual, he called upon Squire Lee, and informed Annie that he should probably be absent three or four weeks. She hoped no accident would happen to him, and that his journey would be crowned with success. Without being sentimental, she was a little sad, for Bobby was a great friend of hers. That elegant copy of Moore's Poems had been gratefully received, and she was so fond of the bard's beautiful and touching melodies that she could never read any of them without thinking of the brave little fellow who had given her the volume; which no one will consider very remarkable, even in a little miss of twelve. After he had bidden her and her father adieu, he resumed his journey. Of course he was thinking with all his might; but no one need suppose he was wondering how wide the Kennebec River was, or how many books he should sell in the towns upon its banks. Nothing of the kind; though it is enough even for the inquisitive to know that he was thinking of something, and that his thoughts were very interesting, not to say romantic. "Hallo, Bob!" shouted some one from the road side. Bobby was provoked; for it is sometimes very uncomfortable to have a pleasant train of thought interrupted. The imagination is buoyant, ethereal, and elevates poor mortals up to the stars sometimes. It was so with Bobby. He was building up some kind of an air castle, and had got up in the clouds amidst the fog and moonshine, and that aggravating voice brought him down, _slap_, upon terra firma. He looked up and saw Tom Spicer seated upon the fence. In his hand he held a bundle, and had evidently been waiting some time for Bobby's coming. He had recovered from the illness caused by his broken arm, and people said it had been a good lesson for him, as the squire hoped it would be. Bobby had called upon him two or three times during his confinement to the house; and Tom, either truly repentant for his past errors, or lacking the opportunity at that time to manifest his evil propensities, had stoutly protested that he had "turned over a new leaf," and meant to keep out of the woods on Sunday, stop lying and swearing, and become a good boy. Bobby commended his good resolutions, and told him he would never want friends while he was true to himself. The right side, he declared, was always the best side. He quoted several instances of men, whose lives he had read in his Sunday school books, to show how happy a good man may be in prison, or when all the world seemed to forsake him. Tom assured him that he meant to reform and be a good boy; and Bobby told him that when any one meant to turn over a new leaf, it was "now or never." If he put it off, he would only grow worse, and the longer the good work was delayed, the more difficult it would be to do it. Tom agreed to all this, and was sure he had reformed. For these reasons Bobby had come to regard Tom with a feeling of deep interest. He considered him as, in some measure, his disciple, and he felt a personal responsibility in encouraging him to persevere in his good work. Nevertheless Bobby was not exactly pleased to have his fine air castle upset, and to be tipped out of the clouds upon the cold, uncompromising earth again; so the first greeting he gave Tom was not as cordial as it might have been. "Hallo, Tom!" he replied, rather coolly. "Been waiting for you this half hour." "Have you?" "Yes; ain't you rather late?" "No; I have plenty of time, though none to spare," answered Bobby; and this was a hint that he must not detain him too long. "Come along then." "Where are you going, Tom?" asked Bobby, a little surprised at these words. "To Boston." "Are you?" "I am; that's a fact. You know I spoke to you about going into the book business." "Not lately." "But I have been thinking about it all the time." "What do your father and mother say?" "O, they are all right." "Have you asked them?" "Certainly I have; they are willing I should go with _you_." "Why didn't you speak of it then?" "I thought I wouldn't say any thing till the time came. You know you fought shy when I spoke about it before." And Bobby, notwithstanding the interest he felt in his companion, was a little disposed to "fight shy" now. Tom had reformed, or had pretended to do so; but he was still a raw recruit, and our hero was somewhat fearful that he would run at the first fire. To the good and true man life is a constant battle. Temptation assails him at almost every point; perils and snares beset him at every step of his mortal pilgrimage, so that every day he is called upon to gird on his armor and fight the good fight. Bobby was no poet; but he had a good idea of this every-day strife with the foes of error and sin that crossed his path. It was a practical conception, but it was truly expressed under the similitude of a battle. There was to be resistance, and he could comprehend that, for his bump of combativeness took cognizance of the suggestion. He was to fight; and that was an idea that stood him in better stead than a whole library of ethical subtleties. Judging Tom by his own standard, he was afraid he would run--that he wouldn't "stand fire." He had not been drilled. Heretofore, when temptation beset him, he had yielded without even a struggle, and fled from the field without firing a gun. To go out into the great world was a trying event for the raw recruit. He lacked, too, that prestige of success which is worth more than numbers, on the field of battle. Tom had chosen for himself, and he could not send him back. He had taken up the line of march, let it lead him where it might. "March on! in legions death and sin Impatient wait thy conquering hand; The foe without, the foe within-- Thy youthful arm must both withstand." Bobby had great hopes of him. He felt that he could not well get rid of him, and he saw that it was policy for him to make the best of it. "Well, Tom, where are you going?" asked Bobby, after he had made up his mind not to object to the companionship of the other. "I don't know. You have been a good friend to me lately, and I had an idea that you would give me a lift in this business." "I should be very willing to do so: but what can I do for you?" "Just show me how the business is done; that's all I want." "Your father and mother were willing you should come--were they not?" Bobby had some doubts about this point, and with good reason too. He had called at Tom's house, the day before, and they had gone to church together; but neither he nor his parents had said a word about his going to Boston. "When did they agree to it?" "Last night," replied Tom, after a moment's hesitation. "All right then; but I cannot promise you that Mr. Bayard will let you have the books." "I can fix that, I reckon," replied Tom, confidently. "I will speak a good word for you, at any rate." "That's right, Bob." "I am going down into the State of Maine this time, and shall be gone three or four weeks." "So much the better; I always wanted to go down that way." Tom asked a great many questions about the business and the method of travelling, which Bobby's superior intelligence and more extensive experience enabled him to answer to the entire satisfaction of the other. When they were within half a mile of the railroad station, they heard a carriage driven at a rapid rate approaching them from the direction of Riverdale. Tom seemed to be uneasy, and cast frequent glances behind him. In a moment the vehicle was within a short distance of them, and he stopped short in the road to scrutinize the persons in it. "By jolly!" exclaimed Tom; "my father!" "What of it?" asked Bobby, surprised by the strange behavior of his companion. Tom did not wait to reply, but springing over the fence, fled like a deer towards some woods a short distance from the road. Was it possible? Tom had run away from home. His father had not consented to his going to Boston, and Bobby was mortified to find that his hopeful disciple had been lying to him ever since they left Riverdale. But he was glad the cheat had been exposed. "That was Tom with you--wasn't it?" asked Mr. Spicer, as he stopped the foaming horse. "Yes, sir; but he told me you had consented that he should go with me," replied Bobby, a little disturbed by the angry glance of Mr. Spicer's fiery eyes. "He lied! the young villain! He will catch it for this." "I would not have let him come with me only for that. I asked him twice over if you were willing, and he said you were." "You ought to have known better than to believe him," interposed the man who was with Mr. Spicer. Bobby had some reason for believing him. The fact that Tom had reformed ought to have entitled him to some consideration, and our hero gave him the full benefit of the declaration. To have explained this would have taken more time than he could spare; besides, it was "a great moral question," whose importance Mr. Spicer and his companion would not be likely to apprehend; so he made a short story of it, and resumed his walk, thankful that he had got rid of Tom. Mr. Spicer and his friend, after fastening the horse to the fence, went to the woods in search of Tom. Bobby reached the station just in time to take the cars, and in a moment was on his way to the city. CHAPTER XV. IN WHICH BOBBY GETS INTO A SCRAPE, AND TOM SPICER TURNS UP AGAIN. Bobby had a poorer opinion of human nature than ever before. It seemed almost incredible to him that words so fairly spoken as those of Tom Spicer could be false. He had just risen from a sick bed, where he had had an opportunity for long and serious reflection. Tom had promised fairly, and Bobby had every reason to suppose he intended to be a good boy. But his promises had been lies. He had never intended to reform, at least not since he had got off his bed of pain. He was mortified and disheartened at the failure of this attempt to restore him to himself. Like a great many older and wiser persons than himself, he was prone to judge the whole human family by a single individual. He did not come to believe that every man was a rascal, but, in more general terms, that there is a great deal more rascality in this world than one would be willing to believe. With this sage reflection, he dismissed Tom from his mind, which very naturally turned again to the air castle which had been so ruthlessly upset. Then his opinion of "the rest of mankind" was reversed; and he reflected that if the world were only peopled by angels like Annie Lee, what a pleasant place it would be to live in. She could not tell a lie, she could not use bad language, she could not steal, or do any thing else that was bad; and the prospect was decidedly pleasant. It was very agreeable to turn from Tom to Annie, and in a moment his air castle was built again, and throned on clouds of gold and purple. I do not know what impossible things he imagined, or how far up in the clouds, he would have gone, if the arrival of the train at the city had not interrupted his thoughts, and pitched him down upon the earth again. Bobby was not one of that impracticable class of persons who do nothing but dream; for he felt that he had a mission, to perform which dreaming could not accomplish. However pleasant it may be to think of the great and brilliant things which one _will_ do, to one of Bobby's practical character it was even more pleasant to perform them. We all dream great things, imagine great things; but he who stops there does not amount to much, and the world can well spare him, for he is nothing but a drone in the hive. Bobby's fine imaginings were pretty sure to bring out "now or never," which was the pledge of action, and the work was as good as done when he had said it. Therefore, when the train arrived, Bobby did not stop to dream any longer. He forgot his beautiful air castle, and even let Annie Lee slip from his mind for the time being. Those towns upon the Kennebec, the two hundred books he was to sell, loomed up before him, for it was with them he had to do. Grasping the little valise he carried with him, he was hastening out of the station house when a hand was placed upon his shoulder. "Got off slick--didn't I?" said Tom Spicer, placing himself by Bobby's side. "You here, Tom!" exclaimed our hero, gazing with astonishment at his late companion. It was not an agreeable encounter, and from the bottom of his heart Bobby wished him any where but where he was. He foresaw that he could not easily get rid of him. "I am here," replied Tom. "I ran through the woods to the depot, and got aboard the cars just as they were starting. The old man couldn't come it over me quite so slick as that." "But you ran away from home." "Well, what of it?" "A good deal, I should say." "If you had been in my place, you would have done the same." "I don't know about that; obedience to parents is one of our first duties." "I know that; and if I had had any sort of fair play, I wouldn't have run away." "What do you mean by that?" asked Bobby, somewhat surprised, though he had a faint idea of the meaning of the other. "I will tell you all about it by and by. I give you my word and honor that I will make every thing satisfactory to you." "But you lied to me on the road this morning." Tom winced; under ordinary circumstances he would have resented such a remark by "clearing away" for a fight. But he had a purpose to accomplish, and he knew the character of him with whom he had to deal. "I am sorry I did, now," answered Tom, with every manifestation of penitence for his fault. "I didn't want to lie to you; and it went against my conscience to do so. But I was afraid, if I told you my father refused, up and down, to let me go, that you wouldn't be willing I should come with you." "I shall not be any more willing now I know all about it," added Bobby, in an uncompromising tone. "Wait till you have heard my story, and then you won't blame me." "Of course you can go where you please; it is none of my business; but let me tell you, Tom, in the beginning, that I won't go with a fellow who has run away from his father and mother." "Pooh! What's the use of talking in that way?" Tom was evidently disconcerted by this decided stand of his companion. He knew that his bump of firmness was well developed, and whatever he said he meant. "You had better return home, Tom. Boys that run away from home don't often amount to much. Take my advice, and go home," added Bobby. "To such a home as mine!" said Tom, gloomily. "If I had such a home as yours, I would not have left it." Bobby got a further idea from this remark of the true state of the case, and the consideration moved him. Tom's father was a notoriously intemperate man, and the boy had nothing to hope for from his precept or his example. He was the child of a drunkard, and as much to be pitied as blamed for his vices. His home was not pleasant. He who presided over it, and who should have made a paradise of it, was its evil genius, a demon of wickedness, who blasted its flowers as fast as they bloomed. Tom had seemed truly penitent both during his illness and since his recovery. His one great desire now was to get away from home, for home to him was a place of torment. Bobby suspected all this, and in his great heart he pitied his companion. He did not know what to do. "I am sorry for you, Tom," said he, after he had considered the matter in this new light; "but I don't see what I can do for you. I doubt whether it would be right for me to help you run away from your parents." "I don't want you to help me run away. I have done that already." "But if I let you go with me, it will be just the same thing. Besides, since you told me those lies this morning, I haven't much confidence in you." "I couldn't help that." "Yes, you could. Couldn't help lying?" "What could I do? You would have gone right back and told my father." "Well, we will go up to Mr. Bayard's store, and then we will see what can be done." "I couldn't stay at home, sure," continued Tom, as they walked along together. "My father even talked of binding me out to a trade." "Did he?" Bobby stopped short in the street; for it was evident that, as this would remove him from his unhappy home, and thus effect all he professed to desire, he had some other purpose in view. "What are you stopping for, Bob?" "I think you better go back, Tom." "Not I; I won't do that, whatever happens." "If your father will put you to a trade, what more do you want?" "I won't go to a trade, any how." Bobby said no more, but determined to consult with Mr. Bayard about the matter; and Tom was soon too busily engaged in observing the strange sights and sounds of the city to think of any thing else. When they reached the store, Bobby went into Mr. Bayard's private office and told him all about the affair. The bookseller decided that Tom had run away more to avoid being bound to a trade than because his home was unpleasant; and this decision seemed to Bobby all the more just because he knew that Tom's mother, though a drunkard's wife, was a very good woman. Mr. Bayard further decided that Bobby ought not to permit the runaway to be the companion of his journey. He also considered it his duty to write to Mr. Spicer, informing him of his son's arrival in the city, and clearing Bobby from any agency in his escape. While Mr. Bayard was writing the letter, Bobby went out to give Tom the result of the consultation. The runaway received it with a great show of emotion, and begged and pleaded to have the decision reversed. But Bobby, though he would gladly have done any thing for him which was consistent with his duty, was firm as a rock, and positively refused, to have any thing to do with him until he obtained his father's consent; or, if there was any such trouble as he asserted, his mother's consent. Tom left the store, apparently "more in sorrow than in anger." His bullying nature seemed to be cast out, and Bobby could not but feel sorry for him. Duty was imperative, as it always is, and it must be done "now or never." During the day the little merchant attended to the packing of his stock, and to such other preparations as were required for his journey. He must take the steamer that evening for Bath, and when the time for his departure arrived, he was attended to the wharf by Mr. Bayard and Ellen, with whom he had passed the afternoon. The bookseller assisted him in procuring his ticket and berth, and gave him such instructions as his inexperience demanded. The last bell rang, the fasts were cast off, and the great wheels of the steamer began to turn. Our hero, who had never been on the water in a steamboat, or indeed any thing bigger than a punt on the river at home, was much interested and excited by his novel position. He seated himself on the promenade deck, and watched with wonder the boiling, surging waters astern of the steamer. How powerful is man, the author of that mighty machine that bore him so swiftly over the deep blue waters! Bobby was a little philosopher, as we have before had occasion to remark, and he was decidedly of the opinion that the steamboat was a great institution. When he had in some measure conquered his amazement, and the first ideas of sublimity which the steamer and the sea were calculated to excite in a poetical imagination, he walked forward to take a closer survey of the machinery. After all, there was something rather comical in the affair. The steam hissed and sputtered, and the great walking beam kept flying up and down; and the sum total of Bobby's philosophy was, that it was funny these things should make the boat go so like a race horse over the water. Then he took a look into the pilot house, and it seemed more funny that turning that big wheel should steer the boat. But the wind blew rather fresh at the forward part of the boat, and as Bobby's philosophy was not proof against it, he returned to the promenade deck, which was sheltered from the severity of the blast. He had got reconciled to the whole thing, and ceased to bother his head about the big wheel, the sputtering steam, and the walking beam; so he seated himself, and began to wonder what all the people in Riverdale were about. "All them as hasn't paid their fare, please walk up to the cap'n's office and s-e-t-t-l-e!" shouted a colored boy, presenting himself just then, and furiously ringing a large hand bell. "I have just settled," said Bobby, alluding to his comfortable seat. But the allusion was so indefinite to the colored boy that he thought himself insulted. He did not appear to be a very amiable boy, for his fist was doubled up, and with sundry big oaths, he threatened to annihilate the little merchant for his insolence. "I didn't say any thing that need offend you," replied Bobby. "I meant nothing." "You lie! You did!" He was on the point of administering a blow with his fist, when a third party appeared on the ground, and without waiting to hear the merits of the case, struck the negro a blow which had nearly floored him. Some of the passengers now interfered, and the colored boy was prevented from executing vengeance on the assailant. "Strike that fellow and you strike me!" said he who had struck the blow. "Tom Spicer!" exclaimed Bobby, astonished and chagrined at the presence of the runaway. CHAPTER XVI. IN WHICH BOBBY FINDS "IT IS AN ILL WIND THAT BLOWS NO ONE ANY GOOD." A gentleman, who was sitting near Bobby when he made the remark which the colored boy had misunderstood, interfered to free him from blame, and probably all unpleasant feelings might have been saved, if Tom's zeal had been properly directed. As it was, the waiter retired with his bell, vowing vengeance upon his assailant. "How came you here, Tom?" asked Bobby, when the excitement had subsided. "You don't get rid of me so easily," replied Tom, laughing. Bobby called to mind the old adage that "a had penny is sure to return;" and, if it had not been a very uncivil remark, he would have said it. "I didn't expect to see you again at present," he observed, hardly knowing what to say or do. "I suppose not; but as I didn't mean you should expect me, I kept out of sight. Only for that darkey you wouldn't have found me out so soon. I like you, Bob, in spite of all you have done to get rid of me, and I wasn't a going to let the darkey thrash you." "You only made matters worse." "That is all the thanks I get for hitting him for you." "I am sorry you hit him, at the same time I suppose you meant to do me a service, and I thank you, not for the blow you struck the black boy, but for your good intentions." "That sounds better. I meant well, Bob." "I dare say you did. But how came you here?" "Why, you see, I was bound to go with you any how or at least to keep within hail of you. You told me, you know, that you were going in the steamboat; and after I left the shop, what should I see but a big picture of a steamboat on a wall. It said, 'Bath, Gardiner, and Hallowell,' on the bill; and I knew that was where you meant to go. So this afternoon I hunts round and finds the steamboat. I thought I never should have found it, but here I am." "What are you going to do?" "Going into the book business," replied Tom, with a smile. "Where are your books?" "Down stairs, in the cellar of the steamboat, or whatever you call it." "Where did you get them?" "Bought 'em, of course." "Did you? Where?" "Well, I don't remember the name of the street now. I could go right there if I was in the city, though." "Would they trust you?" Tom hesitated. The lies he had told that morning had done him no good--had rather injured his cause; and, though he had no principle that forbade lying, he questioned its policy in the present instance. "I paid part down, and they trusted me part." "How many books you got?" "Twenty dollars worth. I paid eight dollars down." "You did? Where did you get the eight dollars?" Bobby remembered the money Tom's father had lost several weeks before, and immediately connected that circumstance with his present ability to pay so large a sum. Tom hesitated again, but he was never at a loss for an answer. "My mother gave it to me." "Your mother?" "Yes, _sir_!" replied Tom, boldly, and in that peculiarly bluff manner which is almost always good evidence that the boy is lying. "But you ran away from home." "That's so; but my mother knew I was coming." "Did she?" "To be sure she did." "You didn't say so before." "I can't tell all I know in a minute." "If I thought your mother consented to your coming, I wouldn't say another word." "Well, she did; you may bet your life on that." "And your mother gave you ten dollars?" "Who said she gave me ten dollars?" asked Tom a little sharply. That was just the sum his father had lost, and Bobby had unwittingly hinted his suspicion. "You must have had as much as that if you paid eight on your books. Your fare to Boston and your steamboat fare must be two dollars more." "I know that; but look here, Bob;" and Tom took from his pocket five half dollars and exhibited them to his companion. "She gave me thirteen dollars." Notwithstanding this argument, Bobby felt almost sure that the lost ten dollars was a part of his capital. "I will tell you my story now, Bob, if you like. You condemned me without a hearing, as Jim Guthrie said when they sent him to the House of Correction for getting drunk." "Go ahead." The substance of Tom's story was, that his father drank so hard, and was such a tyrant in the house, that he could endure it no longer. His father and mother did not agree, as any one might have suspected. His mother, encouraged by the success of Bobby, thought that Tom might do something of the kind, and she had provided him the money to buy his stock of books. Bobby had not much confidence in this story. He had been deceived once; besides, it was not consistent with his previous narrative, and he had not before hinted that he had obtained his mother's consent. But Tom was eloquent, and protested that he had reformed, and meant to do well. He declared, by all that was good and great, Bobby should never have reason to be ashamed of him. Our little merchant was troubled. He could not now get rid of Tom without actually quarrelling with him, or running away from him. He did not wish to do the former, and it was not an easy matter to do the latter. Besides, there was hope that the runaway would do well; and if he did, when he carried the profits of his trade home, his father would forgive him. One thing was certain, if he returned to Riverdale he would be what he had been before. For these reasons Bobby finally, but very reluctantly, consented that Tom should remain with him, resolving, however, that, if he did not behave himself, he would leave him at once. Before morning he had another reason. When the steamer got out into the open bay, Bobby was seasick. He retired to his berth with a dreadful headache; as he described it afterwards, it seemed just as though that great walking beam was smashing up and down right in the midst of his brains. He had never felt so ill before in his life, and was very sure, in his inexperience, that something worse than mere seasickness ailed him. He told Tom, who was not in the least affected, how he felt; whereupon the runaway blustered round, got the steward and the captain into the cabin, and was very sure that Bobby would die before morning, if we may judge by the fuss he made. The captain was angry at being called from the pilot house for nothing, and threatened to throw Tom overboard if he didn't stop his noise. The steward, however, was a kind-hearted man, and assured Bobby that passengers were often a great deal sicker than he was; but he promised to do something for his relief, and Tom went with him to his state room for the desired remedy. The potion was nothing more nor less than a table spoonful of brandy, which Bobby, who had conscientious scruples about drinking ardent spirits, at first refused to take. Then Tom argued the point, and the sick boy yielded. The dose made him sicker yet, and nature came to his relief, and in a little while he felt better. Tom behaved like a good nurse; he staid by his friend till he went to sleep, and then "turned in" upon a settee beneath his berth. The boat pitched and tumbled about so in the heavy sea that Bobby did not sleep long, and when he woke he found Tom ready to assist him. But our hero felt better, and entreated Tom to go to sleep again. He made the best of his unpleasant situation. Sleep was not to be wooed, and he tried to pass away the dreary hours in thinking of Riverdale and the dear ones there. His mother was asleep, and Annie was asleep; and that was about all the excitement he could get up even on the home question. He could not build castles in the air, for seasickness and castle building do not agree. The gold and purple clouds would be black in spite of him, and the aerial structure he essayed to build would pitch and tumble about, for all the world, just like a steamboat in a heavy sea. As often as he got fairly into it, he was violently rolled out, and in a twinkling found himself in his narrow berth, awfully seasick. He went to sleep again at last, and the long night passed away. When he woke in the morning, he felt tolerably well, and was thankful that he had got out of that scrape. But before he could dress himself, he heard a terrible racket on deck. The steam whistle was shrieking, the bell was banging, and he heard the hoarse bellowing of the captain. It was certain that something had happened, or was about to happen. Then the boat stopped, rolling heavily in the sea. Tom was not there; he had gone on deck. Bobby was beginning to consider what a dreadful thing a wreck was, when Tom appeared. "What's the matter?" asked Bobby, with some appearance of alarm. "Fog," replied Tom. "It is so thick you can cut it with a hatchet." "Is that all?" "That's enough.' "Where are we?" "That is just what the pilot would like to know. They can't see ahead a bit, and don't know where we are." Bobby went on deck. The ocean rolled beneath them, but there was nothing but fog to be seen above and around them. The lead was heaved every few moments, and the steamer crept slowly along till it was found the water shoaled rapidly, when the captain ordered the men to let go the anchor. There they were; the fog was as obstinate as a mule, and would not "lift." Hour after hour they waited, for the captain was a prudent man, and would not risk the life of those on board to save a few hours' time. After breakfast, the passengers began to display their uneasiness, and some of them called the captain very hard names, because he would not go on. Almost every body grumbled, and made themselves miserable. "Nothing to do and nothing to read," growled a nicely-dressed gentleman, as he yawned and stretched himself to manifest his sensation of ennui. "Nothing to read, eh?" thought Bobby. "We will soon supply that want." Calling Tom, they went down to the main deck, where the baggage had been placed. "Now's our time," said he, as he proceeded to unlock one of the trunks that contained his books. "Now or never." "I am with you," replied Tom, catching the idea. The books of the latter were in a box, and he was obliged to get a hammer to open it; but with Bobby's assistance he soon got at them. "Buy 'The Wayfarer,'" said Bobby, when he returned to the saloon, and placed a volume in the hands of the yawning gentleman. "Best book of the season; only one dollar." "That I will, and glad of the chance," replied the gentleman. "I would give five dollars for any thing, if it were only the 'Comic Almanac.'" Others were of the same mind. There was no present prospect that the fog would lift, and before dinner time our merchant had sold fifty copies of "The Wayfarer." Tom, whose books were of an inferior description, and who was inexperienced as a salesman, disposed of twenty, which was more than half of his stock. The fog was a godsend to both of them, and they reaped a rich harvest from the occasion, for almost all the passengers seemed willing to spend their money freely for the means of occupying the heavy hours, and driving away that dreadful ennui which reigns supreme in a fog-bound steamer. About the middle of the afternoon, the fog blew over, and the boat proceeded on her voyage, and before sunset our young merchants were safely landed at Bath. CHAPTER XVII. IN WHICH TOM HAS A GOOD TIME, AND BOBBY MEETS WITH A TERRIBLE MISFORTUNE. Bath afforded our young merchants an excellent market for their wares, and they remained there the rest of the week. They then proceeded to Brunswick, where their success was equally flattering. Thus far Tom had done very well, though Bobby had frequent occasion to remind him of the pledges he had given to conduct himself in a proper manner. He would swear now and then, from the force of habit; but invariably, when Bobby checked him, he promised to do better. At Brunswick Tom sold the last of his books, and was in possession of about thirty dollars, twelve of which he owed the publisher who had furnished his stock. This money seemed to burn in his pocket. He had the means of having a good time, and it went hard with him to plod along as Bobby did, careful to save every penny he could. "Come, Bob, let's get a horse and chaise and have a ride--what do you say?" proposed Tom, on the day he finished selling his books. "I can't spare the time or the money," replied Bobby, decidedly. "What is the use of having money if we can't spend it? It is a first rate day, and we should have a good time." "I can't afford it. I have a great many books to sell." "About a hundred; you can sell them fast enough." "I don't spend my money foolishly." "It wouldn't be foolishly. I have sold out, and am bound to have a little fun now." "You never will succeed if you do business in that way." "Why not?" "You will spend your money as fast as you get it." "Pooh! we can get a horse and chaise for the afternoon for two dollars. That is not much." "Considerable, I should say. But if you begin, there is no knowing where to leave off. I make it a rule not to spend a single cent foolishly, and if I don't begin, I shall never do it." "I don't mean to spend all I get; only a little now and then," persisted Tom. "Don't spend the first dollar for nonsense, and then you won't spend the second. Besides, when I have any money to spare, I mean to buy books with it for my library." "Humbug! Your library!" "Yes, my library; I mean to have a library one of these days." "I don't want any library, and I mean to spend some of my money in having a good time; and if you won't go with me, I shall go alone--that's all." "You can do as you please, of course; but I advise you to keep your money. You will want it to buy another stock of books." "I shall have enough for that. What do you say? Will you go with me or not?" "No, I will not." "Enough said; then. I shall go alone, or get some fellow to go with me." "Consider well before you go," pleaded Bobby, who had sense enough to see that Tom's proposed "good time" would put back, if not entirely prevent, the reform he was working out. He then proceeded to reason with him in a very earnest and feeling manner, telling him he would not only spend all his money, but completely unfit himself for business. What he proposed to do was nothing more nor less than extravagance, and it would lead him to dissipation and ruin. "To-day I am going to send one hundred dollars to Mr. Bayard," continued Bobby; "for I am afraid to have so much money with me. I advise you to send your money to your employer." "Humph! Catch me doing that! I am bound to have a good time, any how." "At least, send the money you owe him." "I'll bet I won't." "Well, do as you please; I have said all I have to say." "You are a fool, Bob!" exclaimed Tom, who had evidently used Bobby as much as he wished, and no longer cared to speak soft words to him. "Perhaps I am; but I know better than to spend my money upon fast horses. If you will go, I can't help it. I am sorry you are going astray." "What do you mean by that, you young monkey?" said Tom, angrily. This was Tom Spicer, the bully. It sounded like him; and with a feeling of sorrow Bobby resigned the hopes he had cherished of making a good boy of him. "We had better part now," added our hero, sadly. "I'm willing." "I shall leave Brunswick this afternoon for the towns up the river. I hope no harm will befall you. Good by, Tom," "Go it! I have heard your preaching about long enough, and I am more glad to get rid of you than you are to get rid of me." Bobby walked away towards the house where he had left the trunk containing his books, while Tom made his way towards a livery stable. The boys had been in the place for several days, and had made some acquaintances; so Tom had no difficulty in procuring a companion for his proposed ride. Our hero wrote a letter that afternoon to Mr. Bayard, in which he narrated all the particulars of his journey, his relations with Tom Spicer, and the success that had attended his labors. At the bank he procured a hundred dollar note for his small bills, and enclosed it in the letter. He felt sad about Tom. The runaway had done so well, had been so industrious, and shown such a tractable spirit, that he had been very much encouraged about him. But if he meant to be wild again,--for it was plain that the ride was only "the beginning of sorrows,"--it was well that they should part. By the afternoon stage our hero proceeded to Gardiner, passing through several smaller towns, which did not promise a very abundant harvest. His usual success attended him; for wherever he went, people seemed to be pleased with him, as Squire Lee had declared they would be. His pleasant, honest face was a capital recommendation, and his eloquence seldom failed to achieve the result which eloquence has ever achieved from Demosthenes down to the present day. Our limits do not permit us to follow him in all his peregrinations from town to town, and from house to house; so we pass over the next fortnight, at the end of which time we find him at Augusta. He had sold all his books but twenty, and had that day remitted eighty dollars more to Mr. Bayard. It was Wednesday, and he hoped to sell out so as to be able to take the next steamer for Boston, which was advertised to sail on the following day. He had heard nothing from Tom since their parting, and had given up all expectation of meeting him again; but that bad penny maxim proved true once more, for, as he was walking through one of the streets of Augusta, he had the misfortune to meet him--and this time it was indeed a misfortune. "Hallo, Bobby!" shouted the runaway, as familiarly as though nothing had happened to disturb the harmony of their relations. "Ah, Tom, I didn't expect to see you again," replied Bobby, not very much rejoiced to meet his late companion. "I suppose not; but here I am, as good as new. Have you sold out?" "No, not quite." "How many have you left?" "About twenty; but I thought, Tom, you would have returned to Boston before this time." "No;" and Tom did not seem to be in very good spirits. "Where are you going now?" "I don't know. I ought to have taken your advice, Bobby." This was a concession, and our hero began to feel some sympathy for his companion--as who does not when the erring confess their faults? "I am sorry you did not." "I got in with some pretty hard fellows down there to Brunswick," continued Tom, rather sheepishly. "And spent all your money," added Bobby, who could readily understand the reason why Tom had put on his humility again. "Not all." "How much have you left?" "Not much," replied he, evasively. "I don't know what I shall do. I am in a strange place, and have no friends." Bobby's sympathies were aroused, and without reflection, he promised to be a friend in his extremity. "I will stick by you this time, Bob, come what will. I will do just as you say, now." Our merchant was a little flattered by this unreserved display of confidence. He did not give weight enough to the fact that it was adversity alone which made Tom so humble. He was in trouble, and gave him all the guarantee he could ask for his future good behavior. He could not desert him now he was in difficulty. "You shall help me sell my books, and then we will return to Boston together. Have you money enough left to pay your employer?" Tom hesitated; something evidently hung heavily upon his mind. "I don't know how it will be after I have paid my expenses to Boston," he replied, averting his face. Bobby was perplexed by this evasive answer; but as Tom seemed so reluctant to go into details, he reserved his inquiries for a more convenient season. "Now, Tom, you take the houses on that side of the street, and I will take those upon this side. You shall have the profits on all you sell." "You are a first rate fellow, Bob; and I only wish I had done as you wanted me to do." "Can't be helped now, and we will do the next best thing," replied Bobby, as he left his companion to enter a house. Tom did very well, and by the middle of the afternoon they had sold all the books but four. "The Wayfarer" had been liberally advertised in that vicinity, and the work was in great demand. Bobby's heart grew lighter as the volumes disappeared from his valise, and already he had begun to picture the scene which would ensue upon his return to the little black house. How glad his mother would be to see him, and, he dared believe, how happy Annie would be as she listened to the account of his journey in the State of Maine! Wouldn't she be astonished when he told her about the steamboat, about the fog, and about the wild region at the mouth of the beautiful Kennebec! Poor Bobby! the brightest dream often ends in sadness; and a greater trial than any he had been called upon to endure was yet in store for him. As he walked along, thinking of Riverdale and its loved ones, Tom came out of a grocery store where he had just sold a book. "Here, Bob, is a ten dollar bill. I believe I have sold ten books for you," said Tom, after they had walked some distance. "You had better keep the money now; and while I think of it, you had better take what I have left of my former sales;" and Tom handed him another ten dollar bill. Bobby noticed that Tom seemed very much confused and embarrassed; but he did not observe that the two bills he had handed him were on the same bank. "Then you had ten dollars left after your frolic," he remarked, as he took the last bill. "About that;" and Tom glanced uneasily behind him. "What is the matter with you, Tom?" asked Bobby, who did not know what to make of his companion's embarrassment. "Nothing, Bob; let us walk a little faster. We had better turn up this street," continued Tom, as with a quick pace, he took the direction indicated. Bobby began to fear that Tom had been doing something wrong; and the suspicion was confirmed by seeing two men running with all their might towards them. Tom perceived them at the same moment. "Run!" he shouted, and suiting the action to the word, he took to his heels, and fled up the street into which he had proposed to turn. Bobby did not run, but stopped short where he was till the men came up to him. "Grab him," said one of them, "and I will catch the other." The man collared Bobby, and in spite of all the resistance he could make, dragged him down the street to the grocery store in which Tom had sold his last book. "What do you mean by this?" asked Bobby, his blood boiling with indignation at the harsh treatment to which he had been subjected. "We have got you, my hearty," replied the man, releasing his hold. No sooner was the grasp of the man removed, then Bobby, who determined on this as on former occasions to stand upon his inalienable rights, bolted for the door, and ran away with all his speed. But his captor was too fleet for him, and he was immediately retaken. To make him sure this time, his arms were tied behind him, and he was secured to the counter of the shop. In a few moments the other man returned dragging Tom in triumph after him. By this time quite a crowd had collected, which nearly filled the store. Bobby was confounded at the sudden change that had come over his fortunes; but seeing that resistance would be vain, he resolved to submit with the best grace he could. "I should like to know what all this means?" he inquired, indignantly. The crowd laughed in derision. "This is the chap that stole the wallet, I will be bound," said one, pointing to Tom, who stood in surly silence awaiting his fate. "He is the one who came into the store," replied the shopkeeper. "_I_ haven't stole any wallet," protested Bobby, who now understood the whole affair. The names of the two boys were taken, and warrants procured for their detention. They were searched, and upon Tom was found the lost wallet, and upon Bobby two ten dollar bills, which, the loser was willing to swear had been in the wallet. The evidence therefore was conclusive, and they were both sent to jail. Poor Bobby! the inmate of a prison! The law took its course, and in due time both of them were sentenced to two years' imprisonment in the State Reform School. Bobby was innocent, but he could not make his innocence appear. He had been the companion of Tom, the real thief, and part of the money had been found upon his person. Tom was too mean to exonerate him, and even had the hardihood to exult over his misfortune. At the end of three days they reached the town in which the Reform School is located, and were duly committed for their long term. Poor Bobby! CHAPTER XVIII. IN WHICH BOBBY TAKES FRENCH LEAVE, AND CAMPS IN THE WOODS. The intelligence of Bobby's misfortune reached Mr. Bayard, in Boston, by means of the newspapers. To the country press an item is a matter of considerable importance, and the alleged offence against the peace and dignity of the State of Maine was duly heralded to the inquiring public as a "daring robbery." The reporter who furnished the facts in the case for publication was not entirely devoid of that essential qualification of the country item writer, a lively imagination, and was obliged to dress up the particulars a little, in order to produce the necessary amount of wonder and indignation. It was stated that one of the two young men had been prowling about the place for several days, ostensibly for the purpose of selling books, but really with the intention of stealing whatever he could lay his hands upon. It was suggested that the boys were in league with an organized band of robbers, whose nefarious purposes would be defeated by the timely arrest of these young villains. The paper hinted that further depredations would probably be discovered, and warned people to beware of ruffians strolling about the country in the guise of pedlers. The writer of this thrilling paragraph must have had reason to believe that he had discharged his whole duty to the public, and that our hero was duly branded as a desperate fellow. No doubt he believed Bobby was an awful monster; for at the conclusion of his remarks he introduced some severe strictures on the lenity of the magistrate, because he had made the sentence two years, instead of five, which the writer thought the atrocious crime deserved. But, then, the justice differed from him in politics, which may account for the severity of the article. Mr. Bayard read this precious paragraph with mingled grief and indignation. He understood the case at a glance. Tom Spicer had joined him, and the little merchant had been involved in his crime. He was sure that Bobby had had no part in stealing the money. One so noble and true as he had been could not steal, he reasoned. It was contrary to experience, contrary to common sense. He was very much disturbed. This intelligence would be a severe blow to the poor boy's mother, and he had not the courage to destroy all her bright hopes by writing her the terrible truth. He was confident that Bobby was innocent, and that his being in the company of Tom Spicer had brought the imputation upon him; so he could not let the matter take its course. He was determined to do something to procure his liberty and restore his reputation. Squire Lee was in the city that day, and had left his store only half an hour before he discovered the paragraph. He immediately sent to his hotel for him, and together they devised means to effect Bobby's liberation. The squire was even more confident than Mr. Bayard that our hero was innocent of the crime charged upon him. They agreed to proceed immediately to the State of Maine, and use their influence in obtaining his pardon. The bookseller was a man of influence in the community, and was as well known in Maine as in Massachusetts; but to make their application the surer, he procured letters of introduction from some of the most distinguished men in Boston to the governor and other official persons in Maine. We will leave them now to do the work they had so generously undertaken, and return to the Reform School, where Bobby and Tom were confined. The latter took the matter very coolly. He seemed to feel that he deserved his sentence, but he took a malicious delight in seeing Bobby the companion of his captivity. He even had the hardihood to remind him of the blow he had struck him more than two months before, telling him that he had vowed vengeance then, and now the time had come. He was satisfied. "You know I didn't steal the money, or have any thing to do with it," said Bobby. "Some of it was found upon you, though," sneered Tom, maliciously. "You know how it came there, if no one else does." "Of course I do; but I like your company too well to get rid of you so easy." "The Lord is with the innocent," replied Bobby, "and something tells me that I shall not stay in this place a great while." "Going to run away?" asked Tom, with interest, and suddenly dropping his malicious look. "I know I am innocent of any crime; and I know that the Lord will not let me stay here a great while." "What do you mean to do, Bob?" Bobby made no reply; he felt that he had had more confidence in Tom than he deserved, and he determined to keep his own counsel in future. He had a purpose in view. His innocence gave him courage; and perhaps he did not feel that sense of necessity for submission to the laws of the land which age and experience give. He prayed earnestly for deliverance from the place in which he was confined. He felt that he did not deserve to be there; and though it was a very comfortable place, and the boys fared as well as he wished to fare, still it seemed to him like a prison. He was unjustly detained; and he not only prayed to be delivered, but he resolved to work out his own deliverance at the first opportunity. Knowing that whatever he had would be taken from him, he resolved by some means to keep possession of the twenty dollars he had about him. He had always kept his money in a secret place in his jacket to guard against accident, and the officers who had searched him had not discovered it. But now his clothes would be changed. He thought of these things before his arrival; so, when he reached the entrance, and got out of the wagon, to open the gate, by order of the officer, he slipped his twenty dollars into a hole in the wall. It so happened that there was not a suit of clothes in the store room of the institution which would fit him; and he was permitted to wear his own dress till another should be made. After his name and description had been entered, and the superintendent had read him a lecture upon his future duties, he was permitted to join the other boys, who were at work on the farm. He was sent with half a dozen others to pick up stones in a neighboring field. No officer was with them, and Bobby was struck with the apparent freedom of the institution, and he so expressed himself to his companions. "Not so much freedom as you think for," said one, in reply. "I should think the fellows would clear out." "Not so easy a matter. There is a standing reward of five dollars to any one who brings back a runaway." "They must catch him first." "No fellow ever got away yet. They always caught him before he got ten miles from the place." This was an important suggestion to Bobby, who already had a definite purpose in his mind. Like a skilful general, he had surveyed the ground on his arrival, and was at once prepared to execute his design. In his conversation with the boys, he obtained, the history of several who had attempted to escape, and found that even those who got a fair start were taken on some public road. He perceived that they were not good generals, and he determined to profit by their mistake. A short distance from the institution was what appeared to be a very extensive wood. Beyond this, many miles distant, he could see the ocean glittering like a sheet of ice under the setting sun. He carefully observed the hills, and obtained the bearings of various prominent objects in the vicinity, which would aid him in his flight. The boys gave him all the information in their power about the localities of the country. They seemed to feel that he was possessed of a superior spirit, and that he would not long remain among them; but, whatever they thought, they kept their own counsel. Bobby behaved well, and was so intelligent and prompt that he obtained the confidence of the superintendent, who began to employ him about the house, and in his own family. He was sent of errands in the neighborhood, and conducted himself so much to the satisfaction of his guardians that he was not required to work in the field after the second day of his residence on the farm. One afternoon he was told that his clothes were ready, and that he might put them on the next morning. This was a disagreeable announcement; for Bobby saw that, with the uniform of the institution upon his back, his chance of escape would be very slight. But about sunset, he was sent by the superintendent's lady to deliver a note at a house in the vicinity. "Now or never!" said Bobby to himself, after he had left the house. "Now's my time." As he passed the gate, he secured his money, and placed it in the secret receptacle of his jacket. After he had delivered the letter, he took the road and hastened off in the direction of the wood. His heart beat wildly at the prospect of once more meeting his mother, after nearly four weeks' absence. Annie Lee would welcome him; she would not believe that he was a thief. He had been four days an inmate of the Reform School, and nothing but the hope of soon attaining his liberty had kept his spirits from drooping. He had not for a moment despaired of getting away. He reached the entrance to the wood, and taking a cart path, began to penetrate its hidden depths. The night darkened upon him; he heard the owl screech his dismal note, and the whip-poor-will chant his cheery song. A certain sense of security now pervaded his mind, for the darkness concealed him from the world, and he had placed six good miles between him and the prison, as he considered it. He walked on, however, till he came to what seemed to be the end of the wood, and he hoped to reach the blue ocean he had seen in the distance before morning. Leaving the forest, he emerged into the open country. There was here and there a house before him; but the aspect of the country seemed strangely familiar to him. He could not understand it. He had never been in this part of the country before; yet there was a great house with two barns by the side of it, which he was positive he had seen before. He walked across the field a little farther, when, to his astonishment and dismay, he beheld the lofty turrets of the State Reform School. He had been walking in a circle, and had come out of the forest near the place where he had entered it. Bobby, as the reader has found out by this time, was a philosopher as well as a hero; and instead of despairing or wasting his precious time in vain regrets at his mistake, he laughed a little to himself at the blunder, and turned back into the woods again. "Now or never!" muttered he. "It will never do to give it up so." For an hour he walked on, with his eyes fixed on a great bright star in the sky. Then he found that the cart path crooked round, and he discovered where he had made his blunder. Leaving the road, he made his way in a straight line, still guided by the star, till he came to a large sheet of water. The sheet of water was an effectual barrier to his farther progress; indeed, he was so tired, he did not feel able to walk any more. He deemed himself safe from immediate pursuit in this secluded place. He needed rest, and he foresaw that the next few days would be burdened with fatigue and hardship which he must be prepared to meet. Bobby was not nice about trifles, and his habits were such that he had no fear of taking cold. His comfortable bed in the little black house was preferable to the cold ground, even with the primeval forest for a chamber; but circumstances alter cases, and he did not waste any vain regrets about the necessity of his position. After finding a secluded spot in the wood, he raked the dry leaves together for a bed, and offering his simple but fervent prayer to the Great Guardian above, he lay down to rest. The owl screamed his dismal note, and the whip-poor-will still repeated his monotonous song; but they were good company in the solitude of the dark forest. He could not go to sleep for a time, so strange and exciting were the circumstances of his position. He thought of a thousand things, but he could not _think_ himself to sleep, as he was wont to do. At last nature, worn out by fatigue and anxiety, conquered the circumstances, and he slept. CHAPTER XIX. IN WHICH BOBBY HAS A NARROW ESCAPE, AND GOES TO SEA WITH SAM RAY. Nature was kind to the little pilgrim in his extremity, and kept his senses sealed in grateful slumber till the birds had sung their matin song, and the sun had risen high in the heavens. Bobby woke with a start, and sprang to his feet. For a moment he did not realize where he was, or remember the exciting incidents of the previous evening. He felt refreshed by his deep slumber, and came out of it as vigorous as though he had slept in his bed at home. Rubbing his eyes, he stared about him at the tall pines whose foliage canopied his bed, and his identity was soon restored to him. He was Bobby Bright--but Bobby Bright in trouble. He was not the little merchant, but the little fugitive fleeing from the prison to which he had been doomed. It did not take him long to make his toilet, which was the only advantage of his primitive style of lodging. His first object was to examine his position, and ascertain in what direction he should continue his flight. He could not go ahead, as he had intended, for the sheet of water was an impassable barrier. Leaving the dense forest, he came to a marsh, beyond which was the wide creek he had seen in the night. It was salt water, and he reasoned that it could not extend a great way inland. His only course was to follow it till he found means of crossing it. Following the direction of the creek, he kept near the margin of the wood till he came to a public road. He had some doubts about trusting himself out of the forest, even for a single moment; so he seated himself upon a rock to argue the point. If any one should happen to come along, he was almost sure of furnishing a clew to his future movements, if not of being immediately captured. This was a very strong argument, but there was a stronger one upon the other side. He had eaten nothing since dinner on the preceding day, and he began, to feel faint for the want of food. On the other side of the creek he saw a pasture which looked as though it might afford him a few berries; and he was on the point of taking to the road, when he heard the rumbling of a wagon in the distance. His heart beat with apprehension. Perhaps it was some officer of the institution in search of him. At any rate it was some one who had come from the vicinity of the Reform School, and who had probably heard of his escape. As it came nearer, he heard the jingling of bells; it was the baker. How he longed for a loaf of his bread, or some of the precious ginger-bread he carried in his cart! Hunger tempted him to run the risk of exposure. He had money; he could buy cakes and bread; and perhaps the baker had a kind heart, and would befriend him in his distress. The wagon was close at hand. "Now or never," thought he; but this time it was not _now_. The risk was too great. If he failed now, two years of captivity were before him; and as for the hunger, he could grin and bear it for a while. "Now or never;" but this time it was escape now or never; and he permitted the baker to pass without hailing him. He waited half an hour, and then determined to take the road till he had crossed the creek. The danger was great, but the pangs of hunger urged him on. He was sure there were berries in the pasture, and with a timid step, carefully watching before and behind to insure himself against surprise, he crossed the bridge. But then a new difficulty presented itself. There was a house within ten rods of the bridge, which he must pass, and to do so would expose him to the most imminent peril. He was on the point of retreating, when a man came out of the house, and approached him. What should he do? It was a trying moment. If he ran, the act would expose him to suspicion. If he went forward, the man might have already received a description of him, and arrest him. He chose the latter course. The instinct of his being was to do every thing in a straightforward manner, and this probably prompted his decision. "Good morning, sir," said he boldly to the man. "Good morning. Where are you travelling?" This was a hard question. He did not know where he was travelling; besides, even in his present difficult position, he could not readily resort to a lie. "Down here a piece," he replied. "Travelled far to-day?" "Not far. Good morning, sir;" and Bobby resumed his walk. "I say, boy, suppose you tell me where you are going;" and the man came close to him, and deliberately surveyed him from head to foot. "I can hardly tell you," replied Bobby, summoning courage for the occasion. "Well, I suppose not," added the man, with a meaning smile. Bobby felt his strength desert him as he realized that he was suspected of being a runaway from the Reform School. That smile on the man's face was the knell of hope; and for a moment he felt a flood of misery roll over his soul. But the natural elasticity of his spirits soon came to his relief, and he resolved not to give up the ship, even if he had to fight for it. "I am in a hurry, so I shall have to leave you." "Not just yet, young man. Perhaps, as you don't know where you are going, you may remember what your name is," continued the man, good naturedly. There was a temptation to give a false name; but is it was so strongly beaten into our hero that the truth is better than a falsehood, he held his peace. "Excuse me, sir, but I can't stop to talk now." "In a hurry? Well, I dare say you are. I suppose there is no doubt but you are Master Robert Bright." "Not the least, sir; I haven't denied it yet, and I am not ashamed of my name," replied Bobby, with a good deal of spirit. "That's honest; I like that." "Honesty is the best policy," added Bobby. "That's cool for a rogue, any how. You ought to thought of that afore." "I did." "And stole the money?" "I didn't. I never stole a penny in my life." "Come, I like that." "It is the truth." "But they won't believe it over to the Reform school," laughed the man. "They will one of these days, perhaps." "You are a smart youngster; but I don't know as I can make five dollars any easier than by taking you back where you come from." "Yes, you can," replied Bobby, promptly. "Can I?" "Yes." "How?" "By letting me go." "Eh; you talk flush. I suppose you mean to give me your note, payable when the Kennebec dries up." "Cash on the nail," replied Bobby. "You look like a man with a heart in your bosom."--Bobby stole this passage from "The Wayfarer." "I reckon I have. The time hasn't come yet when Sam Ray could see a fellow-creature in distress and not help him out. But to help a thief off--" "We will argue that matter," interposed Bobby. "I can prove to you beyond a doubt that I am innocent of the crime charged upon me." "You don't look like a bad boy, I must say." "But, Mr. Ray, I'm hungry; I haven't eaten a mouthful since yesterday noon." "Thunder! You don't say so!" exclaimed Sam Ray. "I never could bear to see a man hungry, much more a boy; so come along to my house and get something to eat, and we will talk about the other matter afterwards." Sam Ray took Bobby to the little old house in which he dwelt; and in a short time his wife, who expressed her sympathy for the little fugitive in the warmest terms, had placed an abundant repast upon the table. Our hero did ample justice to it, and when he had finished he felt like a new creature. "Now, Mr. Ray, let me tell you my story," said Bobby. "I don't know as it's any use. Now you have eat my bread and butter, I don't feel like being mean to you. If any body else wants to carry you back, they may; I won't." "But you shall hear me;" and Bobby proceeded to deliver his "plain, unvarnished tale." When he had progressed but a little way in the narrative, the noise of an approaching vehicle was heard. Sam looked out of the window, as almost every body does in the country when a carriage passes. "By thunder! It's the Reform School wagon!" exclaimed he. "This way, boy!" and the good-hearted man thrust him into his chamber, bidding him get under the bed. The carriage stopped at the house; but Sam evaded direct reply, and the superintendent--for it was he--proceeded on his search. "Heaven bless you, Mr. Ray!" exclaimed Bobby, when he came out of the chamber, as the tears of gratitude coursed down his cheeks. "O, you will find Sam Ray all right," said he, warmly pressing Bobby's proffered hand. "I ain't quite a heathen, though some folks around here think so." "You are an angel!" "Not exactly," laughed Sam. Our hero finished his story, and confirmed it by exhibiting his account book and some other papers which he had retained. Sam Ray was satisfied, and vowed that if ever he saw Tom Spicer he would certainly "lick" him for his sake. "Now, sonny, I like you; I will be sworn you are a good fellow; and I mean to help you off. So just come along with me. I make my living by browsing round, hunting and fishing a little, and doing an odd job now and then. You see, I have got a good boat down the creek, and I shall just put you aboard and take you any where you have a mind to go." "May Heaven reward you!" cried Bobby, almost overcome by this sudden and unexpected kindness. "O, I don't want no reward; only when you get to be a great man--and I am dead sure you will be a great man--just think now and then of Sam Ray, and it's all right." "I shall remember you with gratitude as long as I live." Sam Ray took his gun on his shoulder, and Bobby the box of provision which Mrs. Ray had put up, and they left the house. At the bridge they got into a little skiff, and Sam took the oars. After they had passed a bend in the creek which concealed them from the road, Bobby felt secure from further molestation. Sam pulled about two miles down the creek, where it widened into a broad bay, near the head of which was anchored a small schooner. "Now, my hearty, nothing short of Uncle Sam's whole navy can get you away from me," said Sam, as he pulled alongside the schooner. "You have been very kind to me." "All right, sonny. Now tumble aboard." Bobby jumped upon the deck of the little craft and Sam followed him, after making fast the skiff to the schooner's moorings. In a few minutes the little vessel was standing down the bay with "a fresh wind and a flowing sheet." Bobby, who had never been in a sail boat before, was delighted, and in no measured terms expressed his admiration of the working of the trim little craft. "Now, sonny, where shall we go?" asked Sam, as they emerged from the bay into the broad ocean. "I don't know," replied Bobby. "I want to get back to Boston." "Perhaps I can put you aboard of some coaster bound there." "That will do nicely." "I will head towards Boston, and if I don't overhaul any thing, I will take you there myself." "Is this boat big enough to go so far?" "She'll stand anything short of a West India hurricane. You ain't afeerd, are you?" "O, no; I like it." The big waves now tossed the little vessel up and down like a feather, and the huge seas broke upon the bow, deluging her deck with floods of water. Bobby had unlimited confidence in Sam Ray, and felt as much at home as though he had been "cradled upon the briny deep." There was an excitement in the scene which accorded with his nature, and the perils which he had so painfully pictured on the preceding night were all born into the most lively joys. They ate their dinners from the provision box; Sam lighted his pipe, and many a tale he told of adventure by sea and land. Bobby felt happy, and almost dreaded the idea of parting with his rough but good-hearted friend They were now far out at sea, and the night was coming on. "Now, sonny, you had better turn in and take a snooze; you didn't rest much last night." "I am not sleepy; but there is one thing I will do; and Bobby drew from his secret receptacle his roll of bills. "Put them up, sonny," said Sam. "I want to make you a present of ten dollars." "You can't do it." "Nay, but to please me." "No, sir!" "Well, then, let me send it to your good wife." "You can't do that, nuther," replied Sam, gazing earnestly at a lumber-laden schooner ahead of him. "You must; your good heart made you lose five dollars, and I insist upon making it up to you." "You can't do it." "I shall feel bad if you don't take it. You see I have twenty dollars here, and I would like to give you the whole of it." "Not a cent, sonny. I ain't a heathen. That schooner ahead is bound for Boston, I reckon." "I shall be sorry to part with you, Mr. Ray." "Just my sentiment. I hain't seen a youngster afore for many a day that I took a fancy to, and I hate to let you go." "We shall meet again." "I hope so." "Please to take this money." "No;" and Sam shook his head so resolutely that Bobby gave up the point. As Sam had conjectured, the lumber schooner was bound to Boston. Her captain readily agreed to take our hero on board, and he sadly bade adieu to his kind friend. "Good by, Mr. Ray," said Bobby, as the schooner filled away. "Take this to remember me by." It was his jackknife; but Sam did not discover the ten dollar bill, which was shut beneath the blade, till it was too late to return it. Bobby did not cease to wave his hat to Sam till his little craft disappeared in the darkness. CHAPTER XX. IN WHICH THE CLOUDS BLOW OVER, AND BOBBY IS HIMSELF AGAIN. Fortunately for Bobby, the wind began to blow very heavily soon after he went on board of the lumber schooner, so that the captain was too much engaged in working his vessel to ask many questions. He was short handed, and though our hero was not much of a sailor, he made himself useful to the best of his ability. Though the wind was heavy, it was not fair; and it was not till the third morning after his parting with Sam Ray that the schooner arrived off Boston Light. The captain then informed him that, as the tide did not favor him, he might not get up to the city for twenty-four hours; and, if he was in a hurry, he would put him on board a pilot boat which he saw standing up the channel. "Thank you, captain; you are very kind, but it would give you a great deal of trouble," said Bobby. "None at all. We must wait here till the tide turns; so we have nothing better to do." "I should be very glad to get up this morning." "You shall, then;" and the captain ordered two men to get out the jolly boat. "I will pay my passage now, if you please." "That is paid." "Paid?" "I should say you had worked your passage. You have done very well, and I shall not charge you any thing." "I expected to pay my passage, captain; but if you think I have done enough to pay it, why, I have nothing to say, only that I am very much obliged to you." "You ought to be a sailor, young man; you were cut out for one." "I like the sea, though I never saw it till a few weeks since. But I suppose my mother would not let me go to sea." "I suppose not. Mothers are always afraid of salt water." By this time the jolly boat was alongside; and bidding the captain adieu, he jumped into it, and the men pulled him to the pilot boat, which had come up into the wind at the captain's hail. Bobby was kindly received on board, and in a couple of hours landed at the wharf in Boston. With a beating heart he made his way up into Washington Street. He felt strangely; his cheeks seemed to tingle, for he was aware that the imputation of dishonesty was fastened upon him. He could not doubt but that the story of his alleged crime had reached the city, and perhaps gone to his friends in Riverdale. How his poor mother must have wept to think her son was a thief! No; she never could have thought that. _She_ knew he would not steal, if no one else did. And Annie Lee--would she ever smile upon him again? Would she welcome him to her father's house so gladly as she had done in the past? He could bring nothing to establish his innocence but his previous character. Would not Mr. Bayard frown upon him? Would not even Ellen be tempted to forget the service he had rendered her? Bobby had thought of all these things before--on his cold, damp bed in the forest, in the watches of the tempestuous night onboard the schooner. But now, when he was almost in the presence of those he loved and respected, they had more force, and they nearly overwhelmed him. "I am innocent," he repeated to himself, "and why need I fear? My good Father in heaven will not let me be wronged." Yet he could not overcome his anxiety; and when he reached the store of Mr. Bayard, he passed by, dreading to face the friend who had been so kind to him. He could not bear even to be suspected of a crime by him. "Now or never," said he, as he turned round. "I will know my fate at once, and then make the best of it." Mustering all his courage, he entered the store. Mr. Timmins was not there; so he was spared the infliction of any ill-natured remark from him. "Hallo, Bobby!" exclaimed the gentlemanly salesman, whose acquaintance he had made on his first visit. "Good morning, Mr. Bigelow," replied Bobby with as much boldness as he could command. "I didn't know as I should ever see you again. You have been gone a long while." "Longer than usual," answered Bobby, with a blush; for he considered the remark of the salesman as an allusion to his imprisonment. "Is Mr. Bayard in?" "He is--in his office." Bobby's feet would hardly obey the mandate of his will, and with a faltering step he entered the private room of the bookseller. Mr. Bayard was absorbed in the perusal of the morning paper, and did not observe his entrance. With his heart up in his throat, and almost choking him, he stood for several minutes upon the threshold. He almost feared to speak, dreading the severe frown with which he expected to be received. Suspense, however, was more painful than condemnation, and he brought his resolution up to the point. "Mr. Bayard," said he, in faltering tones. "Bobby!" exclaimed the bookseller, dropping his paper upon the floor, and jumping upon his feet as though an electric current had passed through his frame. Grasping our hero's hand, he shook it with so much energy that, under any other circumstances, Bobby would have thought it hurt him. He did not think so now. "My poor Bobby! I am delighted to see you!" continued Mr. Bayard. Bobby burst into tears, and sobbed like a child, as he was. The unexpected kindness of this reception completely overwhelmed him. "Don't cry, Bobby; I know all about it;" and the tender-hearted bookseller wiped away his tears. "It was a stroke of misfortune; but it is all right now." But Bobby could not help crying, and the more Mr. Bayard, attempted to console him, the more he wept. "I am innocent, Mr. Bayard," he sobbed. "I know you are, Bobby; and all the world knows you are." "I am ruined now; I shall never dare to hold my head up again." "Nonsense, Bobby; you will hold your head the higher. You have behaved like a hero." "I ran away from the State Reform School, sir. I was innocent, and I would rather have died than staid there." "I know all about it, my young friend. Now dry your tears, and we will talk it all over." Bobby blowed and sputtered a little more; but finally he composed himself, and took a chair by Mr. Bayard's side. The bookseller then drew from his pocket a ponderous document, with a big official seal upon it, and exhibited it to our hero. "Do you see this, Bobby? It is your free and unconditional pardon." "Sir! Why--" "It will all end well, you may depend." Bobby was amazed. His pardon? But it would not restore his former good name. He felt that he was branded as a felon. It was not mercy, but justice that he wanted. "Truth is mighty, and will prevail," continued Mr. Bayard; "and this document restores your reputation." "I can hardly believe that." "Can't you? Hear my story then. When I read in one of the Maine papers the account of your misfortune, I felt that you had been grossly wronged. You were coupled with that Tom Spicer, who is the most consummate little villain I ever saw, and I understood your situation. Ah, Bobby, your only mistake was in having anything to do with that fellow." "I left him at Brunswick because he began to behave badly; but he joined me again at Augusta. He had spent nearly all his money, and did not know what to do. I pitied him, and meant to do something to help him out of the scrape." "Generous as ever! I have heard all about this before." "Indeed; who told you?" "Tom Spicer himself." "Tom?" asked Bobby, completely mystified. "Yes, Tom; you see, when I heard about your trouble, Squire Lee and myself--" "Squire Lee? Does he know about it?" "He does; and you may depend upon it, he thinks more highly of you than ever before. He and I immediately went down to Augusta to inquire into the matter. We called upon the governor of the state, who said that he had seen you, and bought a book of you." "Of me!" exclaimed Bobby, startled to think he had sold a book to a governor. "Yes; you called at his house; probably you did not know that he was the chief magistrate of the state. At any rate, he was very much pleased with you, and sorry to hear of your misfortune. Well, we followed your route to Brunswick, where we ascertained how Tom had conducted. In a week he established a very bad reputation there; but nothing could be found to implicate you. The squire testified to your uniform good behavior, and especially to your devotion to your mother. In short, we procured your pardon, and hastened with it to the State Reform School. "On our arrival, we learned, to our surprise and regret, that you had escaped from the institution on the preceding evening. Every effort was made to retake you, but without success. Ah, Bobby, you managed that well." "They didn't look in the right place," replied Bobby, with a smile, for he began to feel happy again. "By the permission of the superintendent, Squire Lee and myself examined Tom Spicer. He is a great rascal. Perhaps he thought we would get him out; so he made a clean breast of it, and confessed that you had no hand in the robbery, and that you knew nothing about it. He gave you the two bills on purpose to implicate you in the crime. We wrote down his statement, and had it sworn to before a justice of the peace. You shall read it by and by." "May Heaven reward you for your kindness to a poor boy!" exclaimed Bobby, the tears flowing down his cheeks again. "I did not deserve so much from you, Mr. Bayard." "Yes, you did, and a thousand times more. I was very sorry you had left the institution, and I waited in the vicinity till they said there was no probability that you would be captured. The most extraordinary efforts were used to find you; but there was not a person to be found who had seen or heard of you. I was very much alarmed about you, and offered a hundred dollars for any information concerning you." "I am sorry you had so much trouble. I wish I had known you were there." "How did you get off?" Bobby briefly related the story of his escape, and Mr. Bayard pronounced his skill worthy of his genius. "Sam Ray is a good fellow; we will remember him," added the bookseller, when he had finished. "I shall remember him; and only that I shall be afraid to go into the State of Maine after what has happened, I should pay him a visit one of these days." "There you are wrong. Those who know your story would sooner think of giving you a public reception, than of saying or doing any thing to injure your feelings. Those who have suffered unjustly are always lionized." "But no one will know my story, only that I was sent to prison for stealing." "There you are mistaken again. We put articles in all the principal papers, stating the facts in the case, and establishing your innocence beyond a peradventure. Go to Augusta now, Bobby, and you will be a lion." "I am sure I had no idea of getting out of the scrape so easily as this." "Innocence shall triumph, my young friend." "What does mother say?" asked Bobby, his countenance growing sad. "I do not know. We returned from Maine only yesterday; but Squire Lee will satisfy her. All that can worry her, as it has worried me, will be her fears for your safety when she hears of your escape." "I will soon set her mind at ease upon that point. I will take the noon train home." "A word about business before you go. I discharged Timmins about a week ago, and I have kept his place for you." "By gracious!" exclaimed Bobby, thrown completely out of his propriety by this announcement. "I think you will do better, in the long run, than you would to travel about the country. I was talking with Ellen about it, and she says it shall be so. Timmins's salary was five hundred dollars a year, and you shall have the same." "Five hundred dollars a year!" ejaculated Bobby, amazed at the vastness of the sum. "Very well for a boy of thirteen, Bobby." "I was fourteen last Sunday, sir." "I would not give any other boy so much; but you are worth it, and you shall have it." Probably Mr. Bayard's gratitude had something to do with this munificent offer; but he knew that our hero possessed abilities and energy far beyond his years. He further informed Bobby that he should have a room at his house, and that Ellen was delighted with the arrangement he proposed. The gloomy, threatening clouds were all rolled back, and floods of sunshine streamed in upon the soul of the little merchant; but in the midst of his rejoicing be remembered that his own integrity had carried him safely through the night of sorrow and doubt. He had been true to himself, and now, in the hour of his great triumph, he realized that, if he had been faithless to the light within him, his laurel would have been a crown of thorns. He was happy--very happy. What made him so? Not his dawning prosperity; not the favor of Mr. Bayard; not the handsome salary he was to receive; for all these things would have been but dross, if he had sacrificed his integrity, his love of truth and uprightness. He had been true to himself, and unseen angels had held him up. He had been faithful, and the consciousness of his fidelity to principle made a heaven within his heart. It was arranged that he should enter upon the duties of his new situation on the following week. After settling with Mr. Bayard, he found he had nearly seventy dollars in his possession; so that in a pecuniary point of view, if in no other, his eastern excursion was perfectly satisfactory. By the noon train he departed for Riverdale, and in two hours more he was folded to his mother's heart. Mrs. Bright wept for joy now, as she had before wept in misery when she heard of her son's misfortune. It took him all the afternoon to tell his exciting story to her, and she was almost beside herself when Bobby told her about his new situation. After tea he hastened over to Squire Lee's; and my young readers can imagine what a warm reception he had from father and daughter. For the third time that day he narrated his adventures in the east; and Annie declared they were better than any novel she had ever read. Perhaps it was because Bobby was the hero. It was nearly ten o'clock before he finished his story; and when he left, the squire made him promise to come over the next day. CHAPTER XXI. IN WHICH BOBBY STEPS OFF THE STAGE, AND THE AUTHOR MUST FINISH "NOW OR NEVER." The few days which Bobby remained at home before entering upon the duties of his new situation were agreeably filled up in calling upon his many friends, and in visiting those pleasant spots in the woods and by the river, which years of association had rendered dear to him. His plans for the future too, occupied some of his time, though, inasmuch as his path of duty was already marked out, these plans were but little more than a series of fond imaginings; in short, little more than day dreams. I have before hinted that Bobby was addicted to castle building, and I should pity the man or boy who was not--who had no bright dream of future achievements, of future usefulness. "As a man thinketh, so is he," the Psalmist tells us, and it was the pen of inspiration which wrote it. What a man pictures as his ideal of that which is desirable in this world and the world to come, he will endeavor to attain. Even if it be no higher aim than the possession of wealth or fame, it is good and worthy as far as it goes. It fires his brain, it nerves his arm. It stimulates him to action, and action is the soul of progress. We must all work; and this world were cold and dull if it had no bright dreams to be realized. What Napoleon dreamed, he labored to accomplish, and the monarchs of Europe trembled before him. What Howard wished to be, he labored to be; his ideal was beautiful and true, and he raised a throne which will endure through eternity. Bobby dreamed great things. That bright picture of the little black house transformed into a white cottage, with green blinds, and surrounded by a pretty fence, was the nearest object; and before Mrs. Bright was aware that he was in earnest, the carpenters and the painters were upon the spot. "Now or never," replied Bobby to his mother's remonstrance. "This is your home, and it shall be the pleasantest spot upon earth, if I can make it so." Then he had to dream about his business in Boston and I am not sure but that he fancied himself a rich merchant, like Mr. Bayard, living in an elegant house in Chestnut Street, and having clerks and porters to do as he bade them. A great many young men dream such things, and though they seem a little silly when spoken out loud, they are what wood and water are to the steam engine--they are the mainspring of action. Some are stupid enough to dream about these things, and spend their time in idleness, and dissipation, waiting for "the good time coming." It will never come to them. They are more likely to die in the almshouse or the state prison, than to ride in their carriages; for constant exertion is the price of success. Bobby enjoyed himself to the utmost of his capacity during these few days of respite from labor. He spent a liberal share of his time at Squire Lee's where he was almost as much at home as in his mother's house. Annie read Moore's Poems to him, till he began to have quite a taste for poetry himself. In connection with Tom Spicer's continued absence, which had to be explained, Bobby's trials in the eastern country leaked out, and the consequence was, that he became a lion in Riverdale. The minister invited him to tea, as well as other prominent persons, for the sake of hearing his story; but Bobby declined the polite invitations from sheer bashfulness. He had not brass enough to make himself a hero; besides, the remembrance of his journey was any thing but pleasant to him. On Monday morning he took the early train for Boston, and assumed the duties of his situation in Mr. Bayard's store. But as I have carried my hero through the eventful period of his life, I cannot dwell upon his subsequent career. He applied himself with all the energy of his nature to the discharge of his duties. Early in the morning and late in the evening he was at his post, Mr. Bigelow was his friend from the first, and gave him all the instruction he required. His intelligence and quick perception soon enabled him to master the details of the business, and by the time he was fifteen, he was competent to perform any service required of him. By the advice of Mr. Bayard, he attended an evening school for six months in the year, to acquire a knowledge of book keeping, and to compensate for the opportunities of which he had been necessarily deprived in his earlier youth. He took Dr. Franklin for his model, and used all his spare time in reading good books, and in obtaining such information and such mental culture as would fit him to be, not only a good merchant, but a good and true man. Every Saturday night he went home to Riverdale to spend the Sabbath with his mother. The little black house no longer existed, for it had become the little paradise of which he had dreamed, only that the house seemed whiter, the blinds greener, and the fence more attractive than his fancy had pictured them. His mother, after a couple of years, at Bobby's earnest pleadings, ceased to close shoes and take in washing; but she had enough and to spare, for her son's salary was now six hundred dollars. His kind employer boarded him for nothing, (much against Bobby's will, I must say,) so that every month he carried to his mother thirty dollars, which more than paid her expenses. * * * * * Eight years have passed by since Bobby--we beg his pardon; he is now Mr. Robert Bright--entered the store of Mr. Bayard. He has passed from the boy to the man. Over the street door a new sign has taken the place of the old one, and the passer-by reads,-- BAYARD & BRIGHT, BOOKSELLERS AND PUBLISHERS. The senior partner resorts to his counting room every morning from the force of habit; but he takes no active part in the business. Mr. Bright has frequent occasion to ask his advice, though every thing is directly managed by him; and the junior is accounted one of the ablest, but at the same time one of the most honest, business men in the city. His integrity has never been sacrificed, even to the emergencies of trade. The man is what the boy was; and we can best sum up the results of his life by saying that he has been true to himself, true to his friends and true to his God. Mrs. Bright is still living at the little white cottage, happy in herself and happy in her children. Bobby--we mean Mr. Bright--has hardly missed going to Riverdale on a Saturday night since he left home, eight years before. He has the same partiality for those famous apple pies, and his mother would as soon think of being without bread as being without apple pies when he comes home. Of course Squire Lee and Annie were always glad to see him when he came to Riverdale; and for two years it had been common talk in Riverdale that our hero did not go home on Sunday evening when the clock struck nine. But as this is a forbidden topic, we will ask the reader to go with us to Mr. Bayard's house in Chestnut Street. What! Annie Lee here? No; but as you are here, allow me to introduce Mrs. Robert Bright. They were married a few months before, and Mr. Bayard insisted that the happy couple should make their home at his house. But where is Ellen Bayard? O, she is Mrs. Bigelow now, and her husband is at the head of a large book establishment in New York. Bobby's dream had been realised, and he was the happiest man in the world--at least he thought so, which is just the same thing. He had been successful in business; his wife--the friend and companion of his youth, the brightest filament of the bright vision his fancy had woven--had been won, and the future glowed with brilliant promises. He had been successful; but neither nor all of the things we have mentioned constituted his highest and truest success--not his business prosperity, not the bright promise of wealth in store for him, not his good name among men, not even the beautiful and loving wife who had cast her lot with his to the end of time. These were successes, great and worthy, but not the highest success. He had made himself a man,--this was his real success,--a true, a Christian man. He had lived a noble life. He had reared the lofty structure of his manhood upon a solid foundation--principle. It is the rock which the winds of temptation and the rains of selfishness cannot move. Robert Bright is happy because he is good. Tom Spicer, now in the state prison, is unhappy,--not _because_ he is in the state prison, but because the evil passions of his nature are at war with the peace of his soul. He has fed the good that was within him upon straw and husks, and starved it out. He is a body only; the soul is dead in trespasses and sin. He loves no one, and no one loves him. During the past summer, Mr. Bright and his lady took a journey "down east." Annie insisted upon visiting the State Reform School; and her husband drove through the forest by which he had made his escape on that eventful night. Afterwards they called upon Sam Ray, who had been "dead sure that Bobby would one day be a great man." He was about the same person, and was astonished and delighted when our hero introduced himself. They spent a couple of hours in talking over the past, and at his departure, Mr. Bright made him a handsome present in such a delicate manner that he could not help accepting it. Squire Lee is still as hale and hearty as ever, and is never so happy as when Annie and her husband come to Riverdale to spend the Sabbath. He is fully of the opinion that Mr. Bright is the greatest man on the western continent, and he would not be in the least surprised if he should be elected president of the United States one of these days. The little merchant is a great merchant now. But more than this, he is a good man. He has formed his character, and he will probably die as he has lived. Reader, if yon have any good work to do, do it now, for with you it may be "NOW OR NEVER." 
23635	----	WAMPUM, A PAPER PRESENTED TO THE NUMISMATIC AND ANTIQUARIAN SOCIETY OF PHILADELPHIA. BY ASHBEL WOODWARD, M.D., OF FRANKLIN, CONN., CORRESPONDING MEMBER. ALBANY, N. Y.: J. MUNSELL, PRINTER. 1878. Entered according to act of Congress in the year 1878, by ASHBEL WOODWARD, in the Library of Congress. At a Stated Meeting of the Numismatic and Antiquarian Society of Philadelphia, held January 2, 1868, the following resolutions were unanimously adopted: _Resolved_, That the thanks of this Society are due and are hereby tendered to Ashbel Woodward, M.D., of Franklin, Conn., for his very able and interesting research upon "Wampum" this evening read before the Society. _Resolved_, That said paper be referred to the Publication Committee. Attest, HENRY PHILLIPS, JR., _Corresponding Secretary._ NOTE. The following pages constitute an Essay read before the Numismatic and Antiquarian Society of Philadelphia in January 1868. It was intended for publication in the second volume of the Transactions of the Society, but as the appearance of this volume has been unexpectedly delayed, it has been thought best to allow the Essay to appear separately. _Franklin, Conn._, January, 1878. WAMPUM. When Columbus, on his second voyage to the New World, landed upon Cape Cabron, Cuba, the cacique of the adjacent country meeting him upon the shore offered him a string of beads made of the hard parts of shells as an assurance of welcome. Similar gifts were often made to the great discoverer, whenever the natives sought to win his favor or wished to assure him of their own good will. These shell beads were afterwards found to be in general use among the tribes of the Atlantic coast. At the close of the sixteenth century the English colonists found them in Virginia, as did the Dutch at the commencement of the following century in New York, the English in New England and the French in Canada. The pre-historic inhabitants of the Mississippi valley were also evidently acquainted with their manufacture, as remains of shell beads have been found in many of the mounds which survive as the only memorials of that mysterious people. These Indian beads were known under a variety of names among the early colonists, and were called, _wampum_, _wampom-peage_, or _wampeage_, frequently _peage_ or _peake_ only, and in some localities _sewan_ or _zewand_. But generally sewan prevailed among the Dutch, and wampum among the English. These names were applied without distinction to all varieties of beads. This confusion arose naturally enough from the scanty acquaintance of the whites with the Indian language. The word wampum [wompam],[1] which has since become a general term, was restricted by the Indians to the white beads. It was derived from _wompi_, "white." The other or dark beads were called _suckáuhock_, a name compounded of _súcki_, "dark colored," and _hock_, "shell." The name _Mowhakes_, compounded of _mowi_, "black," and _hock_, "shell," was also sometimes applied to the dark beads. It thus appears that the Indians divided their beads into two general classes, the _wompam_, or white beads, and _suckáuhock_, or dark beads. Both white and black consisted of highly polished, testaceous cylinders, about one-eighth of an inch in diameter and a quarter of an inch long, drilled length-wise and strung upon fibres of hemp or the tendons of wild beasts. _Suckáuhock_ was made from the stem of the _Venus mercenaria_, or common round clam, popularly known as the quauhaug; _wampum_ from the column and inner whorls of the _Pyrula carica_ and _Pyrula caniculata_[2] [Lam.], species known as Winkles or Periwinkles among fishermen, and the largest convoluted shells of our New England coast.[3] These shells were found in great abundance along the sea shore, lying either upon the mud, or just beneath the surface, and were wrought in the following manner. The desirable portions of the shells were first broken out into small pieces of the form of a parallelopiped; these were then drilled and afterwards ground and polished. Possessing no better tools, the Indians made shift to bore them with stone drills,[4] implements which hardly correspond with the delicacy and exactness exhibited by the specimens of original wampum that have come down to us. The process of polishing and shaping was equally painful and laborious, for rubbing with the hand over a smooth stony surface, was the only method which the rudeness of the Aborigines could devise. Yet the finished beads, whether attached in thick masses to garments, or strung in long flexible rows, were very comely and without a trace of the tawdriness, which is so characteristic of uncivilized peoples. The suckáuhock with its varying shades of purple was particularly beautiful. Its value was double that of the white and the darker its color, the more highly it was prized. But the laborious method of production imparted no trivial value to both varieties. It seems almost incredible that the Indian could produce so clever an article with his rude implements. Some have conjectured that the specimens produced before the natives obtained awl blades from the colonists were very inferior to their later productions. One writer[5] even goes so far as to suggest, that, before the advent of Europeans, Indian beads consisted mostly of small pieces of wood, stained white or black. The fact is, however, that the manufacture of wampum dates back at least to the time of the mound builders, for quantities of beads similar in form to the more modern article, and proved by chemical tests and structural peculiarities to be similar in material, have been exhumed from the ancient mounds of the west.[6] Other species besides the wampum and suckáuhock crept into local use among the different tribes. The Iroquois in their civil and religious ceremonies employed a variety named _otekóa_, and made from spiral fresh water shells of the genus _unio_. This as may be inferred from its uses was held in the highest esteem, and no other could be employed in the different stages of the ceremonial.[7] In New England and perhaps elsewhere, an inferior kind made evidently from shells too small and thin to be wrought into the cylindrical beads, circulated to a limited extent. The separate pieces were round and flat, about an eighth of an inch broad and a sixteenth of an inch thick, white and black were strung alternately, but the strings, though arranged with considerable nicety, lacked wholly the finish and flexibility of the regular article. In Virginia _roenoke_ was current. This consisted of small rough fragments of cockle shells, which were drilled and strung. The last two varieties were only used to a limited extent, even in the region of their manufacture. Here, as elsewhere, the cylindrical wampum was the standard, and the dearest to the Indian of all his treasures. Indeed such was the value set upon it, that attempts were often made to counterfeit it, an unallowed shell being fraudulently used in the manufacture of the white, while the black was imitated from a kind of stone. Yet the habitual caution and keenness of the Indian made it difficult to palm off the spurious article upon him. As wampum was made from marine shells,[8] it was naturally manufactured by the sea shore tribes, and in localities determined by the abundance of raw material. Here the shells were stored up in some convenient spot during summer, to be worked out in winter when the rigors of the season should deter the men from their ordinary out door pursuits.[9] Probably but little was produced north of the Narragansetts [Rhode Island], as the necessary shells were scarce beyond Cape Cod. The Narragansetts were themselves great producers, and tradition claimed for their tribe the honor of the invention of wampum. But the Long Island Indians were by far the greatest producers along our northern coast. Their sandy flats and marshes teemed with sea life, and, when the Dutch first came to New Amsterdam, their island went by the name of _sewan hacky_, or the "land of the sewan shell," so numerous were the sewan manufactories upon it. Without doubt production was stimulated beyond its natural limits by the demand from powerful tribes from the main land, who found it easier to exact wampum as tribute from their weak neighbors, than personally to engage in its laborious coinage. Hazard, in his collection of state papers, states, that the Narragansetts frequently compelled large tributes in wampum from the Long Island Indians. The Pequots also for many years prior to 1637, exacted large annual contributions from the same tribes while they were still further subject to the levies of the imperious Mohawks. Thus the mint of wealth at their very doors became to its possessors the source of untold misery. Constant fear kept them toiling at the mines, while the scanty proceeds of their labor only quickened the greed of their savage masters. The number and extent of the sewan manufactories upon Long Island may be inferred from the frequent and immense shell heaps left by the Indians in all of which scarcely a whole shell is to be found. Occasionally the whole shells were carried over to the main land and there wrought. From Sewan-Hacky down the Atlantic coast and along the gulf, the shaded covers and quiet banks were doubtless dotted with wampum manufactories, for there was a great demand constantly to be met. The inland tribes were of course unable to produce their own wampum, and depended for their supply upon the coast tribes. A brisk trade thus arose between the coast and interior. Hides and furs were brought down to clothe the denser population of the shore, and wampum carried back in exchange.[10] Often, however, the inland tribes were able to pounce down and wring this precious material from its carriers in the form of tribute. Wampum is often spoken of as "Indian money." This expression if referring to colonial times is perfectly proper, but must be received with caution in the consideration of ante-colonial days. The barbarian, dwelling in independent isolation, satisfies the majority of his wants by direct effort and not by an interchange of services, nor till civilization has considerably advanced can we look for any general system of exchanges with the mutual dependence and mutual benefits which such a system involves. So attractive an article as wampum was doubtless eagerly sought in barter, and would readily procure for its possessor whatever else he might desire. Indeed we know that it was the means of an extensive trade between the coast and the interior, the inland Indians bringing down hides and furs to be exchanged for the wampum of the shore. All this, however, was in the way of barter, and we cannot hence infer that the idea of a medium or money crept into the limited circle of the redman's wants and satisfactions. His circumstances did not demand and would not therefore suggest it. Wampum was the gold of the aborigine. But he had yet to learn that the value of gold resides not alone in its glitter. The ancient Peruvians dwelt amid mountains of gold, but the idea of a circulating medium never dawned upon them. In like manner, the Indian had never learned that use of his golden wampum which was the first to suggest itself to the white man. He made and valued it for other purposes. A fondness for personal display and decoration are characteristic of uncivilized life, and wampum was well adapted to satisfy this weakness of the Indian. It was every where used for adornment of the person. The humblest proudly wore his trifle, while the more favored ones were wont to decorate themselves in countless gay and fantastic ways. It was oftenest worn about the neck in strings of the length of a rosary, the number of strings being determined by the means or social position of the wearer.[11] Bracelets and necklaces were other forms in which it was frequently displayed. With the females, head-dresses, consisting of bands of wampum twined about the head and gathering up their abundant tresses, were an especial delight. A border of beads greatly enhanced the value of any garment, and outer clothing was usually thus ornamented. Indeed the wealthy and powerful wore cloaks, as also aprons and caps, thickly studded with wampum wrought into various fantastic forms and figures. Says that old voyager, John Josselyn, "Prince Phillip, a little before I came to England [1671], coming to Boston, had on a coat and buskins thick set with these beads in pleasant wild works." The moccasin was also, as at the present day, the recipient of much taste and skill. More of a luxury and confined mostly to sachems and sagamores was the wampum belt, alternate white and purple strings attached in rows to a deerskin base, and worn as a belt about the waist, or thrown over the shoulders like a scarf. Ordinary belts consisted of twelve rows of one hundred and eighty beads each, but they increased in length and breadth with the social importance of the wearer. As many as ten thousand beads are known to have been wrought into a single war belt four inches wide. The regular alternation of white and purple rows was not always adopted, but birds and beasts and such other rustic fantasies as suited the owner's taste, were often interwoven with the different colors. One of King Philip's belts surrendered by the Sagamore Annawon to Capt. Church, was nine inches wide, of sufficient length when placed about Capt. Church's shoulders to reach to his ancles, and curiously inwrought with figures of birds, beasts and flowers. From another belt of no less exquisite workmanship and designed to be worn about the head, two flags fell in graceful folds upon the shoulders. A third and smaller one had a star embroidered upon its end, and was to be worn upon the breast. The haughty old chief was wont to adorn his person with these insignia when he sat in state among his subjects. They symbolized, by striking emblems, his might and prowess, and kindled in beholders feelings and emotions that royal pomp and purple could not awake. The idea of gaudiness is apt to associate itself in our minds with Indian trappings, but we must confess that the simple grace and force of these rustic adornments would put to shame many a glittering article of more modern wear. But wampum strings and belts subserved other equally important uses. They were among the Indian race the universal bonds of nations and individuals, the inviolable and sacred pledges of word and deed. No promise was binding unless confirmed by gifts of wampum. The young warrior declared his passion for his Indian maid, by presenting wampum chains and belts, and her acceptance of the proffered present sealed the marriage compact.[12] Like tokens accompanied every weighty message, and little reliance was put upon the messenger who brought not with him such assurances of good faith.[13] They cemented friendships, confirmed alliances, sealed treaties, and effectually effaced the memory of injuries.[14] A curious ceremonial had grown up in their presentation on state occasions. When ambassadors set out for another nation, they bore before them the calumet, or pipe of peace, in evidence of their pacific purpose and to secure protection for their journey, and also belts of wampum to be submitted in confirmation of their proposals, or, if their people had been worsted in battle to atone for injuries and purchase peace. In the great council assembled to receive them, the orator of the embassy rose and unfolded the object of their visit, corroborating each important statement and proposal at its close by laying down wampum belts. If his words were pleasing, and the presents taken from the ground in evidence thereof, similar presents were given in return, and the contract sealed with the smoking of the calumet and the burial of the hatchet in the midst. Among the Six Nations, whenever the council failed to adjust the difficulty or when for any other reason peace was to be interrupted, war was proclaimed by striking a tomahawk painted red and ornamented with black wampum, into the war post in each village of the league.[15] To illustrate what we have said, we subjoin the following account of an interview between Sir William Johnson, the noted Indian agent and the Six Nations, among whom this ceremony survived even after their decline. "At a meeting of the Six Nations and their allies at Fort Johnson, Feb. 18, 1756, Sir William Johnson said: _Brethren of the Six Nations_, I have heard with great concern that a war party of the Senecas, the most remote nation of the confederacy, have had a considerable misunderstanding with their brethren the English to the southward, which has been fatal to some of that nation. I am extremely unable to express my sorrow for that unhappy affair, and as the hatchet remains fixed in your heads, I do with the greatest tenderness and affection remove it thence. A belt. _Brethren_, With this belt I cleanse and purify the beds of those who fell in that unfortunate affair from the defilement they have contracted. A belt. _Brethren_, I am informed that on that occasion you lost three of your powerful warriors. I do with this belt cover their dead bodies that they may not offend our sight any more and bury the whole affair in oblivion. A belt. ANSWER OF THE SIX NATIONS AND THEIR ALLIES. _Brother Warraghiyagey_, We the sachems and warriors of the Seneca nation return to you our sincere thanks for your great affection in drying our tears and driving sorrow from our hearts, and we in return perform the same ceremony to you with the like hearty affection. A string of wampum. _Brother Warraghiyagey_, We are sensible of your goodness expressed to us in removing the cause of our grief and tenderly taking the axe out of our heads. A belt. After several more speeches and presentations by the Senecas, the other nations in turn presented belts. In 1748, the general had given them a large belt upon which was an emblem of the Six Nations joined hand in hand with the English. This the speaker then took and said: _Brother Warraghiyagey_, Look with all attention on this belt and remember the solemn and mutual engagements we entered into when you first took upon you the management of our affairs. Be assured we look upon them as sound and shall on our part punctually perform them as long as we remain a people. A prodigious large belt. Taking up another large belt formerly given them by the governor of New York, he said: _Brother Warraghiyagey_, We hope our brethren, the English, will seriously remember the promises made us by this belt and exactly perform them, and we promise to do the same though we have no record but our memories. A very large belt."[16] The belts received at treaties, councils and other assemblies were entrusted for presentation to the care of one individual, usually the sachem, who was expected to keep in mind the occasion and purport of each, which he could readily do by the aid of the devices emblematic of the event it signalized that were traced upon each.[17] Thus a belt presented to Sir Wm. Johnson by the Six Nations, had wrought upon it the sun, the emblem of light, and symbols of the Six Nations. It signified that their minds were now illumined by the clear bright light of truth and their intention to abide in the light.[17] In a belt presented at Easton, His Majesty King George was figured taking hold of the king of the Six Nations with one hand, and the king of the Delawares with the other. A belt presented by the Indians of Eastern Maine as a pledge of their friendship and fidelity to the United States and the king of France was explained as follows: The belt was thirteen rows wide to represent the United States, and had upon it a cross indicating France, and several white figures denoting the different Indian villages.[18] The Indian like other young languages drew closer to nature than the dusty abstractions of civilization. It was highly figurative and the majority of its words referred directly to familiar external sights. The tribes of each nation of the Iroquois were known respectively as the Wolf, Bear, Beaver, Turtle, Deer, Snipe, Heron and Hawk. The significant names of chiefs are known to all, and whoever is familiar with Indian oratory will readily recollect its garb of bold and striking metaphors. These features, while imparting energy to the language, at the same time made it easy to convey its meaning by picture writing or symbolism, the only mode of writing which the aborigine possessed.[19] Thus, too, it was easy to put upon a belt a few significant characters which by the principle of mental association should clearly depict the salient features of an event or of a series of events. Such belts carefully preserved served as the annals of a nation. They were the only authentic history of the past, recalling the treaties, councils, triumphs and domestic celebrations of former generations. At stated times their custodian, the sachem, was accustomed to gather the younger warriors about him, and unfolding to them the secrets locked up in these mysterious records, instruct them in the history and engagements of their tribe. The old soldier's breast glowed with honest pride, as he recounted to his young braves the exploits of their sires, or exhibited the proud tokens of submission forced from some ancient enemy, and most of all when he came to dwell upon scenes conspicuous for his own valor and reddened by his blood. And as the impetuous youths drank in the glorious story of their father's might and valor on the war path, there sprang up within them a patriotism "that grew by what it fed on." In the extensive confederation of the Iroquois, Hono Wenato, an Onondaga sachem, was the hereditary keeper of the wampum. Whenever the grand council met to fill a vacancy in the sachemship of a tribe of any nation, it was his duty publicly to repeat to the new sachem their ancient laws and usages, and to unfold to him the structure and principles of the league, as recorded in the belts committed to his charge.[20] Wampum played an important part in religious as well as civil ceremonies. On occasions of great public calamities, it formed the most acceptable sacrifice that could be offered to the terrible Hobbamocko, the author of evil, and it entered largely into the mystic rites of all those weird assemblies that gathered under the shades of the forest. When evil threatened or its farther progress was to be stayed, as also after great triumphs and abundant harvests, the Indians gathered from far and near to celebrate their mysteries. They danced for days, painted and clad in hideous guise, about a great fire, the throne of the divinity, and with wild and frantic yells cast from time to time into the flames furs and weapons, and that choicest of their treasures the costly wampum. Nay it was even whispered in the early time, that little children gaily adorned with wampum were led into the midst and thrust into the fiery embrace of the hissing god.[21] The practice of the Iroquois was less fearful, among whom a string of white wampum was hung around the neck of a white dog suspended to a pole and offered as a sacrifice to the mighty Haweuneyn. The wampum was a pledge of their sincerity, and white an emblem of purity and of faith. In the same nation, previous to "giving thanks to the Maple," and their other stated festivals, the people assembled for the mutual confession of their sins. "The meeting was opened by one of the 'keepers of the faith,' with an address upon the propriety and importance of acknowledging their evil deeds to strengthen their minds against future temptations. He then took a string of white wampum in his hand, and set the example by a confession of his own faults, after which he handed the string to the one nearest to him, who received it, made his confession in like manner, and passed it to another. In this way the wampum went around from hand to hand, and those who had confessions to make, stated wherein they had done wrong, and promised to do better in the future. Old and young, men, women and even children, all united in this public acknowledgment of their faults, and joined in the common resolution of amendment. On some occasions the string of wampum was placed in the centre of the room, and each one advanced in turn to perform the duty as the inclination seized him. A confession and promise without holding the wampum would be of no avail. It was the wampum which recorded their words and gave their pledge of sincerity. The object of the confession was future amendment."[22] Wampum was the tribute paid by the vanquished in war, as also the means by which threatened wars were often averted. The Long Island Indians for many years paid an annual tribute to the Pequots, a powerful tribe dwelling in Eastern Connecticut.[23] It is commonly supposed that these tribes were also tributary to the Six Nations. To the same great power were subject the clans between the Hudson and the Connecticut, and every year two aged but haughty Mohawks might be seen going from village to village to collect the tribute that was their due. It is asserted that as late as 1756, a small tribe near Sugar Loaf Mountain made an annual payment to this nation of £20 in wampum. Individual as well as national obligations were similarly satisfied. Like the early German, the Indian set a marketable value on human life, and a suitable present of wampum on the part of the murderer, if accepted, freed him from the vengeance of the dead man's friends, for the wampum belt washed away all traces of the bloody stain.[24] Perhaps desire for another's wampum sometimes prompted him to such foul deeds, as it did the white man,[25] though happily the Indian seldom stooped to theft. Thus in the rude civilization of the aborigine wampum filled a space accorded to no one article in our own. Through life it faithfully met all his varied wants, and when he came to die, his friends placed it about his dead body,[26] that it might befriend him on his journey to the spirit land, and on his arrival there gain for him admission to the realms of the god Kiehtan, the abode of the blessed. The shrewd commercial instinct of the Dutch colonists was quick to profit by wampum in their dealings with the aborigines. Happily its most extensive producers dwelt at their very doors. They obtained from the Long Island tribes in return for knives, scissors, hatchets and the like, great quantities of this novel coinage, and then exchanged it with the Indians of the mainland for hides and furs, often plunging far into the interior and drawing thence products which gold could never have won from their possessors. Did common trifles fail, wampum was the unfailing reserve whose charms the savage was powerless to resist. With such an adjutant trade became doubly flourishing and lucrative. Posts sprang up along the Hudson, in the valley of the Connecticut and as far south as the Schuylkill, through all of which ceaseless revenues poured into the coffers of the Dutch West India Company. Connecticut, alone, annually furnished to her traders ten thousand beaver skins.[27] In all this traffic wampum played a leading part, so much so in fact that fur trade and wampum trade became synonymous terms. Toward the close of September, 1627, Isaac de Rasieres was dispatched from New Amsterdam on an embassy to the English colony at New Plymouth. Being of a trading turn, he carried with him in his vessel among other merchandise about £50 in wampum which he managed to dispose of there.[28] Wampum was as yet comparatively unknown in Massachusetts Bay, and the colonists were ignorant of its uses. This purchase made with great reluctance, they sent to their trading house at Kennebeck, where "when the inland Indians came to know it, they could scarce procure enough for many years together." Everywhere in New England, as in the Dutch provinces, wampum soon became a leading article in the Indian trade, and added greatly to its profits. Seven years after its introduction to Kennebeck, Mr. Winslow carried thence into England about twenty hogsheads of beaver, "the greater part whereof was traded for wampampeage" during the year. By 1636 this trade had grown to such proportions in Massachusetts colony that the standing colony were authorized to farm it out for the increase of the public revenues, and to establish the severest penalties for any infringement of the privileges thus granted. The traders of New England were now ranging the forests in all directions and often plunged into them for hundreds of miles to the great alarm of the Dutch who feared that the English would monopolize all the profits of the trade, and that "they should be obliged to eat oats out of English hands."[29] From the north the French descended in great numbers, eager to share in the gains of this traffic, and often encroached upon the domains of other nations. The solitudes of the wilderness thus resounded every where to the tread of the adventurous white man, who, lured on by the hope of gain, thought not of the dangers that beset his path. It doubtless afforded the Indian no little satisfaction to welcome the haughty foreigner to his wigwam, and while dictating his own terms, to receive in payment the honored currency of his fathers. When he took his pay, he measured it off after his own fashion, the unit being the distance from the elbow to the end of the little finger. According to one authority it made no difference whether a short or tall man measured it.[30] Adrian Van Tiedhoven, clerk of the court at the South river, however tells a different story, complaining bitterly "because the Indians always take the largest and tallest among them to trade with us." But hides and furs were not the only articles which wampum purchased from the natives. It was a frequent consideration in early Indian deeds. In the records of Windsor, Conn., is preserved a deed, which conveys territory lying between the Podunk and Scantic rivers, and extending a day's march into the country, the price paid for which was fifteen fathoms of wampum and twenty cloth coats. Most of the present towns of Warwick and Coventry in Rhode Island, were purchased of Miantinomi, sachem of the Narragansetts, for one hundred and forty-four fathoms of wampum.[31] In New England the limits of the trade were considerably extended by the quantities of wampum tribute which poured into the hands of the colonial authorities. Wampum was the commodity in which tribute was universally paid, and the stern justice of our fathers imposed this with no sparing hand upon their weak and erring neighbors. In 1634, the Pequots were fined 400 fathoms of wampum, and two years afterwards 600 fathoms more.[32] After 1637, the Long Island Indians paid a large yearly tribute to the united commissioners,[33] as did also the Block Islanders. It is often difficult, as in the present case, to see the justice of such exactions. These Indians had been guilty of no unfriendly act, and the utmost urged in extenuation of the imposition was the flimsy pretence that but for an alleged protection the same sums would have gone in fealty to their red brethren. In 1644, the Narragansetts were fined 2000 fathoms, and doomed to pay yearly thereafter a fathom for every Pequot man, half a fathom for every youth and a hand breadth for every child in the tribe. As late as 1658,[34] the Pequots were fined ten fathoms a man, and one of their number imprisoned for offering refuse wampum in part payment.[35] This tribe had suffered so many and severe exactions that they were obliged to search in all directions for the material out of which to manufacture their wampum, and occasionally crossed over to Long Island for this purpose. The Montauk sachem fearing that his shores would be exhausted of their shelly wealth, opposed these visits, until the Pequots succeeded in securing the interposition of the united commissioners in their behalf.[36] In 1663, the assessment upon this tribe was fixed at 80 fathoms. Such are a few of the many instances to be found in the records, showing the enormous amount of wampum paid as tribute by the natives to the early authorities of New England. The Dutch supply was augmented in a different manner. They soon found the native manufactories inadequate to the demand and erected mints of their own, and by introducing steel drills and polishing lathes won a great advantage over the original wearisome hand processes. The French sought a still greater advantage by substituting porcelain for shells, but the Indians were not to be thus easily imposed upon, and the manufacture of earthen money was soon given up.[37] It is sometimes asserted that the English engaged in making wampum, though the statement appeared to be without foundation. The Dutch, however, produced it in large quantities, and were thereby enabled to enlarge the circle of their own posts; and also to furnish liberal supplies to the traders, north and south, who ranged over the entire Atlantic coast from the St. Lawrence to the gulf. In Virginia, the Carolinas, and later in Georgia, wampum was the chief medium employed in the fur trade. The poverty of the early settlers, added to that short sighted and now obsolete policy of Europe in the seventeenth century, which jealously sought to keep all specie within her borders, produced a general dearth of the precious metals in the currency of the New World, and all kinds of shifts were made to eke out the scanty supply. Corn, wheat, oats, peas, poultry and the like sufficed to satisfy any obligation. But then, though answering well in cases of barter, where two mutual desires met, were far too bulky and unwieldy for general use. Naturally then recourse was had to an article in extensive use among the traders, and possessing in a measure the portability of gold and silver, and _wampum_ became a constituent part of the currency. In one feature at least, the old civilization held its own beside the new. As early as 1637, wampum was made a legal tender in Massachusetts for any sum under 12_d._, at the rate of six beads for a penny.[38] The same year it became a legal tender in Connecticut for any amount. The general court declaring it receivable for taxes "at fousen (4) a penny."[39] But coin grew scarcer in Massachusetts and shell money increased in value, till in 1640, the authorities were compelled to adopt the valuation of Connecticut, ordering that the white pass at four and the "bleuse" at two a penny, "and not above 12_d._ at a time except the receiver desire more."[40] The public needs soon required another change, and the legality of shell currency rose to £10.[41] This novel coinage, thus regulated from time to time, answered well for money throughout the colonies, till after a while trouble arose from an unexpected source. The enormous demand at length brought upon the market beads of stone or unallowed shells, as also many rough, ill-strung specimens of the genuine article. The disorder was aggravated, because the Indians, who best understood the qualities of their wampum, would take only the genuine from the traders, while the refuse was thrown back into the circulation of the colonies. The commissioners of the United Colonies being appealed to for a remedy recommended to the separate governments to suppress this poor "peage" by law. Accordingly in 1648, the general courte of Connecticut ordered "that no peage, white or black, be paid or received, but what is strung and in some measure strung suitably, and not small and great, uncomely and disorderly mixt, as formerly it hath beene."[42] A similar order was passed in Massachusetts, where it was further enacted to prepare this Indian money for ready use, that it be "suitably strung in eight known parcells, 1_d._ 3_s._ 12_d._ 5_s._ in white; 2_d._ 6_s._ 6_d._ and 10_s._ in blacke."[43] Another favorite length was the fathom, containing 360 beads and current at about 10_s._ Thus during these years shell money was current throughout New-England, and constituted, doubtless, the best and most convenient portion of the currency. The government received it for taxes, the farmer for his produce, the merchant for his wares, and the laborer for his hire. It formed a frequent item in the inventories of deceased colonists, being often the only cash mentioned. It even found its way into the coffers of Harvard college, for we read that the lease of the wampum trade in Massachusetts was attended with the obligation to take from the college the wampum which it might have on hand from time to time.[44] In the forest, likewise, it now circulated as money, for the Indian was quick to copy the white man's use of his beads. Toward the middle of the century wampum reached its highest value in New-England. Thereafter the increasing prosperity of the colonies, the domestic coinage of silver, and perhaps the too extensive manufacture of the shell money, gradually diminishing its value, drove it from circulation. In 1650, it was refused in payment of country rates in Massachusetts.[45] This action of the government naturally created distrust among the people, to counteract which it was ordered that "peage" should still "remagne pawable from man to man, according to the law in force." Close upon this followed another decree, limiting it as a legal tender to 40 shillings.[46] These laws continued in force till 1661, when wampum was declared to be no longer a legal tender in Massachusetts.[47] Rhode Island passed a similar decree the next year[48] and Connecticut, probably, soon afterwards. But though wampum now ceased to be legally current, it lingered among the people for years and constituted in great part the small change of the community. As late as 1704, it was a common mode of payment in country places.[49] Shell money was used extensively and for a long time in the Dutch colonies. Here for a while absolutely no coin was in circulation, and wampum being the feasible substitute was universally adopted. So great was the popular demand, that even the unstrung wampum, prohibited in the eastern colonies, passed at but a trifling discount.[50] For many years the easy-going government at New Amsterdam does not seem to have regulated the currency by law, as did its more thorough neighbors, and the amount of wampum requisite to make a stiver, was left to be determined by the parties concerned. Such a course was fraught with inconvenience to the public, and frequent petitions were made for the establishment of some uniform rate.[51] The rate, however, which obtained by common consent, was four of the strung and six of the loose beads for a stiver.[52] But in 1641, there came from foreign parts an inundation of "nasty, rough" sewan, which drove the better sort out of circulation, "nay," so runs the record, "threatened the ruin of the country," and legislation was imperatively demanded. This inferior article was therefore condemned to pass five for a stiver during the following month, and afterwards six, at which rate the loose, unstringed wampum, which served the community as change, subsequently circulated.[53] The importance of wampum during these years is well illustrated by the fact that the opulent West India Company in 1664, sought to negotiate a loan of five or six thousand guilders in it, wherewith to pay the laboring people, the obligation to be satisfied with _good negroes_ or other goods.[54] The Dutch succumbed to superior force, but wampum still held its own. It continued to be the chief currency not only in New York, but in the many settlements to the west and south, which were then under the control of the authorities at New York. In 1672, the inhabitants of Hoanskill and New Castle on the Delaware, having been plundered by Dutch privateers were permitted by the government at New York to lay an impost of four guilders, in wampum, upon each anker of strong rum imported or sold there.[55] A guilder, which was about six pence currency or four pence sterling, consisted of twenty stivers, and eight beads were reckoned equal to one stiver. As heretofore there was little or no certain coin in circulation and wampum passed for current payment in all cases. Indeed the country was so drained of even this currency by the Indian trade, that there was difficulty in obtaining a sufficiency. To remedy this state of affairs, the governor and council of New York were in 1673 constrained to issue their proclamation which was published at Albany, Esopus, Delaware, Long Island and the adjacent parts, commanding that "instead of eight white and four black (beads), six white and three black should pass for a stiver; and three times so much the value of silver."[56] The contributions in the churches were for many years made in wampum, and the first church on the Jersey shore was built with funds contributed in this way from Sabbath to Sabbath. As late as 1683, "the schoolmaster in Flatbush was paid his salary in wheat, wampum value: He was bound to provide a basin of water for the purpose of baptism, for which he received from the parents or sponsors twelve stivers in wampum."[57] Nor ten years later had the money of the aborigines become wholly supplanted by gold and silver, for we learn that "in 1693, the ferriage of each single person from New York to Brooklyn was eight stivers in wampum, or a silver two-pence."[58] Further than this we are unable to trace, though we have good reason to believe that it circulated, to a limited extent, for some time thereafter. Thus while the Indian declined in power his simple coinage passed from hand to hand, among his conquerors, in the haunts where unnumbered generations of his ancestors had trafficked it in rude barter, or offered it with solemn ceremonial, their costliest offering, to their country's gods. It was for about a quarter of a century a legal tender in New England, while among the Dutch it was during half a century often the only circulating medium, and among both Dutch and English it filled a more or less important part in the currency for nearly an entire century. When at length the increasing wealth of the people drove wampum out of common use, it still remained an important article in commerce. It was manufactured at New York until the commencement of the present century to be used in traffic with the Indians, for whom it had lost none of its charms, and to be carried by our whalers into the northern seas. Treaties and compacts between the different tribes and the states, and later the general government, continued to be ratified by the interchange of wampum belts. The records of the eighteenth century abound with instances of this character. The last occasion of the kind is believed to have been at Prairie du Chien in 1825.[59] Among the Indians of the present day wampum is unknown. The name still remains, but the trifles to which it is applied bear no resemblance to the ancient article. The glass beads now current as wampum and the original wampum are not less unlike, than the squalid Blackfoot of our western plains, and the proud and imperious Mohawk, beside his native stream. FOOTNOTES: [1] Trumbull in his notes in the Narragansett Club Reprint of Roger Williams's _Key_, says: "_Wom pam_ was the name of the white beads collectively; when strung or wrought in girdles they constituted _wanôm-peg_ [Roger Williams], the _wampon-peage_ of Wood and other early writers." _Peage_ or _peake_ signified simply "strung beads," and _wampom-peage_ accordingly signified "strings of white beads." The English were doubtless led to consider _wampum_ a generic word, because they heard it oftenest used, _wampum_ being much more abundant than _suckáuhock_. Their error has however long since received the sanction of usage. But as far as our own knowledge extends there was no comprehensive word for all shell beads in use among the Indians. _Sewan_ had perhaps very nearly such a use in certain localities, but the real meaning of the word _sewan_ appears from the following note in the Narragansett Club Reprint of Roger Williams's _Key_:--"_Seahwhóog_, 'they are scattered' [Elliot]. From this word the Dutch traders gave the name of _sewared_ or _zeewand_ [the participle, _seahwhóun_, 'scattered,' 'loose'], to _all_ shell money just as the English called all _peage_, or string beads, by the name of the white or _wampom_." [2] Sometimes from the _Buccinum undulatum_ [Möll], found from Nantucket to Labrador, and occasionally perhaps from the _Natica heros_ [Say] found from New York to Labrador, and the _Natica duplicata_ found from Florida to Massachusetts Bay. In this connection the writer would acknowledge his indebtedness to Hon. J. Hammond Trumbull, a gentleman who has given much time and talent to the investigation of matters of Indian history. [3] Many writers have asserted that wampum was worked out of the inside of the Great Conque shell. This view is evidently erroneous, as the Great Conque, _Strombus gigas_ [Linn.], is not found on the Atlantic coast, north of Florida and the West Indies, except in the fossil state. The assertion that wampum is an Iroquois word, meaning a "muscle," is doubtless equally unfounded. Roger Williams [_Key_, chap. xxiv], who certainly had fine opportunities for observation, and our other most trustworthy authorities, state that the _Suckáuhock_ was made from the clam shell, and the _wampum_ from the shells of the Periwinkle, and such was unquestionably the case. [4] Roger Williams's _Key_, chap. xxiv. [5] Gordon, _Hist. of Penn._, Appendix F. [6] See Schoolcraft's report on the Grove Creek Mound in vol. I, of _Transactions of the Am. Ethnological Soc._ [7] _League of the Iroquois_, p. 120. [8] The otekóa of the Iroquois was the only exception of which we know. [9] Roger Williams's _Key_, chap. xxiv. [10] Roger Williams's _Key_, chap. xxiv. [11] For an excellent illustration of the different modes of wearing wampum, see the plates in that admirable work, _Harriot's Virginia_, written in 1586, and published in 1590, in the first volume of De Bry's _Voyages_. [12] Trumbull's _Hist. of Connecticut_, I, p. 50. [13] "It is obvious to all who are the least acquainted with Indian affairs, that they regard no message or invitation, be it of what consequence it will, unless attended or confirmed by strings or belts of wampum, which they look upon as we our letters or rather bonds."--_Letter of Sir Wm. Johnson_, 1753. _Doc. Hist. of N. Y._, vol. II, p. 624. [14] As late as 1720, a belt was brought into Connecticut from some place at the south called Towattowan, and circulated very generally among the Indians, to the alarm of the colony, "the assembly caused some inquiries to be made into the mystery, and an Indian, named Tapanranawko, testified that the belt was in token that at each place where it was accepted, captive Indians would be received and sold. He said that it would be sent back to Towattowan, which was a great way to the south, and was inhabited by a large tribe of Indians. The assembly resolved that the Indians should be directed to send it back whence it came, and should be charged not to receive such presents in future without giving notice to the magistrates."--DeForest's _Hist. of Indians of Conn._, p. 349. [15] _League of the Iroquois_, p. 339. [16] Documents relating to the _Colonial History of New York_, vol. VII, p. 44. [17] _League of the Iroquois_, p. 120. [18] _Eastern Maine and Nova Scotia in the Revolution_, Kidder, p. 286. [19] It is interesting in this connection to notice the manner in which the chiefs affixed their names to early deeds. In the deed of New Haven given by the Quinnipiacs [see Appendix IV, DeForest's Indians of Conn.], may be seen as autographs, an arrow, a bow, a drawn bow, a war club, a tobacco pipe, a snake, a wolf (apparently), a wild fowl, etc., etc. [20] _League of the Iroquois_, p. 119. [21] President Stiles's _Itinerary_, unpublished. [22] _League of the Iroquois_, page 188. [23] Thomson's _Long Island_, p. 62. [24] _League of the Iroquois_, p. 331. [25] It is stated in _Winthrop's Journal_ [p. 147 and after], that four servants of Plymouth were condemned and hung upon their own confession of having murdered an Indian to obtain his wampum. [26] In the tomb, apparently of a chief, in the Grove Creek Mound, 1700 beads were found around the remains of a skeleton, and such deposits are frequently found in opening old graves. [27] Winthrop, I, 113. [28] Bradford's _Letters_, _Mass. Hist. Collections_, III, 54. [29] _Doc. Rel. to Colonial History of New York_, I, 459. [30] Lawson's _History of North Carolina_, ed. of 1714, page 315. [31] Rhode Island _Colonial Records_, I, 130. [32] _Winthrop_, pages 147, 149 and 192. [33] Thompson's _Long Island_, page 62. [34] _Hazard_, II, page 413. [35] _Hazard_, III, page 44. [36] _Hazard_, II, pages 387 and 388. [37] Thompson's _Long Island_, page 60. [38] _Records of Mass._, I, 238. Where only one rate is mentioned, as here, we are probably to understand the white, and deduct one-half for the black or blue. [39] _Colonial Records of Conn._, I, 12. [40] _Records of Mass._, I, p. 302. [41] _Ibid._, p. 329. [42] _Col. Records of Conn._, I, 179. [43] _Records of Mass._, II, 261. [44] _Records of Mass._, I, 323. [45] _Records of Mass._, II, 279. [46] _Ibid._, IV, p. 36. [47] _Records of Mass._, IV, part 2, pages 4, 5. [48] _R. Island Colonial Records_, I, page 474. [49] Madam Knight's _Journal_, written in 1704, page 43. [50] _Doc. Relating to the Colonial Hist. of New York_, I, 474. [51] _Ibid._, p. 336. [52] _Ibid._, p. 425. [53] O'Callaghan's _New Netherland_, I, 230. [54] _Doc. Col. Hist. of New York_, II, p. 371. [55] Proud's _Hist. of Pennsylvania_, I, page 133. [56] Hazzard's _Annals of Pennsylvania_. [57] O'Callaghan's _New Netherland_, I, 61. [58] O'Callaghan's _New Netherland_, I, _ibid._ [59] Schoolcraft's _Notes on the Iroquois_. Transcriber's Note: Archaic spellings have been retained. Abbreviations have been normalised. Minor typographical errors have been corrected without note, whilst more significant amendments are listed below: P. 10, "Pyrula canicalata" to _Pyrula caniculata_. P. 11n, "Great Congue" to _Great Conque_, could be amended to _Great Conch_ however the former seems more in keeping with the original intent. 
12784	----	Produced from images provided by the Million Book Project. _To be completed in 12 volumes, 3s. 6d. each_. THE PROSE WORKS OF JONATHAN SWIFT, D.D. EDITED BY TEMPLE SCOTT VOL. I. A TALE OF A TUB AND OTHER EARLY WORKS. Edited by TEMPLE SCOTT. With a biographical introduction by W.E.H. LECKY, M.P. With Portrait and Facsimiles. VOL. II. THE JOURNAL TO STELLA. Edited by FREDERICK RYLAND, M.A. With two Portraits of Stella and a Facsimile of one of the Letters. VOLS. III. & IV. WRITINGS ON RELIGION AND THE CHURCH. Edited by TEMPLE SCOTT. With Portraits and Facsimiles of Title-pages. VOL. V. HISTORICAL AND POLITICAL TRACTS--ENGLISH. Edited by TEMPLE SCOTT. With Portrait and Facsimiles of Title-pages. VOL. VI. THE DRAPIER'S LETTERS. Edited by TEMPLE SCOTT. With Portrait, Reproductions of Wood's Coinage, and Facsimiles of Title pages. VOL. VIII. GULLIVER'S TRAVELS. Edited by G. RAVENSCROFT DENNIS. With Portrait, Maps and Facsimiles. VOL. IX. CONTRIBUTIONS TO THE "EXAMINER," "TATLER," "SPECTATOR," &c. Edited by TEMPLE SCOTT. With Portrait. VOL. X. HISTORICAL WRITINGS. Edited by TEMPLE SCOTT. With Portrait. _To be followed by:_ VOL. VII. HISTORICAL AND POLITICAL TRACTS--IRISH. VOL. XI. LITERARY ESSAYS. VOL. XII. BIBLIOGRAPHY AND INDEX TO COMPLETE WORKS. * * * * * LONDON: GEORGE BELL AND SONS. BOHN'S STANDARD LIBRARY * * * * * THE PROSE WORKS OF JONATHAN SWIFT VOL. VI GEORGE BELL AND SONS LONDON: YORK ST. COVENT GARDEN CAMBRIDGE: DEIGHTON, BELL & CO. NEW YORK: THE MACMILLAN CO. BOMBAY: A.H. WHEELER & CO. [Illustration: Jonathan Swift from a painting in the National Gallery of Ireland once in the possession of judge Berwick and ascribed to Francis Bindon] THE PROSE WORKS OF JONATHAN SWIFT, D.D. EDITED BY TEMPLE SCOTT VOL. VI THE DRAPIER'S LETTERS LONDON GEORGE BELL AND SONS 1903 CHISWICK PRESS CHARLES WHITTINGHAM AND CO TOOKS COURT, CHANCERY LANE, LONDON INTRODUCTION In 1714 Swift left England for Ireland, disappointed, distressed, and worn out with anxiety in the service of the Harley Ministry. On his installation as Dean of St. Patrick's he had been received in Dublin with jeering and derision. He had even been mocked at in his walks abroad. In 1720, however, he entered for the second time the field of active political polemics, and began with renewed energy the series of writings which not only placed him at the head and front of the political writers of the day, but secured for him a place in the affections of the people of Ireland--a place which has been kept sacred to him even to the present time. A visitor to the city of Dublin desirous of finding his way to St. Patrick's Cathedral need but to ask for the Dean's Church, and he will be understood. There is only one Dean, and he wrote the "Drapier's Letters." The joy of the people of Dublin on the withdrawal of Wood's Patent found such permanent expression, that it has descended as oral tradition, and what was omitted from the records of Parliament and the proceedings of Clubs and Associations founded in the Drapier's honour, has been embalmed in the hearts of the people, whose love he won, and whose homage it was ever his pride to accept. The spirit of Swift which Grattan invoked had, even in Grattan's time, power to stir hearts to patriotic enthusiasm. That spirit has not died out yet, and the Irish people still find it seasonable and refreshing to be awakened by it to a true sense of the dignity and majesty of Ireland's place in the British Empire. A dispassionate student of the condition of Ireland between the years of Swift's birth and death--between, say, 1667 and 1745--could rise from that study in no unprejudiced mood. It would be difficult for him to avoid the conclusion that the government of Ireland by England had not only degraded the people of the vassal nation, but had proved a disgrace and a stigma on the ruling nation. It was a government of the masses by the classes, for no other than selfish ends. It ended, as all such governments must inevitably end, in impoverishing the people, in wholesale emigration, in starvation and even death, in revolt, and in fostering among those who remained, and among those whom circumstances exiled, the dangerous spirit of resentment and rebellion which is the outcome of the sense of injustice. It has also served, even to this day, to give vitality to those associations that have from time to time arisen in Ireland for the object of realizing that country's self-government. It may be argued that the people of Ireland of that time justified Swift's petition when he prayed to be removed from "this land of slaves, where all are fools and all are knaves"; but that is no justification for the injustice. The injustice from which Ireland suffered was a fact. Its existence was resented with all the indignation with which an emotional and spiritual people will always resent material obstructions to the free play of what they feel to be their best powers. There were no leaders at the time who could see this, and seeing it, enforce its truth on the dull English mind to move it to saner methods of dealing with this people. Nor were there any who could order the resentment into battalions of fighting men to give point to the demands for equal rights with their English fellow-subjects. Had Swift been an Irishman by nature as he was by birth, it might have been otherwise; but Swift was an Irishman by accident, and only became an Irish patriot by reason of the humanity in him which found indignant and permanent expression against oppression. Swift's indignation against the selfish hypocrisy of his fellow-men was the cry from the pain which the sight of man's inhumanity to man inflicted on his sensitive and truth-loving nature. The folly and baseness of his fellow-creatures stung him, as he once wrote to Pope, "to perfect rage and resentment." Turn where he would, he found either the knave as the slave driver, or the slave as a fool, and the latter became even a willing sacrifice. His indignation at the one was hardly greater than his contempt for the other, and his different feelings found trenchant expression in such writings as the "Drapier's Letters," the "Modest Proposal," and "Gulliver's Travels." It has been argued that the _saeva indignatio_ which lacerated his heart was the passion of a mad man. To argue thus seems to us to misunderstand entirely the peculiar qualities of Swift's nature. It was not the mad man that made the passion; it was rather the passion that made the man mad. As we understand him, it seems to us that Swift's was an eminently majestic spirit, moved by the tenderest of human sympathies, and capable of ennobling love--a creature born to rule and to command, but with all the noble qualities which go to make a ruler loved. It happened that circumstances placed him early in his career into poverty and servitude. He extricated himself from both in time; but his liberation was due to an assertion of his best powers, and not to a dissimulation of them. Had he been less honest, he might have risen to a position of great power, but it would have been at the price of those very qualities which made him the great man he was. That assertion cost him his natural vocation, and Swift lived on to rage in the narrow confines of a Dublin Deanery House. He might have flourished as the greatest of English statesmen--he became instead a monster, a master-scourger of men, pitiless to them as they had been blind to him. But monster and master-scourger as he proved himself, he always took the side of the oppressed as against the oppressor. The impulse which sent him abroad collecting guineas for "poor Harrison" was the same impulse which moved him in his study at the Deanery to write as "M.B. Drapier." On this latter occasion, however, he also had an opportunity to lay bare the secret springs of oppression, an opportunity which he was not the man to let go by. No doubt Swift was not quite disinterested in the motives which prompted him to enter the political arena for the second time. He hated the Walpole Ministry in power; he resented his exile in a country whose people he despised; and he scorned the men who, while they feared him, had yet had the power to prevent his advancement. But, allowing for these personal incentives, there was in Swift such a large sympathy for the degraded condition of the Irish people, such a tender solicitude for their best welfare, and such a deep-seated zeal for their betterment, that, in measuring to him his share in the title of patriot, we cannot but admit that what we may call his public spirit far outweighed his private spleen. Above all things Swift loved liberty, integrity, sincerity and justice; and if it be that it was his love for these, rather than his love for the country, which inspired him to patriotic efforts, who shall say that he does not still deserve well of us. If a patriot be a man who nobly teaches a people to become aware of its highest functions as a nation, then was Swift a great patriot, and he better deserves that title than many who have been accorded it. The matter of Wood's Halfpence was a trivial one in itself; but it was just that kind of a matter which Swift must instantly have appreciated as the happiest for his purpose. It was a matter which appealed to the commonest news-boy on the street, and its meaning once made plain, the principle which gave vitality to the meaning was ready for enunciation and was assured of intelligent acceptance. In writing the "Drapier's Letters," he had, to use his own words, seasonably raised a spirit among the Irish people, and that spirit he continued to refresh, until when he told them in his Fourth Letter, "by the Laws of God, of Nature, of Nations, and of your Country, you are, and ought to be, as free a people as your brethren in England," the country rose as one man to the appeal. Neither the suavities of Carteret nor the intrigues of Walpole had any chance against the set opposition which met them. The question to be settled was taken away from the consideration of ministers, and out of the seclusion of Cabinets into the hands of the People, and before the public eye. There was but one way in which it could be settled--the way of the people's will--and it went that way. It does not at all matter that Walpole finally had his way--that the King's mistress pocketed her _douceur_, and that Wood retired satisfied with the ample compensation allowed him. What does matter is that, for the first time in Irish History, a spirit of national life was breathed into an almost denationalized people. Beneath the lean and starved ribs of death Swift planted a soul; it is for this that Irishmen will ever revere his memory. In the composition of the "Letters" Swift had set himself a task peculiarly fitting to his genius. Those qualities of mind which enabled him to enter into the habits of the lives of footmen, servants, and lackeys found an even more congenial freedom of play here. His knowledge of human nature was so profound that he instinctively touched the right keys, playing on the passions of the common people with a deftness far surpassing in effect the acquired skill of the mere master of oratory. He ordered his arguments and framed their language, so that his readers responded with almost passionate enthusiasm to the call he made upon them. Allied to his gift of intellectual sympathy with his kind was a consummate ability in expression, into which he imparted the fullest value of the intended meaning. His thought lost nothing in its statement. Writing as he did from the point of view of a tradesman, to the shopkeepers, farmers, and common people of Ireland, his business was to speak with them as if he were one of them. He had already laid bare their grievances caused by the selfish legislation of the English Parliament, which had ruined Irish manufactures; he had written grimly of the iniquitous laws which had destroyed the woollen trade of the country; he had not forgotten the condition of the people as he saw it on his journeys from Dublin to Cork--a condition which he was later to reveal in the most terrible of his satirical tracts--and he realized with almost personal anguish the degradation of the people brought about by the rapacity and selfishness of a class which governed with no thought of ultimate consequences, and with no apparent understanding of what justice implied. It was left for him to precipitate his private opinion and public spirit in such form as would arouse the nation to a sense of self-respect, if not to a pitch of resentment. The "Drapier's Letters" was the reagent that accomplished both. * * * * * The editor takes this opportunity to express his thanks and obligations to Mr. G.R. Dennis, to Mr. W. Spencer Jackson, to the late Colonel F.R. Grant, to Mr. C. Litton Falkiner of Killiney, and to Mr. O'Donoghue of Dublin. His acknowledgment is here also made to Mr. Strickland, of the National Gallery of Ireland, to whose kindness and learning he is greatly indebted. TEMPLE SCOTT. NEW YORK, _March_, 1903. CONTENTS LETTER I. TO THE SHOPKEEPERS, TRADESMEN, FARMERS, AND COMMON-PEOPLE OF IRELAND LETTER II. TO MR. HARDING THE PRINTER THE REPORT OF THE COMMITTEE OF THE LORDS OF HIS MAJESTY'S MOST HONOURABLE PRIVY-COUNCIL, IN RELATION TO MR. WOOD'S HALFPENCE AND FARTHINGS, ETC. LETTER III. TO THE NOBILITY AND GENTRY OF THE KINGDOM OF IRELAND LETTER IV. TO THE WHOLE PEOPLE OF IRELAND SEASONABLE ADVICE TO THE GRAND JURY, CONCERNING THE BILL PREPARING AGAINST THE PRINTER OF THE DRAPIER'S FOURTH LETTER LETTER V. TO THE LORD CHANCELLOR MIDDLETON LETTER VI. TO THE RIGHT HONOURABLE THE LORD VISCOUNT MOLESWORTH LETTER VII. AN HUMBLE ADDRESS TO BOTH HOUSES OF PARLIAMENT APPENDIXES I. ADDRESSES TO THE KING II. REPORT OF THE ASSAY ON WOOD'S COINAGE, MADE BY SIR ISAAC NEWTON, EDWARD SOUTHWELL, ESQ., AND THOMAS SCROOPE, ESQ. III. TOM PUNSIBI'S DREAM IV. A LETTER FROM A FRIEND TO THE RIGHT HONOURABLE ---- A SECOND LETTER FROM A FRIEND TO THE RIGHT HONOURABLE ---- V. THE PRESENTMENT OF THE GRAND JURY OF THE COUNTY OF THE CITY OF DUBLIN VI. PROCLAMATION AGAINST THE DRAPIER VII. REPORT OF THE IRISH PRIVY COUNCIL ON WOOD'S COINAGE VIII. THE PATENTEE'S COMPUTATION OF IRELAND, IN A LETTER FROM THE AUTHOR OF THE "WHITEHALL EVENING POST" CONCERNING THE MAKING OF COPPER COIN IX. DESCRIPTIONS OF THE VARIOUS SPECIMENS OF WOOD'S COINS INDEX PLATES. JONATHAN SWIFT. From a painting in the National Gallery of Ireland, ascribed to Francis Bindon HALFPENCE AND FARTHINGS coined by William Wood, 1722 and 1723 [Illustration: _Half-pence & farthings coined by William Wood, 1722 & 1723_] LETTER I. TO THE SHOP-KEEPERS, TRADESMEN, FARMERS, AND COMMON-PEOPLE OF IRELAND. NOTE About the year 1720 it was generally acknowledged in Ireland that there was a want there of the small change, necessary in the transaction of petty dealings with shopkeepers and tradesmen. It has been indignantly denied by contemporary writers that this small change meant copper coins. They asserted that there was no lack of copper money, but that there was a great want of small silver. Be that as it may, the report that small change was wanting was sufficiently substantiated to the English government to warrant it to proceed to satisfy the want. In its dealings with Ireland, however, English governments appear to have consistently assumed that attitude which would most likely cause friction and arouse disturbance. In England coins for currency proceeded from a mint established under government supervision. In Scotland such a mint was specially provided for in the Act of Union. But in Ireland, the government acted otherwise. The Irish people had again and again begged that they should be permitted to establish a mint in which coins could be issued of the same standard and intrinsic value as those used in England. English parliaments, however, invariably disregarded these petitions. Instead of the mint the King gave grants or patents by which a private individual obtained the right to mint coins for the use of the inhabitants. The right was most often given for a handsome consideration, and held for a term of years. In 1660 Charles II. granted such a patent to Sir Thomas Armstrong, permitting him to coin farthings for twenty years. It appears, however, that Armstrong never actually coined the farthings, although he had gone to the expense of establishing a costly plant for the purpose. Small copper coins becoming scarce, several individuals, without permission, issued tokens; but the practice was stopped. In 1680 Sir William Armstrong, son of Sir Thomas, with Colonel George Legg (afterwards Lord Dartmouth), obtained a patent for twenty-one years, granting them the right to issue copper halfpence. Coins were actually struck and circulated, but the patent itself was sold to John Knox in the very year of its issue. Knox, however, had his patent specially renewed, but his coinage was interrupted when James II. issued his debased money during the Revolution (see Monck Mason, p. 334, and the notes on this matter to the Drapier's Third Letter, in present edition). Knox sold his patent to Colonel Roger Moore, who overstocked the country with his coins to such an extent that the currency became undervalued. When, in 1705, Moore endeavoured to obtain a renewal of his patent, his application was refused. By 1722, owing either to Moore's bad coinage, or to the importation of debased coins from other countries, the copper money had degraded considerably. In a pamphlet[1] issued by George Ewing in Dublin (1724), it is stated that in that year, W. Trench presented a memorial to the Lords of the Treasury, complaining of the condition of the copper coinage, and pointing out that the evil results had been brought about by the system of grants to private individuals. Notwithstanding this memorial, it was attempted to overcome the difficulty by a continuance of the old methods. A new patent was issued to an English iron merchant, William Wood by name, who, according to Coxe, submitted proposal with many others, for the amelioration of the grievance. Wood's proposals, say this same authority, were accepted "as beneficial to Ireland." The letters patent bear the date July 12th, 1722, and were prepared in accordance with the King's instructions to the Attorney and Solicitor General sent in a letter from Kensington on June 16th, 1722. The letter commanded "that a bill should be prepared for his royal signature, containing and importing an indenture, whereof one part was to pass the Great Seal of Great Britain." This indenture, notes Monck Mason,[2] between His Majesty of the one part, "and William Wood, of Wolverhampton, in the County of Stafford, Esq.," of the other, signifies that His Majesty "has received information that, in his kingdom of Ireland, there was a great want of small money for making small payments, and that retailers and others did suffer by reason of such want." [Footnote 1: "A Defence of the Conduct of the People of Ireland in their unanimous refusal of Mr. Wood's Copper Money," pp. 22-23.] [Footnote 2: "History of St. Patrick's Cathedral," note v, pp. 326-327.] By virtue, therefore, of his prerogative royal, and in consideration of the rents, covenants, and agreements therein expressed, His Majesty granted to William Wood, his executors, assigns, etc., "full, free, sole, and absolute power, privilege, licence, and authority," during fourteen years, from the annunciation of the Blessed Virgin, 1722, to coin halfpence and farthings of copper, to be uttered and disposed of in Ireland, and not elsewhere. It was provided that the whole quantity coined should not exceed 360 tons of copper, whereof 100 tons only were to be coined in the first year, and 20 tons in each of the last thirteen, said farthings and halfpence to be of good, pure, and merchantable copper, and of such size and bigness, that one avoirdupois pound weight of copper should not be converted into more farthings and halfpence than would make thirty pence by tale; all the said farthings and halfpence to be of equal weight in themselves, or as near thereunto as might be, allowing a remedy not exceeding two farthings over or under in each pound. The same "to pass and to be received as current money, by such as shall or will, voluntarily and willingly, and not otherwise, receive the same, within the said kingdom of Ireland, and not elsewhere." Wood also covenanted to pay to the King's clerk or comptroller of the coinage, £200 yearly, and £100 per annum into his Majesty's treasury. Most of the accounts of this transaction and its consequent agitation in Ireland, particularly those given by Sir W. Scott and Earl Stanhope, are taken from Coxe's "Life of Walpole." Monck Mason, however, in his various notes appended to his life of Swift, has once and for all placed Coxe's narrative in its true light, and exposed the specious special pleading on behalf of his hero, Walpole. But even Coxe cannot hide the fact that the granting of the patent and the circumstances under which it was granted, amounted to a disgraceful job, by which an opportunity was seized to benefit a "noble person" in England at the expense of Ireland. The patent was really granted to the King's mistress, the Duchess of Kendal, who sold it to William Wood for the sum of £10,000, and (as it was reported with, probably, much truth) for a share in the profits of the coining. The job was alluded to by Swift when he wrote: "When late a feminine magician, Join'd with a brazen politician, Expos'd, to blind a nation's eyes, A parchment of prodigious size." Coxe endeavors to exonerate Walpole from the disgrace attached to this business, by expatiating on Carteret's opposition to Walpole, an opposition which went so far as to attempt to injure the financial minister's reputation by fomenting jealousies and using the Wood patent agitation to arouse against him the popular indignation; but this does not explain away the fact itself. He lays some blame for the agitation on Wood's indiscretion in flaunting his rights and publicly boasting of what the great minister would do for him. At the same time he takes care to censure the government for its misconduct in not consulting with the Lord Lieutenant and his Privy Council before granting the patent. His censure, however, is founded on the consideration that this want of attention was injudicious and was the cause of the spread of exaggerated rumours of the patent's evil tendency. He has nothing to say of the rights and liberties of a people which had thereby been infringed and ignored. The English parliament had rarely shown much consideration for Irish feelings or Irish rights. Its attitude towards the Irish Houses of Legislation had been high-handed and even dictatorial; so that constitutional struggles were not at all infrequent towards the end of the seventeenth and during the first quarter of the eighteenth century. The efforts of Sir Constantine Phipps towards a non-parliamentary government,[3] and the reversal by the English House of Lords of the decision given by the Irish House of Lords in the famous Annesley case, had prepared the Irish people for a revolt against any further attempts to dictate to its properly elected representatives assembled in parliament. Moreover, the wretched material condition of the people, as it largely had been brought about by a selfish, persecuting legislation that practically isolated Ireland commercially in prohibiting the exportation of its industrial products, was a danger and a menace to the governing country. The two nations were facing each other threateningly. When, therefore, Wood began to import his coin, suspicion was immediately aroused. [Footnote 3: See Lecky's "History of Ireland," vol. i., p. 446, etc.] The masses took little notice of it at first; but the commissioners of revenue in Dublin took action in a letter they addressed to the Right Hon. Edward Hopkins, secretary to the Lord Lieutenant. This letter, dated August 7th, 1722, began by expressing surprise at the patent granted to Mr. Wood, and asked the secretary "to lay before the Lord Lieutenant a memorial, presented by their agent to the Lords of the Treasury, concerning this patent, and also a report of some former Commissioners of the revenue on the like occasion, and to acquaint his Grace, that they concurred in all the objections in those papers, and were of opinion, that such a patent would be highly prejudicial to the trade, and welfare of this kingdom, and more particularly to his Majesty's revenue, which they had formerly found to have suffered very much, by too great a quantity of such base coin."[4] No reply was received to this letter. [Footnote 4: "A Defence of the Conduct of the People of Ireland," etc., p. 6.] Fears began to be generally felt, and the early murmurs of an agitation to be heard when, on September 19th, 1722, the Commissioners addressed a second letter, this time to the Lords Commissioners of His Majesty's Treasury. The letter assured their Lordships "that they had been applied to by many persons of rank and fortune, and by the merchants and traders in Ireland, to represent the ill effects of Mr. Wood's patent, and that they could from former experience assure their Lordships, it would be particularly detrimental to his Majesty's revenue. They represented that this matter had made a great noise here, and that there did not appear the _least want of such small species of coin for change_, and hoped that the importance of the occasion would excuse their making this representation of a matter that had not been referred to them."[5] [Footnote 5: _Ibid_, pp. 6-7.] To this letter also no reply was vouchsafed. In the meantime, Wood kept sending in his coins, landing them at most of the ports of the kingdom. "Then everyone that was not interested in the success of this coinage," writes the author of the pamphlet already quoted, "by having contracted for a great quantity of his halfpence at a large discount, or biassed by the hopes of immoderate gain to be made out of the ruins of their country, expressed their apprehensions of the pernicious consequences of this copper money; and resolved to make use of the _right they had by law to refuse the same_".[6] [Footnote 6: _Ibid_, p. 7.] The Lord Lieutenant, the Duke of Grafton, had arrived in August, 1723, and parliament sat early in September. Its first attention was paid to the Wood patent. After the early excitement had subsided, they resolved to appeal to the King. During the early stages of the discussion, however, the Commons addressed the Lord Lieutenant, asking that a copy of the patent and other papers relating to it, be laid before them. This was on September 13th. On the following day Mr. Hopkins informed the House that the Lord Lieutenant had no such copy, nor any papers. The House then unanimously resolved to inquire into the matter on its own account, and issued orders for several persons to appear before it to give evidence, fixing the day for examination for September 16th. On that day, however, Mr. Hopkins appeared before the members with a copy of the patent, and informed them that the Lord Lieutenant had received it since his last communication with them. This incident served but to arouse further ridicule. A broadside, published at the time with the title "A Creed of an Irish Commoner," amusingly reveals the lameness of the excuse for this non-production of the exemplification. Coxe says that the cause for the delay was due to the fact that the copy of the patent had been delivered to the Lord Lieutenant's servant, instead of to his private secretary; but this excuse is probably no more happily founded than the one offered. On Friday, September 20th, the House resolved itself into a committee "to take into consideration the state of the nation, particularly in relation to the importing and uttering of copper halfpence and farthings in this kingdom." After three days' debate, and after examining competent witnesses under oath, it passed resolutions to the following effect (1) That Wood's patent is highly prejudicial to his Majesty's revenue, and is destructive of trade and commerce, and most dangerous to the rights and properties of the subject. (2) That for the purpose of obtaining the patent Wood had notoriously misrepresented the state of the nation. (3) That great quantities of the coin had been imported of different impressions and of much less weight than the patent called for. (4) That the loss to the nation by the uttering of this coin would amount to 150 per cent. (5) That in coining the halfpence Wood was guilty of a notorious fraud. (6) "That it is the opinion of this Committee, that it hath been always highly prejudicial to this kingdom to grant the power or privilege of coining money to private persons; and that it will, at all times, be of dangerous consequence to grant any such power to any body politic, or corporate, or any private person or persons whatsoever."[7] [Footnote 7: "Comm. Journals," vol. iii., pp. 317-325.] Addresses to his Majesty in conformity with these resolutions were voted on September 27th. The House of Lords passed similar resolutions on September 26th, and voted addresses embodying them on September 28th.[8] [Footnote 8: "Lords' Journals," vol. ii., pp. 745-751.] These Addresses received a better attention than did the letters from the revenue commissioners. The Houses were courteously informed that their communications would receive His Majesty's careful consideration. Walpole kept his promise, but not before he had fought hard to maintain the English prerogative, as he might have called it. The "secret" history as narrated in Coxe's lively manner, throws some light on the situation. Coxe really finds his hero's conduct not marked with "his usual caution." The Lord Lieutenant was permitted to go to Ireland without proper instructions; the information on which Walpole acted was not reliable; and he did not sufficiently appreciate the influence of Chancellor Midleton and his family. "He bitterly accused Lord Midleton of treachery and low cunning, of having made, in his speeches, distinction between the King and his ministers, of caballing with Carteret, Cadogan, and Roxburgh, and of pursuing that line of conduct, because he was of opinion the opposite party would gain the ascendency in the cabinet. He did not believe the disturbances to be so serious as they were represented, nor was he satisfied with the Duke of Grafton's conduct, as being solely directed by Conolly, but declared that the part acted by Conolly, almost excused what the Brodricks had done." Carteret complained to the King and proved to him that Walpole's policy was a dangerous one. The King became irritated and Walpole "ashamed." He even became "uneasy," and it is to be supposed, took a more "cautious" course; for he managed to conciliate the Brodricks and the powers in Dublin. But the devil was not ill long. The cabinet crisis resulted in the triumph of Townshend and Walpole, and the devil got well again. Carteret must be removed and the patent promoted. But Midleton and the Brodricks must be kept friendly. So Carteret went to Ireland as Lord Lieutenant, Midleton remained Chancellor, and constituted a lord justice, and St. John Brodrick was nominated a member of the Privy Council. Still farther on his "cautious" way, Ireland must be given some consideration; hence the Committee of the Privy Council, specially called to inquire into the grievances complained of by the Irish Houses of Parliament in their loyal addresses. The Committee sat for several weeks, and the report it issued forms the subject of Swift's animadversions in the Drapier's third letter. But the time spent by the Committee in London was being utilized in quite a different fashion by Swift in Ireland. "Cautious" as was Walpole, he had not reckoned with the champion of his political opponents of Queen Anne's days. Swift had little humour for court intrigues and cabinet cabals. He came out into the open to fight the good fight of the people to whom courts and cabinets should be servants and not self-seeking masters. Whatever doubts the people of Ireland may have had about the legal validity of their resentment towards Wood and his coins, were quickly dissipated when they read "A Letter to the Shop Keepers, Tradesmen, Farmers, and Common People of Ireland, concerning the Brass Half-pence coined by Mr. Wood," and signed, "M.B. Drapier." The letter, as Lord Orrery remarked, acted like the sound of a trumpet. At that sound "a spirit arose among the people, that in the eastern phrase, was _like unto a trumpet in the day of the whirlwind_. Every person of every rank, party, and denomination was convinced, that the admission of Wood's copper must prove fatal to the Commonwealth. The papist, the fanatic, the Tory, the Whig, all listed themselves volunteers under the banners of M.B. Drapier, and were all equally zealous to serve the Common cause." The present text of the first of the Drapier's letters is based on that given by Sir W. Scott, carefully collated with two copies of the first edition which differed from each other in many particulars. One belonged to the late Colonel F. Grant, and the other is in the British Museum. It has also been read with the collection of the Drapier's Letters issued by the Drapier Club in 1725, with the title, "Fraud Detected"; with the London edition of "The Hibernian Patriot" (1730), and with Faulkner's text issued in his collected edition of Swift's Works in 1735. [T.S.] [Illustration: A *LETTER* TO THE _Shop-Keepers_, _Tradesmen_, _Farmers_ and _Common-People_ of *IRELAND*, Concerning the *Brass Half-pence* Coined by **Mr. Woods,** WITH A _Design_ to have them _Pass_ in this *KINGDOM*. Wherein is shewn the Power of the said PATENT, the Value of the HALF-PENCE, and how far every Person may be oblig'd to take the same in Payments, and how to behave in Case such an Attempt shou'd be made by WOODS or any other Person. [Very Proper to be kept in every FAMILY.] By M.B. _Drapier_. DUBLIN: Printed by _J. Harding_ in _Molesworth's-Court_. ] LETTER I. TO THE TRADESMEN, SHOP-KEEPERS, FARMERS, AND COMMON-PEOPLE IN GENERAL OF IRELAND. BRETHREN, FRIENDS, COUNTRYMEN AND FELLOW-SUBJECTS, What I intend now to say to you, is, next to your duty to God, and the care of your salvation, of the greatest concern to yourselves, and your children, your bread and clothing, and every common necessary of life entirely depend upon it. Therefore I do most earnestly exhort you as men, as Christians, as parents, and as lovers of your country, to read this paper with the utmost attention, or get it read to you by others; which that you may do at the less expense, I have ordered the printer to sell it at the lowest rate. It is a great fault among you, that when a person writes with no other intention than to do you good, you will not be at the pains to read his advices: One copy of this paper may serve a dozen of you, which will be less than a farthing a-piece. It is your folly that you have no common or general interest in your view, not even the wisest among you, neither do you know or enquire, or care who are your friends, or who are your enemies. About three[9] years ago, a little book was written, to advise all people to wear the manufactures of this our own dear country:[10] It had no other design, said nothing against the King or Parliament, or any man, yet the POOR PRINTER was prosecuted two years, with the utmost violence, and even some WEAVERS themselves, for whose sake it was written, being upon the JURY, FOUND HIM GUILTY. This would be enough to discourage any man from endeavouring to do you good, when you will either neglect him or fly in his face for his pains, and when he must expect only danger to himself and loss of money, perhaps to his ruin.[11] [Footnote 9: In his reprint of the Drapier's Letters, issued in 1725 with the title, "Fraud Detected; or the Hibernian Patriot," Faulkner prints "four" instead of "three"; but this, of course, is a correction made to agree with the date of the publication of this reprint. The "Proposal" was published in 1720. [T.S.]] [Footnote 10: The "little book" was "A Proposal for the Universal Use of Irish Manufactures." See vol. vii. [T.S.]] [Footnote 11: Instead of the words "loss of money," Faulkner in the reprint of 1725 has "to be fined and imprisoned." [T.S.]] However I cannot but warn you once more of the manifest destruction before your eyes, if you do not behave yourselves as you ought. I will therefore first tell you the plain story of the fact; and then I will lay before you how you ought to act in common prudence, and according to the laws of your country. The fact is thus: It having been many years since COPPER HALFPENCE OR FARTHINGS were last coined in this kingdom, they have been for some time very scarce,[12] and many counterfeits passed about under the name of _raps_, several applications were made to England, that we might have liberty to coin new ones, as in former times we did; but they did not succeed. At last one Mr. Wood,[13] a mean ordinary man, a hardware dealer, procured a patent[14]under his Majesty's broad seal to coin fourscore and ten thousand pounds[15] in copper for this kingdom, which patent however did not oblige any one here to take them, unless they pleased. Now you must know, that the halfpence and farthings in England pass for very little more than they are worth. And if you should beat them to pieces, and sell them to the brazier you would not lose above a penny in a shilling. But Mr. Wood made his halfpence of such base metal, and so much smaller than the English ones, that the brazier would not give you above a penny of good money for a shilling of his; so that this sum of fourscore and ten thousand pounds in good gold and silver, must be given for trash that will not be worth above eight or nine thousand pounds real value. But this is not the worst, for Mr. Wood when he pleases may by stealth send over another and another fourscore and ten thousand pounds, and buy all our goods for eleven parts in twelve, under the value. For example, if a hatter sells a dozen of hats for five shillings a-piece, which amounts to three pounds, and receives the payment in Mr. Wood's coin, he really receives only the value of five shillings. [Footnote 12: They had become scarce because they had been undervalued, and therefore sent out of the country in payment of goods bought. See Prior's "Observations on Coin," issued in 1729, where it is stated that this scarcity had occurred only within the last twenty years. [T.S.]] [Footnote 13: William Wood (1671-1730) was an ironmaster of Wolverhampton. In addition to the patent for coining copper halfpence which he obtained for Ireland, and to which full reference is made in the introductory note to this first Drapier's Letter, Wood also obtained a patent, in 1722, for coining halfpence, pence and twopence for the English colonies in America. This latter patent fared no better than the Irish one. The coins introduced in America bear the dates 1722 and 1723, and are now much sought after by collectors. They are known as the Rosa American coinage. A list of the poems and pamphlets on Wood, during the excitement in Dublin, attending on the Drapier's Letters, will be found in the bibliography of Swift's works to be given in vol. xi. of this edition. See also Monck Mason's "History of St. Patrick's Cathedral." In the original edition of the Letter, Wood's name is mis-spelt Woods. [T. S.]] [Footnote 14: See the introductory note for the manner in which this patent was obtained. [T.S.]] [Footnote 15: This is how the amount is named in the first edition; but the amount in reality was £100,800 (the value of 360 tons of copper, as stated by the patent). Sir W. Scott prints this as £108,000. Coxe, in his "Memoirs of Sir Robert Walpole" gives the amount as £100,000. Lecky states it as £108,000. [T.S.]] Perhaps you will wonder how such an ordinary fellow as this Mr. Wood could have so much interest as to get His Majesty's broad seal for so great a sum of bad money, to be sent to this poor country, and that all the nobility and gentry here could not obtain the same favour, and let us make our own halfpence, as we used to do. Now I will make that matter very plain. We are at a great distance from the King's court, and have nobody there to solicit for us, although a great number of lords and squires, whose estates are here, and are our countrymen, spending all their lives and fortunes there. But this same Mr. Wood was able to attend constantly for his own interest; he is an Englishman and had great friends, and it seems knew very well where to give money, to those that would speak to others that could speak to the King and could tell a fair story. And His Majesty, and perhaps the great lord or lords who advised him, might think it was for our country's good; and so, as the lawyers express it, "the King was deceived in his grant," which often happens in all reigns. And I am sure if His Majesty knew that such a patent, if it should take effect according to the desire of Mr. Wood, would utterly ruin this kingdom, which hath given such great proofs of its loyalty, he would immediately recall it, and perhaps shew his displeasure to somebody or other. But "a word to the wise is enough." Most of you must have heard, with what anger our honourable House of Commons received an account of this Wood's patent.[16] There were several fine speeches made upon it, and plain proofs that it was all A WICKED CHEAT from the bottom to the top, and several smart votes were printed, which that same Wood had the assurance to answer likewise in print, and in so confident a way, as if he were a better man than our whole Parliament put together.[17] [Footnote 16: The Irish House of Commons reported that the loss to the country, even if the patent were carried out as required, would amount to about 150 per cent.; and both Irish Houses of Parliament voted addresses against the coinage, and accused the patentee of fraud and deceit. They asserted that the terms of the patent had not been fulfilled and "that the circulation of the halfpence would be highly prejudicial to the revenue, destructive of the commerce, and of most dangerous consequences to the rights and properties of the subjects." See introductory note. [T.S.]] [Footnote 17: Wood's indiscreet retort was published in the "Flying Post" October 8th, 1723. Later he boasted that he would, with Walpole's assistance, "pour the coin down the throats of the people." [T.S.]] This Wood, as soon as his patent was passed, or soon after, sends over a great many barrels of these halfpence, to Cork and other sea-port towns,[18] and to get them off offered an hundred pounds in his coin for seventy or eighty in silver. But the collectors of the King's customs very honestly refused to take them, and so did almost everybody else. And since the Parliament hath condemned them, and desired the King that they might be stopped, all the kingdom do abominate them. [Footnote 18: At Dublin, Cork, Waterford and other ports, the merchants refused to accept the copper coins. Monck Mason notes that "in the 'Dublin Gazette,' No. 2562, we meet with resolutions by the merchants of Cork, dated the 25th of Aug., 1724, and like resolutions by those of Waterford, dated 22d Aug. wherein they declare, that, 'they will never receive or utter in any payment, the halfpence or farthings coined by William Wood; as they conceive the importing and uttering the same, to be highly prejudicial to His Majesty's revenue, and to the trade of the kingdom': these resolutions are declared to be conformable to those of the Trinity Guild, of merchants, of the city of Dublin, voted at their guild-hall, on the 18th day of the same month" (Hist. St. Patrick's, p. 346, note r). See also Appendix No. IX. [T.S.]] But Wood is still working underhand to force his halfpence upon us, and if he can by help of his friends in England prevail so far as to get an order that the commissioners and collectors of the King's money shall receive them, and that the army is to be paid with them, then he thinks his work shall be done. And this is the difficulty you will be under in such a case. For the common soldier when he goes to the market or alehouse will offer this money, and if it be refused, perhaps he will swagger and hector, and threaten to beat the butcher or alewife, or take the goods by force, and throw them the bad halfpence. In this and the like cases, the shopkeeper or victualler, or any other tradesman has no more to do, than to demand ten times the price of his goods, if it is to be paid in Wood's money; for example, twenty-pence of that money for a quart of ale, and so in all things else, and not part with his goods till he gets the money. For suppose you go to an alehouse with that base money, and the landlord gives you a quart for four of these halfpence, what must the victualler do? His brewer will not be paid in that coin, or if the brewer should be such a fool, the farmers will not take it from them for their bere,[19] because they are bound by their leases to pay their rents in good and lawful money of England, which this is not, nor of Ireland neither, and the 'squire their landlord will never be so bewitched to take such trash for his land, so that it must certainly stop somewhere or other, and wherever it stops it is the same thing, and we are all undone. [Footnote 19: Bere = barley. Cf. A.S. _baerlic_, Icelandic, _barr_, meaning barley, the grain used for making malt for the preparation of beer. [T.S.]] The common weight of these halfpence is between four and five to an ounce, suppose five, then three shillings and fourpence will weigh a pound, and consequently twenty shillings will weigh six pound butter weight. Now there are many hundred farmers who pay two hundred pound a year rent. Therefore when one of these farmers comes with his half-year's rent, which is one hundred pound, it will be at least six hundred pound weight, which is three horse load. If a 'squire has a mind to come to town to buy clothes and wine and spices for himself and family, or perhaps to pass the winter here; he must bring with him five or six horses loaden with sacks as the farmers bring their corn; and when his lady comes in her coach to our shops, it must be followed by a car loaden with Mr. Wood's money. And I hope we shall have the grace to take it for no more than it is worth. They say 'Squire Conolly[20] has sixteen thousand pounds a year, now if he sends for his rent to town, as it is likely he does, he must have two hundred and forty horses to bring up his half-year's rent, and two or three great cellars in his house for stowage. But what the bankers will do I cannot tell. For I am assured, that some great bankers keep by them forty thousand pounds in ready cash to answer all payments, which sum, in Mr. Wood's money, would require twelve hundred horses to carry it. [Footnote 20: William Conolly (d. 1729) was chosen Speaker of the Irish House of Commons on November 12th, 1715. He held this office until October 12th, 1729. Swift elsewhere says that Wharton sold Conolly the office of Chief Commissioner of the Irish Revenue for £3,000. Between the years 1706 and 1729 Conolly was ten times selected for the office of a Lord Justice of Ireland. The remark in the text as to Conolly's income is repeated by Boulter ("Letters," vol. i., p. 334), though the Primate writes of £17,000 a year. The reference to Conolly is of set purpose, because Conolly had advocated the patent as against Midleton's condemnation of it. [T.S.]] For my own part, I am already resolved what to do; I have a pretty good shop of Irish stuffs and silks, and instead of taking Mr. Wood's bad copper, I intend to truck with my neighbours the butchers, and bakers, and brewers, and the rest, goods for goods, and the little gold and silver I have, I will keep by me like my heart's blood till better times, or till I am just ready to starve, and then I will buy Mr. Wood's money as my father did the brass money in K. James's time,[21] who could buy ten pound of it with a guinea, and I hope to get as much for a pistole, and so purchase bread from those who will be such fools as to sell it me. [Footnote 21: James II., during his unsuccessful campaign in Ireland, debased the coinage in order to make his funds meet the demands of his soldiery. Archbishop King, in his work on the "State of the Protestants in Ireland," describes the evil effects which this proceeding had: "King James's council used not to stick at the formalities of law or reason, and therefore vast quantities of brass money were coined, and made current by a proclamation, dated 18th June, 1689, under severe penalties. The metal of which this money was made was the worst kind of brass; old guns, and the refuse of metals were melted down to make it; workmen rated it at threepence or a groat a pound, which being coined into sixpences, shillings, or half-crowns, one pound weight made about £5. And by another proclamation, dated 1690, the half-crowns were called in, and being stamped anew, were made to pass for crowns; so that then, three pence or four pence worth of metal made £10. There was coined in all, from the first setting up of the mint, to the rout at the Boyne, being about twelve months, £965,375. In this coin King James paid all his appointments, and all that received the king's pay being generally papists, they forced the protestants to part with the goods out of their shops for this money, and to receive their debts in it; so that the loss by the brass money did, in a manner, entirely fall on the protestants, being defrauded (for I can call it no better) of about, £60,000 per month by this stratagem, which must, in a few months, have utterly exhausted them. When the papists had gotten most of their saleable goods from their protestant neighbours, and yet great quantities of brass money remained in their hands, they began to consider how many of them, who had estates, had engaged them to protestants by judgments, statutes staple, and mortgages; and to take this likewise from them they procured a proclamation, dated 4 Feb. 1689, to make brass money current in all payments whatsoever." A proclamation of William III., dated July 10th, 1690, ordered that these crown pieces of James should pass as of equal value with one penny each. [T.S.]] These halfpence, if they once pass, will soon be counterfeit, because it may be cheaply done, the stuff is so base. The Dutch likewise will probably do the same thing, and send them over to us to pay for our goods.[22] And Mr. Wood will never be at rest but coin on: So that in some years we shall have at least five times fourscore and ten thousand pounds of this lumber. Now the current money of this kingdom is not reckoned to be above four hundred thousand pounds in all, and while there is a silver sixpence left these blood-suckers will never be quiet. [Footnote 22: The Dutch had previously counterfeited the debased coinage of Ireland and sent them over in payment for Irish manufactures. [T. S.]] When once the kingdom is reduced to such a condition, I will tell you what must be the end: The gentlemen of estates will all turn off their tenants for want of payment, because as I told you before, the tenants are obliged by their leases to pay sterling which is lawful current money of England; then they will turn their own farmers, as too many of them do already, run all into sheep where they can, keeping only such other cattle as are necessary, then they will be their own merchants and send their wool and butter and hides and linen beyond sea for ready money and wine and spices and silks. They will keep only a few miserable cottiers.[23] The farmers must rob or beg, or leave their country. The shopkeepers in this and every other town, must break and starve: For it is the landed man that maintains the merchant, and shopkeeper, and handicraftsman. [Footnote 23: "Unlike the peasant proprietor," says Lecky, "and also unlike the mediaeval serf, the cottier had no permanent interest in the soil, and no security for his future position. Unlike the English farmer, he was no capitalist, who selects land as one of the many forms of profitable investment that are open to him. He was a man destitute of all knowledge and of all capital, who found the land the only thing that remained between himself and starvation. Rents in the lower grades of tenancies were regulated by competition, but it was competition between a half-starving population, who had no other resources except the soil, and were therefore prepared to promise anything rather than be deprived of it. The landlord did nothing for them. They built their own mud hovels, planted their hedges, dug their ditches. They were half naked, half starved, utterly destitute of all providence and of all education, liable at any time to be turned adrift from their holdings, ground to the dust by three great burdens--rack-rents, paid not to the landlord but to the middleman; tithes, paid to the clergy--often the absentee clergy--of the church to which they did not belong; and dues, paid to their own priests" ("Hist, of Ireland," vol. i., pp. 214-215, ed. 1892). [T.S.]] But when the 'squire turns farmer and merchant himself, all the good money he gets from abroad, he will hoard up or send for England, and keep some poor tailor or weaver and the like in his own house, who will be glad to get bread at any rate. I should never have done if I were to tell you all the miseries that we shall undergo if we be so foolish and wicked as to take this CURSED COIN. It would be very hard if all Ireland should be put into one scale, and this sorry fellow Wood into the other, that Mr. Wood should weigh down this whole kingdom, by which England gets above a million of good money every year clear into their pockets, and that is more than the English do by all the world besides. But your great comfort is, that as His Majesty's patent does not oblige you to take this money, so the laws have not given the crown a power of forcing the subjects to take what money the King pleases: For then by the same reason we might be bound to take pebble-stones or cockle-shells or stamped leather for current coin, if ever we should happen to live under an ill prince, who might likewise by the same power make a guinea pass for ten pounds, a shilling for twenty shillings, and so on, by which he would in a short time get all the silver and gold of the kingdom into his own hands, and leave us nothing but brass or leather or what he pleased. Neither is anything reckoned more cruel or oppressive in the French government than their common practice of calling in all their money after they have sunk it very low, and then coining it anew at a much higher value, which however is not the thousandth part so wicked as this abominable project of Mr. Wood. For the French give their subjects silver for silver and gold for gold, but this fellow will not so much as give us good brass or copper for our gold and silver, nor even a twelfth part of their worth. Having said thus much, I will now go on to tell you the judgments of some great lawyers in this matter, whom I fee'd on purpose for your sakes, and got their opinions under their hands, that I might be sure I went upon good grounds. A famous law-book, called "The Mirror of Justice,"[24] discoursing of the articles (or laws) ordained by our ancient kings declares the law to be as follows: "It was ordained that no king of this realm should change, impair or amend the money or make any other money than of gold or silver without the assent of all the counties," that is, as my Lord Coke says,[25] without the assent of Parliament. [Footnote 24: This was an important legal treatise often quoted by Coke. Its full title is: "The Booke called, The Mirrour of Justices: Made by Andrew Home. With the book, called, The Diversity of Courts, And Their Jurisdictions ... London ... 1646." The French edition was printed in 1642 with the title, "La somme appelle Mirroir des Justices: vel speculum Justiciariorum, Factum per Andream Home." Coke quotes it from a manuscript, as he died before it was printed. [T.S.]] [Footnote 25: 2 Inst. 576. [ORIG. ED.]] This book is very ancient, and of great authority for the time in which it was wrote, and with that character is often quoted by that great lawyer my Lord Coke.[26] By the law of England, the several metals are divided into lawful or true metal and unlawful or false metal, the former comprehends silver or gold; the latter all baser metals: That the former is only to pass in payments appears by an act of Parliament[27] made the twentieth year of Edward the First, called the "Statute concerning the Passing of Pence," which I give you here as I got it translated into English, for some of our laws at that time, were, as I am told writ in Latin: "Whoever in buying or selling presumeth to refuse an halfpenny or farthing of lawful money, bearing the stamp which it ought to have, let him be seized on as a contemner of the King's majesty, and cast into prison." [Footnote 26: 2 Inst. 576-577. [ORIG. ED.]] [Footnote 27: 2 Inst. 577. [ORIG. ED.]] By this statute, no person is to be reckoned a contemner of the King's majesty, and for that crime to be committed to prison; but he who refuses to accept the King's coin made of lawful metal, by which, as I observed before, silver and gold only are intended. That this is the true construction of the act, appears not only from the plain meaning of the words, but from my Lord Coke's observation upon it. "By this act" (says he) "it appears, that no subject can be forced to take in buying or selling or other payments, any money made but of lawful metal; that is, of silver or gold."[28] [Footnote 28: 2 Inst. 577. [ORIG. ED.]] The law of England gives the King all mines of gold and silver, but not the mines of other metals, the reason of which prerogative or power, as it is given by my Lord Coke[29] is, because money can be made of gold and silver, but not of other metals. [Footnote 29: 2 Inst. 577. [ORIG. ED.]] Pursuant to this opinion halfpence and farthings were anciently made of silver, which is most evident from the act of Parliament of Henry the 4th. chap. 4.[30] by which it is enacted as follows: "Item, for the great scarcity that is at present within the realm of England of halfpence and farthings of silver, it is ordained and established that the third part of all the money of silver plate which shall be brought to the bullion, shall be made in halfpence and farthings." This shews that by the word "halfpenny" and "farthing" of lawful money in that statute concerning the passing of pence, are meant a small coin in halfpence and farthings of silver. [Footnote 30: Swift makes an incorrect reference here. The act was 4 Henry IV., cap. 10. [T.S.]] This is further manifest from the statute of the ninth year of Edward the 3d. chap. 3. which enacts, "That no sterling halfpenny or farthing be molten for to make vessel, nor any other thing by the goldsmiths, nor others, upon forfeiture of the money so molten" (or melted). By another act in this King's reign[31] black money was not to be current in England, and by an act made in the eleventh year of his reign chap. 5. galley halfpence were not to pass, what kind of coin these were I do not know, but I presume they were made of base metal, and that these acts were no new laws, but farther declarations of the old laws relating to the coin. [Footnote 31: The act against black money was passed in Henry IV.'s reign not Edward III.'s. The "galley halfpence" were dealt with by 9 Hen. IV., cap. 4. [T.S.]] Thus the law stands in relation to coin, nor is there any example to the contrary, except one in Davis's Reports,[32] who tells us that in the time of Tyrone's rebellion Queen Elizabeth ordered money of mixed metal to be coined in the Tower of London, and sent over hither for payment of the army, obliging all people to receive it and commanding that all silver money should be taken only as bullion, that is, for as much as it weighed. Davis tells us several particulars in this matter too long here to trouble you with, and that the privy-council of this kingdom obliged a merchant in England to receive this mixed money for goods transmitted hither.[33] [Footnote 32: This refers to Sir John Davies's "Abridgement of Sir Edward Coke's Reports," first published in 1651. Davies was Attorney-General for Ireland and a poet. His works have been collected and edited by Dr. A.B. Grosart in the Fuller Worthies Library. [T.S.]] [Footnote 33: Charles I., during the Civil War, paid his forces with debased coin struck by him. [T.S.]] But this proceeding is rejected by all the best lawyers as contrary to law, the Privy-council here having no such power. And besides it is to be considered, that the Queen was then under great difficulties by a rebellion in this kingdom assisted from Spain, and whatever is done in great exigences and dangerous times should never be an example to proceed by in seasons of peace and quietness. I will now, my dear friends to save you the trouble, set before you in short, what the law obliges you to do, and what it does not oblige you to. First, You are obliged to take all money in payments which is coined by the King and is of the English standard or weight, provided it be of gold or silver. Secondly, You are not obliged to take any money which is not of gold or silver, no not the halfpence, or farthings of England, or of any other country, and it is only for convenience, or ease, that you are content to take them, because the custom of coining silver halfpence and farthings hath long been left off, I will suppose on account of their being subject to be lost. Thirdly, Much less are you obliged to take those vile halfpence of that same Wood, by which you must lose almost eleven-pence in every shilling. Therefore my friends, stand to it one and all, refuse this filthy trash. It is no treason to rebel against Mr. Wood. His Majesty in his patent obliges nobody to take these halfpence,[34] our gracious prince hath no so ill advisers about him; or if he had, yet you see the laws have not left it in the King's power, to force us to take any coin but what is lawful, of right standard gold and silver, therefore you have nothing to fear. [Footnote 34: The words of the patent are "to pass and to be received as current money; by such as shall or will, voluntarily and wittingly, and not otherwise, receive the same" (the halfpence and farthings). [T.S.]] And let me in the next place apply myself particularly to you who are the poor sort of tradesmen, perhaps you may think you will not be so great losers as the rich, if these halfpence should pass, because you seldom see any silver, and your customers come to your shops or stalls with nothing but brass, which you likewise find hard to be got, but you may take my word, whenever this money gains footing among you, you will be utterly undone; if you carry these halfpence to a shop for tobacco or brandy, or any other thing you want, the shopkeeper will advance his goods accordingly, or else he must break, and leave the key under the door. Do you think I will sell you a yard of tenpenny stuff for twenty of Mr. Wood's halfpence? No, not under two hundred at least, neither will I be at the trouble of counting, but weigh them in a lump; I will tell you one thing further, that if Mr. Wood's project should take, it will ruin even our beggars; For when I give a beggar an halfpenny, it will quench his thirst, or go a good way to fill his belly, but the twelfth part of a halfpenny will do him no more service than if I should give him three pins out of my sleeve. In short these halfpence are like "the accursed thing, which" as the Scripture tells us, "the children of Israel were forbidden to touch," they will run about like the plague and destroy every one who lays his hands upon them. I have heard scholars talk of a man who told a king that he had invented a way to torment people by putting them into a bull of brass with fire under it, but the prince put the projector first into his own brazen bull to make the experiment;[35] this very much resembles the project of Mr. Wood, and the like of this may possibly be Mr. Wood's fate, that the brass he contrived to torment this kingdom with, may prove his own torment, and his destruction at last. [Footnote 35: It is curious to find Swift so referring to Phalaris, of whom he had heard so much in the days of the "Battle of the Books." [SIR H. CRAIK.]] N.B. The author of this paper is informed by persons who have made it their business to be exact in their observations on the true value of these halfpence, that any person may expect to get a quart of twopenny ale for thirty-six of them. I desire all persons may keep this paper carefully by them to refresh their memories whenever they shall have farther notice of Mr. Wood's halfpence, or any other the like imposture. LETTER II. TO MR. HARDING THE PRINTER. NOTE. Towards the beginning of the August of 1724, the Committee of Inquiry had finished their report on Wood's patent. Somehow, an advance notice of the contents of the report found its way, probably directed by Walpole himself, into the pages of a London journal, from whence it was reprinted in Dublin, in Harding's Newspaper on the 1st of August. The notice stated that the Committee had recommended a reduction in the amount of coin Wood was to issue to £40,000. It informed the public that the report notified that Wood was willing to take goods in exchange for his coins, if enough silver were not to be had, and he agreed to restrict the amount of each payment to 5-1/2_d_. But a pretty broad hint was given that a refusal to accept the compromise offered might possibly provoke the higher powers to an assertion of the prerogative. Walpole also had already endeavoured to calm the situation by consenting to a minute examination of the coins themselves at the London Mint. The Lords Commissioners had instructed Sir Isaac Newton, the Master of the Mint, Edward Southwell, and Thomas Scroope, to make an assay of Wood's money. The report of the assayists was issued on April 27th, 1724;[1] and certified that the coins submitted had been tested and found to be correct both as to weight and quality. In addition to this evidence of good faith, Walpole had nominated Carteret in place of the Duke of Grafton to the Lord-Lieutenancy. Carteret was a favourite with the best men in Ireland, and a man of culture as well as ability. It was hoped that his influence would smooth down the members of the opposition by an acceptance of the altered measure. He was in the way in London, and he might be of great service in Dublin; so to Dublin he went. [Footnote 1: A full reprint of this report is given in Appendix II.] But Walpole had not reckoned with the Drapier. In the paragraph in Harding's sheet, Swift saw a diplomatist's move to win the game by diplomatic methods. Compromise was the one result Swift was determined to render impossible; and the Drapier's second letter, "To Mr. Harding the Printer," renews the conflict with yet stronger passion and with even more satirical force. It is evident Swift was bent now on raising a deeper question than merely this of the acceptance or refusal of Wood's halfpence and farthings. There was a principle here that had to be insisted and a right to be safeguarded. Mr. Churton Collins ably expresses Swift's attitude at this juncture when he says:[2] "Nothing can be more certain than that it was Swift's design from the very beginning to make the controversy with Wood the basis of far more extensive operations. It had furnished him with the means of waking Ireland from long lethargy into fiery life. He looked to it to furnish him with the means of elevating her from servitude to independence, from ignominy to honour. His only fear was lest the spirit which he had kindled should burn itself out or be prematurely quenched. And of this he must have felt that there was some danger, when it was announced that England had given way much more than it was expected she would give way, and much more than she had ever given way before." [Footnote 2: "Jonathan Swift," pp. 179-180.] This letter to Harding was but the preliminary leading up to the famous fourth letter "to the whole people of Ireland." It was also an introduction to, and preparation of the public mind for, the drastic criticism of the Privy Council's Report, the arrival of which was expected shortly. The present text of this second letter is that given by Sir W. Scott, collated with the copies of the original edition in the possession of the late Colonel F. Grant and in the British Museum. It has also been compared with Faulkner's issue of 1725, in "Fraud Detected." [T.S.] [Illustration: A *LETTER* TO Mr. _Harding_ the Printer, Upon Occasion of a **PARAGRAPH** *IN HIS* **News-Paper** of _Aug_. 1st. Relating to Mr. _Wood's_ Half-pence. _By_ M.B. _Drapier_. AUTHOR of the LETTER to the SHOP-KEEPERS, &c. DUBLIN: Printed by _J. Harding_ in _Molesworth's-Court_. ] LETTER II. TO MR. HARDING THE PRINTER. Sir, In your Newsletter of the 1st. instant there is a paragraph dated from London, July 25th. relating to Wood's halfpence; whereby it is plain what I foretold in my "Letter to the Shopkeepers, &c." that this vile fellow would never be at rest, and that the danger of our ruin approaches nearer, and therefore the kingdom requires NEW and FRESH WARNING; however I take that paragraph to be, in a great measure, an imposition upon the public, at least I hope so, because I am informed that Wood is generally his own newswriter. I cannot but observe from that paragraph that this public enemy of ours, not satisfied to ruin us with his trash, takes every occasion to treat this kingdom with the utmost contempt. He represents "several of our merchants and traders upon examination before a committee of council, agreeing that there was the utmost necessity of copper money here, before his patent, so that several gentlemen have been forced to tally with their workmen and give them bits of cards sealed and subscribed with their names." What then? If a physician prescribes to a patient a dram of physic, shall a rascal apothecary cram him with a pound, and mix it up with poison? And is not a landlord's hand and seal to his own labourers a better security for five or ten shillings, than Wood's brass seven times below the real value, can be to the kingdom, for an hundred and four thousand pounds?[3] [Footnote 3: Thus in original edition. £108,000 is the amount generally given. See note on p. 15. [T.S.]] But who are these merchants and traders of Ireland that make this report of "the utmost necessity we are under of copper money"? They are only a few betrayers of their country, confederates with Wood, from whom they are to purchase a great quantity of his coin, perhaps at half value, and vend it among us to the ruin of the public, and their own private advantage. Are not these excellent witnesses, upon whose integrity the fate of a kingdom must depend, who are evidences in their own cause, and sharers in this work of iniquity? If we could have deserved the liberty of coining for ourselves, as we formerly did, and why we have not _is everybody's wonder as well as mine_,[4] ten thousand pounds might have been coined here in Dublin of only one-fifth below the intrinsic value, and this sum, with the stock of halfpence we then had, would have been sufficient:[5] But Wood by his emissaries, enemies to God and this kingdom, hath taken care to buy up as many of our old halfpence as he could, and from thence the present want of change arises; to remove which, by Mr. Wood's remedy, would be, to cure a scratch on the finger by cutting off the arm. But supposing there were not one farthing of change in the whole nation, I will maintain, that five and twenty thousand pounds would be a sum fully sufficient to answer all our occasions. I am no inconsiderable shopkeeper in this town, I have discoursed with several of my own and other trades, with many gentlemen both of city and country, and also with great numbers of farmers, cottagers, and labourers, who all agree that two shillings in change for every family would be more than necessary in all dealings. Now by the largest computation (even before that grievous discouragement of agriculture, which hath so much lessened our numbers [6]) the souls in this kingdom are computed to be one million and a half, which, allowing but six to a family, makes two hundred and fifty thousand families, and consequently two shillings to each family will amount only to five and twenty thousand pounds, whereas this honest liberal hardwareman Wood would impose upon us above four times that sum. [Footnote 4: Time and again Ireland had petitioned the King of England for the establishment of a mint in Dublin. Both Houses of Parliament addressed King Charles I. in 1634, begging for a mint which should coin money in Ireland of the same standard and values as those of England, and allowing the profits to the government. Wentworth supported the address; but it was refused (Carte's "Ormond," vol. i., pp. 79-80). When Lord Cornwallis's petition for a renewal of his patent for minting coins was presented in 1700, it was referred to a committee of the Lords Justices. In their report the Lords Justices condemned the system in vogue, and urged the establishment of a mint, in which the coining of money should be in the hands of the government and in those of a subject. No notice was taken of this advice. See Lecky's "Ireland," vol. i., p. 448 (ed 1892) [T.S.]] [Footnote 5: Boulter stated that £10,000 or £15,000 would have amply fulfilled the demand ("Letters," vol. i., pp. 4, 11). [T.S.]] [Footnote 6: It was not alone the direct discouragement of agriculture which lessened the population. This result was also largely brought about by the anti-Catholic legislation of Queen Anne's reign, which "reduced the Roman Catholics to a state of depression," and caused thousands of them to go elsewhere for the means of living. See Crawford's "Ireland," vol. ii., pp. 264-267. [T.S.]] Your paragraph relates further, that Sir Isaac Newton reported an assay taken at the Tower of Wood's metal, by which it appears, that Wood had in all respects performed his contract[7]. His contract! With whom? Was it with the parliament or people of Ireland? Are not they to be the purchasers? But they detest, abhor, and reject it, as corrupt, fraudulent, mingled with dirt and trash. Upon which he grows angry, goes to law, and will impose his goods upon us by force. [Footnote 7: For the full text of Newton's report see Appendix, No. II. [T.S.]] But your Newsletter says that an assay was made of the coin. How impudent and insupportable is this? Wood takes care to coin a dozen or two halfpence of good metal, sends them to the Tower and they are approved, and these must answer all that he hath already coined or shall coin for the future. It is true indeed, that a gentleman often sends to my shop for a pattern of stuff, I cut it fairly off, and if he likes it, he comes or sends and compares the pattern with the whole piece, and probably we come to a bargain. But if I were to buy an hundred sheep, and the grazier should bring me one single wether fat and well fleeced by way of pattern, and expect the same price round for the whole hundred, without suffering me to see them before he was paid, or giving me good security to restore my money for those that were lean or shorn or scabby, I would be none of his customer. I have heard of a man who had a mind to sell his house, and therefore carried a piece of brick in his pocket, which he shewed as a pattern to encourage purchasers: And this is directly the case in point with Mr. Wood's assay.[8] [Footnote 8: Monck Mason remarks on this assay that "the assay-masters do not report that Mr. Wood's coinage was superior to that of former kings, but only to those specimens of such coinages as were exhibited by Mr. Wood, which, it is admitted were much worn. Whether the money coined in the preceding reign was good or bad is in fact nothing to the purpose." "'What argument,'" quotes Monck Mason from the tract issued in 1724 entitled, "A Defence of the Conduct of the People of Ireland, in their unanimous refusal of Mr. Wood's Copper Money," "'can be drawn from the badness of our former coinages but this, that because we have formerly been cheated by our coiners, we ought to suffer Mr. Wood to cheat us over again? Whereas, one reason for our so vigorously opposing Mr. Wood's coinage, is, because we have always been imposed upon in our copper money, and we find he is treading exactly in the steps of his predecessors, and thinks he has a right to cheat us because he can shew a precedent for it.' In truth, there was a vast number of counterfeits of those coins, which had been imported, chiefly from Scotland, as appears from a proclamation prohibiting the Importation of them in 1697" ("History St. Patrick's Cathedral," p, 340, note d.) [T.S.]] The next part of the paragraph contains Mr. Wood's voluntary proposals for "preventing any future objections or apprehensions." His first proposal is, that "whereas he hath already coined seventeen thousand pounds, and has copper prepared to make it up forty thousand pounds, he will be content to coin no more, unless the EXIGENCES OF TRADE REQUIRE IT, though his patent empowers him to coin a far greater quantity." To which if I were to answer it should be thus: "Let Mr. Wood and his crew of founders and tinkers coin on till there is not an old kettle left in the kingdom: let them coin old leather, tobacco-pipe clay or the dirt in the streets, and call their trumpery by what name they please from a guinea to a farthing, we are not under any concern to know how he and his tribe or accomplices think fit to employ themselves." But I hope and trust, that we are all to a man fully determined to have nothing to do with him or his ware. The King has given him a patent to coin halfpence, but hath not obliged us to take them, and I have already shewn in my "Letter to the Shopkeepers, &c." that the law hath not left it in the power of the prerogative to compel the subject to take any money, beside gold and silver of the right sterling and standard. Wood further proposes, (if I understand him right, for his expressions are dubious) that "he will not coin above forty thousand pounds, unless the exigences of trade require it." First, I observe that this sum of forty thousand pounds is almost double to what I proved to be sufficient for the whole kingdom, although we had not one of our old halfpence left. Again I ask, who is to be judge when the exigences of trade require it? Without doubt he means himself, for as to us of this poor kingdom, who must be utterly ruined if his project should succeed, we were never once consulted till the matter was over, and he will judge of our exigences by his own; neither will these be ever at an end till he and his accomplices will think they have enough: And it now appears that he will not be content with all our gold and silver, but intends to buy up our goods and manufactures with the same coin. I shall not enter into examination of the prices for which he now proposes to sell his halfpence, or what he calls his copper, by the pound; I have said enough of it in my former letter, and it hath likewise been considered by others. It is certain that by his own first computation, we were to pay three shillings for what was intrinsically worth but one,[9] although it had been of the true weight and standard for which he pretended to have contracted; but there is so great a difference both in weight and badness in several of his coins that some of them have been nine in ten below the intrinsic value, and most of them six or seven.[10] [Footnote 9: The report of the Committee of the Privy Council which sat on Wood's coinage, stated that copper ready for minting cost eighteen pence per pound before it was brought into the Mint at the Tower of London. See the Report prefixed to Letter III. and Appendix II., in which it is also stated that Wood's copper was worth thirteen pence per pound. [T.S.]] [Footnote 10: Newton's assay report says that Wood's pieces were of unequal weight. [T.S.]] His last proposal being of a peculiar strain and nature, deserves to be very particularly considered, both on account of the matter and the style. It is as follows. "Lastly, in consideration of the direful apprehensions which prevail in Ireland, that Mr. Wood will by such coinage drain them of their gold and silver, he proposes to take their manufactures in exchange, and that no person be obliged to receive more than fivepence halfpenny at one payment." First, Observe this little impudent hardwareman turning into ridicule "the direful apprehensions of a whole kingdom," priding himself as the cause of them, and daring to prescribe what no King of England ever attempted, how far a whole nation shall be obliged to take his brass coin. And he has reason to insult; for sure there was never an example in history, of a great kingdom kept in awe for above a year in daily dread of utter destruction, not by a powerful invader at the head of twenty thousand men, not by a plague or a famine, not by a tyrannical prince (for we never had one more gracious) or a corrupt administration, but by one single, diminutive, insignificant, mechanic. But to go on. To remove our "direful apprehensions that he will drain us of our gold and silver by his coinage:" This little arbitrary mock-monarch most graciously offers to "take our manufactures in exchange." Are our Irish understandings indeed so low in his opinion? Is not this the very misery we complain of? That his cursed project will put us under the necessity of selling our goods for what is equal to nothing. How would such a proposal sound from France or Spain or any other country we deal with, if they should offer to deal with us only upon this condition, that we should take their money at ten times higher than the intrinsic value? Does Mr. Wood think, for instance, that we will sell him a stone of wool for a parcel of his counters not worth sixpence, when we can send it to England and receive as many shillings in gold and silver? Surely there was never heard such a compound of impudence, villainy and folly. His proposals conclude with perfect high treason. He promises, that no person shall be _obliged_ to receive more than fivepence halfpenny of his coin in one payment: By which it is plain, that he pretends to _oblige_ every subject in this kingdom to take so much in every payment, if it be offered; whereas his patent obliges no man, nor can the prerogative by law claim such a power, as I have often observed; so that here Mr. Wood takes upon him the entire legislature, and an absolute dominion over the properties of the whole nation. Good God! Who are this wretch's advisers? Who are his supporters, abettors, encouragers, or sharers? Mr. Wood will _oblige_ me to take fivepence halfpenny of his brass in every payment! And I will shoot Mr. Wood and his deputies through the head, like highwaymen or housebreakers, if they dare to force one farthing of their coin upon me in the payment of an hundred pounds. It is no loss of honour to submit to the lion, but who, with the figure of a man, can think with patience of being devoured alive by a rat. He has laid a tax upon the people of Ireland of seventeen shillings at least in the pound; a tax I say, not only upon lands, but interest-money, goods, manufactures, the hire of handicraftsmen, labourers, and servants. Shopkeepers look to yourselves. Wood will _oblige_ and force you to take fivepence halfpenny of his trash in every payment, and many of you receive twenty, thirty, forty payments in a day, or else you can hardly find bread: And pray consider how much that will amount to in a year: Twenty times fivepence halfpenny is nine shillings and twopence, which is above an hundred and sixty pounds a year, whereof you will be losers of at least one hundred and forty pounds by taking your payments in his money. If any of you be content to deal with Mr. Wood on such conditions they may. But for my own particular, "let his money perish with him." If the famous Mr. Hampden rather chose to go to prison, than pay a few shillings to King Charles 1st. without authority of Parliament, I will rather choose to be hanged than have all my substance taxed at seventeen shillings in the pound, at the arbitrary will and pleasure of the venerable Mr. Wood. The paragraph concludes thus. "N.B." (that is to say _nota bene_, or _mark well_), "No evidence appeared from Ireland, or elsewhere, to prove the mischiefs complained of, or any abuses whatsoever committed in the execution of the said grant." The impudence of this remark exceeds all that went before. First; the House of Commons in Ireland, which represents the whole people of the kingdom; and secondly the Privy-council, addressed His Majesty against these halfpence. What could be done more to express the universal sense and opinion of the nation? If his copper were diamonds, and the kingdom were entirely against it, would not that be sufficient to reject it? Must a committee of the House of Commons, and our whole Privy-council go over to argue _pro_ and _con_ with Mr. Wood? To what end did the King give his patent for coining of halfpence in Ireland? Was it not, because it was represented to his sacred Majesty, that such a coinage would be of advantage to the good of this kingdom, and of all his subjects here? It is to the patentee's peril if his representation be false, and the execution of his patent be fraudulent and corrupt. Is he so wicked and foolish to think that his patent was given him to ruin a million and a half of people, that he might be a gainer of three or four score thousand pounds to himself? Before he was at the charge of passing a patent, much more of raking up so much filthy dross, and stamping it with His Majesty's "image and superscription," should he not first in common sense, in common equity, and common manners, have consulted the principal party concerned; that is to say, the people of the kingdom, the House of Lords or Commons, or the Privy-council? If any foreigner should ask us, "whose image and superscription" there is in Wood's coin, we should be ashamed to tell him, it was Caesar's. In that great want of copper halfpence, which he alleges we were, our city set up our Caesar's statue[11] in excellent copper, at an expense that is equal in value to thirty thousand pounds of his coin: And we will not receive his _image_ in worse metal. [Footnote 11: An equestrian statue of George I. at Essex Bridge, Dublin, [F.]] I observe many of our people putting a melancholy case on this subject. "It is true" say they, "we are all undone if Wood's halfpence must pass; but what shall we do, if His Majesty puts out a proclamation commanding us to take them?" This hath been often dinned in my ears. But I desire my countrymen to be assured that there is nothing in it. The King never issues out a proclamation but to enjoin what the law permits him. He will not issue out a proclamation against law, or if such a thing should happen by a mistake, we are no more obliged to obey it than to run our heads into the fire. Besides, His Majesty will never command us by a proclamation, what he does not offer to command us in the patent itself. There he leaves it to our discretion, so that our destruction must be entirely owing to ourselves. Therefore let no man be afraid of a proclamation, which will never be granted; and if it should, yet upon this occasion, will be of no force. The King's revenues here are near four hundred thousand pounds a year, can you think his ministers will advise him to take them in Wood's brass, which will reduce the value to fifty thousand pounds. England gets a million sterl. by this nation, which, if this project goes on, will be almost reduced to nothing: And do you think those who live in England upon Irish estates will be content to take an eighth or a tenth part, by being paid in Wood's dross? If Wood and his confederates were not convinced of our stupidity, they never would have attempted so audacious an enterprise. He now sees a spirit hath been raised against him, and he only watches till it begins to flag, he goes about "watching" when to "devour us." He hopes we shall be weary of contending with him, and at last out of ignorance, or fear, or of being perfectly tired with opposition, we shall be forced to yield. And therefore I confess it is my chief endeavour to keep up your spirits and resentments. If I tell you there is a precipice under you, and that if you go forwards you will certainly break your necks. If I point to it before your eyes, must I be at the trouble of repeating it every morning? Are our people's "hearts waxed gross"? Are "their ears dull of hearing," and have "they closed their eyes"? I fear there are some few vipers among us, who, for ten or twenty pounds gain, would sell their souls and their country, though at last it would end in their own ruin as well as ours. Be not like "the deaf adder, who refuses to hear the voice of the charmer, charm he never so wisely." Though my letter be directed to you, Mr. Harding, yet I intend it for all my countrymen. I have no interest in this affair but what is common to the public. I can live better than many others, I have some gold and silver by me, and a shop well furnished, and shall be able to make a shift when many of my betters are starving. But I am grieved to see the coldness and indifference of many people, with whom I discourse. Some are afraid of a proclamation, others shrug up their shoulders, and cry, "What would you have us do?" Some give out, there is no danger at all. Others are comforted that it will be a common calamity and they shall fare no worse than their neighbours. Will a man, who hears midnight robbers at his door, get out of bed, and raise his family for a common defence, and shall a whole kingdom lie in a lethargy, while Mr. Wood comes at the head of his confederates to rob them of all they have, to ruin us and our posterity for ever? If an highwayman meets you on the road, you give him your money to save your life, but, God be thanked, Mr. Wood cannot touch a hair of your heads. You have all the laws of God and man on your side. When he or his accomplices offer you his dross it is but saying no, and you are safe. If a madman should come to my shop with an handful of dirt raked out of the kennel, and offer it in payment for ten yards of stuff, I would pity or laugh at him, or, if his behaviour deserved it, kick him out of my doors. And if Mr. Wood comes to demand any gold and silver, or commodities for which I have paid my gold and silver, in exchange for his trash, can he deserve or expect better treatment? When the evil day is come (if it must come) let us mark and observe those who presume to offer these halfpence in payment. Let their names, and trades, and places of abode be made public, that every one may be aware of them, as betrayers of their country, and confederates with Mr. Wood. Let them be watched at markets and fairs, and let the first honest discoverer give the word about, that Wood's halfpence have been offered, and caution the poor innocent people not to receive them. Perhaps I have been too tedious; but there would never be an end, if I attempted to say all that this melancholy subject will bear. I will conclude with humbly offering one proposal, which, if it were put in practice, would blow up this destructive project at once. Let some skilful judicious pen draw up an advertisement to the following purpose. That "Whereas one William Wood hardware-man, now or lately sojourning in the city of London, hath, by many misrepresentations, procured a patent for coining an hundred and forty thousand pounds[12] in copper halfpence for this kingdom, which is a sum five times greater than our occasions require. And whereas it is notorious that the said Wood hath coined his halfpence of such base metal and false weight, that they are, at least, six parts in seven below the real value. And whereas we have reason to apprehend, that the said Wood may, at any time hereafter, clandestinely coin as many more halfpence as he pleases. And whereas the said patent neither doth nor can _oblige_ His Majesty's subjects to receive the said halfpence in any payment, but leaves it to their voluntary choice, because, by law the subject cannot be _obliged_ to take any money except gold or silver. And whereas, contrary to the letter and meaning of the said patent, the said Wood hath declared that every person shall be _obliged_ to take fivepence halfpenny of his coin in every payment. And whereas the House of Commons and Privy-council have severally addressed his Most Sacred Majesty, representing the ill consequences which the said coinage may have upon this kingdom. And lastly whereas it is universally agreed, that the whole nation to a man (except Mr. Wood and his confederates) are in the utmost apprehensions of the ruinous consequences, that must follow from the said coinage. Therefore we whose names are underwritten, being persons of considerable estates in this kingdom, and residers therein, do unanimously resolve and declare that we will never receive, one farthing or halfpenny of the said Wood's coining, and that we will direct all our tenants to refuse the said coin from any person whatsoever; Of which that they may not be ignorant, we have sent them a copy of this advertisement, to be read to them by our stewards, receivers, &c." [Footnote 12: In the first paragraph of this letter the sum was given as £104,000. [T.S.]] I could wish, that a paper of this nature might be drawn up, and signed by two or three hundred principal gentlemen of this kingdom, and printed copies thereof sent to their several tenants; I am deceived, if anything could sooner defeat this execrable design of Wood and his accomplices. This would immediately give the alarm, and set the kingdom on their guard. This would give courage to the meanest tenant and cottager. "How long, O Lord, righteous and true." I must tell you in particular, Mr. Harding, that you are much to blame. Several hundred persons have enquired at your house for my "Letter to the Shopkeepers, &c." and you had none to sell them. Pray keep yourself provided with that letter, and with this; you have got very well by the former, but I did not then write for your sake, any more than I do now. Pray advertise both in every newspaper, and let it not be _your_ fault or _mine_, if our countrymen will not take warning. I desire you likewise to sell them as cheap as you can. _I am your servant_, M.B. _Aug._ 4, 1724. _The Report of the Committee of the Lords of His Majesty's most honourable Privy-Council, in relation to Mr. Wood's Halfpence and Farthings, etc._[1] AT THE COUNCIL CHAMBER AT WHITEHALL, THE 24TH DAY OF JULY, 1724. In obedience to your Majesty's order of reference, upon the several resolutions and addresses of both Houses of Parliament of Ireland, during their late session, the late address of your Majesty's justices, and Privy-council of that kingdom, and the petitions of the county and city of Dublin, concerning a patent granted by your Majesty to William Wood Esq; for the coining and uttering copper halfpence and farthings in the kingdom of Ireland, to such persons as would voluntarily accept the same; and upon the petition of the said William Wood, concerning the same coinage, the Lords of the Committee have taken into their consideration the said patent, addresses, petitions, and all matters and papers relating thereto, and have heard and examined all such persons, as upon due and sufficient notice, were desirous and willing to be heard upon the subject matter under their consideration, and have agreed upon the following Report, containing a true state of the whole matter, as it appeared before them, with their humble opinion, to be laid before your Majesty for your royal consideration and determination, upon a matter of such importance. [Footnote 1: For the story of the origin of this report see the Note prefixed to Letter III. [T.S.]] The several addresses to your Majesty from your subjects of Ireland, contain in general terms the strongest representations of the great apprehensions they were under, from the importing and uttering copper halfpence and farthings in Ireland, by virtue of the patent granted to Mr. Wood, which they conceived would prove highly prejudicial to your Majesty's revenue, destructive of the trade and commerce of the kingdom, and of dangerous consequence to the properties of the subject. They represent, That the patent had been obtained in a clandestine and unprecedented manner, and by notorious misrepresentations of the state of Ireland; That if the terms of the patent had been complied with, this coinage would have been of infinite loss to the kingdom, but that the patentee, under colour of the powers granted to him, had imported and endeavoured to utter great quantities of different impressions, and of less weight, than required by the patent, and had been guilty of notorious frauds and deceit in coining the said copper money: And they humbly beseech your Majesty, that you would give such directions, as in your great wisdom you should think proper, to prevent the fatal effects of uttering any half pence or farthings by virtue of the said patent: And the House of Commons of Ireland, in a second address upon this subject, pray, That your Majesty would be pleased to give directions to the several officers intrusted in the receipt of your Majesty's revenue, That they do not on any pretence whatever, receive or utter any of the said copper halfpence or farthings. In answer to the addresses of the Houses of Parliament of Ireland, your Majesty was most graciously pleased to assure them, "That if any abuses had been committed by the patentee, you would give the necessary orders for enquiring into and punishing those abuses; and that your Majesty would do everything, that was in your power, for the satisfaction of your people." In pursuance of this your Majesty's most gracious declaration, your Majesty was pleased to take this matter into you royal consideration; and that you might be the better enabled effectually to answer the expectations of your people of Ireland, your Majesty was pleased by a letter from Lord Carteret, one of your principal secretaries of state, dated March 10, 1723-4, to signify your pleasure to your Lord Lieutenant of Ireland, "That he should give directions for sending over such papers and witnesses as should be thought proper to support the objections made against the patent, and against the patentee, in the execution of the powers given him by the patent." Upon the receipt of these your Majesty's orders, the Lord Lieutenant, by his letter of the 20th of March, 1723-4, represented the great difficulty he found himself under, to comply with these your Majesty's orders; and by another letter of the 24th of March 1723-4, "after consulting the principal members of both Houses, who were immediately in your Majesty's service, and of the Privy Council," acquainted your Majesty, "That none of them would take upon them to advise, how any material persons or papers might be sent over on this occasion; but they all seemed apprehensive of the ill temper any miscarriage, in a trial, upon _scire facias_ brought against the patentee, might occasion in both Houses, if the evidence were not laid as full before a jury, as it was before them," and did therefore, a second time, decline sending over any persons, papers or materials whatsoever, to support this charge brought against your Majesty's patent and the patentee. As this proceeding seemed very extraordinary, that in a matter that had raised so great and universal a clamour in Ireland, no one person could be prevailed upon to come over from Ireland, in support of the united sense of both Houses of Parliament of Ireland; That no papers, no materials, no evidence whatsoever of the mischiefs arising from this patent, or of the notorious frauds and deceit committed in the execution of it, could now be had, to give your Majesty satisfaction herein; "your Majesty however, desirous to give your people of Ireland all possible satisfaction, but sensible that you cannot in any case proceed against any of the meanest of your subjects, but according to the known rules and maxims of law and justice," repeated your orders to your Lord Lieutenant of Ireland, that by persuasion, and making proper allowances for their expenses, new endeavours might be used to procure and send over such witnesses as should be thought material to make good the charge against the patent. In answer to these orders, the Lord Lieutenant of Ireland acquaints your Majesty, by his letter of the 23d of April to one of your principal secretaries of state, "That in order to obey your Majesty's commands as far as possibly he could, at a meeting with my Lord Chancellor, the Chief Judges, your Majesty's Attorney and Solicitor-General, he had earnestly desired their advice and assistance, to enable him to send over such witnesses as might be necessary to support the charge against Mr. Wood's patent, and the execution of it. The result of this meeting was such, that the Lord Lieutenant could not reap the least advantage or assistance from it, every one being so guarded with caution, against giving any advice or opinion in this matter of state, apprehending great danger to themselves from meddling in it." The Lords of the Committee think it very strange, that there should be such great difficulty in prevailing with persons, who had already given their evidence before the Parliament of Ireland, to come over and give the same evidence here, and especially, that the chief difficulty should arise, from a general apprehension of a miscarriage, in an enquiry before your Majesty, or in a proceeding by due course of law, in a case, where both Houses of Parliament had declared themselves so fully convinced, and satisfied upon evidence, and examinations taken in the most solemn manner. At the same time that your Majesty sent your orders to the Lord Lieutenant of Ireland, to send over such evidences as were thought material to support the charge against the patent, that your Majesty might, without any further loss of time than was absolutely necessary, be as fully informed as was possible, and that the abuses and frauds alleged to be committed by the patentee, in executing the powers granted to him, might be fully and strictly enquired into, and examined, your Majesty was pleased to order that an assay should be made of the fineness, value, and weight of this copper money, and the goodness thereof, compared with the former coinages of copper money for Ireland, and the copper money coined in your Majesty's Mint in England; and it was accordingly referred to Sir Isaac Newton, Edward Southwell, and Thomas Scroope, Esqs. to make the said assay and trial. By the reports made of this assay, which are hereunto annexed, it appears,[2] "That the pix of the copper moneys coined at Bristol by Mr. Wood for Ireland, containing the trial pieces, which was sealed and locked up at the time of coining, was opened at your Majesty's mint at the Tower; that the comptroller's account of the quantities of halfpence and farthings coined, agreed with Mr. Wood's account, amounting to 59 tons, 3 hundred, 1 quarter, 11 pounds, and 4 ounces; That by the specimens of this coinage, which had from time to time been taken from the several parcels coined, and sealed up in papers, and put into the pix, 60 halfpence weighed 14 ounces troy, and 18 penny-weight, which is about a quarter of an ounce above one pound weight avoirdupois; and 30 farthings weighed 3 ounces and 3 quarters of an ounce troy, and 46 grams, which is also above the weight required by the patent. It also appears, that both halfpence and farthings when heated red-hot spread thin under the hammer without cracking; that the copper of which Mr. Wood's coinage is made, is of the same goodness and value with the copper of which the copper money is coined in your Majesty's mint for England, and worth in the market about 13 pence per pound weight avoirdupois; That a pound of copper wrought into bars of fillets, and made fit for coinage, before brought into the mint at the Tower of London, is worth 18 pence per pound, and always cost as much, and is coined into 23 pence of copper money by tale, for England; It likewise appears, that the halfpence and farthings coined by Mr. Wood, when compared with the copper money coined for Ireland, in the reigns of King Charles II. King James II. and King William and Queen Mary, considerably exceeds them all in weight, very far exceeds them all in goodness, fineness, and value of the copper, none of them bearing the fire so well, not being malleable, wasting very much in the fire, and great part of them burning into a cinder of little or no value at all; Specimens of all which, as likewise of Mr. Wood's copper money, upon trials and assays made by Sir Isaac Newton, Mr. Southwell, and Mr. Scroope, were laid before this Committee for their information." [Footnote 2: See Appendix, No. II. [T.S.]] The Lords of the Committee beg leave upon this article of the complaint, "That notorious frauds and deceits had been committed by the patentee, in executing the powers granted him," to observe to your Majesty, That this is a fact expressly charged upon the patentee, and if it had in any manner been proved, it might have enabled your Majesty, by due course of law, to have given the satisfaction to your people of Ireland, that has been so much insisted upon; but as it is now above four months since your Majesty was pleased to send over to Ireland for such evidence, as might prove a fact alleged to be so notorious, and no evidence at all has been as yet transmitted, nor the least expectation given of any that may hereafter be obtained, and the trials and assays that have been taken of the halfpence, and farthings coined by Mr. Wood proving so unquestionably the weight, goodness and fineness of the copper money coined, rather exceeding the conditions of the patent, than being any way defective, the Lords of the Committee cannot advise your Majesty, by a writ of _scire facias_, or any other manner to endeavour vacating the said patent, when there is no probability of success in such an undertaking. As these trials and assays fully shew that the patentee hath acted fairly according to the terms and conditions of his patent, so they evidently prove, that the care and caution made use of in this patent, by proper conditions, checks, and comptrols have effectually provided, that the copper money coined for Ireland by virtue of this patent, should far exceed the like coinages for Ireland, in the reigns of your Majesty's royal predecessors. And that your Majesty's royal predecessors have exercised this undoubted prerogative of granting to private persons the power and privilege of coining copper halfpence and farthings for the kingdom of Ireland, was proved to this Committee by several precedents of such patents granted to private persons by King Charles II. and King James II. none of which were equally beneficial to your kingdom of Ireland, nor so well guarded with proper covenants and conditions for the due execution of the powers thereby granted, although the power and validity of those patents, and a due compliance with them, was never in any one instance, till this time, disputed or controverted. By these former patents, the sole power of coining copper money for Ireland, was granted to the patentees for the term of 21 years, to be coined in such place as they should think convenient, and "such quantities as they could conveniently issue within the term of 21 years," without any restriction of the quantity to be coined within the whole term, or any provision of a certain quantity, only to be coined annually to prevent the ill consequences of too great a quantity to be poured in at once, at the will and pleasure of the patentees; no provision was made for the goodness and fineness of the copper, no comptroller appointed to inspect the copper in bars and fillets, before coined, and take constant assays of the money when coined, and the power of issuing not limited "to such as would voluntarily accept the same"; but by the patent granted to John Knox, the money coined by virtue of the patent, "is made and declared to be the current coin of the kingdom of Ireland," and a pound weight of copper was allowed to be coined into 2 shillings and 8 pence, and whatever quantity should be coined, a rent of 16_l_ _per annum_ only was reserved to the crown, and 700 tons of copper were computed to be coined within the 21 years, without any complaint. The term granted to Mr. Wood for coining copper money is for 14 years only, the quantity for the whole term limited to 360 tons, 100 ton only to be issued within one year, and 20 tons each year for the 13 remaining years; a comptroller is appointed by the authority of the crown to inspect, comptrol, and assay the copper, as well not coined as coined; the copper to be fine British copper, cast into bars or fillets, which when heated red hot would spread thin under the hammer; a pound weight of copper to be coined into 2 shillings and sixpence, and without any compulsion on currency enforced, to be received by such only as would voluntarily and wilfully accept the same"; a rent of 800_l_ _per annum_ is reserved unto your Majesty,[3] and 200_l per annum_ to your Majesty's clerk comptroller, to be paid annually by the patentee, for the full term of the fourteen years, which for 13 years when 20 tons of copper only are coined, is not inconsiderable; these great and essential differences in the several patents, that have been granted for coining copper money for the kingdom of Ireland, seemed sufficiently to justify the care and caution that was used in granting the letters-patent to Mr. Wood. [Footnote 3: See the extract from the patent itself, where the amount is given differently [T.S.]] It has been further represented to your Majesty, That these letters-patent were obtained by Mr. Wood in a clandestine and unprecedent manner, and by gross misrepresentations of the state of the kingdom of Ireland. Upon enquiring into this fact it appears, That the petition of Mr. Wood for obtaining this coinage, was presented to your Majesty at the time that several other petitions and applications were made to your Majesty, for the same purpose, by sundry persons, well acquainted and conversant with the affairs of Ireland, setting forth the great want of small money and change in all the common and lower parts of traffic, and business throughout the kingdom, and the terms of Mr. Wood's petition seeming to your Majesty most reasonable, thereupon a draught of a warrant directing a grant of such coinage to be made to Mr. Wood, was referred to your Majesty's then Attorney and Solicitor-general of England, to consider and report their opinion to your Majesty; Sir Isaac Newton, as the Committee is informed was consulted in all the steps of settling and adjusting the terms and conditions of the patent; and after mature deliberation, your Majesty's warrant was signed, directing an indenture in such manner as is practised in your Majesty's mint in the Tower of London, for the coining of gold and silver moneys, to pass the Great Seal of Great Britain, which was carried through all the usual forms and offices without haste or precipitation, That the Committee cannot discover the least pretence to say, this patent was passed or obtained in a clandestine or unprecedented manner, unless it is to be understood, that your Majesty's granting a liberty of coining copper money for Ireland, under the Great Seal of Great Britain, without referring the consideration thereof to the principal officers of Ireland, is the grievance and mischief complained of. Upon this head it must be admitted, that letters-patent under the Great Seal of Great Britain for coining copper money for Ireland, are legal and obligatory, a just and reasonable exercise of your Majesty's royal prerogative, and in no manner derogatory, or invasive, of any liberties or privileges of your subjects of Ireland. When any matter or thing is transacting that concerns or may affect your kingdom of Ireland, if your Majesty has any doubts concerning the same, or sees just cause for considering your officers of Ireland, your Majesty is frequently pleased to refer such considerations to your chief governors of Ireland, but the Lords of the Committee hope it will not be asserted, that any legal orders or resolutions of your Majesty can or ought to be called in question or invalidated, because the advice or consent of your chief governors of that kingdom was not previously had upon them: The precedents are many, wherein cases of great importance to Ireland, and that immediately affected, the interests of that kingdom, warrants, orders, and directions, by the authority of your Majesty and your royal predecessors, have been issued under the royal sign manual, without any previous reference, or advice of your officers of Ireland, which have always had their due force, and have been punctually complied with and obeyed. And as it cannot be disputed but this patent might legally and properly pass under the Great Seal of Great Britain, so their Lordships cannot find any precedents of references to the officers of Ireland, of what passed under the Great Seal of England; on the contrary, there are precedents of patents passed under the Great Seal of Ireland, where in all the previous steps the references were made to the officers of England. By the misrepresentation of the state of Ireland, in order to obtain this patent, it is presumed, is meant, That the information given to your Majesty of the great want of small money, to make small payments, was groundless, and that there is no such want of small money: The Lords of the Committee enquired very particularly into this article, and Mr. Wood produced several witnesses, that directly asserted the great want of small money for change, and the great damage that retailers and manufactures suffered for want of such copper money. Evidence was given, That considerable manufacturers have been obliged to give tallies, or tokens in cards, to their workmen for want of small money, signed upon the back, to be afterwards exchanged for larger money: That a premium was often given to obtain small money for necessary occasions: Several letters from Ireland to correspondents in England were read, complaining of the want of copper money, and expressing the great demand there was for this money. The great want of small money was further proved by the common use of _raps_, a counterfeit coin, of such base metal, that what passes for a halfpenny, is not worth half a farthing, which raps appear to have obtained a currency, out of necessity and for want of better small money to make change with, and by the best accounts, the Lords of the Committee have reason to believe, That there can be no doubt, that there is a real want of small money in Ireland, which seems to be so far admitted on all hands, that there does not appear to have been any misrepresentation of the state of Ireland in this respect. In the second address from the House of Commons to your Majesty, They most humbly beseech your Majesty, that you will be graciously pleased to give directions to the several officers intrusted with the receipt of your Majesty's revenue, that they do not, on any pretence whatsoever, receive or utter such halfpence or farthings, and Mr. Wood, in his petition to your Majesty, complains, that the officers of your Majesty's revenue had already given such orders to all the inferior officers not to receive any of this coin. Your Majesty, by your patent under the Great Seal of Great Britain, wills, requires and commands your "lieutenant, deputy, or other chief governor or governors of your kingdom of Ireland, and all other officers and ministers of your Majesty, your heirs and successors in England, Ireland or elsewhere, to be aiding and assisting to the said William Wood, his executors, &c. in the execution of all or any the powers, authorities, directions, matters or things to be executed by him or them, or for his or their benefit and advantage, by virtue, and in pursuance of the said indentures, in all things as becometh, &c." And if the officers of the revenue have, upon their own authority, given any orders, directions, significations, or intimations, to hinder or obstruct the receiving and uttering the copper money coined and imported, pursuant to your Majesty's letters-patent, this cannot but be looked upon as a very extraordinary proceeding. In another paragraph of the patent your Majesty has covenanted and granted unto the said William Wood, his executors, &c. "That upon performance of covenants, on his and their parts, he and they shall peaceably, and quietly, have, hold, and enjoy all the powers, authorities, privileges, licences, profits, advantages, and all other matters and things thereby granted, without any let, suit, trouble, molestation or denial of your Majesty, your heirs or successors, or of or by any of your or their officers or ministers, or any person or persons, &c." This being so expressly granted and covenanted by your Majesty, and there appearing no failure, non-performance, or breach of covenants, on the part of the patentee, the Lords of the Committee cannot advise your Majesty to give directions to the officers of the revenue, not to receive or utter any of the said copper halfpence or farthings as has been desired. Mr. Wood having been heard by his counsel, produced his several witnesses, all the papers and precedents, which he thought material, having been read and considered, and having as he conceived, fully vindicated both the patent, and the execution thereof. For his further justification, and to clear himself from the imputation of attempting to make to himself any unreasonable profit or advantage, and to enrich himself at the expense of the kingdom of Ireland, by endeavouring to impose upon them, and utter a greater quantity of copper money, than the necessary occasions of the people shall require, and can easily take off, delivered a proposal in writing, signed by himself, which is hereunto annexed, and Mr. Wood having by the said letters-patent, "covenanted, granted, and promised to, and with your Majesty, your heirs and successors, that he shall and will from time to time in the making the said copper farthings and halfpence in England, and in transporting the same from time to time to Ireland, and in uttering, vending, disposing and dispersing the same there, and in all his doings and accounts concerning the same, submit himself to the inspection, examination, order and comptrol of your Majesty and your commissioners of the treasury or high-treasurer for the time being;" the Lords of the Committee are of opinion, that your Majesty upon this voluntary offer and proposal of Mr. Wood, may give proper orders and directions for the execution and due performance of such parts of the said proposal, as shall be judged most for the interest and accommodation of your subjects of Ireland: In the mean time, it not appearing to their Lordships that Mr. Wood has done or committed any act or deed, that may tend to invalidate, or make void his letters-patent, or to forfeit the privileges and advantages thereby granted to him by your Majesty; It is but just and reasonable, that your Majesty should immediately send orders to your commissioners of the revenue, and all other your officers in Ireland, to revoke all orders, directions, significations, or intimations whatsoever, that may have been given by them, or any of them, to hinder or obstruct the receiving and uttering this copper money, and that the halfpence and farthings already coined by Mr. Wood, amounting to about 17,000_l_. and such further quantity as shall make up the said 17,000_l_. to 40,000_l_. "be suffered and permitted without any let, suit, trouble, molestation, or denial of any of your Majesty's officers or ministers whatsoever, to pass, and be received as current money by such as shall be willing to receive the same." At the same time, it may be advisable for your Majesty, to give the proper orders, that Mr. Wood shall not coin, import into Ireland, utter or dispose of any more copper halfpence or farthings, than to the amount of 40,000_l_. according to his own proposal, without your Majesty's special licence or authority, to be had for that purpose; and if your Majesty shall be pleased to order, that Mr. Wood's proposal, delivered to the Lords of the Committee, shall be transmitted to your Majesty's chief governor, deputies, or other your ministers, or officers in Ireland, it will give them a proper opportunity to consider, Whether, after the reduction of 360 tons of copper, being in value 100,800_l_. to 142 tons, 17 hundred, 16 pounds being in value 40,000_l_. only, anything can be done for the further satisfaction of the people of Ireland. LETTER III. TO THE NOBILITY AND GENTRY OF THE KINGDOM OF IRELAND. NOTE. The Drapier's second letter was dated August 4th, 1724. A few days later the English Privy Council's Report, dated 24th July, 1724, arrived in Dublin, and on August 25th, Swift had issued his reply to it in this third letter. The Report itself, which is here prefixed to the third letter, was said to have been the work of Walpole. Undoubtedly, it contains the best arguments that could then be urged in favour of Wood and the patent, and undoubtedly, also, it would have had the desired effect had it been allowed to do its work uncriticised. But Swift's opposition was fatal to Walpole's intentions. He took the report as but another attempt to foist on the people of Ireland a decree in which they had not been consulted, and no amount of yielding, short of complete abandonment of it, would palliate the thing that was hateful in itself. He resented the insult. After specific rebuttals of the various arguments urged in the report in favour of the patent, Swift suddenly turns from the comparatively petty and insignificant consideration as to the weight and quality of the coins, and deals with the broad principle of justice which the granting of the patent had ignored. Had the English Houses of Parliament and the English Privy Council, he said, addressed the King against a similar breach of the English people's rights, his Majesty would not have waited to discuss the matter, nor would his ministers have dared to advise him as they had done in this instance. "Am I a free man in England," he exclaims, "and do I become a slave in six hours in crossing the channel?" The report, however, is interesting inasmuch as it assists us to appreciate the pathetic condition of Irish affairs at the time. The very fact that the petition of the Irish parliament could be so handled, proves how strong had been the hold over Ireland by England, and with what daring insistence the English ministers continued to efface the last strongholds of Irish independence. Monck Mason, in reviewing the report, has devoted a very elaborate note to its details, and has fortified his criticisms with a series of remarkable letters from the Archbishop of Dublin, which he publishes for the first time.[1] I have embodied much of this note in the annotations which accompany the present reprint of this letter. [Footnote 1: "History of St. Patrick's Cathedral," pp. lxxxvi-xcv.] The text of this third letter is based on Sir W. Scott's, collated with the first edition and that given by Faulkner in "Fraud Detected." It has also been read with Faulkner's text given in the fourth volume of his edition of Swift's Works, published in 1735. [T.S.] [Illustration: SOME **Observations** Upon a PAPER, Call'd, The **REPORT** OF THE **COMMITTEE** OF THE Most Honourable the _Privy-Council_ IN **ENGLAND,** Relating to WOOD's _Half-pence_. _By_. M.B. _Drapier_. AUTHOR of the LETTER to the _SHOP-KEEPERS_, &c. DUBLIN: Printed by _John Harding_ in _Molesworth's-Court_ in _Fishamble Street_. ] LETTER III. TO THE NOBILITY AND GENTRY OF THE KINGDOM OF IRELAND. Having already written two letters to people of my own level, and condition; and having now very pressing occasion for writing a third; I thought I could not more properly address it than to your lordships and worships. The occasion is this. A printed paper was sent to me on the 18th instant, entitled, "A Report of the Committee of the Lords of His Majesty's Most Honourable Privy-Council in England, relating to Mr. Wood's Halfpence and Farthings."[2] There is no mention made where the paper was printed, but I suppose it to have been in Dublin; and I have been told that the copy did not come over in the Gazette, but in the London Journal, or some other print of no authority or consequence; and for anything that legally appears to the contrary, it may be a contrivance to fright us, or a project of some printer, who hath a mind to make a penny by publishing something upon a subject, which now employs all our thoughts in this kingdom. Mr. Wood in publishing this paper would insinuate to the world, as if the Committee had a greater concern for his credit and private emolument, than for the honour of the Privy-council and both Houses of Parliament here, and for the quiet and welfare of this whole kingdom; For it seems intended as a vindication of Mr. Wood, not without several severe remarks on the Houses of Lords and Commons of Ireland. [Footnote 2: The full text of this report is prefixed to this third letter of the Drapier. The report was published in the "London Journal" about the middle of August of 1724. Neither the "Gazette" nor any other ministerial organ printed it, which evidently gave Swift his cue to attack it in the merciless manner he did. Monck Mason thought it "not improbable that the minister [Walpole] adopted this method of communication, because it served his own purpose; he dared not to stake his credit upon such a document, which, in its published form, contains some gross mis-statements" ("History of St. Patrick's Cathedral," note, on p. 336). [T.S.]] The whole is indeed written with the turn and air of a pamphlet, as if it were a dispute between William Wood on the one part, and the Lords Justices, Privy-council and both Houses of Parliament on the other; the design of it being to clear and vindicate the injured reputation of William Wood, and to charge the other side with casting rash and groundless aspersions upon him. But if it be really what the title imports, Mr. Wood hath treated the Committee with great rudeness, by publishing an act of theirs in so unbecoming a manner, without their leave, and before it was communicated to the government and Privy-council of Ireland, to whom the Committee advised that it should be transmitted. But with all deference be it spoken, I do not conceive that a Report of a Committee of the Council in England is hitherto a law in either kingdom; and until any point is determined to be a law, it remains disputable by every subject. This (may it please your lordships and worships) may seem a strange way of discoursing in an illiterate shopkeeper. I have endeavoured (although without the help of books) to improve that small portion of reason which God hath pleased to give me, and when reason plainly appears before me, I cannot turn away my head from it. Thus for instance, if any lawyer should tell me that such a point were law, from which many gross palpable absurdities must follow, I would not, I could not believe him. If Sir Edward Coke should positively assert (which he nowhere does, but the direct contrary) that a limited prince, could by his prerogative oblige his subjects to take half an ounce of lead, stamped with his image, for twenty shillings in gold, I should swear he was deceived or a deceiver, because a power like that, would leave the whole lives and fortunes of the people entirely at the mercy of the monarch: Yet this, in effect, is what Wood hath advanced in some of his papers, and what suspicious people may possibly apprehend from some passages in that which is called the "Report." That paper mentions "such persons to have been examined, who were desirous and willing to be heard upon that subject." I am told, they were four in all, Coleby, Brown, Mr. Finley the banker, and one more whose name I know not. The first of these was tried for robbing the Treasury in Ireland, and although he was acquitted for want of legal proof, yet every person in the Court believed him to be guilty. The second was tried for a rape, and stands recorded in the votes of the House of Commons, for endeavouring by perjury and subornation, to take away the life of John Bingham, Esq.[3] [Footnote 3: Referring to these persons who were examined by the Committee, Monck Mason quotes from two letters from Archbishop King to Edward Southwell, Esq. King was one of the council, and Southwell secretary of state at the time. The first of these letters remarks: "Could a greater contempt be put upon a nation, than to see such a little fellow as Wood favoured and supported against them, and such profligates as Brown and Coleby believed before a whole parliament, government, and private council." From the second letter, written on August 15th, 1724, Monck Mason gives the following extracts: "--When I returned to Dublin I met with resolutions concerning our halfpence, founded chiefly on the testimony of two infamous persons, John Brown and Coleby: as to the first of these, you will find his character in the votes of the house of commons, last parliament. Tuesday, the 5th of November. "'Resolved, that it appears to this Committee, that a wicked conspiracy was maliciously contrived and carried on against John Bingham, to take away his life and fortune. "'Resolved, that it is the opinion of this Committee, that the said John Brown, of Rabens, Esq. and his accomplices, were the chief promoters and advisers of the said conspiracy. "'Resolved, that it is the opinion of this Committee, that the said John Brown is a person not fit to serve his majesty, in any office or employment, civil or military, whatsoever. "'Resolved, that the said John Brown has, in the course of his examination, grossly prevaricated with this Committee. "'To all which resolutions, the question being severally put, the house did agree, _nemine contradicente_. "'Ordered, that the said John Brown be, for his said prevarication, taken into the custody of the serjeant at arms attending this house. "'Ordered, that his majesty's attorney-general do present the said John Brown, for conniving and maliciously carrying on the said conspiracy to take away the life of the said John Bingham, and others.' "As to Coleby, he was turned out of the treasury for robbing it of a considerable sum of money. I was present at his trial at the King's-bench, and the evidence was such as convinced every one, in his conscience, that he was guilty; but, the proofs being presumptive, and not direct, the jury acquitted him; on which the judge (Pine, if I remember right) observed the happiness of English subjects, that, though everybody was convinced of a man's guilt, yet, if the evidence did not come up to the strict requisites of the law, he would escape" ("History of St. Patrick's Cathedral," pp. xciv-xcv.) [T.S.]] But since I have gone so far as to mention particular persons, it may be some satisfaction to know who is this Wood himself, that has the honour to have a whole kingdom at his mercy, for almost two years together. I find he is in the patent entitled _Esq_; although he were understood to be only a hardware-man, and so I have been bold to call him in my former letters; however a '_squire_ he is, not only by virtue of his patent, but by having been a collector in Shropshire, where pretending to have been robbed, and suing the county, he was cast, and for the infamy of the fact, lost his employment. I have heard another story of this 'Squire Wood from a very honourable lady, that one Hamilton told her. He (Hamilton) was sent for six years ago by Sir Isaac Newton to try the coinage of four men, who then solicited a patent for coining halfpence for Ireland; their names were Wood, Coster, Elliston, and Parker. Parker made the fairest offer, and Wood the worst, for his coin were three halfpence in a pound less value than the other. By which it is plain with what intentions he solicited this patent, but not so plain how he obtained it. It is alleged in the said paper, called the "Report," that upon repeated orders from a secretary of state, for sending over such papers and witnesses, as should be thought proper to support the objections made against the patent (by both Houses of Parliament) the Lord Lieutenant represented "the great difficulty he found himself in to comply with these orders. That none of the principal members of both Houses, who were in the King's service or council, would take upon them to advise how any material person or papers might be sent over on this occasion, &c." And this is often repeated and represented as "a proceeding that seems very extraordinary, and that in a matter which had raised so great a clamour in Ireland, no one person could be prevailed upon to come over from Ireland in support of the united sense of both Houses of Parliament in Ireland, especially that the chief difficulty should arise from a general apprehension of a miscarriage, in an enquiry before His Majesty, or in a proceeding by due course of law, in a case where both Houses of Parliament had declared themselves so fully convinced, and satisfied upon evidence, and examinations taken in the most solemn manner."[4] [Footnote 4: Commenting on this Monck Mason has the following note. This learned biographer's remarks are specially important inasmuch as he has fortified them with letters from Archbishop King, unpublished at the time he wrote: "But this [referring to the extract from the Report given by Swift] will not appear so strange or inexplicable after perusing the following letter from Archbishop King ... to Edward Southwell, Esq. ...; this important state paper may, therefore, be considered as an official communication of the sentiments of the Irish Privy Council upon this matter. "Letter from William King, Archbishop of Dublin, to Edward Southwell, Esq., dated the 23d March, 1723. "'I have not had any occasion of late to trouble you with my letters; but yesternight I came to the knowledge of an affair which gave me some uneasiness, and, I believe, will do so to the whole kingdom, when it becomes public. My lord lieutenant sent for several lords and commoners of the privy council, and communicated to them a letter from my Lord Carteret, writ by his majesty's command, in which was repeated the answer given to the addresses of the lords and commons, about one William Wood's farthings and halfpence; and his grace is required to send over witnesses and evidences against the patentee or patent: this has surprised most people, because we were borne in hand that that affair was dead, and that we should never hear any more of it. "'His grace's design was, to be advised by what means and methods he might effectually comply with his majesty's commands; and, by what I could perceive, it was the sense of all, that it was not possible, in the present situation of affairs, to answer his majesty's expectations or those of the kingdom; and that, for these reasons: "'1st, because this is a controversy between the parliament of Ireland and William Wood, and, the parliament being now prorogued, nobody either would, or durst, take on them to meddle in a business attacked by the parliament, or pretend to manage a cause which so deeply concerned the parliament, and the whole nation, without express orders. If this letter had come whilst the parliament was sitting, and had been communicated to the houses, they could have appointed certain persons to have acted for them, and raised a fund to support them, as has been done formerly in this kingdom on several occasions; but, for any, without such authority, to make himself a party for the legislature and people of Ireland, would be a bold undertaking, and, perhaps, dangerous; for, if such undertaker or undertakers should fail in producing all evidences that may be had, or any of the papers necessary to make the case evident, they must expect to be severely handled the next parliament for their officiousness, and bear the blame of the miscarriage of the cause: for these reasons, as it seemed to me, the privy councillors were unwilling to engage at all in the business, or to meddle with it. "'But, 2dly, the thing seemed impracticable; because it would signify nothing to send over the copies of the papers that were laid before the parliament, if the design is, as it seems to be, to bring the patent to a legal trial; for such copies we were told by lawyers, could not be produced in any court as evidence; and, as to the originals, they are in the possession of the houses, and (as was conceived) could not be taken from the proper officers with whom they were trusted, but by the like order. "'And, as to the witnesses, it was a query whether my lord lieutenant by his own power could send them; and, if he have such power, yet it will not be possible to come at the witnesses, for several in each house vouched several facts on their own knowledge, to whom the houses gave credit; my lord lieutenant can neither be apprised of the persons nor of the particulars which the members testified; whereas, if the parliament was sitting, those members would appear, and make good their assertions. "'There were several sorts of farthings and halfpence produced to the houses, differing in weight, and there was likewise a difference in the stamp. These were sent over by William Wood to his correspondents here, and by them produced. But can it be proved, on a legal trial, that these particular halfpence were coined by him? It is easy for him to say, that they are counterfeited, as (if I remember right) he has already affirmed in the public prints, in his answer to the address of the commons. "'But, 3dly, it was not on the illegality of the patent, nor chiefly on the abuse of it the patentee (which was not so much as mentioned by the lords), that the parliament insisted, but on the unavoidable mischief and destruction it would bring on the kingdom, and on its being obtained by most false and notorious misinformation of his majesty; it being suggested, as appears by the preamble, that the kingdom wanted such halfpence and farthings: now, if the king be misinformed, the lawyers tell us, that the grant is void. And, that his majesty was deceived in this grant by a false representation, it was said, needed no further proof than the patent itself.--William Wood by it was empowered to coin 360 tons of copper into halfpence and farthings, which would have made £90,000, about the fifth part of all the current cash of Ireland; for that is not reckoned, by those who suppose it most, to be £500,000. Now, the current cash of England is reckoned above twenty millions; in proportion, therefore, if Ireland wants £90,000 England will want four millions. It is easy to imagine what would be said to a man that would propose to his majesty such a coinage; and it is agreed, that the people of England would not be more alarmed by such a patent, than the people of Ireland are, by the prospect of turning the fifth part of their current coin into brass. "'This, so far as I can remember, is a brief of what passed in the meeting before my lord lieutenant'" ("History of St. Patrick's Cathedral," pp. lxxxvii-lxxxviii). [T.S.]] How shall I, a poor ignorant shopkeeper, utterly unskilled in law, be able to answer so weighty an objection. I will try what can be done by plain reason, unassisted by art, cunning or eloquence. In my humble opinion, the committee of council, hath already prejudged the whole case, by calling the united sense of both Houses of Parliament in Ireland an "universal clamour." Here the addresses of the Lords and Commons of Ireland against a ruinous destructive project of an "obscure, single undertaker," is called a "clamour." I desire to know how such a style would be resented in England from a committee of council there to a Parliament, and how many impeachments would follow upon it. But supposing the appellation to be proper, I never heard of a wise minister who despised the universal clamour of a people, and if that clamour can be quieted by disappointing the fraudulent practice of a single person, the purchase is not exorbitant. But in answer to this objection. First it is manifest, that if this coinage had been in Ireland, with such limitations as have been formerly specified in other patents, and granted to persons of this kingdom, or even of England, able to give sufficient security, few or no inconveniencies could have happened, which might not have been immediately remedied. As to Mr. Knox's patent mentioned in the Report, security was given into the exchequer, that the patentee should at any time receive his halfpence back, and pay gold or silver in exchange for them. And Mr. Moor (to whom I suppose that patent was made over) was in 1694 forced to leave off coining, before the end of that year, by the great crowds of people continually offering to return his coinage upon him. In 1698 he coined again, and was forced to give over for the same reason. This entirely alters the case; for there is no such condition in Wood's patent, which condition was worth a hundred times all other limitations whatsoever.[5] [Footnote 5: It will serve to elucidate this paragraph if an account be given of the various coinage patents issued for Ireland. Monck Mason gives an account in a long note to his biography of Swift; but as he has obtained it from the very ably written tract, "A Defence of the Conduct of the People of Ireland," etc., I have gone to that pamphlet for the present _résumé_. I quote from pp. 21-24 of the Dublin edition, issued in 1724 and printed by George Ewing: "K. Charles 2d. 1660 granted a patent for coining only farthings for the kingdom of Ireland to Coll. Armstrong: But I do not find he ever made any use of it.[A] For all our copper and brass money to the year 1680 was issued by private persons, who obtained particular licences, _on giving security to change their half-pence and farthings for gold and silver_; but some of their securities failing, others pretending the half-pence which were tendered to be changed were counterfeits, the public always suffered. Col. Armstrong's son, finding great profit was made by coining half-pence in Ireland, by virtue of particular licences recallable at pleasure, solicited and obtained a patent in the name of George Legg afterwards Lord Dartmouth, for coining half-pence for Ireland from 1680, for 21 years, _he giving security to exchange them for gold or silver on demand_.[B] In pursuance of this he coined considerable quantities of half-pence for four years; but in 1685 [John] Knox, with the consent of Armstrong, got the remaining part of this term granted by patent in his own name, he giving security as above, and got his half-pence declared the current coin of Ireland, notwithstanding two Acts of Parliament had enacted that they should not be received in the revenue. Knox was interrupted in his coinage in 1689, by King James's taking it into his own hands, to coin his famous brass money, of which he coined no less than £965,375, three penny worth of metal passing for £10 _ster_. In this money creditors were obliged to receive their debts, and by this cruel stratagem Ireland lost about £60,000 per month. This not only made our gold and silver, but even our half-pence to disappear; which obliged King William to coin pewter half-pence for the use of his army.... [Footnote A: Monck Mason, quoting Simon "On Irish Coins" (Append., No. LXV), says: "Sir Thomas [Armstrong] was never admitted to make use of this grant, nor could he obtain allowance of the chief governor of Ireland, to issue them as royal coin among the subjects of that kingdom."] [Footnote B: "A proclamation was issued by the lord lieutenant, declaring these half-pence to be the current coin of the kingdom, but it provided that none should be enforced to take more than five shillings in the payment of one hundred pounds, and so proportionately in all greater and lesser sums.... This patent was granted, by and with, the advice of James, Duke of Ormond" (Monck Mason, "History of St. Patrick's," p. 334, note y).] "After the Revolution, Col. Roger Moore being possessed of Knox's patent, commenced his coinage in Dublin, and at first kept several offices for changing his half-pence for gold or silver. He soon overstocked the kingdom so with copper money, that persons were obliged to receive large sums in it; for the officers of the crown were industrious dispensers of it, for which he allowed them a premium. It was common at that time for one to compound for 1/4 copper, and the collectors paid nothing else. The country being thus overcharged with a base coin, everyone tendered it to Col. Moore to be changed. This he refused, on pretence they were counterfeits.... On this he quitted coining in 1698, but left us in a miserable condition, which is lively represented in a Memorial presented by Will. Trench, Esq. to the Lords of the Treasury, on Mr. Wood's obtaining his patent, and which our Commissioners referred to.... Col. Moore finding the sweet of such a patent, applied to King William for a renewal of it; but his petition being referred to the government of Ireland, the affair was fairly represented to the king, whereby his designs were frustrated. "In the reign of the late Queen, application was made by Robert Baird and William Harnill, Trustees for the garrison which defended Londonderry, for a patent to coin base money for Ireland ... their petition was rejected.... Since this time there have been many applications made for such patents." [T.S.]] Put the case, that the two Houses of Lords and Commons of England, and the Privy-council there should address His Majesty to recall a patent, from whence they apprehend the most ruinous consequences to the whole kingdom: And to make it stronger if possible, that the whole nation, almost to a man, should thereupon discover the "most dismal apprehensions" (as Mr. Wood styles them) would His Majesty debate half an hour what he had to do? Would any minister dare advise him against recalling such a patent? Or would the matter be referred to the Privy-Council or to Westminster-hall, the two Houses of Parliament plaintiffs, and William Wood defendant? And is there even the smallest difference between the two cases? Were not the people of Ireland born as free as those of England? How have they forfeited their freedom? Is not their Parliament as fair a representative of the people as that of England? And hath not their Privy-council as great or a greater share in the administration of public affairs? Are they not subjects of the same King? Does not the same sun shine on them? And have they not the same God for their protector? Am I a freeman in England, and do I become a slave in six hours by crossing the Channel? No wonder then, if the boldest persons were cautious to interpose in a matter already determined by the whole voice of the nation, or to presume to represent the representatives of the kingdom, and were justly apprehensive of meeting such a treatment as they would deserve at the next session. It would seem very extraordinary if an inferior court in England, should take a matter out of the hands of the high court of Parliament, during a prorogation, and decide it against the opinion of both Houses. It happens however, that, although no persons were so bold, as to go over as evidences, to prove the truth of the objections made against this patent by the high court of Parliament here, yet these objections stand good, notwithstanding the answers made by Wood and his Council. The Report says, that "upon an assay made of the fineness, weight and value of this copper, it exceeded in every article." This is possible enough in the pieces upon which the assay was made; but Wood must have failed very much in point of dexterity, if he had not taken care to provide a sufficient quantity of such halfpence as would bear the trial; which he was well able to do, although "they were taken out of several parcels." Since it is now plain, that the bias of favour hath been wholly on his side.[6] [Footnote 6: The report of the assayers as abstracted by the Lords of the Committee in their report is not accurately stated. Monck Mason notes that the abstract omits the following passage: "But although the copper was very good, and the money, one piece with another, was full weight, yet the single pieces were not so equally coined in the weight as they should have been." Nor is it shown that the coins assayed were of the same kind as those sent into Ireland. The Committee's report fails to see the question that must arise when it is noted that while in England a pound of copper was made into twenty-three pence, yet for Ireland Wood was permitted to make it into thirty pence, in spite of the statement that the copper used in England was worth fivepence a pound more than that used by Wood. [T.S.]] But what need is there of disputing, when we have positive demonstration of Wood's fraudulent practices in this point? I have seen a large quantity of these halfpence weighed by a very skilful person, which were of four different kinds, three of them considerably under weight. I have now before me an exact computation of the difference of weight between these four sorts, by which it appears that the fourth sort, or the lightest, differs from the first to a degree, that, in the coinage of three hundred and sixty tons of copper, the patentee will be a gainer, only by that difference, of twenty-four thousand four hundred and ninety-four pounds, and in the whole, the public will be a loser of eighty-two thousand one hundred and sixty-eight pounds, sixteen shillings, even supposing the metal in point of goodness to answer Wood's contract and the assay that hath been made; which it infallibly doth not. For this point hath likewise been enquired into by very experienced men, who, upon several trials in many of these halfpence, have found them to be at least one fourth part below the real value (not including the raps or counterfeits that he or his accomplices have already made of his own coin, and scattered about). Now the coinage of three hundred and sixty ton of copper coined by the weight of the fourth or lightest sort of his halfpence will amount to one hundred twenty-two thousand four hundred eighty-eight pounds, sixteen shillings, and if we subtract a fourth part of the real value by the base mixture in the metal, we must add to the public loss one fourth part to be subtracted from the intrinsic value of the copper, which in three hundred and sixty tons amounts to ten thousand and eighty pounds, and this added to the former sum of eighty-two thousand one hundred sixty-eight pounds, sixteen shillings, will make in all, ninety-two thousand two hundred forty-eight pounds loss to the public; besides the raps or counterfeits that he may at any time hereafter think fit to coin. Nor do I know whether he reckons the dross exclusive or inclusive with his three hundred and sixty ton of copper; which however will make a considerable difference in the account. You will here please to observe, that the profit allowed to Wood by the patent is twelvepence out of every pound of copper valued at _1s. 6d_. whereas _5d_. only is allowed for coinage of a pound weight for the English halfpence, and this difference is almost 25 _per cent_. which is double to the highest exchange of money, even under all the additional pressures, and obstructions to trade, that this unhappy kingdom lies at present. This one circumstance in the coinage of three hundred and sixty ton of copper makes a difference of twenty-seven thousand seven hundred and twenty pounds between English and Irish halfpence, even allowing those of Wood to be all of the heaviest sort. It is likewise to be considered, that for every halfpenny in a pound weight exceeding the number directed by the patent, Wood will be a gainer in the coinage of three hundred and sixty ton of copper, sixteen hundred and eighty pounds profit more than the patent allows him; Out of which he may afford to make his comptrollers easy upon that article. As to what is alleged, that "these halfpence far exceed the like coinage for Ireland in the reigns of His Majesty's predecessors;" there cannot well be a more exceptionable way of arguing: Although the fact were true, which however is altogether mistaken; not by any fault in the Committee, but by the fraud and imposition of Wood, who certainly produced the worst patterns he could find, such as were coined in small numbers by permissions to private men, as butchers' halfpence, black dogs and the like, or perhaps the small St. Patrick's coin which passes for a farthing, or at best some of the smallest raps of the latest kind. For I have now by me some halfpence coined in the year 1680 by virtue of the patent granted to my Lord Dartmouth, which was renewed to Knox, and they are heavier by a ninth part than those of Wood, and in much better metal. And the great St. Patrick's halfpenny is yet larger than either. But what is all this to the present debate? If under the various exigencies of former times, by wars, rebellions, and insurrections, the Kings of England were sometimes forced to pay their armies here with mixed or base money, God forbid that the necessities of turbulent times should be a precedent for times of peace, and order, and settlement. In the patent above mentioned granted to Lord Dartmouth, in the reign of King Charles 2d. and renewed to Knox, the securities given into the exchequer, obliging the patentee to receive his money back upon every demand, were an effectual remedy against all inconveniencies. And the copper was coined in our own kingdom, so that we were in no danger to purchase it with the loss of all our silver and gold carried over to another, nor to be at the trouble of going to England for the redressing of any abuse. That the Kings of England have exercised their prerogative of coining copper for Ireland and for England is not the present question: But (to speak in the style of the Report) it would "seem a little extraordinary," supposing a King should think fit to exercise his prerogative by coining copper in Ireland, to be current in England, without referring it to his officers in that kingdom to be informed whether the grant was reasonable, and whether the people desired it or no, and without regard to the addresses of his Parliament against it. God forbid that so mean a man as I should meddle with the King's prerogative: But I have heard very wise men say, that the King's prerogative is bounded and limited by the good and welfare of his people. I desire to know, whether it is not understood and avowed that the good of Ireland was intended by this patent. But Ireland is not consulted at all in the matter, and as soon as Ireland is informed of it, they declare against it; the two Houses of Parliament and the Privy-council addresses His Majesty upon the mischiefs apprehended by such a patent. The Privy-council in England takes the matter out of the Parliament's cognizance; the good of the kingdom is dropped, and it is now determined that Mr. Wood shall have the power of ruining a whole nation for his private advantage. I never can suppose that such patents as these were originally granted with the view of being a job for the interest of a particular person, to the damage of the public: Whatever profit must arise to the patentee was surely meant at best but as a secondary motive, and since somebody must be a gainer, the choice of the person was made either by favour, or _something else_[7] or by the pretence of merit and honesty. This argument returns so often and strongly into my head, that I cannot forbear frequently repeating it. Surely His Majesty, when he consented to the passing of this patent, conceived he was doing an act of grace to his most loyal subjects of Ireland, without any regard to Mr. Wood, farther than as an instrument. But the people of Ireland think this patent (intended _no doubt_ for their good) to be a most intolerable grievance, and therefore Mr. Wood can never succeed, without an open avowal that his profit is preferred not only before the interests, but the very safety and being of a great kingdom; and a kingdom distinguished for its loyalty, perhaps above all others upon earth. Not turned from its duty by the "jurisdiction of the House of Lords, abolished at a stroke, by the hardships of the Act of Navigation newly enforced; By all possible obstructions in trade," and by a hundred other instances, "enough to fill this paper." Nor was there ever among us the least attempt towards an insurrection in favour of the Pretender. Therefore whatever justice a free people can claim we have at least an equal title to it with our brethren in England, and whatever grace a good prince can bestow on the most loyal subjects, we have reason to expect it: Neither hath this kingdom any way deserved to be sacrificed to one "single, rapacious, obscure, ignominious projector." [Footnote 7: A hint at the Duchess of Kendal's influence in the procuring of the patent. [T.S.]] Among other clauses mentioned in this patent, to shew how advantageous it is to Ireland, there is one which seems to be of a singular nature, that the patentee shall be obliged, during his term, "to pay eight hundred pounds a year to the crown, and two hundred pounds a year to the comptroller."[8] I have heard indeed that the King's council do always consider, in the passing of a patent, whether it will be of advantage to the crown, but I have likewise heard that it is at the same time considered whether the passing of it may be injurious to any other persons or bodies politic. However, although the attorney and solicitor be servants to the King, and therefore bound to consult His Majesty's interest, yet I am under some doubt whether eight hundred pounds a year to the crown would be equivalent to the ruin of a kingdom. It would be far better for us to have paid eight thousand pounds a year into His Majesty's coffers, in the midst of all our taxes (which, in proportion, are greater in this kingdom than ever they were in England, even during the war) than purchase such an addition to the revenue at the price of our _utter undoing_. [Footnote 8: By the terms of the patent, Wood covenanted to pay to the King's clerk, or comptroller of the coinage, £200 yearly, and £100 per annum into his Majesty's exchequer, and not as Walpole's report has it, £800 and £200. [T.S.]] But here it is plain that fourteen thousand pounds are to be paid by Wood, only as a small circumstantial charge for the purchase of his patent, what were his other visible costs I know not, and what were his latent, is variously conjectured. But he must be surely a man of some wonderful merit. Hath he saved any other kingdom at his own expense, to give him a title of reimbursing himself by the destruction of ours? Hath he discovered the longitude or the universal medicine? No. But he hath found out the philosopher's stone after a new manner, by debasing of copper, and resolving to force it upon us for gold. When the two Houses represented to His Majesty, that this patent to Wood was obtained in a clandestine manner, surely the Committee could not think the Parliament would insinuate that it had not passed in the common forms, and run through every office where fees and perquisites were due. They knew very well that persons in places were no enemies to grants, and that the officers of the crown could not be kept in the dark. But the late Lord Lieutenant of Ireland[9] affirmed it was a secret to him (and who will doubt of his veracity, especially when he swore to a person of quality; from whom I had it, that Ireland should never be troubled with these halfpence). It was a secret to the people of Ireland, who were to be the only sufferers, and those who best knew the state of the kingdom and were most able to advise in such an affair, were wholly strangers to it. [Footnote 9: The Duke of Grafton. Walpole called him "a fair-weather pilot, that knew not what he had to do, when the first storm arose." Charles, second Duke of Grafton (1683-1757), was the grandfather of the third duke, so virulently attacked by Junius in his famous letters. [T. S.]] It is allowed by the Report that this patent was passed without the knowledge of the chief governor or officers of Ireland; and it is there elaborately shewn, that "former patents have passed in the same manner, and are good in law." I shall not dispute the legality of patents, but am ready to suppose it in His Majesty's power to grant a patent for stamping round bits of copper to every subject he hath. Therefore to lay aside the point of law, I would only put the question, whether in reason and justice it would not have been proper, in an affair upon which the welfare of a kingdom depends, that the said kingdom should have received timely notice, and the matter not be carried on between the patentee and the officers of the Crown, who were to be the only gainers by it. The Parliament, who in matters of this nature are the most able and faithful counsellors, did represent this grant to be "destructive of trade, and dangerous to the properties of the people," to which the only answer is, that "the King hath a prerogative to make such a grant." It is asserted that in the patent to Knox, his "halfpence, are made and declared the current coin of the kingdom," whereas in this to Wood, there is only a "power given to issue them to such as will receive them." The authors of the Report, I think, do not affirm that the King can by law declare _anything_ to be current money by his letters-patents. I dare say they will not affirm it, and if Knox's patent contained in it powers contrary to law, why is it mentioned as a precedent in His Majesty's just and merciful reign:[10] But although that clause be not in Wood's patent, yet possibly there are others, the legality whereof may be equally doubted, and particularly that, whereby "a power is given to William Wood to break into houses in search of any coin made in imitation of his." This may perhaps be affirmed to be illegal and dangerous to the liberty of the subject. Yet this is a precedent taken from Knox's patent, where the same power is granted, and is a strong instance what uses may be sometimes made of precedents. [Footnote 10: Knox's patent, as Monck Mason points out, did not contain the right to have his coins pass as the current coin of the realm; that was permitted by a proclamation of the lord lieutenant, and could in the same manner be withdrawn. Knox's patent differed materially from that granted to Wood, since he was obliged to take back his coins and give gold or silver for them, and no one was compelled to take more than five shillings in the payment of each £100. See note, p. 66. [T.S.]] But although before the passing of this patent, it was not thought necessary to consult any persons of this kingdom, or make the least enquiry whether copper money were wanted among us; yet now at length, when the matter is over, when the patent hath long passed, when Wood hath already coined seventeen thousand pounds, and hath his tools and implements prepared to coin six times as much more; the Committee hath been pleased to make this affair the subject of enquiry. Wood is permitted to produce his evidences, which consist as I have already observed, of four in number, whereof Coleby, Brown and Mr. Finley the banker are three. And these were to prove that copper money was extremely wanted in Ireland. The first had been out of the kingdom almost twenty years, from the time that he was tried for robbing the treasury, and therefore his knowledge and credibility are equal. The second may be allowed a more knowing witness, because I think it is not above a year since the House of Commons ordered the Attorney-general to prosecute him, for endeavouring "to take away the life of John Bingham Esq; member of parliaments by perjury and subornation." He asserted that he was forced to tally with his labourers for want of small money (which hath often been practised in England by Sir Ambrose Crawley[11] and others) but those who knew him better give a different reason, (if there be any truth at all in the fact) that he was forced to tally with his labourers not for want of halfpence, but of more substantial money, which is highly possible, because the race of suborners, forgers, perjurers and ravishers, are usually people of no fortune, or of those who have run it out by their vices and profuseness. Mr. Finley the third witness honestly confessed, that he was ignorant whether Ireland wanted copper money or no; but all his intention was to buy a certain quantity from Wood at a large discount, and sell them as well as he could, by which he hoped to get two or three thousand pounds for himself. [Footnote 11: Ambrose Crowley (not Crawley) was alderman and sheriff of London. He was knighted January 1st, 1706-1707, and sat in the House of Commons as member for Andover in 1713-1714. [T.S.]] But suppose there were not one single halfpenny of copper coin in this whole kingdom (which Mr. Wood seems to intend, unless we will come to his terms, as appears by employing his emissaries to buy up our old ones at a penny in the shilling more than they pass for), it could not be any real evil to us, although it might be some inconvenience. We have many sorts of small silver coins, to which they are strangers in England, such as the French threepences, fourpence halfpennies and eightpence half-pennies, the Scotch fivepences and tenpences, besides their twenty-pences, and three-and-four-pences, by all which we are able to make change to a halfpenny of almost any piece of gold or silver, and if we are driven to Brown's expedient of a sealed card, with the little gold or silver still remaining, it will I suppose, be somewhat better than to have nothing left but Wood's adulterated copper, which he is neither obliged by his patent, nor hitherto able by his estate to make good. The Report farther tells us, it "must be admitted that letters-patents under the Great Seal of Great Britain for coining copper money for Ireland are legal and obligatory, a just and reasonable exercise of His Majesty's royal prerogative, and in no manner derogatory or invasive of any liberty or privilege of his subjects of Ireland." First we desire to know, why His Majesty's prerogative might not have been as well asserted, by passing this patent in Ireland, and subjecting the several conditions of the contract to the inspection of those who are only concerned, as was formerly done in the only precedents for patents granted for coining for this kingdom, since the mixed money[12] in Queen Elizabeth's time, during the difficulties of a rebellion: Whereas now upon the greatest imposition that can possibly be practised, we must go to England with our complaints, where it hath been for some time the fashion to think and to affirm that "we cannot be too hardly used." Again the Report says, that "such patents are obligatory." After long thinking, I am not able to find out what can possibly be meant here by this word _obligatory_. This patent of Wood neither obligeth him to utter his coin, nor us to take it, or if it did the latter, it would be so far void, because no patent can oblige the subject against law, unless an illegal patent passed in one kingdom can bind another and not itself. [Footnote 12: "Civill warre having set all Ireland in a combustion, the Queene [Elizabeth] more easily to subdue the rebels, did take silver coyne from the Irish, some few years before her death, and paid her army with a mixed base coyne, which, by proclamation, was commanded to be spent and received, for sterling silver money. This base mixed money had three parts of copper, and the fourth part of silver, which proportion of silver was in some part consumed by the mixture, so as the English goldsmiths valued a shilling thereof at no more than two silver pence, though they acknowledged the same to be worth two pence halfpenny." (Fynes Moryson's "Itinerary," pt. i., p. 283). [T.S.]] Lastly, it is added that "such patents are in no manner derogatory or invasive of any liberty or privilege of the King's subjects of Ireland." If this proposition be true, as it is here laid down, without any limitation either expressed or implied, it must follow that a King of England may at any time coin copper money for Ireland, and oblige his subjects here to take a piece of copper under the value of half a farthing for half-a-crown, as was practised by the late King James, and even without that arbitrary prince's excuse, from the necessity and exigences of his affairs. If this be in no manner "derogatory nor evasive of any liberties or privileges of the subjects of Ireland," it ought to have been expressed what our liberties and privileges are, and whether we have any at all, for in specifying the word _Ireland_, instead of saying "His Majesty's subjects," it would seem to insinuate that we are not upon the same foot with our fellow-subjects in _England_; which, however the practice may have been, I hope will never be directly asserted, for I do not understand that Poining's act[13] deprived us of our liberty, but only changed the manner of passing laws here (which however was a power most indirectly obtained) by leaving the negative to the two Houses of Parliament. But, waiving all controversies relating to the legislature, no person, I believe, was ever yet so bold as to affirm that the people of Ireland have not the same title to the benefits of the common law, with the rest of His Majesty's subjects, and therefore whatever liberties or privileges the people of England enjoy by common law, we of Ireland have the same; so that in my humble opinion, the word _Ireland_ standing in that proposition, was, in the mildest interpretation, _a lapse of the pen_. [Footnote 13: It was not intended that Poyning's act should interfere with the liberty of the people, but it is undoubted that advantage was taken of this law, and an interpretation put on it far different from the intention that brought it on the statute books. It was passed by a parliament convened by Sir Edward Poyning, at Drogheda, in the tenth year of Henry VII.'s reign. Its immediate cause was the invasion of Perkin Warbeck. That pretender assumed royal authority in Ireland and had several statutes passed during his short-lived term of power. To prevent any viceroy from arrogating to himself the powers of law-making it was enacted by Poyning's parliament: "That no parliament be holden hereafter in Ireland, but at such season as the King's lieutenant and counsaile there first do certifie the King, under the Great Seal of that land, the causes and considerations, and all such acts as them seemeth should pass in the same parliament, and such causes, considerations, and acts affirmed by the King and his counsaile to be good and expedient for that land, and his licence thereupon, as well in affirmation of the said causes and acts, as to summon the said parliament, under his Great Seal of England had and obtained; that done, a parliament to be had and holden as afore rehearsed" ("Irish Statutes," vol. i., p. 44). Two statutes, one, the Act of 3 and 4 Phil., and Mary, cap. 4, and the other of II Eliz. Ses. 3, cap. 8, explain this act further, and the latter points out the reason for the original enactment, namely, that "before this statute, when liberty was given to the governors to call parliaments at their pleasure, acts passed as well to the dishonour of the prince, as to the hindrance of their subjects" ("Irish Statutes," vol. i., p. 346). "By Poyning's Law," says Lecky, "a great part of the independence of the Irish Parliament had indeed been surrendered; but even the servile Parliament which passed it, though extending by its own authority to Ireland laws previously enacted in England, never admitted the right of the English Parliament to make laws for Ireland." ("Hist. Ireland," vol. ii., p. 154; 1892 ed). [T.S.]] The Report farther asserts, that "the precedents are many, wherein cases of great importance to Ireland, and that immediately affected the interests of that kingdom, warrants, orders, and directions by the authority of the King and his predecessors, have been issued under the royal sign manual, without any previous reference or advice of His Majesty's officers of Ireland, which have always had their due force, and have been punctually complied with, and obeyed." It may be so, and I am heartily sorry for it, because it may prove an eternal source of discontent. However among all these precedents there is not one of a patent for coining money for Ireland. There is nothing hath perplexed me more than this doctrine of precedents. If a job is to be done, and upon searching records you find it hath been done before, there will not want a lawyer to justify the legality of it, by producing his precedents, without ever considering the motives and circumstances that first introduced them, the necessity or turbulence or iniquity of times, the corruptions of ministers, or the arbitrary disposition of the prince then reigning. And I have been told by persons eminent in the law, that the worst actions which human nature is capable of, may be justified by the same doctrine. How the first precedents began of determining cases of the highest importance to Ireland, and immediately affecting its interest, without any previous reference or advice to the King's officers here, may soon be accounted for. Before this kingdom was entirely reduced by the submission of Tyrone in the last year of Queen Elizabeth's reign, there was a period of four hundred years, which was a various scene of war and peace between the English pale and the Irish natives, and the government of that part of this island which lay in the English hands, was, in many things under the immediate administration of the King. Silver and copper were often coined here among us, and once at least upon great necessity, a mixed or base metal was sent from England. The reign of King James Ist. was employed in settling the kingdom after Tyrone's rebellion, and this nation flourished extremely till the time of the massacre 1641. In that difficult juncture of affairs, the nobility and gentry coined their own plate here in Dublin. By all that I can discover, the copper coin of Ireland for three hundred years past consisted of small pence and halfpence, which particular men had licence to coin, and were current only within certain towns and districts, according to the personal credit of the owner who uttered them, and was bound to receive them again, whereof I have seen many sorts; neither have I heard of any patent granted for coining copper for Ireland till the reign of King Charles II. which was in the year 1680. to George Legge Lord Dartmouth, and renewed by King James II. in the first year of his reign to John Knox. Both patents were passed in Ireland, and in both the patentees were obliged to receive their coin again to any that would offer then twenty shillings of it, for which they were obliged to pay gold or silver. The patents both of Lord Dartmouth and Knox were referred to the Attorney-general here, and a report made accordingly, and both, as I have already said, were passed in this kingdom. Knox had only a patent for the remainder of the term granted to Lord Dartmouth, the patent expired in 1701, and upon a petition by Roger Moor to have it renewed, the matter was referred hither, and upon the report of the attorney and solicitor, that it was not for His Majesty's service or the interest of the nation to have it renewed, it was rejected by King William. It should therefore seem very extraordinary, that a patent for coining copper halfpence, intended and professed for the good of the kingdom, should be passed without once consulting that kingdom, for the good of which it is declared to be intended, and this upon the application of a "poor, private obscure mechanic;" and a patent of such a nature, that as soon as ever the kingdom is informed of its being passed, they cry out unanimously against it as ruinous and destructive. The representative of the nation in Parliament, and the Privy-council address the King to have it recalled; yet the patentee, such a one as I have described, shall prevail to have this patent approved, and his private interest shall weigh down the application of a whole kingdom. St. Paul says, "All things are lawful, but all things are not expedient." We are answered that this patent is lawful, but is it expedient? We read that the high-priest said "It was expedient that one Man should die for the people;" and this was a most wicked proposition. But that a whole nation should die for one man, was never heard of before. But because much weight is laid on the precedents of other patents, for coining copper for Ireland, I will set this matter in as clear a light as I can. Whoever hath read the Report, will be apt to think, that a dozen precedents at least could be produced of copper coined for Ireland, by virtue of patents passed in England, and that the coinage was there too; whereas I am confident, there cannot be one precedent shewn of a patent passed in England for coining copper for Ireland, for above an hundred years past, and if there were any before, it must be in times of confusion. The only patents I could ever hear of, are those already mentioned to Lord Dartmouth and Knox; the former in 1680. and the latter in 1685. Now let us compare these patents with that granted to Wood. First, the patent to Knox, which was under the same conditions as that granted to Lord Dartmouth, was passed in Ireland, the government and the Attorney and Solicitor-general making report that it would be useful to this kingdom: [The patentee was obliged to make every halfpenny one hundred and ten grains Troy weight, whereby _2s. 2d_. only could be coined out of a pound of copper.][14] The patent was passed with the advice of the King's council here; The patentee was obliged to receive his coin from those who thought themselves surcharged, and to give gold and silver for it; Lastly, The patentee was to pay only _16l. 13s. 4d. per ann._ to the crown. Then, as to the execution of that patent. First, I find the halfpence were milled, which, as it is of great use to prevent counterfeits (and therefore industriously avoided by Wood) so it was an addition to the charge of coinage. And for the weight and goodness of the metal; I have several halfpence now by me, many of which weigh a ninth part more than those coined by Wood, and bear the fire and hammer a great deal better; and which is no trifle, the impression fairer and deeper. I grant indeed, that many of the latter coinage yield in weight to some of Wood's, by a fraud natural to such patentees; but not so immediately after the grant, and before the coin grew current: For in this circumstance Mr. Wood must serve for a precedent in future times. [Footnote 14: The portion here in square brackets was printed in the fourth edition of this Letter and in the work entitled, "Fraud Detected." It is not given in Faulkner's first collected edition issued in 1735, nor in "The Hibernian Patriot," issued in 1730. [T.S.]] Let us now examine this new patent granted to William Wood. It passed upon very false suggestions of his own, and of a few confederates: It passed in England, without the least reference hither. It passed unknown to the very Lord Lieutenant, then in England. Wood is empowered to coin one hundred and eight thousand pounds, "and all the officers in the kingdom (civil and military) are commanded" in the Report to countenance and assist him. Knox had only power to utter what we would take, and was obliged "to receive his coin back again at our demand," and to "enter into security for so doing." Wood's halfpence are not milled, and therefore more easily counterfeited by himself as well as by others: Wood pays a thousand pounds _per ann._ for 14 years, Knox paid only _16l. 13s. 4d. per ann._ for 21 years. It was the Report that set me the example of making a comparison between those two patents, wherein the committee was grossly misled by the false representation of William Wood, as it was by another assertion, that seven hundred ton of copper were coined during the 21 years of Lord Dartmouth's and Knox's patents. Such a quantity of copper at the rate of _2s. 8d. per_ pound would amount to about an hundred and ninety thousand pounds, which was very near as much as the current cash of the kingdom in those days; yet, during that period, Ireland was never known to have too much copper coin, and for several years there was no coining at all: Besides I am assured, that upon enquiring into the custom-house books, all the copper imported into the kingdom, from 1683 to 1692, which includes 8 years of the 21 (besides one year allowed for the troubles) did not exceed 47 tons, and we cannot suppose even that small quantity to have been wholly applied to coinage: So that I believe there was never any comparison more unluckily made or so destructive of the design for which it was produced. The Psalmist reckons it an effect of God's anger, when "He selleth His people for nought, and taketh no money for them." That we have greatly offended God by the wickedness of our lives is not to be disputed: But our King we have not offended in word or deed; and although he be God's vicegerent upon earth, he will not punish us for any offences, except those which we shall commit against his legal authority, his sacred person (which God preserve) or the laws of the land. The Report is very profuse in arguments, that Ireland is in great want of copper money.[15] Who were the witnesses to prove it, hath been shewn already, but in the name of God, Who are to be judges? Does not the nation best know its own wants? Both Houses of Parliament, the Privy-council and the whole body of the people declare the contrary: Or let the wants be what they will, We desire they may not be supplied by Mr. Wood. We know our own wants but too well; they are many and grievous to be borne, but quite of another kind. Let England be satisfied: As things go, they will in a short time have all our gold and silver, and may keep their adulterate copper at home, for we are determined not to purchase it with our manufactures, which Wood hath graciously offered to accept. Our wants are not so bad by an hundredth part as the method he hath taken to supply them. He hath already tried his faculty in New-England,[16] and I hope he will meet at least with an equal reception here; what _that_ was I leave to public intelligence. I am supposing a wild case, that if there should be any person already receiving a monstrous pension out of this kingdom, who was instrumental in procuring this patent, they have either not well consulted their own interests, or Wood must[17] put more dross into his copper and still diminish its weight. [Footnote 15: On this subject of the want of small money in Ireland, Monck Mason traverses the Report in the following manner: "There appears to be a manifest prevarication in their lordships' report upon this part of the subject; they state, that the witnesses testified, that there was a want of small money in Ireland; they attempt, therefore, to impose a copper currency, which certainly was not wanted. To satisfy the reader upon this point, I shall quote, from the unpublished correspondence of Archbishop King, the following extracts: the first, from his letter to General Gorge, dated the 17th October, 1724, is to the following purpose. "'... As to our wanting halfpence for change, it is most false; we have more halfpence than we need, already; it is true, we want change; but it is sixpences, shillings, half-crowns, and crowns; our silver and our guineas being almost gone; and the general current coin of the kingdom is now moydores, which are thirty shillings a-piece; at least nine pence above the value in silver: now, they would have us change these for halfpence, and so the whole cash of the kingdom would be these halfpence.' ... "But the true state of the case, as to coin, is more circumstantially developed in the following letter of the same prelate to Mr. Southwell, which was written a few months before, viz., on the 9th June, 1724. "'... And yet, after all, we want change, and I will take leave to acquaint you with the state of this kingdom as to coin. We used to have hardly any money passing here, but foreign ducatoons, plate pieces, perns, dollars, etc. but, when the East India Company were forbid sending the coin of England abroad, they continued to buy up all our foreign coin, and give us English money in lieu of some part of it; by which we lost twopence in every ounce, the consequence of this was, that in two years there was not to be seen in Ireland a piece of foreign silver. "'If any be brought, it is immediately sent away, the two, or as I am informed, the three pence in the ounce, given by the East India Company, being a temptation not to be resisted; but, the truth is, very little is brought in, for the merchants that carry our commodities to foreign markets, find it more to their advantage to carry directly to London whatever they receive in cash; and whereas formerly they used, when they had disposed of their cargo, to load their vessels with such commodities as there was a demand for in Ireland, and bring the rest in cash, they bring now only the commodities, and send the silver to London; and when they have got the twopence in every ounce from the East India Company, the rest serves to answer the returns we are obliged to make to England, for the rents we are obliged to pay to noblemen and gentlemen who have estates in Ireland and live in England, and for the pensions, and other occasions which are many; by this means they gain likewise the exchange, which is commonly four or five per cent, better to them than if they sent cash. "'It Is farther to be observed, that 21 shillings, which is the value of a guinea in England, makes in Ireland 22 shillings and 9 pence, whereas a guinea passes for 23 shillings with us, therefore, he who sends silver into England, gains three pence more by it than if he sent guineas; this advantage, though it may seem little, yet in a manner has entirely drained us of our English money which was given in lieu of foreign silver. "'But farther, if any carry foreign gold to England, they cannot easily pass it, and if they do, it is at a greater loss than there is in the guineas, this has taken away our guineas, so that there is hardly one to be seen; we have hardly any coin left but a few moydores and pistoles, which can, by no means, serve the inland trade of the kingdom. "'To give, therefore, a short view of our case, it is thus; We can have English coin but by stealth, there being an act of parliament forbidding the exportation of English coin; if, therefore, we should send our gold or silver to England to be coined, we cannot have it back again, or if we could, we cannot keep it for the reason above; we cannot for the same reason have foreign silver; let us add to these, that by the act of navigation and other acts, we cannot make our markets of buying where we make our markets for selling; though we might have the commodities we want much cheaper there, than we can have them in England, viz. all East India and Turkey goods, with many others: nor is it to be expected that any nation will trade with us with their silver only, when we will not exchange commodities with them. "'Except, therefore, England designs entirely to ruin Ireland, a kingdom by which it is demonstrable that she gains yearly thirteen or fourteen hundred thousand pounds, she ought to think of giving us some relief'" ("History of St. Patrick's," pp. xciii-xciv). [T.S.]] [Footnote 16: See note on p. 14. [T.S.]] [Footnote 17: Another hint at the Duchess of Kendal and her connection with the patent. [T.S.]] Upon Wood's complaint that the officers of the King's revenue here had already given orders to all the inferior officers not to receive any of his coin, the Report says, That "this cannot but be looked upon as a very extraordinary proceeding," and being contrary to the powers given in the patent, the Committee say, They "cannot advise His Majesty to give directions to the officers of the revenue here, not to receive or utter any of the said coin as has been desired in the addresses of both Houses," but on the contrary, they "think it both just and reasonable that the King should immediately give orders to the commissioners of the revenue, &c. to revoke all orders, &c. that may have been given by them to hinder or obstruct the receiving the said coin." And accordingly, we are told, such orders are arrived.[18]. Now this was a cast of Wood's politics; for his information was wholly false and groundless, which he knew very well; and that the commissioners of the revenue here were all, except one, sent us from England, and love their employments too well to have taken such a step: But Wood was wise enough to consider, that such orders of revocation would be an open declaration of the crown in his favour, would put the government here under a difficulty, would make a noise, and possibly create some terror in the poor people of Ireland. And one great point he hath gained, that although any orders of revocation will be needless, yet a new order is to be sent, and perhaps already here, to the commissioners of the revenue, and all the King's officers in Ireland, that Wood's "halfpence be suffered and permitted, without any let, suit, trouble, molestation or denial of any of the King's officers or ministers whatsoever, to pass and be received as current money by such as shall be willing to receive them." In this order there is no exception, and therefore, as far as I can judge, it includes all officers both civil and military, from the Lord High Chancellor to a justice of peace, and from the general to an ensign: So that Wood's project is not likely to fail for want of managers enough. For my own part, as things stand, I have but little regret to find myself out of the number, and therefore I shall continue in all humility to exhort and warn my fellow-subjects never to receive or utter this coin, which will reduce the kingdom to beggary by much quicker and larger steps than have hitherto been taken.[19] [Footnote 18: Archbishop King's letter, quoted by Monck Mason, explains why it was that the revenue officers refused to receive Wood's coins. It seems the officers had been advised by lawyers that, in the event of their taking the coins, it might be quite likely they would be compelled to make them good, should such a demand be made of them. Precedents could easily be cited by those taking action, since all previous patents issued to private individuals for coining money, required of the patentee to take them back and pay for them with gold or silver. [T. S.]] [Footnote 19: The suggestion thus made by the Lords of the Committee, although coupled with the reduction in the amount of money Wood was to be permitted to introduce, did not do any good. Archbishop King argued rightly that this was treating the people of Ireland as if they were fools and children. If Wood could coin £40,000, what was to prevent him coining £200,000? The suggestion indeed irritated the people almost as much as did the patent itself. [T.S.]] But it is needless to argue any longer. The matter is come to an issue. His Majesty pursuant to the law, hath left the field open between Wood and the kingdom of Ireland. Wood hath liberty to offer his coin, and we have law, reason, liberty and necessity to refuse it. A knavish jockey may ride an old foundered jade about the market, but none are obliged to buy it. I hope the words "voluntary" and "willing to receive it" will be understood, and applied in their true natural meaning, as commonly understood by Protestants. For if a fierce captain comes to my shop to buy six yards of scarlet cloth, followed by a porter laden with a sack of Wood's coin upon his shoulders, if we are agreed about the price, and my scarlet lies ready cut upon the counter, if he then gives me the word of command, to receive my money in Wood's coin, and calls me a "disaffected Jacobite dog" for refusing it (although I am as loyal a subject as himself, and without hire) and thereupon seizes my cloth, leaving me the price in his odious copper, and bids me take my remedy: In this case, I shall hardly be brought to think that I am left to my own will. I shall therefore on such occasions, first order the porter aforesaid to go off with his pack, and then see the money in silver and gold in my possession before I cut or measure my cloth. But if a common soldier drinks his pot first, and then offers payment in Wood's halfpence, the landlady may be under some difficulty; For if she complains to his captain or ensign, they are likewise officers, included in this general order for encouraging these halfpence to pass as current money. If she goes to a justice of peace, he is also an officer, to whom this general order is directed. I do therefore advise her to follow my practice, which I have already begun, and be paid for her goods before she parts with them. However I should have been content, for some reasons, that the military gentlemen had been excepted by name, because I have heard it said, that their discipline is best confined within their own district. His Majesty in the conclusion of his answer to the address of the House of Lords against Wood's coin, is pleased to say that "he will do everything in his power for the satisfaction of his people." It should seem therefore, that the recalling the patent is not to be understood as a thing in his power. But however since the law does not oblige us to receive this coin, and consequently the patent leaves it to our voluntary choice, there is nothing remaining to preserve us from rain but that the whole kingdom should continue in a firm determinate resolution never to receive or utter this fatal coin:[20] [Footnote 20: So ready was the response to this suggestion of Swift's, that it was found necessary for tradesmen to take precautions to have it publicly known that they were in no way connected with Wood and his money, The following is a copy of an advertisement which illustrates this: "Whereas several persons in this kingdom suspect that John Molyneux of Meath Street, ironmonger, and his brother Daniel Molyneux, of Essex Street, ironmonger, are interested in the patent obtained by William Wood for coining of halfpence and farthings for this kingdom. "Now we the said John Molyneux and Daniel Molyneux, in order to satisfy the public, do hereby declare, that we are in no way concerned with the said Wood in relation to his said patent; And that we never were possessed of any of the said halfpence or farthings, except one halfpence and one farthing, which I the said John Molyneux received in a post-letter, and which I immediately afterwards delivered to one of the Lords-Justices of Ireland. "And we do further declare, that we will not directly or indirectly, be anyways concerned with the said Wood's halfpence or farthings; but on the contrary, act to the great advantage and satisfaction of this kingdom, as good, loving and faithful subjects ought to do. And we do further declare, that to the best of our knowledge, the said William Wood is not in this kingdom. "Given under our hands in Dublin this 22d. day of August 1724. "JOHN MOLYNEUX "DAN. MOLYNEUX." Another ran as follows: "ADVERTISEMENT. "Whereas, I, Thomas Handy, of Meath Street, Dublin, did receive by the last packet, from a person in London, to whom I am an entire stranger, bills of lading for eleven casks of Wood's halfpence, shipped at Bristol, and consigned to me by the said person on his own proper account, of which I had not the least notice until I received the said bills of lading. "Now I, the said Thomas Handy, being highly sensible of the duty and regard which every honest man owes to his country and to his fellow-subjects, do hereby declare, that I will not be concerned, directly or indirectly, in entering, landing, importing, receiving, or uttering any of the said Wood's halfpence, for that I am fully convinced, as well from the addresses of both Houses of Parliament, as otherwise, that the importing and uttering the said halfpence will be destructive to this nation, and prejudicial to his Majesty's revenue. "And of this my resolution I gave notice by letter to the person who sent me the bills of lading, the very day I received them, and have sent back the said bills to him. "THO. HANDY. "Dublin, 29th. August, 1724." [T.S.]] After which, let the officers to whom these orders are directed, (I would willingly except the military) come with their exhortations, their arguments and their eloquence, to persuade us to find our interest in our undoing. Let Wood and his accomplices travel about the country with cart-loads of their ware, and see who will take it off their hands, there will be no fear of his being robbed, for a highwayman would scorn to touch it. I am only in pain how the commissioners of the revenue will proceed in this juncture; because I am told they are obliged by act of Parliament to take nothing but gold and silver in payment for His Majesty's customs, and I think they cannot justly offer this coinage of Mr. Wood to others, unless they will be content to receive it themselves. The sum of the whole is this. The "Committee advises the King to send immediate orders to all his officers here, that Wood's coin be suffered and permitted without any let, suit, trouble, &c. to pass and be received as current money by such as shall be willing to receive the same." It is probable, that the first willing receivers may be those who must receive it whether they will or no, at least under the penalty of losing an office. But the landed undepending men, the merchants, the shopkeepers and bulk of the people, I hope, and am almost confident, will never receive it. What must the consequence be? The owners will sell it for as much as they can get. Wood's halfpence will come to be offered for six a penny (yet then he will be a sufficient gainer) and the necessary receivers will be losers of two-thirds in their salaries or pay. This puts me in mind of a passage I was told many years ago in England. At a quarter-sessions in Leicester, the justices had wisely decreed, to take off a halfpenny in a quart from the price of ale. One of them, who came in after the thing was determined, being informed of what had passed, said thus: "Gentlemen; you have made an order, that ale should be sold in our country for three halfpence a quart: I desire you will now make another to appoint who must drink it, for _by G-- I will not_."[21] [Footnote 21: The following broadside, ascribed to Swift, but written probably by Sheridan, further amusingly illustrates the point Swift makes. The broadside was printed by John Harding: "Another Letter to Mr. Harding the printer, upon occasion of the Report of the Committee of the Lords of His Majesty's Most Honourable Privy-Council, in relation to Mr. Wood's halfpence and farthings, etc., lately published. "Mr. Harding,--Although this letter also is directed to you, yet you know that it is intended for the benefit of the whole kingdom, and therefore I pray make it public, and take care to disperse it. "The design of it is only to desire all people to take notice, That whatever apprehensions some persons seem to be under on account of the above-mentioned report concerning Mr. Wood's halfpence and farthings, yet the utmost advice which the right honourable Committee have thought fit to give His Majesty, is, That a certain sum of the said halfpence and farthings may be received as current money by such as shall be willing to receive the same. And if we are willing to ruin ourselves and our country, I think we are not to be pitied. "Upon this occasion I would only tell my countrymen a short story. "A certain King of Great Britain who spoke broad Scotch, and being himself a man of wit, loved both to hear and speak things that were humorous, had once a petition preferred to him, in which the petitioner, having set forth his own merits, most humbly prayed His Majesty to grant him letters-patent for receiving a shilling from every one of his subjects who should be willing to give so much to him. 'In gude troth,' said the King, 'a very reasonable petition. Let every man give thee twa shillings gin he be willing so to do, and thou shalt have full liberty to receive it.' 'But,' says the petitioner, 'I desire that this clause may be inserted in my patent, That every man who refuses to give me a shilling, should appear at Westminster Hall to shew cause why he so refuses.' 'This also,' says the King, 'shall be granted thee, but always with this proviso, that the man be willing to come.' "I am your, etc. "MISOXULOS."] I must beg leave to caution your lordships and worships in one particular. Wood hath graciously promised to load us at present only with forty thousand pounds of his coin, till the exigences of the kingdom require the rest. I entreat you will never suffer Mr. Wood to be a judge of your exigences. While there is one piece of silver or gold remaining in the kingdom he will call it an exigency, he will double his present _quantum_ by stealth as soon as he can, and will have the remainder still to the good. He will pour his own raps[22]and counterfeits upon us: France and Holland will do the same; nor will our own coiners at home be behind them: To confirm which I have now in my pocket a rap or counterfeit halfpenny in imitation of his, but so ill performed, that in my conscience I believe it is not of his coining. [Footnote 22: The word Rap is probably a contraction of "raparee," and was the name given to the tokens that passed current in Ireland for copper coins of small value. Generally it referred to debased coins; hence it may be allied to "raparee," who might be considered as a debased citizen. The raparees were so called from the rapary or half-pike they carried. [T.S.]] I must now desire your lordships and worships that you will give great allowance for this long undigested paper, I find myself to have gone into several repetitions, which were the effects of haste, while new thoughts fell in to add something to what I had said before. I think I may affirm that I have fully answered every paragraph in the Report, which although it be not unartfully drawn, and is perfectly in the spirit of a pleader who can find the most plausible topics in behalf of his client, yet there was no great skill required to detect the many mistakes contained in it, which however are by no means to be charged upon the right honourable Committee, but upon the most false impudent and fraudulent representations of Wood and his accomplices. I desire one particular may dwell upon your minds, although I have mentioned it more than once; That after all the weight laid upon precedents there is not one produced in the whole Report, of a patent for coining copper in England to pass in Ireland, and only two patents referred to (for indeed there were no more) which were both passed in Ireland, by references to the King's Council here, both less advantageous to the coiner than this of Wood, and in both securities given to receive the coin at every call, and give gold and silver in lieu of it. This demonstrates the most flagrant falsehood and impudence of Wood, by which he would endeavour to make the right honourable Committee his instruments, (for his own illegal and exorbitant gain,) to ruin a kingdom, which hath deserved quite different treatment. I am very sensible that such a work as I have undertaken might have worthily employed a much better pen. But when a house is attempted to be robbed it often happens that the weakest in the family runs first to stop the door. All the assistance I had were some informations from an eminent person,[23] whereof I am afraid I have spoiled a few by endeavouring to make them of a piece with my own productions, and the rest I was not able to manage: I was in the case of David who could not move in the armour of Saul, and therefore I rather chose to attack this "uncircumcised Philistine (Wood I mean) with a sling and a stone." And I may say for Wood's honour as well as my own, that he resembles Goliath in many circumstances, very applicable to the present purpose; For Goliath had "a helmet of brass upon his head, and he was armed with a coat of mail, and the weight of the coat was five thousand shekels of brass, and he had greaves of brass upon his legs, and a target of brass between his shoulders." In short he was like Mr. Wood, all over brass; And "he defied the armies of the living God." Goliath's condition of combat were likewise the same with those of Wood. "If he prevail against us, then shall we be his servants:" But if it happens that I prevail over him, I renounce the other part of the condition, he shall never be a servant of mine, for I do not think him fit to be trusted in any honest man's shop. [Footnote 23: Mr. Robert Lindsay, a Dublin lawyer, assisted Swift on the legal points raised in the Drapier's letters. This is the Mr. Lindsay, counsellor-at-law, to whom Swift submitted a case concerning a Mr. Gorman (see Scott's edit., vol. xix., p. 294). Mr. Lindsay is supposed to be the author of two letters addressed to Chief Justice Whitshed on the matter of his conduct towards the grand jury which discharged Harding the printer (see Scott's edit., vol. vi., p. 467). [T.S.]] I will conclude with my humble desire and request which I made in my second letter; That your lordships and worships would please to order a declaration to be drawn up expressing, in the strongest terms, your firm resolutions never to receive or utter any of Wood's halfpence or farthings, and forbidding your tenants to receive them. That the said declaration may be signed by as many persons as possible who have estates in this kingdom, and be sent down to your several tenants aforesaid.[24] [Footnote 24: A Declaration, pursuant to this request, was signed soon after by the most considerable persons of the kingdom, which was universally spread and of great use. [F.] "The humble petition of the lord-mayor, sheriffs, commons, and citizens of the city of Dublin, in Common Council assembled," was issued as a broadside on 8th September, 1724. See also Appendix IX. [T.S.]] And if the dread of Wood's halfpence should continue till next quarter-sessions (which I hope it will not) the gentlemen of every county will then have a fair opportunity of declaring against them with unanimity and zeal. I am with the greatest respect, (May it please your lordships and worships) Your most dutiful and obedient servant, M.B. Aug. 25, 1724. LETTER IV. A LETTER TO THE WHOLE PEOPLE OF IRELAND. NOTE The country was now in a very fever of excitement. Everywhere meetings were held for the purpose of expressing indignation against the imposition, and addresses from brewers, butchers, flying stationers, and townspeople generally, were sent in embodying the public protest against Wood and his coins. Swift fed the flame by publishing songs and ballads well fitted for the street singers, and appealing to the understandings of those who he well knew would effectively carry his message to the very hearths of the poorest labourers. Courtier and student, tradesman and freeman, thief and prostitute, beggar and loafer, all were alike carried by an indignation which launched them on a maelstrom of enthusiasm. So general became the outcry that, in Coxe's words, "the lords justices refused to issue the orders for the circulation of the coin.... People of all descriptions and parties flocked in crowds to the bankers to demand their money, and drew their notes with an express condition to be paid in gold and silver. The publishers of the most treasonable pamphlets escaped with impunity, provided Wood and his patent were introduced into the work. The grand juries could scarcely be induced to find any bill against such delinquents; no witnesses in the prosecution were safe in their persons; and no juries were inclined, or if inclined could venture, to find them guilty." In such a state of public feeling Swift assumed an entirely new attitude. He promulgated his "Letter to the Whole People of Ireland"--a letter which openly struck at the very root of the whole evil, and laid bare to the public eye the most secret spring of its righteous indignation. It was not Wood nor his coins, it was the freedom of the people of Ireland and their just rights and privileges that were being fought for. He wrote them the letter "to refresh and continue that spirit so seasonably raised among" them, and in order that they should plainly understand "that by the laws of God, of NATURE, of NATIONS, and of your COUNTRY, you ARE, and OUGHT to be as FREE a people as your brethren in England." The King's prerogative had been held threateningly over them. What was the King's prerogative? he asked in effect. It was but the right he enjoyed within the bounds of the law as made by the people in parliament assembled. The law limits him with his subjects. Such prerogative he respected and would take up arms to protect against any who should rebel. But "all government without the consent of the governed, is the very definition of slavery." The condition of the Irish nation was such that it was to be expected eleven armed men should overcome a single man in his shirt; but even if those in power exercise then power to cramp liberty, a man on the rack may still have "the liberty of roaring as loud as he thought fit." And the men on the rack roared to a tune that Walpole had never before heard. The letter appeared on the 13th October, 1724.[1] The Duke of Grafton had been recalled and Carteret had taken up the reins of government. For reasons, either personal or politic, he took Walpole's side. Coxe goes into considerations on this attitude of Carteret's, but they hardly concern us here. Suffice it that the Lord Lieutenant joined forces with the party in the Irish Privy Council, among whom were Midleton and St. John Brodrick, and on October 27th issued a proclamation offering a reward of £300[2] for the discovery of the author of this "wicked and malicious pamphlet" which highly reflected on his Majesty and his ministers, and which tended "to alienate the affections of his good subjects of England and Ireland from each other." [Footnote 1: Not on October 23rd as the earlier editors print it, and as Monck Mason, Scott and Mr. Churton Collins repeat.] [Footnote 2: See Appendix, No. VI.] The author's name was not made public, nor was it likely to be. There is no doubt that it was generally known who the author was. In that general knowledge lies the whole pith of the Biblical quotation circulated abroad on the heels of the proclamation: "And the people said unto Saul, shall _Jonathan_ die, who had wrought this great salvation in Israel? God forbid: as the Lord liveth there shall not one hair of his head fall to the ground, for he hath wrought with God this day: So the people rescued _Jonathan_ that he died not." Swift remained very much alive. Harding, for printing the obnoxious letter, had been arrested and imprisoned, and the Crown proceeded with his prosecution. In such circumstances Swift was not likely to remain idle. On the 26th October he addressed a letter to Lord Chancellor Midleton in defence of the Drapier's writings, and practically acknowledged himself to be the author.[3] It was not actually printed until 1735, but there is no doubt that Midleton received it at the time it was written. What effect it had on the ultimate issue is not known; but Midleton's conduct justifies the confidence Swift placed in him. The Grand Jury of the Michaelmas term of 1724 sat to consider the bill against Harding. On the 11th of November Swift addressed to them his "Seasonable Advice." The bill was thrown out. Whitshed, the Chief Justice, consistently with his action on a previous occasion (see vol. vii.), angrily remonstrated with the jury, demanded of them their reasons for such a decision, and finally dissolved them. This unconstitutional, and even disgraceful conduct, however, served but to accentuate the resentment of the people against Wood and the patent, and the Crown fared no better by a second Grand Jury. The second jury accompanied its rejection of the bill by a presentment against the patent,[4] and the defeat of the "prerogative" became assured. Every where the Drapier was acclaimed the saviour of his country. Any person who could scribble a doggerel or indite a tract rushed into print, and now Whitshed was harnessed to Wood in a pillory of contemptuous ridicule. Indeed, so bitter was the outcry against the Lord Chief Justice, that it is said to have hastened his death. The cities of Dublin, Cork and Waterford passed resolutions declaring the uttering of Wood's halfpence to be highly prejudicial to his Majesty's revenue and to the trades of the kingdom. The Drapier was now the patriot, and the whole nation responded to his appeal to assist him in its own defence. [Footnote 3: The highly wrought up story about Swift's butler, narrated by Sheridan, Deane Swift and Scott, is nothing but a sample of eighteenth century "sensationalism." Swift never bothered himself about what his servants would say with regard to the authorship of the Letters. Certainly this letter to Midleton proves that he was not at all afraid of the consequences of discovery.] [Footnote 4: See Appendix V.] The text of the present reprint is based on that given by Sir Walter Scott, collated with the original edition and with that reprinted in "Fraud Detected" (1725). Faulkner's text of 1735 has also been consulted. [T.S.] [Illustration: A **LETTER** TO THE **WHOLE People** OF **IRELAND**. _By_ M.B. _Drapier_. AUTHOR of the LETTER to the _SHOP-KEEPERS_, &c. _DUBLIN:_ Printed by _John Harding_ in _Molesworth's-Court_ in _Fishamble Street_. ] LETTER IV. A LETTER TO THE WHOLE PEOPLE OF IRELAND. MY DEAR COUNTRYMEN, Having already written three letters upon so disagreeable a subject as Mr. Wood and his halfpence; I conceived my task was at an end: But I find, that cordials must be frequently applied to weak constitutions, political as well as natural. A people long used to hardships, lose by degrees the very notions of liberty, they look upon themselves as creatures at mercy, and that all impositions laid on them by a stronger hand, are, in the phrase of the Report, legal and obligatory. Hence proceeds that poverty and lowness of spirit, to which a kingdom may be subject as well as a particular person. And when Esau came fainting from the field at the point to die, it is no wonder that he sold his birthright for a mess of pottage. I thought I had sufficiently shewn to all who could want instruction, by what methods they might safely proceed, whenever this coin should be offered to them; and I believe there hath not been for many ages an example of any kingdom so firmly united in a point of great importance, as this of ours is at present, against that detestable fraud. But however, it so happens that some weak people begin to be alarmed anew, by rumours industriously spread. Wood prescribes to the newsmongers in London what they are to write. In one of their papers published here by some obscure printer (and probably with no good design) we are told, that "the Papists in Ireland have entered into an association against his coin," although it be notoriously known, that they never once offered to stir in the matter; so that the two Houses of Parliament, the Privy-council, the great number of corporations, the lord mayor and aldermen of Dublin, the grand juries, and principal gentlemen of several counties are stigmatized in a lump under the name of "Papists." This impostor and his crew do likewise give out, that, by refusing to receive his dross for sterling, we "dispute the King's prerogative, are grown ripe for rebellion, and ready to shake off the dependency of Ireland upon the crown of England." To countenance which reports he hath published a paragraph in another newspaper, to let us know that "the Lord Lieutenant is ordered to come over immediately to settle his halfpence." I entreat you, my dear countrymen, not to be under the least concern upon these and the like rumours, which are no more than the last howls of a dog dissected alive, as I hope he hath sufficiently been. These calumnies are the only reserve that is left him. For surely our continued and (almost) unexampled loyalty will never be called in question for not suffering ourselves to be robbed of all that we have, by one obscure ironmonger. As to disputing the King's prerogative, give me leave to explain to those who are ignorant, what the meaning of that word _prerogative_ is. The Kings of these realms enjoy several powers, wherein the laws have not interposed: So they can make war and peace without the consent of Parliament; and this is a very great prerogative. But if the Parliament doth not approve of the war, the King must bear the charge of it out of his own purse, and this is as great a check on the crown. So the King hath a prerogative to coin money without consent of Parliament. But he cannot compel the subject to take that money except it be sterling, gold or silver; because herein he is limited by law. Some princes have indeed extended their prerogative further than the law allowed them; wherein however, the lawyers of succeeding ages, as fond as they are of precedents, have never dared to justify them. But to say the truth, it is only of late times that prerogative hath been fixed and ascertained. For whoever reads the histories of England, will find that some former Kings, and these none of the worst, have upon several occasions ventured to control the laws with very little ceremony or scruple, even later than the days of Queen Elizabeth. In her reign that pernicious counsel of sending base money hither, very narrowly failed of losing the kingdom, being complained of by the lord-deputy, the council, and the whole body of the English here:[5] So that soon after her death it was recalled by her successor, and lawful money paid in exchange. [Footnote 5: See Moryson's "Itinerary" (Pt. ii., pp. 90, 196 and 262), where an account is given which fully bears out Swift.[T.S.]] Having thus given you some notion of what is meant by the King's "prerogative," as far as a tradesman can be thought capable of explaining it, I will only add the opinion of the great Lord Bacon: That "as God governs the world by the settled laws of nature, which he hath made, and never transcends those laws but upon high important occasions; so among earthly princes, those are the wisest and the best, who govern by the known laws of the country, and seldomest make use of their prerogative."[6] [Footnote 6: The words in inverted commas appear to be a reminiscence rather than a quotation. I have not traced the sentence, as it stands, in Bacon; but the regular government of the world by the laws of nature, as contrasted with the exceptional disturbance of these laws, is enunciated in Bacon's "Confession of Faith," while the dangers of a strained prerogative are urged in the "Essay on Empire." Bacon certainly gives no support to Swift's limits of the prerogative as regards coinage. [CRAIK.]] Now, here you may see that the vile accusation of Wood and his accomplices, charging us with "disputing the King's prerogative" by refusing his brass, can have no place, because compelling the subject to take any coin which is not sterling is no part of the King's prerogative, and I am very confident if it were so, we should be the last of his people to dispute it, as well from that inviolable loyalty we have always paid to His Majesty, as from the treatment we might in such a case justly expect from some who seem to think, we have neither common sense nor common senses. But God be thanked, the best of them are only our fellow-subjects, and not our masters. One great merit I am sure we have, which those of English birth can have no pretence to, that our ancestors reduced this kingdom to the obedience of England, for which we have been rewarded with a worse climate, the privilege of being governed by laws to which we do not consent, a ruined trade, a House of Peers without jurisdiction, almost an incapacity for all employments; and the dread of Wood's halfpence. But we are so far from disputing the King's prerogative in coining, that we own he has power to give a patent to any man for setting his royal image and superscription upon whatever materials he pleases, and liberty to the patentee to offer them in any country from England to Japan, only attended with one small limitation, That nobody alive is obliged to take them. Upon these considerations I was ever against all recourse to England for a remedy against the present impending evil, especially when I observed that the addresses of both Houses, after long expectance, produced nothing but a REPORT altogether in favour of Wood, upon which I made some observations in a former letter, and might at least have made as many more. For it is a paper of as singular a nature as I ever beheld. But I mistake; for before this Report was made, His Majesty's most gracious answer to the House of Lords was sent over and printed, wherein there are these words, "granting the patent for coining halfpence and farthings AGREEABLE TO THE PRACTICE OF HIS ROYAL PREDECESSORS, &c." That King Charles 2d. and King James 2d. (AND THEY ONLY) did grant patents for this purpose is indisputable, and I have shewn it at large. Their patents were passed under the great seal of Ireland by references to Ireland, the copper to be coined in Ireland, the patentee was bound on demand to receive his coin back in Ireland, and pay silver and gold in return. Wood's patent was made under the great seal of England, the brass coined in England, not the least reference made to Ireland, the sum immense, and the patentee under no obligation to receive it again and give good money for it: This I only mention, because in my private thoughts I have sometimes made a query, whether the penner of those words in His Majesty's most gracious answer, "agreeable to the practice of his royal predecessors," had maturely considered the several circumstances, which, in my poor opinion seem to make a difference. Let me now say something concerning the other great cause of some people's fear, as Wood has taught the London newswriter to express it. That "his Excellency the Lord Lieutenant is coming over to settle Wood's halfpence." We know very well that the Lords Lieutenants for several years past have not thought this kingdom worthy the honour of their residence, longer than was absolutely necessary for the King's business, which consequently wanted no speed in the dispatch; and therefore it naturally fell into most men's thoughts, that a new governor coming at an unusual time must portend some unusual business to be done, especially if the common report be true, that the Parliament prorogued to I know not when, is by a new summons (revoking that prorogation) to assemble soon after his arrival: For which extraordinary proceeding the lawyers on t'other side the water have by great good fortune found two precedents. All this being granted, it can never enter into my head that so little a creature as Wood could find credit enough with the King and his ministers to have the Lord Lieutenant of Ireland sent hither in a hurry upon his errand. For let us take the whole matter nakedly as it lies before us, without the refinements of some people, with which we have nothing to do. Here is a patent granted under the great seal of England, upon false suggestions, to one William Wood for coining copper halfpence for Ireland: The Parliament here, upon apprehensions of the worst consequences from the said patent, address the King to have it recalled; this is refused, and a committee of the Privy-council report to His Majesty, that Wood has performed the conditions of his patent. He then is left to do the best he can with his halfpence; no man being obliged to receive them; the people here, being likewise left to themselves, unite as one man, resolving they will have nothing to do with his ware. By this plain account of the fact it is manifest, that the King and his ministry are wholly out of the case, and the matter is left to be disputed between him and us. Will any man therefore attempt to persuade me, that a Lord Lieutenant is to be dispatched over in great haste before the ordinary time, and a Parliament summoned by anticipating a prorogation, merely to put an hundred thousand pounds into the pocket of a sharper, by the ruin of a most loyal kingdom. But supposing all this to be true. By what arguments could a Lord Lieutenant prevail on the same Parliament which addressed with so much zeal and earnestness against this evil, to pass it into a law? I am sure their opinion of Wood and his project is not mended since the last prorogation; and supposing those methods should be used which detractors tell us have been sometimes put in practice for gaining votes. It is well known that in this kingdom there are few employments to be given, and if there were more, it is as well known to whose share they must fall. But because great numbers of you are altogether ignorant in the affairs of your country, I will tell you some reasons why there are so few employments to be disposed of in this kingdom. All considerable offices for life here are possessed by those to whom the reversions were granted, and these have been generally followers of the chief governors, or persons who had interest in the Court of England. So the Lord Berkeley of Stratton[7] holds that great office of master of the rolls, the Lord Palmerstown[8] is first remembrancer worth near 2000_l. per ann._ One Dodington[9] secretary to the Earl of Pembroke,[10] begged the reversion of clerk of the pells worth 2500_l._ a year, which he now enjoys by the death of the Lord Newtown. Mr. Southwell is secretary of state,[11] and the Earl of Burlington[12] lord high treasurer of Ireland by inheritance. These are only a few among many others which I have been told of, but cannot remember. Nay the reversion of several employments during pleasure are granted the same way. This among many others is a circumstance whereby the kingdom of Ireland is distinguished from all other nations upon earth, and makes it so difficult an affair to get into a civil employ, that Mr. Addison was forced to purchase an old obscure place, called keeper of the records of Bermingham's Tower of ten pounds a year, and to get a salary of 400_l._ annexed to it,[13] though all the records there are not worth half-a-crown, either for curiosity or use. And we lately saw a favourite secretary descend to be master of the revels, which by his credit and extortion he hath made pretty considerable.[14] I say nothing of the under-treasurership worth about 8000_l_. a year, nor the commissioners of the revenue, four of whom generally live in England; For I think none of these are granted in reversion. But the test is, that I have known upon occasion some of these absent officers as keen against the interest of Ireland as if they had never been indebted to her for a single groat. [Footnote 7: Berkeley was one of the Junta in Harley's administration of 1710-1714. He had married Sir John Temple's daughter. His connection with a person so disliked by Swift may account for his inclusion here. [T.S.]] [Footnote 8: This was Henry Temple, first Viscount Palmerston, with whom Swift later had an unpleasant correspondence. Palmerston could not have been more than seven years old when he was appointed (September 21st, 1680), with Luke King, chief remembrancer of the Court of Exchequer in Ireland, for their joint lives. King died in 1716, but the grant was renewed to Palmerston and his son Henry for life. He was raised to the peerage as Baron Temple of Mount Temple, and Viscount Palmerston of Palmerston, in March, 1722-1723. Sir Charles Hanbury Williams called him "Little Broadbottom Palmerston." He died in 1757. [T.S.] ] [Footnote 9: George Bubb (1691-1762) was Chief Secretary during Wharton's Lord lieutenancy in 1709. He took the name of Doddington on the death of his uncle in 1720. [T.S.]] [Footnote 10: Thomas Herbert, eighth Earl of Pembroke (1656-1733), had preceded the Earl of Wharton as Lord lieutenant of Ireland. He bears a high character in history and on four successive coronations, namely, those of William and Mary, Anne, George I. and George II., he acted as sword carrier. Although a Tory, even Macaulay acknowledges Pembroke's high breeding and liberality. [T.S.]] [Footnote 11: This is the Edward Southwell to whom Archbishop King wrote the letters quoted from Monck Mason in previous notes. He was the son of Sir Robert Southwell, the diplomatist and friend of Sir William Temple, to whom Swift bore a letter of introduction from the latter, soliciting the office of amanuensis. In June, 1720, Edward Southwell had his salary as secretary increased by £300; and in July of the same year the office was granted to him and his son for life. The Southwell family first came to Ireland in the reign of James I., at the time of the plantation of Munster. [T.S.]] [Footnote 12: Richard Boyle, third Earl of Burlington (or Bridlington of Yorks), and fourth Earl of Cork (1695-1753), was appointed Lord High-Treasurer of Ireland in August, 1715. His great-grandfather, the first Earl of Cork, had held the same office in 1631. The Lord-lieutenancy of the West Riding of Yorkshire, and the office of Custos Rotulorum of the North and West Ridings, seem also to have been inheritances of this family. The third Earl had a taste for architecture, and spent enormous sums of money in the reconstruction of Burlington House, a building that was freely satirized by Hogarth and Lord Hervey. His taste, however, seems to have run to the ornamental rather than the useful, and its gratification involved him in such serious financial difficulties, that he was compelled to sell some of his Irish estates. Swift notes that "My Lord Burlington is now selling in one article £9,000 a year in Ireland for £200,000 which must pay his debts" (Scott's edit. 1814, vol. xix., p. 129). [T.S.]] [Footnote 13: This post was found for Addison on his appointment in 1709 as secretary to the Earl of Wharton, Lord-lieutenant of Ireland. Tickell, in his preface to his edition of Addison's works, says the post was granted to Addison as a mark of Queen Anne's special favour. Bermingham's Tower was that part of Dublin Castle in which the records were kept. [T.S.]] [Footnote 14: Mr. Hopkins, secretary to the Duke of Grafton. The exactions made by this gentleman upon the players, in his capacity of Master of the Revels, are the subject of two satirical poems. [S.] This may have been John Hopkins, the second son of the Bishop of Londonderry, who was the author of "Amasia," dedicated to the Duchess of Grafton. [T.S.]] I confess, I have been sometimes tempted to wish that this project of Wood might succeed, because I reflected with some pleasure what a jolly crew it would bring over among us of lords and squires, and pensioners of both sexes, and officers civil and military, where we should live together as merry and sociable as beggars, only with this one abatement, that we should neither have meat to feed, nor manufactures to clothe us, unless we could be content to prance about in coats of mail, or eat brass as ostriches do iron. I return from this digression to that which gave me the occasion of making it: And I believe you are now convinced, that if the Parliament of Ireland were as temptable as any other assembly within a mile of Christendom (which God forbid) yet the managers must of necessity fail for want of tools to work with. But I will yet go one step further, by supposing that a hundred new employments were erected on purpose to gratify compilers; yet still an insuperable difficulty would remain; for it happens, I know not how, that money is neither Whig nor Tory, neither of town nor country party, and it is not improbable, that a gentleman would rather choose to live upon his own estate which brings him gold and silver, than with the addition of an employment, when his rents and salary must both be paid in Wood's brass, at above eighty _per cent._ discount. For these and many other reasons, I am confident you need not be under the least apprehensions from the sudden expectation of the Lord Lieutenant,[15] while we continue in our present hearty disposition; to alter which there is no suitable temptation can possibly be offered: And if, as I have often asserted from the best authority, the law hath not left a power in the crown to force any money except sterling upon the subject, much less can the crown devolve such a power upon another. [Footnote 15: Lord Carteret, afterwards Earl Granville. See note to "A Vindication of Lord Carteret," in vol. vii. of present edition of Swift's works. [T.S.]] This I speak with the utmost respect to the person and dignity of his Excellency the Lord Carteret, whose character hath been given me by a gentleman that hath known him from his first appearance in the world: That gentleman describes him as a young nobleman of great accomplishments, excellent learning, regular in his life, and of much spirit and vivacity. He hath since, as I have heard, been employed abroad, was principal secretary of state, and is now about the 37th year of his age appointed Lord Lieutenant of Ireland. From such a governor this kingdom may reasonably hope for as much prosperity as, under so many discouragements, it can be capable of receiving.[16] [Footnote 16: Carteret was an old friend of Swift. On the Earl's appointment to the Lord-lieutenancy, in April, 1724, Swift wrote him a letter on the matter of Wood's halfpence, in which he took the liberty of "an old humble servant, and one who always loved and esteemed" him, to make known to him the apprehensions the people were under concerning Mr. Wood's patent. "Neither is it doubted," he wrote, "that when your excellency shall be thoroughly informed, your justice and compassion for an injured people, will force you to employ your credit for their relief." Swift waited for more than a month, and on receiving no reply, sent a second letter, which Sir Henry Craik justly calls, "a masterpiece of its kind." It was as follows: "June 9, 1724. "MY LORD, "It is above a month since I took the boldness of writing to your excellency, upon a subject wherein the welfare of this kingdom is highly concerned. "I writ at the desire of several considerable persons here, who could not be ignorant that I had the honour of being well known to you. "I could have wished your excellency had condescended so far, as to let one of your under clerks have signified to me that a letter was received. "I have been long out of the world; but have not forgotten what used to pass among those I lived with while I was in it: and I can say, that during the experience of many years, and many changes in affairs, your excellency, and one more, who is not worthy to be compared to you, are the only great persons that ever refused to answer a letter from me, without regard to business, party, or greatness; and if I had not a peculiar esteem for your personal qualities, I should think myself to be acting a very inferior part in making this complaint. "I never was so humble, as to be vain upon my acquaintance with men in power, and always rather chose to avoid it when I was not called. Neither were their power or titles sufficient, without merit, to make me cultivate them; of which I have witnesses enough left, after all the havoc made among them, by accidents of time, or by changes of persons, measures, and opinions. "I know not how your conception of yourself may alter, by every new high station; but mine must continue the same, or alter for the worse. "I often told a great minister, whom you well know, that I valued him for being the same man through all the progress of power and place. I expected the like in your lordship; and still hope that I shall be the only person who will ever find it otherwise. "I pray God to direct your excellency in all your good undertakings, and especially in your government of this kingdom. "I shall trouble you no more; but remain, with great respect, my Lord, "Your excellency's most obedient, "and most humble servant, "JON. SWIFT." This letter brought an immediate reply from Carteret, who confessed himself in the wrong for his silence, and trusted he had not forfeited Swift's friendship by it. With regard to Mr. Wood's patent, he said that the matter was under examination, "and till that is over I am not informed sufficiently to make any other judgment of the matter, than that which I am naturally led to make, by the general aversion which appears to it in the whole nation." Swift replied in a charming vein, and elegantly put his scolding down to the testiness of old age. His excellency had humbled him. "Therefore, I fortel that you, who could so easily conquer so captious a person, and of so little consequence, will quickly subdue this whole kingdom to love and reverence you" (Scott's ed. 1824, vol. xvi., pp. 430-435). [T.S.]] It is true indeed, that within the memory of man, there have been governors of so much dexterity, as to carry points of terrible consequence to this kingdom, by their power with _those who were in office_, and by their arts in managing or deluding others with oaths, affability, and even with dinners. If Wood's brass had in those times been upon the anvil, it is obvious enough to conceive what methods would have been taken. Depending persons would have been told in plain terms, that it was a "service expected from them, under pain of the public business being put into more complying hands." Others would be allured by promises. To the country gentleman, besides good words, burgundy and closeting. It would perhaps have been hinted how "kindly it would be taken to comply with a royal patent, though it were not compulsory," that if any inconveniences ensued, it might be made up with other "graces or favours hereafter." That "gentlemen ought to consider whether it were prudent or safe to disgust England:" They would be desired to "think of some good bills for encouraging of trade, and setting the poor to work, some further acts against Popery and for uniting Protestants." There would be solemn engagements that we should "never be troubled with above forty thousand pounds in his coin, and all of the best and weightiest sort, for which we should only give our manufactures in exchange, and keep our gold and silver at home." Perhaps a "seasonable report of some invasion would have been spread in the most proper juncture," which is a great smoother of rubs in public proceedings; and we should have been told that "this was no time to create differences when the kingdom was in danger." These, I say, and the like methods would in corrupt times have been taken to let in this deluge of brass among us; and I am confident would even then have not succeeded, much less under the administration of so excellent a person as the Lord Carteret, and in a country where the people of all ranks, parties and denominations are convinced to a man, that the utter undoing of themselves and their posterity for ever will be dated from the admission of that execrable coin; that if it once enters, it can be no more confined to a small or moderate quantity, than the plague can be confined to a few families, and that no equivalent can be given by any earthly power, any more than a dead carcass can be recovered to life by a cordial. There is one comfortable circumstance in this universal opposition to Mr. Wood, that the people sent over hither from England to fill up our vacancies ecclesiastical, civil and military, are all on our side: Money, the great divider of the world, hath by a strange revolution, been the great uniter of a most divided people. Who would leave a hundred pounds a year in England (a country of freedom) to be paid a thousand in Ireland out of Wood's exchequer. The gentleman they have lately made primate[17] would never quit his seat in an English House of Lords, and his preferments at Oxford and Bristol, worth twelve hundred pounds a year, for four times the denomination here, but not half the value; therefore I expect to hear he will be as good an Irishman, upon this article, as any of his brethren, or even of us who have had the misfortune to be born in this island. For those, who, in the common phrase, do not "come hither to learn the language," would never change a better country for a worse, to receive brass instead of gold. [Footnote 17: Hugh Boulter (1672-1742) was appointed Archbishop of Armagh, August 31st, 1724. He had been a fellow of Magdalen College, Oxford, and had served the King as chaplain in Hanover, in 1719. In this latter year he was promoted to the Bishopric of Bristol, and the Deanery of Christ Church, Oxford. His appointment as Primate of Ireland, was in accordance with Walpole's plan for governing Ireland from England. Walpole had no love for Carteret, and no faith in his power or willingness to aid him in his policy. Indeed, Carteret was sent to Ireland to be got out of the way. He was governor nominally; the real governor being Walpole in the person of the new Primate. What were Boulter's instructions may be gathered from the manner in which he carried out his purpose. Of a strong character and of untiring energy, Boulter set about his work in a fashion which showed that Walpole had chosen well. Nothing of any importance that transpired in Ireland, no fact of any interest about the individuals in office, no movement of any suspected or suspicious person escaped his vigilance. His letters testify to an unabating zeal for the English government of Irish affairs by Englishmen in the English interest. His perseverance knew no obstacles; he continued against all difficulties in his dogged and yet able manner to establish some order out of the chaos of Ireland's condition. But his government was the outcome of a profound conviction that only in the interest of England should Ireland be governed. If Ireland could be made prosperous and contented, so much more good would accrue to England. But that prosperity and that contentment had nothing whatever to do with safeguarding Irish institutions, or recognizing the rights of the Irish people. If he gave way to popular opinion at all, it was because it was either expedient or beneficial to the English interest. If he urged, as he did, the founding of Protestant Charter schools, it was because this would strengthen the English power. To preserve that he obtained the enactment of a statute which excluded Roman Catholics from the legal profession and the offices of legal administration; and another act of his making actually disfranchised them altogether. Boulter was also a member of the Irish Privy Council, and Lord Justice of Ireland. The latter office he held under the vice-regencies of Carteret, Dorset and Devonshire. His secretary, Ambrose Philips, had been connected with him, in earlier years, in contributing to a periodical entitled, "The Free Thinker," which appeared in 1718. Philips, in 1769, supervised the publication of Boulter's "Letters," which were published at Oxford. [T.S.]] Another slander spread by Wood and his emissaries is, that by opposing him we discover an inclination to "shake off our dependence upon the crown of England." Pray observe how important a person is this same William Wood, and how the public weal of two kingdoms is involved in his private interest. First, all those who refuse to take his coin are Papists; for he tells us that "none but Papists are associated against him;" Secondly, they "dispute the King's prerogative;" Thirdly, "they are ripe for rebellion," and Fourthly, they are going to "shake off their dependence upon the crown of England;" That is to say, "they are going to choose another king;" For there can be no other meaning in this expression, however some may pretend to strain it. And this gives me an opportunity of explaining, to those who are ignorant, another point, which hath often swelled in my breast. Those who come over hither to us from England, and some weak people among ourselves, whenever in discourse we make mention of liberty and property, shake their heads, and tell us, that Ireland is a "depending kingdom," as if they would seem, by this phrase, to intend that the people of Ireland is in some state of slavery or dependence different from those of England; Whereas a "depending kingdom" is a modern term of art, unknown, as I have heard, to all ancient civilians, and writers upon government; and Ireland is on the contrary called in some statutes an "imperial crown," as held only from God; which is as high a style as any kingdom is capable of receiving. Therefore by this expression, a "depending kingdom," there is no more understood than that by a statute made here in the 33d year of Henry 8th. "The King and his successors are to be kings imperial of this realm as united and knit to the imperial crown of England." I have looked over all the English and Irish statutes without finding any law that makes Ireland depend upon England, any more than England does upon Ireland. We have indeed obliged ourselves to have the same king with them, and consequently they are obliged to have the same king with us. For the law was made by our own Parliament, and our ancestors then were not such fools (whatever they were in the preceding reign) to bring themselves under I know not what dependence, which is now talked of without any ground of law, reason or common sense.[18] [Footnote 18: This was the passage selected by the government upon which to found its prosecution. As Sir Walter Scott points out, it "contains the pith and essence of the whole controversy." [T.S.]] Let whoever think otherwise, I M.B. Drapier, desire to be excepted,[19] for I declare, next under God, I _depend_ only on the King my sovereign, and on the laws of my own country; and I am so far from _depending_ upon the people of England, that if they should ever rebel against my sovereign (which God forbid) I would be ready at the first command from His Majesty to take arms against them, as some of _my_ countrymen did against _theirs_ at Preston. And if such a rebellion should prove so successful as to fix the Pretender on the throne of England, I would venture to transgress that statute so far as to lose every drop of my blood to hinder him from being King of Ireland.[20] [Footnote 19: For a humorous story which accounts for Swift's use of the words "desire to be excepted," see the Drapier's sixth letter. [T.S.]] [Footnote 20: Great offence was taken at this paragraph. Swift refers to it again in his sixth letter. Sir Henry Craik, in his "Life of Jonathan Swift" (vol. ii., p. 74), has an acute note on this paragraph, and the one already alluded to in the sixth letter. I take the liberty of transcribing it: "The manoeuvre by which Swift managed to associate a suspicion of Jacobitism with his opponents, is one peculiarly characteristic; and so is the skill with which, in the next letter, he meets the objections to this paragraph, by half offering an extent of submission that might equally be embarrassing--a submission even to Jacobitism, if Jacobitism were to become strong enough. He does not commit himself, however: he fears a 'spiteful interpretation.' In short, he places the English Cabinet on the horns of a dilemma. 'Am I to resist Jacobitism? Then what becomes of your doctrine of Ireland's dependency?' or, 'Am I to become a Jacobite, if England bids me? Then what becomes of your Protestant succession? Must even that give way to your desire to tyrannize?'" [T.S.]] 'Tis true indeed, that within the memory of man, the Parliaments of England have sometimes assumed the power of binding this kingdom by laws enacted there,[21] wherein they were at first openly opposed (as far as truth, reason and justice are capable of opposing) by the famous Mr. Molineux,[22] an English gentleman born here, as well as by several of the greatest patriots, and best Whigs in England; but the love and torrent of power prevailed. Indeed the arguments on both sides were invincible. For in reason, all government without the consent of the governed is the very definition of slavery: But in fact, eleven men well armed will certainly subdue one single man in his shirt. But I have done. For those who have used power to cramp liberty have gone so far as to resent even the liberty of complaining, although a man upon the rack was never known to be refused the liberty of roaring as loud as he thought fit. [Footnote 21: Particularly in the reign of William III., when this doctrine of English supremacy was assumed, in order to discredit the authority of the Irish Parliament summoned by James II. [S.] See note on Poyning's Law, p. 77. [T.S.]] [Footnote 22: See note on p. 167. [T.S.]] And as we are apt to sink too much under unreasonable fears, so we are too soon inclined to be raised by groundless hopes (according to the nature of all consumptive bodies like ours) thus, it hath been given about for several days past, that somebody in England empowered a second somebody to write to a third somebody here to assure us, that we "should no more be troubled with those halfpence." And this is reported to have been done by the same person, who was said to have sworn some months ago, that he would "ram them down our throats" (though I doubt they would stick in our stomachs) but whichever of these reports is true or false, it is no concern of ours. For in this point we have nothing to do with English ministers, and I should be sorry it lay in their power to redress this grievance or to enforce it: For the "Report of the Committee" hath given me a surfeit. The remedy is wholly in your own hands, and therefore I have digressed a little in order to refresh and continue that spirit so seasonably raised amongst you, and to let you see that by the laws of GOD, of NATURE, of NATIONS, and of your own COUNTRY, you ARE and OUGHT to be as FREE a people as your brethren in England. If the pamphlets published at London by Wood and his journeymen in defence of his cause, were reprinted here, and that our countrymen could be persuaded to read them, they would convince you of his wicked design more than all I shall ever be able to say. In short I make him a perfect saint in comparison of what he appears to be from the writings of those whom he hires to justify his project. But he is so far master of the field (let others guess the reason) that no London printer dare publish any paper written in favour of Ireland, and here nobody hath yet been so bold as to publish anything in favour of him. There was a few days ago a pamphlet sent me of near 50 pages written in favour of Mr. Wood and his coinage, printed in London; it is not worth answering, because probably it will never be published here: But it gave me an occasion to reflect upon an unhappiness we lie under, that the people of England are utterly ignorant of our case, which however is no wonder, since it is a point they do not in the least concern themselves about, farther than perhaps as a subject of discourse in a coffee-house when they have nothing else to talk of. For I have reason to believe that no minister ever gave himself the trouble of reading any papers written in our defence, because I suppose their opinions are already determined, and are formed wholly upon the reports of Wood and his accomplices; else it would be impossible that any man could have the impudence to write such a pamphlet as I have mentioned. Our neighbours whose understandings are just upon a level with ours (which perhaps are none of the brightest) have a strong contempt for most nations, but especially for Ireland: They look upon us as a sort of savage Irish, whom our ancestors conquered several hundred years ago, and if I should describe the Britons to you as they were in Caesar's time, when they painted their bodies, or clothed themselves with the skins of beasts, I would act full as reasonably as they do: However they are so far to be excused in relation to the present subject, that, hearing only one side of the cause, and having neither opportunity nor curiosity to examine the other, they believe a lie merely for their ease, and conclude, because Mr. Wood pretends to have power, he hath also reason on his side. Therefore to let you see how this case is represented in England by Wood and his adherents, I have thought it proper to extract out of that pamphlet a few of those notorious falsehoods in point of fact and reasoning contained therein; the knowledge whereof will confirm my countrymen in their own right sentiments, when they will see by comparing both, how much their enemies are in the wrong. First, The writer, positively asserts, "That Wood's halfpence were current among us for several months with the universal approbation of all people, without one single gainsayer, and we all to a man thought ourselves happy in having them." Secondly, He affirms, "That we were drawn into a dislike of them only by some cunning evil-designing men among us, who opposed this patent of Wood to get another for themselves." Thirdly, That "those who most declared at first against Wood's patent were the very men who intended to get another for their own advantage." Fourthly, That "our Parliament and Privy-council, the Lord Mayor and aldermen of Dublin, the grand juries and merchants, and in short the whole kingdom, nay the very dogs" (as he expresseth it) "were fond of those halfpence, till they were inflamed by those few designing persons aforesaid." Fifthly, He says directly, That "all those who opposed the halfpence were Papists and enemies to King George." Thus far I am confident the most ignorant among you can safely swear from your own knowledge that the author is a most notorious liar in every article; the direct contrary being so manifest to the whole kingdom, that if occasion required, we might get it confirmed under five hundred thousand hands. Sixthly, He would persuade us, that "if we sell five shillings worth of our goods or manufactures for two shillings and fourpence worth of copper, although the copper were melted down, and that we could get five shillings in gold or silver for the said goods, yet to take the said two shillings and fourpence in copper would be greatly for our advantage." And Lastly, He makes us a very fair offer, as empowered by Wood, that "if we will take off two hundred thousand pounds in his halfpence for our goods, and likewise pay him three _per cent_. interest for thirty years, for an hundred and twenty thousand pounds (at which he computes the coinage above the intrinsic value of the copper) for the loan of his coin, he, will after that time give us good money for what halfpence will be then left." Let me place this offer in as clear a light as I can to shew the unsupportable villainy and impudence of that incorrigible wretch. First (says he) "I will send two hundred thousand pounds of my coin into your country, the copper I compute to be in real value eighty thousand pounds, and I charge you with an hundred and twenty thousand pounds for the coinage; so that you see I lend you an hundred and twenty thousand pounds for thirty years, for which you shall pay me three _per cent_. That is to say three thousand six hundred pounds _per ann_. which in thirty years will amount to an hundred and eight thousand pounds. And when these thirty years are expired, return me my copper and I will give you good money for it." This is the proposal made to us by Wood in that pamphlet written by one of his commissioners; and the author is supposed to be the same infamous Coleby one of his under-swearers at the committee of council, who was tried for robbing the treasury here, where he was an under-clerk.[23] [Footnote 23: See note on p. 61. [T.S.]] By this proposal he will first receive two hundred thousand pounds, in goods or sterling for as much copper as he values at eighty thousand pounds, but in reality not worth thirty thousand pounds. Secondly, He will receive for interest an hundred and eight thousand pounds. And when our children came thirty years hence to return his halfpence upon his executors (for before that time he will be probably gone to his own place) those executors will very reasonably reject them as raps and counterfeits, which probably they will be, and millions of them of his own coinage. Methinks I am fond of such a dealer as this who mends every day upon our hands, like a Dutch reckoning, where if you dispute the unreasonableness and exorbitance of the bill, the landlord shall bring it up every time with new additions. Although these and the like pamphlets published by Wood in London be altogether unknown here, where nobody could read them without as much indignation as contempt would allow, yet I thought it proper to give you a specimen how the man employs his time, where he rides alone without one creature to contradict him, while our FEW FRIENDS there wonder at our silence, and the English in general, if they think of this matter at all, impute our refusal to wilfulness or disaffection, just as Wood and his hirelings are pleased to represent. But although our arguments are not suffered to be printed in England, yet the consequence will be of little moment. Let Wood endeavour to persuade the people there that we ought to receive his coin, and let me convince our people here that they ought to reject it under pain of our utter undoing. And then let him do his best and his worst. Before I conclude, I must beg leave in all humility to tell Mr. Wood, that he is guilty of great indiscretion, by causing so honourable a name as that of Mr. Walpole to be mentioned so often, and in such a manner, upon his occasion: A short paper printed at Bristol and reprinted here reports Mr. Wood to say, that he "wonders at the impudence and insolence of the Irish in refusing his coin, and what he will do when Mr. Walpole comes to town." Where, by the way, he is mistaken, for it is the true English people of Ireland who refuse it, although we take it for granted that the Irish will do so too whenever they are asked. He orders it to be printed in another paper, that "Mr. Walpole will cram this brass down our throats:" Sometimes it is given out that we must "either take these halfpence or eat our brogues," And, in another newsletter but of yesterday, we read that the same great man "hath sworn to make us swallow his coin in fire-balls." This brings to my mind the known story of a Scotchman, who receiving sentence of death, with all the circumstances of hanging, beheading, quartering, embowelling and the like, cried out, "What need all this COOKERY?" And I think we have reason to ask the same question; for if we believe Wood, here is a dinner getting ready for us, and you see the bill of fare, and I am sorry the drink was forgot, which might easily be supplied with melted lead and flaming pitch. What vile words are these to put into the mouth of a great councillor, in high trust with His Majesty, and looked upon as a prime-minister. If Mr. Wood hath no better a manner of representing his patrons, when I come to be a great man, he shall never be suffered to attend at my levee. This is not the style of a great minister, it savours too much of the kettle and the furnace, and came entirely out of Mr. Wood's forge. As for the threat of making us eat our brogues, we need not be in pain; for if his coin should pass, that unpolite covering for the feet, would no longer be a national reproach; because then we should have neither shoe nor brogue left in the kingdom. But here the falsehood of Mr. Wood is fairly detected; for I am confident Mr. Walpole never heard of a brogue in his whole life.[24] [Footnote 24: A biting sneer at Walpole's ignorance of Irish affairs. [T.S.]] As to "swallowing these halfpence in fire-balls," it is a story equally improbable. For to execute this operation the whole stock of Mr. Wood's coin and metal must be melted down and moulded into hollow balls with wild-fire, no bigger than a reasonable throat can be able to swallow. Now the metal he hath prepared, and already coined will amount at least fifty millions of halfpence to be swallowed by a million and a half of people; so that allowing two halfpence to each ball, there will be about seventeen balls of wild-fire a-piece to be swallowed by every person in this kingdom, and to administer this dose, there cannot be conveniently fewer than fifty thousand operators, allowing one operator to every thirty, which, considering the squeamishness of some stomachs and the peevishness of young children, is but reasonable. Now, under correction of better judgments, I think the trouble and charge of such an experiment would exceed the profit, and therefore I take this report to be spurious, or at least only a new scheme of Mr. Wood himself, which to make it pass the better in Ireland he would father upon a minister of state. But I will now demonstrate beyond all contradiction that Mr. Walpole is against this project of Mr. Wood, and is an entire friend to Ireland, only by this one invincible argument, that he has the universal opinion of being a wise man, an able minister, and in all his proceedings pursuing the true interest of the King his master: And that as his integrity is above all corruption, so is his fortune above all temptation. I reckon therefore we are perfectly safe from that corner, and shall never be under the necessity of contending with so formidable a power, but be left to possess our brogues and potatoes in peace as remote from thunder as we are from Jupiter. I am, My dear countrymen, Your loving fellow-subject, fellow-sufferer and humble servant. M.B. Oct. 13. 1724. SEASONABLE ADVICE TO THE GRAND JURY. SEASONABLE ADVICE TO THE GRAND JURY, CONCERNING THE BILL PREPARING AGAINST THE PRINTER OF THE DRAPIER'S FOURTH LETTER. Since a bill is preparing for the grand jury, to find against the printer of the Drapier's last letter, there are several things maturely to be considered by those gentlemen, before whom this bill is to come, before they determine upon it. FIRST, they are to consider, that the author of the said pamphlet, did write three other discourses on the same subject; which instead of being censured were universally approved by the whole nation, and were allowed to have raised, and continued that spirit among us, which hitherto hath kept out Wood's coin: For all men will allow, that if those pamphlets had not been writ, his coin must have overrun the nation some months ago. SECONDLY, it is to be considered that this pamphlet, against which a proclamation hath been issued, is writ by the same author; that nobody ever doubted the innocence, and goodness of his design, that he appears through the whole tenor of it, to be a loyal subject to His Majesty, and devoted to the House of Hanover, and declares himself in a manner peculiarly zealous against the Pretender; And if such a writer in four several treatises on so nice a subject, where a royal patent is concerned, and where it was necessary to speak of England and of liberty, should in one or two places happen to let fall an inadvertent expression, it would be hard to condemn him after all the good he hath done; Especially when we consider, that he could have no possible design in view, either of honour or profit, but purely the GOOD of his country. THIRDLY, it ought to be well considered, whether any one expression in the said pamphlet, be really liable to just exception, much less to be found "wicked, malicious, seditious, reflecting upon His Majesty and his ministry," &c. The two points in that pamphlet, which it is said the prosecutors intend chiefly to fix on, are, First, where the author mentions the "penner of the King's answer." First, it is well known, His Majesty is not master of the English tongue, and therefore it is necessary that some other person should be employed to pen what he hath to say, or write in that language. Secondly, His Majesty's answer is not in the first person, but the third. It is not said "WE are concerned," or, "OUR royal predecessors," but "HIS MAJESTY is concerned;" and "HIS royal predecessors." By which it is plain these are properly not the words of His Majesty; but supposed to be taken from him, and transmitted hither by one of his ministers. Thirdly it will be easily seen, that the author of the pamphlet delivers his sentiments upon this particular, with the utmost caution and respect, as any impartial reader will observe. The second paragraph, which it is said will be taken notice of as a motive to find the bill, is, what the author says of Ireland being a depending kingdom. He explains all the dependency he knows of it, which is a law made in Ireland, whereby it is enacted that "whoever is King of England, shall be King of Ireland." Before this explanation be condemned, and the bill found upon it, it would be proper, that some lawyers should fully inform the jury what other law there is, either statute or common for this dependency, and if there be no law, there is no transgression. The Fourth thing very maturely to be considered by the jury, is, what influence their finding the bill may have upon the kingdom. The people in general find no fault in the Drapier's last book, any more than in the three former, and therefore when they hear it is condemned by a grand jury of Dublin, they will conclude it is done in favour of Wood's coin, they will think we of this town have changed our minds, and intend to take those halfpence, and therefore that it will be in vain for them to stand out. So that the question comes to this, Which will be of the worst consequence, to let pass one or two expressions, at the worst only unwary, in a book written for the public service; or to leave a free open passage for Wood's brass to overrun us, by which we shall be undone for ever. The fifth thing to be considered, is, that the members of the grand jury being merchants, and principal shopkeepers, can have no suitable temptation offered them, as a recompense for the mischief they will suffer by letting in this coin, nor can be at any loss or danger by rejecting the bill: They do not expect any employments in the state, to make up in their own private advantage, the destruction of their country. Whereas those who go about to advise, entice, or threaten them to find that bill, have great employments, which they have a mind to keep, or to get greater, which was likewise the case of all those who signed to have the author prosecuted. And therefore it is known, that his grace the Lord Archbishop of Dublin,[1] so renowned for his piety, and wisdom, and love of his country, absolutely refused to condemn the book, or the author. [Footnote 1: The proclamation against the Drapier's fourth letter as given in Appendix IV. at the end of this volume, does not bear Archbishop King's signature. In a letter from that prelate, written on November 24th, 1724, to Samuel Molineux, secretary to the Prince of Wales, it appears that other persons of influence also refrained from sanctioning it. The following is an extract from this letter as given by Monck Mason for the first time: "A great many pamphlets have been writ about it [Wood's patent], but I am told none of them are permitted to be printed in England. Two have come out since my Lord Lieutenant came here, written with sobriety, modesty, and great force, in my opinion, which put the matter in a fair and clear light, though not with all the advantage of which it is capable; four were printed before, by somebody that calleth himself a Drapier which were in a ludicrous and satyrical style; against the last of these the Lord Lieutenant procured a proclamation, signed by 17 of the Council; offering £300 for discovering the author. I thought the premium excessive, so I and three more refused to sign it, but declared, that if his excellency would secure us from the brass money, I would sign it, or any other, tending only to the disadvantage of private persons; but, till we had that security, I would look on this proclamation no otherwise than as a step towards passing that base and mischievous coin, and designed to intimidate those who opposed the passing it; and I declared, that I would not approve of anything that might countenance, or encourage such a ruinous project; that issuing such a proclamation would make all believe, that the government was engaged to support Wood's pretensions, and that would neither be for their honour nor ease. I was not able to stop the proclamation, but my refusing to sign it has not been without effect." ("History of St. Patrick's," p. 344, note n.). [T.S.]] Lastly, it ought to be considered what consequence the finding the bill, may have upon a poor man perfectly innocent, I mean the printer. A lawyer may pick out expressions and make them liable to exception, where no other man is able to find any. But how can it be supposed, that an ignorant printer can be such a critic? He knew the author's design was honest, and approved by the whole kingdom, he advised with friends, who told him there was no harm in the book, and he could see none himself. It was sent him in an unknown hand, but the same in which he received the three former. He and his wife have offered to take their oaths that they knew not the author; and therefore to find a bill, that may bring a punishment upon the innocent, will appear very hard, to say no worse. For it will be impossible to find the author, unless he will please to discover himself, although I wonder he ever concealed his name. But I suppose what he did at first out of modesty, he now continues to do out of prudence. God protect us and him! I will conclude all with a fable, ascribed to Demosthenes. He had served the people of Athens with great fidelity in the station of an orator, when upon a certain occasion, apprehending to be delivered over to his enemies, he told the Athenians, his countrymen, the following story. Once upon a time the wolves desired a league with the shepherds, upon this condition; that the cause of strife might be taken away, which was the shepherds and the mastiffs; this being granted, the wolves without all fear made havoc of the sheep.[2] Novem. 11th, 1724. [Footnote 2: The advice had the desired effect. The jury returned a verdict of "Ignoramus" on the bill, which so aroused Whitshed, the Chief Justice, that he discharged them. As a comment on Whitshed's illegal procedure, the following extract was circulated: EXTRACT FROM A BOOK ENTITLED, "AN EXACT COLLECTION OF THE DEBATES OF THE HOUSE OF COMMONS HELD AT WESTMINSTER, OCTOBER 21, 1680," page 150. _Resolutions of the House of Commons, in England, November 13, 1680._ "Several persons being examined about the dismissing a grand jury in Middlesex, the House came to the following resolutions:-- "_Resolved_, That the discharging of a grand-jury by any judge, before the end of the term, assizes, or sessions, while matters are under their consideration, and not presented, is arbitrary, illegal, destructive to public justice, a manifest violation of his oath, and is a means to subvert the fundamental laws of this kingdom. "_Resolved_, That a committee be appointed to examine the proceedings of the judges in Westminster-hall, and report the same with their opinion therein to this House." [T.S.]] LETTER V. A LETTER TO THE LORD CHANCELLOR MIDDLETON. NOTE. I have departed from the order given by Faulkner and the earlier editors,[1] and followed by Sir W. Scott in arranging the series of the Drapier's Letters, by adhering to a more correct chronological sequence. This letter has always been printed as the sixth Drapier's letter, but I have printed it here as the fifth, since it was written prior to the letter addressed to Viscount Molesworth, which has hitherto been called the fifth. The Molesworth letter I print here as "Letter VI." As already noted the letter to Midleton was written on the 26th October, 1724, but its first publication in print did not occur until Faulkner included it in the fourth volume of his collected edition of Swift's works, issued in 1735. There it is signed "J.S." and is given as from the "Deanery House." All the other letters are printed as "By M.B. Drapier." The Advertisement to the Reader prefixed to the present fifth letter is from Faulkner's edition. Probably it was printed by Faulkner under Swift's direction. [Footnote 1: Sheridan, Deane Swift, Hawkesworth and Nichols] Swift's acquaintance with Midleton had been of long standing. The Chancellor had been an avowed opponent of the patent and yet, by his signature to the proclamation, he seemed to be giving the weight of his official position against the popular sentiment. In addressing him, Swift was endeavouring, apparently, to keep him to his original line of action and to destroy any influence the government party may have had on him, since he was well aware of Carteret's insinuating charm. Midleton, however, had always stood firm against the patent. His signature to the proclamation against the Drapier was justified by him when he said that the Drapier's letters tended to disturbance. Carteret had really tried to win him over, but he did not succeed "While he [Midleton] expressed the highest obligation to the Lord Lieutenant," writes Coxe, "he declared that his duty to his country was paramount to every other consideration, and refused to give any assistance to government, until the patent was absolutely surrendered." The text here given of this letter is based on Faulkner's issue in vol. iv. of the 1735 edition of Swift's works. It has been collated with that given in the fifth volume of the "Miscellanies," printed in London in the same year. [T.S.] ADVERTISEMENT TO THE READER[2] The former of the two following papers is dated Oct. 6th 1724[3], by which it appears to be written a little after the proclamation against the author of the Drapier's Fourth Letter. It is delivered with much caution, because the author confesseth himself to be Dean of St. Patrick's; and I could discover his name subscribed at the end of the original, although blotted out by some other hand, I can tell no other reason why it was not printed, than what I have heard; that the writer finding how effectually the Drapier had succeeded, and at the same time how highly the people in power seemed to be displeased, thought it more prudent to keep the paper in his cabinet. However, having received some encouragement to collect into one volume all papers relating to Ireland, supposed to be written by the Drapier; and knowing how favourably that author's writings in this kind have been received by the public; to make the volume more complete, [I procured a copy of the following letter from one of the author's friends, with whom it was left, while the author was in England; and][4] I have printed it as near as I could in the order of time. [Footnote 2: Nichols, in the second volume of his Supplement to Swift's Works (1779, 8vo), prints a note on this "Advertisement," furnished him by Bowyer. It is as follows: "1. The first of the papers is said to be dated Oct. 6, 1724; and that it appears from thence to be dated a little after the proclamation against the Drapier's fourth letter. Now the fourth letter itself is dated Oct. 23, 1724. This is a pardonable mistake anywhere, but, much more in a country where _going before just coming after_ is the characteristic dialect. But I little thought that the Dean, in his zeal for Ireland, would vouchsafe to adopt the shibboleth of it. "2. The Preface-writer, in the choice MS which he found, could discover the Dean's name subscribed at the end of the original; but _blotted out_ by _some other hand_. As the former passage is a proof that the Advertisement was drawn up in Ireland, so this affords a strong presumption that it was under the direction of the Dean himself: for who else could divine that his name was struck out by another hand? Other ink it might be: but in these recent MSS. of our age, it is the first time I ever heard of a blot carrying the evidence of a handwriting. Whether the Dean or the printer hit this _blot_, I shall not inquire; but lay before you the pleasant procedure of the latter upon this discovery. He had got, we see, the original in the Dean's hand; but the name was obliterated. What does he, but send away to England for a copy which might authenticate _his original_; and from such a copy the public is favoured with it! I remember, in a cause before Sir Joseph Jekyll, a man began reading in court the title-deeds of an estate which was contested. 'The original is a little blind,' says he; 'I have got a very fair copy of it, which I beg leave to go on with'--'Hold,' says Sir Joseph, 'if the original is not good, the copy can never make it so.' I am far, however, from accusing the printer of intending any fraud on the world. He who tells his story so openly gives security enough for his honesty. I can easily conceive the Advertisement might be in a good measure the Dean's, who never was over-courteous to his readers, and might for once be content to be merry with them." [T.S.]] [Footnote 3: Misprinted by Faulkner for Oct. 26th. [T.S.]] [Footnote 4: This portion in square brackets is not given by Faulkner in his Advertisement. [T.S.]] The next treatise is called "An Address, &c." It is without a date; but seems to be written during the first session of Parliament in Lord Carteret's government. The title of this Address is in the usual form, by M.B. Drapier. There is but a small part of it that relates to William Wood and his coin: The rest contains several proposals for the improvement of Ireland, the many discouragements it lies under, and what are the best remedies against them. By many passages in some of the Drapier's former letters, but particularly in the following Address, concerning the great drain of money from Ireland by absentees, importation of foreign goods, balance of trade, and the like, it appears that the author had taken much pains, and been well informed in the business of computing; all his reasonings upon that subject, although he does not here descend to particular sums, agreeing generally with the accounts given by others who have since made that enquiry their particular study. And it is observable, that in this Address, as well as in one of his printed letters, he hath specified several important articles, that have not been taken notice of by others who came after him. LETTER V. A LETTER TO THE LORD CHANCELLOR MIDDLETON.[5] My Lord, I desire you will consider me as a member who comes in at the latter end of a debate; or as a lawyer who speaks to a cause, when the matter hath been almost exhausted by those who spoke before. [Footnote 5: Alan Brodrick, Lord Midleton (1660?-1728), came of a Surrey family that had greatly benefited by the forfeitures in Ireland. Adopting the profession of the law, Brodrick was, in 1695, appointed Solicitor-General for Ireland. He sat in the Irish House of Commons as the member for Cork, and in 1703 was chosen its Speaker. His strong opposition to the Sacramental Test Act lost him the favour of the government, and he was removed from his office of Solicitor-General. In 1707, however, he was appointed Attorney-General for Ireland, and in 1714 made Lord Chancellor. In the year following he was created Baron Brodrick of Midleton. His trimming with Walpole and Carteret did not, however, prevent him from opposing the Wood's patent, though he signed the proclamation against the Drapier. He thought the letters served to "create jealousies between the King and the people of Ireland." [T.S.]] I remember some months ago I was at your house upon a commission, where I am one of the governors: But I went thither not so much on account of the commission, as to ask you some questions concerning Mr. Wood's patent to coin halfpence for Ireland; where you very freely told me, in a mixed company, how much you had been always against that wicked project, which raised in me an esteem for you so far, that I went in a few days to make you a visit, after many years' intermission. I am likewise told, that your son wrote two letters from London, (one of which I have seen) empowering those to whom they were directed, to assure his friends, that whereas there was a malicious report spread of his engaging himself to Mr. Walpole for forty thousand pounds of Wood's coin, to be received in Ireland, the said report was false and groundless; and he had never discoursed with that minister on the subject; nor would ever give his consent to have one farthing of the said coin current here. And although it be long since I have given myself the trouble of conversing with people of titles or stations; yet I have been told by those who can take up with such amusements, that there is not a considerable person of the kingdom, scrupulous in any sort to declare his opinion. But all this is needless to allege, when we consider, that the ruinous consequences of Wood's patent, have been so strongly represented by both Houses of Parliament; by the Privy-council; the Lord Mayor and Aldermen of Dublin; by so many corporations; and the concurrence of the principal gentlemen in most counties, at their quarter-sessions, without any regard to party, religion, or nation. I conclude from hence, that the currency of these halfpence would, in the universal opinion of our people, be utterly destructive to this kingdom; and consequently, that it is every man's duty, not only to refuse this coin himself, but as far as in him lies, to persuade others to do the like: And whether this be done in private or in print, is all a case: As no layman is forbid to write, or to discourse upon religious or moral subjects; although he may not do it in a pulpit (at least in our church). Neither is this an affair of state, until authority shall think fit to declare it so: Or if you should understand it in that sense; yet you will please to consider that I am not now a preaching. Therefore, I do think it my duty, since the Drapier will probably be no more heard of, so far to supply his place, as not to incur his fortune: For I have learnt from old experience, that there are times wherein a man ought to be cautious as well as innocent. I therefore hope, that preserving both those characters, I may be allowed, by offering new arguments or enforcing old ones, to refresh the memory of my fellow-subjects, and keep up that good spirit raised among them; to preserve themselves from utter ruin by lawful means, and such as are permitted by his Majesty. I believe you will please to allow me two propositions: First, that we are a most loyal people; and, Secondly, that we are a free people, in the common acceptation of that word applied to a subject under a limited monarch. I know very well, that you and I did many years ago in discourse differ much, in the presence of Lord Wharton, about the meaning of that word _liberty_, with relation to Ireland. But if you will not allow us to be a free people, there is only another appellation left; which, I doubt, my Lord Chief Justice Whitshed would call me to an account for, if I venture to bestow: For, I observed, and I shall never forget upon what occasion, the device upon his coach to be _Libertas et natale solum;_ at the very point of time when he was sitting in his court, and perjuring himself to betray both.[6] [Footnote 6: On this motto of Whitshed's Swift wrote the following poetical paraphrase: "_Libertas et natale solum:_ Fine words! I wonder where you stole 'em. Could nothing but thy chief reproach Serve for a motto on thy coach? But let me now thy words translate: _Natale solum,_ my estate; My dear estate, how well I love it, My tenants, if you doubt, will prove it, They swear I am so kind and good, I hug them till I squeeze their blood. _Libertas_ bears a large import: First, how to swagger in a court; And, secondly, to shew my fury Against an uncomplying jury; And, thirdly, 'tis a new invention, To favour Wood, and keep my pension; And, fourthly, 'tis to play an odd trick, Get the great seal and turn out Broderick; And, fifthly, (you know whom I mean,) To humble that vexatious Dean: And, sixthly, for my soul to barter it For fifty times its worth to Carteret. Now since your motto thus you construe, I must confess you've spoken once true. _Libertas et natale solum_. You had good reason when you stole 'em." [T.S.]] Now, as for our loyalty, to His present Majesty; if it hath ever been equalled in any other part of his dominions; I am sure it hath never been exceeded: And I am confident he hath not a minister in England who could ever call it once in question: But that some hard rumours at least have been transmitted from t'other side the water, I suppose you will not doubt: and rumours of the severest kind; which many good people have imputed to the indirect proceeding of Mr. Wood and his emissaries; as if he endeavoured it should be thought that our loyalty depended upon the test of refusing or taking his copper. Now, as I am sure you will admit us to be a loyal people; so you will think it pardonable in us to hope for all proper marks of favour and protection from so gracious a King, that a loyal and free people can expect: Among which, we all agree in reckoning this to be one; that Wood's halfpence may never have entrance into this kingdom. And this we shall continue to wish, when we dare no longer express our wishes; although there were no such mortal as a Drapier in the world. I am heartily sorry, that any writer should, in a cause so generally approved, give occasion to the government and council to charge him with paragraphs "highly reflecting upon His Majesty and his ministers; tending to alienate the affections of his good subjects in England and Ireland from each other; and to promote sedition among the people."[7] I must confess, that with many others, I thought he meant well; although he might have the failing of better writers, to be not always fortunate in the manner of expressing himself. [Footnote 7: Swift here quotes the words of the proclamation issued against the fourth Drapier's Letter. See Appendix IV. [T.S.]] However, since the Drapier is but one man, I shall think I do a public service, by asserting that the rest of my countrymen are wholly free from learning out of _his_ pamphlets to reflect on the King or his ministers, to breed sedition. I solemnly declare, that I never once heard the least reflection cast upon the King, on the subject of Mr. Wood's coin: For in many discourses on this matter, I do not remember His Majesty's name to be so much as mentioned. As to the ministry in England, the only two persons hinted at were the Duke of Grafton, and Mr. Walpole:[8] The former, as I have heard you and a hundred others affirm, declared, that he never saw the patent in favour of Mr. Wood, before it was passed, although he were then lord lieutenant: And therefore I suppose everybody believes, that his grace hath been wholly unconcerned in it since. [Footnote 8: Walpole was created a Knight of the Bath in 1724, when that order was revived. In 1726 he was installed Knight of the Order of the Garter, being the only commoner who had been so distinguished since the reign of James I., except Admiral Montague, afterwards Earl of Sandwich. He had been offered a peerage in 1723, but declined it for himself, accepting it for his son, who was created Baron Walpole of Walpole, in Norfolk. [T.S.]] Mr. Walpole was indeed supposed to be understood by the letter W. in several newspapers; where it is said, that some expressions fell from him not very favourable to the people of Ireland; for the truth of which, the kingdom is not to answer, any more than for the discretion of the publishers. You observe, the Drapier wholly clears Mr. Walpole of this charge, by very strong arguments and speaks of him with civility. I cannot deny myself to have been often present, where the company gave then opinion, that Mr. Walpole favoured Mr. Wood's project, which I always contradicted; and for my own part, never once opened my lips against that minister, either in mixed or particular meetings: And my reason for this reservedness was, because it pleased him, in the Queen's time (I mean Queen Anne of ever blessed memory) to make a speech directly against me, by name, in the House of Commons, as I was told a very few minutes after, in the Court of Requests, by more than fifty members. But you, who are in a great station here, (if anything here may be called great) cannot be ignorant, that whoever is understood by public voice to be chief minister, will, among the general talkers, share the blame, whether justly or no, of every thing that is disliked; which I could easily make appear in many instances, from my own knowledge, while I was in the world; and particularly in the case of the greatest, the wisest, and the most uncorrupt minister, I ever conversed with.[9] [Footnote 9: Robert Harley, Earl of Oxford. [T.S.]] But, whatever unpleasing opinion some people might conceive of Mr. Walpole, on account of those halfpence; I dare boldly affirm, it was entirely owing to Mr. Wood. Many persons of credit, come from England, have affirmed to me, and others, that they have seen letters under his hand, full of arrogance and insolence towards Ireland; and boasting of his favour with Mr. Walpole; which is highly probable: Because he reasonably thought it for his interest to spread such a report; and because it is the known talent of low and little spirits, to have a great man's name perpetually in their mouths.[10] [Footnote 10: See Coxe's "Memoirs of Walpole" (vol. i., cap. 26, p. 389, ed. 1800), where Wood is blamed for his indiscretion on this matter. See also note prefixed to the Drapier's First Letter in the present edition. [T.S.]] Thus I have sufficiently justified the people of Ireland, from learning any bad lessons out of the Drapier's pamphlets, with regard to His Majesty and his ministers: And, therefore, if those papers were intended to sow sedition among us, God be thanked, the seeds have fallen upon a very improper soil. As to alienating the affections of the people of England and Ireland from each other; I believe, the Drapier, whatever his intentions were, hath left that matter just as he found it. I have lived long in both kingdoms, as well in country as in town; and therefore, take myself to be as well informed as most men, in the dispositions of each people toward the other. By the people, I understand here, only the bulk of the common people; and I desire no lawyer may distort or extend my meaning. There is a vein of industry and parsimony, that runs through the whole people of England; which, added to the easiness of their rents, makes them rich and sturdy. As to Ireland, they know little more than they do of Mexico; further than that it is a country subject to the King of England, full of bogs, inhabited by wild Irish Papists; who are kept in awe by mercenary troops sent from thence: And their general opinion is, that it were better for England if this whole island were sunk into the sea; for, they have a tradition, that every forty years there must be a rebellion in Ireland. I have seen the grossest suppositions pass upon them; "that the wild Irish were taken in toils; but that, in some time, they would grow so tame, as to eat out of your hands:" I have been asked by hundreds, and particularly by my neighbours, your tenants, at Pepper-harrow; "whether I had come from Ireland by sea:" And, upon the arrival of an Irishman to a country town, I have known crowds coming about him, and wondering to see him look so much better than themselves. A gentleman now in Dublin, affirms, "that passing some months ago through Northampton, and finding the whole town in a flurry, with bells, bonfires, and illuminations, upon asking the cause, was told, it was for joy, that the Irish had submitted to receive Wood's halfpence." This, I think, plainly shews what sentiments that large town hath of us; and how little they made it their own case; although they be directly in our way to London, and therefore, cannot but be frequently convinced that we have human shapes. As to the people of this kingdom, they consist either of Irish Papists; who are as inconsiderable, in point of power, as the women and children; or of English Protestants, who love their brethren of that kingdom; although they may possibly sometimes complain, when they think they are hardly used: However, I confess, I do not see any great consequence, how their personal affections stand to each other, while the sea divides them, and while they continue in their loyalty to the same prince. And yet, I will appeal to you; whether those from England have reason to complain, when they come hither in pursuit of their fortunes? Or, whether the people of Ireland have reason to boast, when they go to England on the same design? My second proposition was, that we of Ireland are a free people: This, I suppose, you will allow; at least, with certain limitations remaining in your own breast. However, I am sure it is not criminal to affirm; because the words "liberty" and "property," as applied to the subject, are often mentioned in both houses of Parliament, as well as in yours, and other courts below; from whence it must follow, that the people of Ireland do, or ought to enjoy all the benefits of the common and statute law; such as to be tried by juries, to pay no money without their own consent, as represented in Parliament; and the like. If this be so, and if it be universally agreed, that a free people cannot, by law, be compelled to take any money in payment, except gold and silver; I do not see why any man should be hindered from cautioning his countrymen against this coin of William Wood; who is endeavouring by fraud to rob us of that property, which the laws have secured. If I am mistaken, and that this copper can be obtruded on us; I would put the Drapier's case in another light, by supposing, that a person going into his shop, should agree for thirty shillings' worth of goods, and force the seller to take his payment in a parcel of copper pieces, intrinsically not worth above a crown: I desire to know, whether the Drapier would not be actually robbed of five and twenty shillings, and how far he could be said to be master of his property? The same question may be applied to rents and debts, on bond or mortgage, and to all kind of commerce whatsoever. Give me leave to do what the Drapier hath done more than once before me; which is, to relate the naked fact, as it stands in the view of the world. One William Wood, Esq; and hardware-man, obtains, by fraud, a patent in England, to coin 108,000_l._ in copper, to pass in Ireland, leaving us liberty to take, or to refuse. The people here, in all sorts of bodies and representatives, do openly and heartily declare, that they will not accept this coin: To justify these declarations, they generally offer two reasons; first, because by the words of the patent, they are left to their own choice: And secondly, because they are not obliged by law: So that here you see there is, _bellum atgue virum_, a kingdom on one side, and William Wood on the other. And if Mr. Wood gets the victory, at the expense of Ireland's ruin, and the profit of one or two hundred thousand pounds (I mean by continuing, and counterfeiting as long as he lives) for himself; I doubt, both present and future ages will, at least, think it a very singular scheme. If this fact be truly stated; I must confess, I look upon it as my duty, so far as God hath enabled me, and as long as I keep within the bounds of truth, of duty, and of decency, to warn my fellow-subjects, as they value their King, their country, and all that ought or can be dear to them, never to admit this pernicious coin; no not so much as one single halfpenny. For, if one single thief forces the door, it is in vain to talk of keeping out the whole crew behind. And, while I shall be thus employed, I will never give myself leave to suppose, that what I say can either offend my Lord Lieutenant; whose person and great qualities I have always highly respected; (as I am sure his excellency will be my witness) or the ministers in England, with whom I have nothing to do, or they with me; much less the Privy-council here, who, as I am informed, did send an address to His Majesty against Mr. Wood's coin; which, if it be a mistake, I desire I may not be accused for a spreader of false news: But, I confess, I am so great a stranger to affairs, that for anything I know, the whole body of the council may since have been changed: And, although I observed some of the very same names in a late declaration against that coin, which I saw subscribed to the proclamation against the Drapier; yet possibly they may be different persons; for they are utterly unknown to me, and are like to continue so. In this controversy, where the reasoners on each side are divided by St. George's Channel, His Majesty's prerogative, perhaps, would not have been mentioned; if Mr. Wood, and his advocates, had not made it necessary, by giving out, that the currency of his coin should be enforced by a proclamation. The traders and common people of the kingdom, were heartily willing to refuse this coin; but the fear of a proclamation brought along with it most dreadful apprehensions. It was therefore, absolutely necessary for the Drapier, to remove this difficulty; and accordingly, in one of his former pamphlets, he hath produced invincible arguments, (wherever he picked them up) that the King's prerogative was not at all concerned in the matter; since the law had sufficiently provided against any coin to be imposed upon the subject, except gold and silver; and that copper is not money, but as it hath been properly called _nummorum famulus_. The three former letters from the Drapier, having not received any public censure, I look upon them to be without exception; and that the good people of the kingdom ought to read them often, in order to keep up that spirit raised against this destructive coin of Mr. Wood: As for this last letter, against which a proclamation is issued; I shall only say, that I could wish it were stripped of all that can be any way exceptionable; which I would not think it below me to undertake, if my abilities were equal; but being naturally somewhat slow of comprehension; no lawyer, and apt to believe the best of those who profess good designs, without any visible motive either of profit or honour; I might pore for ever, without distinguishing the cockle from the corn. That which, I am told, gives greatest offence in this last letter, is where the Drapier affirms; "that if a rebellion should prove so successful, as to fix the Pretender on the throne of England, he would venture so far to transgress the Irish statute, (which unites Ireland to England under one King) as to lose every drop of his blood, to hinder him from being King of Ireland." I shall not presume to vindicate any man, who openly declares he would transgress a statute; and a statute of such importance: But, with the most humble submission, and desire of pardon for a very innocent mistake, I should be apt to think that the loyal intention of the writer, might be at least some small extenuation of his crime. For, in this I confess myself to think with the Drapier. I have not hitherto been told of any other objections against that pamphlet; but, I suppose, they will all appear at the prosecution of the Drapier. And, I think, whoever in his own conscience believes the said pamphlet to be "wicked and malicious, seditious and scandalous, highly reflecting upon His Majesty and his ministers, &c." would do well to discover the author, (as little a friend as I am to the trade of informers) although the reward of 300_l_. had not been tacked to the discovery. I own, it would be a great satisfaction to me, to hear the arguments not only of judges, but of lawyers, upon this case. Because, you cannot but know, there often happens occasions, wherein it would be very convenient, that the bulk of the people should be informed how they ought to conduct themselves; and therefore, it hath been the wisdom of the English Parliaments, to be very reserved in limiting the press. When a bill is debating in either House of Parliament there, nothing is more usual, than to have the controversy handled by pamphlets on both sides; without the least animadversion upon the authors. So here, in the case of Mr. Wood and his coin; since the two Houses gave their opinion by addresses, how dangerous the currency of that copper would be to Ireland; it was, without all question, both lawful and convenient, that the bulk of the people should be let more particularly into the nature of the danger they were in; and of the remedies that were in their own power, if they would have the sense to apply them; and this cannot be more conveniently done, than by particular persons, to whom God hath given zeal and understanding sufficient for such an undertaking. Thus it happened in the case of that destructive project for a bank in Ireland, which was brought into Parliament a few years ago; and it was allowed, that the arguments and writings of some without doors, contributed very much to reject it.[11] [Footnote 11: Swift himself assisted in writing against this "destructive project" in a series of pamphlets (see vol. vii.). The arguments for and against the bank were thoroughly discussed by Hercules Rowley and Henry Maxwell in a series of controversial letters against each other. [T.S.]] Now, I should be heartily glad if some able lawyers would prescribe the limits, how far a private man may venture in delivering his thoughts upon public matters: Because a true lover of his country, may think it hard to be a quiet stander-by, and an indolent looker-on, while a public error prevails; by which a whole nation may be ruined. Every man who enjoys property, hath some share in the public; and therefore, the care of the public is, in some degree, every such man's concern. To come to particulars, I could wish to know, Whether it be utterly unlawful in any writer so much as to mention the prerogative; at least so far as to bring it into doubt, upon any point whatsoever? I know it is often debated in Westminster-hall; and Sir Edward Coke, as well as other eminent lawyers, do frequently handle that subject in their books. Secondly, How far the prerogative extends to force coin upon the subject, which is not sterling; such as lead, brass, copper, mixt metal, shells, leather, or any other material; and fix upon it whatever denomination the crown shall think fit? Thirdly, What is really and truly meant by that phrase of "a depending kingdom," as applied to Ireland; and wherein that dependency consisteth? Lastly, In what points relating to liberty and property, the people of Ireland differ, or at least ought to differ, from those of England? If these particulars were made so clear, that none could mistake them, it would be of infinite ease and use to the kingdom; and either prevent or silence all discontents. My Lord Somers, the greatest man I ever knew of your robe; and whose thoughts of Ireland differed as far as heaven and earth, from those of some others among his brethren here; lamented to me, that the prerogative of the Crown, or the privileges of Parliament, should ever be liable to dispute, in any single branch of either; by which means, he said, the public often suffered great inconveniences; whereof he gave me several instances. I produce the authority of so eminent a person, to justify my desires, that some high points might be cleared. For want of such known ascertainment, how far a writer may proceed in expressing his good wishes for his country; a person of the most innocent intentions, may possibly, by the oratory and comments of lawyers, be charged with many crimes, which from his very soul he abhors; and consequently may be ruined in his fortunes, and left to rot among thieves in some stinking jail; merely for mistaking the purlieus of the law. I have known, in my lifetime, a printer prosecuted and convicted, for publishing a pamphlet; where the author's intentions, I am confident, were as good and innocent, as those of a martyr at his last prayers.[12] I did very lately, as I thought it my duty, preach to the people under my inspection, upon the subject of Mr. Wood's coin; and although I never heard that my sermon gave the least offence, as I am sure none was intended; yet, if it were now printed and published, I cannot say, I would ensure it from the hands of the common hangman; or my own person from those of a messenger.[13] [Footnote 12: Supposed to be "A proposal for the universal use of Irish manufactures," written by the author. [F.]] [Footnote 13: The reference here is to Swift's sermon on "Doing Good." See Swift's Works, vol. iv., p. 181, present edition. [T.S.]] I have heard the late Chief Justice Holt[14]affirm, that in all criminal cases, the most favourable interpretation should be put upon words, that they can possibly bear. You meet the same position asserted in many trials, for the greatest crimes; though often very ill practised, by the perpetual corruption of judges. And I remember, at a trial in Kent, where Sir George Rook[15] was indicted for calling a gentleman knave and villain; the lawyer for the defendant brought off his client, by alleging, that the words were not injurious; for, _knave_ in the old and true signification, imported only a servant; and _villain_ in Latin, is _villicus_; which is no more than a man employed in country labour; or rather a bailiff. [Footnote 14: Sir John Holt (1642-1710) held the recordership of London, in 1685, and was appointed Lord Chief Justice of the King's Bench in 1688. In the celebrated case, Ashby _v._. White, Holt strongly upheld the rights of the voter as against the House of Commons. He was distinguished, in his time, for the fair and impartial hearing he always accorded a prisoner, and he even personally assisted the accused in cases where the law did not allow him to be represented by counsel. Many of Holt's opinions did become "standard maxims." [T.S.]] [Footnote 15: Admiral Sir George Rooke (1650-1709), who, with Rear-Admiral Byng, captured Gibraltar in 1704. [T.S.]] If Sir John Holt's opinion were a standard maxim for all times and circumstances, any writer, with a very small measure of discretion, might easily be safe; but, I doubt, in practice it hath been frequently controlled, at least before his time; for I take it to be an old rule in law. I have read, or heard, a passage of Signor Leti, an Italian; who being in London, busying himself with writing the History of England, told King Charles the Second, that he endeavoured as much as he could to avoid giving offence, but found it a thing impossible; although he should have been as wise as Solomon: The King answered, that if this were the case, he had better employ his time in writing proverbs as Solomon did: But Leti lay under no public necessity of writing; neither would England have been one halfpenny the better, or the worse, whether he writ or no. This I mention, because I know it will readily be objected, "What have private men to do with the public? What call had a Drapier to turn politician, to meddle in matters of state? Would not his time have been better employed in looking to his shop; or his pen in writing proverbs, elegies, ballads, garlands, and wonders? He would then have been out of all danger of proclamations, and prosecutions. Have we not able magistrates and counsellors hourly watching over the public weal?" All this may be true: And yet, when the addresses from both Houses of Parliament, against Mr. Wood's halfpence, failed of success; if some pen had not been employed, to inform the people how far they might legally proceed, in refusing that coin, to detect the fraud, the artifice, and insolence of the coiner; and to lay open the most ruinous consequences to the whole kingdom; which would inevitably follow from the currency of the said coin; I might appeal to many hundred thousand people, whether any one of them would ever have had the courage or sagacity to refuse it. If this copper should begin to make its way among the common, ignorant people, we are inevitably undone; it is they who give us the greatest apprehension, being easily frighted, and greedy to swallow misinformations: For, if every man were wise enough to understand his own interest, which is every man's principal study, there would be no need of pamphlets upon this occasion. But, as things stand, I have thought it absolutely necessary, from my duty to God, my King, and my country, to inform the people, that the proclamation lately issued against the Drapier, doth not in the least affect the case of Mr. Wood and his coin; but only refers to certain paragraphs in the Drapier's last pamphlet, (not immediately relating to his subject, nor at all to the merits of the cause,) which the government was pleased to dislike; so that any man has the same liberty to reject, to write, and to declare against this coin, which he had before: Neither is any man obliged to believe, that those honourable persons (whereof you are the first) who signed that memorable proclamation against the Drapier, have at all changed their opinions, with regard to Mr. Wood or his coin. Therefore concluding myself to be thus far upon a safe and sure foot; I shall continue, upon any proper occasion, as God enables me, to revive and preserve that spirit raised in the nation, (whether the real author were a real Drapier or no is little to the purpose) against this horrid design of Mr. Wood; at the same time carefully watching every stroke of my pen, and venturing only to incur the public censure of the world as a writer; not of my Lord Chief Justice Whitshed, as a criminal. Whenever an order shall come out by authority, forbidding all men upon the highest penalties, to offer anything in writing or discourse against Mr. Wood's halfpence; I shall certainly submit. However, if that should happen, I am determined to be somewhat more than the last man in the kingdom to receive them; because I will never receive them at all: For, although I know how to be silent; I have not yet learned to pay active obedience against my conscience, and the public safety. I desire to put a case, which I think the Drapier, in some of his books, hath put before me; although not so fully as it requires. You know the copper halfpence in England are coined by the public; and every piece worth pretty tolerably near the value of the copper. Now suppose, that, instead of the public coinage, a patent had been granted to some private, obscure person, for coining a proportionable quantity of copper in that kingdom, to what Mr. Wood is preparing in this; and all of it at least five times below the intrinsic value: The current money of England is reckoned to be twenty millions; and ours under five hundred thousand pounds: By this computation, as Mr. Wood hath power to give us 108,000 pound; so the patentee in England, by the same proportion, might circulate four millions three hundred and twenty thousand pounds; besides as much more by stealth and counterfeits: I desire to know from you, whether the Parliament might not have addressed upon such an occasion; what success they probably would have had; and how many Drapiers would have risen to pester the world with pamphlets: Yet that kingdom would not be so great a sufferer as ours in the like case; because their cash would not be conveyed into foreign countries, but lie hid in the chests of cautious, thrifty men, until better times. Then I desire, for the satisfaction of the public, that you will please to inform me why this country is treated in so very different a manner, in a point of such high importance; whether it be on account of Poining's act; of subordination; dependence; or any other term of art; which I shall not contest, but am too dull to understand. I am very sensible, that the good or ill success of Mr. Wood, will affect you less than any person of consequence in the kingdom; because I hear you are so prudent as to make all your purchases in England; and truly so would I, if I had money, although I were to pay a hundred years' purchase; because I should be glad to possess a freehold that could not be taken from me by any law to which I did not give my own consent; and where I should never be in danger of receiving my rents in mixed copper, at the loss of sixteen shillings in the pound. You can live in ease and plenty at Pepper-harrow, in Surrey; and therefore I thought it extremely generous and public-spirited in you to be of the kingdom's side in this dispute, by shewing, without reserve, your disapprobation of Mr. Wood's design; at least if you have been so frank to others as you were to me; which indeed I could not but wonder at, considering how much we differ in other points; and therefore I could get but few believers, when I attempted to justify you in this article from your own words. I would humbly offer another thought, which I do not remember to have fallen under the Drapier's observation. If these halfpence should once gain admittance; it is agreed, that in no long space of time, what by the clandestine practices of the coiner, what by his own counterfeits, and those of others, either from abroad or at home; his limited quantity would be trebled upon us, until there would not be a grain of gold or silver visible in the nation. This, in my opinion would lay a heavy charge upon the crown, by creating a necessity of transmitting money from England to pay the salaries at least of the principal civil officers: For I do not conceive how a judge (for instance) could support his dignity with a thousand pounds a year in Wood's coin; which would not intrinsically be worth near two hundred. To argue that these halfpence, if no other coin were current, would answer the general ends of commerce among ourselves, is a great mistake; and the Drapier hath made that matter too clear to admit an answer; by shewing us what every owner of land must be forced to do with the products of it in such a distress. You may read his remarks at large in his second and third letter; to which I refer you. Before I conclude, I cannot but observe, that for several months past, there have more papers been written in this town, such as they are, all upon the best public principle, the love of our country, than, perhaps, hath been known in any other nation, and in so short a time: I speak in general, from the Drapier down to the maker of ballads; and all without any regard to the common motives of writers: which are profit, favour, and reputation. As to profit, I am assured by persons of credit, that the best ballad upon Mr. Wood will not yield above a groat to the author; and the unfortunate adventurer Harding, declares he never made the Drapier any present, except one pair of scissors. As to favour, whoever thinks to make his court by opposing Mr. Wood is not very deep in politics. And as to reputation, certainly no man of worth and learning, would employ his pen upon so transitory a subject, and in so obscure a corner of the world, to distinguish himself as an author. So that I look upon myself, the Drapier, and my numerous brethren, to be all true patriots in our several degrees. All that the public can expect for the future, is only to be sometimes warned to beware of Mr. Wood's halfpence; and refer them for conviction to the Drapier's reasons. For, a man of the most superior understanding, will find it impossible to make the best use of it, while he writes in constraint; perpetually softening, correcting, or blotting out expressions, for fear of bringing his printer, or himself, under a prosecution from my Lord Chief-Justice Whitshed. It calls to my remembrance the madman in Don Quixote, who being soundly beaten by a weaver for letting a stone (which he always carried on his shoulder) fall upon a spaniel, apprehended that every cur he met was of the same species. For these reasons, I am convinced, that what I have now written will appear low and insipid; but if it contributes, in the least, to preserve that union among us for opposing this fatal project of Mr. Wood, my pains will not be altogether lost. I sent these papers to an eminent lawyer (and yet a man of virtue and learning into the bargain) who, after many alterations returned them back, with assuring me, that they are perfectly innocent; without the least mixture of treason, rebellion, sedition, malice, disaffection, reflection, or wicked insinuation whatsoever. If the bellman of each parish, as he goes his circuit, would cry out, every night, "Past twelve o'clock; Beware of Wood's halfpence;" it would probably cut off the occasion for publishing any more pamphlets; provided that in country towns it were done upon market days. For my own part, as soon as it shall be determined, that it is not against law, I will begin the experiment in the liberty of St. Patrick's; and hope my example may be followed in the whole city But if authority shall think fit to forbid all writings, or discourses upon this subject, except such as are in favour of Mr. Wood, I will obey as it becomes me; only when I am in danger of bursting, I will go and whisper among the reeds, not any reflection upon the wisdom of my countrymen; but only these few words, BEWARE OF WOOD'S HALFPENCE. I am, With due Respect, Your Most Obedient, Humble Servant, J.S. Deanery House, Oct. 26, 1724. LETTER VI A LETTER TO THE RIGHT HONOURABLE THE LORD VISCOUNT MOLESWORTH. NOTE. This letter, hitherto styled the Drapier's fifth letter, is here printed as the sixth, for the reasons already stated. It was published on the 14th December, 1724, at a time when the Drapier agitation had reached its last stage. The Drapier had taught his countrymen that "to be brave is to be wise," and he now struck the final blow that laid prostrate an already tottering opposition. Walpole realized that to govern Ireland from England he must have a trustier aid, a heavier hand, and a more vigilant eye, than were afforded in Carteret. Carteret, however, was better away in Ireland, and, moreover, as Lord-Lieutenant, he was an ameliorating influence on the Irish patriotic party in Dublin. But that party was now backed by a very important popular opinion. For the present, therefore, he gave way; but his real feelings might have been discovered by an interpretation of his appointment of Hugh Boulter as Archbishop of Armagh and Primate of Ireland.[1] Boulter's letter to the Duke of Newcastle, written after his arrival in Dublin towards the end of November, 1724, gave a very unambiguous account of the state of the country towards the patent. On the 3rd of December, he wrote, "We are at present in a very bad state, and the people so poisoned with apprehensions of Wood's halfpence, that I do not see there can be any hopes of justice against any person for seditious writings, if he does but mix somewhat about Wood in them.... But all sorts here are determinedly set against Wood's halfpence, and look upon their estates as half sunk in their value, whenever they shall pass upon the nation."[2] On January 19th 1724-1725, the Primate wrote again to the same effect. On the 3rd of July, he hopes that, as parliament is about to meet, the Lord-Lieutenant "will be impowered in his speech to speak clearly as to the business of the halfpence, and thoroughly rid this nation of their fear on that head."[3] Boulter's advice was taken. On the 14th August, 1725, a vacation of the patent was issued, and when parliament met shortly after, the Lord-Lieutenant was able, in his speech, to announce that his Majesty had put an entire end to the patent granted Wood for coining copper halfpence and farthings. He alluded to the surrender as a remarkable instance of royal favour and condescension which should fill the hearts of a loyal and obedient people with the highest sense of duty and gratitude. He doubted not the Houses would make suitable acknowledgment of their sense of happiness enjoyed under his Majesty's most mild and gracious government.[4] [Footnote 1: See note on pp. 111-112.] [Footnote 2: Boulter's letter, vol. i., p. 3. Dublin edition, 1770.] [Footnote 3: _Ibid_., p. 29.] [Footnote 4: Comm. Journals, vol. iii., p. 398.] The Commons unanimously voted an address suitable to the occasion and in harmony with the Lord-Lieutenant's suggestion. But the Lords procrastinated in debates. It was a question whether their address should or should not include the words "great wisdom" in addition to the word "condescension" to express their sense of his Majesty's action. Finally, however, the address was forthcoming, though not before some strenuous expressions of opinion had been made by Midleton and Archbishop King against Walpole's administration. As passed, their Address included the debated words; as presented the Address omitted them. Thus ended this famous agitation in which the people of Ireland won their first victory over England by constitutional means. Wood was no loser by the surrender; indeed, he was largely the gainer, since he was given a pension of £3,000 per annum for twelve years.[5] [Footnote 5: Coxe says for eight years.] Now that the fight was over the people, to use Scott's words, "turned their eyes with one consent on the man, by whose unbending fortitude, and pre-eminent talents, this triumph was accomplished." He was hailed joyously and blessed fervently wherever he went; the people almost idolized him; he was their defender and their liberator. No monarch visiting his domains could have been received with greater honour than was Swift when he came into a town. Medals and medallions were struck in his honour. A club was formed to the memory of the Drapier; shops and taverns bore the sign of the Drapier's Head; children and women carried handkerchiefs with the Drapier's portrait woven in them. All grades of society respected him for an influence that, founded in sincerity and guided by integrity and consummate ability, had been used patriotically. The DEAN became Ireland's chiefest citizen; and Irishmen will ever revere the memory of the man who was the first among them to precipitate their national instincts into the abiding form of national power--the reasoned opinion of a free people. The text of this letter is based on that given by Sir Walter Scott, collated with the original edition and with the text given in "Fraud Detected" (1725). [T.S.] [Illustration: A **LETTER** To the Right Honourable the *Lord Viscount _Molesworth_.* * * * * * By _M.B. Drapier_, Author of the Letter to the _Shop-keepers_, &c. * * * * * They compassed me about also with Words of Deceit, and fought against me without a Cause. For my Love they are my Adversaries, but I give my self unto Prayer. And they have rewarded me Evil for Good, and Hatred for my Love. _Psalm_ 109. _v_. 3, 4, 5. Seek not to be Judge, being not able to take away Iniquity, lest at any Time thou fear the Person of the Mighty, and lay a stumbling Block in the Way of thy Uprightness. Offend not against the Multitude of a City, and then thou shalt not cast thy self down among the People. Bind not one Sin upon another, for in One thou shalt not be Unpunished. _Ecclus_. Ch. 7. V. 6, 7, 8. * * * * * _Non jam prima peto Mnesttheus, neque vincere certo: Quanquam O! Sed superent, quibus Hoc, Neptune, dedisti._ * * * * * DUBLIN: Printed by _John Harding_ in _Molesworth's Court_ in _Fishamble-street_. ] DIRECTIONS TO THE PRINTER. MR. HARDING, When I sent you my former papers, I cannot say I intended you either good or hurt, and yet you have happened through my means to receive both. I pray God deliver you from any more of the latter, and increase the former. Your trade, particularly in this kingdom, is of all others the most unfortunately circumstantiated; For as you deal in the most worthless kind of trash, the penny productions of pennyless scribblers, so you often venture your liberty and sometimes your lives, for the purchase of half-a-crown, and by your own ignorance are punished for other men's actions. I am afraid, you in particular think you have reason to complain of me for your own and your wife's confinement in prison, to your great expense, as well as hardship, and for a prosecution still impending. But I will tell you, Mr. Harding, how that matter stands. Since the press hath lain under so strict an inspection, those who have a mind to inform the world are become so cautious, as to keep themselves if possible out of the way of danger. My custom is to dictate to a 'prentice who can write in a feigned hand, and what is written we send to your house by a blackguard boy. But at the same time I do assure you upon my reputation, that I never did send you anything, for which I thought you could possibly be called to an account. And you will be my witness that I always desired you by a letter to take some good advice before you ventured to print, because I knew the dexterity of dealers in the law at finding out something to fasten on where no evil is meant; I am told indeed, that you did accordingly consult several very able persons, and even some who afterwards appeared against you: To which I can only answer, that you must either change your advisers, or determine to print nothing that comes from a Drapier. I desire you will send the enclosed letter, directed "To my Lord Viscount Molesworth at his house at Brackdenstown near Swords;" but I would have it sent printed for the convenience of his Lordship's reading, because this counterfeit hand of my 'prentice is not very legible. And if you think fit to publish it, I would have you first get it read over carefully by some notable lawyer: I am assured you will find enough of them who are friends to the Drapier, and will do it without a fee, which I am afraid you can ill afford after all your expenses. For although I have taken so much care, that I think it impossible to find a topic out of the following papers for sending you again to prison; Yet I will not venture to be your guarantee. This ensuing letter contains only a short account of myself, and an humble apology for my former pamphlets, especially the last, with little mention of Mr. Wood or his halfpence, because I have already said enough upon that subject, until occasion shall be given for new fears; and in that case you may perhaps hear from me again. I am, Your Friend and Servant, M.B. From my shop in St. Francis-street Dec. 14. 1724. _P.S._ For want of intercourse between you and me, which I never will suffer, your people are apt to make very gross errors in the press, which I desire you will provide against. LETTER VI A LETTER TO THE RIGHT HONOURABLE THE LORD VISCOUNT MOLESWORTH, AT HIS HOUSE AT BRACKDENSTOWN NEAR SWORDS.[6] My Lord, I reflect too late on the maxim of common observers, that "those who meddle in matters out of their calling, will have reason to repent;" which is now verified in me: For by engaging in the trade of a writer, I have drawn upon myself the displeasure of the government, signified by a proclamation promising a reward of three hundred pounds to the first faithful subject who shall be able and inclined to inform against me. To which I may add the laudable zeal and industry of my Lord Chief Justice [Whitshed] in his endeavours to discover so dangerous a person. Therefore whether I repent or no, I have certainly cause to do so, and the common observation still stands good. [Footnote 6: Robert, Viscount Molesworth (1656-1725), born in Dublin and educated at the University there, was a prominent adherent of the Prince of Orange during the Revolution of 1688. In 1692 William sent him to Denmark as envoy-extraordinary to the Court at Copenhagen; but he left abruptly because of the offence he gave there. Retiring to Flanders, Molesworth revenged himself by writing, "An Account of Denmark as it was in 1692," in which he described that country as no fit place for those who held their liberties dearly. Molesworth had been strongly imbued with the republican teachings of Algernon Sidney, and his book affords ample proof of the influence. Its publication aroused much indignation, and a controversy ensued in which Swift's friend, Dr. William King, took part. In 1695 Molesworth returned to Ireland, became a Privy Councillor in 1697, sat in the Irish parliament in 1703-1705, and in the English House of Commons from 1705 to 1708. In 1713 he was removed from the Irish Privy Council on a charge of a treasonable utterance, which Steele vindicated in "The Englishman" and "The Crisis." The accession of George I., however, brought Molesworth into his honours again, and he was created Baron Molesworth of Philipstown, and Viscount Molesworth of Swords, in 1719. His work entitled "Considerations for Promoting Agriculture," issued in 1723, was considered by Swift as "an excellent discourse, full of most useful hints." At the time Swift addressed him this sixth letter, Molesworth was living in retirement at Brackdenstown. [T.S.]] It will sometimes happen, I know not how in the course of human affairs, that a man shall be made liable to legal animadversions, where he has nothing to answer for, either to God or his country; and condemned at Westminster-hall for what he will never be charged with at the Day of Judgment. After strictly examining my own heart, and consulting some divines of great reputation, I cannot accuse myself of any "malice or wickedness against the public;" of any "designs to sow sedition," of "reflecting on the King and his ministers," or of endeavouring "to alienate the affections of the people of this kingdom from those of England."[7] All I can charge myself with, is a weak attempt to serve a nation in danger of destruction by a most wicked and malicious projector, without waiting until I were called to its assistance; which attempt, however it may perhaps give me the title of _pragmatical_ and _overweening_ will never lie a burthen upon my conscience. God knows whether I may not with all my caution have already run myself into danger, by offering thus much in my own vindication. For I have heard of a judge, who, upon the criminal's appeal to the dreadful Day of Judgment, told him he had incurred a _premunire_ for appealing to a foreign jurisdiction: And of another in Wales, who severely checked the prisoner for offering the same plea, taxing him with reflecting on the Court by such a comparison, because "comparisons were odious." [Footnote 7: The quotations are from the charges stated in the indictment and proclamation against the writer and printer of the previous letters. [T.S.] ] But in order to make some excuse for being more speculative than others of my condition, I desire your lordship's pardon, while I am doing a very foolish thing, which is, to give you some little account of myself. I was bred at a free school where I acquired some little knowledge in the Latin tongue, I served my apprenticeship in London, and there set up for myself with good success, till by the death of some friends, and the misfortunes of others, I returned into this kingdom, and began to employ my thoughts in cultivating the woollen manufacture through all its branches Wherein I met with great discouragement and powerful opposers, whose objections appeared to me very strange and singular They argued that the people of England would be offended if our manufactures were brought to equal theirs; and even some of the weaving trade were my enemies, which I could not but look upon as absurd and unnatural I remember your lordship at that time did me the honour to come into my shop, where I shewed you a piece of black and white stuff just sent from the dyer, which you were pleased to approve of, and be my customer for it.[8] [Footnote 8: The "piece of black and white stuff just sent from the dyer," refers to his pamphlet, issued in 1720, "The Proposal for the Universal Use of Irish Manufactures." See vol. vii. [T.S.]] However I was so mortified, that I resolved for the future to sit quietly in my shop, and deal in common goods like the rest of my brethren; till it happened some months ago considering with myself that the lower and poorer sort of people wanted a _plain strong coarse stuff to defend them against cold easterly winds, which then blew very fierce and blasting for a long time together_, I contrived one on purpose, which sold very well all over the kingdom, and preserved many thousands from agues I then made a second and a third kind of stuffs for the gentry with the same success, insomuch that an ague hath hardly been heard of for some time.[9] [Footnote 9: The "cold easterly winds" refer to the demands made on the Irish people to accept Wood's halfpence. The three different kinds of "stuffs" are the three letters written under the _nom de guerre,_ "M.B. Drapier." [T.S.]] This incited me so far, that I ventured upon a fourth piece made of the best Irish wool I could get, and I thought it grave and rich enough to be worn by the best lord or judge of the land. But of late some great folks complain as I hear, "that when they had it on, they felt a shuddering in their limbs," and have thrown it off in a rage, cursing to hell the poor Drapier who invented it, so that I am determined never to work for persons of quality again, except for your lordship and a very few more.[10] [Footnote 10: This refers to the fourth letter of the Drapier, which brought forth the proclamation, and for the author of which the reward of £300 was offered. [T.S.]] I assure your lordship upon the word of an honest citizen, that I am not richer by the value of one of Mr. Wood's halfpence with the sale of all the several stuffs I have contrived; for I give the whole profit to the dyers and pressers.[11] And therefore I hope you will please to believe, that no other motive beside the love of my country could engage me to busy my head and hands to the loss of my time and the gain of nothing but vexation and ill-will. [Footnote 11: The printers [F.]] I have now in hand one piece of stuff to be woven on purpose for your lordship, although I might be ashamed to offer it you, after I have confessed that it will be made only from the shreds and remnants of the wool employed in the former. However I shall work it up as well as I can, and at worst, you need only give it among your tenants. I am very sensible how ill your lordship is like to be entertained with the pedantry of a drapier in the terms of his own trade. How will the matter be mended, when you find me entering again, though very sparingly, into an affair of state; for such is now grown the controversy with Mr. Wood, if some great lawyers are to be credited. And as it often happens at play, that men begin with farthings, and go on to gold, till some of them lose their estates, and die in jail; so it may possibly fall out in my case, that by playing too long with Mr. Wood's halfpence, I may be drawn in to pay a fine, double to the reward for betraying me, be sent to prison, and "not be delivered thence till I shall have paid the uttermost farthing." There are my lord, three sorts of persons with whom I am resolved never to dispute: A highwayman with a pistol at my breast, a troop of dragoons who come to plunder my house, and a man of the law who can make a merit of accusing me. In each of these cases, which are almost the same, the best method is to keep out of the way, and the next best is to deliver your money, surrender your house, and confess nothing. I am told that the two points in my last letter, from which an occasion of offence hath been taken, are where I mention His Majesty's answer to the address of the House of Lords upon Mr. Wood's patent, and where I discourse upon Ireland's being a dependent kingdom. As to the former, I can only say, that I have treated it with the utmost respect and caution, and I thought it necessary to shew where Wood's patent differed in many essential parts from all others that ever had been granted, because the contrary had for want of due information been so strongly and so largely asserted. As to the other, of Ireland's dependency, I confess to have often heard it mentioned, but was never able to understand what it meant. This gave me the curiosity to enquire among several eminent lawyers, who professed they knew nothing of the matter. I then turned over all the statutes of both kingdoms without the least information, further than an Irish act, that I quoted, of the 33d of Henry 8th, uniting Ireland to England under one king. I cannot say I was sorry to be disappointed in my search, because it is certain, I could be contented to depend only upon God and my prince and the laws of my own country, after the manner of other nations. But since my betters are of a different opinion, and desire further dependencies, I shall readily submit, not insisting on the exception I made of M.B. Drapier. For indeed that hint was borrowed from an idle story I had heard in England, which perhaps may be common and beaten, but because it insinuates neither treason nor sedition, I will just barely relate it. Some hundred years ago when the peers were so great that the commons were looked upon as little better than their dependents, a bill was brought in for making some new additions to the power and privileges of the peerage. After it was read, one Mr. Drewe a member of the house, stood up, and said, he very much approved the bill, and would give his vote to have it pass; but however, for some reasons best known to himself, he desired that a clause might be inserted for excepting the family of the Drewes. The oddness of the proposition taught others to reflect a little, and the bill was thrown out. Whether I were mistaken, or went too far in examining the dependency must be left to the impartial judgment of the world, as well as to the courts of judicature, although indeed not in so effectual and decisive a manner. But to affirm, as I hear some do, in order to countenance a fearful and servile spirit, that this point did not belong to my subject, is a false and foolish objection. There were several scandalous reports industriously spread by Wood and his accomplices to discourage all opposition against his infamous project. They gave it out that we were prepared for a rebellion, that we disputed the King's prerogative, and were shaking off our dependency. The first went so far, and obtained so much belief against the most visible demonstrations to the contrary, that a great person of this kingdom, now in England, sent over such an account of it to his friends, as would make any good subject both grieve and tremble. I thought it therefore necessary to treat that calumny as it deserved. Then I proved by an invincible argument that we could have no intention to dispute His Majesty's prerogative, because the prerogative was not concerned in the question, the civilians and lawyers of all nations agreeing that copper is not money. And lastly to clear us from the imputation of shaking off our dependency, I shewed wherein as I thought this dependency consisted, and cited the statute above mentioned made in Ireland, by which it is enacted, that "whoever is King of England shall be King of Ireland," and that the two kingdoms shall be "for ever knit together under one King." This, as I conceived, did wholly acquit us of intending to break our dependency, because it was altogether out of our power, for surely no King of England will ever consent to the repeal of that statute. But upon this article I am charged with a heavier accusation. It is said I went too far, when I declared, that "if ever the Pretender should come to be fixed upon the throne of England (which God forbid) I would so far venture to transgress this statute, that I would lose the last drop of my blood before I would submit to him as King of Ireland." This I hear on all sides, is the strongest and weightiest objection against me, and which hath given the most offence; that I should be so bold to declare against a direct statute, and that any motive how strong soever, could make me reject a King whom England should receive. Now if in defending myself from this accusation I should freely confess, that I "went too far," that "the expression was very indiscreet, although occasioned by my zeal for His present Majesty and his Protestant line in the House of Hanover," that "I shall be careful never to offend again in the like kind." And that "I hope this free acknowledgment and sorrow for my error, will be some atonement and a little soften the hearts of my powerful adversaries." I say if I should offer such a defence as this, I do not doubt but some people would wrest it to an ill meaning by some spiteful interpretation, and therefore since I cannot think of any other answer, which that paragraph can admit, I will leave it to the mercy of every candid reader. I will now venture to tell your lordship a secret, wherein I fear you are too deeply concerned You will therefore please to know that this habit of writing and discoursing, wherein I unfortunately differ from almost the whole kingdom, and am apt to grate the ears of more than I could wish, was acquired during my apprenticeship in London, and a long residence there after I had set up for myself. Upon my return and settlement here, I thought I had only changed one country of freedom for another. I had been long conversing with the writings of your lordship,[12] Mr. Locke, Mr. Molineaux,[13] Colonel Sidney[14] and other dangerous authors, who talk of "liberty as a blessing, to which the whole race of mankind hath an original title, whereof nothing but unlawful force can divest them." I knew a good deal of the several Gothic institutions in Europe, and by what incidents and events they came to be destroyed; and I ever thought it the most uncontrolled and universally agreed maxim, that _freedom_ consists in a people being governed by laws made with their own consent; and _slavery_ in the contrary. I have been likewise told, and believe it to be true, that _liberty_ and _property_ are words of known use and signification in this kingdom, and that the very lawyers pretend to understand, and have them often in their mouths. These were the errors which have misled me, and to which alone I must impute the severe treatment I have received. But I shall in time grow wiser, and learn to consider my driver, the road I am in, and with whom I am yoked. This I will venture to say, that the boldest and most obnoxious words I ever delivered, would in England have only exposed me as a stupid fool, who went to prove that the sun shone in a clear summer's day; and I have witnesses ready to depose that your lordship hath said and writ fifty times worse, and what is still an aggravation, with infinitely more wit and learning, and stronger arguments, so that as politics run, I do not know a person of more exceptionable principles than yourself; and if ever I shall be discovered, I think you will be bound in honour to pay my fine and support me in prison; or else I may chance to inform against you by way of reprisal.[15] [Footnote 12: See note _ante_, p. 161. [T.S.]] [Footnote 13: William Molyneux (1656-1698), the correspondent of John Flamsteed and Locke. His "Dioptrica Nova" contains a warm appreciation of Locke's "Essay on the Human Understanding." He died in October, 1698, but in the early part of this year, he published his famous inquiry into the effect of English legislation on Irish manufactures. The work was entitled, "The Case of Ireland's being bound by Acts of Parliament in England stated," and its publication made a great stir both in England and in Ireland. Molyneux attempted to show that the Irish Parliament was independent of the English Parliament. His book was reported by a Committee of the House of Commons, on June 22nd, 1698, to be "of dangerous consequence to the Crown and Parliament of England," but the matter went no further than embodying this resolution of the committee in an address to the King. [T.S.]] [Footnote 14: Algernon Sidney (1622-1682), the author of the well known "Discourses concerning Government," and the famous republican of the Cromwellian and Restoration years, was the second surviving son of the second Earl of Leicester His career as soldier, statesman, agitator, ambassador and author, forms an interesting and even fascinating chapter of the story of this interesting period of English history. He was tried for treason before Jeffreys, and in spite of a most excellent defence, sentenced to death. His execution took place on December 7th, 1682. [T. S.]] [Footnote 15: A writer, signing himself M.M., replying to this letter of Swift's in a broadside entitled, "Seasonable Advice to M.B. Drapier, Occasioned by his Letter to the R--t. Hon. the Lord Visct. Molesworth," actually takes this paragraph to mean that Swift intended seriously to turn informer: "Now sir, some people are of opinion that you carried this too far, inasmuch as you become a precedent to informers: others think that you intimate to his lordship, the miserable circumstance you are in by the menaces of the prentice to whom you dictate; they conceive your declaring to inform, if not fee'd, to the contrary, signifies your said prentice on the last occasion to swear, if you don't forthwith deliver him his indentures, and half of your stock to set up trade with, he will inform against you, bring you to justice, be dismissed by law, and get the promised £300 to begin trade with; how near these conceptions be to truth I can't tell; but I know people think that word _inform_ unseasonable. . . ." [T.S.]] In the meantime, I beg your lordship to receive my confession, that if there be any such thing as a dependency of Ireland upon England, otherwise than as I have explained it, either by the law of God, of nature, of reason, of nations, or of the land (which I shall never hereafter contest,) then was the proclamation against me, the most merciful that ever was put out, and instead of accusing me as malicious, wicked and seditious, it might have been directly as guilty of high treason. All I desire is, that the cause of my country against Mr. Wood may not suffer by any inadvertency of mine; Whether Ireland depends upon England, or only upon God, the King and the law, I hope no man will assert that it depends upon Mr. Wood. I should be heartily sorry that this commendable resentment against me should accidentally (and I hope, what was never intended) strike a damp upon that spirit in all ranks and corporations of men against the desperate and ruinous design of Mr. Wood. Let my countrymen blot out those parts in my last letter which they dislike, and let no rust remain on my sword to cure the wounds I have given to our most mortal enemy. When Sir Charles Sidley[16] was taking the oaths, where several things were to be renounced, he said "he loved renouncing," asked "if any more were to be renounced, for he was ready to renounce as much as they pleased." Although I am not so thorough a renouncer; yet let me have but good city security against this pestilent coinage, and I shall be ready not only to renounce every syllable in all my four letters, but to deliver them cheerfully with my own hands into those of the common hangman, to be burnt with no better company than the coiner's _effigies,_ if any part of it hath escaped out of the secular hands of the rabble. [Footnote 16: This must be Sir Charles Sedley (properly Sidley), the famous wit and dramatist of Charles II.'s reign. In his reprint of 1735, Faulkner prints the name "Sidley," though the original twopenny tract and the "Hibernian Patriot" print it as "Sidney." Sir W. Scott corrects it to "Sedley." [T.S.]] But whatever the sentiments of some people may be, I think it is agreed that many of those who subscribed against me, are on the side of a vast majority in the kingdom who opposed Mr. Wood; and it was with great satisfaction that I observed some right honourable names very amicably joined with my own at the bottom of a strong declaration against him and his coin. But if the admission of it among us be already determined the worthy person who is to betray me ought in prudence to do it with all convenient speed, or else it may be difficult to find three hundred pounds in sterling for the discharge of his hire; when the public shall have lost five hundred thousand, if there be so much in the nation; besides four-fifths of its annual income for ever. I am told by lawyers, that in all quarrels between man and man, it is of much weight, which of them gave the first provocation or struck the first blow. It is manifest that Mr. Wood hath done both, and therefore I should humbly propose to have him first hanged and his dross thrown into the sea; after which the Drapier will be ready to stand his trial. "It must needs be that offences come, but woe unto him by whom the offence cometh." If Mr. Wood had held his hand every body else would have held their tongues, and then there would have been little need of pamphlets, juries, or proclamations upon this occasion. The provocation must needs have been great, which could stir up an obscure indolent Drapier to become an author. One would almost think the very stones in the street would rise up in such a cause: And I am not sure they will not do so against Mr. Wood if ever he comes within their reach. It is a known story of the dumb boy, whose tongue forced a passage for speech by the horror of seeing a dagger at his father's throat. This may lessen the wonder that a tradesman hid in privacy and silence should cry out when the life and being of his political mother are attempted before his face, and by so infamous a hand. But in the meantime, Mr. Wood the destroyer of a kingdom walks about in triumph (unless it be true that he is in jail for debt) while he who endeavoured to assert the liberty of his country is forced to hide his head for occasionally dealing in a matter of controversy. However I am not the first who hath been condemned to death for gaining a great victory over a powerful enemy, by disobeying for once the strict orders of military discipline. I am now resolved to follow (after the usual proceeding of mankind, because it is too late) the advice given me by a certain Dean. He shewed the mistake I was in of trusting to the general good-will of the people, "that I had succeeded hitherto better than could be expected, but that some unfortunate circumstantial lapse would probably bring me within the reach of power. That my good intentions would be no security against those who watched every motion of my pen, in the bitterness of my soul." He produced an instance of "a writer as innocent, as disinterested, and as well meaning as myself, where the printer, who had the author in his power, was prosecuted with the utmost zeal, the jury sent back nine times, and the man given up to the mercy of the court."[17] The Dean further observed "that I was in a manner left alone to stand the battle, while others who had ten thousand times better talents than a Drapier, were so prudent to lie still, and perhaps thought it no unpleasant amusement to look on with safety, while another was giving them diversion at the hazard of his liberty and fortune, and thought they made a sufficient recompense by a little applause." Whereupon he concluded with a short story of a Jew at Madrid, who being condemned to the fire on account of his religion, a crowd of school-boys following him to the stake, and apprehending they might lose their sport, if he should happen to recant, would often clap him on the back, and cry, "_Sta firme Moyse_ (Moses, continue steadfast)." [Footnote 17: This was for the publication of "A Proposal for the Universal Use of Irish Manufactures." [T.S.]] I allow this gentleman's advice to have been good, and his observations just, and in one respect my condition is worse than that of the Jew, for no recantation will save me. However it should seem by some late proceedings, that my state is not altogether deplorable. This I can impute to nothing but the steadiness of two impartial grand juries, which hath confirmed in me an opinion I have long entertained, that, as philosophers say, "virtue is seated in the middle," so in another sense, the little virtue left in the world is chiefly to be found among the middle rank of mankind, who are neither allured out of her paths by ambition, nor driven by poverty. Since the proclamation occasioned by my last letter, and a due preparation for proceeding against me in a court of justice, there have been two printed papers clandestinely spread about, whereof no man is able to trace the original further than by conjecture, which with its usual charity lays them to my account. The former is entitled, "Seasonable Advice,"[18] and appears to have been intended for information of the grand jury, upon the supposition of a bill to be prepared against that letter. The other[19] is an extract from a printed book of Parliamentary Proceedings in the year 1680 containing an angry resolution of the House of Commons in England against dissolving grand juries. As to the former, your lordship will find it to be the work of a more artful hand than that of a common Drapier. It hath been censured for endeavouring to influence the minds of a jury, which ought to be wholly free and unbiassed, and for that reason it is manifest that no judge was ever known either upon or off the bench, either by himself or his dependents, to use the least insinuation that might possibly affect the passions or interests of any one single juryman, much less of a whole jury; whereof every man must be convinced who will just give himself the trouble to dip into the common printed trials; so as, it is amazing to think, what a number of upright judges there have been in both kingdoms for above sixty years past, which, considering how long they held their offices during pleasure, as they still do among us, I account next to a miracle. [Footnote 18: See p. 123. [T.S.]] [Footnote 19: See note on p. 127. [T.S.]] As to the other paper I must confess it is a sharp censure of an English House of Commons against dissolving grand juries by any judge before the end of the term, assizes, or sessions, while matters are under their consideration, and not presented; is arbitrary, illegal, destructive to public justice, a manifest violation of his oath, and is a means to subvert the fundamental laws of the kingdom. However, the publisher seems to have been mistaken in what he aimed at. For, whatever dependence there may be of Ireland upon England, I hope he would not insinuate, that the proceedings of a lord chief justice in Ireland must depend upon a resolution of an English House of Commons. Besides, that resolution although it were levelled against a particular lord chief justice, Sir William Scroggs,[20] yet the occasion was directly contrary: For Scroggs dissolved the grand jury of London for fear they should present, but ours in Dublin was dissolved because they would not present, which wonderfully alters the case. And therefore a second grand jury supplied that defect by making a presentment[21] that hath pleased the whole kingdom. However I think it is agreed by all parties, that both the one and the other jury behaved themselves in such a manner, as ought to be remembered to their honour, while there shall be any regard left among us for virtue or public spirit. [Footnote 20: Sir William Scroggs (1623?-1683) was appointed Lord Chief Justice of England on the removal of Sir Thomas Ramsford in 1678. One of the eight articles of impeachment against Scroggs, in 1680, was for illegally discharging the grand jury of Middlesex before the end of the term. Although the articles of impeachment were carried to the House of Lords in 1681, the proceedings went no farther than ordering him to find bail and file his answer by a certain time. Scroggs was removed, on account of his unpopularity, on April 11th, 1681. As a lawyer, Scroggs has no great reputation; as a judge he must be classed with the notorious Jeffreys. [T.S.]] [Footnote 21: See Appendix No. V. [T.S.]] I am confident your lordship will be of my sentiments in one thing, that some short plain authentic tract might be published for the information both of petty and grand juries, how far their power reacheth, and where it is limited, and that a printed copy of such a treatise might be deposited in every court, to be consulted by the jurymen before they consider of their verdict; by which abundance of inconveniences would be avoided, whereof innumerable instances might be produced from former times, because I will say nothing of the present. I have read somewhere of an eastern king who put a judge to death for an iniquitous sentence, and ordered his hide to be stuffed into a cushion, and placed upon the tribunal for the son to sit on, who was preferred to his father's office. I fancy such a memorial might not have been unuseful to a son of Sir William Scroggs, and that both he and his successors would often wriggle in their seats as long as the cushion lasted. I wish the relater had told us what number of such cushions there might be in that country. I cannot but observe to your lordship how nice and dangerous a point it is grown for a private person to inform the people even in an affair where the public interest and safety are so highly concerned as that of Mr. Wood, and this in a country where loyalty is woven into the very hearts of the people, seems a little extraordinary. Sir William Scroggs was the first who introduced that commendable acuteness into the courts of judicature; but how far this practice hath been imitated by his successors or strained upon occasion, is out of my knowledge. When pamphlets unpleasing to the ministry were presented as libels, he would order the offensive paragraphs to be read before him, and said it was strange that the judges and lawyers of the King's Bench should be duller than all the people of England; and he was often so very happy in applying the initial letters of names, and expounding dubious hints (the two common expedients among writers of that class for escaping the law) that he discovered much more than ever the authors intended, as many of them or their printers found to their cost. If such methods are to be followed in examining what I have already written or may write hereafter upon the subject of Mr. Wood, I defy any man of fifty times my understanding and caution to avoid being entrapped, unless he will be content to write what none will read, by repeating over the old arguments and computations, whereof the world is already grown weary. So that my good friend Harding lies under this dilemma, either to let my learned works hang for ever a drying upon his lines, or venture to publish them at the hazard of being laid by the heels. I need not tell your lordship where the difficulty lies. It is true, the King and the laws permit us to refuse this coin of Mr. Wood, but at the same time it is equally true, that the King and the laws permit us to receive it. Now it is most certain the ministers in England do not suppose the consequences of uttering that brass among us to be so ruinous as we apprehend; because doubtless if they understood it in that light, they are persons of too much honour and justice not to use their credit with His Majesty for saving a most loyal kingdom from destruction. But as long as it shall please those great persons to think that coin will not be so very pernicious to us, we lie under the disadvantage of being censured as obstinate in not complying with a royal patent. Therefore nothing remains, but to make use of that liberty which the King and the laws have left us, by continuing to refuse this coin, and by frequent remembrances to keep up that spirit raised against it, which otherwise may be apt to flag, and perhaps in time to sink altogether. For, any public order against receiving or uttering Mr. Wood's halfpence is not reasonably to be expected in this kingdom, without directions from England, which I think nobody presumes, or is so sanguine to hope. But to confess the truth, my lord, I begin to grow weary of my office as a writer, and could heartily wish it were devolved upon my brethren, the makers of songs and ballads, who perhaps are the best qualified at present to gather up the gleanings of this controversy. As to myself, it hath been my misfortune to begin and pursue it upon a wrong foundation. For having detected the frauds and falsehoods of this vile impostor Wood in every part, I foolishly disdained to have recourse to whining, lamenting, and crying for mercy, but rather chose to appeal to law and liberty and the common rights of mankind, without considering the climate I was in. Since your last residence in Ireland, I frequently have taken my nag to ride about your grounds, where I fancied myself to feel an air of freedom breathing round me, and I am glad the low condition of a tradesman did not qualify me to wait on you at your house, for then I am afraid my writings would not have escaped severer censures. But I have lately sold my nag, and honestly told his greatest fault, which was that of snuffing up the air about Brackdenstown, whereby he became such a lover of liberty, that I could scarce hold him in. I have likewise buried at the bottom of a strong chest your lordship's writings under a heap of others that treat of liberty, and spread over a layer or two of Hobbes, Filmer, Bodin[22] and many more authors of that stamp, to be readiest at hand whenever I shall be disposed to take up a new set of principles in government. In the mean time I design quietly to look to my shop, and keep as far out of your lordship's influence as possible; and if you ever see any more of my writings upon this subject, I promise you shall find them as innocent, as insipid and without a sting as what I have now offered you. But if your lordship will please to give me an easy lease of some part of your estate in Yorkshire,[23] thither will I carry my chest and turning it upside down, resume my political reading where I left it off; feed on plain homely fare, and live and die a free honest English farmer: But not without regret for leaving my countrymen under the dread of the brazen talons of Mr. Wood: My most loyal and innocent countrymen, to whom I owe so much for their good opinion of me, and of my poor endeavours to serve them, I am with the greatest respect, My Lord Your Lordship's most obedient and most humble servant, M.B. From my shop in St. Francis-Street, Dec. 14. 1724. [Footnote 22: Sir Robert Filmer, the political writer who suffered for his adhesion to the cause of Charles I. His chief work was published after his death in 1680. It is entitled, "Patriarcha," and defends the patriarchal theory of government against the social-compact theory of Hobbes. Locke vigorously attacked it in his "Two Treatises on Government" published in 1690. Jean Bodin, who died in 1596, wrote the "Livres de la Republique," a remarkable collection of information and speculation on the theoretical basis of political government. [T.S.]] [Footnote 23: Molesworth's estate in Yorkshire was at Edlington, near Tickhill. [T.S.]] LETTER VII. AN HUMBLE ADDRESS TO BOTH HOUSES OF PARLIAMENT. BY M.B. DRAPIER. "Multa gemens ignominiam Plagasque superbi Victoris.--" [VIRGIL, _Georg. III._, 226-7.] NOTE. This letter was published in the fourth volume of the collected edition of Swift's Works, issued by Faulkner, in Dublin, in 1735. It is there stated that it was written "before the Lord Carteret came over, and soon after the fourth Drapier's letter." If Faulkner be correct, and he probably is, the subject matter of the letter shows that it was not to be printed until after the agitation had subsided. The letter is in an entirely different spirit from the other letters, and deals with suggestions and methods of action for a general righting of the wrongs under which Ireland was suffering. In matter as well as in manner it is not a continuation of the contest against Wood, but an effort to send the people along paths which would lead to their general welfare and prosperity. As such it properly concludes the Drapier series. The text of the letter here printed is that of Faulkner collated with that given in the fifth volume of "Miscellanies," issued in London in. 1735. [T.S.] LETTER VII. AN HUMBLE ADDRESS TO BOTH HOUSES OF PARLIAMENT. I have been told, that petitions and addresses, either to King or Parliament, are the right of every subject; providing they consist with that respect, which is due to princes and great assemblies. Neither do I remember, that the modest proposals, or opinions of private men, have been ill-received, when they have not been delivered in the style of advice; which is a presumption far from my thoughts. However, if proposals should be looked upon as too assuming; yet I hope, every man may be suffered to declare his own and the nation's wishes. For instance; I may be allowed to wish, that some further laws were enacted for the advancement of trade, for the improvement of agriculture, now strangely neglected, against the maxim of all wise nations: For supplying the manifest defects in the acts concerning plantation of trees: For setting the poor to work, and many others. Upon this principle, I may venture to affirm; it is the hearty wish of the whole nation, very few excepted; that the Parliament in this session would begin by strictly examining into the detestable fraud of one William Wood, now or late of London, hardwareman; who illegally and clandestinely, as appears by your own votes and addresses, procured a patent in England, for coining halfpence in that kingdom, to be current here. This, I say, is the wish of the whole nation, very few excepted; and upon account of those few, is more strongly and justly the wish of the rest: Those few consisting either of Wood's confederates, some obscure tradesmen, or certain bold UNDERTAKERS[1] of weak judgment, and strong ambition; who think to find their accounts in the ruin of the nation, by securing or advancing themselves. And, because such men proceed upon a system of politics, to which I would fain hope you will be always utter strangers, I shall humbly lay it before you. [Footnote 1: This was a phrase used in the time of Charles II. to express those dashing ministers who obtained power by undertaking to carry through particular favourite measures of the crown. But the Dean applies it with his usual studied ambiguity, so that it may be explained as meaning schemers or projectors in general. [S.]] Be pleased to suppose me in a station of fifteen hundred pounds a year, salary and perquisites; and likewise possessed of 800_l_. a year, real estate. Then, suppose a destructive project to be set on foot; such, for instance, as this of Wood; which if it succeed, in all the consequences naturally to be expected from it, must sink the rents and wealth of the kingdom one half, (although I am confident, it would have done so five-sixths.) Suppose, I conceive that the countenancing, or privately supporting this project, will please those by whom I expect to be preserved, or higher exalted. Nothing then remains, but to compute and balance my gain and my loss, and sum up the whole. I suppose that I shall keep my employment ten years, (not to mention the fair chance of a better.) This at 1500_l_. a year, amounts, in ten years, to 15,000_l_. My estate, by the success of the said project, sinks 400_l_. a year; which at twenty years' purchase, is but 8000_l_. so that I am a clean gainer of 7000_l_. upon the balance. And during all that period, I am possessed of power and credit, can gratify my favourites, and take vengeance of mine enemies. And if the project miscarry, my private merit is still entire. This arithmetic, as horrible as it appears, I knowingly affirm to have been practised, and applied in conjunctures, whereon depended the ruin or safety of a nation: Although, probably the charity and virtue of a senate, will hardly be induced to believe, that there can be such monsters among mankind. And yet, the wise Lord Bacon mentions a sort of people, (I doubt the race is not yet extinct) who would "set a house on fire, for the convenience of roasting their own eggs at the flame." But whoever is old enough to remember, and hath turned his thoughts to observe the course of public affairs in this kingdom, from the time of the Revolution; must acknowledge, that the highest points of interest and liberty, have been often sacrificed to the avarice and ambition of particular persons, upon the very principles and arithmetic that I have supposed: The only wonder is, how these artists were able to prevail upon numbers; and influence even public assemblies to become instruments for effecting their execrable designs. It is, I think, in all conscience, latitude enough for vice, if a man in station be allowed to act injustice, upon the usual principles of getting a bribe, wreaking his malice, serving his party, or consulting his preferment; while his wickedness terminates in the ruin only of particular persons: But, to deliver up our whole country, and every living soul who inhabits it, to certain destruction; hath not, as I remember, been permitted by the most favourable casuists on the side of corruption. It were far better, that all who have had the misfortune to be born in this kingdom, should be rendered incapable of holding any employment whatsoever, above the degree of a constable, (according to the scheme and intention of a great minister[2] _gone to his own place_)than to live under the daily apprehension of a few false brethren among ourselves. Because, in the former case we should be wholly free from the danger of being betrayed; since none could then have impudence enough to pretend any public good. [Footnote 2: The Earl of Sunderland. See note on p. 377 of vol. _v._ of present edition. [T.S.]] It is true, that in this desperate affair of the new halfpence, I have not heard of any man above my own degree of a shopkeeper, to have been hitherto so bold, as, in direct terms, to vindicate the fatal project; although I have been told of some very mollifying expressions which were used, and very gentle expedients proposed and handed about, when it first came under debate: But, since the eyes of the people have been so far opened, that the most ignorant can plainly see their own ruin, in the success of Wood's attempt; these grand compounders have been more cautious.[3] [Footnote 3: Alluding to Walpole's overture for reducing the amount to be coined to £40,000. [T.S.]] But that the same spirit still subsists, hath manifestly appeared (among other instances of great compliance) from certain circumstances, that have attended some late proceedings in a court of judicature. There is not any commonplace more frequently insisted on, by those who treat of our constitution, than the great happiness and excellency of trials by juries; yet if this blessed part of our law be eludible at pleasure, by the force of power, frowns, and artifice; we shall have little reason to boast of our advantage, in this particular, over other states or kingdoms in Europe. And surely, these high proceedings, exercised in a point that so nearly concerned the life-blood of the people, their necessary subsistence, their very food and raiment, and even the public peace; will not allow any favourable appearance; because it was obvious, that so much superabundant zeal could have no other design, or produce any other effect, than to damp that spirit raised in the nation against this accursed scheme of William Wood, and his abettors; to which spirit alone, we owe, and for ever must owe, our being hitherto preserved, and our hopes of being preserved for the future; if it can be kept up, and strongly countenanced by your wise assemblies. I wish I could account for such a demeanour upon a more charitable foundation, than that of putting our interest in over balance with the ruin of our country. I remember some months ago, when this affair was fresh in discourse; a person near allied to SOMEBODY, or (as the hawkers called him) NOBODY, who was thought deeply concerned, went about very diligently among his acquaintance, to shew the bad consequences that might follow from any public resentment to the disadvantage of his ally Mr. Wood; principally alleging the danger of all employments being disposed of from England. One of these emissaries came to me, and urged the same topic: I answered, naturally, that I knew there was no office of any kind, which a man from England might not have, if he thought it worth his asking; and that I looked upon all who had the disadvantage of being born here, as only in the condition of leasers and gleaners. Neither could I forbear mentioning the known fable of the countryman, who entreated his ass to fly for fear of being taken by the enemy; but the ass refused to give himself that trouble; and upon a very wise reason, because he could not possibly change his present master for a worse: The enemy could not make him fare harder; beat him more cruelly; nor load him with heavier burthens. Upon these, and many other considerations, I may affirm it to be the wish of the whole nation, that the power and privileges of juries were declared, ascertained, and confirmed by the legislature; and that whoever hath been manifestly known to violate them, might be stigmatized by public censure; not from any hope that such a censure will amend their practices, or hurt their interest, (for it may probably operate quite contrary in both:) but that the nation may know their enemies from their friends. I say not this with any regard or view to myself; for I write in great security; and am resolved that none shall merit at my expense further than by shewing their zeal to discover, prosecute, and condemn me, for endeavouring to do my duty in serving my country: And yet I am conscious to myself that I never had the least intention to reflect on His Majesty's ministers, nor on any other person, except William Wood, whom I neither did, nor do yet conceive to be of that number. However, some would have it, that I went too far; but I suppose they will now allow themselves mistaken. I am sure I might easily have gone further; and I think I could not easily have fared worse. And therefore I was no further affected with their proclamation, and subsequent proceedings, than a good clergyman is with the sins of the people. And as to the poor printer, he is now gone to appear before a higher, and before a righteous tribunal. As my intention is only to lay before your great assemblies, the general wishes of the nation; and as I have already declared it our principal wish that your first proceeding would be to examine into the pernicious fraud of William Wood; so I must add, as the universal opinion, that all schemes of commutation, composition, and the like expedients, either avowed or implied, will be of the most pernicious consequences to the public; against the dignity of a free kingdom; and prove an encouragement to future adventurers in the same destructive projects. For, it is a maxim, which no man at present disputes, that even a connivance to admit one thousand pounds in these halfpence, will produce, in time, the same ruinous effects, as if we openly consented to admit a million. It were, therefore, infinitely more safe and eligible, to leave things in the doubtful, melancholy state they are at present, (which, however, God forbid) and trust entirely to the general aversion of our people against this coin; using all honest endeavours to preserve, continue, and increase that aversion, than submit to apply those palliatives which weak, perfidious, or abject politicians, are, upon all occasions, and in all diseases, so ready to administer. In the small compass of my reading, (which, however, hath been more extensive than is usual to men of my inferior calling) I have observed that grievances have always preceded supplies; and if ever grievances had a title to such a pre-eminence, it must be this of Wood; because it is not only the greatest grievance that any country could suffer, but a grievance of such a kind that, if it should take effect, would make it impossible for us to give any supplies at all; except in adulterate copper; unless a tax were laid for paying the civil and military lists, and the large pensions, with real commodities instead of money; which, however, might be liable to some few objections as well as difficulties: For although the common soldiers might be content with beef and mutton, and wool, and malt, and leather; yet I am in some doubt as to the generals, the colonels, the numerous pensioners, the civil officers, and others, who all live in England upon Irish pay; as well as those few who reside among us only because they cannot help it. There is one particular, which although I have mentioned more than once in some of my former papers, yet I cannot forbear to repeat, and a little enlarge upon it; because I do not remember to have read or heard of the like in the history of any age or country; neither do I ever reflect upon it without the utmost astonishment. After the unanimous addresses to his Sacred Majesty, against this patent of Wood, from both Houses of Parliament, which are the three estates of the kingdom; and likewise an address from the Privy-council, to whom, under the chief governors, the whole administration is entrusted; the matter is referred to a committee of council in London. Wood, and his adherents, are heard on one side; and a few volunteers, without any trust or direction from hence, on the other. The question (as I remember) chiefly turned upon the want of halfpence in Ireland: Witnesses are called on the behalf of Wood (of what credit I have formerly shewn :) Upon the issue the patent is found good and legal; all His Majesty's officers here, (not excepting the military) commanded to be aiding and assisting to make it effectual. The addresses of both Houses of Parliament, of the Privy-council; and of the city of Dublin: The declarations of most counties and corporations through the kingdom, are altogether laid aside, as of no weight, consequence, or consideration whatsoever: And the whole kingdom of Ireland nonsuited, in default of appearance; as if it were a private cause between John Doe, plaintiff, and William Roe, defendant. With great respect to those-honourable persons, the committee of council in London, I have not understood them to be our governors, councillors, or judges. Neither did our case turn at all upon the question, whether Ireland wanted halfpence or no. For there is no doubt, but we do want both halfpence, gold, and silver; and we have numberless other wants, and some that we are not so much as allowed to name; although they are peculiar to this nation; to which no other is subject, whom God hath blessed with religion and laws, or any degree of soil and sunshine: But, for what demerits on our side, I am altogether in the dark. But, I do not remember, that our want of halfpence was either affirmed, or denied in any of our addresses or declarations, against those of Wood: We alleged, the fraudulent obtaining and executing his patent, the baseness of his metal, the prodigious sum to be coined, which might be increased by stealth, from foreign importation and his own counterfeits, as well as those at home; whereby we must infallibly lose all our little gold and silver, and all our poor remainder of a very limited and discouraged trade: We urged, that the patent was passed without the least reference hither; and without mention of any security given by Wood, to receive his own halfpence upon demand; both which are contrary to all former proceedings in the like cases. These, and many other arguments we offered; but still the patent went on, and at this day our ruin would have been half completed; if God, in His mercy, had not raised an universal detestation of these halfpence, in the whole kingdom; with a firm resolution never to receive them; since we are not under obligations to do so by any law, either human or divine. But, in the Name of God, and of all justice and piety; when the King's Majesty was pleased that this patent should pass; is it not to be understood, that he conceived, believed, and intended it as a gracious act, for the good and benefit of his subjects, for the advantage of a great and fruitful kingdom; of the most loyal kingdom upon earth, where no hand or voice was ever lifted up against him; a kingdom where the passage is not of three hours from Britain; and a kingdom where Papists have less power, and less land, than in England? Can it be denied, or doubted, that His Majesty's ministers understood and proposed the same end, the good of this nation, when they advised the passing this patent? Can the person of Wood be otherwise regarded, than as the instrument, the mechanic, the head-workman, to prepare his furnace, his fuel, his metal, and his stamps? If I employ a shoe-boy, is it in view to his advantage, or to my own convenience? I mention the person of William Wood alone, because no other appears, and we are not to reason upon surmises; neither would it avail, if they had a real foundation. Allowing therefore, (for we cannot do less) that this patent, for the coining of halfpence, was wholly intended, by a gracious king, and a wise public-spirited ministry, for the advantage of Ireland; yet when the whole kingdom to a man, for whose good the patent was designed, do, upon maturest consideration, universally join, in openly declaring, protesting, addressing, petitioning, against these halfpence, as the most ruinous project that ever was set on foot, to complete the slavery and destruction of a poor innocent country: Is it, was it, can it, or will it ever be a question, not whether such a kingdom, or William Wood, should be a gainer; but whether such a kingdom should be wholly undone, destroyed, sunk, depopulated, made a scene of misery and desolation, for the sake of William Wood? God, of His infinite mercy, avert this dreadful judgment; and it is our universal wish, that God would put it into your hearts to be His instruments for so good a work. For my own part, who am but one man, of obscure condition, I do solemnly declare, in the presence of Almighty God, that I will suffer the most ignominious and torturing death, rather than submit to receive this accursed coin, or any other that shall be liable to the same objections, until they shall be forced upon me, by a law of my own country; and if that shall ever happen, I will transport myself into some foreign land, and eat the bread of poverty among a free people. Am I legally punishable for these expressions? Shall another proclamation issue against me, because I presume to take my country's part against William Wood; where her final destruction is intended? But, whenever you shall please to impose silence upon me, I will submit; because, I look upon your unanimous voice to be the voice of the nation; and this I have been taught, and do believe to be, in some manner, the voice of God. The great ignominy of a whole kingdom, lying so long at mercy, under so vile an adversary, is such a deplorable aggravation, that the utmost expressions of shame and rage, are too low to set it forth; and therefore, I shall leave it to receive such a resentment, as is worthy of a parliament. It is likewise our universal wish, that His Majesty would grant liberty to coin halfpence in this kingdom, for our own use; under such restrictions as a parliament here shall advise: Since the power of coining even gold and silver, is possessed by every petty prince abroad; and was always practised by Scotland, to the very time of the Union; yet surely Scotland, as to soil, climate, and extent, is not, in itself, a fourth part the value of Ireland; (for Bishop Burnet says, it is not above a fortieth part in value, to the rest of Britain) and with respect to the profit that England gains from hence, not the forty thousandth part. Although I must confess, that a mote in the eye, or a thorn in the side, is more dangerous and painful than a beam, or a spike at a distance. The histories of England, and of most other countries, abound in relating the miserable, and sometimes the most tragical effects, from the abuses of coin; by debasing the metal, by lessening, or enhancing the value upon occasions, to the public loss; of which we have an example, within our own memory in England, and another very lately in France. It is the tenderest point of government, affecting every individual, in the highest degree. When the value of money is arbitrary, or unsettled; no man can well be said to have any property at all; nor is any wound so suddenly felt, so hardly cured, or that leaves such deep and lasting scars behind it. I conceive this poor unhappy island, to have a title to some indulgence from England; not only upon the score of Christianity, natural equity, and the general rights of mankind; but chiefly on account of that immense profit they receive from us; without which, that kingdom would make a very different figure in Europe, from what it doth at present. The rents of land in Ireland, since they have been of late so enormously raised, and screwed up, may be computed to about two millions; whereof one-third part, at least, is directly transmitted to those, who are perpetual absentees in England; as I find by a computation made with the assistance of several skilful gentlemen. The other articles by which we are altogether losers, and England a gainer; we found to amount to almost as much more. I will only set down as many heads of them as I can remember; and leave them to the consideration of those, who understand accounts better than I pretend to do. The occasional absentees, for business, health, or diversion. Three-fourths of the revenue of the chief governor, during his absence; which is usually four-fifths of his government. The whole revenue of the post-office. The numerous pensions paid to persons in England. The pay of the chief officers of the army absent in England, which is a great sum. Four commissioners of the revenue, always absent. Civil employments very numerous, and of great income. The vast charge of appeals to the House of Lords, and to the Court of Delegates. Students at the Inns of Court, and the two Universities. Eighty thousand pounds sent yearly to England, for coals; whereof the prime cost is nothing; and therefore, the profit wholly theirs. One hundred thousand pounds paid several years past, for corn sent over hither from England; the effect of our own great wisdom in discouraging agriculture. The kind liberty granted us of wearing Indian stuffs, and calicoes, to gratify the vanity and folly of our women; which, beside the profit to England, is an unconceivable loss to us; forcing the weavers to beg in our streets, or transport themselves to foreign countries. The prodigious loss to us, and gain to England, by selling them all our wool at their own rates; whereof the manufacture exceeds above ten times the prime cost: A proceeding without example in the Christian or heathen world. Our own wool returned upon us, in English manufactures, to our infinite shame and damage; and the great advantage of England. The full profit of all our mines accruing to England; an effect of great negligence and stupidity. An affectation among us, of liking all kinds of goods made in England. NOTE, Many of the above articles have been since particularly computed by another writer, to whose treatise the reader is referred.[4] [Footnote 4: The work referred to is "A List of the Absentees of Ireland, and the yearly value of their estates and Incomes spent abroad," by Thomas Prior, Esq. Prior was a native of Ireland and the schoolfellow and life-long friend of Berkeley, the philosopher. In concert with Samuel Madden and other friends, he founded, in 1731, the Dublin Society for the Promotion of Agriculture, Manufactures, Arts and Sciences. This society was the parent of the present Royal Dublin Society. His "List of the Absentees of Ireland" was published in 1729. He also issued "Observations on Coin" (1730), and "An Authentic Narrative of the Success of Tar Water in Curing a great number and variety of Distempers" (1746), to which Berkeley contributed. [T.S.]] These and many other articles, which I cannot recollect at present, are agreed by judicious men to amount to near seven hundred thousand pounds _per ann_. clear profit to England. And, upon the whole, let any man look into those authors who write upon the subject of commerce, he shall find, that there is not one single article in the essentials, or circumstances of trade, whereby a country can be a loser, which we do not possess in the highest perfection; somewhat, in every particular, that bears a kind of analogy to William Wood; and now the branches are all cut off, he stands ready with his axe at the root. Upon this subject of perpetual absentees, I have spent some time in very insignificant reflections; and considering the usual motives of human actions, which are pleasure, profit, and ambition, I cannot yet comprehend how those persons find their account in any of the three. I speak not of those English peers or gentlemen, who, beside their estates at home, have possessions here; for, in that case, the matter is desperate; but I mean those lords, and wealthy knights, or squires, whose birth, and partly their education, and all their fortune (except some trifle, and that in very few instances) are in this kingdom. I knew many of them well enough, during several years, when I resided in England; and truly I could not discover that the figure they made was, by any means, a subject for envy; at least it gave me two very different passions: For, excepting the advantage of going now and then to an opera, or sometimes appearing behind a crowd at Court; or adding to the ring of coaches in Hyde Park, or losing their money at the Chocolate House; or getting news, votes, and minutes, about five days before us in Dublin, I say, besides these, and a few other privileges of less importance, their temptations to live in London, were beyond my knowledge or conception. And I used to wonder, how a man of birth and spirit, could endure to be wholly insignificant and obscure in a foreign country, when he might live with lustre in his own; and even at less than half that expense, which he strains himself to make, without obtaining any one end; except that which happened to the frog when he would needs contend for size with the ox. I have been told by scholars, that Caesar said, he would rather be the first man, in I know not what village, than the second in Rome. This, perhaps, was a thought only fit for Caesar: But to be preceded by thousands, and neglected by millions; to be wholly without power, figure, influence, honour, credit, or distinction, is not, in my poor opinion, a very amiable situation of life, to a person of title, or wealth, who can so cheaply and easily shine in his native country. But, besides the depopulating of the kingdom, the leaving so many parts of it wild and uncultivated, the ruin of so many country-seats and plantations, the cutting down all the woods to supply expenses in England; the absence of so many noble and wealthy persons, hath been the cause of another fatal consequence, which few perhaps have been aware of. For if that very considerable number of lords, who possess the amplest fortunes here, had been content to live at home, and attend the affairs of their own country in Parliament; the weight, reputation, and dignity thereby added to that noble House, would, in all human probability, have prevented certain proceedings, which are now ever to be lamented; because they never can be remedied: And we might have then decided our own properties among ourselves, without being forced to travel five hundred miles by sea and land, to another kingdom, for justice; to our infinite expense, vexation, and trouble: Which is a mark of servitude without example, from the practice of any age or nation in the world. I have sometimes wondered, upon what motive the peerage of England were so desirous to determine our controversies; because I have been assured, and partly know, that the frequent appeals from hence, have been very irksome to that illustrious body; and whoever hath frequented the Painted Chamber, and Court of Requests, must have observed, that they are never so nobly filled, as when an Irish appeal is under debate. The peers of Scotland, who are very numerous, were content to reside in their castles and houses, in that bleak and barren climate; and although some of them made frequent journeys to London, yet I do not remember any of their greatest families, till very lately, to have made England their constant habitation, before the Union: Or, if they did, I am sure it was generally to their own advantage; and whatever they got, was employed to cultivate and increase their own estates; and by that means enrich themselves and their country. As to the great number of rich absentees, under the degree of peers; what particular ill effects their absence may have upon this kingdom, besides those already mentioned, may perhaps be too tender a point for me to touch. But whether those who live in another kingdom, upon great estates here; and have lost all regards to their own country, further than upon account of the revenues they receive from it: I say, whether such persons may not be prevailed on to recommend others to vacant seats, who have no interest here, except a precarious employment; and consequently can have no views, but to preserve what they have got, or to be higher advanced: This, I am sure, is a very melancholy question, if it be a question at all. But, besides the prodigious profit which England receives by the transmittal thither of two-thirds of the revenues of this whole kingdom; it hath another mighty advantage by making our country a receptacle, wherein to disburthen themselves of their supernumerary pretenders to offices; persons of second-rate merit in their own country; who, like birds of passage, most of them thrive and fatten here, and fly off when their credit and employments are at an end. So that Ireland may justly say what Luther said of himself; POOR Ireland maketh many rich. If amidst all our difficulties, I should venture to assert, that we have one great advantage, provided we could improve it as we ought; I believe most of my readers would be long in conjecturing what possible advantage could ever fall to our share. However, it is certain, that all the regular seeds of party and faction among us are entirely rooted out, and if any new ones shall spring up, they must be of equivocal generation, without any seed at all; and will justly be imputed to a degree of stupidity beyond even what we have been ever charged with upon the score of our birth-place and climate. The parties in this kingdom (including those of modern date) are, First, of those who have been charged or suspected to favour the Pretender; and those who were zealous opposers of him. Secondly, of those who were for and against a toleration of Dissenters by law. Thirdly, of High and Low Church; or, (to speak in the cant of the times) of Whig and Tory: And, Fourthly, of court and country. If there be any more, they are beyond my observation or politics: For as to subaltern or occasional parties, they have all been derivations from the same originals. Now, it is manifest, that all these incitements to faction, party, and division are wholly removed from among us. For, as to the Pretender, his cause is both desperate and obsolete: There are very few now alive who were _men_ in his father's time, and in that prince's interest; and in all others, the obligation of conscience hath no place;[5] even the Papists in general, of any substance, or estates, and their priests almost universally, are what we call Whigs in the sense which by that word is generally understood. They feel the smart, and see the scars of their former wounds; and very well know, that they must be made a sacrifice to the least attempts towards a change; although it cannot be doubted, that they would be glad to have their superstition restored, under any prince whatsoever. [Footnote 5: That is to say, they had not sworn any allegiance to him. [T.S.]] Secondly, The Dissenters are now tolerated by law; neither do we observe any murmurs at present from that quarter, except those reasonable complaints they make of persecution, because they are excluded from civil employments; but their number being very small in either House of Parliament, they are not yet in a situation to erect a party: Because, however indifferent men may be with regard to religion, they are now grown wise enough to know, that if such a latitude were allowed to Dissenters; the few small employments left us in cities and corporations, would find other hands to lay hold on them. Thirdly, The dispute between High and Low Church is now at an end; two-thirds of the bishops having been promoted in this reign, and most of them from England, who have bestowed all preferments in their gift to those they could well confide in: The deaneries all except three, and many principal church-livings, are in the donation of the crown: So that we already possess such a body of clergy as will never engage in controversy upon that antiquated and exploded subject. Lastly, As to court and country parties, so famous and avowed under most reigns in English Parliaments: This kingdom hath not, for several years past been a proper scene whereon to exercise such contentions; and is now less proper than ever; many great employments for life being in distant hands, and the reversions diligently watched and secured; the temporary ones of any inviting value are all bestowed elsewhere as fast as they drop; and the few remaining, are of too low consideration to create contests about them, except among younger brothers, or tradesmen like myself. And, therefore, to institute a court and country party without materials, would be a very new system in politics, and what I believe was never thought on before; nor, unless in a nation of idiots, can ever succeed. For the most ignorant Irish cottager will not sell his cow for a groat. Therefore, I conclude, that all party and faction, with regard to public proceedings, are now extinguished in this kingdom; neither doth it appear in view how they can possibly revive; unless some new causes be administered; which cannot be done without crossing the interests of those who are greatest gainers by continuing the same measures. And, general calamities without hope of redress, are allowed to be the great uniters of mankind. However we may dislike the causes; yet this effect of begetting an universal concord among us in all national debates, as well as in cities, corporations, and country neighbourhoods, may keep us at least alive, and in a condition to eat the little bread allowed us in peace and amity. I have heard of a quarrel in a tavern, where all were at daggers-drawing, till one of the company cried out, desiring to know the subject of the quarrel; which, when none of them could tell, they put up their swords, sat down, and passed the rest of the evening in quiet. The former part hath been our case; I hope the latter will be so too; that we shall sit down amicably together, at least until we have something that may give us a title to fall out; since nature hath instructed even a brood of goslings to stick together while the kite is hovering over their heads. It is certain, that a firm union in any country, where every man wishes the same thing with relation to the public, may, in several points of the greatest importance, in some measure, supply the defect of power; and even of those rights which are the natural and undoubted inheritance of mankind. If the universal wish of the nation upon any point, were declared by the unanimous vote of the House of Commons, and a reasonable number of Lords; I should think myself obliged in conscience to act in my sphere according to that vote; because, in all free nations, I take the proper definition of law to be the will of the majority of those who have the property in land; which, if there be a monarchy, is to be confirmed by the royal assent. And, although such votes or declarations have not received such a confirmation, for certain accidental reasons; yet I think they ought to be of much weight with the subject; provided they neither oppose the King's prerogative, endanger the peace of the nation, nor infringe any law already in force; none of which, however, can reasonably be supposed. Thus, for instance, if nine in ten of the House of Commons, and a reasonable number of native temporal peers, should declare, that whoever received or uttered brass coin, except under certain limitations and securities, should be deemed as enemies to the King and the nation; I should think it a heinous sin in myself to act contrary to such a vote: And, if the same power should declare the same censure against those who wore Indian stuffs and calicoes, or woollen manufactures imported from abroad, whereby this nation is reduced to the lowest ebb of misery; I should readily, heartily, and cheerfully pay obedience; and to my utmost power persuade others to do the like: Because, there is no law of this land obliging us either to receive such coin, or to wear such foreign manufactures. Upon this last article, I could humbly wish that the reverend the clergy would set us an example, by contenting themselves with wearing gowns, and other habiliments of Irish drapery; which, as it would be some incitement to the laity, and set many hands to work; so they would find their advantage in the cheapness; which is a circumstance not to be neglected by too many among that venerable body.[6] And, in order to this, I could heartily desire, that the most ingenious artists of the weaving trade, would contrive some decent stuffs and silks for clergymen, at reasonable rates.[7] [Footnote 6: This hath since been put in practice, by the persuasions, and influence of the supposed author; but much defeated by the most infamous fraud of shop-keepers. [F.]] [Footnote 7: This scheme was likewise often urged to the weavers by the supposed author; but he could never prevail upon them to put it in practice. [F.]] I have pressed several of our most substantial brethren, that the whole corporation of weavers in silk and woollen, would publish some proposals, (I wish they would do it to both Houses of Parliament) inviting persons of all degrees, and of both sexes, to wear the woollen and silk manufactures of our own country; entering into solemn, mutual engagements, that the buyer shall have good, substantial, merchantable ware for his money; and at a certain rate, without the trouble of cheapening: So that, if I sent a child for a piece of stuff of a particular colour and fineness, I should be sure not to be deceived; or if I had reason to complain, the corporation should give me immediate satisfaction; and the name of the tradesman who did me the wrong, should be published; and warning given not to deal with him for the future; unless the matter plainly appeared to be a mistake: For, besides the trouble of going from shop to shop; an ignorant customer runs the hazard of being cheated in the price and goodness of what he buys; being forced to an unequal combat with a dexterous, and dishonest man, in his own calling. Thus our goods fall under a general disreputation; and the gentry call for English cloth, or silk, from an opinion they have (and often too justly by our own faults) that the goodness more than makes up for the difference of price. Besides, it hath been the sottish and ruinous practice of us tradesmen, upon any great demand of goods, either at home or from abroad, to raise the prices immediately, and manufacture the said goods more slightly and fraudulently than before. Of this foul and foolish proceeding, too many instances might be produced; and I cannot forbear mentioning one, whereby this poor kingdom hath received such a fatal blow in the only article of trade allowed us of any importance that nothing but the success of Wood's project, could outdo it. During the late plague in France, the Spaniards, who buy their linen cloths in that kingdom, not daring to venture thither for fear of infection; a very great demand was made here for that commodity, and exported to Spain: But, whether by the ignorance of the merchants, or dishonesty of the Northern weavers, or the collusion of both; the ware was so bad, and the price so excessive, that except some small quantity, which was sold below the prime cost, the greatest part was returned back: And I have been told by very intelligent persons, that if we had been fair dealers, the whole current of the linen trade to Spain would have taken its course from hence. If any punishment were to be inflicted on numbers of men; surely there could none be thought too great for such a race of traitors, and enemies to God and their country; who for the prospect of a little present gain, do not only ruin themselves, (for that alone would be an example to the rest, and a blessing to the nation) but sell their souls to hell, and their country to destruction; And, if the plague could have been confined only to these who were partakers in the guilt, had it travelled hither from Marseilles, those wretches would have died with less title to pity, than a highwayman going to the gallows. But, it happens very unluckily, that, for some time past, all endeavours or proposals from private persons, to advance the public service; however honestly and innocently designed, have been called _flying in the King's face:_ And this, to my knowledge, hath been the style of some persons, whose ancestors, (I mean those among them who had any) and themselves, have been flying in princes' faces these fourscore years; and from their own inclinations would do so still, if their interest did not lead them rather to fly in the face of a kingdom; which hath given them wings to enable them for such a flight. Thus, about four years ago, when a discourse was published, endeavouring to persuade our people to wear their own woollen manufactures,[8] full of the most dutiful expressions to the King, and without the least party hint; it was termed "flying in the King's face;" the printer was prosecuted in the manner we all remember; (and, I hope, it will somewhere be remembered further) the jury kept eleven hours, and sent back nine times, till they were under the necessity of leaving the prisoner to the mercy of the court, by a special verdict. The judge on the bench invoking God for his witness, when he asserted, that the author's design was to bring in the Pretender.[9] [Footnote 8: This was Swift's pamphlet entitled, "A Proposal for the Universal Use of Irish Manufactures." [T.S.]] [Footnote 9: The action and language of Justice Whitshed. [T.S.]] And thus also, my own poor endeavours to prevent the ruin of my country, by the admission of Wood's coin, was called by the same persons, "flying in the King's face;" which I directly deny: For I cannot allow that vile representation of the royal countenance in William Wood's adulterate copper, to be his Sacred Majesty's face; or if it were, my flying was not against the impression, but the baseness of the metal; because I well remembered; that the image which Nebuchadnezzar "commanded to be set up, for all men to fall down and worship it," was not of _copper_, but pure _gold_. And I am heartily sorry, we have so few royal images of that metal among us; the sight whereof, although it could hardly increase our veneration for His Majesty, which is already so great; yet would very much enliven it with a mixture of comfort and satisfaction. Alexander the Great, would suffer no statuary, except Phidias, to carve his image in stone or metal. How must he have treated such an operator as Wood, who goes about with sackfuls of dross; odiously misrepresenting his Prince's countenance; and would force them, by thousands, upon every one of us, at above six times the value. But, notwithstanding all that hath been objected by William Wood himself; together with his favourers, abettors, supporters, either public or private; by those who connive at his project, or discourage and discountenance his opposers, for fear of lessening their favour, or hazarding their employments; by those who endeavour to damp the spirit of the people raised against this coin; or check the honest zeal of such as by their writings, or discourses, do all they can to keep it up: Those softeners, sweeteners, compounders; and expedient-mongers, who shake their heads so strongly, that we can hear their pockets jingle; I did never imagine, that, in detecting the practices of such enemies to the kingdom, I was "flying in the King's face"; or thought they were better representers of His Majesty, than that very coin, for which they are secret or open advocates. If I were allowed to recite only those wishes of the nation, which may be in our power to attain; I think they might be summed up in these few following. First, That an end might be put to our apprehensions of Wood's halfpence, and to any danger of the like destructive scheme for the future. Secondly; That halfpence might be coined in this kingdom, by a public mint, with due limitations. Thirdly, That the sense of both Houses of Parliament, at least of the House of Commons, were declared by some unanimous and hearty votes, against wearing any silk or woollen manufactures, imported from abroad, as likewise against wearing Indian silks or calicoes, which are forbidden under the highest penalties in England: And it behoves us, to take example from so wise a nation; because we are under a greater necessity to do so, since we are not allowed to export any woollen manufactures of our own; which is the principal branch of foreign trade in England. Fourthly, That some effectual methods may be taken to civilize the poorer sort of our natives, in all those parts of this kingdom where the Irish abound; by introducing among them our language and customs; for want of which they live in the utmost ignorance, barbarity and poverty; giving themselves wholly up to idleness, nastiness, and thievery, to the very great and just reproach of too many landlords. And, if I had in me the least spirit of a projector, I would engage that this might be effected in a few years, at a very inconsiderable charge.[10] [Footnote 10: Since this hint was suggested, several useful seminaries have been instituted, under the name of "Charter Working Schools," in Ireland, supported by the royal benefaction of a thousand pounds a year, by a tax on hawkers and pedlars, and by voluntary subscriptions. The schools are for the education of boys and girls born of Popish parents; in most of them, the children manufacture their own clothing, and the boys are employed in matters relative to husbandry. [F.] These Charter Schools, founded by Marsh, Bishop of Clogher, and adopted by Primate Boulter in 1733, were intended "to rescue the souls of thousands of poor children from the dangers of Popish superstition and idolatry, and their bodies from the miseries of idleness and beggary." In reality the scheme was one by which it was hoped to prevent the growth of Catholicism. The conditions and methods of instruction were positively cruel, since the children were actually withheld from any communication with their parents. Mr. Lecky deals with the subject fully in the first volume of his "Ireland in the Eighteenth Century," Froude gives the scheme his praise and admiration, but at the time of its institution it was the cause of "an intensity of bitterness hardly equalled by any portion of the penal code. Parents would rather do anything than send their children into such prisons where, at last, they would receive an education which, to their minds, must lead them to forfeit their soul's salvation." [T.S.]] Fifthly, That due encouragement should be given to agriculture; and a stop put to that pernicious practice of graziers; engrossing vast quantities of land, sometimes at great distance; whereby the country is extremely depopulated. Sixthly, That the defects in those acts for planting forest trees, might be fully supplied, since they have hitherto been wholly ineffectual; except about the demesnes of a few gentlemen; and even there, in general, very unskilfully made, and thriving accordingly. Neither hath there yet been due care taken to preserve what is planted, or to enclose grounds; not one hedge, in a hundred, coming to maturity, for want of skill and industry. The neglect of copsing woods cut down, hath likewise been of very ill consequences. And if men were restrained from that unlimited liberty of cutting down their own woods before the proper time, as they are in some other countries; it would be a mighty benefit to the kingdom. For, I believe, there is not another example in Europe, of such a prodigious quantity of excellent timber cut down, in so short a time, with so little advantage to the country, either in shipping or building. I may add, that absurd practice of cutting turf, without any regularity; whereby great quantities of restorable land are made utterly desperate, many thousands of cattle destroyed, the turf more difficult to come at, and carry home, and less fit for burning; the air made unwholesome by stagnating pools and marshes; and the very sight of such places offensive to those who ride by. Neither should that odious custom be allowed, of cutting scraws, (as they call them) which is flaying off the green surface of the ground, to cover their cabins; or make up their ditches; sometimes in shallow soils, where all is gravel within a few inches; and sometimes in low ground, with a thin greensward, and sloughy underneath; which last turns all into bog, by this mismanagement. And, I have heard from very skilful country-men, that by these two practices in turf and scraws, the kingdom loseth some hundreds of acres of profitable land every year; besides the irreparable loss of many skirts of bogs, which have a green coat of grass, and yet are mangled for turf; and, besides the want of canals, by regular cutting, which would not only be a great convenience for bringing their turf home at an easy rate; but likewise render even the larger bogs more dry and safe, for summer pasture. These, and some other speculations of the like kind, I had intended to publish in a particular discourse against this session of Parliament; because, in some periods of my life, I had opportunity and curiosity to observe, from what causes those great errors, in every branch of country management, have arisen; of which I have now ventured to relate but few, out of very many; whereof some, perhaps, would not be mentioned without giving offence; which I have endeavoured, by all possible means, to avoid. And, for the same reason, I chose to add here, the little I thought proper to say on this subject. But, as to the lands of those who are perpetual absentees, I do not see any probability of their being ever improved. In former times, their tenants sat at easy rents; but for some years past, they have been, generally speaking, more terribly racked by the dexterity of merciless agents from England, than even those held under the severest landlords here. I was assured upon the place, by great numbers of credible people, that a prodigious estate in the county of Cork, being let upon leases for lives, and great fines paid; the rent was so high, that the tenants begged leave to surrender their leases, and were content to lose their fines. The cultivating and improvement of land, is certainly a subject worthy of the highest enquiry in any country, but especially in ours; where we are so strangely limited in every branch of trade, that can be of advantage to us; and utterly deprived of those, which are of the greatest importance; whereof I defy the most learned man in Europe, to produce me an example from any other kingdom in the world: For, we are denied the benefits which God and nature intended to us; as manifestly appears by our happy situation for commerce, and the great number of our excellent ports. So that, I think, little is left us, beside the cultivating our own soil, encouraging agriculture, and making great plantations of trees, that we might not be under the necessity of sending for corn and bark from England, and timber from other countries. This would increase the number of our inhabitants, and help to consume our natural products, as well as manufactures at home. And I shall never forget what I once ventured to say to a great man in England; "That few politicians, with all their schemes, are half so useful members of a commonwealth, as an honest farmer; who, by skilfully draining, fencing, manuring, and planting, hath increased the intrinsic value of a piece of land; and thereby done a perpetual service to his country;" which it is a great controversy, whether any of the former ever did, since the creation of the world; but no controversy at all, that ninety-nine in a hundred, have done abundance of mischief. APPENDIXES APPENDIX I ADDRESSES TO THE KING[1] "To the King's most Excellent MAJESTY: _The humble_ ADDRESS _of the_ Knights, Citizens _and_ Burgesses, _in Parliament assembled._ "MOST GRACIOUS SOVEREIGN, It is with the utmost Concern, that We, Your Majesty's most dutiful subjects, the Commons of IRELAND in Parliament assembled, find ourselves indispensably obliged, to represent to Your Majesty, our unanimous Opinion: That the importing and uttering of _Copper Farthings_ and _Halfpence_ by virtue of the Patent lately granted to _William Wood,_ Esq.; under the Great Seal of _Great Britain,_ will be highly prejudicial to Your Majesty's Revenue, destructive of the trade and commerce of this nation, and of the most dangerous consequence to the properties of the subject. [Footnote 1: Addresses by the House of Commons and the House of Lords presented to the King in conformity with the resolutions passed by these Houses. See Introductory Note to the Drapier's First Letter. The texts of these addresses are taken from "Fraud Detected: or, the Hibernian Patriot," printed by George Faulkner in 1725. [T.S.]] "We are fully convinced, from the tender regard Your Majesty has always expressed for our welfare and prosperity, that this Patent could not have been obtained, had not _William Wood_ and his accomplices, greatly misrepresented the state of this nation to Your Majesty, it having appeared to us, by Examinations taken in the most solemn manner, that though the terms thereof had been strictly complied with, there would have been a loss to this nation of at least 150 _per Cent._ by means of the said coinage, and a much greater in the manner the said _Half-pence_ have been coined. "We likewise beg leave to inform Your Majesty, That the said _William Wood_ has been guilty of a most notorious fraud and deceit in coining the said _Half-pence,_ having, under colour of the powers granted unto him, imported and endeavoured to utter great quantities of different impressions, and of much less weight than was required by the said Patent. "Your faithful _Commons_ have found, by experience, That the granting the power or privilege of coining _Money_, or _Tokens_ to pass for _Money_ to private persons, has been highly detrimental to your loyal subjects; and being apprehensive, that the vesting such power in any body politic or corporate, or any private person or persons whatsoever, will be always of dangerous Consequence to this Kingdom, are encouraged, by the repeated assurances Your Majesty hath given us of Your Royal Favour and Protection, humbly to entreat Your Majesty, That whenever you shall hereafter think it necessary to coin any _Farthings_ or _Half-pence,_ the same may be made as near the intrinsic value as possible, and that whatever profit shall accrue thereby, may be applied to the public service. "And we do further humbly beseech Your Majesty, That you will be graciously pleased to give such direction, as you, in your great wisdom, shall think proper, to prevent the fatal effects of uttering any _Farthings_ or _Half-pence_ pursuant to the said Patent. "As this enquiry has proceeded entirely from our love to our country, so we cannot omit this opportunity of repeating our unanimous resolution, to stand by and support Your Majesty to the utmost of our power, against all Your enemies, both at home and abroad; and of assuring Your Majesty, that we will, upon every occasion, give Your Majesty, and the world, all possible demonstration of our zeal and inviolable duty and affection to Your Majesty's most sacred person and government, and to the succession, as established in Your Royal House." "To the King's most Excellent MAJESTY. _The humble Address of the Lords Spiritual and Temporal of_ IRELAND, _in Parliament assembled, against_ Wm. Wood. "May it please Your most Sacred Majesty, WE the Lords Spiritual and Temporal in Parliament assembled, are under the utmost concern to find, that our duty to Your Majesty and our Country, indispensably calls upon us to acquaint Your Majesty with the ill consequences, which will inevitably follow from a Patent for coining Half-pence and Farthings to be uttered in this Kingdom, obtained under the Great Seal of _Great Britain,_ by one _William Wood_ in a clandestine and unprecedented manner, and by a gross misrepresentation of the state of this Kingdom. "We are most humbly of opinion, that the diminution of Your Majesty's revenue, the ruin of our trade, and the impoverishing of your people, must unavoidably attend this undertaking; and we beg leave to observe to Your Majesty, that from the most exact Enquiries and Computations we have been able to make, it appears to us, that the gain to _William Wood_ will be excessive, and the loss to this Kingdom, by circulating this base coin, greater than this poor country is able to bear. "With the greatest submission and deference to Your Majesty's wisdom, we beg we may offer it as our humble opinion. That the reserving the coining of _Half-pence_ and _Farthings_ to the _Crown_ and _the not intrusting it_ with any private person, body politic or corporate, will always be for Your Majesty's service, and the good of your people in _this Kingdom._ "In confidence, Sir, of your paternal care of the welfare of _this_ country, we beseech Your Majesty, that you will be pleased to extend that goodness and compassion to us, which has so eminently shewed itself to all your other subjects, who have the happiness to live under your protection and government; and that you will give such directions as may effectually free us from the terrible apprehensions we labour under from the _Patent_ granted to _William Wood."_ The following was the King's reply to the above address: "GEORGE R. "His _Majesty is very much concerned to see, That His granting the Patent for coining_ Half-pence _and_ Farthings _agreeable to the Practice of his Royal Predecessors, has given so much uneasiness to the_ House of Lords: _And if there have been any abuses committed by the_ Patentee, _His Majesty will give the necessary Orders for enquiring into, and punishing those Abuses. And will do everything that is in His Power, for the Satisfaction of His People."_ APPENDIX II REPORT OF THE ASSAY ON WOOD'S COINAGE, MADE BY SIR ISAAC NEWTON, EDWARD SOUTHWELL, ESQ., AND THOMAS SCROOPE, ESQ.[1] "_To the right honourable the Lords Commissioners of his Majesty's Treasury. "May it please your Lordships_, According to your Lordships' Order, the pix of the copper-money coined at Bristol by Mr. Wood for Ireland, has been opened and tried before us at his Majesty's Mint in the Tower; and by the Comptroller's account, to which Mr. Wood agreed, there hath been coined from Lady-day 1723 to March 28, 1724, in half-pence, fifty and five tons, five hundred and three quarters, and twelve ounces, and in farthings, three tons, seventeen hundred and two quarters, ten pounds, and eight ounces, _avoirdupois_, the whole coinage amounting to 59 tons, 3 cwt, 1 qr. 11 lbs. 4 ozs., and by the specimens of this coinage which have, from time to time, been taken from the several parcels coined and sealed up in papers, and put into the pix, we found that sixty half-pence weighed fourteen ounces, _Troy_, and eight pennyweight, which is about a quarter of an ounce above one pound _avoirdupois_; and that thirty farthings weighed three ounces, and three quarters of an ounce _Troy_, and forty-six grains, which is also above the weight required by his Patent. We found also that both half-pence and farthings when heated red hot, spread thin under the hammer without cracking, as your Lordships may see by the pieces now laid before your Lordships. But although the copper was very good, and the money, one piece with another, was full weight, yet the single pieces were not so equally coined in the weight as they should have been. [Footnote 1: The copy of this Report as here printed is taken from the tract already quoted in previous notes, entitled, "A Defence of the Conduct of the People of Ireland in their unanimous Refusal of Mr. Wood's Copper-money ... Dublin: Printed for George Ewing, at the Angel and Bible in Dames-Street, MDCCXXIV." As already noted, the assayists had for trial only those coins which were coined between March, 1723, and March, 1724, and these coins were neither imported into Ireland nor attempted to be uttered there. As Wood asked for the assay, he no doubt knew what he was about. But even as it stands, the Report was not very favourable to him. The author of the tract named above enters minutely into this point, and for a further inquiry the reader is referred to pages 15 to 19 of his publication. [T.S.]] "We found also that thirty and two old half-pence coined for Ireland in the reigns of King Charles 2d., King James 2d., and King William 3d. and Queen Mary, and produced by Mr. Wood, weighed six ounces and eight pennyweight _Troy_, that is, one hundred and three grains and a half apiece one with another. They were much worn, and if about six or seven grains be allowed to each of them one with another for loss of their weight by wearing, the copper-money coined for England, in the reign of King William being already as much lightened by wearing, they might at first weigh about half a pound _avoirdupois_; whereas only thirty of those coined by Mr. Wood are to be of that. They were also made of bad copper, two of those coined in the reign of King Charles II. wasted much in the fire, and then spread thin under the hammer, but not so well without cracking as those of Mr. Wood. Two of those coined in the reign of King James II. wasted much more in the fire, and were not malleable when red hot. Two of those coined in the reign of King William and Queen Mary wasted still more in the fire, and turned to an unmalleable substance like a cinder, as your Lordships may see the pieces now laid before you. "By the assays we reckon the copper of Mr. Wood's halfpence and farthings to be of the same goodness and value with the copper of which the copper money is coined in the King's Mint for England; or worth in the market about twelve or thirteen pence per pound weight _avoirdupois_; and the copper of which the half-pence were coined for Ireland in the reigns of King Charles, King James, and King William, to be much inferior in value, the mixture being unknown, and not bearing the fire for converting it to any other use until it be refined. "The half-pence and farthings in the pix coined by Mr. Wood had on one side the head of the King, with this inscription GEORGIUS DEI GRATIA REX: And on the other side, a woman sitting with a harp by her left side, and above her the inscription HIBERNIA with the date. The half-pence coined in the reigns of King Charles, King James, and King William, had on one side the head of King Charles, King James, or King William and Queen Mary, and on the reverse a harp crowned. "All which facts we most humbly represent to your Lordships. April 27, 1724." APPENDIX III TOM PUNSIBI'S DREAM[1] [Greek: "A ghar proseidon nukthi taeoe phasmata Disson oneiron, tauta moi---- Ehi men pephaenen esthlha, dus telesphora, Eid echthra, tois echthroisin empalin methes Kai mae me plete te paront ei tines Doloisi beleueoin ekbalein, ephaes."] Soph, Elec. [644-649]. Since the heat of this business, which has of late so much and so justly concerned this kingdom, is at last, in a great measure over, we may venture to abate something of our former zeal and vigour in handling it, and looking upon it as an enemy almost overthrown, consult more our own amusement than its prejudice, in attacking it in light excursory skirmishes. Thus much I thought fit to observe, lest the world should be too apt to make an obvious pun upon me; when beginning to dream upon this occasion, I presented it with the wild nocturnal rovings of an unguided imagination, on a subject of so great importance, as the final welfare or ruin of a whole nation. [Footnote 1: The following tract, written probably by Thomas Sheridan, Swift's humorous friend, is interesting as affording an example of the lighter kind of literature brought into existence by this agitation. It may be that Swift had a hand in its composition. The text is taken from a copy of the original broadside in the South Kensington Collection. It was published during the height of the controversy. [T.S.]] But so it was, that upon reading one of the Drapier's letters, I fell asleep, and had the following dream: The first object that struck me was a woman of exquisite beauty, and a most majestic air, seated on a throne, whom by the figure of a lion beneath her feet, and of Neptune who stood by her, and paid her the most respectful homage, I easily knew to be the Genius of England; at some distance from her, (though not at so great an one as seemed to be desired,) I observed a matron clothed in robes so tattered and torn, that they had not only very nigh lost their original air of royalty and magnificence, but even exposed her to the inclemency of the weather in several places, which with many other afflictions had so affected her, that her natural beauty was almost effaced, and her strength and spirits very nigh lost. She hung over a harp with which, if she sometimes endeavoured to sooth her melancholy, she had still the misfortune to find it more or less out of tune, particularly, when as I perceived at last, it was strung with a sort of wire of so base composition, that neither she nor I could make anything of it. I took particular notice, that, when moved by a just sense of her wrongs, she could at any time raise her head, she fixed her eyes so stedfastly on her neighbour, sometimes with an humble and entreating, at others, with a more bold and resentful regard, that I could not help (however improbable it should seem from her generous august appearance) in a great measure to attribute her misfortunes to her; but this I shall submit to the judgment of the world. I should now at last mention the name, were not these circumstances too unhappily singular to make that any way necessary. As I was taken up with many melancholy reflections on this moving object, I was on a sudden interrupted by a little sort of an uproar, which, upon turning my eyes towards it, I found arose from a crowd of people behind her throne; the cause it seems was this: There was, I perceived, among them the god of merchandise, with his sandals, mostly of brass, but not without a small proportion of gold and silver, and his wings chiefly of the two latter metals, but allayed with a little of the former; with those he used to trudge up and down to furnish them with necessaries; with these he'd take a flight to other countries, but not so dexterously or to so good purpose as in other places of his office, not so much for want of encouragement among 'em here, as on account of the haughty jealousy of their neighbours, who, it seems dreading in them a rival, took care to clip his wings and circumscribe his flights; the former, more especially, being, by these and other means so much worn, he performed his office but lamely, which gave occasion to some who had their own private interest more at heart, than that of the public, to patch up some of the places that were worn, with a metal of the same nature indeed, but so slight and base, that though at first it might serve to carry him on their errands, it soon failed, and by degrees grew entirely useless; insomuch, that he would rather be retarded than promoted in his business, and this occasioned the above disturbances among his dependents, who thereupon turned their eyes towards their mistress (for by this time she will I presume be better known by that, than the more homely and sociable name of neighbour) and not daring of late to say or do anything without her approbation, made several humble applications to her, beseeching that she would continue them that liberty of refitting these implements themselves, which she had been formerly pleased graciously to allow 'em; but these, however reasonable, were all rejected, whereupon I observed a certain person (a mean ill-looking fellow) from among a great number of people that stood behind the genius of England, who, during the whole affair had kept his eyes intently fixed on his neighbours, watching all their motions, like a hawk hovering over his quarry, and with just the same design: Him, I say, I observed to turn off hastily, and make towards the throne, where being arrived, after some preparations requisite, he preferred a petition, setting forth the wants and necessities, (but taking care to make 'em appear at least four times greater than they really were) of his neighbours, or as he might have more truly and honestly said his own, both which, for the latter, though not expressed, he chiefly intended, but modestly or rather knavishly left to be understood, he begged the royal licence to redress, by supplying those defects which were the occasion of 'em. This humble suppliant I observed both before and after this petition, seemed to employ his utmost industry and art, to insinuate himself into the good graces of two persons that stood on each side the throne;[2]the one on the right was a lady of large make and swarthy complexion; the other, a man, that seemed to be between fifty and sixty, who had an air of deep designing thought: These two he managed with a great deal of art; for the lady he employed all the little arts that win her sex, particularly, I observed, that he frequently took hold of her hand, as in raptures, to kiss it, in such a manner as made me suspect she did not always draw it back empty; but this he did so slily, that it was not easy for anybody to be certain of it: The man on the other hand, he plied his own way with politics, remonstrating to him the several things he had before the throne; which however, as might be presumed from his manner of attending to them, seemed to make little impression; but when he came to lay before him the great advantages that might accrue from thence to their mistress, and consequently to him, he heard him with the utmost eagerness and satisfaction; at last, having plainly told him, that he himself should be a considerable gainer by it, and thereupon, that every thing that came to his hands of that nature should be at his service: As a sort of token or earnest he kissed his hand in the same manner he had the lady's, and so retired; by these and the like means he soon brought over both parties to him, who, with a whisper or two, procured him the royal licence; whereupon he immediately fell to making up a metal, if it deserved the name, of a very strange composition, wherewith he purposed to refit the implements of that useful deity, but in such manner, that for the base metal he put into them, he would take care to draw away from them an infinitely more than proportionable quantity of gold and silver, and thereby render him almost incapable of taking flight to foreign countries; nay, at last perhaps utterly so, when under pretence of their not being completed, he should filch in more of his metal, and filch away more of theirs. [Footnote 2: The Duchess of Kendal and Sir Robert Walpole. [S.]] These things being therefore prepared, he sends 'em over to his neighbours, and there endeavoured to get them admitted by fair words and promises, being too sensible that they were not of themselves the most willing to accept of his favour, and indeed he was not deceived; for they being advertised of his designs, had taken the alarm, and had almost to a man united in one common faction against him. This generous ardour had first taken hold of the most active and important part, and if I may be allowed to call it, the heart of this body, from thence was on one side by a quick passage, and in its more refined parts, communicated through the blood to the contemplative, and reasoning, the head, which it inspired with noble thoughts and resolutions; and on the other, to the inferior extremities, which were thereby rendered more expedite and readier to obey the dictates of the head in a rougher method of opposition, from each of which extremities being carried back to its fountain, it was returned to them from thence, and so backwards and forwards, till the circulation and union were confirmed and completed, the sordid unnatural, offensive parts being in the meantime thrown off as dregs of nature, and nuisances of human society; but of these in so well-tempered a constitution, there were but few; however, when there were any to be found, though they had been of the most exalted nature, and bore most noble offices in this body, by any corruption became so, they shared the common fate, with this only difference, that they were rejected with greater scorn and contempt on account of their former dignity, as was found in one notorious instance; but on the other hand, among all the parts that were serviceable to the constitution on this occasion, there was not one more so, than a certain one whose name indeed is not openly known, but whose good offices and usefulness are too great ever to be forgotten; for it by its nice diligence and skill selected out things of the most noble and exquisite nature, by infusing and dispersing them to enliven and invigorate the whole body, which how effectually they did, our bold projector sadly experienced. For finding all his endeavours to pass his ware upon them, disappointed, he withdrew; but his patron on the other side being informed of what had passed, fell into a most terrible passion, and threatened, they say, I know not what, of making to swallow and ramming down throats; but while they were in deep conference together, methought all on a sudden a trap-door dropped, and down fell our projector; this unexpected accident did on many accounts not a little alarm the throne, and gave it but too great occasion to reflect a little on what had been doing, as what a mean ordinary fellow it had intrusted with the care of an affair of so great consequence that though their neighbours' refusal might possibly have put him to such straits as might be the great occasion of this disgrace, yet that very refusal could not be so universal and resolute without some reason, which could arise from nothing else but the unseasonableness or unworthiness of his offers, or both, and he, consequently, must deserve as much to suffer as they did; not for the better information, therefore in these surmises some of the neighbours were consulted, who confirming them, things seemed to bear a good face, and be in a very fair way of clearing up. When I awoke, I cannot say whether more pleased at the present posture of affairs, when I recollected how indifferent an one they had lately been in, or anxious when upon considering that they were not yet firm and settled, I was led to reflect in general on the uncertainty of events, and in particular, on the small reason the persons in hand can have to promise themselves prosperous ones, especially when they are depending in that part of the world. Dublin, printed in the year 1724-5. APPENDIX IV A LETTER FROM A FRIEND TO THE RIGHT HONOURABLE ------[1] Ceteri, quanto quis servitio promptior, opibus et honoribus extollerentur: Invalido legum auxilio, quae vi, ambitu, postremo pecunia turbabantur.--_Tacit. An._ To THE RIGHT HONOURABLE ------ I fear your lordship in your wonted zeal for the interest of your country will think this paper very unseasonable; but I am very confident not more than one man in this kingdom will be of your lordship's judgment. [Footnote 1: The two following severe letters are directly addressed to Lord Chief Justice Whitshed, and were generally circulated. They probably underwent Swift's correction, though they have too much of a legal cast to have been written by the Dean himself.... They were, perhaps, composed by Mr. Robert Lindsay, distinguished by Swift in his letter to Lord Midleton, as an eminent lawyer, as well as a man of virtue and learning, whose legal advice he used during the whole controversy. [S.] The present letters are taken from copies of the original broadsides in the South Kensington collection. [T.S.]] In matters of law your opinion has from our first acquaintance entirely guided me, and the things you have assured me I might depend upon as law, have few of them escaped my memory, though I have had but little conversation with you since you first appeared in Parliament and moved the House to resolve, That it is the indispensable duty of the judges of this kingdom to go through their circuits; nor have I had any since you fell sick and was made solicitor-general. I have often heard your lordship affirm, and therefore I do affirm it, That the great ends for which grand juries were instituted, were the support of the government, the safety of every man's life and fortune, it being necessary some should be trusted to inquire after all disturbers of the peace, that they might be prosecuted and brought to condign punishment; and it is no less needful for every man's quiet and safety, that the trust of such inquisitions should be put into the hands of persons of understanding and integrity, that will suffer no man to be falsely accused or defamed; nor the lives of any to be put in jeopardy, by the malicious conspiracies of great or small, or the perjuries of any profligate wretches. So material a part of our constitution are grand juries, so much does the security of every subject depend upon them, that though anciently the sheriff was by express law, chosen annually by the people of the county, and trusted with the power of the county, yet the law left not the election of grand juries to the will of the sheriff, but has described their qualifications, which if they have, and the sheriff return them, no man, nay no judge, can object to their being sworn, much less may they to their serving when sworn: And to prevent the discretionary power (a new-fashioned term) of these judges over juries, you used to say was made the statute of the 11th of Hen. 4. Pardon me my lord if I venture to affirm, That a dissolving power is a breach of that law, or at least an evasion, as every citizen in Dublin in Sir Constantine Phipps's time perfectly understood, that disapproving the aldermen lawfully returned to the Privy-council was in effect assuming the power of choosing and returning----But your lordship and I know dissolving and disapproving are different terms. I always understood from your Lordship the trust and power of grand juries is or ought to be accounted amongst the greatest and of most concern, next to the legislative: The honour, reputations, fortunes and lives of every man being subject to their censure; the kings of England have an undoubted power of dissolving parliaments, but dissolving 'till one was returned to their or their ministers' liking, has never been thought very righteous, and Heaven be praised never very successful. I am entirely of your lordship's opinion, the oath of a grand juryman is not always sufficiently considered by the jurors, which is as follows. "You shall diligently enquire, and true presentment make of all such articles, matters and things as shall be given you in charge; And of all other matters and things as shall come to your own knowledge, touching this present service. The King's counsel your fellows' and your own you shall keep secret," &c.--And from some other men's behaviour, I fear oaths are not always as sacredly observed as they ought to be: "The King's counsel, your fellows' and your _own_ you shall keep secret"--Though our grandmothers my lord might have thought there was a dispensing power in the Pope, you and I profess no power upon earth can dispense with this oath, so that to force a man to discover the counsel he is sworn to keep, is to force him into direct perjury. Suppose upon information taken before your Lordship of a rape committed, a bill of indictment were sent to a grand jury, and the grand jury return _ignoramus_ on it, application is made to the Court to recommend it to them to reconsider it, and they return as before _ignoramus_--Suppose a judge with more than decent passion should ask them their reasons (which is their counsel) for so doing, nay should be so particular as to demand of them whether they thought the woman a whore. Must not all the world conclude somebody had forgot the oath of a grand juryman? Yes sure, or his own, or worse.--But suppose they should ask a juror a question might criminate himself? My Lord, you know I put not bare possibilities, it is generally believed these things have been done within an oak of this town--And if I am rightly informed, the restraint a juror is under by his oath, is so well understood, that a certain person desired the clerk of the Crown to change the form of it by adding this exception: "unless by leave or order of the Court." These things, my Lord, would seem strange in Westminster-hall, and would be severely noted in St. Stephen's Chapel. The honour of the Crown would be thought a very false as well as weak plea for such proceedings there, as indeed it is an infamous one everywhere, for 'tis a scandal upon a king, if he is represented in a court of justice, as if he were partially concerned or rather inclined to desire, that a party should be found guilty, than that he should be declared innocent. The King's interest and honour is more concerned in the protection of the innocent, than in the punishment of the guilty, as in all the immediate actions of his Majesty we find that maxim pursued, a maxim can never run a prince into excesses. We do not only find those princes represented in history under odious characters, who have basely betrayed the innocent, but such as by their spies and informers were too inquisitive after the guilty, whereas none was ever blamed for clemency, or for being too gentle interpreters of the law. Though Trajan was an excellent prince, endowed with all heroical virtues; yet the most eloquent writers, and his best friends, found nothing more to be praised in his government, than that in his time, all men might think what they pleased, and every man speak what he thought, this I say, that if any amongst us by violent measures, and a dictatorial behaviour have raised jealousies in the minds of His Majesty's faithful subjects, the blame may lie at their door. I know it has been said for His Majesty's service, grand juries may be forced to discover their counsels: But you will confess a king can do nothing against law, nor will any honest man judge that for his service, which is not warranted by law. If a constant uninterrupted usage, can give the force of a law, then the grand jurymen are bound by law, as well as by their oaths, to keep the King's, their fellows' and their own counsel secret. Bracton and Britton in their several generations bear witness, that it was then practised; and greater proof of it needs not be sought, than the disputes that appear by the law-books to have been amongst the ancient lawyers, Whether it was treason or felony for a grand juryman to discover their counsels--The trust of grand juries was in those days thought so sacred, and their secrecy of so great concern to the kingdom, that whosoever should break their oaths, was by all thought worthy to die, only some would have them suffer as traitors, others as felons. If a king's commands should come to the judges of a court of justice or to a jury, desiring them to vary from the direction of the law, (which it is criminal to say, and no man ought to be believed therein) they are bound by their oaths not to regard them. The statute of 2 of E. 3. 8. and 20 E. 3. I. are express; and the substance of these and other statutes is inserted into the oaths taken by every judge; and if they be under the most solemn and sacred tie in the execution of justice to hold for nothing the commands of the King under the great seal, then surely political views and schemes, the pleasure or displeasure of a minister, in the like case ought to be less than nothing. It is a strange doctrine that men must sacrifice the law to secure their properties, if the law is to be fashioned for every occasion, if grand jurymen contrary to their oaths must discover their fellows' and their own counsels, and betray the trust the law has reposed in them, if they must subject the reasons of their verdicts to the censure of the judges, whom the law did never design to trust with the liberty, property, or good name of their fellow-subjects. No man can say he has any security for his life or fortune, and they who do not themselves, may however see their best friends and nearest relations suffer the utmost violences and oppressions. Which leads me to say a few words of the petit jury, not forgetting Mr. Walters. I am assured by an eminent lawyer, that the power and office of a petit jury is judicial, that they only are the judges from whose sentence the indicted are to expect life or death. Upon their integrity and understanding the lives of all that are brought in judgment do ultimately depend; from their verdict there lies no appeal, by finding guilty or not guilty. They do complicately resolve both law and fact. As it hath been the law, so it hath always been the custom and practice of these juries (except as before) upon all general issues, pleaded in cases civil as well as criminal, to judge both of the law and fact. So it is said in the report of the Lord Chief Justice Vaughan in Bushell's case, That these juries determine the law in all matters where issue is joined and tried, in the principal case whether the issue be about trespass or debt, or disseizin in assizes, or a tort or any such like, unless they should please to give a special verdict with an implicate faith in the judgment of the Court, to which none can oblige them against their wills. It is certain we may hope to see the trust of a grand juryman best discharged when gentlemen of the best fortunes and understandings attend that service, but it is as certain we must never expect to see such men on juries, if for differing with a judge in opinion, when they only are the lawful judges, they are liable to be treated like villains, like perjurers, and enemies to their king and country; I say my lord such behaviour to juries will make all gentlemen avoid that duty, and instead of men of interest, of reputation and abilities, our lives, our fortunes, and our reputations must depend upon the basest and meanest of the people. I know it is commonly said, _boni judicis est ampliare juridictionem_. But I take that to be better advice which was given by the Lord Chancellor Bacon upon swearing a judge; That he would take care to contain the jurisdiction of the court within the ancient mere-stones without removing the mark. I intend to pay my respects to your lordship once every month 'till the meeting of the Parliament, when our betters may consider of these matters, and therefore will not trouble you with any more on this subject at present. But conclude, most heartily praying---- That from depending upon the will of a judge, who may be corrupted or swayed by his own passions, interests, or the impulse of such as support him and may advance him to greater honours, the God of mercy and of justice deliver this nation. I am, my lord, Your lordship's most obedient humble servant, N.N. Dec. the First 1724. Dublin: Printed in the Year 1724. A SECOND LETTER FROM A FRIEND TO THE RIGHT HONOURABLE ------ My Lord, I think the best service men employed by His Majesty can do for him and this country, is to shew such prudence and temper in their behaviours as may convince every man they are not intrusted with any power but what is necessary and will always be exercised for the advantage and security of His Majesty's subjects. For my own part I hold it the duty of every man though he has not the honour of serving His Majesty in public employment, not only, not to misrepresent the actions of his servants, but in matters of small concern, to wink at their follies and mistakes; I know the Jacobites and Papists our irreconcilable enemies are too watchful to lay hold of every occasion to misrepresent His Majesty and turn the faults of ambitious and self-interested servants upon the best of kings. I hear some men say, that in my last to your lordship, there appears more of the satirist, than becomes a man engaged merely in the defence of liberty and justice; But I am satisfied I can with charity affirm, they are either such as have no knowledge of the several steps [that] have been taken to bring this poor country into ruin and disgrace, or they are of the number of those who have had a share in the actings and contrivances against it; for my lord, he must rather be an insensible stoic than an angry cynic, who can survey the measures of some men without horror and indignation--To see men act as if they had never taken an oath of fidelity to their king, whose interest is inseparable from that of his people, but had sworn to support the ruinous projects of abandoned men (of whatever faction) must rouse the most lethargic, if honest, soul. I who have always professed myself a Whig do confess it has mine. I beg leave in this place to explain what I intended in my last by the words, "unless by leave or order of the court," lest whilst I plead for justice I should do an injury to your lordship. I do declare I never heard that story of your lordship, and I hope no man did believe it of you. My intention was by that hint to remember you of Judge U--p--n and a certain assizes held at Wicklow, as I believe your lordship understood it, and as I now desire all the world may. Having learned from your lordship and other lawyers of undoubted abilities, that no judge ought by threats or circumvention to make a grand-juryman discover the king's counsel his fellows' or his own I should not at present say anything in support of that position. But that I find a most ridiculous and false explanation seem to mislead some men in that point: Say they, by the word counsel is understood, such bills as are before the grand jury and the evidence the prosecutors for the crown have to support the charge against the subject--Lest that being known the party indictable may fly from justice, or he may procure false witnesses to discredit the evidence for the king, or he may by bribes and other indirect measures take off the witnesses for the crown. I confess _I_ take that to be the meaning of the word counsel, but I am certain that is not _all_ that is meant by it, that is what must be understood when it is called the king's counsel, _id est_, the counsel or reasons for which the king by his servants, his attorney-general or coroner, has drawn and sent to the grand jury a charge against a subject. But the counsel of a juror is a different thing, it is the evidence, the motives and reasons that induce him or his fellow-jurors to say _billa vera_ or _ignoramus_, and the opinion he or they happen to be of when the question is put by the foreman for finding or not finding: This counsel every man is sworn to keep secret, that so their opinion and advice may not be of prejudice to them hereafter, That as they are sworn to act without favour or affection, so may they also act without FEAR. Whereas, were it otherwise the spirit of revenge is so universal, there are but few cases wherein a juror could act with safety to himself; either the prosecuted, as where the bill is found, or the prosecutor, where it is returned _ignoramus_, may contrive to defame the jurors who differ from them in opinion: As I am told has happened to some very honest citizens who are represented to be Jacobites since their opinions were know to be against ----. And sometimes revenge or ambition may prompt men to carry it further, as in the case of Mr. Wilmer, who in King Charles 2d's time was very severely handled for being one of an _ignoramus_ jury.---- 'Tis not necessary to say whom he disobliged by being so.----But if I remember right his case was this. He was a merchant, (and as I said, an _ignoramus_ juryman) had covenanted with a servant boy to serve him in the West Indies, and accordingly sent him beyond sea: Upon suggestion and affidavit by which any person might have it, a writ _de homine replegiando_ was granted against Mr. Wilmer; the sheriffs would have returned on the writ the agreement and the boy's consent, but the court (in the case of this Wilmer) Easter 34, Cha. 2. [_i.e.,_ Charles the Second] in B.R. ruled they must return _replegiari fecimus_ or _elongavit_, that is, they had replevy'd the boy, or that Wilmer had carried him away where they could not find him, in which last case Mr. Wilmer, though an innocent person must have gone to gaol until he brought the boy into court or he must have been outlawed--Shower's Rep. 2 Part. I do not say this that I think the same thing will be practised again, or anything like it, though I know that very homely proverb, "More ways of killing a dog than hanging him."--But I instance it to shew, the counsels of every grand juryman should be kept secret, that he may act freely and without apprehensions of resentment from the prosecuted or prosecutor. My resolution when I writ to you last, was, not to have said anything in this concerning the power of dissolving or dispensing, but as I have been forced to say something of the dispensing, for the same reason I must of the dissolving power.--A power undoubtedly in effect including that of returning, which makes me wish two men of great interest in this kingdom, differing in every other thing, had not undertaken to defend it, or they had better reasons for it than I have yet heard. 'Tis said, "This power is in the court as a right of resistance is in the people, as the people have a power superior to the prerogative of the prince, though no written or express law for it; so of necessity though no statute directs it, and it may seem to overturn the greatest security men have for their liberties, yet the court has a power of dissolving grand juries, if they refuse to find or present as the court shall direct." Pray let us consider how well this concludes. The people may do anything in defence of their lives, their religion and liberties, and consequently resistance is lawful, therefore an inferior court a _bene placito_ judge may----Monstrous absurdity. Another, I am sorry I can't say more modest argument to support it is this.-- "Considering," say they, "grand juries, it is but reasonable a discretionary power of dissolving them should be lodged in the judges." By the words "considering grand juries," I must understand considering their understandings, their fortunes or their integrity, for from a want of one or more of those qualifications must arise the reason of such a discretionary power in the judges. Though I shall not urge it as far as I could, I will venture to say the argument is at least as strong the other way--considering the judges.-- First as to their understandings, it must be confessed the benches are infinitely superior to the lower professors of the law: Yet surely it can't give offence to say the gentlemen of the several counties have understandings sufficient to discharge the duty of grand jurymen--If want of fortune be an objection to grand jurymen, _a pari ratione_, it is an objection to some other men.--Besides, that the fact is not true, for in their circuits, no judge goes into any county where he does not meet at least a dozen gentlemen returned upon every grand jury, every one of whom have better estates than he himself has--And these not during pleasure, which last consideration, saves me the trouble of shewing the weakness of the objection in the third qualification. "Ay. But it was a necessary expedient to keep out Wood's brass." Are the properties of the commons of this kingdom better secured by the knight-errantry of that day? In the name of common sense, what are we to believe? Has the undaunted spirit, the tremendous voice of ------ frightened Wood and his accomplices from any further attempts? Or rather has not the ready compliance of ------ encouraged them to further trials? The officers and attendants of his court may tremble when he frowns, but who else regards it more than they do one of Wood's farthings. "There is no comparison," says another, "between the affair of Sir W. Scroggs and this of ------. Sir W. discharged a grand jury because they were about to present the Duke of York for being a Papist, but ------ discharged the grand jury for not presenting a paper he recommended to them to present as scandalous, (and in which, I say, he was a party reflected on.)" I agree there is a mighty difference, but whom does it make for? A grand jury of a hundred (part of a county) take upon them to present a no less considerable person than the king's brother and heir presumptive of the crown, the chief-justice thinks this a matter of too much moment for men of such sort to meddle in, but a matter more proper for the consideration of Parliament: I would not be understood to condemn the jury; I think they acted as became honest Englishmen and lovers of their country; But I say if judges could in any case be allowed to proceed by rules of policy, surely here was a sufficient excuse. However the commons impeached him. The determinations of ignorant or wicked judges as they are precedents of little weight, so they are but of little danger, and therefore it will become the commons at all times to animadvert most carefully upon the actions of the most knowing men in that profession. I say, my lord, _at all times_, because I hear former merit is pleaded to screen this action from any inquiry. I am sensible much is due to the man who has always preferred the public interest to his private advantages as -------- has done. When a man has signalized himself, when he has suffered for that principle, he deserves universal respect. Yet men should act agreeably to the motive of that respect, and not ruin the liberty of their country to shew their gratitude, and so, my lord, where a man has the least pretence to that character, I think 'tis best to pass over small offences, but never such as will entail danger and dishonour upon us and our posterity. The Romans, my lord, when a question was in the senate, whether they should ransom fifteen thousand citizens who had merited much by their former victories, but losing one battle were taken prisoners; were determined by the advice of that noble Roman Attilius Regulus not to redeem them as men unworthy their further care, though probably it was their misfortunes not their faults lost that day. Flagitio additis Damnum: neque amissos colores Luna refert medicata fuco He thought they were not worthy to be trusted again:---- To shew them pity, in his mind, would betray the Romans to perpetual danger: _Et exemplo trahenti_ Perniciem veniens in aevum, Si non periret immiserabilis Captiva pubes I hear some precedents have been lately found out to justify that memorable action; but if precedents must control reason and justice, if a man may swear he will keep his counsels secret, and yet by precedents may be forced to divulge them, I would advise gentlemen very seriously to consider, the danger we are in; and examine what precedents there are on each side of the question, for my part I think the commons of England are not a worse precedent than the judges of England. Besides it must be remembered that precedents in some cases will not excuse a judge, even where they are according to the undoubted law of the land, as for instance, Suppose a man says what is true, not knowing it to be true, though it be logically a truth as it is distinguished, yet it is morally false; and so, suppose a judge give judgment according to law, not knowing it to be so, as if he did not know the reason of it at that time, but bethought himself of a reason or precedent for it afterwards, though the judgment be legal and according to precedent, yet the pronouncing of it is unjust; and the judge shall be condemned in the opinions of all men: As happened to the Lord Chief Justice Popham a person of great learning and parts, who upon the trial of Sir Walter Raleigh; when Sir Walter objected to reading or giving in evidence, Lord Cobham's affidavit, taken in his absence, without producing the lord face to face, the lord being then forthcoming: The chief justice overruled the objection, and was of opinion it should be given in evidence against Sir Walter, and summing up the evidence to the jury the chief justice said, "Just then it came into his mind why the accuser should not come face to face to the prisoner, because, &c." Now if any judge has since found precedents, or has since picked up the opinion of lawyers, I fear he will come within the case I have put. I foresee, if ever this question happens to be debated, _you know where_, gentlemen will be divided; Some will be desirous to do their country justice and free us from all future danger of this kind; Others upon motives not quite so laudable, will strive to screen, and with others private friendship will prevail: But I would recommend to your friends, who really love their country, to consider the several circumstances concurring in your lordship which probably may not in your successor: Let them suppose a person were to fill your place, from whose manifest ignorance in the law, we may reasonably conclude, his only merit is an inveteracy and hatred to this country. I say how could your best friends excuse themselves, if in regard to your lordship they should suffer such a precedent to be handed down to such a man unobserved or uncensured? _Invenit etiam aemulos infaelix nequitia_--Ambitious men have not always been deterred by the unhappy fate of their predecessors, _Quid si floreat vigeatque?_ But what lengths will they run if injustice and corruption shall ride triumphant? Had somebody received a reprimand upon his knees in a proper place, for treating a printer's jury like men convict of perjury, forcing them to find a special verdict, I dare to say he had not been quite so hardy as to have discharged the grand jury or treated them in the manner he did, because they had not an implicit faith in the court; nor had he dared not to receive a presentment made by the second grand jury against Wood's farthings upon pretence it was informal, which I mention because the worthy Drapier has mistaken the fact. Some of your lordship's screens I hear advise you to shew great humility and contrition for what's past, as the only means to appease the just indignation all sorts of men have conceived against you.----Were I well secured you will not recommend this letter to the next grand jury to be presented, I could give you more _seasonable advice_, but happen as it may I will venture to give you a little. Fawning and cajoling will have but little effect on those who have had the honour of your acquaintance these ten years past, for Caligula who used to hide his head if he heard the thunder, would piss upon the statues of the gods when he thought the danger over--A better expedient is this,---- Tell men the Drapier is a Tory and a Jacobite.--That he writ "The Conduct of the Allies."--That he writ not his letters with a design to keep out Wood's halfpence, but to bring in the Pretender; persuade them if you can, the dispute is no longer about the power of judges over juries, nor how much the liberty of the subject is endangered by dissolving them at pleasure, but that it is now become mere Whig and Tory, a dispute between His Majesty's friends and the Jacobites, and 'twere better to see a thousand grand juries discharged than the Tories carry a question though in the right.--_Haec vulnera pro libertate publica excepi, hunc oculum pro vobis impendi._ Try this cant, pin a cloth over your eyes, look very dismal, and cry, "I was turned out of employment, when the Drapier was rewarded with a Deanery," I say, my lord, if you can once bring matters thus to bear, I have not the least doubt you may escape without censure. To your lordship's zeal and industry without doubt is owing, that the Papists and the Tories have not delivered this kingdom over to the Pretender, so Caesar conquered Pompey that _Legum auctor et eversor,_ and 'twas but just the liberty and laws of Rome should afterwards depend upon his will and pleasure.----The Drapier in his letter to Lord Molesworth has made a fair offer, "Secure his country from Wood's coinage," then condemn all he has writ and said as false and scandalous, when your lordship does as much I must confess it will be somewhat difficult to discover the impostor. Thus to keep my word with your lordship, I have much against my inclinations writ this, which shall be my last upon the ungrateful subject.--If I have leisure, and find a safe opportunity of giving it to the printer, my next shall explain what has long duped the true Whigs of this kingdom. I mean _honesty in the "worst of times."_ Though your lordship object to my last, that what I writ was taken out of Lord Coke, Lord Somers, Sir Will. Jones, or the writings of some other great men, yet I will venture to end this with the sentiments of Philip de Comines upon some thorough-going courtiers. "If a sixpenny tax is to be raised, they cry by all means it ought to be double. If the prince is offended with any man, they are directly for hanging him. In other instances, they maintain the same character. Above all things they advise their king to make himself terrible, as they themselves are proud, fierce, and overbearing, in hopes to be dreaded by that means, as if authority and place were their inheritance." I am, My Lord, Your Lordship's most obedient and most humble servant. N.N. _Jan_. 4, 1724-5. APPENDIX V THE PRESENTMENT OF THE GRAND JURY OF THE COUNTY OF THE CITY OF DUBLIN.[1] Whereas several great quantities of base metal coined, commonly called _Wood's halfpence,_ have been brought into the port of Dublin, and lodged in several houses of this city, with an intention to make them pass clandestinely, among His Majesty's subjects of this kingdom; notwithstanding the addresses of both houses of parliament and the privy-council, and the declarations of most of the corporations of this city against the said coin; And whereas His Majesty hath been graciously pleased to leave his loyal subjects of this kingdom at liberty to take or refuse the said halfpence. [Footnote 1: Chief Justice Whitshed, after browbeating the Grand Jury that threw out the Bill against Harding for printing the fourth Drapier's letter, discharged it, and called another Grand Jury. The second Grand Jury not only repeated the verdict of the first, but issued the following expression of its opinion on the matter of Wood and his patent. [T.S.]] We the Grand Jury of the county of the city of Dublin, this Michaelmas term, 1724, having entirely at heart His Majesty's interest and the welfare of our country, and being thoroughly sensible of the great discouragement which trade hath suffered by the apprehensions of the said coin, whereof we have already felt the dismal effects, and that the currency thereof will inevitably tend to the great diminution of His Majesty's revenue, and the ruin of us and our posterity: do present all such persons as have attempted, or shall endeavour by fraud or otherwise, to impose the said halfpence upon us, contrary to His Majesty's most gracious intentions, as enemies to His Majesty's government, and to the safety, peace and welfare of all His Majesty's subjects of this kingdom, whose affections have been so eminently distinguished by their zeal to his illustrious family, before his happy accession to the throne, and by their continued loyalty ever since. As we do with all just gratitude acknowledge the services of all such patriots, as have been eminently zealous for the interest of His Majesty, and this country, in detecting the fraudulent impositions of the said Wood, and preventing the passing his base coin: So we do at the same time declare our abhorrence and detestation of all reflections on His Majesty, and his government, and that we are ready with our lives and fortunes to defend his most Sacred Majesty against the Pretender and all His Majesty's open and secret enemies both at home and abroad: Given under our hands at the Grand Jury Chamber this 28th, November, 1724.[2] George Forbes, David Tew, William Empson, Thomas How, Nathaniel Pearson, John Jones, Joseph Nuttall, James Brown, William Aston, Charles Lyndon, Stearn Tighe, Jerom Bredin, Richard Walker, John Sican, Edmond French, Anthony Brunton, John Vereilles, Thomas Gaven, Philip Pearson, Daniel Elwood, Thomas Robins, John Brunet. Richard Dawson, [Footnote 2: On August 20th, 1724, the Grand Jury, and the other inhabitants of the Liberty of the Dean and Chapter of St. Patrick's waited on the Dean, and read him the following Declaration, desiring him to give orders for its publication: "The Declaration of the Grand-Jury, and the rest of the inhabitants of the Liberty of the Dean and Chapter of St. Patrick's, Dublin. "We, the Grand-Jury, and other inhabitants of the Liberty of the Dean and Chapter of St. Patrick's, Dublin, whose names are underwritten, do unanimously declare and determine, that we never will receive or pay any of the half-pence or farthings already coined, or that shall hereafter be coined, by one William Wood, being not obliged by law to receive the same; because we are thoroughly convinced by the Addresses of both Houses of Parliament, as well as by that of his Majesty's most honourable Privy-Council, and by the universal opinion of the whole kingdom, that the currency of the said half-pence and farthings would soon deprive us of all our gold and silver, and therefore be of the most destructive consequence to the trade and welfare of the nation." [T. S.]] APPENDIX VI PROCLAMATION AGAINST THE DRAPIER. "_Oct. 27th,_ 1724. "A proclamation for discovering ye Author of ye Pamphlet intituled A letter to ye whole people of Ireland, by M.B. Drapier, author of the Letter to the Shop-keepers, etc. £300 Reward BY THE LORD-LIEUTENANT AND COUNCIL OF IRELAND. A Proclamation. "CONTENT: "Whereas a wicked and malicious pamphlet, intituled A Letter to the whole people of Ireland, by M.B. Drapier, author of the Letter to the Shop-keepers, etc., printed by John Harding, in Molesworth's Court, in Fishamble Street, Dublin, in which are contained several seditious and scandalous paragraphs highly reflecting upon his Majesty and his Ministers, tending to alienate the affections of his good subjects of England and Ireland from each other, and to promote sedition among the people, hath been lately printed and published in this kingdom: We, the Lord-Lieutenant and Council do hereby publish and declare that, in order to discover the author of the said seditious pamphlet, we will give the necessary orders for the payment of three hundred pounds sterling, to such person or persons as shall within the specified six months from this date hereof, discover the author of the said pamphlet, so as he be apprehended and convicted thereby. "Given at the council chamber in Dublin, this twenty-seventh day of October, one thousand seven hundred and twenty-four. "(Signed) Midleton _Cancer_. Shannon; Donnerail; G. Fforbes; H. Meath; Santry; Tyrawly; Fferrars; William Conolly; Ralph Gore; William Whitshed; B. Hale; Gust. Hume; Ben Parry; James Tynte; R. Tighe; T. Clutterbuck. "God Save the King." APPENDIX VII It is very interesting and even curious to note, that the signatories to the public expression of their attitude towards Wood and his patent, as shown by the Proclamation, should have almost all of them signed another document, in their capacities of Privy Councillors, which addressed his Majesty _against_ Wood and the patent. So far as I can learn, Monck Mason seems to have been the first historian to discover it; nor do I find the fact mentioned by any of Swift's later biographers. "It was rumoured in Swift's time," says Monck Mason, "but not actually known to him" (see Drapier's Sixth Letter), "that the Irish Privy Council had addressed his Majesty against Mr. Wood's coin. Having inspected the papers of the Council office, I shall lay before the reader the particulars of this event, which were never promulgated, probably, because they had not the desired effect, the premier [Walpole] having determined, notwithstanding all opposition or advice, to persevere in his ill-judged project. "On the 17th April, 1724, at a meeting of the Council, in which the Duke of Grafton himself presided, it was ordered, that it should be referred to a committee of the whole board, or of any seven or more, 'to consider what was proper to be done to allay and quiet the great fears of the people, occasioned by their apprehensions of William Wood's copper money becoming current among them,' On the 6th of May, the committee reported, that they had considered the matter referred to them, and were of opinion, that an address should be sent to his Majesty, of which they then presented a draught. It was again on the 19th, referred to a committee of the whole board to prepare a letter, which was accordingly done on the next day.--The report was as follows: "'To the King's Most Excellent Majesty, the humble address of the Lords Justices, and Privy-Council. * * * * * "'May it please your Majesty, "'We, your Majesty's most dutiful and loyal subjects, the Lords Justices and Privy Council, most humbly beg leave, at this time, to give an instance of that duty, which, as upon all other occasions, so more especially upon such as are of the greatest moment and importance, we hold ourselves always bound to pay to your Majesty. "'Your Majesty's great council, the High Court of Parliament, being now prorogued, we conceive ourselves bound, by the trust which your Majesty has been pleased to repose in us, and the oaths we have taken, with all humility to lay before your Majesty the present state of this your kingdom, with reference to a great evil that appears to threaten it, to which, if a speedy remedy be not applied, the unavoidable consequence, as we apprehend, will be, the ruin of multitudes of your Majesty's subjects, together with a great diminution of your revenue. "'Though the fears of your Majesty's subjects of this kingdom, in relation to the coinage of copper half-pence and farthings, were, in a great measure, allayed by your Majesty's most gracious resolution to do every thing in your power for the satisfaction of your people, expressed in your Majesty's answer to the addresses of both Houses of Parliament; yet, the repeated intelligence from Great Britain, that William Wood has the assurance to persist in his endeavours to introduce his copper half-pence and farthings amongst us, has again alarmed your faithful subjects, to such a degree, as already to give a great check to our inland trade. If the letters patent granted to William Wood should, in all points, be exactly complied with, the loss to be sustained by taking his half-pence and farthings would be much greater than this poor kingdom is able to bear. But if he, or any other persons, should, for the value of gain, be tempted to coin and import even more than double the quantity he by his patent is allowed to do, your people here do not see how it is possible for your Majesty's chief governors of this your kingdom, to detect or hinder the cheat. "'It is found by experience, that we have already a sufficient quantity of half-pence, to serve by way of exchange in the retailing trade, which is the only use of such sort of money, of which, therefore, we find ourselves to be in no want. "'And since, by the letters patent granted to the same William Wood, no man is required or commanded to take the said half-pence or farthings, but the taking them is left at liberty to those who are willing so to do; we most humbly submit it to your royal wisdom and goodness, whether it may not be for your Majesty's service, and the great satisfaction and good of your subjects, and very much tend to the allaying and quieting of their fears, that your Majesty should cause your royal pleasure to be signified to the Commissioners, and other officers of your Majesty's revenue in this kingdom, that they neither receive those half-pence and farthings, nor give countenance or encouragement to the uttering or vending of them; or that some other speedy method may be taken to prevent their becoming current amongst us.'" APPENDIX VIII Searching among the pamphlets of the Halliday Collection at the Royal Irish Academy, Dublin, I came across a tract of twelve pages, printed by John Whaley of Dublin in 1723, with the following title: "The Patentee's Computation of Ireland, in a Letter from the Author of the Whitehall Evening-Post concerning the making of Copper-Coin. As also the Case and Address of both Houses of Parliament together with His Majesty's Most Gracious Answer to the House of Lords Address." The writer of this tract in defence of the patent maintained the following propositions: (1) That the Kingdom of Ireland wants a Copper Coin. (2) That the quantity of this coin will be no inconvenience to it. (3) That it is better than ever the Kingdom had, and as good as (in all probability) they ever will or can have, and that the Patentee's profit is not extravagant, as commonly reported. (4) That the Kingdom will lose nothing by this coin. (5) That the public in Ireland will gain considerably by it, if they please. (6) That the Kingdom will have £100,000 additional cash. As he states his arguments, they are quite reasonable. On proposition three, if his figures are correct, he is especially convincing. He details the cost of manufacture thus: _s. d._ Copper prepared for the coinage at his Majesty's Mint at the Tower of London, costs per pound weight 1 6 Coinage of one pound weight 3-1/2 Waste and charge of re-melting 1 Yearly payment to the Exchequer and Comptroller 1 Allowed to the purchaser for exchange, &c. 5 Total charge 2 4-1/2 "So that the patentee," he concludes, "makes a profit of only 1-1/2_d._ in the half crown or about 5%." The tract, however, is more interesting for the reprint it gives of the twenty-eight articles stated by the people in objection to the patent and the coin. I give these articles in full: IRELAND'S CASE HUMBLY PRESENTED TO THE HONOURABLE THE KNIGHTS, CITIZENS, AND BURGESSES IN PARLIAMENT ASSEMBLED MOST HUMBLY SHEWETH, Whereas your Honours finding the late Grant or Letters Patents obtained by Mr. William Wood, for making Three Hundred and Sixty Tun weight of copper half-pence for the Kingdom of Ireland, were to be manufactured in London &c. which money is now coining in Bristol, and that the said money was to weigh two shillings and sixpence in each pound weight, and that change was to be uttered or passed for all such as were pleased to take the same in this Kingdom. That it's humbly conceived Your Honours on considering the following Remarks, will find the permitting such change to pass, exceeding Injurious and Destructive to the Nation. First. That the same will be a means to drain this Kingdom of all its Gold and Silver, and ten, fifteen, or twenty per cent abated, will most effectually do the same. 2d. That the making such money in England will give great room for counterfeiting that coin, as well in this Kingdom, as where it is made. 3d. That the Copper Mines of this Island which might be manufactured in the nation, is by management shipped off to England by some persons at, or about forty shillings per tun, by others at four pounds and six pounds per ton, which copper when smelted and refined is sold and sent back to this kingdom at two shillings and six pence per pound weight as aforesaid, which is two hundred and eighty pound sterl. per ton. 4th. That two shillings and sixpence per pound weight is making the said coin of very small value, the said coin ought not to weigh or exceed two shillings in each pound weight as the English Halfpence are. 5th. That all such money brought to this Nation manufactured, is to be entered at value, which value is in the Book of Rates, ten per cent duty and excise. 6th. That no security is given to this Nation to make such money in any one point, the same may be found defective in either, as to baseness of metal, workmanship or weight, or to give gold and silver for the same, when the subject was, or may be burthened therewith. 7th. That if such monies as aforesaid be permitted to pass in this nation, all persons that have gold or silver by them would not part therewith, but Brass money must be carried from House to House on Truckles, and in the county by carts and horses, with troops to guard them. 8th. That such money will raise the price of all commodities from abroad, probably to three or four hundred per cent. 9th. That linen, yarn, beef, butter, tallow, hides and all other commodities, will raise to that degree by being bought with half-pence, and workmen paid with brass money, that commissions from abroad will not reach them, therefore such goods must lie on hands and remain a drugg. 10th. That the excise of beer, ale, brandy, &c., and hearth-money will be paid in such coin, the same falling first into the hands of the poor and middling people. 11th. That if any trouble should happen in this nation, no army could be raised with such specie, but an enemy in all appearance would be admitted with their gold and silver, and which would drive the nation before them. 12th. The Courts of Law could not subsist, for all the suits there must be supported and maintained with ready money. Viz. Gold and Silver. 13th. That all the bankers must shut up their shops, no lodgment would be made except Halfpence, such as would lodge their money with them, would rather draw off and cause a run on them, fearing that their specie should be turned into the said brass and copper money. 14th. That such bills as are drawn to the country, viz. Cork, Limerick, Waterford, Kingsale, Deny, &c. The Exchange would be instead of a quarter per cent, twenty per cent and then paid in the said Brass specie, by means of its being brought on cars, carts, or waggons, and guards to attend the same. 15th. That all the rent in the Kingdom would be paid in half-pence; no man would give gold or silver, when he had brass money to pay the same. 16th. That no one can coin or manufacture such a quantity of halfpence or farthings for this Kingdom, out of the same, but either he must be ruined in the undertaking or the nation undone by his project, in taking such light money, by reason of ten per cent, duty, and probably this session be made twenty or thirty per cent duty, and the exchange nine or ten per cent. Ten per cent abated to circulate them. Ten per cent factorage, freight, gabberage, key-porters, &c. all which is forty per cent, charged on the same. 17th. That if the said Wood was obliged to make his light money not to exceed two shillings in the pound weight according to the English coin, he would give up such grant, for six pence in each pound weight is 25 per cent. 18th. That the said twenty-five per cent is 19,360_l._ sterl. on the said 360 ton of copper, loss to this nation, by being coined out of this Kingdom, besides 80,690_l._ of gold and silver sent out of the Kingdom for brass or copper money. 19th. That the copper mines of this Kingdom is believed to be the metal such copper is made of, which verifies the English saying, That Irish people are wild, that would part with 200,000_l._ sterl. of their gold and silver, for their own copper mines, which cost them not one pound sterl. 20th. That the said Wood's factors probably may send in fourteen years double the quantity of copper which is 720 ton, then this Kingdom loses 38,720_l._ sterl. and parts with 161,280_l._ sterl. of their gold and silver for almost nothing. 21st. If any great sum was to be raised by this nation, on any emergency extraordinary, to serve his Majesty and his Kingdom how would it be possible to do the same; copper half-pence would not stem the tide, no silver now to be had of value, then no gold to be seen. 22d. That England also must be a great loser by such money, by reason the said half-pence being from 20 to 40 grains lighter and less in value than their own, so that the same will not pass in that Kingdom scarce for farthings a piece, how then shall the vast quantities of goods be paid for, that are brought from that Kingdom here, a considerable part of this island must be broke and run away for want of silver and gold to pay them their debts. 23d. That if the said Wood should get all that money, what power would he regard, and what temptation would he be subject unto on that head, he is but a man, and one almost as little known or heard of, as any one subject the king has on this side the water. 24th. That the vast quantity of sea-coal brought from England here, would not be had for such money; the colliers will keep both their ships and coal at home, before they trade with such a nation, as had their treasure turned into brass money. 25th. That the Army must be paid with such money, none else to be had, they would lay down their arms and do no duty, what blood and confusion then would attend the same. 26th. That no people out of any other Kingdom would come into this country to dwell, either to plant or sow, where all their money must be brass. 27th. That the beautiful Quay and river of Dublin which is now lined and filled with ships in a most delightful order, would then be scattered to other harbours, as also the new Range, there and now a building, would be left, nothing but empty places all as doleful as the weeping river, deserted by her fleets and armies of merchants and traders. 28th. That the aforesaid scheme is to be viewed and considered by a King and Parliament, that will do themselves and their nation justice, who will with hearts and hands, stem that tide and current, as never to suffer so dutiful and loyal a people to be ruined and undone without relief. APPENDIX IX DESCRIPTIONS OF THE VARIOUS SPECIMENS OF WOOD'S COINS The following descriptions of the various varieties of Wood's coins, taken from a note in Monck Mason's "History of St. Patrick's Cathedral" (ed. 1819, pp. xcvi-xcvii), may be interesting to the student. The two varieties of the coins given as illustrations in this volume are reproduced from specimens in the British Museum. Monck Mason obtains his information from Simon's "Essay on Irish Coins," Dublin, 1749, 4to; Snelling's Supplement to Simon issued in 1767; and the edition of Simon's work reprinted in 1810. With the exception of No. II. of this list all of Wood's coins had, on one side, "the king's head laureat, looking to the left, with this inscription, GEORGIUS, DEI GRATIA, REX. On the reverse is the figure of Ireland, represented by a woman sitting, beside her, a harp: the differences consist chiefly, in variations in the attitude of the figure, and in the date of the coin." No. I. 1722.--Hibernia, with both her hands on the harp, which is placed on her right side; her figure is full front, but she looks towards the right; round her this inscription, HIBERNIA, 1722. (Simon, plate 7, Numb. 160) No. II. 1722.--Hibernia is seated as in the last, but has her head turned to the left, on which side there is a rock; round her is inscribed, HIBERNIA; in the exergue, 1722; on the obverse the usual head, the inscription, GEORGIUS D.G. REX. (Snelling, plate 2, Numb. 24.) No. III. 1722.--Hibernia, in profile, looking to the left, holding, in her right hand, a palm branch, resting her left on a harp; round it, HIBERNIA, 1722. (Simon, plate 7, Numb. 161.) No. IV. 1723.--Hibernia, as in the last; round her, HIBERNIA, 1723. (Simon, plate 8, Numb. 169.) It was some of this coin that was submitted to Sir Isaac Newton for assay. No. V. 1724.--Hibernia, as in the last two, differing only in the date. (Mentioned by Simon, but no engraving given.) No, VI. 1724.--Hibernia, seated as in the three preceding; round her, HIBERNIA: in the exergue, 1724. (Snelling, plate 2, Numb. 26.) Mason notes of this specimen: "Mr. Snelling does not specify, particularly, in what respect this coin differs from those which precede; his words are, 'different from any other, and very good work, especially the halfpenny, which is the finest and broadest piece of his money I ever saw, and belongs to Mr. Bartlet.' They do not, however, appear to have attained to circulation in Ireland. A few might, perhaps, have been struck off by the patentee, to distribute among his own, and the minister's friends." No. VII.--Mr. Snelling mentions, "another halfpenny, which has Hibernia pointing up with one hand to a sun in the top of the piece"; but of this he has not given any engraving. INDEX. Addison, made keeper of the records of Bermingham's Tower Armstrong, Sir Thomas, granted a patent to coin farthings in Ireland Armstrong, Sir William, granted a patent to coin halfpence in Ireland Bacon, Lord, on the Royal prerogative, quoted Berkeley, Lord, of Stratton, Master of the Rolls Bingham, John Bodin, Jean Boulter, Archbishop Brodrick, St. John, made a Privy Councillor Brown, John Burlington, Earl of, Lord High Treasurer of Ireland Carteret, Lord, attempts to injure Walpole's reputation by means of the Wood agitation made Lord Lieutenant of Ireland takes Walpole's side character of Swift's letters to his relations with Walpole Charles I., paid his troops with debased coin Coinage, the law with reference to _See_ Wood's Coinage Coke, Sir Edward, on the laws regarding coinage Coleby Conolly, William, Speaker of the Irish House of Commons Coxe, Archdeacon, his account of the agitation in Ireland "Creed of an Irish Commoner, A" Crowley, Sir Ambrose Dartmouth, Lord, granted a patent to coin halfpence in Ireland Davies, Sir John, his "Abridgement of Coke's Reports" "Defence of the Conduct of the People of Ireland, A," quoted Doddington, Bubb Drapier, the, his account of himself proclamation against Dublin, petition of the Lord Mayor, sheriffs and citizens of Dutch, the, counterfeited debased coinage of Ireland Elizabeth, Queen, her army paid with base coin base money sent to Ireland by Ewing, George, "Defence of the Conduct of the People of Ireland" published by Filmer, Sir Robert Finley France, system of re coinage in George I., equestrian statue of, in Dublin Grafton, Duke of, Lord Lieutenant of Ireland recalled not concerned with Wood's patent Harding, John, arrest and prosecution of Harley, Robert, Earl of Oxford, Swift's tribute to Holt, Sir John Hopkins, Right Hon. Edward, secretary to the Lord Lieutenant made Master of the Revels Hopkins, John Ireland, want of small change in patents granted for coining in relations between England and petitions for establishment of a mint in computed population of copper money not wanted in not a "depending kingdom," English contempt for loyalty of a free country project for a bank in England's profit from the absentees of absence of faction in Charter schools founded in needed reforms in _See also_ Wood's Coinage. James II., debased the coinage in Ireland Kendal, Duchess of, sold Wood his patent for £10,000 King, Archbishop, letters to Southwell quoted letter to General George refused to condemn the Drapier letter to Molyneux on the proclamation against the Drapier's 4th letter Knox, John, his patent to coin halfpence comparison of his patent with Wood's Legg, Colonel George. _See_ Dartmouth, Lord. Leti, Signor Lindsay, Robert Marsh; Bishop, Charter schools founded by Midleton, Chancellor, and Walpole Swift's letter to opposed to Wood's patent but signed the Proclamation against the Drapier account of "Mirror of Justice, The," Molesworth, Viscount, letter to account of Molyneux, William Moore, Colonel Roger, patent to coin halfpence sold to Newton, Sir Isaac, Wood's coinage assayed by Palmerston, Lord, Chief Remembrancer Pembroke, Earl of, Lord-Lieutenant of Ireland Philips, Ambrose, secretary to Archbishop Boulter Phipps, Sir Constantine Poyning's Law Precedents, Swift on Prior, Thomas, his "List of the Absentees of Ireland" Privy Council, Report of the, on Wood's coinage and _see_ Letters II. and III. Privy Council, the Irish, Report of, on Wood's coinage "Proposal for the Universal Use of Irish Manufactures, A" Rooke, Admiral Sir George Royal Prerogative, the explained Scotland, power of coining in Scroggs, Sir William, Lord Chief Justice Scroope, Thomas, one of the assayists of Wood's coinage "Seasonable Advice to the Grand Jury," effect of Sedley, Sir Charles Sheridan, Thomas, probably the author of "Tom Punsibus Dream" Sidney, Algernon Somers, Lord Southwell, Edward, one of the assayists of Wood's coinage King's letters to Secretary of State Sunderland, Earl of Swift, Jonathan, his aims in writing the Drapier's letters his letter to Midleton acclaimed the saviour of his country his sermon on "Doing Good" idolized in Ireland Trench, W., memorial of, with reference to the copper coinage "Tom Punsibi's Dream" Tyrone's rebellion Walpole, Sir Robert, his conduct in the matter of Wood's patent said to have been the author of the Report of the Privy Council his Irish policy Wood's reliance on exonerated by the Drapier Whitshed, Chief Justice, dissolves the Grand Jury in the case against Harding his motto letters to William, King, pewter halfpence coined by Wood, William, terms of the patent granted to account of his indiscreet boasts stories of his profit considered his patent obtained clandestinely his patent compared with Knox's pamphlets published in London in favor of his reliance on Walpole his patent ended a pension given to Wood's coinage, letters of the Revenue Commissioners regarding resolutions of the Irish Houses of Parliament on report of the Committee of the Privy Council on and Letters II and III. value of refused by the merchants at the ports no one obliged to take it assay of, at the mint baseness of the revenue officers ordered to pass it popular indignation against the matter summed up end of the agitation concerning addresses to the King concerning presentment of the Grand Jury on description of the various specimens of 
19473	----	[Illustration: "I'm big enough to protect my Mother, and I'll do it." _p. 42._] NOW OR NEVER OR THE ADVENTURES OF BOBBY BRIGHT _A STORY FOR YOUNG FOLKS_ OLIVER OPTIC _NEW EDITION_ NEW YORK THE MERSHON COMPANY PUBLISHERS Entered, according to Act of Congress, in the year 1856, by WILLIAM T. ADAMS, in the Clerk's Office of the District Court of the District of Massachusetts. Copyright, 1884, By WILLIAM T. ADAMS. NOW OR NEVER. To my Nephew CHARLES HENRY POPE THIS BOOK IS AFFECTIONATELY DEDICATED PREFACE The story contained in this volume is a record of youthful struggles, not only in the world without, but in the world within; and the success of the little hero is not merely a gathering up of wealth and honors, but a triumph over the temptations that beset the pilgrim on the plain of life. The attainment of worldly prosperity is not the truest victory; and the author has endeavored to make the interest of his story depend more on the hero's devotion to principles than on his success in business. Bobby Bright is a smart boy; perhaps the reader will think he is altogether too smart for one of his years. This is a progressive age, and anything which young America may do need not surprise any person. That little gentleman is older than his father, knows more than his mother, can talk politics, smoke cigars, and drive a 2:40 horse. He orders "one stew" with as much ease as a man of forty, and can even pronounce correctly the villanous names of sundry French and German wines and liqueurs. One would suppose, to hear him talk, that he had been intimate with Socrates and Solon, with Napoleon and Noah Webster; in short, that whatever he did not know was not worth knowing. In the face of these manifestations of exuberant genius, it would be absurd to accuse the author of making his hero do too much. All he has done is to give this genius a right direction; and for politics, cigars, 2:40 horses, and "one stew," he has substituted the duties of a rational and accountable being, regarding them as better fitted to develop the young gentleman's mind, heart, and soul. Bobby Bright is something more than a smart boy. He is a good boy, and makes a true man. His daily life is the moral of the story, and the author hopes that his devotion to principle will make a stronger impression upon the mind of the young reader, than even the most exciting incidents of his eventful career. WILLIAM T. ADAMS. CONTENTS CHAPTER PAGE I. In which Bobby goes a fishing, and catches a Horse 1 II. In which Bobby blushes several Times, and does a Sum in Arithmetic 13 III. In which the Little Black House is bought, but not paid for 26 IV. In which Bobby gets out of one Scrape, and into another 38 V. In which Bobby gives his Note for Sixty Dollars 52 VI. In which Bobby sets out on his Travels 66 VII. In which Bobby stands up for certain "Inalienable Rights" 78 VIII. In which Mr. Timmins is astonished, and Bobby dines in Chestnut Street 91 IX. In which Bobby opens various Accounts, and wins his first Victory 104 X. In which Bobby is a little too smart 117 XI. In which Bobby strikes a Balance, and returns to Riverdale 131 XII. In which Bobby astonishes sundry Persons, and pays Part of his Note 144 XIII. In which Bobby declines a Copartnership, and visits B---- again 160 XIV. In which Bobby's Air Castle is upset, and Tom Spicer takes to the Woods 177 XV. In which Bobby gets into a Scrape, and Tom Spicer turns up again 191 XVI. In which Bobby finds "it is an ill wind that blows no one any good" 205 XVII. In which Tom has a good Time, and Bobby meets with a terrible Misfortune 219 XVIII. In which Bobby takes French Leave, and camps in the Woods 235 XIX. In which Bobby has a narrow Escape, and goes to Sea with Sam Ray 248 XX. In which the Clouds blow over, and Bobby is himself again 264 XXI. In which Bobby steps off the Stage, and the Author must finish "Now or Never" 280 NOW OR NEVER OR THE ADVENTURES OF BOBBY BRIGHT CHAPTER I IN WHICH BOBBY GOES A FISHING, AND CATCHES A HORSE "By jolly! I've got a bite!" exclaimed Tom Spicer, a rough, hard-looking boy, who sat on a rock by the river's side, anxiously watching the cork float on his line. "Catch him, then," quietly responded Bobby Bright, who occupied another rock near the first speaker, as he pulled up a large pout, and, without any appearance of exultation, proceeded to unhook and place him in his basket. "You are a lucky dog, Bob," added Tom, as he glanced into the basket of his companion, which now contained six good-sized fishes. "I haven't caught one yet." "You don't fish deep enough." "I fish on the bottom." "That is too deep." "It don't make any difference how I fish; it is all luck." "Not all luck, Tom; there is something in doing it right." "I shall not catch a fish," continued Tom, in despair. "You'll catch something else, though, when you go home." "Will I?" "I'm afraid you will." "Who says I will?" "Didn't you tell me you were 'hooking jack'?" "Who is going to know anything about it?" "The master will know you are absent." "I shall tell him my mother sent me over to the village on an errand." "I never knew a fellow to 'hook jack,' yet, without getting found out." "I shall not get found out unless you blow on me; and you wouldn't be mean enough to do that;" and Tom glanced uneasily at his companion. "Suppose your mother should ask me if I had seen you." "You would tell her you have not, of course." "Of course?" "Why, wouldn't you? Wouldn't you do as much as that for a fellow?" "It would be a lie." "A lie! Humph!" "I wouldn't lie for any fellow," replied Bobby, stoutly, as he pulled in his seventh fish, and placed him in the basket. "Wouldn't you?" "No, I wouldn't." "Then let me tell you this; if you peach on me, I'll smash your head." Tom Spicer removed one hand from the fish pole and, doubling his fist, shook it with energy at his companion. "Smash away," replied Bobby, coolly. "I shall not go out of my way to tell tales; but if your mother or the master asks me the question, I shall not lie." "Won't you?" "No, I won't." "I'll bet you will;" and Tom dropped his fish pole, and was on the point of jumping over to the rock occupied by Bobby, when the float of the former disappeared beneath the surface of the water. "You've got a bite," coolly interposed Bobby, pointing to the line. Tom snatched the pole, and with a violent twitch, pulled up a big pout; but his violence jerked the hook out of the fish's mouth, and he disappeared beneath the surface of the river. "Just my luck!" muttered Tom. "Keep cool, then." "I will fix you yet." "All right; but you had better not let go your pole again, or you will lose another fish." "I'm bound to smash your head, though." "No, you won't." "Won't I?" "Two can play at that game." "Do you stump me?" "No; I don't want to fight; I won't fight if I can help it." "I'll bet you won't!" sneered Tom. "But I will defend myself." "Humph!" "I am not a liar, and the fear of a flogging shall not make me tell a lie." "Go to Sunday school--don't you?" "I do; and besides that, my mother always taught me never to tell a lie." "Come! you needn't preach to me. By and by, you will call me a liar." "No, I won't; but just now you told me you meant to lie to your mother, and to the master." "What if I did? That is none of your business." "It _is_ my business when you want me to lie for you, though; and I shall not do it." "Blow on me, and see what you will get." "I don't mean to blow on you." "Yes, you do." "I will not lie about it; that's all." "By jolly! see that horse!" exclaimed Tom, suddenly, as he pointed to the road leading to Riverdale Centre. "By gracious!" added Bobby, dropping his fish pole, as he saw the horse running at a furious rate up the road from the village. The mad animal was attached to a chaise, in which was seated a lady, whose frantic shrieks pierced the soul of our youthful hero. The course of the road was by the river's side for nearly half a mile, and crossed the stream at a wooden bridge but a few rods from the place where the boys were fishing. Bobby Bright's impulses were noble and generous; and without stopping to consider the peril to which the attempt would expose him, he boldly resolved to stop that horse, or let the animal dash him to pieces on the bridge. "Now or never!" shouted he, as he leaped from the rock, and ran with all his might to the bridge. The shrieks of the lady rang in his ears, and seemed to command him, with an authority which he could not resist, to stop the horse. There was no time for deliberation; and, indeed, Bobby did not want any deliberation. The lady was in danger; if the horse's flight was not checked, she would be dashed in pieces; and what then could excuse him for neglecting his duty? Not the fear of broken limbs, of mangled flesh, or even of a sudden and violent death. It is true Bobby did not think of any of these things; though, if he had, it would have made no difference with him. He was a boy who would not fight except in self-defence, but he had the courage to do a deed which might have made the stoutest heart tremble with terror. Grasping a broken rail as he leaped over the fence, he planted himself in the middle of the bridge, which was not more than half as wide as the road at each end of it, to await the coming of the furious animal. On he came, and the piercing shrieks of the affrighted lady nerved him to the performance of his perilous duty. The horse approached him at a mad run, and his feet struck the loose planks of the bridge. The brave boy then raised his big club, and brandished it with all his might in the air. Probably the horse did not mean anything very bad; was only frightened, and had no wicked intentions towards the lady; so that when a new danger menaced him in front, he stopped suddenly, and with so much violence as to throw the lady forward from her seat upon the dasher of the chaise. He gave a long snort, which was his way of expressing his fear. He was evidently astonished at the sudden barrier to his further progress, and commenced running back. "Save me!" screamed the lady. "I will, ma'am; don't be scared!" replied Bobby, confidently, as he dropped his club, and grasped the bridle of the horse, just as he was on the point of whirling round to escape by the way he had come. "Stop him! Do stop him!" cried the lady. "Whoa!" said Bobby, in gentle tones, as he patted the trembling horse on his neck. "Whoa, good horse! Be quiet! Whoa!" The animal, in his terror, kept running backward and forward; but Bobby persevered in his gentle treatment, and finally soothed him, so that he stood quiet enough for the lady to get out of the chaise. "What a miracle that I am alive!" exclaimed she, when she realized that she stood once more upon the firm earth. "Yes, ma'am, it is lucky he didn't break the chaise. Whoa! Good horse! Stand quiet!" "What a brave little fellow you are!" said the lady, as soon as she could recover her breath so as to express her admiration of Bobby's bold act. "O, I don't mind it," replied he, blushing like a rose in June. "Did he run away with you?" "No; my father left me in the chaise for a moment while he went into a store in the village, and a teamster who was passing by snapped his whip, which frightened Kate so that she started off at the top of her speed. I was so terrified that I screamed with all my might, which frightened her the more. The more I screamed, the faster she ran." "I dare say. Good horse! Whoa, Kate!" "She is a splendid creature; she never did such a thing before. My father will think I am killed." By this time, Kate had become quite reasonable, and seemed very much obliged to Bobby for preventing her from doing mischief to her mistress; for she looked at the lady with a glance of satisfaction, which her deliverer interpreted as a promise to behave better in future. He relaxed his grasp upon the bridle, patted her upon the neck, and said sundry pleasant things to encourage her in her assumed purpose of doing better. Kate appeared to understand Bobby's kind words, and declared as plainly as a horse could declare that she would be sober and tractable. "Now, ma'am, if you will get into the chaise again, I think Kate will let me drive her down to the village." "O, dear! I should not dare to do so." "Then, if you please, I will drive down alone, so as to let your father know that you are safe." "Do." "I am sure he must feel very bad, and I may save him a great deal of pain, for a man can suffer a great deal in a very short time." "You are a little philosopher, as well as a hero, and if you are not afraid of Kate, you may do as you wish." "She seems very gentle now;" and Bobby turned her round, and got into the chaise. "Be very careful," said the lady. "I will." Bobby took the reins, and Kate, true to the promise she had virtually made, started off at a round pace towards the village. He had not gone more than a quarter of a mile of the distance when he met a wagon containing three men, one of whom was the lady's father. The gestures which he made assured Bobby he had found the person whom he sought, and he stopped. "My daughter! Where is she?" gasped the gentleman, as he leaped from the wagon. "She is safe, sir," replied Bobby, with all the enthusiasm of his warm nature. "Thank God!" added the gentleman, devoutly, as he placed himself in the chaise by the side of Bobby. CHAPTER II IN WHICH BOBBY BLUSHES SEVERAL TIMES, AND DOES A SUM IN ARITHMETIC Mr. Bayard, the owner of the horse, and the father of the lady whom Bobby had saved from impending death, was too much agitated to say much, even to the bold youth who had rendered him such a signal service. He could scarcely believe the intelligence which the boy brought him; it seemed too good to be true. He had assured himself that Ellen--for that was the young lady's name--was killed or dreadfully injured. Kate was driven at the top of her speed, and in a few moments reached the bridge, where Ellen was awaiting his arrival. "Here I am, father, alive and unhurt!" cried Ellen, as Mr. Bayard stopped the horse. "Thank Heaven, my child!" replied the glad father, embracing his daughter. "I was sure you were killed." "No, father; thanks to this bold youth, I am uninjured." "I am under very great obligations to you, young man," continued Mr. Bayard, grasping Bobby's hand. "O, never mind, sir;" and Bobby blushed just as he had blushed when the young lady spoke to him. "We shall never forget you--shall we, father?" added Ellen. "No, my child; and I shall endeavor to repay, to some slight extent, our indebtedness to him. But you have not yet told me how you were saved." "O, I merely stopped the horse; that's all," answered Bobby, modestly. "Yes, father, but he placed himself right before Kate when she was almost flying over the ground. When I saw him, I was certain that he would lose his life, or be horribly mangled for his boldness," interposed Ellen. "It was a daring deed, young man, to place yourself before an affrighted horse in that manner," said Mr. Bayard. "I didn't mind it, sir." "And then he flourished a big club, almost as big as he is himself, in the air, which made Kate pause in her mad career, when my deliverer here grasped her by the bit and held her." "It was well and bravely done." "That it was, father; not many men would have been bold enough to do what he did," added Ellen, with enthusiasm. "Very true; and I feel that I am indebted to him for your safety. What is your name, young man?" "Robert Bright, sir." Mr. Bayard took from his pocket several pieces of gold, which he offered to Bobby. "No, I thank you, sir," replied Bobby, blushing. "What! as proud as you are bold?" "I don't like to be paid for doing my duty." "Bravo! You are a noble little fellow! But you must take this money, not as a reward for what you have done, but as a testimonial of my gratitude." "I would rather not, sir." "Do take it, Robert," added Ellen. "I don't like to take it. It looks mean to take money for doing one's duty." "Take it, Robert, to please me;" and the young lady smiled so sweetly that Bobby's resolution began to give way. "Only to please me, Robert." "I will, to please you; but I don't feel right about it." "You must not be too proud, Robert," said Mr. Bayard, as he put the gold pieces into his hand. "I am not proud, sir; only I don't like to be paid for doing my duty." "Not paid, my young friend. Consider that you have placed me under an obligation to you for life. This money is only an expression of my own and my daughter's feelings. It is but a small sum, but I hope you will permit me to do something more for you, when you need it. You will regard me as your friend as long as you live." "Thank you, sir." "When you want any assistance of any kind, come to me. I live in Boston; here is my business card." Mr. Bayard handed him a card, on which Bobby read, "F. Bayard & Co., Booksellers and Publishers, No. --, Washington Street, Boston." "You are very kind, sir." "I want you should come to Boston and see us, too," interposed Ellen. "I should be delighted to show you the city, to take you to the Athenæum and the Museum." "Thank you." Mr. Bayard inquired of Bobby about his parents, where he lived, and about the circumstances of his family. He then took out his memorandum book, in which he wrote the boy's name and residence. "I am sorry to leave you now, Robert, but I have over twenty miles to ride to-day. I should be glad to visit your mother, and next time I come to Riverdale, I shall certainly do so." "Thank you, sir; my mother is a very poor woman, but she will be glad to see you." "Now, good by, Robert." "Good by," repeated Ellen. "Good by." Mr. Bayard drove off, leaving Bobby standing on the bridge with the gold pieces in his hand. "Here's luck!" said Bobby, shaking the coin. "Won't mother's eyes stick out when she sees these shiners? There are no such shiners in the river as these." Bobby was astonished, and the more he gazed at the gold pieces, the more bewildered he became. He had never held so much money in his hand before. There were three large coins and one smaller one. He turned them over and over, and finally ascertained that the large coins were ten dollar pieces, and the smaller one a five dollar piece. Bobby was not a great scholar, but he knew enough of arithmetic to calculate the value of his treasure. He was so excited, however, that he did not arrive at the conclusion half so quick as most of my young readers would have done. "Thirty-five dollars!" exclaimed Bobby, when the problem was solved. "Gracious!" "Hallo, Bob!" shouted Tom Spicer, who had got tired of fishing; besides, the village clock was just striking twelve, and it was time for him to go home. Bobby made no answer, but hastily tying the gold pieces up in the corner of his handkerchief, he threw the broken rail he had used in stopping the horse where it belonged, and started for the place where he had left his fishing apparatus. "Hallo, Bob!" "Well, Tom?" "Stopped him--didn't you?" "I did." "You were a fool; he might have killed you." "So he might; but I didn't stop to think of that. The lady's life was in danger." "What of that?" "Everything, I should say." "Did he give you anything?" "Yes;" and Bobby continued his walk down to the river's side. "I say, what did he give you, Bobby?" persisted Tom, following him. "O, he gave me a good deal of money." "How much?" "I want to get my fish line now; I will tell you all about it some other time," replied Bobby, who rather suspected the intentions of his companion. "Tell me now; how much was it?" "Never mind it now." "Humph! Do you think I mean to rob you?" "No." "Ain't you going halveses?" "Why should I?" "Wasn't I with you?" "Were you?" "Wasn't I fishing with you?" "You did not do anything about stopping the horse." "I would, if I hadn't been afraid to go up to the road." "Afraid?" "Somebody might have seen me, and they would have known that I was hooking jack." "Then you ought not to share the money." "Yes, I had. When a fellow is with you, he ought to have half. It is mean not to give him half." "If you had done anything to help stop the horse, I would have shared with you. But you didn't." "What of that?" Bobby was particularly sensitive in regard to the charge of meanness. His soul was a great deal bigger than his body, and he was always generous, even to his own injury, among his companions. It was evident to him that Tom had no claim to any part of the reward; but he could not endure the thought even of being accused of meanness. "I'll tell you what I will do, if you think I ought to share with you. I will leave it out to Squire Lee; and if he thinks you ought to have half, or any part of the money, I will give it to you." "No, you don't; you want to get me into a scrape for hooking jack. I see what you are up to." "I will state the case to him without telling him who the boys are." "No, you don't! You want to be mean about it. Come, hand over half the money." "I will not," replied Bobby, who, when it became a matter of compulsion, could stand his ground at any peril. "How much have you got?" "Thirty-five dollars." "By jolly! And you mean to keep it all yourself?" "I mean to give it to my mother." "No, you won't! If you are going to be mean about it, I'll smash your head!" This was a favorite expression with Tom Spicer, who was a noted bully among the boys of Riverdale. The young ruffian now placed himself in front of Bobby, and shook his clenched fist in his face. "Hand over." "No, I won't. You have no claim to any part of the money; at least, I think you have not. If you have a mind to leave it out to Squire Lee, I will do what is right about it." "Not I; hand over, or I'll smash your head!" "Smash away," replied Bobby, placing himself on the defensive. "Do you think you can lick me?" asked Tom, not a little embarrassed by this exhibition of resolution on the part of his companion. "I don't think anything about it; but you don't bully me in that kind of style." "Won't I?" "No." But Tom did not immediately put his threat in execution, and Bobby would not be the aggressor; so he stepped one side to pass his assailant. Tom took this as an evidence of the other's desire to escape, and struck him a heavy blow on the side of the head. The next instant the bully was floundering in the soft mud of a ditch; Bobby's reply was more than Tom had bargained for, and while he was dragging himself out of the ditch, our hero ran down to the river, and got his fish pole and basket. "You'll catch it for that!" growled Tom. "I'm all ready, whenever it suits your convenience," replied Bobby. "Just come out here and take it in fair fight," continued Tom, who could not help bullying, even in the midst of his misfortune. "No, I thank you; I don't want to fight with any fellow. I will not fight if I can help it." "What did you hit me for, then?" "In self-defence." "Just come out here, and try it fair!" "No;" and Bobby hurried home, leaving the bully astonished and discomfited by the winding up of the morning's sport. CHAPTER III IN WHICH THE LITTLE BLACK HOUSE IS BOUGHT BUT NOT PAID FOR Probably my young readers have by this time come to the conclusion that Bobby Bright was a very clever fellow--one whose acquaintance they would be happy to cultivate. Perhaps by this time they have become so far interested in him as to desire to know who his parents were, what they did, and in what kind of a house he lived. I hope none of my young friends will think any less of him when I inform them that Bobby lived in an old black house which had never been painted, which had no flower garden in front of it, and which, in a word, was quite far from being a palace. A great many very nice city folks would not have considered it fit to live in, would have turned up their noses at it, and wondered that any human beings could be so degraded as to live in such a miserable house. But the widow Bright, Bobby's mother, thought it was a very comfortable house, and considered herself very fortunate in being able to get so good a dwelling. She had never lived in a fine house, knew nothing about velvet carpets, mirrors seven feet high, damask chairs and lounges, or any of the smart things which very rich and very proud city people consider absolutely necessary for their comfort. Her father had been a poor man, her husband had died a poor man, and her own life had been a struggle to keep the demons of poverty and want from invading her humble abode. Mr. Bright, her deceased husband, had been a day laborer in Riverdale. He never got more than a dollar a day, which was then considered very good wages in the country. He was a very honest, industrious man, and while he lived, his family did very well. Mrs. Bright was a careful, prudent woman, and helped him support the family. They never knew what it was to want for anything. Poor people, as well as rich, have an ambition to be something which they are not, or to have something which they have not. Every person, who has any energy of character, desires to get ahead in the world. Some merchants, who own big ships and big warehouses by the dozen, desire to be what they consider rich. But their idea of wealth is very grand. They wish to count it in millions of dollars, in whole blocks of warehouses; and they are even more discontented than the day laborer who has to earn his dinner before he can eat it. Bobby's father and mother had just such an ambition, only it was so modest that the merchant would have laughed at it. They wanted to own the little black house in which they resided, so that they could not only be sure of a home while they lived, but have the satisfaction of living in their own house. This was a very reasonable ideal, compared with that of the rich merchants I have mentioned; but it was even more difficult for them to reach it, for the wages were small, and they had many mouths to feed. Mr. Bright had saved up fifty dollars; and he thought a great deal more of this sum than many people do of a thousand dollars. He had had to work very hard and be very prudent in order to accumulate this sum, which made him value it all the more highly. With this sum of fifty dollars at his command, John Bright felt rich; and then, more than ever before, he wanted to own the little black house. He felt as grand as a lord; and as soon as the forty-nine dollars had become fifty, he waited upon Mr. Hardhand, a little crusty old man, who owned the little black house, and proposed to purchase it. The landlord was a hard man. Everybody in Riverdale said he was mean and stingy. Any generous-hearted man would have been willing to make an easy bargain with an honest, industrious, poor man, like John Bright, who wished to own the house in which he lived; but Mr. Hardhand, although he was rich, only thought how he could make more money. He asked the poor man four hundred dollars for the old house and the little lot of land on which it stood. It was a matter of great concern to John Bright. Four hundred dollars was a "mint of money," and he could not see how he should ever be able to save so much from his daily earnings. So he talked with Squire Lee about it, who told him that three hundred was all it was worth. John offered this for it, and after a month's hesitation Mr. Hardhand accepted the offer, agreeing to take fifty dollars down, and the rest in semi-annual payments of twenty-five dollars each until the whole was paid. I am thus particular in telling my readers about the bargain, because this debt which his father contracted was the means of making a man of Bobby, as will be seen in his subsequent history. John Bright paid the first fifty dollars; but before the next instalment became due, the poor man was laid in his cold and silent grave. A malignant disease carried him off, and the hopes of the Bright family seemed to be blasted. Four children were left to the widow. The youngest was only three years old, and Bobby, the oldest, was nine, when his father died. Squire Lee, who had always been a good friend of John Bright, told the widow that she had better go to the poorhouse, and not attempt to struggle along with such fearful odds against her. But the widow nobly refused to become a pauper, and to make paupers of her children, whom she loved quite as much as though she and they had been born in a ducal palace. She told the squire that she had two hands, and as long as she had her health, the town need not trouble itself about her support. Squire Lee was filled with surprise and admiration at the noble resolution of the poor woman; and when he returned to his house, he immediately sent her a cord of wood, ten bushels of potatoes, two bags of meal, and a firkin of salt pork. The widow was very grateful for these articles, and no false pride prevented her from accepting the gift of her rich and kind-hearted neighbor. Riverdale Centre was largely engaged in the manufacturing of boots and shoes, and this business gave employment to a large number of men and women. Mrs. Bright had for several years "closed" shoes--which, my readers who do not live in "shoe towns" may not know, means sewing or stitching them. To this business she applied herself with renewed energy. There was a large hotel in Riverdale Centre, where several families from Boston spent the summer. By the aid of Squire Lee, she obtained the washing of these families, which was more profitable than closing shoes. By these means she not only supported her family very comfortably, but was able to save a little money towards paying for the house. Mr. Hardhand, by the persuasions of Squire Lee, had consented to let the widow keep the house, and pay for it as she could. John Bright had been dead four years at the time we introduce Bobby to the reader. Mrs. Bright had paid another hundred dollars towards the house, with the interest; so there was now but one hundred due. Bobby had learned to "close," and helped his mother a great deal; but the confinement and the stooping posture did not agree with his health, and his mother was obliged to dispense with his assistance. But the devoted little fellow found a great many ways of helping her. He was now thirteen, and was as handy about the house as a girl. When he was not better occupied, he would often go to the river and catch a mess of fish, which was so much clear gain. The winter which had just passed had brought a great deal of sickness to the little black house. The children all had the measles, and two of them the scarlet fever, so that Mrs. Bright could not work much. Her affairs were not in a very prosperous condition when the spring opened; but the future was bright, and the widow, trusting in Providence, believed that all would end well. One thing troubled her. She had not been able to save anything for Mr. Hardhand. She could only pay her interest; but she hoped by the first of July to give him twenty-five dollars of the principal. But the first of July came, and she had only five dollars of the sum she had partly promised her creditor. She could not so easily recover from the disasters of the hard winter, and she had but just paid off the little debts she had contracted. She was nervous and uneasy as the day approached. Mr. Hardhand always abused her when she told him she could not pay him, and she dreaded his coming. It was the first of July on which Bobby caught those pouts, caught the horse, and on which Tom Spicer had "caught a Tartar." Bobby hastened home, as we said at the conclusion of the last chapter. He was as happy as a lord. He had fish enough in his basket for dinner, and for breakfast the next morning, and money enough in his pocket to make his mother as happy as a queen, if queens are always happy. The widow Bright, though she had worried and fretted night and day about the money which was to be paid to Mr. Hardhand on the first of July, had not told her son anything about it. It would only make him unhappy, she reasoned, and it was needless to make the dear boy miserable for nothing; so Bobby ran home all unconscious of the pleasure which was in store for him. When he reached the front door, as he stopped to scrape his feet on the sharp stone there, as all considerate boys who love their mothers do, before they go into the house, he heard the angry tones of Mr. Hardhand. He was scolding and abusing his mother because she could not pay him the twenty-five dollars. Bobby's blood boiled with indignation, and his first impulse was to serve him as he had served Tom Spicer, only a few moments before; but Bobby, as we have before intimated, was a peaceful boy, and not disposed to quarrel with any person; so he contented himself with muttering a few hard words. "The wretch! What business has he to talk to _my_ mother in that style?" said he to himself. "I have a great mind to kick him out of the house." But Bobby's better judgment came to his aid; and perhaps he realized that he and his mother would only get kicked out in return. He could battle with Mr. Hardhand, but not with the power which his wealth gave him; so, like a great many older persons in similar circumstances, he took counsel of prudence rather than impulse. "Bear ye one another's burdens," saith the Scripture; but Bobby was not old enough or astute enough to realize that Mr. Hardhand's burden was his wealth, his love of money; that it made him little better than a Hottentot; and he could not feel as charitably towards him as a Christian should towards his erring, weak brother. Setting his pole by the door, he entered the room where Hardhand was abusing his mother. CHAPTER IV IN WHICH BOBBY GETS OUT OF ONE SCRAPE, AND INTO ANOTHER Bobby was so indignant at the conduct of Mr. Hardhand, that he entirely forgot the adventure of the morning; and he did not even think of the gold he had in his pocket. He loved his mother; he knew how hard she had worked for him and his brother and sisters; that she had burned the "midnight oil" at her clamps; and it made him feel very bad to hear her abused as Mr. Hardhand was abusing her. It was not her fault that she had not the money to pay him. She had been obliged to spend a large portion of her time over the sick beds of her children, so that she could not earn so much money as usual; while the family expenses were necessarily much greater. Bobby knew also that Mr. Hardhand was aware of all the circumstances of his mother's position, and the more he considered the case the more brutal and inhuman was his course. As our hero entered the family room with the basket of fish on his arm, the little crusty old man fixed the glance of his evil eye upon him. "There is that boy, marm, idling away his time by the river, and eating you out of house and home," said the wretch. "Why don't you set him to work, and make him earn something?" "Bobby is a very good boy," meekly responded the widow Bright. "Humph! I should think he was. A great lazy lubber like him, living on his mother!" and Mr. Hardhand looked contemptuously at Bobby. "I am not a lazy lubber," interposed the insulted boy with spirit. "Yes, you are. Why don't you go to work?" "I do work." "No, you don't; you waste your time paddling in the river." "I don't." "You had better teach this boy manners too, marm," said the creditor, who, like all men of small souls, was willing to take advantage of the power which the widow's indebtedness gave him. "He is saucy." "I should like to know who taught _you_ manners, Mr. Hardhand," replied Bobby, whose indignation was rapidly getting the better of his discretion. "What!" growled Mr. Hardhand, aghast at this unwonted boldness. "I heard what you said before I came in; and no decent man would go to the house of a poor woman to insult her." "Humph! Mighty fine," snarled the little old man, his gray eyes twinkling with malice. "Don't, Bobby; don't be saucy to the gentleman," interposed his mother. "Saucy, marm? You ought to horsewhip him for it. If you don't, I will." "No, you won't!" replied Bobby, shaking his head significantly. "I can take care of myself." "Did any one ever hear such impudence!" gasped Mr. Hardhand. "Don't, Bobby, don't," pleaded the anxious mother. "I should like to know what right you have to come here and abuse my mother," continued Bobby, who could not restrain his anger. "Your mother owes me money, and she doesn't pay it, you young scoundrel!" answered Mr. Hardhand, foaming with rage. "That is no reason why you should insult her. You can call _me_ what you please, but you shall not insult my mother while I'm round." "Your mother is a miserable woman, and----" "Say that again, and though you are an old man, I'll hit you for it. I'm big enough to protect my mother, and I'll do it." Bobby doubled up his fists and edged up to Mr. Hardhand, fully determined to execute his threat if he repeated the offensive expression, or any other of a similar import. He was roused to the highest pitch of anger, and felt as though he had just as lief die as live in defence of his mother's good name. I am not sure that I could excuse Bobby's violence under any other circumstances. He loved his mother--as the novelists would say, he idolized her; and Mr. Hardhand had certainly applied some very offensive epithets to her--epithets which no good son could calmly hear applied to a mother. Besides, Bobby, though his heart was a large one, and was in the right place, had never been educated into those nice distinctions of moral right and wrong which control the judgment of wise and learned men. He had an idea that violence, resistance with blows, was allowable in certain extreme cases; and he could conceive of no greater provocation than an insult to his mother. "Be calm, Bobby; you are in a passion," said Mrs. Bright. "I am surprised, marm," began Mr. Hardhand, who prudently refrained from repeating the offensive language--and I have no doubt he was surprised; for he looked both astonished and alarmed. "This boy has a most ungovernable temper." "Don't you worry about my temper, Mr. Hardhand; I'll take care of myself. All I want of you is not to insult my mother. You may say what you like to me; but don't you call her hard names." Mr. Hardhand, like all mean, little men, was a coward; and he was effectually intimidated by the bold and manly conduct of the boy. He changed his tone and manner at once. "You have no money for me, marm?" said he, edging towards the door. "No, sir; I am sorry to say that I have been able to save only five dollars since I paid you last; but I hope----" "Never mind, marm, never mind; I shall not trouble myself to come here again, where I am liable to be kicked by this ill-bred cub. No, marm, I shall not come again. Let the law take its course." "O, mercy! See what you have brought upon us, Bobby," exclaimed Mrs. Bright, bursting into tears. "Yes, marm, let the law take its course." "O, Bobby! Stop a moment, Mr. Hardhand; do stop a moment." "Not a moment, marm. We'll see;" and Mr. Hardhand placed his hand upon the latch string. Bobby felt very uneasy and very unhappy at that moment. His passion had subsided, and he realized that he had done a great deal of mischief by his impetuous conduct. Then the remembrance of his morning adventure on the bridge came like a flash of sunshine to his mind, and he eagerly drew from his pocket the handkerchief in which he had deposited the precious gold,--doubly precious now, because it would enable him to retrieve the error into which he had fallen, and do something towards relieving his mother's embarrassment. With a trembling hand he untied the knot which secured the money. "Here, mother, here is thirty-five dollars;" and he placed it in her hand. "Why, Bobby!" exclaimed Mrs. Bright. "Pay him, mother, pay him, and I will tell you all about it by and by." "Thirty-five dollars! and all in gold! Where _did_ you get it, Bobby?" "Never mind it now, mother." Mr. Hardhand's covetous soul had already grasped the glittering gold; and removing his hand from the latch string, he approached the widow. "I shall be able to pay you forty dollars now," said Mrs. Bright, taking the five dollars she had saved from her pocket. "Yes, marm." Mr. Hardhand took the money, and seating himself at the table, indorsed the amount on the back of the note. "You owe me sixty more," said he, maliciously, as he returned the note to his pocket book. "It must be paid immediately." "You must not be hard with me now, when I have paid more than you demanded." "I don't wish to come here again. That boy's impudence has put me all out of conceit with you and your family," replied Mr. Hardhand, assuming the most benevolent look he could command. "There was a time when I was very willing to help you. I have waited a great while for my pay for this house; a great deal longer than I would have waited for anybody else." "Your interest has always been paid punctually," suggested the widow, modestly. "That's true; but very few people would have waited as long as I have for the principal. I wanted to help you----" "By gracious!" exclaimed Bobby, interrupting him. "Don't be saucy, my son, don't," said Mrs. Bright, fearing a repetition of the former scene. "_He_ wanted to help us!" ejaculated Bobby. It was a very absurd and hypocritical expression on the part of Mr. Hardhand; for he never wanted to help any one but himself; and during the whole period of his relations with the poor widow, he had oppressed, insulted, and abused her to the extent of his capacity, or at least as far as his interest would permit. He was a malicious and revengeful man. He did not consider the great provocation he had given Bobby for his violent conduct, but determined to be revenged, if it could be accomplished without losing any part of the sixty dollars still due him. He was a wicked man at heart, and would not scruple to turn the widow and her family out of house and home. Mrs. Bright knew this, and Bobby knew it too; and they felt very uneasy about it. The wretch still had the power to injure them, and he would use it without compunction. "Yes, young man, I wanted to help you, and you see what I get for it--contempt and insults! You will hear from me again in a day or two. Perhaps you will change your tune, you young reprobate!" "Perhaps I shall," replied Bobby, without much discretion. "And you too, marm; you uphold him in his treatment of me. You have not done your duty to him. You have been remiss, marm!" continued Mr. Hardhand, growing bolder again, as he felt the power he wielded. "That will do, sir; you can go!" said Bobby, springing from his chair, and approaching Mr. Hardhand. "Go, and do your worst!" "Humph! you stump me,--do you?" "I would rather see my mother kicked out of the house than insulted by such a dried-up old curmudgeon as you are. Go along!" "Now, don't, Bobby," pleaded his mother. "I am going; and if the money is not paid by twelve o'clock to-morrow, the law shall take its course;" and Mr. Hardhand rushed out of the house, slamming the door violently after him. "O, Bobby, what have you done?" exclaimed Mrs. Bright, when the hard-hearted creditor had departed. "I could not help it, mother; don't cry. I cannot bear to hear you insulted and abused; and I thought when I heard him do it a year ago, that I couldn't stand it again. It is too bad." "But he will turn us out of the house; and what shall we do then?" "Don't cry, mother; it will come round all right. I have friends who are rich and powerful, and who will help us." "You don't know what you say, Bobby. Sixty dollars is a great deal of money, and if we should sell all we have, it would scarcely bring that." "Leave it all to me, mother; I feel as though I could do something now. I am old enough to make money." "What can you do?" "Now or never!" replied Bobby, whose mind had wandered from the scene to the busy world, where fortunes are made and lost every day. "Now or never!" muttered he again. "But, Bobby, you have not told me where you got all that gold." "Dinner is ready, I see, and I will tell you while we eat." Bobby had been a fishing, and to be hungry is a part of the fisherman's luck; so he seated himself at the table, and gave his mother a full account of all that had occurred at the bridge. The fond mother trembled when she realized the peril her son had incurred for the sake of the young lady; but her maternal heart swelled with admiration in view of the generous deed, and she thanked God that she was the mother of such a son. She felt more confidence in him then than she had ever felt before, and she realized that he would be the stay and the staff of her declining years. Bobby finished his dinner, and seated himself on the front door step. His mind was absorbed by a new and brilliant idea; and for half an hour he kept up a most tremendous thinking. "Now or never!" said he, as he rose and walked down the road towards Riverdale Centre. CHAPTER V IN WHICH BOBBY GIVES HIS NOTE FOR SIXTY DOLLARS A great idea was born in Bobby's brain. His mother's weakness and the insecurity of her position were more apparent to him than they had ever been before. She was in the power of her creditor, who might turn her out of the little black house, sell the place at auction, and thus, perhaps, deprive her of the whole or a large part of his father's and her own hard earnings. But this was not the peculiar hardship of her situation, as her devoted son understood it. It was not the hard work alone which she was called upon to perform, not the coarseness of the fare upon which they lived, not the danger even of being turned out of doors, that distressed Bobby; it was that a wretch like Mr. Hardhand could insult and trample upon his mother. He had just heard him use language to her that made his blood boil with indignation, and he did not, on cool, sober, second thought, regret that he had taken such a decided stand against it. He cared not for himself. He could live on a crust of bread and a cup of water from the spring; he could sleep in a barn; he could wear coarse and even ragged clothes; but he could not submit to have his mother insulted, and by such a mean and contemptible person as Mr. Hardhand. Yet what could he do? He was but a boy, and the great world would look with contempt upon his puny form. But he felt that he was not altogether insignificant. He had performed an act that day, which the fair young lady, to whom he had rendered the service, had declared very few men would have undertaken. There was something in him, something that would come out, if he only put his best foot forward. It was a tower of strength within him. It told him that he could do wonders; that he could go out into the world and accomplish all that would be required to free his mother from debt, and relieve her from the severe drudgery of her life. A great many people think they can "do wonders." The vanity of some very silly people makes them think they can command armies, govern nations, and teach the world what the world never knew before and never would know but for them. But Bobby's something within him was not vanity. It was something more substantial. He was not thinking of becoming a great man, a great general, a great ruler, or a great statesman; not even of making a great fortune. Self was not the idol and the end of his calculations. He was thinking of his mother, and only of her; and the feeling within him was as pure, and holy, and beautiful as the dream of an angel. He wanted to save his mother from insult in the first place, and from a life of ceaseless drudgery in the second. A legion of angels seemed to have encamped in his soul to give him strength for the great purpose in his mind. His was a holy and a true purpose, and it was this that made him think he could "do wonders." What Bobby intended to do the reader shall know in due time. It is enough now that he meant to do something. The difficulty with a great many people is, that they never resolve to do something. They wait for "something to turn up;" and as "things" are often very obstinate, they utterly refuse to "turn up" at all. Their lives are spent in waiting for a golden opportunity which never comes. Now, Bobby Bright repudiated the Micawber philosophy. He would have nothing to do with it. He did not believe corn would grow without being planted, or that pouts would bite the bare hook. I am not going to tell my young readers now how Bobby came out in the end; but I can confidently say that, if he had waited for "something to turn up," he would have become a vagabond, a loafer, out of money, out at the elbows, and out of patience with himself and all the world. It was "now or never" with Bobby. He meant to do something; and after he had made up his mind how and where it was to be done, it was no use to stand thinking about it, like the pendulum of the "old clock which had stood for fifty years in a farmer's kitchen, without giving its owner any cause of complaint." Bobby walked down the road towards the village with a rapid step. He was thinking very fast, and probably that made him step quick. But as he approached Squire Lee's house, his pace slackened, and he seemed to be very uneasy. When he reached the great gate that led up to the house, he stopped for an instant, and thrust his hands down very deep into his trousers pockets. I cannot tell what the trousers pockets had to do with what he was thinking about; but if he was searching for anything in them, he did not find it; for after an instant's hesitation he drew out his hands, struck one of them against his chest, and in an audible voice exclaimed,-- "Now or never." All this pantomime, I suppose, meant that Bobby had some misgivings as to the ultimate success of his mission at Squire Lee's, and that when he struck his breast and uttered his favorite expression, they were conquered and driven out. Marching with a bold and determined step up to the squire's back door,--Bobby's ideas of etiquette would not have answered for the meridian of fashionable society,--he gave three smart raps. Bobby's heart beat a little wildly as he awaited a response to his summons. It seemed that he still had some doubts as to the practicability of his mission; but they were not permitted to disturb him long, for the door was opened by the squire's pretty daughter Annie, a young miss of twelve. "O, Bobby, is it you? I am so glad you have come!" exclaimed the little lady. Bobby blushed--he didn't know why, unless it was that the young lady desired to see him. He stammered out a reply, and for the moment forgot the object of his visit. "I want you to go down to the village for me, and get some books the expressman was to bring up from Boston for me. Will you go?" "Certainly, Miss Annie, I shall be very glad to go for _you_," replied Bobby, with an emphasis that made the little maiden blush in her turn. "You are real good, Bobby; but I will give you something for going." "I don't want anything," said Bobby, stoutly. "You are too generous! Ah, I heard what you did this forenoon; and pa says that a great many men would not have dared to do what you did. I always thought you were as brave as a lion; now I know it." "The books are at the express office, I suppose," said Bobby, turning as red as a blood beet. "Yes, Bobby; I am so anxious to get them that I can't wait till pa goes down this evening." "I will not be gone long." "O, you needn't run, Bobby; take your time." "I will go very quick. But, Miss Annie, is your father at home?" "Not now; he has gone over to the wood lot; but he will be back by the time you return." "Will you please to tell him that I want to see him about something very particular, when he gets back?" "I will, Bobby." "Thank you, Miss Annie;" and Bobby hastened to the village to execute his commission. "I wonder what he wants to see pa so very particularly for," said the young lady to herself, as she watched his receding form. "In my opinion, something has happened at the little black house, for I could see that he looked very sober." Either Bobby had a very great regard for the young lady, and wished to relieve her impatience to behold the coveted books, or he was in a hurry to see Squire Lee; for the squire's old roan horse could hardly have gone quicker. "You should not have run, Bobby," said the little maiden, when he placed the books in her hand; "I would not have asked you to go if I had thought you would run all the way. You must be very tired." "Not at all; I didn't run, only walked very quick," replied he; but his quick breathing indicated that his words or his walk had been very much exaggerated. "Has your father returned?" "He has; he is waiting for you in the sitting room. Come in, Bobby." Bobby followed her into the room, and took the chair which Annie offered him. "How do you do, Bobby? I am glad to see you," said the squire, taking him by the hand, and bestowing a benignant smile upon him--a smile which cheered his heart more than anything else could at that moment. "I have heard of you before, to-day." "Have you?" "I have, Bobby; you are a brave little fellow." "I came over to see you, sir, about something very particular," replied Bobby, whose natural modesty induced him to change the topic. "Indeed; well, what can I do for you?" "A great deal, sir; perhaps you will think I am very bold, sir, but I can't help it." "I know you are a very bold little fellow, or you would not have done what you did this forenoon," laughed the squire. "I didn't mean that, sir," answered Bobby, blushing up to the eyes. "I know you didn't; but go on." "I only meant that you would think me presuming, or impudent, or something of that kind." "O, no, far from it. You cannot be presuming or impudent. Speak out, Bobby; anything under the heavens that I can do for you, I shall be glad to do." "Well, sir, I am going to leave Riverdale." "Leave Riverdale!" "Yes, sir; I am going to Boston, where I mean to do something to help mother." "Bravo! you are a good lad. What do you mean to do?" "I was thinking I should go into the book business." "Indeed!" and Squire Lee was much amused by the matter-of-fact manner of the young aspirant. "I was talking with a young fellow who went through the place last spring, selling books. He told me that some days he made three or four dollars, and that he averaged twelve dollars a week." "He did well; perhaps, though, only a few of them make so much." "I know I can make twelve dollars a week," replied Bobby, confidently, for that something within him made him feel capable of great things. "I dare say you can. You have energy and perseverance, and people take a liking to you." "But I wanted to see you about another matter. To speak out at once, I want to borrow sixty dollars of you;" and Bobby blushed, and seemed very much embarrassed by his own boldness. "Sixty dollars!" exclaimed the squire. "I knew you would think me impudent," replied our hero, his heart sinking within him. "But I don't, Bobby. You want the money to go into business with--to buy your stock of books?" "O, no, sir; I am going to apply to Mr. Bayard for that." "Just so; Mr. Bayard is the gentleman whose daughter you saved?" "Yes, sir. I want this money to pay off Mr. Hardhand. We owe him but sixty dollars now, and he has threatened to turn us out, if it is not paid by to-morrow noon." "The old hunks!" Bobby briefly related to the squire the events of the morning, much to the indignation and disgust of the honest, kind-hearted man. The courageous boy detailed more clearly his purpose, and doubted not he should be able to pay the loan in a few months. "Very well, Bobby, here is the money;" and the squire took it from his wallet, and gave it to him. "Thank you, sir. May Heaven bless you! I shall certainly pay you." "Don't worry about it, Bobby. Pay it when you get ready." "I will give you my note, and----" The squire laughed heartily at this, and told him that, as he was a minor, his note was not good for anything. "You shall see whether it is, or not," returned Bobby. "Let me give it to you, at least, so that we can tell how much I owe you from time to time." "You shall have your own way." Annie Lee, as much amused as her father at Bobby's big talk, got the writing materials, and the little merchant in embryo wrote and signed the note. "Good, Bobby! Now promise that you will come and see me every time you come home, and tell me how you are getting along." "I will, sir, with the greatest pleasure;" and with a light heart Bobby tripped away home. CHAPTER VI IN WHICH BOBBY SETS OUT ON HIS TRAVELS Squire Lee, though only a plain farmer, was the richest man in Riverdale. He had taken a great fancy to Bobby, and often employed him to do errands, ride the horse to plough in the cornfields, and such chores about the place as a boy could do. He liked to talk with Bobby because there was a great deal of good sense in him, for one with a small head. If there was any one thing upon which the squire particularly prided himself, it was his knowledge of human nature. He declared that he only wanted to look a man in the face to know what he was; and as for Bobby Bright, he had summered him and wintered him, and he was satisfied that he would make something in good time. He was not much astonished when Bobby opened his ambitious scheme of going into business for himself. But he had full faith in his ability to work out a useful and profitable, if not a brilliant, life. He often said that Bobby was worth his weight in gold, and that he would trust him with anything he had. Perhaps he did not suspect that the time was at hand when he would be called upon to verify his words practically; for it was only that morning, when one of the neighbors told him about Bobby's stopping the horse, that he had repeated the expression for the twentieth time. It was not an idle remark. Sixty dollars was hardly worth mentioning with a man of his wealth and liberal views, though so careful a man as he was would not have been likely to throw away that amount. But as a matter of investment,--Bobby had made the note read "with interest,"--he would as readily have let him have it, as the next richest man in the place, so much confidence had he in our hero's integrity, and so sure was he that he would soon have the means of paying him. Bobby was overjoyed at the fortunate issue of his mission, and he walked into the room where his mother was closing shoes, with a dignity worthy a banker or a great merchant. Mrs. Bright was very sad. Perhaps she felt a little grieved that her son, whom she loved so much, had so thoughtlessly plunged her into a new difficulty. "Come, cheer up, mother; it is all right," said Bobby, in his usual elastic and gay tones; and at the same time he took the sixty dollars from his pocket and handed it to her. "There is the money, and you will be forever quit of Mr. Hardhand to-morrow." "What, Bobby! Why, where did you get all this money?" asked Mrs. Bright, utterly astonished. In a few words the ambitious boy told his story, and then informed his mother that he was going to Boston the next Monday morning, to commence business for himself. "Why, what can you do, Bobby?" "Do? I can do a great many things;" and he unfolded his scheme of becoming a little book merchant. "You are a courageous fellow! Who would have thought of such a thing?" "I should, and did." "But you are not old enough." "O, yes, I am." "You had better wait a while." "Now or never, mother! You see I have given my note, and my paper will be dishonored, if I am not up and doing." "Your paper!" said Mrs. Bright, with a smile. "That is what Mr. Wing, the boot manufacturer, calls it." "You needn't go away to earn this money; I can pay it myself." "This note is my affair, and I mean to pay it myself with my own earnings. No objections, mother." Like a sensible woman as she was, she did not make any objections. She was conscious of Bobby's talents; she knew that he had a strong mind of his own, and could take care of himself. It is true, she feared the influence of the great world, and especially of the great city, upon the tender mind of her son; but if he was never tempted, he would never be a conqueror over the foes that beset him. She determined to do her whole duty towards him; and she carefully pointed out to him the sins and the moral danger to which he would be exposed, and warned him always to resist temptation. She counselled him to think of her when he felt like going astray. Bobby declared that he would try to be a good boy. He did not speak contemptuously of the anticipated perils, as many boys would have done, because he knew that his mother would not make bug-bears out of things which she knew had no real existence. The next day, Mr. Hardhand came; and my young readers can judge how astonished and chagrined he was, when the widow Bright offered him the sixty dollars. The Lord was with the widow and the fatherless, and the wretch was cheated out of his revenge. The note was given up, and the mortgage cancelled. Mr. Hardhand insisted that she should pay the interest on the sixty dollars for one day, as it was then the second day of July; but when Bobby reckoned it up, and found it was less than one cent, even the wretched miser seemed ashamed of himself, and changed the subject of conversation. He did not dare to say anything saucy to the widow this time. He had lost his power over her, and there stood Bobby, who had come to look just like a young lion to him, coward and knave as he was. The business was all settled now, and Bobby spent the rest of the week in getting ready for his great enterprise. He visited all his friends, and went each day to talk with Squire Lee and Annie. The little maiden promised to buy a great many books of him, if he would bring his stock to Riverdale, for she was quite as much interested in him as her father was. Monday morning came, and Bobby was out of bed with the first streak of dawn. The excitement of the great event which was about to happen had not permitted him to sleep for the two hours preceding; yet when he got up, he could not help feeling sad. He was going to leave the little black house, going to leave his mother, going to leave the children, to depart for the great city. His mother was up before him. She was even more sad than he was, for she could see plainer than he the perils that environed him, and her maternal heart, in spite of the reasonable confidence she had in his integrity and good principles, trembled for his safety. As he ate his breakfast, his mother repeated the warnings and the good lessons she had before imparted. She particularly cautioned him to keep out of bad company. If he found that his companions would lie and swear, he might depend upon it they would steal, and he had better forsake them at once. This was excellent advice, and Bobby had occasion at a later period to call it to his sorrowing heart. "Here is three dollars, Bobby; it is all the money I have. Your fare to Boston will be one dollar, and you will have two left to pay the expenses of your first trip. It is all I have now," said Mrs. Bright. "I will not take the whole of it. You will want it yourself. One dollar is enough. When I find Mr. Bayard, I shall do very well." "Yes, Bobby, take the whole of it." "I will take just one dollar, and no more," replied Bobby, resolutely, as he handed her the other two dollars. "Do take it, Bobby." "No, mother; it will only make me lazy and indifferent." Taking a clean shirt, a pair of socks, and a handkerchief in his bundle, he was ready for a start. "Good by, mother," said he, kissing her and taking her hand. "I shall try and come home on Saturday, so as to be with you on Sunday." Then kissing the children, who had not yet got up, and to whom he had bidden adieu the night before, he left the house. He had seen the flood of tears that filled his mother's eyes, as he crossed the threshold; and he could not help crying a little himself. It is a sad thing to leave one's home, one's mother, especially, to go out into the great world; and we need not wonder that Bobby, who had hardly been out of Riverdale before, should weep. But he soon restrained the flowing tears. "Now or never!" said he, and he put his best foot forward. It was an epoch in his history, and though he was too young to realize the importance of the event, he seemed to feel that what he did now was to give character to his whole future life. It was a bright and beautiful morning--somehow it is always a bright and beautiful morning when boys leave their homes to commence the journey of life; it is typical of the season of youth and hope, and it is meet that the sky should be clear, and the sun shine brightly, when the little pilgrim sets out upon his tour. He will see clouds and storms before he has gone far--let him have a fair start. He had to walk five miles to the nearest railroad station. His road lay by the house of his friend, Squire Lee; and as he was approaching it, he met Annie. She said she had come out to take her morning walk; but Bobby knew very well that she did not usually walk till an hour later; which, with the fact that she had asked him particularly, the day before, what time he was going, made Bobby believe that she had come out to say good by, and bid him God speed on his journey. At any rate, he was very glad to see her. He said a great many pretty things to her, and talked so big about what he was going to do, that the little maiden could hardly help laughing in his face. Then at the house he shook hands with the squire and shook hands again with Annie, and resumed his journey. His heart felt lighter for having met them, or at least for having met one of them, if not both; for Annie's eyes were so full of sunshine that they seemed to gladden his heart, and make him feel truer and stronger. After a pleasant walk, for he scarcely heeded the distance, so full was he of his big thoughts, he reached the railroad station. The cars had not yet arrived, and would not for half an hour. "Why should I give them a dollar for carrying me to Boston, when I can just as well walk? If I get tired, I can sit down and rest me. If I save the dollar, I shall have to earn only fifty-nine more to pay my note. So here goes;" and he started down the track. CHAPTER VII IN WHICH BOBBY STANDS UP FOR "CERTAIN INALIENABLE RIGHTS" Whether it was wise policy, or "penny wise and pound foolish" policy for Bobby to undertake such a long walk, is certainly a debatable question; but as my young readers would probably object to an argument, we will follow him to the city, and let every one settle the point to suit himself. His cheerful heart made the road smooth beneath his feet. He had always been accustomed to an active, busy life, and had probably often walked more than twenty miles in a day. About ten o'clock, though he did not feel much fatigued, he seated himself on a rock by a brook from which he had just taken a drink, to rest himself. He had walked slowly so as to husband his strength; and he felt confident that he should be able to accomplish the journey without injury to himself. After resting for half an hour, he resumed his walk. At twelve o'clock he reached a point from which he obtained his first view of the city. His heart bounded at the sight, and his first impulse was to increase his speed so that he should the sooner gratify his curiosity; but a second thought reminded him that he had eaten nothing since breakfast; so, finding a shady tree by the road side, he seated himself on a stone to eat the luncheon which his considerate mother had placed in his bundle. Thus refreshed, he felt like a new man, and continued his journey again till he was on the very outskirts of the city, where a sign, "No passing over this bridge," interrupted his farther progress. Unlike many others, Bobby took this sign literally, and did not venture to cross the bridge. Having some doubts as to the direct road to the city, he hailed a man in a butcher's cart, who not only pointed the way, but gave him an invitation to ride with him, which Bobby was glad to accept. They crossed the Milldam, and the little pilgrim forgot the long walk he had taken--forgot Riverdale, his mother, Squire Lee, and Annie, for the time, in the absorbing interest of the exciting scene. The Common beat Riverdale Common all hollow; he had never seen anything like it before. But when the wagon reached Washington Street, the measure of his surprise was filled up. "My gracious! how thick the houses are!" exclaimed he, much to the amusement of the kind-hearted butcher. "We have high fences here," he replied. "Where are all these folks going to?" "You will have to ask them, if you want to know." But the wonder soon abated, and Bobby began to think of his great mission in the city. He got tired of gazing and wondering, and even began to smile with contempt at the silly fops as they sauntered along, and the gayly dressed ladies, that flaunted like so many idle butterflies, on the sidewalk. It was an exciting scene; but it did not look real to him. It was more like Herr Grunderslung's exhibition of the magic lantern, than anything substantial. The men and women were like so many puppets. They did not seem to be doing anything, or to be walking for any purpose. He got out of the butcher's cart at the Old South. His first impression, as he joined the busy throng, was, that he was one of the puppets. He did not seem to have any hold upon the scene, and for several minutes this sensation of vacancy chained him to the spot. "All right!" exclaimed he to himself at last. "I am here. Now's my time to make a strike. Now or never." He pulled Mr. Bayard's card from his pocket, and fixed the number of his store in his mind. Now, numbers were not a Riverdale institution, and Bobby was a little perplexed about finding the one indicated. A little study into the matter, however, set him right, and he soon had the satisfaction of seeing the bookseller's name over his store. "F. Bayard," he read; "this is the place." "Country!" shouted a little ragged boy, who dodged across the street at that moment. "Just so, my beauty!" said Bobby, a little nettled at this imputation of verdancy. "What a greeny!" shouted the little vagabond from the other side of the street. "No matter, rag-tag! We'll settle that matter some other time." But Bobby felt that there was something in his appearance which subjected him to the remarks of others, and as he entered the shop, he determined to correct it as soon as possible. A spruce young gentleman was behind the counter, who cast a mischievous glance at him as he entered. "Mr. Bayard keep here?" asked Bobby. "Well, I reckon he does. How are all the folks up country?" replied the spruce clerk, with a rude grin. "How are they?" repeated Bobby, the color flying to his cheek. "Yes, ha-ow do they dew?" "They behave themselves better than they do here." "Eh, greeny?" "Eh, sappy?" repeated Bobby, mimicking the soft, silky tones of the young city gentleman. "What do you mean by sappy?" asked the clerk indignantly. "What do you mean by greeny?" "I'll let you know what I mean!" "When you do, I'll let you know what I mean by sappy." "Good!" exclaimed one of the salesmen, who had heard part of this spirited conversation. "You will learn better by and by, Timmins, than to impose upon boys from out of town." "You seem to be a gentleman, sir," said Bobby, approaching the salesman. "I wish to see Mr. Bayard." "You can't see him!" growled Timmins. "Can't I?" "Not at this minute; he is engaged just now," added the salesman, who seemed to have a profound respect for Bobby's discrimination. "He will be at liberty in a few moments." "I will wait, then," said Bobby, seating himself on a stool by the counter. Pretty soon the civil gentleman left the store to go to dinner, and Timmins, a little timid about provoking the young lion, cast an occasional glance of hatred at him. He had evidently found that "Country" was an embryo American citizen, and that he was a firm believer in the self-evident truths of the Declaration of Independence. Bobby bore no ill will towards the spruce clerk, ready as he had been to defend his "certain inalienable rights." "You do a big business here," suggested Bobby, in a conciliatory tone, and with a smile on his face which ought to have convinced the uncourteous clerk that he meant well. "Who told you so?" replied Timmins, gruffly. "I merely judged from appearances. You have a big store, and an immense quantity of books." "Appearances are deceitful," replied Timmins; and perhaps he had been impressed by the fact from his experience with the lad from the country. "That is true," added Bobby, with a good-natured smile, which, when interpreted, might have meant, "I took you for a civil fellow, but I have been very much mistaken." "You will find it out before you are many days older." "The book business is good just now, isn't it?" continued Bobby, without clearly comprehending the meaning of the other's last remark. "Humph! What's that to you?" "O, I intend to go into it myself." "Ha, ha, ha! Good! You do?" "I do," replied Bobby, seemingly unconcerned at the taunts of the clerk. "I suppose you want to get a place here," sneered Timmins, alarmed at the prospect. "But let me tell you, you can't do it. Bayard has all the help he wants; and if that is what you come for, you can move on as fast as you please." "I guess I will see him," added Bobby, quietly. "No use." "No harm in seeing him." As he spoke he took up a book that lay on the counter, and began to turn over the leaves. "Put that book down!" said the amiable Mr. Timmins. "I won't hurt it," replied Bobby, who had just fixed his eye upon some very pretty engravings in the volume. "Put it down!" repeated Mr. Timmins, in a loud, imperative tone. "Certainly I will, if you say so," said Bobby, who, though not much intimidated by the harsh tones of the clerk, did not know the rules of the store, and deemed it prudent not to meddle. "I _do_ say so!" added Mr. Timmins, magnificently; "and what's more, you'd better mind me, too." Bobby had minded, and probably the stately little clerk would not have been so bold if he had not. Some people like to threaten after the danger is over. Then our visitor from the country espied some little blank books lying on the counter. He had already made up his mind to have one, in which to keep his accounts; and he thought, while he was waiting, that he would purchase one. He meant to do things methodically; so when he picked up one of the blank books, it was with the intention of buying it. "Put that book down!" said Mr. Timmins, encouraged in his aggressive intentions by the previous docility of our hero. "I want to buy one." "No, you don't; put it down." "What is the price of these?" asked Bobby, resolutely. "None of your business!" "Is that the way you treat your customers?" asked Bobby, with a little sternness in his looks and tones. "I say I want to buy one." "Put it down." "But I will not; I say I want to buy it." "No, you don't!" "What is the price of it?" "Twenty-five cents," growled Timmins, which was just four times the retail price. "Twenty-five cents! That's high." "Put it down, then." "Is that your lowest price?" asked Bobby, who was as cool as a cucumber. "Yes, it is; and if you don't put it down, I'll kick you out of the store." "Will you? Then I won't put it down." Mr. Timmins took this as a "stump;" his ire was up, and he walked round from behind the counter to execute his threat. I must say I think Bobby was a little forward, and I would have my young readers a little more pliant with small men like Timmins. There are always men enough in the world who are ready and willing to quarrel on any provocation; and it is always best not to provoke them, even if they are overbearing and insolent, as Mr. Timmins certainly was. "Hold on a minute before you do it," said Bobby, with the same provoking coolness. "I want to buy this book, and I am willing to pay a fair price for it. But I happen to know that you can buy them up in Riverdale, where I came from, for six cents." "No matter," exclaimed the indignant clerk, seizing Bobby by the coat collar for the purpose of ejecting him; "you shall find your way into the street." Now Bobby, as I have before intimated, was an embryo American citizen, and the act of Mr. Timmins seemed like an invasion of his inalienable rights. No time was given him to make a formal declaration of rights in the premises; so the instinct of self-preservation was allowed to have free course. Mr. Timmins pulled and tugged at his coat collar, and Bobby hung back like a mule; and for an instant there was quite a spirited scene. "Hallo! Timmins, what does this mean?" said a voice, at which the valiant little clerk instantly let go his hold. CHAPTER VIII IN WHICH MR. TIMMINS IS ASTONISHED, AND BOBBY DINES IN CHESTNUT STREET It was Mr. Bayard. He had finished his business with the gentleman by his side, and hearing the noise of the scuffle, had come to learn the occasion of it. "This impudent young puppy wouldn't let the books alone!" began Mr. Timmins. "I threatened to turn him out if he didn't; and I meant to make good my threat. I think he meant to steal something." Bobby was astonished and shocked at this bold imputation; but he wished to have his case judged on its own merits; so he turned his face away, that Mr. Bayard might not recognize him. "I wanted to buy one of these blank books," added Bobby, picking up the one he had dropped on the floor in the struggle. "All stuff!" ejaculated Timmins. "He is an impudent, obstinate puppy! In my opinion he meant to steal that book." "I asked him the price, and told him I wanted to buy it," added Bobby, still averting his face. "Well, I told him; and he said it was too high." "He asked me twenty-five cents for it." "Is this true, Timmins?" asked Mr. Bayard, sternly. "No, _sir_! I told him fourpence," replied Timmins, boldly. "By gracious! What a whopper!" exclaimed Bobby, startled out of his propriety by this monstrous lie. "He said twenty-five cents; and I told him I could buy one up in Riverdale, where I came from, for six cents. Can you deny that?" "It's a lie!" protested Timmins. "Riverdale," said Mr. Bayard. "Are you from Riverdale, boy?" "Yes, sir, I am; and if you will look on your memorandum book you will find my name there." "Bless me! I am sure I have seen that face before," exclaimed Mr. Bayard, as he grasped the hand of Bobby, much to the astonishment and consternation of Mr. Timmins. "You are----" "Robert Bright, sir." "My brave little fellow! I am heartily glad to see you;" and the bookseller shook the hand he held with hearty good will. "I was thinking of you only a little while ago." "This fellow calls me a liar," said Bobby, pointing to the astonished Mr. Timmins, who did not know what to make of the cordial reception which "Country" was receiving from his employer. "Well, Robert, we know that _he_ is a liar; this is not the first time he has been caught in a lie. Timmins, your time is out." The spruce clerk hung his head with shame and mortification. "I hope, sir, you will----" he began, but pride or fear stopped him short. "Don't be hard with him, sir, if you please," said Bobby. "I suppose I aggravated him." Mr. Bayard looked at the gentleman who stood by his side, and a smile of approbation lighted up his face. "Generous as he is noble! Butler, this is the boy that saved Ellen." "Indeed! He is a little giant!" replied Mr. Butler, grasping Bobby's hand. Even Timmins glanced with something like admiration in his looks at the youth whom he had so lately despised. Perhaps, too, he thought of that Scripture wisdom about entertaining angels unawares. He was very much abashed, and nothing but his silly pride prevented him from acknowledging his error and begging Bobby's forgiveness. "I can't have a liar about me," said Mr. Bayard. "There may be some mistake," suggested Mr. Butler. "I think not. Robert Bright couldn't lie. So brave and noble a boy is incapable of a falsehood. Besides, I got a letter from my friend Squire Lee by this morning's mail, in which he informed me of my young friend's coming." Mr. Bayard took from his pocket a bundle of letters, and selected the squire's from among them. Opening it, he read a passage which had a direct bearing upon the case before him. "'I do not know what Bobby's faults are,'"--the letter said,--"'but this I do know: that Bobby would rather be whipped than tell a lie. He is noted through the place for his love of truth.'--That is pretty strong testimony; and you see, Bobby,--that's what the squire calls you,--your reputation has preceded you." Bobby blushed, as he always did when he was praised, and Mr. Timmins was more abashed than ever. "Did you hear that, Timmins? Who is the liar now?" said Mr. Bayard, turning to the culprit. "Forgive me, sir, this time. If you turn me off now, I cannot get another place, and my mother depends upon my wages." "You ought to have thought of this before." "He aggravated me, sir, so that I wanted to pay him off." "As to that, he commenced upon me the moment I came into the store. But don't turn him off, if you please, sir," said Bobby, who even now wished no harm to his discomfited assailant. "He will do better hereafter: won't you, Timmins?" Thus appealed to, Timmins, though he did not relish so direct an inquiry, and from such a source, was compelled to reply in the affirmative; and Mr. Bayard graciously remitted the sentence he had passed against the offending clerk. "Now, Robert, you will come over to my house and dine with me. Ellen will be delighted to see you." "Thank you, sir," replied Bobby, bashfully, "I have been to dinner"--referring to the luncheon he had eaten at Brighton. "But you must go to the house with me." "I should be very glad to do so, sir, but I came on business. I will stay here with Mr. Timmins till you come back." The truth is, he had heard something about the fine houses of the city, and how stylish the people were, and he had some misgivings about venturing into such a strange and untried scene as the parlor of a Boston merchant. "Indeed, you must come with me. Ellen would never forgive you or me, if you did not come." "I would rather rest here till you return," replied Bobby, still willing to escape the fine house and the fine folks. "I walked from Riverdale, sir, and I am rather tired." "Walked!" exclaimed Mr. Bayard. "Had you no money?" "Yes, sir, enough to pay my passage; but Dr. Franklin says that 'a penny saved is a penny earned,' and I thought I would try it. I shall get rested by the time you return." "But you must go with me. Timmins, go and get a carriage." Timmins obeyed, and before Mr. Bayard had finished asking Bobby how all the people in Riverdale were, the carriage was at the door. There was no backing out now, and our hero was obliged to get into the vehicle, though it seemed altogether too fine for a poor boy like him. Mr. Bayard and Mr. Butler (whom the former had invited to dine with him) seated themselves beside him, and the driver was directed to set them down at No. --, Chestnut Street, where they soon arrived. Though my readers would, no doubt, be very much amused to learn how carefully Bobby trod the velvet carpets, how he stared with wonder at the drapery curtains, at the tall mirrors, the elegant chandeliers, and the fantastically shaped chairs and tables that adorned Mr. Bayard's parlor, the length of our story does not permit us to pause over these trivial matters. When Ellen Bayard was informed that her little deliverer was in the house, she rushed into the parlor like a hoiden school girl, grasped both his hands, kissed both his rosy cheeks, and behaved just as though she had never been to a boarding school in her life. She had thought a great deal about Bobby since that eventful day, and the more she thought of him, the more she liked him. Her admiration of him was not of that silly, sentimental character which moonstruck young ladies cherish towards those immaculate young men who have saved them from drowning in a horse pond, pulled them back just as they were tumbling over a precipice two thousand five hundred feet high, or rescued them from a house seven stories high, bearing them down a ladder seventy-five odd feet long. The fact was, Bobby was a boy of thirteen and there was no chance for much sentiment; so the young lady's regard was real, earnest, and lifelike. Ellen said a great many very handsome things; but I am sure she never thought of such a thing as that he would run away with her, in case her papa was unnecessarily obstinate. She was very glad to see him, and I have no doubt she wished Bobby might be her brother, it would be so glorious to have such a noble little fellow always with her. Bobby managed the dinner much better than he had anticipated; for Mr. Bayard insisted that he should sit down with them, whether he ate anything or not. But the Rubicon passed, our hero found that he had a pretty smart appetite, and did full justice to the viands set before him. It is true the silver forks, the napkins, the finger bowls, and other articles of luxury and show, to which he had been entirely unaccustomed, bothered him not a little; but he kept perfectly cool, and carefully observed how Mr. Butler, who sat next to him, handled the "spoon fork," what he did with the napkin and the finger bowl, so that, I will venture to say, not one in ten would have suspected he had not spent his life in the parlor of a millionaire. Dinner over, the party returned to the parlor, where Bobby unfolded his plan for the future. To make his story intelligible, he was obliged to tell them all about Mr. Hardhand. "The old wretch!" exclaimed Mr. Bayard. "But, Robert, you must let me advance the sixty dollars, to pay Squire Lee." "No, sir; you have done enough in that way. I have given my note for the money." "Whew!" said Mr. Butler. "And I shall soon earn enough to pay it." "No doubt of it. You are a lad of courage and energy, and you will succeed in everything you undertake." "I shall want you to trust me for a stock of books, on the strength of old acquaintance," continued Bobby, who had now grown quite bold, and felt as much at home in the midst of the costly furniture, as he did in the "living room" of the old black house. "You shall have all the books you want." "I will pay for them as soon as I return. The truth is, Mr. Bayard, I mean to be independent. I didn't want to take that thirty-five dollars, though I don't know what Mr. Hardhand would have done to us, if I hadn't." "Ellen said I ought to have given you a hundred, and I think so myself." "I am glad you didn't. Too much money makes us fat and lazy." Mr. Bayard laughed at the easy self-possession of the lad--at his big talk; though, big as it was, it meant something. When he proposed to go to the store, he told Bobby he had better stay at the house and rest himself. "No, sir; I want to start out to-morrow, and I must get ready to-day." "You had better put it off till the next day; you will feel more like it then." "Now or never," replied Bobby. "That is my motto, sir. If we have anything to do, now is always the best time to do it. Dr. Franklin says, 'Never put off till to-morrow what you can do to-day.'" "Right, Robert! you shall have your own way. I wish my clerks would adopt some of Dr. Franklin's wise saws. I should be a great deal better off in the course of a year if they would." CHAPTER IX IN WHICH BOBBY OPENS VARIOUS ACCOUNTS, AND WINS HIS FIRST VICTORY "Now, Bobby, I understand your plan," said Mr. Bayard, when they reached the store; "but the details must be settled. Where do you intend to go?" "I hardly know, sir. I suppose I can sell books almost anywhere." "Very true; but in some places much better than in others." Mr. Bayard mentioned a large town about eighteen miles from the city, in which he thought a good trade might be carried on, and Bobby at once decided to adopt the suggestion. "You can make this place your headquarters for the week; if books do not sell well right in the village, why, you can go out a little way, for the country in the vicinity is peopled by intelligent farmers, who are well off, and who can afford to buy books." "I was thinking of that; but what shall I take with me, sir?" "There is a new book just published, called 'The Wayfarer,' which is going to have a tremendous run. It has been advertised in advance all over the country, so that you will find a ready sale for it. You will get it there before any one else, and have the market all to yourself." "'The Wayfarer'? I have heard of it myself." "You shall take fifty copies with you, and if you find that you shall want more, write, and I will send them." "But I cannot carry fifty copies." "You must take the cars to B----, and have a trunk or box to carry your books in. I have a stout trunk down cellar which you shall have." "I will pay for it, sir." "Never mind that, Bobby; and you will want a small valise or carpet bag to carry your books from house to house. I will lend you one." "You are very kind, sir; I did not mean to ask any favors of you except to trust me for the books until my return." "All right, Bobby." Mr. Bayard called the porter and ordered him to bring up the trunk, in which he directed Mr. Timmins to pack fifty "Wayfarers." "Now, how much will these books cost me apiece?" asked Bobby. "The retail price is one dollar; the wholesale price is one third off; and you shall have them at what they cost me." "Sixty-seven cents," added Bobby. "That will give me a profit of thirty-three cents on each book." "Just so." "Perhaps Mr. Timmins will sell me one of those blank books now; for I like to have things down in black and white." "I will furnish you with something much better than that;" and Mr. Bayard left the counting room. In a moment he returned with a handsome pocket memorandum book, which he presented to the little merchant. "But I don't like to take it unless you will let me pay for it," said Bobby, hesitating. "Never mind it, my young friend. Now you can sit down at my desk and open your accounts. I like to see boys methodical, and there is nothing like keeping accounts to make one accurate. Keep your books posted up, and you will know where you are at any time." "I intend to keep an account of all I spend and all I receive, if it is no more than a cent." "Right, my little man. Have you ever studied book-keeping?" "No, sir, I suppose I haven't; but there was a page of accounts in the back part of the arithmetic I studied, and I got a pretty good idea of the thing from that. All the money received goes on one side, and all the money paid out goes on the other." "Exactly so; in this book you had better open a book account first. If you wish, I will show you how." "Thank you, sir; I should be very glad to have you;" and Bobby opened the memorandum book, and seated himself at the desk. "Write 'Book Account,' at the top of the pages, one word on each. Very well. Now write 'To fifty copies of "Wayfarer," at sixty-seven cents, $33.50,' on the left-hand page, or debit side of the account." "I am not much of a writer," said Bobby, apologetically. "You will improve. Now, each day you will credit the amount of sales on the right hand page, or credit side of the account; so, when you have sold out, the balance due your debit side will be the profit on the lot. Do you understand it?" Bobby thought a moment before he could see through it; but his brain was active, and he soon managed the idea. "Now you want a personal account;" and Mr. Bayard explained to him how to make this out. He then instructed him to enter on the debit side all he spent for travel, board, freight, and other charges. The next was the "profit and loss" account, which was to show him the net profit of the business. Our hero, who had a decided taste for accounts, was very much pleased with this employment; and when the accounts were all opened, he regarded them with a great deal of satisfaction. He longed to commence his operations, if it were only for the pleasure of making the entries in this book. "One thing I forgot," said he, as he seized the pen, and under the cash account entered, "To Cash from mother, $1.00." "Now I am all right, I believe." "I think you are. Now, the cars leave at seven in the morning. Can you be ready for a start as early as that?" asked Mr. Bayard. "O, yes, sir, I hope so. I get up at half past four at home." "Very well; my small valise is at the house; but I believe everything else is ready. Now, I have some business to attend to; and if you will amuse yourself for an hour or two, we will go home then." "I shall want a lodging place when I am in the city; perhaps some of your folks can direct me to one where they won't charge too much." "As to that, Bobby, you must go to my house whenever you are in the city." "Law, sir! you live so grand, I couldn't think of going to your house. I am only a poor boy from the country, and I don't know how to behave myself among such nice folks." "You will do very well, Bobby. Ellen would never forgive me if I let you go anywhere else. So that is settled; you will go to my house. Now, you may sit here, or walk out and see the sights." "If you please, sir, if Mr. Timmins will let me look at some of the books, I shouldn't wish for anything better. I should like to look at 'The Wayfarer,' so that I shall know how to recommend it." "Mr. Timmins _will_ let you," replied Mr. Bayard, as he touched the spring of a bell on his desk. The dapper clerk came running into the counting room to attend the summons of his employer. "Mr. Timmins," continued Mr. Bayard, with a mischievous smile, "bring Mr. Bright a copy of 'The Wayfarer.'" Mr. Timmins was astonished to hear "Country" called "Mister," astonished to hear his employer call him "Mister," and Bobby was astonished to hear himself called "Mister." Nevertheless, our hero enjoyed the joke. The clerk brought the book; and Bobby proceeded to give it a thorough, critical examination. He read the preface, the table of contents, and several chapters of the work, before Mr. Bayard was ready to go home. "How do you like it, Bobby?" asked the bookseller. "First rate." "You may take that copy in your hand; you will want to finish it." "Thank you, sir; I will be careful of it." "You may keep it. Let that be the beginning of your own private library." His own private library! Bobby had not got far enough to dream of such a thing yet; but he thanked Mr. Bayard, and put the book under his arm. After tea, Ellen proposed to her father that they should all go to the Museum. Mr. Bayard acceded, and our hero was duly amazed at the drolleries perpetrated there. He had a good time; but it was so late when he went to bed, that he was a little fearful lest he should over-sleep himself in the morning. He did not, however, and was down in the parlor before any of the rest of the family were stirring. An early breakfast was prepared for him, at which Mr. Bayard, who intended to see him off, joined him. Depositing his little bundle and the copy of "The Wayfarer" in the valise provided for him, they walked to the store. The porter wheeled the trunk down to the railroad station, though Bobby insisted upon doing it himself. The bookseller saw him and his baggage safely aboard of the cars, gave him a ticket, and then bade him an affectionate adieu. In a little while Bobby was flying over the rail, and at about eight o'clock reached B----. The station master kindly permitted him to deposit his trunk in the baggage room, and to leave it there for the remainder of the week. Taking a dozen of the books from the trunk, and placing them in his valise, he sallied out upon his mission. It must be confessed that his heart was filled with a tumult of emotions. The battle of life was before him. He was on the field, sword in hand, ready to plunge into the contest. It was victory or defeat. "March on, brave youth! the field of strife With peril fraught before thee lies; March on! the battle plain of life Shall yield thee yet a glorious prize." It was of no use to shrink then, even if he had felt disposed to do so. He was prepared to be rebuffed, to be insulted, to be turned away from the doors at which he should seek admission; but he was determined to conquer. He had reached a house at which he proposed to offer "The Wayfarer" for sale. His heart went pit pat, pit pat, and he paused before the door. "Now or never!" exclaimed he, as he swung open the garden gate, and made his way up to the door. He felt some misgivings. It was so new and strange to him that he could hardly muster sufficient resolution to proceed farther. But his irresolution was of only a moment's duration. "Now or never!" and he gave a vigorous knock at the door. It was opened by an elderly lady, whose physiognomy did not promise much. "Good morning, ma'am. Can I sell you a copy of 'The Wayfarer' to-day? a new book, just published." "No; I don't want none of your books. There's more pedlers round the country now than you could shake a stick at in a month," replied the old lady, petulantly. "It is a very interesting book, ma'am; has an excellent moral." Bobby had read the preface, as I before remarked. "It will suit you, ma'am; for you look just like a lady who wants to read something with a moral." Bravo, Bobby! The lady concluded that her face had a moral expression, and she was pleased with the idea. "Let me see it;" and she asked Bobby to walk in and be seated, while she went for her spectacles. As she was looking over the book, our hero went into a more elaborate recommendation of its merits. He was sure it would interest the young and the old; it taught a good lesson; it had elegant engravings; the type was large, which would suit her eyes; it was well printed and bound; and finally, it was cheap at one dollar. "I'll take it," said the old lady. "Thank you, ma'am." Bobby's first victory was achieved. "Have you got a dollar?" asked the lady, as she handed him a two-dollar bill. "Yes, ma'am;" and he gave her his only dollar and put the two in its place, prouder than a king who has conquered an empire. "Thank you ma'am." Bidding the lady a polite good morning, he left the house, encouraged by his success to go forward in his mission with undiminished hope. CHAPTER X IN WHICH BOBBY IS A LITTLE TOO SMART The clouds were rolled back, and Bobby no longer had a doubt as to the success of his undertaking. It requires but a little sunshine to gladden the heart, and the influence of his first success scattered all the misgivings he had cherished. Two New England shillings is undoubtedly a very small sum of money; but Bobby had made two shillings, and he would not have considered himself more fortunate if some unknown relative had left him a fortune. It gave him confidence in his powers, and as he walked away from the house, he reviewed the circumstances of his first sale. The old lady had told him at first she did not wish to buy a book, and, moreover, had spoken rather contemptuously of the craft to which he had now the honor to belong. He gave himself the credit of having conquered the old lady's prejudices. He had sold her a book in spite of her evident intention not to purchase. In short, he had, as we have before said, won a glorious victory, and he congratulated himself accordingly. But it was of no use to waste time in useless self-glorification, and Bobby turned from the past to the future. There were forty-nine more books to be sold; so that the future was forty-nine times as big as the past. He saw a shoemaker's shop ahead of him, and he was debating with himself whether he should enter and offer his books for sale. It would do no harm, though he had but slight expectations of doing anything. There were three men at work in the shop--one of them a middle-aged man, the other two young men. They looked like persons of intelligence, and as soon as Bobby saw them his hopes grew stronger. "Can I sell you any books to-day?" asked the little merchant, as he crossed the threshold. "Well, I don't know; that depends upon how smart you are," replied the eldest of the men. "It takes a pretty smart fellow to sell anything in this shop." "Then I hope to sell each of you a book," added Bobby, laughing at the badinage of the shoemaker. Opening his valise he took out three copies of his book, and politely handed one to each of the men. "It isn't every book pedler that comes along who offers you such a work as that. 'The Wayfarer' is decidedly _the_ book of the season." "You don't say so!" said the oldest shoemaker, with a laugh. "Every pedler that comes along uses those words, precisely." "Do they? They steal my thunder then." "You are an old one." "Only thirteen. I was born where they don't fasten the door with a boiled carrot." "What do they fasten them with?" "They don't fasten them at all." "There are no book pedlers round there, then;" and all the shoemakers laughed heartily at this smart sally. "No; they are all shoemakers in our town." "You can take my hat, boy." "You will want it to put your head in; but I will take one dollar for that book instead." The man laughed, took out his wallet, and handed Bobby the dollar, probably quite as much because he had a high appreciation of his smartness, as from any desire to possess the book. "Won't you take one?" asked Bobby, appealing to another of the men, who was apparently not more than twenty-four years of age. "No; I can't read," replied he roguishly. "Let your wife read it to you, then." "My wife?" "Certainly; she knows how to read, I will warrant." "How do you know I have got a wife?" "O, well, a fellow as good looking and good natured as you are could not have resisted till this time." "Has you, Tom," added the oldest shoemaker. "I cave in;" and he handed over the dollar, and laid the book upon his bench. Bobby looked at the third man with some interest. He had said nothing, and scarcely heeded the fun which was passing between the little merchant and his companions. He was apparently absorbed in his examination of the book. He was a different kind of person from the others, and Bobby's instinctive knowledge of human nature assured him that he was not to be gained by flattery or by smart sayings; so he placed himself in front of him, and patiently waited in silence for him to complete his examination. "You will find that he is a hard one," put in one of the others. Bobby made no reply, and the two men who had bought books resumed their work. For five minutes our hero stood waiting for the man to finish his investigation into the merits of "The Wayfarer." Something told him not to say anything to this person; and he had some doubts about his purchasing. "I will take one," said the last shoemaker, as he handed Bobby the dollar. "I am much obliged to you, gentlemen," said Bobby, as he closed his valise. "When I come this way again I shall certainly call." "Do; you have done what no other pedler ever did in this shop." "I shall take no credit to myself. The fact is, you are men of intelligence, and you want good books." Bobby picked up his valise and left the shop, satisfied with those who occupied it, and satisfied with himself. "Eight shillings!" exclaimed he, when he got into the road. "Pretty good hour's work, I should say." Bobby trudged along till he came to a very large, elegant house, evidently dwelt in by one of the nabobs of B----. Inspired by past successes, he walked boldly up to the front door, and rang the bell. "Is Mr. Whiting in?" asked Bobby, who had read the name on the door plate. "Colonel Whiting _is_ in," replied the servant, who had opened the door. "I should like to see him for a moment, if he isn't busy." "Walk in;" and for some reason or other the servant chuckled a great deal as she admitted him. She conducted him to a large, elegantly furnished parlor, where Bobby proceeded to take out his books for the inspection of the nabob, whom the servant promised to send to the parlor. In a moment Colonel Whiting entered. He was a large, fat man, about fifty years old. He looked at the little book merchant with a frown that would have annihilated a boy less spunky than our hero. Bobby was not a little inflated by the successes of the morning, and if Julius Cæsar or Napoleon Bonaparte had stood before him then, he would not have flinched a hair--much less in the presence of no greater magnate than the nabob of B----. "Good morning, Colonel Whiting. I hope you are well this beautiful morning." Bobby began. I must confess I think this was a little too familiar for a boy of thirteen to a gentleman of fifty, whom he had never seen before in his life; but it must be remembered that Bobby had done a great deal the week before, that on the preceding night he had slept in Chestnut Street, and that he had just sold four copies of "The Wayfarer." He was inclined to be smart, and some folks hate smart boys. The nabob frowned; his cheek reddened with anger; but he did not condescend to make any reply to the smart speech. "I have taken the liberty to call upon you this morning, to see if you did not wish to purchase a copy of 'The Wayfarer'--a new book just issued from the press, which people say is to be the book of the season." My young readers need not suppose this was an impromptu speech, for Bobby had studied upon it all the time he was coming from Boston in the cars. It would be quite natural for a boy who had enjoyed no greater educational advantages than our hero to consider how he should address people into whose presence his calling would bring him; and he had prepared several little addresses of this sort, for the several different kinds of people whom he expected to encounter. The one he had just "got off" was designed for the "upper crust." When he had delivered the speech, he approached the indignant, frowning nabob, and, with a low bow, offered him a copy of "The Wayfarer." "Boy," said Colonel Whiting, raising his arm with majestic dignity, and pointing to the door,--"boy, do you see that door?" Bobby looked at the door, and, somewhat astonished, replied that he did see it, that it was a very handsome door, and he would inquire whether it was black walnut, or only painted in imitation thereof. "Do you see that door?" thundered the nabob, swelling with rage at the cool impudence of the boy. "Certainly I do, sir; my eyesight is excellent." "Then use it!" "Thank you, sir; I have no use for it. Probably it will be of more service to you than to me." "Will you clear out, or shall I kick you out?" gasped the enraged magnate of B----. "I will save you that trouble, sir; I will go, sir. I see we have both made a mistake." "Mistake? What do you mean by that, you young puppy? You are a little impudent, thieving scoundrel!" "That is your mistake, sir. I took you for a gentleman, sir; and that was my mistake." "Ha, ha, ha!" laughed a sweet, musical voice, and at that moment a beautiful young lady rushed up to the angry colonel, and threw her arms around his neck. "The jade!" muttered he. "I have caught you in a passion again, uncle;" and the lady kissed the old gentleman's anger-reddened cheek, which seemed to restore him at once to himself. "It was enough to make a minister swear," said he, in apology. "No, it wasn't, uncle; the boy was a little pert, it is true; but you ought to have laughed at him, instead of getting angry. I heard the whole of it." "Pert?" said Bobby to himself. "What the deuce does she mean by that?" "Very well, you little minx; I will pay the penalty." "Come here, Master Pert," said the lady to Bobby. Bobby bowed, approached the lady, and began to feel very much embarrassed. "My uncle," she continued, "is one of the best-hearted men in the world--ain't you, uncle?" "Go on, you jade!" "I love him, as I would my own father; but he will sometimes get into a passion. Now, you provoked him." "Indeed, ma'am, I hadn't the least idea of saying anything uncivil," pleaded Bobby. "I studied to be as polite as possible." "I dare say. You were too important, too pompous, for a boy to an old gentleman like uncle, who is really one of the best men in the world. Now, if you hadn't _studied_ to be polite, you would have done very well." "Indeed, ma'am, I am a poor boy, trying to make a little money to help my mother. I am sure I meant no harm." "I know you didn't. So you are selling books to help your mother?" "Yes, ma'am." She inquired still further into the little merchant's history, and seemed to be very much interested in him. In a frolic, a few days before, Bobby learned from her, Colonel Whiting had agreed to pay any penalty she might name, the next time he got into a passion. "Now, young man, what book have you to sell?" asked the lady. "'The Wayfarer.'" "How many have you in your valise?" "Eight." "Very well; now, uncle, I decree, as the penalty of your indiscretion, that you purchase the whole stock." "I submit." "'The Wayfarer' promises to be an excellent book; and I can name at least half a dozen persons who will thank you for a copy, uncle." Colonel Whiting paid Bobby eight dollars, who left the contents of his valise on the centre table, and then departed, astounded at his good fortune, and fully resolved never to be too smart again. CHAPTER XI IN WHICH BOBBY STRIKES A BALANCE, AND RETURNS TO RIVERDALE Our hero had learned a lesson which experience alone could teach him. The consciousness of that "something within him" inclined him to be a little too familiar with his elders; but then it gave him confidence in himself, and imparted courage to go forward in the accomplishment of his mission. His interview with Colonel Whiting and the gentle but plain rebuke of his niece had set him right, and he realized that, while he was doing a man's work, he was still a boy. He had now a clearer perception of what is due to the position and dignity of those upon whom fortune has smiled. Bobby wanted to be a man, and it is not strange that he should sometimes fancy he was a man. He had an idea, too, that "all men are born free and equal;" and he could not exactly see why a nabob was entitled to any more respect and consideration than a poor man. It was a lesson he was compelled to learn, though some folks live out their lifetimes without ever finding out that. "'Tis wealth, good sir, makes honorable men." Some people think a rich man is no better than a poor man, except so far as he behaves himself better. It is strange how stupid some people are! Bobby had no notion of cringing to any man, and he felt as independent as the Declaration of Independence itself. But then the beautiful lady had told him that he was pert and forward; and when he thought it over, he was willing to believe she was right. Colonel Whiting was an old man, compared with himself; and he had some faith, at least in theory, in the Spartan virtue of respect for the aged. Probably the nabob of B---- would have objected to being treated with respect on account of his age; and Bobby would have been equally unwilling to acknowledge that he treated him with peculiar respect on account of his wealth or position. Perhaps the little merchant had an instinctive perception of expediency--that he should sell more books by being less familiar; at any rate he determined never again to use the flowery speeches he had arranged for the upper crust. He had sold a dozen books; and possibly this fact made him more willing to compromise the matter than he would otherwise have been. This was, after all, the great matter for congratulation, and with a light heart he hurried back to the railroad station to procure another supply. We cannot follow him into every house where his calling led him. He was not always as fortunate as in the instances we have mentioned. Sometimes all his arguments were unavailing, and after he had spent half an hour of valuable time in setting forth the merits of "The Wayfarer," he was compelled to retire without having effected a sale. Sometimes, too, he was rudely repulsed; hard epithets were applied to him; old men and old women, worried out by the continued calls of pedlers, sneered at him, or shut the door in his face; but Bobby was not disheartened. He persevered, and did not allow these little trials to discompose or discourage him. By one o'clock on the first day of his service he had sold eighteen books, which far exceeded even his most sanguine expectations. By this time he began to feel the want of his dinner; but there was no tavern or eating house at hand, and he could not think of leaving the harvest to return to the railroad station; so he bought a sheet of gingerbread and a piece of cheese at a store, and seating himself near a brook by the side of the road, he bolted his simple meal, as boys are very apt to do when they are excited. When he had finished, he took out his account book, and entered, "Dinner, 10 cents." Resuming his business, he disposed of the remaining six books in his valise by the middle of the afternoon, and was obliged to return for another supply. About six o'clock he entered the house of a mechanic, just as the family were sitting down to tea. He recommended his book with so much energy, that the wife of the mechanic took a fancy to him, and not only purchased one, but invited him to tea. Bobby accepted the invitation, and in the course of the meal the good lady drew from him the details of his history, which he very modestly related, for though he sometimes fancied himself a man, he was not the boy to boast of his exploits. His host was so much pleased with him, that he begged him to spend the night with them. Bobby had been thinking how and where he should spend the night, and the matter had given him no little concern. He did not wish to go to the hotel, for it looked like a very smart house, and he reasoned that he should have to pay pretty roundly for accommodations there. These high prices would eat up his profits, and he seriously deliberated whether it would not be better for him to sleep under a tree than pay fifty cents for a lodging. If I had been there I should have told him that a man loses nothing in the long run by taking good care of himself. He must eat well and sleep well, in order to do well and be well. But I suppose Bobby would have told me that it was of no use to pay a quarter extra for sleeping on a gilded bedstead, since the room would be so dark he could not see the gilt even if he wished to do so. I could not have said anything to such a powerful argument, so I am very glad the mechanic's wife set the matter at rest by offering him a bed in her house. He spent a very pleasant evening with the family, who made him feel entirely at home, they were so kind and so plain spoken. Before he went to bed, he entered under the book account, "By twenty-six 'Wayfarers,' sold this day, $26.00." He had done a big day's work, much bigger than he could hope to do again. He had sold more than one half of his whole stock, and at this rate he should be out of books the next day. At first he thought he would send for another lot; but he could not judge yet what his average daily sales would be, and finally concluded not to do so. What he had might last till Friday or Saturday. He intended to go home on the latter day, and he could bring them with him on his return without expense. This was considerable of an argument for a boy to manage; but Bobby was satisfied with it, and went to sleep, wondering what his mother, Squire Lee, and Annie were thinking of about that time. After breakfast the next morning he resumed his travels. He was as enthusiastic as ever, and pressed "The Wayfarer" with so much earnestness that he sold a book in nearly every house he visited. People seemed to be more interested in the little merchant than in his stock, and taking advantage of this kind feeling towards him, he appealed to them with so much eloquence that few could resist it. The result of the day's sales was fifteen copies, which Bobby entered in the book account with the most intense satisfaction. He had outdone the boy who had passed through Riverdale, but he had little hope that the harvest would always be so abundant. He often thought of this boy, from whom he had obtained the idea he was now carrying out. That boy had stopped over night at the little black house, and slept with him. He had asked for lodging, and offered to pay for it, as well as for his supper and breakfast. Why couldn't he do the same? He liked the suggestion, and from that time, wherever he happened to be, he asked for lodging, or the meal he required; and he always proposed to pay for what he had, but very few would take anything. On Friday noon he had sold out. Returning to the railroad station, he found that the train would not leave for the city for an hour; so he improved the time in examining and balancing his accounts. The book sales amounted to just fifty dollars, and, after his ticket to Boston was paid for, his expenses would amount to one dollar and fifty cents, leaving a balance in his favor of fifteen dollars. He was overjoyed with the result, and pictured the astonishment with which his mother, Squire Lee, and Annie would listen to the history of his excursion. After four o'clock that afternoon he entered the store of Mr. Bayard, bag and baggage. On his arrival in the city, he was considerably exercised in mind to know how he should get the trunk to his destination. He was too economical to pay a cartman a quarter; but what would have seemed mean in a man was praiseworthy in a boy laboring for a noble end. Probably a great many of my young readers in Bobby's position, thinking that sixteen dollars, which our hero had in his pocket, was a mint of money, would have been in favor of being a little magnificent,--of taking a carriage and going up-town in state. Bobby had not the least desire to "swell;" so he settled the matter by bargaining with a little ragged fellow to help him carry the trunk to Mr. Bayard's store for fourpence. "How do you do, Mr. Timmins?" said Bobby to the spruce clerk, as he deposited the trunk upon the floor, and handed the ragged boy the fourpence. "Ah, Bobby!" exclaimed Mr. Timmins. "Have you sold out?" "All clean. Is Mr. Bayard in?" "In the office. But how do you like it?" "First rate." "Well, every one to his taste; but I don't see how any one who has any regard for his dignity can stick himself into everybody's house. I couldn't do it, I know." "I don't stand for the dignity." "Ah, well, there is a difference in folks." "That's a fact," replied Bobby, as he hurried to the office of Mr. Bayard, leaving Mr. Timmins to sun himself in his own dignity. The bookseller was surprised to see him so soon, but he gave him a cordial reception. "I didn't expect you yet," said he. "Why do you come back? Have you got sick of the business?" "Sick of it! No, sir." "What have you come back for, then?" "Sold out, sir." "Sold out! You have done well!" "Better than I expected." "I had no idea of seeing you till to-morrow night; and I thought you would have books enough to begin the next week with. You have done bravely." "If I had had twenty more, I could have sold them before to-morrow night. Now, sir, if you please, I will pay you for those books--thirty-three dollars and fifty cents." "You had better keep that, Bobby. I will trust you as long as you wish." "If you please, sir, I had rather pay it;" and the little merchant, as proud as a lord, handed over the amount. "I like your way of doing business, Bobby. Nothing helps a man's credit so much as paying promptly. Now tell me some of your adventures--or we will reserve them till this evening, for I am sure Ellen will be delighted to hear them." "I think I shall go to Riverdale this afternoon. The cars leave at half past five." "Very well; you have an hour to spare." Bobby related to his kind friend the incidents of his excursion, including his interview with Colonel Whiting and his niece, which amused the bookseller very much. He volunteered some good advice, which Bobby received in the right spirit, and with a determination to profit by it. At half past five he took the cars for home, and before dark was folded in his mother's arms. The little black house seemed doubly dear to him now that he had been away from it a few days. His mother and all the children were so glad to see him that it seemed almost worth his while to go away for the pleasure of meeting them on his return. CHAPTER XII IN WHICH BOBBY ASTONISHES SUNDRY PERSONS AND PAYS PART OF HIS NOTE "Now tell me, Bobby, how you have made out," said Mrs. Bright, as the little merchant seated himself at the supper table. "You cannot have done much, for you have only been gone five days." "I have done pretty well, mother," replied Bobby, mysteriously; "pretty well, considering that I am only a boy." "I didn't expect to see you till to-morrow night." "I sold out, and had to come home." "That may be, and still you may not have done much." "I don't pretend that I have done much." "How provoking you are! Why don't you tell me, Bobby, what you have done?" "Wait a minute, mother, till I have done my supper, and then I will show you the footings in my ledger." "Your ledger!" "Yes, my ledger. I keep a ledger now." "You are a great man, Mr. Robert Bright," laughed his mother. "I suppose the people took their hats off when they saw you coming." "Not exactly, mother." "Perhaps the governor came out to meet you when he heard you were on the road." "Perhaps he did; I didn't see him, however. This apple pie tastes natural, mother. It is a great luxury to get home after one has been travelling." "Very likely." "No place like home, after all is done and said. Who was the fellow that wrote that song, mother?" "I forget; the paper said he spent a great many years in foreign parts. My sake! Bobby, one would think by your talk that you had been away from home for a year." "It seems like a year," said he, as he transferred another quarter of the famous apple pie to his plate. "I miss home very much. I don't more than half like being among strangers so much." "It is your own choice; no one wants you to go away from home." "I must pay my debts, anyhow. Don't I owe Squire Lee sixty dollars?" "But I can pay that." "It is my affair, you see." "If it is your affair, then I owe you sixty dollars." "No, you don't; I calculate to pay my board now. I am old enough and big enough to do something." "You have done something ever since you were old enough to work." "Not much; I don't wonder that miserable old hunker of a Hardhand twitted me about it. By the way, have you heard anything from him?" "Not a thing." "He has got enough of us, I reckon." "You mustn't insult him, Bobby, if you happen to see him." "Never fear me." "You know the Bible says we must love our enemies, and pray for them that despitefully use us and persecute us." "I should pray that the Old Nick might get him." "No, Bobby; I hope you haven't forgot all your Sunday school lessons." "I was wrong, mother," replied Bobby, a little moved. "I did not mean so. I shall try to think as well of him as I can; but I can't help thinking, if all the world was like him, what a desperate hard time we should have of it." "We must thank the Lord that he has given us so many good and true men." "Such as Squire Lee, for instance," added Bobby, as he rose from the table and put his chair back against the wall. "The squire is fit to be a king; and though I believe in the Constitution and the Declaration of Independence, I wouldn't mind seeing a crown upon his head." "He will receive his crown in due time," replied Mrs. Bright, piously. "The squire?" "The crown of rejoicing, I mean." "Just so; the squire is a nice man; and I know another just like him." "Who?" "Mr. Bayard; they are as near alike as two peas." "I am dying to know about your journey." "Wait a minute, mother, till we clear away the supper things;" and Bobby took hold, as he had been accustomed, to help remove and wash the dishes. "You needn't help now, Bobby." "Yes, I will, mother." Somehow our hero's visit to the city did not seem to produce the usual effect upon him; for a great many boys, after they had been abroad, would have scorned to wash dishes and wipe them. A week in town has made many a boy so smart that you couldn't touch him with a ten foot pole. It starches them up so stiff that sometimes they don't know their own mothers, and deem it a piece of condescension to speak a word to the patriarch in a blue frock who had the honor of supporting them in childhood. Bobby was none of this sort. We lament that he had a habit of talking big, that is, of talking about business affairs in a style a little beyond his years. But he was modest to a fault, paradoxical as it may seem. He was always blushing when anybody spoke a pretty thing about him. Probably the circumstances of his position elevated him above the sphere of the mere boy; he had spent but little time in play, and his attention had been directed at all times to the wants of his mother. He had thought a great deal about business, especially since the visit of the boy who sold books to the little black house. Some boys are born merchants, and from their earliest youth have a genius for trade. They think of little else. They "play shop" before they wear jackets, and drive a barter trade in jackknives, whistles, tops, and fishing lines long before they get into their teens. They are shrewd even then, and obtain a taste for commerce before they are old enough to know the meaning of the word. We saw a boy in school, not long since, give the value of eighteen cents for a little stunted quince; boys have a taste for raw quinces, strange as it may seem. Undoubtedly he had no talent for trade, and would make a very indifferent tin pedler. Our hero was shrewd. He always got the best end of the bargain; though, I am happy to say, his integrity was too unyielding to let him cheat his fellows. We have made this digression so that my young readers may know why Bobby was so much given to big talk. The desire to do something worthy of a good son turned his attention to matters above his sphere; and thinking of great things, he had come to talk great things. It was not a bad fault, after all. Boys need not necessarily be frivolous. Play is a good thing, an excellent thing, in its place, and is as much a part of the boy's education as his grammar and arithmetic. It not only develops his muscles, but enlarges his mental capacity; it not only fills with excitement the idle hours of the long day, but it sharpens the judgment, and helps to fit the boy for the active duties of life. It need not be supposed, because Bobby had to turn his attention to serious things, that he was not fond of fun; that he could not or did not play. At a game of round ball, he was a lucky fellow who secured him upon his side; for the same energy which made him a useful son rendered him a desirable hand in a difficult game. When the supper things were all removed, the dishes washed and put away, Bobby drew out his pocket memorandum book. It was a beautiful article, and Mrs. Bright was duly astonished at its gilded leaves and the elegant workmanship. Very likely her first impulse was to reprove her son for such a piece of reckless extravagance; but this matter was set right by Bobby's informing her how it came into his possession. "Here is my ledger, mother," he said, handing her the book. Mrs. Bright put on her spectacles, and after bestowing a careful scrutiny upon the memorandum book, turned to the accounts. "Fifty books!" she exclaimed, as she read the first entry. "Yes, mother; and I sold them all." "Fifty dollars!" "But I had to pay for the books out of that." "To be sure you had; but I suppose you made as much as ten cents apiece on them, and that would be--let me see; ten times fifty----" "But I made more than that, I hope." "How much?" The proud young merchant referred her to the profit and loss account, which exhibited a balance of fifteen dollars. "Gracious! Three dollars a day!" "Just so, mother. Now I will pay you the dollar I borrowed of you when I went away." "You didn't borrow it of me." "But I shall pay it." Mrs. Bright was astonished at this unexpected and gratifying result. If she had discovered a gold mine in the cellar of the little black house, it could not have afforded her so much satisfaction; for this money was the reward of her son's talent and energy. Her own earnings scarcely ever amounted to more than three or four dollars a week, and Bobby, a boy of thirteen, had come home with fifteen for five days' work. She could scarcely believe the evidence of her own senses, and she ceased to wonder that he talked big. It was nearly ten o'clock when the widow and her son went to bed, so deeply were they interested in discussing our hero's affairs. He had intended to call upon Squire Lee that night, but the time passed away so rapidly that he was obliged to defer it till the next day. After breakfast the following morning, he hastened to pay the intended visit. There was a tumult of strange emotions in his bosom as he knocked at the squire's door. He was proud of the success he had achieved, and even then his cheek burned under the anticipated commendations which his generous friend would bestow upon him. Besides, Annie would be glad to see him, for she had expressed such a desire when they parted on the Monday preceding. I don't think that Bobby cherished any silly ideas, but the sympathy of the little maiden fell not coldly or unwelcomely upon his warm heart. In coming from the house he had placed his copy of "The Wayfarer" under his arm, for Annie was fond of reading; and on the way over, he had pictured to himself the pleasure she would derive from reading _his_ book. Of course he received a warm welcome from the squire and his daughter. Each of them had bestowed more than a thought upon the little wanderer as he went from house to house, and more than once they had conversed together about him. "Well, Bobby, how is trade in the book line?" asked the squire, after the young pilgrim had been cordially greeted. "Pretty fair," replied Bobby, with as much indifference as he could command, though it was hard even to seem indifferent then and there. "Where have you been travelling?" "In B----." "Fine place. Books sell well there?" "Very well; in fact, I sold out all my stock by noon yesterday." "How many books did you carry?" "Fifty." "You did well." "I should think you did!" added Annie, with an enthusiasm which quite upset all Bobby's assumed indifference. "Fifty books!" "Yes, Miss Annie; and I have brought you a copy of the book I have been selling; I thought you would like to read it. It is a splendid work, and will be _the_ book of the season." "I shall be delighted to read it," replied Annie, taking the proffered volume. "It looks real good," she continued, as she turned over the leaves. "It is first rate; I have read it through." "It was very kind of you to think of me when you have so much business on your mind," added she, with a roguish smile. "I shall never have so much business on my mind that I cannot think of my friends," replied Bobby, so gallantly and so smartly that it astonished himself. "I was just thinking what I should read next; I am _so_ glad you have come." "Never mind her, Bobby; all she wanted was the book," interposed Squire Lee, laughing. "Now, pa!" "Then I shall bring her one very often." "You are too bad, pa," said Annie, who, like most young ladies just entering their teens, resented any imputation upon the immaculateness of human love, or human friendship. "I have got a little money for you, Squire Lee," continued Bobby, thinking it time the subject was changed. He took out his gilded memorandum book, whose elegant appearance rather startled the squire, and from its "treasury department" extracted the little roll of bills, representing an aggregate of ten dollars, which he had carefully reserved for his creditor. "Never mind that, Bobby," replied the squire. "You will want all your capital to do business with." "I must pay my debts before I think of anything else." "A very good plan, Bobby, but this is an exception to the general rule." "No, sir, I think not. If you please, I insist upon paying you ten dollars on my note." "O, well, if you insist, I suppose I can't help myself." "I would rather pay it, I shall feel so much better." "You want to indorse it on the note, I suppose." That was just what Bobby wanted. Indorsed on the note was the idea, and our hero had often passed that expression through his mind. There was something gratifying in the act to a man of business integrity like himself; it was discharging a sacred obligation,--he had already come to deem it a sacred duty to pay one's debts,--and as the squire wrote the indorsement across the back of the note, he felt more like a hero than ever before. "'Pay as you go' is an excellent idea; John Randolph called it the philosopher's stone," added Squire Lee, as he returned the note to his pocket book. "That is what I mean to do just as soon as I can." "You will do, Bobby." The young merchant spent nearly the whole forenoon at the squire's, and declined an invitation to dinner only on the plea that his mother would wait for him. CHAPTER XIII IN WHICH BOBBY DECLINES A COPARTNERSHIP AND VISITS B---- AGAIN After dinner Bobby performed his Saturday afternoon chores as usual. He split wood enough to last for a week, so that his mother might not miss him too much, and then, feeling a desire to visit his favorite resorts in the vicinity, he concluded to go a fishing. The day was favorable, the sky being overcast and the wind very light. After digging a little box of worms in the garden back of the house, he shouldered his fish pole; and certainly no one would have suspected that he was a distinguished travelling merchant. He was fond of fishing, and it is a remarkable coincidence that Daniel Webster, and many other famous men, have manifested a decided passion for this exciting sport. No doubt a fondness for angling is a peculiarity of genius; and if being an expert fisherman makes a great man, then our hero was a great man. He had scarcely seated himself on his favorite rock, and dropped his line into the water, before he saw Tom Spicer approaching the spot. The bully had never been a welcome companion. There was no sympathy between them. They could never agree, for their views, opinions, and tastes were always conflicting. Bobby had not seen Tom since he left him to crawl out of the ditch on the preceding week, and he had good reason to believe that he should not be regarded with much favor. Tom was malicious and revengeful, and our hero was satisfied that the blow which had prostrated him in the ditch would not be forgotten till it had been atoned for. He was prepared, therefore, for any disagreeable scene which might occur. There was another circumstance also which rendered the bully's presence decidedly unpleasant at this time,--an event that had occurred during his absence, the particulars of which he had received from his mother. Tom's father, who was a poor man, and addicted to intemperance, had lost ten dollars. He had brought it home, and, as he affirmed, placed it in one of the bureau drawers. The next day it could not be found. Spicer, for some reason, was satisfied that Tom had taken it; but the boy stoutly and persistently denied it. No money was found upon him, however, and it did not appear that he had spent any at the stores in Riverdale Centre. The affair created some excitement in the vicinity, for Spicer made no secret of his suspicions, and publicly accused Tom of the theft. He did not get much sympathy from any except his pot companions; for there was no evidence but his bare and unsupported statement to substantiate the grave accusation. Tom had been in the room when the money was placed in the drawer, and, as his father asserted, had watched him closely, while he deposited the bills under the clothing. No one else could have taken it. These were the proofs. But people generally believed that Spicer had carried no money home, especially as it was known that he was intoxicated on the night in question; and that the alleged theft was only a ruse to satisfy certain importunate creditors. Everybody knew that Tom was bad enough to steal, even from his father; from which my readers can understand that it is an excellent thing to have a good reputation. Bobby knew that he would lie and use profane language; that he spent his Sundays by the river, or in roaming through the woods; and that he played truant from school as often as the fear of the rod would permit; and the boy that would do all these things certainly would steal if he got a good chance. Our hero's judgment, therefore, of the case was not favorable to the bully, and he would have thanked him to stay away from the river while he was there. "Hallo, Bob! How are you?" shouted Tom, when he had come within hailing distance. "Very well," replied Bobby, rather coolly. "Been to Boston, they say." "Yes." "Well, how did you like it?" continued Tom, as he seated himself on the rock near our hero. "First rate." "Been to work there?" "No." "What have you been doing?" "Travelling about." "What doing?" "Selling books." "Was you, though? Did you sell any?" "Yes, a few." "How many?" "O, about fifty." "You didn't, though--did you? How much did you make?" "About fifteen dollars." "By jolly! You are a smart one, Bobby. There are not many fellows that would have done that." "Easy enough," replied Bobby, who was not a little surprised at this warm commendation from one whom he regarded as his enemy. "You had to buy the books first--didn't you?" asked Tom, who began to manifest a deep interest in the trade. "Of course; no one will give you the books." "What do you pay for them?" "I buy them so as to make a profit on them," answered Bobby, who, like a discreet merchant, was not disposed to be too communicative. "That business would suit me first rate." "It is pretty hard work." "I don't care for that. Don't you believe I could do something in this line?" "I don't know; perhaps you could." "Why not, as well as you?" This was a hard question; and, as Bobby did not wish to be uncivil, he talked about a big pout he hauled in at that moment, instead of answering it. He was politic, and deprecated the anger of the bully; so, though Tom plied him pretty hard, he did not receive much satisfaction. "You see, Tom," said he, when he found that his companion insisted upon knowing the cost of the books, "this is a publisher's secret; and I dare say they would not wish every one to know the cost of books. We sell them for a dollar apiece." "Humph! You needn't be so close about it. I'll bet I can find out." "I have no doubt you can; only, you see, I don't want to tell what I am not sure they would be willing I should tell." Tom took a slate pencil from his pocket, and commenced ciphering on the smooth rock upon which he sat. "You say you sold fifty books?" "Yes." "Well; if you made fifteen dollars out of fifty, that is thirty cents apiece." Bobby was a little mortified when he perceived that he had unwittingly exposed the momentous secret. He had not given Tom credit for so much sagacity as he had displayed in his inquiries; and as he had fairly reached his conclusion, he was willing he should have the benefit of it. "You sold them at a dollar apiece. Thirty from a hundred leaves seventy. They cost you seventy cents each--didn't they?" "Sixty-seven," replied Bobby, yielding the point. "Enough said, Bob; I am going into that business, anyhow." "I am willing." "Of course you are; suppose we go together," suggested Tom, who had not used all this conciliation without having a purpose in view. "We could do nothing together." "I should like to get out with you just once, only to see how it is done." "You can find out for yourself, as I did." "Don't be mean, Bob." "Mean? I am not mean." "I don't say you are. We have always been good friends, you know." Bobby did not know it; so he looked at the other with a smile which expressed all he meant to say. "You hit me a smart dig the other day, I know; but I don't mind that. I was in the wrong then, and I am willing to own it," continued Tom, with an appearance of humility. This was an immense concession for Tom to make, and Bobby was duly affected by it. Probably it was the first time the bully had ever owned he was in the wrong. "The fact is, Bob, I always liked you; and you know I licked Ben Dowse for you." "That was two for yourself and one for me; besides, I didn't want Ben thrashed." "But he deserved it. Didn't he tell the master you were whispering in school?" "I was whispering; so he told the truth." "It was mean to blow on a fellow, though." "The master asked him if I whispered to him; of course he ought not to lie about it. But he told of you at the same time." "I know it; but I wouldn't have licked him on my own account." "_Perhaps_ you wouldn't." "I know I wouldn't. But, I say, Bobby, where do you buy your books?" "At Mr. Bayard's, in Washington Street." "He will sell them to me at the same price--won't he?" "I don't know." "When are you going again?" "Monday." "Won't you let me go with you, Bob?" "Let you? Of course you can go where you please; it is none of my business." Bobby did not like the idea of having such a copartner as Tom Spicer, and he did not like to tell him so. If he did, he would have to give his reasons for declining the proposition, and that would make Tom mad, and perhaps provoke him to quarrel. The fish bit well, and in an hour's time Bobby had a mess. As he took his basket and walked home, the young ruffian followed him. He could not get rid of him till he reached the gate in front of the little black house; and even there Tom begged him to stop a few moments. Our hero was in a hurry, and in the easiest manner possible got rid of this aspirant for mercantile honors. We have no doubt a journal of Bobby's daily life would be very interesting to our young readers; but the fact that some of his most stirring adventures are yet to be related admonishes us to hasten forward more rapidly. On Monday morning Bobby bade adieu to his mother again, and started for Boston. He fully expected to encounter Tom on the way, who, he was afraid, would persist in accompanying him on his tour. As before, he stopped at Squire Lee's to bid him and Annie good by. The little maiden had read "The Wayfarer" more than half through, and was very enthusiastic in her expression of the pleasure she derived from it. She promised to send it over to his house when she had finished it, and hoped he would bring his stock to Riverdale, so that she might again replenish her library. Bobby thought of something just then, and the thought brought forth a harvest on the following Saturday, when he returned. When he had shaken hands with the squire and was about to depart, he received a piece of news which gave him food for an hour's serious reflection. "Did you hear about Tom Spicer?" asked Squire Lee. "No, sir; what about him?" "Broken his arm." "Broken his arm! Gracious! How did it happen?" exclaimed Bobby, the more astonished because he had been thinking of Tom since he had left home. "He was out in the woods yesterday, where boys should not be on Sundays, and, in climbing a tree after a bird's nest, he fell to the ground." "I am sorry for him," replied Bobby, musing. "So am I; but if he had been at home, or at church, where he should have been, it would not have happened. If I had any boys, I would lock them up in their chambers if I could not keep them at home Sundays." "Poor Tom!" mused Bobby, recalling the conversation he had had with him on Saturday, and then wishing that he had been a little more pliant with him. "It is too bad; but I must say I am more sorry for his poor mother than I am for him," added the squire. "However, I hope it will do him good, and be a lesson he will remember as long as he lives." Bobby bade the squire and Annie adieu again, resumed his journey towards the railroad station. His thoughts were busy with Tom Spicer's case. The reason why he had not joined him, as he expected and feared he would, was now apparent. He pitied him, for he realized that he must endure a great deal of pain before he could again go out; but he finally dismissed the matter with the squire's sage reflection, that he hoped the calamity would be a good lesson to him. The young merchant did not walk to Boston this time, for he had come to the conclusion that, in the six hours it would take him to travel to the city on foot, the profit on the books he could sell would be more than enough to pay his fare, to say nothing of the fatigue and the expense of shoe leather. Before noon he was at B---- again, as busy as ever in driving his business. The experience of the former week was of great value to him. He visited people belonging to all spheres in society, and, though he was occasionally repulsed or treated with incivility, he was not conscious in a single instance of offending any person's sense of propriety. He was not as fortunate as during the previous week, and it was Saturday noon before he had sold out the sixty books he carried with him. The net profit for this week was fourteen dollars, with which he was abundantly pleased. Mr. Bayard again commended him in the warmest terms for his zeal and promptness. Mr. Timmins was even more civil than the last time, and when Bobby asked the price of Moore's Poems, he actually offered to sell it to him for thirty-three per cent less than the retail price. The little merchant was on the point of purchasing it, when Mr. Bayard inquired what he wanted. "I am going to buy this book," replied Bobby. "Moore's Poems?" "Yes, sir." Mr. Bayard took from a glass case an elegantly bound copy of the same work--morocco, full gilt--and handed it to our hero. "I shall make you a present of this. Are you an admirer of Moore?" "No, sir; not exactly--that is, I don't know much about it; but Annie Lee does, and I want to get the book for her." Bobby's cheeks reddened as he turned the leaves of the beautiful volume, putting his head down to the page to hide his confusion. "Annie Lee?" said Mr. Bayard with a quizzing smile. "I see how it is. Rather young, Bobby." "Her father has been very good to me and to my mother; and so has Annie, for that matter. Squire Lee would be a great deal more pleased if I should make Annie a present than if I made him one. I feel grateful to him, and I want to let it out somehow." "That's right, Bobby; always remember your friends. Timmins, wrap up this book." Bobby protested with all his might; but the bookseller insisted that he should give Annie this beautiful edition, and he was obliged to yield the point. That evening he was at the little black house again, and his mother examined his ledger with a great deal of pride and satisfaction. That evening, too, another ten dollars was indorsed on the note, and Annie received that elegant copy of Moore's Poems. CHAPTER XIV IN WHICH BOBBY'S AIR CASTLE IS UPSET AND TOM SPICER TAKES TO THE WOODS During the next four weeks Bobby visited various places in the vicinity of Boston; and at the end of that time he had paid the whole of the debt he owed Squire Lee. He had the note in his memorandum book, and the fact that he had achieved his first great purpose afforded him much satisfaction. Now he owed no man anything, and he felt as though he could hold up his head among the best people in the world. The little black house was paid for, and Bobby was proud that his own exertions had released his mother from her obligation to her hard creditor. Mr. Hardhand could no longer insult and abuse her. The apparent results which Bobby had accomplished, however, were as nothing compared with the real results. He had developed those energies of character which were to make him, not only a great business man, but a useful member of society. Besides, there was a moral grandeur in his humble achievements which was more worthy of consideration than the mere worldly success he had obtained. Motives determine the character of deeds. That a boy of thirteen should display so much enterprise and energy was a great thing; but that it should be displayed from pure, unselfish devotion to his mother was a vastly greater thing. Many great achievements are morally insignificant, while many of which the world never hears mark the true hero. Our hero was not satisfied with what he had done, and far from relinquishing his interesting and profitable employment, his ambition suggested new and wider fields of success. As one ideal, brilliant and glorious in its time, was reached, another more brilliant and more glorious presented itself, and demanded to be achieved. The little black house began to appear rusty and inconvenient; a coat of white paint would marvellously improve its appearance; a set of nice Paris-green blinds would make a palace of it; and a neat fence around it would positively transform the place into a paradise. Yet Bobby was audacious enough to think of these things, and even to promise himself that they should be obtained. In conversation with Mr. Bayard a few days before, that gentleman had suggested a new field of labor; and it had been arranged that Bobby should visit the State of Maine the following week. On the banks of the Kennebec were many wealthy and important towns, where the intelligence of the people created a demand for books. This time the little merchant was to take two hundred books, and be absent until they were all sold. On Monday morning he started bright and early for the railroad station. As usual, he called upon Squire Lee, and informed Annie that he should probably be absent three or four weeks. She hoped no accident would happen to him, and that his journey would be crowned with success. Without being sentimental, she was a little sad, for Bobby was a great friend of hers. That elegant copy of Moore's Poems had been gratefully received, and she was so fond of the bard's beautiful and touching melodies that she could never read any of them without thinking of the brave little fellow who had given her the volume; which no one will consider very remarkable, even in a little miss of twelve. After he had bidden her and her father adieu, he resumed his journey. Of course he was thinking with all his might; but no one need suppose he was wondering how wide the Kennebec River was, or how many books he should sell in the towns upon its banks. Nothing of the kind; though it is enough even for the inquisitive to know that he was thinking of something, and that his thoughts were very interesting, not to say romantic. "Hallo, Bob!" shouted some one from the road side. Bobby was provoked; for it is sometimes very uncomfortable to have a pleasant train of thought interrupted. The imagination is buoyant, ethereal, and elevates poor mortals up to the stars sometimes. It was so with Bobby. He was building up some kind of an air castle, and had got up in the clouds amidst the fog and moonshine, and that aggravating voice brought him down, _slap_, upon terra firma. He looked up and saw Tom Spicer seated upon the fence. In his hand he held a bundle, and had evidently been waiting some time for Bobby's coming. He had recovered from the illness caused by his broken arm, and people said it had been a good lesson for him, as the squire hoped it would be. Bobby had called upon him two or three times during his confinement to the house; and Tom, either truly repentant for his past errors, or lacking the opportunity at that time to manifest his evil propensities, had stoutly protested that he had "turned over a new leaf," and meant to keep out of the woods on Sunday, stop lying and swearing, and become a good boy. Bobby commended his good resolutions, and told him he would never want friends while he was true to himself. The right side, he declared, was always the best side. He quoted several instances of men, whose lives he had read in his Sunday school books, to show how happy a good man may be in prison, or when all the world seemed to forsake him. Tom assured him that he meant to reform and be a good boy; and Bobby told him that when any one meant to turn over a new leaf, it was "now or never." If he put it off, he would only grow worse, and the longer the good work was delayed, the more difficult it would be to do it. Tom agreed to all this, and was sure he had reformed. For these reasons Bobby had come to regard Tom with a feeling of deep interest. He considered him as, in some measure, his disciple, and he felt a personal responsibility in encouraging him to persevere in his good work. Nevertheless Bobby was not exactly pleased to have his fine air castle upset, and to be tipped out of the clouds upon the cold, uncompromising earth again; so the first greeting he gave Tom was not as cordial as it might have been. "Hallo, Tom!" he replied, rather coolly. "Been waiting for you this half hour." "Have you?" "Yes; ain't you rather late?" "No; I have plenty of time, though none to spare," answered Bobby; and this was a hint that he must not detain him too long. "Come along then." "Where are you going, Tom?" asked Bobby, a little surprised at these words. "To Boston." "Are you?" "I am; that's a fact. You know I spoke to you about going into the book business." "Not lately." "But I have been thinking about it all the time." "What do your father and mother say?" "O, they are all right." "Have you asked them?" "Certainly I have; they are willing I should go with _you_." "Why didn't you speak of it then?" "I thought I wouldn't say anything till the time came. You know you fought shy when I spoke about it before." And Bobby, notwithstanding the interest he felt in his companion, was a little disposed to "fight shy" now. Tom had reformed, or had pretended to do so; but he was still a raw recruit, and our hero was somewhat fearful that he would run at the first fire. To the good and true man life is a constant battle. Temptation assails him at almost every point; perils and snares beset him at every step of his mortal pilgrimage, so that every day he is called upon to gird on his armor and fight the good fight. Bobby was no poet; but he had a good idea of this every-day strife with the foes of error and sin that crossed his path. It was a practical conception, but it was truly expressed under the similitude of a battle. There was to be resistance, and he could comprehend that, for his bump of combativeness took cognizance of the suggestion. He was to fight; and that was an idea that stood him in better stead than a whole library of ethical subtilties. Judging Tom by his own standard, he was afraid he would run--that he wouldn't "stand fire." He had not been drilled. Heretofore, when temptation beset him, he had yielded without even a struggle, and fled from the field without firing a gun. To go out into the great world was a trying event for the raw recruit. He lacked, too, that prestige of success which is worth more than numbers on the field of battle. Tom had chosen for himself, and he could not send him back. He had taken up the line of march, let it lead him where it might. "March on! in legions death and sin Impatient wait thy conquering hand; The foe without, the foe within-- Thy youthful arm must both withstand." Bobby had great hopes of him. He felt that he could not well get rid of him, and he saw that it was policy for him to make the best of it. "Well, Tom, where are you going?" asked Bobby, after he had made up his mind not to object to the companionship of the other. "I don't know. You have been a good friend to me lately, and I had an idea that you would give me a lift in this business." "I should be very willing to do so; but what can I do for you?" "Just show me how the business is done; that's all I want." "Your father and mother were willing you should come--were they not?" Bobby had some doubts about this point, and with good reason too. He had called at Tom's house the day before, and they had gone to church together; but neither he nor his parents had said a word about his going to Boston. "When did they agree to it?" "Last night," replied Tom, after a moment's hesitation. "All right then; but I cannot promise you that Mr. Bayard will let you have the books." "I can fix that, I reckon," replied Tom, confidently. "I will speak a good word for you, at any rate." "That's right, Bob." "I am going down into the State of Maine this time, and shall be gone three or four weeks." "So much the better; I always wanted to go down that way." Tom asked a great many questions about the business and the method of travelling, which Bobby's superior intelligence and more extensive experience enabled him to answer to the entire satisfaction of the other. When they were within half a mile of the railroad station, they heard a carriage driven at a rapid rate approaching them from the direction of Riverdale. Tom seemed to be uneasy, and cast frequent glances behind him. In a moment the vehicle was within a short distance of them, and he stopped short in the road to scrutinize the persons in it. "By jolly!" exclaimed Tom; "my father!" "What of it?" asked Bobby, surprised by the strange behavior of his companion. Tom did not wait to reply, but springing over the fence fled like a deer towards some woods a short distance from the road. Was it possible? Tom had run away from home. His father had not consented to his going to Boston, and Bobby was mortified to find that his hopeful disciple had been lying to him ever since they left Riverdale. But he was glad the cheat had been exposed. "That was Tom with you--wasn't it?" asked Mr. Spicer, as he stopped the foaming horse. "Yes, sir; but he told me you had consented that he should go with me," replied Bobby, a little disturbed by the angry glance of Mr. Spicer's fiery eyes. "He lied! the young villain! He will catch it for this." "I would not have let him come with me only for that. I asked him twice over if you were willing, and he said you were." "You ought to have known better than to believe him," interposed the man who was with Mr. Spicer. Bobby had some reason for believing him. The fact that Tom had reformed ought to have entitled him to some consideration, and our hero gave him the full benefit of the declaration. To have explained this would have taken more time than he could spare; besides, it was "a great moral question," whose importance Mr. Spicer and his companion would not be likely to apprehend; so he made a short story of it, and resumed his walk, thankful that he had got rid of Tom. Mr. Spicer and his friend, after fastening the horse to the fence, went to the woods in search of Tom. Bobby reached the station just in time to take the cars, and in a moment was on his way to the city. CHAPTER XV IN WHICH BOBBY GETS INTO A SCRAPE, AND TOM SPICER TURNS UP AGAIN Bobby had a poorer opinion of human nature than ever before. It seemed almost incredible to him that words so fairly spoken as those of Tom Spicer could be false. He had just risen from a sick bed, where he had had an opportunity for long and serious reflection. Tom had promised fairly, and Bobby had every reason to suppose he intended to be a good boy. But his promises had been lies. He had never intended to reform, at least not since he had got off his bed of pain. He was mortified and disheartened at the failure of this attempt to restore him to himself. Like a great many older and wiser persons than himself, he was prone to judge the whole human family by a single individual. He did not come to believe that every man was a rascal, but, in more general terms, that there is a great deal more rascality in this world than one would be willing to believe. With this sage reflection, he dismissed Tom from his mind, which very naturally turned again to the air castle which had been so ruthlessly upset. Then his opinion of "the rest of mankind" was reversed; and he reflected that if the world were only peopled by angels like Annie Lee, what a pleasant place it would be to live in. She could not tell a lie, she could not use bad language, she could not steal, or do anything else that was bad; and the prospect was decidedly pleasant. It was very agreeable to turn from Tom to Annie, and in a moment his air castle was built again, and throned on clouds of gold and purple. I do not know what impossible things he imagined, or how far up in the clouds he would have gone, if the arrival of the train at the city had not interrupted his thoughts, and pitched him down upon the earth again. Bobby was not one of that impracticable class of persons who do nothing but dream; for he felt that he had a mission to perform which dreaming could not accomplish. However pleasant it may be to think of the great and brilliant things which one _will_ do, to one of Bobby's practical character it was even more pleasant to perform them. We all dream great things, imagine great things; but he who stops there does not amount to much, and the world can well spare him, for he is nothing but a drone in the hive. Bobby's fine imaginings were pretty sure to bring out a "now or never," which was the pledge of action, and the work was as good as done when he had said it. Therefore, when the train arrived, Bobby did not stop to dream any longer. He forgot his beautiful air castle, and even let Annie Lee slip from his mind for the time being. Those towns upon the Kennebec, the two hundred books he was to sell, loomed up before him, for it was with them he had to do. Grasping the little valise he carried with him, he was hastening out of the station house when a hand was placed upon his shoulder. "Got off slick--didn't I?" said Tom Spicer, placing himself by Bobby's side. "You here, Tom!" exclaimed our hero, gazing with astonishment at his late companion. It was not an agreeable encounter, and from the bottom of his heart Bobby wished him anywhere but where he was. He foresaw that he could not easily get rid of him. "I am here," replied Tom. "I ran through the woods to the depot, and got aboard the cars just as they were starting. The old man couldn't come it over me quite so slick as that." "But you ran away from home." "Well, what of it?" "A good deal, I should say." "If you had been in my place, you would have done the same." "I don't know about that; obedience to parents is one of our first duties." "I know that; and if I had had any sort of fair play, I wouldn't have run away." "What do you mean by that?" asked Bobby, somewhat surprised, though he had a faint idea of the meaning of the other. "I will tell you all about it by and by. I give you my word of honor that I will make everything satisfactory to you." "But you lied to me on the road this morning." Tom winced; under ordinary circumstances he would have resented such a remark by "clearing away" for a fight. But he had a purpose to accomplish, and he knew the character of him with whom he had to deal. "I'm sorry I did, now," answered Tom, with every manifestation of penitence for his fault. "I didn't want to lie to you; and it went against my conscience to do so. But I was afraid, if I told you my father refused, up and down, to let me go, that you wouldn't be willing I should come with you." "I shall not be any more willing now I know all about it," added Bobby, in an uncompromising tone. "Wait till you have heard my story, and then you won't blame me." "Of course you can go where you please; it is none of my business; but let me tell you, Tom, in the beginning, that I won't go with a fellow who has run away from his father and mother." "Pooh! What's the use of talking in that way?" Tom was evidently disconcerted by this decided stand of his companion. He knew that his bump of firmness was well developed, and whatever he said he meant. "You had better return home, Tom. Boys that run away from home don't often amount to much. Take my advice, and go home," added Bobby. "To such a home as mine!" said Tom, gloomily. "If I had such a home as yours, I would not have left it." Bobby got a further idea from this remark of the true state of the case, and the consideration moved him. Tom's father was a notoriously intemperate man, and the boy had nothing to hope for from his precept or his example. He was the child of a drunkard, and as much to be pitied as blamed for his vices. His home was not pleasant. He who presided over it, and who should have made a paradise of it, was its evil genius, a demon of wickedness, who blasted its flowers as fast as they bloomed. Tom had seemed truly penitent both during his illness and since his recovery. His one great desire now was to get away from home, for home to him was a place of torment. Bobby suspected all this, and in his great heart he pitied his companion. He did not know what to do. "I am sorry for you, Tom," said he, after he had considered the matter in this new light; "but I don't see what I can do for you. I doubt whether it would be right for me to help you run away from your parents." "I don't want you to help me run away. I have done that already." "But if I let you go with me, it will be just the same thing. Besides, since you told me those lies this morning, I haven't much confidence in you." "I couldn't help that." "Yes, you could. Couldn't help lying?" "What could I do? You would have gone right back and told my father." "Well, we will go up to Mr. Bayard's store, and then we will see what can be done." "I couldn't stay at home, sure," continued Tom, as they walked along together. "My father even talked of binding me out to a trade." "Did he?" Bobby stopped short in the street; for it was evident that, as this would remove him from his unhappy home, and thus effect all he professed to desire, he had some other purpose in view. "What are you stopping for, Bob?" "I think you had better go back, Tom." "Not I; I won't do that, whatever happens." "If your father will put you to a trade, what more do you want?" "I won't go to a trade, anyhow." Bobby said no more, but determined to consult with Mr. Bayard about the matter; and Tom was soon too busily engaged in observing the strange sights and sounds of the city to think of anything else. When they reached the store, Bobby went into Mr. Bayard's private office and told him all about the affair. The bookseller decided that Tom had run away more to avoid being bound to a trade than because his home was unpleasant; and this decision seemed to Bobby all the more just because he knew that Tom's mother, though a drunkard's wife, was a very good woman. Mr. Bayard further decided that Bobby ought not to permit the runaway to be the companion of his journey. He also considered it his duty to write to Mr. Spicer, informing him of his son's arrival in the city, and clearing Bobby from any agency in his escape. While Mr. Bayard was writing the letter, Bobby went out to give Tom the result of the consultation. The runaway received it with a great show of emotion, and begged and pleaded to have the decision reversed. But Bobby, though he would gladly have done anything for him which was consistent with his duty, was firm as a rock, and positively refused to have anything to do with him until he obtained his father's consent; or, if there was any such trouble as he asserted, his mother's consent. Tom left the store, apparently "more in sorrow than in anger." His bullying nature seemed to be cast out, and Bobby could not but feel sorry for him. Duty was imperative, as it always is, and it must be done "now or never." During the day the little merchant attended to the packing of his stock, and to such other preparations as were required for his journey. He must take the steamer that evening for Bath, and when the time for his departure arrived, he was attended to the wharf by Mr. Bayard and Ellen, with whom he had passed the afternoon. The bookseller assisted him in procuring his ticket and berth, and gave him such instructions as his inexperience demanded. The last bell rang, the fasts were cast off, and the great wheels of the steamer began to turn. Our hero, who had never been on the water in a steamboat, or indeed anything bigger than a punt on the river at home, was much interested and excited by his novel position. He seated himself on the promenade deck, and watched with wonder the boiling, surging waters astern of the steamer. How powerful is man, the author of that mighty machine that bore him so swiftly over the deep blue waters! Bobby was a little philosopher, as we have before had occasion to remark, and he was decidedly of the opinion that the steamboat was a great institution. When he had in some measure conquered his amazement, and the first ideas of sublimity which the steamer and the sea were calculated to excite in a poetical imagination, he walked forward to take a closer survey of the machinery. After all, there was something rather comical in the affair. The steam hissed and sputtered, and the great walking beam kept flying up and down; and the sum total of Bobby's philosophy was, that it was funny these things should make the boat go so like a race horse over the water. Then he took a look into the pilot house, and it seemed more funny that turning that big wheel should steer the boat. But the wind blew rather fresh at the forward part of the boat, and as Bobby's philosophy was not proof against it, he returned to the promenade deck, which was sheltered from the severity of the blast. He had got reconciled to the whole thing, and ceased to bother his head about the big wheel, the sputtering steam, and the walking beam; so he seated himself, and began to wonder what all the people in Riverdale were about. "All them as hasn't paid their fare, please walk up to the cap'n's office and s-e-t-t-l-e!" shouted a colored boy, presenting himself just then, and furiously ringing a large hand bell. "I have just settled," said Bobby, alluding to his comfortable seat. But the allusion was so indefinite to the colored boy that he thought himself insulted. He did not appear to be a very amiable boy, for his fist was doubled up, and with sundry big oaths, he threatened to annihilate the little merchant for his insolence. "I didn't say anything that need offend you," replied Bobby. "I meant nothing." "You lie! You did!" He was on the point of administering a blow with his fist, when a third party appeared on the ground, and without waiting to hear the merits of the case, struck the negro a blow which had nearly floored him. Some of the passengers now interfered, and the colored boy was prevented from executing vengeance on the assailant. "Strike that fellow and you strike me!" said he who had struck the blow. "Tom Spicer!" exclaimed Bobby, astonished and chagrined at the presence of the runaway. CHAPTER XVI IN WHICH BOBBY FINDS "IT IS AN ILL WIND THAT BLOWS NO ONE ANY GOOD" A gentleman, who was sitting near Bobby when he made the remark which the colored boy had misunderstood, interfered to free him from blame, and probably all unpleasant feelings might have been saved, if Tom's zeal had been properly directed. As it was, the waiter retired with his bell, vowing vengeance upon his assailant. "How came you here, Tom?" asked Bobby, when the excitement had subsided. "You don't get rid of me so easily," replied Tom, laughing. Bobby called to mind the old adage that "a bad penny is sure to return;" and, if it had not been a very uncivil remark, he would have said it. "I didn't expect to see you again at present," he observed, hardly knowing what to say or do. "I suppose not; but as I didn't mean you should expect me, I kept out of sight. Only for that darkey you wouldn't have found me out so soon. I like you, Bob, in spite of all you have done to get rid of me, and I wasn't a going to let the darkey thrash you." "You only made matters worse." "That is all the thanks I get for hitting him for you." "I am sorry you hit him; at the same time I suppose you meant to do me a service, and I thank you, not for the blow you struck the black boy, but for your good intentions." "That sounds better. I meant well, Bob." "I dare say you did. But how came you here?" "Why, you see, I was bound to go with you anyhow or at least to keep within hail of you. You told me, you know, that you were going in the steamboat; and after I left the shop, what should I see but a big picture of a steamboat on a wall. It said. 'Bath, Gardiner, and Hallowell,' on the bill; and I knew that was where you meant to go. So this afternoon I hunts round and finds the steamboat. I thought I never should have found it; but here I am." "What are you going to do?" "Going into the book business," replied Tom, with a smile. "Where are your books?" "Down stairs, in the cellar of the steamboat, or whatever you call it." "Where did you get them?" "Bought 'em, of course." "Did you? Where?" "Well, I don't remember the name of the street now. I could go right there if I was in the city, though." "Would they trust you?" Tom hesitated. The lies he had told that morning had done him no good--had rather injured his cause; and, though he had no principle that forbade lying, he questioned its policy in the present instance. "I paid part down, and they trusted me part." "How many books you got?" "Twenty dollars' worth. I paid eight dollars down." "You did? Where did you get the eight dollars?" Bobby remembered the money Tom's father had lost several weeks before, and immediately connected that circumstance with his present ability to pay so large a sum. Tom hesitated again, but he was never at a loss for an answer. "My mother gave it to me." "Your mother?" "Yes, _sir_!" replied Tom, boldly, and in that peculiarly bluff manner which is almost always good evidence that the boy is lying. "But you ran away from home." "That's so; but my mother knew I was coming." "Did she?" "To be sure she did." "You didn't say so before." "I can't tell all I know in a minute." "If I thought your mother consented to your coming, I wouldn't say another word." "Well, she did; you may bet your life on that." "And your mother gave you ten dollars?" "Who said she gave me _ten_ dollars?" asked Tom, a little sharply. That was just the sum his father had lost, and Bobby had unwittingly hinted his suspicion. "You must have had as much as that if you paid eight on your books. Your fare to Boston and your steamboat fare must be two dollars more." "I know that; but look here, Bob;" and Tom took from his pocket five half dollars and exhibited them to his companion. "She gave me thirteen dollars." Notwithstanding this argument, Bobby felt almost sure that the lost ten dollars was a part of his capital. "I will tell you my story now, Bob, if you like. You condemned me without a hearing, as Jim Guthrie said when they sent him to the House of Correction for getting drunk." "Go ahead." The substance of Tom's story was, that his father drank so hard, and was such a tyrant in the house, that he could endure it no longer. His father and mother did not agree, as any one might have suspected. His mother, encouraged by the success of Bobby, thought that Tom might do something of the kind, and she had provided him the money to buy his stock of books. Bobby had not much confidence in this story. He had been deceived once; besides, it was not consistent with his previous narrative, and he had not before hinted that he had obtained his mother's consent. But Tom was eloquent, and protested that he had reformed, and meant to do well. He declared, by all that was good and great, Bobby should never have reason to be ashamed of him. Our little merchant was troubled. He could not now get rid of Tom without actually quarrelling with him, or running away from him. He did not wish to do the former, and it was not an easy matter to do the latter. Besides, there was hope that the runaway would do well; and if he did, when he carried the profits of his trade home, his father would forgive him. One thing was certain; if he returned to Riverdale he would be what he had been before. For these reasons Bobby finally, but very reluctantly, consented that Tom should remain with him, resolving, however, that, if he did not behave himself, he would leave him at once. Before morning he had another reason. When the steamer got out into the open bay, Bobby was seasick. He retired to his berth with a dreadful headache; as he described it afterwards, it seemed just as though that great walking beam was smashing up and down right in the midst of his brains. He had never felt so ill before in his life, and was very sure, in his inexperience, that something worse than mere seasickness ailed him. He told Tom, who was not in the least affected, how he felt; whereupon the runaway blustered round, got the steward and the captain into the cabin, and was very sure that Bobby would die before morning, if we may judge by the fuss he made. The captain was angry at being called from the pilot house for nothing, and threatened to throw Tom overboard if he didn't stop his noise. The steward, however, was a kind-hearted man, and assured Bobby that passengers were often a great deal sicker than he was; but he promised to do something for his relief, and Tom went with him to his state room for the desired remedy. The potion was nothing more nor less than a table spoonful of brandy, which Bobby, who had conscientious scruples about drinking ardent spirits, at first refused to take. Then Tom argued the point, and the sick boy yielded. The dose made him sicker yet, and nature came to his relief, and in a little while he felt better. Tom behaved like a good nurse; he staid by his friend till he went to sleep, and then "turned in" upon a settee beneath his berth. The boat pitched and tumbled about so in the heavy sea that Bobby did not sleep long, and when he woke he found Tom ready to assist him. But our hero felt better, and entreated Tom to go to sleep again. He made the best of his unpleasant situation. Sleep was not to be wooed, and he tried to pass away the dreary hours in thinking of Riverdale and the dear ones there. His mother was asleep, and Annie was asleep; that was about all the excitement he could get up even on the home question. He could not build castles in the air, for seasickness and castle building do not agree. The gold and purple clouds would be black in spite of him, and the aerial structure he essayed to build would pitch and tumble about, for all the world, just like a steamboat in a heavy sea. As often as he got fairly into it, he was violently rolled out, and in a twinkling found himself in his narrow berth, awfully seasick. He went to sleep again at last, and the long night passed away. When he woke in the morning, he felt tolerably well, and was thankful that he had got out of that scrape. But before he could dress himself, he heard a terrible racket on deck. The steam whistle was shrieking, the bell was banging, and he heard the hoarse bellowing of the captain. It was certain that something had happened, or was about to happen. Then the boat stopped, rolling heavily in the sea. Tom was not there; he had gone on deck. Bobby was beginning to consider what a dreadful thing a wreck was, when Tom appeared. "What's the matter?" asked Bobby, with some appearance of alarm. "Fog," replied Tom. "It is so thick you can cut it with a hatchet." "Is that all?" "That's enough." "Where are we?" "That is just what the pilot would like to know. They can't see ahead a bit, and don't know where we are." Bobby went on deck. The ocean rolled beneath them, but there was nothing but fog to be seen above and around them. The lead was heaved every few moments, and the steamer crept slowly along till it was found the water shoaled rapidly, when the captain ordered the men to let go the anchor. There they were; the fog was as obstinate as a mule, and would not "lift." Hour after hour they waited, for the captain was a prudent man, and would not risk the life of those on board to save a few hours' time. After breakfast, the passengers began to display their uneasiness, and some of them called the captain very hard names, because he would not go on. Almost everybody grumbled, and made themselves miserable. "Nothing to do and nothing to read," growled a nicely-dressed gentleman, as he yawned and stretched himself to manifest his sensation of _ennui_. "Nothing to read, eh?" thought Bobby. "We will soon supply that want." Calling Tom, they went down to the main deck where the baggage had been placed. "Now's our time," said he, as he proceeded to unlock one of the trunks that contained his books. "Now or never." "I am with you," replied Tom, catching the idea. The books of the latter were in a box, and he was obliged to get a hammer to open it; but with Bobby's assistance he soon got at them. "Buy 'The Wayfarer,'" said Bobby, when he returned to the saloon, and placed a volume in the hands of the yawning gentleman. "Best book of the season; only one dollar." "That I will, and glad of the chance," replied the gentleman. "I would give five dollars for anything, if it were only the 'Comic Almanac.'" Others were of the same mind. There was no present prospect that the fog would lift, and before dinner time our merchant had sold fifty copies of "The Wayfarer." Tom, whose books were of an inferior description, and who was inexperienced as a salesman, disposed of twenty, which was more than half of his stock. The fog was a godsend to both of them, and they reaped a rich harvest from the occasion, for almost all the passengers seemed willing to spend their money freely for the means of occupying the heavy hours and driving away that dreadful _ennui_ which reigns supreme in a fog-bound steamer. About the middle of the afternoon, the fog blew over, and the boat proceeded on her voyage, and before sunset our young merchants were safely landed at Bath. CHAPTER XVII IN WHICH TOM HAS A GOOD TIME, AND BOBBY MEETS WITH A TERRIBLE MISFORTUNE Bath afforded our young merchants an excellent market for their wares, and they remained there the rest of the week. They then proceeded to Brunswick, where their success was equally flattering. Thus far Tom had done very well, though Bobby had frequent occasion to remind him of the pledges he had given to conduct himself in a proper manner. He would swear now and then, from the force of habit; but invariably, when Bobby checked him, he promised to do better. At Brunswick Tom sold the last of his books, and was in possession of about thirty dollars, twelve of which he owed the publisher who had furnished his stock. This money seemed to burn in his pocket. He had the means of having a good time, and it went hard with him to plod along as Bobby did, careful to save every penny he could. "Come, Bob, let's get a horse and chaise and have a ride--what do you say?" proposed Tom, on the day he finished selling his books. "I can't spare the time or the money," replied Bobby, decidedly. "What is the use of having money if we can't spend it? It is a first rate day, and we should have a good time." "I can't afford it. I have a great many books to sell." "About a hundred; you can sell them fast enough." "I don't spend my money foolishly." "It wouldn't be foolishly. I have sold out, and I am bound to have a little fun now." "You never will succeed if you do business in that way." "Why not?" "You will spend your money as fast as you get it." "Pooh! we can get a horse and chaise for the afternoon for two dollars. That is not much." "Considerable, I should say. But if you begin, there is no knowing where to leave off. I make it a rule not to spend a single cent foolishly, and if I don't begin, I shall never do it." "I don't mean to spend all I get; only a little now and then," persisted Tom. "Don't spend the first dollar for nonsense, and then you won't spend the second. Besides, when I have any money to spare, I mean to buy books with it for my library." "Humbug! Your library!" "Yes, my library; I mean to have a library one of these days." "I don't want any library, and I mean to spend some of my money in having a good time; and if you won't go with me, I shall go alone--that's all." "You can do as you please, of course; but I advise you to keep your money. You will want it to buy another stock of books." "I shall have enough for that. What do you say? will you go with me or not?" "No, I will not." "Enough said; then I shall go alone, or get some fellow to go with me." "Consider well before you go," pleaded Bobby, who had sense enough to see that Tom's proposed "good time" would put back, if not entirely prevent, the reform he was working out. He then proceeded to reason with him in a very earnest and feeling manner, telling him he would not only spend all his money, but completely unfit himself for business. What he proposed to do was nothing more nor less than extravagance, and it would lead him to dissipation and ruin. "To-day I am going to send one hundred dollars to Mr. Bayard," continued Bobby; "for I am afraid to have so much money with me. I advise you to send your money to your employer." "Humph! Catch me doing that! I am bound to have a good time, anyhow." "At least, send the money you owe him." "I'll bet I won't." "Well, do as you please; I have said all I have to say." "You are a fool, Bob!" exclaimed Tom, who had evidently used Bobby as much as he wished, and no longer cared to speak soft words to him. "Perhaps I am; but I know better than to spend my money upon fast horses. If you will go, I can't help it. I am sorry you are going astray." "What do you mean by that, you young monkey?" said Tom, angrily. This was Tom Spicer, the bully. It sounded like him; and with a feeling of sorrow Bobby resigned the hopes he had cherished of making a good boy of him. "We had better part now," added our hero, sadly. "I'm willing." "I shall leave Brunswick this afternoon for the towns up the river. I hope no harm will befall you. Good by, Tom." "Go it! I have heard your preaching about long enough, and I am more glad to get rid of you than you are to get rid of me." Bobby walked away towards the house where he had left the trunk containing his books, while Tom made his way towards a livery stable. The boys had been in the place for several days, and had made some acquaintances; so Tom had no difficulty in procuring a companion for his proposed ride. Our hero wrote a letter that afternoon to Mr. Bayard, in which he narrated all the particulars of his journey, his relations with Tom Spicer, and the success that had attended his labors. At the bank he procured a hundred dollar note for his small bills, and enclosed it in the letter. He felt sad about Tom. The runaway had done so well, had been so industrious, and shown such a tractable spirit, that he had been very much encouraged about him. But if he meant to be wild again,--for it was plain that the ride was only "the beginning of sorrows,"--it was well that they should part. By the afternoon stage our hero proceeded to Gardiner, passing through several smaller towns, which did not promise a very abundant harvest. His usual success attended him; for wherever he went, people seemed to be pleased with him, as Squire Lee had declared they would be. His pleasant, honest face was a capital recommendation, and his eloquence seldom failed to achieve the result which eloquence has ever achieved from Demosthenes down to the present day. Our limits do not permit us to follow him in all his peregrinations from town to town, and from house to house; so we pass over the next fortnight, at the end of which time we find him at Augusta. He had sold all his books but twenty, and had that day remitted eighty dollars more to Mr. Bayard. It was Wednesday, and he hoped to sell out so as to be able to take the next steamer for Boston, which was advertised to sail on the following day. He had heard nothing from Tom since their parting, and had given up all expectation of meeting him again; but that bad penny maxim proved true once more, for, as he was walking through one of the streets of Augusta, he had the misfortune to meet him--and this time it was indeed a misfortune. "Hallo, Bobby!" shouted the runaway, as familiarly as though nothing had happened to disturb the harmony of their relations. "Ah, Tom, I didn't expect to see you again," replied Bobby, not very much rejoiced to meet his late companion. "I suppose not; but here I am, as good as new. Have you sold out?" "No, not quite." "How many have you left?" "About twenty; but I thought, Tom, you would have returned to Boston before this time." "No;" and Tom did not seem to be in very good spirits. "Where are you going now?" "I don't know. I ought to have taken your advice, Bobby." This was a concession, and our hero began to feel some sympathy for his companion--as who does not when the erring confess their faults? "I am sorry you did not." "I got in with some pretty hard fellows down there to Brunswick," continued Tom, rather sheepishly. "And spent all your money," added Bobby, who could readily understand the reason why Tom had put on his humility again. "Not all." "How much have you left?" "Not much," replied he, evasively. "I don't know what I shall do. I am in a strange place, and have no friends." Bobby's sympathies were aroused, and without reflection, he promised to be a friend in his extremity. "I will stick by you this time, Bob, come what will. I will do just as you say, now." Our merchant was a little flattered by this unreserved display of confidence. He did not give weight enough to the fact that it was adversity alone which made Tom so humble. He was in trouble, and gave him all the guarantee he could ask for his future good behavior. He could not desert him now he was in difficulty. "You shall help me sell my books, and then we will return to Boston together. Have you money enough left to pay your employer?" Tom hesitated; something evidently hung heavily upon his mind. "I don't know how it will be after I have paid my expenses to Boston," he replied, averting his face. Bobby was perplexed by this evasive answer; but as Tom seemed so reluctant to go into details, he reserved his inquiries for a more convenient season. "Now, Tom, you take the houses on that side of the street, and I will take those upon this side. You shall have the profits on all you sell." "You are a first rate fellow, Bob; and I only wish I had done as you wanted me to do." "Can't be helped now, and we will do the next best thing," replied Bobby, as he left his companion to enter a house. Tom did very well, and by the middle of the afternoon they had sold all the books but four. "The Wayfarer" had been liberally advertised in that vicinity, and the work was in great demand. Bobby's heart grew lighter as the volumes disappeared from his valise, and already he had begun to picture the scene which would ensue upon his return to the little black house. How glad his mother would be to see him, and, he dared believe, how happy Annie would be as she listened to the account of his journey in the State of Maine! Wouldn't she be astonished when he told her about the steamboat, about the fog, and about the wild region at the mouth of the beautiful Kennebec! Poor Bobby! the brightest dream often ends in sadness; and a greater trial than any he had been called upon to endure was yet in store for him. As he walked along, thinking of Riverdale and its loved ones, Tom came out of a grocery store where he had just sold a book. "Here, Bob, is a ten dollar bill. I believe I have sold ten books for you," said Tom, after they had walked some distance. "You had better keep the money now; and while I think of it, you had better take what I have left of my former sales;" and Tom handed him another ten dollar bill. Bobby noticed that Tom seemed very much confused and embarrassed; but he did not observe that the two bills he had handed him were on the same bank. "Then you had ten dollars left after your frolic," he remarked, as he took the last bill. "About that;" and Tom glanced uneasily behind him. "What is the matter with you, Tom?" asked Bobby, who did not know what to make of his companion's embarrassment. "Nothing, Bob; let us walk a little faster. We had better turn up this street," continued Tom, as, with a quick pace, he took the direction indicated. Bobby began to fear that Tom had been doing something wrong; and the suspicion was confirmed by seeing two men running with all their might towards them. Tom perceived them at the same moment. "Run!" he shouted, and suiting the action to the word, he took to his heels, and fled up the street into which he had proposed to turn. Bobby did not run, but stopped short where he was till the men came up to him. "Grab him," said one of them, "and I will catch the other." The man collared Bobby, and in spite of all the resistance he could make, dragged him down the street to the grocery store in which Tom had sold his last book. "What do you mean by this?" asked Bobby, his blood boiling with indignation at the harsh treatment to which he had been subjected. "We have got you, my hearty," replied the man, releasing his hold. No sooner was the grasp of the man removed, than Bobby, who determined on this as on former occasions to stand upon his inalienable rights, bolted for the door, and ran away with all his speed. But his captor was too fleet for him, and he was immediately retaken. To make him sure this time, his arms were tied behind him, and he was secured to the counter of the shop. In a few moments the other man returned, dragging Tom in triumph after him. By this time quite a crowd had collected, which nearly filled the store. Bobby was confounded at the sudden change that had come over his fortunes; but seeing that resistance would be vain, he resolved to submit with the best grace he could. "I should like to know what all this means?" he inquired, indignantly. The crowd laughed in derision. "This is the chap that stole the wallet, I will be bound," said one, pointing to Tom, who stood in surly silence awaiting his fate. "He is the one who came into the store," replied the shopkeeper. "_I_ haven't stole any wallet," protested Bobby, who now understood the whole affair. The names of the two boys were taken, and warrants procured for their detention. They were searched, and upon Tom was found the lost wallet, and upon Bobby two ten dollar bills, which the loser was willing to swear had been in the wallet. The evidence therefore was conclusive, and they were both sent to jail. Poor Bobby! the inmate of a prison! The law took its course, and in due time both of them were sentenced to two years' imprisonment in the State Reform School. Bobby was innocent, but he could not make his innocence appear. He had been the companion of Tom, the real thief, and part of the money had been found upon his person. Tom was too mean to exonerate him, and even had the hardihood to exult over his misfortune. At the end of three days they reached the town in which the Reform School is located, and were duly committed for their long term. Poor Bobby! CHAPTER XVIII IN WHICH BOBBY TAKES FRENCH LEAVE, AND CAMPS IN THE WOODS The intelligence of Bobby's misfortune reached Mr. Bayard, in Boston, by means of the newspapers. To the country press an item is a matter of considerable importance, and the alleged offence against the peace and dignity of the State of Maine was duly heralded to the inquiring public as a "daring robbery." The reporter who furnished the facts in the case for publication was not entirely devoid of that essential qualification of the country item writer, a lively imagination, and was obliged to dress up the particulars a little, in order to produce the necessary amount of wonder and indignation. It was stated that one of the two young men had been prowling about the place for several days, ostensibly for the purpose of selling books, but really with the intention of stealing whatever he could lay his hands upon. It was suggested that the boys were in league with an organized band of robbers, whose nefarious purposes would be defeated by the timely arrest of these young villains. The paper hinted that further depredations would probably be discovered, and warned people to beware of ruffians strolling about the country in the guise of pedlers. The writer of this thrilling paragraph must have had reason to believe that he had discharged his whole duty to the public, and that our hero was duly branded as a desperate fellow. No doubt he believed Bobby was an awful monster; for at the conclusion of his remarks he introduced some severe strictures on the lenity of the magistrate, because he had made the sentence two years, instead of five, which the writer thought the atrocious crime deserved. But, then, the justice differed from him in politics, which may account for the severity of the article. Mr. Bayard read this precious paragraph with mingled grief and indignation. He understood the case at a glance. Tom Spicer had joined him, and the little merchant had been involved in his crime. He was sure that Bobby had had no part in stealing the money. One so noble and true as he had been could not steal, he reasoned. It was contrary to experience, contrary to common sense. He was very much disturbed. This intelligence would be a severe blow to the poor boy's mother, and he had not the courage to destroy all her bright hopes by writing her the terrible truth. He was confident that Bobby was innocent, and that his being in the company of Tom Spicer had brought the imputation upon him; so he could not let the matter take its course. He was determined to do something to procure his liberty and restore his reputation. Squire Lee was in the city that day, and had left his store only half an hour before he discovered the paragraph. He immediately sent to his hotel for him, and together they devised means to effect Bobby's liberation. The squire was even more confident than Mr. Bayard that our hero was innocent of the crime charged upon him. They agreed to proceed immediately to the State of Maine, and use their influence in obtaining his pardon. The bookseller was a man of influence in the community, and was as well known in Maine as in Massachusetts; but to make their application the surer, he procured letters of introduction from some of the most distinguished men in Boston to the governor and other official persons in Maine. We will leave them now to do the work they had so generously undertaken, and return to the Reform School, where Bobby and Tom were confined. The latter took the matter very coolly. He seemed to feel that he deserved his sentence, but he took a malicious delight in seeing Bobby the companion of his captivity. He even had the hardihood to remind him of the blow he had struck him more than two months before, telling him that he had vowed vengeance then, and now the time had come. He was satisfied. "You know I didn't steal the money, or have anything to do with it," said Bobby. "Some of it was found upon you, though," sneered Tom, maliciously. "You know how it came there, if no one else does." "Of course I do; but I like your company too well to get rid of you so easy." "The Lord is with the innocent," replied Bobby; "and something tells me that I shall not stay in this place a great while." "Going to run away?" asked Tom, with interest, and suddenly dropping his malicious look. "I know I am innocent of any crime; and I know that the Lord will not let me stay here a great while." "What do you mean to do, Bob?" Bobby made no reply; he felt that he had had more confidence in Tom than he deserved, and he determined to keep his own counsel in future. He had a purpose in view. His innocence gave him courage; and perhaps he did not feel that sense of necessity for submission to the laws of the land which age and experience give. He prayed earnestly for deliverance from the place in which he was confined. He felt that he did not deserve to be there; and though it was a very comfortable place, and the boys fared as well as he wished to fare, still it seemed to him like a prison. He was unjustly detained; and he not only prayed to be delivered, but he resolved to work out his own deliverance at the first opportunity. Knowing that whatever he had would be taken from him, he resolved by some means to keep possession of the twenty dollars he had about him. He had always kept his money in a secret place in his jacket to guard against accident, and the officers who had searched him had not discovered it. But now his clothes would be changed. He thought of these things before his arrival; so, when he reached the entrance, and got out of the wagon, to open the gate, by order of the officer, he slipped his twenty dollars into a hole in the wall. It so happened that there was not a suit of clothes in the store room of the institution which would fit him; and he was permitted to wear his own dress till another should be made. After his name and description had been entered, and the superintendent had read him a lecture upon his future duties, he was permitted to join the other boys, who were at work on the farm. He was sent with half a dozen others to pick up stones in a neighboring field. No officer was with them, and Bobby was struck with the apparent freedom of the institution, and he so expressed himself to his companions. "Not so much freedom as you think for," said one, in reply. "I should think the fellows would clear out." "Not so easy a matter. There is a standing reward of five dollars to any one who brings back a runaway." "They must catch him first." "No fellow ever got away yet. They always caught him before he got ten miles from the place." This was an important suggestion to Bobby, who already had a definite purpose in his mind. Like a skilful general, he had surveyed the ground on his arrival, and was at once prepared to execute his design. In his conversation with the boys, he obtained the history of several who had attempted to escape, and found that even those who got a fair start were taken on some public road. He perceived that they were not good generals, and he determined to profit by their mistake. A short distance from the institution was what appeared to be a very extensive wood. Beyond this, many miles distant, he could see the ocean glittering like a sheet of ice under the setting sun. He carefully observed the hills, and obtained the bearings of various prominent objects in the vicinity which would aid him in his flight. The boys gave him all the information in their power about the localities of the country. They seemed to feel that he was possessed of a superior spirit, and that he would not long remain among them; but, whatever they thought, they kept their own counsel. Bobby behaved well, and was so intelligent and prompt that he obtained the confidence of the superintendent, who began to employ him about the house, and in his own family. He was sent of errands in the neighborhood, and conducted himself so much to the satisfaction of his guardians that he was not required to work in the field after the second day of his residence on the farm. One afternoon he was told that his clothes were ready, and that he might put them on the next morning. This was a disagreeable announcement; for Bobby saw that, with the uniform of the institution upon his back, his chance of escape would be very slight. But about sunset, he was sent by the superintendent's lady to deliver a note at a house in the vicinity. "Now or never!" said Bobby to himself, after he had left the house. "Now's my time." As he passed the gate, he secured his money, and placed it in the secret receptacle of his jacket. After he had delivered the letter, he took the road and hastened off in the direction of the wood. His heart beat wildly at the prospect of once more meeting his mother, after nearly four weeks' absence. Annie Lee would welcome him; she would not believe that he was a thief. He had been four days an inmate of the Reform School, and nothing but the hope of soon attaining his liberty had kept his spirits from drooping. He had not for a moment despaired of getting away. He reached the entrance to the wood, and taking a cart path, began to penetrate its hidden depths. The night darkened upon him; he heard the owl screech his dismal note, and the whip-poor-will chant his cheery song. A certain sense of security now pervaded his mind, for the darkness concealed him from the world, and he had placed six good miles between him and the prison, as he considered it. He walked on, however, till he came to what seemed to be the end of the wood, and he hoped to reach the blue ocean he had seen in the distance before morning. Leaving the forest, he emerged into the open country. There was here and there a house before him; but the aspect of the country seemed strangely familiar to him. He could not understand it. He had never been in this part of the country before; yet there was a great house with two barns by the side of it, which he was positive he had seen before. He walked across the field a little farther, when, to his astonishment and dismay, he beheld the lofty turrets of the State Reform School. He had been walking in a circle, and had come out of the forest near the place where he had entered it. Bobby, as the reader has found out by this time, was a philosopher as well as a hero; and instead of despairing or wasting his precious time in vain regrets at his mistake, he laughed a little to himself at the blunder, and turned back into the woods again. "Now or never!" muttered he. "It will never do to give it up so." For an hour he walked on, with his eyes fixed on a great bright star in the sky. Then he found that the cart path crooked round, and he discovered where he had made his blunder. Leaving the road, he made his way in a straight line, still guided by the star, till he came to a large sheet of water. The sheet of water was an effectual barrier to his farther progress; indeed, he was so tired he did not feel able to walk any more. He deemed himself safe from immediate pursuit in this secluded place. He needed rest, and he foresaw that the next few days would be burdened with fatigue and hardship which he must be prepared to meet. Bobby was not nice about trifles, and his habits were such that he had no fear of taking cold. His comfortable bed in the little black house was preferable to the cold ground, even with the primeval forest for a chamber; but circumstances alter cases, and he did not waste any vain regrets about the necessity of his position. After finding a secluded spot in the wood, he raked the dry leaves together for a bed, and offering his simple but fervent prayer to the Great Guardian above, he lay down to rest. The owl screamed his dismal note, and the whip-poor-will still repeated his monotonous song; but they were good company in the solitude of the dark forest. He could not go to sleep for a time, so strange and exciting were the circumstances of his position. He thought of a thousand things, but he could not _think_ himself to sleep, as he was wont to do. At last nature, worn out by fatigue and anxiety, conquered the circumstances, and he slept. CHAPTER XIX IN WHICH BOBBY HAS A NARROW ESCAPE, AND GOES TO SEA WITH SAM RAY Nature was kind to the little pilgrim in his extremity, and kept his senses sealed in grateful slumber till the birds had sung their matin song, and the sun had risen high in the heavens. Bobby woke with a start, and sprang to his feet. For a moment he did not realize where he was, or remember the exciting incidents of the previous evening. He felt refreshed by his deep slumber, and came out of it as vigorous as though he had slept in his bed at home. Rubbing his eyes, he stared about him at the tall pines whose foliage canopied his bed, and his identity was soon restored to him. He was Bobby Bright--but Bobby Bright in trouble. He was not the little merchant, but the little fugitive fleeing from the prison to which he had been doomed. It did not take him long to make his toilet, which was the only advantage of his primitive style of lodging. His first object was to examine his position, and ascertain in what direction he should continue his flight. He could not go ahead, as he had intended, for the sheet of water was an impassable barrier. Leaving the dense forest, he came to a marsh, beyond which was the wide creek he had seen in the night. It was salt water, and he reasoned that it could not extend a great way inland. His only course was to follow it till he found means of crossing it. Following the direction of the creek he kept near the margin of the wood till he came to a public road. He had some doubts about trusting himself out of the forest, even for a single moment; so he seated himself upon a rock to argue the point. If any one should happen to come along, he was almost sure of furnishing a clew to his future movements, if not of being immediately captured. This was a very strong argument, but there was a stronger one upon the other side. He had eaten nothing since dinner on the preceding day, and he began to feel faint for the want of food. On the other side of the creek he saw a pasture which looked as though it might afford him a few berries; and he was on the point of taking to the road, when he heard the rumbling of a wagon in the distance. His heart beat with apprehension. Perhaps it was some officer of the institution in search of him. At any rate it was some one who had come from the vicinity of the Reform School, and who had probably heard of his escape. As it came nearer, he heard the jingling of bells; it was the baker. How he longed for a loaf of his bread, or some of the precious gingerbread he carried in his cart! Hunger tempted him to run the risk of exposure. He had money; he could buy cakes and bread; and perhaps the baker had a kind heart, and would befriend him in his distress. The wagon was close at hand. "Now or never," thought he; but this time it was not _now_. The risk was too great. If he failed now, two years of captivity were before him; and as for the hunger, he could grin and bear it for a while. "Now or never;" but this time it was escape now or never; and he permitted the baker to pass without hailing him. He waited half an hour, and then determined to take the road till he had crossed the creek. The danger was great, but the pangs of hunger urged him on. He was sure there were berries in the pasture, and with a timid step, carefully watching before and behind to insure himself against surprise, he crossed the bridge. But then a new difficulty presented itself. There was a house within ten rods of the bridge, which he must pass, and to do so would expose him to the most imminent peril. He was on the point of retreating, when a man came out of the house, and approached him. What should he do? It was a trying moment. If he ran, the act would expose him to suspicion. If he went forward, the man might have already received a description of him, and arrest him. He chose the latter course. The instinct of his being was to do everything in a straightforward manner, and this probably prompted his decision. "Good morning, sir," said he boldly to the man. "Good morning. Where are you travelling?" This was a hard question. He did not know where he was travelling; besides, even in his present difficult position, he could not readily resort to a lie. "Down here a piece," he replied. "Travelled far to-day?" "Not far. Good morning, sir;" and Bobby resumed his walk. "I say, boy, suppose you tell me where you are going;" and the man came close to him, and deliberately surveyed him from head to foot. "I can hardly tell you," replied Bobby, summoning courage for the occasion. "Well, I suppose not," added the man, with a meaning smile. Bobby felt his strength desert him as he realized that he was suspected of being a runaway from the Reform School. That smile on the man's face was the knell of hope; and for a moment he felt a flood of misery roll over his soul. But the natural elasticity of his spirits soon came to his relief, and he resolved not to give up the ship, even if he had to fight for it. "I am in a hurry, so I shall have to leave you." "Not just yet, young man. Perhaps, as you don't know where you are going, you may remember what your name is," continued the man, good naturedly. There was a temptation to give a false name; but as it was so strongly beaten into our hero that the truth is better than a falsehood, he held his peace. "Excuse me, sir, but I can't stop to talk now." "In a hurry? Well, I dare say you are. I suppose there is no doubt but you are Master Robert Bright." "Not the least, sir; I haven't denied it yet, and I am not ashamed of my name," replied Bobby, with a good deal of spirit. "That's honest; I like that." "'Honesty is the best policy,'" added Bobby. "That's cool for a rogue, anyhow. You ought to thought of that afore." "I did." "And stole the money?" "I didn't. I never stole a penny in my life." "Come, I like that." "It is the truth." "But they won't believe it over to the Reform School," laughed the man. "They will one of these days, perhaps." "You are a smart youngster; but I don't know as I can make five dollars any easier than by taking you back where you come from." "Yes, you can," replied Bobby, promptly. "Can I?" "Yes." "How?" "By letting me go." "Eh; you talk flush. I suppose you mean to give me your note, payable when the Kennebec dries up." "Cash on the nail," replied Bobby. "You look like a man with a heart in your bosom,"--Bobby stole this passage from "The Wayfarer." "I reckon I have. The time hasn't come yet when Sam Ray could see a fellow-creature in distress and not help him out. But to help a thief off----" "We will argue that matter," interposed Bobby. "I can prove to you beyond a doubt that I am innocent of the crime charged upon me." "You don't look like a bad boy, I must say." "But, Mr. Ray, I'm hungry; I haven't eaten a mouthful since yesterday noon." "Thunder! You don't say so!" exclaimed Sam Ray. "I never could bear to see a man hungry, much more a boy; so come along to my house and get something to eat, and we will talk about the other matter afterwards." Sam Ray took Bobby to the little old house in which he dwelt; and in a short time his wife, who expressed her sympathy for the little fugitive in the warmest terms, had placed an abundant repast upon the table. Our hero did ample justice to it, and when he had finished he felt like a new creature. "Now, Mr. Ray, let me tell you my story," said Bobby. "I don't know as it's any use. Now you have eat my bread and butter, I don't feel like being mean to you. If anybody else wants to carry you back, they may; I won't." "But you shall hear me;" and Bobby proceeded to deliver his "plain, unvarnished tale." When he had progressed but a little way in the narrative, the noise of an approaching vehicle was heard. Sam looked out of the window, as almost everybody does in the country when a carriage passes. "By thunder! It's the Reform School wagon!" exclaimed he. "This way, boy!" and the good-hearted man thrust him into his chamber, bidding him get under the bed. The carriage stopped at the house; but Sam evaded a direct reply, and the superintendent--for it was he--proceeded on his search. "Heaven bless you, Mr. Ray!" exclaimed Bobby, when he came out of the chamber, as the tears of gratitude coursed down his cheeks. "O, you will find Sam Ray all right," said he, warmly pressing Bobby's proffered hand. "I ain't quite a heathen, though some folks around here think so." "You are an angel!" "Not exactly," laughed Sam. Our hero finished his story, and confirmed it by exhibiting his account book and some other papers which he had retained. Sam Ray was satisfied, and vowed that if ever he saw Tom Spicer he would certainly "lick" him for his sake. "Now, sonny, I like you; I will be sworn you are a good fellow; and I mean to help you off. So just come along with me. I make my living by browsing round, hunting and fishing a little, and doing an odd job now and then. You see, I have got a good boat down the creek, and I shall just put you aboard and take you anywhere you have a mind to go." "May Heaven reward you!" cried Bobby, almost overcome by this sudden and unexpected kindness. "O, I don't want no reward; only when you get to be a great man--and I am dead sure you will be a great man--just think now and then of Sam Ray, and it's all right." "I shall remember you with gratitude as long as I live." Sam Ray took his gun on his shoulder, and Bobby the box of provisions which Mrs. Ray had put up, and they left the house. At the bridge they got into a little skiff, and Sam took the oars. After they had passed a bend in the creek which concealed them from the road, Bobby felt secure from further molestation. Sam pulled about two miles down the creek, where it widened into a broad bay, near the head of which was anchored a small schooner. "Now, my hearty, nothing short of Uncle Sam's whole navy can get you away from me," said Sam, as he pulled alongside the schooner. "You have been very kind to me." "All right, sonny. Now tumble aboard." Bobby jumped upon the deck of the little craft and Sam followed him, after making fast the skiff to the schooner's moorings. In a few minutes the little vessel was standing down the bay with "a fresh wind and a flowing sheet." Bobby, who had never been in a sail boat before, was delighted, and in no measured terms expressed his admiration of the working of the trim little craft. "Now, sonny, where shall we go?" asked Sam, as they emerged from the bay into the broad ocean. "I don't know," replied Bobby. "I want to get back to Boston." "Perhaps I can put you aboard of some coaster bound there." "That will do nicely." "I will head towards Boston, and if I don't overhaul anything, I will take you there myself." "Is this boat big enough to go so far?" "She'll stand anything short of a West India hurricane. You ain't afeard, are you?" "O, no; I like it." The big waves now tossed the little vessel up and down like a feather, and the huge seas broke upon the bow, deluging her deck with floods of water. Bobby had unlimited confidence in Sam Ray, and felt as much at home as though he had been "cradled upon the briny deep." There was an excitement in the scene which accorded with his nature, and the perils which he had so painfully pictured on the preceding night were all born into the most lively joys. They ate their dinners from the provision box; Sam lighted his pipe, and many a tale he told of adventure by sea and land. Bobby felt happy, and almost dreaded the idea of parting with his rough but good-hearted friend. They were now far out at sea, and the night was coming on. "Now, sonny, you had better turn in and take a snooze; you didn't rest much last night." "I am not sleepy; but there is one thing I will do;" and Bobby drew from his secret receptacle his roll of bills. "Put them up, sonny," said Sam. "I want to make you a present of ten dollars." "You can't do it." "Nay, but to please me." "No, sir!" "Well, then, let me send it to your good wife." "You can't do that, nuther," replied Sam, gazing earnestly at a lumber-laden schooner ahead of him. "You must; your good heart made you lose five dollars, and I insist upon making it up to you." "You can't do it." "I shall feel bad if you don't take it. You see I have twenty dollars here, and I would like to give you the whole of it." "Not a cent, sonny. I ain't a heathen. That schooner ahead is bound for Boston, I reckon." "I shall be sorry to part with you, Mr. Ray." "Just my sentiment. I hain't seen a youngster afore for many a day that I took a fancy to, and I hate to let you go." "We shall meet again." "I hope so." "Please to take this money." "No;" and Sam shook his head so resolutely that Bobby gave up the point. As Sam had conjectured, the lumber schooner was bound to Boston. Her captain readily agreed to take our hero on board, and he sadly bade adieu to his kind friend. "Good by, Mr. Ray," said Bobby, as the schooner filled away. "Take this to remember me by." It was his jackknife; but Sam did not discover the ten dollar bill, which was shut beneath the blade, till it was too late to return it. Bobby did not cease to wave his hat to Sam till his little craft disappeared in the darkness. CHAPTER XX IN WHICH THE CLOUDS BLOW OVER, AND BOBBY IS HIMSELF AGAIN Fortunately for Bobby, the wind began to blow very heavily soon after he went on board of the lumber schooner, so that the captain was too much engaged in working his vessel to ask many questions. He was short handed, and though our hero was not much of a sailor he made himself useful to the best of his ability. Though the wind was heavy, it was not fair; and it was not till the third morning after his parting with Sam Ray that the schooner arrived off Boston Light. The captain then informed him that, as the tide did not favor him, he might not get up to the city for twenty-four hours; and, if he was in a hurry, he would put him on board a pilot boat which he saw standing up the channel. "Thank you, captain; you are very kind, but it would give you a great deal of trouble," said Bobby. "None at all. We must wait here till the tide turns; so we have nothing better to do." "I should be very glad to get up this morning." "You shall, then;" and the captain ordered two men to get out the jolly boat. "I will pay my passage now, if you please." "That is paid." "Paid?" "I should say you had worked your passage. You have done very well, and I shall not charge you anything." "I expected to pay my passage, captain; but if you think I have done enough to pay it, why I have nothing to say, only that I am very much obliged to you." "You ought to be a sailor, young man; you were cut out for one." "I like the sea, though I never saw it till a few weeks since. But I suppose my mother would not let me go to sea." "I suppose not; mothers are always afraid of salt water." By this time the jolly boat was alongside; and bidding the captain adieu, he jumped into it, and the men pulled him to the pilot boat, which had come up into the wind at the captain's hail. Bobby was kindly received on board, and in a couple of hours landed at the wharf in Boston. With a beating heart he made his way up into Washington Street. He felt strangely; his cheeks seemed to tingle, for he was aware that the imputation of dishonesty was fastened upon him. He could not doubt but that the story of his alleged crime had reached the city, and perhaps gone to his friends in Riverdale. How his poor mother must have wept to think her son was a thief! No; she never could have thought that. _She_ knew he would not steal, if no one else did. And Annie Lee--would she ever smile upon him again? Would she welcome him to her father's house so gladly as she had done in the past? He could bring nothing to establish his innocence but his previous character. Would not Mr. Bayard frown upon him? Would not even Ellen be tempted to forget the service he had rendered her? Bobby had thought of all these things before--on his cold, damp bed in the forest, in the watches of the tempestuous night on board the schooner. But now, when he was almost in the presence of those he loved and respected, they had more force, and they nearly overwhelmed him. "I am innocent," he repeated to himself, "and why need I fear? My good Father in heaven will not let me be wronged." Yet he could not overcome his anxiety; and when he reached the store of Mr. Bayard, he passed by, dreading to face the friend who had been so kind to him. He could not bear even to be suspected of a crime by him. "Now or never," said he, as he turned round. "I will know my fate at once, and then make the best of it." Mustering all his courage, he entered the store. Mr. Timmins was not there; so he was spared the infliction of any ill-natured remark from him. "Hallo, Bobby!" exclaimed the gentlemanly salesman, whose acquaintance he had made on his first visit. "Good morning, Mr. Bigelow," replied Bobby with as much boldness as he could command. "I didn't know as I should ever see you again. You have been gone a long while." "Longer than usual," answered Bobby, with a blush; for he considered the remark of the salesman as an allusion to his imprisonment. "Is Mr. Bayard in?" "He is--in his office." Bobby's feet would hardly obey the mandate of his will, and with a faltering step he entered the private room of the bookseller. Mr. Bayard was absorbed in the perusal of the morning paper, and did not observe his entrance. With his heart up in his throat, and almost choking him, he stood for several minutes upon the threshold. He almost feared to speak, dreading the severe frown with which he expected to be received. Suspense, however, was more painful than condemnation, and he brought his resolution up to the point. "Mr. Bayard," said he, in faltering tones. "Bobby!" exclaimed the bookseller, dropping his paper upon the floor, and jumping upon his feet as though an electric current had passed through his frame. Grasping our hero's hand, he shook it with so much energy that, under any other circumstances, Bobby would have thought it hurt him. He did not think so now. "My poor Bobby! I am delighted to see you!" continued Mr. Bayard. Bobby burst into tears, and sobbed like a child, as he was. The unexpected kindness of this reception completely overwhelmed him. "Don't cry, Bobby; I know all about it;" and the tender-hearted bookseller wiped away his tears. "It was a stroke of misfortune; but it is all right now." But Bobby could not help crying, and the more Mr. Bayard attempted to console him, the more he wept. "I am innocent, Mr. Bayard," he sobbed. "I know you are, Bobby; and all the world knows you are." "I am ruined now; I shall never dare to hold my head up again." "Nonsense, Bobby; you will hold your head the higher. You have behaved like a hero." "I ran away from the State Reform School, sir. I was innocent, and I would rather have died than stayed there." "I know all about it, my young friend. Now dry your tears, and we will talk it all over." Bobby blew and sputtered a little more; but finally he composed himself, and took a chair by Mr. Bayard's side. The bookseller then drew from his pocket a ponderous document, with a big official seal upon it, and exhibited it to our hero. "Do you see this, Bobby? It is your free and unconditional pardon." "Sir! Why----" "It will all end well, you may depend." Bobby was amazed. His pardon? But it would not restore his former good name. He felt that he was branded as a felon. It was not mercy, but justice, that he wanted. "Truth is mighty, and will prevail," continued Mr. Bayard; "and this document restores your reputation." "I can hardly believe that." "Can't you? Hear my story then. When I read in one of the Maine papers the account of your misfortune, I felt that you had been grossly wronged. You were coupled with that Tom Spicer, who is the most consummate little villain I ever saw, and I understood your situation. Ah, Bobby, your only mistake was in having anything to do with that fellow." "I left him at Brunswick because he began to behave badly; but he joined me again at Augusta. He had spent nearly all his money, and did not know what to do. I pitied him, and meant to do something to help him out of the scrape." "Generous as ever! I have heard all about this before." "Indeed; who told you?" "Tom Spicer himself." "Tom?" asked Bobby, completely mystified. "Yes, Tom; you see, when I heard about your trouble, Squire Lee and myself----" "Squire Lee? Does he know about it?" "He does; and you may depend upon it, he thinks more highly of you than ever before. He and I immediately went down to Augusta to inquire into the matter. We called upon the governor of the state, who said that he had seen you, and bought a book of you." "Of me!" exclaimed Bobby, startled to think he had sold a book to a governor. "Yes; you called at his house; probably you did not know that he was the chief magistrate of the state. At any rate, he was very much pleased with you, and sorry to hear of your misfortune. Well, we followed your route to Brunswick, where we ascertained how Tom had conducted. In a week he established a very bad reputation there; but nothing could be found to implicate you. The squire testified to your uniform good behavior, and especially to your devotion to your mother. In short, we procured your pardon, and hastened with it to the State Reform School. "On our arrival, we learned, to our surprise and regret, that you had escaped from the institution on the preceding evening. Every effort was made to retake you, but without success. Ah, Bobby, you managed that well." "They didn't look in the right place," replied Bobby, with a smile, for he began to feel happy again. "By the permission of the superintendent, Squire Lee and myself examined Tom Spicer. He is a great rascal. Perhaps he thought we would get him out; so he made a clean breast of it, and confessed that you had no hand in the robbery, and that you knew nothing about it. He gave you the two bills on purpose to implicate you in the crime. We wrote down his statement, and had it sworn to before a justice of the peace. You shall read it by and by." "May Heaven reward you for your kindness to a poor boy!" exclaimed Bobby, the tears flowing down his cheeks again. "I did not deserve so much from you, Mr. Bayard." "Yes, you did, and a thousand times more. I was very sorry you had left the institution, and I waited in the vicinity till they said there was no probability that you would be captured. The most extraordinary efforts were used to find you; but there was not a person to be found who had seen or heard of you. I was very much alarmed about you, and offered a hundred dollars for any information concerning you." "I am sorry you had so much trouble. I wish I had known you were there." "How did you get off?" Bobby briefly related the story of his escape, and Mr. Bayard pronounced his skill worthy of his genius. "Sam Ray is a good fellow; we will remember him," added the bookseller, when he had finished. "I shall remember him; and only that I shall be afraid to go into the State of Maine after what has happened, I should pay him a visit one of these days." "There you are wrong. Those who know your story would sooner think of giving you a public reception, than of saying or doing anything to injure your feelings. Those who have suffered unjustly are always lionized." "But no one will know my story, only that I was sent to prison for stealing." "There you are mistaken again. We put articles in all the principal papers, stating the facts in the case, and establishing your innocence beyond a peradventure. Go to Augusta now, Bobby, and you will be a lion." "I am sure I had no idea of getting out of the scrape so easily as this." "Innocence shall triumph, my young friend." "What does mother say?" asked Bobby, his countenance growing sad. "I do not know. We returned from Maine only yesterday; but Squire Lee will satisfy her. All that can worry her, as it has worried me, will be her fears for your safety when she hears of your escape." "I will soon set her mind at ease upon that point. I will take the noon train home." "A word about business before you go. I discharged Timmins about a week ago, and I have kept his place for you." "By gracious!" exclaimed Bobby, thrown completely out of his propriety by this announcement. "I think you will do better, in the long run, than you would to travel about the country. I was talking with Ellen about it, and she says it shall be so. Timmins's salary was five hundred dollars a year, and you shall have the same." "Five hundred dollars a year!" ejaculated Bobby, amazed at the vastness of the sum. "Very well for a boy of thirteen, Bobby." "I was fourteen last Sunday, sir." "I would not give any other boy so much; but you are worth it, and you shall have it." Probably Mr. Bayard's gratitude had something to do with this munificent offer; but he knew that our hero possessed abilities and energy far beyond his years. He further informed Bobby that he should have a room at his house, and that Ellen was delighted with the arrangement he proposed. The gloomy, threatening clouds were all rolled back, and floods of sunshine streamed in upon the soul of the little merchant; but in the midst of his rejoicing he remembered that his own integrity had carried him safely through the night of sorrow and doubt. He had been true to himself, and now, in the hour of his great triumph, he realized that, if he had been faithless to the light within him, his laurel would have been a crown of thorns. He was happy--very happy. What made him so? Not his dawning prosperity; not the favor of Mr. Bayard; not the handsome salary he was to receive; for all these things would have been but dross if he had sacrificed his integrity, his love of truth and uprightness. He had been true to himself, and unseen angels had held him up. He had been faithful, and the consciousness of his fidelity to principle made a heaven within his heart. It was arranged that he should enter upon the duties of his new situation on the following week. After settling with Mr. Bayard, he found he had nearly seventy dollars in his possession; so that in a pecuniary point of view, if in no other, his eastern excursion was perfectly satisfactory. By the noon train he departed for Riverdale, and in two hours more he was folded to his mother's heart. Mrs. Bright wept for joy now, as she had before wept in misery when she heard of her son's misfortune. It took him all the afternoon to tell his exciting story to her, and she was almost beside herself when Bobby told her about his new situation. After tea he hastened over to Squire Lee's; and my young readers can imagine what a warm reception he had from father and daughter. For the third time that day he narrated his adventures in the east; and Annie declared they were better than any novel she had ever read. Perhaps it was because Bobby was the hero. It was nearly ten o'clock before he finished his story; and when he left, the squire made him promise to come over the next day. CHAPTER XXI IN WHICH BOBBY STEPS OFF THE STAGE, AND THE AUTHOR MUST FINISH "NOW OR NEVER" The few days which Bobby remained at home before entering upon the duties of his new situation were agreeably filled up in calling upon his many friends, and in visiting those pleasant spots in the woods and by the river, which years of association had rendered dear to him. His plans for the future, too, occupied some of his time, though, inasmuch as his path of duty was already marked out, these plans were but little more than a series of fond imaginings; in short, little more than day dreams. I have before hinted that Bobby was addicted to castle building, and I should pity the man or boy who was not--who had no bright dream of future achievements, of future usefulness. "As a man thinketh, so is he," the Psalmist tells us, and it was the pen of inspiration which wrote it. What a man pictures as his ideal of that which is desirable in this world and the world to come, he will endeavor to attain. Even if it be no higher aim than the possession of wealth or fame, it is good and worthy as far as it goes. It fires his brain, it nerves his arm. It stimulates him to action, and action is the soul of progress. We must all work; and this world were cold and dull if it had no bright dreams to be realized. What Napoleon dreamed, he labored to accomplish, and the monarchs of Europe trembled before him. What Howard wished to be, he labored to be; his ideal was beautiful and true, and he raised a throne which will endure through eternity. Bobby dreamed great things. That bright picture of the little black house transformed into a white cottage, with green blinds, and surrounded by a pretty fence, was the nearest object; and before Mrs. Bright was aware that he was in earnest, the carpenters and the painters were upon the spot. "Now or never," replied Bobby to his mother's remonstrance. "This is your home, and it shall be the pleasantest spot upon earth, if I can make it so." Then he had to dream about his business in Boston and I am not sure but that he fancied himself a rich merchant, like Mr. Bayard, living in an elegant house in Chestnut Street, and having clerks and porters to do as he bade them. A great many young men dream such things, and though they seem a little silly when spoken out loud, they are what wood and water are to the steam engine--they are the mainspring of action. Some are stupid enough to dream about these things, and spend their time in idleness and dissipation, waiting for "the good time coming." It will never come to them. They are more likely to die in the almshouse or the state prison, than to ride in their carriages; for constant exertion is the price of success. Bobby enjoyed himself to the utmost of his capacity during these few days of respite from labor. He spent a liberal share of his time at Squire Lee's, where he was almost as much at home as in his mother's house. Annie read Moore's Poems to him, till he began to have quite a taste for poetry himself. In connection with Tom Spicer's continued absence, which had to be explained, Bobby's trials in the eastern country leaked out, and the consequence was, that he became a lion in Riverdale. The minister invited him to tea, as well as other prominent persons, for the sake of hearing his story; but Bobby declined the polite invitations from sheer bashfulness. He had not brass enough to make himself a hero; besides, the remembrance of his journey was anything but pleasant to him. On Monday morning he took the early train for Boston, and assumed the duties of his situation in Mr. Bayard's store. But as I have carried my hero through the eventful period of his life, I cannot dwell upon his subsequent career. He applied himself with all the energy of his nature to the discharge of his duties. Early in the morning and late in the evening he was at his post. Mr. Bigelow was his friend from the first, and gave him all the instruction he required. His intelligence and quick perception soon enabled him to master the details of the business, and by the time he was fifteen, he was competent to perform any service required of him. By the advice of Mr. Bayard, he attended an evening school for six months in the year, to acquire a knowledge of book keeping, and to compensate for the opportunities of which he had been necessarily deprived in his earlier youth. He took Dr. Franklin for his model, and used all his spare time in reading good books, and in obtaining such information and such mental culture as would fit him to be, not only a good merchant, but a good and true man. Every Saturday night he went home to Riverdale to spend the Sabbath with his mother. The little black house no longer existed, for it had become the little paradise of which he had dreamed, only that the house seemed whiter, the blinds greener, and the fence more attractive than his fancy had pictured them. His mother, after a couple of years, at Bobby's earnest pleadings, ceased to close shoes and take in washing; but she had enough and to spare, for her son's salary was now six hundred dollars. His kind employer boarded him for nothing (much against Bobby's will, I must say), so that every month he carried to his mother thirty dollars, which more than paid her expenses. * * * * * Eight years have passed by since Bobby--we beg his pardon, he is now Mr. Robert Bright--entered the store of Mr. Bayard. He has passed from the boy to the man. Over the street door a new sign has taken the place of the old one, and the passer-by reads,-- BAYARD & BRIGHT, BOOKSELLERS AND PUBLISHERS. The senior partner resorts to his counting room every morning from the force of habit; but he takes no active part in the business. Mr. Bright has frequent occasion to ask his advice, though everything is directly managed by him; and the junior is accounted one of the ablest, but at the same time one of the most honest, business men in the city. His integrity has never been sacrificed, even to the emergencies of trade. The man is what the boy was; and we can best sum up the results of his life by saying that he has been true to himself, true to his friends, and true to his God. Mrs. Bright is still living at the little white cottage, happy in herself and happy in her children. Bobby--we mean Mr. Bright--has hardly missed going to Riverdale on a Saturday night since he left home, eight years before. He has the same partiality for those famous apple pies, and his mother would as soon think of being without bread as being without apple pies when he comes home. Of course Squire Lee and Annie were always glad to see him when he came to Riverdale; and for two years it had been common talk in Riverdale that our hero did not go home on Sunday evening when the clock struck nine. But as this is a forbidden topic, we will ask the reader to go with us to Mr. Bayard's house in Chestnut Street. What! Annie Lee here? No; but as you are here, allow me to introduce Mrs. Robert Bright. They were married a few months before, and Mr. Bayard insisted that the happy couple should make their home at his house. But where is Ellen Bayard? O, she is Mrs. Bigelow now, and her husband is at the head of a large book establishment in New York. Bobby's dream had been realized, and he was the happiest man in the world--at least he thought so, which is just the same thing. He had been successful in business; his wife--the friend and companion of his youth, the brightest filament of the bright vision his fancy had woven--had been won, and the future glowed with brilliant promises. He had been successful; but neither nor all of the things we have mentioned constituted his highest and truest success--not his business prosperity, not the bright promise of wealth in store for him, not his good name among men, not even the beautiful and loving wife who had cast her lot with his to the end of time. These were successes, great and worthy, but not the highest success. He had made himself a man,--this was his real success,--a true, a Christian man. He had lived a noble life. He had reared the lofty structure of his manhood upon a solid foundation--principle. It is the rock which the winds of temptation and the rains of selfishness cannot move. Robert Bright is happy because he is good. Tom Spicer, now in the state prison, is unhappy,--not _because_ he is in the state prison, but because the evil passions of his nature are at war with the peace of his soul. He has fed the good that was within him upon straw and husks, and starved it out. He is a body only; the soul is dead in trespasses and sin. He loves no one, and no one loves him. During the past summer, Mr. Bright and his lady took a journey "down east." Annie insisted upon visiting the State Reform School; and her husband drove through the forest by which he had made his escape on that eventful night. Afterwards they called upon Sam Ray, who had been "dead sure that Bobby would one day be a great man." He was about the same person, and was astonished and delighted when our hero introduced himself. They spent a couple of hours in talking over the past, and at his departure, Mr. Bright made him a handsome present in such a delicate manner that he could not help accepting it. Squire Lee is still as hale and hearty as ever, and is never so happy as when Annie and her husband come to Riverdale to spend the Sabbath. He is fully of the opinion that Mr. Bright is the greatest man on the western continent, and he would not be in the least surprised if he should be elected President of the United States one of these days. The little merchant is a great merchant now. But more than this, he is a good man. He has formed his character, and he will probably die as he has lived. Reader, if you have any good work to do, do it now; for with you it may be "NOW OR NEVER." 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The Blue Fairy Book The Red Fairy Book The Green Fairy Book The Yellow Fairy Book THE MERSHON COMPANY 156 Fifth Ave., New York Rahway, N. J. "Masterpieces of the World's Literature" THE PREMIUM LIBRARY Is extensively used by schools and colleges for supplementary reading. It is issued in attractive 16mo shape, paper covers, printed from clear, readable type, on good paper. Many of the volumes are illustrated. They are published at the low price of _TEN CENTS_ each, or 12 books for one dollar. Postage paid. Special prices quoted to schools for larger quantities. 1. Abbé Constantin. Ludovic Halévy. 2. �sop's Fables. 3. Black Beauty. Anna Sewell. 4. Bracebridge Hall. Irving. 5. Childe Harold's Pilgrimage. Byron. 6. Coming Race. Bulwer. 7. Cranford. Mrs. Gaskell. 8. Crown of Wild Olive. Ruskin. 9. Discourses of Epictetus. 10. Dreams. Olive Schreiner. 11. Dream Life. Ik Marvel. 12. Drummond's Addresses. 13. Emerson's Earlier Essays. 14. Ethics of the Dust. Ruskin. 15. Frankenstein. 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13997	----	Proofreading Team REAL FOLKS by MRS. A. D. T. WHITNEY 1893 CONTENTS I. THIS WAY, AND THAT II. LUCLARION III. BY STORY-RAIL: TWENTY-SIX YEARS AN HOUR IV. AFTERWARDS IS A LONG TIME V. HOW THE NEWS CAME TO HOMESWORTH VI. AND VII. WAKING UP VIII. EAVESDROPPING IN ASPEN STREET IX. HAZEL'S INSPIRATION X. COCKLES AND CRAMBO XI. MORE WITCH-WORK XII. CRUMBS XIII. PIECES OF WORLDS XIV. "SESAME; AND LILIES" XV. WITH ALL ONE'S MIGHT XVI. SWARMING XVII. QUESTIONS AND ANSWERS XVIII. ALL AT ONCE XIX. INSIDE XX. NEIGHBORS AND NEXT OF KIN XXI. THE HORSESHOE XXII. MORNING GLORIES I. THIS WAY, AND THAT. The parlor blinds were shut, and all the windows of the third-story rooms were shaded; but the pantry window, looking out on a long low shed, such as city houses have to keep their wood in and to dry their clothes upon, was open; and out at this window had come two little girls, with quiet steps and hushed voices, and carried their books and crickets to the very further end, establishing themselves there, where the shade of a tall, round fir tree, planted at the foot of the yard below, fell across the building of a morning. "It was prettier down on the bricks," Luclarion had told them. But they thought otherwise. "Luclarion doesn't know," said Frank. "People _don't_ know things, I think. I wonder why, when they've got old, and ought to? It's like the sea-shore here, I guess, only the stones are all stuck down, and you mustn't pick up the loose ones either." Frank touched lightly, as she spoke, the white and black and gray bits of gravel that covered the flat roof. "And it smells--like the pine forests!" The sun was hot and bright upon the fir branches and along the tar-cemented roof. "How do you know about sea-shores and pine forests?" asked Laura, with crushing common sense. "I don't know; but I do," said Frank. "You don't know anything but stories and pictures and one tree, and a little gravel, all stuck down tight." "I'm glad I've got one tree. And the rest of it,--why listen! It's in the _word_, Laura. _Forest_. Doesn't that sound like thousands of them, all fresh and rustling? And Ellen went to the sea-shore, in that book; and picked up pebbles; and the sea came up to her feet, just as the air comes up here, and you can't get any farther,"--said Frank, walking to the very edge and putting one foot out over, while the wind blew in her face up the long opening between rows of brick houses of which theirs was in the midst upon one side. "A great sea!" exclaimed Laura, contemptuously. "With all those other wood-sheds right out in it, all the way down!" "Well, there's another side to the sea; and capes, and islands," answered Frank, turning back. "Besides, I don't pretend it _is_; I only think it seems a little bit like it. I'm often put in mind of things. I don't know why." "I'll tell you what it is like," said Laura. "It's like the gallery at church, where the singers stand up in a row, and look down, and all the people look up at them. I like high places. I like Cecilia, in the 'Bracelets,' sitting at the top, behind, when her name was called out for the prize; and 'they all made way, and she was on the floor in an instant.' I should like to have been Cecilia!" "Leonora was a great deal the best." "I know it; but she don't _stand out_." "Laura! You're just like the Pharisees! You're always wishing for long clothes and high seats!" "There ain't any Pharisees, nowadays," said Laura, securely. After which, of course, there was nothing more to be insisted. Mrs. Lake, the housekeeper, came to the middle upper window, and moved the blind a little. Frank and Laura were behind the fir. They saw her through the branches. She, through the farther thickness of the tree, did not notice them. "That was good," said Laura. "She would have beckoned us in. I hate that forefinger of hers; it's always hushing or beckoning. It's only two inches long. What makes us have to mind it so?" "She puts it all into those two inches," answered Frank. "All the _must_ there is in the house. And then you've got to." "I wouldn't--if father wasn't sick." "Laura," said Frank, gravely, "I don't believe father is going to get well. What do you suppose they're letting us stay at home from school for?" "O, that," said Laura, "was because Mrs. Lake didn't have time to sew the sleeves into your brown dress." "I could have worn my gingham, Laura. What if he should die pretty soon? I heard her tell Luclarion that there must be a change before long. They talk in little bits, Laura, and they say it solemn." The children were silent for a few minutes. Frank sat looking through the fir-tree at the far-off flecks of blue. Mr. Shiere had been ill a long time. They could hardly think, now, what it would seem again not to have a sick father; and they had had no mother for several years,--many out of their short remembrance of life. Mrs. Lake had kept the house, and mended their clothes, and held up her forefinger at them. Even when Mr. Shiere was well, he had been a reserved man, much absorbed in business since his wife's death, he had been a very sad man. He loved his children, but he was very little with them. Frank and Laura could not feel the shock and loss that children feel when death comes and robs them suddenly of a close companionship. "What do you suppose would happen then?" asked Laura, after awhile. "We shouldn't be anybody's children." "Yes, we should," said Frank; "we should be God's.' "Everybody else is that,--_besides_," said Laura. "We shall have black silk pantalets again, I suppose,"--she began, afresh, looking down at her white ones with double crimped ruffles,--"and Mrs. Gibbs will come in and help, and we shall have to pipe and overcast." "O, Laura, how nice it was ever so long ago!" cried Frank, suddenly, never heeding the pantalets, "when mother sent us out to ask company to tea,--that pleasant Saturday, you know,--and made lace pelerines for our dolls while we were gone! It's horrid, when other girls have mothers, only to have a _housekeeper_! And pretty soon we sha'n't have anything, only a little corner, away back, that we can't hardly recollect." "They'll do something with us; they always do," said Laura, composedly. The children of this world, even _as_ children, are wisest in their generation. Frank believed they would be God's children; she could not see exactly what was to come of that, though, practically. Laura knew that people always did something; something would be sure to be done with them. She was not frightened; she was even a little curious. A head came up at the corner of the shed behind them, a pair of shoulders,--high, square, turned forward; a pair of arms, long thence to the elbows, as they say women's are who might be good nurses of children; the hands held on to the sides of the steep steps that led up from the bricked yard. The young woman's face was thin and strong; two great, clear, hazel eyes looked straight out, like arrow shots; it was a clear, undeviating glance; it never wandered, or searched, or wavered, any more than a sunbeam; it struck full upon whatever was there; it struck _through_ many things that were transparent to their quality. She had square, white, strong teeth, that set together like the faces of a die; they showed easily when she spoke, but the lips closed over them absolutely and firmly. Yet they were pleasant lips, and had a smile in them that never went quite out; it lay in all the muscles of the mouth and chin; it lay behind, in the living spirit that had moulded to itself the muscles. This was Luclarion. "Your Aunt Oldways and Mrs. Oferr have come. Hurry in!" Now Mrs. Oldways was only an uncle's wife; Mrs. Oferr was their father's sister. But Mrs. Oferr was a rich woman who lived in New York, and who came on grand and potent, with a scarf or a pair of shoe-bows for each of the children in her big trunk, and a hundred and one suggestions for their ordering and behavior at her tongue's end, once a year. Mrs. Oldways lived up in the country, and was "aunt" to half the neighborhood at home, and turned into an aunt instantly, wherever she went and found children. If there were no children, perhaps older folks did not call her by the name, but they felt the special human kinship that is of no-blood or law, but is next to motherhood in the spirit. Mrs. Oferr found the open pantry window, before the children had got in. "Out there!" she exclaimed, "in the eyes of all the neighbors in the circumstances of the family! Who does, or _don't_ look after you?" "Hearts'-sake!" came up the pleasant tones of Mrs. Oldways from behind, "how can they help it? There isn't any other out-doors. If they were down at Homesworth now, there'd be the lilac garden and the old chestnuts, and the seat under the wall. Poor little souls!" she added, pitifully, as she lifted them in, and kissed them. "It's well they can take any comfort. Let 'em have all there is." Mrs. Oferr drew the blinds, and closed the window. Frank and Laura remembered the strangeness of that day all their lives. How they sat, shy and silent, while Luclarion brought in cake and wine; how Mrs. Oferr sat in the large morocco easy-chair and took some; and Mrs. Oldways lifted Laura, great girl as she was, into her lap first, and broke a slice for her; how Mrs. Oldways went up-stairs to Mrs. Lake, and then down into the kitchen to do something that was needed; and Mrs. Oferr, after she had visited her brother, lay down in the spare chamber for a nap, tired with her long journey from New York, though it had been by boat and cars, while there was a long staging from Homesworth down to Nashua, on Mrs. Oldways' route. Mrs. Oldways, however, was "used," she said, "to stepping round." It was the sitting that had tired her. How they were told not to go out any more, or to run up and down-stairs; and how they sat in the front windows, looking out through the green slats at so much of the street world as they could see in strips; how they obtained surreptitious bits of bread from dinner, and opened a bit of the sash, and shoved out crumbs under the blinds for the pigeons that flew down upon the sidewalk; how they wondered what kind of a day it was in other houses, where there were not circumstances in the family, where children played, and fathers were not ill, but came and went to and from their stores; and where two aunts had not come, both at once, from great ways off, to wait for something strange and awful that was likely to befall. When they were taken in, at bedtime, to kiss their father and say good-night, there was something portentous in the stillness there; in the look of the sick man, raised high against the pillows, and turning his eyes wistfully toward them, with no slightest movement of the head; in the waiting aspect of all things,--the appearance as of everybody being to sit up all night except themselves. Edward Shiere brought his children close to him with the magnetism of that look; they bent down to receive his kiss and his good-night, so long and solemn. He had not been in the way of talking to them about religion in his life. He had only insisted on their truth and obedience; that was the beginning of all religion. Now it was given him in the hour of his death what he should speak; and because he had never said many such words to them before, they fell like the very touch of the Holy Ghost upon their young spirits now,-- "Love God, and keep His commandments. Good-by." In the morning, when they woke, Mrs. Lake was in their room, talking in a low voice with Mrs. Oferr, who stood by an open bureau. They heard Luclarion dusting down the stairs. Who was taking care of their father? They did not ask. In the night, he had been taken care of. It was morning with him, now, also. Mrs. Lake and Mrs. Oferr were calculating,--about black pantalets, and other things. This story is not with the details of their early orphan life. When Edward Shiere was buried came family consultations. The two aunts were the nearest friends. Nobody thought of Mr. Titus Oldways. He never was counted. He was Mrs. Shiere's uncle,--Aunt Oldways' uncle-in-law, therefore, and grand-uncle to these children. But Titus Oldways never took up any family responsibilities; he had been shy of them all his single, solitary life. He seemed to think he could not drop them as he could other things, if he did not find them satisfactory. Besides, what would he know about two young girls? He saw the death in the paper, and came to the funeral; then he went away again to his house in Greenley Street at the far West End, and to his stiff old housekeeper, Mrs. Froke, who knew his stiff old ways. And, turning his back on everybody, everybody forgot all about him. Except as now and then, at intervals of years, there broke out here or there, at some distant point in some family crisis, a sudden recollection from which would spring a half suggestion, "Why, there's Uncle Titus! If he was only,"--or, "if he would only,"--and there it ended. Much as it might be with a housewife, who says of some stored-away possession forty times, perhaps, before it ever turns out available, "Why, there's that old gray taffety! If it were only green, now!" or, "If there were three or four yards more of it!" Uncle Titus was just Uncle Titus, neither more nor less; so Mrs. Oferr and Aunt Oldways consulted about their own measures and materials; and never reckoned the old taffety at all. There was money enough to clothe and educate; little more. "I will take home _one_," said Mrs. Oferr, distinctly. So, they were to be separated? They did not realize what this was, however. They were told of letters and visits; of sweet country-living, of city sights and pleasures; of kittens and birds' nests, and the great barns; of music and dancing lessons, and little parties,--"by-and-by, when it was proper." "Let me go to Homesworth," whispered Frank to Aunt Oldways. Laura gravitated as surely to the streets and shops, and the great school of young ladies. "One taken and the other left," quoted Luclarion, over the packing of the two small trunks. "We're both going," says Laura, surprised. "_One_ taken? Where?" "Where the carcass is," answered Luclarion. "There's one thing you'll have to see to for yourselves. I can't pack it. It won't go into the trunks." "What, Luclarion?" "What your father said to you that night." They were silent. Presently Frank answered, softly,--"I hope I shan't forget that." Laura, the pause once broken, remarked, rather glibly, that she "was afraid there wouldn't be much chance to recollect things at Aunt Oferr's." "She isn't exactly what I call a heavenly-minded woman," said Luclarion, quietly. "She is very much _occupied_," replied Laura, grandly taking up the Oferr style. "She visits a great deal, and she goes out in the carriage. You have to change your dress every day for dinner, and I'm to take French lessons." The absurd little sinner was actually proud of her magnificent temptations. She was only a child. Men and women never are, of course. "I'm afraid it will be pretty hard to remember," repeated Laura, with condescension. "_That's_ your stump!" Luclarion fixed the steadfast arrow of her look straight upon her, and drew the bow with this twang. II. LUCLARION. How Mrs. Grapp ever came to, was the wonder. Her having the baby was nothing. Her having the name for it was the astonishment. Her own name was Lucy; her husband's Luther: that, perhaps, accounted for the first syllable; afterwards, whether her mind lapsed off into combinations of such outshining appellatives as "Clara" and "Marion," or whether Mr. Grapp having played the clarionet, and wooed her sweetly with it in her youth, had anything to do with it, cannot be told; but in those prescriptive days of quiet which followed the domestic advent, the name did somehow grow together in the fancy of Mrs. Luther; and in due time the life-atom which had been born indistinguishable into the natural world, was baptized into the Christian Church as "Luclarion" Grapp. Thenceforth, and no wonder, it took to itself a very especial individuality, and became what this story will partly tell. Marcus Grapp, who had the start of Luclarion in this "meander,"--as their father called the vale of tears,--by just two years' time, and was y-_clipped_, by everybody but his mother "Mark,"--in his turn, as they grew old together, cut his sister down to "Luke." Then Luther Grapp called them both "The Apostles." And not far wrong; since if ever the kingdom of heaven does send forth its Apostles--nay, its little Christs--into the work on earth, in these days, it is as little children into loving homes. The Apostles got up early one autumn morning, when Mark was about six years old, and Luke four. They crept out of their small trundle-bed in their mother's room adjoining the great kitchen, and made their way out softly to the warm wide hearth. There were new shoes, a pair apiece, brought home from the Mills the night before, set under the little crickets in the corners. These had got into their dreams, somehow, and into the red rooster's first halloo from the end room roof, and into the streak of pale daylight that just stirred and lifted the darkness, and showed doors and windows, but not yet the blue meeting-houses on the yellow wall-paper, by which they always knew when it was really morning; and while Mrs. Grapp was taking that last beguiling nap in which one is conscious that one means to get up presently, and rests so sweetly on one's good intentions, letting the hazy mirage of the day's work that is to be done play along the horizon of dim thoughts with its unrisen activities,--two little flannel night-gowns were cuddled in small heaps by the chimney-side, little bare feet were trying themselves into the new shoes, and lifting themselves up, crippled with two inches of stout string between the heels. Then the shoes were turned into spans of horses, and chirruped and trotted softly into their cricket-stables; and then--what else was there to do, until the strings were cut, and the flannel night-gowns taken off? It was so still out here, in the big, busy, day-time room; it was like getting back where the world had not begun; surely one must do something wonderful with the materials all lying round, and such an opportunity as that. It was old-time then, when kitchens had fire-places; or rather the house was chiefly fire-place, in front of and about which was more or less of kitchen-space. In the deep fire-place lay a huge mound of gray ashes, a Vesuvius, under which red bowels of fire lay hidden. In one corner of the chimney leaned an iron bar, used sometimes in some forgotten, old fashioned way, across dogs or pothooks,--who knows now? At any rate, there it always was. Mark, ambitious, put all his little strength to it this morning and drew it down, carefully, without much clatter, on the hearth. Then he thought how it would turn red under those ashes, where the big coals were, and how it would shine and sparkle when he pulled it out again, like the red-hot, hissing iron Jack-the-Giant-Killer struck into the one-eyed monster's eye. So he shoved it in; and forgot it there, while he told Luke--very much twisted and dislocated, and misjoined--the leading incidents of the giant story; and then lapsed off, by some queer association, into the Scripture narrative of Joseph and his brethren, who "pulled his red coat off, and put him in a _fit_, and left him there." "And then what?" says Luke. "Then,--O, my iron's done! See here, Luke!"--and taking it prudently with the tongs, he pulled back the rod, till the glowing end, a foot or more of live, palpitating, flamy red, lay out upon the broad open bricks. "There, Luke! You daresn't put your foot on _that_!" Dear little Luke, who wouldn't, at even four years old, be dared! And dear little white, tender, pink-and-lily foot! The next instant, a shriek of pain shot through Mrs. Grapp's ears, and sent her out of her dreams and out of her bed, and with one single impulse into the kitchen, with her own bare feet, and in her night-gown. The little foot had only touched; a dainty, timid, yet most resolute touch; but the sweet flesh shriveled, and the fierce anguish ran up every fibre of the baby body, to the very heart and brain. "O! O, O!" came the long, pitiful, shivering cries, as the mother gathered her in her arms. "What is it? What did you do? How came you to?" And all the while she moved quickly here and there, to cupboard and press-drawer, holding the child fast, and picking up as she could with one hand, cotton wool, and sweet-oil flask, and old linen bits; and so she bound it up, saying still, every now and again, as all she could say,--"What _did_ you do? How came you to?" Till, in a little lull of the fearful smart, as the air was shut away, and the oil felt momentarily cool upon the ache, Luke answered her,-- "He hed I dare-hn't, and ho I did!" "You little fool!" The rough word was half reaction of relief, that the child could speak at all, half horrible spasm of all her own motherly nerves that thrilled through and through with every pang that touched the little frame, hers also. Mothers never do part bonds with babies they have borne. Until the day they die, each quiver of their life goes back straight to the heart beside which it began. "You Marcus! What did you mean?" "I meant she darsn't; and she no business to 'a dars't," said Mark, pale with remorse and fright, but standing up stiff and manful, with bare common sense, when brought to bay. And then he marched away into his mother's bedroom, plunged his head down into the clothes, and cried,--harder than Luclarion. Nobody wore any new shoes that day; Mark for a punishment,--though he flouted at the penalty as such, with an, "I guess you'd see me!" And there were many days before poor little Luclarion could wear any shoes at all. The foot got well, however, without hindrance. But Luke was the same little fool as ever; that was not burnt out. She would never be "dared" to anything. They called it "stumps" as they grew older. They played "stumps" all through the barns and woods and meadows; over walls and rocks, and rafters and house-roofs. But the burnt foot saved Luke's neck scores of times, doubtless. Mark remembered it; he never "stumped" her to any certain hurt, or where he could not lead the way himself. The mischief they got into and out of is no part of my story; but one day something happened--things do happen as far back in lives as that--which gave Luclarion her clew to the world. They had got into the best parlor,--that sacred place of the New England farm-house, that is only entered by the high-priests themselves on solemn festivals, weddings and burials, Thanksgivings and quiltings; or devoutly, now and then to set the shrine in order, shut the blinds again, and so depart, leaving it to gather the gloom and grandeur that things and places and people do when they are good for nothing else. The children had been left alone; for their mother had gone to a sewing society, and Grashy, the girl, was up-stairs in her kitchen-chamber-bedroom, with a nail over the door-latch to keep them out while she "fixed over" her best gown. "Le's play Lake Ontario," says Marcus. Now Lake Ontario, however they had pitched upon it, stood with them for all the waters that are upon the face of the earth, and all the confusion and peril of them. To play it, they turned the room into one vast shipwreck, of upset and piled up chairs, stools, boxes, buckets, and what else they could lay hands on; and among and over them they navigated their difficult and hilarious way. By no means were they to touch the floor; that was the Lake,--that were to drown. It was Columbus sometimes; sometimes it was Captain Cook; to-day, it was no less than Jason sailing after the golden fleece. Out of odd volumes in the garret, and out of "best books" taken down from the secretary in the "settin'-room," and put into their hands, with charges, of a Sunday, to keep them still, they had got these things, jumbled into strange far-off and near fantasies in their childish minds. "Lake Ontario" included and connected all. "I'll tell you what it is," said Marcus, tumbling up against the parlor door and an idea at once. "In here!" "What?" asked Luke, breathless, without looking up, and paddling with the shovel, from an inverted rocking-chair. "The golden thing! Hush!" At this moment Grashy came into the kitchen, took a little tin kettle from a nail over the dresser, and her sun-bonnet from another behind the door, and made her way through the apartment as well as she could for bristling chair-legs, with exemplary placidity. She was used to "Lake Ontario." "Don't get into any mischief, you Apostles," was her injunction. "I'm goin' down to Miss Ruddock's for some 'east." "Good,"; says Mark, the instant the door was shut "Now this is Colchis, and I'm going in." He pronounced it much like "cold-cheese," and it never occurred to him that he was naming any unusual or ancient locality. There was a "Jason" in the Mills Village. He kept a grocer's shop. Colchis might be close by for all he knew; out beyond the wall, perhaps, among the old barrels. Children _place_ all they read or hear about, or even all they imagine, within a very limited horizon. They cannot go beyond their world. Why should they? Neither could those very venerable ancients. "'Tain't," says Luclarion, with unbeguiled practicality. "It's just ma's best parlor, and you mustn't." It was the "mustn't" that was the whole of it. If Mark had asserted that the back kitchen, or the cellar-way closet was Colchis, she would have indorsed it with enthusiasm, and followed on like a loyal Argonaut, as she was. But her imagination here was prepossessed. Nothing in old fable could be more environed with awe and mystery than this best parlor. "And, besides," said Luclarion, "I don't care for the golden fleece; I'm tired of it. Let's play something else." "I'll tell you what there is in here," persisted Mark. "There's two enchanted children. I've seen 'em!" "Just as though," said Luke contemptuously. "Ma ain't a witch." "Tain't ma. She don't know. They ain't visible to her. _She_ thinks it's nothing but the best parlor. But it opens out, right into the witch country,--not for her. 'Twill if we go. See if it don't." He had got hold of her now; Luclarion could not resist that. Anything might be true of that wonderful best room, after all. It was the farthest Euxine, the witch-land, everything, to them. So Mark turned the latch and they crept in "We must open a shutter," Mark said, groping his way. "Grashy will be back," suggested Luke, fearfully. "Guess so!" said Mark. "She ain't got coaxed to take her sun-bonnet off yet, an' it'll take her ninety-'leven hours to get it on again." He had let in the light now from the south window. The red carpet on the floor; the high sofa of figured hair-cloth, with brass-headed nails, and brass rosettes in the ends of the hard, cylinder pillows; the tall, carved cupboard press, its doors and drawers glittering with hanging brass handles; right opposite the door by which they had come in, the large, leaning mirror, gilt--garnished with grooved and beaded rim and an eagle and ball-chains over the top,--all this, opening right in from the familiar every-day kitchen and their Lake Ontario,--it certainly meant something that such a place should be. It meant a great deal more than sixteen feet square could hold, and what it really was did not stop short at the gray-and-crimson stenciled walls. The two were all alone in it; perhaps they had never been all alone in it before. I think, notwithstanding their mischief and enterprise, they never had. And deep in the mirror, face to face with them, coming down, it seemed, the red slant of an inner and more brilliant floor, they saw two other little figures. Their own they knew, really, but elsewhere they never saw their own figures entire. There was not another looking-glass in the house that was more than two feet long, and they were all hung up so high! "There!" whispered Mark. "There they are, and they can't get out." "Of course they can't," said sensible Luclarion. "If we only knew the right thing to say, or do, they might," said Mark. "It's that they're waiting for, you see. They always do. It's like the sleeping beauty Grashy told us." "Then they've got to wait a hundred years," said Luke. "Who knows when they began?" "They do everything that we do," said Luclarion, her imagination kindling, but as under protest. "If we could jump in perhaps they would jump out." "We might jump _at_ 'em," said Marcus. "Jest get 'em going, and may-be they'd jump over. Le's try." So they set up two chairs from Lake Ontario in the kitchen doorway, to jump from; but they could only jump to the middle round of the carpet, and who could expect that the shadow children should be beguiled by that into a leap over bounds? They only came to the middle round of _their_ carpet. "We must go nearer; we must set the chairs in the middle, and jump close. Jest _shave_, you know," said Marcus. "O, I'm afraid," said Luclarion. "I'll tell you what! Le's _run_ and jump! Clear from the other side of the kitchen, you know. Then they'll have to run too, and may-be they can't stop." So they picked up chairs and made a path, and ran from across the broad kitchen into the parlor doorway, quite on to the middle round of the carpet, and then with great leaps came down bodily upon the floor close in front of the large glass that, leaned over them, with two little fallen figures in it, rolling aside quickly also, over the slanting red carpet. But, O dear what did it? Had the time come, anyhow, for the old string to part its last fibre, that held the mirror tilting from the wall,--or was it the crash of a completed spell? There came a snap,--a strain,--as some nails or screws that held it otherwise gave way before the forward pressing weight, and down, flat-face upon the floor, between the children, covering them with fragments of splintered glass and gilded wood,--eagle, ball-chains, and all,--that whole magnificence and mystery lay prostrate. Behind, where it had been, was a blank, brown-stained cobwebbed wall, thrown up harsh and sudden against them, making the room small, and all the enchanted chamber, with its red slanting carpet, and its far reflected corners, gone. The house hushed up again after that terrible noise, and stood just the same as ever. When a thing like that happens, it tells its own story, just once, and then it is over. _People_ are different. They keep talking. There was Grashy to come home. She had not got there in time to hear the house tell it. She must learn it from the children. Why? "Because they knew," Luclarion said. "Because, then, they could not wait and let it be found out." "We never touched it," said Mark. "We jumped," said Luke. "We couldn't help it, if _that_ did it. S'posin' we'd jumped in the kitchen, or--the--flat-irons had tumbled down,--or anything? That old string was all wore out." "Well, we was here, and we jumped; and we know." "We was here, of course; and of course we couldn't help knowing, with all that slam-bang. Why, it almost upset Lake Ontario! We can tell how it slammed, and how we thought the house was coming down. I did." "And how we were in the best parlor, and how we jumped," reiterated Luclarion, slowly. "Marcus, it's a stump!" They were out in the middle of Lake Ontario now, sitting right down underneath the wrecks, upon the floor; that is, under water, without ever thinking of it. The parlor door was shut, with all that disaster and dismay behind it. "Go ahead, then!" said Marcus, and he laid himself back desperately on the floor. "There's Grashy!" "Sakes and patience!" ejaculated Grashy, merrily, coming in. "They're drownded,--dead, both of 'em; down to the bottom of Lake Ontariah!" "No we ain't," said Luclarion, quietly. "It isn't Lake Ontario now. It's nothing but a clutter. But there's an awful thing in the best parlor, and we don't know whether we did it or not. We were in there, and we jumped." Grashy went straight to the parlor door, and opened it. She looked in, turned pale, and said "'Lection!" That is a word the women have, up in the country, for solemn surprise, or exceeding emergency, or dire confusion. I do not know whether it is derived from religion or politics. It denotes a vital crisis, either way, and your hands full. Perhaps it had the theological association in Grashy's mind, for the next thing she said was, "My soul!" "Do you know what that's a sign of, you children?" "Sign the old thing was rotten," said Marcus, rather sullenly. "Wish that was all," said Grashy, her lips white yet. "Hope there mayn't nothin' dreadful happen in this house before the year's out. It's wuss'n thirteen at the table." "Do you s'pose we did it?" asked Luke, anxiously. "Where was you when it tumbled?" "Right in front of it. But we were rolling away. _We_ tumbled." "'Twould er come down the fust jar, anyway, if a door had slammed. The string's cut right through," said Grashy, looking at the two ends sticking up stiff and straight from the top fragment of the frame. "But the mercy is you war'n't smashed yourselves to bits and flinders. Think o'that!" "Do you s'pose ma'll think of that?" asked Luclarion. "Well--yes; but it may make her kinder madder,--just at first, you know. Between you and me and the lookin'-glass, you see,--well, yer ma is a pretty strong-feelin' woman," said Grashy, reflectively. "'Fi was you I wouldn't say nothin' about it. What's the use? _I_ shan't." "It's a stump," repeated Luclarion, sadly, but in very resolute earnest. Grashy stared. "Well, if you ain't the curiousest young one, Luke Grapp!" said she, only half comprehending. When Mrs. Grapp came home, Luclarion went into her bedroom after her, and told her the whole story. Mrs. Grapp went into the parlor, viewed the scene of calamity, took in the sense of loss and narrowly escaped danger, laid the whole weight of them upon the disobedience to be dealt with, and just as she had said, "You little fool!" out of the very shock of her own distress when Luke had burned her baby foot, she turned back now, took the two children up-stairs in silence, gave them each a good old orthodox whipping, and tucked them into their beds. They slept one on each side of the great kitchen-chamber. "Mark," whispered Luke, tenderly, after Mrs. Grapp's step had died away down the stairs. "How do you feel?" "Hot!" said Mark. "How do you?" "You ain't mad with me, be you?" "No." "Then I feel real cleared up and comfortable. But it _was_ a stump, wasn't it?" * * * * * From that time forward, Luclarion Grapp had got her light to go by. She understood life. It was "stumps" all through. The Lord set them, and let them; she found that out afterward, when she was older, and "experienced religion." I think she was mistaken in the dates, though; it was _recognition_, this later thing; the experience was away back,--at Lake Ontario. It was a stump when her father died, and her mother had to manage the farm, and she to help her. The mortgage they had to work off was a stump; but faith and Luclarion's dairy did it. It was a stump when Marcus wanted to go to college, and they undertook that, after the mortgage. It was a stump when Adam Burge wanted her to marry him, and go and live in the long red cottage at Side Hill, and she could not go till they had got through with helping Marcus. It was a terrible stump when Adam Burge married Persis Cone instead, and she had to live on and bear it. It was a stump when her mother died, and the farm was sold. Marcus married; he never knew; he had a belles-lettres professorship in a new college up in D----. He would not take a cent of the farm money; he had had his share long ago; the four thousand dollars were invested for Luke. He did the best he could, and all he knew; but human creatures can never pay each other back. Only God can do that, either way. Luclarion did not stay in ----. There were too few there now, and too many. She came down to Boston. Her two hundred and eighty dollars a year was very good, as far as it went, but it would not keep her idle; neither did she wish to live idle. She learned dress-making; she had taste and knack; she was doing well; she enjoyed going about from house to house for her days' work, and then coming back to her snug room at night, and her cup of tea and her book. Then it turned out that so much sewing was not good for her; her health was threatened; she had been used to farm work and "all out-doors." It was a "stump" again. That was all she called it; she did not talk piously about a "cross." What difference did it make? There is another word, also, for "cross" in Hebrew. Luclarion came at last to live with Mrs. Edward Shiere. And in that household, at eight and twenty, we have just found her. III. BY STORY-RAIL: TWENTY-SIX YEARS AN HOUR. Laura Shiere did not think much about the "stump," when, in her dark gray merino travelling dress, and her black ribbons, nicely appointed, as Mrs. Oferr's niece should be, down to her black kid gloves and broad-hemmed pocket-handkerchief, and little black straw travelling-basket (for morocco bags were not yet in those days), she stepped into the train with her aunt at the Providence Station, on her way to Stonington and New York. The world seemed easily laid out before her. She was like a cousin in a story-book, going to arrive presently at a new home, and begin a new life, in which she would be very interesting to herself and to those about her. She felt rather important, too, with her money independence--there being really "property" of hers to be spoken of as she had heard it of late. She had her mother's diamond ring on her third finger, and was comfortably conscious of it when she drew off her left-hand glove. Laura Shiere's nature had only been stirred, as yet, a very little below the surface, and the surface rippled pleasantly in the sunlight that was breaking forth from the brief clouds. Among the disreputable and vociferous crowd of New York hack drivers, that swarmed upon the pier as the _Massachusetts_ glided into her dock, it was good to see that subduedly respectable and consciously private and superior man in the drab overcoat and the nice gloves and boots, who came forward and touched his hat to Mrs. Oferr, took her shawl and basket, and led the way, among the aggravated public menials, to a handsome private carriage waiting on the street. "All well at home, David?" asked Mrs. Oferr. "All well, ma'am, thank you," replied David. And another man sat upon the box, in another drab coat, and touched _his_ hat; and when they reached Waverley Place and alighted, Mrs. Oferr had something to say to him of certain directions, and addressed him as "Moses." It was very grand and wonderful to order "David" and "Moses" about. Laura felt as if her aunt were something only a little less than "Michael with the sword." Laura had a susceptibility for dignities; she appreciated, as we have seen out upon the wood-shed, "high places, and all the people looking up." David and Moses were brothers, she found out; she supposed that was the reason they dressed alike, in drab coats; as she and Frank used to wear their red merinos, and their blue ginghams. A little spasm did come up in her throat for a minute, as she thought of the old frocks and the old times already dropped so far behind; but Alice and Geraldine Oferr met her the next instant on the broad staircase at the back of the marble-paved hall, looking slight and delicate, and princess-like, in the grand space built about them for their lives to move in; and in the distance and magnificence of it all, the faint little momentary image of Frank faded away. She went up with them out of the great square hall, over the stately staircase, past the open doors of drawing-rooms and library, stretching back in a long suite, with the conservatory gleaming green from the far end over the garden, up the second stairway to the floor where their rooms were; bedrooms and nursery,--this last called so still, though the great, airy front-room was the place used now for their books and amusements as growing young ladies,--all leading one into another around the skylighted upper hall, into which the sunshine came streaked with amber and violet from the richly colored glass. She had a little side apartment given to her for her own, with a recessed window, in which were blossoming plants just set there from the conservatory; opposite stood a white, low bed in a curtained alcove, and beyond was a dressing-closet. Laura thought she should not be able to sleep there at all for a night or two, for the beauty of it and the good time she should be having. At that same moment Frank and her Aunt Oldways were getting down from the stage that had brought them over from Ipsley, where they slept after their day's journey from Boston,--at the doorstone of the low, broad-roofed, wide-built, roomy old farm-house in Homesworth. Right in the edge of the town it stood, its fields stretching over the south slope of green hills in sunny uplands, and down in meadowy richness to the wild, hidden, sequestered river-side, where the brown water ran through a narrow, rocky valley,--Swift River they called it. There are a great many Swift Rivers in New England. It was only a vehement little tributary of a larger stream, beside which lay larger towns; it was doing no work for the world, apparently, at present; there were no mills, except a little grist-mill to which the farmers brought their corn, cuddled among the rocks and wild birches and alders, at a turn where the road came down, and half a dozen planks made a bit of a bridge. "O, what beautiful places!" cried Frank, as they crossed the little bridge, and glanced either way into a green, gray, silvery vista of shrubs and rocks, and rushing water, with the white spires of meadow-sweet and the pink hardback, and the first bright plumes of the golden rod nodding and shining against the shade,--as they passed the head of a narrow, grassy lane, trod by cows' feet, and smelling of their milky breaths, and the sweetness of hay-barns,--as they came up, at length, over the long slope of turf that carpeted the way, as for a bride's feet, from the roadside to the very threshold. She looked along the low, treble-piled garden wall, too, and out to the open sheds, deep with pine chips; and upon the broad brown house-roof, with its long, gradual decline, till its eaves were within reach of a child's fingers from the ground; and her quick eye took in facilities. "O, if Laura could see this! After the old shed-top in Brier Street, and the one tree!" But Laura had got what the shed-top stood for with her; it was Frank who had hearkened to whole forests in the stir of the one brick-rooted fir. To that which each child had, it was already given. In a week or two Frank wrote Laura a letter. It was an old-fashioned letter, you know; a big sheet, written close, four pages, all but the middle of the last page, which was left for the "superscription." Then it was folded, the first leaf turned down twice, lengthwise; then the two ends laid over, toward each other; then the last doubling, or rather trebling, across; and the open edge slipped over the folds. A wafer sealed it, and a thimble pressed it,--and there were twenty-five cents postage to pay. That was a letter in the old times, when Laura and Frank Shiere were little girls. And this was that letter:-- DEAR LAURA,--We got here safe, Aunt Oldways and I, a week ago last Saturday, and it is _beautiful_. There is a green lane,--almost everybody has a green lane,--and the cows go up and down, and the swallows build in the barn-eaves. They fly out at sundown, and fill all the sky up. It is like the specks we used to watch in the sunshine when it came in across the kitchen, and they danced up and down and through and away, and seemed to be live things; only we couldn't tell, you know, what they were, or if they really did know how good it was. But these are big and real, and you can see their wings, and you know what they mean by it. I guess it is all the same thing, only some things are little and some are big. You can see the stars here, too,--such a sky full. And that is all the same again. There are beautiful roofs and walls here. I guess you would think you were high up! Harett and I go up from under the cheese-room windows right over the whole house, and we sit on the peak by the chimney. Harett is Mrs. Dillon's girl. Not the girl that lives with her,--her daughter. But the girls that live with people are daughters here. Somebody's else, I mean. They are all alike. I suppose her name is Harriet, but they all call her Harett. I don't like to ask her for fear she should think I thought they didn't know how to pronounce. I go to school with Harett; up to the West District. We carry brown bread and butter, and doughnuts, and cheese, and apple-pie in tin pails, for luncheon. Don't you remember the brown cupboard in Aunt Oldways' kitchen, how sagey, and doughnutty, and good it always smelt? It smells just so now, and everything tastes just the same. There is a great rock under an oak tree half way up to school, by the side of the road. We always stop there to rest, coming home. Three of the girls come the same way as far as that, and we always save some of our dinner to eat up there, and we tell stories. I tell them about dancing-school, and the time we went to the theatre to see "Cinderella," and going shopping with mother, and our little tea-parties, and the Dutch dolls we made up in the long front chamber. O, _don't_ you remember, Laura? What different pieces we have got into our remembrances already! I feel as if I was making patchwork. Some-time, may-be, I shall tell somebody about living _here_. Well, they will be beautiful stories! Homesworth is an elegant place to live in. You will see when you come next summer. There is an apple tree down in the south orchard that bends just like a horse's back. Then the branches come up over your head and shade you. We ride there, and we sit and eat summer apples there. Little rosy apples with dark streaks in them all warm with the sun. You can't think what a smell they have, just like pinks and spice boxes. Why don't they keep a little way off from each other in cities, and so have room for apple trees? I don't see why they need to crowd so. I hate to think of you all shut up tight when I am let right out into green grass, and blue sky, and apple orchards. That puts me in mind of something! Zebiah Jane, Aunt Oldways' girl, always washes her face in the morning at the pump-basin out in the back dooryard, just like the ducks. She says she can't spatter round in a room; she wants all creation for a slop-bowl. I feel as if we had all creation for everything up here. But I can't put all creation in a letter if I try. _That_ would spatter dreadfully. I expect a long letter from you every day now. But I don't see what you will make it out of. I think I have got all the _things_ and you won't have anything left but the _words_. I am sure you don't sit out on the wood-shed at Aunt Oferr's, and I don't believe you pound stones and bricks, and make colors. Do you know when we rubbed our new shoes with pounded stone and made them gray? I never told you about Luclarion. She came up as soon as the things were all sent off, and she lives at the minister's. Where she used to live is only two miles from here, but other people live there now, and it is built on to and painted straw color, with a green door. Your affectionate sister, FRANCES SHIERE. When Laura's letter came this was it:-- DEAR FRANK,--I received your kind letter a week ago, but we have been very busy having a dressmaker and doing all our fall shopping, and I have not had time to answer it before. We shall begin to go to school next week, for the vacations are over, and then I shall have ever so much studying to do. I am to take lessons on the piano, too, and shall have to practice two hours a day. In the winter we shall have dancing-school and practicing parties. Aunt has had a new bonnet made for me. She did not like the plain black silk one. This is of _gros d'Afrique_, with little bands and cordings round the crown and front; and I have a dress of _gros d'Afrique_, too, trimmed with double folds piped on. For every-day I have a new black _mousseline_ with white clover leaves on it, and an all-black French chally to wear to dinner. I don't wear my black and white calico at all. Next summer aunt means to have me wear white almost all the time, with lavender and violet ribbons. I shall have a white muslin with three skirts and a black sash to wear to parties and to Public Saturdays, next winter. They have Public Saturdays at dancing-school every three weeks. But only the parents and relations can come. Alice and Geraldine dance the shawl-dance with Helena Pomeroy, with crimson and white Canton crape scarfs. They have showed me some of it at home. Aunt Oferr says I shall learn the _gavotte_. Aunt Oferr's house is splendid. The drawing-room is full of sofas, and divans, and ottomans, and a _causeuse_, a little S-shaped seat for two people. Everything is covered with blue velvet, and there are blue silk curtains to the windows, and great looking-glasses between, that you can see all down into through rooms and rooms, as if there were a hundred of them. Do you remember the story Luclarion used to tell us of when she and her brother Mark were little children and used to play that the looking-glass-things were real, and that two children lived in them, in the other room, and how we used to make believe too in the slanting chimney glass? You could make believe it here with _forty_ children. But I don't make believe much now. There is such a lot that is real, and it is all so grown up. It would seem so silly to have such plays, you know. I can't help thinking the things that come into my head though, and it seems sometimes just like a piece of a story, when I walk into the drawing-room all alone, just before company comes, with my _gros d'Afrique_ on, and my puffed lace collar, and my hair tied back with long new black ribbons. It all goes through my head just how I look coming in, and how grand it is, and what the words would be in a book about it, and I seem to act a little bit, just to myself as if I were a girl in a story, and it seems to say, "And Laura walked up the long drawing-room and took a book bound in crimson morocco from the white marble pier table and sat down upon the velvet ottoman in the balcony window." But what happened then it never tells. I suppose it will by and by. I am getting used to it all, though; it isn't so _awfully_ splendid as it was at first. I forgot to tell you that my new bonnet flares a great deal, and that I have white lace quilling round the face with little black dotty things in it on stems. They don't wear those close cottage bonnets now. And aunt has had my dresses made longer and my pantalettes shorter, so that they hardly show at all. She says I shall soon wear long dresses, I am getting so tall. Alice wears them now, and her feet look so pretty, and she has such pretty slippers: little French purple ones, and sometimes dark green, and sometimes beautiful light gray, to go with different dresses. I don't care for anything but the slippers, but I _should_ like such ones as hers. Aunt says I can't, of course, as long as I wear black, but I can have purple ones next summer to wear with my white dresses. That will be when I come to see you. I am afraid you will think this is a very _wearing_ kind of a letter, there are so many 'wears' in it. I have been reading it over so far, but I can't put in any other word. Your affectionate sister, LAURA SHIERE. P.S. Aunt Oferr says Laura Shiere is such a good sounding name. It doesn't seem at all common. I am glad of it. I should hate to be common. I do not think I shall give you any more of it just here than these two letters tell. We are not going through all Frank and Laura's story. That with which we have especially to do lies on beyond. But it takes its roots in this, as all stories take their roots far back and underneath. Two years after, Laura was in Homesworth for her second summer visit at the farm. It was convenient, while the Oferrs were at Saratoga. Mrs. Oferr was very much occupied now, of course, with introducing her own daughters. A year or two later, she meant to give Laura a season at the Springs. "All in turn, my dear, and good time," she said. The winter before, Frank had been a few weeks in New York. But it tired her dreadfully, she said. She liked the theatres and the concerts, and walking out and seeing the shops. But there was "no place to get out of it into." It didn't seem as if she ever really got home and took off her things. She told Laura it was like that first old letter of hers; it was just "wearing," all the time. Laura laughed. "But how can you live _without_ wearing?" said she. Frank stood by, wondering, while Laura unpacked her trunks that morning after her second arrival at Aunt Oldways'. She had done now even with the simplicity of white and violet, and her wardrobe blossomed out like the flush of a summer garden. She unfolded a rose-colored muslin, with little raised embroidered spots, and threw it over the bed. "Where _will_ you wear that, up here?" asked Frank, in pure bewilderment. "Why, I wear it to church, with my white Swiss mantle," answered Laura. "Or taking tea, or anything. I've a black silk _visite_ for cool days. That looks nice with it. And see here,--I've a pink sunshade. They don't have them much yet, even in New York. Mr. Pemberton Oferr brought these home from Paris, for Gerry and Alice, and me. Gerry's is blue. See! it tips back." And Laura set the dashy little thing with its head on one side, and held it up coquettishly. "They used them in carriages in Paris, he said, and in St. Petersburg, driving out on the Nevskoi Prospekt." "But where are your common things?" "Down at the bottom; I haven't come to them. They were put in first, because they would bear squeezing. I've two French calicoes, with pattern trimmings; and a lilac jaconet, with ruffles, open down the front." Laura wore long dresses now; and open wrappers were the height of the style. Laura astonished Homesworth the first Sunday of this visit, with her rose-colored toilet. Bonnet of shirred pink silk with moss rosebuds and a little pink lace veil; the pink muslin, full-skirted over two starched petticoats; even her pink belt had gay little borders of tiny buds and leaves, and her fan had a pink tassel. "They're the things I wear; why shouldn't I?" she said to Frank's remonstrance. "But up here!" said Frank. "It would seem nicer to wear something--stiller." So it would; a few years afterward Laura herself would have seen that it was more elegant; though Laura Shiere was always rather given to doing the utmost--in apparel--that the occasion tolerated. Fashions grew stiller in years after. But this June Sunday, somewhere in the last thirties or the first forties, she went into the village church like an Aurora, and the village long remembered the resplendence. Frank had on a white cambric dress, with a real rose in the bosom, cool and fresh, with large green leaves; and her "cottage straw" was trimmed with white lutestring, crossed over the crown. "Do you feel any better?" asked Aunt Oldways of Laura, when they came home to the country tea-dinner. "Better--how?" asked Laura, in surprise. "After all that 'wear' and _stare_," said Aunt Oldways, quietly. Aunt Oldways might have been astonished, but she was by no means awestruck, evidently; and Aunt Oldways generally spoke her mind. Somehow, with Laura Shiere, pink was pinker, and ribbons were more rustling than with most people. Upon some quiet unconscious folks, silk makes no spread, and color little show; with Laura every gleam told, every fibre asserted itself. It was the live Aurora, bristling and tingling to its farthest electric point. She did not toss or flaunt, either; she had learned better of Signor Pirotti how to carry herself; but she was in conscious _rapport_ with every thing and stitch she had about her. Some persons only put clothes on to their bodies; others really seem to contrive to put them on to their souls. Laura Shiere came up to Homesworth three years later, with something more wonderful than a pink embossed muslin:--she had a lover. Mrs. Oferr and her daughters were on their way to the mountains; Laura was to be left with the Oldways. Grant Ledwith accompanied them all thus far on their way; then he had to go back to Boston. "I can't think of anything but that pink sunshade she used to carry round canted all to one side over her shoulder," said Aunt Oldways, looking after them down the dusty road the morning that he went away. Laura, in her white dress and her straw hat and her silly little bronze-and-blue-silk slippers printing the roadside gravel, leaning on Grant Ledwith's arm, seemed only to have gained a fresh, graceful adjunct to set off her own pretty goings and comings with, and to heighten the outside interest of that little point of eternity that she called her life. Mr. Ledwith was not so much a man who had won a woman, as Laura was a girl who had "got a beau." She had sixteen tucked and trimmed white skirts, too, she told Frank; she should have eight more before she was married; people wore ever so many skirts now, at a time. She had been to a party a little while ago where she wore _seven_. There were deep French embroidery bands around some of these white skirts; those were beautiful for morning dresses. Geraldine Oferr was married last winter; Laura had been her bridesmaid; Gerry had a white brocade from Paris, and a point-lace veil. She had three dozen of everything, right through. They had gone to housekeeping up town, in West Sixteenth Street. Frank would have to come to New York next winter, or in the spring, to be _her_ bridesmaid; then she would see; then--who knew! Frank was only sixteen, and she lived away up here in Homesworth among the hills; she had not "seen," but she had her own little secret, for all that; something she neither told nor thought, yet which was there; and it came across her with a queer little thrill from the hidden, unlooked-at place below thought, that "Who" _didn't_ know. Laura waited a year for Grant Ledwith's salary to be raised to marrying point; he was in a wholesale woolen house in Boston; he was a handsome fellow, with gentlemanly and taking address,--capital, this, for a young salesman; and they put his pay up to two thousand dollars within that twelvemonth. Upon this, in the spring, they married; took a house in Filbert Street, down by the river, and set up their little gods. These were: a sprinkle of black walnut and brocatelle in the drawing-room, a Sheffield-plate tea-service, and a crimson-and-giltedged dinner set that Mrs. Oferr gave them; twilled turkey-red curtains, that looked like thibet, in the best chamber; and the twenty-four white skirts and the silk dresses, and whatever corresponded to them on the bride-groom's part, in their wardrobes. All that was left of Laura's money, and all that was given them by Grant Ledwith's father, and Mr. Titus Oldways' astounding present of three hundred dollars, without note or comment,--the first reminder they had had of him since Edward Shiere's funeral, "and goodness knew how he heard anything now," Aunt Oferr said,--had gone to this outfit. But they were well set up and started in the world; so everybody said, and so they, taking the world into their young, confident hands for a plaything, not knowing it for the perilous loaded shell it is, thought, merrily, themselves. Up in Homesworth people did not have to wait for two thousand dollar salaries. They would not get them if they did. Oliver Ripwinkley, the minister's son, finished his medical studies and city hospital practice that year, and came back, as he had always said he should do, to settle down for a country doctor. Old Doctor Parrish, the parson's friend of fifty years, with no child of his own, kept the place for Oliver, and hung up his old-fashioned saddle-bags in the garret the very day the young man came home. He was there to be "called in," however, and with this backing, and the perforce of there being nobody else, young Doctor Ripwinkley had ten patients within the first week; thereby opportunity for shewing himself in the eyes of ten families as a young man who "appeared to know pretty well what he was about." So that when he gave further proof of the same, by asking, within the week that followed, the prettiest girl in Homesworth, Frances Shiere, to come and begin the world with him at Mile Hill village, nobody, not even Frank herself, was astonished. She bought three new gowns, a shawl, a black silk mantle, and a straw bonnet. She made six each of every pretty white garment that a woman wears; and one bright mellow evening in September, they took their first tea in the brown-carpeted, white-shaded little corner room in the old "Rankin house;" a bigger place than they really wanted yet, and not all to be used at first; but rented "reasonable," central, sunshiny, and convenient; a place that they hoped they should buy sometime; facing on the broad sidegreen of the village street, and running back, with its field and meadow belongings, away to the foot of great, gray, sheltering Mile Hill. And the vast, solemn globe, heedless of what lit here or there upon its breadth, or took up this or that life in its little freckling cities, or between the imperceptible foldings of its hills,--only carrying way-passengers for the centuries,--went plunging on its track, around and around, and swept them all, a score of times, through its summer and its winter solstices. IV. AFTERWARDS IS A LONG TIME. Old Mr. Marmaduke Wharne had come down from Outledge, in the mountains, on his way home to New York. He had stopped in Boston to attend to some affairs of his own,--if one can call them so, since Marmaduke Wharne never had any "own" affairs that did not chiefly concern, to their advantage, somebody else,--in which his friend Mr. Titus Oldways was interested, not personally, but Wharne fashion. Now, reader, you know something about Mr. Titus Oldways, which up to this moment, only God, and Marmaduke Wharne, and Rachel Froke, who kept Mr. Oldways' house, and wore a Friend's drab dress and white cap, and said "Titus," and "Marmaduke" to the two old gentlemen, and "thee" and "thou" to everybody,--have ever known. In a general way and relation, I mean; separate persons knew particular things; but each separate person thought the particular thing he knew to be a whimsical exception. Mr. Oldways did not belong to any church: but he had an English Prayer-book under his Bible on his study table, and Baxter and Fenelon and à Kempis and "Wesley's Hymns," and Swedenborg's "Heaven and Hell" and "Arcana Celestia," and Lowell's "Sir Launfal," and Dickens's "Christmas Carol," all on the same set of shelves,--that held, he told Marmaduke, his religion; or as much of it as he could get together. And he had this woman, who was a Friend, and who walked by the Inner Light, and in outer charity, if ever a woman did, to keep his house. "For," said he, "the blessed truth is, that the Word of God is in the world. Alive in it. When you know that, and wherever you can get hold of his souls, then and there you've got your religion,--a piece at a time. To prove and sort your pieces, and to straighten the tangle you might otherwise get into, there's _this_," and he laid his hand down on the Four Gospels, bound in white morocco, with a silver cross upon the cover,--a volume that no earthly creature, again, knew of, save Titus and Marmaduke and Rachel Froke, who laid it into a drawer when she swept and dusted, and placed it between the crimson folds of its quilted silken wrapper when she had finished, burnishing the silver cross gently with a scrap of chamois leather cut from a clean piece every time. There was nothing else delicate and exquisite in all the plain and grim establishment; and the crimson wrapper was comfortably worn, and nobody would notice it, lying on the table there, with an almanac, a directory, the big, open Worcester's Dictionary, and the scattered pamphlets and newspapers of the day. Out in the world, Titus Oldways went about with visor down. He gave to no fairs nor public charities; "let them get all they could that way, it wasn't his way," he said to Rachel Froke. The world thought he gave nothing, either of purse or life. There was a plan they had together,--he and Marmaduke Wharne,--this girls' story-book will not hold the details nor the idea of it,--about a farm they owned, and people working it that could go nowhere else to work anything; and a mill-privilege that might be utilized and expanded, to make--not money so much as safe and honest human life by way of making money; and they sat and talked this plan over, and settled its arrangements, in the days that Marmaduke Wharne was staying on in Boston, waiting for his other friend, Miss Craydocke, who had taken the River Road down from Outledge, and so come round by Z----, where she was staying a few days with the Goldthwaites and the Inglesides. Miss Craydocke had a share or two in the farm and in the mill. And now, Titus Oldways wanted to know of Marmaduke Wharne what he was to do for Afterwards. It was a question that had puzzled and troubled him. Afterwards. "While I live," he said, "I will do what I can, and _as_ I can. I will hand over my doing, and the wherewith, to no society or corporation. I'll pay no salaries nor circumlocutions. Neither will I--afterwards. And how is my money going to work on?" "_Your_ money?" "Well,--God's money." "How did it work when it came to you?" Mr. Oldways was silent. "He chose to send it to you. He made it in the order of things that it should come to you. You began, yourself, to work for money. You did not understand, then, that the money would be from God and was for Him." "He made me understand." "Yes. He looked out for that part of it too. He can look out for it again. His word shall not return unto him void." "He has given me this, though, to pass on; and I will not put it into a machine. I want to give some living soul a body for its living. Dead charities are dead. It's of no use to will it to you, Marmaduke; I'm as likely to stay on, perhaps, as you are." "And the youngest life might drop, the day after your own. You can't take it out of God's hand." "I must either let it go by law, or will it--here and there. I know enough whom it would help; but I want to invest, not spend it; to invest it in a life--or lives--that will carry it on from where I leave it. How shall I know?" "He giveth it a body as it pleaseth Him," quoted Marmaduke Wharne, thoughtfully. "I am English, you know, Oldways; I can't help reverencing the claims of next of kin. Unless one is plainly shown otherwise, it seems the appointment. How can we set aside his ways until He clearly points us out his own exception?" "My 'next' are two women whom I don't know, my niece's children. She died thirty years ago." "Perhaps you ought to know them." "I know _about_ them; I've kept the run; but I've held clear of family. They didn't need me, and I had no right to put it into their heads they did, unless I fully meant"-- He broke off. "They're like everybody else, Wharne; neither better nor worse, I dare say; but the world is full of just such women. How do I know this money would be well in their hands--even for themselves?" "Find out." "One of 'em was brought up by an Oferr woman!" The tone in which he _commonized_ the name to a satiric general term, is not to be written down, and needed not to be interpreted. "The other is well enough," he went on, "and contented enough. A doctor's widow, with a little property, a farm and two children,--her older ones died very young,--up in New Hampshire. I might spoil _her_; and the other,--well, you see as I said, I _don't know_." "Find out," said Marmaduke Wharne, again. "People are not found out till they are tried." "Try 'em!" Mr. Oldways had been sitting with his head bent, thoughtfully, his eyes looking down, his hands on the two stiff, old-fashioned arms of his chair. At this last spondaic response from Marmaduke, he lifted his eyes and eyebrows,--not his head,--and raised himself slightly with his two hands pressing on the chair arms; the keen glance and the half-movement were impulsively toward his friend. "Eh?" said he. "Try 'em," repeated Marmaduke Wharne. "Give God's way a chance." Mr. Oldways, seated back in his chair again, looked at him intently; made a little vibration, as it were, with his body, that moved his head up and down almost imperceptibly, with a kind of gradual assenting apprehension, and kept utterly silent. So, their talk being palpably over for this time, Marmaduke Wharne got up presently to go. They nodded at each other, friendlily, as he looked back from the door. Left alone, Mr. Titus Oldways turned in his swivel-chair, around to his desk beside which he was sitting. "Next of kin?" he repeated to himself. "God's way?--Well! Afterwards is a long time. A man must give it up somewhere. Everything escheats to the king at last." And he took a pen in his hand and wrote a letter. V. HOW THE NEWS CAME TO HOMESWORTH. "I wish I lived in the city, and had a best friend," said Hazel Ripwinkley to Diana, as they sat together on the long, red, sloping kitchen roof under the arches of the willow-tree, hemming towels for their afternoon "stent." They did this because their mother sat on the shed roof under the fir, when she was a child, and had told them of it. Imagination is so much greater than fact, that these children, who had now all that little Frank Shiere had dreamed of with the tar smell and the gravel stones and the one tree,--who might run free in the wide woods and up the breezy hillsides,--liked best of all to get out on the kitchen roof and play "old times," and go back into their mother's dream. "I wish I lived in a block of houses, and could see across the corner into my best friend's room when she got up in the morning!" "And could have that party!" said Diana. "Think of the clean, smooth streets, with red sidewalks, and people living all along, door after door! I like things set in rows, and people having places, like the desks at school. Why, you've got to go way round Sand Hill to get to Elizabeth Ann Dorridon's. I should like to go up steps, and ring bells!" "I don't know," said Diana, slowly. "I think birds that build little nests about anywhere in the cunning, separate places, in the woods, or among the bushes, have the best time." "Birds, Dine! It ain't birds, it's people! What has that to do with it?" "I mean I think nests are better than martin-boxes." "Let's go in and get her to tell us that story. She's in the round room." The round room was a half ellipse, running in against the curve of the staircase. It was a bit of a place, with the window at one end, and the bow at the other. It had been Doctor Ripwinkley's office, and Mrs. Ripwinkley sat there with her work on summer afternoons. The door opened out, close at the front, upon a great flat stone in an angle, where was also entrance into the hall by the house-door, at the right hand. The door of the office stood open, and across the stone one could look down, between a range of lilac bushes and the parlor windows, through a green door-yard into the street. "Now, Mother Frank, tell us about the party!" They called her "Mother Frank" when they wished to be particularly coaxing. They had taken up their father's name for her, with their own prefix, when they were very little ones, before he went away and left nobody to call her Frank, every day, any more. "That same little old story? Won't you ever be tired of it,--you great girls?" asked the mother; for she had told it to them ever since they were six and eight years old. "Yes! No, never!" said the children. For how _should_ they outgrow it? It was a sunny little bit out of their mother's own child-life. We shall go back to smaller things, one day, maybe, and find them yet more beautiful. It is the _going_ back, together. "The same old way?" "Yes; the very same old way." "We had little open-work straw hats and muslin pelisses,--your Aunt Laura and I,"--began Mrs. Ripwinkley, as she had begun all those scores of times before. "Mother put them on for us,--she dressed us just alike, always,--and told us to take each other's hands, and go up Brier and down Hickory streets, and stop at all the houses that she named, and that we knew; and we were to give her love and compliments, and ask the mothers in each house,--Mrs. Dayton, and Mrs. Holridge (she lived up the long steps), and Mrs. Waldow, and the rest of them, to let Caroline and Grace and Fanny and Susan, and the rest of _them_, come at four o'clock, to spend the afternoon and take tea, if it was convenient." "O, mother!" said Hazel, "you didn't say that when you _asked_ people, you know." "O, no!" said Mrs. Ripwinkley. "That was when we went to stop a little while ourselves, without being asked. Well, it was to please to let them come. And all the ladies were at home, because it was only ten o'clock; and they all sent their love and compliments, and they were much obliged, and the little girls would be very happy. "It was a warm June day; up Brier Street was a steep walk; down Hickory we were glad to keep on the shady side, and thought it was nice that Mrs. Bemys and Mrs. Waldow lived there. The strings of our hats were very moist and clinging when we got home, and Laura had a blue mark under her chin from the green ribbon. "Mother was in her room, in her white dimity morning gown, with little bows up the front, the ends trimmed with cambric edging. She took off our hats and our pelisses,--the tight little sleeves came off wrong side out,--sponged our faces with cool water, and brushed out Laura's curls. That was the only difference between us. I hadn't any curls, and my hair had to be kept cropped. Then she went to her upper bureau drawer and took out two little paper boxes. "'Something has come for Blanche and Clorinda, since you have been gone,' she said, smiling. 'I suppose you have been shopping?' We took the paper boxes, laughing back at her with a happy understanding. We were used to these little plays of mother's, and she couldn't really surprise us with her kindnesses. We went and sat down in the window-seat, and opened them as deliberately and in as grown-up a way as we could. Inside them were two little lace pelerines lined with rose-colored silk. The boxes had a faint smell of musk. The things were so much better for coming in boxes! Mother knew that. "Well, we dressed our dolls, and it was a great long sunshiny forenoon. Mother and Luclarion had done something in the kitchen, and there was a smell of sweet baking in the house. Every now and then we sniffed, and looked at each other, and at mother, and laughed. After dinner we had on our white French calicoes with blue sprigs, and mother said she should take a little nap, and we might go into the parlor and be ready for our company. She always let us receive our own company ourselves at first. And exactly at four o'clock the door-bell rang, and they began to come. "Caroline and Fanny Dayton had on white cambric dresses, and green kid slippers. That was being very much dressed, indeed. Lucy Waldow wore a pink lawn, and Grace Holridge a buff French print. Susan Bemys said her little sister couldn't come because they couldn't find her best shoes. Her mother thought she had thrown them out of the window. "When they all got there we began to play 'Lady Fair;' and we had just got all the 'lady fairs,' one after another, into our ring, and were dancing and singing up and down and round and round, when the door opened and mother walked in. "We always thought our mother was the prettiest of any of the girls' mothers. She had such bright shining hair, and she put it up with shell combs into such little curly puffs. And she never seemed fussy or old, but she came in among us with such a beautiful, smiling way, as if she knew beforehand that it was all right, and there was no danger of any mischief, or that we shouldn't behave well, but she only wanted to see the good time. That day she had on a white muslin dress with little purple flowers on it, and a bow of purple ribbon right in the side of her hair. She had a little piece of fine work in her hand, and after she had spoken to all the little girls and asked them how their mothers were, she went and sat down in one of the front windows, and made little scollops and eyelets. I remember her long ivory stiletto, with a loop of green ribbon through the head of it, and the sharp, tiny, big-bowed scissors that lay in her lap, and the bright, tapering silver thimble on her finger. "Pretty soon the door opened again, softly; a tray appeared, with Hannah behind it. On the tray were little glass saucers with confectionery in them; old-fashioned confectionery,--gibraltars, and colored caraways, and cockles with mottoes. We were in the middle of 'So says the Grand Mufti,' and Grace Holridge was the Grand Mufti. Hannah went up to her first, as she stood there alone, and Grace took a saucer and held it up before the row of us, and said, '_Thus_ says the Grand Mufti!' and then she bit a red gibraltar, and everybody laughed. She did it so quickly and so prettily, putting it right into the play. It was good of her not to say, '_So_ says the Grand Mufti.' At least we thought so then, though Susan Bemys said it would have been funnier. "We had a great many plays in those days, and it took a long afternoon to get through with them. We had not begun to wonder what we should do next, when tea time came, and we went down into the basement room. It wasn't tea, though; it was milk in little clear, pink mugs, some that mother only had out for our parties, and cold water in crimped-edge glasses, and little biscuits, and sponge-cakes, and small round pound-cakes frosted. These were what had smelt so good in the morning. "We stood round the table; there was not room for all of us to sit, and mother helped us, and Hannah passed things round. Susan Bemys took cake three times, and Lucy Waldow opened her eyes wide, and Fanny Dayton touched me softly under the table. "After tea mother played and sung some little songs to us; and then she played the 'Fisher's Hornpipe' and 'Money Musk,' and we danced a little contra-dance. The girls did not all know cotillons, and some of them had not begun to go to dancing-school. Father came home and had his tea after we had done ours, and then he came up into the parlor and watched us dancing. Mr. Dayton came in, too. At about half past eight some of the other fathers called, and some of the mothers sent their girls, and everybody was fetched away. It was nine o'clock when Laura and I went to bed, and we couldn't go to sleep until after the clock struck ten, for thinking and saying what a beautiful time we had had, and anticipating how the girls would talk it all over next day at school. That," said Mrs. Ripwinkley, when she had finished, "was the kind of a party we used to have in Boston when I was a little girl. I don't know what the little girls have now." "Boston!" said Luclarion, catching the last words as she came in, with her pink cape bonnet on, from the Homesworth variety and finding store, and post-office. "You'll talk them children off to Boston, finally, Mrs. Ripwinkley! Nothing ever tugs so at one end, but there's something tugging at the other; and there's never a hint nor a hearing to anybody, that something more doesn't turn up concerning it. Here's a letter, Mrs. Ripwinkley!" Mrs. Ripwinkley took it with some surprise. It was not her sister's handwriting nor Mr. Ledwith's, on the cover; and she rarely had a letter from them that was posted in Boston, now. They had been living at a place out of town for several years. Mrs. Ledwith knew better than to give her letters to her husband for posting. They got lost in his big wallet, and stayed there till they grew old. Who should write to Mrs. Ripwinkley, after all these years, from Boston? She looked up at Luclarion, and smiled. "It didn't take a Solomon," said she, pointing to the postmark. "No, nor yet a black smooch, with only four letters plain, on an invelup. 'Taint that, it's the drift of things. Those girls have got Boston in their minds as hard and fast as they've got heaven; and I mistrust mightily they'll get there first somehow!" The girls were out of hearing, as she said this; they had got their story, and gone back to their red roof and their willow tree. "Why, Luclarion!" exclaimed Mrs. Ripwinkley, as she drew out and unfolded the letter sheet. "It's from Uncle Titus Oldways." "Then he ain't dead," remarked Luclarion, and went away into the kitchen. "MY DEAR FRANCES,--I am seventy-eight years old. It is time I got acquainted with some of my relations. I've had other work to do in the world heretofore (at least I thought I had), and so, I believe, have they. But I have a wish now to get you and your sister to come and live nearer to me, that we may find out whether we really are anything to each other or not. It seems natural, I suppose, that we might be; but kinship doesn't all run in the veins. "I do not ask you to do this with reference to any possible intentions of mine that might concern you after my death; my wish is to do what is right by you, in return for your consenting to my pleasure in the matter, while I am alive. It will cost you more to live in Boston than where you do now, and I have no business to expect you to break up and come to a new home unless I can make it an object to you in some way. You can do some things for your children here that you could not do in Homesworth. I will give you two thousand dollars a year to live on, and secure the same to you if I die. I have a house here in Aspen Street, not far from where I live myself, which I will give to either of you that it may suit. That you can settle between you when you come. It is rather a large house, and Mrs. Ledwith's family is larger, I think, than yours. The estate is worth ten thousand dollars, and I will give the same sum to the one who prefers, to put into a house elsewhere. I wish you to reckon this as all you are ever to expect from me, except the regard I am willing to believe I may come to have for you. I shall look to hear from you by the end of the week. "I remain, yours truly, "TITUS OLDWAYS." "Luclarion!" cried Mrs. Ripwinkley, with excitement, "come here and help me think!" "Only four days to make my mind up in," she said again, when Luclarion had read the letter through. Luclarion folded it and gave it back. "It won't take God four days to think," she answered quietly; "and you can ask _Him_ in four minutes. You and I can talk afterwards." And Luclarion got up and went away a second time into the kitchen. That night, after Diana and Hazel were gone to bed, their mother and Luclarion Grapp had some last words about it, sitting by the white-scoured kitchen table, where Luclarion had just done mixing bread and covered it away for rising. Mrs. Ripwinkley was apt to come out and talk things over at this time of the kneading. She could get more from Luclarion then than at any other opportunity. Perhaps that was because Miss Grapp could not walk off from the bread-trough; or it might be that there was some sympathy between the mixing of her flour and yeast into a sweet and lively perfection, and the bringing of her mental leaven wholesomely to bear. "It looks as if it were meant, Luclarion," said Mrs. Ripwinkley, at last. "And just think what it will be for the children." "I guess it's meant fast enough," replied Luclarion. "But as for what it will be for the children,--why, that's according to what you all make of it. And that's the stump." Luclarion Grapp was fifty-four years old; but her views of life were precisely the same that they had been at twenty-eight. VI. AND. There is a piece of Z----, just over the river, that they call "And." It began among the school-girls; Barbara Holabird had christened it, with the shrewdness and mischief of fourteen years old. She said the "and-so-forths" lived there. It was a little supplementary neighborhood; an after-growth, coming up with the railroad improvements, when they got a freight station established on that side for the East Z---- mills. "After Z----, what should it be but 'And?'" Barbara Holabird wanted to know. The people who lived there called it East Square; but what difference did that make? It was two miles Boston-ward from Z---- centre, where the down trains stopped first; that was five minutes gained in the time between it and the city. Land was cheap at first, and sure to come up in value; so there were some streets laid out at right angles, and a lot of houses put up after a pattern, as if they had all been turned out of blanc-mange moulds, and there was "East Square." Then people began by-and-by to build for themselves, and a little variety and a good deal of ambition came in. They had got to French roofs now; this was just before the day of the multitudinous little paper collar-boxes with beveled covers, that are set down everywhere now, and look as if they could be lifted up by the chimneys, any time, and be carried off with a thumb and finger. Two and a half story houses, Mansarded, looked grand; and the East Square people thought nothing slight of themselves, though the "old places" and the real Z---- families were all over on West Hill. Mrs. Megilp boarded in And for the summer. "Since Oswald had been in business she couldn't go far from the cars, you know; and Oswald had a boat on the river, and he and Glossy enjoyed that so much. Besides, she had friends in Z----, which made it pleasant; and she was tired, for her part, of crowds and fashion. All she wanted was a quiet country place. She knew the Goldthwaites and the Haddens; she had met them one year at Jefferson." Mrs. Megilp had found out that she could get larger rooms in And than she could have at the mountains or the sea-shore, and at half the price; but this she did not mention. Yet there was nothing shabby in it, except her carefully _not_ mentioning it. Mrs. Megilp was Mrs. Grant Ledwith's chief intimate and counselor. She was a good deal the elder; that was why it was mutually advantageous. Grant Ledwith was one of the out-in-the-world, up-to-the-times men of the day; the day in which everything is going, and everybody that is in active life has, somehow or other, all that is going. Grant Ledwith got a good salary, an inflated currency salary; and he spent it all. His daughters were growing up, and they were stylish and pretty; Mrs. Megilp took a great interest in Agatha and Florence Ledwith, and was always urging their mother to "do them justice." "Agatha and Florence were girls who had a right to every advantage." Mrs. Megilp was almost old enough to be Laura Ledwith's mother; she had great experience, and knowledge of the world; and she sat behind Laura's conscience and drove it tandem with her inclination. Per contra, it was nice for Mrs. Megilp, who was a widow, and whose income did not stretch with the elasticity of the times, to have friends who lived like the Ledwiths, and who always made her welcome; it was a good thing for Glossy to be so fond of Agatha and Florence, and to have them so fond of her. "She needed young society," her mother said. One reason that Glossy Megilp needed young society might be in the fact that she herself was twenty-six. Mrs. Megilp had advised the Ledwiths to buy a house in Z----. "It was just far enough not to be suburban, but to have a society of its own; and there _was_ excellent society in Z----, everybody knew. Boston was hard work, nowadays; the distances were getting to be so great." Up to the West and South Ends,--the material distances,--she meant to be understood to say; but there was an inner sense to Mrs. Megilp's utterances, also. "One might as well be quite out of town; and then it was always something, even in such city connection as one might care to keep up, to hail from a well-recognized social independency; to belong to Z---- was a standing, always. It wasn't like going to Forest Dell, or Lakegrove, or Bellair; cheap little got-up places with fancy names, that were strung out on the railroads like French gilt beads on a chain." But for all that, Mrs. Ledwith had only got into "And;" and Mrs. Megilp knew it. Laura did not realize it much; she had bowing and speaking acquaintance with the Haddens and the Hendees, and even with the Marchbankses, over on West Hill; and the Goldthwaites and the Holabirds, down in the town, she knew very well. She did not care to come much nearer; she did not want to be bound by any very stringent and exclusive social limits; it was a bother to keep up to all the demands of such a small, old-established set. Mrs. Hendee would not notice, far less be impressed by the advent of her new-style Brussels carpet with a border, or her full, fresh, Nottingham lace curtains, or the new covering of her drawing-room set with cuir-colored terry. Mrs. Tom Friske and Mrs. Philgry, down here at East Square, would run in, and appreciate, and admire, and talk it all over, and go away perhaps breaking the tenth commandment amiably in their hearts. Mrs. Ledwith's nerves had extended since we saw her as a girl; they did not then go beyond the floating ends of her blue or rose-colored ribbons, or, at furthest, the tip of her jaunty laced sunshade; now they ramified,--for life still grows in some direction,--to her chairs, and her china, and her curtains, and her ruffled pillow-shams. Also, savingly, to her children's "suits," and party dresses, and pic-nic hats, and double button gloves. Savingly; for there is a leaven of grace in mother-care, even though it be expended upon these. Her friend, Mrs. Inchdeepe, in Helvellyn Park, with whom she dined when she went shopping in Boston, had _nothing_ but her modern improvements and her furniture. "My house is my life," she used to say, going round with a Canton crape duster, touching tenderly carvings and inlayings and gildings. Mrs. Megilp was spending the day with Laura Ledwith; Glossy was gone to town, and thence down to the sea-shore, with some friends. Mrs. Megilp spent a good many days with Laura. She had large, bright rooms at her boarding-house, but then she had very gristly veal pies and thin tapioca puddings for dinner; and Mrs. Megilp's constitution required something more generous. She was apt to happen in at this season, when Laura had potted pigeons. A little bird told her; a dozen little birds, I mean, with their legs tied together in a bunch; for she could see the market wagon from her window, when it turned up Mr. Ledwith's avenue. Laura had always the claret pitcher on her dinner table, too; and claret and water, well-sugared, went deliciously with the savory stew. They were up-stairs now, in Laura's chamber; the bed and sofa were covered with silk and millinery; Laura was looking over the girls' "fall things;" there was a smell of sweet marjoram and thyme and cloves, and general richness coming up from the kitchen; there was a bland sense of the goodness of Providence in Mrs. Megilp's--no, not heart, for her heart was not very hungry; but in her eyes and nostrils. She was advising Mrs. Ledwith to take Desire and Helena's two green silks and make them over into one for Helena. "You can get two whole back breadths then, by piecing it up under the sash; and you _can't_ have all those gores again; they are quite done with. Everybody puts in whole breadths now. There's just as much difference in the _way_ of goring a skirt, as there is between gores and straight selvages." "They do hang well, though; they have such a nice slope." "Yes,--but the stripes and the seams! Those tell the story six rods off; and then there _must_ be sashes, or postillions, or something; they don't make anything without them; there isn't any finish to a round waist unless you have something behind." "They wore belts last year, and I bought those expensive gilt buckles. I'm sure they used to look sweetly. But there! a fashion doesn't last nowadays while you're putting a thing on and walking out of the house!" "And don't put in more than three plaits," pursued Mrs. Megilp, intent on the fate of the green silks. "Everything is gathered; you see that is what requires the sashes; round waists and gathers have a queer look without." "If you once begin to alter, you've got to make all over," said Mrs. Ledwith, a little fractiously, putting the scissors in with unwilling fingers. She knew there was a good four days' work before her, and she was quick with her needle, too. "Never mind; the making over doesn't cost anything; you turn off work so easily; and then you've got a really stylish thing." "But with all the ripping and remodelling, I don't get time to turn round, myself, and _live_! It is all fall work, and spring work, and summer work and winter work. One drive rushes pell-mell right over another. There isn't time enough to make things and have them; the good of them, I mean." "The girls get it; we have to live in our children," said Mrs. Megilp, self-renouncingly. "I can never rest until Glossy is provided with everything; and you know, Laura, I _am_ obliged to contrive." Mrs. Megilp and her daughter Glaucia spent about a thousand dollars a year, between them, on their dress. In these days, this is a limited allowance--for the Megilps. But Mrs. Megilp was a woman of strict pecuniary principle; the other fifteen hundred must pay all the rest; she submitted cheerfully to the Divine allotment, and punctually made the two ends meet. She will have this to show, when the Lord of these servants cometh and reckoneth with them, and that man who has been also in narrow circumstances, brings his nicely kept talent out of his napkin. Desire Ledwith, a girl of sixteen, spoke suddenly from a corner where she sat with a book,-- "I do wonder who '_they_' are, mamma!" "Who?" said Mrs. Ledwith, half rising from her chair, and letting some breadths of silk slide down upon the floor from her lap, as she glanced anxiously from the window down the avenue. She did not want any company this morning. "Not that, mamma; I don't mean anybody coming. The 'theys' that wear, and don't wear, things; the theys you have to be just like, and keep ripping and piecing for." "You absurd child!" exclaimed Mrs. Ledwith, pettishly. "To make me spill a whole lapful of work for that! They? Why, everybody, of course." "Everybody complains of them, though. Jean Friske says her mother is all discouraged and worn out. There isn't a thing they had last year that won't have to be made over this, because they put in a breadth more behind, and they only gore side seams. And they don't wear black capes or cloth sacks any more with all kinds of dresses; you must have suits, clear through. It seems to me 'they' is a nuisance. And if it's everybody, we must be part of it. Why doesn't somebody stop?" "Desire, I wish you'd put away your book, and help, instead of asking silly questions. You can't make the world over, with 'why don'ts?'" "I'll _rip_," said Desire, with a slight emphasis; putting her book down, and coming over for a skirt and a pair of scissors. "But you know I'm no good at putting together again. And about making the world over, I don't know but that might be as easy as making over all its clothes, I'd as lief try, of the two." Desire was never cross or disagreeable; she was only "impracticable," her mother said. "And besides that, she didn't know what she really did want. She was born hungry and asking, with those sharp little eyes, and her mouth always open while she was a baby. 'It was a sign,' the nurse said, when she was three weeks old. And then the other sign,--that she should have to be called 'Desire!'" Mrs. Megilp--for Mrs. Megilp had been in office as long ago as that--had suggested ways of getting over or around the difficulty, when Aunt Desire had stipulated to have the baby named for her, and had made certain persuasive conditions. "There's the pretty French turn you might give it,--'Desirée.' Only one more 'e,' and an accent. That is so sweet, and graceful, and distinguished!" "But Aunt Desire won't have the name twisted. It is to be real, plain Desire, or not at all." Mrs. Megilp had shrugged her shoulders. "Well, of course it can be that, to christen by, and marry by, and be buried by. But between whiles,--people pick up names,--you'll see!" Mrs. Megilp began to call her "Daisy" when she was two years old. Nobody could help what Mrs. Megilp took a fancy to call her by way of endearment, of course; and Daisy she was growing to be in the family, when one day, at seven years old, she heard Mrs. Megilp say to her mother,-- "I don't see but that you've all got your _Desire_, after all. The old lady is satisfied; and away up there in Hanover, what can it signify to her? The child is 'Daisy,' practically, now, as long as she lives." The sharp, eager little gray eyes, so close together in the high, delicate head, glanced up quickly at speaker and hearer. "What old lady, mamma, away up in Hanover?" "Your Aunt Desire, Daisy, whom you were named for. She lives in Hanover. You are to go and see her there, this summer." "Will she call me Daisy?" The little difficulty suggested in this question had singularly never occurred to Mrs. Ledwith before. Miss Desire Ledwith never came down to Boston; there was no danger at home. "No. She is old-fashioned, and doesn't like pet names. She will call you Desire. That is your name, you know." "Would it signify if she thought you called me Daisy?" asked the child frowning half absently over her doll, whose arm she was struggling to force into rather a tight sleeve of her own manufacture. "Well, perhaps she might not exactly understand. People always went by their names when she was a child, and now hardly anybody does. She was very particular about having you called for her, and you _are_, you know. I always write 'Desire Ledwith' in all your books, and--well, I always _shall_ write it so, and so will you. But you can be Daisy when we make much of you here at home, just as Florence is Flossie." "No, I can't," said the little girl, very decidedly, getting up and dropping her doll. "Aunt Desire, away up in Hanover, is thinking all the time that there is a little Desire Ledwith growing up down here. I don't mean to have her cheated. I'm going to went by my name, as she did. Don't call me Daisy any more, all of you; for I shan't come!" The gray eyes sparkled; the whole little face scintillated, as it were. Desire Ledwith had a keen, charged little face; and when something quick and strong shone through it, it was as if somewhere behind it there had been struck fire. She was true to that through all the years after; going to school with Mabels and Ethels and Graces and Ediths,--not a girl she knew but had a pretty modern name,--and they all wondering at that stiff little "Desire" of hers that she would go by. When she was twelve years old, the old lady up in Hanover had died, and left her a gold watch, large and old-fashioned, which she could only keep on a stand in her room,--a good solid silver tea-set, and all her spoons, and twenty-five shares in the Hanover Bank. Mrs. Megilp called her Daisy, with gentle inadvertence, one day after that. Desire lifted her eyes slowly at her, with no other reply in her face, or else. "You might please your mother now, I think," said Mrs. Megilp. "There is no old lady to be troubled by it." "A promise isn't ever dead, Mrs. Megilp," said Desire, briefly. "I shall keep our words." "After all," Mrs. Megilp said privately to the mother, "there is something quietly aristocratic in an old, plain, family name. I don't know that it isn't good taste in the child. Everybody understands that it was a condition, and an inheritance." Mrs. Megilp had taken care of that. She was watchful for the small impressions she could make in behalf of her particular friends. She carried about with her a little social circumference in which all was preëminently as it should be. But,--as I would say if you could not see it for yourself--this is a digression. We will go back again. "If it were any use!" said Desire, shaking out the deep plaits as she unfastened them from the band. "But you're only a piece of everybody after all. You haven't anything really new or particular to yourself, when you've done. And it takes up so much time. Last year, this was so pretty! _Isn't_ anything actually pretty in itself, or can't they settle what it is? I should think they had been at it long enough." "Fashions never were so graceful as they are this minute," said Mrs. Megilp. "Of course it is art, like everything else, and progress. The world is getting educated to a higher refinement in it, every day. Why, it's duty, child!" she continued, exaltedly. "Think what the world would be if nobody cared. We ought to make life beautiful. It's meant to be. There's not only no virtue in ugliness, but almost no virtue _with_ it, I think. People are more polite and good-natured when they are well dressed and comfortable." "_That's_ dress, too, though," said Desire, sententiously. "You've got to stay at home four days, and rip, and be tired, and cross, and tried-on-to, and have no chance to do anything else, before you can put it all on and go out and be good-natured and bland, and help put the beautiful face on the world, _one_ day. I don't believe it's political economy." "Everybody doesn't have to do it for themselves. Really, when I hear people blamed for dress and elegance,--why, the very ones who have the most of it are those who sacrifice the least time to it. They just go and order what they want, and there's the end of it. When it comes home, they put it on, and it might as well be a flounced silk as a plain calico." "But we _do_ have to think, Mrs. Megilp. And work and worry. And then we _can't_ turn right round in the things we know every stitch of and have bothered over from beginning to end, and just be lilies of the field!" "A great many people do have to wash their own dishes, and sweep, and scour; but that is no reason it ought not to be done. I always thought it was rather a pity that was said, _just so_," Mrs. Megilp proceeded, with a mild deprecation of the Scripture. "There _is_ toiling and spinning; and will be to the end of time, for some of us." "There's cauliflower brought for dinner, Mrs. Ledwith," said Christina, the parlor girl, coming in. "And Hannah says it won't go with the pigeons. Will she put it on the ice for to-morrow?" "I suppose so," said Mrs. Ledwith, absently, considering a breadth that had a little hitch in it. "Though what we shall have to-morrow I'm sure I don't know," she added, rousing up. "I wish Mr. Ledwith wouldn't send home the first thing he sees, without any reference." "And here's the milkman's bill, and a letter," continued Christina, laying them down on a chair beside her mistress, and then departing. Great things come into life so easily, when they do come, right alongside of milk-bills and cabbages! And yet one may wait so long sometimes for anything to happen _but_ cabbages! The letter was in a very broad, thick envelope, and sealed with wax. Mrs. Ledwith looked at it curiously before she opened it. She did not receive many letters. She had very little time for correspondence. It was addressed to "Mrs. Laura Ledwith." That was odd and unusual, too. Mrs. Megilp glanced at her over the tortoise-shell rims of her eye-glasses, but sat very quiet, lest she should delay the opening. She would like to know what could be in that very business-like looking despatch, and Laura would be sure to tell her. It must be something pretty positive, one way or another; it was no common-place negative communication. Laura might have had property left her. Mrs. Megilp always thought of possibilities like that. When Laura Ledwith had unfolded the large commercial sheet, and glanced down the open lines of square, upright characters, whose purport could be taken in at sight, like print, she turned very red with a sudden excitement. Then all the color dropped away, and there was nothing in her face but blank, pale, intense surprise. "It is a most _won_derful thing!" said she, at last, slowly; and her breath came like a gasp with her words. "My great-uncle, Mr. Oldways." She spoke those four words as if from them Mrs. Megilp could understand everything. Mrs. Megilp thought she did. "Ah! Gone?" she asked, pathetically. "Gone! No, indeed!" said Mrs. Ledwith. "He wrote the letter. He wants me to _come_; me, and all of us,--to Boston, to live; and to get acquainted with him." "My dear," said Mrs. Megilp, with the promptness and benignity of a Christian apostle, "it's your duty to go." "And he offers me a house, and two thousand dollars a year." "My dear," said Mrs. Megilp, "it is _emphatically_ your duty to go." All at once something strange came over Laura Ledwith. She crumpled the letter tight in her hands with a clutch of quick excitement, and began to choke with a little sob, and to laugh at the same time. "Don't give way!" cried Mrs. Megilp, coming to her and giving her a little shake and a slap. "If you do once you will again, and you're _not_ hystericky!" "He's sent for Frank, too. Frank and I will be together again in dear old Boston! But--we can't be children and sit on the shed any more; and--it _isn't_ dear old Boston, either!" And then Laura gave right up, and had a good cry for five minutes. After that she felt better, and asked Mrs. Megilp how she thought a house in Spiller Street would do. But she couldn't rip any more of those breadths that morning. Agatha and Florence came in from some calls at the Goldthwaites and the Haddens, and the news was told, and they had their bonnets to take off, and the dinner-bell rang, and the smell of the spicy pigeon-stew came up the stairs, all together. And they went down, talking fast; and one said "house," and another "carpets," and another "music and German;" and Desire, trailing a breadth of green silk in her hand that she had never let go since the letter was read, cried out, "oratorios!" And nobody quite knew what they were going down stairs for, or had presence of mind to realize the pigeons, or help each other or themselves properly, when they got there! Except Mrs. Megilp, who was polite and hospitable to them all, and picked two birds in the most composed and elegant manner. When the dessert was put upon the table, and Christina, confusedly enlightened as to the family excitement, and excessively curious, had gone away into the kitchen, Mrs. Ledwith said to Mrs. Megilp,-- "I'm not sure I should fancy Spiller Street, after all; it's a sort of a corner. Westmoreland Street or Helvellyn Park might be nice. I know people down that way,--Mrs. Inchdeepe." "Mrs. Inchdeepe isn't exactly 'people,'" said Mrs. Megilp, in a quiet way that implied more than grammar. "Don't get into 'And' in Boston, Laura!--With such an addition to your income, and what your uncle gives you toward a house, I don't see why you might not think of Republic Avenue." "We shall have plenty of thinking to do about everything," said Laura. "Mamma," said Agatha, insinuatingly, "I'm thinking, already; about that rose-pink paper for my room. I'm glad now I didn't have it here." Agatha had been restless for white lace, and rose-pink, and a Brussels carpet ever since her friend Zarah Thoole had come home from Europe and furnished a morning-room. All this time Mr. Grant Ledwith, quite unconscious of the impending changes with which his family were so far advanced in imagination, was busy among bales and samples in Devonshire Street. It got to be an old story by the time the seven o'clock train was in, and he reached home. It was almost as if it had all happened a year ago, and they had been waiting for him to come home from Australia. There was so much to explain to him that it was really hard to make him understand, and to bring him up to the point from which they could go on together. VII. WAKING UP. The Ledwiths took apartments in Boston for a month. They packed away the furniture they wanted to keep for upper rooms, in the attics of their house at Z----. They had an auction of all the furniture of their drawing-room, dining-room, library, and first floor of sleeping-rooms. Then they were to let their house. Meanwhile, one was to be fixed upon and fitted up in Boston. In all this Mrs. Megilp advised, invaluably. "It's of no use to move things," she said. "Three removes are as bad as a fire; and nothing ever fits in to new places. Old wine and new bottles, you know! Clear all off with a country auction. Everybody comes, and they all fight for everything. Things bring more than their original cost. Then you've nothing to do but order according to your taste." Mr. Oldways had invited both his nieces to his own house on their arrival. But here again Mrs. Megilp advised,--so judiciously. "There are too many of you; it would be a positive infliction. And then you'll have all your running about and planning and calculating to do, and the good old gentleman would think he had pulled half Boston down about his ears. Your sister can go there; it would be only generous and thoughtful to give way to her. There are only three of them, and they are strange, you know, to every thing, and wouldn't know which way to turn. I can put you in the way of rooms at the Bellevue, exactly the thing, for a hundred and fifty a month. No servants, you see; meals at the restaurant, and very good, too. The Wedringtons are to give them up unexpectedly; going to Europe; poor Mrs. Wedrington is so out of health. And about the house; don't decide in a hurry; see what your uncle says, and your sister. It's very likely she'll prefer the Aspen Street house; and it _would_ be out of the way for you. Still it is not to be _refused_, you know; of course it is very desirable in many respects; roomy, old-fashioned, and a garden. I think your sister will like those things; they're what she has been used to. If she does, why it's all comfortably settled, and nobody refuses. It is so ungracious to appear to object; a gift horse, you know." "Not to be refused; only by no means to be taken; masterly inactivity till somebody else is hooked; and then somebody else is to be grateful for the preference. I wish Mrs. Megilp wouldn't shine things up so; and that mother wouldn't go to her to black all her boots!" Desire said this in secret, indignant discomfort, to Helena, the fourth in the family, her chum-sister. Helena did very well to talk to; she heard anything; then she pranced round the room and chaffed the canary. "Chee! chee! chee! chiddle, iddle, iddle, iddle, e-e-ee! Where do you keep all your noise and your breath? You're great, aren't you? You do that to spite people that have to work up one note at a time. You don't take it in away down under your belt, do you? You're not particular about that. You don't know much, after all. You don't know _how_ you do it. You aren't learning of Madame Caroletti. And you haven't learned two quarters, any way. You were only just born last spring. Set up! Tr-r-r-r-e-e-ee! I can do that myself. I don't believe you've got an octave in you. Poh!" Mrs. Ripwinkley came down from the country with a bonnet on that had a crown, and with not a particle of a chignon. When she was married, twenty-five years before, she wore a French twist,--her hair turned up in waves from her neck as prettily as it did away from her forehead,--and two thick coiled loops were knotted and fastened gracefully at the top. She had kept on twisting her hair so, all these years; and the rippling folds turned naturally under her fingers into their places. The color was bright still, and it had not thinned. Over her brows it parted richly, with no fuzz or crimp; but a sweet natural wreathing look that made her face young. Mrs. Ledwith had done hers over slate-pencils till she had burned it off; and now tied on a friz, that came low down, for fashion's sake, and left visible only a little bunch of puckers between her eyebrows and the crowsfeet at the corners. The back of her head was weighted down by an immense excrescence in a bag. Behind her ears were bare places. Mrs. Ledwith began to look old-young. And a woman cannot get into a worse stage of looks than that. Still, she was a showy woman--a good exponent of the reigning style; and she was handsome--she and her millinery--of an evening, or in the street. When I began that last paragraph I meant to tell you what else Mrs. Ripwinkley brought with her, down out of the country and the old times; but hair takes up a deal of room. She brought down all her dear old furniture. That is, it came after her in boxes, when she had made up her mind to take the Aspen Street house. "Why, that's the sofa Oliver used to lie down on when he came home tired from his patients, and that's the rocking-chair I nursed my babies in; and this is the old oak table we've sat round three times a day, the family of us growing and thinning, as the time went on, all through these years. It's like a communion table, now, Laura. Of course such things had to come." This was what she answered, when Laura ejaculated her amazement at her having brought "old Homesworth truck" to Boston. "You see it isn't the walls that make the home; we can go away from them and not break our hearts, so long as our own goes with us. The little things that we have used, and that have grown around us with our living,--they are all of living that we can handle and hold on to; and if I went to Spitzbergen, I should take as many of them as I could." The Aspen Street house just suited Mrs. Ripwinkley, and Diana, and Hazel. In the first place, it was wooden; built side to the street, so that you went up a little paved walk, in a shade of trees, to get to the door; and then the yard, on the right hand side as you came in, was laid out in narrow walks between borders of blossoming plants. There were vines against the brick end of the next building,--creepers and morning-glories, and white and scarlet runners; and a little martin-box was set upon a pole in the still, farther corner. The rooms of the house were low, but large; and some of the windows had twelve-paned sashes,--twenty-four to a window. Mrs. Ripwinkley was charmed with these also. They were like the windows at Mile Hill. Mrs. Ledwith, although greatly relieved by her sister's prompt decision for the house which she did _not_ want, felt it in her conscience to remonstrate a little. "You have just come down from the mountains, Frank, after your twenty-five years' sleep; you've seen nothing by and by you will think differently. This house is fearfully old-fashioned, _fearfully_; and it's away down here on the wrong side of the hill. You can never get up over Summit Street from here." "We are used to hills, and walking." "But I mean--that isn't all. There are other things you won't be able to get over. You'll never shake off Aspen Street dust,--you nor the children." "I don't think it is dusty. It is quiet, and sheltered, and clean. I like it ever so much," said Mrs. Ripwinkley. "O, dear, you don't understand in the least! It's wicked to let you go on so! You poor, dear, simple little old soul!" "Never mind," said Mrs. Megilp. "It's all well enough for the present. It pleases the old gentleman, you know; and after all he's done, he ought to be pleased. One of you should certainly be in his neighborhood. _He_ has been here from time immemorial; and any place grows respectable by staying in it long enough--from _choice_. Nobody will wonder at Mrs. Ripwinkley's coming here at his request. And when she _does_ move, you see, she will know exactly what she is about." "I almost doubt if she ever _will_ know what she is about," said Laura. "In that case,--well,"--said Mrs. Megilp, and stopped, because it really was not in the least needful to say more. Mrs. Megilp felt it judicious, for many reasons, that Mrs. Ripwinkley should he hidden away for awhile, to get that mountain sleep out of her eyes, if it should prove possible; just as we rub old metal with oil and put it by till the rust comes off. The Ledwiths decided upon a house in Shubarton Place that would not seem quite like taking old Uncle Titus's money and rushing away with it as far as city limits would allow; and Laura really did wish to have the comfort of her sister's society, in a cozy way, of mornings, up in her room; that was her chief idea about it. There were a good many times and things in which she scarcely expected much companionship from Frank. She would not have said even to herself, that Frank was rusty; and she would do her faithful and good-natured best to rub her up; but there was an instinct with her of the congruous and the incongruous; and she would not do her Bath-brick polishing out on the public promenade. They began by going together to the carpet stores and the paper warehouses; but they ended in detailing themselves for separate work; their ideas clashed ridiculously, and perpetually confused each other. Frank remembered loyally her old brown sofa and chairs; she would not have gay colors to put them out of countenance; for even if she re-covered them, she said they should have the same old homey complexion. So she chose a fair, soft buff, with a pattern of brown leaves, for her parlor paper; Mrs. Ledwith, meanwhile, plunging headlong into glories of crimson and garnet and gold. Agatha had her blush pink, in panels, with heart-of-rose borders, set on with delicate gilt beadings; you would have thought she was going to put herself up, in a fancy-box, like a French _mouchoir_ or a _bonbon_. "Why _don't_ you put your old brown things all together in an up-stairs room, and call it Mile Hill? You could keep it for old times' sake, and sit there mornings; the house is big enough; and then have furniture like other people's in the parlor?" "You see it wouldn't be _me_." said Mrs. Ripwinkley, simply. "They keep saying it 'looks,' and 'it looks,'" said Diana to her mother, at home. "Why must everything _look_ somehow?" "And every_body_, too," said Hazel. "Why, when we meet any one in the street that Agatha and Florence know, the minute they have gone by they say, 'She didn't look well to-day,' or, 'How pretty she did look in that new hat!' And after the great party they went to at that Miss Hitchler's, they never told a word about it except how girls 'looked.' I wonder what they _did_, or where the good time was. Seems to me people ain't living,--they are only just looking; or _is_ this the same old Boston that you told about, and where are the real folks, mother?" "We shall find them," said Mrs. Ripwinkley, cheerily; "and the real of these, too, when the outsides are settled. In the meantime, we'll make our house say, and not look. Say something true, of course. Things won't say anything else, you see; if you try to make them, they don't speak out; they only stand in a dumb show and make faces." "That's looking!" said Hazel. "Now I know." "How those children do grow!" said Mrs. Ripwinkley, as they went off together. "Two months ago they were sitting out on the kitchen roof, and coming to me to hear the old stories!" "Transplantin'," said Luclarion. "That's done it." At twelve and fourteen, Hazel and Diana could be simple as birds,--simpler yet, as human children waiting for all things,--in their country life and their little dreams of the world. Two months' contact with people and things in a great city had started the life that was in them, so that it showed what manner of growth it was to be of. And little Hazel Ripwinkley had got hold already of the small end of a very large problem. But she could not make it out that this was the same old Boston that her mother had told about, or where the nice neighbors were that would be likely to have little tea-parties for their children. VIII. EAVESDROPPING IN ASPEN STREET. Some of the old builders,--not the _very_ old ones, for they built nothing but rope-walks down behind the hill,--but some of those who began to go northwest from the State House to live, made a pleasant group of streets down there on the level stretching away to the river, and called them by fresh, fragrant, country-suggesting names. Names of trees and fields and gardens, fruits and blossoms; and they built houses with gardens around them. In between the blocks were deep, shady places; and the smell of flowers was tossed back and forth by summer winds between the walls. Some nice old people stayed on there, and a few of their descendants stay on there still, though they are built in closely now, for the most part, and coarse, common things have much intruded, and Summit Street overshadows them with its palaces. Here and there a wooden house, set back a little, like this of the Ripwinkleys in Aspen Street, gives you a feeling of Boston in the far back times, as you go by; and here and there, if you could get into the life of the neighborhood, you might perhaps find a household keeping itself almost untouched with change, though there has been such a rush and surge for years up and over into the newer and prouder places. At any rate, Titus Oldways lived here in Greenley Street; and he owned the Aspen Street house, and another over in Meadow Place, and another in Field Court. He meant to stretch his control over them as long as he could, and keep them for families; therefore he valued them at such rates as they would bring for dwellings; he would not sell or lease them for any kind of "improvements;" he would not have their little door-yards choked up, or their larger garden spaces destroyed, while he could help it. Round in Orchard Street lived Miss Craydocke. She was away again, now, staying a little while with the Josselyns in New York. Uncle Titus told Mrs. Ripwinkley that when Miss Craydocke came back it would be a neighborhood, and they could go round; now it was only back and forth between them and him and Rachel Froke. There were other people, too, but they would be longer finding them out. "You'll know Miss Craydocke as soon as you see her; she is one of those you always seem to have seen before." Now Uncle Titus would not have said this to everybody; not even if everybody had been his niece, and had come to live beside him. Orchard Street is wide and sunny and pleasant; the river air comes over it and makes it sweet; and Miss Craydocke's is a big, generous house, of which she only uses a very little part herself, because she lets the rest to nice people who want pleasant rooms and can't afford to pay much rent; an old gentleman who has had a hard time in the world, but has kept himself a gentleman through it all, and his little cheery old lady-wife who puts her round glasses on and stitches away at fine women's under-garments and flannel embroideries, to keep things even, have the two very best rooms; and a clergyman's widow, who copies for lawyers, and writes little stories for children, has another; and two orphan sisters who keep school have another; and Miss Craydocke calls her house the Beehive, and buzzes up and down in it, and out and in, on little "seeing-to" errands of care and kindness all day long, as never any queen-bee did in any beehive before, but in a way that makes her more truly queen than any sitting in the middle cell of state to be fed on royal jelly. Behind the Beehive, is a garden, as there should be; great patches of lily-of-the valley grow there that Miss Craydocke ties up bunches from in the spring and gives away to little children, and carries into all the sick rooms she knows of, and the poor places. I always think of those lilies of the valley when I think of Miss Craydocke. It seems somehow as if they were blooming about her all the year through; and so they are, perhaps, invisibly. The other flowers come in their season; the crocuses have been done with first of all; the gay tulips and the snowballs have made the children glad when they stopped at the gate and got them, going to school. Miss Craydocke is always out in her garden at school-time. By and by there are the tall white lilies, standing cool and serene in the July heats; then Miss Craydocke is away at the mountains, pressing ferns and drying grasses for winter parlors; but there is somebody on duty at the garden dispensary always, and there are flower-pensioners who know they may come in and take the gracious toll. Late in the autumn, the nasturtiums and verbenas and marigolds are bright; and the asters quill themselves into the biggest globes they can, of white and purple and rose, as if it were to make the last glory the best, and to do the very utmost of the year. Then the chrysanthemums go into the house and bloom there for Christmas-time. There is nothing else like Miss Craydocke's house and garden, I do believe, in all the city of the Three Hills. It is none too big for her, left alone with it, the last of her family; the world is none too big for her; she is glad to know it is all there. She has a use for everything as fast as it comes, and a work to do for everybody, as fast as she finds them out. And everybody,--almost,--catches it as she goes along, and around her there is always springing up a busy and a spreading crystallizing of shining and blessed elements. The world is none too big for her, or for any such, of course, because,--it has been told why better than I can tell it,--because "ten times one is always ten." It was a gray, gusty morning. It had not set in to rain continuously; but the wind wrung handfuls of drops suddenly from the clouds, and flung them against the panes and into the wayfarers' faces. Over in the house opposite the Ripwinkley's, at the second story windows, sat two busy young persons. Hazel, sitting at her window, in "mother's room," where each had a corner, could see across; and had got into the way of innocent watching. Up in Homesworth, she had used to watch the robins in the elm-trees; here, there was human life, in little human nests, all about her. "It's the same thing, mother," she would say, "isn't it, now? Don't you remember in that book of the 'New England Housekeeper,' that you used to have, what the woman said about the human nature of the beans? It's in beans, and birds, and bird's nests; and folks, and folks' nests. It don't make much difference. It's just snugness, and getting along. And it's so nice to see!" Hazel put her elbows up on the window-sill, and looked straight over into that opposite room, undisguisedly. The young man, in one window, said to his sister in the other, at the same moment,-- "Our company's come! There's that bright little girl again!" And the sister said, "Well, it's pretty much all the company we can take in! She brings her own seat and her own window; and she doesn't interrupt. It's just the kind for us, Kentie!" "She's writing,--copying something,--music, it looks like; see it there, set up against the shutter. She always goes out with a music roll in her hand. I wonder whether she gives or takes?" said Diana, stopping on her way to her own seat to look out over Hazel's shoulder. "Both, I guess," said Mrs. Ripwinkley. "Most people do. Why don't you put your flowers in the window, Hazel?" "Why, so I will!" They were a great bunch of snowy white and deep crimson asters, with green ivy leaves, in a tall gray glass vase. Rachel Froke had just brought them in from Miss Craydocke's garden. "They're looking, mother! Only I do think it's half too bad! That girl seems as if she would almost reach across after them. Perhaps they came from the country, and haven't had any flowers." "Thee might take them over some," said Mrs. Froke, simply. "O, I shouldn't dare! There are other people in the house, and I don't know their names, or anything. I wish I could, though." "I can," said Rachel Froke. "Thee'll grow tall enough to step over pebbles one of these days. Never mind; I'll fetch thee more to-morrow; and thee'll let the vase go for a while? Likely they've nothing better than a tumbler." Rachel Froke went down the stairs, and out along the paved walk, into the street. She stopped an instant on the curb-stone before she crossed, and looked up at those second story windows. Hazel watched her. She held up the vase slightly with one hand, nodding her little gray bonnet kindly, and beckoned with the other. The young girl started from her seat. In another minute Hazel saw them together in the doorway. There was a blush and a smile, and an eager brightness in the face, and a quick speaking thanks, that one could read without hearing, from the parted lips, on the one side, and the quiet, unflutterable gray bonnet calmly horizontal on the other; and then the door was shut, and Rachel Froke was crossing the damp pavement again. "I'm so glad Aspen Street is narrow!" said Hazel. "I should hate to be way off out of sight of people. What did you say to her, Mrs. Froke?" she asked, as the Friend reentered. Hazel could by no means take the awful liberty of "Rachel." "I said the young girl, Hazel Ripwinkley, being from the country, knew how good flowers were to strangers in the town, and that she thought they might be strange, and might like some." Hazel flushed all up. At that same instant, a gentle nod and smile came across from window to window, and she flushed more, till the tears sprung with the shy, glad excitement, as she returned it and then shrunk away. "And she said, 'Thank her, with Dorris Kincaid's love,'" proceeded Rachel Froke. "O, _mother_!" exclaimed Hazel. "And you did it all, right off so, Mrs. Froke. I don't see how grown up people dare, and know how!" Up the stairs ran quick feet in little clattering heeled boots. Desire Ledwith, with a purple waterproof on, came in. "I couldn't stay at home to-day," she said, "I wanted to be where it was all-togetherish. It never is at our house. Now it's set up, they don't do anything with it." "That's because it '_looks_'--so elegant," said Hazel, catching herself up in dismay. "It's because it's the crust, I think," said Desire. "Puff paste, like an oyster patty; and they haven't got anything cooked yet for the middle. I wonder when they will. I had a call yesterday, all to myself," she went on, with a sudden change of tone and topic. "Agatha was hopping and I wouldn't tell her what I said, or how I behaved. That new parlor girl of ours thinks we're all or any of us 'Miss Ledwith,' mamma included, and so she let him in. He had on lavender pantaloons and a waxed moustache." "The rain is just pouring down!" said Diana, at the garden window. "Yes; I'm caught. That's what I meant," said Desire. "You've got to keep me all day, now. How will you get home, Mrs. Froke? Or won't you have to stay, too?" "Thee may call me Rachel, Desire Ledwith, if thee pleases. I like it better. I am no mistress. And for getting home, it is but just round the corner. But there is no need yet. I came for an hour, to sit here with friend Frances. And my hour is not yet up." "I'm glad of that, for there is something I want you to tell me. I haven't quite got at it myself, yet; so as to ask, I mean. Wait a minute!" And she put her elbows up on her knees, and held her thumbs against her ears, and her fingers across her forehead; sitting squarely opposite the window to which she had drawn up her chair beside Diane, and looking intently at the driving streams that rushed and ran down against the glass. "I was sitting in the bay-window at home, when it began this morning; that made me think. All the world dripping wet, and I just put there dry and safe in the middle of the storm, shut up behind those great clear panes and tight sashes. How they did have to contrive, and work, before there were such places made for people! What if they had got into their first scratchy little houses, and sat behind the logs as we do behind glass windows and thought, as I was thinking, how nice it was just to be covered up from the rain? Is it all finished now? Hasn't anybody got to contrive anything more? And who's going to do it--and everything. And what are we good for,--just _we_,--to come and expect it all, modern-improved! I don't think much of our place among things, do you, Mrs. Froke?--There, I believe that's it, as near as I can!'" "Why does thee ask me, Desire?" "I don't know. I don't know any whys or what fors. 'Behold we know not anything,'--Tennyson and I! But you seem so--pacified--I suppose I thought you must have settled most things in your mind." "Every builder--every little joiner--did his piece,--thought his thought out, I think likely. There's no little groove or moulding or fitting or finish, but is a bit of somebody's living; and life grows, going on. We've all got our piece to do," said Rachel. "I asked Mrs. Mig," Desire pursued, "and she said some people's part was to buy and employ and encourage; and that spending money helps all the world; and then she put another cushion to her back, and went on tatting." "Perhaps it does--in spite of the world," said Rachel Froke, quietly. "But I guess nobody is to sit by and _only_ encourage; God has given out no such portion as that, I do believe. We can encourage each other, and every one do his own piece too." "I didn't really suppose Mrs. Mig knew," said Desire, demurely. "She never began at the bottom of anything. She only finishes off. She buys pattern worsted work, and fills it in. That's what she's doing now, when she don't tat; a great bunch of white lilies, grounding it with olive. It's lovely; but I'd rather have made the lilies. She'll give it to mother, and then Glossy will come and spend the winter with us. Mrs. Mig is going to Nassau with a sick friend; she's awfully useful--for little overseeings and general touchings up, after all the hard part is done. Mrs. Mig's sick friends always have nurses and waiting maids--Mrs. F---- Rachel! Do you know, I haven't got any piece!" "No, I don't know; nor does thee either, yet," said Rachel Froke. * * * * * "It's all such bosh!" said Kenneth Kincaid, flinging down a handful of papers. "I've no right, I solemnly think, to help such stuff out into the world! A man can't take hold anywhere, it seems, without smutting his fingers!" Kenneth Kincaid was correcting proof for a publisher. What he had to work on this morning was the first chapters of a flimsy novel. "It isn't even confectionery," said he. "It's terra alba and cochineal. And when it comes to the sensation, it will be benzine for whiskey. Real things are bad enough, for the most part, in this world; but when it comes to sham fictions and adulterated poisons, Dorris, I'd rather help bake bread, if it were an honest loaf, or make strong shoes for laboring men!" "You don't always get things like that," said Dorris. "And you know you're not responsible. Why will you torment yourself so?" "I was so determined not to do anything but genuine work; work that the world wanted; and to have it come down to this!" "Only for a time, while you are waiting." "Yes; people must eat while they are waiting; that's the--devil of it! I'm not swearing, Dorris, dear; it came truly into my head, that minute, about the Temptation in the Wilderness." Kenneth's voice was reverent, saying this; and there was an earnest thought in his face. "You'll never like anything heartily but your Sunday work." "That's what keeps me here. My week-day work might be wanted somewhere else. And perhaps I ought to go. There's Sunday work everywhere." "If you've found one half, hold on to it;" said Dorris. "The other can't be far off." "I suppose there are a score or two of young architects in this city, waiting for a name or a chance to make one, as I am. If it isn't here for all of them, somebody has got to quit." "And somebody has got to hold on," repeated Dorris. "You are morbid, Kent, about this 'work of the world.'" "It's overdone, everywhere. Fifth wheels trying to hitch on to every coach. I'd rather be the one wheel of a barrow." "The Lord is Wheelwright, and Builder," said Dorris, very simply. "You _are_ a wheel, and He has made you; He'll find an axle for you and put you on; and you shall go about his business, so that you shall wonder to remember that you were ever leaning up against a wall. Do you know, Kentie, life seems to me like the game we used to play at home in the twilight. When we shut our eyes and let each other lead us, until we did not know where we were going, or in what place we should come out. I should not care to walk up a broad path with my eyes wide open, now. I'd rather feel the leading. To-morrow always makes a turn. It's beautiful! People don't know, who _never_ shut their eyes!" Kenneth had taken up a newspaper. "The pretenses at doing! The dodges and go-betweens that make a sham work between every two real ones! There's hardly a true business carried on, and if there is, you don't know where or which. Look at the advertisements. Why, they cheat with their very tops and faces! See this man who puts in big capitals: 'Lost! $5,000! $1,000 reward!' and then tells you, in small type, that five thousand dollars are lost every year by breaking glass and china, that his cement will mend! What business has he to cry 'Wolf!' to the hindrance of the next man who may have a real wolf to catch? And what business has the printer, whom the next man will pay to advertise his loss, to help on a lie like this beforehand? I'm only twenty-six years old, Dorris, and I'm getting ashamed of the world!" "Don't grow hard, Kenneth. 'The Son of Man came not to condemn the world, but to save it.' Let's each try to save our little piece!" We are listening across the street, you see; between the windows in the rain; it is strange what chords one catches that do not catch each other, and were never planned to be played together,--by the _players_. Kenneth Kincaid's father Robert had been a ship-builder. When shipping went down in the whirlpool of 1857, Robert Kincaid's building had gone; and afterward he had died leaving his children little beside their education, which he thanked God was secured, and a good repute that belonged to their name, but was easily forgotten in the crowd of young and forward ones, and in the strife and scramble of a new business growth. Between college and technical studies Kenneth had been to the war. After that he had a chance to make a fortune in Wall Street. His father's brother, James, offered to take him in with him to buy and sell stocks and gold, to watch the market, to touch little unseen springs, to put the difference into his own pocket every time the tide of value shifted, or could be made to seem to shift. He might have been one of James R. Kincaid and Company. He would have none of it. He told his uncle plainly that he wanted real work; that he had not come back from fighting to--well, there he stopped, for he could not fling the truth in his uncle's face; he said there were things he meant to finish learning, and would try to do; and if nobody wanted them of him he would learn something else that was needed. So with what was left to his share from his father's little remnant of property, he had two years at the Technological School, and here he was in Boston waiting. You can see what he meant by real work, and how deep his theories and distinctions lay. You can see that it might be a hard thing for one young man, here or there, to take up the world on these terms now, in this year of our Lord eighteen hundred and sixty-nine. Over the way Desire Ledwith was beginning again, after a pause in which we have made our little chassée. "I know a girl," she said, "who has got a studio. And she talks about art, and she knows styles, and who has done what, and she runs about to see pictures, and she copies things, and she has little plaster legs and toes and things hanging round everywhere. She thinks it is something great; but it's only Mig, after all. Everything is. Florence Migs into music. And I won't Mig, if I never do anything. I'm come here this morning to darn stockings." And she pulled out of her big waterproof pocket a bundle of stockings and a great white ball of darning cotton and a wooden egg. "There is always one thing that is real," said Mrs. Ripwinkley, gently, "and that shows the way surely to all the rest." "I know what you mean," said Desire, "of course; but they've mixed that all up too, like everything else, so that you don't know where it is. Glossy Megilp has a velvet prayer-book, and she blacks her eyelashes and goes to church. We've all been baptized, and we've learned the Lord's Prayer, and we're all Christians. What is there more about it? I wish, sometimes, they had let it all alone. I think they vaccinated us with religion, Aunt Frank, for fear we should take it the natural way." "Thee is restless," said Rachel Froke, tying on her gray cloak. "And to make us so is oftentimes the first thing the Lord does for us. It was the first thing He did for the world. Then He said, 'Let there be light!' In the meantime, thee is right; just darn thy stockings." And Rachel went. They had a nice morning, after that, "leaving frets alone," as Diana said. Diana Ripwinkley was happy in things just as they were. If the sun shone, she rejoiced in the glory; if the rain fell, it shut her in sweetly to the heart of home, and the outside world grew fragrant for her breathing. There was never anything in her day that she could spare out of it, and there were no holes in the hours either. "Whether she was most bird or bee, it was hard to tell," her mother said of her; from the time she used to sweep and dust her garret baby-house along the big beams in the old house at Homesworth, and make little cheeses, and set them to press in wooden pill-boxes from which she had punched the bottoms out, till now, that she began to take upon herself the daily freshening of the new parlors in Aspen Street, and had long lessons of geometry to learn, whose dry demonstrations she set to odd little improvised recitatives of music, and chanted over while she ran up and down putting away clean linen for her mother, that Luclarion brought up from the wash. As for Hazel, she was only another variation upon the same sweet nature. There was more of outgo and enterprise with her. Diana made the thing or the place pleasant that she was in or doing. Hazel sought out new and blessed inventions. "There was always something coming to the child that wouldn't ever have come to no one else," Luclarion said. "And besides that, she was a real 'Witch Hazel;' she could tell where the springs were, and what's more, where they warn't." Luclarion Grapp would never have pleaded guilty to "dropping into poetry" in any light whatsoever; but what she meant by this was not exactly according to the letter, as one may easily see. IX. HAZEL'S INSPIRATION. What was the use of "looking," unless things were looked at? Mrs. Ledwith found at the end of the winter that she ought to give a party. Not a general one; Mrs. Ledwith always said "not a general one," as if it were an exception, whereas she knew better than ever to undertake a general party; her list would be _too_ general, and heterogeneous. It would simply be a physical, as well as a social, impossibility. She knew quantities of people separately and very cordially, in her easy have-a-good-time-when-you-can style, that she could by no means mix, or even gather together. She picked up acquaintances on summer journeys, she accepted civilities wherever she might be, she asked everybody to her house who took a fancy to her, or would admire her establishment, and if she had had a spring cleaning or a new carpeting, or a furbishing up in any way, the next thing was always to light up and play it off,--to try it on to somebody. What were houses for? And there was always somebody who ought to be paid attention to; somebody staying with a friend, or a couple just engaged, or if nothing else, it was her turn to have the sewing-society; and so her rooms got aired. Of course she had to air them now! The drawing-room, with its apricot and coffee-brown furnishings, was lovely in the evening, and the crimson and garnet in the dining-room was rich and cozy, and set off brilliantly her show of silver and cut-glass; and then, there was the new, real, sea-green China. So the party was had. There were some people in town from New York; she invited them and about a hundred more. The house lit up beautifully; the only pity was that Mrs. Ledwith could not wear her favorite and most becoming colors, buff and chestnut, because she had taken that family of tints for her furniture; but she found a lovely shade of violet that would hold by gas-light, and she wore black Fayal lace with it, and white roses upon her hair. Mrs. Treweek was enchanted with the brown and apricot drawing-room, and wondered where on earth they had got that particular shade, for "my dear! she had ransacked Paris for hangings in just that perfect, soft, ripe color that she had in her mind and never could hit upon." Mrs. MacMichael had pushed the grapes back upon her plate to examine the pattern of the bit of china, and had said how lovely the coloring was, with the purple and pale green of the fruit. And these things, and a few more like them, were the residuum of the whole, and Laura Ledwith was satisfied. Afterward, "while they were in the way of it," Florence had a little _musicale_; and the first season in Shubarton Place was over. It turned out, however, as it did in the old rhyme,--they shod the horse, and shod the mare, and let the little colt go bare. Helena was disgusted because she could not have a "German." "We shall have to be careful, now that we have fairly settled down," said Laura to her sister; "for every bit of Grant's salary will have been taken up with this winter's expenses. But one wants to begin right, and after that one can go on moderately. I'm good at contriving, Frank; only give me something to contrive with." "Isn't it a responsibility," Frank ventured, "to think what we shall contrive _for_?" "Of course," returned Mrs. Ledwith, glibly. "And my first duty is to my children. I don't mean to encourage them to reckless extravagance; as Mrs. Megilp says, there's always a limit; but it's one's duty to make life beautiful, and one can't do too much for home. I want my children to be satisfied with theirs, and I want to cultivate their tastes and accustom them to society. I can't do _everything_ for them; they will dress on three hundred a year apiece, Agatha and Florence; and I can assure you it needs management to accomplish that, in these days!" Mrs. Ripwinkley laughed, gently. "It would require management with us to get rid of that, upon ourselves." "O, my dear, don't I tell you continually, you haven't waked up yet? Just rub your eyes a while longer,--or let the girls do it for you,--and you'll see! Why, I know of girls,--girls whose mothers have limited incomes, too,--who have been kept plain, actually _plain_, all their school days, but who must have now six and eight hundred a year to go into society with. And really I wouldn't undertake it for less, myself, if I expected to keep up with everything. But I must treat mine all alike, and we must be contented with what we have. There's Helena, now, crazy for a young party; but I couldn't think of it. Young parties are ten times worse than old ones; there's really no _end_ to the expense, with the German, and everything. Helena will have to wait; and yet,--of course, if I could, it is desirable, almost necessary; acquaintances begin in the school-room,--society, indeed; and a great deal would depend upon it. The truth is, you're no sooner born, now-a-days, than you have to begin to keep up; or else--you're dropped out." "O, Laura! do you remember the dear little parties our mother used to make for us? From four till half-past eight, with games, and tea at six, and the fathers looking in?" "And cockles, and mottoes, and printed cambric dresses, and milk and water! Where are the children, do you suppose, you dear old Frau Van Winkle, that would come to such a party now?" "Children must be born simple, as they were then. There's nothing my girls would like better, even at their age, than to help at just such a party. It is a dream of theirs. Why shouldn't somebody do it, just to show how good it is?" "You can lead a horse to water, you know, Frank, but you can't make him drink. And the colts are forty times worse. I believe you might get some of the mothers together for an ancient tea-drink, just in the name of old association; but the _babies_ would all turn up their new-fashioned little noses." "O, dear!" sighed Frau Van Winkle. "I wish I knew people!" "By the time you do, you'll know the reason why, and be like all the rest." Hazel Ripwinkley went to Mrs. Hilman's school, with her cousin Helena. That was because the school was a thoroughly good one; the best her mother could learn of; not because it was kept in parlors in Dorset Street, and there were girls there who came from palaces west of the Common, in the grand avenues and the ABC streets; nor did Hazel wear her best gray and black velvet suit for every day, though the rich colored poplins with their over-skirts and sashes, and the gay ribbons for hair and neck made the long green baize covered tables look like gardenplots with beds of bloom, and quite extinguished with their brilliancy the quiet, one skirted brown merino that she brushed and folded every night, and put on with fresh linen cuffs and collar every morning. "It is an idiosyncrasy of Aunt Frances," Helena explained, with the grandest phrase she could pick out of her "Synonymes," to cow down those who "wondered." Privately, Helena held long lamentations with Hazel, going to and fro, about the party that she could not have. "I'm actually ashamed to go to school. There isn't a girl there, who can pretend to have anything, that hasn't had some kind of a company this winter. I've been to them all, and I feel real mean,--sneaky. What's 'next year?' Mamma puts me off with that. Poh? Next year they'll all begin again. You can't skip birthdays." "I'll tell you what!" said Hazel, suddenly, inspired by much the same idea that had occurred to Mrs. Ripwinkley; "I mean to ask my mother to let _me_ have a party!" "You! Down in Aspen Street! Don't, for pity's sake, Hazel!" "I don't believe but what it could be done over again!" said Hazel, irrelevantly, intent upon her own thought. "It couldn't be done _once_! For gracious grandmother's sake, don't think of it!" cried the little world-woman of thirteen. "It's gracious grandmother's sake that made me think of it," said Hazel, laughing. "The way she used to do." "Why don't you ask them to help you hunt up old Noah, and all get back into the ark, pigeons and all?" "Well, I guess they had pretty nice times there, any how; and if another big rain comes, perhaps they'll have to!" Hazel did not intend her full meaning; but there is many a faint, small prophecy hid under a clover-leaf. Hazel did not let go things; her little witch-wand, once pointed, held its divining angle with the might of magic until somebody broke ground. "It's awful!" Helena declared to her mother and sisters, with tears of consternation. "And she wants me to go round with her and carry 'compliments!' It'll never be got over,--never! I wish I could go away to boarding-school!" For Mrs. Ripwinkley had made up her unsophisticated mind to try this thing; to put this grain of a pure, potent salt, right into the seethe and glitter of little Boston, and find out what it would decompose or precipitate. For was not she a mother, testing the world's chalice for her children? What did she care for the hiss and the bubble, if they came? She was wider awake than Mrs. Ledwith knew; perhaps they who come down from the mountain heights of long seclusion can measure the world's paces and changes better than they who have been hurried in the midst of them, on and on, or round and round. Worst of all, old Uncle Titus took it up. It was funny,--or it would have been funny, reader, if anybody but you and I and Rachel Froke knew exactly how,--to watch Uncle Titus as he kept his quiet eye on all these things,--the things that he had set going,--and read their revelations; sheltered, disguised, under a character that the world had chosen to put upon him, like Haroun Alraschid in the merchant's cloak. They took their tea with him,--the two families,--every Sunday night. Agatha Ledwith "filled him in" a pair of slippers that very first Christmas; he sat there in the corner with his old leather ones on, when they came, and left them, for the most part, to their own mutual entertainment, until the tea was ready. It was a sort of family exchange; all the plans and topics came up, particularly on the Ledwith side, for Mrs. Ripwinkley was a good listener, and Laura a good talker; and the fun,--that you and I and Rachel Froke could guess,--yes, and a good deal of unsuspected earnest, also,--was all there behind the old gentleman's "Christian Age," as over brief mentions of sermons, or words about books, or little brevities of family inquiries and household news, broke small floods of excitement like water over pebbles, as Laura and her daughters discussed and argued volubly the matching and the flouncing of a silk, or the new flowering and higher pitching of a bonnet,--since "they are wearing everything all on the top, you know, and mine looks terribly meek;" or else descanted diffusely on the unaccountableness of the somebodies not having called, or the bother and forwardness of the some-other-bodies who had, and the eighty-three visits that were left on the list to be paid, and "never being able to take a day to sit down for anything." "What is it all for?" Mrs. Ripwinkley would ask, over again, the same old burden of the world's weariness falling upon her from her sister's life, and making her feel as if it were her business to clear it away somehow. "Why, to live!" Mrs. Ledwith would reply. "You've got it all to do, you see." "But I don't really see, Laura, where the living comes in." Laura opens her eyes. "_Slang_?" says she. "Where did you get hold of that?" "Is it slang? I'm sure I don't know. I mean it." "Well, you _are_ the funniest! You don't _catch_ anything. Even a by-word must come first-hand from you, and mean something!" "It seems to me such a hard-working, getting-ready-to-be, and then not being. There's no place left for it,--because it's all place." "Gracious me, Frank! If you are going to sift everything so, and get back of everything! I can't live in metaphysics: I have to live in the things themselves, amongst other people." "But isn't it scene and costume, a good deal of it, without the play? It may be that I don't understand, because I have not got into the heart of your city life; but what comes of the parties, for instance? The grand question, beforehand, is about wearing, and then there's a retrospection of what was worn, and how people looked. It seems to be all surface. I should think they might almost send in their best gowns, or perhaps a photograph,--if photographs ever were becoming,--as they do visiting cards." "Aunt Frank," said Desire, "I don't believe the 'heart of city life' is in the parties, or the parlors. I believe there's a great lot of us knocking round amongst the dry goods and the furniture that never get any further. People must be _living_, somewhere, _behind_ the fixings. But there are so many people, nowadays, that have never quite got fixed!" "You might live all your days here," said Mrs. Ledwith to her sister, passing over Desire, "and never get into the heart of it, for that matter, unless you were born into it. I don't care so much, for my part. I know plenty of nice people, and I like to have things nice about me, and to have a pleasant time, and to let my children enjoy themselves. The 'heart,' if the truth was known, is a dreadful still place. I'm satisfied." Uncle Titus's paper was folded across the middle; just then he reversed the lower half; that brought the printing upside down; but he went on reading all the same. "_I_'m going to have a real party," said Hazel, "a real, gracious-grandmother party; just such as you and mother had, Aunt Laura, when you were little." Her Aunt Laura laughed good-naturedly. "I guess you'll have to go round and knock up the grandmothers to come to it, then," said she. "You'd better make it a fancy dress affair at once, and then it will be accounted for." "No; I'm going round to invite; and they are to come at four, and take tea at six; and they're just to wear their afternoon dresses; and Miss Craydocke is coming at any rate; and she knows all the old plays, and lots of new ones; and she is going to show how." "I'm coming, too," said Uncle Titus, over his newspaper, with his eyes over his glasses. "That's good," said Hazel, simply, least surprised of any of the conclave. "And you'll have to play the muffin man. 'O, don't you know,'"--she began to sing, and danced two little steps toward Mr. Oldways. "O, I forgot it was Sunday!" she said, suddenly stopping. "Not much wonder," said Uncle Titus. "And not much matter. _Your_ Sunday's good enough." And then he turned his paper right side up; but, before he began really to read again, he swung half round toward them in his swivel-chair, and said,-- "Leave the sugar-plums to me, Hazel; I'll come early and bring 'em in my pocket." "It's the first thing he's taken the slightest notice of, or interest in, that any one of us has been doing," said Agatha Ledwith, with a spice of momentary indignation, as they walked along Bridgeley Street to take the car. For Uncle Titus had not come to the Ledwith party. "He never went visiting, and he hadn't any best coat," he told Laura, in verbal reply to the invitation that had come written on a square satin sheet, once folded, in an envelope with a big monogram. "It's of no consequence," said Mrs. Ledwith, "any way. Only a child's play." "But it will be, mother; you don't know," said Helena. "She's going right in everywhere, with that ridiculous little invitation; to the Ashburnes and the Geoffreys, and all! She hasn't the least idea of any difference; and just think what the girls will say, and how they will stare, and laugh! I wish she wasn't my cousin!" "Helena!" Mrs. Ledwith spoke with real displeasure; for she was good-natured and affectionate in her way; and her worldly ambitions were rather wide than high, as we have seen. "Well, I can't help it; you don't know, mother," Helena repeated. "It's horrid to go to school with all those stiffies, that don't care a snap for you, and only laugh." "Laughing is vulgar," said Agatha. If any indirect question were ever thrown upon the family position, Agatha immediately began expounding the ethics of high breeding, as one who had attained. "It is only half-way people who laugh," she said. "Ada Geoffrey and Lilian Ashburne never laugh--_at_ anybody--I am sure." "No, they don't; not right out. They're awfully polite. But you can feel it, underneath. They have a way of keeping so still, when you know they would laugh if they did anything." "Well, they'll neither laugh nor keep still, about this. You need not be concerned. They'll just not go, and that will be the end of it." Agatha Ledwith was mistaken. She had been mistaken about two things to-night. The other was when she had said that this was the first time Uncle Oldways had noticed or been interested in anything they did. X. COCKLES AND CRAMBO. Hazel Ripwinkley put on her nankeen sack and skirt, and her little round, brown straw hat. For May had come, and almost gone, and it was a day of early summer warmth. Hazel's dress was not a "suit;" it had been made and worn two summers before suits were thought of; yet it suited very well, as people's things are apt to do, after all, who do not trouble themselves about minutiæ of fashion, and so get no particular antediluvian marks upon them that show when the flood subsides. Her mother knew some things that Hazel did not. Mrs. Ripwinkley, if she had been asleep for five and twenty years, had lost none of her perceptive faculties in the trance. But she did not hamper her child with any doubts; she let her go on her simple way, under the shield of her simplicity, to test this world that she had come into, for herself. Hazel had written down her little list of the girls' names that she would like to ask; and Mrs. Ripwinkley looked at it with a smile. There was Ada Geoffrey, the banker's daughter, and Lilian Ashburne, the professor's,--heiresses each, of double lines of birth and wealth. She could remember how, in her childhood, the old names sounded, with the respect that was in men's tones when they were spoken; and underneath were Lois James and Katie Kilburnie, children of a printer and a hatter. They had all been chosen for their purely personal qualities. A child, let alone, chooses as an angel chooses. It remained to be seen how they would come together. At the very head, in large, fair letters, was,-- "MISS CRAYDOCKE." Down at the bottom, she had just added,-- "MR. KINCAID AND DORRIS." "For, if I have _some_ grown folks, mother, perhaps I ought to have _other_ grown folks,--'to keep the balance true.' Besides, Mr. Kincaid and Dorris always like the _little_ nice times." From the day when Dorris Kincaid had come over with the gray glass vase and her repeated thanks, when the flowers had done their ministry and faded, there had been little simple courtesies, each way, between the opposite houses; and once Kenneth and his sister had taken tea with the Ripwinkleys, and they had played "crambo" and "consequences" in the evening. The real little game of "consequences," of which this present friendliness was a link, was going on all the time, though they did not stop to read the lines as they folded them down, and "what the world said" was not one of the items in their scheme of it at all. It would have been something worth while to have followed Hazel as she went her rounds, asking quietly at each house to see Mrs. This or That, "as she had a message;" and being shown, like a little representative of an almost extinct period, up into the parlor, or the dressing-room of each lady, and giving her quaint errand. "I am Hazel Ripwinkley," she would say, "and my mother sends her compliments, and would like to have Lilian,"--or whoever else,--"come at four o'clock to-day, and spend the afternoon and take tea. I'm to have a little party such as she used to have, and nobody is to be much dressed up, and we are only to play games." "Why, that is charming!" cried Mrs. Ashburne; for the feeling of her own sweet early days, and the old B---- Square house, came over her as she heard the words. "It is Lilian's music afternoon; but never mind; give my kind compliments to your mother, and she will be very happy to come." And Mrs. Ashburne stooped down and kissed Hazel, when she went away. She stood in the deep carved stone entrance-way to Mrs. Geoffrey's house, in the same fearless, Red Riding Hood fashion, just as she would have waited in any little country porch up in Homesworth, where she had need indeed to knock. Not a whit dismayed was she either, when the tall manservant opened to her, and admitted her into the square, high, marble-paved hall, out of which great doors were set wide into rooms rich and quiet with noble adorning and soft shading,--where pictures made such a magic upon the walls, and books were piled from floor to ceiling; and where her little figure was lost as she went in, and she hesitated to take a seat anywhere, lest she should be quite hidden in some great arm-chair or sofa corner, and Mrs. Geoffrey should not see her when she came down. So, as the lady entered, there she was, upright and waiting, on her two feet, in her nankeen dress, just within the library doors, with her face turned toward the staircase. "I am Hazel Ripwinkley," she began; as if she had said, I am Pease-blossom or Mustard-seed; "I go to school with Ada." And went on, then, with her compliments and her party. And at the end she said, very simply,-- "Miss Craydocke is coming, and she knows the games." "Miss Craydocke, of Orchard Street? And where do you live?" "In Aspen Street, close by, in Uncle Oldways' house. We haven't lived there very long,--only this winter; before that we always lived in Homesworth." "And Homesworth is in the country? Don't you miss that?" "Yes; but Aspen Street isn't very bad; we've got a garden. Besides, we like streets and neighbors." Then she added,--for her little witch-stick felt spiritually the quality of what she spoke to,--"Wouldn't Mr. Geoffrey come for Ada in the evening?" "I haven't the least doubt he would!" said Mrs. Geoffrey, her face all alive with exquisite and kindly amusement, and catching the spirit of the thing from the inimitable simplicity before her, such as never, she did believe, had walked into anybody's house before, in this place and generation, and was no more to be snubbed than a flower or a breeze or an angel. It was a piece of Witch Hazel's witchery, or inspiration, that she named Miss Craydocke; for Miss Craydocke was an old, dear friend of Mrs. Geoffrey's, in that "heart of things" behind the fashions, where the kingdom is growing up. But of course Hazel could not have known that; something in the lady's face just made her think of the same thing in Miss Craydocke's, and so she spoke, forgetting to explain, nor wondering in the very least, when she was met with knowledge. It was all divining, though, from the beginning to the end. That was what took her into these homes, rather than to a score of other places up and down the self-same streets, where, if she had got in at all, she would have met strange, lofty stares, and freezing "thank you's," and "engagements." "I've found the real folks, mother, and they're all coming!" she cried, joyfully, running in where Mrs. Ripwinkley was setting little vases and baskets about on shelf and table, between the white, plain, muslin draperies of the long parlor windows. In vases and baskets were sweet May flowers; bunches of deep-hued, rich-scented violets, stars of blue and white periwinkle, and Miss Craydocke's lilies of the valley in their tall, cool leaves; each kind gathered by itself in clusters and handfuls. Inside the wide, open fireplace, behind the high brass fender and the shining andirons, was a "chimney flower pot," country fashion, of green lilac boughs,--not blossoms,--and woodbine sprays, and crimson and white tulips. The room was fair and fragrant, and the windows were wide open upon vines and grass. "It looks like you, mother, just as Mrs. Geoffrey's house looks like her. Houses ought to look like people, I think." "There's your surprise, children. We shouldn't be doing it right without a surprise, you know." And the surprise was not dolls' pelerines, but books. "Little Women" was one, which sent Diana and Hazel off for a delicious two hours' read up in their own room until dinner. After dinner, Miss Craydocke came, in her purple and white striped mohair and her white lace neckerchief; and at three o'clock Uncle Titus walked in, with his coat pockets so bulgy and rustling and odorous of peppermint and sassafras, that it was no use to pretend to wait and be unconscious, but a pure mercy to unload him so that he might be able to sit down. Nobody knows to this day where he got them; he must have ordered them somewhere, one would think, long enough before to have special moulds and implements made; but there were large, beautiful cockles,--not of the old flour-paste sort, but of clear, sparkling sugar, rose-color, and amber, and white, with little slips of tinted paper tucked within, and these printed delicately with pretty rhymes and couplets, from real poets; things to be truly treasured, yet simple, for children's apprehension, and fancy, and fun. And there were "Salem gibraltars," such as we only get out of Essex County now and then, for a big charitable Fair, when Salem and everywhere else gets its spirit up to send its best and most especial; and there were toys and devices in sugar--flowers and animals, hats, bonnets, and boots, apples, and cucumbers,--such as Diana and Hazel, and even Desire and Helena had never seen before. "It isn't quite fair," said good Miss Craydocke. "We were to go back to the old, simple fashions of things; and here you are beginning over again already with sumptuous inventions. It's the very way it came about before, till it was all spoilt." "No," said Uncle Titus, stoutly. "It's only 'Old _and_ New,'--the very selfsame good old notions brought to a little modern perfection. They're not French flummery, either; and there's not a drop of gin, or a flavor of prussic acid, or any other abominable chemical, in one of those contrivances. They're as innocent as they look; good honest mint and spice and checkerberry and lemon and rose. I know the man that made 'em!" Helena Ledwith began to think that the first person, singular or plural, might have a good time; but that awful third! Helena's "they" was as potent and tremendous as her mother's. "It's nice," she said to Hazel; "but they don't have inch things. I never saw them at a party. And they don't play games; they always dance. And it's broad, hot daylight; and--you haven't asked a single boy!" "Why, I don't know any! Only Jimmy Scarup; and I guess he'd rather play ball, and break windows!" "Jimmy Scarup!" And Helena turned away, hopeless of Hazel's comprehending. But "they" came; and "they" turned right into "we." It was not a party; it was something altogether fresh and new; the house was a new, beautiful place; it was like the country. And Aspen Street, when you got down there, was so still and shady and sweet smelling and pleasant. They experienced the delight of finding out something. Miss Craydocke and Hazel set them at it,--their good time; they had planned it all out, and there was no stiff, shy waiting. They began, right off, with the "Muffin Man." Hazel danced up to Desire:-- "O, _do_ you know the Muffin Man, The Muffin Man, the Muffin Man? O, _do_ you know the Muffin Man That lives in Drury Lane?" "O, yes, I know the Muffin Man, The Muffin Man, the Muffin Man, O, yes, I know the Muffin Man That lives in Drury Lane." And so they danced off together:-- "Two of us know the Muffin Man, The Muffin Man, the Muffin Man, Two of us know the Muffin Man That lives in Drury Lane." And then they besieged Miss Craydocke; and then the three met Ada Geoffrey, just as she had come in and spoken to Diana and Mrs. Ripwinkley; and Ada had caught the refrain, and responded instantly; and _four_ of them knew the Muffin Man. "I know they'll think it's common and queer, and they'll laugh to-morrow," whispered Helena to Diana, as Hazel drew the lengthening string to Dorris Kincaid's corner and caught her up; but the next minute they were around Helena in her turn, and they were laughing already, with pure glee; and five faces bent toward her, and five voices sang,-- "O, _don't_ you know the Muffin Man?" And Helena had to sing back that she did; and then the six made a perfect snarl around Mrs. Ripwinkley herself, and drew her in; and then they all swept off and came down across the room upon Mr. Oldways, who muttered, under the singing, "seven women! Well, the Bible says so, and I suppose it's come!" and then he held out both hands, while his hard face unbent in every wrinkle, with a smile that overflowed through all their furrowed channels, up to his very eyes; like some sparkling water that must find its level; and there were eight that knew the Muffin Man. So nine, and ten, and up to fifteen; and then, as their line broke away into fragments, still breathless with fun, Miss Craydocke said,--her eyes brimming over with laughing tears, that always came when she was gay,-- "There, now! we all know the 'Muffin Man;' therefore it follows, mathematically, I believe, that we must all know each other. I think we'll try a sitting-down game next. I'll give you all something. Desire, you can tell them what to do with it, and Miss Ashburne shall predict me consequences." So they had the "Presentation Game;" and the gifts, and the dispositions, and the consequences, when the whispers were over, and they were all declared aloud, were such hits and jumbles of sense and nonsense as were almost too queer to have been believed. "Miss Craydocke gave me a butter firkin," said Mrs. Ripwinkley. "I was to put it in the parlor and plant vanilla beans in it; and the consequence would be that Birnam Wood would come to Dunsinane." "She gave me a wax doll," said Helena. "I was to buy it a pair of high-heeled boots and a chignon; and the consequence would be that she would have to stand on her head." "She gave me," said Mr. Oldways, "an iron spoon. I was to deal out sugar-plums with it; and the consequence would be that you would all go home." "She gave me," said Lois James, "Woman's Rights. I shouldn't know what to do with them; and the consequence would be a terrible mortification to all my friends." "She gave me," said Hazel, "a real good time. I was to pass it round; and the consequence would be an earthquake." Then they had "Scandal;" a whisper, repeated rapidly from ear to ear. It began with, "Luclarion is in the kitchen making tea-biscuits;" and it ended with the horrible announcement that there were "two hundred gallons of hot pitch ready, and that everybody was to be tipped into it." "Characters," and "Twenty Questions," and "How, When, and Where," followed; and then they were ready for a run again, and they played "Boston," in which Mr. Oldways, being "Sceattle," was continually being left out, whereupon he declared at last, that he didn't believe there was any place for him, or even that he was down anywhere on the map, and it wasn't fair, and he was going to secede; and that broke up the play; for the groat fun of all the games had come to be Miss Craydocke and Uncle Titus, as it always is the great fun to the young ones when the elders join in,--the older and the soberer, the better sport; there is always something in the "fathers looking on;" that is the way I think it is among them who always do behold the Face of the Father in heaven,--smiling upon their smiles, glowing upon their gladness. In the tea-room, it was all even more delightful yet; it was further out into the garden, shaded at the back by the deep leafiness of grape-vines, and a trellis work with arches in it that ran up at the side, and would be gay by and by with scarlet runners, and morning-glories, and nasturtiums, that were shooting up strong and swift already, from the neatly weeded beds. Inside, was the tall old semicircular sideboard, with gingerbread grooves carved all over it; and the real brass "dogs," with heads on their fore-paws, were lying in the fire-place, under the lilac boughs; and the square, plain table stood in the midst, with its glossy white cloth that touched the floor at the corners, and on it were the identical pink mugs, and a tall glass pitcher of milk, and plates of the thinnest and sweetest bread and butter, and early strawberries in a white basket lined with leaves, and the traditional round frosted cakes upon a silver plate with a network rim. And Luclarion and Mrs. Ripwinkley waited upon them all, and it was still no party, to be compared or thought of with any salad and ice-pudding and Germania-band affair, such as they had had all winter; but something utterly fresh and new and by itself,--place, and entertainment, and people, and all. After tea, they went out into the garden; and there, under the shady horse-chestnuts, was a swing; and there were balls with which Hazel showed them how to play "class;" tossing in turn against the high brick wall, and taking their places up and down, according to the number of their catches. It was only Miss Craydocke's "Thread the Needle" that got them in again; and after that, she showed them another simple old dancing game, the "Winding Circle," from which they were all merrily and mysteriously untwisting themselves with Miss Craydocke's bright little thin face and her fluttering cap ribbons, and her spry little trot leading them successfully off, when the door opened, and the grand Mr. Geoffrey walked in; the man who could manage State Street, and who had stood at the right hand of Governor and President, with his clear brain, and big purse, and generous hand, through the years of the long, terrible war; the man whom it was something for great people to get to their dinners, or to have walk late into an evening drawing-room and dignify an occasion for the last half hour. Mrs. Ripwinkley was just simply glad to see him; so she was to see Kenneth Kincaid, who came a few minutes after, just as Luclarion brought the tray of sweetmeats in, which Mrs. Ripwinkley had so far innovated upon the gracious-grandmother plan as to have after tea, instead of before. The beautiful cockles and their rhymes got their heads all together around the large table, for the eating and the reading. Mr. Geoffrey and Uncle Titus sat talking European politics together, a little aside. The sugar-plums lasted a good while, with the chatter over them; and then, before they quite knew what it was all for, they had got slips of paper and lead pencils before them, and there was to be a round of "Crambo" to wind up. "O, I don't know how!" and "I never can!" were the first words, as they always are, when it was explained to the uninitiated; but Miss Craydocke assured them that "everybody could;" and Hazel said that "nobody expected real poetry; it needn't be more than two lines, and those might be blank verse, if they were _very_ hard, but jingles were better;" and so the questions and the wards were written and folded, and the papers were shuffled and opened amid outcries of, "O, this is awful!" "_What_ a word to get in!" "Why, they haven't the least thing to do with each other!" "That's the beauty of it," said Miss Craydocke, unrelentingly; "to _make_ them have; and it is funny how much things do have to do with each other when they once happen to come across." Then there were knit brows, and desperate scratchings, and such silence that Mr. Geoffrey and Uncle Titus stopped short on the Alabama question, and looked round to see what the matter was. Kenneth Kincaid had been modestly listening to the older gentlemen, and now and then venturing to inquire or remark something, with an intelligence that attracted Mr. Geoffrey; and presently it came out that he had been south with the army; and then Mr. Geoffrey asked questions of him, and they got upon Reconstruction business, and comparing facts and exchanging conclusions, quite as if one was not a mere youth with only his eyes and his brains and his conscience to help him in his first grapple with the world in the tangle and crisis at which he found it, and the other a grave, practiced, keen-judging man, the counsellor of national leaders. After all, they had no business to bring the great, troublesome, heavy-weighted world into a child's party. I wish man never would; though it did not happen badly, as it all turned out, that they did a little of it in this instance. If they had thought of it, "Crambo" was good for them too, for a change; and presently they did think of it; for Dorris called out in distress, real or pretended, from the table,-- "Kentie, here's something you must really take off my hands! I haven't the least idea what to do with it." And then came a cry from Hazel,-- "No fair! We're all just as badly off, and there isn't one of us that has got a brother to turn to. Here's another for Mr. Kincaid." "There are plenty more. Come, Mr. Oldways, Mr. Geoffrey, won't you try 'Crambo?' There's a good deal in it, as there is in most nonsense." "We'll come and see what it is," said Mr. Geoffrey; and so the chairs were drawn up, and the gray, grave heads looked on over the young ones. "Why, Hazel's got through!" said Lois, scratching violently at her paper, and obliterating three obstinate lines. "O, I didn't bother, you see! I just stuck the word right in, like a pin into a pincushion, and let it go. There wasn't anything else to do with it." "I've got to make my pincushion," said Dorris. "I should think you had! Look at her! She's writing her paper all over! O, my gracious, she must have done it before!" "Mother and Mr. Geoffrey are doing heaps, too! We shall have to publish a book," said Diana, biting the end of her pencil, and taking it easy. Diana hardly ever got the rhymes made in time; but then she always admired everybody's else, which was a good thing for somebody to be at leisure to do. "Uncle Oldways and Lilian are folding up," said Hazel. "Five minutes more," said Miss Craydocke, keeping the time with her watch before her. "Hush!" When the five minutes were rapped out, there were seven papers to be read. People who had not finished this time might go on when the others took fresh questions. Hazel began reading, because she had been ready first. "'What is the difference between sponge-cake and doughnuts?' 'Hallelujah.'" "Airiness, lightness, and insipidity; Twistiness, spiciness, and solidity. Hallelujah! I've got through! That is the best that I can do!'" There was a shout at Hazel's pinsticking. "Now, Uncle Titus! You finished next." "My question is a very comprehensive one," said Uncle Titus, "with a very concise and suggestive word. 'How wags the world?' 'Slambang.'" "'The world wags on With lies and slang; With show and vanity, Pride and inanity, Greed and insanity, And a great slambang!'" "That's only _one_ verse," said Miss Craydocke. "There's another; but he didn't write it down." Uncle Titus laughed, and tossed his Crambo on the table. "It's true, so far, anyway," said he. "_So far_ is hardly ever quite true," said Miss Craydocke Lilian Ashburne had to answer the question whether she had ever read "Young's Night Thoughts;" and her word was "Comet." "'Pray might I be allowed a pun, To help me through with just this one? I've tried to read Young's Thoughts of Night, But never yet could come it, quite.'" "O, O, O! That's just like Lilian, with her soft little 'prays' and 'allow me's,' and her little pussy-cat ways of sliding through tight places, just touching her whiskers!" "It's quite fair," said Lilian, smiling, "to slide through if you can." "Now, Mr. Geoffrey." And Mr. Geoffrey read,-- "'What is your favorite color?' 'One-hoss.'" "'Do you mean, my friend, for a one-hoss shay, Or the horse himself,--black, roan, or bay? In truth, I think I can hardly say; I believe, for a nag, "I bet on the gray." "'For a shay, I would rather not have yellow, Or any outright, staring color, That makes the crowd look after a fellow, And the little _gamins_ hoot and bellow. "'Do you mean for ribbons? or gowns? or eyes? Or flowers? or gems? or in sunset skies? For many questions, as many replies, Drops of a rainbow take rainbow dyes. "'The world is full, and the world is bright; Each thing to its nature parts the light; And each for its own to the Perfect sight Wears that which is comely, and sweet, and right.'" "O, Mr. Geoffrey! That's lovely!" cried the girl voices, all around him. And Ada made a pair of great eyes at her father, and said,-- "What an awful humbug you have been, papa! To have kept the other side up with care all your life! Who ever suspected _that_ of you?" Diana and Hazel were not taken so much by surprise, their mother had improvised little nursery jingles for them all their baby days, and had played Crambo with them since; so they were very confident with their "Now, mother:" and looked calmly for something creditable. "'What is your favorite name?'" read Mrs. Ripwinkley. "And the word is 'Stuff.'" "'When I was a little child, Looking very meek and mild, I liked grand, heroic names,-- Of warriors, or stately dames: Zenobia, and Cleopatra; (No rhyme for that this side Sumatra;) Wallace, and Helen Mar,--Clotilda, Berengaria, and Brunhilda; Maximilian; Alexandra; Hector, Juno, and Cassandra; Charlemagne and Britomarte, Washington and Bonaparte; Victoria and Guinevere, And Lady Clara Vere de Vere. --Shall I go on with all this stuff, Or do you think it is enough? I cannot tell you what dear name I love the best; I play a game; And tender earnest doth belong To quiet speech, not silly song.'" "That's just like mother; I should have stopped as soon as I'd got the 'stuff' in; but she always shapes off with a little morriowl," said Hazel. "Now, Desire!" Desire frantically scribbled a long line at the end of what she had written; below, that is, a great black morass of scratches that represented significantly the "Slough of Despond" she had got into over the winding up, and then gave,-- "'Which way would you rather travel,--north or south?' 'Goosey-gander.'" "'O, goosey-gander! If I might wander, It should be toward the sun; The blessed South Should fill my mouth With ripeness just begun. For bleak hills, bare, With stunted, spare, And scrubby, piney trees, Her gardens rare, And vineyards fair, And her rose-scented breeze. For fearful blast, Skies overcast, And sudden blare and scare Long, stormless moons, And placid noons, And--all sorts of comfortablenesses,--there!'" "That makes me think of father's horse running away with him once," said Helena, "when he had to head him right up against a brick wall, and knock everything all to smash before he could stop!" "Anybody else?" "Miss Kincaid, I think," said Mr. Geoffrey. He had been watching Dorris's face through the play, flashing and smiling with the excitement of her rhyming, and the slender, nervous fingers twisting tremulously the penciled slip while she had listened to the others. "If it isn't all rubbed out," said Dorris, coloring and laughing to find how badly she had been treating her own effusion. "You see it _was_ rather an awful question,--'What do you want most?' And the word is, 'Thirteen.'" She caught her breath a little quickly as she began:-- "'Between yourself, dear, myself, and the post, There are the thirteen things that I want the most. I want to be, sometimes, a little stronger; I want the days to be a little longer; I'd like to have a few less things to do; I'd better like to better do the few: I want--and this might almost lead my wishes,-- A bigger place to keep my mops and dishes. I want a horse; I want a little buggy, To ride in when the days grow hot and muggy; I want a garden; and,--perhaps it's funny,-- But now and then I want a little money. I want an easy way to do my hair; I want an extra dress or two to wear; I want more patience; and when all is given, I think I want to die and go to heaven!'" "I never saw such bright people in all my life!" said Ada Geoffrey, when the outcry of applause for Dorris had subsided, and they began to rise to go. "But the _worst_ of all is papa! I'll never get over it of you, see if I do! Such a cheat! Why, it's like playing dumb all your life, and then just speaking up suddenly in a quiet way, some day, as if it was nothing particular, and nobody cared!" With Hazel's little divining-rod, Mrs. Ripwinkley had reached out, testing the world for her, to see what some of it might be really made of. Mrs. Geoffrey, from her side, had reached out in turn, also, into this fresh and simple opportunity, to see what might be there worth while. "How was it, Aleck?" she asked of her husband, as they sat together in her dressing-room, while she brushed out her beautiful hair. "Brightest people I have been among for a long time--and nicest," said the banker, concisely. "A real, fresh little home, with a mother in it. Good place for Ada to go, and good girls for her to know; like the ones I fell in love with a hundred years ago." "That rhymed oracle,--to say nothing of the _fraction_ of a compliment,--ought to settle it," said Mrs. Geoffrey, laughing. "Rhymes have been the order of the evening. I expect to talk in verse for a week at least." And then he told her about the "Crambo." A week after, Mrs. Ledwith was astonished to find, lying on the mantel in her sister's room, a card that had been sent up the day before,-- "MRS. ALEXANDER H. GEOFFREY." XI. MORE WITCH-WORK. Hazel was asked to the Geoffreys' to dinner. Before this, she and Diana had both been asked to take tea, and spend an evening, but this was Hazel's little especial "invite," as she called it, because she and Ada were writing a dialogue together for a composition at school. The Geoffreys dined at the good old-fashioned hour of half past two, except when they had formal dinner company; and Hazel was to come right home from school with Ada, and stay and spend the afternoon. "What intimacy!" Florence Ledwith had exclaimed, when she heard of it. "But it isn't at all on the grand style side; people like the Geoffreys do such things quite apart from their regular connection; it is a sort of 'behind the scenes;'" said Glossy Megilp, who was standing at Florence's dressing-glass, touching up the little heap of "friz" across her forehead. "Where's my poker?" she asked, suddenly, breaking off from the Geoffrey subject, and rummaging in a dressing box, intent upon tutoring some little obstinate loop of hair that would be _too_ frizzy. "I should think a 'blower' might be a good thing to add to your tools, Glossy," said Desire. "You have brush, poker, and tongs, now, to say nothing of coal-hod," she added, glancing at the little open japanned box that held some kind of black powder which had to do with the shadow of Glossy's eyelashes upon occasion, and the emphasis upon the delicate line of her brows. "No secret," said Glossy, magnanimously. "There it is! It is no greater sin than violet powder, or false tails, for that matter; and the little gap in my left eyebrow was never deliberately designed. It was a 'lapsus naturæ;' I only follow out the hint, and complete the intention. Something _is_ left to ourselves; as the child said about the Lord curling her hair for her when she was a baby and letting her do it herself after she grew big enough. What are our artistic perceptions given to us for, unless we're to make the best of ourselves in the first place?" "But it isn't all eyebrows," said Desire, half aloud. "Of course not," said Glossy Megilp. "Twice a day I have to do myself up somehow, and why shouldn't it be as well as I can? Other things come in their turn, and I do them." "But, you see, the friz and the fix has to be, anyhow, whether or no. Everything isn't done, whether or no. I guess it's the 'first place,' that's the matter." "I think you have a very theoretical mind, Des, and a slightly obscure style. You can't be satisfied till everything is all mapped out, and organized, and justified, and you get into horrible snarls trying to do it. If I were you, I would take things a little more as they come." "I can't," said Desire. "They come hind side before and upside down." "Well, if everybody is upside down, there's a view of it that makes it all right side up, isn't there? It seems to be an established fact that we must dress and undress, and that the first duty of the day is to get up and put on our clothes. We aren't ready for much until we do. And one person's dressing may require one thing, and another's another. Some people have a cork leg to put on, and some people have false teeth; and they wouldn't any of them come hobbling or mumbling out without them, unless there was a fire or an earthquake, I suppose." Glossy Megilp's arguments and analogies perplexed Desire, always. They sometimes silenced her; but they did not always answer her. She went back to what they had been discussing before. "To 'lay down the shubbel and the hoe,'--here's your poker, under the table-flounce, Glossy,--and to 'take up the fiddle and the bow,' again,--I think it's real nice and beautiful for Hazel--" "To 'go where the good darkies go'?" "Yes. It's the _good_ of her that's got her in. And I believe you and Florence both would give your best boots to be there too, if it _is_ behind. Behind the fixings and the fashions is where people _live_; 'dere's vat I za-ay!'" she ended, quoting herself and Rip Van Winkle. "Maybe," said Florence, carelessly; "but I'd as lief be _in_ the fashion, after all. And that's where Hazel Ripwinkley never will get, with all her taking little novelties." Meanwhile, Hazel Ripwinkley was deep in the delights of a great portfolio of rare engravings; prints of glorious frescoes in old churches, and designs of splendid architecture; and Mrs. Geoffrey, seeing her real pleasure, was sitting beside her, turning over the large sheets, and explaining them; telling her, as she gazed into the wonderful faces of the Saints and the Evangelists in Correggio's frescoes of the church of San Giovanni at Parma, how the whole dome was one radiant vision of heavenly glory, with clouds and angel faces, and adoring apostles, and Christ the Lord high over all; and that these were but the filling in between the springing curves of the magnificent arches; describing to her the Abbess's room in San Paolo, with its strange, beautiful heathen picture over the mantel, of Diana mounting her stag-drawn car, and its circular walls painted with trellis-work and medallioned with windows, where the heads of little laughing children, and graceful, gentle animals peeped in from among vines and flowers. Mrs. Geoffrey did not wonder that Hazel lingered with delight over these or over the groups by Raphael in the Sistine Chapel,--the quiet pendentives, where the waiting of the world for its salvation was typified in the dream-like, reclining forms upon the still, desert sand; or the wonderful scenes from the "Creation,"--the majestic "Let there be Light!" and the Breathing of the breath of life into Man. She watched the surprise and awe with which the child beheld for the first time the daring of inspiration in the tremendous embodiment of the Almighty, and waited while she could hardly take her eyes away. But when, afterward, they turned to a portfolio of Architecture, and she found her eager to examine spires and arches and capitals, rich reliefs and stately facades and sculptured gates, and exclaiming with pleasure at the colored drawings of Florentine ornamentation, she wondered, and questioned her,-- "Have you ever seen such things before? Do you draw? I should hardly think you would care so much, at your age." "I like the prettiness," said Hazel, simply, "and the grandness; but I don't suppose I should care so much if it wasn't for Dorris and Mr. Kincaid. Mr. Kincaid draws buildings; he's an architect; only he hasn't architected much yet, because the people that build things don't know him. Dorris was so glad to give him a Christmas present of 'Daguerreotypes de Paris,' with the churches and arches and bridges and things; she got it at a sale; I wonder what they would say to all these beauties!" Then Mrs. Geoffrey found what still more greatly enchanted her, a volume of engravings, of English Home Architecture; interiors of old Halls, magnificent staircases, lofty libraries and galleries dim with space; exteriors, gabled, turreted and towered; long, rambling piles of manor houses, with mixed styles of many centuries. "They look as if they were brimfull of stories!" Hazel cried. "O, if I could only carry it home to show to the Kincaids!" "You may," said Mrs. Geoffrey, as simply, in her turn, as if she were lending a copy of "Robinson Crusoe;' never letting the child guess by a breath of hesitation the value of what she had asked. "And tell me more about these Kincaids. They are friends of yours?" "Yes; we've known them all winter. They live right opposite, and sit in the windows, drawing and writing. Dorris keeps house up there in two rooms. The little one is her bedroom; and Mr. Kincaid sleeps on the big sofa. Dorris makes crackle-cakes, and asks us over. She cooks with a little gas-stove. I think it is beautiful to keep house with not very much money. She goes out with a cunning white basket and buys her things; and she does all her work up in a corner on a white table, with a piece of oil-cloth on the floor; and then she comes over into her parlor, she says, and sits by the window. It's a kind of a play all the time." "And Mr. Kincaid?" "Dorris says he might have been rich by this time, if he had gone into his Uncle James's office in New York. Mr. James Kincaid is a broker, and buys gold. But Kenneth says gold stands for work, and if he ever has any he'll buy it with work. He wants to do some real thing. Don't you think that's nice of him?" "Yes, I do," said Mrs. Geoffrey. "And Dorris is that bright girl who wanted thirteen things, and rhymed them into 'Crambo?' Mr. Geoffrey told me." "Yes, ma'am; Dorris can do almost anything." "I should like to see Dorris, sometime. Will you bring her here, Hazel?" Hazel's little witch-rod felt the almost impassible something in the way. "I don't know as she would be _brought_," she said. Mrs. Geoffrey laughed. "You have an instinct for the fine proprieties, without a bit of respect for any conventional fences," she said. "I'll _ask_ Dorris." "Then I'm sure she'll come," said Hazel, understanding quite well and gladly the last three words, and passing over the first phrase as if it had been a Greek motto, put there to be skipped. "Ada has stopped practicing," said Mrs. Geoffrey, who had undertaken the entertainment of her little guest during her daughter's half hour of music. "She will be waiting for you now." Hazel instantly jumped up. But she paused after three steps toward the door, to say gently, looking back over her shoulder with a shy glance out of her timidly clear eyes,-- "Perhaps,--I hope I haven't,--stayed too long!" "Come back, you little hazel-sprite!" cried Mrs. Geoffrey; and when she got her within reach again, she put her hands one each side of the little blushing, gleaming face, and kissed it, saying,-- "I don't _think_,--I'm slow, usually, in making up my mind about people, big or little,--but I don't think you can stay too long,--or come too often, dear!" "I've found another for you, Aleck," she said, that night at the hair-brushing, to her husband. He always came to sit in her dressing-room, then; and it was at this quiet time that they gave each other, out of the day they had lived in their partly separate ways and duties, that which made it for each like a day lived twice, so that the years of their life counted up double. "He is a young architect, who hasn't architected much, because he doesn't know the people who build things; and he wouldn't be a gold broker with his uncle in New York, because he believes in doing money's worth in the world for the world's money. Isn't he one?" "Sounds like it," said Mr. Geoffrey. "What is his name?" "Kincaid." "Nephew of James R. Kincaid?" said Mr. Geoffrey, with an interrogation that was also an exclamation. "And wouldn't go in with him! Why, it was just to have picked up dollars!" "Exactly," replied his wife. "That was what he objected to." "I should like to see the fellow." "Don't you remember? You have seen him! The night you went for Ada to the Aspen Street party, and got into 'Crambo.' He was there; and it was his sister who wanted thirteen things. I guess they do!" "Ask them here," said the banker. "I mean to," Mrs. Geoffrey answered. "That is, after I've seen Hapsie Craydocke. She knows everything. I'll go there to-morrow morning." * * * * * "'Behind' is a pretty good way to get in--to some places," said Desire Ledwith, coming into the rose-pink room with news. "Especially an omnibus. And the Ripwinkleys, and the Kincaids, and old Miss Craydocke, and for all I know, Mrs. Scarup and Luclarion Grapp are going to Summit Street to tea to-night. Boston is topsy-turvey; Holmes was a prophet; and 'Brattle Street and Temple Place are interchanging cards!' Mother, we ought to get intimate with the family over the grocer's shop. Who knows what would come of it? There are fairies about in disguise, I'm sure; or else it's the millennium. Whichever it is, it's all right for Hazel, though; she's ready. Don't you feel like foolish virgins, Flo and Nag? I do." I am afraid it was when Desire felt a little inclination to "nag" her elder sister, that she called her by that reprehensible name. Agatha only looked lofty, and vouchsafed no reply; but Florence said,-- "There's no need of any little triumphs or mortifications. Nobody crows, and nobody cries. _I_'m glad. Diana's a dear, and Hazel's a duck, besides being my cousins; why shouldn't I? Only there _is_ a large hole for the cats, and a little hole for the kittens; and I'd as lief, myself, go in with the cats." "The Marchbankses are staying there, and Professor Gregory. I don't know about cats," said Desire, demurely. "It's a reason-why party, for all that," said Agatha, carelessly, recovering her good humor. "Well, when any nice people ask me, I hope there _will_ be a 'reason why.' It's the persons of consequence that make the 'reason why.'" And Desire had the last word. * * * * * Hazel Ripwinkley was thinking neither of large holes nor little ones,--cats nor kittens; she was saying to Luclarion, sitting in her shady down-stairs room behind the kitchen, that looked out into the green yard corner, "how nicely things came out, after all!" "They seemed so hobblety at first, when I went up there and saw all those beautiful books, and pictures, and people living amongst them every day, and the poor Kincaids not getting the least bit of a stretch out of their corner, ever. I'll tell you what I thought, Luclarion;" and here she almost whispered, "I truly did. I thought God was making a mistake." Luclarion put out her lips into a round, deprecating pucker, at that, and drew in her breath,-- "Oo--sh!" "Well, I mean it seemed as if there was a mistake somewhere; and that I'd no business, at any rate, with what they wanted so. I couldn't get over it until I asked for those pictures; and mother said it was such a bold thing to do!" "It was bold," said Luclarion; "but it wasn't forrud. It was gi'n you, and it hit right. That was looked out for." "It's a stumpy world," said Luclarion Grapp to Mrs. Ripwinkley, afterward; "but some folks step right over their stumps athout scarcely knowin' when!" XII. CRUMBS. Desire Ledwith was, at this epoch, a perplexity and a worry,--even a positive terror sometimes,--to her mother. It was not a case of the hen hatching ducks, it was rather as if a hen had got a hawk in her brood. Desire's demurs and questions,--her dissatisfactions, sittings and contempts,--threatened now and then to swoop down upon the family life and comfort with destroying talons. "She'll be an awful, strong-minded, radical, progressive, overturning woman," Laura said, in despair, to her friend Mrs. Megilp. "And Greenley Street, and Aspen Street, and that everlasting Miss Craydocke, are making her worse. And what can I do? Because there's Uncle." Right before Desire,--not knowing the cloud of real bewilderment that was upon her young spiritual perceptions, getting their first glimpse of a tangled and conflicting and distorted world,--she drew wondering comparisons between her elder children and this odd, anxious, restless, sharp-spoken girl. "I don't understand it," she would say. "It isn't a bit like a child of mine. I always took things easy, and got the comfort of them somehow; I think the world is a pretty pleasant place to live in, and there's lots of satisfaction to be had; and Agatha and Florence take after me; they are nice, good-natured, contented girls; managing their allowances,--that I wish were more,--trimming their own bonnets, and enjoying themselves with their friends, girl-fashion." Which was true. Agatha and Florence were neither fretful nor dissatisfied; they were never disrespectful, perhaps because Mrs. Ledwith demanded less of deferential observance than of a kind of jolly companionship from her daughters; a go-and-come easiness in and out of what they called their home, but which was rather the trimming-up and outfitting place,--a sort of Holmes' Hole,--where they put in spring and fall, for a thorough overhaul and rig; and at other times, in intervals or emergencies, between their various and continual social trips and cruises. They were hardly ever all-togetherish, as Desire had said, if they ever were, it was over house cleaning and millinery; when the ordering was complete,--when the wardrobes were finished,--then the world was let in, or they let themselves out, and--"looked." "Desire is different," said Mrs. Ledwith. "She's like Grant's father, and her Aunt Desire,--pudgicky and queer." "Well, mamma," said the child, once, driven to desperate logic for defense, "I don't see how it can be helped. If you _will_ marry into the Ledwith family, you can't expect to have your children all Shieres!" Which, again, was very true. Laura laughed at the clever sharpness of it, and was more than half proud of her bold chick-of-prey, after all. Yet Desire remembered that her Aunt Frances was a Shiere, also; and she thought there might easily be two sides to the same family; why not, since there were two sides still further back, always? There was Uncle Titus; who knew but it was the Oldways streak in him after all? Desire took refuge, more and more, with Miss Craydocke, and Rachel Froke, and the Ripwinkleys; she even went to Luclarion with questions, to get her quaint notions of things; and she had ventured into Uncle Titus's study, and taken down volumes of Swedenborg to pry into, while he looked at her with long keen regards over his spectacles, and she did not know that she was watched. "That young girl, Desire, is restless, Titus," Rachel Froke said to him one day. "She is feeling after something; she wants something real to do; and it appears likely to me that she will do it, if they don't take care." After that, Uncle Titus fixed his attention upon her yet more closely; and at this time Desire stumbled upon things in a strange way among his bookshelves, and thought that Rachel Froke was growing less precise in her fashion of putting to rights. Books were tucked in beside each other as if they had been picked up and bestowed anyhow; between "Heaven and Hell" and the "Four Leading Doctrines," she found, one day, "Macdonald's Unspoken Sermons," and there was a leaf doubled lengthwise in the chapter about the White Stone and the New Name. Another time, a little book of poems, by the same author, was slid in, open, over the volumes of Darwin and Huxley, and the pages upon whose outspread faces it lay were those that bore the rhyme of the blind Bartimeus:-- "O Jesus Christ! I am deaf and blind; Nothing comes through into my mind, I only am not dumb: Although I see Thee not, nor hear, I cry because Thou mayst be near O Son of Mary! come!" Do you think a girl of seventeen may not be feeling out into the spiritual dark,--may not be stretching helpless hands, vaguely, toward the Hands that help? Desire Ledwith laid the book down again, with a great swelling breath coming up slowly out of her bosom, and with a warmth of tears in her earnest little eyes. And Uncle Titus Oldways sat there among his papers, and never moved, or seemed to look, but saw it all. He never said a word to her himself; it was not Uncle Titus's way to talk, and few suspected him of having anything to say in such matters; but he went to Friend Froke and asked her,-- "Haven't you got any light that might shine a little for that child, Rachel?" And the next Sunday, in the forenoon, Desire came in; came in, without knowing it, for her little light. She had left home with the family on their way to church; she was dressed in her buff silk pongee suit trimmed with golden brown bands and quillings; she had on a lovely new brown hat with tea roses in it; her gloves and boots were exquisite and many buttoned; Agatha and Florence could not think what was the matter when she turned back, up Dorset Street, saying suddenly, "I won't go, after all." And then she had walked straight over the hill and down to Greenley Street, and came in upon Rachel, sitting alone in a quiet gray parlor that was her own, where there were ferns and ivies in the window, and a little canary, dressed in brown and gold like Desire herself, swung over them in a white wire cage. When Desire saw how still it was, and how Rachel Froke sat there with her open window and her open book, all by herself, she stopped in the doorway with a sudden feeling of intrusion, which had not occurred to her as she came. "It's just what I want to come into; but if I do, it won't be there. I've no right to spoil it. Don't mind, Rachel. I'll go away." She said it softly and sadly, as if she could not help it, and was turning back into the hall. "But I do mind," said Rachel, speaking quickly. "Thee will come in, and sit down. Whatever it is thee wants, is here for thee. Is it the stillness? Then we will be still." "That's so easy to say. But you can't do it for me. _You_ will be still, and I shall be all in a stir. I want so to be just hushed up!" "Fed, and hushed up, in somebody's arms, like a baby. I know," said Rachel Froke. "How does she know?" thought Desire; but she only looked at her with surprised eyes, saying nothing. "Hungry and restless; that's what we all are," said Rachel Froke, "until"-- "Well,--until?" demanded the strange girl, impetuously, as Rachel paused. "I've been hungry ever since I was born, mother says." "Until He takes us up and feeds us." "Why don't He?--Mrs. Froke, when does He give it out? Once a month, in church, they have the bread and the wine? Does that do it?" "Thee knows we do not hold by ordinances, we Friends," said Rachel. "But He gives the bread of life. Not once a month, or in any place; it is his word. Does thee get no word when thee goes to church? Does nothing come to thee?" "I don't know; it's mixed up; the church is full of bonnets; and people settle their gowns when they come in, and shake out their hitches and puffs when they go out, and there's professional music at one end, and--I suppose it's because I'm bad, but I don't know; half the time it seems to me it's only Mig at the other. Something all fixed up, and patted down, and smoothed over, and salted and buttered, like the potato hills they used to make on my plate for me at dinner, when I was little. But it's soggy after all, and has an underground taste. It isn't anything that has just grown, up in the light, like the ears of corn they rubbed in their hands. Breakfast is better than dinner. Bread, with yeast in it, risen up new. They don't feed with bread very often." "The yeast in the bread, and the sparkle in the wine they are the life of it; they are what make the signs." "If they only gave it out fresh, and a little of it! But they keep it over, and it grows cold and tough and flat, and people sit round and pretend, but they don't eat. They've eaten other things,--all sorts of trash,--before they came. They've spoiled their appetites. Mine was spoiled, to-day. I felt so new and fussy, in these brown things. So I turned round, and came here." Mr. Oldways' saying came back into Mrs. Froke's mind:-- "Haven't you got any light, Rachel, that might shine a little for that child?" Perhaps that was what the child had come for. What had the word of the Spirit been to Rachel Froke this day? The new, fresh word, with the leaven in it? "A little of it;" that was what she wanted. Rachel took up the small red Bible that lay on the lightstand beside her. "I'll will give thee my First-Day crumb, Desire," she said. "It may taste sweet to thee." She turned to Revelation, seventh chapter. "Look over with me; thee will see then where the crumb is," she said; and as Desire came near and looked over her upon the page, she read from the last two verses:-- "They shall hunger no more, neither thirst any more. "For the _Tenderness_ that is in the midst of the _Almightiness_ shall feed them, and shall lead them unto living fountains of water; and God shall wipe away all tears from their eyes." Her voice lingered over the words she put for the "Lamb" and the "Throne," so that she said "Tenderness" with its own very yearning inflection, and "Almightiness" with a strong fullness, glad in that which can never fall short or be exhausted. Then she softly laid over the cover, and sat perfectly still. It was the Quaker silence that falls upon them in their assemblies, leaving each heart to itself and that which the Spirit has given. Desire was hushed all through; something living and real had thrilled into her thought; her restlessness quieted suddenly under it, as Mary stood quiet before the message of the angel. When she did speak again, after a time, as Rachel Froke broke the motionless pause by laying the book gently back again upon the table, it was to say,-- "Why don't they preach like that, and leave the rest to preach itself? A Sermon means a Word; why don't they just say the word, and let it go?" The Friend made no reply. "I never could--quite--like that about the 'Lamb,' before," said Desire, hesitatingly. "It seemed,--I don't know,--putting Him _down_, somehow; making him tame; taking the grandness away that made the gentleness any good. But,--'Tenderness;' that is beautiful! Does it mean so in the other place? About taking away the sins,--do you think?" "'The Tenderness of God--the Compassion--that taketh away the sins of the world?'" Mrs. Froke repeated, half inquiringly. "Jesus Christ, God's Heart of Love toward man? I think it is so. I think, child, thee has got thy crumb also, to-day." But not all yet. Pretty soon, they heard the front door open, and Uncle Titus come in. Another step was behind his; and Kenneth Kincaid's voice was speaking, about some book he had called to take. Desire's face flushed, and her manner grew suddenly flurried. "I must go," she said, starting up; yet when she got to the door, she paused and delayed. The voices were talking on, in the study; somehow, Desire had last words also, to say to Mrs. Froke. She was partly shy about going past that open door, and partly afraid they might not notice her if she did. Back in her girlish thought was a secret suggestion that she was pushing at all the time with a certain self-scorn and denial, that it might happen that she and Kenneth Kincaid would go out at the same moment; if so, he would walk up the street with her, and Kenneth Kincaid was one of the few persons whom Desire Ledwith thoroughly believed in and liked. "There was no Mig about him," she said. It is hazardous when a girl of seventeen makes one of her rare exceptions in her estimate of character in favor of a man of six and twenty. Yet Desire Ledwith hated "nonsense;" she wouldn't have anybody sending her bouquets as they did to Agatha and Florence; she had an utter contempt for lavender pantaloons and waxed moustaches; but for Kenneth Kincaid, with his honest, clear look at life, and his high strong purpose, to say friendly things,--tell her a little now and then of how the world looked to him and what it demanded,--this lifted her up; this made it seem worth while to speak and to hear. So she was very glad when Uncle Titus saw her go down the hall, after she had made up her mind that that way lay her straight path, and that things contrived were not things worth happening,--and spoke out her name, so that she had to stop, and turn to the open doorway and reply; and Kenneth Kincaid came over and held out his hand to her. He had two books in the other,--a volume of Bunsen and a copy of "Guild Court,"--and he was just ready to go. "Not been to church to-day?" said Uncle Titus to Desire. "I've been--to Friend's Meeting," the girl answered. "Get anything by that?" he asked, gruffly, letting the shag down over his eyes that behind it beamed softly. "Yes; a morsel," replied Desire. "All I wanted." "All you wanted? Well, that's a Sunday-full!" "Yes, sir, I think it is," said she. When they got out upon the sidewalk, Kenneth Kincaid asked, "Was it one of the morsels that may be shared, Miss Desire? Some crumbs multiply by dividing, you know." "It was only a verse out of the Bible, with a new word in it." "A new word? Well, I think Bible verses often have that. I suppose it was what they were made for." Desire's glance at him had a question in it. "Made to look different at different times, as everything does that has life in it. Isn't that true? Clouds, trees, faces,--do they ever look twice the same?" "Yes," said Desire, thinking especially of the faces. "I think they do, or ought to. But they may look _more_." "I didn't say _contradictory_. To look more, there must be a difference; a fresh aspect. And that is what the world is full of; and the world is the word of God." "The world?" said Desire, who had been taught in a dried up, mechanical sort of way, that the Bible is the word of God; and practically left to infer that, that point once settled, it might be safely shut, up between its covers and not much meddled with, certainly not over freely interpreted. "Yes. What God had to say. In the beginning was the Word, and the Word was God. Without him was not anything made that was made." Desire's face brightened. She knew those words by heart. They were the first Sunday-school lesson she ever committed to memory, out of the New Testament; "down to 'grace and truth,'" as she recollected. What a jumble of repetitions it had been to her, then! Sentences so much alike that she could not remember them apart, or which way they came. All at once the simple, beautiful meaning was given to her. _What God had to say._ And it took a world,--millions, of worlds,--to say it with. "And the Bible, too?" she said, simply following out her own mental perception, without giving the link. It was not needed. They were upon one track. "Yes; all things; and all _souls_. The world-word comes through things; the Bible came through souls. And it is all the more alive, and full, and deep, and changing; like a river." "Living fountains of waters! that was part of the morsel to-day," Desire repeated impulsively, and then shyly explained. "And the new word?" Desire shrunk into silence for a moment; she was not used to, or fond of Bible quoting, or even Bible talk; yet sin was hungering all the time for Bible truth. Mr. Kincaid waited. So she repeated it presently; for Desire never made a fuss; she was too really sensitive for that. "'The Tenderness in the midst of the Almightiness shall feed them, and shall lead them to living fountains of water.'" Mr. Kincaid recognized the "new word," and his face lit up. "'The Lamb in the midst of the Throne,'" he said. "Out of the Heart of God, the Christ. Who was there before; the intent by which all things were made. The same yesterday, and to-day, and forever; who ever liveth to make intercession for us. Christ _had to be_. The Word, full of grace, must be made flesh. Why need people dispute about Eternity and Divinity, if they can only see that?--Was that Mrs. Froke's reading?" "Yes; that was Rachel's sermon." "It is an illumination." They walked all up Orchard Street without another word. Then Kenneth Kincaid said,--"Miss Desire, why won't you come and teach in the Mission School?" "I teach? Why, I've got everything to learn!" "But as fast as you _do_ learn; the morsels, you know. That is the way they are given out. That is the wonder of the kingdom of heaven. There is no need to go away and buy three hundred pennyworth before we begin, that every one may take a little; the bread given as the Master breaks it feeds them till they are filled; and there are baskets full of fragments to gather up." Kenneth Kincaid's heart was in his Sunday work, as his sister had said. The more gladly now, that the outward daily bread was being given. Mr. Geoffrey,--one of those busy men, so busy that they do promptly that which their hands find to do,--had put Kenneth in the way of work. It only needed a word from him, and the surveying and laying out of some new streets and avenues down there where Boston is growing so big and grand and strange, were put into his charge. Kenneth was busy now, cheerily busy, from Monday morning to Saturday night; and restfully busy on the Sunday, straightening the paths and laying out the ways for souls to walk in. He felt the harmony and the illustration between his week and his Sunday, and the one strengthening the other, as all true outward work does harmonize with and show forth, and help the spiritual doing. It could not have been so with that gold work, or any little feverish hitching on to other men's business; producing nothing, advancing nothing, only standing between to snatch what might fall, or to keep a premium for passing from hand to hand. Our great cities are so full,--our whole country is so overrun,--with these officious middle-men whom the world does not truly want; chiffonniers of trade, who only pick up a living out of the great press and waste and overflow; and our boys are so eager to slip in to some such easy, ready-made opportunity,--to get some crossing to sweep. What will come of it all, as the pretenses multiply? Will there be always pennies for every little broom? Will two, and three, and six sweeps be tolerated between side and side? By and by, I think, they will have to turn to and lay pavements. Hard, honest work, and the day's pay for it; that is what we have got to go back to; that and the day's snug, patient living, which the pay achieves. Then, as I say, the week shall illustrate the Sunday, and the Sunday shall glorify the week; and what men do and build shall stand true types, again, for the inner growth and the invisible building; so that if this outer tabernacle were dissolved, there should be seen glorious behind it, the house not made with hands,--eternal. As Desire Ledwith met this young Kenneth Kincaid from day to day, seeing him so often at her Aunt Ripwinkley's, where he and Dorris went in and out now, almost like a son and daughter,--as she walked beside him this morning, hearing him say these things, at which the heart-longing in her burned anew toward the real and satisfying,--what wonder was it that her restlessness grasped at that in his life which was strong and full of rest; that she felt glad and proud to have him tell his thought to her; that without any silliness,--despising all silliness,--she should yet be conscious, as girls of seventeen are conscious, of something that made her day sufficient when she had so met him,--of a temptation to turn into those streets in her walks that led his way? Or that she often, with her blunt truth, toward herself as well as others, and her quick contempt of sham and subterfuge, should snub herself mentally, and turn herself round as by a grasp of her own shoulders, and make herself walk off stoutly in a far and opposite direction, when, without due need and excuse, she caught herself out in these things? What wonder that this stood in her way, for very pleasantness, when Kenneth asked her to come and teach in the school? That she was ashamed to let herself do a thing--even a good thing, that her life needed,--when there was this conscious charm in the asking; this secret thought--that she should walk up home with him every Sunday! She remembered Agatha and Florence, and she imagined, perhaps, more than they would really have thought of it at home; and so as they turned into Shubarton Place,--for he had kept on all the way along Bridgeley and up Dorset Street with her,--she checked her steps suddenly as they came near the door, and said brusquely,-- "No, Mr. Kincaid; I can't come to the Mission. I might learn A, and teach them that; but how do I know I shall ever learn B, myself?" He had left his question, as their talk went on, meaning to ask it again before they separated. He thought it was prevailing with her, and that the help that comes of helping others would reach her need; it was for her sake he asked it; he was disappointed at the sudden, almost trivial turn she gave it. "You have taken up another analogy, Miss Desire," he said. "We were talking about crumbs and feeding. The five loaves and the five thousand. 'Why reason ye because ye have no bread? How is it that ye do not understand?'" Kenneth quoted these words naturally, pleasantly; as he might quote anything that had been spoken to them both out of a love and authority they both recognized, a little while ago. But Desire was suddenly sharp and fractious. If it had not touched some deep, live place in her, she would not have minded so much. It was partly, too, the coming toward home. She had got away out of the pure, clear spaces where such things seemed to be fit and unstrained, into the edge of her earth atmosphere again, where, falling, they took fire. Presently she would be in that ridiculous pink room, and Glossy Megilp would be chattering about "those lovely purple poppies with the black grass," that she had been lamenting all the morning she had not bought for her chip hat, instead of the pomegranate flowers. And Agatha would be on the bed, in her cashmere sack, reading Miss Braddon. "It would sound nice to tell them she was going down to the Mission School to give out crumbs!" Besides, I suppose that persons of a certain temperament never utter a more ungracious "No," than when they are longing all the time to say "Yes." So she turned round on the lower step to Kenneth, when he had asked that grave, sweet question of the Lord's, and said perversely,-- "I thought you did not believe in any brokering kind of business. It's all there,--for everybody. Why should I set up to fetch and carry?" She did not look in his face as she said it; she was not audacious enough to do that; she poked with the stick of her sunshade between the uneven bricks of the sidewalk, keeping her eyes down, as if she watched for some truth she expected to pry up. But she only wedged the stick in so that she could not get it out; and Kenneth Kincaid making her absolutely no answer at all, she had to stand there, growing red and ashamed, held fast by her own silly trap. "Take care; you will break it," said Kenneth, quietly, as she gave it a twist and a wrench. And he put out his hand, and took it from hers, and drew gently upward in the line in which she had thrust it in. "You were bearing off at an angle. It wanted a straight pull." "I never pull straight at anything. I always get into a crook, somehow. You didn't answer me, Mr. Kincaid. I didn't mean to be rude--or wicked. I didn't mean--" "What you said. I know that; and it's no use to answer what people don't mean. That makes the crookedest crook of all." "But I think I did mean it partly; only not contrarimindedly. I do mean that I have no business--yet awhile. It would only be--Migging at gospel!" And with this remarkable application of her favorite illustrative expression, she made a friendly but abrupt motion of leave-taking, and went into the house. Up into her own room, in the third story, where the old furniture was, and no "fadging,"--and sat down, bonnet, gloves, sunshade, and all, in her little cane rocking-chair by the window. Helena was down in the pink room, listening with charmed ears to the grown up young-ladyisms of her elder sisters and Glossy Megilp. Desire sat still until the dinner-bell rang, forgetful of her dress, forgetful of all but one thought that she spoke out as she rose at last at the summons to take off her things in a hurry,-- "I wonder,--I _wonder_--if I shall ever live anything all straight out!" XIII. PIECES OF WORLDS. Mr. Dickens never put a truer thought into any book, than he put at the beginning of "Little Dorrit." That, from over land and sea, from hundreds, thousands of miles away, are coming the people with whom we are to have to do in our lives; and that, "what is set to us to do to them, and what is set for them to do to us, will all be done." Not only from far places in this earth, over land and sea,--but from out the eternities, before and after,--from which souls are born, and into which they die,--all the lines of life are moving continually which are to meet and join, and bend, and cross our own. But it is only with a little piece of this world, as far as we can see it in this short and simple story, that we have now to do. Rosamond Holabird was coming down to Boston. With all her pretty, fresh, delicate, high-lady ways, with her beautiful looks, and her sweet readiness for true things and noble living, she was coming, for a few days only,--the cooperative housekeeping was going on at Westover, and she could not be spared long,--right in among them here in Aspen Street, and Shubarton Place, and Orchard Street, and Harrisburg Square, where Mrs. Scherman lived whom she was going to stay with. But a few days may be a great deal. Rosamond Holabird was coming for far more than she knew. Among other things she was coming to get a lesson; a lesson right on in a course she was just now learning; a lesson of next things, and best things, and real folks. You see how it happened,--where the links were; Miss Craydocke, and Sin Scherman, and Leslie Goldthwaite, were dear friends, made to each other one summer among the mountains. Leslie had had Sin and Miss Craydocke up at Z----, and Rosamond and Leslie were friends, also. Mrs. Frank Scherman had a pretty house in Harrisburg Square. She had not much time for paying fashionable calls, or party-going, or party-giving. As to the last, she did not think Frank had money enough yet to "circumfuse," she said, in that way. But she had six lovely little harlequin cups on a side-shelf in her china closet, and six different-patterned breakfast plates, with colored borders to match the cups; rose, and brown, and gray, and vermilion, and green, and blue. These were all the real china she had, and were for Frank and herself and the friends whom she made welcome,--and who might come four at once,--for day and night. She delighted in "little stays;" in girls who would go into the nursery with her, and see Sinsie in her bath; or into the kitchen, and help her mix up "little delectabilities to surprise Frank with;" only the trouble had got to be now, that the surprise occurred when the delectabilities did not. Frank had got demoralized, and expected them. She rejoiced to have Miss Craydocke drop in of a morning and come right up stairs, with her little petticoats and things to work on; and she and Frank returned these visits in a social, cosy way, after Sinsie was in her crib for the night. Frank's boots never went on with a struggle for a walk down to Orchard Street; but they were terribly impossible for Continuation Avenue. So it had come about long ago, though I have not had a corner to mention it in, that they "knew the Muffin Man," in an Aspen Street sense; and were no strangers to the charm of Mrs. Ripwinkley's "evenings." There was always an "evening" in the "Mile Hill House," as the little family and friendly coterie had come to call it. Rosamond and Leslie had been down together for a week once, at the Schermans; and this time Rosamond was coming alone. She had business in Boston for a day or two, and had written to ask Asenath "if she might." There were things to buy for Barbara, who was going to be married in a "navy hurry," besides an especial matter that had determined her just at this time to come. And Asenath answered, "that the scarlet and gray, and green and blue were pining and fading on the shelf; and four days would be the very least to give them all a turn and treat them fairly; for such things had their delicate susceptibilities, as Hans Andersen had taught us to know, and might starve and suffer,--why not? being made of protoplasm, same as anybody." Rosamond's especial errand to the city was one that just a little set her up, innocently, in her mind. She had not wholly got the better,--when it interfered with no good-will or generous dealing,--of a certain little instinctive reverence for imposing outsides and grand ways of daily doing; and she was somewhat complacent at the idea of having to go,--with kindly and needful information,--to Madam Mucklegrand, in Spreadsplendid Park. Madam Mucklegrand was a well-born Boston lady, who had gone to Europe in her early youth, and married a Scottish gentleman with a Sir before his name. Consequently, she was quite entitled to be called "my lady;" and some people who liked the opportunity of touching their republican tongues to the salt of European dignitaries, addressed her so; but, for the most part, she assumed and received simply the style of "Madam." A queen may be called "Madam," you know. It covers an indefinite greatness. But when she spoke of her late,--very long ago,--husband, she always named him as "Sir Archibald." Madam Mucklegrand's daughter wanted a wet-nurse for her little baby. Up in Z----, there was a poor woman whose husband, a young brakeman on the railroad, had been suddenly killed three months ago, before her child was born. There was a sister here in Boston, who could take care of it for her if she could go to be foster-mother to some rich little baby, who was yet so poor as this--to need one. So Rosamond Holabird, who was especially interested for Mrs. Jopson, had written to Asenath, and had an advertisement put in the "Transcript," referring to Mrs. Scherman for information. And the Mucklegrand carriage had rolled up, the next day, to the house in Harrisburg Square. They wanted to see the woman, of course, and to hear all about her,--more than Mrs. Scherman was quite able to tell; therefore when she sent a little note up to Z----, by the evening mail, Rosamond replied with her "Might she come?" She brought Jane Jopson and the baby down with her, left them over night at Mrs. Ginnever's, in Sheafe Street, and was to go for them next morning and take them up to Spreadsplendid Park. She had sent a graceful, polite little note to Madam Mucklegrand, dated "Westover, Z----," and signed, "Rosamond Holabird," offering to do this, that there might not be the danger of Jane's losing the chance in the meanwhile. It was certainly to accomplish the good deed that Rosamond cared the most; but it was also certainly something to accomplish it in that very high quarter. It lent a piquancy to the occasion. She came down to breakfast very nicely and discriminatingly dressed, with the elegant quietness of a lady who knew what was simply appropriate to such an errand and the early hour, but who meant to be recognized as the lady in every unmistakable touch; and there was a carriage ordered for her at half past nine. Sin Scherman was a cute little matron; she discerned the dash of subdued importance in Rosamond's air; and she thought it very likely, in the Boston nature of things, that it would get wholesomely and civilly toned down. Just at this moment, Rosamond, putting on her little straw bonnet with real lace upon it, and her simple little narrow-bordered green shawl, that was yet, as far as it went, veritable cashmere,--had a consciousness, in a still, modest way, not only of her own personal dignity as Rosamond Holabird, who was the same going to see Madam Mucklegrand, or walking over to Madam Pennington's, and as much in her place with one as the other; but of the dignity of Westover itself, and Westover ladyhood, represented by her among the palaces of Boston-Appendix to-day. She was only twenty, this fair and pleasant Rosamond of ours, and country simple, with all her native tact and grace; and she forgot, or did not know how full of impressions a life like Madam Mucklegrand's might be, and how very trifling and fleeting must be any that she might chance to make. She drove away down to the North End, and took Jane Jopson and her baby in,--very clean and shiny, both of them,--and Jane particularly nice in the little black crape bonnet that Rosamond herself had made, and the plain black shawl that Mrs. Holabird had given her. She stood at the head of the high, broad steps, with her mind very much made up in regard to her complete and well-bred self-possession, and the manner of her quietly assured self-introduction. She had her card all ready that should explain for her; and to the servant's reply that Madam Mucklegrand was in, she responded by moving forward with only enough of voluntary hesitation to allow him to indicate to her the reception room, at the door of which she gave him the little pasteboard, with,-- "Take that to her, if you please," and so sat down, very much as if she had been in such places frequently before, which she never had. One may be quite used to the fine, free essence of gentle living, and never in all one's life have anything to do with such solid, concrete expression of it as Rosamond saw here. Very high, to begin with, the ceiled and paneled room was; reaching up into space as if it had really been of no consequence to the builders where they should put the cover on; and with no remotest suggestion of any reserve for further superstructure upon the same foundation. Very dark, and polished, and deeply carved, and heavily ornamented were its wainscotings, and frames, and cornices; out of the new look of the streets, which it will take them yet a great while to outgrow, she had stepped at once into a grand, and mellow, and ancient stateliness. There were dim old portraits on the walls, and paintings that hinted at old mastership filled whole panels; and the tall, high-backed, wonderfully wrought oaken chairs had heraldic devices in relief upon their bars and corners; and there was a great, round mosaic table, in soft, rich, dark colors, of most precious stones; these, in turn, hidden with piles of rare engravings. The floor was of dark woods, inlaid; and sumptuous rugs were put about upon it for the feet, each one of which was wide enough to call a carpet. And nothing of it all was _new_; there was nothing in the room but some plants in a jardiniere by the window, that seemed to have a bit of yesterday's growth upon it. A great, calm, marble face of Jove looked down from high up, out of the shadows. Underneath sat Rosamond Holabird, holding on to her identity and her self-confidence. Madam Mucklegrand came in plainly enough dressed,--in black; you would not notice what she had on; but you would notice instantly the consummate usedness to the world and the hardening into the mould thereof that was set and furrowed upon eye and lip and brow. She sailed down upon Rosamond like a frigate upon a graceful little pinnace; and brought to within a pace or two of her, continuing to stand an instant, as Rosamond rose, just long enough for the shadow of a suggestion that it might not be altogether material that she should be seated again at all. But Rosamond made a movement backward to her chair, and laid her hand upon its arm, and then Madam Mucklegrand decided to sit down. "You called about the nurse, I conclude, Miss--Holabird?" "Yes, ma'am; I thought you had some questions you wished to ask, and that I had better come myself. I have her with me, in the carriage." "Thank you," said Madam Mucklegrand, politely. But it was rather a _de haut en bas_ politeness; she exercised it also toward her footman. Then followed inquiries about age, and health, and character. Rosamond told all she knew, clearly and sufficiently, with some little sympathetic touches that she could not help, in giving her story. Madam Mucklegrand met her nowhere, however, on any common ground; she passed over all personal interest; instead of two women befriending a third in her need, who in turn was to give life to a little child waiting helplessly for some such ministry, it might have been the leasing of a house, or the dealing about some merchandise, that was between them. Rosamond proposed, at last, to send Jane Jopson in. Jane and her baby were had in, and had up-stairs; the physician and attending nurse pronounced upon her; she was brought down again, to go home and dispose of her child, and return. Rosamond, meanwhile, had been sitting under the marble Jove. There was nothing really rude in it; she was there on business; what more could she expect? But then she knew all the time, that she too was a lady, and was taking trouble to do a kind thing. It was not so that Madam Mucklegrand would have been treated at Westover. Rosamond was feeling pretty proud by the time Madam Mucklegrand came down stairs. "We have engaged the young woman: the doctor quite approves; she will return without delay, I hope?" As if Rosamond were somehow responsible all through. "I have no doubt she will; good morning, madam." "Good morning. I am, really, very much obliged. You have been of great service." Rosamond turned quietly round upon the threshold. "That was what I was very anxious to be," she said, in her perfectly sweet and musical voice,--"to the poor woman." Italics would indicate too coarsely the impalpable emphasis she put upon the last two words. But Mrs. Mucklegrand caught it. Rosamond went away quite as sure of her own self-respect as ever, but very considerably cured of Spreadsplendidism. This was but one phase of it, she knew; there are real folks, also, in Spreadsplendid Park; they are a good deal covered up, there, to be sure; but they can't help that. It is what always happens to somebody when Pyramids are built. Madam Mucklegrand herself was, perhaps, only a good deal covered up. How lovely it was to go down into Orchard Street after that, and take tea with Miss Craydocke! How human and true it seemed,--the friendliness that shone and breathed there, among them all. How kingdom-of-heaven-like the air was, and into what pleasantness of speech it was born! And then Hazel Ripwinkley came over, like a little spirit from another blessed society, to tell that "the picture-book things were all ready, and that it would take everybody to help." That was Rosamond's first glimpse of Witch Hazel, who found her out instantly,--the real, Holabirdy part of her,--and set her down at once among her "folks." It was bright and cheery in Mrs. Ripwinkley's parlor; you could hardly tell whence the cheeriness radiated, either. The bright German lamp was cheery, in the middle of the round table; the table was cheery, covered with glossy linen cut into large, square book-sheets laid in piles, and with gay pictures of all kinds, brightly colored; and the scissors,--or scissorses,--there were ever so many shining pairs of them,--and the little mucilage bottles, and the very scrap-baskets,--all looked cozy and comfortable, and as if people were going to have a real good time among them, somehow. And the somehow was in making great beautiful, everlasting picture-books for the little orphans in Miss Craydocke's Home,--the Home, that is, out of several blessed and similar ones that she was especially interested in, and where Hazel and Diana had been with her until they knew all the little waifs by sight and name and heart, and had their especial chosen property among them, as they used to have among the chickens and the little yellow ducks at Homesworth Farm. Mrs. Ripwinkley was cheery; it might be a question whether all the light did not come from her first, in some way, and perhaps it did; but then Hazel was luminous, and she fluttered about with quick, happy motions, till like a little glancing taper she had shone upon and lit up everybody and everything; and Dorris was sunny with clear content, and Kenneth was blithe, and Desire was scintillant, as she always was either with snaps or smiles; and here came in beaming Miss Craydocke, and gay Asenath and her handsome husband; and our Rosa Mundi; there,--how can you tell? It was all round; and it was more every minute. There were cutters and pasters and stitchers and binders and every part was beautiful work, and nobody could tell which was pleasantest. Cutting out was nice, of course; who doesn't like cutting out pictures? Some were done beforehand, but there were as many left as there would be time for. And pasting, on the fine, smooth linen, making it glow out with charming groups and tints of flowers and birds and children in gay clothes,--that was delightful; and the stitchers had the pleasure of combining and arranging it all; and the binders,--Mrs. Ripwinkley and Miss Craydocke,--finished all off with the pretty ribbons and the gray covers, and theirs being the completing touch, thought _they_ had the best of it. "But I don't think finishing is best, mother," said Hazel, who was diligently snipping in and out around rose leaves or baby faces, as it happened. "I think beginning is always beautiful. I never want to end off,--anything nice, I mean." "Well, we don't end off this," said Diana. "There's the giving, next." "And then their little laughs and Oo's," said Hazel. "And their delight day after day; and the comfort of them in their little sicknesses," said Miss Craydocke. "And the stories that have got to be told about every picture," said Dorris. "No; nothing really nice does end; it goes on and on," said Mrs. Ripwinkley. "Of course!" said Hazel, triumphantly, turning on the Drummond light of her child-faith. "We're forever and ever people, you know!" "Please paste some more flowers, Mr. Kincaid," said Rosamond, who sat next him, stitching. "I want to make an all-flower book of this. No,--not roses; I've a whole page already; this great white lily, I think. That's beautiful!" "Wouldn't it do to put in this laurel bush next, with the bird's nest in it?" "O, those lovely pink and white laurels! Yes. Where did you get such pictures, Miss Hazel?" "O, everybody gave them to us, all summer, ever since we began. Mrs. Geoffrey gave those flowers; and mother painted some. She did that laurel. But don't call me Miss Hazel, please; it seems to send me off into a corner." Rosamond answered by a little irresistible caress; leaning her head down to Hazel, on her other side, until her cheek touched the child's bright curls, quickly and softly. There was magnetism between those two. Ah, the magnetism ran round! "For a child's picture-book, Mrs. Ripwinkley?" said Mrs. Scherman, reaching over for the laurel picture. "Aren't these almost too exquisite? They would like a big scarlet poppy just as well,--perhaps better. Or a clump of cat-o'-nine-tails," she added, whimsically. "There _is_ a clump of cat-o'-nine-tails," said Mrs. Ripwinkley. "I remember how I used to delight in them as a child,--the real ones." "Pictures are to _tell_ things," said Desire, in her brief way. "These little city refugees _must_ see them, somehow," said Rosamond, gently. "I understand. They will never get up on the mountains, maybe, where the laurels grow, or into the shady swamps among the flags and the cat-o'-nine-tails. You have _picked out_ pictures to give them, Mrs. Ripwinkley." Kenneth Kincaid's scissors stopped a moment, as he looked at Rosamond, pausing also over the placing of her leaves. Desire saw that from the other side; she saw how beautiful and gracious this girl was--this Rosamond Holabird; and there was a strange little twinge in her heart, as she felt, suddenly, that let there be ever so much that was true and kindly, or even tender, in her, it could never come up in her eyes or play upon her lips like that she could never say it out sweetly and in due place everything was a spasm with her; and nobody would ever look at her just as Kenneth Kincaid looked at Rosamond then. She said to herself, with her harsh, unsparing honesty, that it must be a "hitch inside;" a cramp or an awkwardness born in her, that set her eyes, peering and sharp, so near together, and put that knot into her brows instead of their widening placidly, like Rosamond's, and made her jerky in her speech. It was no use; she couldn't look and behave, because she couldn't _be_; she must just go boggling and kinking on, and--losing everything, she supposed. The smiles went down, under a swift, bitter little cloud, and the hard twist came into her face with the inward pinching she was giving herself; and all at once there crackled out one of her sharp, strange questions; for it was true that she could not do otherwise; everything was sudden and crepitant with her. "Why need all the good be done up in batches, I wonder? Why can't it be spread round, a little more even? There must have been a good deal left out somewhere, to make it come in a heap, so, upon you, Miss Craydocke!" Hazel looked up. "I know what Desire means," she said. "It seemed just so to me, _one_ way. Why oughtn't there to be _little_ homes, done-by-hand homes, for all these little children, instead of--well--machining them all up together?" And Hazel laughed at her own conceit. "It's nice; but then--it isn't just the way. If we were all brought up like that we shouldn't know, you see!" "You wouldn't want to be brought up in a platoon, Hazel?" said Kenneth Kincaid. "No; neither should I." "I think it was better," said Hazel, "to have my turn of being a little child, all to myself; _the_ little child, I mean, with the rest of the folks bigger. To make much of me, you know. I shouldn't want to have missed that. I shouldn't like to be _loved_ in a platoon." "Nobody is meant to be," said Miss Craydocke. "Then why--" began Asenath Scherman, and stopped. "Why what, dear?" "Revelations," replied Sin, laconically. "There are loads of people there, all dressed alike, you know; and--well--it's platoony, I think, rather! And down here, such a world-full; and the sky--full of worlds. There doesn't seem to be much notion of one at a time, in the general plan of things." "Ah, but we've got the key to all that," said Miss Craydocke. "'The very hairs of your head are all numbered.' It may be impossible with us, you know, but not with Him." "Miss Hapsie! you always did put me down, just when I thought I was smart," said Sin Scherman. Asenath loved to say "Miss Hapsie," now and then, to her friend, ever since she had found out what she called her "squee little name." "But the little children, Miss Craydocke," said Mrs. Ripwinkley. "It seems to me Desire has got a right thought about it." Mrs. Ripwinkley and Hazel always struck the same note. The same delicate instinct moved them both. Hazel "knew what Desire meant;" her mother did not let it be lost sight of that it was Desire who had led the way in this thought of the children; so that the abrupt beginning--the little flash out of the cloud--was quite forgotten presently, in the tone of hearty understanding and genuine interest with which the talk went on; and it was as if all that was generous and mindfully suggestive in it had first and truly come from her. They unfolded herself for her--these friendly ones--as she could not do; out of her bluntness grew a graciousness that lay softly over it; the cloud itself melted away and floated off; and Desire began to sparkle again more lambently. For she was not one of the kind to be meanly or enviously "put out." "It seemed to me there must be a great many spare little corners somewhere, for all these spare little children," she said, "and that, lumped up together so, there was something they did not get." "That is precisely the thing," said Miss Craydocke, emphatically. "I wonder, sometimes," she went on, tenderly, "if whenever God makes a little empty place in a home, it isn't really on purpose that it might be filled with one of these,--if people only thought." "Miss Craydocke," said Hazel, "how did you begin your beehive?" "I!" said the good lady. "I didn't. It began itself." "Well, then, how did you _let_ it begin?" "Ah!" The tone was admissive, and as if she had said, "_That_ is another thing!" She could not contradict that she had let it be. "I'll tell you a queer story," she said, "of what they say they used to do, in old Roman Catholic times and places, when they wanted to _keep up_ a beehive that was in any danger of dwindling or growing unprofitable. I read it somewhere in a book of popular beliefs and customs about bees and other interesting animals. An old woman once went to her friend, and asked her what she did to make her hive so gainful. And this was what the old wife said; it sounds rather strange to us, but if there is anything irreverent in it, it is the word and not the meaning; 'I go,' she said, 'to the priest, and get a little round Godamighty, and put it in the hive, and then all goes well; the bees thrive, and there is plenty of honey; they always come, and stay, and work, when _that_ is there." "A little round--something awful! what _did_ she mean?" asked Mrs. Scherman. "She meant a consecrated wafer,--the Sacrament. We don't need to put the wafer in; but if we let _Him_ in, you see,--just say to Him it is his house, to do with as He likes,--He takes the responsibility, and brings in all the rest." Nobody saw, under the knitting of Desire Ledwith's brows, and the close setting of her eyes, the tenderness with which they suddenly moistened, and the earnestness with which they gleamed. Nobody knew how she thought to herself inwardly, in the same spasmodic fashion that she used for speech,-- "They Mig up their parlors with upholstery, and put rose-colored paper on their walls, and call them _their_ houses; and shut the little round awfulness and goodness out! We've all been doing it! And there's no place left for what might come in." Mrs. Scherman broke the hush that followed what Miss Hapsie said. Not hastily, or impertinently; but when it seemed as if it might be a little hard to come down into the picture-books and the pleasant easiness again. "Let's make a Noah's Ark picture-book,--you and I," she said to Desire. "Give us all your animals,--there's a whole Natural History full over there, all painted with splendid daubs of colors; the children did that, I know, when they _were_ children. Come; we'll have everything in, from an elephant to a bumble-bee!" "We did not mean to use those, Mrs. Scherman," said Desire. "We did not think they were good enough. They are _so_ daubed up." "They're perfectly beautiful. Exactly what the young ones will like. Just divide round, and help. We'll wind up with the most wonderful book of all; the book they'll all cry for, and that will have to be given always, directly after the Castor Oil." It took them more than an hour to do that, all working hard; and a wonderful thing it was truly, when it was done. Mrs. Scherman and Desire Ledwith directed all the putting together, and the grouping was something astonishing. There were men and women,--the Knowers, Sin called them; she said that was what she always thought the old gentleman's name was, in the days when she first heard of him, because he knew so much; and in the backgrounds of the same sheets were their country cousins, the orangs, and the little apes. Then came the elephants, and the camels, and the whales; "for why shouldn't the fishes be put in, since they must all have been swimming round sociably, if they weren't inside; and why shouldn't the big people be all kept together properly?" There were happy families of dogs and cats and lions and snakes and little humming-birds; and in the last part were all manner of bugs, down to the little lady-bugs in blazes of red and gold, and the gray fleas and mosquitoes which Sin improvised with pen and ink, in a swarm at the end. "And after that, I don't believe they wanted any more," she said; and handed over the parts to Miss Craydocke to be tied together. For this volume had had to be made in many folds, and Mrs. Ripwinkley's blue ribbon would by no means stretch over the back. And by that time it was eleven o'clock, and they had worked four hours. They all jumped up in a great hurry then, and began to say good-by. "This must not be the last we are to have of you, Miss Holabird," said Mrs. Ripwinkley, laying Rosamond's shawl across her shoulders. "Of course not," said Mrs Scherman, "when you are all coming to our house to tea to-morrow night." Rosamond bade the Ripwinkleys good-night with a most sweet cordiality, and thanks for the pleasure she had had, and she told Hazel and her mother that it was "neither beginning nor end, she believed; for it seemed to her that she had only found a little new piece of her world, and that Aspen Street led right out of Westover in the invisible geography, she was sure." "Come!" said Miss Craydocke, standing on the doorsteps. "It is all invisible geography out here, pretty nearly; and we've all our different ways to go, and only these two unhappy gentlemen to insist on seeing everybody home." So first the whole party went round with Miss Hapsie, and then Kenneth and Dorris, who always went home with Desire, walked up Hanley Street with the Schermans and Rosamond, and so across through Dane Street to Shubarton Place. But while they were on their way, Hazel Ripwinkley was saying to her mother, up in her room, where they made sometimes such long good-nights,-- "Mother! there were some little children taken away from you before we came, you know? And now we've got this great big house, and plenty of things, more than it takes for us." "Well?" "Don't you think it's expected that we should do something with the corners? There's room for some real good little times for somebody. I think we ought to begin a beehive." Mrs. Ripwinkley kissed Hazel very tenderly, and said, only,-- "We can wait, and see." Those are just the words that mothers so often put children off with! But Mrs. Ripwinkley, being one of the real folks, meant it; the very heart of it. In that little talk, they took the consecration in; they would wait and see; when people do that, with an expectation, the beehive begins. * * * * * Up Hanley Street, the six fell into pairs. Mrs. Scherman and Desire, Dorris and Mr. Scherman, Rosamond and Kenneth Kincaid. It only took from Bridgeley Street up to Dane, to tell Kenneth Kincaid so much about Westover, in answer to his questions, that he too thought he had found a new little piece of his world. What Rosamond thought, I do not know; but a girl never gives a young man so much as she gave Kenneth in that little walk without having some of the blessed consciousness that comes with giving. The sun knows it shines, I dare say; or else there is a great waste of hydrogen and other things. There was not much left for poor little Desire after they parted from the Schermans and turned the corner of Dane Street. Only a little bit of a way, in which new talk could hardly begin, and just time for a pause that showed how the talk that had come to an end was missed or how, perhaps, it stayed in the mind, repeating itself, and keeping it full. Nobody said anything till they had crossed B---- Street; and then Dorris said, "How beautiful,--_real_ beautiful, Rosamond Holabird is!" And Kenneth answered, "Did you hear what she said to Mrs. Ripwinkley?" They were full of Rosamond! Desire did not speak a word. Dorris had heard and said it over. It seemed to please Kenneth to hear it again. "A piece of her world!" "How quickly a true person springs to what belongs to--their life!" said Kenneth, using that wrong little pronoun that we shall never be able to do without. "People don't always get what belongs, though," blurted Desire at last, just as they came to the long doorsteps. "Some people's lives are like complementary colors, I think; they see blue, and live red!" "But the colors are only accidentally--I mean temporarily--divided; they are together in the sun; and they join somewhere--beyond." "I hate beyond!" said Desire, recklessly. "Good-night. Thank you." And she ran up the steps. Nobody knew what she meant. Perhaps she hardly knew herself. They only thought that her home life was not suited to her, and that she took it hard. XIV. "SESAME; AND LILIES." "I've got a discouragement at my stomach," said Luclarion Grapp. "What's the matter?" asked Mrs. Ripwinkley, naturally. "Mrs. Scarup. I've been there. There ain't any bottom to it." "Well?" Mrs. Ripwinkley knew that Luclarion had more to say, and that she waited for this monosyllable. "She's sick again. And Scarup, he's gone out West, spending a hundred dollars to see whether or no there's a chance anywhere for a _smart_ man,--and that ain't he, so it's a double waste,--to make fifty. No girl; and the children all under foot, and Pinkie looking miserable over the dishes." "Pinkie isn't strong." "No. She's powerful weak. I just wish you'd seen that dirty settin'-room fire-place; looks as if it hadn't been touched since Scarup smoked his pipe there, the night before he went off a wild-gandering. And clo'es to be ironed, and the girl cleared out, because 'she'd always been used to fust-class families.' There wasn't anything to your hand, and you couldn't tell where to begin, unless you began with a cataplasm!" Luclarion had heard, by chance, of a cataclysm, and that was what she meant. "It wants--creation, over again! Mrs. Scarup hadn't any fit breakfast; there was burnt toast, made out of tough bread, that she'd been trying to eat; and a cup of tea, half drunk; something the matter with that, I presume. I'd have made her some gruel, if there'd been a fire; and if there'd been any kindlings, I'd have made her a fire; but there 'twas; there wasn't any bottom to it!" "You had better make the gruel here, Luclarion." "That's what I come back for. But--Mrs. Ripwinkley!" "Well?" "Don't it appear to you it's a kind of a stump? I don't want to do it just for the satisfaction; though it _would_ be a satisfaction to plough everything up thorough, and then rake it over smooth; what do you think?" "What have you thought, Luclarion? Something, of course." "She wants a real smart girl--for two dollars a week. She can't get her, because she ain't. And I kind of felt as though I should like to put in. Seemed to me it was a--but there! I haven't any right to stump _you_." "Wouldn't it be rather an aggravation? I don't suppose you would mean to stay altogether?" "Not unless--but don't go putting it into my head, Mrs. Ripwinkley. I shall feel as if I _was_. And I don't think it goes quite so far as that, yet. We ain't never stumped to more than one thing at a time. What she wants is to be straightened out. And when things once looked _my_ way, she might get a girl, you see. Anyhow, 'twould encourage Pinkie, and kind of set her going. Pinkie likes things nice; but it's such a Hoosac tunnel to undertake, that she just lets it all go, and gets off up-stairs, and sticks a ribbon in her hair. That's all she _can_ do. I s'pose 'twould take a fortnight, maybe?" "Take it, Luclarion," said Mrs. Ripwinkley, smiling. Luclarion understood the smile. "I s'pose you think it's as good as took. Well, perhaps it is--spoke for. But it wasn't me, you know. Now what'll you do?" "Go into the kitchen and make the pudding." "But then?" "We are not stumped for then, you know." "There was a colored girl here yesterday, from up in Garden Street, asking if there was any help wanted. I think she came in partially, to look at the flowers; the 'sturtiums _are_ splendid, and I gave her some. She was awfully dressed up,--for colors, I mean; but she looked clean and pleasant, and spoke bright. Maybe she'd come, temporary. She seemed taken with things. I know where to find her, and I could go there when I got through with the gruel. Mrs. Scarup must have that right off." And Luclarion hurried away. It was not the first time Mrs. Ripwinkley had lent Luclarion; but Miss Grapp had not found a kitchen mission in Boston heretofore. It was something new to bring the fashion of simple, prompt, neighborly help down intact from the hills, and apply it here to the tangle of city living, that is made up of so many separate and unrecognized struggles. When Hazel came home from school, she went all the way up the garden walk, and in at the kitchen door. "That was the way she took it all," she said; "first the flowers, and then Luclarion and what they had for dinner, and a drink of water; and then up-stairs, to mother." To-day she encountered in the kitchen a curious and startling apparition of change. A very dusky brown maiden, with a petticoat of flashing purple, and a jacket of crimson, and extremely puzzling hair tied up with knots of corn color, stood in possession over the stove, tending a fricassee, of which Hazel recognized at once the preparation and savor as her mother's; while beside her on a cricket, munching cold biscuit and butter with round, large bites of very white little teeth, sat a small girl of five of the same color, gleaming and twinkling as nothing human ever does gleam and twinkle but a little darkie child. "Where is Luclarion?" asked Hazel, standing still in the middle of the floor, in her astonishment. "I don't know. I'm Damaris, and this one's little Vash. Don't go for callin' me Dam, now; the boys did that in my last place, an' I left, don' yer see? I ain't goin' to be swore to, anyhow!" And Damaris glittered at Hazel, with her shining teeth and her quick eyes, full of fun and good humor, and enjoyed her end of the joke extremely. "Have you come to _stay_?" asked Hazel. "'Course. I don' mostly come for to go." "What does it mean, mother?" Hazel asked, hurrying up into her mother's room. And then Mrs. Ripwinkley explained. "But what _is_ she? Black or white? She's got straight braids and curls at the back of her head, like everybody's"-- "'Course," said a voice in the doorway. "An' wool on top,--place where wool ought to grow,--same's everybody, too." Damaris had come up, according to orders, to report a certain point in the progress of the fricassee. "They all pulls the wool over they eyes, now-days, an sticks the straight on behind. Where's the difference?" Mrs. Ripwinkley made some haste to rise and move toward the doorway, to go down stairs, turning Damaris from her position, and checking further remark. Diana and Hazel stayed behind, and laughed. "What fun!" they said. It was the beginning of a funny fortnight; but it is not the fun I have paused to tell you of; something more came of it in the home-life of the Ripwinkleys; that which they were "waiting to see." Damaris wanted a place where she could take her little sister; she was tired of leaving her "shyin' round," she said. And Vash, with her round, fuzzy head, her bright eyes, her little flashing teeth, and her polished mahogany skin,--darting up and down the house "on Aarons," or for mere play,--dressed in her gay little scarlet flannel shirt-waist, and black and orange striped petticoat,--was like some "splendid, queer little fire-bug," Hazel said, and made a surprise and a picture wherever she came. She was "cute," too, as Damaris had declared beforehand; she was a little wonder at noticing and remembering, and for all sorts of handiness that a child of five could possibly be put to. Hazel dressed rag babies for her, and made her a soap-box baby-house in the corner of the kitchen, and taught her her letters; and began to think that she should hate to have her go when Luclarion came back. Damaris proved clever and teachable in the kitchen; and had, above all, the rare and admirable disposition to keep things scrupulously as she had found them; so that Luclarion, in her afternoon trips home, was comforted greatly to find that while she was "clearing and ploughing" at Mrs. Scarup's, her own garden of neatness was not being turned into a howling wilderness; and she observed, as is often done so astutely, that "when you _do_ find a neat, capable, colored help, it's as good help as you can have." Which you may notice is just as true without the third adjective as with. Luclarion herself was having a splendid time. The first thing she did was to announce to Mrs. Scarup that she was out of her place for two weeks, and would like to come to her at her wages; which Mrs. Scarup received with some such awed and unbelieving astonishment as she might have done the coming of a legion of angels with Gabriel at their head. And when one strong, generous human will, with powers of brain and body under it sufficient to some good work, comes down upon it as Luclarion did upon hers, there _is_ what Gabriel and his angels stand for, and no less sent of God. The second thing Luclarion did was to clean that "settin'-room fire-place," to restore the pleasant brown color of its freestone hearth and jambs, to polish its rusty brasses till they shone like golden images of gods, and to lay an ornamental fire of chips and clean little sticks across the irons. Then she took a wet broom and swept the carpet three times, and dusted everything with a damp duster; and then she advised Mrs. Scarup, whom the gruel had already cheered and strengthened, to be "helped down, and sit there in the easy-chair, for a change, and let her take her room in hand." And no doctor ever prescribed any change with better effect. There are a good many changes that might be made for people, without sending them beyond their own doors. But it isn't the doctors who always know _what_ change, or would dare to prescribe it if they did. Mrs. Scarup was "helped down," it seemed,--really up, rather,--into a new world. Things had begun all over again. It was worth while to get well, and take courage. Those brasses shone in her face like morning suns. "Well, I do declare to Man, Miss Grapp!" she exclaimed; and breath and expression failed together, and that was all she could say. Up-stairs, Luclarion swept and rummaged. She found the sheet and towel drawers, and made everything white and clean. She laid fresh napkins over the table and bureau tops, and set the little things--boxes, books, what not,--daintily about on them. She put a clean spread on the bed, and gathered up things for the wash she meant to have, with a recklessness that Mrs. Scarup herself would never have dared to use, in view of any "help" she ever expected to do it. And then, with Pinkie to lend feeble assistance, Luclarion turned to in the kitchen. It was a "clear treat," she told Mrs. Ripwinkley afterward. "Things had got to that state of mussiness, that you just began at one end and worked through to the other, and every inch looked new made over after you as you went along." She put the children out into the yard on the planks, and gave them tin pans and clothes-pins to keep house with, and gingerbread for their dinner. She and Pinkie had cups of tea, and Mrs. Scarup had her gruel, and went up to bed again; and that was another new experience, and a third stage in her treatment and recovery. When it came to the cellar, Luclarion got the chore-man in; and when all was done, she looked round on the renovated home, and said within herself, "If Scarup, now, will only break his neck, or get something to do, and stay away with his pipes and his boots and his contraptions!" And Scarup did. He found a chance in some freight-house, and wrote that he had made up his mind to stay out there all winter; and Mrs. Scarup made little excursions about the house with her returning strength, and every journey was a pleasure-trip, and the only misery was that at the end of the fortnight Miss Grapp was going away, and then she should be "all back in the swamp again." "No, you won't," said Luclarion; "Pinkie's waked up, and she's going to take pride, and pick up after the children. She can do that, now; but she couldn't shoulder everything. And you'll have somebody in the kitchen. See if you don't. I've 'most a mind to say I'll stay till you do." Luclarion's faith was strong; she knew, she said, that "if she was doing at her end, Providence wasn't leaving off at his. Things would come round." This was how they did come round. It only wanted a little sorting about. The pieces of the puzzle were all there. Hazel Ripwinkley settled the first little bit in the right place. She asked her mother one night, if she didn't think they might begin their beehive with a fire-fly? Why couldn't they keep little Vash? "And then," said Diana, in her quiet way, slipping one of the big three-cornered pieces of the puzzle in, "Damaris might go to Mrs. Scarup for her two dollars a week. She is willing to work for that, if she can get Vash taken. And this would be all the same, and better." Desire was with them when Luclarion came in, and heard it settled. "How is it that things always fall right together for you, so? How _came_ Damaris to come along?" "You just take hold of something and try," said Luclarion. "You'll find there's always a working alongside. Put up your sails, and the wind will fill 'em." Uncle Titus wanted to know "what sort of use a thing like that could be in a house?" He asked it in his very surliest fashion. If they had had any motives of fear or favor, they would have been disconcerted, and begun to think they had made a mistake. But Hazel spoke up cheerily,-- "Why, to wait on people, uncle. She's the nicest little fetch-and-carrier you ever saw!" "Humph! who wants to be waited on, here? You girls, with feet and hands of your own? Your mother doesn't, I know." "Well, to wait _on_, then," says Hazel, boldly. "I'm making her a baby-house, and teaching her to read; and Diana is knitting scarlet stockings for her, to wear this winter. We like it." "O, if you like it! That's always a reason. I only want to have people give the real one." And Uncle Titus walked off, so that nobody could tell whether _he_ liked it or not. Nobody told him anything about the Scarups. But do you suppose he didn't know? Uncle Titus Oldways was as sharp as he was blunt. "I guess I know, mother," said Hazel, a little while after this, one day, "how people write stories." "Well?" asked her mother, looking up, ready to be amused with Hazel's deep discovery. "If they can just begin with one thing, you see, that makes the next one. It can't help it, hardly. Just as it does with us. What made me think of it was, that it seemed to me there was another little piece of our beehive story all ready to put on; and if we went and did it,--I wonder if you wouldn't, mother? It fits exactly." "Let me see." "That little lame Sulie at Miss Craydocke's Home, that we like so much. Nobody adopts her away, because she is lame; her legs are no use at all, you know, and she just sits all curled up in that great round chair that Mrs. Geoffrey gave her, and sews patchwork, and makes paper dolls. And when she drops her scissors, or her thread, somebody has to come and pick it up. She wants waiting on; she just wants a little lightning-bug, like Vash, to run round for her all the time. And we don't, you see; and we've got Vash! And Vash--likes paper dolls." Hazel completed the circle of her argument with great triumph. "An extra piece of bread to finish your too much butter," said Diana. "Yes. Doesn't it just make out?" said Hazel, abating not a jot of her triumph, and taking things literally, as nobody could do better than she, upon occasion, for all her fancy and intuition. "I wonder what Uncle Oldways would say to that," said Diana. "He'd say 'Faugh, faugh!' But he doesn't mean faugh, faugh, half the time. If he does, he doesn't stick to it. Mother," she asked rather suddenly, "do you think Uncle Oldways feels as if we oughtn't to do--other things--with his money?" "What other things?" "Why, _these_ others. Vash, and Sulie, perhaps. Wouldn't he like it if we turned his house into a Beehive?" "It isn't his house," said Mrs. Ripwinkley, "He has given it to me." "Well,--do you feel 'obligated,' as Luclarion says?' "In a certain degree,--yes. I feel bound to consider his comfort and wishes, as far as regards his enjoyment with us, and fulfilling what he reasonably looked for when he brought us here." "Would that interfere?" "Suppose you ask him, Hazel?" "Well, I could do that." "Hazel wouldn't mind doing anything!" said Diana, who, to tell the truth was a little afraid of Uncle Titus, and who dreaded of all things, being snubbed. "Only," said Hazel, to whom something else had just occurred, "wouldn't he think--wouldn't it be--_your_ business?" "It is all your plan, Hazel. I think he would see that." "And you are willing, if he doesn't care?" "I did not quite say that. It would be a good deal to think of." "Then I'll wait till you've thought," said clear-headed little Hazel. "But it fits right on. I can see that. And Miss Craydocke said things would, after we had begun." Mrs. Ripwinkley took it into her thoughts, and carried it about with her for days, and considered it; asking herself questions. Was it going aside in search of an undertaking that did not belong to her? Was it bringing home a care, a responsibility, for which they were not fitted,--which might interfere with the things they were meant, and would be called, to do? There was room and opportunity, doubtless, for them to do something; Mrs. Ripwinkley had felt this; she had not waited for her child to think of it for her; she had only waited, in her new, strange sphere, for circumstances to guide the way, and for the Giver of all circumstance to guide her thought. She chose, also, in the things that would affect her children's life and settle duties for them, to let them grow also to those duties, and the perception of them, with her. To this she led them, by all her training and influence; and now that in Hazel, her child of quick insight and true instincts, this influence was bearing fruit and quickening to action, she respected her first impulses; she believed in them; they had weight with her, as argument in themselves. These impulses, in young, true souls, freshly responding, are, she knew, as the proof-impressions of God's Spirit. Yet she would think; that was her duty; she would not do a thing hastily, or unwisely. Sulie Praile had been a good while, now, at the Home. A terrible fall, years ago, had caused a long and painful illness, and resulted in her present helplessness. But above those little idle, powerless limbs, that lay curled under the long, soft skirt she wore, like a baby's robe, were a beauty and a brightness, a quickness of all possible motion, a dexterous use of hands, and a face of gentle peace and sometimes glory, that were like a benediction on the place that she was in; like the very Holy Ghost in tender form like a dove, resting upon it, and abiding among them who were there. In one way, it would hardly be so much a giving as a taking, to receive her in. Yet there was care to assume, the continuance of care to promise or imply; the possibility of conflicting plans in much that might be right and desirable that Mrs. Ripwinkley should do for her own. Exactly what, if anything, it would be right to undertake in this, was matter for careful and anxious reflection. The resources of the Home were not very large; there were painful cases pressing their claims continually, as fast as a little place was vacated it could be filled; was wanted, ten times over; and Sulie Praile had been there a good while. If somebody would only take her, as people were very ready to take--away to happy, simple, comfortable country homes, for mere childhood's sake--the round, rosy, strong, and physically perfect ones! But Sulie must be lifted and tended; she must keep somebody at home to look after her; no one could be expected to adopt a child like that. Yet Hazel Ripwinkley thought they could be; thought, in her straightforward, uncounting simplicity, that it was just the natural, obvious, beautiful thing to do, to take her home--into a real home--into pleasant family life; where things would not crowd; where she could be mothered and sistered, as girls ought to be, when there are so many nice places in the world, and not so many people in them as there might be. When there could be so much visiting, and spare rooms kept always in everybody's house, why should not somebody who needed to, just come in and stay? What were the spare places made for? "We might have Sulie for this winter," said Mrs. Ripwinkley, at last. "They would let her come to us for that time; and it would be a change for her, and leave a place for others. Then if anything made it impossible for us to do more, we should not have raised an expectation to be disappointed. And if we can and ought to do more, it will be shown us by that time more certainly." She asked Miss Craydocke about it, when she came home from Z---- that fall. She had been away a good deal lately; she had been up to Z---- to two weddings,--Leslie Goldthwaite's and Barbara Holabird's. Now she was back again, and settled down. Miss Craydocke thought it a good thing wisely limited. "Sulie needs to be with older girls; there is no one in the Home to be companion to her; the children are almost all little. A winter here would be a blessing to her!" "But the change again, if she should have to make it?" suggested Mrs. Ripwinkley. "Good things don't turn to bad ones because you can't have them any more. A thing you're not fit for, and never ought to have had, may; but a real good stays by; it overflows all the rest. Sulie Praile's life could never be so poor again, after a winter here with you, as it might be if she had never had it. If you'd like her, let her come, and don't be a bit afraid. We're only working by inches, any of us; like the camel's-hair embroiderers in China. But it gets put together; and it is beautiful, and large, and whole, somewhere." "Miss Craydocke always knows," said Hazel. Nobody said anything again, about Uncle Titus. A winter's plan need not be referred to him. But Hazel, in her own mind, had resolved to find out what was Uncle Titus's, generally and theoretically; how free they were to be, beyond winter plans and visits of weeks; how much scope they might have with this money and this house, that seemed so ample to their simple wants, and what they might do with it and turn it into, if it came into their heads or hearts or consciences. So one day she went in and sat down by him in the study, after she had accomplished some household errand with Rachel Froke. Other people approached him with more or less of strategy, afraid of the tiger in him; Desire Ledwith faced him courageously; only Hazel came and nestled up beside him, in his very cage, as if he were no wild beast, after all. Yet he pretended to growl, even at her, sometimes; it was so funny to see her look up and chirp on after it, like some little bird to whom the language of beasts was no language at all, and passed by on the air as a very big sound, but one that in no wise concerned it. "We've got Sulie Praile to spend the winter, Uncle Titus," she said. "Who's Sulie Praile?" "The lame girl, from the Home. We wanted somebody for Vash to wait on, you know. She sits in a round chair, that twists, like yours; and she's--just like a lily in a vase!" Hazel finished her sentence with a simile quite unexpected to herself. There was something in Sulie's fair, pale, delicate face, and her upper figure, rising with its own peculiar lithe, easily swayed grace from among the gathered folds of the dress of her favorite dark green color, that reminded--if one thought of it, and Hazel turned the feeling of it into a thought at just this moment--of a beautiful white flower, tenderly and commodiously planted. "Well, I suppose it's worth while to have a lame girl to sit up in a round chair, and look like a lily in a vase, is it?" "Uncle Titus, I want to know what you think about some things." "That is just what I want to know myself, sometimes. To find out what one thinks about things, is pretty much the whole finding, isn't it?" "Don't be very metaphysical, please, Uncle Titus. Don't turn your eyes round into the back of your head. That isn't what I mean." "What do you mean?" "Just plain looking." "O!" "Don't you think, when there are places, all nice and ready,--and people that would like the places and haven't got 'em,--that the people ought to be put into the places?" "'The shirtless backs put into the shirts?'" "Why, yes, of course. What are shirts made for?" "For some people to have thirty-six, and some not to have any," said Mr. Oldways. "No," said Hazel. "Nobody wants thirty-six, all at once. But what I mean is, rooms, and corners, and pleasant windows, and seats at the table; places where people come in visiting, and that are kept saved up. I can't bear an empty box; that is, only for just one pleasant minute, while I'm thinking what I can put into it." "Where's your empty box, now?" "Our house _was_ rather empty-boxy. Uncle Titus, do you mind how we fill it up,--because you gave it to us, you know?" "No. So long as you don't crowd yourselves out." "Or you, Uncle Titus. We don't want to crowd you out. Does it crowd you any to have Sulie and Vash there, and to have us 'took up' with them, as Luclarion says?" How straight Witch Hazel went to her point! "Your catechism crowds me just a little, child," said Uncle Titus. "I want to see you go your own way. That is what I gave you the house for. Your mother knows that. Did she send you here to ask me?" "No. I wanted to know. It was I that wanted to begin a kind of a Beehive--like Miss Craydocke's. Would you care if it was turned quite into a Beehive, finally?" Hazel evidently meant to settle the furthest peradventure, now she had begun. "Ask your mother to show you the deed. 'To Frances Ripwinkley, her heirs and assigns,'--that's you and Diana,--'for their use and behoof, forever.' I've no more to do with it." "'Use, and behoof,'" said Hazel, slowly. And then she turned the leaves of the great Worcester that lay upon the study table, and found "Behoof." "'Profit,--gain,--benefit;' then that's what you meant; that we should make as much more of it as we could. That's what I think, Uncle Titus. I'm glad you put 'behoof in." "They always put it in, child!" "Do they? Well, then, they don't always work it out!" and Hazel laughed. At that, Mr. Oldways pulled off his spectacles, looked sharp at Hazel with two sharp, brown eyes,--set near together, Hazel noticed for the first time, like Desire's,--let the keenness turn gradually into a twinkle, suffered the muscles that had held his lips so grim to relax, and laughed too; his peculiar, up-and-down shake of a laugh, in which head and shoulders made the motions, as if he were a bottle, and there were a joke inside of him which was to be well mixed up to be thoroughly enjoyed. "Go home to your mother, jade-hopper!" he said, when he had done; "and tell her I'm coming round to-night, to tea, amongst your bumble-bees and your lilies!" XV. WITH ALL ONE'S MIGHT. Let the grapes be ever so sweet, and hang in plenty ever so low, there is always a fair bunch out of reach. Mrs. Ledwith longed, now, to go to Europe. At any rate, she was eager to have her daughters go. But, after just one year, to take what her Uncle Oldways had given her, in return for her settling herself near him, and _un_settle herself, and go off to the other side of the world! Besides, what he had given her would not do it. That was the rub, after all. What was two thousand a year, now-a-days? Nothing is anything, now-a-days. And it takes everything to do almost nothing. The Ledwiths were just as much pinched now as they were before they ever heard from Uncle Oldways. People with unlimited powers of expansion always are pinched; it is good for them; one of the saving laws of nature that keeps things decently together. Yet, in the pink room of a morning, and in the mellow-tinted drawing-room of an evening, it was getting to be the subject oftenest discussed. It was that to which they directed the combined magnetism of the family will; everything was brought to bear upon it; Bridget's going away on Monday morning, leaving the clothes in the tubs, the strike-price of coal, and the overcharge of the grocer; Florence's music, Helena's hopeless distress over French and German; even Desire's listlessness and fidgets; most of all Mrs. Megilp's plans, which were ripening towards this long coveted end. She and Glossy really thought they should go this winter. "It is a matter of economy now; everybody's going. The Fargo's and the Fayerwerses, and the Hitherinyons have broken all up, and are going out to stay indefinitely. The Fayerwerses have been saving up these four years to get away, there are so many of them, you know; the passage money counts, and the first travelling; but after you _are_ over, and have found a place to settle down in,"--then followed all the usual assertions as to cheap delights and inestimable advantages, and emancipation from all American household ills and miseries. Uncle Oldways came up once in a while to the house in Shubarton Place, and made an evening call. He seemed to take apricot-color for granted, when he got there, as much as he did the plain, old, unrelieved brown at Mrs. Ripwinkley's; he sat quite unconcernedly in the grand easy chair that Laura wheeled out for him; indeed, it seemed as if he really, after a manner, indorsed everything by his acceptance without demur of what he found. But then one must sit down on something; and if one is offered a cup of coffee, or anything on a plate, one cannot easily protest against sea-green china. We do, and we have, and we wear, and we say, a great many things, and feel ourselves countenanced and confirmed, somehow,--perhaps excused,--because nobody appears surprised or says anything. But what should they say; and would it be at all proper that they should be surprised? If we only thought of it, and once tried it, we might perhaps find it quite as easy and encouraging, on the same principle, _not_ to have apricot rep and sea-green china. One night Mr. Oldways was with them when the talk turned eastwardly over the water. There were new names in the paper, of people who had gone out in the _Aleppo_, and a list of Americans registered at Bowles Brothers,' among whom were old acquaintance. "I declare, how they all keep turning up there" said Mrs. Ledwith. "The war doesn't seem to make much difference," said her husband. "To think how lucky the Vonderbargens were, to be in Paris just at the edge of the siege!" said Glossy Megilp. "They came back from Como just in time; and poor Mr. Washburne had to fairly hustle them off at last. They were buying silks, and ribbons, and gloves, up to the last minute, for absolutely nothing. Mrs. Vonderbargen said it seemed a sin to come away and leave anything. I'm sure I don't know how they got them all home; but they did." Glossy had been staying lately with the Vonderbargens in New York. She stayed everywhere, and picked up everything. "You have been abroad, Mrs. Scherman?" said Mrs. Ledwith, inquiringly, to Asenath, who happened to be calling, also, with her husband, and was looking at some photographs with Desire. "No, ma'am," answered Mrs. Scherman, very promptly, not having spoken at all before in the discussion. "I do not think I wish to go. The syphon has been working too long." "The Syphon?" Mrs. Ledwith spoke with a capital S in her mind; but was not quite sure whether what Mrs. Scherman meant might be a line of Atlantic steamers or the sea-serpent. "Yes, ma'am. The emptying back and forth. There isn't much that is foreign over there, now, nor very much that is native here. The hemispheres have got miserably mixed up. I think when I go 'strange countries for to see,' it will have to be Patagonia or Independent Tartary." Uncle Oldways turned round with his great chair, so as to face Asenath, and laughed one of his thorough fun digesting laughs, his keen eyes half shut with the enjoyment, and sparkling out through their cracks at her. But Asenath had resumed her photographs with the sweetest and quietest unconsciousness. Mrs. Ledwith let her alone after that; and the talk rambled on to the schools in Munich, and the Miracle Plays at Oberammergau. "To think of _that_ invasion!" said Asenath, in a low tone to Desire, "and corrupting _that_ into a show, with a run of regular performances! I do believe they have pulled down the last unprofaned thing now, and trampled over it." "If we go," said Mrs. Megilp, "we shall join the Fayerwerses, and settle down with them quietly in some nice place; and then make excursions. We shall not try to do all Europe in three months; we shall choose, and take time. It is the only way really to enjoy or acquire; and the quiet times are so invaluable for the lessons and languages." Mrs. Megilp made up her little varnishes with the genuine gums of truth and wisdom; she put a beautiful shine even on to her limited opportunities and her enforced frugalities. "Mrs. Ledwith, you _ought_ to let Agatha and Florence go too. I would take every care of them; and the expense would be so divided--carriages, and couriers, and everything--that it would be hardly anything." "It is a great opportunity," Mrs. Ledwith said, and sighed. "But it is different with us from what it is with you. We must still be a family here, with nearly the same expenses. To be sure Desire has done with school, and she doesn't care for gay society, and Helena is a mere child yet; if it ever could"-- And so it went on between the ladies, while Mr. Oldways and Mr. Ledwith and Frank Scherman got into war talk, and Bismarck policy, and French poss--no, _im_-possibilities. "I don't think Uncle Oldways minded much," said Mrs. Ledwith to Agatha, and Mrs. Megilp, up-stairs, after everybody had gone who was to go. "He never minds anything," said Agatha. "I don't know," said Mrs. Megilp, slowly. "He seemed mightily pleased with what Asenath Scherman said." "O, she's pretty, and funny; it makes no difference what she says; people are always pleased." "We might dismiss one girl this winter," said Mrs. Ledwith, "and board in some cheap country place next summer. I dare say we could save it in the year's round; the difference, I mean. When you weren't actually travelling, it wouldn't cost more than to have you here,--dress and all. "They wouldn't need to have a new thing," said Glossy. "Those people out at Z---- want to buy the house. I've a great mind to coax Grant to sell, and take a slice right out, and send them," said Mrs. Ledwith, eagerly. She was always eager to accomplish the next new thing for her children; and, to say the truth, did not much consider herself. And so far as they had ever been able, the Ledwiths had always been rather easily given to "taking the slice right out." The Megilps had had a little legacy of two or three thousand dollars, and were quite in earnest in their plans, this time, which had been talk with them for many years. "Those poor Fayerwerses!" said Asenath to her husband, walking home. "Going out now, after the cheap European living of a dozen years ago! The ghost always goes over on the last load. I wonder at Mrs. Megilp. She generally knows better." "She'll do," said Frank Scherman. "If the Fayerwerses stick anywhere, as they probably will, she'll hitch on to the Fargo's, and turn up at Jerusalem. And then there are to be the Ledwiths, and their 'little slice.'" "O, dear! what a mess people do make of living!" said Asenath. Uncle Titus trudged along down Dorset Street with his stick under his arm. "Try 'em! Find 'em out!" he repeated to himself. "That's what Marmaduke said. Try 'em with this,--try 'em with that; a good deal, or a little; having and losing, and wanting. That's what the Lord does with us all; and I begin to see He has a job of it!" The house was sold, and Agatha and Florence went. It made home dull for poor Desire, little as she found of real companionship with her elder sisters. But then she was always looking for it, and that was something. Husbands and wives, parents and children, live on upon that, through years of repeated disappointments, and never give up the expectation of that which is somewhere, and which these relations represent to them, through all their frustrated lives. That is just why. It _is_ somewhere. It turned out a hard winter, in many ways, for Desire Ledwith. She hated gay company, and the quiet little circle that she had become fond of at her Aunt Ripwinkley's was broken somewhat to them all, and more to Desire than, among what had grown to be her chronic discontents, she realized or understood, by the going away for a time of Kenneth Kincaid. What was curious in the happening, too, he had gone up to "And" to build a church. That had come about through the Marchbankses' knowledge of him, and this, you remember, through their being with the Geoffreys when the Kincaids were first introduced in Summit Street. The Marchbankses and the Geoffreys were cousins. A good many Boston families are. Mr. Roger Marchbanks owned a good deal of property in And. The neighborhood wanted a church; and he interested himself actively and liberally in behalf of it, and gave the land,--three lots right out of the middle of Marchbanks Street, that ran down to the river. Dorris kept her little room, and was neighborly as heretofore; but she was busy with her music, and had little time but her evenings; and now there was nobody to walk home with Desire to Shubarton Place, if she stayed in Aspen Street to tea. She came sometimes, and stayed all night; but that was dreary for Helena, who never remembered to shut the piano or cover up the canary, or give the plants in the bay window their evening sprinkle, after the furnace heat had been drying them all day. Kenneth Kincaid came down for his Sundays with Dorris, and his work at the Mission; a few times he called in at Uncle Oldways' after tea, when the family was all together; but they saw him very seldom; he gave those Sunday evenings mostly to needed rest, and to quiet talk with Dorris. Desire might have gone to the Mission this winter, easily enough, after all. Agatha and Florence and Glossy Megilp were not by to make wondering eyes, or smile significant smiles; but there was something in herself that prevented; she knew that it would be more than half to _get_, and she still thought she had so little to give! Besides, Kenneth Kincaid had never asked her again, and she could not go to him and say she would come. Desire Ledwith began to have serious question of what life was ever going to be for her. She imagined, as in our early years and our first gray days we are all apt to imagine, that she had found out a good deal that it was _not_ going to be. She was not going to be beautiful, or accomplished, or even, she was afraid, agreeable; she found that such hard work with most people. She was not ever--and that conclusion rested closely upon these foregoing--to be married, and have a nice husband and a pretty house, and go down stairs and make snow-puddings and ginger-snaps of a morning, and have girls staying with her, and pleasant people in to tea; like Asenath Scherman. She couldn't write a book,--that, perhaps, was one of her premature decisions, since nobody knows till they try, and the books are lying all round, in leaves, waiting only to be picked up and put together,--or paint a picture; she couldn't bear parties, and clothes were a fuss, and she didn't care to go to Europe. She thought she should rather like to be an old maid, if she could begin right off, and have a little cottage out of town somewhere, or some cosy rooms in the city. At least, she supposed that was what she had got to be, and if that were settled, she did not see why it might not be begun young, as well as married life. She could not endure waiting, when a thing was to be done. "Aunt Frances," she said one day, "I wish I had a place of my own. What is the reason I can't? A girl can go in for Art, and set up a studio; or she can go to Rome, and sculp, and study; she can learn elocution, and read, whether people want to be read to or not; and all that is Progress and Woman's Rights; why can't she set up a _home_?" "Because, I suppose, a house is not a home; and the beginning of a home is just what she waits for. Meanwhile, if she has a father and a mother, she would not put a slight on _their_ home, or fail of her share of the duty in it." "But nobody would think I failed in my duty if I were going to be married. I'm sure mamma would think I was doing it beautifully. And I never shall be married. Why can't I live something out for myself, and have a place of my own? I have got money enough to pay my rent, and I could do sewing in a genteel way, or keep a school for little children. I'd rather--take in back stairs to wash," she exclaimed vehemently, "than wait round for things, and be nothing! And I should like to begin young, while there might be some sort of fun in it. You'd like to come and take tea with me, wouldn't you, Aunt Frank?" "If it were all right that you should have separate teas of your own." "And if I had waffles. Well, I should. I think, just now, there's nothing I should like so much as a little kitchen of my own, and a pie-board, and a biscuit-cutter, and a beautiful baking oven, and a Japan tea-pot." "The pretty part. But brooms, and pails, and wash-tubs, and the back stairs?" "I specified back stairs in the first place, of my own accord. I wouldn't shirk. Sometimes I think that real good old-fashioned hard work is what I do want. I should like to find the right, honest thing, and do it, Aunt Frank." She said it earnestly, and there were tears in her eyes. "I believe you would," said Mrs. Ripwinkley. "But perhaps the right, honest thing, just now, is to wait patiently, with all your might." "Now, that's good," said Desire, "and cute of you, too, that last piece of a sentence. If you had stopped at '_patiently_,' as people generally do! That's what exasperates; when you want to do something with all your might. It almost seems as if I could, when you put it so." "It is a 'stump,' Luclarion would say." "Luclarion is a saint and a philosopher. I feel better," said Desire. She stayed feeling better all that afternoon; she helped Sulie Praile cut out little panels from her thick sheet of gray painting-board, and contrived her a small easel with her round lightstand and a book-rest; for Sulie was advancing in the fine arts, from painting dollies' paper faces in cheap water colors, to copying bits of flowers and fern and moss, with oils, on gray board; and she was doing it very well, and with exquisite delight. To wait, meant something to wait for; something coming by and by; that was what comforted Desire to-day, as she walked home alone in the sharp, short, winter twilight; that, and the being patient with all one's might. To be patient, is to be also strong; this she saw, newly; and Desire coveted, most of all, to be strong. Something to wait for. "He does not cheat," said Desire, low down in her heart, to herself. For the child had faith, though she could not talk about it. Something; but very likely not the thing you have seen, or dreamed of; something quite different, it may be, when it comes; and it may come by the way of losing, first, all that you have been able yet, with a vague, whispering hope, to imagine. The things we do not know! The things that are happening,--the things that are coming; rising up in the eastward of our lives below the horizon that we can yet see; it may be a star, it may be a cloud! Desire Ledwith could not see that out at Westover, this cheery winter night, it was one of dear Miss Pennington's "Next Thursdays;" she could not see that the young architect, living away over there in the hundred-year-old house on the side of East Hill, a boarder with old Miss Arabel Waite, had been found, and appreciated, and drawn into their circle by the Haddens and the Penningtons and the Holabirds and the Inglesides; and that Rosamond was showing him the pleasant things in their Westover life,--her "swan's nest among the reeds," that she had told him of,--that early autumn evening, when they had walked up Hanley Street together. XVI. SWARMING. Spring came on early, with heavy rains and freshets in many parts of the country. It was a busy time at Z----. Two things had happened there that were to give Kenneth Kincaid more work, and would keep him where he was all summer. Just before he went to Z----, there had been a great fire at West Hill. All Mr. Roger Marchbanks's beautiful place was desolate. House, conservatories, stables, lovely little vine-covered rustic buildings, exquisitely tended shrubbery,--all swept over in one night by the red flames, and left lying in blackness and ashes. For the winter, Mr. Marchbanks had taken his family to Boston; now he was planning eagerly to rebuild. Kenneth had made sketches; Mr. Marchbanks liked his ideas; they had talked together from time to time. Now, the work was actually in hand, and Kenneth was busy with drawings and specifications. Down at the river, during the spring floods, a piece of the bridge had been carried away, and the dam was broken through. There were new mill buildings, too, going up, and a block of factory houses. All this business, through Mr. Marchbanks directly or indirectly, fell also into Kenneth's hands. He wrote blithe letters to Dorris; and Dorris, running in and out from her little spring cleanings that Hazel was helping her with, told all the letters over to the Ripwinkleys. "He says I must come up there in my summer vacation and board with his dear old Miss Waite. Think of Kentie's being able to give me such a treat as that! A lane, with ferns and birches, and the woods,--_pine_ woods!--and a hill where raspberries grow, and the river!" Mrs. Ledwith was thinking of her summer plans at this time, also. She remembered the large four-windowed room looking out over the meadow, that Mrs. Megilp and Glossy had at Mrs. Prendible's, for twelve dollars a week, in And. She could do no better than that, at country boarding, anywhere; and Mr. Ledwith could sleep at the house in Shubarton Place, getting his meals down town during the week, and come up and spend his Sundays with them. A bedroom, in addition, for six dollars more, would be all they would want. The Ripwinkleys were going up to Homesworth by and by for a little while, and would take Sulie Praile with them. Sulie was ecstatically happy. She had never been out of the city in all her life. She felt, she said, "as if she was going to heaven without dying." Vash was to be left at Mrs. Scarup's with her sister. Miss Craydocke would be away at the mountains; all the little life that had gathered together in the Aspen Street neighborhood, seemed about to be broken up. Uncle Titus Oldways never went out of town, unless on business. Rachel Froke stayed, and kept his house; she sat in the gray room, and thought over the summers she had had. "Thee never loses anything out of thy life that has been in," she said. "Summer times are like grains of musk; they keep their smell always, and flavor the shut-up places they are put away in." For you and me, reader, we are to go to Z---- again. I hope you like it. But before that, I must tell you what Luclarion Grapp has done. Partly from the principle of her life, and partly from the spirit of things which she would have caught at any rate, from the Ripwinkley home and the Craydocke "Beehive,"--for there is nothing truer than that the kingdom of heaven is like leaven,--I suppose she had been secretly thinking for a good while, that she was having too easy a time here, in her first floor kitchen and her garden bedroom; that this was not the life meant for her to live right on, without scruple or question; and so began in her own mind to expect some sort of "stump;" and even to look about for it. "It isn't as it was when Mrs. Ripwinkley was a widow, and poor,--that is, comparative; and it took all her and my contrivance to look after the place and keep things going, and paying, up in Homesworth; there was something to buckle to, then; but now, everything is eased and flatted out, as it were; it makes me res'less, like a child put to bed in the daytime." Luclarion went down to the North End with Miss Craydocke, on errands of mercy; she went in to the new Mission, and saw the heavenly beauty of its intent, and kindled up in her soul at it; and she came home, time after time, and had thoughts of her own about these things, and the work in the world there was to do. She had cleaned up and set things going at Mrs. Scarup's; she learned something in doing that, beyond what she knew when she set about it; her thoughts began to shape themselves to a theory; and the theory took to itself a text and a confirmation and a command. "Go down and be a neighbor to them that have fallen among thieves." Luclarion came to a resolution in this time of May, when everybody was making plans and the spring-cleaning was all done. She came to Mrs. Ripwinkley one morning, when she was folding away winter clothes, and pinning them up in newspapers, with camphor-gum; and she said to her, without a bit of preface,--Luclarion hated prefaces,-- "Mrs. Ripwinkley, I'm going to swarm!" Mrs. Ripwinkley looked up in utter surprise; what else could she do? "Of course 'm, when you set up a Beehive, you must have expected it; it's the natural way of things; they ain't good for much unless they do. I've thought it all over; I'll stay and see you all off, first, if you want me to, and then--I'll swarm." "Well," said Mrs. Ripwinkley, assenting in full faith, beforehand; for Mrs. Ripwinkley, if I need now to tell you of it, was not an ordinary woman, and did not take things in an ordinary selfish way, but grasped right hold of the inward right and truth of them, and believed in it; sometimes before she could quite see it; and she never had any doubt of Luclarion Grapp. "Well! And now tell me all about it." "You see," said Luclarion, sitting down in a chair by the window, as Mrs. Ripwinkley suspended her occupation and took one by the bedside, "there's places in this town that folks leave and give up. As the Lord might have left and give up the world, because there was dirt and wickedness in it; only He didn't. There's places where it ain't genteel, nor yet respectable, to live; and so those places grow more disrespectable and miserable every day. They're left to themselves. What I think is, they hadn't ought to be. There's one clean spot down there now, in the very middle of the worst dirt. And it ain't bad to live in. _That's_ started. Now, what I think is, that somebody ought to start another, even if its only a little one. Somebody ought to just go there and _live_, and show 'em how, just as I took and showed Mrs. Scarup, and she's been living ever since, instead of scratching along. If some of them folks had a clean, decent neighbor to go to see,--to drink tea with, say,--and was to catch an idea of her fixings and doings, why, I believe there'd be more of 'em,--cleaned up, you know. They'd get some kind of an ambition and a hope. Tain't enough for ladies--though I bless 'em in my soul for what I've seen 'em do--to come down there of a Fridays, and teach and talk awhile, and then go home to Summit Street and Republic Avenue, and take up _their_ life again where they left it off, that is just as different as heaven is from 'tother place; somebody's got to come right down _out_ of heaven, and bring the life in, and live it amongst them miserable folks, as the Lord Jesus Christ came and did! And it's borne in upon me, strong and clear, that that's what's got to be before all's righted. And so--for a little piece of it, and a little individual stump--I'm going to swarm, and settle, and see what'll come." Mrs. Ripwinkley was looking very intently at Luclarion. Her breath went and came hurriedly, and her face turned pale with the grand surprise of such a thought, such a plan and purpose, so simply and suddenly declared. Her eyes were large and moist with feeling. "Do you _know_, Luclarion," she exclaimed at last, "do you realize what this is that you are thinking of; what a step it would be to take,--what a work it would be to even hope to begin to do? Do you know how strange it is,--how almost impracticable,--that it is not even safe?" "'Twasn't _safe_ for Him--when He came into the world," Luclarion answered. "Not to say I think there's any comparison," she began again, presently, "or that I believe there's anything to be really scared of,--except dirt; and you _can_ clean a place round you, as them Mission people have done. Why, there ain't a house in Boston nicer, or sweeter, or airier even, than that one down in Arctic Street, with beautiful parlors and bedrooms, and great clean galleries leading round, and skylighted,--_sky_ lighted! for you see the blue heaven is above all, and you _can_ let the skylight in, without any corruption coming in with it; and if twenty people can do that much, or a hundred,--one can do something. 'Taint much, either, to undertake; only to be willing to go there, and make a clean place for yourself, and a home; and live there, instead of somewheres else that's ready made; and let it spread. And you know I've always looked forrud to some kind of a house-keep of my own, finally." "But, Luclarion, I don't understand! All alone? And you couldn't use a whole house, you know. Your neighbors would be _inmates_. Why, it seems to me perfectly crazy!" "Now, ma'am, did you ever know me to go off on a tangent, without some sort of a string to hold on to? I ain't goin' to swarm all alone! I never heard of such a thing. Though if I couldn't _swarm_, and the thing was to be done, I say I'd try it. But Savira Golding is going to be married to Sam Gallilee, next month; and he's a stevedore, and his work is down round the wharves; he's class-leader in our church, and a first-rate, right-minded man, or else Savira wouldn't have him; for if Savira ain't a clear Christian, and a doing woman, there ain't one this side of Paradise. Now, you see, Sam Gallilee makes money; he runs a gang of three hundred men. He can afford a good house, and a whole one, if he wants; but he's going in for a big one, and neighbors. They mean to live nice,--he and Savira; and she has pretty, tasty ways; there'll be white curtains, and plants blooming in her windows, you may make sure; she's always had 'em in that little up-stairs dress-making room of hers; and boxes of mignonette and petunias on the ledges; and birds singing in a great summer cage swung out against the wall. She's one of the kind that reaches out, and can't be kept in; and she knows her gifts, and is willing to go and let her light shine where it will help others, and so glorify; and Sam, he's willing too, and sees the beauty of it. And so,--well, that's the swarm." "And the 'little round Godamighty in the middle of it,'" said Mrs. Ripwinkley, her face all bright and her eyes full of tears. "_Ma'am_!" Then Mrs. Ripwinkley told her Miss Craydocke's story. "Well," said Luclarion, "there's something dear and right-to-the-spot about it; but it does sound singular; and it certainly ain't a thing to say careless." * * * * * Desire Ledwith grew bright and excited as the summer came on, and the time drew near for going to Z----. She could not help being glad; she did not stop to ask why; summer-time was reason enough, and after the weariness of the winter, the thought of Z---- and the woods and the river, and sweet evenings and mornings, and gardens and orchards, and road-side grass, was lovely to her. "It is so pleasant up there!" she would keep saying to Dorris; and somehow she said it to Dorris oftener than to anybody else. There was something fitful and impetuous in her little outbursts of satisfaction; they noticed it in her; the elder ones among them noticed it with a touch of anxiety for her. Miss Craydocke, especially, read the signs, matching them with something that she remembered far back in the life that had closed so peacefully, with white hairs and years of a serene content and patience, over all unrest and disappointment, for herself. She was sorry for this young girl, for whom she thought she saw an unfulfilled dream of living that should go by her like some bright cloud, just near enough to turn into a baptism of tears. She asked Desire, one day, if she would not like to go with her, this summer, to the mountains. Desire put by the suggestion hastily. "O, no, thank you, Miss Craydocke, I must stay with mamma and Helena. And besides," she added, with the strict, full truth she always demanded of herself, "I _want_ to go to Z----." "Yes," said Miss Craydocke. There was something tender, like a shade of pity, in her tone. "But you would enjoy the mountains. They are full of strength and rest. One hardly understands the good the hills do one. David did, looking out into them from Jerusalem. 'I will look to the hills, from whence cometh my strength.'" "Some time," said Desire. "Some time I shall need the hills, and--be ready for them. But this summer--I want a good, gay, young time. I don't know why, except that I shall be just eighteen this year, and it seems as if, after that, I was going to be old. And I want to be with people I know. I _can_ be gay in the country; there is something to be gay about. But I can't dress and dance in the city. That is all gas-light and get-up." "I suppose," said Miss Craydocke, slowly, "that our faces are all set in the way we are to go. Even if it is--" She stopped. She was thinking of one whose face had been set to go to Jerusalem. Her own words had led her to something she had not foreseen when she began. Nothing of such suggestion came to Desire. She was in one of her rare moods of good cheer. "I suppose so," she said, heedlessly. And then, taking up a thought of her own suddenly,--"Miss Craydocke! Don't you think people almost always live out their names? There's Sin Scherman; there'll always be a little bit of mischief and original naughtiness in her,--with the harm taken out of it; and there's Rosamond Holabird,--they couldn't have called her anything better, if they'd waited for her to grow up; and Barb _was_ sharp; and our little Hazel is witchy and sweet and wild-woodsy; and Luclarion,--isn't that shiny and trumpety, and doesn't she do it? And then--there's me. I shall always be stiff and hard and unsatisfied, except in little bits of summer times that won't come often. They might as well have christened me Anxiety. I wonder why they didn't." "That would have been very different. There is a nobleness in Desire. You will overlive the restless part," said Miss Craydocke. "Was there ever anything restless in your life, Miss Craydocke? And how long did it take to overlive it? It doesn't seem as if you had ever stubbed your foot against anything; and I'm _always_ stubbing." "My dear, I have stubbed along through fifty-six years; and the years had all three hundred and sixty-five days in them. There were chances,--don't you think so?" "It looks easy to be old after it is done," said Desire. "Easy and comfortable. But to be eighteen, and to think of having to go on to be fifty-six; I beg your pardon,--but I wish it was over!" And she drew a deep breath, heavy with the days that were to be. "You are not to take it all at once, you know," said Miss Craydocke. "But I do, every now and then. I can't help it. I am sure it is the name. If they had called me 'Hapsie,' like you, I should have gone along jolly, as you do, and not minded. You see you have to _hear_ it all the time; and it tunes you up to its own key. You can't feel like a Dolly, or a Daisy, when everybody says--De-sire!" "I don't know how I came to be called 'Hapsie,'" said Miss Craydocke. "Somebody who liked me took it up, and it seemed to get fitted on. But that wasn't when I was young." "What was it, then?" asked Desire, with a movement of interest. "Keren-happuch," said Miss Craydocke, meekly. "My father named me, and he always called me so,--the whole of it. He was a severe, Old-Testament man, and _his_ name was Job." Desire was more than half right, after all. There was a good deal of Miss Craydocke's story hinted in those few words and those two ancient names. "But I turned into 'Miss Craydocke' pretty soon, and settled down. I suppose it was very natural that I should," said the sweet old maid, serenely. XVII. QUESTIONS AND ANSWERS. The evening train came in through the little bend in the edge of the woods, and across the bridge over the pretty rapids, and slid to its stopping-place under the high arches of the other bridge that connected the main street of Z---- with its continuation through "And." There were lights twinkling in the shops, where they were making change, and weighing out tea and sugar, and measuring calico, although outside it was not yet quite dark. The train was half an hour late; there had been a stoppage at some draw or crossing near the city. Mr. Prendible was there, to see if his lodgers were come, and to get his evening paper; the platform was full of people. Old Z---- acquaintances, many of them, whom Desire and her mother were pleased, and Helena excited to see. "There's Kenneth Kincaid!" she exclaimed, quite loudly, pulling Desire's sleeve. "Hush!" said Desire, twitching away. "How can you, Helena?" "He's coming,--he heard me!" cried Helena, utterly impenitent. "I should think he might!" And Desire walked off a little, to look among the trunks that were being tumbled from the baggage car. She had seen him all the time; he had been speaking to Ruth Holabird, and helping her up the steps with her parcels. Mr. Holabird was there with the little Westover carryall that they kept now; and Kenneth put her in, and then turned round in time to hear Helena's exclamation and to come down again. "Can I help you? I'm very glad you are come," he said, cordially. Well; he might have said it to anybody. Again, well; it was enough to say to anybody. Why should Desire feel cross? He took Helena's bag; she had a budget beside; Mr. Prendible relieved Mrs. Ledwith; Desire held on valiantly to her own things. Kenneth walked over the bridge with them, and down the street to Mr. Prendible's door; there he bade them good-by and left them. It was nice to be in Z----; it was very sweet here under the blossoming elms and locusts; it was nice to see Kenneth Kincaid again, and to think that Dorris was coming by and by, and that the lanes were green and full of ferns and vines, and that there was to be a whole long summer; but there were so many people down there on the platform,--there was such a muss always; Ruth Holabird was a dear little thing, but there were always so many Ruths about! and there was only one cross, stiff, odd, uncomfortable Desire! But the very next night Kenneth came down and stayed an hour; there was a new moon glistening through the delicate elm-tips, and they sat out on the piazza and breathed in such an air as they had not had in their nostrils for months and months. The faint, tender light from the golden west in which the new moon lay, showed the roof and tower of the little church, Kenneth's first beautiful work; and Kenneth told them how pleasant it was up at Miss Arabel's, and of the tame squirrels that he fed at his window, and of the shady pasture-path that led away over the brook from the very door, and up among pines and into little still nooks where dry mossy turf and warm gray rocks were sheltered in by scraggy cedars and lisping birches, so that they were like field-parlors opening in and out from each other with all sorts of little winding and climbing passages, between clumps of bayberry bushes and tall ferns; and that the girls from Z---- and Westover made morning picnics there, since Lucilla Waters had grown intimate with Delia Waite and found it out; and that Delia Waite and even Miss Arabel carried their dressmaking down there sometimes in a big white basket, and stayed all day under the trees. They had never used to do this; they had stayed in the old back sitting room with all the litter round, and never thought of it till those girls had come and showed them how. "I think there is the best and sweetest neighborliness and most beautiful living here in Z----, that I ever knew in any place," said Kenneth Kincaid; "except that little piece of the same thing in Aspen Street." Kenneth had found out how Rosamond Holabird recognized Aspen Street as a piece of her world. Desire hated, as he spoke, her spitefulness last night; what she had said to herself of "so many Ruths;" why could not she not be pleased to come into this beautiful living and make a little part of it? She was pleased; she would be; she found it very easy when Kenneth said to her in that frank intimate way,--"I wish you and your mother would come over and see what Dorris will want, and help me a little about that room of hers. I told Miss Waite not to bother; just to let the old things stand,--I knew Dorris would like them,--and anything else I would get for her myself. I mean Dolly shall take a long vacation this year; from June right through to September; and its 'no end of jolly,' as those English fellows say, that you have come too!" Kenneth Kincaid was fresher and pleasanter and younger himself, than Desire had ever seen him before; he seemed to have forgotten that hard way of looking at the world; he had found something so undeniably good in it. I am afraid Desire had rather liked him for his carping, which was what he least of all deserved to be liked for. It showed how high and pure his demands were; but his praise and admissions were better; it is always better to discern good than to fret at the evil. "I shall see you every day," he said, when he shook hands at parting; "and Helena, if you want a squirrel to keep in your pocket next winter, I'll begin training one for you at once." He had taken them right to himself, as if they belonged to him; he spoke as if he were very glad that he should see them every day. Desire whistled over her unpacking; she could not sing, but she could whistle like a blackbird. When her father came up on Saturday night, he said that her eyes were brighter and her cheeks were rounder, for the country air; she would take to growing pretty instead of strong-minded, if she didn't look out. Kenneth came round on Monday, after tea, to ask them to go over to Miss Waite's and make acquaintance. "For you see," he said, "you will have to be very intimate there, and it is time to begin. It will take one call to be introduced, and another, at least, to get up-stairs and see that beautiful breezy old room that can't be lived in in winter, but is to be a delicious sort of camping-out for Dolly, all summer. It is all windows and squirrel-holes and doors that won't shut. Everything comes in but the rain; but the roof is tight on that corner. Even the woodbine has got tossed in through a broken upper pane, and I wouldn't have it mended on any account. There are swallows' nests in the chimneys, and wrens under the gable, and humming-birds in the honeysuckle. When Dolly gets there, it will be perfect. It just wants her to take it all right into her heart and make one piece of it. _They_ don't know,--the birds and the squirrels,--it takes the human. There has to be an Adam in every garden of Eden." Kenneth really chattered, from pure content and delight. It did not take two visits to get up-stairs. Miss Arabel met them heartily. She had been a shy, timid old lady, from long neglect and humble living; but lately she had "come out in society," Delia said. Society had come after her, and convinced her that she could make good times for it. She brought out currant wine and gave them, the first thing; and when Kenneth told her that they were his and Dorris's friends, and were coming next week to see about getting ready for her, she took them right round through all four of the ground rooms, to the queer corner staircase, and up into the "long west chamber," to show them what a rackety old place it was, and to see whether they supposed it could be made fit. "Why it's like the Romance of the Forest!" said Helena, delighted. "I wish _we_ had come here. Don't you have ghosts, or robbers, or something, up and down those stairs, Miss Waite?" For she had spied a door that led directly out of the room, from beside the chimney, up into the rambling old garret, smelling of pine boards and penny-royal. "No; nothing but squirrels and bees, and sometimes a bat," answered Miss Arabel. "Well, it doesn't want fixing. If you fix it, you will spoil it. I shall come here and sleep with Dorris,--see if I don't." The floor was bare, painted a dark, marbled gray. In the middle was a great braided rug, of blue and scarlet and black. The walls were pale gray, with a queer, stencilled scroll-and-dash border of vermilion and black paint. There was an old, high bedstead, with carved frame and posts, bare of drapery; an antiquated chest of drawers; and a half-circular table with tall, plain, narrow legs, between two of the windows. There was a corner cupboard, and a cupboard over the chimney. The doors of these, and the high wainscot around the room, were stained in old-fashioned "imitation mahogany," very streaky and red. The wainscot was so heavily finished that the edge running around the room might answer for a shelf. "Just curtains, and toilet covers, and a little low rocking chair," said Mrs. Ledwith. "That is all you want." "But the windows are so high," suggested Desire. "A low chair would bury her up, away from all the pleasantness. I'll tell you what I would have, Mr. Kincaid. A kind of dais, right across that corner, to take in two windows; with a carpet on it, and a chair, and a little table." "Just the thing!" said Kenneth. "That is what I wanted you for, Miss Desire," he said in a pleased, gentle way, lowering his tone to her especial hearing, as he stood beside her in the window. And Desire was very happy to have thought of it. Helena was spurred by emulation to suggest something. "I'd have a--hammock--somewhere," she said. "Good," said Kenneth. "That shall be out under the great butternut." The great butternut walled in one of the windows with a wilderness of green, and the squirrels ran chattering up and down the brown branches, and peeping in all day. In the autumn, when the nuts were ripe, they would be scrambling over the roof, and in under the eaves, to hide their stores in the garret, Miss Arabel told them. "Why doesn't everbody have an old house, and let the squirrels in?" cried Helena, in a rapture. In ten days more,--the first week of June,--Dorris came. Well,--"That let in all the rest," Helena said, and Desire, may be, thought. "We shan't have it to ourselves any more." The girls could all come down and call on Dorris Kincaid, and they did. But Desire and Helena had the first of it; nobody else went right up into her room; nobody else helped her unpack and settle. And she was so delighted with all that they had done for her. The dais was large enough for two or three to sit upon at once, and it was covered with green carpet of a small, mossy pattern, and the window was open into the butternut on one side, and into the honeysuckle on the other, and it was really a bower. "I shall live ten hours in one," said Dorris. "And you'll let me come and sleep with you some night, and hear the bats," said Helena. The Ledwiths made a good link; they had known the Kincaids so well; if it had been only Dorris, alone, with her brother there, the Westover girls might have been shy of coming often. Since Kenneth had been at Miss Waite's, they had already grown a little less free of the beautiful woods that they had just found out and begun fairly to enjoy last autumn. But the Ledwiths made a strong party; and they lived close by; there were plans continually. Since Leslie Goldthwaite and Barbara Holabird were married and gone, and the Roger Marchbankses were burned out, and had been living in the city and travelling, the Hobarts and the Haddens and Ruth and Rosamond and Pen Pennington had kept less to their immediate Westover neighborhood than ever; and had come down to Lucilla's, and to Maddy Freeman's, and the Inglesides, as often as they had induced them to go up to the Hill. Maud Marchbanks and the Hendees were civil and neighborly enough at home, but they did not care to "ramify." So it came to pass that they were left a good deal to themselves. Olivia and Adelaide, when they came up to Westover, to their uncle's, wondered "that papa cared to build again; there really wasn't anything to come for; West Hill was entirely changed." So it was; and a very good thing. I came across the other day, reading over Mr. Kingsley's "Two Years Ago," a true word as to social needs in England, that reminded me of this that the Holabirds and the Penningtons and the Inglesides have been doing, half unconsciously, led on from "next" to next, in Z----. Mr. Kingsley, after describing a Miss Heale, and others of her class,--the middle class, with no high social opportunities, and with time upon their hands, wasted often in false dreams of life and unsatisfied expectations, "bewildering heart and brain with novels," for want of a nobler companionship, says this: "Till in country villages, the ladies who interest themselves about the poor will recollect that the farmers' and tradesmens' daughters are just as much in want of their influence as the charity children and will yield a far richer return for their labor, so long will England be full of Miss Heales." If a kindly influence and fellowship are the duty of the aristocratic girls of England toward their "next," below, how far more false are American girls to the spirit of their country, and the blessed opportunities of republican sympathies and equalities, when they try to draw invisible lines between themselves and those whose outer station differs by but so little, and whose hearts and minds, under the like culture with their own, crave, just as they do, the best that human intercourse can give. Social science has something to do, before--or at least simultaneously with--reaching down to the depths where all the wrongs and blunders and mismanagements of life have precipitated their foul residuum. A master of one of our public schools, speaking of the undue culture of the brain and imagination, in proportion to the opportunities offered socially for living out ideas thus crudely gathered, said that his brightest girls were the ones who in after years, impatient of the little life gave them to satisfy the capacities and demands aroused and developed during the brief period of school life, and fed afterwards by their own ill-judged and ill-regulated reading, were found fallen into lives of vice. Have our women, old or young, who make and circumscribe the opportunities of social intercourse and enjoyment, nothing to search out here, and help, as well, or as soon as, to get their names put on committee lists, and manage these public schools themselves, which educate and stimulate up to the point of possible fierce temptation, and then have nothing more that they can do? It was a good thing for Desire Ledwith to grow intimate, as she did, with Rosamond Holabird. There were identical points of character between the two. They were both so real. "You don't want to _play_ anything," Barbara Holabird had said to Rosamond once, in some little discussion of social appearances and pretensions. "And that's the beauty of you!" It was the beauty of Desire Ledwith also; only, with Rosamond, her ambitions had clothed themselves with a grace and delicateness that would have their own perfect and thorough as far as it went; and with Desire, the same demands of true living had chafed into an impatience with shams and a blunt disregard of and resistance to all conventionalisms. "You are a good deal alike, you two," Kenneth Kincaid said to them one day, in a talk they all three happened to have together. And he had told Rosamond afterward that there was "something grand in Desire Ledwith; only grand things almost always have to grow with struggles." Rosamond had told this again to Desire. It was not much wonder that she began to be happier; to have a hidden comfort of feeling that perhaps the "waiting with all her might" was nearly over, and the "by and by" was blossoming for her, though the green leaves of her own shy sternness with herself folded close down about the sweetening place, and she never parted them aside to see where the fragrance came from. * * * * * They were going to have a grand, large, beautiful supper party in the woods. Mrs. Holabird and Mrs. Hobart were the matrons, and gave out the invitations. "I don't think I could possibly spend a Tuesday afternoon with a little 't,'" said Mrs. Lewis Marchbanks laughing, and tossing down poor, dear, good Mrs. Hobart's note upon her table. "It is _rather_ more than is to be expected!" "Doctor and Mrs. Hautayne are here, and Dakie Thayne is home from West Point. It will be rather a nice party." "The Holabirds seem to have got everything into their own hands," said Mrs. Marchbanks, haughtily. "It is always a pity when people take the lead who are not exactly qualified. Mrs. Holabird _will_ not discriminate!' "I think the Holabirds are splendid," spoke up Lily, "and I don't think there's any fun in sticking up by ourselves! I can't bear to be judicious!" Poor little Lily Marchbanks had been told a tiresome many times that she must be "judicious" in her intimacies. "You can be _pleasant_ to everybody," said mother and elder sister, with a salvo of Christian benignity. But it is so hard for little children to be pleasant with fence and limitation. "Where must I stop?" Lily had asked in her simplicity. "When they give me a piece of their luncheon, or when they walk home from school, or when they say they will come in a little while?" But there came a message back from Boston by the eleven o'clock train on the morning of the Tuesday with a little "t," from Mr. Marchbanks himself, to say that his brother and Mr. Geoffrey would come up with him to dinner, and to desire that carriages might be ready afterward for the drive over to Waite's grove. Mrs. Marchbanks marveled, but gave her orders. Arthur came out early, and brought with him his friend Archie Mucklegrand, and these two were bound also for the merry-making. Now Archie Mucklegrand was the identical youth of the lavender pantaloons and the waxed moustache, whom Desire, as "Miss Ledwith," had received in state a year and a half ago. So it was an imposing cavalcade, after all, from West Hill, that honored the very indiscriminate pleasure party, and came riding and driving in at about six o'clock. There were the barouche and the coupé; for the ladies and elder gentlemen, and the two young men accompanied them on horseback. Archie Mucklegrand had been at West Hill often before. He and Arthur had just graduated at Harvard, and the Holabirds had had cards to their grand spread on Class Day. Archie Mucklegrand had found out what a pretty girl--and a good deal more than merely pretty--Rosamond Holabird was; and although he might any day go over to his big, wild Highland estate, and take upon himself the glory of "Sir Archibald" there among the hills and moors,--and though any one of a good many pretty girls in Spreadsplendid Park and Republic Avenue might be induced, perhaps, if he tried, to go with him,--all this did not hinder him from perceiving that up here in Z---- was just the most bewitching companionship he had ever fallen in with, or might ever be able to choose for himself for any going or abiding; that Rosamond Holabird was just the brightest, and sweetest, and most to his mind of any girl that he had ever seen, and most like "the woman" that a man might dream of. I do not know that he quite said it all to himself in precisely that way; I am pretty sure that he did not, as yet; but whatever is off-hand and young-mannish and modern enough to express to one's self without "sposhiness" an admiration and a preference like that, he undoubtedly did say. At any rate after his Christmas at Z---- with Arthur, and some charade parties they had then at Westover, and after Class Day, when everybody had been furious to get an introduction, and all the Spreadsplendid girls and their mothers had been wondering who that Miss Holabird was and where she came from, and Madam Mucklegrand herself--not having the slightest recollection of her as the Miss Holabird of that early-morning business call, whose name she had just glanced at and dropped into an Indian china scrap-jar before she went down-stairs--had asked him the same questions, and pronounced that she was "an exceedingly graceful little person, certainly,"--after all this, Archie had made up his--mind, shall I say? at least his inclination, and his moustache--to pursue the acquaintance, and be as irresistible as he could. But Rosamond had learned--things do so play into our lives in a benign order--just before that Christmas time and those charades, in one of which Archie Mucklegrand had sung to her, so expressively, the "Birks of Aberfeldy,"--that Spreadsplendid Park was not, at least his corner of it,--a "piece of her world;" and she did not believe that Aberfeldy would be, either, though Archie's voice was beautiful, and-- "Bonnie lassie, will ye go?" sounded very enticing--in a charade. So she was quite calm when the Marchbanks party came upon the ground, and Archie Mucklegrand, with white trousers and a lavender tie, and the trim, waxed moustache, looking very handsome in spite of his dapperness, found her out in the first two minutes, and attached himself to her forthwith in a most undetachable and determined manner, which was his way of being irresistible. They were in the midst of their tea and coffee when the West Hill party came. Miss Arabel was busy at the coffee-table between the two oaks, pouring out with all her might, and creaming the fragrant cups with a rich lavishness that seemed to speak of milky mothers without number or limit of supply; and Rosamond, as the most natural and hospitable thing to do, conducted the young gentleman as soon as she could to that lady, and commended him to her good offices. These were not to be resisted; and as soon as he was occupied, Rosamond turned to attend to others coming up; and the groups shifting, she found herself presently a little way off, and meanwhile Mrs. Marchbanks and her son had reached the table and joined Archie. "I say, Arthur! O, Mrs. Marchbanks! You never got such coffee as this, I do believe! The open air has done something to it, or else the cream comes from some supernal cows! Miss Holabird!" Rosamond turned round. "I don't see,--Mrs. Marchbanks ought to have some of this coffee, but where is your good woman gone?" For Miss Arabel had stepped round behind the oak-tree for a moment, to see about some replenishing. In her prim, plain dress, utterly innocent of style or _bias_, and her zealous ministry, good Miss Arabel might easily be taken for some comfortable, superior old servant; but partly from a sudden sense of fun,--Mrs. Marchbanks standing there in all her elegant dignity,--and partly from a jealous chivalry of friendship, Rosamond would not let it pass so. "Good woman? Hush! she is one of our hostesses, the owner of the ground, and a dear friend of mine. Here she is. Miss Waite, let me introduce Mr. Archibald Mucklegrand. Mrs. Marchbanks will like some coffee, please." Which Mrs. Marchbanks took with a certain look of amazement, that showed itself subtilely in a slight straightening of the lips and an expansion of the nostrils. She did not _sniff_; she was a great deal too much a lady; she was Mrs. Marchbanks, but if she had been Mrs. Higgin, and had felt just so, she would have sniffed. Somebody came up close to Rosamond on the other side. "That was good," said Kenneth Kincaid. "Thank you for that, Miss Rosamond." "Will you have some more?" asked Rosamond, cunningly, pretending to misunderstand, and reaching her hand to take his empty cup. "One mustn't ask for all one would like," said Kenneth, relinquishing the cup, and looking straight in her eyes. Rosamond's eyes fell; she had no rejoinder ready; it was very well that she had the cup to take care of, and could turn away, for she felt a very foolish color coming up in her face. She made herself very busy among the guests. Archie Mucklegrand stayed by, and spoke to her every time he found a chance. At last, when people had nearly done eating and drinking, he asked her if she would not show him the path down to the river. "It must be beautiful down there under the slope," he said. She called Dorris and Desire, then, and Oswald Megilp, who was with them. He was spending a little time here at the Prendibles, with his boat on the river, as he had used to do. When he could take an absolute vacation, he was going away with a pedestrian party, among the mountains. There was not much in poor Oswald Megilp, but Desire and Rosamond were kind to him now that his mother was away. As they all walked down the bank among the close evergreens, they met Mr. Geoffrey and Mr. Marchbanks, with Kenneth Kincaid, coming up. Kenneth came last, and the two parties passed each other single file, in the narrow pathway. Kenneth paused as he came close to Rosamond, holding back a bough for her. "I have something very nice to tell you," he whispered, "by and by. But it is a secret, as yet. Please don't stay down there very long." Nobody heard the whisper but Rosamond; if they could have done so, he would not have whispered. Archie Mucklegrand was walking rather sulkily along before; he had not cared for a party to be made up when he asked Rosamond to go down to the river with him. Desire and Dorris had found some strange blossom among the underbrush, and were stopping for it; and Oswald Megilp was behind them. For a few seconds, Kenneth had Rosamond quite to himself. The slight delay had increased the separation between her and Archie Mucklegrand, for he had kept steadily on in his little huff. "I do not think we shall be long," said Rosamond, glancing after him, and looking up, with her eyes bright. She was half merry with mischief, and half glad with a quieter, deeper pleasure, at Kenneth's words. He would tell her something in confidence; something that he was glad of; he wanted her to know it while it was yet a secret; she had not the least guess what it could be; but it was very "nice" already. Rosamond always did rather like to be told things first; to have her friends confide in and consult with her, and rely upon her sympathy; she did not stop to separate the old feeling which she was quite aware of in herself, from something new that made it especially beautiful that Kenneth Kincaid should so confide and rely. Rosamond was likely to have more told her to-night than she quite dreamed of. "Desire!" They heard Mrs. Ledwith's voice far back among the trees. Desire answered. "I want you, dear!" "Something about shawls and baskets, I suppose," said Desire, turning round, perhaps a little the more readily that Kenneth was beside her now, going back also. Dorris and Oswald Megilp, finding there was a move to return, and being behind Desire in the pathway, turned also, as people will who have no especial motive for going one way rather than another; and so it happened that after all Rosamond and Archie Mucklegrand walked on down the bank to the river together, by themselves. Archie's good humor returned quickly. "I am glad they are gone; it was such a fuss having so many," he said. "We shall have to go back directly; they are beginning to break up," said Rosamond. And then, coming out to the opening by the water, she began to talk rather fast about the prettiness of the view, and to point out the bridge, and the mills, and the shadow of East Hill upon the water, and the curve of the opposite shore, and the dip of the shrubs and their arched reflections. She seemed quite determined to have all the talk to herself. Archie Mucklegrand played with his stick, and twisted the end of his moustache. Men never ought to allow themselves to learn that trick. It always comes back upon them when it makes them look most foolish. Archie said nothing, because there was so much he wanted to say, and he did not know how to begin. He knew his mother and sister would not like it,--as long as they could help it, certainly,--therefore he had suddenly made up his mind that there should be no such interval. He could do as he pleased; was he not Sir Archibald? And there was his Boston grandfather's property, too, of which a large share had been left outright to him; and he had been twenty-one these six months. There was nothing to hinder; and he meant to tell Rosamond Holabird that he liked her better than any other girl in the world. Somebody else would be telling her so, if he didn't; he could see how they all came round her; perhaps it might be that tall, quiet, cheeky looking fellow,--that Kincaid. He would be before him, at any rate. So he stood and twisted his moustache, and said nothing,--nothing, I mean, except mere little words of assent and echo to Rosamond's chatter about the pretty view. At last,--"You are fond of scenery, Miss Holabird?" Rosamond laughed. "O yes, I suppose I am; but we don't call this scenery. It is just pleasantness,--beauty. I don't think I quite like the word 'scenery.' It seems artificial,--got up for outside effect. And the most beautiful things do not speak from the outside, do they? I never travelled, Mr. Mucklegrand. I have just lived here, until I have lived _into_ things, or they into me. I rather think it is travelling, skimming about the world in a hurry, that makes people talk about 'scenery.' Isn't it?" "I dare say. I don't care for skimming, myself. But I like to go to nice places, and stay long enough to get into them, as you say. I mean to go to Scotland next year. I've a place there among the hills and lochs, Miss Rosamond." "Yes. I have heard so. I should think you would wish to go and see it." "I'll tell you what I wish, Miss Holabird!" he said suddenly, letting go his moustache, and turning round with sufficient manfulness, and facing her. "I suppose there is a more gradual and elegant way of saying it; but I believe straightforward is as good as any. I wish you cared for me as I care for you, and then you would go with me." Rosamond was utterly confounded. She had not imagined that it could be hurled at her, this fashion; she thought she could parry and put aside, if she saw anything coming. She was bewildered and breathless with the shock of it; she could only blindly, and in very foolish words, hurl it back. "O, dear, no!" she exclaimed, her face crimson. "I mean--I don't--I couldn't! I beg your pardon, Mr. Mucklegrand; you are very good; I am very sorry; but I wish you hadn't said so. We had better go back." "No," said Archie Mucklegrand, "not yet. I've said it now. I said it like a moon calf, but I mean it like a man. Won't you--can't you--be my wife, Rosamond? I must know that." "No, Mr. Mucklegrand," answered Rosamond, quite steadily now and gently. "I could not be. We were never meant for each other. You will think so yourself next year,--by the time you go to Scotland." "I shall never think so." Of course he said that; young men always do; they mean it at the moment, and nothing can persuade them otherwise. "I told you I had lived right here, and grown into these things, and they into me," said Rosamond, with a sweet slow earnestness, as if she thought out while she explained it; and so she did; for the thought and meaning of her life dawned upon her with a new perception, as she stood at this point and crisis of it in the responsibility of her young womanhood. "And these, and all the things that have influenced me, have given my life its direction; and I can see clearly that it was never meant to be your way. I do not know what it will be; but I know yours is different. It would be wrenching mine to turn it so." "But I would turn mine for you," said Archie. "You couldn't. Lives _grow_ together. They join beforehand, if they join at all. You like me, perhaps,--just what you see of me; but you do not know me, nor I you. If it--this--were meant, we should." "Should what?" "Know. Be sure." "I am sure of what I told you." "And I thank you very much; but I do not--I never could--belong to you." What made Rosamond so wise about knowing and belonging? She could not tell, herself; she had never thought it out before; but she seemed to see it very clearly now. She did not belong to Archie Mucklegrand, nor he to her; he was mistaken; their lives had no join; to make them join would be a force, a wrenching. Archie Mucklegrand did not care to have it put on such deep ground. He liked Rosamond; he wanted her to like him; then they should be married, of coarse, and go to Scotland, and have a good time; but this quiet philosophy cooled him somewhat. As they walked up the bank together, he wondered at himself a little that he did not feel worse about it. If she had been coquettish, or perverse, she might have been all the more bewitching to him. If he had thought she liked somebody else better, he might have been furiously jealous; but "her way of liking a fellow would be a slow kind of a way, after all." That was the gist of his thought about it; and I believe that to many very young men, at the age of waxed moustaches and German dancing, that "slow kind of a way" in a girl is the best possible insurance against any lasting damage that their own enthusiasm might suffer. He had not been contemptible in the offering of his love; his best had come out at that moment; if it does not come out then, somehow,--through face and tone, in some plain earnestness or simple nobleness, if not in fashion of the spoken word as very well it may not,--it must be small best that the man has in him. Rosamond's simple saying of the truth, as it looked to her in that moment of sure insight, was the best help she could have given him. Truth is always the best help. He did not exactly understand the wherefore, as she understood it; but the truth touched him nevertheless, in the way that he could perceive. They did not "belong" to each other. And riding down in the late train that evening, Archie Mucklegrand said to himself, drawing a long breath,--"It would have been an awful tough little joke, after all, telling it to the old lady!" "Are you too tired to walk home?" Kenneth Kincaid asked of Rosamond, helping her put the baskets in the carriage. Dakie Thayne had asked Ruth the same question five minutes before, and they two had gone on already. Are girls ever too tired to walk home after a picnic, when the best of the picnic is going to walk home with them? Of course Rosamond was not too tired; and Mrs. Holabird had the carryall quite to herself and her baskets. They took the River Road, that was shady all the way, and sweet now with the dropping scents of evening; it was a little longer, too, I think, though that is one of the local questions that have never yet been fully decided. "How far does Miss Waite's ground run along the river?" asked Kenneth, taking Rosamond's shawl over his arm. "Not far; it only just touches; it runs back and broadens toward the Old Turnpike. The best of it is in those woods and pastures." "So I thought. And the pastures are pretty much run out." "I suppose so. They are full of that lovely gray crackling moss." "Lovely for picnics. Don't you think Miss Waite would like to sell?" "Yes, indeed, if she could. That is her dream; what she has been laying up for her old age: to turn the acres into dollars, and build or buy a little cottage, and settle down safe. It is all she has in the world, except her dressmaking." "Mr. Geoffrey and Mr. Marchbanks want to buy. They will offer her sixteen thousand dollars. That is the secret,--part of it." "O, Mr. Kincaid! How glad,--how _sorry_, I can't help being, too! Miss Waite to be so comfortable! And never to have her dear old woods to picnic in any more! I suppose they want to make streets and build it all up." "Not all. I'll tell you. It is a beautiful plan. Mr. Geoffrey wants to build a street of twenty houses,--ten on a side,--with just a little garden plot for each, and leave the woods behind for a piece of nature for the general good,--a real Union Park; a place for children to play in, and grown folks to rest and walk and take tea in, if they choose; but for nobody to change or meddle with any further. And these twenty houses to be let to respectable persons of small means, at rents that will give him seven per cent, for his whole outlay. Don't you see? Young people, and people like Miss Waite herself, who don't want _much_ house-room, but who want it nice and comfortable, and will keep it so, and who _do_ want a little of God's world-room to grow in, that they can't get in the crowded town streets, where the land is selling by the foot to be all built over with human packing-cases, and where they have to pay as much for being shut up and smothered, as they will out here to live and breathe. That Mr. Geoffrey is a glorious man, Rosamond! He is doing just this same thing in the edges of three or four other towns, buying up the land just before it gets too dear, to save for people who could not save it for themselves. He is providing for a class that nobody seems to have thought of,--the nice, narrow-pursed people, and the young beginners, who get married and take the world in the old-fashioned way." He had no idea he had called her "Rosamond," till he saw the color shining up so in her face verifying the name. Then it flashed out upon him as he sent his thought back through the last few sentences that he had spoken. "I beg your pardon," he said, suddenly. "But I was so full of this beautiful doing,--and I always think of you so! Is there a sin in that?" Rosamond colored deeper yet, and Kenneth grew more bold. He had spoken it without plan; it had come of itself. "I can't help it now. I shall say it again, unless you tell me not! Rosamond! I shall have these houses to build. I am getting ever so much to do. Could you begin the world with me, Rosamond?" Rosamond did not say a word for a full minute. She only walked slowly by his side, her beautiful head inclined gently, shyly; her sweet face all one bloom, as faces never bloom but once. Then she turned toward him and put out her hand. "I will begin the world with you," she said. And their world--that was begun for them before they were born--lifted up its veil and showed itself to them, bright in the eternal morning. * * * * * Desire Ledwith walked home all alone. She left Dorris at Miss Waite's, and Helena had teased to stay with her. Mrs. Ledwith had gone home among the first, taking a seat offered her in Mrs. Tom Friske's carriage to East Square; she had a headache, and was tired. Desire felt the old, miserable questions coming up, tempting her. Why? Why was she left out,--forgotten? Why was there nothing, very much, in any of this, for her? Yet underneath the doubting and accusing, something lived--stayed by--to rebuke it; rose up above it finally, and put it down, though with a thrust that hurt the heart in which the doubt was trampled. Wait. Wait--with all your might! Desire could do nothing very meekly; but she could even _wait_ with all her might. She put her foot down with a will, at every step. "I was put here to be Desire Ledwith," she said, relentlessly, to herself; "not Rosamond Holabird, nor even Dolly. Well, I suppose I can stay put, and _be_! If things would only _let_ me be!" But they will not. Things never do, Desire. They are coming, now, upon you. Hard things,--and all at once. XVIII. ALL AT ONCE. There was a Monday morning train going down from Z----. Mr. Ledwith and Kenneth Kincaid were in it, reading the morning papers, seated side by side. It was nearly a week since the picnic, but the engagement of Rosamond and Kenneth had not transpired. Mr. Holabird had been away in New York. Of course nothing was said beyond Mrs. Holabird and Ruth and Dolly Kincaid, until his return. But Kenneth carried a happy face about with him, in the streets and in the cars and about his work; and his speech was quick and bright with the men he met and had need to speak to. It almost told itself; people might have guessed it, if they had happened, at least to see the _two_ faces in the same day, and if they were alive to sympathetic impressions of other people's pain or joy. There are not many who stop to piece expressions, from pure sympathy, however; they are, for the most part, too busy putting this and that together for themselves. Desire would have guessed it in a minute; but she saw little of either in this week. Mrs. Ledwith was not well, and there was a dress to be made for Helena. Kenneth Kincaid's elder men friends said of him, when they saw him in these days, "That's a fine fellow; he is doing very well." They could read that; he carried it in his eye and in his tone and in his step, and it was true. It was a hot morning; it would be a stifling day in the city. They sat quiet while they could, in the cars, taking the fresh air of the fields and the sea reaches, reading the French news, and saying little. They came almost in to the city terminus, when the train stopped. Not at a station. There were people to alight at the last but one; these grew impatient after a few minutes, and got out and walked. The train still waited. Mr. Ledwith finished a column he was reading, and then looked up, as the conductor came along the passage. "What is the delay?" he asked of him. "Freight. Got such a lot of it. Takes a good while to handle." Freight outward bound. A train making up. Mr. Ledwith turned to his newspaper again. Ten minutes went by. Kenneth Kincaid got up and went out, like many others. They might be kept there half an hour. Mr. Ledwith had read all his paper, and began to grow impatient. He put his head out at the window, and looked and listened. Half the passengers were outside. Brake-men were walking up and down. "Has he got a flag out there?" says the conductor to one of these. "Don't know. Can't see. Yes, he has; I heard him whistle brakes." Just then, their own bell sounded, and men jumped on board. Kenneth Kincaid came back to his seat. Behind, there was a long New York train coming in. Mr. Ledwith put his head out again, and looked back. All right; there had been a flag; the train had slackened just beyond a curve. But why will people do such things? What is the use of asking? Mr. Ledwith still looked out; he could not have told you why. A quicker motion; a darkening of the window; a freight car standing upon a siding, close to the switch, as they passed by; a sudden, dull blow, half unheard in the rumble of the train. Women, sitting behind, sprang up,--screamed; one dropped, fainting: they had seen a ghastly sight; warm drops of blood flew in upon them; the car was in commotion. Kenneth Kincaid, with an exclamation of horror, clutched hold of a lifeless body that fell--was thrust--backward beside him; the poor head fractured, shattered, against the fatal window frame. * * * * * The eleven o'clock train came out. People came up the street,--a group of gentlemen, three or four,--toward Mr. Prendible's house. Desire sat in a back window behind the blinds, busy. Mrs. Ledwith was lying on the bed. Steps came in at the house door. There was an exclamation; a hush. Mr. Prendible's voice, Kenneth Kincaid's, Mr. Dimsey's, the minister's. "O! How? "--Mrs. Prendible's voice, now. "Take care!" "Where are they?" Mrs. Ledwith heard. "What is the matter?"--springing up, with a sudden instinct of precognition. Desire had not seen or heard till now. She dropped her work. "What is it, mother?" Mrs. Ledwith was up, upon the floor; in the doorway out in the passage; trembling; seized all over with a horrible dread and vague knowledge. "_Tell_ me what it is!" she cried, to those down below. They were all there upon the staircase; Mrs. Prendible furthest up. "O, Mrs. Ledwith!" she cried. "_Don't_ be frightened! _Don't_ take on! Take it easy,--do!" Desire rushed down among them; past Mrs. Prendible, past the minister, straight to Kenneth Kincaid. Kenneth took her right in his arms, and carried her into a little room below. "There could have been no pain," he said, tenderly. "It was the accident of a moment. Be strong,--be patient, dear!" There had been tender words natural to his lips lately. It was not strange that in his great pity he used them now. "My father!" gasped Desire. "Yes; your father. It was our Father's will." "Help me to go to my mother!" She took his hand, half blind, almost reeling. And then they all, somehow, found themselves up-stairs. There were moans of pain; there were words of prayer. We have no right there. It is all told. * * * * * "Be strong,--be patient, dear!" It came back, in the midst of the darkness, the misery; it helped her through those days; it made her strong for her mother. It comforted her, she hardly knew how much; but O, how cruel it seemed afterward! They went directly down to Boston. Mr. Ledwith was buried from their own house. It was all over; and now, what should they do? Uncle Titus came to see them. Mrs. Ripwinkley came right back from Homesworth. Dorris Kincaid left her summer-time all behind, and came to stay with them a week in Shubarton Place. Mrs. Ledwith craved companionship; her elder daughters were away; there were these five weeks to go by until she could hear from them. She would not read their letters that came now, full of chat and travel. Poor Laura! her family scattered; her dependence gone; her life all broken down in a moment! Dorris Kincaid did not speak of Kenneth and Rosamond. How could she bring news of others' gladness into that dim and sorrowful house? Luclarion Grapp shut up her rooms, left her plants and her birds with Mrs. Gallilee, and came up to Shubarton Place in the beginning. There were no servants there; everything was adrift; the terrible blows of life take people between the harness, most unprovided, unawares. It was only for a little while, until they could hear from the girls, and make plans. Grant Ledwith's income died with him; there was ten thousand dollars, life insurance; that would give them a little more than a sixth part of what his salary had been; and there were the two thousand a year of Uncle Titus; and the house, on which there was a twelve thousand dollar mortgage. Mrs. Ledwith had spent her life in cutting and turning and planning; after the first shock was over, even her grief was counterpoised and abated, by the absorption of her thoughts into the old channels. What they should do, how they should live, what they could have; how it should be contrived and arranged. Her mind busied itself with all this, and her trouble was veiled,--softened. She had a dozen different visions and schemes, projected into their details of residence, establishment, dress, ordering,--before the letters came, bringing back the first terribleness in the first reception of and response to it, of her elder children. It was so awful to have them away,--on the other side of the world! If they were only once all together again! Families ought not to separate. But then, it had been for their good; how could she have imagined? She supposed she should have done the same again, under the same circumstances. And then came Mrs. Megilp's letter, delayed a mail, as she would have delayed entering the room, if they had been rejoined in their grief, until the family had first been gathered together with their tears and their embraces. Then she wrote,--as she would have come in; and her letter, as her visit would have been, was after a few words of tender condolence,--and they were very sweet and tender, for Mrs. Megilp knew how to lay phrases like illuminating gold-leaf upon her meaning,--eminently practical and friendly, full of judicious, not to say mitigating, suggestions. It was well, she thought, that Agatha and Florence were with her. They had been spared so much; and perhaps if all this had happened first, they might never have come. As to their return, she thought it would be a pity; "it could not make it really any better for you," she said; "and while your plans are unsettled, the fewer you are, the more easily you will manage. It seems hard to shadow their young lives more than is inevitable; and new scenes and interests are the very best things for them; their year of mourning would be fairly blotted out at home, you know. For yourself, poor friend, of course you cannot care; and Desire and Helena are not much come forward, but it would be a dead blank and stop to them, so much lost, right out; and I feel as if it were a kind Providence for the dear girls that they should be just where they are. We are living quietly, inexpensively; it will cost no more to come home at one time than at another;" etc. There are persons to whom the pastime of life is the whole business of it; sickness and death and misfortune,--to say nothing of cares and duties--are the interruptions, to be got rid of as they may. The next week came more letters; they had got a new idea out there. Why should not Mrs. Ledwith and the others come and join them? They were in Munich, now; the schools were splendid; would be just the thing for Helena; and "it was time for mamma to have a rest." This thought, among the dozen others, had had its turn in Mrs. Ledwith's head. To break away, and leave everything, that is the impulse of natures like hers when things go hard and they cannot shape them. Only to get off; if she could do that! Meanwhile, it was far different with Desire. She was suffering with a deeper pain; not with a sharper loss, for she had seen so little of her father; but she looked in and back, and thought of what she _ought_ to miss, and what had never been. She ought to have known her father better; his life ought to have been more to her; was it her fault, or, harder yet, had it been his? This is the sorest thrust of grief; when it is only shock, and pity, and horror, and after these go by, not grief enough! The child wrestled with herself, as she always did, questioning, arraigning. If she could make it all right, in the past, and now; if she could feel that all she had to do was to be tenderly sorry, and to love on through the darkness, she would not mind the dark; it would be only a phase of the life,--the love. But to have lived her life so far, to have had the relations of it, and yet _not_ to have lived it, not to have been real child, real sister, not to be real stricken daughter now, tasting the suffering just as God made it to be tasted,--was she going through all things, even this, in a vain shadow? _Would_ not life touch her? She went away back, strangely, and asked whether she had had any business to be born? Whether it were a piece of God's truth at all, that she and all of them should be, and call themselves a household,--a home? The depth, the beauty of it were so unfulfilled! What was wrong, and how far back? Living in the midst of superficialities; in the noontide of a day of shams; putting her hands forth and grasping, almost everywhere, nothing but thin, hard surface,--she wondered how much of the world was real; how many came into the world where, and as, God meant them to come. What it was to "climb up some other way into the sheepfold," and to be a thief and a robber, even of life! These were strange thoughts. Desire Ledwith was a strange girl. But into the midst there crept one comfort; there was one glimpse out of the darkness into the daylight. Kenneth Kincaid came in often to see them,--to inquire; just now he had frequent business in the city; he brought ferns and flowers, that Dorris gathered and filled into baskets, fresh and damp with moss. Dorris was a dear friend; she dwelt in the life and the brightness; she reached forth and gathered, and turned and ministered again. The ferns and flowers were messages; leaves out of God's living Word, that she read, found precious, and sent on; apparitions, they seemed standing forth to sense, and making sweet, true signs from the inner realm of everlasting love and glory. And Kenneth,--Desire had never lost out of her heart those words,--"Be strong,--be patient, dear!" He did not speak to her of himself; he could not demand congratulation from her grief; he let it be until she should somehow learn, and of her own accord, speak to him. So everybody let her alone, poor child, to her hurt. The news of the engagement was no Boston news; it was something that had occurred, quietly enough, among a few people away up in Z----. Of the persons who came in,--the few remaining in town,--nobody happened to know or care. The Ripwinkleys did, of course; but Mrs. Ripwinkley remembered last winter, and things she had read in Desire's unconscious, undisguising face, and aware of nothing that could be deepening the mischief now, thinking only of the sufficient burden the poor child had to bear, thought kindly, "better not." Meanwhile Mrs. Ledwith was dwelling more and more upon the European plan. She made up her mind, at last, to ask Uncle Titus. When all was well, she would not seem to break a compact by going away altogether, so soon, to leave him; but now,--he would see the difference; perhaps advise it. She would like to know what he would advise. After all that had happened,--everything so changed,--half her family abroad,--what could she do? Would it not be more prudent to join them, than to set up a home again without them, and keep them out there? And all Helena's education to provide for, and everything so cheap and easy there, and so dear and difficult here? "Now, tell me, truly, uncle, should you object? Should you take it at all hard? I never meant to have left you, after all you have done; but you see I have to break up, now poor Grant is gone; we cannot live as we did before, even with what you do; and--for a little while--it is cheaper there; and by and by we can come back and make some other plan. Besides, I feel sometimes as if I _must_ go off; as if there weren't anything left here for me." Poor woman! poor _girl_, still,--whose life had never truly taken root! "I suppose," said Uncle Titus, soberly, "that God shines all round. He's on this side as much as He is on that." Mrs. Ledwith looked up out of her handkerchief, with which at that moment she had covered her eyes. "I never knew Uncle Titus was pious!" she said to herself. And her astonishment dried her tears. He said nothing more that was pious, however; he simply assured her, then and in conversations afterward, that he should take nothing "hard;" he never expected to bind her, or put her on parole; he chose to come to know his relatives, and he had done so; he had also done what seemed to him right, in return for their meeting him half way; they were welcome to it all, to take it and use it as they best could, and as circumstances and their own judgment dictated. If they went abroad, he should advise them to do it before the winter. These words implied consent, approval. Mrs. Ledwith went up-stairs after them with a heart so much lightened that she was very nearly cheerful. There would be a good deal to do now, and something to look forward to; the old pulses of activity were quickened. She could live with those faculties that had been always vital in her, as people breathe with one live lung; but trouble and change had wrought in her no deeper or further capacity; had wakened nothing that had never been awake before. The house and furniture were to be sold; they would sail in September. When Desire perceived that it was settled, she gave way; she had said little before; her mother had had many plans, and they amused her; she would not worry her with opposition; and besides, she was herself in a secret dream of a hope half understood. It happened that she told it to Kenneth Kincaid herself; she saw almost every one who came, instead of her mother; Mrs. Ledwith lived in her own room chiefly. This was the way in which it had come about, that nobody noticed or guessed how it was with Desire, and what aspect Kenneth's friendship and kindness, in the simple history of those few weeks, might dangerously grow to bear with her. Except one person. Luclarion Grapp, at last, made up her mind. Kenneth heard what Desire told him, as he heard all she ever had to tell, with a gentle interest; comforted her when she said she could not bear to go, with the suggestion that it might not be for very long; and when she looked up in his face with a kind of strange, pained wonder, and repeated,-- "But I cannot _bear_,--I tell you, I cannot _bear_ to go!" he answered,-- "One can bear all that is right; and out of it the good will come that we do not know. All times go by. I am sorry--very sorry--that you must go; but there will be the coming back. We must all wait for that." She did not know what she looked for; she did not know what she expected him to mean; she expected nothing; the thought of his preventing it in any way never entered into her head; she knew, if she _had_ thought, how he himself was waiting, working. She only wanted him to _care_. Was this caring? Much? She could not tell. "We never can come _back_," she said, impetuously. "There will be all the time--everything--between." He almost spoke to her of it, then; he almost told her that the everything might be more, not less; that friendships gathered, multiplied; that there would be one home, he hoped, in which, by and by, she would often be; in which she would always be a dear and welcome comer. But she was so sad, so tried; his lips were held; in his pure, honest kindness, he never dreamt of any harm that his silence might do; it only seemed so selfish to tell her how bright it was with him. So he said, smiling,-- "And who knows what the 'everything' may be?" And he took both her hands in his as he said good-by,--for his little stops were of minutes on his way, always,--and held them fast, and looked warmly, hopefully into her face. It was all for her,--to give her hope and courage; but the light of it was partly kindled by his own hope and gladness that lay behind; and how could she know that, or read it right? It was at once too much, and not enough, for her. Five minutes after, Luclarion Grapp went by the parlor door with a pile of freshly ironed linen in her arms, on her way up-stairs. Desire lay upon the sofa, her face down upon the pillow; her arms were thrown up, and her hands clasped upon the sofa-arm; her frame shook with sobs. Luclarion paused for the time of half a step; then she went on. She said to herself in a whisper, as she went,-- "It is a stump; a proper hard one! But there's nobody else; and I have got to tell her!" * * * * * That evening, under some pretense of clean towels, Luclarion came up into Desire's room. She was sitting alone, by the window, in the dark. Luclarion fussed round a little; wiped the marble slab and the basin; set things straight; came over and asked Desire if she should not put up the window-bars, and light the gas. "No," said Desire. "I like this best." So did Luclarion. She had only said it to make time. "Desire," she said,--she never put the "Miss" on, she had been too familiar all her life with those she was familiar with at all,--"the fact is I've got something to say, and I came up to say it." She drew near--came close,--and laid her great, honest, faithful hand on the back of Desire Ledwith's chair, put the other behind her own waist, and leaned over her. "You see, I'm a woman, Desire, and I know. You needn't mind me, I'm an old maid; that's the way I do know. Married folks, even mothers, half the time forget. But old maids never forget. I've had my stumps, and I can see that you've got yourn. But you'd ought to understand; and there's nobody, from one mistake and another, that's going to tell you. It's awful hard; it will be a trouble to you at first,"--and Luclarion's strong voice trembled tenderly with the sympathy that her old maid heart had in it, after, and because of, all those years,--"but Kenneth Kincaid"-- "_What_!" cried Desire, starting to her feet, with a sudden indignation. "Is going to be married to Rosamond Holabird," said Luclarion, very gently. "There! you ought to know, and I have told you." "What makes you suppose that that would be a trouble to me?" blazed Desire. "How do you dare"-- "I didn't dare; but I had to!" sobbed Luclarion, putting her arms right round her. And then Desire--as she would have done at any rate, for that blaze was the mere flash of her own shame and pain--broke down with a moan. "All at once! All at once!" she said piteously, and hid her face in Luclarion's bosom. And Luclarion folded her close; hugged her, the good woman, in her love that was sisterly and motherly and all, because it was the love of an old maid, who had endured, for a young maid upon whom the endurance was just laid,--and said, with the pity of heaven in the words,-- "Yes. All at once. But the dear Lord stands by. Take hold of His hand,--and bear with all your might!" XIX. INSIDE. "Do you think, Luclarion," said Desire, feebly, as Luclarion came to take away her bowl of chicken broth,--"that it is my _duty_ to go with mamma?" "I don't know," said Luclarion, standing with the little waiter in her right hand, her elbow poised upon her hip,--"I've thought of that, and I _don't_ know. There's most generally a stump, you see, one way or another, and that settles it, but here there's one both ways. I've kinder lost my road: come to two blazes, and can't tell which. Only, it ain't my road, after all. It lays between the Lord and you, and I suppose He means it shall. Don't you worry; there'll be some sort of a sign, inside or out. That's His business, you've just got to keep still, and get well." Desire had asked her mother, before this, if she would care very much,--no, she did not mean that,--if she would be disappointed, or disapprove, that she should stay behind. "Stay behind? Not go to Europe? Why, where _could_ you stay? What would you do?" "There would be things to do, and places to stay," Desire had answered, constrainedly. "I could do like Dorris." "Teach music!" "No. I don't know music. But I might teach something I do know. Or I could--rip," she said, with an odd smile, remembering something she had said one day so long ago; the day the news came up to Z---- from Uncle Oldways. "And I might make out to put together for other people, and for a real business. I never cared to do it just for myself." "It is perfectly absurd," said Mrs Ledwith. "You couldn't be left to take care of yourself. And if you could, how it would look! No; of course you must go with us." "But do you _care_?" "Why, if there were any proper way, and if you really hate so to go,--but there isn't," said Mrs. Ledwith, not very grammatically or connectedly. "She _doesn't_ care," said Desire to herself, after her mother had left her, turning her face to the pillow, upon which two tears ran slowly down. "And that is my fault, too, I suppose. I have never been _anything_!" Lying there, she made up her mind to one thing. She would get Uncle Titus to come, and she would talk to him. "He won't encourage me in any notions," she said to herself. "And I mean now, if I can find it out, to do the thing God means; and then I suppose,--I _believe_,--the snarl will begin to unwind." Meanwhile, Luclarion, when she had set a nice little bowl of tea-muffins to rise, and had brought up a fresh pitcher of ice-water into Desire's room, put on her bonnet and went over to Aspen Street for an hour. Down in the kitchen, at Mrs. Ripwinkley's, they were having a nice time. Their girl had gone. Since Luclarion left, they had fallen into that Gulf-stream which nowadays runs through everybody's kitchen. Girls came, and saw, and conquered in their fashion; they muddled up, and went away. The nice times were in the intervals when they _had_ gone away. Mrs. Ripwinkley did not complain; it was only her end of the "stump;" why should she expect to have a Luclarion Grapp to serve her all her life? This last girl had gone as soon as she found out that Sulie Praile was "no relation, and didn't anyways belong there, but had been took in." She "didn't go for to come to work in an _Insecution_. She had always been used to first-class private families." Girls will not stand any added numbers, voluntarily assumed, or even involuntarily befalling; they will assist in taking up no new responsibilities; to allow things to remain as they are, and cannot help being, is the depth of their condescension,--the extent of what they will put up with. There must be a family of some sort, of course, or there would not be a "place;" that is what the family is made for; but it must be established, no more to fluctuate; that is, you may go away, some of you, if you like, or you may die; but nobody must come home that has been away, and nobody must be born. As to anybody being "took in!" Why, the girl defined it; it was not being a family, but an _Insecution_. So the three--Diana, and Hazel, and Sulie--were down in the kitchen; Mrs. Ripwinkley was busy in the dining-room close by; there was a berry-cake to be mixed up for an early tea. Diana was picking over the berries, Hazel was chopping the butter into the flour, and Sulie on a low cushioned seat in a corner--there was one kept ready for her in every room in the house, and Hazel and Diana carried her about in an "arm-chair," made of their own clasped hands and wrists, wherever they all wanted to go,--Sulie was beating eggs. Sulie did that so patiently; you see she had no temptation to jump up and run off to anything else. The eggs turned, under her fingers, into thick, creamy, golden froth, fine to the last possible divisibility of the little air-bubbles. They could not do without Sulie now. They had had her for "all winter;" but in that winter she had grown into their home. "Why," said Hazel to her mother, when they had the few words about it that ended in there being no more words at all,--"that's the way children are _born_ into houses, isn't it? They just come; and they're new and strange at first, and seem so queer. And then after a while you can't think how the places were, and they not in them. Sulie belongs, mother!" So Sulie beat eggs, and darned stockings, and painted her lovely little flower-panels and racks and easels, and did everything that could be done, sitting still in her round chair, or in the cushioned corners made for her; and was always in the kitchen, above all, when any pretty little cookery was going forward. Vash ran in and out from the garden, and brought balsamine blossoms, from which she pulled the little fairy slippers, and tried to match them in pairs; and she picked off the "used-up and puckered-up" morning glories, which she blew into at the tube-end, and "snapped" on the back of her little brown hand. Wasn't that being good for anything, while berry-cake was making? The girls thought it was; as much as the balsamine blossoms were good for anything, or the brown butterflies with golden spots on their wings, that came and lived among them. The brown butterflies were a "piece of the garden;" little brown Vash was a piece of the house. Besides, she would eat some of the berry-cake when it was made; wasn't that worth while? She would have a "little teenty one" baked all for herself in a tin pepper-pot cover. Isn't that the special pleasantness of making cakes where little children are? Vash was always ready for an "Aaron," too; they could not do without her, any more than without Sulie. Pretty soon, when Diana should have left school, and Vash should be a little bigger, they meant to "coöperate," as the Holabirds had done at Westover. Of course, they knew a great deal about the Holabirds by this time. Hazel had stayed a week with Dorris at Miss Waite's; and one of Witch Hazel's weeks among "real folks" was like the days or hours in fairy land, that were years on the other side. She found out so much and grew so close to people. Hazel and Ruth Holabird were warm friends. And Hazel was to be Ruth's bridesmaid, by and by! For Ruth Holabird was going to be married to Dakie Thayne. "That seemed so funny," Hazel said. "Ruth didn't _look_ any older than she did; and Mr. Dakie Thayne was such a nice boy!" He was no less a man, either; he had graduated among the first three at West Point; he was looking earnestly for the next thing that he should do in life with his powers and responsibilities; he did not count his marrying a _separate_ thing; that had grown up alongside and with the rest; of course he could do nothing without Ruth; that was just what he had told her; and she,--well Ruth was always a sensible little thing, and it was just as plain to her as it was to him. Of course she must help him think and plan; and when the plans were made, it would take two to carry them out; why, yes, they must be married. What other way would there be? That wasn't what she _said_, but that was the quietly natural and happy way in which it grew to be a recognized thing in her mind, that pleasant summer after he came straight home to them with his honors and his lieutenant's commission in the Engineers; and his hearty, affectionate taking-for-granted; and it was no surprise or question with her, only a sure and very beautiful "rightness," when it came openly about. Dakie Thayne was a man; the beginning of a very noble one; but it is the noblest men that always keep a something of the boy. If you had not seen anything more of Dakie Thayne until he should be forty years old, you would then see something in him which would be precisely the same that it was at Outledge, seven years ago, with Leslie Goldthwaite, and among the Holabirds at Westover, in his first furlough from West Point. Luclarion came into the Ripwinkley kitchen just as the cakes--the little pepper-pot one and all--were going triumphantly into the oven, and Hazel was baring her little round arms to wash the dishes, while Diana tended the pans. Mrs. Ripwinkley heard her old friend's voice, and came out. "That girl ought to be here with you; or somewheres else than where she is, or is likely to be took," said Luclarion, as she looked round and sat down, and untied her bonnet-strings. Miss Grapp hated bonnet-strings; she never endured them a minute longer than she could help. "Desire?" asked Mrs. Ripwinkley, easily comprehending. "Yes; Desire. I tell you she has a hard row to hoe, and she wants comforting. She wants to know if it is her duty to go to Yourup with her mother. Now it may be her duty to be _willing_ to go; but it ain't anybody's else duty to let her. That's what came to me as I was coming along. I couldn't tell _her_ so, you see, because it would interfere with her part; and that's all in the tune as much as any; only we've got to chime in with our parts at the right stroke, the Lord being Leader. Ain't that about it, Mrs. Ripwinkley?" "If we are sure of the score, and can catch the sign," said Mrs. Ripwinkley, thoughtfully. "Well, I've sung mine; it's only one note; I may have to keep hammering on it; that's according to how many repeats there are to be. Mr. Oldways, he ought to know, for one. Amongst us, we have got to lay our heads together, and work it out. She's a kind of an odd chicken in that brood; and my belief is she's like the ugly duck Hazel used to read about. But she ought to have a chance; if she's a swan, she oughtn't to be trapesed off among the weeds and on the dry ground. 'Tisn't even ducks she's hatched with; they don't take to the same element." "I'll speak to Uncle Titus, and I will think," said Mrs. Ripwinkley. But before she did that, that same afternoon by the six o'clock penny post, a little note went to Mr. Oldways:-- "DEAR UNCLE TITUS,-- "I want to talk with you a little. If I were well, I should come to see you in your study. Will you come up here, and see me in my room? "Yours sincerely, DESIRE LEDWITH." Uncle Titus liked that. It counted upon something in him which few had the faith to count upon; which, truly he gave few people reason to expect to find. He put his hat directly on, took up his thick brown stick, and trudged off, up Borden Street to Shubarton Place. When Luclarion let him in, he told her with some careful emphasis, that he had come to see Desire. "Ask her if I shall come up," he said. "I'll wait down here." Helena was practicing in the drawing-room. Mrs. Ledwith lay, half asleep, upon a sofa. The doors into the hall were shut,--Luclarion had looked to that, lest the playing should disturb Desire. Luclarion was only gone three minutes. Then she came back, and led Mr. Oldways up three flights of stairs. "It's a long climb, clear from the door," she said. "I can climb," said Mr. Oldways, curtly. "I didn't expect it was going to stump _you_," said Luclarion, just as short in her turn. "But I thought I'd be polite enough to mention it." There came a queer little chuckling wheeze from somewhere, like a whispered imitation of the first few short pants of a steam-engine: that was Uncle Titus, laughing to himself. Luclarion looked down behind her, out of the corner of her eyes, as she turned the landing. Uncle Titus's head was dropped between his shoulders, and his shoulders were shaking up and down. But he kept his big stick clutched by the middle, in one hand, and the other just touched the rail as he went up. Uncle Titus was not out of breath. Not he. He could laugh and climb. Desire was sitting up for a little while, before going to bed again for the night. There was a low gas-light burning by the dressing-table, ready to turn up when the twilight should be gone; and a street lamp, just lighted, shone across into the room. Luclarion had been sitting with her, and her gray knitting-work lay upon the chair that she offered when she had picked it up, to Mr. Oldways. Then she went away and left them to their talk. "Mrs. Ripwinkley has been spry about it," she said to herself, going softly down the stairs. "But she always was spry." "You're getting well, I hope," said Uncle Titus, seating himself, after he had given Desire his hand. "I suppose so," said Desire, quietly. "That was why I wanted to see you. I want to know what I ought to do when I am well." "How can I tell?" asked Uncle Titus, bluntly. "Better than anybody I can ask. The rest are all too sympathizing. I am afraid they would tell me as I wish they should." "And I don't sympathize? Well, I don't think I do much. I haven't been used to it." "You have been used to think what was right; and I believe you would tell me truly. I want to know whether I ought to go to Europe with my mother." "Why not? Doesn't she want you to go?"--and Uncle Titus was sharp this time. "I suppose so; that is, I suppose she expects I will. But I don't know that I should be much except a hindrance to her. And I think I could stay and do something here, in some way. Uncle Titus, I hate the thought of going to Europe! Now, don't you suppose I ought to go?" "_Why_ do you hate the thought of going to Europe?" asked Uncle Titus, regarding her with keenness. "Because I have never done anything real in all my life!" broke forth Desire. "And this seems only plastering and patching what can't be patched. I want to take hold of something. I don't want to float round any more. What is there left of all we have ever tried to do, all these years? Of all my poor father's work, what is there to show for it now? It has all melted away as fast as it came, like snow on pavements; and now his life has melted away; and I feel as if we had never been anything real to each other! Uncle Titus, I can't tell you _how_ I feel!" Uncle Titus sat very still. His hat was in one hand, and both together held his cane, planted on the floor between his feet. Over hat and cane leaned his gray head, thoughtfully. If Desire could have seen his eyes, she would have found in them an expression that she had never supposed could be there at all. She had not so much spoken _to_ Uncle Titus, in these last words of hers, as she had irresistibly spoken _out_ that which was in her. She wanted Uncle Titus's good common sense and sense of right to help her decide; but the inward ache and doubt and want, out of which grew her indecisions,--these showed themselves forth at that moment simply because they must, with no expectation of a response from him. It might have been a stone wall that she cried against; she would have cried all the same. Then it was over, and she was half ashamed, thinking it was of no use, and he would not understand; perhaps that he would only set the whole down to nerves and fidgets and contrariness, and give her no common sense that she wanted, after all. But Uncle Titus spoke, slowly; much as if he, too, were speaking out involuntarily, without thought of his auditor. People do so speak, when the deep things are stirred; they speak into the deep that answereth unto itself,--the deep that reacheth through all souls, and all living, whether souls feel into it and know of it or not. "The real things are inside," he said. "The real world is the inside world. _God_ is not up, nor down, but in the _midst_." Then he looked up at Desire. "What is real of your life is living inside you now. That is something. Look at it and see what it is." "Discontent. Misery. Failure." "_Sense_ of failure. Well. Those are good things. The beginning of better. Those are _live_ things, at any rate." Desire had never thought of that. Now _she_ sat still awhile. Then she said,--"But we can't _be_ much, without doing it. I suppose we are put into a world of outsides for something." "Yes. To find out what it means. That's the inside of it. And to help make the outside agree with the in, so that it will be easier for other people to find out. That is the 'kingdom come and will be done, on earth as it is in heaven.' Heaven is the inside,--the truth of things." "Why, I never knew"--began Desire, astonished. She had almost finished aloud, as her mother had done in her own mind. She never knew that Uncle Oldways was "pious." "Never knew that was what it meant? What else can it mean? What do you suppose the resurrection was, or is?" Desire answered with a yet larger look of wonder, only in the dim light it could not be wholly seen. "The raising up of the dead; Christ coming up out of the tomb." "The coming out of the tomb was a small part of it; just what could not help being, if the rest was. Jesus Christ rose out of dead _things_, I take it, into these very real ones that we are talking of, and so lived in them. The resurrection is a man's soul coming alive to the soul of creation--God's soul. _That_ is eternal life, and what Jesus of Nazareth was born to show. Our coming to that is our being 'raised with Him;' and it begins, or ought to, a long way this side the tomb. If people would only read the New Testament, expecting to get as much common sense and earnest there as they do among the new lights and little 'progressive-thinkers' that are trying to find it all out over again, they might spare these gentlemen and themselves a great deal of their trouble." The exclamation rose half-way to her lips again,--"I never knew you thought like this. I never heard you talk of these things before!" But she held it back, because she would not stop him by reminding him that he _was_ talking. It was just the truth that was saying itself. She must let it say on, while it would. "Un--" She stopped there, at the first syllable. She would not even call him "Uncle Titus" again, for fear of recalling him to himself, and hushing him up. "There is something--isn't there--about those who _attain_ to that resurrection; those who are _worthy_? I suppose there must be some who are just born to this world, then, and never--'born again?'" "It looks like it, sometimes; who can tell?" "Uncle Oldways,"--it came out this time in her earnestness, and her strong personal appeal,--"do you think there are some people--whole families of people--who have no business in the reality of things to be at all? Who are all a mistake in the world, and have nothing to do with its meaning? I have got to feeling sometimes lately, as if--_I_--had never had any business to be." She spoke slowly--awe-fully. It was a strange speech for a girl in her nineteenth year. But she was a girl in this nineteenth century, also; and she had caught some of the thoughts and questions of it, and mixed them up with her own doubts and unsatisfactions which they could not answer. "The world is full of mistakes; mistakes centuries long; but it is full of salvation and setting to rights, also. 'The kingdom of heaven is like leaven, which a woman hid in three measures of meal till the whole was leavened.' You have been _allowed_ to be, Desire Ledwith. And so was the man that was born blind. And I think there is a colon put into the sentence about him, where a comma was meant to be." Desire did not ask him, then, what he meant; but she turned to the story after he had gone, and found this:-- "Neither hath this man sinned, nor his parents, but that the works of God should be manifest in him." You can see, if you look also, where she took the colon out, and put the comma in. Were all the mistakes--the sins, even--for the very sake of the pure blessedness and the more perfect knowledge of the setting right? Desire began to think that Uncle Oldways' theology might help her. What she said to him now was,-- "I want to do something. I should like to go and live with Luclarion, I think, down there in Neighbor Street. I should like to take hold of some other lives,--little children's, perhaps,"--and here Desire's voice softened,--"that don't seem to have any business to be, either, and see if I could help or straighten anything. Then I feel is if I should know." "Then--according to the Scripture--you _would_ know. But--that's undertaking a good deal. Luclarion Grapp has got there; but she has been fifty-odd years upon the road. And she has been doing real things all the time. That's what has brought her there. You can't boss the world's hard jobs till you've been a journeyman at the easy ones." "And I've missed my apprenticeship!" said Desire, with changed voice and face, falling back into her disheartenment again. "No!" Uncle Oldways almost shouted. "Not if you come to the Master who takes in the eleventh hour workers. And it isn't the eleventh hour with you,--_child_!" He dwelt on that word "child," reminding her of her short mistaking and of the long retrieval. Her nineteen years and the forever and ever contrasted themselves before her suddenly, in the light of hope. She turned sharply, though, to look at her duty. Her journeyman's duty of easy things. "Must I go to Europe with my mother?" she asked again, the conversation coming round to just that with which it had begun. "I'll talk with your mother," said Uncle Oldways, getting up and looking into his hat, as a man always does when he thinks of putting it on presently. "Good-night. I suppose you are tired enough now. I'll come again and see you." Desire stood up and gave him her hand. "I thank you, Uncle Titus, with all my heart." He did not answer her a word; but he knew she meant it. He did not stop that night to see his niece. He went home, to think it over. But as he walked down Borden Street, swinging his big stick, he said to himself,-- "Next of kin! Old Marmaduke Wharne was right. But it takes more than the Family Bible to tell you which it is!" Two days after, he had a talk with Mrs. Ledwith which relieved both their minds. From the brown-and-apricot drawing-room,--from among the things that stood for nothing now, and had never stood for home,--he went straight up, without asking, and knocked at Desire's third-story door. "Come in!" she said, without a note of expectation in her voice. She had had a dull morning. Helena had brought her a novel from Loring's that she could not read. Novels, any more than life, cannot be read with very much patience, unless they touch something besides surface. Why do critics--some of them--make such short, smart work,--such cheerful, confident despatch, nowadays, of a story with religion in it, as if it were an abnormity,--a thing with sentence of death in itself, like a calf born with two heads,--that needs not their trouble, save to name it as it is? Why, that is, if religion stand for the relation of things to spirit, which I suppose it should? Somebody said that somebody had written a book made up of "spiritual struggles and strawberry short-cake." That was bright and funny; and it seemed to settle the matter; but, taking strawberry short-cake representatively, what else is human experience on earth made up of? And are novels to be pictures of human experience, or not? This has nothing to do with present matters, however, except that Desire found nothing real in her novel, and so had flung it aside, and was sitting rather listlessly with her crochet which she never cared much for, when Uncle Oldways entered. Her face brightened instantly as he came in. He sat down just where he had sat the other night. Mr. Oldways had a fashion of finding the same seat a second time when he had come in once; he was a man who took up most things where he left them off, and this was an unconscious sign of it. "Your mother has decided to sell the house on the 23d, it seems," he said. "Yes; I have been out twice. I shall be able to go away by then; I suppose that is all she has waited for." "Do you think you could be contented to come and live with me?" "Come and _live_?" "Yes. And let your mother and Helena go to Europe." "O, Uncle Oldways! I think I could _rest_ there! But I don't want only to rest, you know. I must do something. For myself, to begin with. I have made up my mind not to depend upon my mother. Why should I, any more than a boy? And I am sure I cannot depend on anybody else." These were Desire Ledwith's thanks; and Mr. Oldways liked them. She did not say it to please him; she thought it seemed almost ungrateful and unwilling; but she was so intent on taking up life for herself. "You must have a place to do in,--or from," said Mr. Oldways. "And it is better you should be under some protection. You must consent to that for your mother's sake. How much money have you got?" "Two hundred and fifty dollars a year. Of my own." This was coming to business and calculation and common sense. Desire was encouraged. Uncle Oldways did not think her quite absurd. "That will clothe you,--without much fuss and feathers?" "I have done with fuss and feathers,"--Desire said with a grave smile, glancing at her plain white wrapper and the black shawl that was folded around her. "Then come where is room for you and a welcome, and do as much more as you please, and can, for yourself, or for anybody else. I won't give you a cent; you shall have something to do for me, if you choose. I am an old man now, and want help. Perhaps what I want as much as anything is what I've been all my life till lately, pretty obstinate in doing without." Uncle Oldways spoke short, and drew his breath in and puffed it out between his sentences, in his bluff way; but his eyes were kind, as he sat looking at the young girl over his hat and cane. She thought of the still, gray parlor; of Rachel Froke and her face of peace; and the Quaker meeting and the crumbs last year; of Uncle Oldways' study, and his shelves rich with books; of the new understanding that had begun between herself and him, and the faith she had found out, down beneath his hard reserves; of the beautiful neighborhood, Miss Craydocke's Beehive, Aunt Franks' cheery home and the ways of it, and Hazel's runnings in and out. It seemed as if the real things had opened for her, and a place been made among them in which she should have "business to be," and from which her life might make a new setting forth. "And mamma knows?" she said, inquiringly, after that long pause. "Yes. I told you I would talk with her. That is what we came to. It is only for you to say, now." "I will come. I shall be glad to come!" And her face was full of light as she looked up and said it. * * * * * Desire never thought for a moment of what her mother could not help thinking of; of what Mrs. Megilp thought and said, instantly, when she learned it three weeks later. It is wonderful how abiding influence is,--even influence to which we are secretly superior,--if ever we have been subjected to, or allowed ourselves to be swayed by it. The veriest tyranny of discipline grows into one's conscience, until years after, when life has got beyond the tyranny, conscience,--or something superinduced upon it,--keeps up the echo of the old mandates, and one can take no comfort in doing what one knows all the time one has a perfect right, besides sound reason, to do. It was a great while before our grandmothers' daughters could peaceably stitch and overcast a seam, instead of over-sewing and felling it. I know women who feel to this moment as if to sit down and read a book of a week-day, in the daytime, were playing truant to the needle, though all the sewing-machines on the one hand, and all the demand and supply of mental culture on the other, of this present changed and bettered time, protest together against the absurdity. Mrs. Ledwith had heard the Megilp precepts and the Megilp forth-putting of things, until involuntarily everything showed itself to her in a Megilp light. The Megilp "sense of duty," therefore, came up as she unhesitatingly assented to Uncle Oldways' proposal and request. He wanted Desire; of course she could not say a word; she owed him something, which she was glad she could so make up; and secretly there whispered in her mind the suggestion which Mrs. Megilp, on the other side of the water, spoke right out. "If he wants her, he must mean something by her. He is an old man; he might not live to give her back into her mother's keeping; what would she do there, in that old house of his, if he should die, unless--he _does_ mean something? He has taken a fancy to her; she is odd, as he is; and he isn't so queer after all, but that his crotchets have a good, straightforward sense of justice in them. Uncle Titus knows what he is about; and what's more, just what he ought to be about. It is a good thing to have Desire provided for; she is uncomfortable and full of notions, and she isn't likely ever to be married." So Desire was given up, easily, she could not help feeling; but she knew she had been a puzzle and a vexation to her mother, and that Mrs. Ledwith had never had the least idea what to do with her; least of all had she now, what she should do with her abroad. "It was so much better for her that Uncle Titus had taken her home." With these last words Mrs. Ledwith reassured herself and cheered her child. Perhaps it would have been the same--it came into Desire's head, that would conceive strange things--if the angels had taken her. Mrs. Ledwith went to New York; she stayed a few days with Mrs. Macmichael, who wanted her to buy lace for her in Brussels and Bohemian glass in Prague; then a few days more with her cousin, Geraldine Raxley; and then the _City of Antwerp_ sailed. XX. NEIGHBORS AND NEXT OF KIN. "I'll tell you what to do with them, Luclarion," said Hazel briskly. "Teach them to play." "Music! Pianners!" exclaimed Luclarion, dismayed. "No. Games. Teach them to have good times. That was the first thing ever we learnt, wasn't it, Dine? And we never could have got along without it." "It takes _you_!" said Luclarion, looking at Hazel with delighted admiration. "Does it? Well I don't know but it does. May I go, mother? Luclarion, haven't you got a great big empty room up at the top of the house?" Luclarion had. "That's just what it's for, then. Couldn't Mr. Gallilee put up a swing? And a 'flying circle' in the middle? You see they can't go out on the roofs; so they must have something else that will seem kind of flighty. And _I'll_ tell you how they'll learn their letters. Sulie and I will paint 'em; great big ones, all colors; and hang 'em up with ribbons, and every child that learns one, so as to know it everywhere, shall take it down and carry it home. Then we will have marbles for numbers; and they shall play addition games, and multiplication games, and get the sums for prizes; the ones that get to the head, you know. Why, you don't understand _objects_, Luclarion!" Luclarion had been telling them of the wild little folk of Neighbor Street, and worse, of Arctic Street. She wanted to do something with them. She had tried to get them in with gingerbread and popcorn; they came in fast enough for those; but they would not stay. They were digging in the gutters and calling names; learning the foul language of the places into which they were born; chasing and hiding in alley-ways; filching, if they could, from shops; going off begging with lies on their lips. It was terrible to see the springs from which the life of the city depths was fed. "If you could stop it _there_!" Luclarion said, and said with reason. "Will you let me go?" asked Hazel of her mother, in good earnest. "'Twon't hurt her," put in Luclarion. "Nothing's catching that you haven't got the seeds of in your own constitution. And so the catching will be the other way." The seeds of good,--to catch good; that was what Luclarion Grapp believed in, in those dirty little souls,--no, those clean little _souls_, overlaid with all outward mire and filth of body, clothing, speech, and atmosphere, for a mile about; through which they could no more grope and penetrate, to reach their own that was hidden from them in the clearer life beyond, than we can grope and reach to other stars. "I will get Desire," quoth Hazel, inspired as she always was, both ways. Running in at the house in Greenley Street the next Thursday, she ran against Uncle Titus coming out. "What now?" he demanded. "Desire," said Hazel. "I've come for her. We're wanted at Luclarion's. We've got work to do." "Humph! Work? What kind?" "Play," said Hazel, laughing. She delighted to bother and mystify Uncle Titus, and imagined that she did. "I thought so. Tea parties?" "Something like," said Hazel. "There are children down there that don't know how to grow up. They haven't any comfortable sort of fashion of growing up. Somebody has got to teach them. They don't know how to play 'Grand Mufti,' and they never heard of 'King George and his troops.' Luclarion tried to make them sit still and learn letters; but of course they wouldn't a minute longer than the gingerbread lasted, and they are eating her out of house and home. It will take young folks, and week-days, you see; so Desire and I are going." And Hazel ran up the great, flat-stepped staircase. "Lives that have no business to be," said Uncle Titus to himself, going down the brick walk. "The Lord has His own ways of bringing lives together. And His own business gets worked out among them, beyond their guessing. When a man grows old, he can stand still now and then, and see a little." It was a short cross street that Luclarion lived in, between two great thoroughfares crowded with life and business, bustle, drudgery, idleness, and vice. You will not find the name I give it,--although you may find one that will remind you of it,--in any directory or on any city map. But you can find the places without the names; and if you go down there with the like errands in your heart, you will find the work, as she found it, to do. She heard the noise of street brawls at night, voices of men and women quarreling in alley-ways, and up in wretched garrets; flinging up at each other, in horrible words, all the evil they knew of in each other's lives,--"away back," Luclarion said, "to when they were little children." "And what is it," she would say to Mrs. Ripwinkley telling her about it, "that _flings_ it up, and can call it a shame, after all the shames of years and years? Except just _that_ that the little children _were_, underneath, when the Lord let them--He knows why--be born so? I tell you, ma'am, it's a mystery; and the nigher you come to it, the more it is; it's a piece of hell and a piece of heaven; it's the wrastle of the angel and the dragon; and it's going on at one end, while they're building up their palaces and living soft and sweet and clean at the other, with everything hushed up that can't at least _seem_ right and nice and proper. I know there's good folks there, in the palaces; _beautiful_ folks; there, and all the way down between; with God's love in them, and His hate, that is holy, against sin; and His pity, that is _prayers_ in them, for all people and places that are dark; but if they would _come down_ there, and take hold! I think it's them that would, that might have part in the first resurrection, and live and reign the thousand years." Luclarion never counted herself among them,--those who were to have thrones and judgments; she forgot, even, that she had gone down and taken hold; her words came burning-true, out of her soul; and in the heat of truth they were eloquent. But I meant to tell you of her living. In the daytime it was quiet; the gross evils crept away and hid from the sunshine; there was labor to take up the hours, for those who did labor; and you might not know or guess, to go down those avenues, that anything worse gathered there than the dust of the world's traffic that the lumbering drays ground up continually with their wheels, and the wind,--that came into the city from far away country places of green sweetness, and over hills and ponds and streams and woods,--flung into the little children's faces. Luclarion had taken a house,--one of two, that fronted upon a little planked court; aside, somewhat, from Neighbor Street, as that was a slight remove from the absolute terrible contact of Arctic Street. But it was in the heart of that miserable quarter; she could reach out her hands and touch and gather in, if it would let her, the wretchedness. She had chosen a place where it was possible for her to make a nook of refuge, not for herself only, or so much, as for those to whom she would fain be neighbor, and help to a better living. It had been once a dwelling of some well-to-do family of the days gone by; of some merchant, whose ventures went out and came in at those wharves below, whence the air swept up pure, then, with its salt smell, into the streets. The rooms were fairly large; Luclarion spent money out of her own little property, that had been growing by care and saving till she could spare from it, in doing her share toward having it all made as sweet and clean as mortar and whitewash and new pine-boards and paint and paper could make it. All that was left of the old, they scoured with carbolic soap; and she had the windows opened, and in the chimneys that had been swept of their soot she had clear fires made and kept burning for days. Then she put her new, plain furnishings into her own two down-stairs rooms; and the Gallilees brought in theirs above; and beside them, she found two decent families,--a German paper-hanger's, and that of a carpenter at one of the theatres, whose wife worked at dressmaking,--to take the rest. Away up, at the very top, she had the wide, large room that Hazel spoke of, and a smaller one to which she climbed to sleep, for the sake of air as near heaven as it could be got. One of her lower-rooms was her living and housekeeping room; the other she turned into a little shop, in which she sold tapes and needles and cheap calicoes and a few ribbons; and kept a counter on the opposite side for bread and yeast, gingerbread, candy, and the like. She did this partly because she must do something to help out the money for her living and her plans, and partly to draw the women and children in. How else could she establish any relations between herself and them, or get any permanent hold or access? She had "turned it all over in her mind," she said; "and a tidy little shop with fair, easy prices, was the very thing, and a part of just what she came down there to do." She made real, honest, hop-raised bread, of sweet flour that she gave ten dollars a barrel for; it took a little more than a pint, perhaps, to make a tea loaf; that cost her three cents; she sold her loaf for four, and it was better than they could get anywhere else for five. Then, three evenings in a week, she had hot muffins, or crumpets, home-made; (it was the subtle home touch and flavor that she counted on, to carry more than a good taste into their mouths, even a dim notion of home sweetness and comfort into their hearts;) these first,--a quart of flour at five cents, two eggs at a cent apiece, and a bit of butter, say three cents more, with three cents worth of milk, made an outlay of fifteen cents for a dozen and a half; so she sold them for ten cents a dozen, and the like had never been tasted or dreamed of in all that region round about; no, nor I dare almost to say, in half the region round about Republic Avenue either, where they cannot get Luclarion Grapps to cook. The crumpets were cheaper; they were only bread-sponge, baked on a griddle; they were large, and light and tender; a quart of flour would make ten; she gave the ten for seven cents. And do you see, putting two cents on every quart of her flour, for her labor, she _earned_, not _made_,--that word is for speculators and brokers,--with a barrel of one hundred and ninety six pounds or quarts, three dollars and ninety-two cents? The beauty of it was, you perceive, that she did a small business; there was an eager market for all she could produce, and there was no waste to allow a margin for. I am not a bit of a political economist myself; but I have a shrewd suspicion that Luclarion Grapp was, besides having hit upon the initial, individual idea of a capital social and philanthropic enterprise. This was all she tried to do at first; she began with bread; the Lord from heaven began with that; she fed as much of the multitude as she could reach; they gathered about her for the loaves; and they got, consciously or unconsciously, more than they came or asked for. They saw her clean-swept floor; her netted windows that kept the flies out, the clean, coarse white cotton shades,--tacked up, and rolled and tied with cord, country-fashion, for Luclarion would not set any fashions that her poor neighbors might not follow if they would;--and her shelves kept always dusted down; they could see her way of doing that, as they happened in at different times, when she whisked about, lightly and nicely, behind and between her jars and boxes and parcels with the little feather duster that she kept hanging over her table where she made her change and sat at her sewing. They grew ashamed by degrees,--those coarse women,--to come in in their frowsy rags, to buy her delicate muffins or her white loaves; they would fling on the cleanest shawl they had or could borrow, to "cut round to Old Maid Grapp's," after a cent's worth of yeast,--for her yeast, also, was like none other that could be got, and would _almost_ make her own beautiful bread of itself. Back of the shop was her house-room; the cheapest and cleanest of carpet,--a square, bound round with bright-striped carpet-binding,--laid in the middle of a clean dark yellow floor; a plain pine table, scoured white, standing in the middle of that; on it, at tea-time, common blue and white crockery cups and plates, and a little black teapot; a napkin, coarse, but fresh from the fold, laid down to save, and at the same time to set off, with a touch of delicate neatness, the white table; a wooden settee, with a home-made calico-covered cushion and pillows, set at right angles with the large, black, speckless stove; a wooden rocking-chair, made comfortable in like manner, on the other side; the sink in the corner, clean, freshly rinsed, with the bright tin basin hung above it on a nail. There was nothing in the whole place that must not be, in some shape, in almost the poorest; but all so beautifully ordered, so stainlessly kept. Through that open door, those women read a daily sermon. And Luclarion herself,--in a dark cotton print gown, a plain strip of white about the throat,--even that was cotton, not linen, and two of them could be run together in ten minutes for a cent,--and a black alpacca apron, never soiled or crumpled, but washed and ironed when it needed, like anything else,--her hair smoothly gathered back under a small white half-handkerchief cap, plain-hemmed,--was the sermon alive; with the soul of it, the inner sweetness and purity, looking out at them from clear pleasant eyes, and lips cheery with a smile that lay behind them. She had come down there just to do as God told her to be a neighbor, and to let her light shine. He would see about the glorifying. She did not try to make money out of her candy, or her ginger-nuts; she kept those to entice the little children in; to tempt them to come again when they had once done an errand, shyly, or saucily, or hang-doggedly,--it made little difference which to her,--in her shop. "I'll tell you what it's like," Hazel said, when she came in and up-stairs the first Saturday afternoon with Desire, and showed and explained to her proudly all Luclarion's ways and blessed inventions. "It's like your mother and mine throwing crumbs to make the pigeons come, when they were little girls, and lived in Boston,--I mean _here_!" Hazel waked up at the end of her sentence, suddenly, as we all do sometimes, out of talking or thinking, to the consciousness that it was _here_ that she had mentally got round to. Desire had never heard of the crumbs or the pigeons. Mrs. Ledwith had always been in such a hurry, living on, that she never stopped to tell her children the sweet old tales of how she _had_ lived. Her child-life had not ripened in her as it had done in Frank. Desire and Hazel went up-stairs and looked at the empty room. It was light and pleasant; dormer windows opened out on a great area of roofs, above which was blue sky; upon which, poor clothes fluttered in the wind, or cats walked and stretched themselves safely and lazily in the sun. "I always _do_ like roofs!" said Hazel. "The nicest thing in 'Mutual Friend' is Jenny Wren up on the Jew's roof, being dead. It seems like getting up over the world, and leaving it all covered up and put away." "Except the old clothes," said Desire. "They're _washed_" answered Hazel, promptly; and never stopped to think of the meaning. Then she jumped down from the window, along under which a great beam made a bench to stand on, and looked about the chamber. "A swing to begin with," she said. "Why what is that? Luclarion's got one!" Knotted up under two great staples that held it, was the long loop of clean new rope; the notched board rested against the chimney below. "It's all ready! Let's go down and catch one! Luclarion, we've come to tea," she announced, as they reached the sitting-room. "There's the shop bell!" In the shop was a woman with touzled hair and a gown with placket split from gathers to hem, showing the ribs of a dirty skeleton skirt. A child with one garment on,--some sort of woolen thing that had never been a clean color, and was all gutter-color now,--the woman holding the child by the hand here, in a safe place, in a way these mothers have who turn their children out in the street dirt and scramble without any hand to hold. No wonder, though, perhaps; in the strangeness and unfitness of the safe, pure place, doubtless they feel an uneasy instinct that the poor little vagabonds have got astray, and need some holding. "Give us a four-cent loaf!" said the woman, roughly, her eyes lowering under crossly furrowed brows, as she flung two coins upon the little counter. Luclarion took down one, looked at it, saw that it had a pale side, and exchanged it for another. "Here is a nice crusty one," she said pleasantly, turning to wrap it in a sheet of paper. "None o' yer gammon! Give it here; there's your money; come along, Crazybug!" And she grabbed the loaf without a wrapper, and twitched the child. Hazel sat still. She knew there was no use. But Desire with her point-black determination, went right at the boy, took hold of his hand, dirt and all; it was disagreeable, therefore she thought she must do it. "Don't you want to come and swing?" she said. "---- yer swing! and yer imperdence! Clear out! He's got swings enough to home! Go to ----, and be ----, you ---- ---- ----!" Out of the mother's mouth poured a volley of horrible words, like a hailstorm of hell. Desire fell back, as from a blinding shock of she knew not what. Luclarion came round the counter, quite calmly. "Ma'am," she said, "those words won't hurt _her_. She don't know the language. But you've got God's daily bread in your hand; how can you talk devil's Dutch over it?" The woman glared at her. But she saw nothing but strong, calm, earnest asking in the face; the asking of God's own pity. She rebelled against that, sullenly; but she spoke no more foul words. I think she could as soon have spoken them in the face of Christ; for it was the Christ in Luclarion Grapp that looked out at her. "You needn't preach. You can order me out of your shop, if you like. I don't care." "I don't order you out. I'd rather you would come again. I don't think you will bring that street-muck with you, though." There was both confidence and command in the word like the "Neither do I condemn thee: go, and sin no more." It detached the street-muck from the woman. It was not _she_; it was defilement she had picked up, when perhaps she could not help it. She could scrape her shoes at the door, and come in clean. "You know a darned lot about it, I suppose!" were the last words of defiance; softened down, however, you perceive, to that which can be printed. Desire was pale, with a dry sob in her throat, when the woman had gone and Luclarion turned round. "The angels in heaven know; why shouldn't you?" said Luclarion. "That's what we've got to help." A child came in afterwards, alone; with an actual clean spot in the middle of her face, where a ginger-nut or an acid drop might go in. This was a regular customer of a week past. The week had made that clean spot; with a few pleasant and encouraging hints from Luclarion, administered along with the gingerbread. Now it was Hazel's turn. The round mouth and eyes, with expectation in them, were like a spot of green to Hazel, feeling with her witch-wand for a human spring. But she spoke to Desire, looking cunningly at the child. "Let us go back and swing," she said. The girl's head pricked itself up quickly. "We've got a swing up-stairs," said Hazel, passing close by, and just pausing. "A new one. I guess it goes pretty high; and it looks out of top windows. Wouldn't you like to come and see?" The child lived down in a cellar. "Take up some ginger-nuts, and eat them there," said Luclarion to Hazel. If it had not been for that, the girl would have hung back, afraid of losing her shop treat. Hazel knew better than to hold out her hand, at this first essay; she would do that fast enough when the time came. She only walked on, through the sitting-room, to the stairs. The girl peeped, and followed. Clean stairs. She had never trodden such before. Everything was strange and clean here, as she had never seen anything before in all her life, except the sky and the white clouds overhead. Heaven be thanked that they are held over us, spotless, always! Hazel heard the little feet, shuffling, in horrible, distorted shoes, after her, over the steps; pausing, coming slowly but still starting again, and coming on. Up on the high landing, under the skylight, she opened the door wide into the dormer-windowed room, and went in; she and Desire, neither of them looking round. Hazel got into the swing. Desire pushed; after three vibrations they saw the ragged figure standing in the doorway, watching, turning its head from side to side as the swing passed. "Almost!" cried Hazel, with her feet up at the window. "There!" She thrust them out at that next swing; they looked as if they touched the blue. "I can see over all the chimneys, and away off, down the water! Now let the old cat die." Out again, with a spring, as the swinging slackened, she still took no notice of the child, who would have run, like a wild kitten, if she had gone after her. She called Desire, and plunged into a closet under the eaves. "I wonder what's here!" she exclaimed. "Rats!" The girl in the doorway saw the dark, into which the low door opened; she was used to rats in the dark. "I don't believe it," says Hazel; "Luclarion has a cut, a great big buff one with green eyes. She came in over the roofs, and she runs up here nights. I shouldn't wonder if there might be kittens, though,--one of these days, at any rate. Why! what a place to play 'Dare' in! It goes way round, I don't know where! Look here, Desire!" She sat on the threshold, that went up a step, over the beam, and so leaned in. She had one eye toward the girl all the time, out of the shadow. She beckoned and nodded, and Desire came. At the same moment, the coast being clear, the girl gave a sudden scud across, and into the swing. She began to scuff with her slipshod, twisted shoes, pushing herself. Hazel gave another nod behind her to Desire. Desire stood up, and as the swing came back, pushed gently, touching the board only. The girl laughed out with the sudden thrill of the motion. Desire pushed again. Higher and higher, till the feet reached up to the window. "There!" she cried; and kicked an old shoe off, out over the roof. "I've lost my shoe!" "Never mind; it'll be down in the yard," said Hazel. Thereupon the child, at the height of her sweep again, kicked out the other one. Desire and Hazel, together, pushed her for a quarter of an hour. "Now let's have ginger-cakes," said Hazel, taking them out of her pocket, and leaving the "cat" to die. Little Barefoot came down at that, with a run; hanging to the rope at one side, and dragging, till she tumbled in a sprawl upon the floor. "You ought to have waited," said Desire. "Poh! I don't never wait!" cried the ragamuffin rubbing her elbows. "I don't care." "But it isn't nice to tumble round," suggested Hazel. "I _ain't_ nice," answered the child, and settled the subject. "Well, these ginger-nuts are," said Hazel. "Here!" "Have you had a good time?" she asked when the last one was eaten, and she led the way to go down-stairs. "Good time! That ain't nothin'! I've had a reg'lar bust! I'm comin' agin'; it's bully. Now I must get my loaf and my shoes, and go along back and take a lickin'." That was the way Hazel caught her first child. She made her tell her name,--Ann Fazackerley,--and promise to come on Saturday afternoon, and bring two more girls with her. "We'll have a party," said Hazel, "and play Puss in the Corner. But you must get leave," she added. "Ask your mother. I don't want you to be punished when you go home." "Lor! you're green! I ain't got no mother. An' I always hooks jack. I'm licked reg'lar when I gets back, anyway. There's half a dozen of 'em. When 'tain't one, it's another. That's Jane Goffey's bread; she's been a swearin' after it this hour, you bet. But I'll come,--see if I don't!" Hazel drew a hard breath as she let the girl go. Back to her crowded cellar, her Jane Goffeys, the swearings, and the lickings. What was one hour at a time, once or twice a week, to do against all this? But she remembered the clean little round in her face, out of which eyes and mouth looked merrily, while she talked rough slang; the same fun and daring,--nothing worse,--were in this child's face, that might be in another's saying prettier words. How could she help her words, hearing nothing but devil's Dutch around her all the time? Children do not make the language they are born into. And the face that could be simply merry, telling such a tale as that,--what sort of bright little immortality must it be the outlook of? Hazel meant to try her hour. * * * * * This is one of my last chapters. I can only tell you now they began,--these real folks,--the work their real living led them up to. Perhaps some other time we may follow it on. If I were to tell you now a finished story of it, I should tell a story ahead of the world. I can show you what six weeks brought it to. I can show you them fairly launched in what may grow to a beautiful private charity,--an "Insecution,"--a broad social scheme,--a millennium; at any rate, a life work, change and branch as it may, for these girls who have found out, in their girlhood, that there is genuine living, not mere "playing pretend," to be done in the world. But you cannot, in little books of three hundred pages, see things through. I never expected or promised to do that. The threescore years and ten themselves, do not do it. It turned into regular Wednesday and Saturday afternoons. Three girls at first, then six, then less again,--sometimes only one or two; until they gradually came up to and settled at, an average of nine or ten. The first Saturday they took them as they were. The next time they gave them a stick of candy each, the first thing, then Hazel's fingers were sticky, and she proposed the wash-basin all round, before they went up-stairs. The bright tin bowl was ready in the sink, and a clean round towel hung beside; and with some red and white soap-balls, they managed to fascinate their dirty little visitors into three clean pairs of hands, and three clean faces as well. The candy and the washing grew to be a custom; and in three weeks' time, watching for a hot day and having it luckily on a Saturday, they ventured upon instituting a whole bath, in big round tubs, in the back shed-room, where a faucet came in over a wash bench, and a great boiler was set close by. They began with a foot-paddle, playing pond, and sailing chips at the same time; then Luclarion told them they might have tubs full, and get in all over and duck, if they liked; and children who may hate to be washed, nevertheless are always ready for a duck and a paddle. So Luclarion superintended the bath-room; Diana helped her; and Desire and Hazel tended the shop. Luclarion invented a shower-bath with a dipper and a colander; then the wet, tangled hair had to be combed,--a climax which she had secretly aimed at with a great longing, from the beginning; and doing this, she contrived with carbolic soap and a separate suds, and a bit of sponge, to give the neglected little heads a most salutary dressing. Saturday grew into bath-day; soap-suds suggested bubbles; and the ducking and the bubbling were a frolic altogether. Then Hazel wished they could be put into clean clothes each time; wouldn't it do, somehow? But that would cost. Luclarion had come to the limit of her purse; Hazel had no purse, and Desire's was small. "But you see they've _got_ to have it," said Hazel; and so she went to her mother, and from her straight to Uncle Oldways. They counted up,--she and Desire, and Diana; two little common suits, of stockings, underclothes, and calico gowns, apiece; somebody to do a washing once a week, ready for the change; and then--"those horrid shoes!" "I don't see how you can do it," said Mrs. Ripwinkley. "The things will be taken away from them, and sold. You would have to keep doing, over and over, to no purpose, I am afraid." "I'll see to that," said Luclarion, facing her "stump." "We'll do for them we can do for; if it ain't ones, it will be tothers. Those that don't keep their things, can't have 'em; and if they're taken away, I won't sell bread to the women they belong to, till they're brought back. Besides, the _washing_ kind of sorts 'em out, beforehand. 'Taint the worst ones that are willing to come, or to send, for that. You always have to work in at an edge, in anything, and make your way as you go along. It'll regulate. I'm _living_ there right amongst 'em; I've got a clew, and a hold; I can follow things up; I shall have a 'circle;' there's circles everywhere. And in all the wheels there's a moving _spirit_; you ain't got to depend just on yourself. Things work; the Lord sees to it; it's _His_ business as much as yours." Hazel told Uncle Titus that there were shoes and stockings and gowns wanted down in Neighbor Street; things for ten children; they must have subscriptions. And so she had come to him. The Ripwinkleys had never given Uncle Titus a Christmas or a birthday present, for fear they should seem to establish a mutual precedent. They had never talked of their plans which involved calculation, before him; they were terribly afraid of just one thing with him, and only that one,--of anything most distantly like what Desire Ledwith called "a Megilp bespeak." But now Hazel went up to him as bold as a lion. She took it for granted he was like other people,--"real folks;" that he would do--what must be done. "How much will it cost?" "For clothes and shoes for each child, about eight dollars for three months, we guess," said Hazel. "Mother's going to pay for the washing!" "_Guess_? Haven't you calculated?" "Yes, sir. 'Guess' and 'calculate' mean the same thing in Yankee," said Hazel, laughing. Uncle Titus laughed in and out, in his queer way, with his shoulders going up and down. Then he turned round, on his swivel chair, to his desk, and wrote a check for one hundred dollars. "There. See how far you can make that go." "That's good," said Hazel, heartily, looking at it; "that's splendid!" and never gave him a word of personal thanks. It was a thing for mutual congratulations, rather, it would seem; the "good" was just what they all wanted, and there it was. Why should anybody in particular be thanked, as if anybody in particular had asked for anything? She did not say this, or think it; she simply did not think about it at all. And Uncle Oldways--again--liked it. There! I shall not try, now, to tell you any more; their experiences, their difficulties, their encouragements, would make large material for a much larger book. I want you to know of the idea, and the attempt. If they fail, partly,--if drunken fathers steal the shoes, and the innocent have to forfeit for the guilty,--if the bad words still come to the lips often, though Hazel tells them they are not "nice,"--and beginning at the outside, they are in a fair way of learning the niceness of being nice,--if some children come once or twice, and get dressed up, and then go off and live in the gutters again until the clothes are gone,--are these real failures? There is a bright, pure place down there in Neighbor Street, and twice a week some little children have there a bright, pure time. Will this be lost in the world? In the great Ledger of God will it always stand unbalanced on the debit side? If you are afraid it will fail,--will be swallowed up in the great sink of vice and misery, like a single sweet, fresh drop, sweet only while it is falling,--go and do likewise; rain down more; make the work larger, stronger; pour the sweetness in faster, till the wide, grand time of full refreshing shall have come from the presence of the Lord! Ada Geoffrey went down and helped. Miss Craydocke is going to knit scarlet stockings all winter for them; Mr. Geoffrey has put a regular bath-room in for Luclarion, with half partitions, and three separate tubs; Mrs. Geoffrey has furnished a dormitory, where little homeless ones can be kept to sleep. Luclarion has her hands full, and has taken in a girl to help her, whose board and wages Rachel Froke and Asenath Scherman pay. A thing like that spreads every way; you have only to be among, and one of--Real Folks. * * * * * Desire, besides her work in Neighbor Street, has gone into the Normal School. She wants to make herself fit for any teaching; she wants also to know and to become a companion of earnest, working girls. She told Uncle Titus this, after she had been with him a month, and had thought it over; and Uncle Titus agreed, quite as if it were no real concern of his, but a very proper and unobjectionable plan for her, if she liked it. One day, though, when Marmaduke Wharne--who had come this fall again to stay his three days, and talk over their business,--sat with him in his study, just where they had sat two years and a little more ago, and Hazel and Desire ran up and down stairs together, in and out upon their busy Wednesday errands,--Marmaduke said to Titus,-- "Afterwards is a long time, friend; but I mistrust you have found the comfort, as well as the providence, of 'next of kin?'" "Afterwards _is_ a long time," said Titus Oldways, gravely; "but the Lord's line of succession stretches all the way through." And that same night he had his other old friend, Miss Craydocke, in; and he brought two papers that he had ready, quietly out to be signed, each with four names: "Titus Oldways," by itself, on the one side; on the other,-- "RACHEL FROKE, MARMADUKE WHARNE, KEREN-HAPPUCH CRAYDOCKE." And one of those two papers--which are no further part of the present story, seeing that good old Uncle Titus is at this moment alive and well, as he has a perfect right, and is heartily welcome to be, whether the story ever comes to a regular winding up or not--was laid safely away in a japanned box in a deep drawer of his study table; and Marmaduke Wharne put the other in his pocket. He and Titus knew. I myself guess, and perhaps you do; but neither you nor I, nor Rachel, nor Keren-happuch, know for certain; and it is no sort of matter whether we do or not. The "next of kin" is a better and a deeper thing than any claim of law or register of bequest can show. Titus Oldways had found that out; and he had settled in his mind, to his restful and satisfied belief, that God, to the last moment of His time, and the last particle of His created substance, can surely care for and order and direct His own. Is that end and moral enough for a two years' watchful trial and a two years' simple tale? XXI. THE HORSESHOE. They laid out the Waite Place in this manner:-- Right into the pretty wooded pasture, starting from a point a little way down the road from the old house, they projected a roadway which swept round, horseshoe fashion, till it met itself again within a space of some twenty yards or so; and this sweep made a frontage--upon its inclosed bit of natural, moss-turfed green, sprinkled with birch and pine and oak trees, and with gray out-croppings of rock here and there--for the twenty houses, behind which opened the rest of the unspoiled, irregular, open slope and swell and dingle of the hill-foot tract that dipped down at one reach, we know, to the river. The trees, and shrubs, and vines, and ferns, and stones, were left in their wild prettiness; only some roughness of nature's wear and tear of dead branches and broken brushwood, and the like, were taken away, and the little footpaths cleared for pleasant walking. There were all the little shady, sweet-smelling nooks, just as they had been; all the little field-parlors, opening with their winding turns between bush and rock, one into another. The twenty households might find twenty separate places, if they all wanted to take a private out-door tea at once. The cellars were dug; the frames were up; workmen were busy with brick and mortar, hammer and plane; two or three buildings were nearly finished, and two--the two standing at the head of the Horseshoe, looking out at the back into the deepest and pleasantest wood-aisle, where the leaves were reddening and mellowing in the early October frost, and the ferns were turning into tender transparent shades of palest straw-color--were completed, and had dwellers in them; the cheeriest, and happiest, and coziest of neighbors; and who do you think these were? Miss Waite and Delia, of course, in one house; and with them, dividing the easy rent and the space that was ample for four women, were Lucilla Waters and her mother. In the other, were Kenneth and Rosamond Kincaid and Dorris. Kenneth and Rosamond had been married just three weeks. Rosamond had told him she would begin the world with him, and they had begun. Begun in the simple, true old-fashioned way, in which, if people only would believe it, it is even yet not impossible for young men and women to inaugurate their homes. They could not have had a place at Westover, and a horse and buggy for Kenneth to go back and forth with; nor even a house in one of the best streets of Z----; and down at East Square everything was very modern and pretentious, based upon the calculation of rising values and a rush of population. But here was this new neighborhood of--well, yes,--"model houses;" a blessed Christian speculation for a class not easily or often reached by any speculations save those that grind and consume their little regular means, by forcing upon them the lawless and arbitrary prices of the day, touching them at every point in their _living_, but not governing correspondingly their income, as even the hod-carrier's and railroad navvy's daily pay is reached and ruled to meet the proportion of the time. They would be plain, simple, little-cultured people that would live there: the very "betwixt and betweens" that Rosamond had used to think so hardly fated. Would she go and live among them, in one of these little new, primitive homes, planted down in the pasture-land, on the outskirts? Would she--the pretty, graceful, elegant Rosamond--live semi-detached with old Miss Arabel Waite? That was just exactly the very thing she would do; the thing she did not even let Kenneth think of first, and ask her, but that, when they had fully agreed that they would begin life somehow, in some right way together, according to their means, she herself had questioned him if they might not do. And so the houses were hurried in the building; for old Miss Arabel must have hers before the winter; (it seems strange how often the change comes when one could not have waited any longer for it;) and Kenneth had mill building, and surveying, and planning, in East Square, and Mr. Roger Marchbanks' great gray-stone mansion going up on West Hill, to keep him busy; work enough for any talented young fellow, fresh from the School of Technology, who had got fair hold of a beginning, to settle down among and grasp the "next things" that were pretty sure to follow along after the first. Dorris has all Ruth's music scholars, and more; for there has never been anybody to replace Miss Robbyns, and there are many young girls in Z----, and down here in East Square, who want good teaching and cannot go away to get it. She has also the organ-playing in the new church. She keeps her morning hours and her Saturdays to help Rosamond; for they are "coöperating" here, in the new home; what was the use, else, of having coöperated in the old? Rosamond cannot bear to have any coarse, profane fingers laid upon her little household gods,--her wedding-tins and her feather dusters,--while the first gloss and freshness are on, at any rate; and with her dainty handling, the gloss is likely to last a long while. Such neighbors, too, as the Waites and Waterses are! How they helped in the fitting up, running in in odd half hours from their own nailing and placing, which they said could wait awhile, since they weren't brides; and such real old times visiting as they have already between the houses; coming and taking right hold, with wiping up dinner plates as likely as not, if that is the thing in hand; picking up what is there, as easily as "the girls" used to help work out some last new pattern of crochet, or try over music, or sort worsteds for gorgeous affghans for the next great fair! Miss Arabel is apt to come in after dinner, and have a dab at the plates; she knows she interrupts nothing then; and she "has never been used to sitting talking, with gloves on and a parasol in her lap." And now she has given up trying to make impossible biases, she has such a quantity of time! It was the matter of receiving visits from her friends who _did_ sit with their parasols in their laps, or who only expected to see the house, or look over wedding presents, that would be the greatest hindrance, Rosamond realized at once; that is, if she would let it; so she did just the funniest thing, perhaps, that ever a bride did do: she set her door wide open from her pretty parlor, with its books and flowers and pictures and window-draperies of hanging vines, into the plain, cozy little kitchen, with its tin pans and bright new buckets and its Shaker chairs; and when she was busy there, asked her girl-friends right in, as she had used to take them up into her bedroom, if she were doing anything pretty or had something to show. And they liked it, for the moment, at any rate; they could not help it; they thought it was lovely; a kind of bewitching little play at keeping house; though some of them went away and wondered, and said that Rosamond Holabird had quite changed all her way of living and her position; it was very splendid and strong-minded, they supposed; but they never should have thought it of her, and of course she could not keep it up. "And the neighborhood!" was the cry. "The rabble she has got, and is going to have, round her! All planks and sand, and tubs of mortar, now; you have to half break your neck in getting up there; and when it is settled it will be--such a frowze of common people! Why the foreman of our factory has engaged a house, and Mrs. Haslam, who actually used to do up laces for mamma, has got another!" That is what is said--in some instances--over on West Hill, when the elegant visitors came home from calling at the Horseshoe. Meanwhile, what Rosamond does is something like this, which she happened to do one bright afternoon a very little while ago. She and Dorris had just made and baked a charming little tea-cake, which was set on a fringed napkin in a round white china dish, and put away in the fresh, oak-grained kitchen pantry, where not a crumb or a slop had ever yet been allowed to rest long enough to defile or give a flavor of staleness; out of which everything is tidily used up while it is nice, and into which little delicate new-made bits like this, for next meals, are always going. The tea-table itself,--with its three plates, and its new silver, and the pretty, thin, shallow cups and saucers, that an Irish girl would break a half-dozen of every week,--was laid with exquisite preciseness; the square white napkins at top and bottom over the crimson cloth, spread to the exactness of a line, and every knife and fork at fair right angles; the loaf was upon the white carved trencher, and nothing to be done when Kenneth should come in, but to draw the tea, and bring the brown cake forth. Rosamond will not leave all these little doings to break up the pleasant time of his return; she will have her leisure then, let her be as busy as she may while he is away. There was an hour or more after all was done; even after the Panjandrums had made their state call, leaving their barouche at the heel of the Horseshoe, and filling up all Rosamond's little vestibule with their flounces, as they came in and went out. The Panjandrums were new people at West Hill; very new and very grand, as only new things and new people can be, turned out in the latest style pushed to the last agony. Mrs. Panjandrum's dress was all in two shades of brown, to the tips of her feathers, and the toes of her boots, and the frill of her parasol; and her carriage was all in two shades of brown, likewise; cushions, and tassels, and panels; the horses themselves were cream-color, with dark manes and tails. Next year, perhaps, everything will be in pansy-colors,--black and violet and gold; and then she will probably have black horses with gilded harness and royal purple tails. It was very good of the Panjandrums, doubtless, to come down to the Horseshoe at all; I am willing to give them all the credit of really admiring Rosamond, and caring to see her in her little new home; but there are two other things to be considered also: the novel kind of home Rosamond had chosen to set up, and the human weakness of curiosity concerning all experiments, and friends in all new lights; also the fact of that other establishment shortly to branch out of the Holabird connection. The family could not quite go under water, even with people of the Panjandrum persuasion, while there was such a pair of prospective corks to float them as Mr. and Mrs. Dakie Thayne. The Panjandrum carriage had scarcely bowled away, when a little buggy and a sorrel pony came up the road, and somebody alighted with a brisk spring, slipped the rein with a loose knot through the fence-rail at the corner, and came up one side of the two-plank foot-walk that ran around the Horseshoe; somebody who had come home unexpectedly, to take his little wife to ride. Kenneth Kincaid had business over at the new district of "Clarendon Park." Drives, and livery-stable bills, were no part of the items allowed for, in the programme of these young people's living; therefore Rosamond put on her gray hat, with its soft little dove's breast, and took her bright-striped shawl upon her arm, and let Kenneth lift her into the buggy--for which there was no manner of need except that they both liked it,--with very much the feeling as if she were going off on a lovely bridal trip. They had had no bridal trip, you see; they did not really want one; and this little impromptu drive was such a treat! Now the wonders of nature and the human mind show--if I must go so far to find an argument for the statement I am making--that into a single point of time or particle of matter may be gathered the relations of a solar system or the experiences of a life; that a universe may be compressed into an atom, or a molecule expanded into a macrocosm; therefore I expect nobody to sneer at my Rosamond as childishly nappy in her simple honeymoon, or at me for making extravagant and unsupported assertions, when I say that this hour and a half, and these four miles out to Clarendon Park and back,--the lifting and the tucking in, and the setting off, the sitting side by side in the ripe October air and the golden twilight, the noting together every pretty turn, every flash of autumn color in the woods, every change in the cloud-groupings overhead, every glimpse of busy, bright-eyed squirrels up and down the walls, every cozy, homely group of barnyard creatures at the farmsteads, the change, the pleasure, the thought of home and always-togetherness,--all this made the little treat of a country ride as much to them, holding all that any wandering up and down the whole world in their new companionship could hold,--as a going to Europe, or a journey to mountains and falls and sea-sides and cities, in a skimming of the States. You cannot have more than there is; and you do not care, for more than just what stands for and emphasizes the essential beauty, the living gladness, that no _place_ gives, but that hearts carry about into places and baptize them with, so that ever afterward a tender charm hangs round them, because "we saw it _then_." And Kenneth and Rosamond Kincaid had all these bright associations, these beautiful glamours, these glad reminders, laid up for years to come, in a four miles space that they might ride or walk over, re-living it all, in the returning Octobers of many other years. I say they had a bridal tour that day, and that the four miles were as good as four thousand. Such little bits of signs may stand for such high, great, blessed things! "How lovely stillness and separateness are!" said Rosamond as they sat in the buggy, stopping to enjoy a glimpse of the river on one side, and a flame of burning bushes on the other, against the dark face of a piece of woods that held the curve of road in which they stood, in sheltered quiet. "How pretty a house would be, up on that knoll. Do you know things puzzle me a little, Kenneth? I have almost come to a certain conclusion lately, that people are not meant to live apart, but that it is really everybody's duty to live in a town, or a village, or in some gathering of human beings together. Life tends to that, and all the needs and uses of it; and yet,--it is so sweet in a place like this,--and however kind and social you may be, it seems once in a while such an escape! Do you believe in beautiful country places, and in having a little piece of creation all to yourself, if you can get it, or if not what do you suppose all creation is made for?" "Perhaps just that which you have said, Rose." Rosamond has now, what her mother hinted once, somebody to call her "Rose," with a happy and beautiful privilege. "Perhaps to escape into. Not for one, here and there, selfishly, all the time; but for the whole, with fair share and opportunity. Creation is made very big, you see, and men and women are made without wings, and with very limited hands and feet. Also with limited lives; that makes the time-question, and the hurry. There is a suggestion,--at any rate, a necessity,--in that. It brings them within certain spaces, always. In spite of all the artificial lengthening of railroads and telegraphs, there must still be centres for daily living, intercourse, and need. People tend to towns; they cannot establish themselves in isolated independence. Yet packing and stifling are a cruelty and a sin. I do not believe there ought to be any human being so poor as to be forced to such crowding. The very way we are going to live at the Horseshoe, seems to me an individual solution of the problem. It ought to come to pass that our towns should be built--and if built already, wrongly, _thinned out_,--on this principle. People are coming to learn a little of this, and are opening parks and squares in the great cities, finding that there must be room for bodies and souls to reach out and breathe. If they could only take hold of some of their swarming-places, where disease and vice are festering, and pull down every second house and turn it into a garden space, I believe they would do more for reform and salvation than all their separate institutions for dealing with misery after it is let grow, can ever effect." "O, why _can't_ they?" cried Rose. "There is money enough, somewhere. Why can't they do it, instead of letting the cities grow horrid, and then running away from it themselves, and buying acres and acres around their country places, for fear somebody should come too near, and the country should begin to grow horrid too?" "Because the growing and the crowding and the striving of the city _make_ so much of the money, little wife! Because to keep everybody fairly comfortable as the world goes along, there could not be so many separate piles laid up; it would have to be used more as it comes, and it could not come so fast. If nobody cared to be very rich, and all were willing to live simply and help one another, in little 'horseshoe neighborhoods,' there wouldn't be so much that looks like grand achievement in the world perhaps; but I think maybe the very angels might show themselves out of the unseen, and bring the glory of heaven into it!" Kenneth's color came, and his eyes glowed, as he spoke these words that burst into eloquence with the intensity of his meaning; and Rosamond's face was holy-pale, and her look large, as she listened; and they were silent for a minute or so, as the pony, of his own accord, trotted deliberately on. "But then, the beauty, and the leisure, and all that grows out of them to separate minds, and what the world gets through the refinement of it! You see the puzzle comes back. Must we never, in this life, gather round us the utmost that the world is capable of furnishing? Must we never, out of this big creation, have the piece to ourselves, each one as he would choose?" "I think the Lord would show us a way out of that," said Kenneth. "I think He would make His world turn out right, and all come to good and sufficient use, if we did not put it in a snarl. Perhaps we can hardly guess what we might grow to all together,--'the whole body, fitly joined by that which every joint supplieth, increasing and building itself up in love.' And about the quietness, and the separateness,--we don't want to _live_ in that, Rose; we only want it sometimes, to make us fitter to live. When the disciples began to talk about building tabernacles on the mountain of the vision, Christ led them straight down among the multitude, where there was a devil to be cast out. It is the same thing in the old story of the creation. God worked six days, and rested one." "Well," said Rose, drawing a deep breath, "I am glad we have begun at the Horseshoe! It was a great escape for me, Kenneth. I am such a worldly girl in my heart. I should have liked so much to have everything elegant and artistic about me." "I think you do. I think you always will. Not because of the worldliness in you, though; but the _other_-worldliness, the sense of real beauty and truth. And I am glad that we have begun at all! It was a greater escape for me. I was in danger of all sorts of hardness and unbelief. I had begun to despise and hate things, because they did not work rightly just around me. And then I fell in, just in time, with some real, true people; and then you came, with the 'little piece of your world,' and then I came here, and saw what your world was, and how you were making it, Rose! How a little community of sweet and generous fellowship was crystallizing here among all sorts--outward sorts--of people; a little community of the kingdom; and how you and yours had done it." "O, Kenneth! I was the worst little atom in the whole crystal! I only got into my place because everybody else did, and there was nothing else left for me to do." "You see I shall never believe that," said Kenneth, quietly. "There is no flaw in the crystal. You were all polarized alike. And besides, can't I see daily just how your nature draws and points?" "Well, never mind," said Rose. "Only some particles are natural magnets, I believe, and some get magnetized by contact. Now that we have hit upon this metaphor, isn't it funny that our little social experiment should have taken the shape of a horseshoe?" "The most sociable, because the most magnetic, shape it could take. You will see the power it will develop. There's a great deal in merely taking form according to fundamental principles. Witness the getting round a fireside. Isn't that a horseshoe? And could half as much sympathy be evolved from a straight line?" "I believe in firesides," said Rose. "And in women who can organize and inform them," said Kenneth. "First, firesides; then neighborhoods; that is the way the world's life works out; and women have their hands at the heart of it. They can do so much more there than by making the laws! When the life is right, the laws will make themselves, or be no longer needed. They are such mere outside patchwork,--makeshifts till a better time!" "Wrong living must make wrong laws, whoever does the voting," said Rosamond, sagely. "False social standards make false commercial ones; inflated pretensions demand inflated currency; selfish, untrue domestic living eventuates in greedy speculations and business shams; and all in the intriguing for corrupt legislation, to help out partial interests. It isn't by multiplying the voting power, but by purifying it, that the end is to be reached." "That is so sententious, Kenneth, that I shall have to take it home and ravel it out gradually in my mind in little shreds. In the mean while, dear, suppose we stop in the village, and get some little brown-ware cups for top-overs. You never ate any of my top-overs? Well, when you do, you'll say that all the world ought to be brought up on top-overs." Rosamond was very particular about her little brown-ware cups. They had to be real stone,--brown outside, and gray-blue in; and they must be of a special size and depth. When they were found, and done up in a long parcel, one within another, in stout paper, she carried it herself to the chaise, and would scarcely let Kenneth hold it while she got in; after which, she laid it carefully across her lap, instead of putting it behind upon the cushion. 'You see they were rather dear; but they are the only kind worth while. Those little yellow things would soak and crack, and never look comfortable in the kitchen-closet. I give you very fair warning, I shall always want the best of things but then I shall take very fierce and jealous care of them,--like this.' And she laid her little nicely-gloved hand across her homely parcel, guardingly. How nice it was to go buying little homely things together! Again, it was as good and pleasant,--and meant ever so much more,--than if it had been ordering china with a monogram in Dresden, or glass in Prague, with a coat-of-arms engraved. When they drove up to the Horseshoe, Dakie Thayne and Ruth met them. They had been getting "spiritual ferns" and sumach leaves with Dorris; "the dearest little tips," Ruth said, "of scarlet and carbuncle, just like jets of fire." And now they would go back to tea, and eat up the brown cake? "Real Westover summum-bonum cake?" Dakie wanted to know. "Well, he couldn't stand against that. Come, Ruthie!" And Ruthie came. "What do you think Rosamond says?" said Kenneth, at the tea-table, over the cake. "That everybody ought to live in a city or a village, or, at least, a Horseshoe. She thinks nobody has a right to stick his elbows out, in this world. She's in a great hurry to be packed as closely as possible here." "I wish the houses were all finished, and our neighbors in; that is what I said," said Rosamond. "I should like to begin to know about them, and feel settled; and to see flowers in their windows, and lights at night." "And you always hated so a 'little crowd!'" said Ruth. "It isn't a crowd when they _don't_ crowd," said Rosamond. "I can't bear little miserable jostles." "How good it will be to see Rosamond here, at the head of her court; at the top of the Horseshoe," said Dakie Thayne. "She will be quite the 'Queen of the County.'" "Don't!" said Rosamond. "I've a very weak spot in my head. You can't tell the mischief you might do. No, I won't be queen!" "Any more than you can help," said Dakie. "She'll be Rosa Mundi, wherever she is," said Ruth affectionately. "I think that is just grand of Kenneth and Rosamond," said Dakie Thayne, as he and Ruth were walking home up West Hill in the moonlight, afterward. "What do you think you and I ought to do, one of these days, Ruthie? It sets me to considering. There are more Horseshoes to make, I suppose, if the world is to jog on." "_You_ have a great deal to consider about," said Ruth, thoughtfully. "It was quite easy for Kenneth and Rosamond to see what they ought to do. But you might make a great many Horseshoes,--or something!" "What do you mean by that second person plural, eh? Are you shirking your responsibilities, or are you addressing your imaginary Boffinses? Come, Ruthie, I can't have that! Say 'we,' and I'll face the responsibilities and talk it all out; but I won't have anything to do with 'you!'" "Won't you?" said Ruth, with piteous demureness. "How can I say 'we,' then?" "You little cat! How you can scratch!" "There are such great things to be done in the world Dakie," Ruth said seriously, when they had got over that with a laugh that lifted her nicely by the "we" question. "I can't help thinking of it." "O," said Dakie, with significant satisfaction. "We're getting on better. Well?" "Do you know what Hazel Ripwinkley is doing? And what Luclarion Grapp has done? Do you know how they are going among poor people, in dreadful places,--really living among them, Luclarion is,--and finding out, and helping, and showing how? I thought of that to-night, when they talked about living in cities and villages. Luclarion has gone away down to the very bottom of it. And somehow, one can't feel satisfied with only reaching half-way, when one knows--and might!" "Do you mean, Ruthie, that you and I might go and _live_ in such places? Do you think I could take you there?" "I don't know, Dakie," Ruth answered, forgetting in her earnestness, to blush or hesitate for what he said;--"but I feel as if we ought to reach down, somehow,--_away_ down! Because that, you see, is the _most_. And to do only a little, in an easy way, when we are made so strong to do; wouldn't it be a waste of power, and a missing of the meaning? Isn't it the 'much' that is required of us, Dakie?" They were under the tall hedge of the Holabird "parcel of ground," on the Westover slope, and close to the home gates. Dakie Thayne put his arm round Ruth as she said that, and drew her to him. "We will go and be neighbors somewhere, Ruthie. And we will make as big a Horseshoe as we can." XXII. MORNING GLORIES. And Desire? Do you think I have passed her over lightly in her troubles? Or do you think I am making her out to have herself passed over them lightly? Do you think it is hardly to be believed that she should have turned round from these shocks and pains that bore down so heavily and all at once upon her, and taken kindly to the living with old Uncle Titus and Rachel Froke in the Greenley Street house, and going down to Luclarion Grapp's to help wash little children's faces, and teach them how to have innocent good times? Do you think there is little making up in all that for her, while Rosamond Kincaid is happy in her new home, and Ruth and Dakie Thayne are looking out together over the world,--which can be nowhere wholly sad to them, since they are to go down into it together,--and planning how to make long arms with their wealth, to reach the largest neighborhood they can? In the first place, do you know how full the world is, all around you, of things that are missed by those who say nothing, but go on living somehow without them? Do you know how large a part of life, even young life, is made of the days that have never been lived? Do you guess how many girls, like Desire, come near something that they think they might have had, and then see it drift by just beyond their reach, to fall easily into some other hand that seems hardly put out to grasp it? And do you see, or feel, or guess how life goes on, incompleteness and all, and things settle themselves one way, if not another, simply because the world does not stop, but keeps turning, and tossing off days and nights like time-bubbles just the same? Do you ever imagine how different this winter's parties are from last, or this summer's visit or journey from those of the summer gone,--to many a maiden who has her wardrobe made up all the same, and takes her German or her music lessons, and goes in and out, and has her ticket to the Symphony Concerts, and is no different to look at, unless perhaps with a little of the first color-freshness gone out of her face,--while secretly it seems to her as if the sweet early symphony of her life were all played out, and had ended in a discord? We begin, most of us, much as we are to go on. Real or mistaken, the experiences of eighteen initiate the lesson that those of two and three score after years are needed to unfold and complete. What is left of us is continually turning round, perforce, to take up with what is left of the world, and make the best of it. Thus much for what does happen, for what we have to put up with, for the mere philosophy of endurance, and the possibility of things being endured. We do live out our years, and get and bear it all. And the scars do not show much outside; nay, even we ourselves can lay a finger on the place, after a little time, without a cringe. Desire Ledwith did what she had to do; there was a way made for her, and there was still life left. But there is a better reading of the riddle. There is never a "Might-have-been" that touches with a sting, but reveals also to us an inner glimpse of the wide and beautiful "May Be." It is all there; somebody else has it now while we wait; but the years of God are full of satisfying, each soul shall have its turn; it is His good _pleasure_ to give us the kingdom. There is so much room, there are such thronging possibilities, there is such endless hope! To feel this, one must feel, however dimly, the inner realm, out of which the shadows of this life come and pass, to interpret to us the laid up reality. "The real world is the inside world." Desire Ledwith blessed Uncle Oldways in her heart for giving her that word. It comforted her for her father. If his life here had been hard, toilsome, mistaken even; if it had never come to that it might have come to; if she, his own child, had somehow missed the reality of him here, and he of her,--was he not passed now into the within? Might she not find him there; might they not silently and spiritually, without sign, but needing no sign, begin to understand each other now? Was not the real family just beginning to be born into the real home? Ah, that word _real_! How deep we have to go to find the root of it! It is fast by the throne of God; in the midst. Hazel Ripwinkley talked about "real folks." She sifted, and she found out instinctively the true livers, the genuine _neahburs_, nigh-dwellers; they who abide alongside in spirit, who shall find each other in the everlasting neighborhood, when the veil falls. But there, behind,--how little, in our petty outside vexations or gladnesses, we stop to think of or perceive it!--is the actual, even the present, inhabiting; there is the kingdom, the continuing city, the real heaven and earth in which we already live and labor, and build up our homes and lay up our treasure and the loving Christ, and the living Father, and the innumerable company of angels, and the unseen compassing about of friends gone in there, and they on this earth who truly belong to us inwardly, however we and they may be bodily separated,--are the Real Folks! What matters a little pain, outside? Go _in_, and rest from it! There is where the joy is, that we read outwardly, spelling by parts imperfectly, in our own and others' mortal experience; there is the content of homes, the beauty of love, the delight of friendship,--not shut in to any one or two, but making the common air that all souls breathe. No one heart can be happy, that all hearts may not have a share of it. Rosamond and Kenneth, Dakie and Ruth, cannot live out obviously any sweetness of living, cannot sing any notes of the endless, beautiful score, that Desire Ledwith, and Luclarion Grapp, and Rachel Froke, and Hapsie Craydocke, and old Miss Arabel Waite, do not just as truly get the blessed grace and understanding of; do not catch and feel the perfect and abounding harmony of. Since why? No lip can sound more than its own few syllables of music; no life show more than its own few accidents and incidents and groupings; the vast melody, the rich, eternal satisfying, are behind; and the signs are for us all! You may not think this, or see it so, in your first tussle and set-to with the disappointing and eluding things that seem the real and only,--missing which you miss all. This chapter may be less to you--less _for_ you, perhaps--than for your elders; the story may have ended, as to that you care for, some pages back; but for all that, this is certain; and Desire Ledwith has begun to find it, for she is one of those true, grand spirits to whom personal loss or frustration are most painful as they seem to betoken something wrong or failed in the general scheme and justice. This terrible "why should it be?" once answered,--once able to say to themselves quietly, "It is all right; the beauty and the joy are there; the song is sung, though we are of the listeners; the miracle-play is played, though but a few take literal part, and many of us look on, with the play, like the song, moving through our souls only, or our souls moving in the vital sphere of it, where the stage is wide enough for all;"--once come to this, they have entered already into that which is behind, and nothing of all that goes forth thence into the earth to make its sunshine can be shut off from them forever. Desire is learning to be glad, thinking of Kenneth and Rosamond, that this fair marriage should have been. It is so just and exactly best; Rosamond's sweet graciousness is so precisely what Kenneth's sterner way needed to have shine upon it; her finding and making of all manner of pleasantness will be so good against his sharp discernment of the wrong; they will so beautifully temper and sustain each other! Desire is so generous, so glad of the truth, that she can stand aside, and let this better thing be, and say to herself that it _is_ better. Is not this that she is growing to inwardly, more blessed than any marriage or giving in marriage? Is it not a partaking of the heavenly Marriage Supper? "We two might have grumbled at the world until we grumbled at each other." She even said that, calmly and plainly, to herself. And then that manna was fed to her afresh of which she had been given first to eat so long a while ago; that thought of "the Lamb in the midst of the Throne" came back to her. Of the Tenderness deep within the Almightiness that holds all earth and heaven and time and circumstance in its grasp. Her little, young, ignorant human heart begins to rest in that great warmth and gentleness; begins to be glad to wait there for what shall arise out of it, moving the Almightiness for her,--even on purpose for her,--in the by-and-by; she begins to be sure; of what, she knows not,--but of a great, blessed, beautiful something, that just because she is at all, shall be for her; that she shall have a part, somehow, even in the _showing_ of His good; that into the beautiful miracle-play she shall be called, and a new song be given her, also, to sing in the grand, long, perfect oratorio; she begins to pray quietly, that, "loving the Lord, always above all things, she may obtain His promises, which exceed all that she can desire." And waiting, resting, believing, she begins also to work. This beginning is even as an ending and forehaving, to any human soul. I will tell you how she woke one morning; of a little poem that wrote itself along her chamber wall. It was a square, pleasant old room, with a window in an angle toward the east. A great, old-fashioned mirror hung opposite, between the windows that looked out north-westwardly; the morning and the evening light came in upon her. Beside the solid, quaint old furnishings of a long past time, there were also around her the things she had been used to at home; her own little old rocking-chair, her desk and table, and her toilet and mantel ornaments and things of use. A pair of candle-branches with dropping lustres,--that she had marveled at and delighted in as a child, and had begged for herself when they fell into disuse in the drawing-room,--stood upon the chimney along which the first sun-rays glanced. Just in those days of the year, they struck in so as to shine level through the clear prisms, and break into a hundred little rainbows. She opened her eyes, this fair October morning, and lay and looked at the little scattered glories. All around the room, on walls, curtains, ceiling,--falling like bright soft jewels upon table and floor, touching everything with a magic splendor,--were globes and shafts of colored light. Softly blended from glowing red to tenderly fervid blue, they lay in various forms and fragments, as the beam refracted or the objects caught them. Just on the edge of the deep, opposite window-frame, clung one vivid, separate flash of perfect azure, all alone, and farthest off of all. Desire wondered, at first glance, how it should happen till she saw, against a closet-door ajar, a gibbous sphere of red and golden flame. Yards apart the points were, and a shadow lay between; but the one sure sunbeam knew no distance, and there was no radiant line of the spectrum lost. Desire remembered her old comparison of complementary colors: "to see blue, and to live red," she had said, complaining. But now she thought,--"Foreshortening! In so many things, that is all,--if we could only see as the Sun sees!" One bit of our living, by itself, all one deep, burning, bleeding color, maybe; but the globe is white,--the blue is somewhere. And, lo! a soft, still motion; a little of the flame-tint has dropped off; it has leaped to join itself to the blue; it gives itself over; and they are beautiful together,--they fulfill each other; yet, in the changing never a thread falls quite away into the dark. Why, it is like love joining itself to love again! As God's sun climbs the horizon, His steadfast, gracious purpose, striking into earthly conditions, seems to break, and scatter, and divide. Half our heart is here, half there; our need and ache are severed from their help and answer; the tender blue waits far off for the eager, asking red; yet just as surely as His light shines on, and our life moves under it, so surely, across whatever gulf, the beauty shall all be one again; so surely does it even now move all together, perfect and close always under His eye, who never sends a _half_ ray anywhere. * * * * * She read her little poem,--sent to her; she read it through. She rose up glad and strong; her room was full of glorious sunshine now; the broken bits of color were all taken up in one full pouring of the day. She went down with the light of it in her heart, and all about her. Uncle Oldways met her at the foot of the wide staircase. "Good-day, child!" he said to her in his quaint fashion. "Why it _is_ good day! Your face shines." "You have given me a beautiful east window, uncle," said Desire, "and the morning has come in!" And from the second step, where she still stood, she bent forward a little, put her hands softly upon his shoulders, and for the first time, kissed his cheek. 
21043	----	Reginald Cruden A Tale of City Life By Talbot Baines Reed ________________________________________________________________________ I suppose this book is not so much aimed at schoolboys as most of this author's books are, as at the young adult starting out in life. For the story here is one almost of warning about the mistakes a young man of good will might make in trying to find employment in a hard time. The first job he takes is interesting because it is in a typesetting office, which the author knew a great deal about, having inherited a similar business from his father. The second job is, quite unknown to the young hero, rather a shady one. It is obvious to us, the readers, because we are allowed certain information that Reginald could not have. You would enjoy hearing it, or reading it if you must. NH. ________________________________________________________________________ REGINALD CRUDEN A TALE OF CITY LIFE BY TALBOT BAINES REED CHAPTER ONE. AN INTERRUPTED BATHE. It was a desperately hot day. There had been no day like it all the summer. Indeed, Squires, the head gardener at Garden Vale, positively asserted that there had been none like it since he had been employed on the place, which was fourteen years last March. Squires, by the way, never lost an opportunity of reminding himself and the world generally of the length of his services to the family at Garden Vale; and on the strength of those fourteen years he gave himself airs as if the place belonged not to Mr Cruden at all, but to himself. He was the terror of his mistress, who scarcely dared to peep into a greenhouse without his leave, and although he could never exactly obtain from the two young gentlemen the respect to which he considered himself entitled, he still flattered himself in secret "they couldn't do exactly what they liked with his garden!" To-day, however, it was so hot that even Squires, after having expressed the opinion on the weather above mentioned, withdrew himself into the coolest recess of his snug lodge and slept sweetly, leaving the young gentlemen, had they been so minded, to take any liberty they liked with "his" garden. The young gentlemen, however, were not so minded. They had been doing their best to play lawn tennis in the blazing sun with two of their friends, but it was too hot to run, too hot to hit, and far too hot to score, so the attempt had died away, and three of them now reclined on the sloping bank under the laurel hedge, dividing their time between lazily gazing up at the dark-blue sky and watching the proceedings of the fourth of their party, who still remained in the courts. This last-mentioned youth, who, to judge by his countenance, was brother to one of those who lolled on the bank, presented a curious contrast to the general languor of the afternoon. Deserted by his companions in the sport, he was relieving himself of some of his superfluous energy by the novel diversion of playing tennis with himself. This he accomplished by serving the ball high up in the air and then jumping the net, so as to take it on the other side, following up his return by another leap over the net, and so on till either he or the ball came to grief. On an ordinary day the exertion involved in this pastime would be quite enough for any ordinary individual, but on a day like the present, with the thermometer at ninety in the shade, it was a trifle too much even to watch. "For goodness' sake shut up, Horrors," said the elder brother. "We might as well be playing ourselves as watch you at that sort of thing." The young gentleman addressed as Horrors was at that moment in the midst of one of his aerial flights, and had neither leisure nor breath to answer. "Do you hear?" repeated the other. "If you want to keep warm, go indoors and put on a great-coat, but don't fag us to death with that foolery." "Eight!" exclaimed the young athlete, scoring the number of times the ball had crossed the net, and starting for another jump. "Shut up, Reg, till I've done." He soon was done. Even Horace Cruden could not keep it up for ever, and at his tenth bound his foot caught in the net, and he came all fours on to the court. "There, now you're happy!" said his brother. "Now you may as well come and sit here out of the cold." Horace picked himself up, laughing. "All very well," said he. "I'm certain I should have done it twelve times if you hadn't put me off my jump. Never mind, I'll do it yet." "Oh, Horace," interposed one of the others, beseechingly, "if you love us, lie down now. I'm quite ill watching you, I assure you. We'll all vow we saw you do it twelve times; we'll put it in the _Times_ if you like, and say the net was five feet ten; anything, as long as you don't start at it again." This appeal had the effect of reducing the volatile Horace to a state of quiescence, and inducing him to come and share the shade with his companions. "Never saw such a lazy lot," said he, lying flat on his back and balancing his racquet on his finger; "you won't do anything yourselves and you won't let any one else do anything. Regular dogs in the manger." "My dear fellow," said the fourth of the party in a half drawl, "we've been doing nothing but invite you in to the manger for the last hour, and you wouldn't come. Can't you take a holiday while we've got one?" "Bad luck to it," said Reginald; "there's only a week more." "I don't see why you need growl, old man," said the visitor who had spoken first; "you'll get into the sixth and have a study to yourself, and no mathematics unless you like." "Poor Harker," said Horace, "he's always down on mathematics. Anyhow, I shan't be sorry to show up at Wilderham again, shall you, Bland?" "Depends on the set we get," drawled Bland (whose full name was Blandford). "I hear there's a crowd of new fellows coming, and I hate new fellows." "A fellow must be new some time or other," said Horace. "Harker and I were new boys once, weren't we, Harker?" Harker, who had shared the distinction of being tossed with Horace in the same blanket every night for the first week of his sojourn at Wilderham, had not forgotten the fact, and ejaculated,-- "Rather!" "The mischief is," continued Blandford, "they get such a shady lot of fellows there now. The school's not half as respectable as it was-- there are far too many shopkeepers' sons and that sort of--" "Sort of animal, he'd like to say," laughed Horace. "Bland can't get over being beaten for the French prize by Barber, the tailor's son." Blandford flushed up, and was going to answer when Reginald interposed. "Well, and suppose he can't, it's no wonder. I don't see why those fellows shouldn't have a school for themselves. It's not pleasant to have the fellow who cuts your waistcoat crowing over you in class." Horace began to whistle, as he generally did when the conversation took a turn that did not please him. "Best way to remedy that," said he, presently, "is not to get beaten by your tailor's son." "Shut up, Horace," said the elder brother; "what's the use of making yourself disagreeable? Bland's quite right, and you know you think so yourself." "Oh, all serene," said Horace, cheerfully; "shouldn't have known I thought so unless you had told me. What do you think, Harker?" "Well," said Harker, laughing, "as I am disreputable enough to be the only son of a widow who has barely enough to live on, and who depends on the charity of a cousin or some one of the sort for my education, I'm afraid Bland and I would have to go to different schools." Every one laughed at this confession, and Reginald said,-- "Oh, but you're different, Harker--besides, it isn't money makes the difference--" "The thing is," interposed Horace, "was your father in the wholesale or retail trade?--that's the difference!" "I wish you'd shut up, Horace," said Reginald tartly; "you always spoil any argument with your foolery." "Now that's hard lines," said Horace, "when I thought I was putting the case beautifully for you. Never mind. What do you say to a bathe in the river, you fellows?" "Too much fag to get towels," said Reginald; "but if you like to go for them, and don't ask us to look at our watches and see in how many seconds you run up to the house and back, we'll think about it." "Thanks," said Horace, and started up to the house whistling cheerily. "Awfully hot that brother of yours make? a fellow," said Blandford, watching him disappear. "Yes," said Reginald, yawning, "he is rather flighty, but he'll turn out all right, I hope." "Turn out!" said Harker; "why he's all right already, from the crown of his head to the sole of his boot." "Except," said Blandford, "for a slight crack in the crown of his head. It's just as well, perhaps, he's not the eldest son, Reg." "Well," said Reginald laughing, "I can hardly fancy Horace the head of the family." "Must be a rum sensation," said Harker, "to be an heir and not have to bother your head about how you'll get your bread and butter some day. How many hundred millions of pounds is it you'll come in for, Reg? I forget." "What a humbug you are!" said Reginald; "my father's no better off than a lot of other people." "That's a mild way of putting it, anyhow," said Blandford. And here the conversation ended. The boys lay basking in the sun waiting for Horace's return. He was unusually long in coming. "Seems to me," said Blandford, "he's trying how long he can be instead of how quick--for a variety." "Just like him," said Reginald. Five minutes passed away, and ten, and fifteen, and then, just as the boys were thinking of stirring themselves to inquire what had become of him, they heard his steps returning rapidly down the gravel walk. "Well," cried Reginald, without sitting up, "have you got them at last?" Horace's voice startled them all as he cried,-- "Reg! Reg! come quick, quick!" There was no mistaking either the tones or the white face of the boy who uttered them. Reginald was on his feet in an instant, rushing in the direction of the house, towards which his brother had already started. "What is it, Horace?" he said as he overtook him. "Something about father--a telegram," gasped the other. Not another word was spoken as they ran on and reached the hall door. The hall door stood open. Just outside on the hot stone steps lay the towels where Horace had dropped them five minutes ago. Carlo, the dog, lay across the mat, and lazily lifted his head as his master approached. Within stood Mrs Cruden, pale and trembling, with a telegram in her hand, and in the back-ground hovered three or four servants, with mingled curiosity and anxiety on their faces. Despite the heat, Reginald shivered as he stood a moment at the door, and then sprang towards the telegram, which his mother gave into his hand. It was from Mr Cruden's coachman, dated from Saint Nathaniel's Hospital. "Master was took ill driving from City--brought here, where he is very bad indeed. Doctor says no hope." One needs to have received such a message oneself to understand the emotions with which the two brothers read and re-read the pitiless words. Nothing but their own hard breathing broke the stillness of those few minutes, and who knows in that brief space what a lifetime seemed crowded? Horace was the first to recover his self-possession. "Mother," said he, and his voice sounded strange and startling in the silence, "there's a train to the City in five minutes. I'll go by that." And he was off. It was three-quarters of a mile to the station, and there was no time to parley. Even on an errand like this, many would have abandoned the endeavour as an impossibility, especially in such a heat. But Horace was a good runner, and the feat was nothing uncommon for him. As he flung himself into the train he gave one quick glance round, to see if Reginald had possibly followed him; but no, he was alone; and as the whistle shrieked and the train steamed out of the station, Horace for the first time had a moment to reflect. Not half an hour ago he had been lying with his brother and companions on the tennis lawn, utterly unconscious of any impending calamity. What ages ago that seemed! For a few minutes all appeared so confused and unreal that his mind was a blank, and he seemed even to forget on what errand he was bound. But Horace was a practical youth, and before that half-hour's journey to the City was accomplished he was at least collected in mind, and prepared to face the trial that awaited him. There was something about the telegram that convinced him it meant more than it said. Still, a boy's hopefulness will grasp at a straw, and he battled with his despair. His father was not dead--he would recover--at the hospital he would have the best medical assistance possible. The coachman who sent the telegram would be sure to make things out at the worst. Yes, when he got to Saint Nathaniel's he would find it was a false alarm, that there was nothing much the matter at all, and when his mother and Reginald arrived by the next train, he would be able to meet them with reassuring news. It was not more than a ten-minutes' cab- drive from the terminus--the train was just in now; in twelve minutes this awful suspense would be at an end. Such was the hurried rush of thoughts through the poor boy's brain during that dismal journey. He had sprung from the carriage to a hansom cab almost before the train had pulled up, and in another moment was clattering over the stones towards the hospital. The hopes of a few minutes before oozed away as every street corner brought him nearer his destination, and when at last the stately front of Saint Nathaniel's loomed before him, he wished his journey could never end. He gazed with faltering heart up at the ward windows, as if he could read his fate there. The place seemed deserted. A few street boys were playing on the pavement, and at the door of the in-patients' ward a little cluster of visitors were collected round a flower stall buying sweet mementoes of the country to brighten the bedsides of their friends within. No one heeded the pale scared boy as he alighted and went up the steps. A porter opened the door. "My father, Mr Cruden, is here; how is he?" "Is it the gentleman that was brought in in a fit?" "Yes, in his carriage--is he better?" "Will you step in and see the doctor?" The doctor was not in his room when the boy was ushered in, and it seemed an age before he entered. "You are Mr Cruden's son?" said he gravely. "Yes--is he better?" "He was brought here about half-past three, insensible, with apoplexy." "Is he better now?" asked Horace again, knowing perfectly well what the dreaded answer would be. "He is not, my boy," said the doctor gravely. "We telegraphed to your mother at once, as you know--but before that telegram could have reached her your poor father--" It was enough. Poor Horace closed his ears convulsively against the fatal word, and dropped back on his chair with a gasp. The doctor put his hand kindly on the boy's shoulder. "Are you here alone?" said he, presently. "My mother and brother will be here directly." "Your father lies in a private ward. Will you wait till they come, or will you go up now?" A struggle passed through the boy's mind. An instinctive horror of a sight hitherto unknown struggled hard with the impulse to rush at once to his father's bedside. At length he said, falteringly,-- "I will go now, please." When Mrs Cruden and Reginald arrived half an hour later, they found Horace where the doctor had left him, on his knees at his father's bedside. CHAPTER TWO. A COME-DOWN IN THE WORLD. Mr Cruden had the reputation of being one of the most respectable as well as one of the richest men in his part of the county. And it is fair to say he took far more pride in the former quality than the latter. Indeed, he made no secret of the fact that he had not always been the rich man he was when our story opens. But he was touchy on the subject of his good family and his title to the name of gentleman, which he had taught his sons to value far more than the wealth which accompanied it, and which they might some day expect to inherit. His choice of a school for them was quite consistent with his views on this point. Wilderham was not exactly an aristocratic school, but it was a school where money was thought less of than "good style," as the boys called it, and where poverty was far less of a disgrace than even a remote connection with a "shop." The Crudens had always been great heroes in the eyes of their schoolfellows, for their family was unimpeachable, and even with others who had greater claims to be considered as aristocratic, their ample pocket-money commended them as most desirable companions. Mr Cruden, however, with all his virtues and respectability, was not a good man of business. People said he let himself be imposed upon by others who knew the value of money far better than he did. His own beautiful estate at Garden Vale, Rumour said, was managed at double the expense it should be; and of his money transactions and speculations in the City--well, he had need to be the wealthy man he was, said his friends, to be able to stand all the fleecing he came in for there! Nevertheless, no one ever questioned the wealth of the Crudens, least of all did the Crudens themselves, who took it as much for granted as the atmosphere they breathed in. On the day on which our story opens Mr Cruden had driven down into the City on business. No one knew exactly what the business was, for he kept such matters to himself. It was an ordinary expedition, which consisted usually of half a dozen calls on half a dozen stockbrokers or secretaries of companies, with perhaps an occasional visit to the family lawyer or the family bank. To-day, however, it had consisted of but one visit, and that was to the bank. And it was whilst returning thence that Mr Cruden was suddenly seized with the stroke which ended in his death. Had immediate assistance been at hand the calamity might have been averted, but neither the coachman nor footman was aware of what had happened till the carriage was some distance on its homeward journey, and a passer-by caught sight of the senseless figure within. They promptly drove him to the nearest hospital, and telegraphed the news to Garden Vale; but Mr Cruden never recovered consciousness, and, as the doctor told Horace, before even the message could have reached its destination he was dead. We may draw a veil over the sad scenes of the few days which followed-- of the meeting of the widow and her sons at the bedside of the dead, of the removal of the loved remains home, of the dismal preparations for the funeral, and all the dreary details which occupy mourners in the house of death. For some time Mrs Cruden, prostrated by the shock of her bereavement, was unable to leave her room, and the burden of the care fell on the two inexperienced boys, who had to face it almost single-handed. For the Crudens had no near relatives in England, and those of their friends who might have been of service at such a time feared to intrude, and so stayed away. Blandford and Harker, the boys' two friends who had been visiting at Garden Vale at the time of Mr Cruden's death, had left as quietly and considerately as possible; and so great was the distraction of those few sad days that no one even noticed their absence till letters of condolence arrived from each. It was a dreary week, and Reginald, on whom, as the elder son and the heir to the property, the chief responsibility rested, was of the two least equal to the emergency. "I don't know what I should have done without you, old man," said he to Horace on the evening before the funeral, when, all the preparations being ended, the two boys strolled dismally down towards the river. "You ought to have been the eldest son. I should never have thought of half the things there were to be done if you hadn't been here." "Of course, mother would have known what was to be done," said Horace, "if she hadn't been laid up. She's to get up this evening." "Well, I shall be glad when to-morrow's over," said Reginald; "it's awful to have it all hanging over one like this. I can't believe father was alive a week ago, you know." "No more can I," said the other; "and I'm certain we shall not realise how we miss him for long enough yet." They walked on for some distance in silence, each full of his own reflections. Then Horace said, "Mother is sure to want to stay on here, she's so fond of the place." "Yes, it's a comfort she won't have to move. By the way, I wonder if she will want us to leave Wilderham and stay at home now." "I fancy not. Father wanted you to go to Oxford in a couple of years, and she is sure not to change his plan." "Well, I must say," said Reginald, "if I am to settle down as a country gentleman some day, I shall be glad to have gone through college and all that sort of thing before. If I go up in two years, I shall have finished before I'm twenty-three. Hullo, here's mother!" The boys ran forward to greet Mrs Cruden, who, pale but smiling, came quietly down the garden towards them, and after a fond embrace laid her hands on the arm of each and walked slowly on between them. "You two brave boys," said she, and there was a cheery ring in her voice that sent comfort into the hearts of both her sons, "how sorry I am to think of all you have had to go through, while I, like a silly weak woman, have been lying in bed." "Oh, mother," said Horace, with a face that reflected already the sunshine of hers, "how absurd to talk like that! I don't believe you ought to be out here now." "Oh yes, I ought. I've done with that, and I am strong enough now to stand beside the boys who have stood so bravely by their mother." "We'd be a nice pair of boys if we didn't, eh, Reg?" said Horace. Reginald's reply was a pressure of his mother's hand, and with a rainbow of smiles over their sorrowful hearts the three walked on lovingly together; the mother with many a brave, cheery word striving to lift her sons above their trouble, not only to hope of earthly comfort, but to trust in that great Father of the fatherless, beside whom all the love of this world is poor and fleeting. At length they turned to go in, and Mrs Cruden said,-- "There is a letter from Mr Richmond, the lawyer, saying he will call this evening to talk over some business matters. I suppose he will be here by now." "Couldn't he have waited till after to-morrow?" said Horace. "He particularly asked to come to-night," said the mother. "At any rate, I would like you both to be with me while he is here. We must not have any secrets from one another now." "I suppose it's about the will or the estate," said Reginald. "I suppose so. I don't know," said Mrs Cruden. "Mr Richmond always managed your father's business affairs, you know, so he will be able to tell us how matters stand." They reached the house, and found Mr Richmond had already arrived and was awaiting them in the library. Mr Richmond was a solemn, grave personage, whose profession was written on his countenance. His lips were so closely set that it seemed as if speaking must be a positive pain to him, his eyes had the knack of looking past you, as though he was addressing not you but your shadow on the wall, and he ended every sentence, no matter what its import, with a mechanical smile, as though he were at that instant having his photograph taken. Why Mr Cruden should have selected Mr Richmond as his man of business was a matter only known to Mr Cruden himself, for those who knew the lawyer best did not care for him, and, without being able to deny that he was an honest man and a well-meaning man, were at least glad that their affairs were in the hands of some one else. He rose and solemnly greeted the widow and her two sons as they entered. "I am sorry to intrude at such a time," said he, "but as your late husband's adviser, I considered it right to call and make you acquainted with his affairs." Here Mr Richmond smiled, greatly to Reginald's indignation. "Thank you," said Mrs Cruden; "sit down, please, Mr Richmond." Mr Richmond obeyed, dubiously eyeing the two boys as he did so. "These are your sons, I presume?" said he to Mrs Cruden. "They are," said she. Mr Richmond rose and solemnly shook hands with each of the lads, informing each with a smile as he did so that he was pleased to make his acquaintance. "You wish the young gentlemen to remain, perhaps?" he inquired, as he resumed his seat. "To be sure," said Mrs Cruden, somewhat nettled at the question; "go on, please, Mr Richmond." "Certainly, madam," said the lawyer. "May I ask if you are acquainted with the late Mr Cruden's state of affairs?" "I wish to hear that from you," said the widow, "and with as little delay as possible, Mr Richmond." "Certainly, madam. Mr Cruden honoured me with his confidence on these matters, and I believe, next to himself, I knew more about them than any one else." Here Mr Richmond paused and smiled. "In fact," continued he, "I may almost say I knew more about them than he did himself, for your excellent husband, Mrs Cruden, was not a good man of business." Reginald could not stand the smile which accompanied this observation, and said, somewhat hotly,-- "Look here, Mr Richmond, if you will say what you've got to say without laughing and speaking disrespectfully of my father, we shall be glad." "Certainly, Master Cruden," said the lawyer, a trifle disconcerted by this unexpected interruption. Then turning to the widow he continued,-- "The fact is, madam, the late Mr Cruden was, I fear, under the impression that he was considerably better off than he was." Mr Richmond paused as if for a reply, but as no one spoke he continued,-- "I am sorry to say this appears to have been the case to a much larger extent than even I imagined. Your late husband, Mrs Cruden, I believe spent largely on his estate here, and unfortunately kept no accounts. I have frequently entreated him to reckon over his expenditure, but he always replied that it was considerably under his income, and that there was no need, as long as that was the case, to trouble himself about it." A nervous movement among his listeners was the only reply the lawyer received to this last announcement, or to the smile which accompanied it. "Mr Cruden _may_ have been correct in his conjecture, madam, although I fear the contrary." "If my father said a thing," blurted out Reginald at this point, "I see no reason for doubting his word." "None in the least, my dear Master Cruden; but unfortunately your father did not know either what his income was or what his expenditure was." "Do _you_ know what they were?" said Reginald, not heeding the deprecating touch of his mother's hand on his. "As far as I understand the state of your father's affairs," said Mr Richmond, undisturbed by the rude tone of his inquisitor, "his income was entirely derived from interest in the stock of two American railways, in which he placed implicit confidence, and in one or the other of which he insisted on investing all capital which came to his hand. The total income from these two sources would in my opinion just about cover Mr Cruden's various expenses of all kinds." There was something like a sigh of relief from the listeners as Mr Richmond reached this point. But it died away as he proceeded. "In his choice of an investment for his capital Mr Cruden consulted no one, I believe, beyond himself. For some time it seemed a fortunate investment, and the shares rose in value, but latterly they took a turn for the worse, and early this year I am sorry to say one of the railways suspended payment altogether, and Mr Cruden lost a considerable portion of his fortune thereby." "I heard my husband say some months ago that he had made some slight loss in the City," said Mrs Cruden, "but I imagined from the light manner in which he treated it that it was quite trifling, and would be quickly repaired." "He did hope that would be the case. Although all his friends urged him to sell out at once, he insisted on holding on, in the hope of the railway recovering itself." "And has it recovered?" asked Mrs Cruden, with a tremble in her voice. "I regret to say it has not, Mrs Cruden. On the contrary, it was declared bankrupt a few days ago, and what is still more deplorable, it has involved in its own ruin the other railway in which the remainder of your husband's property was invested, so that all the shares which stand in his name in both concerns are now worth no more than the paper they are printed on." Mr Richmond came to the point at last with startling abruptness, so much so that for a moment or two his listeners sat almost petrified by the bad news, and unable to say a word. The lawyer finished what he had to say without waiting. "Your husband heard this lamentable news, Mrs Cruden, on the occasion of his last visit to the City. The only call he made that day was at his banker's, where he was told all, and there is no reason to doubt that the shock produced the stroke from which he died." "Mr Richmond," said Mrs Cruden, after a while, like one in a dream, "can this be true? What _does_ it all mean?" "Alas! madam," said the lawyer, "it would be no kindness on my part to deny the truth of what I have told you. It means that unless you or your late husband are possessed of some means of income of which I know nothing, your circumstances are reduced to a very low point." "But there must be some mistake," said Horace. "_Both_ railways can't have gone wrong; we shall surely save something?" "I wish I could hold out any hope. I have all the documents at my office, and shall be only too glad, Mrs Cruden, to accompany you to the bank for your own satisfaction." Mrs Cruden shuddered and struggled bravely to keep down the rising tears. A long pause ensued, every moment of which made the terrible truth clearer to all three of the hearers, and closed every loophole of hope. "What can be done?" said Horace at last. "Happily there is Garden Vale," said Reginald, and there was a choking in the throat of the heir as he spoke; "we shall have to sell it." "The contents of it, you will, Master Cruden," said the lawyer; "the estate itself is held on lease." "Well, the contents of it," said Reginald, bitterly; "you are not going to make out they don't belong to us?" "Certainly not," said Mr Richmond, on whom the taunt was quite lost; "unless, as I trust is not the case, your father died in debt." "Do you mean to say," said Horace, slowly, like one waking from a dream, "do you mean to say we are ruined, Mr Richmond?" "I fear it is so," said the lawyer, "unless Mr Cruden was possessed of some means of income with which I was not acquainted. I regret very much, Mrs Cruden, having to be the bearer of such bad news, and I can only say the respect I had for your late husband will make any assistance I can offer you, by way of advice or otherwise, a pleasure." And Mr Richmond bowed himself out of the room with a smile. It was a relief to be left alone, and Mrs Cruden, despite her weakness and misery, struggled hard for the sake of her boys to put a brave face on their trouble. "Reg, dear," said she to her eldest son, who had fairly broken down, and with his head on his hand was giving vent to his misery, "try to bear it. After all, we are left to one another, and--" The poor mother could not finish her sentence, but bent down and kissed the wet cheek of the boy. "Of course it means," said Horace, after a pause, "we shall have to give up Garden Vale, and leave Wilderham too. And Reg was sure of a scholarship next term. I say, mother, what _are_ we to do?" "We are all strong enough to do something, dear boy," said Mrs Cruden. "I'll take care _you_ don't have to do anything, mother," said Reginald, looking up. "I'll work my fingers to the bones before you have to come down to that." He spoke with clenched teeth, half savagely. "Even if we can sell all the furniture," continued Horace, taking a practical view of the situation, "it wouldn't give us much to live on." "Shut up, Horace!" said Reginald. "What's the use of making the worst of everything? Hasn't mother had quite enough to bear already?" Horace subsided, and the three sat there in silence until the daylight faded and the footman brought in the lights and announced that coffee was ready in the drawing-room. There was something like a shock about this interruption. What had they to do with men-servants and coffee in the drawing-room, they who an hour or two ago had supposed themselves wealthy, but now knew that they were little better than beggars? "We shall not want coffee," said Mrs Cruden, answering for all three. Then when the footman had withdrawn, she said,-- "Boys, I must go to bed. God bless you, and give us all brave hearts, for we shall need them!" The funeral took place next day. Happily it was of a simple character, and only a few friends were invited, so that it was not thought necessary to alter the arrangements in consequence of Mr Richmond's announcement of the evening before. But even the slight expense involved in this melancholy ceremony grated painfully on the minds of the boys, who forgot even their dead father in the sense that they were riding in carriages for which they could not pay, and offering their guests refreshments which were not theirs to give. The little cemetery was crowded with friends and acquaintances of the dead--country gentry most of them, who sought to show their respect for their late neighbour by falling into the long funeral procession and joining the throng at the graveside. It was a severe ordeal for the two boys to find themselves the centres of observation, and to feel that more than half the interest exhibited in them was on account of their supposed inheritance. One bluff squire came up after the funeral and patted Reginald on the back. "Never mind, my boy," said he; "I was left without a father at your age. You'll soon get over it, and your mother will have plenty of friends. Glad to see you up at the Hall any day, and your brother too. You must join our hunt next winter, and keep up the family name. God bless you!" Reginald shrank from this greeting like a guilty being, and the two desolate boys were glad to escape further encounters by retreating to their carriage and ordering the coachman to drive home at once. A few days disclosed all that was wanting to make their position quite clear. Mr Cruden's will confirmed Mr Richmond's statement as to the source of his income. All his money was invested in shares of the two ruined railways, and all he had to leave besides these was the furniture and contents of Garden Vale. Even this, when realised, would do little more than cover the debts which the next week or two brought to light. It was pitiful the way in which that unrelenting tide of bills flowed in, swamping gradually the last hope of a competency, or even means of bare existence, for the survivors. Neither Mrs Cruden nor her sons had been able to endure a day's delay at Garden Vale after the funeral, but had hurried for shelter to quiet lodgings at the seaside, kept by an old servant, where in an agony of suspense they awaited the final result of Mr Richmond's investigations. It came at last, and, bad as it was, it was a comfort to know the worst. The furniture, carriages, and other contents of Garden Vale had sufficed to pay all debts of every description, with a balance of about £350 remaining over and above, to represent the entire worldly possessions of the Cruden family, which only a month ago had ranked with the wealthiest in the county. "So," said Mrs Cruden, with a shadow of her old smile, as she folded up the lawyer's letter and put it back in her pocket, "we know the worst at last, boys." "Which is," said Reginald, bitterly, "we are worth among us the magnificent sum of sixteen pounds per annum. Quite princely!" "Reg, dear," said his mother, "let us be thankful that we have anything, and still more that we may start life owing nothing to any one." "Start life!" exclaimed Reginald; "I wish we could end it with--" "Oh, hush, hush, my precious boy!" exclaimed the widow; "you will break my heart if you talk like that! Think how many there are to whom this little sum would seem a fortune. Why, it may keep a roof over our heads, at any rate, or help you into situations." "Or bury us!" groaned Reginald. The mother looked at her eldest son, half in pity, half in reproach, and then burst into tears. Reginald sprang to her side in an instant. "What a beast I am!" he exclaimed. "Oh, mother, do forgive me! I really didn't think what I was saying." "No, dear Reggie, I know you didn't," said Mrs Cruden, recovering herself with a desperate effort. "You mustn't mind me, I--I scarcely-- know--I--" It was no use trying. The poor mother broke down completely, and on that evening it was impossible to talk more about the future. Next morning, however, all three were in a calmer mood, and Horace said at breakfast, "We can't do any good here, mother. Hadn't we better go to London?" "I think so; and Parker here knows of a small furnished lodging in Dull Street, which she says is cheap. We might try there to begin with. Eh, Reg?" Reginald winced, and then replied, "Oh, certainly; the sooner we get down to our right level the better." That evening the three Crudens arrived in London. CHAPTER THREE. NUMBER SIX, DULL STREET. Probably no London street ever rejoiced in a more expressive name than Dull Street. It was not a specially dirty street, or a specially disreputable street, or a specially dark street. The neighbourhood might a hundred years ago have been considered "genteel," and the houses even fashionable, and some audacious antiquarians went so far as to assert that the street took its name not from its general appearance at all, but from a worthy London alderman, who in the reign of George the First had owned most of the neighbouring property. Be that as it may, Dull Street was--and for all I know may still be--one of the dullest streets in London. A universal seediness pervaded its houses from roof to cellar; nothing was as it should be anywhere. The window sashes had to be made air-tight by wedges of wood or paper stuck into the frames; a bell in Dull Street rarely sounded after less than six pulls; there was scarcely a sitting-room but had a crack in its grimy ceiling, or a handle off its ill-hung door, or a strip of wall- paper peeling off its walls. There were more chairs in the furnished apartments of Dull Street with three legs than there were with four, and there was scarcely horsehair enough in the twenty-four sofas of its twenty-four parlours to suffice for an equal quantity of bolsters. In short, Dull Street was the shabbiest genteel street in the metropolis, and nothing could make it otherwise. A well-built, tastefully-furnished house in the middle of it would have been as incongruous as a new patch in an old garment, and no one dreamt of disturbing the traditional aspect of the place by any attempt to repair or beautify it. Indeed, the people who lived in Dull Street were as much a part of its dulness as the houses they inhabited. They were for the most part retired tradesmen, or decayed milliners, or broken-down Government clerks, most of whom tried to eke out their little pensions by letting part of their lodgings to others as decayed and broken-down as themselves. These interesting colonists, whose one bond of sympathy was a mutual seediness, amused themselves, for the most part, by doing nothing all day long, except perhaps staring out of the window, in the remote hope of catching sight of a distant cab passing the street corner, or watching to see how much milk their opposite neighbour took in, or reading the news of the week before last in a borrowed newspaper, or talking scandal of one neighbour to another. "Jemima, my dear," said a middle-aged lady, who, with her son and daughter, was the proud occupant of Number 4, Dull Street--"Jemima, my dear, I see to-day the bill is hout of the winder of number six." "Never!" replied Jemima, a sharp-looking young woman of twenty, who had once in her life spent a month at a ladies' boarding-school, and was therefore decidedly genteel. "I wonder who's coming." "A party of three, so I hear from Miss Moulden's maid, which is niece to Mrs Grimley: a widow,"--here the speaker snuffled slightly--"and two childer--like me." "Go on!" said Jemima. "Any more about them, ma?" "Well, my dear, I do hear as they 'ave come down a bit." "Oh, ah! lag!" put in the speaker's son, a lawyer's clerk in the receipt of two pounds a week, to whom this intelligence appeared particularly amusing; "we know all about that--never heard that sort of tale before, have we, ma? Oh no!" and the speaker emphasised the question by giving his widowed mother a smart dig in the ribs. "For shame, Sam! don't be vulgar!" cried the worthy lady; "how many times have I told you?" "All right, ma," replied the legal young gentleman; "but it is rather a wonner, you know. What were they before they came down?" "Gentlefolk, so I'm told," replied the lady, drawing herself up at the very mention of the name; "and I hintend, and I 'ope my children will do the same, to treat them as fellow-creatures with hevery consideration." "And how old is the babies, ma?" inquired Miss Jemima, whose gentility sometimes had the advantage of her grammar. "The babies!" said the mother; "why, they're young gentlemen, both of 'em--old enough to be your sweethearts!" Sam laughed profusely. "Then what did you say they was babies for?" demanded Jemima, pettishly. "I never!" "You did, ma, I heard you! Didn't she, Sam?" "So you did, ma. Come now, no crackers!" said Sam. "I never; I said `childer,'" pleaded the mother. "And ain't babies childer?" thundered Miss Jemima. "'Ad 'er there, Jim!" chuckled the dutiful Samuel, this time favouring his sister with a sympathetic nudge. "Better give in, and own you told a cracker, ma!" "Shan't!" said the lady, beginning to whimper. "Oh, I wish my poor 'Oward was here to protect me! He was a gentleman, and I'm glad he didn't live to see what a pair of vulgar brats he'd left behind him, that I am!" "There you go!" said Sam; "taking on at nothing, as per usual! No one was saying anything to hurt you, old girl. Simmer down, and you'll be all the better for it. There now, dry your eyes; it's all that Jim, she's got such a tongue! Next time I catch you using language to ma, Jim, I'll turn you out of the house! Come, cheer up, ma." "Yes, cheer up, ma," chimed in Jemima; "no one supposes you meant to tell fibs; you couldn't help it." Amid consolations such as these the poor flurried lady subsided, and regained her former tranquillity of spirit. The Shucklefords--such was the name of this amiable family--were comparatively recent sojourners in Dull Street. They had come there six years previously, on the death of Mr Shuckleford, a respectable wharfinger, who had saved up money enough to leave his wife a small annuity. Shortly before his death he had been promoted to the command of one of the Thames steamboats plying between Chelsea and London Bridge, in virtue of which office he had taken to himself--or rather his wife had claimed for him--the title of "captain," and with this patent of gentility had held up her head ever since. Her children, following her good example, were not slow to hold up their heads too, and were fully convinced of their own gentility. Samuel Shuckleford had, as his mother termed it, been "entered for the law" shortly after his father's death, and Miss Jemima Shuckleford, after the month's sojourn at a ladies' boarding-school already referred to, had settled down to assist her mother in the housework and maintain the dignity of the family by living on her income. Such were the new next-door neighbours of the Crudens when at last they arrived, sadly, and with the new world before them, at Number 6, Dull Street. Mr Richmond, who, with all his unfortunate manner, had acted a friend's part all along, had undertaken the task of clearing up affairs at Garden Vale, superintending the payment of Mr Cruden's debts, the sale of his furniture, and the removal to Dull Street of what little remained to the family to remind them of their former comforts. It might have been better if in this last respect the boys and their mother had acted for themselves, for Mr Richmond appeared to have hazy notions as to what the family would most value. The first sight which met the boys' eyes as they arrived was their tennis-racquets in a corner of the room. A very small case of trinkets was on Mrs Cruden's dressing-table, and not one of the twenty or thirty books arranged on the top of the sideboard was one which any member of the small household cared anything about. But Mr Richmond had done his best, and being left entirely to his own devices, was not to be blamed for the few mistakes he had made. He was there to receive Mrs Cruden when she arrived, and after conducting the little party hurriedly through the three rooms destined for their accommodation, considerately retired. Until the moment when they were left to themselves in the shabby little Dull Street parlour, not one of the Crudens had understood the change which had come over their lot. All had been so sudden, so exciting, so unlooked-for during the last few weeks, that all three of them had seemed to go through it as through a dream. But the awakening came now, and a rude and cruel one it was. The little room, dignified by the name of a parlour, was a dingy, stuffy apartment of the true Dull Street type. The paper was faded and torn, the ceiling was discoloured, the furniture was decrepit, the carpet was threadbare, and the cheap engraving on the wall, with its title, "As Happy as a King," seemed to brood over the scene like some mocking spirit. They passed into Mrs Cruden's bedroom, and the thought of the delightful snug little boudoir at Garden Vale sent a shiver through them as they glanced at the bare walls, the dilapidated half-tester, the chipped and oddly assorted crockery. The boys' room was equally cheerless. One narrow bed, a chair, and a small washstand, was all the furniture it boasted of, and a few old cuttings of an antiquated illustrated paper pinned on to the wall afforded its sole decoration. A low, dreary whistle escaped from Horace's lips as he surveyed his new quarters, followed almost immediately by an equally dreary laugh. "Why," gasped he, "there's no looking-glass! However is Reg to shave?" It was an heroic effort, and it succeeded. Mrs Cruden's face lit up at the sound of her son's voice with its old sunshine, and even Reginald smiled grimly. "I must let my beard grow," said he. "But, mother, I say," and his voice quavered as he spoke, "what a miserable room yours is! I can't bear to think of your being cooped up there." "Oh, it's not so bad," said Mrs Cruden, cheerily. "The pink in the chintz doesn't go well with the scarlet in the wall-paper, certainly, but I dare say I shall sleep soundly in the bed all the same." "But such a wretched look-out from the window, mother, and such a _vile_ jug and basin!" Mrs Cruden laughed. "Never mind about the jug and basin," said she, "as long as they hold water; and as for the look-out--well, as long as I can see my two boys' faces happy, that's the best view I covet." "You never think about yourself," said Reginald, sadly. "I say, mother," said Horace, "suppose we call up the spirits from the vasty deep and ask them to get tea ready." This practical suggestion met with general approbation, and the little party returned more cheerily to the parlour, where Horace performed marvellous exploits with the bell-handle, and succeeded, in the incredible time of seven minutes, in bringing up a small slipshod girl, who, after a good deal of staring about her, and a critical survey of the pattern of Mrs Cruden's dress, contrived to gather a general idea of what was required of her. It was a queer meal, half ludicrous, half despairing, that first little tea-party in Dull Street. They tried to be gay. Reginald declared that the tea his mother poured out was far better than any the footman at Garden Vale used to dispense. Horace tried to make fun of the heterogeneous cups and saucers. Mrs Cruden tried hard to appear as though she was taking a hearty meal, while she tasted nothing. But it was a relief when the girl reappeared and cleared the table. Then they unpacked their few belongings, and tried to enliven their dreary lodgings with a few precious mementoes of happier days. Finally, worn out in mind and body, they took shelter in bed, and for a blessed season forgot all their misery and forebodings in sleep. There is no magic equal to that which a night's sleep will sometimes work. The little party assembled cheerfully at the breakfast-table next morning, prepared to face the day bravely. A large letter, in Mr Richmond's handwriting, lay on Mrs Cruden's plate. It contained three letters--one from the lawyer himself, and one for each of the boys from Wilderham. Mr Richmond's letter was brief and business-like. "Dear Madam,--Enclosed please find two letters, which I found lying at Garden Vale yesterday. With regard to balance of your late husband's assets in your favour, I have an opportunity of investing same at an unusually good rate of interest in sound security. Shall be pleased to wait on you with particulars. Am also in a position to introduce the young gentlemen to a business opening, which, if not at first important, may seem to you a favourable opportunity. On these points I shall have the honour of waiting on you during to-morrow afternoon, and meanwhile beg to remain,-- "Your obedient servant,-- "R. Richmond." "We ought to make sure what the investment is," said Reginald, after hearing the letter read, "before we hand over all our money to him." "To be sure, dear," said Mrs Cruden, who hated the sound of the word investment. "I wonder what he proposes for us?" said Horace. "Some clerkship, I suppose." "Perhaps in his own office," said Reginald. "_What_ an opening that would be!" "Never you mind. The law's very respectable; but I know I'd be no good for that. I might manage to serve tea and raisins behind a grocer's counter, or run errands, or--" "Or black boots," suggested Reginald. "Black boots! I bet you neither you nor I could black a pair of boots properly to save our lives." "It seems to me we shall have to try it this very morning," said Reginald, "for no one has touched mine since last night." "But who are your letters from?" said Mrs Cruden. "Are they very private?" "Not mine," said Horace. "It's from old Harker. You may read it if you like, mother." Mrs Cruden took the letter and read aloud,-- "Dear Horrors--" ("That's what he calls me, you know," explained Horace, in a parenthesis.) "I am so awfully sorry to hear of your new trouble about money matters, and that you will have to leave Garden Vale. I wish I could come over to see you and help you. All the fellows here are awfully cut up about it, and lots of them want me to send you messages. I don't know what I shall do without you this term, old man, you were always a brick to me. Be sure and write to me and tell me everything. As soon as I can get away for a day I'll come and see you, and I'll write as often as I can. "Your affectionate,-- "T. Harker. "P.S.--Wilkins, I expect, will be the new monitor in our house. He is sure now to get the scholarship Reg was certain of. I wish to goodness you were both back here." "He might just as well have left out that about the scholarship," said Reginald; "it's not very cheering news to hear of another fellow stepping into your place like that." "I suppose he thought we'd be curious to know," said Horace. "Precious curious!" growled Reginald. "But who's your letter from, Reg?" asked Mrs Cruden. "Oh, just a line from Bland," replied he, hastily putting it into his pocket; "he gives no news." If truth must be told, Blandford's letter was not a very nice one, and Reginald felt it. He did not care to hear it read aloud in contrast with Harker's warm-hearted letter. Blandford had written,-- "Dear Cruden,--I hope it's not true about your father's money going all wrong. It is a great sell, and fellows here, I know, will be very sorry. Never mind, I suppose there's enough left to make a decent show; and between you and me it would go down awfully well with the fellows here if you could send your usual subscription to the football club. Harker says you'll have to leave Garden Vale. I'm awfully sorry, as I always enjoyed my visits there so much. What are you going to do? Why don't you try for the army? The exams are not very hard, my brother told me, and of course it's awfully respectable, if one must work for one's living. I must stop now, or I shall miss tennis. Excuse more. "Yours truly,-- "G. Blandford." Reginald knew the letter was a cold and selfish one, but it left two things sticking in his mind which rankled there for a long time. One was that, come what would, he would send a guinea to the school football club. The other was--was it _quite_ out of the question that he should go into the army? "Awfully rough on Reg," said Horace, "being so near that scholarship. It'll be no use to Wilkins, not a bit, and fifty pounds a year would be something to--" Horace was going to say "us," but he pulled up in time and said "Reg." "Well," said Reg, "as things have turned out it might have come in useful. I wonder if it wouldn't have been wiser, mother, for me to have stayed up this term and made sure of it?" "I wish you could, Reg; but we have no right to think of it. Besides, you could only have held it if you had gone to college." "Oh, of course," said Reg; "but then it would have paid a good bit of my expenses there; and I might have gone on from there to the army, you know, and got my commission." Mrs Cruden sighed. What an awakening the boy had still to pass through! "We must think of something less grand than that, my poor Reg," said she; "and something we can share all together. I hope Mr Richmond will be able to hear of some business opening for me, as well as you, for we shall need to put our resources together to get on." "Mother," exclaimed Reginald, overwhelmed with sudden contrition, "what a selfish brute you must think me! You don't think I'd let you work while I had a nerve left. I'll do anything--so will Horace, but you _shall not_, mother, you _shall not_." Mrs Cruden did not argue the point just then, and in due time Mr Richmond arrived to give a new direction to their thoughts. The investment he proposed seemed a good one. But, in fact, the little family knew so little about business generally, and money matters in particular, that had it been the worst security possible they would have hardly been the wiser. This point settled, Mr Richmond turned to his proposals for the boys. "As I said in my letter, Mrs Cruden," said he, "the opening is only a modest one. A company has lately been formed to print and publish an evening paper in the city, and as solicitor to the company I had an opportunity of mentioning your sons to the manager. He is willing to take them, provided they are willing to work. The pay will begin at eighteen shillings a week, but I hope they will soon make their value felt, and command a better position. They are young yet." "What shall we have to do?" asked Horace. "That I cannot exactly say," said the lawyer; "but I believe the manager would expect you to learn the printer's business from the beginning." "What would the hours be?" asked Mrs Cruden. "Well, as it is an evening paper, there will fortunately be no late night work. I believe seven in the morning to eight at night were the hours the manager mentioned." "And--and," faltered the poor mother, who was beginning to realise the boys' lot better than they did themselves--"and what sort of companions are they likely to have, Mr Richmond?" "I believe the manager is succeeding in getting respectable men as workmen. I hope so." "Workmen!" exclaimed Reginald, suddenly. "Do you mean we are to be workmen, Mr Richmond? Just like any fellows in the street. Couldn't you find anything better than that for us?" "My dear Master Cruden, I am very sorry for you, and would gladly see you in a better position. But it is not a case where we can choose. This opening has offered itself. Of course, you are not bound to accept it, but my advice is, take what you can get in these hard times." "Oh, of course, we're paupers, I--forgot," said Reg, bitterly, "and beggars mayn't be choosers. Anything you like, mother," added he, meeting Mrs Cruden's sorrowful look with forced gaiety. "I'll sweep a crossing if you like, Mr Richmond, or black your office-boy's boots,-- anything to get a living." Poor boy! He broke down before he could finish the sentence, and his flourish ended in something very like a sob. Horace was hardly less miserable, but he said less. Evidently, as Reg himself had said, beggars could not be choosers, and when presently Mr Richmond left, and the little family talked the matter over late into the afternoon, it was finally decided that the offer of the manager of the _Rocket_ Newspaper Company, Limited, should be accepted, and that the boys should make their new start in life on the Monday morning following. CHAPTER FOUR. THE "ROCKET" NEWSPAPER COMPANY, LIMITED. The reader may imagine that the walk our two heroes took Citywards that Monday morning was not a very cheerful one. It seemed like walking out of one life into another. Behind, like a dream, were the joyous, merry days spent at Garden Vale and Wilderham, with no care for the future, and no want for the present. Before them, still more like a dream, lay the prospect of their new work, with all its anxiety, and drudgery, and weariness, and the miserable eighteen shillings a week it promised them; and, equally wretched at the present moment, there was the vision of their desolate mother, alone in the Dull Street lodgings, where they had just left her, unable at the last to hide the misery with which she saw her two boys start out into the pitiless world. The boys walked for some time in silence; then Horace said,-- "Old man, I hope, whatever they do, they'll let us be together at this place." "We needn't expect any such luck," said Reginald. "It wouldn't be half so bad if they would." "You know," said Horace, "I can't help hoping they'll take us as clerks, at least. They must know we're educated, and more fit for that sort of work than--" "Than doing common labourer's work," said Reg. "Rather! If they'd put us to some of the literary work, you know, Horace--editing, or correcting, or reporting, or that sort of thing, I could stand that. There are plenty of swells who began like that. I'm pretty well up in classics, you know, and--well, they might be rather glad to have some one who was." Horace sighed. "Richmond spoke as if we were to be taken on as ordinary workmen." "Oh, Richmond's an ass," said Reg, full of his new idea; "he knows nothing about it. I tell you, Horace, they wouldn't be such idiots as to waste our education when they could make use of it. Richmond only knows the manager, but the editor is the chief man, after all." By this time they had reached Fleet Street, and their attention was absorbed in finding the by-street in which was situated the scene of their coming labours. They found it at last, and with beating hearts saw before them a building surmounted by a board, bearing in characters of gold the legend, _Rocket_ Newspaper Company, Limited. The boys stood a moment outside, and the courage which had been slowly rising during the walk evaporated in an instant. Ugly and grimy as the building was, it seemed to them like some fairy castle before which they shrank into insignificance. A board inscribed, "Work-people's Entrance," with a hand on it pointing to a narrow side court, confronted them, and mechanically they turned that way. Reginald did for a moment hesitate as he passed the editor's door, but it was no use. The two boys turned slowly into the court, where, amid the din of machinery, and a stifling smell of ink and rollers, they found the narrow passage which conducted them to their destination. A man at a desk half way down the passage intercepted their progress. "Now, then, young fellows, what is it?" "We want to see the manager, please," said Horace. "No use to-day, my lad. No boys wanted; we're full up." "We want to see the manager," said Reginald, offended at the man's tone, and not disposed to humour it. "Tell you we want no boys; can't you see the notice up outside?" "Look here!" said Reginald, firing up, and heedless of his brother's deprecating look; "we don't want any of your cheek. Tell the manager we're here, will you, and look sharp?" The timekeeper stared at the boy in amazement for a moment, and then broke out with,-- "Take your hook, do you hear, you--or I'll warm you." "It's a mistake," put in Horace, hurriedly. "Mr Richmond said we were to come here to see the manager at nine o'clock." "And couldn't you have said so at first?" growled the man, with his hand still on his ruler, and glaring at Reginald, "without giving yourselves airs as if you were gentry? Go on in, and don't stand gaping there." "For goodness' sake, Reg," whispered Horace, as they knocked at the manager's door, "don't flare up like that, you'll spoil all our chance." Reg said nothing, but he breathed hard, and his face was angry still. "Come in!" cried a sharp voice, in answer to their knock. They obeyed, and found a man standing with a pen in his mouth at a desk, searching through a file of papers. He went on with his work till he found what he wanted, apparently quite unconscious of the boys' presence. Then he rang a bell for an overseer, whistled down a tube for a clerk, and shouted out of the door for a messenger, and gave orders to each. Then he sent for some one else, and gave him a scolding that made the unlucky recipient's hair stand on end; then he received a visit from a friend, with whom he chatted and joked for a pleasant quarter of an hour; then he took up the morning paper and skimmed through it, whistling to himself as he did so; then he rang another bell and told the errand-boy who answered it to bring him in at one o'clock sharp a large boiled beef underdone, with carrots and turnips, and a pint of "s. and b." (whatever that might mean). Then he suddenly became aware of the fact that he had visitors, and turned inquiringly to the two boys. "Mr Richmond--" began Horace, in answer to his look. But the manager cut him short. "Oh, ah! yes," he said. "Nuisance! Go to the composing-room and ask for Mr Durfy." Saying which he sat down again at his desk, and became absorbed in his papers. It was hardly a flattering reception, and gave our heroes very little chance of showing off their classical proficiency. They had at least expected, as Mr Richmond's nominees, rather more than a half glance from the manager; and to be thus summarily turned over to a Mr Durfy before they had as much as opened their mouths was decidedly unpromising. Reginald did make one feeble effort to prolong the interview, and to impress the manager at the same time. "Excuse me," said he, in his politest tones, "would you mind directing us to the composing-room? My brother and I don't know the geography of the place yet." "Eh? Composing-room? Get a boy to show you. Plenty outside." It was no go, evidently; and they turned dismally from the room. The errand-boy was coming up the passage as they emerged--the same errand-boy they had seen half an hour ago in the manager's room; but, as their classical friends would say-- "Quantum mutatus ab illo Hectore!" His two arms were strung with the handles of frothing tin cans from the elbow to the wrist. He carried two tin cans in his mouth. His apron was loaded to bursting with bread, fish, cheese, potatoes, and other edibles; the necks of bottles protruded from all his pocket's,--from the bosom of his jacket and from the fob of his breeches,--and round his neck hung a ponderous chain of onions. In short, the errand-boy was busy; and our heroes, even with their short experience of business life, saw that there was little hope of extracting information from him under present circumstances. So they let him pass, and waited for another. They had not to wait long, for the passage appeared to be a regular highway for the junior members of the staff of the _Rocket_ Newspaper Company, Limited. But though several boys came, it was some time before one appeared whose convenience it suited to conduct our heroes to the presence of Mr Durfy. Just, however, as their patience was getting exhausted, and Reginald was making up his mind to shake the dust of the place from his feet, a boy appeared and offered to escort them to the composing-room. They followed him up several flights of a rickety staircase, and down some labyrinthine passages to a large room where some forty or fifty men were busy setting up type. At the far end of this room, at a small table, crowded with "proofs," sat a red-faced individual whom the boy pointed out as "Duffy." "Well, now, what do _you_ want?" asked he, as the brothers approached. "The manager said we were to ask for Mr Durfy," said Reginald. "I wish to goodness he'd keep you down there; he knows I'm crowded out with boys. He always serves me that way, and I'll tell him so one of these days." This last speech, though apparently addressed to the boys, was really a soliloquy on Mr Durfy's part; but for all that it failed to enchant his audience. They had not, in their most sanguine moments, expected much, but this was even rather less than they had counted on. Mr Durfy mused for some time, then, turning to Reginald, he said,-- "Do you know your letters?" Here was a question to put to the captain of the fifth at Wilderham! "I believe I do," said Reginald, with a touch of scorn in his voice which was quite lost on the practical Mr Durfy. "What do you mean by believe? Do you, or do you not?" "Of course I do." "Then why couldn't you say so at once? Take this bit of copy and set it up at that case there. And you, young fellow, take these proofs to the sub-editor's room, and say I've not had the last sheet of the copy of the railway accident yet, and I'm standing for it. Cut away." Horace went off. "After all," thought he to himself, "what's the use of being particular? I suppose I'm what they call a `printer's devil'; nothing like starting modestly! Here goes for my lords the sub-editors, and the last page of the railway accident." And he spent a festive ten-minutes hunting out the sub-editor's domains, and possessing himself of the missing copy. With Reginald, however, it fared otherwise. A fellow may be head of the fifth at a public school, and yet not know his letters in a printing- office, and after five or ten-minutes' hopeless endeavour to comprehend the geography of a typecase, he was obliged to acknowledge himself beaten and apprise Mr Durfy of the fact. "I'm sorry I misunderstood you," said he, putting the copy down on the table. "I'm not used to printing." "No," said Mr Durfy, scornfully, "I guessed not. You're too stuck-up for us, I can tell you. Here, Barber." An unhealthy-looking young man answered to the name. "Take this chap here to the back case-room, and see he sweeps it out and dusts the cases. See if that'll suit your abilities, my dandy"; and without waiting to hear Reginald's explanations or remonstrances, Mr Durfy walked off, leaving the unlucky boy in the hands of Mr Barber. "Now, then, stir your stumps, Mr Dandy," said the latter. "It'll take you all your time to get that shop straight, I can tell you, so you'd better pull up your boots. Got a broom?" "No," muttered Reg, through his teeth, "I've not got a broom." "Go and get that one, then, out of the corner there." Reginald flushed crimson, and hesitated a moment. "Do you 'ear? Are you deaf? Get that one there." Reginald got it, and trailing it behind him dismally, followed his guide to the back case-room. It was a small room, which apparently had known neither broom nor water for years. The floor was thick with dirt, and the cases ranged in the racks against the walls were coated with dust. "There you are," said Mr Barber. "Open the window, do you 'ear? and don't let none of the dust get out into the composing-room, or there'll be a row. Come and tell me when you've done the floor, and I'll show you 'ow to do them cases. Rattle along, do you 'ear? or you won't get it done to-day;" and Mr Barber, who had had his day of sweeping out the shops, departed, slamming the door behind him. Things had come to a crisis with Reginald Cruden early in his business career. He had _come_ into the City that morning prepared to face a good deal. He had not counted on much sympathy or consideration from his new employers; he had even vaguely made up his mind he would have to rough it at first; but to be shut up in a dirty room with a broom in his hand by a cad who could not even talk grammar was a humiliation on which he had never once calculated. Tossing the broom unceremoniously into a corner, he opened the door and walked out of the room. Barber was already out of sight, chuckling inwardly over the delicious task he had been privileged to set to his dandy subordinate, and none of the men working near knew or cared what this pale, handsome new boy did either in or out of the back case-room. Reginald walked through them to the passage outside, not much caring where he went or whom he met. If he were to meet Mr Barber, or Mr Durfy, or the manager himself, so much the better. As it happened, he met Horace, looking comparatively cheerful, with some papers in his hand. "Hullo, Reg," said he; "have they promoted you to a `printer's devil' too? Fancy what Bland would say if he saw us! Never mind, there's four hours gone, and in about another six we shall be home with mother again." "I shall be home before then," said Reg. "I'm going now. I can't stand it, Horace." Horace stared at his brother in consternation. "Oh, Reg, old man, you mustn't; really you mustn't. Do let's stick together, however miserable it is. It's sure to seem worse at first." "It's all very well for you, Horace, doing messenger work. You haven't been set to sweep out a room." Horace whistled. "Whew! that _is_ a drop too much! But," he added, taking his brother's arm, "don't cut it yet, old man, for mother's sake, don't. I'll come and help you do it if I can. Why couldn't they have given it me to do, and let you go the messages!" Reginald said nothing, but let his brother lead him back slowly to the big room presided over by Mr Durfy. "Where is it?" Horace inquired of him at the door. "That little room in the corner." "All right. I'll come if I possibly can. Do try it, old man, won't you?" "I'll try it," said Reginald, with something very like a groan as he opened the door and walked grimly back to the back case-room. Horace, full of fear and trembling on his brother's account, hurried with his copy to Mr Durfy, and waited impatiently till that grandee condescended to relieve him of it. "Is there anything else?" he inquired, as he gave it up. "Anything else? Yes, plenty; but don't come bothering me now." Horace waited for no more elaborate statement of Mr Durfy's wishes, but thankfully withdrew, and made straight for Reginald. He found him half hidden, half choked by the dust of his own raising, as he drew his broom in a spiritless way across the black dry floor. He paused in his occupation as Horace entered, and for a moment, as the two stood face to face coughing and sneezing, a sense of the ludicrous overcame them, and they finished up their duet with a laugh. "I say," said Horace, as soon as he could get words, "I fancy a little water would be an improvement here." "Where are we to get it from?" said Reg. "I suppose there must be some about. Shall I go and see?" "We might tip one of those fellows outside a sixpence to go and get us some." "Hold hard, old man!" said Horace, laughing again. "We're not so flush of sixpences as all that. I guess if we want any water we shall have to get it ourselves. I'll be back directly." Poor Reg, spirited up for a while by his brother's courage, proceeded more gingerly with his sweeping, much amazed in the midst of his misery to discover how many walks in life there are beyond the capacity even of the captain of the fifth of a public school. He was not, however, destined on the present occasion to perfect himself in the one that was then engaging his attention. Horace had scarcely disappeared in quest of water when the door opened, and no less a personage than the manager himself entered the room. He was evidently prepared neither for the dust nor the duster, and started back for a moment, as though he were under the impression that the clouds filling the apartment were clouds of smoke, and Reginald was another Guy Fawkes caught in the act. He recovered himself shortly, however, and demanded sharply,-- "What are you doing here, making all this mess?" "I'm trying to carry out Mr Durfy's instructions," replied Reginald, leaning on his broom, and not at all displeased at the interruption. "Durfy's instructions? What do you mean, sir?" "Mr Durfy's--" "That will do. Here you," said the manager, opening the door, and speaking to the nearest workman, "tell Mr Durfy to step here." Mr Durfy appeared in a very brief space. "Durfy," said the manager, wrathfully, "what do you mean by having this room in such a filthy mess? Aren't your instructions to have it swept out once a week? When was it swept last?" "Some little time ago. We've been so busy in our department, sir, that--" "Yes, I know; you always say that. I'm sick of hearing it. Don't let me find this sort of thing again. Send some one at once to sweep it out; this lad doesn't know how to hold a broom. Take care it's done by four o'clock, and ready for use. Pheugh! it's enough to choke one." And the manager went off in a rage, coughing. Satisfactory as this was, in a certain sense, for Reginald, it was not a flattering way of ending his difficulties, nor did the spirit in which Mr Durfy accepted his chief's reprimand at all tend to restore him to cheerfulness. "Bah, you miserable idiot, you! Give up that broom, and get out of this, or I'll chuck you out." "I don't think you will," said Reginald, coolly dropping the broom and facing his enemy. He was happier at that moment than he had been for a long time. He could imagine himself back at Wilderham, with the school bully shouting at him, and his spirits rose within him accordingly. "What do you say? you hugger-mugger puppy you--you--" Mr Durfy's adjectives frequently had the merit of being more forcible than appropriate, and on the present occasion, what with the dust and his own rage, the one he wanted stuck in his throat altogether. "I said I don't think you will," repeated Reginald. Mr Durfy looked at his man and hesitated. Reginald stood five foot nine, and his shoulders were square and broad, besides, he was as cool as a cucumber, and didn't even trouble to take his hands out of his pockets. All this Mr Durfy took in, and did not relish; but he must not cave in too precipitately, so he replied, with a sneer,-- "Think! A lot you know about thinking! Can't even hold a broom. Clear out of here, I tell you, double quick; do you hear?" Reginald's spirits fell. It was clear from Mr Durfy's tone he was not going to attempt to "chuck him out," and nothing therefore could be gained by remaining. He turned scornfully on his heel, knowing that he had made one enemy, at any rate, during his short connection with his new business. And if he had known all, he could have counted two; for Mr Durfy, finding himself in a mood to wreak his wrath on some one, summoned the ill-favoured Barber to sweep out the back case-room, and gave his orders so viciously that Barber felt distinctly aggrieved, and jumping to the conclusion that Reginald had somehow contrived to turn the tables on him, he registered a secret vow, there and then, that he would on the first opportunity, and on all subsequent opportunities, be square with that luckless youth. Caring very little about who hated him or who liked him, Reginald wandered forth, to intercept the faithful Horace with the now unnecessary water; and the two boys, finding very little to occupy them during the rest of the day, remained in comparative seclusion until the seven o'clock bell rang, when they walked home, possibly wiser, and certainly sadder, for their first day with the _Rocket_ Newspaper Company, Limited. CHAPTER FIVE. THE CRUDENS AT HOME. If anything could have made up to the two boys for the hardships and miseries of the day, it was the sight of their mother's bright face as she awaited them that evening at the door of Number 6, Dull Street. If the day had been a sad and lonely one for Mrs Cruden, she was not the woman to betray the secret to her sons; and, indeed, the happiness of seeing them back was enough to drive away all other care for the time being. Shabby as the lodgings were, and lacking in all the comforts and luxuries of former days, the little family felt that evening, as they gathered round the tea-table and unburdened their hearts to one another, more of the true meaning of the word "home" than they had ever done before. "Now, dear boys," said Mrs Cruden, when the meal was over, and they drew their chairs to the open window, "I'm longing to hear your day's adventures. How did you get on? Was it as bad as you expected?" "It wasn't particularly jolly," said Reginald, shrugging his shoulders--"nothing like Wilderham, was it, Horrors?" "Well, it was a different sort of fun, certainly," said Horace. "You see, mother, our education has been rather neglected in some things, so we didn't get on as well as we might have done." "Do you mean in the literary work?" said Mrs Cruden. "I'm quite sure you'll get into it with a little practice." "But it's not the literary work, unluckily," said Reginald. "Ah! you mean clerk's work. You aren't as quick at figures, perhaps, as you might be?" "That's not exactly it," said Horace. "The fact is, mother, we're neither in the literary not the clerical department. I'm a `printer's devil'!" "Oh, Horace! what _do_ you mean?" said the horrified mother. "Oh, I'm most innocently employed. I run messages; I fetch and carry for a gentleman called Durfy. He gives me some parliamentary news to carry to one place, and some police news to carry to another place--and, by-the-way, they read very much alike--and when I'm not running backwards or forwards I have to sit on a stool and watch him, and be ready to jump up and wag my tail the moment he whistles. It's a fact, mother! Think of getting eighteen shillings a week for that! It's a fraud!" Mrs Cruden could hardly tell whether to laugh or cry. "My poor boy!" she murmured; then, turning to Reginald, she said, "And what do you do, Reg?" "Oh, I sweep rooms," said Reg, solemnly; "but they've got such a shocking bad broom there that I can't make it act. If you could give me a new broom-head, mother, and put me up to a dodge or two about working out corners, I might rise in my profession!" There was a tell-tale quaver in the speaker's voice which made this jaunty speech a very sad one to the mother's ears. It was all she could do to conceal her misery, and when Horace came to the rescue with a racy account of the day's proceedings, told in his liveliest manner, she was glad to turn her head and hide from her boys the trouble in her face. However, she soon recovered herself, and by the time Horace's story was done she was ready to join her smiles with those which the history had drawn even from Reginald's serious countenance. "After all," said she, presently, "we must be thankful for what we have. Some one was saying the other day there never was a time when so many young fellows were out of work and thankful to get anything to do. And it's very likely too, Reg, that just now, when they seem rather in confusion at the office, they really haven't time to see about what your regular work is to be. Wait a little, and they're sure to find out your value." "They seem to have done that already as far as sweeping is concerned. The manager said I didn't know how to hold a broom. I was quite offended," said Reginald. "You are a dear brave pair of boys!" said the mother, warmly; "and I am prouder of you in your humble work than if you were kings!" "Hullo," said Horace, "there's some one coming up our stairs!" Sure enough there was, and more than one person, as it happened. There was a knock at the door, followed straightway by the entrance of an elderly lady, accompanied by a young lady and a young gentleman, who sailed into the room, much to the amazement and consternation of its occupants. "Mrs Cruden, I believe?" said the elderly lady, in her politest tones. "Yes," replied the owner of that name. "Let me hintroduce myself--Mrs Captain Shuckleford, my son and daughter--neighbours of yours, Mrs Cruden, and wishing to be friendly. We're sorry to hear of your trouble; very trying it is. My 'usband, Mrs Cruden, has gone too." "Pray take a seat," said Mrs Cruden. "Reg, will you put chairs?" Reg obeyed, with a groan. "These are your boys, are they?" said the visitor, eyeing the youths. "Will you come and shake 'ands with me, Reggie? What a dear, good- looking boy he is, Mrs Cruden! And 'ow do you do, too, my man?" said she, addressing Horace. "Pretty well? And what do they call you?" "My name is Horace," said "my man," blushing very decidedly, and retreating precipitately to a far corner of the room. "Ah, dear me! And my 'usband's name, Mrs Cruden, was 'Oward. I never 'ear the name without affliction." This was very awkward, for as the unfortunate widow could not fail to hear her own voice, it was necessary for consistency's sake that she should show some emotion, which she proceeded to do, when her daughter hurriedly interposed in an audible whisper, "Ma, don't make a goose of yourself! Behave yourself, do!" "So I am be'aving myself, Jemima," replied the outraged parent, "and I don't need lessons from you." "It's very kind of you to call in," said Mrs Cruden, feeling it time to say something; "do you live near here?" "We live next door, at number four," said Miss Jemima; "put that handkerchief away, ma." "What next, I wonder! if my 'andkerchief's not my hown, I'd like to know what is? Yes, Mrs Cruden. We heard you were coming, and we wish to treat you with consideration, knowing your circumstances. It's all one gentlefolk can do to another. Yes, and I 'ope the boys will be good friends. Sam, talk to the boys." Sam needed no such maternal encouragement, as it happened, and had already swaggered up to Horace with a familiar air. "Jolly weather, ain't it?" "Yes," said Horace, looking round wildly for any avenue of escape, but finding none. "Pretty hot in your shop, ain't it?" said the lawyer's clerk. "Yes," again said Horace, with a peculiar tingling sensation in his toes which his visitor little dreamed of. Horace was not naturally a short-tempered youth, but there was something in the tone of this self-satisfied lawyer's clerk which raised his dander. "Not much of a berth, is it?" pursued the catechist. "No," said Horace. "Not a very chirrupy screw, so I'm told--eh?" This was rather too much. Either Horace must escape by flight, which would be ignominious, or he must knock his visitor down, which would be rude, or he must grin and bear it. The middle course was what he most inclined to, but failing that, he decided on the latter. So he shook his head and waited patiently for the next question. "What do you do, eh? dirty work, ain't it?" "Yes, isn't yours?" said Horace, in a tone that rather surprised the limb of the law. "Mine? No. What makes you ask that?" he inquired. "Only because I thought I'd like to know," said Horace artlessly. Mr Shuckleford looked perplexed. He didn't understand exactly what Horace meant, and yet, whatever it was, it put him off the thread of his discourse for a time. So he changed the subject. "I once thought of going into business myself," he said; "but they seemed to think I'd do better at the law. Same time, don't think I'm a nailer on business chaps. I know one or two very respectable chaps in business." "Do you?" replied Horace, with a touch of satire in his voice which was quite lost on the complacent Sam. "Yes. Why, in our club--do you know our club?" "No," said Horace. "Oh--I must take you one evening--yes, in our club we've a good many business chaps--well-behaved chaps, too." Horace hardly looked as overwhelmed by this announcement as his visitor expected. "Would you like to join?" "No, thank you." "Eh? you're afraid of being black-balled, I suppose? No fear, I can work it with them. I can walk round any of them, I let you know; they wouldn't do it, especially when they knew I'd a fancy for you, my boy." If Horace was grateful for this expression of favour, he managed to conceal his feelings wonderfully well. At the same time he had sense enough to see that, vulgar and conceited as Samuel Shuckleford was, he meant to be friendly, and inwardly gave him credit accordingly. He did his best to be civil, and to listen to all the bumptious talk of his visitor patiently, and Sam rattled away greatly to his own satisfaction, fully believing he was impressing his hearer with a sense of his importance, and cheering his heart by the promise of his favours and protection. With the unlucky Reginald, meanwhile, it fared far less comfortably. "Jemima, my dear," said Mrs Shuckleford, who in all her domestic confidences to Mrs Cruden kept a sharp eye on her family--"Jemima, my dear, I think Reggie would like to show you his album!" An electric shock could not have startled and confused our hero more. It was bad enough to hear himself called "Reggie," but that was nothing to the assumption that he was pining to make himself agreeable to Miss Jemima--he to whom any lady except his mother was a cause of trepidation, and to whom a female like Miss Jemima was nothing short of an ogress! "I've not got an album," he gasped, with an appealing look towards his mother. But before Mrs Cruden could interpose to rescue him, the ladylike Miss Jemima, who had already regarded the good-looking shy youth with approval, entered the lists on her own account, and moving her chair a trifle in his direction, said, in a confidential whisper,-- "Ma thinks we're not a very sociable couple, that's what it is." A couple! He and Jemima a couple! Reginald was ready to faint, and looked towards the open window as if he meditated a headlong escape that way. As to any other way of escape, that was impossible, for he was fairly cornered between the enemy and the wall, and unless he were to cut his way through the one or the other, he must sit where he was. "I hope you don't mind talking to me, Mr Reggie," continued the young lady, when Reginald gave no symptom of having heard the last observation. "We shall have to be friends, you know, now we are neighbours. So you haven't got an album?" This abrupt question drove poor Reginald still further into the corner. What business was it of hers whether he had got an album or not? What right had she to pester him with questions like that in his own house? In fact, what right had she and her mother and her brother to come there at all? Those were the thoughts that passed through his mind, and as they did so indignation got the better of good manners and everything else. "Find out," he said. He could have bitten his tongue off the moment he had spoken. For Reginald was a gentleman, and the sound of these rude words in his own voice startled him into a sense of shame and confusion tenfold worse than any Miss Shuckleford had succeeded in producing. "I beg your pardon," he gasped hurriedly. "I--I didn't mean to be rude." Now was the hour of Miss Jemima's triumph. She had the unhappy youth at her mercy, and she took full advantage of her power. She forgave him, and made him sit and listen to her and answer her questions for as long as she chose; and if ever he showed signs of mutiny, the slightest hint, such as "You'll be telling me to mind my own business again," was enough to reduce him to instant subjection. It was a bad quarter of an hour for Reginald, and the climax arrived when presently Mrs Shuckleford looked towards them and said across the room,-- "Now I wonder what you two young people are talking about in that snug corner. Oh, never mind, if it's secrets! Nice it is, Mrs Cruden, to see young people such good friends so soon. We must be going now, children," she added. "We shall soon see our friends in our own 'ouse, I 'ope." A tender leave-taking ensued. For a while, as the retreating footsteps of the visitors gradually died away on the stairs, the little family stood motionless, as though the slightest sound might recall them. But when at last the street-door slammed below, Reginald flung himself into a chair and groaned. "Mother, we can't stay here. We must leave to-morrow!" Horace could not help laughing. "Why, Reg," he said, "you seemed to be enjoying yourself no end." "Shut up, Horace, it's nothing to laugh about." "My dear boy," said Mrs Cruden, "you think far more about it than you need. After all, they seem kindly disposed persons, and I don't think we should be unfriendly." "That's all very well," said Reg, "if there was no Jemima in the question." "I should say it's all very well," said Horace, "if there was no Sam in the question; though I dare say he means to be friendly. But didn't you and Jemima hit it, then, Reg? I quite thought you did." "Didn't I tell you to shut up?" repeated Reg, this time half angrily. "I don't see, mother," he added, "however poor we are, we are called on to associate with a lot like that." "They have not polished manners, certainly," said Mrs Cruden; "but I do think they are good-natured, and that's a great thing." "I should think so," said Horace. "What do you think? Samuel wants to propose me for his club, which seems to be a very select affair." "All I know is," said Reginald, "nothing will induce me to go into their house. It may be rude, but I'm certain I'd be still more rude if I did go." "Well," said Horace, "I vote we take a walk, as it's a fine evening. I feel a trifle warm after it all. What do you say?" They said Yes, and in the empty streets that evening the mother and her two sons walked happy in one another's company, and trying each in his or her own way to gain courage for the days of trial that were to follow. The brothers had a short consultation that night as they went to bed, _not_ on the subject of their next door neighbours. "Horrors," said Reg, "what's to be done about the _Rocket_? I can't stop there." "It's awful," said Horace; "but what else can we do? If we cut it, there's mother left a beggar." "Couldn't we get into something else?" "What? Who'd take us? There are thousands of fellows wanting work as it is." "But surely we're better than most of them. We're gentlemen and well educated." "So much the worse, it seems," said Horace. "What good is it to us when we're put to sweep rooms and carry messages?" "Do you mean to say you intend to stick to that sort of thing all your life?" asked Reg. "Till I can find something better," said Horace. "After all, old man, it's honest work, and not very fagging, and it's eighteen shillings a week." "Anyhow, I think we might let Richmond know what a nice berth he's let us in for. Why, his office-boy's better off." "Yes, and if we knew as much about book-keeping and agreement stamps and copying presses as his office-boy does, we might be as well off. What's the good of knowing how many ships fought at Salamis, when we don't even know how many ounces you can send by post for twopence? At least, I don't. Good-night, old man." And Horace, really scarcely less miserable at heart than his brother, buried his nose in the Dull Street pillow and tried to go to sleep. CHAPTER SIX. REGINALD'S PROSPECTS DEVELOP. It was in anything but exuberant spirits that the two Crudens presented themselves on the following morning at the workman's entrance of the _Rocket_ Newspaper Company, Limited. The bell was beginning to sound as they did so, and their enemy the timekeeper looked as though he would fain discover a pretext for pouncing on them and giving them a specimen of his importance. But even his ingenuity failed in this respect, and as Horace passed him with a good-humoured nod, he had, much against his will, to nod back, and forego his amiable intentions. The brothers naturally turned their steps to the room presided over by Mr Durfy. That magnate had not yet arrived, much to their relief, and they consoled themselves in his absence by standing at the table watching their fellow-workmen as they crowded in and proceeded with more or less alacrity to settle down to their day's work. Among those who displayed no unseemly haste in applying themselves to their tasks was Barber, who, with the dust of the back case-room still in his mind, and equally on his countenance, considered the present opportunity of squaring up accounts with Reginald too good to be neglected. For reasons best known to himself, Mr Barber determined that his victim's flagellation should be moral rather than physical. He would have liked to punch Reginald's head, or, better still, to have knocked Reginald's and Horace's heads together. But he saw reasons for denying himself that pleasure, and fell back on the more ethereal weapons of his own wit. "Hullo, puddin' 'ead," he began, "'ow's your pa and your ma to-day? Find the Old Bailey a 'ealthy place, don't they?" Reginald favoured the speaker by way of answer with a stare of mingled scorn and wrath, which greatly elevated that gentleman's spirits. "'Ow long is it they've got? Seven years, ain't it? My eye, they won't know you when they come out, you'll be so growed." The wrath slowly faded from Reginald's face, as the speaker proceeded, leaving only the scorn to testify to the interest he took in this intellectual display. Horace, delighted to see there was no prospect of a "flare-up," smiled, and began almost to enjoy himself. "I say," continued Barber, just a little disappointed to find that his exquisite humour was not as electrical in its effect as it would have been on any one less dense than the Crudens, "'ow is it you ain't got a clean collar on to-day, and no scent on your 'andkerchers--eh?" This was getting feeble. Even Mr Barber felt it, for he continued, in a more lively tone,-- "Glad we ain't got many of your sickening sort 'ere; snivelling school- boy brats, that's what you are, tired of pickin' pockets, and think you're goin' to show us your manners. Yah! if you wasn't such a dirty ugly pair of puppy dogs I'd stick you under the pump--so I would." Reginald yawned, and walked off to watch a compositor picking up type out of a case. Horace, on the other hand, appeared to be deeply interested in Mr Barber's eloquent observations, and inquired quite artlessly, but with a twinkle in his eye,--"Is the pump near here? I was looking for it everywhere yesterday." It was Mr Barber's turn to stare. He had not expected this, and he did not like it, especially when one or two of the men and boys near, who had failed to be convulsed by his wit, laughed at Horace's question. After all, moral flagellation does not always answer, and when one of the victims yawns and the other asks a matter-of-fact questions it is disconcerting even to an accomplished operator. However, Barber gallantly determined on one more effort. "Ugh--trying to be funny, are you, Mr Snubnose? Best try and be honest if you can, you and your mealy-mug brother. It'll be 'ard work, I know, to keep your 'ands in your own pockets, but you'd best do it, do you 'ear--pair of psalm-singin' twopenny-ha'penny puppy dogs!" This picturesque peroration certainly deserved some recognition, and might possibly have received it, had not Mr Durfy's entrance at that particular moment sent the idlers back suddenly to their cases. Reginald, either heedless of or unconcerned at the new arrival, remained listlessly watching the operations of the compositor near him, an act of audacity which highly exasperated the overseer, and furnished the key- note for the day's entertainment. For Mr Durfy, to use an expressive term, had "got out of bed the wrong side" this morning. For the matter of that, after the blowing-up about the back case-room, he had got into it the wrong side last night, so that he was doubly perturbed in spirit, and a short conversation he had just had with the manager below had not tended to compose him. "Durfy," said that brusque official, as the overseer passed his open door, "come in. What about those two lads I sent up to you yesterday? Are they any good?" "Not a bit," growled Mr Durfy; "fools both of them." "Which is the bigger fool?" "The old one." "Then keep him for yourself--put him to composing, and send the other one down here. Send him at once, Durfy, do you hear?" With this considerately worded injunction in his ears it is hardly to be wondered at that Mr Durfy was not all smiles as he entered the domain which owned his sway. His eye naturally lit on Reginald as the most suitable object on which to relieve his feelings. "Now, then, there," he called out. "What do you mean by interfering with the men in their work?" "I'm not interfering with anybody," said Reginald, looking up with glowing cheeks, "I'm watching this man." "Come out of it, do you hear me? Why don't you go about your own work?" "I've been waiting here ten-minutes for you." "Look here," said Mr Durfy, his tones getting lower as his passion rose; "if you think we're going to keep you here to give us any of your impudence you're mistaken; so I can tell you. It's bad enough to have a big fool put into the place for charity, without any of your nonsense. If I had my way I'd give you your beggarly eighteen shillings a week to keep you away. Go to your work." Reginald's eyes blazed out for a moment on the speaker in a way which made Horace, who heard and saw all, tremble. But he overcame himself with a mighty effort, and said,-- "Where?" Mr Durfy glanced round the room. "Young Gedge!" he called out. A boy answered the summons. "Clear that rack between you and Barber, and put up a pair of cases for this fool here, and look after him. Off you go! and off _you_ go," added he, rounding on Reginald, "and if we don't make it hot for you among us I'm precious mistaken." It was a proud moment certainly for the cock of the fifth at Wilderham to find himself following meekly at the heels of a youngster like Gedge, who had been commissioned to put him to work and look after him. But Reginald was too sick at heart and disgusted to care what became of himself, as long as Mr Durfy's odious voice ceased to torment his ears. The only thing he did care about was what was to become of Horace. Was he to be put in charge of some one too, or was he to remain a printer's devil? Mr Durfy soon answered that question. "What are you standing there for?" demanded he, turning round on the younger brother as soon as he had disposed of the elder. "Go down to the manager's room at once; you're not wanted here." So they were to be separated! There was only time to exchange one glance of mutual commiseration and then Horace slowly left the room with sad forebodings, more on his brother's account than his own, and feeling that as far as helping one another was concerned they might as well be doomed to serve their time at opposite ends of London. Gedge, under whose imposing auspices Reginald was to begin his typographical career, was a diminutive youth who, to all outward appearances, was somewhere about the tender age of fourteen, instead of, as was really the case, being almost as old as Reginald himself. He was facetiously styled "Magog" by his shopmates, in allusion to his small stature, which required the assistance of a good-sized box under his feet to enable him to reach his "upper case." His face was not an unpleasant one, and his voice, which still retained its boyish treble, was an agreeable contrast to that of most of the "gentlemen of the case" in Mr Durfy's department. For all that, Reginald considered himself much outraged by being put in charge of this chit of a child, and glowered down on him much as a mastiff might glower on a terrier who presumed to do the honour of his back yard for his benefit. However, the terrier in this case was not at all disheartened by his reception, and said cheerily as he began to clear the frame,-- "You don't seem to fancy it, I say. I don't wonder. Never mind, I shan't lick you unless you make me." "Thanks," said Reginald, drily, but scarcely able to conceal a smile at this magnanimous declaration. "Magog" worked busily away, putting away cases in the rack, dusting the frame down with his apron, and whistling softly to himself. "Thanks for helping me," said he, after a time, as Reginald still stood by doing nothing. "I could never have done it all by myself." Reginald blushed a little at this broad hint, and proceeded to lift down a case. But he nearly upset it in doing so, greatly to his companion's horror. "You'd better rest," he said, "you'll be fagged out. Here, let me do it. There you are. Now we're ready to start you. I've a good mind to go and get old Tacker to ring up the big bell and let them know you're just going to begin." Reginald could hardly be offended at this good-natured banter, and, as Gedge was after all a decent-looking boy, and aspirated his "h's," and did not smell of onions, he began to think that if he were doomed to drudge in this place he might have been saddled with a more offensive companion. "It's a pity to put Tacker to the trouble, young 'un," said he; "he'll probably ring when I'm going to leave off, and that'll do as well." "That's not bad for you," said Gedge, approvingly; "not half bad. Go on like that, and you'll make a joke in about a fortnight." "Look here," said Reginald, smiling at last. "I shall either have to punch your head or begin work. You'd better decide which you'd like best." "Well, as Durfy is looking this way," said Gedge, "I suppose you'd better begin work. Stick that pair of empty cases up there--the one with the big holes below and the other one above. You needn't stick them upside down, though, unless you particularly want to; they look quite as well the right way. Now, then, you'd better watch me fill them, and see what boxes the sorts go in. No larks, now. Here goes for the `m's.'" So saying, Mr "Magog" proceeded to fill up one box with types of the letter "m," and another box some distance off with "a's," and another with "b's," and so on, till presently the lower of the two cases was nearly full. Reginald watched him with something like admiration, inwardly wondering if he would ever be able to find his way about this labyrinth of boxes, and strongly of opinion that only muffs like printers would think of arranging the alphabet in such an absurdly haphazard manner. The lower case being full up, Gedge meekly suggested that as he was yet several feet from his full size, they might as well lift the upper case down while it was being filled. Which done, the same process was repeated, only with more apparent regularity, and the case having been finally tilted up on the frame above the lower case, the operator turned round with a pleased expression, and said,-- "What do you think of that?" "Why, I think it's very ridiculous not to put the `capital J' next to the `capital I,'" said Reginald. Gedge laughed. "Go and tell Durfy that; he'd like to hear it." Reginald, however, denied himself the pleasure of entertaining Mr Durfy on this occasion, and occupied himself with picking up the types and inspecting them, and trying to learn the geography of his cases. "Now," said "Magog," mounting his box, and taking his composing-stick in his hand, "keep your eye on me, young fellow, and you'll know all about it." And he proceeded to "set-up" a paragraph for the newspaper from a manuscript in front of him at a speed which bewildered Reginald and baffled any attempt on his part to follow the movements of the operator's hand among the boxes. He watched for several minutes in silence until Gedge, considering he had exhibited his agility sufficiently, halted in his work, and with a passing shade across his face turned to his companion and said,-- "I say, isn't this a beastly place?" There was something in his voice and manner which struck Reginald. It was unlike a common workman, and still more unlike a boy of Gedge's size and age. "It is beastly," he said. "I'm awfully sorry for you, you know," continued Gedge, in a half- whisper, and going on with his work at the same time, "because I guess it's not what you're used to." "I'm not used to it," said Reginald. "Nor was I when I came. My old screw of an uncle took it into his head to apprentice me here because he'd been an apprentice once, and didn't see why I should start higher up the ladder than he did. Are you an apprentice?" "No, not that I know of," said Reginald, not knowing exactly what he was. "Lucky beggar! I'm booked here for nobody knows how much longer. I'd have cut it long ago if I could. I say, what's your name?" "Cruden." "Well, Cruden, I'm precious glad you've turned up. It'll make all the difference to me. I was getting as big a cad as any of those fellows there, for you're bound to be sociable. But you're a nicer sort, and it's a good job for me, I can tell you." Apart from the flattery of these words, there was a touch of earnestness in the boy's voice which struck a sympathetic chord in Reginald's nature, and drew him mysteriously to this new hour-old acquaintance. He told him of his own hard fortunes, and by what means he had come down to his present position. Gedge listened to it all eagerly. "Were you really captain of the fifth at your school?" said he, almost reverentially. "I say! what an awful drop this must be! You must feel as if you'd sooner be dead." "I do sometimes," said Reginald. "I know I would," replied Gedge, solemnly, "if I was you. Was that other fellow your brother, then?" "Yes." Gedge mused a bit, and then laughed quietly. "How beautifully you two shut up Barber between you just now," he said; "it's the first snub he's had since I've been here, and all the fellows swear by him. I say, Cruden, it's a merciful thing for me you've come. I was bound to go to the dogs if I'd gone on as I was much longer." Reginald brightened. It pleased him just now to think any one was glad to see him, and the spontaneous way in which this boy had come under his wing won him over completely. "We must manage to stick together," he said. "Horace, you know, is working in another part of the office. It's awfully hard lines, for we set our minds on being together. But it can't be helped; and I'm glad, any way, you're here, young 'un." The young 'un beamed gratefully by way of response. The paragraph by this time was nearly set-up, and the conversation was interrupted by the critical operation of lifting the "matter" from the stick and transferring it to a "galley," a feat which the experienced "Magog" accomplished very deftly, and greatly to the amazement of his companion. Just as it was over, and Reginald was laughingly hoping he would not soon be expected to arrive at such a pitch of dexterity, Mr Durfy walked up. "So that's what you call doing your work, is it? playing the fool, and getting in another man's way. Is that all you've done?" Reginald glared at him, and answered,-- "I'm not playing the fool." "Hold your tongue and don't answer me, you miserable puppy! Let me see what you have done." "I've been learning the boxes in the case," said Reginald. Mr Durfy sneered. "You have, have you? That's what you've been doing the last hour, I suppose. Since you've been so industrious, pick me out a lower-case `x,' do you hear?" Reginald made a vague dive at one of the boxes, but not the right one, for he produced a `z.' "Ah, I thought so," said Mr Durfy, with a sneer that made Reginald long to cram the type into his mouth. "Now let's try a capital `J.'" As it happened, Reginald knew where the capital "J" was, but he made no attempt to reach it, and answered,-- "If you want a capital `J,' Mr Durfy, you can help yourself." "Magog" nearly jumped out of his skin as he heard this audacious reply, and scarcely ventured to look round to notice the effect of it on Mr Durfy. The effect was on the whole not bad. For a moment the overseer was dumbfounded and could not speak. But a glance at the resolute pale boy in front of him checked him in his impulse to use some other retort but the tongue. As soon as words came he snarled,-- "Ho! is it that you mean, my beauty? All right, we'll see who's master here; and if I am, I'm sorry for you." And he turned on his heel and went. "You've done it now," said "Magog," in an agitated whisper--"done it clean." "Done what?" asked Reginald. "Done it with Durfy. He will make it hot for you, and no mistake. Never mind, if the worst comes to the worst you can cut. But hold on as long as you can. He'll make you go some time or another." "He won't make me go till I choose," replied Reginald. "I'll stick here to disappoint him, if I do nothing else." The reader may have made up his mind already that Reginald was a fool. I'm afraid he was. But do not judge him harshly yet, for his troubles are only beginning. CHAPTER SEVEN. AN EXCITING END TO A DULL DAY. Horace meanwhile had wended his way with some trepidation and curiosity to the manager's sanctum. He felt uncomfortable in being separated from Reginald at all, especially when the latter was left single-handed in such an uncongenial atmosphere as that breathed by Mr Durfy and Barber. He could only hope for the best, and, meanwhile, what fate was in store for himself? He knocked at the manager's door doubtfully and obeyed the summons to enter. Brusque man as the manager was, there was nothing disagreeable about his face as he looked up and said, "Oh--you're the youngster Mr Richmond put in here?" "Yes, sir, my brother and I are." "Yes, and I hear you're both fools. Is that the case?" "Reginald isn't, whatever I am," said Horace, boldly. "Isn't he? I'm told he's the bigger fool of the two. Never mind that, though--" "I assure you," began Horace, but the manager stopped him. "Yes, yes. I know all about that. Now, listen to me. I dare say you're both well-meaning boys, and Mr Richmond is interested in you. So I've promised to make room for you here, though it's not convenient, and the wages you are to get are out of all proportion to your value--so far." Horace was glad at least that the manager dropped in those last two words. "If your brother is clever and picks up his work soon and doesn't give himself airs he'll get on faster than you. I can't put you at case, but they want a lad in the sub-editor's room. Do you know where that is?" "Yes, sir," said Horace, "I took some proofs there yesterday. But, sir--" "Well, what?" said the manager, sharply. "Is there no possibility of Reginald and me being together?" faltered the boy. "Yes--outside if you're discontented," said the manager. It was evidently no use, and Horace walked dismally to the door. The manager looked after him. "Take my advice," said he, rather more kindly than he had hitherto spoken; "make the best of what you've got, young fellow, and it'll be better still in time. Shut the door after you." The sub-editor's room--or rooms, for there was an inner and an outer sanctum--was in a remote dark corner of the building, so dark that gas was generally burning in it all day long, giving its occupants generally the washed-out pallid appearance of men who do not know when day ends or night begins. The chief sub-editor was a young, bald-headed, spectacled man of meek appearance, who received Horace in a resigned way, and referred him to the clerks in the outer room, who would show him how he could make himself useful. Feeling that, so far as he was concerned, he had fallen on his feet, and secretly wishing poor Reginald was in his shoes, Horace obeyed and retired to the outer room. The occupants of that apartment were two young gentlemen of from eighteen to twenty years of age, who, it was evident at a glance, were not brothers. One was short and fair and chubby, the other was lank and lean and cadaverous; one was sorrowful and lugubrious in countenance; the other seemed to be spending his time in trying hard not to smile, and not succeeding. The only thing they did appear to share in common was hard work, and in this they were so fully engrossed that Horace had to stand a full minute at the table before they had leisure to look up and notice him. "The gentleman in there," said Horace, addressing the lugubrious youth as being the more imposing of the two, "said if I came to you you could set me to work." The sad one gave a sort of groan and said,-- "Ah, he was right there. It _is_ work." "I say," said the other youth, looking up, "don't frighten the kid, Booms; you'll make him run away." "I wish _I_ could run away," said Booms, in an audible soliloquy. "So you can if you like, you old crocodile. I say, young 'un, have you got a chair?" Horace had to confess he had not a chair about him. "That's a go; we've only two here. We shall have to take turns on them. Booms will stand first, won't you, Booms?" "Oh, of course," said Booms, rising and pushing his chair towards Horace. "Thanks," said Horace, "but I'd sooner stand, really." "No, no," said Booms, resignedly; "I'm to stand, Waterford says so." "Sit down, young 'un," said Waterford, "and don't mind him. He won't say so, but he's awfully glad to stand up for a bit and stretch his legs. Now, do you see this lot of morning papers--you'll see a lot of paragraphs marked at the side with a blue pencil. You've got to cut them out. Mind you don't miss any. Sure you understand?" Horace expressed himself equal to this enormous task, and set to work busily with his scissors. If he had had no one but himself to consider he would have felt comparatively happy. He found himself in a department of work which he liked, and which, though at first not very exciting, promised some day to become interesting. His chief was a gentleman not likely to interfere with him as long as he did his work steadily, and his companions were not only friendly but entertaining. If only Reginald could have a seat at this table too, Horace felt he could face the future cheerily. How, he wondered, was the poor fellow getting on that moment in his distant uncongenial work? "You're not obliged to read all the paragraphs, you know," said Waterford, as Horace's hand slackened amid these musings. "It's a close shave to get done as it is, and he's marked a frightful lot this morning." He was right. All the cuttings had to be taken out and pasted on sheets before twelve o'clock, and it took the three of them, hard at work with scissors and paste, to get the task accomplished. They talked very little, and joked still less; but when it was all done, like three honest men, they felt pleased with themselves, and decidedly amiable towards one another. "Now Booms is going out for the grub, aren't you, Booms? He'll get some for you too, young 'un, if you like." "No, thanks; I'd be very glad, but I promised to have dinner with my brother--he's a compositor here." "Lucky man!" groaned Booms. "Think of having nothing to do but pick up types instead of slaving like this every day!" "See the sausages are hot this time, won't you, Booms? And look alive, there's a dear fellow." Booms retired sadly. "Good-natured chap, Booms," said Waterford; "rather a risk of imposing on him if one isn't careful. He's an awfully decent fellow, but it's a sad pity he's such a masher." "A what?" asked Horace. "A masher. He mayn't look it, but he goes it rather strong in that line after hours. He doesn't mean it, poor soul; but he's mixed up with some of our reporters, and tries to go the pace with them. I don't care for that sort of thing myself, but if you do, he's just your man. You wouldn't think it to look at him, would you?" "Certainly not," replied Horace, much impressed by this confidence and the revelation it afforded. As Booms re-entered shortly afterwards, looking very gloomy, burdened with two plates, two mugs, and a sheaf of knives and forks under his arm, he certainly did not give one the impression of a very rakish character, and Horace could scarcely refrain from smiling as he tried to picture him in his after-hours character. He left the couple to their sausages, and went out, in the vain hope of finding Reginald somewhere. But there was no sign of workmen anywhere, and, to his disgust, he ascertained from a passing boy that the compositors' dinner-hour did not begin till he was due back at his work. Everything seemed to conspire to sever the two brothers, and Horace dejectedly took a solitary and frugal repast. He determined, at all hazards, to wait a minute after the bell summoning him back to work had ceased pealing, and was rewarded by a hasty glimpse of his brother, and the exchange of a few hurried sentences. It was better than nothing, and he rushed back to his room just in time to save his reputation for punctuality. The afternoon passed scarcely less busily than the morning. They sat-- and Booms had contrived to raise a third chair somewhere--with a pile of work in front of them which at first seemed hopeless to expect to overtake. There were effusions to "decline with thanks," and others to enter in a book and send up to the composing-room; there were some letters to write and others to answer; there were reporters' notes to string together and telegrams to transcribe. And all the while a dropping fire of proofs and revises and messages was kept up at them from without, which they had to carry to their chief and deal with according to his orders. Horace, being inexperienced, was only able to take up the simpler portions of this miscellaneous work, but these kept him busy, "hammer and tongs," with scarcely time to sneeze till well on in the afternoon. The _Rocket_, unlike most evening papers, waited till the evening before it appeared, and did not go to press till five o'clock. After that it issued later editions once an hour till eight o'clock, and on special occasions even as late as ten. The great rush of the day, therefore, as Horace soon discovered, was over at five o'clock, but between that hour and seven there was always plenty to do in connection with the late editions and the following day's work. At seven o'clock every one left except a sub-editor and one of the clerks, and one or two compositors, to see after the eight o'clock and any possible later edition. "As soon as you get your hand in, young 'un, you'll have to take your turn at late work. Booms and I take every other night now." Horace could say nothing against this arrangement, though it meant more separation from Reginald. At present, however, his hand not being in, he had nothing to keep him after the seven o'clock bell, and he eagerly escaped at its first sound to look for Reginald. Not, however, till he had witnessed a strange sight. About a quarter to seven Booms, whose early evening it was, showed signs of uneasiness. He glanced sorrowfully once or twice at the clock, then at Horace, then at Waterford. Then he got up and put his papers away. Finally he mused on a washhand basin in a corner of the room, and said dolefully,-- "I must dress, I think, Waterford." "All serene," said Waterford, briskly, "the young 'un and I will finish up here." Then nudging Horace, he added in a whisper, "He's going to rig up now. Don't pretend to notice him, that's all." Booms proceeded to divest himself of his office coat and waistcoat and collar, and to roll up the sleeves of his flannel shirt, preparatory to an energetic wash. He then opened a small box in a corner of the room, from which he produced, first a clothes-brush, with which he carefully removed all traces of dust from his nether garments; after that came a pair of light-coloured "pats," which he fitted on to his boots; then came a bottle of hair-oil, and afterwards a highly-starched "dicky," or shirt-front, with a stud in it, which by a complicated series of strings the owner contrived to fasten round his neck so as to conceal effectually the flannel shirt-front underneath. Once more he dived, and this time the magic box yielded up what seemed to Horace's uninitiated eyes to be a broad strip of stiff cardboard, but which turned out to be a collar of fearful and wonderful proportions, which, when once adjusted, fully explained the wisdom displayed by the wearer in not deferring the brushing of his trousers and the donning of his "pats" to a later stage of the proceedings. For nothing, not even a pickpocket at his gilt watch-chain with its pendant "charms," could lower his chin a quarter of an inch till bed-time. But more was yet to come. There were cuffs to put on, which left one to guess what had become of Mr Booms's knuckles, and a light jaunty necktie to embellish the "dicky." Then, with a plaintive sigh, he produced a blue figured waistcoat, and after it a coat shaped like the coat of a robin to cover all. Finally there appeared a hat, broad-brimmed, low-crowned, and dazzling in its glossiness, a pair of gay dogskin gloves, a crutch walking-stick, a pink silk handkerchief, and then this joint work of art and nature was complete! "All right?" said he, in melancholy tones, as he set his hat a little on one side of his head, and, with his stick under his arm, began with his gloves. Waterford got up and walked slowly and critically round him, giving a few touches here and there, and brushing a little stray dust from his collar. "All right, dear boy. Mind how you go, and--" "Oh!" groaned Booms, in tones of dire distress, "I knew I should forget something. Would you mind, Waterford?" "What is it?" "My glass--it's in the box, and--and I should have got it out before I put the collar on. Thanks; I should have been lost without it. Oh! if I _had_ forgotten it!" With this awful reflection in his mind he bade a sorrowful good-night and walked off, with his head very erect, his elbows high up, and one hand fondling the nearly-neglected eyeglass. "Pretty, isn't it?" said Waterford, as he disappeared. "It is--rot," said Horace, emphatically. "Why ever don't you laugh him out of it?" "My dear boy, you might as well try to laugh the hair off his head. I've tried it a dozen times. After all, the poor dear fellow means no harm." "But what does he do now?" "Oh, don't ask me. According to his own account he's the fastest man about town--goes to all the shows, hobnobs with all the swells, smokes furious cigars, and generally `mashes.' But my private notion is he moons about the streets with the handle of his stick in his mouth and looks in a few shop windows, and gets half a dozen oysters for supper, and then goes home to bed. You see he couldn't well get into much mischief with that collar on. If he went in for turn-downs I'd be afraid of him." The bell cut further conversation short, and in another minute Horace and Reginald were walking arm-in-arm in the street outside. There was much to talk about, much to lament over, and a little to rejoice over. Horace felt half guilty as he told his brother of his good fortune, and the easy quarters into which he had fallen. But Reginald was in too defiant a mood to share these regrets as much as he would have done at any other time. As long as Durfy wanted to get rid of him, so long was he determined to stay where he was, and meanwhile in young Gedge he had some one to look after, which would make the drudgery of his daily work tolerable. Horace did not altogether like it, but he knew it was no use arguing then on the subject. They mutually agreed to put the best face on everything before their mother. She was there to meet them at the door, and it rejoiced her heart to hear their brave talk and the cheery story of their day's adventures. All day long her heart had gone out to them in yearnings of prayer and hope and love, and it repaid her a hundred- fold, this hour of happy meeting, with the sunlight of their faces and the music of their voices filling her soul. As soon as supper was over Reginald suggested a precipitate retreat into the streets, for fear of another neighbourly incursion. Mrs Cruden laughingly yielded, and the trio had a long walk, heedless where they went, so long as they were together. They wandered as far as Oxford Street, looking into what shops were open, and interested still more in the ever-changing stream of people who even at ten o'clock at night crowded the pavements. They met no one they knew, not even Booms. But it mattered little to them that no one noticed them. They had one another, and there was a sense of security and comfort in that which before these last few weeks they had never dreamed of. They were about to turn out of Oxford Street on their homeward journey when a loud shout close by arrested their attention. Looking round, they saw a boy with disordered dress and unsteady gait attempting to cross the road just as a hansom cab was bearing down at full speed on the place where he stood. They only saw his back, but it was evident he was either ill or dazed, for he stood stupidly where he was, with the peril in full-view, but somehow helpless to avoid it. The cabman shouted and pulled at his horse's head. But to the horrified onlookers it was only too clear that nothing could stop his career in time. He was already within a yard or two of the luckless boy when Reginald made a sudden dash into the road, charging at him with a violence that sent him staggering forward two paces and then brought him to the earth. Reginald fell too, on the top of him, and as the cab dashed past it just grazed the sole of his boot where he lay. It was all the work of a moment--the shout, the vision of the boy, and the rescue--so sudden, indeed, that Mrs Cruden had barely time to clutch Horace by the arm before Reginald lay prone in the middle of the road. In another moment Horace was beside his brother, helping him up out of the mud. "Are you hurt, old man?" "Not a bit," said Reginald, very pale and breathless, but rising to his feet without help. "Look out--there's a crowd--take mother home, and I'll come on as soon as I've seen this fellow safe. I'm not damaged a bit." With this assurance Horace darted back to his mother in time to extricate her from the crowd which, whatever happens, is sure to collect in the streets of London at a minute's warning. "He's all right," said Horace--"not hurt a bit. Come on, mother, out of this; he'll probably catch us up before we're home. I say," said he, and his voice trembled with excitement and brotherly pride as he spoke, "wasn't it splendid?" Mrs Cruden would fain have stayed near, but the crowd made it impossible to be of any use. So she let Horace lead her home, trembling, but with a heart full of thankfulness and pride and love for her young hero. Reginald, meanwhile, with the coolness of an old football captain, proceeded to pick up his man, and appealed to the crowd to stand back and give the fellow room. The boy lay half-stunned with his fall, his face covered with mud, but to Reginald's delight he was able to move and with a little help stand on his feet. As he did so the light from the lamp of the cab fell on his face, and caused Reginald to utter an exclamation of surprise and horror. "Young Gedge!" The boy looked at him for a moment in a stupid bewildered way, and then gave a short startled cry. "Are you hurt?" said Reginald, putting his arm round him. "No--I--I don't think--let's get away." Reginald called to the crowd to stand back and let them out, an order which the crowd obeyed surlily and with a disappointed grunt. Not even a broken leg! not even the cabman's number taken down! One or two who had seen the accident patted Reginald on the back as he went by, but he hurried past them as quickly as he could, and presently stood in the seclusion of a by-street, still supporting his companion on his arm. "Are you hurt?" he inquired again. "No," said Gedge; "I can walk." The two stood facing one another for a moment in silence, breathless still, and trembling with the excitement of the last few minutes. "Oh, Cruden!" cried the boy at last, seizing Reginald's arm, "what will you think of me? I was--I--I'd been drinking--I'm sober now, but--" Reginald cut him short gently but firmly. "I know," said he. "You'd better go home now, young 'un." Gedge made no answer, but walked on, with his arm still in that of his protector. Reginald saw him into an omnibus, and then returned sadly and thoughtfully homeward. "Humph!" said he to himself, as he reached Dull Street, "I suppose I shall have to stick on at the _Rocket_ after all." CHAPTER EIGHT. MR. DURFY GIVES REGINALD A TESTIMONIAL. Reginald Cruden was a young man who took life hard and seriously. He was not brilliant--indeed, he was not clever. He lacked both the good sense and the good-humour which would have enabled him, like Horace, to accept and make the best of his present lot. He felt aggrieved by the family calamity, and just enough ashamed of his poverty to make him touchy and intractable to a degree which, as we have seen already, amounted sometimes almost to stupidity. Still Reginald was honest. He made no pretence of enjoying life when he did not enjoy it. He disliked Mr Durfy, and therefore he flared up if Mr Durfy so much as looked at him. He liked young Gedge, and therefore it was impossible to leave the youngster to his fate and let him ruin himself without an effort at rescue. It is one thing to snatch a heedless one from under the hoofs of a cab- horse and another to pick him up from the slippery path of vice and set him firmly on his feet. Reginald had thought nothing of the one, but he looked forward with considerable trepidation to meeting the boy next morning and attempting the other. Gedge was there when he arrived, working very busily, and looking rather troubled. He flushed up as Reginald approached, and put down his composing-stick to shake hands with him. Reginald looked and felt by a long way the more uncomfortable and guilty of the two, and he was at least thankful that Gedge spared him the trouble of beginning. "Oh! Cruden," said the boy, "I know exactly what you're going to say. You're going to tell me you're deceived in me, and that I'm a young fool and going to the dogs as hard as I can. I don't wonder you think so." "I wasn't going to say that," said Reginald. "I was going to ask you how you were." "Oh, I'm all right; but I know you're going to lecture me, Cruden, and I'm sure you may. There's nothing you can say I don't deserve. I only wish I could make you believe I'll never be such a fool again. I've been making resolutions all night, and now you've come here I'm sure I shall be able to break it off. If you will only stand by me, Cruden! I owe you such a lot. If you only knew how grateful I was!" "Perhaps we'd better not talk about it now," said Reginald, feeling very uncomfortable and rather disconcerted at this glib flow of penitence. But young Gedge was full of it yet, and went on,-- "I'm going to turn over a new leaf this very day, Cruden. I've told the errand-boy he's not to get me any beer, and I'm determined next time that beast Durfy asks me to go--" "What!" exclaimed Reginald; "was it with him you used to go?" "Yes. I know you'll think all the worse of me for it, after the blackguard way he's got on to you. You see, before you came I didn't like--that is, I couldn't well refuse him; he'd have made it so hot for me here. I fancy he found out I had some pocket-money of my own, for he generally picked on me to come and have drinks with him, and of course I had to pay. Why, only last night--look out, here he comes!" Sure enough he was, and in his usual amiable frame of mind. "Oh, there you are, are you?" he said to Reginald, with a sneer. "Do you know where the lower-case `x' is now, eh?" Reginald, swelling with the indignation Gedge's story had roused in him, turned his back and made no answer. Nothing, as he might have known by this time, could have irritated Mr Durfy more. "Look here, young gentleman," said the latter, coming close up to Reginald's side and hissing the words very disagreeably in his ear, "when I ask a question in this shop I expect to get an answer; mind that. And what's more, I'll have one, or you leave this place in five minutes. Come, now, give me a lower-case `x.'" Reginald hesitated a moment. Suppose Mr Durfy had it in him to be as good as his word. What then about young Gedge? He picked up an "x" sullenly, and tossed it at the overseer's feet. "That's not giving it to me," said the latter, with a sneer of triumph already on his face. "Pick it up directly, do you hear? and give it to me." Reginald stood and glared first at Mr Durfy, then at the type. Yesterday he would have defiantly told him to pick it up himself, caring little what the cost might be. But things had changed since then. Humiliating as it was to own it, he could not afford to be turned off. His pride could not afford it, his care for young Gedge could not afford it, the slender family purse could not afford it. Why ever did he not think of it all before, and spare himself this double indignity? With a groan which represented as much inward misery and humiliation as could well be compressed into a single action, he stooped down and picked up the type and handed it to Mr Durfy. It was well for him he did not raise his eyes to see the smile with which that gentleman received it. "Next time it'll save you trouble to do what you're told at once, Mr Puppy," he said. "Get on with your work, and don't let me catch you idling your time any more." And he walked off crowned with victory and as happy in his mind as if he had just heard of the decease of his enemy the manager. It was a bad beginning to the day for Reginald. He had come to work that morning in a virtuous frame of mind, determined, if possible, to do his duty peaceably and to hold out a helping hand to young Gedge. It was hard enough now to think of anything but his own indignities and the wretch to whom he owed them. He turned to his work almost viciously, and for an hour buried himself in it, without saying a word or lifting his eyes from his case. Then young Gedge, stealing a nervous glance at his face, ventured to say,-- "I say, Cruden, I wish I could stand things like you. I don't know what I should have done if that blackguard had treated me like that." "What's the use?" said Reginald. "He wants to get rid of me, and I'm not going to let him." "I'm jolly glad of it for my sake. I wish I could pay him out for you." "So you can." "How?" "Next time he wants you to go and drink, say No," said Reginald. "Upon my word I will," said Gedge; "and I don't care how hot he makes it for me, if you stick by me, Cruden." "You know I'll stick by you, young 'un," said Reginald; "but that won't do you much good, unless you stick by yourself. Suppose Durfy managed to get rid of me after all--" "Then I should go to--to the dogs," said Gedge, emphatically. "You're a greater fool than I took you for, then," said Reginald. "If you only knew," he added more gently, "what a job it is to do what's right myself, and how often I don't do it, you'd see it's no use expecting me to be good for you and myself both." "What on earth am I to do, then? I'm certain I can't keep square myself; I never could. Who's to look after me if you don't?" Like a brave man, Reginald, shy and reserved as he was, told him. I need not repeat what was said that morning over the type cases. It was not a sermon, nor a catechism; only a few stammering laboured words spoken by a boy who felt himself half a hypocrite as he said them, and who yet, for the affection he bore his friend, had the courage to go through with a task which cost him twenty times the effort of rescuing the boy yesterday from his bodily peril. Little good, you will say, such a sermon from such a perverse, bad- humoured preacher as Reginald Cruden, could do! Very likely, reader; but, after all, who are you or I to say so? Had any one told Reginald a week ago what would be taking place to-day, he would have coloured up indignantly and hoped he was not quite such a prig as all that. As it was, when it was all over, it was with no self-satisfied smile or inward gratulation that he returned to his work, but rather with the nervous uncomfortable misgivings of one who says to himself,-- "After all I may have done more harm than good." By the end of a fortnight Reginald, greatly to Mr Durfy's dissatisfaction, was an accomplished compositor. He could set-up almost as quickly as Gedge, and his "proofs" showed far fewer corrections. Moreover, as he was punctual in his hours, and diligent at his work, it was extremely difficult for the overseer or any one else to find any pretext for abusing him. It is true, Mr Barber, who had not yet given up the idea of asserting his moral and intellectual superiority, continued by the ingenious device of "squabbling" his case, and tampering with the screw of his composing-stick, and other such pleasing jokes not unknown to printers, to disconcert the new beginner on one or two occasions. But ever since Reginald one morning, catching him in the act of mixing up his e's with his a's, had carried him by the collar of his coat and the belt of his breeches to the water tank and dipped his head therein three times with no interval for refreshment between, Mr Barber had moderated his attentions and become less exuberant in his humour. With the exception of Gedge, now his fast ally, Reginald's other fellow- workmen concerned themselves very little with his proceedings. One or two, indeed, noticing his proficiency, hinted to him that he was a fool to work for the wages he was getting, and some went so far as to say he had no right to do so, and had better join the "chapel" to save trouble. What the "chapel" was Reginald did not trouble even to inquire, and replied curtly that it was no business of any one else what his wages were. "Wasn't it?" said the deputation. "What was to become of them if fellows did their work for half wages, they should like to know?" "Are you going off, or must I make you?" demanded Reginald, feeling he had had enough of it. And the deputation, remembering Barber's head and the water tank, withdrew, very much perplexed what to do to uphold the dignity of the "chapel." They decided to keep their "eye" on him, and as they were able to do this at a distance, Reginald had no objection at all to their decision. He meanwhile was keeping his eye on Gedge and Mr Durfy, and about a fortnight after his arrival at the _Rocket_, a passage of arms occurred which, slight as it was, had a serious influence on the future of all three parties concerned. The seven o'clock bell had rung, and this being one of Horace's late evenings, Reginald proposed to Gedge to stroll home with him and call and see Mrs Cruden. The boy accepted readily, and the two were starting off arm in arm when Mr Durfy confronted them. Reginald, who had never met his adversary beyond the precincts of the _Rocket_ before, did not for a moment recognise the vulgar, loudly dressed little man, sucking his big cigar and wearing his pot hat ostentatiously on one side; but when he did he turned contemptuously aside and said,-- "Come on, young 'un." "Come on, young 'un!" echoed Mr Durfy, taking his cigar from his mouth and flicking the ashes in Reginald's direction, "that's just what I was going to say. Young Gedge, you're coming with me to-night. I've got orders for the Alhambra, my boy, and supper afterwards." "Thank you," said Gedge, rather uncomfortably, "it's very kind of you, Mr Durfy, but I've promised Cruden to go with him." "Promised Cruden! What do you mean? Cruden'll keep till to-morrow; the orders won't." "I'm afraid I can't," said Gedge. "Afraid! I tell you I don't mean to stand here all night begging you. Just come along and no more nonsense. We'll have a night of it." "You must excuse me," said the boy, torn between Reginald on the one hand and the fear of offending Durfy on the other. The latter began to take in the position of affairs, and his temper evaporated accordingly. "I won't excuse you; that's all about it," he said; "let go that snivelling lout's arm and do what you're told. Let the boy alone, do you hear?" added he, addressing Reginald, "and take yourself off. Come along, Gedge." "Gedge is not going with you," said Reginald, keeping the boy's arm in his; "he's coming with me, aren't you, young 'un?" The boy pressed his arm gratefully, but made no reply. This was all Mr Durfy wanted to fill up the vials of his wrath. "You miserable young hound you," said he, with an oath; "let go the boy this moment, or I'll turn you out of the place--and him too." Reginald made no reply. His face was pale, but he kept the boy's arm still fast in his own. "Going with you, indeed?" shouted Mr Durfy; "going with you, is he? to learn how to cant and sing psalms! Not if I know it--or if he does, you and he and your brother and your old fool of a mother--" Mr Durfy never got to the end of that sentence. A blow straight from the shoulder of the Wilderham captain sent him sprawling on the pavement before the word was well out of his mouth. It had come now. It had been bound to come sooner or later, and Reginald, as he drew the boy's arm once more under his own, felt almost a sense of relief as he stood and watched Mr Durfy slowly pick himself up and collect his scattered wardrobe. It was some time before the operation was complete, and even then Mr Durfy's powers of speech had not returned. With a malignant scowl he stepped up to his enemy and hissed the one menace,-- "All right!" and then walked away. Reginald waited till he had disappeared round the corner, and then, turning to his companion, took a long breath and said,-- "Come along, young 'un; it can't be helped." The reader must forgive me if I ask him to leave the two lads to walk to Dull Street by themselves, while he accompanies me in the wake of the outraged and mud-stained Mr Durfy. That gentleman was far more wounded in his mind than in his person. He may have been knocked down before in his life, but he had never, as far as he could recollect, been quite so summarily routed by a boy half his age earning only eighteen shillings a week! And the conviction that some people would think he had only got his deserts in what he had suffered, pained him very much indeed. He did not go to the Alhambra. His clothes were too dirty, and his spirits were far too low. He did, in the thriftiness of his soul, attempt to sell his orders in the crowd at the theatre door. But no one rose to the bait, so he had to put them back in his pocket on the chance of being able to "doctor up" the date and crush in with them some other day. Then he mooned listlessly up and down the streets for an hour till his clothes were dry, and then turned into a public-house to get a brush down and while away another hour. Still the vision of Reginald standing where he had last seen him with young Gedge at his side haunted him and spoiled his pleasure. He wandered forth again, feeling quite lonely, and wishing some one or something would turn up to comfort him. Nor was he disappointed. "The very chap," said a voice suddenly at his side when he was beginning to despair of any diversion. "So it is. How are you, my man? We were talking of you not two minutes ago." Durfy pulled up and found himself confronted by two gentlemen, one about forty and the other a fashionable young man of twenty-five. "How are you, Mr Medlock?" said he to the elder in as familiar a tone as he could assume; "glad to see you, sir. How are you, too, Mr Shanklin, pretty well?" "Pretty fair," said Mr Shanklin. "Come and have a drink, Durfy. You look all in the blues. Gone in love, I suppose, eh? or been speculating on the Stock Exchange? You shouldn't, you know, a respectable man like you." "He looks as if he'd been speculating in mud," said Mr Medlock, pointing to the unfortunate overseer's collar and hat, which still bore traces of his recent calamity. "Never mind; we'll wash it off in the Bodega. Come along." Durfy felt rather shy at first in his grand company, especially with the consciousness of his muddy collar. But after about half an hour in the Bodega he recovered his self-possession, and felt himself at home. "By the way," said Mr Medlock, filling up his visitor's glass, "last time we saw you you did us nicely over that tip for the Park Races, my boy! If Alf and I hadn't been hedged close up, we should have lost a pot of money." "I'm very sorry," said Durfy. "You see, another telegram came after the one I showed you, that I never saw; that's how it happened. I really did my best for you." "But it's a bad job, if we pay you to get hold of the _Rocket's_ telegrams and then lose our money over it," said Mr Medlock. "Never mind this time, but you'd better look a little sharper, my boy. There's the Brummagem Cup next week, you know, and we shall want to know the latest scratches on the night before. It'll be worth a fiver to you if you work it well, Durfy. Fill up your glass." Mr Durfy obeyed, glad enough to turn the conversation from the miscarriage of his last attempt to filch his employers' telegrams for the benefit of his betting friends' and his own pocket. "By the way," said Mr Shanklin, presently, "Moses and I have got a little Company on hand just now, Durfy. What do you think of that?" "A company?" said Mr Durfy; "I'll wager it's not a limited one, if you're at the bottom of it! What's your little game now?" "It's a little idea of Alf's," said Mr Medlock, whose Christian name was Moses, "and it ought to come off too. This is something the way of it. Suppose you were a young greenhorn, Durfy--which I'm afraid you aren't--and saw an advertisement in the _Rocket_ saying you could make two hundred and fifty pounds a year easy without interfering with your business, eh? what would you do?" "If I was a greenhorn," said Durfy, "I'd answer the advertisement and enclose a stamped envelope for a reply." "To be sure you would! And the reply would be, we'd like to have a look at you, and if you looked as green as we took you for, we'd ask for a deposit, and then allow you to sell wines and cigars and that sort of fancy goods to your friends. You'd sell a dozen of port at sixty shillings, do you see? half the cash down and half on delivery. We'd send your friend a dozen at twelve and six, and if he didn't shell out the other thirty bob on delivery, we'd still have the thirty bob he paid down to cover our loss. Do you twig?" Durfy laughed. "Do you dream all these things," he said, "or how do you ever think of them?" "Genius, my boy; genius," said Mr Medlock. "Of course," he added, "it couldn't run for long, but we might give it a turn for a month or two." "The worst of it is," put in Mr Shanklin, "it's a ticklish sort of business that some people are uncommon sharp at smelling out; one has to be very careful. There's the advertisement, for instance. You'll have to smuggle it into the _Rocket_, my boy. It wouldn't do for the governors to see it; they'd be up to it. But they'd never see it after it was in, and the _Rocket's_ just the paper for us." "I'll try and manage that," said Durfy. "You give it me, and I'll stick it in with a batch of others somehow." "Alf thinks we'd better do the thing from Liverpool," continued Mr Medlock, "and all we want is a good secretary--a nice, green, innocent, stupid, honest young fellow--that's what we want. If we could pick up one of that sort, there's no doubt of the thing working." Mr Durfy started and coloured up, and then looked first at Mr Medlock and then at Mr Shanklin. "What's the matter? Do you think _you'd_ suit the place?" asked the former, with a laugh. "No; but I know who will!" "You do! Who?" "A young puppy under me at the _Rocket_?" said Durfy, excitedly; "the very man to a T!" And he thereupon launched into a description of Reginald's character in a way which showed that not only was he a shrewd observer of human nature in his way, but, when it served his purpose, could see the good even in a man he hated. "I tell you," said he, "he's born for you, if you can only get him! And if you don't think so after what I've said, perhaps you'll believe me when I tell you, on the quiet, he knocked me down in the gutter this very evening because I wanted to carry off a young convert of his to make a night of it at the Alhambra. There, what do you think of that? I wouldn't tell tales of myself like that for fun, I can tell you!" "There's no mistake about that being the sort of chap we want," said Mr Medlock. "If only we can get hold of him," said Mr Shanklin. "Leave that to me," said Mr Durfy; "only if he comes to you never say a word about me, or he'll shy off." Whereupon these three guileless friends finished their glasses and separated in great good spirits and mutual admiration. CHAPTER NINE. SAMUEL SHUCKLEFORD COMES OF AGE. Reginald, meanwhile, blissfully unconscious of the arrangements which were being made for him, spent as comfortable an evening as he could in the conviction that to-morrow would witness his dismissal from the _Rocket_, and see him a waif on the great ocean of London life. To his mother, and even to young Gedge, he said nothing of his misgivings, but to Horace, as the two lay awake that night, he made a clean breast of all. "You'll call me a fool, I suppose," he said; "but how could I help it?" "A fool! Why, Reg, I know I should have done the same. But for all that, it _is_ unlucky." "It is. Even eighteen shillings a week is better than nothing," said Reginald, with a groan. "Poor mother was saying only yesterday we were just paying for our keep, and nothing more. What will she do now?" "Oh, you'll get into something, I'm certain," said Horace; "and meanwhile--" "Meanwhile I'll do anything rather than live on you and mother, Horrors; I've made up my mind to that. Why," continued he, "you wouldn't believe what a sneak I've been already. You know what Bland said about the football club in his letter? No, I didn't show it to you. He said it would go down awfully well if I sent the fellows my usual subscription. I couldn't bear not to do it after that, and I--I sold my tennis-bat for five shillings, and took another five shillings out of my last two weeks' wages, and sent them half a sov. the other day." Horace gave an involuntary whistle of dismay, but added, quickly,-- "I hope the fellows will be grateful for it, old man; they ought to be. Never mind, I'm certain we shall pull through it some day. We must hope for the best, anyhow." And with a brotherly grip of the hand they turned over and went to sleep. Reginald presented himself at the _Rocket_ next morning in an unusual state of trepidation. He had half made up his mind to march straight to the manager's room and tell him boldly what had happened, and take his discharge from him. But Horace dissuaded him. "After all," he said, "Durfy may think better of it." "Upon my word I hardly know whether I want him to," said Reginald, "except for young Gedge's sake and mother's. Anyhow, I'll wait and see, if you like." Mr Durfy was there when he arrived, bearing no traces of last night's _fracas_, except a scowl and a sneer, which deepened as he caught sight of his adversary. Reginald passed close to his table, in order to give him an opportunity of coming to the point at once; but to his surprise the overseer took no apparent notice of him, and allowed him to go to his place and begin work as usual. "I'd sooner see him tearing his hair than grinning like that," said young Gedge, in a whisper. "You may be sure there's something in the wind." Whatever it was, Mr Durfy kept his own counsel, and though Reginald looked up now and then and caught him scowling viciously in his direction, he made no attempt at hostilities, and rather appeared to ignore him altogether. Even when he was giving out the "copy" he sent Reginald his by a boy, instead of, as was usually his practice, calling him up to the table to receive it. Reginald's copy on this occasion consisted of a number of advertisements, a class of work not nearly as easy and far less interesting than the paragraphs of news which generally fell to his share. However, he attacked them boldly, and, unattractive as they were, contrived to get some occupation from them for his mind as well as his hand. Here, for instance, was some one who wanted "a groom, young, good- looking, and used to horses." How would that suit him? And why need he be good-looking? And what was the use of saying he must be used to horses? Who ever heard of a groom that wasn't? The man who put in that advertisement was a muff. Here was another of a different sort: "J.S. Come back to your afflicted mother and all shall be forgiven." Heigho! suppose "J.S." had got a mother like Mrs Cruden, what a brute he must be to cut away. What had he been doing to her? robbing her? or bullying her? or what? Reginald worked himself into a state of wrath over the prodigal, and very nearly persuaded himself to leave out the promise of forgiveness altogether. "If the young gentleman who dropped an envelope in the Putney omnibus on the evening of the 6th instant will apply to B, at 16, Grip Street, he may hear of something to his advantage." How some people were born to luck! Think of making your fortune by dropping an envelope in a Putney omnibus. How gladly he would pave the floor of every omnibus he rode in with envelopes if only he could thereby hear anything to his advantage! He had a great mind to stroll round by Number 16, Grip Street that evening to see who this mysterious "B" could be. "To intelligent young men in business.--Add £50 a year to your income without any risk or hindrance whatever to ordinary work.--Apply confidentially to Omega, 13, Shy Street, Liverpool, with stamp for reply. None but respectable intelligent young men need apply." Hullo! Reginald laid down his composing-stick and read the advertisement over again: and after that he read it again, word by word, most carefully. £50 a year! Why, that was as much again as his present income, and without risk or interfering with his present work too! Well, his present work might be his past work to-morrow; but even so, with £50 a year he would be no worse off, and of course he could get something else to do as well by way of ordinary work. If only he could bring in £100 a year to the meagre family store! What little luxuries might it not procure for his mother! What a difference it might make in that dreary, poky Dull Street parlour, where she sat all day! Or if they decided not to spend it, but save it up, think of a pound a week ready against a rainy day! Reginald used to have loose enough ideas of the value of money; but the last few weeks had taught him lessons, and one of them was that a pound a week could work wonders. "Apply confidentially." Yes, of course, or else any duffer might snatch at the prize. It was considerate, too, to put it that way, for of course it would be awkward for any one in a situation to apply unless he could do it confidentially--and quite right too to enclose a stamp for a reply. No one who wasn't in earnest would do so, and thus it would keep out fellows who applied out of mere idle curiosity. "None but respectable intelligent young men need apply." Humph! Reginald's conscience told him he was respectable, and he hoped he was also moderately intelligent, though opinions might differ on that point. "Omega"--that sounded well! The man knew Greek--possibly he was a classical scholar, and therefore sure to be a gentleman. Oh, what a contrast to the cad Durfy! "Liverpool." Ah, there was the one drawback; and yet of course it did not follow the £50 a year was to be earned in Liverpool, otherwise how could it fail to interfere with ordinary business? Besides, why should he advertise in the _Rocket_ unless he meant to get applications from Londoners? Altogether Reginald was pleased with the advertisement. He liked the way it was put, and the conditions it imposed, and, indeed, was so much taken up with the study of it that he almost forgot to set it up in type. "Whatever are you dreaming about?" said young Gedge. "You've stood like that for a quarter of an hour at least. You'll have Durfy after you if you don't mind." The name startled Reginald into industry, and he set the advertisement up very clearly and carefully, and re-read it once or twice in the type before he could make up his mind to go on to the next. The thought of it haunted him all day. Should he tell Horace, or Gedge, or his mother of it? Should he go and give Durfy notice then and there? No, he would reply to it before he told any one; and then, if the answer _was_ unsatisfactory--which he could not think possible--then no one would be the wiser or the worse for it. The day flew on leaden wings. Gedge put his friend's silence down to anxiety as to the consequences of yesterday's adventure and did and said what he could to express his sympathy. Mr Durfy alone, sitting at his table, and directing sharp glances every now and then in his direction, could guess the real meaning of his pre-occupation, and chuckled to himself as he saw it. Reginald spent threepence on his way home that evening--one in procuring a copy of the _Rocket_, and two on a couple of postage-stamps. Armed with these he walked rapidly home with Horace, giving him in an absent sort of way a chronicle of the day's doings, but breathing not a word to him or his mother subsequently about the advertisement. After supper he excused himself from joining in the usual walk by saying he had a letter to write, and for the first time in his life felt relieved to see his mother and brother go and leave him behind them. Then he pulled out the newspaper and eagerly read the advertisement once more in print. There it was, not a bit changed! Lots of fellows had seen it by this time, and some of them very likely were at this moment answering it. They shouldn't get the start of him, though! He sat down and wrote-- "Sir,--Having seen your advertisement in the _Rocket_, I beg to apply for particulars. I am respectable and fairly intelligent, and am at present employed as compositor in the _Rocket_ newspaper-office. I shall be glad to increase my income. I am 18 years of age, and beg to enclose stamp for a reply to this address. "Yours truly,-- "Reginald Cruden." He was not altogether pleased with this letter, but it would have to do. If he had had any idea what the advertiser wanted intelligent young men for, he might have been able to state his qualifications better. But what was the use of saying "I think I shall suit you," when possibly he might not suit after all? He addressed the letter carefully, and wrote "private and confidential" on the envelope; and then walked out to post it, just in time, after doing so, to meet his mother and Horace returning from their excursion. "Well, Reg, have you written your letter?" said his mother, cheerily. "Was it to some old schoolfellow?" "No, mother," said Reginald, in a tone which meant, "I would rather you did not ask me." And Mrs Cruden did not ask. "I think," said she, as they stopped at their door--"I almost think, boys, we ought to return the Shucklefords' call. It's only nine o'clock. We might go in for a few minutes. I know you don't care about it; but we must not be rude, you know. What do you think, Reg?" Reg sighed and groaned and said, "If we must we must"; and so, instead of going in at their own door, they knocked at the next. The tinkle of a piano upstairs, and the sound of Sam's voice, audible even in the street, announced only too unmistakably that the family was at home, and a collection of pot hats and shawls in the hall betrayed the appalling fact, when it was _too_ late to retreat, that the Shucklefords had visitors! Mrs Shuckleford came out and received them with open arms. "'Ow 'appy I am to see you and the boys," said she. "I suppose you saw the extra lights and came in. Very neighbourly it was. We thought about sending you an invite, but didn't like while you was in black for your 'usband. But it's all the same now you're here. Very 'appy to see you. Jemima, my dear, come and tell Mrs Cruden and the boys you're 'appy to see them; Sam too--it's Sam's majority, Mrs Cruden; twenty-one he is to-day, and his pa all over--oh, 'ow 'appy I am you've come." "We had no idea you had friends," said Mrs Cruden, nervously. "We'll call again, please." "No you don't, Mrs Cruden," said the effusive Mrs Shuckleford; "'ere you are, and 'ere you stays--I am so 'appy to see you. You and I can 'ave a cosy chat in the corner while the young folk enjoy theirselves. Jemima, put a chair for Mrs C. alongside o' mine; and, Sam, take the boys and see they have some one to talk to 'em." The dutiful Sam, who appeared entirely to share his mother's jubilation at the arrival of these new visitors, obeyed the order with alacrity. "Come on, young fellows," said he; "just in time for shouting proverbs. You go and sit down by Miss Tomkins, Horace, her in the green frock; and you had better go next Jemima, Cruden. When I say `three and away' you've got to shout. Anything'll do, so long as you make a noise." "No, they must shout their right word," said Miss Tomkins, a vivacious- looking young person of thirty. "Come close," said she to Horace, "and I'll whisper what you've got to shout. Whisper, `Dog,' that's your word." Horace seated himself dreamily where he was told, and received the confidential communication of his partner with pathetic resignation. He only wished the signal to shout might soon arrive. As for Reginald, when he felt himself once more in the clutches of the captivating Jemima, and heard her whisper in his ear the mysterious monosyllable "love," his heart became as ice within him, and he sat like a statue in his chair, looking straight before him. Oh, how he hoped "Omega" would give him some occupation for his evenings that would save him from this sort of thing! "Now call them in," said Sam. A signal was accordingly given at the door, and in marched a young lady, really a pleasant, sensible-looking young person, accompanied by a magnificently-attired young gentleman, who, to Horace's amazement, proved to be no other than the melancholy Booms. There was, however, no time just now for an exchange of greetings. Mr Booms and his partner were placed standing in the middle of the floor, and the rest of the company were seated in a crescent round them. There was a pause, and you might have heard a pin drop as Samuel slowly lifted his hand and said in a stage whisper,-- "Now then, mind what you're at. When I say `away.' One, two, three, and a--" At the last syllable there arose a sudden and terrific shout which sent Mrs Cruden nearly into a fit, and made the loosely-hung windows rattle as if an infernal machine had just exploded on the premises. The shout was immediately followed by a loud chorus of laughter, and cries of,-- "Well, have you guessed it?" "Yes, I know what it is," said the pleasant young lady. "Do you know, Mr Booms?" "No," he said, sadly; "how could I guess? What is it, Miss Crisp?" "Why, `Love me, _love_ my dog,' isn't it?" "Right. Well guessed!" cried every one; and amid the general felicitation that ensued the successful proverb-guessers were made room for in the magic circle, and Horace had a chance of exchanging "How d'ye do?" with Mr Booms. "Who'd have thought of meeting you here?" said he, in a whisper. "I didn't expect to meet you," said the melancholy one. "I say, Cruden, please don't mention--_her_." "Her? Whom?" said Horace, bewildered. Booms's reply was a mournful inclination of the head in the direction of Miss Crisp. "Oh, I see. All right, old man. You're a lucky fellow, I think. She looks a jolly sort of girl." "Lucky! Jolly! Oh, Cruden," ejaculated his depressed friend. "Why, what's wrong?" said Horace. "Don't you think she's nice?" "She is; but Shuckleford, Cruden, is not." "Hullo, you two," said the voice of the gentleman in question at this moment; "you seem jolly thick. Oh, of course, shopmates; I forgot; both in the news line. Eh? Now, who's for musical chairs? Don't all speak at once." "I shall have to play the piano now, Mr Reginald," said Miss Jemima, making a last effort to get a word out of her silent companion. "I'm afraid you're not enjoying yourself a bit." Reginald rose instinctively as she did, and offered her his arm. He was half dreaming as he did so, and fancying himself back at Garden Vale. It was to his credit that when he discovered what he was doing he did not withdraw his arm, but conducted his partner gallantly to the piano, and said,-- "I'm afraid I'm a bad hand at games." "Musical chairs is great fun," said Miss Jemima. "I wish I could play it and the piano both. You have to run round and round, and then, when the music stops, you flop down on the nearest chair, and there's always one left out, and the last one wins the game. Do try it." Reginald gave a scared glance at the chairs being arranged back to back in a long line down the room, and said,-- "May I play the piano instead? and then you can join in the game." "What! do _you_ play the piano?" exclaimed the young lady, forgetting her dignity and clapping her hands. "Oh, my eye, what a novelty! Ma, Mr Reginald's going to play for musical chairs! Sam, do you hear? Mr Cruden plays the piano! Isn't it fun?" Reginald flung himself with a sigh down on the cracked music-stool. Music was his one passion, and the last few months had been bitter to him for want of it. He would go out of his way even to hear a street piano, and the brightest moments of his Sundays were often those spent within sound of the roll of the organ. It was like a snatch of the old life to find his fingers once more laid caressingly on the notes of a piano; and as he touched them and began to play, the Shucklefords, the _Rocket_, "Omega," all faded from his thoughts, and he was lost in his music. What a piano it was! Tinny and cracked and out of tune. The music was in the boy's soul, and it mattered comparatively little. He began with Weber's "last waltz," and dreamed off from it into a gavotte of Corelli's, and from that into something else, calling up favourite after favourite to suit the passing moods of his spirit, and feeling happier than he had felt for months. But Weber's "last waltz" and Corelli's gavottes are not the music one would naturally select for musical chairs; and when the strains continue uninterrupted for five or ten-minutes, during the whole of which time the company is perambulating round and round an array of empty chairs, the effect is somewhat monotonous. Mrs Shuckleford's guests trotted round good-humouredly for some time, then they got a little tired, then a little impatient, and finally Samuel, as he passed close behind the music-stool, gave the performer a dig in the back, which had the desired effect of stopping the music suddenly. Whereupon everybody flopped down on the seat nearest within reach. Some found vacancies at once, others had to scamper frantically round in search of them, and finally, as the chairs were one fewer in number than the company, one luckless player was left out to enjoy the fun of those who remained in. "All right," said Samuel, when the first round was decided, and a chair withdrawn in anticipation of the next; "I only nudged you to stop a bit sooner, Cruden. The game will last till midnight if you give us such long doses." Doses! Reginald turned again to the piano and tried once more to lose himself in its comforting music. He played a short German air of only four lines, which ended in a plaintive, wailing cadence. Again the moment the music ceased he heard the scuffling and scampering and laughter behind him, and shouts of,-- "Polly's out! Polly's out!" "I say," said Shuckleford, as they stood ready for the next round, "give us a jingle, Cruden; `Pop goes the Weasel,' or something of that sort. That last was like the tune the cow died of. And stop short in the middle of a line, anyhow." Reginald rose from the piano with flushed cheeks, and said,--"I'm afraid I'm not used to this sort of music. Perhaps Miss Shuckleford--" "Yes, Jim, you play. You know the way. You change places with Jim, Cruden, and come and run round." But Reginald declined the invitation with thanks, and took up a comic paper, in which he attempted to bury himself, while Miss Shuckleford hammered out the latest polka on the piano, stopping abruptly and frequently enough to finish half a dozen rounds in the time it had taken him to dispose of two. Fresh games followed, and to all except the Crudens the evening passed merrily and happily. Even Horace felt the infection of the prevalent good-humour, and threw off the reserve he had at first been tempted to wear in an effort to make himself generally agreeable. Mrs Cruden, cooped up in a corner with her loquacious hostess, did her best too not to be a damper on the general festivity. But Reginald made no effort to be other than he felt himself. He could not have done it if he had tried. But as scarcely any one seemed afflicted on his account, even his unsociability failed to make Samuel Shuckleford's majority party anything but a brilliant success. In due time supper appeared to crown the evening's delights. And after supper a gentleman got up and proposed a toast, which of course was the health of the hero of the occasion. Samuel replied in a facetious County Court address, in which he expressed himself "jolly pleased to see so many friends around him, and hoping they'd all enjoyed their evening, and that if there were any of them still to come of age--(laughter)--they'd have as high an old time of it as he had had to-night. He was sure ma and Jim said ditto to all he said. And before he sat down he was very glad to see their new next- door neighbours. (Hear, hear.) They'd had their troubles, but they could reckon on friends in that room. The young fellows were bound to get on if they stuck to their shop, and he'd like to drink the health of them and their ma." (Cheers.) The health was drunk. Mrs Cruden looked at Reginald, Horace looked at Reginald, but Reginald looked straight before him and bit his lips and breathed hard. Whereupon Horace rose and said,-- "We think it very kind of you to drink our healths; and I am sure we are much obliged to you all for doing so." Which said, the Shucklefords' party broke up, and the Crudens went home. CHAPTER TEN. "WILL YOU WALK INTO MY PARLOUR?" SAID THE SPIDER TO THE FLY. The two days which followed the despatch of the letter to "Omega" were long and anxious ones for Reginald Cruden. It would have been a great relief to him had he felt free to talk the matter over with Horace; but somehow that word "confidential" in the advertisement deterred him. For all that, he made a point of leaving the paper containing it in his brother's way, if by any chance the invitation to an additional £50 a year might meet his eye. Had it done so, it is doubtful whether Reginald would have been pleased, for he knew that if it came to selecting one of the two, Horace would probably pass for quite as respectable and considerably more intelligent a young man than himself. Still, he had no right to stand in his brother's way if fate ordained that he too should be attracted by the advertisement. He therefore left the paper lying conspicuously about with the advertisement sheet turned toward the beholder. Horace, however, had too much of the _Rocket_ in his business hours to crave for a further perusal of it during his leisure. He kicked it unceremoniously out of his way the first time he encountered it; and when Reginald saw it next it was in a mangled condition under the stairs in the suspicious company of the servant-girl's cinder-shovel. On the second morning, when he arrived at his work, a letter lay on his case with the Liverpool postmark, addressed R. Cruden, Esquire, _Rocket_ Office, London. In his excitement and haste to learn its contents it never occurred to him to notice the unexpected compliment conveyed in the word "Esquire"; and he might have remained for ever in blissful ignorance of the fact, had not his left-hand neighbour, the satirical Mr Barber, considered the occasion a good one for a few flashes of wit. "'Ullo, Esquire, 'ow are you, Esquire? There is somebody knows you, then. Liverpool, too! That's where all the chaps who rob the till go to. R. Cruden, Esquire--my eye! What's the use of putting any more than `London' on the envelope--such a well-known character as you? Stuck-up idiot!" To this address Reginald attended sufficiently to discover that it was not worth listening to; after which he did not even hear the concluding passages of his neighbour's declamation, being absorbed in far more interesting inquiries. He tore the envelope open and hurriedly read-- "Sir,--Your favour is to hand, and in reply we beg to say we shall be glad to arrange an interview. One of our directors will be in town on Monday next, and can see you between one and two o'clock at Weaver's Hotel. Be good enough to treat this and all further communications as strictly confidential.--We are, Sir, yours faithfully,-- "The Select Agency Corporation. "P.S.--Ask at Weaver's Hotel for Mr Medlock. "Liverpool." The welcome contents of this short note fairly staggered him. If the tone of the advertisement had been encouraging, that of this letter was positively convincing. It was concise, business-like, grammatical and courteous. Since his trouble Reginald had never been addressed by any one in the terms of respect conveyed in this communication. Furthermore, the appointment being between one and two--the dinner- hour--he would be able to keep it without difficulty or observation, particularly as Weaver's Hotel was not a stone's throw from the _Rocket_ office. Then again, the fact of his letter being from a "corporation" gratified and encouraged him. A Select Agency Corporation was not the sort of company to do things meanly or inconsiderately. They were doubtless a select body of men themselves, and they required the services of select servants; and it was perfectly reasonable that in an affair like this, which _might_ lead to nothing, strict mutual confidence should be observed. Supposing in the end he should see reason to decline to connect himself with the Corporation (Reginald liked to think this possible, though he felt sure it was not probable), why, if he had said much about it previously, it _might_ be to the prejudice of the Corporation! Finally, he thought the name "Medlock" agreeable, and was generally highly gratified with the letter, and wished devoutly Monday would come round quickly. The one drawback to his satisfaction was that he was still as far as ever from knowing in what direction his respectable and intelligent services were likely to be required. Monday came at last. When he went up on the Saturday to receive his wages he had fully expected to learn Mr Durfy's intentions with regard to him, and was duly surprised when that gentleman actually handed him his money without a word, and with the faintest suspicion of a smile. "He's got a nailer on you, old man, and no mistake," said Gedge, dolefully. "I'd advise you to keep your eye open for a new berth, if you get the chance; and, I say, if you can only hear of one for two!" This last appeal went to Reginald's heart, and he inwardly resolved, if Mr Medlock turned out to be as amiable a man as he took him for, to put in a word on Gedge's behalf as well as his own at the coming interview. The dinner-bell that Monday tolled solemnly in Reginald's ears as he put on a clean collar and brushed his hair previously to embarking on his journey to Weaver's Hotel. What change might not have taken place in his lot before that same bell summoned him once more to work? He left the _Rocket_ a needy youth of £47 10 shillings a year. Was he to return to it passing rich of £97 10 shillings? Weaver's Hotel was a respectable quiet resort for country visitors in London, and Reginald, as he stood in its homely entrance hall, felt secretly glad that the Corporation selected a place like this for its London headquarters rather than one of the more showy but less respectable hotels or restaurants with which the neighbourhood abounded. Mr Medlock was in his room, the waiter said, and Mr Cruden was to step up. He did step up, and was ushered into a little sitting-room, where a middle-aged gentleman stood before the fire-place reading the paper and softly humming to himself as he did so. "Mr Cruden, sir," said the waiter. "Ah! Mr Cruden, good morning. Take a seat. John, I shall be ready for lunch in about ten-minutes." Reginald, with the agitating conviction that his fate would be sealed one way or another in ten-minutes, obeyed, and darted a nervous glance at his new acquaintance. He rather liked the looks of him. He looked a comfortable, well-to-do gentleman, with rather a handsome face, and a manner by no means disheartening. Mr Medlock in turn indulged in a careful survey of the boy as he sat shyly before him trying to look self-possessed, but not man of the world enough to conceal his anxiety or excitement. "Let me see," said Mr Medlock, putting his hands in his pocket and leaning against the mantel-piece, "you replied to the advertisement, didn't you?" "Yes, sir," said Reginald. "And what made you think you would suit us?" "Well, sir," stammered Reginald, "you wanted respectable intelligent young men--and--and I thought I--that is, I hoped I might answer that description." Mr Medlock took one hand out of his pocket and stroked his chin. "Have you been in the printing trade long?" "Only a few weeks, sir." "What were you doing before that?" Reginald flushed. "I was at school, sir--at Wilderham." "Wilderham? Why, that's a school for gentlemen's sons." "My father was a gentleman, sir," said the boy, proudly. "He's dead then?" said Mr Medlock. "That is sad. But did he leave nothing behind him?" "He died suddenly, sir," said Reginald, speaking with an effort, "and left scarcely anything." "Did he die in debt? You must excuse these questions, Mr Cruden," added the gentleman, with an amiable smile; "it is necessary to ask them or I would spare you the trouble." "He did die in debt," said Reginald, "but we were able to pay off every penny he owed." "And left nothing for yourself when it was done? Very honourable, my lad; it will always be a satisfaction to you." "It is, sir," said Reginald, cheering up. "You naturally would be glad to improve your income. How much do you get where you are?" "Eighteen shillings a week." Mr Medlock whistled softly. "Eighteen shillings; that's very little, very poor pay," said he. "I should have thought, with your education, you could have got more than that." It pleased Reginald to have his education recognised in this delicate way. "We had to be thankful for what we could get," said he; "there are so many fellows out of work." "Very true, very true," said Mr Medlock, shaking his head impressively, "we had no less than 450 replies to our advertisement." Reginald gave a gasp. What chance had he among 450 competitors? Mr Medlock took a turn or two up and down the room, meditating with himself and keeping his eye all the time on the boy. "Yes," said he, "450--a lot, isn't it? Very sad to think of it." "Very sad," said Reginald, feeling called upon to say something. "Now," said Mr Medlock, coming to a halt in his walk in front of the boy, "I suppose you guess I wouldn't have asked you to call here if I and my fellow-directors hadn't been pleased with your letter." Reginald looked pleased and said nothing. "And now I've seen you and heard what you've got to say, I think you're not a bad young fellow; but--" Mr Medlock paused, and Reginald's face changed to one of keen anxiety. "I'm afraid, Mr Cruden, you're not altogether the sort we want." The boy's face fell sadly. "I would do my best," he said, as bravely as he could, "if you'd try me. I don't know what the work is yet, but I'm ready to do anything I can." "Humph!" said Mr Medlock. "What we advertise for is sharp agents, to sell goods on commission among their friends. Now, do you think you could sell £500 worth of wine and cigars and that sort of thing every year among your friends? You'd need to do that to make £50 a year, you know. You understand? Could you go round to your old neighbours and crack up our goods, and book their orders and that sort of thing? I don't think you could, myself. It strikes me you are too much of a gentleman." Reginald sat silent for a moment, with the colour coming and going in his cheeks; then he looked up and said, slowly-- "I'm afraid I could not do that, sir--I didn't know you wanted that." So saying he took up his hat and rose to go. Mr Medlock watched him with a smile, if not of sympathy, at any rate of approval, and when he rose motioned him back to his seat. "Not so fast, my man; I like your spirit, and we may hit it yet." Reginald resumed his seat with a new interest in his anxious face. "You wouldn't suit us as a drummer--that is," said Mr Medlock, hastily correcting himself, "as a tout--an agent; but you might suit us in another way. We're looking out for a gentlemanly young fellow for secretary--to superintend the concern for the directors, and be the medium of communication between them and the agents. We want an educated young man, and one we can depend upon. As to the work, that's picked up in a week easily. Now, suppose--suppose when I go back to Liverpool I were to recommend you for a post like that, what would you say?" Reginald was almost too overwhelmed for words; he could only stammer,-- "Oh, sir, how kind of you!" "The directors would appoint any one I recommended," continued Mr Medlock, looking down with satisfaction on the boy's eagerness; "you're young, of course, but you seem to be honest, that's the great thing." "I think I can promise that," said Reginald, proudly. "The salary would begin at £150 a year, but we should improve it if you turned out well. And you would, of course, occupy the Company's house at Liverpool. We should not ask for a premium in your case, but you would have to put £50 into the shares of the Corporation to qualify you, and of course you would get interest on that. Now," said he, as Reginald began to speak, "don't be in a hurry. Take your time and think it well over. If you say `Yes,' you may consider the thing settled, and if you say `No'--well, we shall be able to find some one else. Ah, here comes lunch--stop and have some with me--bring another plate, waiter." Reginald felt too bewildered to know what to think or say. He a secretary of a company with £150 a year! It was nearly intoxicating. And for the post spontaneously offered to him in the almost flattering way it had been--this was more gratifying still. In his wildest dreams just now he never pictured himself sitting down as secretary to the Select Agency Corporation to lunch with one of its leading directors! Mr Medlock said no more about "business", but made himself generally agreeable, asking Reginald about his father and the old days, inquiring as to his mother and brother, and all about his friends and acquaintances in London. Reginald felt he could talk freely to this friend, and he did so. He confided to him all about Mr Durfy's tyranny, about his brother's work at the _Rocket_, and even went so far as to drop out a hint in young Gedge's favour. He told him all about Wilderham and his schoolfellows there, about the books he liked, about the way he spent his evenings, about Dull Street--in fact, he felt as if he had known Mr Medlock for years and could talk to him accordingly. "I declare," said that gentleman, pulling out his watch, after this pleasant talk had been going on a long time, "it's five minutes past two. I'm afraid you'll be late." Reginald started up. "So I shall, I'd no idea it was so late. I'm afraid I had better go, sir." "Well, write me a letter to Liverpool to-morrow, or Wednesday at the latest, as we must fill up the place soon. Think it well over. Good- bye, my man. I hope I shall see you again before long. By the way, of course, you won't talk about all this out of doors." "Oh, no," said Reginald, "I haven't even mentioned it yet at home." Mr Medlock laughed. "Well, if you come to Liverpool you'll have to tell them something about it. See, here's a list of our directors, your mother may recognise some of the names. But beyond your mother and brother don't talk about it yet, as the Corporation is only just starting." Reginald heartily concurred in this caution, and promised to act on it, and then after a friendly farewell hastened back to the _Rocket_ office. The clock pointed nearly a quarter past two when he entered. He was not the sort of fellow to slink in when no one was looking. In fact, he had such a detestation of that sort of thing that he went to the other extreme, and marched ostentatiously past Mr Durfy's table, as though to challenge his observation. If that was his intention he was not disappointed. "Oh," said the overseer, with a return of the old sneer, which had been dormant ever since the night Reginald had knocked him down. "You _have_ come, have you? And you know the hour, do you?" "Yes, it's a quarter past two," said Reginald. "Is it?" sneered Mr Durfy, in his most offensive way. "Yes, it is," replied the boy, hotly. What did he care for Durfy now? To-morrow in all probability he would have the satisfaction of walking up to that table and saying, "Mr Durfy, I leave here on Saturday," meanwhile he was not disposed to stand any of his insolence. But he hardly expected what was coming next. "Very well, then you can just put your hat on your head and go back the way you came, sir." "What do you mean?" said Reginald, in startled tones. "Mean? what I say!" shouted Durfy. "You're dismissed, kicked out, and the sooner you go the better." So this was the dignified leave-taking to which he had secretly looked forward! Kicked out! and kicked out by Durfy! Reginald's toes tingled at the very thought. "You've no right to dismiss me for being a few minutes late," said he. It was Durfy's turn now to be dignified. He went on writing, and did his best to affect oblivion of his enemy's presence. Reginald, too indignant to know the folly of such an outburst, broke out,-- "I shall not take my dismissal from you. I shall stay here as long as I choose, and when I go I'll go of my own accord, you cad, you--" Mr Durfy still went on writing with a cheerful smile on his countenance. "Do you hear?" said Reginald, almost shouting the words. "I'm not going to please you. I shall go to please myself. I give _you_ notice, and thank Heaven I've done with you." Durfy looked up with a laugh. "Go and make that noise outside," he said. "We can do without you here. Gedge, my man, put those cases beside you back into the rack, and go and tell the porter he's wanted." The mention of Gedge's name cowed Reginald in an instant, and in the sudden revulsion of feeling which ensued he was glad enough to escape from the room before fairly breaking down under a crushing sense of injury, mortification, and helplessness. Gedge was at the door as he went out. "Oh, Cruden," he whispered, "what will become of me now? Wait for me outside at seven o'clock; please do." That afternoon Reginald paced the streets more like a hunted beast than a human being. All the bad side of his nature--his pride, his conceit, his selfishness--was stirred within him under a bitter sense of shame and indignity. He forgot how much his own intractable temper and stupid self-importance had contributed to his fall, and could think of nothing but Durfy's triumph and the evil fate which at the very moment, when he was able to snap his fingers in the tyrant's face, had driven him forth in disgrace with the tyrant's fingers snapped in his face. He had not spirit or resolution enough to wait to see Gedge or any one that evening, but slunk away, hating the sight of everybody, and wishing only he could lose himself and forget that such a wretch as Reginald Cruden existed. Ah! Reginald. It's a long race to escape from oneself. Men have tried it before now with better reason than you, and failed. Wait till you have something worse to run from, my honest, foolish friend. Face round like a man, and stand up to your pursuer. You have hit out straight from the shoulder before to-day. Do it again now. One smart round will finish the business, for this false Reginald is a poor creature after all, and you can knock him out of time and over the ropes with one hand if you like. Try it, and save your running powers for an uglier foeman some other day! Reginald did fight it out with himself as he walked mile after mile that afternoon through the London streets, and by the time he reached home in the evening he was himself again. He met his mother's tears and Horace's dismal looks with a smile of triumph. "So you've heard all about it, have you?" said he. "Oh, Reginald," said his mother, in deep distress, "how grieved I am for you!" "You needn't be, mother," said Reginald, "for I've got another situation far better and worth three times as much." And then he told them, as far as he felt justified in doing so, of the advertisement and what it had led to, finishing up with a glowing description of Mr Medlock, whom he only regretted he had not had the courage to ask up to tea that very evening. But there was a cloud on the bright horizon which his mother and Horace were quicker to observe than he. "But, Reg," said the latter, "surely it means you'd have to go to Liverpool?" "Yes; I'm afraid it does. That's the one drawback." "But surely you won't accept it, then?" said the younger brother. Reginald looked up. Horace's tone, if not imperious, had not been sympathetic, and it jarred on him in the fulness of his projects to encounter an obstacle. "Why not?" he replied. "It's all very well for you, in your snug berth, but I must get a living, mustn't I?" "I should have thought something might turn up in London," persisted Horace. "Things don't turn up as we want them," said Reginald, tartly. "Look here, Horace, you surely don't suppose I prefer to go to Liverpool to staying here?" "Of course not," said Horace, beginning to whistle softly to himself. It was a bad omen, and Mrs Cruden knew it. "Come," said she, cheerily, "we must make the best of it. These names, Reg, in the list of directors Mr Medlock gave you, seem all very respectable." "Do you know any of them?" asked Reginald. "Mr Medlock thought you might." "I know one or two by name," replied she. "There's the Bishop of S--, I see, and Major Wakeman, who I suppose is the officer who has been doing so well in India. There's a Member of Parliament, too, I see. It seems a good set of directors." "Of course they aren't likely all to turn up at board meetings," said Reginald, with an explanatory air. "I don't see myself what business a bishop has with a Select Agency Corporation," said Horace, determined not to see matters in a favourable light. "My dear fellow," said Reginald, trying hard to keep his temper, "I can't help whether you see it or not. By the way, mother, about the £50 to invest. I think Mr Richmond--" Mrs Cruden started. "This exciting news," said she, "drove it out of my head for the moment. Boys, I am very sorry to say I had a note to-day stating that Mr Richmond was taken ill while in France, and is dead. He was one of our few old friends, and it is a very sad blow." She was right. The Crudens never stood in greater need of a wise friend than they did now. CHAPTER ELEVEN. REGINALD TAKES HIS FATE INTO HIS OWN HANDS. The next day Reginald wrote and accepted the invitation of the directors of the Select Agency Corporation. He flattered himself he was acting deliberately, and after fully weighing the pros and cons of the question. True, he still knew very little about his new duties, and had yet to make the acquaintance of the Bishop of S-- and the other directors. But, on the other hand, he had seen Mr Medlock, and heard what he had to say, and was quite satisfied in his own mind that everything was all right. And, greatest argument of all, he had no other place to go to, and £150 a year was a salary not to be thrown away when put into one's hands. Still, he felt a trifle uncomfortable about the necessity of going to Liverpool and breaking up the old home. Of course, he could not help himself, and Horace had no right to insinuate otherwise. All the same, it was a pity, and if there had not been the compensating certainty of being able to send up regular contributions to the family purse, which would help his mother to not a few comforts hitherto denied, he would have been more troubled still about it. "What will you do about the £50?" said Horace next day, forcing himself to appear interested in what he inwardly disapproved. "Oh," said Reginald, "I'd intended to ask Richmond to lend it me. It's not exactly a loan either; it would be the same as his investing in the company in my name. The money would be safe, and he'd get his interest into the bargain. But of course I can't go to him now." "No; and I don't know whom else you could ask," said Horace. "They might let me put in a pound a week out of my salary," said Reginald. "That would still leave me two pounds a week, and of that I could send home at least twenty-five shillings." Horace mused. "It seems to me rather queer to expect you to put the money in," said he. "It may be queer, but it's their rule, Mr Medlock says." "And whatever does the Corporation do? It's precious hazy to my mind." "I can't tell you anything about it now," said Reginald; "the concern is only just started, and I have promised to treat all Mr Medlock told me as confidential. But I'm quite satisfied in my mind, and you may be too, Horace." Horace did not feel encouraged to pursue the discussion after this, and went off alone to work in low spirits, and feeling unusually dismal. "By the way," said Reginald, as he started, "bring young Gedge home with you. I meant to see him last night, but forgot." Reginald spent the day uneasily for himself and his mother in trying to feel absolutely satisfied with the decision he had come to, and in speculating on his future work. Towards afternoon, weary of being all day in the house, he went out for a stroll. It was a beautiful day, and the prospect of a walk in the park by daylight was a tempting one. As he was passing down Piccadilly, he became aware of some one approaching him whom he knew, and whom, in another moment, he recognised as Blandford. There was some excuse certainly for not taking in his old schoolfellow's identity all at once, for the boy he had known at Wilderham only a few months ago had suddenly blossomed forth into a man, and had exchanged the airy bearing of a school-boy for the half-languid swagger of a man about town. "Hullo, Bland, old man!" exclaimed Reginald, lighting up jubilantly at the sight of an old familiar face, "how are you? Who would have thought of seeing you?" Blandford was surprised too, and for a moment critically surveyed the boy in front of him before he replied. "Ah, Cruden, that you? I shouldn't have known you." Reginald's face fell. He became suddenly aware, and for the first time in his life, that his clothes were shabby, and that his boots were in holes. "I shouldn't have known you," he replied; "you look so much older than when I saw you last." "So I am; but, I say," added Bland, reddening as an acquaintance passed and nodded to him, "I'm rather in a hurry, Cruden, just now. If you're not engaged this evening, come and dine with me at seven at the Shades, and we can have a talk. Good-bye." And he went on hurriedly, leaving Reginald with an uncomfortable suspicion that if he--Reginald--had been more smartly dressed, and had worn gloves and a tall hat, the interview would have been more cordial and less hasty. However, the longing he felt for the old happy days that were past decided him to appear at the Shades at the hour appointed, although it meant absence from home on one of his few remaining evenings, and, still more, a further desertion of young Gedge. He repented of his resolution almost as soon as he had made it. What was to be gained by assuming a false position for an evening, and trying to delude himself into the notion that he was the equal of his old comrade? Did not his clothes, his empty pockets, the smart of Durfy's tongue, and even the letter now on its way to Mr Medlock, all disprove it? And yet, three months ago, he was a better man all round than Blandford, who had been glad to claim his friendship and accept his father's hospitality. Reginald rebelled against the idea that they two could still be anything to one another than the friends they had once been; but all the while the old school saw came back into his mind--that imposition sentence he had in his day written out hundreds of times without once thinking of its meaning: _Tempora mutantur et nos mutamur in illis_. He reached the Shades a few minutes before seven, and waited outside till his friend arrived. He had not to wait long, for Blandford and a couple of companions drove up punctually in a hansom--all of them, to Reginald's horror, being arrayed in full evening dress. "Hullo, Cruden, you've turned up then," said Blandford. "What, not in regimentals? You usen't to be backward in that way. Never mind; they say dress after seven o'clock here, but they're not strict. We can smuggle you in." Oh, how Reginald wished he was safe back in Dull Street! "By the way," continued Blandford, "these are two friends of mine, Cruden--Mr Shanklin and Mr Pillans. Cruden's an old Wilderham fellow, you know," he added, in an explanatory aside. The gentleman introduced as Mr Shanklin stared curiously at Reginald for a few seconds, and then shook hands. Had the boy known as much of that gentleman as the reader does, he would probably have displayed considerably more interest in his new acquaintance than he did. As it was, he would have been glad of an excuse to avoid shaking hands with either him or his empty-headed companion, Mr Pillans. He went through the ceremony as stiffly as possible, and then followed the party within. "Now, then," said Blandford, as they sat down at one of the tables, "what do you say? It'll save trouble to take the table d'hote, eh? are you game, you fellows? Table d'hote for four, waiter. What shall we have to drink? I say hock to start with." "I wont take any wine," said Reginald, with an effort. "Why not? You're not a teetotaler, are you?" "I won't take any wine," repeated Reginald decisively; and, to his satisfaction, he was allowed to do as he pleased. The dinner passed as such entertainments usually do, diminishing in interest as it went on. In his happiest days, Reginald always hated what the boys used to call "feeds," and he found that three months' altered circumstances had by no means reconciled him to the infliction. He shirked the last two or three courses, and grew heartily tired of the sight of a plate. "You wondered how I came to be in town?" said Blandford. "The fact is, my uncle went off the hooks a few weeks ago, and as I'm his heir, you know, I came up, and haven't gone back yet. I don't think I shall either." "No; what's the use, with the pot of money you've come in for?" said Mr Shanklin. "You're far more comfortable up in town." "Yes, and _you're_ a nice boy to show a fellow about town," said Blandford, laughing, "Wilderham's all very well, you know, Cruden," continued he, "but it's a grind being cooped up there when you've got your chance of a fling." "Well, you've not wasted your chances, my boy," said Mr Pillans, who, besides being empty-headed, was unhealthy in complexion, and red about the eyes. Blandford appeared rather flattered than otherwise by this observation, and told Mr Pillans to shut up and not tell tales out of school. "I suppose Wilderham hasn't changed much since last term?" asked Reginald wistfully. "Oh no; plenty of fellows left and new ones come--rather a better lot, take them all round, than we had last term." "Has the football club been doing well again?" asked the old boy. "Oh, middling. By the way, the fellows growled rather when you only sent them half-a-sov. instead of a sov." Reginald coloured up. Little his comrade knew what that half-sovereign had cost him! He relapsed into silence, and had to derive what compensation he could from the fast talk in which the other three engaged, apparently heedless of his presence. In due time the meal ended, and Blandford called for the bills. Until that moment Reginald had never imagined for a moment but that he had been dining as his old schoolfellow's guest. He had understood Blandford's request of his company as an invitation, and as an invitation he had accepted it, and as an invitation he had repented of it. What, then, was his embarrassment to find a bill for six shillings and sixpence laid down before him as his share of the entertainment! For a moment a flush of relief passed across his face. He was glad not to find himself under obligations to Blandford after all. But in another moment relief was changed to horror as he remembered that three shillings was all the money he had about him. Oh, the humiliation, the anguish of this discovery! He would have had anything happen rather than this. He sat staring at the bill like a being petrified. "Come along," said Blandford, "let's go to the smoking-room. I suppose you fellows will have coffee there. Coffee for four, waiter. Are you ready?" But Reginald did not move, nor did the waiter. "What's the row?" said Blandford to the latter. The waiter pointed to Reginald's bill. "Oh, he's waiting for your bill, Cruden. Look sharp, old man!" The colour came and went in Reginald's face, as though he had been charged with some hideous crime. And it seemed like a deliberate mockery of his trouble that his three companions and the waiter stood silent at the table, eyeing him, and waiting for his answer. "I'm sorry," he said at length, bringing up the words with a tremendous effort, "I find I've not money enough to pay it. I made a mistake in coming here." All four listeners stood with faces of mingled amazement and amusement at the boy's agitation and the tragic manner in which he accounted for it. Any one else would have carried it off with a jest; but to Reginald it was like passing through the fire. "Would you mind--may I trouble you--that is, will you lend me three-and- sixpence, Blandford?" he said at last. Blandford burst out laughing. "I thought at least you'd swallowed a silver spoon!" said he. "Here, waiter, I'll settle that bill. How much is it?" "No," said Reginald, laying down his three shillings; "if you can lend me three-and-sixpence, that's all I want." "Bosh!" said Blandford, pitching half a sovereign to the waiter; "take it out of that, and this coffee too, and come along into the smoking- room, you fellows." Reginald would fain have escaped; but the horrid dread of being suspected of caring more about his dinner than his company deterred him, and he followed dejectedly to the luxurious smoking-room of the Shades. He positively refused to touch the coffee or the cigar, even though Blandford took care to remind him they had been paid for. Nor, except when spoken to, could he bring himself to open his lips or take part in the general talk. Blandford, however, who, ever since the incident of the bill, seemed to consider himself entitled to play a patronising part towards his schoolfellow, continued to keep him from lapsing into obscurity. "Where's your brother living?" he asked presently. "He's in town, too," said Reginald. "My mother and he and I live together." "Where? I'd like to call on your mother." "We live in Dull Street," said Reginald, beginning in sheer desperation to pluck up heart and hang out no more false colours. "Dull Street? That's rather a shady locality, isn't it?" said Mr Pillans. Reginald rounded on him. Blandford might have a right to catechise him; but what business was it of this numbskull's where he lived? "You're not obliged to go there," he said, with a curl of his lip, "unless you like." Mr Shanklin smiled at this sally, a demonstration which considerably incensed the not too amiable Mr Pillans. "I'll take precious care I don't," said the latter. Reginald said "Thanks!" drily, and in a way so cutting that Mr Shanklin and Blandford both laughed this time. "Look here," said the unwholesome Pillans, looking very warm, "what do you say that for? Do you want to cheek me?" "Don't be a fool, Pillans. It doesn't matter to you where he lives," said Blandford. "Thank goodness it don't--or whether he pays his rent either." "It's a pity you had to leave Garden Vale," said Blandford, apparently anxious to turn the conversation into a more pacific channel; "such a jolly place it was. What do you do with yourself all day long in town?" Reginald smiled. "I work for my living," said he, keeping his eye steadily fixed on Mr Pillans, as if waiting to catch the first sign of an insult on his part. "That's what we all do, more or less," said Mr Shanklin. "Blandford here works like a nigger to spend his money, don't you, old man?" "I do so," said Blandford, "with your valuable assistance." "And with somebody else's assistance too," said Mr Pillans, with a shrug in the direction of Reginald. Reginald understood the taunt, and rose to his feet. "You're not going?" said Blandford. "I am. I don't forget I owe you for my dinner, Blandford; and I shan't forget that I owe you also for introducing me to a blackguard. Good- night." And without allowing his hearers time to recover from the astonishment into which these words had thrown them, he marched out of the Shades with his head in the air. It was a minute before any of the three disconcerted companions could recover the gift of speech. At last Mr Shanklin burst out into a laugh. "Capital, that was," he said; "there's something in the fellow. And," he added internally, and not in the hearing of either of his companions, "if he's the same fellow Medlock has hooked, our fortune's made." "All very well," said Pillans; "but he called me a blackguard." This simple discovery caused still greater merriment at the expense of the outraged owner of the appellation. "I've a good mind to go after him, and pull his nose," growled he. "Nothing would please him better," said Blandford. "But you'd better leave your own nose behind, my boy, before you start, or there won't be much of it left. I know Cruden of old." "You won't see much more of him now," sneered Pillans, "now he owes you for his dinner." "It strikes me, Bland was never safer of a six-and-six in his life than he is of the one he lent to-night," said Mr Shanklin. "Unless I'm mistaken, the fellow would walk across England on his bare feet to pay it back." Mr Shanklin, it was evident, could appreciate honesty in any one else. He was highly delighted with what he had seen of the new secretary. If anything could float the Select Agency Corporation, the lad's unsuspicious honesty would do it. In fact, things were looking up all round for the precious confederates. With Reginald to supply them with honesty, with easy-going spendthrifts, like Blandford and Pillans, to supply them with money, and with a cad like Durfy to do their dirty work for them, they were in as comfortable and hopeful a way as the promoters of such an enterprise could reasonably hope to be. The trio at the Shades soon forgot Reginald in the delights of one another's sweet society. They played billiards, at which Mr Shanklin won. They also played cards, at which, by a singular coincidence, Mr Shanklin won too. They then went to call on a friend who knew the "straight tip" for the Saint Leger, and under his advice they laid out a good deal of money, which (such are the freaks of fortune) also found its way somehow into Mr Shanklin's pocket-book. Finally, they supped together, and then went home to bed, each one under the delusion that he had spent a very pleasant evening. Reginald was far from sharing the same opinion as he paced home that evening. How glad he should be to be out of this hateful London, where everything went wrong, and reminded him that he was a pauper, dependent on others for his living, for his clothes, for his--faugh! for his dinner! Happily he had not to endure it much longer. At Liverpool, he would be independent. He would hold a position not degrading to a gentleman; he would associate with men of intellect and breeding; he would even have the joy of helping his mother to many a little luxury which, as long as he remained in London, he could never have given her. He quickened his pace, and reached home. Gedge had been there, spiritless and forlorn, and had left as soon as he could excuse himself. "Out of sight, out of mind," he had said, with a forced laugh, to Horace when the latter expressed his regret at Reginald's absence. Mrs Cruden and Horace both tried to look cheerful; but the cloud on the horizon was too large now to be covered with a hand. When Reginald announced that he had written and accepted the invitation to Liverpool, there was no jubilation, no eager congratulation. "What shall we do without you?" said Mrs Cruden. "It is horrid having to go, mother," said the boy; "but we must make the best of it. If you look so unhappy, I shall be sorry I ever thought of it." His mother tried to smile, and said,-- "Yes, we must try and make the best of it, dear boys; and if we cannot seem as glad as we should like to be, it's not to be wondered at at first, is it?" "I hope you'll get holidays enough now and then to run up," said Horace. "Oh yes; I don't fancy there'll be much difficulty about that," replied Reg. "In fact, it's possible I may have to come up now and then on business." There was a silence for a few seconds, and then he added rather nervously,-- "By the way, mother, about the £50. I had intended to ask Mr Richmond to advance it, although I should have hated to do so. But now, I was wondering--do you think there would be any objection to taking it out of our money, and letting it be invested in my name in the Corporation? It really wouldn't make any difference, for you'd get exactly the same interest for it as you got through Mr Richmond; and, of course, the principal would belong to you too." "I see no objection," said Mrs Cruden. "It's our common stock, and if we can use it for the common good, so much the better." "Thanks," said Reginald. "If you wouldn't mind sending a line to Mr Richmond's clerk to-morrow, he could let me have the cheque to take down or Monday with me." The three days that followed were dismal ones for the three Crudens. There are few miseries like that of an impending separation. We wish the fatal moment to arrive and end our suspense. We know of a thousand things we want to say, but the time slips by wasted, and hangs drearily on our hands. We have not the spirit to look forward, or the heart to look back. We long to have it all over, and yet every stroke of the clock falls like a cruel knell on our ears. We long that we could fall asleep, and wake to find ourselves on the other side of the crisis we dread. So it was with the Crudens; and when at last the little trio stood on the Monday on the platform of Euston Station, all three felt that they would give anything to have the last few days back again. "I'll write, mother, as often as ever I can," said Reginald, trying to speak as if the words did not stick in his throat. "Tell us all about your quarters, and what you have to do, and all that," said Horace. Mrs Cruden had no words. She stood with her eyes fixed on her boy, and felt she needed all her courage to do that steadily. "Horrors," said Reg, as the guard locked the carriage door, and the usual silence which precedes the blowing of the whistle ensued, "keep your eye on young Gedge, will you? there's a good fellow." "I will, and I'll--" But here the whistle sounded, and amid the farewells that followed, Reginald went out into his new world, leaving them behind, straining their eyes for a last look, but little dreaming how and when that little family should meet again. CHAPTER TWELVE. HORACE LEARNS AN ART, PAYS A BILL, AND LENDS A HELPING HAND. "I say, Cruden," said Waterford to Horace one morning, shortly after Reginald's departure from London, "I shall get jealous if you don't pull up." "Jealous of me?" said Horace. "Whatever for?" "Why, before you came I flattered myself I was a bit of a dab at the scissors-and-paste business, but you've gone and cut me out completely." "What rot!" said Horace, laughing. "There's more than enough cutting out to do with the morning papers to leave any time for operating on you. Besides, any duffer can do work like that." "That's all very well," said Waterford. "There's only one duffer here that can do as much as me and Booms put together, and that's you. Now, if you weren't such a racehorse, I'd propose to you to join our shorthand class. You'll have to learn it some time or other, you know." "The very thing I'd like," said Horace. "That is," he added, "if it won't take up all a fellow's evenings. How often are the classes?" "Well, as often as we like. Generally once a week. Booms's washerwoman--" "Whatever has she to do with shorthand?" asked Horace. "More than you think, my boy. She always takes eight days to wash his collars and cuffs. He sends them to her on Wednesdays, and gets them back on the next day week, so that we always practise shorthand on the Wednesday evening. Don't we, Booms?" he inquired, as the proud owner of that name entered the office at that moment. "There you are," sighed he. "How do I know what you are talking about?" "I was saying we always worked up our shorthand on Wednesday evenings." "If you say so," said the melancholy one, "it must be so." "I was telling Cruden he might join us this winter." "Very well," said the other, resignedly; "but where are you going to meet? Mrs Megson has gone away, and we've no reader." "Bother you, Booms, for always spotting difficulties in a thing. You see," added he, to Horace, "we used to meet at a good lady's house who kept a day school. She let us go there one evening a week, and read aloud to us, for us to take it down in shorthand. She's gone now, bad luck to her, and the worst of it is we're bound to get a lady to take us in, as we've got ladies in our class, you see." At the mention of ladies Booms groaned deeply. "Why, I tell you what," said Horace, struck by a brilliant idea. "What should you say to my mother? I think she would be delighted; and if you want a good reader aloud, she's the very woman for you." Waterford clapped his friend enthusiastically on the back. "You're a trump, Cruden, to lend us your mother; isn't he, Booms?" "Oh yes," said Booms. "I've seen her, and--" here he appeared to undergo a mental struggle--"I like her." "At any rate, I'll sound her on the matter. By the way, she'll want to know who the ladies are." "It'll only be one this winter, I'm afraid," said Waterford, "as the Megsons have gone. It's a Miss Crisp, Cruden, a friend of Booms's, who--" "Whom I met the other night at the Shucklefords'?" said Horace. Booms answered the question with such an agonised sigh that both his companions burst out laughing. "Dear old Booms can tell you more about her than I can," said Waterford. "All I know is she's a very nice girl indeed." "I agree with you," said Horace; "I'm sure she is. You think so too, don't you, Booms?" "You don't know what I think," said Booms; which was very true. One difficulty still remained, and this appeared to trouble Horace considerably. He did not like to refer to it as long as the melancholy masher was present, but as soon as he had gone in to fetch the papers, Horace inquired of his friend,-- "I say, Waterford, do you mean to say he chooses the very night he hasn't got a high collar to--" "Hush!" cried Waterford, mysteriously, "it's a sore question with him; but _he couldn't write if he had one_. We never mention it, though." It is needless to say Mrs Cruden fell in most cordially with the new proposal. She needed little persuasion to induce her to agree to a plan which meant the bright presence of her son and his friends in her house, and it gave her special satisfaction to find her services on such occasions not only invited, but indispensable; and it is doubtful whether any of the party looked forward more eagerly to the cheery Wednesday evenings than she did. It was up-hill work, of course, for Horace, at first; in fact, during the first evening he could do nothing but sit and admire the pace at which Miss Crisp, followed more haltingly by Booms and Waterford, took down the words of _Ivanhoe_ as fast as Mrs Cruden read them. But, by dint of hard, unsparing practice, he was able, a week later, to make some sort of a show, and as the lessons went on he even had the delight of finding himself, as Waterford said, `in the running' with his fellow- scholars. This success was not achieved without considerable determination on the boy's part; but Horace, when he did take a thing up, went through with it. He gave himself no relaxation for the first week or two. Every evening after supper he produced his pencil and paper, and his mother produced her book, and for two steady hours the work went on. Even at the office, in the intervals of work, he reported everything his ears could catch, not excepting the melancholy utterances of Booms and the vulgar conversation of the errand-boy. One day the sub-editor summoned him to the inner room to give him some instructions as to a letter to be written, when the boy much astonished his chief by taking a note of every word, and producing the letter in a few moments in the identical language in which it had been dictated. "You know shorthand, then?" inquired the mild sub-editor. "Yes, sir, a little." "I did not know of this before." "No, sir; I only began lately. Booms and Waterford and I are all working it up." The sub-editor said nothing just then, but in future availed himself freely of the new talent of his juniors. And what was still more satisfactory, it was intimated not many days later to Horace from headquarters, that as he appeared to be making himself generally useful, the nominal wages at which he had been admitted would be increased henceforth to twenty-four shillings a week. This piece of good fortune was most opportune; for now that Reginald's weekly contribution was withdrawn, and pending the payment of his first quarter's salary at Christmas, the family means had been sorely reduced, and Horace and his mother had been hard put to it to make both ends meet. Even with this augmented pay it might still have been beyond accomplishment had not their income been still further improved in a manner which Horace little suspected, and which, had he known, would have sorely distressed him. Mrs Cruden, between whom and the bright Miss Crisp a pleasant friendship had sprung up, had, almost the first time the two ladies found themselves together, inquired of her new acquaintance as to the possibility of finding any light employment for herself during the hours when she was alone. Miss Crisp, as it happened, did know of some work, though hardly to be called light work, which she herself, having just at present other duties on hand, had been obliged to decline. This was the transcribing of the manuscript of a novel, written by a lady, in a handwriting so enigmatical that the publishers would not look at it unless presented in a legible form. The lady was, therefore, anxious to get it copied out, and had offered Miss Crisp a small sum for the service. Mrs Cruden clutched eagerly at the opportunity thus presented. The work was laborious and dreary in the extreme, for the story was long and insipid, and the wretched handwriting danced under her eyes till they ached and grew weak. But she persevered boldly, and for three hours a day pored over her self-imposed task. When Horace returned at evening no trace of it was to be seen, only the pale face and weary eyes of his mother, who yet was ready with a smile to read aloud as long as the boy wished, and pretend that she only enjoyed a labour which was really taxing her both in health and eyesight. Reginald had written home once or twice since his departure, but none of his letters had contained much news. He said very little either about his work or his employers, but from the dismal tone in which he drew comparisons between London and Liverpool, and between his present loneliness and days before their separation, it was evident enough he was homesick. In a letter to Horace he said,-- "I get precious little time just now for anything but work, and what I do get I don't know a soul here to spend it with. There's a football club here, but of course I can't join it. I go walks occasionally, though I can't get far, as I cannot be away from here for long at a time, and never of an evening. You might send me a _Rocket_ now and then, or something to read. What about young Gedge? See Durfy doesn't get hold of him. Could you ever scrape up six-and-six, and pay it for me to Blandford, whose address I give below? It's something he lent me for a particular purpose when I last saw him. Do try. I would enclose it, but till Christmas I have scarcely enough to keep myself. I wish they would pay weekly instead of quarterly. I would be awfully obliged if you would manage to pay the six-and-six somehow or other. If you do, see he gets it, and knows it comes from me, and send me a line to say he has got it. Don't forget, there's a brick. Love to mother and young Gedge. I wish I could see you all this minute." Horace felt decidedly blue after receiving this letter, and purposely withheld it from his mother. Had he been sure Reginald was prosperous and happy in his new work, this separation would not have mattered so much, but all along he had had his doubts on both these points, and the letter only confirmed them. At any rate he determined to lose no time in easing his brother's mind of the two chief causes of his anxiety. The very next Saturday he appropriated six-and-six of his slender wages, and devoted the evening to finding out Blandford's rooms, and paying him the money. Fortunately his man was at home, an unusual circumstance at that hour of the night, and due solely to the fact that he and Pillans, his fellow- lodger, were expecting company; indeed, the page-boy (for our two gay sparks maintained a "tiger" between them) showed Horace up the moment he arrived, under the delusion that he was one of the guests. Blandford and his friend, sitting in state to receive their distinguished visitors, among whom were to be the real owner of a racehorse, a real jockey, a real actor, and a real wine-merchant, these open-hearted and knowing young men were considerably taken aback to find a boy of Horace's age and toilet ushered into their august presence. Blandford would have preferred to appear ignorant of the identity of the intruder, but Horace left him no room for that amiable fraud. "Hullo, Bland!" said he, just as if he had seen him only yesterday at Wilderham, "what a jolly lot of stairs you keep in this place. I thought I should never smoke you out. How are you, old man?" And before the horrified dandy could recover from his surprise, he found his hand being warmly shaken by his old schoolfellow. Horace, sublimely unconscious of the impression he was creating, indulged in a critical survey of the apartment, and said,-- "Snug little crib you've got--not quite so jolly, though, as the old study you and Reg had at Wilderham. How's Harker, by the way?" And he proceeded to stroll across the room to look at a picture. Blandford and Pillans exchanged glances. Wrath was in the face of the one, bewilderment in the face of the other. "Who's your friend?" whispered the latter. "An old schoolfellow who--" "Nice lot of fellows you seem to have been brought up with, upon my word," said Mr Pillans. "I suppose he'll be up for Christmas," pursued Horace. "Jolly glad I shall be to see him, too. I say, why don't you come and look us up? The _mater_ would be awfully glad, though we've not very showy quarters to ask you to. Ah! that's one of the prints you had in the study at school. Do you remember Reg chipping that corner of the frame with a singlestick?" "Excuse me, Cruden," began Blandford, in a severe tone; "my friend and I are just expecting company." "Are you? Well, I couldn't have stayed if you'd asked me. Are any of the old school lot coming?" "The fact is, we can do without you, young fellow," said Mr Pillans. Horace stared. It had not occurred to him till that moment that his old schoolfellow could be anything but glad to see him, and he didn't believe it now. "Will Harker be coming?" he inquired, ignoring Mr Pillans' presence. "No, no one you know is coming," said Blandford, half angrily, half nervously. "That's a pity. I'd have liked to see some of the old lot. Ever since we came to grief none of them has been near us except Harker. He called one day, like a brick, but he won't be up again till Christmas." "Good-night," said Blandford. His tone was quite lost on Horace. "Good-night, old man. By the way, Reg--you know he's up in the North now--asked me to pay you six-and-six he owed you. He said you'd know about it. Is it all right?" Blandford coloured up violently. "I'm not going to take it. I told him so," said he. "Oh yes, you are, you old humbug," said Horace, "so catch hold. A debt's a debt, you know." "It's not a debt," said Blandford. "I gave it to him, so good-night." "No, that won't do," said Horace. "He doesn't think so--" "The fact is, the beggar couldn't pay for his own dinner, and Blandford had to pay it for him. He managed it very neatly," said Mr Pillans. Horace fired up fiercely. "What do you mean? Who's this cad you keep about the place, Blandford?" "If you don't go I'll kick you down the stairs!" cried Mr Pillans, by this time in a rage. Horace laughed. Mr Pillans was his senior in years and his superior in inches, but there was nothing in his unhealthy face to dismay the sturdy school-boy. "Do you want me to try?" shouted Mr Pillans. "Not unless you like," replied Horace, putting the money down on the table and holding out his hand to Blandford. The latter took it mechanically, too glad to see his visitor departing to offer any obstacle. "I'll look you up again some day," said Horace, "when your bulldog here is chained up. When Reg and Harker are up this Christmas, we must all get a day together. Good-night." And he made for the door, brushing up against the outraged Mr Pillans on his way. "Take that for an impudent young beggar!" said the latter as he passed, suiting the action to the word with a smart cuff directed at the visitor's head. Horace, however, was quick enough to ward it off. "I thought you'd try that on," he said, with a laugh; "you're--" But Mr Pillans, who had by this time worked himself into a fury by a method known only to himself, cut short further parley by making a desperate rush at him just as he reached the door. The wary Horace had not played football for three seasons for nothing. He quietly ducked, allowing his unscientific assailant to overbalance himself, and topple head first on the lobby outside, at the particular moment when the real owner of the racehorse and the real wine-merchant, who had just arrived, reached the top of the stairs. "Hullo, young fellow!" said the sporting gentleman; "practising croppers, are you? or getting up an appetite? or what? High old times you're having up here among you! Who's the kid?" "Stop him!" gasped Pillans, picking himself up; "don't let him go! hold him fast!" The wine-merchant obligingly took possession of Horace by the collar, and the company returned in solemn procession to the room. "Now, then," said Horace's captor, "what's the row? Let's hear all about it. Has he been collaring any of your spoons? or setting the house on fire? or what? Who is he?" "He's cheeked me!" said Pillans, brushing the dust off his coat. "Hold him fast, will you? till I take it out of him." But the horse-racer was far too much of a sportsman for that. "No, no," said he, laughing; "make a mill of it and I'm your man. I'll bet two to one on the young 'un to start with." The wine-merchant said he would go double that on Pillans, whereupon the sporting man offered a five-pound note against a half-sovereign on his man, and called out to have the room cleared and a sponge brought in. How far his scientific enthusiasm would have been rewarded it is hard to say, for Blandford at this juncture most inconsiderately interposed. "No, no," said he, "I'm not going to have the place made a cock-pit. Shut up, Pillans, and don't make an ass of yourself; and you, Cruden, cut off. What did you ever come here for? See what a row you've made." "It wasn't I made the row," said Horace. "I'm awfully sorry, Bland. I'd advise you to cut that friend of yours, I say. He's an idiot. Good-bye." And while the horse-racer and the wine-merchant were still discussing preliminaries, and Mr Pillans was privately ascertaining whether his nose was bleeding, Horace departed in peace, partly amused, partly vexed, and decidedly of opinion that Blandford had taken to keeping very queer company since he last saw him. The great thing was that Horace could now write and report to Reg that the debt had been paid. His way home led him past the _Rocket_ office. It was half-past ten, and the place looked dark and deserted. Even the lights in the editor's windows were out, and the late hands had gone home. Just at the corner Horace encountered Gedge, one of the late hands in question. "Hullo, young 'un!" he said. "Going home?" "Yes, I'm going home," said young Gedge. "I heard from my brother yesterday. He was asking after you." "Was he?" said the boy half-sarcastically. "He does remember my name, then?" "Whatever do you mean? Of course he does," said Horace. "You know that well enough." "I shouldn't have known it unless you'd told me," said Gedge, with a cloud on his face; "he's never sent me a word since he left." "He's been awfully busy--he's scarcely had time to write home. I say, young 'un, what's the row with you? What makes you so queer?" "Oh, I don't know," said the boy wearily; "I used to fancy somebody cared for me, but I was mistaken. I was going to the dogs fast enough when Cruden came here; I pulled up then, because I thought he'd stand by me; but now he's gone and forgotten all about me. I'll--well, there's nothing to prevent me going to the bad; and I may as well make up my mind to it." "No, no," said Horace, taking his arm kindly; "you mustn't say that, young 'un. The last words Reg said to me when he went off were, `Keep your eye on young Gedge, don't forget'; the very last words, and he's reminded me of my promise in every letter since. I've been a cad, I know, not to see more of you; but you mustn't go thinking that you've no friends. If it were only for Reg's sake I'd stick to you. Don't blame him, though, for I know he thinks a lot about you, and it would break his heart if you went to the bad. Of course you can help going to the bad, old man; we can all help it." The boy looked up with the clouds half brushed away from his face. "I don't want to go to the bad," said he; "but I sort of feel I'm bound to go, unless some one sticks up for me. I'm so awfully weak-minded, I'm not fit to be trusted alone." "Hullo, I say," whispered Horace, suddenly stopping short in his walk, "who's that fellow sneaking about there by the editor's door?" "He looks precious like Durfy," said Gedge; "I believe it is he." "What does he want there, I wonder--he wasn't on the late shift to- night, was he?" "No; he went at seven." "I don't see what he wants hanging about when everybody's gone," said Horace. "Unless he's screwed and can't get home--I've known him like that. That fellow's not screwed, though," he added; "see, he's heard some one coming, and he's off steady enough on his legs." "Rum," said Horace. "It looked like Durfy, too. Never mind, whoever it is, we've routed him out this time. Good-night, old man; don't go down on your luck, mind, and don't go abusing Reg behind his back, and don't forget you're booked to come home to supper with me on Monday, and see my mother. Ta-ta." CHAPTER THIRTEEN. THE NEW SECRETARY TAKES THE REINS. It is high time to return to Reginald, whom we left in a somewhat dismal fashion, straining his eyes for a last sight of his mother and brother as they waved farewell to him on the Euston platform. If the reader expects me to tell him that on finding himself alone our hero burst into tears, or broke out into repentant lamentations, or wished himself under the wheels of the carriage, I'm afraid he will be disappointed. Reginald spent the first half-hour of his solitary journey in speculating how the oil in the lamp got round at the wick. He considered the matter most attentively, and kept his eyes fixed on the dim light until London was miles behind him, and the hedges and grey autumn fields on either hand proclaimed the country. Then his mind abandoned its problems, and for another half-hour he tried with all his might to prevent the beat of the engine taking up the rhythm of one of the old Wilderham cricket songs. That too he gave up eventually, and let his imagination wander at large over those happy school days, when all was merry, when every friend was a brick, and every exertion a sport, when the future beckoned him forward with coaxing hand. What grand times they were! Should he ever forget the last cricket match of the summer term, when he bowled three men in one over, and made the hardest catch on record in the Wilderham Close? He and Blandford-- Ah, Blandford! His mind swerved on the points here, and branched off into the recollection of that ill-starred dinner at the Shades, and the unhealthy bloated face of the cad Pillans. How he would have liked to knock the idiot down, just as he had knocked Durfy down that night when young Gedge-- Ah, another point here and another swerve. Would Horace be sure and keep his eye on the young 'un, and was there any chance of getting him down to Liverpool? Once more a swerve, and this time into a straight reach of meditation for miles and miles ahead. He thought of everything. He pictured his own little office and living-room. He drew a mental portrait of the housekeeper, and the cups and saucers he would use at his well-earned meals. He made up his mind the board-room would be furnished in green leather, and that the Bishop of S-- would be a jolly sort of fellow and fond of his joke. He even imagined what the directors would say among themselves respecting himself after he had been introduced and made his first impression. At any rate they should not say he lacked in interest for their affairs, and when he wrote home-- Ah! this was the last of all the points, and his thoughts after that ran on the same lines till the train plunged into the smoke and gloom of the great city which was henceforth to extend to him its tender mercies. If Reginald had reckoned on a deputation of directors of the Select Agency Corporation to meet their new secretary at the station, he was destined to be disappointed. There were plenty of people there, but none concerning themselves with him as he dragged his carpet-bag from under the seat and set foot on the platform. The bag was very heavy, and Shy Street, so he was told, was ten-minutes' walk from the station. It did occur to him that most secretaries of companies would take a cab under such circumstances and charge it to "general expenses." But he did not care to spend either the Corporation's money or his own for so luxurious a purpose, and therefore gripped his bag manfully and wrestled with it out into the street. The ten-minutes grew to considerably more than twenty before they both found themselves in Shy Street. A long, old-fashioned, dismal street it was, with some shops in the middle, and small offices at either end. No imposing-looking edifice, chaste in architecture and luxurious in proportions, stood with open doors to receive its future lord. Reginald and his bag stumbled up a side staircase to the first floor over a chemist's shop, where a door with the name "Medlock" loomed before him, and told him he had come to his journey's end. Waiting a moment to wipe the perspiration from his face, he turned the handle and found himself in a large, bare, carpetless room, with a table and a few chairs in the middle of it, a clock over the chimneypiece, a few directories piled up in one corner, and a bundle of circulars and wrappers in another; and a little back room screened off from the general observation with the word "private" on the door. Such was the impression formed in Reginald's mind by a single glance round his new quarters. In the flutter of his first entrance, however, he entirely overlooked one important piece of furniture--namely, a small boy with long lank hair and pale blotched face, who was sitting on a low stool near the window, greedily devouring the contents of a pink-covered periodical. This young gentleman, on becoming aware of the presence of a stranger, crumpled his paper hurriedly into his pocket and rose to his feet. "What do yer want?" he demanded. "Is Mr Medlock here?" asked Reginald. "No fear," replied the boy. "Has he left any message?" "Don't know who you are. What's yer name?" "I'm Mr Cruden, the new secretary." "Oh, you're 'im, are yer? Yes, you've got to address them there envellups, and 'e'll be up in the morning." This was depressing. Reginald's castles in the air were beginning to tumble about his ears in rapid succession. The bare room he could excuse, on the ground that the Corporation was only just beginning its operations. Doubtless the carpet was on order, and was to be delivered soon. He could even afford not to afflict himself much about this vulgar, irreverent little boy, who was probably put in, as they put in a little watch-dog, to see to the place until he and his staff of assistants rendered his further presence unnecessary. But it did chill him to find that after his long journey, and his farewell to his own home, no one should think it worth while to be here to meet him and install him with common friendliness into his new quarters. However, Mr Medlock was a man of business, and was possibly prevented by circumstances over which he had no control from being present to receive him. "Where's the housekeeper?" demanded he, putting down his bag and relieving himself of his overcoat. "'Ousekeeper! Oh yus," said the boy, with a snigger; "no 'ousekeepers 'ere." "Where are my rooms, then?" asked Reginald, beginning to think it a pity the Corporation had brought him down all that way before they were ready for him. "Ain't this room big enough for yer?" said the boy; "ain't no more 'sep' your bedroom--no droring-rooms in this shop." "Show me the bedroom," said Reginald. The boy shuffled to the door and up another flight of stairs, at the head of which he opened the door of a very small room, about the size of one of the Wilderham studies, with just room to squeeze round a low iron bedstead without scraping the wall. "There you are--clean and haired and no error. I've slep' in it myself." Reginald motioned him from the room, and then sitting down on the bed, looked round him. He could not understand it. Any common butcher's boy would be better put up. A little box of a bedroom like this, with no better testimonial to its cleanliness and airiness than could be derived from the fact that the dirty little watch-dog downstairs had occupied it! And in place of a parlour that bare gaunt room below in which to sit of an evening and take his meals and enjoy himself. Why ever had the Corporation not had the ordinary decency to have his permanent accommodation ready for him before he arrived? He washed himself as well as he could without soap and towel, and returned to the first floor, where he found the boy back on his old stool, and once more absorbed in his paper. The reader looked up as Reginald entered. "Say, what's yer name," said he, "ever read _Tim Tigerskin_?" "No, I've not," replied Reginald, staring at his questioner, and wondering whether he was as erratic in his intellect as he was mealy in his countenance. "'Tain't a bad 'un, but 'tain't 'arf as prime as _The Pirate's Bride_. The bloke there pisons two on 'em with prussic acid, and wouldn't ever 'ave got nabbed if he 'adn't took some hisself by mistake, the flat!" Reginald could hardly help smiling at this appetising _resume_. "I want something to eat," he said. "Is there any place near here where I can get it?" "Trum's, but 'is sosseges is off at three o'clock. Better try Cupper's--he's a good 'un for bloaters; _I_ deals with 'im." Reginald felt neither the spirit nor the inclination to make a personal examination into the merits of the rival caterers. "You'd better go and get me something," he said to the boy; "coffee and fish or cold meat will do." "No fear; I ain't a-goin' for nothing," replied the boy. "I'll do your errands for a tanner a week and your leavings, but not no less." "You shall have it," said Reginald. Whereupon the boy undertook the commission and departed. The meal was a dismal one. The herrings were badly over-smoked and the coffee was like mud, and the boy's conversation, which filled in a running accompaniment, was not conducive to digestion. "I'd 'most a mind to try some prussic in that corfee," said that bloodthirsty young gentleman, "if I'd a known where the chemist downstairs keeps his'n. Then they'd 'a said you'd poisoned yourself 'cos you was blue coming to this 'ere 'ole. I'd 'a been put in the box at the inquige, and I'd 'a said Yes, you was blue, and I thought there was a screw loose the minit I see yer, and I'd seen yer empty a paper of powder in your corfee while you thort nobody wasn't a-looking. And the jury'd say it was tempory 'sanity and sooiside, and say they considers I was a honest young feller, and vote me a bob out of the poor-box. There you are. What do you think of that?" "I suppose that's what the man in _The Pirate's Bride_ ought to have done," said Reginald, with a faint smile. "To be sure he ought. Why, it's enough to disgust any one with the flat, when he goes and takes the prussic hisself. Of course he'd get found out." "Well, it's just as well you've not put any in my coffee," said Reginald. "It's none too nice as it is. And I'd advise you, young fellow, to burn all those precious story-books of yours, if that's the sort of stuff they put into your head." The boy stared at him in horrified amazement. "Burn 'em! Oh, Walker!" "What's your name?" demanded Reginald. "Why, Love," replied the boy, in a tone as if to say you had only to look at him to know his name. "Well then, young Love, clear these things away and come and make a start with these envelopes." "No fear. I ain't got to do no envellups. You're got to do 'em." "I say you've got to do them too," said Reginald, sternly; "and if you don't choose to do what you're told I can't keep you here." The boy looked up in astonishment. "You ain't my governor," said he. "I am, though," said Reginald, "and you'd better make up your mind to it. If you choose to do as you're told we shall get on all right, but I'll not keep you here if you don't." His tone and manner effectually overawed the mutinous youngster. He could not have spoken like that unless he possessed sufficient authority to back it up, and as it did not suit the convenience of Mr Love just then to receive the "sack" from any one, he capitulated with the honours of war, put his _Tim Tigerskin_ into his pocket, and placed himself at his new "governor's" disposal. The evening's work consisted in addressing some two hundred or three hundred envelopes to persons whose names Mr Medlock had ticked in a directory, and enclosing prospectuses therein. It was not very entertaining work; still, as it was his first introduction to the operations of the Corporation, it had its attractions for the new secretary. A very fair division of labour was mutually agreed upon by the two workers before starting. Reginald was to copy out the addresses, and Master Love, whose appetite was always good, was to fold and insert the circulars and "lick up" the envelopes. This being decided, the work went on briskly and quietly. Reginald had leisure to notice one or two little points as he went on, which, though trivial in themselves, still interested him. He observed for one thing that the largest proportion of the names marked in the directory were either ladies or clergymen, and most of them residing in the south of England. Very few of them appeared to reside in any large town, but to prefer rural retreats "far from the madding crowd," where doubtless a letter, even on the business of the Corporation, would be a welcome diversion to the monotony of existence. As to the clergy, doubtless their names had been suggested by the good Bishop of S--, who would be in a position to introduce a considerable connection to his fellow- directors. Reginald also noticed that only one name had been marked in each village, it doubtless being assumed that every one in these places being on intimate terms with his neighbour, it was unnecessary to waste stamps and paper in making the Corporation known to two people where one would answer the same purpose. He was curious enough to read one of the circulars, and he was on the whole pleased with its contents. It was as follows:-- "Select Agency Corporation, Shy Street, Liverpool.--Reverend Sir," (for the ladies there were other circulars headed "Dear Madam"), "The approach of winter, with all the hardships that bitter season entails on those whom Providence has not blessed with sufficient means, induces us to call your attention to an unusual opportunity for providing yourself and those dear to you with a most desirable comfort at a merely nominal outlay. Having acquired an enormous bankrupt stock of _winter clothing_ of most excellent material, and suitable for all measures, we wish, in testimony to our respect for the profession of which you are an honoured representative, to acquaint you _privately_ with the fact before disposing of the stock in the open market. For £3 we can supply you with a complete clerical suit of the best make, including overcoat and gloves, etcetera, etcetera, the whole comprising an outfit which would be cheap at £10. In _your_ case we should have no objection to meet you by taking £2 with your order and the balance _any time within six months_. Should you be disposed to show this to any of your friends, we may say we shall be pleased to appoint you our agent, and to allow you ten per cent, on all sales effected by you, which you are at liberty to deduct from the amount you remit to us with the orders. We subjoin full list of winter clothing for gentlemen, ladies, and children. Money orders to be made payable to Cruden Reginald, Esquire, Secretary, 13, Shy Street, Liverpool." "Hullo!" said Reginald, looking up excitedly, "don't fold up any more of those, boy. They've made a mistake in my name and called me Cruden Reginald instead of Reginald Cruden. It will have to be altered." "Oh, ah. There's on'y a couple of billions on 'em printed; that won't take no time at all," said Master Love, beginning to think longingly of _Tim Tigerskin_. "It won't do to send them out like that," said Reginald. "Oh yes, it will. Bless you, what's the odds if you call me Tommy Love or Love Tommy? I knows who you mean. And the governor, 'e is awful partickler about these here being done to-night. And we sent off millions on 'em last week. My eye, wasn't it a treat lickin' up the envellups!" "Do you mean to say a lot of the circulars have been sent already?" "'Undreds of grillions on 'em," replied the boy. Of course it was no use after that delaying these; so Reginald finished off his task, not a little vexed at the mistake, and determined to have it put right without delay. It was this cause of irritation, most likely, which prevented his dwelling too critically on the substance of the circular so affectionately dedicated to the poor country clergy. Beyond vaguely wondering where the Corporation kept their "bankrupt" stock of clothing, and how by the unaided light of nature they were to decide whether their applicants were stout or lean, or tall or short, he dismissed the matter from his mind for the time being, and made as short work as possible of the remainder of the task. Then he wrote a short line home, announcing his arrival in as cheerful words as he could muster, and walked out to post it. The pavements were thronged with a crowd of jostling men and women, returning home from the day's work; but among them all the boy felt more lonely than had he been the sole inhabitant of Liverpool. Nobody knew him, nobody looked at him, nobody cared two straws about him. So he dropped his letter dismally into the box, and turned back to Shy Street, where at least there was one human being who knew his name and heeded his voice. Master Love had made the most of his opportunities. He had lit a candle and stuck it into the mouth of an ink-bottle, and by its friendly light was already deep once more in the history of his hero. "Say, what's yer name," said he, looking up as Reginald re-entered, "this here chap" as scuttled a ship, and drowned twenty on 'em. _'E_ was a cute 'un, and no error. He rigs hisself up as a carpenter, and takes a tile off the ship's bottom just as the storm was a-coming on; and in corse she flounders and all 'ands." "And what became of him?" asked Reginald. "Oh, in corse he stows hisself away in the boat with a lifebelt, and gets washed ashore; and he kills a tiger for 'is breakfast, and--" "It's a pity you waste your time over bosh like that," said Reginald, not interested to hear the conclusion of the heroic Tim's adventures; "if you're fond of reading, why don't you get something better?" "No fear--I like jam; don't you make no error, governor." With which philosophical albeit enigmatical conclusion he buried his face once more in his hands, and immersed himself in the literary "jam" before him. Reginald half envied him as he himself sat listless and unoccupied during that gloomy evening. He did his best to acquaint himself, by the aid of papers and circulars scattered about the room, with the work that lay before him. He made a careful tour of the premises, with a view to possible alterations and improvements. He settled in his own mind where the directors' table should stand, and in which corner of the private room he should establish his own desk. He went to the length of designing a seal for the Corporation, and in scribbling, for his own amusement, the imaginary minutes of an imaginary meeting of the directors. How would this do? "A meeting of directors of the Select Agency Corporation"--by the way, was it "Limited"? He didn't very clearly understand what that meant. Still, most companies had the word after their name, and he made a note to inquire of Mr Medlock whether it applied to them--"was held on October 31st at the company's offices. Present, the Bishop of S-- in the chair, Messrs. Medlock, Blank, M.P., So-and-so, etcetera. The secretary, Mr Cruden, having been introduced, took his seat and thanked the directors for their confidence. It was reported that the receipts for the last month had been (well, say) £1,000, including £50 deposited against shares by the new secretary, and the expenses £750. Mr Medlock reported the acquisition of a large bankrupt stock of clothing, which it was proposed to offer privately to a number of clergymen and others as per a list furnished by the right reverend the chairman. The following cheques were drawn:--Rent for offices for a month, £5; printing and postage, £25; secretary's salary for one month, £12 10 shillings; ditto, interest on the £50 deposit, 4 shillings 2 pence; office-boy (one month), £2; Mr Medlock for bankrupt stock of clothing, £150; etcetera, etcetera. The secretary suggested various improvements in the offices and fittings, and was requested to take any necessary steps. After sundry other routine business the Board adjourned." This literary experiment concluded, Reginald, who after the fatigues and excitement of the day felt ready for sleep, decided to adjourn too. "Do you stay here all night?" said he to Love. "Me? You and me sleeps upstairs." "I'm afraid there's no room up there for two persons," said Reginald; "you had better go home to-night, Love, and be here at nine in the morning." "Go on--as if I 'ad lodgin's in the town. If you don't want me I know one as do. Me and the chemist's boy ain't too big for the attick." "Very well," said Reginald, "you had better go up to bed now, it's late." "Don't you think you're having a lark with me," said the boy; "'tain't eleven, and I ain't done this here Tigerskin yet. There's a lump of reading in it, I can tell you. When he'd killed them tigers he rigged hisself up in their skins, and--" "Yes, yes," said Reginald. "I'm not going to let you stay up all night reading that rot. Cut up to bed now, do you hear?" Strange to say, the boy obeyed. There was something about Reginald which reduced him to obedience, though much against his will. So he shambled off with his book under his arm, secretly congratulating himself that the bed in the attic was close to the window, so that he would be able to get a jolly long read in the morning. After he had gone, Reginald followed his example, and retired to his own very spare bed, where he forgot all his cares in a night of sound refreshing sleep. CHAPTER FOURTEEN. THE SELECT AGENCY CORPORATION LOSES ITS OFFICE-BOY. Mr Medlock duly appeared next morning. He greeted the new secretary with much friendliness, hoped he had a good journey and left them all well at home, and so on. He further hoped Reginald would find his new quarters comfortable. Most unfortunately they had missed securing the lease of a very fine suite of offices in Lord Street, and had to put up with these for the present. Reginald must see everything was comfortable; and as of course he would be pretty closely tied to the place (for the directors would not like the offices left in charge of a mere office-boy), he must make it as much of a home as possible. As to money, salaries were always paid quarterly, and on Christmas Day Reginald would receive his first instalment. Meanwhile, as there were sure to be a few expenses, Reginald would receive five pounds on account (a princely allowance, equal to about thirteen shillings a week for the eight weeks between now and Christmas!) The directors, Mr Medlock said, placed implicit confidence in the new secretary. He was authorised to open all letters that came. Any money they might contain he was strictly to account for and pay into the bank daily to Mr Medlock's account. He needn't send receipts, Mr Medlock would see to that. Any orders that came he was to take copies of, and then forward them to Mr John Smith, Weaver's Hotel, London, "to be called for," for execution. He would have to answer the questions of any who called to make inquiries, without of course disclosing any business secrets. In fact, as the aim of the Corporation was to supply their supporters with goods at the lowest possible price, they naturally met with a good deal of jealousy from tradesmen and persons of that sort, so that Reginald must be most guarded in all he said. If it became known how their business was carried on, others would be sure to attempt an imitation; and the whole scheme would fail. "You know, Mr Reginald," said he-- "Excuse me," interrupted Reginald, "I'm afraid you're mistaken about my name. You've printed it Cruden Reginald, it should be Reginald Cruden." "Dear me, how extraordinarily unfortunate!" said Mr Medlock; "I quite understood that was your name. And the unlucky part of it is, we have got all the circulars printed, and many of them circulated. I have also given your name as Mr Reginald to the directors, and advertised it, so that I don't see what can be done, except to keep it as it is. After all, it is a common thing, and it would put us to the greatest inconvenience to alter it now. Dear me, when I saw you in London I called you Mr Reginald, didn't I?" "No, sir; you called me Mr Cruden." "I must have supposed it was your Christian name, then." "Perhaps it doesn't matter much," said Reginald; "and I don't wish to put the directors to any trouble." "To be sure I knew you would not. Well, I was saying, Reginald (that's right, whatever way you take it!) the directors look upon you as a gentleman of character and education, and are satisfied to allow you to use your discretion and good sense in conducting their business. You have their names, which you can show to any one. They are greatly scattered, so that our Board meetings will be rare. Meanwhile they will be glad to hear how you are getting on, and will, I know, appreciate and recognise your services. By the way, I believe I mentioned (but really my memory is so bad) that we should ask you to qualify to the extent of £50 in the shares of the company?" "Oh yes, I have the cheque here," said Reginald, taking it out of his pocket. "That's right. And of course you will give yourself a receipt for it in the company's name. Curious, isn't it?" With which pleasantry Mr Medlock departed, promising to look in frequently, and meanwhile to send in a fresh directory marked, and some new circulars for him to get on with. Reginald, not quite sure whether it was all as good as he expected, set to work without delay to put into practice the various instructions he had received. Mr Medlock's invitation to him to see everything was comfortable could hardly be fully realised on 13 shillings a week. That must wait for Christmas, and meanwhile he must make the best of what he had. He set Love to work folding and enclosing the new circulars (this time calling attention to some extremely cheap globes and blackboards for ladies' and infants' schools), while he drew himself up a programme of his daily duties, in accordance with his impression of the directors' wishes. The result of this was that he came to the conclusion he should have his hands very full indeed--a possibility he by no means objected to. But it was not clear to him how he was to get much outdoor exercise or recreation, or how he was to go to church on Sundays, or even to the bank on weekdays, if the office was never to be left. On this point he consulted Mr Medlock when he called in later in the day, and arranged that for two hours on Sunday, and an hour every evening, besides the necessary walk to the bank, he might lock up the office and take his walks abroad. Whereat he felt grateful and a little relieved. It was not till about four days after his arrival that the first crop of circulars sown among the clergy yielded their firstfruits. On that day it was a harvest with a vengeance. At least 150 letters arrived. Most of them contained the two pounds and an order for the suit. In some cases most elaborate measurements accompanied the order. Some asked for High Church waistcoats, others for Low; some wished for wideawake hats, others for broad-brimmed clericals. Some sent extra money for a school- boy's suit as well, and some contained instructions for a complete family outfit. All were very eager about the matter, and one or two begged that the parcel might be sent marked "private." Reginald had a busy day from morning till nearly midnight, entering and paying in the cash and forwarding the orders to Mr John Smith. He organised a beautiful tabular account, in which were entered the name and address of each correspondent, the date of their letters, the goods they ordered, and the amount they enclosed, and before the day was over the list had grown to a startling extent. The next day brought a similar number of applications and remittances as to the globes and blackboards, and of course some more also about the clerical suits. And so, from day to day, the post showered letters in at the door, and the secretary of the Select Agency Corporation was one of the hardest worked men in Liverpool. Master Love meanwhile had very little time for his "penny dreadfuls," and complained bitterly of his hardships. And indeed he looked so pale and unhealthy that Reginald began to fear the constant "licking" was undermining his constitution, and ordered him to use a sponge instead of his tongue. But on this point Love's loyalty made a stand. Nothing would induce him to use the artificial expedient. He deliberately made away with the sponge, and after a battle royal was allowed his own way, and continued to lick till his tongue literally clave to the roof of his mouth. By the end of a fortnight the first rush of work was over, and Reginald and his henchman had time to draw breath. Mr Medlock had gone to London, presumably to superintend the dispatch of the various articles ordered. It was about this time that Reginald had written home to Horace complaining of the dulness of his life, and begging him to repay Blandford the 6 shillings 6 pence, which had been weighing like lead on his mind ever since he left town, and which he now despaired of ever being able to spare out of the slender pittance on which he was doomed to subsist till Christmas. Happily that festive season was only a few weeks away now, and then how delighted he should be to send home a round half of his income, and convince himself he was after all a main prop to that dear distant little household. Had he been gifted with ears sharp enough to catch a conversation that took place at the Bodega in London one evening about the same time, the Christmas spirit within him might have experienced a considerable chill. The company consisted of Mr Medlock, Mr Shanklin, and Mr Durfy. The latter was present by sufferance, not because he was wanted or invited, but because he felt inclined for a good supper, and was sharp enough to know that neither of his employers could afford to fall out with him just then. "Well, how goes it?" said Mr Shanklin. "You've had a run lately, and no mistake." "Yes, I flatter myself we've done pretty well. One hundred pounds a day for ten days makes how much, Durfy?" "A thousand," said Durfy. "Humph!" said Mr Shanklin. "Time to think of our Christmas holidays." "Wait a bit. We've not done yet. You say your two young mashers are still in tow, Alf?" "Yes; green as duckweed. But they're nearly played out, I guess. One of them has a little bill for fifty pounds coming due in a fortnight, and t'other--well, he wagered me a hundred pounds on a horse that never ran for the Leger, and he's got one or two trifles besides down in my books." "Yes, I got you that tip about the Leger," said Durfy, beginning to think himself neglected in this dialogue of self-congratulation. "Yes; you managed to do it this time without botching it, for a wonder!" said Mr Shanklin. "Yes; and I hope you'll manage to give me the ten-pound note you promised me for it, Mr S.," replied Durfy, with a snarl. "You seem to have forgotten that, and my commission too for finding you your new secretary." "Yes. By the way," said Mr Medlock, "he deserves something for that; it's the best stroke of business we've done for a long time. It's worth three weeks to us to have him there to answer questions and choke off the inquisitive. He's got his busy time coming on, I fancy. Bless you, Durfy, the fellow was born for us! He swallows anything. I've allowed him thirteen shillings a week till Christmas, and he says, `Thank you.' He's had his name turned inside out, and I do believe he thinks it an improvement! He sticks in the place all day with that young cockney gaol-bird you picked us up too, Durfy, and never growls." "Does he help himself to any of the money?" "Not a brass farthing! I do believe he buys his own postage-stamps when he writes home to his mamma!" This last announcement was too comical to be received gravely. "Ha, ha! he ought to be exhibited!" said Shanklin. "He ought to be starved!" said Durfy viciously. "He knocked me down once, and I wouldn't have told you of him if I didn't owe him a grudge-- the puppy!" "Oh, well, I daresay you'll be gratified some day or other," said Medlock. "I tell you one thing," said Durfy; "you'd better put a stopper on his writing home too often; I believe he's put his precious brother up to watch me. Why, the other night, when I was waiting for the postman to get hold of that letter you wanted, I'm blessed if he didn't turn up and rout me out--he and a young chum of his brother's that used to be in the swim with me. I don't think they saw me, luckily; but it was a shave, and of course I missed the letter." "Yes, you did; there was no mistake about that!" said Mr Shanklin viciously. "When did you ever not miss it?" "How can I help it, when it's your own secretary is dogging me?" "Bless you! think of him dogging any one, the innocent! Anyhow, we can cut off his letters home for a bit, so as to give you no excuse next time." "And what's the next job to be, then?" asked Durfy. "The most particular of all," replied the sporting man. "I want a letter with the Boldham postmark, or perhaps a telegram, that will be delivered to-morrow night by the last post. There's a fifty pounds turns on it, and I must have it before the morning papers are out. Never mind what it is; you must get it somehow, and you'll get a fiver for it. As soon as that's done, Medlock, and the young dandies' bills have come due, we can order a cab. Your secretary at Liverpool will hold out long enough for us to get to the moon before we're wanted." "You're right there!" said Mr Medlock, laughing. "I'll go down and look him up to-morrow, and clear up, and then I fancy he'll manage the rest himself; and we can clear out. Ha, ha! capital sherry, this brand. Have some more, Durfy." Mr Medlock kept his promise and cheered Reginald in his loneliness by a friendly visit. "I've been away longer than I expected, and I must say the way you have managed matters in my absence does you the greatest credit, Reginald. I shall feel perfectly comfortable in future when I am absent." A flush of pleasure rose to Reginald's cheeks, such as would have moved to pity any heart less cold-blooded than Mr Medlock's. "No one has called, I suppose?" "No, sir. There's been a letter, though, from the Rev. T. Mulberry, of Woolford-in-the-Meadow, to ask why the suit he ordered has not yet been delivered." Mr Medlock smiled. "These good men are so impatient," said he; "they imagine their order is the only one we have to think of. What would they think of the four hundred and odd suits we have on order, eh, Mr Reginald?" "I suppose I had better write and say the orders will be taken in rotation, and that his will be forwarded in a few days." "Better say a few weeks. You've no notion of the difficulty we have in trying to meet every one's wishes. Say before Christmas--and the same with the globes and other things. The time and trouble taken in packing the things really cuts into the profits terribly." "Could we do any of it down here?" said Reginald. "Love and I have often nothing to do." It was well the speaker did not notice the fiendish grimace with which the young gentleman referred to accepted the statement. "You're very good," said Mr Medlock; "but I shouldn't think of it. We want you for head work. There are plenty to be hired in London to do the hand work. By the way, I will take up the register of orders and cash you have been keeping, to check with the letters in town. You won't want it for a few days." Reginald felt sorry to part with a work in which he felt such pride as this beautifully kept register. However, he had made it for the use of the Corporation, and it was not his to withhold. After clearing up cautiously all round, with the result that Reginald had very little besides pen, ink, and paper left him, Mr Medlock said good morning. "I may have to run up to town for a few days," he said, "but I shall see you again very soon, I hope. Meanwhile, make yourself comfortable. The directors are very favourably impressed with you already, and I hope at Christmas they may meet and tell you so in person. Boy, make a parcel of these books and papers and bring them for me to my hotel." Love obeyed surlily. He was only waiting for Mr Medlock's departure to dive into the mystery of _Trumpery Toadstool, or Murdered for a Lark_, in which he had that morning invested. He made a clumsy parcel of the books, and then shambled forth in a somewhat homicidal spirit in Mr Medlock's wake down the street. At the corner that gentleman halted till he came up. "Well, young fellow, picked any pockets lately?" The boy scowled at him inquisitively. "All right," said Mr Medlock. "I never said you had. I'm not going to take you to the police-station, I'm going to give you half a crown." This put a new aspect on the situation. Love brightened up as he watched Mr Medlock's hand dive into his pocket. "What should you do with a half-crown if you had it?" "Do? I know, and no error. I'd get the _Noogate Calendar_, that's what I'd do." "You can read, then?" "Ray-ther; oh no, not me." "Can you read writing?" "In corse." "Do you always go to the post with the letters?" "In corse." "Do you ever see any addressed to Mrs Cruden or Mr Cruden in London?" "'Bout once a week. That there sekketery always gives 'em to me separate, and says I'm to be sure and post 'em." "Well, I say they're not to be posted," said Mr Medlock. "Here's half a crown; and listen: next time you get any to post put them on one side; and every one you can show me you shall have sixpence for. Mind what you're at, or he'll flay you alive if he catches you. Off you go, there's a good boy." And Love pocketed his half-crown greedily, and with a knowing wink at his employer sped back to the office. That afternoon Reginald wrote a short polite note to the Rev. T. Mulberry, explaining to him the reason for any apparent delay in the execution of his order, and promising that he should duly receive it before Christmas. This was the only letter for the post that day, and Love had no opportunity of earning a further sixpence. He had an opportunity of spending his half-crown, however, and when he returned from the post he was radiant in face and stouter under the waistcoat by the thickness of the coveted volume of the _Newgate Calendar_ series. With the impetuosity characteristic of his age, he plunged into its contents the moment he found himself free of work, and by the time Reginald returned from his short evening stroll he was master of several of its stories. _Tim Tigerskin_ and _The Pirate's Bride_ were nothing to it. They all performed their incredible exploits on the other side of the world, but these heroes were beings of flesh and blood like himself, and, for all he knew, he might have seen them and talked to them, and have known some of the very spots in London which they frequented. He felt a personal interest in their achievements. "Say, governor," said he as soon as Reginald entered, "do you know Southwark Road?" "In London? Yes," said Reginald. "This 'ere chap, Bright, was a light porter to a cove as kep' a grocer's shop there, and one night when he was asleep in the arm-cheer he puts a sack on 'is 'ead and chokes 'im. The old cove he struggles a bit, but--" "Shut up!" said Reginald angrily. "I've told you quite often enough. Give me that book." At the words and the tones in which they were uttered Love suddenly turned into a small fiend. He struggled, he kicked, he cursed, he howled to keep his treasure. Reginald was inexorable, and of course it was only a matter of time until the book was in his hands. A glance at its contents satisfied him. "Look here," said he, holding the book behind his back and parrying all the boy's frantic efforts to recover it, "don't make a fool of yourself, youngster." "Give it to me! Give me my book, you--" And the boy broke into a volley of oaths and flung himself once more tooth-and-nail on Reginald. Already Reginald saw he had made a mistake. He had done about the most unwise thing he possibly could have done. But it was too late to undo it. The only thing, apparently, was to go through with it now. So he flung the book into the fire, and, catching the boy by the arm, told him if he did not stop swearing and struggling at once he would make him. The boy did not stop, and Reginald did make him. It was a poor sort of victory, and no one knew it better than Reginald. If the boy was awed into silence, he was no nearer listening to reason-- nay, further than ever. He slunk sulkily into a corner, glowering at his oppressor and deaf to every word he uttered. In vain Reginald expostulated, coaxed, reasoned, even apologised. The boy met it all with a sullen scowl. Reginald offered to pay him for the book, to buy him another, to read aloud to him, to give him an extra hour a day--it was all no use; the injury was too deep to wash out so easily; and finally he had to give it up and trust that time might do what arguments and threats had failed to effect. But in this he was disappointed; for next morning when nine o'clock arrived, no Love was there, nor as the day wore on did he put in an appearance. When at last evening came, and still no signs of him, Reginald began to discover that the sole result of his well-meant interference had been to drive his only companion from him, and doom himself henceforth to the miseries of solitary confinement. For days he scarcely spoke a word. The silence of that office was unearthly. He opened the window, winter as it was, to let in the sound of cabs and footsteps for company. He missed even the familiar rustle of the "penny dreadfuls" as the boy turned their pages. He wished anybody, even his direst foe, might turn up to save him from dying of loneliness. CHAPTER FIFTEEN. A LETTER FROM HORACE. "Dear Reg," (so ran a letter from Horace which Reginald received a day or two after Master Love's desertion), "I'm afraid you are having rather a slow time up there, which is more than can be said for us here. There's been no end of a row at the _Rocket_, which you may like to hear about, especially as two of the chief persons concerned were your friend Durfy and your affectionate brother. "Granville, the sub-editor, came into the office where Booms and Waterford and I were working on Friday morning, and said, in his usual mild way,-- "`I should like to know who generally clears the post-box in the morning?' "`I do,' said Booms. You know the way he groans when he speaks. "`The reason I want to know is, because I have an idea one or two letters lately have either been looked at or tampered with before the editor or I see them.' "`I suppose I'm to be given in charge?' said Booms. `I didn't do it; but when once a man's suspected, what's the use of saying anything?' "Even Granville couldn't help grinning at this. "`Nonsense, Booms. I'm glad to say I know you three fellows well enough by this time to feel sure it wasn't one of you. I shouldn't have spoken to you about it if I had.' "Booms seemed quite disappointed he wasn't to be made a martyr of after all. "`You think I know all about it?' he said. "`No, I don't; and if you'll just listen without running away with ridiculous notions, Booms,' said Granville, warming up a bit, `I'll explain myself. Two letters during the last fortnight have been undoubtedly opened before I saw them. They both arrived between eight o'clock in the evening and nine next morning, and they both came from sporting correspondents of ours in the country, and contained information of a private nature intended for our paper the next day. In one case it was about a horse race, and in the other about an important football match. The letters were not tampered with for the purpose of giving information to any other papers, because we were still the only paper who gave the news, so the probability is some one who wanted to bet on the event has tried to get hold of the news beforehand.' "`I never made a bet in my life,' said Booms. "We couldn't help laughing at this, for the stories he tells us of his terrific sporting exploits when he goes out of an evening in his high collar would make you think he was the loudest betting man in London. "Granville laughed too. "`Better not begin,' he said, and then blushed very red, as it occurred to him he had made an unintentional pun. But we looked quite grave, and did not give any sign of having seen it, and that put him on his feet again. "`It's not a comfortable thing to happen,' said he, `and what I want to propose is that one or two of you should stay late for a night or two and see if you can find out how it occurs. There are one or two events coming off during the next few days about which we expect special communications, so that very likely whoever it is may try again. You must be very careful, and I shall have to leave you to use your discretion, for I'm so busy with the new Literary Supplement that I cannot stay myself.' "Well, when he'd gone we had a consultation, and of course it ended in Waterford and me determining to sit up. Poor Booms's heart would break if he couldn't go `on the mash' as usual; and though he tried to seem very much hurt that he was not to stay, we could see he was greatly relieved. Waterford and I were rather glad, as it happened, for we'd some work on hand it just suited us to get a quiet evening for. "So I wrote a note to Miss Crisp. Don't get excited, old man; she's a very nice girl, but she's another's. [By the way, Jemima asks after you every time I meet her, which is once a week now; she's invited herself into our shorthand class.] And after helping to rig old Booms up to the ninety-nines, which wasn't easy work, for his `dicky' kept twisting round to the side of his neck, and we had to pin it in three places before it would keep steady, I gave him the note and asked him would he ever be so kind as to take it round for me, as it was to ask Miss Crisp if she would go and keep my mother company during my absence. "After that I thought we should never get rid of him. He insisted on overhauling every article of his toilet. At least four more pins were added to fix the restless dicky in its place on his manly breast. We polished up his eye-glasses with wash-leather till the pewter nearly all rubbed off; we helped him roll his flannel shirt-sleeves up to the elbows for fear--horrible idea!--they should chance to peep out from below his cuffs; we devoted an anxious two minutes to the poising of his hat at the right angle, and then passed him affectionately from one to the other to see he was all right. After which he went off, holding my letter carefully in his scented handkerchief and saying--dear gay deceiver!--that he envied us spending a cosy evening in that snug office by the fire! "The work Waterford and I have on hand is--tell it not in Gath, old man, and don't scorn a fellow off the face of the earth--to try to write something that will get into the Literary Supplement. This supplement is a new idea of the editor's, and makes a sort of weekly magazine. He writes a lot of it himself, and we chip a lot of stuff for him out of other papers. The idea of having a shot at it occurred to us both independently, in a funny and rather humiliating way. It seems Waterford, without saying a word to me or anybody, had sat down and composed some lines on the `Swallow'--appropriate topic for this season of the year. I at the same time, without saying a word to Waterford or anybody except mother, had sat down and, with awful groanings and wrestlings of mind, evolved a lucubration in prose on `Ancient and Modern Athletic Sports.' Of course I crammed a lot of it up out of encyclopaedias and that sort of thing. It was the driest rot you ever read, and I knew it was doomed before I sent it in. But as it was written I thought I might try. So, as of course I couldn't send it in under my own name, I asked Miss Crisp if I might send it under hers. The obliging little lady laughed and said, `Yes,' but she didn't tell me at the same time that Waterford had come to her with his `Swallow' and asked the very same thing. A rare laugh she must have had at our expense! Well, I sent mine in and Waterford sent in his. "We were both very abstracted for the next few days, but little guessed our perturbation arose from the same cause. Then came the fatal Wednesday--the `d.w.t.' day as we call it--for Granville always saves up his rejected addresses for us to `decline with thanks' for Wednesdays. There was a good batch of them this day, so Waterford and I took half each. I took a hurried skim through mine, but no `Ancient and Modern Athletic Sports' were there. I concluded therefore Waterford had it. Granville writes in the corner of each `d.w.t.,' or `d.w.t. note,' which means `declined with thanks' pure and simple, or `declined with thanks' and a short polite note to be written at the same time stating that the sub-editor, while recognising some merit in the contribution, regretted it was not suitable for the Supplement. I polished off my pure and simple first, and then began to tackle the notes. About the fourth I came to considerably astonished me. It was a couple of mild sonnets on the `Swallow,' with the name M.E. Crisp attached! "`Hullo,' I said to Waterford, tossing the paper over to him, `here's Miss Crisp writing some verses. I should have thought she could write better stuff than that, shouldn't you?' "Waterford, very red in the face, snatched up the paper and glanced at it. "`Do you think they're so bad?' said he. "`Frightful twaddle,' said I; `fancy any one saying--'" "The drowsy year from winter's sleep ye wake, Yet two of ye do not a summer make." "`Well,' said he, grinning, `you'd better tell her straight off it's bosh, and then she's not likely to make a fool of herself again. Hullo, though, I say,' he exclaimed, picking up a paper in front of him, every smudge and blot of which I knew only too well, `why, she's at it again. What's this? "`"Ancient and Mod--" Why, it's in your writing; did you copy it out for her?' "`I wrote that out, yes,' said I, feeling it my turn to colour up and look sheepish. "Waterford glanced rapidly through the first few lines, and then said,-- "`Well, all I can say is, it's a pity she didn't stick to poetry. I'm sure the line about waking the drowsy year is a jolly sight better than this awful rot.' "`Though we are not told so in so many words, we may reasonably conclude that athletic sports were not unpractised by Cain and Abel prior to the death of the latter! "`As if they could have done it after!' "`I never said they could,' I said, feeling very much taken down. "`Oh--it was you composed it as well as wrote it, was it?' said he laughing. `Ho, ho! that's the best joke I ever heard. Poor little Crisp, what a shame to get her to father--or mother a thing like this; ha, ha! "prior to the death of the latter"--that's something like a play of language! My eye, what a game she's been having with us!' "`_Us_! then you're the idiot who wrote about the Swallows!' said I. "`Suppose I am,' said he, blushing all over, `suppose I am.' "`Well, all I can say is, I'm precious glad the little Crisp isn't guilty of it. "Two of ye do not a summer make," indeed!' "`Well, they don't,' said he. "`I know they don't,' said I, half dead with laughing, `but you needn't go and tell everybody.' "`I'm sure it's just as interesting as "Cain and Abel"--' "`There now, we don't want to hear any more about them,' said I, `but I think we ought to send them both back to Miss Crisp, to give her her laugh against us too.' "We did so; and I needn't tell you she lets us have it whenever we get within twenty yards of her. "Here's a long digression, but it may amuse you; and you said you wanted something to read. "Well, Waterford and I recovered in a few days from our first reverse, and decided to have another shot; and so we were rather glad of the quiet evening at the office to make our new attempts. We half thought of writing a piece between us, but decided we'd better go on our own hooks after all, as our styles were not yet broken in to one another. We agreed we had better this time both write on subjects we knew something about; Waterford accordingly selected `A Day in a Sub-Sub- Editor's Life' as a topic he really could claim to be familiar with; while I pitched upon `Early Rising,' a branch of science in which I flatter myself, old man, _you_ are not competent to tell me whether I excel or not. Half the battle was done when we had fixed on our subjects; so as soon as every one was gone we poked up the fire and made ourselves snug, and settled down to work. "We plodded on steadily till we heard the half-past nine letters dropped into the box. Then it occurred to us we had better turn down the lights and give our office as deserted a look as we could. It was rather slow work sitting in the dark for a couple of hours, not speaking a word or daring to move a toe. The fire got low, but we dared not make it up; and of course we both had awful desires to sneeze and cough--you always do at such times--and half killed ourselves in our efforts to smother them. We could hear the cabs and omnibuses in Fleet Street keeping up a regular roar; but no footsteps came near us, except once when a telegraph boy (as we guessed by his shrill whistling and his smart step) came and dropped a telegram into the box. I assure you the click the flap of the letter-box made that moment, although I knew what it was and why it was, made my heart beat like a steam-engine. "It was beginning to get rather slow when twelve came and still nothing to disturb us. We might have been forging ahead with our writing all this time if we had only known. "Presently Waterford whispered,-- "`They won't try to-night now.' "Just as he spoke we heard a creak on the stairs outside. We had heard lots of creaks already, but somehow this one startled us both. I instinctively picked up the ruler from the table, and Waterford took my arm and motioned me close to the wall beside him. Another creak came presently and then another. Evidently some one was coming down the stairs cautiously, and in the dark too, for we saw no glimmer of a light through the partly-opened door. We were behind it, so that if it opened we should be quite hidden unless the fellow groped round it. "Down he came slowly, and there was no mistake now about its being a human being and not a ghost, for we heard him clearing his throat very quietly and snuffling as he reached the bottom step. I can tell you it was rather exciting, even for a fellow of my dull nerves. "Waterford nudged me to creep a little nearer the gas, ready to turn it up at a moment's notice, while he kept at the door, to prevent our man getting out after he was once in. "Presently the door opened very quietly. He did not fling it wide open, luckily, or he was bound to spot us behind it; but he opened it just enough to squeeze in, and then, feeling his way round by the wall, made straight for the letter-box. Although it was dark he seemed to know his way pretty well, and in a few seconds we heard him stop and fumble with a key in the lock. In a second or two he had opened it, and then, crouching down, began cautiously to rub a match on the floor. The light was too dim to see anything but the crouching figure of a man bending over the box and examining the addresses of one or two of the letters in it. His match went out before he had found what he wanted. "It was hard work to keep from giving him a little unexpected light, for my fingers itched to turn up the gas. However, it was evidently better to wait a little longer and see what he really was up to before we were down on him. "He lit another match, and this time seemed to find what he wanted, for we saw him put one letter in his pocket and drop all the others back into the box, blowing out his match as he did so. "Now was our time. I felt a nudge from Waterford and turned the gas full on, while he quietly closed the door and turned the key. "I felt quite sorry for the poor scared beggar as he knelt there and turned his white face to the light, unable to move or speak or do anything. You'll have guessed who it was. "`So, Mr Durfy,' said Waterford, leaning up against the door and folding his arms, `it's you, is it?' "The culprit glared at him and then at me, and rose to his feet with a forced laugh. "`It looks like it,' he said. "`So it does,' said Waterford, taking the key out of the door and putting it in his pocket; `very like it. And it looks very much as if he would have to make himself comfortable here till Mr Granville comes!' "`What do you mean?' exclaimed the fellow. `I've as much right to be here as you have, for the matter of that, at this hour.' "`Very _well_, then,' said Waterford, as cool as a cucumber, `we'll all three stay here. Eh, Cruden?' "`I'm game,' said I. "He evidently didn't like the turn things were taking, and changed his tack. "`Come, don't play the fool!' he said coaxingly, `The fact is, I expected a letter from a friend, and as it was very important I came to get it. It's all right.' "`You may think so,' said Waterford; `you may think it's all right to come here on tiptoe at midnight with a false key, and steal, but other people may differ from you, that's all! Besides, you're telling a lie; the letter you've got in your pocket doesn't belong to you!' "It was rather a rash challenge, but we could see by the way his face fell it was a good shot. "He uttered an oath, and advanced threateningly towards the door. "`Sit down,' said Waterford, `unless you want to be tied up. There are two of us here, and we're not going to stand any nonsense, I can tell you!' "`You've no right--' "`Sit down, and shut up!' repeated Waterford. "`I tell you if you--' "`Cruden, you'll find some cord in one of those drawers. If you don't shut up, and sit down, Durfy, we shall make you.' "He caved in after that, and I was rather glad we hadn't to go to extremes. "`Hadn't we better get the letter?' whispered I. "`No; he'd better fork it out to Granville,' said Waterford. "He was wrong for once, as you shall hear. "Durfy slunk off and sat down on a chair in the far corner of the room, swearing to himself, but not venturing to raise his voice above a growl. "It was now about half-past twelve, and we had the lively prospect of waiting at least eight hours before Granville turned up. "`Don't you bother to stay,' said Waterford. `I can look after him.' "But I scouted the idea, and said nothing would induce me to go. "`Very well, then,' said he; `we may as well get on with our writing.' "So we pulled our chairs up to the table, with a full-view of Durfy in the corner, and tried to continue our lucubrations. "But when you are sitting up at dead of night, with a prisoner in the corner of the room cursing and gnashing his teeth at you, it is not easy to grow eloquent either on the subject of `A Day in a Sub-sub-Editor's Life,' or `Early Rising.' And so we found. We gave it up presently, and made up the fire and chatted together in a whisper. "Once or twice Durfy broke the silence. "`I'm hungry,' growled he, about two o'clock. "`So are we,' said Waterford. "`Well, go and get something. I'm not going to be starved, I tell you. I'll make you smart for it, both of you.' "`You've been told to shut up,' said Waterford, rising to his feet with a glance towards the drawer where the cord was kept. "Durfy was quiet after that for an hour or so. Then I suppose he must have overheard me saying something to Waterford about you, for he broke out with a vicious laugh,-- "`Reginald! Yes, he'll thank you for this. I'll make it so hot for him--' "`Look here,' said Waterford, `this is the last time you're going to be cautioned, Durfy. If you open your mouth once more you'll be gagged; mind that. I mean what I say.' "This was quite enough for Durfy. He made no further attempt to speak, but curled himself up on the floor and turned his face to the wall, and disposed himself to all appearances to sleep. Whether he succeeded or not I can't say. But towards morning he glowered round at us. Then he took out some tobacco and commenced chewing it, and finally turned his back on us again and continued dozing and chewing alternately till the eight o'clock bell rang and aroused us. "Half an hour later Granville arrived, and a glance at our group was quite sufficient to acquaint him with the state of affairs. "`So this is the man,' said he, pointing to Durfy. "`Yes, sir. We caught him in the act of taking a letter out of the box at midnight. In fact, he's got it in his pocket this moment.' "Durfy gave a fiendish grin, and said,-- "`That's a lie. I've no letter in my pocket!' "And he proceeded to turn his pockets one after the other inside out. "`All I know is we both saw him take a letter out of the box and put it in his pocket,' said Waterford. "`Yes,' snarled Durfy, `and I told you it was a private letter of my own.' "`Whatever the letter is, you took it out of the box, and you had better show it quietly,' said Granville; `it will save you trouble.' "`I tell you I have no letter,' replied Durfy again. "`Very well, then, Cruden, perhaps you will kindly fetch a policeman.' "I started to go, but Durfy broke out, this time in tones of sincere terror,-- "`Don't do that, don't ruin me! I did take it, but--' "`Give it to me then.' "`I can't. I've eaten it!' "Wasn't this a thunderbolt! How were we to prove whose the letter was? Wild thoughts of a stomach-pump, or soap and warm water, did flash through my mind, but what was the use? The fellow had done us after all, and we had to admit it. "No one stopped him as he went to the door, half scowling, half grinning. "`Good morning, gentlemen!' said he. `I hope you'll get a better night's rest to-morrow. I promise not to disturb you,' (here followed a few oaths). `But I'll pay you out, some of you--Crudens, Reginalds, sneaks, prigs--all of you!' "With which neat peroration he took his leave, and the _Rocket_ has not seen him since. "Here's a long screed! I must pull up now. "Mother's not very well, she's fretting, I'm afraid, and her eyes trouble her. I can't say we shall be sorry when Christmas comes, for try all we can, we're in debt at one or two of the shops. I know you'll hate to hear it, but it's simply unavoidable on our present means. I wish I could come down and see you; but for one thing, I can't afford it, and for another, I can't leave mother. Mrs Shuckleford is really very kind, though she's not a congenial spirit. "Young Gedge and I see plenty of one another: he's joined our shorthand class, and is going in for a little steady work all round. He owes you a lot for befriending him at the time you did, and he's not forgotten it. I promised to send you his love next time I wrote. Harker will be in town next week, which will be jolly. I've never seen Bland since I called to pay the 6 shillings 6 pence. I fancy he's got into rather a fast lot, and is making a fool of himself, which is a pity. "You tell us very little about your Corporation; I hope it is going on all right. I wish to goodness you were back in town. I never was in love with the concern, as you know, and at the risk of putting you in a rage, I can't help saying it's a pity we couldn't all have stayed together just now. Forgive this growl, old man. "Your affectionate brother,-- "Horace. "Wednesday, `d.w.t.' day. To our surprise and trepidation, neither the `Day in a Sub-Sub-editor's Life' nor `Early Rising' were among the papers given out to-day to be `declined with thanks.' Granville may have put them into the fire as not even worth returning, or he may actually--_O mirabile dictu_--be going to put us into print?" CHAPTER SIXTEEN. VISITORS AT NUMBER 13, SHY STREET. The concluding sentences of Horace's long letter, particularly those which referred to his mother's poor health and the straitened circumstances of the little household, were sufficiently unwelcome to eclipse in Reginald's mind the other exciting news the letter had contained. They brought on a fit of the blues which lasted more than one day. For now that he had neither companion nor occupation (for the business of the Select Agency Corporation had fallen off completely) there was nothing to prevent his indulgence in low spirits. He began to chafe at his imprisonment, and still more at his helplessness even were he at liberty to do anything. Christmas was still a fortnight off, and till then what could he do on thirteen shillings a week? He might cut down his commissariat certainly, to, say, a shilling a day, and send home the rest. But then, what about coals and postage-stamps and other incidental expenses, which had to be met in Mr Medlock's absence out of his own pocket? The weather was very cold--he could hardly do without coals, and he was bound in the interests of the Corporation to keep stamps enough in the place to cover the necessary correspondence. When all was said, two shillings seemed to be the utmost he could save out of his weekly pittance, and this he sent home by the very next post, with a long, would-be cheerful, but really dismal letter, stoutly denying that he was either miserable or disappointed with his new work, and anticipating with pleasure the possibility of being able to run up at Christmas and bring with him the welcome funds which would clear the family of debt and give it a good start for the New Year. When he had finished his letter home he wrote to Mr Medlock, very respectfully suggesting that as he had been working pretty hard and for the last few days single-handed, Mr Medlock might not object to advance him at any rate part of the salary due in a fortnight, as he was rather in need of money. And he ventured to ask, as Christmas Day fell on a Thursday, and no business was likely to be done between that day and the following Monday, might he take the _two_ or three days' holiday, undertaking, of course, to be back at his post on the Monday morning? He enclosed a few post-office orders which had come to hand since he last wrote, and hoped he should soon have the pleasure of seeing Mr Medlock--"or anybody," he added to himself as he closed the letter and looked wearily round the gaunt, empty room. Now, if Reginald had been a believer in fairies he would hardly have started as much as he did when, almost as the words escaped his lips, the door opened, and a female marched into the room. A little prim female it was, with stiff curls down on her forehead and a very sharp nose and very thin lips and fidgety fingers that seemed not to know whether to cling to one another for support or fly at the countenance of somebody else. This formidable visitor spared Reginald the trouble of inquiring to what fortunate circumstance he was indebted for the honour of so unlooked-for a visit. "Now, sir!" said she, panting a little, after her ascent of the stairs, but very emphatic, all the same. The observation was not one which left much scope for argument, and Reginald did not exactly know what to reply. At last, however, he summoned up resolution enough to say politely,-- "Now, madam, can I be of any service?" Inoffensive as the observation was, it had the effect of greatly irritating the lady. "None of your sauce, young gentleman," said she, putting down her bag and umbrella, and folding her arms defiantly. "I've not come here to take any of your impertinence." Reginald's impertinence! He had never been rude to a lady in all his life except once, and the penance he had paid for that sin had been bitter enough, as the reader can testify. "You needn't pretend not to know what I've come here for," continued the lady, taking a hasty glance round the room, as if mentally calculating from what door or window her victim would be most likely to attempt to escape. "Perhaps she's Love's mother!" gasped Reginald, to himself.--"Oh, but what a Venus!" This classical reflection he prudently kept to himself, and waited for his visitor to explain her errand further. "You know who I am," she said, walking up to him. "No, indeed," said Reginald, hardly liking to retreat, but not quite comfortable to be standing still. "Unless--unless your name is Love." "Love!" screamed the outraged "Venus." "I'll Love you, young gentleman, before I've done with you. Love, indeed, you impudent sauce-box, you!" "I beg your pardon," began Reginald. "Love, indeed! I'd like to scratch you, so I would!" cried the lady, with a gesture so ominously like suiting the action to the word, that Reginald fairly deserted his post and retreated two full paces. This was getting critical. Either the lady was mad, or she had mistaken Reginald for some one else. In either case he felt utterly powerless to deal with the difficulty. So like a prudent man he decided to hold his tongue and let the lady explain herself. "Love, indeed!" said she, for the third time. "You saucy jackanapes, you. No, sir, my name's Wrigley!" She evidently supposed this announcement would fall like a thunderbolt on the head of her victim, and it disconcerted her not a little when he merely raised his eyebrows and inclined his head politely. "Now do you know what I'm come about?" said she. "No," replied he. "Yes you do. You needn't think to deceive me, sir. It won't do, I can tell you." "I _really_ don't know," said poor Reginald. "Who are you?" "I'm the lady who ordered the globe and blackboard, and sent two pounds along with the order to you, Mr Cruden Reginald. There! _Now_ perhaps you know what I've come for!" If she had expected Reginald to fly out of the window, or seek refuge up the chimney, at this announcement, the composure with which he received the overpowering disclosure must have considerably astonished her. "Eh?" she said. "Eh? Do you know me now?" "I have no doubt you are right," said he. "We had more than a hundred orders for the globes and boards, and expect they will be delivered this week or next." "Oh! then you have been imposing on more than me?" said the lady, who till this moment had imagined she had been the only correspondent of the Corporation on the subject. "We've been imposing on no one," said Reginald warmly. "You have no right to say that, Mrs Wrigley." His honest indignation startled the good lady. "Then why don't you send the things?" she demanded, in a milder tone. "There are a great many orders to attend to, and they have to be taken in order as we receive them. Probably yours came a good deal later than others." "No, it didn't. I wrote by return of post, and put an extra stamp on too. You must have got mine one of the very first." "In that case you will be one of the first to receive your globe and board." "I know that, young man," said she. "I'm going to take them with me now!" "I'm afraid you can't do that," said Reginald. "They are being sent off from London." The lady, who had somewhat moderated her wrath in the presence of the secretary's unruffled politeness, fired up as fiercely as ever at this. "There! I _knew_ it was a swindle! From London, indeed! Might as well say New York at once! _I'm_ not going to believe your lies, you young robber! Don't expect it!" It was a considerable tax on Reginald's temper to be addressed in language like this, even by a lady, and he could not help retorting rather hotly, "I'm glad you are only a woman, Mrs Wrigley, for I wouldn't stand being called a thief by a man, I assure you!" "Oh, don't let that make any difference!" said she, fairly in a rage, and advancing up to him. "Knock me down and welcome! You may just as well murder a woman as rob her!" "I can only tell you again your order is being executed in London." "And I can tell you I don't believe a word you say, and I'll just have my two pounds back, and have done with you! Come, you can't say you never got _that_!" "If you sent it, I certainly did," said Reginald. "Then perhaps you'll hand it up this moment?" "I would gladly do so if I had it, but--" "I suppose it's gone to London too?" said she, with supernatural calmness. "It has been paid in with all the money to the bank," said Reginald. "But if you wish it I will write to the managing director and ask him to return it by next post." "Will you?" said she, in tones that might have frozen any one less heated than Reginald. "And you suppose I've come all the way from Dorsetshire to get that for an answer, do you? You're mistaken, sir! I don't leave this place till I get my money or my things! So now!" "Then," said Reginald, feeling the case desperate, and pushing a chair in her direction, "perhaps you'd better sit down." She glared round at him indignantly. But perhaps it was the sight of his haggard, troubled face, or the faint suspicion that he, after all, might be more honest than his employers, or the reflection that she could get her rights better out of the place than in it. Whatever the reason was, she changed her mind. "You shall hear of me again, sir!" said she; "mind that! Love, indeed!" whereupon she bounced out of the office and slammed the door behind her. Reginald sat with his eyes on the door for a full two minutes before he could sufficiently collect his wits to know where he was or what had happened. Then a sense of indignation overpowered all his other feelings--not against Mrs Wrigley, but against Mr Medlock, for leaving him in a position where he could be, even in the remotest degree, open to so unpleasant a charge as that he had just listened to. Why could he not be trusted with sufficient money and control over the operations of the Corporation to enable him to meet so unfounded a charge? What would the Bishop of S-- or the other directors think if they heard that a lady had come all the way from Dorsetshire to tell them they were a set of swindlers and thieves? If he had had the sending off of the orders to see to, he was confident he could have got every one of them off by this time, even if he had made up every parcel with his own hands. What, in short, was the use of being called a secretary if he was armed with no greater authority than a common junior clerk? He opened the letter he had just written to Mr Medlock, and sat down to write another, more aggrieved in its tone and more urgent in its request that Mr Medlock would come down to Liverpool at once to arrange matters on a more satisfactory footing. It was difficult to write a letter which altogether pleased him; but at last he managed to do it, and for fear his warmth should evaporate he went out to post it, locking the office up behind him. He took a walk before returning--the first he had taken for a week. It was a beautiful crisp December day, when, even through the murky atmosphere of Liverpool, the sun looked down joyously, and the blue sky, flecked with little fleecy clouds, seemed to challenge the smoke and steam of a thousand chimneys to touch its purity. Reginald's steps turned away from the city, through a quiet suburb towards the country. He would have to walk too far, he knew, to reach real open fields and green lanes, but there was at least a suggestion of the country here which to his weary mind was refreshing. His walk took him past a large public school, in the playground of which an exciting football match was in active progress. Like an old war horse, Reginald gazed through the palings and snorted as the cry of battle rose in the air. "Hack it through, sir!" "Well run!" "Collar him there!" As he heard those old familiar cries it seemed to him as if the old life had come back to him with a sudden rush. He was no longer a poor baited secretary, but a joyous school-boy, head of his form, lord and master of half a dozen fags, and a caution and example to the whole junior school. He had chums by the score; his study was always crowded with fellows wanting him to do this or help them in that. How jolly to be popular! How jolly, when the ball came out of the scrimmage, to hear every one shout, "Let Cruden have it!" How jolly, as he snatched it up and rushed, cleaving his way to the enemy's goal, to hear that roar behind him, "Run indeed, sir!" "Back him up!" "Well played!" Yes, he heard them still, like music; and as he watched the shifting fortunes of this game he felt the blood course through his veins with a strange, familiar ardour. Ah, here came the ball out of the scrimmage straight towards him! Oh, the thrill of such a moment! Who does not know it? A second more and he would have it-- Alas! poor Reginald awoke as suddenly as he had dreamed. A hideous paling stood between him and the ball. He was not in the game at all. Nothing but a lonely, friendless drudge, whom nobody wanted, nobody cared about. With a glistening in his eyes which he would have scornfully protested was not a tear, he turned away and walked moodily back to Shy Street, caring little if it were to be the last walk he should ever take. He was not, however, to be allowed much time for indulging his gloomy reflections on reaching his journey's end. A person was waiting outside the office, pacing up and down the pavement to keep himself warm. The stranger took a good look at Reginald as he entered and let himself in, and then followed up the stairs and presented himself. "Is Mr Reginald at home?" inquired he blandly. Reginald noticed that he was a middle-aged person, dressed in a sort of very shabby clerical costume, awkward in his manner, but not unintelligent in face. "That is my name," replied he. "Thank you. I am glad to see you, Mr Reginald. You were kind enough to send me a communication not long ago about--well, about a suit of clothes." His evident hesitation to mention anything that would call attention to his own well-worn garb made Reginald feel quite sorry for him. "Oh yes," said he, taking good care not to look at his visitor's toilet, "we sent a good many of the circulars to clergymen." "Very considerate," said the visitor. "I was away from home and have only just received it." And he took the circular out of his pocket, and seating himself on a chair began to peruse it. Presently he looked up and said,-- "Are there any left?" "Any of the suits? Oh yes, I expect so. We had a large number." "Could I--can you show me one?" "Unfortunately I haven't got them here; they are all in London." "How unfortunate! I did so want to get one." Then he perused the paper again. "How soon could I have one?" he said. "Oh very soon now; before Christmas certainly," replied Reginald. "You are sure?" "Oh yes. They will all be delivered before then." "And have you had many orders?" said the clergyman. "A great many," said Reginald. "Hundreds, I daresay. There are many to whom it would be a boon at this season to get so cheap an outfit." "Two hundred, I should say," said Reginald. "Would you like to leave an order with me?" "Two hundred! Dear me! And did they all send the two pounds, as stated here, along with their order?" "Oh yes. Some sent more," said Reginald, quite thankful to have some one to talk to, who did not regard him either as a fool or a knave. "It must have been a very extensive bankrupt stock you acquired," said the clergyman musingly. "And were all the applicants clergymen like myself?" "Nearly all." "Dear me, how sad to think how many there are to whom such an opportunity is a godsend! We are sadly underpaid, many of us, Mr Reginald, and are apt to envy you gentlemen of business your comfortable means. Now you, I daresay, get as much as three or four of us poor curates get together." "I hope not," said Reginald with a smile. "Well, if I even had your £200 a year I should be thankful," said the poor curate. "But I haven't that by £50," said Reginald. "Shall I put you down for a complete suit, as mentioned in the circular?" "Yes, I'm afraid I cannot well do without it," said the other. "And what name and address?" said Reginald. "Well, perhaps the simplest way would be, as I am going back to London, for you to give me an order for the things to present at your depot there. It will save carriage, you know." "Very well," said Reginald, "I will write one for you. You notice," added he, "that we ask for £2 with the order." "Ah, yes," said the visitor, with a sigh, "that appears to be a stern necessity. Here it is, Mr Reginald." "Thank you," said Reginald. "I will write you a receipt; and here is a note to Mr John Smith, at Weaver's Hotel, London, who has charge of the clothing. I have no doubt he will be able to suit you with just what you want." "John Smith? I fancy I have heard his name somewhere. Is he one of your principals--a dark tall man?" "I have never seen him," said Reginald, "but all our orders go to him for execution." "Oh, well, thank you very much. I am sure I am much obliged to you. You seem to be single-handed here. It must be hard work for you." "Pretty hard sometimes." "I suppose clothing is what you chiefly supply?" "We have also been sending out a lot of globes and blackboards to schools." "Dear me, I should be glad to get a pair of globes for our parish school--very glad. Have you them here?" "No, they are in London too." "And how do you sell them? I fear they are very expensive." "They cost £3 the set, but we only ask £2 with the order." "That really seems moderate. I shall be strongly tempted to ask our Vicar to let me get a pair when in London. Will Mr Smith be able to show them to me?" "Yes, he is superintending the sending off of them too." "How crowded Weaver's Hotel must be, with so many bulky articles!" said the curate. "Oh, you know, I don't suppose Mr Smith keeps them there; but he lives there while he's in town, that's all. Our directors generally put up at Weaver's Hotel." "I should greatly like to see a list of the directors, if I may," said the clergyman. "There's nothing gives one so much confidence as to see honoured names on the directorate of a company like yours." "I can give you a list if you like," said Reginald. "I daresay you know by name the Bishop of S--, our chairman?" "To be sure, and--dear me, what a very good list of names! Thank you, if I may take one of these, I should like to show it to my friends. Well, then, I will call on Mr Smith in London, and meanwhile I am very much obliged to you, Mr Reginald, for your courtesy. Very glad to have made your acquaintance. Good afternoon." And he shook hands cordially with the secretary, and departed, leaving Reginald considerably soothed in spirit, as he reflected that he had really done a stroke of work for the Corporation that day on his own account. It was well for his peace of mind that he did not know that the clergyman, on turning the corner of Shy Street, rubbed his hands merrily together, and said to himself, in tones of self-satisfaction,-- "Well, if that wasn't the neatest bit of work I've done since I came on the beat. The innocent! He'd sit up, I guess, if he knew the nice pleasant-spoken parson he's been blabbing to was Sniff of the detective office. My eye--it's all so easy, there's not much credit about the business after all. But it's pounds, shillings and pence to Sniff, and that's better!" CHAPTER SEVENTEEN. SAMUEL SHUCKLEFORD FINDS HIMSELF BUSY. "Jemima, my dear," said Mrs Shuckleford one day, as the little family in Number 4, Dull Street, sat round their evening meal, "I don't like the looks of Mrs Cruden. It's my opinion she don't get enough to eat." "Really, ma, how you talk!" replied the daughter. "The butcher's boy left there this very afternoon. I saw him." "I'm afraid, my dear, he didn't leave anything more filling than a bill. In fact, I 'eard myself that the butcher told Mrs Marks he thought Number 6 'ad gone far enough for 'im." "Oh, ma! you don't mean to say they're in debt?" said Jemima, who, by the way, had been somewhat more pensive and addicted to sitting by herself since Reginald had gone north. "Well, if it was only the butcher I heard it from I wouldn't take much account of it, but Parker the baker 'as 'is doubts of them; so I 'eard the Grinsons' maid tell Ford when I was in 'is shop this very day. And I'm sure you've only to look at 'Orace's coat and 'at to see they must be in debt: the poor boy looks a reg'lar scarecrow. It all comes, my dear, of Reginald's going off and leaving them. Oh, 'ow I pity them that 'as a wild son." "Don't talk nonsense, ma," said Miss Jemima, firing up. "He's no more wild than Sam here." "You seem to know more about Reginald than most people, my dear," said her mother significantly. To the surprise of the mother and brother, Jemima replied to this insinuation by bursting into tears and walking out of the room. "Did you ever see the like of that? She always takes on if any one mentions that boy's name; and she's old enough to be his aunt, too!" "The sooner she cures herself of that craze the better," said Sam, pouring himself out some more tea. "She don't know quite so much about him as I do!" "Why, what do you know about 'im, then?" inquired Mrs Shuckleford, in tones of curiosity. "Never you mind; we don't talk business out of the office. All I can tell you is, he's a bad lot." "Poor Mrs Cruden! no wonder she takes on. What an infliction a wicked son is to a mother, Sam!" "That'll do," said the dutiful Sam. "What do you know about it? I tell you what, ma, you're thick enough with Number 6. You'd better draw off a bit." "Oh, Sam, why so?" "Because I give you the tip, that's all. The old lady may not be in it, but I don't fancy the connection." "But, Sam, she's starving herself, and 'Orace is in rags." "Send her in a rump-steak and a suit of my old togs by the housemaid," said Sam; "or else do as you like, and don't blame me if you're sorry for it." Mrs Shuckleford knew it was no use trying to extract any more lucid information from her legal offspring, and did not try, but she made another effort to soften his heart with regard to the Widow Cruden and her son. "After all they're gentlefolk in trouble, as we might be," said she, "and they do behave very nice at the short-'and class to Jemima." "Gentlefolk or not," said Sam decisively, spreading a slice of toast with jam, "I tell you you'd better draw off, ma--and Jim must chuck up the class. I'm not going to have her mixing with them." "But the child's 'eart would break, Sam, if--" "Let it break. She cares no more about shorthand than she does about county courts. It's all part of her craze to tack herself on that lot. She's setting her cap at _him_ while she's making up to his ma; any flat might see that; but she's got to jack up the whole boiling now--there. We needn't say any more about it." And, having finished his tea, Mr Samuel Shuckleford went down to his "club" to take part in a debate on "Cruelty to Animals." Now the worthy captain's widow, Mrs Shuckleford, had lived long enough in this world to find that human nature is a more powerful law even than parental obedience; she therefore took to heart just so much of her son's discourse as fitted with the one, and overlooked just so much as exacted the latter. In other words, she was ready to believe that Reginald Cruden was a "bad lot," but she was not able to bring herself on that account to desert her neighbour at the time of her trouble. Accordingly that same evening, while Samuel was pleading eloquently on behalf of our dumb fellow-creatures, and Jemima, having recovered from her tears, was sitting abstractedly over a shorthand exercise in her own bedroom, Mrs Shuckleford took upon herself to pay a friendly call at Number 6. It happened to be one of Horace's late evenings, so that Mrs Cruden was alone. She was lying wearily on the uncomfortable sofa, with her eyes shaded from the light, dividing her time between knitting and musing, the latter occupation receiving a very decided preference. "Pray don't get up," said Mrs Shuckleford, the moment she entered. "I only looked in to see 'ow you was. You're looking bad, Mrs Cruden." "Thank you, I am quite well," said Mrs Cruden, "only a little tired." "And down in your spirits, too; and well you may be, poor dear," said the visitor soothingly. "No, Mrs Shuckleford," said Mrs Cruden brightly. "Indeed, I ought not to be in bad spirits to-day. We've had quite a little family triumph to-day. Horace has had an article published in the _Rocket_, and we are so proud." "Ah, yes; he's the steady one," said Mrs Shuckleford. "There's no rolling stone about 'Orace." "No," said the mother warmly. "If they was only both alike," said the visitor, approaching her subject delicately. "Ah! but it often happens two brothers may be very different in temper and mind. It's not always a misfortune." "Certainly not, Mrs Cruden; but when one's good and the other's wicked--" "Oh, then, of course, it is very sad," said Mrs Cruden. "Sad's no name for it," replied the visitor, with emotion. "Oh, Mrs Cruden, 'ow sorry I am for you." "You are very kind. It is a sad trial to be separated from my boy, but I've not given up hopes of seeing him back soon." Mrs Shuckleford shook her head. "'Ow you must suffer on 'is account," said she. "If your 'eart don't break with it, it must be made of tougher stuff than mine." "But after all, Mrs Shuckleford," said Mrs Cruden, "there are worse troubles in this life than separation." "You're right. Oh, I'm so sorry for you." "Why for me? I have only the lighter sorrow." "Oh, Mrs Cruden, do you call a wicked son a light sorrow?" "Certainly not, but my sons, thank God, are good, brave boys, both of them." "And who told you 'e was a good, brave boy? Reggie, I mean." "Who told me?" said Mrs Cruden, with surprise. "Who told me he was anything else?" "Oh, Mrs Cruden! Oh, Mrs Cruden!" said Mrs Shuckleford, beginning to cry. Mrs Cruden at last began to grow uneasy and alarmed. She sat up on the sofa, and said, in an agitated voice,-- "What _do_ you mean, Mrs Shuckleford? Has anything happened? Is there any bad news about Reginald?" "Oh, Mrs Cruden, I made sure you knew all about it." "What is it?" cried Mrs Cruden, now thoroughly terrified and trembling all over. "Has anything happened to him? Is he--dead?" and she seized her visitor's hand as she asked the question. "No, Mrs Cruden, not dead. Maybe it would be better for 'im if he was." "Better if he was dead? Oh, please, have pity and tell me what you mean!" cried the poor mother, dropping back on to the sofa with a face as white as a sheet. "Come, don't take on," said Mrs Shuckleford, greatly disconcerted to see the effect of her delicate breaking of the news. "Perhaps it's not as bad as it seems." "Oh, what is it? what is it? I can't bear this suspense. Why don't you tell me?" and she trembled so violently and looked so deadly pale that Mrs Shuckleford began to get alarmed. "There, there," said she soothingly; "I'll tell you another time. You're not equal to it now. I'll come in to-morrow, or the next day, when you've had a good night's rest, poor dear." "For pity's sake tell me all now!" gasped Mrs Cruden; "unless you want to kill me." It dawned at last on the well-meaning Mrs Shuckleford that no good was being done by prolonging her neighbour's suspense any further. "Well, well! It's only that I'm afraid he's been doing something-- well--dreadful. Oh, Mrs Cruden, how sorry I am for you!" Mrs Cruden lay motionless, like one who had received a stab. "What has he done?" she whispered slowly. "I don't know, dear--really I don't," said Mrs Shuckleford, beginning to whimper at the sight of the desolation she had caused. "It was Sam, my son, told me--he wouldn't say what it was--and I 'ope you won't let 'im know it was me you 'eard it from, Mrs Cruden, for he'd be very-- Mercy on us!" Mrs Cruden had fainted. Help was summoned, and she was carried to her bed. When Horace arrived shortly afterwards he found her still unconscious, with Mrs Shuckleford bathing her forehead, and tending her most gently. "You had better run for a doctor, 'Orace," whispered she, as the scared boy entered the room. "What is the matter? What has happened?" gasped he. "Poor dear, she's broken down--she's-- But go quick for the doctor, 'Orace." Horace went as fast as his fleet feet would carry him. The doctor pronounced Mrs Cruden to be in a state of high fever, produced by nervous prostration and poor living. He advised Horace, if possible, to get a nurse to tend her while the fever lasted, especially as she would probably awake from her swoon delirious, and would for several days remain in a very critical condition. In less than five minutes Horace was at Miss Crisp's, imploring her assistance. The warm-hearted little lady undertook the duty without a moment's hesitation, and from that night, and for a fortnight to come, hardly quitted her friend's bedside. Mrs Shuckleford, deeming it prudent not to refer again to the unpleasant subject which had been the immediate cause of Mrs Cruden's seizure, waited till she was assured that at present she could be of no further use, and then withdrew, full of sympathy and commiseration, which she manifested in all sorts of womanly ways during her neighbour's illness. Not a day passed but she called in, morning and afternoon, to inquire after the patient, generally the bearer of some home-made delicacy, and sometimes to take her post by the sick bed while Miss Crisp snatched an hour or so of well-earned repose. As for Horace, he could hardly be persuaded to leave the sick chamber. But the stern necessity of work, greater than ever now at this time of special emergency, compelled him to take the rest necessary for his own health and daily duties. With an effort he dragged himself to the office every morning, and like an arrow he returned from it every evening, and often paid a flying visit at midday. His good-natured companions voluntarily relieved him of all late work, and, indeed, every one who had in the least degree come into contact with the gentle patient seemed to vie in showing sympathy and offering help. Young Gedge was amongst the most eager of the inquirers at the house. He squandered shillings in flowers and grapes, and sometimes even ran the risk of disgrace at the _Rocket_ by lingering outside the house during a doctor's visit, in order to hear the latest bulletin before he went back to work. In his mind, as well as in Horace's, a faint hope had lurked that somehow Reginald might contrive to run up to London for a day or two at least, to cheer the house of watching. Mrs Cruden, in her delirium, often moaned her absent son's name, and called for him, and they believed if only he were to come, her restless troubled mind might cease its wanderings and find rest. But Reginald neither came nor wrote. Since Horace, on the first day of her illness, had written, telling him all, no one had heard a word from him. At last, when after a week Horace wrote again, saying,-- "Come to us, if you love us," and still no letter or message came back, a new cloud of anxiety fell over the house. Reginald must be ill, or away from Liverpool, or something must have happened to him, or assuredly, they said, he would have been at his mother's side at the first breath of danger. Mrs Shuckleford only, as day passed day, and the prodigal never returned, shook her head and said to herself, it was a blessing no one knew the reason, not even the poor delirious sufferer herself. Poor people! they had trouble enough on them not to need any more just now! so she kept her own counsel, even from Jemima. This was the more easy to do because she knew nothing either of Reginald or his doings beyond what her son had hinted, and as Samuel was at present in the country on business, she had no opportunity of prosecuting her inquiries on the subject. Sam, in fact, whether he liked it or not, happened just now to hold the fortunes of the family of Cruden pretty much in his own hands. A few days before the conversation with his mother already reported, he had been sitting in his room at the office, his partner and the head clerk both being absent on County Court business. Samuel felt all the dignity of a commander-in-chief, and was therefore not at all displeased when the office-boy had come and knocked at his door, and said that a lady of the name of Wrigley had called, and wished to see him. "Show the lady in," said Sam grandly, "and put a chair." Mrs Wrigley was accordingly ushered in, the dust of travel still on her, for she had come direct from Liverpool by the night train, determined to put her wrongs in the hands of the law. Mr Crawley, Samuel's principal, had been legal adviser to the late Mr Wrigley; it was only natural, therefore, that the widow, not liking to entrust her secret to the pettifogging practitioner of her own village, should make use of a two hours' break in her journey to seek his aid. "Your master's not in, young man?" said she, as she took the proffered seat. "That's a pity." "I'm sure he'll be very sorry," said Sam; "but if it's anything I can do--" "If you can save poor defenceless women from being plundered, and punish those that plunder them--then you can." Here was a slice of luck for Samuel! The first bit of practice on his own account that had ever fallen in his way. If he did not make a good thing out of it his initials were not S.S.! He drew his chair confidentially beside that of the injured Mrs Wrigley, and drank in the story of her woes with an interest that quite won her heart. At first he failed to recognise either the name of the delinquent Corporation or its secretary, but when presently his client produced one of the identical circulars sent out, with the name Cruden Reginald at the foot, his professional instincts told him he had discovered a "real job, and no mistake." He made Mrs Wrigley go back and begin her story over again (a task she was extremely ready to perform), and took copious notes during the recital. He impounded the document, envelope and all, cross-examined and brow-beat his own witness--in fact, did all a rising young lawyer ought to do, and concluded in judicial tones, "Very good, Mrs Wrigley; I think we can do something for you. I think we know something of the parties. Leave it to us, madam; we will put you right." "I hope you will," said the lady. "You see, as I've been all the way up to Liverpool and back, I think I ought to be put right." "Most certainly you ought, and you shall be." "And to think of his brazen-faced impudence in calling me `Love,' young man. There's a profligate for you!" Samuel was knowing enough to see that it would greatly please the outraged lady if he took a special note of this disclosure, which he accordingly did, and then rising, once more assured his client of his determination to put her right, and bade her a very good morning. "Well, if that ain't a go," said he to himself, as he returned to his desk. "I never did have much faith in the chap, but I didn't fancy he was that sort. Cruden Reginald, eh? Nice boy you are. Never mind! I'm dead on you this time. Nuisance it is that ma's gone and mixed herself up with that lot. Can't be helped, though; business is business; and such a bit of practice too. Cruden Reginald! But you don't get round Sam Shuckleford when he's once round your way, my beauty." To the legal mind of Sam this transposition of Reginald's name was in itself as good as a verdict and sentence against him. Any one else but himself might have been taken in by it, but you needed to get up very early in the morning to take in a cute one like S.S.! He said nothing about the affair to his principal when he returned, preferring to "nurse" it as a little bit of business of his own, which he would manage by himself for once in a way. And that very evening fortune threw into his way a most unexpected and invaluable auxiliary. He was down at his "club," smoking his usual evening pipe over the _Rocket_, when a man he had once or twice seen before in the place came up and said,-- "After you with that paper." "All serene," said Sam; "I'll be done with it in about an hour." "You don't take long," said the other. "Considering I'm on the committee," said Sam, with ruffled dignity, "I've a right to keep it just as long as I please. Are you a member here?" "No, but I'm introduced." "What's your name?" "Durfy." "Oh, you're the man who was in the _Rocket_. I heard of you from a friend of mine. By the way," and here his manner became quite civil, as a brilliant idea occurred to him, "look here, it was only my chaff about keeping the paper; you can have it. I'll look at it afterwards." "All right, thanks," said Durfy, who felt no excuse for not being civil too. "By the way," said Sam, as he was going off with the paper, "there was a fellow at your office, what was his name, now--Crowder, Crundell? Some name of that sort--I forget." "Cruden you mean, perhaps," said Durfy, with a scowl. "Ah, yes--Cruden. Is he still with you? What sort of chap is he?" Durfy described him in terms far more forcible than affectionate, and added, "No, he's not there now; oh no. I kicked him out long ago. But I've not done with him yet, my boy." Sam felt jubilant. Was ever luck like his? Here was a man who evidently knew Reginald's real character, and could, doubtless, if properly handled, put him on the scent, and, as he metaphorically put it to himself, "give him a clean leg up over the job." So he called for refreshments for two, and then entered on a friendly discourse with Durfy on things in general, and offered to make him a member of the club; then bringing the conversation round to Reginald, he hinted gently that _he_ too had his eye on that young gentleman, and was at the present moment engaged in bowling him out. Whereupon Durfy, after a slight hesitation, and stipulating that his name should not be mentioned in the matter, gave Sam what information he considered would be useful to him, suppressing, of course, all mention of the real promoters of the Select Agency Corporation, and giving the secretary credit for all the ingenuity and cunning displayed in its operations. The two new friends spent a most agreeable evening, Sam flattering himself he was squeezing Durfy beautifully into the service of his "big job," and Durfy flattering himself that this bumptious young pettifogger was the very person to get hold of to help him pay off all his old scores with Reginald Cruden. CHAPTER EIGHTEEN. POVERTY AND LOVE BOTH COME IN AT THE DOOR. We left Reginald in a somewhat comfortable frame of mind after his interview with the pleasant clergyman and the stroke of business he had transacted on behalf of the Corporation. It had been refreshing to him to converse in terms of peace with any fellow-mortal; and the ready satisfaction of this visitor with the method of business adopted by the Company went far to dispel the uneasy impressions which Mrs Wrigley's visit had left earlier in the day. After all, he felt that he was yet on probation. When Christmas came, and he was able to discuss matters personally with the directors, he had no doubt his position would be improved. He flattered himself they might think he was useful enough to be worth while keeping; and in that case of course he would have a right to ask to be put on rather more comfortable a footing than he possessed at present, and to be entrusted with a certain amount of control over the business of the Corporation. He would also be able mildly to suggest that it would be more convenient to him to receive his salary monthly than quarterly, so as to enable him not only to live respectably himself, as became their secretary, but also to give regular help to his mother at home. As it was, with a beggarly thirteen shillings a week to live on, he was little better than a common office-boy, he would have said to himself, but at that particular moment the door opened, and the very individual whom his thoughts connected with the words appeared before him. It was the very last apparition Reginald could have looked for. He had given up all idea of seeing the young desperado any more. Though he could not exactly say, "Poverty had come in at the door and Love had flown out of the window"--for the young gentleman had departed by the door--he yet had made up his mind that Cupid had taken to himself wings and flown away, with no intention of ever returning to the scene of his late struggle. But a glance at the starved, emaciated figure before him explained very simply the mystery of this strange apparition. The boy's hands and lips were blue with cold, and his cheek-bones seemed almost to protrude through his pallid, grimy cheeks. He looked, in fact, what he was, the picture of misery, and he had no need of any other eloquence to open the heart of his late "governor." "Say, what's yer name," he said, in a hollow imitation of his old voice, "beg yer pardon, gov'nor--won't do it no more if yer overlook it this time." "Come in out of the cold and warm yourself by the fire," said Reginald, poking it up to a blaze. The boy obeyed, half timidly. He seemed to be not quite sure whether Reginald was luring him in to his own destruction. But at any rate the sight of the fire roused him to heroism, and, reckless of all consequences, he walked in. "Don't do nothink to me this time, gov'nor," whimpered he, as he got within arm's length; "let us off, do you hear? this time." "Poor boy," said Reginald kindly, putting a stool for him close beside the fire; "I'm not going to do anything but warm you. Sit down, and don't be afraid." The boy dropped almost exhausted on the stool, and gazed in a sort of rapture into the fire. Then, looking up at Reginald, he said,-- "Beg your pardon, gov'nor,--ain't got a crust of bread you don't want, 'ave yer?" The hint was quite enough to send Reginald flying to his little "larder." The boy devoured the bread set before him with a fierceness that looked as if he had scarcely touched food since he had gone away. He made clear decks of all Reginald had in the place; and then, slipping off the stool, curled himself up on the floor before the fire like a dog, and dropped off into a heavy sleep. Reginald took the opportunity to make a hurried excursion to the nearest provision shop to lay in what store his little means would allow. He might have spared himself the trouble of locking the door behind him, though, for on his return the boy had never stirred. The little sleeper lay there all night, until, in fact, the coals could hold out no longer, and the fire went out. Then Reginald woke him and carried him off to his own bed, where he dropped off into another long sleep which lasted till midday. After partaking of the meal his benefactor had ready for him on waking, he seemed more like himself, and disposed to make himself useful. "Ain't got no envellups to lick, then?" said he, looking round the deserted room. "No, there's nothing to do here just now," said Reginald. The boy looked a little disappointed, but said, presently,-- "Want any errands fetched, gov'nor?" "No, not now. I've got all I want in for the present." "Like yer winders cleaned?" "Not much use with this frost on them," said Reginald. Thwarted thus on every hand, the boy asked no more questions, but took upon himself to go round the office and dust it as well as he could with the ragged tail of his coat. It was evidently his way of saying, "Thank you," and he seemed more easy in his mind when it was done. He stopped once in the middle of his task as he caught Reginald's eyes fixed half curiously, half pityingly upon him. "Say--gov'nor, I ain't going to read no more books; do ye hear?" There was something quite pathetic in the tones in which this declaration of renunciation was made. It was evidently a supreme effort of repentance, and Reginald felt almost uncomfortable as he heard it. "That there _Noogate Calendar_ made a rare flare-up, didn't it, gov'nor?" continued Love, looking wistfully towards the grate, if perchance any stray leaves should have escaped the conflagration. "Not such a flare-up as you did," said Reginald, laughing. "Never mind, we'll try and get something nicer to read." "No fear! Never no more. I ain't a-goin' to read nothink again, I tell yer," said the boy, quite warmly. And for fear of wavering in his resolution he went round the room once more, rubbing up the cheap furniture till it shone, and ending with polishing up the very hearth that had served as the sacrificial altar to his beloved _Newgate Calendar_ only a few days before. There was little or no more work to be done during the day. A few letters had come by the morning's post, angrily complaining of the delay in delivering the promised goods. To these Reginald had replied in the usual form, leaving to Love the privilege of "licking them up." He also wrote to Mr Medlock, enclosing the two pounds the pleasant clergyman had left the day before, and once more urging that gentleman to come down to Liverpool. He went out, happily unconscious of the fact that a detective dogged every step he took, to post these letters himself, and at the same time to lay in a day's provisions for two. It was with something like a qualm that he saw his last half-sovereign broken over this purchase. With nine shillings left in his pocket, and twelve days yet to Christmas, it was as clear as daylight that things were rapidly approaching a crisis. It was almost a relief to feel it. On his way back to the office he passed a secondhand book-stall. He had lingered in front of it many times before now, turning over the leaves of this and that odd volume, and picking up the scraps of amusement and information which are always to be found in such an occupation. To-day, however, he overhauled the contents of the trays with rather more curiosity than usual; not because he expected to find a pearl of great price among the dust and dog's ears of the "threepenny" tray. Reginald was the last person in the world to consider himself a child of fortune in that respect. No! he had Master Love on his mind, and the memory of that blazing _Newgate Calendar_ on his conscience, and, even at the cost of a further reduction of his vanishing income, he determined not to return provided with food for Love's body only, but also for Love's mind. Accordingly he selected two very shabby and tattered volumes from the "threepenny" tray--one a fragment of _Robinson Crusoe_, the other Part One of the _Pilgrim's Progress_, and with these in his pocket and the eatables in his hands, he returned to his charge as proud as a general who has just relieved a starving garrison. After the frugal supper the books were triumphantly produced, but Master Love, still mindful of his recent tribulations, regarded them shyly at first, as another possible bait to his own undoing; but presently curiosity, and the sight of a wonderful picture of Giant Despair, overcame his scruples, and he held out his hand eagerly. It was amusing to watch the critical look on his face as he took a preliminary glance through the pages of the two books. Reginald was half sorry he had not produced them one at a time; but it being too late now to recall either, he awaited with no little excitement the decision of the young connoisseur upon them. Apparently Love found considerable traces of what he would call "jam" in both. The picture of Crusoe coming upon the footprint in the sand, and that of the great battle between Christian and Apollyon, seemed to gather into themselves the final claims of the two rivals, and for a few moments victory trembled in the balance. At last he shut up _Robinson Crusoe_ and stuffed it in his pocket. "Say, what's yer name," said he, looking up and laying his finger on the battle scene; "which of them two does for t'other?" "The one in the armour," said Reginald. "Thought so--t'other one's a flat to fight with that there long flagpole. Soon as 'e's chucked it away 'e's a dead 'un. Say, what did they do with 'is dead body? No use a 'idin' of it. If I was 'im I'd a cut 'is throat, and left the razor in 'is 'and, and they'd a brought it in soosanside. Bless you, coroners' juries is reg'lar flats at findin' out them sort of things." "Suppose you read what it says," said Reginald, hardly able to restrain a laugh; "if you like you can read it aloud; I'd like to hear it again myself." The boy agreed, and that evening the two queerly assorted friends sat side by side in the dim candle-light, going over the wonderful story of the Pilgrim. Reginald judiciously steered the course through the most thrilling parts of the narrative, carefully avoiding whatever might have seemed to the boy dull or digressive. Love stopped in his reading frequently to discuss the merits of the story and deliver himself of his opinion as to what he would have done under similar circumstances. He would have made short work with the lions chained by the roadside; he would have taken a bull's-eye lantern through the dark valley; and as for the river at the end, he couldn't understand anybody coming to grief there. Why, at Victoria Park last Whit Monday he had swum three-quarters of a mile himself! In vain Reginald pointed out that Christian had his armour on. The young critic would not allow this as an excuse, and brought up cases of gentlemen of his acquaintance who had swum incredible distances in their clothes and boots. But the story that delighted him most was that of the man who hacked his way into the palace. This was an adventure after his own heart. He read it over and over again, and was unsparing in his admiration of the hero, whom he compared for prowess with "Will Warspite the Pirate," and "Dick Turpin," and even his late favourite "Tim Tigerskin." His interest in him was indeed so great that he allowed Reginald in a few simple words to say what it meant, and to explain how we could all, if we went the right way about it, do as great things as he did. "Why you, youngster, when you made up your mind you wouldn't read any more of those bad books, you knocked over one of your enemies." "Did I, though? how far in did I get?" "You got over the doorstep, anyhow; but you've got plenty more to knock over before you get right into the place. So have I." "My eye, gov'nor," cried the boy, his grimy face lighting up with an excited flush, "we'll let 'em 'ave it!" They read and discussed and argued far into the night; and when at last Reginald gave the order to go to bed there were no two friends more devoted than the Secretary of the Select Agency Corporation and his office-boy. Love's sleep that night was like the sleep of a pugilistic terrier, who in his dreams encounters and overcomes even deep-mouthed mastiffs and colossal Saint Bernards. He sniffed and snorted defiance as he lay, and his brow was damp with the sweat of battle, and his lips curled with the smile of victory. As soon as he awoke his hand sought the pocket where the wonderful book lay; and even as he tidied up the office and prepared the gov'nor's breakfast, he was engaged in mortal inward combats. "Say, gov'nor," cried he, with jubilant face, as Reginald entered, "I've done for another of 'em. Topped him clean over." "Another of whom?" said Reginald. "Them pals a-waitin' in the 'all," said he; "you know, in that there pallis." "Oh! in the Beautiful Palace we were reading about," said Reginald. "Who have you done for this time?" "That there Medlock," said the boy. "Medlock! What _are_ you talking about?" said Reginald, in blank amazement. "Oh, I've give him a wonner," said the boy, beaming. "He says to me, `Collar all the letters your gov'nor writes 'ome,' he says, `and I'll give you a tanner for every one you shows me.'" "Love, you're talking rubbish!" said Reginald indignantly. "Are I? don't you make no mistake," said the boy confidently; "I knows what he says; and that there letter you wrote home last night and leaves on the table, `That's a tanner to me,' says I to myself when I sees it this morning. `A lie,' says I, recollecting of that chap in the story- book. So I lets it be; and my eye, ain't that a topper for somebody--oh no!" Reginald stared at the boy, half stupefied. The room whirled round him; and with a sudden rush the hopes of his life seemed to go from under him. It was not for some time that he could find words to say, hoarsely,-- "Love, is this the truth, or a lie you are telling me?" "Lie--don't you make no error, gov'nor--I ain't on that lay, I can tell you. I'm goin' right into that there pallis, and there's two on 'em topped a'ready." "You mean to say Mr Medlock told you to steal my letters and give them to him?" "Yes, and a tanner apiece on 'em, too. But don't you be afraid, he don't get none out of me, not if I swings for it." "You can go out for a run, Love," said Reginald. "Come back in an hour. I want to be alone." "You aren't a-giving me the sack?" asked the boy with falling countenance. "No, no." "And you ain't a-goin' to commit soosanside while I'm gone, are yer?" he inquired, with a suspicious glance at Reginald's blanched face. "No. Be quick and go." "'Cos if you do, they do say as a charcoal fire--" "Will you go?" said Reginald, almost angrily, and the boy vanished. I need not describe to the reader all that passed through the poor fellow's mind as he paced up and down the bare office that morning. The floodgates had suddenly been opened upon him, and he felt himself overwhelmed in a deluge of doubt and shame and horror. It was long before he could collect his thoughts sufficiently to see anything clearly. Why Mr Medlock should take the trouble to prevent his home letters reaching their destination was incomprehensible, and indeed it weighed little with him beside the fact that the man who had given him his situation, and on whom he was actually depending for his living, was the same who could bribe his office-boy to steal his letters. If he were capable of such a meanness, was he to be trusted in anything else? How was Reginald to know whether the money he had regularly remitted to him was properly accounted for, or whether the orders were being conscientiously executed? Then it occurred to him the whole business of the Corporation had been done in his--Reginald's--name, that all the circulars had been signed by him, and that all the money had come addressed to him. Then there was that awkward mistake about his name, which, accidental or intentional, was Mr Medlock's doing. And beyond all that was the fact that Mr Medlock had taken away the only record Reginald possessed of the names of those who had replied to the circulars and sent money. He found himself confronted with a mountain of responsibility, of which he had never before dreamed, and for the clearing of which he was entirely dependent on the good faith of a man who had, not a week ago, played him one of the meanest tricks imaginable. What was he to make of it--what else could he make of it except that he was a miserable dupe, with ruin staring him in the face? His one grain of comfort was in the names of some of the directors. Unless that list were fictitious, they would not be likely to allow a concern with which they were identified to collapse in discredit. Was it genuine or not? His doubts on this question were very speedily resolved by a letter which arrived that very afternoon. It was dated London, and ran as follows:-- "Cruden Reginald, Esquire. "Sir,--The attention of the Bishop of S-- having been called to the unauthorised, and, as it would appear, fraudulent use of his name in connection with a company styled the Select Agency Corporation, of which you are secretary, I am instructed, before his lordship enters on legal proceedings, to request you to furnish me with your authority for using his lordship's name in the manner stated. Awaiting your reply by return, I am, sir, yours, etcetera,-- "A. Turner, Secretary." This was a finishing stroke to the disillusion. In all his troubles and perplexities the good Bishop of S-- had been a rock to lean on for the poor secretary. But now even that prop was snatched away, and he was left alone in the ruins of his own hopes. He could see it all at last. As he went back over the whole history of his connection with the Corporation he was able to recognise how at every step he had been duped and fooled; how his very honesty had been turned to account; how his intelligence had been the one thing disliked and discouraged. And what was to become of him now? Anything but desert the sinking ship--that question never cost Reginald two thoughts. He would right himself if he could. He would protest his innocence of all fraud or connivance at fraud. He would even do what he could to bring the real offenders to justice; but as long as the Corporation had a creditor left he would be there to face him and suffer the consequence of his own folly and stupidity. Young Love got little sympathy that day in his reading. Indeed, he could not but notice that something unusual had happened to the "gov'nor," and that being so, not even the adventures of Christian or the unexplored marvels of Robinson Crusoe could satisfy him. He polished up the furniture half a dozen times, and watched Reginald's eye like a dog, ready to catch the first sign of a want or a question. Presently he could stand it no longer, and said,--"Say, gov'nor, what's up? 'taint nothing along of me, are it?" "No, my boy," said Reginald. "Is it along of that there Medlock?" Reginald nodded. It was well for Mr Medlock that he was not in the room at that moment. "I'll top 'im, see if I don't," muttered the boy; "I owes 'im one for carting me down 'ere, and I owes 'im four or five now; and you'll see if I don't go for 'im, gov'nor." "You'd better go back to your home," said Reginald, with a kindly tremor in his voice; "I'm afraid you'll get into trouble by staying with me." It was fine to see the flash of scorn in the boy's face as he said,-- "Oh yus, me go 'ome and leave yer! Walker--I stays 'ere." "Very well, then," said Reginald, with a sigh. "We may as well go on with the book. Suppose you read me about Giant Despair." CHAPTER NINETEEN. THE SHADES LOSE SEVERAL GOOD CUSTOMERS. It would be unfair to Samuel Shuckleford to say that he had no compunction whatever in deciding upon a course of action which he knew would involve the ruin of Reginald Cruden. He did not like it at all. It was a nuisance; it was a complication likely to hamper him. He wished his mother and sister would be less gushing in the friendships they made. What right had they to interfere with his business prospects by tacking themselves on to the family of a man who was afterwards to turn out a swindler? Yes, it was a nuisance; but for all that it must not be allowed to interfere with the course that lay before the rising lawyer. Business is business after all, and if Cruden is a swindler, whose fault is it if Cruden's mother breaks her heart? Not S.S.'s, at any rate. But S.S.'s fault it would be if he made a mess of this "big job"! That was a reproach no one should lay at his door. Samuel may not have been quite the Solomon he was wont to estimate himself. Still, to do him justice once more, he displayed no little ability in tracing out the different frauds of the Select Agency Corporation and establishing Reginald's guilt conclusively in his own mind. It all fitted in like a curious puzzle. His sudden mysterious departure from London--his change of name--the selection of Liverpool as headquarters--the distribution of the circulars among unsuspecting schoolmistresses in the south of England--the demand for money to be enclosed with the order--and the fiction of the dispatch of the goods from London. What else could it point to but a deliberate, deeply-laid scheme of fraud? The further Samuel went, the clearer it all appeared, and the less compunction he felt for running to earth such a scoundrel. But he was going to do nothing in a hurry. S.S. was not the man to dish himself by showing his cards till he was sure he had them all in his hand. Possibly Cruden was not alone in the swindle. He might have accomplices. Even his mother and brother--who can answer for the duplicity of human nature?--might know more of his operations than they professed to know. He might have confederates among his old companions at the _Rocket_, or even among his old school acquaintances. Yes; there was plenty to go into before Samuel put down his foot, and who knew better how to go into it than S.S.? So he kept his own counsel, and, except for cautioning his mother and sister to "draw off" from the undesirable connection, and intimidating the maid-of-all-work at Number 6, Dull Street, by most horrible threats of the penalties of the law, to detain and give to him every letter bearing the Liverpool postmark which should from that time forward come to the house, no matter to whom addressed--for in his zeal it was easy to forget that by such a proceeding he was sailing uncommonly close to the wind himself--showed no sign of taking any immediate step either in this or any other matter. Had he been aware that one Sniff, of the Liverpool detective police, had some days ago arrived, by a series of independent and far more artistic investigations, at as much knowledge as he himself possessed of the doings of the Corporation, Samuel would probably have been content to make the most of the cards he held before the chance of using them at all had slipped by. It is doubtful, however, whether in any case he would have succeeded in forestalling the wary Mr Sniff. That gentleman had discovered in a few hours what it had taken Samuel days of patient grubbing to unearth. And his discoveries would have decidedly astonished the self-complacent little practitioner. He would have been astonished, for instance, to hear that the Liverpool post-office had received instructions from the Home Office to hand over every letter addressed to Cruden Reginald, 13, Shy Street, to the police. He would also have been astonished if he had known that a detective in plain clothes dined every evening at the Shades, near to the table occupied by Mr Durfy and his friends; that the hall-porter of Weaver's Hotel was a representative of the police in disguise, and that representatives of the police had called on business at the _Rocket_ office, had brushed up against Blandford at street- corners, and had even taken the trouble to follow him--Samuel Shuckleford--here and there in his evening's perambulations. Yes, small job as it was in Mr Sniff's estimation, he knew the way to go about it, and had a very good notion what was the right scent to go on and what the wrong. The one thing that did put him out at first was Reginald's absolutely truthful replies to all the pleasant clergyman's questions. This really did bother Mr Sniff. For when a swindler is face to face with his victim the very last thing you expect of him is straightforward honesty. So when Reginald had talked about Weaver's Hotel and Mr John Smith, and had mentioned the number of orders that had arrived, and the account of money that had accompanied them, and had even confided the amount of his own salary, Mr Sniff had closed one of his mental eyes and said to himself, "Yes; we know all about that." But when it turned out that, so far from such statements being fabrications to delude him, they were simply true--when the letter Reginald had written to Mr Medlock that very evening lay in his hands and corroborated all he had said--when he himself followed the poor fellow an hour or two later on his errand of mercy, and stood beside him as he spent that precious sixpence over _Robinson Crusoe_ and the _Pilgrim's Progress_, Mr Sniff did feel for a moment disconcerted. But, unusual as it was, he made the bold venture of jumping to the conviction of Reginald's innocence; and that theory once started, everything went beautifully. On the evening following Mrs Cruden's sudden illness, Mr Durfy strolled down in rather a disconsolate frame of mind towards the Shades. Since his expulsion from the _Rocket_ office things had not been going pleasantly with him. For a day or two he had deemed it expedient to keep in retirement, and when at last he did venture forth, in the vague hope of picking up some employment worthy of his talents, he took care to keep clear of the haunts of his former confederates, whom, after his last failure, he rather dreaded meeting. It had been during this period that he had made the acquaintance of Shuckleford, and the prospect of revenge which that intimacy opened to him was a welcome diversion to the monotony of his existence. But prospects of revenge do not fill empty stomachs, and Durfy at the end of a week began to discover that there might be an end even to the private resources of the late overseer of an evening newspaper and the part proprietor of an Agency Corporation. He was, in fact, getting hard up, and therefore, putting his pride in his empty pocket, he strolled down moodily to the Shades, determined at any rate to have a supper at somebody else's expense. He had not reckoned without his host, for after about half an hour's impatient kicking of his heels outside, Mr Medlock and Mr Shanklin appeared on the scene, arm in arm. They appeared by no means elated at seeing him, but that mattered very little to the hungry Durfy, who followed them into the supper-room and took his seat at the table beside them. If he had been possessed of any sensitiveness, it might have been wounded by the utter indifference, after the first signs of displeasure, they paid to his presence. They continued their conversation as though no third party had been near, and except that Mr Medlock nodded when the waiter said "For three?" seemed to see as little of him as Hamlet's mother did of the Ghost. However, for the time being that nod of Mr Medlock's was all Durfy particularly coveted. He was hungry. Time enough to stand on his dignity when the knife and fork had done their work. "Yes," said Mr Shanklin, "time's up to-day. I've told him where to find us. If he doesn't, you must go your trip by yourself; I can safely stay and screw my man up." "Think he will turn up?" "Can't say. He seems to be flush enough of money still." "Well, he can't say you've not helped him to get rid of it." "I've done my best," said Mr Shanklin, laughing. "I shall be glad of a holiday. It's as hard work sponging one fool as it is fleecing a couple of hundred sheep, eh?" "Well, the wool came off very easily, I must say. I reckon there'll be a clean £500 to divide on the Liverpool business alone." "Nice occupation that'll be on the Boulogne steamer to-morrow," said Mr Shanklin. "Dear me, I hope it won't be rough, I'm such a bad sailor!" "Then, of course," said Mr Medlock, "there'll be your little takings to add to that. Your working expenses can't have been much." Mr Shanklin laughed again. "No. I've done without circulars and a salaried secretary. By the way, do you fancy any one smells anything wrong up in the North yet?" "Bless you, no. The fellow's pretty near starving, and yet he sent me up a stray £2 he received the other day. It's as good as a play to read the letters he sends me up about getting the orders executed in strict rotation, as entered in a beautiful register he kept, and which I borrowed, my boy. Ha! ha! He wants me to run down to Liverpool, he says, as he's not quite satisfied with his position there. Ho! ho! And he'd like a little money on account, as he's had to buy stamps and coals and all that sort of thing out of his own thirteen shillings a week. It's enough to make one die of laughing, isn't it?" "It is funny," said Mr Shanklin. "But you're quite right to be on the safe side and start to-morrow. You did everything in his name, I suppose--took the office, ordered the printing, and all that sort of thing?" "Oh yes, I took care of that. My name or yours was never mentioned, except mine on the dummy list of directors. That won't hurt." "Well, the Corporation's had a short life and a merry one; and your precious secretary's likely to have a merry Christmas after it all-- unless you'd like to go down and spend it with him, Durfy," added Mr Shanklin, taking notice for the first time of the presence of their visitor. Durfy replied by a scowl. "I shall be far enough away by then," said he. "Why, where are you going?" "I'm going with you, to be sure," said he, doggedly. Messrs. Medlock and Shanklin greeted this announcement with a laugh of genuine amusement. "I'm glad you told us," said Mr Shanklin. "We should have forgotten to take a ticket for you." "You may grin," said Durfy. "I'm going, for all that." "You're a bigger fool even than you look," said Mr Medlock, "to think so. You can consider yourself lucky to get a supper out of us this last night." "You forget I can make it precious awkward for you if I like," growled Durfy. "Awkward! _You've_ a right to be a judge of what's awkward after the neat way you've managed things," sneered Shanklin. "It takes you all your time to make things awkward for yourself, let alone troubling about us." Durfy always hated when Mr Shanklin alluded to his blunders, and he scowled all the more viciously now because he felt that, after all, he could do little against his two patrons which would not recoil with twofold violence on his own head. No, he had better confine his reprisals to the Crudens by Mr Shuckleford's assistance, and meanwhile make what he could out of these ungrateful sharpers. "If you don't want me with you," said he, "you'll have to make it worth my while to stay away, that's all. You'd think it a fine joke if you found yourself in the police-station instead of the railway-station to- morrow morning, wouldn't you?" And Mr Durfy's face actually relaxed into a smile at this flash of pleasantry. "You'd find it past a joke if you found yourself neck-and-crop in the gutter in two minutes," said Mr Shanklin, in a rage, "as you will do if you don't take care." "I'll take care for fifty pounds," said Durfy. "It's precious little share I've had out of the business, and if you want me mum, that's what will do it. There, I could tell you a thing or two already; you don't know--" "Tush! Durfy, you're a born ass! Come round to my hotel to-morrow at eight, and I'll see what I can do for you," said Mr Medlock. Durfy knew how to value such promises, and did not look by any means jubilant at the prospect held out. However, at this moment Blandford and Pillans entered the supper-room, and his hosts had something better to think about than him. He was hustled from his place to make room for the new guests, and surlily retired to a neighbouring table, where, if he could not hear all that was said, he could at least see all that went on. "Hullo!" said Shanklin gaily, "here's a nice time to turn up, dear boys. Medlock and I have nearly done supper." "Couldn't help. We've been to the theatre, haven't we, Pillans?" said Blandford, who appeared already to be rather the worse for drink. "I have. _You've_ been in the bar most of the time," said Pillans. "Ha! ha! I was told Bland was studying for the Bar. I do like application," said Mr Medlock. Blandford seemed to regard this as a compliment, and sitting down at the table, told the waiter to bring a bottle of champagne and some more glasses. "Well," he said, with a simper, "what I say I'll do, I'll do. I said I'd turn up here and pay you that bill, Shanklin, and I have turned up, haven't I?" "Upon my honour, I'd almost forgotten that bill," said Mr Shanklin, who had thought of little else for the last week. "It's not inconvenient, I hope?" Blandford laughed stupidly. "Sorry if a trifle like that was inconvenient," said he, with all the languor of a millionaire. "Forget what it was about. Some take in, I'll swear. Never mind, a debt's a debt, and here goes. How much is it?" "Fifty," said Mr Shanklin. Blandford produced a pocket-book with a flourish, and took from it a handful of notes that made Durfy's eyes, as he sat at the distant table, gleam. The half-tipsy spendthrift was almost too muddled to count them correctly, but finally he succeeded in extracting five ten-pound notes from the bundle, which he tossed to Shanklin. "Thanks, very much," said that gentleman, putting them in his pocket. "I find I've left your bill at home, but I'll send it round to you in the morning." "Oh, all serene!" said Blandford, putting his pocketbook back into his pocket. "Have another bottle of cham--do--just to celebrate--settling-- old scores. Hullo, where are you, Pillans?" Pillans had gone off to play billiards with Mr Medlock, so Blandford and Mr Shanklin attacked the bottle themselves. When it was done, the former rose unsteadily, and, bidding his friend good-night, said he would go home, as he'd got a headache. Which was about as true an observation as man ever uttered. "Good-night--old--feller," said he; "see you to-morrow." And he staggered out of the place, assisted to the door by Mr Shanklin, who, after an affectionate farewell, sauntered to the billiard-room, where Mr Medlock had already won a five-pound note from the ingenuous Mr Pillans. "Your friend's in good spirits to-night," said Mr Shanklin. "Capital fellow is Bland." "So he is," said Pillans. "Capital fellow, with plenty of capital, eh?" said Mr Medlock; "your shoot, Pillans, and I don't mind going a sov. with you on the cannon." Of course Pillans lost his sovereign, as he did several others before the game was over. Then, feeling he had had enough enjoyment for one evening, he said good-bye and followed his friend home. But some one else had already followed his friend home. Durfy, in whose bosom the glimpse of that well-lined pocket-book had roused unusual interest, found himself ready to go home a very few moments after Blandford had quitted the Shades. It may have been only coincidence, or it may have been idle curiosity to see if the tipsy lad could find his way home without an accident, or it may have been a laudable determination that, no one should take advantage of his helpless condition to deprive him of that comfortable pocket-book. Whatever it was, Durfy followed the reeling figure along the pavement as it threaded its way westward from the Shades. Blandford may have had reason enough left to tell him that it would be better for his headache to walk in the night air than to take a cab, and Mr Durfy highly approved of the decision. He was able without difficulty or obtrusiveness to follow his man at a few yards' distance, and even give proof of his solicitude by an occasional steadying hand on his arm. Presently the wanderer turned out of the crowded thoroughfare up a by- street, where he had the pavement more to himself. Indeed, except for a few stragglers hurrying home from theatres or concerts, he encountered no one; and as he penetrated farther beyond the region of public houses and tobacco-shops into the serener realms of offices and chambers, and beyond that into the solitude of a West-end square, not a footstep save his own and that of his escort broke the midnight silence. Durfy's heart beat fast, for he had a heart to beat on occasions like this. A hundred chances on which he had never calculated suddenly presented themselves. What if some one might be peering out into the night from one of the black windows of those silent houses? Suppose some motionless policeman under the shadow of a wall were near enough to see and hear! Suppose the cool night air had already done its work and sobered the wayfarer enough to render him obstinate or even dangerous! He seemed to walk more steadily. If anything was to be done, every moment was of consequence. And the risk? The vision of that pocket-book and the crisp white notes flashed across Durfy's memory by way of answer. Yes, to Durfy, the outcast, the dupe, the baffled adventurer, the risk was worth running. He quickened his step and opened the blade of the penknife in his pocket as he did so. Not that he meant to use it, but in case-- Faugh! the fellow was staggering as helplessly as ever! He never even heeded the pursuing steps, but reeled on, muttering to himself, now close to the palings, now on the kerb, his hat back on his head and the cigar between his lips not even alight. Durfy crept silently behind, and with a sudden dash locked one arm tightly round his victim's neck, while with the other he made a swift dive at the pocket where lay the coveted treasure. It was all so quickly done that before Blandford could exclaim or even gasp the pocket-book was in the thief's hands. Then as the arm round his neck was relaxed, he faced round, terribly sobered, and made a wild spring at his assailant. "Thief!" he shouted, making the quiet square ring and ring again with the echo of that word. His hand was upon Durfy's collar, so fiercely that nothing but a hand- to-hand struggle could release its grip; unless-- Durfy's hand dropped to his pocket. There was a flash and a scream, and next moment Blandford was clinging, groaning, to the railings of the square, while Durfy's footsteps died away in the gloomy mazes of a network of back streets. When Pillans got home to his lodgings that night he found his comrade in bed with a severe wound in the shoulder, unable to give any account of himself but that he had been first garotted, then robbed, and finally stabbed, on his way home from the Shades. Mr Durfy did not present himself at Mr Medlock's hotel at the appointed hour next morning. Nor, although it was a fine calm day, and their luggage was all packed up and labelled, did Mr Medlock and his friend Mr Shanklin succeed in making their promised trip across the Channel. A deputation of police awaited them on the Victoria platform, and completely disconcerted their arrangements by taking them in a cab to the nearest police-station on a charge of fraud and conspiracy. CHAPTER TWENTY. SAMUEL SHUCKLEFORD FINDS VIRTUE ITS OWN REWARD. It was just as well for Horace's peace of mind, during his time of anxious watching, that two short paragraphs in the morning papers of the following day escaped his observation. "At--police-court yesterday, two men named Medlock and Shanklin were brought before the magistrate on various charges of fraud connected with sham companies in different parts of the country. After some formal evidence they were remanded for a week, bail being refused." "A youth named Reginald was yesterday charged at Liverpool with conspiracy to defraud by means of fictitious circulars addressed in the name of a trading company. He was remanded for three days without bail, pending inquiries." It so happened that it fell to Booms's lot to cut the latter paragraph out. And as he was barely aware of the existence of Cruden's brother, and in no case would have recognised him by his assumed name, the news, even if he read it, could have conveyed no intelligence to his mind. Horace certainly did not read it. Even when he had nothing better to do, he always regarded newspapers as a discipline not to be meddled with out of office hours. And just now, with his mother lying in a critical condition, and with no news day after day of Reginald, he had more serious food for reflection than the idle gossip of a newspaper. The only other person in London whom the news could have interested was Samuel Shuckleford. But as he was that morning riding blithely in the train to Liverpool, reading the _Law Times_, and flattering himself he would soon make the public "sit up" to a recognition of his astuteness, he saw nothing of them. He found himself on the Liverpool platform just where, scarcely three months ago, Reginald had found himself that dreary afternoon of his arrival. But, unlike Reginald, it cost the young ornament of the law not a moment's hesitation as to whether he should take a cab or not to his destination. If only the cabman knew whom he had the honour to carry, how he would touch up his horse! "Shy Street. Put me down at the corner," said Samuel, swinging himself into the hansom. So this was Liverpool. He had never been there before, and consequently it was not to be wondered at that the crowds jostling by on the pavement, without so much as a glance in his direction, neither knew him nor had heard of him. He could forgive them, and smiled to think how different it would be in a few days, when all the world would point at him as he drove back to the station, and say,-- "There goes Shuckleford, the clever lawyer, who first exposed the Select Agency Corporation, don't you know?" Don't you know? What a question to ask respecting S.S.! At the corner of Shy Street he alighted, and sauntered gently down the street, keeping a sharp look-out on both sides of him, without appearing to regard anything but the pavement. Humph! The odd numbers were on the left side, so S.S. would walk on the right, and get a good survey of Number 13 from a modest distance. What, thought he, would the precious Cruden Reginald (ha! ha!) think if he knew who was walking down the other side of the road? Ah! he was getting near it now. Here was 17, a baker's; 15, a greengrocer's; and 13--eh? a chemist's? Ah, yes, he noticed that the first floors of all the shops were let for offices, and the first floor of the chemist's shop was the place he wanted. He could see through the grimy window the top rail of a chair-back and the corner of a table, on which stood an inkpot and a tattered directory. No occupant of the room was visible; doubtless he found it prudent to keep away from the window; or he might possibly have seen the figure of S.S. advancing down the street. Samuel crossed over. No name was on the chemist's side-door, but it stood ajar, and he pushed it open and peered up the gloomy staircase. There was a name on the door at the top, so he crept stealthily up the stairs to decipher the word "Medlock" in dim characters on the plate. "Medlock!" Ho! ho! He was getting warm now. Not only was his man going about with his own name turned inside out, but he had the effrontery to stick up the name of one of his own directors on his door! Samuel knew Mr Medlock--whom didn't he know? He had been introduced to him by Durfy, and had supped with him once at the Shades. A nice, pleasant-spoken gentleman, who had made some very complimentary little speeches about Samuel in Samuel's own hearing. This was the man whose name Cruden had borrowed for his door-plate, in the hope of further mystifying the public as to his own personality! Ah! ah! He might mystify the public, but there was one whose initials were S.S. whom it would need a cleverer cheat than Cruden Reginald, Esquire, to mystify! He listened for a moment at the door, and, hearing no sound, made bold to enter. Had Reginald been in, he was prepared to represent that, being on a chance visit to Liverpool, he had been unable to pass the door of an old neighbour without giving him a friendly call. But he was not put to this shift, for the room was empty. "Gone out to his dinner, I suppose," said Sam to himself. "Well, I'll take a good look round while I am here." Which he proceeded to do, much to his own satisfaction, but very little to his information, for scarcely a torn-up envelope was to be found to reward the spy for his trouble. The only thing that did attract his attention as likely to be remotely useful was a fragment of a pink paper with the letters "gerskin" on it--a relic Love would have recognised as part of the cover of an old favourite, but which to the inquiring mind of the lawyer appeared to be a document worth impounding in the interests of justice. As nobody appeared after the lapse of half an hour, Samuel considered his time was being wasted, and therefore withdrew. He looked into the chemist's shop as he went down, but the chemist was not at home; so he strolled into the greengrocer's next door, and bought an orange, which he proceeded to consume, making himself meanwhile cunningly agreeable to the lady who presided over the establishment. "Fine Christmas weather," said he, looking up in the middle of a prolonged suck. "Yes," said the lady. "Plenty of customers?" She shrugged her shoulders. Sam might interpret that as he liked. "I suppose you supply the Corporation next door?" said Sam, digging his countenance once more into the orange. "Eh?" said the lady. "The--what's-his-name?--Mr Reginald--I suppose he deals with you?" "He did, if you want to know." "I thought so--a friend of mine, you know." "Oh, is he?" said the lady, finding words at last, and bridling up in a way that astonished her cross-examiner; "then the sooner you go and walk off after him the better!" "Oh, very well," said Sam. "He's not at home just now, though." "Oh, ain't he?" said the woman, "that's funny!" "Why, what do you mean?" "Oh, nothing--what should I? If you're a friend of his, you'd better take yourself off! That's what I mean." "All right; no offence, old lady. Perhaps he's come in by this time." The lady laughed disagreeably. The Corporation had bought coals of her three months ago. Samuel returned to the office, but it was as deserted as ever. He therefore resolved to try what his blandishments could do with the chemist's boy downstairs in the way of obtaining information. That young gentleman, as the reader will remember, had been a bosom friend of Love in his day, and was animated to some extent by the spirit of his comrade. "Hullo, my man!" said Sam, walking into the shop. "Governor's out, then?" "Yus." "Got any lollipops in those bottles?" "Yus." "Any brandy-balls?" "No." "Any acid-drops?" "Yus." "I'll take a penn'orth, then. I suppose you don't know when the gentleman upstairs will be back?" The boy stopped short in his occupation and stared at Sam. "What gentleman?" he asked. "Mr Medlock, is it? or Reginald, or some name like that?" "Oh yus, I do!" said the boy, with a grin. "When?" "Six months all but a day. That's what I reckon." "Six months! Has he gone away, then?" "Oh no--he was took off." "Took off--you don't mean to say he's dead?" "Oh, ain't you a rum 'un! As if you didn't know he's been beaked." "Beaked! what's that?" The boy looked disgusted at the fellow's obtuseness. "'Ad up in the p'lice-court, of course. What else could I mean?" Samuel jumped off his stool as if he had been electrified. "What do you say?" said he, gaping wildly at the boy. "Go on; if you're deaf, it's no use talkin' to you. He's been up in the p'lice-court," said he, raising his voice to a shout. "Yesterday--there you are--and there's your drops, and you ain't give me the penny for them." Samuel threw down the penny, and, too excited to take up the drops, dashed out into the street. What! yesterday--while he was lounging about town, fancying he had the game all to himself. Was ever luck like his? He rushed to a shop and bought a morning paper. There, sure enough, was a short notice of yesterday's proceedings, and you might have knocked S.S. down with a feather as he read it. "Anyhow," said he to himself, crumpling up the paper in sheer vexation, "they won't be able to do without me, I'll take care of that. I can tell them all about it--but catch me doing it now, the snobs, unless they're civil." With which valiant determination he swung himself into another cab, and ordered the man to drive to the head police-station. The inspector was not in, but his second-in-command was, and to him, much against his will, Samuel had to explain his business. "Well, what do you know about the prisoner?" asked the official. "Oh, plenty. You'd better subpoena me for the next examination," said Sam. The sub-inspector smiled. "You're like all the rest of them," he said, "think you know all about it. Come, let's hear what you've got to say, young fellow; there's plenty of work to be done here, I can tell you, without dawdling our time." "Thank you," said Sam, "I'd sooner tell the magistrate." "Go and tell the magistrate then!" shouted the official, "and don't stay blocking up the room here." This was not what Samuel expected. There was little chance of the magistrate being more impressed with his importance than a sub- inspector. So he felt the only thing for it was to bring himself to the unpleasant task of showing his cards after all. "The fact is--" he began. "If you're going to say what you know about the case, I'll listen to you," said the sub-inspector, interrupting him, "if not, go and talk in the street." "I am going to say what I know," said the crestfallen Sam. "Very well. It's a pity you couldn't do it at first," said the official, getting up and standing with his back turned, warming his hands at the fire. Under these depressing circumstances Samuel began his story, showing his weakest cards first, and saving up his trumps as long as he could. The sub-inspector listened to him impassively, rubbing his hands, and warming first one toe and then the other in the fender. At length it was all finished, and he turned round. "That's all you know?" "Yes--at present--I expect to discover more, though, in a day or two." "Just write your name and address on one of those envelopes," said the sub-inspector, pointing to a stationery case on his table. Sam obeyed, and handed the address to the official. "Very well," said the latter, folding the paper up without looking at it, and putting it into his waistcoat pocket, "if we want you, we'll fetch you." "I suppose I had better put my statement down in writing?" said Samuel, making a last effort at pomposity. "Can if you like," said the sub-inspector, yawning, "when you've nothing else to do." And he ended the conference by calling to a constable outside to tell 190 C he might come in. Grievously crestfallen, Samuel withdrew, bemoaning the hour when he first heard the name of Cruden, and was fool enough to dirty his hands with a "big job." What else was he to expect when once these official snobs took a thing up? Of course they would put every obstacle and humiliation in the way of an outsider that jealousy could suggest. He had very little doubt that this sub-inspector, the moment his back was turned, would sit down and make notes of his information, and then take all the credit of it to himself. Never mind, they were bound to want him when the trial came on, and wouldn't he just show up their tricks! Oh no! S.S. wasn't going to be flouted and snubbed for nothing, he could tell them, and so they'd discover. It was no use staying in Liverpool, that was clear. The Liverpool police should have the pleasure of fetching him all the way from London when they wanted him; and possibly, with Durfy's aid, he might succeed in getting hold of another trump-card meanwhile to turn up when they least expected it. The journey south next day was less blithe and less occupied with the _Law Times_ than the journey north had been. But as he got farther away from inhospitable Liverpool his spirits revived, and before London was reached he was once more in imagination "the clever lawyer, Shuckleford, don't you know, who gave the Liverpool police a slap in the face over that Agency Corporation business, don't you know." Two "don't you knows" this time! On reaching home, any natural joy he might be expected to feel on being restored to the bosom of his family was damped by the discovery that his mother was that very moment in next door relieving guard with Miss Crisp at the bedside of Mrs Cruden. "What business has she to do it when I told her not?" demanded Sam wrathfully of his sister. "She's not bound to obey you," said Jemima; "she's your mother." "She is. And a nice respectable mother, too, to go mixing with a lot of low, swindling jail-birds! It's sickening!" "You've no right to talk like that, Sam," said Jemima, flushing up; "they're as honest as you are--more so, perhaps. There!" "Go it; say on," said Samuel. "All I can tell you is, if you don't both of you turn the Cruden lot up, I'll go and live in lodgings by myself." "Why should we turn them or anybody up for you, I should like to know?" said Jemima, with a toss of her head. "What have they done to you?" "You're an idiot," said Sam, "or you wouldn't talk bosh. Your dear Reginald--" "Well, what about him?" said Jemima, her trembling lip betraying the inward flutter with which she heard the name. "How would you like to know your precious Reginald was this moment in prison?" "What!" shrieked Jemima, with a clutch at her brother's arm. He was glad to see there was some one he could make "sit up," and replied, with brutal directness,-- "Yes--in prison, I tell you; charged with swindling and theft ever since he set foot in Liverpool. There, if that's not reason enough for turning them up, I give you up. You can tell mother so, and say I'm down at the club, and she'd better leave supper up for me; do you hear?" Jemima did not hear. She sat rocking herself in her chair, and sobbing as if her heart would break. Vulgar young person as she was, she had a heart, and, quite apart from everything else, the thought of the calamity which had befallen the fatherless family was in itself enough to move her deep pity; but when to that was added her own strange but constant affection for Reginald himself, despite all his aversion to her, it was a blow that fell heavily upon her. She would not believe Reginald was guilty of the odious crimes Sam had so glibly catalogued; but guilty or not guilty, he was in prison, and it is only due to the honest, warm-hearted Jemima to say that she wished a hundred times that wretched evening that she could be in his place. But could nothing be done? She knew it was no use trying to extract any more particulars from Samuel. As it was, she guessed only too truly that he would be raging with himself for telling her so much. Her mother could do nothing. She would probably fly with the news to Mrs Cruden's bedside, and possibly kill her outright. Horace! She might tell him, but she was afraid. The news would fall on him like a thunderbolt, and she dreaded being the person to inflict the blow. Yet he ought to knew, even if it doubled his misery and ended in no good to Reginald. Suppose she wrote to him. At that moment a knock came at the door, followed by the entrance of Booms in all the gorgeousness of his evening costume. He frequently dropped in like this, especially since Mrs Cruden's illness, to hear how she was, and to inquire after Miss Crisp; and this was his errand this evening. "No better, I suppose?" said he, dolefully, sitting down very slowly by reason of the tightness of his garments. "Yes, the doctor says she's better; a little, a very little," said Jemima. "And _she_, of course she's quite knocked up?" said he, with a groan. "No. Miss Crisp's taking a nap, that's all; and mother's keeping watch next door." Booms sat very uncomfortably, not knowing what fresh topic to discourse on. But an inspiration seized him presently. "Oh, I see you're crying," he said. "You're in trouble, too." "So I am," said Jemima. "Something I've done, I suppose?" said Booms. "No, it isn't. It's about--about the Crudens." "Oh, of course. What about them?" "Well, isn't it bad enough they have this dreadful trouble?" said Jemima; "but it isn't half the trouble they really are in." "You know I can't understand what you mean when you talk like that," said Booms. "Will you promise, if I tell you, to keep it a secret?" "Oh, of course. I hate secrets, but go on." "Oh, Mr Booms, Mr Reginald is in prison at Liverpool, on a charge--a false charge, I'm certain--of fraud. Isn't it dreadful? And Mr Horace ought to know of it. Could you break it to him?" "How can I keep it a secret and break it to him?" said Mr Booms, in a pained tone. "Oh yes, I'll try, if you like." "Oh, thank you. Do it very gently, and be sure not to let my mother, or his, or anybody else hear of it, won't you?" "I'll try. Of course every one will put all the blame on me if it does spread." "No, I won't. Do it first thing to-morrow, won't you, Mr Booms?" "Oh yes"; and then, as if determined to be in time for the interview, he added, "I'd better go now." And he departed very like a man walking to the gallows. Shuckleford returned at midnight, and found the supper waiting for him, but, to his relief, neither of the ladies. He wrote the following short note before he partook of his evening meal:-- "Dear D.,--Come round first thing in the morning. The police have dished us for once, but we'll be quits with them if we put our heads together. Be sure and come. Yours, S. S." After having posted this eloquent epistle with his own hand at the pillar-box he returned to his supper, and then went, somewhat dejected, to bed. CHAPTER TWENTY ONE. REGINALD FINDS HIMSELF "DISMISSED WITH A CAUTION." There is a famous saying of a famous modern poet which runs-- "Sudden the worst turns the best to the brave." And so it was with Reginald Cruden when finally the whole bitter truth of his position broke in upon his mind. If the first sudden shock drove him into the dungeon of Giant Despair, a night's quiet reflection, and the consciousness of innocence within, helped him to shake off the fetters, and emerge bravely and serenely from the crisis. He knew he had nothing to be proud of--nothing to excuse his own folly and shortsightedness--nothing to flatter his self-esteem; but no one could accuse him of dishonour, or point the finger of shame in his way. So he rose next morning armed for the worst. What that would be he could not say, but whatever it was he would face it, confident in his own integrity and the might of right to clear him. He endeavoured, in a few words, to explain the position of affairs to Love, who was characteristically quick at grasping it, and suggesting a remedy. "That there Medlock's got to be served, and no error!" he said. "I'll murder 'im!" "Nonsense!" said Reginald; "you can't make things right by doing wrong yourself. And you know you wouldn't do such a thing." "Do I know? Tell you I would, gov'nor! I'd serve him just like that there 'Pollyon in the book. Or else I'd put rat p'ison in his beer, and--my! wouldn't it be a game to see the tet'nus a-comin' on 'im, and--" "Be quiet," said Reginald; "I won't allow you to talk like that. It's as bad as the _Tim Tigerskin_ days, Love, and we've both done with them." "You're right there!" said the boy, pulling his _Pilgrim's Progress_ from his pocket. "My! don't I wish I had the feller to myself in the Slough o' Despond! Wouldn't I 'old 'is 'ead under! Oh no, not me! None o' yer Mr 'Elpses to give 'im a leg out, if I knows it!" "Perhaps he'll get punished enough without us," said Reginald. "It wouldn't do us any good to see him suffering." "Wouldn't it, though? Would me, I can tell yer!" said the uncompromising Love. It was evidently hopeless to attempt to divert his young champion's mind into channels of mercy. Reginald therefore, for lack of anything else to do, suggested to him to go on with the reading aloud, a command the boy obeyed with alacrity, starting of his own accord at the beginning of the book. So the two sat there, and followed their pilgrim through the perils and triumphs of his way, each acknowledging in his heart the spell of the wonderful story, and feeling himself a braver man for every step he took along with the valiant Christian. The morning went by and noon had come, and still the boy read on, until heavy footsteps on the stairs below startled them both, and sent a quick flush into Reginald's cheeks. It needed no divination to guess what it meant, and it was almost with a sigh of relief that he saw the door open and a policeman enter. He rose to his feet and drew himself up as the man approached. "Is your name Cruden Reginald?" said the officer. "No; it's Reginald Cruden." "You call yourself Cruden Reginald?" "I have done so; yes." "Then I must trouble you to come along with me, young gentleman." "Very well," said Reginald, quietly. "What am I charged with?" "Conspiracy to defraud, that's what's on the warrant. Are you ready now?" "Yes, quite ready. Where are you going to take me?" "Well, we shall have to look in at the station on our way, and then go on to the police-court. Won't take long. Bound to remand you, you know, for a week or something like that, and then you'll get committed, and the assizes are on directly after the new year, so three weeks from now will see it all over." The man talked in a pleasant, civil way, in a tone as if he quite supposed Reginald might be pleased to hear the programme arranged on his behalf. "We'd better go," said Reginald, moving towards the door. His face was very white and determined. But there was a tell-tale quiver in his tightly-pressed lips which told that he needed all his courage to help him through the ordeal before him. Till this moment the thought of having to walk through Liverpool in custody had not entered into his calculations, and he recoiled from it with a shiver. "I needn't trouble you with these," said the policeman, taking a pair of handcuffs from his pocket; "not yet, anyhow." "Oh no. I'll come quite quietly." "All right. I've my mate below. You can walk between. Hulloa!" This last exclamation was addressed to Master Love, who, having witnessed thus much of the interview in a state of stupefied bewilderment, now recovered his presence of mind sufficiently to make a furious dash at the burly policeman. "Do you hear? Let him be; let my governor go. He ain't done nothink to you or nobody. It's me, I tell yer. I've murdered dozens, do you 'ear? and robbed the till, and set the Manshing 'Ouse o' fire, do you 'ear? You let 'im go. It's me done it!" And he accompanied the protest with such a furious kick at the policeman's leg that that functionary grew very red in the face, and making a grab at the offender, seized him by the collar. "Don't hurt him, please," said Reginald. "He doesn't mean any harm." "Tell you it's me," cried the boy, trembling in the grasp of the law, "me and that there Medlock. My gov'nor ain't done it." "Hush, be quiet, Love," said Reginald. "It'll do no good to make a noise. It can't be helped. Good-bye." The boy fairly broke down, and began to blubber piteously. Reginald, unmanned enough as it was, had not the heart to wait longer, and walked hurriedly to the door, followed by the policeman. This movement once more raised the faithful Love to a final effort. "Let 'im go, do you 'ear?" shouted he, rushing down the stairs after them. "I'll do for yer if you don't. Oh, guv'nor, take me too, can't yer?" But Reginald could only steel his heart for once, and feign not to hear the appeal. The other policeman was waiting outside, and between his two custodians he walked, sick at heart, and faltering in courage, longing only to get out of the reach of the curious, critical eyes that turned on him from every side, and beyond the sound of that pitiful whimper of the faithful little friend as it followed him step by step to the very door of the police-station. At the station Mr Sniff awaited the party with a pleasant smile of welcome. "That's right," said he to Reginald, encouragingly; "much better to come quietly, looks better. Look here, young fellow," he added, rather more confidentially, "the first question you'll be asked is whether you're guilty or not. Take my advice, and make a clean breast of it." "I shall say not guilty, which will be the truth." Mr Sniff, as the reader has been told, had already come to the same conclusion. Still, it being the rule of his profession always to assume a man to be guilty till he can prove himself innocent, he felt it was no business of his to assist the magistrate in coming to the decision by stating what he _thought_. All he had to do was to state what he _knew_, and meanwhile, if the prisoner choose to simplify matters by pleading guilty, well, why shouldn't he? "Please yourself about that. Have you made your entries, Jones? The van will be here directly. See you later on," added he, nodding to Reginald. Reginald waited there for the van like a man in a dream. People came in and out, spoke, laughed, looked about them, even mentioned his name. But they all seemed part of some curious pageant, of which he himself formed not the least unreal portion. His mind wandered off on a hundred little insignificant topics. Snatches of the _Pilgrim's Progress_ came into his mind, half-forgotten airs of music crossed his memory, the vision of young Gedge as he last saw him fleeted before his eyes. He tried in vain to collect his thoughts, but they were hopelessly astray, leaving him for the time barely conscious, and wholly uninterested in what was taking place around him. The van came at last, a vehicle he had often eyed curiously as it rumbled past him in the streets. Little had he ever dreamed of riding one day inside it. The usual knot of loungers waited at the door of the police-court to see the van disgorge its freight. Sometimes they had been rewarded for their patience by the glimpse of a real murderer, or wife-kicker, or burglar, and sometimes they had had their bit of fun over a "tough customer," who, if he must travel at her Majesty's expense, was determined to travel all the way, and insisted on being carried by the arms and legs across the pavement into the tribunal of justice. There was no such fun to be got out of Reginald as he stepped hurriedly from the van, and with downcast eyes entered by the prisoners' door into the court-house. A case was already in progress, and he had to wait in a dimly-lit underground lobby for his summons. The constable who had arrested him was still beside him, and other groups, mostly of police, filled up the place. But he heeded none, longing--oh! how intensely--to hear his name called and to know the worst. Presently there was a bustle near the door, and he knew the case upstairs was at an end. "Six months," some one said. Some one else whistled softly. "Whew--old Fogey's in one of his tantrums, then. He'd have only got three at Dark Street." Then some one called the name "Reginald," and the policeman near him said "Coming." Then, turning to the prisoner, he said,-- "Fogey's on the bench to-day, and he's particular. Look alive." Reginald found himself being hurried to the door through a lane of officials and others towards the stairs. "Your turn next, Grinder," he heard some one say as he passed. "Ten- minutes will do this case." To Reginald the stairs seemed interminable. There was a hum of voices above, and a shuffling of feet as of people taking a momentary relaxation in the interval of some performance. Then a loud voice cried, "Silence--order in the court, sit down, gentlemen," and there fell an unearthly stillness on the place. "To the right," said the policeman, coming beside him, and taking his arm as if to direct him. He was conscious of a score of curious faces turned on him, of some one on the bench folding up a newspaper and adjusting his glasses, of a man at a table throwing aside a quill pen and taking another, of a click of a latch closing behind him, of a row of spikes in front of him. Then he found himself alone. What followed he scarcely could tell. He was vaguely aware of some one with Mr Sniff's voice making a statement in which his (Reginald's) own name occurred, another voice from the bench breaking in every now and then, and yet another voice from the table talking too, accompanied by the squeaking of a pen across paper. Then the constable who had arrested him said something, and after the constable some one else. Then followed a dialogue in undertone between the bench and the table, and once more Mr Sniff's voice, and at last the voice from the bench, a gruff, unsympathetic voice, said,-- "Now, sir, what have you got to say for yourself?" The question roused him. It was intended for him, and he awoke to the consciousness that, after all, he had some interest in what was going on. He raised his head and said,-- "I'm not guilty." "You reserve your defence, then?" "Tell him yes," said the policeman. "Yes, sir." "Very well, then. I shall remand you for three days. Bring him up again on Friday." And the magistrate took up his newspaper, the clerk at the table laying down his pen; the bustle and shuffling of feet filled the room, and in another moment Reginald was down the staircase, and the voice he had heard before called,-- "Remand three days. Now then, Grinder, up you go--" In all his conjectures as to what might befall him, the possibility of being actually sent to prison had never entered Reginald's head. That he would be suspected, arrested, taken to the police-station, and finally brought before a magistrate, he had foreseen. That was bad enough, but he had steeled his resolution to the pitch of going through with it, sure that the clearing of his character would follow any inquiry into the case. But to be lodged for three days as a common felon in a police cell was a fate he had not once realised, and which, when its full meaning broke upon him, crushed the spirit out of him. He made no resistance, no protest, no complaint as they hustled him back into the van, and from the van to the cell which was to be his dreary lodging for those three days. He felt degraded, dishonoured, disgraced, and as he sat hour after hour brooding over his lot, his mind, already overwrought, lost its courage and let go its hope. Suppose he really had done something to be ashamed of? Suppose he had all along had his vague suspicions of the honesty of the Corporation, and yet had continued to serve them? Suppose, with the best of intentions, he had shut his eyes wilfully to what he might and must have seen? Suppose, in fact, his negligence had been criminal? How was he ever to hold up his head again and face the world like an honest man, and say he had defrauded no man? And then there came up in terrible array that long list of customers to the Corporation whom he had lured and enticed by promises he had never taken the trouble to inquire into to part with their money. And the burden of their loss lay like an incubus on his spirit, till he actually persuaded himself he was guilty. I need not sadden the reader with dwelling on the misery of those three days. Any one almost could have endured them better than Reginald. He began a letter to Horace, but he tore it up when half-written. He drew up a statement of his own defence, but when fact after fact appeared in array on the paper it seemed more like an indictment than a defence, and he tore it up too. At length the weary suspense was over, and once more he found himself in the outer air, stepping with almost familiar tread across the pavement into the van, and taking his place among the waiters in the dim lobby at the foot of the police-court stairs. When at last he stood once more in the dock none of his former bewilderment remained to befriend him. It was all too real this time. When some one spoke of the "prisoner" he knew it meant himself, and when they spoke of fraud he knew they referred to something he had done. Oh, that he could see it all in a dream once more, and wake up to find himself on the other side! "Now, Mr Sniff, you've got something to say?" said the magistrate. "Yes, your worship," replied Mr Sniff, not moving to the witness-box, but speaking from his seat. "We don't propose to continue this case." "What? It's a clear case, isn't it?" said the magistrate, with the air of a man who is being trifled with. "No, your worship. There's not evidence enough to ask you to send the prisoner to trial." "Then I'd better sentence him myself." "I think not, your worship. Our evidence only went to show that the prisoner was in the employment of the men who started the company. But we have no evidence that he was aware that the concern was fraudulent, and as he does not appear to have appropriated any of the money, we advise dismissing the case. The real offenders are in custody, and have practically admitted their guilt." The magistrate looked very ill-tempered and offended. He did not like being told what he was told, especially by the police, and he had a righteous horror of cases being withdrawn from his authority. He held a snappish consultation with his clerk, which by no means tended to pacify him, for that functionary whispered his opinion that as the case had been withdrawn there was nothing for it but for his worship to dismiss the case. Somebody, at any rate, should smart for his injured feelings, and as he did not know law enough to abuse Mr Sniff, and had not pretext sufficient to abuse his clerk, he gathered himself for a castigation of the prisoner, which should not only serve as a caution to that youth for his future guidance, but should also relieve his own magisterial mind. "Now, prisoner," began he, setting his spectacles and leaning forward in his seat, "you've heard what the officer has said. You may consider yourself fortunate--very fortunate--there is not enough evidence to convict you. Don't flatter yourself that a breakdown in the prosecution clears your character. In the eyes of the law you may be clear, but morally, let me tell you, you are far from being so. It's affectation to tell me you could live for three months the centre of a system of fraud and yet have your hands clean. You must make good your account between your own conscience and the hundreds of helpless, unfortunate poor men and women you have been the means of depriving of their hard- earned money. You have already been kept in prison for three days. Let me hope that will be a warning to you not to meddle in future with fraud, if you wish to pass as an honest man. If you touch pitch, sir, you must expect to be denied. Return to paths of honesty, young man, and seek to recover the character you have forfeited, and bear in mind the warning you have had, if you wish to avoid a more serious stain in the future. The case is dismissed." With which elegant peroration the magistrate, much relieved in his own mind, took up his newspaper, and Reginald was hurried once more down those steep stairs a free man. "Slice of luck for you, young shaver!" said the friendly policeman, slipping off the handcuffs. "Regular one of Sniff's little games!" said another standing near; "he always lets his little fish go when he's landed his big ones! To my mind it's a risky business. Never mind." "You can go when you like now," said the policeman to Reginald; "and whenever we come across a shilling for a drink we'll drink your health, my lad." Reginald saw the hint, and handed the policeman one of his last shillings. Then, buttoning his coat against the cold winter wind, he walked out, a free man, into the street. CHAPTER TWENTY TWO. THE DARKEST HOUR BEFORE THE DAWN. If the worshipful magistrate flattered himself that the reprimand he had addressed to Reginald that afternoon would move his hearer to self- abasement or penitence, he had sadly miscalculated the power of his own language. Every word of that "caution" had entered like iron into the boy's soul, and had roused in him every evil passion of which his nature was capable. A single word of sympathy or kindly advice might have won him heart and soul. But those stinging, brutal sentences goaded him almost to madness, and left him desperate. What was the use of honesty, of principle, of conscientiousness, if they were all with one accord to rise against him and degrade him? What was the use of trying to be better than others when the result was an infamy which, had he been a little more greedy or a little less upright, he might have avoided? What was the use of conscious innocence and unstained honour, when they could not save him from a sense of shame of which no convicted felon could know the bitterness? It would go out to all the world that Reginald Cruden, the suspected swindler, had been "let off" for lack of evidence after three days' imprisonment. The victims of the Corporation would read it, and regret the failure of justice to overtake the man who had robbed them. His father's old county friends would read it, and shake their heads over poor Cruden's prodigal. The Wilderham fellows would read it, and set him down as one more who had gone to the bad. Young Gedge would read it, and scorn him for a hypocrite and a humbug. Durfy would read it, and chuckle. His mother and Horace would read it. Yes, and what would they think? Nothing he could say would convince them or anybody. They might forgive him, but-- The thought made his blood boil within him. He would take forgiveness from no man or woman. If they chose to believe him guilty, let them; but let them keep their forgiveness to themselves. Rather let them give the dog a bad name and hang him. He did not care! Would that they could! Such was the rush of thought that passed through his mind as he stood that bleak winter afternoon in the street, a free man. Free! he laughed at the word, and envied the burglar with his six months. What spirit of malignity had hindered Mr Sniff from letting him lose himself in a felon's cell rather than turn him out "free" into a world every creature of which was an enemy? Are you disgusted with him, reader? With his poor spirit, his weak purpose, his blind folly? Do you say that you, in his shoes, would have done better? that you would never have lost courage? that you would have held up your head still, and braved the storm? Alas, alas, that the Reginalds are so many and the heroes of your sort so few! Alas for the sensitive natures whom injustice can crush and make cowards of! You are not sensitive, thank God, and you do not know what crushing is. Pray that you never may; but till you have felt it deal leniently with poor Reginald, as he goes recklessly out into the winter gloom without a friend--not even himself. It mattered little to him where he went or what became of him. It made no odds how and when he should spend his last shilling. He was hungry now. Since early that morning nothing had passed his lips. Why not spend it now and have done with it? So he turned into a coffee-shop, and ordered coffee and a plate of beef. "My last meal," said he to himself, with a bitter smile. His appetite failed him when the food appeared, but he ate and drank out of sheer bravado. His enemies--Durfy, and the magistrate, and the victims of the Corporation--would rejoice to see him turn with a shudder from his food. He would devour it to spite them. "How much?" said he, when it was done. "Ninepence, please," said the rosy-cheeked girl who waited. Reginald tossed her the shilling. "Keep the change for yourself," said he, and walked out of the shop. He was free now with a vengeance! He might do what he liked, go where he liked, starve where he liked. He wandered up and down the streets that winter evening recklessly indifferent to what became of him. The shops were gaily lighted and adorned with Christmas decorations. Boys and girls, men and women, thronged them, eager in their purchases and radiant in the prospect of the coming festival. There went a grave father, parading the pavement with a football under his arm for the boy at home; and here a lad, with his mother's arm in his, stood halted before an array of fur cloaks, and bade her choose the best among them. Bright-eyed school-girls brushed past him with their brothers, smiling and talking in holiday glee; and here a trio of school-chums, arm-in-arm, bore down upon him, laughing over some last-term joke. He watched them all. Times were when his heart would warm and soften within him at the memories sights like these inspired; but they were nothing to him now; or if they were anything, they were part of a universal conspiracy to mock him. Let them mock him; what cared he? The night drew on. One by one the gay lights in the shops went out, and the shutters hid the crowded windows. One by one the passengers dispersed, some to besiege the railway-stations, some to invade the trams, others to walk in cheery parties by the frosty roads; all to go home. Even the weary shopmen and shop-girls, released from the day's labours, hurried past him homeward, and the sleepy cabman whipped up his horse for his last fare before going home, and the tramps and beggars vanished down their alleys, and sought every man his home. Home! The word had no meaning to-night for Reginald as he watched the streets empty, and found himself a solitary wayfarer in the deserted thoroughfares. The hum of traffic ceased. One by one the bedroom lights went out, the clocks chimed midnight clearly in the frosty air, and still he wandered on. He passed a newspaper-office, where the thunder of machinery and the glare of the case-room reminded him of his own bitter apprenticeship at the _Rocket_. They might find him a job here if he applied. Faugh! who would take a gaol-bird, a "let-off" swindler, into their employ? He strolled down to the docks. The great river lay asleep. The docks were, deserted; the dockyards silent. Only here and there a darting light, or the distant throb of an engine, broke the slumber of the scene. A man came up to him as he stood on the jetty. "Now then, sheer off; do you hear?" he said. "What do you want here?" "Mayn't I watch the river?" said Reginald. "Not here. We've had enough of your sort watching the river. Off you go," and he laid his hand on the boy's collar and marched him off the pier. Of course! Who had not had enough of his sort? Who would not suspect him wherever he went? Cain went about with a mark on his forehead for every one to know him by. In what respect was he better off, when men seemed to know by instinct and in the dark that he was a character to mistrust and suspect? The hours wore on. Even the printing-office when he passed it again was going to rest. The compositors one by one were flitting home, and the engine was dropping asleep. He stood and watched the men come out, and wondered if any of them were like himself--whether among them was a young Gedge or a Durfy? Then he wandered off back into the heart of the town. A wretched outcast woman, with a child in her arms, stood at the street corner and accosted him. "Do, kind gentleman, give me a penny. The child's starving, and we're so cold and hungry." "I'd give you one if I had one," said Reginald; "but I'm as poor as you are." The woman sighed, and drew her rags round the infant. Reginald watched her for a moment, and then, taking off his overcoat, said,-- "You'd better put this round you." And he dropped it at her feet, and hurried away before she could pick up the gift, or bless the giver. He gave himself no credit for the deed, and he wanted none. What did he care about a coat? he who had been frozen to the heart already. Would a coat revive his good name, or cover the disgrace of that magisterial caution? The clocks struck four, and the long winter night grew bleaker and darker. It was eleven hours since he had taken that last defiant meal, and Nature began slowly to assert her own with the poor outcast. He was faint and tired out, and the breeze cut him through. Still the rebel spirit within him denied that he was in distress. No food or rest or shelter for him! All he craved was leave to lose himself and forget his own name. Is it any use bidding him, as we bade him once before, turn round and face the evil genius that is pursuing him? or is there nothing for him now but to run? He has run all night, but he is no farther ahead than when he stood at the police-court door. On the contrary, it is running him down fast, and as he staggers forward into the darkest hour of that cruel night, it treads on his heels and begins to drag him back. Is there no home? no voice of a friend? no helping hand to save him from that worst of all enemies--his evil self? It was nearly five o'clock when, without knowing how he got there, he found himself on the familiar ground of Shy Street. In the dim lamplight he scarcely recognised it at first, but when he did it seemed like a final stroke of irony to bring him there, at such a time, in such a mood. What else could it be meant for but to remind him there was no escape, no hope of losing himself, no chance of forgetting? That gaunt, empty window of Number 13, with the reflected glare of the lamp opposite upon it, seemed to leer down on him like a mocking ghost, claiming him as its own. What was the use of keeping up the struggle any longer? After all, was there not one way of escape? What was it crouching at the door of Number 13, half hidden in the shade? A dog? a woman? a child? He stood still a moment, with beating heart, straining his eyes through the gloom. Then he crossed. As he did so the figure sprang to its feet and rushed to meet him. "I knowed it, gov'nor; I knowed you was a-comin'," cried a familiar boy's voice. "It's all right now. It's all right, gov'nor!" Never did sweeter music fall on mortal ears than these broken, breathless words on the spirit of Reginald. It was the voice he had been waiting for to save him in his extremity--the voice of love to remind him he was not forsaken; the voice of trust to remind him some one believed in him still; the voice of hope to remind him all was not lost yet. It called him back to himself; it thawed the chill at his heart, and sent new life into his soul. It was like a key to liberate him from the dungeon of Giant Despair. "Why, Love, is that you, my boy?" he cried, seizing the lad's hand. "It is so, gov'nor," whimpered the boy, trembling with excitement, and clinging to his protector's hand. "I knowed you was a-comin', but I was a'most feared I wouldn't see you too." "What made you think I would come?" said Reginald, looking down with tears in his eyes on the poor wizened upturned face. "I knowed you was a-comin'," repeated the boy, as if he could not say it too often; "and I waited and waited, and there you are. It's all right, gov'nor." "It _is_ all right, old fellow," said Reginald. "You don't know what you've saved me from." "Go on," said the boy, recovering his composure in the great content of his discovery. "I ain't saved you from nothink. Leastways unless you was a-goin' to commit soosanside. If you was, you was a flat to come this way. That there railway-cutting's where I'd go, and then at the inkwidge they don't know if you did it a-purpose or was topped over by the train, and they gives you the benefit of the doubt, and says, `Found dead.'" "We won't talk about it," said Reginald, smiling, the first smile that had crossed his lips for a week. "Do you know, young 'un, I'm hungry; are you?" "Got any browns?" said Love. "Not a farthing." "More ain't I, but I'll--" He paused, and a shade of doubt crossed his face as he went on. "Say, gov'nor, think they'd give us a brown for this 'ere _Robinson_?" And he pulled out his _Robinson Crusoe_ bravely and held it up. "I'm afraid not. It only cost threepence." Another inward debate took place; then drawing out his beloved _Pilgrim's Progress_, he put the two books together, and said,-- "Suppose they'd give us one for them two?" "Don't let's part with them if we can help," said Reginald. "Suppose we try to earn something?" The boy said nothing, but trudged on beside his protector till they emerged from Shy Street and stood in one of the broad empty main streets of the city. Here Reginald, worn out with hunger and fatigue, and borne up no longer by the energy of desperation, sank half fainting into a doorstep. "I'm--so tired," he said; "let's rest a bit. I'll be all right--in a minute." Love looked at him anxiously for a moment, and then saying, "Stay you there, gov'nor, till I come back," started off to run. How long Reginald remained half-unconscious where the boy left him he could not exactly tell; but when he came to himself an early streak of dawn was lighting the sky, and Love was kneeling beside him. "It's all right, gov'nor," said he, holding up a can of hot coffee and a slice of bread in his hands. "Chuck these here inside yer; do you 'ear?" Reginald put his lips eagerly to the can. It was nearly sixteen hours since he had touched food. He drained it half empty; then stopping suddenly, he said,-- "Have you had any yourself?" "Me? In corse! Do you suppose I ain't 'ad a pull at it?" "You haven't," said Reginald, eyeing him sharply, and detecting the well-meant fraud in his looks. "Unless you take what's left there, I'll throw it all into the road." In vain Love protested, vowed he loathed coffee, that it made him sick, that he preferred prussic acid; Reginald was inexorable, and the boy was obliged to submit. In like manner, no wile or device could save him from having to share the slice of bread; nor, when he did put it to his lips, could any grimace or protest hide the almost ravenous eagerness with which at last he devoured it. "Now you wait till I take back the can," said Love. "I'll not be a minute," and he darted off, leaving Reginald strengthened in mind and body by the frugal repast. It was not till the boy returned that he noticed he wore no coat. "What have you done with it?" he demanded sternly. "Me? What are you talking about?" said the boy, looking guiltily uneasy. "Don't deceive me!" said Reginald. "Where's your coat?" "What do I want with coats? Do you--" "Have you sold it for our breakfast?" "Go on! Do you think--" "Have you?" repeated Reginald, this time almost angrily. "Maybe I 'ave," said the boy; "ain't I got a right to?" "No, you haven't; and you'll have to wear mine now." And he proceeded to take it off, when the boy said,-- "All right. If you take that off, gov'nor, I slides--I mean it--so I do." There was a look of such wild determination in his pinched face that Reginald gave up the struggle for the present. "We'll share it between us, at any rate," said he. "Whatever induced you to do such a foolish thing, Love?" "Bless you, I ain't got no sense," replied the boy cheerily. Day broke at last, and Liverpool once more became alive with bustle and traffic. No one noticed the two shivering boys as they wended their way through the streets, trying here and there, but in vain, for work, and wondering where and when they should find their next meal. But for Reginald that walk, faint and footsore as he was, was a pleasure-trip compared with the night's wanderings. Towards afternoon Love had the rare good fortune to see a gentleman drop a purse on the pavement. There was no chance of appropriating it, had he been so minded, which, to do him justice, he was not, for the purse fell in a most public manner in the sight of several onlookers. But Love was the first to reach it and hand it back to its owner. Now Love's old story-books had told him that honesty of this sort is a very paying sort of business; and though he hardly expected the wonderful consequences to follow his own act which always befall the superfluously honest boys in the "penny dreadfuls," he was yet low- souled enough to linger sufficiently long in the neighbourhood of the owner of the purse to give him an opportunity of proving the truth of the story-book moral. Nor was he disappointed; for the good gentleman, happening to have no less than fifty pounds in gold and notes stored up in this particular purse, was magnanimous enough to award Love a shilling for his lucky piece of honesty, a result which made that young gentleman's countenance glow with a grin of the profoundest satisfaction. "My eye, gov'nor," said he, returning radiant with his treasure to Reginald, and thrusting it into his hand; "'ere, lay 'old. 'Ere's a slice o' luck. Somethink like that there daily bread you was a-tellin' me of t'other day. No fear, I ain't forgot it. Now, I say sassages. What do you say?" Reginald said "sausages" too; and the two friends, armed with their magic shilling, marched boldly into a cosy coffee-shop where there was a blazing fire and a snug corner, and called for sausages for two. And they never enjoyed such a meal in all their lives. How they did make those sausages last! And what life and comfort they got out of that fire, and what rest out of those cane-bottomed chairs! At the end of it all they had fourpence left, which, after serious consultation, it was decided to expend in a bed for the night. "If we can get a good sleep," said Reginald, "and pull ourselves together, we're bound to get a job of some sort to-morrow. Do you know any lodging-house?" "Me? don't I? That there time you jacked me up I was a night in a place down by the river. It ain't a dainty place, gov'nor, but it's on'y twopence a piece or threepence a couple on us, and that'll leave a brown for the morning." "All right. Let's go there soon, and get a long night." Love led the way through several low streets beside the wharves until he came to a court in which stood a tumble-down tenement with the legend "Lodgings" scrawled on a board above the door. Here they entered, and Love in a few words bargained with the sour landlady for a night's lodging. She protested at first at their coming so early, but finally yielded, on condition they would make the threepence into fourpence. They had nothing for it but to yield. "Up you go, then," said the woman, pointing to a rickety ladder which served the house for a staircase. "There's one there already. Never mind him; you take the next." Reginald turned almost sick as he entered the big, stifling, filthy loft which was to serve him for a night's lodging. About a dozen beds were ranged along the walls on either side, one of which, that in the far corner of the room, was, as the woman had said, occupied. The atmosphere of the place was awful already. What would it be when a dozen or possibly two dozen persons slept there? Reginald's first impulse was to retreat and rather spend another night in the streets than in such a place. But his weary limbs and aching bones forbade it. He must stay where he was now. Already Love was curled up and asleep on the bed next to that where the other lodger lay; and Reginald, stifling every feeling but his weariness, flung himself by his side and soon forgot both place and surroundings in a heavy sleep. Heavy but fitful. He had scarcely lain an hour when he found himself suddenly wide awake. Love still lay breathing heavily beside him. The other lodger turned restlessly from side to side, muttering to himself, and sometimes moaning like a person in pain. It must have been these latter sounds which awoke Reginald. He lay for some minutes listening and watching in the dim candle-light the restless tossing of the bed- clothes. Presently the sick man--for it was evident sickness was the cause of his uneasiness--lifted himself on his elbow with a groan, and said,-- "For God's sake--help me!" In a moment Reginald had sprung to his feet, and was beside the sufferer. "Are you ill," he said. "What is the matter?" But the man, instead of replying, groaned and fell heavily back on the bed. And as the dim light of the candle fell upon his upturned face, Reginald, with a cry of horror, recognised the features of Mr Durfy, already released by death from the agonies of smallpox. CHAPTER TWENTY THREE. LOST AND FOUND. Booms was not exactly the sort of man to be elated by the mission which Miss Shuckleford had thrust upon him. He passed a restless night in turning the matter over in his mind and wondering how he could break the news gently to his friend. For he was fond of Horace, and in his saturnine way felt deeply for him in his trouble. And on this account he wished Jemima had chosen any other confidant to discharge the unpleasant task. He hung about outside Mrs Cruden's house for an hour early that morning, in the hope of being able to entrap Miss Crisp and get her to take the duty off his hands. But Miss Crisp had been sitting up all night with the patient and did not appear. He knocked at the door and asked the servant-girl how Mrs Cruden was. She was a little better, but very weak and not able to speak to anybody. "Any news from Liverpool?" inquired Booms. This had become a daily question among those who inquired at Number 6, Dull Street. "No, no news," said the girl, with a guilty blush. She knew the reason why. Reginald's last letter, written just before his arrest, was at that moment in her pocket. "Has Mr Horace started to the office?" "No; he's a-going to wait and see the doctor, and he says I was to ask you to tell the gentleman so." "Can I see him?" "No; he's asleep just now," said the girl. So Booms had to go down alone to the _Rocket_, as far as ever from getting the burden of Jemima's secret off his mind. He had a good mind to pass it on to Waterford, and might have done so, had not that young gentleman been engaged all the morning on special duty, which kept him in Mr Granville's room. Booms grew more and more dispirited and nervous. Every footstep that came to the door made him tremble, for fear it should be the signal for the unhappy disclosure. He tried hard to persuade himself it would be kinder after all to say nothing about it. What good could it do now? Booms, as the reader knows, had not a very large mind. But what there was of it was honest, and it told him, try how he would, there was no getting out of a promise. So he busied himself with concocting imaginary phrases and letters, by way of experiment as to the neatest way of breaking his bad news. Still he dreaded his friend's arrival more and more; and when at last a brisk footstep halted at the door, he started and turned pale like a guilty thing, and wished Jemima at the bottom of the sea! But the footstep was not Horace's. Whoever the arrival was, he tapped at the door before entering, and then, without waiting for a reply, walked in. It was a youth of about seventeen or eighteen, with a bright honest face and cheery smile. "Is Horace Cruden here?" he inquired eagerly. "Oh no," said Booms, in his most doleful accents. "Isn't this where he works?" "It is indeed." "Well, then, is anything wrong? Is he ill?" "No. _He_ is not ill," said Booms, emphasising the pronoun. "Is Reginald ill, then, or their mother?" A ray of hope crossed Booms's mind. This stranger was evidently a friend of the family. He called the boys by their Christian names, and knew their mother. Would he take charge of the dismal secret? "His mother is ill," said he. "Do you know them?" "Rather. I was Horace's chum at Wilderham, you know, and used to spend my holidays regularly at Garden Vale. Is she very ill?" "Very," said Booms; "and the worst of it is, Reginald is not at home." "Where is he. Horrors told me he had gone to the country." Booms _would_ tell him. For the visitor called his friend Horrors, a pet name none but his own family were ever known to use. "They don't know where he is. But I do," said Booms, with a tragic gesture. "Where? where? What's wrong, I say? Tell me, there's a good fellow." "He's in prison," said Booms, throwing himself back in his chair, and panting with the effort the disclosure had cost him. "In prison! and Horace doesn't know it! What _do_ you mean? Tell me all you know." Booms did tell him, and very little it was. All he knew was from Jemima's secondhand report, and the magnitude of the news had quite prevented him from inquiring as to particulars. "When did you hear this?" said Harker; for the reader will have guessed by this time that the visitor was no other than Horace's old Wilderham ally. "Yesterday." "And he doesn't know yet?" "How could I tell him? Of course I'm to get all the blame. I expected it." "Who's blaming you?" said Harker, whom the news had suddenly brought on terms of familiarity with his friend's friend. "When will he be here?" "Very soon, I suppose." "And then you'll tell him?" "You will, please," said Booms, quite eagerly for him. "Somebody must, poor fellow!" said Harker. "We don't know what we may be losing by the delay." "Of course it's my fault for not waking him up in the middle of the night and telling him," said Booms dismally. "Is there anything about it in the papers?" said Harker, taking up a _Times_. "I've seen nothing." "You say it was a day or two ago. Have you got the _Times_ for the last few days?" "Yes; it's there." Harker hastily turned over the file, and eagerly searched the police and country intelligence. In a minute or two he looked up and said,-- "Had Cruden senior changed his name?" "How _do_ I know?" said Booms, with a bewildered look. "I mean, had he dropped his surname? Look here." And he showed Booms the paragraph which appeared in the London papers the morning after Reginald's arrest. "That looks very much as if it was meant for Cruden," said Harker--"all except the name. If it is, that was Tuesday he was remanded, and to-day is the day he is to be brought up again. Oh, why didn't we know this before?" "Yes. I knew I was to blame. I knew it all along," said Booms, taking every expression of regret as a personal castigation. "It will be all over before any one can do a thing," said Harker, getting up and pacing the room in his agitation. "Why _doesn't_ Horace come?" As if in answer to the appeal, Horace at that moment opened the door. "Why, Harker, old man!" he exclaimed with delight in his face and voice as he sprang towards his friend. "Horrors, my poor dear boy," said Harker, "don't be glad to see me. I've bad news, and there's no time to break it gently. It's about Reginald. He's in trouble--in prison. I'll come with you to Liverpool this morning; there is a train in twenty minutes." Horace said nothing. He turned deadly pale and gazed for a moment half scared, half appealing, at his friend. Booms remembered something he had to do in another room, and went to the door. "Do you mind getting a hansom?" said Harker. The words roused Horace from his stupor. "Mother," he gasped, "she's ill." "We shall be home again to-night most likely," said Harker. "I must tell Granville," said Horace. "Your chief. Well, be quick, the cab will be here directly." Horace went to the inner room and in a minute returned, his face still white but with a burning spot on either cheek. "All right?" inquired Harker. Horace nodded, and followed him to the door. In a quarter of an hour they were at Euston in the booking office. "I have no money," said Horace. "I have, plenty for us both. Go and get some papers, especially Liverpool ones, at the book-stall while I get the tickets." It was a long memorable journey. The papers were soon exhausted. They contained little or no additional news respecting the obscure suspect in Liverpool, and beyond that they had no interest for either traveller. "We shall get down at three," said Harker; "there's a chance of being in time." "In time for what? what can we do?" "Try and get another remand, if only for a couple of days. I can't believe it of Reg. There must be some mistake." "Of course there must," said Horace, with a touch of scorn in his voice, "but how are we to prove it?" "It's no use trying just now. All we can do is to get a remand." The train seemed to drag forward with cruel slowness, and the precious moments sped by with no less cruel haste. It was five minutes past three when they found themselves on the platform of Liverpool station. "It's touch and go if we're in time, old boy," said Harker, as they took their seats in a hansom and ordered the man to drive hard for the police-court; "but you mustn't give up hope even if we're late. We'll pull poor old Reg through somehow." His cheery words and the brotherly grip on his arm were like life and hope to Horace. "Oh, yes," he replied. "What would I have done if you hadn't turned up like an angel of help, Harker, old man?" As they neared the police-court the cabman pulled up to allow a police van to turn in the road. The two friends shuddered. It was like an evil omen to daunt them. Was _he_ in that van--so near them, yet so hopelessly beyond their reach? "For goodness' sake drive on!" shouted Harker to the cabman. It seemed ages before the lumbering obstruction had completed its revolution and drawn to one side sufficiently to allow them to pass. In another minute the cab dashed to the door of the court. It was open, and the knot of idlers on the pavement showed them that some case of interest was at that moment going on. They made their way to the policeman who stood on duty. "Court's full--stand back, please. Can't go in," said that official. "What case is it?" "Stand back, please--can't go in," repeated the stolid functionary. "Please tell us--" "Stand back there!" once more shouted the sentinel, growing rather more peremptory. It was clearly no use mincing matters. At this very moment Reginald might be standing defenceless within, with his last chance of liberty slipping from under his feet. Harker drew a shilling from his pocket and slipped it into the hand of the law. "Tell us the name of the case, there's a good fellow," said he coaxingly. "Bilcher--wife murder. Stand back, please--court's full." Bilcher! Wife murder! It was for this the crowd had gathered, it was for the result of this that that knot of idlers were waiting so patiently outside. Bilcher was the hero of this day's gathering. Who was likely to care a rush about such a lesser light as a secretary charged with a commonplace fraud. "Has the case of Cruden come on yet?" asked Horace anxiously. The policeman answered him with a vacant stare. "No," said Harker, "the name would be Reginald, you know. I say," added he to the policeman, "when does Reginald's case come on?" "Stand back there--Reginald--he was the last but one before this--don't crowd, please." "We're too late, then. What was--what did he get?" Now the policeman considered he had answered quite enough for his shilling. If he went on, people would think he was an easy fish to catch. So he affected deafness, and looking straight past his eager questioners again repeated his stentorian request to the public generally. "Oh, pray tell us what he got," said Harker, in tones of genuine entreaty; "this is his brother, and we've only just heard of it." The policeman for a moment turned a curious eye on Horace, as if to convince himself of the truth of the story. Then, apparently satisfied, and weary of the whole business, he said,-- "Let off. _Will you_ keep back, please? Stand back. Court's full." Let off. Horace's heart gave a bound of triumph as he heard the words. Of course he was! Who could even suspect him of such a thing as fraud? Unjustly accused he might be, but Reg's character was proof against that any day. Harker shared his friend's feelings of relief and thankfulness at the good news, but his face was still not without anxiety. "We had better try to find him," said he. "Oh, of course. He'll probably be back at Shy Street." But no one was at Shy Street. The dingy office was deserted and locked, and a little street urchin on the doorstep glowered at them as they peered up the staircase and read the name on the plate. "Had we better ask in the shop? they may know," said Horace. But the chemist looked black when Reginald's name was mentioned, and hoped he should never see him again. He'd got into trouble and loss enough with him as it was--a hypocritical young-- "Look here," said Horace, "you're speaking of my brother, and you'd better be careful. He's no more a hypocrite than you. He's an honest man, and he's been acquitted of the charge brought against him." "I didn't know you were his brother," said the chemist, rather sheepishly, "but for all that I don't want to see him again, and I don't expect I shall either. He won't come near here in a hurry, unless I'm mistaken." "The fellow's right, I'm afraid," said Harker, as they left the shop. "He's had enough of this place, from what you tell me. It strikes me the best thing is to go and inquire at the police-station. They may know something there." To the police-station accordingly they went, and chanced to light on one no less important than Mr Sniff himself. "We are interested in Reginald Cruden, who was before the magistrate to- day," said Harker. "In fact, this is his brother, and I am an old schoolfellow. We hear the charge against him was dismissed, and we should be much obliged if you could tell us where to find him." Mr Sniff regarded the two boys with interest, and not without a slight trace of uneasiness. He had never really suspected Reginald, but it had appeared necessary to arrest him on suspicion, not only to satisfy the victims of the Corporation, but on the off chance of his knowing rather more than he seemed to know about the doings of that virtuous association. It had been a relief to Mr Sniff to find his first impressions as to the lad's innocence confirmed, and to be able to withdraw the charge against him. But the manner in which the magistrate had dismissed the case had roused even his phlegmatic mind to indignation, and had set his conscience troubling him a little as to his own conduct of the affair. This was why he now felt and looked not quite happy in the presence of Reginald's brother and friend. "Afraid I can't tell you," said he. "He left the court as soon as the case was over, and of course we've no more to do with him." "He is not back at his old office," said Horace, "and I don't know of any other place in Liverpool he would be likely to go to." "It struck me, from the looks of him," said Mr Sniff, quite despising himself for being so unprofessionally communicative--"it struck me he didn't very much care where he went. Very down in the mouth he was." "Why, but he was acquitted; his character was cleared. Whatever should he be down in the mouth about?" said Horace. Mr Sniff smiled pityingly. "He was let off with a caution," he said; "that's rather a different thing from having your character cleared, especially when our friend Fogey's on the bench. I was sorry for the lad, so I was." This was a great deal to come from the lips of a cast-iron individual like Mr Sniff, and it explained the state of the case forcibly enough to his two hearers. Horace knew his brother's nature well enough to imagine the effect upon him of such a reprimand, and his spirits sank within him. "Who can tell us now where we are to look for him?" said he to Harker. "Anything like injustice drives him desperate. He may have gone off, as the detective says, not caring where. And then Liverpool is a fearfully big place." "We won't give it up till we have found him," said Harker; "and if you can't stay, old man, I will." "I can't go," said Horace, with a groan. "Poor Reg!" "Well, let us call round at the post-office and see if Waterford has remembered to telegraph about your mother." They went to the post-office and found a telegram from Miss Crisp: "Good day. Better, decidedly. Knows you are in Liverpool, but nothing more. Any news? Do not telegraph unless all right." "It's pretty evident," said Horace, handing the message to his friend, "we can't telegraph to-day. I'll write to Waterford and get him to tell the others. But what is the next thing to be done?" "We can only be patient," said Harker. "We are bound to come across him or hear of him in time." "He's not likely to have gone home?" suggested Horace. "How could he with no money?" "Or to try to get on an American ship? We might try that." "Oh yes, we shall have to try all that sort of thing." "Well, let's begin at once," said Horace impatiently, "every minute may be of consequence." But for a week they sought in vain--among the busy streets by day and in the empty courts by night, among the shipping, in the railway-stations, in the workhouses, at the printing-offices. Mr Sniff did them more than one friendly turn, and armed them with the talisman of his name to get them admittance where no other key would pass them. They inquired at public-houses, coffee-houses, lodging- houses, but all in vain. No one had seen a youth answering their description, or if they had it was only for a moment, and he had passed from their sight and memory. False scents there were in plenty--some which seemed to lead up hopefully to the very last, and then end in nothing, others too vague even to attempt to follow. Once they heard that the body of a youth had been found floating in the Mersey--and with terrible forebodings they rushed to the place and demanded to see it. But he was not there. The dead upturned face they looked on was not his, and they turned away, feeling more than ever discouraged in their quest. At length at the end of a week a man who kept an early coffee-stall in one of the main streets told them that a week ago a ragged little urchin had come to him with a pitiful tale about a gentleman who was starving, and had begged for a can of coffee and a slice of bread to take to him, offering in proof of his good faith his own coat as payment. It was a bitterly cold morning, and the man trusted him. He had never seen the gentleman, but the boy brought back the empty can in a few minutes. The coffee man had kept the jacket, as it was about the size of a little chap of his own. But he had noticed the boy before parting with it take two ragged little books out of its pockets and transfer them to the bosom of his shirt. That was all he remembered, and the gentleman might take it for what it was worth. It was worth something, for it pointed to the possibility of Reginald not being alone in his wanderings. And putting one thing and another together they somehow connected this little urchin with the boy they saw crouching on the doorstep of Number 13, Shy Street the day of their arrival, and with the office-boy whom Mr Sniff described as having been Reginald's companion during his last days at the office. They would neither of them believe Reginald was not still in Liverpool, and cheered by the very feeble light of this discovery they resumed their search with unabated vigour and even greater thoroughness. Happily the news from home continued favourable, and, equally important, the officials at the _Rocket_ made no demur to Horace's prolonged stay. As for Harker, his hopefulness and pocket-money vied with one another in sustaining the seekers and keeping alive within them the certainty of a reward, sooner or later, for their patience. Ten days had passed, and no fresh clue. Once or twice they had heard of the pale young gentleman and the little boy, but always vaguely, as a fleeting vision which had been seen about a fortnight ago. On this day they called in while passing to see Mr Sniff, and were met by that gentleman with a smile which told them he had some news of consequence to impart. "I heard to-day," said he, "that a patient--a young man--was removed very ill from a low lodging-house near the river--to the smallpox hospital yesterday. His name is supposed to be Cruden (a common name in this country), but he was too ill to give any account of himself. It may be worth your while following it up." In less than half an hour they were at the hospital, and Horace was kneeling at the bedside of his long-lost brother. CHAPTER TWENTY FOUR. LOVE FIGHTS HIS WAY INTO THE BEAUTIFUL PALACE. Reginald recollected little of what happened on that terrible night when he found himself suddenly face to face with his dead enemy. He had a vague impression of calling the landlady and of seeing the body carried from the pestiferous room. But whether he helped to carry it himself or not he could not remember. When he next was conscious of anything the sun was struggling through the rafters over his head, as he lay in the bed beside Love, who slept still, heavily but uneasily. The other lodgers had all risen and left the place; and when with a shudder he glanced towards the corner where the sick man last night had died, that bed was empty too. He rose silently, without disturbing his companion, and made his way unsteadily down the ladder in search of the woman. She met him with a scowl. She had found two five-pound notes in the dead man's pocket, and consequently wanted to hear no more about him. "Took to the mortuary, of course," said she, in answer to Reginald's question. "Where else do you expect?" "Can you tell me his name, or anything about him? I knew him once." She looked blacker than ever at this. It seemed to her guilty conscience like a covert claim to the dead man's belongings, and she bridled up accordingly. "I know nothing about him--no more than I know about you." "Don't you know his name?" said Reginald. "No. Do I know _your_ name? No! And I don't want to!" "Don't be angry," he said. "No one means any harm to you. How long has he been here?" "I don't know. A week. And he was bad when he came. He never caught it here." "Did any doctor see him?" "Doctor! no," snarled the woman. "Isn't it bad enough to have a man bring smallpox into a place without calling in doctors, to give the place a bad name and take a body's living from them? I suppose you'll go and give me a character now. I wish I'd never took you in. I hated the sight of you from the first." She spoke so bitterly, and at the same time so anxiously, that Reginald felt half sorry for her. "I'll do you no harm," said he, gently. "Goodness knows I've done harm enough in my time." The last words, though muttered to himself, did not escape the quick ear of the woman, and they pleased her. She was used to strange characters in her place, seeking a night's shelter before escaping to America, or while hiding from justice. It was neither her habit nor her business to answer questions. All she asked was to be let alone and paid for her lodgings. She knew Reginald had her in a sense at his mercy, for he knew the disease the man had died of, and a word from him out of doors would bring her own pestiferous house about her ears and ruin her. But when he muttered those words to himself she concluded he was a criminal of some sort in hiding, and criminals in hiding, as she knew, were not the people to go and report the sanitary arrangements of their lodgings to the police. So she mollified towards him somewhat, and told him she would look after her affairs if he looked after his, and as he had not had a good night last night, well, if no one else wanted the bed to-night he could have it at half-price; and after that she hoped she would have done with him. Reginald returned to the foul garret, and found Love still asleep, but tossing restlessly, and muttering to himself the while. He sat down beside him and waited till he opened his eyes. At first the boy looked round in a bewildered way as though he were hardly yet awake, but presently his eyes fell on Reginald and his face lit up. "Gov'nor," he said, with a smile, sitting up. "Well, old boy," said Reginald, "what a long sleep you've had. Are you rested?" "I 'ave 'ad sich dreams, gov'nor, and--my, ain't it cold!" And he shivered. The room was stifling. Scarcely a breath of fresh air penetrated through its battered roof, still less through the tiny unopened window at the other end. "We'll get some breakfast to make you warm," said Reginald. "This horrible place is enough to make any one feel sick." The boy got slowly out of bed. "We 'ave got to earn some browns," he said, "afore we can get any breakfast." He shivered still, and sat down on the edge of the bed for a moment. Then he gathered himself together with an effort and walked to the ladder. Reginald's heart sank within him. The boy was not well. His face was flushed, his walk was uncertain, and his teeth chattered incessantly. It might be only the foul atmosphere of the room, or it might be something worse. And as he thought of it he too shivered, but not on account of the cold. They descended the ladder, and for a little while the boy seemed revived by the fresh morning air. Reginald insisted on his taking their one coat, and the boy seemed to lack the energy to contest the matter. For an hour they wandered about the wharves, till at last Love stopped short and said,-- "Gov'nor, I don't want no breakfast. I'll just go back and--" The sentence ended in a whimper, and but for Reginald's arm round him he would have fallen. Reginald knew now that his worst fears were realised. Love was ill, and it was only too easy to surmise what his illness was, especially when he called to mind the boy's statement that he had been taking shelter in the infected lodging-house ten days ago, during his temporary exile from Shy Street. He helped him back tenderly to the place--for other shelter they had none--and laid him in his bed. The boy protested that he was only tired, that his back and legs ached, and would soon be well. Reginald, inexperienced as he was, knew better, or rather worse. He had a battle royal, as he expected, with the landlady on the subject of his little patient. At first she would listen to nothing, and threatened to turn both out by force. But Reginald, with an eloquence which only extremities can inspire, reasoned with her, coaxed her, flattered her, bribed her with promises, and finally got far enough on the right side of her to obtain leave for the boy to occupy Durfy's bed until some other lodger should want it. But she must have a shilling down, or off they must go. It was a desperate alternative,--to quit his little charge in his distress, or to see him turned out to die in the street. Reginald, however, had little difficulty in making his choice. "Are you comfortable?" said he to the boy, leaning over him and soothing the coarse pillow. "Yes, gov'nor--all right--that there ache will be gone soon, and see if I don't pick up some browns afore evening." "Do you think you can get on if I leave you a bit? I think I know where I can earn a little, and I'll be back before night, never fear." "Maybe you'll find me up and about when you comes," said the boy; "mayhap the old gal would give me a job sweeping or somethink." "You must not think of it," said Reginald, almost sternly. "Mind, I trust you to be quiet till I come. How I wish I had some food!" With heavy heart he departed, appealing to the woman, for pity's sake, not to let harm come to the boy in his absence. Where should he go? what should he do? Half a crown would make him feel the richest man in Liverpool, and yet how hard, how cruelly hard, it is to find a half-crown when you most want it! He forgot all his pride, all his sensitiveness, all his own weariness-- everything but the sick boy, and left no stone unturned to procure even a copper. He even begged, when nothing else succeeded. Nobody seemed to want anything done. There were scores of hungry applicants at the riverside and dozens outside the printing-office. There were no horses that wanted holding, no boxes or bags that wanted carrying, no messages or errands that wanted running. No shop or factory window that he saw had a notice of "Boys Wanted" posted in it; no junior clerk was advertised for in any paper he caught sight of; not even a scavenger boy was wanted to clean the road. At last he was giving it up in despair, and coming to the conclusion he might just as well hasten back to his little charge and share his fate with him, when he caught sight of a stout elderly lady standing in a state of flurry and trepidation on the kerb of one of the most crowded crossings in the city. With the instinct of desperation he rushed towards her, and, lifting his hat, said,-- "Can I help you across, ma'am?" The lady started to hear words so polite and in so well-bred a tone, coming from a boy of Reginald's poor appearance, for he was still without his coat. But she jumped at his offer, and allowed him to pilot her and her parcels over the dangerous crossing. "It may be worth twopence to me," said Reginald to himself as he landed her safe on the other side. How circumstances change us! At another time Reginald would have flushed crimson at the bare idea of being paid for an act of politeness. Now his heart beat high with hope as he saw the lady's hand feel for her pocket. "You're a very civil young man," said she, "and--dear me, how ill you look." "I'm not ill," said Reginald, with a boldness he himself marvelled at, "but a little boy I love is--very ill--and I have no money to get him either food or lodging. I know you'll think I'm an impostor, ma'am, but could you, for pity's sake, give me a shilling? I couldn't pay you back, but I'd bless you always." "Dear, dear!" said the lady, "it's very sad--just at Christmas-time, too. Poor little fellow! Here's something for him. I think you look honest, young man; I hope you are, and trust in God." And to Reginald's unbounded delight she slipped two half-crowns into his hand and walked away. He could only say, "God bless you for it." It seemed like an angel's gift in his hour of direst need, and with a heart full of comfort he hastened back to the lodgings, calling on his way at a cookshop and spending sixpence of his treasure on some bread and meat for his patient. He was horror-struck to notice the change even a few hours had wrought on the sufferer. There was no mistaking his ailment now. Though not delirious, he was in a high state of fever, and apparently of pain, for he tossed incessantly and moaned to himself. The sight of Reginald revived him. "I knowed you was comin'," said he; "but I don't want nothing to eat, gov'nor. On'y some water; I do want some water." Reginald flew to get it, and the boy swallowed it with avidity. Then, somewhat revived, he lay back and said, "I 'ave got 'em, then?" "Yes, I'm afraid it's smallpox," said Reginald; "but you'll soon be better." "Maybe I will, maybe I won't. Say, gov'nor, you don't ought to stop here; you'll be cotchin' 'em too!" "No fear of that," said Reginald, "I've been vaccinated. Besides, who'd look after you?" "My! you're a good 'un to me!" said the boy. "Think of that there Medlock--" "Don't let's think of anything so unpleasant," said Reginald, seeing that even this short talk had excited his patient unduly. "Let me see if I can make the bed more comfortable, and then, if you like, I can read to you. How would you like that?" The boy beamed his gratitude, and Reginald, after doing his best to smooth the wretched bed and make him comfortable, produced the _Pilgrim's Progress_ and settled down to read. "That there _Robinson_ ain't a bad 'un," said Love, before the reading began; "I read 'im while I was a-waitin' for you. But 'e ain't so good as the Christian. Read about that there pallis ag'in, gov'nor." And Reginald read it--more than once. The evening closed in, the room grew dark, and he shut the book. The boy was already asleep, tossing and moaning to himself, sometimes seeming to wake for a moment, but dropping off again before he could tell what he wanted or what was wrong with him. Once or twice Reginald moistened his parched mouth with water, but as the evening wore on the boy became so much worse that he felt, at all hazards, he must seek help. "I _must_ bring a doctor to see him," said he to the landlady; "he's so ill." "You'll bring no doctor--unless you want to see the boy chucked out in the road!" said she. "The idea! just when my lodgers will be coming home to bed too!" "It's only eight o'clock; no one will come till ten. There'll be plenty of time." "What's the use? You know as well as I do the child won't last above a day or two in his state. What's the use of making a disturbance for nothing?" said the woman. "He won't die--he shall not die!" said Reginald, feeling in his heart how foolish the words were. "At any rate, I must fetch a doctor. I might have fetched one without saying a word to you, but I promised I wouldn't, and now I want you to let me off the promise." The woman fretted and fumed, and wished ill to the day when she had ever seen either Reginald or Love. He bore her vituperation patiently, as it was his only chance of getting his way. Presently she said, "If you're bent on it, go to Mr Pilch, round the corner; he's the only doctor I'll let come in my house. You can have him or nobody, that's flat!" In two minutes Reginald was battering wildly at Mr Pilch's door. That gentleman--a small dealer in herbs, who eked out his livelihood by occasional unauthorised medical practice--happened to be in, and offered, for two shillings, to come and see the sick boy. Reginald tossed down the coin with eager thankfulness, and almost dragged him to the bedside of his little charge. Mr Pilch may have known very little of medicine, but he knew enough to make him shake his head as he saw the boy. "Regular bad case that. Smallpox and half a dozen things on the top of it. I can't do anything." "Can you give me no medicine for him, or tell me what food he ought to take or what? Surely there's a _chance_ of his getting better?" Mr Pilch laughed quietly. "About as much chance of his pulling through that as of jumping over the moon. The kindest thing you can do is to let him die as soon as he can. He may last a day or two. If you want to feed him, give him anything he will take, and that won't be much, you'll find. It's a bad case, young fellow, and it won't do you any good to stop too near him. No use my coming again. Good-night." And the brusque but not unkindly little quack trotted away, leaving Reginald in the dark without a gleam of hope to comfort him. "Gov'nor," said the weak little voice from the bed, "that there doctor says I are a-goin' to die, don't he?" "He says you're very ill, old boy, but let's hope you'll soon be better." "Me--no fear. On'y I wish it would come soon. I'm afeared of gettin' frightened." And the voice trembled away into a little sob. They lay there side by side that long restless night. The other lodgers, rough degraded men and women, crowded into the room, but no one heeded the little bed in the dark corner, where the big boy lay with his arm round the little uneasy sufferer. There was little sleep either for patient or nurse. Every few minutes the boy begged for water, which Reginald held to his lips, and when after a time the thirst ceased and only the pain remained, nothing soothed and tranquillised him so much as the repetition time after time of his favourite stories from the wonderful book, which, happily, Reginald now knew almost by heart. So the night passed. Before daylight the lodgers one by one rose and left the place, and when about half-past seven light struggled once more in between the rafters these two were alone. The boy seemed a little revived, and sipped some milk which Reginald had darted out to procure. But the pain and the fever returned twofold as the day wore on, and even to Reginald's unpractised eye it was evident the boy's release was not far distant. "Gov'nor," said the boy once, with his mind apparently wandering back over old days, "what's the meaning of `Jesus Christ's sake, Amen,' what comes at the end of that there prayer you taught me at the office--is He the same one that's in the _Pilgrim_ book?" "Yes, old boy; would you like to hear about Him?" "I would so," said the boy, eagerly. And that afternoon, as the shadows darkened and the fleeting ray of the sun crossed the floor of their room, Love lay and heard the old, old story told in simple broken words. He had heard of it before, but till now he had never heeded it. Yet it seemed to him more wonderful even than _Robinson Crusoe_ or the _Pilgrim's Progress_. Now and then he broke in with some comment or criticism, or even one of his old familiar tirades against the enemies of his new hero. The room grew darker, and still Reginald went on. When at last the light had all gone, the boy's hand stole outside the blanket and sought that of his protector, and held it till the story came to an end. Then he seemed to drop into a fitful sleep, and Reginald, with the hand still on his, sat motionless, listening to the hard breathing, and living over in thought the days since Heaven in mercy joined his life to that of his little friend. How long he sat thus he knew not. He heard the voices and tread of the other lodgers in the room; he heard the harsh groan of the bolt on the outer door downstairs; and he saw the candle die down in its socket. But he never moved or let go the boy's hand. Presently--about one or two in the morning, he thought--the hard breathing ceased, and a turn of the head on the pillow told him the sleeper was awake. "Gov'nor, you there?" whispered the boy. "Yes, old fellow." "It's dark; I'm most afeared." Reginald lay on the bed beside him, and put an arm round him. The boy became more easy after this, and seemed to settle himself once more to sleep. But the breathing was shorter and more laboured, and the little brow that rested against the watcher's cheek grew cold and damp. For half an hour more the feeble flame of life flickered on, every breath seeming to Reginald as he lay there motionless, scarcely daring to breathe himself, like the last. Then the boy seemed suddenly to rouse himself and lifted his head. "Gov'nor--that pallis!--I'm gettin' in--I hear them calling--come there too, gov'nor!" And the head sank back on the pillow, and Reginald, as he turned his lips to the forehead, knew that the little valiant soul had fought his way into the beautiful palace at last, and was already hearing the music of those voices within as they welcomed him to his hero's reward. CHAPTER TWENTY FIVE. THERE IS NO PLACE LIKE HOME. It is strange how often our fortunes and misfortunes, which we are so apt to suppose depend on our own successes or failures, turn out to have fallen into hands we least expected, and to have been depending on trains of circumstances utterly beyond our range of imagination. Who, for instance, would have guessed that a meeting of half a dozen business men in a first-floor room of a New York office could have any bearing on the fate of the Cruden family? Or that an accident to Major Lambert's horse while clearing a fence at one of the --shire hunts should also affect their prospects in life? But so it was. While Reginald, tenderly nursed by his old school friend, was slowly recovering from his illness in Liverpool, and while Mrs Cruden and Horace, in their shabby London lodging, were breaking into their last hundred pounds, and wondering how, even with the boy's improved wages and promise of literary success, they should be able to keep a comfortable home for their scattered but shortly to be reunited family-- at this very time a few of the leading creditors of the Wishwash and Longstop Railway assembled in the old office of that bankrupt undertaking, and decided to accept an offer from the Grand Roundabout Railway to buy up their undertaking at half-price, and add its few hundred miles of line to their own few thousand. A very important decision this for the little Dull Street family. For among the English creditors of this same Wishwash and Longstop Railway Mr Cruden had been one of the most considerable--so considerable that the shares he held in it had amounted to about half his fortune. And when the division of the proceeds of the sale of the railway came to be divided it turned out that Mr Cruden's administrators, heirs, and assigns were entitled to about a third of the value of that gentleman's shares, or in other words, something like a sixth of their old property, which little windfall, after a good deal of wandering about and search for an owner, came finally under the notice of Mr Richmond's successors, who in turn passed it over to Mrs Cruden with a very neat little note of congratulation on the good fortune which had made her and her sons the joint proprietors of a snug little income of from £300 to £400 a year. Of course the sagacious reader will remark on this that it is only natural that towards the end of my story something of this sort should happen, in order to finish up with the remark that "they lived happily ever after." And his opinion of me will, I fear, be considerably lowered when he finds that instead of Reginald dying in the smallpox hospital, and Mrs Cruden and Horace ending their days in the workhouse, things looked up a little for them towards the finish, and promised a rather more comfortable future than one had been led to expect. It is sad, of course, to lose any one's good esteem, but as things really did look up for the Crudens--as Reginald really did recover, as Mrs Cruden and Horace really did not go to the workhouse, and as the Grand Roundabout Railway really was spirited enough to buy up the Wishwash and Longstop Railway at half-price, I cannot help saying so, whatever the consequences may be. But several weeks before Mr Richmond's successors announced this windfall to their clients, the accident to Major Lambert's horse had resulted in comfort to the Crudens of another kind, which, if truth must be told, they expected quite as little and valued quite as much. That worthy Nimrod, once an acquaintance and neighbour of the Garden Vale family in the days of their prosperity, was never known to miss a winter's hunting in his own county if he could possibly help it, and during the present season had actually come all the way from Malta, where his regiment was stationed, on short leave, for the sake of two or three days of his favourite sport in the old country. Such enthusiasm was worthy of a happier fate than that which befell him. For on his first ride out his horse came to grief, as we have said, over a hedge, and left the gallant major somewhat knocked about himself, with nothing to do for half a day but to saunter disconsolately up and down the country lanes and pay afternoon calls on some of his old comrades. Among others, he knocked at the door of an elderly dowager named Osborn, who was very sympathetic with him in his misfortunes, and did her best to comfort him with afternoon tea and gossip. The latter lasted a good deal longer than the former. One after another the major's old friends were mentioned and discussed and talked about as only folk can be talked about over afternoon tea. "By the way," said the caller, "I hear poor Cruden didn't leave much behind him after all. Is Mrs Cruden still at Garden Vale?" "No, indeed," said the lady; "it's a sad story altogether. Mr Cruden left nothing behind him, and Garden Vale had to be sold, and the family went to London, so I was told, in very poor circumstances." "Bless me!" said the honest major, "haven't you looked them up? Cruden was a good sort of a fellow, you know." "Well, I've always intended to try and find out where they are living, but really, major, you have no idea how one's time gets filled up." "I've a very good idea," said the major with a groan. "I have to sail in a week, and there's not much spare time between now and then, I can tell you. Still, I'd like to call and pay my respects to Mrs Cruden if I knew where she lived." "I daresay you could find out. But I was going to say that only yesterday I saw something in the paper which will hardly make Mrs Cruden anxious to see any of her old friends at present. The eldest son, I fear, has turned out badly." "Who? young--what was his name?--Reginald? Can't believe it. He always seemed one of the right sort. A bit of a prig perhaps, but straight enough. What has he been up to?" "You'd better see for yourself, major," said the lady, extracting a newspaper from a heap under the dinner-waggon. "He seems to have been mixed up in a rather discreditable affair, as far as I could make out, but I didn't read the report through." The major took the paper, and read a short report of the proceedings at the Liverpool Police-Court. "You didn't read it through, you say," observed he, when he had finished; "you saw he was let off?" "Yes, but I'm afraid--well, it's very sad for them all." "Of course it is," blurted out the soldier, "especially when none of their old friends seem to care anything about them. Excuse me, Mrs Osborn," added he, seeing that the lady coloured. "I wasn't meaning you, but myself. Cruden was on old comrade, who did me more than one good turn. I must certainly take a day in town on my way back and find them out. As for the boy, I don't believe he's got it in him to be a blackleg." The major was as good as his word. He sacrificed a day of his loved pastime to look for his old friend's widow in London. After a good deal of hunting he discovered her address, and presented himself, with not a little wonderment at the shabbiness of her quarters, at Dull Street. Barely convalescent, and still in the agony of suspense as to Reginald's fate, Mrs Cruden was able to see no one. But the major was not thus to be baulked of his friendly intentions. Before he left the house he wrote a letter, which in due time lay in the widow's hands and brought tears to her eyes. "Dear Mrs Cruden,--I am on my way back to Malta, and sorry not to see you. We all have our troubles, but you seem to have had more than your share; and what I should have liked would be to see whether there was anything an old friend of your husband could do to serve you. I trust you will not resent the liberty I take when I say I have instructed my agent, whose address is enclosed, to put himself at your disposal in any emergency when you may need either advice or any other sort of aid. He is a good fellow, and understands any service you may require (and emergencies often do arise) is to be rendered on my account. As to your eldest son, about whom I read a paragraph in the papers the other day, nothing will make me believe he is anything but his honest father's honest son. My brother-in-law, whom you will remember, is likely shortly to have an opportunity of introducing a young fellow into an East India house in the City. I may mention this because, should you think well to tell Reginald of it, I believe there would not be much difficulty in his getting the post. But you will hear about this from my brother-in-law, whom I have asked to write to you. I don't expect to get leave again, for eighteen months; but I hope then to find you all well. "Believe me, dear Mrs Cruden,-- "Yours truly,-- "Thomas Lambert." This simple warm-hearted letter came to Mrs Cruden as the first gleam of better things on the troubled waters of her life. Things were just then at their worst. Reginald lost, Horace away in search of him, herself slowly recovering from a sad illness into a still more sad life, with little prospect either of happiness or competency, nothing to look forward to but a renewal of the old struggles, possibly single-handed. At such a time Major Lambert's letter came to revive her drooping spirits and remind her of a Providence that never sleeps less than when we are ready to consider ourselves forgotten. All she could do was to write a grateful reply back, and then await news from Horace, trusting meanwhile it would not be necessary to draw on the major's offered help. A few days later Horace was home again, jubilant at having found his brother, but anxious both as to his immediate recovery and the state of mind in which restored health would find him. "He told me lots about the past, mother," said he. "No one can conceive what a terrible three months he has had since he left us, or how heroically he has borne it. He doesn't think so himself, and is awfully depressed about his trial and the way in which the magistrate spoke to him--the brute!" "Poor boy! he is the very last to bear that sort of thing well." "He's got a sort of idea he's a branded man, and is to be dragged down all his life by it. Perhaps when he hears that an old friend like Major Lambert believes in him, he may pick up. You know, mother, I believe his heart is in the grave where that little office-boy of his lies, and that he would have been thankful if--well, perhaps not so bad as that-- but just at present he can't speak or even think of the boy without breaking down." "According to the letter from Major Lambert's brother-in-law, the post that is offered him is one he will like, I think," said Mrs Cruden. "I do hope he will take it. To have nothing to do would be the worst thing that could happen to him." "To say nothing of the necessity of it for you, mother," said Horace; "for there's to be no more copying out manuscripts, mind, even if we all go to the workhouse." Mrs Cruden sighed. She knew her son was right, but the wolf was at the door, and she shrank from becoming a useless burden on her boys' shoulders. "I wonder, Horace," said she, presently, "whether we could possibly find less expensive quarters than these. They are--" "Hullo, there's the postman!" said Horace, who had been looking from the window; "ten to one there's a line from Harker." And he flew down the stairs, just in time to see the servant-girl take a letter from the box and put it in her pocket. "None for us?" said he. The girl, who till this moment was not aware of his presence, turned round and coloured very violently, but said nothing. "Show me the letter you put into your pocket just now," said Horace, who had had experience before now in predicaments of this kind. The girl made no reply, but tried to go back to the kitchen. Horace, however, stopped her. "Be quick!" said he. "You've a letter for me in your pocket, and if I don't have it before I count twenty I'll give you in charge;" and he proceeded to count. Before he had reached ten the girl broke out into tears, and took from her pocket not only the letter in question, but three or four others. "There you are; that's all of them. I've done with it!" sobbed she. Horace glanced over them in bewilderment. One was in Reginald's writing, written three weeks ago; two were from himself to his mother, written last week, and the last was from Harker, written yesterday. "Why," exclaimed he, too much taken aback almost to find words, "what does it mean? How do you come--" "Oh, I'll tell you," said the girl; "I don't care what they do to me. I'd sooner be sent to prison than go on at it. He told me to do it, and threatened me all sorts of things if I didn't. Oh dear! oh dear!" "Who told you?" "Why, Mr Shuckleford. He said Mr Reginald was a convict, or something, and if I didn't mind every letter that came to the house from Liverpool I'd get sent to prison too for abetting him. I'm sure I don't want to abet no one, and I can't help if they do lock me up." "You mean to say Mr Shuckleford told you to do this?" said--or rather roared--Horace. "Yes, he did; and he had them all before that one," said the girl, pointing to the letter from Reginald. "But he's never been for these, and I didn't dare not to keep them for him. Please, sir, look over it this time." Horace was too agitated to heed her tears or entreaties. He rushed from the house with the letters in his hand, and made straight for the Shucklefords' door. But, with his hand on the bell, he hesitated. Mrs Shuckleford and her daughter had been good to his mother; he could not relieve his mind to Samuel in their presence. So he resolved to postpone that pleasure till he could find the young lawyer alone, and meanwhile hurried back to his mother and rejoiced her heart with the good news of Reginald contained in Harker's letter. How and when Horace and Shuckleford settled accounts no one exactly knew, but one evening, about a week afterwards, the latter came home looking very scared and uncomfortable, and announced that he was getting tired of London, the air of which did not agree with his constitution. He intended to close with an offer he had received some time ago from a firm in the country to act as their clerk; and although the sacrifice was considerable, still the country air and change of scene he felt would do him good. So he went, much lamented by his mother and sister and club. But of all his acquaintances there was only one who knew the exact reason why, just at that particular time, the country air promised to be so beneficial for his constitution. ------------------------------------------------------------------------ Three weeks passed, and then one afternoon a cab rolled slowly up to the door of Number 6, Dull Street. Horace was away at the office, and Mrs Cruden herself was out taking a walk. So the two young men who alighted from the cab found themselves monarchs of all they surveyed, and proceeded upstairs to the parlour with no one to ask what their business was. "Now, old man," said the sturdier of the two, "I won't stay. I've brought you safe home, and you needn't pretend you'll be sorry to see my back." "I won't pretend," said the other, with a smile on his pale face, "but if you're not back very soon, in an hour or two, I shall be very very sorry." "Never fear, I'll be back." And he went. The pale youth sat down, and looked with a strange mixture of sadness and eagerness round the little room. He had seen it before, and yet he seemed hardly to recognise it. He got up and glanced at a few envelopes lying on the mantel-piece. He took into his hands a piece of knitting that lay on one of the chairs and examined it. He turned over the leaves of a stray book, and read the name on the title-page. It all seemed so strange--yet so familiar. Then he crept silently to the half- open door of a little bedroom and peeped in, and his heart beat strangely as he recognised a photograph on the dressing-table, and by its side a letter written in his own handwriting. From this room he turned to another still smaller and more roughly furnished. A walking- stick stood in the corner that he knew well, and there was a cap on the peg behind the door, the sight of which sent a thrill through him. Yet he felt he dared touch nothing--that he scarcely dare let his foot be heard as he paced across the room, or venture even to stir the little fire that was dying out in the grate. The slight flush which the excitement of his first arrival had called up faded from his cheeks as the minutes wore on. Presently his ears caught a light footfall on the pavement outside, and his heart almost stood still as it halted and the bell rang below. It was one of those occasions when a man may live a lifetime in a minute. With a mighty rush his thoughts flew back to the last time he had heard that step. What goodness, what hope, what love did it not bring back to his life! He had taken it all for granted, and thought so little of it; but now, after months of loveless, cheerless drudgery and disappointment, that light step fell with a music which flooded his whole soul. He sat almost spell-bound as the street-door closed and the steps ascended the stairs. The room seemed to swim round him, and to his broken nerves it seemed for a moment as though he dreaded rather than longed for what was coming. But as the door opened the spell broke and all the mists vanished; he was his own self once more--nothing but the long-lost boy springing to the arms of the long-lost mother. "Mother!" "My boy!" That was all they said. And in those few words Reginald Cruden's life entered on a new era. When Horace half an hour later came flying on to the scene they still sat there hand in hand, trying to realise it all, but not succeeding. Horace, however, helped them back to speech, and far into the night they talked. About ten o'clock Harker looked in for a moment, and after them young Gedge, unable to wait till the morning. But they stayed only a moment, and scarcely interrupted the little family reunion. What those three talked about it would be hard for me to say. What they did not talk about in the past, the present, and the future would be almost easier to set down. And when at last Mrs Cruden rose, and in her old familiar tones said,-- "It's time to go to bed, boys," the boys obeyed, as in the days long ago, and came up to her and kissed her, and then went off like children, and slept, like those who never knew what care was, all the happy night. CHAPTER TWENTY SIX. TURNING OVER LEAVES, NEW AND OLD. A very few words more, reader, and my story is done. The trial of Medlock and Shanklin took place in due time, and among the witnesses the most important, but the most reluctant, was Reginald Cruden. It was like a hateful return to the old life to find himself face to face with those men, and to have to tell over again the story of their knavery and his own folly. But he went through with it like a man. The prisoners, who were far more at their ease than the witness, troubled him with no awkward cross-examination, and when presently the jury retired, he retired too, having neither the curiosity nor the vindictiveness to remain and hear their sentence. On his way out a familiar voice accosted him. "Cruden, old man, will you shake hands? I've been a cad to you, but I'm sorry for it now." It was Blandford, looking weak and pale, with one arm still in a sling. Reginald took his proffered hand eagerly and wrung it. "I've been bitten over this affair, as you know," continued Blandford, "and I've paid up for my folly. I wish I could come out of it all with as easy a conscience as you do, that's all! Among them all I've lost a good deal more than money; but if you and Horrors will take me back in your set there'll be a chance for me yet. I'm going to University College, you know, so I shall be staying in town. Harker and I will probably be lodging together, and it won't be my fault if it's far away from your quarters." And arm in arm the old schoolfellows walked, with their backs on the dark past and their faces turned hopefully to the future. Had Reginald remained to hear the end of the trial, he would have found himself the object of a demonstration he little counted on. The jury having returned with their expected verdict, and sentence having been passed on the prisoners, the counsel for the prosecution got up and asked his lordship for leave to make one observation. He spoke in the name of the various victims of the sham Corporation when he stated that his clients desired to express their conviction that the former secretary of the Corporation, whose evidence that day had mainly contributed to the exposure of the fraud, was himself entirely clear of any imputation in connection with the conspiracy. "I should not mention this, my lord," said the counsel, "had not a certain magistrate, in another place, at an earlier stage of this inquiry, used language--in my humble opinion harsh and unwarranted-- calculated to cast a slur on that gentleman's character, if not to interfere seriously with his future prospects. I merely wish to say, my lord, that my clients, and those of us who have gone fully into the case, and may be expected to know as much about it even as a north- country magistrate, are fully convinced that Mr Cruden comes out of this case with an unsullied character, and we feel it our duty publicly to state our opinion to that effect." The counsel sat down amid signs of approval from the Court, not unmixed with amusement at the expense of the north-country magistrate, and the judge, calling for order, replied, "I make no objection whatever to the statement which has just fallen from the lips of the learned counsel, and as it commends itself entirely to my own judgment in the matter, I am glad to inform Mr Cruden, if he be still in court, that he will quit it to-day clear of the slightest imputation on his character unbecoming an upright but unfortunate gentleman." Reginald was not in court, but he read every word of it next day with grateful and overflowing heart. ------------------------------------------------------------------------ Three months have passed. The winter has given way to spring, and Number 3, Dull Street is empty. Jemima Shuckleford still nurses her sorrow in secret, and it will be a year or two yet before the happy man is to turn up who shall reconcile her to life, and disestablish the image of Reginald Cruden from her soft heart. Meanwhile she and her mother are constant visitors at the little house in Highbury where the Crudens now live, and as often as they go they find a welcome. Samuel writes home from the country that he is doing great things, and expects to become Lord Chancellor in a few years. Meanwhile he too contemplates matrimony with a widow and four children, who will probably leave him among them very little leisure for another experiment in the amateur detective business. The Shuckleford ladies were invited, but unfortunately were unable to go, to a little quiet house-warming given by the Crudens on the occasion of their taking possession of the new house. But though they could not go, Miss Crisp could, and, as a matter of course, Mr Booms, in all the magnificence of last year's spring costume. And Waterford came too, and young Gedge, as did also the faithful Harker, and--with some little trepidation--the now sobered Blandford. The company had quite enough to talk about without having to fall back on shouting proverbs or musical chairs. Indeed, there were several little excitements in the wind which came out one by one, and made the evening a sort of epoch in the lives of most of those present. For instance, young Gedge was there no longer as a common compositor. He had lately been made, youth as he was, overseer in the room of Durfy; and the dignity of his new office filled him with sobriety and good- humour. "It's no fault of mine," said he, when Mrs Cruden congratulated him on his promotion. "If Cruden hadn't stood by me that time he first came to the _Rocket_, I should have gone clean to the dogs. I mean it. I was going full tilt that way." "But I went off and left you after all," said Reginald. "I know you did; and I was sorry at the time you hadn't left that cab- horse to finish his business the evening you picked me up. But Horace here and Mrs Cruden--" "Picked you up again," said Waterford. "Regular fellow for being picked up, you are. All comes of your habit of picking up types. One of nature's revenges--and the last to pick you up is the _Rocket_. What an appetite she's got, to be sure!" "I should think so from the way she swallows your and Horace's lucubrations every week," says Gedge, laughing. "Why, I actually know a fellow who knows a fellow who laughed at one of your jokes." "Come, none of your chaff," said Horace, looking not at all displeased. "You never laughed at a joke, I know, because you never see one." "No more I do. That's what I complain of," replied the incorrigible young overseer. "Never mind, we shall have our revenge when he has to put our joint novel in print," said Waterford. "Ah, I thought you'd sit up there, my boy. Never mind, you'll know about it some day. The first chapter is half done already." "Jolly work that must be," says Harker. "More fun than higher mathematics and Locke on the Understanding, eh, Bland?" "Perhaps they would be glad to change places with us before they are through with it, though," observes Blandford. "Never knew such a beggar for grinding as Bland is turning out," says Harker. "He takes the shine out of me; and I'm certain he'll knock me into a cocked hat at the matric.." "You forget I've lost time to make up," replies Blandford, gravely; "and I'm not going to be content if I don't take honours." "Don't knock yourself up, that's all," says Reginald, "especially now cricket's beginning. We ought to turn out a good eleven with four old Wilderhams to give it a backbone, eh?" And at the signal the four chums somehow get together in a corner, and the talk flies off to the old schooldays, and the battles and triumphs of the famous Wilderham Close. Meanwhile Booms and Miss Crisp whisper very confidentially together in another corner. What they talk about no one can guess. It may be collars, or it may be four-roomed cottages, or it may be only the weather. Whatever it is, Booms's doleful face relaxes presently into a solemn smile, and Miss Crisp goes over and sits by Mrs Cruden, who puts her arm round the blushing girl and kisses her in a very motherly way on the forehead. It is a curious piece of business altogether, and it is just as well the four young men are too engrossed in football and cricket to notice it, and that Gedge and Waterford find their whole attention occupied by the contents of the little bookcase in the corner to have eyes for anything else. "Jolly lot of books you've got," says Waterford, when presently the little groups break up and the big circle forms again. "I always think they are such nice furniture in a room, don't you, Mrs Cruden?" "Yes, I do," says Mrs Cruden; "especially when they are all old friends." "Some of these seem older friends than others," says Waterford, pointing to a corner where several unbound tattered works break the ranks of green-cloth gilt-lettered volumes. "Look at this weatherbeaten little fellow, for instance, a bit of a _Pilgrim's Progress_. That must be a very poor relation; surely you don't count him in?" "Don't I," says Reginald, taking the book in his hands, and speaking in a tone which makes every one look up at him. "This little book is worth more to me than all the rest put together." And as he bends his head over the precious little relic, and turns its well-thumbed pages one by one, he forgets where he is, or who is looking on. And a tear steals into his eyes as his mind flies far away to a little green grave in the north country over which the soft breezes of spring play lovingly, and seem to whisper in a voice he knows and loves to remember--"Come there too, guv'nor." THE END. 
46499	----	HONEST MONEY HONEST MONEY BY ARTHUR I. FONDA New York MACMILLAN AND CO. AND LONDON 1895 _All rights reserved_ COPYRIGHT, 1895, BY MACMILLAN AND CO. Norwood Press: J. S. Cushing & Co.--Berwick & Smith. Norwood, Mass., U.S.A. PREFACE. In an article in the "American Journal of Politics" for July, 1893, I gave a brief statement of the conclusions I had reached in an attempt to analyze the requirements of a perfect money. The limits of a magazine article prevented a full discussion of the subject; many points were left untouched, and all quotations from the works of other writers, in support of the brief arguments given, were of necessity omitted. As the course of events since the article referred to was written has more fully confirmed the conclusions stated therein, a desire to give the subject ampler treatment, which its importance seems to demand, has led to the writing of this little work. If apology is needed for a further contribution to the mass of literature on the subject of money, with which the country has of late been flooded, it must be found in the above explanation of the reasons which have led to the production of the present volume, coupled with the fact that the questions involved are far from being settled, and that the loud complaints, and the many financial schemes and plans, that have appeared all over the country make it probable that further legislation on the subject will be attempted in the near future. It must be conceded that there is something radically wrong in a country like the United States, rich in all of the necessaries and most of the luxuries of life, where nature has been most bounteous, and where the not excessive population is exceptionally enterprising and industrious, when a large part of the people cannot at times find employment. When, with an abundance of unoccupied land, and a great diversity of undeveloped resources, capital and labor--both anxious for profitable employment--cannot find it; and when men suffer for the necessaries of life, not in one section only, but universally and in large numbers, while our warehouses are filled with manufactured goods, and our barns and granaries are bursting with food products. This is a condition that is certainly as wrong as it is unnecessary. Such a condition occurring once or twice in the history of a country might be attributed to accident, but recurring, as it does, periodically, it argues a fault in our economic system. So wide a disturbance, extended also to other countries, betokens a general cause. What that cause is, it is not difficult to perceive--all indications point to our monetary system as the chief source of the trouble. There are doubtless other causes that contribute in some degree to create variations in prosperity, but no other single cause, or combination of causes, seems to us competent to account for the great fluctuations; while the one we have cited alone may easily do so. This work may have little direct effect in bringing about an improvement in our money system, but it is the hope of the writer that it may have at least an indirect effect by helping to spread a better knowledge of the requirements of such a system and of the principles involved. Much of the current discussion of the subject of money betrays ignorance of those fundamental principles of the science which are agreed upon by all economists, if it does not wholly disregard them. I have endeavoured in this work to avoid such errors by a painstaking analysis of the subject, and by a careful comparison of the opinions of authorities on the principles involved. Starting from this foundation I have deduced the requirements for an honest money, shown the faults of our present system in the light of these requirements, as well as the merits and defects of various changes that have been proposed for its betterment, and, in conclusion, have outlined a system that seems to meet the requirements and to correct existing faults. I desire to acknowledge my indebtedness, not only to the many works mentioned and quoted from herein, but to others, neither mentioned nor quoted, which have been of material assistance in corroborating the opinions I have ventured to advance. A. I. F. DENVER, COLO. CONTENTS. CHAPTER I. PAGE VALUE AND THE STANDARD OF VALUE 1 Definition of Value 1 Supply and Demand 8 The Standard of Value 12 CHAPTER II. MONEY 21 Definition of Money 21 The Functions and Requirements of Money 25 Money Value 29 Money Demand and Supply 36 Necessity for Invariable Money Value 40 CHAPTER III. EXISTING MONETARY SYSTEMS 51 The Gold Standard 54 Gresham's Law 57 The Silver Standard 65 Bi-metallism 67 Paper Money 71 CHAPTER IV. STABILITY OF GOLD AND SILVER VALUES 81 Gold-Standard Prices 81 Silver-Standard Prices 94 CHAPTER V. CRITICISM OF SOME GOLD-STANDARD ARGUMENTS 98 CHAPTER VI. FOREIGN COMMERCE 112 CHAPTER VII. MONEY IN THE UNITED STATES 125 CHAPTER VIII. SOME PROPOSED CHANGES IN OUR MONEY SYSTEM 137 CHAPTER IX. A NEW MONETARY SYSTEM 151 The Standard of Value 158 The Medium of Exchange 164 CHAPTER X. MERITS AND OBJECTIONS CONSIDERED 181 Merits of Plan 181 Objections Answered 187 CHAPTER XI. CONCLUSION 196 INDEX 205 HONEST MONEY CHAPTER I. VALUE AND THE STANDARD OF VALUE. _Definition of Value._ A clear conception of the meaning of the term _value_ is the first essential to a discussion of the subject of money. Under the general term _value_ the older economists recognized two distinct conceptions, which they distinguished as _value in use_ and _value in exchange_. To the former they gave little attention, merely stating that while it was essential to value in exchange, the latter was not proportional to nor determined by the former, and citing air and water as familiar examples of objects having great utility, or use value, yet having little or no exchange value. Modern economists--chiefly those of the Austrian school--have analyzed the subject more thoroughly, especially the relation between the two conceptions, and have shown that utility or subjective value, as it is generally termed by them, is an expression both of human desire and of the quantity of the necessary commodity available to satisfy such desire. The utility of a thing grows less as the quantity of it increases, and it is the utility of the last increment of supply, or the marginal utility, that determines the subjective value of the whole supply, and it is the ratios between these subjective values that determine exchange values. Air and water, for instance, have no great utility, as viewed by the older economists, except where the supply is limited; ordinarily, their abundance makes their utility, or use value, small. It is not essential to the purpose of this work to enter into an abstract discussion of the theory of value further than is necessary to make clear the fact that the present analysis in no way lessens or invalidates the distinction between the two conceptions of value noted by the earlier economists,--a fact which has been overlooked by some who have accepted the marginal utility theory. The distinction remains, broad and clear. The one conception, whether called "value in use," "marginal utility," or "subjective value," pertains wholly to the relation which a single good, or unit group of goods, bears to a single individual, or society unit, in respect to human well-being, and has no reference or relation to any other individual or other good. The other conception, called "objective value," or "exchange value," is dual in its nature, involving in all cases two or more commodities. Abstractly, it is _the ratio at which commodities may be exchanged for each other_, or, since such ratio for a unit of one commodity is expressed by the amount of another given for it, the exchange value of a thing is the quantity of some other thing that will be evenly exchanged for it, or, considered in a general sense, the amount of commodities in general it will exchange for,--_its general purchasing power_, in short. This latter conception--exchange value--is the one that principally concerns us in discussing the subject of money. It is also the conception generally in mind when the simple term _value_ is used either by economists or by the general public, and wherever the term is used in this work without qualification it is to be understood in that sense. The Austrian economist, E. von Böhm-Bawerk, says, in his "Positive Theory of Capital," p. 130:-- "Value in the subjective sense is the importance which a good, or a complex of goods, possesses with regard to the well-being of a subject." "Besides the expression 'value in exchange,' English economists use, quite indifferently, the expression 'purchasing power,' and we Germans are beginning in the same way to put in general use the term _Tauschkraft_." The value of a thing may be considered either in a particular sense, with reference to some other specified thing, or it may be considered in a general sense, with reference to all other things considered as a whole. We may say the value of a bushel of wheat is two bushels of corn, meaning that these two commodities exchange for each other in that ratio; or we may speak of the value of wheat having risen or fallen, meaning that its general purchasing power, or the ratio between that and all other things taken as a unit or a whole, has increased or decreased. The term must invariably be used or considered in a general sense, unless otherwise specifically stated, for we must always have some other thing in mind besides the one whose value we are considering; while if no other is stated, commodities in general (taken as a whole) is that thing. Value being a ratio, it is impossible for all values to rise or fall simultaneously. The sum of subjective values may increase or decrease,--indeed it is one of the great objects of human endeavour to increase the sum of want-satisfying power,--but the sum of the ratios between these subjective values is constant. As one term of any ratio rises relative to the other, the second necessarily falls as regards the first. This principle is so universally recognized that quotations might be given from almost every work on political economy in support of it. The following will be sufficient, however, as regards both the definition of value and this principle. John Stuart Mill says, in his "Principles of Political Economy":-- "Value is a relative term. The value of a thing means the quantity of some other thing, or of things in general, which it exchanges for. The values of all things can never, therefore, rise or fall simultaneously. There is no such thing as a general rise or a general fall of values. Every rise of value supposes a fall, and every fall a rise." Again, he says:-- "Things which are exchanged for one another can no more all fall, or all rise, than a dozen runners can each outstrip all the rest, or a hundred trees all overtop one another." Prof. S. N. Patten says, in "Dynamic Economics," p. 64: "Objective values, however, are never a sum, but only a relation between subjective values. There can never be high or low objective values of commodities as a whole. It is therefore impossible to add to or subtract from them." This latter quotation, as well as the preceding one from von Böhm-Bawerk,--both exponents of the marginal utility theory,--may help to correct a quite prevalent impression that this later theory does not distinguish between the two conceptions of value, and that because the sum of subjective values may increase, the sum of objective or exchange values can increase also. _Supply and Demand._ All economists recognize the fact that the immediate determiner of value is the relation between supply and demand. These terms in their economic sense mean something more than mere desire and mere quantity. _Supply_ means the amount offered in exchange, and _demand_ means not only a desire, but a desire coupled with the ability and willingness to give other commodities in exchange for the one wanted. In this sense the terms are strictly correlative. The supply of a commodity (that is, the amount offered) may be considered as equivalent to a demand for some other commodity, or for commodities in general. We may say, then, that the value of any commodity is determined by the ratio that the demand for that commodity bears to its supply; or by the ratio that the demand for that commodity bears to the demand for some other commodity,--or commodities in general, when the term _value_ is used in a general sense and not with reference to some other specified thing only. (The objection that has been made by some writers that a ratio could not logically exist between a desire [demand] and a quantity [supply], does not apply to these terms in their economic sense; for, as above stated, they are something more than a mere desire and a mere quantity, and the expression is translatable into the other expression, "ratio between the demand for one commodity and the demand for others in general.") The statement of the later economists that exchange value depends on, and is determined by, the ratio between subjective values in no way conflicts with the above statement that value is determined by the ratio between demand and supply, for the demand for a commodity is determined by its subjective value and by that alone, and must vary with it. Hence, as the quantity of anything increases and its subjective value lessens, the demand for it relative to the quantity of other articles also lessens, and its value falls, and _vice versa_. This close connection between value and the ratio between demand and supply--value rising as the ratio increases, and falling as it grows less--is true in all cases. No other factor can affect the value of any commodity except by altering the relation or ratio between these two. Cost of production is a more remote factor that enters into the determination of value in most but not in all cases, through its effect on supply. It is used, like the term _value_, in two senses, a subjective and an objective sense. In the former it means the pain of labour and waiting that must be undergone to produce the good that is being considered,--the negative pleasure given to get the positive pleasure to be derived from that good. In its objective sense--the sense in which it is generally used--cost of production means the goods that must otherwise be given for, bartered or set against those desired; in a simple case of direct production, it means the goods that might have been produced, in lieu of those that have been produced, with the same subjective cost; in more complex cases, it means the sum of the goods sacrificed, in the shape of raw materials, rent, wages, interest, etc., to get the one produced. When the value of a commodity falls to or below the cost of production, or even when it approaches it so closely as to reduce the margin between the two--the producer's profit--below that in other industries, then, men will cease to produce the one and turn their labour and capital to producing the others which offer greater profit, thus lowering the supply of the abandoned product and raising that of the more profitable, thereby affecting the value of both. The effect of this operation of the law of cost is to equalize profits and make the values of things conform to their cost or be proportional thereto. The law can only operate when men are free to turn their labour from one industry to another. Hence arises the important exception to the law, that the values of goods produced by a monopoly are not affected by their cost of production. Only under free competition does the law operate in full force. As monopoly becomes a factor cost ceases to be, and, when the monopoly is complete, cost has no weight whatever in the determination of value. For analogous reasons, cost enters but partially into the determination of the value of such goods as are dependent more or less on luck or chance for their production, as in the case of precious stones, gold, silver, etc. _The Standard of Value._ We may use the value of anything as a measure by which to compare the values of any and all other things, but as all the factors that determine value are variable, the value of everything is variable. Any value may rise with reference to some other value, and at the same time fall with reference to a third. By what standard, or invariable measure at all times and places, can we compare the values of goods to determine their constancy or variability? We must not forget that there are two kinds of value, and that it is a standard of exchange value we are seeking. So far as it may be possible to formulate a standard of subjective value, it must consist of the pain or inutility of labour; for this kind of value pertains only to a single good, and cannot be referred to other goods without confusing it with the other conception. We cannot measure the absolute pleasure a good will give to an individual except by the pain he will undergo to get it. It is not a standard for this sort of value we want. It was evidently some such conception as the above--confusing, however, not only the two kinds of value but the two descriptions of labour--that led Adam Smith to consider labour as the ultimate standard of value. He appears also to have confused the idea of a standard of value with that of a determiner of value. These errors were pointed out in part by Ricardo and, in part also, by J. S. Mill and later writers; hence the contention that labour is in any way a standard of value has long been abandoned by the ablest economists. The idea still lingers, however, and is frequently brought forward in current discussions, and for this reason it seems necessary to analyze briefly the relation of labour to value. Labour is necessary to the production of all commodities, but it is not itself a commodity, nor anything which for itself is desired. It is a force, and, like every force, valuable according to the results it accomplishes. If unproductive, it has no value; if productive, its value varies according to the value of the commodities or utilities it creates. We use the terms "price of labour" or "value of labour," implying that it is the labour which is valued, and which is bought and sold; but the terms are merely a convenience. What is really bought and sold is the commodity or utility such labour has produced or will produce. If it were the labour itself, then the purchaser would receive not only the labour, but the commodity it produced, in exchange for the wages paid,--a double return,--which, of course, is absurd. Three descriptions of labour may be distinguished in connection with the value of a commodity, viz.:-- (1) The labour expended in its production. (2) The labour in general it will purchase. (3) The labour necessary to produce more of it. The first kind of labour in no way affects the existing supply or demand of the commodity, and is neither a measure of its value nor a regulator or determining factor of such value. Evidences are not lacking to prove that a commodity will frequently not exchange for as much labour as was expended in producing it. The second kind of labour, the amount in general which a commodity will purchase, depends on the amount of commodities such labour will produce, less the share which goes to capital as its reward; for, neglecting rent or classing it with capital, these two, labour and capital, are joint factors in production and divide between them the total product. It is hardly necessary to observe that labour is continually growing more efficient; that improved skill and methods enable a much larger amount of commodities in general to be produced, with a certain amount of labour, than could formerly be produced; and that labour receives, as its share of such product, a much larger amount than formerly. It is thus evident, that a commodity which would exchange for the same amount of labour now as formerly, would exchange for a much larger amount of commodities in general now than then, and, if we adhere to our definition of exchange value, would be worth _more_ than formerly; while if labour be taken as a standard of value, it would be worth the _same_. The use of this form of labour as a standard of value is, it will be seen, incompatible with the definition of value. It may serve as a measure of the relative values of two commodities at any particular time and place, just as any third commodity may; but, as Ricardo remarks, "is subject to as many fluctuations as the commodities compared with it." The same argument applies to the third form of labour--that necessary to produce more of a commodity. This form of labour, however, is one of the factors in the cost of production, and through its effect on cost is one of the more remote factors that determine value, as explained in considering cost of production, but this does not make it in any sense a standard. We may conclude, then, that labour in any form is not a standard of value; that, as John Stuart Mill observes, it "discards the idea of exchange value altogether, substituting a totally different idea, more analogous to value in use." Since the values of things can never rise or fall simultaneously, every rise supposing a fall, and every fall a rise, it follows that the values of all taken together must be constant; in other words, that general values cannot change. Thus it is that we find whether any one thing has risen or fallen in value, as between one period and another, only by comparing it with all others,--in short, by its general exchange or purchasing power. If this has increased, then its value has risen; if it has decreased, its value has fallen. It is evidently not necessary that anything should exchange for more or less of _every_ other thing to show a rise or fall of value, but only that it should, on the average, exchange for more or less of all; that its average purchasing power should be greater or less. If it has exchanged at different times for the same amounts, on the average, of all other things, its value, clearly, has remained constant. This is the only standard, or test, which can be applied to the exchange value of any commodity to determine its constancy or variability, and it is inherent in the very definition of exchange value. The values of commodities may be compared to the surface of the ocean, which, vexed by winds and tides, is never at rest, every point continually rising or falling as compared with others. As some points rise others fall, yet there is a mean level which does not vary, and by comparison with which the variations of level of any particular point may be determined. So with values, there is a mean or average which is constant, and by referring individual values to that we can determine their fluctuations. These ideas will become clearer as we proceed to apply them concretely to the special case of money. Although there can be but one real _standard of value_, invariable at all times and places, yet, as before stated, any commodity may serve as a _measure of value_, and the great convenience subserved, by all the people of any locality or country using the same commodity instead of a number of different ones for this purpose, early led to the adoption of some one commodity in each locality as a "money" to measure values and facilitate exchanges. CHAPTER II. MONEY. _Definition of Money._ Money has been variously defined by different writers. Perhaps the definition given by Prof. F. A. Walker, though lengthy, is the most comprehensive. He says: "Money is that which passes freely from hand to hand throughout the community in final discharge of debts and full payment for commodities, being accepted equally without reference to the character or credit of the person who offers it, and without the intention of the person who receives it to consume it, or enjoy it, or to apply it to any other use than in turn to tender it to others in discharge of debts or full payment for commodities." This definition has been indorsed by several other writers; by some, however, the term _money_ is restricted to coin, paper money being called currency. The distinction is perfectly proper, though not generally concurred in. People commonly use the terms _money_ and _currency_ indiscriminately for both coin and paper money, since they perform identically the same work where both are used together, and the paper is convertible into coin at any time. Where the paper is used alone--"inconvertible paper"--coin is really not money; it ceases to circulate as money; it is hoarded as treasure, or bought and sold as a commodity, but fails to have that general use in current transactions in that country which alone entitles any commodity to be called money. The distinction sought to be made between paper money and coin arises largely, it is thought, from the idea that coin has a value in itself which paper money has not. This idea is erroneous. Value, as we have seen, is a ratio or relation, and though the value of anything is based on a desire for it, that desire may arise either from the satisfaction which the use or consumption of it will bring, or from the belief that it can be exchanged for some other thing that will give satisfaction in use or consumption. The value of money is due to the latter of these two causes. No one wants money except for the purpose of exchanging it for other commodities; under modern conditions it is necessary for this purpose,--it is the indispensable requisite to the satisfaction of certain human wants. Money, therefore, possesses an indirect if not a direct subjective value which forms the basis of its exchange value. Paper money possesses the power of satisfying this need for money to the same extent that coin does, under like conditions, and it has, therefore, both subjective value and exchange value, and the latter is governed by the same law of supply and demand that operates in all cases. The fact that the material of which the money is made is, in one instance, of great cost, and, in the other, of little or no cost, is of minor consequence. The minting of gold and silver into coin may, or may not, add to its value; it really transforms it into another commodity--money--and its value is thenceforth determined by the law of supply and demand as applied to money. The same is true of paper money, the low cost in the production of which is not an element in determining its value, for its production is always a monopoly. There is no reason, then, for not considering paper currency as money, and in using the term we will consider its meaning to be that given by Professor Walker,--which is also its popular significance,--and as including both paper money and coin. It should be considered, whether of one material or of several circulating concurrently, as a single commodity created for the purpose it fulfils, and as separate and distinct from the material of which it is made. In short, as that commodity to which, by common consent and usage, generally sanctioned by law, all other commodities are referred as a measure of value, and by means of which exchanges are effected. _The Functions and Requirements of Money._ Professor Jevons, in his valuable work, "Money and the Mechanism of Exchange," gives to money the following threefold functions, viz. as:-- A medium of exchange. A measure of value. A standard of deferred payments. He also inquires if it does not perform a fourth function as a 'store of value.' All authorities give the first two of the above as the principal money functions. Some include one or both of the others, and some omit both. Prof. F. A. Walker objects to the use of the term "measure of value," on the ground that value, being a relation, cannot be measured but can only be expressed. He proposes, instead, the term, "common denominator of value." It is not quite clear why a relation _or_ ratio cannot be measured,--the measure, of course, being a similar ratio,--nor does there seem to be anything gained by the change, while the term proposed seems less clear and correct than the one in general use. Money, or the _value_ of the unit of money, is used as a measure in comparing the values of other things just as a yardstick, or the _length_ of a yard, is used in comparing the lengths of other objects. Money, in acting as a medium of exchange, must also act as a store of value to some extent, since it stores the value received until it is expended; but the use of money for the purpose of hoarding is not to be regarded as strictly one of its functions, at least not in the sense of requiring to be especially provided for. The fact that it is so used, however, should be borne in mind, as it interferes more or less with its other and more important functions; but in considering the qualities necessary to the best performance of the functions of money we may omit this last function, as any money which fills the requirements for the others will fulfil those necessary to this in a sufficient degree considering its minor importance. As our inquiries in this work will be confined to the money materials now in general use, viz., gold, silver, and paper, we need not consider the qualities necessary to a money material, as given by Professor Jevons,--such as portability, indestructibility, divisibility, etc.,--further than to say that the qualities he mentions are possessed by all of the money materials now in use, in a sufficient and nearly equal degree. Coin, to be sure, is more indestructible than paper; but as the paper is sufficiently acceptable for the purpose, the difference need not concern us. Aside from that general acceptability, which is the very essence of money,--without which no commodity could be considered money, and which, therefore, all money may be considered as having,--the great requirements of money are _invariable value_, added to _convenience of form_, _size_, _weight_, _and value_. This latter requirement pertains to the function of a medium of exchange, and the degree in which it is possessed by the different money materials or kinds of money, depends wholly on the values to be transferred by its use. For small amounts, silver is preferable to either gold or paper; as the amount increases, gold becomes preferable to silver; and for all amounts above fractional currency, paper money is unquestionably more convenient in every way than either gold or silver, and the advantage increases with the amount. _Invariable value_ is the great requirement for both the functions,--"a measure of value" and "a standard of deferred payments." Indeed these two functions may practically be considered one; the only difference between them being centred in the element of time, and that is more or less involved in every exchange requiring the use of money, since some interval must elapse between the sale of one commodity and the purchase of another with the money received,--which constitutes the whole exchange transaction,--and during such interval the money should maintain a constant value. When the interval over which the transaction is spread is a large one, as in the case of notes and bonds, any variability is more noticeable than when the change is distributed among many holders of money. Before considering further the great necessity for invariable money value, it will be best to consider the laws and forces which determine and control the value of money. _Money Value._ That money is a commodity, and that its value varies like that of every commodity in accordance with the law of supply and demand, are incontestable. The fluctuations in the value of money can be detected, it is clear, in the same way that changes in the value of any commodity can be detected, by comparison with all other commodities,--by its average purchasing power, in short. The value of a commodity, when measured by money and expressed in terms of the unit of money, is called its _price_. If the prices of all commodities, or the average of all, rise or fall, it is conclusive evidence that the value of money has changed, for its purchasing power is less in the one case and greater in the other. Indeed the statement that general prices have fallen is equivalent to saying that the value of money has increased, and _vice versa_. Therefore, if the value of money remains stable, average prices must remain constant. The following quotations will show that these views are correct, and that they are generally accepted by authorities on finance and political economy, though very commonly overlooked and neglected in discussions on the subject. John Stuart Mill, in his "Principles of Political Economy," says:-- "There is such a thing as a general rise of prices. All commodities may rise in their money price. But there cannot be a general rise of values. It is a contradiction in terms." "That the money prices of all things should rise or fall, provided all rise or fall equally, is in itself, and apart from existing contracts, of no consequence. It affects nobody's wages, profits, or rent. Every one gets more money in the one case and less in the other; but of all that is to be bought with money they get neither more nor less than before. It makes no other difference than that of using more or fewer counters to reckon by. The only thing which in this case is really altered in value is money; and the only persons who either gain or lose are the holders of money, or those who have to receive or pay fixed sums of it.... There is a disturbance, in short, of fixed money contracts, and this is an evil whether it takes place in the debtor's favour or in the creditor's.... Let it therefore be remembered (and occasions will often rise for calling it to mind) that a general rise or a general fall of values is a contradiction; and that a general rise of prices is merely tantamount to an alteration in the value of money, and is a matter of complete indifference save in so far as it affects existing contracts for receiving and paying fixed pecuniary amounts." "The value of a thing is what it will exchange for: the value of money is what money will exchange for; the purchasing power of money. If prices are low, money will buy much of other things, and is of high value; if prices are high, it will buy little of other things, and is of low value. The value of money is inversely as general prices: falling as they rise and rising as they fall." "The value of money, other things being the same, varies inversely as its quantity; every increase of quantity lowering the value, and every diminution raising it in a ratio exactly equivalent." "That an increase of the quantity of money raises prices, and a diminution lowers them, is the most elementary proposition in the theory of currency." The expression, "other things being the same," in one of these quotations, evidently means "demand remaining the same," and the terms _increase_ and _decrease_ of money unquestionably refer to the increase and decrease relative to demand, since the writer further says:-- "If there be at any time an increase in the number of money transactions, a thing continually liable to happen from differences in the activity of speculation, and even in the time of year (since certain kinds of business are transacted only at particular seasons); an increase of the currency which is only proportional to this increase of transactions, and is of no longer duration, has no tendency to raise prices." _Per contra_, therefore, unless the currency be increased to meet such increased demand, there will be a tendency to decreased prices and consequent change in the value of money. Stronger statements than these of Mill's, or by an abler authority, could not be asked for. Prof. R. T. Ely, in his "Political Economy," remarks, p. 179:-- "Values are merely relative, and consequently there can be no such thing as a general rise or fall of values." "Value expressed in money is called price. There can be such a thing as a general fall or a general rise of prices. A general fall in prices means an increase in the value of money, and a general rise of prices means a fall in the value of money." David Ricardo observes that:-- "The value of money, then, does not wholly depend upon its absolute quantity, but on its quantity relatively to the payments it has to accomplish." The last edition of the "Encyclopædia Britannica" says, as a conclusion in discussing the value of money, and referring evidently to coin alone:-- "The most correct way to regard the question of money value is that which looks on supply and demand, as interpreted above, as the regulator of its value for a limited time, while regarding cost of production as a force exercising an influence of uncertain amount on its fluctuations during long periods." This view is in exact accordance with the conclusions previously stated in regard to the values of all commodities. The Encyclopædia further says:-- "Where the coinage of a State is artificially limited, the value of its money plainly depends on supply and demand." Quotations might be multiplied indefinitely to the same effect; but enough have been given to show the general consensus of opinion. Indeed it may seem that there is no necessity for accumulating evidence in support of propositions so apparent as those stated; unfortunately, however, not a few recent writers have ignored some of them, and the general public seem to make the same mistake; hence, it is of the utmost importance that they be kept clearly in mind. _Money Demand and Supply._ Mill affirms that: "The supply of money is all the money _in circulation_ at the time." Money that is hoarded has no more effect on prices than if it did not exist. Money lying in banks or in the hands of merchants or others to the extent necessary for the safe conduct of their business may be considered money in circulation, but beyond the amount needed for conducting any business the excess may be considered as hoarded. The supply of money in any country depends directly and primarily on the legislation of that country; and secondarily, in most, but not in all cases, on the legislation of other countries, and the production of precious metals available for coinage, etc., all of which can be better analyzed in explaining the different systems. The demand for money is most complicated, since it is affected by a great variety of forces. It varies directly with the activity of commerce, and universally with the activity of money,--a less amount of money doing a greater work when active than when sluggish. It is affected by changes in the customs and habits of the people, by changes in transportation facilities, in diversity of employment, in concentration of population, and, more than all other, it is affected by the extent of credit, the use of banking facilities, etc. Credit in its various forms takes the place of money, and does its work in this respect to an enormous and continually increasing extent. Through the medium of banks,--which are really institutions for the exchange of credit,--and by means of checks, drafts, notes, bills of exchange, letters of credit, post-office and express money orders, etc., the great bulk of the world's business is transacted. Statistics gathered from national banks in this country in 1881, showed that of the total deposits, ninety-five (95) per cent were in forms of credit to five (5) per cent in actual money, the percentage of credit paper rising in New York City to as high as 98.7. While these percentages may not show accurately, on the whole, the relative work done by money and by forms of credit, they do show the enormous extent to which credit takes the place of money, and the greatly increased demand for money that arises, when, from lack of confidence or other causes, the extent of the credit is lessened. Unless the volume of money immediately adapts itself to such demand, the value of money must inevitably increase, or the demand be lessened by a checking of all business transactions, and a partial paralysis of the industries of the country. Generally both of these results follow. With these facts in mind, it is evidently futile to attempt to fix any definite amount of money, per capita, as the proper one. Not only does the amount necessary to meet the demand vary with different countries, per capita, even among the most civilized nations, but it varies with the seasons in each country, as crops have to be moved or not, and with the state of credit and enterprise from day to day. France, where the habits and customs of the people have prevented their making so large a use of credit and banking facilities as in England, requires a larger amount of money, per capita, than does England. Since the value of money depends on these two factors, supply and demand, if we are to have a money of invariable value, we must evidently control one or both of these. It would be hopeless to attempt to control all the various conditions and forces which, we have seen, affect the demand for money. Fortunately it is not necessary. We cannot control the demand, but we have, or can have, complete control over the supply, and we can by this means maintain that constant relation between the supply of, and the demand for, money which is essential to its stability of value. _Necessity for Invariable Money Value._ Returning to the reasons for an invariable money value, they are best appreciated by considering the effects of one that is variable. While the statement of Mill, previously quoted, "that the money prices of all things should rise or fall, provided all rise or fall equally, is in itself and apart from existing contracts, of no consequence," is true, yet is it true only under the condition specified, that _all shall rise or fall equally_, and this condition in the case of a fluctuating money value never obtains. Aside from the exception which Mill makes of fixed money contracts, which can never adjust themselves at all to a changed money value,--and the exception is of enormous volume and importance,--the prices of many commodities are not adjustable quickly or readily to a change in money value, especially when such change is an increase. There is a persistency or inertia about prices that in many instances resists a reduction. Wages can never be reduced without friction and often strikes. The fact that commodities have fallen and that the lower wages will buy as much, or more, than the higher ones formerly did, is slow of appreciation; hence the employer caught between the difficulty of reducing his employés' wages and the falling prices of his products, is injured by an increased money value. When the change, on the other hand, is a decrease of money value, the employer will not as a rule advance wages until compelled to do so, and the labourer suffers meanwhile from the rising prices of commodities. When prices fall, the producers of a commodity are not apt to recognize that it is a general fall, a change in money value; but accustomed to regard money as invariable in value, as it should be, and, failing to see anything in the conditions affecting their own particular product that should lower the price, they delay or refuse to sell, hoping for higher prices; and all, or a large number, doing this, makes business dull. The great injury and evil of changing money value comes, however, through fixed money contracts. The enormous amount of bonded indebtedness, railroad, municipal, county, state, and national, makes the slightest change of money value of vast importance, and added to these is the aggregate volume of commercial and private debts. In short, a change of money value either way is a robbery, and none the less reprehensible because it is legal and insidious. Indeed, it is perhaps more damaging in its secondary effects because of its insidiousness. An open danger may be guarded against, but the hidden danger, known to exist, but which cannot be located or prevented, only excites fear and distrust, and checks all movement. Nor is the damage, in its secondary effects, confined to those involved in fixed money contracts. Piracy on the seas or robbery on a highway, when common, injure not alone those who are robbed. The fear and distrust engendered by such occurrences damage and delay all commerce; and the cost of protection against these menaces, or of avoiding them by taking more circuitous routes, are a burden on the whole people. So the robbery by a fluctuating money value affects, indirectly, the whole community, while the indirect effects are far worse. In the case of a decreasing money value the robbery does not bring such disastrous consequences in its train as where the change is an increase, owing to the different conditions of the people robbed. A slight decrease of money value generally brings about a stimulation of trade and industry, the rising prices of commodities acting as a spur to greater production and new enterprises. Mr. F. A. Walker, indeed, considers that for this reason, and in spite of the recognized injustice to some classes, that such a condition when slight and brought about by natural causes, is a benefit on the whole. It can hardly be admitted that robbery of one large class in a community is defensible, even if it does result in a gain to another class greater than the loss to the first. It is indisputable, however, that the opposite case, where money is increasing in value, brings such disasters in its train that it would be better, if an invariable value for money could not be attained, that the variation should be a decrease rather than an increase. In the latter case not only is the robbery equally great, but falling upon the most active, industrious, and enterprising class of the community,--for it is this class as a rule that are borrowers,--it not only imperils all they possess, but discourages, when long continued, all forms of industry and enterprise. In this way it throws thousands of men out of employment and brings suffering and hardship to thousands more. No other one cause, perhaps, is more responsible for "panics" and "hard times," with their attendant evils--tramps, pauperism, and crime. Its evils have been painted by many writers, and it is scarcely possible to exaggerate them. Of all ills, war and pestilence alone seem to fill the cup of human suffering more nearly full than the depression and stagnation of industry which is brought about by constantly declining prices. In view of these facts, the necessity for a money that shall vary in its amount in accordance with the demands of business is evident. Not only must it respond to the long-continued, slow, and almost imperceptible increase of demand due to growing trade and population, but it should also respond, quickly and surely, to those sudden demands, known as panics, when credit fails for any reason to do its usual work. This need is recognized by bankers in their demand for a flexible or elastic currency. Quotations are hardly necessary in support of the foregoing statements, but a few may be given. David Ricardo, in "Proposals for an Economic and Secure Currency," observes that:-- "All writers on the subject of money have agreed that uniformity in the value of the circulating medium is an object greatly to be desired." "A currency may be considered as perfect of which the standard is invariable, which always conforms to that standard, and in the use of which the utmost economy is practised." "During the late discussions on the bullion question, it was most justly contended, that a currency to be perfect should be absolutely invariable in value." Prof. J. L. Laughlin, in "The History of Bi-metallism in the United States," remarks, p. 70:-- "The highest justice is rendered by the state when it exacts from the debtor at the end of a contract the _same purchasing power_ which the creditor gave him at the beginning of the contract, no less, no more." Prof. R. T. Ely says, in his "Political Economy," p. 191:-- "It is not the 'much or little,' but it is the 'more or less' that is of vital concern. Nothing produces more intense suffering than a decrease in the amount of money, and this is on account of the connection between past, present, and future in our economic life." This refers to a decrease relative to the demand, evidently, and he says, further:-- "If the amount of money is arbitrarily increased, so that the value of all debts may fall, it amounts to virtual robbery of the creditors. When arbitrarily the amount of money is decreased, it amounts to virtual robbery of the debtor class." "It may also be urged that with the progress of improvements in industry, prices tend to fall, and that unless money increases in amount, those who take no active part in these improvements, nevertheless gain the benefit of them." Prof. Sidney Sherwood, in the "History and Theory of Money," says, p. 225:-- "The ideal that we want, so far as price adjustment is concerned, is to keep prices stable, so that a contract which is payable in one year from now can be paid with just the amount of commodities which will then represent the value stated in the contract of to-day.... "That is what we want,--a stability of prices that persists from one year to another and from one generation to another.... "The object at which we aim is, as it seems to me, a currency which shall keep prices stable, a currency which shall expand, therefore, with the expansion of trade and commerce and development generally, a currency which shall not be lagging behind the commerce and development of the country, and hindering that development, and a currency which shall not, by being too rapidly increased, lead to excessive speculation and to loss." We may summarize these conclusions in regard to money then as follows:-- Money should have an invariable value. The test of invariable money value is stability of prices in general. The value of money depends on the supply of it relative to the demand for it. The demand for money is variable and uncertain. It is affected by a great variety of circumstances, most of which are beyond control. The supply is in all cases regulated directly or indirectly by law, and can be controlled. In any monetary system it is necessary, therefore, that the supply should adjust itself quickly and correctly to any changes in demand, so that prices of all commodities shall, on the average, neither rise nor fall. In this way, and in no other, can an honest money be obtained. It is believed that these conclusions cannot be successfully controverted, and, using them as a basis, we now purpose to examine existing monetary systems, and some proposed changes therein, to see in how far they conform to this requirement, and what can be done for their improvement. CHAPTER III. EXISTING MONETARY SYSTEMS. Various substances have been used as money in the past. The "survival of the fittest" has, however, eliminated all but three (omitting fractional coins), and these are used, singly or in combination, at present in all the civilized nations of the world. These three are gold, silver, and paper. Gold and silver are generally used in the form of coins of definite weight and fineness. Paper money is a promissory note issued by the government, or by authorized banks, promising to pay the bearer, on demand, the amount of coin specified on its face. Where this promise is kept, and coin is paid on demand, the paper is said to be convertible. Where, for any reason, the promise is not kept, and the amount of coin specified will not be given on demand, the paper is called inconvertible or irredeemable. As the coins which are used, and which are promised to be given in exchange for paper, may be either of gold or silver, or both, the system is said to be a gold standard or a silver standard, according to which one is used, or a bi-metallic standard if both are used under certain conditions. At present, as will be explained in considering that system, there is no country that is really using a bi-metallic standard. Where the paper money is inconvertible, the coin on which it is based does not circulate with it (for reasons which will appear later), and such a system must be regarded as distinct from the others, no matter whether the basis be gold or silver. Three systems are therefore in use,--the gold standard, the silver standard, and the inconvertible paper. The characteristics of each of these will be considered separately, but, taken as a whole, some facts should first be noted. Money in all countries is at present essentially a creature of the law. Not only does the government fix the weight and fineness of the coins, but it assumes the right to make the coins, and in some cases to limit the coinage to a certain amount, or to stop coining altogether. It also, in most cases, issues the notes or paper money, and where it does not it controls the issue by laws regulating the banks that do issue them. It controls therefore in all cases the volume of money issued, both by specifying that it shall be made of certain metals which are scarce, and perhaps limiting the coinage of those, and by limiting the amount of paper money that is generally used, to a greater or less extent, in all systems. There is no international coin or money. Gold and silver when shipped from one country to another go as so much bullion; their value is practically the same whether coined or uncoined. As Walter Bagehot observes, in his work "Lombard Street":-- "Within a country the action of a government can settle the quantity, and therefore the value, of its currency; but outside of its own country no government can do so. Bullion is the cash of international trade; paper currencies are of no use there, and coins pass only as they contain more or less bullion." Not only is the value of money as a whole, in any country, governed by the law of supply and demand; but each of these three kinds of money, and each of the substances of which they are made, is individually subject to the same great law. _The Gold Standard._ The wide and long-continued use of gold as money has led to a popular impression, current even among well-informed men, that somehow, or in some mysterious way, gold has stability of value and is independent of those fluctuations which they recognize in the values of all other substances. That this is wholly erroneous is admitted by every writer on finance, and quotations are hardly necessary to support the statement that gold varies in value in the same way and is subject to the same law of supply and demand which regulates all other values. Along with this conception of stability in the value of gold, has grown up a very natural belief that where paper or silver circulated concurrently with gold, so long as they were mutually convertible, gold was the medium which regulated the value of all; and that no matter what the quantities of the others might be, they did not affect the value of the gold or of the money as a whole. This is another popular misconception. In one sense the gold regulates the value of the money, but only to the extent that it limits, under the existing laws, the volume of the whole by its scarcity. In another and wider sense the value of the gold is itself fixed and controlled by the value of the money in its entirety. The use of gold for money is so enormously greater than its uses for all other purposes, that its value as money fixes its value as a whole, since its money use is by far the largest factor affecting the demand for it. The demand for money is generally an indiscriminate demand, satisfied with paper money or silver as well as with gold where they circulate together. Hence, every issue of paper or increased coinage of silver in any such country, demand remaining the same, lowers the value of the money as a whole by increasing the supply, and since the value of gold is determined by its value as money, that is lowered with the rest. The value of gold varies, therefore, with that of the money as a whole of which it forms a part. In gold standard countries the coinage of gold is unlimited, and--not to speak of the small mint charges--generally free. Under these conditions the value of gold coin and gold bullion are the same, weight for weight. The silver coin, which is used to some extent in gold standard countries, does not have either free or unlimited coinage at present. Its bullion value is less than its nominal and actual value, which is maintained at a par with that of gold by the limitation of its issue,--just as in the case of paper money,--and by the fact that within the country of issue it does the same work as the gold, just as paper money does. Men will give just as much of any commodity for the silver coin or the paper as they will for the gold, because, their utility being the same, their exchange value must also be the same. With these facts explained, we can proceed to consider a very important law affecting the value of money and its distribution among different nations. _Gresham's Law._ It was noticed and stated many years ago by Sir Thomas Gresham that full-weight coins would not continue to circulate with clipped, worn, or light-weight ones, and that the latter would drive the former out of the country. This statement has been extended and enlarged into what is known as Gresham's Law, which, as generally formulated, is that a poorer money will drive a better one out of circulation. In this form it is commonly accepted as true, but is often misunderstood and misapplied. It is, in fact, but a particular case of the more general law that any commodity will seek the market where it is worth the most, where it will exchange for the most of other commodities. The full-weight coins would exchange for no more in the country of issue than would the light-weight ones (within certain limits), but when it was desired to ship coins to other countries where they were valued by weight and not by tale, the full-weight ones were more valuable, and were, therefore, selected for such shipment, leaving the poorer ones to circulate at home. The larger application of Gresham's law to money as a whole is as follows:-- The resultants of all the various forces acting on money value through supply and demand evidently must be different in different countries, and thereby may cause the money of one country to rise in value while that of another falls. When this occurs between two countries using the same metal as a part of their money,--that is, either between two gold-standard or two silver-standard countries, Gresham's law immediately operates to bring the two moneys again to a uniform value. Since the gold varies in value with the money as a whole, it will, under such circumstances, be worth more in the country having the higher money value than in the other, and a flow of gold will set in from the country where it is worth the least to the one where it has the greater value. This flow of gold decreases the amount of money in the country from which it goes, and increases the amount in the other, thus raising the value of money in the one, and lowering it in the other, until they are again on an equality within the limits of the cost of shipping gold from one to the other. The operation of this law, therefore, tends to make the value of money uniform, and average prices the same in all countries using the same standard. The gold which thus flows from one country to another does not go, of course, without a return of other commodities in exchange. The operation will be clearer if stated in its converse form. Since prices and money values are complementary terms, one rising as the other falls, and _vice versa_, a rise in the value of money means lower prices, on the average, in that country. People will buy in the cheapest market, and if prices are lower in one country than in others, they will buy in that country in preference to others; the balance of trade, as it is called, will be in their favour; gold will be sent in payment for the commodities bought: it will increase the money supply and raise prices there, and at the same time it will lower those of the country from which it goes until prices in the two are again on a level. It must not be supposed, however, as it evidently has been by some, that the operation of this law in regulating prices and making them uniform as between different countries at the same time, has any effect whatever on prices and money values as between two different periods. An increase or decrease of money value may go on simultaneously in all countries, and no flow of gold be caused; the value of gold would continue to be the same in all countries, yet might be much higher or lower at the end than at the beginning of the period. To illustrate: the different countries may be compared to several tanks connected at the bottom by pipes, and containing water, the level of which, representing money value, is continually fluctuating with the amounts of water added to or drawn from each of the tanks. If the water rises higher in one tank than in others, a flow will set in from the higher to the lower until all are again on a level; but if the cause of the rise in the one tank continues, or if the cause extends to all the other tanks, the level in all the tanks may be greatly changed. So the continued preponderance of the forces in one direction, operating either to decrease or increase money value in one country alone or in all together, will raise or lower that value in all the countries which are connected by the use of the common money metal, under a free coinage system. Thus the large discoveries of gold in one country will by this means gradually spread themselves over all gold-using countries. The country where the gold is discovered, is, of course, the richer by the amount discovered, and is none the poorer because of its flow to other countries, for such country receives the same value of other commodities in exchange for the gold. Through the medium of gold, therefore, general prices are maintained at the same level approximately in all gold-standard countries. The great defect of the system is, that, because of this mutual bond, no one country can adjust the volume of its money to the demand so as to maintain prices constant. Only by an agreement faithfully carried out by all, or by most of the leading countries, would this be possible. There is no such agreement now existing, nor any likelihood of the leading nations agreeing to do this, and the value of money in all gold-standard countries is the resultant of all the various forces that act upon its supply and demand, with no intelligent attempt to control either; it is, in fact, the foot-ball of politics, selfish interests, and chance. Neither the annual supply of gold nor the total amount used as money is the principal factor in determining its value. It cannot be doubted that if all the nations now using the gold system were to abandon it, the value of the metal would be but a fraction of its present value, and on the other hand, if all the nations now using silver and paper, in whole or in part, as money, were to change to the gold standard, its value would be increased to many fold what it is now. The legislation, therefore, of all countries is the great factor determining coin value, not alone in the country legislating, but also in all other countries using gold and silver as a basis for their system. The factor next in importance is the extent to which credit is used in the place of money. The total production of gold is so small beyond the amount used in the arts and sciences that it would require a great change in its value, and years of time, for any increased production due to higher value to affect materially the quantity of gold coin in use. The production of gold depends more on chance, and less on its labour cost, than the production of almost any other commodity; and though it would be, and is, stimulated somewhat by a higher value, there is no such certainty of its increased production being commensurate with the increased labour expended on it as there is in the case of most commodities. _The Silver Standard._ When the money system of a country is based on silver, and that metal has free and unlimited coinage in the mints, as gold has in countries using the gold standard, the same laws apply as in the case of gold. Exactly the same forces operate to affect the volume and value of the money except that the production of silver, its use by other nations, etc., are the factors, instead of gold supply and use. The coin and the bullion are equal in value, weight for weight, and Gresham's law applies the same as it does to gold to regulate the flow of silver from one silver-standard country to another. In some silver-standard countries, however, the coinage is not free and unlimited, the government purchasing the silver at its market rate and coining it in such quantities as it sees fit. In this case the bullion value does not coincide with the coinage value: the latter depends entirely on the amount that is coined, relative to the demand for money, and is independent of the bullion value of the silver. The coin will be of higher value than the bullion, and will not be exported to other countries, as the bullion is equally valuable for that purpose and less costly. It is evident that the value of money is just as dependent on chance,--that is, on a variety of causes too intricate and uncertain to be controlled,--in the case of the silver standard with free coinage as in the case of gold; but as some of the forces acting on silver are different from those acting on gold, one standard may be much more stable than the other. _Bi-metallism._ The theory of bi-metallism--a money founded upon both gold and silver coin--is based upon the fact, before stated, that the value of each of these metals is really determined by the value of the money, as a whole, of which they form a part--their use for money purposes being so much greater than their other uses as to be the determining factor. If all nations, or a sufficient number of the leading ones, agree to coin both gold and silver in any amounts presented, and at the same ratio, the values of each relative to the other will be fixed at that ratio. No other market could be found for either metal at a higher ratio. The plan requires, of necessity, free coinage of both metals by several nations and in the same ratio. If the ratio differs in different countries, or if there are too few countries that are party to the agreement, the operation of Gresham's law will separate the two metals, and cause each to seek the country where it is worth the most as measured in the other. The supply of each metal is independent of the other, and their values, therefore, can only be kept the same by a control and adjustment of the demand thereto. Where silver and gold are both coined freely at a fixed ratio, if the supply of gold decreases, a portion of the demand for that metal--it being more valuable than silver--would be immediately transferred to silver, raising the latter and lowering the former value, and thus keeping their values at the same ratio. This, however, would not necessarily keep the value of the money constant as regards general commodities, and prices would still fluctuate. The variations would be spread over both metals, and, as shown by Jevons and others, would probably be more frequent, though less extensive. Theoretically, therefore, a bi-metallic standard is little if at all better than a single standard. Whether it would be better or worse than gold or than silver would depend altogether on the conditions at any particular time, and it is therefore as much the victim of chance as either of the metals alone, so far as providing a money of stable value is concerned. As already stated, no nation is now using a bi-metallic standard. Countries like France and the United States, which nominally have the double standard, have long since restricted or stopped the coinage of silver and are really on a gold basis, their silver coins being at par with gold and worth much more than their bullion value. Prior to about the year 1873 these nations, as well as several others, coined silver as well as gold in any amount presented, and all nations using coin were practically on a bi-metallic basis, the ratio between gold and silver values having been maintained at 15-1/2 to 1 (the coinage ratio in Europe) for many years within narrow limits. The United States had adopted the ratio of 15.988 to 1 long before this time, and as a result the silver had all left this country in obedience to Gresham's law, as it was worth more relative to gold in Europe. About the date above mentioned there was a great change in the coinage laws of several countries. Germany changed to a gold basis, selling a large stock of silver; France and other nations also practically changed to a gold basis by stopping the coinage of silver. As a result of this the relative values of silver and gold changed considerably. The demand for gold increased, and the demand for silver decreased. Silver fell gradually in value relative to gold, and this effect was further affected by large discoveries and greater production of silver. The United States also stopped the free coinage of silver at about the same time as the other countries, but this had no immediate effect on the relative values of the two metals, for this country was at that time, and for several years afterward, using an inconvertible paper money--no coin of either kind being in circulation. It had, however, a large subsequent effect; for when the United States returned to a specie basis, if the coinage of silver had not been stopped, silver would have been coined in preference to gold, being the cheaper, and this country would have been on a silver rather than on a gold basis. _Paper Money._ Paper money differs radically from coin in one respect. Its circulation is confined to the country of issue. It may indeed be confined to a small part of such country--as in the case of some of the old bank-notes--when the solvency of the issuing power is unknown or uncertain. This, however, may be regarded as an abnormal case. When issued by the Government or by authorized banks whose solvency is unquestioned, it is accepted as freely as coin, and if not so accepted, cannot be considered good money. We shall consider only the case where it is generally accepted. Being usually a promise to pay coin, on demand, it can, in one sense, be considered honest only when the promise is kept. If the issues are excessive,--that is, if by increasing the volume of the money as a whole its value is lowered so that the coin is worth more in some other country than as a part of that money system,--the coin will leave the country, as has been explained in regard to gold. The paper simply acts as so much gold or silver would act if added to the currency, forcing out a certain amount of coin. Where both metals are used with the paper, the one to go would depend on which was worth the most, relatively, in other countries. If the issues of paper are continued long enough, all the coin will leave the country, and, if still continued, the value of the money will sink below that of the coin, as the paper will not leave the country, but will accumulate, lowering the value with each new issue. The system will then have changed to an inconvertible paper system, the value of the money being no longer dependent on the value of the coin on which it is based, and no longer affected by changes of money value in other countries, but determined wholly by the amount issued, relative to the demands of business in the country of issue. If the issues continue in excess of demand, the value will lower, even to the point of utter worthlessness; but if properly controlled and limited, the value of the money can be maintained at any point desired far more readily and easily than in the case of a convertible paper and coin system, since many variable forces are excluded when the convertibility is dropped. The amount of paper money that can be kept at par with coin under a convertible system bears no fixed relation to the amount of the coin. By a proper control of the volume of paper issues their value can be kept equal to coin value, with almost no coin in circulation, or in reserve. An excessive issue of the paper will cause coin to be exported, but this export may be checked, and an import produced by withdrawing some of the paper. Some control, therefore, may be exercised over the value of money under a convertible system, to make such value constant, but this is evidently limited. If the value of the money is falling, the decline can be checked, and its value made to rise, by withdrawing some of the paper issues; but this will cause an importation of coin, partly offsetting the reduction and checking such rise, and when all the paper has been withdrawn, the power of control by this method ceases. If the money value is rising, an increase of paper issues will stop such rise, but it will cause the exportation of coin; and when all the coin has been exported, the money will cease to be convertible, and the system will have changed to an inconvertible one,--the money still possessing the same qualifications as a measure of value that it possessed in the former case. The only difference is, that in the convertible system the money value is partly determined by the natural causes affecting the supply of coin, partly by the laws and conditions of business in foreign countries, and partly by the legislation at home, restricting the coinage or the issue of paper; while in the inconvertible system it is determined wholly by the control of the issues relative to the demand for money. This difference may constitute either a merit or a defect, according as the control is intelligent and honest or otherwise. The disastrous consequences that have resulted at various times from the use of inconvertible paper money, have, in every case, been due to a lack of proper control and to excessive issues, caused generally by the want of a reliable gauge by which to determine the amount that should be issued, and by a misunderstanding of the principles involved. While paper money, though a promise to pay coin, cannot, in one sense, be called honest, unless the promise is kept; in a larger sense the test of its honesty is its invariability of value. John Stuart Mill says of inconvertible paper money:-- "In the case supposed, the functions of money are performed by a thing which derives its power of performing them solely from convention; but convention is quite sufficient to confer the power; since nothing more is needful to make a person accept anything as money, and even at any arbitrary value, than the persuasion that it will be taken from them on the same terms by others. The only question is, what determines the value of such a currency; since it cannot be, as in the case of gold and silver (or paper exchangeable for them at pleasure), the cost of production. We have seen, however, that even in the case of metallic currency, the immediate agency in determining its value is its quantity. If the quantity, instead of depending on the ordinary mercantile motives of profit and loss, could be arbitrarily fixed by authority, the value would depend on the fiat of that authority, not on the cost of production. "The quantity of a paper currency not convertible into the metals at the option of the holder _can_ be arbitrarily fixed; especially if the issuer is the sovereign power of the State. The value, therefore, of such a currency is entirely arbitrary." Prof. F. A. Walker, in his "Money, Trade, and Industry," observes, p. 210:-- "After looking at this subject from every side, I am at a loss to conceive of a single argument which can be advanced to support the assertion of the economists, that paper money cannot perform this function of measuring values, so-called. On the contrary, it appears to me clear beyond a doubt, that just so long and just so far as paper money obtains and retains currency as the popular medium of exchange, so far and so long it does and must act as the value denominator or common denominator in exchange. And I see no reason to believe that in this single respect, hard money, so-called, possesses any advantage over issues of any other form or substance which secure the degree of general acceptance which is necessary to constitute them money." He says, further, on p. 214:-- "Such money, so long as its popular acceptance remains undiminished, performs the office of a standard of deferred payments well or ill, according as its amount is regulated." Paper money is a real economy over gold and silver. Its use substitutes for those coins, that involve much labour in their production, a money of slight labour cost, which, under proper control, performs the functions of money even better than the coin. If, in any country possessed of the gold basis system, the gold product was wholly deposited in vaults, and paper certificates issued therefor to the amount of the deposits, such certificates, if in proper form and denominations, would answer all the requirements of a circulating medium even better than the gold, and their value would be exactly the same as that of the gold they replaced. By this method,--in a measure, the English system,--the country saves the wear and tear, besides considerable loss of gold, and is better served. The gold thus deposited, except a comparatively small amount shipped abroad at times, would never be called for: its sole purpose would be to regulate by its scarcity the amount of the paper money issued; beyond this purpose, it might as well be iron or lead as gold, or might as well have remained in the mines, from which it was dug at the expense of so much labour, as to be in the vaults. It would be difficult to conceive of a method of controlling money volume and value more expensive, more clumsy, and more inefficient than this; for, it is to be noted, the control in no way adjusts the volume of money to the demand, so as to maintain a stable value, but merely adjusts the value to that ruling in other countries,--a matter, as we shall see later, of no importance whatever. CHAPTER IV. STABILITY OF GOLD AND SILVER VALUES. _Gold-Standard Prices._ Having considered theoretically the limitations and possible merits and defects of the money systems now in use, we shall next consider in how far the money under such systems conforms in practice to the chief requirement,--stability of value. Economic writers do not claim that either gold or silver is, or has been, of invariable value; but many of them do claim that gold is more nearly invariable than any other commodity, and that it is sufficiently so for money purposes, the changes in value being slight and covering long periods of time, so that from year to year they are almost imperceptible. Other writers claim that silver has been, of recent years at least, more stable in value than gold, and is therefore a better measure of value. The merits of these claims can be tested, in the same way that the stability of value of any commodity can be tested, by a comparison of the average purchasing power of each metal at different times. Prof. F. A. Walker, in the work already cited, observes, regarding money value under the gold standard as tested by average prices:-- "Not to speak of the enhancement, many fold, of the value of money through the Silver Famine of the Middle Ages, or of the sudden and extensive decline which has been referred to as taking place between 1570 and 1640, it is estimated by Professor Jevons that the value of gold fell 46 per cent. between 1789 and 1809, that from 1809 to 1849 it rose 145 per cent., while between 1849 and 1874 it fell again at least 20 per cent." Coming down to more recent times, we have more full and accurate data, and there have been several careful compilations and averages of prices made in different countries. The report of the Finance Committee of the United States Senate, 52d Congress, on "Wholesale Prices, Wages, and Transportation," known as the "Aldrich Report," is doubtless the most accurate and complete examination of prices in this country from 1840 to 1892 that has ever been made. This report also gives for comparison the tables of Soetbeer and Sauerbeck (two of the most distinguished European statisticians), and the table of the _Economist_ (London) as to foreign prices, all reduced to the same basis, and to United States money units in gold. In order to facilitate comparison of these data, the tables have been platted as diagrams in Plate 1. All the tables were prepared by taking the prices of a selected list of commodities for the year 1860 as 100, and calculating the variations in the price of each commodity from the price of that year as a percentage of rise or fall. The average of these percentages for each year represents, therefore, average prices for that year, as compared with 1860, and it is these averages which are platted in the diagrams. The list of commodities selected by the Senate Committee embraces 223 articles for the years subsequent to 1860. Prior to that time the number was less, varying from 85 to 223, according as data were to be had. Dr. Soetbeer's table shows prices in the port of Hamburg, Germany, of 100 commodities, mostly raw materials, joined with the export prices of 14 commodities (manufactures) in England, from 1851 to 1891. Mr. Sauerbeck's table shows English prices of 56 commodities from 1846 to 1891. The _Economist_ table also shows English prices of twenty-two commodities from 1860 to 1892. The discrepancies between these different authorities, as shown by the variations in the lines of the four diagrams, call for a few words of explanation. It would naturally be expected that some differences in average prices would exist between different countries, and part of the discrepancies may be accounted for in this way, since there are included in all the tables, among other commodities, such as wood and coal, of which the prices might vary considerably in different countries independently of one another. Several changes in the tariff in this country during the last fifty years would account for some discrepancies between United States prices and the others. Furthermore, the method by which these tables were in the main prepared, that of taking simple averages of the percentage of rise or fall in price, thus giving to each commodity the same weight in the result, regardless of its importance in commerce, is open to serious objection, and doubtless accounts for many of the discrepancies that exist. For example, the great rise in prices during the period of our civil war, as shown in the _Economist_ and the United States tables, above those shown in the other two tables, is doubtless due to the fact that in the _Economist_ table, four out of the twenty-two commodities in the list are either raw cotton or cotton manufactures, and the great rise in price of cotton during the war (a rise of from 300 to 400 per cent.) is given an undue importance in the result. The same cause may affect the United States table, to some extent, but a more potent factor in this table is the circumstance that this country, during the period, was using an inconvertible paper money in which all prices were expressed, while gold was a commodity subject to speculation, and the price of which was much affected thereby; and, in reducing currency prices to gold prices, for this table a somewhat abnormal result is produced. The _Economist_ list, it must be said, contains too few commodities to be a reliable index of all. The United States list is sufficiently large, but the articles selected may be open to some criticism. The lists of Mr. Sauerbeck and Dr. Soetbeer are preferable, but all are open to the objection, above noted, of not giving a weight to each commodity in proportion to its importance, and none of them can therefore be regarded as anything but approximations to the truth. They embrace, however, the best information on the subject extant. The United States Committee did, in fact, endeavour to balance their own list in accordance with the relative importance of the articles in another table, but the result is not wholly satisfactory, as the weighting of the averages was done by groups of articles instead of individually for each. It represents, however, probably the most accurate information as to the purchasing power of gold in this country from 1840 to 1892 that can be obtained, and as such has been platted in Plate 2, in a reverse form; that is, assuming that the 223 articles of the list, weighted according to their importance, fairly represent _all_ commodities, and that therefore their value as a whole is constant (since the values of all commodities cannot rise or fall simultaneously). The diagram shows the relative values of gold for the different years as a percentage on the value of 1860 taken at 100. In other words, it shows the relative average purchasing power of gold in this country in the different years. With these explanations of the diagrams, and the limitations of the tables from which they were platted, we can proceed to consider their points of resemblance and what they teach. It is evident from all of them that a great decline in average prices has been going on, almost continuously, since 1873, in the various commercial countries. This is a fact conceded by all students of prices. What is equally apparent, however, but does not seem to be so generally appreciated, is the violent fluctuation in prices, or in the value of gold, from one year to another, amounting in many instances to from 5 to 10 per cent. in a single year, and, during the war, to much more. Doubtless if the tables had shown the fluctuation of prices by months or days, instead of the averages for each year, a much greater variation in the value of gold would have been apparent at times, and within a shorter period than a year. Furthermore, the prices of staple commodities (and most of the commodities in all the tables are staples), while representing correctly the _character_ of the changes in price of all commodities, would naturally not vary as much as the prices of many more speculative articles of commerce. It is probable, therefore, that gold has varied in value to a greater extent, and within shorter periods, than is shown by the diagrams. It would be impossible to trace all the various causes that have produced these changes in money value, but a few of the more prominent ones may be indicated as showing their great variety and force. From 1840 to 1849 a great decline in prices is noticeable, similar to the decline that we know has been going on in the last twenty years. This is doubtless due in both cases mainly to increasing demand for money, caused by growing population and expanding commerce, and which the supply of gold and silver or substitutes therefor did not keep pace with. From 1850 to 1857 prices generally rose, owing to the increased gold production in Australia and California, aided doubtless by the increased use of credit which rising prices always stimulates. The collapse of this credit in the panic of 1857 sent prices down again. The slow recovery from this condition was greatly enhanced by the breaking out of the Civil War, during which thousands of men were destroying instead of producing, thus raising the prices of nearly all commodities by decreasing the supply and increasing the demand relative to gold, while meantime the demand for gold was lessened by the use of paper money in this country. The disbanding of the armies at the close of the war, and the return of labour to productive enterprises, lowered prices rapidly during 1867, 1868, and 1869. From this depression they recovered almost as rapidly in the era of development from 1869 to 1872, the large production of silver from the Nevada and other discoveries during that period assisting greatly in this recovery, and the usual extension of credit at such times also contributing. This credit collapsed in the panic of 1873, and the demonetization of silver by several European nations about the same time prevented any increased production of silver from affecting the decline which then set in, and which has with one or two reactions been continuous ever since. In the light of the facts, shown by these diagrams, any claim for even approximate stability of value for gold, or for the money as a whole on the gold basis, under the systems now in use, is preposterous. Moreover, the change has been, of late years, of the worst kind,--an increase of money value. If it were steady, its effects could be calculated and discounted to some extent, but caused, as it is, by a variety of forces of varying strengths, the increase is at some times wholly nullified, or even turned to a decrease, by extensions of credit, while again it is doubled in effect by the withdrawal of such credit. The reason for this great decline in prices, or the increased value of gold, is not far to seek when we consider the relative strengths of the forces acting on gold value. Population, wealth, and diversity of occupations have all increased greatly over the whole civilized world, requiring a much greater amount of money to do the business of the world. There has been, to be sure, as an offset to this, a considerable increase of banking facilities and some greater use of credit paper in its various forms; but all these were in large use prior to 1873, and their increase can hardly have been so great as to meet the demands of growing commerce. Furthermore, of the other forces tending to raise the value of gold, the annual product of that metal has not increased materially, though the demand for it for other than money purposes has increased largely, leaving a less increment to neutralize the waste and to increase the supply of it. And lastly, many countries, as we have seen, about the year 1873 so changed their monetary laws as to use a much greater amount of gold, and a less amount of silver or paper. The United States alone, it is estimated, now uses about $600,000,000 of gold coin, while in 1873 it used practically none. The effects of this increase in the value of money have been--as the effects of falling prices always are--detrimental and disastrous in all gold-standard countries, to an extent that cannot be measured. Offset at times by increased use of credit, enterprise and industry have been able to rise to a success that an honest money would make their normal condition, only to be dashed down again by the collapse of credit with nothing to take its place. _Silver-Standard Prices._ There is a quite prevalent belief that the value of silver has fallen greatly since 1872. This is a natural sequence to the belief that gold has been stable in value, as the gold price of silver has declined from $1.32 per ounce in 1872, to $0.82 per ounce in 1892 (and since then the decline has been much more). This fall of about 38 per cent. must be deducted from the rise of from 24 to 41 per cent. (according to the different authorities) in the value of gold, in order to show the true change in the value or purchasing power of silver. It is evident, therefore, that the value of silver has been much more nearly constant than that of gold. This is confirmed by the statement of Mr. David A. Wells, in his work on "Recent Economic Changes," p. 236. There, Mr. Wells remarks:-- "In exclusively silver-using countries, like India and Mexico, the decline in the value of silver has not appreciably affected its purchasing power in respect to all domestic products and services; but the silver of such countries will not exchange for the same amount of gold as formerly, and it might be supposed that, owing to this change in the relative value of the two metals, the silver of India, Mexico, and other like countries would purchase correspondingly less of the commodities of foreign countries which are produced and sold on a gold basis. But the people of such countries have not thus far been sensible of any losses to themselves thereby accruing, for the reason that the gold prices of such foreign commodities as they are in the habit of buying have declined in a greater ratio since 1873 than has the silver which constitutes their standard of prices." He also says, in an article in _The Forum_ for October, 1893: "Testimony was given to the recent British Commission on Indian currency, that within the last twenty years half of the silver prices of commodities in India have risen and the other half fallen." In Plate 2, the dotted line shows the variations in the value of silver since 1872. This diagram is platted from calculations of the percentage of decline in the gold price of silver, taking the price of 1872 as 100 (this was also practically its price from 1840 to 1872, since the ratio of 15-1/2 of silver to 1 of gold was maintained within narrow limits during that time), and deducting these percentages of decline from the percentage of increase in gold value. In considering the relative constancy in the value of gold and silver, the lines representing each should be compared with the level price line of these metals in 1872. It will be noted that while silver has kept closer to this line than has gold, and on the average has varied but little from it, yet the fluctuations in the value of silver from year to year are quite as marked as in the case of gold. It will also be noticed that prior to 1872, under a bi-metallic standard, both metals, while maintaining a constant relation to each other, fluctuated in value quite as extensively as either alone has done since. The facts here shown as to the experience of this and other countries for the past fifty years, bear out the theoretical conclusions before stated, that the value of money, under any of the systems that have been used, is subject to violent fluctuations from year to year, due to a great variety of causes which are entirely beyond control, and that neither silver nor gold singly, nor both combined, has ever proved a reliable standard of value. CHAPTER V. CRITICISM OF SOME GOLD-STANDARD ARGUMENTS. Before proceeding with the main line of this argument, we will digress to notice some of the arguments put forth in support of the stability of the value of gold by those who cannot but recognize the great fall in general prices. While such writers do not deny the truth of the fundamental principles we have already considered, they either forget or ignore them. Notable among such writers is Mr. David A. Wells, and as his views may be taken as representative of many others, some statements from his article in _The Forum_ for October, 1893, previously mentioned, are here selected for criticism. In the beginning of that article, as well as in his work, "Recent Economic Changes," he clearly recognizes and states that there has been a great and universal decline in the prices of a variety of commodities within the last thirty years. He claims, however, that such a general fall of prices does not prove that the value of gold has increased, for the reason that, as he endeavours to show, such fall in prices was caused by lowered labour cost of production, due to improved machinery, better methods, greater division of labour, etc. All these facts may be freely admitted; the error lies in supposing that it makes any difference what the cause is. Since value is a relation, it will be altered by a change in either of the terms between which that relation exists, and it is immaterial whether a day's labour produces more commodities in general, and the same amount of gold, or a less amount of gold, and the same amount of commodities in general, as compared with some former period. The value of gold, other things being the same, is greater in both cases. The fact remains that if gold exchanges for more commodities in general than formerly, its value has risen. It is not clear what Mr. Wells' conception of value is, on which his arguments are based. He, however, seems to regard the labour that a commodity will purchase as the measure of its value, since he says, in the magazine article: "And then, in respect to the one thing that is everywhere purchased and sold for money to a greater extent than any other, namely labour, there can be no question that its price _measured in gold_ has increased in a marked degree everywhere in the civilized world during the last quarter of a century." "Measured by the price of labour, therefore, gold has unquestionably depreciated; and can anybody suggest a better measure for testing the issue?" The fallacy of using labour in any form as a test of value was pointed out in the chapter on value. That the labour a commodity will purchase is not in any way a standard of value, as between two different periods, has been shown by almost every economist from Ricardo down to the present time. The above quotations, in connection with the following from the same article, bring to light an important phase of the subject, which it may be well to make clear. Mr. Wells remarks:-- "A decline in prices, by reason of an impairment of the ability of the people of any country to purchase and consume, through poverty or pestilence or by reason of the misapplication of labour and capital, _i.e._ waste, ... is certainly an evil. But a decline in prices caused by greater economy and effectiveness in manufacture and greater skill and economy in distribution, in place of being a calamity, is a blessing and a benefit to all mankind." With growing knowledge, and the advancement of the arts and sciences, there is a continual improvement in methods of production and distribution, enabling the same amount of labour to produce and distribute to consumers a far greater amount of commodities in general than it formerly could. This has been conclusively shown in detail by a mass of statistics in Mr. Wells' book. The question arises, to whom should this increased product properly belong? For the purpose of this inquiry the community may be considered as divided into three separate classes, according to the source from which their principal income is derived; viz.-- (1) Labourers,--including all whose income is principally derived from their work, of hand or brain, whether as wages, salaries, or products directly created. (2) Employers of labour,--including all whose income is mainly derived from investments of capital directly in productive enterprises in the widest sense of the term,--those who take the risks of business incident to the doing of the work of the community. (3) Money lenders,--those whose income is derived from interest on loans; who, not wishing to take the risks and cares of active business, prefer to loan their capital to others who will do so, accepting as their share of the profits a definite amount as interest. The incomes of many people are derived, of course, from all three of these sources, but they may be considered as belonging to the class determined by their greatest revenue. It is evident that labourers should have a share of the increased product that greater skill, improved methods, machinery, etc., create; since labour is the direct cause of such increase, and not only the greater skill but the improved methods are due to labour. Equally evident is it that the capitalist who has taken the risks of business and whose wealth and enterprise have contributed to the results, should also share in the increased product. But all considerations of justice and equity forbid that those who, declining to take any risk themselves, prefer to loan their capital to others at a fixed compensation, should receive any share of the increased product which labourers and employers may succeed in creating, beyond such fixed compensation. Justice is satisfied when to them is returned the _value_ they loaned with the interest agreed upon for its use. It must not be forgotten that what is really loaned is capital,--commodities in general,--not money; the money is only a medium for effecting the transfer, and a measure of the capital transferred. What should be returned, therefore, in repayment of a loan is the same amount of commodities in general that was borrowed,--the same value. It is _not_ meant that bond-holders and money-lenders should be entitled to no share in the generally bettered condition of mankind due to lowered labour cost of producing commodities. They should, and in the long run would, receive their full share, through the higher rate of interest that increased general profits would bring if money value were constant, and by this means would obtain a _just_ share, determined by open competition and not an unjust share, determined by the insidious device of a varying measure. It _is_ meant, however, that the money-lender is entitled to no share in any increased productiveness of labour during the lifetime of his loan, beyond the interest stated. He gets his share of such increased productiveness through the higher interest he will subsequently receive in re-loaning his capital. If prices of commodities have declined while wages have increased, as Mr. Wells claims, it shows that the labourer, on the whole, has received some share of the increased production, since his wages will buy more of commodities in general than formerly. Whether the employer of labour has also received a share is more difficult to determine; but it is absolutely certain, if prices have fallen, that the money-lender, who is entitled to no share at all, aside from interest, has also received a share, and a very large one in many cases; since the money returned to him in discharge of a debt will purchase a much larger amount of commodities in general than it would when it was loaned; and this share has evidently been drawn from what should have gone to one or both of the other classes, and they are wronged to that extent. While the labourer may, or may not, have received the share to which he was entitled during the last twenty years, it seems highly probable, from Mr. Wells' statistics and arguments, that it is the employer of labour--who as a rule is the borrower--who has been injured most by the fall of prices. One of the great aims and endeavours of mankind is to produce the largest amount of commodities possible, with the least labour,--or to lower the labour cost of commodities. It is this lowered labour cost, which is "a blessing and benefit to all mankind," not lowered prices. The two are not the same, nor have they any real connection. Lowered labour cost depends solely on the improvement in skill, methods, machinery, etc., which will go on as well with prices constant on the average, as with falling prices,--in fact, even better,--and the product will then be distributed honestly; while with falling prices the distribution is dishonest. It is important to keep clearly in mind the distinction between capital and money. That Mr. Wells has not always done so, the following quotation will show:-- "Nobody, furthermore, has ever yet risen to explain the motive which has impelled the sellers of merchandise all over the world, during the last thirty years, to take lower prices for their goods in the face of an unexampled abundance of capital and low rate of interest, except upon the issue of the struggle between supply and demand." Capital is accumulated wealth devoted to the production of more wealth; money is merely a medium for the exchange and transfer of wealth: they are not synonymous terms. An abundance of capital may exist with a small amount of money (relative to the demand) and consequent low prices, or with a large amount of money and high prices: they have no connection. The rate of interest, also, has nothing to do with the question. Interest is determined by the amount of capital seeking investment in loans, relative to the demand, and in a time of relative contraction of the volume of money, and consequent falling prices, will, as a rule, be low, since there is less inducement for men to borrow capital to engage in business, and more men wishing to lend. The risks of business are much increased at such a time, and the profits much lessened, and as the rate of interest is determined by the profits of business in general, it will be low also. Mr. Wells, indeed, has recognized this fact elsewhere in his writings, but has evidently forgotten it in the above quotation. The accumulation of money in banks in times of depression indicates not too much money, but a general belief that its value is rising, or a fear that it will rise; testifying, if to anything, to too little money, in fact. Men do not hold a thing that brings no income unless they expect to profit by its rise. As to the main point of the above quotation, certainly men accept lower prices for merchandise because of the issue between supply and demand, but the supply of money is as much involved in the calculation as the supply of merchandise. Men accept lower prices--that is less gold--for commodities in general, because gold has increased in value. Mr. Wells further says:-- "No one has ever named a single commodity that has notably declined in price within the last thirty years, and satisfactorily proved, or even attempted to prove, that its decline was due to the appreciation of gold." No one, of course, could prove by the decline in price of a _single_ commodity that money or gold had appreciated; but when a writer admits, as Mr. Wells has done so clearly, that prices in general have fallen, no proof is needed; the statements are but different ways of saying the same thing. That in order to establish the appreciation of money it is necessary to show that _all_ commodities have fallen in price, or that the price experiences of different commodities had harmonized in their decline, as Mr. Wells implies, is manifestly absurd. Even if average prices were constant, there would be continual fluctuations of individual prices, some rising, others falling, and these continue the same with an increasing money value, so that some prices might not alter at all, or might rise even with a rising money value, but others again would decline in a greater degree than if the money value were constant. If the average purchasing power of money is greater, then its value is greater, whatever be the cause. So much space has been devoted to a criticism of this article because the opinions expressed in it seem to be fundamental and dangerous errors. Moreover, they are given added weight by the reputation and prominence of the author, while they are more or less representative of the arguments of other defenders of the gold standard. Either Mr. Wells is mistaken in his conception of _value_, and of the standard by which it is measured, or Ricardo, John Stuart Mill, and all other authorities on Political Economy are mistaken in supposing that the value of a commodity is its general purchasing power. CHAPTER VI. FOREIGN COMMERCE. It is claimed by many writers that international trade is carried on upon a gold basis, and that it is necessary, therefore, if a country is to maintain and increase such trade, that it should have its money based upon gold, since its "balance of trade" must be paid in gold. The idea of foreign trade involved in such statements is a relic of the old "mercantile theory" that the great object of any country was to export as much as possible of its products and receive in return the largest possible amount of gold and silver,--to get gold, in fact, at any hazard. This theory was buried, a century ago, under the weight of Adam Smith's arguments, and every economist since then has helped to bury it deeper; but its ghost still stalks and appears now and again in the form of such statements as the above, and in the common expressions "the balance of trade is against the country," or "the balance of trade is in favour of the country," meaning that gold is being exported or imported, and implying that the one is an injury or the other a benefit to the country. From a mercantile point of view, there is some justification for these expressions, and for the satisfaction felt at a condition of things requiring the import of gold. As before stated, the value of gold is inversely as general prices in gold-standard countries, and the import of gold means a lowering of its value and a general rise of prices,--which, of course, is what merchants like to have happen; and the export of gold means a fall in prices,--which they dread. Under a monetary system which maintained prices constant, on the average, the export or import of gold would be of no more importance than the export or import of corn or silk. From an economic standpoint the term _balance of trade_ is a misnomer, and is misleading. Equally misleading and erroneous is the idea that gold or silver is in any way necessary to foreign commerce, or that in consequence of a money being based on one of these metals such trade will be in any way enhanced. International trade is an exchange of commodities; not, to be sure, a direct barter, but an indirect one. One country exports those commodities which it can produce the cheapest, in exchange for those of other countries that are either not produced at all in the first country, or can be produced only at a greater cost than by import. The immediate force impelling to the export and import of commodities is, in all cases, a difference in their values in the two countries. This is no less true of gold than of other commodities, for gold will never move from one country to another except it be of lower value in the exporting than in the importing country, no matter how much the one may be owing the other. The expressions "balance of trade in favour of," or "against a country," means only that gold is at that time of higher value in one than in another country, by an amount above the cost of shipment, and is being exported or imported because there is a profit in so doing; but this furnishes no criterion whatever of the prosperity of a country. It frequently happens that gold moves for a considerable time from one country to another because of large production of gold in the exporting country. That cannot be considered a bad condition of business or unfortunate for the exporting country, unless the commodities received in exchange are useless, or are wasted. At other times it frequently happens that a country is importing gold, giving in exchange not only other commodities, but promises to pay back the value received, in the shape of bonds and stocks--running in debt, in fact. This may be a good or a bad thing for the country, as for an individual, according as the value received is profitably used or not. It certainly is no sure indication of real prosperity. The operations of foreign trade create a great number of claims and obligations on the part of citizens of one country against, as well as in favour of, the citizens of all others. These claims consist of drafts, bills of exchange, letters of credit, etc., and are expressed in every kind of money that exists, whether based on gold or silver, or simply inconvertible paper. Through the medium of foreign exchange banks these claims are offset against each other and cancelled. Between two countries having the same monetary standard there exists what is called the par of exchange; that is, the ratio between the weights of gold or silver in their respective units. The actual rate of exchange--that is, the price which will be paid in one money for claims expressed in another--seldom conforms to this nominal par. The bills of exchange, etc., representing claims of the exporters of one country against the importers of another may be regarded as a sort of commodity, and subject to the law of supply and demand. If one country, A., has more claims against another, B., than B. has against A., then the demand will be stronger for those which are fewer, and the price will rise, and _vice versa_. The prices of exchange cannot vary from the par of exchange between gold-standard countries much more than the cost of shipment of gold; for if they do, it will become profitable to export or import gold, and this will create new claims balancing the others. The variation of exchange rates within these limits is quite sufficient, however, to cause the _actual_ exchange rate, and not the nominal one, to be reckoned on by those engaged in foreign trade. There exists, and always has existed, an _actual_ exchange rate between the money units of all countries, or between the claims expressed therein, no matter what the money was based on; although there cannot be a par of exchange except between moneys based on the same metal. These actual rates are continually varying, even between countries like England and Australia, which not only use the same standard, but a common unit, and there is, therefore, no difference in the practical working of exchange between countries having the same standard and those having different ones. The inference to be drawn from these facts and theories is, that it would make no difference in the foreign trade of any country if it did not possess an ounce of gold or of silver, or whether its money was based on gold or was inconvertible paper; if the country produces commodities that other countries want, and wants some that other countries produce, the commerce will continue. If the money of either country is fluctuating in value, relative to the other, to any great extent, it may introduce some uncertainty that will hamper and inconvenience trade,--though to a less extent than a variable money would in its own country, as there are means by which such fluctuations can be guarded against; but unless the changes are sudden and violent, no inconvenience will be experienced, as the actual exchange rates are more or less always fluctuating. In support of these statements, and as showing that they are borne out by practical experience, the following quotations are given from Mr. Wells' "Recent Economic Changes," in reference to trade between a silver and a gold standard country when the relative values of the two metals were changing quite rapidly. He says, p. 239:-- "Mr. Lord, a director of the Manchester (England) Chamber of Commerce, testified before the Commission on the Depression of Trade, in 1886, that 'So far as India was concerned, it is not necessary to run any risk at all from the uncertainties of exchange.' Mr. Blythell (representing the Bombay Chamber of Commerce) testified before the same commission, ... 'There is no difficulty in negotiating any transaction for shipping goods to India and in securing exchange.'" Mr. Wells says: "Thus from returns officially presented to the British Gold and Silver Commission, 1886, it was established that the trade of Great Britain with India since 1874 had relatively grown faster than with any foreign country 'except the United States and perhaps Holland.'" He also says, of Mexican exchange, p. 241: "The fluctuations in the price of silver since 1873--Mexican exchange having varied in New York in recent years from 114 to 140--would seem, necessarily, to have been a disturbing factor of no little importance in the trade between United States and Mexico; but the official statistics of the trade between the two countries since 1873 (notoriously undervalued) fail to show that any serious interruption has occurred." During this period, Mexico had a silver standard, while the United States had inconvertible paper for nearly six years of it, and a gold standard for the remaining period. Mr. Wells further states:-- "In forming any opinion in respect to this problem, it is important to steadily keep in mind the fact that international trade is trade in commodities and not in money; and that the precious metals come in only for the settlement of balances.... The trade between England and India is an exchange of service for service. Its character would not be altered if India should adopt the gold standard to-morrow, or if she should, like Russia, adopt an irredeemable paper currency, or, like China, buy and sell by weight instead of tale.... Unless all the postulates of political economy are false--unless we are entirely mistaken in supposing that men in their individual capacity, and hence in their aggregate capacity as nations, are seeking the most satisfaction with the least labour, we must assume that India, England, and America produce and sell their goods to one another for the most they can get in other goods, regardless of the kind of money that their neighbours use or that they themselves use." From the time of the Civil War until 1879, this country, though nominally on a gold and silver basis, was actually using a depreciated paper money. No serious inconvenience was experienced in our foreign trade during the greater part of this time; when the currency was most fluctuating, it doubtless did disturb all business, both foreign and domestic, but this was due to its great and sudden changes, and may be regarded as abnormal, and unlikely under a proper system again to occur. Walter Bagehot, in his work, "A Universal Money," observes:-- "If France and America had the same currencies as England, it would still happen, as now, that bills on Paris or New York would be at a discount or a premium. The amount of money wishing to go eastward across the Atlantic, and the amount wishing to go westward, would then, as now, settle how much was to be paid in London for bills on New York, and how much was to be paid in New York for bills on London." It must be evident that if the people of one country have incurred debts to the people of another country expressed in foreign monetary units, nothing but such foreign money will satisfy the claim, and to procure it the debtors must ship some commodity in exchange for it. What this commodity will be, will depend on which is the cheapest--which one the debtor, everything considered, will have to give the least of in exchange for the necessary foreign money,--it may be claims against foreign merchants, or bankers, in the shape of drafts or bills of exchange, or it may be gold, if that is cheaper, or it may be wheat, or cotton, or any other commodity, but it will always be that which the debtor can purchase cheapest. If it be gold, it will be because the debtor can purchase enough gold to exchange for the required amount of foreign money for less of his own money (including transportation and other charges) than he can purchase a sufficient amount of any other commodity, and not because the foreign money is based on gold. In short, the gold differs in no way from any other commodity in such transactions; it is exchanged for the foreign money, which alone can satisfy the debt, precisely as any other commodity. That both gold and silver may be a convenience at times in international trade is not denied; but they are not a necessity, and their convenience for this purpose is in no way enhanced by their coinage or by their use as a domestic money. CHAPTER VII. MONEY IN THE UNITED STATES. Turning from the consideration of money systems in general to the particular case presented in our own country, we find a most curious system--if, indeed, anything bearing so little evidence of rational adaptation to its purpose is entitled to that name. The unit of the system is the gold dollar, containing 25.8 grains of standard gold, nine-tenths fine, coined in five, ten, and twenty dollar pieces. There is also a silver dollar, containing 412-1/2 grains of standard silver, nine-tenths fine, the ratio between the two being 15.988 grains of silver to one of gold. The gold is coined free, in any amount presented. The silver coinage has been restricted for many years, and is now entirely stopped. The silver dollar, however, circulates at par with gold, though its bullion value is only about fifty cents measured in gold, which is the real basis of the system. In addition to the coin, and circulating on a par with it, are a number and variety of issues of paper money. (1) United States notes (or greenbacks),--secured only by the credit of the government, except that there is held in the Treasury about 30 per cent. of the amount of these notes in gold as a redemption fund. (2) National bank-notes,--issued nominally by the various national banks of the country, but practically issued by the government; since they are secured by a deposit of government bonds, are guaranteed by the government, and rest as completely on the credit of the government as the greenbacks do, though in a different way. (3) Silver certificates,--secured by a deposit of silver bullion. (4) Gold certificates,--secured by a like deposit of gold. (5) Treasury notes,--secured by deposits of silver. (6) Currency certificates. All of these kinds of paper money, as well as the silver coin, circulate on a par with gold; their utilities being equal, and the demand for money being an indiscriminate one, their values must be equal. As a domestic money, gold cannot have a higher value than the issues of paper money; though it may, however, have a greater value as a commodity for foreign shipment. It is not the fact that these other forms of money may be exchanged directly or indirectly for gold at the United States Treasury that makes their values equal to gold value, but the fact that their _utilities_ are equal. They would remain of equal value with gold if the Treasury did not exchange gold for them, so long as any gold remained in circulation as money. A gold reserve, however, is necessary as a precaution in a gold-standard system, but only to the extent of the probable demand for gold for export. The system as a whole is a ridiculous one, and nearly all its features are wasteful and uneconomic. Gold coin, as a circulating medium, is not as good as paper; it has a high subjective value, and such use of it is wasteful; it should be kept as a reserve for export purposes. The gold certificates are better, but are also wasteful; since only a sufficient reserve is needed to meet possible demands for export, and this would be far less than dollar for dollar. The silver coin is open to the same objection as the gold coin as a circulating medium, and the silver certificates to the same objection as the gold certificates, and to the further objection that the silver deposited to secure them is of no use whatever, even as a reserve, for no one would demand silver bullion of the government in exchange for paper money at the present coinage value, when they could purchase nearly twice as much in the open market for the same money. Unless, then, our money should fall in value some 50 per cent., not an ounce of silver will ever be called for at the Treasury in exchange for the paper issues based thereon; and the silver deposits are merely a clumsy and costly method of limiting the volume of the paper money. The greenbacks, or United States notes, are economical, and if they were variable in volume and under proper control would be a good money. The national bank-notes are wrong in principle, in allowing private corporations to make a profit from the issuance of paper money. This objection is of no practical importance, at present, as the restrictions and high bond prices have taken away practically all the profit to the banks on the issues, but in so doing have also taken away about the only merit such notes ever had, that of elasticity of volume to some extent. This was a most doubtful merit at best, as the issues were governed by considerations of private profit and not by any desire to make money of stable value. Whatever may have been the merits of the national banking system in the past, the war necessities of the government which gave birth to it, have long since passed away. It can be viewed now only in the light of its present usefulness, and as an issuer of money it is of no use whatever. Paper money received by deposit of bonds instead of bullion is economical and correct in principle, if controlled in the interests of the public, and not left at the mercy of men whose private interests may be opposed to the public welfare. No such control of the volume of the money is attempted in the case of the national bank-notes, and they are no more secure than are greenbacks, since the ultimate foundation of both is the national credit in one form or another. Of all our different kinds of money, the only ones susceptible of change in volume to meet the varying demands of commerce are, under existing laws, the gold coin and certificates. These can be changed only by the import or export of gold, or by the product of the mines over and above the amount needed for the arts and sciences, and which must be divided with other gold-standard countries. The national bank-notes are theoretically elastic in volume, but actually are not so, to any appreciable extent. They require for their issue the purchase and deposit with the United States Treasurer of government bonds,--now at a large premium,--are subject to other charges and restrictions, and are not, as a rule, profitable enough to the banks to cause any increase of the issues above that required by law, except in urgent necessity, and that to a very limited extent. As a result of these conditions, the country witnessed, during the recent panic of 1893, a resort to every kind of device known to banking and permissible by law, to increase the volume of the currency and meet the enhanced demand for money caused by the utter failure of credit. Certified checks, certificates of deposit, clearing-house certificates, and other devices were resorted to, and even then thousands of solvent institutions over the country were obliged to close their doors, and the industry of the whole country was paralyzed. The events are of too recent occurrence to need rehearsal here. It is a sad commentary on the wisdom of our legislators that, notwithstanding all the tinkering and patching that our financial system has undergone, and the voluminous debates in and out of Congress for years past, the volume of our money has been so far from keeping pace with the demands of commerce that prices have been falling for a quarter of a century, culminating last year--a repetition, unhappily, of previous experience--in a collapse of the overstrained credit that was vainly trying to do the work of money, and bringing ruin and disaster to thousands. The condition of our monetary laws to-day is such that, except by the slow increment of gold production, which must be shared by all the world, we possess no means of meeting either the increasing demand for money that expanding population and commerce bring, or the sudden demand that a failure of credit may bring at any time. This, obviously, is a blunder on the part of our law-makers that amounts to a crime. It is not surprising that under such conditions the industries of the country are crippled and that thousands of men should seek work in vain. Still less surprising is it that in the face of a continually increasing value of money, or decreasing prices of nearly everything else, prudent men choose, as far as possible, to turn their capital into money, lock it up in safe deposit vaults, or let it lie idle in banks, rather than take the great risk that any active use of capital under such circumstances carries with it. When money is increasing in purchasing power from five to seven, and even a higher per cent. per annum, as has been shown to be the case many times in the past, it means that the man who locks his money up in a vault gets that percentage of return for letting it lie idle; or that the man who loans it, even at a low rate of interest,--if a loan with safe security can be found at such a juncture,--makes the five to seven per cent. resulting from the increased value, in addition to what he gets as interest. Men cannot be blamed for declining to engage in productive enterprises under such conditions, nor for hoarding money instead of using it; the blame lies on the system that not only permits but compels such action. There is evidently no inducement for men with money to invest it in any productive business with the certainty, under existing conditions, that the record of the past will be that also of the future, and that if a return of confidence again expands credit and stimulates business to a new activity, it is sure to be followed, at no distant day, by another collapse. It must be conceded, with these considerations in mind, that the imperative need of this country is for a money that shall be at once more honest, more simple, and more elastic, and, at the same time, adaptable to the varying demands of commerce. Any change in a money system must, of necessity, cause some disturbance of business, and such change should be so devised as to cause the least possible disturbance, and do as little injury to vested interests and existing obligations as possible. The system chosen should, moreover, be adapted not only to the needs of the present, but also to the possible requirements of the future, so that no change of system will afterwards be called for to meet further changes in demand, and cause again a disturbance of commerce. In short, it should be a system logical, economical, scientific, and permanent,--not a makeshift, to be changed in the next Congress by the addition of another makeshift, in the manner in which our present crazy patchwork of money has been created and maintained. CHAPTER VIII. SOME PROPOSED CHANGES IN OUR MONEY SYSTEM. Of the many plans that have been proposed to correct the evils of our existing money system, it is not necessary to notice here more than two or three. Most of the others are more or less temporary expedients which, even if meritorious, fall so far short of an adequate or permanent solution of the problem as to merit little attention. The change which has been most urgently advocated is a return to the free coinage of silver. It is not proposed to enter into any extended discussion of the merits or demerits of this proposition. Much has been written on the subject already, most of it, unfortunately, from a partisan standpoint, and ignoring all facts and principles, however well established, which did not agree with the views advocated. This, it may be said, is equally true of both sides to the controversy. It seems desirable, therefore, to point out how the principles we have already investigated apply to the question. Those who advocate free coinage of silver claim that the value of gold has increased since free silver coinage was stopped, while the value of silver has remained more nearly constant. This claim, as we have seen, is correct. They claim not to desire to substitute silver for gold in the coinage, but to use both together at the ratio of 15.988 to 1, under a bi-metallic system, increasing the volume of money, and thereby raising prices to a higher level. Their opponents say that free silver coinage will drive gold out of the country and the value of our standard will at once fall to the present bullion value of silver (about 50 to 60 cents, measured in gold), and that bi-metallism is only practicable by agreement between the leading nations. That free coinage of silver would result in driving gold from the country has been largely denied by the advocates of that measure. In this denial they make a great mistake, not only because the statement is strictly true, as theory and experience in the past have alike shown, but also because it would accomplish what they are aiming at, and is the only way in which it can be accomplished through silver coinage. The increase in the volume of money here would raise prices, and the flow of gold to other countries would raise their prices also, and thus a general rise of prices and a lowering of the value of gold, would result. The gold-standard advocates have also made an error in supposing that free silver coinage would result in the _immediate_ fall of our standard to the present bullion value of the silver dollar. It would be rather difficult to trace the immediate effects of such a measure, as several conflicting forces would be brought into play, the relative strengths of which could not be foretold. It seems probable, however, that the first effect would be a large rise in the price of silver bullion, and a hoarding of gold, followed by its export in exchange for silver. For a time this would cause a fall in prices of other commodities, followed by a rise, as the new coinage began to fill the place of the gold hoarded and exported. However this might be, it can hardly be doubted that the final result would be a rise in prices of commodities--including silver--as measured in gold, or a fall in the value of gold all over the world as measured by commodities. Our money would probably remain at a slight depreciation below our gold standard, while both together would gradually lower. This condition would be made manifest by gradually increasing prices, and would continue either until all the available gold had been exported, or until the rising value of silver met the falling value of gold at the coinage ratio of 15.98 to 1. Whichever of these results took place would depend on the relative amounts of gold available for export and of silver for import, and could hardly be foretold. It seems more than likely, however, that the gold would all be exported. In this case, the country would have the silver standard, and the value of the dollar would be somewhat lower than the value of a gold dollar then, and considerably lower than the value of a gold dollar now, but also considerably higher than the bullion value of the silver dollar is now. If the two dollars reached a parity at their coinage ratio before all the gold was exported, the country would have not only a bi-metallic standard, but would practically force such a standard on the rest of the world, as long at least as the gold supply held out. If foreign nations returned also to the free coinage of silver, they would either have to change their ratio to agree with ours, or, if they kept their present ratio of 15-1/2 to 1, the silver would gradually leave us in exchange for their gold. The fear of a sudden fall in the value of the dollar, as a result of free silver coinage, is not justified. The value of the dollar would fall gradually as the volume of the money increased,--as would be made manifest by gradually rising prices,--except that this fall would be more or less counteracted at the start by a hoarding of gold, which would decrease the supply of money, and perhaps by a disturbance of credit, which would increase the demand for it. The first effects might be, therefore, an increase instead of a decrease of money value. It would probably not make so very much difference whether bi-metallism or the single silver standard was the final result. The value of the dollar would not be greatly different in the two cases. Before we reached a silver basis we would have exported some five or six hundred millions of gold, and bought its equivalent in silver, securities, and commodities, and the result would necessarily be a great advance in the value of silver, and a corresponding fall in the value of gold,--the reverse, in fact, of what happened when Germany and other nations changed from a silver to a gold basis. Whether, therefore, this country were able or not to restore the parity of the two metals at the present coinage ratio, the departure from such parity would not be nearly so great as it now is. Provided that the volume of the uncovered paper money remained the same as now, and that, when the change was finally accomplished, credit were used to the same extent as before, the value of the dollar would be somewhere between the present bullion values of the gold and silver dollars, and probably nearly as high if the result were the single silver standard as it would be if bi-metallism were accomplished. The merits and demerits of the plan may be summed up as follows:-- The change would necessarily cause a great disturbance of business, which might result, at first, in a lowering of prices, but would eventually result in a gradual but considerable increase of general prices, and a stimulation of industry. Debtors would be benefited considerably, and creditors wronged considerably, especially in short-time obligations; though the long-time ones--those that had run for a number of years--would not be affected so much. Once established, the money value would probably be less variable than gold has been, and rather more variable than silver has been in the past, but this could not be said with certainty, as the money value would continue to be the result of a variety of forces, of which no one could predict or control the strength. The inconvenience of so bulky a metal in large amounts would almost necessitate its deposit in vaults and the issue of paper money in its place for actual circulation. If this paper were issued only to the amount of the silver deposited, it would be a most uneconomical system, since the greater part of the silver might evidently just as well be in the ground from which it was dug, so far as any real use was concerned. If paper were issued in excess of the silver deposited, it would not make a market for very much more silver than we now use, and the value of silver would be raised but little. The value of the money would therefore depend largely on the use that was made of paper in connection with it. Without some control of the volume of the money besides the control the supply of silver would give, its value would continue to fluctuate at all times, and greatly so in times of panic, as it always has done. With proper control the silver is wholly unnecessary, as its only use is to limit the volume of the money, and this can be done far more cheaply and efficiently in other ways. Little need be said of the "Greenback" or fiat money proposals, so prominent some years ago, though they are seldom advocated now. Their only merit was a dim perception of the fact that gold and silver are not necessary to a money system. Their errors were that they failed to provide any standard by which money value could be tested, or any control had of its volume. They also failed to recognize the fact that money value is wholly dependent on money volume. Various plans have been proposed for changing our money system by increasing the issues of bank-notes. One of these plans is to repeal the present prohibitory tax on State bank-notes, which would, of course, result in the issue of such notes to any extent that was profitable. Several other plans propose to increase the issue of national bank-notes by removing some of the present restrictions, and allowing the banks to pledge other securities than United States bonds as a guarantee of their circulation, or by allowing their capital to serve, in part, as such guarantee. All of these plans are merely makeshifts, and merit little attention. Considered, however, only as makeshifts, and with reference solely to the claims they advance, they are of no permanent benefit to the public. They only allow the banks to make a profit that should go to the community. It is claimed that the money volume will be made more elastic by these issues. This claim does not appear to be justified by an analysis of most of them, and, so far as it holds good in any of them, it is a most dangerous feature. If the issues are made profitable to the banks,--and otherwise there would, of course, be no issues, as they are not compulsory,--then the banks would undoubtedly increase them to the full limit allowed by law at any time. If they were limited so as to be profitable only when interest rates were high, then, when times were prosperous, prices rising, and profits large, the interest rate would be high, and the increased issues would enhance the "boom." When, however, the inevitable reaction came, and prices began to fall, and credit to be withdrawn,--the time, most of all, when more money would be needed,--the banks would not only be helpless to increase their issues, but would very likely reduce them, because of the increased risk at such times, and the fact that, in times of depression and declining prices, interest rates are apt to be low also. Elasticity of volume is a most necessary feature of a money system, when it is rigidly controlled, to make money value constant; but it would be a most dangerous feature when the control was governed by the desire only to make the most profit. It would simply result in a greater fluctuation of money value than there is now. We have, so far, examined these various plans for amending our faulty money system rather in regard to the truth of their pretences than in regard to the requirements of an honest money. In this latter respect, all the plans ignore the necessity for an invariable standard of value, and provide no method for controlling the volume of money, and adjusting it to the demand, as might be done, to some extent, even with the gold standard. The general decline of prices could not be prevented, though some of the fluctuations might. The fact must be faced, that any attempt to increase the volume of money in this country, and thereby raise our prices above those of other countries, or to maintain our prices in gold constant, while those of other countries are declining, can result only in the export of gold. This might not happen at once, for it takes time for Gresham's law to operate, but it would be inevitable. It would probably be delayed somewhat by foreign speculation in our securities,--always a powerful factor in determining the value of our money,--but it would come; and the resulting depression would be all the greater for the delay and the height of the prosperity that preceded it. So long as our money is based on a metal that forms a part of the money of other countries, under a free coinage system, so long will the value of our money fluctuate under the influence of foreign monetary legislation, wars, panics, and a hundred forces beyond our control. Only by divorcing our money from that of other countries can we control it, and only by controlling it can it be made honest money. CHAPTER IX. A NEW MONETARY SYSTEM. In the development of commerce from simple barter between savages up to its present complicated form and enormous volume, an evolution is apparent, similar in character to that which has taken place in the organic world. In both the change has been from the simple and homogeneous to the complex and heterogeneous. In both it has been a differentiation of the functions of the several parts, accompanied by an increased sensitiveness of the whole. The primitive form of commerce, direct barter, may be compared to one of the lowest forms of animal life, in which all parts are alike mouth and stomach, and which if cut into pieces, will exist, severally, as a complete animal; while modern commerce, with its various parts, each with a separate function, and its highly sensitive organism, is more like a human being, in which each part is adapted to the work it has to perform and is dependent on all the others, so that the failure of any one to do its work cripples all the rest. Just as the cutting or maiming of a low form of animal life is of little damage to it, while a far less injury, relatively, would kill or seriously maim a man, so an injury to commerce, that in a primitive form would amount to little, in our modern highly developed system would cripple it greatly. Money is one of the most important parts of our industrial system,--the very life-blood, in fact,--and if, for any reason, it fails to perform its functions fully and completely, the consequences are far more disastrous than they would have been under the more primitive systems of the past. Along with the evolution of commerce in general has gone an evolution of money and the mechanism of exchange. As the volume of traffic grew larger, the use of the bulkier commodities as money was gradually abandoned for the more valuable metals. In time, even these became too bulky and inconvenient for use as a medium of exchange, and credit, in its various forms, now does the work of money, as to this function, to a far greater extent than money itself does, and even the money itself is mostly a paper money,--a sort of certified credit. As previously stated, about 95 per cent of the bank deposits are in forms of credit, and of the actual money deposits only about one-tenth is gold, the balance being paper money and silver; so that, on the strength of these estimates, only .6 per cent of the exchanges of commodities are effected through the direct use of gold. This evolution of money, however, has been almost wholly confined to the one function, a medium of exchange; there has been no advance for centuries in regard to the other function, a measure of value. Men have continued to cling to the fiction that gold was a standard of value, and that, so long as their monetary system was based on that metal, their unit was of invariable value. We have seen how little ground there is for this claim; that a gold basis for our money is not necessary to our foreign commerce; and how small a part gold really plays in domestic commerce as a medium of exchange. Is it not about time, then, to abandon the fiction that gold is either a standard of value or a medium of exchange, in any proper sense of the terms, and to take a forward step in the evolution of money by adopting a more scientific standard of value, and making the money, as a measure of value, conform thereto? Professor Jevons, in "Money and the Mechanism of Exchange," in the chapter on "A Tabular Standard of Value," inquires whether it is not possible to have a standard based on a large number of commodities,--a "multiple legal tender," as he terms it,--and concludes that the plan would resolve itself into those severally proposed by Joseph Lowe in 1822, and, independently, by G. Poulett Scrope in 1833, and by G. R. Porter in 1838. These plans were practically alike. Recognizing the fluctuations of money value, and the injury done especially to long-time debts thereby, they proposed that tables be prepared showing the variations from year to year of the prices of the principal commodities, taking into account, also, the amounts sold. These tables were to be used for reference, to ascertain in what degree a money contract must be varied so as to make the purchasing power of the money returned equal to that loaned. The plans seem to have been only suggestions, and the details not worked out. Professor Jevons speaks favourably of them, as perfectly sound in principle, and the difficulties in the way as not considerable. He suggests a method by which the average prices of the commodities could be computed, and closes with the statement: "Such a standard would add a wholly new degree of stability to social relations, securing the fixed incomes of individuals and public institutions from the depreciation which they have often suffered. Speculation, too, based upon the frequent oscillations of prices which take place in the present state of commerce, would be to a certain extent discouraged. The calculations of merchants would be less frequently frustrated by causes beyond their own control, and many bankruptcies would be prevented. Periodical collapses of credit would no doubt recur from time to time, but the intensity of the crisis would be mitigated, because, as prices fell, the liabilities of debtors would decrease approximately in the same ratio." Prof. F. A. Walker, referring to these schemes, and to similar ones proposed by Count Soden and by Professor Roscher in Germany, criticises them as too cumbersome for general use, but thinks they might be advantageously employed for long-time contracts. The criticism is evidently just; not only are the plans too cumbersome, but they only partially accomplish what is needed. They contain, however, the germ of a plan which it is believed would be both more effective and less open to the criticism mentioned. Long and short time contracts, and cash transactions, are too intimately connected to make it possible in practice to use different and varying standards for each. Since the values of all commodities constitute the only true standard of value, as close an approximation to this standard as possible should be adopted as our standard of value. Since the value of the circulating medium--the money--depends on supply and demand, the supply should be so controlled that the value of the money would always correspond with that of the standard adopted, and since paper money is the cheapest, the most convenient, and the only money entirely free from outside influences affecting its volume and value, our currency should be a paper money. The following is given as the outline of a plan embodying these features and requirements. _The Standard of Value._ Let a commission be appointed by Congress to select a sufficient number of commodities, say, one hundred, to be used as a standard of value. This selection should comprise the commodities most largely bought and sold and most independent of each other in their values; preference should be given to those which are products of this country,--but foreign products should also be included,--and to those which are reliable in quality and of which the prices are regularly quoted--such, for instance, as wheat, corn, oats, rye, barley, cotton, wool, tobacco, rice, gold, silver, lead, copper, tin, iron, steel, cotton and woollen cloths, leather, hides, lumber of various kinds, sugar, beef, pork, mutton, etc. The aim should be, while not including all commodities, which would of course be impossible, to include a sufficient number and of such varied kinds as to fairly represent all. Less than a hundred might be sufficient, or it might be better to take more than that number. With the aid of statisticians, the average price of each of the commodities selected, in their principal markets for a few years past, should be ascertained and tabulated. The commodities, of course, should be of specified grade and quality, and in a specified market, but not necessarily the same market for all. The length of time over which the average of prices should extend would be determined as closely as possible by the average length of time that existing indebtedness had run. (The reason for this will be explained later.) In addition to the average prices of each commodity, the approximate amount or value annually consumed in this country, should be ascertained. From these data, a table should be prepared showing the amount one dollar would have purchased, on the average, of each of the commodities for the time determined, and from this a final table should be made taking such multiples of the amounts found in the previous table as should represent their proportionate consumption,--in other words, their relative importance in trade. For example, suppose the time selected were five years, as representing twice the average time existing debts had run; that during that time one dollar would have bought, on the average, 1.25 bushels of wheat, or 3 bushels of corn, or 100 pounds of pig iron, or 10 pounds of cotton, all of specified grade in specified markets; that, further, the importance of each of these commodities in the trade of this country was in the approximate proportions of 5, 3, 2, and 1, respectively. Then the final table would show:-- 5 × 1.25 = 6.25 bushels of wheat = $5.00 3 × 3 = 9 bushels of corn = 3.00 2 × 100 = 200 lbs. of pig iron = 2.00 1 × 10 = 10 lbs. of cotton = 1.00 ----- Total, $11.00 Considering these four commodities only, the dollar, as the unit and standard of value of our system, would be defined by law as one-eleventh of the sum of the values of 6.25 bushels of wheat, 9 bushels of corn, 200 pounds of pig iron, and 10 pounds of cotton. This illustrates the method of arriving at, and the definition of, the standard. Extended to all the commodities selected, the definition would be the same with the substitution of the proper figures. This would evidently provide a standard that would closely represent the average purchasing power of one dollar for the time selected. As to the length of time over which this average should extend, if there were no such thing as existing debts, it would clearly be of little importance what the value of the unit selected was, just as it would be of no importance now whether the foot or the pound had been originally fixed at greater or less than their present length and weight; but because of the vast amount of existing indebtedness, the value of the unit that is to be made permanent should be most carefully fixed at the value it had when such indebtedness was created, so as to do as little violence as possible to outstanding obligations. The fact that in the past the debtors have been wronged to the advantage of creditors, by an increasing value of money, furnishes no excuse for a reversal of this injustice and a wronging of creditors by permanently fixing the value of the dollar at what it was twenty or thirty years ago. The debtors and creditors of to-day are not the same individuals who stood in those relations at any time in the past, and two wrongs do not make a right. The object should be, therefore, to determine as closely as possible how many years, on the average, existing debts have run, and take twice that period for the total length of time over which our prices should be determined. The average of the prices would then correspond with what it was when average debts were incurred. This would doubtless work a slight injustice to those whose debts were of longer standing,--though a less injustice than they are subject to now,--and would be a slight injustice to the creditors of more recent date; but as some time would be occupied in getting the system to work, so that the actual value of the money would correspond with the standard, the injustice would be more or less distributed, and would at most be slight. It would be substituting only a gradual rise in prices for the decline that has been going on, until prices were back to the level of perhaps two or three years before, and then fixing the level at that point. _The Medium of Exchange._ After the statistical work outlined above had been completed, Congress should repeal the present monetary laws, substituting for the definition of the "dollar" the new definition agreed upon. It should then provide a currency or money to take the place of that now used. This currency should be a paper money similar to our "greenbacks." It should be a legal tender for all debts public and private (except, of course, such as by their terms are payable in gold). In fact, the only difference between such notes and existing "promises to pay" of the government would be that the new notes, as is evident from the new definition of the dollar, would be promises to pay _a definite value_, and not a definite quantity of one commodity of uncertain value. The notes could be made redeemable _in any commodity at its current market price_, and should contain a pledge, on the faith of the government, that the amount of the currency in circulation would be at all times so controlled by the government that its actual purchasing power would conform to the standard on which it was based. To carry out this pledge, it would be necessary to have a small corps of statisticians who would receive and tabulate the current market prices for each day; and who would calculate therefrom the aggregate prices of the specified quantities of all the commodities constituting the standard,--in similar form to the final table before mentioned, and of which an example has been given. If this aggregate for any clay were more or less than the total of the standard table, it would show that prices in general had risen or fallen, and some money should be withdrawn from circulation, or more issued until the daily total corresponded with the standard total. Doubtless several plans might be proposed for putting such a money into circulation and controlling its volume. The following seems to commend itself by its simplicity and effectiveness of control, for at least a part, if not all, of the issues, viz.: The money to be loaned by the government on approved securities, such as their own bonds; other bonds of states, counties, cities, railroads, etc.; warehouse receipts, gold and silver deposits, etc. First-class commercial paper, when guaranteed by solvent banks, might also be taken, especially in case of threatened panic. In short, such securities as would be considered the safest for banks and trust companies to loan upon, all under such proper restrictions and safeguards as would insure their safety as collateral. The rate of interest charged for such loans to be a _variable one_, decreasing as prices tended to fall, and increasing as they tended to rise, and without other restriction. This would absolutely control the volume of money, within narrow limits, since more would be borrowed at a lower, and less at a higher rate, of interest, yet the control would be elastic. While the loans should be for short time, they could be renewed at pleasure, and as often as desired, at the current rate of interest, the security remaining good. Such a plan would not interfere with general banking business to any considerable extent. In order to prevent monopoly, the loans should be open to all on equal terms, and the list of approved securities acceptable as collateral should be made as wide as possible, consistent with safety. It would probably be found by experience, however, that the principal borrowers direct from the government would be the banks, who would re-loan the money (at a sufficiently higher rate to pay them for their trouble) to their customers, on local securities, commercial paper, etc., as they now do. In fact, the present system of national banks could be made, with few changes in the regulations governing them, a most valuable adjunct to the plan as a distributing agency, and the plan is one that it would seem ought to meet with approval. They would, it is true, lose their present note circulation, but that, under existing laws and conditions, is of little or no profit to them. They would gain by its being unnecessary for them to keep so large a reserve of cash on hand as they are often obliged to do now; for not only would the whole financial system be more stable than now, but they might safely be allowed to carry a part of the present 15 to 25 per cent. reserve, required by law, in such securities as they could at all times use as collateral with the government. They would gain even more by the security such a system presents against panics and senseless runs, which so often compel solvent banks to close their doors. In short, the government would act toward the banks, not as a competitor, but rather in the relation that the New York clearing-house has several times acted toward its members in times of panic, by the issue of clearing-house certificates,--a quasi-money that helped them in time of need. The government would not be subject to the limitations of the clearing-house, however. The money it loaned would be, unlike clearing-house certificates, a legal tender everywhere; and the protection would extend to all the banks of the country. The government would act toward the banks in somewhat the same way as they act toward individuals, or as the Bank of England acts towards the other English banks, as a sort of reserve agent. In this case, however, the resources as to money would be unlimited. In the manner of regulating the volume of money, also, this plan would resemble that of the Bank of England, since that institution attempts in a feeble way, and prompted doubtless by self-interest, to regulate the volume of money, to some extent, by raising the discount rate when the volume is decreasing, as evidenced by exports of gold, and lowering the rate when gold is being imported. If it were impossible or inexpedient to loan in the above manner all the money the country required, a sufficient amount could be so loaned as to give an absolute control of the volume, and to regulate its value at all times, and the balance could be issued in exchange for the present greenbacks, and for interest-bearing bonds of the government, thus converting a part of the interest-bearing debt into a permanent non-interest-bearing one. It is evident that the control of such a system should rest with the government, and not be left to any banking institution; for a bank would be more influenced by considerations of profit than of proper control in the interests of all. The interest received by the government would be a minor consideration, the control of the volume being the main object, and the rate of interest a means merely to that end. The people, besides, would have at all times a greater confidence in notes issued directly by the government than they could have in notes issued by any bank, however strong. The department of the government to be charged with this issuing function should, of course, be entirely distinct and separate from the other departments. Its sole business should be the maintenance of an honest money. It should have no connection with the general expenditures of the government, further than to pay into the Treasury such profits, in the way of interest, as might be received. The government expenses should be met, as they now are, by the receipts from taxes and duties, or, if these were insufficient at any time, by borrowing money on its bonds. Under no circumstances should money from the issuing department ever be taken for the expenses of government, except in the same way that banks or individuals might receive it, and never then to an extent that would raise average prices. The legal tender provision of the notes would be necessary only as specifying the medium in which payment of debts should be made, to prevent misunderstanding, and for the protection of debtor and creditor alike. The new dollar being a quantity of value, and not of a specified commodity, a loan might be returned in any commodity of that value but for some such provision. The provision could in no case wrong a creditor, for what he would receive in payment of the debt would be a positive guarantee to deliver him the _value_ specified in any commodity he chose. Making the money redeemable in any of the commodities on which it is based would be only a form, and might be omitted; it is suggested merely as obviating any objections to an irredeemable money. Of course the government would never be called upon to so redeem money, since the holder of it could exchange it for the commodity wanted in the open market to equal advantage. No reserve of commodities of any kind need be kept, therefore, for redemption purposes. One great difference between this plan and existing systems will, of course, be seen at once: the present system promises a definite amount of gold, and must, therefore, keep a gold reserve; but as no one really wants the gold, except to exchange for commodities, this plan proposes to do away with the necessity for a gold reserve by guaranteeing that the money can be directly exchanged for such commodities at the current market price,--which is all that can be done with the gold,--and that the average purchasing power of such money shall not vary as gold does. It must not be supposed that this plan contemplates any control of individual prices. Such will be free to fluctuate in accordance with the law of supply and demand, as they now and ever must do, regardless of the monetary system used. It would not be desirable, even if it were possible, to make individual prices constant; but what is desirable and possible, and what it is believed this system would accomplish, is to relieve the prices of all commodities from the fluctuations due to changes in value of the one commodity by which all others are measured; to make the money--the one commodity which no one wants except for measuring the value of and exchanging for other commodities--of constant value. The prices and values of gold and silver would then depend on their use for other than money purposes, or for money purposes in other countries, and if the value of either metal should fall, or fail to continue to rise, there would be no room for complaint that it was being discriminated against by the laws, since all commodities would be treated alike, and the demand for none increased over what it would otherwise be by its selection for monetary uses. It is evident that gold could still be used as a hoard of value, if desired, but such use would in no way interfere with the volume of money, as it now does. Neither would the hoarding of money itself affect prices and cause business stagnation as is the case now. The reasons for such hoarding would be mostly done away with, but if any should remain and the money be hoarded, the government would at once issue as much more as was needed to supply the deficiency so created, thus maintaining its value constant, and when the money hoarded was again put in circulation the government would withdraw a portion of it if it were excessive in amount. The exchange of the new money for the existing kinds would be a matter of practical financiering, presenting no unusual difficulties. This need not be enlarged upon. The gold certificates should be redeemed with the gold now held for that purpose. This gold, as well as that now in private hands, would thereafter take care of itself. The silver dollars, and all forms of paper money, should be redeemed in the new money, dollar for dollar; the paper money should be cancelled, and the bullion--both gold and silver--sold gradually, with due regard to the effect of such sales on the prices of gold and silver, especially the latter. The proceeds of such sales in the new money should also be retired from circulation. As a final result, the new money issued would all be in the form of loans to banks or individuals, except to the amount used in redeeming the uncovered paper now outstanding, less the reserve fund (and some loss that would result from the sale of silver below the price paid for it). This net balance of the new money issued, above what was issued as a loan, could be left as an uncovered paper issue, as it now is; but for the sake of uniformity it would be better to make all the money a loan issue, in which case it would be necessary to issue bonds to take up such amount. It represents now, of course, a remnant of our war debt, not refunded. No increase of interest charges would result from funding it in bonds, for the interest on the bonds would be offset by the interest on the equal amount of extra money that would be loaned in that case. It would make no difference as regards this general plan which of the two methods were adopted. This plan should not be confounded with any "fiat money" or unlimited "greenback" proposals. Its main point is directly the opposite of these, to secure a more complete control of money volume. It is not an attempt to make something out of nothing, or to create value by government fiat or authority where none existed before, or to coin the government's credit,--although there is no valid objection to doing the latter when properly limited. It is simply an exchange of credit, analogous to the operation of every bank. The government would loan a command over immediate goods (represented by its promise to deliver such goods on demand) in exchange for a promise to return such command over goods at a future time, and secured by a deposit of collateral; and in payment for the difference between the value of present and future goods it would charge interest. This is precisely what the loan department of every bank does. Every man who accepted the money in payment for goods would deposit, for the time being, with the government the command over commodities in general which he owns; the money being his certificate of deposit. This would constitute the fund from which the loans were made, just as the deposits in a bank constitute, in the main, its loan fund. When the money was used to purchase goods, it would be redeemed, so far as the purchaser was concerned, and the claim would be transferred to the seller of the goods, who in turn would become a depositor. Like every bank, the government would rely on the probability that all claims against it would not be presented for payment at once, but this probability would amount to a certainty in the case of the government, for there would be no probability of _any_ of the claims being presented for direct redemption, as every one who had goods to sell would redeem the notes, so far as the holder was concerned. The honesty of the government as an agent for all the people is, of course, assumed in this plan; but the credit of the government, in any other than a trust capacity, is neither assumed nor involved, since it would hold secured claims against others for every dollar issued (unless, of course, a portion of the money was left as an unsecured issue, which, as above stated, is no necessary part of the plan). Money, in its ultimate analysis, is simply a claim which the holder has against society for goods in general. It is the faith that such claim will be recognized, and its value be stable, that gives currency to all money. This faith, in the case of coin, is based wholly on long custom and usage; in the case of paper money, it rests on such custom joined to the pledge--express or implied--of the issuer of the paper. Selling is simply the exchange of a particular thing for a command over things in general, and the reverse--buying--is the exchange of the general command over goods for some particular good. In all existing moneys, this claim is one only of usage, and its value is variable. In the plan proposed it becomes a definite promise of such goods in general, and to a definite value, the government being the guarantor. The plan closely resembles the present national banking system, but broadened and improved, and with the objectionable features of that system removed. CHAPTER X. MERITS AND OBJECTIONS CONSIDERED. The foregoing chapter is only an outline, but is believed to be a sufficiently definite one to show the feasibility of the plan. _Merits of Plan._ The merits of the plan are believed to be:-- (1) It furnishes a standard of value as nearly invariable as it is possible to obtain in practice. (2) It gives a medium of exchange conforming in value closely to the standard, one which is cheap, convenient, elastic, and to be had in any amount needed. (3) It would prevent panics. This may seem an extravagant assertion, but further consideration will show that it is well founded. A panic, whatever the cause, manifests itself as an unreasoning fear and distrust, which prevents credit from doing its usual work, and creates an excessive demand for money; not only because the money is then needed by each individual who demands it, but because each is afraid if he does not get it then he will not be able to get it when he does need it. It means a hoarding of money, a great rise in its value, or, as generally expressed, a great fall in prices. All this is enhanced by the knowledge of the limited amount of money; in fact, the fear is not so much of the ultimate solvency of banks and business institutions as of the fact that there may not be money enough to go round, and that those who are not first will be at a disadvantage. The plan proposed will, in the first place, prevent the growth of any such fear up to the panic point, by the knowledge that the government stands ready to furnish any amount of money that may be needed to maintain prices; and, in the second place, if by any chance such a fear should arise, its first manifestation would be falling prices, which would at once bring an increase of money volume to meet the demand. It is well known that nothing will so effectively prevent a panic that is impending, or check one that has already begun, as the assurance that the institutions involved stand ready to meet any demands that may be made upon them. A run could hardly originate on a bank, believed to be solvent, were it known that it could obtain at any moment all the money needed for the emergency. An element of certainty and stability would, by this protection, be given to all banks, and through them to all solvent and legitimate business institutions, which is now sadly lacking; and business men would be relieved of much of the anxiety and worry that at times harass them under present conditions. (4) The proposed plan would tend to prevent those alternating periods of stimulation and depression of business known as "good times" and "bad times." It is not to be expected that any money system, however perfect, can wholly prevent excessive speculation, or development beyond the needs of the people, of particular industries; nor can it prevent such action from being followed by its natural consequences of disaster and loss. Wasted labour, like wasted force of any kind, can never be regained. Alternations of prosperity and adversity, of confidence and distrust, will probably always continue, as they always have; but much can be done to lessen the extent of the fluctuations. A money volume adjusted to keep prices constant, as a whole, will evidently operate to prevent prosperity from developing into a "boom" (sure to be followed by a more intense reaction), and will prevent the ensuing depression from reaching its extreme in panic. (5) The adoption of the scheme would do no violence to existing business. It would act rather as a mild stimulant by a slight raising of prices, and as a greater stimulant, through the confidence it would give. It would do no violence to the habits and customs of the people. Accustomed, as they already are, to a half dozen different kinds of paper money, the issue of a new one by the same authority to take the place of the others would hardly be noticed, especially as the change could be and ought to be made gradually. If any change were necessary at a future time in the list of commodities constituting the standard, it could be made in the same manner that the standard was first fixed upon, with no disturbance of business, or perceptible change in money value. (6) The interest received for such money would probably more than pay the interest on the outstanding government bonds, and would be as fair and equitable a form of taxation for that, or any other purpose, as could be devised. (7) The coin and bullion we now use could be mostly shipped abroad in payment of our private debts,--represented by American securities held there,--and much interest money be saved to this country. (8) Last, but not least, the plan would be a measure wholly American. This country would stand alone, free from the disturbing effects of foreign monetary legislation. Not that our foreign commerce would be lessened, or would be free from the effects of commercial disturbances in other countries: commerce is such a world-wide and intricate network that it would be impossible, even if it were desirable, for one country not to be affected by changes in others; but our money, the prices of commodities, as a whole, in that money, and the relations of debtor and creditor in this country would be free from foreign influences. There are many minor merits in the plan, such as its tendency to equalize interest rates on the same, or on equally good, security all over the country; the facility with which money would flow from the central source to the point where it was needed, and return when not needed, instead of having to filter through many banks with much loss of time and expense, as it now does; the saving of what is now lost by abrasion of coin, etc.; but these points need not be enlarged upon. _Objections Answered._ It is to be expected that many objections would be raised to a plan, seemingly so radical as a whole, although it is in reality composed of old and tried methods in most of its parts. It may be well, therefore, to anticipate some of the objections likely to be brought forward and to endeavour to answer them. Probably one of the first points to be raised against the plan, and one that, judging from recent discussion in magazine articles, would be strongly urged, is that it would have a bad effect on our foreign trade, and would divorce our prices from those of foreign countries. It has already been shown, in the chapter on foreign commerce, that such fears are wholly unfounded, and that it makes no difference what the money is based on; if it is reasonably stable in value, foreign trade will not be disturbed. In any event, ceasing to use gold in our domestic commerce would only leave a larger amount available for foreign commerce if it were needed. Gold would continue to be a commodity produced by this country, and dealt in as all commodities are, and if it were a necessity or convenience for the transaction of foreign business, the bankers engaged in such business would keep a sufficient amount on hand for their requirements. It is not believed, however, that any such necessity would be felt, either by the bankers doing a foreign business, or by the government in providing for the payment of interest on its bonded debt. The latter would probably have to be calculated in gold, in accordance with the terms of the contract, but could be paid as well in the current money. All such bonds would in a few years be redeemed, and any inconvenience from this source would be short-lived and slight at most. As to divorcing our prices from those of other countries, the objection would have no weight. The _values_ of any of our commodities, compared with those in other countries, would in no way be affected. No legislation can affect or determine the amount of one commodity that will exchange for another, either at home or abroad, except as it may alter the relations of supply and demand affecting them, by tariffs or taxes, or by the selection of some special one for a particular use, as is now done in the case of gold for money uses. The values of gold, and of silver (to a less degree), would be the only things affected by the proposed change. All others would remain the same: the money of our own or any other country would continue to be used as a measure of such values, and if our prices rose as measured in such money, so also would foreign prices by the same measure. The exchange rates would vary as they now do, and between wider limits; but the variations would, probably, not be rapid enough to affect foreign trade injuriously. Our money would be constant in value, and if the gold varied, the slight inconvenience it might be to the few directly engaged in foreign trade would be a small matter compared with doing violence to our immense domestic commerce, by using such a variable standard. In regard to all obligations that are made payable specifically in gold, they should, of course, be paid on that basis; but as the value of gold would be lessened by the shipment of it abroad, if we abandoned it as a money basis, the makers of such obligations would suffer less than they now do, or are likely to do in the future, because of the appreciation of gold value. Gold could always be had to meet such obligations by paying its current price, and that price would represent less of commodities in general than it now does. It does not seem as if there could be any objection raised to the plan on the ground of unconstitutionality, since the greenbacks were, and are, held to be constitutional, and the new notes would be promises to pay gold and silver, as well as other commodities, if they were included in the list on which the money was based, not, to be sure, in a definite quantity, but in a definite value. A more valid objection might be urged, in the danger of entrusting to public officials so great a power as the control of money value would seem to be. In reply to this it may be said, that an inefficient, or to some extent even dishonest, control would be far preferable to no control at all,--which is the present condition. The greater concentration of capital in our modern industrial system, and the increasing values handled, necessitates the entrusting of greater responsibilities to individuals, in both public and private business, and it has not been found that the men selected for the higher positions of trust in public life were often recreant to the trust reposed in them, or inadequate to its responsibilities, even where much was left to their discretion. In the plan proposed, however, almost nothing would be left to the discretion of the officials in charge. The act of Congress putting the plan in force could provide for any contingencies likely to arise, and the duties of the officials would be mandatory, so far as the adjustment of the volume of money was concerned and the method of accomplishing it. Beyond that, errors of judgment, or even of intention, could do little harm. Surely it is not expecting too much of a public official, that he shall carry out his mandatory instructions, especially as any variation therefrom would be liable to immediate detection, and could be corrected before harm was done. It might be objected that the government should not go into the banking business, that it is not one of its legitimate functions. Avoiding the question of what the legitimate functions of government are,--about which there is room for a large difference of opinion,--it may be said that the plan does not contemplate the government entering the banking business as a competitor of existing banks, but rather as a regulator of them. This function it already exercises, and the popular demand is rather for an increase of such control. Furthermore, the Treasury, under the present system, is the largest holder of cash in the country, and its action is at any time of vital interest to the banks. It has more than once come to their aid in perilous times, to the extent of its ability, and had its ability been greater it could, and doubtless would, have done so more frequently. At times, moreover, the actual money held in the Treasury has been excessive, and by diminishing the volume of money in circulation this has badly affected business. The proposed plan would prevent this, and while not materially enlarging the functions now exercised by the government, would make its control of the banking system more direct and effective, to the benefit alike of the banks and the public. Our present banking system, admittedly, shows much weakness in times of panic. Each bank expands its credits to the full limit in times of prosperity, for its own profit, and in time of distress contracts them for its own safety, thus increasing the distress at such times. Under this plan its safety, if solvent, would be assured without the need of contracting its credits. As to controlling the volume of money, this either is, or is not, a proper governmental function. If it is, then justice demands that the control be efficient, and in the interests of an honest money. If it is not,--if the sole duty of government is to certify to the weight and fineness of pieces of metal by coining them,--then it has no right to refuse to coin any amount that may be presented of any metal the people or any section of them desire to use as money; no right to issue, or authorize others to issue, on government credit, any paper money; and no right to forbid, or prevent in any way, banks, firms, or individuals from issuing, on their own credit, any money they chose. All of these acts are a control of money volume. The mere statement of such an alternative is a sufficient refutation of the claim. It would simply be financial anarchy. The government must control money volume, and the control should be real, effective and honest. Other objections might be raised to this plan, but none are foreseen of sufficient weight or gravity to offset in any considerable degree the merits it seems to present. CHAPTER XI. CONCLUSION. A universal money for the whole world has been the dream of some writers. This in many respects would be a convenience, as would a general uniformity of weights and measures; but its benefits would be confined mainly to a saving of clerical work, and even this would not be as great an advantage as might be supposed, since differences in value of bills of exchange would continue to exist, even as they now exist between countries using the same money, or even between different cities of the same country. Unless the universal money were stable in value, it would be as dishonest as the existing systems, and to make it stable would involve its absolute control in volume by some central power to which the various nations would delegate their authority. Such a thing is most unlikely to happen. The obstacles of national prejudice and habit are too strong to be overcome,--as will be evident from a perusal of Mr. Walter Bagehot's work, "Universal Money,"--and the advantage to be gained by it is not worth the trouble. A universal money, then, must be considered as a Utopian dream; and a plan that provides for our own country an honest money seems to be the highest success to which we can at present aspire in the settlement of this vital and all-important question. Whether future legislation be based on some such plan as the one here outlined, or whether another can be devised that will more closely meet the requirements, the fundamental principles we have considered should be kept in mind in any change that is made. It should also be clearly understood that no monetary legislation, by this or any other country, can alter the relative values of all, or any, of the commodities, including gold and silver, which enter into human use and consumption, except in so far as such legislation shall affect their relative supply and demand. All that legislation can really beneficially do, is to provide a stable standard of value, as it now provides stable standards of length and weight, and to provide a medium of exchange that shall always conform in value to that standard, and shall be at once convenient and economical. Opinions may honestly differ as to the best means of providing such a money, but, when fully understood, no difference of opinion can exist as to the benefit it would be to all classes of society, without exception. The labourer gains by employment being more certain and constant; by the knowledge that open competition with capital will determine the shares of the joint product which each shall receive,--that he will not be the victim of an insidious change in money value or, while receiving nominally higher wages, be perhaps getting lower real wages. With an honest money, real and nominal wages coincide, and a rise or fall of wages is known at once as a benefit or an injury. The effect on wages would be toward an increase, by stimulating production and enhancing the demand for labour; while the labourer's ability to purchase more would absorb such increased production and improve his condition. The employer of labour would gain by the certainty that his success will depend more largely on his own ability and endeavour, and less on causes which are not only beyond his control, but on which he cannot even calculate with certainty; while the greatest risks to which he is now subject will be removed. This applies not only to manufacturers, but to industrial enterprises of all kinds. Railroad stockholders would be especially benefited. No other business, perhaps, carries so large a fixed indebtedness, in proportion to its value, as railroads, and the stockholders suffer more from an advance in the value of money than most other owners. The fact that they are to some extent monopolies and can keep their rates the same, or even increase them, with money value rising, does not alter the case; for the amount of traffic will, under such conditions, be lessened, and it is impossible for most railroads to reduce expenses in anything like a proportion to the reduction of income from diminished business, because of the large fixed charges. Merchants would be benefited by the greater general stability of prices, and would be relieved of many of the risks of business. They would, if solvent, have assurance that they could get money when needed, and the failures would be fewer. Money loaners would also be benefited. It might seem, at first sight, as if they would not, since they profit directly by an increase of money value; but this is a narrow view. While the money loaner, as before shown, gets an undue and unjust share of the products of labour and capital when prices are falling, yet the secondary effects of such a fall,--the increased competition for loans, and diminished demand for capital for business enterprises,--by lowering interest rates, tends to offset this gain; and the doubt and uncertainty as to security keep capital idle as well as labour. The lender gets a larger share of the total product than he is entitled to, under such conditions; but the total product is so much lessened as a whole, that his larger share is less in actual amount than a just share of the larger product would be, were money honest and prices constant. Moreover, one of the most important considerations to a lender is security, and this is much lessened with falling prices, and the loaner is frequently obliged to take the property which is security for his loan. He does not want the care and management of it, as it is generally far less valuable in his hands than in those of the original owner; the latter thereby loses something which he could use, and the former gains something he has no use for, and no one is really benefited. It cannot be considered, therefore, that loaners, as a class, either profit by or desire such a condition of business depression and panic as is largely produced by dishonest money. A few individuals there may be--the leeches or wreckers of society--who rejoice at and profit by the general misfortune of all; but they are not, it is believed, sufficiently numerous to make their desires important or consideration for them a matter of anxiety. In view of these considerations, the attempt--so often made in discussing the question of money--to set class against class, to lead labour to consider capital as its enemy, to embitter the relations between borrower and lender, and between the banks and the public, is greatly to be deplored. Competitors in a sense these different classes doubtless are, but so far as an honest money is concerned all are partners; all would be gainers by it and none losers. Past experience does not lead us to expect that men will generally become unselfish and altruistic in their motives in the near future. Business will continue to be, as it always has been, a struggle for the greatest amount of commodities with the least labour; and the plea for an honest money rests not upon altruism, but upon the enlightened selfishness which teaches that honesty is the best policy, in a money system as in other things, and that it is not profitable to kill the goose that lays the golden eggs. INDEX. Aldrich Report, the, 83. Bagehot, Walter, quoted, 54, 122, 197. Bank-notes, national, proposal for increasing issue of, 146. Bi-metallism, 46, 67. Böhm-Bawerk, von, quoted, 4, 7. Capital and money, distinction between, 104. Coin. _See_ Money. Coin and paper money, 22. Cost of production, 10. Credit, money forms of, 92. Currency, an elastic. _See_ Money. Decline in prices, 90, 101. Definition of money, 21. Definition of value, 1. Demand and supply. _See_ Supply and Demand. Dollar, gold and silver, 125. _Economist_, London, on foreign prices, 83, 84, 86. Ely, Prof. R. T., quoted, 32, 47. Employers of labour, 102, 199. _Encyclopædia Britannica_ on money, 35. Exchange, money as a medium of. _See_ Money. Existing monetary systems, 51. Foreign commerce, 112-124; balance of trade, from an economic standpoint, a misnomer, 114; international trade, _ib._ France, monetary system of, changed to a gold basis, 70. Functions and requirements of money, 25. Germany, monetary system of, changed to a gold basis, 70. Gold. _See_ Money and Monetary Systems. Gold production between the years 1850-57 in Australia and California, 90. Gold-standard arguments criticised, 98; Mr. D. A. Wells' fallacy of deeming labour a test of value, 100; threefold division of the community into labourers, employers of labour, and money loaners, 102; distinction between capital and money, 107. _See_ Stability of Gold and Silver Values. Gold standard, the, 54. Greenbacks, 126, 129, 146. Gresham's law, 57, 59, 65, 67, 149. Inconvertible paper, 22, 76. India, English commission on the depression of trade in, 119; silver currency in, 96. Invariable money value, necessity for, 28, 40. Jevons, Professor, quoted, 25, 27, 154. Labour, productive and unproductive, 14; three kinds of, as factors in making for the value of a commodity, 15; labour not a standard of value, 18. Laughlin, Prof. J. L., quoted, 46. Medium of exchange, the, 164. Mexican exchange, 120. Mill, John Stuart, quoted, 6, 14, 18, 31, 36, 76. Money loaners, 103, 200. Money, definition of, 21; F. A. Walker's comprehensive definition, _ib._; paper money and coin, 22 _sqq._; functions and requirements of, 25; money as 'a medium of exchange,' 'a measure of value,' and 'a standard of deferred payments,' _ib._; Professor Walker's substitution for the term 'measure of value,' 'common denominator of value,' 26; money as 'a store of value,' _ib._; qualities necessary to a money material, 27; invariable value, 28; fluctuations in money value, 30; J. S. Mill on the purchasing power of money, 32; the _Encyclopædia Britannica_ quoted, 35; money demand and supply, 36; money actual and money in forms of credit, 38; an invariable money value, 40; a change of money value, a robbery, 42; F. A. Walker, on decreasing money value, 44; a flexible or elastic currency, need of, 45; money in all countries a creature of the law, 53. Money in the United States, 125; greenbacks, national bank-notes, silver and gold certificates, treasury notes, currency certificates, 126; gold coin, silver coin, 128; national bank-notes wrong in principle, 129; no means to-day of meeting either the increasing demand for money expanding population and commerce bring, or the sudden demand that a failure of credit may bring, 133; results, _ib._; some proposed changes in our monetary system, 137; free coinage of silver, 138; erroneous views confuted, 139; 'greenback' or fiat money proposals, 146; increase of the issue of national bank-notes a mere makeshift, 147; divorce of our money from that of other countries only mode of controlling it and making it honest, 150; a new monetary system, 151; standard of value, 158; medium of exchange, 164; the national banks as a distributing agency, 167; complete control of the money volume, 177; merits of plan considered, 181; an invariable standard of value, _ib._; a cheap, convenient, and elastic medium of exchange, _ib._; prevention of panics, _ib._; repression of excessive speculation and its reaction, 183, 184; plan wholly American, 186; objections answered, 187; conclusion, 196. Money system, our, some proposed changes in, 137. Money value, 29. Monetary systems, existing, 51; the gold standard, 54; Gresham's law, 57; the silver standard, 65; bi-metallism, 67; paper money, 71; J. S. Mill on inconvertible paper, 76. New monetary system, a, 151-180. Panics and hard times, causes of, 45; panic of 1857, collapse of credit in, 90; panic of 1873, 91. Paper money, 71, 78; Prof. F. A. Walker on, 77. _See_ Money. Patten, Prof. Simon N., quoted, 7. Prices, declining, evils of, 101; Professor Sherwood on stability of, 48. Production, cost of, 10. Purchasing power, 5. Ricardo, David, quoted, 14, 17, 34, 46. Sauerbeck, Mr., quoted, 83, 84, 87. Sherwood, Sidney, quoted, 48. Silver, _see_ Money; the silver standard, _see_ Monetary system. Silver, free coinage of, 138, 139. Silver famine of the Middle Ages, 82. Silver production in Nevada, 91. Silver standard, the, 65. Silver-standard prices, 94. Smith, Adam, referred to, 14. Soetbeer, Dr. quoted, 83, 84, 87. Stability of gold and silver values, 81-97; gold standard prices, 81; European economists on prices, 83; decline in prices, 90; silver-standard prices, 94. Standard of value, the, 12, 158. Supply and demand, 8; the immediate determiner of value the relation between supply and demand, _ib._; the demand for a commodity determined by its subjective or exchange value, 9, 10; close connection between value and the ratio between demand and supply, 10. Tauschkraft, 5. United States, the, stops free coinage of silver, 70. United States Senate Finance Committee Report on 'Wholesale Prices, Wages, and Transportations,' 83. Value and the standard of value, 1-20; definition of value, 1; the two classifications--'Value in use,' and 'Value in exchange,' 3; Böhm-Bawerk on 'Value in the subjective sense,' 4; John Stuart Mill's aphorism--'every rise of value supposes a fall, and every fall a rise,' 7; Simon N. Patten on 'objective values,' _ib._; standard of exchange value, 12; exchange value, what determines its constancy or variability, 19; only one real standard of value, 20. Walker, Prof. F. A., quoted, 21, 24, 25, 77, 78, 82, 156. Wells, David A., quoted, 50 _sqq._, 94, 95, 98, 100, 101, 105-111, 119, 120. [Illustration: ---- Value or Purchasing Power of Gold .... " " " " " Silver in per-centages on Values of 1860; assuming that the list of 223 commodities in report of Finance Com. U. S. Senate No. 1394, weighted according to importance, fairly represents all commodities, and that their average is therefore of constant value.] [Illustration: Diagram of Price Variations Showing average per-centage of change, from prices of 1860, of each of four lists of commodities, Gold prices. Platted from tables in Senate Report No. 1394 Finance Com. 2nd Session, 52nd Con. === U. S. Senate Finance Com. List 223 Commodities --- Mr Sauerbeck's List. English prices. 56 " ... Economist List. " " 22 " ,,, Mr Soetbeer's List. Hamburg and Eng. prices 114 Commodities. ] Transcribers' Notes: Punctuation, hyphenation, and spelling were made consistent when a predominant preference was found in this book; otherwise they were not changed. Simple typographical errors were corrected; occasional unbalanced quotation marks retained. Ambiguous hyphens at the ends of lines were retained. Index not checked for proper alphabetization or correct page references. Page 205: Page number for "distinction between capital and money" was missing from the original text, but has been added by the Transcriber based on where the subject appears in the book. Pages 208, 209: The illustrations are graphs, and the symbols in the Legends represent the data series plotted in those graphs. Page 209: "Platted" appears to be a misprint for "Plotted." 
40429	----	ROBINSON CRUSOE'S MONEY; Or, the Remarkable Financial Fortunes and Misfortunes of a Remote Island Community. By DAVID A. WELLS, Late U. S. Special Commissioner of Revenue. "It requires a great deal of philosophy to observe once what may be seen every day." --Rousseau. New York: Harper & Brothers, Publishers, Franklin Square. 1876. PREFACE. The origin of this little book is as follows: Some months ago, the expediency was suggested to the author, by certain prominent friends of hard money in this country, of preparing for popular reading--and possibly for political campaign purposes--a little tract, or essay, in which the elementary principles underlying the important subjects of money and currency should be presented and illustrated from the simplest A B C stand-point. That such a work was desirable, and that none of the very great number of speeches and essays already published on these topics in all respects answered the existing requirement, was admitted; but how to invest subjects, so often discussed, and so commonly regarded as dry and abstract, with sufficient new interest to render them at once attractive and intelligible to those whose tastes disincline them to close reasoning and investigation, was a matter not easy to determine. At last the old idea--recognized in fables, allegories, and parables--of making a story the medium for communicating instruction, suggested itself; and, in accordance with the suggestion, a remote island community has been imagined, in which, starting from conditions but one remove from barbarism, but gradually rising to a high degree of civilization, the progress, the use, and the abuse of the instrumentalities and mechanism of exchange--through barter, money, and currency--have been traced consecutively; and the effect of the application of not a few of the most popular fiscal recommendations and theories of the day practically worked out and recorded. And, in carrying out this scheme, the reader will not fail to perceive, by reference to the marginal notes accompanying the text, that hardly an absurdity in reference to exchange, money, or currency can be imagined, which somewhere and at some time has not had its exact counterpart in actual history or experience. If any apology for the objects designed or the course pursued is needed, the author thinks he finds it in the precedent established by the illustrious Geoffrey Crayon, Gent., who, in the introduction to his "Tales of a Traveler," thus happily sets forth the special advantage which accrues from the proper employment of a story as a means of communicating information. "I am not," he says, "for those barefaced tales which carry their moral on their surface, staring one in the face; on the contrary, I have often hid my moral from sight, and disguised it as much as possible by sweets and spices; so that while the simple reader is listening with open mouth to a ghost or love story, he may have a bolus of sound morality popped down his throat, and be never the wiser for the fraud." Whether in "Robinson Crusoe's Money" the author shall succeed in inducing his fellow-countrymen--to whom the ordinary currency medicine is becoming distasteful--to swallow without wry faces the same dose sugar-coated, remains to be determined. Norwich, Conn., January, 1876. CONTENTS. Chapter I. Page The Three Great Bags of Money 11 Chapter II. A New Social Order of Things 13 Chapter III. The Period of Barter 15 Chapter IV. How They Invented Money 20 Chapter V. How the People on the Island and Elsewhere Learned Wisdom 26 Chapter VI. Gold, and How they Came to Use It 33 Chapter VII. How the Islanders Determined to be an Honest and Free People 50 Chapter VIII. How the People on the Island Came to Use Currency in the Place of Money 55 Chapter IX. War with the Cannibals, and What Came of It 60 Chapter X. After the War 72 Chapter XI. The New Millennium 83 Chapter XII. Getting Sober 108 ROBINSON CRUSOE'S MONEY. CHAPTER I. THE THREE GREAT BAGS OF MONEY. All who have read "Robinson Crusoe" (and who has not?) will remember the circumstance of his opening, some time after he had become domiciled on his desolate island, one of the chests that had come to him from the ship. In it he found pins, needles and thread, a pair of large scissors, "ten or a dozen good knives," some cloth, about a dozen and a half of white linen handkerchiefs concerning which he remarks, "They were exceedingly refreshing to wipe my face on a warm day;" and, finally, hidden away in the till of the chest, "three great bags of money--gold as well as silver." The finding of all these articles--the money excepted--it will be further remembered, greatly delighted the heart of Crusoe; inasmuch as they increased his store of useful things, and therefore increased his comfort and happiness. But in respect to the money the case was entirely different. It was a thing to him, under the circumstances, absolutely worthless, and over its presence and finding he soliloquized as follows: "I smiled at myself at the sight of all this money. 'Oh, drug!' said I, aloud, 'what art thou good for? Thou art not worth to me, no, not the taking off the ground. One of these knives is worth all this heap. Nay, I would give it all for a gross of tobacco-pipes; for sixpenny-worth of turnip and carrot seed from England; or for a handful of pease and beans, and a bottle of ink.'" In introducing this episode in the life of his hero, nothing was probably further from the thought of the author, De Foe, than the intent to give his readers a lesson in political economy. And yet it would be difficult to find an illustration which conveys in so simple a manner to him who reflects upon it so much of information in respect to the nature of that which is popularly termed "wealth;" or so good a basis for reasoning correctly in respect to the origin and function of that which we call "money." And in such reasoning, the truth of the following propositions is too evident to require demonstration: 1st. The pins and needles, the scissors, knives, and cloth were of great utility to Robinson Crusoe, because their possession satisfied a great desire on his part to have them, and greatly increased his comfort and happiness. 2d. Possessing utility, they nevertheless possessed no exchangeable value, because they could not be bought or sold, or, what is the same thing, exchanged with any body for any thing. 3d. They had, moreover, no price, for they had no purchasing power which could be expressed as money. 4th. The money, which is popularly regarded as the symbol and the concentration of all wealth, had, under the circumstances, neither utility, value, nor price. It could not be eaten, drunk, worn, used as a tool, or exchanged with any body for any thing, and fully merited the appellation which Crusoe in another place gives it, of "sorry, worthless stuff." Finally, the pins, needles, knives, cloth, and scissors were all capital to Robinson Crusoe, because they were all instrumentalities capable of being used to produce something additional, to him useful or desirable. The money was not capital, under the circumstances, because it could not be used to produce any thing. Starting, then, with a condition of things on the island in which money had clearly neither utility nor value, let us next consider under what change of domestic circumstances it could become useful, acquire value, become an object of exchange, and constitute a standard for establishing prices. CHAPTER II. A NEW SOCIAL ORDER OF THINGS. The first person that came to join Robinson Crusoe on his island was Friday, and next, Friday's father. But even with this increase of numbers there was still no use for the money, inasmuch as the three constituted but one family, the members of which labored and shared all useful things they acquired in common, and made no exchanges. But when Will Atkins and the English sailors came, and the population of the island, we may suppose, was largely and permanently increased, a new social order of things became inevitable. Incompatibility of taste and temper, and a natural desire for personal independence, soon made it impossible for all to live and share in common as one family. And self-interest also soon taught, that, in order that the quantity of useful things available for the new community as a whole might be increased, and their quality perfected, it was desirable, that, instead of each man endeavoring to supply all his own wants, and for this purpose following irregularly the business of a carpenter, baker, tailor, mason, and the like, it was best for each man to pursue but one occupation, and, making himself skilled in it, procure the things which he himself did not produce, and which he might need, by exchanging his own products or services for the products or services of some other man. They saw instinctively that Robinson Crusoe, although originally civilized, would, if he had remained alone on the island, have inevitably become a pure savage, and simply because he was alone, and could make no exchanges. For a time, the things which he obtained from the wreck raised him above this condition; for what the ship brought him--the knives, axes, guns, cloth, etc.--were capital, or the accumulated labor of other men. But if the ship had given him nothing, he would have had to make every thing for himself--"his hat, his garments, his feet-covering, his bread, his meat with bow and arrows, his house by blows of his hatchet, his hatchet by blows of his hammer, his hammer heaven knows how"--and become a barbarian in spite of himself, because all his effort would have been required, and would have only sufficed, to insure him a bare subsistence. Systematic division of labor and the exchange of products and services thus, for the first time on the island, came in, and constituted a part of the perfected machinery of production, or the means of getting a living. And it is also to be here noted, that, because commodities and services now for the first time became exchangeable, they also for the first time acquired the attribute which we call value. CHAPTER III. THE PERIOD OF BARTER. All exchanges must, however, in the first instance, have been made directly, or, as we term it, by barter; so much of one commodity or service being given for so much of some other commodity or service--corn for cloth, furs and skins for knives or tobacco, so much labor in building a house for so much skill in constructing a canoe. But in all this method of exchanging, which, while it is the most ancient, is also one which still extensively prevails in even the most civilized societies, there was no place for the use or intervention of money; and consequently, also, there was no such thing as price; for price, as before stated, is the purchasing power of any commodity or service expressed in money. But the people on Robinson Crusoe Island soon found out by experience that there was an obstacle in the way of carrying on all exchanges according to the principle of direct barter, so serious in its nature as to constitute, unless removed, a complete bar to any further considerable progress in civilization and social development. And the discovery happened somewhat in this wise: Twist, who was a tailor, and had made a coat, discovered all at once that he was out of bread; and being hungry, suspended work, and went in search of Needum, the baker, to effect an exchange. He found him without difficulty, just heating his oven, and with plenty of bread to dispose of; but as the baker had all the coats he wanted, he declined to trade. Needum, however, kindly informed Twist that if any fellow should call with any surplus grain or flour, he (Needum) would be most happy to supply him with all the bread he needed in exchange; but as the tailor was neither a farmer nor a miller, and had neither of these articles, he (Twist) set off for the other end of the island, where there was another baker, to see how the latter was situated in respect to garments. On his way, Twist was overtaken by Pecks, the mason, who had no coat, and, wanting the very garment which Twist had been making, had stopped work on a stone wall and gone in search of the tailor, to whom he proposed to exchange the coat for a new chimney. But as Twist had already two chimneys to his house, and nothing to cook, and didn't want another chimney, the mason was as unsuccessful in his effort to trade with the tailor as the tailor had been just before with the baker. At last, after much vexatious traveling about, involving great waste of time and labor, Twist found a baker who wanted to exchange bread for the coat, and Pecks a tailor who would give a coat for a chimney; Needum having, in the mean time, shut up his bakery and gone in search of Diggs, the farmer, who was willing to supply grain for bread. But when all these different persons, each desirous of exchanging his special products or services, had been found, and had come together, a new perplexity at once made its appearance, and one so embarrassing as to cause each man seriously to consider whether it were not better to return home and endeavor to produce every thing for himself, rather than attempt to exchange any thing. "For how," said they all, "is the comparative value of our different commodities and services which we propose to exchange to be ascertained?" "How can I know," said Twist, "how many loaves I ought to receive for my coat?" "Or I," said Pecks, "find out how high and broad a chimney I ought to make for my garment?" Diggs, furthermore, got up a little private dispute of his own with Needum, growing out of the circumstance that the latter wanted to make his entire payment in bread to the former at once; while Diggs, who did not relish the idea of living on stale and possibly moldy bread for an indefinite length of time, wanted pay for his grain, from the baker, at the rate of one fresh loaf per day. As for poor Twist, he had become by this time so humble through hunger that he had not the heart to object to the proposition to take a cart-load of bread at once in exchange for his coat, although his house was so small that he knew he would have to store part of his "pay" on the roof, where it would be certain to be eaten by others than his own family. There was another incident which happened about this time which made much talk among the island community. A man who had nothing to sell but his labor had been employed to load a vessel with coal--a vein of which had been discovered; and, after working faithfully all day, had received in pay for his services a ton of coal. But as it was meat, drink, and lodging, and not coal (although the latter was greatly needed for some purposes), which the laborer wanted, there was nothing left for the laborer to do but to attempt to exchange his coal, and that, too, as soon as possible, in order to satisfy his immediate necessities. Being too poor to hire a horse and cart, he therefore borrowed a wheelbarrow, and, filling it with coal, went in search of persons who had a surplus of meat, drink, and lodgings to dispose of. But all of them happened to have all the coal they wanted; and morning found the laborer still trundling through the streets his most useful commodity unexchanged, and ready to sink with hunger and exposure. A like experience befell also the journeyman butcher, blacksmith, carpenter, and dry-goods clerk, who received for their day's labor respectively a sheep-skin, a dozen horse-shoes, a piece of pine timber, and two yards of red flannel. All were in no condition, through bodily exhaustion, to resume work on the next day; and all also clearly saw that their condition would not have been much improved, if each had received an entire payment in either meat, drink, or lodging, in place of coal, skin, lumber, horseshoes, or cloth. The laborers, therefore, held a meeting, and at once resolved: "That whereas it was evident that the system of paying for labor with a portion of the commodity which each laborer produced would necessitate as much time and labor to make their wages serviceable to their wants as was required in the first instance to earn said wages; therefore, it was but right and proper that the employers should allow the laborers to use half of the whole time for which they were paid, for the purpose of rendering their wages wholly available for their immediate necessities." But to this the employers rejoined that such an agreement would be equivalent not only to doubling the proportion of wages to direct production, but also to impairing, to the extent of one-half, the effectiveness of all labor engaged in production, thereby increasing scarcity, diminishing abundance, and rendering further advance in material development exceedingly slow, if not altogether impossible. For a time, therefore, there was a prospect of a very serious difficulty between the representatives of labor and the representatives of capital; resulting, as is always the case, in immense losses, not only to those directly concerned, but to the whole community. CHAPTER IV. HOW THEY INVENTED MONEY. The people on the island--both laborers and employers--were, however, fully agreed that life was too short to waste a good part of it in a game of "blindman's-buff" on a large scale--for such this attempt to conduct exchanges on a basis of direct barter substantially was; [1] but they nevertheless also clearly perceived that the game would continue to be played, to the interruption of all material progress, unless some other method of exchanging could be devised and adopted. Under the guidance, therefore, as it were, of instinct (Robinson Crusoe encouraging), and without any enactment of law, Twist, Needum, Pecks, Diggs, Friday, Friday's father, Will Atkins, and every body else, by common consent, agreed to select and adopt some single commodity which all should agree to take in exchange for whatever of products or services they might have to dispose of; so that whenever any one had any thing to exchange, he might first exchange it for this commodity, whatever it might be, and then with such intermediate object purchase at such times and places, and in such proportions as he might desire, whatever he might need. And the moment this was done, civilization on the island took a long step forward, and the first great embarrassment growing out of the attempt to exchange exclusively by direct barter was removed. The tailor was no longer in danger of starving; the mason had no longer any anxiety about procuring clothing, and the laborer received as pay for his labor something which gave him an equivalent in meat, drink, lodging, and other necessities which he might need, without trouble; every man giving freely of his goods or services for the intermediate object, because he knew that every other person desirous of exchanging would be willing to do the same. Again: the selection of some commodity or article, and the investing it by common consent with a universal and comparatively unvarying purchasing power, also solved the second perplexity, inasmuch as it provided a measure or standard, for ascertaining the comparative value or purchasing power of every other exchangeable commodity or service; and in precisely the same manner as the length or weight of any thing is ascertained, i.e., by comparing it with some other thing which the community have universally agreed to recognize as a standard of length or weight--as, for example, the rod of wood which we call a yard-stick, or a piece of metal which is termed a pound. "My loaves are each worth ten pieces of the intermediate commodity," said Needum, the baker! "My coat," rejoined Twist, the tailor, "is worth a thousand pieces!" The terms of fair exchange between the baker and the tailor would therefore have been one hundred loaves for one coat. The general name given to the commodities or articles which the people of different countries universally accept in exchange, as the equivalent for all other commodities or services, and as the measure of values, is money. The commodities or articles which have been selected by men at various times and places to serve as this universal equivalent, intermediate agent, or medium for facilitating exchanges, have been exceedingly various. Among the North American Indians, and the early settlers who came among them, wampum and beaver-skins were used as money; among the natives of West Africa, money consists of small shells called "cowries;" in Abyssinia, the common money of to-day is salt; in Chinese Tartary, it is cubes of pressed tea; and within a comparatively recent period small cakes of soap have been used as money on the west coast of Mexico. Among pastoral people of antiquity, cattle and sheep were so extensively used for money that our common English word pecuniary has its derivation from the old word pecus, signifying a flock. And while we read in Homer that the price of the armor of Glaucus was one hundred head of cattle, we also know that the Zulus of South Africa pay their debts to-day in cattle, and reckon their wealth by the same standard. Money, therefore, existed before statutes, and exists and is used to-day among nations who have no written or acknowledged code of laws. It is also of importance to a clear understanding of this subject to recognize at this point another fundamental fact, namely, that there is no evidence that any nation or people has ever adopted, in the first instance, any article or commodity to use as money which did not possess, by reason of some inherent or intrinsic desirable qualities, a natural purchasing power or value. And a little reflection will make it obvious that this must have been so from necessity. For in the absence of all law defining what money should be, and regulating exchanges, the adoption of any article to serve as money which represented little or no effort for its production or accumulation would enable the shrewd, the idle, or unscrupulous, easily, and without fear of punishment or restraint, to take from the rest of the community products which represented the expenditure of time and labor, without giving in return any equivalent. Thus, for example, if dried leaves, or pieces of paper with such marks as any might choose to stamp or scrawl upon them, had been invested with a universal purchasing power, the primary practical result of the use of such money would have been to enable somebody to obtain something for nothing, or to permit those who would not work or save, to rob those who did. The people on the island, being uneducated, never did any such foolish thing; but when they came to study history, they found out, to their great surprise, that the people of other countries had repeatedly used things worthless in themselves as money; and many years afterward a man who aspired to be a great teacher even came to the island from the United States, and endeavored to convince the people that it was a great defect to use any thing as money which had any intrinsic value as a commodity. [2] The children of the first school he attempted to talk to soon made his position embarrassing by reading from their histories that the people of every country, especially the poor and ill-informed, who had ever attempted to facilitate their exchanges by using something as money which had no intrinsic value, had in every case been so swindled and robbed, as a consequence, that sooner or later they were always compelled, as a measure of simple self-protection, to abandon its use, and in its place adopt something as money which had a generally acknowledged and comparatively permanent inherent value or purchasing power as a commodity. The following were some of the narrations which the children found and read out of their histories: "In December, 1861, a poor soldier's widow put into the savings-bank two hundred dollars in specie, and then removed with four young children to California. In July, 1864, when gold stood at two hundred and eighty, she sent for her money. In return, she received a gold draft for eighty-three, accrued interest at six per cent, included."--Henry Bronson, Nature and Office of Money. "The morals of the people were corrupted (by the Continental irredeemable money) beyond any thing that could have been believed prior to the event. All ties of honor, blood, gratitude, humanity, and justice were dissolved. Old debts were paid when the paper money was worth no more than seventy for one. Brothers defrauded brothers, children parents, and parents children. Widows, orphans, and others were paid for money lent in specie with depreciated paper."--Breck, Sketch of Continental Money. "The assignats gradually dwindled down to nothing, involving the whole land in ruin--excepting a few lucky speculators--and resulted eventually in national bankruptcy. When thousands of wretches, even before the final collapse of the assignats, were committing suicide to escape starvation, war was a blessing; and Napoleon was the instrument by means of which all Europe was made to feel the results of worthless money, either directly or by inoculation, from its maddened victims."--Notes on the French Assignats, and their Influence. "He had to pay four hundred dollars for a hat; for a pair of boots the same. He wanted a good horse, but was asked a price equivalent to ten years' pay." "My six months' earnings will scarce defray the most indispensable outlay of a single day. * * * For a bed, supper, and grog for myself, my three companions, and their servants, I was charged, on going off without a breakfast next day, the sum of eight hundred and fifty dollars."--Life of General De Kalb. "In all, from first to last (1835 to 1841), the amount of notes, bills, drafts, bonds, etc., issued by the Treasury of the Republic of Texas, and serving to a greater or less extent as a 'circulating medium,' amounted to $13,318,145, or at the rate of more than two hundred and sixty dollars per head of the entire population. If paper issues serving as money could have made a people rich, the Texans ought to have been the richest people in the universe. In January, 1839, Texas treasury-notes were worth no more than forty cents on the dollar; in the spring of 1839, they were worth thirty-seven and a half cents; in 1841, from twelve to fifteen cents; and in 1842 it required, in the characteristic language of the times, 'fifteen dollars in treasury-notes to buy three glasses of brandy-and-water without sugar.' 'By this time there was little circulating medium of any kind in Texas; but this was no great calamity, as the people had but little left to circulate.' The evils the system did were immense, and such as for which, even were it so disposed, the Government could afford no compensation to the sufferers."--Gouge's Fiscal History of Texas. Again, one of the principal objects for which money was devised and brought into use was to serve as a measure, or standard, for estimating the comparative value of other things. But it seems hardly possible to conceive of a person desirous of using money for such purpose, selecting an article to measure values which in itself possesses no value, or costs no labor to produce, any more than he would select as a standard for measuring length something which had no length, or as a standard for measuring weight something which had no weight. The people of the island must have been unusually stupid if they did not from the outset, therefore, clearly see that nothing can be reliable and good money under all circumstances which does not of itself possess the full amount of the value which it professes on its face to possess. CHAPTER V. HOW THE PEOPLE ON THE ISLAND AND ELSEWHERE LEARNED WISDOM. But while any commodity possessed of acknowledged purchasing power or value may be used as money, the experience of the islanders and every other people must have soon taught them that some commodities are much better adapted to this purpose than others; or, rather, that the use of certain commodities as money, while they may answer the purpose, nevertheless entail very serious disadvantages. And the details of the manner in which this information has been acquired by experience constitute one of the most interesting chapters in the world's history. The experience of the islanders was somewhat as follows: At the outset they agreed to use cowries--a pretty shell picked up on the beach, and which the women all desired to have and use as an ornament. These shells were not, however, plentiful; and, in fact, it was found that it required about as much time and labor for a man to collect a hundred of them as it did to grow a bushel of wheat. Consequently, wheat regularly exchanged for cowries (as money) at the rate of one hundred cowries for one bushel, while the farmer with two thousand cowries could readily buy a plow, which was considered equivalent in value to twenty bushels. By-and-by, some idle fellows that were in the habit of sailing made a long excursion, and, for the first time, visited a little island on the remote horizon. When they landed, they found, to their surprise, that instead of cowries being very scarce on the beach, they were very abundant. They winked at one another, and said little; but each man proceeded to gather all the cowries he could, and, returning to the main island, kept their discovery a profound secret. The first thing of note that next happened among the Robinson Crusoe people was a great and unexpected revival in business. Money began to grow abundant. Societary circulation was never so active. Every thing that was offered for sale speedily found a purchaser, and, demand increasing, prices rapidly increased also. It was also noticed that a few persons who never did any regular work, but speculated and gambled all the morning, and took pleasant sailing excursions every afternoon, had, especially, plenty of money, which, as patriotic citizens, desirous of making trade lively, they were always most ready to part with for other commodities. The shop-keepers, the farmers, and the mechanics, all also finding that they had more money than usual, all also felt impelled to buy something, and prices took a fresh start upward, so that a bushel of wheat that could previously have been sold for one hundred cowries easily brought one hundred and fifty, and even two hundred. But, on the other hand, the farmer, instead of being able to buy, as before, a plow for two thousand cowries, now found that he had to pay double, or four thousand; or, in other words, the cowries had only about one-half the purchasing power they possessed before. But for a time every body was jubilant. Was it not evident that the value of every man's possessions, measured in cowry money, had greatly increased--and what could be more natural than that the shrewd adventurers who had been the authors of these golden days should be highly honored, invited to speak before cowry clubs in all parts of the island, and be even talked of for the chief offices, which still continued to be filled by Robinson Crusoe and his man Friday? The continually augmenting prices--measured in cowry money--of all commodities, or, what is the same thing, the continually diminishing purchasing power of the cowries, at last began to attract attention, and this in turn induced distrust; so that the price of a bushel of wheat, which had been at first one hundred cowries, and then two hundred, rose to three, four, and even five hundred cowries. Another remarkable circumstance noticed was, that, as prices increased, the wants of trade for cowry money also increased proportionably, which want the adventurers who had been the means of giving the island its increased volume of money took care to supply by bringing additional quantities of cowries as they were needed. It was also observed that, as distrust increased, there was also a remarkable increase in societary activity; for every body desired to change off his cowry money for something else. [3] Persons who were in debt made haste to pay their debts, and every body was ready to lend cowry money to start all sorts of new enterprises. A company was organized, for example, with a capital of ten million cowries, to explore the wreck of the original ship which brought Robinson Crusoe to the island; and although nobody knew exactly where the wreck was, or what was supposed to remain in it, it was advocated as affording great opportunity for labor. Another project, for which a company with fifty million cowries capital was started, was to build a system of canals across the island, although the island had a width of only about ten miles, with a remarkably safe ocean navigation all around it. Finally, the secret of the whole matter gradually leaked out. Other people besides the original three shrewd fellows found out where the supply of cowries came from, and made haste to visit the remote island, provide themselves with money, and put it in circulation. But the more money that was issued, the more was needed to supply the wants of trade, until at last it took a four-horse wagon-load of cowries to buy a bushel of wheat. Then the bubble burst. Stock-companies all failed. Trade became utterly stagnant. The man whom Robinson Crusoe had made secretary of the island treasury thought he could help matters by issuing a few more cowries, but it was no use. Some very wise persons were certain that every thing would be all right again if people would only have confidence; but as long as the people who worked and saved were uncertain what they were to receive for the products of their labor--something or nothing--confidence didn't return. Every body felt poor and swindled. Every body who thought he had money in savings-banks woke up all at once to the realization that his money was nothing but a lot of old shells. Every body had his bags, his tills, and his money-boxes filled with shells, which he had taken in exchange for commodities which had cost him valuable time and labor. Strictly speaking, however, calamity did not overtake every body. There were some exceptions, namely the shrewd and idle fellows who had first found the cheap supply of cowries, and, taking advantage of the ignorance of the community, had added them to the before-existing circulation to serve as money. All these had taken very good care to keep the substantial valuable things--houses, lots, plows, grain, etc.--which they had received in exchange. They had, in fact, grown rich by robbing the rest of the community. [4] The community, however, were too courteous to call them thieves, and in conversation they were usually referred to as shrewd financiers, and as men ahead of their time. The concluding act of this curious island experience was, that the formerly so highly prized money became depreciated to such an extent as to possess value only as a material for making lime. The people accordingly, by burning, made lime out of it, and then, in order to make things outwardly cheerful, used the lime as white-wash. But upon one point they were all unanimous, and that was, that the next commodity they might select to use as money should be something whose permanency of value did not depend on elements capable of being suddenly affected by accidental circumstances, or arbitrarily and easily changed by the devices of those who desired to get their living without working for it. But this experience of the islanders in reference to the originating and using of money, although curious, has not been exceptional; for the records of history show that men almost everywhere, in going through the process of civilization, have had a greater or less measure of the same experience. One particularly noteworthy illustration of this is recorded in the "History of New York," by Diedrich Knickerbocker, and in the manuscript records of the New York Historical Society. It was in the days of Dutch rule--1659--in New Amsterdam (afterward New York), when the common money in use was the so-called Indian money, or "wampum;" which consisted "of strings of beads wrought of clams, periwinkles, and other shell-fish. These had formed a simple currency among the savages, who were content to take them of the Dutch in exchange for peltries." William Kieft was at that time governor, and being desirous of increasing the wealth of New Amsterdam, and withal, as the historian relates, somewhat emulous of Solomon (who made gold and silver as plenty as stones in the streets of Jerusalem), he (the governor) determined to accomplish his desire, and at the same time rival Solomon by making this money of easy production the current coin of the province. "It is true, it had an intrinsic value among the Indians, who used it to ornament their robes and moccasins; but among the honest burghers it had no more intrinsic value" than bits of bone, rag, paper, or any other worthless material. "This consideration, however, had no weight with Governor Kieft. He began by paying all the servants of the company, and all the debts of the Government, in strings of wampum. He sent emissaries to sweep the shores of Long Island, which was the Ophir of this modern Solomon, and abounded in shell-fish. These were transported in loads to New Amsterdam, coined into Indian money, and launched into circulation." "And now for a time affairs went on swimmingly. Money became as plentiful as in the modern days of paper currency, and, to use a popular phrase, 'a wonderful impulse was given to public prosperity.'" Unfortunately for the success of Governor Kieft's scheme, the Yankees on Connecticut River soon found that they could make wampum in any quantity, with little labor and cost, out of oyster-shells, and accordingly made haste to supply all the wampum that the wants of trade in New Amsterdam required; buying with it every thing that was offered, and paying the worthy Dutchmen their own price. Governor Kieft's money, it is to be further noticed, had also in perfection that most essential attribute of all good money, "non-exportability." Accordingly, when the Dutchmen wanted any tin pans or wooden bowls of Yankee manufacture, they had to pay for them in substantial guilders, or other sound metallic currency; wampum being no more acceptable to the Yankees in exchange than addled eggs, rancid butter, rusty pork, rotten potatoes, or any other non-exportable Dutch commodity. [5] The result of all this was, that in a little time the Dutchmen and the Indians got all the wampum, and the Yankees all the beaver-skins, Dutch herrings, Dutch cheeses, and all the silver and gold of the province. Then, as might naturally have been expected, confidence became impaired. Trade also came to a stand-still, and, to quote from the old manuscript records, "the company is defrauded of her revenues, and the merchants disappointed in making returns with which they might wish to meet their engagements." It is safe to conclude that, after this, the commodity made use of by the Dutchmen as money was something less liable to have its value impaired than wampum. The early settlers in East Tennessee also came to a similar conclusion, after a somewhat similar experience. Raccoon-skins were in demand for various purposes, and consequently were valuable. They accordingly selected them for use as money. Opossum-skins, on the other hand, were not in demand, and therefore had little value. Those of the settlers who desired to discharge their obligations without giving a full equivalent paid their taxes in opossum-skins to which coons' tails were attached. The counterfeits having once got into the treasury, could not be exported out of the treasury to meet the payments of the State, and the use of coon-skins as currency came to an end. But to return to the island. Although the first experience of the islanders in selecting a commodity to be used as money had been particularly unfortunate, the necessity of having some agency to serve the purpose of money remained as great as before, and consequently a new commodity had to be selected. Various people proposed various things. Some proposed to use bananas, which were always desirable, and, when good and ripe, were always exchangeable at a very constant value; but their unfitness to be used as money was acknowledged as soon as it was pointed out that bananas decayed very quickly after they became most useful, and that therefore a man who had plenty of money to-day might have none tomorrow, and that through no fault of his own. [6] Wheat, cattle, and pieces of stamped iron were also proposed, but all of these were found to be unsuitable in some essential particular. Thus, for example, it was objected to wheat, that, though it was almost always in demand, and represented a very constant amount of labor for its production, it was too bulky to carry about, and rarely had the same exact value one year as another; to cattle, that it was impossible to divide up an ox, cutting off the tail at one time and the ears at another, for the purpose of making change, without destroying the value of the animal as a whole; and that if cows in general were to be used as legal tender to pay debts, the very poorest cow would very probably be selected from the money-pen for such a purpose; [7] while, if iron were adopted as money, and circulated at its current value, it might be necessary to move about a ton to pay a debt of twenty or thirty dollars. A peculiar kind of beads, made of blue glass, had come into use with the women on the island as ornaments, and being greatly in demand, small in bulk, and of most durable material, they were thought to be peculiarly well fitted to serve the purpose of money. They were accordingly adopted, and for a time fairly answered the purpose. But all at once the women declared their continued use to be unfashionable; and all use and demand for the beads at once ceasing, the merchants and others who had accumulated a large stock of them, in exchange for other commodities, at the same moment found that what they had regarded as money had no longer any purchasing power or value, and in consequence experienced great losses. Thereupon the community concluded not to use blue glass beads any longer as money. [8] How fast the people on the island, by reason of their varied experience, educated themselves up to a knowledge of what constitutes good money may be inferred from the following incident: A portion of the inhabitants on the island were heathen, and, to defray the expense of efforts to civilize and Christianize them, it was the habit of certain good men to take advantage of the assembling of the people from time to time to solicit and receive contributions for such objects. It was observed, however, on such occasions that some persons, either through ignorance of what constitutes money, or by reason of great poverty, were in the habit of depositing commodities in the hat which were not money; and the practice having been brought to the attention of Robinson Crusoe (who generally presided at such meetings), he is reported to have administered rebuke and instruction in the following impressive manner: "Before proceeding to take up our regular contribution for the heathen," he said, "I would suggest to the congregation--and more especially to those who sit in the gallery--that the practice of putting into the hat commodities which are not money, more especially buttons, shows a degree of ignorance respecting the uses of money on the part of some in this community which I had not supposed possible, after all our recent and varied experience on this subject. But if, through ignorance or impecuniosity, any should feel obliged to continue to contribute buttons in the place of money, I would request that they do not stamp down or break off the eyes; inasmuch, as while by so doing they utterly destroy the utility of these commodities as buttons, and do not increase their desirability as money, they also utterly fail to deceive the heathen; who, although ignorant of the Gospel, and not using buttons for any purpose, are nevertheless, as a general thing, good judges of currency." CHAPTER VI. GOLD, AND HOW THEY CAME TO USE IT. Finally, time and circumstances helped the islanders to a solution of their difficulties. A man, walking in a ravine one day, picked up a small bright mass of shining metal. Although it had evidently lain in the sand, been washed by the water, exposed to the atmosphere, and rubbed against the rocks, nobody knows how long, it had a remarkable brightness and color; and the more it was rubbed, the brighter and more attractive it became. This little mass of metal, which afterward came to be designated as gold, the man carried home to his wife, who in turn was so much pleased with it that she hung it by a string about her neck as an ornament. Its attractiveness of course excited the desire of every other woman to have the same, and a further search in the ravine resulted in the discovery of other nuggets. Closer examination of the new metal also showed that it possessed many other remarkable qualities besides brightness. It was found it could easily be melted and cast, and also be readily molded without heat by hammering and pressing; and that when so cast, molded, and pressed, it persistently retained the shape and impression that were given it. Further, that it could be drawn into the finest of wire, hammered into the thinnest of plates and leaves, and be bent and twisted to almost any extent without breaking; that an admixture with it of the slightest impurity or alloy so immediately changed its color, that color became to a very high degree a test of its purity; [9] that fire, water, air, and almost all the agencies destructive to other things, had comparatively little or no effect upon it; that with the exception of size and weight, every piece, no matter how small, possessed all the attributes of every other larger piece; and that when any large piece was divided into a great number of smaller pieces, these last, in turn, could be reunited without loss or difficulty again into one whole. Of course, the discovery of all these remarkable qualities united in one substance not only greatly increased its utility, but at the same time greatly increased the desire of every body to have it. In place of being worn in a rough state as an ornament, it was converted into rings, bracelets, chains, pins, etc. It was found to be almost indispensable for a great number of mechanical and chemical purposes; and, finally, the charm for its possession and desire for its use proved so overpowering that to many it actually became almost an object of worship. If a man was a Pagan, he felt that in no way could he so honor and symbolize the god he worshiped as to fashion in gold the image of that which he imagined; if he was a Christian, he chose gold for the fabrication of his symbolic vessels and ornaments, as, of all material things, the one which was most typical of purity, beauty, durability, and worth. If a great government or a people desired to commemorate the deeds of a hero or statesman, it impressed their effigies in medals of gold; if a maxim was enunciated which by general consent embodied the best rules of life, it was called golden; if a law or precept was thought worthy of being kept in ever-present remembrance before the people, it was emblazoned in letters of gold; while for speech, prophecy, or poetry, this same metal has ever been a never-failing source for the finest of comparisons and the most attractive of figurative illustrations. In short, from the time of its first discovery, among all nations, in all countries, with the ignorant and the learned, the savage and the civilized, the rich and the poor, the humble and the powerful, gold has always been, of all material things, the one which most men have desired most; the one for which, under most circumstances, they have been willing to exchange all other material possessions, and for the sake of acquiring which, even part with immaterial things of greater value--honor, creed, morality, health, and even life itself. Gold so becoming an object of universal desire to the people on the island, and made exchangeable for all other things, it soon acquired spontaneously a universal purchasing power, and from that moment became Money. This purchasing power was at first by no means fixed or constant. So long as there was but a small quantity of gold, its purchasing power was large. As the quantity extracted from the rocks or washed from the sands became greater, and the wants of the people became more and more satisfied, its purchasing power or value decreased; and if the supply had continued, and the demand had been limited to the wants of the island exclusively, its value in time would have undoubtedly been no greater than copper or iron, and possibly not so great. But, very curiously, an abundant supply did not continue. That which was obtained first and with little labor proved to be the result of the decay and washing of the rocks through long ages; and when the readily accessible or surface deposits became exhausted, as was soon the case, the conditions determining the supply of gold became altogether different. On the one hand, there was no lack of gold. Instead of being a very scarce metal, as was for a time supposed, it was found to be so widely disseminated that the chemists and metallurgists readily detected traces of gold in almost every extensive bed of clay and sand they examined. [10] But, on the other hand, experience also proved that to collect any very considerable quantity of the metal required the expenditure not only of a vast amount of most disagreeable and exhausting labor, but also of a great quantity of other commodities. So that the people who, at the outset, abandoned their various occupations of raising wheat, making coats, building boats, baking bread, and constructing stone walls and chimneys, and betook themselves to digging gold, soon learned that, as a general rule, the results of a day's labor thus employed purchased no more of useful or desirable commodities--meat, drink, clothes, etc.--than the results of a similar amount of labor exerted in the most ordinary occupations; and not a few even were ready to assert, as the result of their individual experience, that a man could do better for himself in the way of earning a living by following any and every other occupation rather than that of seeking for gold. [11] Accordingly, after trying it for a little while, the most skilled laborers left the gold regions and went back to their old occupations; and these, in turn, were followed by the unskilled laborers in such numbers, that had it not been for the encouragement growing out of the hope of suddenly enriching themselves through the chance discovery of a great nugget (as sometimes happened), the mines would have been entirely deserted. As it was, the supply of gold greatly fell off, and, the demand for it remaining about the same, the purchasing power of the stock on hand for other commodities gradually increased, until it came about that the result of an average day's labor in digging gold was found to buy more than the result of an average day's labor in other occupations. But as soon as this was observed, an additional supply of labor went back to gold-mining, and continued to follow it, until an equalization of results from effort in gold-digging and effort in other corresponding employments was again established, as before related. And this interchange of employments and equalization of results from labor went on, year by year, until at last the people, as it were by instinct, found out that a given quantity of gold represented more permanently a given amount of a certain grade or kind of human labor or effort than any other one substance. And the moment this fact became apparent, the people on the island for the first time also clearly perceived that gold, in addition to the universal exchanging quality or purchasing power which it had before naturally acquired, from the circumstance that every body from the time of its first discovery wanted it, had further acquired two other attributes, which fitted it, above all things else, to serve as money; namely, and first, that it had become a measure or standard of value, by which, as by a yard-stick, the comparative value of all other commodities might be measured or estimated; and, second, that its value or purchasing power was so constant and continuously inherent in itself, even under circumstances when the value of most other commodities would be destroyed, that the greatest security or guarantee which any person owning gold could possibly have of its remaining valuable to him for any length of time was, that the owner should simply keep possession of it. By no portion of people on the island was this last attribute regarded so much in the light of a blessing as by the poor old men and women. As a general rule, they earned but little more than sufficed to support them, and they were therefore always naturally very anxious lest what little they saved should be impaired in value or made worthless by keeping, before the time when they might especially need it to pay for doctors and medicine, or insure them a decent burial. The cowry money, which had before represented their hard toil and personal deprivation, had turned out, on keeping, to be only worthless shells; the bead money had become valueless when it became unfashionable; the cattle money had to be fed every day to keep it from experiencing a heavy discount, and penned up every night to prevent it from walking off; the wheat money was always liable to be injured by damp or devoured by vermin; while twenty pounds of pig-iron had proved too heavy for their old limbs to carry to the store every time they wanted to purchase a little cloth or tobacco. But here was something at last which completely satisfied the necessities of their situation, and enabled them to feel certain that, whether they buried it in the ground, where it was always damp and moldy; or put it in the chimney, where it was always hot and smoky; or lived at one end of the island among the heathen, or at the other end among the Christians, would always, year in and year out, buy about the same average quantity of all sorts of things; and which, when offered in payment for services or commodities, to the doctor, lawyer, merchant, druggist, undertaker, mason, or tailor; to the Yankee, Irish, Dutch, Turk, or Hindoo; to the governor of Ohio, or a senator from Indiana, did not require any of them to look in a book, examine a law, read the Bible, or hunt up the resolutions of the last Congress or political convention, to tell how much it was worth, or whether it was safe to take and keep it. There was a very wise man on the island who objected to the use of gold as money, for the reason that he felt afraid that the poor old women who wanted to feel certain of having always something of reliable value in their possession would fill their old stockings with it and hoard it. [12] But he was soon shut up by some one asking him, why, if the old women wanted to keep something by them perfectly secure against a rainy day, and slept better nights because they knew they had it, they shouldn't be allowed that privilege? and if there could be any possible reason why any one should object to the old women hoarding gold, except that he wanted to cheat and wrong the poor by compelling them to keep their hard-earned savings in something whose value was not certain, and which might have no value whatever when it came time to pay the doctor or the undertaker? When the people on the island first began to use gold as money, they carried it around with them in the form in which it was first found; the fine dust or scales inclosed in quills, and the nuggets in bags; or they melted and hammered it into large lumps and bars; [13] and, as the purchasing power of the gold was always proportioned to its weight and purity, every body carried round with him small scales and tests with which he proved the gold before making exchanges with it (the same as is customary at the present day in China). But this method involved great inconveniences; and although the statement of a person of recognized honesty that he had proved the value of the gold he offered in payment was generally accepted, it was nevertheless recognized that there was no more unfairness or discourtesy in the claim of the grocer to test the quality of the money of his customer by scales and acids, than there was in the claim of the customer to test, by tasting, the salt and sugar of the grocer. As might be inferred, therefore, it often required a good deal of time to complete the most ordinary exchanges, and people everywhere complained about it and wrote letters to the newspapers. Merchants who were very cautious and particular, irritated their customers, and got the reputation of being very exacting and distrustful; while merchants who had but little capital and wanted to get business, advertised they would take gold on the simple word of their customers. But it was observed of the last, that, owing to being constantly cheated, they all, sooner or later, failed. At last the difficulty was remedied by a series of happy circumstances. Robinson Crusoe had, some years before this, died, at a good old age, as had also Will Atkins, and all the sailors who had come with him to the island from other countries; so that there were none now on the island who had ever known any thing about or ever seen any coined money. In making some public improvements, however, a party of workmen one day broke into the old cave in which Crusoe had first lived when he escaped from the shipwreck, and there, in the dirt beneath the floor, were discovered the three great bags of money which Crusoe had found in the chest, and in his disgust had buried and utterly forgotten. Every body at once recognized the metal to be gold, and was perfectly willing to exchange other commodities for it with the finders, the same as he was willing to do for any other gold. But why it should be in the form of flat round disks, and stamped with inscriptions and images, was something that puzzled every body; and the Antiquarian and Philosophical Society called a special meeting to discuss the subject. Some, looking to only one side of the pieces, thought they were medals struck to commemorate some distinguished man, or a woman, whose name often appeared to be "Liberty." Others, who looked only at the other side, thought they were intended to signalize a great contest between the lion and the unicorn, or to make the people familiar with the peculiarities of some unnatural bird or beast, which, as it was not like any thing either in the heavens, or on the earth, or in the waters under the earth, it might not be sinful to worship. At last, after the flat disks or coins had been for some time in circulation, and the community had found out, by repeatedly weighing and testing them, that each disk represented a constant weight of gold of uniform purity, the idea came at once to every one that the only use of the fanciful images and inscriptions on the disks was to officially testify to the fact of their uniformity of weight and value; and then every body wondered that he could have been so stupid as not to have before recognized the idea and adopted it, in place of every man weighing, cutting up, and testing his gold every time he desired to part with or receive it in making an exchange. An arrangement was accordingly at once made for a public establishment--afterward called a mint--to which every person who so desired could bring his gold and receive it back again after it had been divided into suitable pieces of determinate weight and fineness; the fact that the weight and fineness of each piece had been so proved being indicated by appropriate marks upon the metal. And in this manner "coined money" first came into use on the island. And by this time, also, the money which Robinson Crusoe found in the chest, and which, when it first came into his possession, had neither utility, value, nor use as a standard, or measure of value, had gradually acquired all these several attributes: utility, when the material of which it was composed became capable of satisfying some human desire for it, as an ornament, as a symbol of worship, or for some mechanical or chemical purpose; value (the sole result of labor), when it became an object of or equivalent in exchange, or acquired a power of purchasing other things; a standard, or measure of value, when its purchasing power, by reason of various circumstances, was found to be, if not absolutely permanent, at least more permanent, on the average, than that of any other commodity. The conversion of money into coin was something purely artificial, and the result of law, or statute enactments, the sole object of which was simply to make the money (previously in use) true and in the highest degree convenient. But, as has already been pointed out, money came into use in the first instance without statute, and was the result, as it were, of men's instincts; and the subsequent choice by them of gold, in preference to any other commodities for use as money, was for reasons similar to those which induced men to choose silk, wool, flax, and cotton as materials for clothing; and stone, brick, and timber as materials for houses. It was the thing best adapted to supply the want needed. The introduction and use of coined money at once gave an impetus to business, and made the people richer, because it saved time and labor in making exchanges, and relieved every man from the trouble and expense of buying and carrying round with him scales and other tests. The only persons dissatisfied were the scale-makers, who found their business almost destroyed, and they petitioned the authorities to have their interests protected by the enactment of a law compelling all persons to weigh their coins with scales before exchanging, as formerly they did their gold. But, as every body at once saw that the effect of such a law would be equivalent to compelling all exchangers to do useless work, the petition amounted to nothing. For convenience in speaking and writing, also, each piece of gold or coin of determinate weight and fineness regularly issued by the mint received a particular name and had a particular device impressed on it. Thus, for example, the piece of lowest denomination, containing 25.8 grains of standard gold, which had on it a likeness of Crusoe's old and faithful servant, was called a "Friday;" a piece of ten times its weight and value, with a small portrait of the founder of the island community, was called a "Crusoe;" and a piece of double the weight of the last, or twenty times the weight of the first, with a large portrait on it, was called a "Robinson Crusoe" or a "double Crusoe." Some time after, when the island became generally known to the rest of the world, it was found that these coins exactly corresponded in weight, fineness, and value with those adopted in that foreign country called the United States, and there known under the names of the gold dollar, eagle, and double-eagle; and after a time, for the purpose of favoring the development of civilization and assimilating nationalities by the adoption of a common monetary standard, it was agreed to discard all local sentiments, and to substitute the latter names for the former. CHAPTER VII. HOW THE ISLANDERS DETERMINED TO BE AN HONEST AND FREE PEOPLE. Next came the consideration of the laws regulating the exchanges and the use of money. Some people wanted laws enacted that every person should be obliged to sell and part with any thing he owned, provided a nominal or real equivalent in what the State should declare money should be offered him; and, also, that when any person had bought commodities and services of another, and had promised to pay for them after a time, he might fully discharge the obligation by tendering that which the State said was money, no matter whether in the mean time the persons in charge of the mint had, for any reasons, taken out one-half the valuable gold in the coins, and substituted in its place comparatively worthless lead. But, to the honor of the islanders, these propositions met with little favor. They said, we mean to be an honest and also a free people; and, therefore, every one in buying or selling shall do exactly what he has agreed to do; unless, by reason of some unforeseen or unavoidable circumstances, he is absolutely unable to perform his agreement or contract. And they said, further, that if any one receives commodities and services, and promises to give, five years or five minutes afterward, in return, an agreed-upon quality and quantity of gold, wheat, cod-fish, or cabbages, it shall be considered, as in truth it is, dishonest to attempt to discharge the obligation by offering pig-iron in the place of gold, pease or beans in the place of wheat, soft-shell crabs in the place of cod-fish, or pumpkins in the place of cabbages; and any community which shall in any way sanction any such evasion of the letter or spirit of its obligations can have no rightful claim to call itself an honest, Christian people; and if any community enacts and maintains laws compelling any person to receive in exchange, or in pay for his services or products, something which he did not agree to and would not otherwise receive, such a community has no rightful claim to call itself a free community. The people on the island, therefore, decided that they would allow the island authorities to interfere with exchanges to this extent only: that the medium of exchange and measure of values that they had adopted and called a Friday, or a dollar, should always and under all circumstances contain 25.8 grains of standard gold; that this standard should never be departed from; and that although no one should be compelled to use it, yet whenever any one talked about or promised to pay or give money, without specifying whether the money should be wampum money, bead money, cattle money, gold money, or any other particular kind of money, the money issued by the acknowledged authorities of the island should be understood and accepted as what was meant. In short, like sensible men, the islanders concluded that as long as they maintained in common use a real, good, and true money, which carried on its face evidence (easily read and known of all men) of its value or purchasing power, there was little use of cumbering up the statute-book with any thing about legal tender. They would leave that to other people wiser than they were, who desired to use money that would not circulate, except it had some artificial power or agency back of it to make it go. After this, every thing for a time pertaining to trade and commerce went on very smoothly on the island. It is true there were bad persons who obtained commodities and services on credit for which they never intended to pay; careless and extravagant persons who bought more than they were able to pay for; and foolish and oversanguine people who, after having by labor and economy accumulated a good store of commodities, exchanged them for shares in enterprises which never could pay. And when people by one or more of such methods lost the results of their hard labor and toil, they naturally felt depressed, lost confidence in their fellow-men, and thought times and things might be improved by turning all those in office out, and putting new men in. But no one on the island ever for a moment imagined that there was any way to honestly replace the money they had lost, except by acquiring through industry and economy a new store of useful commodities with which to buy money; and no one who ever had any thing to sell which others in the community wanted, and were able to give in return a fair equivalent, ever found himself in want of money or a market; while, on the other hand, no one who had nothing to sell which the community wanted or were able to pay for ever succeeded in obtaining either money or a market. CHAPTER VIII. HOW THE PEOPLE ON THE ISLAND CAME TO USE CURRENCY IN THE PLACE OF MONEY. As time went on, changes in the method of doing business gradually occurred on the island. Instead of being an isolated and unknown community, their existence as an organized, civilized state became generally known to the rest of the world, and a brisk trade and commerce resulted from the exchange of the products of the island for the products of other countries. An excellent harbor existed at each end of the island, and about these points the population naturally aggregated, and built up two very considerable towns. The middle of the island, on the other hand, was elevated into high mountain ranges, covered with dense forests, in crossing which travelers journeying between the two cities were often robbed of all the gold they carried about them. To obviate this danger, and avoid the necessity of carrying gold, persons living at opposite ends of the island, therefore, adopted a system of giving written orders for money on each other, which each reciprocally agreed to pay to the person whose name was written in the order or draft, and then periodically settled or balanced their accounts by offsetting one order or payment against another. In this way value or purchasing power was transmitted long distances much more cheaply and conveniently than could be effected by the transmission of gold itself; and also much more safely, inasmuch as the thieves could make no use of the orders, even if they obtained them. And thus it was that the people on the island became acquainted with and first used what were afterward known as "bills of exchange." [14] This labor-saving and danger-avoiding device, moreover, proved so useful, that the idea soon suggested itself that by an extension of the principle involved in the bill of exchange the necessity of carrying gold at all in any quantity might also be avoided. A public office was therefore established, where people might deposit their gold under the guardianship of the state, and receive a ticket or receipt for the amount, payable in coin on demand; which tickets, from the fact that every body knew that they were convertible into gold at will, and that no more tickets were issued than corresponded to gold actually deposited and retained, soon came to be regarded as equally good and valid as gold itself, and vastly more convenient for the purpose of making exchanges. And thus it was that currency (from the Latin curro, to run) originated and came into use on the island as a substitute and representative of money. [15] The name originally given to these receipts was first "bank-credits," and then "bank-notes," but after a time people acquired a habit of designating them as "paper money." But this latter term was conceded to be but a mere fiction of speech and a bad use of language; for every intelligent person at once saw that a promise to deliver a commodity, or an acknowledgment of the receipt of, or a title to, a thing, could not possibly be the commodity or the thing itself, any more than a shadow could be the substance, or the picture of a horse a horse, or the smell of a good dinner the same as the dinner itself. Nevertheless, as an instrumentality for transferring commodities used for money, and avoiding the loss and waste unavoidable in handling and transporting such commodities, the currency thus devised was a great invention, and being always represented by, or, as we may express it, covered with, the commodity--gold--which, of all things, fluctuates least in value, it perfectly answered the purpose of money, without actually being so. It also furnished another striking illustration of the superiority of the commodity gold to serve either as money or as an object of value for deposit, against which receipts or certificates of deposit might be issued to serve as currency; for if other valuable commodities, like cattle, corn, cloth, or coal, had been selected for a like purpose, the bank would have been obliged to erect large pens, sheds, and warehouses for the storing of the deposits; and, let them be guarded ever so carefully, their value or purchasing power would, after a time, rapidly diminish from natural and unavoidable causes. The value of most commodities, even in a perfect condition, furthermore differs so much by reasons of mere locality, that there could be no possible uniformity in the value of the receipt for the deposit of one and the same article, issued by banks in different places, to serve as currency; the value or purchasing power of a ton of coal, or a fat ox, being one thing at the mouth of a coal-mine or on a prairie stock-farm, and quite a different thing ten, twenty, or a hundred miles distant. But in the case of gold, the space needed to store up what represents a vast value is very small, while the value or purchasing power of gold not only is, but is certain to remain, on the average, very constant all the world over. [16] CHAPTER IX. WAR WITH THE CANNIBALS, AND WHAT CAME OF IT. But more serious matters than the making and issuing of money soon claimed the attention of the people of the island. It will be remembered that Friday was first brought to the island by the cannibals, for the purpose of being cooked and eaten, and that he was rescued from this fate by the valor of Robinson Crusoe, as was subsequently also Friday's father and others of his countrymen. But the cannibals, although then repulsed, did not at the same time lose their appetites, or the remembrance of the good cheer that had escaped them; and meat becoming scarce in their own country, they projected a grand invasion of the island, with the intent of capturing and cooking Friday, if he was still there, or, in default of Friday, any body and every body they might happen to catch. The islanders all at once, therefore, found themselves precipitated into a terrible war, and were obliged to struggle not only for their homes, but for their individual existence. The Government was active and energetic, but to carry on the war a vast expenditure of commodities was necessary; and as the Government of the island--in common with all other governments--never had, or could have, any commodities or money to buy commodities with, other than what it obtained through loans and taxes, the people, one and all, were called upon to help. There was, however, some fear that if the calls for help were put in the form of taxes, the fires of patriotism might not burn as brightly as was desirable, and it was therefore deemed expedient to say little about taxes at the outset, and rely mainly on loans, to be repaid after the war was over. The people, on their side, responded most cheerfully. Some gave one thing and some another. Some gave service as soldiers, laborers, and artificers; others contributed timber for canoes, cloth for tents, iron for spear-heads and guns, corn and flour, hay, medicines, and money--in short, all sorts of useful things, the results of previous labor and economy on the part of the individual contributors. In return, the contributors received back from the Government a promise, expressed on paper, to repay the commodities borrowed, or their value in money. These promises were of two kinds. In one the promise was made definite as to the time of its fulfillment, and the amount or value of the promise carried interest. These were called bonds. In the other, the promise, although definite, specified no particular time for making it good, and its amount or value was not subject to interest. These latter, from the circumstance that they were written on blue paper, were popularly termed "bluebacks." When the people got the bonds, they put them carefully away, for the sake of the interest that would accumulate upon them; but when they got the bluebacks, they were at first at a loss to know what to do with them. They were in some respects unlike any thing they had ever seen before; and yet there was a very close resemblance between them and the certificates of deposits of gold in the public repository, which they had now been in the habit for some time of using as currency. And as the one promised, on the part of the Government, to pay money equally with the other, there seemed to the public to be no good reason why one should not be used as the representative and equivalent of money as readily as the other. The real difference was, that their former currency, composed of tickets or certificates given in exchange for a deposit of actual gold, represented an actual accumulation of an equivalent of every thing desirable which labor could produce all the world over; while, on the other hand, the promises to pay which the island authorities issued in ex- change for the commodities loaned them by the people, and subsequently used up in fighting the cannibals, represented an actual destruction of almost every thing useful and desirable in place of accumulation. The people, however, did not see this; and by reason of not seeing it they continued to accept and regard the promises to pay, which represented loss and destruction, as the same thing as money, and naturally also as wealth; and as the creation and issue of this sort of money or wealth increased as destruction increased, they finally, one and all, came to the conclusion that the more and faster they destroyed, the richer they should all be; and that, by a happy series of accidents, they had at last solved that great problem which the world had so long been anxious about--namely, "of how to eat your cake and at the same time keep it." And, as a further illustration of the extent to which this idea acquired a hold upon the public mind, it may be mentioned that some of the most popular books which were published about this time on the island had the following suggestive titles: "A National Debt a National Blessing;" "Don't Pay as you Go, a sure Way to Get Rich;" "Pulling at your Boot-straps the best Way to Rise in the World," and the like. Undoubtedly one great reason which encouraged the people of the island in their delusion was the circumstance that the Government promises to pay, although they had ceased to represent accumulation, or a definite equivalent of any thing in particular, did not thereby cease to be instrumentalities for effecting exchanges; but, on the contrary, continued to constitute great labor-saving machines, performing a work precisely similar in character to that performed by a ship or a locomotive--namely, the removal of obstacles between the producer and consumer. But, in becoming a representative of a debt to be paid in place of representing a means of paying a debt, the new currency lost at once the really most important quality of good money; inasmuch as it ceased to be a common equivalent, or in itself an object of value in exchange, and therefore became incapable of properly discharging the function of a standard, or measure, for estimating the comparative value of other things; resembling, in this deficiency, a ship without a rudder, or a locomotive without a track to run on. The removal of a rudder from a ship, or the taking up the track in front of a locomotive does not impair the capacity of the one for cargo, or the power of the other for pulling. But if it is attempted to use a ship or a locomotive under such circumstances for the purposes for which they were constructed--i.e., as agencies for effecting and facilitating exchanges--the result of their work will be so uncertain and hazardous that the owners of the things to be exchanged would require large insurance against the possible action of the exchanging agencies. And so it was with this blueback currency of the island, which, ceasing to represent or be convertible on demand into a constant quantity of any commodity, ceased to be a constant equivalent or measure of value of any thing. If the news came one day that the cannibals had been repulsed, a given number of the bluebacks would buy a bushel of wheat. If the news came the next day that the black troops, although they had fought nobly, had been driven back, and that there was some prospect that every body, sooner or later, would be cooked and eaten, then the same number of bluebacks bought only half the quantity of wheat. Consequently, every body, in selling commodities representing expenditure of time and labor, added to the price of the same, in order to insure himself against the fluctuations of the purchasing power of the currency he received; or, in other words, to make sure that what he received should remain, for a greater or less length of time, the equivalent of what he gave. But as no one could tell what the cannibals were likely to do from day to day, and therefore what were to be the fluctuations in the purchasing power of the currency, every body in selling any thing felt that he incurred a risk, in addition to the risks usually attendant upon ordinary buying and selling. And as the data for estimating these risks were just as uncertain as the data for estimating the results of dice-throwing, every body guessed at the amount of insurance needed, or, what is the same thing, bet on the purchasing power of the currency at future periods. An abnormal gambling character, therefore, necessarily became a part of every business transaction, and worked to the great detriment of all that class of people on the islands, who had only labor to sell, which loses its entire value for the time, if not bought at the moment it is offered for sale, and the selling price of which, when once established, can only be changed with difficulty. And as this was a very important matter in the financial history of the island, it is desirable to illustrate it by relating the details of what actually happened: The people on the island clothed themselves largely in cloth made in foreign countries; and as the island currency was non-exportable, the cloth was paid for by exporting gold, or commodities which could readily be exchanged in other countries for gold. The cloth thus purchased with gold was made up into clothing by the "ready-made" clothing dealers in the cities, and sold in this form for currency, to smaller or retail dealers on a credit of from three to six or nine months. Had the currency involved in this transaction throughout been gold, or certificates representing deposits of gold, the credit price of the ready-made clothing would have been the cash price, with a small amount additional to represent interest on the credit-time, and a possible risk of non-payment; and the seller would never for one moment have taken into consideration the question whether the currency, or representation of money in which he was to be paid, three, six, or nine months afterward, would have the same value or purchasing power that it had on the day the debt was contracted. He might have doubted whether his customer would pay him at all, but he never would as to the quality of that which he was entitled to receive as payment. But as the currency involved in so much of the transaction as occurred after the cloth was made into clothing was neither gold nor any thing which represented gold, nor any other valuable commodity, and therefore, like a ship without a rudder, or a locomotive without a track, was sure to be unreliable as an exchanging instrumentality, the seller knew to a certainty that what he was to receive in payment of his goods, three, six, or nine months afterward, would not have the same value or purchasing power that it had on the day the debt was contracted. It might be greater, it might be less; but the seller never bet on the former contingency, or allowed for it by deducting any thing from the time price of his goods, for to do so would be to discard in anticipation a possible incidental profit. But he always, as a matter of safety, felt obliged to bet on the latter contingency, and then cover the bet by adding correspondingly to the price of every thing he sold on credit. When, by reason of the disturbed condition of things, the purchasing power of the currency fluctuated greatly in brief intervals, the seller on all his time sales bet in favor of great risks, and bet differently every day, and added ten, fifteen, twenty, or even thirty per cent. to his prices over and above the general aggregate representing cost, profit, interest, and ordinary risk, in order to make sure of receiving currency of sufficient purchasing value to enable him to buy back as much gold as he was obliged to give for the cloth originally. When, on the other hand, the fluctuations in the purchasing power of the currency became limited, the insurance percentage added to price became also limited, and followed a somewhat general rule. Thus, when a clothing-dealer sold goods on three months' credit, for currency whose purchasing power was so much less than gold that it took one hundred and fifteen of currency to buy one hundred in gold, he added five per cent. to his sale price, or he bet that the depreciation of currency at the end of three months would be indicated by one hundred and twenty for gold; while for a credit longer than three months he bet that the risk of depreciation would be greater, and added, to cover this risk, an average of ten per cent. to his price. If now, at the end of three months, it required one hundred and twenty-five in currency to buy one hundred in gold, the dealer lost five per cent. through the payment of his debt. But if, on the other hand, the fluctuation of the purchasing power of the currency was the other way, and it required at the end of the three months only one hundred and ten of currency to buy a hundred in gold, he made ten per cent. over and above his ordinary and legitimate profit, while an equivalent burden or loss fell on the consumers. [17] As the dealers were shrewd, the result of this betting and insurance was rarely loss, and so constantly profit, that some dealers after a while came to regard the obtaining of this species of profit as the main thing for which all business was instituted; while others, more clear-headed and discerning, concluded that the wisest and easiest way to get rich was to bet directly on the varying quantity of currency which it would take from day to day to buy the same quantity of gold, or other valuable commodities, instead of attempting to do the same thing indirectly, through the agency of stores, stocks of goods, clerks, books, credits, and the like. The last, accordingly, wound up their business, and, in the language of the day, "went on to the street," and made their living by selling on time what they did not possess, and buying on time what they never expected to receive, and reckoning profit or loss according to the difference in prices growing out of the fluctuations of the currency between the day of buying or selling, and the day of receiving or delivering. In short, as with the magic fiddle in the fairy tale, which, when played upon, made every body dance, no matter whether in the brambles or on the plain, so the use on the island of a currency which continually fluctuated in purchasing power, because it was not a constant equivalent of any thing, made every body gamble that could; some because they liked to, and others because they had to, to protect themselves from losses. The masses who could not conveniently gamble tried to protect themselves by asking high prices in return for their services, or by giving less in proportion to what they received; [18] but, in the long run, they learned by hard experience that they were not as well off as they expected to be; and that if one effect of an overabundant, non-equivalent-to-any-thing currency was to stimulate production, another and greater effect of it was to unequally distribute the results of production, transferring from those who had little to those who had much, and thus making the rich richer, and the poor poorer. CHAPTER X. AFTER THE WAR. At last the war ended. The cannibals were utterly repulsed; and the islanders no longer laid awake nights for fear of being roasted and eaten. A vast amount of every thing useful had, however, been necessarily destroyed; and it would seem as if this admitted fact would have made the people of the island feel poor. But, very curiously, it did not. The promises to pay for the commodities destroyed had all been preserved. They were regarded by almost every body as money; and if money, then, of course, as every body knew, they were wealth, and wealth so great and superabundant that the one thing especially necessary to do was to devise plans for using it. Every body, therefore, devised plans; those who had no money more especially devising plans for those who had. All sorts of schemes were accordingly entered upon; railroads to carry people to the isothermals and every other place where they didn't want to go; and oil-wells on Cheat and Al(l)gon(e)quin rivers, and patented inventions for making substitutes for tea and coffee, being especially recommended as permanent investments. John Law, Lemuel Gulliver, Baron Munchausen, Sir John Mandeville, Juan Ferdinand Mendez-Pinto, and Sindbad the Sailor, all came to town, and were chronicled in the newspapers as having registered at the principal hotels. Great and commendable industry was also displayed in replacing the things destroyed by the war, so that, for a time, the societary circulation became more brisk than ever; while some who had up to this time regarded war as a misfortune and national calamity, now felt that they had made a mistake; and others who had known all the time that war was a blessing, seriously thought of proposing another war as a means of increasing national prosperity. [19] The large and constant investment of the results of labor and economy in enterprises which never could by any possibility give back any adequate return, was, as every body saw, the next best thing to war; and on the advice of the most Christian newspapers, very many of the best people made haste to make such use of their little savings; although, as agriculturists, they were perfectly well aware that to plant seed wheat or corn in soils where it would not come up, or, coming up, bear no fruit, was always very bad business, and did not encourage the sower to hire much additional labor the next year. Another idea which about this time had become very popular on the island was, that while it was a very desirable thing to sell as much as possible of the products of the island to people in other countries, it was not desirable to buy any thing from foreigners in return, and that it was wise to put all possible obstructions in the way of any ill-informed persons who desired to make such exchanges. But as no one can long continue to buy unless he proportionally sells, or sell unless he proportionally buys, the foreign commerce of the island soon came to a stand-still; and what also notably helped to this result was, that the necessity of insuring all exchanges made through the medium of the unstable currency of the island caused all the island products to cost from five to ten or fifteen per cent. more than they otherwise would, and more than they would cost the foreigners to buy elsewhere. [20] But as every industrious community (especially if it calls in the aid of the forces of nature through machinery) produces more than it consumes; and as the islanders were both industrious and ingenious, it oddly enough happened that the community became sorely troubled by an accumulation of useful things, which the manufacturers would not part with, because they were unwilling to sell at a loss, and which the foreigners would not buy because they could buy cheaper elsewhere, and pay in their own products for what they bought. Then the manufacturers stopped producing, and next the laborers, by lack of employment, being unable to buy a full share of the existing abundance, in turn diminished their consumption; so that for a time it seemed as though the island would get into the condition of those unfortunate people who die of their own fatness. In this way the times gradually "got out of joint." Gradually the people on the island came to realize that much which they had considered as wealth was not wealth, and that many influences, before little regarded, were powerfully acting to make and keep them poor. All were satisfied that the currency which they were using was one prime cause of their difficulties, but in precisely what manner the currency exerted an influence few agreed. All were of one mind, that they ought to talk about it continually; and they accordingly did so, those who knew the least talking the most. Some thought that the honest thing to do, and because honest the best, was for the Government of the island to redeem its promises to pay on demand as rapidly as possible; that where they had borrowed a canoe of one man, cloth of another, spears of a third, or money of a fourth, they should return them, and not keep promising and never doing. But even these did not agree as to the manner of thus paying. Some thought it was best to return the canoes, the iron, the cloth, and the money from day to day as the Government gradually acquired them. Others thought that a better way would be to accumulate each separate thing in a separate warehouse, and then when the warehouses had, after some years, become full, open the doors, and return every man what had been borrowed of him all at once. But, as before pointed out, the Government never had, or could have, any canoes, cloth, iron, or money, except such as it obtained from the people; and, therefore, payment on the part of the Government was really the same thing as payment on the part of the people. But payment of debts is something to which many people are constitutionally opposed; and this scheme accordingly found many opponents, who alleged that, if it were carried out, it would deprive them of money, and consequently of instrumentalities for making their exchanges; while the real trouble with many of this class of people was, that they hadn't any thing useful, the products of their own industry, to exchange, and therefore could get no money, unless they went to work, or, what was preferable, acquired it from somebody without consideration. Besides the persons referred to, who either openly or by their indecision opposed fiscal reform, there were various other classes of obstructives. There were those, for example, who, during the war, were always friends of peace, dressed in broad-brimmed hats and drab coats, and were at any time ready to compromise with the cannibals, on condition that the latter should be satisfied with roasting and eating only the old men, the babies, and an occasional mother-in-law. All such, as a part of their peace policy, opposed the original issue and circulation of the bluebacks as something arbitrary, illegal, and unnecessary. When, however, the cannibals were driven away, these "friends of peace in time of war" at once changed their Quaker garb; became "friends of war in time of peace;" declared earnestly for the enlarged issue and continued use of the bluebacks, and, as a pretext for so doing, were willing, if necessary, to have another war, or, at least, an annual scare. During the war, these friends of peace were called "copper-heads;" and after the war, their copper-headism, although disguised, was substantially the same thing. For it was apparent that opposition to the issue of the bluebacks, as manifested by the advocates of peace during the war, and opposition to their payment and withdrawal after the war, were only different manifestations of hostility to the Government and to the war itself: inasmuch as failure on the part of the Government to observe its promises, made under such circumstances of extreme peril, would manifestly put it in bad repute, and prevent it from ever resorting to similar measures in like emergencies. [21] The really intelligent and patriotic men of the island at once saw through this duplicity and repudiation, advocated under pretense of extreme solicitude for the wants of trade. They remembered the old couplet: "When the devil was sick, the devil a monk would be; When the devil got well, the devil a monk was he;" [22] and thereafter designated the opponents of paying the bluebacks, as inflated, or elongated, copper-heads, by which name they were ever after known in history. There were also many well-meaning citizens, who sincerely desired to have the balloon of inflation come down, but strenuously objected to have this result effected by any diminution of the volume of gas contained in it. All the first-cousins of the man who waited for the river to run by before crossing were certain the balloon would come down, if people would only be patient, keep a sharp lookout, and wait. But to this it was objected, that if people were obliged to consume a large part of their time in watching the balloon, to avoid having their heads smashed by its swayings and fluctuations, there would ultimately be a scarcity of victuals and drink; and that, rendered desperate with watching, and want of employment, food, and clothing, those interested would finally insist on pulling open the valves, and letting the whole volume of gas escape at once. Some proposed to imitate the example of "Peter the Headstrong" in fighting the Yankees, and bring down the balloon by proclamation; while others professed to have great faith in family prayer. Eminent patriotic constitutional lawyers maintained that the military necessity that authorized and created the bluebacks must necessarily limit their duration solely to the period of their military necessity; and that their continued re-issue and use after the repulse of the cannibals was but a prolongation of the war--not against the enemy, but against their own people. The astute elongated copper-head lawyers held, on the other hand, that an instrument of military necessity, once created, remains such an instrumentality for continued use for all time; and, therefore, that a bullet or shell, once lawfully employed for effecting destruction in time of war, could legitimately be reissued or reshot in time of peace, without matter as to whom it might hit or what property it might destroy; and that, in fact, to go on reloading and refiring these instruments, and thereby killing and destroying, were not crimes, but high acts of patriotism. This theory, however, alarmed some timid people, who said that one shell or one bullet thus re-used indefinitely might destroy all the property, or kill all the people on the island; and they rather regretted, in view of such a construction, that they did not at once succumb to the cannibals, whose appetites, in time, might have become cloyed, or whose diet might have been changed through indigestion or moral suasion. In the period of doubt and perplexity which thus came to the community, those fond of precedents carefully searched the old chronicles and records of other nations for lessons of experience; and, among various things which profited them greatly, they found, among the chronicles of the learned Spanish historian, Fray Antonio Agapida, the following account of what the veteran soldier, Don Inigo Lopez de Mendoza, Count de Tendilla, did, when, besieged by the Moors in the town of Alhama, he had also serious financial difficulties to contend with: "It happened," says Agapida, "that this Catholic cavalier, at one time, was destitute of gold and silver wherewith to pay the wages of his troops; and the soldiers murmured greatly, seeing that they had not the means of purchasing necessities from the people of the town. In this dilemma, what does this most sagacious commander? He takes me a number of little morsels of paper, on the which he inscribes various sums, large and small, according to the nature of the case, and signs me them with his own hand and name. These did he give to the soldiery, in earnest of their pay. 'How!' you will say, 'are soldiers to be paid with scraps of paper?' 'Even so,' I answer, 'and well paid, too, as I will presently make manifest; for the good count issued a proclamation ordering the inhabitants of Alhama to take these morsels of paper for the full amount thereon inscribed, promising to redeem them at a future time with silver and gold, and threatening severe punishment to all who should refuse. The people, having full confidence in his word, and trusting that he would be as willing to perform the one promise as he certainly was able to perform the other, took these curious morsels of paper without hesitation or demur. Thus, by a subtile and most miraculous kind of alchemy, did this Catholic cavalier turn worthless paper into precious gold, and make his late impoverished garrison abound in money!' "It is but just to add," continues the historian, "that the Count de Tendilla redeemed his promises, like a loyal knight; and this miracle, as it appeared in the eyes of Agapida, is the first instance on record of paper money." [23] It may be also remarked that the island antiquarians did not find any chronicle of any other soldier who imitated Count de Tendilla in issuing "little morsels of paper" to serve as money, and subsequently did not imitate him in promptly redeeming his promises, who found it easy to obtain again the confidence of the soldiers or the people when he again got into similar difficulties. [24] CHAPTER XI. THE NEW MILLENNIUM. At last there arose a sect of philosophers (calling themselves Friends of Humanity) who felt confident of settling all difficulties, and who also aspired to the government of the island. Their chief had the reputation of being an ogre. He had served in the war against the cannibals, looked exceedingly fierce, and therefore was accounted brave; he talked loud and with great assurance, and therefore he was accounted wise; he had acquired great riches without ever doing any thing useful, and therefore he was accounted skilled in business. His principal associates and counselors were two. The first was a great orator, who had spent most of his life as a missionary among an uneducated people who never had any property, and, of course, made no exchanges; and in this most excellent and practical school had learned all that could be acquired on this complicated subject. The second was a great athlete, who had performed for many years in the national circus, and had acquired great reputation by carrying weighty packages on both shoulders, labeled "domestic industry," but which in reality contained only pig-iron. About these two "every one that was in distress, every one that was in debt, and every one that was discontented gathered themselves," so that they soon had a large body of disciples. The first thing they did was to abuse poor old Robinson Crusoe, because he had advised his people, in his life-time, to make their money of gold (which can be only produced by labor, and not by hocus-pocus); and their currency of something that represented gold, and this, too, when he must have known that gold "was the machinery and relic of old despotisms;" [25] and they made no account whatever of the fact that he was the father of his country and lived in a cave. Next they declared that all the opinions heretofore accepted on this subject by the rest of mankind were fallacious; that nature had done its best to make the island an isolated community; that legislation had pretty effectually supplemented whatever in this respect nature had left deficient; and, therefore, that the wants of the island, in respect to money, currency, and every thing else, were so exceptional and peculiar that the accumulated experience of all the rest of the world could not be to them either applicable or instructive. All agreed that the pernicious theory taught by Robinson Crusoe, Friday, and other men of by-gone days and other countries--that money, to be good, ought to be a universally desirable commodity, and the equivalent of that for which it is exchanged--was the real source of all financial trouble; for was it not clear, that, if such were the case, those only could ever have money who, like the bloated wheat-holders, pig-holders, cattle-holders, house-holders, or bond-holders, had through labor previously come into possession of some desirable things, which they could give in exchange as an equivalent for money? while the true end of all financial reform, and the key to the terrible problem of poverty, was obviously to devise and bring into use that kind of money which those who had no wheat, pigs, cattle, houses, bonds, or other commodities, and were not able or disposed to acquire any through an exchange of their services, could have without difficulty, and in abundance. "We mean, therefore," said the orator-philosopher, speaking for himself and his colleague Friends of Humanity, "to have more democracy and less aristocracy in the money market; more money in every body's reach, and less for the petted few." [26] In short, the patient having become very sick and attenuated by reason of the low (fiscal) diet upon which he had been fed, the doctors now proposed to resuscitate him by administering a still thinner gruel. All also agreed that the word "money" was a bad name, and that the public would obtain a much clearer idea of the great problems at issue if more intelligible and scientific terms embodying definitions were used. One philosopher accordingly proposed that, as they intended to sprout it everywhere, they should go back to the Biblical designation, and call it the "root," at the same time remarking that "the Lord showed what he thought of money by the kind of people he gave it to." Another proposed to call it "the instrument of association" (Carey); a third, the "sign of transmission, of which the material shall be of native growth" (John Law, 1705); a fourth, "a sense of value as compared with commodities" ("British Tracts on Money," 1795-1810); a fifth, "a standard neither gold nor silver, but something set up in the imagination to be regulated by public opinion" (ibid.). As to what money, under the reform system, was, or should be, was also a question in respect to which there was not at first an entire agreement. One idea which found some favor, was, that money ought to be only a token, representative of services rendered at some indefinite time or place (possibly forgotten or disputed by its recipient), and "for which the holder has not received the equivalent to which he is inherently entitled under the system of division of labor." [27] The best money, therefore, according to the philosophers of this idea, was an evidence that some one person owed some other person; and, consequently, the more debt, the more money; and the more money, the more wealth, unless it is to be supposed (as is not reasonable) that this sort of money was not to have the first attribute of all other money--namely, purchasing power. Moreover, although the philosophers did not exactly say so, the inference was also legitimate, that in a community using merely "token" or "remembrance" money, the surest way to get rich would be to get in debt, and the best way of carrying on an enlightened system of trade and commerce, to exchange commodities, the results of time and labor, for evidences of debt without interest. It is needless to say that these teachings and inferences tended to greatly strengthen the people on the island in the opinion they before entertained, that the currency they already had--namely, evidences of destruction--was the "best currency the world ever saw." The three leaders among the philosophers were not, however, men who were going to be contented with any half-way measures. Had they not put their hands to the plow of reform? and were they, after so doing, to allow the plow to stick fast in the furrow? They accordingly appealed first to authority, and then to untutored reason. The following are some of the authorities to which great weight was given: "Commerce and population, which are the riches and power of the state, depend on the quantity and management of money."--John Law, Memoir to the Duke of Orleans, 1705. "Does, or does not, our duty to ourselves and the world at large demand that we maintain permanently a non-exportable circulation? Such is the question which now agitates the nation, and must at no distant day absorb all others. The affirmative of this question is also in perfect harmony with the practice and experience of leading nations, and in harmony with the teachings of sound economic science."--Letter of Henry C. Carey to Congressman Moses W. Field, of Detroit, September, 1875. Consult also Governor William Kieft, "On the Use of Wampum Money in New Amsterdam" (large folio, scarce and rare), 1659. "Long familiarity with the practice of giving security for loans, and of paying them back at a fixed date, has blinded us to the national advantages of loans without security and payable at any date."--Karl Marx, Secrétaire, Organisation de l'Internationale. But the thing which the philosophers relied on more than any thing else to sustain their views before the people was a judicial decision recently made in a neighboring country, by its highest court, before whom the question as to what constituted money was officially brought for determination. This decision, expressed in the very peculiar language of the country, was as follows: "What we do assert is, that Congress has power to enact that the Government promises to pay money shall be, for the time being, equivalent in value to the representative of value determined by the coinage acts, or to multiples thereof." All of which, translated into the language of the island, meant that Government has the power to make a promise to pay, containing an acknowledgment in itself that the promise has not been paid, a full satisfaction that the promise has been paid. That this decision, furthermore, covered no new points of law, was indirectly conceded by the learned judges, inasmuch as, in giving their opinions, they cited, as precedents worthy of being ever remembered, the decisions of that eminent old-time jurist, Cade (Jack), who ordained that "seven half-penny loaves should be sold for a penny;" and that "the three-hooped pot shall have ten hoops." The same court also strengthened its position by saying that "it is hardly correct to speak of a standard of value. The Constitution does not speak of it. Value is an ideal thing. The coinage acts fix its unit as a dollar; but the gold and silver thing we call a dollar is in no sense the standard of a dollar. It is a representative of it. There might never have been a piece of money of the denomination of a dollar." [28] [Note.--This last remark of the learned court embodied a great discovery; for how can there be a representative without something to represent? In the case of Peter Schlemihl, there was a man without a shadow; but here we have a shadow without any substance to make it. A gold dollar is not a specific and mechanically formed coin; but 25.8 grains of standard gold is a dollar. Did the court mean that these grains of gold may never have existed, and yet have representatives?--Author.] The moment this decision was received, all the philosophers got down their dictionaries, and searched for the meaning of the word "ideal." As was anticipated, its definition was found to be "visionary;" "existing in fancy or imagination only" (Webster); and from this time forth there was no longer any doubt in the minds of the reformers of the truth and strength of the position they occupied. For, to descend to reasoning, were not two intricate questions definitely settled by the highest of human tribunals? 1st. That the representative of a thing may be (and if those in authority say so, shall be) equivalent to the thing itself. 2d. That value is an ideal thing, and therefore imagination, which creates all ideal things, can create value. It followed, of course, that to have and enjoy any thing and every thing, it is only necessary to create and use its symbol or representative; and to pay for value received, it is only necessary to imagine a corresponding and equivalent value, and pass it over in exchange and settlement. On these conclusions of law and reason, then, it was decided by the three leaders of the philosophers and their friends, who had control of the Government, that the future money of the state should be based. The former inscription on the currency in use, "promise to pay," they were clear, was entirely unnecessary; for why promise money when the store on hand of money was to be made practically unlimited, or, at least, always equal to the wants of every body who desired to have it, whether he traded or not? Mathematical calculations were also made by a scientist, which proved that the amount of labor which would be actually saved to the community, and made available for other purposes, by using something as money which cost little or no labor to produce, in place of gold or commodities which represented much labor, would be so great as to require the immediate enactment of a law prohibiting any one from working over six hours per day, in order to guard against the evil of too great abundance. The same scientist had previously been so carried away by his demonstrations of the utility of a new stove which saved half the fuel, that he had recommended the purchase of two stoves in order to save the whole. With few exceptions, to be hereafter noted, the whole population of the island were jubilant, and proceeded as rapidly as circumstances would permit to adjust all their commercial transactions to the new basis. But joy at the prospect of the coming millennium did not extinguish feelings of gratitude in the hearts of the people, and they resolved to send ample testimonials to all, in foreign lands, to whom they had been indebted for wisdom. To each of the judges who had so intelligently defined value they accordingly voted an ideal castle and estate, possession of the same conferring nobility upon their owner, with the title of "Baron Ideality," to which, by special patent, the recipient was authorized to use (if he pleased) the prefix of "damn." To the most notable advocate, in foreign lands, of the idea of non-exportable money a gift of one million of "instruments of association," represented by ideal currency, was voted. But as this currency, both by law and the fitness of things, could not be exported from the island, it became impossible to pay this gift, and in its place a letter was written explaining the circumstances, and requesting that the resolution to pay might be accepted as a "sign of transmission." To the eminent financier who defined money, "as a sense of value in reference to currency as compared with commodities," there was sent a plaster image of the "What Is It;" while to his colleague, who had given the opinion that "the less costly the material out of which money was made, the better for the community which uses it," was sent a large box, containing contributions of the most worthless things every body could think of, with a polite note requesting the recipient to make his choice out of the collection of what seemed to him best adapted as a token, and forward a detailed report of his experience in attempting to use it as a representative of unrequited service. Pending the slow preparations of the Government of the island to provide the requisite laws for the issue and use of the new money, various enlightened individuals attempted to anticipate official legislative action by putting into practical operation, on their own account, the principles involved in the new fiscal system. The first of these who thus acted was a secretary for the interior part of the island, whose chief business was to supply the heathen--for whom, it will be remembered, Robinson Crusoe took up contributions--with beef. There had been a suspicion for some time past hanging over this official that the heathen did not get all the beef that they were entitled to; but the suspicion probably had no further foundation than the inability of the heathen to make the sense of completion harmonize with the sign of transmission. To satisfy the heathen, and at the same time effectually clear up his character, the official in question now hastened to have prepared a large number of pictures of fine, fat cattle, which he dispatched by a Quaker to the heathen, with a request that they would kill and eat, and be satisfied, adding in a postscript that they would do well to begin to learn economy by saving the skins. As the Quaker never came back, it was deemed reasonably certain that, at least, the first part of the request had been complied with. The managers of the Island Provident Society also promptly determined to develop and apply the ideal system in their sphere of usefulness to the full extent that circumstances permitted. Thus a large part of the business of this old and respected society was the distribution of clothing to the destitute; and, as is always the case when times are hard, the extent of the demands made upon it for aid tended to exceed the means of supply contributed by the charitable. The managers, however, knew that it never would answer in using the ideal system to subserve the work of charity, to put the locally needy on the same footing as the heathen, and in answer to appeals for raiment distribute to them elaborate pictures of fine clothing, cut from the fashion-plates; for there was this essential difference in the situations, that the needy were at their doors, while the heathen were a great way off. They, therefore, hit upon this happy mean: they employed a competent artist, with a full supply of paints and brushes, and when any destitute person applied for clothing, they painted upon his person every thing he desired in way of clothing of the finest and most fashionable patterns, from top-boots to collars, and from blue swallow-tailed coats to embroidered neck-ties, with jewelry and fancy buttons to match. Of course, the first man who appeared in public thus arrayed created a profound sensation. But the idea was so novel, and had obviously so many advantages over the old way of clothing one's self, that the supremacy of the ideal over the real was at once greatly strengthened. For example--and here was one of the greatest merits of the new system--it not only symbolized, but practically applied, the views of the most advanced financial philosophers; favored (as the orator-philosopher wished) "more democracy and less aristocracy in the clothes market;" and encouraged the use of the least costly material out of which the community could make clothes; while the painted cotton, silk, wool, and leather could be made to look so exactly like the real articles, that it was only when the attempt was made to exchange the representative for the real that the difference was clearly discernible. Furthermore, every garment devised in accordance with the new system was, in all cases, a perfect fit. The plague of buttons was annihilated. Every man could save time enough in dressing and undressing to enrich himself, if he only employed his economized moments usefully. Every man might, without embarrassment, sleep in his clothes; and if he desired to change his monkey-jacket three hundred and sixty-five times in a year for an overcoat, or an overcoat for a monkey-jacket, he could do it most expeditiously, without the waste of any raw material more expensive than paint; and thus the system, after a time, by a happy thought, got the name of the "three-sixty-five interchangeable." Of course, this answered very well so long as the weather continued mild and pleasant; but later in the season, when it became cool and frosty, experience soon showed that the warming qualities of different kinds of paint were not essentially different; that something more than confidence was necessary to keep out the cold; and that the temperature and circulation of the body physical remained unaffected, whether a man painted himself sky-blue one day and pea-green the next. [29] Again, two shrewd fellows, Peter von Scrapehem and Israel Double, owned each a farm worth ten thousand dollars. Peter sold his farm for its full value to Israel, and took a mortgage for the total purchase-money; and Israel, in turn, sold his to Peter, and took a mortgage also for its full value. By so doing, each of these worthy persons clearly doubled the property in his possession, inasmuch as while each had at the outset only ten thousand dollars' worth of real estate, each now had ten thousand of real estate and ten thousand of personal property; or an aggregate of forty thousand between them, in the place of twenty thousand originally. This method of multiplying property by multiplying titles was so easy, and the result so apparent, that the example was very generally followed; and when the census came to be taken, a few months afterward, all were amazed at the enormous increase of wealth that had followed the discovery and simple recognition of the true nature and value of titles. Up to this time the supply of milk on the island had been mainly controlled by a single corporation, which, under the name of the "Lacteal Fluid Association," owned all the cows, and, for the purpose of facilitating supply, had long been in the habit of issuing tickets, each good for a pint or a quart of milk, and disposing of milk to those only who had tickets. These tickets revolved perfectly in the closed circle of exchange between the milk-men and their customers, satisfying all demands, and being accepted as the same thing as milk; for the more tickets, the more milk; and no tickets, no milk. During the war the cannibals, in lack of any other meat, had eaten a large number of the cows belonging to the "Lacteal Association." Many had been also taken by the Government for the soldiers; so that after the war was over there were really no more cows than the island absolutely needed. All at once, the "foot-and-mouth disease" invaded the island, and, attacking every cow belonging to the association, rendered her unable to give milk. Then arose such a piteous cry from every household where there were babies as carried a pang to the stoutest hearts. There was no need of any concerted action, for the people assembled spontaneously and demanded action. An immense public meeting was at once organized. A highly popular and humane man, a special friend of children, familiarly known as Uncle Dick, was called to the chair. He was supported by a long list of leading citizens as vice-presidents and secretaries, none of whom, however, had had any practical acquaintance with milk since their childhood, except in the form of punch. The chairman made an eloquent speech. He did not know whether he was most agitated by pity or indignation--pity for the poor babies, whose sufferings had become intolerable; indignation at the cruelty of the chartered monopolists, who had wantonly refused to issue more tickets at the very time when the demand for milk was most imperative. The assembly was of one mind with the chairman, and unanimously resolved that the Lacteal Association should immediately increase their supply of tickets, and that, in default thereof, their charter should be altered and amended. Unable to resist the storm of popular indignation, the association at once complied, and every patriotic citizen went home to the bosom of his afflicted family, carrying an abundant supply of milk-tickets, and feeling conscious that for once at least he had risen to the level of the occasion. That night the babies were all supplied with milk-tickets in the place of milk. Milk-tickets hot, milk-tickets cold, milk-tickets sweetened, milk-tickets plain, milk-tickets with their backs printed green, and interchangeable with milk-tickets drawing cream skimmed from other milk-tickets. But, strange to say, the babies, one and all, with that same sort of instinctive perversity which induces children of a larger growth to refuse to accept shams for reality, and be grateful in addition, refused to take to milk-tickets. The uproar of the night preceding was as nothing to the disturbances of the night following, and morning dawned upon an unrefreshed and troubled population. As soon as the necessary arrangements could be made, another meeting assembled. But the meeting this time was composed of babies, backed by their mammas and nurses. There was no theory in their sentiments; and though young in years, one and all felt that they had lived long enough to know what their fathers apparently did not know--namely, the difference between milk and paper. The resolutions voted were brief, but to the point, and were, substantially, as follows: First, that the exigencies of the times demanded more milk, and not more milk-tickets; second, that the way to get more milk was to have more cows; third, that the way to get more cows was to go to work and raise them, or raise something else equally valuable, and then with this something else buy cows; fourth, that there are certain eternal verities against which it is useless for either babies or men to contend. A committee was appointed to procure a mill of the gods, to grind up those who disbelieved in the last resolution, and the meeting then adjourned. This was the first indication of any thing like popular dissent from the views of the Friends of Humanity. Others, however, soon followed. Value having been declared to be an ideal thing, and ideal measures of value having been substituted in the place of the real and tangible measures formerly in use, it had been deemed proper to substitute ideal measures of length, weight, and capacity in the place of the foot-rules, yard-sticks, pound-weights, and bushel-measures formerly employed. Shop-keepers, plumbers, charcoal-men, gas corporators, and all others who had any thing to sell accordingly provided themselves with slips of paper, upon which were printed, respectively, "This is a foot," "This is a bushel," "This is a pint," "This is a pound;" and the services of the arithmetic-man were again called for, to prove how much more cloth, beer, charcoal, gas, and all other measurable things the community would certainly have by the saving of labor and capital contingent on the avoidance of the necessity of further manufacturing, purchasing, and using the old measures. But the new system did not work smoothly. There was no harmony of sentiment between buyers and sellers; and what was one man's ideal of what he should give or receive in trade was always different from every other man's; and, before the community were well aware of what they were about, they found themselves drifting back to the adoption of the old system of barter, which had been tried and abandoned in the early days of the island's history. Instead of one price, every one who had commodities or services to sell adopted a scale of at least four prices: "pay price," "money price," "pay as money price," and a "trusting price;" and the seller, before fixing his price, invariably asked his customer how he would pay. [30] "Pay price" was barter; "money price" was payment in foreign coin; "pay as money" was in the ideal money of the island; "trusting" was an enhanced price, according to time. Thus, supposing a customer wanted a knife, its price in "pay" would be a bushel of corn; in "money price," a fifty-cent gold or silver coin; in "pay as money," sometimes as much as he could bring in a basket, at other times as much as he could bring in a wheelbarrow; and before the ultimate abandonment of the use of ideal money, a cart had to be employed to bring the money. Trade in this way became "most intricate." News also came, about this time, that the heathen, not being able to stay their stomachs with the pictures of fat cattle that had been so abundantly sent them, and considering themselves humbugged, were preparing to declare war. To meet a threatened increased expenditure on this account, the Government, therefore, levied new taxes; and as the valuation of the property of the island, under the influence of the new fiscal system, had, as before stated, enormously increased, it was anticipated that a small rate would yield a large revenue. But as soon as Scrapehem, Double, and their friends, who had been multiplying their property by multiplying titles, found out that the titles were to be valued and assessed as wealth, equally with the property which the titles represented, they hasted to swap back, and cancel their mortgages; and immediately half the reputed wealth of the island disappeared. There were some people, it will be remembered, who did not share in the general jubilation which welcomed the discovery and adoption of the new monetary system. These were the stony-hearted capitalists, meaning thereby persons who had produced by industry and frugality more than they had consumed, and had lent out this surplus in the form of ships, houses, horses and carts, wheelbarrows, coal, iron, and the like, on condition that they should be repaid the value of the several articles as expressed in money, with a portion of the profit that might have accrued to the borrower from their using. There was a popular feeling that all these lenders were "bloated," the degrees of bloat being, of course, different all the way from the man who owned and lent a ship down to the man who owned and lent a cart, or their equivalents in money; and that the best remedy for this frightful disease was tapping, and tapping by tendering in payment the ideal money, which was something very different in value from the money understood at the time the loans were effected. Natives of heathen lands, who had never enjoyed the light of the Gospel, called this robbing; but many on the island who had always been Christians regarded the matter with indifference, and treated it as a purely sanitary measure; and Christian ministers who never preached against such practices, but always did preach against the sins of that ancient people, the Jews, wondered at the low tone of morality that seemed to generally characterize society. As it appears, however, from an examination of the ancient records of the island, that strenuous exertions were made about this time to interest the Government and the people in the momentous question of the reading of the Bible in the public schools, and thus prevent public attention from being diverted to the consideration of any such unimportant and side issues as the nature and obligations of promises, it may be that the low tone of morality thus referred to was more apparent than real; no province devolving upon the historian being more difficult than that of attempting to reconcile, after a long lapse of years, what appears to be a series of contemporaneous but utterly incongruous circumstances. But, be this as it may, all who had loaned valuable commodities desired to avoid tapping, and consequently hastened to demand repayment before the ideal money could be extensively issued and put into circulation; and, having once obtained payment, were very cautious how they lent again. All this contributed, in the language of the day, to make money very tight; but this language had, to a great extent, no meaning. The only money that was tight was good money, and this had been gone so long that the younger part of the population didn't even know how it looked; while of the bad money there was a continually increasing quantity. Besides good money, all real capital, timber for building ships, factories, and houses, iron for the construction of machinery, cloth for clothes, and grain for food, were tight; not because there was any lack of all these useful things, but because the owners had all become afraid that if they once loaned or parted with them they should never receive back an equivalent. So the island, instead of being lifted up to great prosperity, was plunged into the depths of adversity. There was a general lack of confidence. Societary activity was abated; production was arrested; and men desirous of being industrious had no opportunity of following any industry. Gold had long disappeared from circulation. Although produced in large quantities on the island, none of it would stay there, but flowed off to foreign countries in a steady stream. The common explanation of this phenomenon was, that gold had become the cheapest thing the island produced, and was, therefore, the first thing exported. But a majority of those who said and heard this did not clearly see that the average purchasing power of gold the world over had not varied in any degree; but that the price of almost every other thing produced on the island had so varied and relatively increased, by reason of domestic fiscal circumstances, that it was far better for the foreigner to take pay in gold for all the commodities he sold to the island, and then, with this gold, purchase in other countries the very things which the island specially produced and wanted to sell. As already intimated, the islanders found great difficulty in understanding this little arrangement; but the foreigners understood it as by intuition, and never failed to act upon it. [31] All of this further contributed to turn upside down and inside out the industries of the island; and while the Friends of Humanity continued to loudly proclaim that the issue of more money would cure all difficulties, the people, sorely distressed, and ready to accept relief from any quarter, began to loudly murmur, in turn, at what seemed an unnecessary delay in making the issue; the fact being, that although public opinion was nearly unanimous on the subject, the regular time for the Congress of the island to meet and enact the laws had not come round. At last, the long-expected day arrived, and Congress assembled. All the special and immediate Friends of "More Money," of "Ideal Money," and of "Humanity," were members; and hardly had the presiding officer taken his seat before fifty men sprung for the floor, each with a resolution demanding immediate fiscal legislation. The first resolution adopted was, that the Government should at once supply all the money which the wants of every body, and every trade and industry, might, could, would, or should require; and that the money thus issued should be a legal tender for the payment of all debts, past, present, and prospective. The next important question was, In what manner should the new and unlimited supply of money be distributed? All saw at once that it would never do to commence on a system of giving unlimited something for unlimited nothing; and yet, if this was not done, how was it possible for the wants of those who had nothing, and who, of course, wanted money for this reason most imperatively, to be supplied? Besides, to create an unlimited supply of the new money, it would be necessary to have a good many hundreds of thousands of slips of paper with the words, "This is a dollar," "This is ten dollars," or "This is--" (some other amount), properly and artistically printed on them; all of which, in turn, would require a great expenditure, not only of ink and paper, but also of time; while the necessity of the hour was for immediate relief, especially to trade. It was therefore decided to leave the troublesome question of equal distribution for a time unsettled, and endeavor to first relieve trade by doubling the volume of the currency. And in order to do this at once, and without cost to the Government for engraving, printing, paper, and ink, it was therefore enacted that every one having legal-tender currency might cut or divide the same into two equal halves or pieces, and that each of these halves or pieces so resulting should be a legal tender to the full amount that the whole had previously been. At first thought, this proposition to exclude all those who had no money from participation in the new supply seemed most palpably unfair and unjust, but a little consideration satisfied to the contrary; for unless it was proposed to give away the new money, it was obvious that those only would get it who had money, and that the proportion which all such would obtain would be in proportion to what money they already had. It was, therefore, deemed wise to anticipate what was certain to be the ultimate result, and distribute it in the manner indicated. CHAPTER XII. GETTING SOBER. It was expected that this new and immense volume of currency, poured at once on to the wheels of trade, would immediately start the wheels. But, somehow, it didn't seem to have that effect at all. The wheels not only would not revolve, but the friction on them seemed to have become more persistent and chronic than ever. In fact, the doubling the volume of the currency, instead of increasing the before existing instrumentalities for facilitating exchanges, had really diminished them; for all who were willing to exchange commodities for the new currency either doubled the price of their commodities, or gave only half the quantity for what they regarded as half of the former money; so that with all this class the abundance of currency was relatively the same as before. But the majority who had any thing to sell would not accept the ideal money in exchange at all. They did not claim, they said, to be financiers, or philosophers, or even special friends of humanity; but they did think that they were not such fools that they could be made to believe that the half of a thing was equal to the whole, or that one bushel of grain could be converted into two by putting one bushel into two half-bushel measures. The only really positive effect of the doubling of the volume of the currency in the manner authorized by law was, therefore, to scale all debts to the extent of fifty per cent., and in such a manner that creditors were wholly unable to help themselves; for by terms of the act every one dollar of old legal tender was now made two for all new legal-tender purposes. In this way the people on the island soon learned a most important elementary lesson in finance, which was, that the only one attribute of legal tender which is imperative and unavoidable [32] is its inherent power of canceling or liquidating debts or of tapping creditors--and this, too, irrespective of the endowment of the legal tender with any real or representative value. So that a truthful designation of the act in question would have been "An act to relieve debtors from half of their obligations, and swindle creditors to a corresponding extent of what was due them by the debtor's acknowledgment." To the credit of the people of the island it must be recorded that, as a general rule, they were too honorable to take advantage of the law to do so wrong and mean a thing; [33] but the knowledge that every debtor had it in his power to so act, and the fear that some would take advantage of their unquestionable legal privileges, contributed still further to bring all business to a stand-still. There was also a curious phenomenon incident to the situation, and pertaining to the rate of interest, which excited no little comment and attention. Every body took it for granted that with an unlimited supply of money a low rate of interest would prevail, and that, however much the financiers and philosophers might disagree about other things, this one result would be certain. An eminently practical man in one of the public debating societies of the island thought he had definitely, and for all time, settled the question by authoritatively remarking that "an abundance of money does produce enterprise, prosperity, and progress;" "that when money was plenty interest would be lower," just as when horses and hogs are abundant, horses and hogs would be cheap. He, for one, "put aside all these old theories, these platitudes of finance." There was "no vitality in them." He preferred "to take the actual results, and the actual condition of the country, and let theory go to the dogs." [34] There was so much of originality and home sense in these remarks, so much of a lordly contemning of the teachings of musty old experience, that the friends of the orator thought him much more worthy than ever of the executive chair formerly filled by the wise Robinson Crusoe. But, unfortunately for the orator, he hadn't got far enough along in his financial primer to appreciate the difference between capital and currency; and in the simplicity of his heart imagined that it was all the same, whether we had pictures of horses, hogs, and money, or real horses, hogs, and money, which represent and are accumulated by labor. So the things which he thus settled in opposition to theory and experience wouldn't stay settled; and the islanders in due time came to a realizing sense of the following truths: that the more of a redundant, irredeemable paper that is issued, the more it depreciates, and the more it is depreciated, the more there is required of it to transact business; and that if any one borrows depreciated money to do any thing, he has to borrow a greater nominal amount than he would of money that was not depreciated; and that it is on the number of nominal dollars, and not on their purchasing power, that the rate of interest is always calculated. The invariable rise in prices consequent on the depreciation of money (price as already explained being the purchasing power of any commodity or service expressed in money), furthermore stimulates borrowing for the purpose of speculation; and the more borrowers, the more competition; and the more the competition to obtain an article or service, the higher the price demanded for it. Again, the currency of the island having been made artificially abundant, its exchangeable value was always uncertain; and capital, therefore, as it always does at such times, locked up its pockets, hesitated to take risks, and, if it consented to loan at all, demanded extra pay by reason of the increased risk or induced scarcity. [35] After testing all these principles experimentally for a considerable time, the people on the island came to see that the possession of money was the consequence rather than the cause of wealth; and that, except under special circumstances and conditions, the rate of interest depends on the abundance or scarcity of that part of the capital of a community which does not consist of money; and that it can not be permanently lowered by any increase in the quantity of money. [36] In this way, through the school of hard experience, the people on the island came gradually to understand that there were certain economic truths which had got to be accepted and lived up to in order to insure either individual or national prosperity. They came to understand that property is a physical actuality, the result of some form of labor; that capital is that portion of the results of production which can be reserved and made available for new and further production; that money is an instrumentality for facilitating the distribution and use of capital and the interchange of products and services; that production alone buys production; that when one buys goods with a paper representative or symbol of money, the goods are not paid for until the representative is substituted by a value of some sort in labor, or money, or some other commodity; and, finally, that a country and its inhabitants increase in wealth or abundance by increasing their products, rather than by inordinately multiplying machinery for the exchange of products. They also saw that the promises to pay which they had been using and regarding as money were debts; and that debts, as well as all other forms of title, are but shadows of the property they represent; and that, in endeavoring to all get rich by first creating debts, then calling the debts money, and the money wealth, they had been led, successively, into speculation, extravagance, idleness, and impoverishment; and, like the dog in the fable, which let go of the meat in crossing a stream for the sake of grasping its shadow, they had lost much of real wealth resulting from previous industry by trying to make the shadow of wealth supply the place of its substance. Coming to gradually realize, also, that one of the first requisites for an increase of trade was that confidence should exist between the buyer and the seller, but that such confidence never would exist so long as the representatives of value, or other intermediate agencies made use of for facilitating exchanges, were of an uncertain, fluctuating character, they also came finally to the conclusion that there was no economy in using cheap money; or, in other words, that the loss and waste inevitably resulting from the use of poor tools (money being a tool) was many times in excess of the interest accruing from any increased cost of good tools. So reasoning, gold, or undoubted promises to pay gold, gradually came once more into use as money on the island. There were some prophecies, and a good deal of apprehension, that there would be difficulty experienced in obtaining sufficient gold to serve as money or as a basis for currency, especially when it was remembered that the influence of all that had recently happened had been to encourage the export of all the gold that was owned or produced on the island. But as the goldsmiths and the jewelers never experienced any difficulty during the war with the cannibals, or afterward, in obtaining all the gold they wanted, no matter how scarce and valuable it was as compared with currency, and could have had a hundred times more than they actually used, if their customers had been willing to pay for it; so the merchants, traders, and people at large on the island, as soon as they became satisfied that it was economical to use gold, and determined to have it, experienced no difficulty in obtaining an ample supply. One circumstance which, pending this result, tended to greatly relieve the popular apprehension on this score, was the reading in foreign newspapers that the people in certain comparatively poor countries--as Oregon, Arizona, Nevada, and Washington Territory--had no more difficulty in obtaining and retaining all the gold that they found it desirable to use for the purpose of money, than they had in obtaining and retaining all the wheelbarrows and steam-engines that they desired to use in conducting their business; and laughed when any body talked of depriving them of their gold money. The first step having been thus taken in the right direction, a sequence of other proper acts occurred as naturally and with the same favorable results as in the celebrated case of the old woman and the kid; in which it will be remembered that as soon as the water began to quench the fire, the fire began to burn the stick, the stick began to beat the dog, the dog began to bite the kid, and, as a consequence of this sequence and its concluding act, the old woman got safely home with the kid, though at a period of the evening much later than was desirable or proper. And so, by a succession of events, prosperity slowly but surely came back to the island. As for the Friends of Humanity, who had been the authors of so much financial and commercial disturbance and national misfortune, they soon ceased to command attention from any one, then became objects of laughter and derision, and finally passed out of the remembrance of the people, who were now all too busy in restoring their fortunes to give a thought to bygone and mortifying experiences. Some became convinced of their errors, and made good citizens; but in the case of the majority, the belief that the calling of things of no intrinsic value by the name of money was equivalent to the creation of wealth, became chronic, and finally developed into a harmless insanity. On pleasant days they might often be seen on the corners of the streets gathering leaves and bits of sticks and straws, and telling the children that assembled about them that all that was necessary to make these worthless gatherings money was to simply have confidence that they were so. But this was asking for a simplicity of belief that was a little too much, even for the children. It only remains to add that, as memorials of this eventful history, there is still exhibited in one of the public buildings on the island an exact model of the cave in which the venerable Robinson Crusoe dwelt, and, what is even more interesting, the identical chest which he brought from the ship, and which contained the pins, needles, knives, cloth, and scissors, and the three great bags of what was then useless, but now good and true, money. Numerous specimens of the "ideal money" may also be seen in the same room, together with a picture of the barber who papered his shop with it, and of the dog which the people paraded in the streets covered with a plaster of pitch and currency. [37] NOTES [1] That the inconveniences experienced by a community attempting to conduct its exchanges exclusively by pure and direct barter as here depicted, are not only not imaginary, but have their exact counterpart in the present every-day experiences of countries of great geographical area and population, is proved by the testimony of Barth, Burton, and other recent travelers in Eastern Africa. Thus Barth, for example, says (see "Travels," vol. i., p. 568; vol. iii., p. 203) that he was repeatedly prevented from buying what he absolutely needed--corn, rice, etc.--because he did not have, and could not get, what the people wanted in exchange; and, again (vol. ii., p. 51), he states that so great was the difficulty of getting things in some of the African towns which he visited, in consequence of the people having no general medium of exchange, that his servants would often return from their purchasing expeditions in a state of the utmost exhaustion. [2] "The precious metals have many qualities which fit them for use as coin money. Their defects are their weight, their intrinsic value as commodities."--Social Science and National Economy, by R. E. Thompson, Philadelphia, 1875. "The moment it is perceived that money is nothing but a token, it becomes evident that any token currently accepted in exchange of useful services and products of labor will perform the proper functions of money without regard to the material of which it is made; and that the less costly the material out of which money is made, the better for the community that uses it."--Money, Currency, and Banking, by Charles Moran, New York, 1875, p. 42. [3] "To my mind, the great and immediate need of the day is the issuance of more legal-tender notes, in order to impair the confidence in them to an extent as to cause the owners of them to desire to exchange them for other kinds of property, or man's wants--not simply to loan out on short or long date paper, with fire-proof security, at low or high rates of interest, which can now be done to any extent required--but absolutely part with them for other kinds of property."--Views of Enoch Ensley, of Memphis, Tennessee, on the National Finances, Memphis, September, 1875. [4] "In the midst of the public distress, one class prospered greatly--the bankers; and, among the bankers, none could, in skill or in luck, bear a comparison with Charles Duncombe. He had been, not many years before, a goldsmith of very moderate wealth. He had probably, after the fashion of his craft, plied for customers under the arcades of the Royal Exchange, had saluted merchants with profound bows, and had begged to be allowed the honor of keeping their cash. But so dexterously did he now avail himself of the opportunities of profit which the general confusion of prices gave to a money-changer, that, at the moment when the trade of the kingdom was depressed to the lowest point, he laid down near ninety thousand pounds for the estate of Helmsley, in the North Riding of Yorkshire."--Macaulay's History of England, State of the Currency in 1694-'95. [5] "Beyond the sea, in foreign lands, it (the greenback) fortunately is not money; but, sir, when have we had such a long and unbroken career of prosperity in business as since we adopted this non-exportable currency?"--Speech of Hon. William D. Kelley, House of Representatives, 1870. "I desire the dollar to be made of such material, for the purpose, that it shall never be exported or desirable to carry out of the country. Framing an American system of finance, I do not propose to adapt it to the wants of any other nation."--Speech of General B. F. Butler before the New York Board of Trade, October 14th, 1875. [6] "Some years since, Mademoiselle Zélie, a singer of the Théâtre Lyrique at Paris, made a professional tour round the world, and gave a concert in the Society Islands. In exchange for an air from 'Norma,' and a few other songs, she was to receive a third part of the receipts. When counted, her share was found to consist of three pigs, twenty-three turkeys, forty-four chickens, five thousand cocoa-nuts, besides considerable quantities of bananas, lemons, and oranges. At the Halle (market) in Paris, the prima donna remarks, in her lively letter printed by M. Walowski, this amount of live stock and vegetables might have brought four thousand francs, which would have been good remuneration for five songs. In the Society Islands, however, pieces of money were very scarce; and as mademoiselle could not consume any considerable portion of the receipts herself, it became necessary in the mean time to feed the pigs and poultry with the fruit."--Jevons's Money and Mechanism of Exchange. [7] In 1658, it was ordered by the General Court of Massachusetts that no man should pay taxes "in lank cattle."--Felt's Massachusetts Currency. [8] This incident is related by Burton, in his "Explorations of the Lake Regions of Central Africa" (1858-'59), as one within his knowledge of actual occurrence. [9] In one of the mints there is exhibited as a curiosity a case in which this fact is demonstrated in the most striking manner. It contains some fifty or more very thin ribbons, or strips, of gold, half an inch wide by three inches in length, placed in a row, parallel to, but separated from each other by a slight interval. The first ribbon is composed of gold of the highest standard of purity; the second differs from the first to the extent of one per cent. of admixture with a baser metal; while the third contains two per cent., the fourth three per cent., and so on, until in the last ribbon, or strip, the amount of gold and alloy is equal. The color of the first ribbon is, in the highest sense of the term, golden or typical. The color of the second differs from the first by a shade, which shade in every successive ribbon changes and becomes more and more marked as the proportion of alloy entering into its composition increases: and so peculiar are these differences of color that it is possible for an individual unskilled in metallurgy, but having access to the standard, to make a comparatively accurate test of the purity of any article of gold in his possession by a simple comparison of color. [10] In 1862 Mr. Eckfelt, then principal assayer at the mint in Philadelphia, communicated to the American Philosophical Society the result of some exceedingly curious examinations demonstrating the very wide distribution of gold. The city of Philadelphia, he stated, was underlaid by a bed of clay having an area of about ten square miles, with an average depth of about fifteen feet. Specimens of this clay--all natural deposits--taken from such localities as might furnish a fair assay of the whole--the cellar of the market on Market Street, near Eleventh, and from a brick-yard in the suburbs of the city--all yielded, on careful analysis, small amounts of gold; the average amount indicated being seven-tenths of a grain--or about three cents' worth--of gold for every cubit foot of clay. Assuming these data to be correct, the value of the gold, according to Mr. Eckfelt, which lies securely buried underneath the streets and houses of Philadelphia must therefore be equivalent to $128,000,000; or if we include all the clay contained in the corporate limits, the amount of gold contained in it must be equal to all that has yet been obtained from California and Australia. "It is also apparent," says Mr. Eckfelt, "that every time a cart-load of clay is hauled out of a cellar in Philadelphia, enough gold goes with it to pay for the carting; and if the bricks which front our houses could have brought to their surface, in the form of gold-leaf, the amount of gold which they contain, we should have the glittering show of two square inches on every brick." [11] On the Rhine, near Strasburg, a good able-bodied laborer can earn on an average one franc seventy-five centimes per day, washing gold from the sands of the river; but, as under most circumstances he can earn ten sous more by working in the fields on the banks of the river, and without so much risk of getting rheumatism, gold-washing on the Rhine is not often adopted as a regular employment. [12] "And when the substitution is made" (of a silver for a paper fractional currency), "what will be the consequence? The metal currency will have to be considerably debased, or else every old woman in the country will fill her stockings with it and bury it. It will be hoarded, sir; hoarded to the extent of removing millions from the currency of the country." The general paused, glared at a village wrapped in rain, by which we were rattling, chewed his cigar vigorously, and lapsed into silence.--A Newspaper Reporter's Interview with General Butler, September, 1875. [13] Gold in its crude state, and uncoined, was until recently in use as money in some parts of California, Mexico, and on the West Coast of Africa. [14] Historically, bills of exchange probably originated with the Jews of the Middle Ages, who, ever liable to persecution, adopted a system of drafts, or written orders, upon one another, which each agreed to honor and pay to the person named in the draft. [15] It was in this manner that the first bank of which we have any record originated in 1171, namely, the Bank of the Republic of Venice. Venice in that year was at war and needed money. The Council of Ten, or the Government, called upon the merchants to bring in their gold or coin into the public treasury, and gave credit on the books of the state for the amounts so deposited; which credits carried interest (always promptly paid) at the rate of four per cent. per annum. Soon after the establishment of this bank one of the depositors died; and it becoming necessary to distribute his estate among five children, his bank-credit was divided into five portions and transferred to five new owners. A system of transferring bank-credits was thus introduced, and proved so useful that in a brief time the merchants adopted it very generally as a means of paying balances in all great business transactions. The banks of Amsterdam and of Hamburg were also subsequently established on substantially the same basis, and are doing business to-day successfully. The Bank of Venice did business for five hundred years; during which period the state was prosperous, and there were few failures among the mercantile classes. [16] If to any it may seem puerile and unnecessary to enter into such explanations, it may be well to remind them that one of the schemes for a new currency, which has of late found some earnest advocates in the United States, is that of Josiah Warren, of Ohio, who proposed that currency "should be issued by those men, women, and children who perform useful service"--i. e., grow corn, mine coal, catch cod-fish, pick up chestnuts and the like--"but by nobody else;" such results of service being deposited in safe receptacles, and having receipts of deposit issued against them to serve as "equitable money." A further axiom of Mr. Warren was, "that the most disagreeable labor" (not the most useful) "is entitled to the highest compensation;" and, therefore, inferentially entitled to issue the most money. A specimen of this equitable money before the writer reads as follows: The most disagreeable labor is entitled to the highest compensation. $1.00 Cincinnati, Ohio. Due to Bearer, EIGHT HOURS' LABOR, In Shoe-making, or a Hundred Pounds of Corn. William Morton. No. --, F---- Street. Time is Wealth. Of course, to make this money equitable, and its issue, as claimed, "the satisfactory solution of the great problem of labor and capital," there must be some presupposed equitable relation between eight hours of shoe-making and a hundred pounds of corn. But one hundred pounds of corn in Illinois are the result of only a quarter as much labor as a hundred pounds in New England; and what comparison is there between eight hours' work of a skilled mechanic and that of a mere cobbler in making shoes? or of the man who performs a disagreeable, slavish piece of work, and of the genius who invents or makes a machine that makes this disagreeable work unnecessary? E. D. Linton, of Boston, one of Warren's most eminent disciples, improves on Warren's ideas, and proposes that the United States Government should prepare and issue a currency, which should read as follows: The United States will pay One Dollar to Bearer, on demand, in ---- bushels of Illinois Fall Wheat, at United States No. 1 Store-house, No. 12 River Street, Chicago, Ill. This note is receivable for all debts due the United States. And the same inferentially in respect to pigs, coal, shoes, and the services of doctors, lawyers, and cooks. So, then, if the note is not to be on its face a lie, and the promise is to be actually performed on demand, the necessity will be absolute on the part of the Government of the United States to have store-houses for wheat at Chicago, pig-pens at Peoria, coal-mines or dépôts at Pottsville, and trained professionals ready on call to plead a case, preach a sermon, cure a cold, and cook a dinner; and all of these last must take their pay in pigs if required. But as a pig has one value at Peoria, and another value at almost every other place, the dollar's worth of pig which the United States would pay might be a whole pig in one place, a half in another, and possibly only the snout in another. [17] Although, to all who have investigated the subject, the evidence is conclusive that an irredeemable fluctuating paper money is always made an agency for taxing with special severity all that class of consumers who live on fixed incomes, salaries, and wages, it has, nevertheless, always been a somewhat difficult matter to find illustrations of the fact so clear and simple as carry conviction by presentation that it does thus act to the classes most interested. With a view of obtaining such an illustration, application was made some months since to an eminent American merchant, whose large and varied experience abundantly qualified him to discuss the subject; and the result of the application may be thus stated: Q. In buying in gold and selling in currency, what addition do you make to your selling price, in the way of insurance, that the currency received will be sufficient--plus profit, interest, etc.--to replace or buy back the gold represented by the original purchase? A. We do but very little of that now; hardly enough to speak about. Q. But still you make insurance against currency fluctuations an item in your business to be regarded to some extent? A. Why, yes, certainly; it won't do to overlook it entirely. Q. Well, then, if you have no objections, please tell me what you do allow under existing circumstances? A. I have certainly no objections. We buy closely for cash; sell largely for cash, or very short credit; and, within the comparatively narrow limits that currency has fluctuated for the last two or three years, add but little to our selling prices as insurance on that account--say one to two per cent. for cash, or three months' credit; and for a longer credit--if we give it--something additional. During or immediately after the war, when the currency fluctuations were more extensive, frequent, and capricious, the case was very different. Then selling prices had to be watched very closely, and changed very frequently--sometimes daily. My present experience, therefore, is exceptional; and to get the information you want, you must look further. I think I can help you to do this. We buy regularly large quantities of a foreign product--let us suppose, for illustration, cloth, for the large manufacturers and dealers in ready-made clothing. We buy for gold, and we sell for gold, and do not allow the currency or its fluctuations to enter in any way into these transactions. But how is it with my customers? I allow them some credit; and the amount involved being often very large, I, of course, must know something of the way in which they manage their business. They transform the cloth, purchased with gold, into clothing; and then sell the clothing, in turn, to their customers--jobbers and retailers--all over the country, for currency, on a much longer average credit than they obtain from me for their raw material. As a matter of safety and necessity, these wholesale dealers and manufacturers must add to their selling prices a sufficient percentage to make sure that the currency they are to receive at the end of three, six, or nine months will be sufficient to buy them as much gold as they have paid to me, or as much as will buy them another lot of cloth to meet the further demands of their business and their customers. How much they thus add I can not definitely say. There is no regular rule. Every man doubtless adds all that competition will permit; and every circumstance likely to affect the prospective price of gold is carefully considered. Five per cent., in my opinion, on a credit of three months would be the average minimum; and for a longer time, a larger percentage. If competition does not allow any insurance percentage to be added, there is a liability to a loss of capital, which, in the long run, may be most disastrous--a circumstance that may explain the wreck of many firms, whose managers, on the old-fashioned basis of doing business, would have been successful. The jobbers and the retailers, to whom the wholesale dealers and manufacturers sell, are not so likely to take currency insurance into consideration in fixing their selling prices; but to whatever amount the cost price of their goods has been enhanced by the necessity of insurance against currency fluctuations, on that same amount they estimate and add for interest and profits; the total enhancement of prices falling ultimately on the consumer, who, of necessity, can rarely know the elements of the cost of the article he purchases. Q. So Mr. Webster, then, in his remark, which has become almost a proverb, that "of all contrivances for cheating the laboring classes, none has been more effectual than that which deludes them with paper money," must have been thoroughly cognizant of the nature of such transactions? A. Most undoubtedly; for such transactions are the inevitable consequence of using as a medium of exchange a variable, irredeemable currency. The illustration above given, therefore, in the place of being imaginary, is based on the actual condition of business at the present time--January, 1876. [18] In 1864, a ship was built in New York, at the time when labor and materials, reckoned in currency, had touched their highest prices. In 1870, another ship was built in the same place and on the same model--like the former in every particular. It was expected that, as wages and the cost of materials were less in 1870 than in 1864, the cost of the latter ship would be much less than that of the former; but the result showed that this was not the case. [19] When the Japanese embassy visited the United States, in 1872, they were seriously advised to create, by some means, a national debt as soon as they returned home, and make use of it as a basis for the creation and issue of currency. [20] Machiavelli, in his "Discourses on the First Ten Books of Livy," book ii., chap, iii., in explaining the great difference in the relative growth of the Roman and Spartan republics, relates that "Lycurgus, the founder of the Spartan republic, believing that nothing could more readily destroy his laws than the admixture of new inhabitants, did every thing possible to deter strangers from flocking thither. Besides denying them intermarriage, citizenship, and all other companionships (conversationi) that bring men together, he ordered that in his republic only leather (non-exportable) money should be used, so as to indispose all strangers to bring merchandise into Sparta, or to exercise any kind of art or industry there, so that the city never could increase in population." [21] Examination will show that the United States, for one-sixth part of their existence as a federated nation, have been in a state of war; and, for the future, there is no good reason for supposing that the country is to be any more exempt from the vicissitudes of nations than it has been in the past. With irredeemable paper, violation of plighted faith, gold demonetized and banished, in what condition is the nation for maintaining a great national struggle? [22] In a case often overlooked (Bank vs. Supervisors, 7 Wallace), the United States Supreme Court decided that "United States notes are engagements to pay dollars; and the dollars intended are coined dollars of the United States." Refusal to pay such notes in coin is clearly, therefore, repudiation. [23] Irving's "Conquest of Granada." [24] In every cabinet of rare coins in Europe there will be found specimens of what are known as "obsidional" coins, or coins struck in besieged places to supply the place of coined money. These coins appear, in all instances, to have been regarded as obligations sacred in their nature, and their repudiation a high crime against morality and patriotism. [25] Speech of General B. F. Butler, United States House of Representatives. [26] Letter of Wendell Phillips to the New York Legal-tender Club, 1875. [27] Charles Moran, New York Commercial Bulletin, October 5th; 1875. [28] Opinion of the United States Supreme Court, by Justice Strong.--Wallace, 12, p. 553. [29] The Indians on the Atrato River (Central America), when first visited by one of the recent inter-ocean-canal exploring parties, were found to be unaccustomed to the use of much, if any, clothing; but after a little intercourse with civilized man, some of the more intelligent of the natives presented themselves with their bodies painted in close imitation of clothes, which they claimed to be superior in every respect to the genuine articles worn by their visitors. [30] This was what actually happened in Connecticut in 1704 and thereabouts. See "Madame Knight's Journal," quoted in Felt and Bronson's "Histories of New England Currencies." [31] Whatever may have been the immediate effect of the gold-discoveries in California and Australia, no economist of repute now holds to the opinion that the average purchasing power of gold all the world over is any less than it was in 1849-'50; or, in other words, that any increase in the quantity of gold since 1849-'50 has resulted in any present depreciation. [32] This is the American interpretation. The English interpretation of "legal tender" was brought out in a debate in the House of Lords, in June, 1811, when it was shown to mean, in its application to Great Britain, no more than this: that in a suit between creditor and debtor, if a judgment went against the debtor, he was allowed to plead a tender of bank-notes in arrest of execution, but he could not claim that the notes should be forced upon the creditor in discharge of the debt. During the long suspension of specie payments in Great Britain, therefore, bank-notes were never made legal tender in the American sense. [33] After the Revolutionary war it was considered disgraceful to take advantage of the legal-tender character of the depreciated Continental or State paper money to liquidate debts with it; and the Society of Cincinnati expelled a member for so doing. The State of Rhode Island also, which longer than any of the other States endeavored to maintain by law the legal-tender character and use of such money, was often spoken of in consequence as "Rogue's" in place of "Rhode" Island. [34] To any who may desire to know how far imagination has been drawn upon for this picture, reference is made to the speech of Hon. O. P. Morton, United States Senate, "Congressional Record," vol. ii., part i., Forty-third Congress, First Session, p. 669. [35] The pertinacity "with which a mind befogged on the subject of money and currency holds on to the delusion that the making and issue of promises to pay, and calling the same money, is equivalent to the creation of wealth; and, vice versâ, that the cancellation or withdrawal, by payment, of such promises is the same thing as the destruction of wealth, and also tends to make money--in the sense of capital--scarce, and interest high, finds many amusing illustrations, which for educational purposes are better than arguments. For example, we have, first, the assumption of a leading Senator of the United States (already referred to, and which, if not on record, would seem incredible) that because an increased supply of horses and hogs made available to a market make horses and hogs cheap, therefore an increased supply of evidences that capital had been borrowed, used, and never paid, would tend to increase the quantity and rate of interest of loanable capital. A corresponding illustration is also to be found in the case of the member of the Continental Congress mentioned by Pelatiah Webster, who, when the subject of increased taxation for the support of the war was under consideration, indignantly asked "if he was expected to help tax the people, when they could go to the printing-office and get money by the cart-load?" The experience of the Irish mob also finds an appropriate place under this head, which made a bonfire of all the notes issued by an obnoxious private banker that they could gather, little imagining, as they shouted and capered with wild delight about the fire that consumed them, that, in place of impoverishing, they were really enriching, their enemy. The following story, also illustrative of the same popular fallacy, passes current in one of the towns of Eastern Connecticut: During the severe financial panic of 1857, an honest country farmer and deacon, who, by virtue of being a considerable stockholder in one of the local banks, had been placed as a figure-head on its board of directors, was applied to by a farmer friend to help him in procuring from the bank a small loan. Knowing that the times were hard, and money scarce, the deacon, although desirous of obliging his friend, did not at once commit himself, but promised to go to the bank, and make his action contingent upon the state of affairs which he might there find. The two friends, accordingly, went into town the next day (which happened to be the culminating day of the crisis, when every promise to pay issued by any bank was, in the general distrust, gathered up and rushed in for redemption); and, while the applicant for the loan waited outside, the director entered the bank to reconnoitre. Passing into the directors' room, and thence behind the counter, he said little, but, keeping his eyes wide open, did not fail to notice the extraordinarily large packages of bills, filling safe and drawers, which, to the annoyance and strain of the bank, had been recently sent in for payment. Seeking no further proof of the financial strength of his institution, he returned to the street, and, informing his friend that every thing was all right, the latter next entered, and confidently asked for his discount. To his great surprise, he received the usual polite answer, that "they would be too glad to oblige him, but that, really, they had no money." "Out of money!" said the deacon, when the result of the application was made known to him. "Out of money! How can they lie so, when I have just seen the safe and drawers full of it? As a Christian man, and an officer of the church, I can't conscientiously be a director and stockholder any longer in such an immoral institution." And yet, if, on returning home, the good deacon had found in his table-drawer a number of his individual promissory-notes, signed and ready to issue, but not issued, he would not have thought himself any richer by their existence, but, on the contrary, would have felt much more comfortable at such a time to know that the notes were all under double-lock security, or, better, if he saw them vanishing into ashes. And yet, in the case of the bank-notes, he couldn't understand why they were not money, to be used at all times and under all circumstances! [36] Between the years 1860 and 1870, the United States doubled the quantity of currency available for use by its citizens, and yet the rate of interest was as high in the latter year as in the former. [37] Such were some of the uses finally made of the Continental currency. See Sumner's "History of American Currency," p. 46. 
38381	----	THE HISTORY OF CURRENCY 1252 TO 1896 BY W.A. SHAW [1896] Reprints of Economic Classics Augustus M. Kelley Publishers NEW YORK 1967 First Edition 1895 (London: Wilsons & Milne, 29 Paternoster Row, 1895) Reprinted 1967 by AUGUSTUS M. KELLEY PUBLISHERS From Second Edition of 1896 Library of Congress Catalogue Card Number 67-20086 Printed in the United States of America by Sentry Press, New York, N.Y. 10019 THE HISTORY OF CURRENCY 1252 TO 1894 Being an Account of the Gold and Silver Moneys and Monetary Standards of Europe and America, together with an Examination of the effects of Currency and Exchange Phenomena on Commercial and National Progress and Well-being BY W.A. SHAW, M.A. LATE BERKELEY FELLOW OF THE OWENS COLLEGE FELLOW OF THE ROYAL HISTORICAL AND ROYAL STATISTICAL SOCIETIES Second Edition New York: G.P. PUTNAM'S SONS London: WILSONS & MILNE 1896 TO RICHARD COPLEY CHRISTIE THIS BOOK IS RESPECTFULLY DEDICATED IN MEMORY OF A FRIENDSHIP OF PECULIAR GRACE AND INSPIRATION PREFACE The purpose of this book is twofold--first and foremost, to illustrate a question of principle by the aid of historic test and application; secondly, to furnish for the use of historical students an elementary handbook of the currencies of the more important European states from the thirteenth century downwards. Little need be said as to this latter purpose. The total omission of the historic, reasoned, and consecutive study of currency history--the most important domain of practical economics--from the curriculum of every university in the land is matter for surprise and regret, and can only be attributed to the lack of an initiative and of a handbook. As to the former purpose, there is no field of history so strewn with scientific (i.e. comparative and prophetic) possibilities as economic history; and in economic history there is no department in which the study of the experience of other times and nations is more necessary and resultful, lesson-full, wisdom-full, than the domain of currency. The verdict of history on the great problem of the nineteenth century--bimetallism--is clear and crushing and final, and against the evidence of history no gainsaying of theory ought for a moment to stand. Throughout mediæval Europe and up to the close of the eighteenth century the currency of Europe was practically bimetallic--practically, because actually so without the prescription of a law of tender, and without the allowance of any theoretic grasp or conception of the practice as distinctively what nowadays we understand as bimetallic. The conception of a law of tender is quite modern. And the evolution of the idea of such a law has gone hand in hand with the evolution of a conception of monetary theory on the part of the legislator--that is, with the bitter experience which for want of such a conception Europe endured for centuries. In all systems of jurisprudence money and minting appertains to the kingly office, and the development of the law of tender is to be traced in royal proclamations of the King in Council for long before it became the subject of parliamentary legislation. For centuries, such proclamations were issued, referring to a prohibition of export of the precious metals, banishing foreign coins from the land, or, again, permitting their circulation, and, in that case, prescribing the rough tariff or rate according to which (foreign) coin for (native) coin they should be current. In such proclamations there is no idea of separating the two metals, gold and silver; there is no idea of a law of tender; there is no intention to declare a ratio; there is no conception of _bullion_ apart from coin. The two metals had grown to be the circulating and exchange medium; they were actually there, and all that had to be done was to keep them there. The advantage which was to be derived from a trade in bullion, and from an understanding of the effects of differently-prevailing ratios in different countries, was known only to the Jew and the Italian. They plied their trade in secret, and the legislator was only apprised of the result by suddenly finding a slipping away and dearth of coinage. Then the legislator altered the tariff, and gradually rose to the conception of the ratio as underlying this process of seduction. Then, as a further defence of a particular class of coins, he imposed a limitation on the tender of such, so as to prevent bullion operations on it. This limitation was the first development of a law of tender. Throughout, from the thirteenth to the eighteenth century, both gold and silver had been actually employed in European commerce without any idea either of declaring or of restricting the tender, whether of the one or the other. The final outcome of the application of the law of tender was the development of the modern monometallic system--a system in which alone lay the safeguard against the operation of the bullionist. It was only at the close of the eighteenth century that England evolved this system and flung away the last remains of that mediæval ignorance which had brought with it such a dower of mishap. France has taken almost a century of further experience before arriving at the same point of development. Another point. At the time that England was shaking off the mediæval system France, too, was accomplishing a reform of her money system. It stopped half-way. The old kingly prerogative of altering the coinage was taken away, the unit of the currency was declared definite and unchangeable, and the seigniorage on minting was abolished. So much was accomplished by her law of 1803. But no further application was made of the law of tender than to throw the sanction of legal enactment over that mediæval system which had been the bane of France since first two metals found circulation in her bounds. As far as tender is concerned, there is no difference between the practice of the French monetary system in 1726 and that of 1803. The system was bimetallic in both cases--in the first case, legally by recognition and as resting on the royal jurisdiction; in the second case, legally by direct legislative or parliamentary enactment. The idea that the law of 1803 created a new system and a new heaven for France is doubly absurd. It was a continuation of a very old and a very danger-fraught system, with its roots deep in mediæval ignorance and practice. In addition to this--and quite as demonstrably--there was no conception of a theory of bimetallism in 1803, nor any conception of a bimetallic function to be performed for the good of the human race by bimetallic France. This is a conception of the schools, and bred of later needs and hopes and fears. The modern theory of bimetallism is almost the only instance in history of a theory growing not out of practice, but of the failure of practice; resting not on data verified, but on data falsified and censure-marked. No words can be too strong of condemnation for the theorising of the bimetallist who, by sheer imaginings, tries to justify theoretically what has failed in five centuries of history, and to expound theoretically what has proved itself incapable of solution save by cutting and casting away. Such a verdict as this of history, negative as it is, must strike many a serious mind with dismay. The following of bimetallism would not be what it is were it not for the despair of any other remedy for the situation at the moment. We are thereby left apparently hopeless and remediless. But the first step to the discovery of a true and possible remedy, if any exists, can only be the casting away of the false and impossible. The difference between the monetary problem of the seventeenth century and that of to-day lies in this, that while there has been continuity of history and development there has been a change of needs and circumstance. The danger of arbitrage transactions to the mediæval legislator lay in the fact that they stripped the country, which suffered from them, not, or not merely, of a bullion reserve, but of her actual currency, and rendered even internal trade impossible. He accordingly tried to arrest the drain by threatening imprisonment and death. To-day the safety and supply of the internal currency of the various states is provided for by a monometallic system or by note issue, while, conversely, trade in the precious metals has become free, and bullion flows automatically from land to land in accordance with the dictates of a now rightly-conceived theory of international trade. Just so far the monetary problem has changed--becoming a question of the evolution of a stable international exchange system. The theoretic pretensions of bimetallism have correspondingly widened, but on any ground, wide or narrow, the only material for the study, comprehension, and judgment of such pretensions lies in the actual experience of Europe during the past five centuries. A few words of more particular explanation are necessary. 1. To the student of money and monetary standards the perpetually recurring phenomena of reductions of the unit and standard weights and contents of coins will present no difficulty. Three causes underlay the process--(1) the practice of alloying, (2) the competitive and dishonest action of governments, (3) the ideal nature of the unit itself, which permitted, literally, anything in the way of arbitrary manipulation (compare, e.g., the very different depreciations of the English shilling and the French sou, being both descendants of the solidus; or again, of the French livre and the Italian lire, being both descendants of the libra). 2. A second and much greater difficulty is presented by the confusion of nomenclature. It is often difficult to determine what particular piece is meant by a given name, or, if the identity of the piece can be fixed, its period may still be uncertain. In French numismatic history, for instance, the term florin d'or or denier d'or is used in documents quite generically for the more specific florins d'or à l'agnel, à l'écu, aux fleurs de lis, à la masse, moutons d'or, etc. This quite indeterminate use of the word "florin" (= denier = "piece," or generally, "coin") may possibly explain the crux to be found on pages 3, 9, 301, and 399 of the text (infra.), where florins d'or are mentioned in French history more than seventy years before the first authentic minting of the gold florin at Florence. 3. With regard to the figures of the ratios there is great difference and divergence among the various authorities. The declared ratio may be of a double nature--(1) mercantile, as calculated on the purchase price of gold and silver in the open market; (2) legal, as settled by law in the terms prescribed for Mint purchase and issue. The former is comparatively simple, but it is not until a quite recent date, the opening of the eighteenth century, that it is statistically determinable. The table of the commercial ratio (pp. 157-9 infra.) is taken from Soetbeer, and was by him calculated on the Hamburg exchange and London market rates. The competing figures of the commercial ratio drawn up by Ingham in his Report to the Senate of the United States (4th May 1830), and by John White, of the same date (see _United States Report of the International Monetary Conference of 1878_, pp. 583, 647), I regard as comparatively untrustworthy. With regard to the legal or Mint ratio (see infra., tables, pp. 40, 69-70, 157) there is the greatest discrepancy, and I print the figures with much trepidation and every mental reserve. The differences in the results arrived at by the various authorities are due to the difference in method of calculation, according as the issue price or the purchase price at the Mint is taken (i.e. with or without allowance of seigniorage and remedy), or according as the pure or gross content of the piece is calculated from (i.e. with or without allowance for alloy). As a matter of fact, hardly any two authorities or sets of calculations agree. See, for instance, duplicate sets of figures for Holland in Appendix 1. to Schimmel's _Geschiedkundig overzicht_; or again, compare Soetbeer's figures with those deduced by Köhler in his _Grundliche Nachricht_; or by Dr. Arnold Luschin, in the _Proceedings of the Congrés International de Numismatique_, 1880, p. 443; or with those deducible from Le Blanc's tables (infra., Appendix VI.). It is to this difference that must be attributed the discrepancy in the statement of the ratio by the French Mint authorities in 1640 (see text, infra., p. 92 and note, ibid.). The difficulty of calculating the European Mint ratio at any moment can be judged from the experience and statements of persons so widely apart as Sir Isaac Newton in England, Mirabeau and Calonne in France, and Morris and Hamilton in the United States (see infra., pp. 172-3, 229-30, and 251). With regard to the scope of the present work, it is confined entirely to the history of metallic currency and standard. There is no reference to the paper-money experience of any country, not even America or Austria. Such a subject must form matter for a separate treatment. The account of Austrian money is, therefore, to be found in Appendix v., under Germany, and on the effects of the latest Austrian reform (as also of the latest development in India and the United States) no opinion whatever is expressed. I content myself with the simple statement of fact and event. In appending a list of the authorities used, it is difficult to overcome the feeling of humiliation which has come to me from the contrast of the ephemeral, slight, and unworthy treatment of monetary history to-day, with the grand, solid, scholarly works which the eighteenth century produced. With the exception of Soetbeer's magnificent labours, without which the present work would have been simply impossible as far as the statements of production and relativity of the precious metals are concerned, and of the similar historic work of M. Ottomar Haupt, the literature of this subject to-day is light and polemic and transitory to a nauseating degree. GENERAL _Authorities._ J.D. Köhler Grundliche Nachricht von dem Münzwesen insgemein. Helmstadt, 1739 and 1741. Third edition (Leipzig, 1781), enlarged and attributed to Von Praun. Budelius De monetis et re numaria (with twenty-four other treatises). Coloniæ Agrippinæ, 1591. Melchior Goldast Catholicon rei monetariæ sive leges monarchichæ generales de rebus numariis, etc. Frankfort, 1620. Almanach des Monnaies. Paris, 1784. Münze und Münzwissenschaft (Oec. Techn. Encyc. xcvii.). Nicole Oresme Traité de la première invention des monnaies, and-- Copernicus Traité de la monnaie, both re-edited by Wolowski. Paris, 1864. Jean Bodin Descours sur le rehaussement et diminution tant d'or que d'argent et le moyen d'y remedier [en reponse] aux paradoxes du sieur de Malestroict (appended to Bodin's Six Livres de la Republique. Lyons, 1593). H.C. Dittmer Geschichte der ersten Gold-Ausmünzungen zu Lübeck im 14 Jahrhundert (Zeitschrift der Vereins für Lübeckische Geschichte), Heft. i. 885. J.G. Hall On European Mediæval Gold Coins (Numismatic Chronicle). Third Series, vol. ii. pp. 212-226. P. Joseph Historisch-kritische Beschreibung des Bretzheimer Goldguldenfundes vergraben um 1390, nebst einem verzeichniss der bisher bekannten Goldgulden vom Florentiner Gepräge. Mainz, 1883. K.T. Eheberg Über das ältere deutsche Münzwesen und die Hausgenossenschaften. Leipzig, 1879. Neueste Münzkunde Leipzig, 1853. A.H. Smith Encyclopædia of Gold and Silver Coins of the World. Philadelphia, 1886. A. Soetbeer Edelmetall--Produktion und Werthverhältniss zwischen Gold und Silber, seit der Entdeckung Amerika's bis zur Gegenwart. Gotha, 1879. " Materialien zur Erklärung und Beurtheilung der wirthschaftlichen Edelmetallverhaltnisse und der währungsfrage. Berlin. A. Soetbeer Litteraturnachweis über Geld--und Münzwesen. Berlin, 1892. F. Altés Traité comparatif des monnaies, poids et mésures. 1832. G.K. Chelins Mass and Gewichtsbuch. 1830. Gerhardt Tafeln, etc. Berlin, 1818. Doederlein Commentatio Historica de Nummis. 1729. C.C. Schmiede Handworterbuch der Münzkunde. 1811. J. Leitzmann Abriss einer Geschichte der gesammten Münzkunde ... aller völker Fursten und Städte der ältern, Mittlern, und neuern Zeit. Erfurt, 1828. GERMANY _Authorities._ J.P. Ludewig Einleitung zu dem teutschen müntwesen mittler Zeiten, etc. 1709. J.F. Klotzsch Versuch einer Chur Sächischen Münzgeschichte. 1779. D.E. Beyschlag Versuch einer Münzgeschichte Augsburgs in dem Mittelalter. 1835. C. Binder Württembergische Münz und Medaillenkunde. 1848. C.P.C. Schönemann Zur vaterländischen Münzkunde vom 12-15 Jahrhundert. 1852. J.D. Köhler Historische Münz Belustigungen, 22 vols. 1729-65. H. Pauli Tableaux des monnaies de l'Allemagne, etc. Frankfort, 1846. J.G. Hirsch Das teutschen Reichs Münz Archiv, etc., 9 vols. folio. 1750-68 (absolutely unequalled and indispensable). J. Leitzmann Wegweiser auf dem Gebiete den deutschen Münzkunde. Weissensen, 1869. Euler Verzeichniss und Beschreibung der frankfurter Goldmünzen mit einer geschichtlichen Einleitung etc. (Archiv fur Frankfurts Geschichte und Kunst), Heft iv. 1847. E.L. Jäger Das Geld nebst einer kurzem Geschichte des deutschen Geldes. Stuttgart, 1877. Geschichtliche Darstellung des alten und neuen teutschen Münzwesens. Weimar, 1817. J.F. Hauschild Zur Geschichte des deutschen mass und Münzwesens. Frankfort, 1861. A. Soetbeer Denkschrift über Hamburgs Münzverhältnisse. Hamburg, 1846. H.P. Cappe Die Münzen der deutschen Kaiser und Könige das Mettelalters. 1850. C.P.C. Schoenemann Zur vaterländischen Münzkunde. 1852. J.P. Graumann Gesammelte Briefe vom dem Gelde, von dem Wechsel, etc. 1762. J.G. Hoffmann Die Lehre von Gelde. 1838. " Die Zeichen der Zeit. 1841. J. Albrecht Munzgeschichte der Hauses Hohenlohe, vom 13-19 Jahrhundert. Grote and Hölzermann Lippische Geld und Münzgeschichte, 1867. (Nachtrage by Weingaertner. 1890). E.J. Bergius Das Geld und Bank wesen in Preussen. 1846. A. Von Berstett Munzgeschichte des zähringen badischen Fürstenhauses. 1846. D. Braun Bericht von Pohlnisch und Preussischen Münzwesen. 1722. E. Bahrfeldt Das Münzwesen der Mark Brandenburg bis zum Anfange der Hohenzollern. 1889. Köhne Das Münzwesen der Stadt Berlin, 1837. F.H. Grautoff Historische Schriften, 3 vols. 1836 (for Lübeck Mint). C.F. Eheberg Über das ältere deutsche Münzwesen. 1879. J. Newald Beitrag zur Geschichte des Österreichischen Münzwesen im ersten Viertel des 18 Jahrhunderts. Vienna, 1881. Max Wirth Geschichte der Handelskrisen. Frankfort, 1890. " Das Geld, Geschichte der Umlaufmittel von der altesten Zeit bis an die Gegenwart. Leipzig, 1884. FRANCE _Authorities._ F. De Saulcy Recueil de Documents relatifs à l'histoire des monnaies frappées par les rois de France depuis Philippe II., jusqu' à François I., 4 vols. 4to. Paris, 1879. (The unique value of this work is sadly impaired by the cutting out of the preambles of the various proclamations, etc.). Le Blanc Traité historique des monnaies de France. Paris, 1690. Du Cange Glossarium mediæ et infimæ Latinitatis (Art. Moneta). J. Adrien Blanchet Documents pour servir à l'histoire monétaire de la Navarre et du Béarn, de 1562-1629. Macon, 1887. Hubert de Martigny De la Disparition de la monnaie d'argent et de son remplacement par la monnaie d'or (ou Situation Monetaire de la France en 1859). Paris, 1859. H. Costes Les institutions monétaires de la France avant et depuis, 1789. Paris, 1885. " Notes et Tableaux pour servir à l'étude de la question monétaire. Paris, 1884. Hippolyte Berry Études et recherches historiques sur les Monnaies de France. 1853. Natalis de Wailly Mémoire sur les variations de la livre tournois depuis S. Louis à la monnaie decimale. C. Bouterouë Recherches curieuses des monnayes de France depuis le commencement de la Monarchie. Paris, 1666. L. Faucher Recherches sur l'or and l'argent. 1843. Dupré de St. Maur Essai sur les monnaies ou réflexions sur le rapport entre l'argent et les denrées. Paris, 1746. Abot de Bazinghen Traité des monnaies et de la jurisdiction de la cour des monnaies. Paris, 1764. Le Vicomte G. D'Avenel Histoire économique de la propriété, des salaires, des denrées, etc., 1200-1800. Paris, 1894· For a bibliography of the works treating of the provincial monies of France, see Vicomte D'Avenel, _ubi supra_, i. pp. 483-91. ITALY _Authorities._ Ignazio Orsini Storia delle monete della repubblica fiorentina. Firenze, 1760. " Storia delle monete de' Granduchi di Toscana. Firenze, 1766. Zanetti Nuova raccotta delle monete e zecche d'Italia, 5 vols. folio. 1785-89. Custodi Scrittori Italiani d'economia politica, vol. xiv. F. Schweizer Serie delle monete Aquileia. 1818. Ph. Argelatus Di monetis Italiæ varior. illustr. virorum dissertationes, 6 vols. 1750-9. A. Cinagli Le monete de' Pape, folio. 1848. [Fr. Vettori] Il fiorino d'oro antico illustrato. 1738. Menizzi Delle monete de' Veneziani dal principio al fine della loro repubblica. Venezia, 1818. Vincenzo Padovan La numografia Veneziana sommario documentato. Venezia, 1882. Fr. Ed. Ercole Gnecchi Le Monete di Milano. Catalog einer Sammlung italienischer Munzen aller Zeiten. Munich, 1882. Nicolo Papadopoli Sulle origini della Veneta zecca, etc. Venezia, 1882. " Sul valore della moneta Veneziana. Venezia, 1885. " Monete inedite della zecca Veneziana. Venezia, 1881. G. Carli-Rubbi Delle monete e dell' instituzione delle zecche d'Italia. L'Aja, 4 vols. 1754. NETHERLANDS _Authorities._ W.F. Schimmel Geschiedkundig overzicht van het muntwezen in Nederland. Amsterdam, 1882. [Groebe] Handleiding tot de kennis der nederlandsche munten. Amsterdam, 1850. [Warin] Bijdragen tot de kennis van het muntwezen ('S. Gravenhage). 1843. P.O. van der Chijs Beknopte verhandeling over het nut der beoefening van de algemeene, dat is oude, meddeleeuwsche en heden daagsche munt en penningkunde. Leiden, 1829. V. Gaillard Recherches sur les Monnaies de Flandres. 1857. Groot Plakkaat Boek (Can & Schelten). Mieris Beschrijving der Munten van Utrecht. 1726. A. Vrolik Verslag van al het verrigte tot herstel van het Nederlandsche Muntwezen van 1842-51. L. Deschamps de Pas Essai sur l'histoire monétaire des Comtes de Flandres de la maison de Bourgogne. 1863. F. Hénaux Essai sur l'histoire monétaire du pays de Liege. 1845. W.C. Mees Proeve eener geschiedenis van het Bankwezen en Nederland. Rotterdam, 1838. Kornelis van Alkemade De goude en zilvere gangbaare penningen der Graaven en Gravinnen van Holland. Delft, 1700. W.J. de Voogt Bijdragen tot de numismatiek van Gelderland. Arnhem, 1869. R. Serrure Elements de l'histoire monétaire de Flandres. Gand, 1879. F. Verachter Documents pour servir a l'histoire monétaire des Pays-Bas. Anvers, 1845. " Histoire monétaire de la ville de Bois le Duc. Anvers, 1845. Revue numismatique Belge. D. Groebe Beantwoording der Prijswerk over de Munten en hetgeen daartoe betrekking--1500-1621 (Koninklijke Akademie van Wetenschappen. 1835). Inleiding tot de heedendaagsche penningkunde ofte verhandeling van der Oorsprong van't geld, etc. Amsterdam, 1717. Fr. van Mieris Beschrijving van der Bisschoplijke munten en zegelen van Utrecht, etc. Leyden, 1726. Fr. van Houwelingen Penninck-boeck enhondende alle figuren van Silbere und Goude penningen gheslaghen bij de Graven van Hollandt. Leyden, 1591. J. Ackersdijck Nederlands Muntwezen, etc. Utrecht, 1845. Ghesquière Memoire sur trois points interessant de l'histoire monétaire des Pays Bas, etc. Bruxelles, 1786. F. Den Duyts Notice sur les anciennes monnaies des Comtes de Flandres, etc. 1847. R.H. Chalon Recherches sur les monnaies des Comtes de Hainault. 1843. P.O. van der Chijs De munten der Voormalige Hertogdommen Braband en Limburg (in vol. xxvi. of Tayler's tweede Genootschap. Haarlem. 1851). Van den Berg Introductory chapter to "The Silver Question." 1879. SPAIN _Authorities._ Breve Reseña historico-critica de la moneda Española y reduccion de sus valores a los del sistema metrico vigente (a Government Report of 1862). Juan de Dios de la Rada y Delgado Bibliografia numismatica Española Madrid, 1886. (A work of unequalled merit.) Vicente Argüello Memoria Sobre el valor de las monedas de D'Alfonso el Sabio (memorias de la Real Academia de la Historia). Edward Clarke Letters concerning the Spanish Nation. London, 1773. J. Salat Tratado de las monedas de Cataluñia. Barcelona, 1818. Andrea Merim Escuela Paleographica, folio. 1780. Cascales Discursos historicos de Murcia, folio. 1621. A. Heiss Descripcion general de las monedas Hispaño-Cristianas, 1865-9. 3 vols. (A model work of immense labour.) Liciniano Saez Demostracion historica del verdadero valor de las monedas, etc. 1805 (Real Acad. de la historia). Dr. Clemencin On the Ratio in Spain (in Memorias de la Real Academia de la Historia, vol. vi. p. 525). ENGLAND AND AMERICA R. Ruding Annals of the Coinage of Britain. Hawkins Silver Coins of England. Kenyon Gold Coins of England. Numismatic Chronicle. Lord Liverpool Treatise on the Coins of the Realm. Sir James Stewart Works. S.M. Leake A Historical Account of English Money. H.N. Sealey Coins, Currency, and Banking. Macpherson Anderson's History of Commerce. Bishop Fleetwood Chronicon Preciosum, or an Account of English Money, etc. etc. London, 1707 Bishop Nicolson English, Scotch, and Irish Historical Libraries. Thorold Rogers History of Prices. Tooke and Newmarch History of Prices. Sir Dudley North Discourses upon Trade. 1691. Sir Walter Raleigh Works (Oxford Edition). Sir Robert Cotton _Posthuma._ Harris An Essay upon Money and Coins. London, 1752. State Papers Foreign (Record Office). (Absolutely invaluable.) Close Rolls and Patent Rolls (Record Office). State Papers Domestic (Record Office). Treasury Papers (Record Office). Reports of the Deputy-Master of the Mint, 1870-94. United States Reports of the International Monetary Conference. 1878. (Embodying an invaluable series of reprints.) J. Laurence Laughlin The History of Bimetallism in the United States. New York, 1894. Dunbar Laws of the United States on Currency and Banking, etc. Of the almost endless series of Government Reports, a full bibliography will be found in Soetbeer's Litteraturnachweis. The American Mint Reports, and the Austrian _Statistische Tabellen zur Wahrungs-Frage der Osterreichisch-ungarischen Monarchie_ (Vienna, 1892), deserve separate and special mention for their unequalled usefulness. I am deeply indebted to H.C. Maxwell Lyte, C.B., Deputy Keeper of the Records, for references to the Patent and Close Rolls, the Exchequer Records, and other sources, which I have attempted to work into the tables of the French coins (Appendix VI.). The Index of Coins at the end of the present volume is intended mainly for the purposes of historical research. It has been compiled, along with the General Index, entirely by my sister, Miss Edna Shaw, to whom my warmest thanks are due. CONTENTS CHAPTER I From the Commencement of Gold Coinages to the Discovery of America, 1252-1492 Recommencement of gold coinages in Europe, 1; in Italy, 3; Germany, 6; France, 9; Flanders, 10; Holland, Spain, and England, 11; characteristics of the first period, 13; general depreciation of the standard, 15; monetary experience of Italy, 17; the Florentine troubles, 18; monetary experience of Spain, 23; the Cortes of Valladolid, 24; monetary experience of Germany, 25; the Mint conventions, 26; tables of the groschen and gulden, 30, 31; monetary experience of France, 31; arbitrary debasements, 32; course of the monies under Philippe de Valois, 35; the States-General of France, 1420, 37; Charles VII., 38; Louis XI. and Charles VIII., 39; general statement of the ratio, 40; monetary experience of England, 41; Edward III.'s issues of gold, 42; the measures of, 1353, 45; complaints of 1381, and the monetary investigation, 50; recoinage of 1414, 55; recoinage of Henry VI., 58. CHAPTER II From the Discovery of America to the End of the First Cycle of the Influence of the Metals of the New World on European Currencies, 1493-1660 General characteristics: First movement of metals from the New World, 61; mercantile importance of the Netherlands, 63; statistics of the production of the precious metals, 65; statement of the Mint ratio, 69; operation of the Netherlands plakkaats, 71; list of ditto, 76; tables of ditto, 79; monetary experience of France, 83; course of the monies under Henry II. and Charles IX., 84; the States-General of 1575, 87; Henry III.'s reform of 1577, 88; checked by Henry IV., 1602, 89; the monetary experience of 1614, and reform of 1615, 90; recoinage of 1640, 91; Florence, 93; Germany, 95; table of the groschen and gulden, 97; Imperial Mint Ordinances of 1524, 1551, and 1559, 98, 99; Mint disorders, 100; _Kipper und Wipper Zeit_, 102; Imperial basis of 1623, 106; Spain, 107; her function as a distributor, 108; England 113; tables of gold and silver coins, 113; recoinage of 1527, 118; export of 1537, 119; measures of 1544, 121; the Tudor debasement, 123; Elizabeth's recoinage, 1559, 129; the mistake of 1600, remedied by James I., 132; export of 1607 and 1611, Sir Walter Raleigh's opinions, 134; crisis of 1620-22, 139; the State prosecutions of 1638, 148; the troubles of 1649 and 1652, 151. CHAPTER III From the End of the First Cycle of American Influences to the Present Day, 1660-1894 Statistics of the production of the precious metals, 154; statement of the ratio, 157; development of theory of international trade, 160; free trade in the precious metals, 163; place of discount and interest rates in the modern system, 165; monetary experience of France, 167; recoinages of 1689, 1726, and 1785, 168; Calonne's ratio, 172; monetary action of Republican France, 173; the law of 1803, 176; bimetallic experiences, 1803-76, 179; movements and mintings of the metals, 183; measures of 1835, 187; French monetary commissions, 188; formation of the Latin Union, 190; its history, 193; Germany, 197; Zinnaische standard, 199; Leipzig standard, 1690, 200; Austrian or Convention standard, 201; South German standard, 202; Prussian standard, 203; Conference of Munich, 1837, 204; Mint conventions of Dresden, 1838, and of Vienna, 1857, 205-212; agitation of 1857-70, 213; new Imperial system, 215; England, 219; recoinage of 1696, 222; Newton's report, 1717, 229; recoinage of 1774, 233; silver legislation, 237; Bank Restriction and the Act of 1816, 240; movements and mintings of the metals, 244; United States, 246; beginnings of a national system, 247; reports of Morris and Hamilton, 249-251; Act of 1792, 253; gold export and the law of 1834, 255; silver export and the law of 1853 and 1873, 259; Acts of 1878, 1890, and 1893, 262; movements and mintings of the metals, 265; Netherlands, 268; Portugal, 272; the international conferences, 274; Paris conferences of 1867, 1878, and 1881, 275-280; Brussels Conference of 1892, 285; India, 293; her historic function, 293; movements and mintings of the metals, 299. APPENDICES PAGE APPENDIX I. The Monetary System of Florence, 1272-1530 301 " II. " " Venice, 1284-1790 310 " III. " " Spain, 1250-1894 319 " IV. " " the Netherlands, 1250-1894 345 " V. " " Germany, Austria, and Prussia, 1250-1894 360 " VI. " " France, 1140-1894 396 THE HISTORY OF CURRENCY CHAPTER I From the Commencement of Gold Coinages to the Discovery of America, 1252-1492 The monetary history of Europe begins in the thirteenth century, and in the Italian peninsula. Its starting-point is the era of the reintroduction of gold into the coinages of the Western nations, and is definitely marked for us by the minting of the gold florin of Florence in 1252. For all practical purposes gold had gone out of use since the seventh century, and after the submersion of the Roman Empire; and the currencies of the nations of mediæval Europe rested on a silver basis entirely. There are limitations to the truth of this statement, but they are of such a nature as not materially to affect it. In Spain, for instance, the Moors kept up a tradition of gold coinage similar to that of Rome, from the eighth to the middle of the thirteenth century. But its influence on the monetary system of Christian Spain is not even a matter of question. At the other extremity of the Mediterranean, at Byzantium, seat of the Eastern Empire, the best traditions of the coinage system of Rome were preserved for centuries after the imperial city had fallen before the invasions of the northern barbarians. Indeed, the monetary system of the Eastern empire, by becoming, as it did, the model which Charlemagne copied in his currency enactments, became the basis of all the modern European systems. Further than this, the presence of gold _Byzants_ can be traced here and there, at isolated points and dates, all over the darkness of those early centuries of the Middle Ages, when all coining art seemed forgotten among the races of Central Europe. Notwithstanding such limitations, however, it still remains true that the monetary history of the modern world dates from the thirteenth and not the seventh century, and from the little commercial states of Italy rather than from Byzantium. Previous to the minting of the gold florin of Florence there is no trace of any independent minting of gold coins on a commercial scale by any state of mediæval central Europe. The currency system of England, for instance, from the time of the Saxons to the days of Henry III. was based entirely on silver. In endless variety and under a diversity of names the silver penny was the unit coin current of the realm. Its equivalent in the Frankish Empire was the silver denarius, which Charlemagne had made the unit of his system, and which so continued for both the kingdom of France and the Holy Roman Empire till the fourteenth century. Finally, among the numerous states of Italy, with each their little independent Mint, there is no trace of the coinage of gold until the days of the commercial greatness of Florence and Venice. For eight centuries or more those races of Europe, which were to turn the course of the modern world and build its civilisation anew, were ignorant of the commercial use of what has been through all history the most potent factor in civilisation--gold. [Sidenote: THE GOLD FLORIN OF FLORENCE] The explanation of the reintroduction and recoinage of gold is to be found in the history of the Crusades and of the commercial growth of the petty independent states which sprang from the political confusion of Italy. No sooner had they achieved each their little autonomous existence than they threw themselves with feverish energy into the development of the trade with the East. Florence and Venice, Pisa and Genoa, led the way and reaped the fruits; and it was in her most flourishing time, when she had conquered her rivals, Pisa and Siena, and was enjoying a prosperous peace and active trade, that Florence, at the instance of the chief of her merchants, resolved on the coining of the gold florin (1252).[1] The mere idea of such a gold coinage could only be derived from the East--from Byzantium. But it is a curious fact that the importation of it should be due in the first place to the Crusades. Frederick II. of Sicily was elected Emperor of the Holy Roman Empire in 1212. Sixteen years later he headed the Fifth Crusade, and the gold coin (_Augustale_) which he issued some time between his return from that crusade and his death, probably commemorates his wish to rival the appearance of opulence of the Eastern court. This Sicilian coin is the direct ancestor of the florin of Florence, and to it would fitly belong the honour of leading in a new era, were it not that the superior beauty of the Florentine coin gave it universal currency and reputation, and extinguished the memory of its predecessor. The gold coin of Genoa (_Genoviva_) is supposed to have issued in the same year as the florin (1252). Five years later (1257) Henry III. of England imitated the florin in his gold _pennies_, and more than thirty years (31st October 1284) later Venice followed the lead of Florence and instituted a coinage of gold _zecchinos_, under the dogeship of Giovanni Dandolo. Two conditions were essential to the bringing about so momentous a revolution as this, however little the mind of contemporaries may have known it as such. In the first place, the foreign trade of the Italian republics must have become so extensive as to demand a currency medium of higher denomination than silver; and, secondly, that trade must have developed in such directions as to tap gold-using or gold-bearing regions in order to supply the Italian mints. It is a curious fact that both these conditions were realised through the instrumentality of the Crusades. The quickening effect of these vast movements on the trade of the Mediterranean is well known, but their influence in the second direction has not hitherto been pointed out. In the Fourth Crusade Venice lent the force which captured Byzantium (1203), and when, by her arms, Baldwin, Count of Flanders, had been seated on the Eastern throne, Venice reaped her reward in three-eighths of the territories of the Eastern Empire. She received Peloponnesus and a chain of islands in the Ægean, and by the hold she had on Constantinople secured the virtual control of the Black Sea. In its turn the control of the Black Sea brought with it the monopoly of the overland trade with India. [Sidenote: THE TRADE OF VENICE] At one and the same moment, therefore, Venice acquired possession of a huge treasure of gold wrested from the conquered city, and of the then only gold-yielding districts--the Crimea--and of an intercolonial trade, demanding a more enhanced currency medium. The result of such a combination of circumstances was irresistible. During the continuance of the "Latin Empire" at Byzantium, Venice and her sister state were practically the only merchants of Europe. The institution of a gold coinage among the Italian republics, therefore, marks for us an era of commercial expansion which is only fitly to be compared with that of Holland in the seventeenth century, or of our own country in modern times. We are not concerned with tracing the effects of this extraordinary movement further than as they bore in their train the dower of a currency of gold. In the European system, Venice was the intermediary between the spice-laden east and the wool-bearing north. England, the wool-growing country of fourteenth-century Europe; Flanders, the home of the weaving industry; the Hanse Towns of Germany and the gradually forming kingdom of France were successively brought face to face with the new medium of currency; and if the story of the gradual adoption of that new medium could be written, it would form one of the most instructive of all chapters of currency and commercial history. As it is, we have only uncertain and scattered data. In the case of Germany--of chief importance in the process by reason of her geographical position midway between the Mediterranean and the north--the first minting of gold in imitation of the Italian states fell in the second quarter of the fourteenth century. Of the two types of gold monies issued by the Emperor Louis IV., surnamed "Bavarian," the first, struck some short time before 1328, was in direct imitation of the florin of Florence. The second, struck some little time later, was a copy of the _écu d'or_ of Philip VI. of France. In 1337 our own King Edward was made vicar-general and lieutenant to the Emperor, with powers to coin monies of gold and silver. He accordingly kept his winter at the Castle of Louvain, and caused great sums of money both of gold and silver to be coined at Antwerp. Two years later, this same Emperor Louis, the Bavarian, granted to the Duke Rainhold of Gueldres the right to mint gold coins, "after the valuation of the gold monies of the Archbishop of Cologne, the Duke of Brabant, and the Counts of Hainault and Holland." In the following year he granted to the free state of Lübeck a similar right--the patent expressly stipulating that their gold coins should not exceed in weight or value the gold florin of Florence. [Sidenote: BEGINNINGS OF A GOLD COINAGE IN GERMANY] Sixteen years later (1356) the general liberty of coining gold was conceded to the seven Electoral Princes by the Golden Bull of the Emperor Charles IV., and subsequently state after state and free town after free town purchased or were granted the right. Even as late as 1372, in the patent granting to Frederick of Nürnberg this so eagerly solicited liberty, the stipulation is made that the gold gulden to be coined should be of as good gold and weight as "the gulden or florin of Florence." In the case of Lübeck direct documentary evidence of transactions relating to the introduction of a gold coinage has survived among the archives of that state. The privilege of a Mint and of coining (of silver) was first granted to Lübeck by Frederick II. in 1226. But it was not until a century and more later that Louis the Bavarian, by his bull of 28th November 1340, conceded the right of coining gold "in pieces which were to be neither heavier nor of higher worth than the florin of Florence." On the 8th September in the following year the Lübeck Mint made its first purchase of gold from a certain Jacob Grell of Zütphen in Holland. The purchase consisted of 4 marks 1 loth 8 pfen. weight of gold (Lübeck weight), and the price paid was 24 solidi the carat. In other parcels, up to Michaelmas of 1341, the authorities remitted to the Mint a total weight of metal of 50 marks 2 oz. 3-1/2 ang., varying in fineness from 15 to 23 carats. The consignment yielded in the pot 46 marks 1 oz. 7 ang. of pure metal, and was coined into 3199 pieces of a total weight of 47 marks 5 oz. 10 ang., being 67.08 gold pieces to the Lübeck mark. The coins were issued on the 18th February 1342, and bore on the one side the lily of Florence and on the other the figure of John the Baptist--all in direct imitation of the florin. The total issues made in the immediately succeeding years from the Lübeck Mint were:-- 1342 24,783 florins 67.26 to the mark. " 5,483 " 67.11 " " 1343 30,436 " " " " 1344 32,590 " " " " With more or less irregularity the earliest German guldens imitated the florin, and maintained something like a steady and uniform denomination quite up to the beginning of the last quarter of the fourteenth century. [Sidenote: GOLD COINAGE IN FRANCE] In France, as in Germany, the first coining of gold can only be dated approximately, but for all practical purposes quite safely. The generally accepted view is that the French series of gold coins was initiated in 1254 by Louis IX., "St. Louis," and that the issue was connected with the Sixth Crusade which he had headed five years before. There is documentary evidence extant to disprove this. _Florins d'or appelez Florences_ are mentioned as early as 1180, not vaguely but quite definitely with an exact statement of weight standard and equivalence. Unless the record of the first minting of the gold florin at Florence is untrustworthy the coin here referred to can only be an imitation in gold of the silver florin of Florence. The same document which contains this reference (De Saulcy, i. 115) also specifies _petits royaux d'or_ as minted not only in 1180 by Philip Augustus, but also in the days of his father, Louis VII. Similar mention of at least two gold coins of Louis IX. occurs as early as 1226, one evidently of the florin type, the other a _pavillon d'or_. It is quite safe to assert, however, that these coins were for show merely, due to an emulation of Byzantine and Italian opulence, and indicate no wide or commercial employment of gold. Of the gold florins of 1226, for instance, thirteen pieces were struck, twelve for twelve peers of France as a gift, the thirteenth for the King himself, "and know you that this is the most beautiful money that can be found, and the finest and best engraved." The interest of such issues is entirely numismatic and not commercial or monetary.[2] It is not until late in the reign of St. Louis--until 1265 or thereabouts--that there is mention in France of any such gold coinage as could have this commercial rather than merely numismatic importance. For the purposes of metallic or currency history proper the real starting-point for France is marked rather by the _gros royaux d'or_, coined in 1295 by Philip le Bel, than by the more meagre coinage of St. Louis and his predecessors. The _gros royaux_ of Philip were double the value of the _petits royaux_ of St. Louis, of which latter Philip le Bel speaks thus in his proclamation. "We have commanded to be made in our name money of gold after the _petits royaux d'or_, which shall be 70 to the Paris mark and cut as the _petits royaux_ have been used to be, being issued at an equivalence of 11 sols Parisi." From this date (1295) onward the gold coinage of the French Mint became one of the most important factors in the monetary history of Europe. In Flanders the first gold coins were struck in 1357, under the rule of Count Louis II.[3] Both the coins issued by him are copied directly from French types----his _real au lion_ from the French _écu_ of Philip IV., and his _mouton d'or_ from the French coin of the same name. And it was the same French original which furnished the types to William V., Count of Holland (1356-77), when he followed the fashion and coined gold. Of the six types minted by Count William during his reign, two are an imitation of the French _mouton_, and the last is derived from the universally prevailing type, the florin. [Sidenote: GOLD COINAGE IN SPAIN AND ENGLAND] In Spain the first coining of gold by the Christian powers fell in the same epoch and derived from the same source. Alfonso XI. (1312-50), surnamed the "Noble," was the first King of Castille who coined the _oro gran modulo_ (_doblas de oro_), while in Aragon Pedro IV. (1336-87), "the Ceremonious," in his _oro florines_ directly imitated the Florentine type, though his later pieces are more original in design. Finally, with regard to England,--to whose monetary history a central importance attaches,--the course of events was most evidently controlled by the revolution in the continental currencies. It is, at the same time, comparatively easy to ascertain. The first of our kings to issue gold coins was Henry III., who in 1257 coined a penny of fine gold, of the weight of two silver pennies of the time, and ordered it to be current for twenty pence. There can be no doubt that the idea of such a coinage was derived from that of St. Louis of France; and, just as in France, the issue seems to have been premature. Probably neither in the one country nor the other did there exist a sufficient store of the precious metal itself, nor sufficient activity of trade to attract such a store, or indeed to make a gold coinage at all a matter of mercantile advantage. It is only a developed and active or considerable trade that demands so enhanced a medium of exchange. Accordingly, just as in France, there is a noticeable gap between the first actual minting of gold by the predecessors of St. Louis, and the minting of it in such quantities as to make a factor in commercial and monetary history, in the days of Philip le Bel (1295); so, in England, the first issue of Henry III. was followed by an interval of nearly ninety years, during which no coinage of gold by our kings took place. The real introducer of this metal into English currency and commerce was Edward III., and the first practical issue of it is to be dated in 1344, rather than 1257. It will be seen at a glance what this statement implies. The issue of Henry III. in 1257 had been premature--an act of kingly rivalry and show, rather than of commercial necessity. But the succeeding century saw a rapid development in the commerce of Northern Europe, and a gold coinage had gradually become both a possibility and a necessity. One after the other--in the order of time just detailed--the various commercial states with which England had intercourse had adopted it and profited by it. That England should follow in the movement scarcely more than sixteen years later than Germany, and a year or two before Flanders, is some evidence of the organisation of her trade, as well as of the intimacy of inter-commercial relationships. So purely a matter of trade and natural growth was this vast movement of the adoption of a gold coinage--a revolution indeed as it proved, though yet unwritten, more momentous in its influence on European civilisation than either the Renaissance or the Reformation. [Sidenote: CHARACTERISTICS OF THE FIRST PERIOD] Approximately, therefore, the fourteenth century may be taken as the starting-point for a history of European bimetallism. The first period of that history embraces all the movements of the previous metals, from such starting-point up to the discovery of America in 1492--a matter of two centuries, roughly speaking. The characteristics of this period are perfectly well defined, and repeat themselves with almost faithful and exact similarity of recurrence in the several states comprising the Europe of that date. In brief, such characteristics were those of--(1) a period of commercial expanse, necessitating an increasing currency and advancing prices; (2) a period of stationary production of the precious metals, necessitating a struggle among the various states for the possession of those metals; (3) a period of endless change in the ratio between gold and silver, necessitating continual revision of the rate of exchange. Broadly speaking, those characteristics fall into two classes, accordingly as they relate to--(1) the natural movement of prices i.e. having regard merely to the supply of the precious metals; (2) to the unnatural struggle for the metals themselves--for the material for currency--due to international rivalry and bad or crafty legislation. With regard to the former of these, the period was distinctly one of insufficient and relatively diminishing production of the metals. During these two centuries, 1300-1500, the main sources of the derivation of gold were the Eastern trade and the finds on the eastern shores and northern interior of Africa. The chief supply of silver came from the mines in Germany. These latter--in Hungary, Transylvania, Saxony, and Bohemia--were of such importance and activity, in the fifteenth century and towards the time of the discovery of America, as partially to keep pace with the general trade expanse of the time, thereby helping to arrest a fall of prices that would have been absolutely disastrous to the civilisation of Europe. The combined production during this period cannot even be conjectured. At the close of it--during the reign of Henry VII.--the total coinage of England, both silver and gold, did not probably exceed £3,000,000, while the total stock of both metals in Europe in 1492 has been estimated at no more than £33,400,000. These figures stand alone, for we have no idea of the extent of the commerce which was worked on so small a monetary basis, and very little idea of the amount of aid which was extended to metallic money by such expedients as bills of exchange. To estimate, therefore, whether the period was one of depreciating, stationary, or appreciating currency, we are reduced to the testimony of prices and the Mint records. [Sidenote: COURSE OF MONETARY DEPRECIATION] In France, at the beginning of the period (in 1308), the mark of gold was coined into 44 livres, and the mark of silver into 2 livres 19 sols. At the close of the period, or towards it, in 1475, the mark of gold was coined into 118 livres 10 sols, and that of silver into 10 livres. In Germany the mark of gold was coined into 66 gulden of 23 carats in 1386, and into 71-1/3 gulden of 18-1/2 carats in 1495--a depreciation of 34.36 per cent. In Spain the mark of silver was coined into 130 maravedis in the year 1312, and into 2210 maravedis in 1474. This latter case is, however, so inextricably complicated with considerations of mere, i.e. arbitrary, debasement, as to render it useless for any estimation of the natural appreciation of the metals. In England our earliest gold coin weighed 128-4/7 grains, and was tariffed at 6s. 8d. In 1489, 80 grains of gold were equivalent to the same, 6s. 8d.--a reduction of 37.94 per cent. Within the same period the weight of the silver penny sank from 22 to 12 troy grains, a reduction of 45.45 per cent. Eliminating cases of arbitrary debasement, a rough average for the period might fairly give 40 per cent. of depreciation through the two centuries. The case need hardly be laboured statistically, for the legislative history of all the countries forming the circle of commercial Europe in the fourteenth and fifteenth centuries witnesses this general downward movement--this appreciation and restriction of currency--in grim and unmistakable manner; and it is the expression of this general movement in their legislations that gives the test and measure of the earliest bimetallic troubles of Europe. In many ways the problem before the various Governments was a more difficult one than that which besets the modern world. There was, for instance, nothing like an equal and generally recognised ratio of value between gold and silver prevailing at any one single point of time. At one and the same date a ratio of 7 or 8 to 1 prevailed in the Moorish parts of Spain, and 12 to 1 in the Christian parts (the kingdom of Castile). Similarly, at a later period, in 1474, the ratio in England was 11.15, in Germany 11.12, and in France 11.00, in Italy 10.58, and in Spain 9.82. The natural result of such a state of chaos, if it had been permitted to work itself out unhindered, would have been arbitrage transactions of such a nature--a flux and reflux of the European currencies so perpetual--as would have induced a yearly and universal bankruptcy. In spite of frantic efforts on the part of ruler after ruler, such results did partially come about, and they sufficiently account both for the distraction of Governments and the hatred universally visited upon the Jew in the Middle Ages. The measures which were adopted by the various States to counteract this invisible, insidious, and wasting process, partake of the roughness and unscientific character of the age. The export of gold and silver was forbidden on pain of death; and it was no mere paper threat, for prominent London merchants were drawn and quartered for the offence. The rates of exchange of foreign coins were fixed by proclamation, and the office of exchanger limited to a particular place. When all this proved ineffectual, the coins were cried down, and violent and sudden changes in the ratio enacted. What made the jerk and friction of such a process worse was that such measures were not merely defensive, but intentionally offensive. The wish of the fourteenth and fifteenth century ruler was not merely to defend his own stock of precious metals from depletion, but--having gained the conviction of the insufficiency of the production of those metals for the needs of Europe--to attract to himself the stock of his neighbours by whatever craft. There was a general struggle for the coverlid of gold, and the methods of that struggle were almost barbaric in their rudeness, violence, craft, and dishonourableness. Italy. On account of their knowledge and practice of the science of exchanges and finance, the metallic history of the Italian states is of chief importance for this earliest period. At a time when the northern nations show signs of an infancy of commerce merely, Italy was advanced in the art and practice of a most highly developed commercial and financial state. It is to her that we owe our system of book-keeping and the use of bills of exchange, not to speak of the pawnbroking and funding systems; and it is permissible to conjecture that Italy, keeping her finger as she did on the monetary pulsations of Europe, reaped her harvest, and far the largest harvest, from the bimetallic fluctuations of the fourteenth and fifteenth centuries. In their turn those fluctuations acted on herself, and occasionally disastrously. On account of their pre-eminence as the commercial states of the peninsula, Florence and Venice are chosen to illustrate in brief the monetary history of Italy. The account of the general course of depreciation in both these states, and of the fluctuations of Mint rates is given in the Appendix (Nos. I. and II.). As regards the bimetallic influence of these changes of rates, there is one telling record in the history of Florence. [Sidenote: THE FLORENTINE TROUBLES OF 1345] The second quarter of the fourteenth century witnessed a decided rise in the value of silver as against gold. It told immediately upon Florence, on account of her Mint rates. By the regulation of 1324 the ratio in Florence was 13.62, whereas in France the ratio was approximately 12.6, and twenty years later, 1344, hardly more than 11 in both France and England. The result on Florence was immediate, and silver disappeared from circulation. In 1345, says her historian, Villani, there was great scarcity. There was no silver money with the exception of the _quattrini_. It was all melted down and transported. Silver of the alloy of 11-1/2 oz. fine was worth in other parts out of Florence more than 12 _lire a fiorino_, whence arose great discontent to the woollen merchants, who feared that the gold florin, in which they received their foreign payments, should fall too much. Being a powerful factor in the little state, they agitated, and the recoinage of 1345 was the result. The precedent evil and the remedy applied by this recoinage may be thus illustrated:-- By law-- Fiorino d'oro = 29 soldi. 20 of these soldi = la lira a fiorino. Therefore 12 lire a fiorino (the price of the libbra of silver as above, purchased abroad) = 8 fiorini 8 soldi. = 26 lire 8 soldi di piccioli. One fiorino d'oro being then current for about 3 lire 2 soldi piccioli. The silver species current in Florence in 1345 were _quattrini_ and _Guelfi del fiore_. These coins were of the same standard as above (11-1/2 oz.), were coined at a tale of 167 to the libbra, and issued at an equivalence of 30 piccioli. The libbra of this silver, therefore, by Florentine Mint rate was valued at 20 _lire_ 17 _soldi_ 6 _denari di piccioli_. Abroad, therefore, the price of silver was a matter of slightly more than 5 lire higher than in Florence. The same result could be got by taking the billon money of Florence and calculating from its silver contents. The natural result was a disappearance of silver. The only remedy was a recoinage, and this was applied by the law of 19th August 1345. By this law the standard of 11-1/2 oz. was retained, the tale of the _Grossi_ was increased to 134 pieces to the libbra (132 being rendered to the merchant, and 2 retained for Mint expenses), and each piece issued at an equivalence of 4 soldi. 4 x 132 = 528 soldi. (= 26 lire 8 soldi di piccioli.) It will be seen at a glance that this equalised the internal and external price of silver. Rather strangely this enactment of the 19th of August was followed by another no more than four days later (23rd August 1345), by which a slight reactionary change was made in favour of silver. The tale was decreased from 134 to 132 pieces, to be struck from the libbra of the same standard, and issuable at the same equivalence. Slight as the backward change was, it was sufficient to leave the monetary system exposed to the same influence of differential exchanging, and within two months it had to be repealed by the law of October 1345. Under the name of _Nuovi Guelfi_ a fresh coin was thereby instituted of the same standard and equivalence as above, but at a tale of 142 per libbra (140 being rendered back to the merchant, and 2 retained for expenses of coinage). 140 x 4 = 560 piccioli. (= 28 lire di piccioli.) This established a considerable advantage, and turned the flow of silver back again to Florence. [Sidenote: FLORENCE IN 1345] The process might in many respects be compared to our raising of the bank rate, were it not that the two operations represent quite different and separated financial epochs. It is noteworthy, too, because the process will be found immediately imitated in both France and England, that these laws of 1345 represent preponderatingly the sense of the class of exchangers of Florence,--i.e. the financiers professed,--men who would profit individually in their exchange operations as much as the state would in its restored currency of silver. "The above lords," says the preamble to the first-cited Act, "considering the numerous petitions made to them by many artificers, merchants, and honourable citizens, of the incredible lack of silver money in the state of Florence, on account of which the citizens of the said state suffer many inconveniences and wants, have determined to have and have had counsel of the twenty-one guilds of the city, who have [by a roundabout method] chosen eight men, skilled and prudent in the aforesaid, who have had counsel with the officers of our Mint and with certain others of the trade of exchangers," etc., with such result as above. Yet even so, the effort was only temporarily successful. Before two years was out the price of silver abroad, outside of Florence, had advanced to 12 _lire_ 15 _soldi a fiorino_ = 27 _lire_ 14 _soldi di piccioli_, whereas the price fixed by a fresh Mint law of 1345 had been again reduced to under 26 _lire_ 10 _soldi di piccioli_. The result was a second melting down and disappearance of the silver coins of the state, a second agitation on the part of the Florentine woollen merchants, and renewed legislation. By the Mint regulation of 1347, a new-named money was introduced called _Guelfi Grossi_, coined at a tale of 117 to the libbra (111-3/5 being rendered cash to the merchants, and 5-2/5 retained by the Mint for the state), at the same standard as before (11-1/2 oz.), but at an equivalence of 5 instead of, as previously, 4 piccioli per piece. 117 x 5 = 585 piccioli. (= 29 lire 5 soldi di piccioli); a figure which is considerably above the 27 _lire_ 14 _soldi piccioli_, which Villani gives as the price of foreign silver at the time. Even taking the lower tale of 111-3/5 pieces, which the importer of silver to the Mint got for his bullion, there is a distinct margin of profit. 111-3/5 = 558 piccioli. (= 27 lire 18 soldi di piccioli.) Indeed, in its entirety, this operation of 1347 has a sinister look. At home the woollen merchants of Florence were obliged to pay wages in silver, abroad to receive payment in gold. It was to their interest to cry down the equivalence of silver; they paid less and received more. The means by which they brought the state to put upon silver a price so far removed from the market price could only be the bribe contained in the relinquishing of 5-2/3 pieces in each libbra. But such a process is in reality the beginning of debasement. If this is not the true import of the Act of 1347, it testifies all the more to the only other possible motive--the monetary straits of Florence, her want of silver for currency, and the violent effort she was prepared to make to get it. Whether by way of effect or cause it is hard to say, but certainly silver in the middle of the succeeding century had so far disappeared in the Italian peninsula, or gold so far increased during the fifteenth century, that the commercial ratio remained persistently low--1: 9.25, both in Milan and Florence; and the Mint regulations of 1460 adopted by the latter state (see under table of Florentine silver coins, Appendix), can only be looked upon as a simple repetition of the measures of 1345 and 1347. Spain. The currency history of Spain up to the conquest of America is one long list of alterations in the coinage, and of petitions from merchants and various Cortes for or against changes in the rating of the coins. The _oro gran modulo_ was rated at 100 pesetas, under Alfonso XI. of Castile, 1312-50, and at 1000 under his successor, Peter the Cruel, 1350-69. The _oro dobla Castellana_ was rated at 60 pesetas under Henry II., 1369-74; at 40 under Henry the Crafty, 1390-1406; and at 100 under John II., 1406-54. In the case of this country the troubles in the fourteenth century arose from the proximity of France, the circulation of lower-rated French coins, and the consequent depletion of the treasure of the kingdom. In Aragon, for instance, the charter of Peter IV. in 1346 had ordered the coining of gold after the same weight and fineness as of the florin of Florence. It was found too high, and three years later he was obliged to cancel it by another proclamation, ordering his own gold coins to be made of the same weight and fineness as the _écus_ of the French kings. The close of his reign and the early part of that of his successor witnessed acute crisis and distress, which led to Henry II.'s celebrated reduction of the coinage at the Cortes of Medina del Campo in 1371. In 1391-93 another general proclamation was issued, ordering a reduction of the value of the monies and fixing new rules of exchange, and this was followed by one in 1398, prohibiting the circulation of foreign coins in Spain, except at bullion value. This latter was a common device, as will be seen in the case of our own country. It proved ineffectual to prevent the outflow of the metals, and when re-enacted in 1413 was found to be of as little avail. The Cortes of 1442 (Valladolid) complained bitterly, in a petition, of the money drawn away from the realm by foreign merchants, and in the same year a fresh ordinance was issued to readjust the values of the native monies to the foreign coins. In this schedule, _doblas de la Banda_ were rated at 100 _maravedis_, and the _florin d'oro d'Aragon_ at 65 _maravedis_. In 1473, only thirty or so years later, by the charter of Henry IV., issued at Segovia, these coins were rated at 300 and 200 _maravedis_ respectively. It was only with the advent of the Catholic sovereigns that the internal disorder and want of unity of the Spanish system was effectually remedied, in the very hour of that discovery of a new world which was to put upon Spain the vital function of distributing the new stores of precious metals (see account of Spanish monies, Appendix III.). Germany. The movements of the precious metals in Germany--which, as far as the ratio of the two metals is concerned, may be held to include the Netherlands up to 1552, when Flanders withdrew from the monetary system of the Holy Roman Empire--is a record of exactly the same process of natural and gradual appreciation of the _metal_ (i.e. depreciation of the weight and fineness of the _coin_) as in Spain, France, and England. In the accompanying tables the movement of silver is illustrated by means of the groschen, and that of gold by the Rhenish gulden. These coins, it need hardly be said, were not unit coins, nor sole prevailing. They are chosen from the bewildering variety with which the numerous independent Mints of Germany have succeeded in perplexing posterity, as being of relatively greater repute and wider acceptance, and because it is a simply impossible task to combine all the denominations of these coins, in order to deduce an average. Up to 1375 the German gold coin was minted in close imitation of the Florentine florin. The weight was 53 grs., as was that of the Florentine piece; and the lily and St. John, the guardian saint of Florence, were both employed in the two coins, the German piece being indeed issued at first under the denomination, _Florin d'or_. From the above-named date, however, and onwards, each succeeding and various power altered type, weight, or alloy, with more or less arbitrariness, but always to the increasing of the confusion of the system as a whole. And it was to remedy this confusion, or to reduce it somewhat, that the monetary union of the four electoral princes of the Rhine was established (8th June 1386), under the lead of the three towns, Frankfort, Speyer, and Worms; under which the four princes, Frederick, Archbishop of Cologne, Carl, Archbishop of Treves, Adolf, Archbishop of Mainz, and Rupert, Count Palatine of the Rhine, agreed upon a common minting of gold gulden. According to the treaty, 66 such gulden were to be minted from the Cologne mark of gold, each of the alloy of 22 carats 6 grs. gold, and 1 carat 6 grs. silver. In 1402 this coinage was confirmed at Mainz by the Mint edict of Rupert II.[4] Seven years later, 1409, the three spiritual electors, Frederick, Archbishop of Cologne, John, Archbishop of Mainz, and Werner, Archbishop of Treves, made a new and slightly different treaty, for the purpose of again reducing the alloy of the gulden from 22-1/2 to 22 carats. At this rate the system was, in the same year, at Speyer, formally accepted for themselves by the Netherlands, and at Cologne also, in 1409, by the Empire generally. The detailed and various changes which the independent princes and powers of Germany subsequently made, it is out of the question to follow. To instance only in brief. In 1419 Frederick of Brandenburg ordered the coining of gulden for his own states, at the rate of 64-1/2 to the Cologne mark, and of the fineness of 19 carats--a very considerable reduction in the metal value of the coin. In 1422, only three years later, Sigismund was coining gulden 66-1/2 to the mark and 22 carats 6 grs. fine--a value somewhat higher than that accepted for the empire in 1409. In 1428-29, accordingly, the Emperor Sigismund issued an imperial order, which was formally adopted by the Reichstag meeting at Eger (1437) and Nürnberg (1438), by which the Cologne mark was to be coined into 68 gulden and the fineness reduced to 19 carats. Four years later, 1442, the Emperor Frederick IV. projected a further reform and reduction, proposing to coin 72 pieces of 19 carats fine, but this was not carried into effect, probably as exaggerating the average depreciation of the content of the coin (or appreciation of the metal). The rate, therefore, established by Sigismund practically remained in force for a matter of sixty years. In the diet of 1495-97 (at Worms), however, a further slight reduction in weight and fineness took place, 69-1/3 pieces being struck out of the Cologne mark, and the fineness lowered to 18 carats 10 grs. On the whole, therefore, the movement of gold during these two centuries is remarkably sluggish in Germany, putting aside, i.e., the internal variations between state and state; and remarkably corresponding to, and confirmatory of, that in England. And in all probability the mean of the quantities in the two countries would aptly measure the perfectly natural or normal appreciation of gold (depreciation of the content of fine metal in the current gold coin) throughout the period. The movement of silver during the same two hundred years, 1300-1500, is much more excited, but shows an average or mean appreciation that tallies remarkably with that of gold just described, as also with that of silver in England. The various denominations of silver coins which arose in Germany, in those years, make it a work of extreme difficulty even to attempt averages. In the accompanying tables, therefore, the groschen is taken as most fairly averaging and widely current in the empire. In its first form, the _Gros Tournois_, struck at Tours, in France, this coin contained 55-1/10 parts of a Cologne mark, and was of the fineness of 15 loth 6 grs. In 1296, when it was first adopted in Germany (in Bohemia, and Meissen), 63-1/2 pieces were struck from the mark, and the fineness had been reduced to 15 loth. Its subsequent variations, up to the time of the discovery of America, are detailed in the accompanying table and in Appendix No. V., the principal points in which are marked by the years 1341, 1378 (a notable attempt at reformation by Charles IV. and Wenceslaus), 1390, 1412, and 1444 (marking also an attempt at reformation by treaty between the Duke of Saxony and the Margrave of Meissen). MOVEMENTS OF SILVER IN GERMANY, 1300-1500, AS ILLUSTRATED BY THE GROSCHEN. +----------+-----------+---------+--------------------+ | |The Cologne| Of Alloy| Equivalent Value | | | Mark | |(as expressed in the| | Date. |coined into| |20-Florin Standard).| | +-----------+---------+----------+---------+ | | Pieces. |Loth. Qr.|Kreutzers.|Pfennige.| +----------+-----------+---------+----------+---------+ | 1226 | 55-1/10 | 5 6 | 21 |0-216/551| | (Gros | | | | | | Tournois | | | | | |of France)| | | | | | 1296 | 63-1/2 | 15 0 | 17 |2-110/127| | 1309 | 63-1/2 | 14 0 | 16 |2-18/127 | | 1324 | 64-1/2 | 15 0 | 17 |1-33/48 | |(Meissen) | | | | | | 1341 | 78 | 10 0 | 9 |2-6/13 | | 1350 | 91 | 14 0 | 11 |2-14/91 | | 1364 | 74-1/2 | 9 0 | 9 |0-36/149 | | 1378 | 70 | 14 1 | 15 |1-1/14 | | 1380 | 72 | 13 0 | 13 |2-1/6 | | -- | 91 | 11 0 | 9 |0-24/91 | |(Meissen) | | | | | | 1390 | 85 | 10 0 | 8 |3-5/17 | | -- | 90 | 9 0 | 7 |2 | |(Meissen) | | | | | | 1407 | 72-40/131| 8 0 | 8 |1-57/296 | | 1412 | 82 | 4 0 | 3 |2-26/41 | | 1444 | 88 | 7 13 | 6 |2-43/132 | | -- | 160 | 16 0 | 7 |2 | | 1459 | 101 | 5 9 | 4 |0-34/101 | | 1470 | 100-20/307| 5 0 | 3 |2-507/512| | 1490 | 103 | 5 0 | 3 |2-58/103 | +----------+-----------+---------+----------+---------+ [Illustration: TABLE OF THE MOVEMENT OF GOLD & SILVER IN GERMANY 1300-1500.] THE MOVEMENT OF GOLD IN GERMANY, 1300-1500, ILLUSTRATED BY THE MOVEMENT OF THE GOLD GULDEN (RHEINISCHE GULDEN). +-----------+------------+----------------+-----------------------------------+ | | Cologne | | Equivalent Value | | | Mark | Alloy. | (as expressed in the | | |coined into | | 20-Florin Standard). | | Date. | | | | | +------------+-------+--------+---------+-----------+-------------+ | | Pieces. |Carats.| Grains.| Florins.| Kreutzers.| Pfennige. | +-----------+------------+-------+--------+---------+-----------+-------------+ | 1252 | 44-3/8 | 24 | 0 | 6 | 22 |3-405/2911 | |(Florentine| | | | | | | | Florin). | | | | | | | | 1371 | 66 | 23 | 1 | 4 | 6 |2-434/781 | | 1386 | 66 | 22 | 6 | 4 | 1 |1-85/781 | | 1409 | 66 | 22 | 0 | 3 | 55 |3-517/781 | | 1419 | 64-1/2 | 19 | 0 | 3 | 28 |1-2851/3053 | | 1428 | 68 | 19 | 0 | 3 | 17 |3-18/1207 | | 1442 | 72 | 19 | 0 | 3 | 6 |3-14/213 | | 1477 | 69-1/3 | 18 | 10 | 3 | 3 |2-3104/15194 | +-----------+------------+-------+--------+---------+-----------+-------------+ FRANCE. In France during this same period the ratio of gold to silver was changed in a single century more than a hundred and fifty times, and with a roughness that is quite inconceivable to the modern mind. To take a period of ten years for example:-- In 1303 the ratio was 10.26 " 1305 " 15.90 " 1308 " 14.46 " 1310 " 15.64 " 1311 " 19.55 " 1313 " 14.37 France presents the utmost difficulty to the student of metallic money during this earliest period, by reason of these violent and arbitrary alterations of the coinage. The extreme diversity of the coins, and the perpetual changing of the composition or alloy, make it almost impossible to estimate the fluctuations in the value of money in relation to goods, or gold in relation to silver. Apart from the international struggle for the precious metals, France was torn and ruined by the English invasions, and debasement after debasement of the coinage was resorted to as a means of raising money to continue the struggle. Such debasements mark the reign of Philip le Bel, 1285-1314, and of each succeeding king, from his days to the final ejection of the English invaders, and after. A single instance will serve to show their nature. In 1342 the mark of gold, which in a normal time just preceding was valued at 41 livres 13 sols, was proclaimed equal to 117 livres, and in 1360 the mark of silver, valued normally at 5 livres, rose to 102 livres.[5] It stands to reason that such abnormal movements must be neglected in any attempt to determine the course of such fluctuations in value of the metals, and the ratio of gold and silver, as arose naturally from the metallic and currency history of the time. Eliminating, therefore, this element of forced and accidental debasements, due to political circumstance, the natural history, if it may be so styled, of the French coinage displays the same tendency to an appreciation of money metal which marks the history of the other European countries. [Illustration: TABLE OF THE MOVEMENT OF GOLD & SILVER IN FRANCE, 1300-1500.] TABLE OF THE MOVEMENTS OF THE COINAGE OF FRANCE, 1300-1500.[6] +----------+--------------------+-------------------------------+ | | The Mark of Silver | The Mark of Gold | | | coined into | coined into | | Date. | | | | +-----------+--------+-----------+--------+----------+ | | Livres | Sols. | Livres | Sols. | Deniers. | | |(Tournois).| |(Tournois).| | | +----------+-----------+--------+-----------+--------+----------+ | 1309 | 2 | 19 | 44 | 0 | 0 | | (Philp | | | | | | | le Bel.)| | | | | | | 1315 | 2 | 14 | 45 | 0 | 0 | | 1343 | 3 | 4 | 43 | 6 | 8 | | 1350 | 5 | 5 | 53 | 18 | 9 | | 1361 | 5 | 0 | 60 | 0 | 0 | | 1381 | 5 | 8 | 60 | 10 | 0 | | 1422 | 7 | 0 | 76 | 5 | 0 | | 1427 | 8 | 0 | 72 | 0 | 0 | | 1429 | 7 | 0 | 77 | 10 | 0 | | 1446 | 7 | 10 | 88 | 2 | 6 | | 1456 | 8 | 10 | 100 | 0 | 0 | | 1473 | 10 | 0 | 110 | 0 | 0 | | 1475 | 10 | 0 | 118 | 10 | 0 | +----------+-----------+--------+-----------+--------+----------+ In this table each of the points or dates taken marks a period of return to good money after a period of debasement, and in the mind of the legislator such return to good money (_monnaie forte_) can only be construed as based on an estimated general or normal rate of monetary values, for each particular succeeding point of time. At every return to good money a proclamation was issued, expressing the determination of the administration to adhere to good money, as in the halcyon days of St. Louis, etc. etc., and fixing the rate at which the monies should be coined and current. By taking these points or dates of return to good money, therefore, we eliminate the arbitrary action of the Government in periods of debasement, and arrive at a net result showing the _natural_ movement of the metals. The general trend of the table--or of the metals whose movements it portrays--is perceptible at a glance, and will, moreover, be found exactly similar to that of the cases of England and Germany below. On account of the arbitrary debasements by the Kings and of the numerous feudal coinages struck independently by the bishops and subsidiary lords, the question of the friction with which this process of metallic appreciation worked itself out cannot be so well illustrated in the case of France as in that of England. But so much as this may be briefly indicated. In 1294 the scarcity of silver coinage was so great that a proclamation was put forth ordering silver to be brought to the Mint, and forbidding the export of the metals. In consequence of the futility of this ordinance, a further proclamation was issued in 1309, forbidding the circulation in France of English silver sterlings and gold florins of Florence, and crying down the exchange denomination of all other foreign coins. Similar proclamations were issued again and again--notably in 1328. But the complaints as to the depletion of the coin of the realm became much more serious in France after Edward III. had instituted his gold coin in 1344. There was henceforth a process of double friction--(1) as arising from the difference of the declared value of the French King's coin, as compared with foreign tariffs of coins; (2) as arising from the difference between the ratio of gold to silver in France and that prevailing in other countries. [Sidenote: ALTERATION IN SILVER RATE] In 1336 Philippe de Valois had fixed the ratio at 1:12, "the cause which moved us to this being that so our people who were in great privations and straits for money may more abundantly and quickly be filled again with money new and current." This was re-enacted in 1339, but proved quite inoperative to rule the market rate, and in 1346 Philippe found himself obliged to tolerate the advance which had been put upon the good monies in the market, by allowing provisionally the _chaise d'or_ to be current for 30 sols Tournois. Four years later the silver rate was altered by a proclamation conceived in these terms: "As the changers and merchants who are accustomed to bring bullion to our Mint have ceased, and do daily cease to do so, so that the working of our Mint is greatly impeded, to the great prejudice of our people if no remedy is applied, we therefore order that for each mark of silver brought to the Mint there shall be delivered out by the Mint another 8 sols Tournois in addition to the 112 sols Tournois fixed by law." The immediate consequence was a hoarding and disappearance of the gold coins, and in the following year, 1351, the tale of the _denier d'or aux fleurs de lis_ was altered from 50 to 54 to the mark. There is here no question of an arbitrary debasement. It was simply an attempt to preserve the currency from the action of a changing market ratio, which led to the withdrawal now of the one, now of the other coins, and to the circulation meanwhile of foreign coins at a rate apparently disproportioned to the metallic content.[7] In 1361 evidence was given before the Mint authorities that "in payments the people do by abuse give foreign monies at a higher rate than they are worth, viz. the _moutons_ of Flanders and Brabant at a higher rate than the _franc d'or_, of which said _moutons_ the best specimens are worth 18 denars less than the said _franc d'or_; a silver piece called _chartain_ for 16 and even 18 denars, which is worth no more than 10," and so on. Two years later it was declared that the Mint at Tournay was on the point of stopping work, "the people having been accustomed for a long time to give a higher price for the mark of gold than in the case of other monies of this kingdom, and this by reason of the foreign merchants." Towards the close of his reign Charles V., finding his kingdom filled with depreciated imported specie, while all the good native pieces had been drawn out of the land, sought and obtained from the Pope, 1372, a Bull of Excommunication against neighbour powers who should counterfeit his monies. It was not until 1391 that the proper defensive measure of a change of ratio was resorted to, and by that time the conditions of the Mint rates in surrounding nations had so altered as to render the change partially inoperative. In 1393, accordingly, there was a great lack of the smaller silver coin, which led to a proclamation by Charles VI. on the 2nd April of that year for encouraging the minting of _petiz deniers Tournois_. The same complaint was, however, re-echoed in 1395 and 1396, but, as it appears, quite futilely, for nine years after another proclamation had to be issued against the currency of foreign coins of Scotland, Navarre, the Rhenish and Netherland provinces, etc., "which have course in our kingdom for a greater value than they are worth, by which means our monies are arrested in their course and greatly withdrawn; the gold and silver _deniers a l'écu_ which we have minted having been melted down." [Sidenote: ACTION OF THE STATES-GENERAL IN 1420] When the States-General met at Paris in 1420 the depreciated state of the coinage was laid before the assembly as of prime concernment, and it was by its advice that the proclamation of the following year was issued fixing the _écu d'or_ at a tale of 66 to the mark and of the _gros d'argent_ at 86-1/4, "it being come to our knowledge that for some time past the money in our kingdom is so diminished and enfeebled that by this means the gold and silver which abounded is in very great measure drawn away and transported, and the traffic of strangers here almost ceased, and all necessaries of life put at a great height," etc. The result of this reformation of 1421 was that during some portion of the succeeding years of Charles VII.'s reign silver came from all parts in great abundance, although in 1436 complaints were again heard that money was not being coined and did not suffice for the public needs. At this point, however, the complaints apparently ceased, and it was not till twenty years later that the step was again taken of decrying and forbidding the circulation of foreign specie. The ceasing of the disorders in the French money is attributed to the expulsion of the English invaders, but there can be little doubt that much more simple and natural laws were at work. From the reign of Louis XI. onwards these natural laws had freer play as against the disturbing influence of mere arbitrary debasements, and it is easier to analyse their influence. [Sidenote: FRANCE IN 1488] From his accession in 1461 onwards the monetary history of France displays many analogies with that of the Netherlands (see Chapter II.). Thus in 1470, finding the market rate of foreign coins driven above the home Mint rate by the licence of the people (i.e. by normal market action), Louis issued a tariff to regulate the exchange rate in which the prevailing prices of the foreign specie were tolerated as an interim for a period of three months. At the end of that time it was manifestly impossible to secure a permanent reduction, and in order to prevent the transport of specie it was found necessary, 4th January 1473, to raise the value of the home coin both gold and silver (see account of French monies in Appendix No. VI.). Still the export continued, and in 1475 the process of enhancement had to be repeated as a measure of defence for the gold specie. Thirteen years later similar precautions were taken for the silver specie by Charles VIII.'s proclamation of 24th April 1488. This is the last defensive measure of the first period of the monetary history of France, and no further act is on record previous to the great change in the relative values of the precious metals which ensued upon the discovery of the New World. THE RATIO BETWEEN GOLD AND SILVER IN EUROPE, 1300-1500. +-----+------------------------+-------+--------+----------------+------+---------+-----+ |Date.| Italy. |France.|England.| Germany. |Spain.|Burgundy.|Date.| | +---------+-------+------+ | +-----+----------+ | | | | |Florence.|Venice.|Milan.| | | A. | B. | | | | +-----+---------+-------+------+-------+--------+-----+----------+------+---------+-----+ |1252 | 10.75 | .. | .. | .. | .. | .. | .. | .. | .. |1252 | |1257 | .. | .. | .. | .. | 9.29 | .. | .. | .. | .. |1257 | |1284 | .. | 10.84 | .. | .. | .. | .. | .. | .. | .. |1284 | |1296 | 11.10 | .. | .. | .. | .. | .. | .. | .. | .. |1296 | |1303 | .. | .. | .. | .. | .. | .. | .. | .. | 12.1 |1303 | |1305 | 10.88 | .. | .. | .. | .. | .. | .. | .. | .. |1305 | |1308 | .. | .. | .. | .. | .. | .. | .. | .. | .. |1308 | |1315 | .. | .. | .. | .. | .. | .. | .. | .. | .. |1315 | |1324 | 13.62 | 13.99 | .. | .. | .. | .. | .. | .. | .. |1324 | |1338 | .. | .. | .. | 12.61 | .. | .. | .. | .. | .. |1338 | |1343 | .. | .. | .. | .. | .. | .. | .. | .. | .. |1343 | |1344 | .. | .. | .. | .. | 12.59 | .. | .. | .. | .. |1344 | |1344 | .. | .. | .. | .. | 11.04 | .. | .. | .. | .. |1344 | |1345 | 11.04 | .. | .. | .. | .. | .. | .. | .. | .. |1345 | |1346 | .. | .. | .. | 11.11 | 11.57 |11.33| .. | .. | .. |1346 | |1347 | 10.91 | .. | .. | .. | .. | .. | .. | .. | .. |1347 | |1348 | .. | .. | .. | .. | .. | .. | .. | .. | 12.1 |1348 | |1350 | .. | 14.44 |10.59 | .. | .. | .. | .. | .. | .. |1350 | |1351 | .. | .. | .. | .. | .. | .. | 12.3 | .. | .. |1351 | | | | | | | | | (Lübeck) | | | | |1353 | .. | .. | .. | .. | 11.15 | .. | .. | .. | .. |1353 | |1361 | .. | .. | .. | 12.0 | .. | .. | .. | .. | .. |1361 | |1365 | .. | .. | .. | .. | .. |11.37| .. | .. | .. |1365 | |1375 | 10.77 | .. | .. | .. | .. | .. | 12.4 | .. | .. |1375 | | | | | | | | | (Lübeck) | | | | |1379 | .. | 13.17 | .. | .. | .. | .. | .. | .. | .. |1379 | |1380 | .. | .. | .. | .. | .. | .. | .. | .. | .. |1380 | |1386 | .. | .. | .. | .. | .. | .. | 10.76 | .. | .. |1386 | | | | | | | | | (Rhine | | | | | | | | | | | |Provinces)| | | | |1391 | .. | .. | .. | 10.74 | .. | .. | .. | .. | .. |1391 | |1399 | .. | 11.69 | .. | .. | .. | .. | 11.16 | .. | .. |1399 | | | | | | | | | (Rhine | | | | | | | | | | | |Provinces)| | | | |1400 | .. | .. |11.630| .. | .. | .. | .. | .. | .. |1400 | |1402 | 10.58 | .. | .. | .. | .. | .. | .. | .. | .. |1402 | |1406 | .. | .. | .. | .. | .. | .. | 10.66 | .. | .. |1406 | | | | | | | | | (Rhine | | | | | | | | | | | |Provinces)| | | | |1411 | .. | .. | .. | .. | .. | .. | 12.0 | .. | .. |1411 | | | | | | | | | (Lübeck) | | | | |1412 | .. | .. | .. | .. | 10.33 | .. | .. | .. | .. |1412 | |1417 | .. | 12.56 | .. | 10.67 | .. | .. | .. | .. | .. |1417 | |1421 | .. | .. | .. | 10.29 | .. | .. | .. | .. | .. |1421 | |1422 | 10.16 | .. | .. | .. | .. | .. | .. | .. | .. |1422 | |1427 | .. | .. | .. | 9.00 | .. | .. | .. | .. | .. |1427 | |1429 | .. | 11.04 | .. | .. | .. | .. | .. | .. | .. |1429 | |1432 | .. | .. | .. | 10.87 | .. | .. | .. | 5.822| .. |1432 | |1435 | .. | .. | .. | 12.32 | .. | .. | .. | .. | .. |1435 | |1441 | .. | .. | .. | .. | .. |11.12| .. | .. | .. |1441 | |1443 | .. | 12.1 | .. | .. | .. | .. | .. | .. | .. |1443 | |1446 | .. | .. | .. | .. | .. | .. | .. | .. | .. |1446 | |1447 | .. | .. | .. | 11.44 | .. | .. | .. | .. | .. |1447 | |1450 | .. | .. |10.965| .. | .. | .. | .. | .. | .. |1450 | |1455 | .. | .. | .. | .. | .. | .. | 12.2 | .. | .. |1455 | | | | | | | | | (Lübeck) | | | | |1456 | .. | .. | .. | 11.77 | .. | .. | .. | .. | .. |1456 | |1460 | 9.33 | .. | .. | .. | .. | .. | .. | .. | .. |1460 | |1462 | 9.37 | .. | .. | .. | .. | .. | .. | .. | .. |1462 | |1464 | 11.42 | .. | .. | .. | 11.15 | .. | .. | 9.824| .. |1464 | |1471 | 10.58 | .. | .. | .. | .. | .. | .. | .. | .. |1471 | |1472 | .. | 11.13 | .. | .. | .. | .. | .. | .. | .. |1472 | |1474 | .. | 10.97 | .. | 11.00 | .. | .. | .. | .. | .. |1474 | |1475 | .. | .. | .. | .. | .. | .. | .. |10.41 | .. |1475 | |1480 | 10.83 | .. | .. | .. | .. | .. | .. |10.87 | .. |1480 | |1485 | 10.46 | .. | .. | .. | .. | .. | .. | .. | .. |1485 | |1486 | .. | .. | .. | .. | .. | .. | .. |10.98 | .. |1486 | |1488 | .. | .. | .. | 11.83 | .. | .. | .. | .. | .. |1488 | |1495 | 10.46 | .. | .. | .. | .. | .. | .. | .. | .. |1495 | |1497 | .. | .. | .. | .. | .. | .. | .. |10.01 | .. |1497 | |1500 | .. | .. |10.975| .. | .. | .. | .. | .. | .. |1500 | |1506 | .. | .. | .. | .. | .. | .. | .. |10.262| .. |1506 | +-----+---------+-------+------+-------+--------+-----+----------+------+---------+-----+ Germany--_A_, as determined by the purchase prices of the two metals in the Lübeck Mint. _B_, as determined by the Mint ordinances. [Sidenote: ENGLAND: COINAGE OF 1344] England. Even before the adoption of a gold coinage by Edward III., England had felt the effect of loss by exchange, owing to the introduction of gold florins by means of the Flemish trade. In the Parliament of 1339, at Westminster, complaint was made of the want of coinage. It was proposed as a remedy--(1) that every merchant should bring in 40s. or more for every sack of wool that he should import, and (2) that it should be considered by the King and his council whether it might not be advantageous to permit _florins de écu_ (of France), and florins of Florence (i.e. gold), and other good florins to be current with the _esterlings_ (i.e. the silver penny), "but only esterlings to be compulsory for under 40s. value." In less than four years good money was being carried out of the realm, and false money brought in at such a rate that Parliament was seriously perplexed. In its debate on the matter at Westminster, 1343, the result is thus stated: "All orders of persons in the realm had loss for a long time, on account of the florins which were delivered in payment in Flanders, bearing so high a value there as to occasion a loss of one-third on all merchandise imported thence." Certain goldsmiths of London were therefore ordered to be called in to advise and to refine one or two of each kind of florin, so as to rate the fine gold in them according to the true value. And it was proposed that of this fine gold one kind of money should be made in England and Flanders, provided the Flemings were willing, to be current in both countries at such an alloy and value as should be determined by the King and Council, and all other gold money to be taken at bullion value, and all silver money to be reckoned thereby ("other sufficient money to be received according to the value of the fine gold"). The result was the first practical issue of English gold. In 1344 an indenture was made between the King on the one part and George Kirkyn and Lotte Nicholyn of Florence, goldmasters and workers, on the other, for the coining of three monies of gold, one to be current at 6s., and to be equal in weight to 2 _petits florins_ of Florence of good weight, 50 of these being coined out of the pound Tower of London. In this indenture Edward copied the ratio prevailing in the French kingdom, viz. that of 12.61 to 1 between gold and silver. That ratio was considerably too high, and he quickly experienced the same effects which were felt by the French King from it. During his reign (1327-50) Philip of Valois coined more species of new money than all his predecessors put together, but owing to the adoption of this too high a ratio the country was gradually depleted of good money. In order to induce people to bring bullion to the Mint he offered to coin free of cost, but found nothing of avail until he followed the example of England and altered the ratio. In our own country the same truth had been quickly grasped. It was found that the new gold money was rated too high, i.e. overvalued in relation to silver, and was therefore refused. By a proclamation of the same year, therefore, 9th July, it was withdrawn and ordered to be taken only as bullion, and a new indenture was made for the coining of gold nobles--39-1/2 out of the pound Tower, and at the value of 6s. 8d. The nobles were at once made current and tenderable along with silver, by proclamation; gold being ordered to be received in payment of 20s. and upwards. [Sidenote: GOLD NOBLES COINED] By this indenture the ratio was at once dropped from 12.59:1 to 11.04:1. This attempt to determine the rate of exchange is a common feature in the legislation of France and Spain as well as of England. It stands to sense, and is apparent on every page of the monetary history of the period, that it was absolutely imperative. The friction which accompanied the process can now only faintly be imagined, but that is a secondary consideration. The essential point was, that such changes were normal and inevitable, forced by sheer necessity upon Governments, such an one even as our own, which has always been most jealously conservative in matters of coinage. TABLE OF THE VARIATIONS OF THE GOLD AND SILVER COINS OF ENGLAND, 1300-1500. +----------------------+---------------------------------------------------+ | Silver. | Gold. | +-------+--------------+-------+--------+----------+-----------+-----------+ | | Weight of | | | Weight | | Price in | | Date. | the Silver | Date. | Coin. | in | Value | Pence per | | | Penny in | | | Grains. | Declared.| Grain of | | | Troy Grains. | | | | | Gold. | +-------+--------------+-------+--------+----------+-----------+-----------+ | | | | | | _s._ _d._ | | | 1300 | 22 | 1344 | Florin | 108 | 6 0 | 0.6666 | | 1344 | 20-1/4 | 1344 | Noble | 138-6/13 | 6 8 | 0.5777 | | 1346 | 20 | 1346 | ... | 128-4/7 | 6 8 | 0.6222 | | 1351 | 18 | 1353 | ... | 120 | 6 8 | 0.6666 | | 1412 | 15 | 1414 | ... | 108 | 6 8 | 0.7407 | | 1464 | 12 | 1460 | ... | 120 | 8 4 | 0.7500 | | | | 1470 | Angel | 80 | 6 8 | 1.0000 | +-------+--------------+-------+--------+----------+-----------+-----------+ In the first issue of Edward III. the Troy grain of gold had been valued at .6666 of a penny. At such rate it was overvalued and refused, and in the second issue of the same year the value was dropped to .5777 of a penny. Gradually, as the ratio on the Continent changed, and came to bear on the English rate, this was in its turn found an under-valuation, and only two years later, 1346, the value was raised to .6222, making a ratio of 11.57 to 1. The change was made in consequence of loud and serious complaints of the scarcity of coin, good money being carried out and false "Lusshebournes" (Luxembourgs), worth only 8s. in the pound, being brought in. The grievance was so great that Parliament petitioned Edward most urgently to interfere, instancing in special the Lombards, "that they purchased English florins at a lower rate than that which was appointed," and praying "that such persons should not buy or sell the said money, nor make any agreement, in the sale of their merchandise, what money they would receive in rejection of English money." To this it was answered, that it should be commanded throughout England that all persons should receive for their merchandise gold, according to the currency ordained, without any agreement to be made, under pain of imprisonment and heavy ransom, and when any agreement had been made it should be at the will of the purchaser to pay money of gold or silver as he should think fit. At the same time, an ordinance was issued forbidding any person to carry out the King's good money or to bring in counterfeit. [Sidenote: EDWARD III.'S CHANGES OF RATIO] [Illustration: TABLE OF THE MOVEMENT OF GOLD & SILVER IN ENGLAND 1300-1500.] The effect of Edward's change of ratio--from 12.59 (the same as the French rate) in 1344 to 11.04 in 1346--told immediately on the French currency, and at the first return to good money in the first year of King John (1350-64) the ratio in that country was changed at a stroke from 12.61 to 11.11. This in its turn acted upon precious metals in England, and for three years the English King found himself futilely struggling against an outflow of silver, by such measures as the hanging and drawing of merchants, before he discovered that it was due to an overvaluation of gold. In 1353, accordingly, he lowered the weight of the gold nobles from 128-4/7 grs. to 120. At the same time, the contents of the silver penny were reduced in a greater proportion (from 20 grs. to 18). By this means the ratio of 11.04, which had prevailed since 1346, was lowered to 11.15. That this ratio achieved its purpose, as far as England was concerned, is apparent from the simple fact that it remained unaltered for over sixty years until 1414; that it acted adversely upon and drained France of her gold is apparent from the change of the ratio there at her first immediately succeeding return to good money. Two periods of debasement had marked the short reign of John of France (1350-64), and the effect of these and of the influence of the English ratio was such that in 1360 there was no gold in his kingdom. Towards the end of that year, and in the beginning of 1361, John promulgated a reformation of the coinage--a return to good or "forte" money, and in this reformation he adopted a ratio which would act on the English stock of precious metals. In England, Edward's action in 1353 in lowering the contents of both silver and gold coins, and altering the ratio, had given rise to great discontent, to an extent which proved how wiser and truer to the nation's interest was the King than his people. This diminution of the value of these coins, says the Chronicle, made all things dearer, so that the workmen and servants became assuming and demanded greater wages. There is as little foundation for such an innuendo as there is for the view which regards this depreciation as an issue of base money. It was simply a measure of precaution, as stopping an invisible and insidious outflow of the currency. [Sidenote: ENGLAND AND FRANCE IN 1360] Looked at historically, and not at all controversially, such results as have been just described can only be attributed to the European monetary system of the time. Apart altogether from the arbitrary debasement of the coin, as, e.g., in France--apart even from changes of the ratio enacted with the mere crafty design of inducing a flow of gold, the monetary system of the time was so rough, so unscientific; the tariffing of the coins of different nations against each other was so inexact, so much a matter of rule-of-thumb, of hasty average, that it was simply impossible to issue such general tables of equivalents of coins and such a ratio as would have given stability to the various coinages of Europe. If the currency system of England had been of silver alone, a single enactment lessening the content of the unit coin, or crying up its denomination, would have stopped any outflow caused by under-valuation as compared with foreign money value. The same if it had been only gold. But being combined of the two, being, as it was, both gold and silver, it was necessary, in the case of such outflow, not merely to call down one or both of them below the value of foreign gold or silver, but also and at the same time to establish such a ratio between the two metals for _internal_ circulation as would give no advantage to exchangers acquainted with a different ratio prevailing in some particular part of the Continent. And just the same for the other European money systems. If, for instance, the English sterling had been called down to a value which would of itself have forbidden export to the Continent, but at the same time such a ratio had been left standing between these sterlings and the gold nobles (say 12:1) as was so far in excess of the ratio prevailing in some parts of Europe (say 11:1) as to overlap the amount by which the sterling had been called down, then the result could, and doubtless would, be an outflow of silver, in face and spite of the apparent higher tariff of the English sterling, as against the continental silver coins. This is the historic, patent, undeniable defect and weakness in the bimetallic system of the Europe of that day. It must be borne well in mind how different the problem then was from that which now besets the monetary world. To-day the flow of the precious metals is natural, the indicator, facilitator, and safety-valve of international trade. Such a conception was an utter impossibility to the fourteenth century. The rulers of that age had only one idea, the maintenance or increase of the treasure of the realm, first for military purposes, and then for trade; and their mental horizon was limited by the boundaries of each their little dominion. They could not grasp the idea of Europe as a monetary whole, each fought for his own head or land, and each found a ready weapon to hand in the monetary confusion of the time. In any system so rough and so non-uniform as that of Europe in the fourteenth century, any variation of one metal served as a vantage-point against the other, as a lever to press upon and force it out. One metal would have been safe (so long as no partial depreciation was allowed), two metals served simply as fulcra to each other's oscillations, to the undoing of both. The mediæval legislator could not grasp that there was a double train of principle and event transacting itself under his very eyes--the one, changes of denomination of coins; the other, changes of ratio. In less than thirty years after Edward III. had cried down the English coins to below the competing denominations of the Continent, the changes of the European ratio had produced their effect, and Richard II. found the realm denuded of its treasure and currency. [Sidenote: ENGLAND IN 1378] From 1360 the ratio on the Continent gradually sank from 12:1 till towards the end of the first quarter of the fifteenth century, when it stood in France as low as 9:1. That France experienced the process, which must have been perfectly natural and due simply to relatively diminishing production of silver in those years, 1360-1425, is seen in her alteration of the ratio from 12 to 10.74 in 1380 and to 10.29 in 1422. In England the same train of events made itself felt at almost the same moment. In 1378 great complaints were made of the export of gold and silver, and of the enfeebled state of the money which remained in the realm, "so that if a remedy be not speedily applied, the King will receive no more than 4s. where he should receive 5s." [Sidenote: THE MONETARY INQUIRY OF 1381] Three years later--one year after the French King had lowered his ratio from 12.1 to 10.74--the Commons presented a petition to the King during the sitting of Parliament, 1381, complaining of the wretched want of the kingdom, which was devoid of treasure, monies of gold and silver being carried out of the realm, and those remaining being clipped to one-third their nominal value. No money at all was being minted in the Tower, and a heavy export of our metals to Scotland and Ireland was taking place. Simultaneously the officers of the Mint presented a petition to the King and his Council in Parliament, complaining that no money was being coined. The causes of this, in their opinion, were-- 1. That the monies of gold and silver beyond the seas were more feeble than the monies of England, on which account the merchants could not bring bullion into England for their profit nor for the King's advantage. But if any manner of bullion of gold were brought into the kingdom, by persons travelling, it was sold to those who conveyed it out of England, to their great gain and to the injury of the whole realm. 2. That the silver of England which [i.e. when it] was found to be good and heavy, was taken into Scotland, because the money of that country was so light. 3. That the gold of England being so good and heavy, and that beyond sea so light, the _nobles_ which came from Calais were gone into Flanders, and the English _nobles_ were carried beyond the sea, to the great profit of those who exported them, etc. etc. 4. That the money of gold and silver of England was commonly clipped, so that they who thought they should have £100 would have no more than £90, unless a remedy were speedily applied. The officers of the Mint were accordingly ordered to be called before the Lords of the Parliament for examination, and they were succeeded by others, private persons but mostly goldsmiths, who were called upon as experts. In the case of these latter the various statements of opinion are preserved for us in the Rolls of Parliament, and they possess a peculiar interest. Richard Leye thought that the reason why no gold or silver was brought into England, but, on the contrary, that which had been in the kingdom was exported, was this, that the realm expended too much on merchandise, such as grocery, mercery, furs, etc. He therefore proposed that every merchant who imported goods into England should export an equal quantity of the produce of the realm, and that no one should take out gold or silver, contrary to the statutes. As to the gold not agreeing with the silver (which was Article IV. of the inquiry), he thought that could not be remedied, unless the money were changed, and to change it in any manner would be productive of universal injury to Lords, Commons, etc. To Article V. he advised that, whereas new money had been made in Flanders and in Scotland, proclamation be made that all manner of coins of Flanders, Scotland, and of all other places beyond the seas, should be no longer current in England, and that no one should receive them in payment except as bullion to be carried to the King's Mint. Lincoln, a goldsmith, gave his opinion similarly against the permission to export gold and silver, and proposed that the gold noble should remain of the same weight as it had been, but at a greater value. To the First Article Cranten said, that no more in value of foreign merchandise should be consumed within the realm than should be exported of commodities, the growth of England; and then, whether the money were enhanced or debased, it would hereafter remain within the realm. Also, that exchanges or other payments by letters should not be made out of Flanders, or other parts beyond the seas, to pay in England for any merchandise. John Hoo advised a proclamation against the carrying out of gold or silver, and that the money should be received by weight. The statement of opinion of the succeeding and last witness is extremely valuable and interesting. Richard Aylesbury opined that, provided the merchandise exported from England was properly regulated,--that is, if no more of foreign commodities were allowed to be imported than the value of the native products which should be taken out,--the money then in England would remain, and great plenty would come from beyond the seas. He also conceived it to be expedient that the Pope's collector [of Peter's Pence] should be an Englishman, and that the Pope's money should be sent to him in merchandise and not in coin, and that the journeys of clerks should be entirely forbidden, on pain, etc. For the feebleness of the gold, which was occasioned by clipping, he conceived there was no other remedy but that it should be universally weighed by those who received it, and that the proclamation should be made accordingly. _The agreement of the gold with the silver he believed could not be effected unless the money were changed, but that he dared not to propose on account of the general damage which would ensue._ On account of the new money which had been made in Flanders and Scotland, he advised that all Scottish monies should be forbidden by proclamation, and also all other monies from beyond the sea, so that they should have no currency in England; and that no one should take them in payment, except at their value as bullion and for the King's coinage; that no one should export gold or silver, according to the statute in that case made, etc. And, further, he suggested, by way of information, that the pound of gold which was there made into the sum of 45 nobles (but which pound, by reason of clipping and otherwise impairing, was then valued at 41-1/2 nobles) should be made into 48 nobles, to be current at the same value as before. This last proposition would have reduced the ratio to a fraction over 11:1--something higher than the ratio prevalent in France. Instead of acting on evidence such as this, however, and so changing the ratio, Richard's Government contented itself with the perfectly useless prohibition of export of gold or silver (statute 5 Rich. II. cap. 1). Four years later, accordingly, the matter was again pressed upon the attention of Parliament, and even by the Chancellor of the realm, Michael de la Pole himself, in his opening speech. The English money, he said, was in greater estimation and of higher value in all other places than in England. It was therefore sought out and craftily withdrawn, and the chief or greatest remedy was to increase the value or price of the said money. In spite of such recommendation as this the measure was not adopted, and Richard fell back on his previous expedients, crying down by proclamation the value of the Scotch coins, 1387, and of the gold coins of Flanders and Brabant, 1393, and ordaining by enactment that exporters of goods should bring in 1 oz. of gold for every sack of wool which they sold. Such an ordinance as this last is of the commonest and most frequent occurrence in the enactments of fifteenth-century England, but always unworkable as warring against the most elementary principles of international trade. On his accession, therefore, Henry IV. found himself heir to an accumulation of monetary evil, through the impolicy and want of courage of Richard. [Sidenote: THE RECOINAGE OF 1414] He was obliged, at the request of the mayors and merchants of the staple of Calais, to abolish the last unworkable ordinance just referred to, and attempted at the same time to provide a positive remedy by reviving a proclamation against the currency of silver halfpennies brought from Venice, of which three or four only were equal to one sterling in value. In 1401 the Commons complained in Parliament that nobles of Flanders were so common in England that a man could not receive a sum of 100 shillings without taking three or four such nobles, each of them more feeble than the English noble by two-pence. A statute was accordingly passed, enacting that all money of gold and silver of the coin of Flanders and all other lands, and of Scotland, should be voided out of the land, or put to coin to the bullion. It was all in vain. Two years later, 1403, the Commons again complained of the depletion of gold, and again a statute was passed, and so on. This futile process actually reproduces itself yearly up to 1411, when at last the question of a recoinage was fairly faced. By the ordinance for, and regulation of, the money of the realm, of that year, it was provided that, "because of the great scarcity of money at the time," the Master of the Mint should make of every pound of gold 50 nobles, and of silver 30 shillings of esterlings of old alloy. This recoinage was carried out and finished in the third year of Henry V., 1414. Under it the contents of the silver penny sank from 18 to 15 grs., and of the gold noble from 120 to 108 grs., the consequent change in the ratio being from 11.15, which had prevailed since 1353 to 10.33. At this latter rate the monetary system of England remained for almost fifty years, viz. up to 1460. But, though the rate endured so long, it is not for a moment to be supposed that the ensuing period was one of repose. Within eight years of the accomplishment of the reform in the English coinage, the ratio in France was lowered to a point somewhat below the established rate in England, and with considerable variation remained lower through all the years in question, 1414-1460. In 1421 it was changed to 10.29, in 1427 to 9, in 1432 to 10.87, and in 1447 to 11.44. The effect on England, as recorded in the complaints in Parliament, was almost parallel with that in the days of Richard. In 1414 complaints were made against the circulation of galley halfpence by the merchants of Venice. Three years later proclamation was made against the circulation of the gold monies of Flanders, called _Burgundy nobles_, which were of less value than the English nobles. In 1419 it was found that money was being exported "more largely, and in many other manners, than had been accustomed, to the great mischief and impoverishment of the whole realm." And in the following year the usual statute was enacted, on the petition of the Commons, commanding foreign money to be taken as bullion. Again, two years later, 1422, the enfeebled and depreciated state of the coinage was so apparent that the collectors of the subsidy granted in that year by Parliament were instructed to accept nobles as of the denominational value of 6s. 8d. (i.e. the full value), "provided they stretched verily to the value of 5s. 8d. by weight." At the same time silver money was so scarce that "though [i.e. even if] a noble were so good of gold and weight as 6s. 8d., yet men could get no white money for it." In 1423 the Commons complained of the want of silver coins in the realm, "to the great unease and harm of the poorer people of this land," "because [says the statute, which was accordingly enacted], that silver is bought and sold uncoined at 32s. the pound of Troy, whereas the same pound is no more of value at the coin than 32s., with an abatement of 12 dens. for the coinage." [Sidenote: THE MONETARY TROUBLES OF HENRY VI] From the twenty-fourth chapter of the statute of 1429 it appears, quite consonantly, "that the merchant aliens had of late introduced a custom of refusing to take silver, as they were wont, for their merchandises, and of taking only gold nobles, half-nobles, and farthings, which, from time to time, they carried out of the realm into other foreign countries, where they were changed to their increase and forged into other coins, so that they gained in the alloy of every noble twenty pence, against the tenor of the statutes, etc., and to the prejudice of the King and realm. Therefore the King, willing to provide a remedy, ordained that no merchant alien should constrain nor bind any of his liege people by promise covenant or liege, to make him payment in gold for any manner of debt due to him, nor refuse to receive payment in silver for any manner of such duty or debt, upon the pain of the double value of the same." In 1439 provision was again ordered to prevent exportation of money by merchant aliens. It was renewed in 1448, and five years later the Commons petitioned that the silver mines of Devon and Cornwall, which had not been worked for a long time, might be again opened, on account of the great scarcity of money. The confusion of the Wars of the Roses, however, renders it slightly problematical how far the two successive lowerings of the coinage, which took place in 1460 and 1465 or 1470, are to be attributed to arbitrary action or to a natural process. By the recoinage of 1460 the noble was increased in weight from 108 grs. to 120 grs., and the value from 6s. 8d. to 8s. 4d., being a real appreciation of the grain of gold from .7407 to .7500 of a penny. At approximately the same date, 1464, the weight of the silver penny was lowered from 15 to 12 grs. In the succeeding recoinage of 1465 and 1470 these rates were again altered. A new gold coin, the _angel_, was instituted, weighing 80 grs., and valued at 6s. 8d., while the weight of the silver penny was left unaltered. The ratio was accordingly changed to 11.15. This was the last change of the coinage made in England before the era of the discovery of America. The internal effects which the changes had on the commerce of the time are hidden from us by the disturbing influences of the Wars of the Roses. [Sidenote: CONCLUSION OF THE FIRST PERIOD] But it is, probably, in connection with this change of the English ratio--or with some wider, general movement, acting on both countries alike--that the last monetary ordinances of Louis XI. of France, referred to above, are to be understood. These acts of conflicting policies mark the conclusion of the first period of European metallic monetary history, for no further changes were enacted previous to the close of the century and the discovery of America. As far as England was concerned, the monetary system remained comparatively unchanged till the days of Henry VII. On a review of the whole period two simple facts emerge with unmistakable plainness and import. 1. It was a period in which the commercial expanse outstripped the reinforcing supply of the precious metals, and therefore in which a real decline of prices[8] prevails. 2. The evil effects of such decline were enormously increased by shortsighted, crafty manipulation of the currency by the European rulers, and by the rough, unscientific system of the prevailing coinage and exchange rates, and by the inability of the age to understand, or even to perceive, the hidden working of two metals see-sawing against each other--acting as levers against each other--cutting each other's throats. The discovery of America corrected the fall of prices and saved Europe, but it left her rulers as deadly ignorant as before of the workings of bimetallism--to give a name to what they had not even perceived as a phenomenon, much less as a system. FOOTNOTES: [Footnote 1: This is the date accepted by the numismatic authorities. It is adopted by Orsini (_Storia delle Monete della Repubblica Fiorentina_, p. xxiv, where he states the authority for it). It is nevertheless open to serious doubt. See in De Saulcy, Documents I. pp. 115-131, references to florins d'or from 1180 onwards. On the other hand, as to the nature of the florin de compte and its distinction from the florin d'or, see M.L. Blancard, _Revue numismatique_, 1886, pp. 48, 218, and 1887, p. 259; and Vicomte D'Avenel, _Histoire de la propriété, etc._, i. p. 41.] [Footnote 2: Est a notter que le Roi en fit forger aulcune quantité (some slight quantity) d'or du poids de 12 den. 16 gr. chacune pièce laguelle auvrage il dedia seullement pour sou aulmosne aux pauvres ausquels souvent il lavait les piedz par humilité. Et en fut jamais inventée ladite pièce d'or pour aultre cause que dessus et non pour monnaie uzuelle et publicque." (De Saulcy, _Documents, i._ 115, 122, 125).] [Footnote 3: See, however, in De Saulcy, i. 31, a mention of _manteletz d'or de Flandre_ in 1265.] [Footnote 4: Soetbeer considers the standard in 1386 as 23 fine, and asserts that, by the Mint edict of 1402, it was lowered to 22-1/2 carats.] [Footnote 5: For an estimation of the _commercial_ effect of these debasements, see Vicomte D'Avenel, _Histoire de la propriété, etc._, i. 53-54] [Footnote 6: For a similar table calculated in francs, see Vicomte D'Avenel, _Histoire de la propriété, etc._, i. 62, 481, where the figures are very different. On Le Vicomte D'Avenel's method of calculation, see the _English Historical Review_.] [Footnote 7: See note on p. 397, infra..] [Footnote 8: By prices here, and subsequently throughout this volume, is meant the price or tariff and Mint rate of the coins. There is no reference whatever to general prices.] CHAPTER II From the Discovery of America to the end of the First Cycle of the Influence of the Metals of the New World on European Currencies, 1493-1660 The last decade of the fifteenth century witnessed the discovery of America, and therein the monetary salvation and resurrection of the Old World. The end of the second quarter of the seventeenth century in its turn witnessed the end of the first phase, and the most important, of the New World upon the destinies of Europe. Practically and historically the century and a half intervening between 1493 and 1660 may be treated as a single cycle with a single aspect. It was a time of unexampled increase in the imports of the precious metals, of equally unexampled rise of prices, and at the same time of feverish instability and want of equilibrium in the monetary systems of Europe. Two general statements may be premised. 1. Broadly speaking--of prices, i.e.--no movement of any note is perceptible, or records itself in legislative enactment until about 1520, so gradual and at first unimportant was the flow of metal from America. What did come at first was not silver so much as gold, and represents the puny and blood-stained plunder of ornaments from the natives. If this import tended to turn the balance in any way, it was in the direction of depreciation of gold as compared with silver. But during this first quarter of the sixteenth century, possibly more influence on the maintaining of equilibrium is to be attributed to the largely increased home production of silver. The silver mining in the Saxon Harz, in Bohemia, and the Tyrol, had received a strong impulse towards the close of the fifteenth century, while gold was obtained during the same period in appreciably greater quantities in the archbishopric of Salzburg, and in Hungary, as well as from Africa. [Sidenote: GENERAL STATEMENT] 2. In this second period of European bimetallic history, the centre of European monetary exchanges passes from Italy to the Netherlands. Antwerp takes the place of Venice and Florence. There is a double and deep significance in the fact. It is not merely that the trade route had changed in such a way as to lay the foundation for that development of European commerce, of which England is the highest expression in our own days; it is that by the change was provided a more effective safeguard against precipitate and overwhelming depreciation. The centre of European exchanges--Antwerp in the sixteenth, as London to-day--has always performed one supremest function--that of regulating the flow of metals from the New World by means of exporting the overplus to the East. The drain of silver to the East, discernible from the very birth of European commerce, has been the salvation of Europe, and in providing for it Antwerp acted as the safety-valve of the sixteenth-century system, as London has done since. The importance of the change of the centre of gravity and exchange from Venice to Antwerp lies therefore in this fact. Under the old system of overland and limited trade, Venice could only provide for such puny exchange and flow as the mediæval system of Europe demanded. She would have been unable to cope with such a flood of inflowing metal as the sixteenth century witnessed, and Europe would have been overwhelmed. But the foundations of the commerce of the Netherlands were laid wider. Together with Portugal she opened an extensive empire along the coasts of Africa and in the Indian East; and the very time which gave birth to the revolution in the production of the precious metals in America saw provision made for the regulation of its outflow through the commerce and exchanges of Antwerp to India. In the modern system this would be a theoretically perfect world-mechanism, and its working would be normal and healthy, and the safest indicator of commerce. That it was not so to seventeenth-century Europe was simply due to the existence of a disordered, understood bimetallic system, and the crisis to which the working of this mechanism brought her has perhaps not been since equalled at any point of time. The underlying causes of this crisis have been already described. The currencies of the trading nations of Europe were all unconsciously bimetallic. Throughout, there was in existence one class who grasped the _fact_ without any knowledge of the _theory_, and profited by it--the merchant exchangers. There was constant oscillation--change of ratio, and the least alteration of the condition of one metal made it a lever for operations upon the other. These operations were arbitrage merely. They had no relation to the ebb and flow of commerce as modern arbitrage transactions have. It was a financier's opportunity of _private_ gain, and for _private_ gain the system was worked. The ebb and flow of European currencies, which the sixteenth and seventeenth centuries witnessed, were as unnecessary (i.e. for the purposes of her commerce) as they were disastrous. It is sufficient to indicate the tendency of this argument, and to leave the illustration of it to the following pages. To return to the yield of precious metals during the years under discussion. Any estimate must be conjectural, in the absence of the accounts of the Spanish Mints.[9] This understood, it may be thus tabularly represented. [Sidenote: PRODUCTION OF THE PRECIOUS METALS] +-----------+-------------+-------------+--------------+--------------+ | | Annual | Annual | Proportion | Proportion | | Date. | Average | Average | of Gold | of Silver | | | Production | Production | in Total. | in Total. | | | of Gold. | of Silver. | | | +-----------+-------------+-------------+--------------+--------------+ | 1493-1520 | £800,000 | £600,000 | 57% | 43% | | 1521-45 | 1,000,000 | 1,100,000 | 47% | 53% | | 1545-60 | 1,200,000 | 3,850,000 | 23.6 | 76.4 | | 1560-80 | 855,000 | 3,640,000 | 20.8 | 79.2 | | 1581-1600 | 1,030,000 | 4,945,000 | 17.2 | 82.8 | | 1601-20 | 1,190,000 | 4,820,000 | 19.8 | 80.2 | | 1621-40 | 1,157,850 | 3,916,300 | 22.8 | 77.2 | | 1641-60 | 1,223,400 | 3,516,500 | 25.8 | 74.2 | +-----------+-------------+-------------+--------------+--------------+ The general tendency of the first years of this period (1493-1520), if discernible at all, seems rather in favour of silver, and to the depreciation of gold. The average ratio was 10.75, speaking very generally, and with every mental reservation as to its applicability at any particular time and place. An equally rough average for the preceding time (see Chapter I.) would give a ratio of 11.28, showing apparently a movement in favour of silver owing to the increased production of gold. The succeeding quarter of a century, 1521-45, covers the time from the conquest of Mexico to the commencement of the exploitation of the silver mines of Potosi. Looked at from the point of view of prices in Europe,--as evidenced most circumstantially in the _Plakkaats_ of the Netherlands, to which reference will be immediately made,--these years display stability--i.e. a steady maintaining of the advance gradually and already made between the years 1493 and 1520, and chronicled for us in the prices of 1521--rather than any further great and readily perceptible rise. For example in brief. In the Flemish _Plakkaats_ the French crown is quoted at an equivalent of 1 florin 15-1/2 stivers in 1499, and of 1 florin 19 stivers in 1522, when an attempt was made to reduce it to 1 florin 15-1/2 stivers again. From 1522 to 1548 no further advance, but retrogression rather is quoted thus:-- +-------+-----------------------------------+---------+-----------+ | Date. | | Florin. | Stivers. | |-------+-----------------------------------+---------+-----------| | 1519 | French Crown quoted at | 1 | 15-1/2 | | 1522 | " " | 1 | 19 | | 1526 | " " {(Real) | 1 | 19 | | | " " {(Attempted) | 1 | 15-1/2 | | 1539 | " " {(Real) | 1 | 17 | | | " " {(Attempted) | 1 | 15 | | 1548 | " " | 1 | 17 | | 1552 | " " | 1 | 19 | +-------+-----------------------------------+---------+-----------+ This general conclusion will be found quite invariably illustrated in the tables of Netherland coins (below). [Sidenote: CHARACTERISTICS OF THE PERIOD, 1493-1548] With regard to the annual average production of the metal, there is perceptible a slight movement towards the depreciation of silver or in favour of gold. This might naturally be expected to express itself in a somewhat higher ratio. But the differentiation is so slight as hardly thus to indicate itself, and certainly not consistently, so far as the ratio is capable of ascertainment. In France the ratio in { 1519 was 11.76 { 1540 " 11.82 In the Netherlands the ratio in { 1520 " 10.68 { 1540 " 10.62 In England { 1527 " 11.23 { 1552 " 11.1 In Germany { 1524 " 11.38 { 1551 " 11.38 Broadly speaking, therefore, there is a certain homogeneity about the first two periods, 1493-1520 and 1520-48, of the new era. These fifty-five years mark a time of general advance on prices achieved by 1520 and maintained unequally up to 1548, but an advance which was steadily and almost fairly level on the two lines of gold and silver, so that the perfectly well-established advance of prices generally is accompanied with no great disturbance of the ratio in itself. In contrast with this all the succeeding periods have, up to 1660, a distinct character and statistical bearing. An enormous and ever-increasing advance in general prices occurs, but it is no longer, as before, on level lines of the two metals equally. The proportion of the production of the two metals changes, so rich was the yield of the silver mines of Potosi. From being the same with that of gold, the value of silver produced suddenly rises to three times and then to four times that of its rival; and at once the ratio changes, bringing with it all its accompaniment of feverish instability and flux. [Sidenote: STATEMENT OF THE RATIO, 1500-1660] The average result in the ratio was as follows:-- 1545-60 11.30 1561-80 11.50 1581-1600 11.80 1601-20 12.25 1621-40 14.00 1641-60 14.50 1661 15.0 As far as can be ascertained the detailed statement of the ratio during the whole period, 1500-1660, is as follows:-- +------+------+------+-------+------+---------+------------+-------+------+ | | | N | | | | | | | | | | e | | | | | | | | | E | t | | | Germany |S.W. Germany| | | | Date.| n | h |France.|Spain.|(Imperial|(Wurtemburg,|Venice.| Date.| | | g | e | | | System).| Strasburg, | | | | | l | r | | | | Colmar). | | | | | a | l | | | | | | | | | n | a | | | | | | | | | d | n | | | | | | | | | . | d | | | | | | | | | | s | | | | | | | | | | . | | | | | | | +------+------+------+-------+------+---------+------------+-------+------+ | 1474 | | | | 9.824| | | | 1474 | | 1475 | | | |10.985| | | | 1475 | | 1480 | | | |11.555| | | | 1480 | | 1483 | | | |11.675| | | | 1483 | | 1484 | | | | | 11.37 | | | 1484 | | 1489 | | 10.5 | | | 11.2 | | | 1489 | | 1497 | | | 11.83 |10.755| | | | 1497 | | 1506 | | | |10.262| | | | 1506 | | 1511 | | | | | | | | 1511 | | 1517 | | | | | 10.31 | | 11.32 | 1517 | | | | | | | (Erfürt)| | | | | 1519 | | 10.15| 11.76 | | | | 12.04 | 1519 | | 1524 | | | | | 11.38 | | | 1524 | | 1527 | 12.23| | | | | | 10.03 | 1527 | | 1529 | | | | | | | 11.07 | 1529 | | 1537 | | | |10.760| | | | 1537 | | 1539 | | | 11.68 | | | | | 1539 | | 1540 | | 10.62| 11.82 | | | | | 1540 | | 1542 | | | | | | 11.27 | | 1542 | | 1548 | | 11.0 | | | | | | 1548 | | 1549 | | | 11.86 | | | | | 1549 | | 1550 | | | 12.07 | | | | | 1550 | | 1551 | | | 11.47 | | 10.83 | | | 1551 | | 1552 | 11.1 | | | |(Imperial| | | 1552 | | | | | | | Edict) | | | 1552 | | 1553 | 11.05| | | | | | | 1553 | | 1554 | | 10.70| | | | | | 1554 | | 1559 | 11.79| | | | 11.44 | 11.55 | | 1559 | | 1560 | | | 11.77 | |(Imperial| | | 1560 | | | | | | | Edict) | | | | | 1561 | | | | | | | 10.81 | 1561 | | 1562 | | | | | | 11.01 | 11.53 | 1562 | | 1566 | | | |12.294| 11.55 | | | 1566 | | 1572 | | 12.42| | | | | | 1572 | | 1573 | | | 11.76 | | | | 12.33 | 1573 | | 1575 | | | 11.68 | | | 11.11 | | 1575 | | 1576 | | 12.67| | | | | | 1576 | | 1578 | | | | | | | 10.61 | 1578 | | 1579 | | 10.62| | | | | | 1579 | | 1582 | | | | | | 11.40 | | 1582 | | 1583 | | | | | | 10.93 | | 1583 | | 1585 | | | | | 11.63 | | | 1585 | | 1586 | | 10.66| | | | | | 1586 | | 1587 | | | | | | 12.03 | | 1587 | | 1589 | | 11.21| | | | | | 1589 | | 1590 | | | | | | 11.86 | | 1590 | | 1590 | | | | | | 11.32 | | 1590 | | 1591 | | | | | | 10.95 | | 1591 | | 1593 | | | | | | 11.18 | | 1593 | | 1594 | | | | | | 11.70 | 12.34 | 1594 | | 1596 | | 10.90| | | 11.50 | | | 1596 | | 1597 | | | | | | 11.78 | | 1597 | | 1597 | | | | | | 12.16 | | 1597 | | 1598 | | 11.29| | | | | | 1598 | | 1599 | | | | | | 11.05 | | 1599 | | 1601 | 10.90| | | | | 11.86 | | 1601 | | 1602 | | | 11.88 | | | 12.22 | | 1602 | | 1603 | | 11.64| | | | 12.24 | | 1603 | | 1605 | 12.15| | | | | 12.01 | | 1605 | | 1605 | | | | | | 12.49 | | 1605 | | 1606 | | 11.92| | | | | | 1606 | | 1607 | | | | | | 12.61 | | 1607 | | 1608 | | | | | | 12.16 | 11.04 | 1608 | | 1608 | | | | | | 12.46 | | 1608 | | 1610 | | 12.54| | | 12.2 | | | 1610 | | 1611 | 13.32| | | | | 12.08 | | 1611 | | 1612 | | | |13.52 | | 12.30 | | 1612 | | 1613 | | | | | | 12.35 | | 1613 | | 1613 | | | | | | 12.29 | | 1613 | | 1615 | | 12.03| 13.90 | | | 12.31 | | 1615 | | 1617 | | | | | | 12.58 | | 1617 | | 1618 | | | | | | 12.11 | | 1618 | | 1619 | | 12.10| | | | | | 1619 | | 1620 | 13.34| | | | | | | 1620 | | 1621 | | 12.5 | | | | | | 1621 | | 1622 | | 12.65| | | | | | 1622 | | 1623 | | | | | 11.64 | 11.74 | | 1623 | | 1624 | | | | | | 13.42 | | 1624 | | 1624 | | | | | | 12.58 | | 1624 | | 1626 | | 12.65| | | | | | 1626 | | 1630 | | | | | | | 10.31 | 1630 | | 1631 | | | | | | 13.42 | | 1631 | | 1633 | | 12.65| | | | | | 1633 | | 1634 | | | | | | 15.10 | | 1634 | | 1635 | | | | | | 14.80 | | 1635 | | 1636 | | | 15.36 | | | | | 1636 | | 1637 | | | | | | 15.10 | | 1637 | | 1638 | | 13.39| | | | | 14.38 | 1638 | | 1640 | | | 14.49 | | | | | 1640 | | 1643 | | | 13.5 | | | | 15.37 | 1643 | | 1645 | | 14.13| | | | | | 1645 | | 1648 | | | | | | | | 1648 | | 1651 | | | | | | | | 1651 | | 1652 | | 14.13| | | | | | 1652 | | 1653 | | 14.13| | | | | | 1653 | | 1656 | | | 14.71 | | | | | 1656 | | 1660 | | | | | | | | 1660 | | 1663 | | 14.43| | | | | | 1663 | | 1665 | | | |16.47 | | | 14.39 | 1665 | | 1667 | | | | | 12.88 | | | 1667 | | 1669 | 14.48| | | | 15.13 | | | 1669 | | 1679 | | | 14.91 | | | | | 1679 | | 1690 | | | | | 15.13 | | | 1690 | +------+------+------+-------+------+---------+------------+-------+------+ To treat of these countries in detail. [Sidenote: THE NETHERLANDS IN SIXTEENTH CENTURY] Netherlands. During the period under consideration, the seventeenth century especially, the monetary history of the Netherlands supplies the key to that of the surrounding nations. The history of her monetary exchanges has yet to be written, and of her Mint ordinances very little is accessible, as compared, e.g., with France. But this is more than compensated by the numerous "plakkaats" or proclamations of the tariff of coins, which are to us practical indicators of the rates of exchange. The Netherlands, as has been already said, were the centre of European commerce in the sixteenth and seventeenth centuries, as the Italian States had been in the fourteenth and fifteenth; and every change in the precious metals or in the coins showed itself in the Antwerp Bourse as surely and swiftly as to-day in London. As prompt to take knowledge of these changes as Florence had been two centuries earlier, the authorities tabulated the various coinages which were current in the Low Countries,--and practically that meant the coinage of commercial Europe,--tariffed them against their own by proclamation, and instantly accommodated themselves to each new change or variation of value by a new proclamation and a new tariff. These proclamations, therefore, give us the measure and course of the monetary movements of the time in fullest and most welcome details. It has been already shown that this action of the government of the Netherlands has a twofold aspect. From one side it expresses and regulates the natural flow and ebb of commerce, just as exchange rates and bullion remittances do to-day. And in this sense it was perfectly normal, healthy, and sound, more especially in so far as it provided for the gradual drawing away overplus metal to the East. But the Governments of Europe were yet under the spell of the delusion as to a balance of trade payable in gold--that delusion which was, later, dignified in history by the name of the mercantile theory. Nor had they yet lost the traces of that mediæval craft and lawlessness which rose from, and prompted to, the mere desire of robbing or pilfering their neighbour's store of precious metal as the first act of self-defence. Further than this the monetary system of Europe--unconsciously bimetallic and with an appalling variety of ratio prevalent at the same moment in different places--lay open, helpless and defenceless, and inviting to the bullionist, financier, or arbitragist. In so far as this element of national greed and dishonesty, or private and unprincipled gain, entered into the legislative enactments of the Netherlands, it condemns them as mercenary, and the monetary straits or tightness, not to say crisis and panic which ensued, as unnecessary and therefore in the highest degree lamentable. [Sidenote: SIXTEENTH-CENTURY ARBITRAGE] In a blind way the age saw what was going on behind the financier's screen, however little it understood the theory of it. In many a sixteenth-century document, preserved among the State papers in the Record Office at London, abuse is piled on the Netherlands for their practices in enticing away the coin of the realm. One of the correspondents of the Privy Council in the days of Elizabeth, 1575, writes thus from the Netherlands: "The Low Country merchants return great stores of money hither by exchanges, and by the proceeds, as the exchange may serve for their purposes, they send away her majesty's coin and bullion into the Low Countries in great quantities, and the rather by reason of the Hollanders trading with the East, by which means the realm will be secretly robbed, if it be not prevented." Twenty years later the whole subject was again gone into, for the fiftieth time, for the advice of the English Privy Council, and it was shown how "foreign exchangers contrived, by arranging a rise or fall in particular monies, to undervalue English monies, and draw them out of the kingdom. Prevention has been vainly attempted by Acts of Parliament, by sending over Sir Thomas Gresham to the Low Countries to complain, and by establishing the office of exchanger, which was discontinued as injurious to the State. A bank was proposed, but the Queen had not to spare the £100,000 needed to start it. It is now proposed to settle the exchange at 10 or 12 per cent., to be fixed yearly, according to the state of affairs, 20 per cent. or more being sometimes paid now." The _naïveté_ and helplessness of the suggestions contained in these concluding words need not blind us to the real and pressing gravity of the monetary situation to which they relate, and which periodically beset each and every European Government throughout the centuries under consideration. Such, therefore, is the aspect of these monetary ordinances or plakkaats of the Netherlands in the sixteenth and seventeenth centuries. To speak of them in detail. The first of the Low Country proclamations, containing an _evaluatie_, or tariff, is dated 2nd January 1516, and it marks the commencement of the influence of the American discoveries. (See table below.) By the succeeding proclamation of 4th February 1520, golden reals were substituted for the golden florin. Its provisions remained nominally in force for twenty years or so, but almost immediately the movement towards higher prices made itself felt, and it was in consequence of this, and after fruitless negotiations with the merchants of Antwerp, that Charles V. issued a series of four closely consecutive proclamations (1521, March 1522, 19th June 1524, 25th November 1525). The first three concern gold, the last only bears witness to the rise of silver by attempting to check it and call it down. Similarly, in his ordinance of 10th December 1526, he enacted that the price ruling on the 4th February 1520 should be again used, and should be reached at two drops or intervals, so as to create the less disturbance between debtor and creditor. The ordinance proved fruitless, and was twice renewed, in 1531 and 1539. In spite of them all, the rise in prices against which the authorities tried to fight, continued and had to be recognised. By the ordinance of 11th July 1548 a higher limit of values was permitted. Then, for a dozen years or so, attempts were made, by the proclamations of 23rd March 1552 and 24th October 1559, to make those prices of 1548 the basis, and to compel a return to it in the future, while recognising temporarily the higher prices ruling at the moment. And so the process repeats itself continually--a further rise of prices, complaints of the disorder in the currency and exchanges, and a new _evaluatie_ issued, regulating the exchanges at the higher rate for the moment, and providing for the reduction of prices to previous limits, from and after such and such a date. [Sidenote: THE NETHERLAND PLAKKAATS] In the accompanying table wherever two figures are coupled together thus, 2 4} 1 19} the higher figure represents the price ruling at the date of the ordinance, the lower figure is the price to which return was to be made from and after some date fixed thereby. A simple glance at the tables will show how futile and foredoomed was every such attempt to rule and compel the exchanges. For the explanation of these tables it will be sufficient to give the dates of the Netherlands ordinances, premising that up to 1586 the series was applicable to the whole Netherlands, but that from that date there is a separate series for the Seven United Provinces, and for the Spanish Netherlands. Netherlands Plakkaats. 27th July 1572. 7th February 1573. 22nd June 1574 (countenances the rise of prices over those of 1572 only until the end of the year). 3rd December 1575. 19th April 1576 (for Holland and Zealand, and to continue for only six months, when, by the ordinance of 25th October of the same year, a considerably lower limit was prescribed). 1579. In this year no less than four plakkaats were issued, with the object of enforcing a reduction of prices, but in vain, and the last of the four, issued on the 19th December, was obliged to recognise some portion of the rise of prices which it was attempted to counteract. 9th October 1581. In less than a year the effect of the strenuous attempt in 1579 had been completely swept away, and a further advance had to be recognised. From 1586 the series of proclamations divides into two, as has been said, owing to the revolt and establishment of the United Netherlands. The one set, relating to the Spanish Netherlands, includes proclamations of 30th April 1590, again recognising provisionally a further advance, and renewed on 15th December 1593, 21st October 1594, 16th November 1599, 23rd June 1602 (with some slight alterations), 30th December 1605, attempting to restrain a farther advance, 30th June 1607, 13th May 1609, 30th September 1610, 22nd March 1611, again recognising the inevitable advance. The last named remained in force until 21st May 1618, with the exception of not being applicable in Volkenburg, Dalen, and Limburg, where the abnormal height to which monies had risen necessitated a special ordinance (4th March 1616), lowering the price to the limit of 22nd March 1611, by five separate three-monthly steps or intervals. [Sidenote: THE PLAKKAATS OF THE UNITED PROVINCES] The second and separate series of monetary ordinances issuing from their High Mightinesses, the States-General of the United Provinces, is remarkably parallel to the above. It begins with the ordinance of 2nd September 1594: "In view of the rising price of gold and silver," it says, a "lessening of that price to the limit of 1586 is ordered at three intervals, 15th September 1594, 10th November, 10th January 1595." Like the contemporary enactment of the Spanish Netherlands, it proved ineffectual, and a further rise had to be recognised in the ordinance of 2nd March 1596, and again of 2nd April 1603. The preambles of these ordinances, which are preserved in the huge collections of Can and Scheltus, generally recite their purpose of providing against the disorders in the coinage, caused by the daily rise in price, by the greed and licence of the times, and by the inrush of the silver coins of other states. Such is specially the tenor of that of 21st March 1606, one of the most famous of these ordinances. Two years later an attempt was made to reduce prices to the limit of 1606. It proved ineffectual, and by the proclamations of 1st July 1610, 26th September 1615, and 13th February 1619, further advances were recorded. By the last-named, renewed on 5th June 1621, an attempt was made to re-establish the prices of 1610. So much for the ordinances themselves. It is only necessary to add, for their general elucidation, that they generally contain and prescribe in detail the value of each separate coin circulating in the Low Countries at the particular time, coupled with an engraving of the coin, as an assistance to the people in recognising them. Indeed, some of the ordinances, that of 1606 for instance, contain engravings of upwards of 1000 different pieces--a significant witness to the international welter of coins in the Netherlands exchange. Dissected in detail, with regard to only a few of these coins, the tabular result is as follows:-- THE NETHERLAND PLAKKAATS +---------------------------------++----------------------------------+ | German Gold Guldens. || Spanish Ducats. | |(75 to a Mark of Gold, 18 Carats || (70 to a Mark of Gold, 23 Carats | | 4 Grs. Fine.) || 7-1/2 Grs. Fine.) | +-----------+---------------------++-----------+----------------------+ | | Declared Value || | Declared Value | | | in Netherlands || | in Netherlands | | Date. | Currency as by the || Date. | Currency as by the | | | Plakkaats. || | Plakkaats. | | +----------+----------++ +----------+-----------+ | | Florins. | Stivers. || | Florins. | Stivers. | +-----------+----------+----------++-----------+----------+-----------+ | 1499 | 1 | 8 || 1499 | 1 | 19 | | 1522 | 1 | 10 || 1522 | 2 | 3 | | 1526 | 1 | 12 || 1526 | 2 | 4 | | | 1 | 8 || | 1 | 19 | | 1539 | 1 | 9 || 1539 | 2 | 1 | | | 1 | 8 || | 1 | 19 | | 1548 | 1 | 10 || 1548 | 2 | 1 | | 1552 | 1 | 11 || 1552 | 2 | 2 | | 1559 | 1 | 12 || 1559 | 2 | 5 | | 1572 | 1 | 15 || 1572 | 2 | 7 | | 1573 | 1 | 19 || 1573 | 2 | 15 | | 1574 | 1 | 16 || 1574 | 2 | 13 | | 1575 | 2 | 0 || 1575 | 3 | 0 | | 1576 | 2 | 0 || 1576 | 3 | 3 | | | 1 | 17 || | 2 | 12 | | 1577 | 2 | 0 || 1577 | 3 | 3 | | 1579 | 2 | 3 || 1579 | 3 | 4 | | | 2 | 4 || | 3 | 0 | | | 2 | 2 || | 2 | 18 | | | 2 | 3 || | 3 | 0 | | 1581 | 2 | 8 || 1581 | 3 | 6 | | 1590 | 2 | 9 || 1590 | 3 | 10 | | 1605 | 2 | 10 || 1599 | 3 | 15 | | 1607 | 2 | 12 || 1609 | 3 | 19 | | 1609 | 2 | 15 || 1618 | 4 | 1 | | 1611 | 2 | 16-1/2 || | | 1618 | 2 | 17-1/2 || United Netherlands. | | || 1586 | 3 | 8 | | United Netherlands. || 1594 | 3 | 12 | | 1586 | 2 | 8 || | 3 | 10 | | 1594 | 2 | 12 || | 3 | 8 | | | 2 | 10 || 1596 | 3 | 9 | | | 2 | 8 || 1603 | 3 | 16 | | 1596 | 2 | 10 || | 3 | 15-1/2 | | 1603 | 2 | 14 || | 3 | 15 | | 1606 | 2 | 15 || 1606 | 3 | 16 | | 1608 | 2 | 17 || 1608 | 4 | 0 | | | 2 | 16 || | 3 | 18 | | | 2 | 15 || | 3 | 16 | | | | || 1610 | 4 | 0 | | 1610 & | 2 | 18 || 1615 | 4 | 1 | | onwards | | || 1619 | 4 | 2 | | | | || 1621 | 4 | 4 | +-----------+----------+----------++-----------+----------+-----------+ +---------------------------------++----------------------------------+ | Spanish Pistoles. || French Crowns. | |(36 to a Mark of Gold, 21 Carats || (Old, i.e. not "of the Sun," 72 | | 10 Grs. Fine.) || to a Mark of Gold, 22 Carats | | || 4-1/2 Grs. Fine) | +-----------+---------------------++-----------+----------------------+ | | Declared Value || | Declared Value | | | in Netherlands || | in Netherlands | | Date. | Currency as by the || Date. | Currency as by the | | | Plakkaats. || | Plakkaats. | | +----------+----------+| +----------+-----------+ | | Florins. | Stivers. || | Florins. | Stivers. | +-----------+----------+----------++-----------+----------+-----------+ | 1548 | 3 | 12 || 1499 | 1 | 15-1/2 | | 1552 | 3 | 18 || 1522 | 1 | 19 | | 1559 | 4 | 0 || 1526 | 1 | 19 | | 1572 | 4 | 4 || | 1 | 15-1/2 | | 1573 | 4 | 16 || 1539 | 1 | 17 | | 1574 | 4 | 10 || | 1 | 15 | | 1575 | 5 | 0 || 1548 | 1 | 17 | | 1576 | 5 | 4 || 1552 | 1 | 19 | | | 4 | 13 || 1559 | 2 | 0 | | 1577 | 5 | 4 || 1572 | 2 | 2 | | 1579 | 5 | 10 || 1573 | 2 | 9 | | | 5 | 10 || 1574 | 2 | 6 | | | 5 | 5 || 1575 | 2 | 12 | | | 5 | 8 || 1576 | 2 | 13 | | 1581 | 5 | 18 || 1577 | 2 | 12 | | 1590 | 6 | 4 || 1579 | 2 | 15 | | 1605 | 6 | 9 || | 2 | 15 | | 1607 | 6 | 12 || | 2 | 12-1/2 | | 1609 | 7 | 0 || | 2 | 14 | | 1611 | 7 | 2 || 1581 | 3 | 0 | | 1618 | 7 | 5 || 1590 | 3 | 3 | | || 1605 | 3 | 6 | | || 1607 | 3 | 8 | | || 1609 | 3 | 12 | | || 1611 | 3 | 12-1/2 | | United Netherlands. || 1618 | 3 | 14 | | 1586 | 6 | 0 || United Netherlands. | | 1594 | 6 | 6 || 1586 | 3 | 0 | | | 6 | 3 || 1594 | 3 | 3 | | | 6 | 0 || | 3 | 1 | | 1596 | 6 | 6 || | 3 | 0 | | 1603 | 6 | 15 || 1603 | 3 | 8 | | 1606 | 6 | 17 || 1606 | 3 | 10 | | 1608 | 7 | 1 || 1608 | 3 | 14 | | | 6 | 19 || | 3 | 12 | | | 6 | 17 || | 3 | 10 | | 1610 | 7 | 4 || 1610 | 3 | 14 | | 1615 | 7 | 6 || 1615 | 3 | 15 | | 1619 | 7 | 12 || 1619 | 3 | 16 | | | 7 | 6 || | 3 | 15 | | 1621 | 7 | 12 || 1621 | 3 | 18 | +-----------+----------+----------++-----------+----------+-----------+ +---------------------------------++--------------------------------+ | English Rose Nobles. || English Sovereigns. | | (32 to a Mark of Gold, 23 || (40 to a Mark of Gold.) | | Carats 8-1/2 Grs. Fine.) || | +-----------+---------------------++----------+---------------------+ | | Declared Value || | Declared Value | | | in Netherlands || | in Netherlands | | Date. |Currency as by the || Date. | Currency as by the | | | Plakkaats. || | Plakkaats. | | +----------+----------++ +----------+----------+ | | Florins. | Stivers. || | Florins. | Stivers. | +-----------+----------+----------++----------+----------+----------+ | 1499 | 4 | 5 || | | | | 1520 | 4 | 5-1/2 || 1548 | 3 | 0 | | 1522 | 4 | 10-1/2 || | | | | 1526 | 4 | 17-1/2 || 1552 | 3 | 0 | | | 4 | 5-1/2 || | | | | 1539 | 4 | 10 || 1554 | 3 | 0 | | | 4 | 5-1/2 || | | | | 1548 | 4 | 10 || 1575 | 4 | 4 | | 1552 | 4 | 16 || | | | | 1559 | 5 | 0 || 1576 | 4 | 6 | | 1572 | 5 | 3 || | | | | 1573 | 6 | 10 || 1579 | 4 | 8 | | 1574 | 6 | 6 || | | 1575 | 7 | 5 || | | 1576 | 7 | 10 || | | 1577 | 7 | 0 || | | 1579 | 8 | 0 || | | | 7 | 10 || | | | 6 | 8 || | | | 6 | 14 || United Netherlands. | | 1581 | 7 | 4 || | | 1590 | 7 | 9 || | | 1607 | 8 | 2 || 1586 | 5 | 1 | | 1609 | 8 | 10 || | | | | 1611 | 8 | 13 || 1594 | 5 | 5 | | 1618 | 8 | 16 || | | | | || | 5 | 3 | | United Netherlands. || | | | | 1586 | 7 | 12 || | 5 | 1 | | 1594 | 8 | 0 || | | | | | 7 | 16 || 1596 | 5 | 2 | | | 7 | 12 || | | | | 1596 | 7 | 13 || 1603 | 5 | 9 | | 1603 | 8 | 8 || | | | | | 8 | 7 || 1606 | 5 | 12 | | | 8 | 6 || | | | | 1606 | 8 | 9 || 1608 | 5 | 16 | | 1608 | 8 | 16 || | | | | | 8 | 12 || | 5 | 14 | | | 8 | 9 || | | | | 1610 | 8 | 16 || | 5 | 12 | | 1619 | 9 | 0 || | | | | | 8 | 16 || 1610 | 5 | 18 | | 1621 | 9 | 0 || | | | +-----------+----------+----------++----------+----------+----------+ +-------------------------------------++-----------------------------------+ | || Burgundian Gulden (or | | Philippus Rijder. || Gulden Andries). | |(67-1/2 and subsequently 70 to a Mark|| (72 to a Mark of Gold, 19 Carats | | of Gold, 23 Carats 8-1/2 Grs. Fine.)|| Fine, from 1456 to 1567; later, 75| | || to a Mark, 18 Carats 6 Grs. Fine.)| +----------+--------------------------++-----------+-----------------------+ | | Declared Value || | Declared Value | | | in Netherlands || | in Netherlands | | Date. | Currency as by the || Date. | Currency as by the | | | Plakkaats. || | Plakkaats. | | +-------------+------------++ +----------+------------+ | | Florins. | Stivers. || | Florins. | Stivers. | +----------+-------------+------------++-----------+----------+------------+ | 1499 | 1 | 19 || 1499 | 1 | 9 | | 1522 | 2 | 3 || 1522 | 1 | 12 | | 1526 | 2 | 4 || 1526 | 1 | 13 | | | 1 | 19 || | 1 | 9 | | 1539 | 2 | 1 || 1539 | 1 | 10 | | | 1 | 19 || | 1 | 9 | | 1548 | 2 | 1 || 1548 | 1 | 11 | | 1552 | 2 | 2 || 1552 | 1 | 12 | | 1559 | 2 | 5 || 1559 | 1 | 13 | | 1572 | 2 | 7 || 1572 | 1 | 15-1/2 | | 1573 | 2 | 15 || 1573 | 1 | 19 | | 1575 | 2 | 18 || 1574 | 1 | 16 | | 1576 | 3 | 3 || 1575 | 2 | 0 | | 1577 | 3 | 0 || 1576 | 2 | 0 | | 1579 | 3 | 3 || | 1 | 18-1/2 | | | 3 | 0 || 1577 | 2 | 2 | | | 2 | 18-1/2 || 1579 | 2 | 3 | | | 3 | 0 || | 1 | 5 | | 1581 | 3 | 6 || | 2 | 3-1/2 | | 1590 | 3 | 8-1/2 || | 2 | 4 | | 1610 | 3 | 18 || 1581 | 2 | 9 | | 1611 | 3 | 19 || 1590 | 2 | 11 | | || 1607 | 2 | 14 | | || 1609 | 2 | 17 | | || 1611 | 2 | 18 | | United Netherlands. || | | || United Netherlands. | | 1586 | 3 | 8 || 1586 | 2 | 9 | | 1594 | 3 | 10 || 1594 | 2 | 13 | | | 3 | 9 || | 2 | 11 | | | 3 | 8 || | 2 | 9 | | 1596 | 3 | 9 || 1596 | 2 | 11 | | 1603 | 3 | 14 || 1603 | 2 | 15 | | 1606 | 3 | 15 || 1606 | 2 | 16 | | 1608 | 3 | 17 || 1608 | 2 | 18 | | | 3 | 16 || | 2 | 17 | | | 3 | 15 || | 2 | 16 | | 1610 | 4 | 0 || 1610 | 2 | 19 | +----------+-------------+------------++-----------+----------+------------+ +--------------------------------++---------------------------------+ | German Thaler || Netherland Rijksdaalder | | (Silver). || (Silver). | +----------+---------------------++----------+----------------------+ | | Declared Value || | Declared Value | | | in Netherlands || | in Netherlands | | Date. | Currency as by the || Date. | Currency as by the | | | Plakkaats. || | Plakkaats. | | +----------+----------++ +----------+-----------+ | | Florins. | Stivers. || | Florins. | Stivers. | +----------+----------+----------++----------+----------+-----------+ | 1539 | 1 | 6 || 1583 | 2 | 2 | | | 1 | 7 || | | | | 1548 | 1 | 8 || 1586 | 2 | 5 | | 1552 | 1 | 9 || | | | | 1559 | 1 | 10 || 1594 | 2 | 6 | | 1571 | 1 | 11 || | | | | 1572 | 1 | 12 || | 2 | 5 | | 1573 | 1 | 16 || | | | | | 1 | 14 || 1603 | 2 | 7 | | 1577 | 1 | 18 || | | | | 1579 | 2 | 1 || 1608 | 2 | 8 | | 1581 | 2 | 5 || | | | | 1611 | 2 | 11 || | 2 | 7 | | || | | United Netherlands. || | | 1586 | 2 | 5 || United Netherlands. | | 1594 | 2 | 6 || | | | 2 | 5 || | | 1603 | 2 | 7 || 1610 | 2 | 8 | | 1608 | 2 | 8 || | | | | | 2 | 7 || 1619 | 2 | 10 | | 1610 | 2 | 8 || | | | | 1619 | 2 | 10 || 1621 | 2 | 12 | | 1621 | 2 | 12 || | | | +----------+----------+----------++----------+----------+-----------+ France. In France the result of the American influx of metals did not make itself felt until the time of Francis I. During his reign the value of the mark of gold increased 33 livres 4 sols. 2 dens., and that of silver 1 livre 10 sols. The main reduction took place at two periods, 1519 and 1540, and with a consequent change in the ratio slightly in favour of silver. The earliest find in America was gold, and at first this metal shows a tendency to depreciate. Concurrently silver, as the overvalued metal, commenced to disappear from circulation. It was to prevent this export that in 1519 the _écu au soleil_ was advanced to 40 sols., and again in 1532 to 45 sols.--an advance of 12-1/2 per cent. The silver _testoon_ was advanced at the same time from 10 sols. to 10 sols. 6 dens., an advance of 5 per cent. Even so equilibrium was not produced, and disorders in the currency continued, along with the prevalence of lower-rated coins. The town of Marseilles complained of it in a petition to the King (8th May 1539), and the important edict of Blois, 1540, which left the _écus au soleil_ untouched at 45 sols., while advancing the _testoon_ to 10 sols. 8 dens., was professedly and purposely issued "to more equalise the silver with the value of the gold, and consequently to make the value of our monies, both red and white, corresponding." Two years later the States-General when they met complained of the lack of currency, and demanded the opening of the Mint at Aix. The request was granted, but without visible result. The same process of advance, unequally maintained, continued under Henry II. and Charles IX. (see accompanying tables). [Illustration: TABLE OF THE MOVEMENT OF GOLD & SILVER IN FRANCE 1493-1662.] TABLE OF THE MOVEMENT OF GOLD AND SILVER IN FRANCE, 1500-1660. +----------+--------------------------+-----------------------------+ | |Price of the Mark of Gold.|Price of the Mark of Silver. | | Date. +---------+-------+--------+---------+---------+---------+ | | Livres. | Sols. | Dens. | Livres. | Sols. | Dens. | +----------+---------+-------+--------+---------+---------+---------+ | 1488 | 130 | 3 | 4 | 11 | 0 | 0 | | 1519 | 147 | 0 | 0 | 12 | 10 | 0 | | 1540 | 165 | 7 | 6 | 14 | 0 | 0 | | 1549 | 172 | 0 | 0 | 15 | 0 | 0 | | 1561 | 185 | 0 | 0 | 15 | 15 | 0 | | 1573 | 200 | 0 | 0 | 17 | 0 | 0 | | 1575 | 222 | 0 | 0 | 19 | 0 | 0 | | 1602 | 240 | 10 | 0 | 20 | 5 | 4 | | 1615 | 278 | 6 | 6 | ... | ... | ... | | 1636 | 320 | 0 | 0 | 23 | 10 | 0 | | 8th May | | | | | | | | 1636 | 384 | 0 | 0 | 25 | 0 | 0 | |22nd Sept.| | | | | | | | 1641 | ... | ... | ... | 26 | 10 | 0 | | 1662 | 423 | 10 | 11 | ... | ... | ... | +----------+---------+-------+--------+---------+---------+---------+ [Sidenote: FRANCE: THE MINT INQUIRY OF 1575] In the case of the latter monarch it is expressly stated that the change, which was effected in 1573, when the ratio was established at 11.77, had been preceded by a period during which "the people" had of themselves augmented the value of the _écu d'or_ to 54 sols. At this limit the Government was obliged to fix it, but by the year 1577 it had risen successively to 58, 60, and 65 sols. The evil, as it was thought to be, of the advance of the monies was attributed to the caprice and unscrupulousness of "the people," and the King called several councils of experts to discuss the matter. Still the process continued unabated, and on the 19th December 1575, Henry III. assembled the States-General. The _cour des monnaies_--the officials of the Mint--at once approached him with a petition. Their representation is of peculiar significance:-- "In spite of the bad police prevailing, we draw in times of peace twice as much silver from abroad as the foreigners draw from us. If the reform we advocate were adopted we should double this net gain.... Between us and the Netherlands and Germany, where we generally trade, there is this difference, that 6 _écus_, at the price at which they are exposed here, only come to 5 in the said places, which has induced a sudden and enormous dearness in the merchandise which we export from there, and besides has caused us a great disorder--to wit, that the merchants have transported all our _douzains_ and other billon money, to save themselves from the loss they would have had to incur in settling in _écus_ or in any foreign species of gold or silver on which, at the price they are current at by the caprice of the people, there would be a loss in settlement of 15, 20, and 25 per cent.... The cause of the enhancement of prices proceeds from the malice of several who turn into bullion the best of your coins in order to fill the kingdom with others of less goodness, enriching themselves thus with the blood and misery of the people.... [Sidenote: FRANCE: THE REFORM OF 1577] "The remedy is to lower the rate of the monies.... The _écus_ ought to come down to 50 sols., but for the present we would consent to it being put at 60, awaiting a further reduction. The currency of all foreign coins ought to be prohibited as the chief cause of these evils. For although by all your ordinances they have been valued according to the price of the _écu_, yet the people have always increased them more than they have your own monies, so that the _écu_ at this moment, to be in accordance, ought to pass for 78 sols. This arises from the craft of the foreigner, and the only exceptions of importance are the _reals_ and _pistoles_ of Spain, which are of known goodness and profit to the melter. They have never brought us harm, but, on the other hand, they are being melted down all over France, and at the present rate the foreigner gets a profit of about 7 livres on the mark of them, so that we advise prohibition of their circulation. Finally, we advise to do away with the old reckoning by livres and sols, and substitute for it the reckoning by écus." The States-General, adopting in part the weakest suggestion of this remarkable paper, fixed the écus at 65 sols. The Mint officials at once represented that this only increased the evil. Henry accordingly assembled at Pontoise a conference of experts, and as the outcome of their deliberations decided on the adoption of the chief recommendation of the Mint officials' representation. By his proclamation of 13th November 1577, the reckoning by livres was abolished and that of gold _écus_ substituted, values of under 1 écu or 60 sols. to be settled in divisional coinage, and circulation of all foreign coins prohibited, with the exception of Spanish and Portuguese gold ducats. It was forbidden to constrain payment of any sum above 100 sols. in billon money, and in sums below that amount to present more than the third of the total sum in such billon money. [Sidenote: FRANCE: FAILURE OF THE REFORM OF 1577] This extraordinary and, on the whole, admirably planned reformation merits so much detail because of the intense importance of its bearing. It in effect anticipated the reformation which was only accomplished in England in our own century. So far as it was actually put in practice it made France monometallic. The instinct of the time had found its way to a comprehension of the evil before it, and of the remedy. The evil was due to a badly-regulated, weltering, bimetallic system; the remedy was a monometallic system. It matters little that such terms were not in use and that the theory of the matter was not enunciated. The essential point was that the _fact_, the _situation_, was grasped in practice for a moment, dimly it may be, yet sufficiently to illustrate the whole antecedent and succeeding event. As a matter of fact the ordinance remained practically in great part a dead letter. That it did so--that it did not accomplish its purpose--has been attributed to the _malheur_, the unhappiness, of the time. It was due to no such thing. It was due to the simple fact that in the ordinance two quite distinct, and one of them impossible, reforms were projected. The attempt to tie down the _écu_ to 60 sols. was foredoomed to failure, and as the eye of contemporaries was fixed more entirely on prices rather than on method of tender, the most significant part of the ordinance passed out of mind; already by the time of the death of Henry III., "the people," it is again said, had increased the _écu_ to 64 sols. On the 30th March 1594 a proclamation was issued to call it down to the value prescribed by the celebrated declaration of 1577, i.e. 60 sols. but, finding it impossible, the whole system created by that declaration was abolished (September 1602); the reckoning by _écus_ was done away with, and the old system of reckoning by livres returned to; the gold _écu_ was tariffed at 65 sols., and the circulation of foreign monies was again permitted. Henry IV., in his proclamation abolishing the almost invulnerable system established by Henry III., attributes to the attempts at working that system "the present dearness of everything." It is almost impossible fully to represent the unwisdom of this counter-reformation. To the eye of the then legislator there was only one evil--the rising of prices. If levelly effected it was, as a matter of fact, no evil at all--far the reverse indeed, and he did not need to concern himself about it at all. Besides, it was irresistible. The evil that escaped his eye, or to which he was blind, was that unceasing process of flux which was caused by the different ratios prevailing in different parts of Europe. The scheme of Henry III. would have proved effective, where no other measure or scheme of the time was or could be, and its abrogation in 1602 by Henry IV. removed a bulwark and a barrier, and made way for catastrophe. Le Blanc considers that this repeal of the system established in 1577, itself failed of its purpose, _because the increase of prices still continued_. "In the seven years of peace which followed the ordinance of 1602, the depreciation of the gold _écu_ was as much as it had been in the preceding sixty-five years of war and trouble." The simple truth was, that it was much more likely to increase in time of peace and trade activity than in time of war. The point to notice was not at all how much the _écu_ did depreciate, but the relativity of such its depreciation with that of the standard currency of other countries, and the monetary disorder which the inequality of ratio and of rate of depreciation induced. Alarmed beyond measure at the evident failure of his plans, Henry IV. summoned monetary conferences of his wisest and best, and they were not even suspended by his assassination. The complaint again was, that the permission to circulate foreign monies had led to the transport of all the good coinage, to the ruin of commerce and great general disorder. Assemblies were held all over France in the trading towns, and the result of the advice of their delegates was the proclamation of 5th December 1614 (issued early in 1615). By this proclamation silver monies were left untouched, the tariff of the gold _écu_ was increased from 65 to 75 sols., and the value of the mark of gold proportionally increased. The ratio was thereby altered from 12.01 to 13.90. It is hardly too much to say that this step and alteration in the ratio saved France from the catastrophe which befell England and Germany in 1622 and 1623. The arrangement established in 1615 endured unaltered until 1636, when a slight reduction in the ratio was made to 13.61 (on the 8th May). Two months later it was found that so serious an export of good coinage was ensuing that "our kingdom would be entirely stripped of good currency, to our great damage, etc." A proclamation was accordingly issued (28th June 1636) attempting to regulate the course of exchange. The effort was vain, and on the following 22nd September the ratio was suddenly and violently altered to 15.36.[10] [Sidenote: FRANCE: THE REFORM OF 1640] A glance at the ratio prevalent in other countries will show how masterful was this act of France, but it carried with it the seeds of its own punishment. Such is the nature of the bimetallic law that any overshooting of the ratio, on no matter which side,--in favour of silver or in favour of gold,--establishes a differentiation, and the differentiation at once gives to the one metal a fulcrum or lever point--a purchasing power--against the other, and the undervalued metal, whichever it is, at once tends to disappear. Four years after this autocratic measure of France, it was found that her currency was in so depreciated a state, through exchange, that the only pieces current were lacking one-third of their full weight. The recoinage established by her proclamation of 31st March 1640, which established the new _louis d'or_, was intended as a complete and permanent remedy, and it may reasonably claim the praise of having effected so much. The alteration of the ratio established in 1640-41 by this recoinage (from 15.36 to 14.49) was only made after most serious deliberation. Monetary conferences of experts were held at Paris; and it was found, after careful assays of all the monies of the surrounding nations, that the prevailing ratios (1640-1) were at one and the same time-- Germany 12 : 1 Milan 12 : 1 Flanders and Netherlands 12.5 : 1 England 13.33 It was therefore decided to adopt a higher ratio than all these, viz. 13.5.[11] The history of the few years succeeding this measure is most instructive. The depreciation of monies continued, and on the 4th April 1652 a proclamation was issued, forbidding the currency of certain old monies of France, and again attempting to restrain the course of the exchanges; and three years later, 1655, under pretext that false moneyers were imitating the _louis d'or_ and the silver _écus_, the minting of _lis d'argent_ (lilies of gold and silver) was resolved upon. "But," says Le Blanc, "everybody knows that the true motive was the same as when a little later they resolved on the minting of 4-sol. pieces. Under the above pretext, the ratio basis of 1641 was broken. Remonstrances were vain until experience proved their weight, and the minting of the _lis d'or_ had to be discontinued. The pieces already minted received a value of 7 livres, and to correspond the _louis d'or_ was increased to 11 livres, by proclamation 15th March 1656." As silver was left untouched, the resulting alteration of the ratio was from 13-1/2 to 14-5/7. Florence. With the advance of Antwerp as the centre of European exchanges in the fifteenth century, the mercantile pre-eminence of Florence and Venice decayed, and their monetary history loses its former prime importance. But they by no means thereby lose their interest for us. Instead of profiting as of yore by every veer in the winds of exchanges, they are at the mercy of them, as was every other country outside the charmed circle of the Netherlands. The influence of the changed conditions in the production of the precious metals, due to the discovery of America, does not show itself in Florence before 1531, when (4th August) the price was by law advanced. Three years later, 5th March 1534, it was found that the state was receiving damage from the foreign monies circulating, and that the only native coin circulating was in a worn and depreciated state. A recoinage was accordingly ordered, circulation of all foreign monies of silver was forbidden, and all payments and contracts were commanded to be made in gold _scudi_ of the state. In order to inform the commercial element, the Mint masters were further ordered to make trial every fifteen days of the value of any foreign _scudi_, and to publish the result. There is a wonderful simplicity about this enactment. In order to defend themselves from a flood of cheap and cheapening silver, the Florentine authorities adopted a virtual gold monometallism. That the enactment was not permanently regarded and kept can only be attributed to the strength of commercial custom, and to a true perception in the mercantile community at large of the essential difficulty of the problem and its remedy. The Florentines were simply obliged to circulate all coins, gold as well as silver, because such was the universal custom of mediæval Europe. By 1552 silver foreign monies were again current in Florence, in such quantities and with such effects on the native gold currency, that they had to be again prohibited and banished (by law of 18th May 1552); renewed three years later (28th February 1555), and again in 1557 (29th April). Indeed, within the period here treated of, up to, i.e., 1660, there is a series of thirteen or fourteen separate re-enactments of the prohibition relating to these monies and the depreciated Florentine billon money ("_quattrini neri_"). If, during this period, Florence had occupied the commanding position that Antwerp did, quite unique interest would attach to the record of this monetary policy or experiment. But not being in that position, and being, too, quite apparently unable to enforce her own enactments in her own territory, even this merely depressive policy was partially broken down. In so far as it was broken down she lay at the mercy of the monetary changes around her, and of the Netherland financiers, as did every other country of Europe. By the law of 5th April 1630, all species of foreign ducatoons were prohibited, "in consideration that, within the short time they have been introduced, so great a quantity, and of such differing standards, has been imported from the various foreign Mints." Five years later the gold coin was in so depreciated a state as to call for legislative interference (9th February 1635, renewed on 5th February 1645); and again in 1661 (3rd February) it was found necessary to prohibit the circulation of the silver _reals_ of Peru and every other kind of Spanish silver, except at bullion value. These are only a few from a long list of similar enactments, but they serve adequately to show the trend of events on small as well as large fields of operations. What an amount of commercial disturbance and disaster lies behind the dry details of these legal enactments, the case of England will serve to show. Germany. The monetary history of Germany is one of extreme confusion and intricacy. The lack of coercive power in the central authority--in the Emperor himself--was as conspicuously displayed in the monetary ordinances of the empire as in the political sphere. The imperial edicts were disregarded, and each separate circle of the empire, or each separate prince or union of princes, left to shift or act for themselves. Amid all the confusion of such a disorganised and reeling system sufficient is perceptible to indicate the broad tendency of events, and to show how closely analogous was her experience to that of Europe generally within the same period. In Germany, as in the Netherlands, France, and England, the influence of the discovery of America only begins to express itself about 1520, and in the usual way--influx, movements and disorders in the currency and ratio, and general complaints. In 1520 a monetary convention was summoned to meet at Forchheim. This was followed by the debate in the Reichstag at Nürnberg (1522), where great complaints were made of the unusable, false, and depreciated coinage, "due to the stealing away and exchanging abroad of the gold _gulden_ and silver coins." It was in consequence of the representations of this Reichstag that the first of the series of three imperial Mint ordinances was issued by Charles V. (at Esslingen, 1524). The main details of this ordinance will be found in the accompanying tables and in Appendix V. The effect of the first imperial ordinance was to change the ratio from something between 10 and 11 to 11.38. The _gulden_ was raised from 17s. 4 pf. to 17s. 6 pf. All foreign gold was to be taken at equivalent rates, and whoever gave more for foreign coins of gold was to suffer a heavy penalty. Further, the export of gold and silver was forbidden, on pain of life and goods. The ordinance remained a dead letter, and the monetary disorder of the country only increased. THE MOVEMENT OF SILVER IN GERMANY, 1459-1621, ILLUSTRATED BY THE MOVEMENT OF THE SILVER GROSCHEN, ACCORDING TO IMPERIAL AND OTHER MINT REGULATIONS. (_See preceding Table on p. 30._) +------+---------+------------+---------------------+-----------------------+ |Date. | Cologne | | Equivalent Value | | | | Mark | Alloy. | in Convention | Treaty | | | coined | | Money. | or | | | into +------------+-----------+---------+ Ordinance. | | | Pieces. |Loths. |Grs.| Krtzrs. | Pfnge. | | +------+---------+-------+----+-----------+---------+-----------------------+ | 1501 | 126 | 6 | 1 | 3 | 2-37/42 |Treaty of Dukes Henry | | | | | | | | and Erick of Brunswick| | | | | | | | and Bishop Barthold | | | | | | | | of Hildesheim, with | | | | | | | | the States of | | | | | | | | Brunswick, Hildesheim,| | | | | | | | Hanover, Lübeck, | | | | | | | | and Göttingen. | | 1510 | 160 | 6 | 0 | 2 | 3-1/4 |Göttingen. | | 1524 | 136 | 12 | 0 | 6 | 2-8/17 |First imperial Mint | | | | | | 3 | 1-4/17 | edict of Charles V. | | | | | |(1/2 Groat)| | at Esslingen. | | 1533 | 123 | 7 | 0 | 4 | 1-3/4 |Augsburg Mint edict. | | 1535 |91-47/131| 8 | 0 | 6 |2-101/874|Mint treaty between | | | | | | | | Ferdinand and the | | | | | | | | Counts Palatine of | | | | | | | | the Rhine and the | | | | | | | | States of Augsburg | | | | | | | | and Ulm. | | 1551 | 94-1/2 | 7 | 5 | 5 |3-59/567 |Second imperial Mint | | | 100 | 7 | 6 | 5 | 2 | edict of Charles V. | | | | | | | | at Augsburg. (Remained| | | | | | | | inoperative like that | | | | | | | | of 1524, _supra_.) | | 1558 | 88 | 6 | 9 | 5 | 2-7/44 |Saxony Mint ordinances.| | 1559 | 108-1/2 | 8 | 0 | 5 |2-26/217 |Mint ordinance of | | | | | | | | Ferdinand I. | | 1572 | " | " | 0 | " | " |Edict of the Lower | | | | | | | | Saxony Circle. | | 1610 | 234 | 14 | 4 | 4 |2-82/351 |Edict of the Lower | | | | | | | | Saxony Circle. | | 1617 | 144 | 8 | 0 | 4 | 0-2/3 |Edict of the Lower | | | | | | | | Saxony Circle. | | 1622 | 108-1/2 | 8 | 0 | 5 |2-26/217 |Edict of the Upper | | | | | | | | and Lower Saxony | | | | | | | | Circle. | +------+---------+-------+----+-----------+---------+-----------------------+ THE MOVEMENT OF GOLD IN GERMANY, 1495-1621, ILLUSTRATED BY THE MOVEMENT OF THE GOLD GULDEN (RHENISCHE GULDEN), ACCORDING TO IMPERIAL AND OTHER MINT REGULATIONS. (_See preceding Table on p. 31._) +-----+-------+---------------+-------------------------+---------------+ | |Cologne| | Equivalent Value | | | | Mark | Alloy. | in Convention Money. | Treaty | |Date.|coined +-----+---------+------+------+-----------+ or Ordinance. | | | into | 24 | 12 | | | | | | |Pieces.|Crts.|Grains. |Flrns.|Krtzs.| Pfnge. | | +-----+-------+-----+---------+------+------+-----------+---------------+ |1506 |71-1/3 | 18 |6 gold | 3 | 6 |0-132/7597 |Treaty between | | | | 3 |6 silver | | | | Bamberg, | | | | | | | | | Würzburg, and | | | | | | | | | Brandenburg. | |1509 |71-1/3 | 18 |6 gold | 3 | 6 |1-3185/7597|Frankfort Mint | | | | 4 |0 silver | | | | ordinance. | |1524 | 89 | 22 | ... | 2 | 54 |3-5019/6369|Imperial Mint | | | | | | | | | edict of | | | | | | | | | Charles V. at | | | | | | | | | Esslingen. | |1551 |71-1/3 | 18 |6 gold | 3 | 6 |0-3682/7597|Imperial Mint | | | | 3 |8 silver | | | | edict of | | | | | | | | | of Charles V. | | | | | | | | | at Augsburg. | |1559 | 72 | 18 |6 gold | 3 | 4 |1-2267/3834|Imperial Mint | | | | 3 |8 silver | | | | ordinance of | | | | | | | | | Ferdinand I. | +-----+-------+-----+---------+------+------+-----------+---------------+ [Sidenote: GERMANY: THE THREE IMPERIAL EDICTS] In 1530 the Reichstag of Augsburg demanded the holding of a council, in order to enforce the late edict, and for a due consideration of the monetary situation. Several attempts were made with this object, but fruitlessly, and the princes of the empire fell back on the only feasible but fatal plan of smaller Mint conventions between contiguous states. There is an endless series of these, and they render the history of German currency a perfect jungle of intricacies. Nine years later (1539), a monetary convention was summoned to meet at Augsburg by Ferdinand, heir to the empire. It proved fruitless. Again, in 1548, after the expiry of a similar period, the Reichstag at Augsburg declared for another monetary convention to relieve the disorder. The opinions of certain deputies to this convention, which met on the 8th October 1550, were as follows: "For fifty or even eighty years and more the ratio between gold and silver has been between 12 and 13. But in a gulden of those days there was an equivalence of more silver than in seventy-six of our kreutzers. Since then we apprise the Rhenish gold gulden and kreutzers less than foreign nations. Therefore France and England seek them."[12] A thorough inquest into the subject, or evaluation, was therefore ordered, and it was in accordance with the advice of the convention and with the report of the evaluation that the second imperial Mint edict was issued at Augsburg, 1551. This edict was drawn up on a ratio of 10.83 as a basis, and, as might be reasonably expected from the different ratios ruling abroad at the time, it proved as inoperative as its predecessor. The succeeding ten years witnessed a rise in the relative value of gold, or depreciation in that of silver, and the third and last of these imperial Mint edicts, that of the Emperor Ferdinand, issued at Augsburg, 19th August 1559, fixed a higher ratio, viz. 11.44. The Rhenish _gulden_ was raised from 72 to 75 kreutzers. The increasing production of silver indicated by this change is still more clearly marked in the resumption of the coining of the imperial thalers, at the instigation of the Reichstag at Augsburg, 30th May 1566. The advice of this Reichstag was the outcome of the monetary convention held at Nördlingen two years earlier, at which strong complaints were appointed to be made before the Reichstag of the weak state of the coin, and of its under-valuation. In matter of fact, the Mint edict of 1559 remained a dead letter; nominally, however, it continued in force up to 1600, although no less than seven attempts were made at succeeding diets, from 1566 to 1596, to enforce it and bring it up to date. In the Reichstag of Speyer, 1570, complaints were made of the universal loss arising from the non-observance of the edict. In place of an imperial coinage, nothing circulated but foreign and counterfeit coins, and the necessaries of life had risen to a prohibitive height. Similar were the complaints at the succeeding diets at Frankfort, 1571, and at Regensburg, 12th October 1576, at which last Ferdinand's edict was again re-enacted, with a command that the Burgundian circle and the Swiss should conform themselves to it. Bitter complaints were made of the bad state of the gold and silver coinage, and of the enrichment of the exchangers on the Rhine. The circulation of Dutch and Swiss thalers was forbidden because of the loss by exchange, and the export of all gold and silver again forbidden. As an instance of the depreciation prevalent in the coinage, it was noted that the silver _albus_ had lost one-third of its weight, so that thirty-six were needed to purchase one gold gulden, whereas formerly twenty-six were equivalent. [Sidenote: GERMANY: DISORDERS OF 1580] Four years later, 1580, Ferdinand, as Archduke of Austria, issued a fresh tariff, with the object of checking exports, and in 1582 the states, having consulted as to the condition of the coinage, strongly advised a renewal of the prohibition of the export of coin, especially by the Italians. This advice was adopted in the Reichstag of Augsburg, which met seventeen days later, 20th September 1582. The preamble of the Act then and there passed speaks of the export of a good portion of the native currency, and of the unmeasured rise of prices, coupled with the circulation of forbidden foreign specie, large and small. This resolution of the Reichstag was followed by the enacting of the Mint edict of 10th December 1582. It proved as futile as any of the others; and two years later, July 1584, the deputies of the three circles of Franconia, Swabia, and Bavaria complained that within the four years immediately preceding several millions had left the country by way of the Rhine provinces for the Netherlands, very little going to Italy by comparison. On this representation another useless edict was issued by the Emperor Rudolph II., and in the following year the merchants at Frankfort Fair found themselves obliged to agree upon a tariff of _ducats_ and _Reichs-thalers_. The _Philipps-thaler_ was put at eighty-two kreutzers, and the _Reichs-thaler_, which, by the Imperial Mint edict still nominally in force, should have been at sixty-eight kreutzers, was put at seventy-four. This arrangement of the merchants established a ratio between gold and silver of 11.4. Certain of these same merchants, examined as to their opinion of the method of the export in January 1586, explained that it went by way of Nürnberg, and that the arbitrage was attended with 9 or 10 per cent. profit. [Sidenote: GERMANY: THE KIPPER UND WIPPER ZEIT] Nominally, however--or in theory--the arrangement of 1559 continued the unenforced law of the land up to 1600, underneath all these attempts at revision and underneath the different regulations of the various monetary unions of contiguous circles or states. With the latter date commences that extraordinary movement of monetary depreciation and panic which is known as the "_Kipper und Wipper_" period. In great part the extraordinary acuteness of the panic which ensued was due to internal monetary confusion of Germany, but that internal confusion simply ministered to the export of all good specie and metal, and in the end it became simply a money corner. The movement began by a coining of the lower denominations of monies on a different and depreciated footing or basis. The _specie_ thaler began to part company from the current thaler, and to rise to more than the 24 silver groschen or 36 Marien groschen, to which by the Mint edict of 1559 it was declared equivalent. By 1618 it had risen to 1 thaler 6 silver groschen (= 48 Marien groschen), by 1620 to 2 current thaler, by 1621 to between 7 and 8 current thaler, while the ducat had risen to 13 florins 30 kreutzers. Tabularly the statement of the movement of the _Reichs-thaler_ is this:-- +--------------+--------+---------++--------------+--------+---------+ | Date. | Florin.| Krtzers.|| Date. | Florin.| Krtzers.| +--------------+--------+---------++--------------+--------+---------+ | 1582 | 1 | 8 || 1621 Jan. | 2 | 20 | | 1587 | 1 | 9 || Feb. | 2 | 24 | | 1590 | 1 | 10 || March | 2 | 30 | | 1594 | 1 | 11 || April | 2 | 36 | | 1596 | 1 | 12 || May 25 | 2 | 48 | | 1603 | 1 | 14 || May 31 | 3 | 15 | | 1604 | 1 | 14 || June | 3 | 6 | | 1605 | 1 | 15 || July | 3 | 15 | | 1607 | 1 | 16 || Aug. | 4 | 0 | | 1608 | 1 | 20 || Aug. 10 | 3 | 15[A] | | 1609 June 15 | 1 | 22 || Sept. | 4 | 30[A] | | July 7 | | || Oct. | 5 | 0[A] | | Dec. 19 | 1 | 24 || Nov. | 5 | 30[A] | | 1610 | 1 | 24 || Dec. | 6 | 30[A] | | 1613 Sept. | 1 | 26 || Dec. 20 | 3 | 15 | | 1614 Aug. | 1 | 28 || 1622 Jan. 18 | 7 | 30[B] | | 1615 March | 1 | 28 || Jan. 27 | 4 | 30 | | Nov. 1 | 1 | 24 || Feb. 10 | 10 | 0[C] | | Nov. 17 | 1 | 30 || Mar. | 10 | 0[C] | | 1616 | 1 | 30 || Mar. 12 | 6 | 0 | | 1617 | 1 | 30 || June 16 | 3 | 15[A] | | 1618 | 1 | 32 || Oct. | 5 | 0[B] | | 1619 Oct. | 1 | 48 || Nov. | 6 | 0[B] | | Dec. | 2 | 4 || 1623 April | 1 | 30 | | 1620 June | 2 | 8 || And at this last figure | | Nov. 9 | 2 | 20 || standing up to 1669. | +--------------+--------+---------++--------------+--------+---------+ [Footnote A: Nürnberg.] [Footnote B: Augsburg.] [Footnote C: Vienna.] The course of the _gold gulden_ which could be given is exactly parallel. This table speaks volumes. It marks the acuteness of the monetary panic and crisis of 1621-22--the central time of the commercial ruin induced by the disorder of the _Kipper und Wipper Zeit_. The pamphleteer and polemic literature of this crisis is as rich and instructive as any which has accompanied the bimetallic agitation and silver question of our later days. At Hamburg the _thaler_, which had gradually risen from an equivalence of 24 schillingen to 33 schillingen in 1609, had a correspondingly excited course during these years. +-----------+------------+----------++-----------+------------+---------+ | |Schillingen.|Pfennige. || |Schillingen.|Pfennige.| +-----------+------------+----------++-----------+------------+---------+ |Oct. 1609 | 36 | 0 ||July 1618 | 42 | 6 | | 1610-13 | 37 | 0 ||Sept. | 43 | 0 | |Dec. 1614 | 37 | 6 ||Nov. | 44 | 0 | |Aug. 1615 | 38 | 9 ||Sept. 1619 | 46 | 6 | |Jan. 1616 | 40 | 0 ||Oct. | 48 | 0 | |Aug. | 41 | 0 ||Aug. 1620 | 52 | 0 | |April 1617 | 40 | 6 ||Feb. 1621 | 53 | 0 | |Aug. | 41 | 0 ||Mar. | 54 | 6 | |Sept. | 41 | 6 ||May | 54 | 0 | |Nov. | 42 | 0 ||May 1622 | 48 | 0 | +-----------+------------+----------++-----------+------------+---------+ It was in anticipation of the approaching disorder that on the 3rd of March 1609 a Mint treaty had been made between Mecklenburg, Schleswig-Holstein, Lübeck, and Hamburg, "for protection against the Mint disorder, which is most disastrous to land and people, and to take precaution against the advance of the larger silver specie." Seven years later, on the 10th January 1616, the merchants and financiers of Hamburg drew up a petition complaining that, through the monetary disorder, trade and exchange was being driven from the city, as within a short period the exchange with Frankfort had fallen from 74 kreutzer (=32 schillingen Lübeck) to 62 kreutzer (=32 schillingen Lübeck), and the exchange with Amsterdam from 46 stivers (=32 schillingen Lübeck) to 39 stivers. To the Senate's proposal for the erection of an exchange bank, the merchants would, however, have nothing to say, considering it unnecessary and dangerous, and called for the suppression of the notes which the merchants had brought into use to facilitate their settlements. Three years later, however, the Senate declared more strongly for the establishment of a bank, premising in the preamble of their resolution that "it is many ways known and plain how disastrous a disorder has hitherto been in the currency, both from the rise of the larger silver species and from the excessive importation of smaller depreciated specie, whereby not only private individuals but also common interests, as churches, hospitals, widows, and orphans are greatly pinched in their incomes." [Sidenote: GERMANY: HAMBURG IN 1619] It was as the outcome of this resolution that the celebrated Hamburg bank was instituted in 1619, the later life of which was to become of so much importance for the monetary and commercial history of North Germany. The curious point to observe is the short time--a few months merely--by which the crisis in Germany preceded that in England, and the analogy of some of the manifestations, although there were no such Mint and coinage disorders in England as had aggravated and in the first place partly induced the movement in Germany. In 1623 a great Mint deputation from all the circles was held, and in accordance with its representations the new imperial basis was established, which remained in force until the conclusion of the period of which we here treat. By that basis the mark of silver was coined into 9 _Reichs thalers_ 2 _groschen_. The _thaler_ was fixed at 90 kreutzers, the gold _gulden_ at 1 florin 44 kreutzers, and the _ducat_ at 2 florins 20 kreutzers. This disposition remained the Mint law over all the weary, disastrous period of the Thirty Years' War, which is practically a blank for the monetary history of Germany. It is not until 1665--the opening of a fresh period--that complaints of the state of the lower denominations of the coinage are again heard. But how far this quiescence is to be attributed to the economic wisdom of the settlement of 1623, or to the mute, dumb, inarticulate agony of Germany during that strife when her commerce, much more even than her national life, was suspended, is hidden from us in almost complete darkness. [Sidenote: SPAIN: FUNCTION IN SEVENTEENTH CENTURY] Spain. During the sixteenth and seventeenth centuries the function of Spain was a very simple one in the European system. She was the receiver and distributor of the metallic wealth and finds of the New World, and accomplished her task perfectly naturally and efficiently. But it was at the cost of her political and commercial future and greatness. If Spain had been a commercially independent nation, growing for herself and supplying herself with her own manufactures, the metallic wealth of the New World would have stayed much longer in her lap, and Europe would have starved. But she was not. She produced little, and manufactured less, and the ill-gotten, blood-stained gain, which flowed to her shores from America, served only to feed an impractical vanity and to further unfit the nation for manufacturing and commercial life. The, to her, disastrous influence of Spain's shortlived empire endure to-day, for she is still as unfitted as ever by temperament and natural training for mercantile life. Such is the penalty her dower of New World gold and silver brought her. Finding she could purchase anything and everything with this gold and silver, she threw herself into her work of conquest, and let commerce go. Her manufactures came to her from England and the Netherlands--countries she sought to conquer and enslave; and thither her gold went in exchange, and before the century was out those countries had risen exulting over her. But the point to notice is this. Assuming this distributing function as her own and proper one, the only condition essential to its proper fulfilment was the maintaining of an absolutely unimpeachable coinage. The rapidity with which the precious metals left her possession was simply due to the fact that Spain did so maintain her coinage and for a sufficiently lengthened period. The goodness of her coins exalted them above the prevailing rates in France and the Netherlands, and they were eagerly sought in consequence. The monies that did not, and could not, normally leave her possession by ordinary way of trade left her by means of arbitrages working on the system of bimetallism, which existed unacknowledged.[13] It was this commanding quality of the Spanish coins that led to the adoption of their system by France in 1641. That in the case of Spain we hear no complaints of depletion of coinage and commercial disturbance resulting therefrom, such as mark the history of the other countries of Europe, is simply due to the fact that her stock of metals was continually being replenished, and that she had no commerce to be disturbed. The gold and silver of America came to her in a steady stream and left her for the Netherlands and elsewhere in a stream as steady; and so long as that flow was turned through her dominion, so long as the main sources of precious metal-mining were American, and the product a monopoly-possession of Spain, she stood above, and felt no immediate harm from, the bimetallic law which insatiably sucked away her wealth. Until the time came, therefore, when she lost her monopolist position in this matter the monetary history of Spain is free from those features of disturbance, commercial agitation, monetary conferences and edicts, which are common to the rest of Europe, and consist merely of a record of Mint ordinances regulating the fineness of her coins and slowly adjusting them to the general movements of the century. Only in the case of the first of these--the edict of Juan and Don Carlos, 1537, by which the standard of _coronas_ and _escudos_ was fixed at 22 quilates, "which is the standard of the greater escudos of France and Italy"--has the enactment any comparative or international bearing. For sixty-one years after the settlement of 1497 there had been no alteration of the monetary system. In 1523 the Cortes of Valladolid had petitioned the King, Charles I., to lower the standard and content of the gold coin, "so that in weight and value they may pass equal with the _crowns of the sun_ which are made in France, so that by these means they will no longer draw our gold from the kingdom." In its ignorance this Cortes also demanded that the silver monies should be reduced and issued on a relatively depreciated footing. It was a matter of thirteen years before Charles yielded and adopted the measure suggested, in the edict of 1537, already referred to, and it may be safely said that by the time of its adoption the need for the measure had passed away. Any disturbance and loss of her stock of precious metals caused by the general movement which marks itself in European history about 1519-20, and which shows itself in Spain in the petition of the Cortes of 1523, was quickly redressed by the inrush of metals from America. Finding gold and silver come to her easily, Spain cared little how they went. After the edict of 1537 there is only one complaint of the export of coin recorded in the legislative enactments of the country, viz. in 1552, when it was decided to alter the alloy of the billon money in order to avoid its exportation, "as we are given to understand that its intrinsic value is greater in other countries than here." [Sidenote: SPAIN: PASSIVE ATTITUDE] The Mint edicts of Spain during the years 1500-1660 simply follow in the wake of the general movements of prices in Europe generally. The authorities were perfectly passive to the export of the precious metals, and no attempt was made to manipulate the ratio in such a way as to arrest the outflow. The conduct of Philip II., in 1566, in still further raising the denomination of the gold coins by one-seventh has the same passive aspect, although it has been attributed to a mere base desire on the part of Philip to fill his depleted treasury by a partial debasement. A comparison of the movements of metals and prices in France and Spain will show that the advance was only normal and general, and the further changes which were made in 1609 and 1612 have this same normal character, and call for no comment. At the points enumerated it is quite evident that Spain merely and mechanically followed the general trend of the precious metals and prices through the century. There is no expression of aggrievement, either slight or acute, at the precious metals leaving her. While every other country was occupied seriously, sometimes desperately, with the question of how to guard their stocks of them, the eyes of the Spanish Government and the nation's mind were fixed only on conquest and imperial growth. The cost of her empire was such that at the accession of Philip III., 1598, the national debt was over a hundred million ducats, an absolutely unparalleled sum for the time. When, therefore, the Spanish Government began the enormous issues of base billon money which mark the reign of Philip IV., it is to be looked upon as a financial, or treasury, or budget expedient, and totally unconnected with any currency movement, pure and simple. These issues were so great that, in 1625, the premium on gold and silver, as compared with billon monies, was fixed at 10 per cent.; in 1636, at 25 and 28 per cent.; and, in September 1641, at 50 per cent. (See account of Spanish monies, Appendix III.) Such base monies always tend to become the only _visible_ currency of a land. But, save as thereby facilitating the denudation of Spain's store of precious metals, this matter of the depreciation of her billon money has practically little or no relation to the general movements of the two precious metals which we are investigating. It has more resemblance to an over-issued and depreciated paper currency. Of that ebb and flow, that oscillation and instability in the metals, which make the study of the other currency histories of Europe during this period so instructive an object-lesson of the effect and influence of a bimetallic law and system, Spain shows not a trace. She received the metals in a steady stream, and emitted them in a steady stream. They poured _through_ her. Her function was that of distributor, and she performed it. When the time came that her monopoly of the metals ceased, her remedy against the ruin of a bimetallic law was removed, and she became as signal an instance of its malignant operation as any--France, England, or Germany. Until that time came she had her remedy against immediate ruin in her yearly argosy, with its blood- and toil-stained tribute. England. To come to England. The following tables give a succinct synopsis of the general course of her gold and silver coinage during this period:-- [Sidenote: ENGLAND, 1500-1660] TABLE OF ENGLISH SILVER COINS, 1500-1660. +------+--------------+------------++------+--------------+------------+ |Date. |Denomination. | Weight in ||Date. |Denomination. | Weight in | | | |Troy Grains.|| | |Troy Grains.| +------+--------------+------------++------+--------------+------------+ | 1504 | Penny, | 12 || 1552 | Penny, | 8 | | | Groat, | 48 || | Shilling, | 96 | | | Shilling, | 144 || | | | | | | || 1553 | Penny, | 8 | | 1527 | Penny, | 10-1/2 || | Groat, | 32 | | | Groat, | 42-1/2 || | Shilling, | 96 | | | | || | | | | 1543 | Penny, | 10 || 1560 | Penny, | 8 | | | Groat, | 40 || | Groat, | 32 | | | Shilling, | 120 || | | | | | | || 1601 | Penny, | 7-3/4 | | 1549 | Shilling, | 80 || | Shilling, | 92-3/4 | +------+--------------+------------++------+--------------+------------+ TABLE OF THE ENGLISH GOLD COINS, 1500-1660. +----------------------+--------------+---------+---------------+---------+ | |Denomination. |Weight | Fineness. | | | Date. | |in Troy +-------+-------+ Equiv- | | | |Grains. |Carats.|Grains.| alents. | +----------------------+--------------+---------+-------+-------+---------+ |Henry VII., 1489 |Sovereign, | 240 | 23 | 3-1/2 |£1 0 0 | | | | | | | | |Henry VIII., 1527 |Rose Nobel | 120 | 23 | 3-1/2 | 0 11 3 | | |or Rial, | | | | | | |Sovereign, | 240 | 23 | 3-1/2 | 1 2 6 | | 1544 |Angel, | 80 | 22 | 0 | 0 8 0 | | |Crown, | 57-21/67| 22 | 0 | 0 5 0 | | |Pound, | 200 | 22 | 0 | 1 0 0 | | 1545 |Crown, | 48 | 20 | 0 | 0 5 0 | | |Pound, |192 | 20 | 0 | 1 0 0 | | | | | | | | |Edward VI., 1549 |Pound, |169-7/17 | 20 | 0 | 1 0 0 | | 1550 |Angel, | 80 | 23 | 3-1/2 | 0 8 0 | | |Sovereign, |240 | 23 | 3-1/2 | 1 4 0 | | 1551 |Pound, |178-8/11 | 22 | 0 | 1 0 0 | | | | | | | | |Mary, 1553 |Angel, | 80 | 23 | 3-1/2 | 0 6 8 | | | | | | | | |Elizabeth, 1558 |Angel, | 80 | 23 | 3-1/2 | 0 10 0 | | |Sovereign, |240 | 23 | 3-1/2 | 1 10 0 | | |Pound, |174-8/11 | 22 | 0 | 1 0 0 | | 1601 |Angel, | 78-66/73| 22 | 0 | 0 10 0 | | |Pound, |171-61/67| 22 | 0 | 1 0 0 | | | | | | | | |James I., 1603 |Pound, |171-61/67| 22 | 0 | 1 10 0 | | 1604 |Unit and its |154-2/3 | 22 | 0 | 1 0 0 | | |fractions, | | | | | | |the Double | | | | | | |Cr., Brit- | | | | | | |ish Crown, | | | | | | |and Thistle | | | | | | |Crown, | | | | | | 1605 |Angel, | 71-1/9 | 23 | 3-1/2 | 0 10 0 | | 1610 |Angel, | 71-1/9 | 23 | 3-1/2 | 0 11 0 | | | | | | | | |Gold raised 10 p. ct. |Unit, |154-26/31| 22 | 0 | 1 2 0 | | 1619 |Angel, | 64-11/15| 23 | 3-1/2 | 0 11 0 | | | | | | | | |Charles I. 1625 |Angel, | 64-11/15| 23 | 3-1/2 | 0 10 0 | | |Unit, |140-20/41| 22 | 0 | 1 0 0 | +----------------------+--------------+---------+-------+-------+---------+ TABLE OF THE VALUE IN PENCE OF THE GRAIN OF GOLD (23 c. 3-1/2 gr. Fine) IN THE VARIOUS GOLD COINAGES OF ENGLAND, 1500-1660. +-------------------+--------++------------------+--------+ | | Pence || | Pence | | Date. | per || Date. | per | | | Grain. || | Grain. | +-------------------+--------++------------------+--------+ | 1527 | 1.125 || 1601 | 1.626 | | 1544 (22 carats) | 1.281 || 1603 (22 carats) | 2.236 | | 1545 (20 carats) | 1.470 || 1604 | 1.655 | | 1549 (22 carats) | 1.518 || 1605 | 1.27 | | 1550 | 1.2 || 1610 | 1.856 | | 1551 (22 carats) | 1.425 || 1619 | 2.052 | | 1553 | 1.0 || 1625 | 1.851 | | 1558 | 1.5 || 1625 (22 carats) | 1.838 | | 1558 (22 carats) | 1.425 || | | +-------------------+--------++------------------+--------+ [Illustration: TABLE OF THE MOVEMENT OF GOLD & SILVER IN ENGLAND 1500-1680] The testimony of these tables is perfectly general. They establish, roughly speaking, just such an advance of price as befell the whole of Europe. They do not witness the oscillation in the coinage, and the commercial disaster due to the action of bimetallic law. For the evidence of this latter, however, there is ample store of material in the State papers of England throughout the period. The moment prices began to rise on the Continent good English gold tended to disappear and flow away, being replaced by continental coins of lower contents (or higher denomination). The stress of this practical diminution of the currency was made all the greater by the simple fact that the increasing trade which accompanied such rise of prices demanded an expanding rather than a contracting currency. [Sidenote: WOLSEY'S ADMINISTRATION OF THE MINT] The very year, therefore, 1519, which marks the commencement of the rise for the Continent generally, marks the commencement also of agitation in England with regard to the supply of the precious metals. There is preserved among the State papers at the English Record Office a paper of advice from a German of the name of Herman King to Wolsey, dating in June 1519, "How to provide bullion from Germany for this realm with the greatest profit." He advises contracting for a fixed supply of metal at a certain price, which he puts down, and adds: "If Wolsey will appoint a person to receive the money, I will engage to deliver 2000 or 4000 marks weight yearly at this price, but it must be secretly, as, if the purveyor were discovered, he would be in great danger, and the (German) princes would not suffer any silver to depart because of their own Mints." Four years later the effects of the exchange had made themselves so felt that Henry was obliged to make a treaty with the Emperor, Charles V., "for the reformation of old and new money," 1523. An attempt was made to tie down the chief coins in exchange--the gold _real_ of Flanders, the gold _carolus_ and the _double carolus_ of Spain--and it was further agreed (Article IV.) that no new money of Germany, Italy, Spain, France, or elsewhere, should be given in payment to English merchants, unless it had a fixed value in sterling money by consent of both princes. In December of the following year Wolsey was meditating sending commissioners to the Low Countries to require that all monies valued too high should be reduced to their normal rate, but he was informed by Knight, resident at Mechlyn, that, "having spoken with several who hear daily the council's opinion, they think it is not likely to be done while the war continues, as the chief merchandise now is finances; and, besides, as their 'goldes' are highly esteemed in France, if they lower them they will all be carried thither." Any such method of procedure as this of Wolsey's was bound to be futile, and Henry's Government fell back on the much wiser plan of altering the denomination of the coins. On the 24th July 1526, a commission was issued to Wolsey "for increasing the sterling value of the coinage to an equality with the rates of foreign currency." The reciting information contained in the commission itself is perfectly succinct and clear in its bearing--"one pound weight of angel gold (i.e. 23 carats 3-1/2 grs. fine) is worth, in current money, £27; by alloy of 1/11 it is worth £29, 6s., of which 11s. is allowed the Mint master for coining. In return he gives the merchants 108 crowns of the rose, at 5s., really worth but 4s. 10-1/2d., which makes £26, 6s. 8d. So that there is a clear gain of 48s. 4d." The investigations of the commission were followed by a proclamation on the 22nd August 1526, fixing an altered tariff of exchange. _Crowns of the sun_ were put at 4s. 6d., which only four years before had been at 4s. 4d., while the _ducat_ was raised from 4s. 6d. to 4s. 8d. Finding the enhancing of the gold and the export of specie still continue, an inquest was held, on the 30th October 1526, into the fineness and value of the coins. As a result of the verdict of the jury, a second proclamation was issued in the same year, dated November 5th, "to check the exportation of specie arising from the increased value of currency on the Continent." The sovereign was put at 22s. 6d. (having previously been rated at 20s. 6d.), and other gold coins in proportion. Silver coinage was to pass at previous rates, but a new issue was to be made, in which the ounce Troy was to be coined into 3s. 9d. Finally, foreign _ducats_ were to be taken as bullion, no rate of exchange being even fixed. At the same time Wolsey was attempting to negotiate for a supply of gold from Antwerp to replenish the currency. On this subject there exists a curious letter from his agent in Antwerp, dated 21st November 1526. "These two days," says Hacket, "I have been trying to agree with the principal merchants about the exchange, but none would make any bargain, as you (Wolsey) have limited me to 4s. 6d. for the _ducat_, and as a ducat of such gold as they would be bound to pay would be worth 4s. 10d. in the Mint. They must receive either _ducats_, or a _crown of the sun_ and a _groat_, for every ducat, or the same in _angellets_. The best thing would be for one or two of their factors to see you (Wolsey). The gold can be kept at home for 2 or 3 more per cent., for they would be glad to give that to take it out of the realm." The new coinage of 1527 was in complete accordance with the proclamation of the preceding November. As far as the tariff or absolute exchange was concerned, it served to redress the balance, and thus to bring the English coin abreast of the continental. In the matter of the ratio, however, hardly any change was made. In the coins of the old standard (i.e. 23 carats 3-1/2 grs.) the ratio remained as before, 1:11-151/755; in those of the new standard (i.e. 22 carats) it was raised slightly (to 1:11-59/220). Neither in the appointment of the exchange, however, nor in the matter of the ratio, could the measure be more than temporarily successful under the conditions. The necessity remained as constantly as ever to watch the changing continental tariff, and to accommodate the English system to it. One State paper, dating apparently in 1529, thus pictures the situation at the time:-- "Disputes in London between English, Italian, Flemish, and Spanish merchants, as to the exchange, because of the last edict about gold. The writer knows of the importation of 100,000 _crowns_ and £10,000 in gold, which will be exported again unless care is taken. In Flanders, directly after this proclamation, gold was publicly put at a higher price than before--a noble at 24 _groats_," and so on. The writer, therefore, recommends that the searchers at the various ports should be warned to attend to their duty and see that no gold was carried away from the realm. [Sidenote: ENGLAND AND THE NETHERLANDS IN 1537] No recoinage, however, or change in the Mint rates, occurred for some years, and it must be taken as _primâ facie_ evidence that the basis of 1527 continued for some years efficient, and witnessed a steady growth in the circulation, accompanying a steady expanse of trade and prices. In 1535, however, complaints were again heard of the conveyance of coins out of the realm, and on the 15th July a proclamation was issued against it. This movement is perfectly well authenticated. On the 10th of May 1537, Hutton, writing from Brussels to Thomas Cromwell, says: "_Gold_ was formerly carried out of the realm [i.e. of England] for gain; now great sums are sent hither [i.e. to the Netherlands] in sterling groats [i.e. in silver]. This will both diminish the coin at home [i.e. in England] and injure the sale of cloth, for here are but three sorts of money current--_crowns of the sun_, sterling _groats_, and '_Riders Gelderus_' coined in Guelderland." On the 6th of August the same hand writes, again from Brussels: "Exchange is stopped, and much money like to be conveyed over [i.e. hither], though all coins should be called down here.... The act made for money will stop the [English] trade in kerseys, and great sums will be conveyed out of the realm [of England to the Netherlands]." That the flow-out of gold in 1526 should change into a flow-out of silver in 1539 was simply due to the alteration of the continental ratio. The relatively great depreciation of silver only begins in 1550. Up to that time the general trend of the two metals was on level lines, but with occasional traces or evidence of an appreciation of silver or relative depreciation of gold. At such a moment the lower-rated, i.e. cheaper, English silver inevitably tended to flow out in the very teeth of searchers and legislators. At almost the same time--and as showing at once how international this trade in money or "finances" was, and how confused, and conflicting the monetary system of Europe was, with a flow-out in one direction and a flow-in from another--the English merchants at their Calais Fair reported great gain of the precious metals. "We have very good sale of clothes," writes a merchant to the King on the 27th August 1538; "here is great plenty of money, which causes all wares to be dear. Your subjects will bring back above £3000 sterling in _angels_ and _ducats_. We seek all the _angels_ here and give a penny in the piece to have them to carry home, so that I trust there will be few left here in a short time." [Sidenote: THE CURRENCY MEASURES OF 1544] The threatened rise of monetary denomination on the part of the Netherlands was accomplished by their ordinance of 15th April 1539, and almost immediately Henry found himself necessitated to change the basis of his currency from that established in 1527. In 1542 the silver penny was reduced from 10-1/2 to 10 grains, and shortly after 1544 the angel was advanced from 7s. 6d. to 8s. The proclamation which enforced the change is dated 16th May 1544. Gold was raised from 45s. to 48s. the oz., and silver from 3s. 9d. to 4s. In the purchase price of the two metals, therefore, there was no change in the ratio, but calculating on the basis of the issue price, i.e. the pieces issued from the Mint, the alteration of ratio was from 11-59/220 to 10-10/23. In the proclamation the change was attributed to "the enhancement of the prices of these metals beyond the sea, as well in Flanders as in France, which would have drawn all the coins out of the realm if a remedy had not been applied. And although the customers of the ports of the kingdom had been ordered to put in execution the statutes for the conservation of the coins, yet for the great gain they were still secretly carried abroad." The coinage measures, therefore, of the year 1544, when justly considered, do not possess the aspect which has been generally attributed to them. It is incorrect to look upon them as the tentative beginning of that debasement of the coinage which disgraced the later years of the reign of Henry VIII. and the days of his son Edward VI. The measures of 1544 were simply acts of justifiable self-defence and currency safeguard. The real debasement began two years later, in 1545-46, when, by indenture, the silver coins (_testoons_) were reduced from 10 oz. to 4 oz. fine silver, the 2 oz. of alloy in the former case being increased to 8 oz. in the latter. In 1550 the content of fine silver in the testoon was further reduced to 3 oz. The plan of this history makes it incumbent to treat questions of debasement as standing apart from the subject-matter of the book, which is restricted to the natural and normal ebb and flow of the precious metals, due to the action of bimetallic law. The operation of debasing a coinage--of lowering it, that is, so far and so arbitrarily as to remove it at once from the action of natural law of prices ruling around--means an arrestation of natural economic processes and laws, and the events which follow thereupon stand apart from such laws and ought to be treated as so separate. In reality, debasements always favoured the action of this malignant bimetallic law, and the fact might possibly lead one to attribute to the normal action of a natural law what is in three-fourths of it due to arbitrary action of government. It would be, therefore, unfair to treat of debasements in a history of bimetallism. Given, however, the above standpoint, and mental reservation of deduction and innuendo, it is permissible to treat of this debasement as showing _how_ or _in what way_ a debasement _does actually_ facilitate the malignant action of bimetallic law.[14] Further, the present instance of debasement is the only one on record in English currency history, and the testimonies regarding it are of extreme interest. [Sidenote: THE TUDOR DEBASEMENT] For the purpose of external or foreign trade, a debasement of currency is fatuous and pernicious. The coins are estimated at their content of pure metal, and the international exchange is so rated. The consequence is an apparent rise of foreign prices proportioned to the extent of the debasement. This at once unsettles internal or home trade prices, and they rise to the same level, but with such inequality of motion as may happen to follow from friction, local ignorance, want of communication, or from the intricacies of trade. The inequality of exchange-coinage rates which results from this is the bullionist's or the financier's opportunity, and swiftly and invisibly the good species--or any, bad or good, upon which any differential profit can be had--disappear from circulation. The consequence is that the rising prices which instituted the process are no longer accompanied by an expanding or increasing volume of currency, but, on the contrary, with an enormous decrease in the total of acceptable or efficient currency. Hence come decay of trade, and ruin of town and country. This is no paper, _a priori_ argument. It is the patent unmistakable statement of history and fact. The staple trade of England in the sixteenth and seventeenth centuries was woollen. Coventry was one of the considerable seats of the industry, and known as a flourishing and wealthy town. In the third year of Edward VI.--the time when this debasement of our coinage reached the lowest point--its trade was gone, and its population had sunk to 3000, "whereas within memory there had been 15,000." In the extraordinary "_Dialogue concerning the common weal of this realm of England_," the scene of which was probably laid in this very decayed town of Coventry, the advance of prices, and the general tendency of the above argument, is more than amply borne out. "I have well experience thereof," says the "cappe" or hat manufacturer, "for I am fain to give my journeymen 2d. a day more than I was wont to do, and yet they say they cannot sufficiently live thereon. The city which was heretofore well inhabited and wealthy (as ye know every one of you) is fallen for lack of occupiers to great desolation and poverty." "So the most part of all the towns of England," quoth the merchant, "London excepted; and not only the good towns are decayed sore in their houses, streets, and other buildings, but also the country in their highways and bridges; for such poverty reigneth everywhere that few men have so much to spare as they may give anything to the reparation of such ways, bridges, and common easements. There is such a general dearth of all things as I never knew the like, not only of things growing within this realm, but also of all other merchandise that we bye beyond the seas, as silks, wines, oils, etc. I wot well all these do cost me more now by the third part well than they did but seven years ago." "Such of us," says the knight, "as do abide in the country still can not with £200 a year keep that house that we might have done with 200 marks but sixteen years ago." The course of the enhancement of foreign prices is thus argued between the merchant and the doctor. _Merchant._--"We that be merchants pay dearer for everything that cometh over the sea, even by the third part well. And because they of beyond the sea will not receive our money for their wares, as they were glad in past times to do, we are fain to buy English wares for them, and that doth cost us dearer by the third part, yea almost the one-half, dearer than they did before time, for we pay 8s. for a yard of cloth that within these ten years we might have bought for 4s. 8d. When we have thus dear bought outlandish ware, then we have not so good vent of them again as we have had before time, by reason there be not so many buyers, for lack of power, though indeed in such things as we sell we consider the price we bought them at." _Doctor._--"I doubt not if any men have licked themselves whole [i.e. recovered the loss] you be the same, for what odds soever there happen to be in exchange of things, you that be merchants can espy it anon. _Ye lurched some of the coin as soon as ever ye perceived the price of that to be enhanced. Ye, by and by perceiving what was to be won thereon beyond the sea, raked all the old coin for the most part in this realm and found the means to have it carried over, so as little was left behind within this realm of such old coin [i.e., good undebased coin], at this day, which in my opinion is a great cause of this dearth that we have now of all things._" "Thereby" he adds again, speaking of this "basing or rather corrupting of our coin and treasure, we have devised a way for the strangers, not only to buy our gold and silver for brass, and not only to exhaust this realm of treasure, but also to buy our chief commodities in manner for nothing. _It was thought it should have been a means not only to bring our treasure home, but to bring much of others, but the experience hath so plainly declared the contrary, so as it were a very dullards part to be in doubt thereof,..._ Do you not see that our coin is discredited already among strangers, which evermore desired to serve us before all other nations at all our needs for the goodness of our coins; and now they let us have nothing from them, but only for our commodities, as wool, felt, tallow, butter, cheese, tin, and lead. And whereas before time they were wont to bring us for the same either good gold or silver, or else equally necessary commodities again, now they send us other trifles as I spake of before, as glasses, gelly pots, tennis balls, papers, girdles, brooches, etc.... As I told you in your ear before, they send us brass for our treasure of gold and silver, and for our said commodities I warrant you you see neither gold nor silver brought over unto us as it was here before used, and no marvel. To what purpose should they bring silver or gold hither, where the same is not esteemed. Therefore I have heard say of a truth, and I believe it the rather to be true, because it is likely that since our coin hath been debased and altered, strangers have counterfeited our coin, and found the means to have great masses transported hither, and here uttered it as well for our gold and silver as for our chief commodity; which thing I report me to you what inconvenience it may bring the King's highness, and this realm, if it be suffered, and that in brief time.... And besides this, have you not made proclamations that our old coin specially of gold, that it should not be current here above such a price? Is not that the readiest way to drive away our gold from us, as everything will go where it is most esteemed? And therefore our treasure goeth over in ships.... I hear say that in France and Flanders, there goeth abroad such [brass and billon] coin at these days, but that doth not exile all other good coin, but they be current withal, and plenty thereof, howsoever they use it. _Therefore I think it wisdom we did learn of them how we might use the one and the other keeping either of them of like rate as they do so, that they should never desire any of our coin for any greater value than they be esteemed at with them nor we theirs for any greater estimate with us than with them, and then we should be sure to keep our treasure at a stay._ And as for recovering of old treasure that is already gone, there might be order that some commodity of ours were so restrained from them that it should not be sold but for silver or gold, or for the third-part or half in such coins as is universally current, and thus chiefly our treasure might be recovered by the use of means." When pressed by the knight to show how this merchandise in coins was actually initiated and worked the doctor thus replies: "Well, then, when goldsmiths, merchants, and other skilled persons in metal, perceived that the one groat is better than the other, and yet that he shall have as much for the worse groat as for the better, will not he lap up the better groat always and turn it to some other use, and put forth the worse, being like current abroad? _Yea, no doubt, even as they have done of late with the new gold. For they apperceiving the new coin of gold to be better than the new coin of silver that was made to counter value it, picked out all the gold as fast as it came forth of the Mint and laid that aside for other uses, so that now ye have but a little more than the old current, and so both the King's highness is deceived of his treasures, and the thing intended never the more brought to pass, and all is because there is no due proportion kept between the coins, while the one is better than the other in his degree._" "But how," asks the knight, "do they do in France and Flanders, where they have both brass coin, mixed coin, pure silver, and pure gold current together?" "I warrant you," is the doctor's reply, 'by keeping of due proportion every metal towards other, as of brass towards silver 100 to 1, of silver towards gold 12 to 1. For the proportion of silver towards gold, I think, cannot be altered by the authority of any prince, for if it might have been, it should have been ere this, by some one needy prince or other within 2000 years." So much in brief for this depreciation of Henry VIII., and for this extraordinary dialogue. The doctor's remedy was a recoinage, such as was later effected. The extent of the knowledge of economic laws displayed by this figure throughout the dialogue is astonishing. The divine was the better merchant, and if he had lived--for Miss Lamond's masterly identification of this character with Latimer hardly admits of question--and ruled in later counsels, he might have shown himself the better legislator. [Sidenote: ELIZABETH'S RECOINAGE] The recoinage which he advocated was not effectually completed till the second year of Elizabeth's reign, 1559. The basis on which it was then accomplished was that of a ratio of 11.79, as nearly as possible that adopted in the same or the following year, 1560, by France, and slightly higher than that which was established in Germany by the imperial edict of 1559. The coincidence in these rates is remarkable, and it is quite apparent that the action of Elizabeth dictated that of France, as also that this her action secured for England a steady supply of the precious metals during a period in which France was violently agitated by currency crises. In the first year of her reign, 1st May, Elizabeth issued a proclamation against the export of bullion. This was followed by one in the second year, 27th September, against the melting of monies, and by two others, of the 4th October and 23rd December of the same year, "for the valuation of certain base monies called _testoons_ ... finding that the ancient good gold and silver is daily transported," etc. Finally, on the 15th November (3 Eliz.), a proclamation was issued forbidding the circulation of French _crowns_ and Flemish or Burgundian _crowns_. This series of proclamations is to be regarded as one measure with, and as fortifying, the recoinage and the new ratio established. And the efficiency of the system thus instituted is to be judged by the fact that, with the exception of two unimportant proclamations of 16th October (7 Eliz.), and 1st December (8 Eliz.), no further legislation or Privy Council proclamation was needed for a matter of fifteen years. [Sidenote: ELIZABETH'S FINAL REVISION] From 1572-76, however, as has been seen already, the Netherlands issued a closely consecutive series of plakkaats which altered the situation for the whole of Europe, and England, equally with the rest, felt the drain. Contemporary evidence as to this fact has been already quoted (p. 73). Accordingly, on the 20th September (18 Eliz.), Elizabeth issued a proclamation "for the ordering the exchange of monies by enactment, according to laws of the realm, ... because of disorders, ... decay of merchandise, ... and value of monies." Again, in 1582, inquiries were made respecting the export of gold, and one of the London aldermen wrote to Secretary Walsingham, advising the appointment of four skilful merchants as an advisory body. Finding the drain continue, on the 12th October (29 Eliz.) the Queen issued a proclamation "for reforming of the deceits in diminishing the value of coins of gold current in our dominion, and for remedying the losses which might grow by receiving thereof being diminished." According to the express testimony of this proclamation the gold coins were _exported_, _diminished_, and _returned_, and it accordingly enacted that no coins should be taken as current when beneath such and such a weight, or lacking such and such a remedy. For a dozen years or so after this no further complaints of a gold drainage are heard, but in 1597 they recommence. "If good provision be not foreseen the coins of gold and silver of England will flow over to the Low Countries as fast as they can be coined," is the testimony of a document of April in that year, "for the _angel_ and _sovereign_ of England are current in Holland and Zealand at 18s. the piece of Flemish money, and our silver much after the same rate." And the writer adds: "I see no harm to this realm, if the French gold coin was permitted to be current for 6s. 2d., the Spanish gold _pistole_ for 6s., and the silver _real of eight_ for 4s." It was under the influence of this movement, of which more complaints exist among the Domestic State Papers, that the final Elizabethan revision of the Mint prices of the metals took place. On the 18th March 1600 she issued a proclamation "concerning coin, plate, and bullion of gold and silver," reciting that "bullion of gold and silver, etc., for these later years, have been much more abundantly transported and conveyed away than in any former times," and commanding the observance of the statutes against such transport. Finding her proclamation mere waste paper, Elizabeth resorted to the only safe and possible expedient, a change in the issue rate of the coinage. But for once her instinct, or the wisdom of her councillors, failed her. Instead of raising the ratio of gold to silver, she lowered it from 1:11-1/10 to 1:10-5614/5921. It is inconceivable that such a blunder should have been committed at a time when the production of silver had advanced and was advancing by leaps and bounds beyond that of gold, and when the currency of every European country of commercial note was being accommodated to the depreciation of silver with unerring instinct. But so it was, and the blunder only served to accelerate and intensify the catastrophe under James I. [Sidenote: ECONOMICS OF THE PURITAN REVOLUTION] In matters of currency history it is impossible to separate the Tudor from the Stuart period, and this last and sole blunder of Elizabeth's administration only serves to show the continuity of principle or event, and how little of moral censure attaches in this matter to abused James any more than to lauded Elizabeth. But it is instructive and curious to note that the currency history of England during all the reign of Elizabeth shows such remarkable quiescence. From 1558 to the fatal blunder of 1601 there was no change in her Mint rates. The complaints of exports of coins, and the evidence of the action of bimetallic law, appears only at three isolated and widely separated periods. The inference can only be--and it is more than an inference--that her reign, besides being a period of currency expansion, was one in which the ratio existing in England facilitated the flow of metals from the Continent, and secured the permanence of that currency expansion. On this increased basis of currency was built that commercial and national, yea even literary, growth and expansion, which have made the Elizabethan age the glory of our history. Similarly, the unrest and commercial credit crises under James I. and Charles I., which resulted from the same wide causes and principles, underlay and played a vitally determining part in the agitation and revolution-sowing of their reigns, and that, too, in a manner which has never yet been appreciated. The uprisal of England, which resulted in the first dethronement of the Stuarts, was as widely and vitally based upon economic causes as upon legal or religious,--possibly, indeed, much more so, if we only knew it. At first James was determined to proceed with the monies which were being wrought by Elizabeth's warrant. But on the 11th November, in the first year of his reign, a new indenture was made for the coining of a new piece called the Unite, to commemorate the union of the two crowns of England and Scotland. While preserving the same value as the pound sovereign of Elizabeth's issue of 1601 (viz. 20s.), its weight was only 154-26/31 grains, while that of Elizabeth's was 171-61/67. In the following year the angel was reduced from 78-66/73 grains to 71-1/9. The combined effect was to raise the ratio from 10.90 (as in 1601) to 12.15. Elizabeth's blunder was thereby effectually remedied, but it was not before an outcry had been made about the decay in shipping, and in the export of English cloth. Even this higher ratio did not remain permanently, or for long, effective. In 1607 the transportation of specie rose to such a height that a proclamation had to be issued against it, 9th July, and there was again talk of establishing "a true and perfect way to keep the money within the kingdom by instituting a register for all payments made by way of exchange." Again, two years later (10th August 1609 and 18th May 1611), the proclamation had to be twice renewed; no less a person than Sir Francis Bacon drafting the clause in the first case. The anxiety which the subject caused to the Privy Council is quite apparent in the State papers, and much division of opinion prevailed before the only possible remedy--a raising of the denomination of the coinage--was adopted. Salisbury was at first adverse to the measure, but set himself carefully to study the question. The slow working of his mind is still traceable in the paper of notes he drew up for his own guidance. "All the proportions of bullion ought to be xij for one between the gold and silver unmixed. Our sterling standard is wrought with a mixture of 18 dwt. in every lb. weight, which is 12 oz.; so as every 18 dwt. is 4s. 6d., and therefore that is wanting. [Sidenote: SALISBURY ON CURRENCY] "Now, two things are in question, one the inconvenience of general transportation, the other of the particular, viz. Scotland. In the general this is the mischief, that our gold is not so much alloyed as our silver, and therefore being more worth than silver is bought and carried away. The particular, of Scotland, is more notorious, because it is not forbidden.... "The gold ought to be 24 caretts. "Now oure angell is not so much but neare it, about 23 caretts 3 grains and 1/2. "4 grains makes a caret. 24 caretts an oz. "In silver every pound lacks 4s. 6d. "A pound is 3^{li} in tale. "In 6 angells wch is in tale 3^{li}, and in weight one ounce, there is not such an alloy, for in silver we want 4s. 6d., and in gold but--" The notes end thus imperfectly, but what Salisbury was toilfully figuring for himself lay ready to his hand in the opinions of experts and of the officials of the Mint. Immediately succeeding these broken notes of his in the State Papers, there exists a series of documents which he doubtless had under his eye, and which exposed the situation with a clearness that was more than convincing. "Statement of the Loss sustained by England in the Exchange of Coin." ... "Statement by the Officers of the Mint that the Raising the Value of the English Silver Coins by making a Pound Troy of Silver worth £3, 11s. 6d. only equalises the Value of English Money with those of Foreign Countries, and that to prevent the Export of Gold its Price must be raised in Proportion." And so on. As the result of such representations, and after ten months of wavering Salisbury gave way, and on the 22nd November 1611 he consented to the issuing of a proclamation raising the denominational value of all gold coins 10 per cent. This proclamation was issued on the following day, and the ratio was thereby at a blow raised from 12.15 to 13.32. Among the many alternative schemes proposed before the adoption of this measure, had been one for "raising £500,000 on loan to the King, by coining brass money to that amount, and compelling their acceptance in certain proportions by the people, on promise to repay within seven years in full value silver." It was fondly asserted that this would be a "means of preventing the export of coin and bullion, caused by the rise and value of foreign coin." Another project brought forward was "for meeting the increase of value laid upon the coins of the Low Countries by issuing a copper coinage, corresponding thereto, and by raising the value of English silver and gold coins in order to prevent losses of merchants in foreign trade, etc." [Sidenote: ENGLAND: THE AGITATION OF 1611] A year later a third scheme was proposed to remedy the under-valuation of English monies, "by the coinage of small silver monies of coarser silver, so as to raise the value of the larger money in proportion; the old standard to be observed in payments of rents, the new in ordinary bargains." The step actually and finally adopted, however, by the proclamation of 1611, did not equalise the exchange for more than a twelvemonth. The rise on the Continent continued, and the outflow recommenced. In 1612 the Council took note of the persons concerned in this trade of transporting, with a view to proceeding against them, while on their side the general commercial public, or such of them as did not share the secret and the gain of bullion-broking, demanded that the under-valuation of English monies should be redeemed by further raising the value of the coins one penny in the shilling. On the 14th May 1612 a proclamation was issued forbidding merchants to exceed Mint prices in buying bullion. A year later (4th July 1613) we are told that the Privy Council had sat twelve or thirteen hours on the Sunday, and "have been forced to dismiss the gold and silver business, and also that of the fishing, as involving many points in the treaties with Burgundy and Holland." The State papers of this year contain quite numerous references to the subject: "Statement of the Undervalue set upon English Money in Foreign Countries, as proved by the last Placard of the Low Countries"; "Notes of the Advantage arising to the Crown of England from raising the Shilling to 13-1/2 Pence, and the Proportion of Gold from 12-1/2 to 13"; "Suggestions as to the Means of Preventing Foreign Nations from taking Advantage of the English in the Exchange of Monies, viz., raising English Coins in Nominal Value," etc. On the 23rd March 1615 a further proclamation was issued against the export of gold and silver coin, and in the following year the exports of the East India Company were limited to £6000 in bullion or specie. The Mint officials proposed a raising of the denomination, and again the matter was hotly debated in and out of the Council. But a different race of men from Raleigh had succeeded, and, on the 31st December 1618, the Privy Council determined that "silver shall not be raised in value at present, and uniformity in the weight of the coin is to be observed; the melting of gold for braid or plate forbidden, but further regulations postponed till the committee for exchanges bring their report." [Sidenote: ENGLAND: THE MEASURES OF 1619] As it happened, owing to the necessity of replenishing the King's finances, the question had become complicated, and some of the measures proposed for staying the coin had a more sinister bearing, as is apparent in one of the schemes referred to (_supra_, p. 136), being, in short, cloaked proposals of debasement. In setting its face against such proposals of debasement the Council was right, but such proposals had relation only to the King's finances, and not to the currency crux, and in delaying the proper tariffing of the English against the continental coins the Council did wrong. By 1619 the evil had risen to so great a height that the Council determined to act upon its own proclamations. Eighteen merchants were sentenced in the Star Chamber for exporting gold (8th December 1619), five being acquitted. The total of the fines imposed on the sentenced men reached £140,000, and it was stated that since the beginning of the reign a matter of £7,000,000 of gold had been surreptitiously exported. On the 31st July 1619 proclamation was issued for a new coinage. The gold _angel_ was reduced in weight from 71-1/9 grs. to 64-11/15, being equivalent to an increase of an eleventh in its denominational value: and in January 1620, following the convictions of the merchants referred to, the Council busily debated "the erecting an exchange for monies, to prevent the export of silver by the goldsmiths who have been the offenders." All these steps were taken too late, and the currency crisis which shook Germany ran its full course, too, in England. In 1620 there was a great scarcity of silver in the country, and the trade of the Eastland merchant was gone--a scarcity and decay which they attributed "to the rise of foreign coin, especially that of Poland and Holland, during the last four years in which the Hollanders have farmed the King of Poland's Mint." The export of cloth had sunk to one-third the output of the previous year. By May 1621 the situation had become pressing. The secret export of money still continued, and it was again proposed to register bills of exchange, and also to make Spanish and French coins current in the country. In June the Privy Council issued circulars to the East India, Turkey, French, Eastland, and Spanish companies, and the Company of Merchant-Adventurers--practically the whole mercantile corporation of London--desiring them to choose experienced persons from each of these companies, to consult upon the best means of managing the exchange of monies, so as to encourage the import of silver, and prevent its export. Their statement on the 17th June was simply that the export was due to the under-valuation of the English monies. The Council considered their report on the following day, and ordered it to be further considered, "but the Lords think it best for some agreement to be made with neighbouring states for a due correspondence in the value of the coins now used." [Sidenote: ENGLAND: THE CRISIS OF 1622] But while the Lords of the Council talked of treaties the crisis came. By the end of the year there was no money in the country, and trade was at a standstill. In February 1622, Locke informs Carleton "money is very scarce. In the clothing counties the poor have assembled in troops of forty or fifty, and gone to houses of the rich and demanded meat and money, which has been given through fear. The Lords ordered the clothiers to keep their people at work, but as they complained that they cannot sell their cloth, usurers and monied men though not in the trade are ordered to buy it." In March the Justices write from Gloucestershire: "The people begin to steal, and many are starving; all trades are decayed; money very scarce." Stocks of cloth accumulated in the London "halls" or warehouses of the various districts, and notes of them were submitted to the Privy Council. Pieces unsold. Gloucester, Worcester, Reading, Somerset, and Suffolk Hall, and Blackwell Hall, 433 Manchester Hall 853 ("Besides many in the country which are not sent off for want of a market.") Storehouse for Gloucester, Worcester, Kent, Somerset 1163 (Mostly belonging to Kent.) Wiltshire Hall 560 Northern Hall 5159 Leadenhall 3057 (Cloths from Suffolk and Essex.) Devonshire Kerseys 423 The merchant-adventurers were appealed to, to buy up these stocks, but they were unable. The ordinary taxes of the country could not be levied, or, when levied, proved only a fraction of the estimated amount, and invariably the commissioner attributed the deficiency to the want of money and the general decay of trade. "Wools and cloth are grown almost valueless," write the justices of Somerset, on the 15th of May 1622, "and the people desperate for want of work." The expectations of outbreaks were great, and in Nottingham musters were held, and the trained bands ordered to be ready for instant service, to suppress riots, if any occurred (July 1622). Meanwhile the Council was busy conferring with merchant delegates from every part of the country. A new proclamation against exporting coin was talked of (15th June 1622), and a declaration issued (same day), that the King purposed to establish a Royal Exchange, to regulate all exchanges. "Treatises on Exchanges," "Statements of the Disadvantages of a Low Exchange," and similar documents crowd the State papers; and on the 28th July a proclamation was issued ordering nothing to be worn at funerals but English-made cloth, forbidding the export of raw wool or yarn, and declaring the establishing of a Standing Commission on matters of trade. On the 30th of August the Goldsmiths' Company returned their answers to the Council's queries with regard to the comparative weight and value of Spanish _reals_ and English shillings, and suggested that the pound of silver should be cut into 65s. instead of 62s. The officers of the Mint followed up this advice by confirmatory testimony. "The business is weighty," wrote Sir Robert Heath to Secretary Calvert, in enclosing him the above reports. "For we are drawn dry. Coin must be brought in from elsewhere [i.e. abroad], which can only be by assurance of gain to the merchants in equalling our coin to that of other States." As a corollary it was proposed on the following day, August 31, to encourage the bringing in of money by making the Spanish _real_ pass current at 4s. 8d., its true value in English coin. "The merchants will bring them in at this profit, though they can gain more for them in Holland, and they press for an immediate reply, as the Spanish fleet is coming in, and the money will be brought hither if the merchant can make a reasonable profit." In September the clothworkers and dyers of London complained in a petition of their want of employment, and that many thousands of them were in the greatest distress. So great was the want in the country districts that a proclamation was issued ordering all persons of quality in London and Westminster to go to the country, and reside on their estates, for the relief of the poor in the dearth. In January 1623 fears of disturbance in Essex were rife, "because of poor clothworkers, the masters being unable to employ the men, and many who were thought the wealthiest were likely to become bankrupt." On the 7th of February the officers of the Mint reported to the Council that they found the value of the Spanish _real of eight_ to be equal to 4s. 6-1/2d., as compared with the new shilling coin; and on the 4th of March following a proclamation was issued to make these Spanish _reals_ current at 4s. 6d., "in hopes of bringing some of that coin to the Mint." From this time onwards no further references, save one laconic remark in May 1623, "the poor do not complain much," occur in the State papers to this, one of the acutest currency crises in our history; and we are left to follow the process of recovery and the dumb, inarticulate agony of the widespread ruin in sympathy and imagination merely. The details here given are taken entirely from the State papers, stolid and ungarnished, but the tale they tell is momentous and dire in its importance. When consulted by the Privy Council, the various committees and delegates of the merchants attributed the crisis to the deceits practised in the manufacture of cloth, to the embargo on its sale, and other such causes, as well as to the scarcity of money, and the loss in exchange. The first suggestion is hardly worth a moment's consideration. Every testimony points to the fact that the crisis was as purely a monetary or currency crisis, as later crises have been distinguishedly credit crises. Between 1613 and 1621 hardly any silver monies were coined in the English Mint; for example, between 1617 and 1620 the total silver coinage was only £1070, whereas in the four succeeding years the silver coinage at the Tower Mint amounted to £205,500. [Sidenote: ENGLAND: JAMES I.] "From the year 1621," says one of the informers of 1638, to whose petition reference will be shortly made, "many goldsmiths and cashiers of London culled the weighty shillings and sixpences to make into plate, silver wire, and to other manufactures; for most of that time, we having wars with Spain, little or no silver came from thence; so likewise hath little or no silver from France in that time, and no silver could be brought out of Holland by reason it went so high by the placard. For sterling silver passed in Holland for 4d. per ounce higher than it was made in our Mint, sterling being in Holland at 5s. 4d. per ounce, so that no silver could be imported from Holland to supply our Mint, which the goldsmiths and others perceiving presently fell a-culling the silver monies current, and the money being coined in the Mint at 5s. 2d., the goldsmiths, finers, and wire-drawers did raise it up to 5s. 3d. per ounce, and melted down into the weight of shillings and sixpences, and left none to pass betwixt man and man but light monies and clipped, and did exceed the rate of the Mint by giving for sterling 5s. 3d. per ounce, and 5s. 3-1/2d., and sometimes more; by which means there was no silver brought into the Mint for ten years to speak of but the silver which came from Wales. This will appear by the Mint books." The testimony only confirms the previous inference. The whole reign of James I. was a period of inefficient attempts to rate the English coinage to the incessant rise in the continental coinages, of consequent drain of specie to the Netherlands, and of practical closing of the Mints at home. The cause, opportunity, channel, or machinery of the drain was the incessantly shifting, badly tariffed, imperfectly understood bimetallic system of the times; and the crisis of 1622 was only the most patent expression of its malignant action. It is doubtful whether the political effect of that crisis has been properly estimated by the constitutional student of the popular revolution under the Stuarts. Its commercial, currency, and economic and theoretic influence has certainly, and much more, been hitherto overlooked. [Sidenote: ENGLAND: CHARLES I.] The reign of Charles I., and the period of the Commonwealth, display similar characteristics to that of James I., but in a more modified and less malignant measure. Putting aside, after one nearly fatal slip in August 1626, the various propositions for a debasement which were made early in his reign, Charles made, throughout, no change in the denomination or value of his coins, and no change in the ratio. In 1627 the export of coinage became again perceptible, and a warrant was issued for erecting a Royal Exchange between England and Scotland, September 28, and for a proclamation forbidding all indirect practices of merchants, and underhand buying of uncurrent coin and foreign bullion. In the following March, 1628, a committee was appointed to advise his Majesty concerning the coins, and to observe from time to time all accidents at home and abroad touching coins. Numerous schemes were proposed for the arresting of the process of export. They bear generally two characters--(1) as proposing a change of the ratio; (2) as proposing a differential issue of the silver issue coinage, i.e. coining 4d., 3d., and 2d. silver pieces at a different and higher rate than the larger silver pieces. Such schemes have no importance at the present day, save as foreshadowing the mechanism by which England finally evolved a monometallic system which permitted of the fullest retention of silver. The flow of coinage which these proposals were intended to meet was not now to the Netherlands but to France, and it must be attributed to the course of the French currency already indicated. In 1630 the names of certain merchants engaged in the transport of gold and silver were reported to the Council, together with the names of the French merchants who received the same in France. In June 1635 certain of these were arrested, and in 1638 not less than thirty-seven of them were prosecuted in the Star Chamber for this unlawful transportation. The drain went steadily on during the whole of the decade. On January 18, 1635-6, a proclamation was issued for restraint of the consumption of coin and bullion. In the following March an order of the King in Council was issued against the exportation of English and Scotch coin, and by gentlemen crossing the sea, and forbidding the wearing of jewels, etc., "because of the great quantity of money exported." Any such enactments were doomed to be futile. The true remedy, or rather the keynote of the situation, was contained in a proposition submitted to the Privy Council for the making current of certain foreign coins. "The forbidding of Spanish money in England," says the author Barrett, "was to enrich the Mint, which brought forth contrary effects, for the French, Dutch, and other nations, by advancing Spanish coins, received the greatest profit." He accordingly proposed that the King should raise the Spanish money to be current in England by proclamation. The double _pistolets_ weighing 16s. to be raised to 15s.; the _piece of eight_ weighing 5s. to be raised to 4s. 6d., "and when there is store brought into the kingdom, then have a new proclamation to call in these coins to be stamped with a mark and apprised to the intrinsic value." The step was not adopted, and by his Majesty's declaration of 1639 in the Star Chamber, gold and silver were to be considered commodities of merchandise. "By 1640 there was not in the kingdom a million of silver," says Sir Ralph Maddison in a memorial. "Gold and silver," said Sir Thomas Roe in his speech on trade in the Commons, "are very scarce, and the kingdom is impoverished. Money has been drawn away into other kingdoms, especially into France and Holland, where it is worth more." One of the informants, who had been employed by the Government in the prosecutions of 1638, thus gave his testimony in a petition which he subsequently drew up: "Divers goldsmiths of London are become exchangers of bullion of gold and silver, and buy it of merchants and others, pretending to carry it to the Mint. But indeed they are the greatest instruments for transporting that are, and in a manner they are only those who furnish transporters with English and foreign gold, Spanish money, _rixdollars_, _pistolets_, _cardacues_, etc. Some of the goldsmiths make it their use and practice to buy light English gold of shopkeepers and others, which, by the laws of this kingdom, wanting beyond remedy, ought to be bought as bullion, and upon the sale ought to be defaced and new-coined in the Mint. But they take another way, for they sell all this gold to transport, though it want four, five, or six grains above the allowance, and that a 20s.-piece will not make 19s. to be coined in the Mint. Yet the goldsmiths will not abate above 2d. or 3d., and sometimes but 1d. in the piece, let the gold want what it will, by which means they outgive the Mint, and the gold which the goldsmiths buy of the subjects, thinking it is to carry to the Mint to be new-coined, to pass in current payment, they put it into a dead sea, never to be made coin of in our commonwealth. For, weekly, French and English have bought up this gold, let it be as light as it will, at 19s. 9d., 19s. 10d., 19s. 11d., and so after that rate for all other gold, to the value of many hundred thousand pounds. Many thousands of _dollars_ and Spanish money they furnish yearly to merchants that trade for Norway and Denmark, to transport silver for those parts." [Sidenote: ENGLAND: THE SITUATION IN 1638] The drain of coinage to France he distinctly attributes to the raising of the French coins. "At this present in France the native merchants there match us with such a point of policy that it would be hard for our merchants to be master of.... Since the raising of our 20s.-piece to 26s. there ... they have advanced the price of their commodities according to their advanced monies, to the full sum of 6s. in the pound more than they were before." [Sidenote: ENGLAND: SIR ROBERT STONE ON THE MINT] During the Civil Wars there is a remarkable paucity of reference to the subject, doubtless owing to the supreme importance of the war itself. On the 26th August 1643, and on the 24th February 1643-4, the Long Parliament issued orders, on the petition of merchant strangers who were prevented from importing bullion by the rigours of the search of their vessels, for their due encouragement. The petitions would argue a tendency towards an importation of specie, but in 1649 this was again changed, and a heavy export became perceptible. There can be little doubt that the initial impulse came from the new coinage which was instituted by the Act of 17th July 1649, and by the table of weights for the Commonwealth coins which that Act adopted. For two years and more both Council and Parliament were exercised in mind with regard to this export of specie and the consequent decay of trade, and draft Acts to prevent the export, as well as many other propositions, were had under long consideration. No measures were adopted, and an Amsterdam correspondent of Sir Robert Stone, in May 1652, thus gave his opinion of the wisdom of the Mint officials and the Government in this process of drift: "Experience has taught me that when the State does not keep extraordinary watch, and the laws are not put into execution against culling and sorting out the heaviest coins to be transported, and the light and clipped left behind, it is a great debasing of the current value of coin. All your silver money (i.e. in England) is thus abused by goldsmiths and others. And when the State does not employ such as can discover those offenders, but puts persons into the Mint who have had no experience, great damage must follow. For there are bankers and exchangers in Holland who know the ignorance of all your present Mint men that have any place of trust, and laugh at them. They say when the Mint in the Tower flourished, old Andrew Palmer, Mr. Rogers, and one Cojan were there, who were all subtle Mint men, and held correspondence here (i.e. in Amsterdam), and knew what to do to advance the Mint, and would always find a way to bring grist to the mill. But now your Mint comes to be neglected and money adulterated. Many of our bankers here have a great trade with your goldsmiths and merchants in London for English gold and heavy English silver. Your Mint will never go until this be discovered, for these men are the sluices that drain all your money. I believe there is at this day forty times more gold and silver in the Low Countries than in England. About twelve years since the French were forced to call in all their money, it being so clipped that their commerce ran into confusion, and you have almost brought yourself to the same point, the coin in Ireland being 20 per cent. less value since the war. In England almost all your gold is transported, and the little that is left is in hucksters' hands, that go to an exchange in Lombard Street, and you must pay from £6 to £10, and sometimes more, to have £100 in gold for silver. For who will take gold to the Tower to be coined, and lose 2s. in 20s. of what they can make by transporting it? We have more English gold in Amsterdam than you have (in England), all sent within those twenty years, and great quantities of English silver have weekly come over in pinks and Dutch men-of-war for years, to the value of many hundred thousands of pounds, in return for coin. I wondered at first how the merchants transported all the weighty and culled English money into Holland, until one of the bankers told me. I would have you inquire it and prevent it, for it is a most pernicious thing. It is the goldsmiths, especially those in Lombard Street, which are the greatest merchants, and London cashiers, and who will receive any man's money for nothing, and pay it for them the same or next day, and meantime keep people in their upper rooms to cull and weigh all they receive, and melt down the weighty, and transport it to foreign parts, sometimes without melting, and keep banks for all the principal coin in Christendom in their shops." The succeeding years of the Commonwealth saw little change in the situation. In 1659 and 1660 the Council was still anxiously debating the question of the transport of bullion and coin. But this chain of phenomena refers to the third period in this history, and are to be treated of in that connection. [Sidenote: CLOSE OF THE SECOND PERIOD: RÉSUMÉ] In broadest and hastiest résumé, and this by way of justification of the length to which this chapter has been drawn out, the influence of American gold and silver makes itself perceptible in 1520. For forty years a level and equal advance in each of the precious metals and in prices records itself, then the relative and absolute production of silver increases enormously over that of gold, and the ratio is disturbed. The inequality of the rate at which this change of ratio spreads to successive countries, and is adopted in their various Mint regulations, is the bullionist's or exchanger's opportunity, and the disastrous effect of their activity results in the crisis of 1570 in France, and 1622 in England and Germany. Properly speaking there has been no subsequent crisis in European history fitly comparable with the latter of these. If at all, there is only one comparison possible, and that is the currency situation in which the monetary world is at this moment, or which has come upon it since 1850--a period of bullion inflation in which silver has, finally as yet, outweighed gold, to the violent disturbance of the ratio. But, as will be seen, the other conditions of the comparison are not reducible to, or expressible in, similar terms, and so far the legitimate deduction fails. None the less, the currency history of Europe during the sixteenth and seventeenth centuries has a vital didactic importance. FOOTNOTES: [Footnote 9: The only accounts accessible are in Cabrera (see Philippson's "Estimate of the Revenues of Spain," in his _Henrich IV. and Philipp III._, vol. ii. p. 44), and relate only to the years 1599-1610. The amounts given are not the total yield of the American mines, which is out of the question, but the amount of metal brought yearly to Spain by the Silver Fleet. The amounts (without distinction of the metals) were as follow:-- 1599 8,000,000 Ducats. 1600 9,926,192 " 1600 10,000,000 " 1601 1,000,000 " 1602 10,000,000 " 1603 7,000,000 " 1604 14,500,000 " 1606 9,000,000 Ducats. 1606 4,500,000 " 1607 12,200,000 Pesos. 1608 9,000,000 Ducats. 1609 10,600,000 " 1610 10,000,000 " ] [Footnote 10: For further details of the troubles of 1632-36, see Vicomte D'Avenel, _Histoire de la propriété, etc._, i. 120, 121.] [Footnote 11: Such is the statement of the proclamation itself. The difference between the ratios as there proclaimed and the ratios given in the table, pp. 40 and 69, is presumably due to the calculation being made on the mark of pure metal. For the character of these figures of ratios see the Preface.] [Footnote 12: See Hirsch, i. 318.] [Footnote 13: "The second (cause for the decay of the trade of Spain) is the residence of many Genoa merchants amongst them, who are found in good numbers to abide in every good city, especially on the sea coasts, whose skill and acuteness in trade far surpassing the native Spaniards and Portuguese, and who, by means of their wealth and continual practice of exchanges, are found to devour that bread which the inhabitants might otherwise be sufficiently fed with; and by reason that the King of Spain is ever engaged to their commonwealth for great and vast sums at interest, he is their debtor, not only for their moneys, but also for their favour, which by many immunities throughout his kingdom he is found continually to requite them, and amongst the rest it is observed that there is no Genoa merchant resident in Spain, or any part, but has a particular licence to transport the _rials_ and _plate_ of this kingdom to a certain round sum yearly, which they seldom use really to do, but sell the same to other nations that are constrained to make their returns in plate for want of other more beneficial commodities, which, for the certain profit it is found ever to yield in other countries, is often preferred before all the other commodities of the kingdom."--_Lewis Robert's Map of Commerce_, p. 165.] [Footnote 14: By the action of bimetallic law is meant any action of bad money on good--of worn money on new--of higher rated (or lower valuable) money on lower rated (or higher valuable) money. It does not at all matter, especially in cases of debasement, whether there are two metals in the process or only one or even three. If a currency is silver, and part of it is debased and part left good there is bimetallic action, and the good disappears. Of course, the case is argumentatively and for deduction's sake much clearer if a currency is truly bimetallic in the ordinary sense.] CHAPTER III From the End of the First Cycle of American Influences to the Present Day, 1660-1894 Up to the close of the eighteenth century the production of silver shows a remarkable steadiness and uniformity--the decrease on the yield of the Potosi mines being compensated by the increased output of Mexican silver. In the condition of the output of gold, however, there is a perceptible alteration, due to the increasing imports of that metal from Brazil. The change in the relative production of the two metals appears from the table on p. 155. The effect on the ratio of this increased relative and absolute amount of gold was, however, considerably diminished by the increasing favour with which gold came to be regarded for currency purposes, from the end of the seventeenth century onwards. In general terms this process or tendency in favour of gold continued through the first sixty years of the eighteenth century, at which time the proportion of gold to the production of the two metals had risen as high as 40 per cent., whereas in 1600 it had only formed 17.2 per cent. of the total. [Sidenote: PRODUCTION OF THE PRECIOUS METALS, 1660-1893] From 1760, however, such relative preponderance of gold was not maintained. It gradually sank back until, by the beginning of the present century, it had come to form only a little over 23 per cent. of the total. From 1820 to 1840 a recovery took place, but it was not until the Californian gold discoveries that the second great disturbance in the relative production of gold and silver took place; such a disturbance, i.e., as can be fitly compared with that which the sixteenth century witnessed. +-----------+--------------+---------------+-----------+--------------+ | | Annual | Annual |Percentage | Percentage | | Period. | Production | Production |of Gold to | of Silver to | | | of Gold. | of Silver. | Total. | Total. | +-----------+--------------+---------------+-----------+--------------+ | 1661-1680 | £1,291,750 | £3,134,150 | 29.2 | 70.7 | | 1681-1700 | 1,501,700 | 3,179,650 | 31.1 | 67.9 | | 1701-1720 | 1,788,400 | 3,253,750 | 35.5 | 64.5 | | 1721-1740 | 2,661,650 | 3,988,600 | 40.0 | 60.0 | | 1741-1760 | 3,433,100 | 5,038,200 | 40.5 | 59.5 | | 1761-1780 | 2,888,350 | 6,201,550 | 31.8 | 68.2 | | 1781-1800 | 2,481,700 | 8,131,300 | 23.4 | 76.6 | | 1801-1810 | 2,480,000 | 8,002,650 | 23.7 | 76.3 | | 1811-1820 | 1,596,100 | 4,966,950 | 24.7 | 75.3 | | 1821-1830 | 1,983 150 | 4,075,950 | 32.4 | 67.6 | | 1831-1840 | 2,830,300 | 5,278,600 | 34.5 | 65.5 | | 1841-1850 | 7,638,800 | 6,867,650 | 52.1 | 47.9 | | 1851-1855 | 27,815,400 | 8,019,350 | 77.6 | 22.4 | | 1856-1860 | 28,149,950 | 8,235,950 | 77.4 | 22.6 | | 1861-1865 | 25,816,300 | 9,965,400 | 72.1 | 27.9 | | 1866-1870 | 27,256,950 | 11,984,800 | 69.4 | 30.6 | | 1871-1875 | 24,250,000 | 17,250,000 | 58.5 | 41.5 | | 1876 | 23,150,000 | 18,250,000 | 55.9 | 44.1 | | 1877 | 25,050,000 | 19,350,000 | 56.4 | 43.6 | | 1878 | 25,950,000 | 19,750,000 | 56.8 | 43.2 | | 1879 | 23,350,000 | 19,050,000 | 55.1 | 44.9 | | 1880 | 22,800,000 | 19,100,000 | 54.4 | 45.6 | | 1881 | 22,450,000 | 19,800,000 | 53.1 | 46.9 | | 1882 | 21,450,000 | 20,900,000 | 50.7 | 49.3 | | 1883 | 20,750,000 | 20,800,000 | 49.9 | 50.1 | | 1884 | 21,750,000 | 21,850,000 | 49.9 | 50.1 | | 1885 | 21,750,000 | 21,850,000 | 49.9 | 50.1 | | 1886 | 22,450,000 | 20,300,000 | 52.5 | 47.5 | | 1887 | 22,050,000 | 21,950,000 | 50.1 | 49.9 | | 1888 | 22,950,000 | 23,850,000 | 49.0 | 51.0 | | 1889 | 24,600,000 | 26,750,000 | 47.9 | 52.1 | | 1890 | 24,360,000 | 26,620,000 | 47.8 | 52.2 | | 1891 | 29,000,000 | 36,567,629 | 42.4 | 57.6 | | 1892 | 30,164,536 | 40,668,247 | 42.5 | 57.5 | | 1893 | 32,066,591 | 42,963,027 | 42.7 | 57.3[D] | +-----------+--------------+---------------+-----------+--------------+ [Footnote D: The figures for the last three years are taken from the Report of the Hon. R.E. Preston, director of the United States Mint, 1893 (_Report on the Production of the Precious Metals_, pp. 274-5). See _ibid_. for a most carefully compiled table of the production of the precious metals from 1493 to 1893, differing from the above in material details.] As far as this _relative_ production is concerned, the period, 1660-1840, is one of gradual and not abnormal variation, neither small nor inconsiderable in effect, but certainly not revolution-working, as had been the case in the sixteenth century with American silver, and as was to be in the nineteenth century with Californian and Australian gold, and in our own days with American silver for the second time. With regard to the _absolute_ production--gold shows a rise up to 1760, then a steady decline to 1820, followed by a second rise up to 1840. In the case of silver the decline in the absolute amount was steady from 1600 to 1680, then ensued a steady and strong rise to 1800, followed by an abrupt drop in the second decade of the present century, and then by a strong and steady recovery, commencing from 1830 and continuing until the present. [Sidenote: WIDE EFFECT OF MINT LAWS] The larger question of the relative distribution of this mass of precious metals depends for its determination upon a full understanding of the law of the various Mints. Speaking in large, during the eighteenth century the Mint ratio was in favour of silver in France, and her currency was almost entirely silver throughout the century; conversely the Mints favoured gold in England and Spain, and gold was almost the only constituent of the currency of either country for the greater part of the century. There can be little doubt that these simple facts had a great influence in actually determining the great currency legislation which closed the century and finally decided England in favour of gold, and France and the United States in favour of a bimetallism strongly favouring silver. The statement of the ratio is as follows:-- South-West Germany. 1657-80 15.10 Netherlands. 1663 14.43 England. 1663 14.48 1690 15.39 1715 15.21 France. 1679 14.91 COMMERCIAL STATEMENT OF THE RATIO (FROM 1687-1832, FROM THE HAMBURG EXCHANGE RATIO; FROM 1833 ONWARDS, FROM THE LONDON BULLION BROKERS' RATIO). +----------+---------+ | 1687-8 | 14.94 | | 1689-90 | 15.02 | | 1691 | 14.98 | | 1692 | 14.92 | | 1693 | 14.83 | | 1694 | 14.87 | | 1695 | 15.02 | | 1696 | 15.00 | | 1697 | 15.20 | | 1698 | 15.07 | | 1699 | 14.94 | | 1700 | 14.81 | | 1701 | 15.07 | | 1702 | 15.52 | | 1703 | 15.17 | | 1704 | 15.22 | | 1705 | 15.11 | | 1706 | 15.27 | | 1707 | 15.44 | | 1708 | 15.41 | | 1709 | 15.31 | | 1710 | 15.22 | | 1711 | 15.29 | | 1712 | 15.31 | | 1713 | 15.24 | | 1714 | 15.13 | | 1715 | 15.11 | | 1716 | 15.09 | | 1717 | 15.13 | | 1718 | 15.11 | | 1719 | 15.09 | | 1720 | 15.04 | | 1721 | 15.05 | | 1722 | 15.17 | | 1723 | 15.20 | | 1724-25 | 15.11 | | 1726 | 15.15 | | 1727 | 15.24 | | 1728 | 15.11 | | 1729 | 14.92 | | 1730 | 14.81 | | 1731 | 14.94 | | 1732 | 15.09 | | 1733 | 15.18 | | 1734 | 15.39 | | 1735 | 15.41 | | 1736 | 15.18 | | 1737 | 15.02 | | 1738-9 | 14.91 | | 1740 | 14.94 | | 1741 | 14.92 | | 1742-3 | 14.85 | | 1744 | 14.87 | | 1745 | 14.98 | | 1746 | 15.13 | | 1747 | 15.26 | | 1748 | 15.11 | | 1749 | 14.80 | | 1750 | 14.55 | | 1751 | 14.39 | | 1752-3 | 14.54 | | 1754 | 14.48 | | 1755 | 14.68 | | 1756 | 14.94 | | 1757 | 14.87 | | 1758 | 14.85 | | 1759 | 14.15 | | 1760 | 14.14 | | 1761 | 14.54 | | 1762 | 15.27 | | 1763 | 14.99 | | 1764 | 14.70 | | 1765 | 14.83 | | 1766 | 14.80 | | 1767 | 14.85 | | 1768 | 14.80 | | 1769 | 14.72 | | 1770 | 14.62 | | 1771 | 14.66 | | 1772 | 14.52 | | 1773-4 | 14.62 | | 1775 | 14.72 | | 1776 | 14.55 | | 1777 | 14.54 | | 1778 | 14.68 | | 1779 | 14.80 | | 1780 | 14.72 | | 1781 | 14.78 | | 1782 | 14.42 | | 1783 | 14.48 | | 1784 | 14.70 | | 1785 | 14.92 | | 1786 | 14.96 | | 1787 | 14.92 | | 1788 | 14.65 | | 1789 | 14.75 | | 1790 | 15.04 | | 1791 | 15.05 | | 1792 | 15.17 | | 1793 | 15.00 | | 1794 | 15.37 | | 1795 | 15.55 | | 1796 | 15.65 | | 1797 | 15.41 | | 1798 | 15.59 | | 1799 | 15.74 | | 1800 | 15.68 | | 1801 | 15.46 | | 1802 | 15.26 | | 1803-4 | 15.41 | | 1805 | 15.79 | | 1806 | 15.52 | | 1807 | 15.43 | | 1808 | 16.08 | | 1809 | 15.96 | | 1810 | 15.77 | | 1811 | 15.53 | | 1812 | 16.11 | | 1813 | 16.25 | | 1814 | 15.04 | | 1815 | 15.26 | | 1816 | 15.28 | | 1817 | 15.11 | | 1818 | 15.35 | | 1819 | 15.33 | | 1820 | 15.62 | | 1821 | 15.95 | | 1822 | 15.80 | | 1823 | 15.84 | | 1824 | 15.82 | | 1825 | 15.70 | | 1826 | 15.76 | | 1827 | 15.74 | | 1828-9 | 15.78 | | 1830 | 15.82 | | 1831 | 15.72 | | 1832 | 15.73 | +----------+---------+ [Sidenote: STATEMENT OF THE RATIO, 1660-1893] +---------+------------+--------++---------+------------+--------+ | | Price of | || | Price of | | | Year. |Silver Pence| Ratio. || Year. |Silver Pence| Ratio. | | | per Oz. | || | per Oz. | | +---------+------------+--------++---------+------------+--------+ | 1833 | 59-3/16 | 15.93 || 1864 | 61-3/8 | 15.37 | | 1834 | 59-15/16 | 15.73 || 1865 | 61-1/16 | 15.44 | | 1835 | 59-11/16 | 15.80 || 1866 | 61-1/8 | 15.43 | | 1836 | 60 | 15.72 || 1867 | 60-9/16 | 15.57 | | 1837 | 59-9/16 | 15.83 || 1868 | 60-1/2 | 15.59 | | 1838 | 59-1/2 | 15.85 || 1869 | 60-7/16 | 15.60 | | 1839-40 | 60-3/8 | 15.62 || 1870 | 60-9/16 | 15.57 | | 1841 | 60-1/16 | 15.70 || 1871 | 60-8/16 | 15.57 | | 1842 | 59-7/16 | 15.87 || 1872 | 60-1/4 | 15.65 | | 1843 | 59-3/16 | 15.93 || 1873 | 59-1/4 | 15.92 | | 1844 | 59-1/2 | 15.85 || 1874 | 58-5/16 | 16.17 | | 1845 | 59-1/4 | 15.92 || 1875 | 56-3/4 | 16.62 | | 1846 | 59-5/16 | 15.90 || 1876 | 53-1/16 | 17.77 | | 1847 | 59-11/16 | 15.80 || 1877 | 54-3/4 | 17.22 | | 1848 | 59-1/2 | 15.85 || 1878 | 52-5/8 | 17.92 | | 1849 | 59-3/4 | 15.78 || 1879 | 51-1/4 | 18.39 | | 1850 | 60-1/16 | 15.70 || 1880 | 52-1/4 | 18.04 | | 1851 | 61 | 15.46 || 1881 | 51-11/16 | 18.24 | | 1852 | 60-1/2 | 15.59 || 1882 | 51-5/8 | 18.25 | | 1853 | 61-1/2 | 15.33 || 1883 | 50-9/16 | 18.65 | | 1854 | 61-1/2 | 15.33 || 1884 | 50-5/8 | 18.63 | | 1855 | 61-5/16 | 15.38 || 1885 | 48-5/8 | 19.39 | | 1856 | 61-5/16 | 15.38 || 1886 | 45-3/8 | 20.73 | | 1857 | 61-3/4 | 15.27 || 1887 | 44-5/8 | 21.13 | | 1858 | 61-5/16 | 15.38 || 1888 | 42-7/8 | 21.99 | | 1859 | 62-1/16 | 15.19 || 1889 | 42-11/16 | 22.09 | | 1860 | 61-11/16 | 15.29 || 1890 | 47-11/16 | 19.17 | | 1861 | 60-13/16 | 15.26 || 1891 | 45-1/16 | 20.92 | | 1862 | 61-7/16 | 15.35 || 1892 | 39-3/4 | 23.74 | | 1863 | 61-3/8 | 15.37 || 1893 | 35-9/16 | 26.49 | +---------+------------+--------++---------+------------+--------+ | | | Up to 1878 this table is derived from Soetbeer, | | _Edelmetall-Produktion_, pp. 130-2. | | From 1878-1890 I have calculated simply in accordance with | | Soetbeer's method. | | | | The figures for 1891-3 are taken from the United States Mint | | Report, 1893, already referred to, p. 251. In the table there | | printed the director of the Mint gives slightly different | | figures for several years from 1872 onwards. | +----------------------------------------------------------------+ As far as the conditions of production of the precious metals are concerned, and the connection between those conditions and the ratio, there is historic and understandable continuity between the period already passed in review and modern times. In the method of expressing that ratio, however, there is a remarkable difference. [Sidenote: EVOLUTION OF THE MODERN SYSTEM] With the close of the seventeenth century the advantage of the process of altering the denomination of the coinage, of diminishing the content and reducing the standard of fineness, began to be impugned on theoretic grounds, and in the course of the eighteenth century that process itself fell into disuse. Since that time no Mint or legislative change such as we have hitherto described was made on the expressed value or content of any European coinage. Bearing in mind the twofold importance which was attached to that process of legislative guarding of the currency, this change must be regarded as of vital import. The legislator, from the middle of the fourteenth century, had attempted two things by this mechanism--(1) to follow the general rise of prices, and meet it by reducing the contents of the coins in such proportion as he thought fit; (2) to prevent any disastrous outflow of the precious metals by altering the ratio. The control of the Mint rates of metal-purchase and metal-coinage was, therefore, a matter of importance financially and politically to the nation, and economically to international commerce. In just such measure, therefore, was the entire ceasing of this State control of the mechanism of international exchange and currency a matter of almost incalculable significance in the history of the European monetary system. In the domain of finance it effected a revolution as signal as that produced in the relations of labour to capital by the disuse of the old labour laws. The ceasing of the artificial arbitrary Mint rates made way for a naturally determined or _commercial_ ratio, and the regulation of the international flow of the precious metals was left to the oscillation of trade balances, and to the action of interest rates and discount. The change is one from a mediæval, State-bound, merely legislative system to the modern system, in which the flow of precious metals is determined by the perfectly natural and automatic action of international trade--is indeed the index and safety-valve of it, and of the whole present commercial world-circle. This was not merely a change of fact and practice, it was a revolution of theory. For before the old State belief in the necessity of safeguarding the supply of precious metals at any cost and consideration could go by the board, the whole Mercantile Theory must have lost its force in men's minds. In the domain of theory the transition from the Mercantile to the modern system was gradual, through the various intermediate steps of Physiocratic and Smithian economics, and the complete abandonment of that system for our own can only be put very late, if indeed its period can at all yet be written, for modern Protectionist ideas are only a lusty survival of it. In the domain of financial practice, however, it--the mercantile system--ceased from the moment that the Governments of Europe left their Mint rates stationary, and gave the flow of the precious metals and the declaration of the ratio to the free unhampered natural action of international trade. The steps of the completed process can hardly be detailed, for there was much fear attending it, and the various Governments frequently retraced their steps in uncertainty. The earliest direct enactment was made by England. By the Act of 15 Charles II., chap. 7, sect. 12 (1663), the statutes forbidding the exportation of bullion were removed at one blow of astounding boldness. "Forasmuch," says this Act, "as several considerable and advantageous trades cannot be conveniently driven and carried on without the species of money or bullion, _and that it is found by experience that they are carried in greatest abundance (as to a common market) to such places as give free liberty for exporting the same_, and the better to keep in and increase the current coin of this kingdom, be it enacted that from and after the 1st day of August 1663 it shall and may be lawful to and for any person or persons whatsoever to export out of any port of England and Wales in which there is a customer or collector, or out of the town of Berwick, all sorts of foreign coin or bullion of gold or silver, first making an entry thereof in such customhouse respectively, without paying any duty, custom, poundage, or fee for the same, any law, statute, or usage to the contrary notwithstanding." [Sidenote: FREE TRADE IN THE PRECIOUS METALS] Standing so early and so almost completely alone as it does, this Act evinces an unexampled prescience and boldness. It doubtless reflects the commercial traditions of Holland, but that it should have been at a single stroke transferred to England at a time when she was so economically different and distant from Holland, needs make us pause in admiration. The only parallel to it, if any, would arise if France should suddenly, and by a single enactment, adopt to the full the Free Trade policy of England. As a matter of fact this Act of 1663 proved itself for a long time, and through many oscillations, impossible of execution, and far into the eighteenth century the British Government meddled, by legislation and proclamation, with the export of the precious metals, and with the tariff of the coins, as will be seen immediately. It was not till 1780 that a similar Act was passed for Ireland. In 1803 the Lords of the Treasury were by statute authorised to grant licences for the exportation of silver bullion without any such certificate or document whatsoever as had been required by the statute of 6 and 7 Wm. III. c. 17, sect. 5. It was almost a century after this action of England that France followed in the same path. By a proclamation of 7th October 1755, permission was given to the free commerce in precious metals and in foreign monies. But in the case of France, as in that of England, the enactment was not immediately nor fully realisable. The exportation of the national specie was still forbidden, and more than once the State found itself obliged to return to the question of the tariffing of its coinage. It is this vacillation--a vacillation, however, which must in every instance be attributed to sheer State necessity--which makes it impossible to trace in detail and point by point the fall of so much of the Mercantile System as concerned the regulating of international movements of metals. The _practice_ of the commercial world was doubtless in advance of the legislator's standpoint, as indicated by such detached references, and was effectual in completing the revolution silently and under the surface, whether by the aid or in spite of laws and proclamations. The same had been the case, e.g., with the old usury laws. When effected there are two highly important results which stand as the outcome of this change in the theory of international commerce. 1. The perception of a right theory of international balances opened the way to the separation of finance or currency phenomena pure and simple, and so prepared the ground for a scientific conception and treatment of them. In one direction this treatment resulted in the evolution of a theory and practice of a monometallic system--one, i.e., in which a single metal was made the legal tender, and a second or third metal bound to it in a hard-and-fast, subordinate relationship, so that they could not by their oscillations injuriously affect the tenderable metal. In another direction the same scientific conception and treatment resulted in the evolution (and after a time the practice) of a bimetallic theory. Modern currency history hinges on the antagonism of these two systems. [Sidenote: FUNCTION OF DISCOUNTS IN MODERN SYSTEM] This statement of the case will serve to show the enormous difference between nineteenth-century currency situations and problems and those of mediæval and seventeenth-century Europe. To-day the point at issue is between definitely and scientifically conceived rival theories, and the _practical_ difficulty before the world is how to provide, not so much a permanent ratio, as a permanent rate of international settlement between countries using different monetary systems, between silver-using and gold-using countries. In the seventeenth century there was no conception of theory at all, and the practical difficulty was how to frustrate the operations of the bullionist and arbitragist and politicians, and the depletion of national treasure due to their activity, and based on a difference of ratio prevailing in different countries. 2. The second practical outcome of the revolution was the development of the modern system of control of the flow of gold balances, viz. by means of the bank rate and the arbitrage transactions depending thereon, and on interest and discount rates generally. The modern theory of international trade does not say that between two particular countries, or at any one particular point of time there is an equivalence of exchange, but that between a circle of commercially interconnected countries, and over a certain cycle of time or operations, there is an equivalence of exchange of goods and services. Movements of currency in the most elementary form assist the process, as far as immediate settlements are concerned; bills of exchange assist it when there is need of deferred payments, as, for instance, when a country imports steadily all the year round, but has only one export time, say after harvest; and, finally, bank and discount rates assist the process by providing currency media at times and places which would otherwise be unable to attract a supply. Over the whole circle of completed operations there is equilibrium of exchange, and the machinery by which that equilibrium is accomplished is currency in the widest sense. The index or indicator and safety-valve of the whole is the rate of interest. On these bank rates are based the operations of the modern bullion dealers or arbitragists, which serve to equalise or economise the distribution of the precious metals all over the world. It will be seen at a glance, therefore, that they fulfil, in an automatic and perfectly natural manner, all that was vainly attempted to be accomplished by the repressive savage action of the State, and the interfering unscientific handling of the Mint and coinage rates. It is in this feature that the great distinction between the modern and the seventeenth-century world consists. Such a difference can only be based upon, and have arisen from, a true theory of international trade. But the process of development which alone made it possible--the development of modern banking, the invention of paper currency media, the breaking down of international trade restrictions, all the mechanical and scientific inventions which have resulted in the binding of the world together in one whole as far as commerce is concerned,--all this would comprise in brief the essential features of the complete commercial development of two centuries or more, and how far they are related as cause or effect it would be hard to say. In this secondary period, therefore, the separate history of each individual state gradually loses its distinct or isolated importance, as far as mere Mint edicts are concerned. As a consequence the bimetallic action which we have hitherto sought in the history of each individual currency must now increasingly be sought in the wider field of the world currency, that congeries or completed whole of currency of which each national system now forms only a part, and that not an independent part. France. In this third period the first change which France made in her silver monies was in 1674, when she for a time coined 4-sol. pieces of a quality below that of the _écus blancs_ by more than a fifth. A great outcry was made by the Mint officers and mercantile community against this money as implying a debasement. In 1679 there was a noticeable quantity of Spanish _pistoles_ and large _écus d'or_ in circulation, and as a remedy it was ordered that they should be recoined into _louis d'or_ and _louis d'argent,_ the King offering to forego the seignorage as an inducement to bring them to the Mint. In 1686, however, the louis d'or itself was raised from 10 livres to 11 livres 10 sols., and the ratio thus changed to 15-1/2. This being found greatly in excess, in the following year it was lowered to 11 livres 5 sols. (a ratio of 15-1/4). In 1689 both silver and gold were again raised, the _louis d'or_ to 11 livres 12 sols. and the _louis d'argent_ to 3 livres 2 sols., but almost immediately a general recoinage was resolved upon. In this great operation, effected towards the close of 1689, the weight and standard of the previous coinage was exactly retained, but the louis d'or was issued at 12 livres 10 sols. and the louis d'argent at 3 livres 6 sols. Only two years later again the standard had to be altered, and the value of 1693 somewhat raised. It will give some slight idea of the sapping of the coinage that the pieces which in 1691 were minted at 12 livres 10 sols. were, in 1693, called in at a valuation of 11 livres 14 sols. The new species of 1693 were issued at 13 livres and 3 livres 8 sols. respectively. [Sidenote: FRANCE: THE REFORM OF 1726] Ten years later a third recoinage was ordered, the louis d'or being issued at 15 livres, and the louis d'argent at 4 livres. By 1709 these species had sunk in equivalence to 12 livres 15 sols. and 3 livres 8 sols. respectively. In that same year, however, their issue value was raised to 20 livres and 5 livres. This extraordinary and arbitrary action was greatly to the detriment of French commerce, and the idea was entertained of gradually reinducing the standard of 14 livres and 3 livres 10 sols. This was ordered by proclamation of 30th September 1713, which was to continue in force till 1715. In the latter year a reformation of the coinage was again undertaken, the reformed species rising to 20 livres and 5 livres, and the worn species remaining at 16 livres and 4 livres. From this latter date up to 1721 the operations of the financier John Law wrought great disasters in the monies. At the time of the erection of the bank, 2nd May 1716, there were four species of _louis d'or_ and three of _louis d'argent_. By 1720 the former had grown to forty in number and the latter to ten. (For the disorders of the period of John Law, see the account of French monetary system, Appendix VI.) It was to remedy this disorder that the great edict of 1726 was enacted. This edict, which formed the basis of the French currency system almost up to the days of the Revolution, prescribed the minting of louis d'or at a tale of 30 to the mark, and issued at a value of 20 livres; and of silver écus at 8-3/10 to the mark and issued at 5 livres--divisional coins in proportion. The legal ratio was therefore 14-5/8. All foreign coins and the ancient species of gold and silver were decried, and ordered to be brought in for reminting. All the prohibitive regulations of an old régime against cutting and export, etc., were re-enacted with severest penalties. But as the rate at which the Mint was ordered to take in the old coinage did not represent the commercial value at the moment, the old coins were not brought in, and up to as late as 1749 the recoinage had not been accomplished, although the Mint prices had been at different times advanced on the whole a matter of 30 per cent. or more. In 1759 the want of currency had become so great that the King sent his plate to the Mint, and numbers of private individuals followed his example, receiving in reimbursement part payment at the rate of 861 livres 5 sols. 10 den. for the mark of fine gold, and of 59 livres 5 sols. 10 den. for the mark of fine silver. This latter tariff underwent no change until 1771, when, under the pretext of the changes which foreign coinage tariffs had undergone, those terms were fixed respectively at 709 livres and 48 livres 9 sols. In this résumé the mention of billon money has been generally avoided, as unduly complicating the subject. But in the legislative action of France in the eighteenth century there is one act which necessitates a momentary departure from this standpoint. In 1738 the Government of the United Provinces diminished the value of their _sols._ by one-half. The French Government fearing that this diminution would lead to an immense influx of such sols. decided to follow suit. By a decree of August 1st of the same year, 1738, it was ordered that the _Douzains_ and pieces of thirty deniers should have course only for eighteen deniers. The important point to notice in connection with this is that, in order to mitigate the effect of this reduction, the same decree limited the tender of such billon money. It was ordered that in payments up to 400 livres not more than 10 livres should be tenderable in billon, and for payments of more than 400 livres not more than 1/40 of the total. The restriction was ineffectual in preventing either the import of foreign billon specie or the operations of billonage or arbitrage, based on the differentiated value of the various kinds of billon circulating. This is quite evident from the preamble of the edict of the following October, 1738, which attempted the calling in of the 30-denier pieces, in order to put a stop to the process. [Sidenote: FRANCE: THE REFORM OF 1785] Such a failure is quite in keeping with all previous experience as recorded in these pages, and deserves no special reference. The point to note is rather the gradual evolution and adoption of the idea of limiting the tender of the lower species, so as to contract their action on the main species of the currency. This idea forms the complement of the idea of an agio, involved in the issue of fractional coins on a lower standard or basis than that of the greater specie. The one idea was--in long, over-long, periods i.e.--impracticable without the other; but together, when finally evolved, thoroughly seized and put in practice, they formed the main basis of the truest modern currency system. To return to the pure gold and silver species. The basis of 1726 remained at law unaltered until 1785. The edict of the 30th October of that year commanded a recoinage; no change was made in the silver coinage, which remained according to the tariff of May 1773, namely, 52 livres 9 sols. 2 den. to the mark fine. By the alteration of the tariff of gold, however, to 828 livres 12 sols. to the mark fine, the ratio of 14-5/8, which had nominally prevailed since 1726, was altered to the memorable 15-1/2. The reason was explicitly stated to be the increase in the value of gold during several preceding years--an increase which had banished or detained gold from the French Mint and even from France. Writing in 1785, the minister, Calonne, who proposed and executed the recoinage in that year, spoke thus:-- "In 1726 the legal ratio was fixed in France at 14 marks 5 oz. of silver, to a mark of gold, and that which proves with how much sagacity this point was seized is the fact that during a long course of years France retained in her circulating medium a sufficiently large proportion of each metal. Nevertheless, her gold gradually became less common, and for some years this scarcity has rapidly increased, and this precisely because its legal value has always remained the same, while its metallic value has increased from year to year." He estimated the amount of livres in _louis d'or_ existing in the country at the time of the recoinage, 1785, as 650 million livres, which amounted to only a half of the total coinage (1300 million livres) of the period 1726-85. What seems to have determined Calonne to adopt 15-1/2 was the fact that Spain had the legal ratio of 16, and that there was a probability that, in future, gold would rise in value. As for the market price, he admits that it was only 15.08-15.12 in 1785. The recoinage, therefore, brought a profit of 7,255,216 livres to the King's purse, and a profit of 21,600,000 livres to the holders of the old _louis d'or_. [Sidenote: FRANCE: CALONNE'S POLICY IN 1785] His policy was severely criticised in a report made in 1790 to the National Assembly, which proposed a silver standard, with an authorised circulation of gold coins at the ratio of 14-7/9 and the abolition of seigniorage. It is well known that this was nearer to the market rate. Calonne's ratio, therefore, must be regarded as arbitrary and designing. Practically, the latter recommendation of the committee's paper of 1790 had been conceded in the decree of 30th October 1785, as the seigniorage was by it allowed to be no more than the net cost of reminting. By this celebrated edict of Calonne's, which also enacted a recoinage, the right of seigniorage was practically finally relinquished for France. Fixity was given to silver as the principal money, and a definite ratio was established at which gold was to circulate by its side. In these, its chief points or characteristics, it formed the exact model for the later Act of Republican France, which is ignorantly looked upon as having created the bimetallic system. The Act of 7 Germinal an XI. did but re-enact and perpetuate the edict of 1785. It is important to reaffirm and emphasise this point, as quite wild and blind estimates have been formed of the later action of Republican France. In merest fact, that later action created no new order, it instituted no new idea, it did not even promulgate its own theory. [Sidenote: FRANCE: CURRENCY LEGISLATION AT REVOLUTION] Republican France began her reform of the currency in a very temporary and opportunist manner by issuing a mass of inferior monies of 15 and 30 sous pieces to form the basis of the assignats, and to replace the gold and silver which had almost entirely disappeared from circulation. In the decree of 16 Vendémière an II. (7th October 1793), however, the question of standard was approached, and decided in a remarkable manner. The monetary unit was decreed to consist of the hundredth part of a kilogram, named _grave_, represented (1) by a piece of silver 9/10 fine and weighing 10 grms., (2) by a piece of gold of the same weight and standard, to be current at 15 times the value of the silver piece. This decree remained a dead letter, and two years later the _franc_ was definitively adopted as the base of the French system. As determined by the two laws of 28 Thermidor an III. (15th August 1795), that system was based upon the silver franc (weighing 5 grms. 9/10 fine). A gold coinage was ordained, of the same fineness, in a piece of 10 grms. weight, but the ratio of value of the gold to the unit franc was not fixed. This was exactly the monetary system which Mirabeau had counselled in his memoirs to the Assembly in 1790. The silver _5-franc_ pieces prescribed under this system found acceptance, the bronze pieces were refused and had to be withdrawn, and as to the gold piece, its issue was not even attempted. Two years later the "Directoire" pronounced in favour of maintaining the 10-grm. piece of gold, but demanded the fixation of its value, proposing a ratio of 16:1. In opposition to this scheme, Prieur submitted to the "Council of the Five Hundred" a project adopting the silver and gold coinage, as already determined as above, but leaving the value of the gold piece to fluctuate according to the market, its value being declared twice annually by public announcement. After being materially altered in the "Council of the Five Hundred," this scheme was definitively rejected by the "Council of Senators," and for several years the question of the monetary system of the Republic was allowed to slumber. When, in the year X., the consideration of the subject was resumed, it was at the instigation of the Consuls. At their desire the Minister of Finance, Gaudin, laid before the Council of State a scheme in which he proposed the issue of 20 and 40-franc gold pieces, of a value based on the ratio enunciated in the edict of 1785, namely, 15-1/2. He was, at the same time, careful to explain that silver remained the basis of the currency, and that the gold money could be reissued if a different market compelled a change in the ratio. In his report to the Consuls, Gaudin admits that the commercial ratio had for a long time been under 15. The decisive point which led him to maintain the ratio established in 1785 was, that to change the _status quo_ by the adoption of 15 as a ratio would occasion great loss to the holder of gold coins, and that there was no sufficient reason for so great a change. The Financial Committee of the Council of State at first rejected the scheme, preferring that of Prieur, already described, but on an inquest, ordered by the First Consul, who insisted on pressing the matter to a conclusion, M. Gaudin carried his propositions through the Council of State, but with the important difference that the reference to any future change in the ratio of gold to the basis of silver was tacitly dropped. These propositions became the foundation of the law of 7-17 Germinal an XI. (28th March 1803), on which the monetary system of Republican France was finally built. The _exposé des motifs_ of this law speaks of the gold coins in these words:-- "The gold pieces up to the present in circulation are the pieces of 24 and 48 livres tournois. Article 6 of this law substitutes in their place pieces of 20 and 40 francs. The adoption of the decimal system necessitates this change, which brings all parts of the system into accord. It is on the same consideration that the standard is fixed at 9/10, like that of silver." Not a word is said as to the ratio, and much more stress is laid upon the suppression of billon money and on the abolition of seigniorage, as of greater importance and benefit to the nation's interests. By this law of Germinal XI. the monetary unit of the French system was declared to be the silver franc, weighing 5 grms. of 9/10 standard. By the side of this franc and its multiples, were to be issued gold pieces of 20 and 40 francs, valued on a basis ratio of 15-1/2 to the silver. [Sidenote: FRANCE: THE REFORM OF 1803] It will be seen at a glance from the course of this previous history that this law instituted no new principle, or theory, or system in French currency. The decimal system was adopted in place of the old system of livres tournois, seigniorage was abolished, and fixation of value given to the unit money, and billon money discontinued. But in matter of standard and system there was not even innovation. The system of Republican France, as established by this law, was no more and no less bimetallic than in 1785, or than in 1610, or in the days of Francis I. Theories as such did not occupy the mind of the legislator, and of any conception of a bimetallic theory or system such as we have learned to know there is no trace. The First Consul found at hand the two metals which had formed the currency of his country for centuries. The problem of their regulation was the same which had been faced by his predecessors for centuries, and he settled it in the same practical untheoretic way. It was only gradually that in its totality of coins the French monetary system was made to conform to the metric system thus established. The old gold coins of 12, 24, and 48 livres were not suppressed until June 1829, the actual extinction of billon money was only accomplished in 1845, and the recoinage of the inferior monies in 1852-56. But such are mere matters of detail and apart from the subject. The experience of France under this new régime is, therefore, in no wise different _in kind_ from such experience as has been described for the preceding centuries. It is not until the broaching of a bimetallic theory as such, and until the expression of that theory, as a theory, in the formation of the Latin Union, that anything like a special significance attaches to the monetary system and experience of France in the nineteenth century, any more, e.g., than in the seventeenth. The main difference in the situation was not that France had changed her system, and that her experience was henceforth different and of different signification, but that England had changed hers, and that the brunt of the fluctuations of the precious metals about a fixed ratio was left to be borne by a smaller area. The influence and the instance is, therefore, more telling in degree, but in no way different in kind. The second idea which is commonly entertained with regard to the action of France during this later period, viz. that her action secured for the world at large a fixed and steady ratio, is equally--indeed, still more--fallacious. At no point of time during the present century has the actual market ratio, dependent on the commercial value of silver, corresponded with the French ratio of 15-1/2, and at no point of time has France been free from the disastrous influence of that want of correspondence between the legal and the commercial ratio. The opposite notion, which prevails and finds expression in the ephemeral bimetallic literature of to-day, is simply due to ignorance. From 1815 England has been withdrawn from this action of a bimetallic law, and the modern insular pamphleteer has before his eyes no sign of its workings in his own country. He therefore assumes an universality of such experience, and attributes it to the French legislative ratio. It is in no polemic spirit, but simply in the interest of science that this particular misapplication of history to the squaring of a theory is to be branded. The plainest facts of history are thereby absolutely misrepresented, and the assumption of cause and effect is so far from being true that the repose of the English currency history in the nineteenth century is to be attributed to the _absence_ of a bimetallic system; to its despite rather than its presence and influence. To instance only by France for the moment. [Sidenote: FRANCE: COURSE OF THE RATIO] The course of the actual or market ratio has been already stated in the table (_supra_, pp. 157-59). In the graphic representation of this (_opposite_) the legal ratio of 15-1/2 is represented by the fixed line _x.y._, the actual ratio by the fluctuating black line _z_. At no point do these lines coincide. After three years of fluctuations, 1803-06, now above and now below, the ratio sinks persistently below for seven years, 1807-13, touching the lowest point (a ratio of 16.24) in 1813. For the succeeding five or six years, 1813-19, the ratio was as consistently above the legal rate, though with less violence and width of divergence. From the latter year, 1819, up to 1850, its course was undeviatingly below 15-1/2, then from 1851-67--the period, i.e., of the great gold outputs of Australia and America--as undeviatingly above. From the last-named date until the close of the bimetallic system in France, and, indeed, up to our own days, the course of the commercial ratio has been again unbrokenly below the 15-1/2 ratio, and, as is too well known, with an ever-increasing enormity of divergence. So much for the claim that the French law has dowered the world with a steady ratio. _Secondly_, what has been the influence of this divergence of the commercial from the legal ratio upon France's store of precious metals? It has been exactly similar in effect and force with that wielded by similar trains of event and circumstance, in the monetary history of France during the four preceding centuries. The exact official figures of the import and export of gold and silver are not obtainable before 1822, and in a continuous stream not before 1830 (separably for the two metals, that is to say).[15] [Sidenote: FRANCE: BIMETALLIC EXPERIENCE, 1803-75] From the latter date, however, the testimony of the figures is as explicit as it is forceful. From 1830 to 1850, while the ratio remained continually below the legal 15-1/2, there was a profit on the import of silver, and a persistent and heavy import took place. In 1830 the (balance of the) silver imported amounted to a matter of 6 millions sterling, in 1831 to 7-1/4 millions, in 1834 to 4 millions, in 1837 to over 5-1/2 millions, in 1838 to nearly 5 millions, in 1841 to nearly 5 millions, in 1843 over 4 millions, in 1848 to over 8-1/2 millions, and in 1849 to nearly 10 millions. There was not a single year that was not accompanied by this import, and over the whole twenty-two years the total of importations reached the enormous figure of, approximately, 92 millions sterling. It must be clearly understood that this sum represents not the gross but the net importation or balance of imports over exports, and that the money passed into the currency of the country, taking its place as such and displacing gold _pari passu_. The movement of gold in the same time is represented by the red line in the accompanying diagram. Within the limits of very considerable exceptions, the correspondence of its fluctuations with those of gold is clearly perceptible. The silver, on whose coinage a profit or premium was offered by the existing French law to individuals, could only be bought or paid for by the export of gold or services and goods. During these years, 1830-50, it was quite apparently by the latter method, namely, by remittance of goods, as on the whole period there is a slight gain of gold, nearly 3 millions, contrary to what bimetallic law would have led to expect. The correspondence, however--a simultaneity--of the two movements, of import of silver and export of gold, is strongly marked in the years 1834-39 and 1841-48, and the failure of correspondence of the totals is to be explained by the statistics of French foreign trade balances during the years named. With the year 1852, the decisive change in the ratio sets in with the new gold influx. The ratio rises above the 15.5 of the French law, and the profit on the importation and coining of silver vanishes. Its place is taken by a corresponding profit on the importation and coinage of gold. The fourteen years during which the ratio remained above the legal 15-1/2 witnessed the importation into France of a total net (or balance) of gold to the amount of 135 millions sterling, and a total net or balance of exportation of silver of 66-2/3 millions sterling. The coincidence of actual fluctuation will best be seen by the graphic representation of it in the table. With 1865 the final and, so far as the nineteenth century is concerned, the fatal change of the commercial ratio sets in. It sinks persistently and increasingly below the legal 15-1/2, in face and spite of the united mintings of the Latin Union, and at once the premium on the importation and coinage of gold changes into one on silver. From 1865 to 1875, one year before the abandonment of the coinage of the 5-franc piece and the consequent relinquishment by France of the bimetallic system, her net imports of silver amounted to 56 millions sterling. As far as these figures of import and export are concerned, they show only the _final_ results of the action of bimetallic law. The metal on whose importation and minting a premium was obtainable _was_ imported, and in large quantities. That is the single fact standing out in large. The reciprocal fact--of a corresponding export of the metal over whose head the premium offered--does not emerge so distinctly, simply by reason of the complication of the subject of exports of metals with the wider general movement of trade balances. It also is, however, distinctly perceptible and demonstrable. But this is to speak only in large and of final results. What the intermediate course of events--of see-saw and flux, was, can only be adequately grasped from the records of the mintings, conjoined with the records of net import or export of the two metals. TABLE OF THE NET IMPORTS OR EXPORTS OF GOLD IN FRANCE UNDER THE BIMETALLIC LAW, 1822-75. +------+------------+------------++------+-------------+-------------+ | | Net | Net || | Net | Net | | Year.| Import | Export || Year.| Import | Export | | | (Francs). | (Francs). || | (Francs). | (Francs). | +------+------------+------------++------+-------------+-------------+ | 1822 | 4,000,000 | ... || 1852 | 17,000,000 | ... | | 1823 | ... | 19,000,000 || 1853 | 289,000,000 | ... | | 1824 | 37,000,000 | ... || 1854 | 416,000,000 | ... | | 1830 | 10,000,000 | ... || 1855 | 218,000,000 | ... | | 1831 | 10,000,000 | ... || 1856 | 375,000,000 | ... | | 1832 | ... | 39,000,000 || 1857 | 446,000,000 | ... | | 1833 | 24,000,000 | ... || 1858 | 488,000,000 | ... | | 1834 | ... | 7,000,000 || 1859 | 539,000,000 | ... | | 1835 | ... | 20,000,000 || 1860 | 311,000,000 | ... | | 1836 | ... | 14,000,000 || 1861 | ... | 24,000,000 | | 1837 | ... | 6,000,000 || 1862 | 165,000,000 | ... | | 1838 | ... | 4,000,000 || 1863 | 12,000,000 | ... | | 1839 | 24,000,000 | ... || 1864 | 125,000,000 | ... | | 1840 | 49,000,000 | ... || 1865 | 150,000,000 | ... | | 1841 | ... | 5,000,000 || 1866 | 465,000,000 | ... | | 1842 | ... | 12,000,000 || 1867 | 409,000,000 | ... | | 1843 | ... | 41,000,000 || 1868 | 212,000,000 | ... | | 1844 | ... | 6,000,000 || 1869 | 275,000,000 | ... | | 1845 | ... | 14,000,000 || 1870 | 119,000,000 | ... | | 1846 | ... | 9,000,000 || 1871 | ... | 214,000,000 | | 1847 | ... | 13,000,000 || 1872 | ... | 53,000,000 | | 1848 | 38,000,000 | ... || 1873 | ... | 108,000,000 | | 1849 | 6,000,000 | ... || 1874 | 431,000,000 | ... | | 1850 | 17,000,000 | ... || 1875 | 454,000,000 | ... | | 1851 | 85,000,000 | ... || | ... | ... | +------+------------+------------++------+-------------+-------------+ TABLE OF THE MOVEMENT OF SILVER DURING THE SAME PERIOD. +------+-------------+-----------++------+-------------+-------------+ | | Net | Net || | Net | Net | | Year.| Import | Export || Year.| Import | Export | | | (Francs). | (Francs). || | (Francs). | (Francs). | +------+-------------+-----------++------+-------------+-------------+ | 1822 | 125,000,000 | ... || 1852 | ... | 3,000,000 | | 1823 | 114,000,000 | ... || 1853 | ... | 117,000,000 | | 1824 | 124,000,000 | ... || 1854 | ... | 164,000,000 | | 1830 | 151,000,000 | ... || 1855 | ... | 197,000,000 | | 1831 | 181,000,000 | ... || 1856 | ... | 284,000,000 | | 1832 | 60,000,000 | ... || 1857 | ... | 360,000,000 | | 1833 | 75,000,000 | ... || 1858 | ... | 15,000,000 | | 1834 | 101,000,000 | ... || 1859 | ... | 171,000,000 | | 1835 | 74,000,000 | ... || 1860 | ... | 157,000,000 | | 1836 | 27,000,000 | ... || 1861 | ... | 62,000,000 | | 1837 | 144,000,000 | ... || 1862 | ... | 86,000,000 | | 1838 | 120,000,000 | ... || 1863 | ... | 68,000,000 | | 1839 | 75,000,000 | ... || 1864 | ... | 42,000,000 | | 1840 | 96,000,000 | ... || 1865 | 72,000,000 | ... | | 1841 | 117,000,000 | ... || 1866 | 45,000,000 | ... | | 1842 | 92,000,000 | ... || 1867 | 189,000,000 | ... | | 1843 | 103,000,000 | ... || 1868 | 109,000,000 | ... | | 1844 | 82,000,000 | ... || 1869 | 112,000,000 | ... | | 1845 | 90,000,000 | ... || 1870 | 35,000,000 | ... | | 1846 | 47,000,000 | ... || 1871 | 15,000,000 | ... | | 1847 | 53,000,000 | ... || 1872 | 102,000,000 | ... | | 1848 | 214,000,000 | ... || 1873 | 181,000,000 | ... | | 1849 | 244,000,000 | ... || 1874 | 360,000,000 | ... | | 1850 | 73,000,000 | ... || 1875 | 194,000,000 | ... | | 1851 | 78,000,000 | ... || | | | +------+-------------+-----------++------+-------------+-------------+ TABLE OF THE COINAGE OF GOLD IN FRANCE, 1803-75, DURING THE BIMETALLIC RÉGIME. +------+-------------+-------------++------+-------------+-------------+ | | | || | | | | Year.| Gold | Silver || Year.| Gold | Silver | | | (Francs). | (Francs). || | (Francs). | (Francs). | +------+-------------+-------------++------+-------------+-------------+ | 1803 | 10,209,840 | 23,171,988 || 1810 | 46,070,600 | 57,170,216 | | 1804 | 38,463,980 | 47,517,195 || 1811 | 132,135,740 | 256,399,040 | | 1805 | 20,474,500 | 46,385,909 || 1812 | 97,717,880 | 160,786,409 | | 1806 | 38,533,760 | 25,241,651 || 1813 | 62,659,680 | 134,900,313 | | 1807 | 18,019,920 | 5,008,903 || 1814 | 64,544,720 | 61,244,121 | | 1808 | 32,311,260 | 67,833,922 || 1815 | 55,379,840 | 37,673,806 | | 1809 | 15,206,440 | 44,296,494 || 1816 | 15,151,280 | 34,917,526 | +------+-------------+-------------++------+-------------+-------------+ TABLE OF THE COINAGE OF GOLD IN FRANCE, 1803-75, DURING THE BIMETALLIC RÉGIME--_continued_. +------+-------------+-------------++------+-------------+-------------+ | | | || | | | | Year.| Gold | Silver || Year.| Gold | Silver | | | (Francs). | (Francs). || | (Francs). | (Francs). | +------+-------------+-------------++------+-------------+-------------+ | 1817 | 52,197,080 | 37,143,579 || 1847 | 7,706,020 | 78,285,157 | | 1818 | 95,410,460 | 12,406,076 || 1848 | 39,697,740 | 119,731,095 | | 1819 | 52,410,660 | 21,235,077 || 1849 | 27,109,560 | 206,548,663 | | 1820 | 28,781,080 | 18,436,620 || 1850 | 85,192,390 | 86,458,485 | | 1821 | 404,140 | 67,533,866 || 1851 | 269,709,570 | 59,327,308 | | 1822 | 4,718,100 | 100,679,137 || 1852 | 27,028,270 | 71,918,445 | | 1823 | 408,180 | 82,911,680 || 1853 | 312,964,020 | 20,099,488 | | 1824 | 7,071,700 | 114,476,007 || 1854 | 526,528,200 | 2,123,887 | | 1825 | 45,616,360 | 75,203,291 || 1855 | 447,427,820 | 25,500,305 | | 1826 | 925,540 | 90,835,623 || 1856 | 508,281,995 | 54,422,214 | | 1827 | 3,160,940 | 153,868,978 || 1857 | 572,561,225 | 3,809,611 | | 1828 | 8,025,740 | 161,466,133 || 1858 | 488,689,635 | 8,663,568 | | 1829 | 1,118,180 | 102,642,617 || 1859 | 702,697,790 | 8,401,813 | | 1830 | 23,516,640 | 120,187,089 || 1860 | 428,452,425 | 8,034,198 | | 1831 | 49,641,380 | 205,223,764 || 1861 | 98,216,400 | 2,518,049 | | 1832 | 2,046,260 | 141,353,915 || 1862 | 214,241,990 | 2,519,397 | | 1833 | 16,799,780 | 157,482,863 || 1863 | 210,230,640 | 329,610 | | 1834 | 30,231,200 | 218,288,304 || 1864 | 273,843,765 | 7,296,609 | | 1835 | 4,550,060 | 99,966,149 || 1865 | 161,886,835 | 9,222,394 | | 1836 | 5,097,040 | 43,242,399 || 1866 | 365,082,925 | 44,821,409 | | 1837 | 2,026,740 | 111,858,697 || 1867 | 198,579,510 | 113,758,539 | | 1838 | 4,940,140 | 88,489,324 || 1868 | 340,076,685 | 129,445,268 | | 1839 | 20,670,000 | 73,637,742 || 1869 | 34,186,190 | 68,175,897 | | 1840 | 40,998,240 | 63,795,527 || 1870 | 55,394,800 | 69,051,256 | | 1841 | 12,375,060 | 77,517,941 || 1871 | 50,169,880 | 23,878,499 | | 1842 | 1,852,720 | 68,391,170 || 1872 | -- | 26,838,369 | | 1843 | 2,826,600 | 74,148,998 || 1873 | -- | 156,270,160 | | 1844 | 2,742,260 | 69,134,980 || 1874 | 24,319,700 | 60,609,988 | | 1845 | 119,140 | 89,967,609 || 1875 | 234,912,000 | 75,000,000 | | 1846 | 2,086,420 | 47,886,145 || | | | +------+-------------+-------------++------+-------------+-------------+ During the years 1820-50, when the ratio remained below the legal 15-1/2 and there was a profit on the import of silver, the total silver coinage of the French Mint amounted to £127,458,322, while that of gold reached only £19,333,854. In the succeeding period, 1850-66, when the ratio changed and remained for fifteen or sixteen years in favour of gold, the total gold coinage reached £292,416,951, while the total silver coinage was scarcely more than 1-1/4 millions (£1,315,532). At the beginning of this second period, 1851, the Bank of France held in its reserves approximately only 3-1/2 millions sterling of gold, whereas its silver amounted to more than 19 millions. At the close of the period indicated, 1866, the bank was holding 23 millions sterling of gold against nearly 5-1/2 millions of silver. In the former case the proportion of silver formed 85 per cent. of the total, in the latter only 19 per cent. TABLE OF THE RESERVES OF THE BANK OF FRANCE, 1851-76. +------+--------+--------+-----------++------+--------+--------+-----------+ | | Gold | Silver | Percent || | Gold | Silver | Percent | | Year.|(Million|(Million| of Silver || Year.|(Million|(Million| of Silver | | |Francs).|Francs).| to Total. || |Francs).|Francs).| to Total. | +------+--------+--------+-----------++------+--------+--------+-----------+ | 1851 | 83 | 478 | 85 || 1864 | 273 | 94 | 27 | | 1852 | 69 | 442 | 86 || 1865 | 238 | 208 | 44 | | 1853 | 102 | 214 | 67 || 1866 | 576 | 136 | 19 | | 1854 | 301 | 193 | 39 || 1867 | 697 | 318 | 31 | | 1855 | 72 | 147 | 66 || 1868 | 662 | 474 | 42 | | 1856 | 94 | 104 | 53 || 1869 | 461 | 798 | 63 | | 1857 | 110 | 126 | 52 || 1870 | 429 | 69 | 14 | | 1858 | 294 | 260 | 47 || 1871 | 554 | 80 | 13 | | 1859 | 250 | 329 | 56 || 1872 | 656 | 134 | 17 | | 1860 | 144 | 272 | 65 || 1873 | 611 | 148 | 19 | | 1861 | 225 | 100 | 30 || 1874 | 1013 | 314 | 24 | | 1862 | 187 | 108 | 36 || 1875 | 1168 | 504 | 30 | | 1863 | 119 | 72 | 37 || 1876 | 1349 | 540 | 28-1/2 | +------+--------+--------+-----------++------+--------+--------+-----------+ The statistics of the Latin Union, up to the suspension of the bimetallic system will be separately dealt with. Speaking only of the experience of France during these years of bimetallic régime, the ebbing and flowing experience which has throughout been instanced as the chief characteristic of such régime is most strongly marked. The legal ratio did not give the market ratio, and so far was it from giving France a stable currency, it was the one thing which unsettled it and made a stable currency impossible. The _exposé des motifs_ of the law of 1876, which will be referred to in another connection below, puts the matter with official brevity. "The variations of the commercial from legal 15-1/2 ratio remained normal during the years 1824-67. All the same they sufficed to modify greatly the composition of the French circulation. After the predominance of silver, which became marked in 1847, the ratio from 1847-67 introduced gold in a large proportion, and measures had to be taken to retain in France the smaller silver coinage. Our silver _monnaie d'appoint_ of .835 fine was created for this purpose." To regard this question from a theoretic and international point of view, to the exclusion of any regard for the separate national interests of France, is a sheer absurdity. It mattered little or nothing to France that by unloading the stores of silver she happened to possess at the time of the gold discoveries of the Fifties she helped to steady the ratio for the world at large. It did however matter, and very much, that this process of exchange from the one metal to the other was attended with public loss, balanced only by illicit private gain, and with a disturbance of trade in every town of France through the disappearance of the smaller silver specie. Whether or not France or any other country is called upon to sacrifice herself thus--not once but every time the ratio fluctuates from below to above the legal ratio or _vice versa_--for the sake of an ideal, bimetallic, regulating, function, let common sense decide. The French monetary commission of 1867 speaks thus of the situation-- "It is well known by all that this ratio [of 1803] by the simple reason of its being fixed could not remain correct. There was quickly a premium on gold, and silver remained almost alone in circulation until near 1850. The discovery of the mines of California and Australia suddenly changed this situation by throwing into the European market a very considerable quantity of gold. By the side of this force, which tended to create a divergence from the legal ratio by lowering gold, there was another which occasioned a rise of silver. Under the influence of various circumstances, too long to enumerate, the needs of the extreme East had grown in unusual proportions, and as silver is alone in favour there, it was exported in enormous masses. There was a premium on silver to the extent of 8 per mille, and it disappeared almost completely from circulation, yielding place to gold. "Preoccupied by the situation the Government charged a commission to study the measures to be taken. Its labours are summed up in the report of M. de Bosredon (1857). After examining the system tending to preserve silver money intact by lowering the value of gold money, and conversely the system tending to the adoption of the gold standard by reducing the silver money to the state of billon, the commission did not decide between them. It confined itself, in fact, to counselling the Government to a transitory step--the raising of the export duties on silver.... The exportation of silver, therefore, continued; and if the disappearance of 5-franc pieces was not remarked, because they were replaced by gold, it was not the same with the scarcity of pieces of a smaller value employed in petty payments. "Being informed of the obstruction to retail commerce by complaints carried before the Senate, and instructed by the example of Switzerland, which had in 1860 reduced the standard of its divisional money, the Minister of Finance appointed a commission, 1861, to study the remedy to be applied to the evil. This commission counselled the reduction of the standard of pieces of less than 5-francs to .834 fine. It did this in complete knowledge of the cause, fully recognising that in so doing the monetary unity of silver, characteristic of our system, would be thereby broken, at anyrate for its circulating form; for while the franc no longer existed in law, the 5-franc was disappearing in fact, so that the change was equivalent to the establishment of a gold standard." This advice of the commission was however, by the law of 1864, applied only to pieces of 50 or 20 centimes. The next step in the process was the formation of the Latin Union in the year following. The above-quoted commission speaks of the intentional aspect of this Union in these words: "This convention places in the front rank gold money, and reduces the pieces of silver of 2 francs and less to the _rôle_ of token money. It therefore definitely determines [_consacre_] the ascendency of the gold francs, and solves practical difficulties arising from the double standard." This was written in 1867, less than two years after the formation of the Latin Union. It is not the view which prevails among bimetallists to-day as to the purpose and intentional bearing of that Union; but it is the historic truth none the less, and it was only the complete revolution in the conditions of production of the precious metals which made itself felt from 1871, which has given the Latin Union the aspect of a theoretic concert for the maintenance of, rather than as a defence against, a bimetallic system. If silver had not fallen in 1871 the Latin Union would still be the bulwark of defence of bimetallic France against the action of bimetallic law. [Sidenote: THE LATIN UNION] The formation of the Latin Union, therefore, was a measure of defence against the action of the bimetallic system in those countries which had adopted the monetary system of France, and lay exposed to all its disastrous fluctuations. The first and moving factor in its formation was Belgium. So far as related to silver, Belgium had adopted the French system by her monetary law of 5th June 1832. By the first article of this law the monetary unit was fixed at the silver franc of 5 grms. weight, and 9 fineness. For years Belgium endeavoured to maintain this law in its integrity. Public opinion, however, demanded the admission of French gold at its normal value, and this was conceded and decreed by the law of 4th June 1861. From that moment she felt all the oscillating movement which France was experiencing. The declaration of Article 1. of the law of 1832 became a dead letter; the gold standard took the place of the silver standard, and equally with France, Italy, and Switzerland, Belgium had to witness the disappearance of her small silver coins. To the previous abundance there succeeded a penury of small change, although the drain was not so immediately felt because of large reserve of silver 5-franc pieces (amounting to 48 millions of francs) held by the National Bank. In slightly over a year, 1st June 1861 to 8th November 1862, this stock of 48,645,000 francs had sunk to 14,629,000 francs, and in alarm the National Bank ceased, on the latter date, all payments in 5-franc pieces. Concurrently with this drain of the 5-franc pieces, the reserve of silver coins of less value began to be seriously affected by the sapping influence. During the two following years, 1861-63, there was little commerce in the precious metals owing to the American war. But in 1863 the movement of drain recommenced. The reserve of 5-franc pieces and the stock of divisional coins of lower denomination fell rapidly, to so low a point indeed as to become quite insufficient for the ordinary trade and small change demanded of the country. After a slight recovery in September 1865, the same downward course continued. The smaller coins, of 1-franc piece, and 50 centimes became so scarce that the bank could not supply the demands of manufacturers for the payment of wages, and the Government had to have resort to the coinage of nickel for small divisional money. The simultaneous experience of Switzerland and Italy is not so capable of statement and exact expression. But it was similar in kind. Previous to 1865 a net balance of over 12 millions sterling (consisting almost if not entirely of silver) had left Italy, and it was known to be the danger of entirely losing her silver which led Italy to the suspension of cash payments on 30th April 1866, and to her acquiescence in the Latin Union. It was not, however, Italy, but Belgium who first raised the note of alarm. Conscious that her monetary community with France made any independent efforts quite futile, the Belgium Government proposed to France a monetary union for all the countries which had adopted the franc as the basis of their currency. Taking up the proposition France invited Italy and Switzerland, together with Belgium, to send delegates to a monetary conference at Paris. At this conference Belgium proposed the adoption of the single gold standard--the silver pieces including the 5-franc pieces to be lowered by an agio, and made divisional money. Italy and Switzerland were of the same opinion, but their scheme failed before the opposition of France, and the final outcome of the conference was the establishment of the convention of 23rd December 1865. This convention, which instituted the Latin Union, came into force on the 17th of August 1869; and under it one slight change was made in the internal currency system of France. The hitherto full-valued silver coinage from 2 francs downwards was changed into token money (being reduced to .835 fine), the 5-franc piece remaining as full legal tender. The union was to last for fifteen years. It established an identity in the monetary system of the four powers, as far as weight and standard were concerned, and prescribed free coinage for any individuals bringing metals to the Mints--of gold into any form, and of silver into 5-franc pieces; and reciprocal acceptance of those pieces in any of the States of the union. Finally the minting of each State for national or currency purposes was limited to 6 francs per head. This limitation, together with the regulation adopted, that the divisional coins should be issued at a rate inferior to that of the monetary standard, must be regarded as a measure of mutual defence against the sapping of the small coinage which had previously been experienced. According to this clause the maximum of mintings for national or currency purposes was presented thus-- Francs. For Belgium 32,000,000 France 239,000,000 Italy 141,000,000 Switzerland 17,000,000 For a time everything bloomed, the minting went merrily on, and private individuals (foreigners) reaped a profit at the expense of France. With the heavy fall in the ratio which made itself marked in 1873, however, events became too strong even for the Union, and Belgium took the initiative by passing a law enabling her Government to suspend or limit the coinage of the 5-franc piece. This principle was subsequently adopted by all the states of the Latin Union. During the years, 1874-76, three annual conferences of the Union were held at Paris, with the result that the limitation of the coinage of the 5-franc piece was fixed thus-- 1874. 1875. 1876. Belgium 12,000,000 15,000,000 10,800,000 France 60,000,000 75,000,000 54,000,000 Italy 60,000,000 50,000,000 36,000,000 Switzerland 8,000,000 10,000,000 7,200,000 Greece (which had acceded to the Union in 1868) 12,000,000 Of these states Switzerland alone did not coin up to her total, and at the conference in February 1876 her delegates pressed strongly for the entire cessation of the coinage of the 5-franc piece, and for the adoption of a gold standard. In this she was strongly opposed by Italy. The latter state, on account of the disappearance of her metallic currency before the inconvertible paper, had no interest in the limitation of the mintings of the Union. In the conference of 1874 she even sought and was authorised to coin beyond the quota accorded her, by a sum of not less than £800,000 in 5-franc pieces, on condition that such amount should be deposited as a metallic reserve of the Bank of Italy. The force of circumstances, however, soon broke down even this policy of limitation. In the course of 1876 the fall of silver became more disastrously pronounced. In addition, it was no secret that the amounts accorded by the conferences of 1874-75-76 for the mintings of each state, had been assigned as maximum, not minimum limits, under the Latin Union.[16] The next Mint convention of November 1878 would determine the Latin Union on the 31st December 1885, if not prolonged by further treaty. As the time approached the smaller states, such as Belgium, which had committed themselves to a large minting and thereby to the liability of having to liquidate or take back its own mintings--such 5-franc pieces as happened to be beyond its frontiers--at full value, in the face of a greatly fallen silver market, shrank from the responsibility, and sought and obtained a prolongation of the _status quo_ until the end of 1891, and thenceforward by yearly agreement. Finding that individuals treated the agreed amounts of mintings as a minimum limit, the French Government resolved to suspend the minting of the 5-franc pieces entirely. Accordingly, on the 21st March 1876, M. Léon Say, Minister of Finance, submitted to the Senate a Bill to that effect. It was followed, eight days later, by a proposition of a law suspending the emission of "_bons_" for the coining of silver money 9/10 fine. The _exposé des motifs_ of this Act is most remarkable:-- "The events which have happened for some time past in the relations of the precious metals have brought to a head the monetary question amongst us, although from 1815 Great Britain has laid down principles which have attracted round her an ever-increasing circle of nations. "The theory of the double standard, on which our monetary law of the year XI. reposes, has been called in question ever since its origin. "It is, to our conception, less a theory than the result of the primitive inability of the legislators to combine together the two precious metals otherwise than by way of an unlimited concurrence--metals, both of which are destined to enter into the monetary system, but which recent legislators have learned to co-ordinate by leaving the unlimited function to gold alone and reducing silver to the rôle of divisional money. From 1857 the French Government has studied the question, and it may be stated that since that date the principle of the gold standard has won increasing favour through our several administrations." Then follows an account of the monetary history of France during the period, as in brief résumé already given. "If," the preamble continues, "from 1874, certain precautions had not been taken to arrest the effects of that grave perturbation in the ratio, France and her monetary allies would have seen their monetary circulation invaded by silver and correspondingly drained of gold." Hence the conventions of 1874-75-76, limiting the mintings of the members of the Latin Union, although, "according to us, the fall of silver in 1875 prescribed a complete cessation even for that year rather than a simple limitation." Germany. Until the unification of Germany in our own days, and the adoption of the present imperial currency system, German monetary history reproduces perpetually all the elements of that mediæval system, bimetallic in fact though not theoretically so conceived, which England flung away in 1816, and from the toils of which France has not as yet completely emerged. As safeguards against the evils of that system which she had felt with such bitter experience, and which had culminated in the crisis closing the Thirty Years' War, Germany could only feebly employ the mechanism of ineffectual Mint conventions. For a century she persevered in the effort to establish a common standard and Mint system, but in vain. The attempt had to be abandoned, and the reeling system left to its own process of disintegration; and when at last the events of 1871 came to give her unity in her coinage, as well as political life, there were not less than nine distinct and independent coinage systems in existence. Hardly had the crisis of the Thirty Years' War passed out of mind before again the currency system had begun to work its baneful effects. [Sidenote: GERMANY: THE ZINNAISCHE STANDARD] In 1665 complaints were loudly made of the corrupt and debased state of the coin, due to export and culling. There is, indeed, quite a literature of these same complaints. The language of the _Reichstattisches conclusum_ (Ratisbon, 12th September 1666) expressly attributes this export to the higher value set upon the gold in foreign countries, especially Venice. And the statement of the warden of the Mint of the three corresponding circles--Franconia, Bavaria, and Swabia--delivered in his _Gutachten_ of the preceding May, was that the place of these good German ducats had been taken by very depreciated coins of Italy, France, England, and Holland. The three higher circles, accordingly--Franconia, Bavaria, and Swabia--met in conference and determined on a thorough investigation. The advice submitted to them was to raise the thaler from 90 to 96-kreutzer (see account of German coinage, Appendix V.), implying a lowering of the ratio from 15 to 14-1/8. This proposed scheme was accepted, _in comitia_, in 1667, the fifth article of the resolution specially mentioning the infliction of numerous intruding base foreign divisional money. From this scheme Brandenburg and Saxony held off, maintaining that the ratio had not been sufficiently lowered, considering the condition of the production of gold; and, in the same year, by a Mint treaty between Frederick William of Brandenburg and the Elector of Saxony, the so-called _Zinnaische_ standard was adopted for those two states. According to this standard, the Reichs thaler was raised to 105-kreutzer (1 florin 45 kreutzers) and a ratio of 13-5/9 was established. The result of this action of Saxony and Brandenburg was to strip the three higher circles of their silver, and in two years (1669) they anxiously met again to consider the question, not only of the foreign base coin everywhere prevalent, but also of the damaging exchange "and ceaseless melting down and exchange of proper coin from the circles." By a strenuous effort the three circles carried through the Reichstag of 1680 their resolution to reduce the Reichs thaler to 90 kreutzer (ratio 15-1/4). From this decision the Emperor stood apart, with Bavaria and Salzburg, in putting the Reichs thaler at 96 kreutzer. In view of such contrariety the impossibility of any general régime for the empire became apparent, and further attempts at it were practically abandoned. It was the perception by the mercantile community, as well as by the various Governments, of the consequences of such disorder, that led to the establishment of the so-called Leipzig standard in 1690. This standard was promoted by John George III. of Saxony, and established by treaty between Saxony, Brandenburg, and Brunswick-Luneburg. According to it the Reichs thaler was raised to 120 kreutzers, or 2 florins, the mark being minted into 12 thalers or 18 guldens. The result of the introduction of this standard was that in a few years the raising of the Reichs thaler to 120 kreutzers prevailed all over the empire. Sweden accepted it in the same year, 1690, and three years later the three upper circles acquiesced. At the same time the gold gulden was advanced to 2 florins 56 kreutzers. The previous ratio of 15 was thereby advanced to 15.1 (15-128/1278). In 1738 the Reichstag determined on the adoption of the Leipzig standard for the whole empire; no alteration was made in the Reichs thaler, which was still retained at 2 florins and minted at 12 to the mark fine; but a graduated scale of agio was adopted for the divisional coins, which were minted at an equivalence of from 12-3/8 to 13-2/3 thalers to the mark fine. The difference (varying from 3/8 to 1-2/3 thalers) represented the agio. [Sidenote: GERMANY: THE CONVENTION STANDARD] From the first, however, the Leipzig standard had no more real success than any of its predecessors. Although theoretically accepted by all North Germany, and adopted in the Reichstag in 1738, it could obtain no actual general adoption through the empire. Even from the moment of the inception of the system in 1690, the process of competitively raising the course of the coinage had still continued, and pieces of 30, 20, 15, and 10-kreutzers were struck on a basis of from 20 to 21-1/3 gulden to the mark. The result was to put upon the _carolus_, which from 1730 onwards was minted in great quantities in South-West Germany, an agio of 10 per cent., a differentiation which was much increased by the disorders of the war of the Austrian succession. Such an agio swiftly drove the larger, full-valued specie out of currency, and during the continuance of that war the currency of Austria and South Germany was almost entirely reduced to depreciated fractional pieces, while the exchangers reaped untold advantage. It was on the close of this war, in 1748, that, with characteristic Austrian selfishness, though also with a boldness none of his predecessors had approached, the Emperor, Francis I., determined on the erection of the 20-gulden standard as a separate Austrian independent system, minting the mark of fine silver into 13-1/2 Reichs thalers, or 20 guldens. This latter system, after the accession to it of Bavaria, obtained the name of the Convention Standard, and the 2-gulden pieces minted under it are styled the Species or Convention Thaler. The convention system remained in force in Austria until the Vienna Coinage Convention of 1857, a period during which the _Convention Thaler_ found wide circulation through South Germany. The currency was eked out by the Austrian gold ducats and by vast quantities of foreign silver, French _6-livre thalers_ (current for 2 florins 48 kreutzers) and the _crown_ or _Brabant thaler_ (current for 2 florins 42 kreutzers). From 1807 onwards this latter coin was imitated by the South German States, Bavaria especially, in their _crown thaler_, minted on a fresh basis of 24-1/2 guldens to the mark of fine silver. The selfish initiative of Austria was followed by Prussia and the South German States. The latter, the Rhenish and South German States, adopted in 1761-65 the 24-gulden; subsequently changed into the 24-1/2-gulden standard (see Appendix VI.). The overvaluation of the _Kronthaler_, which led to that latest development from a 24 to a 24-1/2-gulden standard, was the result of the immense circulation of French 6-livre pieces (known in Germany as _Laubthalers_) in South-West Germany. Graumann quite discredits the theory that the overswimming of South Germany by these French pieces, with all the confusion in the currency which resulted, was due to the wars and the progress of French arms, and directly attributes it to the depreciation of the French specie, and to their quite deliberate departure from the standard of French coinage as fixed in 1726. [Sidenote: SOUTH GERMAN AND PRUSSIAN SYSTEMS] In Prussia the reform of the coinage system was undertaken by her first King, Frederick I., father of Frederick the Great. In 1750 the latter adopted the 14-thaler or 21-gulden standard, subdividing the thaler into 24 groschens of 12 pfennige each. The measure was undertaken expressly to stop the export of gold which was going on. The adoption of a standard lower than the Convention standard effectually prevented the outflow of Prussian money, and it was not until the beginning of the present century, through the new Mint confusion which arose from the French Revolution, that Prussian money spread into Saxony, Hanover, Hesse, and even into the south-west. The second idea of Frederick's reform was to buy gold cheap, but in this it did not succeed. The intention was to obtain for five Prussian thalers the gold _pistoles_, which were purchasable for five convention thalers. This rate, however, never prevailed in the market, as from the first the _pistole_ was valued at 5-1/4 Prussian thalers. During the Seven Years War, when Frederick was driven to a depreciation of his coinage, his system went to pieces. But an active reform was undertaken upon the conclusion of the peace of Hubertsburg, 1763. The 14-thaler system was re-established, although, as far as the smaller divisional silver coinage was concerned, the depreciation, in which Frederick had been imitated by the pettier states round him, continued into the present century. In 1821 a minor alteration was made in the Prussian system, by subdividing the thaler into 30 instead of as previously 24 groschen, the former being distinguished from the latter by the title of _silver groschen_. To this Prussian or 14-thaler system Saxony acceded, as did also, in 1848, Mecklenburg and Oldenburg, with many minor differences of detail,--Saxony, for example, dividing the silver groschen into 10 pfennige; Mecklenburg dividing the thaler into 48 schillings of 12 pfennige each; and Oldenburg dividing it into 72 grotens of 5 schwarens each. The gold coin was supplied by the Prussian and Hanoverian 5 and 10-thaler pieces, the Friedrichs _d'or_, a favourite trade coin even in South Germany, and by Spanish _pistoles_ circulating at an equivalence of 4 6-livre thalers. [Sidenote: CONFERENCE OF MUNICH, 1837] The confusion of these various German systems was further increased by the uncertainty and difference which had come to prevail in the unit of weight. In Austria alone there were 2 marks in use, the Vienna mark (= 288.644 grs.), and the Cologne mark (= 243.870 grs.). While in North Germany, and subsequently in the south-west, the Prussian mark (= 233.855 grs.) prevailed. It was as the outcome of a desire to remedy at once the evil condition and confusion of the currency, and the uncertainty as to weight standard, which led to the conference of Munich on 25th August 1837. At that conference, Bavaria, Würtemberg, Baden, Hesse, Darmstadt, and the Free State of Frankfort, adopted the 24-1/2-gulden standard as the standard for their several states. At the same time the Prussian mark (233.855 grms. = half the Prussian pound), was established as the Mint mark for the contracting members. For the divisional coinage (6 and 3-kreutzer pieces) a standard of 27 guldens to the mark was adopted, the details of the various fractional pieces being left to the different states. To this convention Hesse, Hamburg, and the two Hohenzollerns acceded in the following years. This movement of South Germany gave a new impetus to the idea of Mint unification, and led to the General Mint Convention of the States of the Zollverein, agreed upon in full assembly of delegates at Dresden, 30th July 1838, and ratified also at Dresden on the 7th January 1839. The Dresden Convention was practically the first renewed attempt at Mint unification which Germany had seen since 1738. The contracting members to this general Mint convention were Prussia, Bavaria, Saxony, Würtemburg, Baden, Hesse, Saxe-Weimar, Eisenach, Saxe-Meiningen, Saxe-Altenburg, Saxe-Coburg and Gotha, Nassau, Schwarzburg-Rudolstadt, Schwarzburg-Sondershausen, Reuss, Reuss-Schleiz, Reuss-Lobenstein, Ebersdorf, and Frankfurt. Briefly, the articles of the convention were as follow:---- "1. The Mint mark of all these contracting states of the Customs Union shall be the Prussian Mint mark = 233.855 grms. "2. On this common weight standard the coinages of the contracting states shall be in accordance with the two systems in existence among the said states, viz. by thalers and groschen, according to the 14-thaler (or Prussian) system; or by gulden and kreutzer, according to the 24-1/2-gulden (or South German) standard. For the purpose of assimilation or equivalating, the thaler to be reckoned = 1-3/4-gulden, and the gulden = 4/7-thaler. "3. The 14-thaler system to be that of Prussian Saxony, Hesse, Saxony, and Saxe-Altenburg, Saxe-Coburg and Gotha (Gotha), Schwarzburg-Rudolstadt (Unterherrschaft), Schwarzburg-Sondershausen, and Reuss; the 24-1/2-gulden system to prevail in Bavaria, Würtemberg, Baden, Hesse, Saxe-Meiningen, Saxe-Coburg and Gotha (Coburg), Nassau, Schwarzburg-Rudolstadt (Oberherrschaft), and the Free State of Frankfurt. "4. Each state will confine its mintings to such pieces as prevail in the system of which it forms part. "5. In larger specie, and also in divisional coin, each state to bind itself to exercise the greatest care to preserve the standard and weight. "7. For the purpose of the commerce of the contracting states _union_ or _convention_ coins (_vereinsmünze_) shall be minted seven to the mark of fine silver, at an equivalence of 2 thalers or 3-1/2 guldens, fully tenderable throughout the Union. "8. Alloy to be .9 silver, .1 copper; so that 6-3/10 pieces = 1 Mint mark in weight; remedy = .003. [Sidenote: THE DRESDEN CONVENTION, 1838] "9. From 1st January 1839 to 1842, at least 2,000,000 of these _vereinsmünze_ to be coined, one-third part each year, and by the various states _pro rata_ of their population. From 1842 onwards, in case of no new treaty, the rate of minting to be two millions _vereinsmünze_ every four years, _pro rata_ as before; each state to give an account of its mintings. "10. Also of their separate trials of standard and weight. "11, 13. None of the contracting states to set its particular internal specie at any different value except on a three months' notice, and to renew its currency at face value in case of depreciation. "12. The states bind themselves not to issue divisional coins in excess of such _pro rata_ requirements as above. "14. For the divisional coinage the standard of the convention of Munich, 1837 (viz. 27 gulden), is adopted. "18. The treaty to endure till the end of 1858. States intending to retire then to give two years' notice. From that date, if not discarded, the treaty to be periodically renewed (five-yearly)." This treaty continued in force nominally until the later and still more famous convention of Vienna in 1857, before which date Hanover, Brunswick, and Oldenburg had also given in their adherence to it. At the time of the Mint Conference and Convention of Vienna, therefore, there were, broadly speaking, three competing systems in Germany, viz. of Austria, Prussia, and South Germany or Bavaria. One aspect of this latter conference of 1857, viz. its deliberations with regard to gold coinage, will be referred to separately. As far as relates to its attempted systematisation of these three German currencies the agreement took the following form:-- 1. The pound of 500 grammes decimally subdivided, to be used as the basis of the coinage. 2. The competing systems to be assimilated to this basis by the following regulation:-- The thaler (or Prussian) standard of 30 thalers to the pound of silver to take the place of the 14-thaler standard, and to prevail in Prussia, Saxony, Hanover, Hesse, and a string of minor states. The Austrian standard to be on the basis of 45 guldens out of a pound of fine silver, and to prevail in the Empire of Austria and the principality of Lichtenstein. The South German standard to be on the basis of 52-1/2-gulden to the pound of silver (instead of the 24-1/2-florin standard formerly used), and to prevail in Bavaria, Würtemburg, Baden, Hesse, Frankfurt, and a few other places of South Germany. The equivalence of the systems was to be-- One-thaler convention piece (1/30 pound) = 1-1/2 florins in Austrian currency = 1-3/4 florin in South German currency. All the coins to be of unlimited validity in all the states, divisional coinage to be of a lighter standard than the coinage standard of the country, but lighter only within limits fixed. The tender of these latter to be limited to 20-thaler or 40-gulden. [Sidenote: THE VIENNA CONFERENCE, 1857] The regulations adopted by this Vienna Convention as to the gold coinage are very significant, and deserve special note. The advance in the gold price of silver, due to the Californian and San Franciscan gold finds, acted on the silver-using countries. As soon as the price of bar silver exceeded 60-7/8-pence per standard oz., there resulted a melting down and export of the silver, in the countries which had adopted bimetallism at the 15-1/2-ratio. It was this experience in France, and the allied group of countries, which led to the formation of the Latin Union in 1865. In mere point of date, that union had been preceded by the Vienna Conference and Convention by a matter of eight years. And as far as the regulations of this latter relating to gold coinage are concerned, there is evidence that the bimetallic action of France had driven Germany to her union of 1857, as a mere matter of self-defence, just as it later drove the Latin states to their union of 1865. In both cases the underlying motive was a wish to protect that part of their currency system which was threatened by bimetallic law. The premium on gold, on its minting, i.e. the profit to be made on minting it at 15-1/2 in France, while its market value was considerably less in Germany and elsewhere, drew the gold to France. It is a mistake to think that France attracted gold simply from California and Australia. She attracted it by the action of bimetallic law from her neighbour Germany, and replaced it by 5-franc silver mintings. The circulation of French 5-franc pieces was so extensive in South Germany, in the period preceding the Vienna Convention, that the cash reserve of the Frankfort bank was at one moment composed almost entirely of them. The manner in which the Vienna Convention met the difficulty has the appearance of plausibility, though it proved in the end ineffectual. It determined not to establish a fixed ratio but to follow the market price of gold, apparently in the hope of attracting a natural or market supply. "For the purpose of further facilitating mutual transactions, and for the promotion of trade with neighbouring countries, the contracting powers may coin convention trade coins in gold, under the names _crown_, and _half-crown_. "1. The crown = 1/50 of a pound of fine silver. "2. The half-crown = 1/100. "The contracting powers may not coin any other gold piece, except Austria, which retains the right of coining _ducats_ of the present value, to the end of 1865. "The silver value of the convention gold coins in ordinary intercourse is entirely fixed by the relation of the supply to the demand. They must not, therefore, be considered as a medium of payment of the same nature as the legal silver currency of the country, and no one is legally bound to receive them as such. [Sidenote: THE VIENNA CONVENTION, 1857] "Each state is at liberty to permit convention gold coins to be paid into their offices instead of silver, according to a previously settled fixed rate, and to extend this permission either to all transactions and offices, or only to some. Such previous settlement of the rate is, however, never to last more than six months, and must at the expiration of the last month always be renewed for the following official treasury period of exchange. The rate cannot be fixed at a higher value than that given to such coinage by the average of the official commercial rate of exchange during the previous six months. Each government also reserves to itself the right to alter the rate at any time within the period fixed, and to suspend it when it thinks proper. "A treasury rate of exchange shall henceforth only be fixed for convention gold coins, and not for other kinds of coined gold. "The widest circulation to be given to the notices by which the official rate of exchange is fixed. They must be published beforehand, even when a change in rate for the next fixed period is not intended, and must contain-- "1. The statement of the average trade exchange at the principal places of exchange, during the six months immediately preceding. "2. The treasury rate fixed accordingly. "3. The duration of the value of the same. "4. The reservation to alter or recall this rate of exchange if necessary, even before the expiration of the term named. "5. The declaration that such rate of exchange only affects payments to be made into offices of the state. "In the countries of the contracting powers pay-offices of the State, as well as public institutions, banks, etc., shall not be allowed in future, in payments to be made by them, to make any proviso with regard to the medium of payment in silver or gold, in such a way that for the latter a certain fixed relative value should be expressed beforehand in silver money." From the point of view of Austria, this convention had been entered upon with the desire of effecting a gradual adoption of gold coinage, together with a concurrent ceasing of the compulsory note circulation. The outcome of the conference was, however, in quite distinct opposition to this desire, as the agreement which was finally arrived at established the maintenance of a pure silver currency. The continuance of the gold _crown_ of 10-grs. fine gold was recognised only as a trade medium. This experiment of a trade gold coin failed completely, though it is none the less interesting intrinsically, as well as for its reflex bearing on the similar schemes which were proposed in the early years of the French Revolution. The premium on the minting of gold drew it to France, in preference to any other place where a simple market price prevailed. And the 20-franc gold pieces of France overflowed, while the German crowns could not struggle into existence. [Sidenote: GERMANY: ATTEMPTS AT REFORM, 1860-70] The attempt which was made by a commercial conference at Hamburg, at the time of the meeting of the Vienna Conference, to secure the introduction by the Hamburg Bank of a gold instead of a silver _valuta_, remained equally ineffectual. As far as concerns the establishment of a simple and single monetary system for Germany was concerned, this Vienna Convention, the last great convention which Germany saw previous to the reconstruction of her system in 1871, was as futile as that of Dresden in 1838, or as all the conventions of the seventeenth and eighteenth centuries previously. The consciousness of the need of such simplification and unification, however, became thereby only the more apparent. Four years later the first German Handelstag, which met in May 1861 at Heidelberg, turned its first and special attention to the erection of some common currency system. The recommendation which it finally concluded upon was the adoption of the _Drittelthaler_ as the unit mark, with a decimal subdivision. Four years later the third Handelstag, which met at Frankfort (September 1865), confirmed the resolution, with the additional proposition of the minting of a gold piece identical with the 20-franc piece, the value of which should be regulated from time to time; the scheme being, therefore, as before, that of a silver standard, with gold as trade money. The fourth Handelstag met at Berlin in October 1868, and again the matter was most seriously discussed. With the single exception of the Berlin members, all the deputies declared for the adoption of the gold standard. As, in the preceding year, Austria had withdrawn from the German Monetary Union of 1857, she no longer stood in the way of this proposition, and the erection of the North German Union distinctly favoured the project. In June 1870 the Bundesrath of the North German Union resolved upon a reform and unification of the paper money, as preparatory to a complete currency reform, and in the same month the Chancellor of the North German Union had decided to call a Mint Convention. The outbreak of the Franco-German War immediately afterwards put a short stop to the proposal. A long train of preparation had thus been laid, and there can be little doubt as to what the ultimate direction of German monetary legislation would have been, even without the war, and the consequent erection of the Empire. That the latter event, however, enormously facilitated the process cannot for a moment be questioned. [Sidenote: GERMANY: NEW IMPERIAL SYSTEM, 1871] When the subject was taken up after the Franco-German War, the determination to adopt a gold coinage was only gradually arrived at. In the original plan, as drafted soon after the conclusion of peace, the new gold coinage proposed was intended not to be tenderable, for the meantime, in private commerce. Such a provision roused all the opposition of the mercantile community, and in consequence of the agitation the scheme, as finally submitted to the Reichstag, was for a gold monometallic system. The law passed on the 4th December 1871, and the great operation of recoinage and conversion was immediately entered upon. It was greatly favoured by the ratio existing at the moment, and by the metallic condition of the world. The ratio taken as the basis of the computation was the French 15.5, accepted because of its long and present wide employment. The previous silver standard thalers were taken as equivalent to 3 marks. 30 thaler = 90 mark = 1 pound fine silver. 90 × 15.5 = 1395 marks. The gold piece of 10 marks was therefore coined at a tale of 139-1/2 to the pound of fine gold. Propositions were made to the Reichstag that the 20-franc piece should be made equivalent to the English sovereign, or to the 25-franc piece, giving respectively a ratio of 15.17 or 15.31, but at the moment the price of silver in the London market ruled between 60-7/8 and 60-3/4 pence per ounce, i.e. at a mercantile ratio of 15.49-15.52. It was this fact which decided the adoption of the French ratio. The chief Acts which have accomplished the reform are of dates 5th December 1871 and 9th July 1873, the first declaring the monetary system and the latter the law of tender. The unit of the system is the mark, which is the 1/1255.5 part of a pound of gold of 500 grammes at 9/10 fine, and is coined into pieces of 20 and 10 marks. The gold crown is a 10-mark piece, is 9/10 fine, and struck at a tale of 139-1/2 pieces to the German pound; charge for coinage, 3 marks per pound of fine gold. The pound of fine silver is struck into 100 marks, 9/10 fine. The total amount of silver coin not to exceed 10 marks per head of population. No individual need accept more than 20 marks of imperial silver coin in payments. They are accepted in any amount by the Empire and by the Federal States. All other German coins are no longer legal tender, and have been withdrawn, with the single exception of the thaler pieces. Whatever pieces of this kind still exist are legal tender to any amount, like the imperial gold coins, each being equal to 3 marks. An Act of 20th April 1870 provides that _Vereinsthalers_ coined in Austria before 1867 should also be full legal tender. An Act of 6th January 1876 has authorised the Bundesrath to put the thaler pieces and the Austrian _Vereinsthalers_ on the same footing as imperial silver coins, i.e. to make them legal tender only up to 20 marks, the thaler being still reckoned at 3 marks. Since the suspension of silver sales and of the withdrawal of the silver thalers (May 1879) there is no likelihood that the Bundesrath will make use of this authority conferred upon it. In briefest résumé, the course of the silver coinage during the preceding century may be presented thus:-- GERMANY--COURSE OF THE 1-THALER PIECES. Thalers. Total minted during 1750-1816 64,380,936 Withdrawn by the Government of the States 27,788,956 " under the new Imperial System, 1871-3 5,652,999 " " 1874 6,319,170 " " 1875 2,900,202 " " 1876 2,582,123 " " 1877 1,465,424 " " 1878 864,253 ---------- 47,573,127 ----------- Leaving a balance not accounted for of 16,807,809 =========== Thalers. Total minted during 1817-22 24,261,735 Withdrawn under the new Imperial System, 1871-3 3,623,511 " " 1874 5,147,970 " " 1875 2,580,580 " " 1876 2,373,496 " " 1877 1,421,719 " " 1878 766,908 ---------- 15,914,184 ----------- Leaving a balance not accounted for of 8,347,551 =========== Thalers. Total minted during 1823-1856 91,031,741 Withdrawn under the new Imperial System, 1874 40,000 " " 1875 566,677 " " 1876 11,250,277 " " 1877 5,753,269 " " 1878 4,640,068 ---------- 22,250,291 ----------- Leaving a balance not accounted for of 68,781,450 =========== Thalers. Total minted during 1857-71 215,863,120 Withdrawn by the Government of the States 2,538 " under the new Imperial System, 1875 3,000 " " 1876 25,958 " " 1877 64,806,347 " " 1878 18,915,167 ---------- 109,635,938 ----------- Leaving a balance not accounted for of 106,177,182 =========== Thalers. On the whole period, 1750-1871, the total minted 1-thaler pieces amounted to 395,537,532 Total withdrawn 195,423,540 ----------- Leaving a balance not accounted for of 200,113,992 =========== Allowing 83,062,882 thalers as a rough equivalent for the loss by attrition, there is still a deficit of 117,051,000 thalers, or about £17,557,650 sterling to be accounted for (and laid to the account of remintings and loss by arbitrage). ACCOUNT OF THE MINTING OF THE RECONSTRUCTED GERMAN EMPIRE--GOLD--FROM 1872 TO DEC. 1878 +--------------------------------+--------------------+----------------------+ | | Supplied for the | Supplied for Private | | | Empire. | Accounts. | | Origin of the Bullion supplied +--------------------+----------------------+ | to the Mint. | Pounds Weight Fine | Pounds Weight Fine | | | Gold. | Gold. | +--------------------------------+--------------------+----------------------+ | German gold coin of the old | | | | type | 64,092.3 | 11.4 | | Bars | 402,382.6 | 214,825.7 | | Austrian gold coins | 381.7 | 711.9 | | Francs and Napoleons | 391,166.5 | 809.7 | | Sovereigns | 30,181.3 | 223.1 | | Russian gold coins | 28,252.3 | 20,862.1 | | Isabellas | 12,822.9 | ... | | Dollars and Eagles | 16,860.1 | 20,548.8 | | Turkish gold coins | 51.0 | 1,084.0 | | +--------------------+----------------------+ | | 946,191.2 | | +--------------------------------+--------------------+----------------------+ Making a complete total, with odd amounts from various sources, and including imperial gold coins minted in 1877-78 but now no longer current, of 1,205,786 lbs. weight = £84,103,584. SALES OF SILVER BY THE GERMAN GOVERNMENT FROM 1873 TO THE SUSPENSION OF THE SALES IN MAY 1879 +-------+----------------+----------------+---------------+ | | Pounds of Fine | Product. | Price Per oz. | | Date. | Silver. +----------------+---------------+ | | | Marks. | Pence. | +-------+----------------+----------------+---------------+ | 1873 | 105,923.372 | 9,296,682.77 | 59-5/16 | | 1874 | 703,685.175 | 61,135,670.29 | 58-3/4 | | 1875 | 214,898.594 | 18,208,449.08 | 57-1/4 | | 1876 | 1,211,759.204 | 93,936,482.37 | 52-3/8 | | 1877 | 2,868,095.533 | 230,424,238.51 | 54-5/16 | | 1878 | 1,622,696.403 | 126,203,852.08 | 52-9/10 | | 1879 | 377,744.712 | 27,934,417.89 | 50 | +-------+----------------+----------------+---------------+ | | 7,104,895.993 | 567,139,992.99 | | +-------+----------------+----------------+---------------+ The total silver withdrawn from circulation up to the close of 1880 was 1,080,486,138 marks. Of this amount 382,684,841 marks were delivered to the Mint for coinage into the new imperial silver coins. The remaining 696,797,069 marks were melted into silver and produced 7,474,644 pounds of fine silver. Of this quantity 7,102,862 were sold up to May 1879. The balance of unsold silver still in the hands of the Imperial Government is 339,353 pounds of fine silver. England. Charles II. began his regulation of the currency by the proclamation of 29th January 1661, fixing the coins to be current and their tariff. This proclamation was followed by another, of 10th June 1661, against the export of gold or silver, and against buying or selling the metals at higher rates than were given at the Mint, a practice to which the proclamation attributed the scarcity of money. This edict proved of no avail, for, in spite of it, the gold coins were exported in such quantities that they were current more abundantly in foreign parts than in England. As the result of deliberation of the Privy Council, assisted by the Commissioners of Trade and officers of the Mint, who all attributed the export to the higher price of gold abroad, it was determined to raise the price of the gold coins to or near the value which they had on the Continent at the moment. Accordingly, by proclamation of the 26th August 1661, the value of the gold _unite_ was raised from 22s. to 23s. 6d., and other gold coins in proportion, the silver currency being left unaltered. In referring to the Act for the free trade in gold and silver (_supra_, p. 162), mention has already been made of the motive of the legislator, namely, to increase the importation of the metals to the Mint. Exactly similar was the intention, as expressed in the preamble of the succeeding Act of 1666 (8 Charles II. c. 5), which abolished the right of seigniorage, thereby establishing free and gratuitous coinage in England--the principle of minting still in force in this country.[17] [Sidenote: ENGLAND: CHARLES II] The testimony of both Act and declaration as to the scarcity of money is confirmed by actual record. In the following year, 1667, there was a great scarcity of money, and _dollars_ and _pieces of eight_ were bought up by the goldsmiths and bankers for 4s. 3d. each, and instead of being brought to the Mint were at once exported to France for 4s. 10d. and to Ireland and Scotland for 5s. According to the new indenture for the coinage of 1670, a slight reduction in the standard of the gold took place, the pound of crown gold (22 carats fine) being to be minted at a tale of £44, 10s. The scarcity of money still continued, however, and the separate experience of Ireland only corroborated that of England. The general statement of the case as to the fate of the coined money since the Act of 18 Car II., which instituted free coinage, is thus put by Sir Dudley North, in his _Discourses upon Trade_: "I call to witness the vast sums that have been coined in England since the free coinage was set up. What is become of it all? Nobody believes it to be in the nation, and it cannot well be all transported, the penalties for so doing being so great. The case is plain--the melting-pot devours it all; and I know no intelligent man who doubts but the new money goes this way. Silver and gold, like other commodities, have their ebbings and flowings; upon the arrival of quantities from Spain, the Mint commonly gives the best price, i.e. coined silver for uncoined silver, weight for weight. Wherefore it is carried into the Tower and coined. Not long after there will come a demand for bullion to be exported again. If there is none, but all happens to be in coin, what then? Melt it down again; there's no loss in it, for the coining costs the coiners nothing. Thus the nation hath been abused and made to pay for the twisting of straw for asses to eat." By the time of the accession of William III. the scarcity of silver had become so great as to cause a petition from divers working goldsmiths in and about the City of London to the House of Commons (9th April 1690). It stated "that upon search at the Customs they found that since last October entries had been made of 286,102 oz. of silver in bullion, and 89,949 _dollars_ and _pieces of eight_ for exportation by divers private persons, and they doubted not but it would appear that not only the East India Company, but also divers Jews and merchants, had of late bought up great quantities of silver to carry out of the kingdom, and had given 1-1/2d. per oz. above the value, which had encouraged the melting down of much plate and milled monies; whereby for six months past, not only the petitioners in their trade, but the Mint itself had been stopped from coining." [Sidenote: ENGLAND: THE EXPORT IN 1690] The petition was referred to a committee of the Lower House, which reported on the 8th May that great quantities of silver had been exported, of which seven-eighths had been shipped off by the Jews, who would do anything for their profit. The reason for the exportation, too, was plain, for the French king, of late finding his money very scarce, had raised his coin 10 per cent., which was an encouragement to send silver to fill his coffers, and therefore the Jews exported it daily in very great quantities. The melting down of £1000 of milled money for exportation was attended with a profit of £25 ready money and upwards, silver being coined at the Mint at 5s. 2d. per oz., but at the time of exportation sold generally at 5s. 3-1/2d. The remedies proposed to the committee were either a prohibition of export or the enhancing of the English monies. Not less than three measures were presented to the House for the prohibition of export--one of them by Sir Richard Temple--but were all lost; and, meanwhile, the exports to Holland and France continued. In November 1690 it was calculated that during the preceding sixteen months about 140,000 oz. had been exported. In addition to this actual drain of coinage, the processes of culling, clipping, and counterfeiting, which had been going on through the reigns of Charles II. and James II., had resulted in an unexampled depreciation of so much of the coinage as remained. A large portion of the currency consisted of iron, brass, or copper-pieces plated, and such coins as were of good silver were worth scarcely one-half their current value. This statement is more than borne out by quite reliable computations which were made in the process of the recoinage five years later. A medium lot of 5-1/2 bags, containing in tale £57,200 of the called-in currency, and which should have weighed 221,418 oz. 16 dwt. 8 grs., was found to weigh only 113,771 oz. 5 dwt. According to the accounts of Neale, then master and warden of the Mint, 4,695,303 dwt. 15 oz. 2 grs. of the clipped silver money produced only 790,860 lbs. 1 oz. 19 grs., implying a depreciation in weight alone of over 47.75 per cent. The process of stripping the country of currency was increased by the continual pouring out of money in aid of William's wars, and the loss in exchange on such large remittances made the evil only too apparent. The one or two millions yearly remitted to the Continent for the British armies were negotiated in Holland in a thousand ways to England's prejudice. Partisan statements were made that whereas in the beginning of the war the Dutch allowed 43 schillings for an English pound they gradually lowered the exchange to 28 schillings. Guineas, which were equal in value to 21s. 6d. in silver, rose to 30s.; and they would have risen to a still higher rate if the officers of the exchequer and the receivers of public revenue had not refused to receive them in payment at the increased value. In 1695 the matter was taken up in the House of Commons, and a committee appointed. The report of this committee, which was never passed, was based on the proposition of a reduction of standard. By Montague's influence the proposals were dropped, and it was not till the 22nd November that the Act for remedying the ill state of the coins passed. It is well known that the unwise determination of the Government of William III. to adhere to the pre-existing standard was due to the action and contrivance of Montague as Chancellor of the Exchequer, and to the influence of Locke's writings. By a subsequent series of Acts, based on the complaints of merchants representing the evils resulting from the unsettled price of gold, the price of the guinea was ordered to be gradually reduced from 30s. to 28s., 26s., and finally 22s., before 10th April 1696. [Sidenote: ENGLAND: RECOINAGE OF 1696] This great recoinage scheme was only completely accomplished in 1699, having occupied the greater part of four years, and after a long series of Acts and proclamations of, occasionally, very doubtful wisdom. According to the accounts of the officers of the Mint, the new silver coin amounted in tale to £6,882,908, 19s. 7d. The worn and clipped money called in was estimated roughly at £4,000,000, on which the loss was about £2,000,000; the whole charge and loss being stated at not less than £2,700,000. It is significantly affirmed that, in a manner, all the called-in silver was found to consist only of pieces coined between the days of Edward VI. and 1662, a sure indication of the fate which had befallen the coinage issued since the Restoration. Before the transaction was finally complete the last safeguard and complement of the system had been adopted, in fixing the relation of the gold coinage to the new silver issue. On the 22nd September 1698, a report was given in to the House of Commons, signed by four names, including that of John Locke, stating that the value of gold in Holland and the neighbouring countries was, as near as could be computed upon a medium, 15:1 in silver; and that, according to this value, the currency of the guinea at 22s. was too high, and occasioned a disproportionate importation of gold and an exportation of silver. The bringing down of the guinea to 21s. 6d. would make the value of English gold and coin very near 15-1/2:1 to silver, which, though not so low as the rate in Holland, would in their opinion be sufficient to correct the error. In consequence of this report the Commons resolved that, under the Act 7 and 8 William III. chap. 19, no person was obliged to take guineas at 22s. a piece. The price then fell to 21s. 6d., at which rate they were received by the officers of the revenue. With the exception of this merely declaratory tariffing of the guinea, it is to be borne in mind that this recoinage of William's reign was carried out on the principle enunciated by Montague, and backed by the authority of Locke, namely, that of a retention of the old standard, although in the face of a clearly established advance in the value of silver, and in face of quite irrefutable answers to all Locke's arguments. Momentarily the scheme succeeded; the adverse exchange was instantly redressed, while the renewal of the coinage and the ratio of 1698 was sufficiently above the continual ratio to turn the flow of gold, as doubtless was the (unexpressed) design in adopting it. According to Burnet the packet-boat from France seldom came over during the following winter without bringing 10,000 _louis d'or_, and often more. "The nation was indeed filled with them, and in six months a million of guineas was coined out of them. The merchants in fact said that the balance of trade was then so much turned to our side that whereas we were wont to carry over a million of our money in specie, we then sent no money to France, and had at least half that sum sent over to balance the trade." [Sidenote: ENGLAND: EFFECTS OF THE RATIO OF 1698] The circulation of French and other foreign gold became so great that on the 5th February 1701 the Council issued a proclamation that the _louis d'or_ and Spanish _pistole_ should not pass for above 17s. Such action at once brought those coins to the Mint, and nearly 1-1/2 millions were coined out of them. It was not seen at the moment that the establishment of this ratio so favourable to gold was _pari passu_ unfavourable to silver. The idea was entertained that the French gold came over to bribe English members, i.e., on mere political causes. The hypothesis was needless as it was incorrect. Gold came over because it was higher priced in England than abroad through the ratio of 1698, and for the same reason silver left the country to pay for the gold. The one movement was the essential counterpart of the other, and made itself at last only too visible. As early as the seventh year of Anne's reign--only nine years after the completion of this great recoinage, it was found necessary to give further encouragement to the coinage of silver by offering a premium on every ounce of foreign coins which should be brought to the Mint within a limited time. The premium was not to exceed 2-1/2d. per oz., and the time limited was from the 17th April to the 1st December 1709. Such a measure has been already noticed in the history of France; it was indeed a design frequently employed there under the title of _Surachat_, and it always proved as futile as the Government of Anne found it to be. As the drain continued, representations were made by the officers of the Mint to the Treasury, and in 1717 the House of Commons requested these representations to be laid before it (December 20th). On the same and following day a remarkable speech was made by a member, Mr. Aislabie, who took notice of the great scarcity of the silver species, and proposed the remedy of lowering the gold species. On the second day he was seconded by Mr. Caswall, who suggested that the overvaluation of gold in the current coins of Great Britain had caused the export of great quantities of silver species, "and to that purpose [i.e. the purpose of his argument] laid open a clandestine trade, which of late years had been carried on by the Dutch, Hamburgers and other foreigners, in concert with the Jews and other traders here, which consisted in exporting silver coins and importing gold in lieu thereof; which being coined into guineas at the Tower, near 15 pence was got by every guinea, which amounted to about 5 per cent.; and as these returns might be made five or six times in a year considerable sums were got by it, to the prejudice of Great Britain, which thereby was drained of silver and overstocked with gold." He concluded by proposing to lower the price of guineas and all other gold specie. [Sidenote: ENGLAND: SIR ISAAC NEWTON'S REPORT, 1717] His speech was received with applause, and the House unanimously petitioned the King to call the guinea down to 21s., and other gold species in proportion. To this George I. immediately acceded, and the proclamation to that effect _verbatim_ was issued on the following day, 22nd December 1717. The report for which the House had called two days earlier, and which was produced on the 21st December, was the celebrated report made some months before by Sir Isaac Newton as master of the Mint, at the demand of the Commissioners of the Treasury. It is a document deserving the careful attention of every student of currency history. Newton reviews the ratio in each of the then commercial nations, and shows the effect of difference of ratio in producing export and disturbance of one or other metal. "Gold in Spain and Portugal is of sixteen times more value than silver of equal weight and alloy; at which rate a guinea is worth 21s. 1d. net; this high price keeps their gold at home in good plenty, and carries away the Spanish silver into all Europe. So that at home they make their payments in gold, and will not pay in silver without a premium. Upon the coming in of a plate [silver] fleet the premium ceases or is but small, but as their silver goes away and becomes scarce the premium increases and is most commonly about six per cent." In France the ratio was 15:1, and the guinea therefore worth 20s. 8-1/2d. In Holland it was worth 20s. 7-1/2d., in Italy, Germany, Poland, Denmark and Sweden, from 20s. 7d. to 20s. 4d. "In China and Japan the pound weight of fine gold is worth but 9 or 10 lbs. weight of fine silver, and in East India it may be worth 12 lbs., and the low price of gold in proportion to silver carries away the silver from all Europe." "If gold were lowered only so as to have the same proportion to the silver money in England, which it hath in the rest of Europe, there would be no temptation to export silver rather than gold to any part of Europe, and to compass this last there seems nothing more requisite than to take off about 10d. or 12d. from the guinea." [Sidenote: ENGLAND: THE STATE OF COINAGE IN 1760] In a subsequent report of the 21st September 1717, Newton stated that, since the beginning of 1702 to September 1717, the gold coined at the Mint amounted to £7,127,835, while the silver within the same period only amounted to £223,380, of which £143,086 had been brought to the Mint in response to the premium offered; in 1709 and 1711, of their own free will, the goldsmiths had only brought a matter of £21,220 to the Mint. In the House of Lords, early in the following year, it was proved that during the year 1717 the East India Company had exported nearly 3,000,000 oz. of silver. The immediate purpose of the above proclamation of 22nd December 1717 was for a time thwarted by a speculative hoarding of silver in expectation of a further calling down of the gold species; and it was to cut the ground from under this speculation that in January 1718 both Houses declared their determination not to alter the standard of gold and silver coins in the kingdom, and proceeded in place of such alteration to prepare a bill for preventing the melting down of the coins of the kingdom. It is demonstrable, even from Sir Isaac Newton's own figures, that the calling down of the guinea to 21s., though largely, was not completely effective in destroying the profit of arbitrage transactions with Holland. With the guinea at 21s., the ratio was still 15-14295/68200 while in France and Holland the ratio was 15 or under. That the process of culling and exporting the heaviest silver specie still continued is proved by the state of silver coinage twenty years later, when shillings were found to be deficient in weight, by between 6 and 11 per cent., and sixpences between 11 and 22 per cent., and all species so scarce as to threaten greatest confusion in every branch of trade. At the accession of George III., 1760, the silver coinage was found in so imperfect a state that the crown pieces had almost entirely disappeared, though minted since 1795 to the amount of over a million and a half sterling. Of half-crowns, likewise minted to the value of £2,329,370, only defaced and impaired specimens remained current, while shillings and sixpences had lost every sign of impression. Up to 1763 only a matter of £5791 in silver had issued from the Mint--practically no coinage at all. Gradually however, owing to the force of wider principles at work, the matter of the ratio righted itself. Ever since 1756 the value of gold had been rising all over Europe. In 1759 the continental ratio was still calculated at 14-1/2, as compared with 15-1/5 in England; but by 1773 the continental ratio had overtaken the English, and the market price of standard silver had risen to 5s. 2d. per oz.--the English Mint rate. In the greatly depreciated state of the silver coinage--three-fourths of it was said to be base--even the approach of a fair ratio acted prejudicially on gold. Already, in 1771, the export of gold to Holland had become noticed, and it was asserted that the gold coins had never before been so deficient. They were sent over to Holland, and there filed and returned and put into circulation--a bimetallic phenomenon that always recurs in a currency containing two differently depreciated elements. [Sidenote: ENGLAND: STATE OF THE COINAGE IN 1774] The idea that bimetallic action replaces one good metal by another, an equal weight of one metal for that of the other, a good undepreciated coinage of silver for a good undepreciated coinage of gold, or _vice versâ_, is not borne out by a single instance in history. Bimetallic action always substitutes the less for the greater, whether weight or value, the more depreciated for the less, or the depreciated for the perfect standard coin. In this particular instance, 1774, the depreciation of silver had been the result of the action of a too high ratio from 1717 onwards; the depreciation of gold was effected in a much less time between 1770 and 1773, simply because the already depreciated state of the silver causing that differentiation of value, which is the bullionist's opportunity, happened to coincide with a natural rise of the value of gold all over the Continent. The result, therefore, of fifty years of bimetallic régime left England with a currency depreciated in both its limbs, in both gold and silver, and as deficient in the quantity current as in the weight of the individual pieces. This is not in keeping with the theory of bimetallism as developed to-day, according to which the transition from one coin to the other would only be made at the point of equation, and the substituted metal would equalise that displaced. This is theory. The facts of the situation in 1774 are not theory but history, and tell a different tale. "The evil was so great," says Lord Liverpool, "that the Government found it necessary to take this difficult subject into their immediate consideration. On this occasion I addressed a letter to a noble Lord, who was then Chancellor of the Exchequer, suggesting what appeared to me the proper remedy for this evil. I proposed that, with a view to the general reform of the coins of the realm, all the deficient gold coins should in the first place be called in and recoined, and that in future the currency of the gold coin should be regulated by weight as well as by tale, and that the several pieces should not be legal tender if diminished below a certain weight. Your Majesty was pleased to approve of this advice and to propose to your Parliament, on 13th January 1774, the calling in and recoining of all the deficient gold coins; and the Chancellor of your Exchequer opened the whole of this plan to the House of Commons, who approved of the measure, which was carried into immediate execution without any complaint and with great success. The defects which had previously existed in this species of coins were thereby removed, and the regulation, then established, of weighing the gold coin has been the means of preserving it at nearly the state of perfection to which it was then brought." [Sidenote: ENGLAND: RECOINAGE OF 1774] The resolutions of the House of Commons on which this recoinage depended were passed on the 10th May 1774. After stating the depreciation existing in the gold coinage the House asserted--(3) that it has been a practice to export and melt down the new and perfect gold coin soon after it is issued for private advantage, to the great detriment of England; (4) that while pieces of gold coin, differing so greatly in weight, are allowed to be current under the same denomination and at the same rate and value, great quantities of the new and perfect pieces will continue to be exported and melted down, and, there is reason to apprehend, will be recoined into pieces the most deficient that are allowed to be current." The House then goes on to adopt the principle of limiting the depreciation to be allowed on any single coin, i.e. of making the coins current by weight as well as tale within the limits allowed. The House next turned its attention to the silver element of the currency. At the outset it was met by the patent fact that the depreciated silver coinage had been made the handle or lever, or _point d'avantage_, in all the operations against gold. "Whereas," is the recital of the Act of 14 George III. c. 42, "considerable quantities of old silver coin of this realm, or coin purporting to be such, greatly below the standard of the Mint in weight, have been lately imported into this kingdom, and it is expedient that some provision should be made to prevent the practice," etc. The Act therefore decrees the prohibition of importation of light silver coinage into the kingdom, and its confiscation in case of discovery as such. "And be it further enacted ... that no tender in the payment of money made in the silver coin of the realm, of any sum exceeding the sum of £25 at any one time, shall be reputed in law or allowed to be a legal tender within Great Britain or Ireland for more than according to its value by weight, after the rate of 5s. 2d. per oz. of silver, and no person to whom such tender shall be made shall be any way bound thereby or obliged to receive the same in payment in any manner than as aforesaid; any law, statute, or usage to the contrary notwithstanding." The importance of this latter epoch-making clause is vital. It is the first enactment of a law of tender in the history of English monetary legislation, and it was the first step towards the shaking off the incubus of that mediæval currency system which was even then only coming to be understood in all its fatal perniciousness. For statesmanship, the only parallel to it is that Act of Henry III. of France, which proved so shortlived in its adoption (see _supra_, pp. 87-88). It was the first step in the evolution of that system of a safeguarded currency which was finally constructed in 1816. This Act prohibiting the importation of light silver was renewed in 1776 for a further two years, and was again, in 1778, continued until the 1st day of May 1783, and from thence to the end of the next session of Parliament. On the 21st June 1798 the Act, being then expired, was revived and further continued to the 1st day of June 1799 by a new statute, and on the 12th July 1799 the Act was made perpetual by statute of 39 Geo. III. c. 75. The later legislative action with regard to silver belongs to the final construction of the English currency system. In the main, the recoinage of gold was accomplished in the year 1774, though it lingered over the three succeeding years as appears by the items in the Appropriation Acts. The accounts of grants for recoinage were as follows:-- 1774. The first grant £250,000 0 0 1775. To the bank for receiving the deficient gold coin 46,846 0 0 For extraordinary charges of the Mint 22,824 19 0 1776. Further grant 92,421 14 1-1/4 1778. " " 105,227 8 3 ------------------ £517,320 2 2-1/4 ================== The scope of this series of Acts of 1774 will be seen at a glance; as well as the tendency in policy, namely, in favour of gold, which it indicated. The gold coinage was renewed, and as a safeguard against its future depreciation the existing depreciated coin was cut off from any sapping action upon it by the above restriction as to tender by weight. For the renewal of the silver coinage itself no actual measures were taken save the prohibition of the import of light coins. For more than twenty years the defective state of the silver coin continued quite unheeded; evidently as no longer causing international embarrassment, now that its function and differentiating action upon the companion metal had been partially tied down and limited. In 1787 the depreciation of the silver coinage was ascertained experimentally, when it was found that half-crowns were defective by over 9 per cent., shillings by over 24 per cent., and sixpences by more than 38 per cent. of their proper weight. To this depreciation was added an exterior cause of drain by the action of France, who in 1792 increased the scarcity of silver coins and bullion by the issue of her assignats. In that year not less than 2,909,000 oz. of silver were purchased with assignats and sent into France. Five years later an attempt was made to supply the deficiency of the silver coins by the issue of Spanish _dollars_, countermarked with the hall mark of the King's head. This was after the Bank of England had, in accordance with the minute of the Privy Council of 26th February 1797, suspended cash payments. [Sidenote: ENGLAND: ACT OF 1798] On the 7th of February of the following year, 1798, the subsisting Committee of Council for Coins was dissolved, and a new committee appointed to consider the state of the coins and Mint. During its deliberations, and until it established the new rule, the further coining of silver was suspended by the Act already spoken of, which (21st June 1798) revived the old law against importation of light silver. This suspension of silver coinage was simply a temporary precaution. "Whereas," says the Act, "His Majesty has appointed a committee of his Privy Council to take into consideration the state of the coins of this kingdom, and the present establishment and constitution of His Majesty's Mint, and inconvenience may arise from any coinage of silver until such regulations may be framed as shall appear necessary; and whereas from the present low price of silver bullion, owing to temporary circumstances, a small quantity of silver bullion has been brought to the Mint to be coined, and there is reason to suppose that a still further quantity may be brought, and it is therefore necessary to suspend the coining of silver for the present, be it therefore enacted that no silver bullion shall be coined at the Mint, nor shall any silver coin that may have been coined there be delivered." There can be little doubt that this enactment was due to Lord Liverpool, and if so that it was intended as an arrest, with a particular intent or bearing; for Liverpool had formed his conception of a monetary theory as early as 1773. None the less it is quite inadmissible to state, as has been done, that this restriction, so evidently and expressly only a temporary or interim measure of self-defence, was equivalent to a placing upon the statute-book of Lord Liverpool's gold monometallical theory. There was as yet no restriction on the legal tender of silver. It was still legal tender to any amount,--it was indeed the standard coin of the realm,--only, in order to avoid the effects of depreciation, and to prevent further depreciation, it was now the law of the land that payments of silver of sums over £25 should be made by weight, and the further coinage of silver was temporarily stopped. This was not a gold monometallic system, and the Act which established that system was passed eight years after the death of Lord Liverpool, and six years after the Bullion Report of 1810 had been printed. [Sidenote: ENGLAND: THE BANK RESTRICTION] Further than incidentally it is inconsistent with the design of this book to refer to the period of suspension of cash payments and the Bullion Report. These latter are banking phenomena, and will find their place in a treatise of currency in the fuller acceptance of the term, rather than in a treatise definitely restricted to the subject of the metallic currencies. The events of 1797 which led to the suspension,--the remittances to the Continent for war purposes, a failure of credit, a run on the country banks, and then upon the London banks,--had been experienced in 1793 as acutely as in 1797; and, according to the express statement of the report itself, even in the years 1796 and 1797, when the country bankers were making great demands in order to increase their deposits, the market price of gold never rose above the Mint price. These events were therefore one phase of the internal experiences of the country, and have no relation to an international outflow of gold, caused by the heightened ratio which definitely set in in 1794. On the mere ground of first principles, therefore, it is inadmissible to make argumentative use of this event, known as the Bank Restriction, for judgment and illustration in the wider question of bimetallism. Further, the argumentative use that has been made of it--viz. that if from 1773 to 1797 England had possessed a true rather than a halting bimetallic régime, she would have been supplied by its means with an amount of silver that would have increased the metallic reserve and strength of the country, and enabled it to avoid suspension--is inadmissible: and the argument itself is untenable. Such bimetallic action supplying silver could only have begun to operate in 1794, three years before the suspension. It could only have operated by substituting one metal for the other, not by adding silver to gold, but by taking away higher valued gold, and furnishing lower valued silver, i.e. by actually decreasing the metallic strength and reserve of the kingdom. And, lastly, there is the peculiar fact still requiring explaining, that the years of the bank restriction, until, that is, the new Mint law of 1816, saw the heaviest export of silver probably that England has ever experienced. During the ten years, 1801-10, nearly 10 millions sterling of silver was exported from England (over 38,176,016 oz.), while the gold exports amounted only to £2,088,483, so that, of the total export, silver formed 82 per cent. (net amounts used in both cases). It is still well known to what straits this export of silver put the country. In almost every town where there was any employment of labour the tradesmen were obliged to issue token money of their own--shilling tokens, sixpenny tokens, half-crown and five-shilling promissory-notes. Every conceivable form of hand-to-mouth unauthorised currency was resorted to, in order to relieve the needs of the situation caused by the want of silver coins. And stories are still remembered of the straits to which the working classes were driven in order to make their purchases at the week end with one pound notes, for which they could get no change. The explanation of such a phenomenon can only be that the one pound notes having driven gold out of circulation, by a law which is merely another form of the bimetallic law, left only silver available for remittance to the Continent for loans and war purpose. But, whatever the explanation, the fact cuts the ground from under the argument that bimetallism would have saved England from the bank restriction. If silver had not been legal tender to any amount (up to £25 by tale, and beyond that by weight), or again if it had been protected by an agio in 1808 as it was in 1816, it could not have left the country. The straits of the poorer classes in those years of hardship were _due_ to the existing bimetallic system, and to it must, therefore, be attributed the aggravation rather than alleviation of the bank restriction. If anything is required to confirm such view it can be found in the very terms of that statute of 1816 (56 Geo. III. c. 68), which established the gold standard in England. They reveal the fact that the Act was not so much a philosophical or theoretical declaration of monometallism, such as might have been expected if Lord Liverpool had still lived to dictate it, but a measure for the protection of and relating almost entirely to silver. [Sidenote: ENGLAND: THE ACT OF 1816] "Whereas the silver coins of the realm have, by long use and other circumstances, become greatly diminished in number and deteriorated in value, so as not to be sufficient for the payments required in dealings under the value of the current gold coins, by reason whereof a great quantity of light and counterfeit silver coin and foreign coin has been introduced into circulation within this realm, and the evils resulting therefrom can only be remedied by a new coinage of silver money...." The Act therefore prescribes the coining of silver, 11 oz. 2 dwts. fine, at a tale after the rate of 66s. per Troy pound, whether the same be coined in crowns, half-crowns, shillings, or sixpences, or pieces of a lower denomination, but to be issued to the importer of the silver, or to the public, after a rate of 62s. per pound Troy. "And whereas at various times heretofore the coins of this realm of gold and silver have been usually a legal tender for payments to any amount, and great inconvenience has arisen from both these precious metals being concurrently the standard measure of value and equivalent of property, it is expedient that the gold coin made according to the indentures of the Mint should henceforth be the sole standard measure of value and legal tender for payment, without any limitation of amount, and that the silver coin should be a legal tender to a limited amount only, for the facility of exchange and commerce." The Act therefore prescribes the limit of 40s. for the tender of silver. This Act was repealed, but in substance re-enacted by the Coinage Act of 1870, and is still in principle and fact the law of the land and the basis of our monometallic system. From the date of its enactment England has been withdrawn from that action of bimetallic law which had been her bane for centuries. The flow of gold in or out became automatic, representing the natural flow of world-balances, and therefore proving the greatest trade help and indicator; and such commercial crises as have come upon her have arisen from the peculiarly sensitive organisation of credit which distinguishes the modern system, and are to be classed with banking rather than metallic currency phenomena. The total coinage in England from 1816 to 1875 inclusive was £234,139,886 gold and £24,663,309 silver. [Sidenote: ENGLAND: 1816-93] +-------+-------------+-------------------+-------------------+ | | Coinage of | Imports of Gold | Exports of Gold | | Year. | Gold. | Bullion and | Bullion and | | | | Specie. | Specie. | +-------+-------------+-------------------+-------------------+ | 1855 | 9,008,663 | ? | 11,847,000 | | 1856 | 6,002,114 | ? | 12,038,000 | | 1857 | 485,980 | ? | 15,062,000 | | 1858 | 1,231,023 | 22,793,000 | 12,567,000 | | 1859 | 2,649,509 | 22,298,000 | 18,081,000 | | 1860 | 3,121,709 | 12,585,000 | 15,642,000 | | 1861 | 8,190,170 | 12,164,000 | 11,238,000 | | 1862 | 7,836,413 | 19,904,000 | 16,012,000 | | 1863 | 6,607,456 | 19,143,000 | 15,303,000 | | 1864 | 9,535,597 | 16,901,000 | 13,280,000 | | 1865 | 2,367,614 | 14,486,000 | 8,493,000 | | 1866 | 5,076,676 | 23,510,000 | 12,742,000 | | 1867 | 496,397 | 15,800,000 | 7,889,000 | | 1868 | 1,653,384 | 17,136,000 | 12,708,000 | | 1869 | 7,372,204 | 13,771,000 | 8,474,000 | | 1870 | 2,313,384 | 18,807,000 | 10,014,000 | | 1871 | 9,919,656 | 21,619,000 | 20,698,000 | | 1872 | 15,261,442 | 18,469,000 | 19,749,000 | | 1873 | 3,384,568 | 20,611,000 | 19,071,000 | | 1874 | 1,461,565 | 18,081,000 | 10,642,000 | | 1875 | 243,264 | 23,141,000 | 18,648,000 | | 1876 | 4,696,648 | 23,476,000 | 16,516,000 | | 1877 | 981,468 | 15,442,000 | 20,374,000 | | 1878 | 2,265,069 | 20,871,000 | 14,969,000 | | 1879 | 35,050 | 13,369,000 | 17,579,000 | | 1880 | 4,150,052 | 9,455,000 | 11,829,000 | | 1881 | ... | 9,963,000 | 15,499,000 | | 1882 | ... | 14,377,000 | 12,024,000 | | 1883 | 1,403,713 | 7,756,000 | 7,091,000 | | 1884 | 2,324,015 | 10,744,000 | 12,013,000 | | 1885 | 2,973,453 | 13,377,000 | 11,931,000 | | 1886 | ... | 13,392,000 | 13,784,000 | | 1887 | 1,908,686 | 9,955,000 | 9,324,000 | | 1888 | 2,277,424 | 15,000,000 | 14,250,000 | | 1889 | 7,257,455 | 17,570,000 | 14,000,000 | | 1890 | 7,662,898 | 23,900,000 | 14,250,000 | | 1891 | 6,869,119 | 29,500,000 | 25,000,000 | | 1892 | 13,944,963 | 21,250,000 | 15,450,000 | | 1893 | 9,318,021 | 23,630,000 | 18,800,000 | +-------+-------------+-------------------+-------------------+ +-------+-------------+-------------------+-------------------+ | | Coinage of | Imports of Silver | Exports of Silver | | Year. | Silver. | Bullion and | Bullion and | | | | Specie. | Specie. | +-------+-------------+-------------------+-------------------+ | 1855 | 195,510 | ? | 6,981,000 | | 1856 | 462,528 | ? | 12,813,000 | | 1857 | 373,230 | ? | 18,505,000 | | 1858 | 445,896 | 6,700,000 | 7,062,000 | | 1859 | 647,064 | 14,772,000 | 17,608,000 | | 1860 | 218,403 | 10,394,000 | 9,893,000 | | 1861 | 209,484 | 6,583,000 | 9,573,000 | | 1862 | 148,518 | 11,753,000 | 13,314,000 | | 1863 | 161,172 | 10,888,000 | 11,241,000 | | 1864 | 535,194 | 10,827,000 | 9,853,000 | | 1865 | 501,732 | 6,977,000 | 6,599,000 | | 1866 | 493,416 | 10,777,000 | 8,897,000 | | 1867 | 193,842 | 8,021,000 | 6,435,000 | | 1868 | 301,356 | 7,716,000 | 7,512,000 | | 1869 | 76,428 | 6,730,000 | 7,904,000 | | 1870 | 336,798 | 10,649,000 | 8,906,000 | | 1871 | 701,514 | 16,522,000 | 13,062,000 | | 1872 | 1,243,836 | 11,139,000 | 10,587,000 | | 1873 | 674 | 12,988,000 | 9,828,000 | | 1874 | 890,604 | 12,298,000 | 12,212,000 | | 1875 | 594,000 | 10,124,000 | 8,980,000 | | 1876 | 222,354 | 13,578,000 | 12,948,000 | | 1877 | 420,948 | 21,711,000 | 19,437,000 | | 1878 | 613,998 | 11,552,000 | 11,718,000 | | 1879 | 549,054 | 10,787,000 | 11,006,000 | | 1880 | 761,508 | 6,799,000 | 7,061,000 | | 1881 | 997,128 | 6,901,000 | 7,004,000 | | 1882 | 209,880 | 9,243,000 | 8,965,000 | | 1883 | 1,274,328 | 9,468,000 | 9,323,000 | | 1884 | 658,548 | 9,633,000 | 9,986,000 | | 1885 | 720,918 | 9,434,000 | 9,852,000 | | 1886 | 417,384 | 7,472,000 | 7,224,000 | | 1887 | 861,498 | 7,819,000 | 7,807,000 | | 1888 | 755,113 | 6,000,000 | 7,500,000 | | 1889 | 2,215,742 | 9,000,000 | 10,500,000 | | 1890 | 1,708,415 | 10,300,000 | 10,500,000 | | 1891 | 1,049,113 | 10,500,000 | 11,800,000 | | 1892 | 773,353 | 12,375,000 | 14,075,000 | | 1893 | 1,089,707 | 11,320,000 | 13,532,000 | +-------+-------------+-------------------+-------------------+ United States Under British dominion the American colonies retained the silver standard, as did their mother country, with such variation of actual coins and of their tariff as the situation of the country and the immense variety of metallic values prevailing in the different colonies gave rise to. The coin most commonly current was the Spanish _piece of eight_, but the system of weights and measures was the English system, and reckoning was by pounds, shillings, and pence. The method by which such a composite system was regulated consisted in those coinage tariffs with which early European monetary history is so well acquainted. According to a tariff issued in 1750, the ounce of silver was declared worth 6s. 8d. the Spanish milled _piece of eight_ was to be equal to 6s.; and "whereas there is great reason to apprehend that many and great inconveniences may arise in case any coined silver or gold or English halfpence and farthings should pass at any higher rate than in a just proportion to Spanish pieces of eight, or coined silver at the ratio aforesaid," a tariff list was appended according to which the guinea was 28s., the _English crown_ 6s. 8d., and so on for other European coins. [Sidenote: UNITED STATES: MORRIS'S SCHEME, 1782] In accordance with this system the earliest financial steps of the Continental Congress in 1775--its issues of bills of credit--were based upon, and the bills were declared payable in, the Spanish _dollar_ or _piece of eight_, to which, on the report of a special commission, appointed on 19th April 1776, the various gold and silver coins circulating by different standards in different colonies were rated by a tariff. According to this tariff the guinea weighing 5 dwts. 8 grs. was to be equivalent to 4-2/3 dollars, and the English crown equal to 1-1/9 dollar. Gold bullion was rated 17 dollars per oz. Troy weight; sterling silver at 1-1/9 dollar per oz. Assuming the coins to be of full weight, the ratio here established is nearly the English ratio of 15.21. The ratio for bullion is slightly different, but hardly materially. Six years later, at the request of a committee of Congress, the superintendent of finance, Robert Morris, submitted a scheme for a national coinage (15th January 1782). This scheme is remarkable for its clear-sightedness and grasp, as well as the testimony it bore to the European monetary system of the time. After deciding on silver as a necessary unit, the report thus proceeds:-- "The various coins which have circulated in America have undergone different changes in their value, so that there is hardly any which can be considered as a general standard unless it be Spanish dollars. These pass in Georgia at 5s., in North Carolina and New York at 8s., in Virginia and the four Eastern States at 6s., in all the other States except South Carolina at 7s. 6d., and in South Carolina at 32s. 6d." As a common denominator, calculated from part of these figures, Morris proposed a monetary unit of 1/4-grain in fine silver, the multiples to be by the decimal system, the dollar containing 1440 units, and the Mint price of fine silver being 22,237 units per pound. On the following 21st February 1782 Congress approved of the establishment of a Mint, and directed Morris to prepare and report a plan for conducting it. In a concurrent paper of notes on the establishment of a money unit, and of a coinage for the United States, Jefferson proposed, in opposition to Morris's scheme, a decimal system resting on the dollar, and with a ratio of 15:1. [Sidenote: UNITED STATES: REPORT OF 1785] "Just principles," he says, after stating the legal ratio in the chief European countries, "will lead us to disregard legal proportions altogether, to inquire into the market price of gold in the several countries with which we shall be principally connected in commerce, and to take an average from them. Perhaps we might well safely lean to a proportion somewhat above par for gold, considering our neighbourhood and commerce with the sources of the coins, and the tendency which the high price of gold in Spain has to draw thither all that of their mines, leaving silver principally for our and other markets." The settlement of the matter was, however, delayed, although in the course of the year Morris declared that "all our dollars are rapidly going to the enemy in exchange for light gold, which must eventually cause a considerable loss and a scarcity of silver which will be seriously felt." In this undetermined state the matter rested till 13th May 1785, when the grand committee on the money unit made its report. The proposed ratio was justified thus: "In France 1 grain of pure gold is counted worth 15 grs. of silver. In Spain 16 grs. of silver are exchanged for 1 of gold, and in England 15-1/5. In both England and Spain gold is the prevailing money, because silver is undervalued. In France silver prevails. Sundry advantages would arise to us from a system by which silver might become the prevailing money. This would operate as a bounty to draw it from our neighbours, by whom it is not sufficiently esteemed. Silver is not exported so easily as gold, and it is a more useful metal. Certainly our exchange should not be more than 15 grs. of silver for 1 of gold." The charge for coinage was to be 2-1/2 per cent. for gold, and slightly over 3 per cent. for silver. The unit was to be a dollar of 362 grs. of pure silver, with a multiple gold piece (5 dollars) and decimal aliquot pieces. On the 6th July following, 1785, the Congress by vote adopted the silver dollar as the basis of the currency on a decimal system, but the resolution was not followed by the establishment of a Mint, although the States were experiencing great loss by the circulation of base copper coins made in Birmingham. On the 8th April 1786, a report was made in triplicate by the Board of Treasury to the President of Congress, the first of the three forms of the report advocating a silver dollar of 375.64 grs. fine and a ratio of 15.256. These proposals were adopted by resolution on the 8th August following, and on the 16th October of the same year, 1786, the ordinance for the establishment of the Mint of the United States of America, and for regulating the value and alloy of coin, finally passed Congress. In accordance with the resolutions of 8th August, the mint price of the pound Troy of gold (11 parts fine) was fixed at 209 dols. 7 dimes, 7 cents, and of silver at 13 dols. 7 dimes, 7 cents, and 7 mills. The Mint charge here comprised is about 2 per cent. on both silver and gold, "bringing the ratio of bullion at the Mint to 15.22, a little below the ratio in the coin." [Sidenote: UNITED STATES: HAMILTON'S REPORT, 1791] For several years all these regulations of Congress were not put in force, and it was not until 5th May 1791 that the matter was again brought before the Senate by the report of the Secretary of the Treasury, Alexander Hamilton. Hamilton's scheme, as contained in his most remarkable paper, was for a silver unit or dollar of 371-1/4 grs. of pure silver and a ratio of 15, and instead of the allowance of 2 per cent. for waste and coinage the principle was adopted of free coinage--of delivering at the Mint the same weight of pure metal coined as should be brought to it in bullion or foreign coin. Hamilton justifies his ratio thus: "The difference established by custom in the United States between coined gold and coined silver has been stated to be nearly 1:15.6. This, if truly the case, would imply that gold was extremely overvalued in the United States, for the _highest actual_ proportion in any part of Europe very little, if at all, exceeds 1:15, and the average proportion throughout Europe is probably not more than 1:14.8." He also deduces his ratio of 15 as a mean between the two lately preceding issues of dollars. "Taking the rate of the late dollar of 374 grs., the proportion would be as 1:15.11. Taking the rate of the newest dollar of 374 grs., the proportion would be as 1:14.87. The mean of the two would give the proportion of 1:15 very nearly, less than the legal proportion in the coins of Great Britain, which is as 1:15.2, but somewhat more than the actual or market proportion, which is not quite 1:15." As to the express selection of one or other metal for the unit, Hamilton makes a departure which marks clearly that he was creating and not continuing a system, and that if bimetallism is a feature of modern conception that conception is due to American rather than French statesmanship:[18]--"Contrary to the ideas which have heretofore prevailed in the suggestions concerning a coinage for the United States, though not without much hesitation arising from a deference for those ideas, the secretary is, upon the whole, strongly inclined to the opinion that a preference ought to be given to neither of the metals for the monetary unit ... because this cannot be done effectually without destroying the office and character of one of them as money and reducing it to the situation of mere merchandise, which, accordingly, at different times, has been proposed from different and very reputable quarters, but which would probably be a greater evil than occasional variations in the unit, from the fluctuations in the relative value of the metals, especially if care be taken to regulate the proportion between them, with an eye to their average commercial value. To annul the use of either of the metals as money is to abridge the quantity of circulating medium." [Sidenote: UNITED STATES: SCHEME OF 1792] This scheme was accepted in its entirety by the Act of 2nd April 1792, with the slight change that the standard of silver was changed from 11/12 to 1485/1664 fine. The silver dollar, therefore, weighed 416 grs. gross (371-1/4 grs. pure silver); on this basis, at a ratio of 15, the equivalent gold piece would contain 24.75 grs. (371-1/4/25 = 27-3/4). This was accordingly established as the basis of the gold _eagle_ or ten-dollar piece, which was to contain 270 grs. gross (247.5 grs. pure gold).[19] The Act was followed by another on the 9th February 1793, for regulating the rate of foreign coins. The gold coins of Great Britain and Portugal of their then standard were made a legal tender for the payment of all debts and demands, at the rate of 100 cents for every 27 grs. of their actual weight, those of France and Spain at the rate of 100 cents for every 27-2/5 grains. For a period the system established in 1792 went on, although the ratio established was prejudicial to gold. But, twenty years after, the natural result arrived in America, as in England, and the circulation of gold was completely extinguished in the States by the unseen withdrawal of the metal. In obedience to a resolution of the Senate of 3rd March 1817, John Quincy Adams, Secretary of State, produced a report on weights and measures, in which he impugned the correctness of the data on which Hamilton had based his reckoning in 1791. Two years later, 26th January 1819, a committee of the House reported an ill-considered scheme, recommending a change in the ratio in favour of gold, and the imposition of a heavy seigniorage on silver. On the 1st of March following, the House of Representatives directed the secretary to report such measures as might be expedient to procure and retain a sufficient quantity of gold and silver coin in the United States. In this report, in referring to one feature in the previous crisis, namely, the necessity in 1814 for the suspension of specie payments, Secretary Crawford stated that, from the commencement of the war until that event of 1814, a large amount of specie was taken out of the United States by the sale of English Government bills, at a discount frequently of 15 to 20 per cent. He concluded by suggesting a raising of the value of gold in relation to silver, 5 per cent., implying a ratio of 15.75. In the report to the House of Representatives, dated 17th March 1832, quite a different statement was made, namely, that there was no export of gold from the United States from 1792 to 1821, and that "there were certainly no indications that gold was rated too low in our standard of 1:15 earlier than 1821, when the English demand commenced." [Sidenote: UNITED STATES: GOLD EXPORT OF 1820] The terms of the report of the committee on the currency, which was communicated to the House of Representatives on the 2nd February 1821, must be contrasted with this statement. "The committee are of opinion that the value of American gold compared with silver ought to be somewhat higher than by law at present established. On inquiry they find that gold coins, both foreign and of the United States, have in a great measure disappeared, and from the best calculation that can be made there is reason to apprehend they will be wholly banished from circulation, and it ought not to be a matter of surprise, under our present regulations, that this should be the case.... There have been coined at the Mint of the United States 6 millions of dollars in gold. It is doubtful whether any considerable portion of it can at this time be found within the United States.... It is ascertained that the gold coin, in an office of discount and deposit of the Bank of the United States in November 1819, amounted to 165,000 dollars and the silver coin to 118,000; that since that time the silver coin has increased to 700,000 dollars, while the gold coin has diminished to 1200 dollars, 100 only of which is American."[20] The committee proposed a bill in the sense of their report, but for seven years--years of acute commercial crises and distress--no actual step was taken. In November of the following year the subject of the disappearance of gold from the currency was brought before the lower house of Congress by Mr. Lowndes. In December 1828, however, the Senate required the Secretary of the Treasury to ascertain the ratio and to state such alterations in the gold coins as might be necessary to conform those coins to the silver coins in their true relative value. In his report Secretary Ingham insisted on the advantage of a single standard, but, in case of a determination to maintain both gold and silver, he proposed to approximate as near as could be to the French system by establishing a ratio of 15.625. In case of no change of the ratio he proposed to discontinue the gold coinage, whenever the premium for gold should exceed 2 per cent. No action was taken on these reports, nor on the similar proceedings in the two following years, nor very little more on the report which in June 1832 the select committee on coins produced. Part of the instructions given to this committee were "to inquire into the expediency of making silver the only legal tender, and of coining and issuing gold coins of a fixed weight and fineness, which shall be received in payment of all debts to the United States, at such ratio as may be fixed from time to time but shall not otherwise be a legal tender." In the House of Representatives the converse proposition of a gold standard with a restricted legal tender had been made by M. Wilde, 26th March 1832, but when the report appeared it advocated a silver standard. [Sidenote: UNITED STATES: THE ACT OF 1834] While Congress was thus delaying over a vital question the New York bankers, May 1834, pressed for the regulation of the gold coins, so as to retain them in the country. Two months later, 31st July 1834, the long-sought measure passed, but in an extraordinary form. At a blow the ratio was changed from 1:15 to 1:16 (15.988), by the reduction of the weight of the fine gold in the gold coins to 23.20 Troy grains, soon afterwards, by an Act of 18th July 1837, changed to 23.22 grains, the standard being changed at the same time from 11/12 to 9/10 fine. The motives and amount of wisdom which underlay this sudden close of a long period of agitation can be measured from Benton's own words, in his _Thirty Years' View_:-- "A measure of relief was now at hand, before which the machinery of distress was to balk and cease its long and cruel labours--it was the passage of the bill for equalising the value of gold and silver and legalising the tender of foreign coins of both metals. The bills were brought forward in the House by Mr. Campbell H. White of New York, and passed after an animated contest in which the chief question was as to the true relative value of the two metals, varied by some into a preference for National Bank paper; 15-5/8 was the ratio of nearly all who seemed best calculated from their pursuits to understand the subject. The thick array of speakers was on that side, and the eighteen banks of the city of New York, with Mr. Gallatin at their head, favoured that proportion. The difficulty of adjusting this value, so that neither metal should expel the other had been the stumblingblock for a great many years, and now this seemed to be as formidable as ever. Refined calculations were gone into, scientific light was sought, history was rummaged back to the times of the Roman Empire; and there seemed to be no way of getting to a concord of opinion either from the light of science, the voice of history, or the result of calculations. The author of this _View_ had, in his speeches on the subject, taken up the question in a practical point of view, regardless of history and calculations and the opinions of bank officers; and looking to the actual and equal circulation of the two metals in different countries he saw that this equality and actuality of circulation had existed for above three hundred years in the Spanish dominions of Mexico and South America, where the proportion was 16:1. Taking his stand upon this single fact, as the practical test which solved the question, all the real friends of the gold currency soon rallied to it. Mr. White gave up the bill which he had first introduced, and adopted the Spanish ratio. Mr. Clowney of South Carolina, Mr. Gillet, and Mr. Cambreleng of New York, Mr. Ewing of Indiana, Mr. McKim of Maryland, and other speakers gave it a warm support. Mr. John Quincy Adams would vote for it, though he thought the gold was overvalued, but if found to be so the difference could be corrected hereafter. The principal speakers against it and in favour of a lower rate were Messrs. Gorham of Massachusetts, Selden of New York, Binney of Pennsylvania, and Wilde of Georgia, and eventually the bill was passed by a large majority, 145 to 35. In the Senate it had an easy passage. Messrs. Calhoun and Webster supported it, Mr. Clay opposed it; and on the final vote there were but seven negatives--Messrs. Chambers of Maryland, Clay, Knight of Rhode Island, Alexander Porter of Louisiana, Silsbee of Massachusetts, Southard of New Jersey, Sprague of Maine. The good effects of the bill were immediately seen. Gold began to flow into the country through all the channels of commerce, old chests gave up their hordes, the Mint was busy; and in a few months, as if by magic, a currency banished from the country for thirty years overspread the land and gave joy and confidence to all the pursuits of industry." The panacea thus magnificently lauded soon proved itself worse than inefficient. The ratio was too high, and the silver dollars could not be maintained. They were unduly exported, especially between the years 1848 and 1851. And in order to retain within the country a sufficient amount of small coin the amount of silver in the small coins, from the half-dollar downwards, was reduced by an Act of 24th February 1853. It was at the same time provided that they should be coined only on Government account, and they were made legal tender only up to the sum of five-dollars. The direction of this step will be seen at a glance--it was in the direction of the gold valuation. This is as plainly the case as it was in the Latin Union, already exemplified (p. 190). Further, it was so conceived and explicitly stated by Dunham, who piloted the bill through the House. "We have had," he said, "but a single standard for the last three or four years. That has been and now is gold. We propose to let it remain so, and to adapt silver to it, to regulate it by it." Legally, the old silver dollar was left untouched, and the gold and silver valuation was not expressly abolished. No reference whatever was made to the silver dollar in the Act, for the simple reason that for years nothing had been seen of them. They did not and could not circulate. There was plenty of gold, and the absence of silver with the change in standard therein practically implied was either unnoticed, or regarded, if at all, only with indifference. The final step in the simplification and unification of this system was commenced in 1870, when a bill was prepared for a revised coinage law with a pure gold standard, silver being demonetised as a legal tender money. The bill did not become law till 12th April 1873. And no opposition was expressed in either the House of Representatives or the Senate to the abolition of the double standard. The silver dollars previously coined (of which, however, but few were in existence) maintained their quality as legal tender; but the coining of new dollars, whether on Government or private account, was forbidden. [Sidenote: UNITED STATES: THE LEGISLATION OF 1873-74] This Act was therefore simply the complement of the preceding legislation of 1853. The completion of this system thus established was provided in section 3586 of the Revised Statutes of 1874, by which the silver coins of the United States were declared legal tender only up to five dollars, thus completing, from December 1873 onwards, the demonetisation of silver, and the establishment of gold monometallism on the English plan. As an effective scheme it meant little because of the prevalence of paper. Within a very short time of the passing of this bill, however, began the great change in the relative value of the precious metals which has continued since. The silver-producing interest, at that moment on the eve of receiving an enormous accession of strength by the Nevada finds, made itself heard. At the same time the prospect of the resumption of cash payments brought an additional incentive and interest. A commission to investigate the question of standard was therefore appointed, 14th August 1875, and a majority of this commission recommended the establishment of the double standard. Thereupon Bland, one of the members of the commission, proposed in the House of Representatives the re-establishment of the double standard, at the old ratio of 1:15.988, with free coinage of silver. The question of resumption was pressing near. On the 1st January 1879 the States were to return to cash payments. On what basis should that return be effected? Should the Act of 1873 be maintained, or should a return be made to the bimetallic system which had prevailed before then? The Government was of the former opinion; the majority of Congress of the latter. The silver party, finding the measure could not be carried over the veto of the president, agreed to a compromise, under which the free coinage clause was dropped, and it was as a compromise that the Bland Act so-called, the "Act to authorise the coinage of the standard silver dollar, and to restore its legal tender character," passed on the 28th February 1878. To the favourers of a gold system it was conceded that in the maintenance of the previous legal ratio of 15.988, the silver dollar should be reserved for Treasury reckonings, and a maximum minting limit of 4 million dollars monthly should be fixed. The bimetallists gained the fixing of a minimum limit of 2 million dollars monthly of silver coinage, and the clause enjoining the President of the United States to take steps for the meeting of an international conference. [Sidenote: UNITED STATES: BLAND AND SHERMAN ACTS] This scheme became law immediately, and on the 1st January 1879 the United States resumed specie payment. As far as the actual circulation of the country is concerned this return is only nominally effective. The habit of employing redeemable paper had grown too strong and continuous, and even the rule of the New York banking-houses, to employ only gold in clearing-house settlements, has been formally, though not absolutely, abolished by the Act of Congress of 12th July 1882, which provided that no national bank should be a member of a clearing-house at which gold and silver certificates were not accepted in payment of balances. The Bland Bill deceived the hope of both parties, as such a compromise might be expected to do. It remained in force, notwithstanding, till August 1890, and during the twelve years, 1878-1890, the United States coined a matter of 370 million silver dollars, employing therein 9 million kilogrammes of silver--a third of the total contemporary production. Almost yearly, up to 1887, the repeal of the silver purchase clauses of the Bland Bill and the suspension of the silver coinage was recommended to Congress by presidential message, and in the reports of the Secretary of the Treasury. In December 1889 President Harrison and Secretary Windam definitely proposed to cease the coining of silver, and to limit the issues of silver certificates to the value of the silver bullion as deposited, reckoning that value at its then market price. From these proposals sprang, by the same peculiar process of committee gestation which had produced the Bland Act, the compromise which passed on the 14th July 1890, under the title of the Sherman Act. This act represents a compromise not of principles but of self-seeking interests. The main regulations of the law, which came into force on the 13th August 1890, were:-- 1. The Secretary of the Treasury is to purchase silver to not more than the monthly amount of 4,500,000 oz. at the market price, so long as that price is below 129.29 cents per oz. 2, 3. To issue Treasury notes against the purchases, the said notes to be full legal tender, and capable of forming part of bank reserves. 5. Up to 1st July 1891, 2 million oz. monthly of this silver to be coined into dollars. That coinage to cease after the date specified, except so far as necessary to secure the Treasury notes. At the same time the Act declares the intention of the American Government to preserve the parity of gold and silver. The fillip given by this legislation to the price of silver was over in a moment, and almost immediately the question recurred for pressing consideration, on the strong demand of the silver party for free coinage in place of these as yet ineffectual purchase schemes. The impotent close of the international monetary conference at Brussels, in February 1893, was followed by the Act of the Governor-General of India in Council of June 26th closing the Indian Mint to the free coinage of silver. Left practically alone in her stand in defence of silver, America, in the simple interest of her gold reserve, was obliged to abandon the field, and after a bitter fight the repeal of the clauses of the Sherman Act, which had enacted the compulsory purchase of silver, was carried in November 1893. [Sidenote: UNITED STATES: COINAGE 1793-1893] We are too near the event to estimate these later developments of the situation, but as yet two remarkable facts have hinged upon this report--(1) the immediate depreciation of the value of silver and the effect on the export of silver to India were not such as might _a priori_ have been conjectured; (2) the ceasing of the silver purchase deprived the currency of the United States of its only remaining element capable of expansion, and of all the countries of the world the United States stands most in need of an expanding and expansible currency. COINAGE OF THE MINTS OF THE UNITED STATES.[21] +--------+---------------+--------------++--------+---------------+---------------+ | Years. | Gold | Silver || Years. | Gold | Silver | | | (Dollars). | (Dollars). || | (Dollars). | (Dollars). | |--------+---------------+--------------++--------+---------------+---------------+ | 1793-5 | 71,485.00 | 370,683.80 || 1813 | 477,140.00 | 620,951.50 | | 1796 | 77,960.00 | 77,118.50 || 1814 | 77,270.00 | 561,687.50 | | 1797 | 128,190.00 | 14,550.45 || 1815 | 3,175.00 | 17,308.00 | | 1798 | 205,610.00 | 330,291.00 || 1816 | ... | 28,575.75 | | 1799 | 213,285.00 | 423,515.00 || 1817 | ... | 607,783.50 | | 1800 | 317,760.00 | 224,296.00 || 1818 | 242,940.00 | 1,070,454.00 | | 1801 | 422,570.00 | 74,758.00 || 1819 | 258,615.00 | 1,140,000.00 | | 1802 | 423,310.00 | 58,343.00 || 1820 | 1,319,030.00 | 501,680.70 | | 1803 | 258,377.50 | 87,118.00 || 1821 | 189,325.00 | 825,762.45 | | 1804 | 258,642.50 | 100,340.50 || 1822 | 88,080.00 | 805,806.50 | | 1805 | 170,367.50 | 149,388.50 || 1823 | 72,425.00 | 895,550.00 | | 1806 | 324,505.00 | 471,319.00 || 1824 | 93,200.00 | 1,752,477.00 | | 1807 | 437,495.00 | 597,448.75 || 1825 | 156,385.00 | 1,564,583.00 | | 1808 | 284,665.00 | 684,300.00 || 1826 | 92,245.00 | 2,002,090.00 | | 1809 | 169,375.00 | 707,376.00 || 1827 | 131,565.00 | 2,869,200.00 | | 1810 | 501,435.00 | 638,773.50 || 1828 | 140,145.00 | 1,575,600.00 | | 1811 | 497,905.00 | 608,340.00 || 1829 | 295,717.50 | 1,994,578.00 | | 1812 | 290,435.00 | 814,029.50 || 1830 | 643,105.00 | 2,495,400.00 | +--------+---------------+--------------++--------+---------------+---------------+ +--------+---------------+--------------++--------+---------------+---------------+ | Years. | Gold | Silver || Years. | Gold | Silver | | | (Dollars). | (Dollars). || | (Dollars). | (Dollars). | |--------+---------------+--------------++--------+---------------+---------------+ | 1831 | 714,270.00 | 3,175,600.00 || 1863 | 22,445,482.00 | 809,267.80 | | 1832 | 798,435.00 | 2,579,000.00 || 1864 | 20,081,415.00 | 609,917.10 | | 1833 | 978,550.00 | 2,759,000.00 || 1865 | 28,295,107.50 | 691,005.00 | | 1834 | 3,954,270.00 | 3,415,002.00 || 1866 | 31,435,945.00 | 982,409.25 | | 1835 | 2,186,175.00 | 3,443,003.00 || 1867 | 23,828,625.00 | 908,876.25 | | 1836 | 4,135,700.00 | 3,606,100.00 || 1868 | 19,371,387.50 | 1,074,343.00 | | 1837 | 1,148,305.00 | 2,096,010.00 || 1869 | 17,582,987.50 | 1,266,143.00 | | 1838 | 1,809,765.00 | 2,333,243.40 || 1870 | 23,198,787.50 | 1,378,255.50 | | 1839 | 1,376,847.50 | 2,209,778.00 || 1871 | 21,032,685.00 | 3,104,038.30 | | 1840 | 1,675,482.50 | 1,726,703.00 || 1872 | 21,812,645.00 | 2,504,488.50 | | 1841 | 1,091,857.50 | 1,132,750.00 || 1873 | 57,022,747.50 | 4,024,747.60 | | 1842 | 1,829,407.50 | 2,332,750.00 || 1874 | 35,254,630.00 | 6,851,776.70 | | 1843 | 8,108,797.50 | 3,834,750.00 || 1875 | 32,951,940.00 | 15,347,893.00 | | 1844 | 5,427,670.00 | 2,235,550.00 || 1876 | 46,579,452.50 | 24,503,307.50 | | 1845 | 3,756,447.50 | 1,873,200.00 || 1877 | 43,999,864.00 | 28,393,045.50 | | 1846 | 4,034,177.50 | 2,558,580.00 || 1878 | 49,786,052.00 | 28,518,850.00 | | 1847 | 20,202,325.00 | 2,374,450.00 || 1879 | 39,080,080.00 | 27,569,776.00 | | 1848 | 3,775,512.00 | 2,040,050.00 || 1880 | 62,308,279.00 | 27,411,693.75 | | 1849 | 9,007,761.50 | 2,114,950.00 || 1881 | 96,850,890.00 | 27,940,163.75 | | 1850 | 31,981,738.50 | 1,866,100.00 || 1882 | 65,887,685.00 | 27,973,132.00 | | 1851 | 62,614,492.50 | 774,397.00 || 1883 | 29,241,990.00 | 29,246,968.45 | | 1852 | 56,846,187.50 | 999,410.00 || 1884 | 23,991,756.50 | 28,534,866.15 | | 1853 | 39,377,909.00 | 9,077,571.00 || 1885 | 27,773,012.50 | 28,962,176.20 | | 1854 | 25,915,962.50 | 8,619,270.00 || 1886 | 28,945,542.00 | 32,086,709.90 | | 1855 | 29,387,968.00 | 3,501,245.00 || 1887 | 23,972,383.00 | 35,191,081.40 | | 1856 | 36,857,768.50 | 5,142,240.00 || 1888 | 31,380,808.00 | 33,025,606.45 | | 1857 | 32,214,540.00 | 5,478,760.00 || 1889 | 21,413,931.00 | 35,496,683.15 | | 1858 | 22,938,413.50 | 8,495,370.00 || 1890 | 20,467,182.50 | 39,202,908.20 | | 1859 | 14,780,570.00 | 3,284,450.00 || 1891 | 29,222,005.00 | 27,518,856.00 | | 1860 | 23,473,654.00 | 2,259,390.00 || 1892 | 34,787,222.50 | 12,641,078.00 | | 1861 | 83,395,530.00 | 3,783,740.00 || 1893 | 56,997,020.00 | 8,802,797.30 | | 1862 | 20,875,997.50 | 1,252,516.50 || | | | +--------+---------------+--------------++--------+---------------+---------------+ [Sidenote: UNITED STATES: MOVEMENTS OF METALS, 1851-1893] IMPORT AND EXPORT OF THE PRECIOUS METALS INTO AND FROM THE UNITED STATES. +------------------------------------------------------------------+ | Gold and Silver. | +--------------------------+-------------------+-------------------+ | | Import (Dollars). | Export (Dollars). | +--------------------------+-------------------+-------------------+ | Yearly average, 1851-55 | 5,151,817 | 39,432,522 | | " 1856-60 | 10,385,770 | 59,589,841 | | " 1861-63 | 24,112,923 | 43,611,777 | +--------------------------+-------------------+-------------------+ +-----------------------------------------------------------------+ | Gold. | +-------------------------+---------------------------------------+ | | Import (Dollars). | Export (Dollars). | +-------------------------+-------------------+-------------------+ | Yearly average, 1864-70 | 11,117,584 | 58,757,484 | | " 1871 | 6,883,561 | 66,686,208 | | " 1872 | 8,717,458 | 49,548,760 | | " 1873 | 8,682,447 | 44,856,715 | | " 1874 | 19,503,137 | 34,042,420 | | " 1875 | 13,696,793 | 66,980,977 | | " 1876 | 7,992,709 | 31,177,050 | | " 1877 | 26,246,234 | 26,590,374 | | " 1878 | 13,330,215 | 9,204,455 | | " 1879 | 5,624,948 | 4,587,614 | | " 1880 | 80,758,396 | 3,639,025 | | " 1881 | 100,031,259 | 2,565,132 | | " 1882 | 34,377,054 | 32,587,880 | | " 1883 | 17,734,149 | 11,600,888 | | " 1884 | 22,831,317 | 41,081,957 | | " 1885 | 26,691,696 | 8,477,892 | | " 1886 | 20,743,349 | 42,952,191 | | " 1887 | 42,910,601 | 9,701,187 | | " 1888 | 43,934,317 | 18,376,234 | | " 1889 | 10,284,858 | 59,951,685 | | " 1890 | 12,943,342 | 17,274,491 | | " 1891 | 45,298,928 | 79,187,499 | | " 1892 | 18,165,056 | 76,735,592 | | " 1893 | 73,280,575 | 80,010,633 | +-------------------------+-------------------+-------------------+ | Silver. | +-------------------------+-------------------+-------------------+ | Yearly average, 1864-70 | 5,469,798 | 16,818,279 | | " 1871 | 14,382,463 | 31,755,780 | | " 1872 | 5,026,231 | 30,328,774 | | " 1873 | 12,798,490 | 39,751,859 | | " 1874 | 8,951,769 | 32,587,985 | | " 1875 | 7,203,924 | 25,151,165 | | " 1876 | 7,943,972 | 25,329,252 | | " 1877 | 14,528,180 | 29,571,863 | | " 1878 | 16,491,099 | 24,535,670 | | " 1879 | 14,671,052 | 20,409,827 | | " 1880 | 12,275,914 | 13,503,894 | | " 1881 | 10,544,238 | 16,841,715 | | " 1882 | 8,095,336 | 16,829,599 | | " 1883 | 10,755,242 | 20,219,445 | | " 1884 | 14,594,945 | 26,051,326 | | " 1885 | 16,550,627 | 33,753,633 | | " 1886 | 17,850,307 | 2,954,219 | | " 1887 | 17,260,191 | 26,296,504 | | " 1888 | 15,403,189 | 28,027,949 | | " 1889 | 18,678,215 | 36,689,248 | | " 1890 | 21,032,984 | 34,873,929 | | " 1891 | 27,910,193 | 28,783,393 | | " 1892 | 31,450,968 | 37,541,301 | | " 1893 | 27,765,696 | 47,463,399 | +-------------------------+-------------------+-------------------+ In 1878 the currency total of America was thus composed:-- +-------------------------------+---------------+---------------+ | | 1878. | 1879. | +-------------------------------+---------------+---------------+ | Gold (dollars), | 82,500,000 | 123,700,000 | | Silver (dollars), | ... | 11,100,000 | | Silver (small coin), | 53,600,000 | 54,100,000 | | Gold Certificates, | 44,400,000 | 14,800,000 | | Silver Certificates, | ... | 12,000,000 | | State Notes, | 311,400,000 | 327,700,000 | | Notes of the National Banks, | 313,900,000 | 330,000,000 | | +---------------+---------------+ | Totals, | 805,800,000 | 862,600,000 | +-------------------------------+---------------+---------------+ In 1893-- Metallic. 1893. Dollars. Gold bullion, 84,631,966 Silver bullion, 128,479,587 Gold coin, 582,366,998 Silver dollars, 419,332,777 Subsidiary silver coins, 76,267,586 ------------- 1,291,078,914 ============= Paper. Legal tender notes (old issue), 346,681,016 Legal Tender Notes Act, 14th July 1890, 153,160,151 Gold certificates, 77,487,769 Silver certificates, 334,584,504 National Bank notes, 208,538,844 Currency certificates, 39,085,000 ------------- 1,159,537,284 ============= Of the total of silver dollars in the above, only a matter of 57,869,589 are in circulation. The balance, 361,463,188, are in the Treasury vaults. [Sidenote: THE NETHERLANDS IN 1816] Netherlands. During the eighteenth century the monetary history of the Netherlands loses its central and determining importance. The details of the Mint laws, which precede the later developments of the nineteenth century, are therefore relegated to the Appendix (No. IV. Holland). When the United Provinces of the Netherlands and Belgium were united under a single sceptre, both countries had an immense variety of coins, for formerly nearly every province claimed a right of coining money. To meet the desire for a simple and single system, a monetary law was passed in 1816 under King William I. Its object was to arrive at a currency having the old florin, called the florin of 200_as_, as the unit. But at the same time a gold piece of 10 florins was allowed. The florin contained 9.63 grms. of silver and the 10-florin piece 6.056 grms. of gold. The ratio was therefore 15.873, whilst in France it was 15-1/2. Moreover, to respond to the desire of the inhabitants of Belgium, the franc was accepted in the public treasuries, but at too high a rate, viz. at 47-1/2 cents, whereas it was worth only 46.8 cents. The result was that the new 3-florin pieces on leaving the Brussels Mint went to the Lille Mint, to come back in the shape of 5-franc pieces. The law was languidly carried out. Gold pieces were principally coined, and in proportion as gold was coined it became more and more difficult to coin silver. In 1830 Belgium was separated from Holland, and it was not till 1844 that the recoining of the old money was seriously undertaken. The monetary law had been already altered in 1839. Side by side with the worn silver coins there were issued 5 or 10-florin gold pieces, which had been coined to the amount of 172-1/2 millions of florins. The worn and clipped silver coins not being available for international transactions, gold formed the basis of exchange. This was regulated not by the florin but by 1/10 of the 10-florin gold piece. All difficulties it was thought could be obviated by adopting a florin of exactly 10 grms. weight, corresponding to the decimal metric system, and .945 fine. As long as the gold coins remained in circulation, and they were of great use while the recoinage was going on, there was thus a bimetallism with a ratio of 1:15.504. From 1842-49 more than 85-1/4 millions of florins in nominal value were called in and were recoined in new silver pieces. The operation cost the State 8 millions of florins, 7 millions being the loss on the old coins. Before actually commencing the recoinage, the question of standard had been carefully considered. Silver was resolved on. For more than a century and a half the florin had been the unit of all transactions. As the recoinage advanced, further attention was devoted to the necessity of instituting the single standard. By the law of 26th September 1847, the system of single silver standard was adopted. In June 1850 the gold coins were called in. A total of 50 millions, not one-third of what had been coined, was offered by the public. It was sold in 1850-51 by the Government, which thereby lost rather more than 1 million. [Sidenote: HOLLAND IN 1872] There is a very noticeable point connected with this reform. The law of September 1847 admitted trade coins in gold by the side of the legal silver coins and fractional money. Besides the ducats, which are still in demand from time to time, there were _Guillaumes d'or_, _double-_ and _half-Guillaumes_. These pieces were inscribed only with the weight and fineness. This system failed completely. Though the gold Guillaume was coined of the same weight and fineness as the old 10-florin piece, which was much in request, people would not have it. The uncertainty of its value made it unpopular. Between the years 1851 and 1853 only 10,000 Guillaumes, 10,000 half-Guillaumes, and 2636 double-Guillaumes were coined, and since 1853 not a single one has been coined. All through the Californian and Australian gold finds and until 1872, the price of silver remained stationary for large transactions. Only in small transactions did it exhibit from time to time some slight fluctuations. From 1847-72 everybody was invariably able to sell his silver to the Netherlands Bank at 104 fl. 65 cents. Bank retained for recoinage, etc 1 fl. 17 cents. ------------------- 105 fl. 82 cents. which, equal to value of 1 kilogramme of silver, .945, was as by the Netherlands standard. At Amsterdam also the price of silver did not change. With the change in 1871 this repose was disturbed. A commission was thereupon appointed, in October 1872, to consider the situation, which reported in the following December. It proposed to prohibit the free minting of silver, and this was enacted by the law of 21st May 1873. As long as there was still a hope of Germany continuing her old system, the commission merely proposed to coin a gold piece side by side with the silver money. When, however, Germany adopted the gold standard, the commission, in its additional report of 26th June 1873, proposed to do the same by the introduction of a legal tender currency of 10- and 5-florin pieces in gold, and the withdrawal of the silver standard coins issued under the law of 1847. This measure did not meet the approval of the States-General. For the moment Holland had therefore no standard of value, the Mint being closed to silver, and gold being unrecognised. The consequent heavy fall in the exchange led to an agitation which resulted in the enactment of the law of 6th June 1875, which opened the Mint to the public for the coining of golden 10-guilder pieces of .9 fine, to be legal tender concurrently with the silver florins at the ratio of 1 to 15.625 (calculated on a quotation of 60.35 price per oz. of silver). The law was only enacted for a year, and in the following May 1876 an attempt was made to pass a bill for the introduction of an exclusive gold standard, and for the demonetisation of silver. The bill was rejected by the First Chamber, and the law of 1875 renewed for another year, and then (by the law of 9th December 1877) renewed "until otherwise determined upon by law." The result was the permanence of the limping standard--a gold piece with free minting, side by side with silver pieces whose minting is restricted, but gold and silver pieces being alike of unlimited legal tender. On the 28th March 1877 the States-General passed a law establishing, in the Dutch East Indies, the double standard on the same basis as in Holland, i.e. with the formal suspension of the further coinage of silver. This law was promulgated in Java on the 7th June 1877. [Sidenote: PORTUGAL IN 1868] Portugal. The first law respecting gold in Portugal is dated 4th August 1688. By that law the price to be paid in the Lisbon and Oporto Mints for a mark of gold (22 carats) was 96,000 reis (533 fr. 33 cents). This same gold was valued at 102,400 reis (568 fr. 88 cents). For a mark of silver of 11 dinheiros (i.e. 11/12 fine) the value was fixed at 6000 reis (33 fr. 33 cents), producing, when minted, 6300 reis (35 francs). The legal ratio at that date (1688) was 1:16 (for purchase price of the metal), 1:16.25 (for the Mint issue rate). In 1747 the value of a mark of coined silver was changed, and rose from 35 francs to 41 francs 66 cents (7500 reis), an enactment which changed the ratio at a blow to 13.6. This ratio remained until the beginning of the present century, and led in short to the expulsion of gold from the monetary circulation. The law of the 6th March 1822 gave to a mark of coined gold a fixed value of 120 milreis (666 francs 666 cents), and the gold piece, whose value was 6400 reis (35 francs 55 cents), had a value of 41 francs 66 cents (7500 reis). This law was repealed shortly afterwards, together with those passed in the Cortes of 1820, but was restored and ratified by another law of the 24th November 1823, and by a special charter of 5th June 1824. The preamble of the law of 1822 had declared that the equivalence of 13.5 between gold and silver was very far from expressing the proportion of their mercantile value, and that gold did not practically come into circulation on account of the legal value of such money being below its corresponding value in bullion, the legal ratio was therefore raised to 16 in 1825. In 1835 a new law, of the 24th April, gave the coined silver mark the value of 7500 reis (41 francs 66 cents), which brought the equivalence to about 15.5, a figure which was considered the average rate of exchange of money, whether national or foreign. On the 3rd March 1847 a new law was passed raising the value of the gold mark to 128,000 reis (711 francs 11 cents), and the gold piece, whose value had been fixed in 1822 at 41 francs 66 cents (7500 reis), rose to 44 francs 44 cents (8000 reis). After this law other legal measures were taken which established the legal ratio of 16.5. It was these incessant alterations of ratio which led Portugal to abandon bimetallism. The preamble of the law of 1854, which instituted the gold single standard, expresses this, attesting that the circulation felt the lack of harmony and the disorder produced by alterations in the ratios, that the legal ratio being higher than the commercial ratio hampered the transmission of money and burdened all transactions. The law was adopted unanimously by the Portuguese Chambers. The International Conferences. The chief feature of the modern monetary agitation--the international conferences and the attempt at international system--is due to the rapid development of bimetallic theory in France, and to the initiative of the United States, as well as to the universal or world-embracing needs of the situation, and the extension of the domain of international law or morality. It is a mistake to suppose that this new era dates from 1871, from the change in the German monetary system and the commencement of the wide divergence between the two metals. The formation of the Latin Union was the initial step in the process, although, in a smaller sphere, German monetary history for centuries had been acquainted with Mint conventions between very divergent systems, and had shortly before furnished another illustration in the Conference of Vienna in 1857. The first widely-embracing international conference proper, however, was the outcome of an expression of opinion in the conclave of the Latin Union. It was called at the invitation of France, and met at Paris on the 17th June 1867. The States represented were Austria, Baden, Bavaria, Belgium, Denmark, Spain, the United States, France, Great Britain, Greece, Italy, the Netherlands, Portugal, Prussia, Russia, Sweden and Norway, Switzerland, Turkey, and Würtemberg. The eight sessions of the conference occupied till the 6th July 1867. All the states except Holland declared in favour of a gold standard. It closed without arriving at any actual or practical conclusions, but the president, De Parieu, in his concluding oration, considered himself justified in asserting that the sense of the conference was in favour of a gold monometallic standard, approximating, as near as the occasions of future Mint change in the various states would permit, to a unit based on the 5-franc piece (620 tale to a kilogramme of gold). [Sidenote: THE CONFERENCE OF 1868] Though without immediate practical result, the conference initiated a wide movement. In England it was followed by the appointment of a commission, 18th February 1868, "to consider and report upon the proceeding of the said international monetary conference, ... and to examine and report upon the recommendations of the conference, and their adaptability to the circumstances of the United Kingdom, and whether it would be desirable to make any and what changes in the coinage of the United Kingdom, in order to establish, either wholly or partially, such uniformity as the conference had held in contemplation." The commission sat from the 13th March to the 8th July 1868, but closed without practical decision, in regard of the difficulties lying in the way of an international coinage. In particular, the proposition of a reduction of the pound sterling to the 25-franc piece was rejected. In France the whole course of public opinion, both before and after the conference of 1876, and in the concluding examination of the _Enquête_ of 1865-69, ran strongly in favour of gold monometallism, and the opinion has been unflinchingly held and expressed that only the breaking out of the Franco-German War prevented the adoption of that system in France and in the states of the Latin Union. It is hardly too much to say that the conclusion of the war, with the heavy war indemnity which she thereby suffered, took the initiative in monetary legislation out of the hands of France. Along with the latest reconstruction of her hoary imperial scheme, Germany effected her great and greatly-needed monetary unification and reform. She accomplished it on the basis of the old or French ratio of 15:5, and for two years after the reception of the scheme the price of silver maintained itself moderately. On the 9th July 1873, however, she completed the system by the Legal Tender Law, which demonetised the silver currency, and gradually more than two-thirds of the total old German silver money was called in, melted into bullion, and flung on the market. Concurrently, other changes were at work on the Continent. In 1872 the Scandinavian States followed the example of Germany and adopted a gold in place of a former silver standard. By the treaty of 18th December 1872 a common system was established between Sweden, Norway, and Denmark. For Sweden the conversion of the silver currency was based on a ratio of 15.57, for Denmark 15.43, and for Norway 15.44. Three years later the Netherlands followed suit. By their law of 6th June 1875 and 10th May 1876 they adopted a gold in place of their previous silver standard at a basis ratio of 15.625. Before the completion of these widespread changes, the great fall in the gold price of silver had begun, and the United States in her silver-producing interests, Great Britain in the interests of her Indian dependency and in those of her trade with silver-using countries, and the whole commercial world generally in the dislocation of international exchange, found themselves menaced by gravest danger. [Sidenote: THE DEPRECIATION OF SILVER] Before the inrush of silver to the Mint, caused by such a fall, the Latin Union first limited and then abandoned its coining of the 5-franc piece. The fall of silver became thereby only the more acute and confirmed. By July 1876 it had sunk to 46-3/4 per oz. Apprehension was universally felt, and in both England and the United States fresh commissions were appointed to consider the question. The English commission on the depreciation of silver was appointed in March 1876, and sat from the 20th March to the 8th May, under the presidency of Mr. Goschen. The investigation turned upon the causes of the prevailing situation, without any attempt at the suggestion of a remedial positive system. Later, in the same year (15th August), the American Congress voted the appointment of a like commission, to inquire into the causes of the depreciation of silver and into the feasibility of a reconstruction of a bimetallic system, as well as to devise a ratio and measures for the facilitation of a return to cash payments in the United States. This commission resulted in a double report, the 'majority' and the 'minority' report. The majority, comprising Messrs. Jones, Bogy, Willard, Groesbeck, and Bland, recommended the remonetisation of silver and the recourse to a fresh international conference. This latter proposition was expressed in the compromise known as the Bland Bill, the "Act to authorise the coinage of the standard silver dollar, and to restore its legal tender character, 28th February 1878." Section 2 of this law imposed it upon the President of the United States to invite the members of the Latin Union and the other interested nations to an international conference. On the invitation of France this conference met in Paris on 10th August 1878. The American delegates proposed the free coinage of silver in an international agreement and its unrestricted employ on a full equality of tender with gold. The delegates of Belgium, Switzerland, and Norway combated the proposals, and, on the part of England, Mr. Goschen declared that while the complete demonetisation of silver portended a commercial crisis to which no parallel could be found, England could consent to no serious modification of her currency system. Germany was not represented, and in her absence France adopted a waiting policy, and the conference closed with an impotent expression of opinion that, in view of the difference of opinion, it was useless to discuss an international ratio, and that, while it was necessary for the world to maintain the currency of silver, the choice and treatment of each or either metal must be left to the particular monetary situation and needs of each separate state. It was not to be expected that so lame a conclusion could stand before the needs of the situation. On the 19th May 1879 the landed interest in Germany succeeded in driving the Chancellor of the Empire to suspend the further sale of silver. The circumstance gave fresh hope to the bimetallists, and a busy propaganda was carried on throughout Europe and the States. The renewed international conference of 1881 is to be regarded as an outcome of this movement. [Sidenote: THE CONFERENCE OF 1881] On the invitation of the United States and France the third international conference met in Paris on the 19th April 1881. All the European States, Canada, India, and the United States were represented. France, through her delegates, Magnin, the president of the conference, and Henri Cernuschi, at once and boldly declared for bimetallism. The United States, Italy, Austria, the Netherlands, and British India followed suit. On behalf of their states the British and German delegates declared that no change in the currency systems of their countries could be entertained, but in case of an agreement among the chief nations certain regulations to increase the monetary employment of silver might be devised. Belgium, Switzerland, Greece, and the Scandinavian kingdoms declared against bimetallism. After a recess from the 30th June to the 19th May the conference closed on the 8th July 1881 with a nominal adjournment to the 12th April 1882, so as to give room for possible currency legislation in the meantime. On the day fixed, however, the conference, as need hardly be said, did not reassemble. Practically, in the interval between the second and third of these international delegations, the monetary situation had not perceptibly altered. The price of silver in 1878 had been 52-9/16, in 1881 it was 51-11/16: the general level of prices had, if anything, slightly improved, while the production of silver had not materially increased (from 2,551,000 kilogrammes in 1878 to 2,593,000 kilogrammes in 1881), though that of gold had certainly decreased. The close of the conference was, however, followed by a strong bimetallic agitation in England and Germany, which found united expression in the Bimetallic Congress at Cologne in October 1882. This congress unanimously adopted the following resolutions:-- "That in order to the establishment of a firm ratio between gold and silver, it is desirable for England and Germany-- "1. To increase the employment of silver by minting full tender silver by the side of the divisional restricted tender silver. "2. That Germany should withdraw all gold and paper below the value of 10 marks [and replace it by silver]. "3. That Germany should sell no more silver. "4. That the Bank of England should put in practice the clause of her charter which allowed her to employ silver as part of the bank reserve." The conclusions of this congress had, however, no practical influence on the course of policy of either nation. In the United States a parallel though more interested agitation was conducted, centring round the yearly proposed repeal of the compulsory minting clauses of the Bland Bill. [Sidenote: THE ENGLISH GOLD AND SILVER COMMISSION] In England the commercial depression, consequent upon falling prices and the dislocation of exchanges with India and the East, ran its full course, and gave fresh ground for activity to the then recently formed Bimetallic League. In the course of 1886 silver had sunk to 42d. per oz., and when the royal commission on the depression of trade and industry closed its investigations, with the expression of a desire for an inquiry into the state of the precious metals, the British Government only too gladly acceded. On the 20th September 1886 the royal commission "to inquire into the present changes in the relative values of the precious metals" was appointed. Its final report was made in October 1888, and, as is well remembered, was of a divided nature. All the members of the commission agreed that the action of the Latin Union in 1873 broke the link between gold and silver, which had kept the price of silver, as measured by gold, constant at about the legal ratio, and thereby left silver exposed to the influence of all the factors which go to determine the price of a commodity. On the question of bimetallism, in reference to the actual and to any possible currency system, the commissioners disagreed, and made separate reports. Lord Herschell, Sir C.W. Fremantle, Sir John Lubbock, Sir Thomas Henry Farrer, J.W. Birch, and Leonard H. Courtney expressed themselves adversely. "Though unable to recommend the adoption of what is commonly known as bimetallism, we desire it to be understood that we are quite alive to the imperfections of standards of value, which not only fluctuate but fluctuate independently of each other, and we do not shut our eyes to the possibility of future arrangements between nations which may reduce these fluctuations. One uniform standard of value for all commercial nations would, no doubt, be a great advantage. But we think that any premature and doubtful step might, in addition to its other dangers and inconveniences, prejudice and retard progress to this end. "We think also that many of the evils and dangers which arise from the present condition of the currencies of different nations have been exaggerated, and that some of the expectations of benefit to be derived from the changes which have been proposed would, if such changes were adopted, be doomed to disappointment. "Under these circumstances we have felt that the wiser course is to abstain from recommending any fundamental change in the system of currency under which the commerce of Great Britain has attained its present development." From these opinions dissent was directly expressed in Part III. of the report by the remaining members--Sir Louis Malet, A.J. Balfour, Henry Chaplin, Sir D. Barbour, Sir W.H. Houldsworth, and Sir Samuel Montague. [Sidenote: DISSENT FROM REPORT OF COMMISSION] "We cannot doubt that if the system which prevailed before 1873 were replaced in its integrity most of the evils which we have above described would be removed; and the remedy which we have to suggest is simply the reversion to a system which existed before the changes above referred to were brought about--a system, namely, under which both metals were freely coined into legal tender money at a fixed ratio over a sufficiently large area. "The remedy which we suggest is essentially international in its character, and its details must be settled in concert with the other powers concerned. "It will be sufficient for us to indicate the essential features of the agreement to be arrived at, viz.:-- "1. Free coinage of both metals into legal tender money. "2. The fixing of a ratio at which the coins of either metal shall be available for the payment of all debts at the option of the debtor. "We submit, therefore, that the chief commercial nations of the world, such as the United States, Germany, and the states forming the Latin Union, should, in the first place, be consulted as to their readiness to join with the United Kingdom in a conference, at which India and any of the British colonies which may desire to attend shall be represented, with a view to arrive, if possible, at a common agreement on the basis above indicated." Such a report was claimed as a victory for either side, but its doubtful tenor only confirmed the rooted suspicion of the English administration as regards any change of the currency system. And when, on the occasion of the Paris Exhibition in 1889, a free International Monetary Congress was held, as one of the numerous special congresses connected with the celebration, Great Britain was not represented among the 194 members who attended on the invitation of the organising committee. M. Magnin, governor of the Bank of France, presided at the sittings, which covered from the 11th to the 15th September. Like its predecessor, the international conference, this congress closed without direct or practical resolution. Putting out of view this congress as of a more informal nature, a period of eleven years elapsed between the still only prorogued conference of Paris of 1881 and the conference of Brussels in 1893. This--as yet the last--conference was summoned on the initiative of the United States, but from the commencement a distinct difference of tone and method made itself felt; the Government of the United States recognising that some European countries might not be willing to adopt the remedy which they would prefer, namely, "the establishment of some fixity of value between gold and silver, and the free use of silver as a coin metal, upon a ratio to gold to be fixed by an agreement between the great commercial peoples of the world." The invitation to and purpose of the conference were conveyed in quite general terms, namely thus, "For the purpose of considering what measures, if any, could be taken to increase the use of silver in the currency systems of nations." [Sidenote: THE BRUSSELS CONFERENCE] The invitation was accepted by all the most important states, and at the first meeting, on 26th November 1892, the delegates of twenty Governments were present, namely, Austria, Hungary, Belgium, Denmark, France, Germany, Great Britain, British India, Greece, Italy, Mexico, The Netherlands, Norway, Portugal, Roumania, Russia, Spain, Sweden, Switzerland, Turkey, and the United States. The proceedings were opened by M. Beernaert, President of the Council and Finance Minister of Belgium. M. Montefiore Levi, senator, and delegate of Belgium, was chosen as president, and his Excellency, M. Edwin H. Terrell, Minister of the United States at Brussels, and one of the delegates of the United States, was chosen vice-president. At the second meeting the American delegates submitted a scheme for international bimetallism, but, in conformity with the terms of the invitation, at the same time expressed a hope that the powers represented would consider and submit other plans for the enlarged use of silver. Two such proposals they themselves suggested for discussion--(1) the plan of M. Moritz Levy, proposed at the conference of 1881, and (2) the plan proposed by the late Dr. A. Soetbeer. The main design of both these proposals was to increase the use of silver, by substituting silver coins or notes based on silver, for such small gold coins and small notes based on gold as are at present in circulation. At the same session the delegates of Germany, Austria, and Russia explained that they were instructed not to express an opinion or to vote upon any resolution. Roumania, Portugal, Turkey, and Greece not having special instructions, felt themselves compelled to take up a similar attitude. Finding that France and the States of the Latin Union were apparently more disposed to criticism of, rather than to cordial co-operation with, the objects of the conference, the delegates of the United States did not press for a resolution on the wider question of bimetallism, and the attention of the conference was accordingly fixed on the subsidiary suggestions. To these latter, as above, was added on the same day a third, made by Mr. Alfred de Rothschild, to the effect that on condition of the United States continuing her purchases of 54 million oz. of silver yearly the different European powers should combine to make certain yearly purchases, say to the extent of £5,000,000 yearly; these purchases to be continued over a period of five years, at a price not exceeding 43 pence per oz. On a rise of silver above that price the purchases for the time being to be immediately suspended. In committee this latter proposal was thus modified-- 1. The European states which agree, upon the basis of this proposal, will buy in each year 30 million oz. of silver, on condition that the United States agree to continue their present purchases, and that unlimited free coinage be maintained in British India and Mexico. 2. The proportion of the purchases to be made by each country will be determined by agreement. 3. The purchases will be made at the discretion of and in the manner preferred by each Government. 4. These amounts of silver will be devoted in each country to the monetary uses authorised by the legislation of that state, and the silver will be either coined or made the guarantee for an issue of ordinary or special notes, as Government may think fit. 5. The arrangement will be made for five years. The obligatory purchase of silver will be suspended should the metal reach in the London market a price determined by agreement between the Governments. The purchases may be renewed, if the delegates of the different countries interested should agree upon the fixing of a new limit of price. They should be renewed in any case if the price falls below the original limit. With regard to the Soetbeer plan it was abandoned in committee, while the Levy plan was drawn up in the following terms:-- "1. The withdrawal from circulation within a period of ... of gold coins containing a weight of less than 5.806 grms. of fine gold (20-franc pieces). "2. The withdrawal of notes of a less value than the coin of 20 francs or its equivalent, an exception being made of notes representing a deposit of silver." The manner of adopting and recommending these schemes to the conference from the committee was peculiar. The British delegate, Sir C. Fremantle, declared that he could not entertain the "Levy" except in conjunction with the "Rothschild" scheme, and while recommending the latter to the conference for discussion, the states of the Latin Union declared that even if passed, they could not recommend the plan to their Governments. At the fourth session M. Boissevain declared that there were insurmountable obstacles to its adoption by the Government of the Netherlands. General Strachey said that unless it received more favour than was indicated by the report, he would be unable to support it. Mr. Allard, one of the Belgian delegates, declared that it was insufficient, and Sir Rivers Wilson declared, on behalf of himself and Sir Charles Fremantle, that recognising that this want of support would prevent them from recommending the plan to their Government, they would refrain from taking part in a detailed discussion of it, although they did not consider it inconsistent with the monometallist opinions which they held. Mr. M'Creary (delegate for the United States), then stated that he did not consider M. de Rothschild's proposal, as it stood, equitable to the United States, and therefore that he would be unable to support it. [Sidenote: CLOSE OF THE BRUSSELS CONFERENCE] In view of the various declarations, M. de Rothschild withdrew his plan, and there was left before the conference only the Levy plan. This latter was favourably regarded, but was radically insufficient for the situation, and not considered important enough to receive really vigorous support. The course of the conference thereupon returned to the general discussion of the bimetallic proposal of the United States. In this discussion the attitude of reserve which the French delegates had maintained was abandoned, and M. Tirard declared with the greatest clearness that he could not advise his Government to open the French Mints to the free coinage of silver, unless there was a general agreement on the part of other nations to open their Mints also. Until, therefore, there should be a decided change of opinion on the part of Great Britain, Germany, Austria, the Scandinavian States, and other monometallic states, the question of returning to the free coinage of silver must be looked upon as settled. In view of such declarations the delegates of the United States declared that they would not press for a vote upon the question of bimetallism. And the conference closed with a formal adjournment, should the Governments approve, to the 30th May 1893. The close of the conference was a heavy blow to the bimetallic cause, as illustrating so fully the impossibility of any arrangement. Germany, Denmark, Sweden, and Norway, declared clearly that no change would be made on the gold basis of their currency. The delegate of Austria Hungary was equally explicit in his statement that his Government had every intention of abiding by the gold standard they were in the course of adopting. The decided lead of France was followed punctually by Switzerland, Italy, Belgium, and Greece. The Netherlands were prepared to join a bimetallic union, provided that Great Britain formed a part of it; and Spain and Mexico were willing to adopt bimetallism, or other measures which would have the effect of raising the price of silver. No declaration was made on the behalf of Russia, though one of the delegates, speaking personally, was an active supporter of the gold standard. The Roumanian Government did not consider bimetallism a practical possibility, and Turkey and Portugal expressed no opinion. Practically, the United States stood alone in advocacy of bimetallism. In addition to this fact, the situation was rendered much more trying for her delegates by the fact that since their appointment the presidential election had placed the Democratic party in power, and great uncertainty prevailed as to the attitude and intentions of a new President and Congress. "In these circumstances it soon became evident that the delegates were anxious for an adjournment of the question to give the new Government the opportunity of expressing their views, and that the conference would adjourn without any practical result. But, nevertheless, some very important statements and declarations were elicited in the course of the debates. In the first place, in addition to the distinct declarations on the part of some of the most important European powers that they would not entertain bimetallism, the representatives of the United States announced in very clear language that at any moment their Government might be disinclined to continue their purchases of silver, and that they were determined to protect their stock of gold. The Indian delegates alluded to the possibility of their Government finding itself under the necessity of closing its Mint to the free coinage of silver." [Sidenote: GOLD STANDARD FOR INDIA] Already, before the calling of the Brussels Conference, it had been recognised that, in case of failure to arrive at a bimetallic agreement, it would be essential thus far to close the Indian Mint, and to attempt the establishment of a gold standard in India. This impression, together with a draft scheme for a gold currency, was conveyed in a minute of Sir David Barbour's, addressed to the Secretary of State, 21st June 1892. As the result of correspondence between the Secretary of State for India in Council and the Government of India the British Government, on the 21st October 1892, i.e. a month before the meeting of the Brussels Conference, nominated a committee to consider the proposals submitted by the Indian Government for stopping the free coinage of silver in India, with a view to the introduction of a gold standard. The committee consisted of--The Lord High Chancellor; The Right Hon. Leonard H. Courtney, M.P.; Sir Thomas Henry Farrer, Bart.; Sir Reginald Earle Welby, G.C.B.; Arthur Godley, Esq., C.B.; Lieutenant-General Richard Strachey, C.S.I.; Bertram Wodehouse Currie, Esq. A hope was at first expressed that the committee would be able to make its report before the meeting of the conference at Brussels. But it was not actually made until the 31st May 1893. India. The part which India has played in the currency history of the world has been characteristic and uniform from the first. India is, and has been, from the birth of international commerce, the receptacle or sink for the precious metals of the civilised Western world. The fact that in so being she has constituted herself the safety-valve of the world's currencies is not confined to the present day merely. It is peculiarly applicable to the present day, with our organisation of banking and credit, which has concentrated the metallic reserves in certain burning central spots, and built thereon a superstructure of credit transactions so vast and in so delicately poised a manner that any undue addition to the metallic reserve sends a shudder of excitement and speculation through the whole, inducing over-trading and over-funding, and in the end a crisis. Such is the structure of the world's commerce that India provides an outlet or drain for any sudden crisis-bringing inflow of precious metal, and preserves the equilibrium of our system. The fact is patent to-day, because the nature of our credit and banking system is understood. But in reality this function India has performed through ages. The influence she now exerts through impact with a highly delicate credit system, she formerly exerted on a less uniform and delicate system by the rougher influence of prices generally. The gain attending the Eastern trade in the sixteenth and seventeenth centuries was not measured by modern conceptions of dividends or trading margins. To the European trader the intercourse was attended with a double gain, commercial and financial--the latter really bimetallic in nature from the higher ratio then prevailing between silver and gold in India. To India it meant a perpetual balance of trade in her favour, if such a phrase can be used of such a situation,--a continual inflow of precious metal. Her capacity of absorption of metal seems as large and unsatisfied as ever, and, on the assumption of an unaltered situation in Europe and America, her function in the world's currency system still remains--feasible and beneficent. It is the most difficult question attending the modern currency crisis, whether such assumption of an unaltered situation is permissible. Further than this, as a simple matter of fact, the currency difficulty with India at the present moment is purely governmental and commercial. The Indian Government has yearly to remit a very large sum to this country in discharge of its gold obligations. In 1873-74, before the great fall in silver commenced, the amount remitted was £13,285,678, which, at the rate of exchange of 1 rupee = 1s. 10.35d., meant 142,657,000 rupees. During the year 1892-3 the amount remitted was £16,532,215, which, at the average rate of exchange in that year, 1s. 2.985d., required a payment of 264,784,150 rupees. If this could have been remitted at the exchange of 1873-74, it would only have needed 177,519,200 rupees, making a difference of 87,274,950 rupees. The result of this is to turn what would be a surplus of revenue into a large deficit. At an estimated exchange of 1s. 4d. per rupee for the past year, a surplus of revenue over expenditure was shown of 1,466,000 rupees. The exchange having fallen to an average of rather less than 1s. 3d., this surplus has been converted into an estimated deficit of 10,819,000 rupees. Notwithstanding the improvement of the revenue by 16,533,000 rupees over the budget estimate, the situation at the close of 1892 was fraught with a double danger to the Indian Government. The fall of silver--which had been such that during the year exchange could scarcely be maintained at 1s. 2-5/8d. for the rupee by the refusal to sell bills in India below that rate--might still proceed. And, secondly, in case of failure attending the Brussels Conference, the United States would be inevitably driven to abandon her single-handed attempt to keep up the price of silver by her silver purchases. In that case an unexampled fall of silver might be expected. The only practical solution of the difficulty was the adoption of a gold standard for India, and in order to do so at a workable rate for the rupee it would be necessary to anticipate such further fall. So much, in very brief, for the Government situation. For the commercial,--the harassment of trade by fluctuations of exchange, the check to investments, the handicapping of the Lancashire manufactures, and so on,--all this ground is still strewn with the débris of debate and difference. As far as the currency question, pure and simple, is concerned--such, that is, as is conceived of throughout this book, viz. metallic--it is almost incapable of presentation or realisation. Through the extraordinary preference of the Indian for the precious metals as metals or as a commodity, quite apart from currency use, the ordinary action of such monetary laws as have been at work in Europe for centuries is nullified--to how great an extent it is quite impossible to estimate. The minting of silver has been such as might be expected under the conditions of free minting of a cheapening metal--i.e. it has risen on an average to the full amount of the net imports of silver. But, conversely, there has been no such reactionary influence of such mintings on the gold store of the country as would have taken place in Europe. The importations of silver have gone hand in hand with a net importation, not exportation, of gold, with no traceable evidence of bimetallic action. The establishment of the gold standard for India is, therefore, primarily and in greatest part a governmental measure. As far as relates to such purely scientific phenomena and considerations, as have governed the European currencies for centuries, India still presents field for little or for very questionable observation.[22] TABLE OF THE SURPLUS OR NET IMPORTS OF THE PRECIOUS METALS INTO INDIA +---------+-----------+---------------+----------------+ | Year. | Gold. | Silver. | Council Bills. | +---------+-----------+---------------+----------------+ | 1835-6 | £329,918 | £1,611,896 | £2,045,254 | | 1836-7 | 419,724 | 1,338,882 | 2,042,232 | | 1837-8 | 430,870 | 1,966,944 | 1,706,184 | | 1838-9 | 258,925 | 2,645,130 | 2,346,592 | | 1839-40 | 226,643 | 1,650,471 | 1,439,525 | | 1840-1 | 137,312 | 1,401,670 | 1,174,450 | | 1841-2 | 165,623 | 1,283,228 | 2,589,283 | | 1842-3 | 211,161 | 2,952,445 | 1,197,438 | | 1843-4 | 406,523 | 3,695,442 | 2,801,731 | | 1844-5 | 710,100 | 1,988,561 | 2,516,951 | | 1845-6 | 544,476 | 932,490 | 3,065,709 | | 1846-7 | 846,949 | 1,378,249 | 3,097,042 | | 1847-8 | 1,039,116 | (_-491,191_) | 1,541,804 | | 1848-9 | 1,348,918 | 313,904 | 1,889,195 | | 1849-50 | 1,116,993 | 1,273,607 | 2,935,118 | | 1850-1 | 1,153,294 | 2,117,225 | 3,236,458 | | 1851-2 | 1,267,613 | 2,865,357 | 2,777,523 | | 1852-3 | 1,172,301 | 4,605,024 | 3,317,122 | | 1853-4 | 1,061,443 | 2,305,744 | 3,850,565 | | 1854-5 | 731,290 | 29,600 | 3,669,678 | | 1855-6 | 2,506,245 | 8,194,375 | 1,484,040 | | 1856-7 | 2,091,214 | 11,073,247 | 2,819,711 | | 1857-8 | 2,783,073 | 12,218,948 | 628,499 | | 1858-9 | 4,426,453 | 7,728,342 | 25,901 | | 1859-60 | 4,284,234 | 11,147,563 | 4,694 | | 1860-1 | 4,232,569 | 5,328,009 | 797 | | 1861-2 | 5,184,425 | 9,086,456 | 1,193,729 | | 1862-3 | 6,848,159 | 12,550,155 | 6,641,576 | | 1863-4 | 8,898,306 | 12,796,719 | 8,979,521 | | 1864-5 | 9,839,964 | 10,078,798 | 6,789,473 | | 1865-6 | 5,724,476 | 18,668,673 | 6,998,899 | | 1866-7 | 3,842,328 | 6,963,074 | 5,613,746 | | 1867-8 | 4,609,467 | 5,593,961 | 4,137,285 | | 1868-9 | 5,159,352 | 8,601,022 | 3,705,741 | | 1869-70 | 5,592,117 | 7,320,337 | 6,980,122 | | 1870-1 | 2,282,121 | 941,937 | 8,443,509 | | 1871-2 | 3,565,344 | 6,512,827 | 10,310,339 | | 1872-3 | 2,543,362 | 704,644 | 13,939,095 | | 1873-4 | 1,382,638 | 2,451,383 | 13,285,678 | | 1874-5 | 1,873,535 | 4,642,202 | 10,841,615 | +---------+-----------+---------------+----------------+ _NET_ IMPORT OF SILVER AND MINTING OF _NEW_ SILVER, 1870-92 +-----------+---------------+---------------+ | | Net | New | | Year. | Imports | Coinage | | | (Rupees). | (Rupees). | +-----------+---------------+---------------+ | 1870-1 | 9,419,240 | 17,181,970 | | 1871-2 | 65,203,160 | 16,903,940 | | 1872-3 | 7,151,440 | 39,809,270 | | 1873-4 | 24,958,240 | 23,700,070 | | 1874-5 | 46,422,020 | 48,968,840 | | 1875-6 | 15,553,550 | 25,502,180 | | 1876-7 | 71,988,720 | 62,711,220 | | 1877-8 | 146,763,350 | 161,803,260 | | 1878-9 | 39,706,940 | 72,107,700 | | 1879-80 | 78,697,420 | 102,569,680 | | 1880-1 | 38,925,740 | 42,496,750 | | 1881-2 | 53,790,500 | 21,862,740 | | 1882-3 | 74,802,270 | 65,084,570 | | 1883-4 | 64,051,510 | 36,634,000 | | 1884-5 | 72,456,310 | 57,942,320 | | 1885-6 | 116,066,290 | 102,855,660 | | 1886-7 | 71,557,380 | 46,165,370 | | 1887-8 | 92,287,500 | 107,884,250 | | 1888-9 | 92,466,790 | 73,122,550 | | 1889-90 | 109,378,760 | 85,511,580 | | 1890-1 | 141,751,360 | 131,634,740 | | 1891-2 | 90,221,840 | 55,539,700 | | 1892-3 | 128,635,690 | 127,052,100 | | +---------------+---------------+ | Total of} | | | | 23 years} | 1,652,256,020 | 1,525,044,460 | +-----------+---------------+---------------+ NET IMPORT AND MINTING OF GOLD +---------+--------------------------+---------+ | Year. | Rupees. | Rupees. | +---------+--------------------------+---------+ | 1875-6 | 15,451,310 | 171,500 | | 1876-7 | 2,073,490 | Nil | | 1877-8 | 4,681,290 | 156,360 | | 1878-9 | (_Export of 8,961,730_) | 850 | | 1879-80 | 17,505,040 | 147,300 | | 1880-1 | 36,551,990 | 133,550 | | 1881-2 | 48,439,840 | 339,700 | | 1882-3 | 49,308,710 | 174,950 | | 1883-4 | 54,625,050 | Nil | | 1884-5 | 46,719,360 | 129,650 | | 1885-6 | 27,629,350 | 225,850 | | 1886-7 | 21,770,650 | Nil | | 1887-8 | 29,924,810 | Nil | | 1888-9 | 28,139,340 | 226,090 | | 1889-90 | 46,153,030 | 230,500 | | 1890-1 | 56,361,720 | Nil | | 1891-2 | 24,137,920 | 248,010 | | 1892-3 | (_Export of 28,126,830_) | ... | +---------+--------------------------+---------+ FOOTNOTES: [Footnote 15: The returns for the years 1825-29 give no separate figures for gold and for silver, but give only the total of the two together.] [Footnote 16: From 1865-1878-- France minted 625,466,380 francs. Belgium " 350,497,720 " Italy " 359,059,820 " Switzerland " 7,978,250 " ------------- 1,343,000,000 " ------------- ] [Footnote 17: As far, that is, as relates to gold. So far as silver is concerned, it was practically abrogated by the clauses for the prohibition of silver coinage in 38 Geo. III. c. 59 (1798), and finally repealed by the Act of 56 Geo. III. c. 68 (1816). See _postea_.] [Footnote 18: Professor Laughlin brings out very strongly that even in such action Hamilton shows no trace of the modern conception of bimetallism, that his report expresses an emphatic preference for gold over silver, and that his object in adopting bimetallism was, while retaining silver, to leave a door open, if possible, for the introduction of gold.--_History of Bimetallism in the United States_, pp. 13, 14.] [Footnote 19: By the law of 1837 the alloy for both gold and silver coins was fixed at 1/10. The pure gold in the eagle, which by the Act of 1834 was fixed at 232 grs. (258 grs. gross for the piece), was thereby changed to 232.2 grs. At the same time the pure metal content of the silver dollar was maintained at 371-1/4 grs., the (gross) weight per piece being changed to 412-1/2 grs.] [Footnote 20: See the case more fully established in Laughlin's _Bimetallism in the United States_, pp. 29, 57.] [Footnote 21: Viz. of Philadelphia, New Orleans, Dahlonega, Charlotte, San Francisco, and Carson City.] [Footnote 22: On the subject of the history of the Indian Currency System under the East India Co., in the eighteenth and early nineteenth centuries, see a very interesting communication made in the pages of the _Nineteenth Century_ by Mr. H.D. Macleod (_Nineteenth Century_, November 1894, p. 777). The question of the system established by the Order in Council of January 1841 (authorising officers in charge of public treasuries to freely receive gold coins struck in conformity with the provisions of Act xvii. of 1835, establishing the 15-rupee pieces), which continued till its rescinding in December 1852, is discussed in the evidence of Mr. T. Comber before the Royal Commission on Gold and Silver (_Second Report of the Commission on Changes in the Relative Values of the Precious Metals_, 1888, p. 27). For an excellent and succinct history of the Indian currency system from the end of the 18th century, see Robert Chalmers' _History of Currency and the British Colonies_, p. 336.] APPENDIX I THE MONETARY SYSTEM OF FLORENCE DURING THE DAYS OF HER COMMERCIAL ACTIVITY AND INDEPENDENCE Throughout the history of independent Florence her gold coin type is always the florin. In its first beginning her monetary system had relation to that of the restored Empire. The _silver fiorino_ of which the first mention occurs was equivalent to 12 denari, as in the Charlemagne system. Presumably this would be equal to some hypothecated _soldo_, and the multiple of it a hypothecated fiorino d'oro, gold florin (= 20 soldi), would be equal to the lira or libra, or unit of weight. This will explain how it is possible to have mention of gold florins almost a century before the actual issuing of a real coin so named. Such mention occurs in the monetary ordinances and schedules of France as early as 1180. (See Preface, _supra_, p. xiii, also De Saulcy, _Documents_, i. 115. Le Blanc was unable to explain this apparent contradiction of history.) What the particular Florentine weight unit or lira (libbra) was, however, is uncertain. According to the researches of Neri (in _Argelatus_, i. 157) the scheme of weights was-- Denari. Grani. Silver florin = ... 38 23 26 Lira (or 20 popolini) = 32 11 15 21 When it actually emerges, the gold florin has a weight of 53 (English) grs., or 72 Florentine; which would give a mark of 6912 grs. Its standard was of absolute fineness, 24 carats, a standard which was never departed from through the whole of its history. Very little change, too, was made in the weight, hardly more than 4-1/2 grs. in all (or 6-1/4 per cent.). It was issued at an equivalence of 20 soldi, which were represented by 20 silver florins, already known. The variation of this coin with regard to the unit coin of lower denomination will be found in the Table below. There is a second variation of the gold florin, _apparently_ with regard to itself, which has given rise to much misunderstanding, and requires explanation. As the process of wear and tear and abrasion went on in the coins, with lapse of time the custom grew of subdividing or hypothecating a gold florin of ideally perfect weight and condition as the standard for transactions. This became book or bank money, and the actually circulating medium was rated to it at a certain discount. This ideal florin is known as _fiorini di suggello_ or _sigillo_, florin of the public seal, and there is a series of such denominations. The first apparent adoption of such a method--which also emerges in the currency history of Hamburg and Amsterdam--was in 1321, and the florins of that date are styled "of the first sigello"; the second was in 1324, the third in 1345, and so on. Between the years 1328 and 1462 there was a series of eight, as follows:-- 1328 5 per cent. advantage. 1345 3 " " 1347 5 " " 1402 5 " " 1402 1-1/4 " " 1442 4 " " 1461 7 " " Subsequently, by law of 30th May 1464, this various advantage was transferred from the _fiorini di suggello_ to a new denomination, _fiorini d'oro larghi_, with an advantage of 20 per cent. above the _fiorini di suggello_; and once again, by the law of 14th October 1501, the process was repeated. An advantage of 19 per cent. over the _fiorini d'oro larghi_ was announced in favour of the newest denomination, _fiorini d'oro larghi in oro_. The advantage of these last, therefore, over the _fiorini di suggello_ of 1461 amounted to 39 per cent. It appears quite clear that this advantage represents a differentiation, not of good bank abstract florins from worn current gold florins, but of the former from the actual current medium of payment, and that this latter was _silver_. The cause of the advantage was the depreciation of the silver denomination, from the aggregate of which was formed the lira, in which was expressed the value of the gold florin.[23] For illustration:-- In 1464-- 120 fiorini di suggello = 100 fiorini d'oro larghi at 4 lire 8 sol. 4 den. each = 530 lire. Therefore each fiorino d'oro largo ought to = 5 lire 6 sol., which by the tables of the time it actually did. Similarly, in 1501-- 100 fiorini larghi d'oro in oro = 119 larghi di grossi at 5 lire 11 sol. 4 den. = 660 lire. Therefore fiorino largo d'oro in oro should = 6 lire 12 sol. which it actually did. The SILVER MONIES of Florence were based on the silver florin = 1/20 of gold florin (= 38-1/2 grains). From the time of the Mint Law of 1296, these silver coins are styled _grossi_, and subsequently _soldi_, _grossi_, _Guelfi_, etc. etc. The alloy gradually sank-- Onza. Denaro. 11 18 11 17 (1280) 11 15 (1314) 11 12 remaining at the last-named figure until the reopening of the Pisan Mint in 1597. As the gold rose in value by the process already indicated, and the idea of the lira as 20 soldi = 1 gold florin, became inapplicable, the lira came to be looked on as a fractional part of the gold piece or florin. This usage grew up in Florence from the beginning of the twelfth century, and so continued till the days of Cosimo I., who in 1534 coined the first lira, i.e. an actual silver coin. This imaginary lira of mediæval Florence was itself divided, like the florin, into soldi and denari, similar aliquot parts. Hence the custom of keeping Florentine accounts, (1) _a oro_, or (2) _a moneta di piccioli_, the one in terms of the florin of gold, the other in terms of the imaginary lira. The confusion to which this led was due to the unstable nature of the imaginary money, which from 1312 continually depreciates in value, as compared with the actual hard florin money. In 1314, as some measure of reform, it was ordained that the florin of gold should not equal more nor less than 29 of the soldi of this lira, and that it should never change from such course--the distinction of _moneta bianca_ and _nera_ being introduced for the purpose. The ceasing of the observation of this regulation in the sixteenth century made way for every kind of confusion. For the explanation of the text in Part I., pp. 19-23, it need only be added that 20 of these imaginary soldi formed the _lira a fiorino_ spoken of. TABLE OF THE SILVER COINS STRUCK IN FLORENCE, 1252-1534. +---------+-----------------+---------------------+-----------+-------------+----------+--------------+------------+ | | | Standard. | Weight | Fine Silver | Tale per | Tale per | Value at | | Year. | Denomination. +----------+----------+ of each | in each | Mark |Mark issued to| which | | | | Silver. | Alloy. | piece. | Piece. | minted. |the Merchant. |Circulated. | +---------+-----------------+----------+----------+-----------+-------------+----------+--------------+------------+ | | | Oz. Gr. | Oz. Gr. | Grains. | Grains. | | |Soldi. Den. | | 1252 |Fiorino d'argento| --- | --- | 43-1/5 | --- | 160 | --- | 1 0 | | | | | | | | | |(of the gold| | | | | | | | | | florin.) | | 1280 | Do. | 11 15 | 0 9 | 45-3/4 | 45-1/4 | 151 | --- | 1 8 | | 1296 |Soldi grossi | 11 15 | 0 9 | 40-9/19 | 39-3/19 | 171 | 167 | 2 0 | | 1305 |Grossi popolini | 11 12 | 0 12 | 40-9/19 | 38-3/4 | 171 | --- | 2 0 | | | |(= Argento popolino.)| | | | | | | 1314 |Guelfi del fiore | 11 12 | 0 12 | 41-5/8 | 39-7/8 | 166 | 163 | 2 6 | | |(Half and quarter| | | | | | | | | | of same.) | | | | | | | | | 1345 |Nuovi Guelfi | 11 12 | 0 12 | 51-7/12 | 49-5/12 | 134 | 132 | 4 0 | |(Aug. 19)| | | | | | | |(of the | | | | | | | | | | piccioli.)| | 1345 |Grossi Guelfi | 11 12 | 0 12 | 52-4/11 | 50-2/11 | 132 | --- | 4 0 | |(Aug. 23)| | | | | | | | | | 1345 |Grossi Guelfi | 11 12 | 0 12 | 48-2/3 | 46-5/8 | 142 | 140 | 4 0 | |(Oct. 23)| | | | | | | | | | 1347 |Guelfi grossi | 11 12 | 0 12 | 59-1/13 | 56-8/13 | 117 | 111-2/3 | 5 0 | | 1368 |Popolini | 11 12 | 0 12 | 23-1/25 | 22-2/25 | 300 | | 2 0 | | 1390 |Grossi | 11 12 | 0 12 | 56-8/41 | 53-35/41 | 123 | | 5 6 | | | | | | | | | |(piccioli.) | | 1402 |Grossi | 11 12 | 0 12 | 52-4/11 | 50-2/11 | 132 | 130 | 5 6 | | 1448 |Grossi | 11 12 | 0 12 | | | | | 5 4 | | 1460 |Grossoni | 11 12 | 0 12 | 54 | 51-3/4 | 128 | 125-2/3 | 6 8 | | 1471 |Grossi | 11 12 | 0 12 | 49-1/47 | 46-38/47 | 141 | 138 | 6 8 | | 1481 |Grossoni | 11 12 | 0 12 | 47-1/49 | 45-3/49 | 147 | 143 | 6 8 | | 1489 |Grossi | 11 12 | 0 12 | 47-1/49 | 45-3/49 | 147 | 144 | 6 8 | | 1503 |Grossoni | 11 12 | 0 12 | 40-1/2 | 38-19/24 | 170-2/3 | 166-2/3 | 7 0 | | 1503 |Grossoni | 11 12 | 0 12 | 71-72/345 | 68-76/145 | 96-2/3 | 94-1/3 |{10 0 | | | | | | | | | |{(bianchi.) | | | | | | | | | |{13 4 | | | | | | | | | |{(neri.) | | 1504 |Carolino or | 11 12 | 0 12 | 71-73/145 | 68-76/145 | 96-2/3 | 94-1/3 | 10 0 | | | barile | | | | | | | (bianchi.) | | 1506 |Grossoni | 11 12 | 0 12 | 39-165/173| 38-50/173 | 173 | 169 | 7 0 | | 1508 |Grossoni | 11 12 | 0 12 | 39-201/347| 38-62/347 | 173-1/2 | 169 | 7 0 | | 1508 |Grossetti | 11 12 | 0 12 | 28-268/731| 27-135/731 | 243-2/3 | 237-2/3 |{4 0 | | | | | | | | | |{(bianchi.) | | | | | | | | | |{5 0 | | | | | | | | | |{(neri.) | | 1524 |Barili | 11 12 | 0 12 | 68-1/4 | 65-13/32 | 101-1/4 | 99 | 13 4 | | |(The half-barile and the teston (= 3 barili) in proportion.) | | | | | 1531 |Grossi | 11 12 | 0 12 | 38 | 36-5/12 | 181-17/19| --- | 7 0 | | 1531 |Barili | 11 12 | 0 12 | 70 | 67-1/12 | 98-46/35 | --- |{10 0 | | | | | | | | | |{(bianchi.) | | | | | | | | | |{13 4 | | | | | | | | | |{(neri.) | | 1531 |Quinto di Ducato | 11 12 | 0 12 | 152 | 145-2/3 | 45-9/19 | --- | 30 0 | | | | | | | | | |(piccioli.) | +---------+-----------------+----------+----------+-----------+-------------+----------+--------------+------------+ TABLE OF THE GOLD COINS OF FLORENCE, 1252-1534. (From _Zanetti_, i. 439.) +------+----------------------------+---------+---------+----------+-----------+ | | | | | Tale | Value | |Year. | Denomination. |Standard.| Weight. | per | at which | | | | | | Mark. |circulated.| +------+----------------------------+---------+---------+----------+-----------+ | | | Karati. | Grains. | |Soldi. Den.| | 1252 | Fiorino d'oro | 24 | 72 | 96 | 20 0 | | 1275 | Do. | 24 | 72 | 96 | 30 0 | | 1282 | Do. | 24 | 72 | 96 | 32 0 | | 1286 | Do. | 24 | 72 | 96 | 36 0 | | 1296 | Do. | 24 | 72 | 96 | 40 0 | | 1302 | Do. | 24 | 72 | 96 | 51 0 | | 1321 | Fiorino of the first | | | | | | | suggello (5 per cent. | | | | | | | advantage) | 24 | 69 | 100 | ... | | 1324 | Fiorino of the second | | | | | | | surgely | 24 | 70-1/2 | 98-1/4 | 60 0 | | 1328 | Fiorino stretti | 24 | 70-1/2 | 98-1/4 | 66 1 | | 1331 | Do. | 24 | 70-1/2 | 98-1/4 | 60 0 | | 1345 | Fiorini of the third | | | | | | | surgely (5 per cent. | | | | | | | advantage) | 24 | 70-1/2 | 98-1/4 | 62 0 | | 1347 | Do. do. | 24 | 70-1/2 | 98-1/4 | 68 0 | | 1352 | Do. do. | ... | ... | ... | 67 6 | | 1353 | Do. do. | ... | ... | ... | 68 6 | | 1356 | Do. do. | ... | ... | ... | 70 0 | | 1375 | Fiorino nuovo | 24 | 71-3/5 | 96-2/5 | 70 0 | | 1378 | Do. | ... | ... | ... | 68 0 | | 1380 | Fiorino nuovastro | ... | ... | ... | 70 0 | | 1402 | Fiorino nuovo of the fifth | | | | | | | suggello (6-1/4 per cent.| | | | | | | advantage) | 24 | 68 |101-11/117| 73 4 | | 1422 | Fiorino nuovissimo or | | | | | | | largo di Galea | 24 | 71-3/5 | 96-2/5 | 80 0 | | 1442 | Fiorino largo | 24 | 72 | 96 | ... | | | Fiorino of the sixth | | | | | | | suggello (10 per cent. | | | | | | | advantage) | 24 | 72 | 96 | ... | | | Fiorino stretto di Camera | | | | | | | of the seventh suggello | | | | | | | (7 per cent. advantage) | 24 | 69-1/8 | 100 | ... | | 1448 | Fiorino of the eighth | | | | | | | suggello (4 per cent. | | | | | | | advantage) | 24 | ... | ... | 85 0 | | 1460 | Fiorino of the ninth | | | | | | | suggello (7 per cent. | | | | | | | advantage) | 24 | 71-6/7 | 96-1/3 | 86 8 | | 1462 | Fiorino (of Pisan weight) | 24 | 71-6/7 | 96-1/2 | 87 0 | | 1464 | Fiorino largo (20 per | | | | | | | cent. better than the | | | | | | | fiorino di suggello) | 24 | 72 | 96 | 106 0 | | 1471 | Do. do. | 24 | 72 | 96 | 108 0 | | 1480 | Do. do. | 24 | 72 | 96 | 111 0 | | 1485 | Do. do. | 24 | 72 | 96 | 111 4 | | 1501 | Fiorino d'oro largo in oro | | | | 140 0 | | | (19 per cent. advantage | | | | (neri.) | | | on the fiorino largo) | 24 | 72 | 96 | 111 4 | | | | | | | (grossi.) | | 1508 | Do. do. | 24 | 72 | 96 | 142 0 | | | | | | | (neri.) | | 1531}| Ducato d'oro | 24 | 72 | 96 | 150 8 | | 1534}| | | | |(piccioli.)| +------+----------------------------+---------+---------+----------+-----------+ TABLE OF THE BILLON MONEY (MONETA NERA OR EROSA) STRUCK IN FLORENCE, 1300-1534. +-----------+-------------+---------------------+-----------+--------------+------------+-----------+--------------+ | | | Standard. |Weight of |Fine Silver | Tale per |Tale per | Value | | Year. |Denomination.| |each Piece.|in each Piece.| Mark coined|Mark issued| at which | | | +---------------------+ | | | to the | Circulated. | | | | Silver. | Copper. | | | | Merchant | | +-----------+-------------+----------+----------+-----------+--------------+------------+-----------+--------------+ | | |Oz. Gr. |Oz. Gr. | Grains. | Grains. | | | Denari | | | | | | | | | | | | 1316 |Fiorin da sei| 1 0 | 11 0 | --- | --- | --- | --- | 6 | | 1321[E] |Fiorini neri | 1 0 | 11 0 | 12-4/5 | 1-1/15 | 540 | --- | 1 | | 1325 |Piccioli | 1 0 | 11 0 | 12-4/5 | 1-1/15 | 540 | 444 | 1 | | 1332 |Quattrini | 2 0 | 10 0 | 26-1/2 | 4-5/12 | 261 | 240 | 4 | | | lanajuoli | | | | | | | | | 1337 |Quattrini | 2 0 | 10 0 | 21-45/327 | 3-11/24 | 327 | 301 | 4 | |(July 19) | | | | | | | | | | 1337 | Do. | 2 0 | 10 0 | 21-3/4 | 3-5/8 | 318 | 297 | 4 | |(July 28) | | | | | | | | | | 1366 |Piccioli neri| 1 0 | 11 0 | 8-1/4 | 2/3 | 840 | 660 | 1 | | 1371 | Do. | 0 23-1/2 | 11-1/2 0 | 8 | 5/8 | 864 | 708 | 1 | | | Quattrini | 2 0 | 10 0 | 18-5/12 | 3-1/12 | 375 | 370 | 4 | | 1417 |Piccioli neri| 1 0 | 11 0 | 6-78/83 | 7/12 | 996 | --- | 1 | | 1432 | Quattrini | 2 0 | 10 0 | 18-5/12 | 3-1/12 | 375 | --- | 4 | | 1462 | Soldini | 6 0 | 6 0 | 15 | 7-1/2 | 460 | 446 | 12 | | 1471 | Quattrini | 2 0 | 10 0 | 26-42/87 | 4-5/12 | 261 | 240 | 4 | | | Soldini | 6 0 | 6 0 | 13-2/3 | 6-5/6 | 505 | 483 | 12 | | |Piccioli neri| 1 0 | 11 0 | --- | --- | --- | --- | 1 | | 1472 | Quattrini | 1 12 | 10 12 | 16-1/2 | 2-1/24 | 420 | 366 | 4 | | | Piccioli | 0 6 | 11 18 | 8 | 1/6 | 864 | 252 | 1 | | 1490 | Quattrini | 2 0 | 10 0 | 16 | 2-2/3 | 432 | --- | 4 | | | bianchi[F] | | | | | | | | | | Quattrini | 1 0 | 11 0 | 14-7/8 | 1-1/4 | 465 | --- | 4 | | 1509 | Do. | 1 0 | 11 0 | 16-5/12 | 1-1/3 | 420 | --- | 4 | | 1512 | Crazie | --- | --- | --- | --- | --- | --- | | +-----------+-------------+----------+----------+-----------+--------------+------------+-----------+--------------+ FOOTNOTES: [Footnote 23: For a corroboration of this, see the texts of the laws of 1460 and 1470. 1460. "Veduta una legge del anno 1452, che provide che in qualunque pagamento si avesse a fare, si potisse pagare, e cosi fosse accettato, per ogni fiorino di suggello 4 lire 5 soldi delle monete di grossi d'Ariento, per la quel cosa e seguito che i grossi sono scemati tanto di peso che i fiorini larghi per ragguaglio di quelli, dove solevano essere meglio comuneménte da fiorini 10 in 12 per cent., che i fiorini di suggello sono iti a fiorini 22 per cent--" 1471. "Che i fiorini di suggello in moneta bianca o nera non abbiano pregio firmo nè a grossoni, nè a quattrini ma vagliano quello e quanto sara la sua commune valuta dì per dì e secondo saranno alla camera e all' Arte del Comtis--"] [Footnote E: Beginning of the distinction of white and dark monies (moneta bianca and la nera).] [Footnote F: Three of which equal one quattro de'ner.] APPENDIX II THE MONETARY SYSTEM OF VENICE The Venetian monetary system of history employed a double basis or unit:-- 1. The _lira di piccioli_, the principal system, and the one which endured through the whole life of the Republic, from the tenth century to the introduction of the decimal system in 1806. 2. The _lira di grossi_--an ideal system, i.e. money of accompt only, and of importance for a much less extensive period. It originated in the thirteenth century, and was abandoned by the end of the sixteenth. The "lira" of the first of these systems is derived from the "libra" of Charlemagne, and, like it, was divided into 20 soldi, each soldo being subdivided into 12 denari. For long the only coin actually minted was this denaro (_parvus_, _parvulus_, _piccolo_ or _minuto_), a silver coin. The first of these thus issued appertain entirely to the system of the Empire of Charlemagne. They bear the name of Louis the Pious (814-40), and approximate in weight to his pieces. The dismemberment of Charlemagne's Empire is followed by a gap in the Venetian coinage, and the series only recommences in the eleventh century. These latter still appertain to the system of the revived Roman (Germanic) Empire, and bear the names of Henry II. (1002-24), Conrad II. (1027-39), and Henry IV. (1056-1106). From this latter date onwards the imperial monies cease at Venice, and the series of Ducal monies--the monies of the republic of Venice--begin with the Dogeship of Vitale II. (1156-72). From the same period there is noticeable that deterioration in weight which marks all the systems of mediæval Europe. The denari of Doge Sebastiano Ziani (1172-8) and of the two succeeding Doges are scarcely one-quarter the weight of the Charlemagne denarius. This depreciation led, in the year 1200, to the issue of a piece of higher denomination, namely, the _grosso_--still a silver coin, but valued at 26 piccioli or denari; and for about seventy years the grosso displaced the picciolo. About 1270, however, the coining of the picciolo recommenced under Doge Lorenzo Tiepolo, but at a slightly reduced value, 28 piccioli being rated to the grosso, instead of 26 as in the year 1200. Up to the great recoinage of 1476 the grosso remains the main coin of reference. Its gradual but incessant depreciation can be traced in the table of silver coins given on p. 318. Under the eleventh doge, Giovanni Dandolo (1280-89), the coining of gold began in Venice. In 1284, the date of the first issue, the gold ducat or sequin (zecchino) of Venice was valued at 18 grossi, giving a ratio of gold to silver of 10.6. The subsequent changes of the ratio have already been stated (see text, _supra_, p. 40). From 1282, 67 ducats were coined from the Venetian mark. This number was increased in 1491 to 67-1/2, and in 1570 to 68-1/4. The course of the sequin throughout is given in the table on p. 316. It was the monetary trouble which they produced that led to the great recoinage accomplished under Doge Nicolo Tron (1471-73) and his successors, Nicolo Marcello (1473-74) and Pietro Mocenigo (1474-76). From the date of this recoinage onwards the silver grosso was abolished _as a coin_, and a new silver coin, the lira, valued at 20 soldi, was instituted. This is the first appearance of a real and effective lira as a coin. Hitherto the name had only been that of a weight. By the decree of 1472, 36 of these lira were to be coined out of the mark of silver. On account of the name of the doge this coin was known as the _Lira Tron_ for centuries. In its turn it underwent a ceaseless depreciation (see table on p. 318). In the middle of the sixteenth century there was so much silver in the Venetian Mint waiting to be coined for the merchants that the State, finding it could only issue 35,000 pieces a month, which, in small pieces of 442 soldi, would take a year to exhaust the stock, determined for the ease and encouragement of the merchants to issue a large silver piece, the _ducato d'argento_, 7-1/4 to the mark of silver by tale, and rated at 124 soldi. Under Doge Nicoló da Ponte (1578-85) this piece becomes the _scudo d'argento_, which begins in 1578 with an equivalence of 7 lira. In 1578 the scudo was rated at 7 lira 0 soldi. " 1608 " " 8 " 8 " " 1621 " " 8 " 10 " " 1630 " " 9 " 0 " " 1635 " " 9 " 6 " " 1665 " " 9 " 12 " " 1702 " " 10 " 0 " " 1703 " " 10 " 10 " " 1704 " " 11 " 0 " " 1705 " " 11 " 4 " " 1706 " " 11 " 8 " " 1708 " " 11 " 10 " " 1709 " " 11 " 12 " " 1718 " " 11 " 14 " " 1739 " " 12 " 8 " On this basis the monetary system of Venice continued till the seizing of the Mint by the Democrats in 1797. For several years, during which they held possession, they issued a coin called _Tollero_, of the nominal value of 10 Venetian lire, i.e. 5.16 Italian lire, but really only equal to 4.99 of the latter. In 1802 the Italian Republic was erected by Buonaparte. The monetary law of the Republic, dated 30th April 1804, provided for the coining of a national money on a unit or basis of the silver lira, of the weight established by the law of 27th October 1803, namely, 4 deniers, and of .9 standard. The unit gold coin to be 1/125 of the new established livre in weight (= 8 deniers), and of .9 standard, to equal 31 lire. In 1805 Napoleon declared himself King of Italy, but the change was not followed by any radical revolution of the coinage system. From 1806 the decimal system was introduced into Italy, and on the reduction of the numerous independent monetary systems the Venetian lira was computed at .5116 of the Italian, i.e. 51.16 centesimi. As a matter of fact, however, the Venetian lira did not totally thereupon disappear from use. By decree of December 21, 1807, the ducat (zecchino) of 67-47/41 Venetian grs. was rated at 12.03 lire Italiane. Under the Lombardo-Venetian kingdom, which succeeded, the main Italian monies were assimilated to those of Austria. The money of account was, at Milan, the Austrian lira (= 100 centesimi = 20 Austrian soldi at 5 centesimi each). There remains to be described the second and less important basis of the Venetian system, that of the lira di grossi. It was throughout--i.e. from the thirteenth century, when it originated, to the close of the sixteenth, when it disappeared--an ideal system, i.e. of account only. A supposititious lira di grossi was taken and divided into 40 soldi, each soldo was subdivided into 12 denari, and each one of these denari was equivalent to the grosso, the actual coin existing in the system--already described. The lira di grossi therefore maintained at first the same relativity to the lira di piccioli that the actual grosso did to the actual picciolo, namely, 26:1. This relation, however changed subsequently with the depreciation of the actual grosso (the lira). In 1278 the ratio of the two was 28:1 " 1282 " " 32:1 " 1343 " " 48:1 " 1472, onwards to the discontinuance of the system 62:1 A curious feature about this system was that in its turn it subdivides. In 1343 a double (hypothetical) grosso was adopted; one of 48 piccioli, the other of 32, both of them subdivided into thirty-two parts as, again, an ideal system. In 1472, therefore, the Venetian silver system consisted of-- 1. _Lira di piccioli_, an actual coin represented by the Troni, and containing 128 grs. of silver, .9472 fine. 2. The ideal _lira di grossi_, then equivalent to 10 ducats, divided into 20 ideal soldi, each equivalent to 1/2-ducat, each soldo again subdivided in 12 grossi, the grosso being now no longer the actual coin of that name but ideal, like the above multiples; and each grosso in its turn subdivided into 32 parts, to which the name of _piccioli_ was given, though as ideal as its multiple the grosso. For distinction's sake probably, these ideal grossi and piccioli occur in history as _grossi a oro_ and _piccioli a oro_. TABLE OF THE GOLD DUCAT OR SEQUIN OF VENICE. (According to Nicolo Papadopoli, _Sul Valore Delia Moneta Veneziana_, p. 33.) +------+----------------------+----------------------+---------------------+ | | | Declared or Deduced | Value in Modern | | Date.| Coin. | Value in Venetian | Italian Lire of the | | | | Lira of History. | Venetian Lira | | | | | of History. | +------+----------------------+----------------------+---------------------+ | | | Lire. Soldi. | Lire. Centesimi. | | 1284 | Ducat = 18 grossi of | | | | | 32 piccioli | | | | | each | 2 8 | 5 012 | | 1324 | " = 24 grossi. | 3 2 | 3 883 | | 1350 | " = 96 soldi. | 4 16 | 2 506 | | 1399 | " = 93 " | 4 13 | 2 587 | | 1417 | " = 100 " | 5 0 | 2 406 | | 1429 | ... | 4 4 | 2 313 | | 1443 | ... | 5 14 | 2 110 | | 1472 | ... | 6 4 | 1 940 | | 1517 | ... | 6 10 | 1 850 | | 1520 | ... | 6 16 | 1 769 | | 1529 | ... | 7 10 | 1 604 | | 1562 | ... | 8 0 | 1 504 | | 1573 | ... | 8 12 | 1 398 | | 1594 | ... | 10 0 | 1 203 | | 1608 | ... | 10 15 | 1 119 | | 1638 | ... | 15 0 | 0 802 | | 1643 | ... | 16 0 | 0 752 | | 1687 | ... | 17 0 | 0 707 | | 1739 | ... | 22 0 | 0 546 | +------+----------------------+----------------------+---------------------+ TABLE OF THE GOLD DUCAT OR SEQUIN OF VENICE. (According To Vincenzo Padovan, _La Nummografia Venziana Documentato_, pp. 135, 365.) +-----------------+--------------++-----------------+-------------+ | | Value of || | Value of | | Date. | Ducat in || Date. | Ducat in | |-----------------+--------------++-----------------+-------------+ | |Lire. Soldi. || |Lire. Soldi.| |1284 | 3 0 ||1594 (October 12)| 10 0 | |1287 | 3 2 ||1601 | 10 12 | |1310 | 3 4 ||1605 | 10 14 | |1320 | 3 6 ||1608 | 10 15 | |1360 | 3 10 ||1633 | 14 0 | |1370 | 3 12 || | 14 10 | |1377 | 3 13 ||1638, November 20| 15 0 | |1378 | 3 14 ||1643 | 16 0 | |1379 | 3 16 ||1687 | 17 0 | |1380 | 3 18 ||1697 | 17 10 | |1382 | 4 0 ||1698 | 17 15 | |1384 | 4 4 ||1699 | 18 0 | |1399, October 7 | 4 13 ||1701 | 18 10 | |1401 | 4 18 || | 18 15 | |1417, November 11| 5 0 ||1702 | 19 0 | |1421 | 5 3 || | 19 5 | |1429, July 29 | 5 4 || | 19 10 | |1433 | 5 10 || | 20 0 | |1443, January 23 | 5 14 ||1704 | 20 5 | |1472, March 29 | 6 4 ||1707 | 20 8 | |1517, October 16 | 6 10 ||1708 | 20 10 | |1518 | 6 14 || | 20 15 | |1520 | 6 16 ||1711 | 21 5 | |1524 | 7 4 || | 21 10 | |1529 | 7 10 ||1713 | 21 15 | |1533 | 7 18 ||1716 | 21 18 | |1562 | 8 0 ||Thenceforward to | | |1573 | 8 12 ||the fall of the | | | | 8 16 ||Republic | 22 0 | |1584 | 9 0 || | | | | 9 12 || | | +-----------------+--------------++-----------------+-------------+ TABLE OF THE SILVER COINAGE OF VENICE. (From Papadopoli, _ubi supra_, with additions.) +----+-------------------------+------------+-----------+------+--------------+ | | | Value in | | | Value of the | | | | Lire of | Weight of | |Venetian Lira | |Year| Coin. | Venice |the Lira in|Stand-|in Lira of the| | | |declared or | Venetian | ard. |Modern Italian| | | |calculated. | Grains. | |Decimal System| |----+-------------------------+------------+-----------+------+--------------| | | |Lire. Soldi.| | | | |1200|Grosso instituted by | | | | | | | Enrico Dandolo; weight | | | | | | | in Venetian grains, | | | | | | | 42.1; value=26 piccioli;| | | | | | | 9-6/16 grossi to a lira | 0 108 | 388.61 | .9652| 4.313 | | | | | | | | |1270|Grosso = 28 piccioli; | | | | | | | 8-16/28 grossi to a lira| 0 116 | 360.85 | ... | 4.005 | | | | | | | | |1282|Grosso = 32 piccioli; | | | | | | | 7-1/2 grossi to a lira | 0 13 | 315.75 | ... | 3.504 | | | | | | | | |1350|Grosso = 48 piccioli; | | | | | | | 5 grossi to a lira | 0 2 | 210.5 | ... | 2.336 | | | | | | | | |1379|Weight of the grosso | | | | | | | reduced to 38.4 Venetian| | | | | | | grains; 5 of these | | | | | | | grossi to a lira | ... | 192.0 | ... | 2.130 | | | | | | | | |1399|Weight of grosso reduced | | | | | | | to 35.17 Venetian grains| ... | 175.85 | ... | 1.951 | | | | | | | | |1429|New regulation; the | | | | | | | mark of silver to yield | | | | | | | 31 lire of money | 1 0 | 148.64 | ... | 1.649 | | | | | | | | |1472|Lira (Tron), 36 to mark | ... | 128.0 | ... | 1.395 | | | | | | | | |1527|Lira (Mocenigo) | 1 4 | 105.0 | .9479| 1.144 | | | | | | | | |1561|Institution of the silver| | | | | | | ducat; weight=635.5586 | | | | | | | Venetian grains; | | | | | | | 7-1/4 to a mark | 6 4 | 102.51 | ... | 1.117 | | | | | | | | |1578|Institution of the scudo | 7 0 | 87.86 | ... | 0.957 | | | | | | | | |1608|Scudo raised to | 8 8 | 73.21 | ... | 0.798 | | | | | | | | |1630| " " | 9 0 | 68.33 | ... | 0.746 | | | | | | | | |1665| " " | 9 12 | 63.96 | ... | 0.697 | | | | | | | | |1704| " " | 11 0 | 55.81 | ... | 0.608 | | | | | | | | |1718| " " | 11 14 | 52.47 | ... | 0.573 | | | | | | | | |1739| " " | 12 8 | 49.35 | ... | 0.537 | | | | | | | | |1797|Tollero of the Democrats;| | | | | | | weight = 550 | | | | | | | Venetian grains | 10 0 | 55.0 | ... | 0.522 | +----+-------------------------+------------+-----------+------+--------------+ APPENDIX III THE MONETARY SYSTEM OF SPAIN The monetary system of Christian Spain dates from the Gothic invasions, and differs from that of Germany, Italy, and France in being derived in the first place from the Roman system without the intermediation of that of Charlemagne. Under the Goths the monetary basis was the Roman libra, subdivided thus-- 1 libra = 8 onzas = 4608 grs. 1 onza = 8 ochavas = 576 grs. 1 ochava = 6 tomines = 72 grs. 1 tomin = 3 quilates or siliqua = 12 grs. The unit denomination was the sueldo de oro (gold sueldo) = 1/6 onza of the fineness of 23-3/4 quilates (=.989 fine), corresponding exactly to the Roman _aureus_ of the times of Julian. The unit denomination of the silver money was twofold--(1) the silver _sueldo_ (= 1/6 onza like the gold), and (2) the _denario_ (1/8 onza or ochava). The silver coins were at first of 12 dineros fine, but subsequently only _10.12_ (=.875 fine). Of these two units, the latter, the silver denario was far the more usual and frequent in use. With one important change of name, and infinite change of incident and detail, it was this system which obtained till the great reform of the Spanish monetary system under Ferdinand and Isabella. The change of name consists in the introduction of that of the _maravedi_, which was adopted from the conquered Moors, and applied to designate the sueldo d'oro from the time of the conquest of Toledo. In a comprehensive way it may be said that the history of this word or name, maravedi, sums up the monetary history of Spain. From being the original gold coin of highest denomination, it came to be a silver coin, then a billon coin of the very lowest denomination, as it is to-day. The process of its degeneration is quite unexampled even in Europe. In addition, also, to the confusion of idea produced by this depreciation there is a further uncertainty, caused by the quite general use of the word or name, i.e. not as the name of a particular coin or money series, but perfectly generally for almost any and every coin--as synonymous, in fact, with the simple word money itself. Neglecting this latter question, however, as one of nomenclature merely, the course of depreciation of the maravedi may be thus illustrated:-- Maravedi (Moorish coin), fine gold, about 56 grs. By the time of James I. of Aragon, the contents in fine gold had sunk to 14 grs. Having been still further reduced to 10 grs. under Alfonso the Wise, it was made into a silver coin, as being too small to be expressed in gold. Its depreciation in this latter form and through its third form of billon money was as follows:-- +-------+---------------------+--------------+ | | Number of Maravedis | Contents of | | Date. | to the | Fine Silver, | | | Cologne Mark. | Grains. | +-------+---------------------+--------------+ | 1312 | 130 | 25.85 | | 1324 | 125 | 26.86 | | 1368 | 200 | 16.79 | | 1379 | 250 | 13.43 | | 1390 | 500 | 6.71 | | 1406 | 1000 | 3.35 | | 1454 | 2250 | 1.49 | | 1550 | 2210 | 1.52 | | 1808 | 5440 | 0.62 | +-------+---------------------+--------------+ To return. At the time of its adoption by the Christian powers of Spain, the maravedi (or sueldo de oro) was equal to 1/6 onza of gold. To this maravedi de oro was subsequently given the name of _Alfonsi_, supposititiously from Alfonso VI., the first to issue them. The first important change in this monetary system of Gothic Spain--though one of detail rather than system--was effected by Ferdinand II. of Leon, who, in 1157, coined the silver _leones_ of the value of half the silver sueldo (= 12 dineros). In 1222 S. Ferdinand introduced the _sueldo pepiones_. Sueldo de oro = 10 metales or mitgales, 1 metale = 18 pepiones. But both these importations were suppressed by Alfonso X., the Wise, of Castile. In 1252 he coined his _maravedis blancos_, or _Burgaleses_, to replace the sueldos pepiones. 6 dineros = 1 sueldo, 15 sueldos = 1 maravedi Burgalese. This maravedi bore the ratio of 1: 6 to the old maravedi de oro. This money (Burgalese) was subsequently known as _moneda viejo_, _maravedis viejos_, or _moneda blanca_. Six years after its introduction, however, Alfonso demonetised his own Burgaleses to make room for his _maravedises negros_, or _prietos_, a money of billon which lasted till the days of Ferdinand and Isabella. Twenty-three years later Alfonso issued a second "white money" (1281), so called as distinguished from the Burgaleses, mention of which recur. To the "second white" (_blanco segundo_) was also given the (commoner) name of new (_novenes_). It was issued at one-fourth the value of the _prietos_. The relationship of the novenes to the prietos and to the standard (now supposititious) gold maravedi is thus expressed:-- 15 dineros prietos = 1 maravedi, Old maravedi = 75 sueldos, [therefore] 1 prieto = 5 sueldos. Old maravedi = 60 maravedis novenes, [therefore] 1 prieto = 4 maravedis novenes. Under Alfonso the Wise, therefore, the system was as follows:-- 10 dineros = 1 noveno, 4 novenes = 1 maravedi de los prietos (= 5 sueldos of 8 dineros each). 10 novenes = 1 maravedi de los Burgaleses. 60 " = 1 old maravedi. These _novenes_, or _maravedis blancos segundos_, continued current through the fourteenth century, and in the laws of John III. are spoken of as "maravedises of our present currency," and as still = 1/10 of the maravedises Burgaleses, which latter are spoken of as "maravedises of good currency" (_maravedis de los buenos_). But by the close of the fourteenth century, owing to the depreciation of the currency, the novenes had come to be looked upon as of better denomination than the then current coin, and are accordingly spoken of as "old" (_viejos_) for distinction's sake. The only material additions to this system of Alfonso the Wise were briefly-- 1. The _coronados_, an innovation of his successor, Sancho IV. (1284-95), who, in 1286, introduced them as = 1 old dinero. They subsequently appear as _cornados_. In the Cortes of Toledo their relation to the novenes was thus determined:-- 6 coronados = 10 novenes = 1 maravedi de moneda vieja (= Burgaleses). 2. The series of gold coins initiated by Alfonso XI. (1302-50). It was in the reign of this latter King that the general movement of adoption of gold coinage first touched Spain. The earliest gold coins were Alfonso's _doblas_, subsequently known as _castellanos_. The weight of this coin has been variously assigned as 48 to a mark or 50 or 51. Taking the tale of 50 to the mark, the weight per piece would be 92-4/25 grms. (= 4.60090 grms.) of 23-3/4 quilates fine (= .989 fine). Pedro I. made gold doblas of the weight of 90 grs., and this endured till the days of John I., 1379-90, who preserved the same weight but lowered the standard. Under Henry III. the standard of 23-3/4 quilates was again restored. For the movement of the gold coins subsequent to Ferdinand and Isabella, see the Table. 3. The silver _real_ first appears under Pedro I., 1350-69. It was issued at a tale of 66 to a mark, and 11 dineros 4 grs. fine. Under Henry II. of Castile, 1369-79, these reals undergo extraordinary debasement, the standard being reduced to .279, .129, .060, and so on; but a recovery took place under his successor, John I., 1379-90, who returned to the standard of Pedro I., substituting for the debased real his own vellon money, under the titles of _blancos_ and _Agnus Dei_, a money known later as _blancas_ and _maravedises de moneda blanca_. The restorer of the Spanish coinage was, however, not John so much as his son, Henry III., 1390-1406. By his ordinance of 21st January 1391, issued at the instance of the Cortes of Madrid, 1390, the blancos of John I. were reduced in equivalence to 1 coronado. Gold coins were restored to the tale and standard of Alfonso XI., and the silver real to those of Pedro I. The vellon money, however, of this reign--the blancos in particular--present a confusion which has hitherto baffled the most learned. It has been computed that one hundred and thirty-two monies of various denominations circulated in Castile under this King. In brief, the system from his day till the time of Ferdinand and Isabella may be thus tabularly expressed:-- +-----------+----------------+------------+--------++---------------------+-----------+--------++----------------+------------------+--------+ | | GOLD | Value as |Value in|| SILVER | Value as |Value in|| BILLON | Value as |Value in| | Reign. | Denomination. | Issued. |Reals. || Denomination. | Issued. | Reals.|| Denomination. | Issued. |Reals. | +-----------+----------------+------------+--------++---------------------+-----------+--------++----------------+------------------+--------+ | | | | || | | || | | | |Henry III.}|Florin of |21 maravedis| Reals ||Silver Real |3 maravedis| Reals ||Meaja vieja |1/60 of the | Reals | |1393 }| Aragon | viejos | 19.420 ||Half, } In | viejos | 2.775 || (ideal money) | maravedi viejo | 0.15 | |1394-1406 | " |22 " | 20.350 ||Quarter,} proportion | | ||Meaja nueva |1/60 of maravedi | 0.007 | | | | | ||Fifth, } | | || (ideal money) | nuevo | | | | | | ||In the course of | | ||Dinero viejo |1/10 of maravedi | 0.092 | | | | | || | | || | viejo | | | |Lower and higher denominations occur ||this reign the real | | || " nuevo |1/10 of maravedi | 0.046 | | | | | || | | || | nuevo | | | | separately in 1393, 1398, and 1402 ||of silver was rated | | ||Coronados viejos|1/6 of maravedi | 0.154 | | | | | || | | || | nuevo | | | | | | ||rated variously at | | || " nuevos|1/6 of maravedi | 0.077 | | | | | || | | || | nuevo | | | | | | || 7, 7-1/2, and 8 of | | ||Agnus Dei |1 coronado viejo | 0.154 | | | | | || the maravedis nuevos| | ||Blanca (occurs }|1/4 maravedi viejo| 0.231 | | | | | || | | || after 1440) }| | | | |Ducados |30 viejos | 27.750 || | | ||Cinquen |1/12 real | 0.231 | | | (In the Kingdom| | || | | ||Maravedi viejo |1/3 real | 0.925 | | | of Navarre) |Many other and || | | || " nuevo |1/2 maravedi viejo| 0.462 | | | | different || | | || | | | | | | denominations || | | || | | | | | | | || | | || | | | | | Doblas |35 viejos | 32.375 || | | || | | | | | Castellanos | | || | | || | | | | |(Doblas castellanos | || | | || | | | | | de la Banda | || | | || | | | | | Cruzados | || | | || | | | | | Cruzados de la | || | | || | | | | | Banda | || | | || | | | | | Doblas) | || | | || | | | | | || | | || | | | | | Many different denominations || | | || | | | | | | | || | | || | | | +-----------+----------------+------------+--------++---------------------+-----------+--------++----------------+------------------+--------+ | | | | || | | || | | | |John III. }|Florin |22-1/2 | 22.662 ||Reals, 11 dineros | As above |As above|| As above with addition of | | 1406- }| | maravedis| || 4 grs. fine, 66 to | | ||Sueldos |1/2 maravedi (ideal money) | | 1454 }| | viejos | || a mark | | ||Ovulo |1/8 sueldo (ideal money) | | | | | || | | || | | | | Many other different denominations || | | || | | +-----------+----------------+------------+--------++---------------------+-----------+--------++----------------+------------------+--------+ |John III. }|Doblas and |35 maravedis| Reals || | | || Blanca vieja |(As blanca above) | Reals | |1406-1454 }| coronas | viejos | 32.375 || | | || " nueva |1/6 maravedi viejo| 0.154 | | | | | || | | || Cornado |1/2 blanca nueva | 0.077 | | |Many other and different denominations|| | | || | | | | | | | || | | || | | | | 1434 |Dobla de la | 104 nuevos | 48.048 || | | || | | | | | Banda | 100 " | 46.2 || | | || | | | | 1442 | " | | || | | || | | | | |(19 quilates | | || | | || | | | | | fine, 49 to | | || | | || | | | | | a mark) | | || | | || | | | +-----------+----------------+------------+--------++---------------------+-----------+--------++----------------+------------------+--------+ |Henry IV. }|Florin of Aragon|20 maravedis| 18.220 ||Real of silver |3 maravedis| 2.734 || Meaja vieja | 1/10 of maravedi | | |1454-74 }|(18 quilates | viejos | || | viejos | || | viejo | 0.091 | | | fine) | | || |(Numerous | || Meaja nueva |1/2 of viejo | | | |56 other species| | || | multiples| || Dinero viejo |1/10 of maravedi | | | | of same, and | | || | of it) | || | | | | | of other, and | | || | | || | viejo | 0.091 | | | different | | || | | || Dinero nuevo |1/2 of viejo | | | | denominations | | || | | || | | | | | | | || | | || Agnus Dei }| | | | 1455 |Ducado | 165 " | 30.074 || | | || Blanca }|1/8 of maravedi | 0.152 | | |(23-3/4 quilates| | || | | || Cornado viejo }| viejo | | | | fine, 65-1/3 | | || | | || Cornado nuevo |1/2 of viejo | | | | to a mark), | | || | | || Cincuen }|1/2 maravedi vieja| 0.457 | | | 38 other | | || | | || Blanca }| | | | | species of | | || | | || Maravedi viejo |1/3 of real | 0.911 | | | same, and of | | || | | || | | | | | other and | | || | | || | | | | | different | | || | | || | | | | | denominations | | || | | || | | | | | | | || | | || | | | | |Doblas | 150 " | 27.340 || | | || | | | | |Castellanos | 420 " | 37.040 || | | || | | | | |Enriquez | 210 " | 38.276 || | | || | | | +-----------+----------------+------------+--------++---------------------+-----------+--------++----------------+------------------+--------+ The reign of John II. (1406-54) marks a period of exceeding confusion, coupled with inefficient attempts at legislative remedy. The disorder of his reign was further increased under his successor, Henry IV. (1454-74), years which represent the apogee of Spanish depreciation. By grants of the right of private minting the six official Spanish Mints were increased to not less than 150, with a resulting monetary disorder, dearness of necessaries, and commercial panic which it would be difficult to estimate. The gold monies varied in fineness from 23-1/2, 19, 18, 17, and so on, even to 7 quilates, and the same extraordinary variations marked the silver monies. Of billon monies there were eight distinct classes, representing a succession of fractional parts of the silver real, 1/6, 1/7, 1/8, 1/12, 1/16, 1/22, 1/24, 1/58. Taking, for the mere purpose of generalisation or average, the gold _Enrique_ of this reign at a tale of 50 to a mark, 23-3/4 quilates fine, and the silver real (= 30 maravedis de blancas) at a tale of 67 to a mark, and standard of 11.4 fine, the ratio of gold to silver for the reign would be 9.824:1. The monetary situation which the advent of the Catholic kings, Ferdinand and Isabella (1475-1506), was to alleviate and reform was the most deplorable that Spain has ever seen. Not less than eleven ordinances of reform were issued before the close of the century. For practical purposes only the first and last of these require notice. By the Mint indenture, issued on the 26th June 1475 to the Mint master of Seville, the gold coinage was ordered on the following basis:-- Excellentes (at a tale of 25 to a mark, 23-3/4 quilates fine, in value = to 2 castellanos). And silver on the following basis:-- Silver Reals (at a tale of 67 to a mark, 11 din. 4 grs. fine, in value equal to 30 maravedis). First and chiefest importance, however, attaches to the ordinance of 1497, issued at Medino del Campo, and so named. By this ordinance all the previous existing systems and monies were abrogated, and a new system instituted which forms the starting-point for the monetary history of that Spain which was to be the receiver and distributor of the gold and silver of the New World. The standard of gold was fixed at 23-3/4 quilates. The basis of the gold coins was to be the _excellente de la Granada_, issued at an equivalence of two of the antecedent excellentes, and at a tale of 65-1/3 to the mark. The system of the silver real was as in 1475, but it was issued at an equivalence of 34 maravedis, at which it ever after remained. The billon money was to consist of _blancas_ (7 grs. fine, and at a tale of 192 to a mark). One excellente = 11 reals 1 maravedi = 375 maravedis. 1 real " 34 maravedis. The changes subsequently effected in this system may be presented in skeleton form (see also accompanying Tables). In 1523 the Cortes of Valladolid presented a petition referring to the changed relation of the two metals, and asking for a recoining on a different ratio. Its proposals were incorporated in the ordinance of 1537, when the scheme was as follows:-- Gold Standard, 22 quilates. " Tale, 68 to a mark. Value, 350 maravedis. Silver Left untouched. Billon Standard increased to 7-1/2 granos. Under Philip II., by the ordinance of 23rd November 1566, the equivalence of the gold coins was increased a seventh, the silver monies being again left untouched. The increase was partly arbitrary and unprincipled, partly due to the normally prevailing depreciation of silver. Under Philip III. the intrinsic value or content of the gold monies was decreased 1/10, silver being again left intact. The innumerable calamities which overtook Spain under Philip IV. (1621-65) and Charles II. (1665-1750) led to an immense introduction of billon money, to so great an extent, indeed, that it fell to one-eighth its previous value, thereby only complicating and increasing the evils. The result was an increasing premium on good monies, coupled with the usual disappearance of them. By the proclamation of 8th March 1625 it was prohibited, on severest penalties, to carry such premium above 10 per cent.; by the succeeding proclamations of 30th April 1636 and 7th September 1641 this limit was raised respectively to 25 per cent, and 50 per cent. Philip IV. also instituted the first change in the silver system which it underwent since the great reform of 1497. The tale was increased from 67 to 83-3/4 per mark, the _real of eight_ being henceforth issued at an equivalence of 10 reals. This change was equivalent to a reduction of 25 per cent. in the silver monies. Under Charles II. this corruption proceeded in an ascending scale until 1680, when the gold _doblon_ had arrived at an equivalence of 110 reals of billon, and the _real of eight_ to 29 reals of billon. By the law of 14th October 1686 an attempt was made to re-create and reform the tottering system. The mark of silver (11 din. 4 grs. fine) was to be coined at a tale of 84 pieces. The real of eight received a new name, _Escudo de plata_, and was to issue at an equivalence of 10 reals of the new silver. The effect of this apparent reform was to lower the weight of the silver money 25 per cent., to incorporate the premium of 50 per cent. on the billon money, and to institute or sanction a matter of four separate monetary units:-- 1. The real of old silver = 1/67 mark. 2. The real of new silver = 1/84 mark. 3. The real of billon = 1/126 mark. 4. The real of billon = 1/38 of the double escudo. At the close of the reign the monetary system was as follows:-- Silver Reals. Mark of fine gold, 1408.94 Of intrinsic value of 1363.15 The seigniorage being 45.79 Mark of fine silver, 90.32 Of intrinsic value of 88.11 The seigniorage being 2.21 Maravedis. Mark of copper, 76 Of intrinsic value of 68 The seigniorage being 8 Philip V. was for many years prevented by the enormous expenditure caused by the revolt of Don Carlos from reform of this system, which he ultimately undertook and carried out. In 1707 he reduced the standard of silver to 10 dineros, of a tale of 75 reals to the mark, creating the money which is distinguished thenceforward by the name of _Plata provincial_. By the regulation of 9th June 1728 the series of _Plata nacional_ was lowered to 11 dineros fine (= .917) and a tale of 68 reals. Of more importance was the Mint regulation of 16th July 1730, by which-- Reales de Plata Provincial. Mark of gold of 22 quilates fine was coined into 1360 Delivered to the importer 1280 ---- Seigniorage 80 = 5.88 per cent. Mark of silver of 11 dineros fine coined into 85 Delivered to the importer 80 ---- Seigniorage 5 = 5.88 per cent. This ideal system could not be retained, as the billon money fell within a short time a matter of 5-1/2 per cent. in relation to it. The latter change was incorporated by the proclamation of 16th May 1737, which fixed the silver _escudo_ of 10 reals (the old piece of 8 reals) at 170 cuartos, equivalent to the 20 reals of billon at which it continued to be valued. By the subsequent Mint order of 22nd June 1742 the attempt was made to bring the billon money into exact relationship with the gold by the coining of gold pieces equal to 20 reals billon (_veintenes_) struck at a tale of 128 per mark, and fineness of 21-3/4 quilates, in place of the previously existing standard of 22 quilates. These veintenes correspond to the escudos of 21-1/4 reals still to be found in circulation. No change of any importance was effected under the short reign of Ferdinand VI. (1746-59), under whom the custom inaugurated by Philip V. of expressing values in reals of billon rather than of silver (_plata provincial_) still continued. His successor, however, Charles III. (1759-88) effected profound reforms. By the ordinance of 29th May 1772 he accomplished a complete recoinage of the Spanish money. The standards he established were-- Quilates. Granos. Of gold Escudos (oro nacional) 21 2-1/2 " Veintenes (oro provincial) 21 1-1/2 Dineros. Granos. Of silver (plata nacional or gruesa) 10 20 " (plata provincial or menuda) 9 18 being a lowering per cent, of standard as follows:-- Oro nacional 1.31 " provincial 2.84 Plata nacional 1.59 " provincial 2.49 The bearing of this change on the question of the ratio at large in Europe has been already referred to. It was again and still further for the protection of gold that the seigniorage was increased to 7.48 per cent. by the law of 17th July 1779. The later system established in 1786 (see Tables _postea_) has a similar bearing. His son, Charles IV. (1789-1808), made no alteration in this latter system of Charles III. Under Ferdinand VII. (1808-32) currency was given (1813-1823) to French gold and silver monies on a certain footing, and the seigniorage on the coins was reduced. Both under Ferdinand, however, and under his successor, Isabella II. (1832-61), this latter regulation proved ineffectual in attracting merchants to bring the metals to the Mint to be coined; and under the circumstances the circulation of French Napoleons was considered a benefit. A profound alteration was projected by the two laws of 1834; the first of which proposed to lower the equivalence of the _real_ to 32 from 34 maravedis, and the standard of silver to 10 dineros 12 granos (=.875), and the second, to prevent the circulation of French money. This scheme was intentionally bimetallic. It failed, however, of accomplishment, and the monetary system remained as before up to 1847. By the decree of 31st May 1847--(1) the decimal division of the real was adopted; (2) the weight of the real was established at 25 granos and standard at .900; (3) a new gold coin of 100 reals of the weight of 161-1/2 granos of the same alloy was introduced. This system was of course a reproduction of that of France; but in the following year it underwent slight alteration, as already related. By the law of 1st January 1859 the French metrical system was adopted in its entirety by Spain, and since 1st January 1876 Spain reckons in pesetas (representing the French franc) and centesimos (representing the French centime)--100 centesimos = 1 peseta. The new gold coins are pieces of 5, 10, 20, and other multiples of the peseta. The peseta (5 grms. silver, .835 fine) is token money, but the 5-peseta pieces (25 grms. silver, .900 fine) are legal tender. 5 pesetas = 1 duro ("hard dollar," "Spanish dollar," or piastre). 1 duro = 2 escudos. 1 escudo = 10 reals. 1 real = 34 maravedis. TABLE OF THE GOLD COINS OF SPAIN FROM THE REFORMATION OF THE COINAGE IN 1476. (From _Breve Reseña Historica Critica de la Moneda Española_, p. 93.) +-----------+--------------------+-------+---------+------------------+-------+-----------+----------+ | Reign. | Coins and |Tale |Standard.| Mint Value |Value | Value of |Value of | | | Ordinances. |or | | per Mark. |of each| each |each such | | | |Number | +--------+---------+Old | successive|successive| | | |of | | Bullion|Ordinance|Real | particular|particular| | | |Pieces | | Value. |Value in |in the | Money |Old Money | | | |per | | |Coin as |Modern | named, |in Reals | | | |Mark. | | |issued. |Money. | in Reals |of To-day.| | | | | | | | | of the | | | | | | | | | | Date of | | | | | | | | | | Issue. | | +-----------+--------------------+-------+---------+--------+---------+-------+-----------+----------+ |Ferdinand | Mint Ordinance of | |Quilates.| Reals. | Reals. | |Reals.Mvds.|Reals | |and |Feb. 22, 1476, | | | | | | | (Vellon)| |Isabella. |June 14, 1497-- | | Granos. | | | | | | | | Excellentes | 25 }| | | | | 28 28 | 121.91 | | | majores | }| | | | | | | | | | }| | | | | | | | | Medios excellenes }| }| | | | | | | | | }| }| | | | | | | | | Doblas }| 50 }| | | | | 14 14 | 60.95 | | | }| }| | | | | | | | | Castellanos }| }| | | | | | | | | | }| | | | | | | | | Excellentes de la }| }| | | | | | | | | Granada }|65-1/3}| 22 3 | 716.98| 720.22 | 4.185 | 7 7 | 46.67 | | | }| }| | | | | | | | | Ducados }| }| (= .989)| | | | | | | | | }| | | | | | | | | Aguilas }| 67 }| | | | | 10 25 | 45.48 | | | Florines }| }| | | | | | | | | | }| | | | | | | | | Escudos }| }| | | | | | | | | }| 68 }| | | | | 10 29 | 41.82 | | | Coronas }| }| | | | | | | +-----------+--------------------+-------+---------+--------+---------+-------+-----------+----------+ |Charles V. |1537-- | | | | | | | | | | New coining of | 68 | 22 0 | 696.85| 700.0 | 3.991 | 10 10 | 41.09 | | | escudos | | (= .917)| | | | | | +-----------+--------------------+-------+---------+--------+---------+-------+-----------+----------+ |Philip II. |Nov. 23, 1586-- | | | | | | | | | | The escudo | | | | | | | | | | increased to 400 | | | | | | | | | | maravedis. | 68 | 22 0 | 766.40| 800.0 | 3.493 | 11 26 | 41.09 | | | | | (=.917) | | | | | | +-----------+--------------------+-------+---------+--------+---------+-------+-----------+----------+ |Philip III.|1609-- }| | | | | | | | | | The escudo }| | | | | | | | | | increased to }| | | | | | | | | | 440 maravedis }| | | | | | | | | | }| 68 | 22 0 | 847.09| 880.0 | 3.175 | 12 32 | 41.09 | | |Dec. 13, 1612-- }| | (=.917) | | | | | | | | Castellanos of 22 }| | | | | | | | | | quilates at 576 }| | | | | | | | | | maravedis }| | | | | | | | +-----------+--------------------+-------+---------+--------+---------+-------+-----------+----------+ |Philip IV. |Dec. 23, 1642-- | | | | | | | | | | Escudo increased | | | | | | | | | | to 550 maravedis | 68 | 22 0 | 1058.86| 1100.0 | 2.540 | 22 17 | 41.09 | | | | | (=.917) | | | | | | | |Jan. 12, 1643-- | | | | | | | | | | Escudo increased | | | | | | | | | | to 612 maravedis | 68 | 22 0 | 1178.23| 1224.0 | 2.283 | 22 17 | 41.09 | | | | | (=.917) | | | | | | +-----------+--------------------+-------+---------+--------+---------+-------+-----------+----------+ |Charles II.|Oct. 14 and Nov. | | | | | | | | | | 26, 1686-- | | | | | | | | | | Escudo increased | | | | | | | | | | to 646 maravedis,| | | | | | | | | | and castellano to| | | | | | | | | | 850 maravedis of | | | | | | | | | | the new silver | 68 | 22 0 | 1250.0 | 1292.0 | 2.163 | 38 17 | 41.09 | | | | | (=.917) | | | | | | +-----------+--------------------+-------+---------+--------+---------+-------+-----------+----------+ |Philip V. |March 17, 1719-- | | | | | | | | | | Castellanos | | | | | | | | | | reduced to 714 | | | | | | | | | | maravedis | 68 | 22 0 | 1050.0 | 1088.0 | 2.567 | 20 04 | 41.09 | | | | | (=.917) | | | | | | | | | | | | | | | | | |Jan. 14 and 23, and | | | | | | | | | | Feb. 8, 1726-- | | | | | | | | | | Escudo increased | | | | | | | | | | from 544 to 612 | | | | | | | | | | maravedis | 68 | 22 0 | 1181.25| 1224.0 | 2.282 | 33 10 | 41.09 | | | | | (=.917) | | | | | | | | | | | | | | | | | |Sept. 2, 1728-- | | | | | | | | | | Escudo increased | | | | | | | | | | to 680 maravedis | 68 | 22 0 | 1312.0 | 1360.0 | 2.054 | 37 22 | 41.09 | | | | | (=.917) | | | | | | | | | | | | | | | | | |July 16, 1730-- | | | | | | | | | | New monetary scheme| 68 | 22 0 | 1280.0 | 1360.0 | 2.054 | 31 22 | 41.09 | | | | | (=.917) | | | | | | | | | | | Reals | | | | | | | | | |(Vellon)| | | | | | |June 23 and 29, | | | | | | | | | | 1742-- | | | | | | | | | | Creation of | | | | | | | | | | Veintenes de oro |130- | 21 3 | 2409.42| 2611.33| 1.069 | 20 0 | 21.38 | | | | 56/100| (=.906) | | | | | | +-----------+--------------------+-------+---------+--------+---------+-------+-----------+----------+ |Ferdinand |Aug. 19 and Sept. | | | | | | | | | VI. | 16, 1755-- | | | | | | | | | | Increase of the | | | | | | | | | | pastas de oro | | | | | | | | | | from 118 to 119 | | | | | | | | | | reales las tres | | | | | | | | | | ochavas. | | | | | | | | | | | | | | | | | | | | Escudos | | | | | | | | | | (oro nacional) | 68 | 22 O | 2538.68| 2560.0 | 1.091 | 37 22 | 41.09 | | | | | (=.917) | | | | | | | | Veintenes | | | | | | | | | | (oro provincial) |130- | 21 3 | 2538.21| 2611.33| 1.069 | 20 0 | 21.38 | | | | 56/100| (=.906) | | | | | | +-----------+--------------------+-------+---------+--------+---------+-------+-----------+----------+ |Charles |May 21 and 25, | | | | | | | | | III. | 1772-- | | | | | | | | | | General reformation| | | | | | | | | | and lowering of | | | | | | | | | | the standard. | | | | | | | | | | | | | | | | | | | | Escudos | | | | | | | | | | (oro nacional) | 68 | 21 2-1/2| 2495.18| 2520.0 | 1.076 | 37 17 | 40.38 | | | | | (=.901) | | | | | | | | Veintenes | | | | | | | | | | (oro provincial) |130- | 21 1-1/2| 2476.15| 2611.33| 1.039 | 20 0 | 20.78 | | | | 56/100| (=.891) | | | | | | | |July 16, and | | | | | | | | | | Aug. 24, 1779-- | | | | | | | | | | The doblon of 8 | 68 | 21 2-1/2| 2516.55| 2720.0 | 1.009 | 40 0 | 40.38 | | | escudos reduced | | (=.901) | | | | | | | | to 320 reals | | | | | | | | | | (oro nacional) | | | | | | | | | | | | | | | | | | | | The doblon of | | | | | | | | | | 8 escudos reduced|130- | | | | | | | | | to 320 reals | 56/100| 21 1-1/2| 2486.25| | | | | | | (oro provincial) | | (=.891) | | 2611.33| 1.039 | 20 0 | 20.78 | | | | | | | | | | | | |March 7, 1781-- | | | | | | | | | | Oz. of bullion | | | | | | | | | | increased to | 68 | 21 2-1/2| 2642.2 | 2720.0 | 1.009 | 40 0 | 40.38 | | | 336 reals | | (=.901) | | | | | | | | | | | | | | | | | |Feb. 26 & June 5, | | | | | | | | | | 1786-- | 68 | 21 0 | 2565.81| 2720.0 | 0.980 | 40 0 | 39.20 | | | Lowering of | | (=.875) | | | | | | | | standard. | | | | | | | | | | | | | | | | | | | | Oro nacional. | | | | | | | | | | | | | | | | | | | | Oro provincial |131- | 20 1-1/2| 2606.53| 2633.14| 0.982 | 20 0 | 19.65 | | | | 23/35 | (=.849) | | | | | | +-----------+--------------------+-------+---------+--------+---------+-------+-----------+----------+ |Fernando |Oct. 19, 1821-- | | | | | | | | | VII. | Reform of the | | | | | | | | | | rating. | | | | | | | | | | | | | | | | | | | | Oro nacional | 68 | 21 0 | 2686.26| 2720.0 | 0.980 | 40 0 | 39.20 | | | | | (=.875) | | | | | | | | Oro provincial |131- | 20 1-1/2| 2606.53| 2633.14| 0.982 | 20 0 | 19.65 | | | | 23/35 | (=.849) | | | | | | | |Aug. 20, 1824-- | | | | | | | | | | Similar reform. | | | | | | | | | | | | | | | | | | | | Oro nacional | 68 | 21 0 | 2660.16| 2720.0 | 0.980 | 40 0 | 39.20 | | | | | (=.875) | | | | | | | | Oro provincial |131- | 20 1-1/2| 2581.1 | 2633.14| 0.982 | 20 0 | 19.65 | | | | 23/35 | (=.849) | | | | | | +-----------+--------------------+-------+---------+--------+---------+-------+-----------+----------+ |Isabel II. |April 15, 1848-- | | | | | | | | | | Reform of the | | | | | | | | | | monetary system. | | | | | | | | | | | | | | | | | | | | Centenes |27-6/10| 21 2-3/5| 2736.0 | 2760.0 | 0.993 | 100 0 | 99.30 | | | | | (=.900) | | | | | | | |May 17, 1850-- | | | | | | | | | | Augmentation of | | | | | | | | | | the tale | 28 | 21 2-3/5| 2736.0 | 2800.0 | 0.979 | 100 0 | 97.90 | | | | | (=.900) | | | | | | | |Feb. 3, 1854-- | | | | | | | | | | Reform of the | | | | | | | | | | monetary system |27- | 21 2-3/5| 2716.20| 2743.0 | 1.0 | 100 0 | 100.0 | | | | 43/100| (=.900) | | | | | | | |Jan. 18, 1861-- | | | | | | | | | | Reform of the | | | | | | | | | | tariff |27- | 21 2-3/5| 2729.18| 2743.0 | 1.0 | 100 0 | 100.0 | | | | 43/100| (=.900) | | | | | | +-----------+--------------------+-------+---------+--------+---------+-------+-----------+----------+ TABLE OF THE SILVER COINS OF SPAIN FROM THE REFORMATION OF THE COINAGE IN 1497. +---------+------------------+------+---------+--------+--------+------------+-----------+ | | | | |Value of|Value of|Value of the|Equivalence| | Reign. | Denomination. |Tale |Standard.|the Mark|the Mark|Real as |of the Old | | | |(per | |by Mint |by Mint |Issued in |Real with | | | |Mark).| |Regula- |Regula- |Billon Reals|the Modern | | | | | |tions in|tions in|of the Time.|Real. | | | | | |Bullion.|Coin as | | | | | | | | |Issued. | | | +---------+------------------+------+---------+--------+--------+------------+-----------+ | | |Silver|Dineros. | Silver | Silver |Reals. Mvds.| Reals. | | | |Reals.| Granos.| Reals. | Reals. | | | | | | | | | | | | |Ferdinand|June 2, 1497-- | | | | | | | |and | General reform of| 67.0 | 11 4 | 66.0 | 67.0 | 1 0 | 2.734 | |Isabella | the Monies | | (=.930) | | | | | | | | | | | | | | +---------+------------------+------+---------+--------+--------+------------+-----------+ |Philip |December 23, }| | | | | | | | IV. | 1642-- }| | | | | | | | |January 12, }| | | | | | | | | 1643-- }| 83.75| 11 4 | 81.0 | 83.75 | 3 0 | 2.186 | | | Recoinage | | (= .930)| | | | | +---------+------------------+------+---------+--------+--------+------------+-----------+ |Charles |October 14, 1686--| 84.0 | 11 4 | 82.0 | 84.0 | 1 30 | 2.179 | | II. | Recoinage | | (=.930) | | | | | +---------+------------------+------+---------+--------+--------+------------+-----------+ |Philip V.|1706-- | | | | | | | | | Reales sencillos | 84.0 | 11 4 | 68.0 | 84.0 | 1 30 | 2.179 | | | of 4, 2, and 1 | | (=.930) | | | | | | | | | | | | | | | |1707-- | | | | | | | | | Reales sencillos | | | | | | | | | of 4, 2, and 1 | | | | | | | | | (and parts and | 75.0 | 10 0 | 60.82 | 75.0 | 1 30 | 2.187 | | | multiples) | | (=.834) | | | | | | | | | | | | | | | |July 15, 1709-- | 68.0 | 11 0 | 65.0 | 68.0 | 1 30 | 2.654 | | | Reals of 8 and 4 | | (=.917) | | | | | | | | | | | | | | | |February 8, 1719--| | | | | | | | | Decrease of the | | | | | | | | | reals of 8 to | 80.75| 11 0 | 77.18 | 80.75 | 1 30 | 2.234 | | | 9-1/2 | | (=.917) | | | | | | | | | | | | | | | |August 10, 1728-- | | | | | | | | | Reals (and parts)| | | | | | | | | plata | 77.0 | 10 0 | 63.69 | 77.0 | 1 30 | 2.130 | | | provincial | | (=.834) | | | | | | | | | | | | | | | |September 8, | | | | | | | | | 1728-- | | | | | | | | | Decrease of the | 85.0 | 11 0 | 81.23 | 85.0 | 1 30 | 2.123 | | | real of 8 to 10| | (=.917) | | | | | | | | | | | | | | | |July 16, 1730-- | | | | | | | | | New monetary | | | | | | | | | regulation | | | | | | | | | (plata | 85.0 | 11 0 | 80.0 | 85.0 | 1 30 | 2.123 | | | nacional) | | (=.917) | | | | | | | | | | | | | | | |May 10, 1737-- |Reals | | | | | | | | Decrease of the | of | | | | | | | | real of 8 to 20|Billon| | | | | | | | reals (1 real | | | | | | | | | of silver = 1 | | | | | | | | | real 30 | | | | | | | | | maravedis of |85.170| 11 0 | 160.0 | 170.0 | 2 0 | 1.061 | | | billon) | | (=.917) | | | | | +---------+------------------+------+---------+--------+--------+------------+-----------+ | Same | Decrease of the | | | | | | | | date. | real of 8 to 20| | | | | | | | | reals (plata |77.154| 10 0 | 145.45 | 154.0 | 2 0 | 1.065 | | | provincial) | | (=.834) | | | | | +---------+------------------+------+---------+--------+--------+------------+-----------+ |Charles |May 21, 1772-- | | | | | | | | III. | General reduction| | | | | | | | | of the standard|170.0 | 10 20 | 157.59 | 170.0 | 1 0 | 1.045 | | | (plata | | (=.903) | | | | | | | nacional) | | | | | | | | | | | | | | | | | | General reduction| | | | | | | | | of the standard| | | | | | | | | (plata |154.0 | 9 18 | 141.81 | 154.0 | 1 0 | 1.038 | | | provincial) | | (=.812) | | | | | +---------+------------------+------+---------+--------+--------+------------+-----------+ |Ferdinand|October 19, 1821--| | | | | | | | VII. | Reform (plata |170.0 | 10 20 | 164.67 | 170.0 | 1 0 | 1.045 | | | nacional) | | (=.903) | | | | | | | | | | | | | | | | Reform (plata | | | | | | | | | provincial) |154.0 | 9 18 | 150.30 | 154.0 | 1 0 | 1.038 | | | | | (=.812) | | | | | | |August 21, 1821-- | | | | | | | | | Reform (plata |170.0 | 10 20 | 163.47 | 170.0 | 1 0 | 1.045 | | | nacional) | | (=.903) | | | | | | | | | | | | | | | | Reform (plata |154.0 | 9 18 | 147.07 | 154.0 | 1 0 | 1.038 | | | provincial) | | (=.812) | | | | | +---------+------------------+------+---------+--------+--------+------------+-----------+ |Isabel |April 15, 1848-- | | | | | | | | II. | General reform | | | | | | | | | of the monetary|175.0 | 10 19 | 172.80 | 175.0 | 100 cents. | 1.012 | | | system | | (=.900) | | | | | | | | | | | | | | | |October 14, 1849--| | | | | | | | | Reduction | | | | | | | | | of the tale of |176.25| 10 19 | 172.80 | 176.25 | 100 0 | 1.005 | | | silver | | (=.900) | | | | | | | | | | | | | | | |February 3, 1851--| | | | | | | | | General reform | | | | | | | | | of the monetary|177.20| 10 19 | 174.60 | 177.20 | 100 0 | 1.0 | | | system | | (=.900) | | | | | | | | | | | | | | | |January 18, 1861--| | | | | | | | | Reform of the |177.20| 10 19 | 175.77 | 177.20 | 100 0 | 1.0 | | | tariff | | (=.900) | | | | | +---------+------------------+------+---------+--------+--------+------------+-----------+ TABLE OF THE BILLON MONEY OF SPAIN FROM THE REFORMATION OF THE COINAGE IN 1497. +-----------+---------------------+-----------------------------+------+-----------+----------------+------------+-------------+ | | | |Tale | | |Mint Value |Bullion Value| |Reign. |Denomination. |Representative Value of |(per |Weight of |Standard. |of Each |of Each | | | | each Money. |Mark.)|Each Piece.| |Piece. |Piece. | +-----------+---------------------+-----------------------------+------+-----------+----------------+------------+-------------+ |Ferdinand |June 14, 1492-- | | | Granos. |Dineros. Granos.|Reals. Mdvs.|Reals. Mdvs. | |and | Coining of blancas |Half maravedi | 192 | 24.0 | 0 7 | 2 28 | 2 3 | |Isabella. | | | | | (=.024) | | | +-----------+---------------------+-----------------------------+------+-----------+----------------+------------+-------------+ |Charles V. |May 23, 1552-- | | | | | | | | | Lowering of the | | | | | | | | | standard of billon|Half maravedi | 192 | 24.0 | 0 5-1/2 | 2 28 | 1 24-5/8 | | | | | | | (=.019) | | | +-----------+---------------------+-----------------------------+------+-----------+----------------+------------+-------------+ |Philip II. |December 14, 1566-- | | | | | | | | | {|Cuartillos of 8-1/2 maravedis| 80 | 57.6 |} | | | | | Vellon rico {|Cuartos of 4 maravedis | 170 | 27.10588 |} 2 14 | 20 0 | 17 8 | | | {|Medios of 2 maravedis | 340 | 13.55294 |} (=.216) | | | | | Blancos |Medio maravedi | 220 | 20.94545 | 0 4 | 3 8 | 1 31-1/2 | | | | | | | (=.014) | | | | |1599-- | | | | | | | | | (Pure copper) |Cuartos of 4 maravedis | 34 |135.52941 |} | | | | | |Ochavas of 2 maravedis | 68 | 67.76470 |} pure copper | 4 0 | 1 0 | +-----------+---------------------+-----------------------------+------+-----------+----------------+------------+-------------+ |Philip IV. |December 23, 1642-- | | | | | | | | | {|Cuartillos of 8-1/2 maravedis| 80 | 57.6 |} | | | | | Vellon rico {|Cuartos of 4 maravedis | 170 | 27.10588 |} 2 14-1/2 | 20 0 | 12 5 | | | {|Medios of 2 maravedis | 340 | 13.55294 |} (=.217) | | | | |October 29, 1660-- | | | | | | | | | Issue of "Molino" |Pieces of 16 maravedis | | | | | | | | | (8, 4 and 2 in proportion) | 51 | 90.35294 | 1 8 | 24 0 | 6 3 | | | | | | | (=.069) | | | +-----------+---------------------+-----------------------------+------+-----------+----------------+------------+-------------+ |Charles II.|May 22, 1680-- | | | | | | | | | (This and succeeding| | | | | | | | | issues are of pure| | | | | | | | | copper) | | | | | | | +-----------+---------------------+-----------------------------+------+-----------+----------------+------------+-------------+ APPENDIX IV THE MONETARY SYSTEM OF THE NETHERLANDS In its earliest known form the Netherlands monetary system reproduces those features of the Carlovingian system which reappear alike in Italy, France, and England. The ideal Flemish pound was divided into 20 schellingen, the schelling into 12 grooten. This was entirely an ideal system; the actual coins being, at first, the silver denarius, divided into obols. This ideal system of pounds, schellings, and groots survived in Flanders and the Southern Netherlands (now the kingdom of Belgium) long after it had been superseded in the Northern Provinces (the United Netherlands) by another equally ideal system, that of the gulden and stiver. According to this latter system the Flemish pound was divided into 6 gulden, the gulden into 20 stivers. As between the two systems, therefore, the Northern gulden was equal to 3-1/3 Southern schellings, and the Northern stiver to 2 Southern groots. The earliest mention of the stivers occurs in 1355, but it was a considerable time before the new system displaced the old one in the Northern Provinces, and the reckoning by schellings and groots as well as, or alongside of, that by gulden and stivers occurs in Holland even as late as the sixteenth and seventeenth centuries. The weight system employed for the precious metals was as follows:-- 1 pound troy = 2 marks. 1 mark = 8 oz. 1 oz. = 20 engels. 1 engel = 32 azen. So that 160 engels or 5120 azen made up the mark. In reckoning the standard or alloy, the weight system was-- For silver--1 mark = 12 pfennige or deniers. " = 288 grs. (12 x 24). For gold--1 mark = 24 carats. " = 288 grs. (24 x 12). Although forming part of the Holy Roman Empire (being included in the Burgundian Circle), the Mint system of the Empire has apparently never obtained in the Netherlands. The Counts of Holland, from the days of Floris II. and Jan I. (i.e. from 1256 onwards) have minted on their own account, as have also the Counts of Flanders from a much more remote date. The silver _deniers_ of the Counts of Flanders date from at least the days of Count Arnold II. (964-989). The introduction of "la grosse monnaie" (whence gros and groots), in imitation of the French money, dates from the reign of Marguerite, Countess of Flanders (1244-1280), or possibly earlier; and the gold coinage (_royaux_, in imitation of those of Philip the Long of France, and _florins_, in imitation of those of Florence) dates from Count Louis de Crécy (1322-1346). The interest, however, attaching to the monies of the Counts of Flanders and Holland up to the close of the fifteenth century is prevailingly numismatic, as, in the absence of a continuous series of Mint indentures, it is a matter of almost insuperable difficulty to construct tables of the coins. The chief indications are contained in the tariffs already referred to (_supra_, text, pp. 79-83), but their testimony bears more expressly on exchange rates rather than upon Mint rate and standard. The table of the groot, according to this source, is as follows:-- Engel. Azen. 1336. 9-pfennige weight, 1 9 1376. 4.16 " 2 4 1388. 5 " 1 23 1393. 5 " 1 20 1422. 4 " 2 16 1489. 5 " 1 5 The foundations of a national Mint, or monetary system for the Netherlands, were first laid by the ordinance issued by the Emperor Maximilian at Breda on the 14th December 1489. According to this ordinance the gold _double florin_ was to be struck at a tale of 44-3/4 to the mark Troy, of a fineness of 23-7/8 carats, and issued at an equivalence of 80 gros. The remaining gold coins were to comprise the _St. Andries florin_ = 40 groschen (and its half); while the silver coins were to comprise-- Gros = 1 gros. Pattart = 2 " Double pattart = 4 " Grand double = 8 " In great part this is to be regarded as an ideal or unrealised system. The first effectual regulation of the silver coinage was made in the ordinance of Charles V. of 22nd February 1542. This ordinance prescribed the minting of the silver _carolus_, in imitation of the Dutch thaler. Weight to be 14 engels, 30 azen. Standard to be 10 pfennige (= .853 fine). Equivalence to be 20 stivers. The practical effect of this measure, therefore, was to introduce a coin equal to, and therefore representative of, the hitherto fictitious or merely ideal _gulden_. The remaining tariffs of the succeeding hundred years or so, together with the bimetallic experience of the Netherlands, have been already briefly described in the text (_supra_, pp. 71, 77). On the declaration of independence by the Northern Provinces, and the separation of the United Netherlands from the Southern or Spanish Netherlands, which succeeded, the monetary history of these two portions of the Low Countries bifurcates. We are here concerned only with that of the Northern or United or Dutch Provinces, as being of more commercial interest in European history of the seventeenth and eighteenth centuries. By Article 12 of the Union, each of the seven United Provinces was bound to conformity in the course or tariffing of its money, while left free to determine the species and mere numismatic detail of the coins. The various tariffs therefore, already described, contain the Mint law as applied to the United Provinces; but it was not until 1606 that a serious attempt at systematisation was made. By the great plakkaat of 21st March 1606, completed by that of 6th July 1610, a new and very full tariff was imposed; an important regulation was made, declaring all coins which lacked more than 1-1/2 engels over and above the remedy, to be taken as bullion and not current as coin, and the indenture details of the gold coins were fixed, as it proved, throughout the life of the Republic. The gold rijder and the gold ducat were prescribed as follows:-- GOLD RIJDER. Weight (gross), 207.2 azen (= 9.95 grs.). " (of fine gold), 187.77 azen (= 9.11 grs.). Standard, 22 carat (= .9167). (Equivalence = 10 fl. 2 st.). GOLD DUCAT. Weight (gross), 72-1/2 azen (= 3.494 grs.). " (of fine gold), 71.43 azen (=3.432 grs.). Standard = 23 carat 8 grs. (= .9826). (Equivalence = 3 fl. 16 st.). By Article 23 of this same ordinance of 1606, the further minting of billon money was forbidden, and at the same time it was enacted, with regard to the lower denominations of silver coins (schillings and smaller pieces), that not more than one-tenth of any total settlement should be tenderable in them, in case of sums exceeding 100 guldens. The succeeding experience of the effect of these tariffs, involving, as they did, the almost total disappearance of the great silver coins, even already by the year 1638, led in 1659 to the institution of two new silver coins--(1) the silver ducat, .868 fine, and containing 507 azen fine silver; and (2) the silver rijder, .937 fine; and containing 634.75 azen fine silver. By the plakkaat of 25th December 1681, the states of Holland and West Friezland prescribed the minting of the gulden piece, thus at last making the gulden, so long simply an ideal money or money of account, a real coin, and laying the basis of a truer national currency system. By subsequent proclamations and resolutions of the States-General of the 17th March 1694, and 31st December 1699, this was adopted for all the United Provinces. The single gulden piece was to be of the standard of 10 pf. 22-1/2 grs., and to contain 200 azen fine silver. This coin remained the mint coin of the Dutch system, without any further alteration of tariff, or any need of it till 1806. With regard to the development of a specific law of tender, the legislation of the United Provinces was peculiarly involved. The first declaration of a wide nature was that of the 26th September 1686, which reduced certain coins,--the silver ducat and two others--to the position of trade money merely. This was repeated in the declaration of the States-General of the 7th August 1691. The declaration of the 1st August 1749 ascribed a similarly restricted character, of trade money merely, to all gold coins except the gold rijder and its half. These latter were fixed at an equivalence of 14 and 7-florin respectively. The gold ducats were not fixed, their course as trade money might fluctuate daily. They might be taken freely by weight, and at values determined by the course of trade. The meaning of this provision can only be read in the light of the experience of the preceding half century. Up to this date (1749) there had existed, in theory, a silver standard with gold rated to it by each succeeding tariff. The fall of silver throughout the seventeenth century had acted adversely on gold, and for long the currency had consisted almost entirely of silver. This fall received some slight check in the earlier part of the eighteenth century, and the result was a reverse tendency. Gold came back into circulation, and the full weighted silver coins began to flow out and away. A bitter cry was accordingly raised in 1720 by the commercial community, and already in 1720 the Mint authorities had proposed the adoption of the gold rijder as standard, in order to stop the drain. In 1749, however, the Mint officials felicitated themselves on the non-adoption of this proposal, and prayed that the ducat should be merely declared trade money (26th March 1749); and it was on this advice that the plakkaat of 31st March 1749 passed. It proved insufficient to prevent the export of silver, and on the 1st August following, the States-General issued an order creating the gold rijder provisionally the standard. The right of coining it was reserved to the State, so that there was no standard in the modern sense. The influence of this measure proved to be very slight, and 172 merchants of Amsterdam petitioned the States-General to declare the tenderableness of the ducat again. The result of a further communication from the Mint officials was the proclamation and ordinance of 1st May 1750, according to which only the gold rijder and half-rijder were declared standard, and all other gold species only trade money. Gradually, however, what the Government had been unable to effect by legislation was accomplished by the mere force of a rise in gold or fall in silver. The gold rijders began to disappear, the complaints as to the disappearance of silver ceased, and the regulations of 1749 and 1750 were superseded. At the time of the French Revolution, therefore, the silver standard was actually in force. Nominally the gold rijder was still legal tender at 14 florins, but actually few specimens of it were in circulation. In 1798 the establishment of the Batavian Republic necessitated the creation of a Batavian Mint, and on the 12th February 1800 the First Chamber was called upon to consider the coins. It was not, however, until the year 1806, after the Republic had been superseded by the imposition of Louis Napoleon as King of Holland, that an effectual system was enunciated. By the resolution of 15th December 1806, a double standard was adopted. GOLD STANDARD COINS. _Gold Penning_ of 20 francs, 18 to the mark. Alloy, 22 carats gold, 16 grs. silver. Weight, 8 engels 28-4/9 azen. Content of fine gold, 260-3/4 azen. STANDARD SILVER COINS. _Fifty-stuiver piece_--9-5953/17543 to the mark. Weight, 17 engels 4-7/32 azens. Standard, 10 pen. 22-3/4 grs. _Gulden_--23-6111/17543 to the mark. Weight, 6 engels 27-23/80 azens. With the annihilation of the Napoleonic structure this scheme perished, and the law of 28th September 1816 erected a system in which elements of both those previously existing were combined. The coinage was prescribed to consist of gold and silver standard pieces, and gold and silver trade pieces. The standard coins were-- 1. _The Silver Gulden_-- Weight = 7 engels (= 10.766 grms.). Content of fine silver = 200 azen (= 9.613 grms.). Standard = .893. This was to be the unit, and divided decimally. 2. The gold piece of 10 _Gulden_ .900 fine. Weight 140 azen (6.729 grms.). TRADE COINS. 1. _Silver Dukaat_-- Weight 18 engels 8-2209/11200 azen (28.78 grs.). Standard, 10 pen. 10 grs. (= .868). 2. _Silver Rijder_-- Weight, 21 engels 5-59/80 azen (= 52.574 grs.). Standard, 11 pen. 5-3/4 grs. (= .937). 3. _Gold Dukaat_-- Weight, 2 engels 8-24/55 azen (= 3.494 grs.). Standard, 23 kr. 7 grs. (= .983). The trade money was only minted for private accompt. The unit gulden and the 3-gulden piece were also minted for private accompt, but the divisional silver money, the copper money, and the gold standard 10-gulden piece were only to be minted on Government account. By Article 15 of this law the franc was adopted in the Southern provinces on a footing of 1 franc = 47-1/4 carats. 1 gulden = 2 francs 11-61/100 centimes. Finally, by Article 18, the tender of copper was limited to 1 gulden, and that of the smaller silver denomination to one-fifth of the amount of settlement. By the succeeding law of 22nd March 1839, the silver Netherland gulden was prescribed to be of the weight of 10 wigtje's or grms., and .945 fine. This prescription was retained as to the gulden in the more important Act of 26th November 1847. This Act definitely established the silver standard. The standard coins were declared to be the gulden (and its half) and the rijksdaalder (= 2-1/2 guldens). The gold _William_ and the gold _dukaat_ were declared to be trade money, and the minor or divisional silver coins (25 cents and under) were fixed at a fineness of .645. The gold William was to weigh 6.729 grms., .900 fine (content of pure gold, therefore, to be 6.056 grms.). The gold dukaat was to weigh 3.494 grms., .983 fine (therefore to contain 3.4345 grms. fine gold). The coinage of standard silver coins, and of gold trade coins, was left free to individuals (Article 18). The trade money was expressly declared to be no legal tender (_geen wettig betaalmiddel_, Article 20). The tender of silver divisional coins was limited to 10 guldens, and that of copper coins to 1 gulden. This silver standard continued in force until 1872. In that year, however, in consequence of the fall of silver, a Bill was passed to suspend the coining of silver for private accompt. The Mint was closed to its coinage, and for a time Holland had no metallic standard at all, as gold was only merchandise or trade money. This state of things led to the enactment of the law of 6th June 1875, which introduced the gold standard, but under peculiar arrangements. The standard coins were declared to be--_beside_, or in addition to, the silver standard coins minted previously to the new law--the gold 10-gulden piece, .900 fine, containing 6.048 grs. fine gold (weight, therefore, 6.720 grms.). The minting of these latter was declared free to the individual, and the minting of the gold Williams ordered to cease (Articles 5 and 6). No further declaration was made as to tender, so that the standard is to be regarded as a limping rather than a gold standard proper. TABLE OF THE SILVER COINS OF THE NETHERLANDS. From Mees, '_Geschiedenis van het bankwezen in Nederland,'_ with additions from 1690. +-------------+--------------------+------------+---------------+-----------+-------------+---------------+ | | | | | | | | | Date of | | | | | | Weight of | | Law. | Name of Species. | Weight. | Standard. | Weight of | Equivalence.| Metal Fine in | | | | | | Metal | | the Gulden. | | | | | | Fine. | | | +-------------+--------------------+------------+---------------+-----------+-------------+---------------+ | | | Eng. Az. | Penn. Grein. | Az. | Guil. St. | Az. | |Feb. 22, 1542|Karolus gulden | 14.30 | 9 23 | 396.674 | 1 0 | 396.674 | |June 4, 1567 |Bourgondrische or | | | | | | | | Kruisdaalder | 19.1 | 10 16 | 541.333 | 1 12 | 338.333 | |Feb. 10, 1577|Staten daalder | 20.0 | 8 22 | 475.555 | 1 12 | 297.222 | |Apr. 19, 1583|Nederland | | | | | | | | rijksdaalder | 18.28 | 10 15 | 534.792 | 2 2 | 254.663 | |Aug. 4, 1586 |Nederland reaal | 22.13 | 9 23 | 595.01 | 2 10 | 238.004 | |Mar. 21, 1606|Nederland | | | | | | | | rijksdaalder | 18.28 | 10 12 | 528.5 | 2 7 | 224.894 | | '' |Leeuwendaalder | 18.0 | 8 22 | 428.0 | 1 18 | 225.263 | | '' |10-stuiver piece | 3.28 | 11 0 | 113.666 | 0 10 | 227.333 | |Tolerantie,} | | | | | | | | June 28, } |Nederland | | | | | | | 1608 } | rijksdaalder | 18.28 | 10 12 | 528.5 | 2 8 | 220.208 | | Tariff, } |Leeuwendaalder | 18.0 | 8 22 | 428.0 | 1 18 | 225.263 | | July 6, } |10-stuiver piece | 3.28 | 11 0 | 113.666 | 0 10 | 227.333 | | 1610 } | | | | | | | |Sep. 26, 1615|Nederland | | | | | | | | rijksdaalder | 18.28 | 10 12 | 528.5 | 2 8 | 220.208 | | '' |Leeuwendaalder | 18.0 | 8 22 | 428.0 | 2 0 | 214.0 | |Feb. 13, 1619|Leeuwendaalder | 18.0 | 8 22 | 428.0 | 2 0 | 214.0 | |July 21, 1622|Nederland | | | | | | | | rijksdaalder | 18.28 | 10 12 | 528.5 | 2 10 | 211.4 | |Tolerantie, |Leeuwendaalder | 18.0 | 8 22 | 428.0 | 2 0 | 214.0 | |Oct. 9, 1638 |Nederland | | | | | | | | rijksdaalder | 18.28 | 10 12 | 528.5 | 2 10 | 211.4 | |Mar. 6, 1645 |Dakaton of Brabant | 21.7 | 11 6-1/2 | 637.741 | 3 3 | 202.458 | | " |Patacon (or | | | | | | | | kruisdaalder or | | | | | | | | kruisrijksdaalder)| 18.12 | 10 11 | 512.458 | 2 10 | 204.983 | |Aug. 11, 1659|Nederland silver | | | | | | | | rijder | 21.5.72 | 11 6 | 635.362 | 3 3 | 201.702 | | " |Nederland silver | | | | | | | | dukaat | 18.8.2 | 10 10 | 507.118 | 2 10 | 202.847 | |Sept. 25,} | | | | | | | | 1681 } | | | | | | | |Dec. 22, } | | | | | | | | 1686 } |3-gulden piece |20.17-86/100| 11 0 | 603.038 | 3 0 | 201.013 | |Aug. 7, } |Gulden | 6.27-46/100| 10 22-1/2 | 200.035 | 1 0 | 200.035 | | 1691 } | | | | | | | |March 17,} | | | | | | | | 1694 } | | | | | | | +-------------+--------------------+------------+---------------+-----------+-------------+---------------+ |1806 (Louis} |Gulden | 6.27-23/20 | 10.22-3/4 | ... | ... | ... | | Napoleon) } |50-stuiver piece |17.4-7/32 | 10.22-3/4 | ... | ... | ... | |Sep. 28, 1816|Gulden | 7.0 | 0.893 fine | 200 azen | ... | ... | |Nov. 26, 1847|Gulden | 10 grms. | 0.945 fine |9.-450/1000| ... | ... | | | | | | grms. | | | +-------------+--------------------+------------+---------------+-----------+-------------+---------------+ TABLE OF THE GOLD COINS OF THE NETHERLANDS. (From Mees, as above, with additions.) +-------------+----------------+----------+-----------+---------+------------+-------------+ | Date of | | | |Weight of| |Weight of | | Law. |Name of Species.| Weight. |Standard. | Metal |Equivalence.|Metal fine in| | | | | | Fine. | | the Gulden. | +-------------+----------------+----------+-----------+---------+------------+-------------+ | | |Eng. Az. |Kar. Grein.| Az. | Guil. St. | Az. | |Dec. 14, 1489| Hungary dukaat |2.8-24/35 | 23 7 | 71.424 | 1 6 | 54.941 | | | | | | | | | |Feb. 4, 1520 | " " |2.8-24/35 | 23 7 | 71.424 | 1 18 | 37.591 | | | | | | | | | |July 11, 1548| " " |2.8-24/35 | 23 7 | 71.424 | 2 1 | 34.841 | | | | | | | | | |Feb. 7, 1573 | " " |2.8-24/35 | 23 7 | 71.424 | 2 15 | 25.972 | | | | | | | | | |Dec. 3, 1575 | " " |2.8-24/35 | 23 7 | 71.424 | 3 0 | 23.808 | | | | | | | | | |May 7 and | | | | | | | | 20, 1583 | Holland dukaat |2.8-24/35 | 23 7 | 71.424 | 3 5 | 21.976 | | | | | | | | | |Aug. 4, 1586 |Nederland dukaat|2.8-24/35 | 23 7 | 71.424 | 3 8 | 21.007 | | | | | | | | | |April 2, 1603| " " |2.8-24/35 | 23 7 | 71.424 | 3 14 | 19.304 | | | | | | | | | |Mar. 21, 1606|Nederland rijder| 6.16 | 22 0 |190.666 | 10 2 | 18.878 | | | " dukaat|2.8-24/35 | 23 7 | 71.424 | 3 16 | 18.796 | | | | | | | | | |July 6, 1610 |Nederland rijder| 6.16 | 22 0 | 190.666 | 10 12 | 17.987 | | | " dukaat|2.8-24/35 | 23 7 | 71.424 | 4 0 | 17.856 | | | | | | | | | |Sept. 26, | " rijder| 6.16 | 22 0 | 190.666 | 10 16 | 17.654 | | 1615 | " dukaat|2.8-24/35 | 23 7 | 71.424 | 4 1 | 17.635 | | | | | | | | | |Feb. 13, 1619| " rijder| 6.16 | 22 0 | 190.666 | 10 16 | 17.654 | | | " dukaat|2.8-24/35 | 23 7 | 71.424 | 4 2 | 17.42 | | | | | | | | | |July 21, 1622| " rijder| 6.16 | 22 0 | 190.666 | 11 6 | 16.873 | | | " dukaat|2.8-24/35 | 23 7 | 71.424 | 4 5 | 16.805 | | | | | | | | | |Tolerantie, }| " rijder| 6.16 | 22 0 | 190.666 | 12 0 | 15.888 | |Oct. 9, 1638}| " dukaat|2.8-24/35 | 23 7 | 71.424 | 4 10 | 15.872 | | | | | | | | | |March 6, }| | | | | | | | 1645 and }| " rijder| 6.16 | 22 0 | 190.666 | 12 12 | 15.132 | |Jan. 6, }| " dukaat|2.8-24/35 | 23 7 | 71.424 | 4 15 | 15.037 | | 1653 }| | | | | | | | | | | | | | | |March 31, | | | | | | | | 1749 | " rijder| 6.16 | 22 0 | 190.666 | 14 0 | 13.619 | | | | | | | | | +-------------+----------------+----------+-----------+---------+------------+-------------+ | | | | | | | | |1806 (Louis }| | |{22 carat }| 8.4-3/4 | 10 francs | ... | | Napoleon) }| | |{ gold }| | | | | | Gold penning | 8.28-4/9 |{16 grs. }| | | | | | | |{ silver }| | | | | | | | | | | | |1816 | 10-gulden piece| 4.12 | 0.900 fine| ... | ... | ... | |1875 | " " |6-720/1000| 0.900 fine|6.048 | ... | ... | | | | grms. | |fine gold| | | +-------------+----------------+----------+-----------+---------+------------+-------------+ APPENDIX V THE MONETARY SYSTEM OF GERMANY The German Mint system inherited from that of Charlemagne the common features noticed already in the case of Florence, the Netherlands, and other countries, namely, the division of the silver libra into 20 solidi (_schillingen_), and of the solidus into 12 denarii (_pfennige_), so that 240 denarii = 1 libra. The solidus occurs (theoretically or in accompt) in both gold and silver. The gold solidus of the German system originally weighed less than the Frankish, which was 72 to the libra, while the German was 80 to the libra. The ratio of gold to silver was 12:1, so that theoretically 1 pound silver = 1 oz. gold = 6-2/3 gold schilling. In actual coins, 1 gold schilling = 3 silver schillingen = 36 pfennige. Gradually this system was superseded by that of reckoning by the mark. The particular mark which obtained widest acceptance was the Cologne mark, which was thus subdivided-- Cologne mark = 8 Oz. = 16 Loth. = 64 Quintlein. = 256 Pfennige. = 512 Heller. = 4352 Eschen or Grain. For the purpose of standard of alloy the mark was differently subdivided. Thus-- Gold alloy weight-- 1 mark = 12 carats = 288 grs. (12 x 24). Silver alloy weight-- 1 mark = 16 loth = 288 grs. (16 x 18). Subsequently, when the gold gulden began to be minted, and to displace in reckoning the gold solidi (6-2/3 to the oz.), a third system of reckoning by gulden, schillingen, and pfennige was adopted. But long before this had become general, the downward course of the pfennige had proceeded apace. In 1255, in Swabia, the silver mark was minted into 660 pfennige; and in 1276, in Magdeburg, the mark of silver (15 loth fine) into 528 pfennige. Originally heller and kreutzer were only alternative forms of the pfennige, not subdivisions of it (heller = Hällische pfennige); but the irregular course of depreciation established a difference in character.[24] In 1407, in the Bishopric of Würzburg, pfennige were minted at a tale of 400 to the mark and 6 loth fine; Heller 544 to the mark and 4 loth fine. Fifty years later, at Nürnberg, pfennige were being minted 512 to the mark and 5-1/4 loth fine (= 1560-8/21 to the mark of fine silver), and Heller at 704 to the mark and 3-1/2 loth fine (= 3218-2/7 to the mark fine). The course of depreciation proceeded from the unregulated, irresponsible mintings of the small states, and from base financier craft. During the fourteenth century it proceeded apace, in spite of the attempts at a reform made by the Emperor Charles IV. In 1356 he prescribed the minting of the mark of silver into 31 schillingen 4 heller (or 376 hellers), but the ordinance remained ineffectual. The depreciation against which it vainly strove was not confined to the lower species, such as pfennige and heller. The close of the thirteenth century had witnessed the introduction of a new large silver money, which for a time stood by the side of the schilling, and then gradually displaced it. The new coin--the _groschen_, minted in imitation of the gros Tournois of France--made its first appearance in Bohemia in 1296, when its tale was 63-1/2 to the mark, 15 loth fine. The same process of depreciation at once began to affect it, and during the fourteenth century the downward course of the coin was very rapid, especially in Saxony (see Tables infra., and pp. 30, 97). With the commencement of a gold coinage in the middle of the same century, a third element of confusion was introduced, and quickly the same diversity of weight, alloy, and type began to prevail as in the silver coinage (see Table of the depreciation of the gold gulden, infra., and pp. 31, 98). The Reichstag, which met at Nürnberg in 1438, found itself driven to record, in simple terms, the right of everybody who could mint to do so according to what standard of fineness and weight he pleased, "seeing the impossibility of a common standard and weight." The close of the century witnessed the introduction of the last of these numerous confusing elements, but one which was to become of prime importance in the history of German currency, namely, the _thaler_. In its first form it was intended as the silver equivalent of the _gold gulden_, being minted 8 to the mark (i.e. 1 oz. weight per piece), and of fine (or 16 loth) silver. It received the name _gulden groschen_ when first coined by Archduke Sigismund of Austria in 1484; but in the sixteenth century, on account of its great manufacture in Bohemia, it became known as the _Joachims thaler_ (or _Schlicken thaler_, or _Löwen thaler_). The subsequent depreciation of the thaler, which came as a matter of course, was very unequal in the different circles, being most strongly marked in Saxony. By the first of the Imperial Mint Ordinances, which will be spoken of immediately, the weight of this piece was still retained at 1 oz., but the standard was reduced to 15 loth fine. In 1549 the Elector Maurice fixed the standard at 14 loth 8 grs. fine, while still retaining the tale of 8 to the mark. The second Imperial Mint Ordinance of 1551 was constructed as a double basis-- 1. Of the gulden groschen (i.e. thaler) = 1 gold gulden = 72 kr. 2. Of the gulden groschen (i.e. thaler) = 1 gold gulden = 60 kr. The tale was altered from 8 to 7-1/2 to the mark, but the standard was lowered still further to 14 loth 2 grs. fine (= 8-120/254 to the mark of fine silver). But in the accompanying tariff the actual specie thaler-piece was set at 22 groschen, or 66 kreutzers. The third Imperial Mint Ordinance established an important difference from this system. The actual thaler or silver gulden (= 72 kreutzers) was ordered to be discontinued, and no more minted, and a different basis adopted of silver Reichs guldens = 60 kreutzers, at a tale of 9-1/2 to the mark, 14 loth 16 grs. fine. This intended exclusion of the thaler, however, proved quite ineffectual. Protestations were raised against it, and in the Reichstag at Augsburg the minting of the thaler was again authorised--8 to the mark, 14 loth 4 grs. fine. The immediately succeeding movement of the thaler is given in the text (see Table, p. 103). Further than, as above, it is out of the question in so brief a résumé to specify the minuter confusions and conflicting variations of the German monetary system at the opening of the sixteenth century. During the course of that century three separate attempts were made to establish an imperial system that should displace all minor ones, and thus remedy the confusion. The first attempt was made by Charles V. in his Imperial Mint Ordinance issued at Esslingen on the 10th November 1524. The basis of this ordinance was the mark of silver = 8 florins 10 schillings 8 heller, and the pieces ordained were-- 1. A silver piece = 1 Rhenish gold gulden, 8 to the mark, 15 loth fine (see the account of the thaler above). 2. _Orth_, 32 to mark, 15 loth fine. 3. _Zähender_ = 1/10 Rhenish gold gulden, 80 to mark, 15 loth fine. 4. _Groschen_ = 1/21 Rhenish gold gulden, 12 loth fine, 136 to mark. Besides these coins, the ordinance recognised temporarily a whole series of then-current pfennige. Thus-- Strasburg pfennige, · 126 to the gulden. Würtemberg " · 168 " Rappen " · 157-1/2 " Rhenish " · 210 " Saxon " · 252 " Räder " · 312 " As explained in the text (p. 96), this ordinance came nowhere into observance, and twenty-nine years later Charles V. issued his second Imperial Ordinance at the Reichstag of Augsburg (1551). The system then attempted to be instituted was based on a mark of fine silver = 10 florins 12-1/2 kreutzers but in denomination a double system was employed-- 1. Gold gulden = 60 kr. 2. {Gold gulden } = 72 " {Gulden groschen} 1. The Reichs gulden (= 1 gold gulden = 72 kreutzers) was prescribed thus--7-1/2 to the mark, 14 loth 2 grs. fine (see account of thaler, _supra_). 2. The kreutzer-piece was prescribed--237 to the mark, 6 loth 1 gr. fine (= 626-3/4 to the mark of fine silver). 3. The groschen (= 1/24 Reichs gulden)--94-1/2 to the mark, 7 loth 5 grs. fine (= 207-99/131 to the mark of fine silver). Accompanying these regulations, however, there was a tariff as before, but more comprehensive, for the temporary recognition of a miscellaneous mass of coins of the Rhine, the Netherlands, Lower Saxony, Higher Saxony, Franconia, and the mark of Brandenburg. Thus-- GROSCHEN. Reichs groschen, at 12 pfennige, 24 = 1 gulden, at 72 kreutzers. Groschen of Misnia and Franconia, at 12 pfennige, 25-1/5 = " " Rhenish _albi_ and Netherland stuyvers, at 8 pfennige, 28 = " " Lübeck schellingen, at 12 pfennige, 28-4/5 = " " Groschen of the Mark, at 8 pfennige, 38-2/5 = " " PFENNIGE. Of the Tyrol, 300 = 1 gulden, at 60 kreutzers. Of Lübeck, 288 = " " Of the mark of Brandenburg, 256 = " " Of Saxony and Franconia, 252 = " " Of Austria, 4 loth fine, 649 to the mark, 240 = " " Of Bavaria, 210 = " " Of the Rhine, 186-2/3 = " " Of Swabia, 180 = " " Of Würtemberg, 168 = " " Rappen, 250 = " " Of Strasburg, 120 = " " This ordinance obtained no more vogue than its predecessor, the main cause of its slighting being the dissatisfaction of the powers of Upper and Lower Saxony at the tariffing of the thaler, which they declared to be too low, and accordingly advanced (1555) to 24 groschen (= 32 Marien groschen = 72 kreutzers). The third Imperial Ordinance was issued at Augsburg on the 19th August 1559. Practically the same standard and basis was maintained as in the preceding ordinance, the mark of fine silver being coined into 10 florins 13-1/2 kreutzers in the larger species. But in the detail of these larger species an important difference was established. The silver gulden had hitherto been equal to the gold gulden. The actual specie silver gulden in pieces of the time was nominally equivalent to 60 kreutzers. But since 1551 there had been minted a Reichs gulden in specie equal to 72 kreutzers. In order to mark the difference it was determined to coin in future only silver gulden = 60 kreutzers, while the gold gulden was put at 75 kreutzers. The specie authorised by this third Imperial Ordinance therefore were-- 1. Gold gulden, 72 to mark, 18-1/2-carat fine, to equal 75 kreutzers. 2. Silver Reichs gulden, 9-1/2 to the mark, 14 loth 16 grs. fine, to equal 60 kreutzers. 3. Thaler, or 72 kreutzers silver gulden, to be discontinued. 4. Kreutzer, to equal 1/80 gulden, 243-1/2 to the mark, 6 loth 4 grs. fine (= 626-1/7 to the mark fine). 5. Reichs groschen, to equal 1/24 gulden, 8 loth fine, 108-1/2 to the mark; and a few other species. The lower denominations (pfennige and heller) were minted on the basis of the mark = 11 florins 5 kreutzers. Almost immediately, protestations were raised against this ordinance, especially by the Lower Westphalian Circle, and it remained quite inoperative. The succeeding Reichstag at Augsburg again authorised the issue of the thaler (8 to the mark, 14 loth 4 grs. fine, so that the fine mark = 10 florins 12 kreutzers). As late as the Reichstag of Regensburg (1594) desultory attempts were made to establish a uniform system, but all practical idea of it had long ceased, and the regulation of Mint matters henceforth fell into the separate jurisdiction of the various Circles. The Lower Circles went their own way at their meetings at Cologne (1566, 1572, and 1582), as did the Upper Circles in their separate meetings in 1564 and 1572 at Nördlingen and Nürnberg. At its meeting at Lüneburg in 1568 the Lower Saxon Circle adopted a system not far removed from that of the third Imperial Mint Ordinance of 1559. The mark of fine silver was to be coined into 10 florins 43-11/67 kreutzers, and the thaler was fixed at 24 groschen (=72 kreutzers). Underneath this separately concerted action of the Circles, however, licence and disorder prevailed in the issue of smaller pieces of a grossly depreciated nature, before which the good heavy silver species disappeared, leaving the greatest confusion, together with a continual rise in prices or fall in the standard. The imperial proclamations of 20th January and 24th September 1571 were of no avail against this process, and by 1585 the mercantile rate had risen, thus-- Philipps thaler = 82 kr. Reichs thaler = 74 " Gulden groschen = 64 " In 1596 the Imperial Commissioners at Frankfort provisionally recognised as a tariff-- Gold gulden = 80 kr. Reichs thaler = 72 " Gulden groschen or thaler = 64 " But later in the same year these authorities at Strasburg set the Reichs thaler at 84 kreutzers (mark of fine silver = 12 fl. 36 kr.). As the disorder of the _Kipper und Wipper Zeit_ broke over the Empire, in consequence of the process of wilful depreciation, the Emperor made several public attempts at its arrestation by letters addressed to the various Circles separately (1601, 1603, and 1607). Meanwhile, the Reichs thaler had risen to 90 kreutzers (mark of fine silver = 13-1/2 florins). According to this valuation the gulden of 1551 of 72 kreutzers was set at 94 kreutzers, and the gulden of 1559 of 60 kreutzers was set at 79 kreutzers. It was on this latter basis (of the 60-kreutzer Reichs gulden of 1559 = 79 kreutzers) that was founded the later Misnian, Franconian, and Kammer-Gerichts currencies of the eighteenth century, which did not materially differ amongst themselves, thus-- Misnian gulden @ 31 groschen (= 78-2/3 kr.) Franconian gulden @ 20 batzen (= 80 kr.) Kammer-Gerichts gulden = 78 kr. 2-10/23 thalers. In 1623 the Higher Circles adopted by their Mint determination the following system:-- Thaler = 90 kr. Gold gulden = 1 fl. 44 kr. Ducat = 2 fl. 20 " In the smaller pieces the basis was the mark of fine silver = 16-florin = 10-2/3 thaler. For example-- 1/2-Batzen, 7 loth fine, 210 to the mark. Kreutzer, 5 " 300 " 3-Heller piece, 3-1/2 " 560 " Pfennige, 3 " 720 " To this system the Lower Circles acceded, in the same year 1623, after an ineffectual attempt to enforce the interim standard of 1596, which had set the Reichs thaler at 21 batzen or 84 kreutzers. From this united action of the Upper and Lower Circles Saxony stood apart, following quite a different course. While elsewhere the thaler was raised, here they lowered it to its old equivalence of 24 groschen. In actual practice, however, the step proved only half effective, as the depreciated thaler was persistently minted. There resulted accordingly, in Saxony, a double system of "good" and "bad" money, with a difference of something like 25 per cent. between them. To increase the confusion there was for a time a difference between the practice of Lower Saxony and Electoral Saxony. The former, Lower Saxony, had in 1610 adopted the following system:-- Reichs thaler = 28 groschen. Reichs gulden thaler of 1559 = 24 " Philipps thaler = 30-2/3 " Silver groschen, = 234 to the mark, 14 loth, 4 grs. fine. " schillingen, 306 " (So that the mark of fine silver = 12 fl. 9 kr.) Finding it impossible to maintain this system, they altered it in 1617, and finally in 1622 conformed with Higher Saxony, setting the Reichs thaler at 24 silver groschens. As settled in this and the following year, the system of Electoral and Lower Saxony was as follows:-- Reichs thaler = 24 gulden groschen. Gulden thaler of 1559 = 21 " Philipps thaler and gold gulden = 30 " Ducat = 36 " Contemporaneously (1623), the Brandenburg system was as follows:-- Reichs thaler = 24 good groschen. Gold gulden = 27 " Ducat = 38 " Through the remaining period of the Thirty Years' War very little is on record with regard to the German Mint system. The closing period of the strife was marked by such complaints as to excess of depreciated small specie as had prevailed in 1620, bringing with it a further enhancement of the price of the larger silver specie. In 1665, accordingly, the three Higher Circles, Franconia, Bavaria, and Swabia met together. They found on a trial that the mark of fine silver was selling commercially at from 14 florins 15 kreutzers to 14 florins 20 kreutzers, and that it was impossible to mint the larger silver specie unless the Reichs thaler were set at 96 kreutzers. This would raise the mark of fine silver to 14 florins 24 kreutzers. At the same time it was resolved to declare the ducat at 3 florins (mark of fine gold = 203 florins 49 kreutzers, 3-31/71 pfennige), the ratio being accordingly changed from 15 to 14-1/8. In 1667 this scheme was provisionally adopted _in comitiis_. From this scheme Saxony and Brandenburg held off, maintaining that the advance of the Reichs thaler was not sufficient. They accordingly, in the same year, adopted the so-called _Zinnaische_ standard, setting the Reichs thaler at 1 florin 45 kreutzers (105 kreutzers), equal to 18 good groschens (mark of fine silver = 10-1/2 thalers, or 15 florins 45 kreutzers). The enactment of this system gave rise to a new species of heavy silver coins:-- Guldener = 2/3 thaler. " = 60 kr. " = 16 good groschen. " = 32 schillingen. Two years later, 1669, the three Higher Circles determined, as a measure of protection to their gold, to alter the ratio, and for that purpose to reduce the thaler from 96 to 90 kreutzers again, while leaving the ducat = 3 florins, and the gold gulden = 2 florins 20 kreutzers. The mark of fine silver was thus = 3 fl. 30 kr. " gold " = 204 " (Ratio = 15-1/9.) The divisional coins were to be minted on a graduated and enhanced standard. Thus-- 6-kr. and 4-kr. pieces (Batzen), at 13 fl. 55 kr. to the mark fine. Groschen (3 kr.) at 14 fl. 10 " " Kreutzer at 14 fl. 40 " " Pfennige (3760 to the mark fine), at 15 fl. 43 " " There were thus three contemporary systems in Germany in 1670-- 1. Reichs thaler, at 90 kr., mark of fine silver at 13 fl. 30 kr. 2. " at 96 " " at 14 fl. 24 " 3. " at 105 " " at 15 fl. 45 " The three Upper Circles, however, could not maintain their last enacted order. In spite of its enactment, the Reichs thaler rose again to 96 kreutzers, and the ducat to 3 florins 12 kreutzers. The confusion and general harm which resulted has been referred to in the text (p. 199), and it is to be regarded simply as a stop-gap at any cost that the measure proposed by the Three Circles of fixing the thaler at 90 kreutzers was carried through the Reichstag of 1680. From this system, however, the Emperor, with Bavaria and Salzburg, stood apart, putting the Reichs thaler at 96 kreutzers; and ten years later, 1690, Saxony, Brandenburg, and Brunswick and Lüneburg established again a distinct system--the well-known Leipzig standard. By this system the Reichs thaler was set at 120 kreutzers or 2 florins (mark of fine silver = 12 thalers 18 gulden). In a few years this valuation of the thaler prevailed all over the Empire. Sweden acceded to it in 1690, with Bremen and Pomerania, Mainz, Treves, the Palatinate, and Frankfort, and three years later the Higher Circles followed suite. Contemporaneously the gold gulden was advanced to 2 florins 56 kreutzers. Although the Emperor subsequently joined in the recognition of the Leipzig standard, it did not remain effective in actual practice, and while no further advance of the thaler was officially recognised, the lower denominations were again depreciated by the Mint competition of the various states, 10-kreutzer pieces being minted on a standard of 20-1/3 to 21-1/3 gulden to the mark fine. In 1736 the question of a standard was again brought before the Reichstag; and on the 10th September 1738 it was resolved to adopt the Leipzig standard for the Empire, with the Reichs thaler = 2 florins, ducat = 4 florins, gold gulden = 3 florins; while, for the divisional coins, a basis of fine mark silver = 13-2/3 thaler was enacted. This system, if it endured at all, did so only for a couple of years. The outbreak of the war of the Austrian Succession brought with it a new period of conflicting depreciations, and at the close Austria took a decisive step. Without taking any measure to secure the co-operation of the Circles, or any part of the Empire, the Emperor Francis I. adopted the 20-gulden standard (the mark of fine silver = 13-1/3 Reichs thalers = 20 guldens). It was at once adopted in Hungary and Bohemia, the territories of Maria Theresa. Frederick Augustus, Elector of Saxony and King of Poland, was the first to adopt this Austrian standard, at Dresden in 1750, though with a very slight variation (putting the mark of fine silver at 13-3/8 Reichs thalers instead of 13-1/3). In 1753 Bavaria also acceded to the 20-gulden standard, after a brief attempt (1747-1753) at the erection of a 24-gulden standard, and in the following year the Austrian system was adopted by Brandenburg-Anspach, Bayreuth, Würzburg, and Nürnberg. The Convention of Vienna (21st September 1753) which formally established this Austrian or Convention standard (20-gulden system), prescribed as follows:-- 1. Gold-- Mark of fine gold = 283 fl. 5 kr. 4-47/74 pf. Chief coin = Reichs ducat, 67 to the mark (Cologne mark), 23 kr. 8 grs. fine (= 67-67/71 to the mark of fine gold), to = 4 fl. 10 kr.; the Holland and other ducats then current in Germany being tariffed at 4 fl. 7-1/2 kr. 2. Silver-- Mark of fine silver = 20 guldens for all manner of silver coins down to the groschen or 3-kreutzer piece (ratio of silver to gold 1:14-11/21). The silver coins authorised were-- 1. Thaler (specie or convention thaler = 2 fl.), 10 to the mark, 13-1/3 loth fine. 2. Gulden (or 1/2-specie thaler), 20 to the mark, 13-1/3 loth fine. 3. 30-kreutzer piece (1/2-gulden or 1/4-specie thaler), 40 to the mark, 13-1/3 loth fine. 4. 17-kreutzer piece, 70-10/17 to the mark, 8-2/3 loth fine (only for Austria). 5. 7-kreutzer piece, 171-3/7 to the mark, 6-13/18 loth fine (only for Austria). 6. 20-kreutzer piece, 60 to the mark, 9-1/3 loth fine. 7. 10-kreutzer piece, 120 to the mark, 8 loth fine. 8. Groschen or 3-kreutzer piece, 400 to the mark, 5-1/2 loth fine. For the lowest denomination of divisional coins, half-groschen, kreutzer, and pfennige, quite varying standards were permitted, according to the piece or locality, namely, from 20-3/4 to 33 guldens to the Koln mark. For tolerated coin the following tariff was fixed:-- GOLD Bavarian maxd'or and double gold gulden = 6 fl. 8 kr. Bavarian carolus or 3-gold gulden piece = 9 fl. 12 kr. Kremnitz ducat } Florentine gigliati} = 4 fl. 12 kr. Venetian zecchino } All other gold coins to be taken as bullion at a value of 280 fl. for the Cologne mark of fine gold. All silver species of other states below the value of 1/2 florin forbidden. Such was the Convention System or Standard, which, by the accession of the Electoral Palatinate, and of Salzburg might be practically regarded as the Imperial system. This Convention system, and these Convention or specie thaler and other coins, remained the Mint system of Austria until modern times. The changes which were made in the Austrian system by the Vienna Convention of 1857 have been already detailed (see text, pp. 209-12). Ten years later Austria withdrew from this monetary treaty (in accordance with the terms of the treaty of Berlin, 13th June 1867), with the intention of acceding to the contemplated French currency treaty of 31st July 1867. She ceased the coining of German gold crowns and half-crowns, and instead minted 4 and 1-ducat pieces. From 1870 onwards she coined, in conjunction with Hungary, 8 and 4-florin gold pieces, the former 77-1/2 to the pound, .900 fine. By a decree of 6th November 1870, the 8-florin gold piece was tariffed at 8.10 florin. At this it was made legal tender, on the basis of the French ratio of 15-1/2; but it was practically nothing more than commercial money, like the preceding _crowns_ and _half-crowns_ of the convention of 1857. The standard of Austria remained nominally the silver florin of the convention of 1857, although in actual practice the currency was paper. In March 1879 the Austrian and Hungarian Mints were closed to the coinage of silver on private account, preparatory to a reorganisation of the Austrian monetary system on a gold basis. This reform was decided on in 1892, and briefly prescribed as follows:-- The monetary unit is the krone or crown = 2 florins; but to be minted in 10 and 20-crown pieces, 1 kilogramme pure gold = 3280 crowns, .900 fine. The crown is divided into 100 hellers. For the purpose of basing the new system on gold, a ratio between the old silver and the new gold standard of 1:18.22 was adopted, the existing florin being declared = 2 francs 10 cents. Silver is fractional money only, the old florins passing as 2 crowns. South Germany. From the Convention or 20-gulden system (the old Austrian system) sprang the accompanying system, the 24-gulden standard, which was nothing but the 20-gulden or Austrian standard under another name. Very soon after the establishment of the Convention standard, the Elector of Bavaria perceived or concluded that the continuance of that standard in his dominions would produce disorders so long as the other circles did not accede to the convention. He accordingly arrested the execution of the convention in his territories, and adopted a provisional arrangement. At the end, however, of a long correspondence with the Austrian state (Maria Theresa), an agreement was made that he should conform his coins in standard and weight to the convention system, but should be permitted to tariff them at one-fifth higher rate, putting i.e. the specie thaler not at 2 florins but at 2 florins 24 kr., and so on (the mark of silver being consequently worth 24 guldens, instead of, as in the Austrian or Convention system, 20 guldens). This was the origin of the 24-gulden standard, which gradually spread over the whole of South Germany, with the exception of Austria. The three Upper Circles acceded in 1761, Salzburg in 1765, and in the following year the Rhenish powers, Mainz, Treves, the Palatinate, Hesse-Darmstadt, and Frankfort. From this 24-gulden standard sprang towards the close of the eighteenth century a later development, due to the circulation of the kronen thaler or Brabant thaler, which, from 1755 onwards, Austria minted for her Netherland possessions. The Rhenish provinces drove this piece above its Mint rate, setting it at 2 florins 42 kreutzers, although in the 24-gulden standard its value was only 2 florins 38-10/19 kreutzers. This implied a standard of 24-6/11 guldens to the mark of fine silver, and gradually, about the beginning of the present century, Bavaria, Würtemberg, and Nassau minted convention thalers on the same footing. Baden, Hesse, and Saxe-Coburg followed suit in their minting of kronen thalers until, by the Mint Convention of the South German states in 1837, the new standard (the 24-1/2-gulden standard) was formally recognised as the South German standard. In this convention Austria had no part. The standard here detailed, the 24-1/2-gulden or South German standard, was assimilated to the Prussian system in the Dresden Convention, 1838 (see text, p. 205), and in that connection remained intact until the developments of modern times detailed in the text, p. 215. Prussia. The Prussian monetary system, as a separate identity, took its rise in that same period which witnessed the independent action of Austria, above detailed. Its builder was Frederick the Great, who, for this purpose, called in the advice of a Dutch merchant, Philip Graumann. It is to this latter that is due the introduction in 1750 of the 21-gulden or 14-thaler standard, otherwise known as the Graumann standard. Thaler = 10-1/2 to the mark, 12 loth fine (mark of fine silver therefore = 14 thalers or 21 guldens). Thaler = 24 groschens = 288 pfennige (24 × 12). Groschen and 1/2-groschen minted as divisional coins (= 1/24 and 1/48 thaler) of billon. After the temporary debasement during the Seven Years' War, the Graumann standard was re-established in 1764, but with two differences. 1. The minting of 1/2 and 1/4-thaler pieces of 12 loth silver was ordered to cease from 1766, and to be replaced from 1764 by-- 1/3 thaler, 10-2/3 loth, 28 to the mark } 1/6 " 8-1/3 " 43-3/4 " } 14-thaler standard. 1/12 " 6 " 63 " } 2. The billon divisional money (minted primarily for the Provincial States of Prussia) was greatly increased in the amount of its issue, but depreciated in standard on a varying scale according to the districts intended, Silesia, Cleves, etc., reaching in some cases even to an 18-thaler standard. Up to 1772 there was issued in these depreciated single and double-groschen pieces an amount equal to 8,979,189 thalers. Subsequently, the standard of divisional money was reduced to 21 thalers, and at this rate, up to the death of Frederick in 1786, there were issued in 6-pfennige and other pieces 12,586,863 thalers' worth. From this time onward, up to the decrying of this depreciated divisional money at the peace of Tilsit, there was minted a matter of 29,628,807 thaler worth. The total, therefore, was 42,215,670 thalers; the pure silver content of which was only 28,243,780 thalers. By the publicandum of 4th May 1808, and the edict of 13th December 1811, the value of this mass was reduced, the coins being set at from two-thirds to four-sevenths of their normal value, so that-- 42 groschens } } = 1 good thaler. 52-1/2 " (Bohemia) } but it was not till the law of 30th September 1821 that a recoinage could be accomplished. The provisions of this law of 1821 were as follows:-- 1. Gold-- Friedrichs d'or as hitherto, viz. 35 to the mark = 5 thalers. 4. Silver-- Prussian thaler as before, 10-1/2 to the mark gross (= 14 to the mark fine). 7. Thaler to be subdivided into 30 groschens 12 pfennige; the latter tenderable only up to 1/6 thaler. 8. Silver groschen = 106-2/3 to the mark, 2/9 silver (= 16 thalers to the mark fine). By the law of 1821, this standard came into operation in 1626, and it remained the standard for Prussia and her provinces until the developments in modern times, specified in the text, p. 215. At the convention of Dresden, 30th July 1838, the Prussian 14-thaler or 21-gulden standard was adopted, along with the South German or 24-1/2-gulden standard as the standard of the German Zollverein. Subsequent to that date the Prussian system was adopted by Hanover, Brunswick, Oldenburg, Mecklenburg, Waldeck, Lippe, etc. PRUSSIAN MINTINGS FROM THE REFORM OF 1809 TO THE END OF 1836. Thaler pieces 70,850,560 1/6 " " 16,942,307 ---------- 87,792,867 Full-weighted silver previously in currency 95,709,282 ----------- Total of full-weighted silver 183,502,149 =========== One-third pieces, minted 1809-11 237,151 Billon divisional money, minted 1821-36 2,949,760 ----------- Thalers 186,689,060 Withdrawn since 1809-36-- 1/5-thaler pieces 319,522 thalers 1/12 " " 135,504 " 1/15 " " 428,256 " ------- 883,282 ----------- 185,805,778 =========== The gold coinage had, in Prussia, little relativity to the silver. From 1750 this state minted double, single, and half-pistoles, under the name, Friedrichs d'or, on the basis of 35 to the mark, 21-3/4 carats fine, for the single piece. From 1770 the standard was lowered to 21-2/3 carats, and at this it was confirmed by the law of September 1821. The ascertained mintings of these were as follows:-- 1764-86 29,599,482-1/2 thalers. 1787-1808 26,515,490 " 1809-36 13,922,960 " But long before 1840 almost the whole of this amount had disappeared or been melted down. In state payments the Friedrich d'or was taken at 5 thalers, but in ordinary commerce up to 1783 they were taken at 5-1/4 thalers, a tariff which gradually rose to 5-1/3 and 5-1/2 thalers. The purchases of gold which the Bank of England made in 1816, in order to its resumption of cash payments, drove the pistole or Friedrich d'or up to 5-3/4 thalers, and it was not for ten years that it fell back to 5-2/3 thalers. Although paid by Government at this latter, and so continued till the Mint Convention of 1853, it was only as a mercantile commodity. The only legal standard and tender in Prussia was silver (the silver thaler), to which gold was varyingly ratable, according to market fluctuations. The Prussian system thus described remained in force until the Vienna coinage treaty of 24th January 1857, the details of which have been already stated in the text. The resolutions of that treaty were adopted by the Prussian Mint law of 4th May 1857, as follows:-- 1. The Prussian pound of 500 grms., decimally divided, is substituted for the previous standard of 233.865 grms. 2-6. The thaler continues the regular silver coin of the country-- Thirty thalers to the pound of pure silver, .900 fine. Thus the 30-thaler standard to take the place of the old 14-thaler standard, but the two to be treated as the same. The thaler to be coinable as a convention thaler or Vereins thaler; thaler to be subdivided into 30 groschens, at 12 pfennige. 7-8. Divisional coin limited in tender to 1/6 thaler as before, and both minted on a 34-1/2-thaler standard. 11. Gold commercial coins shall be coined under the names of "crown" and "half-crown," in the form and with the attribution of confederation coins, viz.-- 1. Crown, 1/50 of a pound of fine gold (.900 fine). 2. Half-crown, 1/100 " " These coins shall be the special gold coins of the country, and other gold pieces shall not henceforth be coined. 14. The silver value of the gold coinage shall be entirely fixed by the relation of the supply to the demand, and no one is bound to take gold in the place of the legal silver value of the country. 16. Our Finance Minister is empowered to settle the price at which the crown and the half-crown shall be taken into our pay offices. The established rate, as well as the permission to receive crowns and half-crowns instead of silver coins in our offices, may at any time be revoked or restricted by the publication of a proclamation by our Finance Minister. 19. Our Minister of State is also authorised to fix the value above which foreign gold and silver coins must not be offered or given in payment in ordinary transactions. The subsequent course of events and the existing Prussian (Imperial German) system have been already specified (see text, p. 215). Hamburg. The origin of the common Mint standard of Lübeck and Hamburg was the division of the mark into 16 schillingen, and each schilling into 12 pfennige. The metal mark and the Mint mark soon parted company, and by the time of the treaty of 1255 the two states agreed to mint the mark of fine silver into 38 schillingen 10 pfennige (= 2 marks 6 schillingen 10 pfennige). The Wendish standard was established by the adoption in 1325 of the Hamburg-Lübeck treaty by Wismar and Lüneburg. In 1433 this Wendish standard adopted the Cologne mark as its weight basis. COURSE OF DEPRECIATION OF THE STANDARD. Mks. Sch. Pf. 1226--The mark of fine silver coined into 2 2 0 1255 " " " 2 9 5 1293 " " " 2 9 8 1305 " " " 2 15 5 1325 " " " 3 0 9 1353 " " " 3 10 11 1375 " " " 4 3 0 1398 " " " 4 15 2 1403 " " " 5 1 11 1411 " " " 5 12 5 1430 " " " 8 8 0 1450 " " " 9 12 2 1461 " " " 11 8 10 1506 " " " 12 8 0 The Mint Union of the Wendish states continued until the beginning of the seventeenth century, when it expired unperceived. The experience of Hamburg in the _Kipper und Wipper Zeit_, with its resultant establishment of the Hamburg Bank, has been already referred to. In 1667 Hamburg freely joined the _Zinnaische_ standard, according to which the mark of fine silver was coined into 10-1/2 thalers (= 31 marks 8 schillingen, _Hamburger courant_). She, however, hesitated to follow the German system in its change over to the Leipzig standard in 1690, and after an interim period of weltering disorder, during which the standard varied from 30 marks to 34 marks 8 schillingen per mark fine of silver, the State adopted in 1725 the so-called Lübeck standard (1 mark fine = 34 marks), as the Hamburger courant. This standard had existed in Holstein from 1693. In 1788 and 1789 long and serious debates were held in Hamburg on the question of the substitution of a lighter (or lower) standard. And seventy years later a change in such direction had practically effected itself, although not legislatively recognised. By 1850 the actual currency of the state consisted mostly of silver coins of the Prussian (or 14-thaler) standard, circulating at an equivalence of 1 thaler = 2-1/2 marks Hamburger courant (= 40 schillingen), an equivalence implying a standard of 35 marks courant to the mark of fine silver. Legally, however, the 34-marks standard remained in force until the coalescence of the free state of Hamburg with the new imperial German system in our own days. The question of the agio of the _Hamburg banco_ system belongs rather to the history of banking. German Standards: Silver. In brief résumé, the historic standards of the German monetary system have been as follows:--Nos. 4, 5, 7, 9, 11, 12, 13 representing the systems in existence at the time of the projection of the great currency reform of 1871:-- 1. Old imperial standard of 1559, based on the Reichs Münz ordnung of Ferdinand I., mark of fine silver = 8 thalers. Altered in 1622, so that 9 thalers 2 grs. = 1 mark fine silver. 2. The _Zinnaische_ standard, agreed upon by Saxony and Brandenburg at Zinna, 1667, 1 mark fine silver = 10-1/2 thaler = 15-3/4 guldens. 3. Leipzig standard or Torgau standard (see text, p. 200), mark fine silver = 18 gulden. 4. The Prussian standard, 14 thalers or 21 guldens = 1 mark fine silver (see above, p. 379). 5. Convention standard or Austrian standard, mark fine silver = 20 gulden (see above, p. 375). 6. The 24-gulden standard or new imperial standard of 1766 (see above, p. 377), 1 mark fine silver = 24 guldens. 7. The 24-1/2, or South German standard (see above, p. 378), 1 mark fine silver = 24-1/2 guldens. 8. The kronen-thaler standard, existing more or less between 1808 and 1837 in such of the states of the South as had adopted the minting of the Brabant or crown thaler-piece, 9.18 to a mark fine, and issued at 2 guldens 42 kreutzers, representing a 24-4/5-gulden standard. It was this system which called into being the 24-1/2-gulden standard, by the evolution of which it was itself completely superseded. 9. Wechselzahlung, or Wechselgeld, the bank reckoning system of Frankfort-on-the-Maine, 20-4/55 guldens = 13-21/55 thalers = 1 mark fine silver. The standard was, therefore, 4/11 lighter than the 20-gulden or convention standard. 10. The Augsburg girogeld, a system which existed till 1st July 1845, and in which the exchange with Amsterdam and Hamburg was expressed. Mark of fine silver = 15-95/127 gulden giro (100 gulden giro = 127 gulden of the convention standard). This system was displaced by the introduction of the 24-1/2-gulden standard. 11. The Lübeck courant (or Hamburg courant, as described above), the mark of fine silver = 11-1/3 thaler, or 34 marks. 12. Hamburg banco, the system of reckoning of the Hamburg Bank. From 1790 the bank reckoned the mark of fine silver = 9-5/24 thaler-banco, or 27-5/8 mark-banco. The issue rate was, however, 9-1/4 thaler, or 27-3/4 mark-banco, the slight premium simply covering the expenses of the bank. In 1846 this difference was abolished, the mark of fine silver both for receipt and disbursement being reckoned at 27-3/4 marks (27 marks 12 schillings). The Hamburg banco was, therefore, appreciated above the Hamburg courant by a matter of 22.5225 per cent. 13. The Schleswig-Holstein courant, mark of fine silver = 11-9/16 thaler, or 34-11/16 marks. Gold Standards. 1. Imperial or ducat standard. The Imperial Mint Ordinance of 1559 contains the first mention of the ducat in German legislation, prescribing it 67 to the mark, 23-1/2-carat fine. Subsequently the standard varied slightly. Austria minted them 23 carat 8 grs. for herself (_kaiserlichen_), at 23 carat 9 grs. for Hungary (_kremnitzer_). The other German states approximated between a 23-carat 6 grs. and a 23-carat 8 grs. standard. Baden struck ducats 22 carat 6 grs. fine, 63.697 to the mark. 2. The _Pistole_ standard (_Friedrichs d'or_, _August d'or_, _Wilhelms d'or_, _Carls d'or_, or generally, _Louis d'or_), mostly in the Northern States of Denmark, mostly 35-1/6 to the mark, 21-1/2 carats fine, though with considerable variations (e.g. the Saxon _august d'or_, 35 to the mark, 21 carats 8 grs. fine. In Bremen this was the legal currency, the _louis d'or_ being taken at 5 thalers at 72 groot, each groot at 5 schwaren). For a considerable period, far into the present century, the merchants of Mecklenburg, Hanover, and Brunswick kept their accounts in gold pistoles (= 5 thalers). Prussia (as above, p. 382) fixed the pistole at 5-2/3 thalers, but elsewhere it had a varying (mercantile) equivalence. 3. The gold gulden standard. The last of the three Imperial Mint Ordinances (1559) prescribed gold gulden 72 to the mark, 18-1/2 carat fine. They continued to be coined in Southern German states and in Hanover up to the middle of the eighteenth century. TABLE OF THE GOLD COINS OF GERMANY--GULDEN, DUCAT, AND FRIEDRICHS D'OR. +--------------------+---------+---------------------+---------------------+ | | Tale | | Value of the Piece | | | to the | | as expressed in | | Year. | Cologne | Standard. | Coin of the | | | Mark. | | 20-Florin Standard. | +--------------------+---------+---------------------+---------------------+ | | | Kar. Grs. | Fl. Kr. Pfge. | |1252-- | | | | | Florentine florin | | | | | or gold gulden | | | | | (64 to the | | | | | Florence mark) | 44-3/8 | 24 0 | 6 22 3-405/2911 | | | | | | |1371-- | | | | | Gold gulden of | | | | | Cune, Archbishop | | | | | of Treves, | | | | | Wenceslaus of | | | | | Bohemia | 66 | 23 0 | 4 6 2-434/781 | | | |(and 1 0 of silver)| | | | | | | |1386 and 1399-- | | | | | Gold gulden of the | | | | | Rhenish Princes. | | | | | Adopted by Rupert | | | | | II. in 1402 | 66 | 22 6 | 4 1 1-85/781 | | | |(and 1 6 of silver)| | |1409-- | | | | | The gulden of the | | | | | three Spiritual | | | | | Electors (adopted | | | | | in the same year | | | | | by the Netherlands| | | | | at Speyer, and by | | | | | the States of the | | | | | Empire at Cologne)| 66 | 22 0 | 3 55 3-517/721 | | | | | | |1419-- | | | | | Gold Gulden of | | | | | Elector Frederick | | | | | of Brandenburg (66| | | | | to the Nürnberg | | | | | mark) | 64-1/2 | 19 0 | 3 28 1-2851/3053 | | | | | | |1422-- | | | | | Gold gulden of | | | | | King Sigismund (68| | | | | to the Nürnberg | | | | | mark) | 66-1/2 | 22 6 | 3 59 1-8049/3052 | | | | | | |1428 and 1429-- | | | | | Gold gulden of | | | | | Emperor Sigismund | | | | | (confirmed at | | | | | Frankfort and | | | | | Nürnberg, 1433, | | | | | 1438, and 1442) | 68 | 19 0 | 3 17 3-18/1207 | | | | | | |1438-- | | | | | Gold gulden of the | | | | | Elector of Mainz, | 67 | 19 0 | 3 20 2-3886/4757 | | | | | | |1442-- | | | | | Gold gulden of | | | | | Emperor Frederick | | | | | IV. | 72 | 19 0 | 3 6 3-14/213 | | | | | | |1477-- | | | | | Gold gulden as | | | | | adopted by | | | | | agreement of | | | | | several Electoral | | | | | Princes at | {68-2/3 | 19 0 | 3 15 3-2421/7313 | | Frankfort | {69-1/3 | 18 10 | 3 12 0-3669/3692 | | | | | | |1495 and 1497-- | | | | | Gold gulden as | | | | | adopted at Worms, | | | | | and in 1498 at | | | | | Lindau and | | | | | Freiburg | 71-1/3 | 18 6 | 3 3 2-3104/15194| | | | | | |1506-- | | | | | Gold gulden as by | | | | | treaty between | | | | | Bamberg, Würzburg,| | | | | and Brandenburg | 71-1/3 | 18 6 | 3 6 0-132/7597 | | | |(and 3 6 of silver)| | | | | | | |1509-- | | | | | Gold gulden | | | | | adopted by the | | | | | Reichstag at | | | | | Frankfort | 71-1/3 | 18 6 | 3 6 1-3185/7597 | | | |(and 4 0 of silver)| | | | | | | |1524-- | | | | | Gold gulden as | | | | | determined by the | | | | | Imperial Mint | | | | | Ordinance of | | | | | Charles V. at | | | | | Esslingen | 89 | 22 0 | 2 54 3-5019/6319 | | | | | | |1551-- | | | | | Gold gulden as | | | | | determined by the | | | | | Imperial Mint | | | | | Ordinance of | | | | | Charles V. at | | | | | Augsburg | 71-1/3 | 18 6 | 3 6 0-3682/7597 | | | |(and 3 8 of silver)| | | | | | | |1559-- | | | | | Gold gulden as | | | | | determined by the | | | | | Imperial Mint | | | | | Ordinance of | | | | | Ferdinand I. | 72 | 18 6 | 3 4 1-2267/3834 | | | |(and 3 8 of silver)| | | | | | | |Gold ducat (ibid.) | 67 | 23-2/3 | (10 = 1 fl. 44 kr.) | +--------------------+---------+---------------------+---------------------+ TABLE OF THE GOLD GULDEN AND DUCAT--_continued._ From 1559 the Tale and Standard remained legally unaltered; the only variations being thenceforward in equivalence or tariff, thus-- Fair of 1585 Set the Rhenish gold gulden and Philipps thaler at 82 kr. 1596 Imperial Commissioners at Frankfort set the gold gulden at 80 kr. About 1600 Gulden of 1551, of 72 kr., set at 94 kr. " " 1559, " 60 " " 79 " 1602, April 10 Brandenburg ducat set at 2 fl. " Philipps thaler and Reichs gold gulden set at 20 batzen. {Franconia} 1601 and 1602 {Bavaria } ducat, 67 to Cologne mark, 23 carats 8 grs. {Swabia } 1604 _Ibid._ (_Münz Probations Tag_), gold gulden, 72 to Cologne mark, 18 carats 6 grs. fine. 1623, July 31 Mint Edict of John George, Duke of Saxony, Rhenish gold gulden set at 1 gulden 6 good groschen. 1623 Higher Circles gold gulden = 1 fl. 44 kr. " " ducat = 2 " 20 " " August 23 Würtemberg gold gulden = 1 fl. 44 kr. " " " ducat = 2 " 20 " " " 29 Archduke Leopold of Austria set the gold gulden at 1 fl. 52 kr. " " " " " ducat 2 " 30 " " October 19 Strasburg gold gulden = 1 fl. 52 kr. " " " ducat = 2 " 30" " Electoral Saxony, Philipps or gold gulden = 30 groschen. " " ducat = 36 " " Brandenburg gold gulden = 27 groschen. " " ducat = 38 " " October 23 Frankfort gold gulden = 1 fl. 44 kr. " " " ducat = 2 " 24" " Lower Saxony gold gulden = 26-2/3 groschen (= 1 fl. 40 kr.). 1624 Three Circles (Franconia, Bavaria, Swabia) gold gulden = 1 fl. 50 kr. " " " " ducat = 2 " 30" 1637 " " " gold gulden tolerated at 2 fl. " " " " ducat " 3 " (But to be reduced respectively to 1-1/2 fl. and 2 fl. 24 kr.) 1659 Three Circles gold gulden = 2 fl. 10 kr. " " ducat = 3 " 1665 " (Franconia, Bavaria, Swabia) ducat = 3 fl. 1669 Three Circles ducat = 3 fl. " " gold gulden = 2 fl. 20 kr. 1690 In consequence of Leipzig standard, gold gulden = 2 fl. 56 kr. " " " " ducat = 4 fl. 1695 Austrian ducat = 4 fl. 1736} " gold gulden = 3 " 1738} " ducat = 4 " (but circulating at 4 fl. 15 kr.). 1748 " ducat = 4 fl. 10 kr. 1751, May 2 " Imperial ducat = 4 fl. 10 kr. " " " Kremnitz " = 4 " 12 " " " " Other " = 4 " 7-1/2 " 1771, March 23, Austria (Imperial Patent) Kremnitz ducat = 4 gulden 18 kr. " " Imperial, Bavaria, Salzburg " = 4 " 16 " " " Holland and others " = 4 " 14 " 1783, Sept. 1, Kremnitz ducat and zecchini = 4 " 22 " " " Imperial " = 4 " 20 " " " Holland " = 4 " 18 " 1786, Jan. 12, Imperial ducat = 4 " 30 " " " Kremnitz Bavarian Salzburg " = 4 " 20 " " " Holland " = 4 " 18 " (This equivalence of 4 fl. 30 kr. remained till the Vienna Convention (at 67 to the Koln mark, 23-2/3 fine = 4-1/2 gulden, ratio = 1:15-102/355 (15.2873)), the ratio prescribed by the Edict of the Emperor Joseph II., of 12th January 1786.) 1756 Souverain, or souverain d'or (originally Netherlands), minted in Vienna Mint, 22 carat 3/4 gr., 42.091 to mark gross (45.874 fine) = 6 gulden 11 kr. 1 pf. 1786, Jan. 12, Souverain, or souverain d'or = 6 gulden, 40 kr. (makes a ratio of 15.2923). 1750 Prussian Friedrichs d'or, 35 to mark, 21-3/4 carat fine (= 261 grs. of fine gold to the piece). 1770 Prussian Friedrichs d'or, 35 to mark, 21-2/3 carat fine (= 260 grs. fine gold to the piece). (Confirmed by law of 30th Sept. 1821.) 1857 Vienna Convention trade money (see p. 210). 1871 10-mark piece, 139-1/2 to the German pound, .900 fine. TABLE OF THE THALER. 1555, Brunswick, Luneberg, Hanover, etc.--Thaler = 32 Marien groschen = 24 silver groschen. 1558, Saxony Mint Ordinance (renewing previous ordinances in spite of the Imperial Ordinance)--Thaler or gulden thaler, 14 loth 8 grs. fine, 8 to mark (= 8-56/65 to mark fine) = to 24 groschen: mark fine therefore equal to 10 fl. 38 kr. 1559, Imperial Ordinance--forbidden. 1566, Reichstag of Augsburg--again authorised; 14 loth 4 grs., 8 to the mark fine; equal 72 kr.; mark fine therefore = 9 thalers 68 kr. (10 fl. 12 kr.). 1585, Frankfort Fair--Philipps thaler = 82 kr. 1596, Imperial Commissioners at Frankfort--Philipps thaler provisionally set at 72 kr. Same year, December 1596, Imperial Commissioners at Strasburg--Reichs thaler = 84 kr. (or 21 batzen), according to which mark of fine silver = 12 fl. 36 kr. Beginning of seventeenth century (Imperial letters)--Reichs thaler recognised at 90 kr. as highest limit. 1603 (Higher Circles)--Reichs thaler recognised at 90 kr. Electoral Saxony--Reichs thaler = 24 good groschen. 1610, Lower Saxony--Reichs thaler = 28 good groschen; Philipps thaler, 30-1/3 good groschen (mark fine silver = 12 fl. 9 kr.). 1617, Lower Saxony--Reichs thaler = 30 silver groschen. 1665 (Three Circles, 1667 _in comitiis_)--Reichs thaler = 96 kr. (fine mark = 14 fl. 24 kr.). 1667, Saxony and Brandenburg (Zinnaische Fuss)--Reichs thaler = 1 fl. 45 kr. = 28 good groschen (fine mark = 15-3/4 fl.). 1669 (Three Circles)--Reichs thaler reduced to 90 kr. (fine mark = 13 fl. 30 kr.). 1680 (the Three Circles carried it _in comitiis_)--Reichs thaler reduced to 90 kr. (fine mark = 13 fl. 30 kr.). 1681, Emperor at Salzburg set the Reichs thaler = 96 kr. 1690 (Leipzig Mint, for Saxony, Brandenburg, Brunswick, Luneburg)--Mark fine = 12 thalers = 18 fl.; Reichs thaler = 2 fl. (120 kr.). 1691, rejected by Hamburg, Lübeck, and Bremen, who stuck to Reichs thaler = 24 groschen, or 48 schillingen, or 90 kreutzers, or 3 marks (to be reduced to this by three drops). 1750, Prussia--Frederick V. 14-thaler, or 21-gulden fuss (14 thalers to the mark fine), thaler = 24 groschen, 1 groschen = 12 pfennige. 1821, Thaler = 30 groschen. 1857, " = 30 to the pound of pure silver, .900 fine. 1871, " = 3 marks (see p. 216). TABLE OF THE GROSCHEN. +---------------------------------+---------------+---------------+ | | Tale to the | Standard. | | | Cologne Mark. | | +---------------------------------+---------------+---------------+ | | | Loth. Grs. | |1226-- | | | | The Gros Tournois minted at | | | | Tours in France (58 to the | | | | troy mark) | 55-1/10 | 15 6 | | | | | |1296-- | | | | Groschen of Bohemia and Meissen | 63-1/2 | 15 0 | | | | | |1324-- | | | | Groschen of Meissen | 64-1/2 | 15 0 | | | | | |1341-- | | | | Groschen of Bohemia | 78 | 10 0 | | | | | |1350-- | | | | Meissen | 91 | 14 0 | | | | | |1364-- | | | | Bohemia | 74-1/2 | 9 0 | | | | | |1378-- | | | | Bohemian groschen, as by the | | | | Constitution of Charles IV. | | | | and Wenceslaus | 70 | 14 1 | | | | | |1380-- | | | | Meissen | 72 | 13 0 | | | | | |1407-- | | | | Würzburg (74 to the Würzburg | | | | mark) | 72-40/131 | 8 0 | | | | | |1444-- | | | | Saxony and Meissen | 88 | 7 13 | | | | | |1444-- | {160 | 16 0 | | Frederick II. of Saxony (four | {120 | 12 0 | | kinds of groschen) | {104 | 8 0 | | | | | |1484-- | | | | Archduke Sigismund of Austria | | | | (8 gulden groschen to the | | | | Vienna mark) | 6-206/307 | 16 0 | | | | | |1490-- | | | | Schwart groschen | 103 | 5 0 | | Large groschen of Hesse | 112 | 6 0 | | Hamburg | 104 | 9 15 | | Lübeck | 107 | 9 13 | | Bohemia | 84 | 6 12 | | (18 other species concurrent.) | | | | | | | |1524-- | | | | Imperial Mint Ordinance of | | | | Charles V. | 136 | 12 0 | | | | | |1551-- | | | | Imperial Mint Ordinance of | | | | Charles V. (16 contemporary | { 94-1/2 | 7 5 | | species.) | {100 | 7 6 | | | | | |1559-- | | | | Imperial Mint Ordinance of | | | | Ferdinand I.--Reichs groschen | 108-1/2 | 8 0 | | | | | |1572-- | | | | Lower Saxony--Silver groschen | 108-1/2 | 8 0 | | " Marien groschen | 155-1/2 | 7 11 | | | | | |1573-- | | | | Brandenburg | 108 | 8 3-1/2| | | | | |1610-- | | | | Lower Saxony | 116 | 14 4 | | | | | |1617-- | | | | Lower Saxony | 144 | 8 0 | | | | | |1622-- | | | | Higher and Lower Saxony | 108-1/2 | 8 0 | | | | | |1667-- | | | | Brunswick and Luneberg-- | | | | Good groschen | 160 | 10 0 | | Marien groschen | 192 | 8 0 | | | | | |1669-- | | | | The Three Circles (Franconia, | | | | Bavaria, and Swabia) | 141-2/3 | 8 0 | | | | | |1680-- | | | | The Three Circles (Franconia, | | | | Bavaria, and Swabia) | 141 | 8 0 | | | | | |1690-- | | | | Leipzig standard--Good groschen | 150 | 8 0 | | " Marien groschen | 162-1/2 | 5 14 | | | | | |1738-- | | | | As adopted _in comitiis_-- | | | | Groschen | 125 | 6 2 | | Imperial groschen | 134-49/64 | 5 13-1/4| | Marien groschen | 171 | 6 0 | +---------------------------------+---------------+---------------+ FOOTNOTES: [Footnote 24: Heller were first minted in 1228 at Halle, but by the year 1420 they had sunk to the equivalence of a half-pfennige. Of the origin of the kreutzer less is known, as few, if any, records of it occur before its minting in the Tyrol in 1490. Its subsequent variation in different parts of Germany, and at different times, it is almost impossible to give account of.] APPENDIX VI THE MONETARY SYSTEM OF FRANCE The metric system on which the French Mint was worked throughout the period treated of in this work up to the Revolution was as follows:-- 1 mark = 8 oz. " = 64 gros. (8 × 8). " = 192 dens. (64 × 3). " = 4608 grs. (192 × 24). An alternative subdivision of the ounce was as follows:-- 1 oz. = 20 esterlings. " = 320 mailles (20 × 16). " = 640 felins (320 × 2). For the alloy or standard the mark was thus subdivided:-- For gold mark = 24 carats each subdivided into 32 parts. " silver " = 12 dens. each subdivided into 24 grms. In France fine gold was only refined to 23-26/32 carats, and fine silver 11 deniers 18 grs. In calculation the absolute fineness of 24 carats and 12 deniers must be used. The system of reckoning was as follows:-- 1 livre = 20 sols. 1 sol. = 12 den. 1 den. = 2 oboles. 1 obole = 2 pites. 1 pite = 2 semipites. The reckoning by livres, sols., deniers was derived from the Frankish kings. For a time the system of reckoning by the mark threatened to replace it, but in 1313 it was again authorised by Philippe le Bel. The origin of the difference between the livres Tournois and the livres Parisis is to be sought in the feudal Mint franchises of the barons. At one time there was a difference between the two systems of 25 per cent., the barons who had the right of minting preferring to do so at Tours, or according to the Tours weight, which was the more depreciated of the two, while at Paris the French kings attempted to keep up a tradition of a better weight standard.[25] The distinction of livres Tournois and livres Parisis was maintained until the days of Louis XIV., when (1667) it was abolished, and the reckoning by a single livre, sol., denier, was established. (For the intermediate experiment of Henry III. see text p. 87.)[26] The monetary system of Charlemagne was the precursor and source of the chief currency systems of mediæval and modern Europe, with the exception of Spain. It was itself an imitation of the system of the Eastern Empire. Its basis was the _libra_ or pound, which occurs in two forms--(1) the gold pound, (2) the silver pound. Under the first race of the French kings the monetary divisions of the former were-- 1. The gold solidus, a name which gave birth to the Spanish and Italian soldo and the French sol. (_sou_). 2. The third of the gold solidus (Triens or Tremissis). Of the latter the aliquot parts were-- 1. The silver solidus. 2. 1/3 " (Tremissis). 3. The denarius. 1 gold solidus = 3-1/3 silver solidi = 40 denarii. 1 " = 12 " Under the system of the Eastern Empire the gold solidus had weighed 85-1/3 grs. and under the Merovingian Kings 70-1/2 grs. Under the rule of the Second House a considerable alteration took place. Charlemagne adopted for the basis of his system the East Frank or Rhenish libra, which was one-fourth heavier than the Roman libra adopted by the Merovings. His denarius accordingly weighed 32 grs. If ideally constructed the system, as far as silver is concerned, would be this-- 12 denarii = 1 solidus. 20 solidi = 1 libra. 32 × 20 × 12 = 7680 grs. = 1 libra. As far as the more precious metal is concerned, the gold solidus was, as a matter of fact, hardly to be met with under the second race. But, theoretically, it was still considered equal to 40 denarii. 40 × 32 = 1280 grs. 1280/12 = 106.6 grs. for the gold solidus. But there are some actually met with containing 132 grs. _Sols d'or_ as a reminiscence of the first and second race are said to have still lingered in use at the commencement of the third race of kings. Under Philip I. they occur as _francs d'or_ and _florins d'or_. In speaking of this latter term in the account of Florentine money (Appendix I. _supra_, p. 301), it has been pointed out as possible that it is merely the name for an ideal money, not an actual coin. (See however, preface, p. xiii.) The actual reinstitution of gold monies in France has been already dealt with (text, p. 10). Of the species of the gold monies it would be almost an impossibility to speak. Putting aside the disputed florin d'or, the first authenticated type of the gold monies was the _aignel d'or_ or _denier d'or a l'aignel_, so called from the lamb (agneau = aignel), stamped on it. Under St. Louis, to whom it is first assigned, it weighed 3 deniers 5 grs., was of fine gold and worth 12 sols. 6 deniers Tournois. Philippe le Bel, Louis Huttin, Philippe le Long, and Charles le Bel maintained this coin at the same weight and standard. Those of King John were of the same standard or fineness, but were slightly heavier, weighing 3 deniers 16 grs. Under Charles VI. and Charles VII. both weight and fineness were considerably reduced. Under the various names of _agnels d'or_, _moutons d'or à la grande laine_, _moutons d'or à la petite laine_, this species had currency in France for nearly two hundred years. The imitations of it in surrounding countries were almost numberless. _Royal_ (for the origin of the piece, see text, p. 10). Philippe le Bel minted _petits royaux d'or fin_, 70 to the mark and with an equivalence of 11 sols. Parisis. Gros royaux were the double of the petits royaux. Charles le Bel and Philippe de Valois struck royaux 58 to the mark. King John struck royaux or _deniers d'or au Roial_ 66 and 69 to the mark, Charles V. 63 to the mark, and Charles VI. 64 and 70 to the mark. _Masses_ or _chaises_ (_cadieres_, _Royaux durs_), were coined by Philippe le Bel, 22-carat fine and 5 deniers 12 grs. the piece. The _chaises d'or_ of his successor varied greatly from these. Philippe de Valois coined them of fine gold, and 3 deniers 16 grs. the piece, and Charles VI. of fine gold 4 deniers 18 grs. the piece. Under Charles VII. the standard was reduced to 16 carats and the weight to 2 deniers 29 grs. Of other early gold species it is sufficient to mention-- _Reines_, coined by Philippe le Bel. _Florin George_, " Philippe de Valois. _Parisis d'or_, 32-2/5 to mark = 20 sols. Parisis. _Lion_ 50 to the mark. _Pavillon_ 48 " _Couronne_ 45 " _Ange or angelot_ 33-2/5 " _Denier d'or à l'écu_ 54 " The last of these species (_deniers d'or à l'écu_) continued to be minted, and had wide currency through the reign of John up to their cessation in 1354. There was, however, great variation in the standard from fine gold to 23, 22-3/4, 21, and even 18 carats. The reign of John was marked, 1361, by the commencement of the coining of the important _franc d'or_ of fine gold, 63 to the mark = 20 sols. or 1 livre. Its standard (of fine gold) was maintained under Charles V. and until Charles VII., but under the latter monarch the weight was reduced (to a tale of 80 to the mark). _Fleurs de lis d'or_ (or _Florins d'or aux fleurs de lis_) were first minted in 1365 by Charles V. They were of fine gold, and weighed exactly 1 gros. Being equivalent to the franc (i.e. equal to 1 livre or 20 sols.), it received the same name, being styled _Franc à pied_ to distinguish it from the _Franc d'or_ proper, which was styled _Franc à cheval_. _Saluts_ were first minted by Charles VI. in 1421 of fine gold, and of the same weight as the _francs à cheval_, but equal to 25 sols. _Couronnes_ or _écus à la couronne_ were first coined by Charles VI. in 1384 of fine gold, weighing 3 deniers 4 grs. (i.e. 64 to the mark), and equal 22 sols. This was the most celebrated gold coin of mediæval France. It lasted down to the time of the louis d'or, and was in high repute all over Europe. Under Charles VI. and Charles VII. numerous changes were made in this piece both in weight and standard. At one time, under Charles VI., the standard fell as low as 16 carats. In 1436, however, they were again made of fine gold, but 70 to the mark, and issued at an equivalence of 25 sols. In 1455 they were issued 23-1/8 carats fine, 71 to the mark, and = 27 sols. the piece. In 1473 Louis XI. issued them 72 to the mark; but two years later he began the issue of _écus d'or au soleil_ (_crowns of the sun_), of the same fineness as the couronne, but slightly heavier (70 to the mark). From the days of Charles VIII. the _crown of the sun_ (_écus d'or au soleil_, also called _écus au porc-epi_) took the place of older crowns. Under Francis I. they were generally 23 carats fine and 71-1/6 to the mark, under Charles IX. 23 carats fine and 72-1/2 to the mark. At this latter they remained till the days of Louis XIV. The change of equivalence must be followed in the accompanying tables. From the old _écus à la couronne_ must be distinguished the _écus heaumes_, which were issued in small quantities under Charles VI., generally 48 to the mark and 22 carats fine. _Henris d'or_ occur only under Henry II., 23 carats fine, 2 deniers 20 grs. weight, and issued at an equivalence of 50 sols. _Louis d'or_ (see text, p. 91), first issued in 1640 under Louis XIII. in imitation of the Spanish standard; 22 carats fine, 36-1/4 to the mark, and = 10 livres. Standard and weight remained unchanged until 1709. See tables below for subsequent change. _Lis d'or_ have merely a transitory importance. They were issued in 1656 and shortly after, but almost immediately discontinued; 23-1/4 carats fine, 3 deniers 3-1/2 grs. the piece (60-1/2 to the mark) = 7 livres (to be distinguished as a third type from the _fleurs de lys d'or_ of King John, and the separate _fleur de lys d'or_ of Charles V.). Silver Coins. The silver deniers of the first royal race of France averaged 21 grs. in weight. Under the second race a much heavier system was adopted, those of Charlemagne weighing 28 grs., and those of Charles the Bold 32 grs. At the commencement of the third race they were still of fine silver, and weighed about 23 or 24 grs. The process of diminution by alloy and in weight began under Philippe I. For the question of the existence of a silver solidus, see Le Blanc, Introduction, p. xii. If they ever existed their place as a large silver specie was at an early date taken by that of the _gros Tournois_ (called also _gros deniers d'argent_, _gros deniers blancs_, and _sols d'argent_), attributed to S. Louis; 11 deniers 12 grs. fine, 7 grs. weight (58 to the mark), and issued at an equivalence of 12 deniers or 1 sol. In the commencement, therefore, of this piece the gros Tournois was synonymous with the sol. Tournois. With the degeneration of the standard, however, the coin (the gros) parted company from the sol., which remained as a system of reckoning. Up to the time of Philippe de Valois this money continued of undiminished weight and standard, and of the greatest celebrity. When that prince, in 1343, returned to good money after a period of debasement, he coined the gros Tournois 60 to a mark, of fine silver, and at an equivalence of 15 deniers Tournois. For its subsequent course, see tables infra.. It is noticeable that while in weight and value the gros Tournois was frequently changed, in fineness no diminution was made. _Parisis d'argent_, issued only by Philippe de Valois (of fine silver, 4 deniers in weight = 15 deniers Tournois or 1 sol. Parisis). _Testoons_ are to be regarded as the successors of the gros Tournois. They were first issued by Louis XII. in 1513; 11 deniers 18 grs. fine, 7 deniers 12-1/3 grs. weight, and = 10 sols. This species continued until its interdiction by Henry III. in 1575, who replaced them in that year by. _Francs d'argent_, 10 deniers 10-10/23 grs. fine, 11 deniers 1 grain weight (or 17-1/4 to the mark), and = 20 sols. This piece continued until the days of Louis XIII. _Quart d'écus_, also issued by Henry III., 11 deniers fine, 7 deniers 12-1/2 grs. weight, and = 15 sols. (i.e. a quarter the value of the écu d'or, then set at 60 sols.). This piece endured till 1646. _Louis d'argent_, issued by Louis XIII. (see p. 402, _Louis d'or_), 11 deniers fine, 21 deniers 8 grs. weight for the écus blancs. This money continued till the Revolution. _Lis d'argent_, issued for a few months in 1656, 11 deniers 12 grs. fine, 6 deniers 5 grs. weight, and = 20 sols. _Franc_, modern (see text, p. 176). The history of the French monetary system has been briefly told in the text, pp. 10, 31-40, 83-95, 167-197. The tables of the present Appendix afford particular information as to the course of the above-mentioned coins, down to the last great change in the French system. They bring out also, in strong relief, the numerous and arbitrary and excessive debasements which that system underwent in the Middle Ages. The particular episode of the eighteenth-century depreciation, which followed upon the erection of the system of John Law, may be, in brief, more appropriately sketched here than in the text. The third of the three great recoinages of 1689, 1693, and 1703 had left the louis d'or tariffed at an equivalence of 15 livres, and the louis d'argent at 4 livres. By the end of 1708 these figures had sunk to 12 livres 15 sols. and 3 livres 8 sols. respectively. By the decree of April 1709 quite a different standard was adopted. The louis d'or was minted 32 to the mark, 22 carats fine, and = 16 livres 10 sols., while the louis d'argent was minted 8 to the mark, 11 deniers fine, and = 4 livres 8 sols. In the month of May 1709 a second edict raised these equivalences to 20 livres and 5 livres respectively. The sufferings of French commerce under this extraordinary tariff led to its annulling by the decree of 30th September 1713, by which a reduction of equivalence was made to 14 livres and 3 livres 10 sols. respectively. In December of the same year a reformation was again attempted. The new species were of the same content and fineness as the old, but were tariffed at 20 livres for the louis d'or, and 5 livres for the louis d'argent, while the unreformed specie were tariffed at 16 livres and 4 livres respectively. Three years later began the period of the monetary disorder of the minority of Louis XV. In November 1716 a new louis d'or was issued, 20 to the mark, 22 carats fine. In May 1718 again a new issue took place--louis d'or 25 to the mark, 22 carats; louis d'argent 10 to the mark, 11 deniers fine. There were thus, at the time, four different louis d'or in existence, namely:-- The old louis d'or 36-1/4 to the mark. The old louis d'or of 1709} 30 " " " " 1715} " " 1716 20 " " " " 1718 25 " " And similarly three kinds of louis d'argents or écus:-- The old louis d'argent 9 to the mark. The old louis d'argent of 1709} " " " 1715} 8 " " " " " 1718 10 " " On the 25th July 1719 the Compagnie des Indes obtained the profit and farm of the French Mint for a term of nine years. The first outcome of their activity was the issue of the following tariff:-- Livres. Sols. Deniers. Écu of 1718 5 13 4 Louis d'argent of 1709 7 1 8 Old louis d'or 34 0 0 Old louis d'or of 1709 28 6 8 In the same year (1719, the first of their lease) this corporation further issued quite new species, namely, Quinzains d'or = 15 livres, and livres d'argent = 1/6-écu (both being cut at a tale of 65-5/11 to the mark). On the 5th March 1720 all the species were raised 41-3/11 per cent., the louis d'or of 1709 thus rising to an equivalence of 40 livres, and the louis d'argent of the same issue to 10 livres. On the 11th March 1720 the use of the gold specie was forbidden, and a recoinage determined on. These regulations, however, were not carried out, and by July the louis d'or had risen to 60 livres (= 1963-7/17 livres to the mark of fine gold), and the louis d'argent to 15 livres (= 130-10/11 livres to the mark of fine silver). The same enhancement prevailed in the divisional coin, and the confusion endured till the end of 1720. In September the louis d'or had fallen to 45 livres (= 1472-8/11 livres to the mark of fine gold), and the louis d'argent to 11 livres 5 sols. (= 98-2/11 livres to the mark of fine silver). At the same time (September) a new fabrication of species, according to the standard of 1718, was undertaken. Louis d'or, 25 to the mark, to issue at 54 livres; louis d'argent (or 1/3-écu), 30 to the mark, to issue at 3 livres. But from the 24th October a gradual diminution in this tariff was prescribed, and from the 1st of January 1721 these coins were to circulate respectively at 45 livres and 2 livres 10 sols. From the same date the louis d'or of 1709 was to circulate for 22 livres 10 sols., and the louis d'argent of 1709 for 5 livres 12 sols. 6 deniers. On the 5th January 1721 the contract for coinage held by the Compagnie des Indes was annulled, and an intermediate attempt at reform was made in 1723, when the louis d'or was minted at 37-1/2 to the mark = 27 livres, and the louis d'argent at 10-3/8 to the mark = 6 livres 18 sols. The downward course of the specie set strongly in, and by 1726 they had fallen to 12 livres and 3 livres respectively. This facilitated the great reform and recoinage of 1726 (see text, p. 169). This recoinage was carried out on the basis of the edict of 1709-- Louis d'or, 30 to the mark = 20 livres. Louis d'argent, 8 to the mark = 5 livres. By the edict of May of the same year their equivalence was raised 20 per cent.--the louis d'or to 24 livres, the louis d'argent to 6 livres. TABLE OF THE FRENCH GOLD COINS. (_Up to 1689, from Le Blanc; 1690 onwards, continued from various sources._) +----------------------+-------------+--------------+------------+------+----------+ | |Price of Mark| | | Tale | | | Date. |of Gold. | Species. | Standard. | per | Value. | | +-------------+ | | Mark.+----------+ | |(L=Liv. | | | | (S=Sol. | | | S=Sol. | | | | D=Den.) | | | D=Den.) | | | | | +----------------------+-------------+--------------+------------+------+----------+ | |Liv.Sol. Den.| | | | S. D. | |1226 (S. Louis) | ... | Agnel |Fine gold |59-1/6| 12 6 | |1295 (Philippe le Bel)| ... | Gros royal | ... | ... | 25 0 | |1305 | 44 0 0| Petit royal |Fine gold[G]|70 | 13 9 | |1308, April 16 | 44 0 0| Chaise | ... | ... | 25 0 | |1310, August 12 | 49 10 0| Masse | 22 carat |34-1/2| 30 0 | |1310, January 22 | 55 11 9| Agnelet | Fine gold |59-1/6| 20 0 | |1312, August 24 | 55 10 4| ... | ... | ... | 15 0 | |1314 (Louis Huttin), | | | | | | | August 25 | ... | ... | ... | ... | 20 0 | |1314, November 29 | 55 10 0| ... | ... | ... | ... | |1315, May 6 | ... | Agnelet | Fine gold |59-1/6| 20 0 | | " January 15 | 45 0 0| ... | ... | ... | 15 0 | |1316 (Philippe le | | | | | | | le Long), Easter | 38 0 0| ... | ... | ... | 12 6 | | December 8 | 55 10 0| Agnelet | Fine gold |59-1/6| 20 0 | |1321 (Charles le Bel),| | | | | | | February 20 | 58 0 0| Agnel[H] | " |59-1/6| 20 0 | |1322, October 15 | 53 6 9| ... | ... | ... | 18 9 | |1325, February 16 | 67 10 0| Royal double | Fine gold | 58 | 25 0 | |1329 (Philippe | | | | | | | de Valois), | | | | | | | Dec. 26 | ... | Parisis | " |33-2/5| 37 6 | | ... | ... | Royal double | " | 58 | 22 6 | |1330, April 8 (poste | | | | | | | monnaie) | 41 13 0| Parisis | " |33-2/5| 25 0 | | | ... | Royal double | ... | ... | 15 0 | | | ... | Agnel | ... | ... | 14 7 | |1331, January 9 | 39 0 0| Royal | ... | ... | 22 6 | |1332, April 19 | ... | ... | ... | ... | 15 0 | | | | | | |(Tournois)| |1336, February 1 | 50 0 0| Écu | Fine gold | 54 | 20 0 | |1338, November 14 | 58 0 0| Lion | " | 50 | 25 0 | |1339, May 25 | 61 10 0| ... | ... | ... | ... | | " June 14 | 66 0 0| Pavillon | Fine gold | 48 | 30 0 | | " August 10 | 69 0 0| ... | ... | ... | ... | | " June 20 | 71 0 0| ... | ... | ... | ... | | " February 7 | 82 0 0| Couronne | Fine gold | 45 | 40 0 | | " February 15 | 86 0 0| ... | ... | ... | ... | |1340, April 16 | 96 0 0| Double | Fine gold | 36 | 60 0 | | ... | ... | Simple | " | 72 | 30 0 | | " May 27 |100 0 0| Doubles | 23 carat | 30 | 60 0 | | " October 7 |108 0 0| ... | ... | ... | ... | | " January 31 |114 14 0| ... | ... | ... | ... | | " February 7 |115 0 0| Anges |Fine gold |33-2/5| 75 0 | | ... | ... | Demi anges | ... |67-1/3| ... | |1341, August 23 |130 0 0| Anges |Fine gold |38-1/3| 75 0 | |1341, January 19 |136 0 0| ... | ... | ... | ... | |1342, June 28 |168 0 0| ... | ... | 42 | 85 0 | |1342, September 16 |171 0 0| ... | ... | ... | ... | |1342, April 10 |117 0 0| Écu |Fine gold | 54 | ... | |1343, September 22 | ... | ... | ... | ... | 45 0 | | (Forte monnaie) | 43 6 8| ... | ... | ... | 16 8 | |1344, March 27 | 44 3 9| ... | ... | ... | ... | |1346, July 17 | 50 0 0| Chaises |Fine gold | 52 | 20 0 | |1346, February 24 | 72 0 0| ... | ... | ... | ... | |1346, March 4 | ... | ... | ... | ... | 30 0 | |1347, April 6 | 75 0 0| ... | ... | ... | ... | |1347, April 14 | 44 3 4| Écu |Fine gold | 54 | 16 8 | |1347, September 27 | 75 0 0| Chaises |Fine gold | 52 | 30 0 | |1347, January 11 | 51 10 0| Écu |23 carat | 54 | 18 9 | |1348, August 30 | ... | ... |22-3/4 carat| ... | 20 0 | |1348, March 12 | 51 15 3| ... |22 carat | ... | 25 0 | |1349, May 23 | 52 1 6| ... |21 carat | ... | 25 0 | |1349, December 5 | 53 0 0| ... | ... | ... | ... | |1350, April 22 | | | | | | | (forte monnaie) | ... | ... | ... | ... | 20 0 | |1350, September 1 | | | | | | | (John I.) | 53 18 9| Écu |21 carat | 54 | 18 9 | |1351, June 20 | 54 17 6| ... |20-1/2 carat| ... | ... | |1351, July 23 | ... | ... |20 carat | ... | ... | |1351, August 18 | 96 0 0| ... | ... | ... | ... | |1351, August 20 | ... | Fleur de Lys |Fine gold | 50 | 40 0 | |1351, September 17 | 56 5 0| Écu |20 carat | 54 | 18 9 | |1351, September 24 | 58 2 6| ... |18 carat | ... | ... | |1351, November 20 | 60 0 0| ... | ... | ... | ... | |1351, February 3 | | | | | | | (forte monnaie) | ... | ... | ... | ... | 15 0 | |1352, April 21 | 60 18 9| ... | ... | ... | ... | |1352, May 18 | ... | ... | ... | ... | 20 0 | |1352, January 18 | 60 17 6| ... | ... | ... | ... | |1352, February 3 | ... | ... | ... | ... | 37 6 | |1353, May 1 | ... | ... | ... | ... | 40 0 | |1353, October 26 | | | | | | | (forte monnaie) | 62 16 4| ... | ... | ... | 15 0 | |1354, November 24 | 60 0 0| Moutons |Fine gold | 52 | 25 0 | |1355, June 3 | 61 5 0| ... | ... | ... | ... | |1355, June 19 | 62 10 0| ... | ... | ... | ... | |1355, January 3 | | | | | | | (forte monnaie) | ... | Moutons | ... | ... | 25 0 | |1356, November 25 | ... | Moutons | ... | ... | 30 0 | | " January 25 | 63 2 6| " | ... | ... | 25 0 | |1357, June 15 | ... |Petits moutons|Fine gold | 104 | 12 6 | |1358, August 31 | 78 15 0| Royal | " | 66 | 25 0 | | " April 20 | 80 12 6| " | " | 69 | 25 0 | |1359, March 31 | | | | | | | (forte monnaie) | ... | " | ... | ... | 40 0 | |1360, January 12 | | | | | | | (forte monnaie) | 60 0 0| Franc |Fine gold | 63 | 20 0 | |1361, April 23 | 60 0 0| ... | ... | ... | ... | |1363, July 29 | 61 0 0| ... | ... | ... | ... | |1364 (Charles V.), | | | | | | | May 3 | 62 0 0| ... | ... | ... | ... | |1364, August 5 | ... | Royal |Fine gold | 63 | 20 0 | | " September 10 | ... | Franc | " | 63 | 20 0 | |1365, May 5 | 62 10 0| Fleur de Lis | " | 64 | 20 0 | |1381, (Charles VI.), | | | | | | | April 25 | 60 10 0| " | " | 64 | 20 0 | |1384, March 18 | 65 10 0| Écu à la | ... | 60 | 22 0 | | | | couronne | | | | |1386, August 31 | 66 0 0| ... | ... | ... | ... | |1387, February 28 | 66 10 0| ... | ... |61-1/3| 22 6 | |1391, April 8 | 67 0 0| ... | ... | ... | ... | |1392, " 1 | 67 10 0| ... | ... | ... | ... | |1394, September 5 | 68 5 0| ... | ... | 62 | 22 6 | |1405, August 8 | 68 15 0| ... | ... | ... | ... | |1407, February 11 | 68 5 0| ... | ... | ... | ... | |1411, November 7 | 70 0 0| ... | ... | 64 | 22 6 | | " February 12 | ... | ... |23-11/28 | ... | ... | | | | | carat | | | | " March 5 | 70 15 0| ... | ... | ... | ... | |1414, September 6 | 72 0 0| ... | ... | ... | ... | |1417, May 17 | 92 0 0| Moutons |23 carat | 96 | 20 0 | | " October 21 | 96 0 0| ... | ... | ... | ... | | " " 28 | ... | ... |22 carat | 96 | 20 0 | | " December 9 | 92 0 0| Écu heaume | " | 48 | 40 0 | |1418, July 2 | 94 0 0| ... | ... | ... | ... | | " March 7 |150 0 0| Écu à la |23 carat | 64 | 50 0 | | | | couronne | | | | |1419, June 18 |144 0 0| Moutons | ... | 96 | 30 0 | | " October 24 | ... | Chaises |Fine gold | 40 | 80 0 | | | | or doubles | | | | | " February 26 |171 13 4| Écu à la | ... | 67 | 50 0 | | | | couronne | | | | | ... | ... | Moutons | ... | ... | 26 8 | | | | | | | Par. | |1420, October 27 | ... | Doubles |22-1/4 carat| 40 | 80 0 | |1421 (forte monnaie), | | | | | | | April 26 | 72 0 0| Écu à la |Fine gold | 66 | 22 6 | | | | couronne | | | | | " November 8 | 76 5 0| Saluts | " | 63 | 25 0 | |1422 (Charles VII.), | | | | | | | January 20 | ... | Écu à la | | | | | | | couronne |22-1/2 carat| 64 | 25 0 | |1423, May 22 | 84 0 0| ... |Fine gold | 68 | 25 0 | | " January 28 | ... | Moutons |22 carat | 96 | 20 0 | | " February 8 | ... | Franc à | | | | | | | cheval |Fine gold | 80 | 20 0 | | " July 1 | 79 0 0| ... | ... | ... | ... | |1424, August 23 | ... | Écu à la | | | | | | | couronne |23 carat | 67 | 22 6 | | " September 2 | 87 0 0| ... | ... | 70 | 25 0 | | " November 3 | ... | Moutons |22 carat | 96 | 15 0 | |1425, October 3 | ... | Écu à la | | | | | | | couronne |23 " | 64 | 25 0 | | " January 12 | 87 10 0| ... | ... | 70 | ... | |1426, August 27 |105 0 0| ... | ... | ... | ... | | " September 11 |108 0 0| ... |22 carat | 70 | 30 0 | | " October 12 | ... | ... | ... | 72 | ... | | " January 9 | 90 0 0| ... | ... | ... | ... | | " January 17 | ... | ... |23 carat | 67 | 22 6 | | " March 19 | ... | ... | ... | ... | 25 0 | |1427, May 27 | 72 0 0| ... | ... | ... | 20 0 | | " July 19 | ... | ... |21 carat | 72 | 25 0 | | " August 28 | 90 0 0| ... |22 " | 70 | 25 0 | | " October 15 | ... | Moutons |20 " | 96 | 15 0 | | " November 20 | 80 0 0| Écu à la | | | | | | | couronne |20 " | 70 | 20 0 | | " February 21 | 92 10 0| ... |21 " | ... | 20 0 | |1428, July 31 | 97 10 0| ... |20 " | ... | 25 0 | | " October 26 | ... | Moutons |19 " | 96 | 15 0 | | " April | 88 0 0| Écu à la | | | | | | | couronne |18 " | 70 | 20 0 | | " March 2 |105 0 0| ... | ... | ... | ... | |1429, June 17 | ... | ... |16 carat | ... | 25 0 | | " November 14 | | | | | | | (forte monnaie) | 77 10 0| Royal |Fine gold | 64 | 25 0 | |1429, December 7 | ... | Écu à la | | | | | | | couronne |22 carat |67-1/2| 22 6 | |1430, July 7 | 97 0 0| Chaises |16 " | 68 | 20 0 | | " November 9 | ... | Écu à la | | | | | | | couronne |22 " | 64 | 22 6 | |1431, May 30 | 77 10 0| Royal |Fine gold | 64 | 25 0 | | " September 27 |102 0 0| ... | ... | 70 | 30 0 | | " February 9 | ... | ... | ... | 64 | 25 0 | | " March 24 | 88 11 10| Écu à la | | | | | | | couronne |20 carat |67-1/2| 22 6 | |1432, January 16 | 78 15 0| ... | ... | ... | ... | | " December 31 | ... | Royal |Fine gold | 64 | 25 0 | |1435, October 14 |103 10 0| Écu à la | " | 70 | 30 0 | | | | couronne | | | | | " February 21 | 86 5 0| ... | ... | ... | 25 0 | |1437, September 1 | 87 10 0| ... | ... | ... | ... | | " November 22 | 92 10 0| ... |21 carat | 70 | 25 0 | |1438, April 30 | 86 5 0| ... |Fine gold | 70 | 25 0 | |1443, November 19 | 87 3 6| ... | ... | ... | ... | |1444, December 17 | 87 10 0| ... |23-1/4 carat| 70 | 25 0 | |1445, September 24 | 88 7 6| ... | ... | ... | ... | |1446, June 1 | 88 2 6| Écu à la |23-3/4 carat|70-1/2| 25 0 | | | | couronne | | | | | " January 21 | 97 15 0| ... |23-1/2 " | ... | 27 6 | |1447, July 27 | 97 5 7-1/2| ... |23-1/4 " | ... | ... | | " October 27 | 97 15 0| ... |23-1/2 " | ... | ... | |1450, June 15 | 99 0 0| ... |23-1/8 " | ... | ... | | " February 3 | 99 5 0| ... | ... | ... | ... | |1454, May 18 | 99 10 0| ... | ... | ... | ... | |1456, June 26 |100 0 0| ... | ... | 71 | ... | |1472 (Louis XI.), | | | | | | | March 12 | ... | ... | ... | ... | 28 4 | |1473, June 18 |103 0 0| ... | ... | ... | ... | | " January 8 |110 0 0| ... | ... | 72 | 30 3 | |1475, November 2 |118 10 0| Écu au soleil|23-1/8 carat| 70 | 33 0 | |1487 (Charles VII.), | ... | Écu à la | ... | ... | 35 0 | | July 30 | | couronne | | | | | ... | ... | Écu au soleil| ... | ... | 36 3 | |1488, April 24 |130 3 4| ... | ... | ... | ... | |1497 (Louis XII.), | | | | | | | April 7 |130 3 4| Écu au soleil| ... | ... | 36 3 | |1507, November 24 | ... | Écu au porc | ... | ... | 36 3 | | | | épi | | | | |1514 (Francis I.), | | | | | | | January 1 | ... | Écu au soleil| ... | ... | 36 3 | |1516, November 27 | ... | " | ... | ... | 40 0 | | ... | ... | Écu à la | ... | ... | 39 0 | | | | couronne | | | | |1517, May 25 | ... | Écu au soleil| ... | ... | 36 3 | |1519, June 10 |147 0 0| ... |22-7/8 carat|71-1/2| 40 0 | | " August 18 | ... | ... |23 " |71-1/6| 40 0 | |1532, March 5 | ... | ... | ... | ... | 45 0 | |1539, February 24 | ... | Écu à la |23 carat |71-1/6| 45 0 | | | | salemand | | | | |1540, May 18 |165 7 6| Écu à la | ... | ... | 45 0 | | | | croisette | | | | |1549 (Henry II.), | | | | | | | January 23 |172 0 0| Henris |23 carat | 67 | 50 0 | |1561, (Charles IX.), | | | | | | | August 30 |185 0 0| Écu au soleil|23 carat |72-1/2| 50 0 | |1569, November 23 | ... | ... | ... | ... | 53 0 | |1570, August 30 | ... | ... | ... | ... | 54 0 | |1572, July 1 | ... | ... | ... | ... | 52 0 | |1573, June 9 |200 0 0| ... | ... | ... | 54 0 | |1574 (Henry III.) | | | | | | | September 22 | ... | ... | ... | ... | 58 0 | |1575, June 17 | ... | ... | ... | ... | 60 0 | | " May 31 |222 0 0| ... | ... | ... | 60 0 | | " June 15 |222 0 0| Écu au soleil|23 carat |72-1/2| 65 0 | | " November 20 | ... | ... | ... | ... | 60 0 | |1602 (Henry IV.), | | | | | | | September |240 10 0| ... | ... | ... | 65 0 | |1615 (Louis XIII.), | | | | | | | February 5 |278 6 6| ... | ... | ... | 75 0 | |1630, February | ... | ... | ... | ... | 80 0 | |1631, August | ... | ... | ... | ... | 83 0 | |1633, July | ... | ... | ... | ... | 86 0 | |1636, March 5 | ... | ... | ... | ... | 94 0 | | " May 8 |320 0 0| ... | ... | ... | ... | | " June 28 | ... | ... | ... | ... | 104 0 | | " September 22 |384 0 0| ... | ... | ... | ... | |1640, April 3 | ... | Louis d'or |22 carat |36-1/4| 200 0 | |1652 (Louis XIV.), | | | | | | | April 4 | ... | ... | ... | ... | 220 0 | |1655, December 23 | ... | Louis d'or |23-1/4 carat|60-1/2| 140 0 | |1662, July 7 |423 10 11| ... | ... | ... | ... | |1679, April 10 |437 9 8-1/2| ... | ... | ... | ... | |1686, July 29 |437 7 5| Louis d'or | ... | ... | 230 0 | |1687, October 27 |447 7 2| ... | ... | ... | 225 0 | | | (Pite) | | | | | |1689, December 10 | ... | ... | ... | ... | 232 0 | | | ... | Écu d'or | ... | ... | 120 0 | |1693 |514-1/11 0 0| Louis d'or | ... | ... | 260 0 | |1703 |584-1/4 0 0| " | ... | ... | 300 0 | |1708 | ... | " | ... | ... | 255 0 | |1709, April |576 0 0| " |22 carat | 32 | 330 0 | | " May |654-6/11 0 0| " | ... | 30 | 400 0 | |1713, September 30 | ... | " | ... | ... | 280 0 | | " December | ... | " | ... | ... | 400 0 | |1716, November | ... | ... |22 carat | 22 | ... | |1718, May | ... | Louis d'or | " | 25 | ... | |1719, July 25 |927-3/11 0 0| " | ... | ... | 680 0 | | ... |1008 15 0 |Quinzains d'or| ... | ... | 300 0 | |1720, March 5 | ... | Louis d'or | ... | ... | 800 0 | | | | (of 1709) | | | | |1720, March 11 |1963-7/11 0 0| Louis d'or | ... | ... |1200 0 | | " September |1472-8/11 0 0| " | ... | ... | 900 0 | | ... | ... | " | ... | 25 |1000 0 | |1721, January 1 | ... | " | ... | ... | 900 0 | |1723 | ... | " | ... |37-1/2| 540 0 | |1726 | ... | " | ... | ... | 240 0 | | " (Recoinage) | 678 15 0| " |22 carat | 30 | 400 0 | | " May | 740 9 1| " |Raised 20 | ... | 480 0 | | | | | per cent | | | | ... | ... | Écu | ... | ... | 120 0 | |1785, October 30 | | | | | | | (recoinage) | 828 12 0| Louis d'or |22 carat | 32 | 480 0 | |1803, March 28 |3444-4/9 | 40 and |Issue price | ... | ... | | | francs per | 20-franc | being | | | | | kilog. | pieces | 3434-4/9 | | | | | fine = 3100| | per kilog.| | | | | fcs. per | | and 3091 | | | | | kilog. | | per kilog.| | | | | 9/10 fine. | | 9/10 fine.| | | |1830 November 8 | ... | 100 and | ... | ... | ... | | | | 10-franc | | | | | | | pieces | | | | |1850 | ... |10-franc piece| ... | ... | ... | |1835, February 25 |Mint change | ... | ... | ... | ... | | | = 6 francs | | | | | | | per kilog. | | | | | | " June 30 |Issue price | ... | ... | ... | ... | | |of kilog. of | | | | | | |fine gold | | | | | | |altered from | | | | | | |3434-4/9 fcs.| | | | | | |to 3437-7/9 | | | | | | |fcs. | | | | | +----------------------+-------------+--------------+------------+------+----------+ [Footnote G: See De Saulcy, _Documents_, i. 73, where it is stated that the fineness of these pieces was occasionally below 20 carats.] [Footnote H: 1 Edward III. 4496 florins of the lamb worth 3s. 10-1/2d. a piece = £871, 2s. sterling (Exchequer Q.R. Ancient Miscellanea, 624/3. Expenses of Adam, bishop of Worcester, going to Rome).] TABLE OF FRENCH SILVER COINS. (_From the same sources, extended as above, p. 408._) +----------------------+----------+---------------+-----------+---------+---------+ |Date. |Price of | Name of | Alloy. | Tale | Value. | | |Mark of | Species. | |per Mark.| | | |Silver. | | | | | +----------------------+----------+---------------+-----------+---------+---------+ | |Liv. Den.| | Den. Grs.| |Sol. Den.| | | Sol. | | | | | |1144 | 0 40 0 | ... | ... | ... | ... | |1158 | 0 53 4 | ... | ... | ... | ... | |1207 | 0 50 0 | ... | ... | ... | ... | |1222 | 0 50 0 | ... | ... | ... | ... | |1226 | 0 54 7 |Gros Tournois | 11 12 | 58 | 0 12 | |1283 | 0 54 0 | ... | ... | ... | ... | |1285 | 0 54 6 | ... | ... | ... | ... | |1293 | 0 61 0 | ... | ... | ... | ... | |1295 | ... |Petits Tournois| 9 12 | 116 | 0 6 | |1296, May 20 | 3 8 0 | ... | ... | ... | ... | |1297, July 4 | 3 10 0 | ... | ... | ... | ... | |1298, May 25 | 3 15 0 | ... | ... | ... | ... | |1299, June 7 | 3 18 0 | ... | ... | ... | ... | |1302, April 23 | 4 8 0 | ... | ... | ... | ... | | " February 2 | 5 4 0 | ... | ... | ... | ... | |1303, August 15 | 6 0 0 | ... | ... | ... | ... | |1304, May 7 | 6 5 0 | ... | ... | ... | ... | | " June 25 | 6 14 0 | ... | ... | ... | ... | | " September 8 | 6 15 0 | ... | ... | ... | ... | | " December 13 | 7 5 0 | ... | ... | ... | ... | | " March 1 | 7 10 0 | ... | ... | ... | ... | |1305, April 18 | 8 10 0 | ... | ... | ... | ... | |1306, October 1 | 2 15 6 | ... | ... | ... | ... | | (forte monnaie) | | | | | | |1308, April 16 | 2 19 0 |Gros Tournois | 11 12 | 58 | 0 12 | |1310, January 20 | 3 7 6 |Bourgeois Forte| 6 0 | 189 | 0 2 | | | | | | | (Par.)| |1311, July 8 | 3 5 1-1/2|Bourgeois | 6 0 | 378 | 0 1 | | | | Singles | | | (Par.)| |1313, June | ... | ... | ... | ... | 0 1 | | | | | | | (Tour.)| | " September 19 | 2 14 7 |Gros Tournois | 11 12 | 58 | 0 12 | | | | | | | | | ... | ... |Denier Tournois| 3 18 | 220 | 0 1 | | | | | | | | | ... | ... |Denier Parisis | 4 12 | 221 | 0 1 | | | | | | | (Par.)| |1314, November 29 | 2 4 7 | ... | ... | ... | ... | |1315, May 6 | ... |Denier Parisis | 4 12 | 221 | 0 1 | | | | | | | (Par.)| | " January 15 | 2 4 0 |Denier Tournois| 3 18 | 220 | 0 1 | | | | | | | (Tour.)| |1317, March 1 | 3 7 6 |Gros Tournois | 11 12 | 59-1/6 | 1 3 | | ... | ... |Denier Parisis | 4 12 | 282 | 0 1 | |1321, February 20 | 3 7 6 |Gros Tournois | 11 12 | 59-1/6 | 1 3 | |1322, October 15 | 3 8 9 |Denier Parisis | 3 18 | 218 | ... | | " March 2 | 4 0 0 |Obole Blanche | 10 0 | 118 | 0 6 | | | | | | | (Par.)| |1326, July 24 | 4 10 0 | ... | 9 0 | 135 | 0 8 | | | | | | | (Tour.)| | " January 20 | 5 0 0 | ... | ... | ... | ... | |1327, " 8 | 5 8 0 | ... | ... | ... | ... | |1328, November 7 | 5 11 0 | ... | ... | ... | ... | |1329, December 26 | 4 4 0 |Gros Tournois | ... | ... | 1 6 | | | | | | | (Tour.)| |1330, April 8 | 2 18 0 | " | 11 12 | 60 | 1 0 | | (forte monnaie) | | | | | (Tour.)| | ... | ... |Gros Parisis | 11 12 | 48 | 1 0 | | | | | | | (Par.)| |1331, January 9 | 2 17 6 | ... | ... | ... | ... | |1333, June 12 | 2 15 6 |Denier Parisis | 4 4 | 138-1/2 | ... | |1336, February 13 | 3 12 6 |Gros à la | 10 16 | 96 | 1 10 | | | | Couronne | | | (Tour.)| |1338, November 14 | 4 12 0 | " | 8 0 | 96 | 0 10 | | " January 3 | 5 0 0 | ... | ... | ... | ... | |1339, August 19 | 5 0 0 | ... | ... | ... | ... | | " February 5 | 6 15 0 | ... | 7 0 | 105 | 0 10 | | " April 6 | ... | ... | 6 0 | 108 | 0 10 | |1340, August 1 | 7 0 0 | ... | ... | ... | ... | | " December 4 | 7 10 0 | ... | ... | ... | ... | | " January 27 | 8 14 0 |Gros à la Fleur| 6 0 | 84 | 1 3 | | | | de Lis | | | | | " February 8 | 9 4 0 | ... | ... | ... | ... | | " " 13 | 9 12 0 | ... | 6 0 | 95 | 1 3 | |1342, June 30 |12 10 0 | ... | 6 0 | 120 | 1 3 | | " September 7 |13 0 0 | ... | ... | ... | ... | |1343, April 9 |13 10 0 | ... | ... | ... | ... | | " September 22 | 9 10 0 | ... | ... | ... | ... | | ... | ... |Gros Tournois | 11 12 | 60 | 3 9 | | " October 26 | 3 4 0 | ... | ... | ... | 1 3 | | (forte monnaie) | | | | | | |1344, February 16 | 3 8 0 | ... | ... | ... | ... | |1345, April 9 | 3 10 6 | ... | ... | ... | ... | |1346, July 17 | 4 10 0 |Double Parisis | 3 18 | 180 | 0 2 | | | | | | | (Par.)| |1346, January 27 | 5 0 0 | ... | ... | ... | ... | | " February 24 | 6 15 0 | ... | ... | ... | ... | | " March 3 | ... | ... | 3 0 | 216 | 0 2 | | | | | | | (Par.)| |1347, July 21 | 7 10 0 | ... | ... | ... | ... | | " January 11 | 4 16 0 |Double Tournois| 3 8 | 183-1/3 | 0 2 | | | | | | | (Tour.)| |1348, August 31 | 5 0 0 | ... | 3 1-1/3| 183-1/3 | 0 2 | | | | | | | (Tour.)| | " December 31 | 6 0 0 | ... | 2 12 | 200 | 0 2 | | | | | | | (Tour.)| |1349, May 12 | 6 13 0 | ... | ... | ... | ... | | " August 7 | 6 15 0 | ... | ... | ... | ... | | " December 5 | 7 7 0 | ... | ... | ... | ... | | " January 20 | 7 15 0 | ... | ... | ... | ... | |1350, April 23 | 5 0 0 |Double Parisis | 3 12 | 168 | 0 2 | | (forte monnaie) | | | | | (Par.)| | " August 23 | 5 5 0 | " | 2 8 | 168 | 0 2 | | | | | | | (Par.)| | " October 26 | 5 12 0 | ... | ... | ... | ... | | " February 5 | 6 0 0 | ... | ... | ... | ... | | " March 6 | 6 8 0 | ... | ... | ... | ... | |1351, May 17 | 6 18 0 |Blancs | 4 12 | 144 | 0 6 | | | | | | | (Par.)| | " June 23 | 7 8 0 | ... | ... | ... | ... | | " August 18 | 8 15 0 | ... | ... | ... | ... | | " September 12 |10 0 0 |Blancs | 4 0 | 144 | 0 6 | | | | | | | (Par.)| | " October 10 |10 10 0 | ... | ... | ... | ... | | " December 16 |11 0 0 | ... | ... | ... | ... | | " January 25 |12 0 0 | ... | ... | ... | ... | | " February 4 |14 12 0 |Gros Tour. | 4 8 | 87-1/4 | 0 8 | | | | Blancs | | | (Tour.)| | " March 27 | 5 6 0 | ... | ... | ... | ... | | (forte monnaie) | | | | | | |1352, June 2 | ... | ... | ... | ... | ... | | " July 24 | 6 2 0 | ... | 4 0 | 100 | 0 8 | | | | | | | (Tour.)| | " August 16 | 6 10 0 | ... | ... | ... | ... | | " October 24 | 6 18 0 | ... | ... | ... | ... | | " November 25 | 8 0 0 | ... | 4 0 | 120 | 0 8 | | | | | | | (Tour.)| | " December 31 | 9 0 0 | ... | ... | ... | ... | | " February 6 |10 0 0 | ... | ... | ... | ... | |1353, April 22 |12 0 0 | ... | 3 12 | 140 | 0 8 | | | | | | | (Tour.)| | " July 30 |12 15 0 | ... | ... | ... | ... | |1353, August 2 |13 15 0 | ... | ... | ... | ... | | " October 26 | 4 15 0 | ... | ... | ... | ... | | (forte monnaie) | | | | | | | " November 27 | ... | ... | 3 8-4/5| 65 | 0 8 | | | | | | | (Tour.)| | " February 5 | 5 7 0 | ... | ... | ... | ... | | " " 17 | 5 17 0 | ... | ... | ... | ... | |1354, April 26 | 6 15 0 | ... | ... | 96 | 0 8 | | | | | | | (Tour.)| | " May 28 | 9 12 0 | ... | 3 0 | 120 | 0 8 | | | | | | | (Tour.)| | " July 5 |10 12 0 | ... | ... | ... | ... | | " September 7 |12 0 0 | ... | ... | ... | ... | | " November 24 | 4 4 0 |Blanc à la | 3 8 | 80 | 0 5 | | (forte monnaie) | | Couronne | | | (Tour.)| | " January 23 | 4 16 0 | ... | 2 12 | ... | ... | | " April 4 | 5 6 0 | ... | 3 0 | 120 | ... | |1355, May 20 | 6 10 0 | ... | 2 12 | ... | ... | | " July 6 | 7 10 0 | ... | ... | ... | ... | | " " 17 |10 0 0 |Blancs à la | 3 9 | 72 | 1 3 | | | | Couronne | | | (Tour.)| | " August 22 | ... | ... | 3 0 | ... | ... | | " August 26 |11 0 0 | ... | ... | ... | ... | | " September 28 |12 10 0 | ... | 3 0 | 80 | ... | | " October 9 |14 0 0 | ... | 3 0 | 100 | ... | | " November 10 |16 0 0 | ... | 2 12 | 100 | ... | | " December 15 |18 0 0 | ... | ... | ... | ... | | " January 3 | 5 5 0 | ... | ... | ... | ... | | (forte monnaie) | | | | | | | " January 5 | ... |Blanc à la | 8 0 | 96 | 0 10 | | | | Couronne | | | | | " " 16 | ... |Blanc à la | 4 0 | 60 | 0 8 | | | | Fleur de Lis | | | | |1356, August 3 |6 10 0 | ... | 3 0 | 90 | ... | | " September 19 |7 5 0 | ... | 3 0 | 112-1/2 | ... | | " October 28 |8 17 0 | ... | ... | ... | ... | | " November 23 |7 8 0 |Gros | 6 0 | 80 | 1 0 | | " " 28 |7 8 0 |Gros Blancs | 4 0 | 80 | 1 0 | | " February 7 | ... | ... | 3 0 | 112-1/2 | 1 0 | | " March 26 |6 10 0 |Gros à la | 5 0 | 70 | 0 10 | | | | Couronne | | | | |1357, January 23 |8 10 0 |Blanc à la | 4 0 | 60 | 1 3 | | | | Fleur de Lis | | | | |1358, May 9 |10 0 0 | ... | 3 8 | ... | ... | | " July 1 |12 0 0 | ... | 3 0 | 64 | ... | | " August 8 |13 10 0 | ... | 3 0 | 96 | ... | |1358, August 30 | 6 15 0 |Blancs à la | 4 0 | 53-1/3 | 1 0 | | | | Couronne | | | | | " November 13 | 7 0 0 | | | 75 | | | " " 22 | 8 0 0 | | 3 0 | 75 | | | " December 3 | 8 12 0 | | | | | | " " 9 | 9 10 0 | | | | | | " February 22 | 7 0 0 | | 3 0 | 90 | 0 6 | | " " 27 | | | 3 0 | 100 | | |1359, April 20 | 7 10 0 | | 3 0 | 120 | | | " May 28 |11 10 0 | | 2 12 | 150 | | | | |Gros Blancs | 3 0 | 72 | 1 3 | | " June 5 | 9 0 0 |Blancs aux | 3 12 | 70 | 1 3 | | | | trois Fleurs | | | | | | | de Lis | | | | | " June 12 | | | 3 0 | | | | " July 9 | | | | | | | " " 12 | | | 2 15 | | | | " " 31 |16 4 0 | | 2 12 | 80 | | | " September 18 |22 13 0 | | 2 6 | 90 | | | " October 5 | | | | 112-1/2 | | | " " 22 |29 8 0 | | 2 0 | 120 | | | " November 27 |12 0 0 |Gros à | 4 0 | 48 | 2 6 | | | | l'estoile | | | | | " December 5 |15 0 0 | | 3 0 | | | | " " 19 |18 9 0 | | | | | | " " 31 |23 12 6 | | | | | | " January 2 |24 12 6 | | 2 12 | 60 | | | " " 22 |34 12 6 | | 2 0 | 72 | | | " February 17 | | | | 80 | | | " " 27 |53 17 6 | | | 100 | | | " March 4 |77 16 0 | | 1 12 | 100 | | | " " 21 |102 0 0 | | | 125 | | | " " 31 |11 0 0 |Gros | 4 0 | 64 | | | | |Blancs | | | | | (forte monnaie) | | | | | | |1360, April 27 | | | 3 0 | | | | " May 4 | | | 2 12 | | | | " " 26 | | | 2 0 | | | | " June 2 | 7 0 0 |Blancs à la | 2 0 | 64 | 0 6 | | | | Fleur de Lis | | | | | " " 27 | | | | 80 | 0 7-1/2| | " " 28 | 9 0 0 | | 1 12 | 80 | | | " " 29 |10 10 0 | | | | | | " August 7 |15 0 0 | | | 100 | | | " " 18 |17 0 0 | | | 120 | | | " " 22 |18 10 0 | | | | | | " September 7 | 7 0 0 |Blanc à la | 4 0 | 66 | 0 10 | | | | couronne | | | | |1360, October 22 | ... | ... | 2 12 | ... | ... | | " November 13 | 8 0 0 | ... | ... | ... | ... | | " " 19 | 9 0 0 | ... | ... | ... | ... | | " January 12 | 5 8 0 |Blanc à la | 4 12 | 54 | 0 10 | | | | fleur de lis | | | | |1361, April 3 | 5 0 0 |Gros Tournois | 11 12 | 84 | 1 3 | | (forte monnaie) | | | | | | |1364, May 3 | 5 0 0 |Gros d'argent | 11 12 | 84 | 1 3 | |1365, May 2 | 5 5 0 |Blanc | 4 0 | 96 | 0 5 | |1370, June 19 | 5 15 0 |Gros d'argent | 11 3-1/4 | 96 | 1 3 | |1372, August 9 | 5 16 0 | ... | 11 17 | ... | ... | |1374, " 12 | ... | ... | 11 6 | ... | ... | |1378, " 19 | ... | ... | 11 17 | ... | ... | |1381, April 16 | 5 8 0 |Gros d'argent | 11 6 | 96 | 1 3 | | " August 15 | 5 16 0 | ... | ... | ... | ... | |1384, March 22 | ... |Blanc à l'écu | 6 0 | 75 | 0 10 | |1386, October 31 | ... | ... | 5 12 | 74-1/2 | ... | |1389, " 30 | 5 18 0 | ... | 5 12 | ... | ... | | " July 4 | 6 3 9 | ... | 5 12 | ... | 1 0 | |1391, April 8 | 6 5 0 | ... | ... | ... | ... | |1399, November 27 | 6 8 0 | ... | ... | ... | ... | |1401, July 26 | ... |Gros | 9 0 | 81 | 1 3 | |1405, " 6 | 6 12 6 |Blanc à l'écu | 5 6 | 76-1/2 | 0 10 | |1411, November 5 | 6 15 0 | ... | 5 0 | 80 | ... | |1413, July 12 | 7 0 0 |Gros d'argent | 11 16 | 84-7/12 | 1 8 | |1414, June 26 | 7 2 0 |Blanc à l'écu | 5 0 | 80 | 0 10 | |1417, May 17 | 8 0 0 |Gros | 8 0 | 80 | 1 8 | | " October 21 | 9 0 0 | ... | 5 8 | ... | ... | |1418, May 28 | 9 10 0 | ... | ... | ... | ... | | " January 19 | 10 0 0 | ... | ... | ... | ... | | " March | 14 0 0 | ... | ... | ... | ... | | " " 7 | 16 10 0 | ... | 3 8 | ... | ... | |1419, February 17 | ... |Blanc | 2 0 | 168 | 0 5 | |1420, April 9 | 18 0 0 | ... | ... | ... | ... | | " May 8 | 26 0 0 |Gros | 2 12 | 100 | 1 8 | | " February 11 | ... | ... | ... | ... | ... | |1421, April 26 | 7 0 0 |Gros d'argent | 11 12 | 86-1/4 | 1 8 | |1422, October 30 | 7 10 0 |Blanc | 4 12 | 90 | 0 10 | |1423, December 31 | 7 0 0 | ... | 5 0 | 80 | ... | | " March 10 | ... | ... | 6 0 | 90 | ... | |1424, " 17 | ... |Blanc | 5 0 | 80 | 0 10 | |1425, June 9 | 6 5 0 |Gros | 8 0 | 90 | 1 0 | |1425, August 17 | 7 0 0 | Blanc | 4 0 | 128 | 0 5 | | " January 23 | 7 10 0 | Grand Blanc | 9 0 | 96 | 1 3 | | " March 16 | 7 5 0 | Blanc | 5 0 | 80 | 0 10 | |1426, May 28 | 8 10 0 | ... | 4 0 | ... | ... | | " August 20 | 9 10 0 | ... | 3 8 | ... | ... | | " November 19 | 11 0 0 | ... | 3 0 | 81 | ... | | " January 11 | 7 0 0 | ... | 4 12 | 72 | ... | |1427, August 26 | 8 0 0 | ... | 4 0 | 80 | ... | | " October 4 | 8 10 0 | ... | ... | ... | ... | |1428, July 31 | 11 0 0 | ... | 3 0 | 81 | ... | | " January 24 | 13 10 0 | ... | 2 8 | 84 | ... | | " March 2 | 15 0 0 | ... | 2 0 | ... | ... | |1429, May 4 | ... | ... | 1 18 | ... | ... | | " June 10 | 20 0 0 | ... | 1 12 | ... | ... | | " November 5 | 7 0 0 | ... | 5 0 | 80 | 0 8 | | (forte monnaie) | | | | | | | " January 16 | 7 0 0 | ... | 5 0 | 80 | 0 10 | |1430, December 22 | 6 15 0 | Gros | 11 12 | 120-3/4 | 1 3 | |1431, January 9 | 7 5 0 | Blancs | 5 0 | 80 | 0 10 | |1432, April 11 | 9 6 1 | ... | ... | ... | ... | | " August 22 | 9 10 2 | Gros | 4 18 | 68 | 1 2 | | " September 29 | 9 16 0 | ... | ... | ... | ... | | " January 16 | 7 5 0 | ... | ... | ... | ... | |1434, May 28 | ... | Petit blanc | 4 0 | 128 | 0 5 | |1435, September 22 | 9 0 0 | Blanc | 4 0 | 80 | 0 10 | | " February 21 | 7 0 0 | ... | 5 0 | ... | ... | |1436, May 24 | ... | Blanc à l'écu | 5 0 | ... | ... | | " April 21 | 7 8 0 | ... | ... | ... | ... | |1437, November 27 | 9 0 0 | ... | 3 8 | ... | ... | | " April 3 | 7 10 0 | ... | ... | ... | ... | |1440 | 7 8 0 | ... | ... | ... | ... | |1441 | 7 10 0 | ... | ... | ... | ... | |1447, July 7 | 8 0 0 | Blanc à l'écu | 4 21 | 82-3/4 | 0 10 | | " " 27 | 8 10 0 | Gros d'argent | 11 15 | 68 | 2 6 | | ... | 7 10 0 | Blanc | 5 0 | 90 | 0 10 | |1456, June 26 | 8 10 0 | " | 4 12 | 81 | 0 10 | | ... | 8 15 0 | Gros d'argent | 11 12 | 69 | 2 6 | |1465, July | ... | ... | ... | 69-5/6 | | | ... | 8 10 0 | Blanc | 4 12 | 81 | 0 10 | |1473, January 8 | 10 0 0 | ... | ... | 86 | 0 11 | | ... | ... | Gros d'argent | 11 12 | 69 | 2 9 | |1475, November 2 | ... |Blanc au soleil| 4 12 | 78-1/2 | 1 0 | |1488, April 24 | 11 0 0 |Blanc au soleil| 4 12 | 78-1/2 | 1 1 | |1497, " 7 | 11 0 0 |Blanc à la | 4 12 | 86 | 1 0 | | | | couronne | | | | |1513, " 6 | 12 10 0 |Testoons | 11 18 | 25-1/2 | 10 0 | |1514, January 1 | 11 0 0 |Blancs | 4 12 | 86 | 1 0 | | " February 17 | 12 15 0 |Testoons | 11 18 | 25-1/2 | 10 0 | |1519, June 10 | 12 10 0 |Blancs à la | 4 6 | 92-1/2 | 1 0 | | | | couronne | | | | |1521, September 20 | 13 5 0 |Testoons | 11 6 | 25-1/2 | 10 0 | |1532, March 1 | ... | ... | ... | ... | 10 6 | |1539, February 24 | 12 10 0 |Blanc à la | 4 6 | 92-1/2 | 1 0 | | | | Salemand | | | | |1540, May 18 | 14 0 0 |Testoons | ... | ... | 10 8 | |1541, " 4 | ... |Douzains à | 3 16 | 91-1/4 | 1 0 | | | | la croisette | | | | |1547, March 31 | ... |Douzains | ... | 91-1/2 | 1 0 | |1549, October 25 | 14 10 0 |Testoons | ... | ... | 11 0 | | " January 23 | 15 0 0 | ... | ... | ... | 11 4 | |1550, April 20 | 14 5 0 |Douzains | 3 12 | 93-1/2 | 1 0 | |1561, August 30 | 15 15 0 |Testoons | 10 18-3/4 | 25-1/2 | 12 0 | |1572, June 13 | ... |Douzains | 3 12 | 102 | 1 0 | |1573, " 9 | 17 0 0 |Testoons | ... | ... | 13 0 | |1575, " 17 | ... | " | ... | ... | 14 6 | | " May 31 | 19 0 0 |Francs |10 10-10/23| 17-1/4 | 20 0 | | " " | 17 15 0 |Douzains | 3 0 | 102 | 1 0 | |1577, June 15 | ... |Testoons | ... | ... | 16 0 | | " November 20 | ... | " | ... | ... | 14 6 | |1580, October 17 | 19 0 0 |Quart d'écu | 11 0 | 25-1/3 | 15 0 | |1602, September | 20 5 4 | " | ... | ... | 16 0 | | " " | ... |Franc | ... | ... | 21 4 | | " " | ... |Testoons | ... | ... | 15 0 | |1636, May 8 | 23 10 0 | ... | ... | ... | ... | | " June 28 | ... |Franc | ... | ... | 27 0 | | " September 22 | 25 0 0 | ... | ... | ... | ... | |1641, November 18 | 26 10 0 |Louis | 11 0 | 8-11/12 | 60 0 | | | | d'argent | | | | |1652, April 4 | ... | " | ... | ... | 66 0 | |1655, December 23 | ... | " | 11 12 | 30-1/2 | 20 0 | |1679, April 10 | 29 11 0 | " | ... | ... | 60 0 | |1689, December 10 | ... | " | ... | ... | 62 0 | | " " | ... |Recoinage | ... | ... | 66 0 | | | | new species | | | | | | | of Louis | | | | | | | d'argent | | | | |1693, " | 33 16 0 |Louis | ... | ... | 68 0 | | | | d'argent | | | | |1703, December 10 |38-10/11 | | | | | | | 0 0 |Louis d'argent | ... | ... | 80 0 | |1709, April | 38 8 0 | " | 11 0 | 8 | 88 0 | | " May |43-7/11 | | | | | | | 0 0 | " | ... | |100 0 | |1713, September 30 | ... | " | ... | | 70 0 | |1718, May | ... |Louis d'argent | | | | | | | or écu | 11 0 | 10 | 80 0 | |1719, July 25 |61-9/11 | | | | | | | 0 0 | ... | ... | ... |113 4 | | " |69-1/8 | | | | | | | 0 0 |Livres d'argent| ... | 65-5/11 | ... | |1720, September |98-2/11 | | | | | | | 0 0 |Louis d'argent | ... | ... |235 0 | | ... | ... | " |(=1/4 écu) | 30 | 60 0 | |1721, January 1 | ... | " |( " ") | ... | 50 0 | |1723, | ... | " | ... | 10-3/8 |138 0 | |1726, | 46 18 0 | " | ... | 8 |100 0 | |1726, May | 51 3 3 | " | ... | ... |120 0 | |1785 |Silver | | | | | | | coins | | | | | | | unaltered| ... | ... | ... | ... | |1803 |Kilog. | Franc | .900 | 5 | ... | | | fine | | | grms. | | | | silver | | | wght. | | | | =222-2/8 | | | | | | | Francs | | | | | | | (218-8/9 | | | | | | | Francs | | | | | | | being | | | | | | | returned | | | | | | | to the | | | | | | | importer)| | | | | |1835, June 30 |Kilog. | " | " | ... | ... | | | fine | | | | | | | silver | | | | | | | =222-2/9 | | | | | | | Francs | | | | | | | (220 | | | | | | | Francs | | | | | | | being | | | | | | | returned | | | | | | | to the | | | | | | |importer.)| | | | | |1865, Latin Union | ... | ... |Pieces | | | | | | | under 5 | | | | | | | Francs | | | | | | | reduced to| | | | | | | .835 fine | | | +----------------------+----------+---------------+-----------+---------+---------+ FOOTNOTES: [Footnote 25: "En 1359 année de grandes secousses dans le prix du marc d'argent le public adopte comme unité l'écu d'or qui n'a pas varié." Vicomte D'Avenel, _Histoire de la propriété, etc._, i. p. 54.] [Footnote 26: For an account of the remaining species of _livres_, all differing in value, and amounting to at least twenty in number, _la livre de Provins_, _du Mans_, _de Bretagne_, _Languedoc_, _Dauphiné_, _Bourgogne_, _la livre Augevin_, etc. etc., see Vicomte D'Avenel, _Histoire de la propriété, etc._, i. 37-39, 482-494.] GENERAL INDEX A. Act of George III., 235. " 1834, United States, 257. Adams, John Quincy, 253, 258. Aislabie, Mr., 228. Alfonso X., The Wise, 321. Allard, Mr., 290. Anne, Queen, 277. Antwerp, position of, in the 17th century, 62. Arbitrage, 17th century, 73. Augsburg girogeld, 387. Austria, monetary system of, 376. Austrian standard, or Convention standard, 374, 386. B. Bacon, Sir Francis, 134. Balfour, Right Hon. A.J., 284. Bank of France, table of reserves, 186. Batavian Republic, 352. Barbour, Sir D., 284, 293. Barrett, Mr., 147. Bavaria, 374. Bavarian, Louis the, 7. Bayreuth, 374. Beernaert, M., 287. Bel, Charles le, 400. " Philippe le, 10, 12, 399. Binney, Mr., 259. Birch, J.W., 283. Bland, Mr., 261, 279. Bland, Bill, 279, 283. Bogy, Mr., 279. Boissevain, M., 290. Bold, Charles the, 402. Brandenburg-Anspach, 374. " Frederick William of, 199. Bremen, 373. Brunswick, 381. Brussels conference, 286. Byzantium, monetary system of, 2. C. Calhoun, Mr., 259. Calonne, XV., 172. Calvert, 142. Cambreleng, Mr., 258. Carleton, Mr., 140. Caswall, Mr., 228. Chambers, Mr., 259. Chaplin, H., 284. Charlemagne, monetary system of, 2, 397. Charles I. of Spain, 109. " I. of England, 133, 146. " II. of England, 219, 223. " II. of Spain, 329. " III. of Spain, 332. " IV. of Spain, 332. " V. of Germany, 96, 364. " VI. of France, 399, 400, 401, 402. " VII. of France, 399, 400, 401. " VIII. of France, 39, 401. " IX. of France, 84, 402. Clay, Mr., 259. Clowney, Mr., 258. Cologne, Bimetallic conference of, 282. Commission on the depreciation of silver, 1876, 279. Compagnie des Indes, 406. Conference (see International) of 1878 279; of 1881, 281. Convention of Dresden, 380. " " Vienna, 374. " standard, or Austrian standard, 386. Courtney, Leon. H., 283, 294. Course of monetary depreciation, 1300-1500, 15. Crawford, Secretary, 254. Crusades, effect of, on currency, 3, 5. Currie, Bertram Wodehouse, 294. D. Dandolo, Giovanni, 4. Denmark, 277. Depreciation of standard, general causes of, preface xii. Discounts in modern system, function of, 165. Ducat, or Imperial standard, 387. Dunham, Mr., 260. E. Edward III.'s changes of ratio, 45. " VI., 121, 124. Elizabeth, 129, 130, 132. Emperor Sigismund, 27. England, Act of 1798, 239. " " 1816, 243. " agitation of 1611, 137. " bank restriction, 241. " coinage of 1527, 118. " " Act of 1870, 243. " crisis of 1622, 141. " currency measures of 1544, 121. " effects of the ratio of 1698, 227. " Elizabeth's final revision, 131. " " recoinage, 129. " export in 1690, 223. " first coining of gold in, 11. " indenture of 1344, 42. " " 1346, 44. " " 1353, 45. " " 1414, 55. " " 1460-1470, 58. " " 1670, 221. " in 1378, 49. " measures of 1619, 139. " mintings and movements of metals, 1855-1894, 244. " monetary history of, 1300-1500, 41; 1500-1600, 113; 1660-1894, 219. " monetary inquiry of 1381, 51. " " troubles of Henry VI., 57. " proclamation of 1661, 220. " recoinage of, 1414, 55; 1696, 225; 1774, 235. " Sir Isaac Newton's report, 1717, 229. " Sir Robert Stone on the Mint, 151. " situation in 1638, 149. " state of the coinage in 1774, 253. " Tudor debasement, 123. Ewing, Mr., 258. F. Farrer, Lord, 283, 294. Ferdinand, 99, 101. " and Isabella, 322, 324, 327. " II., 321. " VI., 331. " VII., 332. Flanders, commencement of gold coinage, 10. Florence, monetary history of, in the 14th century, 18; 1500-1660, 93. " monetary system of, 301. France, action of the states general in 1420, 27. " commencement of gold coinage in, 9. " course of ratio, 1660-1894, 179. " currency debasement in, 32. " mint inquiry of 1575, 85. " monetary history of, 1286-1500, 31; 1500-1660, 83; 1600-1894, 167. " monetary system of, 396. " recoinage of, 1689, 167. " " 1693, 168. " " 1709, 168. " reform of, 1577, 87. " " 1640, 91. " " 1726, 169. " " 1785, 171. " " 1803, 177. Francis I., 201, 402. Franconian currency, 369. Frankfort, 373, 378. Frederick Augustus, 374. " I., 203. " IV., 27. " the Great, 378. Free trade in the precious metals, 163. Fremantle, Sir C.W., 283, 290. G. Gallatin, 258. Gaudin, M., 176. George III., 231. Germany, attempts at reform, 1860-70, 213. " commencement of gold coinage in, 6. " conference of Munich, 1837, 205. " gold standards, 387. " Leipzig standard, 200. " monetary history, 14th and 15th centuries, 25; 1500-1600, 95; 1660-1894, 197, 360. " new Imperial system, 1871, 215. " standards, silver, 385. " the convention standard, 201. " " Dresden convention, 1838, 207. " " Vienna conference, 1857, 209. " " Zinnaische standard, 199. " 24-gulden standard, 202. " 24-1/2-gulden standard, 202. Gillet, Mr., 258. Godley, Arthur, C.B., 294. Gold gulden standard, 388. " reintroduction of coinage of, 1. Gorham, Mr., 259. Goschen, Rt. Hon. J.G., 279, 280. Graumann, Philip, 378. " standard, 379. Gresham, Sir Thomas, 73. Grell, Jacob, 8. Groesbeck, 279. H. Hacket, Mr., 117. Hamburg banco, 387. " bank, establishment of, 105. " monetary history of, 383. Hamilton, Alexander, XV. 251. Hanover, 381. Harrison, President, 263. Heath, Sir Robert, 142. Henry II. of Castile, 84, 324. " III. of England, 4, 21. " III. of France, 85, 88, 89, 236, 404. " III. of Spain, 324. " IV. of France, 89, 90. " VII. of England, 59. " VIII. of England, 121, 129. Herschell, Lord, 283, 294. Hesse-Darmstadt, 378. Higher Circles (Germany), 373. Holland in 1872, 271. Houldsworth. Sir W.H., 284. I. Imperial, or ducat standard, 387. India, 294. " closing of the mints, 293. " statistics of metals and minting, 299. Ingham, Secretary, 256. International conferences (see Conferences), 275. " monetary congress, 285. Isabella and Ferdinand, 322, 324, 327. Italian republics (see Florence and Venice), gold coinage of, 4-5. " " trade of, 3. J. James I. of England, 133, 145. " II. of England, 223. Jefferson, 248. John, king of France, 45, 400. John II. of Spain, 327. " III. of Spain, 323. Jones, Mr., 279. K. Kammer-Gerichts currencies, 369. "Kipper und Wipper Zeit," 102, 369. Knight, Mr., 259. Kronen-thaler standard, 386. L. Lamond, Miss, 129. Latin union, the, 191. Law, John, 169. " system of, 404. Le Blanc, 89, 92. Legal tender, law of, 350. Legislation of 1873-74, United States, 261. Leipzig standard, 373, 386. Levi, M. Montefiore, 287. Levy, Moritz, 287. Lippe, 381. Liverpool, Lord, 233, 239, 242. Locke, John, 140, 225, 226. Louis VII. of France, 9. " IX. of France, 9. " XI. of France, 59. " XII. of France, 403. " XIII. of France, 404. " XV. of France, 405. Louis Huttin, 399. Lowndes, Mr., 256. Lübeck, 383. " courant, 387. " mint, 7. Lubbock, Sir John, 283. Lüneburg, 384. M. Maddison, Sir Ralph, 148. Magnin, M., 286. Mainz, 373, 378. Malet, Lord, 284. Marcello, Nicolo, 312. Maria Theresa, 374. Maurice, Elector, 363. Maximilian, Emperor, 347. McKim, Mr., 258. M'Creary, Mr., 290. Mecklenburg, 381. Mint laws, wide effect of, 157. Mirabeau, preface xv. Misnian currency, 369. Mocenigo, Pietro, 312. Modern monetary system, evolution of the, 161. Montague, Sir Samuel, 284. Moors, 1. Morris, Robert, preface xv. 247. N. Netherlands in 1816, 269. " the monetary system of the, 268, 272, 278, 345. See "Plakkaats." Newton, Sir Isaac, preface xv. 229, 231. Norway, 277. Nürnberg, 368, 374. O. Oldenburg, 381. Old Imperial standard of 1559, 386. Ordinances, first Imperial mint, 96, 363. " second Imperial mint, 99, 363. " third Imperial mint, 99, 364, 366. P. Palatinate, 373, 375, 378. Palmer, Andrew, 151. Parieu, De., 276. Paris, conference of, 1867, 276. " " 1878, 280. " " 1881, 281. " congress of, 1889, 286. Philip Augustus of France, 9. " I. of France, 399. " II. of Spain, 110, 329. " III. of Spain, 111, 329. " IV. of Spain, 111, 329. " V. of Spain, 330. Philippe le Long, 399. Pistole standard, 388. "Plakkaats" of the Netherlands, 66, 71, 74. Pomerania, 373. Ponte, Nicolo da, 312. Porter, Alexander, 259. Portugal, monetary history of, 1688-1854, 273. Precious metals, production of, 1550-1660, 65; 1660-1893, 155. Prussian monetary system, 203, 378. " standard, 386. R. Ratio between gold and silver in Europe, 1300-1500, 40; 1500-1669, 69; 1669-1894, 157. Ratio, different rate of, coexisting, 16. " Hamilton's statement of 1791, 251. " in 1360, 49. " methods of calculation of, preface xiv. Reichstag of Augsburg, 365, 367. " " Regensburg, 367. Rogers, Mr., 151. Rothschild, Lord Alfred de, 288, 291. Royal commission of 1868, 277. " commission on the precious metals, 283. Rupert of Germany, 11, 26. S. Salisbury, Earl of, 134, 136. Salzburg, 375, 377. Scandinavian States, 278. Schleswig-Holstein courant, 387. Seigniorage in France and England abolished, 162, 163, 220. Selden, Mr., 259. Silsbee, Mr., 259. Silver, course of modern depreciation, 277. " sources of supply of 1300-1500, 14. Soetbeer Dr. A., xiv. xv. 287, 289. Southard, Mr., 259. South German system, 377, 378, 386. Spain, first coinage of gold in, 11. " monetary history of, 23, 106. " monetary system of, 319. Spanish Netherlands, 348. Sprague, Mr., 259. Strachey, Lieut.-Gen. Richard, C.S.I., 294. Sweden, 277, 373. T. Terrell, E.H., 287. Tirard, M., 291. Treves, 373. Tron, Nicolo, 312. Twenty-four-gulden standard, 377, 386. " and half-gulden standard, 378, 386. U. United Provinces, 348. " States Bland and Sherman Acts, 263. " " currency, history of, 246. " " gold export of 1820, 255. " " Hamilton's report, 1791, 251. " " mint coinages, 265. " " Morris's scheme, 1782, 247. " " movement of the precious metals, 266. " " ordinances of 1786, 250. " " report of 1785, 249. " " " 1817, 253. " " scheme of 1792, 253. Upper circles (Germany), 377. V. Valois, Philippe de, 35, 403. Venice, gold coinage of, 5. " the monetary system of, 310. Vienna, convention of 1857, 376. " first international conference of 1867, 275. W. Waldeck, 381. Webster, M., 259. Wechselgeld, or Wechselzahlung, 386. Welby, Sir R. Earle, G.C.B., 294. Wendish states, 384. White, C.H., 257, 258. Wilde, Mr., 259. Willard, Mr., 279. William I. of Holland and Belgium, 269. " III. of England, 222, 225. Wilson, Sir Rivers, 290. Windam, Secretary, 263. Wismar, 384. Wolsey's mint policy, 115. Würzburg, 374. Z. Zinnaische standard, 371, 386. INDEX OF COINS A. Agnelet, 408. Agnels d'or, 399. Agnus dei, 324, 325, 326. Aguilas, 334. Aignel d'or, or Denier d'or a l'aignel, 399. Albus, 100. (See Rhenish.) Andries florin, 347. Ange or Angelot, 400, 409. Angel, 58, 113, 120, 131, 139, 408. Angellets, 117. Angelot or Ange, 400. Aragon. (See Florin.) Augustale, 4. August d'or, 388. B. Barile (or Carolino), 307. Batzen, 369, 372. Bavarian carolus or 3-gulden piece, (gold) 375. " max d'or, 375. Blanc, 420, 421. (See Grand, Gros, Obole, Petit.) Blanc à la couronne, 417, 418, 419, 422. " à la Fleur de lis, 418, 419, 420. " à la Galema, 422. " à l'écu, 420. " au soleil, 421, 422. " aux trois Fleurs de lis, 419. Blanca, 324, 326, 328, 344. " vieja, 325. Blanco segundo, 322. Blancos, 324, 344. Bourgeois, 415. Brabant thaler or Kronen thaler, 202, 376. Burgaleses, or Maravedis Blancos, 322. Burgundian gulden, 82. Burgundy nobles, 56. Byzants, 2. C. Cadières, 400. Cardacues (see Quart d'écu), 148. Carls d'or or Louis d'or, 388. Carolino (or Barile), 307. Carolus, 115, 348, 356, 375. Castellanos, 323, 325, 334, 335, 336. (See Doblas, Oro.) Centenes, 339. Chaise d'or, 35. Chaises or masses, 400, 408, 409, 410, 411. (See Double.) Convention thaler, 201, 378. Cornado, 325. " viejo, 325, 326. " nuevo, 325, 326. Coronados, 323. Coronas, 109, 325, 334. Couronne, 400, 401, 408. (See Blanc, Écu, Crown, Gros.) Crazie, 309. Croiseth. (See Douzains, Écu.) Crown (see French crowns), 113, 231, 243, 376, 383. " of the Rose, 216. " of the Sun, 109, 116, 117, 119, 401. " or Brabant thaler, 202. " thaler, 202. Cruzados, 326. " de la Banda, 326. D. Denarii (pfennige), 360. Denarius, 2. Denaro, 319. Denier d'or à l'aignel or Aignel d'or, 399. " d'or à l'écu, 400. " d'or aux Fleurs de lis, 35. " Parisis, 415, 416, 417. " Tournois, 415. Deniers (silver), 346. (See Gros.) Dinero nuevo, 325, 326. " viejo, 325, 326. Doblas, 323, 325, 326, 334. " (Castellanos) de la Banda, 24, 325, 326. Doblon, 329, 338. Dollar (see Piece of Eight, Rixdollar, Daalder, Spanish, Staten), 149, 221, 222, 238, 247, 248, 250, 251, 253, 260, 262. Double (see Grand) carolus, 115. " florin, 347. " gold gulden, 375. " Parisis, 417. " Pattart, 347. " Tournois, 417. Doubles or chaises, 410. Douzains, 86, 170, 422. " à la croisette, 422. Drittelthaler, 213. Ducados, 325, 326, 334. Ducat (see Hungary, Holland, Nederland, Imperial, Silver, Spanish), 101, 116, 117, 120, 271, 311, 349, 350, 351, 369, 370, 371, 374, 390, 391, 392. " (Kremnitz), 387. " (see Zecchino, or Sequin), 314, 316, 317. " (silver) 318. Ducato d'argento, 312. " d'oro, 308. Dukaat, 353, 354, 358. Dukaton of Brabant, 357. Duro, 333. E. Eagle, 253. Écu (see Blanc, Escudos, Scudo, Florin), 86, 88, 90, 92, 406, 408, 409, 414, 423. " à la couronne, 401, 402, 410, 411, 412. " à la croisette, 412. " au porc-épi, 402, 412. " au soleil, 84, 412, 413. " blancs, 167. " heaumes, 402, 410. " (silver), 169. Écu d'or, 37, 85, 413. (See Denier.) " au soleil, 401, 402. Eight-florin (gold), 376. English crown, 247. " rose nobles, 81. " sovereigns, 81. Enrique, 325, 327. Escudos, 109, 331, 334, 335, 336, 337, 338. " de plata, 330. (See Scudo, Écu.) Esterlings, 41. Excellentes, 327. (See Medios.) " de la Granada, 328, 334. " majores, 334. Fifty-stuiver piece, 352, 357. Fiorino d'argento, 306. (See Florin, Lira, Silver.) " da sei, 309. " d'oro, 308. " d'oro largo, 303, 304. " d'oro largo in oro, 303, 304, 308. " di suggello, 302, 304. " neri, 309. " nuovastro, 308. " nuovissimo or Largo di Galea, 308. " nuovo, 308. " of the first suggello, 308. " of the second suggello, 308. " of the fifth suggello, 308. " of the sixth suggello, 308. " of the eighth suggello, 308. " of the ninth suggello, 308. " of the Pisan weight, 308. " stretto, 308. " stretto di Camera of the seventh suggello, 308. Five-franc (silver), 174, 192, 194, 195. " thaler pieces, 204. Fleur de lys, or Florins d'or aux Fleurs de lis, 401, 409, 410. (See Blanc, Denier, Gros.) " de lys of Charles V., 402. " de lys of King John, 402. Florences, 9. (See Florin.) Florentine florin, 389. (See Florin.) " gigliati, 375. Florin (see Double, Petit, Fiorino, Oro, S. Andries, Florences), 3, 269, 302, 326, 334, 347, 377. " d'Aragon, 325, 326. " de écu, 411. " d'or, 9, 26, 299. " " aux Fleur de lis, or Fleurs de lis d'or, 401. " George, 400. " of eight. (See Eight-florin.) Forty-franc (gold), 175, 176. Four-florin gold pieces, 376. " penny piece (silver), 146. Franc (see Five-franc), 174, 176, 192, 194, 195, 353, 404, 410, 414, 422, 423. " à cheval, 401, 411. " à pied, 401. " d'argent, 404. " d'oro, 36, 399, 400, 401. French crowns, 66, 80. Friedrichs d'or, 204, 380, 381, 382, 388, 392. G. Galema (see Blanc), 422. Genoviva, 4. George. (See Florin.) German gold guldens, 79. Gigliati, 375. (See Florentine.) Gold crowns, 376. " ducat, 390, 391. " dukaat, 353. " florin, 302. " gulden (Rheinische gulden), 31, 98, 363, 365, 367, 368, 369, 371, 389, 390, 391. (See Gulden.) " penning, 359. Grand blanc, 421. " double, 347. Groat, 113, 117, 118, 119. Groots, 345, 347. Gros (see Royal, Blanc, Deniers, Couronne, Groschen, Groat, Grossi), 347, 418, 420, 421. " à la couronne, 416, 418. " à la Fleur de lis, 416. " à la l'estoile, 419. " blancs, 418, 419. " d'argent, 37, 420, 421. " deniers blancs, 403. " deniers d'argent, 403. " royaux, 400, 408. " royaux d'or, 10. " Tournois, 28, 403, 415, 416, 417, 420. Groschen (see Gros, Gulden, Marien, Reichs, Silver), 28, 30, 97, 363, 364, 365, 366, 372, 375, 379, 380, 394, 395. " of the mark, 366. " of Misnia and Franconia, 366. Grosseti, 307. Grossi, 20, 304, 306, 307, 311, 312, 318. (See Lira, Gros.) " à oro, 315. " popolini, 306. Grossoni, 306, 307. Gueldres. (See Riders.) Guelfi, 304. " del fiore, 19, 306. " grossi, 22, 306. " nuovi, 20, 306. Guillaumes d'or, 271. Guinea, 135, 231, 247. Gulden (see Burgundian, Double, Gold gulden, Karolus, Misnia, Reichs, Rhenish, Silver, Three-gulden), 7, 15, 27, 96, 99, 101, 345, 348, 350, 352, 353, 354, 357, 361, 362, 367, 369, 375, 392. " groschen, 363, 365, 368. Guldener, 372. H. Half-crown, 232, 243, 383. " dollar, 259. Hard dollar, 333. Heaumes. (See Écu.) Heller, 361, 362. Henris, 412. " d'or, 402. Holland dukaat, 358, 374. Hungary ducat, 358. I. Imperial ducat, 392. J. Joachims thaler or Schlicken or Löwen thaler, 363. K. Kammer Gerichts gulden, 369. Karolus gulden, 356. Kremnitz ducat, 375, 387, 392. Kreutzers, 99, 361, 364, 365, 367, 369, 372, 375. Kronen thaler or Brabant thaler, 378. Kruisdaalder or Patacon, 356, 357. L. Laubthalers, 202. Leeuwendaalder, 356, 357. Leones, 321. L'estoile. (See Gros.) Lion, 408. Lira, 305, 310, 312, 313, 314, 318, 400. " à fiorino, 305. " di grossi, 314, 315. " di piccioli, 315. " (Florentine), 301. " Tron, 312. Lis d'argent, 92, 404. " d'or, 93, 402. Livres d'argent, 406, 423. Louis d'argent, 167, 168, 169, 404, 406, 407, 422, 423. " d'or, 91, 92, 93, 167, 168, 169, 172, 227, 402, 405, 406, 407, 413, 414. " d'or or Carls d'or, 388. Löwen thaler or Joachims thaler or Schlicken thaler, 363. Luxembourgs, 44. M. Maravedis, 15, 320, 321. " blancos or Burgaleses, 322. " blancos segundos, 323. " de los buenos, 323. " de moneda blanca, 324. " negros or prietos, 322. " nuevo, 326. " viejos or moneda blanca, 322, 323, 325. Marien groschen, 102, 366. Max d'or, 375. Masses or chaises, 400, 408. Meaja. (See Moneda.) Medios excellentes, 334. Metales or mitgales, 321. Milreis, 273. Minuto, 310. Misnian gulden, 369. Mitgales or metales, 321. Molino, 344. Moneda blanca or Maravedis blancas viejos, 322. (See Blanca.) " meaja nueva, 325, 326. " vieja, 322, 325, 326. Moneta bianca nera, 305. " nera, 305. Mouton, 36, 409, 410, 411. (See Petit.) " d'or, 10. " d'or à la grand laine, 399. " d'or à la petite laine, 399. N. Nederland dukaat, 357, 358, 359. " reaal, 356. " rijder, 357, 358, 359. " rijksdaalder, 356, 357. Netherland stuyvers, 366. Nobles, 48, 53, 55, 57. (See Rose Nobels, Burgundian.) Novenes, 322, 323. Nuovi Guelfi, 20, 306. O. Obole blanche, 416. Oro dobla castellana, 23. " florines, 10. " gran modulo, 23. Orth, 365. P. Parisis, 400, 408. (See Denier, double.) " d'argent, 403. Parvulus, 310. Parvus, 310. Pastas de oro, 337. Patacon or Kruisdaalder, 357. Pattart, 347. (See Double.) Pavilion, 400, 408. Penny, 2, 4, 113. Penning (gold), 352, 359. Pesetas, 333. Petit blanc, 421. " deniers tournois, 37. " florins, 42. " moutons, 410. " royaux, 10, 400, 408. " royaux d'or, 9. " royaux d'or fin, 399. " tournois, 415. Pfennige, 362, 365, 366, 369, 372, 375. Philipps thaler, 101, 368, 370. Philippus rijder, 82. Piastre, 333. Piccioli, 309, 310, 311, 315. (See Lira.) " à oro, 315. " neri, 309. Piece of eight (see real and dollar), 148, 221, 222, 246. Pistole, 87, 131, 203, 227, 381, 382, 388. (See Spanish, Louis d'or, Friedrichs d'or.) Pistolets, 148. Popolini, 306. (See Grossi.) Porc-épi. (See Écu.) Pound, 113, 345. Prietos or Maravedises negros, 322. Prussian thaler, 203, 380. Q. Quart d'écu, 404, 422. (See Cardacues.) Quattrini, 309. " bianchi. 309. " lanajuoli, 309. " neri, 94. Quinto di ducato, 307. Quinzains, 406. " d'or, 413. R. Real (see Nederland, Royal, Ryal), 87, 95, 115, 324, 325, 327, 333. " au lion, 10. " of eight, 131, 143, 329, 341, 342, 344. (See Piece of Eight.) " sencillo, 340, 341. " (silver), 326, 328. Reichs gulden, 367. (See Gulden.) " gulden thaler, 370. " groschen (see Groschen), 365, 366, 367. " thaler (see Thaler), 101, 103, 199, 200, 368, 369, 370, 371, 372, 374. Reines, 400. Rhenish gulden (see Gold Gulden), 31. Rhenish albi, 366. Riders Gelderns, 119. (See Rijder.) Rijder, 349, 352. (See Nederland, Philippus, Rider, Silver.) Rijksdaalder, 83, 354. (See Nederland.) Rixdollars, 148. (See Rijksdaalder.) Rose nobel, 113. (See Nobel.) Royal, 399, 410, 411, 412. (See Gros, Petit, Reines, Real, Ryal.) " double, 408. Royaux durs, 400. " or Denier d'or au Roiel, 346, 400. Rupee, 295. Ryals, 142, 143. (See Real.) S. Saint Andries florin, 347. Saluts, 401, 411. Schellings, 345. Schlicken thaler or Joachim thaler or Löwen thaler, 363. Schillingen (solidi), 360, 361, 362. (See Silver.) Scudo, 318. (See Écu.) " d'argento, 313. Sequin (see Ducat, Zecchino), 311, 312, 316, 317. Seven-kreutzer piece, 375. Seventeen-kreutzer piece, 375. Shilling, 113, 138, 142, 144, 145, 231, 243. " of esterlings, 55. Sigillo. (See Fiorino.) Silver dukaat, 353. " fiorino, 301, 304. " groschen, 102, 380. " gulden or thaler, 364. " rijder, 353. " schillingen, Six-livre thalers, 202. Sixpence, 144, 145, 231, 243. Soldi, 301, 304. (See Solidi.) " grossi, 306. " (schillingen), 360. Soleil. (See Écu, Couronne.) Solidus, 398. (See Soldi, Schelling Sol, Sueldo.) Sols, 170. (See Solidi, Sueldo.) " d'argent, 403. " d'or, 399. Souverain, 392. Sovereign, 113, 117, 131. Spanish dollar, 333. " ducats, 79. " pistole, 80. Specie or Convention thaler, 102, 201. Staten daalder, 356. Sterlings, 48. Stiver, 345. (See Nederland.) Stretti. (See Fiorino.) Sueldo, 319. (See Solidus.) " de oro, 321. " pepiones, 321, 322. Suggello. (See Fiorino.) T. Ten-gulden piece, 353, 355, 359. Ten-stiver piece, 356. Ten-thaler piece, 204. Testoons, 84, 121, 130, 307, 403, 422. Thaler (see Silver gulden, Joachims thaler, Kronen thaler, Laubthalers, Prussian, Philipps, Reichs thaler, Silver, Six-livre, Vereins thaler), 83, 106, 363, 364, 367, 369, 370, 371, 373, 375, 377, 379, 381, 382, 392. Three-gulden piece or Bavarian carolus, 357, 375. Three-heller piece, 369. Threepenny piece (silver), 146. Thirty-deniers, 170. Thirty-kreutzer piece, 375. Tollero, 313, 318. Tournois, 397. (See Denier, Double, Gros, Petit.) Tremissis or triens, 398. Tron. (See Lira.) Twenty-franc (gold), 175, 176. Twenty-kreutzer piece, 375. Twenty-shilling piece, 149. Two-franc, 190. Twopenny piece (silver), 146. U. Unite, 113, 134. V. Veintenes, 331. " de oro, 337. Vellon rico, 344. Vereinsmunze, 206. Vereins thaler, 216, 372. Viejos, 323. (See Maravedi.) W. Wilhelms d'or, 388. William, 354. Z. Zähender, 365. Zecchino (see Ducat, Sequin), 4, 311, 314, 375. [Transcriber's Notes: There are many possible inaccuracies in the non-English references in this book. The non-English portions are left as printed, unless noted below. The following errors in the original text were corrected: Some fractions, such as 67-47/41 on page 314 have a numerator larger than the denominator. Even though these are most likely incorrect, they are left as in the original as there is no way to confirm what they should be. Page XIX, Preface: "Dei Münzen der deutschen" corrected to "Die Münzen der deutschen" Page XXX, Table of Contents, Chapter III: "recoinage of, 1696, 222;" corrected to "recoinage of 1696, 222;" Page 5, Chapter 1: "in order to the supply of the Italian mints" corrected to "in order to supply the Italian mints" Page 7, Chapter 1: "the Archbishop of Cologne the Duke of Brabant" corrected to "the Archbishop of Cologne, the Duke of Brabant" Page 8, Chapter 1: "50 marks 2 oz. 3-1/2 aug." corrected to "50 marks 2 oz. 3-1/2 ang." Page 79, Chapter 2, in the table "German Gold Guldens:" "1591" corrected to "1581" to match right hand column and date sequence. Page 87, Chapter 2: "Spanish and Portugese gold ducats" corrected to "Spanish and Portuguese gold ducats" Page 89, Chapter 2: "the celebrated declaration of 1577, i.e 60 sols." corrected to "the celebrated declaration of 1577, i.e. 60 sols." Page 141, Chapter 2: "The merchant-adventurers were appealed to to buy up these stocks, but they were unable." corrected to "The merchant-adventurers were appealed to, to buy up these stocks, but they were unable." Page 155, Chapter 3, in untitled table: second occurrence of "1841-1850" corrected to "1851-1855" to match sequence in table. Page 169, Chapter 3: "a value of 20 livres; and of silver ecus at 8-3/10 to the" corrected to "a value of 20 livres; and of silver écus at 8-3/10 to the" as écus has the accent on every other occurrence. Page 176, Chapter 3: "It is on the same conideration" corrected to "It is on the same consideration" Page 184, Chapter 3: Table header "Silver. (Francs)." corrected to "Silver (Francs)." to match format in other headers and other tables. Page 198, Chapter 3: "--Franconia, Bavaria, and Suabia--" corrected to "--Franconia, Bavaria, and Swabia--" Page 206, Chapter 3: "Schwanzburg-Rudolstadt (Unterherrschaft)" corrected to "Schwarzburg-Rudolstadt (Unterherrschaft)" Page 207, Chapter 3: "each state to give an account of its mintings," corrected to "each state to give an account of its mintings." Page 219, Chapter 3: heading "England" corrected to "England." to match other headers. Page 233, Chapter 3: "On this occassion I addressed a letter to a noble Lord," corrected to "On this occasion I addressed a letter to a noble Lord," Page 246, Chapter 3: "the ounce of silver was declared worth 6s. 8d" corrected to "the ounce of silver was declared worth 6s. 8d." Page 251, Chapter 3: "that gold was extremely over-valued in the United" corrected to "that gold was extremely overvalued in the United" as all other occurrences of overvalued are not hyphenated. Page 287, Chapter 3: "by substituting silver coin or notes based on silver" corrected to "by substituting silver coins or notes based on silver" Page 294, Chapter 3: "history of the world has been characterstic and uniform" corrected to "history of the world has been characteristic and uniform" Pages 325 appears to be a continuation of the table on page 326. These pages reversed by transcriber. Page 326, Appendix III: "Cornados viejos" corrected to "Coronados viejos" Page 353, Appendix IV: "1 gulden 2 francs 11-61/100 centimes." corrected to "1 gulden = 2 francs 11-61/100 centimes." Page 364, Appendix V: "The third Imperial Mint Ordinance established an important difference from this system," corrected to "The third Imperial Mint Ordinance established an important difference from this system." Page 369, Appendix V: "Pfennige 3 " 720"" corrected to "Pfennige, 3 " 720"" Page 393, Appendix V: The following 2 dates were a best guess based on the text. The dates were obviously incorrect. "1855, Frankfort Fair--Philipps thaler = 82 kr." corrected to "1585, Frankfort Fair--Philipps thaler = 82 kr." "1623 (Higher Circles)--Reichs thaler recognised at 90 kr." corrected to "1603 (Higher Circles)--Reichs thaler recognised at 90 kr." Page 404, Appendix VI: "15 sols (i.e. a quarter the value of the écu d'or, then set at 60 sols)" corrected to "15 sols. (i.e. a quarter the value of the écu d'or, then set at 60 sols.)" Page 407, Appendix VI: "1626 they had fallen to 12 livres and 3 livres respectively." corrected to "1726 they had fallen to 12 livres and 3 livres respectively." Page 408, Appendix VI: "1329 (Philipp de Valois), Dec. 26" corrected to "1329 (Philippe de Valois), Dec. 26" Page 411, Appendix VI: "Écu á la" corrected to "Écu à la" under 1425 and 1427 Page 412, Appendix VI: "1487 (Charles VII.)" corrected to "1487 (Charles VII.)," Page 425, General Index: "Calonne XV., 172." corrected to "Calonne, XV., 172." "Chambers, Mr., 259." corrected to "Chambres, Mr., 259." Page 427, General Index: "Freemantle, Sir C.W., 283, 290." corrected to "Fremantle, Sir C.W., 283, 290." Page 431, Index of Coins: "Angelets, 117." corrected to "Angellets, 117." "à l'ecu, 420." corrected to "à l'écu, 420." as l'écu is accented on page 420. Page 432, Index of Coins: "Dukaton of Brabant, 357" spelled "Dakaton of Brabant" on page 357. Don't know which is correct. Both left as printed. Header starting F was added. "di sugello, 302, 304." corrected to "di suggello, 302, 304." Page 433, Index of Coins: "Florens d'or aux Fleurs de lis" corrected to "Florins d'or aux Fleurs de lis" "Gigliali, 375. (See Florentine.)" corrected to "Gigliati, 375. (See Florentine.)" "Grosseti, 307." spelled as "Grossetti" on page 307. Don't know which is correct, both left as printed. Page 434, Index of Coins: "Joachims thaler or Schlicken o Löwen thaler, 363." correct to "Joachims thaler or Schlicken or Löwen thaler, 363." Page 435, Index of Coins: "Nobles, 48, 53, 55, 57. (See Rose Nobels, Burgundian.)" corrected to "Nobles, 48, 53, 55, 57. (See Rose Nobles, Burgundian.)" Page 436, Index of Coins: "Riders Gelderns, 119. (See Rijder.)" Gelderns spelled as "Gelderus" on page 119. Don't know which is correct, both left as printed. "of esterlings, 55." ditto mark added to represent Shilling ] 
34823	----	produced from scanned images of public domain material from the Google Print project.) HARVARD COLLEGE LIBRARY FROM THE QUARTERLY JOURNAL OF ECONOMICS THE MACMILLAN COMPANY NEW YORK · BOSTON · CHICAGO · DALLAS ATLANTA · SAN FRANCISCO MACMILLAN & CO., LIMITED LONDON · BOMBAY · CALCUTTA MELBOURNE THE MACMILLAN CO. OF CANADA, LTD. TORONTO THE VALUE OF MONEY BY B. M. ANDERSON, JR., PH. D. ASSISTANT PROFESSOR OF ECONOMICS, HARVARD UNIVERSITY AUTHOR OF "SOCIAL VALUE" New York THE MACMILLAN COMPANY 1917 _All rights reserved_ COPYRIGHT, 1917 BY THE MACMILLAN COMPANY Set up and electrotyped. Published May, 1917. To B. M. A., III AND J. C. A. WHO OFTEN INTERRUPTED THE WORK BUT NONE THE LESS INSPIRED IT PREFACE The following pages have as their central problem the value of money. But the value of money cannot be studied successfully as an isolated problem, and in order to reach conclusions upon this topic, it has been necessary to consider virtually the whole range of economic theory; the general theory of value; the rôle of money in economic theory and the functions of money in economic life; the theory of the values of stocks and bonds, of "good will," established trade connections, trade-marks, and other "intangibles"; the theory of credit; the causes governing the volume of trade, and particularly the place of speculation in the volume of trade; the relation of "static" economic theory to "dynamic" economic theory. "Dynamic economics" is concerned with change and readjustment in economic life. A distinctive doctrine of the present book is that the great bulk of exchanging grows out of dynamic change, and that speculation, in particular, constitutes by far the major part of all trade. From this it follows that the main work of money and credit, as instruments of exchange, is done in the process of dynamic readjustment, and, consequently, that the theory of money and credit _must be a dynamic theory_. It follows, further, that a theory like the "quantity theory of money," which rests in the notions of "static equilibrium" and "normal adjustment," abstracting from the "transitional process of readjustment," touches the real problems of money and credit not at all. This thesis has seemed to require statistical verification, and the effort has been made to measure the elements in trade, to assign proportions for retail trade and for wholesale trade, to obtain _indicia_ of the extent and variation of speculation in securities, grain, and other things on the organized exchanges, and to indicate something of the extent of less organized speculation running through the whole of business. The ratio of foreign to domestic trade has been studied, for the years, 1890-1916. The effort has also been made to determine the magnitudes of banking transactions, and the relation of banking transactions to the volume of trade. The conclusion has been reached that the overwhelming bulk of banking transactions occur in connection with speculation. The effort has been made to interpret bank clearings, both in New York and in the country outside, with a view to determining quantitatively the major factors that give rise to them. In general, the inductive study would show that modern business and banking centre about the stock market to a much greater degree than most students have recognized. The analysis of banking assets would go to show that the main function of modern bank credit is in the direct or indirect financing of corporate and unincorporated _industry_. "Commercial paper" is no longer the chief banking asset. It is not concluded from this, however, that commerce in the ordinary sense is being robbed by modern tendencies of its proper banking accommodation, or that the banks are engaged in dangerous practices. On the contrary it is maintained that the ability of the banks to aid ordinary commerce is increased by the intimate connection of the banks with the stock market. The thesis is advanced--though with a recognition of the political difficulties involved--that the Federal Reserve Banks should not be forbidden to rediscount loans on stock exchange collateral, if they are to perform their best services for the country. The quantity theory of money is examined in detail, in various formulations, and the conclusion is reached that the quantity theory is utterly invalid. The theory of value set forth in Chapter I, and presupposed in the positive argument of the book, is that first set forth in an earlier book by the present writer, _Social Value_, published in 1911. That book grew out of earlier studies in the theory of money, in the course of which the writer reached the conclusion that the problem of money could not be solved until an adequate general theory of value should be developed. The present book thus represents investigations which run through a good many years, and to which the major part of the past six years has been given. On the basis of this general theory of value, and a dynamic theory of money and exchange, our positive conclusions regarding the value of money are reached. On the same basis, a psychological theory of credit is developed, in which the laws of credit are assimilated to the general laws of value. In a final section, the constructive theory of the book is made the basis for a "reconciliation" of "statics" and "dynamics" in economic theory--an effort to bring together the abstract theory of price (_i. e._, "statics") which has hitherto chiefly busied economists, and the more realistic studies of economic change (_i. e._ "dynamics") to which a smaller number of economists have given their attention. These two bodies of doctrine have hitherto had little connection, and the science of economics has suffered as a consequence. This book was not written with the college student primarily in mind. None the less, I incline to the view that the book, with the exception of the chapter on "Marginal Utility," is suitable for use as a text with juniors and seniors in money and banking, if supplemented by some general descriptive and historical book on the subject, and that the whole book may very well be used with such students in advanced courses in economic theory. I think that bankers, brokers, and other business men who are interested in the general problems of money, trade, speculation and credit, will find the book of use. Naturally, however, it is my hope that the special student of money and banking, and the special student of economic theory will find the book of interest. The book may interest also certain students of philosophy and sociology, who are concerned with the applications of philosophy and social philosophy to concrete problems. My obligations to others, running through a good many years, are very great. With Professor E. E. Agger, I talked over very many of the problems here discussed, in the course of two years of close association at Columbia University, and gained very much from his suggestions and criticisms. Professor E. R. A. Seligman has read portions of the manuscript, and given valuable advice. Professor H. J. Davenport has given the first draft an exceedingly careful reading, and his criticisms have been especially helpful. Professor Jesse E. Pope supervised my investigations in the quantity theory of money in 1904-5, in his seminar at the University of Missouri, and gave me invaluable guidance in the general theory of money and credit then. More recently, his intimate first hand knowledge of European and American conditions, both in agricultural credit and in general banking, has been of great service to me. Mr. N. J. Silberling, of the Department of Economics at Harvard University, has been helpful in various ways, particularly by making certain statistical investigations, to which reference will be made in the text, at my request. Various bankers, brokers, and others closely in touch with the subjects here discussed have been more than generous in supplying needed information. Among these may be especially mentioned Mr. Byron W. Holt, of New York, Mr. Osmund Phillips, Editor of the _Annalist_ and Financial Editor of the _New York Times_, Messrs. L. H. Parkhurst and W. B. Donham, of the Old Colony Trust Company in Boston, various gentlemen in the offices of Charles Head & Co., and Pearmain and Brooks, in Boston, Mr. B. F. Smith, of the Cambridge Trust Company, Mr. W. H. Aborn, Coffee Broker, New York, Mr. Burton Thompson, Real Estate Broker, New York, Mr. Jas. H. Taylor, Treasurer of the New York Coffee Exchange, Mr. J. C. T. Merrill, Secretary of the Chicago Board of Trade, DeCoppet and Doremus, New York, and Mr. F. I. Kent, Vice President of the Bankers Trust Company, New York. My greatest obligations are to two colleagues at Harvard University. Professor F. W. Taussig has given the manuscript very careful consideration, from the standpoint of style as well as of doctrine, and has discussed many problems with me in detail. Professor O. M. W. Sprague has placed freely at my service his rich store of practical knowledge of virtually every phase of modern money and banking, and has read critically every page of the manuscript. None of these gentlemen, of course, is to be held responsible for my mistakes. I also make grateful acknowledgment of the aid and sympathy of my wife. In the course of the discussion, frequent criticisms are directed against the doctrines of Professors E. W. Kemmerer and Irving Fisher, particularly the latter, as the chief representatives of the present day formulation of the quantity theory. Both their theories and their statistics are fundamentally criticised. I find myself in radical dissent on all the main theses of Professor Fisher's _Purchasing Power of Money_, and at very many points of detail. To a less degree, I find myself unable to concur with Professor Kemmerer. But I should be sorry if the reader should feel that I fail to recognize the distinguished services which both of these writers have performed for the scientific study of money and banking, or should feel that dissent precludes admiration. I acknowledge my own indebtedness to both, not alone for the gain which comes from having an opposing view clearly defined and ably presented, but also for much information and many new ideas. My general doctrinal obligations in the theory of money and credit are far too numerous to mention in a preface. My greatest debt in general economic theory is to Professor J. B. Clark. B. M. ANDERSON, JR. HARVARD UNIVERSITY, March 31, 1917. ANALYTICAL TABLE OF CONTENTS _PART I. THE VALUE OF MONEY AND THE GENERAL THEORY OF VALUE_ CHAPTER I ECONOMIC VALUE PAGE Problem of value of money special case of general theory of value; present chapter concerned with general theory 1 Formal and logical aspects of value: value as quality; value as quantity; value and wealth 5-6 Absolute _vs._ relative conceptions of value: value of money _vs._ "reciprocal of price-level"; value prior to exchange; value and exchangeability; do prices correctly express values? 6-12 Doctrine so far in accord with main current of economic opinion 12-14 Causal theory of value new: marginal utility, labor theory, etc., rejected 14-16 Social explanation required: "individual" a social product, both in history of individual and in history of race 16-19 And above individual impersonal psychic forces, law, public opinion, morality, economic values 19-20 Three types of theory have dealt with these: theory of extra-human objective forces; extreme individualism; social value theory 20-21 Illustrated in jurisprudence, ethics, and economic theory 21-26 Law, morals, and economic values generically alike, but have _differentiæ_ 26-28 But not differentiated on basis of states of consciousness of individual immediately moved by them, because many minds in organic interplay involved 28-33 Economic social value (a) of consumers' goods and services: "utility" and scarcity; "marginal utility"; social explanation of marginal utility; marginal utilities the conscious _focus_ of economic values of consumers' goods; but only minor part of these values; individuals, classes and institutions heavily weighted by legal, moral, and other social values, in power over economic values of consumers' goods 33-38 Economic social value (b) of labor, land, stocks, bonds, "good will," etc.; based only in part on values of consumers' goods; partially independent, directly influenced by contagion, and centers of power and prestige 38-41 Pragmatic character of theory 41-43 Relation of social values to individual values 43-45 CHAPTER II SUPPLY AND DEMAND, AND THE VALUE OF MONEY _Hiatus_ between general theory of value and theory of value of money 46-47 Partly because former has been developed by different writers from those who have developed latter 47-49 But chiefly because supply and demand, cost of production, etc., _assume_ fixed value of money, and are theories of _price_, rather than _value_ 49 Supply and demand useful but superficial formula, common property of many value theories 49-50 Crude and unanalyzed in Smith and Ricardo; first made precise by J. S. Mill, who gives essentials of modern doctrine 49-51 Böhm-Bawerk's pseudo-psychology spoils Mill's clean-cut doctrine 51-52 Supply and demand assumes fixed _value_ of money-unit, and hence inapplicable to money itself 52-56 But supply and demand does _not_ assume fixed _price-level_ 56-57 Cairnes _vs._ Mill 57-58 Mill's unsuccessful effort to apply supply and demand to money 59-62 Walker's attempt 62 Supply and demand in the "money market" 62-63 Chapter III COST OF PRODUCTION AND THE VALUE OF MONEY Types of cost theory: modern cost doctrine is "money costs" doctrine, and inapplicable to value of money 64 Labor cost: Smith; Ricardo; Ricardo's confession of failure; "real costs" in Senior and Cairnes; Mill's "money-outlay" cost doctrine, and Cairnes' criticism; but "money-cost" has survived 64-67 Because "real cost" doctrine does not square with facts 67-69 "Money-cost" of producing money-metal 69-70 Austrian cost doctrine runs still in money terms, assuming value, money, and fixed value of money 70-71 "Negative social values" as "real costs" note, 71 CHAPTER IV THE CAPITALIZATION THEORY AND THE VALUE OF MONEY Money as "capital good," and "money-rates" as rentals 72-73 Capitalization theory; formula; capital value passive resultant of annual income and rate of discount 73-74 But in case of money, rental and rate of discount not independent variables 74-76 And in case of money, capital value not passive shadow, but active cause of income 76 Capitalization theory assumes money, and fixed value of money 76-77 Assumed fixed value of money absolute, and not relative 77-78 Capitalization theory, in current formulation, inapplicable to value of money 78-79 CHAPTER V MARGINAL UTILITY AND THE VALUE OF MONEY Marginal utility theory usually thinly disguised version of supply and demand, and hence inapplicable to money 80 View that money is unique in having no utility _per se_ 81-83 Marginal utility and "commodity theory" of money-value 81-82 Quantity theorists and marginal utility of money 81-82 Money an instrumental good, and marginal utility no less applicable here than elsewhere; marginal utility invalid as general theory of value, hence invalid when applied to money 82-120 Wieser's theory of value of money 83-88 A circle in reasoning 88-90 Schumpeter's similar circle 100 But Schumpeter's general utility theory, though inapplicable to value of money, in form avoids a causal circle 90-98 Schumpeter's _conspectus_; different from Böhm-Bawerk and most utility theorists 90-92, 113-120 Defects and limitations of Schumpeter's general theory 90-98 Schumpeter's substitutes for social value concept 98-99 Von Mises sees circle of Wieser and Schumpeter 100 Seeks to avoid it by construing utility theory as historical, instead of static, theory 101 But this departs from fundamentals of utility theory; other difficulties 101-110 Kinley's doctrine 110-111 General criticism of utility theory 111-115 Davenport, Wicksteed, Fisher, Perry 113-120 _PART II. THE QUANTITY THEORY_ CHAPTER VI THE QUANTITY THEORY OF PRICES. INTRODUCTION Preliminary statement of quantity theory, and of critical theses to be developed in following chapters. Virtually every contention and every assumption of quantity theory to be challenged 123-129 CHAPTER VII DODO-BONES Quantity theory doctrine that valueless objects can serve as money; Nicholson's assumption: money made of dodo-bones 130-131 Fisher's view also 130 And Ricardo's 131-132 Will dodo-bones circulate? Dodo-bones and poker chips; circular reasoning 132 Both medium of exchange and standard of value must be valuable 133 Is inconvertible paper an exception? 133-134 Doctrine that money gives legal claim to things in general 134 Kemmerer's assumptions; money made of commodity, once valuable, now used only as money 135 Commodity theory requires present commodity value 135 Historical _vs._ cross-section view: possibility that such money would circulate 135-136 Value not tied up with marginal utility or commodities: social value theory; derived values often become independent of original presuppositions, in economic as well as legal and moral spheres 136-139 But this no basis for quantity theory: social psychology, not mechanics 139 "Banker's psychology" _vs._ psychology of blind habit: India, Austria, United States; monetary phenomena of war times; "credit theory" of Greenbacks 139-142 Question-begging definitions 142-143 Assumptions of quantity theory: blind habit and fluid prices 143-144 Extreme commodity theory denies that money-use adds to value of money; usually not true; analysis of money-functions 144-150 Hypothetical case in which whole value of money comes from commodity value 150-152 Money must have value apart from monetary employments, but, in general, gains additional value from employment as money 152-153 CHAPTER VIII THE "EQUATION OF EXCHANGE" Fisher leading, most consistent, most uncompromising quantity theorist: wide acceptance of his views 154 Taussig _vs._ Fisher 155 Fisher and dodo-bone doctrine: logical part of quantity theory; Fisher's value concept 155-156 "Equation of exchange": analysis of Fisher's version, typical of all 156-171 In what sense equality between two sides of equation? Meaning of "T" 158-161 No "goods side" to equation; both sides sums of money; equal because identical; equation meaningless 161-162 All factors in equation highly abstract 162-163 "P" and "T" cannot both be given independent definitions: P defined as _weighted_ average, with T in denominator; and must be changed from year to year, as elements in T change, even though no prices change 164-166 This makes circular theory: _problem_ defined in terms of _explanation_ 165-166 Causal theory associated with equation of exchange 166 Equation amplified to include credit; not acceptable to Nicholson or Walker, and caricature of conditions in Germany and France 166-170 Book-credit, bills of exchange, etc., excluded 167-170 Why a one-year period? 170-171 CHAPTER IX THE VOLUME OF MONEY AND THE VOLUME OF CREDIT Mill thought credit acts on prices like money, and that this reduces quantity theory tendency to indeterminate degree; Fisher holds volume of money _in circulation_ governs volume of credit, so that quantity theory stands 172 Fisher's arguments for fixed ratio, _money_ to bank-deposits 172-173 Argument a _non-sequitur_, even if contentions true 173-177 Contentions untrue: no fixed ratio between _reserves_ and deposits, or reserves and demand liabilities, either in America or Europe 177-182 Taussig's views; virtually surrender of quantity theory in modern conditions 182-185 Bulk of quantity theorists in between Fisher and Taussig, but nearer to Fisher's view than to Taussig's 185 CHAPTER X "NORMAL" VS. "TRANSITIONAL" TENDENCIES Quantity theory qualified by distinction between "normal" and "transitional" effects of change in quantity of money, etc. 186 Meaning of distinction, and extent of qualification hard to determine: is "normal period" real period in time? How long is "transitional period"? Is it realistic, or hypothetical? Is equation of exchange realistic? Concrete _vs._ hypothetical price-levels 186-189 Legitimate and illegitimate abstraction 189-190 Causation and temporal order 190-191 Fisher admits very slight qualification of "normal theory" 192 Mill's quantity theory "short run" theory; Taussig's "long run" theory; radically different logic in the two 192-193 Fisher's theory sometimes "long run" and sometimes "short run" 194-195 CHAPTER XI BARTER Quantity theory spoiled if resort to barter possible and important 196 Extent of barter and other flexible substitutes for money and bank-credit; simple barter; different methods of corporate consolidations; flexibility, with state of money-market; clearing-house arrangements in speculative exchanges; offsetting book-credits 197-200 Barter made easier under money economy, by measure of value function of money 201 Bills of exchange; foreign trade 201 CHAPTER XII VELOCITY OF CIRCULATION Velocity conceived by quantity theory as causal entity, independent of quantity of money and prices; necessary assumption for law of proportionality 203 "Coin-transfer" _vs._ "person-turnover" concepts 203-204 Velocity really non-essential by-product, meaningless average 204-205 Doctrine that velocity independent of money; habit and convenience; hoarding; hoarding by banks 205-209 Velocity and volume of trade; vary together 209-214 Value of money causally governs velocity 214-215 CHAPTER XIII. THE VOLUME OF MONEY AND THE VOLUME OF TRADE--TRADE AND SPECULATION Quantity theory doctrine that volume of trade, and volume of money (and credit), are independent; trade governed by physical and technical conditions, not money 216-219 View that quantity of money vitally affects production and trade 219 Walker, Sombart, Withers, Price, Holt 219-222 Increase of money increases trade, even on static theory: increase of money increase of capital; lowered margin in exchanges; money-rates and interest; money tool of exchange; elasticity of demand for money-service; in Arizona and New York City 222-225 _Trade_ distinguished from _production_ and from _stock_ 225-226 Trade chiefly speculation; Fisher's $387,000,000,000 of trade in U. S. in 1909 analyzed; index of variation in trade; figure based on Kinley's returns from 12,000 banks; double-counting 227-230 Figure largely represents speculation; statistics of total wealth of U. S.; small rôle of wholesale and retail deposits; "all other deposits" bunched in speculative centers, especially New York; trifling "deposits" in country banks; evidence of bank-clearings: clearings and stock speculation; clearings and ordinary business 230-241 Measurement of "ordinary trade" 241-248 Volume of stock speculation 248-251 Commodity speculation 251-252 Unorganized speculation 252-254 Bill and note speculation 255 Fisher's and Kemmerer's indicia of trade variation wholly misleading 255-257 Production waits on trade; selling costs _vs._ "cost of production"; "good will"; are banks useless? 257-262 "Normal _vs._ transitional": statics _vs._ dynamics; money and credit make static assumptions possible; very little trade in "normal equilibrium" or static state; volume of trade depends on transitions and dynamic changes; functional theory of money and credit must be dynamic theory; abstraction from money by static theory; no static theory of money and credit possible; quantity theory misses whole point of money-functions 262-266 APPENDIX TO CHAPTER XIII THE RELATION OF FOREIGN TO DOMESTIC TRADE IN THE UNITED STATES Ambiguity of "domestic trade": figures comparable with export and import figures cannot include turnovers; net income of United States, minus imports on retail basis, counted as domestic trade; exports on retail basis counted as foreign trade; net income for 1910; index of variation for other years; cautions and qualifications; ratio of foreign to domestic trade, 1890-1916 267-278 CHAPTER XIV THE VOLUME OF TRADE AND THE VOLUME OF MONEY AND CREDIT Interdependence of trade, and money (and credit); increasing trade causes increase of money and credit 279-281 Quantity theory doctrine: Fisher _vs._ Laughlin 281-282 Quantity theory has no explanation of elastic bank credit: "Currency Theory" of deposits 282-285 Loans and deposits 285-288 Bills of exchange 288-290 Summary of quantity theory doctrine 290-291 CHAPTER XV THE QUANTITY THEORY: THE "PASSIVENESS OF PRICES" Heart of quantity theory: price-level cannot change without prior change in money, deposits, trade, or velocities: independently rising price-level, unable to alter trade or velocities, would drive money away, and so be unable to sustain itself; individual prices can rise independently, but other prices must fall to compensate 292-295 Criticism: argument impressive only because it assumes an _uncaused_ rise in general price-level; when causes assigned, prices can independently rise, compelling modification in other factors in "equation of exchange"; "transitional" and "normal" effects: instances 295-299 Quantity theory conflicts with supply and demand: supply and demand holds good: particular prices and price-level 299-300 Generalization of conflict to include cost of production, capitalization theory, imputation theory 300 Capitalization theory _vs._ quantity theory; different psychological assumptions of the two theories 300-306 Cost of production _vs._ quantity theory; money-_income_ _vs._ quantity of money 306-308 Quantity theory false, granting all its assumptions 308-310 Doctrine that price-level independent of particular prices, and presupposed by them, false; absolute value of money, not price-level, presupposed; price-level may change with value of money constant, through changes in absolute values of goods 310-314 CHAPTER XVI THE QUANTITY THEORY AND INTERNATIONAL GOLD MOVEMENTS Quantity theory holds that gold movements depend on price-_levels_; but price-level mere average, cause of nothing 315-316 Some prices, rising, tend to repel gold, but most prices have no such effect 316-317 Some prices, rising, bring in gold 317-319 Gold movements and money-rates 319-320 CHAPTER XVII THE QUANTITY THEORY _vs._ GRESHAM'S LAW 321-323 CHAPTER XVIII THE QUANTITY THEORY AND "WORLD PRICES" Types of quantity theory: world's volume of _gold vs._ quantity of _money_ in given country; standard _vs._ token money; abandonment of dodo-bone theory and "equation of exchange" 324-326 Credit does not rest on money: measure of values _vs._ reserves; loans and wealth; value of money _vs._ price-level 326-328 Loose relation of reserves and credit in world as whole; no proportionality of quantity of gold to value of gold; no quantity theory needed to assert that value of gold related to its quantity 328-330 CHAPTER XIX STATISTICAL DEMONSTRATIONS OF THE QUANTITY THEORY--THE REDISCOVERY OF A BURIED CITY Criticism of quantity theory statistics yields constructive conclusions; Mitchell and Greenbacks; Kemmerer's and Fisher's statistics of "equation of exchange"; Kemmerer's criticism of earlier statistics 331-335 Kemmerer's and Fisher's figures all wrong except for volume of money and deposits, and prices in base year; if correct, would not prove quantity theory 335-337 Fisher's statistics, resting on Kemmerer's, chiefly studied: their relation to Kinley's "deposits" figures 337-338 M´V´ calculated: errors in calculation; New York very incomplete in Kinley's figures; private banks and trust companies; clearings and "deposits," in New York and outside; "total transactions" and clearings; Fisher exaggerates country checks by at least 116 billions, for 1909; major part of all "check deposits" in New York City 348-353 New York as "clearing house" for United States: extent of, and influence of on New York clearings, much overestimated; bulk of New York clearings and New York "deposits" grow out of New York business 353-361 Index of variation for M´V´ wrongly weighted; V´ wrongly calculated for all years; which upsets calculation of V 361-363 Volume of trade: greatly exaggerated by bank transactions, which include vast deal of duplications in checks, loans and repayments, etc. 363-368 Fisher's reply; _under_counting offsets _over_counting 368-369 Main items of undercounting in clearing houses of speculative exchanges; measurement of, in New York Stock Exchange, and Chicago Board of Trade; swamped by call loan transactions, which exceed security sales 369-381 Price-indexes of Kemmerer and Fisher, dominated by wholesale prices, have no relevance to their "equations of exchange" 381-383 In general, their figures bury speculation and New York City 383 PART III. THE VALUE OF MONEY CHAPTER XX RECAPITULATION OF POSITIVE DOCTRINE Recapitulation of constructive theses of Parts I and II, and program of Parts III and IV 387-396 CHAPTER XXI THE ORIGIN OF MONEY, AND THE VALUE OF GOLD Problem stated 397-401 Value _vs. saleability_: degrees of saleability; theory of saleability; "buying price" _vs._ "selling price"; indirect exchange in barter economy; development of commodity of superior saleability into money 401-406 Money never unique 406-407 Origin of gold money: ornament; store of value; social prestige of prodigality and of ornament; love of approbation, sex-impulse, and competitive display; elastic value-curve of gold; industrial employments of gold 407-413 Distribution of wealth and power, and value of gold 413-416 CHAPTER XXII THE FUNCTIONS OF MONEY AND THE VALUE OF MONEY Classification 417-418 Measure of values (standard of value) distinguished from medium of exchange; former does not add value to money metal, latter does 418-424 Reserve function 424 Money as "bearer of options"; distinguished from store of value; the _dynamic_ function of money _par excellence_; explanation of low rates on call loans, and short loans, and low yield of high grade bonds, which share "bearer of options" function; "pure rate" of interest _vs._ "money rates": Austria; the New York money market 424-432 Legal tender; the _Staatliche Theorie_ 432-436 Standard of deferred payments; which functions add to value of money metal? 436 Relation of money rates to capital value of money 436-442 Agio when coinage is restricted: India _vs._ Western World 442-450 Equilibrium of gold in arts and gold as money: difficulties of marginal analysis; the money-market phenomena 450-458 CHAPTER XXIII CREDIT Analysis rather than definition: "futurity" not essence of credit; credit part of general value system; stocks as credit instruments; juridical and accounting phases 459-462 Confidence; involved in general value phenomena as well as credit; social psychology of confidence; contagions; influence of centers of prestige; nothing unique in credit; selling _vs._ borrowing 462-469 Definition of credit; credit _vs._ credit transaction; credit and exchange; bulk of credit grows out of dynamic conditions 469-474 Functions of credit; increasing saleability of non-pecuniary wealth; corporate organization; limits of credit expansion 475-478 Consideration of objections: that personal loans do not rest on wealth; public loans; that value behind loan would not exist if loan were not made 478-484 Schumpeter's "heresies"; his view of the function of the banker: "dynamic credit"; America _vs._ Continental Europe 484-488 Peculiarities and functions of bank credit; technique of banking: capital; assets; reserves; "liquidity"; money market 488-496 CHAPTER XXIV CREDIT--BANK ASSETS AND BANK RESERVES Traditional view that liquid commercial loans normal and dominant type of bank asset disproved; cannot exceed 11-1/2 per cent of assets of American banks; analysis of bank assets: "other loans and discounts"; stock collateral loans; loans on "other collateral security"; stocks and bonds held by banks; classes of banks; various combinations; excluding real estate loans, more than half of credit extended by State and national banks and trust companies is to stock market; rapid development of stock collateral loans: New York; Europe 498-512 Activity of different types of loans: banking assets get liquidity chiefly from stock market, and from produce speculators 512-516 Credit extended to Wall Street not at expense of ordinary commerce; country banks and Wall Street 516-518 Federal Reserve Banks should rediscount stock collateral loans; "Money Trust" a trust in financing corporations, not ordinary commerce; panics and Federal Reserve System 520 Quantity theory, putting all exchanges on a par, grotesque: volume of trade and prices in the stock market 520-523 Direct and indirect financing of corporations by banks; "margin dealer" as "banker" 523-526 Adam Smith's view of banker's functions, and of safe bank loans 526 Correct on basis of facts of his day, but corporate organization and organized stock market have made smelting house as liquid as consumers' goods 527 Division of labor in banking: America _vs._ Germany 527-528 Agriculture in money market 528-529 Reserve problem: special case of problem of liquid assets; many flexible substitutes for cash 529-532 Causal relation runs from deposits to reserves; gold production and reserve-ratio 532-535 No static law or "normal ratio" possible; reserve function entirely dynamic function; reserve not needed in "static state"; illustrated by London money market; "ideal credit economy" 536-544 _PART IV. THE RECONCILIATION OF STATICS AND DYNAMICS_ CHAPTER XXV THE RECONCILIATION OF STATICS AND DYNAMICS Theory of money as focus of general economic theory, exhibiting interdependence of doctrines; basis of further unification of statics and dynamics in higher synthesis 547-548 Statics _vs._ dynamics, normal _vs._ transitional, and related contrasts; illustrations; divergent lines of doctrine: tariffs, wars, overproduction, extravagance, etc. 548-552 Statics quantitative; dynamics qualitative 552-553 Statics and dynamics both abstract 553-554 Dynamics and "friction" 554-555 "Theory of prosperity" and dynamics 555-556 Statics and cross-section analysis; statics as price-theory; dynamics as value-theory 556-560 Generalization of statics: price-theory applied to dynamic phenomena: capitalization; costs; "taxonomy;" "discounting" dynamic changes; money the static measuring-rod: wide scope of money-measure; measurement of non-economic values 560-569 Generalization of dynamics: all values, whether of wheat or "good will," have social psychological explanation; technological and biological factors, and the static equilibrium; business cycles 569-575 Business man _vs._ economic theorist, and value-theory; manipulation of values and prices 575-578 Statics and time 578-580 Immaterial capital 580-582 Statics and dynamics have not different subject-matter 583-586 Equilibrium of all social values: statics and dynamics of the law: social forces and social control 586-589 Summary of Part IV 589-591 PART I. THE VALUE OF MONEY AND THE GENERAL THEORY OF VALUE THE VALUE OF MONEY CHAPTER I ECONOMIC VALUE The problem of the value of money is a special case of the general problem of economic value. The present chapter is concerned with the general theory of value, while the rest of the book will consider the numerous peculiarities and complications which make money a special case. The main proof of the theory here presented is to be found in a previous book[1] by the present writer. A number of periodical articles by several writers which have since appeared, in criticism or in further development of the theory, have at various points led to shifting emphasis and clearer understanding on the author's part, and the present exposition, without seeking explicitly to meet many of these criticisms, or to embody the new developments, will none the less be different because of them. To one writer in particular, Professor C. H. Cooley, the theory is indebted for restatement, amplification, and important additions.[2] On the whole, however, the theory presented in this chapter is substantially the theory presented in the earlier book. The theory is set forth in the present chapter with sufficient fullness to make the present volume independent of the earlier book. Value has long been recognized as the fundamental economic concept. There have been many and divergent definitions of value, and many different theories as to its origin. It is the belief of the present writer--not shared by all his critics!--that the definition of value which follows, and the conception of the function of value in economic theory involved in it, conform to the actual use of the term in the main body of economic literature. The theory of the _causes_ of value here advanced is new, but the definition of value, and the conception of the relation of value to wealth, to price, to exchange, and to other economic ideas, seem to the present writer to conform to what is implied, and often expressed, in the general usage of economists.[3] It is important to separate sharply two questions: one, the theory of the causes of value, and the other, the definition of value, or the question of the formal and logical aspects of the value concept. The two questions cannot be wholly divorced, but clarity is promoted by considering them separately. We shall take up the formal and logical aspects of the matter first. Value is the common quality of wealth. Wealth in most of its aspects is highly heterogeneous: hay and milk, iron and corn-land, cows and calico, human services and gold watches, dollars and doughnuts, pig-pens and pearls--all these things, diverse though they be in their physical attributes, have one quality in common: Economic Value.[4] By virtue of this common or generic quality, it is possible to add wealth together to get a sum, to compare items of wealth with one another, to see which is greater, to get ratios of exchange between items of wealth, to speak of one item of wealth, say a crop of wheat, as being a percentage of another, say the land which produced it, etc. This common quality, value, is also a _quantity_. It belongs to that class of qualities which can be greater or less, can mount or descend a scale, without ceasing to be the same quality,--like heat or weight or length. Such qualities are _quantities_. There is nothing novel in the statement that a quality is also a quantity. It is implied in every day speech. We say that a man is tall, or heavy, or that the room is hot--qualitative statements; or we may say exactly how tall, or how heavy, or how hot--quantitative statements. The distinction between qualitative analysis and quantitative analysis in chemistry implies the same idea. Thus we may speak of a piece of wealth as having a definite quantity of value, or say that the value of the piece of wealth is a definite quantity. We may then work out mathematical relations among the different quantities of value, sums, ratios, percentages, etc. Ratios of Exchange are ratios between two quantities of value, the values of the units of the two kinds of wealth exchanged.[5] A good many economists, particularly in their chapters on definition, have defined value as a ratio of exchange. This is inaccurate. The ratio of exchange presupposes _two_ values, which are the terms of the ratio. The ratio is not between milk and wheat in all their attributes. It is between milk and wheat with respect to one particular attribute. Compare them on the basis of weight, or cubic contents, and you would get ratios quite different from the ratio which actually is the ratio of exchange. The ratio is between their values. [Illustration: Ratio of Exchange Milk ------------------------- Wheat \ / \ / \ Value Value / \ / \ / \ / \ / Social Mind ] In the diagram above, something of what is to follow is anticipated, since the cause of value is indicated. Wheat is shown to be exerting an influence on milk, and milk exerts an influence on wheat. The comparative strength of these two influences determines the ratio of exchange between them. But these two influences are not ultimate. The ratio of exchange is a relation, a _reciprocal_ relation. It works both ways. But behind this relativity, this scheme of relations between values, there lie two values which are absolute. These values rest in the pull exerted on wheat and on milk by the human factor which is fundamental, which in our diagram we have called the "social mind." Values lie behind ratios of exchange, and causally determine them. The important thing for present purposes is merely to note that value is prior to exchange relations, that it is an absolute quantity, and not, as many economists have put it, purely relative. The ratio of exchange is relative, but there must be absolutes behind relations. A _price_ is merely one particular kind of ratio of exchange, namely, a ratio of exchange in which one of the terms is the value of the money unit.[6] In modern life, prices are the chief form of ratio of exchange, but it is important for some purposes to remember that they are not the only form. Values may simultaneously rise and fall. There may be an increase or decrease in the sum total of values. Ratios of exchange cannot all rise or fall. A rise in the ratio of the value of wheat to the value of milk means a fall in the ratio of the value of milk to the value of wheat. Both may have fallen in absolute value, but both cannot simultaneously rise or fall with reference to one another. This is the truism regarding ratios of exchange which many economists have inaccurately applied to value itself in the doctrine that there cannot be a simultaneous rise or fall of values. There can be a simultaneous rise or fall of values, but not a simultaneous rise or fall of ratios of exchange. There can be a general rise or fall of prices. Goods in general, other than money, may rise in value, while money remains constant in value. This would mean a rise in prices. Or, money may fall in value while goods in general are stationary in value. This would also mean a rise in prices. In either case, more money would be given for other goods, and the ratio between the value of the money unit and the value of other goods would have altered adversely to money. There are writers to whom the term, value of money, means merely the average of prices (or the reciprocal of the average of prices). For them, a rise in the average of prices is, _ipso facto_, a fall in the value of money. This view will receive repeated attention in later chapters. The view maintained in the present book is that the value of money is a quality of money, that quality which money shares with other forms of wealth, which lies behind, and causally explains, the exchange relations into which money enters. Every price implies _two_ values, the value of the money-unit and the value of the unit of the good in question. Value is prior to _exchange_. Value is not to be defined as "power in exchange." Certain writers[7] who see the need of a quantitative value, which can be attributed to goods as a quality, still cling to the notion that value is relative, that two goods must exist before one value can exist, and that value is "power in exchange," or "purchasing power." The power is conceived of as something more than the fact of exchange, and as a cause of the exchange relations, but is, none the less, defined in terms of exchange. This position, however, does not really advance the analysis. It is a verbal solution of difficulties merely. To say that goods command a price because they have power in exchange is like saying that opium puts men to sleep because it has a dormitive power. Physicians now recognize that this is no solution of difficulties, that it is merely a repetition of the problem in other words. If we wish to explain exchange, we must seek the explanation in something anterior to exchange. If value is to be distinguished from ratio of exchange at all, it cannot be defined as "power in exchange." To seek to confine value to exchange relations, moreover, makes it impossible to speak of the value of such things as the Capitol at Washington City, or the value of an entailed estate, or of values as existing _between_ exchanges. Nor can we make the price which a good would command at a given moment the test of its value, except in the case of the highly organized, fluid market. Land, at forced sale, notoriously often brings prices which do not correctly express its value. Moreover, even for wheat in the grain pit, the exchange test is valid only on the assumption that a comparatively small amount is to be sold. If very much is put on the market, the situation is changed, and the value falls. In other words, if "bulls" cease to be "bulls," and shift to the other side of the market, the very elements which were sustaining the value of the wheat have been weakened, and of course its value falls. "Power in exchange" is a function of two factors, (1) value and (2) saleability. A copper cent has high saleability, with little value, while land has high value with little saleability.[8] Some things have value with no saleability at all. In a socialistic community, where all lands, houses, tools, machines, etc., are owned by the state, and where such "prices" as exist are authoritatively prescribed, value and exchange would have no necessary connection. Values would remain, however, guiding the economic activity of the socialistic community, directing labor now here, now there, determining the employment of lands now in this sort of production, now in that. Exchange is only one of the manifestations of value. More fundamental, and more general, including "power in exchange," but not exhausted by it, is the power which objects of value have over the economic activities of men. This is the fundamental function of values. The entailed estate, which cannot be sold, still has power over the actions of men. The care which is taken of it, the amount of insurance which an insurance company will write on it, etc., are manifestations and measures of its value. The same may be said of the Capitol at Washington.[9] In the fluid market, prices correctly express values. Assuming that the money-unit is fixed in value, variations in prices in the fluid market correctly indicate variations in values. The great bulk of our economic theory, the laws of supply and demand, cost of production, the capitalization theory, etc., do assume the fluid market, and a fixed value of the dollar.[10] Our economic theory is static theory, in general, and abstracts from the time factor and from "friction." In fact, values change first, and then, more or less rapidly, and more or less completely, prices respond. In the active wholesale and speculative markets, where the overwhelming bulk of exchanging takes place, the prices respond quickly. Static theory is thus adequate for the explanation of these prices, for most practical purposes, so long as the changes in prices are due to changing values of goods, rather than to changing value of the money-unit. Moreover, the distinction between value and price is, in a fluid market, where the value of money is changing slowly, often not important. In the assumption of money, and of a fixed value of money, the absolute value concept is already assumed. No harm is done, however, if the economist does not explicitly refer to this, but goes on merely talking about money-prices. Very many economic problems indeed may be solved that way. This is why the inadequate character of the conceptions of value as "ratio of exchange" or "purchasing power" has not prevented these notions from being serviceable tools in the hands of many writers. But there are many problems for which these conceptions are not adequate, because the implicit assumption of a fixed value of money cannot be made. Among these problems is the problem of the value of money itself, which constitutes the subject of this book. For that problem, an absolute value concept is vital. If, in our diagram above, we substitute for "social mind" the more general expression, "human factor," we should find that our value concept is the common property of many writers. We should find it fitting in with the absolute value notion of Adam Smith and of Ricardo.[11] The "human factor" which _explains_ the absolute value is, for them, labor. We should find it fitting in with the "socially necessary labor time" of Marx: the value of a bushel of wheat is the amount of labor time which, on the _average_, is required to produce a bushel of wheat. It is an absolute value. It is a causal coefficient with the absolute value, similarly explained, of the bushel of corn, in explaining the wheat-price of corn. Our concept will fit in exactly with the "social use-value" of Carl Knies, according to whom the economic value of a good in society is an _average_ of its varying use-values to different individuals in the market. This average is an absolute quantity. The absolute values of units of two goods, thus explained, causally fix the exchange ratio between the goods. Knies' value-theory, it may be noticed, is explicitly modeled on that of Marx, to whom he refers, the difference being that Knies takes an average of individual use-values, while Marx takes an average of individual labor-times, as the causal explanation.[12] Our value concept will fit perfectly with Professor J. B. Clark's "social marginal utility" theory of value. Indeed, the present writer gratefully acknowledges that the concept is Professor Clark's rather than his own, and that all that is necessary for its explanation has been set forth by Professor Clark.[13] Professor Clark's _causal_ theory of value, his explanation of this absolute quantity of value as a _sum_ of individual marginal utilities, we have elsewhere[14] criticised as involving circular reasoning, like all marginal utility theories, in so far as they offer causal explanations. But his statement of the logical character of value, of the relation of value to wealth, of value to price, of value to exchange, of the functions of the value concept in economic theory, and of the functions of value in economic life,--Clark's doctrines on these points we have accepted bodily, and in so far as the present writer has added anything to them it has been by way of elaboration and defence. The concept of value here developed is explicitly adopted by T. S. Adams, David Kinley, W. A. Scott, W. G. L. Taylor, L. S. Merriam, and A. S. Johnson, among American writers, to name no others. All of these writers would concur in the formal and logical considerations[15] as to the nature of value here presented, whatever differences might appear among them as to the causal explanation of value. The value concept here presented performs the same logical functions as the "inner objective value" of Karl Menger, Ludwig von Mises, and Karl Helfferich, discussed in our chapter on "Marginal Utility," below, and is, in its formal and logical aspects, to be identified with that notion. It is essentially like Wieser's "public economic value," discussed in the same chapter.[16] That there should remain critics[17] who consider the present writer a daring innovator, who is thrusting a personal idiosyncracy in terminology upon economic theory, is striking evidence that men often talk about books which they have not read! The reader who accepts, provisionally, the doctrine so far presented, as a tool of thought which will aid us in the further progress of the argument, may do so with the full assurance that he is accepting a tried and tested concept, which has seemed necessary to very many indeed of the great masters of the science.[18] So far, the writer feels himself in accord with the main current of economic thought. When we come to a causal explanation of the value quantity, however, earlier theories appear unsatisfactory. The labor theory of value has long since broken down, and has been generally abandoned. The reasons for this will appear in the chapter on "Cost of Production." The effort to explain value by marginal utility, by the satisfactions which individuals derive from the last increment consumed of a commodity, has likewise broken down, as will appear in the chapter on "Marginal Utility." In general, it may be said that the effort to pick out feeling magnitudes,[19] either of pleasure or pain, in the minds of individuals, and combine them into a social quantity, leads to circular reasoning. Thus, the utility theory: It is not alone the intensity of a man's marginal desire for a good which determines his influence on the market. If he has no money, he may desire a thing ever so intensely without giving it value. If he is rich, a slight desire counts for a great deal. In other words, utility, backed by _value_, gives a commodity value. But this is to explain value by value, which is circular. So with the theory of average labor _time_. How shall we average labor time? The problem is easy if we confine ourselves, say, to wheat. If one bushel of wheat is produced with ten hours' labor, a second with eight hours' labor and a third with six hours' labor, the average is eight hours, and we may fix the value of the bushel of wheat according. But suppose we wish to compare the labor engaged in making _hats_ with the labor engaged in raising wheat. How can such labor be compared? Hats are, in their physical aspects, incommensurable with wheat. The one quality which they have in common, relevant to the present interest, is _value_. Given the value of the wheat and the value of the hats, you may compare and average out the labor engaged in producing them. But if value must be employed as a means of averaging labor, it is clear that average labor can be no explanation of value. This is not the only flaw in the labor-time theory, but it illustrates a vice which it has in common with all those theories which start with individual elements, and seek to combine them into a social quantity. The whole method of approach is wrong. It makes two abstractions, neither of which is legitimate: first, it abstracts the individual from his vital and organic connections with his fellows, and then, second, it takes from the individual, thus abstracted, only a small part, that part immediately concerned with the consumption or production of wealth. In this process of abstraction, very much of the explanation of value is left out. The _whole_ man, in his _social_ relations, must be taken into account before we can get an adequate theory of value. We turn, then, to a brief discussion of society and the individual, and to a discussion of those individual activities and social relations which are most significant in the explanation of economic value. * * * * * All mental processes are in the minds of individual men. There is no social "oversoul" which transcends individual minds, and there is no social "consciousness" which stands outside of and above the consciousnesses of individuals. So much by way of emphatic concurrence with those critics of the social value theory[20] who persist in foisting upon the theory the notion that there is a social oversoul, or that the "social organism" is some so far unclassified biological specimen. To say that economic value is a social value, the product of many minds in organic interplay, is not to say that economic value is independent of processes in the minds of individual men, or that it results from any mysterious behavior of a social oversoul. The human animal is born with certain innate instincts and capacities. Human animals of different races and different strains are in highly important points different in their instincts and capacities. But the human animal is not born with a _human mind_. Nor could the human animal, apart from association with his fellows, ever develop a human mind. "The human mind is what happens to the human animal in a social situation."[21] Of course, without the care of adults, the infant would, in general, promptly perish. But, more fundamental for our purposes, is the fact that all the important stimuli which play upon the child during his first two years, when the human mind is being developed, are social stimuli. So true is this, that the child's commerce with physical things runs in social terms. The child interprets the physical objects about him _personally_, attributes life and human attributes to them, holds conversation with them, praises and blames them, makes companions of them. This _animism_ of the child, so puzzling to an old-fashioned psychology, is readily explained by social psychology. It is a social interpretation of the universe. It follows naturally from the principle of apperception: the interpretation of the unknown in terms of the known; the extension of accumulated experience to the interpretation of new experiences. The first experiences of the human animal are social experiences. In the history of human society, a similar generalization is possible. The human _individual_ is found, not in primitive life, but late in the scale of social evolution. Individuality is a social product. The savage is not a free, self-conscious person, who can set himself off against the group, and feel himself an isolated centre of power. His life is wrapped up in the group life. In the great barbarian states like Ancient Egypt or China, the life of the individual was so controlled by social tradition, and innovation was so ruthlessly crushed out that individuality had little scope. Greece and Judea gave larger scope to individual variation, but the individual still felt himself bound up with his group, and was stoned, given hemlock, or crucified if he challenged the existing social order too seriously. The break-up of the Greek city states, as independent sovereignties, and their subjection to the universal sway of Rome, made it possible for the cultured Greek to set himself up in opposition to the State; the coming of Christianity, substituting personal relations with deity, for the communal worship which had preceded it, gave the individual a vital interest apart from the life of the group about him, so that he could still further feel independent of his immediate social environment. The development by the Roman lawyers of the _Jus Gentium_, the law which is common to all nations as distinguished from the particular law of a given group, emphasized the doctrine of the Christian religion and of the Stoic philosophy of a humanity which transcends the limits of a given state,[22]--a notion which tended to free the individual from dependence on his immediate associates. But note that in all this we have merely a widening and multiplying of social relationships, and that the individual gains freedom from one set of social relationships only by coming into others. The Christian gains freedom from his immediate surroundings because he feels himself in communion with "angels and archangels and all the glorious company of Heaven." Francis Bacon could survive his degradation in the England of his day because he could leave his "name and memory ... to foreign nations and to the next age." Bagehot, in his _Physics and Politics_, Tarde, and Baldwin, to name no others,[23] have shown how tremendously responsive human beings are to suggestion, how wide is the sway of imitation in human life, how fashion, mode, custom, etc., make and mold the individual. Cooley,[24] with an improved psychology, has amplified the analysis, tracing the development of the individual mind in interaction with the minds of those about him, making still clearer the sweep and pervasiveness of social factors in framing the very self of the individual. In what follows, I assume the results of these investigations. They constitute the starting point from which we set out on the quest of a theory of economic value. So much for the individual. He is a social product. But what of society? Objective, external, constraining and impelling forces, which are not physical, which are seemingly not the products of the will of other individuals with whom the individual holds converse, meet the individual on every hand. There is the Moral Law, sacred and majestic, which stands above him, demanding the sacrifice of many of his impulses and desires. There is the Law, external to him and to his fellows, in seeming, failure to obey which may ruin his life. There is Public Opinion, which presents itself to him as an opaque, impersonal force, before which he must bow, and which he feels quite powerless to change. There are Economic Values ruling in the market place, directing industry in its changing from one sort of production to another, bringing prosperity to one individual and bankruptcy to another, not with the caprice of an individual will, but with the remorseless impersonality of wind and tide. He who conforms to them, who anticipates their mutations, gains great wealth--but no business man dare set his personal values against them. There are great Institutions, Church and State and Courts and Professions and giant Corporations and Political Parties, and multitudinous other less formal or smaller institutions, which go on in continuous life, though the men who act within them pass and change. Their Life seems an independent life, and the individual who tries to change their course finds that his efforts mean little indeed, as a rule. There is a realm of Social Objectivity, a realm of organization, activity, purpose and power, not physical in character, not mechanical in nature, which is set in opposition to individual will, purpose, power, and activity. How is the individual related to this objective social world? Three main types of theory have sought to answer this question. On the one hand, there is a type of theory, doubtless the oldest type, a type which arises easily in a period when social changes are slow, which sees in the objective social world something really separate and distinct from individual life, having a non-human origin, and deriving its power from something other than the human will. On the other hand, there is an extreme individualism, which emphasizes individual separateness, which posits as a _datum_ the individuality which we have seen to be a social product, and thinks of the objective social realm as a mere mechanical, mathematical summing up of individual factors, or as a something which individuals have consciously made, by contract or agreement, or what not. Finally, there is a type of theory, to which the present writer would adhere, which finds a false antithesis in the contrast thus sharply made between society and individual, which holds that the individual is not, in his psychological activity, so much set off from the activities of his fellows as the contrast would indicate, but rather shares in the give and take of a larger mental life. This larger mental life is completely accounted for when all the individuals are completely accounted for, but it cannot be accounted for by considering the individuals _separately_. No individual is completely, or primarily, accounted for until his _relations_ to the rest of the group are analyzed. Thinkers who start out with the individuals separately conceived, and then seek to combine them in some arithmetical way, abstract from those organic social relations which constitute the very heart of the phenomenon we are seeking to explain. The parts are in the whole, but the whole is not the _sum_ of the parts. The relationships are not arithmetical, additive, mechanical, but are vital and organic. Men's minds _function_ together, in an organic unity.[25] The first two of these types of theory (perhaps because individuals are _physically_ sharply marked off from one another, and go on in _biological_ functioning in obvious separateness) have falsely accentuated the self-dependence and separateness of individual _minds_. The second type of theory, which has sought to work out the whole thing on the basis of this false conception of the individual, has largely failed to see the objective social realities, or has, with methodological rigor, denied their existence. This second type of thinking has especially characterized a good deal of economic theory, which rests on the philosophy and psychology of David Hume.[26] We will set our doctrine in clearer light if we contrast three parallel types of theory which have appeared with reference to the nature of morality, of law, and of economic value. For each of these phenomena, we have theories which represent all three of the types of social thinking to which we have referred. In the theory of morals, we have, at one extreme, doctrines like those of Kant and Fichte, according to whom morality is a matter of obligation, independent of the human will, independent of consequences, inherent in the nature of things. Man's mind can find out what the moral law is, but man's mind has nothing to do with the making of the moral law. The same notion is involved in the ideas of "natural rights," "justice though the heavens fall," and the like. The conception is strikingly brought out in the question about which old theologians sometimes debated: is Right right because God enjoins it, or does God enjoin Right because it is Right? Whether or not Right is supreme over God, these old theologians never questioned that Right is supreme over all human wishes and desires, and in no sense an outcome of them. At the other extreme, we have the moral doctrine of the Sophists, for whom each man's _will_ was right for him--a doctrine which reappears in every individualistic and anarchistic age. For this doctrine, there are no valid social standards of right and wrong. There is nothing binding on the moral agent but his own will. In between, is the moral doctrine of such thinkers as Friedrich Paulsen, or John Dewey, who represent the reigning type of moral theory to-day. For them, morality is a purely human matter. It grows out of the needs and interests of men. What is good at one time and place is not necessarily good at another time and place. There are no immutable moral principles, valid throughout the ages. None the less, morality is not a private matter, about which men may do as they please. Morality is the product of an organic society, the product of the interplay of many minds. To a given individual, the moral law is, indeed, an external constraining and impelling force. It is the will of the rest of the group. It may be his own will too, but if it is not, it overrides his personal preference, He, on the other hand, is part of the group which constrains and guides every other individual. There are, in fact, many sets of moral values: on the one hand, the social moral values _par excellence_, which the group will _enforce_ in various ways; and then, for each individual, his own moral values, which may correspond qualitatively more or less with the group values, or may antagonize them. But the Moral Law is the will of the group. It is no simple composite of the moral values of individuals. It has its organic interrelations with all phases of social life. Economic changes modify it, legal changes modify it, religious values modify it, all phases of social life are expressed in it. In legal theory, we find these three types of doctrine also. The first type is clearly indicated in the general attitude of American and English courts, especially toward the common law, though it influences their interpretation of all law. The law is something which the mind of man may find out, but may not make. If a new situation arises, the court "finds" the law--in theory the principle "discovered" by the court was in the common law at the beginning. Of course, we know that the judge invents the rule he makes, to fit a novel case, but the judge himself will not admit it. The theory of the law and the theory of morality have developed in close connection, and the notion of "natural right" is a juristic as well as a moral idea. At the other extreme, we have from certain recent students of law the doctrine that "The Law" is a myth, that there is nothing but the particular opinion of a particular judge at a particular time. Individualism cannot go so far in legal theory as to give every individual in society a chance to put his oar in, and have a separate law for himself! The social and institutional character of law is too obvious to permit that. But individualism has gone so far in legal theory as to deny all objectivity to law except in a given decision in a particular case. In between these two extreme views, appear the views of writers like Savigny, or Professor Munroe Smith, for whom the law is a changing product of social psychology, volitional[27] rather than intellectual in character, objective enough to the individual who violates it, or the judge who seeks to pervert it, but none the less not outside the minds and interests of men. In Professor Munroe Smith's phrase, law is "that part of the social order which by virtue of the social will may be supported by physical force."[28] I venture to describe this type of legal theory as the "social value" theory of the law. In the chapter on "The Reconciliation of Statics and Dynamics," _infra_, I have cited certain opinions of Mr. Justice Holmes which apply it, and even bring into it the notions of the marginal analysis. There are, similarly, three types of economic theory. At the one extreme we have theories of "intrinsic" value, which would place economic value outside the wills of men. The mediæval discussions of "just price" often illustrate this notion. It creeps not infrequently into judicial opinions,--to which such notions are essentially congenial! The working economist of our own day has found little use for it, but in periods when economic change was slow it suggested itself not unnaturally to men, as an explanation of the seeming impersonality of market phenomena, and as a practical idea for combatting extortion and injustice. Something of the idea is involved in a sentence of Shakspere's:[29] "But value dwells not in particular will; It holds his estimate and dignity As well wherein 'tis precious of itself As in the prizer." At the opposite extreme would be those economists, as Professor Davenport and Jevons, who find no value for a good except in the minds of individual men, so that there may be as many different values as there are different men. That something social and objective exists in the market place can hardly be denied, but when pressed for an account of it, these writers reduce it to a bare, abstract, mathematical ratio.[30] Each individual mind is shut up within its own limits, inscrutable to other minds, and there can be no psychological phenomena which include activities in many minds, for this view. In between these two extremes, is the social value theory of the present writer. Economic value is not intrinsic in goods, independent of the minds of men. But it is a fact which is in large degree independent of the mind of any given man. To a given individual in the market, the economic value of a good is a fact as external, as objective, as opaque and stubborn, as is the weight of the object, or the law against murder. There are individual values, marginal utilities, of goods which may differ in magnitude and in quality from man to man, but there is, over and above these, influenced by them in part, influencing them much more than they influence it, a social value for each commodity, a product of a complex social psychology, which includes the individual values, but includes very much more as well. Our theory puts law, moral values, and economic values in the same general class, _species_ of the _genus_, social value, alike in their psychological "stuff" and character, to be explained by the same general principles, even though differentiated in their functions, and in the extent to which they depend on various factors in the social situation. They are parts of a social system of motivation and control. They are the _social forces_, which govern, in a social scheme, the actions of men. It may be well to suggest rough _differentiæ_ which mark off these values from one another. Legal values are social values which will be enforced, if need be, by the organized _physical_ force of the group, through the government. Moral values are social values which the group enforces by approbation and disapprobation, by cold shoulders and ostracism or by honor and praise. Economic values are values which the group enforces under a system of free enterprise, by means of profits and losses, by riches or bankruptcy. The group may, under a communistic or socialistic system, rely in whole or in part upon the machinery of the law; in which case economic values appear not in their own form as immediately guiding production, but as "presuppositions" of some of the legal values. The differentiation of these types of social value may also run in terms of their _functions_,[31] though it is not so easy to mark them off here, since their functions overlap. The function of economic values is to guide and control the economic activities of men, to send labor from one industry to another, to cause one sort of thing to be produced or another, to supply the motive force which _impels_ industry. Legal and moral values also directly affect industry, often working to check the results which the economic values alone would lead to--as when the law forbids the production and sale of liquor, or checks child labor, etc. The law, on the other hand, does not, primarily, in its influence on industry, seek _positively_ to determine its direction. The law forbids the production of liquor, but does not decree the production of bread. The law may seek to affect industry positively, by protective tariffs, for example, which aim at the building up of certain industries, but its effects are here indirect, reached through modifications in the economic values. Economic values, on the other hand, do not primarily aim at the regulation of the conduct of men outside the market place, or the shop or the farm, etc. Economic values are not primarily concerned with making men be good husbands or good neighbors, or brave soldiers. Economic values may be used, in part, for these purposes, as when a father-in-law uses his wealth as a lever to make his son-in-law behave--or, indeed, as a bait to get a son-in-law! It is hard to find a phase of social life which is not touched by all types of social values, but it is possible, roughly, to mark off those phases of social life which are subject to primary regulation by one or the other sort of social value. The differentiation is easier when we look at the social _institutions_ which have to do primarily with the one or the other sort of value. Courts and legislatures are easily marked off from stock exchanges and banking houses. There is not so clearly an institutional nucleus for moral values, since the church has lost its control over the moral situation. When we view the matter from the standpoint of the _objects_ of value, _differentiæ_ also appear. The main type of object of moral value is modes of conduct; the "type object" of economic value is physical things which men eat, wear, drink, etc., even though _quantitatively_ the major part of the sum total of economic values attach to other things, instrumental goods, lands, labor, and social relations, like franchise rights, good will, which in the main reflect the values of consumers' goods;[32] objects of legal value are in large degree the same as objects of moral value, namely, modes of conduct, but moral values attach to a wider group of objects, and legal values attach to certain forms of conduct which are morally indifferent. It is not so easy to make the differentiation when we view the thing from the standpoint of the consciousness of men who are at the centre of the situation, to whose consciousness the social values are presented. We may put at the very forefront of the economic value of oranges the gustatory feelings or desires of those who consume them; at the forefront of the moral value of a heroic rescue by a fireman the thrill that runs through the onlookers. Qualitatively, these psychological states are different, as those who have experienced both will know. But it is difficult indeed to put the difference into words. When it comes to a legal value, say the legal value of a given contract right which a man seeks to enforce in court, it is not easy to find any particular emotion or state of consciousness which is peculiar or appropriate to it. The value is so highly institutionalized and impersonal, that it seems to the court and lawyers and even the litigants to be merely a question of fact to be intellectually analyzed. Its roots are deep in human emotions, but not in the emotions, primarily, of those who are handling the transaction. Perhaps the jurist has states of consciousness we know not of. There may be a distinctively legal emotion. It seems to crop out at times when one questions, in conversation with a judge or lawyer, the infallibility of the courts. But the law does not derive its power therefrom! Rather, the law derives its power from the general consent and acquiescence and support of the mass of men, who turn over to experts the details of administering it, and who support The Law in general, rather than the rule of the _corpus delicti_, with their emotional sanction. I think that we have here a clue to a vital point for our theory. We need not expect to find the major part of the explanation of any of these social values in the conscious emotions of those who are moved by them. In the case of the orange or the heroic act, we are, indeed, close to pretty simple human feelings and desires. In general, in the case of moral values, the individual emotion and the social value are _qualitatively_ comparable, since moral values rarely take on a highly institutional character. They are more free from class or institutional control than other social values. This need not be true. Thus, the plantation negro need not feel any personal shame in the moral delinquency which he none the less hides from the "white folks" whose values he must more or less conform to. But, on the whole, moral values are much more "participation values,"[33] shared by the whole group in common, than are economic values or legal values. When we pass beyond the simple case of a consumption good, and get into the realm of the more institutional economic values, we lose all guidance from the clue of satisfactions in consumption. Just what emotion, for example, is appropriate in the presence of the four and a half per cent convertible bond of the Chesapeake and Ohio Railway Co.? If it be answered that ultimately that bond represents satisfactions in consumption, since the owner of it may spend the income for consumers' goods, or since the railroad in question carries coal which goes to Italy to be used in a cruiser which will sink an Austrian warship, thereby giving consumers' satisfactions to individuals in Italy, so that the value of the bond is ultimately reducible to specific satisfactions of given individuals, we may still hold that those satisfactions do not constitute the value of the bond, as such. Moreover, the same is true of the legal values. Ultimately, very specific human emotions are affected by the rule of the _corpus delicti_, or the rule governing pleas in _estoppel_. Both in legal and in economic values we have an elaborate and complex system of social psychological character, which can by no means be reduced to elementary desires or feelings of individuals, even though when the whole story is told, no part of the system will be found outside the minds of individual men. The point has been well put by Professor C. H. Cooley: "It would be as reasonable to attempt to explain the theology of St. Thomas Aquinas, or the _Institutes_ of Calvin, by the immediate working of religious instinct as to explain the market values of the present time by the immediate working of natural wants."[34] I think that any attempt to differentiate the various kinds of social value on the basis of the type of emotion in the minds of those who have most immediately to do with them, or to explain them primarily by those emotions, is foredoomed. The law does not get its power from the emotion of the judge who gives a decision, nor does the value of a rare painting rest chiefly in the intensity of desire of the few rich connoisseurs who compete for it. Back of the judge, giving _validity_ to his decision, stands the will of the group; back of the rich connoisseurs stand the legal and other social values concerned with the distribution of wealth, by virtue of which they are able to make their wants felt in the market. Both judge and connoisseur are focal points, through which stream the social forces affecting the values in question. Both are important. But the emotions and ideas of neither exhaust the psychological causation involved in the values. This is very much more apparent when we consider the values that arise in the great speculative markets, say in the wheat pit, or the stock exchange. Those who buy and sell are primarily interpreters, students, of impersonal, social forces, seeking to adjust themselves to them, to forecast them, in such a way as to derive profit from them. Their choices and decisions are also factors. Indeed, it is possible to view the matter in such a way as to make their decisions the whole story. In the same way, it is possible to make the mind of the judge the final explanation of the legal value. But the speculators themselves are under no such illusion. They know very well that if they run counter to the facts they will lose money. And the judge knows very well that the range of arbitrary choice which he can exercise without impeachment, or at least without reversal by a higher court, is very limited. Nor is even a Supreme Court of the United States free to do its arbitrary will. Just because it is so conspicuous, and because its doings are so important, it has manifested more respect for judicial tradition, and more responsiveness to the tides of public sentiment, than any other court in the Federal Judiciary.[35] The head of a great banking house makes a decision regarding an underwriting operation. On his decision depends the question of whether or not the securities are issued. On the issue of the new securities depends, in part, the values of the existing securities of the corporation in question, and the nature of the future employment of thousands of men and great quantities of land and capital. Tremendous power is concentrated in the hands of this banker. But it is not _his_ power! He cannot exercise it in an arbitrary or capricious way. He approaches his problem in much the same spirit that the judge approaches a disputed question of law. He analyzes the factors involved. He considers the condition of the money-market, the question of the probable ease or difficulty of marketing the new securities to investors, the prospects of the business of the corporation in question, the probable future demand for its products, the stability of that demand, the personnel of the management of the corporation, the attitude of the government toward it, the nature of its other outstanding securities, with special reference to the proportion of bonds to stocks, and the amount of "fixed charges" against its earnings. He may also take into account other enterprises of similar character which he has connections with, and the question of whether or not building up the corporation in question may injure other corporations to which he has responsibilities. He looks far into the future, seeking to conserve his prestige, and unwilling to assume responsibility for an issue which investors will later lose faith in. Proximately, his decision is tremendously important, and his thoughts and feelings are of immense significance, but ultimately, _they_ are determined by all manner of social considerations, and _always_, _the degree to which they count_ in determining values depends on his weight in the economic situation, which rests (1) on his _prestige_, _i. e._, the massing of beliefs and hopes of many men, (2) on his _wealth_, which rests in the legal and moral values governing distribution, and (3) on his institutional relationships, which again are psychological facts, partly legal in character. He is as much a social instrument as is the judge. Both may abuse their power. Both do at times abuse their power. But the significant point is that the power both have is social power, and is in no sense proportional to the intensity of their own emotions. It arises from the emotional power in the minds of many men. It would be easy to elaborate the points in which morals, laws, and economic values are alike, and to show in detail that the theory of economic value is merely a special case of the general theory of social value. For our present purposes, however, it is enough to have illustrated the general doctrine, and to have set up the economic values as true social forces. It may be noticed that the effort to differentiate the different kinds of value is not altogether successful. They are not in watertight compartments in social life. It is a commonplace among students of ethics that moral values grow, in greater or less degree, out of economic factors. Indeed, the "economic interpretation of history" has as its central theme the doctrine that morality, law, and ideal values in general are governed by the economic situation. This is a one-sided view. Moral and legal values are influenced and modified by economic forces. Legal and moral values do, in part, derive their power from economic values. But on the other hand, economic values likewise derive part of their power from legal and moral values. The "social mind" is an organic whole, in which no factors exist "pure," and in which there is constant give and take. The effort to explain moral values by a single principle, as sympathy, legal values by another simple principle, as fear, and economic values by a different simple principle, as utility, is foredoomed. It has been given up by the students of law and morals, and should be abandoned by the students of economics. Let us consider more narrowly the main factors affecting and explaining economic social values. Let us take, first, the simplest case, that of goods and services which minister directly to human wants, goods and services "of the first order." Goods of this sort would be oranges, bread, clothing, jewels. Services of this sort would be the services of the barber, the valet, the physician, the preacher, the teacher, the actor. I abstract, in discussing these values, from the complications that grow out of the friction in retail trade, and the existence of many customary prices, and prices fixed by other than economic values, in the case of teachers, or preachers. I shall concentrate attention upon such things as oranges, bread, clothing, and jewels. The _focus_ of the values of these things, and an essential condition of their existence, is their utility, that is to say, their power to satisfy human wants. Utility as used in economics does not mean usefulness in any moral sense. From the standpoint of the economist, whiskey and opium are as useful as bread, if they satisfy wants equally intense. And the economist is not concerned with the general utility of things considered in their totality. Air is more useful than jewels, but a carat of air is not as useful as a one-carat diamond. Air exists in such abundance that it does not need to be economized. Scarcity with reference to the extent of the wants involved is also essential to economic value. A combination of the ideas of utility and scarcity gives us the simple notion for which the formidable name of "marginal utility" has been devised. The marginal utility of a good to a man is the power the last, or "marginal," unit of the good which the man consumes has to give him satisfaction, or, viewed from the standpoint of the man, is the intensity of his desire[36] for, or of his satisfaction in, the final unit consumed. So far, our account of the value of the orange will seem perfectly acceptable to those accustomed to traditional discussions of the problem in the text-books. The difference is that many text-books stop at this point, leaving the impression that with the definition of marginal utility the whole value problem has been solved. For the social value theory, the conception of marginal utility is barely a starting point. Indeed, it is not even a starting point. We shall have to look both in front of it and _behind it_. Recognizing that marginal utilities to individuals are essential to economic values of consumption goods, we shall have to point out other things which are also essential, and we shall have to explain the factors determining these marginal utilities themselves. The last point may be considered first. Men's desires are socially determined. Even the simplest, most instinctive, wants of human nature are, in their concrete manifestations, the product of social culture in overwhelming degree. Consider sex and hunger. We do not enjoy our food when our neighbors pick their teeth with their forks. This would not trouble a chimpanzee, whose _instinctive_ equipment in the matter of hunger is vastly more like that of a man than is the _actual_ hunger impulse of a highly civilized man like that of a savage. Civilized men will often starve rather than eat human flesh. Even when moral scruples are overcome, actual physical revulsion may prevent it. Men of different times and places wish food of special sorts, served in special ways. They wish to eat in the company of their fellows, but only of those fellows who can know and obey the ritual that is appropriate to the time and place. This is true of humble folk as of those who "dress for dinner." The ritual differs for the two sorts of people. But there is a spirit, a type of conversation, a code of etiquette, which prevails at the mealtime of virtually all men, and too serious digressions therefrom will take away the appetites of all. About the mealtime and the festal board have gathered a great host of traditions, ideals, and social activities, till they have become in verity an institution, and not the least important, by any means, of social institutions. Out of the simple instinct of sex, we have evolved many of the most precious things of our civilization, and between the sex impulse of the animal and the sex impulse of the gentleman who is seeking to marry the one woman in all the world, there is a difference so great that comparison between the two is difficult. Here we have wants which grow out of the most elementary things in human nature, wants which are intense and universal, but which vary, in their concrete manifestations, enormously from age to age and from place to place. When we come to the wants which change more quickly, the fact that social factors dominate needs no arguing. Fashion, mode, custom, obviously account for the concrete wants that exist in clothing, ornamentation, amusement, housing, etc. If we wish to know what women will be wanting to wear six months hence, we do not go to women individually and ask them. We could not find out that way. They would not know. We go rather to the theatre, and study the stage and the boxes, to the famous designers of women's dress, to the metropolitan centres of various sorts, to the "radiant points of social control"[37] from which emanate the suggestions which pass in imitative waves through the women of the country in the next few months. The laws of imitation have been elaborately developed by Bagehot, Tarde, Baldwin, Ross, LeBon, Cooley, and others, and I content myself here with referring to their writings. The wants of women--and men--are socially given, grow out of a give and take, a social process. And in this social process, it is not true that each man counts one! Rather, a few lead, and many follow. There are centres of prestige which count overwhelmingly. Certain wants are competitive.[38] Where social status depends on having as good a house as one's neighbors, and where social leadership depends on having a better house than one's neighbors, there is no limit to men's desires for better houses. With each improvement which one introduces, each feels the desire to improve, however contented he might have been had the other not made the improvement. To this we shall recur in our discussion of the origin of money, in explaining the value of gold. So much for the human wants which stand as the focus of economic values in the case of articles of immediate consumption. But, given these wants, and given their marginal intensities, we are only at the beginning of our explanation of the economic values of the consumption goods. It is again not a case of each want counting one, to the extent of its intensity. There are again, by virtue of the legal and moral values governing the distribution of wealth, _centres_ of power. The wants of some men count for nothing, however intense they may be. The pauper, the prisoner, the beggar--popular proverb about "beggars and horses" understands them, however much the "marginal utilitarian" may forget that their wants count for nothing.[39] The slightest whim, on the other hand, of the man who has inherited millions may count heavily in giving values to goods. For the explanation of the values of consumption goods, then, we need both the socially determined marginal utilities of individuals, and the socially determined _weight_ which these individuals have in our economic system. This _weight_ would involve a very elaborate explanation. Many factors affect it. We call attention here, however, especially to the fact that it rests in large part on the legal and moral values and institutions concerned with the distribution of wealth. Changes in the distribution of wealth are as important as changes in the wants themselves in giving the explanation of changes in values. The economic social values of consumption goods include not merely the values of those goods _to_ the individuals who consume them, but also the values _of_ the individuals themselves in the social scheme of things. What of the values of instrumental goods, of goods of "higher orders," of labor, of stocks and bonds, of lands, of franchise rights and good will? It is the one great contribution of the Austrian economists to have shown that the causation in value runs, primarily, from consumption goods to the goods of higher "orders" which are concerned with their production, and that these values of instrumental goods, etc., are derived and secondary values. The value of wheat is based on the value of bread, the value of land on the value of wheat. The value of the stock of United States Steel rests in part on the value of iron lands, which rests on the value of ore, which rests on the value of pig iron, which rests on the value of steel rails, which rests on the value of the service of transporting building materials, which rests on the value of a building, which rests on the value of the services which a dentist performs in an office in the building. This is the main line of causation. This is the first approximation which gives us a clue, without which we should find problems insoluble. But is it not clear that this cannot be the whole story? At every step complications enter. The whole thing cannot be got out of the value of the dentist's services, and the other consumers' goods and services, which are indirectly aided by the property to which title is given by ownership of U.S. Steel stock; nor is the value of the stock to be fully explained by the value of the property to which it gives title. At every step, we meet the complication that men must estimate and calculate, for one thing. And rarely indeed can men see all the steps, the end from the beginning. Take first a very simple case, wheat land. The value of the wheat land of to-day rests on the value of wheat, but it is the wheat of to-morrow and for many years to come; the wheat of to-morrow rests for its value on the value of the bread of the day after to-morrow. Sometimes the differential between goods at two consecutive steps in the productive process is pretty constant. Wheat and flour vary pretty closely together. The differential is not strictly fixed even there. But bread and wheat land have a much looser connection in their variations. If land could produce no wheat or corn or other good that would satisfy human wants, and if it could not itself satisfy human wants, it would ordinarily have no value.[40] But the connection between the value of the bread and the value of the land is loose and uncertain, while the connection between the value of the land and the intensity of the wants actually satisfied by the bread produced from it, is absolutely _nil_. Whether the bread saves a starving man or feeds the pet pigeons of a millionaire, is a matter of indifference so far as the value of the land (or of the bread) is concerned. We take the values of consumption goods, and break them up, attributing part to the labor that immediately produced them, part to the raw materials that entered into them, part to the machine that fashioned them, and so on. We then break up the value attributed to the raw material, attributing part to the labor that worked in producing it immediately, part to the machine that fashioned it, part to the rawer material of which it was made. And so with the values of the machines. Ultimately we get back to the values of labor, or of land, or of securities giving title to complexes of lands, machines, etc.--values which we do not further break up. But at every step, we find additional factors. We find these derived values becoming independent, substantial, standing in their own right. Moral and legal values affect them directly, as in the case of patriotic support of government securities, moral antagonism to the securities of the Distillers' Securities Corporation, or the influence of court decisions, legislation and elections on security values. Such values rest, in large degree, on the massing of _beliefs_ and hopes, not concerned with specific satisfactions of wants, but with the existence of _future_ economic values. These beliefs and hopes again have their social explanation. It is not a case where each man counts one. There are centres of prestige and power, bankers and financial magnates, whose opinions and decisions count heavily, and waves of optimism and pessimism, which affect the whole group. We shall discuss these matters more fully in connection with the analysis of credit, at a later point of our study. For the present, it is enough to point out that the whole thing cannot be explained on the basis of the values of consumers' goods, and that the values of consumers' goods are only in small part explained by the intensities of the wants they serve. In summary: Economic value is the common quality of wealth, by virtue of which it is possible to compare divers kinds of wealth, and treat wealth quantitatively, getting ratios of exchange, sums of wealth, etc. Value is a quantity, _i. e._, a quality which has degrees of intensity. Ratios of exchange are ratios between values. Price is a particular sort of ratio of exchange, namely, a ratio in which one of the terms is the value of the money-unit. Prices correctly express values on the assumption of the fluid market, and on the assumption that the value of the money-unit does not vary. The value quality is psychological in character. It rests in human minds. But not in the minds of individuals thought of separately. It is a complex of many individual mental activities, highly institutionalized, and including legal and moral values, hopes and beliefs and expectations, as well as the immediate intensities of men's wants for consumption goods. The ultimate test of scientific theory must be practice. If a theory aids in manipulating facts, if it leads to the discovery of ways of doing things which are better than old ways, if it solves problems which have hitherto remained unsolved, or carries the solution of problems farther than has hitherto been the case, it is a good theory. It need not be the best possible theory. It need not be a final theory. The chief claim for the present theory of value is that it not only unlocks all the doors that earlier theories have unlocked, but also others which have resisted the old keys. The man who goes into the modern stock market armed with marginal utility and the quantity theory is like the man who would fight Hindenburg with bows and arrows. Bows and arrows are effective in the hands of expert archers, and the great figures in the history of economics have done wonderful things with marginal utility, "real costs," and the quantity theory. But the social value theory is offered as a better weapon. The writer believes that the problem of the value of money has not been solved by the older theories of value. He believes that the social value theory will solve it. He proposes on the basis of the social value theory to make clearer the nature of credit phenomena, and to assimilate the laws of credit to the general laws of value. He proposes with the social value theory to bring together in a higher synthesis two divergent types of economic theory, the "static" and the "dynamic." He thinks that a rigorous and consistent application of the absolute concept of value will clarify confusions at various points in the general body of price theory, as the laws of supply and demand, etc. He offers the social value theory as the only way of giving a _psychological_ explanation to the demand-curve, and a marginal _value_ explanation of marginal demand-_price_. Demand-curves are social value curves, on the assumption of the fixed social value of the dollar. The utility theory, as will appear in the chapter on "Marginal Utility," has failed to give psychological magnitudes corresponding to _any_ point on the demand-curve. In general, he offers the social value notion as the justification for the assumption of a quantitative value which, as we shall see, underlies the whole of our current price analysis. The theory here outlined has been, as stated, developed and defended more fully in a previous book. For the rest, the author would have it judged by its usefulness or failure as a tool of thought in the investigations which follow. NOTE. It has seemed best not to break the main course of the argument of this chapter for the elaboration of one point on which there has appeared to some critics to be vagueness in the exposition of the social value theory in my earlier volume, namely, the relation of social values to the individual values of those who are moved by the social values. Social values have as their function the guidance and control of the activities of men. But men are also moved by their own individual feelings, interests, and desires. What is the relation between these two sets of factors? In what has gone before, it has been made clear that social values present themselves to the individual as opaque, objective facts, largely beyond his control, to which he must adjust himself. They represent the minds of other men, acting in corporate and organic ways, putting pressure on him, or offering him lures. Now the individual reckons with these social values in the same way that he reckons with any other of the facts affecting the economy of his life. He must adjust himself to them in the same way that he must, if he is a blacksmith, adjust himself to the technical qualities of the iron he is manipulating. This does not mean that he is passive before them, any more than he is passive before the iron. He rather seeks to carry out his personal purposes and desires by actively adapting himself to objective facts, whatever they be. This means that different individuals will react in different ways to the same social value. The fear of the law will keep one man from burning dead leaves in the street where it will not keep another man from murder. A given degree of social pressure will make one man crease his trousers, while another man will not even know that the pressure to crease one's trousers exists! There are great individual variations in responsiveness and sensitiveness to social pressure. In part, these variations are due to inborn qualities. In larger part, they are due to social education, and to social status. Thus, the fact that one man will work all day in a ditch in response to the lure of a dollar and a half, while another will not work in the ditch for a hundred dollars a day, may rest in slight degree on the greater inborn sensitiveness of the latter to the physical pain of labor, but rests primarily on the fact that the latter doesn't need the money, and has a social standard, growing out of his class-associations and education, which would make him ashamed to be seen in the ditch. Indeed, we may think of the social standard in question as a social value acting _on_ him, rather than _in_ him. He fears ridicule. The same degree of social power, luring men toward the ditch, exists in the dollar in each case, but the response is very different in the two cases. Later formulations of the utility theory and the labor cost theory, as represented by the theory of Schumpeter, which we shall discuss in the chapter on "Marginal Utility," give us, in a scheme of purely static equilibrium, a picture of the adjustment of the individual values to the social values. As we shall see, they give us no account whatever of the social values. They do not explain causation at all. But they do show that there is a tendency for the individual marginal utilities of consumption to become proportional to the social values of the goods consumed by each individual; and for the individual marginal disutilities in production to become proportional to the social values of the rewards that come to producers. The scheme is highly unrealistic. It has been emphatically repudiated by Böhm-Bawerk, so far as the disutility equilibrium is concerned. ("Ultimate Standard of Value," _Annals of the American Academy_, Vol. V, pp. 149-209.) But it is worth something, not as explaining social values or market prices, but rather, as showing how individuals _conform_ to social values and market prices. _Cf. Social Value_, pp. 43-44, n. 2, and 148. The theory that individual marginal utilities and disutilities are proportional to market values is unrealistic enough, in the light of the analysis of individual utilities which we have given, even for the utilities. It is quite impossible to make anything of importance of it from the side of individual disutilities. The length of the working day is not fixed for each worker by a comparison of his own labor pain with the satisfactions he expects from his wages. It is fixed by conditions largely external to him, and the whole group works the same number of hours, with the machine. The law may limit the working day. Trades-union effort may do it. Opportunities for alternative employment may do it, for the labor force of a factory as a whole. But the theory, which really must rest in the notion that each individual has many options, and that the working period is flexible, cannot mean much. The prosperity of the laborer does more to limit the working day than does his suffering! The reactions of individuals as consumers or producers on the social values modify the social values. But, as we have shown, the primary explanation of the social values is not to be found in the individual utilities and disutilities of those who react to them. Utilities and labor pains are parts, but minor parts, in the explanation of social values. CHAPTER II SUPPLY AND DEMAND, AND THE VALUE OF MONEY The theory of the value of money is a special case of the general theory of economic value. To the layman, this would seem to go without saying. To the student of the literature of the subject, however, who has noticed the wide divergence between the method of approach to the general problem of value and the method of approach to the problem of the value of money, in most treatises which include both these topics, the proposition will sound unusual if not heretical. Most text-books in English to-day will offer the marginal utility theory as the general theory of value. The same books commonly present the quantity theory of the value of money. Whether or not the two theories are consistent may wait for later discussion, but that the quantity theory of money is a _deduction from_ the utility theory of value, and a _special case_ of the utility theory of value, will not, I believe, be contended by anyone. Certainly in its origin, the quantity theory is much the older theory. The same is true for those writers who seek to explain value in general on the basis of cost of production, and who at the same time offer the quantity theory to explain the value of money. The two theories may or may not be consistent, but in any case, they are logically and historically independent, neither being a deduction from the other. Older writers (as Walker and Mill), whose treatment of the general theory of value runs in terms of "supply and demand," have stated that the quantity theory is merely a special case of the law of supply and demand, and the statement is occasionally met in present-day writings, though one of the most recent and best known of the expositions of the quantity theory, Professor Fisher's _Purchasing Power of Money_, very explicitly repudiates this doctrine.[41] But it may be easily shown, and will be shown later, that the quantity theory, and the present-day formulation of the law of supply and demand, are in no way logically dependent upon each other. This lack of connection between two bodies of doctrine which should be in a most intimate and essential way related to each other, may well throw suspicion on the current treatments of both topics. In any case the lack of connection raises a problem, and calls for explanation. Part of the explanation may be sought in the fact that the writers who have developed the general theory of value have not been, in general, the writers who have most elaborated the theory of the value of money. The theory of money has been for a long time a more or less isolated discipline. In Ricardo, we have an elaboration of the labor theory of value, and we also have the quantity theory of money. But it is not clear that Ricardo added anything to the quantity theory. He found it, in much the form in which he used it, in the writings of predecessors, among them Locke and Hume. Ricardo makes large use of the quantity theory as a premise, but apparently feels the theory to be so self-evident that it needs little exposition or defence at his hands. John Stuart Mill is a clear exception to the general statement. Cairnes, likewise, did treat both topics in considerable detail, but while his interest in the general theory of value was that of the theorist, his treatment of money was primarily in the spirit of the publicist, and his interest was less in the justification of the theory--which he again seems to feel needs little defence--as in its application. A similar statement may be made with reference to Jevons. He worked out his general theory of value for its own sake; his utterances on the theory of the value of money must be sought scattered through his practical writings on money. Alfred Marshall's _Principles_ (Vol. I) says almost nothing about the theory of money; his opinions on that subject are to be found in some _ex cathedra_ replies to questions from a Parliamentary Commission. The most important discussions in England of the value of money are to be found in the long polemic between the Currency and the Banking Schools, by writers who would not be listed among the makers of the general theory of value. In the United States to-day, with the exceptions of Professors Fisher and Taussig, the writers who have been interested in the general field of economic theory have done comparatively little with the value of money (_e. g._, Professors Clark and Fetter), and the writers who have been most interested in the value of money have usually not written largely on the general theory of value (_e. g._, Professors Laughlin, Scott, Kinley). Professor Kemmerer might well be included as an illustration of this last statement. His primary interest is in money, rather than general theory, even though he does precede his theory of the value of money with an exposition of the utility theory of value. In German, a similar situation obtains. Böhm-Bawerk has touched the theory of money scarcely at all. Menger has written an important article on "Geld" in the _Handwörterbuch der Staatswissenschaften_, but the important thing about this article is the theory of the origin of money, and the reader will find little on the problem of the value of money. Wieser has recently taken up the value of money (in articles published in 1904 and 1909), but no trace of his views has as yet manifested itself in the English literature on money, and the writer may here express the opinion that Wieser's contributions to the theory of money are not likely to be very influential, or to add to his reputation.[42] Austrian writers on the value of money, as Wieser and von Mises, have recognized more clearly than anyone in America or England, the essential dependence of the theory of the value of money on the general theory of value. The German writer on money who has attracted most attention recently, however, G. F. Knapp, troubles himself about the general theory of value not at all. But the main explanation of the hiatus between the two bodies of literature and doctrine is to be sought in something more fundamental. Neither utility nor costs nor supply and demand furnishes an adequate basis from which the quantity theory, or any other theory of the value of money can be deduced. The cost theory, and the supply and demand theory, in their present-day formulation, are really not theories of value at all, but are theories of _prices_, theories which presuppose _value_, and _money_, and a _fixed value of money_. And the utility theory, as usually presented, is either a theory of barter relations, or else (more commonly) speedily settles down into the grooves of supply and demand, leaping by means of a confusion of utility curves and demand-curves (or sometimes by a deliberate identification of them, _e. g._, Flux and Taussig[43]) to the treatment of market prices. I shall take up these points in order. A historical summary of the development of the notions of supply and demand will aid the exposition. It may be noticed, first of all, that supply and demand is really a very superficial formula even though an exceedingly useful one. By virtue of its superficial character, it antagonizes few other theories, and it has been the common property of almost all schools of value theory. Cost theories and utility theories, labor theories, or social value theories, all find use for it, in one form or another. It is really quite neutral and colorless, so far as the ultimate questions of value-causation are concerned. The more fundamental causal factors offered by one theory or another are commonly supposed to operate _through_ supply or demand, in price-determination. Adam Smith seems to see this more clearly than does Ricardo. Ricardo, indeed, sometimes thought of demand and supply as forces antithetical to the forces of labor-costs which he was considering. In ch. xxx of his _Principles of Political Economy and Taxation_ (ed. McCulloch, pp. 232ff.) he holds that his natural value ultimately rules, except (p. 234) in the case of monopolized articles. Supply and demand govern the prices of monopolized articles and of all articles in the short run. I do not find in Ricardo any clear statement to the effect that cost of production operates _through_ influence on supply. Neither Adam Smith nor Ricardo felt the need of very much precision in the definition of supply and demand. Smith does, indeed, distinguish "effectual" from "absolute" demand, in a well-known passage (ed. Cannan, I, p. 58), defining effectual demand as the demand of the effectual demanders, _i. e._, these who are willing to pay the "natural price" of the commodity. The term "supply" he does not use in this passage, but speaks of the "quantity which is actually brought to market," and gives as the law of market price that it is determined by the "proportion" between this quantity and the effectual demand. That much is wanting in this analysis will be sufficiently clear when the views of J. S. Mill and Cairnes are considered. Ricardo offers even less than Smith in the way of definition. The reader may compare the pages in _Ricardo's Works_ cited above, and the discussion of the demand for labor on p. 241 in the same volume. In J.S. Mill, a clean-cut notion first appears. The doctrine that price is determined by a ratio between effectual demand (_i. e._, the wish to possess combined with the power to purchase) and supply (_i. e._, the quantity available in the market), is sharply criticised. How have a ratio between two things not of the same denomination? "What ratio can there be between a quantity and a desire, or even a desire combined with a power?" To make supply and demand comparable, demand must be defined as "quantity demanded," and then the difficulty arises that the quantity demanded will vary with the price, which seems to present a case of circular reasoning if demand is to be a determinant of price. The solution which Mill develops for this difficulty really gives us our modern conception, virtually complete except that Mill does not present it in the useful diagrammatic form and does not whisper the magic word, "margin." There is a demand-schedule, which, plotted, would give a demand-curve. At such and such prices, such and such quantities are demanded, or will be purchased. There is a supply schedule, presenting a supply situation of similar character (though not so clearly indicated). The price reached is that price which _equalizes_ amount demanded and amount supplied. A higher price will lead to competition among sellers, forcing down the price, a lower price will lead to competition among buyers, forcing up the price. The notion of a _ratio_ between supply and demand is replaced by the notion of an _equation_ between them. The present writer wishes to remark, in this connection, that Böhm-Bawerk's elaborate analysis, with his "marginal pairs," etc., has not advanced one step beyond this conception of Mill's, that it is really less satisfactory than Mill's analysis, because of the impedimenta of pseudo-psychology it has to carry, and because of its confusion of utility schedules with demand schedules.[44] In our present-day expositions, as presented in the diagrams, we are accustomed to say that price is fixed when marginal supply-price and marginal demand-price are equal, putting the stress on the ordinate, rather than on the abscissa, on the identity of the dollars paid or received, rather than on the identity of the goods given or received. But this is merely another way of stating the same equilibrium which Mill perceived--when marginal demand and supply prices are equal, amount supplied and amount demanded will be equal, and conversely. One point is to be added, making explicit what is implicit in the modern theory of supply and demand. Supply and demand doctrine assumes _money_, and a _fixed value_ of money. That there should be a given schedule of money-prices for varying quantities of a good, is possible only if there be a given value of the money-unit. That the modern doctrine of supply and demand necessarily involves the assumptions of value, of money, and of a fixed value of money, may be proved by the following considerations: Supply-situation, represented by the supply-curve, and demand-situation, represented by the demand-curve, are conceived of as antithetical and independent causal forces, whose equilibrium determines both "supply and demand" (in the sense of quantities supplied and demanded) and price. Mill's doctrine that supply and demand determine price gets out of the circle that demand (amount demanded) is itself dependent on price, only by making both demand in this sense and price _results_, rather than causes, and by putting the causation back into the more complex factors which I call "supply-situation" and "demand-situation." The two independent causes, then, are summed up in the supply-curve and the demand-curve. But, first, these curves are expressed in money. And second, a change in the value of money would affect _both_ of them proportionately. But a theory which is concerned with supply and demand as independent and antithetical must abstract from factors which give them a _common_ movement, without modifying their _relation_ to each other. A change in the value of money would lead the supply-curve to move to the right, and the demand-curve to move to the left, the change in each being proportionate, and the amount supplied, and amount demanded, would remain unchanged. Changes in the value of money must, therefore, be abstracted from. Again, we must precise the notion of an _increase_ in demand, or of supply. Increase in demand may mean mere increase in amount demanded, consequent upon a lower price, consequent, _i. e._, upon a lowering of the supply schedule. In this sense, increase in demand is a passive fact, a result rather than a cause. On the other hand, if the increase in demand is an increase in the amount demanded at the _same_ price, if it means a change in the demand-situation, represented by the moving to the right of the demand-curve, we have a causal factor in increase in demand, a factor which raises the price and compels new supply to come into the market. We may distinguish these two meanings as increase in demand in the active and in the passive senses. _Mutatis mutandis_, we may speak of increase of supply in the active and passive senses. These distinctions have been made before, but it has not been clearly seen that these distinctions, and the connected doctrines, involve the assumption of a fixed value of money. But consider: it is the current doctrine that increase in demand in the active sense, the demanding of a greater amount at the same price, the moving of the demand-curve to the right, not only raises the price, but also tends to _increase the supply_. But this is true only if the _cause_ of the increase in demand is not a cause which simultaneously works on supply, neutralizing that tendency. If the increase in amount demanded at a given price be due to a lowered value of money, then the same lowered value of money will reduce the supply available at that price _pro tanto_, and the new equilibrium, _cæteris paribus_, will be at a higher price, to be sure, but with the same amount supplied and demanded. "Demand" is a term which carries the connotation of motivating power in economic theory. Through demand run the forces which regulate production and supply. The function of increased demand is to induce increased supply. But the value concept, and the assumption of a fixed value of money, are needed to preserve this part of the doctrine. Without them we have no way of distinguishing a _real_ increase in demand in the active sense, which does modify the adjustments in production, and alter the proportions of different supplies, from a _nominal_ increase in demand in the active sense, which merely raises a money-price, without affecting supply.[45] Another approach will lead to the same conclusion. Demand and supply-curves are not to be understood merely in terms of brute, physical quantities. They are rather curves expressing economic _significances_, manifesting _psychological_ forces which lie behind them. No considerations of mere physical quantity will explain why one demand-curve should be "elastic" and another inelastic,--each curve has its own peculiarities, which are not mechanical in their nature. Demand-curves express the diminishing economic significance of goods as their quantity is increased. How economic significance is to be interpreted need not be argued here. I have elsewhere undertaken to show that the utility theory of value does not explain the economic significance which demand-curves express--that demand-curves are not utility curves. My own theory is that demand-curves are to be explained only in terms of a social psychology, that demand-curves are social-value curves. But my argument at this point does not rest on the particular type of causal theory of value one chooses. It is enough that the demand-curve be recognized as expressing economic significance, and diminishing economic significance.[46] But for the demand-curve to express variation in economic significance of a good, there is need for a unit in which to express that variation. That unit is the economic significance of the dollar, itself assumed to be invariable--as all measures must be assumed to be invariable if measurement is to mean anything. If the unit chosen vary in the course of a given investigation, the curve tells you nothing at all. Another way of reaching the same conclusion is to say that an increase in demand in the active sense will lead to an increase in supply only if there be no corresponding increase in demand for the alternative employments of the sources of that supply, that, _e. g._, an increased demand for wheat will lead to increased production of wheat only if there be not a corresponding increase in the demands for corn and other crops which can be raised on land and with labor and capital that would otherwise produce wheat. This is only another phase of the argument that went before, that an increase in demand due to a falling value of money would lead to a corresponding shift in the supply-curve. It is not quite the same argument, however, because that was an argument concerned with short run tendencies, resting on the assumption that the holders of supply would immediately react to a change in the value of money, whereas the argument just presented rests on the longer adjustments, based on the law of costs, as worked out by the Austrians. This point will be made clearer in the next chapter. Yet another, and perhaps simpler, approach to the same conclusion is by pointing out that an individual, deciding to buy, must take account of the prices of other things in his budget--that individual demand-schedules would be different if market prices of other things--which depend on the value of money--were different. The doctrine that supply and demand (and cost of production, the capitalization theory, and other elements in the current price-analysis) presuppose a fixed value of money, must be sharply distinguished from the doctrine of Professor Fisher (_Purchasing Power of Money_, ch. 8), and others, that a fixed _general price level_ is assumed by supply and demand, etc. I should deny that a fixed general price level is assumed. The point rests in the distinction between value as _absolute_ and value as _relative_. For my theory, it is perfectly possible for the general price level to rise, with the value of money constant, because of a rise in the values of _goods_. In a later chapter, on "The Passiveness of Prices," I shall examine the doctrine of Professor Fisher more closely, and set these two views in clearer contrast. For the present, it is enough to point out one vital difference between a rise in prices due to a fall in the value of money and a rise in prices due to a rise in the values of goods, with the absolute value of money unchanged: in the latter case, there is an increase in the psychological stimulus to industry, an increase in economic power in motivation, which energizes and increases production. In the latter case, especially when the fall in the value of money is rapid, and the rise in prices is clearly due to that cause (as in the case of Confederate paper, or the French _Assignats_), we find a reverse effect on industry. Intermediate cases, where money is falling in value, but where goods are also rising, give us intermediate results. In what follows, I shall from time to time refer to this distinction. In my own exposition, I shall always use "value of money" in the absolute sense, as distinguished from the mere "reciprocal of the price level,"--a practice which I have sought to justify in the chapter on "Value," and in other places there referred to.[47] The modern theory of supply and demand, then, assumes money, and a fixed value of money. It is, therefore, obviously unfitted as an instrument to solve the problem of the value of money. If supply and demand concepts are to be applied to this problem, they must be of a different sort. This was pointed out by Cairnes[48] who criticised Mill's formulation, and pointed out that Mill departed from it in three capital doctrines: in the theory of the value of money, in the theory of wages, and in the theory of international values. By the demand for money, Mill means, not the amount of _money_ demanded, but the quantity of goods offered against money--a very different conception. (Mill, _Principles_, Bk. III, ch. viii, par. 2.) In what sense a quantity of goods can equal a quantity of money, or in what sense there can be a ratio between goods and money, (to recur to Mill's former problem as to the ratio between things not of the same denomination) Mill does not make clear, nor is it defensible to speak of either a ratio or an equation on the basis of Mill's system, since Mill had no absolute value concept. Cairnes seeks to reconstruct the notion of supply and demand, in such fashion as to make it possible to apply it universally, and takes up the question of the comparability of supply conceived as a quantity of goods, and demand, conceived, not as a quantity of goods, but as desire combined with the ability to pay. He concludes that in both supply and demand there is a physical, as well as a mental, element. Demand he defines as the desire for a commodity backed by general purchasing power; supply as the desire for general purchasing power, backed by the offer of a commodity. Thus he thinks he has made the two of the same denomination, so that comparison may be instituted between them, and the ideas of equation, ratio, and proportion made legitimate. By "general purchasing power," Cairnes seems to mean money and the representatives of money. It is not an abstract power, since it is the "physical" element in demand, comparable with, and of the same denomination with, the physical element in supply, a commodity. Cairnes' solution of Mill's difficulty seems to me to be merely verbal, however. First, in what way is the desire for general purchasing power in the mind of one man comparable with the desire for a commodity in the mind of another man? I pass over the supposed difficulty that knowledge of other men's emotions is impossible,[49] and emphasize simply the point that price offer, either by demander or supplier, is no test of the intensity of desire where there are inequalities in the distribution of wealth. But second: in what sense is general purchasing power, money and money-funds, of the same denomination as a commodity? Cairnes emphasizes the physical character of both. But surely they are not comparable on the basis of any physical attributes--weight, bulk, etc. Certainly if we look at the concept of demand here given, the physical aspect is simply irrelevant--gold money goes by weight, but what of paper money and credit instruments? And in what sense is even gold money physically of the same denomination with, say, wheat, or hay or base-ball tickets? Not physical quantities, but economic quantities, are relevant here; not weight or bulk, but _value_. By means of a concept of value, as the homogeneous quality of wealth, present in each piece of wealth in definite, quantitative degree, could Cairnes bring about comparability between the "physical" elements in supply and demand. But not otherwise. Only significances, values, are relevant here. Supply and demand presuppose value. It will be interesting to consider the effort to solve the problem of the value of money by means of supply and demand on the lines employed by Mill, where demand for money is defined as quantity of goods to be exchanged, and supply of money as quantity of money times rapidity of circulation, and where physical quantities are treated as the relevant factor, no value concept of the sort here contended for being presupposed. This is, essentially, Mill's method. There is, in this conception, first the difficulty that "quantity of goods to be exchanged" is not a true quantity at all, but is a mere collection of things of different denominations, dozens of eggs, pounds of butter, gallons of milk, etc., incapable of being funded into a quantity.[50] There is, second, the difficulty that increasing the amount of any one of the items in this heterogeneous composite need not increase the "demand" for money, in the sense that it increases the "pull" on money, or tends to increase the supply of money. Yet, under the general doctrine of supply and demand, an increase in demand should be a stimulus to increase in supply. Indeed, it is easy to construct a case where an increase in the quantity of one of the items in this composite, the others remaining unchanged, would actually tend to _repel_ money, to reduce the _supply_ of money. Suppose that one item in America's stock of goods, say cotton, is much increased in quantity, and suppose that cotton has a highly inelastic demand-curve, so that the increased quantity sells for less money than the original quantity.[51] Suppose, too, that cotton is our chief article of export, and that the bulk of our cotton is exported. Would not the "balance of trade" tend to turn against us, so that gold would tend to leave the country, and the supply of money be reduced? There is nothing in the situation assumed to raise the prices of other goods,[52] so that they could exert a counteracting "pull" on money. Europeans, to be sure, having less to pay for cotton, could demand more of other things, and Americans paying less for cotton could demand more of other things. But, on the other hand, American producers of cotton, receiving less for their cotton--receiving precisely as much less as the others had more--could then demand less of other things, exactly as much less as the others are able to demand more. The original tendency for gold to leave the country, and the tendency for gold to leave the money-form and be used in the arts, would remain unneutralized. An "increase of demand for money," in Mill's sense, would in this case present the remarkable phenomenon of driving money away. Physical quantities are irrelevant. Psychological significances are what count. It is interesting to note, in this connection, that some striking contradictions in quantity theory reasoning on any formulation, whether connected with the notions of supply and demand or not, are involved in this hypothesis. The illustration above gives a case where a lowered price level leads money to flow away from your country. But, on the quantity theory explanation of foreign exchange, it is _rising_ price levels which drive gold away, and _falling_ price levels which attract gold![53] Mill's effort to apply the notion of demand and supply to the value of money is, then, (1) not an application of his formal doctrine of supply and demand, and (2), is a failure, leads to results contradictory to the general law of supply and demand, as soon as we take account of the peculiarities of individual commodities, and cease to look at commodities in one huge lump. Psychological forces, rather than physical quantities, are what count. Whether or not the supply and demand notion of Cairnes, reinterpreted by putting a quantitative value concept into it, could serve as a means of approach to the value of money, I shall not here argue. No one so far as I know has attempted to do the thing that way, and my own theory is best developed by another method. It is interesting to note, however, another somewhat different effort to apply the supply and demand formula. General Walker does so, including among the factors determining the demand for money, not only the quantity of goods to be exchanged, but also the _prices_[54] prevailing. Since by value of money Walker means merely the reciprocal of the price-level, this is the clearest possible case of a vicious circle. It would be a circle even if he were trying to explain the absolute value of money, as distinguished from the reciprocal of the price-level, since the former is one of the determinants of the latter. Value of money and values of goods determine prices; prices and quantity of goods determine demand for money; demand and supply of money determine value of money,--a hopeless circle. I know no sense in which the terms, demand and supply of money, can have relevance to the problem of the value of money. There is one sense in which the terms can be used which fits in with the modern supply and demand-curves, and that is the sense in which they are used in the money market. Demand for money comes from borrowers; supply of money from lenders. The price paid is a money-price, the curves express the short time money-rates, the rental of money, in terms of money, for stated periods of time. There is a relation, later to be investigated, between the rental of money, the money-rate, and the value of money, but the two are in no sense the same. It should be noted, too, that we are here concerned with "money-funds" rather than with money in the strict sense,--distinctions and relations in this connection properly belong at another stage of our inquiry. Whenever the terms, demand and supply of money, appear in the following pages, they will be used in the sense developed in this paragraph. Demand and supply are superficial formulæ. They cannot touch a problem so fundamental as that of the value of money. CHAPTER III COST OF PRODUCTION AND THE VALUE OF MONEY When the cost theory was a labor theory, as with Ricardo, the expression, cost of production of money, could have a definite meaning. It meant the labor-cost of producing the money metal. Even in this form, it is recognized that cost of production has a looser connection with value in the case of money than in the case of most commodities, because the supply of money metal is large and durable, and the annual production affects it slowly. But cost of production theories, in the form of labor theories, or labor-abstinence-risk theories, have little standing in modern economic theory. Ricardo himself saw the break-down of the pure labor theory; and Cairnes, Ultimus Romanorum, so limited and modified the "real costs" doctrine as to leave little validity in it, even on his own showing. The prevalent doctrine of cost of production runs in terms of "money-costs"--and hence is of no use when the problem of the value of money itself is to be solved. A brief historical sketch of the cost theory will be helpful. Costs are sometimes conceived as a cause of value, and sometimes as a measure of value. Often these two aspects are mixed, and writers shift from one notion to the other. This is particularly true of the labor theory. In Adam Smith the contention sometimes is that labor is unvarying in value, hence an admirable measure of values, and an excellent standard of long-time deferred payments. Smith compares wheat and silver from the standpoint of the constancy of their relation to labor, and concludes that wheat is the better standard in the long run, because it remains more nearly fixed with reference to labor than does silver. Sometimes Smith thinks of labor as a cause of value, and thinks of the labor that enters into the production of a good as the significant thing. At other times, the labor that goods will command or purchase is the significant thing--and here one is not clear whether he thinks of labor as a cause or as a measure. Whether labor is to be funded as labor-pain, or as labor-time, Smith does not state. Sometimes labor seems to be considered as homogeneous in its efficiency. At other times, he makes comparison between different kinds of labor as to their efficiency, and compares the efficiency of labor in different occupations. One can find nearly anything one pleases in Adam Smith on these points. At times he speaks of "labor and expense," rather than labor alone, as governing prices. Labor-cost to the laborer would take the form of labor-pain or labor-time. To the employer, it would take the form of outlay in wages. Adam Smith never makes any definite statement of point of view here, and shifts back and forth from one to the other. He recognizes variations in labor-pain, in danger, etc., in different kinds of labor when discussing wages. Ricardo elaborated the labor theory of value, and tried to think it through. He was too keen a logician to shift view-points with Smith's facility, and he tried to make a completed system.[55] There is some shifting from the theory of labor as a cause of value to labor as a measure of value, as in the following passage: "If the state charges a seigniorage for coinage, the coined piece of money will generally exceed the value of the uncoined piece of metal by the whole seigniorage charged, because it will require a greater quantity of labour, or, which is the same thing, the value of the produce of a greater quantity of labour, to procure it." (_Works_, McCulloch ed., 213.) In general, however, Ricardo developed a causal theory of value, quantity of labor being the basis of the absolute values of goods, their _relative_ values depending on the relative amounts of labor involved in the production of each. I shall not go into the matter fully, but shall call attention to the rock on which the system split, as Ricardo himself admits. A greater or less proportion of capital works with labor in producing different things, and the value of product, in that case, varies not merely with the labor, but also with the amount of capital, and the length of time the capital is employed. How say, then, that labor alone governs value? How reduce labor-cost and capital-cost to homogeneous terms? James Mill tried to do it for him by making capital merely stored up or petrified labor, which gives up its value again in production. But this doesn't meet the difficulty, because there is a _surplus_ value, over and above that explained by all the labor, including the labor which produced the machine, and the labor which produced the raw materials which entered into the machine, etc. The case of wine is a particularly obstinate case. Wine increases in value merely with the passage of time, at a rate which corresponds to the profit on capital. Ricardo finally, in correspondence with McCulloch, definitely abandons the case, stating that there are many exceptions to the proportionality between exchange value and labor-cost. "I sometimes think that if I were to write the chapter on value again which is in my book, I should acknowledge that the relative value of commodities was regulated by two causes instead of one, namely, by the relative quantity of labor necessary to produce the commodities in question, and by the rate of profit for the time that the capital remained dormant." (Davenport, _Value and Distribution_, p. 41.) But this is a "dualistic" rather than a "monistic" explanation--one element is a money-expense, or at all events a pecuniary item, while the other is a "real cost" item. The two are incommensurate and incommensurable. Senior seeks to supply the unifying principle. "Abstinence" and labor have pain as a common element, and so are commensurable. Costs, reduced to labor and abstinence, become homogeneous again. Monism is restored. Cairnes completes the doctrine by adding risk to the real cost elements: a triune cost concept, sacrifice being the generic fact in the three manifestations. With John Stuart Mill, in general, we have an entrepreneur view-point. Money-expenses of production, entrepreneur outlay, plus wages of management, or including wages of management, are the factors with which Mill reckons. He is no longer concerned with psychological ultimates, or real costs. Cairnes criticised Mill sharply for this. No distinction is more fundamental he holds, than that between costs or sacrifice on the one hand, and rewards on the other. Labor, abstinence and risk are sacrifices; wages, interest, profits are rewards. None the less, in cost doctrine, as in supply and demand doctrine, it is Mill's view which has prevailed. Cost as conceived by Mill is a superficial, pecuniary notion. It tells little as to ultimate causation. But it is virtually only as a pecuniary doctrine, costs from the entrepreneur view-point, that the cost doctrine is met in modern theory. Why is this? Well, first, the real-cost doctrine simply does not square with the facts. The hardest labor does not produce the most valuable goods. Value in fact does not vary either with labor-pain or labor-time. In fact, whatever the explanation, it would seem to be truer that the relation is an inverse relation. Nor does the abstinence that pinches hardest produce the largest amount of capital. And while there is some correlation between risks and profits, the correlation is at best low and is not a correlation between psychological sacrifice and profits. Even "marginal abstinence" for a Rothschild or a Rockefeller causes no pain. It is absurd to seek to find a common element in the "abstinence" of a rich man and the pain of a poor and aged laborer. I pass over the supposed difficulty that abstinence is, in general, suffered by one set of minds, and labor-pain by a different set of minds, and hence, since men cannot compare their own emotions with the emotions of other men, there is no comparability. This subjectivistic psychology would, of course, make it equally impossible to fund labor-pains of different laborers, or to get any common denominator at all.[56] It is enough to point out that differences between rich and poor, between successful and unsuccessful, between efficient and inefficient, (apart from acquired differences which may be smoothed out by the "stored up labor-of-training" principle) make labor-pain, and marginal labor-pain, vary greatly from value, and make labor-pain, abstinence and risk quite incommensurable, and quite without fixed relation to value. Cairnes saw this in part, and developed his doctrine of non-competing groups to deal with it. Labor-pain and value vary together only when we are comparing goods produced by laborers within a competing group. Laborers in one group do not compete with laborers in another group. There is perfect competition in the capital market, however, and so capital costs ("abstinence") are perfectly correlated with value, to the extent that capital enters. Cairnes seems to think that the whole difficulty with his real cost doctrine comes from the failure of competition. In fact, however, it comes also from the inequalities in wealth. And even in his highly competitive capital market it is equally true that abstinence, or even marginal abstinence (a term which Cairnes does not use) has no constant relation to amount of capital accumulated, value produced, or interest received. The cost theory breaks down at every point when it runs in labor-abstinence-risk terms. So generally has this been recognized, that the cost theory has generally given way to the utility theory, and cost doctrine when it appears in modern economics is either the very superficial money-outlay notion of Mill, or else the Austrian cost doctrine, later to be discussed, which is still a pecuniary concept. I have elsewhere undertaken to show (_Social Value_, chs. 3-7, and the ch. on "Marginal Utility," _infra_) that these defects of the "real-cost" theory, are just as much in evidence in the utility theory. The failure of the real cost theory of value is by no means a vindication of the utility theory. Both have the same vice--the effort to combine into a homogeneous sum a lot of individual psychological magnitudes measured in money, when the money-measure has a different psychological significance for each individual, and so comparison and addition are impossible. But in any case, the real cost doctrine of the Classical School has failed, and so cannot serve as the basis of the theory of the value of money. Obviously the money-outlay cost theory of Mill cannot explain the value of money itself. The marginal cost of producing twenty-three and twenty-two hundredths grains of gold will always be a dollar, however the dollar may vary in value. Indeed, in general, the assumption of a constant value of the money-unit is implied in the monetary cost concept. Cost curves are _supply_-curves and the reasoning already given as to the need for assuming constant value for money in the supply and demand concept will apply here. Costs function in value-determination only by checking supply. Rising costs tend to mean a lessened supply. But if the cost-curve is rising _because_ of a fall in the value of money, then the demand-curve will be rising also, and production will not be checked. The general law as to the relation of cost to demand and supply assumes a fixed value of the unit of cost, the dollar. To the Austrian economists we owe a rational theory of costs which gives the money-outlay concept more than a merely empirical basis. First, they see in costs not causes, but results. Value causation comes ultimately, not from the side of supply, but from the side of demand. I shall not now undertake a criticism of their explanation of demand. I have elsewhere criticised their confusion of demand-curves and utility-curves, and pointed out that marginal utility gives no explanation of demand. I shall recur to the utility theory of value at a later point. For the present, it is enough to point out that the Austrian theory of costs is independent of their utility vagaries, and rests best on the notion of supply and demand, as expressed in the modern curves, with the assumption of a fixed value of the money-unit. Costs consists of entrepreneur money outlay of various kinds, chiefly wages, interest, and rent. Rent is, for the Austrians, as much a cost as any other item of entrepreneur outlay. But these items of cost are not ultimate data. They are rather reflections of the positive values of the products. Value runs from finished product to agents of production, labor, and instrumental goods, and land. Avoiding needless complications from a discussion of interest as a factor in cost--a doctrine on which the Austrians, say Wieser and Böhm-Bawerk, are not agreed,--it is enough to point out that high wages or high rents, which limit production in any given industry or establishment, are high _because_ the land and labor in question have _alternative_ uses, because other industries, or other competitors in the same industry, bid for them. Cost-curves, then, are reflections of demand-curves. The cost-curve of wheat, _e. g._, is what it is because of the demand-curve for corn, for cattle, and for every other commodity that could be produced with the same labor and land. Cost doctrine thus becomes part of the general doctrine of supply and demand, and runs in pecuniary terms, assuming money, and a fixed value of money, and hence is incapable of serving as a theory of the value of money itself. That some vaguer form of cost doctrine, where the unit of cost is, not money, but some composite commodity of things used in the production of the standard money metal, or a unit of abstract value, might be worked out, is doubtless true. Gold production, like other industry, is part of the general economic scheme, and there is some sort of equilibrium reached which draws labor and capital now away from, and now back to, the gold mine. To bring this equilibrium into the general scheme of the modern theory of costs, however, in terms precise enough to make a satisfactory theory of the value of money, is a thing which has not so far been done, and I do not have high hopes of its early accomplishment. In any case, such a theory must rest upon a positive theory of value. Cost doctrine is negative, and can never be fundamental.[57] CHAPTER IV THE CAPITALIZATION THEORY AND THE VALUE OF MONEY Money is capital. A dollar is a capital-good. Money is, moreover, a durable form of capital, which gives forth its services bit by bit, and indeed, in a community where the state bears the burden of wear and tear, never ceases to give forth those services. In any case, from the standpoint of a given individual, so long as there is a limit of tolerance prescribed for legal tender, it is a matter of accident if he ever incurs a loss from the wastage of the capital instrument, money, through wear and tear. Moreover, the fact that money is "fungible," and that its use is to be found in a process which commonly returns to the owner, not the same coin, but a different coin, we may, in general, abstract from the wear and tear of the dollar, and look upon the dollar as a capital instrument which promises its owner, if he chooses to use it as capital, a perpetual annuity. The nature of this money service will be more fully described later. For the present it is sufficient to say that exchange is a productive process, that exchange creates values, in as true a sense as manufacturing does, and that money facilitates exchange in as true a sense as coal facilitates manufacturing. There is, at any given time, a demand-curve for this money service, manifesting itself in the money market, a demand for the short time use of money as a tool of exchange, and the "prices" which come out of the interaction of demand and supply in the money market are the short time "money rates" including the "call rates." These are properly to be conceived, not as pure interest on abstract capital, but as rents[58] which are to be attributed to money as a concrete tool. Now, in general, when such rents appear, they may be capitalized. And the price of the instrument of production that bears these rents, will be the sum of the rents, discounted at the prevailing rate of interest, with considerations of risk, etc., allowed for. The reasoning of the capitalization theory is really quite simple. Take, for example, a piece of urban site land, which is expected to bring a perpetual annuity of one hundred dollars. The whole economic significance of the land is contained in its services, present and prospective. The possession of land under certain circumstances brings other services, as social prestige, than the services which can be alienated to a lessee. But in this case I am abstracting from considerations of that sort, and also from the factor of risk. The whole value of the piece of land under consideration comes from the value of the one hundred dollars a year. But these annual incomes are not all equally valuable, even though all expressed as one hundred dollars. The first one hundred dollars is due one year hence, the tenth ten years hence, the thousandth, a thousand years hence. The principle of perspective comes in--I abstain from any detailed discussion of the theory of interest, simply stating that in a general way I agree with the contention that _time_ constitutes the essence of the phenomenon, or rather, the tendency to discount the future. The capital price of the land is the sum of an infinite convergent series of the "present worths" of the incomes. The formula is as follows: capital price of land = $100/1.05 + $100/(1.05)^2 + $100/(1.05)^3 ... + $100/(1.05)^n when the rate of interest is 5%. The limit of this series, assuming the series to be infinite, is $2000, and a simple formula for calculating it under the assumptions, is to divide $100, the annual income, by .05, the rate of interest. Given the annual income, given the prevailing rate of interest, the capital price is determined. The relation may be illustrated, roughly, by the figure of a candle, a disk, and the shadow of the disk on the wall. The disk represents the annual income, the shadow on the wall the capital value, and the distance between the flame and the disk the rate of interest. Increase the distance between the flame and the disk, the rate of interest, and the shadow becomes smaller; shorten the distance, and the shadow is increased. Similarly, enlarge the disk, and the shadow is enlarged. The capital value varies directly with the annual income, and inversely with the rate of discount. Now my purpose here does not involve a detailed examination of the validity or limitations of the capitalization theory. For the present, the only question is, has this theory any application at all to the problem of the value of money? It offers itself as a general theory of the values of durable bearers of income. Money is a durable bearer of income. The capitalization theory, however, is of no use for the purpose in hand. Money does not obey the general law in the relation which the magnitude of the income bears to the rate of interest. In general, the income and the rate of discount are independent variables. Their influence, operating in opposite directions, fixes the capital value, increasing income increasing the capital value, increasing discount rate reducing it. In the case of money, however, the two factors are not independent. The short time money rate is not, to be sure, identical with the long time rate of interest, which is the rate of discount for the purpose in hand. But the two tend to vary together in the long run average in fact, and they are related in the _expectation_ of those who are concerned in the capitalization process. In our chapter on the "Functions of Money," in Part III, it will be shown that normally there tends to be a difference between the money rates and the long time interest rates, the long time rates tending to be higher than the rates on short loans, the rate on very short loans being lower than the rate on somewhat longer short time loans, and the call loan rate being lowest of all. The explanation of this must be deferred till we have analyzed the functions of money. But the important thing, for present purposes, is that the money rates, though lower than the "pure rate" of interest, tend to vary, in long time averages, with that "pure rate,"[59] and that, consequently, the income from renting money, and the discount rate to be applied in capitalizing that income, are not independent magnitudes, but tend to vary together. They thus tend to neutralize one another. If money rates go up, and if they are expected to stay up long enough to justify (on the ordinary capitalization theory) a rise in the capital value of money, we have a counteracting influence in the long time interest rate, which also rises, and tends to pull down the capital value of money. To recur to our illustration of the candle and the disk, as the disk increases in diameter, the distance between the candle and the disk grows greater, and so the _shadow_ tends to remain the same. There is a further difficulty, to which attention will be called more fully in later chapters, particularly the chapter on "Dodo Bones," and the chapter on the "Functions of Money." In other cases, in general, the capital value is, as the capitalization theory requires it to be, a true shadow, a passive function of the income and the discount, of the disk and the distance between the candle and the disk. In the case of money, however, the income is causally dependent, in part, upon the capital value. Money can function as money only by virtue of having value. The shadow becomes substance in the case of money. It is the _value of money_ which makes possible the _money work_. The capitalization theory, thus, if applicable at all, must be radically modified before being applied. We shall subsequently, in the chapters above referred to, take account of this fundamental complication. For the present, we can state it merely as a problem: how can we construe the interaction of the income value of money and the capital value of money in such a way as to avoid a circular theory? But further, the capitalization theory, as heretofore formulated, like the doctrines of supply and demand and cost of production, assumes _money_, and a _fixed absolute value_ of money. This assumption must be made if we are to be able to predict, on the basis of the capitalization theory, that a given annual income, at a given rate of discount, will give a specified capital value. This may be shown by the following considerations: If men anticipate that the value of the income, which is a fixed sum of dollars, is to grow less in the future, then the present worth of the bearer of that income will shrink to an extent greater than the "pure rate" of interest would call for. The principle of "appreciation and interest" comes in. The nominal interest, in times of falling value of money, tends to exceed the pure rate by an amount which compensates for the loss in value of future income as the dollar falls in value. We have here, however, a principle different from the principle of time discount. It is not the influence of time, which makes a _given_ value appear smaller as it is further removed in time, but it is an anticipated lessening in the value of the income itself, that counts. In terms of our candle and disk illustration, it is a factor affecting the size of the disk, rather than a factor affecting the distance between the disk and the candle. For the purposes of calculation, the two elements in the nominal rate of interest may be lumped together, and the nominal rate, rather than the pure rate, may be taken as the rate of discount for capitalization purposes. But for theoretical purposes, the two must be kept distinct. The capitalization theory rests on the assumption of a fixed value of the money unit. That the fixed value of the money unit assumed is an absolute value, and not a mere "reciprocal of the price level," may be proved by some further considerations regarding relations among these same factors. Assume a fall in the rate of interest. Then, on the capitalization theory, prices of lands, stocks and bonds, houses, horses, and all items of wealth which give forth their services through an appreciable period of time, will rise, and with them the average of prices, or the general price level, will rise.[60] If one hold the _relative_ conception of value, according to which the value of money necessarily falls when prices rise, because the two are merely obverse phases of the same thing, then this rise in the price level is, _ipso facto_, a fall in the value of money. But we have seen that a fall in the value of money means, on the "principle of appreciation and interest," a rise in the interest rate! Hence, we would have proved that a fall in the interest rate causes a rise in the interest rate--which is absurd. If, however, we recognize that prices can rise without a fall in the value of money, if, _i. e._, we use the absolute conception of value, this difficulty disappears. The capitalization theory and the theory of appreciation and interest can be reconciled only on the basis of the absolute conception of value. The capitalization theory, then, in its present formulation, assumes money, and a fixed absolute value of money. It is, therefore, inapplicable to the problem of the value of money itself. In general, none of the polished tools of the economic analysis,--neither cost of production, the capitalization theory,[61] nor the law of supply and demand,--is applicable to the problem of the value of money. The reason is that they get their edge from money itself. The razor does not easily cut the hone. It is to this fact, I think, that we owe the widespread and long continued vogue of a theory so crude and mechanical as the quantity theory. In the next chapter we shall show that the utility theory of value--which we shall not recognize as a polished tool!--has also failed to give us help in explaining the value of money. CHAPTER V MARGINAL UTILITY AND THE VALUE OF MONEY A good many writers have attempted to apply the marginal utility theory to the value of money. Among these, I may particularly mention Friedrich Wieser, Ludwig von Mises, Joseph Schumpeter, and, in America, David Kinley, and H. J. Davenport. The marginal utility theory is ordinarily merely a thinly disguised version of supply and demand doctrine. As usually presented in the text-books, we have an analysis of the phenomenon of diminishing utility of a given commodity to a given individual, illustrated by a diagram, in which the ordinates represent diminishing psychological intensities. Often a money measure is given to these diminishing intensities, and the curve is presented as the demand schedule of a given individual. Then, with little further analysis, a leap is made to the market, and it is assumed that the market demand-curve, of many individuals, differing in wealth and character, is a utility-curve, and value in the market is "explained" by means of marginal utility. I need not here repeat my criticisms of this procedure.[62] It gives simply a confused statement of the doctrine of supply and demand. The analysis of utility which precedes the discussion of market demand is wholly irrelevant, and merely mixes things up. That such a conception is of no use in solving the problem of the value of money has been sufficiently indicated in the chapter on supply and demand. Sometimes the contention is made that money is unique among goods in having "no power to satisfy human wants except a power _to purchase_ things which do have such power."[63] This contention, in Professor Fisher's view, precludes the application of the marginal utility theory to the problem of the value of money, and he makes no use of marginal utility in his explanation. Indeed, in the passage from which this quotation is taken, Professor Fisher says that the quantity theory of money rests on just this peculiarity of money. Not all writers who contend that money has no utility _per se_, however, have felt it necessary to give up the marginal utility theory as a theory of money, as we shall later see. On the other hand, writers of the "commodity school" (or "metallist school"), writers who see the source of the value of money in the metal of which it is made, can apply the utility theory readily to the value of money, making the value of money depend on the marginal utility of gold, or the standard metal, whatever it is. To the writers of this school, it is incredible that anything which has no utility should become money. Money must be either valuable itself, or else a representative of some valuable thing. The value of money comes from the value of the standard of value, and that value may, so far as the logic of the situation is concerned, be as well explained by marginal utility as the value of anything else. Typical of this view is Professor W. A. Scott's discussion in his _Money and Banking_[64], though the emphasis there is not on marginal utility as the explanation of the value of the standard, but on the value (conceived of as an absolute quantity) of the standard as essential to the existence of money, and the performance of the money functions. Professor Scott attacks vigorously and effectively Nicholson's exposition of the quantity theory,[65] where the assumption is made that money consists of dodo-bones (the most useless thing Nicholson could think of). Most quantity theorists would share Nicholson's view that dodo-bones would serve as well as anything else for money--or, to put the thing less fantastically, that the substance of which money is made is irrelevant, that the only question is as to the quantity, rather than the quality, of the money-units, and the quantity of the money-units, not in pounds or bushels or yards, but in abstract number merely. For writers who seek the whole explanation of the value of money in its monetary application, and who see that money, _qua_ money, cannot administer directly to human wants, the view that Professor Fisher expresses, namely, that money has no utility, and is unique among goods in this respect, seems on the surface, to have justification. On the surface merely, however. Money is not unique among goods in being wanted only for what it can be traded for. Wheat and corn and stocks and bonds and everything else that is speculated in is wanted, by the speculators, only as a means of getting a profit[66]--they are remoter from the wants of the man who purchases them than the money profit he anticipates. Ginsing, in America, has value, though consumed only in China. And there are people, particularly jewelers, who often want money as a raw material for consumption goods. The difference is at most a difference of degree--and of slight degree indeed in the case of such things as bonds, which count on the "goods" side of the quantity theory price equation, but which really are in all cases remoter than money itself from human wants. Money really stands, for the purpose in hand, on the same level as any other instrumental good.[67] It does not give forth services directly, as a rule. Neither does a machine, or an acre of wheat land, or goods in a wholesaler's warehouse. Exchange is a productive process, an essential part of the present process of production. Money is a tool which enormously facilitates this process. It has its peculiarities, no doubt. One of them is--and money is not unique in this as will later appear--that it must have _value_ from non-monetary sources[68] before it can perform its own special functions, from some of which it draws an increased value. But there seems to me to be nothing in the contention quoted from Professor Fisher, to justify setting money sharply off from all other things, or to justify the view that marginal utility is inapplicable to the value of money, if it be applicable to the value of anything at all that is not destined for immediate consumption. I do not believe that the marginal utility theory is valid for any class of goods, not even those for immediate consumption. Where marginal utility theory is,--as in the conventional text-book expositions--merely another name for supply and demand theory, it is, as already shown, not applicable to the value of money, and it is useful in the surface explanation of market-prices of goods. But where marginal utility theory really seeks to get at value fundamentals, it is precisely as valid for money as for goods of other sorts--invalid, in my judgment, in both places, and for the same reasons in both. Among the writers who would apply the utility theory to money, while still insisting that money, as such, has no utility, are Wieser, Schumpeter--who accepts Wieser's theory in its main outlines--and von Mises, who develops a notion very different from that of the other two. Wieser's doctrines are set forth in two expositions, separated by five years, the second representing a considerable development in his thought, though resting in part on the first. The first is an address upon the occasion of his accession to the professorship at the University of Vienna, in 1904, and is published in the _Zeitschrift für Volkswirtschaft, Sozialpolitik und Verwaltung_, vol. 13 entitled, "Der Geldwert und seine geschichtlichen Veränderungen." The second is a discussion, partly written and partly spoken, "Der Geldwert und seine Veränderungen" (written), and "Ueber die Messung der Veränderungen des Geldwertes" (spoken), in _Schriften des Vereins für Sozialpolitik, Referate zur Tagung_, no. 132, 1909. For the purpose in hand, a brief statement of one or two points would suffice to show the futility of Wieser's effort to get an explanation of the value of money _via_ marginal utility, but I think that readers may be interested in a fuller account of Wieser's doctrine, just because it is Wieser's, and so shall undertake to give a more systematic account of it. For brevity, in the exposition which follows, I shall refer to the first article as "I," and to the second as "II."[69] Wieser holds that it is possible to have money wholly apart from a commodity basis (I, p. 45), citing the Austrian _Staatsnoten_ as a case in point. The reason for giving them up is that they do not circulate in foreign trade. Gold fulfills its international money-functions the more easily because of its various employments, but, after it is thoroughly historically introduced, as money, it could fulfill its money functions even if all these employments be thought away (46). Wieser gives no argument for this contention, and its validity will be examined later.[70] There are, he says, two sources for the value of gold, the money use and the arts use, interacting. Money is further removed from wants, not only than consumption goods, but also than production goods, which are but consumption goods in the seed. The latter are technically destined for definite goods. But money may be used to procure whatever good you please, in exchange. (The absoluteness of this distinction, also, may be questioned. Pig iron is almost as unspecialized as money in its relation to wants, since tools enter into the production of almost every service that human wants require, from surgical operations, through instrumental music, to wheat and horse-shoes. On the other hand, money is not the only thing by means of which other things are purchased. The extent of barter in modern life will wait for later discussion.[71] I do not think that _any_ sharp distinction between money and all other things is valid.) Wieser complains of the older economics which treats money as a commodity. And he contends that as money and commodities show a contrast in their essence (_Wesen_), they should also manifest a contrast in the laws of their values, even though the fundamental general theory of value applies to both (I, 47). He finds in representatives of money (_Geldsurrogate_) and in velocity of circulation of money, factors which are lacking in commodities. (Again a question must be interjected by the writer. Are not corporation securities essentially like _Geldsurrogate_ from this angle? And do not goods vary greatly in the number of times they are exchanged? What of the speculative markets, where more sales are made in an active market, at times, than there are commodities or securities of the type dealt in in existence?) The value of money is essentially bound up with the money-service. Wieser indicates that he is not talking about the subjective value of money, but its objective value, using the popular meaning of the term, which, he says, is not strictly logical, but is useful: the relation of money to all other goods which are exchanged, the purchasing power of money. This depends on goods as well as on money. In the second article, Wieser refines and elaborates his conception of the objective value of money, seeking to get away from the notion of relativity which is involved in the conception of purchasing power, and to get an absolute conception, which shall be a causal factor in the determination of general prices, rather than a mere reflection of them. It is to be a coefficient with the objective values of goods in determining prices. A change in general prices may be caused by a change in the value of money, and may be caused by a change in the values of goods (II, p. 511). In explaining this objective value concept (which, in its formal and logical aspects, is in many ways similar to the absolute social value concept maintained by the present writer, though, in the present writer's judgment, inadequately accounted for by Wieser, so far as a psychological causal theory is concerned) Wieser objects to the term, "objective value" which he had used in the earlier article. He prefers "volkswirtschaftlicher Wert." (This term is perhaps best rendered "public economic value," for present purposes, to distinguish it, on the one hand, from individual or personal value, and, on the other, from the social economic value concept of the present writer. At the same time, the connotation of a communistic or authoritive value must not be read into the term. It is, in its formal and logical aspects, really the most common of all the value notions, and may, best of all perhaps, be translated simply "value," or "economic value," or "absolute value." But for the present discussion, we shall call it "public economic value.") This public economic value, in the case of goods, is not a mere objective relation between a good and its price-equivalent. It is a subjective (psychological) value, like personal value. If one wishes to call it objective value, one is using objective in the sense of the general subjective as distinguished from the personal individual idiosyncracy (II, p. 502). The objective exchange value of goods (here Wieser uses "objektiver Tauschwert" as the equivalent of his "volkswirtschaftlicher Wert" above mentioned) is the common subjective part of the individual valuations leaving out the remainder of individual peculiarities ("der allgemein subjective Teil der persönlichen Wertschätzungen mit Verschweigung des individual eigenartig empfundenen Restes").[72] Wieser does not seem to me to think out clearly the distinction between absolute and relative value in this connection. He wishes to get something more fundamental than a mere relation between goods and money; he wishes a psychological phenomenon. He wishes to have a value of goods which can be set over against the value of money, the two, in combination, determining prices. And yet, he wishes somehow to get these out of the prices themselves. "We must seek a concept of the public economic value of money which, to be sure, proceeds from the general price-level (_Preisstand_), but which excludes from its content everything that comes purely from the value of goods" (II, 511). To the public economic value of money, however, Wieser gives no independent definition. The definition runs in terms of the values of the goods. "The value of money rises when the same inner values (_innere Werte_) of commodities are expressed in lower prices; it falls, when they are expressed in higher prices" (II, 511-12). "Inner value" of goods is not defined, but I take it that Wieser uses it as meaning essentially the same thing as the public economic value already described--an absolute value. (_Cf._ the usage of Menger and von Mises, _infra_, in this chapter, with respect to the terms, "inner" and "outer" value.) The definition is not strictly circular, perhaps, but at least it is pretty empty. Nothing appears to give the value of money, as distinct from its purchasing power, an independent standing. The reason for this will later appear. It should be noted, however, that the definition is not in terms of prices or purchasing power. Prices might remain unchanged, in Wieser's scheme, and yet the value of money sink, if the inner values of goods should sink. The value of money, thus defined, is to be explained by marginal utility. But money has no marginal utility of its own, it has no subjective use-value, but only a subjective exchange value,--derived from the use-value (marginal utility) of the commodity purchased with the marginal dollar (II, 507-8). This subjective-exchange value of money is the personal value of money, as distinguished from its public economic value, and is the cause of the public economic value. The personal value of money changes (1) with the volume of one's personal income, (2) with the intensity of one's need for money, and (3) with market prices. The personal value of money is directly influenced and measured only in exchanges for consumption goods. Expenditures of other kinds affect it only indirectly by leaving less for consumption expenditures. The laborer always reckons with the personal value of money, but not the business man, in his business calculations. As in the case of goods, we pass from personal to public economic value (II, 509). The personal value of money depends on the relation between an individual's money income, and his real income, in terms of goods. The public economic value of money depends on the money income of the community as a whole, and its real income. (II, 516-18). Money income grows faster than real income, through the extension of the money economy. Money income is not, like real income, dependent on quantity. The mere extension of the money economy increases the volume of money income, lowers the personal value of money, lowers its public economic value, and raises prices. Witness the effect on a rural community of bringing it into the great market, where all costs are reckoned in money and rising costs compel rising prices. Hence, there is a tendency for the public economic value of money to sink, and this has been the historical fact (I, II, 519-520.) Criticism of this theory is almost superfluous. There are elements in Wieser's discussion, not here presented, which have very considerable importance, and which will be presented in a later chapter when the criticism of the quantity theory is taken up. Wieser deals some heavy blows to the quantity theory. But his constructive doctrine presents the clearest possible case of the Austrian circle. The value of money depends, not on its subjective use-value, its own marginal utility--it has none. The value of money depends on its subjective value in exchange, the marginal utility of the goods which are exchanged for it. But these depend on prices. And prices depend, in part, on the value of money itself! This circle, present in every form of the Austrian theory which seeks a causal explanation of value and prices by means of marginal utility,[73] though often less obviously present, is here quite glaring. The distinction between volume of money income and quantity of money is, on the other hand, an important one, and will be emphasized when the quantity theory is taken up.[74] One further point in Wieser's doctrine calls for comment. It is strange indeed to find an Austrian seeing in a rise in money costs a _cause_ of a general rise in prices. The Austrian doctrine is rather that rising money costs are _reflections_ of rising general prices. Wieser's doctrine that the extension of the money economy to rural regions, compelling the farmer to reckon all his costs in money and so to raise his prices, has been adequately criticised by von Mises, who points out that Wieser sees only half the phenomenon; that eggs and butter are, indeed, higher in price in the rural region when it comes into contact with the city, but that they are correspondingly lower in the city from the same cause. On the other hand, the doctrine of costs is not the whole point in Wieser's notion of the extension of the money economy as a cause of higher prices, and we shall deal with the doctrine again, in a different connection. By devitalizing the marginal utility theory, by stating it in such a way that it makes no causal assertions, and in such a way that it leaves the real value problem untouched, it is possible to free it from the circle just pointed out. Schumpeter does so state it. Schumpeter's theory of value,[75] though he attributes it to Böhm-Bawerk, seems to the present writer to be essentially different. Böhm-Bawerk undertakes to explain the value (objective value in exchange) of each good by its _own_ marginal utility to different individuals, buyers and sellers of the good--indeed, by its marginal utility to _four_ individuals, the two "marginal pairs."[76] He sees at points that the prices of other goods are sometimes factors, making marginal utility give way to "subjective value in exchange," as the determinant of an individual's behavior toward a given good in the market--as in his much discussed overcoat illustration.[77] But Böhm-Bawerk never gets out of the circle which this reaction of the market-prices on the individual subjective values involves. Schumpeter seems to rise to a higher conspectus picture, which, in form, avoids the circle. His picture is that of a vast equilibrium, in which, instead of attributing the market value of each good to its own marginal utility, you explain the exchange ratios[78] of every good to every other good, all at once, by reference to a total situation: _given_ the number of goods of each class, given the number of individuals in the market, given the _distribution_ of each class of goods among the individuals, given the utility-_curves_ (not marginal utilities) of each good to each individual, an equilibrium will be reached, through trading, in which ratios between marginal utilities of each kind of good to each individual are inversely proportional to the abstract ratios (ratios of exchange) between the same goods, each measured in its own unit. The ratios are abstract ratios, between pure numbers, so far as the market ratios are concerned; the ratios in the mind of each individual are concrete ratios, between marginal utilities. The scheme, thus stated, says nothing as to the _causal_ relation between marginal utility and market ratios; it merely states certain _mathematical_ relations between each individual system of marginal utilities on the one hand, and the abstract market ratios on the other. By avoiding _assertions_ as to causation, it avoids a causal circle. In such a situation, marginal utilities and market ratios are, in reality, alike resultants, _effects_, of the given quantities of goods, distribution of goods, numbers of buyers and sellers, and individual utility-_curves_--not _marginal_ utilities. To this picture, one may add--what Schumpeter does not add--the curves showing time-preferences of each individual for each sort of good, and (an element which Schumpeter does include) the curves of _dis_-utility for the individuals who produce each kind of good. The system, it may be noted, is as good a proof of _real cost_ doctrine as it is of utility doctrine. Such a picture, I submit, avoids the circle which is presented in all other formulations of the Austrian theory of value. I wish, however, to indicate its limitations as a theory of value, and the impossibility of any application of it to the problem of the value of money. (1) Its data are inaccessible: nobody could possibly know all the utility-curves and all the time-preference curves (and disutility of labor-curves, etc.) of all goods to all individuals in, say, the United States. To explain market ratios by utility-curves is a case of _ignotum per ignotius_, so far as practical application is concerned. Moreover, the scheme is so difficult to visualize that it is useless as a tool of thought--as one will find who tries to think it through, without the aid of higher mathematics, for ten goods, and ten persons, with unequal distribution of wealth, and different utility curves, time-preference curves, and disutility-curves for each kind of good to each individual. (2) The scheme must assume smooth curves and infinitesimal increments in consumption, which is a fiction so far as the individual psychology is concerned. Without this assumption, the point-for-point correspondence between individual and market ratios does not exist. It is only in social-value curves, or in demand-curves in the big market (which are social-value curves, expressed in money),[79] that you have, as a matter of fact, the right to smooth out your curves. (3) The theory must assume the frictionless static state, in which marginal adjustments are perfectly accomplished, and equilibrium really reached. Without this assumption, again the point-for-point inverse correspondence of market ratios and individual ratios fails. But this makes it quite impossible to apply the doctrine to any functional theory of the value of money, or to bring money in any realistic way into the scheme. As will be shown more fully in later chapters, money functions in bringing about just the absence of friction which static theory assumes. That is what money is _for_. The functional theory of money, therefore, cannot abstract from friction and dynamic change.[80] It is, of course, possible, on this scheme to pick out any one of the goods in the system, say the 1-1000th part of a horse, call it the "money-unit," and determine a set of money-prices. These "money-prices" are already given in the scheme in the ratios between the abstract numbers of this unit and the abstract numbers of the units of all other goods. But this is meaningless, so far as a theory of money is concerned. It abstracts entirely from the _differences_ in _salability_[81] of goods, on which the theory of money must rest. It gives us no clue to that part of the value of the money-article which comes from its money-functions. (4) The theory has no bearing on the problems of supply and demand. Demand-curves are curves, not of utility, but of money-prices. They are concerned, not with a _system_ of ratios among goods in general, but with the absolute money-prices of particular goods, one at a time. The modern demand-curves and supply-curves, representing the demand and supply doctrine first made precise by J. S. Mill,[82] are concerned with the money-prices of particular goods, and the "equation of supply and demand"--amount supplied and amount demanded--gives an equilibrium in which only one price is determined. Austrian theory, in Böhm-Bawerk's hands, and in the hands of practically all adherents of the Austrian School, including Davenport,[83] has been offered as really bearing on the explanation of demand, and as giving a psychological account and explanation of the demand-curve. The scheme of Schumpeter has simply no bearing at all on this vital point. The equilibrium picture in which _all_ goods are involved supplies no data from which to construct any of the magnitudes above or below the margin of the demand and supply-curves of any given good. One reason why this is so will appear from the point made with reference to "money-prices" in the preceding paragraph. For Schumpeter's scheme, the significance of the article chosen as "money" would be as much a problem as anything else, when the conditions are laid down. It would vary in the process of reaching the equilibrium. Its ratios with all other things would, thus, fluctuate until the equilibrium was reached. But, as we have seen, in the chapter on "Supply and Demand," curves of supply and demand must assume a fixed significance of the money-unit. It may be further noticed, as marking off Schumpeter's scheme from supply and demand analysis, that in Schumpeter's scheme, the individual is the centre of interest, and his reactions _toward all kinds of goods_ is emphasized; whereas in supply and demand analysis, the _good_--one good--is the centre of interest, and the price-offers streaming toward it from all kinds of individuals is emphasized. The two bodies of doctrine are quite distinct. (5) The theory has no bearing on the explanation of entrepreneur cost--money-outlay, "opportunity cost," alternative positive values, or what not. It finds no place for the modern cost doctrine. It does not in any way open the path to the Austrian theory of costs. Costs, for Austrian theory, as, in general, for modern theory, are reflections of _demand_ for the employment of the agents of production in alternative uses. Thus, it costs a great deal to raise wheat in Illinois, because of the rival demand for the land to produce corn. Labor costs are high in ordinary manufacturing, because of the rival demand for labor in the munitions factories, etc. As Schumpeter's theory can give no account of the _demand_ for labor in the munitions factories, it follows that it can give no account of the _cost_ of labor in the other factories. Instead, indeed, of giving us the modern cost doctrine, we see Schumpeter's scheme reviving the old _real cost_ doctrine, running in terms of sacrifices in production.[84] (6) The foregoing paragraph gives emphasis to the point with which we started, namely, that Schumpeter's theory is not a _causal_ theory, but merely a theory which gives mathematical relations in a static picture. For the general theory of the Austrians, this real cost doctrine is anathema. Values are positive. The emphasis is put on positive wants, as _causes_ which guide and motivate industry. The _clue_ to all values is in the values of _consumption_ goods, which are in direct contact with the utilities which are the source of value. From the values of consumption goods, we _derive_ the values of production goods, labor, etc., which are goods of "second, third and fourth _ranks_" and whose values are merely reflected from the causal marginal utilities of the consumption goods they are destined to create. None of this causation is brought into Schumpeter's conspectus picture. On the contrary, with the bringing in of disutility of production, we have the doctrine of the earlier English School revived. The equilibrium picture is as good a proof of the one theory as of the other. If we assume the utility-curves constant, and allow the cost-curves to vary, then causation would be initiated by the cost-curves.[85] (7) Such an equilibrium picture leaves untouched the vital question which any theory must answer which means to be of practical use in concrete situations: what are the real _variables_ in the situation, and what factors are constant? What causes are _likely_ to produce changes in market prices? The individual-utility curves, which in Austrian theory are commonly treated as the only variables, except quantities of goods,--in the strict static picture there are no variables at all!--are really, when conceived of as individual, as growing out of the mental processes of each individual separately, the most _constant_ factor in the situation. For, on the principle of the inertia of large numbers, each unit of which is moved by its own peculiar causes, changes in the utility-curves of one man will be offset by opposite changes in the utility-curves of another, and so the general system will remain much where it was. Of course, if a rich man changes his curve, a poor man's change will not offset it in the market, but this is to emphasize the _distribution of wealth_ rather than the utility-curves. It is only when you get changes of a sort that the individualistic psychology, and the "pure economic" explanation factors, of the Austrians find no place for, that you can predict a change in the general price-system. It is only changes in fashion or mode, in general business confidence,[86] in moral attitude toward this or the other sort of consumption or production, in the distribution of wealth, changes in taxes and other laws--causes of a general social character--that you can count on to produce important changes in values. Of course, changes in the adequacies of supplies would be taken account of on either interpretation. (8) The scheme under consideration gives no value concept which the economist can make any particular use of. It gives only ratios between marginal utilities in the mind of the same individual, and abstract market ratios. It gives no _quantitative_ value, which can be attributed to goods as a quality,[87] a homogeneous quality of wealth by means of which diverse sorts of wealth may be compared, funded, etc. Such a concept is, however, necessary for the economic analysis, and Schumpeter is driven to creating substitutes for it of various sorts, notably _Kaufkraft_ and _Kapital_. _Kaufkraft_, as Schumpeter uses the term, is not derived from marginal utility, but is an abstraction from the idea of money. It is not a quantity of money alone, nor even of money and credit, but is a fund of "abstract power," which depends not alone on the quantity of money and credit in which it is embodied, but also on the prices of goods.[88] This _Kaufkraft_ is needed to give the causal "steam," the "motivating power," which the social value concept connotes, but which ratios in the market lack. Similarly, _Kapital_ is conceived of as an agent, a dynamic force, distinguished from accumulations of concrete productive instruments, by means of which the entrepreneur gets control of land, labor and instrumental goods.[89] Other functions of the quantitative value are shouldered on a hard-worked and unusually defined concept, _Kredit_, which leads Schumpeter into certain "heresies"[90] regarding credit, which are mostly harmless in themselves, but which will arouse misunderstanding and opposition. "_Præter necessitatem entia non multiplicanda sunt_," and the social value concept, which covers by inclusion the notion of market ratio--market ratios being ratios between social values--and which does all the work that Schumpeter attributes to _Kapital_ and _Kaufkraft_, and most of the new work which he attributes to _Kredit_, is to be preferred,[91] if only on grounds of intellectual economy. "Capital" is then saved for more usual meanings, and economy in terminology is also effected. Schumpeter also departs, as shown, from the abstract market ratio notion in erecting a causal theory of value, in which "marginal utility" is used as the equivalent of a quantitative value, and is traced by the Austrian imputation process back to the original factors of production. He even speaks of labor as having "utility," whereas labor,[92] unless used in domestic service, has, not utility, but only value. In the marginal utility scheme above outlined there is no place for money, on the assumptions laid down. It is a scheme of barter relations. The utilities which come into equilibrium are not subjective-exchange-values, which, as Schumpeter, with Wieser, contends, are the only subjective values money has, but are real subjective use values--marginal utilities. The scheme, assuming as it does, perfect exchangeability of all goods, with infinitesimal increments in consumption, has no place for money. There really is no money service to be performed. Schumpeter, indeed, speaks of money as a mere "Schleier," which does not touch the essence of the phenomena, and such it is on his assumptions. In a similar situation, Professor Irving Fisher gives up the effort to find a psychological explanation of the value of money,[93] and offers the quantity theory as a mechanical principle, additional to the psychological barter scheme. Schumpeter, however, does lip service still to the need for a psychological explanation. His answer runs in Wieser's terms--indeed, he attributes it to Wieser. The _Preis_ of money[94]--Schumpeter does not use Wieser's absolute value concept, but lets his value of money run in purely relative terms--the price of money in goods depends on the subjective value of money. This subjective value of money rests on the experience of each individual in making purchases--rests on the prices of consumption goods, determined by the relation between real income and money income. The circle is as clear as day. Ludwig von Mises sees this circle, and tries to avoid it. In von Mises there seem to me to be very noteworthy clarity and power. His _Theorie des Geldes und der Umlaufsmittel_ is an exceptionally excellent book. Von Mises has a very wide knowledge of the literature of the theory of money. He has a keen insight into the difficulties involved. He recognizes fully that, so far, the utility school has failed to solve the problem (119-120). His theory is as follows: Individual valuations (93) constitute the basis of the objective exchange value of money. But while for other goods, subjective use-value and subjective exchange-value are different concepts, for money the two coincide, and both rest on the objective value of money (94). This seems to be our old circle in unmistakable form, but Mises thinks he has an escape, as will later appear. No function of money is thinkable which does not rest on its objective exchange value. The subjective value of money rests on the subjective use-values of the goods for which it can be exchanged (95). Money, at the beginning of its money-functioning, must have objective exchange value from other causes than its money-function, but it can remain valuable, even though these causes fall away, exclusively through its function as general instrument of exchange (111). He gives no argument in support of this contention, but refers with approval to Wieser (_loc. cit._), and to Simmel (_Philosophie des Geldes_, 115ff.). Hence, the important consequence that in the value of money of to-day a historical component is contained. Herein is to be found a fundamental contrast between the value of money and the values of other goods (119-120.). The individual valuation of money rests on the objective exchange value of money of _yesterday_. This individual value of money is the explanation, on the money side, of the objective value of money of to-day. Going back, step by step, you come ultimately to the subjective use-value of the money-stuff in its non-monetary employment--a temporal _regressus_. This opens the way to a theory of the value of money based on marginal utility. This avoids the circle of explaining the objective value of money of to-day by the subjective exchange value of money of to-day, which in turn rests on the contemporary objective value of money. I find this particularly interesting, since it employs a device which had once suggested itself to me as a means of escape from the Austrian circle, but which reflection led me to abandon. I have discussed the whole matter in my _Social Value_, and therefore venture a quotation from that book.[95] "How are we to get out of our circle:[96] The value of a good, A, depends, in part, upon the value embodied in the goods, B, C, and D, possessed by the persons for whom good A has 'utility,' and whose 'effective demand' is a _sine qua non_ of A's value? The most convenient point of departure seems to be the simple situation which Wieser has assumed in his _Natural Value._[97] Here the 'artificial' complications due to private property and to the difference between rich and poor are gone, and only 'marginal utility' is left as a regulator of values. But what about value in a situation where there are differences in 'purchasing power'? How assimilate the one situation to the other? "A _temporal regressus_, back to the first piece of wealth, which, we might assume, depended for its value solely upon the facts of utility and scarcity, and the existence of which furnished the first 'purchasing power' that upset the order of 'natural value,' might be interesting, but certainly would not be convincing. In the first place, there is no unbroken sequence of uninterrupted economic causation from that far away hypothetical day to the present, in the course of which that original quantity of value has exerted its influence. The present situation does not differ from Wieser's situation simply in the fact that some, more provident than others, have saved where others have consumed, have been industrious where others have been idle, and so have accumulated a surplus of value, which, used to back their desires, makes the wants of the industrious and provident count for more than the wants of others. And even if these were the only differences, it is to be noted that private property has somehow crept in in the interval, for Wieser's was a communistic society. And further, an emotion felt ten thousand years ago could scarcely have any very direct or certain quantitative connection with value in the market to-day. Even if there had been no 'disturbing factors' of a non-economic sort, the process of 'economic causation' could not have carried a value so far. It is the living emotion that counts! Values depend every moment upon the force of live minds, and need to be constantly renewed. And there would have been, of course, many 'non-economic' disturbances, wars and robberies, frauds and benevolences, political and religious changes--a host of historical occurrences affecting the weight of different elements in society in a way that, by historical methods, it is impossible to treat quantitatively.[98] "What is called for is, not a temporal _regressus_, which, starting with an hypothesis, picks up abstractions by the way, and tries to synthesize them into a concrete reality of to-day, but rather, a _logical analysis_ of existing psychic forces, which shall abstract from the concrete social situation the phases that are most significant. This method will not give us the whole story either. Value will not be completely explained by the phases we pick out. But then, we shall be aware of the fact, and we shall know that the other phases are there, ready to be picked out as they are needed for further refinement of the theory, as new problems call for further refinement. And, indeed, we shall include them in our theory, under a lump name, namely, the rest of the 'presuppositions' of value. "Our reason for choosing a logical analysis of existing psychic forces instead of a temporal _regressus_--instead, even, of an accurate historical study of the past--is a two-fold one: first, we wish to coördinate the new factors we are to emphasize with factors already recognized, and to emerge with a value concept which shall serve the economists in the accustomed way--it is illogical to mix a logical analysis with a temporal _regressus_. But, more fundamental than this logical point, is this: the forces which have historically _begot_ a social situation are not, necessarily, the forces which _sustain_ it. The rule doubtless is that new institutions have to win their way against an opposition which grows simply out of the fact that we are, through mental inertia, wedded to what is old and familiar. We resist the new _as_ the new. Even those who are most disposed to innovate are still conservative, with reference to propaganda that they themselves are not concerned with. The great mass of activities of all men, even the most progressive, are rooted in habit, and resist change. When, however, a new value has won its way, has become familiar and established, the very forces which once opposed it now become its surest support. Or, waiving this unreflecting inertia of society, as things become actualized they are seen in new relations. What, prior to experiment, we thought might harm us, we find beneficial after it has been tried, and so support it--or the reverse may be true. The psychic forces maintaining and controlling a social situation, therefore, are not necessarily the ones which historically brought it into being."[99] Since the foregoing was written, I have found that another theorist, Professor Alvin S. Johnson, had also given consideration to the same idea, as a means of escape from the Austrian circle. Professor Johnson refers to the notion briefly in his review of _Social Value_ (_Am. Econ. Rev._, June, 1912, p. 322), holding that the doctrine is logically tenable, though rejecting it on psychological grounds. "The value of a thing newly created can be explained only with reference to values antecedently existing." That there is a continuity in the value system, as in the whole social-mental life of men, I should be the last to deny. But it is not the antecedently existing values, _as_ antecedently existing, that give value to the new piece of wealth. The antecedent values function only as _persisting_, as _contemporary_ social forces. We do not find the motivating power of existing values in the ashes of burnt out desire! It seems to me very essential to distinguish the two methods of approach to the problem. It is possible to state a historical sequence--if you know it,--showing how values have historically come and gone. But for an equilibrium picture, of the sort that our price theory demands, where there is a mechanical balancing of contemporary factors (as in Marshall's balls in the bowl illustration), such an account is of no use. Existing social forces have their history. But, at a given moment, they are what they are, and what they _were_ at a different time adds no ounce of weight to the power they now exert. If a quantitative account of value is called for--and price-theory is essentially concerned with the measurement of values--we must bring measure and measured into contemporary balance. The historical account is one thing; the cross-section analysis is another. "Static theory" is a mechanical abstraction from the organic cross-section picture, which, by making it superficial, is able to make it exact. It seems to me that this distinction must be kept clear if progress in the science is to be made. At every point, divergent conclusions are reached if the two view-points are merged. The distinction between statics and dynamics is, in a general way, the same as the distinction here made between the historical and the cross-section view. It is no answer to the Ricardian theory of land-rent for Carey to point out that historically, in new countries, the uplands are cultivated first, and the more fertile river-valleys later. Ricardo is talking about statics, and Carey about dynamics. Carey does not answer Ricardo, because he is talking about a different problem. The utility theorist especially has no right to leave the static view-point. All the elementary laws on which the utility theory is based are static laws. The law of satiety, of diminishing utility, is a static law, and the utility theorists are careful to point out that it holds only for an individual at a given time. It rests on nerve fatigue. Give the nerve time to rest, and utility does not sink. On the contrary, the dynamic law of wants is that wants expand. As old wants are satisfied, new wants arise, so that, in the course of time, _marginal_ utilities do not sink--the competition of new wants forces up the margins of the old wants. Moreover, with time, tastes change, habits are formed, and the same wants may grow more intense--as in the case of olives or whiskey. All this has been seen by the creators of the utility theory. Thus, Wieser: "The want as a whole of course retains its strength so long as a man retains his health; satisfaction does not weaken but rather stimulates it, by constantly contributing to its development, and, particularly, by giving rise to a desire for variety. It is otherwise with the separate sensations of the want. These are narrowly limited both in point of time and in point of matter. Anyone who has just taken a certain quantity of food of a certain kind will not immediately have the same strength of desire for a similar quantity. Within any single period of want every additional act of satisfaction will be estimated less highly than a preceding one obtained from a quantity of goods equal in kind and amount." (_Natural Value_, p. 9.) A similar statement is in Taussig's _Principles_ (I, 124), "In such cases, however, the tastes of the purchasers may be said to have changed in the interval. At any given stage of taste and popularity, the principle of diminishing utility will apply." Illustrations could be multiplied. It is true that _future_ marginal utilities come into the utility theory scheme, but they come in, not as future utilities, but as "_present worths_" of future utilities, or as "present anticipated feelings" in Jevons' phrase[100] suffering a discount, usually, in the process. But I am not aware of any writer among the founders of the utility school, who has sought to bring past utilities into the scheme. The past is dead. Its effects persist in the present only in present processes. A _memory_ is a _present_ psychological fact. Consider further. Is it the prices of yesterday that determine the subjective value of money to an individual, if the prices of yesterday are different from the prices of to-day, _and the individual knows it_? In so far as we have the clear, intelligent economic mind, seeking its interests--and the marginal utility theory assumes this type of mind--the tendency is to bring all the factors in the problem into the present. If prices change slowly, so that the individual can count on essentially the same situation to-day that he had yesterday, doubtless he will not take the trouble to recast his value system. There is a tremendous lot of trouble in bringing about, in the individual's mind, the rational equilibration of values--trouble which the Austrian theory commonly abstracts from, but which should be recognized in the analysis, and accorded its own marginal significance in the scale. To throw the emphasis on inertia, however, and to assume that men do not readjust their margins to meet changed conditions, is to depart from the fundamentals of the Austrian theory. If the price-situation is a rapidly changing one, men do rapidly readjust their estimates of money. If money is fluctuating rapidly in value--as, say, during a time when there is depreciated paper money, whose future depends on military events, the adjustments may be very rapid indeed. I quote the following from the news columns of the _New York Times_, of April 4, 1914, p. 2: "Jaurez, Mexico, Apr. 3.--After the hysterical outbursts last night that greeted the news of the fall of Torreon, this city was preternaturally calm to-day.... The silent gentleman with the dyed mustache who spins the marble at the roulette wheel in the Jaurez Monte Carlo, conducted by Villa's officers for the benefit of the rebel treasury, seemed the only person who was not excited. When the crowd of players suddenly deserted him on the sound of the bugle call of victory, he gave the marble another whirl from sheer force of habit, but none returned.... In an hour, however, play was faster and more furious than ever, for holders of Constitutionalist money early realized that their currency had suddenly increased in value, and that they were somewhat richer than before." I do not question the fact, however, that men are slow in making calculations, and that society is often unconscious of changed conditions, and often readjusts less rapidly than occasion requires. There is a vast deal of inertia, of blind habit, of custom, etc. But emphasis on these factors is not marginal utility theory! Factors like these are emphasized by a functional psychology, and by a social psychology--not by an individualistic psychology which rests on the assumption of rational calculation. It is not _past_ utilities that explain present subjective values of money when these subjective values are out of harmony with the present market facts, but rather _present_ habits, present customs, present disinclination to readjust, etc. There is a big difference, psychologically, between the mental processes through which one arrived at one's present state of mind, and the present state of mind itself. The original "commodity utility" of the money metal, in the far away time before the money use affected its value, is surely no longer a factor. Certainly not on the basis of an individualistic psychology of the Austrian type. All the individuals who experienced that original utility are long since dead! Not even memories of the original utilities persist. When writing the passage in _Social Value_, quoted above, I did not suppose that I was dealing with a notion that anyone else would ever take seriously. My purpose in discussing it was chiefly to throw into sharp relief the contrast between the historical and the cross-section viewpoints, and to make clear that my own theory was based on analysis of existing psychological forces. Since finding, however, that two writers for whose views I have so much respect have independently developed the same idea, and have taken it seriously, I have felt it worth while to give it this extended consideration. Von Mises, like Wieser, needs an absolute value of money in his thinking. He does not call the concept by that name, but, following Menger[101] speaks of the "inner objective value of money" and the "outer objective value of money." (Mises, p. 132.) The latter is the purchasing power of money, a relative concept, exactly expressed in the price-level. The inner objective value of money is designed to cover the causes of changes in prices which originate on the money-side of the price relation alone.[102] This inner objective value of money performs the same logical function in the theory of money that the absolute social value concept of the present writer does, even though the psychological explanation lying behind it is very different. Von Mises considers the quantity theory at length, noting a number of defects in it, chief of which is the fact that it has no psychological theory of value behind it, that it does not account for the _existence_ of the value of money, and at most gives a law for _changes_ in a value whose existence is taken for granted. The details of this criticism, however, need not be here presented. The quantity theory is to be treated in detail at a later point of our study. The writer who has most definitely stated the relation of utility to the functions of money, is David Kinley (_Money_, ch. viii). He would explain the value of money, by (a) its utility as a commodity, and (b) its utility in the money-employment, the employments reaching a marginal equilibrium. The utility of the money metal in its commodity use calls for no analysis. But what is meant by the utility of money as money? Where the writers so far discussed have denied that money as money has any utility, Dean Kinley finds a utility in the money-function itself: money facilitates exchange, and exchange, by transferring goods from those who do not need them to those who do need them, increases the utility of those goods. Money, as money, thus produces utility.[103] The utility of money is the extra utility which comes into being by virtue of its use, as compared with what would exist in a state of barter. The marginal utility of money is the utility of money in the marginal exchange--the exchange which would be effected by means of barter if money were any more difficult to procure. The marginal utility of money, then, is not the whole of the marginal utility of the good for which it is exchanged, but rather is the differential part of that utility which is created by means of the use of money in exchange. The marginal utility of money, thus, appears in separate services of money. Money is a durable good, which gives forth its services bit by bit. The value of money is based on these separate services, it is "the capitalized value of the service rendered in the marginal exchange." This conception is, it seems to me, much truer to the spirit of the general marginal utility theory than the theories of Wieser, Schumpeter, or von Mises. If the utility theory at large were valid, the application here would be valid. To Dean Kinley's conception of a marginal utility of the money service, I offer simply the objections which I offer to the utility theory at large--objections indicated in what has gone before, and in my _Social Value_. The application of the capitalization theory to the value of money I have already discussed in a previous chapter, and shall again consider in the chapter on "The Functions of Money." I conclude that the marginal utility theory has not solved the problem of the value of money. The reason, however, is simply that it has not solved the general problem of value. The marginal utility theory, in so far as it seeks to make marginal utility the _cause_ of value, is circular. The effect of a given man's wants upon the value of the goods he wants depends, not on the marginal intensity of those wants alone--a penniless prisoner may desire a marble palace ever so intensely without affecting its value--but also upon the value of the wealth possessed by the individual who experiences the wants. But this is to explain value, not by marginal utility alone, but by value as well--a circle. Or, if we leave the standpoint of absolute values, and look at the matter in terms of prices, the same situation presents itself. The price which an individual is willing to pay for a good depends on his income,--which commonly rests on prices--and on the prices he has to pay for other goods which enter into his budget. His price-offer, expressive of the marginal utility of a horse to him, is made with consideration of the price of a buggy, of harness, of feed, of the wages of the servant who cares for the horse, the price of a barn, and of the other things that the possession of the horse involves. And not these alone: less immediately, but still vitally, his whole budget enters. Higher prices for theatre tickets or for food or for clothing will reduce his price-offer for a horse. Further, his price-offer for the horse will be tremendously influenced by his opinion as to the permanent market price of horses. He will not be willing to pay a price for the horse which he cannot expect to get back if he should decide later to sell the horse. The direct influence of market price on individual demand-price is very great indeed. Marginal utility (subjective use-value) very frequently gives place to subjective value-in-exchange in the determination of an individual's marginal demand-price--which means that the market controls the individual instead of the individual controlling the market. With sellers, it is _generally_ subjective-exchange-value, rather than marginal utility, that determines supply-price-offer. The sellers, in so far as they are producers, have little need for the great mass of their stocks. They will sell them, rather than keep them, at almost any price. The reason they ask high prices is simply that they think the market will give them the high prices. The individual price-offers, in the aggregate therefore, presuppose the whole market situation--presuppose a general value and price system already fixed and determined. Each individual price offer presupposes many other prices, though not, of course, the whole market. Since, then, much of the market situation is assumed in the determination of each particular price, by the Austrian method, it is obviously circular reasoning to think that the determination of each price separately by this method will supply data for a summary of the market situation as a whole. In the one form in which the utility theory avoids a circle,--that presented by Schumpeter, and discussed in an earlier part of this chapter--it is not a causal theory. Marginal utility is not a cause of market prices, but rather, marginal utilities and market prices are alike resultants, effects, of more fundamental factors. No writer[104] who has presented the utility theory in this form has tried to apply it to the value of money, and even if it could be so applied, it would not give a causal explanation of the value of money in terms of marginal utility. In most of the efforts to apply the utility theory to money, the circle becomes so obvious that one marvels that able theorists should for a moment fail to see it. PART II. THE QUANTITY THEORY CHAPTER VI THE QUANTITY THEORY OF PRICES. INTRODUCTION The quantity theory, in its usual formulations, is a theory, not of the value of money, in the absolute sense of value, but of the general price-level, the average price of goods exchanged for money. It is not a psychological theory. It does not deal with psychological quantities, or psychological forces. It is a mechanical theory, concerned simply with quantities, and the relations between them. The essence of the quantity theory comes out in the following brief statement: given a number of units of money; given a number of units of goods to be exchanged; assume these two numbers to be independent[105] of each other; assume all the goods to be exchanged for all the money; then the average price will be a simple function of the quantities of goods and of money respectively, such that an increase in the amount of money will increase the average price per unit of goods proportionately, if goods remain unchanged in amount, or an increase in goods will lower the price per unit proportionately, money being assumed to remain unchanged in amount. The qualification is commonly added that if goods have to be exchanged more than once, the effect is the same on prices as if there were an added number of goods equal to the added number of exchanges, and that if money is used more than once in exchanging a given number of goods, the effect is the same as if there were proportionately more money. Both quantity of goods and quantity of money are commonly defined as actual quantity multiplied by "rapidity of circulation." Rapidity of circulation, however, for both money and goods, is commonly thought of as a constant, so that the original formula remains unaffected by the qualification, so far as a prediction as to the effect of increase or decrease of money or goods on prices is concerned. Involved in the quantity theory, and explicitly stated by many writers, is the doctrine that the substance of which money is made is irrelevant, that it is the number, and not the quality or size of the money-units that counts. "In short, the quantity theory asserts that (provided velocity of circulation and volume of trade are unchanged) if we increase the _number_ of dollars, whether by renaming coins, or by debasing coins, or by increasing coinage, or by any other means, prices will be increased in the same proportion. It is the number, and not the weight, that is essential. This fact needs great emphasis. It is a fact which differentiates money from all other goods and explains the peculiar manner in which its purchasing power is related to other goods. Sugar, for instance, has a specific desirability dependent on its quantity in pounds. Money has no such quality. The value of sugar depends on its _actual quantity_. If the quantity of sugar is changed from 1,000,000 pounds to 1,000,000 hundredweight, it does not follow that a hundredweight will have the value previously possessed by a pound. But if money in circulation is changed from 1,000,000 units of one weight to 1,000,000 units of another weight, the value of each unit will remain unchanged." (Irving Fisher, _Purchasing Power of Money_, pp. 31-32.) To the same effect is Nicholson's exposition, in which the money is assumed to consist of dodo-bones, the most useless substance that Nicholson could think of. For the quantity theory, prices are determined by the _numbers_ of goods and dollars that are to be exchanged for one another, and not by the _values_ of the goods and dollars;--indeed, for the quantity theory, "value" commonly has no meaning apart from the prices which are supposed to be adequately explained by the mechanical relations of numbers. In the critical study which follows, virtually every doctrine and every assumption of this preliminary statement will be challenged. I shall deny, first, that the quantity of goods to be exchanged and the quantity of money to be exchanged for the goods, are independent quantities, maintaining, rather, that an increase in either of them tends normally to be accompanied by an increase in the other. Quantity of goods and quantity of money _exchanged_ are not simple physical stocks, given data. Rather, they are consequences of human choices and human relationships, and vary from a large number of highly complex psychological causes, many of which are common to both. I shall deny, second, that "rapidity of circulation," either of goods or of money, is a simple constant, independent of quantity of goods or of quantity of money. I shall maintain, rather, that rapidity of circulation of money is a phenomenon which calls for psychological explanation: that the rapidity of money really means the _activities of men_; that these activities are complex, and obey no simple law; that instead of being an independent factor, constant, in the situation, the rapidity of circulation of money is bound up with the quantity of money, the quantity of goods to be exchanged, the rapidity of circulation of goods, and the prices of the goods, and that the rapidity of circulation of goods is likewise causally dependent on the factors named--or better, on the causes which control them; that rapidity of circulation, whether of money or of goods, is not a causal factor independent of prices, but rather in part depends on prices. In the third place, I deny the doctrine that the question as to _what_ the money-unit is made of is irrelevant. On the contrary, I shall maintain that the _quality_ of money, rather than its quantity, is the determining factor. I shall not maintain that only money made of or redeemable in valuable bullion can circulate, nor shall I maintain that the value of money depends wholly on the value of its bullion content when money is made of valuable metal. I recognize that value can come from other sources. But I shall maintain that value from some source other than the monetary employment is an essential precondition of the monetary employment, even though recognizing that that monetary employment may, in a way later to be analyzed, add to the original value of the money. The doctrine that only physical quantities, or abstract numbers, of goods are relevant I shall challenge especially, maintaining, on the contrary, that the psychological significances, the values, of goods are the really important thing, so that an increase in the number of one sort of goods may have a very different effect on the average of prices from an increase of the same number of units of some other good, and so that an increase in the number of goods exchanged under one set of conditions may have a very different effect on prices--or may be accompanied by a very different movement in prices, for the question of causal relations is a complicated one--from the change in prices that might accompany the same increase in the amount exchanged of same goods under other circumstances. Finally, the doctrine of the quantity theory that the price-level is a passive result of the other factors named: quantities of goods and money, and their respective velocities; that prices cannot initiate a change in the situation, will also be challenged. I shall undertake to show that the first change in the situation may appear in prices themselves, and that the quantities of goods exchanged, and of money, and their velocities, may then be altered to correspond with the change in prices. I shall further maintain, as against the whole spirit of the quantity theory, that it does not seize hold of essentials in the causes lying behind prices. I shall contend that the factors with which it deals, instead of being independent _foci_ to which converge the causes governing the price-level, and through which causation flows in one direction, are really not true "factors" at all, but rather are blanket names for highly complex and heterogeneous groups of facts concerning which few general statements are possible. Quantity of goods exchanged, for example, may be in some of its parts caused by rising prices, in others of its parts may be causing falling prices and is chiefly caused by _fluctuating_ prices. The net change in prices in this case is not the result of any one movement from "quantity of goods" as a whole. Changes in the price-level are not one result, but rather, are the mathematician's average of many changes, due to a host of causes, in many individual prices. The quantity theory is an effort to simplify phenomena highly complex. Of course, the simplification of complex phenomena in thought is a laudable scientific goal, but when the simplification goes so far as to group things only superficially related, and to leave out the really vital elements, it is worthless. Value theory, with all the value left out, is like Hamlet with no actor for the title rôle. Simplification in the explanation of general prices has gone as far as we can legitimately take it when we seek to summarize all the factors involved in the _foci_ of, on the one hand, the value of money, and, on the other hand, the values of the particular goods. The general price-level is an average of many concrete prices. Each of these individual prices has a concrete causal explanation. The _general_ price-level has, not a few simple causes, but an infinite host of causes. Indeed, the general price-level has no real existence. It is a convenient mathematical concept, by means of which we may summarize the multitude of concrete facts. It is useful as a device for measuring changes in the value of money, on the assumption that changes in the values of goods neutralize one another. This assumption is never strictly true, and often is demonstrably false. The general price-level is neither a cause nor a result. Particular prices, in general, are results of two causes, namely, the value of money and the value of the good in question, and particular prices may then become causes, changing the quantity of money involved in a given set of exchanges. Neither quantity of money, nor quantity of goods exchanged, nor rapidity of circulation, nor general price-level is a simple, homogeneous quantity, obeying definite laws. I shall also undertake to show that in many important cases the quantity theory leads to conclusions regarding the price-level which contradict other laws of prices, notably the capitalization theory, the cost of production doctrine, and the law of supply and demand. I have previously pointed out that these three doctrines are inapplicable to the problem of the value of money itself. On the assumption of a value of money, however,--using value in the absolute sense--they are applicable to the problem of prices, and, since the price-level is merely an average of particular prices, they should be applicable to the problem of the price-level also. It will be shown, in the course of the criticism which follows, first that the quantity theory contradicts each of these doctrines, in certain situations, and second, that in these cases, the conclusions based on the cost theory, the supply and demand theory, and the capitalization theory are right, and the conclusions based on the quantity theory are wrong. It has been maintained by certain writers, as Knut Wicksell[106] and Irving Fisher,[107] that cost of production and supply and demand are inapplicable to the problem of the general price-level. I shall maintain the contrary, holding that while these doctrines are inapplicable to the problem of the _value_ of money, they _are_ applicable to the problem of general prices, on the assumption of a fixed value of money. By the value of money I mean its absolute[108] value, and not--what the quantity theorists commonly mean--its "purchasing power," or the "reciprocal of the price-level." I shall undertake to show that no sound conclusion reached on the basis of quantity theory reasoning is the peculiar property of the quantity theory school; that every valid conclusion which may be based on the quantity theory may also be deduced from the theory maintained in this book, and, indeed, that most of them may be deduced from several other theories of money, notably the commodity or bullionist theory. I shall show a number of false and misleading doctrines which logically spring from the quantity theory, and shall undertake to show that the quantity theory fails to give an adequate basis for several important parts of the theory of money, among them Gresham's Law, the theory of international gold movements, and the theory of elastic bank-notes and deposit-currency. So much for the theses to be maintained. The detailed proof of these contentions will best be given in connection with a critical account of various versions of quantity theory doctrine. Attention will be given in this summary to the expositions of Nicholson, Mill, Taussig, and Kemmerer, and very special attention to I. Fisher, though some other writers will also be taken into account. CHAPTER VII DODO-BONES Must money have value from some source outside its money-functions? It is a part of the quantity theory that this is unnecessary. I have cited, in the preceding chapter, Irving Fisher and J. S. Nicholson to this effect. Nicholson's statement is interesting and picturesque, exhibiting the quantity theory in all the nakedness of its poverty, and I shall present it at some length. "For simplicity," to isolate his phenomenon, he assumes a hypothetical market, in which the following conditions obtain: (1) No exchanges are to be made unless money (which he assumes to consist of counters of a certain size made of dodo-bones) actually passes from hand to hand. No credit or barter. (2) The money is to be regarded as of no use whatever except to effect exchanges, so that it will not be withheld for hoarding, _i. e._, will be actually in circulation. (3) There are ten traders in the market, each with one kind of commodity and no money, and one trader with all the money (one hundred pieces), and no commodities. Further, let this moneyed man put an equal estimation on all the commodities. Now let the market be opened according to the rules laid down; then all the money will be offered against all the goods, and, every article being assumed of equal value, the price given for each article will be ten pieces, and the general level of prices will be ten. It is perfectly clear that, under these suppositions, if the amount of money had been one thousand pieces, the price-level would have been one hundred per article, etc. Under these very rigid assumptions, then, it is obvious that the value of money varies exactly and inversely with the amount put into circulation.--The rapidity of circulation he regards as coördinate, in fixing the price-level, with the volume of money. To illustrate this, he assumes again his hypothetical market, and "dodo-bones," assuming as before that one merchant has all the money (one hundred pieces), and that ten have commodities of equal value. Instead, however, of the merchant with the money desiring all the commodities equally, he is made to desire only the whole of that of trader one, who in turn desires the whole of number two's stock; and so on to the ninth merchant, who wants the commodity of number ten, _who wants the dodo-bones_. In this case, each article will be exchanged only once, as formerly, but the money will change hands ten times, and the price of each article will be one hundred instead of ten. "We now see that, under these circumstances, with the same quantity of money, and the same volume of transactions, the level of prices is ten times as great as before, and the reason is that every piece of money is used ten times instead of once." Whence he concludes: "The effect on prices must be the same when, in effecting transactions, one piece of money is used ten times as when ten pieces of money are used once."[109] Ricardo, too, expresses the dodo-bone theory very explicitly. "If the state charges a seigniorage for coinage, the coined piece will generally exceed the value of the uncoined piece of metal by the whole seigniorage, because it will require a greater quantity of labour, or, which is the same thing, the value of the produce of a greater quantity of labour, to procure it. "While the state alone coins, there can be no limit to this charge of seigniorage; for, by limiting the quantity of the coin, it can be raised to any conceivable value. It is on this principle that paper money circulates; the whole charge for paper money may be considered a seigniorage. Though it has no intrinsic value, yet, by limiting its quantity, its value is as great as an equal denomination of coin, or of bullion in that coin."[110] Would the dodo-bones circulate? Nicholson chose the illustration to throw into the sharpest relief the absence of any value from a non-monetary employment. Nobody has any use for them as dodo-bones. What economic force is there, then, to make them circulate? Nicholson says nothing about an _agreement_ among the traders, _assigning_ a significance[111] to the dodo-bones, so that they might function in the same way that poker chips do--indeed, any such notion would vitiate his illustration, for he proposes to explain an adjustment of prices by natural economic laws. Why then, will any of the traders give up his valuable commodities for the worthless dodo-bones? Will you say that he will take them, not because he wants them himself, but because he knows that others will take them from him? But why would the others want them? Because they in turn can unload them on still others? But this seems a plain case of the vicious circle. It is, in effect, saying that the dodo-bones will circulate because they will circulate. A will take them because B will take them; B will take them because C will take them, C because ... N will take them; N takes them because A will take them.[112] I do not deny that if the traders used the dodo-bones as counters, agreeing that such dodo-bones should represent some other commodity chosen as a standard of values, that the dodo-bones would circulate. But, in that case, they would be, not primary, self-sustaining money, but merely representative, or token money. And just here let me lay down two general propositions[113] respecting the two main functions of money: to serve as a standard, or common measure, of values, the article chosen must, as such, be valuable. The thing measured must be either a fraction or a multiple of the unit of measurement. But this quantitative relation can exist only between _homogeneous_ things. The standard, or measure, of values, then, must be like the commodities whose values it is to measure, at least to the extent of having _value_.[114] The second proposition is respecting the medium of exchange. The medium of exchange must also have value, or else be a representative of something which has value. There can be no exchange, in the economic sense--I abstract from disguised benevolences, accidents, and frauds--without a _quid pro quo_, without value balancing value, at least roughly, in the process. Now when it is remembered that the intervention of the medium of exchange, taking the place of barter, really breaks up a single exchange under the barter system into two or more independent exchanges, and that the medium of exchange is actually received in exchange for valuable commodities, it follows clearly that the medium of exchange must either have value itself, or else represent that which has value. These two propositions seem almost too obvious to require the statement, but they contradict the quantity theory, and they are not, on the surface, reconcilable with certain facts in the history of inconvertible paper money. It is necessary, therefore, to state them, and to examine further some of the phenomena which seem to contradict them. If they are true, Nicholson's dodo-bones will perform neither of the primary functions of money. They have no value, _per se_--they cannot, then, measure values; they are neither valuable nor titles to valuable things--they are not _quid pro quo_ in exchange, and will not circulate. I shall not pause long to discuss the doctrine that money needs no value itself, because it is really a sort of title to, or claim on, or representative of, goods in general. The notion, first, would not pass a lawyer's scrutiny. There are no such indefinite legal rights. A system of legally fixed prices, with a socialistic organization of society, would be necessary to give it definiteness--and in such a situation there would be no room for a quantity theory of prices! Economic goods, as distinct from money, are not generally "fungible" to the extent that would make them indifferent objects of legal rights. Besides, whether or not the thing is logically thinkable, it is legally false. Legal factors enter into the economic value of money, as will later be shown, but it is economic, and not legal, value, which makes money circulate. Helfferich has taken the trouble to give the notion of money as a mere title to things in general a somewhat more fundamental analysis, and I would refer the reader who is not satisfied by the foregoing on this point to his discussion.[115] I wish to make very clear precisely how much I mean by the foregoing argument that circular reasoning is involved in saying that A will take the dodo-bones because B will take them. The same question arises for B, and for the others. The real question is as to the cause for any general practice of the sort. Why should A _suppose_ that B will take them? What could bring about such a system of social relations that a general expectation of this sort could arise? Kemmerer undertakes to give an answer in a hypothetical case by the following ingenious assumption (_Money and Credit Instruments_, p. 11): the money consists of an article which formerly had a high commodity value, which has lately entirely disappeared, but the money continues to circulate, through the influence of custom, and because of the demand for a medium of exchange. In this illustration Kemmerer recognizes the historical fact that money has originated from some commodity which had value because of its significance as a commodity. Historically, a great many different commodities have served, and gold and silver finally emerged victors for reasons which need not just now concern us. These historical facts, coupled with the idea that value is, essentially, "something physical,"[116] or coupled with the notion that value arises only from marginal utility, or from labor, have been accepted by the Commodity or Metallist School as sufficient proof that standard money is only possible when made of some valuable commodity. Professor Laughlin seems to think of the whole thing as depending on the value of gold bullion, and to recognize the money-employment as a factor in affecting the value of money only in so far as it draws gold away from the arts, and so raises its value there by lessening the supply.[117] If money originated in a commodity, how is it possible for the commodity value to be withdrawn, and for money still to retain its value? This brings us to a question I have raised before, namely, whether the genetic, or historical account of a social situation, and the cross-section analysis of the same situation, necessarily agree.[118] Is it possible that when a commodity basis was necessary to start the thing, and when even in the modern world gold bullion, interconvertible with gold coin, remains the ultimate basis of the money-systems of all great commercial peoples, that you could withdraw the commodity support and keep money unchanged in value? Or could you even have any value left at all? Now in answer, I propose to admit the possibility of so doing. The forces which a cross-section analysis reveals are not necessarily identical with those which a theory of origins sets forth. Once the thing is set going, the forces of inertia favor it. A new theory, fixed in the minds of the people, say the quantity theory itself, might give them such confidence in their money that its value might be maintained. A fiat of the government, making the money legal tender, supplemented by the loyalty of the people, might keep up its value. I think there is reason to believe that this is a source of no little importance of value for the German paper money to-day, and, to a less extent, of the notes of the _Banque de France_. All these possibilities I admit. Value is not physical, but psychological. And the form of value with which we are here concerned, economic value _par excellence_, is a phenomenon of social, rather than individual psychology. Many and complex are the psychical factors lying behind it. Belief, custom, law, patriotism, particularly a network of legal relationships growing out of contracts expressed in terms of the money in question, the policy of the state as to receiving the money for public dues, the influence of a set of customary or legally prescribed prices, which tie the value of money to a certain extent to the values of goods--factors of this character can add to the value of money, and can, conceivably, even sustain it when the original source of value is gone. Social economic value does not rest on marginal utility. In general, utility is essential, as one of many conditions, before value can exist, even though the intensity of the marginal want served by a good bears no definite relation to its value. But in the case of the value of a money of the sort here considered, marginal utility is in no sense a cause of the value. Rather, the marginal utility[119] of such money to an individual is wholly a reflection of its social value, and changes when that social value changes. It is quite consistent with the general theory of economic value which I have set forth in _Social Value_, for me to admit possibilities of this kind. The value of money in such a case has become divorced from its original presuppositions. The paper, originally resting on a commodity basis, or the coins originally valued because they could be transformed into non-monetary objects of value, have become objects of value in themselves. Analogous phenomena are common enough in the general field of values, and are less common in the field of economic values proper than one might suppose. Thus, most moral values tend to become independent of their presuppositions. Moral values of modes of conduct have commonly arisen because those modes of conduct were, or were supposed to be, advantageous in furthering other ends. Morality, in its essence, is _teleogical_. Yet so far have the moral ideals become ends in themselves that it is possible to have great thinkers, like Kant and Fichte, setting them up as eternal and unchangeable categorical imperatives, regardless of consequences. Thus Fichte declares, "I would not tell a lie to save the universe from destruction." Older still is the dictum, "_Fiat justitia, ruat coelum._" Yet truth and justice, in the history of morals, and, in the view of most moral thinkers to-day, are of value primarily because they tend to preserve the universe from destruction, and would never have become morally valuable had they had the other tendency! Legal values manifest this tendency even more--one needs only to point to our vast body of technical rules of procedure in criminal cases, which persist long after their original function is gone, and after they have become highly pernicious from the standpoint of the ends originally aimed at. In the sphere of the individual psychology the phenomenon is very common. The miser's love for money is a classical example. The housewife who so exalts the cleanliness of her home that the home becomes an unhappy place in which to live, is an often-described type. The man who retires from business that he may enjoy the gains for the sake of which he entered business often finds that the business has become a thing of value in itself, and longs to be back in the harness, while many men, long after economic activity is no longer necessary, continue the struggle for its own sake. Activities arise to realize values. The value of the activity is derived from the value aimed at. But consciousness is economical, and memory is short. The activities become habits. The habits gather about themselves new psychological reactions. The interruption of habitual activities is distasteful. Life in all its phases tends to go on of its own momentum. The activities tend to become objects of value in themselves, whether or not their original _raison d'être_ persist. In both the social and the individual sphere, apart from blind inertia and mechanical habit, active interests tend to perpetuate the old activities, whose _raison d'être_ is gone. The judge who continues to apply the outgrown absurdities of adjective law may do it from timidity or from being too lazy to think out the new problems whose solution must precede readjustment to present social needs, but the criminal lawyer who can free his guilty client by means of these technicalities has an active interest in their perpetuation. The individual who would readjust his conduct in the light of changed interests finds that active opposition is met in the emotional accompaniment of the old habits. The economic society may wish to be free from a money whose original value is gone, but there is a powerful debtor interest which approves of that money, and whose support tends to maintain its value. All these possibilities I admit. My own theory of value, which finds the roots of economic value ramifying through the total social psychological situation, rather than in utility or labor-pain alone, involves possibilities like these. But--and this is a point I wish especially to stress--we are out of the field of mechanics, and in the field of social psychology, when we undertake to explain the value of money that way. No longer is there any mathematical necessity about the matter. There is no such _a priori_ simplicity as the quantity theory deals with. Factors like these might maintain the value of money for a time, and then wane. These factors might vary in intensity from day to day, with changing political or other events, leading the value of money to change from day to day, quite irrespective of changes in its quantity.[120] In so far as you have a people ignorant of the nature of money and of monetary problems, a people in the bonds of custom, with slightly developed commercial life, whose economic activities run in familiar grooves unreflectively, you will most nearly approximate a situation like that which Professor Kemmerer assumes. But that means that what might be true in India, or to a less degree in Austria--countries to which the quantity theorists are accustomed to refer--need not at all be true in the United States. Here everybody was talking about the theory of money in 1896--not necessarily very intelligently!--and here, moreover, such phrases as "good as gold," and propositions like that which came from Mr. J. P. Morgan in his testimony before the Pujo Committee that "gold is money, and nothing else," would seem to indicate that a very great part of our people might utterly distrust such a money as Professor Kemmerer describes. The banker's tendency to look behind for the security, to test things out, to seek to get to bed-rock in business affairs, holds with a great many people. An overemphasis on this is responsible for the doctrine of Scott[121] and Laughlin[122] that the sole source of the value of inconvertible paper money is the prospect of redemption, and that inconvertible paper money differs from gold in value by an amount which exactly equals the discount at the prevailing rate of interest, with allowance for risk, for the period during which people expect the paper money to remain unredeemed. We have not the banker's psychology to any such extent as that. Apart from the fact that the money function adds to the value of money, under certain circumstances,--a point to be elaborated shortly--other, non-rational factors, contagions of depression and enthusiasm, patriotic support, "gold market" manipulations, etc., entered to break the working of the credit theory of paper money as applied to the American Greenbacks. I may here express the opinion that the credit theory is the fundamental principle in the explanation of the value of the Greenbacks, however. But we have not the banker's psychology to any such extent as the extreme forms of that theory would assume. "Uncle Sam's money is good enough for me," is a phrase I have heard from the Populists,--who, by the way, were pretty good quantity theorists! "The government is behind it." There are plenty of men for whom that assurance would be enough. Indeed, the general notion that in some way, not specified, perhaps not yet known to anybody, the government will do what is necessary to maintain the value of its money is a ground which might well influence even the most sophisticated banker. I think such a general confidence in the English government has clearly been a factor in the price of Sterling exchange since the balance of trade turned so overwhelmingly against England in the present War.[123] Our monetary history, I may add, has been in considerable measure a struggle between these two opposing psychological reactions on that point. The utter breakdown of the _fiat_ theory came in Rhode Island, and in connection with the Continental Currency, in the days before the Constitution was adopted. On the other hand, I do not believe that those who put a banker inside every one of us can prove that their principle has been a complete explanation at any stage of our monetary history. But clearly considerations like these take away all mathematical certainty from the matter. The foregoing analysis makes clear, I trust, that the notion that the money function alone can make an otherwise valueless money circulate is untenable. There must be value from other sources as well. All that is conceded is that there need not be a physical commodity as the basis of the money. Value is not necessarily connected with a physical commodity. There is a disposition on the part of many quantity theorists to beg the question at the outset, to assume money as circulating, without realizing how much this assumption involves. The assumption involves the further assumption that there are _causes_ for the circulation of money. But the same causes which make money circulate will also be factors in the determination of the _terms_ on which it circulates, _i. e._, the prices. To seek then, by a new principle, the quantity theory, to explain these prices without reference to these causes, is a remarkable procedure. There is sometimes a disposition to do the thing quite simply indeed: define money as the circulating medium, and, _by definition_, you have it circulating! A rather striking case of this, which is either tautology or circular reasoning, appears in Fisher's _Purchasing Power of Money_ (p. 129): "Take the case, for instance, of paper money. So long as it has the _distinctive characteristic of money,--general acceptability at its legal value_,--and is limited in quantity, its value will ordinarily be equal to that of its legal equivalent in gold." (Italics mine.) It is not quite easy to construct, even ideally, a social psychology which would perfectly fit the quantity theory. One would have to assume that money circulates purely from habit, without any present _reason_ at all. The assumption must be that the economic life runs in steady grooves, so that quantity of goods exchanged will always be the same, or at least, that it will always be the same proportion of the goods produced--there must be no option of speculative holding out of the market allowed the holder of exchangeable goods. The individuals must have constant habits as to the _proportions_ of the money they receive to be spent and to be held for emergencies. All the factors affecting "velocity" of both money and goods must be constant--Professor Fisher maintains very explicitly that velocities, both of money and of bank-deposits are fixed by habit (_loc. cit._, p. 152),--and, in any case, the assumption is necessary. A thoroughly mechanical situation must be assumed, where there is the rule of blind habit. Given such a mechanism, you pour in money at one end, and it grinds out prices at the other end, automatically. But, strangely enough, in this social situation where blind habit rules, prices are perfectly fluid! In India, or in other countries where the assumptions of the quantity theorist come most nearly to realization, so far as the general rule of habit is concerned, one finds also many customary prices. In a country completely under the rule of habit, the prices would, as a matter of _psychological_ necessity, be also fixed. What might then be expected to happen in such a country, if an economic experimenter should disturb them in their habitual quantity of money? Which habits would give way, those relating to prices, or those to velocities, or those relating to quantities of goods exchanged?[124] I shall not trouble to solve this problem, as it seems to me not the most useful way to approach the problem of the value of money, but I submit it to the consideration of advocates of the quantity theory. My present purpose is accomplished in pointing out the psychological assumptions which the quantity theory makes: a psychology of blind habit, in a situation where the price-level is free from control by customary prices. Now at another point I wish to mediate between the quantity theorists and their extreme opponents. Representatives of the Metallist of Commodity School--like Professor Laughlin, and Professor Scott in his earlier writings--seem to deny that the money-employment has any direct effect in increasing the value of money. The money-employment affects the value of money only indirectly, by withdrawing the money metal from the arts, so raising the value of the money metal, and consequently raising the value of the coined metal. The quantity theory, on the other hand, would utterly divorce the value of money from causal dependence on the stuff of which the money is made. Both these views seem to me extreme. Unless money has value from some source other than the money employment, it cannot be used as money at all. Nobody will want it. On the other hand, the money use is a valuable use. Exchange is a productive process. Money, as a tool of exchange, enables men to create values. And you can measure the value of the money service very easily at a given time if you look at the short time "money-rates," _i. e._, rates of discount on prime short term paper. These are properly to be considered, not interest on abstract capital, but the rent of a particular capital-good, namely, money. The money is hired for a specific service, namely, to enable a man to get a specific profit in a commercial transaction. Money is not the only good which can be thus employed, and which is paid for for this purpose. Ordinarily a man will pay for money for this purpose. Sometimes, however, one needs the temporary use of something else more than one needs money, and the holder of money pays a premium for the privilege of temporarily holding the other thing. I refer especially here to the practice of "borrowing and carrying" on the stock exchange. The "bear" sells stock which he does not possess, and must deliver the stock before he is ready to close his transaction by buying to "cover." He goes to a "bull" who has more stock than he can easily "carry," and who is glad to "lend" the stock in return for a "loan" of its equivalent in money. Ordinarily the bull is glad to pay a price for the money, as it is of service to him. Sometimes, however, the situation is reversed, and the service which the temporary loan of the stock performs for the hard-pressed bears is greater than the service which the money performs for the bulls, and the payment is reversed. When the bull pays a premium to the bear, for the use of the money, the amount paid is called "carrying charge," "interest charge for carrying," "contango," (London) or (in Germany) "_Report_." This is the usual case. But sometimes the bear pays the bull a premium for the use of the stock, and the charge is then called "premium for use," "backwardation," (London) or "_Deport_" (Germany).[125] Money is, thus, not the only thing which has a "use" in addition to the ordinary "uses" which are the primary source of its value.[126] In the case of other things, however, this kind of "use" is unusual. In the case of money it is the primary use. The essence of this use is to be found in the employment of a quantum of _value_ in highly saleable form in facilitating commercial transactions. Commercial transactions, in this sense, are not limited to ordinary buying and selling. I think it best to defer further analysis of the money service to a later chapter, on the functions of money, which will best be preceded by a consideration of the origin of money. For the present, it is enough to note that money has certain characteristics which enable it to facilitate exchanges, and to pay debts, better than anything else, and that this fact makes an addition to its value. It is possible, I think, to measure this addition to value rather precisely in certain cases. Thus, in the case of the American Greenbacks, we find them at a discount, say from the beginning of 1877 on, as compared with the gold dollar in which they were to be redeemed in Jan. 1879. I think it safe to contend that the country was practically free from doubt as to their redemption after the early part of 1877. The discount steadily diminished as the time of redemption approached. Laughlin's theory is thus far beautifully vindicated. The central fact governing the value of the Greenbacks during this period was the prospect of redemption. But, and here I think we see the influence of the money-use, the discount was not as great as would have been called for by the prevailing rate of interest, as measured by the yield on other obligations of the Federal Government, at this time. And the discount completely disappeared some little time before the actual redemption. I see no cause for the absence of a discount in the later months of 1878 except the additional value which came from the money use. This additional value is, ordinarily, not very great. And money is not alone in possessing it. In extraordinary circumstances it may become quite large. Thus, in 1873, in the midst of the panic, the gold premium fell sharply. At this time the significance of the Greenbacks as a legal tender, a means of final payment of obligations (_Zahlungs_- or _Solutions-mittel_), as distinguished from medium of exchange (_Tauschmittel_), attained an unusual significance. In ordinary times, the marginal value of this function of money sinks to zero, but in emergencies it may become very great. In ordinary times, during the Greenback period, uncoined gold bullion, or gold coin used, not as money, but simply by weight in exchanges, played an important rôle, competing with the Greenbacks in various employments, particularly as bank reserves, and as secondary bank reserves, and so reducing the marginal value of the money-employment of the Greenbacks themselves. Gold bullion is not the only thing which can thus serve, however. To-day, and generally, securities with a wide market, capable of being turned quickly into cash, without loss, or capable of serving as the basis of collateral loans, up to a high percentage of their value, have a much higher value, for a given yield, than have other securities, equally safe, but less well-known and less easily saleable. The "one-house bond" (_i. e._, the bond for which only one banking house offers a ready market) must yield a great deal more to sell at a given price than the bond of equal security which is listed on the exchanges, and has a wide market. Part of this is in illustration of another function of money, the "bearer of options" function, which enables the holder to preserve his wealth, and at the same time keep options for increasing its amount when bargains appear in the market. Foreign exchange performs many of these functions of money in European countries, particularly Austria-Hungary.[127] The notion that the whole value of gold coin rests on its bullion content arises most easily in a situation where free coinage has long been practiced, and where there are no legal obstacles to the melting down of coin for other uses. Where free coinage is suspended, the peculiar services which only money can perform--or rather, the services which money has a differential advantage in performing--may easily lead to an agio for coined over uncoined metal. The mere fact that coined metal is of a definite fineness well known and attested is often of some consequence, though the attestation of well-known jewelers may give this advantage to metal bars as well, for large transactions. But for smaller transactions, nothing can easily take the place of money. A high premium on small coins, apart from redemption in standard money, may easily arise from the money-use alone. And standard coin may well attain, in greater or less degree, a premium. If it is scarce, as compared with the amount of business to be done, this premium may well be greater than if it is abundant. But that an indefinite premium is possible, or that this premium varies exactly and inversely with the quantity, I see no reason at all for supposing. If the premium be great enough, men, especially in large transactions, will make use of the uncoined metal--just as they did use gold in this country during the Greenback period. The advantages of money are not absolute. Money is simply more convenient for many purposes than other things. The possibility of a premium is limited by the possibility of substitutes. It is further limited by the fact that a high premium would awaken a distrust which would bring the premium to destruction, by destroying trade, and so destroying the money-use on which the premium is based. A detailed discussion of the Indian Rupee since 1893 lies outside the scope of this chapter. I think it may be well, however, to recognize at this point that the limitation in the quantity of the rupee, through abrogation of free coinage, was a factor in the subsequent rise in its value. It was not the only factor, by any means. But it was a factor. It may be also recognized as a factor in the value of Austrian paper money. The doctrine just laid down, as to the influence of the money-use in adding to the value of money, is in no sense the same as the quantity theory. For one thing, it is easily demonstrated that the value-curve for the uses of money is not described by the equation, _xy_ = _c_. This curve expresses, in terms of value, the idea of proportionality which is an essential part of the quantity theory. Put in terms of the money market, we have a demand-curve for money, not for the long-time possession of money, but for its temporary use--a rental, rather than a capital value, is expressed in the price which this curve helps to determine. This curve is highly elastic. When money-rates are low, transactions will be undertaken which will not be undertaken when the rate is a little higher. In the second place, the method of approach is very different. It is not the whole volume of transactions which must employ money, but only a flexible part. In the third place, the money-use is here conceived of as a source, not of the whole value of money, but only of a differential portion of that value. In the fourth place, the argument runs in terms of the absolute value of money, and not in terms of the level of prices. It is not the legal peculiarity of money, as legal tender, which is necessarily responsible for this agio when it appears. In the first place, not all money is legal tender. In the second place, we find the same phenomenon in connection with "bank-money" at times--I would refer especially to the premium on the _marc banko_ of the Hamburg Girobank. (_Cf._ Knapp, _Staatliche Theorie des Geldes_, p. 136.) The legal tender peculiarity may, however, in special circumstances be a source of a very considerable temporary agio. It is possible, however, to frame a hypothetical case in which, barring temporary emergencies, the money-use will add nothing to the value of money, and in which the whole value of money will come from the value of the commodity chosen as the standard of values. Assume that the standard of value is defined as a dollar, which is further defined as 23.22 grains of pure gold. Assume, however, that no gold is coined. Let the circulating money be made of paper. Let this paper be redeemable, not in gold, but in silver, at the market ratio, on the day of redemption, of silver to gold. This will mean that varying quantities of silver will be given by the redeeming agencies for paper, but always just that amount required to procure 23.22 grains of gold. Let us assume, further, that the government issues paper money freely on receipt of the same amount of silver. Assume, further, that the government bears the charges which the friction of such a system would entail, by opening numerous centres of issue and redemption, by providing insurance against fluctuations in the ratio of silver to gold for a reasonable time before issue and after redemption, meeting transportation charges, brokerage fees, etc. In such a case, the standard of value would not be used as money at all. It would have no greater value than it would if it were not the standard of value--abstracting from the fact that in the one case it might be used in its uncoined form as a substitute for money more freely than in the other. In any case, it would form no part of the quantity of money. Its whole value would come from its commodity significance. The value of the paper money, however, would be tied absolutely to the value of gold. As gold rose in value, the paper money would rise in value, and vice versa. The quantity of money would be absolutely irrelevant as affecting its value. The quantity of silver would be likewise irrelevant. The causation as between quantity of money and value of money would be exactly the reverse of that asserted by the quantity theory. A high value of money would mean lower prices. With lower prices, less money would be needed to carry on the business of the country. Paper would then be superabundant. But in that case, paper would rapidly be sent in for redemption, and the quantity of money would be reduced.[128] The value of money would control the quantity of money. The standard of value, which was not the medium of exchange, would control the value of money, and so the level of prices, in so far as the level of prices is controlled from the money side. In this hypothetical illustration, we have the extreme case of what the Commodity or Metallist School seems to assert. In this case, barring temporary emergencies too acute to admit of increasing the money-supply by the method described, their theory that the value of money comes wholly from the commodity value of the standard, would offer a complete explanation. I offer this illustration as the antithesis of the dodo-bone illustration of Nicholson. That illustration sets forth the extreme claims of the quantity theory, and purports to be a case in which the quantity theory would work perfectly. The case illustrative of the commodity theory clearly brings out the fact that that theory rests on exclusive attention to the standard of value function of money. The dodo-bone theory gives exclusive attention to, but very imperfect analysis of, the medium of exchange function. But I submit that the extreme case of the commodity theory, in the illustration I have given, is a thinkable and consistent system. It would work--even though not conveniently. Indeed, it resembles in essentials the plan actually proposed by Aneurin Williams, and later by Professor Irving Fisher[129] for stabilizing the value of money. Substitute a composite commodity for gold, and gold for silver, in the illustration, and you have the essentials of that plan. The dodo-bone hypothesis, however, as I have been at elaborate pains to show in the foregoing, is unthinkable. It would not work. It is, thus, possible to construct a system for which the commodity theory would offer a complete explanation. It is not possible to do this for the quantity theory. But the limiting case for the commodity theory is not the actual case. Standard money is also commonly a medium of exchange. Standard money is particularly desirable in bank and government reserves. Its employment in these and other ways is a valuable employment, and adds directly to its value both as money and in the arts. There is a marginal equilibrium between its values in the two employments. The notion that the only way in which the money employment adds to the value of money is an indirect one, by withdrawing gold from the arts, so lessening its supply and raising its value there, may be proved erroneous by this consideration: what, in that case, would determine the margin between the two employments? What force would there be to withdraw gold from the arts at all? Why should more rather than less be withdrawn? There must be ascending curves on both sides of the margin. Gold money in small amount has a high significance per unit in the money employment. A greater amount has a smaller significance per unit. The marginal amount of gold put to work as money has a comparatively low significance in that employment--a significance just great enough to secure it from the competing employments in the arts. * * * * * We conclude, then, that money must have value to start with, from some source other than the money function, and that there must always be some source of value apart from the money function, if money is to circulate, or to serve as money in other ways. But this is not to assert the doctrine of the commodity school, that its value must arise from the metal of which it is made, or in which it is expected to be redeemed. Nor is it to deny that the money function may add to the original value. On the contrary, the services which money performs are valuable services, and add directly, under conditions which we shall analyze more fully in a later chapter on the functions of money, to the value derived from non-pecuniary sources. Value is not physical, but psychical. And value is not bound up inseparably with labor-pain or marginal utility. CHAPTER VIII THE "EQUATION OF EXCHANGE" In Professor Irving Fisher's _Purchasing Power of Money_[130] we have the most uncompromising and rigorous statement of the quantity theory to be found in modern economic literature. We have, too, a book which follows the logic of the quantity theory more consistently than any other work with which I am acquainted. The book deals with the theory more elaborately and with more detail than any other single volume, and sums up most of what other writers have had to say in defence of the quantity theory. Professor Fisher's book has, moreover, received such enthusiastic recognition from reviewers and others as to justify one in treating it as the "official" exposition of the quantity theory. Thus, Sir David Barbour cites Professor Fisher as the authority on whom he relies for such justification of the theory as may be needed,[131] while Professor A. C. Whitaker declares that he adopts "without qualification the whole body of general monetary theory" for which Professor Fisher stands.[132] Professor J. H. Hollander has recently referred to Professor Fisher's work on money and prices as a model of that combination of theory and inductive verification which constitutes real science.[133] The _American Economic Review_ presents as an annual feature Professor Fisher's "Equation of Exchange." Not all, by any means, of those who would call themselves quantity theorists would concur in Professor Fisher's version of the doctrine--Professor Taussig, notably, introduces so many qualifications, and admits so many exceptions, that his doctrine seems to the present writer like Professor Fisher's chiefly in name. But there is no other one book which could be chosen which would serve nearly as well for the "platform" of present-day quantity theorists as _The Purchasing Power of Money_. Partly for that reason, and partly because the book lends itself well to critical analysis, I shall follow the outline of the book in my further statement and criticism of the quantity theory, indicating Professor Fisher's views, and indicating the points at which other expositions of the quantity theory diverge from his, setting his views in contrast with those of other writers. We shall find that this method of discussion will furnish a convenient outline on which to present our final criticisms of the quantity theory, and parts of the constructive doctrine of the present book. First, Professor Fisher presents in the baldest possible form the dodo-bone doctrine. The quality of money is irrelevant. The sole question of importance is as to its quantity--the number of money-units.[134] I shall not here discuss this point, as a previous chapter has given it extended analysis, except to repeat that it is in fact an essential part of the quantity theory. If the _quality_ of money is a factor, a necessary factor, to consider, then obviously we have something which will disturb the mechanical certainty of the quantity theory. Professor Fisher is thoroughly consistent with the spirit of his general doctrine on this point. Second, Professor Fisher has no absolute value in his scheme. By the value of money he means merely its purchasing power, and by its purchasing power he means nothing more than the fact that it does purchase: the purchasing power of money is defined as the reciprocal of the level of prices, "so that the study of the purchasing power of money is identical with the study of price levels." (_Loc. cit._, p. 14.) In this, again, Professor Fisher is absolutely true to the spirit and logic of the quantity theory doctrine. The equilibration of numbers of goods, and numbers of dollars, in a mechanical scheme, gives prices--an average of prices, and nothing else. Any psychological values of goods or of dollars would upset the mechanism, and mess things up. They are properly left out, if one is to be happy with the quantity theory. Fisher, in discussion of Kemmerer's _Money and Credit Instruments_, has criticised the exposition of the utility theory of value with which Kemmerer prefaces his exposition of the quantity theory, as "fifth wheel." I agree thoroughly with Fisher's view in this, and would add that the only reason that it has made Kemmerer little trouble in the development of his quantity theory is that he has made virtually no use of it there! The two bodies of doctrine, in Kemmerer's exposition, are kept, on the whole, in separate chapters, well insulated. Coupled with this purely relative conception of the value of money, however, there is, in Fisher's scheme, an effort to get an absolute out of it: the general price-level is declared to be independent of, and causally prior to,[135] the particular prices of which it is an average. I mention this remarkable doctrine here, reserving its discussion for a later chapter.[136] A further feature of Professor Fisher's system, to which especial attention must be given, is the large rôle played in it by the "equation of exchange." This device has been used by other writers before him, notably by Newcomb, Hadley, and Kemmerer, receiving at the hands of the last named an elaborate analysis. But Fisher, basing his work on Kemmerer's, has made even more extensive use of the "equation of exchange," and has given it a form which calls for special consideration.[137] The "equation of exchange," on the face of it, makes an exceedingly simple and obvious statement. Properly interpreted, it is a perfectly harmless--and, in the present writer's opinion, useless--statement. It gives rise to complications, however, as to the meaning of the algebraic terms employed, which we shall have to study with care. The starting point is a single exchange: a person buys 10 pounds of sugar at seven cents a pound. "This is an exchange transaction in which 10 pounds of sugar have been regarded as equal to 70 cents, and this fact may be expressed thus: 70 cents = 10 pounds of sugar multiplied by 7 cents a pound. Every other sale and purchase may be expressed similarly, and by adding them all together we get the equation of exchange _for a certain period in a given community_."[138] The money employed in these transactions usually serves several times, and hence the money side of the equation is greater than the total amount of money in circulation. In the preliminary statement of the equation of exchange, foreign trade, and the use of anything but money in exchanges are ignored, but later formulations of the equations are made to allow for them. "The equation of exchange is simply the sum of the equations involved in all individual exchanges in a year.... And in the grand total of all exchanges for a year, the total money paid is equal in value to the total value of the goods bought. The equation thus has a money side and a goods side. The money side is the total money paid, and may be considered as the product of the quantity of money multiplied by its rapidity of circulation. The goods side is made up of the products of quantities of goods exchanged multiplied by their respective prices." Letting M represent quantity of money, and V its velocity or rapidity of circulation, p, p´, p´´, etc., the average prices for the period of different kinds of goods, and Q, Q´, Q´´, etc., the quantities of different kinds of goods, we get the following equation: MV = pQ + p´Q´ + p´´Q´´ + etc.[139] "The right-hand side of this equation is the sum of terms of the form pQ--a price multiplied by the quantity bought."[140] The equation may then be written, MV = [Greek: S] pQ (Sigma being the symbol of summation). The equation is further simplified[141] by rewriting the right-hand side as PT, where P is the weighted _average_ of all the p's, and T is the _sum_ of all the Q's. "P then represents in one magnitude the level of prices, and T represents in one magnitude the volume of trade." It may seem like captious triviality to raise questions and objections thus early in the exposition of Professor Fisher's doctrine. And yet, serious questions are to be raised. First, in what sense is there an equality between the ten pounds of sugar and the seventy cents? Equality exists only between _homogeneous_ things. In what sense are money and sugar homogeneous? From my own standpoint, the answer is easy: money and sugar are alike in that both are _valuable_, both possess the attribute of economic social value, an absolute quality and quantity. The degree in which each possesses this quality determines the exchange relation between them. And the degree in which each other good possesses this quality, taken in conjunction with the value of money, determines every other particular price. Finally, an average of these particular prices, each determined in this way, gives us the general price-level. The value of the money, on the one hand, and the values of the goods on the other hand, are both to be explained as complex social psychological forces. But when this method of approach is used, when prices are conceived of as the results of organic social psychological forces, there is no room for, or occasion for, a further explanation in terms of the mechanical equilibration of goods and money. Professor Fisher, as just shown, very carefully excludes this and all other psychological approaches to his problem of general prices, and has no place in his system for an absolute value. In what sense, then, are the sugar and the money equal? Professor Fisher says (p. 17), that the equation is an equation of values. But what does he mean by values in this connection? Perhaps a further question may show what he _must_ mean, if his equation is to be intelligible. That question is regarding the meaning of T. T, in Professor Fisher's equation, is defined as the sum of all the Q's. But how does one sum up _pounds_ of _sugar_, _loaves_ of _bread_, _tons_ of _coal_, _yards_ of _cloth_, etc.? I find at only one place in Professor Fisher's book an effort to answer that question, and there it is not clear that he means to give a general answer. He needs units of Q which shall be homogeneous when he undertakes to put concrete figures into his equation for the purpose of comparing index numbers and equations for successive years. "If we now add together these tons, pounds, bushels, etc., and call this grand total so many 'units' of commodity, we shall have a very arbitrary summation. It will make a difference, for instance, whether we measure coal by tons or hundred-weights. The system becomes less arbitrary if we use, as the unit for measuring any goods, not the unit in which it is commonly sold, but the amount which constitutes a 'dollar's worth' at some particular year called the base year" (p. 196). If this be merely a device for the purpose of handling index numbers, a convention to aid mensuration, we need not, perhaps, challenge it. The unit chosen is, in that case, after all a fixed physical quantity of goods, the amount bought with a dollar in a given year, and remains fixed as the prices vary in subsequent years. That it is more "philosophical" or less "arbitrary" than the more common units is not clear, but, if it be an answer, designed merely for the particular purpose, and not a general answer, it is aside from my purpose to criticise it here. If, however, this is Professor Fisher's _general_ answer to the question of the method of summing up T, if it is to be employed in his equation when the question of _causation_, as distinguished from _mensuration_, is involved, then it represents a vicious circle. If T involves the price-level in its definition, then T cannot be used as a causal factor to explain the price-level. I shall not undertake to give an answer, where Professor Fisher himself fails to give one, as to his meaning. I simply point out that he himself recognizes that the summation of the Q's is arbitrary without a common unit, and that the only common unit suggested in his book, if applied generally, involves a vicious circle. What, then, is T? Perhaps another question will aid us in answering this. What does it mean to _multiply_ ten pounds of sugar by seven cents? What sort of product results? Is the answer seventy pounds of sugar, or seventy cents, or some new two-dimensional hybrid? One multiplies feet by feet to get _square_ feet, and square feet by feet to get cubic feet. But in general, the multiplication of _concrete_ quantities by _concrete_ quantities is meaningless.[142] One of the generalizations of elementary arithmetic is that concrete quantities may usually be multiplied, not by other concrete quantities, but rather by _abstract_ quantities, pure numbers. Then the product has meaning: it is a concrete quantity of the same denomination as the multiplicand. If the Q's, then, are to be multiplied by their respective p's, the Q's must be interpreted, not as bushels or pounds or yards of concrete goods, but merely as abstract numbers. And T must be, not a sum of concrete goods, but a sum of abstract numbers, and so itself an abstract number. Thus interpreted, T is equally increased by adding a hundred papers of pins,[143] a hundred diamonds, a hundred tons of copper, or a hundred newspapers. This is not Professor Fisher's rendering of T, but it is the only rendering which makes an intelligible equation. We return, then, to the question with which we set out: in what sense is there an equality between the two sides of Professor Fisher's equation? The answer is as follows: on one side of the equation we have M, a quantity of money, multiplied by V, an abstract number; on the other side of the equation, we have P, a quantity of money, multiplied by T, an abstract number. The product, on each side, is a _sum of money_. These sums are equal. They are equal because they are _identical_. The equation asserts merely that what is _paid_ is equal to what is _received_. This proposition may require algebraic formulation, but to the present writer it does not seem to require any formulation at all. The contrast between the "money side" and the "goods side" of the equation is a false one. There is no goods side. Both sides of the equation are money sides. I repeat that this is not Professor Fisher's interpretation of his equation. But it seems the only interpretation which is defensible. A further point must be made: Sigma pQ, where the Q's are interpreted as abstract numbers, is a summary of concrete money payments, each of which has a causal explanation, and each of which has effected a concrete exchange. Mathematically, PT is equal to [Greek: S] pQ, just as 3 times 4 is equal to 2 times 6. But from the standpoint of the theory of causation, a vast difference is made. Three children four feet high equal in aggregate height two men six feet high. But the assertion of equality between the three children and the two men represents a high degree of abstraction, and need not be significant for any given purpose. Similarly, the restatement of [Greek: S] pQ as PT. One might restate [Greek: S] pQ as PT, defining P as the _sum_ (instead of the average) of the p's, and T as the weighted average (instead of the sum) of the Q's. Such a substitution would be equally legitimate, mathematically, and the equation, MV = PT equally true. [Greek: S] pQ might be factorized in an indefinite number of ways. But it is important to note that in PT, as defined by Professor Fisher,[144] we are at three removes from the concrete exchanges in which actual concrete causation is focused: we have first taken, for each commodity, an average, for a period, say a year, of the concrete prices paid for a unit of that commodity, and multiplied that average by the abstract number of units of that commodity sold in that year; we have then summed up all these products into a giant aggregate, in which we have mingled hopelessly a mass of concrete causes which actually affected the particular prices; then, finally, we have factorized this giant composite into two numbers which have no concrete reality, namely, an average of the averages of the prices, and a sum of the abstract numbers of the sums of the goods of each kind sold in a given year--a sum which exists only as a pure number, and which, consequently, is unlikely to be a causal factor! It may turn out that there is reason for all this, but if a _causal_ theory is the object for which the equation of exchange is designed, a strong presumption against its usefulness is raised. Both P and T are so highly abstract that it is improbable that any significant statements can be made of either of them. As concepts gain in generality and abstractness, they lose in content; as they gain in "extension" they lose (as a rule) in "intension." On the other side of the equation, we also look in vain for a truly concrete factor. V, the average velocity of money for the year, is highly abstract. It is a mathematical summary of a host of complex activities of men. Professor Fisher thinks that V obeys fairly simple laws, as we shall later see, but at least that point must be demonstrated. Even M is not concrete. At a given moment, the money in circulation is a concrete quantity, but the average for the year is abstract, and cannot claim to be a direct causal factor, with one uniform tendency. Of course Professor Fisher himself recognizes that his central problem is, not to state and justify, mathematically, his equation[145]--that is a work of supererogation, and the statistical chapters devoted to it seem to me to be largely wasted labor. Professor Fisher recognizes that his central problem is to establish _causal_ relations among the factors in his equation of exchange. It is from the standpoint of its adaptability as a tool in a theory of causation that I have been considering it. It should be noted that "volume of trade," as frequently used, means not numbers of goods sold, but the money-price of all the goods exchanged, or PT. It is in this sense of "trade" that bank-clearings are supposed to be an index of volume of trade. The sundering of the p's and Q's really is a big assumption of many of the points at issue. Indeed, it is absolutely impossible to sunder PT. It is always the p aspect of the thing that is significant, Fisher himself finally interprets T, statistically, as billions of _dollars_.[146] As a matter of mathematical necessity, either P must be defined in terms of T or T defined in terms of P. The V's and M and M´ may be independently defined, and arbitrary numbers may be assigned for them limited only by the necessity that MV + M´V´ be a fixed sum.[147] But P and T cannot, with respect to each other, be thus independently defined. The highly artificial character of T has been pointed out by Professor E. B. Wilson, of the Massachusetts Institute of Technology, in his review of Fisher's _Purchasing Power of Money_ in the _Bulletin of the American Mathematical Society_, April, 1914, pp. 377-381. "Various consequences are readily obtained from the equation of exchange, but the determination of the equation itself is not so easy as it might look to a careless thinker. The difficulties lie in the fact that P and T individually are quite indeterminate. An average price-level P means nothing till the rules for obtaining the average are specified, and independent rules for evaluating P and T may not satisfy [the equation.] For instance, suppose sugar is 5c. a pound, bacon 20c. a pound, coffee 35c. a pound. The average price is 20c. If a person buys 10 lbs. of sugar, 3 lbs. of bacon, and 1 lb. of coffee, the total trading is in 14 lbs. of goods. The total expenditure is $1.45; the product of the average price by the total trade is $2.80; the equation is very far from satisfied." Wilson thinks it necessary, to make the matter straight, to define T, arbitrarily as (MV + M´V´)/P in which case, the equation is true, but so obviously a truism that no one would see any point in stating it. T no longer has any independent standing. Fisher has, however, an escape from this status for T, but only by reducing P to the same position. He defines P as the _weighted_ average of the p's (27), and fails, I think, to see how completely this ties it up with T. The only method of weighting the p's that will leave the equation straight is to weight the different prices by the number of units of each kind of good sold, namely, T. Thus, in Wilson's illustration, we would define P as [(5c.×10) + (20c.×3) + (35c.×1)]/14 P is then 10-5/14 c., while T is 14. PT is, then, equal to $1.45, which is the total expenditure, or MV + M´V´. Be it noted, here, that P is defined in terms of T, _i. e._, P is defined as a fraction, the denominator of which is T. No other definition of P will serve, if T is to be defined independently. But notice the corollary. P must be differently defined each year, for each new equation, as T changes in total magnitude, and as the elements in T are changed. The equation cannot be kept straight otherwise. Suppose that the prices remain unchanged in the next year, but that one more pound of coffee, and two less pounds of sugar are sold. P, as defined for the equation of the preceding year would no longer fit the equation. P, as previously defined, would be unaltered, since none of the prices in it had changed. P, defined as a weighted average with the weights of the first year, would, then, still be 10-5/14 cents. The T in the new equation is 13. The product of P and T is $1.34-9/14. But the total expenditure, (MV + M´V´) is $1.70. The equation is not fulfilled. To fulfill the equation, it is necessary to get a new set of weights for P, in terms of the new T of the new equation. From the standpoint of a _causal_ theory, this is delightful. P is the _problem_. But you are not allowed to _define_ the problem until you know what the _explanation_ is! Then you define the problem as that which the explanation will explain! Fisher, however, appears unaware of this. At all events, he does not mention it. And he ignores it in filling out his equation statistically, for he assigns one set of weights to the particular prices in his P throughout.[148] The causal theory with which the equation of exchange is associated is as follows: P is passive. A change in the equation cannot be initiated by P. If P should change without a prior change in one of the other factors, forces would be set in operation which would force it back to its original magnitude. M and T are independent magnitudes. A change in one does not occasion a change in the other. An increase or decrease in M will not cause a change in V. Therefore, an increase in M must lead to a proportionate increase in P, and a decrease in M to a proportionate decrease in P, if the equation is to be kept straight. Changes in T have opposite proportional effects on P. Before examining the validity of the causal theory, and the arguments by which it is supported, it will be best to state the more complex formula which Professor Fisher advances as expressing the facts of to-day. The original formula ignored credit, and ignored the possibility of resort to barter. It also failed to reckon with certain complications which Fisher deals with as "transitional" rather than "normal." The formula which includes credit is as follows: MV + M´V´ = PT Here, MV and PT have the same significance as before. M´ is the average amount of bank-deposits in the given region for the given period, and V´ is the velocity of circulation of those deposits. M, money, consists of all the media of exchange in circulation which are _generally_ acceptable, as distinguished from those which are acceptable under particular conditions, as by endorsement. M excludes money in bank reserves and government vaults. Money, specifically, includes gold and silver coin, minor coins, government paper money, and bank-notes; M´ consists of deposits transferable by check. This version would not satisfy such a writer as Nicholson,[149] who would limit money to gold coin, and would include in M´ not only deposits, but also bank-notes, and other credit instruments. I may suggest here, what I shall later emphasize, that Fisher's "money," though he doubtless is using the most common definition of money, is really a pretty heterogeneous group of things, concerning which it is possible to make few general statements safely. In economic essence, _e. g._, bank-notes are much more like deposits than like gold, and if one wishes to separate money and credit, bank-notes belong with M´ rather than with M. But we must take the theory as we find it! Again, credit is by no means exhausted when bank-deposits are named. Why should not book-credits, and bills of exchange be included? Why not postal money-orders, why not deposits subject to transfer by the giro-system? M´ is defined[150] as "the total deposits subject to transfer by check," and would, thus, exclude the giro-system of Germany. It is surely a very provincial equation of exchange, with which Fisher and Kemmerer seek to set forth the universal laws of money! Fisher's reason for excluding book-credits is that book-credits merely postpone, and do not dispense with, the use of money and checks.[151] Book-credits, unlike deposits, have no _direct_ effect on prices (_Ibid._, 82, n.; 370), but only an indirect effect, by increasing the velocity of money. (_Ibid._, 81-82; 370-371.) Book-credit, indeed "time-credit" in general thus has no direct effect on prices, and is properly excluded from the equation of exchange. These distinctions seem to me highly artificial. In the first place, the use of checks, in part, merely postpones the use of money: money is moved back and forth from one part of the country to another, and from one bank to another, to the extent that checks fail to offset one another, and in the case of book-credit, while there is less of this offsetting, there is a good deal of it, especially between stockbrokers in different cities, and in small towns and at country stores, and particularly in the South, where the country storekeeper and "factor" are also dealers in cotton, etc., and where they advance provisions during the year to the small farmers, receiving their pay, in considerable degree, not in money, but in cotton, which they credit on the books in terms of money to the customer--a point which Fisher mentions in an appendix. (_Ibid._, p. 371.) The difference on this point is a difference in degree merely.[152] Further, Fisher makes the same point with reference to deposits subject to check that he makes with reference to book-credits, namely, that their use increases the velocity of money. To say that one has a _direct_ effect on prices, and the other only an indirect effect is absolutely arbitrary. If buying and selling are what count, if prices are forced up by the offer of money or credit for goods, and forced down as the amount of money and credit offered for goods is reduced, then one exchange must count for as much as any other of like magnitude in fixing prices. The same is true of transactions in which bills of exchange or other credit devices serve as media of exchange. Of course these considerations do not render the equation of exchange, as presented by Fisher, untrue. The equation simply states that the money and bank-deposits used in paying for goods in a given period are equal to the amount paid for those goods in a given period. It makes no assertion concerning payments for other goods, and makes no assertion as to the amount of other transactions which are paid for in other ways. General Walker, presented with the problem of credit phenomena, simplifies the thing even more.[153] He rules out all exchanges which are effected by credit devices, counting only those performed by coin, bank-notes and government paper money, and insists that the general price-level is determined in those exchanges in which money alone (as thus defined) is employed. His equation--if he had considered it worth while to use one--would then have been simply MV = PT where T would be merely the number of goods exchanged by means of money. One could make a similar equation, equally true, by defining money as gold coin, and reducing T correspondingly. Is there any reason for limiting the equation at all?[154] Is there any reason for supposing that any one set of exchanges is more significant for the determination of the price-level than any other set of exchanges? Does not the logic of the quantity theory require us to include all exchanges which run in terms of money?--If one wishes a complete picture of the exchanges, some such equation as this would be necessary: MV + M´V´ + BV´´ + EV´´´ + OV´´´´ = PT, where B represents book-credit, V´´ the number of times a given average amount of book-credit is used in the period, E bills of exchange, and V´´´ their velocity of circulation, and O all other substitutes for money, with V´´´´ as their velocity of circulation. Even then we have not a complete picture, if direct barter or the equivalents of barter can be shown to be important. For the present, I waive a discussion of the comparative importance of these different methods of conducting exchanges. The situation varies greatly with different countries. Fisher's and Kemmerer's equations are at best plausible when presented as describing American conditions, are much less plausible when applied to Canada and England, and are caricatures when applied to Germany and France. So much for the statement of the equation of exchange, except that it is important to add that the period of time chosen for the equation is one year. Just why a year, rather than a month or two years or a decade should be chosen, may await full discussion till later. I shall venture here the opinion that the yearly period is not the period that should have been chosen from the standpoint of Fisher's causal theory, and that it probably was chosen, if for any conscious reason at all, because of the fact that statistical data which Fisher wished to put into it are commonly presented as annual averages. The question now is, however, as to the use to be made of the equation in the development of a causal theory. CHAPTER IX THE VOLUME OF MONEY AND THE VOLUME OF CREDIT John Stuart Mill, who first among the great figures in economics gives a realistic analysis of modern credit phenomena, thought that credit acts on prices in the same way that money itself does[155] and that this reduces the significance of the quantity theory tendency greatly, and to an indeterminate degree. The quantity theory is largely whittled away in Mill's exposition of the influence of credit. In Fisher we have a much more rigorous doctrine. The quantity of money still governs the price-level, because M governs M´. The volume of bank-deposits depends on the volume of money, and bears a pretty definitely fixed ratio to it. Just how close the relation is, Professor Fisher does not say, but the greater part of his argument, especially in ch. 8,[156] rests on the assumption that the ratio is very constant and definite indeed. At all events, the importance of the theory, as an explanation of concrete price-levels, will vary with the closeness of this connection, and the invariability of this ratio. It is not too much to say _that the book falls with this proposition_, to wit, that M controls M´, and that there is a fixed ratio between them. We would expect, therefore, a very careful and full demonstration of the proposition, a care and fullness commensurate with its importance in the scheme. But the reader will search in vain for any proof, and will find only two propositions which purport to be proof. These are: (1) that bank reserves are kept in a more or less definite ratio to bank deposits; (2) that individuals, firms and corporations preserve more or less definite ratios between their cash transactions and their check transactions, and between their cash on hand and their deposit balances.[157] If these be granted, what follows: the money in bank-_reserves_ is no part of M! M is the money in circulation, being exchanged against goods, not the money lying in bank-vaults![158] The money in bank-vaults does not figure in the equation of exchange. As to the second part of the argument, if it be granted, it proves nothing. The money in the hands of individual and corporate depositors is by no means all of M. It is not necessarily the greatest part. The money in circulation is largely used in small retail trade, by those who have no bank-accounts. A good many of the smallest merchants in a city like New York have no bank-accounts, since banks require larger balances there than they can maintain. Enormous quantities of money are carried in this country by laborers, particularly foreign laborers. "The Chief of the Department of Mines of a Western State points out that when an Italian, Hungarian, Slav or Pole is injured, a large sum of money, ranging from fifty dollars to five hundred or one thousand, is almost always to be found on his person. A prominent Italian banker says that the average Italian workman saves two hundred dollars a year, and that there are enough Italian workmen in this country, without considering other nationalities, to account for three hundred million dollars of hoarded money."[159] I do not wish to attach too great importance to these figures, taken from a popular article in a popular periodical. It is proper to point out, too, that these figures relate to hoarded money, rather than to M, the money in circulation. But in part these figures represent, not money absolutely out of circulation, but rather, money with a sluggish circulation. And they are figures of the money in the hands of poor and ignorant elements of the population. Outside that portion of the population--larger in this country than in any other by far[160]--which keeps checking accounts, are a large body of people, the masses of the big cities, the bulk of rural laborers, especially negroes, the majority of tenant farmers, a large proportion of small farm owners, especially nominal owners, and not a few small merchants in the largest cities, who have no checking accounts at all. A very high percentage of their buying and selling is by means of money. Kinley's results[161] show that 70% of the wages in the United States are paid in cash, and, of course, the laborers who receive cash pay cash for what they buy. (Not necessarily at the _time_ they buy!) Money for payrolls is one of the serious problems in times of financial panics.[162] To fix the proportion between money in the hands of bank depositors and non-depositors is not necessary for my purposes--_a priori_ I should anticipate that there is no fixed proportion. But it is enough to point out that money in the hands of depositors is not the whole of Fisher's M. Of what relevance is it, then, to point out, even if it were true, that an unascertainable portion of M tends to keep a definite ratio to M´, when the thing to be proved is that the _whole_ of M tends to keep a definite ratio to M´? Fisher's argument is a clear _non-sequitur_. If it proves anything, it proves that a sum of money,[163] not part of M, and another sum of money, an unknown fraction of M, each independently, for reasons peculiar to each sum, tends to keep a constant ratio to M´. This gives us _l'embarras des richesses_ from the standpoint of a theory of causation! Two independent factors, bank-reserves and money in the hands of depositors, each tending to hold bank-deposits in a fixed ratio, and yet each moved by independent causes! By what happy coincidence will these two tendencies work together? Or what is the causal relation between them? And if, for some yet to be discovered reason, Professor Fisher should prove to be right, and there should be a fixed ratio between M as a whole and bank-deposits, would it not indeed be a miracle if all three "fixed ratios" kept together? Bank-deposits, indissolubly wedded to three independent variables[164] (independent, at least, so far as anything Professor Fisher has said would show, and independent in large degree, certainly, so far as any reason the present writer can discover), must find their treble life extremely perplexing. May it not be that Professor Fisher has pointed the way to the real fact, namely, that bank-deposits are subjected to a multitude of influences, no one of which is dominant, which prevent any fixed ratio between bank-deposits and any other one thing? At a later point, I shall maintain that this is, indeed, the case. Be it noted further, however, that even if we grant a fixed ratio, on the basis of Fisher's argument, between M and M´, Fisher has offered no jot of proof that the causation runs from M to M´. He simply assumes that point outright. "Any change in M, the quantity of money in circulation, _requiring as it normally does a proportional change in M´_, the volume of deposits subject to check." (_Ibid._, p. 52, Italics mine.) For this, no argument at all is offered. A fixed ratio, so far as causation is concerned, might mean any one of three things: (a) that M controls M´; (b) that M´ controls M; (c) that a common cause controls both. Fisher does not at all consider these alternative possibilities. I shall myself avoid a sweeping statement as to the causal relations among the factors in the equation, because I do not think that any of the factors is homogenous enough, as an aggregate, to be either cause or effect of anything. But if a generalization concerning these magnitudes were required, I should be disposed to assert that the third alternative is the most defensible, and that to the extent that M and M´ vary together it is under the influence of a common cause, namely, PT! That is to say, that the volume of bank-deposits and the volume of money tend to increase or decrease in a given market--and Fisher's theory is a theory of the market even of a single city[165]--_because of_ increases or decreases in PT (considered as a unitary cause rather than as two separate factors) in that market. But I shall not put my proposition in quite that form, as I find the factors in the equation of exchange too indefinite for satisfactory causal theory. So much for the validity of Fisher's argument, assuming the facts to be as he states them. Are the statements correct? Do banks tend to keep fixed ratios between deposits and reserves? Do individuals, firms, and corporations tend to keep fixed ratios between their cash on hand and their balances in bank? Regarding this last tendency, Professor Fisher says in a footnote on p. 50, "This fact is apparently overlooked by Laughlin." I think it has been generally overlooked. I have found no one who has discovered it except Professor Fisher. Certainly no depositor whom I have consulted can find it in his own practice--and I have put the question to "individuals, firms, and corporations." The further statement which Professor Fisher adduces in its support does not prove it, namely, that cash is used for small payments, and checks for large payments.[166] It would be necessary to go further and prove that large and small payments bear a constant ratio to one another, and further, that velocities of money and of bank-deposits employed in these ways bear a constant relation. If Fisher has any concrete data, of a statistical nature, to support the doctrine of a constant ratio between bank-balance and cash on hand in the case of individual depositors, he has failed to put them into his book. Nor is there any statistical evidence offered in the case of banks. It should be noted here that finding a general average for a whole country or community would not prove Fisher's point. General averages give no concrete causal relations. Fisher's argument, moreover, starts with individual banks and individual deposit-accounts (pp. 46 and 50) and generalizes the individual practice into a community practice. He would have to offer data as to individual cases. While general averages could not _prove_ the contention of a constant ratio between reserves and deposits for individual banks, general averages can _disprove_ the contention. A constant general average would be consistent with wide variation in individual practices, on the principle of the "inertia of large numbers." But if the general average is _inconstant_, it is impossible that the individual factors making it up should be constant. This disproof is readily at hand, both for the ratio of deposits to reserves in the United States, and for the ratio of demand obligations to reserves among European banks (most of which do not make large use of the check and deposit system). For the United States, from 1890 to 1911, taking yearly averages, we have a variation in the ratio of reserves to deposits of over 73% of the minimum ratio. The ratio was 26% in 1894, and 15% in 1906. "The juxtaposition of these extreme variations shows how inaccurate is the assumption that the deposit currency may be treated as a substantially constant multiple of the quantity of money in banks."[167] For New York City, the annual average percentage of reserves of Clearing House banks to net deposits varies from 24.89% in 1907 to 37.59% in 1894.[168] The extreme variations[169] in weekly averages are (for the sixteen years, 1885-1900) 20.6% in August, 1893 and 45.2% in February, 1894. These figures are extreme, since the number of occurrences is small for them, but there are numerous occurrences of deviations from the mean as wide apart as 24% and 42%.[170] The yearly fluctuation in all these ratios is very great. The ratio of money held by the banks and money held by the people also shows wide variation, and considerable yearly fluctuation. There is a further complication, for the United States, of varying proportions of the total monetary stock held by the Federal Treasury. As between the banks and the public, the banks held about a third in 1893 (average for the year), and nearly half in 1911.[171] Whatever may be the relations between money in the hands of the people, money in banks, and volume of deposits, in "the static state," there is no statistical evidence whatever to justify the notion of fixed relations among them in real life.[172] We shall later show that there can be no static laws whatever governing the relations of credit and reserves.[173] For European banks, the case is equally clear. European bankers deny any intention of keeping any definite reserve ratio. This appeared very clearly in the "Interviews" obtained for the Monetary Commission with leading European bankers.[174] The Banque de France increased its gold reserves, between 1899 and 1910, by 75%, but increased its discounts and advances during the same period by only 5%.[175] J. M. Keynes[176] points out that the reserves of the great banks of the world, and of Treasuries which act as central banks, have absorbed an enormous part of the gold produced in the fifteen years before the War, increasing their holdings from about five hundred million pounds sterling in 1900 to one billion pounds sterling at the outbreak of the War. "The object of these accumulations has been only dimly conceived by the owners of them. They have been piled up partly as the result of blind fashion, partly as the almost _automatic consequence_, in an era of abundant gold supply, of the particular currency arrangements which it has been orthodox to introduce.... The ratios of gold to liabilities vary very extremely from one country to another, without always being explicable by reference to the varying circumstances of those countries.... The contingencies, against which a gold reserve is held, are necessarily so vague that the problem of assessing the proper ratio must be, within wide limits, indeterminate. It is natural, therefore, that bankers, who must act one way or the other, should often fall back on mere usage or accept _that amount of gold as sufficient_ which, _if they are chiefly passive, the tides of gold bring them_. [Italics mine.] At any rate, the management of gold reserves is not yet a science in most countries. There is no ideal virtue in the present level of these reserves. Countries have got on in the past with much less, and under force of circumstances could do so again." It will be noticed that Keynes, in the passage cited, is speaking of _gold_ reserves, while Fisher's contention relates to all kinds of money available for reserves, which in this country would include gold, silver dollars, greenbacks, and, for many State banks, the notes of national banks. He is also talking of the relation of reserves to demand _liabilities_, which for most great European banks are primarily notes, rather than of reserves to deposits. But as an exposition of the theory of the ratio of reserves to deposits (the chief liability of American banks), it is applicable to American conditions, and as a statement of the facts, it of course gives a basis for testing Fisher's doctrine generally. I do not think that Fisher's fixed ratio, as between reserves and deposits, or even the ratio which more moderate quantity theorists might seek to find between gold and demand liabilities, will find any justification in the facts of banking history.[177] A factor which has developed on a grand scale in recent years has tended still further to weaken any tendency that may be supposed to exist toward a fixed ratio between money-reserves and demand-liabilities. I refer to the gold exchange-standard, in India, the Philippines, and elsewhere, and to the practice of the great banks of the continental countries of Europe, particularly the Bank of Austria-Hungary, of holding foreign gold bills, rather than gold exclusively, as reserve to cover note issue. In the case of the Austro-Hungarian Bank, which has carried this practice to the extreme, all possibility of a fixed ratio between gold reserves and demand-liabilities has vanished. The ratio is highly flexible. When bills are cheap, _i. e._, when the exchange is "in favor" of Austria-Hungary, the Bank buys bills with gold; when bills are high, when the exchanges have turned "against" Austria-Hungary, the Bank sells bills for gold. Commonly, the holder of a note of the Austro-Hungarian Bank does not ask for it to be redeemed in gold, but in foreign exchange. The reason for this practice on the part of the Bank is primarily economy. A large holding of gold would represent idle capital--a heavy burden for the Bank of a debt-ridden and poorly developed country. Foreign bills, however, serve equally well for maintaining the value of the bank-notes, and at the same time bear interest.[178] A similar practice has been employed by the Reichsbank, by the National Bank of Belgium,[179] by virtually all the debtor countries of Europe, and the great trading countries of Asia. Confidence in these conclusions is much increased by a study of the views of Professor Taussig.[180] Professor Taussig is, in his initial formulations of his doctrine, a quantity theorist. In a situation where only money is used, credit being excluded, in effecting exchanges, he would hold that the quantity theory correctly accounts for prices. He is fond of the old formulation, as a first approximation, even in dealing with the complex facts of modern banking. But he does not dodge the complex facts, and his theory becomes, substantially, first, a general formula, and second, an elaborate body of qualifications and exceptions, the latter making up the major part of the theory. His doctrine regarding the relation of money and credit is as follows: there is, in the long run, a real _limitation_ on elastic credit instruments in the quantity of _specie_. (This is very different from the assertion that there is a _fixed_ ratio between _deposits_ and _money_ in circulation, including paper, bank-notes, etc., in money. The present writer has no quarrel with the doctrine that the gold supply of the _world_ imposes _outside_ limitations on the _possible_ expansion of credit.) The limitation, Taussig holds, comes in two ways: (1), in the connection between prices in any one country, and prices in the world at large; (2), in various links of connection between the volume of deposits (and of notes elastic like deposits) and the quantity of specie. I shall consider at a later point the relation between prices in different countries.[181] I shall there maintain that the quantity theory, which explains gold movements on the basis of price-_levels_ in different countries, is inadequate; that not price-levels, but particular prices, of goods most available for international trade, are of primary importance, and that of these particular prices, one, namely the "price of money," or the short time money-rate, is most significant of all. For the present, I wish to analyze the linkages which Taussig finds between elastic credit instruments and specie, and to see how far they would go, not in proving Taussig's point (with which I have little quarrel) but in proving Fisher's contentions. The points involved are: (a) _Direct necessity_ constrains the bankers to keep _some_ cash on hand.[182] This fixes a _minimum limit_ (Taussig's contention), but does not at all suggest a "normal ratio" (Fisher's contention). (b) _Binding custom_, as to the proper amount of reserve that banks should carry, particularly important in connection with the Bank of England, but also in evidence in the Banque de France and the Reichsbank. Here again, however, minimal, rather than fixed, ratios are suggested. Limitations on the _expansion_ of credit these customs may impose, but they by no means determine a normal, or average amount of credit expansion--in England least of all, since there is so large a flexible element in the deposits of the Joint Stock Banks, whose reserves are largely secret. The statement _supra_ quoted from Keynes, together with the testimony of European bankers, may be considered in connection with this point, also, as to the factors determining the reserve policies of the great European banks. The extent to which custom really binds is doubtful. (c) _Direct regulation by law_, peculiar to the United States. Here again, a minimum, rather than a fixed ratio, is indicated. Some _limitation_ on credit expansion by the banks is caused by this at times, but Fisher's argument would require vastly more. (d) _The interaction in the use of deposits, notes, and other constituents in the circulating medium._ The point involved here is that different kinds of business call for different kind of media. Small retail business is not done with hundred dollar bills, nor are stocks and bonds bought with pennies. Limiting the size of bank-notes to five pounds in England compels the use of a large amount of gold for smaller transactions, and keeps a larger amount of gold in use than would otherwise be the case. Expanding business draws cash from the banks for circulation, trenching on reserves. That Professor Taussig has a point here is not to be doubted, but how closely it limits the expansion of credit will depend on the degree to which different kinds of media of exchange really _are_ thus specialized. In a country like the United States, where checks may be used for virtually any transaction of over a dollar, and where small change for less than a dollar will be increased by the Government to meet the demands of trade, the point would not seem to involve a practically serious limitation. Finally, Professor Taussig recognizes a coefficient with the quantity of specie in the _temper of the business community_. Whether or not deposits are to expand, depends not only on reserves, but also on the attitude of borrowers. Taussig concludes: "Thus there is only a rough and uncertain correspondence of bank expansion with bank reserves; much play for ups and downs which have no close relation to the amount of cash in bank vaults, _and still less direct relation to the amount of money afloat in the community at large_. Where bank media, whether in the form of deposits or notes, are an important part of total purchasing power, the connection between general prices and quantity of 'money' is irregular and uncertain." (Italics mine.) This conclusion would be of little service in supporting Fisher's rigorous contentions! Our constructive theory concerning the relations of reserves and deposits, or reserves and demand liabilities, must wait for later discussion, in the chapter on "Bank Assets and Bank Reserves" in Part III. It will there be maintained that there are no "normal" or "static" laws governing the percentage of reserves to demand liabilities, or to deposits, that the reserve function of money is a _dynamic_ function, and that its whole explanation must be found in dynamic considerations. For the present, I am content to have analyzed two widely divergent views, one the extreme view of Professor Fisher, representing the quantity theory in its utmost rigor, and the other, the view of Professor Taussig, who virtually surrenders the quantity theory in complex modern conditions. In between these two writers, verging more toward Fisher than toward Taussig, will be found, with great individual variation, the rest of the quantity theorists. The quantity theory, as an instrument of prediction, becomes important only to the extent that Fisher's view is maintained. CHAPTER X "NORMAL" VS. "TRANSITIONAL" TENDENCIES The Quantity Theory, as a causal theory, is, then, little altered by the passage from a hypothetical, creditless economy to the actual world, where a vast deal of credit is used,--particularly in Professor Fisher's hands. Of the different kinds of credit, only deposits subject to check are recognized as directly influencing prices, and deposits subject to check are controlled by the volume of money. The causal theory[183] remains, then, as follows: if M be increased, it will increase M´ proportionately; it will not change the V's; it cannot increase T; to keep the equation straight, therefore, P must rise in proportion to the rise in M. A decrease of M, reducing M´ proportionately, leaving V's and T unchanged, must proportionately reduce P. P is passive. A change in P cannot sustain itself, unless it be due to a prior change in T, the V's, M or M´. This theory is set forth with the qualification that these effects are the "normal" effects of the changes in question. The proportion between quantity of money and price-level is not strictly maintained during "transition periods." I now approach the most difficult question which I shall have to answer as to the meaning of Fisher's terms. The same problem arises for all quantity theorists. Precisely what is the distinction between "transition periods" and "normal periods"? What limitations and qualifications does he admit to the rigorous statement of his theory so far given? I may first express the opinion that the line shifts greatly in his own mind, or at least shifts greatly in the exposition. I do not find an explicit statement in which definitions are given. The matter is chiefly discussed by Fisher in ch. 4,[184] which is called "Disturbance of Equation and of Purchasing Power during Transition Periods." There we find, as I have stated, no definitions, but the initial statements would suggest the following: a transition period is the period following a change in any one of the factors in the equation during which a readjustment among all the others is taking place; the normal period is the period preceding such a change, or following the transition after such a change, and is characterized by the fact that all the factors are at rest, in stable equilibrium. Equilibria during transition periods are unstable. During the transition, the relations among the factors vary: M and M´ need not keep their fixed ratio; P need not be wholly passive; M and P need not keep the same proportion. But until M and M´ get back into the normal ratio, until P becomes proportional to M (in the proportion prior to the initial disturbance), there is no rest; the equilibrium is unstable. How long is a transition period? How realistic is the notion of a transition period? Is the transition period a theoretical device, to aid in isolating causes, or is it supposed to be a real period in time? Is the normal period a real period in time, or is it merely a theoretical hypothesis? It is not easy to answer these questions. Thus (p. 72) the seasonal fluctuations are declared to be "normal and expected," and, at the same time, one gets the impression that Fisher considers them illustrations of his "transitions," in which the normal theory does not strictly hold (pp. 72, 169). What is described chiefly in the chapter on transition periods is the business cycle--a theory of the business cycle, based primarily on the notion that the failure of interest to rise as fast as prices rise causes the "boom," and that the draining of bank reserves precipitates the crisis. I shall not discuss this theory, as a theory of business cycles, further than to say that Wesley Mitchell's study would indicate that the interest rate is a minor factor, and that, while as a theoretical possibility, the drains on bank reserves may check prosperity if something else doesn't do it first, practically something else always does come in ahead, so far as his studies have gone.[185] My interest here is primarily in seeing the limitations Fisher imposes on his theory, and the qualifications he admits. If the business cycle is the typical transition period, during which his normal theory doesn't hold, when does the normal theory hold? When are the "normal periods"? There is no concrete period during which prices are neither rising nor falling, during which no important changes are taking place among the factors.[186] At times, Fisher seems to indicate that the normal period is imaginary (pp. 56, 159). Is, then, the contrast between a realistic "transition period" and a hypothetical "normal period" or are both hypothetical? Is the equation of exchange, too, a mere hypothesis? It should be, if it is to set forth a merely hypothetical theory. But no, Fisher insists on putting concrete data into it, and, indeed, gives an elaborate statistical "proof" of the equation. It, at least, is realistic. I confess that my certainty as to Fisher's meaning grows less, as I study his book with greater care. If the typical transition period be the business cycle, then the normal period could come only once, say, in ten years--or whatever period, regular, or irregular, one chooses to assign to the business cycle. The concrete price-levels for the greater part of the time are then surrendered to other causes. And the one-year cycle described in the equation of exchange is quite irrelevant. The equation of exchange should cover the whole business cycle, to fit in with the theory. Indeed, a realistic equation of exchange would then have no meaning at all, as the average price-level during the business cycle, played upon by a host of causes other than the factors described in the quantity theory, would not be the same as the average price-level which _would have_ obtained had only the "normal" causes been in operation.[187] The distinction between "normal" and "transition" _periods_ suggests a dangerous fallacy: namely, that during one period one sort of causation is working, with the other in abeyance. In fact, whatever causes there are are working all the time. The only legitimate thing is to abstract from one set of causes, and see what the other set, if left to themselves, will bring about. But this sort of abstraction has many dangers, one of which is that the causes abstracted from are frequently thought of as non-existent. The chemist, in his laboratory, can in actual physical fact abstract impurities from his chemicals, and see what they will do. He can even perform experiments in what is practically a vacuum. But the economist has no right to _think in vacuo_! All that he has a right to do is to assume the factors which he does not wish to study _constant_. And even that he must not do if (1) changes in the factors which he wishes to study do in fact lead to changes in the factors abstracted from, or (2) if the factors which he wishes to study can only change _because_ of prior or concomitant changes in the factors from which he is abstracting. Is it, for example, legitimate to assume an increase in M´ apart from its usual accompaniment, an increase in PT? The notion, too, that causation can be seen in a state of stable equilibrium should be critically analyzed. Causation is only _revealed_ by a _course of events_, when mechanical causation is involved. The relation of cause and effect may be a contemporaneous relation in fact, and it is possible, where conscious, psychological phenomena are involved, to discern causal relations among the elements in a mental state by direct introspection. It is the not uncommon practice, also, in the theory of mechanics, or in theoretical economics, where the method of investigation is deductive rather than inductive, to abstract from the temporal sequence, and to construe causal relations as timeless, logical relations. But even here, the cause of a _change_ in the general situation precedes the change in time, and it is only by abstraction that the time element is left out. If there is no question as to the causal relations, this abstraction is legitimate, but if all that one knows about the situation be that in a stable equilibrium certain constant ratios obtain, then the question as to which term in the ratio is cause and which is effect remains unanswered. In Fisher's situation, then, assuming that it be true--which I shall deny--that the only stable equilibrium is that which the normal theory requires, it still remains true that the causal relations among the factors can only be revealed by a study of the transitions, by seeing the temporal sequence of changes in the factors of the equation. Even if it be granted that M, M´ and P tend to keep a constant relation to one another, the quantity theory falls if, for instance, it can be shown that a change may first occur in P, spread to M´, and finally reach M last of all, leading to a new normal equilibrium which is stable. I shall later show cases of this sort.[188] The abstract formulation of Fisher's contrast will not, I believe, give us an answer as to the extent to which he thinks his quantity theory realistic. I find myself particularly in genuine uncertainty as to the point mentioned above: would an actual equation of exchange for the whole business cycle, made up of the averages of M, M´, V, V´, P and T for the whole period, exhibit the "normal" relations among these factors? Or would this "normal" relation only emerge concretely at some moment of time in the course of the cycle when the abnormal causes affecting the price-level happened to offset one another? Or is it true that no actual figures which might be found, either for a moment of time, or as averages for any given period, will exhibit the relations required, and that only a hypothetical equation, based on the figures for M, M´, V, V´, P and T that _would have been realized_ had there been no "disturbing" causes, will show these "normal" relations? If, as Fisher at times indicates--as in his reference to Boyle's Law (p. 296)--he is stating only an abstract tendency, which may be neutralized by other tendencies in the situation, so far as concrete results are concerned, then it is this last doctrine which we must take, and the concrete equation of exchange has little if any relevance. If, moreover, this last interpretation be given, then the whole of Fisher's elaborate statistical "proof" is pointless. The only sort of statistical proof which would be relevant would be of a much subtler sort, not a mere filling out of the equation of exchange by means of annual figures, but an effort to disentangle and measure the _importance_ of his tendency, as compared with other tendencies. But we have the other tendencies merely mentioned in qualitative terms, and we never find any definite statement, of mathematical character, as to how important they are. It seems pretty clear, however, that on the whole, despite occasional suggestions that his theory is abstract, Fisher means his theory to be the overwhelmingly important point in the explanation of actual price-levels. He is particularly insistent on the high degree of the generality of his contention that P is passive. Thus: "So far as I can discover, _except to a_ LIMITED _extent during transition periods, or during a passing season_, (_e. g._, _the fall_) (capitals mine, italics Fisher's), there is no truth whatever in the idea that the price-level is an independent cause of changes in any of the other magnitudes, M, M´, V, V´, or the Q's."[189] On p. 182 he enumerates in a series of propositions his general normal theory, and adds, as the first sentence of proposition 9: "Some of the foregoing propositions _are subject to_ SLIGHT _modification during transition periods_." (Italics and capitals mine.) And the general drift of the argument, particularly in chapter 8, where the heart of Fisher's causal theory is presented, would indicate that the concessions he is disposed to make are very slight, indeed. The question as to how long a _time_ is required, in Fisher's view, for a transition to occur, and for his normal tendencies to dominate, is nowhere made clear. The quantity theory, in the hands of some writers, is a very long run theory, for others, it is a short run theory. Thus, Taussig would make the "run" exceedingly long.[190] Mill makes it a short run theory. "It is not, however, with ultimate or average, but with immediate and temporary prices, that we are now concerned. These, as we have seen, may deviate widely from the standard of cost of production. Among other causes of fluctuation, one we have found to be, the quantity of money in circulation. Other things being the same, an increase of the money in circulation raises prices, a diminution lowers them. If more money is thrown into circulation than the quantity which can circulate at a value conformable to its cost of production, the value of money, so long as the excess lasts, will remain below the standard of cost of production, and general prices will be sustained above the natural rate."[191] I pause to note that it is really strange that a single name should describe theories so different, resting on such essentially different logic. Long run or short run theories, all are "quantity theories," whether "money" be defined as gold, or as all manner of media of exchange, or as only those media of exchange which pass from hand to hand without endorsement. Fisher would doubtless call his theory a long run theory. From the standpoint of the notion that "prices ... lag behind their full adjustment and have to be pushed up, so to speak, by increased purchases,"[192] however, we get a short run quantity theory doctrine. The logic of these two is very different. The short run doctrine seeks to explain the actual process of price-making in the market. Money is offered against goods, and the actual quantities on each side determine the momentary price-level, concretely. Or, when credit is considered, money and credit offered against goods, at a given time, or in a given short period, determine the actual price-level reached. This is the logic of the equation of exchange--actual money paid is necessarily equal to actual money received. The long run doctrine is fundamentally based on a different notion. Surrendering the actual or average of price-levels to other causes, in part, it still asserts that, given time enough, and barring new disturbing tendencies, a price-level will ultimately be reached which will bear it out. I find no recognition, on Fisher's part, of the fact that these two doctrines are different, and, in fact, I find them blended and confused in the course of his argument. He would doubtless maintain that his is a long run doctrine. But how long is the "run"? Sometimes it seems to be, as already shown, a whole business cycle. Sometimes a passing season, as the fall. When he undertakes to apply his theory to a practical proposal for regulating the value of money, he relies on the quantity theory tendency to bring about adjustments so quickly that it is worth while to make _monthly_ adjustments in anticipation of it.[193] When discussing the changes in gold premium on the Greenbacks during the exciting times of the Civil War, he relies so thoroughly on his theory that he will not allow even the rapid change of four per cent in a single day following Chickamauga to occur except in conformity with the quantity theory. This last statement is so remarkable that I must quote Fisher himself: "It would be a grave mistake to reason, because the losses at Chickamauga caused greenbacks to fall 4% in a single day, that their value had no relation to their volume. This fall indicated a slight acceleration in the velocity of circulation, and a slight retardation in the volume of trade" (263). It would be indeed remarkable if the changes in the gold market, which got war news before the newspapers got it, and where changes in gold premium occurred before the rest of the country could possibly react to the war news, should be controlled by V and T! I had not supposed that the most rigorous of short run quantity theorists would make any such demands on his theory as that. Indeed, I had not supposed that the quantity theory would feel called on to explain the gold premium, as such, except in so far as the gold premium is an index of general prices. Finding it impossible to limit Fisher to any single statement of the quantitative importance of his normal theory as compared with the other tendencies at work, but concluding that, on the whole, he considers it of high importance, I shall now proceed to an analysis of the reasoning by which he seeks to justify it as a _qualitative_ tendency. I shall maintain that, however long or short the period required, however strong or weak the tendency he defends, the reasoning by which he seeks to justify it is unsound, and that even as a qualitative tendency, the quantity theory is invalid. At a later part of the book, as in an earlier part,[194] I shall undertake to find the modicum of truth which the quantity theory contains, and shall show that no quantity theory is needed to exhibit this modicum of truth. CHAPTER XI BARTER In the statement of the quantity theory, the proviso is commonly made that all exchanges must be made by means of money, or of money and bank-credit. Barter is excluded by hypothesis. If resort to barter were possible, then people might avert the fall in prices due to scarcity of money, or increase in trade, by dispensing with money in part of their transactions, and the proportional decrease in prices which the quantity theory calls for would be lacking. Is this assumption true? Is barter banished from the modern world, or does it remain reasonably possible, and, to a considerable degree, actual? Fisher maintains the thesis--the failure of which he admits would spoil the quantity theory[195]--that barter is practically impossible, and negligible in modern business life. "Practically, however, in the world to-day, even such temporary resort to barter is trifling. The convenience of exchange by money is so much greater than the convenience of barter, that the price adjustment would be made almost at once. If barter needs to be seriously considered as a relief from money stringency, we shall be doing it full justice if we picture it as a safety valve, working against a resistance so great as almost never to come into operation, and then only for brief transition intervals. For all practical purposes and all normal cases, we may assume that money and checks are necessities for modern trade."[196] This contention seems to me untenable. I think it can easily be shown that barter remains an important factor in modern business life, especially if one extends the term barter, a little, to cover various flexible substitutes for the use of money and checks in effecting exchanges. Clearly from the standpoint of the present issue, such an extension of the meaning of barter is legitimate, as any such substitutes would equally spoil the proportionality in the supposed relation between prices and money, or prices and trade. Where does one find barter? Well, not to be ignored would be the advertisements which fill many columns of such a paper as the New York _Telegram_ in the course of a week; "Wanted: to trade a well-trained parrot for a violin"--a trade that might, or might not, be a wise one! There is a good deal of such simple barter among the people. Then, perhaps more important, is the regular practice of sewing machine, piano, automobile, and other similar companies of taking part of the payment for a new machine, piano,[197] or automobile in the similar thing which the owner is discarding. The old machine, piano, etc., are then repaired, repainted, and sold again. This is a very extensive practice. Again, there are companies which combine the business of wrecking old houses and building new ones, who regularly take the old materials as part of their pay. This is a highly important feature of the organized building trade in great cities, and is frequently done in small towns. The building trade is no negligible matter. The "horse-trade" still thrives in rural regions, and barter of various kinds, of live stock, of grain and hay, of fresh and cured meat, and of labor, is an important feature in rural life in many sections. Much of agricultural rent in the South is still paid in kind, under the "share system." Much labor, especially farm and domestic labor, is still paid for partly in kind. Where payments for labor are made in orders on company stores, we have again what is virtually barter, from the standpoint of the point at issue. _Real estate_ transactions make large use of barter. Farms are exchanged for one another, with some cash (or more usually, a promissory note) "to boot." The writer has repeatedly heard real estate men say to customers: "I can't sell it for you very easily, but I can trade it off, and maybe you can sell what you trade it for." This is perhaps more frequent in rural real estate transactions, and in the smaller cities, than in large cities, but it is very extensive in New York City.[198] Again, when corporations are to be combined, various plans are possible. There may be a merger; there may be a holding corporation; there may be a lease. If the money market is easy, one of the former methods will be used,--most frequently, for legal reasons, the holding corporation, if there are any valuable franchises involved. But mergers and holding corporations commonly involve buying out the interests which are to be absorbed, and call for the use of checks. If the money market is tight, therefore, the promoter of the combination may frequently find the lease the more advantageous form of consolidation.[199] The great advantage of the lease is that, when the money market is tight, it involves no _financial plan_, no underwriting, no outlay of "cash." This is, therefore, an equivalent of barter, so far as the point at issue is concerned. Even where a holding corporation is formed, however, there may be considerable barter: the stockholders of the corporation which is absorbed may receive payment for their stocks, in whole or in part, in the securities of the holding company, rather than in checks. An era of financial consolidation, such as we have been passing through, and through which we have not by any means gone, though the movement toward _monopoly_ has been in great degree checked, presents a great deal of this sort of barter, or equivalents of barter.[200] A striking thing to notice here, moreover, is the flexible margin between use of bank-credit and barter, a margin depending primarily upon the condition of the money market, and particularly upon the money-rates. Not yet has the most important element in modern barter been mentioned. I refer to the "clearing-house" arrangements of the stock and produce exchanges. Under these arrangements, brokers who have sold ten thousand shares of Westinghouse El. and M. Common during the day, and bought seven thousand shares, buying and selling being in smaller lots, with a number of different houses, no longer are obliged to deliver ten thousand shares, receiving therefor $700,000, and to receive seven thousand shares, paying therefor $490,000. Instead, they deliver three thousand shares only to the clearing house, and receive from the clearing house only $210,000 when the transaction is, from the standpoint of the particular broker involved, completed. This is a far remove, in technical perfection, from primitive barter, but it is barter, and it saves the using of a vast deal of bank-credit as between brokers. How important it is, from the standpoint of the stock exchange, may be judged from the following statement in Sprague's _Crises Under the National Banking System_: "A much more fundamental change in the organization in the New York money market came with the establishment of the stock exchange clearing house in May, 1892. It led to a very considerable reduction in the _clearing-house exchanges of the banks_ and also, and more important, in the volume of certified checks. [Italics mine.] Overcertification of checks ceased to be a factor of the first magnitude in the banking methods of the city. Had not this arrangement for stock-exchange dealings been set up, it is probable that it would have been necessary to close the stock exchange in 1893 and in 1907, and it is also probable that the volume of business transacted in the years after 1897 could not have been handled." (P. 152.) The same arrangements have been widely introduced in other stock exchanges, and in the produce exchanges.[201] In general, with reference to barter, this point is significant. The money economy has made barter _easier_ rather than harder. It has made possible a host of refinements in barter, which make it at many points more convenient and cheaper than check or money exchanges. It is common to find our present methods of conducting foreign trade described as a "system of refined barter," which indeed, from the standpoint of the present issue, it is: bills of exchange are neither money nor bank-credit! Where bills of exchange are used in internal trade extensively--as in Germany, where they pass from hand to hand in several transactions before being discounted at banks[202]--we have a highly important substitute for money and deposits, which functions as barter,--flexibility of substitutes for money and deposits is strikingly evident. The feature of the money economy which has thus refined and improved barter is the _standard of value_ (_common measure of value_) function of money.[203] This standard of value function, be it noted, makes no call on money itself, necessarily. The _medium of exchange_ and "_bearer of options_" functions of money are the chief sources of such additions to the value of money as come from the money-use. But the fact that goods have money-prices, which can be compared with one another easily, in objective terms, makes barter, and barter-equivalents, a highly convenient and very important feature of the most developed commercial system. And so we reject another essential assumption of the quantity theory.[204] CHAPTER XII VELOCITY OF CIRCULATION For the quantity theory, it is important to treat velocity of circulation of money and of deposits, as self-contained entities, really independent factors. This is true of Fisher's theory. It is particularly necessary that V and V´ should vary from causes unconnected with M and M´. The V's are to be a sort of inflexible channel, through which M and M´ run in their influence on the passive P, which is to rise or fall proportionately with them. If an increase of M or M´ should lead to a reduction in the V's, if people, having more money available, should be less assiduous in using every bit of it in effecting exchanges, then P would not rise in proportion to the increase in M. Complete demonstration of Fisher's thesis, therefore, requires the proof of the negative proposition that V does not change as a consequence of changes in M or M´. This proof Fisher finds in the contention that the V's are fixed by the habits and conveniences of individuals, whence they are not influenced by such a cause as a change in the amount of money.[205] V is defined,[206] not as the number of times a given dollar is exchanged in a given year (the "coin-transfer" notion), but as a social average based on the average number of coins which pass through _each man's_ hands, divided by the average amount held by him (the "person-turnover" concept of velocity.) V´ is similarly defined. Fisher asserts that both concepts, if correctly employed, lead to the same result. I would point out one important difference between them here: if money is _short-circuited_, if, _i. e._, a part of the economic community loses its incomes, or finds its incomes reduced, then the "velocity of money," on the "coin-transfer" basis is reduced, provided the "person-turnover" average remains the same, while on the "person-turnover" basis the velocity will remain unchanged. It is clearly the "coin-transfer" concept which is fundamental, from the standpoint of the equation of exchange, and Fisher feels justified in using the other method only because he considers it an equivalent of the "coin-transfer" concept. I shall later show cases where the distinction between the two concepts is all-important, particularly in the case where T is reduced by the elimination of _middlemen_.[207] The conception of velocity of circulation as a real, unitary entity, a _cause_, in the process of price-determination, is, I suppose, almost as old as the quantity theory itself. It is an essential part of the quantity theory. To me "velocity of circulation" seems to be a mere name, denoting, not any simple cause or small set of causes, which can exert a specific influence, but rather a meaningless abstract number, which is the non-essential by-product of a highly heterogeneous lot of _activities of men_, some of which work one way, and others of which work in another way, in affecting prices. It is at best a passive _resultant_ of conflicting and divergent tendencies, and has, to my mind, no more _causal_ significance than the average of the abstract numbers of yards gained by both sides, heights and weights of players, kick-offs, and minutes taken out for injuries, would have on the result of the Yale-Harvard game. The real causes of changes in prices lie deeper! I should expect V and V´ to be the most highly flexible factors in the equation of exchange, and should expect to be able to keep the equation straight, in a great variety of situations, by allowing the V's to vary. Before undertaking detailed analysis of the causes governing V, I shall discuss Fisher's specific argument, typical of the quantity theory, that an increase of money cannot change the V's. "As a matter of fact, the velocities of circulation of money and deposits depend, as we have seen, on technical conditions, and bear no discoverable relation to the quantity of money in circulation. Velocity of circulation is the average rate of 'turnover,' and depends on countless individual rates of turnover. These, as we have seen, depend on individual _habits_. Each person regulates his turnover to suit his individual _convenience_.... In the long run, and for a large number of people, the average rate of turnover, or what amounts to the same thing, the average time money remains in the same hands, will be closely determined. It will depend on density of population, commercial _customs_, rapidity of transport, and other technical conditions, but not on the quantity of money and deposits nor on the price-level." (Italics mine.[208]) He proceeds to assume that money is doubled with a _halving_ of the V's, instead of a _doubling_ of P. Everybody now has on hand twice as much money _and deposits_ as his convenience has taught him to keep on hand. He will then try to get rid of this surplus, and he can only do it by buying goods. But this will increase somebody else's surplus, and he will likewise try to get rid of it. This will raise prices. "_Obviously_ this tendency will continue until there if found another adjustment of quantities to expenditures, and the _V's are the same as originally_."[209] The foregoing argument rests in part, it will be seen, on the assumption that a fixed ratio between M and M´ obtains, else the increase of _money_ in everybody's hands would not mean a corresponding increase in their _deposits_. I have already criticised this doctrine. For the contention that the V's will finally be _just the same_ as before, I find no specific argument at all--"_obviously_" presumably making that unnecessary. As the point immediately at issue is that V's will be _unchanged_ by the increase in M (otherwise P would not increase _proportionately_--let us see if considerations can be adduced which will make this a little less "obvious." First, it will be noticed that Fisher, in the foregoing, in one sentence speaks of the matter as resting on _habit_, and in the next sentence, on _convenience_. He speaks, also, of business _custom_. Now it is important to note that habit and custom, on the one hand, and considerations of convenience on the other, do not necessarily coincide. Many habits and customs are highly inconvenient. And it is not at all likely that habit and custom should govern so highly complex a thing as the ratio between cash on hand and the price-level. Rather, in so far as custom and habit rule, one would expect them to relate to a simpler matter, namely, the _amount of cash on hand_. If the amount of cash kept on hand should remain controlled by habit, while the amount of money is increased, then V, instead of remaining unchanged, would actually be increased, unless the habits should be broken in on. I shall show in a moment that considerations of convenience would probably lead to a reduced V, in so far as individual turnover is concerned. But which tendency will prevail? Well, that will depend on the degree to which custom and habit rule as compared with considerations of convenience--_i. e_., there would be no rule valid for all communities. That convenience would lead to a larger amount of money on hand--and I am following Fisher's temporary hypothesis that there has been no rise in prices prior to the movement to restore the V's to their old magnitudes--will appear from considerations like these. Few men have as much on hand as they would like to have, including both their cash in hand and their deposit balances. Most people have the tendency to hoard, though it is usually held in check by necessity. If money on hand be increased suddenly, without prices being increased, and without any prospect of increased incomes in the future--and there is nothing in Fisher's provisional hypothesis to call for increased incomes, as they could, in fact, come only from an increase in prices--why might not there be a considerable saving of money, with a corresponding reduction in V? If it be objected that people, in saving their money, will in considerable degree put it into the banks, and that the banks, with larger reserves, will increase loans and deposits, I would urge, that it is on the part of banks that this tendency to increase hoards in times of abundant money is particularly marked, and for proof would point to the figures quoted from Keynes[210] for the great banks and treasuries of Europe in the last fifteen years. It is not necessary for my purpose at this point to do more than show that there is reason to expect an increase in money to _change_ the V's. Fisher's argument rests on the contention that the V's will be neither increased or reduced--otherwise an increase in money will not _proportionately_ raise prices. The appeal to habit and custom in the matter is particularly unsatisfactory. Custom and habit could not possibly regulate things so complex as velocities of money and bank-deposits. Whatever be the ultimate effect of an increase in money, the immediate effect is commonly to reduce the money-rates. Banks have less inducement to pay interest on deposits, and charge lower rates for loans. Now merchants, especially small merchants, are often embarrassed in making change for customers. The man who has tried to make payment with a ten dollar bill in a country store has not infrequently put the storekeeper to much inconvenience. To offer a ten dollar bill, or even a five dollar bill, to a storekeeper on Amsterdam Avenue in New York City may well mean that the one clerk in the establishment, or the proprietor's wife will run out with the bill to three or four neighboring stores before finding change with which to break it. If money is more abundant, if money-rates are easier, for a time, it may easily happen that many small merchants will experience the superior convenience of having a more adequate amount of change in the till, and will, even after the money-rates have risen--if they do rise again to the old figure--find a new reason for keeping more cash on hand. There is a marginal equilibrium between the interest on the capital invested in cash in the till, and the wages of the clerk,[211] whose active legs assist the velocity of money. Not only banks and small dealers, however, find it advantageous to increase their supply of ready funds, held idle for special occasions. The United States Steel Corporation has kept as much as $50,000,000.00 to $75,000,000.00 in idle cash or idle deposits, as a means of being independent of banks in times of emergency.[212] The motive for accumulating reserves and hoards, either of cash or deposit accounts, is at all times strong. In times of financial ease, it may easily find the difficulties which ordinarily repress it give way, and, by being gratified, grow stronger. I conclude that there is positive reason for expecting an increase of money to reduce the velocity of money. Horace White, in his _Money and Banking_, in the earlier editions, speaks of the velocity of money, "_alias_ the state of trade." Is not this the truth? Is not money circulating rapidly, when business is active, and slowly when business is dull? Is not the velocity of circulation a highly flexible and variable average, a _cause_ of nothing, and an index of business activity? Or, better, perhaps, are not the V's and T both governed, in large degree, by more fundamental causes which are largely the same for both? Fisher would admit something of this for transition periods. Even for normal adjustments, he admits that an increase in T, unaccompanied by an increase in M, leads to some increase in the V's, though he doesn't say how much.[213] He denies, however, that an increase in the V's will increase T.[214] In general, it is clear that he regards the V's and T as governed by different causes. The control of the V's by T is not the only or the chief control of the V's. The V's can increase greatly without an increase of T, in his scheme. That this is so, will appear from a comparison of the list of causes which he gives as governing the V's and T respectively: Causes governing V's: 1. Habits of the individual. (a) As to thrift and hoarding. (b) As to book credit. (c) As to use of checks. 2. Systems of payments in the community. (a) As to frequency of receipts and disbursements. (b) As to regularity of receipts and disbursements. (c) As to correspondence between times and amounts of receipts and disbursements. 3. General causes. (a) Density of population. (b) Rapidity of transportation. Compare this list with the causes governing T:[215] 1. Conditions affecting producers: Geographical differences in Natural Resources; the division of labor; knowledge of technique of production; accumulation of capital. 2. Conditions affecting consumers: the extent and variety of human wants. 3. Conditions connecting consumers and producers: (a) Facilities for transportation. (b) Relative freedom of trade. (c) _Character_ of monetary and banking systems. (Not their _extent_.) (d) Business confidence. These two lists are quite different, and indicate that in Fisher's mind the magnitudes, T and the V's, in general obey different laws. The only factor in both lists is facilities for transportation ("rapidity of transportation," in the first list). Strangely enough, T, though later recognized as having influence on the V's[216] is not included in these lists in ch. 5. The "character of the monetary and banking systems" in the second list is evidently not the same as "use of checks" in the second list, though it will doubtless affect that factor, as also the "habits as to thrift and hoarding," in some degree. "Business confidence," which is, in the view I am maintaining, as in the view, I should take it, of Horace White, the great variable affecting both T and the V's, does not appear in the first list. Indeed, one wonders why business confidence appears in either list, if only "normal," and not merely "transitional" causes are to be considered, but it appears from the fuller discussion on p. 78 that Fisher is not thinking of business confidence as a _variable_ at all--his normal theory has nothing to do with _variables_--but as a thing which either is or is not present, a sort of Mendelian unit, not a thing of degrees.[217] It will be noted, further, that most of the causes which Fisher lists as affecting T are really causes affecting _production_--they would be just as important under a socialistic as under an exchange economy. Now I propose to show, on the basis of Fisher's own list of causes, that most, if not all, of the factors affecting the V's, will also affect T, _and in the same direction_. He admits this as to transportation facilities. It is surely true of thrift and hoarding. The miser neither circulates money nor buys goods. It is emphatically true--though Fisher's theory, as will later appear, is obliged to deny it,--of both book credit and banking facilities. Without the use of credit, much of the business now done simply would not be done at all. For Fisher, and the quantity theory in general, the contention would be simply that the same business would be done _on a lower price-level_. I reserve a full discussion of this fundamental point till later, noting here, in passing, that the function of banks is to assist in effecting transfers, that that is why, from the social standpoint, banks are encouraged, and that the extension of banking would be folly if they did not, in fact, do this. As to book credit, let us suppose that, for example, in the great cotton section of the South the stores should cease to give advances of supplies on credit to negroes and small white farmers, pending the "making" of the crop. The outcome would be starvation for many of them, and no cotton crop at all. Under a system of private enterprise, the very division of labor itself, including the specialization of the capitalist, involves credit, and it is difficult to conceive a form of credit which does not either dispense with the use of money, or increase its "velocity." Admittedly, the division of labor increases trade. The three factors listed under "Systems of payment in the community" also affect trade. To the extent that receipts are frequent, regular, and synchronous with outgo, we have a smoothly working economic system, which facilitates commerce. Finally, density of population enormously increases trade. The concentration of men in cities is essential for modern factory production, and the great cities have necessarily grown up about good harbors, or at strategic points for connecting lines of railroads. It seems almost trivial to insist on so obvious a point, but Fisher seems totally to ignore it, for he says: "We conclude, then, that density of population and rapidity of transportation have tended to increase prices by raising velocities. _Historically this concentration of population in cities has been an important factor in raising prices in the United States._"[218] (P. 88. Italics mine.) This is an astounding proposition. It is not merely that the concentration of population in cities has _tended_ to raise prices through raising velocities. It is a statement that this has been an important historical cause of the actual increase in prices. For Fisher's own theory, if the same cause had tended to increase T,[219] that would have offset the rising V's on the other side of the equation, and left prices little affected. But he sees in the V's an independent cause here, divorces them from their connection with T, and follows his logic fearlessly where it leads. I do not see how one could more strikingly illustrate the essential vice of erecting the V's into causal entities. In concluding the discussion of the rôle of velocity of circulation, I think it worth while to mention Fisher's own efforts to measure them. I examine his statistics in a later chapter. I do not regard the points at issue as points which can properly be handled by inductive methods, primarily. I do not accept his conclusions with reference to the magnitudes of V, the velocity of money, partly because I do not accept his doctrine that "banks are the home of money" (p. 287).[220] He finds for V a fairly constant magnitude during the thirteen years from 1896 to 1909, the range being from 19 to 22, the figures for all the years except 1896 and 1909 being interpolations.[221] For V, however, which is much the more important magnitude, from the standpoint of his equation of exchange for the United States, since deposits do so much more exchanging than does money, he finds a wide range of variation, from 36 to 54, and he states: "We note that the velocity of circulation has increased 50% in thirteen years and that it has been subject to great variation from year to year. In 1899 and 1906 it reached maxima, immediately preceding crises" (285). I think Fisher's own statistical results show that V´, at least, is a child of the "state of trade."[222] Critical analysis of these statistics show that they greatly underestimate the variability of the V's.[223] In summary: V and V´ are not, as Fisher contends, independent of the quantity of money. Instead of resting on "technical conditions," and having large elements of constancy and rigidity, they are highly flexible, and vary, on the whole, with the same highly complex and divergent sets of causes which govern the volume of trade. The biggest factor affecting the variations of the V's on the one hand, and volume of trade on the other is business confidence--a factor which Fisher's normal theory is not concerned with, so far as it is considered as a variable, but which, more than anything else, does affect the concrete figures which go into the equation of exchange, either for a single year, or for an average of a good many years. The V's are not true causal entities, but merely abstract summaries of a host of heterogeneous facts. I have indicated before, and shall later demonstrate more fully, that the same is true of T. Even the "normal" causes governing the V's, however, are factors which likewise affect T, and in the same direction. Among the factors affecting both V and T, there is one which sometimes makes them move in opposite directions, and that is the _value of money_ itself. This is so well stated in Wicksteed's interesting criticism of the quantity theory that I content myself with a quotation:[224] "Again, the history of paper money abounds in instances of sudden changes, within the country itself, in the value of paper currency, caused by reports unfavorable to the country's credit. The value of the currency was lowered in these cases by a doubt as to whether the Government would be permanently stable and would be in a position to honor its drafts, that is to say, whether this day three months, the persons who have the power to take my goods for public purposes will accept a draft of the present Government in lieu of payment. It is not easy to see how, on the theory of the quantity law, such a report could affect very rapidly the magnitudes on which the value of the note is supposed to depend, viz., the quantity of business to be transacted, and the amount of the currency. Nor is it easy to see why we should suppose that the frequency with which the notes pass from hand to hand, is independently fixed. On the other hand, the quantity of business done by the notes, as distinct from the quantity of business done altogether, and the rapidity of the circulation of the notes may obviously be affected by sinister rumors. Two of the quantities, then, supposed to determine the value of the unit of circulation, are themselves liable to be determined by it." CHAPTER XIII THE VOLUME OF MONEY AND THE VOLUME OF TRADE--TRADE AND SPECULATION In proving that an increase of money must proportionately increase prices, it is necessary to prove that the volume of trade is independent of the quantity of money and credit instruments by means of which trade is carried on. Money on the one hand, and quantity of goods to be exchanged on the other, are the two great independent magnitudes, whose equilibration mechanically fixes the average of prices. This notion, as to the essence of the quantity theory, finds expression in Taussig,[225] "The statement of a quantity theory in relation to prices assumes two independent variables: total money or purchasing power on the one hand, total supply of goods or volume of transactions on the other." Taussig, though he would maintain that this independence holds, so far as money and trade are concerned, admits that it breaks down so far as trade and elastic bank credit, bank-notes and deposits, are concerned. Trade and elastic bank-credit are largely _inter_dependent.[226] This concession on Taussig's part means virtually giving up the quantity theory for Western Europe and the United States and Canada, though Taussig still sees something left of the quantity theory tendency in view of the "irregular and uncertain" connection which he finds between money and bank-credit.[227] Fisher, however, makes no such surrender. He is quite as uncompromising as to the independence of _deposits_ and trade as he is with reference to the independence of _money_ and trade. He does, indeed, make the concession that increasing trade tends to increase deposits _indirectly_, by increasing the ratio of M´ to M, by modifying the habits of the people as to the use of checks as compared with cash (p. 165),[228] but he denies stoutly that there is any _direct_ relation between them. (P. 168.) Trade acts only _via_ a modification of the ratio between M and M´, and M still remains controlled, not by trade, but by quantity of money. As to any control over T by M´, he repudiates it explicitly, (P. 163.) Increasing M´, either through an increase of M, or through an increase in the normal ratio between M and M´, will have no effect on T,--or, for that matter, on the V's. The introduction of credit, therefore, leaves the quantity theory intact: an increase of M, increasing M´ proportionately, leaving the V's unchanged, and having no effect on T, must exhaust its influence on P, raising P proportionately, if the equation of exchange is to remain valid. The argument set forth to prove that T is not influenced by M or M´ is as follows: "An inflation of the currency cannot increase the products of farms or factories, nor the speed of freight trains or ships. The stream of business depends on natural resources and technical conditions, not on the quantity of money. The whole machinery of production, transportation and sale is a matter of _physical capacities and technique_, none of which depend on the quantity of money. The only way in which quantities of trade appear to be affected by the quantity of money is by influencing trades accessory to the creation of money and to the money metal.... From a practical or statistical point of view they amount to nothing, for they could not add to nor subtract one-tenth of 1% from the general aggregate of trade." (_Loc. cit._ p. 155. Italics mine.) Something similar is said on p. 62, where "transitional" influences of M on T are being discussed: "But the amount of trade is dependent, _almost entirely_, on other things than the quantity of currency, so that an increase of currency cannot, _even temporarily_, very greatly increase trade. In ordinarily good times practically the whole community is engaged in labor, producing, transporting, and exchanging goods. The increase of currency of a "boom" period cannot, of itself, increase the population, extend invention, or increase the efficiency of labor.[229] These factors pretty definitely limit the amount of trade that can reasonably be carried on. So, although the gains of the enterpriser-borrower may exert a psychological stimulus on trade, though a few unemployed may be employed, and some others in a few lines induced to work overtime, and although there may be some additional buying and selling which is speculative, _yet almost the entire effect_ of an increase in deposits must be seen in a change in prices. Normally the _entire_ effect would so express itself, but transitionally there will be also _some_ increase in the Q's." (Pp. 62-63. Italics mine.) Fisher is here exceedingly uncompromising, even where transitional periods are concerned, and it is not necessary, in order to do his position full justice, to make much distinction between "normal" and "transitional" effects in my counter-argument. I shall, however, take account of the distinction as I proceed, in justice to other, more moderate, quantity theorists. It is a familiar doctrine that the quantity of money is irrelevant, that things go on in much the same way whether money is abundant or scarce, the only difference being that in the one case prices are high and in the other, low; that, in particular, it is a gross fallacy to connect the rate of interest with the amount of money, since (as many writers would put it) the rate of interest depends on the amount of _capital_ rather than _money_. At the opposite extreme, we have writers like Brooks Adams (_Law of Civilization and Decay_), who see the fate of nations and the progress of civilization resting on the abundance or scarcity of money. Fisher takes the first position in its extremest form.[230] The truth, I think, is intermediate. The effects of the New World discoveries of gold and silver after the voyage of Columbus on trade and industry were tremendous. Trade was enormously increased. Walker, in his _Inter__national Bimetallism_,[231] asking, from the standpoint of a quantity theorist, why prices only increased 200% while money increased 470%, admits that the chief reason was the increase in trade, due in large part to the very increase in money itself. Sombart, in his _Der Moderne Kapitalismus_,[232] finds in this influx of money a tremendous source of capitalistic accumulations, (a) for the Conquistadores, (b) for the handicraftsmen whose prices rose faster than their costs, (c) for tenants whose rents were fixed in money, (d) for landowners, whose rents were fixed in kind [a point not obviously true], and (e) for bankers, as the Fugger. An increase of capital, savings that would otherwise not have been made, must have profoundly modified the whole industrial system, and greatly increased both industry and commerce. If it be objected that effects of this sort are not usual, that they came in a world which had been starved for money, and which, by means of the enormous increase in money was able to pass from a "natural" to a money economy, I reply that the difference between such a case and the usual effects of an increase of money are in degree rather than in kind. The world of Columbus' day was in part on a money economy, and the world to-day, despite Professor Fisher's emphatic denial,[233] still employs a great deal of barter, or equivalents of barter. I shall revert to this point later. But even this consideration would not rob Sombart's points of their significance for modern conditions. Further, we have an even more striking case, on Walker's own showing, in the effects of the Californian and Australian[234] gold discoveries in the 19th Century on trade, industry, and speculation.[235] Nor is the tremendous agitation over bimetallism, involving a literature so great that no man could dream of reading it all, involving great political movements, Presidential campaigns, great Congressional debates, repeated legislation, international conferences, etc., for twenty years, to be explained on any other ground than that the world felt practical, important, and unpleasant effects on industry and trade from the inadequacy of the money supply. The view of Hartley Withers[236] is interesting here. He says: "any such great addition to currency and credit would have a great effect in stimulating production, and so would lead to a great addition to the number of real goods which humanity desires and consumes when it can get them.... Trade would be more active." On p. 23 he speaks of the enormous expansion of trade made possible by paper representatives of gold. On p. 83 he speaks of the attitude of the money-market toward gold, which the orthodox economist is apt to think of as a survival of Mercantilism. Withers thinks that the money market is right in a large degree. As illustrating Withers' statement about the views of "practical men" on this point, the following extract from a recent address by Theodore Price, quoted with approval in a "market letter," written by Byron W. Holt,[237] is interesting: "The fact seems to be that the exigencies of war in Europe are leading to an extension of credit such as would not have been possible in peace, because the hesitant conservatism of bankers would have then prevented it, and we are finding that instead of working harm it is doing good, because huge masses of fixed capital are thereby made productive, and are circulating with the increased velocity that always quickens enterprise and accelerates the wheels of industry.... All the precedents of history indicate that accelerated activity will come with peace and continue until the exuberance of success has led men to build faster than the world has grown and to demand credit upon the basis of future rather than of present values." What is the essential causation in the matter? Well, viewed merely as a matter of mechanical equilibration, the quantity theory view is not strictly true, by any means. For a given country--and Fisher's quantity theory is always a theory for a given country, and, indeed, for any separate market, even a single city[238]--an increase of banking credit means an increase in non-monetary capital, because, to a greater or less extent it dispenses with the use of gold, which goes abroad, bringing back wealth in other forms in exchange. Adam Smith saw this clearly, and phrased it strikingly, likening gold and silver coins to the wagon-roads of Scotland, which are necessary for transportation, but which none the less prevent the use of the roadways for raising grain; whereas bank credit is like a wagon-road through the air, which restores the roadbeds to cultivation. Increased non-monetary capital, other things equal, should mean increased trade. But, more fundamentally, an increase in gold itself within the country, if not bought by the export of an equivalent amount of other goods, _is an increase of capital_. Not all capital is money, but standard coin is capital. Money is a tool of exchange, and exchange is part of the productive process. More money means more exchanging. That is what money is for. Part of the mechanism is in the money rates, which go down as money becomes more abundant, making it profitable to effect exchanges which would not have been profitable had the money rates been higher. Granted that the money-rates and the general rate of interest tend, in the long run, to keep--I will not say at the same figure[239]--a certain fairly definite relation to one another, it still does not follow that the new "normal" equilibrium will give us an interest rate which is the same as the general rate of interest was before the influx of gold. On the strictest static theory, this is not to be expected. Because the total amount of capital in the country is increased, and this means a lowered interest rate all around, in the marginal employment of capital. The margin of the use of capital will be lowered everywhere, including the margin for the use of money. This means permanently lowered money rates in the country, even though the permanent level be higher than the initial money rates immediately following the access of new gold. I have put the argument in terms that suggest the productivity theory of interest, because it is more simply stated that way. I do not accept the productivity theory, as a fundamental explanation of interest, but for many purposes, the results to be obtained by it coincide with the psychological time theories,--which also, in their present form, seem to me imperfectly developed. I need not try to construct a theory of interest here, however, as the familiar theories lead to no trouble at this point. It is enough to point out that the increased amount of capital, meaning better provision for present wants--wants concerned with gold in the arts and with money for productive exchanges, as well as goods generally since part of the new gold will be exported for other things--will lessen the pressure of present as compared with future wants, and so lessen the rate of interest on the time-preference theory. The final outcome will be an extension of the marginal use of money, and a greater volume of exchanges. Of course, the increase in the supply of any kind of capital good, apart from a prior increase in the demand for its services, will, on the mechanical view of economic causation, necessarily lead to some fall in its capital value. Gold money will be no exception to this rule. As to how much the increase in its quantity will lead its capital value to fall, however, we are unable to say. For the quantity theory, the fall will be in proportion to the increase. For the theory just outlined, the fall will depend on the elasticity of demand for gold in the arts, and on the elasticity of "demand" for money, meaning by demand for money simply the demand for the short-time use of money as a tool of exchange, a demand which governs _directly_, not the capital value of money, but rather the "money-rates." The relation between the money rates and the capital value of money will best be discussed at another point.[240] We have no reason at all to suppose that either of these demands[241] exhibits the tendency to obey the law of proportional variation which the quantity theory requires of money. It is further important to note that as a country gets more abundant capital, there seems to be a tendency to extend the use of money rather more than the use of many other capital goods. Where the interest rate is 10 and 12%, as in Arizona and New Mexico, money, even when brought in, tends to leave in large degree to bring in other forms of capital which the situation calls for more imperatively. The early American colonies, needing money pressingly, and making shift with a great variety of substitutes for good metallic money, thoroughly acquainted with the advantages of a money-economy from their European experience, and having "habits" as to the carrying and using of money which they had brought with them from Europe, still found it impossible to keep a great deal of metallic money, in view of the still greater importance of other forms of capital. It is in the most highly developed commercial communities, commercial centres, and _par excellence_, in the speculative centres, that the demand for the money-service is most elastic.[242] A country where the rate of interest is low, loses other forms of capital, and gains money, in the process of reëquilibration, as compared with a new and undeveloped section, although the new section also extends the margin of the money service, in effecting a greater number of exchanges, when money is increased. And this leads to a vital distinction, which quantity theorists almost always lose: the distinction between the volume of _production_, and the volume of _trade_. Even in the mechanical system of causation which they describe, it is true only of production and transportation that _technical_ and _physical_[243] factors are of primary significance, and that money is of minor significance. For trade and commerce, money is always highly important. To the extent that a region is primarily given over to the primary productive activities, mining, and agriculture, such trading as is necessary can be done by means of a small amount of money, supplemented by barter and long-time book-credit. A region or a city whose chief business is _commerce_, however, needs a large part of its capital in the form of money, and of banking capital, which is largely invested in money for banking reserves. _Trade_, as distinguished from industry (and it is after all trade that is under discussion), is helped or hindered as its tools are more or less abundant. These considerations would suggest that the elasticity of the demand for the use of money is greater than the elasticity of demand for the use of capital in almost any other form. Production is, indeed, limited by labor supply and natural resources, in considerable degree. _Trade_,[244] however, even from the standpoint of mechanical causation, is limited chiefly by the relation between the profits to be made in commercial transactions, and the "price" that must be paid for the money and credit that are required to put them through. There are enormous numbers of transfers that could be made to advantage if there were no cost at all involved. They are not made, because exchanging requires pecuniary capital. Let the pecuniary capital increase, however, and sub-marginal exchanges become worth while, the general margin is lowered. Commerce is the most highly flexible and elastic portion of the whole productive process. The elasticity of demand for commercial capital is, thus, greater than the elasticity of demand for any other form of capital. How widely the volume of trade differs from the volume of production, and how great is the element of speculative transactions in trade, will best appear, I think, from an analysis of the figures which Fisher gives[245] for the volume of trade in the United States. His figure for the volume of trade in the year 1909 is $387,000,000,000.00, three hundred and eighty-seven billions of dollars! This figure is reached by equating the figures he has reached for MV plus M´V´ to PT, and assuming P to be one dollar, by making the "unit" of T, arbitrarily, a dollar's worth of each sort of commodity, at the prices of 1909. I have already commented on the legitimacy of this method of summarizing T,[246] and need not say more here, beyond calling attention to the fact that "volume of trade," as commonly used, does in fact mean, not T alone, but PT. Fisher for years other than 1909, however, makes use of a different method of getting at T: he takes certain indicia of _relative_ amounts of trade, compares them with the same indicia for 1909, and estimates the trade for other years as being such a percentage of the trade for 1909 as their indicia are of the indicia of 1909. The indicia chosen are: (1) quantities of certain commodities, cotton, fruit, cattle, etc., _received at_ principal cities of the United States, taken as typical of the variations of the internal _commerce_ of the United States; (2) quantities of 23 articles of import and 25 articles of export, for each year, taken as typical of variations in the foreign trade of the United States; (3) sales of stocks. These three indicia, weighted in a manner to be described in a moment, are then averaged. There is a second element in the index, made up by taking the figures for railroad _tonnage_, and the figures for _receipts on first class mail_, which are averaged. The first average and the second average are then combined into a third average, which is the final index. The relation between this index for every year other than 1909 and the same index for the year 1909 determines the amount of T for each year--the two indicia, together with the figure, $387,000,000,000.00, giving the required amount by the "rule of three." I shall not go into details with the method of constructing these averages, but I wish to make clear the comparative _weight_ given to each element in the final index: The first three elements count _twice_ as heavily as the last two, and so constitute the biggest factor. In the first average, based on the first three elements, the item taken as typical of internal trade is _weighted by 20_, the item taken as typical of foreign trade is _weighted by 3_, and sale of stocks _by 1_. It appears from Fisher's figures (p. 479), that the one really big _variable_ among all the indicia is the sale of stocks, but the weight given it is so small that it makes virtually no difference in the final result. Thus, as between 1898 and 1899, stock sales increased over 50%, but total trade, as shown by Fisher, increased only 5%. In the following year, stock sales _decreased_ over 21%, but total trade, on Fisher's figures, _increased_. The following year, 1901, stock sales virtually doubled, but Fisher's final figure shows only an increase around 13%. Two years later, in 1903, stock sales fell off about 40%, from the figures for 1901, but again, as compared with 1901, total trade on Fisher's figures shows an appreciable gain. The influence of stock sales on Fisher's index is, virtually, negligible. The dominating factor is the _receipts_ of selected staples, cattle, cotton, rice, pig iron, etc., in the principal cities of the United States. There is not a _single year_ in which his final figure for T does not move in harmony with this factor (p. 479). He gets, thus, for the volume of trade through the fourteen years under consideration, a surprising steadiness, and a pretty uniform progressive development. In defence[247] of his method of weighting, Fisher says, simply: "These weights are, of course, merely matters of opinion, but, as is well known, _wide differences in systems of weighting make only slight differences in the final averages_." (Italics mine.)[248] Are these figures valid? Well, first one is struck with the absolute magnitude assigned to T. The figures seem vastly greater than would have been anticipated. The method of calculating it, for 1909, I shall discuss in detail in the chapter on "Statistical Demonstrations of the Quantity Theory." For the present, it is enough to note that the absolute magnitude is derived from figures collected by Dean David Kinley for the National Monetary Commission,[249] of deposits, exclusive of deposits made by one bank in another, made in about 12,000 banks (out of 25,000) on March 16, 1909. These deposits were classified as (1) money (with subdivisions) and (2) checks and other credit instruments. A cross-classification divided them into (1) retail deposits; (2) wholesale deposits; (3) all other deposits. Kinley's object was to determine the extent to which checks are used, as compared with money, in payments, particularly in wholesale and retail business. Fisher's total, briefly, was obtained as follows: Kinley's figures, for the one day, were increased to make an allowance for the non-reporting banks; they were further increased on the assumption that March 16 was below the average for the year; the figure finally obtained for the day was then multiplied by 303, assumed as the number of banking days in the year, and the product, 399 billions, was taken as representing the total circulation of money and checks in trade. For some reason not made clear, this total was subsequently reduced to 387 billions. Counting the average price, P, as $1, T was considered to be 387 billions.[250] In the statistical chapter to follow, it will be shown that this estimate is a very decided exaggeration. Deposits made in banks greatly overcount trade. Very many payments represent duplications, loans and repayments, taxes, etc., and are in no sense trade. This is true of all classes of deposits, wholesale and retail, as well as "all other." But for the present, I am concerned with the question, not of the absolute magnitude of the volume of trade, but rather, the questions of its character, of the elements that enter into it, and, above all, of the extent to which it is physically determined by technical conditions of production, and the extent to which it is flexible, a matter of speculation, etc. We may approach this question from the angle of several bodies of statistical information. First, the question may be raised: what is there in the country which could be bought and sold enough in the course of a year to give us anything like so great a total? The subtractions which we shall find it necessary to make will still leave us an enormous total. The United States Census Bureau[251] in 1904 reached the conclusion that the _total wealth_ of the country was only $107,000,000,000. Of this, over $62,000,000,000 was in real estate; $11,000,000,000 in railroads; street railways, over $2,000,000,000; telephone, telegraph, water and light, and similar enterprises total nearly $3,000,000,000 more. None of these things enter into ordinary wholesale and retail trade. The items that one would ordinarily think of are agricultural products, $1,900,000,000; manufactured products, $7,400,000,000; mining products, $400,000,000. Can these things be exchanged often enough in the course of a year to account for $387,000,000,000! These figures are for 1904,[252] whereas Fisher's figures are for 1909. If the Census Bureau had taken an inventory in 1909, the figures would doubtless be larger. The inventory for 1912 made by the Census Bureau does show a very considerable increase, the largest item being due to a rise in real estate values. The figures for agricultural, manufacturing, and mining products are, also, figures for a given time rather than for total production through the year. But, making all the allowance one pleases, it is quite incredible that one should reach a figure of $387,000,000,000 by taking only the exchanges necessary to bring raw materials through the various stages of production to the consumer. The greater part of the $387,000,000,000 is to be explained in another way! A detailed analysis of Kinley's figures, on which the estimate of total trade is based, leads clearly to the same conclusion. Kinley's figures for the banks that reported on March 16, 1909, are as follows: Retail deposits 60 millions Wholesale deposits 124 millions "All other" deposits 502 millions The "all other deposits" are vastly greater than retail and wholesale deposits combined! Notice, too, with reference to the question as to how often goods need to be turned over in getting to the consumer: wholesale trade uses only about twice as much money and checks as does retail trade. Goods are not, if these figures are in any way typical of actual trade, turned over many times in the process of reaching the consumer. The "necessary," or "physically determined" number of exchanges, in the routine of trade, is small, per item. Retail deposits of 60 millions make up less than one-eleventh of the total. Retail and wholesale deposits together make up about three-elevenths. What is the other eight-elevenths, represented by the "all other deposits"? It will help if we see where these "all other" deposits are located. If we find them scattered evenly throughout the country, in rural regions as well as in cities, we might be at a loss. If, however, we find them bunched in the big speculative centres, we may conclude that speculation accounts for a large part of them. We do in fact find this. The following figures show the different classes of deposits (1) in the South Atlantic States; (2) in reserve cities; (3) in New York City alone: _South Atlantic States:_ _Per Cent._ Retail deposits $ 3,300,000 19.0 Wholesale deposits 4,900,000 29.0 "All other" deposits 8,900,000 52.0 _Reserve Cities (including New York City):_ Retail deposits $ 24,000,000 5.6 Wholesale deposits 78,000,000 18.2 "All other" deposits 326,000,000 76.1 _New York City:_ Retail deposits 9,000,000 3.7 Wholesale deposits 34,000,000 14.0 "All other" deposits 198,000,000 82.2 It is difficult, with Kinley's figures, to get figures which exclude returns from cities of substantial size, except for a State like Nevada, where the mining and divorce industries complicate the figures. As near an approach as can be made, perhaps, is to take the State of Louisiana, excluding New Orleans from the totals. Even here, however, we include five cities of over ten thousand, among them Shrevesport, with 28,000 people. The following figures are for the State and national banks in Louisiana, exclusive of New Orleans: Retail deposits $179,915 24.1 Wholesale deposits 246,647 33.1 "All other" deposits 318,915 42.8 We cannot tell, in these figures for Louisiana, how many banks are represented, or what the average figures per bank are. For the whole State of Arkansas, however, including five cities of over 10,000, with two over 20,000, and one of 45,000, we can get an average for ninety reporting banks. Even here we do not know where these banks are located within the State; though it is probable that they are in the larger places, and so exceed the average deposits for the banks in the State as a whole, to say nothing of the average for the smaller places. The ninety banks are almost wholly State and national banks. _Arkansas:_ _Per Cent._ Retail deposits $232,017 25+ Wholesale deposits 231,614 25+ "All other" deposits 456,544 49+ The average for all deposits, per bank, in Arkansas is $10,224; the average for all the 11,492 banks reporting for the whole country is, approximately, $60,000; the average for the 659 banks reporting from New York State is $502,136; the average for the banks in New York City alone is doubtless much higher, but cannot be stated, as Kinley's figures do not tell how many banks reported by cities.[253] The "all other deposits" in Arkansas are 27.8% cash, and 72.2% checks; the "all other" deposits in the country as a whole are only 4.1% cash, with 95.9% checks; the "all other deposits" of New York City are only 1% cash, with 98.9% checks. Several facts are very clear from these comparisons: (1) the proportion of "all other deposits" increases very rapidly as we get closer to the great centres of speculation, and is lowest in rural regions; (2) the great bulk of all the deposits is in the cities. The average for Arkansas banks, for example, is only one-sixth the average of the whole country, and is only one-fiftieth the average for the banks of New York State. It is a much smaller fraction of the average for New York City, but we cannot give an exact figure. The totals reported from the rural regions are trifling, as compared with the totals reported from the big cities. This, as will be made clear in the chapter on "Statistical Demonstrations of the Quantity Theory," is not because the country reports were less complete that the city reports. New York was probably less complete than the country as a whole. It is simply because the activity of country accounts is small, the amount of trading in the country districts small, and (as shown) the _average_ for country banks is small. (3) The character of the "all other" deposits in Arkansas differs substantially from that of the "all other" deposits in New York City, as indicated by the fact that the proportion of cash is high in Arkansas--substantially higher, in fact, for the "all other" deposits in Arkansas than for all deposits, or even for retail deposits, in the country as a whole. The percentage of checks in total retail deposits in the United States, in Kinley's figures, was 73.2; the percentage of checks in the "all other" deposits in Arkansas was 72.2. We may count these Arkansas "all other" deposits as, in considerable degree, deposits made by farmers. What were the "all other deposits" made in New York City? Dean Kinley's list of the miscellaneous elements that enter into the "all other deposits," given on p. 151, contains only two that might be expected to bulk large in New York without appearing in Arkansas. These are: _brokers_, _and stock and bond financial corporations_. Of course, theatres, hotels, publishing houses, railroads, public funds, "those who have no specific business," and rich churches, will all be absolutely much larger in New York City than in Arkansas. But these things may be found in many places, scattered throughout the cities of the country, without making anything like such "all other" deposits as New York shows. It is not New York's foreign commerce that does it, because that is represented in New York's "wholesale deposits," which make up only 14% of New York City's total deposits for the day. It cannot be the supposed "clearing house" function of New York City,[254] whereby banks in different parts of the country pay their balances due one another in New York exchange, because such transactions would appear in New York chiefly in the figures for deposits made by one bank in another, and these figures are excluded from Kinley's totals. It cannot be the deposits of the "idle rich" for current expenses that swell New York's "all other deposits" so greatly--these could not equal the total retail deposits of the city, which are only 3.7% of the total in New York. Moreover, similar deposits are made in many other cities, without, in proportion to population, making any such totals. Figures, moreover, for the aggregate yearly income of the United States, and for the distribution of that income between rich and poor, make it clear that any such items must be bagatelles in comparison with these enormous figures. The only explanation that will really explain is the speculative and investment and financial transactions that centre in New York, and, in less degree, in the other great financial cities of the country. This is Dean Kinley's opinion. In the "all other" deposits he makes a 50% allowance for speculative transactions. "A large proportion of deposits in this 'all others' class undoubtedly represents speculative transactions, all of which, or practically all of which, are settled with credit paper."[255] It is also the opinion of General Francis A. Walker, expressed concerning similar figures from earlier inquiries.[256] Various kinds of evidence converge toward this conclusion. Thus, the evidence of clearings, total items presented by banks to the clearing houses of the country. New York clearings are usually nearly twice as great as total clearings for the rest of the country. New York clearings fluctuate in general harmony with transactions on the New York Stock Exchange. This has been commented on many times. The extent to which it holds has recently been carefully measured by Mr. N. J. Silberling, whose results appear in the _Annalist_ for August 14, 1916, under the title, "The Mystery of Clearings." Mr. Silberling applies the "coefficient of correlation" to the problem, getting in one significant figure a measure of the extent to which two variables, as share sales on the New York Stock Exchange and New York clearings, vary together. This coefficient has been used enough by economists not to require detailed explanation here. It is a figure always between +1 and -1. +1 indicates that the two variables in question are perfectly correlated, whereas 0 indicates no correlation whatever. -1 indicates an inverse correlation, such that two variables vary exactly and inversely with reference to one another.[257] Mr. Silberling's studies show the following correlations: New York share sales (numbers of shares, not values) to New York clearings, using weekly figures, for the years 1909-10, r = .628. This is a high correlation. Limiting the observations to the middle weeks of the month for the same period, he gets r = .731(46). The reason for taking only middle weeks in the month is that thereby the disturbing factor of monthly settlements is avoided. The monthly settlements may be for stock transactions, or may be for other things, but as they are not dependent on the stock transactions _of the week_ in which they occur, their effect is to lessen the evident degree of connection between stock sales and clearings. Thus the middle weeks show a closer correlation between the two variables than do all the weeks taken as they come. If figures for the month were taken, this complication would be smoothed out, and a fairer result might be expected to appear. The middle weeks, eliminating monthly settlements, probably eliminate more other things than they do share sales (which are in large degree paid for in 24 hours[258]), and so exaggerate somewhat the relation between shares and clearings. Monthly figures avoid both complications, though they lose something of the concrete causation. An intermediate figure might be expected for the monthly correlation, and this we find: r = .718(23). A striking single fact in connection with these figures, giving them point as less extreme variations could not do, is found in the behavior of clearings when the Stock Exchange was closed, during the crisis of 1914. At that time, New York clearings, which had been about twice as great as country clearings, fell suddenly _below_ country clearings. When the Stock Exchange was opened, the old proportions suddenly reappeared. That speculation spreads far beyond New York, New York being the centre for dealings in securities, etc., which involve the whole country, is, of course, well known. The extent of this Mr. Silberling seeks to measure by correlating clearings outside New York with New York share sales. His weekly correlation for these two variables for 1909-10 gives r = .368(103), and the correlation for the mid-weeks gives a higher figure, r = .424(46). The monthly correlation shows r = .257(23), a lower figure, "which is perhaps due in part to the fact that the bulk of the outside monthly clearings show relatively moderate fluctuations, because of their diverse composition, and are less sensitive than the periods of shorter length." Seeking an index of the variations of that trade which is, in Professor Fisher's phrase, governed by "physical capacities and technique"--a law which Professor Fisher,[259] as we have seen, would apply to the great total of 387 billions which he has constructed--Mr. Silberling chooses the gross earnings of the principal railways as the best available test. Railways deal with all manner of other enterprises. He correlates this with clearings outside New York. "The question might arise at once whether changes in traffic are strictly concomitant with changes in payments involved by it, and therefore with the clearings resulting. The preliminary hypothesis that a 'lag' ensued between traffic and the bulk of the payments was first tested by correlating the railway figures with clearings of one month[260] and two months later, but no correlation was obtained. The direct month-to-month correlation yielded, however, a result r = .524(23)." This suggests that outside clearings are, in substantial degree, an index of physical trade, but Mr. Silberling calls attention to certain chance agreements between railway traffic and speculation in cotton and produce and grain, speculation in the crops which are in current movement, and regularly recurring concomitances between traffic and speculation in March, when the railway traffic revives after the February lull, and when there is a large mass of dealing in Spring deliveries in Chicago. In view of the facts later to be developed, with reference to the small actual value of the necessary physical exchanges (partially covered already) as compared with clearings, this query is well put. We may easily have here a "spurious" correlation. Taking it at its face value, however, and taking the correlation as indicating the influence of physical trade on bank transactions, we get the following results, when _total clearings for the country_ are compared with (a) New York share sales, and (b) with railway gross earnings: (a) r = .607(23); (b) r = .356(23). "Physically determined trade" is at best a minor factor in that total "trade" represented by bank transactions! Mr. Silberling has buttressed his results with a consideration of various alternative possibilities which might give them a different interpretation. I need not, for present purposes, go further into his figures.[261] Taken in conjunction with the other data presented, and to be presented, together with the theoretical discussion of the nature of trade, and its relations to money and credit, which the present volume contains, they give the present writer abundant confidence in the thesis that the great bulk of trade in the United States is SPECULATION, rather than that sort of trade which is determined "by physical capacities and technique." The figures given above, of the inventory of wealth at a given moment of time, by the Bureau of the Census, show only trifling magnitudes, as compared with the estimated 387 billions of deposits made in 1909, of items which could enter into ordinary trade, as distinguished from speculation and dynamic readjustments. An effort to calculate ordinary trade on the basis of figures running through the year may throw further light on the problem. Railway, gross receipts for the year ending June 30, 1909, were less than two and a half billions. This is six-tenths of 1% of the total. Receipts of the Western Union Telegraph Company were $30,451,073--less than one-hundredth of 1%. The Post Office in the fiscal year ending in 1909 took in $203,562,383. This is something over one twentieth of 1%. These are gigantic sums. But they are insignificant indeed in this computation. Millions of smaller items simply do not count at all--ten million items of $387 each would give only 1%. The total net income of the United States, as estimated by W. I. King for 1910, including all forms of income, dividends, interest, wages, rents, profits, salaries, etc., is $30,500,000,000[262]--around 7% of the 387 billions. Let us sum up the major items of ordinary trade. From Kinley's figures, we may get some idea of the proportions of wholesale and retail trade to the total for 1909, assuming that the deposit figures indicate that total. Retail deposits make up less than one-eleventh of the total, and wholesale deposits about two-elevenths. The figures were: retail, 60 millions, wholesale, 124 millions, and "all other," 502 millions. But the "all other" deposits were lower than normal. New York City was, in the first place, probably less complete than the rest of the country, in the figures returned, and, in the second place, New York City, as shown by the clearings of March 17 (the next day, when checks deposited in New York would get into the clearings) was 28% below normal. The rest of the country was within 3% of normal.[263] Not to refine matters too much, we shall, on the assumption that the variable element in New York deposits is connected with the Stock Exchange (as shown by Mr. Silberling's correlations and other considerations), and on the assumption that deposits connected with the stock market appear in the "all other" deposits, add a little over 20% of New York's total of 198 millions, or 40 millions, to the "all other" deposits for the country, leaving the wholesale and retail deposits unchanged. What error there is in this is favorable to the wholesale and retail deposits. Our proportions, then, are: retail, 60, wholesale, 124, "all other," 542, total, 726. If the retail deposits correctly represented retail trade, we could then say that retail trade was a little less than one-twelfth of the whole, and wholesale trade about one-sixth. But there are many speculative transactions engaged in by wholesalers, and a good many by retailers. The writer knows a small delicatessen dealer on Amsterdam Avenue, in New York, who frequently speculates in eggs and canned goods. A colleague in the Harvard Graduate School of Business Administration is authority for the statement that speculation in canned goods and some other things is quite common among retailers, particularly "hedging" by the use of "futures," in canned goods. Speculation among wholesalers is very extensive. The same is true of manufacturers. The same authority cited some cotton manufacturers whose profits from cotton speculation are greater than their profits from manufacturing. We shall see reason to suppose that a very substantial part of manufacturers' deposits were included in the wholesale deposits. That the figures for retailers' deposits exaggerate the retail trade may appear from several considerations: (1) The proportion of checks to cash reported is too high: 73.2%. Dean Kinley allows 5% of the checks deposited to be "accommodation checks,"[264] cashed for customers, rather than taken in in trade. (2) If retail deposits are taken as exactly representative of retail trade, we should get a retail trade for the year of over 32 billions (1/12 of 387 billions), which would exceed the total income of the country as calculated by King for 1910. Dean Kinley reached the conclusion that the retail deposits reported in 1896 also exceeded the probable retail expenditures.[265] Of course, not all of retail trade is in consumption goods. Hardware stores, lumber stores, and some other retail establishments sell, not only to householders for domestic use, but also things which enter into further production, and so do not come out of annual income. If we include in retail trade various items which were not included there in Kinley's figures, such as hotels, theatres, newspaper receipts from subscription and street sales, physicians' fees, etc.--all those items which enter into the domestic budget, including domestic service, we should still not be justified in reaching a total as great as the total income of society, since there would then be no allowance for savings, which we should not count in trade, or for life insurance, which we shall count separately. The items sold at retail which enter into further production cannot make a great total, since large producers buy such things at wholesale. Total retail trade, therefore, and, in addition all the other items in the domestic budget, must be held below the figure for total national income. Suppose, to be very liberal, we allow 29 billions[266] for all these items, under the general head of "retail trade." For wholesale trade, if we take the figures at face value, the estimate would be 65-3/4 billions (124/726 of 387 billions, or 17% of 387 billions). But we have seen that there is a great deal of speculation among wholesalers. Not all of their deposits, by any means, represent receipts from ordinary business. Moreover, there is much overcounting here, several checks being used for one transaction, especially where wholesalers have branch houses, and checks connected with loans and repayments, and transfers of funds from one bank to another. How much we should subtract for this there is no way to tell. In the case of retail figures, we have the additional check of the figures for total net income, but there is no such check here. We shall, therefore, make no subtraction, but shall content ourselves with pointing out that we are allowing many billions[267] to "ordinary trade" to which it is not entitled, which will much more than offset errors in the opposite direction which the reader may find in our computations. Do manufacturers' receipts from first sales belong in the wholesale deposits, or must they be counted as a separate item? Dean Kinley does not say. In his list of items, as reported by banks, that go in the "all other" deposits,[268] he does not mention manufacturers, and the item is far too important not to have been mentioned by so careful a writer had he supposed that it belonged there. If manufacturers' first receipts belong, not in the wholesale deposits, but in the "all other" deposits, then we should expect manufacturing cities to show a high percentage of "all other" deposits as compared with wholesale deposits. The city of Pittsburg should be a good test case. The figures there, for State and national banks and trust companies, are: _Per Cent._ Retail deposits $1,061,420 9.6 Wholesale deposits 3,368,004 29.7 "All other" deposits 6,672,378 60.6 For Pittsburg, the percentage of "all other" deposits is lower decidedly than the percentage for the country as a whole (about 75%), much lower than for cities where there is active speculation, as Chicago and St. Louis, to say nothing of New York, and is closer to the percentage of the South Atlantic States, 52%, than to the average for the country. The wholesale deposits of Pittsburg, however, rise to 29.7%, as against an average for the country of 17%. There is nothing in these figures to suggest that manufacturers' first receipts are exclusively in the "all other" deposits. I should think it safe to hold that a substantial part of them were included in wholesale deposits, and so already accounted for in our estimate. The total value of products manufactured in 1909 was $20,672,051,870. I shall allow $5,672,051,870 of this to have been already accounted for in our estimate of wholesale trade, and count 15 billions of it as a separate item. If there is an error here, it is very much more than offset by our failure to subtract anything from the wholesale figures for speculation. I think it probable that much more of the figures for manufactures should be assigned to the wholesale figures than I have assigned. To these figures, we may add a number of other items, absolutely great, but insignificant, in comparison with the 387 billions not only, but also with the figures for retail and wholesale trade already reached. These are: total farm value of farm products (not nearly all of which is sold off the farm) $8,760,000,000; total mineral products, $1,886,772,843; total mill value of lumber, $684,479,859; total life insurance premiums (much of which is savings, and in no proper sense trade), $748,027,892; total fire, marine, casualty and miscellaneous insurance, $362,555,850; total wages and salaries, $14,303,000,000; total land rent, $2,673,000,000;[269] and the items for railway gross receipts, post office, telegraph, already mentioned. The total of these items, together with retail and wholesale trade and manufactures, is $141,860,618,000. This is only 36.6% of the total of 387 billions. It leaves over 245 billions unexplained. What can the 245 billions represent? There is really no way in which ordinary trade can make up more than a very few more billions, so far as I can see. There remain no items as big as 1% of the total, and, as we have seen, small items, of hundreds of dollars each, are like "infinitesimals of the second order"--they simply do not count at all when such staggering figures are involved.[270] There remains, then, a total of 245 billions of check and money payments which are for something other than the ordinary trade of the country. What do these payments represent? Much of this total represents overcounting and duplications of various kinds, which we shall consider in a later chapter. Much of it also represents speculation and dealings other than speculative in securities. When we seek to find actual figures of transactions in any field, retail, wholesale, or speculative markets, or anything else, it is exceedingly difficult to find anything that approaches the amounts indicated by the banking transactions connected. I do not think that a record of all sales would show retail sales or wholesale sales anything like so great as the figures as we have allowed for them on the basis of the retail and wholesale deposits. When we look at the recorded figures of transactions on the speculative exchanges (or at estimates which competent observers make when records are not available), the figures, though very large, do not begin to equal the banking figures with which we have to deal. The New York Stock Exchange in 1909 showed sales, recorded on the ticker, of nearly 215 million shares of stock, with an approximate value of over 19 billions[271] of dollars. This was not an extraordinary year. In 1901 nearly 266 million shares were sold, in 1905, over 263 millions, in 1906, over 284 millions. A number of other years have approached the figures for 1909. If stock sales be a good index of general speculation, 1909 is a very satisfactory year from which to have got figures, as showing neither extreme speculation, nor extreme dullness--which latter was the case in 1896 when Kinley's other big investigation was made. The figures for shares sold, however, do not exhaust the business done at the New York Stock Exchange. "Odd lots," _i. e._, sales of less than 100 shares, are not recorded on the ticker. Mr. Byron W. Holt estimates that from 25 to 30% would be added if they were counted. DeCoppet and Doremus, of New York, who handle at least as much of the "odd lot" business as any other New York house, have given me the following information about the "odd lot" business: (1) the volume of odd lot sales is, roughly, from 20 to 25% of the volume of hundred share sales; (2) the odd lot business fluctuates in conformity to the hundred share market; (3) the odd lot speculator is just as likely to be a "bear" as is the hundred share speculator, and, in general, odd lot business is like the hundred share business. If we take the figure on which these two estimates agree, 25%, we may add 53-3/4 million shares to our 215, getting 268-3/4 million shares for 1909, with a value of about 24 billions. Bond sales recorded would add about 1 billion more. There are, further, some unrecorded sales, indeterminate in amount, but sometimes very substantial, when brokers have a number of "stop loss" orders. They match these before the market opens, and, if the prices are reached in the actual trading, these sales become effective automatically, without getting on the ticker. How extensive this is cannot be stated. It may sometimes add very substantially.[272] Thus, on the floor of the New York Stock Exchange we have dealings in excess of 25 billions for 1909. This is nearly as large as the figure we have assigned, on the basis of the bank figures, to total retail trade of the country, and it may well exceed the retail trade in fact. Recorded sales on other stock exchanges do not, in the aggregate for the country, bulk very large. For 1910, when New York shares reached 164 millions, the total for Boston, Philadelphia, Chicago, and Baltimore was something over 21 million shares.[273] The New York Curb has had "million share" days, but the average value of shares is low. But the dealings on the floors on the exchanges and "curbs" are far from all of the dealings in securities! Only securities which have been admitted by the authorities are dealt in on the exchanges. The volume of unlisted securities is enormous. Moreover, not all, by any means, of the sales of listed securities take place on the floors of the exchanges. The bond expert of a large banking house in Boston informs me that the "over-the-counter" business in Boston, both for stocks and for bonds, much exceeds the business in the Boston Stock Exchange, and others among Boston brokers have expressed the same opinion. The statement has been repeatedly made in the financial press that of the bonds listed on the New York Stock Exchange, ten are sold over the counter for one sold on the floor. Evidence on this point is not to be had in definite figures, of course, but I have found no one in Wall Street who regards it as extravagant. A single big bank in New York sold $550,000,000 in bonds in 1911--more than half the recorded bond sales on the Stock Exchange.[274] I should not know how to estimate the volume of outside dealings within many billions of "probable error." If ten billions of listed bonds are sold over the counter in New York alone, we may well suppose that the volume of over-the-counter sales of listed and unlisted securities at least is not smaller than the recorded sales on the floors of the exchanges. But this is all guess work. There are no definite data. For produce, cotton, and grain speculation we have, in general, estimates rather than records. For the Board of Trade, in Chicago, there is one quite striking piece of information. That is that the Federal War Tax of 1 cent per hundred dollars on grain and provision futures on the exchanges produced $2,000,000 in Chicago alone in 1915.[275] For the purposes of the tax, deliveries within thirty days were counted, not as futures, but as "spot" transactions. The tax was collected almost wholly on grain. If the above figure is correct, then it is clear that dealings in these futures of over thirty days aggregated 20 billions of dollars worth. This gives no estimate of spot transactions, which are, however, very great. All this trading involved less than 400,000,000 bushels of grain received at Chicago--a little over a billion bushels were received at all primary markets. The grain received at Chicago was, thus, (at 80 c. per bushel), sold sixty-two times over in these futures, and an unknown number of times in spot transactions. There are further enormous spot transactions in provisions of various kinds at Chicago. Chicago is the great centre, of course, for this kind of speculation in the United States. It may well be the world's chief market, so far as futures are concerned, though evidence to establish such a thesis is not at hand. London and Liverpool are gigantic centres of commodity speculation. But we have numerous cities in the United States where such speculation is very great. St. Louis, Kansas City, Minneapolis, New Orleans, and other cities are active speculative centres. New York, while small in its volume of grain and produce speculation as compared with Chicago, is the world's centre for cotton speculation, and the world's centre for futures in coffee, though yielding precedence to Havre, Santos and Hamburg,[276] ordinarily, in the volume of spot coffee transactions, and though handling only a very small amount of spot cotton. The volume of cotton sold in an ordinary year in New York is 50,000,000 bales,[277] though only about 160,000 bales are ordinarily received there, in a year.[278] In the five years preceding 1909, the sales on the New York Coffee Exchange averaged over 16 million bags of 250 pounds each.[279] In 1915, 32 million dollars were deposited as margins in connection with this speculation in coffee, and in ordinary years this runs from 25 to 30 millions, according to the Treasurer of the Exchange. The relation between the margins put up and the total pecuniary volume of trading is not indicated, but in most exchanges the actual depositing of margins is a small fraction of the pecuniary magnitude of the turnovers. Both the Cotton and the Coffee Exchanges are international centres. The Coffee Exchange now handles large transactions in sugar, also. Contacts between the organized exchanges and ordinary business are very numerous. Producers in every line who can do so protect themselves by "hedging" in the exchanges which deal in their raw materials. This is a commonplace, so far as millers are concerned. The writer has found millers in a town off the main lines of the railroads in Missouri who regularly sell short a bushel of wheat on the St. Louis Merchants' Exchange for every bushel they buy to grind. The business man who does not sometime take a "flier" in the market for other than hedging purposes is rare! But, apart from the organized markets there is an immense volume of speculation. If a wholesaler buys only what he can sell to retailers, it is not speculation. But if he buys in excess of the anticipated demands of his retailers, expecting to sell the excess at an advance to other wholesalers, he is speculating. If a farmer buys cattle to feed, he is not speculating, but if he buys them thinking to sell them at an advance in a short time, and does so, the transactions are speculative. The line is not easy to draw, in practice. Intention is shifting and uncertain. There is chance in every industrial, commercial, and agricultural operation. But for the point at hand, the test is simple: do more exchanges take place than are necessary, under the existing division of labor, to advance the materials of industry through the stages of production, and get things finally to the consumer? If so, the excess of exchanges is speculative. Trading between men in the same stage of production is speculation. It represents trading to smooth out dynamic changes, to bring about readjustments which would have been unnecessary had conditions really been static, and had the initial plans of enterprisers been adequate. Trading in anticipation of further trading with men in the same stage of production is speculative. This sort of thing, in the wholesale business, especially, is exceedingly common. This has been noted by Professor Taussig, and made by him an important point in the theory of crises. Dean Kinley[280] called attention to it as a matter of importance in connection with his investigation in 1896. The coming of cold storage, and the development of the canning industry have, I am informed by a colleague in the Harvard Business School, enormously increased this speculation among both wholesalers and retailers, and it is very important in most wholesale lines. There is short-selling in materials for construction purposes, and in metals, apart from organized exchanges, and, where possible, contractors in the building trade often protect themselves by means of future contracts with speculators who are selling short. Land speculation, in varying volume, is found in every part of the country. There is speculation in leases, in options on real estate, and in options on leases.[281] It may be noticed, too, that sales of "rights," of puts and calls and straddles, and other contract rights, are regular factors in the organized exchanges. Wherever profits are to be made by leveling values as between different places or different times, speculation arises, and, with dynamic change, this means everywhere, in every business, and all the time! The shifting of labor and capital from industry to industry, leveling returns to capital and labor, involves an enormous amount of trading that would not occur in a "normal equilibrium." Much of this the Stock Exchange does. That is what it is for. But much of it has to do with unincorporated industry, and a vast deal of speculative exchanging takes place to this end apart from the organized exchanges. Speculation in bills and notes, by note-brokers and particularly by dealers in foreign exchange, occurs on a large scale, and accounts for a great deal of the banking figures. This has nothing to do with physically determined trade. From the standpoint of Professor Fisher's "equation of exchange," it must be barred, if the contention that "trade" is determined by "physical capacities and technique" is to be adhered to. Speculation in demand finance bills is barred in any case, since "money against checks," and "checks against checks," are excluded by his definition.[282] But as an explanation of no small part of our unexplained 245 billions of dollars, these items must be brought in. They are "double counting" from the standpoint of Professor Fisher's equation. They are, however, speculation. An official in a great New York banking house, in charge of the foreign exchange department, writes that in times when exchange rates are fluctuating, enormous quantities of drafts on Europe will be bought and sold, during a period of a couple of weeks or months, whereas under other conditions such transactions might amount to little with the same volume of imports and exports. The part of this which is between banks, a very big item, would not count in the 245 billions, but to the extent that foreign exchange brokers outside the banks participate, their activity helps to explain our 245 billions. If it be true that speculation, including all manner of readjustment to dynamic changes, makes up the overwhelming bulk of trade in the country, then Fisher's _indicia_ of variation in trade, weighted as they are, are totally misleading. The same is true of Kemmerer's _indicia_ of "growth of business."[283] These are: population, tonnage entered and cleared, exports and imports of merchandise, postal revenues, gross earnings of railways, freights carried by railways, receipts of the Western Union Co., consumption of pig iron, bituminous coal retained for consumption, consumption of wheat, consumption of corn, consumption of cotton, consumption of wool, consumption of wines and liquors, market values of reported sales on the New York Stock Exchange. Only the last of these is in any sense an index of speculation. It is swallowed up by being put on a par with the other fourteen items. Its influence on the final index, made by averaging the others is, as inspection shows, virtually _nil_. Out of the twenty-six years his figures cover, the general index moves counter to the share sales 14 times! Utterly random figures would have come nearer to the facts in the case. It is particularly striking that Professor Kemmerer, whose total figures, as Professor Fisher's, rest for their absolute magnitude on Kinley's investigation,[284] should assign 89% of his estimated trade (183 billions in 1890) to wholesale commodities,[285] (with 3% to wages, and 8% to securities), when Kinley's figures show that wholesale deposits are a minor fraction of the total! The constancy in the figures of these two writers for trade from year to year, a general steady, upward growth, does indeed suggest that trade is determined "by physical capacities and technique," and that it does stand as a great, independent, inflexible factor, independent of money and deposits, constituting a real causal coefficient with them in determining prices. If, however, speculation is as big a factor as our analysis would indicate, then trade is a highly flexible thing, varying enormously from year to year, moved by a multiplicity of causes, among them _fluctuations_ in particular prices, and the ease and tightness in the money market--the quantity of money and deposits. But quite apart from speculation, it is not true that trade is a mere matter of physical capacities and technique, a passive function of production. Rather, one would almost have to reverse the relation. Production waits on trade! Production, as now carried on, is primarily conducted in the expectation of _sale_, and of profitable sale. Trade does not go of itself, automatically. Rather, it is a highly difficult matter, calling for the highest order of ability, and the labor of innumerable men. In general, I think it safe to say that in ordinary times, the manufacturer loses vastly more sleep over the question of how he shall market his output, than he does over the question of how he shall produce it. A clerk in the Westinghouse Air Brake Company, engaged in the accounting department, spoke recently to the writer of the "productive end" of the business. On inquiry, it developed that he meant the selling department! He stated that the manufacturing department also, in the language of the employees, in that corporation, would also be termed "productive," but that the selling department was _the_ productive department. If one reflects a little as to the proportion of "costs" that go into selling, as compared with technical "production," I think my point will be clearer. Advertising has developed so enormously that it needs little discussion. It has been stated that the "Sapolio" people once tried, after their reputation seemed thoroughly established, to stop advertising, with such disastrous results that very extraordinary efforts were required to reëstablish the brand. Number 2 wheat is not advertised, in the great magazines, but innumerable brands of flour get newspaper and magazine advertising,--some of them in such a periodical as the _Saturday Evening Post_, and even those which are locally consumed are commonly advertised in the local press. Nor is it only finished products, of the sort that must be sold to the fickle public, that involve these heavy selling costs. The writer has in mind a corporation producing a high-grade type of glazed retort, in the production of which it has virtually a monopoly, since the clay with which it is made does not coexist with the skill to make it in any other place. The particular product is an indispensable part of many important technical processes. Substitutes made of other clays, and by other companies, are known by the trade to be unsatisfactory. The buyers are all highly trained business men. Here, if anywhere, selling costs should be slight. But the chief selling agent of the corporation has found it necessary, in order to keep the business going, to incur huge expenses for entertaining his customers, finds it necessary to incur great travelling expenses, to use only the most expensive hotels, and, incidentally, to drink a great deal more than his personal inclinations would call for, in keeping the business for his house. I waive discussion of the extraordinary fees which a trust promotor makes, in effecting a consolidation of big business units,--a process of exchange. I am speaking now of the ordinary costs involved in ordinary trade. The army of travelling salesmen, the body of stenographers, who write letters, with various "follow-ups," in the effort to get more business, the growing complexities of such letter writing, in which all suspicion of "circularizing" must be allayed, one-cent stamps being absolutely taboo!--these things are the commonplaces of business. They are in the primers in the "commercial colleges" and "schools of commerce." Only the orthodox economist, with his doctrine of the impossibility of general overproduction, is ignorant of them! This feature of modern business has been much elaborated in a recent book which has not received the attention it merits--though its strength is rather in criticism than in constructive doctrine. I refer to Dibblee, _The Laws of Supply and Demand_.[286] Dibblee makes an interesting contrast between commercial and manufacturing cities, maintaining that the former necessarily outgrow the latter--a contention which London, New York, Chicago and other places strikingly illustrate. He presents a truly remarkable fact about London:[287] a recent report of the Commission on London Traffic states that there were in London 638 factories registered as coming under the Factory Acts, with an average horse-power of 54. The total power employed within the London area under the Factory Acts, chiefly used in newspaper printing, was 34,750 horse-power--just one-half of what is required for the steamship, Mauretania! This is the greatest city in the world. What do its millions do for a living?[288] The town of Oldham,[289] he asserts, with 100,000 inhabitants, has spindle capacity enough to supply more than the regular needs of the whole of Europe in the common counts of yarn. To _market_ the output of Lancashire, "the merchants and warehousemen of Manchester and Liverpool, not to mention the marketing organization contained in other Lancashire towns, have a greater capital employed than that required in all the manufacturing industries of the cotton trade." Accurate estimates of the proportion of "selling costs" to costs of technical production are doubtless impossible, for the general field of trade, and precision is unnecessary for my purposes. Dibblee's conclusion, after contrasting retail and wholesale prices, and analyzing the expenses incurred in selling prior to the wholesale stage, is that the cost of marketing is at least equal to "real cost of production," occasionally only slightly below it, and often far above it (62).[290] If one considers how large the item of "good will" often bulks in the value of "going concerns"[291]--good will being in large degree often just a capitalization of prior costs of this nature--Dibblee's estimate need not be exaggerated. Trade connections, trade-marks that have reputation, etc., often represent enormous output in thought, work, and expense. Selling costs may, like other costs, be divided into "prime" and "overhead" costs. Some of the latter lead to long-time consequences, pay for themselves only in the long run. These may be "capitalized" in "good will."[292] Of course, not all good will is got at a cost. Much of it is adventitious. In the light of the doctrine that trade is independent of money and credit, one wonders why it should be thought necessary to extend branches of American banks to the South American markets which we are now reaching out toward. And why have Americans, from the beginning, been constantly increasing commercial banks?[293] It is easy to sneer at the efforts of the successive frontiers in our history to provide themselves with banks of issue as based on a delusion, the delusion that bank-notes are "capital," and to say that their real need was, not more bank-credit, but more real capital. They needed more tools and live-stock, doubtless, but is that the whole story? And were their banks of no assistance in getting the additional capital of various sorts? And was it a matter of no consequence that they had an abundant medium of exchange? It seems almost childish to put such questions, but the quantity theory has as its logical corollary that to multiply banks is quite useless and wasteful, since the only result is to raise prices. If increasing bank-credit cannot increase trade or production, this corollary is inevitable. Indeed, the case may be more strongly stated. Quite apart from the wasted labor of bank-clerks and the waste of banking capital, the effect of increasing bank-development, on quantity theory reasoning, is harmful. If increasing bank-credit is to raise prices without increasing trade, then, on quantity theory reasoning, it must _depress_ business. The reason is that rising prices in a given region make that region a bad place to buy in, and so curtail its exports. This is, indeed, the quantity theory explanation of international trade, to which attention is later to be given. The country which is expanding its banking facilities most rapidly will suffer most in competition in the world markets. This is why the United States have so little foreign trade! It also explains the rapid strides that China and Central Africa have recently made in capturing the world's markets. I submit that there is no flaw in this argument, if the premise of the independence of volume of trade and volume of bank-credit be granted. It follows from the quantity theory. That it is no caricature of Fisher's argument will appear, I think, from the following quotation,[294] which very nearly states what I have just been saying, though it does not draw the conclusion that banking is a bad thing: "The invention of banking has made deposit currency possible, and its adoption has undoubtedly led to a great increase in deposits and consequent rise in prices. Even in the last decade the extension in the United States of deposit banking has been an exceedingly powerful influence in that direction. In Europe deposit banking is in its infancy."[295] Happy Europe, troubled only by war! It is greatly to be hoped, in the interests of American agriculture, that the efforts to increase agricultural credit facilities will fail! We are driven to one of the most fundamental contrasts in economic theory, which appears under various guises and in different forms: statics _vs._ dynamics; transition _vs._ equilibrium, theory of prosperity _vs._ theory of goods; normal tendency _vs._ "friction."[296] Perhaps Professor Fisher, and the quantity theorist in general, would dismiss many of these considerations as not applicable to the general principle, which is a "normal" or "static" or "long run" law, not subject to considerations of this sort. It is scarcely open to Fisher to defend himself this way, because of his exceedingly uncompromising statement regarding even "transitional" relations between volume of trade and money and credit. I shall not reply to anyone who offers such an objection by a general tirade against "static economics." I believe thoroughly in the method of economic abstraction, and in reaching general principles by ignoring, provisionally, in thought the "friction" and "disturbing tendencies" which often make the first approximations look somewhat unreal. But I raise this question: to what feature of our economic order do we chiefly owe it that we can make such abstractions? By virtue of what does friction disappear? What is it that makes our abstract picture of economic life, as a fluid equilibrium, with its nice marginal adjustments, its timeless logical relations, correspond as closely as it does to reality? The answer is: MONEY and CREDIT.[297] It is the _business_, the _function_, of money and credit, as instruments of exchange, to bring about the fluid market, to overcome friction, to effect rapid readjustments, to give verisimilitude to the static theory, to make the assumptions of the static theory come true. Where exchange is easy and friction slight, there will not be two prices for the same good in the same market. Speculators, seeking profits of fractions of a point, will prevent that. By multiplying exchanges, they will level off values and prices. Because money and credit have done their work so thoroughly in the "great market," it is possible for men to talk about static theory, and to work out economic laws in abstraction from friction, transitions, and the like. In the static state, all speculation is banished. There are no price-fluctuations to be smoothed out, no new prospects to be "discounted," no uncertainties to be guarded against by "hedging." Seasonal goods will, of course, have to be carried over from one season to the next, but this will involve merely warehousing and the use of capital--"time speculation," involving many sales, does not come in. One sale to the capitalist who carries the seasonal goods, with a sale by him to the man who means to use them, will suffice. It has been shown before that the great bulk of trade is speculation. But speculation is banished from the static state. Speculation is a function of dynamic change, waxing and waning with the degree of uncertainty that exists, the new conditions to which readjustments have to be made, the "transitions" that have to be effected. In other words, the laws governing the volume of trade are dynamic laws, laws of "transition periods," and so the whole notion which underlies the quantity theory, of "normal periods," "static" relations, etc., is here irrelevant. Volume of _trade_, as distinguished from volume of _production_, is controlled by the number and extent of the "transitions" that have to be made. The chief work of money and credit is done _in_, and _because of_, "transition periods." Assume a normal equilibrium accomplished, and you have little trading left to do. It will still be necessary, if you have the division of labor, and private enterprise, for goods to pass through as many different hands as there are different independent enterprisers in the stages of production, and on, through merchants, to the consumer. It will still be necessary to pay wages, rents, dividends and interest. But there will be no selling of lands, of houses, of factories, of railroads, or of securities representing these. By hypothesis these are already in the hands best qualified to hold them. The "static equilibrium" presents "mobility without motion, fluidity without flow."[298] The static picture is a picture of completed adjustment, where no one has an incentive to change his work, or his investments, because he has already done the best that he can for himself. It is, therefore, a picture of a situation where there is little incentive for those exchanges which make up the great bulk of the volume of trade in real life. Hence the curious phenomenon that very much of static theory has been developed in abstraction from _money_ and _credit_. Mill's theory of international values, for example, abstracts from money. "Since all trade is in reality barter, money being a mere instrument for exchanging things against one another, we will, for simplicity, begin by supposing the international trade to be in form, what it is in reality, an actual trucking of one commodity against another. So far as we have hitherto proceeded, we have found the laws of interchange to be essentially the same, whether money is used or not; money never governing, but always obeying, those general laws."[299] Other writers have similarly held that money is a mere cloak, covering up the reality of the economic process. Schumpeter, for example, holds that money is, in the static analysis, merely a "Schleier," and that "man nichts Wesentliches übersicht, wenn man davon abstrahiert."[300] _On the static assumptions_, of the fluid market, with friction, etc., banished, money is, indeed, anomalous and inexplicable. It is a cloak, a complication, a vexatious "epi-phenomenon." There is nothing for it to do, and there can be, consequently, no "functional theory" developed for it. Static theory may be ungracious in ignoring its own foundation. But static theory is grotesque when it seeks to support its own foundation! Static theory is possible only on the assumption that the work of money and credit has been done. What, then, shall we say of static theory which seeks to explain the work of money and credit? Yet precisely this is what is undertaken by the quantity theory, with its "normal" or "static" laws of money and credit. A functional theory of money and credit must be a dynamic theory. To talk about the laws of money, "after the transition is completed" is to talk about the work money will do after it has finished working. For a functional theory of money and credit, we must study the obstacles that exist to prevent the fluid market. We must study friction, transitions, dynamic phenomena. To this problem we shall come in Part III. For the present, I am content to have disproved the quantity theory contention that the volume of trade is independent of the quantity of money and credit. APPENDIX TO CHAPTER XIII THE RELATION OF FOREIGN TO DOMESTIC TRADE IN THE UNITED STATES[301] The word, "trade," as used in connection with statistics of foreign and domestic trade has been irritatingly ambiguous. Few writers, in speaking of domestic trade, have meant the same thing by trade that they have meant by the word when speaking of foreign trade, and hence we have had many pointless efforts to institute comparisons between the two, and some very misleading statements about the matter. Thus, figures have been offered which would show that the foreign trade of the United States is only a fraction of 1% of the domestic trade. This conclusion is reached by taking the figures for banking transactions discussed in Chapters XIII and XIX as representative of domestic trade, and comparing them with the annual figures for exports and imports. This procedure is fallacious for several reasons:[302] the figures thus reached for domestic trade exceed even the total trading within the country, as shown in Chapter XIX. In the second place, as shown in Chapter XIII, the bulk even of these deposits which do represent real trading grow chiefly out of speculation. Even in ordinary trade, goods are counted several times before reaching the final consumer. It is clear, therefore, that even an accurate figure for total trading within the country would have little relevance when we are seeking a figure to compare with exports and imports. Nor, if a comparison of the actual trading in which foreigners participate with the trading exclusively between Americans is sought, can we take the export and import figures as representative of the foreign trading--they do not include a multitude of highly important transactions in which foreigners participate. Very much of the business of the New York Cotton Exchange, the New York Stock Exchange, the Chicago Board of Trade, and other speculative markets represents foreign buying and selling, especially arbitraging transactions, and the other "invisible items" of foreign trade need merely to be mentioned for the economist to recognize the fallacy of a comparison which omits them. What figures are relevant when we wish to compare foreign and domestic trade? First we must make clear the purpose for which the comparison is to be made. If we are concerned with the calls made by foreign and domestic trade on the money market, we should make use of a different method of comparison than that which will be here employed. The purpose of the comparison here undertaken is to determine how much of our American labor, land and capital is at work producing for the foreign consumer, as compared with the land, labor and capital in America producing for the American consumer. The comparison here undertaken is concerned with the question which is usually uppermost in the minds of those who undertake such a comparison, namely, _how important_ is our foreign market to us? Obviously, for such a comparison as this, we should not count a given case of eggs twelve times merely because it changed ownership twelve times in getting from farm to breakfast table. Items of export and import count only _once_ in the figures for export and import. We must find a figure for domestic "trade" in which items count only once, allowing no turnovers of the same goods to swell the total, if we wish to make our figures comparable. The method proposed for making this comparison, for a long series of years, is a modification of the method used by the writer in an article in the _Annalist_ of Feb. 7, 1916. A figure based on the bank deposits of _retail merchants_ in Kinley's 1909 investigation was there taken as properly comparable with the export and import figures. The final sale to consumer by retailer is "the one far off divine event" toward which the whole productive process moves. Everything else in production and exchange looks forward to this. Ultimately, from the demand of the final consumer comes all the demand that is directed toward the agencies of production, even though the laborer sees his immediate market in the person of the employer, and the capitalist or landlord sees his immediate market in the person of the active business man. The figure reached for retail trade by the method then employed was $34,500,000,000 for 1909. This figure was too high, as shown in Chapter XIII above, and the figure reached now for retail _deposits_ by the same method is $32,000,000,000. Even this figure is too high, however, as I there concluded, to represent retail _trade_, and I shall use it only as a check on King's figure for _the total income of the United States in 1910_, which I shall use as a base figure instead of my own. King's figure for the total income of the United States in 1910 is $30,500,000,000.[303] I take this figure as including all that the American people spend for consumption, with retailers, physicians, hotels, theatres, etc., and also their net savings for the year. Part of this they spent for foreign products. The rest they spent at home. This residue spent at home gives us a figure which we may properly compare with the amount the foreigner spends in America, as indicating the ratio of foreign to domestic trade for the purpose in hand. We subtract, in other words, from the figure for total income the figure for _imports_. Then we compare the residue with the figure for _exports_, and get our ratio of foreign to domestic trade. The export and import figures must first, however, be reduced to a _retail_ basis. That is, assuming that wholesale prices are two-thirds of retail prices, we add 50% to the figures for exports and imports (which are wholesale figures) before making the subtraction and the comparison. The ultimate consumer, both in Europe and America, pays for imports and exports on a _retail_ basis.[304] This method, applied to the figures for 1910, gives us a ratio of about 10:1 for domestic to foreign trade--the lowest percentage for foreign trade which we shall find for any year in the period investigated, 1890-1916. This comparison is still unfavorable to foreign trade. Domestic trade, in our figures, includes savings and investments, including investments made by Americans abroad. Import figures are marred by undervaluations, exports are not all counted, and the figures for exports and imports do not include foreign investments in America. American investments abroad should not be counted as part of domestic trade. Moreover, our figures take no account of travellers' expenditures, or of services performed by professional men of one country for men in another, or of certain other "invisible items." But while this makes our percentage for foreign trade too low for all years, it probably does not greatly upset the results for yearly variations in the ratio except for the year 1916, when the figure for domestic trade is left decidedly too high, and the ratio for foreign trade is too low, as compared with previous years. For years other than 1910, indirect calculations must be resorted to for domestic trade. I have substantial confidence in the rough accuracy of the figure chosen for 1910 in view of the convergence of two widely different sets of data. My figure for retail deposits in 1909 is $32,000,000,000. King's figure for total income is $30,500,000,000 for 1910. King's figure seems to me a better figure to use for the purpose in hand. I use my own merely as a rough check on his. For years other than 1910, the figure for net income is calculated as a percentage of King's figure for 1910, by means of an "index of variation." It is assumed that the net income of 1905, for example, bears the same relation to the index for 1905 that the absolute figure for net income of 1910 bears to the index for 1910, and net income for 1905 is then computed by "the rule of three." The index of variation chosen is _railway gross receipts_ weighted by _wholesale prices_. I think that railway gross receipts are, on the whole, the most dependable and easily manageable index of physical volume of production that we have, though recognizing difficulties, later to be discussed, in using them for the purpose in hand. Railroads touch virtually every kind of business in the country. Variations in the _pecuniary_ volume of production and consumption, however, if due to rising or falling _prices_, rather than to changing physical volume, would not be indicated by changes in railway gross receipts. The same volume of transportation might represent widely varying pecuniary values of goods transported. Railway rates do not vary from year to year with prices of goods, even though high-priced goods are normally charged higher rates than low-priced goods. The index, therefore, must include _prices_ as well as physical volume of transportation. For 1910, therefore, railway gross receipts and an index of prices are multiplied together, and counted as 100%. The same thing is done for railway gross receipts and prices for other years, and the results reduced to percentages of the result for 1910. The figure for net income in any other year is then readily computed as a percentage of the figure for 1910. The results, for the years 1890-1916, appear in the tables below.[305] It may be noticed that my figures for net income in 1900 and 1890 do not correspond very closely with the figures for the same years as independently estimated by King. My figure for 1900 is $12,900,000,000, where his is $17,965,000,000; for 1890, my figure is $9,300,000,000, where his is $12,082,000,000. I am inclined to the view that the figures in my tables come closer to the facts for these years than do his figures, assuming that _his figure_ for 1910 is correct. It will be noticed that on his figures there was an increase of about 50% from 1890 to 1900, and an increase of only about 66% in the decade following. This seems to be an unlikely relation. One would expect a much greater rate of increase for the decade 1900-10, as compared with the preceding decade, than King's figures show. The period from 1890 to 1900 included the terrible panic of 1893 and the prolonged depression ensuing. The panic in 1907 was trifling in comparison, and recovery, as shown by our index numbers in the tables below, was very much quicker. Moreover, falling prices characterized much of the earlier decade. The highest prices of the whole ten years were in 1891. The period from 1900 to 1910 is a period of rapidly rising prices, on the whole. On the basis of our general knowledge of the two periods, one would expect a greater percentage gain by far for the second decade, and I therefore trust the results of the index of variation here chosen, which show that. Similar results are obtained by applying to the base figure for 1910 an index of variation derived from Kemmerer's and Fisher's figures for trade[306] and prices. My figure for 1890 may, moreover, be checked by comparison with the figure given by C. B. Spahr in _The Present Distribution of Wealth in the United States_ (p. 105) for the net income of the country for that year: $10,800,000,000. It may be that my figure for 1890 is too low, but I have not sought to "doctor" it by an arbitrary "correction factor" to make it correspond more closely than it does with the other estimates. It is striking enough that a figure derived from an index of variation, twenty years away from its base, should come as close as this to figures calculated from wholly different data. One brief comment may be made on the significance of these figures. It may be questioned if figures showing the proportions of our industry devoted to supplying goods for the foreign market correctly indicate the importance of the foreign market to us. It may be urged that if we should lose our foreign market, we should merely turn to producing more for the domestic market, and that the loss would not be the whole of our receipts from foreign trade, but merely the cost of transition, and the loss that comes from shifting to production to which we are less suited. This is, doubtless, true. But the loss reckoned this way may well be greater than the loss reckoned on the basis of my figures! It is equally true, moreover, that our domestic trade is not important to the extent indicated by my figures, since if we lose part of our domestic trade, our producers will turn to supplying more for the foreign market. But one must not regard the cost of transition as a negligible matter! The cost may easily be prolonged depression. Certain parts of our foreign trade are really vital to us, both on the import and (to a less degree) on the export side. The most important practical use to which the figures here given may be put are in connection with short-run problems. Foreign trade is so important to us that any sudden alteration in its amount may bring great adversity or great prosperity--as the course of the present War abundantly testifies.[307] An application of our method to the years 1850 and 1860 gives a percentage for foreign trade of 12.7 in 1850, and 16.0 in 1860.[308] Certain other cautions are needed in presenting these figures. For one thing, variations in railway rates will make a given volume of gross earnings mean different things in different years as to the physical volume of traffic. In the writer's opinion, which is confirmed by Professor W. Z. Ripley, there is no possible way of making allowance for this, as the cross-currents affecting railway rates are altogether too numerous and obscure. Nor has any effort been made to allow for variations in the proportions of freight and passenger receipts, or of different classes of freight traffic. Again, the proportions of railway traffic connected with foreign trade may vary greatly, and it may happen that a big increase in railway gross receipts is due to increasing foreign trade, primarily. There is reason to suppose that much of the increase of 1916 is to be explained that way. This makes our comparison for 1916 particularly adverse to foreign trade, since we count as domestic trade what is really foreign trade. The figures, however, are presented as they stand. Moreover, for 1916, the great increase in foreign trade is in _exports_. Merchandise imports are not much greater than in previous years.[309] Our exports have been chiefly paid for by "invisible items," gold and securities, and short term credits. These do not appear anywhere in our figures. A substantial source of error appears from this cause in our 1916 figure. I should think it safe to put the ratio for foreign trade to domestic trade for 1916 at above 20%, instead of the 17.9% our table shows. The reader will wish to know for a given year how much of the increase or decrease is due to physical growth of business, as represented by railway gross receipts, and how much is due to changes in prices. To give this information, and to make it easy for a critic to check the results, a table showing the index numbers from which the figures for net income are computed is subjoined.[310] TABLE I[311] 1 2 3 4 Ratio of Domestic Trade of Foreign Trade of Foreign Calendar Net Income United States = United States = to Years of the Net Income minus Exports at Retail Domestic United Imports at Retail Prices Trade States Prices 1890 $ 9,300,000,000 $ 8,100,000,000 $1,300,000,000 16.1% 1891 10,400,000,000 9,200,000,000 1,400,000,000 15.2% 1892 10,000,000,000 8,700,000,000 1,400,000,000 16.1% 1893 10,100,000,000 8,900,000,000 1,300,000,000 14.6% 1894 8,300,000,000 7,300,000,000 1,200,000,000 16.5% 1895 8,400,000,000 7,200,000,000 1,200,000,000 16.7% 1896 7,900,000,000 6,900,000,000 1,500,000,000 21.8% 1897 8,000,000,000 6,900,000,000 1,600,000,000 23.2% 1898 9,100,000,000 8,200,000,000 1,900,000,000 23.2% 1899 10,900,000,000 9,700,000,000 1,900,000,000 19.6% 1900 12,900,000,000 11,700,000,000 2,200,000,000 18.8% 1901 14,600,000,000 13,300,000,000 2,200,000,000 16.5% 1902 15,600,000,000 14,200,000,000 2,000,000,000 14.1% 1903 17,700,000,000 16,200,000,000 2,200,000,000 13.6% 1904 18,000,000,000 16,500,000,000 2,200,000,000 13.3% 1905 19,600,000,000 17,800,000,000 2,400,000,000 13.5% 1906 21,500,000,000 19,500,000,000 2,700,000,000 13.8% 1907 26,600,000,000 24,500,000,000 2,900,000,000 11.8% 1908 23,000,000,000 21,300,000,000 2,600,000,000 12.2% 1909 27,600,000,000 25,400,000,060 2,600,000,000 10.2% 1910 30,500,000,000 28,200,000,060 2,800,000,000 9.9% 1911 29,600,000,000 27,300,000,000 3,100,000,000 11.4% 1912 33,800,000,000 31,100,000,000 3,600,000,000 11.6% 1913 34,800,000,000 32,100,000,000 3,700,000,000 11.5% 1914 32,600,000,000 29,900,000,000 3,200,000,000 10.7% 1915 35,400,000,000 32,700,000,000 5,300,000,000 16.4% 1916 49,200,000,000 45,800,000,000 8,200,000,000 17.9% TABLE II. INDEX NUMBERS FROM WHICH THE FIGURES FOR NET INCOME ARE DERIVED 1 2 3 4 Composite Net Income[312] Dun's Prices R. R. Gross Index, R. R. Gr. of the United Calendar with base Receipts, Rcts. multiplied States in Years in 1910 reduced to by Prices. billions of base of (Column 1 × dollars: 1910 column 2.) 100:30.5::(3):$ 1890 76.5 39.8 30.8 $ 9.3 billions 1891 81.5 42.0 34.2 10.4 1892 75.6 43.5 32.8 10.0 1893 77.3 42.9 33.2 10.1 1894 71.5 38.1 27.2 8.3 1895 68.0 40.7 27.8 8.4 1896 63.8 40.6 25.9 7.9 1897 62.2 42.4 26.4 8.0 1898 66.4 45.1 29.9 9.1 1899 72.3 49.6 35.8 10.9 1900 78.1 54.0 42.1 12.9 1901 80.6 59.4 47.8 14.6 1902 84.0 62.6 51.3 15.6 1903 83.1 70.1 58.2 17.7 1904 84.0 70.3 59.0 18.0 1905 84.0 76.4 64.2 19.6 1906 88.1 85.0 70.5 21.5 1907 94.0 92.9 86.3 26.6 1908 92.4 81.8 75.6 23.0 1909 99.0 91.7 91.0 27.6 1910 100.0 100.0 100.0 30.5 1911 98.1 99.0 97.0 29.6 1912 104.1 106.9 111.0 33.8 1913 101.7 112.5 114.0 34.8 1914 102.5 104.5 107.0 32.6 1915 106.0 110.0 116.0 35.4 1916 125.0 129.0 161.2 49.2 CHAPTER XIV THE VOLUME OF TRADE AND THE VOLUME OF MONEY AND CREDIT In the argument so far I have said nothing of the reverse relationship, the dependence of the volume of money and the volume of credit on trade. The two are indeed _inter_dependent. Interdependence suggests circular theory, and is often a phrase to cover circular reasoning.[313] In the case of the relation under discussion, however, I have, I trust, already abundantly protected myself against the charge of circular reasoning by _denying_ that either volume of money and credit on the one hand, or volume of trade on the other hand, is a true cause at all. Both are mere abstract names, designating highly heterogeneous individual occurrences, which, _individually_ are cause or effect. In general, both volume of money and credit, on the one hand, and volume of trade on the other hand, are results of common causes, which are the _veræ causæ_ of economic phenomena--values, psychological phenomena. The whole thing is to be explained immediately and primarily in terms of social relationships and mental processes,--in terms of social values. To show that increasing trade tends to increase money and credit is not difficult. If one may venture a hypothetical illustration--and the sort of hypothetical illustrations, like the dodo-bone case, of which quantity theorists are fond make one hesitate to do so--let us assume a communistic community, isolated from other markets, with a developed system of production, including an extensive use of gold in the arts. Let the communistic régime gradually pass over to an individualistic régime. Assume that the inhabitants are acquainted with the use of gold as money, and that their government is willing to coin it freely. As individualism spreads, and trade grows, will not more and more gold be taken to the mints? I am not here concerned with the principles determining the apportionment of gold between the money employment and the arts. It is enough to show that expanding trade tends to increase the volume of money. Assume that the money supply meets difficulties in its expansion. Is there not at once an incentive to extend credit? The seller finds his customers unwilling to buy for cash, in amounts as great as before. In order to sell as much as before (assuming that the use of credit is known, to avoid trouble with historical origins), he extends credit,--which, when practiced generally, lightens the strain on the money supply. I have so far said nothing of the case where there are stocks of the money metal to be got from outside markets. But if a country is expanding its trade, does not money come in? The quantity theorists would, indeed, admit this, in general, though their reason is a bad one, namely: that expanding trade lowers prices, and lower prices make the market attractive to foreign buyers, who then send in money for the goods. I shall later discuss this aspect of the theory.[314] For the present, I merely interject the question as to the probability of an expansion of trade when prices are falling. Increasing _stocks_ of particular goods may well mean lower prices for these goods and if they be articles of export the lower prices may well increase the export trade, and bring money in. But this increase in _stocks_ of articles of _export_ is very different from total _trade_ within the country; and lower prices in articles of export are very different from a generally lower price-level.[315] Will expanding trade in a country increase credit? I come here to one of the striking features of Fisher's doctrine--a feature in which I think he is fundamentally true to the quantity theory. He finds no way in which expanding trade can directly increase credit. Expanding trade can increase credit, (a) only by changing the habits of the people, so as to alter the ratio, M to M´, or (b) by reducing the price-level, and so bringing in money from abroad, whence, as M is now increased, M´ rises proportionately. "An increase in the volume of trade in any one country, say the United States, ultimately increases the money in circulation (M). In no other way could there be avoided a depression in the price-level in the United States as compared with foreign countries. [He should say, from the standpoint of his theory, that increasing trade will cause a fall in the price-level, and so bring in more money.] _The increase in M brings about a proportionate increase in M´._[316] Besides this effect, the increase in trade undoubtedly has some effect in modifying the habits of the community with regard to the _proportion_ of check and cash transactions, and so tends somewhat to increase M´ relatively to M; as a country grows more commercial the need for the use of checks is more strikingly felt."[317] In a footnote to this paragraph, he defines the issue still more sharply. "This is very far from asserting as Laughlin does that 'The limit to the increase in legitimate credit operations is always expansible with the increase in the actual movement of goods'; see _Principles of Money_,[318] New York (Scribner), 1903, p. 82. We have seen, in Chapter IV, that deposit currency is proportional to the amount of money; a change in trade may indirectly, _i. e._, by changing the _habits_ of the community, influence the proportion, but, except for transition periods, it cannot influence it directly."[319] My own explanation of the causal sequence whereby expanding trade brings money into a country would be radically different from that given by Fisher in the first quotation. I should expect, first, that rising _prices_ would encourage rising trade; I should then expect the rising volume of trade, with higher prices, to lead borrowers to need, and secure, larger loans from the banks, with, as loans and deposits rise in proportion to reserves, some slight increase in "money-rates," just enough to draw to the country the extra gold which bankers felt desirable to add to their reserves. I should expect the causal sequence to be the exact reverse of that which Fisher indicates. With falling prices, or waning volume of trade--which would usually come together,[320]--I should expect loans to be reduced, deposits to be reduced, money-rates to fall, and gold then to leave the country again. I should expect this sort of thing to happen normally, and not infrequently, and I should expect gold to come in and go out many times in the course of a business cycle. This would seem to be the sort of explanation which our modern theory of _elastic_ bank-credit would give in connection with this problem. I shall not here go into details with the theory of elastic bank-credit. The theory has been too well established in the debates between the "Currency School" and the "Banking School"[321] in regard to bank-notes to need elaboration and defence here, and the essential identity of deposits and elastic bank-notes from this angle is one of the commonplaces of the literature of banking. What I am here concerned with is the highly significant fact that Fisher's "normal" theory finds no place for this highly important phenomenon. The quantity theory has no explanation of elasticity to give. On the basis of the quantity theory, and for all that the quantity theory can say, the Currency School was right! Fisher offers us, virtually, a "currency theory" of deposits. "Suppose, as has actually been the case in recent years, that the ratio of M´ to M increases in the United States. If the magnitudes in the equations of exchange in other countries with which the United States is connected by trade are constant, the ultimate effect on M is to make it less than what it would otherwise have been, by increasing the exports of gold from the United States or reducing the imports. In no other way can the price-level of the United States be prevented from rising above that of other nations in which we have assumed this level and the other magnitudes in the equation of exchange to be quiescent." (P. 162.) If "bank-notes" be substituted for "M´", in this quotation, we have here a perfect statement of the position of the "Currency School" in that great debate. Must this old issue be fought all over again? And yet, I defy any consistent quantity theorist to find any flaw in Fisher's argument on this point. There is no place for a theory of elastic bank-credit within the confines of the quantity theory. Fisher's recognition of this seems full and complete. He relegates all mention of elastic bank-credit to "transitions." The footnote quoted above, in which Laughlin's (somewhat extreme) doctrine based on the theory of elasticity is stated, denies categorically that there is any validity in it, except for transition periods. There is nowhere in the book any explanation of the theory of elasticity.[322] The references to it are few and grudging, and _always_ in connection with the notion of transitions. The most important statement regarding elasticity (less than a page long) is on page 161, where again transitional influences are under discussion. What is a theory of money worth which can offer no explanation of so fundamental, important, and notorious a feature of modern money and banking? There is a further, related, feature of banking for which the quantity theory can find no explanation. Among the items in a bank's balance sheet, the quantity theorist seizes upon reserves on the assets side, and deposits on the liability side, and builds his theory on the supposed close relation between them. We have seen that this close relation does not, in fact, exist. The range of variation is enormous.[323] But there is one close relation in the balance sheet of the bank concerning which the quantity theory is silent, and that is the relation between deposits and _loans_. For individual banks and for banks in the aggregate, for long run periods and for short run periods, for reasons that are clear and inevitable, these two magnitudes (or for banks of issue on the Continent of Europe, _notes_ and loans), vary closely together. The relationship between them is the only relationship which does stand out as clearly beyond dispute, among all the items in the banking balance sheet. No assumptions of a "static state" are needed for its demonstration! The relation varies, of course. As banks increase or reduce their capital, as their reserve-percentages rise or fall, as they increase or decrease their holdings of bonds, we find reasons which alter the proportion between deposits and loans. But, despite this, the variation, as shown by figures for the United States, is slight. Assume, for example, a statement showing "loans and discounts" of $1,000,000, deposits, $1,000,000, cash reserve, $200,000. Reserves are then 20% of deposits, and loans are 100% of deposits. If reserves be increased by $100,000 and loans and discounts reduced, to compensate, by $100,000, we have a 50% variation in the ratio of reserves to deposits, with only a 10% variation in the ratio of loans and discounts to deposits. Since cash reserve is much the smaller item, almost always, the same absolute variation in it will affect it, in percentage, vastly more than it will affect loans and discounts. It is strange that a theory should seize on this highly variable ratio of reserves to deposits, and ignore the much more constant ratio[324] of loans and discounts to deposits. That this close relation between deposits and loans should obtain follows naturally from the theory of elastic bank-credit. The two are built up together. When there are expanding business and rising prices, men borrow more from the banks; as they borrow, they receive deposit credits; the individual who receives the deposit credit may check against it, but it is redeposited by another man, and so, while the deposits of one bank need not grow out of its loans, still, for banks in general, deposits are large because loans are large. For a given bank, the relation holds closely, because the bank lends, in general, to active business men, who will have income as well as outgo, and whose income will, on the average, at least balance their outgo. Thus, _through loans_, deposits are linked with volume of trade and prices. Trade and deposits wax and wane together.[325] On the other hand, in the absence of rising prices and increasing trade, reserves may increase greatly without forcing an increase in deposits. Loans cannot increase without an increase in deposits. The linkage between deposits and trade is definite, causal, positive, statistically demonstrable. The linkage between reserves and deposits is, at most, negative--if reserves get too low, deposits and loans may be checked in their expansion. But this--to the extent that it is true, which we leave, for detailed analysis, for Part III--gives a very much looser relation indeed than the direct relation between loans and deposits. The quantity theory has offered no explanation of this relation between loans and deposits. What explanation could a theory offer, which rests in the notion that volume of trade on the one hand, and volume of money and bank-credit on the other hand, are independent magnitudes?[326] I do not mean that quantity _theorists_ are silent regarding the relation of loans and deposits. I mean that they do not attempt, in any discussion I have found, to apply the quantity _theory_ to the explanation of that relation. What shall we say of a theory which, ignoring these easily proved, easily explained, and vital facts regarding bank-credit, offers as its sole explanation of volume of bank-credit a theory so untenable as that of a fixed ratio between volume of bank-credit and volume of money _in circulation_, with causation running from money to deposits? Professor Fisher says little about bills of exchange. Here, surely, we have a credit instrument which grows directly out of trade, in general, and whose volume expands and contracts with trade. When banks discount bills of exchange, and issue notes, or grant deposit credits, against such discounted bills, the connection of bank-credit and volume of trade is obvious. The same thing holds largely, however, when promissory notes are discounted. Such notes are usually given by those who plan to use the credits granted in commercial or speculative transactions. The bill of exchange differs from the promissory note in practice, however, in that it itself is often a medium of exchange, without going into the bank's portfolio. "The bill of exchange, therefore, before it gets to the bank _usually_[327] performs a series of monetary transfers, for the small dealer naturally prefers to pass on the bill, if possible, in making a payment, instead of handing it over to his bank, which would either deduct a certain percentage in the way of discount, or else accept the bill at its face value, crediting the customer with the amount on the date of maturity, while business men (other than bankers) are in the habit of taking bills of exchange as they would cash."[328] This quotation describes conditions in Germany. The same authorities (p. 176) give figures showing a rapid development in the volume of bills of exchange, rising from about 13 billions of marks in 1872 to about 31 billions in 1907. These figures show that bills of exchange are a big factor in German business life,--a conclusion that is strengthened when they are compared with the figures for giro-transfers on pp. 188-189 of the same article, or with the figures for note issue on p. 209.[329] In the United States, of course, the use of bills of exchange has become comparatively unimportant in domestic commerce,[330] though there is a movement to revive them, since the new Federal Reserve system has come in. Their chief importance is in connection with foreign trade. Is it possible that Professor Fisher's reason for wishing to minimize foreign trade[331] is the unconscious desire to get rid of the annoying bills of exchange, which so obviously tend to make bank-credit and volume of trade interdependent, and which further spoil the quantity theory by serving as a flexible substitute for both money and deposits? I regret the necessity for this elementary exposition of familiar things. But Fisher's theory has no place for these familiar things--and Fisher has merely made very explicit the logic of the quantity theory! As applied to modern conditions, the quantity theory is obliged to assert--and Fisher does assert: (a) that there is a causal dependence of bank-credit on money, and "normally" a fixed ratio between them; (b) that velocity of circulation of money and credit instruments are independent of quantity of money and credit instruments; (c) that, in general, money and volume of credit (taken together), velocities, and trade, are independent magnitudes, each governed by separate laws, though Fisher concedes _some_ reaction of trade on velocities; (d) in particular, that volume of money and credit has no influence on trade, and that trade has no direct influence on volume of credit. All these doctrines are necessary if the contention that an increase of money will proportionately raise prices is to be maintained, or if it is to be maintained that a decrease in trade will proportionately raise prices. I have analyzed each of these contentions, and I find justification for none of them. Not yet, however, have we reached the least tenable aspect of the quantity theory. There remains the contention that prices are passive, that a change, _originating_ in prices, and involving a change in the average price, or the general price-level, cannot maintain itself--that P is a passive function of the other five magnitudes of the equation of exchange. To this central fortress of the quantity theory we shall devote the next chapter. CHAPTER XV THE QUANTITY THEORY: THE "PASSIVENESS OF PRICES" Is the price-level passive? Is it true that while change may occur from causes outside the equation of exchange in volume of money, volume of trade, and velocities of circulation, a change in the price-level from causes outside the equation is impossible? Must the average of prices be a passive function of M, the V's, M´ and T? Such is the general contention of the quantity theory, and such, very explicitly, is Fisher's contention. The price-level is always effect, and never cause (with slight modifications of the doctrine for transition periods) in its relations to the other magnitudes in the equation of exchange. Now in one sense, it is my own contention that the price-_level_ can never be a _cause_ of anything. The price-level is an _average_. Averages may be _indicia_ of causation, but they are not themselves causes. They are not, in reality, anything _at all_. Causation is a matter which pertains to the particulars of which the average is made. But this is not the doctrine of the quantity theory. The quantity theory does, in certain connections, assign causal influence to the level of prices, particularly in the theory of foreign exchange, where the explanation of international gold movements rests on the doctrine that a price-level in one country, higher than the price-level of another country, drives money away.[332] It will be seen, in a moment, that Fisher relies on this principle to prove that the price-level of a country cannot rise without an increase of money--if it did so rise, it would drive out the money, and so be forced down again. The point at issue may be stated in terms of particular prices. The quantity theory is that, while particular prices may rise from causes affecting them, as compared with other prices, without a change in money, velocities, etc., still there cannot be a rise in the general average, because other prices will be obliged to go down to compensate. The issue is as to the possibility of a rise in particular prices, uncompensated by a corresponding fall in other particular prices, without a _prior_ increase in money, or velocities, or decrease in trade. I take up the issue in this form. I shall maintain that particular prices can, and do, rise, without a _prior_ increase in money or bank-deposits, or change in the volume of trade, or in velocity of money or deposits and also without compensating fall in other particular prices. Putting it in terms of Fisher's equation, I shall maintain, as against Fisher, that P can rise through the direct action of factors _outside_ the equation of exchange, that as a _consequence of such rise_ the other factors readjust themselves, and that a new equilibrium is reached which, in the absence of new disturbances from causes outside the equation, tends to be as permanent and stable as the old equilibrium was. In the argument which follows, I shall respect thoroughly the distinction between "normal" and "transitional" effects. I do not think that this distinction is properly drawn by Fisher. In my discussion of the relation between the volume of bank-credit and the volume of trade, and in other connections, I have shown that Fisher leaves out of his normal theory most of the concrete factors which do affect both the concrete magnitudes, and the long run _averages_, of the factors in his own equation. But for the present, I shall meet him on his own ground, give his distinctions their fullest weight, and carry my argument through the "transition" to a point where no further change among the factors in the equation can be expected as a consequence of the initial change assumed. Fisher's argument to show the passiveness of prices takes the form of a _reductio ad absurdum_. "To show the untenability of such an idea let us grant for the sake of argument that--in some other way than as effect of changes in M, M´, V, V´, and the Q's--the prices in (say) the United States are changed to (say) double the original level, and let us see what effect this will produce on the other magnitudes in the equation."[333] Then, if the equation of exchange is to be maintained, either M or M´ or their velocities must be increased, or trade must be reduced. But he holds that none of these is possible. (1) Money will be reduced. High prices drive money away to other countries. Nor can gold come in via the mints. "No one will take bullion to the mints when he thereby loses half its value."[334] On the contrary, men will melt down coin. Nor will high prices stimulate mining. Rather, by raising the expenses of mining, they will discourage mining. (2) Bank-deposits cannot increase. Bank-deposits depend on the amount of money, and as that is reduced, they must be reduced, to keep their normal ratio to the volume of money. (3) The appeal to velocities is no more satisfactory. These have been already adjusted to individual convenience.[335] (4) Nor can trade be decreased. Since the average person will not only pay, but also receive, high prices, there is no reason why he should reduce his purchases. "_The price-level is normally the one absolutely passive element in the equation of exchange._"[336] "But though it is a fallacy to think that the price-level in one community can, in the long run, affect the money in _that_ community, it is true that the price-level in one community may affect the money in _another_ community. This proposition has been repeatedly made use of in our discussion, and should be clearly distinguished from the fallacy above mentioned. The price-level in an outside community is an influence outside the equation of exchange of that community, and operates by affecting its money in circulation and not by directly affecting its price-level. _The price-level outside New York City, for instance, affects the price-level in New York City only_ via _changes in the money in New York City_."[337]... "Were it not for the fanatical refusal of some economists to admit that the price-level is in ultimate analysis effect and not cause, we should not be at so great pains to prove it beyond cavil." To explain this "fanatical refusal," Fisher alludes to the "fallacious idea" that the equation of exchange cannot determine the price-level, because the price-level has already been determined by other causes, usually alluded to as "supply and demand." He urges, however, that supply and demand, cost of production, etc., relate, not to the price-level, but only to particular prices: that the price-level is a factor prior to, and independent of, the particular prices, and is presupposed by theories like supply and demand, cost of production, etc.[338] The _reductio ad absurdum_, at first blush, looks impressive. One obvious criticism suggests itself, however, and it will be found to give a clue to a much more fundamental criticism: is it reasonable to assume a doubling of _all_ prices? Above all, must the assumption involve the doubling of the price of gold bullion? Part of the argument to show that gold bullion would not be minted rests on that assumption. But, more fundamental, for such an all round doubling of prices, no _cause_ could be assigned. Of course the hypothesis of an increase in prices without any cause is absurd, and Fisher easily disposes of it. But suppose we assign some _concrete causes_, outside the equation of exchange, which might affect prices, and see how the thing works then! Fisher states on p. 95 that "other elements in the equation of exchange than money and commodities[339] cannot be transported from one place to another." And in the passage quoted above he maintains that price-levels in one country can influence price-levels in another country, or even price-levels in one city can influence price-levels in another city, only _via_ changes in money, in the second country or city. But other elements in the equation are _directly_ transferable, in fact. _Deposits_, _e. g._, in London, to the credit of New York bankers, may be transferred to Paris, directly, by _cable_ or by _letter_, and _prices_ are constantly being directly passed from one country or market to another by the same media. Let us suppose a strong case, to put our principle in relief. Assume an island, which produces a staple widely used, whose chief centre of production is outside the island. Assume that this staple, an agricultural product, rises greatly in price, owing to a blight, which promises to be permanent, in the main producing region. The blight does not affect the island, however. Let this product be the main product of our island, which we shall assume to be small. Let the island have communication with the outside world by boat only once in three months. Let it be, however, in constant communication by cable. Word comes by cable of the rise in the price in the staple. The staple at once rises in the island. No new money has come in to cause it. Will this be a rise in the price-level? Will there be compensating reductions in the prices of other things to leave the price-level unchanged? What prices can fall? Not the prices of goods that have been imported to the island, surely. They will rather tend to rise, because everybody on the island will feel richer than before, and will be disposed to buy more freely. Meanwhile, merchants and bankers on the island will be more ready to extend credit than before, so that they will be able to buy more freely. What else can fall? Not the prices of the land! Rather, the land will rise in price greatly, because the increased price of the staple, expected to be permanent, will promise bigger rents, and the price of the land, being a _capitalization_ of the annual rental, will rise very much more than anything else--it will rise to the extent of the capitalized price of the increase in the rents. Wages, likewise, will rise, since the price of the product of labor has risen. And the capital instruments in use in producing the staple will also rise, though not so much as land and wages, inasmuch as they can be brought in from outside at the end of three months. What is there that can fall--except, perhaps, such goods as are exclusively designed for the construction of poorhouses! A significant particular price rises--that is the first step; then, from causes familiar to all students of economics, other related prices rise; there is a general _sympathetic_ rise in prices, the _price-level_ has risen independently, from causes _outside the equation of exchange_. But now, can this rise sustain itself? Well, what can bring it down? When the ship comes, at the end of three months, it will bring in additional supplies of the articles of import, and they will go down to their old level. Will they go any lower than the old level? What is there to cause them to do so? The outside price-level should be higher now, rather than lower, since the _stock_ of the staple in question is reduced, and nothing else increased to compensate. Nor can any reason be assigned why other prices on the island: the staple in question, lands, wages, etc., should fall at all from the level they reached when the news first came. Incidentally, our ship may also bring in more gold. The bankers, finding their deposits expanding, may feel it well to cable orders for more gold to increase their reserves, especially as they have been subject to somewhat unusual calls for cash for hand to hand circulation--though this last need they might well have been meeting by expanding their note issue. Is there anything else to be said? Is not the new equilibrium stable? And is not the causal sequence precisely the reverse of that assigned by the quantity theory? _First_. a rise in prices; _second_, an expansion of credit, book-credit, notes and deposits; _third_, money comes in. If anyone is particularly anxious about the equation of exchange in this process, he may add to my expansion of credit an increase in velocities to keep it straight! I may add that I see nothing in the "transition" I have described to cause trade to be reduced. Rather, I should expect the rising prices to make trade more active--or better, I should expect the rising _values_ of goods, etc., of which rising prices are the symptom, to make trade more active, particularly as there would be an increase in speculation to bring about readjustments, and to "discount" the prosperity. Nor can I find any reason why trade should be reduced below the old level in the new normal equilibrium. It would make no difference, however, if trade were reduced either transitionally or normally, since the point at issue is the possibility of a rise in prices originating from causes outside the equation of exchange, and compelling a readjustment of a permanent character in the other factors of the equation. The quantity theorist is at liberty to make this readjustment in any way he pleases. My point is made if he has to make the readjustment, and if the price-level stays up! I have put my illustration in an extreme form to throw the whole thing in relief, and to make the demonstration free from a host of complexities. But is not the causal process essentially the same if we substitute, say, the Southern States for our island, and cotton for our staple? So long as the telegraph bringing news of the ruin of cotton production in India and Egypt, with the higher price of cotton, can come in ahead of the money that the quantity theorist might imagine rushing in a race with it on the train to be offered for the cotton, my point is made. In point of fact, there would be a general rise in prices and wages in the South, which, leading to an expansion of credit, would only gradually and in no definite ratio lead to an increase in money drawn from outside. Buyers outside would pay, not with money, but with checks drawn on New York, and Southern bankers would use their discretion as to how much actual cash they would bring in. With the elastic note issue of our Federal Reserve system, I see no reason to anticipate that money would be drawn to the South in an amount proportionate to the increase in prices. Even if it were, the causation would not run from money to prices, and that is the point at issue. If _rising_ prices can cause increasing money, the whole quantity theory is upset, whatever the proportions involved. It will be noted that my illustration might be put partly in the form of the supply and demand argument. Increasing demand for cotton in the South leads to higher price of cotton; higher price of cotton makes cotton-growers richer, and enables them to increase their demand for imported goods, for land, and for labor. Supply and demand comes into conflict with the quantity theory, and does not suffer in the conflict! Supply and demand determine particular prices, and particular prices determine the price-level! Now I wish to generalize this point. I shall show that the quantity theory conflicts with most of our doctrines of prices, as worked out in our systems of economics. I shall show that, in important cases, the quantity theory conflicts with the law of supply and demand, with the doctrine of cost of production, with the capitalization theory, and with the doctrine of imputation as worked out by the Austrians, whereby the prices of labor, land, and other agents of production rise or fall with the prices of the consumption goods which they produce. I shall show the conflict in important cases, and shall show also, in those cases, that it is not the quantity theory which can be sustained. The general form of the conflict may be stated for all these theories. They are theories of the _relations_ of particular prices, concerned with showing that individual prices are so related that they tend to _vary together_. A rise in one price, according to these theories, tends to bring about _rises_ in others, and _vice versa_. The quantity theory, on the other hand, asserts a relation among individual prices such that a rise in one tends to bring about a _fall_ in others--it requires a _compensatory_ fall at one point, if there has been a rise somewhere else. Let us take some cases. I shall take, first, the conflict between the quantity theory and the capitalization theory, as I can use the illustration just given in connection with it. I have, in a preceding chapter, given a statement of the capitalization theory. It is a theory concerned with the prices of long-time goods and income-bearers, as lands, houses, capital goods of various sorts that give forth their services through a series of years, stocks, bonds, etc. The prices of things of this sort, according to the capitalization[340] theory, depend on two factors: one, the money income expected from the income-bearer, the other, the prevailing rate of interest. This money income, except in the case of bonds, commonly depends on the prices of the products of the income-bearer, or (in the case of stocks) of the products of the concrete capital-goods to which the income-bearer gives title. If we may follow the Austrian division of goods into higher and lower "orders," or "ranks," we may say that the prices of the goods of higher ranks are the capitalizations of the prices of the goods of lower ranks specifically produced by them. Thus, concretely, if the price of wheat rises, we may expect the prices of land to rise, if the rate of interest remains the same. If the price of steel rises, we may expect the stocks of the U. S. Steel corporation to rise, also. If the prices of smokeless powder, and other war munitions soar, we may expect the prices of the stocks of the corporations involved to do precisely what they have done in the recent course of the stock market. All this, on the assumption that the rate of interest does not change, and that the risk factor remains constant. If these factors vary, the results will not present the mathematical exactitude that the formula calls for, but the general tendency will remain the same. On the other hand, if the incomes remain unchanged, but the rate of interest rises, then we may expect the capitalized prices to fall, and if the rate of interest falls, we may expect the capitalized prices to rise. From the standpoint of the present discussion, I suppose it might be fairest and best to state the capitalization theory on this point as Fisher himself states it. In his _Elementary Principles of Economics_ (ed. 1912) after giving a table showing in figures the difference made in different capital prices by different rates of interest (p. 125) he states (126): "If the value of the benefits derivable from these various articles continues in each case uniform, but the rate of interest is suddenly cut down from 5% to 2-1/2%, there will result a general increase in the capital values, but a very different increase for the different articles. The more enduring ones will be affected the most." And in his book, _The Rate of Interest_: "The orchard whose yield of apples should increase from $1,000 worth to $2,000 worth would itself correspondingly increase in value from, say, $20,000 to something like $40,000 and the ratio of the income to the capital value, would remain about as before, namely, 5%." (P. 15.) On the next page, he generalizes his notion: "One cannot escape this conclusion (as has sometimes been attempted) by supposing the increasing productivity to be universal. It has been asserted, in substance, that though an increase in the productivity of one orchard would not affect the total productivity of capital, and hence would not appreciably affect the rate of interest, yet, if the productivity of all the capital in the world could be doubled, the rate of interest would be doubled. It is true that doubling the productivity of the world's capital would not be entirely without effect upon the rate of interest; but this effect would not be in the simple direct ratio supposed. Indeed, an increase of the productivity of capital would probably result in a decrease, instead of an increase, of the rate of interest. _To double the productivity of capital might more than double the value of the capital._" (_Rate of Interest_, p. 16.)[341] Fisher reiterates this doctrine in his reply to Seager, in the _American Economic Review_, Sept. 1913, pp. 614-615. Now my concern here is not with the points at issue as between Fisher and Seager: the "impatience" vs. the "productivity" theories of interest. For the present, I shall accept Fisher's doctrine on that point as true.[342] I am here interested in Fisher's doctrine that a doubling of the general productivity of capital would double, or more than double, the prices of capital instruments, including land. How is such a general rise in prices possible, if the quantity theory be true? Is not this a rise in general prices from causes outside the equation of exchange? That Fisher means the _money-prices_ of capital goods when he speaks of capital-values is perfectly clear. In the second quotation, he speaks of "capital-value of $40,000", and in general, his definition of value runs in terms of _price_ (_e. g., Purchasing Power of Money,_ pp. 3-4, and _Elementary Principles_, p. 17). Fisher has no absolute value concept in his system. We have in the passages cited two doctrines, both of which contradict the quantity theory: (1) that a reduction in the rate of interest will raise capital-prices (which are the largest factor by far in the price-level), and (2) that an increase in the product of capital goods means, not only more money paid for the products, but also more money paid for the production-goods. Incidentally, the general imputation theory would call for more money paid to laborers as well. How can all this be, on the quantity theory? And what can the poor equation of exchange do in such a case, if money does not increase, if bank-credit is limited by money, if velocities of circulation are fixed by individual habits and convenience, if trade _increases_ as a consequence of the increased number of goods produced, and if prices rise? It will not help much to assume that the productivity of gold mines is doubled also. The quantity of money does not depend very much on the annual production of gold. Besides, money need not, from the standpoint of the quantity theory, be made of gold. It might be irredeemable Greenbacks, fixed in quantity by law, or even dodo-bones! Would not the capitalization theory apply in the Greenback Period? I shall not try to solve the riddle. I am not responsible for it! The conflict between the capitalization theory and the quantity theory may be more simply stated. Assume that the prices of consumers' goods and services rise, quantity of money and volume of exchanges remaining unchanged. On the quantity theory, other prices, the prices of producers' goods and services, lands, and securities, would have to come down enough to compensate, in order that the price-level might remain unchanged. For the capitalization theory, however, the prices of lands, securities, and long time capital goods in general would have to rise, since the incomes on which they are based have risen. Wages of labor engaged in making consumers' goods would also have to rise, on the general imputation theory. The quantity theory conflicts with the capitalization theory. The quantity theory as presented by Fisher conflicts with the capitalization theory as presented by Fisher. Which theory is true? Would prices rise thus, or would they be held down in some way by the limitations on the quantity of money? I hold that I have already proved, in the reasoning given in connection with my hypothetical island, and in the case of the South with its cotton, that the capitalization theory tendency would prevail. The prices of products rise, and then the prices of the labor, land, and other capital goods which have produced them, rise, the rise in the prices of the capital goods behaving in accordance with the laws of the capitalization theory, and all of the rises after the initial rise in products being in accordance with the imputation theory of the Austrians. This conflict suggests an interesting point. Various elements in our economic theory, added from time to time by different writers, have necessarily come from different philosophical and sociological view-points, and have behind them different philosophical, psychological, and sociological assumptions. The quantity theory, developing, as shown in the chapter on "Supply and Demand and the Value of Money," largely in isolation from the general body of economic theory, has a background of psychological and sociological assumptions quite different from that of many other doctrines. In the chapter on "Dodo-Bones," I stated these assumptions. The quantity theory rests in a psychology of blind habit. It assumes a rigidity in the social system such that it might be likened to a machine, with a hopper into which money is poured, which grinds out prices at the other end. I set this in contrast with the psychological assumptions underlying the commodity theory of money. That theory rests on the "banker's psychology." It assumes a highly reflective and calculating attitude on the part of economic men, with the disposition to look behind appearances for the security, to test things out, to get to bedrock in business affairs. Now the capitalization theory likewise assumes this banker's psychology. In its refinements, as represented by the mathematical formulæ in the appendices of Fisher's _Rate of Interest_, it assumes a degree of precision in business calculation which few experts in bond departments apply, and which the highly fluid and alert dealers in Wall Street certainly have not time for, even if they had that degree of mathematical knowledge! In practice, it need not be said, particularly in the case of the prices of lands, the capitalization theory finds its predictions very imperfectly realized! But the two theories, resting in such divergent psychological assumptions, may be expected, _a priori_, to conflict. That they do conflict is not remarkable. I shall show a similar conflict between the quantity theory and the law of costs. In general, the quantity theorist thinks that he has reconciled his theory with cost theory by pointing out that reduced costs manifest themselves in increasing production, which means increasing trade, which should, on the quantity theory, mean lower prices.[343] I need not, for my purposes, analyze this doctrine in detail, though I am disposed to consider it an accident that the two theories converge at this point. For the present, I shall analyze a case where reducing costs actually come as a consequence of the _reduction_ in the volume of trade, and inquire whether such a case will lead, as the cost theory would assert, to lowered general prices, or, as the quantity theory would assert, to _higher_ general prices. The case is that where by improved methods of handling goods, it is possible to dispense with middlemen. Concretely, assume that retailers of milk get in direct touch with dairymen, so that middlemen are eliminated, and that as a consequence the price of milk is reduced two cents a quart. What of the general price-level? T (trade) is reduced. There are less exchanges. Volume of trade does not mean volume of goods _produced_, but volume of _exchanges_. With a reduced trade, the quantity theory must assert that prices of commodities other than milk must, on the average, rise, not merely enough to compensate for the fall in milk, but more than that, enough to compensate for the reduced trade as well. But how can the other prices rise? Well, a point comes up obviously: the buyers of milk save two cents a quart. They can spend it for something else. This will raise the prices of other things. But, on the other hand, the middlemen now have less to spend. They have _exactly as much less_ as the others have _more_, the extra money that milk buyers have being, in fact, the money that the middlemen would otherwise have had. The one offsets the other. There is, then, no reason for the average of other prices to rise. Suppose we carry the process one step further. After a while, the middleman will find other work to do. Then they will have incomes again to spend. But in going to work again, they will be engaged in production, and so will, in general, be increasing the volume of trade. The quantity theorist could not expect a rise in prices from this! And here we are given a clue to a fundamental confusion in the quantity theory, a confusion which, accepted by the reader, gives the quantity theory much of its plausibility. I refer to the confusion between _volume of money_, and volume of _money-income_.[344] The two need not be the same. The two generally are not the same. In the case I have described, the one has changed without a change in the other. Now if one wishes to view the process of price-causation from the standpoint of money offered for goods,--an essentially superficial,[345] but frequently useful, view-point--it is clearly money-_income_, rather than mere quantity of money in the country that is important. Into the determination of volume of money-income, however, come factors of a high degree of complexity, among them, prices for which there is no possible place within the confines of so simple and mechanical a doctrine as the quantity theory. In passing, I notice a point to which I called attention in discussing Fisher's factors in the equation of exchange. I refer to his definition of velocity of circulation as the average of "person-turnovers" of money.[346] In the illustration given, there is no reason to suppose that this average is changed. The middlemen simply drop out of the average. They have no money to turn over! But velocity of circulation, defined as "coin-transfer," (_cf._ _supra_, p. 204) has clearly changed. The course of money has been short-circuited. It goes through fewer hands in the course of a given period. This last concept of velocity of circulation is clearly the one that must be used, if the equation of exchange is to be kept straight. But this fact should make it clear that velocity of circulation, instead of being the inflexible thing that Fisher has described, resting in individual habits and practices, a true causal factor in the price making process, is really a highly flexible thing, in large degree a passive function of trade and prices. With this distinction between volume of money and volume of money-income[347] clearly held, we are prepared to go further in our attack on the quantity theory, granting the quantity theorist all his most rigorous assumptions, and still demonstrating that prices can vary independently, without prior change in quantity of money, volume of trade, or velocity of money. Let us assume the extreme case of the quantity theory: a closed market; no credit; no barter; a fixed supply of money; a fixed volume of trade; a fixed set of habits affecting velocity, namely, that everyone spends, in the course of the month, all that he has accumulated by the first of the month. The quantity theorist could not ask a more iron-clad set of assumptions than this! If the quantity theory is not valid here, if the price-level is not absolutely fixed, helpless to change, with these assumptions, then the quantity theory, even as a minor tendency, must be surrendered, and the quantity theorist must admit that the whole line of thought has been fallacious. But is the price-level passive? Suppose we assume a combination of employers of maid-servants, which forces down the wages of maid-servants from $20 to $10 per month. Assume further that there is no alternative employment for the maid-servants, so that they all remain at work.[348] So far, we have made a change in _one_ price, the price of domestic service. What of the general average of prices, the price-_level_? Well, so far, the price-level is down. If nothing else takes place, we have reduced the price-level by reducing one price. What else can take place? Two things: (1) the masters now have $10 per month each more to spend for other things than before. That tends to raise prices in their other channels of expenditure. (2) The maid-servants now have $10 each less to spend,--the same ten dollars! That lessens prices in the lines of their expenditure. These last two changes exactly neutralize one another. The first change, in the price of domestic service, remains unneutralized. The general price-level is, then, lowered--by a cause acting from outside the equation of exchange, directly on prices. The first change comes in one price. In the final adjustment, that change remains unneutralized. How is this possible? Is the equation of exchange still valid? As a mathematical formula, yes. As expressing a causal theory, in which prices are effect, and money, trade, and velocity causes, no. The equation is kept straight by a reduction in velocity. _Because_ the wages of maid-servants are reduced, _less_ money goes through their _hands_; $10 per month per maid are short-circuited. But the _cause_ is with the _prices_. The price-level, even under these absolutely rigorous assumptions, is not passive. In general, I conclude that the price-level, under the laws governing particular prices, supply and demand, cost of production, the capitalization theory, the imputation theory, etc., can vary of its own initiative, independently of prior changes in the quantity of money, or of volume of trade, or other factors that the quantity theory stresses; and that these changes in the price-level (or in the particular prices which govern the price-level) can maintain themselves, and compel a readjustment in trade, credit, money and velocities, to correspond. This conclusion strikes at the very heart of the quantity theory, and, if valid, leaves the quantity theory disproved. More fundamentally, I should put it, prices can change because of changes in the psychological values of goods. These values are _social_ values, and are to be explained only by a social psychology. But for the present it has seemed best to me, as a means of attracting sympathetic attention from a wider circle of economists, to make use of the less debated doctrines of the science in attacking the quantity theory. It is not necessary to rest the case on my own special theory of value. Supply and demand, cost of production, the capitalization theory, the imputation theory--the general laws of the concatenations and interrelations of prices--are quite adequate for the confutation of the quantity theory. They are laws concerned with particular prices, and the price-level is nothing but the average of particular prices. Whatever explains, really explains, the particular prices, also explains the price-level. Fisher, as we have seen, is not of this opinion. Although he has defined the price-level as an average of particular prices[349] he none the less exalts this average into a causal entity, prior to and master of the particular prices out of which it is derived, of which it is a mere average.[350] This average, he maintains, is presupposed in the determination of all particular prices.[351] This seems to me a wholly untenable position. _Ex nihilo nihil fit._ There cannot be _more_ in the average than there is in the particulars from which it is derived. In point of fact, there is necessarily vastly less. All the concrete causation is lost. The average, in itself, is nothing but a _statement_, a summary of _results_. I know nothing more metaphysical in the history of economic theory than this hypostasis of an average.[352] I reject Fisher's notion that the average of prices is an independent entity. But I do not consider that the idea lying behind this untenable doctrine is absurd. Cost of production, supply and demand, and the other price theories _do_ presuppose something more fundamental. They do presuppose _money_, and the _value_ of money, as has been shown at length in Part I. The trouble with Fisher's notion comes in his definition of the value of money in purely relative terms as the _reciprocal of the price-level_, and his contention that the study of the value of money is identical with the study of price-levels.[353] Value is not a mere exchange relation.[354] Rather, every exchange relation involves _two_ values, the values of the two objects exchanged. These two values _causally_ determine that exchange relation. In the case of particular prices, then, we must consider not only the value of goods, but also the value of money. And the causes determining the general price-level will therefore include not alone the values of goods, but also the value of money. In the foregoing arguments by which I have shown that the price-level can vary independently of the other factors in the quantity theory scheme, I have been concerned only with changes in the values of goods, measured by a constant unit of value. If the value of money should also be varying, the concrete results on the price-level would have been different. On the face of things, there was nothing in the cases I discussed to require us to suppose that the value of money would also vary. The argument ran on the assumption of a fixed value of money. I have shown, in earlier chapters, that the assumption of a fixed value of money is fundamental to the laws of supply and demand, cost of production, and the capitalization theory. In point of fact, this assumption is rarely true--never strictly true. For causes which are in considerable degree independent of the causes governing the values of goods (as the causes governing their values are in considerable degree independent of one another), the value of money varies, now in the same direction as the values of goods in general, now in an opposite direction. Further, money itself does not escape the general laws of concatenation of values. The value of money has causes which are bound up with the values of other goods. Thus, when prices are rising and trade expanding, there is a tendency--commonly a minor tendency--for money also to rise in value, and so prices do not go quite as high as they would have gone had money remained constant. This tendency arises from the fact that there is more work for money to do in a period of active trade and rising prices. Gold also tends to rise in value in the arts, with prosperity. The reverse tendency manifests itself when prices are falling: money tends, in some measure, to fall in value with the goods,[355] and so prices do not fall as far as they would fall if money remained constant. But in general, the causes governing the values of goods, and the causes governing the value of money, are sufficiently independent to justify us in studying each separately, in abstraction, on the assumption that the other is unchanged. Hence, supply and demand, cost of production, and the other price theories, which assume a fixed value of money, are proper tools of thought for the study of the prices of goods. CHAPTER XVI THE QUANTITY THEORY AND INTERNATIONAL GOLD MOVEMENTS The quantity theory explanation of international gold movements is as follows: if money comes into a country, it raises prices. If the price-level of the country is raised more rapidly than the price-levels of other countries are rising, then the country becomes a bad place in which to buy and a good place in which to sell; its exports fall off, its imports increase, and finally the inflow of money is checked, and, perhaps, money flows out again. The equilibrium of the gold supplies of different countries is thus dependent on the price-levels of the countries involved. The quantity of gold in a country determines its price-level, and no more gold can stay in a country, on this theory, than that amount which keeps its price-level in proper relation to the price-levels of other countries. It is not necessarily asserted that the price-levels of all countries must be equal--the facts too obviously contradict that. But when this precise statement is not made, the substitute statement of some "normal" relation between the price-level of one country and that of another becomes a very vague one, and the theory becomes pretty indefinite. I am here concerned chiefly with one contention: the price-_level_, the average of prices, is not a _cause_ of anything--not of gold movements or anything else. It is a mere summary of many concrete prices. Some of these concrete prices have highly important influence on international gold movements, tending, if they are low, to bring gold in, and if they are high, to repel gold. Others work in the opposite direction, tending if they are low to attract less gold than if they are high. Finally, among all the prices affecting international gold movements, the one which is most significant is commonly not included in the price-level at all: I refer to the "price of money," the short-time interest rate. Let me elaborate each point. First, it is true that high prices of articles which enter easily into international trade tend to repel gold from the country--meaning by "high prices" prices that are higher than the prices of the same goods abroad. This relates, however, not to the general price-level, but only to a comparatively small set of prices. Most prices in a country are not prices of articles of international trade. High wages may, indeed, draw in immigrants. But high land rents, and high prices of land cannot bring in land. Nor do high land prices send away much gold to other countries for the purchase of land there. Indeed, within a single country, the differences in the relation between land yield and capital value of land are enormous. The following figures are taken from an article by J. E. Pope:[356] In Yazoo Co., Mississippi, farm lands are sold at $10 to $25 per acre. The average gross income per acre is $28. In Cass Co., Iowa, the land prices are from $100 to $125 per acre while the gross income amounts to only $11 per acre, if only crops and dairy products are taken into account, and to $20 if the sales of live stock are included. In Oglethorpe Co., Georgia, the average price is from $10 to $25 per acre, and the average income $10. In Paulding Co., Ohio, land is sold at from $75 to $100 per acre, and the average income per acre, including returns from live stock sold, is $15. Why should not landowners in Cass County, Iowa, sell their comparatively unproductive land, at a high price, and go, with their money, to Yazoo County, Mississippi? The answer is simply, that they would have to go _with_ their money, and they prefer to stay at home! Absentee landlordism is not generally popular with men who are seeking paying investments. Land stands at one extreme. But then land is the very biggest item in an inventory of wealth, and, while not _as land_, actively bought and sold,[357] it is a big element in the values of many active securities. The principle holds in less degree of many other things, however. The securities of a local corporation, say a gas plant, find their best market at home, as a rule, unless the city be large. If they are held by foreign capitalists, they still find a very restricted market in the foreign country. Only those who have investigated at first hand will feel free in buying them--unless, indeed, they are guaranteed in some way by a big and well-known house. Prices of personal and professional services vary enormously in different sections of the same country, to say nothing of variations between different countries, and there is a very slow movement indeed toward bringing about higher salaries for rural preachers in Kansas because the salaries of London preachers have risen, or because of increased demand for preachers in Germany. Great numbers of commodities are too bulky to move far. Their prices vary with little relation to similar prices elsewhere. But the principle needs no more elaboration. If the reasoning be simply that men tend to buy where things are cheap, and to sell where things are dear, it is clear that that establishes a very loose relation indeed between the price-levels of different countries. The second point is that some prices, by rising, actually bring in gold from abroad, while by falling they tend to release gold. I am not here referring to the case discussed in the chapter on "Supply and Demand," where a commodity, cotton, with an inelastic demand, is doubled, the doubled quantity selling for a less aggregate price, and so bringing in less money from abroad. That case would bear considerable generalization. I am referring here to the case where _credit_ is built on the value of long time goods, as lands, or railroads. Concretely, let us suppose an increase in railroad rates allowed by the Public Service Commission of Missouri. This is, in itself a rise in prices. It will, further, on the capitalization theory, make the prices of stocks of the roads operating in the State rise also, and give a margin of additional security for bond-issues. This will make it possible for these roads to float foreign loans (or would have done so before the War), and so will tend to turn the exchanges in our favor. Gold will tend to come in, not to go out. Similarly if the prices of dairy products, or truck gardens, or orchards, or orange groves rise, leading to a rise in the prices of the lands involved, foreign capital will tend to come in as loans--_i. e._, the exchanges will turn more favorable to us, and the gold movement tend to turn our way. I suppose, by the way, that something of a point could be made against the Single Tax at this point: destroying land values would lessen the security which a community could offer outside lenders. The Single Tax would, thus, hamper the development of countries which need capital from outside. Men who wish to use their own capital, under their own management, might, as the Single Taxers claim, be tempted to come in, if they could be free from taxation on the capital they bring with them; but _lenders_, who wish a good margin of security, would find less inducement to lend.[358] This is a digression, but one feature of it is pertinent: though the foreigner does not care to migrate from his high-priced land to _low_-priced land elsewhere, he is often willing to trust a _loan_ to the owner of _high_-priced land elsewhere. I will not venture the generalization that high-priced land necessarily attracts loans, and tends to turn the gold movements in favor of the country where prices are high. The point has been made that if lands are being exchanged frequently, the new buyer tends to exhaust his credit resources in paying for the land: _i. e._, puts so large a mortgage on it that he has little margin of security to offer for working capital.[359] I shall not here undertake to determine how far as a matter of fact, in different places, the one tendency outweighs the other. It is enough to point out that in many cases, where this factor is absent (as in the case of the railroads cited), rising prices attract, and do not repel, foreign gold, and that for none of these cases is the consequence of rising prices for the gold movements to be explained in the simple way that the quantity theory doctrine would require. Finally, the international movements of gold[360] are enormously moved by the short-time rate of interest. The raising of the Bank Rate in England, supplemented, when necessary, by "borrowing from the market" by the Bank of England, as a means of making the Bank Rate effective, quickly turns the course of the exchanges. This is, as has been pointed out, a more effective device when used by the English money-market than when used by borrowing countries, since the borrower, by offering higher rates, is not always able to borrow more, whereas the lender, by demanding higher rates, is usually able to reduce his loans. But the difference is one of degree, and in point of fact a rise in the short time rates in New York City is commonly an effective means of bringing in gold from abroad. It is true that this is not the only factor. I have been at pains to point out how other factors work. I am as far as possible from denying the powerful influence of the "balance of trade" as treated by the older economists on international gold movements, when both visible and invisible items are included. But my point is, first, that these invisible items are numerous and flexible, and that a big factor in their determination is the short time rate of interest; and second, that the balance of physical items, even, depends, not on the price-level as a whole, but merely on the prices of those particular goods which enter into foreign trade. It is perfectly possible, and, indeed, is very common, for rising prices in a country to lead to expanding trade and expanding bank-credit, which causes bankers to wish to expand their reserves, which leads them to raise their rates on short time loans, which leads gold to come in from abroad. More simply still, the bankers may merely offer an attractive rate to the foreign bankers, and establish credits abroad, against which they draw "finance bills," which influence the gold movements in the desired manner. CHAPTER XVII THE QUANTITY THEORY _vs._ GRESHAM'S LAW There is a pretty obvious conflict between the quantity theory and Gresham's Law. The latter is, essentially, a "_quality_" theory of money. For the quantity theory, dodo-bones, or anything else will do. "It is the number, and not the weight, that is essential"![361] For Gresham's Law, the weight makes all the difference in the world, if it is a question as between full weight and light weight coins, and, in general, the _value_ of the thing of which money is made, considered in its commodity aspect, is the starting point of that doctrine. The quantity theorist seeks, indeed, to harmonize the two. His theory is that Gresham's Law manifests itself only when there is a _redundancy_ of the currency due to the issue of paper money, or overvalued metal. In such a case, prices rise, he holds, and then the undervalued metal, or the metallic currency, which count no more than the paper or the overvalued metal in circulation, tend to leave the country, to another country where prices are lower, or tend to leave the money use for the arts. But the quantity theorist must maintain that it is only _via_ increased issue, with consequent rising prices, that Gresham's Law comes into operation. If there are a million dollars of gold in circulation, and a half million of irredeemable paper is added, then only half a million of the gold (or rather a little less than half) will leave. If more than that left, prices would fall, because of the scarcity of money, and then the gold would come back, because it would be worth more in concurrent circulation with the paper than it would be worth as money abroad, or in the arts. On the quantity theory, there can be no difference in the value of gold and paper, in such a case, after enough gold has left to balance the paper that has been issued. Falling prices would prevent it. But Gresham's Law is not held by any such fetters! And the facts of monetary history, in important cases, show Gresham's Law controlling, despite the quantity theory. I will refer briefly to two such cases. The first centres about the suspension of specie payments by the Northern banks and the Federal Treasury on January 1, 1862. This suspension was not accompanied by any increase of money. Rather, there was a _decrease_,[362] shortly following, in the amount of paper money. The banks in New York, and certain other States, were bound so strictly by their charters, and by the State laws, that they dared not leave their notes unredeemed. Speculators, buying notes at a discount--for virtually all bank-notes fell to a discount--were able to present them to the banks in these States and demand gold, which led to a very profitable business. The banks protected their gold by ceasing to issue notes, or by reducing the volume of note issue. Certified checks were used to a considerable extent instead. There was certainly no increase, and probably a reduction, a considerable reduction, in the volume of bank-notes in circulation. The only other paper money in circulation was the Demand Notes of the Federal Government, which were not increased after the date of the suspension, and which were in any case small in volume as compared with the total amount of money. On the quantity theory version of Gresham's Law, there was nothing to drive gold out. Gold was _not pushed out_ by redundant currency. Rather, it _left_, leaving a monetary vacuum behind. Coincidently, strangely enough, prices _rose_. The vacuum in the money supply was so serious, that the subsequent first issue of the Greenbacks brought a welcome relief. Throughout the whole of the first year of the suspension, the volume of money was less than it had been in the preceding year. None the less, the gold stayed out of general circulation. It did not come back from abroad. And prices _rose_.[363] A similar episode, the obverse of this, occurred when the Bank of England _resumed_ specie payments in the early '20's. Then gold came back, the currency was increased, and, coincidently, _prices fell_.[364] I conclude that the conflict between Gresham's Law and the quantity theory is real and fundamental, and that in cases where different _qualities_ of money are in concurrent circulation, the undervalued money will leave, regardless of the question of quantity. CHAPTER XVII THE QUANTITY THEORY AND "WORLD PRICES" Some writers, who would call themselves quantity theorists, would repudiate many of the doctrines for which Fisher stands, and which the historical quantity theory involves. The recognition which Fisher's book has received from quantity theorists generally, justifies me in treating his book as the "official" exposition of the modern quantity theory, and, indeed, it is easy to show that Fisher is fundamentally true to the quantity theory tradition. With many writers, the disagreement with Fisher would be a mere matter of degree; they would hold that Fisher has set forth the central principle, that his qualitative reasoning is correct, but that the relations among the factors in his equation are less rigid than he maintains. As I reject even the qualitative reasoning by which Fisher defends his doctrine, and reject even the qualitative tendency which he maintains, my criticisms will apply as well to the position of this group of writers, though I should have less practical differences with them, to the extent that they admit qualifications and exceptions to Fisher's doctrine. There is, however, a group of writers who seem to feel that the quantity theory remains sufficiently vindicated if it can be shown that an increase in _gold production_ tends to raise prices throughout the world, while a check on gold production tends to lower prices, and who rest their case on the necessity which bankers find of keeping reserves in some sort of relation to the expansions of bank-credit. A view of this sort is presented by J. S. Nicholson, whose statement of the application of the quantity theory to the modern world differs almost _toto coelo_ from his original statement in the dodo-bone illustration already discussed. Nicholson[365] declares that in our modern society "the quantity of _standard_ money, other things remaining the same, determines the general level of prices, whilst, on the other hand, the quantity of _token_ money is determined by the general level of prices." Nicholson's reasoning is, substantially, as follows: Although the bulk of exchanging is carried on by means of credit devices, there is still a certain part of exchanging, especially in the matter of paying balances, for which standard money only can be used. He regards the whole credit system as based on standard money, and says that for any given level of prices there is a minimum amount of standard money, absolutely demanded. If the volume of standard money falls below this minimum, the price-level will fall to such a point that the volume of standard money is again adequate. He takes, moreover, a world-wide view, declaring that it is the relation between the volume of gold money throughout the world and the demand for standard money throughout the world which determines the relative values of money and commodities. "The measure of values or the general level of prices throughout the world will be so adjusted that the metals used as currency, or as the basis of substitutes for currency, will be just sufficient for the purpose. We see then, that the value of gold is determined in precisely the same manner as that of any other commodity, according to the equation between supply and demand." In the consideration of this doctrine, let us note several points in which it differs fundamentally from the quantity theory proper, and from the situation assumed in the dodo-bone illustration. First, it is not a quantity theory of _money_. Money is not regarded as a homogeneous thing, each element having the same influence on prices. Rather, _token_ money is the child of prices. This doctrine would in no way fit in with the logic of the equation of exchange, as presented by Fisher. Further, the dodo-bone idea is entirely gone. _Gold_, a commodity with value in non-monetary employments, is under discussion, and it is the quantity of gold that is counted significant. This recognizes, if not the need, at least the _existence_, of a commodity standard. Nicholson definitely avows the necessity for the _redemption_ of representative money, even going so far as to say that "all credit rests on a gold basis,"[366] that all instruments of exchange derive their value from the volume of standard money which supports them, and that if this basis were cut away the whole structure would fall. Nicholson recognizes, further, that gold has value independent of its use as money.[367] In evaluating Nicholson's doctrine, I wish to point out, first, the inaccuracy of the statement that all credit rests on a gold basis. It is true that credit instruments are commonly drawn in terms of standard money, which is commonly gold. International credit instruments may even specify gold, and the same thing happens at times within a country. But commonly, in this connection, gold functions, not as the value basis lying behind the credit instrument, the existence of which justifies the extension of the credit, but rather as the _standard of deferred payments_, by means of which the credit instrument may be made definite. The real basis of the value of a mortgage is not a particular sum of gold, but rather the value of the farm, expressed in terms of gold. The basis of a bill of exchange is not a particular sum of gold, but rather is the value of the goods which changed hands when the bill of exchange was drawn,[368] supplemented by the other possessions of drawer, drawee, and the endorsers through whose hands it has gone. Even a note unsecured by a mortgage, or not given in payment for a particular purchase, is based, in general, on the value of the general property of the man who gives it, and on the value of his anticipated income.[369] So throughout. Credit transactions, for the most part, originate in exchanges, and carry their own basis of security in the goods and securities which change hands, not in that small fraction of the world's wealth, the stock of gold, which could, Coin Harvey asserted in the middle '90's, be put in the Chicago grain-pit! And now let me extend this idea. Although coin made from the standard of value is a great convenience, there is yet no vital need, in theory, for a single dollar, pound or franc made from the standard of value. If gold should cease entirely to be used as a medium of exchange, or in bank or government reserves, if the gold dollar should become a mere formula, so many grains of gold, without there being any coins made of it, still, so long as that number of grains had a definite, ascertainable value, commensurate with the value of some other commodity which could be used as a means of paying balances and redeeming representative money, the gold dollar could still serve as a measure and standard of values. In the situation I have assumed, silver bullion, at the market ratio, could perform all the exchange and reserve functions now performed by gold, even though not so conveniently.[370] Nicholson's description of the use of gold as a reserve, while calling attention to an important fact, has led him into the error of supposing that what may be true of gold, the _medium of exchange_, and _reserve for credit operations_ is necessarily true of the _standard of value as such_. Nicholson is correct, however, in looking to the standard of value for part of the explanation of changes in prices. And, _since it so happens_ that a considerable part of the value of the standard of value comes from its employment as medium of exchange and reserve, he is correct in looking to its use as money as part of the explanation of its value. His error comes, however, in failing to see that independent changes in the values of goods may also change the price-level, and that variations in the demand for gold as a commodity may also change the value of gold, and so change the price-level. Further, in so far as Nicholson clings to the notion of prices as depending on a mechanical equilibration of physical quantities, he is subject to the criticisms given before of the general quantity theory, and in so far as he clings to the identity of the value of gold with the reciprocal of the price-level,--the relative conception of value--he is subject to the criticisms already urged. Again, even for a single country, the connection between volume of reserves and volume of credit is very loose and shifting. A thousand factors besides volume of standard money in a country determine the expansions and contractions of credit, and the long run average of credit. For the whole world, this connection is even looser. To assume a fixed ratio between them for the whole world, one would have to assume that all the world was simultaneously, and normally, straining its possibility of credit expansion to the utmost, so that the minimum ratio--a notion which is far from precise[371]--should also be the normal maximum, and so that no country, in expanding its credit, could draw in new reserves from other countries which had more quiescent business conditions. Nicholson's notion of the world price-level, moreover, is subject to the criticisms I have made in the chapter on "The Quantity Theory and International Gold Movements." How can the world level have a close connection with the volume of gold, if different elements in the world price-level, the price-levels of different countries, can vary so widely and divergently as compared with one another? Even granting--which I do not grant, and which I maintain I have disproved--that the price-level in one country has a close connection with its stock of gold, would it not be true that the average price-level for the world would vary greatly, with the same world stock of gold, depending on which countries had the gold? There is nothing in Nicholson's doctrine which seems to me to justify in any degree the doctrine that prices, in a single country, or in the world at large, show any tendency to _proportional_ variation with the quantity of money, or with the world's stock of gold. Is it not true, then, that there is _some_ sort of relation between gold production and world prices? It is. Gold is like other commodities. Its value tends to sink as its quantity is increased. As its value sinks, prices tend to rise. As to the elasticity in the value-curve for gold, I think it will be best to reserve discussion till a later chapter,[372] in Part III. We shall there find reason for thinking that gold has much greater elasticity in this respect than most other commodities. That its value should fall _proportionately_ with an increase in its quantity, I should not at all conclude. Even if its value did sink proportionately with an increase, prices would rise proportionately only if the values of goods remained unchanged. But why do we need a _quantity theory_ of _money_, with all its artificial assumptions, and its law of strict proportionality, to enable us to assert the simple fact that gold, like other commodities, has a value not independent of its quantity? What theory of money would deny it? Surely not the commodity or bullionist theory. For that theory, which seeks the explanation of the value of money in the value of gold in the arts, it would go without saying that an increase in the supply of gold for the arts would lower its value there and consequently, its value as money. Surely the theory which I shall maintain in Part III of this book will not deny that increased gold production tends to lower the value of money, and consequently to raise prices. With the "quantity theorist" who is content with this conclusion, I have no quarrel--unless he claims this obvious truth as the unique possession of the quantity theory! CHAPTER XIX STATISTICAL DEMONSTRATIONS OF THE QUANTITY THEORY--THE REDISCOVERY OF A BURIED CITY In the following chapter, as in most of the preceding chapters, constructive doctrine is aimed at, even though the discussion takes, in considerable part, the form of critical analysis of opposing views. We shall seek to set forth the facts, as far as may be, regarding the relations of banking transactions to trade, the relations of clearings to amounts deposited in banks, the relation of New York City clearings to country clearings, and of New York bank transactions to bank transactions in the rest of the country. We shall seek to ascertain the extent of variability in that highly elusive magnitude, "velocity of circulation," particularly "V´." We shall indicate something of the bearing of index numbers of prices on the theory of the value of money as here presented. In reaching conclusions on these and related matters, we shall build on the investigations of Dean Kinley, on the very interesting statistical studies of Kemmerer and Fisher based on Kinley's figures, on investigations more recently made by the American Bankers' Association regarding the relation of bank transactions and bank clearings, on figures from reports by the Comptroller of the Currency, as well as on other sources. One purpose of the chapter is to criticise the statistics which purport to prove the quantity theory. The bulk of the chapter is given to this. But the work of Fisher and Kemmerer thus criticised yields rich rewards for the study. The conclusions they have drawn from their figures are, in the judgment of the writer, untenable, but the figures themselves are of immense interest and importance. The controversy over the quantity theory has been waged with many weapons. Theory, history, and statistics--to say nothing of invective!--have been freely employed. In large measure, the statistical studies have been concerned with the direct comparison of quantity of money and prices, in their variations from year to year. One of the best of these studies, that of Professor Wesley C. Mitchell, in his _History of the Greenbacks_ (followed by his _Gold, Prices and Wages under the Greenback Standard_), has, to the minds of many students, including the present writer, put it beyond the pale of controversy that the fluctuations in the gold premium, and in the level of prices, in the United States during the Greenback period, both for long periods and for daily changes, were not occasioned by changes in the quantity of money,[373] but rather, primarily, by military and political events, and other things affecting the credit of the Federal Government, together with changes affecting the values of gold and of goods. Professor Mitchell's discussion is so detailed and thorough, that what controversy remains relates, not to his facts, but rather to the possibility of interpreting those facts in harmony with the quantity theory, by repudiating the notion that the direct comparison of gold premiums or of prices with quantity of money gives a valid test.[374] Recent defenders of the quantity theory have undertaken the examination of more complex statistics than those concerned with the simple concomitance of quantity of money and prices. Two of these studies, the first by Professor Kemmerer[375] and the second by Professor Fisher, are so elaborate, have commanded such general attention, and have been accepted by so many students as conclusive demonstrations, that I feel it proper to give them detailed examination. I do this especially because highly important facts for our construction argument emerge from this critical examination. Kemmerer's and Fisher's studies reach high-water mark in the effort to give statistical demonstrations of the quantity theory. If they are invalid, then I know no other attempts which many students would suppose to be possible substitutes. The theory involved in both these studies is clearly stated by Professor Kemmerer: "A study of this kind, to be of any value, must cover the monetary demand as well as the monetary supply. Any test of the validity of the quantity theory consisting merely of a comparison of the amount of money in circulation with the general price-level is as worthless as would be a test of the power of a locomotive by a simple reference to its speed without taking into account the load it was carrying or the grade it was moving over." This criticism of many previous studies is, in general, I think, valid, though I should except from this list such detailed studies as that of W. C. Mitchell, who takes account, as far as may be, of all the variables involved, and who considers day by day and week by week changes. I think the older studies of Tooke,[376] may also be excepted. In point of fact, if one wishes to know how much reliance may be placed in the quantity theory as a basis for prediction, when one knows that money is increasing, the simple comparison of money and prices is a fair test. If the "other things" which must be "equal" are so numerous and complex that the quantity theory cannot manifest itself in a direct comparison, much of its significance _as a basis of prediction_ is gone. It is perfectly true, however, that studies running through long periods, which give simply figures for general prices and figures for quantity of money, omitting volume of trade, are not very relevant either for proof or disproof.[377] And the conception underlying the studies of Kemmerer and Fisher, that not merely money and prices, but also volume of bank-credit, volume of trade, velocity of monetary circulation, and velocity of bank-credit, must be measured, undoubtedly represents a big advance in the conception of the statistical problem involved. The mere stating of the problem is an intellectual achievement of no mean order, and the ingenuity and scholarship involved in seeking data for concrete measurement of these highly elusive elements must command the admiration of every student of monetary problems. Volume of trade, velocity of money and velocity of bank-credit had been generally supposed, until these studies were undertaken, to be beyond the reach of the statistician. There can be no doubt at all that the efforts to measure them, or to measure variations in them, by Kemmerer and Fisher, have greatly advanced our general knowledge of the phenomena of money and credit. With great admiration for the magnificence of the problem undertaken, and for the industry, ingenuity and scholarship which have been devoted to its solution, I have nevertheless reached the conclusion that the figures assigned by these writers to the magnitudes of their "equations of exchange" are, with the exceptions of the figures for money and deposits, widely at variance from the real facts in the case, and second, that if they were correct, they could in no sense be said to constitute proof of the quantity theory. In the critical analysis which follows, chief attention will be devoted to Fisher's statistics. His is the later study, and it follows, in main outlines, the methods laid down by Kemmerer. He has employed Kemmerer's statistics in considerable part, amplifying them for later years, using some data not available when Kemmerer wrote, and undertaking a fuller solution of certain problems than Kemmerer did. I shall, however, from time to time make reference to Kemmerer's figures, and show points of difference between the two studies. Let me first briefly state the second point of my criticism of these studies: namely, that even if the statistics are correct, they do not constitute proof of the quantity theory. The statistics purport to be concrete data filling out for different years the equation of exchange.[378] But the equation of exchange, as we have seen, does not prove the quantity theory. The quantity theory is a _causal_ theory, and causation involves an order _in time_. The concrete figures for the equation do not prove that. Even Kemmerer's concluding chart on p. 148, showing a rough concomitance between "relative circulation" and general prices does not show that changes in relative circulation are _causes_ of changes in general prices. The causation might be the reverse for anything his figures tell us. Fisher himself recognizes this, in considerable degree: "As previously remarked, to establish the equation of exchange is not completely to establish the quantity theory of money, for the equation does not reveal which factors are causes and which are effects."[379] Again: "But, to a candid mind, the quantity theory, in the sense in which we have taken it, ought to appear sufficiently secure without such checking. Its best proof must be _a priori_."[380] The main criticism here, however, relates to the figures themselves, rather than to their meaning. The figures given by Professor Fisher are concrete magnitudes to fill out his equation of exchange, MV + M´V´ = PT[381] for the years since 1896. Thus, for 1909, the figures are: M = 1.61 billions; M´ = 6.68 billions; V = 21.1; V´ = 52.8; P = $1; T = 387 billions.[382] Now in what follows, I shall challenge all these estimates except P for 1909, V for 1896 and 1909, and M and M´ for all years. The figures for M and M´, being the results of fairly simple computations based on Governmental statistics, need not be questioned. P for 1909 is arbitrarily placed at $1.00. V for 1896 and 1909, for reasons which will later appear, is better based than for other years, though Kemmerer and Fisher have differed greatly in their estimates for V, the former placing it at 47 and the latter at 18 or 20.[383] My criticisms with reference to V, however, will relate to the years other than 1909 and 1896. The sources from which these absolute magnitudes are drawn are, primarily, two investigations by Dean David Kinley, one in 1896 and the other in 1909, in coöperation with the Comptroller of the Currency.[384] The purpose of these investigations was to ascertain the proportions of checks and money in payments in the United States. Banks of all kinds, national and State banks, trust companies, private banks, etc., were requested by the Comptroller to supply data for a given day (March 16 in 1909) showing what their customers deposited on that day. They were asked to classify these deposits as cash, on the one hand, and as checks, drafts, etc. on the other. They were also asked to give a cross classification of the same deposits, as "retail deposits," "wholesale deposits," and "all other deposits." In 1909, over 12,000 banks of all kinds, out of about 25,000 banks, replied, and of these replies 11,492 were in available form. These replies showed a total of deposits of over 688 millions of dollars. Of this total, 647 millions were in checks, so that checks made up 94.1% of the whole. About 60 millions of this total were retail deposits, about 125 millions were wholesale deposits, and the rest, about 503 millions, were classed in the "all other" category. Kinley's use of these figures, _for his purpose_, seems to me in every way conclusive and safe. He was interested merely in the question of the _proportions_ of checks and money in _payments_, retail, wholesale, and "_all other_." The absolute magnitudes of the elements in the equation of exchange he was not trying to measure. Professor Fisher's use of the figures presents a different problem.[385] Let us consider, first, Professor Fisher's estimate of M´V´, taken together. M´V´ is considered to be equal to the total amount (in dollars) of checks deposited during the year.[386] To get this, for 1909, Kinley's figure, above, for checks deposited in 11,492 banks on March 16, 1909, is used. This figure is 647 millions. As half the banks had not reported, an estimate for the non-reporting banks was obtained from Professor Weston, who had aided Dean Kinley in the investigation, and who had access to the original data. Professor Weston estimated the total checks deposited during the day at 1.02 billions.[387] The question then arose as to whether this day was typical for the year. Professor Fisher found New York City bank clearings of March 17 (the day after, on which these checks would get into the clearings) to be 28% below the average for the year. He assumed the rest of the country to be half as abnormal as New York City, and increased the 1.02 billions to 1.20 billions, getting what he conceived to be the daily average of checks deposited in the United States in 1909. Multiplying this figure by 303, the number of banking days in New York City (and so, presumably, a fair average for the number of banking days in the country), he obtained 364 billions for the checks deposited in 1909. This figure he considered to be M´V´, the volume of bank deposits,[388] multiplied by its velocity of circulation. To obtain V´, therefore, his problem was simple: he divided the figure for M´V´ by the figure for M´ previously obtained from government statistics, and obtained V´. Now I wish to call attention to three important errors involved in this calculation of M´V´ for 1909. (1) The assumption that the total check circulation is the same as the volume of checks actually used in _trade_ is a violent one. _Payments_ may be tax payments, loans and repayments, gifts, what not. Many checks may be used in a single transaction. Surely not all of this is properly to be counted in the M´V´ of the equation of exchange. But this topic is better discussed in connection with the estimate for T, and I reserve its fuller discussion till then. (2) The assumption that the rest of the country was abnormal in its clearings on March 17, 1909, is a pure assumption, which investigation does not verify. The rest of the country was, in fact, nearly normal! The error that comes for the year from increasing the total on this assumption amounts to at least 31 billions! The total for the year, on Professor Fisher's method of computation, with the correction to make the assumption regarding outside clearings correspond with the facts, is 333 billions, instead of 364 billions! As the figure for 1909 is a basic figure, on which figures for other years are calculated, this error is extremely significant.[389] (3) A yet more serious error in this computation is the assumption that New York City was complete in Kinley's figures, while the rest of the country was incomplete. This error, as we shall see, largely neutralizes the error above, so far as the "finally adjusted" figure for 1909 is concerned, but it makes a vital difference in the figures for other years, as will appear, since it affects the "weighting" of New York clearings and outside clearings in the index of variation by means of which M´V´ for years other than 1909 is determined. The assumption that New York is complete, in Kinley's figures, and that all of the extra hundreds of millions added by Professor Weston in his estimate for the non-reporting banks belongs to the country outside New York, is made by Professor Fisher both on pp. 444-445, in estimating M´V´ for 1909, and on p. 446, in finding an index of variation for M´V´. The only reason given, so far as I can find, is the following: "This figure, _being for New York_, [Italics mine], is probably nearly complete." (_Loc. cit._, p. 446.) With this as a basis, Professor Fisher proceeds in his calculations to treat the figure for New York, 239 millions, as absolutely complete, and gives the rest of Professor Weston's 1.02 billions for the day, or 786 millions, to the country outside. The error above mentioned, of assuming the rest of the country to be abnormally low on March 17 in its clearings, still further increases the amount assigned to the rest of the country in the total figures for the year.[390] The conclusion finally is that New York had deposits of 93 billions in checks for the year, while the rest of the country had deposits of 271 billions in checks. As New York clearings for the year were 104 billions, while clearings for the rest of the country were only 62 billions, Professor Fisher concludes that New York clearings overcount New York check deposits, and outside clearings greatly undercount outside check deposits, so that, in the index of variation of check deposits, for years other than 1909 and 1896, New York clearings should be given a weight of only 1, while outside clearings should be weighted by 5. "That is, on the basis of 1909 figures, five times the outside clearings plus once the New York clearings should be a good barometer of check transactions." (P. 447.) All this rests on the assumption that New York figures for March 16, 1909, were complete, and the only reason assigned is, "being from New York!" Now the figures from New York were not complete. And New York clearings do not overcount New York check deposits. Outside clearings do not undercount outside check deposits nearly to the extent that Professor Fisher assumes. For each of these three statements I shall offer what would seem to be conclusive evidence, and I shall attempt to get an estimate of the real relation between New York check transactions and check transactions for the rest of the country. First, the figures for New York were far from complete. It may be noted that Dean Kinley, in his volume for 1909,[391] is very careful to repudiate the assumption that the cities were complete more than the country: "Moreover, it is a mere assumption that the non-reporting banks are mainly the small banks in the country districts. _A great many city banks also did not report._" (Italics mine.) That this is true for New York is abundantly evident from figures there given for the private banks and the trust companies, not to consider at all the State and national banks. New York shows only $1,751 in checks deposited in the "all other deposits" in private banks! This is a city which includes among its private bankers J. P. Morgan & Co., Kuhn, Loeb and Co., J. & W. Seligman & Co., and others! Figures from these banks appear nowhere in Kinley's totals, since deposits made _by_ these banks in other banks are also excluded from Kinley's figures.[392] Of course, exact figures cannot be given to show how much New York would be increased had the private banks made full reports. We have no reports of any kind from these institutions. Every feature of their business is kept from the lime light, as far as possible--a practice which is much to be regretted, since it arouses hostility and suspicion, where a statement of the facts in the case would frequently entirely dispel them. We have, however, some information regarding the magnitude of their deposits, meaning by deposits, not what Kinley means in this investigation, namely, checks, etc., _deposited_ on a given day, but rather, deposits in the balance sheet sense of demand obligations to depositors. In Nov. 1912, J. P. Morgan and Co. held deposits of $114,000,000, exclusive of 49 millions on deposit with their Philadelphia branch of Drexel & Co. About half of these were deposits of interstate corporations. Kuhn-Loeb held, on the average, for the six years preceding 1913 over 17 millions of deposits of interstate corporations. What their aggregate deposits were, we do not know. These figures are obtained from the report of the Pujo Committee.[393] Morgan's deposits were equalled by only three banks and two trust companies in New York (as of April 3, 1915), and Kuhn-Loeb's deposits for interstate corporations alone exceeded the total deposits of any one of the great majority of the New York Clearing House banks and trust companies. Of course, large deposits in the balance sheet sense need not mean large deposits made on a given day. Private bankers' deposits may be inactive. But we know, first, that half of these figures for Morgan, and the whole of the figures given for Kuhn-Loeb, represent the deposits of active business corporations, engaged in interstate business. They are not mere trust funds lying idle, or awaiting investment in securities. What the rest are we can only conjecture. That they are deposits of men and firms connected with the Stock Exchange in some way is highly probable. The whole drift of the statistics presented in this book, and of the argument developed in this book, would serve to show that such deposits are likely to be more than ordinarily active.[394] I refrain from assigning any figures as to the amount of checks deposited in private banks in New York on March 16, 1909. It must have run high into the millions.[395] It certainly exceeded the two thousands, or less, reported to Kinley! The figures for New York were, thus, incomplete. But the trust companies were also incomplete. The national banks in New York reported checks totaling 186.5 millions, for all three classes of deposits; the State banks reported only 38.1 millions; the trust companies only 14.2 millions. With aggregate deposits, as shown by their balance sheets, exceeding the deposits of national banks[396] the New York City trust companies reported, as deposited on March 16, 1909, less than half as much as the State banks, less than a tenth as much as the national banks, and only 6.8% of the two combined--5.9% of the total from all three classes of institutions! These figures are hard to reconcile with the assumption that the trust companies in New York were complete on that date. It is, of course, possible that the trust companies, though having large deposits, have inactive deposits. This is sometimes held to be the case. But that the difference is so great in activity of deposit accounts between banks and trust companies is hardly credible. I have looked into this matter with considerable care, and have secured information and opinions from men intimately acquainted with the trust companies of New York from the inside. The only available quantitative measure of the activity of deposits would seem to be the volume of a bank's clearings. This is not perfectly accurate, by any means, but it is the best available test. Through the courtesy of a Vice President of one of the largest New York trust companies, I have obtained figures from an official of the Clearing House, which show that in New York trust company clearings run from 20 to 25% of the whole. On this basis, the trust company figures for 1909 were incomplete to the extent of from 33 millions to 46 millions, on the day in question. These clearings figures, however, are for the year, 1915, and not for the period before May, 1911, when the trust companies were admitted to the Clearing House. Prior to that time they did not deal directly with the Clearing House, but _through_ the member banks. Do these figures, therefore, represent the situation as it existed in 1909? The possibility was entertained that entering the Clearing House had made a difference in the reserve policy of the trust companies, and so had made them change the character of their business, in such a way as to bring about greater activity of accounts. This question was put to the official of the trust company before mentioned, and his reply is that the State law regarding reserves (passed after the Panic of 1907) had already brought about this change in reserve policy, and so no difference was made upon entering the Clearing House. The same gentleman, by the way, replying to a question regarding the deposits in private banks in New York, and the influence of such deposits on clearings, writes: "The actual figures could not be obtained from the Clearing House..., consequently can only say that deposits made with these houses add to the Clearing House totals very large sums." There is one piece of evidence which would seem to negative these conclusions regarding the trust companies. In the Report of the New York State Superintendent of Banks, for Dec. 31, 1907, p. xxxv, is a statement that during the two years, 1903-05, the trust companies of New York cleared only 7% as much as the banks. The statement relates, however, to a period during which the trust companies not only had no Clearing House membership, which of course was true up to 1911, but also had largely withdrawn from the privilege of clearing _through_ member banks.[397] Under these circumstances, even 7% would seem quite high. Inquiry was made of the Honorable Clark Williams, who was State Superintendent of Banks at the time the report was made, as to the source of the figures.[398] Mr. Williams, in reply, defends the figures as correct for that period, but authorizes the writer to quote him as in no way surprised at the percentages given above, 20 to 25% of the total clearings, in view of developments and changes in trust company business. I conclude that the trust company figures for March 16, 1909, were exceedingly incomplete. The national bank figures were probably more nearly complete than any others, first because they are large, and second, because national banks would feel more obligation than other banks to reply to questions from the Comptroller. The State bank figures, 38.1 millions, as against national bank figures of 186.5 millions, were probably incomplete also, to a considerable extent, though State banks are not dominating factors in New York City. That they should exceed the figures for trust companies is surely evidence of the incompleteness of the trust company figures. The private banks are incomplete, with absolute certainty, since they are virtually not represented at all. Further evidence that the New York figures were incomplete, however, will appear in the data regarding our second thesis, namely, that New York clearings do not overcount New York check deposits. The aggregate check deposits reported from New York, on the date in question, is 239 millions. Clearings for that day were 268 millions,[399] substantially exceeding the reported check deposits. Now do clearings exceed check deposits in New York City? Evidence with reference to outside clearings, in connection with bank transactions, we now have in very definite and abundant form, and it will be convenient to approach the question of New York clearings, first, indirectly, _via_ country clearings. We shall, therefore, take up first the thesis that clearings outside New York do not undercount bank deposits outside New York nearly as much as Professor Fisher thinks. According to his estimate, checks deposited during the year in banks outside New York (exclusive of checks deposited by one bank in another) were 271 billions. (_Loc. cit._, 446.) Outside clearings were only 62 billions, and his conclusion is that the ratio of deposits to clearings is 4.4 to 1, or, in other words, that outside clearings amount to less than 22.8% of outside check deposits. Now an extensive investigation, covering the period from June, 1913, to Oct. 1914, inclusive, has been made by the American Bankers' Association, through Mr. O. Howard Wolfe, Secretary of the Clearing House Section. This investigation covered cities of various sizes, in various parts of the country. Its results are immensely more trustworthy than any results based on a single day, as Professor Fisher's results are, could be, even had Professor Fisher's method been otherwise correct. An account of this investigation is to be found in the _Annalist_ of Dec. 7, 1914.[400] This investigation involves, for the period in question, a comparison of "total bank transactions" in each city with the clearings of that city, together with a summary covering all the cities. "Total bank transactions" consist of all debits against deposit liabilities of each member of the Clearing House, whether they come through the Clearing House or over the counter. They include payrolls, for example, which, of course, never get into clearings. They include drafts on deposits of one bank in another. In a letter to the Editor of the _Annalist_, Mr. Wolfe states that "total bank transactions include all debits against deposit liabilities, whether by check, draft or charge ticket. The only exceptions are certified checks and certain cashier's checks, both of which to an extent represent a duplication." For the period in question, clearings amounted, on the average, for all cities, to 40% of "total transactions." The cities did not include New York City, as stated. Now we cannot apply this 40% at once to the question in hand. Professor Fisher's 22.8% relates to the relation between clearings and checks and drafts _deposited_, _excluding_ items deposited by banks, and excluding, of course, cash deposited. What is the relation between Kinley's "deposits" and Wolfe's "total transactions"? It is clear that "total transactions" must, in a period of time, _exceed_ Kinley's "deposits" very considerably. In a general way, what goes out of a bank, and what comes into a bank, must approximately equal one another in a period of time. In a general way, a depositor finds his income and his outgo balancing. Of course, some accumulate, paying in more than they withdrew, but in general such accounts are made with savings banks. The business man borrows from his bank, getting a "deposit credit" (without "depositing" in Kinley's sense), then checks against his "deposit," then receives checks in payments to himself, "deposits" them, building up his deposit balance again, and then checks against his deposit balance, in favor of the bank, to pay off his loan. What comes in and what goes out--abstracting from the growth of a rapidly expanding bank--balance. But notice, in the case cited above, that "total transactions" include more items than Kinley's "deposits" show. When the bank makes a loan, and gives a deposit credit, this does not, usually, show in Kinley's deposits. When, however, the loan is paid off by a check to the bank, it does show in "total transactions." Moreover, when a man deposits cash in the bank, it does not show in Kinley's figures for checks deposited. When, however, he withdraws cash from the bank, or his check to another is "cashed," it does appear in "total transactions." Further, checks deposited to the credit of one bank in another do not appear in Kinley's figures. Checks drawn, however, by one bank on another do appear in total transactions. How great the difference is between "total transactions" and "deposits" in the banks outside New York we cannot say precisely. The cash items alone, on the basis of Kinley's figures, would make a difference of about 9%.[401] To allow 11% excess to "total transactions" over "deposits" for the other reasons listed, is surely not to make an exaggerated allowance. We thus count "deposits" in Kinley's sense, for the banks outside New York City, as 80% of "total transactions." Since, then, clearings are 40% of "total transactions," they will be 50% of "deposits." This figure is more than twice as great as Professor Fisher's figure of 22.8%. Even if we counted deposits as equalling total transactions, Professor Fisher's estimate would be clearly very much too low. How, then, do we stand? On Professor Fisher's showing, the overwhelming bulk of checks deposited were in the country outside New York--271 billions for the year, outside, as against 93 billions in New York City. If the ratio (50%) for outside clearings to deposits was the same for 1909 that it was in 1913-14 for the outside banks, we shall have to revise this radically. We have 62 billions of country clearings in 1909; we would have, then, 124 billions[402] of country check deposits! If Fisher's total figure for the country is correct, 353 billions as "finally adjusted," the balance, or 229 billions, would belong to New York! New York clearings, 104 billions, would thus be less than half of New York deposits! If we count outside clearings for 1909 as only 40% of outside check deposits, outside deposits would be, for 1909, only 155 billions, as against Professor Fisher's 271 billions, _a difference of 116 billions_! I am sure that his error in estimating outside check deposits is at least as great as that, and that we cannot assign to New York City less than a major part of the total check deposits of the whole country. This result fits in with the figures actually reported to Dean Kinley, corrected to fit the known facts about March 17 clearings, better than Professor Fisher's estimate, by a good margin. According to Professor Fisher's estimate, New York City checks deposited are only 25.5% of the total. Kinley's actual figures give 239 millions to New York City, and 408 millions to the country outside. But New York clearings were 28% below normal on March 17, while country clearings were only 2.45% below normal. Adding 28% to the figure for New York checks, we get 306 millions. Adding 2.45% to the outside checks, we get 418 millions. Of the total, 724 millions, New York checks would be, then, 42.3%. We have shown reasons for considering New York deposits to be very incomplete for March 16, particularly as regards the private banks and trust companies. Comparison of the New York figures with the results indicated by the ratio of country clearings to country deposits would thus indicate that New York was much less complete than the country as a whole. Even so, I need to add but 7.3% of the total to Kinley's actual figures for New York, corrected in the light of next day clearings, to give New York half of the check deposits. Professor Fisher must subtract 16.8% of the total from the actual figures for New York, as corrected in the light of next day's clearings, in order to get his figure of 25.5%. To vary as widely from the actually reported figures as Professor Fisher does, I should have to assign 59.1% of total check deposits to New York City. I refrain from making an exact estimate. I am content with the conclusion that something more than half of the checks deposited in 1909 were in New York. This seems to be too clear for serious controversy. The indirect approach to the relation between New York clearings and New York deposits, _via_ the study of outside clearings in 1913 and 1914, taken in conjunction with the figures for check deposits in 1909, would seem to make it quite clear that New York clearings do not exceed New York deposits, or, indeed, constitute a substantially higher percentage of them than is the case with country clearings and deposits.[403] Logically, assuming the correctness of the estimate for checks deposited, the case is complete: we have a simple problem in arithmetic: given country clearings for 1909, 62 billions; given the ratio of country clearings to country deposits (and a minimum for this ratio is clearly given, in the 40% which country clearings are of "total transactions"), we can fix a maximum for country deposits, which is 155 billions. Then, given our estimate of 353 billions for total check deposits, we subtract the maximum possible for country deposits from it, and get a minimum possible for New York City of 198 billions of check deposits. Comparing this with the known clearings of 104 billions in New York, we find that New York clearings constitute, as a maximum possible, 52.5% of New York check deposits. If the reasons given for holding check deposits in the country to be less than total transactions are accepted, the ratio of clearings to deposits in New York City is lower. Indirect calculations, however, even when logically complete, ought to be checked up by other methods, when possible. We have some further data, drawn from an earlier period, 1890-91-92, which suggest the same conclusion. The reason commonly offered for holding that New York clearings exaggerate local New York transactions, as compared with country clearings and country transactions, is that New York is the clearing house for the country. Country banks send their idle cash there; country banks pay other banks by drafts on their New York balances; country banks send out of town checks to New York for collection; business men in St. Louis pay business men in Chicago with New York exchange, etc. These items are supposed greatly to swell New York clearings. Now several of these reasons are not at all valid. Cash shipped back and forth between New York and the interior does not get into clearings. Secondly, New York, because of the charges made for collecting out of town checks, has tended to lose much of the collection business. Chicago probably does a great deal more of it than New York does.[404] However, even if checks on out of town banks were sent largely to New York for collection, they would not get into the clearings. New York banks send checks on country banks directly to country correspondents. Checks on out of town banks sent in for collection do swell clearings in Boston and Kansas City, where arrangements have been made, to the advantage of all concerned, to have the clearing houses handle this business. But New York has not made provision for it.[405] The only checks that get into New York clearings will be checks drawn on New York banks.[406] These checks will be of two kinds: (1) checks drawn by individuals and firms on New York banks. These checks will commonly be drawn by people in New York, and, in so far as they come from out of town, will represent business between New York and other places, hence, New York business. (2) Drafts by banks on their New York balances. These will be of three kinds: (a) drafts sold, especially by country banks, to their customers who need to make payments in other cities. Many of these will represent payments to New Yorkers for transactions between New York and the country, hence New York business, and will appear in the check deposits of individuals, firms, and corporations in New York, (b) There will also be drafts from one country bank, on New York, to another country bank, in which New York is truly being used as a clearing house, New York exchange taking the place of an intercity shipment of cash.[407] (c) Drafts by New York banks on New York banks, to avoid deficits at the Clearing House, or--especially in the case of private bankers, between whom and brokers the line is hard to draw,--for general purposes. Now, fortunately, we have some data, trustworthy, even though old, for the volume of bank-drafts on New York, and, more important, for the proportion of drafts on New York to drafts on banks in other cities. These figures are, as stated, from the three years, 1890, 1891, and 1892. For the purpose in hand, however, they are relevant, since then, as now, New York clearings were nearly twice as great, on the whole, as country clearings, and if this excess of New York clearings is due to that cause, it should have manifested itself in these figures. If the proportion of these drafts on New York to the total of bank-drafts was greater than the proportion of New York clearings of total clearings, we might find reason for supposing that New York clearings were unduly swelled by this fact. But in fact, drafts on New York are not out of proportion. The figures are virtually complete for drafts drawn by all the national banks on national and other banks for the years in question. They will be found in the Comptroller's _Reports_ for the three years, under the caption, "Domestic Exchanges." For 1890 the figures are: Drafts on (000,000 omitted) New York $ 7,284 (63.07%) Chicago 1,084 ( 9.30%) St. Louis 188 ( 1.64%) Other reserve cities 2,537 (21.88%) Other cities 464 ( 4.02%) Total 11,550 ( 100%) The Comptroller (_Report_ of 1890, p. 19) gives an estimate for drafts drawn by State and private banks of an additional 6,089 millions. He does not try to apportion these among New York and the other cities. There is no reason to suppose that the percentage for these banks of drafts drawn on New York would be higher than for national banks, and there is some reason for supposing that they would be lower: namely, that these institutions would lack the incentive supplied by the National Bank Act for depositing reserves in a Central Reserve City. The Comptroller's figures probably do not include the great private banks in New York, which deposit in New York commercial banks, and draw huge checks against their deposits. These checks, probably, however, chiefly represent stock exchange collateral loans to brokers, and so appear in brokers' deposits as well as in New York clearings--represent New York deposits. I do not use this estimate in my computations. If I did, the results, so far as proportions are concerned, would be the same, since I could do nothing but assign the same proportions to them. It will be seen that my argument rests on the proportions, chiefly. Now what difference would be made if we wiped out all these draft transactions, and reduced clearings to correspond? New York clearings in 1890 were 37,660 millions; country clearings were 21,184 millions. Let us subtract the drafts on New York from New York clearings, and the drafts on other places from the country clearings. The result is: New York clearings, 30,376 millions; country clearings, 16,918 millions. New York clearings still retain their former status! New York clearings are still nearly twice as great as country clearings! It is not the bank drafts used in making New York the "clearing house" for the country that swell New York clearings as compared with the rest of the country! It is something else! The main explanation, as we have in part seen, and shall further see, is a mass of speculative transactions, chiefly Stock Exchange transactions, and loan transactions connected therewith! New York clearings grow out of New York business, primarily. The figures for the other two years vary little from those of 1890. What variation there is shows a growth of drafts on interior cities, and a decline of drafts on New York. New York showed 63.07% of these drafts in 1890, 61% in 1891, and 60.77% in 1892.[408] As we have seen, the only checks or drafts that get into New York clearings are those drawn on New York banks. The checks on New York banks probably almost all represent business in which one party is a New York individual, firm, or corporation. The drafts by out-of-town banks will contain all the items, virtually, that represent "clearings" through New York. Not all of these, by any means, will represent such clearings. A very substantial part of them will represent exchange sold to customers to make payments in New York. We exaggerate the "clearing through New York" when we subtract all these drafts from New York clearings. Since, however, we treat country clearings in the same way, no error results, so far as the proportions between them are concerned. The two sets of data converge. Both from the figures of 1913-14, in conjunction with estimated check circulation in 1909, and from the figures of 1890-92, can we conclude that New York clearings do not overcount New York transactions. The conclusion would seem to be inevitable that New York is really as important in our volume of banking transactions as its clearings would indicate. This may be qualified by a recognition of the possibility that New York clearings are more efficient in handling check deposits than are clearings in other cities. Some scattering data from national banks for single days at a time indicate that a higher percentage of checks is cleared in New York than elsewhere in the country,[409] and one observation for five national banks for a ten-day period shows 67% of checks deposited cleared.[410] These checks include deposits made by other banks, as do the figures of Kemmerer's observations. But there are no direct observations covering New York for a long enough period, or for enough institutions, to warrant any definite conclusions.[411] The error of assuming clearings of March 17 in the country outside New York to be abnormally low, swelled Professor Fisher's total figure for check circulation by 31 billions, as we have seen. On the other hand, the error of assuming New York City to be complete in Kinley's figures tended to make the total smaller than it would have been, since New York City was 28% below normal, and an increase of 28% applied to half of Professor Weston's figure of 1.02 billions, gives about 70 millions more for the day, or 21 billions more for the year, than when the 28% increase is applied to only a quarter of Professor Weston's figure. These two errors roughly neutralize one another, and we may accept Professor Fisher's "finally adjusted" estimate of 353 billions[412] for the year as roughly approximating the amount of checks deposited.[413] How "rough" an estimate one gets by taking a single day as the basis for a year need not be here discussed. I should be disposed to think that an indirect calculation, _via_ clearings, in view of our more extensive knowledge of the relation of clearings to "total transactions," might well be worth more, so far as deposits outside New York are concerned. Since, however, we lack any extended figures for the relation of transactions and clearings in New York, and since even for the country we are obliged to make guesses as to the relation of "checks deposited" to "total transactions," I refrain from trying to improve further on Professor Fisher's estimate for checks deposited in 1909--even though questioning that "check deposits" and M´V´ are identical. What, however, shall we say of M´V´ for other years? In the calculation of this, Professor Fisher relies on the absolute figures for 1909 (and 1896, similarly calculated), together with an "index" based on New York and country clearings. In this index he weights country clearings by 5,[414] and New York clearings by 1. The result is, of course, that country clearings dominate the index. But New York clearings are much more variable than country clearings. The range of variation in New York clearings for the years 1897 to 1908, inclusive, is from 33.4 billions in 1897, to 104.7 billions, in 1906; the latter figure being more than three times as great as the former. The range in country clearings is from 23.8 billions, in 1897, to 57.8 billions, in 1907, the latter figure being 2-10/23 as great as the former. But more significant is the degree of _year by year_ variability. The country clearings, with the exception of 1908, always rise,--a steady, if not quite symmetrical, increase. New York clearings, however, go up and down, 42 billions in 1898, 60.8 billions in 1899, 52.6 billions in 1900, 79.4 billions in 1901, 66.0 billions in 1903, 104.7 billions in 1906, 87.2 billions in 1907, 79.3 billions in 1908. New York clearings are highly variable in both directions, while country clearings vary almost wholly in one direction, with a maximum difference of 6.4 billions between any two consecutive years, and with an average yearly variation of only 3.5 billions.[415] When country clearings are weighted by 5, almost all of the high degree of variability of New York clearings is covered up, and volume of checks deposited for years other than 1909 and 1896 is thrown hopelessly away from the facts. It is too large by far in most years. In 1905, 1906 and probably 1901 it is too small. It does not vary nearly enough. As V´ for years other than 1909 and 1896 is determined, for Professor Fisher's equation, by dividing the M´V´ thus estimated by the M´ for the year, it is clear that V´ as estimated by Professor Fisher is very much less variable than it is in fact. It is pretty variable even in his figures, but his figures do not nearly show how variable it is.[416] Again, this undue weighting of country clearings, swallowing up New York, vitiates Professor Fisher's estimates for V, the velocity of money, for years other than 1909 and 1896. One of the elements in the calculation of V is the estimated V´.[417] Since V´ is wrong, V will also be wrong. V is probably much more variable than Professor Fisher's figures would indicate. With great admiration for the ingenuity of Professor Fisher's speculations regarding V, I find too many elements of conjecture, and too many arbitrary assumptions, to give me confidence in the figure for any year. I refrain from going into any general criticism of his method of calculating V, however, contenting myself with the one clear point that, to the extent that the values of V for years other than 1909 and 1896 depend on the estimated M´V´ for those years, they are less variable than they ought to be.[418] The same conclusion regarding Professor Fisher's estimates for V´ have been reached, by a different method, by Professor Wesley C. Mitchell. He, too, concludes that V´ is, in fact, more variable than Professor Fisher would indicate.[419] I conclude, therefore, that neither V´ nor V has been correctly calculated, for years other than 1909 and 1896. I pass now to a consideration of T, the volume of trade, after which I shall consider P, the price-level, in the equation of exchange. Let us first recall the point made in the chapter on "The Equation of Exchange," that P and T, the price-level and the volume of trade, are not independent even in idea. If one is given an independent definition, the other cannot be given an independent definition. If the equation is to be true, then P must be weighted by the numbers of each item (as hats) exchanged. P is not a mere average, but is a _weighted_ average, and T is always the denominator in the formula for P. In developing statistics for P and T, therefore, this fact must be kept in mind, and the elements entering into each must coincide, and vary together year by year. In our chapter on "The Volume of Money and the Volume of Trade," we showed that the great bulk of trade is speculation. We showed that the _indicia_ of variation which Fisher[420] and Kemmerer have constructed for trade, dominated by inflexible physical items of consumption and production, give wholly misleading results for every year except the base year. They give a steadily growing, inflexible figure, with little variation from its steady path. Trade, if chiefly speculation, is highly flexible, varies enormously from year to year, waxes and wanes. This point need not be further developed. At best Fisher's figure for trade can be accepted only for one year, 1909. Is, however, the figure for 1909, 387 billions, an acceptable figure? Is it not decidedly too large? It is made up, it will be recalled, by taking the figures for MV and M´V´, adding them together to get one side of the equation, and declaring them equal to PT. P is then declared to be $1, by the arbitrary device of taking as the unit of T one dollar's worth of every sort of good at the prices of 1909. T is, then, 387 billions, since MV plus M´V´ equals 387 billions. The theory underlying this is that deposits made in banks correctly represent trade.[421] Our criticisms as to the absolute magnitude assigned to T (and hence to MV plus M´V´) will rest in large measure in challenging this assumption. It is our contention[422] that deposits made in banks very greatly overcount trade. Deposits made in banks include taxes and other public revenues; they include loans and repayments, and interest-payments; they include gifts and benevolences, money sent by parents to children away from home, pensions, payments of insurance losses, annuities, dividends on stocks, payments to and from savings and loan associations, fines, contributions to churches, and other non-commercial organizations, etc., etc. None of this represents trade. But further, whether payments are in trade or not, many times indeed does it happen that several checks are drawn in connection with the same transaction. Professor Kemmerer, entertaining this possibility, thought it might be neutralized by cases where the same check passes through several hands, making payments in several different transactions. He calls this, however, a "gratuitous assumption of unverifiable accuracy,"[423] and makes no claim to have given the matter careful study. In general, I think it safe to hold that the case where a single check passes through several hands is not important.[424] It will happen chiefly with small checks in small places, or with small checks paid to laborers. It is the pecuniary magnitude of checks, rather than their number, that counts here. I am informed by several bankers that large checks are almost universally deposited at once. This is for several reasons: (1) The recipient of the check wishes to make sure that it is good. (2) It is unlikely that the check is of the right size for another transaction, unless the recipient is a mere agent for a third party, in which case he should (but commonly does not) pass it on to his principal, if double counting is to be avoided. (3) Every person who handles sums of any size wishes a record of the transaction, and his own canceled check is a receipt which he would not have if he passed on the check of another. This last point will go far toward explaining why bank transactions may multiply without a corresponding multiplication of trade. The banks do the bookkeeping for modern business in increasing degree. Checks are records, of high legal value. A colleague recently told me that he, in his own capacity, had just drawn a check to himself, as trustee, transferring a sum from one account to another. Another colleague, with eight different bank accounts, estimates that over 50% of the deposits in three of them represent transfers from other accounts. This kind of duplication, where trust relations are involved, is enormous. Intercorporate relations and separate bank accounts within a corporation complicate it still further. A check is drawn by a subsidiary corporation to its dividend account, and deposited; a check on this dividend account[425] is then deposited in the general account of the parent corporation; a third deposit, of the same funds, is then made in the dividend account of the parent corporation; a fourth deposit of the same funds is made in a trust fund which holds stock in the parent corporation; a fifth deposit in the personal account of the beneficiary of the trust fund; a sixth deposit may be made of a check on this fund in the personal account of the beneficiary's wife. The first three of these deposits, at least, will be made of the total dividend of the subsidiary corporation. _Not one_ of these six deposits represents _trade_. Payments of wages and rents should count as trade, but payments of interest and dividends stand on a separate footing. When a man has bought a stock or a bond, he has already bought all the income which is to come from them, and to count the interest and dividends as separate items is double counting. They are _payments_, but not _trade_. Even if the dividend payment be counted as trade, however, it is counted _six_ times. There is enormous overcounting as a consequence of the combinations of corporations, each of which retains its own numerous bank accounts. The Interstate Commerce Commission calls attention to great duplications from this cause in connection with railway income accounts.[426] Even within single corporations the duplications[427] are very great. Thus, the local agent of a railroad deposits his receipts in a local bank. His check, or, more usually, the draft of the bank, is subsequently deposited in a bank at headquarters. Subsequent disbursements, in places away from headquarters, particularly of wages, will frequently be preceded by deposits in other local banks. This duplication will be true of telegraph, telephone, insurance and other companies which have scattered agencies, including the wholesale trade. Advertising agencies will illustrate it. _All_ checks between agent and principal, customer and broker, etc., will illustrate it. There is a great deal of double counting in stock transactions from this source. Thus, a Boston broker takes orders, with a check for margin, for execution in New York. The order is executed by a New York broker, who deals with another New York broker, who represents a Louisville broker, who represents a Louisville client. Now to the extent that any checks at all pass between the Boston broker and his client, the Boston broker and the New York broker, the other New York broker and the Louisville broker, or the Louisville broker and his client, we have overcounting. Only the check between the two New York brokers is properly counted. It is, of course, well known that a small percentage of the dealings of a customer of a brokerage house is represented by checks between broker and customer. Professor Fisher states this to be about 5%.[428] It is, however, 5% of overcounting! Moreover, through keeping "open accounts," with irregular settlements of "margins" only, the Boston broker and the New York broker reduce markedly the checks passing between them. There is a back and forth flow of items which in large degree cancel one another, since the Boston broker sells in New York as well as buys there, and the New York broker, to a less degree, both buys and sells Boston securities, through his Boston correspondent. But not all by any means is canceled, and _all_ the checks that pass in this way represent double counting. The total is large. _Public funds_ are included in the deposits reported to Kinley. Taxes are not _trade_. Double, triple and multiple counting comes as revenues are received by local authorities, transferred to State accounts, subsequently redistributed to local accounts, or to the treasurers of State institutions, transferred from one bank to another, etc. The State of Massachusetts scatters its deposits in banks all over the State, and makes transfers from one account to another. The City of Boston has many bank accounts. The Federal Treasury deals largely with banks over the country. Whenever a retail store has branches, duplications are likely to occur. "Chain stores" make great overcounting. "Kiting" swells bank deposits. Replying to these contentions, Professor Fisher has urged that there is large _undercounting_, also, and that the undercounting balances the overcounting. I have myself called attention to a good deal of undercounting in the chapter on "Barter." A substantial amount of ordinary trade is carried on by means of partially offsetting book-credit, time bills of exchange, simple barter, etc. The amount might even run high, as compared with ordinary trade, when the clearing arrangements in the stock and produce exchanges are taken into account. But it is impossible to figure out anything at all in this line which is to be compared with the great gap between the 141 billions of trade we were able to find,[429] and the 387 billions Professor Fisher assigns to trade. The gap of over 245 billions is much too great. Besides, in our 141 billions, we have counted barter items, book-credit items, time-bill of exchange items, etc., already. The main item of undercounting must be in connection with the clearing arrangements in the speculative exchanges. This would seem to be Professor Fisher's view, as well.[430] Data are at hand for the two great exchanges of the country which enable us to measure, with some precision, the amount of the undercounting--_i. e._, to tell the extent to which checks are dispensed with in the trading of these two great exchanges. The two exchanges are the Chicago Board of Trade and the New York Stock Exchange. For the New York Stock Exchange, figures are taken from Pratt's _Work of Wall Street_, 1912 ed., pp. 166-167, 180, 273. The figures are for the big year, 1901, when 266 million shares were sold, more than in 1909 by 51 millions of shares, and when the Stock Exchange Clearing House should have done better, in the magnitude of the undercounting, than it did in 1909. Figures since 1901 are, Pratt states,[431] not available. Pratt also gives figures for 1893, but does not give data as to the percentage of stocks handled by the Clearing House, so that comparison with the 1901 figures cannot be made. In 1901, 265,944,659 shares were sold. Of these, 15% were "X-Clearing House," _i. e._, not on the list of stocks handled through the Stock Exchange Clearing House. This 15% was paid for in full by check. The bond sales are not cleared, and so another billion dollars of checks is required for this item.[432] If we assume (on the basis of the estimates given to the writer by DeCoppet & Doremus, and Mr. Byron W. Holt, for recent years) that 25% of the 100 share sales would be added if "odd lots" were counted, we have another large item that does not go to the Clearing House. "Private clearings" reduce the number of checks in connection with odd lots, but not so effectively as is the case with hundred share sales put through the Clearing House. So far the Clearing House has done nothing. What did it do with the 85% of the stocks in hundred share lots offered for clearing? The figures are perfectly definite. The 85% of the 266 million shares sold was 226 million shares. The "share balance" remaining after the Clearing House had done its best was 134 million shares.[433] The number of shares sold, then, for which checks did not have to pass as a result of the clearing process was 93 millions. In terms of dollars, we may put the same figures. The estimated money-value of the 266 million shares sold was 20.5 billions;[434] 85% of this is 17,425 millions. The certifications required to pay for the 134 million share balance was 10,930 millions. The saving in checks was, thus, 6,495 millions of dollars. This is the full extent to which the Stock Exchange Clearing House undercounts recorded share sales. This is less than 1.7% of Professor Fisher's 387 billions! To offset this, however, we have _over_counting in the 5% of checks for all dealings on the Exchange which pass between brokers and customers, as shown, and all the checks between brokers and out-of-town brokers. We shall also find items of _over_counting which vastly more than offset this undercounting, in _loan_ transactions between brokers, and between banks and brokers, to which we shall shortly give attention. This six and a half billions in checks saved on account of sales of stocks is no small matter, absolutely. But this, though measuring the extent of undercounted _sales_, by no means measures the services of the Clearing House to the Stock Exchange. Not merely stocks _sold_ have to be cleared. Stocks _borrowed_ are also cleared. Borrowing of stocks is not _trade_, but borrowing of stocks requires the passage of money and checks. When stocks are borrowed, money is _loaned_. A bear sells short. He has to deliver next day. He accomplishes this by having his broker "borrow" the stock he needs from a broker representing a bull, who is long on the stocks, and who needs money to "carry" them. The bull, who lends the stock, receives dividends from the bear, as they accrue, and pays the bear interest on the money lent. An enormous lot of this takes place. Moreover, to some extent, these transactions are increased artificially, in order that the broker may make his "clearing sheet" misleading, and avoid revealing his position with reference to the market.[435] Loans of stock and sales of stock appear alike in the transactions of the Clearing House. Moreover, apart from the necessities of the bears for stocks to deliver, we have the necessities of the bulls for money to carry their stocks. If a broker who has borrowed largely from the banks finds his customers turning to the bear side of the market, he has an excess of funds. He may repay his loans, but they may be, in part, time loans, and in any case, he may find it just as well, if he can make a small fraction of 1% in interest, to lend to another broker, among whose customers the bulls are increasing. A vast deal of money is thus transferred, on collateral security, by means of "loaning stocks." Brokers prefer to borrow money from one another in this manner, since no margins are required, in general, whereas banks would require margins. These various reasons make a vast deal of "borrowing and carrying" transactions, and a regular place is set aside for them on the Floor--Post 4, commonly called the "Money Post." At this post, also, the banks, through brokers, lend on call, and the published call rates are established there. Of this, however, we shall have more to say later. The extent to which this loaning of stocks takes place at the "Money Post," as compared with the loaning done privately, varies. It makes no difference, however, from the standpoint of the volume of these transactions that go to the Clearing House whether they are put through at the "Money Post" or outside. The loans made by the _banks_ at the "Money Post" do not affect the Stock Exchange Clearing House totals.[436] Formerly the "Money Post" was a place where the position of the bears could be gauged in a given stock. If the demand for a stock was great, the bulls could take heart, and increase the pressure. To avoid giving away this information, however, borrowing is done on a large scale privately, at present.[437] Of course, if the pressure gets too strong, it will manifest itself at the money post anyhow, since bears borrowing particular stocks will forego all or part of the interest, or even pay a premium for the stock.[438] Now it is possible, from the figures given for the total clearings of the Stock Exchange Clearing House, in conjunction with the figures of recorded sales, and the percentage of "X-Clearing House" sales, to get a fairly accurate idea of the magnitude of these stock borrowing operations between brokers. The total number of shares offered for clearing by "both sides" in 1901 was 926,347,300! This is double the actual amount, since both buyer and seller report the same transaction to the Clearing House, the former with a "receive from" sheet, and the latter with a "deliver to" sheet. Half this amount, or 463,173,650 shares, represents the actual number of shares to be handled. As we have seen, 226 millions of this (85% of the recorded sales of 266 millions) represents sales. The rest, or 237,173,650, represents borrowing of stocks.[439] Borrowing exceeds actual sales, if the figures for 1901--a year of enormous sales--are representative. We have, now, an explanation of the prevailing opinion among brokers that the Stock Exchange Clearing House dispenses with the major part of the checks that would otherwise be required. _For their purposes_, it does make a vast difference. Pratt's figures[440] show that, without the Clearing House, certifications of $27,995,896,400 would have been required; that certifications of $17,065,042,800 were obviated[441] by the Clearing House, leaving the balance of $10,930,853,600 of certifications which had to be used. This balance, as we have seen, is the major portion of what would have had to be paid anyhow for the stocks actually sold and offered for clearing. The saving on the actual sales is only 6.5 billions. But the saving to the brokers was, of course, much greater. Even six and a half billions is no slight matter for any purpose except the explanation of our 245 surplus billions! Pratt gives an estimate at another place of the certifications required by the Stock Exchange sales, reaching virtually the same conclusion that we have reached by a somewhat different combination of his figures. He indicates that 14 billions of certifications were required, counting in the bonds, in 1901.[442] This compares with the 20.5 billions estimated value of stocks sold, and approximately one billion of bonds. This leaves 7.5 billions of certifications obviated on sales. This takes no account of the "odd lots." If they run to an additional 25%, we have five billions more which are not put through the Clearing House. My information is, however, that "private clearings" reduce the checks in connection with these, though not so efficiently as is the case with the big Clearing House. Do the figures that get into the "all other" deposits from those connected with the Stock Exchange undercount sales made there? Not yet have we taken account of an item which swamps all that we have considered. I refer to loan transactions by the banks, particularly call loans. The volume of these is enormous. At the "Money Post" alone, the figures average between 20 millions and 25 millions a day.[443] The range is from 10 to 50 millions. The major part of these loans are not made on the Floor of the Exchange, however, but privately, between banks and brokers. Even on the Floor, no records of the loans are kept, and only estimates are available. For the loans made privately, no figures are attainable at all. The total must be enormous. One authority writes, in a letter, "The total amount of money loaned at the post varies considerably, depending upon the rate. For instance, when money is under 3%, loans are largely made directly between the banks and the brokers, but when it gets over 3% and gets strong, more loans are made at the post. Some national banks make all their loans there right along, so I understand." My information from an officer of the National City Bank is that it lends the major part of its demand money on the floor of the Exchange. The other chief lenders, according to the Pujo Report,[444] are the National Bank of Commerce, The Chase National, the Hanover National, J. P. Morgan and Co., and Kuhn-Loeb. The same report states that the bulk of such loans are made directly between banks and brokers, and not at the "Money Post." How do these transactions affect Kinley's figures for deposits, and so Fisher's total of 387 billions? The small dealer deals, usually, with one bank. When he borrows, he gets a "credit" on his deposit account, but makes no "deposit" that would get into Kinley's figures. But stockbrokers deal with many banks. They have one bank which "certifies" for them, and with which they regularly keep a "balance." But for their loans, they deal with whatever bank gives them the best rate, or has the funds to spare. In time of tight money, they shift their loans with great frequency. They borrow also from one another. "Money" is "worth money" in New York, and idle funds will be lent by whomever has them for whatever the market will pay, on collateral security on call. When a broker deposits money in his bank borrowed from another bank or another broker, he gets a deposit credit which does get into Kinley's figures--he deposits a certified check, or a bank draft. The following has been described as a typical transaction by the bond expert of a Boston banking house, and has been amplified by several Wall Street men with whom I have discussed it. A, whose home bank is Bank W, has borrowed, on call, $500,000 from Bank X. Bank X calls the loan. A finds Bank Y willing to lend him enough to pay it off. Before he can get the new loan from Bank Y, however, he must get his collateral released by Bank X. Before he can do that, he must pay off the loan at Bank X. His recourse, then, is to Bank W, his regular bank, which certifies for him, and with which he keeps his balance. Bank W gives him a certified check (either an overcertification, or a "morning loan" transaction), for $500,000, with which he pays off the loan at Bank X. He then takes the collateral from Bank X to Bank Y, and makes a new loan. He gets a draft from Bank Y, which he deposits with Bank W, and then draws another check against his deposit with Bank W to pay off the "morning loan," in case the transaction took that form. Here are three checks for this loan transaction, two of which get into clearings, and one of which gets into "all other deposits." But the checks may be multiplied. A, instead of getting a new loan at Bank Y, may call a loan from broker B, who may then call a loan from broker C, who may go to Bank Y to get the funds he needs to pay B. Here are two new checks in the series, both of which get into the "all other" deposits. Checks fly about recklessly in Wall Street, and men will turn over money many times, if an eighth of 1%, or less, can stick by the way, on a good sum, for a few days! This is strikingly illustrated by a fact which caught my attention in the monthly bank statement of a brokerage house which I was allowed to examine. The deposits made during the month, and the checks drawn during the month, balanced to within five hundred and fifty dollars out of several millions. The broker said of this: "It would be true even for a single day, and it would be true for a year. The bank requires us to keep a minimum balance; it is to our interest not to keep more than that. If we have more at the end of the day, we lend it out; if we have less, we borrow to make up the deficiency. We try to have just that balance, and no more, to our credit at the bank at the end of every day." The handling of funds by a brokerage house is a fine art, involving both technical skill and a philosophic grasp of the factors of the "money market." Are rates going up? Then it is well to reduce call loans, and borrow more on time. If lower rates are anticipated, more call money will be employed--with the possibility of a "squeeze" if too much is taken that way. Hidden dangers must be foreseen. The sums borrowed are enormous, and brokers' profits depend in very substantial degree on their skill in borrowing as cheaply as possible, and in utilizing their funds to the utmost. It is here, I think, in loan transactions between banks and brokers and between brokers, that we have a major part of the explanation of the huge deposit figures for New York City, and for the tremendous influence of stock sales on clearings, which Mr. Silberling's[445] figures show. This is the opinion of Professor O. M. W. Sprague, who first called my attention to the volume of call loans, and rapid shifting of call loans, in New York, and it is the opinion of every Wall Street man with whom I have discussed the matter. The actual pecuniary magnitude of the share sales and bond sales is not enough to do it. The mass of connected loan transactions, however, substantially greater in volume than the actual sales of securities, is, with the security sales, enough to do it. When the call rate is high, which will particularly happen when bank reserves are low, the shifting in loans will be much increased. One bank will have money to lend one day, but the next day will have to call it, to meet heavy demands at the Clearing House, while some other bank will have the surplus funds to lend. The brokers, by bidding up the rate, will tempt the temporary lending even of small surpluses, if their necessities are great. The volume of "all other deposits" and of bank clearings will be swelled by this much beyond ordinary. That this should not be revealed to ordinary statistical tests is due to the fact that speculation tends to fall off at such a time, so that the other factors in the stock exchange operations tend to reduce daily deposits and bank clearings. Mr. Silberling has applied to this problem the technique of a refinement of the correlation method, the method of partial correlation, with the result of confirming this view.[446] I conclude, therefore, that stock exchange transactions, instead of being undercounted in bank deposits, are very greatly overcounted.[447] The big item that does it is loan transactions between brokers and brokers and between brokers and banks. The evidence from the Chicago Board of Trade, with reference to the extent of clearings within the exchange there, comes in a letter from the Secretary of the Board of Trade to Professor Taussig. The only clearing house transactions are in connection with "futures." All "spot" transactions are paid in full by check. All futures other than those offset by clearing are paid in full by check. The total amount put through the Clearing House in 1915 was 118 millions, of which the balances paid were 41 millions (saving checks to the extent of 77 millions). This 77 millions is a trifle indeed as compared with the gap of 245 billions we are trying to fill! It is a trifle also as compared with the business done on the Board of Trade. The Secretary estimates that commodities to the value of $375,000,000 actually arrived on the exchange in 1915. On the average, the figure would be $350,000,000. For the Stock Yards "it is approximately the same--last year was $375,000,000. Of fruits, vegetables, poultry, butter, eggs, etc., sold in South Water Street, it is claimed by their statisticians, the value is $350,000,000, or a total of about eleven hundred millions _arriving_ [Italics mine] yearly at this great market place, all of which is paid for by checks, and when the ownership changes, the change of ownership is always paid by check." How many times the goods change hands, cannot be stated on the basis of records of the Board of Trade. The Secretary contents himself with saying that they are "sold and resold many times." We have discussed this, on the basis of reputed figures of the Federal tax on grain futures in 1915, in our chapter on "Volume of Money and Volume of Trade." In any case, it is clear that the 77 millions of checks economized, though absolutely great, is relatively a bagatelle. It is, moreover, more than compensated for by loan transactions. The Secretary estimates that for a sixty-day period, when grain is coming in, from two to four millions will be lent by the banks daily on _arriving_ grain. How great the loan transactions on subsequent sales will be we can only conjecture. While able to find, then, important cases of trade and speculation which dispense with the use of checks, I cannot find anything of magnitude sufficient to aid Professor Fisher's case, and I find, on the other hand, enormous overcounting in every field where business and banks meet, as well as in the relations of banks to non-commercial depositors. I conclude, therefore, with reference to the figures of Fisher and Kemmerer[448] for volume of trade, that they are much exaggerated for the base year, and that for every other year they are wholly wrong, both because of their excessive magnitude, and because the index of variation has been wrongly chosen. The discussion of P, the price-level, in the statistics of Kemmerer and Fisher need not be extended. P, for the equation of exchange, and for the quantity theory, is a _weighted_ average, each price that goes into it being weighted by the number of exchanges involving the commodity of which it is the price. The weighting of P should correspond to the elements in T, the volume of trade, and should vary from year to year, as the elements in T change.[449] Now Kemmerer's P is weighted as follows: wages, 3, security prices, 8, wholesale prices, 89.[450] If our conclusions with reference to the composition of the volume of trade, as developed in the chapter on "Volume of Money and Volume of Trade," are valid, this weighting gives us a P which has no relevance to the equation of exchange. The wholesale items should have a weight of not more than one-sixth of the total for 1909. Certain commodities, as wheat and cotton, in which there is heavy speculation, should be given great weight, and securities should have, probably, the greatest weight of all. If "trade" is to be extended to cover transactions in bills of exchange and loan transactions (as it is by Kemmerer),[451] then P should contain these things, weighted more than all else put together, particularly if call loans are included. The weights should be radically altered from year to year. We should then get a P which would fit the "equation of exchange"--though what else it would be good for is hard to say! The same criticism applies to Fisher's P. It is dominated by wholesale prices.[452] It therefore has no relevance to an equation of exchange in which only one-sixth at the very most of the items are wholesale items. Neither Fisher nor Kemmerer alter their weights in P at all, to correspond to yearly alterations in the composition of T. As _indicia_ of changes in the _absolute value_ of money, Kemmerer's and Fisher's index numbers, or other index numbers of numerous wholesale prices, with a substantial weighting of wages, are probably better than an index dominated by stocks. Stocks fluctuate more widely than wholesale prices and wages, their values are more affected by variations in business confidence, and by variations in the rate of interest. For measuring _the value of money_, the index numbers here criticised are very good. But for the purpose for which they are chosen, namely, to fill the equation of exchange, and to measure variations in a _price-level_ of the sort the quantity theory and the equation of exchange are concerned with, they are simply irrelevant. If it were really true that such an index number varied with the quantity of money, then the quantity theory would be effectively disproved! Now, in general summary of our criticisms of the figures of Kemmerer and Fisher: they have systematically buried New York City, and systematically covered up speculation. All the errors converge in this direction. The _indicia_ of trade cover up speculation and the other things that go on in New York, and other financial centers. The _indicia_ of prices do likewise. Fisher weights New York clearings only 1, while weighting country clearings 5, in his index of variation of check transactions. He also counts New York returns for March 16, 1909, as complete, and gives all of his estimate for non-reporting banks to the country. Kemmerer does not do this, but he does exaggerate the importance of money, as compared with checks, and does not allow the velocity of money to vary at all in his figures, thus getting a much greater constancy in the figure for total circulation of money and checks than is proper, and covering up the flexibility and variability which New York gives to our system.[453] In general, our task in this chapter has been an archæological excavation--we have rediscovered a buried city. PART III. THE VALUE OF MONEY CHAPTER XX RECAPITULATION OF POSITIVE DOCTRINE The chapters which have gone before have been, in considerable degree, concerned with the analysis of unsuccessful efforts to solve the problem of the value of money, as the quantity theory, or the attempts to apply the notions of supply and demand, marginal utility, and cost of production, to the problem. Not all that has gone before has been, even in form, primarily critical. The chapter on "Economic Value" lays the foundation for the main constructive theory of the book, and in virtually every chapter some portion of our positive doctrine has been developed. In the doctrines criticised, elements of truth have been noted, and in showing the errors of the doctrines considered, constructive doctrine has been presented by way of contrast. The theories criticised, moreover, even where they have gone astray in solving problems, have at least the merit of _stating_ problems, and so have aided in clearing the way for theories better based. It is the task of the present chapter to present, in a series of theses, the main constructive results so far attained. No effort will be made to follow the order of the exposition which has preceded. A summary of that will be found in the detailed analytical table of contents. Rather, we shall seek to draw from what has preceded the positive doctrine which is scattered through the preceding chapters, and to present it by itself, as a basis for the more systematic formulation of constructive theory which the following chapters are to contain. 1. The theory of the value of money is a special case of the general theory of value. 2. Value is a phenomenon of psychological nature. Not physical quantities, but psychological significances, are relevant when the problem of value and price causation is involved. 3. Value is not a ratio of exchange, or "purchasing power," but is an absolute quantity, prior to exchange. It is the fundamental and essential attribute or quality of wealth, the common or homogeneous element present amidst the diversities of the physical forms of wealth, by virtue of which comparisons may be instituted among different kinds of wealth, and different items of wealth may be added to make a sum, put into ratios of exchange, and so on. 4. Economic value is a _species_ of the _genus_, _social value_, coördinate with legal value, and moral value. It is part of a system of social motivation and control.[454] Psychological in character, it none the less presents itself to an individual as an objective, external force, to which he must adapt himself. 5. Individual prices have two coöperating causes: (a) the social economic value of the money-unit, and (b) the social economic value of the unit of the good in question. 6. The average of prices, or the "price-level," is a mere mathematical summary of the particular prices. The causation involved in the average of prices is nothing more than the causation involved in the particular prices. 7. The value of money is to be distinguished from the "reciprocal of the price-level," or the "purchasing power of money." The value of money is an absolute quantity, one of the factors, determining each particular price. Particular prices and general prices may change because of changes in the values of goods, with no change in the value of money. Or, particular prices and general prices may change because of changes in the value of money, with goods remaining constant in value. 8. The absolute value of money, assumed constant, is presupposed by the great body of present day price theory, as supply and demand, cost of production, and the capitalization theory. These theories are, therefore, inapplicable to the problem of the value of money. 9. But supply and demand, cost of production, the capitalization theory, and other laws concerned with the concatenation and interrelations of prices, being applicable to the problem of particular prices, are also applicable to the problem of general prices. (Chapter on "The Passiveness of Prices.") 10. The general price-level, as a consequence of changes in particular prices, growing out of changes in the values of goods, may rise or fall, without antecedent changes in the value of money, or the quantity of money, or the volume of credit, or the volume of trade, or in the "velocities of circulation" of money or credit. (Chapter on "The Passiveness of Prices.") 11. The general laws of prices, supply and demand, cost of production, the capitalization doctrine, the imputation doctrine, etc., conflict with the quantity theory. In the cases where they conflict, the first named doctrines are correct, and the quantity theory is wrong. (Chapter on "The Passiveness of Prices.") 12. The value of money, being a special case of economic value, is subject to the same general laws. This means, from the standpoint of my theory, that the theory of social value is applicable to the problem of the value of money. 13. This is not the same as saying that the whole value of money is to be explained by the social value of gold bullion, conceived of as a mere commodity. A hypothetical case was constructed in the chapter on "Dodo-Bones," in which gold is the standard of value, but is not employed as a medium of exchange or in reserves, where the whole value of money is to be explained by the value of gold bullion, conceived of as a commodity. 14. But, in general, money gets part of its value from its monetary employments. (Chapter on "Dodo-Bones.") 15. The additional value which comes to gold bullion as a consequence of its employment as money, is itself to be explained on social value principles. It grows out of the social value of the services which money performs. 16. The functions of money remain to be examined in detail. And the relation between the value of particular services of money and the capital value of money, has not yet been analyzed. There is a relation between the two--a relation which varies under different conditions--even though it has been shown in the chapter on the "Capitalization Theory" that the relation is not the simple one which holds between the values of services and the capital value of ordinary income-bearers. There must be an increment to the value of gold bullion as a consequence of its being coined, however, since otherwise there would be no force leading it to be coined. 17. This increment in value to bullion, as a consequence of coinage, becomes evident when free coinage is suspended. An agio of coin over uncoined bullion may easily appear. 18. But this is not to assert the doctrine of the quantity theory. Because 19. The money service presupposes the existence of value for money from some source other than the monetary employment (chapter on "Dodo-Bones"); and 20. Hence the monetary employment can explain only a differential portion of the value of money. 21. The proposition that money must have value from some source other than the monetary employment does not mean, necessarily, that money must be made of precious metals, or be convertible into precious metals. The value of money is, indeed, most stable and best sustained when such is the case. But it is possible for money made of paper to have value apart from the prospect of redemption--though no clear case has been made, in the writer's opinion, for the view that this has historically occurred. But as a hypothetical possibility, my theory holds that paper money may attain a value of its own, growing out of various factors which a social psychology can explain, including law, patriotism, and custom. Social values in every sphere are imperfectly rationalized. Values which in their origin are secondary and derived may become substantial and independent of their "presuppositions." This is true of legal and moral values. It is true of the capital value of land. It may be true of paper money. This matter has been discussed in the chapters on "Economic Value" and on "Dodo-Bones." The social value theory has not the limitations of the utility theory in dealing with such cases, nor is it tied to a metallist or bullionist interpretation. Legal, moral, and patriotic factors, and the influence of social custom, all fall readily into the social value doctrine. 22. The "measure of values" function, and the "standard of deferred payments" function, need not require the actual use of money, and need not add to the value of money. The function of "medium of exchange," and other functions to be analyzed in a later chapter on that topic, do involve the actual employment of money, and are sources of value for money. 23. The quantity of money and credit are matters of high importance in economic life. They affect vitally the smooth functioning of production and exchange. While not accepting the extreme view of those writers who see in scarcity or abundance of money the primary cause of the ebb and flow of civilization, I maintain that the quantity of money and credit does make a vast difference, and that the quantity theory contention that, after a transition is effected, the only consequence of a change in the quantity of money is a proportional change in the price-level, is wholly indefensible. (Chapter on "Volume of Money and Volume of Trade.") 24. Very much of economic theory has been developed in abstraction from money. For economic statics, with its delicate marginal adjustments, on the assumption that friction is banished, that the market is fluid, that labor and capital and goods are mobile, etc., money does appear a needless complication. But the static assumptions are only possible because money and credit have smoothed the way. It is the business, the function, of money and credit to overcome "friction," to effect "transitions," to make it possible for "normal" tendencies to manifest themselves. (Chapter on "Volume of Money and Volume of Trade.") 25. The main work of money and credit is in effecting "transitions," bringing about readjustments, enabling society, with little shock, to adapt itself to dynamic change. The great bulk of the actual exchanging that takes place is speculation, and would not occur if economic life were in static equilibrium. This is true both as a matter of theory and as a matter of statistics. More than half of the checks deposited in the United States are deposited in New York City, where "wholesale" and "retail" deposits are a small factor. Bank clearings fluctuate in close conformity with stock exchange transactions. Great banks, and the bulk of banking transactions, are everywhere found in the speculative centres. (Chapters on "Volume of Money and Volume of Trade," and "The Rediscovery of a Buried City.") 26. Hence a functional theory of money must be essentially a dynamic theory: must rest in a study of "friction," "transitions," and the like. And, 27. Hence a theory of money like the quantity theory, concerned with "long run tendencies" and "normal equilibria" and "static adjustments" touches the real problem of the value of money not at all. 28. An increase of money tends to increase trade. (Chapter on "Volume of Money and Volume of Trade.") 29. An increase of credit tends to increase trade. (Same chapter.) 30. An increase of trade tends to increase the volume of credit, and, where the money supply is flexible, tends to increase the money supply also. (Chapter on the "Volume of Trade and the Volume of Money and Credit.") 31. Production waits on trade. The problem of marketing in the modern world is often more important than the problems of production in the narrower sense. Selling costs are probably greater than strict "costs of production." "Volume of trade," far from being dependent on "physical capacities and technique," is almost indefinitely flexible, with changing tone of the market, with changing values, and with other changes, including changes in the volume of money and credit. (Chapter on "Volume of Money and Volume of Trade.") 32. The relation between the volume of money and the volume of credit is exceedingly flexible. The relation between the world's volume of credit and the world's volume of gold is likewise exceedingly loose, uncertain, and flexible. (Chapters on "Volume of Money and Volume of Credit," and "The Quantity Theory and World Prices.") 33. "Velocity of circulation" is a blanket name for a complex and heterogenous set of activities of men. It is a passive resultant of many causes, and is itself a cause of nothing. The safest generalization possible concerning it is that it varies with the volume of trade and with prices. 34. Barter remains an important factor in modern economic life, and is a flexible substitute for the use of checks and money, increasing when the money market "tightens." It is greatly facilitated by the "common measure of values" function of money. 35. The general criticism of the mechanistic scheme of causation involved in the quantity theory has, as its positive corollary, the doctrine that psychological explanations must be given--that the phenomena are intricate and complex, as intricate and complex as the play of human ideas and emotions, and the network of social relationships. 36. This means that the theory of value, and of the value of money, as here presented, cannot assume the simple form, or the mathematical precision, which have made the quantity theory so alluring. It means, further, that the present study, as in part pioneer work, will lack finish and definiteness in many places, will contain errors and gaps, and will leave many problems unsolved, and many distinctions undrawn. At many points, the analysis is confessedly incomplete, and the problems imperfectly thought through--often inadequately _stated_, if seen at all. In what follows, these theses, with doctrines yet to be developed, will be woven together into a systematic theory of money and credit. The study of the functions of money, in relation to its value, will best be approached, I think, through a study of the origin of money. In this, I shall base my conclusions chiefly on the work of Karl Menger and W. W. Carlile, who seem to me to have done most in this field. On the basis of the general theory of value developed in the first chapter, and the results of the two chapters which are to follow on the origin and functions of money, I shall reach my main conclusions as to the laws of the value of money. On the basis of this theory of value, and of the theory of the functions of money, I shall also try to develop a psychological theory of credit, and to assimilate credit phenomena to the general phenomena of value. The development which the theory of credit has had, at the hands of men whose chief interest was that of the jurist or accountant, is valuable and important. I do not wish to discredit what has been done. Many important doctrines concerning credit have been developed. The general theory of elastic bank-credit, worked out in the controversy between the "Currency" and the "Banking" Schools, is of the highest importance. This theory I have discussed in the chapter on "The Volume of Trade and the Volume of Money and Credit." I still feel, however, that there are gaps in the prevailing ideas on credit which only a social psychology can fill. I shall undertake to construe credit as a part of the social system of motivation and control, and to differentiate it from other parts of that system by an analysis of its functions. I think, too, that the theory of the relation of credit and money is in especially unsatisfactory shape, particularly with reference to the factors governing reserves. A final chapter, in Part IV, will undertake to bring together the various points in our discussion which deal with the theory of prosperity, and will seek to bring the notions of "theory of prosperity _vs._ theory of wealth," "statics _vs._ dynamics," "normal _vs._ transitional tendencies," and certain other similar contrasts, into a higher synthesis, which will, to be sure, not rob these contrasts of their significance, but will rather find certain generic principles which they share, and so make it possible to measure considerations in one sphere in terms of considerations in the other sphere. In very large degree, students of dynamics and students of statics have been talking at cross-purposes, missing the force of one another's arguments, and have been quite unable, even when understanding one another, to come to agreement, precisely because they have lacked principles by means of which they could compare in any quantitative way the forces which each studies. A higher synthesis, which would give static and dynamic theories common ground, would seem to be a desideratum of high importance. Such a synthesis would go far toward unifying the science of economics. I believe that the theory of money and credit, approached from the angle of the social value theory, will meet this need. CHAPTER XXI THE ORIGIN OF MONEY, AND THE VALUE OF GOLD This chapter is not concerned with history or anthropology for their own sake. The present writer has made no independent historical or anthropological researches, in connection with the question of the origin of money. The chapter is primarily concerned with giving an exposition of the theories of two writers, Karl Menger and W. W. Carlile.[455] It is not important, for my purposes, whether either writer has presented a theory which anthropology will accept as a correct account of actual origins. The theories do throw light on present functioning, and seem to me to be correct as analytical theories, whether historically adequate or not. There are two main questions with which the chapter is concerned: (1) How did money come to be? (2) Why should gold and silver have passed all rival commodities in the competition for employment as money? Viewing these questions from the standpoint of present functioning, rather than from the standpoint of historical origins, we may restate them as follows: (1) Why should men accept small disks of metal, or paper representatives of these metal disks, for which, _as_ metal, they have no use, or at all events far in excess of the amount which they can make use of as metal, in return for economic commodities which they can use? The social utility of a money economy may well be granted, without giving an answer to this question. Granting that social economic life works better by far when men do accept these disks of metal in payments, the question still remains not merely as to why the practice started, but also as to why it continues. Granted that it is to the individual, as well as to the social advantage, that each individual should accept these metal disks in excess of his personal need for the metal, _if he is assured that he can pass them on to others at will_ in return for the goods he wishes to consume, the question still remains as to why the individual should have this assurance, as to why the general practice should continue. Menger quotes Savigny as holding that the thing is downright "mysterious," and the Aristotelian answer of social convention (sometimes interpreted as "social contract") is, in effect, a confession that the thing does baffle explanation on the ordinarily understood laws of exchange. The convergence of individual and social advantage, which English economic theory has done so much to emphasize, is less clear by far in connection with money than with the case where A trades a sheep (of which he has a surplus) to B for a quantity of grain (of which B has a surplus), while A has not enough grain, and B has not enough sheep. This exchange is clearly to the advantage of both A and B, and the practice of making such exchanges is clearly to the general advantage. But in the case of money, A trades sheep (of which he may not have an excess, so far as his capacity to consume is concerned) for disks of metal which he probably does not intend to consume at all. The social advantage of a general practice of the sort is easily established, but it is not clear that it is to A's advantage, _unless we assume the practice general_. But there are many practices which could be shown to be socially advantageous if all men practiced them, and, indeed, individually advantageous, if generally practiced, which can, none the less, not be made a general practice. If thieves would cease stealing, we could dispense with a vast expense now incurred in police and safe deposit vaults and heavy locks, etc., and with a small fraction of the savings could give pensions to the thieves which would surpass by far their present incomes! Individual and social advantage would converge. But for many reasons the practice could not be instituted, and would break down quickly if instituted. Very powerful social pressure indeed is needed to make an advantageous social institution--like morality--work, so long as individuals sometimes find advantage in breaking the general practice, even though the general practice, _on the part of other people_, is of advantage to every individual. Now it is clear that the institution of money is to the social advantage. It is clear that it is to the advantage of every individual who has money that everyone else should be ready to accept it in unlimited amount, in return for his goods and services. But it is not clear, on the surface, why everyone should be ready to take metal disks in unlimited amount in return for goods and services. People will not take coal or horses or hay or land or white elephants in unlimited amount in return for goods and services. Why should there be such a general practice regarding metal disks or pieces of paper? This question, to one who has always lived in a money economy, may seem childish. Such questions regarding anything to which we have grown accustomed seem childish to those who have not been used to raising them. Why does the sun rise? Why does seed-corn sprout? But these also are proper scientific questions, the answer to which is of high practical importance! The answer to the question just raised regarding money will go far toward explaining the functions of money, and the theory of the functions of money, together with the general theory of social value, will give an answer to the question as to _how the money function adds to the value of money_. The answer which I shall give on the first question will in large measure follow the lines laid down by Menger. (2) The second question needs little revision, when stated from the standpoint of present functioning, rather than of historical origin. We have more recent history to deal with in connection with this question, and Carlile, in his answer, offers substantial historical and anthropological proofs. It is still, however, present functioning that is important, and the question may be restated thus: Why are gold and silver, and particularly gold, the standard money of the great part of the world to-day? The principles of social psychology which Carlile employs in explaining the historical development, are also important in explaining the present attitude of mankind toward gold and silver, and will serve, together with the general theory of social value, to answer the question as to the value which money receives from the employment of the money metal _as a commodity_. It is worthy of note that neither of these questions has been seriously raised or discussed by most recent writers of the quantity theory type. Professors Kemmerer[456] and Fisher give no attention to them at all. Both assume money as circulating, as the starting point of the argument, without noticing how much is involved in the assumption. Neither, moreover, gives an _analysis_ of the functions of money. Considerations drawn from the question as to the origin and functions of money are hard to bring into the quantity theory scheme. If money circulates, there are causes for it. Fully to understand those causes, would be to understand also the _terms_ on which money circulates, that is to say, the _prices_. But then a quantity theory would be superfluous! And if the quantity theory answer should not be obviously in harmony with the answer already given by the theory of origin and functions, then doubt would be cast on the quantity theory explanation. The quantity theorists do well to avoid mixing up with their discussion considerations drawn from the general theory of value, and from the theory of the origin and functions of money. The answer to the first question rests primarily in the fact that there are differences in the _saleability_ of goods. Value and saleability are not the same thing. A copper cent has high saleability; a farm has low saleability.[457] Some valuable things cannot be exchanged at all. The Capitol at Washington cannot be exchanged, yet has value. Under a communistic or socialistic régime, exchange, as we now know it, would largely or wholly cease. An entailed estate cannot be sold, yet has value. If society should really come to the stable equilibrium of the "static state," most of the exchanges of lands,[458] securities, and other long-time income-bearers would cease, but they would still be valuable. I have developed these notions in my article on "Value" in the _Quarterly Journal of Economics_, Aug. 1915, and have referred to them again in the chapter on "Value" in the present book, and so need not expand the discussion here. Exchangeability and value are different characteristics of goods. Value is an essential precondition of exchangeability, but can exist without it. Value is, however, commonly increased by exchangeability. But the theory of exchangeability is a separate matter, and cannot be deduced from the theory of value alone. Menger points out the difference between "buying price" and "selling price." You can buy a piano for $400. If you try the next minute to sell it for $375 you will probably fail. You may pay ten thousand dollars for a farm. The income of the farm may increase. The tax assessment may increase. The capital value of the farm may increase. And yet, you may have to wait for a long time before you find a buyer who will pay you ten thousand dollars for it. One buys pianos or farms, as a rule, only when one wishes to use them, or when one has such special knowledge of the market that one knows pretty definitely where purchasers can be found for a resale, at a profit. Even in such highly organized markets as the stock and produce exchanges, one cannot usually buy in quantity and sell immediately without some loss. "Buying price" and "selling price" of such a stock as Industrial Alcohol Preferred are sometimes five points apart, at a given time. The forced sale of land in bankruptcies, or for taxes, notoriously often bring prices far below the price which would correctly express the value of the land. It is only in the ideal fluid market assumed by static theory, where adjustments are instantaneous, where causal-temporal relations have become timeless logical relations, that values are perfectly expressed in prices.[459] All these difficulties were enormously greater in days of primitive barter, before money and organized markets had been evolved. The difficulties of barter have been much elaborated in the literature of money. I shall recur to the topic in my chapter on the "Functions of Money." Part of the trouble arises from the "want of coincidence" in barter--the failure to find the man who has what you want, and who at the same time wants what you have. Goods have high or low saleability, depending, in considerable degree, on the _universality_ of the desire for them. They may have high _value_ if only a few rich men desire them, provided they be scarce. The paintings of old masters would be a case in point. Incidentally, the difference between buying price and selling price is often enormous in this case, and the making of a sale may well involve long and expensive negotiations. The difficulties of exchange here arise not alone from the limited market, however, but also from the fact that each painting is a unique, and a unique of high value. A good might have high saleability despite the fact that the ultimate demand for it comes from only a few rich men, if it could be easily subdivided and standardized. Menger enumerates a number of circumstances connected with a good which increase its saleability. Among them are the following: 1. Widespread and intense desire for the thing (to which should be added, adequate wealth on the part of those who desire it). 2. Scarcity of the commodity in question. 3. Divisibility of the commodity. 4. Considerable development of the market. 5. That the demand for the article should be more than local. 6. That it be cheaply transportable. 7. That commerce between localities in the article be unrestricted. 8. That demand for the article be constant, not fluctuating, in time. 9. That the article be durable. 10. That it be uniform in quality, so that standardization is easy. In general, Menger's list meets the requirements often laid down for a good _medium of exchange_. In general, to the extent that any commodity meets these tests, it will be _saleable_. Commodities will vary indefinitely in the extent of their saleability. Starting with the distinction between value and saleability, and with the analysis of the circumstances affecting saleability, we may now undertake to see how money tends to develop out of a barter economy. Suppose that a man, in a barter economy, has a good of low saleability, which he wishes to trade for some other specified commodity. He finds no one who possesses the commodity he wants who is willing to trade with him. But if he can trade his article of low saleability for some other commodity of higher saleability, _still not the thing he wants_, he has yet made progress, he has got _one step nearer_ the object which he does want. It will be possible now, perhaps, to trade the new article, of higher saleability, for the commodity he wants. If not, he can trade it for some article of still higher saleability, which he can finally trade for the article he wants. By several indirect exchanges, he finally reaches his object. Incidentally, it is erroneous to distinguish money and barter economies as economies based on direct and indirect exchange. The barter economy may well involve much more indirection than the money economy, in many cases. If there be in the market some one commodity which has a conspicuously higher degree of saleability than any other, the more sagacious men in the market will make it a point to get hold of it and accumulate it in excess of their anticipated consumption of it. They will do this, because they will see that they can thereby get other things which they do need more easily than in other ways. With the accumulation of a given kind of highly saleable goods, in excess, by a few men in the group, in the expectation that the surplus will subsequently be used to buy other goods,--as yet perhaps not specifically determined--we have, not money, but a big step toward money. At first only a few grasp the great idea. They succeed and become wealthy. Then others see the advantage of the thing, and imitate them. The prestige of the wealthy and successful men would induce imitation even if the advantage were not clearly seen. Then a tradition and a custom grows up. With the growth of tradition and custom, picking out one or a small number of things as particularly desirable objects to accumulate because of their saleability, with the practice of accumulating these articles in excess of intended consumption, money becomes an accomplished fact. There is no need for agreement or legislation. Money is not, in its origin, certainly, a matter of law or conscious public planning. With the development of a highly saleable article into money, moreover, we have further a great increase in that saleability itself. The quality which made the practice possible becomes greatly enhanced by the practice. Menger thinks that this leads to an absolute difference between money and goods, the money article, which formerly was merely superior to other goods in saleability, now becomes absolutely saleable. The absoluteness of this distinction, which would make it a distinction in kind, rather than in degree, seems to me not to be sound. I think that the distinction remains a distinction of degree. For one thing, the development of money, while it adds to the saleability of the money-commodity, _also adds to the saleability of other goods_. _Two_ things must be exchanged, in order that _one_ may be! It is the business of money to facilitate exchange, to overcome the difficulties of barter, to bring about the fluid market. And it does this not merely by acting as a medium of exchange. The fact that goods can be _priced_ in terms of money, can have a common measure of value, makes barter itself easier, as I have shown in my chapter on "Barter" in Part II. There are many articles in trade at the present time whose saleability is not much less than that of money, in ordinary times. Wheat in the grain pit is surely highly saleable. Stocks and bonds are. If it be objected that in the wheat market there is always some difference between buying price and selling price, if considerable quantities are involved, it may be answered that the same is true in the "money market" The man who has just negotiated a three months' loan of five hundred thousand dollars at 3-1/2% may well have trouble in turning that loan over to someone else immediately without shaving 1/4% from the money-rate! Besides, it is not true that values remain unchanged when a big buyer shifts from the bull to the bear side of the market. Buying price is higher than selling price in that case partly because _his economic power_ has ceased to sustain the value of the wheat, and the price would not correctly express the value if it remained uninfluenced by that fact. Further, as we shall see when we come to the analysis of credit, one chief function of modern credit is to increase the _saleability of goods_, and to enable men to use the value of their goods in effecting exchanges without actually alienating their property in the goods. It seems to me that the drift of modern systems of exchange is toward closing up the gap between money and goods, in respect of saleability, rather than to widen it.[460] But this is to anticipate later discussion. It is not necessary, in answering our second question, as to the reasons why gold and silver have become the standard money of the world, to go far in the study of primitive moneys. Wheat has almost never been money. The value of wheat sinks rapidly with increase in supply, and is very unstable. Wheat meets some other tests that fit it for money, as easy divisibility, ease in standardization, and even has some degree of durability, though subject to deterioration and waste with keeping, and involving expense in keeping. Carlile and Ridgeway think that wheat was used to some extent among the Greeks in Southern Italy as money, at one time.[461] But this was possible because there was a regular export trade in wheat--the same thing that made tobacco available as money in Virginia. In general, however, commodities which minister to easily satiable wants are ill-adapted for money. And that is especially true of current stocks of goods currently consumed. The accumulation of money, moreover, implies a stage of human development where the accumulation of _capital_ is possible. It implies foresight, the suppression of present wants in the interest of future wants, and almost always money has been a commodity well suited to serve as provision against future contingencies. Cattle, slaves, knives, fish-hooks, cooking implements, and similar things have been money. The "store of value" function manifests itself early. But very early a different sort of commodity comes in. Articles of _ornament_ early begin to take the place of articles that minister to more animal wants. It seems strange that articles meeting wants which are commonly counted frivolous and fanciful should distance those obviously necessary in the race for a place as money. It seems strange that the nations now at war should seem more concerned about their gold supplies than about their wheat supplies.[462] But it is none the less a fact that men in all ages have been enormously concerned about ornament. In warm regions, ornament has commonly preceded clothing. Very early, necklaces, bracelets, rings, earrings, nose-pendants, etc., became objects of exceedingly great desire. And very early, gold and silver were used for such purposes, and men made long expeditions for them and fought wars for them in very early times, before the money economy was developed far. Other ornaments than those made of gold and silver have also become money. Wampum, polished shells, iron ornaments, etc., have all been money. The Karoks of California were accustomed to use strings of shell ornaments as money. When this was supplanted by American silver, they used strings of silver coins as ornaments, dressing their women lavishly with rows of silver dimes, quarters, and half-dollars! Ornament and money are freely _inter_changeable in primitive life. To-day, in the Western world, the thing is more specialized and differentiated, and the interchange of money and ornament is largely confined to jewelers, bankers, especially international bankers, gold brokers, and the mints, _through_ whom the rest of society make the interchange. In India, however, the peasant's hoard takes the form of bracelets, bangles, and earrings for his wife and daughters, and the peasant himself seems to regard them in the double light of provision for future needs, and as conferring social distinction. They are both ornament and savings bank, and are superior to a savings bank from the standpoint of effective saving, since the natives would spend what they put in the bank, but only famine can make them dispose of the ornaments of their women.[463] Saving is a practice not easily started. There are powerful motives in human life making for prodigality. Social prestige comes to the man whose hospitality is lavish. Social expectation, which is the most powerful steady motive power in human life, makes powerfully for prodigality. Thrift is a virtue little esteemed among primitive men, and none too highly esteemed among the masses in most countries. The grudging person, the tightwad, the man who fails to do his share of the treating, the woman who entertains her guests with inadequate fare--none of these enjoy high social esteem. To offset this, a motive equally powerful must manifest itself. It would be considered mean and contemptible for the Hindu to put money away instead of spending it on feasts at marriages and funerals, and in hospitality on other festive occasions. But he gains, instead of losing, in social esteem and prestige, if he decorates his women with gold and silver. Later, the advantage of such a practice as a matter of provision against future wants would get into men's minds, and would become an added incentive to maintain and increase the practice. Thus the frivolous and fanciful side of men's nature furnishes a powerful lever for the development of both money and capital. In the store of value function we find one of the earliest and most significant functions of money. Carlile offers a wealth of evidence to show this interchangeability of money and ornament among many peoples, at different stages of culture. Three powerful elements of human nature work together in sustaining the value of the metals which become widely used as ornament: (1) love of approbation; (2) the sex impulse; (3) the spirit of rivalry, or competition. In these three we have, perhaps, the firmest basis which it is possible to construct for the value of anything! When religion is added, as has often been the case with the precious metals, the basis becomes solid indeed! Modern social psychology has increasingly made clear the power of the first. Social expectation can take the raw stuff of human nature, and mold it into almost any form it pleases. Original, hereditary differences remain. Some raw stuff is so inferior that no high social organization can be built out of it. Some stuff cannot respond very effectively to the social stimuli. But _qualitatively_, the tendency is for men to become what society expects. Individuals succeed more or less in meeting social expectation. But the very elements of individual aspiration and ambition, the very self of the individual, are molded to the social pattern, and, with the same racial stock, vary almost indefinitely from time to time and from place to place, with the _mores_. If ornament confers distinction,--and almost everywhere it does--men will seek to possess ornaments. Commonly it is for the sake of the other sex that men seek ornaments. Ornaments are an aid in wooing! Men gain wives by being able to give them ornaments.--Not that this is the whole story!--And social expectation, almost everywhere, requires that men decorate the wives that they have won. Wives usually reinforce social expectation in this matter. Further, the desire for ornament is competitive. One's women must be _better_ ornamented than the women of one's neighbors, if _distinction_ is to be gained thereby. But this sets a faster pace for the neighbors, and the standard of social expectation is raised as to the necessary amount of ornament. It is the same sort of competition that arises among armed nations. A new battle-ship for one requires that all increase their naval strength. New armies in Germany call for new armies in France. A vicious circle is created. The desire for ornament, unlike the desire for food, becomes insatiable. And hence, the value-curve for the metal used as ornament sinks very slowly, being reduced, not by satiation of want, but by limitation of economic resources. I need not elaborate these notions further. They are of the same sort that Veblen has developed in his _Theory of the Leisure Class_. They rest on fundamentals in human nature, however much they differ from the psychology of the "economic man." They give assurance, I think, that, unless radical change in tastes and fashions come in, which displace gold and silver from their position as ornaments and as means of display, we may expect the value of gold to maintain itself at a high level regardless of great increase in quantity. I do not share the view which Carlile himself seems, at times, to express[464] that gold does not sink in value with the increase in quantity. It seems to me easily demonstrable that it has sunk, and does sink. But I should expect the value of gold to survive the shock that might come if gold were entirely displaced from monetary use vastly better than any commodity which serves wants of a different character could stand a similar shock. The demonetization of silver has, of course, not entirely displaced silver from the monetary employment. It has, however, made it necessary for the arts to absorb a greatly increased proportion of the new silver,[465] and not a little of the old silver. The demonetization of silver, moreover, was accompanied and followed by a great increase in silver production. But silver has stood the shock amazingly well.[466] It is, of course, thinkable that the attitude of mankind, under new social conditions, and with new tastes and fashions, may change, with reference to gold and silver. Love of approbation and distinction, the sex impulse, and the spirit of rivalry, are eternal elements in human nature. But their manifestations may change. There have been times when love of distinction gratified itself in poverty and filth and asceticism. Almost anything may be exalted into a social ideal. Society may even reach ideals of such a sort that a man may gain social approval and the love of woman in high competition with his fellows in the service of mankind! But even here gold and silver may have a place. They are beautiful, as we now see beauty, and beauty itself is good! The world is better if it has beauty in it. It is just as well to conclude at this point what I shall have to say regarding the value of gold as a commodity.[467] The same quantity of gold and silver may have widely varying values, depending on the distribution of wealth and power. It is not alone intensity of individual desire that controls values, but also the social weight of those who manifest the desire. And this depends on the legal and other institutional values concerned with social organization. The point is strikingly illustrated by Walker's[468] account--designed for another purpose--of the effect on the values of gold and silver of the conquests of the great Eastern empires by Alexander the Great and the Romans. The production of gold and silver, for the great Eastern empires, was like the rearing of the pyramids in Egypt. All power was centered in the hands of a few despots. Control of vast masses of laborers was in their hands. The social values--it is difficult to classify them as legal, economic and religious, since all three are blended--gave little weight indeed to the desires of the masses, and tremendous weight to the slightest whims of the despot. Thus, since the love of gold and silver was intense in these despots, and since religious considerations also called for the accumulation of great treasuries of gold and silver, enormous numbers of laborers, living miserably, toiled in the mines to produce them, and amazing stores of gold and silver were accumulated. The precious metals had, in these Eastern empires, a high value per unit, since so large a portion of the social energy of motivation attached itself to them. With the conquests by Greeks and Romans, however, a great change came. The old, gold-loving despots lost their power. The conquerors had vastly less love for gold and silver for their own sake. Moreover, the leaders among the conquerors had very much less power in their own social systems than had the oriental despots. Their soldiers were in considerable degree free mercenaries, who had a right to a share in the spoils, and who cared much less for hoards of precious metals than for many other things. In the new régime, the social centre of gravity was changed. There remained few who loved great stores of precious metals who had power enough to accumulate them. Mining on the old basis was impossible. Though slavery persisted, more and more of the labor of slaves went into the production of things that the masses of men could consume. Gold and silver sank enormously in value. Radical readjustments in the distribution of wealth in our own day, might well make substantial changes in the value of gold, without any change in its quantity. That a more equal distribution of wealth and power, however, would lower the value of gold now, as in the case just discussed, is not so clear. The masses in the Western countries are already fed and clothed, as a rule, even in times of adversity, and usually increasing income for them means increasing expenditure to satisfy less pressing wants, and particularly to satisfy wants connected with social esteem. The laborer's wife gets an expensive cab for her baby when she can afford it. The negroes have gold fillings put in their front teeth--sometimes when the teeth are sound! The practice of giving wedding rings, and even engagement rings, is spreading among the poor. Our American rural poor, of pioneer stock, have had less concern for gold and silver ornament than the masses of the Asiatics and recent European immigrants. But among the rural poor in America, as city standards spread, the tendency to use gold and silver ornaments seems to be increasing, while we may with considerable confidence expect, I think, that the rise of the immigrant to better economic conditions will mean a larger use of gold and silver on his part. Gold leaf on ceilings and radiators would cease, doubtless, except for public buildings, if great fortunes disappeared, and the use of gold, at least, for plate, would be impossible in an economic democracy.[469] Silver might well gain in value at the expense of gold if there were radical changes in the distribution of wealth. It is notorious that prosperity among the agricultural masses of India is promptly followed by absorption of gold in that country. I venture no concrete conclusions on this point, beyond the general conclusion that a redistribution of wealth, with no change in the quantity of gold, might well be expected to alter the value of gold. It may be added that the general impoverishment of Europe, growing out of the present World War, will probably lower the marginal value of gold in the arts (and hence as money) in considerable degree. From this cause alone, to say nothing of causes growing out of the money-employment of gold, and growing out of the values of goods other than gold, we might expect higher prices after the War than before the War, for articles of consumption.[470] CHAPTER XXII THE FUNCTIONS OF MONEY AND THE VALUE OF MONEY In preceding chapters, I have spoken of the "money-service" as a source of additional value of money, under certain conditions. Before money can function as money at all, it must have value from some non-monetary source.[471] But, given this prior value, money performs valuable services. These valuable services, in certain cases, add to the value of money. Moreover, the fact that money, when made of a metal used in the arts, lessens the amount available for use in the arts, raises the marginal value of that metal there, and consequently raises its value in monetary form as well. It is now necessary to analyze the money-service, and to see in precisely what ways it does affect the value of money. And first, we must notice that the money-service is not simple, but compound; that in fact there are several services of money, in many ways distinct from one another; that not all money can perform all of these services; that most of them may be performed by things other than money, that these services are not all equally important as sources of the value of money, and that the same service varies, from time to time and from place to place, in its significance from this angle; and finally, that one of these services which is of the greatest social importance, namely, the "common measure of values" function, does not add to the value of money at all. I shall not now undertake a history of theories of the functions of money. Many of the points which follow are common property of many writers.[472] The nature of some functions has been more clearly explained than that of others. I have not found in the literature of the subject any very clear statements, moreover, as to the relations of different functions to the value of money. I shall try in what follows, by a series of hypothetical cases, to isolate each function of money, as far as may be, and shall try, by varying my hypotheses, to indicate variations in the influence of the different functions on the value of money. The functions of money have been variously described and named. The following list seems most satisfactory to me: 1. Common measure of values (standard of value). 2. Medium of exchange. 3. Legal tender for debts (_Zahlungs-_ or _Solutions-mittel_). 4. Standard of deferred payments. 5. Reserve for credit instruments, including reserve for government paper money. 6. Store of value. 7. Bearer of options. The common measure of value function rests in the intellectual needs of man. It grows out of the necessity for calculation, for bookkeeping, for understanding what is going on. Any object of value may be used to measure the value of anything else, just as any object of weight--say an irregular mass of iron--may be put in the balance against some other object, and the relation between the absolute weights of the two objects thus more or less definitely ascertained.[473] But it helps little, in getting at the aggregate weight of a collection of objects, to know that A among them is heavier than B, while D is lighter than F. To get a knowledge of the situation adequate for quantitative manipulation, it is best to compare all of the objects with some _one_ object, chosen as the standard of weight, or common measure of weights. Thought is thus immensely simplified. If we may imagine the calculations of a dealer in a rural region, where no common measure of values is used, it will help to make clear the nature of this function. Let us suppose that he deals in nails, wire, cotton cloth, eggs, butter, hams, sugar, and moonshine whiskey, and that his customers also make and use most of these things, using him as a central clearing house in their rude division of labor. Without a common measure of values, it is necessary for him to keep in mind the price of every commodity in terms of every other commodity. If there are twelve commodities, this means 66 ratios which he must remember, according to the formula for permutations and combinations. In general, in such a situation, there would be the following ratios: (n - 1) + (n - 2) + (n - 3) + ... (n - (n - 1)). Let him choose, however, one of his commodities, say eggs, as the common measure of values, and he needs to bear in mind only eleven prices, namely, the prices of each of the other eleven articles in eggs. Thinking is immensely simplified. In general, with a common measure of values, dealers need bear in mind only (n - 1) prices. Suppose that at the end of the day, after considerable trading, our dealer finds the following changes in his stock: _He has gained_ _He has lost_ 8 doz. eggs 12 lbs. nails 3 gallons whiskey 8 lbs. wire 4 hams 13 lbs. butter 5 yards cloth 10 lbs. sugar Has his trading been profitable? How can he tell? Reduce all the items in both columns to their equivalents in eggs, however, and the answer is very easy. No complicated business is possible without this common measure, and common language, of values. Be it noted that this common measure of values does not necessarily involve the use of a medium of exchange. The practice of _thinking_ in a common measure is what is involved. If the article chosen be eggs, which all are accustomed to use, the service of a common measure might easily be performed without the practice of indirect exchange, assuming that other physical difficulties of barter to which I shall shortly refer, were absent. Indeed, as I have pointed out in the chapter on "Barter" in Part II, a great deal of barter goes on in modern life, made very much easier by the fact that we have a common language of values, a common measure of values. For the easy working of the system, it is important that the common measure of value be an article with whose value the group is well acquainted. The frequent testing of this value in actual exchanges vastly facilitates this. But actual exchange is not necessary for the performance of the measure of value function. We have cases where the measure of values and the medium of exchange are different. Thus, in the Homeric poems, we find indications that cattle served as a measure of values, even though payments were made in gold. The Virginians commonly _thought_ in pounds, shillings and pence, even when using tobacco as a medium of exchange. The need for a common measure of values would manifest itself in any complex socialistic society, even though exchange were largely dispensed with. No systematic plans for utilizing the resources of such a society would be possible, no bookkeeping would be possible, without some such device. For this function, I prefer the term, "common measure of values," to the term often used instead, "standard of values." The latter term, as used in connection with the expression "standard money," sometimes carries the connotation of "money of ultimate redemption," and its main function is thought of as serving in reserves. The reserve function is a separate function, however. It is common to have money made of the standard metal in reserves. But this need not be the case. I would refer once more to the hypothetical illustration developed in the chapter on "Dodo-Bones": gold, not coined, as the "standard of value"; paper as the medium of exchange; silver bullion, at the market ratio with gold, as the reserve for redemption of the paper. This may suggest that a distinction may properly be drawn between measure of values, and ultimate standard money. The paper money, in this case, would be the thing of which the masses would ordinarily _think_, so long as the system worked smoothly. And the paper could serve as a measure of values. The case is not unlike the case where a "standard yard," or "standard pound" is kept for ultimate reference in a government bureau, while yardsticks or pound weights in the shops and warehouses do the actual measuring. The cases do not, indeed, run on all fours. The measurement of weights and lengths involves physical manipulation; the measurement of values is an intellectual operation, made by comparing two objects of value. The comparison may be made in actual exchanges; it may be made by an accountant's estimate; it may be made by comparing the results of several exchanges, in sorites form, only one of which involves the ultimate standard measure. The yardsticks actually used may vary more or less, by accident or design, by variations of temperature, etc., from the standard yard. The paper dollars, under a smooth working of the system described, would be held closely to the ultimate standard, and would, in any case, not vary as compared with one another at the same time and place. When the medium of exchange diverges in value from the ultimate standard, as in the case of the American Greenbacks during the period from 1862 to 1879, we have, sometimes, shifting relations among the functions. The Greenbacks were the measure of value most commonly in use. They were legal tender for debts, except where gold was specified in the contract. They were commonly the standard of deferred payments. To a considerable extent, however, gold was used in reserves, and even as a medium of exchange. People _thought_ in both standards. And finally, gold remained an ultimate standard to which the Greenbacks were referred, and by which variations in their value were measured. The terms, "primary standard" (gold) and "secondary standard" (Greenbacks), have been employed to aid in straightening out this confusion.[474] I think, on the whole, that the term, "common measure of values" describes the function which I wish to emphasize more clearly than the term, standard of values, and I shall, in general, employ it for that purpose.[475] The medium of exchange function grows out of the physical difficulties of barter, rather than out of intellectual needs. The discussion in the preceding chapter of the origin of money has emphasized the nature of the difficulties which a medium of exchange meets. A has an ox, which he wishes to trade for shoes, sugar, and a coat. Neither shoe-maker, tailor nor grocer cares to take the ox, however, and, besides, no one of them could supply A with all three of the things he wishes to get. Moreover, even if A should meet a man who had all three things, he would not care to give up the ox for them, since the ox is worth more than all three. If there be a medium of exchange, however, A may sell his ox to the butcher, and take his pay in that medium, which will be something easily and minutely divisible, buy coat and sugar and shoes, and take the surplus of his medium of exchange home, waiting for another occasion. The medium of exchange function overcomes the difficulties arising from low saleability of many goods, due to limited number of possible buyers, lack of divisibility, etc., etc. The common measure of values aids greatly in determining the prices, the terms, at which exchanges may be made; the medium of exchange makes possible exchanges which could not be made at all in its absence. The measure of value function does not add to the value of money. The medium of exchange function is commonly a cause of additional value for money. The source of this extra value is the gains that come from exchange. Exchange is an essential part of the productive process, where you have division of labor with private ownership of the instruments of production, and private enterprise. Values[476] may be created by changing the forms, the time, the place, or the ownership of goods. All these operations are necessary in an economic system like our own. Those who possess money are in a position to take toll, in values, from those who wish to get rid of the goods which they have produced, and to get hold of the goods which they wish to consume. The holders of money do this by means of the money, and under the laws of economic imputation, these gains are attributed to the money itself, first in the form of a rental value, and sometimes, under conditions later to be discussed, as increments to capital value. Before giving full discussion to this topic, it will be well to consider certain other functions, which are, or may be, sources of value for money. The reserve for credit instruments function cannot be fully discussed till we take up credit. Provisionally, it may be said that it is a source of absolute value for money, _per se_, even though the effect on prices may be that, owing to a rise in the values of goods, the prices rise. The fact of credit may even tend to lessen the absolute value of money itself, by lessening the value that comes to money from the medium of exchange function. On the other hand, credit increases exchanges, making possible a vast mass of transactions which without it would not occur at all. Of course, in our hypothetical case above, where the reserve for credit instruments is silver bullion, the reserve for credit instruments function does not add to the value of money at all. The "bearer of options" function of money is also a source of value for money. It is a valuable service. The man who holds money, waiting his chance in a fluctuating market, anticipates a gain which justifies him in holding his capital without return upon it. Money is not alone in performing this service. High grade bonds also perform it. They bear a lower yield per annum to compensate. The service of bearing options is itself a part of the yield, and is itself capitalized, in their case. Two 5% bonds, each equally secure, but one of which has a wide market, while the other has a restricted market, will have a very unequal value. This "bearer of options" function is often identified with the "store of value" function. The two are properly distinguished. If a man has in mind a definite contingency, at a definite future time, for which he wishes to hold a store of value, he may well find that a high yield bond, or a loan upon real estate, or many other productive investments, will serve him better than money or bonds with wide market. So far as money is concerned, the "bearer of options" function is much more important than the "store of value" function to-day. The reserve of value in liquid form, for undated emergencies (like the War Chest at Spandau, or the big reserve accumulated between 1900 and 1913 by the _Banque de France_), would, from the point of view of this distinction, come under the "bearer of option" function, rather than the "store of value" function. The important thing about the distinction is that for one purpose a high degree of saleability in the thing chosen is necessary, while in the other, such is not the case. The most common case of the "bearer of options" function arises when men hold money, liquid securities of low yield and stable value, short loans, call loans, or bank-deposits, waiting for special opportunities in the market. The medium of exchange function would exist in a society where business goes always in accustomed grooves, where uncertainty is banished, and where most of the assumptions of static economic theory are realized. If we push static assumptions to the limit, and assume "friction" of all sort gone, assume that all goods can flow without trouble or expense to the places and persons where their values are highest, etc., even the medium of exchange function would disappear. But if we make our static assumptions a bit more realistic, leaving the "friction" of barter, but banishing the need for readjustment, and the uncertainties that grow out of dynamic changes (whether caused by growth of population, or changes in laws and morals, or in fashions and tastes, or in technical methods, or by accidents of various kinds), then the medium of exchange function will still remain. Given dynamic changes, we have need for a vast deal more of readjustment, and a vast deal more of speculation. I have shown in the chapter on "The Volume of Money and the Volume of Trade" that the great bulk of trading in the United States to-day is speculation, which increases or decreases with the amount of dynamic change, with its accompanying uncertainty and need for readjustment. The major part of the medium of exchange function arises from this. The whole of it arises from factors which purest static theory is accustomed to abstract from. The _whole_ of the "bearer of options" functions arises from dynamic change. _This is the dynamic function_ of money _par excellence_. It is commonly treated by economists as an unusual and unimportant function. Merged with the store of value function, it is frequently treated as of historical, rather than present, importance. In my own view, it is of high present importance.[477] I should count it as in considerable degree a _function_ (using function in the mathematician's sense) of "business distrust"[478] waxing and waning in importance as business distrust increases and decreases. In past ages, this function was primarily concerned with consumption, money and other goods being held, at the loss of interest, as a safeguard against personal danger and as a means of subsistence in emergency. Increasingly to-day, it is concerned with _acquisition_ of wealth in _commercial_ transactions. When war and domestic violence were the main cause of social disturbance, the consumption aspect was most prominent. That aspect came strongly to the fore at the outbreak of the present war. The heavy selling of securities, which closed the bourses of the world, grew out of men's efforts to get money and bank-credit as a "bearer of options" for the old reasons. The old reasons explain in large measure the accumulation of gold by the _Banque de France_, and by the German Government, referred to above. But to-day, in general, the main purpose of those who use money, or other things, as a "bearer of options" is to make gains, or avoid losses, in industry and trade. The man who, in a given state of the market, is afraid to lend, or afraid to invest, foregoes the income which lending and investing promise, and holds his money. The man who sees uncertainty and fluctuation in the market, and expects them to give him bargains in time, foregoes income for a time, and holds his money. The man who has investments of whose future he is uncertain, and who fears to try any other investment for a time, sells what he has, foregoes income, and holds his money. It is not always possible, in discussing the money functions, to preserve the distinctions between money and credit, or money and "money" in the money-market sense. How much difference is made by these distinctions will best be discussed in our chapter on "Credit." The significance of the "bearer of options" function is especially manifest, I think, in connection with call loans. The "call rate" is commonly well below the regular "discount rate," or rate for thirty-day, sixty-day, or ninety-day paper. The explanation is to be found, I think, in the fact that the lender of call money does not entirely dispense with its service. He reserves a part of the "bearer of options" function. To be sure, he will, in practice, have to wait an hour or two, or even more for it,[479] and this may well mean that he cannot take full advantage of an option. But the right to demand money on even twenty-four hours' notice is more available than a high-grade bond, as a means of meeting rapidly changing situations. This principle will explain, too, I think, why money-rates in general, including even ninety-day paper, are usually lower than the long-time interest rate on safe farm mortgages, or on real estate mortgages in a city. The thirty-day rate will commonly be lower than the sixty- or ninety-day rate--though exceptions can easily be found, if the thirty-day period is to cover a time of active business, which is expected to grow less active during the second or third month. The influence of the bearer of options functions is not the only influence at work on the rates. If it be objected that the long-time interest rate on high grade railroad bonds or government securities is sometimes lower than current money-rates, or just as low, the answer is that these bonds also share the "bearer of options" function, and that the interest rate on them is, like the money-rate, lower than the "pure rate" of interest. Writers[480] have been accustomed to look for the "pure rate" of interest, _i. e._, an interest unmixed with insurance for risk, in the highest grade of government securities. I think that this is a mistake. I think that the "pure rate" should be sought in long-time loans, of assured safety, which lack a general market. Such loans, _at the time they are made_, should represent the "pure rate" _for that time_.[481] I shall recur to the question of the money-rates, and the question of the relation of the money-rates to the general rate of interest, in the chapter on "Credit." For the present I would call attention to the interesting case of Austria, where the money-rates are normally very low, because the volume of commerce and speculation is small, and the volume of banking capital, politically fostered, is large; and where, on the other hand, the general rate of interest on long-time loans is high, owing to the scarcity of capital in industry and agriculture, as distinguished from commerce.[482] This case may illustrate, incidentally, that even as a "long run" or "normal" tendency, an excess of currency in a country may lead, not, as the quantity theorists contend, to high prices, but rather to low money-rates. Austria presents simply a striking case of what I should regard as the general tendency. The money-rates and the interest-rates tend to approach one another to the extent that paper representatives of many different industries get into the "money market"--to the extent that industrial investments in general become saleable enough for it to be safe to finance them by means of short-time banking credit. When banks lend on collateral security of corporation stocks to the buyers of those stocks, they are, in effect, financing the corporation itself.[483] Industries differ widely in the extent to which they depend on the money market for their finances. The difference depends often less on the nature of the industry than on the type of the industrial organization. An individual farmer cannot get the bulk of his credit that way! But there is no reason why a well-organized corporation, assuming it successful in agriculture, might not draw on the money market, even if not so freely as a manufacturing corporation does. For the contention that the money-rates for short periods are lower on the average than the rates on longer loans, and that the call rates are, on the average, well below all time rates, there is abundant statistical evidence. From 1890 to 1899 in New York City, the average rate on 4- to 6-month paper was 5.99%; the average rate on 60- to 90-day paper was 4.58%; the average call rate was 3.29%. In the same city, for the period from 1900 to 1909, the averages were: 4- to 6-month paper, 5.61%; 60- to 90-day paper, 4.78%; call rate, 4.05%.[484] This last figure for call loans represents an average of quotations at the "Money Post" at the Stock Exchange. While normally the call rates are well below this, occasional high figures, like those in 1907, pull this average up. The high rates at the "Money Post," however, are not always representative. Banks frequently do not charge their regular customers as much as the quoted rates. Even more detailed evidence for our thesis is to be found in W. A. Scott's investigation of New York money-rates, for the period, 1896-1906.[485] He studies _two_ sets of quotations for call loans, those at the Stock Exchange "Money Post" and those at the banks and trust companies; _seven_ sets of quotations (five of which appear regularly) under the head of "time loans," namely, 30-, 60-, 90-day, and 4-, 5-, 6-, and 7-month; and _three_ under the head of "commercial paper," namely, double name choice 60- to 90-days, and two varieties of single name paper. He finds a clear tendency for the rate to vary with the length of the loan, although noting many exceptions. "The difference between these quotations rarely exceeds one-half of one percent, and the general rule seems to be that the influence of time in raising the rate grows less as the length of the loan increases. For example, there is apt to be a greater difference between the quotations of 60-and 90-day paper than between 90-day and four months. Likewise there is a greater difference between 90-day and four months than between 4-months and 5-months paper." The call rate, though much more variable than all time rates, and sometimes high above them, is, on the average, well below them. For the period, 1901-06, the averages are: call loans, 3.3%; time loans, 4.5%. The declining influence of differences in time as the length of the loans increases, is what our theory would require. If the "bearer of options" functions of short loans is the explanation of the lower rate on them, it is a factor which would count for less and less as the length of the loan increases. A month's difference is all-important, when the month involved is proximate, say the difference between 10 and 40 days. But it is of virtually no importance, from the standpoint of the man who wishes to meet sudden and indeterminate emergencies, whether the note he holds matures in eleven months or twelve months. The difference between a one-year loan and a five-year loan might, on the other hand, still be important from the angle of bearing options. The factor should cease to have any meaning at all, or at least any appreciable meaning, when the difference is between, say, twenty and twenty-five years. I have no statistical evidence that the one-year loan can normally expect a lower rate than the five-year loan. At times, short time financing may be even more expensive than long time financing. But such study as I have given to quotations of short-term notes of corporations, as compared with the longer term bonds of the same corporations, would leave the distinct impression that short-term notes fare better in the security market, and yield less return. A complication arises, here, of course, that the short-term note may often lack the safety which a first mortgage bond of the same corporation would have. The legal tender for debts function calls for a brief discussion. Whatever gives legal quittance from contract obligation, or from legal obligation as for taxes, performs this function. "Legal tender" money, in the strict sense, is not alone in performing this function. Usually a government will by law or administrative practice with the force of law, bind itself to accept forms of money which it will not compel other creditors to accept. Thus, silver certificates, without being "legal tender," are a means of legal quittance from obligations to the Federal Government. Sometimes governments will receive only gold at the customs house. This was true in the Greenback period, when Greenbacks were "legal tender," but not good for payments of customs duties. The reader who is interested in refinements of the legal distinctions among different kinds of money will find the thing elaborately worked out by G. F. Knapp, in his _Staatliche Theorie des Geldes_.[486] But "legal tender" money is not always an adequate means of quittance. If the contract calls for corn, or wheat, or Northern Pacific stock, the best legal tender money is a poor substitute! Witness the "Corner" in Northern Pacific in 1901. It is doubtless true, as Davenport[487] points out, that all contracts, whatever they call for, may be ultimately met, under the common law, by money damages, but that does not mean that a man can maintain his solvency or position in business by offering money when Northern Pacific is designated in his contract. Doubtless even there money will free him, _at a price_, but Northern Pacific stock is at least more convenient for the purpose! A man does not need money to get free from debts, even when money is required by the contract. He can turn in whatever he has in an assignment for the benefit of his creditors, and get free _via_ the bankruptcy court. In other words, the legal tender function of money, while it does distinguish money from other goods as a matter of _degree_, does not erect an absolute difference of _kind_. Under a smoothly working monetary system, where all forms of money are kept at a parity by constant and ready redemption, and where people have no doubt that this redemption will occur, the legal tender quality which attaches to part of the money is a matter of no consequence. It adds nothing to the value of the money. In times of stress, the legal tender quality may be a source of a considerable temporary value. This is especially likely to be true of an inconvertible money. The legal tender quality of the Greenbacks led to a very considerable fall in the gold premium in the Panic of 1873. I have mentioned this point in the chapter on "Dodo-Bones," where part of this discussion has been anticipated. In general, the legal tender quality may be recognized as a factor in sustaining the value of money, if as a consequence of this quality men take the money when they would not otherwise take it, or take it on terms which they would otherwise not agree to. Where, however, the money is money which they are glad to get in any case, the legal tender quality is a matter of supererogation. The standard of deferred payments function, as distinguished from the legal tender function and the medium of exchange function, does not add to the value of money. Of course, if the standard of deferred payments is actually used in making the deferred payment, then it finally becomes assimilated to the other two functions. But it is quite possible to divorce them completely. Suppose, for example, that the standard named in a contract in the Greenback Period was gold, but that payment was made in Greenbacks at the market ratio. Or, suppose that the standard of deferred payments should be a composite of commodities, the tabular standard, with the understanding that the index number on the day of payment should determine the amount of money to be paid. In neither of these cases does the standard of deferred payments function supply any reason for an increase in the value of the thing which serves as the standard. In general, the standard of deferred payments and the measure of value functions do not, _per se_, add to the value of money. The legal tender function may or may not do so. The medium of exchange function, the store of value function, the reserve for credit function, and the bearer of options function, normally do occasion an added value which is to be attributed to money, either as a capital increment, or as a rental. The question remains, however, as to the relation of the rental value, and the capital value, of money. This question is not easy to answer. As I have already shown, in the chapter on "Capitalization" and elsewhere, various complications present themselves in the case of money. (1) In the case of money, the rental, and the prevailing rate of interest at which rentals are discounted to make a capital value, are not independent variables, but tend to vary together. Thus, whereas increased rentals would in the case of most income-bearers tend to give a higher capital value, this is offset, in the case of money, by the fact that rentals are subject to a higher discount. (2) In the case of income-bearers generally, the magnitude of the income, or rental, is causally prior to the capital value. The capital value, in our illustration of the candle, the disk and the shadow on the wall, is the shadow, while the rental is the disk. This is the general relation insisted upon by the Böhm-Bawerk-Fetter-Fisher line of capital and interest theory. Productivity theories of capital have been criticised on the ground that capital value is not productive, that only concrete capital-instruments are productive, and that they produce, not value, but goods, that these goods receive value from the market, which is reflected back, but discounted, to the capital instruments which produced them, so that, in value-causation the line of causation is precisely the reverse of the line of technological causation. Capital instruments produce consumption goods, but the value of the consumption goods is the cause of the value of the capital instruments. In the case of money, however, this is not true. It is the _value_ of the money, the capital value, which does the work that makes a rental value. The value of the money is a precondition of the money-function. So far as money is concerned, both "productivity theories" and "use theories" seem vindicated. There is a "use," an "enduring use" in addition to the "uses."[488] (3) The capitalization theory, as hitherto formulated, assumes money and a value of money. It is a part of the general body of price theory for which this assumption has been shown to be needed. With reference to the second, at least of these points, however, it has been shown that money is not unique. Diamonds, and all other goods which have as part of their function the conspicuous display of wealth, likewise perform this function _because_ they have value. This gives them an additional value. Diamonds are bought for this purpose, when they would not otherwise be bought, or when they would not otherwise be bought in such quantity. This additional value makes diamonds still more effective as a means of displaying wealth, with a further increment in their value, etc. We seem, here, to have an endless, and vicious, circle in value causation, the value mounting indefinitely, building upon itself, a sort of "pyramiding" process. But the limitation comes from several angles. In the first place, _as_ diamonds rise in value, from whatever cause, a smaller and smaller number of diamonds is required to display a given amount of wealth! The increase in the value makes each diamond so much more effective for the purpose in hand that it tends to cut under the cause of the increase. These two tendencies come into some sort of equilibrium. I suppose that by making strict enough assumptions, and limiting the problem rigidly, it would be possible for the mathematician to work out a formula for this equilibrium, letting the increment in value grow feebler with each rebound, till at last it is dissipated in infinitesimals. In the second place, diamonds are not alone in performing this service. They must compete with other precious stones, with the precious metals, with limousines and Turkish rugs, with servants and livery, with houses and lots in restricted neighborhoods, with opera boxes and memberships in clubs which confer prestige, with a very wide range of goods, for the detailed discussion of which I would refer again to Veblen's _Theory of the Leisure Class_. The _differential_ advantage of diamonds, when it is borne in mind that the conspicuous display of wealth is not the _only_ purpose, as a rule, for which any of these things are bought, that the concrete diamond, or other good bought, is a _bundle_ of valuable services,[489] of which the displaying of wealth is only one, is not, necessarily very great. For many people, other forms of wealth do better. And, as a rule, diamonds would not perform that service satisfactorily alone. A large number of diamonds, without proper "setting," in clothing, servants, house, opera box, etc., would excite ridicule, and fail[490] in their purpose of gaining social prestige. They must be part of a complex of goods of the same sort, to accomplish their purpose. Now it is the _differential_ advantage of diamonds which makes possible the extra value, in this use. If all wealth were equally serviceable in conspicuous display, if cattle and barns and shares in a coal mine or slaughter-house or glue factory could display themselves as well as diamonds can, and if possession of these things conferred prestige as much as possession of diamonds does, this differential advantage of diamonds would disappear, and with it all extra value from that cause. Diamonds are members of a _class_ of goods, a restricted, but still large class, which possess this advantage. We may apply the old Ricardian rent analysis here, arranging goods in a series from the standpoint of their capacity to perform this additional service. Bread would, for the purpose in hand, be a "no-rent" good. Ford automobiles are probably nearly no-rent goods now! That the differential factor is a _cause_ of value in land, as the Ricardian doctrine seems to hold, is not, I think, true. If all land were of equal quality, and of equal accessibility to the market, all land would still bear a rent, if it produced goods which had value, and if the land were sufficiently restricted in quantity.[491] But here is a case where the differential factor is an actual _cause_ of value. If all wealth were equally effective in displaying itself, no form of wealth could gain in value as a means of display. This proposition calls for one important qualification. The fact that wealth, in general, confers prestige is, undoubtedly, a source of stimulus in wealth creation and acquisition, and a big source of the value[492] of total wealth. It is probable, however, that it is so great a stimulus to production that it defeats itself so far as the values of _units_ of goods are concerned. It stimulates production, which reduces the marginal values that arise from other causes. Thus, while a source of additional value to the _aggregate_ of wealth, it probably reduces the values of given items. I have dwelt at length on the case of diamonds, because principles applying there will give us important clues to the case of the value of money. Money, by being valuable, is so far equipped to perform the money service. But its _differential_ advantage over other valuable things comes from its superior _saleability_. Its original value comes from non-monetary causes, and has been sufficiently explained in the chapter on "Dodo-Bones" and in the chapter on the "Origin of Money." The extra value which comes from the money functions rests chiefly in its superior _saleability_. Saleability is itself a cause of additional value. But here again we may arrange goods in a series, starting with the least saleable, and ending in money. Money has an advantage, but its advantage is not absolute. Under a system of free coinage, gold bullion is virtually on a par with coin, and even without free coinage, bullion is for many purposes as good, and for foreign exchange may be better. Modern credit, moreover, as has been indicated before, tends to add to the saleability of all goods, and so to lessen the differential advantage of money. Here, again we may see the principle that the extra value that comes from the differential advantage tends to limit itself. As the money-use adds to the value of money, a smaller amount of money is required to do the money work, and hence the source of the increment of value is cut under. This principle will partly explain why the rental of money cannot be capitalized in the same way that the rental of land can be. Increasing the capital value of land is not the same as increasing the productive power of land. But increasing the capital value of money does mean an addition to the power of a dollar to do money work. It tends, moreover, to lessen the work that there is for money to do, both by reducing the total amount of trading, and by increasing the incentive to the use of substitutes for money. Only a part of the value of the services of money, thus, can be added to the capital value of money. There is a further point which is important, as differentiating money from diamonds: much more of the value of the services resting on the value of diamonds can be added to the capital value of the diamonds than is the case with money. The reason is that diamonds may give forth a continuous flow, _in the same hands_, of the service of conspicuous display of wealth. Money, however, can perform most of its services for a given owner _only once_. For a given owner, it can serve only once as a medium of exchange. For one owner, it can serve only once as legal tender for debts. It can serve indefinitely as a store of value, or as "bearer of options." In these cases, however, the relation between value of service and capital value does work out in accordance with the capitalization theory. The money thus held brings in no money income. It is held thus only if the services which it performs are equivalent to the income which would come if it were alienated, and something which would bring in a money income were purchased in its place. Money may have added to its capital value the value that is created by _one_ marginal exchange, but the whole series of values which a dollar may create in exchanges cannot be capitalized, if only because the same owner cannot get them all. This holds strictly true only so long as no credit arrangements exist. If loans of money can be made, then the lender can take toll on successive exchanges, and get an income which may be capitalized in part, subject to the limitation already discussed, that increasing capital value of money cuts into the rental, and so, in large measure, destroys its own source. Where money is not freely coined, there may be an increment, growing out of the capitalization of the money-services, in the value of the coin. The coin may be worth more than the uncoined bullion. This need not be true. If the amount of money work to be done is not increasing, it will not be true, unless the value of the bullion declines, and need not be true then. But an agio on coined over uncoined metal is quite possible, and has frequently occurred. Such an agio has limits, however. In the first place, the bullion may be used as a substitute for coin, so lessening the amount of work there is for coin to do, and lessening the source of the agio. Bullion would tend to rise in value from being thus employed, and coined money would lose in value from a reduction in the services it performed. Further, _anything_ which has more than ordinary saleability may be used as a substitute, in one or another capacity. Again, the agio, if it appeared in a country where men are accustomed to thinking about money, might well arouse distrust, lessen the scope of the coin still further, and so cut into its own source. But such agios have appeared, and while a pure case, where the sole source of the agio is the values created in the money-functioning, is hard to find, I think it is not to be questioned that cases where this is part of the explanation have arisen. I should be disposed to find part of the explanation of the rise of the rupee in India after the closing of the mints in 1893 in this factor. There seems to be evidence, however, that Laughlin is right, in part, in ascribing the rise to an expectation of the adoption of the gold standard.[493] Modern money, in general, however, rests on a system of free, even where not strictly gratuitous, coinage. Coined metal thus rarely gets, save to a limited extent or temporarily, an agio over uncoined bullion. Uncoined bullion is acceptable in a host of places where coin would otherwise be used, particularly in reserves for credit instruments. Bullion is even superior in international trade as a medium of exchange. Credit paper (particularly bills of exchange), is superior to both in international exchange, as a medium of exchange, because of various reasons of economy. Such paper is even used in reserves in many places, particularly by the Austro-Hungarian Bank. The fact of free coinage means, substantially, that the state has made the money form a free good. How much value is thereby destroyed we may best see if we ask precisely how much the money form could mean _at the limit_. Initially, the money form means simply the certification of weight and fineness by a trusted authority. It saves, therefore, the delay and expense of testing the weight and fineness by assay, etc. It saves the trouble and delay of subdivision of a formless metal. It averts many difficulties. For small retail transactions, indeed for retail transactions in general, the conveniences of coined over uncoined metal are very great. Small transactions do not justify the trouble and expense of assaying and weighing and subdividing gold! In a country, therefore, where the bulk of the money work is in effecting small transactions, we might expect a considerable agio for coined over uncoined metal. This would be especially true if that country had few facilities for credit substitutes for the coin, particularly for small transactions. In a country like the United States, however, where checks are often drawn for amounts less than a dollar, and where the bulk of the gold, or standard money, is to be found, not in circulation but in reserves, one need not anticipate that the medium of exchange function would give a big agio to gold coin, even if free coinage ceased. So long as coinage means merely a certification of weight and fineness, this conclusion will hold. For purposes of large transactions, the item of weighing and assaying would not be serious. Indeed, American banks are accustomed to weigh even gold coin, in quantity. It goes by weight, rather than by tale, and if light-weight, it counts for less than its nominal value. The writer knows a bank which has a considerable store of light-weight gold coin that has been in its vaults for over twenty years. Such coin may be counted at par in reports by the bank to the Government.[494] It might be paid out through the window to customers, who would not weigh it, in case of a "run" on the bank. But it cannot be used in dealings with other banks without loss. Does the legal tender aspect of coin count for more? Under a smoothly working system of free coinage, where moreover, all forms of money are kept at a parity by ready redemption, we have seen that the legal tender feature makes no difference. Would it make a difference where coinage is restricted? If we assume that the use of checks for small payments, and the use of bullion in reserves, in a given case, prevents the existence of an agio growing out of the other functions of money, I think it clear that the legal tender feature alone will not create one. But suppose that there is an agio from other causes, will not the legal tender aspect of money tend to increase it? Will not men demand coin, which bears an agio, rather than bullion, when they have the right to demand either? And will not the agio then, in a way, grow out of itself, a bigger agio appearing, because an agio has already appeared? It does not seem to me that this need follow. If there be an agio, then creditors will demand either coin, or bullion _on a different basis from coin_. But so long as they get the benefit of the agio, either in the form of coin, or of a larger amount of bullion, particular circumstances, rather than a general rule, will determine which they will demand. The banker might well prefer bullion. The international banker would prefer bullion. The man who wishes money for retail transactions will take coin. Men will use the legal tender quality of money as a means of getting the benefit of what agio there is (though contract right, where the contract calls for coin, would accomplish all that a legal tender law would accomplish), but whether they take 23.22 grains of coined gold, or 25.5 grains of gold bullion, will depend on which they prefer in the circumstances. I do not see that the legal tender feature adds anything to the case of restricted coinage that it does not add to the case of free coinage.[495] In either case, there will be temporary emergencies, when panics arise, when legal tender money gets an agio over any possible substitute. Solvency may depend on it. This might arise under free coinage, if the panic were acute, and if settlements had to be made immediately. But as long as there is time for men to work things out, I should not expect the legal tender feature, _per se_, to add to the agio of coined metal even under restricted coinage. In general, the possibility of an agio for coined metal, under restricted coinage, rests on the extent to which coin has a unique function. In so far as substitution is possible, there is no room for an agio. For many purposes, bullion may be substituted. To the extent that credit is developed, and is flexible, various other substitutes are possible. To the extent that barter can be used, still other substitutes are possible. Among an ignorant people, little accustomed to developing new expedients, having an economic life that is not flexible, having an economy based on petty economic units, having little development of credit, accustomed to the use of money in most transactions, money might well be, in many connections, highly important if not indispensable. In England, before the War, where no bank-notes under five pounds were in circulation, and where small checks were little used, an agio on coin might appear if coin got so scarce as to be inadequate for retail trade, but for bank reserves bullion would have served virtually as well as coin, and with the stock of coin she had at the time England could have gone on for a long time indeed with no more agio than just enough to prevent the melting down of the coin. In the United States, where checks can be used for very small transactions, and where a high percentage (very conservatively estimated by Kinley at from 50 to 60%) of retail business is done with checks, the agio on coins of a dollar or over growing out of retail trade might be expected to be very slight. On the other hand, the legal requirements for reserves in specified types[496] of money might, in time, lead to some agio. I do not think that the reserve function in England would ever do so. If we could combine our use of checks in retail trade with England's absence of legal reserve requirements, I should think that the agio would have little chance indeed of growing great! If to this could be added Canada's extensive use of small elastic bank-notes, the chance would be still less. If bank-notes of one dollar could be issued, the agio would be less still. It is in the case of coins of very small denomination that the agio might appear most readily. Such coins, if limited in amount, and if given the usual restricted legal tender,[497] do not need redemption to circulate at face value, even when made of baser metals. It is quite thinkable that such coins should, even when redeemable, circulate at an agio over the redemption money. In small retail transactions the need for money to do business is most imperative. Even here, however, there is large flexibility. The present writer, during the period of money stringency in the Panic of 1907, made much larger use of checks in very small payments than was his usual practice, and the same was true of various of his acquaintances. I think that the quantity theorist, with his doctrine of an unlimited agio through the restriction of coinage proportionate to the restriction, is best understood if we say that he has taken an exaggerated estimate of the imperativeness of the need for formed money in the smallest retail transactions as typical of the whole situation.[498] I have elsewhere shown, however, that, in so far as Kinley's figures for 1909 give us a clue,[499] the total retail trade of the United States is less than one-eleventh of the total of all transactions calling for the use of money and checks. Of that total retail trade, the part in which money is actually used is, on Kinley's high estimate, between 40 and 50%,[500] and the part in which money is imperative is much lower still. Small retail transactions do not give the type for the pecuniary transactions in the United States! They more nearly do so in India, and the possibility of agio is, doubtless, greater there. For our larger transactions, there is an almost indefinite possibility of substitutes for coined money, if profits can be made by making the substitutions. Beating the agio would be a source of profits. I repeat what was said in the chapter on "Dodo-Bones" differentiating this doctrine of the agio from the quantity theory doctrine: (1) This doctrine presupposes value for the money article from some non-monetary source. It relates only to a differential portion of the value of money. (2) This doctrine denies the law of proportionality even for this differential portion. (3) This doctrine is concerned, not with the general level of prices, but with the absolute value of money measured in the ratio of coin to bullion. Under the system of free and gratuitous coinage, no agio of coined over uncoined bullion is possible. Where small brassage charges are made, as in France (or as in England, where the interest lost during the period of coinage is charged to the man who exchanges bullion for coin at the Bank of England) there may be an agio of this amount, though it often happens that this agio disappears, particularly in England. So perfectly is bullion a substitute for coin in England, that the Bank of England will often forego its privilege of taking the slight toll in interest, and will credit men depositing bullion with as much as if they had deposited coin. From what has gone before, as to the possibility of an agio, I conclude that the United States, England, Canada, and possibly France, would be unable to make large brassage charges. If the brassage charge were much larger than the charges made by reputable and well-known jewelers for assaying and weighing, etc., there would be a large substitution of bars for coins, and the mints would have little to do. However, it needs no arguing that with free coinage, and either very low or no brassage charges, the value of bullion and of coin will, quality for quality and weight for weight, be virtually identical, within a narrow range of variation. What, then, shall we say of the way in which the forces drawing gold from the arts into money manifest themselves? How describe the equilibrium between the value of gold as money and the value of gold in the arts? How construct intersecting curves, presenting a marginal equilibrium? The problem is baffling, and I frankly confess that what I shall have to say does not satisfy me. I hope that some critic may solve the problem better. I can point out the difficulties of the situation, and can indicate reasons why the sort of solution which the economist's training in marginal analysis leads him to desire are not easily found. But I fear that I shall fail to satisfy the demand for an application of curves to the problem! The first difficulty is that we are barred from the use of our yardstick. Money is the measure of all things in economic theory--except money and gold bullion! Of course there are economic values other than those of gold which do not actually come into the market, but even there we can commonly, by the accountant's methods, make use of the money measure. In very high degree, our conventional curves of all sorts run in money terms, and assume a fixed value of money. Clearly the money curve of diminishing value for gold would tell us nothing. The value of gold might sink as its quantity increased, but then the value of the money-unit would sink _pari passu_, and so the curve, with ordinates expressed in numbers of dollars per ounce, would not sink. The value-curve of gold, expressed in money, is a straight line, parallel to the X axis. Possible substitutes in the form of abstract units of value,[501] or of composite units of goods, of an assumed fixed value, will have to be used if anything is used, but they are less satisfactory in the application, and leave the analysis a good deal less realistic. If this were all, the problem would be easy! But there is a second difficulty. We find the factors requiring gold as money, if summed up in a curve, presenting themselves as a call for the temporary rental of the gold. The money functions are performed, in general, not by keeping gold, and getting an endless series of uses from it, as in the arts, but by passing it on, sooner or later. Even in the case of the reserve function, the bearer of options function, and the store of value functions, it is not expected to hold the gold indefinitely--always there is the anticipation of some time when it will be passed on again. A curve for gold in the monetary employments, therefore, would be a curve showing the diminishing values of rents, or particular services rather than a curve for capital values. The curve for gold in the arts, however, would be a curve showing the diminishing _capital values_ of units of gold, as the supply in the arts is increased. The two curves do not run in common terms. But another and more fundamental difficulty. In the case of wheat, we may construct our curve free from complications, in idea, at least. On the base line, we lay out quantities of wheat. For each quantity of wheat, we erect an ordinate, a sum of money, or a number of abstract units of value, as the case may be. Connecting these ordinates, we have a curve, showing how the value (or the money-price) of wheat descends as the quantity of wheat increases. Given the shape of the curve, and given the number of bushels of wheat, the marginal value of the wheat is given. In idea, at least, it does not matter, for the shape of the curve, whether the amount of the wheat is great or small, whether the marginal value of the wheat is low or high. If there are ten thousand bushels only in the market, wheat will be worth $5 per bushel. With 100,000 bushels, it is worth 40c. The fact that there are 100,000 bushels does not lessen the magnitudes on the higher portions of the curve. The nature of the services which wheat performs is not affected by its value. This is _not true of gold_, either in the arts or as money. In the arts, I have already shown that one function of gold is as a means of conspicuously displaying wealth. Gold is like diamonds in this. _Because gold is a valuable_, it gets an additional valuable service. This additional valuable service enhances its value. The thing is checked, however, before an endless circle is created, by the fact that as gold rises in value a smaller amount of gold will display a given amount of wealth. The value-curve for gold in the arts, therefore, is not a simple thing like the curve for wheat. It turns upon itself, in ways that I see no graphic device for presenting. This is even truer for money. Men wish to have, when they seek money, a quantum of _value_ in highly saleable form.[502] The curve for the value of the services of money presupposes a fixed capital value of money. It is the capital value of money which does the money work. Given a value of money, and given the values of goods, we may see how much money is required to effect a given exchange or perform some other money service. Then, knowing how much value will be created by each exchange, or other money service, we may arrange the services in a series, a scale of descending importance, and get a curve. This curve is, in fact, the curve which presents itself in the money market. There we find a curve, running in terms of money itself, so much money for the use of money for such a length of time. But this is a curve of demand for money funds, rather than for gold as such. The "supply" that corresponds to this "demand" is, not gold, but all manner of credit instruments, chiefly bank-deposits, expressed in terms of gold. Such a curve is clearly not to be put into equilibrium with the value-curve for gold in the arts, (1) because it assumes a fixed value for money (2) because it is concerned with temporary rentals, and not capital values, and (3) because the demand it expresses is not for the use of gold alone. We may get some aid in reducing these complexities to familiar terms if we employ the device of assuming an equilibrium between gold in money and gold in the arts, without trying to explain in quantitative terms how that equilibrium is arrived at, and then see what causes will lead that equilibrium to shift. In getting the laws of _change_, we may get closer to the causes of the phenomenon itself. The effort to reduce the thing to precise mathematical form requires a degree of simplification which seems to me likely to rob an answer of much significance. Assuming that the equilibrium is reached, we may see what factors would tend to cause gold to go into the money-use, and what factors would tend to draw gold into the arts use. We may also see how these changes from one side or the other would modify the value of gold. Assume that a manufacturing jeweler has extra demand for his products. His products, of course, are composites of gold, labor, and other raw materials, etc., but part of the extra value that comes to his products attaches itself to the gold that is in them. He now has an incentive, which was lacking before, to melt down full weight gold coin in his possession, or to buy gold bars which might otherwise have been coined. To buy the gold bars, however, probably means that he must have accommodation at the bank. He borrows from the bank the amount he needs, giving a short-time note, since he expects to make up his gold and market it in a fairly short time. The paper of manufacturers of gold will commonly stand well in the "money market," and this is especially true of those in whose hands the gold is not worked up into such specialized forms that the value of the bullion is a minor matter. (I find it necessary to refer frequently to the money market, though a full analysis of money-market phenomena cannot come till after our discussion of credit.) If he must borrow to get the gold, _then the money-rates will come into comparison with the profits he expects to make from working up the gold_. This will usually be true even if he melts down gold coin already in his possession. He might deposit that gold, and so reduce his expenses at the bank, either buying back his own discounted paper, or getting interest on daily checking account. If he has to borrow to get the gold, he may get it either by drawing gold from the bank directly, or by giving a check on the bank to a bullion dealer, which may ultimately lead to a diminution in the bank's supply of gold. However he gets the gold, there is bound to be some reaction, (1) on the bank's supply of gold, (2) on the supply of loanable funds in the money market, and hence (3) on the money-rates themselves. If he borrows from the money market, he affects the money-rates directly (even though probably, in a given case, not noticeably); if he melts down coin, instead of depositing it (or paying it out to others who may ultimately deposit it) there tends also to be less gold in the bank's vaults; if he buys gold with his own funds in the bullion market, the supply of current bullion for which the banks also compete is reduced. In any of these cases, the banks have less gold than would otherwise be the case. The relation between gold reserves and the supply of money-funds has been partly discussed already. We have seen that there is no proportional relation, as Fisher, and other quantity theorists contend. Loanable funds, on a given gold reserve, are highly elastic. But the elasticity calls for higher money-rates, and higher money-rates tend to reduce the volume of trading, and check the demand. Borrowings from the money market by workers in gold, therefore, are much more significant than borrowings by other manufacturers or merchants, because the latter are content with credit devices, for the most part, while the workers in gold withdraw gold itself from the money market. It is, moreover, harder for the money market to resist extra demand from the jewelers than from many other interests. The assets of the jewelers, especially from those who do not work the gold up in highly specialized forms, are exceedingly liquid. Their paper, therefore, is exceptionally good in the discount market. Usually, too, the larger jewelry houses have specially good general credit and high reputation. There is, then, less disposition for the market to look askance at an unusual supply of their paper than would be the case with many other sorts of paper. They tend to get about as low rates as anyone else in the market. A money market under centralized control seeking to protect its gold, might tend to raise discount rates on jewelers' paper, but a competitive money market is very unlikely to do so. An increase in the value of gold in the arts would, thus, reflect itself pretty quickly in the money market, first in the form of added value for the services of money, and then, secondly, in an increase in the capital value of money. Indeed, an increase in the value of a single rental is an increase in the capital value also, since the value of the single rental is one portion of the capital value. Not only does it mean a higher capital value for gold, but it consequently tends to mean a higher "price." It does mean a higher "price" for present money as compared with future money. It tends, also, to mean a higher "price" of money in terms of other goods. Meeting higher money-rates, all borrowers tend to borrow less, and to buy less, to offer less money for goods. It need not follow, however, that the rising value of gold reduces prices. The rise in the value of gold in the arts may well be a manifestation of a general rise of values. General prosperity, rather than causes affecting the value of gold in the arts alone, may have occasioned the increasing demand for gold in the arts. This would mean rising values for goods at large. It might well be, therefore, that the rise in the values of goods would offset the rise in the value of money, and that prices of goods would rise at the same time that gold is being withdrawn from the money market to the arts. Business in general, as well as the jewelers, may be making increased demands on the money market. This would tend still further to raise the money-rates. It would also, however, tend to increase the supply of money-funds. Commercial and industrial paper, in a time of buoyancy and expansion, is particularly acceptable to the banks, and they are likely to expand their loans despite the failure of gold reserves to keep pace. They simply get along with smaller reserves. Higher money-rates in such a case tend to reduce the volume of business, but need not actually reduce it, if there are bigger profits than before anticipated in business transactions. Not absolute money-rates, but money-rates in relation to anticipated profits from the use of money, are significant. There is large room here for flexibility, elasticity, etc. There is much slack to be taken up by the money-rates, much slack in the fluid substitutes for money in various functions, and much slack to be taken up by the volume of trade. But all this will best appear after our discussion of the money market. I have said enough to indicate the character of the factors immediately determining the equilibrium between gold in the arts and gold in the money employments. In the preceding discussion, also, I have discussed the more fundamental factors governing the value of gold in both employments. The problem of translating the fundamental theory of value into money market terms, and of translating the phenomena of the money market into terms of fundamental values is not easy. Most of our value theory in the past has been concerned with individual psychology, Crusoe economics, trading in small markets with a few buyers, barter transactions, etc. It has been abstract and unrealistic. The practical students of the money market, who are immersed in the facts of modern money, have got little help from it, and have often been scornful of it. I hope to be able to contribute something to bringing the two methods of approach to common terms. They are correlative aspects of the same problem. Each gives highly important clues to the understanding of the other. Neither can be understood without some understanding of the other. A theory of value which cannot be applied in the money market, the stock exchange, and the great field of modern business generally, has small _raison d'être_. In the next chapter I shall take up the problems of credit, and the money market. CHAPTER XXIII CREDIT Analysis and description are much more important than definition. Definition at the beginning of a study is frequently a fetter, rather than an aid to thought. This is especially true in a field where phenomena overlap and interlace, and where the "pure principle," "essence" or "_Wesen_" of the thing defined never presents itself, but is only to be reached by violent abstraction. To pick out one element--as "futurity"[503]--as marking off credit from other things would be an illustration of this. Or to take the notion of _promise_, or contract obligation, in connection with futurity, is likewise to limit the field unduly, on the one hand, and to include things which do not belong there on the other. Thus, a contract whereby A is to build a house for B by the end of a year, receiving at that time, or in instalments as the work proceeds, a sum of money, is not a credit transaction. We have, however, promise, futurity, and a future payment of money all called for in the contract. On the other hand, if A sends B a telegraphic order for money, which B receives three minutes after the money is entrusted by A to the telegraph company, we have a credit transaction, with no element of futurity in it. Certainly there is less of futurity there than in the case where a laborer, working all day, is paid only at night for work done in the morning. Futurity enters into the values of all goods which are not destined for immediate consumption--capital values of long-time goods are discounted present worths of _future_ values. Contracts, promises, and beliefs in promises run through the whole range of economic life,--the domestic servant, paid weekly, illustrates all three. Yet only a special class of these economic activities are commonly counted as credit transactions. Credit is really a part of the system of economic value relations not easily marked off in economic nature from the rest. Its clearest _differentiæ_ are juridical rather than economic. It will be the purpose of the present chapter, in part, to blur, rather than to make precise, the line between credit and non-credit in economic phenomena, and to assimilate the laws of credit to the general laws of value. This will involve, however, a careful analysis and precisioning of certain phenomena commonly counted as credit phenomena. Buying and selling on the one hand; borrowing and lending on the other: the distinction seems clear. It is in law. But what is it in economic nature? When a merchant discounts his own note at the bank, it is borrowing. When he discounts the note of another, his debtor, it is selling. If he writes before his endorsement of the note, "without recourse," (unusual at a bank, but common enough with real estate mortgage-notes) he has made a perfect sale, and is entirely out of the transaction. Is it, however, in economic nature a different transaction from the original one in which he got the note from a borrower? Legally bonds are credit instruments, and stocks are not. Stocks represent _ownership_. But practically, as an economic matter, both represent the alienation of control, on faith, to a small group of men, and practically, too, the difference between preferred stocks and bonds is often very slight. Whatever the legal rights of a bondholder, under the terms of his contract, the legal fact itself often is, under the growing practice of receiverships, that he cannot exercise his right to foreclose without such difficulty that it doesn't pay to do it. Very frequently indeed the junior bondholder will come out of a reorganization as simply a preferred stockholder--which is what he practically was all the time. He couldn't vote as a bondholder, but his voting rights as a stockholder commonly mean little! As a bondholder, if he held enough bonds, he might even have more influence on the affairs of the corporation than as a stockholder. The market is moved by other forces than the legal distinctions in corporate contracts! And market facts are not necessarily correctly told by the accountant's categories either. I shall trouble myself little, in what follows, with the juridical and accountancy problems of credit, save in so far as these bear directly on the more pertinent economic aspects of the matter. I am interested in the question of credit as a part of the problem of value and prices--and particularly from the standpoint of the problem of the value of money. What difference is made in values and prices by lending and borrowing? What kinds of lending and borrowing are there? What shall we say of bank-notes, of bank-deposits, of bills of exchange? What difference is made by the money market? Behind the legal forms and the technical methods, what are the psychological forces at work? How are these psychological forces modified by the technical forms and methods? What are the economic differences between long and short time loans? How shall we draw the distinction between the "money-rates" and the long time interest rate on "capital?" Why can some things serve as collateral in the money market when others cannot? What sorts of credit are appropriate to commerce, to manufacturing, to agriculture? Is credit capital? Is an increase in credit an increase in values? The last two of these questions imply that we have a definition of credit. Perhaps the answers to some of the other questions may have given us such a definition. But analysis and description will precede definition. The etymology of "credit" has sometimes been taken as the clue to the meaning of the word for economics, and the idea of confidence, or belief, has been made the heart of the matter. A man has good credit when others have confidence in his integrity, etc. Men lend to others when they can trust them to repay. Doubtless something of this sort was responsible for the original choice of the word. But when loans are made on good mortgage security, or on collateral security, the personality of the borrower may count for little or nothing. Confidence there is, but not confidence in the intentions of the borrower. The confidence is in the "goodness" (_i. e._, the value and marketability) of the collateral. The same questions are raised by the lender here which he would raise if he were going to buy the thing, instead of lending with it as security. None the less, I think that in the etymology of the word we have an important clue. We must generalize the notion, however, beyond the limits of confidence in personal intentions. It involves confidence in the general economic situation, in the future of business, in the permanence of values, in the certainty of future incomes, etc. Thus viewed, the element of confidence, though important in highest degree, is not peculiar to the phenomena which we call credit phenomena in economics. It appears wherever there are values which depend on future events. One does not need much confidence in buying potatoes or apples or meat--though in the case of meat quite a lot of confidence may be involved--and misplaced! But whenever the future is involved, whenever capital values of any kind are involved--lands, stocks, bonds, houses, horses, manufacturing equipment, etc.--the element of belief, confidence, hopeful attitude toward the future, is quite as much present as in the case of a loan. Nor is the element of personal confidence less present, often, in these things than in the case of a loan. Very often the value of a horse may depend in considerable degree on the integrity of the man who offers it for sale; the value of a piece of land may be much enhanced if a trustworthy owner makes certain statements as to the yields he has got from it; the values of stocks (really credit instruments, from the angle of economic analysis) may depend very much on the personality of the organizers and managers of a corporation. Personal prestiges may count for much more in these cases than in the case of a collateral loan. Further, in connection with the element of belief, or confidence. Borrowing is expensive, and men do not borrow for amusement. That borrowing and lending may increase, it is not enough that lenders have confidence in the ability of borrowers to repay. Borrowers must also have confidence in the future of their businesses, in their ability to make enough out of the loan to pay the expense involved, and have a surplus left over. I abstract here from consumption loans. They play a very minor rôle.[504] The analysis in an earlier chapter, based on Kinley's figures, showing that retail trade is less than one-eleventh of the total pecuniary transactions in 1909, and that the percentage of credit instruments used in retail trade is much lower than in other transactions, will justify us, when quantitative questions are involved, in abstracting from consumption loans. Since such loans will be chiefly employed in retail buying, and since we know that most retail buying does not result from loans for consumption purposes, we may conclude that modern credit is overwhelmingly of a different sort. Most of it arises from business activities of one kind or another, and rests on expectation of profit and loss.[505] Such loans are not made when borrowers, as well as lenders, have not confidence in the transactions they mean to put through. So far the thing has run in terms of individual calculation of profit and loss. But even the most sagacious business men do not play a lone hand. No one is uninfluenced by the expectations and feelings of others. In general, business confidence is in large degree a matter of social psychology, resting on suggestion, contagion, etc., as well as on cool calculation of profit and loss. Even where men are able in considerable degree to free themselves from the prevailing optimism or pessimism, they must take it into account. The man who extends his business when nobody is in the mood to buy, when no one will make contracts with him, runs a very fair chance of bankruptcy, even though there be, in the technical facts of industry, no reason for the prevailing pessimism. A man with large resources, which are not fully employed, seeing that the prevailing "bad business" is "largely psychological" may, indeed, take advantage of the fact, get his labor and raw materials cheaply, and produce some staple in advance of his market. If he can afford to hold his surplus, he may make large profits by so doing. But usually business men will not, in such a situation, have the surplus resources to enable them to put through such an undertaking, and hence, even though they may recognize that the rest of the business world is irrational, they must, perforce, conform to its irrationality, and their sober estimate of the prospects of a given undertaking may be just as much adverse as if they shared the feeling of gloom which all about them feel. They meet it from the banker from whom they wish to borrow. Even if able to borrow, they meet it from the dealers to whom they are accustomed to sell their products. The prevailing gloom is as much a fact with which they must reckon as is the price of their raw materials, or the technical qualities of those raw materials. Further, business confidence is not a matter in which each man counts one! There are centers of prestige, men and institutions whose attitude toward the future counts heavily indeed in determining the attitudes of others. These prestiges may arise from various causes. Recognized wisdom and probity may give a man great prestige in economic matters. There are financial writers and students of the market, not necessarily men of great wealth, whose opinions are exceedingly influential in making business confidence. The wisdom without the probity is not enough. Some men, known to be sagacious students of the market, have been known to succeed in their plans by telling the truth, with the result that everybody else did the wrong thing! They made business confidence, but not the sort that was complimentary to them. Other men have prestige, influence in making business confidence, by virtue of possession of large wealth. They are, first, in position to lend largely. Their decisions count directly for more than the decisions of thousands of other men. The very fact that they have confidence in the future, apart from anything else, means a tremendous increase in _effective_ business confidence--which we are here concerned with. The optimism of a man who can neither buy nor sell nor borrow nor lend, because he himself has no economic resources, and no prestige, is like the desire of a penniless beggar for an economic good--its effect on the market is not great! But further, the fact that a rich man is lending makes possible activities which would not otherwise be possible, and so justifies confidence on the part of those who wish to deal with those to whom he lends. Such a man may, on the other hand, borrow. His borrowing, for business activity, justifies confidence on the part of those who would deal with him. Quite apart, therefore, from any influence on the opinions of others growing out of respect for his judgment, or less rational reaction to him, he can do much to make or unmake business confidence. But commonly, also, such a man is a center of prestige, as well as a controller of economic power by virtue of his wealth. Men look to him for their cue. If _he_ has confidence enough in the future to risk his great wealth, surely smaller men with smaller interests need not be afraid. Vitally important centres for the making and controlling of business confidence are the banks. Having intimate knowledge of the affairs of many business men, of business men in many different lines, they are in a position to judge wisely of business prospects. Having great power to make or refuse loans, they can encourage or chill the enthusiasm which business men may independently develop. The whispered word of a banker may well count for more than the half-page advertisement of a promoter. But the banker is not all powerful. His influence is much greater, often, in restraining than in evoking business confidence. Bankers may during long periods be quite unable to increase their loans, though they tempt borrowing by easy rates. Business confidence is a fact of social psychology. It is an organic phenomenon, with radiant points of control. It is a matter of inter-mental activity, rather than a thing in which each man makes an independent choice. But this is to say nothing of credit phenomena that is not true of all value phenomena. All economic values are social values. The values of wheat or sugar or bicycles are social values. There are centers of power and prestige, growing out of the distribution of wealth, or various other social factors, which have a dominating influence on economic values, as a rule. Credit phenomena are merely part and parcel of the general system of economic motivation and control. In _Social Value_ (pp. 102-103) I have denied the doctrine of Meinong and Tarde that explicit belief, existential judgments, are essential to the existence of values, taking value in the generic sense, which includes æsthetic value, religious and patriotic value, legal, moral, and other values. I have pointed out that we do, at times, value ideal objects, the creatures of our imaginations. The dead sweetheart, or the Beatrice that never was (or that never was what she was imagined to be) may have tremendous value. Not merely things hoped for, but things hopelessly gone, as "The Lost Cause" to the Southerner, may be objects of value so high that other things, known to be real, may sink into insignificance beside them. Even in these cases, however, there must be a "reality-_feeling_" an unconscious presumption or assumption that the object valued is real. Indeed, belief, as distinguished from mere ideation, is an emotional "tang," an essentially emotional, rather than intellectual, fact. If it be present, the ideation and explicit judgment may be dispensed with. It is, however, characteristic of economic values, particularly of the values of instrumental goods and of the goods with which business men make profits, that the tendency to raise the question of reality, to require explicit judgment, is strong. The successful business man is necessarily the man who does this, who does not too highly value the creatures of his imagination, when he imagines a vain thing. One need not, perhaps, seriously raise the question as to the reality of the loaf of bread he buys. Explicit judgment there would be superfluous. But very serious questionings come in whenever lands or houses or securities or bills of exchange come in. One needs to know what the facts are, and to make judgments based upon them. Hence, for all values of capital goods and income-bearers, for the values which pass in wholesale and speculative trading in general, the matter of _belief_ is vitally important. Here, again, then, we have nothing in the psychological principles underlying credit phenomena to mark them off from the general field of value phenomena. The general laws of value, then, apply in the case of credit phenomena. We find nothing unique in essence in them. The juridical relations, also, in so far as they have economic significance, shade into one another. To buy a bond from a bondholder is purchase and sale. To pay a borrower money for his personal note is lending. But from the standpoint of the theory of value and prices this distinction may be ignored. We may extend the idea of buying, selling, and price to cover all contracts where values are balanced against values, and expressed in terms of each other. Future money has its price in present money, just as much as present wheat has its price in present money. Really it is not future money against present money. It is a case of _rights_, which involve the payment of money in the future, sold for money, and priced in money. In general, it is _rights_, rather than _things_, which pass in economic exchange. Physical delivery does not constitute selling. Delivering a load of wheat to a railroad does not constitute sale of the wheat to the railroad; selling a farm does not involve any physical moving of the farm. Rights, _in personam_ or _in rem_, are objects of economic value, and the exchange of these rights makes up the bulk, if not the whole, of economic exchange. (Exchange may be limited to the transfers of juristic rights, without value being so limited. I have discussed the relations of value and exchange in the chapter on "Value," above.) Property rights are commonly conceived of as the proper objects of buying and sale. Contracts involving the future services of free men stand legally on a different footing from contracts regarding physical goods. But economic analysis is not greatly concerned with these distinctions, except in so far as they affect the values of the things exchanged, and so the terms of the exchanges. I do not believe that the legal distinctions can be made to run on all fours with any significant economic distinctions, and shall not undertake to make them do so. In the phenomena we have simply cases of buying and selling (in a generalized sense of those terms) of _rights_, at _prices_ (by a very slight extension of the term, price, to which the market is well accustomed). The terms of these exchanges, the prices, are governed by values, social economic values, in no wise different from the values which govern the prices in exchanges which we do not class as credit transactions. I say that credit phenomena are exchanges of rights. This is true of all exchanges. We do not exchange rights for money. We exchange rights to other things for rights to money. The mere physical transfer, even of money, does not give rights to the money. I may merely be giving you the money for safe keeping, or for use for my purposes. While the law makes the rights to money that has left the hands of its owner less lasting, as against innocent third parties, than in the case of other objects, and while the right to money is always, or almost always, met by returning other money of equal amount, even in the case of money it is a right, and not a mere physical transfer, that is significant. Our problem regarding credit is, then, much simplified. We have simply to pick out certain economic exchanges to which the name of credit transactions has been applied,--a various and heterogeneous set of exchanges, in many ways--and study them, to find their peculiarities. These peculiarities will not make them exceptions to the general laws of value. They will make them merely special cases. To find essential principles marking off credit transactions, at large, from non-credit transactions is an exceedingly difficult thing. There are more differences among credit transactions themselves, than there are between the genus, credit transactions, and the class of things not called by that name. Thus, monthly payments of rent, of wages, of college professors' salaries, are not commonly called credit transactions. The monthly payment of grocery bills, or of telephone bills, involves credit. Where is a real difference to be found? On the other hand, between book credit between grocer and patron on the one hand, and a bank-note or deposit credit on the other, the difference is large, in many practically important ways. Between a call loan and a ten year agricultural mortgage-note, the differences are even greater. One may be disposed to find the differences between credit transactions and non-credit transactions in the fact that the former stipulate a definite sum of money, due at definite times. This would partly differentiate a bond, say, from a stock. The bond not merely calls for stipulated yearly payments, but also calls for a definite payment at the end. This would, however, exclude British Consols from the list of credit instruments! British Consols differ from safe preferred stocks in legal, rather than in economic, ways. Legally they are alike in that no terminal payment is called for. Practically they are alike in that annual regular sums may be expected. It may at least be said of credit transactions that stipulated money payments, either at a different time or a different _place_, are called for. This would include the telegraphic transfers of funds, and would exclude the case where A, a farmer, does a day's work for B, a neighbor, for the promise of a day's work in return at a later season. The latter transaction involves many of the elements that definitions of credit have included, but I think that we may at least limit our conception of credit transactions to transactions within a money economy, where money, as a measure of values, functions in the calculations. Shall we, however, limit credit transactions to cases where a stipulated _amount_ of money is named in the contract, for a stipulated time? Shall we exclude contracts where the payment of money is made contingent on anything? By contingency here I mean legal contingency. This test would exclude the highest grade preferred stock. It would include the shakiest bonds that contained, in the terms of the contract, no contingency. But where, then, would one place such an instrument as the Seaboard Airline Adjustment 5% Bonds, which may default in a given year half of the interest, if it is not earned,[506] and which yet call for the payment of the principal at a stipulated time? What shall we say of "borrowing and carrying" transactions on the stock exchange? Is not the loan of stocks a real credit transaction? Ordinarily, when stocks are put up as collateral, one thinks of the money as being lent, and the stock merely as a pledge. But in the case of borrowing stocks by a bear to deliver next day, the transaction is definitely thought of as a loan of stock. It is sometimes paid for, the bear paying the bull a premium, instead of receiving interest on the money he has turned over to the bull as a "pledge." The more usual thing, is, of course, for the bull to pay the bear interest. But in a contract like this, there are many contingencies. As the stock rises in value, the bear must lend more money to the bull; if the stock falls, the bull must return part of the money to the bear. Both times and amounts are here contingent, even though in the end the amounts lent and repaid balance. Call loans, of course, do not call for payment at a stipulated time, and the same is true of bank-deposits and bank-notes, and of many other forms of credit. Interest on deposits in mutual savings banks is contingent, legally, as to amount. Are insurance policies credit instruments? What of endowment policies? It is easy to draw legal distinctions in all these cases, but to show that definite and uniform economic consequences flow from these legal distinctions is quite impossible. Rather, it is easily possible to show that uniform or certain economic consequences do not, in general, flow from them. I shall refrain from the effort to give a general, fundamental definition of credit. I shall rather discuss certain of the more important types of what have been called credit, with a view to seeing what bearing they have on the problems with which this book is concerned; the value of money, and prices. The general class of transactions to which the name, credit transactions, has been applied may be roughly designated as transactions in which the consideration on one side, at least, is the assumption of a debt, running in terms of money (though not necessarily to be paid in actual money), payable either at a future time or at another place. Objections can be found to this definition. It does not meet the fundamental test of a definition that, for the purpose in hand, it should seize upon the essential and unique characteristic of the things marked off. I am not sure that it meets the tests of inclusiveness and exclusiveness even for those transactions which we call credit transactions. Thus, if A and B go to the bank together, and A there buys B's horse, standing in front of the bank, giving B in return a check, which B immediately cashes in the same room where the check is drawn, the idea of different time or different place is not realized in any but a technical sense. A, in drawing the check is, of course, assuming a debt. The check, if repudiated by the bank, becomes a note, which A must pay. A, moreover, is paying B, not with money, but with the transfer of a claim on the bank, and the fact that his check, if unpaid, becomes a note is not the main fact about the check. Understanding our definition of credit to cover this case also, however, and attaching no fundamental importance to the definition save as a means of marking off a class of more or less related phenomena which we mean to discuss, the definition will serve. Thus defined, we have in credit a concept susceptible to quantitative treatment. Debts, in terms of money, can be summed up, and we may have the concept of the "volume of credit" as the sum of such debts at a given time, or through a given period of time, or as an average through a period of time. We may distinguish credit transactions from credit, defining credit as the volume of debts, and credit transactions as transactions in which the debts are passed in exchange. This would be to broaden the notion of credit transactions beyond the usual conception, since it would include transactions in which A sells ("without recourse") B's note to C. It would also include cases where bonds are sold. It would exclude cases where stocks are sold, since they are not legally debts. Some would prefer to limit the notion of credit transaction to transactions in which there remains some contingent responsibility on the part of the one who uses the credit instrument, but this would be to deny the name, credit transaction, to cases where bank-notes or government paper are used in payments, as well as to deny it to the case where bonds are sold. It is not important, for my purposes, to draw a sharp line about the concept, credit transaction, however. And about the concept credit itself I have drawn a line resting on a legal, rather than an economic, distinction. Within the field of credit, thus defined, we may single out for especial consideration certain forms of demand or short time credit, particularly bills of exchange, bank-notes and bank-deposits, and merchants' book-credit. We shall also have something to say regarding long-time credit, including bonds, and mortgage-notes that have no general market. All these debts in terms of money, to which, in the aggregate, we have given the name, volume of credit, have grown out of _exchanges_. Exchange is here used in a wide sense, and is not confined to the case where goods or services are bought and sold. It is an exchange, if a man gives his note to a banker in return for a deposit credit. But, on the assumption that exchanges are made only when gains are to be realized, it follows that all debts, and so all credit, have been created in view of anticipated gains (or to avert anticipated losses). In a society where everything is in equilibrium, a "static state," where there are no "transitions" to be effected, where there is no occasion for speculation, and where exchanges of lands, etc., are negligible, the volume of all exchanges, including those where debts are passed in exchange, would be small. The occasion for the creation of the debts which make up the volume of credit would not be nearly so numerous as under dynamic conditions. The _volume_ of credit, in other words, is largely a function of dynamic conditions, even though credit would exist in a static condition of economic life. The bulk of credit, as the bulk of exchanging, grows out of dynamic conditions, transitional changes, and the like. This will be clearer when we raise the question as to _why_ debts are created, as to what function debts perform in economic life. Why should a man borrow? Let us suppose that a farmer has 600 acres of land. He wishes to sell 100 acres, and use the proceeds in buying equipment for his farm. But he finds it difficult to sell the 100 acres. There is no ready market. He can sell it immediately only at a great sacrifice. By waiting, and looking industriously for a customer, or by engaging a real estate dealer to do so, he could finally find a buyer, but the thing is slow and uncertain, and he wishes to get the equipment at once. He borrows, therefore, giving his farm as security, or a part of the farm as security. He exchanges a claim on the future income of the farm for present money, and with this he can buy the equipment he needs. The net result has been that the credit transaction has transformed his unmarketable quantum of value into a marketable form of value. He has been able, by an indirect step, to do what he could not do directly--to trade a part of the farm (which in its economic essence is a prospect of future income) for the equipment. In this illustration, _credit has functioned as a means of increasing the marketability or saleability of non-pecuniary forms of wealth_. Credit is primarily a device for effecting exchanges that could not otherwise be effected, or for effecting exchanges more easily than they could otherwise be effected. This means that credit transactions are a part of the productive process, and that they increase values. It is the function of credit to universalize the characteristic of money, high saleability. It is the function of credit to "coin," so to speak, rights to goods on shelves, lands, etc., etc., into liquid rights, bearing the dollar mark, which are much more highly saleable than the rights in their original form were, and which often become as saleable as money itself, functioning perfectly as money. Credit thus tends to universalize that characteristic which Menger[507] considers the unique characteristic of money. By means of credit transactions, a man borrows up to 50% of the value of the farm, makes his farm in effect, 50% saleable or fluid. The man who owns livestock may not be able, on a given day, to market them without loss, but he can use their value in the market, up, say, to 75%, by a loan. The man who owns a hundred shares of United States Steel may not be able, at a given time, to market them to his satisfaction--though in the case of articles and stocks dealt in the speculative markets saleability is very high indeed, and in the case of United States Steel, in particular, the "spread" between "buying price" and "selling price" is very narrow--but he can borrow, with the stock as security, up to 80% of its value. On a bond of the United States government, he may borrow up to 100%.[508] The process of creating credit is a process of transforming rights from unsaleable to saleable form. Often this means the subdivision of rights, preferential rights to a _portion_ of the value of a piece of wealth being more saleable, because of greater certainty, than the total right to the whole. Another reason why partial rights may be more saleable is that the value represented by each partial right is smaller. It is easier to market things worth a thousand dollars than things worth fifty thousand, as a rule. In any case, a chief economic function of credit is,--_the_ chief function for our purposes--to make fluid and saleable articles of wealth other than money; to universalize the quality of saleability. This justifies us in our contention made before that _all_ corporate securities, whether stocks or bonds,[509] are, in economic nature, alike. Driven to a legal concept for a definition of credit, we were obliged to exclude stocks from our rough definition. But corporate organization does precisely what the various other transactions that we have called credit transactions do. Lands and buildings and machinery, or the roadbed and rolling stock of a railroad, are highly specialized, often unfit for use in any form other than that in which they now appear. As concrete instruments of production, they would be highly unsaleable. In their totality, as a going concern, they are highly unsaleable, because in the aggregate so very valuable. Grouped together, however, but still subdivided, the objects of many thousands of partial rights, represented by stocks and bonds, they become saleable in high degree. As objects other than money gain in saleability, they tend to gain in value, also. This is not necessarily true, always. If wealth is already in the best place, at the proper time, and in the proper hands, no point is involved in further exchanges. Additional saleability--or an increase in the qualities that make for saleability--could make no difference. But when objects could be employed to greater advantage if in different hands, if, in other words, there is occasion for exchange, then whatever adds to the saleability of a good adds to its value. What would otherwise have gone into the trouble and expense of marketing now is saved. In general, items of wealth tend to gain in value as they gain in saleability--though not in any definite proportion. Further, as objects of value other than money gain in saleability, money tends to lose its _differential advantage_ in this respect, and so tends to lose that part of its value which comes from the money-uses. If all things, including gold, were equally saleable, there would be no _raison d'être_ for money, and gold would have only the value that comes from its commodity functions. In so far as credit-arrangements give to partial rights to wealth the capacity to serve as a medium of exchange or for other money purposes--and this is true to a high degree of bank-credit--this tends to cut under the sources of value of money. Credit thus, from two angles, tends to raise prices; it raises the values of goods; and it tends to lower the value of money. The limits on this, however, are reached when gold ceases entirely to function as money, and when all items of value are perfectly saleable. Then credit has done its perfect work for prices, and can do no more. No incentive remains for further borrowing, if all items of value that need to be exchanged are perfectly saleable. These theses will meet objection, particularly from those who are accustomed to quantity theory reasoning, and who look upon the volume of credit as something independent of the volume of trade. On the logic of the quantity theory there is no reason why prices might not mount indefinitely, if only credit could increase indefinitely. The causes controlling the volume of credit are, on this view, quite independent of the volume of trade. I have given this line of thought sufficient criticism, perhaps, in Part II, but shall find occasion to recur to it at a later point in this chapter. However, writers not bound by quantity theory ideas, may still find reason to question these theses, and it is necessary that I should take account of various complications, and make what may well be called substantial qualifications and modifications, before the theses are acceptable. First, objection will be offered to the doctrine that all credit is merely rights to wealth, that credit rests on wealth. It will be urged that many loans are made without collateral, or mortgage security, that the "personal credit" of the borrower is the only security, and the only basis of the loan. This objection is not serious. There are, doubtless, loans which are disguised benevolences, where the lender gets nothing good in return for his loan. I abstract from such cases. Quantitatively they are not important, and qualitatively they are not really commercial transactions. In general, when a good merchant borrows at the bank on his personal note, the bank knows very well what goods he has in stock, what prospects he has for marketing them, what other debts he has, what his "net worth" is. And the bank knows that it has legal claims, even though not preferred claims, on his wealth. When a young business man borrows capital from a neighbor, giving no security because he has no marketable wealth which would serve as security, he is, none the less, exchanging a valuable right for the loan. He is giving the lender a right to a preferential share in his future income. The lender has considered the young man's abilities as sources of income, in conjunction with the capital lent. Incidentally, the lender retains rights, preferential rights as against the young man himself, in the quantum of value he has turned over to him. If a young man borrows the resources with which he buys a farm, the lender takes a mortgage on the farm itself. Transactions of this sort frequently have in them the element of benevolence, and the considerations are not always strictly commercial. In the case of a young man of unusual ability, however, who insures his life for the benefit of the lender, such transactions may be perfectly good commercial transactions, value balancing value in the exchange. The thing traded is commonly present money (or its equivalent) for rights to future money income. Public loans present no exception to our rule. They represent the transfer of present wealth for the future income which the government, by virtue of its public domain, or, more commonly, its taxing power, may expect to receive. With a strong government, this future income may be a very substantial part of the total income of the people. Public loans may often be for commercial purposes, as when municipalities borrow to build or extend municipal enterprises. In cases of this sort, the market frequently will consider the prospects of commercial success of the enterprises in fixing the value of the municipal bonds. Where the proceeds of the loan are for non-commercial purposes, as war, the question of the future income of the government will still, ordinarily, be a dominant factor in determining the value of the securities. Often, however, there is the direct action of patriotic fervor, etc., enhancing the values of government securities. We have seen this in the case of government money. It is no part of our theory to maintain that men's calculations are always rational, or that the whole of the value of a long-time income-bearer rests on the anticipated income. But this is no peculiarity of credit phenomena. The same thing is true of lands, for example. Capital values often get independent in part of their "presuppositions," as we have seen in the chapter, _supra_, on "Economic Value." War security issues often represent the effort of the government--as at the present time--to bring into the present every possible bit of future values, as a means of increasing their power in a desperate struggle. The high prices of goods in such a situation represent the concentration of future values into the present, an increase in the motivating power which stimulates the people to unwonted exertions. In war time, moreover, many _ideal_ values,--those whose fate is dependent on the outcome of the war--enter into and increase the values of those goods which are needed for carrying on the war. This leads to larger sacrifices of future income than would ordinarily be tolerated. It is not so much a case of present goods rising because of extra credit, as of extra credit because present goods are more valuable. A second objection would be raised that in many cases, the values pledged by the borrower could not exist if the lender did not make the loan. This would be particularly the case with credit granted for the starting of a new or novel enterprise, which as yet exists only in idea. The established merchant, with goods on his shelves, or with a bill of lading for goods which he has sold, has a very tangible, concrete basis for a loan, whose value is independent of the decision of any given banker. If my doctrine is to be taken as holding that all credit rests on concrete physical goods, very many exceptions indeed could be found. But this is not my doctrine. It is that credit rests on valuable _rights_. These rights may be rights to existing concrete goods; they may be rights to future incomes. In any case, it is the values, rather than the physical quantities, that are significant. Witness cotton before and after the outbreak of the World War. Ultimately, in general,[510] economic values come from the "primary values" or "first order" values of consumption goods and services. These values are reflected back, by the imputation processes, to the various "factors of production" which have made the existence of the goods and services possible, in accordance with well-known laws which need not be here elaborated. But the category of "factors of production" is far from exhausted when we have named land, labor, and produced instruments of production! Some writers have rejected the notion of "factors of production" largely or altogether, and prefer such a term as "agents of acquisition."[511] I certainly have no intention to give to the term, factor of production, any ethical connotation. Even though a factor of production be, like land or labor, a _sine qua non_ of production, it does not follow that the owner of that factor gets his proper, or ethically just share, under the laws of economic imputation. Many of the "factors of production," in the sense of factor which derives a value from the economic laws of imputation, may well be parasitic from the angle of ultimate social welfare. The only test is as to whether, under existing social arrangements, a portion of the income _of a given establishment_ would cease to exist if that factor should disappear, or be reduced. From the angle of this test, monopoly power, trade-marks, established trade connections, the big idea of an entrepreneur, a dynamic personality, capacity for winning other men's confidence and good will, and sometimes that brutal selfishness which makes other men shrink from conflict, or the reputation of being a dangerous and vindictive man, may be equally "factors of production" with land, labor, and produced instruments of production. In Part IV of this book, "The Reconciliation of Statics and Dynamics," we have discussed the "intangible capital items" of this class, and have indicated that many of them perform really important and necessary social functions. Others are doubtless pernicious. Production involves leadership, organization, the making and maintaining of "interstitial connections," as well as the technology of muscle and machine. But credit is based on values, rather than on concrete goods as such, and if these "intangibles" have value, they may have credits based upon them.[512] That some of these values exist only by virtue of the fact that credit is granted is no marked peculiarity. The granting of credit is an exchange of the rights of the creditor for rights to the future income of the borrower. If the exchange were not made, in certain cases, the borrower would have no future income to which he could give rights. The entrepreneur with a big idea cannot actualize that big idea unless he can bring it into conjunction with land, labor, capital, and a market for the products. The exchange of rights to the value of the products for the banker's deposit-currency, or the private lender's money is merely one of many necessary exchanges required to bring about the combination which will create the products. If there were no possibility of marketing the products, he would be equally helpless, and his idea be equally valueless. The general range of values, under our present system of division of labor, private property, private enterprise, etc., depend on the possibility of exchange. Men produce for the market, rather than for their own consumption, or for the consumption of a communist society. Without exchange, many values would persist, but most values would at least be diminished. Exchange is part of the productive process. The only peculiarity in the case under discussion is that the man getting credit for the exploitation of a big new idea commonly has a very limited market--is dependent on the decision of one bank or lender, or at most of one out of a few possibilities. The narrower the market, the more dependent are the values of things that must be exchanged upon the decisions of a few men. Wheat is free, virtually, from individual caprices, though even there a big operator may organize a pool and temporarily affect the value very greatly. But the immediate power of a few men on values is increasingly great as we get closer to those things which are unique, which are capable of only specialized employment, and which call for the coöperation of elaborate and expensive systems. And, of course, the influence of individual caprice, or individual decisions, on all values grows greater as wealth and power are concentrated. Economic social value is an institutional value, specially weighted and controlled by individuals, classes and institutions.[513] Joseph Schumpeter, in his _Theorie der wirtschaftlichen Entwicklung_, has made much of the rôle of the banker in economic evolution. He sees in the banker a creator of "_Kaufkraft_," by means of which an entrepreneur, a dynamic man who has a new idea which he wishes to actualize, is able to wrest from the unwilling "static economic subjects" their land, labor and instrumental goods for the purpose of putting his new plan through. This new _Kaufkraft_ is the true _Kapital_ which the new enterprise requires. Capital, thus defined, is not an accumulation of goods, is not embodied in goods. It is an _agent_, a _power_, which the banker creates. It makes dynamic change possible. Schumpeter is particularly anxious, in clearing the way for his new theory of interest, to get rid of all the notions of saving, accumulations of stocks of goods, etc., which have commonly been made prominent in the discussion of capital and interest. We need not here discuss his theory of interest.[514] He maintains that the new dynamic credit, credit granted by a banker for a really new enterprise, as yet not concretely in existence, represents something new in the world, anomolous from the angle of static values, and static credit. Indeed, he regards credit as unessential for the static analysis, and banishes it from the "_Wesen_" of his static state. But this new credit is different from such credit as there may be in the static state, because, he holds, the new credit does not rest on goods, and has no _Deckung_. Schumpeter himself calls these doctrines "heresies." They become less dangerous, however, when we learn that by "saving" Schumpeter means mere trenching upon accustomed expenditure, so that the entrepreneur who saves part of unusual profits is really not saving at all, and when one discovers that his contention that there need be no accumulation of goods prior to the starting of a new enterprise means merely that there need be no special accumulation of goods _ad hoc_. Of course if saving means trenching upon accustomed expenditure, it is banished by hypothesis from the static state, but there may still be plenty of capital (in the ordinary sense of accumulated produced means of production) for Schumpeter's entrepreneur to get hold of by means of his new _Kapital_. His contentions that the new credit does not rest on goods, that it has no _Deckung_, and that we have a new thing in the world since in dynamic credit we have a case of temporal discrepancy between the making of obligations and the ability to pay them, calls for further analysis. It is true that there is a time during which the new credit has no basis in concrete goods. Very speedily, however, the new credit is exchanged for concrete goods, and the enterprise is started. Further, the banker commonly insists on a margin at the start. Further, the claims of the borrower on the banker are themselves, prior to their expenditure for the things needed in the enterprise, assets to which the banker may look as a basis for his confidence in the goodness of the entrepreneur's promise to pay him. There is never a moment when the new credit does not rest on _values_. The loan by the banker to the borrower is, essentially, like the case of the purchase of any bearer of future incomes, say a machine, or a factory. The machine is, after all, in economic nature, merely a "promise" of future goods and future values, as an Austrian economist should be quick to recognize, and machines are almost as frequently poor performers as borrowers--indeed, most commonly, the borrower's inability to repay comes from the failure in the value of the goods which his physical equipment produces. The _raison d'être_ of the new credit is the new values which have come into existence: the new plan of the entrepreneur, _validated by the banker_, attains a value equal to the present worth of the extra products which it promises. I repeat that it is values which are significant as the basis of loans, that values are not all embodied in physical goods, and that value is essentially a psychological thing. The banker's validation of the plan may be an essential factor in its value. _Belief_ is often an essential factor in values. The new value, and the new credit, have a large element of belief in them. The value of the new plan rests proximately in the belief of the banker, manifested by his granting of credit. But the value of the _bank-credit_ rests ultimately in the _prestige_ of the banker, which is a fact of social psychology, resting in a massing of belief on the part of the public in him, in the validity of his bank-notes and deposit-currency, coupled with support from legal and other institutions. But this is to anticipate the discussion of the nature of bank-credit. The point involved is sufficiently illustrated by the case where a man who is not a banker lends his money to an entrepreneur of a new undertaking. Here again the enterprise is impossible without the loan. Here the loan is made on the basis of an anticipated income. Here again the anticipated income is made possible only by the loan; one of the values that enters into the exchange exists only because the exchange is possible. None the less, the credit rests on value. It is a right to an anticipated income. The man who has made the loan has his security in the value which he has lent, plus the present worth of the extra income which the new idea is expected to create. Now a great practical difference is made in the course of economic life by the decisions of lenders to lend to men who plan new things, instead of to men who plan old things. It makes an enormous difference whether or not new plans appeal to the imaginations of those who control the economic resources of society. It makes a great difference whether static values (the capital values of incomes to be created in familiar ways) or dynamic values (capital values of incomes to be created in novel ways) win out in the competition for loans from those who have loans to make. But _as values_, the two are of the same psychological stuff and substance: futurity and belief are essential elements in both of them. Stable belief, and strong belief, are easier to evoke in the case of the established and the familiar. New ways of creating wealth must promise larger returns, and make more dramatic appeals to the imagination, than old ways. Schumpeter indicates that it is the essential function of the banker to give preference to the new ways, that the mass of men are "static" in their attitude, and that, for some reason which he does not clearly indicate, the banker is not. This has not been our American experience, on the whole. The contrast which Schumpeter makes between the timid, static masses, and the few highly important dynamic entrepreneurs, holds very much less true in America than in Continental Europe. There it is doubtless true that new industrial enterprises have had their main encouragement from bankers. Here, such enterprises have appealed largely to the mass of men, to the investing and speculative public. Our commercial banks have lent largely upon stock exchange collateral, which means that, indirectly, bank-loans have gone to finance industry. The extent of this is enormous, as will later appear. However, the banks, as banks, have not been large _buyers_ of stocks. They have guarded themselves by requiring "margins" from those to whom they have lent on such collateral. Seasoned bonds have been bought in great volume by our commercial banks, but few stocks. Even the underwriters and investment bankers have been primarily intermediaries, expecting to pass on to private buyers the securities they hold temporarily. My point here is, merely, that there is nothing in the distinction between static and dynamic credit, when by that is meant the distinction between credit for new enterprises and credit for old enterprises, to mark off a peculiar or essential province for bank-credit. The need for bank-credit does arise out of dynamic conditions, primarily, but it is not the need for credit to _start_ dynamic changes, even though bank-credit may do, and does do, that. The chief reason for bank-credit is to enable economic society to readjust itself quickly and readily to dynamic changes, by putting through without friction the necessary exchanges that such readjustment requires, and by holding in liquid form a fund of rights which can meet the emergencies and unexpected occurrences which dynamic conditions involve. To this we now turn. Bank-credit is the debt of responsible institutions, payable on demand in money. It may take the form of notes, or of the right to draw checks. Long evolution has begot a system of legal relationships, and of banking technique which makes these promises easily performed. The same process of development has led to social reactions toward banks and bankers which give them enormous prestige. Legal regulation, in the case of many banks, requiring adequate capital, and, in this country, requiring minimum cash reserves, have added to that prestige. The promise of the bank is commonly so liquid and saleable that the banks are not called upon to fulfill it by the actual payment of money--the promise alone is an object of value which is perfectly saleable, which runs in terms of money, and which functions as a perfect substitute for money in almost every use except for very small retail transactions. Even there, it is very much used. Among the features of banking technique to which we must give especial attention are the following: (1) the banker has substantial resources of his own, his "capital," which constitutes the "margin" of protection which he offers to those who give him valuable things in return for his promises to pay money on demand; (2) the banker exchanges his promises to pay on demand, as far as possible, for those things which have a high degree of "liquidity," _i. e._, for those things which he can quickly dispose of for cash, or for the promises of other bankers which are the equivalent of cash. Farm mortgages are not good assets for a banker to hold in large amount. They are long-term obligations, with a very limited market, and they will not help him in emergencies to meet his obligations to pay on demand. Agricultural loans, and other mortgage loans are made in considerable volume by our State banks and trust companies. All classes of commercial banks make many non-liquid loans, as we shall later see. But all of them get as high a proportion of liquid loans as they can. Bills of exchange, running ten, thirty, sixty or ninety days, growing out of commercial transactions which automatically terminate themselves in the payment of cash or the promises of other bankers, constitute admirable assets. In return for these, the banker may give his promises freely. This is especially true where there is, in the banking practice, a wide "rediscount market," in which he can sell these bills before maturity if he wishes to get even more liquid assets. Promissory notes, for short periods, thirty, sixty, or ninety days, growing again out of commercial transactions, which, like those for which the bills of exchange were drawn, automatically bring in cash or the promises of other banks, are in many respects like the bills of exchange, even though the rediscount market for such notes has not been so highly developed as the market for bills of exchange in Europe. Whether such notes are as available for rediscount as bills of exchange is a question of technical banking which we need not here discuss in detail, though I venture the opinion that bills of exchange are superior decidedly for this purpose, especially "documentary" bills. The element of personal credit is commonly larger in the promissory note, and that limits the market. Banking organization, and particularly our new Federal Reserve System, may greatly reduce the disadvantages of the promissory note from this angle, but it seems not unlikely that the bill of exchange may be a factor of increasing importance in our internal banking arrangements. The general test, however, of what is available for a banker's assets depends on varying conditions, and is not to be answered by a simple formula. A bank in a rural region which loads up heavily with the safest local bonds is little better off than with farm mortgages. For neither is there a quick market in an emergency. A city bank, near the stock exchange, may very safely buy in large amounts highly saleable as a profitable substitute for part of its cash reserve. Even country banks may, and do, safely own such bonds. Short loans on stock and bond security, constitute the most important single type of bank-loan in the United States, as we shall later see. (3) The third feature of banking technique to which attention must be given is the reserve policy. The banker must keep some actual money on hand (how much we have in part considered in Part II, and shall again discuss). I shall give attention to these points in what follows. The first point needs little discussion. Large "capital" for a bank gives prestige and security. Some capital is a _sine qua non_ for a bank which expects its notes or deposit currency to have general acceptability. It will be well to consider further the circumstances determining the form which a bank's assets shall take. Though commercial banks own enormous quantities of high grade bonds, it is rare for commercial banks in America to buy stocks of corporations.[515] They will often lend to owners of such stocks with the stocks as collateral, up to a high percentage of the value of the stocks, but they will rarely trade their demand obligations for the stocks directly. In general, a bank wishes to have its assets in the form of obligations of other people, expressed in terms of dollars, and having a definite term to run (or callable on demand). One reason for this is a bookkeeping reason. "Par value" of stocks has little meaning any more. Market-prices of stocks, even the best stocks, are not absolutely fixed. They fluctuate, even though within narrow limits. This fact presents complications to the bookkeeper! Of course, the bank's buildings and fixtures, listed among its assets, fluctuate also, in value, and in the price that could be obtained on a given day, but the bookkeeper can abstract from that, since the bank has no intention of selling its buildings and fixtures. The notes and bills held in the bank's portfolios also in fact fluctuate in value, and in the price at which they might be sold on a given day, but they are expressed in terms of dollars, and the bookkeeper commonly has no need to look beyond the figures written on them. At irregular intervals, a small percentage of them may be marked off the books as "bad," but usually the minor fluctuations are abstracted from. The bank does not like to have assets whose published prices fluctuate. But this is, I suppose, not the main objection which banks have to stocks as assets since it does not prevent their buying bonds. I abstract from the legal restrictions that prevent many banks from buying stocks. The fundamental reason is to be found elsewhere. The point is to be found here: the transaction whereby property rights in roadbed, rolling stock, etc., were collected into property rights in a going, organic whole increased the saleability of all these rights; the further subdivision of these rights into many thousands of equal parts enormously increased the saleability of these rights, especially when coupled with listing in an organized market; the further transaction, by which a preferential claim upon these subdivisions of rights is embodied in a collateral note still further increases the saleability of the value of these rights. The whole of the value embodied in a share of stock has not the certainty and saleability which a banker wishes for his assets. It might not be possible to market the stock on a given day without loss. But a collateral note, embodying 80% of that value, with provision for additional collateral in case the margin is reduced, is highly liquid and the banker has no doubt that, with watchfulness, he can always realize the full face value of such a note. It becomes saleable enough for his purposes. The transaction by which this note is exchanged for the banker's demand obligation gives the drawer of the collateral note a perfectly saleable form of value with an almost universal market, which he can convert without loss into practically anything that money can buy. We have here a series, a scale, saleability of rights growing steadily greater, through a series of transformations and exchanges, till at last the virtually perfect saleability is reached. Again we are reminded of Menger's analysis[516] of the methods of primitive barter, whereby the man who possesses a good of low saleability, through successive exchanges, gradually gets goods of higher and higher saleability, until he finally reaches his goal. Bank-credit, this most highly saleable of all forms of rights except the rights to actual money in hand, and in general not inferior to money, cannot usually be had by direct offer to the bank of crude property rights. These must be refined and distilled, till a central core of highly saleable value emerges, and then they may enter the bank's assets in return for bank-credit. The best bonds likewise offer such a central core of highly saleable value. A further point is to be noticed about this scale of saleabilities. At each stage of the exchanges of less saleable for more saleable rights, the holder of the less saleable rights must make concessions to the holder of the more saleable rights. And the degree of his concession is, in general, correlated with the lack of saleability of what he offers. Commonly this takes the form of giving up a right which has a higher yield for one which has a lower yield. Or, viewed more fundamentally, from the angle of the capitalization theory, income-bearers of low saleability are capitalized at a higher discount rate than income-bearers of higher saleability, with the same yield. Farm lands may be capitalized on a 10% basis. (There will be great differences between regions in this, depending in considerable measure, often, on the activity of farm sales. I would refer here to the facts mentioned in my chapter on "The Quantity Theory and International Gold Movements," contrasting Cass Co., Iowa, with Yazoo Co., Mississippi. Of course, the risks of agriculture count heavily, also, and the prestige of owning land as compared with other forms of property.) The farmer's mortgage note may bear 7%. A merchant who holds that note may use it as collateral, with a margin, backing his own note, and get accommodation for three months at 6%. The bank may rediscount the note of the merchant, giving it its own endorsement, on a 4-1/2% basis. The coal mine owned by a small company may yield 12%; sold to a large iron company, which combines mining and smelting and manufacturing, that mine may be represented by 7% stock; a collateral loan, for sixty days, based on 80% of the value of the stock may be had for 4%; the demand liability of the bank given in exchange for the collateral note will either yield nothing at all, or else yield a low per cent, one, one and a half, or 2%, on large checking accounts. If the collateral note be a call note, the rate will be lower, in general, than on a time note. I here refer to what was said in the chapter on the functions of money with reference to the relation of short loans, especially call loans, to the "bearer of options" function of money. Part of the yields of these loans is in the bearing of options. This function grows out of the uncertainties of a dynamic market. It would disappear if uncertainties, "friction," and dangers disappeared. The importance of liquidity and saleability in the assets of a banker needs little discussion. It has been reiterated by virtually every writer on the subject. Its connection with the need for meeting demand obligations is obvious. The point that I would here emphasize is, however, that this, too, grows out of dynamic changes, uncertainties, etc. An economic life in "normal equilibrium," in static balance, with all things going smoothly, in anticipated ways, could dispense in large measure, or wholly, with such liquidity. Obligations which matured at the time that the holders of the obligations had maturing obligations, would serve their purpose perfectly. Again I would emphasize the fact that the theory of money and bank-credit is essentially a dynamic theory, and that the notion of "normal equilibrium" which underlies the quantity theory has no bearing whatever on these fundamental matters. The market where fluid bank-credit is exchanged for less fluid rights has been given the name, "the money market." The prices fixed in this market are "money-rates," figured as percentages on the amounts of bank-credit exchanged for the less fluid rights. It is, of course, strictly speaking, not a money market. Money, as the term has been used in this book, has been taken to mean gold coin, subsidiary coin, government paper, and for the United States, bank-notes. In a country where much bank-credit is elastic bank-notes, it is better to distinguish money from bank-notes. The term, money, is not one easily defined in a logical manner. A good logical definition should seize on some essential characteristic of the object defined, should include all the objects of that class, and should exclude all others. We can meet the tests of inclusiveness and exclusiveness in a definition of money, but we can hardly meet the first test. The differences between gold money, for example, and gold bullion are less than the differences between gold money and government paper. The differences between bank-notes and bank-deposits are less than the differences between bank-notes and government paper, or bank-notes and gold. The term, money, covers a group of more or less miscellaneous things, concerning all of which few general laws are possible. Gold, or other standard money, in particular, may obey different laws from other forms of money. I have been careful, in the foregoing, to avoid the danger of letting the argument rest on any ambiguity in the meaning of the term, however, and for the present shall not attempt further definition. For the present, we shall use the term, "money market," in its familiar sense, as meaning that market in which bank-credit is exchanged for less fluid rights. An organized money market commonly appears only in larger cities. In smaller places, relationships between banks and customers are much more personal, and indeed, even in larger cities, regular business houses have particularly intimate relations with special banks. A fluid, impersonal market, to which men may repair without reference to anything but the marketability of the collateral they have to offer, is a distinctively metropolitan affair. Only large dealers commonly have relations with more than one or two banks. Larger houses in the big cities often do sell their "commercial paper" through brokers, and some of the big New York mercantile houses have had their paper scattered a good deal throughout the country. The lack of protection which houses which sought such credit faced during the Panic of 1907 tended to check the practice in some measure, but it has revived, and even increased.[517] In the matter of a wide market for commercial paper, however, an impersonal market, with great fluidity, we are well behind not only England, but also Continental Europe. The London acceptance house has especially contributed to an impersonal market. The American money market is _par excellence_ a New York market, and the primary type of paper discounted in the American money market is stock exchange paper, and foreign bills of exchange. For commercial paper, however, there are innumerable more personal, more restricted, markets, and commercial paper constitutes a very considerable part of banking assets, though much less than is often supposed. But this we shall discuss in the next chapter. CHAPTER XXIV CREDIT--BANK ASSETS AND BANK RESERVES In traditional discussions of banking, the impression is given that commercial paper is the normal and dominant type of banking assets.[518] To one accustomed to this view, the figures of the Comptroller of the Currency for banking investments in the United States for 22,491 banks of all kinds (State, national, private, and savings banks, and trust companies) in 1909,[519] will occasion dismay: (000,000 omitted) Loans on real estate $ 2,505 Loans on other collateral security 3,975 Other loans and discounts 4,821 Overdrafts 69 United States bonds 792 State, county and municipal bonds 1,091 Railroad bonds and stocks 1,560 Bonds of other public service corporations 466 Other stocks, bonds, etc 703 Due from other banks and bankers 2,562 Real estate, furniture, etc 544 Checks and other cash items 437 Cash on hand 1,452 Other resources 111 -------- Total Resources $21,095 These figures, however, call for further analysis. They include figures from institutions which should not be counted with commercial banks. The percentage of real estate loans, especially, is too high to represent the workings of commercial banks, a very high percentage of real estate loans being held by stock and mutual savings banks. The other items, however, are not much changed by the inclusion of savings banks and private banks. It will be well to draw some conclusions from these aggregate figures for all classes of institutions, before taking up a more detailed analysis of State and national banks, and trust companies. Where, among these items, does one find "commercial paper"? In the reports of the metropolitan papers, giving daily variations in interest rates, it is usual to find "commercial paper" listed as a separate category, coördinate with "sixty day paper," "ninety day paper," etc. Recent periodical discussion has gone elaborately into the question as to what should be called "commercial paper," from the standpoint of the policy of the Federal Reserve Banks. I think it safe to say that no two markets, at present, in the United States will use the term in precisely the same way, and that all would restrict the term to a small portion of the "other loans and discounts" listed above. The most general definition of "commercial paper" would be paper bought through note-brokers. Despite the decided increase in loans and discounts which our war prosperity has involved, there has been very frequent complaint of the scarcity of "commercial paper." I shall use the term, "commercial paper" in a much more liberal sense than the American money market does, and shall mean by it all loans of a really liquid character, made by banks to merchants and others to pay for the purchase of goods in anticipation of a resale within the term of the loan which will enable the loan to be repaid at maturity. From this should be excluded, however, loans made to speculators. With this liberal, and not very precise, definition of commercial paper, we raise again the question as to where it may be found in the items above given. Virtually all of it, I think, must be found in the item, "other loans and discounts"--an item which, in all, is slightly less than 23% of total banking assets.[520] But not all of this "other loans and discounts" is commercial paper. Very much indeed represents loans of a non-liquid character, regularly renewed, which manufacturers and others have put, not into moveable goods, but into fixed forms of capital-goods, as machinery, and even buildings. One case in New York, which the writer is informed by a business man well acquainted with both banking and business in many sections of the country is typical of many cases, is as follows: a New York bank is at present lending to a small manufacturer of automobile supplies about $30,000. Of this, about $10,000 is liquid, periodically covered by "bills receivable," and if the bills receivable should fail, in the period in question, to cover the $10,000, the bank would insist on a reduction of the loan. The remaining $20,000, however, is not liquid. It was spent for non-moveable equipment; the bank expects to renew the notes for this loan periodically, and is well aware that it could not force collection without bringing the business to a close--or else forcing the factory to get accommodation elsewhere. The $10,000 that is liquid is by no means all spent for goods, but is spent, in part, for wages. _None_ of the $10,000 is spent for goods which are to be resold without being transformed by manufacture. None of the $30,000, therefore, is, in the strict sense, "commercial paper." It is manufacturer's paper. Part of it is virtually as liquid as commercial paper; two-thirds of it is not liquid. A very large part indeed of bank-loans are of this character. A large part of the loans made to farmers are in no sense liquid: when the loan is made, for, say, six months,[521] it is perfectly understood by both bank and borrower that a renewal will be asked for and granted. It is impossible to say what fraction of this $4,821,000,000 of "other loans and discounts" is really liquid commercial paper, or liquid paper of any kind, in the sense that it can be automatically paid off at maturity. I venture the statement with entire confidence, however, that the proportion of liquid paper is not one-half of the amount. I should question if more than one-fourth of it is truly liquid, in the sense in which that term is commonly used: meaning that the loan is made to put through a transaction which will be completed during the term of the loan, and permit the loan automatically to be paid off. I do not mean by this merely that the banks could not reduce this item by one-fourth suddenly. Even in a market made up wholly of highly liquid paper, an arbitrary refusal to renew one-fourth of the loans, with the effort to reduce loans and discounts by one-fourth, would occasion great embarrassment and even disaster. The test of liquidity here applied relates to the items separately, on the assumption that other things are not radically changed. Even in this sense, however, viewing each loan transaction separately, it may well be questioned if the banks in the United States could find among their "other loans and discounts" items exceeding a fourth of the total (in value) which they could refuse to renew, at least in large part, without disappointing reasonable expectations, and embarrassing good business men.[522] Of this paper, not truly liquid, no doubt a good deal is advanced to wholesale and retail merchants, and is, in this sense, commercial paper. The terms, "liquid paper" and "commercial paper" by no means run on all fours! As will later appear, the bulk of liquid banking assets are not commercial paper at all. And only that part of a bank's loans to a merchant may be called "liquid" which can be paid off by the merchant without disappointing his reasonable expectations,--causing him to seek other banking connections. There is, however, another item in which we may find some commercial paper, and this is the item, "loans on other collateral security." This has commonly been supposed to be virtually all stock exchange loans. Thus, Conant[523] cites the growth in this item in New York as evidence of the growth of loans on stocks and bonds. For New York, loans on stocks and bonds do make up the great bulk of this item. Even in New York, however, there are other factors in it, absolutely, even though not relatively, important, and in the country outside, the other elements are not at all negligible, even though for the outside country the part secured by stocks and bonds is the major part, and even though the growth of this item in our total banking assets is, in general, fairly indicative of the growth of loans secured by stocks and bonds. Figures for the other items are not available for State banks, trust companies or savings and private banks. They are not till very recently available for national banks. In 1915,[524] however, the Comptroller separates the item, "loans on other collateral security," for national banks, into two parts, (1) loans "secured by stocks and bonds" ($1,750,597,273), and (2) loans "secured by other personal securities, including merchandise, warehouse receipts, etc." ($882,749,812). Is there any commercial paper in this last, not inconsiderable, item? Let us locate the item, in the effort to find out. The percentage runs highest in Chicago, where this class of collateral loan exceeds the loans on stocks and bonds. The inference is strongly suggested, therefore, that much of it, there, at least, represents advances to live-stock, grain and produce traders and speculators on the Board of Trade, at the stock yards, etc. The inference is strengthened by the fact that St. Louis, where there is a good deal of grain and commodity speculation, shows more than twice as much of this kind of paper as does Boston, where this kind of speculation is unimportant--despite the fact that Boston's aggregate collateral loans of all kinds greatly exceed such loans in St. Louis. In New York, where there is a great deal of coffee and cotton speculation, and some other commodity speculation, the amount of this paper, though relatively small, is absolutely greater than in any other city. No doubt, in New York, which is the country's centre for foreign commerce, a fair amount of the paper secured by "other personal securities, including merchandise, warehouse receipts, etc.," is really commercial paper, representing advances to importers and exporters--though the difficulties of giving this kind of security where goods are in transit would prevent most of our foreign trade being financed in this manner. The total of this kind of paper in New York--all these figures are for national banks alone--was only 113 millions on June 23, 1915.[525] It may be doubted if very much of this paper, in the great cities, represents goods in transit. With the caution that the view here expressed is based on inference, and not on actual knowledge of what the large city banks are doing, the writer concludes that probably the bulk of this paper, in large cities, represents loans to speculators rather than to merchants. It is liquid, but it is not commercial paper. What of such paper in the country districts? Nearly one-half--$436,000,000 out of $882,000,000--of these national bank-loans on "other personal security, including merchandise, warehouse receipts, etc.," are in the country, outside the Reserve and Central Reserve Cities. Much of it is in the South. Much of it in the grain and live-stock producing regions. What do such loans mean?[526] Much of it is loans to farmers and planters. In the South, much of it is on crop liens. The loans on cotton warehouse receipts, at least in the country parts of the South, are not as great as is commonly supposed. In the North and West, there are a great mass of farmers' chattel mortgage loans, including loans on horses, grain in cribs, hogs, sheep, cattle, mules, etc. The use of this type of paper for financing the breeding and feeding of live-stock, particularly hogs, cattle and sheep, is very extensive. Virtually all loans to farmers and feeders for these purposes are secured by such chattel mortgages. It seems improbable that a great deal of this paper could represent ordinary commerce. Neither wholesalers nor retailers can easily handle merchandise on which chattel mortgages have been given. The usual method of granting credit to them is to advance loans on one and two name paper, unsecured. Not many loans to retailers and wholesalers will fall in the category under discussion. To what extent are the loans of this type to farmers liquid? Well, the crop lien loans in the South have a natural term, and, though commonly longer loans than bankers have in mind when speaking of liquid paper, are liquid in the sense that they are automatically paid off at maturity. Loans on work-animals need not have a natural term. Loans on animals being fed for the market have such a natural term, and are truly liquid. Loans, however, on breeding animals are not thus liquid, such loans are commonly regularly renewed at maturity, and the banks do not count on them in emergencies. It is the opinion of Dr. J. E. Pope that fully two-thirds of the aggregate loans on live-stock chattel mortgage security are to breeders rather than to feeders, and hence are not liquid. Of course, none of these loans are commercial paper. I conclude, therefore, that the thesis with which we started that the overwhelming bulk of commercial paper is to be found in the item, "other loans and discounts" is correct. I see no reason to suppose that an analysis of the loans of State banks and trust companies would show a different conclusion. We lack the figures for breaking up the collateral loans of State banks and trust companies into the two classes, "secured by stocks and bonds" and "secured by other personal securities, including warehouse receipts, merchandise, etc." We have merely the gross figures for collateral loans. As the State banks are in large degree country banks, it is probable that the percentage of commodity collateral as compared with stock exchange collateral for State banks would be larger than for national banks. However, the total of collateral loans for State banks is relatively small--559 millions, for 1909, as against "other loans and discounts" for State banks in that year of 1,112 millions, and as against a total of collateral loans of all banks reporting in that year of 3,975 millions. On the other hand, the collateral loans of the trust companies are very large: 1,222 millions for 1909, as against "other loans and discounts" for the trust companies in the same year of 460 millions. As the trust companies are chiefly city institutions, and as the concentration of trust company loans and capital in New York City is relatively very great, it would seem pretty clear that taking both State banks and trust companies into account would substantially lessen the percentage of loans "secured by other personal security, including merchandise, warehouse receipts, etc.," to total collateral loans. As the amount of commercial paper in this class of loans for national banks is probably small, it may be expected to be still smaller in the aggregate of collateral loans. The following figures, for State and national banks, and trust companies, only, will, in the light of the foregoing, give us basis for some further conclusions regarding the character of banking assets in the United States. As before, the year 1909 is chosen: (000,000 omitted)[527] _State _National _Trust _Aggre- _Resources_ Banks_ Banks_ Companies_ gate_ Real estate loans 414 57 377 848 Collateral loans 559 1,939 1,222 3,720 All other loans 1,112 2,966 460 4,538 U. S. bonds 5 740 3 748 State, county and municipal bonds 65 156 155 376 Railway stocks and bonds 75 351 362 788 Bonds of other public service corporations 50 148 168 366 Other bonds, stocks, etc 95 208 769 1,072 Total of items here listed 2,375 6,565 3,516 12,456 ----- ----- ----- ------ Total Resources 3,338 9,368 4,068 16,774 This table makes clear that the figures for real estate loans given in the table for all banks, a few pages preceding, were much too high. It leaves the relations among the other items, however, not greatly changed. "All other loans" increase from slightly less than 23% of total assets to 27%. If we concede that one-half of the "all other loans" represents liquid "commercial paper"--a very liberal estimate, as we have previously concluded--we get about 13-1/2% of the assets of these institutions in the form of "commercial paper," an increase over the 11-1/2% to be assigned on the basis of the other table. The figure is the roughest sort of approximation. I attach little importance to the exact percentage, and the argument which follows is not dependent on any exact figure here. The proportion of collateral loans to total resources is changed also, and even more: collateral loans are 18% of total bank resources when all kinds of banks are included, and are over 22% of total bank resources when only State and national banks and trust companies are counted. If the foregoing is correct within very wide limits of error as to the amount of commercial paper, collateral loans very substantially exceed commercial paper. If all the "all other loans" should be counted as commercial paper, collateral loans are still not far behind them--22% as against 27-1/2%. What is the significance of this? We have seen that for national banks, the great bulk (over 66%) of the collateral loans were secured by stocks and bonds in June, 1915. We saw reasons for supposing that a higher percentage of stock exchange collateral would be found when State banks and trust companies are included. Suppose we assume that 75% of the collateral loans of all three classes of institutions here in question are based on stock exchange collateral.[528] This would mean 16-1/2% of the total resources of these institutions in stock exchange loans--still well above the 13-1/2% we have assigned to "commercial paper." In any case, it is at least justifiable to contend that loans on stock exchange collateral are as great in volume as commercial loans. I think that they very substantially exceed them. But further, we have another large percentage of bank resources invested in stock exchange securities outright--chiefly in bonds. The aggregate for those investments in the institutions under consideration is 3,250 millions. This is something over 19% of the total assets of these institutions. Combining this with the loans on stock exchange collateral, we get nearly 36% of bank and trust company assets invested, directly or indirectly, in stock exchange securities, as against an assumed 13-1/2% in commercial paper. Conceding that all the "all other loans" are commercial loans, the stock exchange assets still exceed them in the ratio of 36 to 27-1/2. In our second table, we have listed items which aggregate only 12,456 millions of the total resources for these institutions of 16,774 millions. The items listed, however, represent virtually all the credit extended by banks to industry, commerce, agriculture, the stock market, other speculation, and the State. The excluded items of main importance are: Due from other banks and bankers, 2,302 millions; checks and other cash items, 432 millions; and cash on hand, 1,411 millions--the three items aggregating 4,146 millions, which virtually closes the gap. These three items are of immense importance as making for liquidity in banking assets, and as making possible extensions of credit to the business world, but it is not proper to count them when an estimate of the extent of bank-credits is in question. Our second table contains, for the three classes of institutions, all the items properly counted there, except overdrafts (small in amount) and one other big item which does not get into bank statements at all, namely, _overcertifications_ and "_morning loans_." Of this last item, more later. We may, then, recalculate our percentages on the basis of the credit extended by the three classes of institutions, instead of on the basis of total resources. On this basis, the percentages are: Real estate loans, 7.4%; Collateral loans, 30%, of which we assign to stock exchange collateral, 22-1/2%, and to other collateral, 7-1/2%; All other loans, 36.4%, of which we assign to "Commercial paper" 18.2%; Total stocks and bonds, 26%. Adding the percentages for stock exchange collateral loans and for stocks and bonds owned, we get 48-1/2% of all extensions of bank-credit for these three classes of institutions in the form of credits extended to the security market. If everything else except the real estate loans should be counted as "commercial loans" the stock exchange credit would still exceed the commercial credit. If my estimate of 18.2% of bank-credit based on commercial paper is high enough,[529] the banks and trust companies have extended over two and a half times as much credit, at a given time, to the security market as they have to commerce. This on the face of the record. But there is, as above indicated, a further item which does not get into the record, namely, overcertifications and "morning loans." Every day in the great speculative centres, and very especially in Wall Street, enormous advances are made to brokers, which are canceled during the day, but which, during their short life, are a real addition to bank-credit. To attempt to estimate this with any accuracy is hopeless, but the total on any ordinary day is enormous, and most of it is extended in connection with stock market transactions. A final comparison,[530] which will conclude this perhaps too wearisome analysis of these figures, will consider the loans alone, neglecting the securities owned: Of total loans: Real estate loans, 9.3%; Collateral loans, 40.8%, of which we assign to stock exchange collateral, 30.6%, and to other collateral, 10.2%; All other loans, 49.6%, of which we assign to "Commercial paper," 24.8%. The development of bank loans on stock exchange collateral is a remarkable feature of the three or four decades preceding 1909. The following figures, of national bank loans in New York City,[531] illustrate the tendency: (000,000 omitted) _Loans on _Advances on _Date_ Commercial Paper_[532] Securities_ 1886 146 107 1890 151 145 1892 160 183 1894 168 192 1896 151 162 1898 181 260 1900 185 384 1902 210 396 1903 239 391 1904 268 538 The tendency is not peculiar to America, however. The following table gives a classification of the loans and discounts of all the great European banks[533] in selected years from 1875 to 1903: (Figures in francs, 000,000 omitted) _Note _Commercial _Advances on _Date_ Circulation_ Loans_ Securities_ 1875 9,699 4,027 828 1880 10,482 3,384 1,112 1885 11,662 4,050 1,231 1890 13,194 5,192 1,549 1895 15,896 5,328 3,669 1899 14,992 8,352 4,037 1900 15,906 8,514 4,171 1902 16,215 6,939 4,178 1903 16,539 6,147 4,129 We conclude, therefore, that the great bulk of banking credit in the United States, even of "commercial banks," is not commercial credit. Much of it, in the smaller places, especially, represents in fact, whatever the form, long time advances to agriculture and industry. Most of it, in the great cities, and to a large extent in even the smaller places, represents advances to the permanent financing of corporate industry. Excluding real estate loans, more than half of bank-credit represents either ownership of bonds (with some stocks) or else advances on stocks and bonds. Another important part of bank-credit, which I shall not even attempt to measure, is employed in financing commodity speculation. It is worth while to compare our figures concerning bank loans with Kinley's figures, which we have previously considered, for deposits made on March 16 of 1909, the year we have chosen for the bank loans figures. It is important to remember that "deposits," as used by Kinley in this investigation, does not mean what the term means in a bank balance sheet. Kinley's figures relate to the actual items deposited on the day in question, and not to the net balance after deposits and withdrawals have been compared when the bank has closed for the day. A large deposit in the balance sheet sense might show no "deposits" in Kinley's sense, in a given day; while enormous "deposits" in Kinley's sense might be so offset by incoming checks that virtually nothing is left on the balance sheet at the end of the day, for a given depositor. Kinley's figures thus give us a means of getting at the degree of _activity_ of different classes of deposits in the balance sheet sense, and so, indirectly, of different classes of _loans_. Loans and deposits (in the balance sheet sense) are, as we know, closely correlated. This is true for banks in the aggregate, and for banks individually at a moment of time. It is not generally true of a given individual deposit account at a moment of time, but through a period of time, for business deposits, it tends to be true that the items deposited offset the amounts borrowed.[534] If the items deposited are numerous, if the depositor has an "active" deposit account, receiving a large flow of banking funds, as compared with his net deposit balances, we may infer that his loans are also active, that he pays off loans frequently, that his paper, in the assets of the bank, is "liquid." I need not give the details of Kinley's figures again, as they have been elaborately analyzed in connection with the estimate of the "volume of trade."[535] The figures show that retail and wholesale deposits between them make up about 25% of the total deposits. This would serve to show that "commercial paper," which we have allowed to be about 24.8 of total loans, is slightly more active (and hence "liquid") than the average of loans.[536] It will also suggest, however, that our figure for "commercial paper," truly liquid, is too high, since we should expect this kind of paper to be more active than the average--unless, indeed, stock exchange collateral loans are so exceedingly active as to make a tremendously high average. I refrain from trying to get a definite answer on this point, since there are many indeterminate elements: among others, uncertainty as to the extent to which wholesale deposits and retail deposits _include_ all commercial deposits, and uncertainty as to the extent to which they _exclude_ manufacturer's deposits. The great bulk of Kinley's deposits, however, fall into the "all other" class, and the great bulk of the "all other deposits" are located in the great financial and speculative centres, particularly New York. We have concluded that they represent chiefly (a) transactions in securities; (b) other speculation; (c) loan and other financial transactions, particularly the shifting of call loans on stock exchange collateral. It is, then, the deposits of those connected with the great financial and speculative markets, particularly the stock market, whose deposits are most active, and whose loans are most liquid. Stock market collateral loans thus constitute the most perfectly satisfactory sort of bank loan, from the standpoint of liquidity. Though such loans do not make up the bulk of bank loans (we have concluded that they constitute 30.6% of the loans of State and national banks and trust companies in 1909), they do account for the bulk of banking activity, and supply the greatest part of the liquidity of total bank loans. When we consider further the item of securities (chiefly bonds) in banking assets, we find another highly important source of liquidity. The sales of bonds in the great banking centres are enormous. The figures of bond sales on the exchanges do not begin to tell the story. One big bank in New York in 1911 sold more than half as many bonds as were sold in that year on the floor of the Stock Exchange.[537] It has been frequently stated that ten bonds, of those listed on the Exchange are sold over the counter for one on the floor. This is truer of Boston than New York. The "outside market" for unlisted bonds is a very important matter. Dealings among banks in these items and in foreign exchange are exceedingly important. This is especially true of the business of the great private bankers, as Morgan, Kuhn-Loeb and others. Much of this does not appear in Kinley's figures, since neither the deposits of the great private banks in other banks, nor the deposits made in the private banks themselves (so far as New York City is concerned) figure in his totals.[538] Had they been included, the percentage of the "all other deposits" would have grown, and we should have had still more impressive evidence of the fact that modern banking in the United States is largely bound up with the security market, and that modern bank-credit gets its liquidity chiefly from that source. The story is even more impressively told by the figures for bank clearings, which include the transactions between banks, and the transactions of the private bankers. In New York, in 1909, total clearings for the year were 104 billions, as against 62 billions for the whole country outside New York.[539] That bank clearings are closely correlated with stock exchange transactions, has been demonstrated fully by N. J. Silberling, who has shown the following correlations: New York Stock Exchange share sales with New York clearings, r = .718; total clearings for the country with New York share sales, r = .607; total clearings for the country with railway gross receipts (as representative of ordinary trade), r = .356.[540] The active deposits and the liquid loans are chiefly connected with activities in finance and speculation. Now two important practical conclusions are suggested by this analysis. The first is that the complaint of many farmers, merchants, politicians, and even scientific writers that too much money and bank-credit are at the disposal of Wall Street and other speculators rests on a misunderstanding of causal relations. Wall Street does not, by using a large amount of bank-credit, take just that much away from ordinary business. Rather, it increases the amount available for ordinary business! Wall Street, and the other financial and speculative centres, supply the _liquidity_ for bank assets, and so make possible loans on non-liquid paper. Banks do not need to have all their assets liquid. If they did, American banks would have long since gone under! The foregoing discussion of loans to farmers, and manufacturers and even merchants should have made that clear. But banks do need a substantial margin of liquidity, to protect the rest. They get it from stock exchange collateral loans, and from ownership of listed and easily marketable bonds, primarily. They get part of it from true commercial paper. Thus, the director of a country bank in Iowa told the writer that banks in his section--where banks owned in large measure by farmers, and dealing largely with farmers, are very numerous and important--make a regular practice of buying, through brokers, a considerable amount of notes of outside merchants. They do this to protect themselves. Their other loans, to farmers, while good, are slow. If pressed themselves, they cannot press their depositors. These notes bought through note-brokers, however, are impersonal. They can refuse to renew them. They can sell them again. They thus buttress the rest of their assets. They can thus lend more, rather than less, to local customers. They can safely get along with much smaller cash reserves. Similarly with the practice of country banks of sending a large part of their cash to Wall Street banks to be lent on call, for which the country banks get, say, 2% from the Wall Street banks. Their country customers would pay 6% or more for that money in some cases, but the banks dare not tie up more of their assets in non-liquid local paper. They lend more, rather than less, at home, because they send part away. Wall Street is not "draining our commerce of its life blood"![541] Wall Street is rather preventing that life blood from coagulating! A second important practical conclusion relates to the provision in the Federal Reserve Act which forbids Federal Reserve Banks to rediscount stock exchange paper. This provision was intended to keep funds from being diverted from commerce to stock speculation, and doubtless met the approval of many very good students of the subject. If the foregoing be true, however, that provision is a mistake. It is a mistake, first, because it will lessen, rather than increase, the power of the Reserve Banks to provide relief to commerce through aiding in making bank assets liquid _via_ the stock market. It will limit the liquid assets of the Federal Reserve Banks in too great a degree to gold. It is a mistake, in the second place, because it prevents the Reserve Banks, particularly in New York and Boston, from making satisfactory profits--which is one important purpose of a bank! Even more important, however, is the third objection: it prevents, in large degree, the Federal Reserve Banks from being effective weapons against the "Money Trust." How far we have a "Money Trust" need not be here argued. The Pujo Committee, relying in considerable degree on admissions of prominent financiers that "concentration had gone far enough," and on the inability of Mr. Baker to find more than one issue of securities of over $10,000,000 within ten years, without the coöperation or participation of one of the members of a small group, concluded that we have a "Money Trust" in the sense that there is "an established and well-defined identity and community of interests between a few leaders of finance ... which has resulted in a vast and growing concentration of control of money and credit in the hands of a comparatively few men."[542] How far this conclusion is justified is, of course, a matter that would require elaborate discussion. There seems to be evidence that there is, since the death of the elder Morgan, a decided loosening of ties. One feels the need, moreover, of discounting very considerably many of the conclusions of the Pujo Committee. The present writer feels that the case has been made, however, that there has been, and probably continues, a much greater concentration of such control than is desirable. Whether or not there is at present such a "Money Trust," it seems pretty clear that temporary, if not permanent, alignments, may give effective monopoly control when the issue of very big blocks of securities is involved. For present purposes, however, it is enough to note that _if_ there is, or should come to be, a "Money Trust," it is a trust concerned with _financing industry, through handling security issues_, and not a trust _in the granting of ordinary commercial credit._[543] If, therefore, the Federal Reserve Banks are to compete with it, and break its monopoly, they must do it by entering the market with funds for the financing of corporate industry. Power to rediscount commercial paper seems a feeble and hardly relevant weapon against a combination concerned with purchasing securities, and making collateral loans! No doubt, this power is worth something. If an independent investment banker wishes to compete with a "Money Trust" in financing a new enterprise, he can go to his commercial banker, and offer collateral security for a loan; if the commercial banker wishes to aid him, but is short of lending power, he may, if he has plenty of commercial paper available for rediscount, rediscount it with the Federal Reserve Bank, and so get the additional funds. But a New York bank, or trust company, with the bulk of its assets in stock exchange investments, may well not have enough commercial paper eligible for rediscount, and the Federal Reserve Bank could help very much more effectively if it could take collateral loans directly. A fourth, and even more important objection to the restriction on stock exchange collateral loans for Federal Reserve Banks relates to the power of these banks to aid in a crisis. Crises first hit the stock market. Financial panics are most acute there. The need for immediate and drastic relief is greatest there. If stock exchange loans lose their liquidity, what of the rest of bank loans? Power to lend on stock exchange collateral, in the hands of the Federal Reserve Banks, may well prove, in crises, an essential, if we wish to make our system definitely "panic proof."[544] And now for a vital theoretical conclusion from this lengthy analysis of bank loans. For the quantity theory, and the "equation of exchange," all exchanges stand on a par. If one exchange takes place, that lessens the money and credit available for another exchange. The more exchanges there are, the less money and credit there are per exchange, and the lower prices must be, as a consequence. Nothing could be more false. Exchanges are not on a par.[545] Some classes of exchanges increase, rather than decrease the funds available for handling others. The activity of the speculative markets, making loans fluid, enormously increases the lending power of the banks for all purposes. Exchanges of securities, especially, instead of lowering prices, make it easier for prices to rise.[546] The years of extraordinary stock sales have always been "bull" years. There have been big "bear" days,[547] but never big bear years, in the record of New York Stock Exchange share sales. The selling and reselling of speculative goods of securities, and of notes and bills are especially important as making it easier for banks to expand loans. To list all manner of items, as Professor Fisher does,[548] "real estate, commodities, stocks, bonds, mortgages, private notes, time bills of exchange, rented real estate, rented commodities, hired workers," and count them all as "actual sales," all part of the "goods"[549] which make up the "volume of trade," is to put the theory utterly beyond the pale. Seasonal calls on an inelastic money supply for actual cash to move crops and pay agricultural wages may make a real difference in the value of money; scarcity of money of the right denominations for retail trade may give an agio to such money,[550] but the money and credit used by speculators, bill brokers, dealers in foreign exchange, investment bankers, etc., increases, rather than decreases, the funds available for ordinary industry and commerce. I have made clear the distinction between the direct and indirect financing of industry by banks. Great banks in Continental Europe often _buy_ the stocks of new corporations, hold them permanently, put bank officers on the boards of directors, and supervise closely the operations of the companies. In America, while officers of commercial[551] banks often are members of boards of directors of the companies which borrow heavily from the banks, the practice is to make short-time loans to such companies (in form, if not in fact), and to lend on their securities, rather than to buy them. Our banks own securities in enormous amount, but they are chiefly seasoned bonds, rather than stocks of new or even well-proved, enterprises. It is commonly supposed, too, that collateral loans are chiefly or almost wholly made to speculators, who buy securities in the expectation of holding them only till investors take them off their hands, and that investors buy them, not with bank-credit derived from loans, but with money or bank-credit which they accumulate by saving out of current income. It is particularly true of the higher grade securities, which savings banks and insurance companies can buy, that this is the case. The bank-credit thus serves for temporary, rather than for permanent financing, to the extent that this is true. I think, however, that the extent to which bank-credit serves for permanently financing industry is underrated. A good many investors have learned that the short-time money-rates are, on the long time average, lower than the yield on long-time securities.[552] They have learned, too, that high-yield securities--securities high in yield as compared with the long-time average of money-rates--can be obtained which can safely be carried on margins of thirty, forty and fifty points, without danger that even such catastrophes as the slump in security prices at the outbreak of the War will wipe the margins out. The old distinction between investors and speculators, the former those who buy for the yield, and the latter those who buy for an anticipated rise in capital value, no longer corresponds to the distinction between those who buy outright and those who buy on a margin. The investor, buying a 6 or 7% preferred stock, carrying it on a forty point margin, with money from his bank or broker at 4 or 5%, is making 6 or 7% on his own forty dollars, and is making the difference between 6 or 7% and 4 or 5% on the sixty dollars lent him by his banker or broker. He substantially increases his yield thereby, and his risks, if he chooses his stocks carefully, and scatters them among a number of issues, are not great. For the banker or broker, such a loan is perfectly satisfactory. The margin of security is wider than that demanded on more speculative securities. Such a borrower will receive consideration when more speculative loans are being called, or not renewed. The investor of this type is, in effect, engaging in a form of banking business. He is lending to the corporation funds which he has borrowed from others; he has put up his own capital for the same purpose that the bank uses its capital--to supply a margin of safety to those who have taken his short-term promises to pay. Like the bank, too, he converts rights to payments at a later date into rights to payment at an earlier date. He is one of the links in the chain whereby the wealth of low saleability employed in industry becomes distilled and refined till it enters the money market. His profits come in the difference in the yield as between more saleable and less saleable forms of rights. The extent of this practice cannot be stated, so far as any data to which the present writer has access are concerned. The writer has met the practice in a good many cases. One brokerage house, with whose operations the writer has considerable acquaintance, makes a practice of advising its more conservative customers to do this. A good many brokerage houses sell investment securities on the "instalment plan," which often means, in practice, that the initial margin put up by the investor is his only payment, and that the security is gradually paid for by letting the yield increase the margin. During the extremely easy money of the present War period, occasional reference has been made in the financial papers to the practice of buying even the highest grade bonds on this basis--the yield of the bonds being very substantially higher than the money-rates, giving a comfortable profit to those who hold the bonds on a margin. That the practice is not wider spread is due primarily, probably, to the temperamental qualities required. The investor, proper, is commonly a very conservative person, who has an unreasoning distrust of speculation, and to whom the word, "margin," necessarily suggests speculation. That buying a stock on a margin is the same sort of thing as buying the equity in a mortgaged farm, does not occur to him. On the other hand, the man who knows the market well enough to be willing to deal on margins, frequently is not content with the slow process of accumulation which comes from annual yields, and prefers to take larger chances in speculation on capital values. But there is an intermediate class, who buy investment securities, with narrow range of fluctuation in capital values, for the sake of the yield, and who buy them on margins, margins ample to enable them to sleep at night, and to neglect the daily market reports. I think that there are indications that this class is growing larger, and more important. Doubtless much more important than individual "bankers" of this sort, however, is the enormous number of houses dealing in securities, "wholesalers" and "retailers," who find profit on their "wares" even while on their "shelves," through the differential between the yield and the charge made by commercial banks on collateral loans. A very large percentage of collateral loans is made to institutions of this type. As this practice becomes more important, the result must be to widen the money market, to increase the proportion of banking capital that goes permanently into financing industry, and to reduce the difference in yield between short-time paper and long-time securities--in other words, to bring the "money-rates" closer and closer to the long-time interest rates. This would have seemed very strange and weird to Adam Smith. It means, in effect, that the bulk of our banking credit is, directly or indirectly, financing our industry rather than our commerce. Adam Smith thought that a bank could safely lend to its customers only so much as they would otherwise keep by them in the form of money. Perhaps this notion, as growing out of some speculations regarding the general theory of money, should not be taken as the statement of Smith's practical attitude on the matter, but that practical attitude, as clearly expressed in the paragraph[553] following, is that a bank can afford to lend only for mercantile operations that are carried through in a very moderate time, that the bank can afford to supply only the minor part of the circulating capital, and no part of the fixed capital, of a merchant, or manufacturer, no part of his forge and smelting house, etc. Such loans lack the liquidity which the bank must insist upon. Only those persons who have withdrawn from active business, and are content with the income upon their capital, can afford to lend for such purposes. The theory is sound, on the basis of the facts as Smith knew them. But modern corporate organization and modern stock markets have changed all that. Anything that is highly saleable can come into the money market, and the modern corporation organization of business, coupled with organized stock exchanges and a large and active body of speculators, has made the forge and the smelting house as saleable as the finished product. This is not to accept Schumpeter's doctrine,[554] so far as the United States are concerned, that it is primarily the bankers, the manufacturers of bank-credit, who make the decisions that turn industry from old to new lines. They do not, on the whole. In Continental Europe, particularly Germany, they do to a much greater extent. Criticism has been made of our American commercial bankers, as contrasted with German bankers, that the former are parasites, who insist on sure things, and refuse to take chances with other business men in the development of industry. To the present writer, our banking system seems to be rather a more developed system than that of Germany, in that the "division of labor" has gone further with us, and risk-bearing and the manufacturing of bank-credit have been more sharply differentiated. We have bankers enough who are "risk-bearers." But they are, on the whole, "private bankers," "investment bankers," and the like, who do not manufacture a great deal of deposit credit, but rather borrow heavily from the commercial banks, which are the great manufacturers of bank-credit. Under our system, the decisions which divert industry from old to new lines are more democratically made, by speculators and investors under the leadership of private bankers, and sometimes without that leadership. These constitute the important intermediary which transforms stock exchange securities into the basis of bank-loans. The commercial banker buys, in general, not the stocks, but the note of the private banker, broker, speculator, or investor, with the stocks as collateral. If investment bankers, speculators and investors decide to support old ways of doing things, the banks lend on the securities of the old kinds of businesses; if investment bankers, speculators and investors turn to new things, the commercial banks follow suit. Commercial banks can and do discourage certain types of enterprises by refusing loans with their securities as collateral, or by requiring very heavy margins with such loans, but even these may be developed, and are with us on a large scale developed, on banking credit, advanced by the speculators and private bankers who borrowed it from the commercial banks with other securities as collateral. The commercial banks of the United States may to a very considerable degree check dynamic tendencies, but in general, they do not lead and direct them. Bank-credit, directed by others than commercial bankers, does, however, enormously facilitate both the starting of new enterprises and social readjustment to them. How far can the total wealth of the country, agricultural as well as industrial, be brought into the circle of the money market? The full answer to the question would go far beyond the limits of this book. If agriculture can be brought under the control of large corporations, there is little reason for supposing that it, too, might not come in. There are some peculiarities of agriculture, special dangers of drought and flood, dangers of over-production and low prices, wide seasonal fluctuations in conditions, which make it hard to standardize in any case. But mining and even the manufacturing of such things as primary steel products have wide variations in prosperity too. So long, however, as agriculture remains a matter of families on a homestead--and for social and political reasons, we may hope that this will always be the case--it is difficult to bring it in. Bonds of agricultural associations or of agricultural banks have had limited sale on the bourses of Europe. The present writer, for example, found it impossible to find in four great libraries in New York and Boston any quotation of the bonds of the _Bayerische Landwirtschaftsbank_. Apparently, in general, such securities have not high saleability. While this remains true, agriculture may expect to remain under a handicap of higher interest rates than industry and commerce. If, however, all forms of wealth could be made equally saleable, we should find interest rates rising for those loans and securities which now have the highest saleability. They would lose the peculiarity which now enables them to perform a service as bearer of options. Money-rates and long-time rates of interest would tend to come together. Long-time rates on formerly unsaleable loans would fall, and rates on highly saleable loans would rise. The present low rates in the "money market" grow out of _differential_ advantages. We turn now to the third important aspect of the technique of banking, namely, the matter of cash reserves. First I would point out that this is merely a part of the more general problem of liquid assets. The difference between cash and liquid paper is a matter of degree. There is large possibility of substitution of the one for the other, as it becomes more profitable to use one or the other. When money-rates are low, it may well be worth while to carry large reserves; when money-rates are higher, the gains to be made by substituting paper for cash in the bank's assets are much greater. I have pointed out the use which great European banks, notably the Austro-Hungarian Bank, make of foreign bills of exchange as "reserve," selling bills when money is "easy," and the yield on bills is small, buying bills when money is "tight," and the yield on bills is large.[555] The great Joint Stock Banks of England, the chief sources of bank-credit in the great banking country of the world, also make use chiefly of deposits with the Bank of England as their "reserves." Some cash they keep, but it is "till money," rather than reserve. They carry, also, "secondary reserves" in highly liquid paper, stock exchange loans and commercial bills. The differences are differences in degree. The Bank of England does keep a large reserve in cash (including notes of the Issue Department and gold bullion) but it denies that it has any definite ratio in mind,[556] and it protects its reserves, when they are low, not by ceasing to loan, but by raising its discount-rate. The whole thing is highly flexible. This is, in general, true throughout the world,[557] where banking is highly developed. A country which has expanding business, based on rising values of goods and rising capital values of anticipated incomes, which in turn grow out of increasing business confidence, etc., and out of the development of new enterprises which make readjustment necessary, expands its bank-credit to meet the situation. Expanding bank-credits in time grow so large that bankers feel larger cash reserves to be desirable. Their reserves may be also, in some measure, drawn upon by the growing retail trade and wage-payments, which call for more money in circulation. They meet the situation by raising money-rates. This tends to prevent the exportation of gold, and tends to encourage the importation of gold, which finds its way into bank reserves. Banks may even borrow directly from banks in other countries, to get the gold they need, or to prevent the exportation of the gold they have. The higher money-rates, also, tend to check marginal borrowing--the borrowing by those who see only very small profits to be made by the use of the bank-credit they borrow. If the rising values of goods, however, and the profits to be made by effecting exchanges, speculative and other, are large, the volume of bank-credit will, none the less, grow. If the tide of rising business confidence is strong, the banks will be disposed to accept securities and rights as collateral which they would distrust at other times. A very big difference indeed may appear between bank reserves in active times and bank reserves in dull times. The banks need less reserves in proportion to deposits in active times, because the very activity itself increases the liquidity, the saleability, of their paper assets, and so makes actual cash less necessary. Even in this country, the practice of counting deposits in other banks as reserve is well developed. This is not only true of country banks, or banks outside the reserve cities. It has been, in considerable degree, the practice of the big trust companies in New York City. It is the practice of private bankers connected with the stock exchanges, and the practice of brokers, who are, for many purposes, bankers, especially those who allow their customers to check on their accounts. Such houses may carry no cash at all. One, with whose workings the writer is somewhat familiar, makes the rule--"We pay by check and receive only checks." None the less, this house allows its customers to check upon it, and checks drawn on it perform all the functions of checks drawn on banks which keep a cash reserve. Of course, our new Federal Reserve system is built, in part, on the principle of collecting reserves in central reservoirs, and our banks will doubtless increase the practice of counting deposits with other banks as reserve.[558] They will feel the need for less reserves, also, with a wider rediscount market. _Within a given country_, I think that we may safely generalize the doctrine that the causal relation between reserves and deposits is exactly the reverse of that asserted by the quantity theory, within very wide limits indeed. That is to say, increasing reserves are a _result_, and not a _cause_, of increasing loans and deposits. We shall further hold that the relation between them instead of being definite, is highly flexible. This is not to assert that reserves may not increase without a prior increase in loans and deposits. That has happened in the United States during the present War. It does mean, however, that increasing loans and deposits will pull gold into a country, and that increasing reserves do not force increasing deposits and loans.[559] If a country's business is growing, if that business is soundly based, so that expectations are being met, obligations being paid out of the income which arrives, on schedule time, to meet anticipations, there need be no effective check to the amount of gold that will come into the country to serve as reserves, within limits that are rarely reached. It is miscalculation, maladjustment of costs and prices in particular enterprises, failure of "interstitial adjustments," especially failure of particular crucial links in the business chain, as the businesses engaged in producing iron and steel, to respond to the needs of other expanding businesses, that check movements of expansion in business, not inadequacies of bank reserves.[560] As long as only wise plans are made, as long as they meet no mishaps, as long as the carrying out of the new plans does not itself so change the facts on which the calculations of business men have been based as to cut under anticipated profits, so long may business, within a given country, expand without danger from inadequate reserves. Of course, if the whole world is simultaneously expanding, the competition for gold in the international money markets may be so severe that all may be hampered. That reserves will increase, as expanding credit, due to increasing business or rising prices, requires increased reserves, can hardly be disputed, I think, if we look at a country of small size, or (what is the same thing from the angle of economic analysis, so far as the present problem is concerned) if we take a particular part of a country. Seasonal movements of cash for reserves in this country have been obviously determined by the movements of credit, rather than the reverse. Expanding business at crop moving seasons, requiring advances of credit by country banks, and an unusual drain on the cash resources of the country banks, has regularly meant that the country banks draw cash from the New York banks. When the need for such cash in the country banks passes, when they can no longer employ it to advantage at home, they send it back to New York. New York, to meet the emergency caused by the withdrawal of cash, draws to a considerable extent on Europe for gold. It is not as easy for New York to get gold quickly from Europe as it is for France to get gold in an emergency from England. More time is required. Inelasticity, too, in the forms of currency most needed for small transactions, has made very real difficulties for us. But that, within the country, the sections whose business and credit were expanding take cash reserves from those sections where credit is less urgently demanded, needs no debating. This is seasonal. But the same thing is true in the long run. As business and bank-credit have expanded, year by year, in Oklahoma, Oklahoma's cash reserves have grown. Bank-credit in a country cannot go on indefinitely mounting, if bankers are making unsound loans, if the values on which the loans rest are based on vain imaginings, if anticipated profits are not realized. But if a country have rich resources and intelligent entrepreneurs, with sagacious bankers who can discriminate between sound and unsound business, it may, within very wide limits indeed, expand its bank-credit without check from inadequate reserves, as its business expands, and as prices, particularly prices of lands and securities, rise.[561] If the country in question be a very large country, however,--large in the sense that its business and volume of bank-credit are very large, and particularly in the sense that bankers' assets are of such character that a large volume of reserves is desirable--restraints on the process of expansion may come. Reserves will come in, but the resistance in stiffer money-rates will be felt. Bankers in other countries will compete with the bankers in the country in question for reserves. Rising money-rates will put an end to many marginal exchanges. They will lessen the saleability of many rights which might otherwise be available as banking collateral. The extension of bank-credit will feel a drag. There is large flexibility here. But, in a long run period of many years, the volume of gold in the world will impose a maximum limit upon the possibility of expansion of bank-credit in the world as a whole. This limit is doubtless never reached. Within the limit, the variations in the volume of the world's credit are primarily determined by the other concrete factors we have been discussing. Proportionality between the world's gold and the world's volume of credit does not at all obtain. Under certain conditions, much higher proportions of reserves to bank-credit will be found in a given country than at other times, and the same will be true in the world at large. I would refer again to the discussion by J. M. Keynes, quoted in Part II.[562] Reserves have absorbed enormous quantities of gold, easily obtained as a consequence of abundant gold production, in the past fifteen years. Proportions of gold reserves to bank-credit have grown. In the preceding period, when gold production went on less rapidly than business development, percentages of reserves were lower. Most bankers feel better with large reserves. When they can get gold, they prefer gold to other substitutes. When they cannot easily get gold, they use other substitutes, of the various kinds of paper, particularly, which have been described. Gold differs from other things, in bankers' assets, in degree, rather than in kind. Instead, therefore, of the law of the proportionality of reserves to volume of bank-credit, I venture the generalization[563] that, as gold production increases rapidly, the tendency is for the proportion of gold reserves to volume of bank-credit to rise; with diminished gold production, the tendency is for the proportion of reserves to fall, assuming that the factors other than volume of gold production which make for expansion of business maintain themselves. Increasing volume of gold tends to increase the volume of trade. But there are other causes for the increase or decrease of trade as well. These causes, working in harmony with rapidly expanding volume of gold, lead to a very rapid growth of trade.[564] Working in the face of a drag from less rapidly growing gold supply, they strain the possibilities of bank-credit expansion. Various substitutes for gold in bank reserves are employed. Substitutes in the form of other forms of credit are employed. Barter is resorted to increasingly. Methods of employing other things than gold in the retail trade of a country are resorted to. "Gold-exchange" standards are devised. Countries "wait their turns " to come on the gold standard. Coöperation, not only within countries, but among countries, seeks to economize the scanty stock of the precious metal. Very large slack is thus revealed. But the expansion of business is checked, the volume of business confidence is reduced, the values of future incomes in enterprises is lowered, production is checked, and prices are reduced, (a) because the value of money rises; and (b) because the values of goods and income-bearers is reduced. The exchange side of production is hampered. Substitutes for gold, through increased activities of bankers and other agents of exchange, are costly. Greater tolls on values are taken by those who handle the mechanism of exchange. It does make a difference whether or not the world's gold is abundant! But the difference is not made solely, or even mainly, in the price-level.[565] The reserve function of money is essentially a _dynamic_ function. The reserve function is merely a phase of the bearer of options function.[566] It is the practice of quantity theorists to speak of "normal" ratios between reserves and deposits (or reserves and demand liabilities), and to speak of the "static" laws governing this relation. This in true of Kemmerer, of Fisher, of A. P. Andrew, and, in general, of contemporary quantity theorists. Kemmerer very explicitly puts it as a matter of static theory, "If we divide the money of the country into two parts; one, that used directly in daily cash transactions, and the other, that kept in banks as reserves, it may be said that, _under perfectly static conditions_ [italics mine], the proportion of the total represented by each of these parts would be constant. Each banker would find from experience what proportion of reserve to liabilities it was advisable for him to maintain, and would order his business, as far as possible, so that his reserve would neither exceed nor fall below that most desirable proportion."[567] Kemmerer quotes the following passage from A. P. Andrew: "In the long run, _as apart from cyclic oscillations_, the quantity of bank-credit is governed by the quantity of money."[568] Fisher's view we have considered at length in Part II. It is essentially the same. He is working with the statics of the problem of money and credit. These different writers differ greatly in the extent to which they would insist on the validity of their static tendency in real life. Professor Fisher, as we have seen, is exceedingly uncompromising, holding tenaciously to his principle as subject only to slight modification during transition periods. Professor Kemmerer, in the chapter from which the quotation just given is taken, gives an important realistic analysis of dynamic conditions and makes liberal concessions to the view that the ratio is no constant in real life.[569] Professor Taussig, whose view was summarized at length in chapter IX, finds, in real life, so many exceptions to the doctrine of proportionality of reserves and deposits that he virtually abandons that doctrine. What I wish to insist on here, however, is that there are no static laws _possible_ in this connection. The reserve function is a dynamic function. The theory of reserves must rest in an analysis of friction, of transitions, of dynamic uncertainty and dynamic change. It is a part of the general theory of liquidity of bank assets, of saleability of rights, and the like. If one can find a "normal" amount of dynamic change, a "normal" amount of uncertainty, a norm for the coming of technical inventions, a normal prospect of war, a normal rate of gold production, a normal rate of growth for population, a normal amount of Jew-baiting in Russia, with a norm for migration, and if one can hold these norms, and a multitude of similar norms, in fixed relation to one another, one might have justification for speaking of a "normal ratio" of bank reserves to bank demand liabilities! Apart from dynamic changes, from frictional elements which create uncertainties, in general, apart from uncertainty and irregularity and lack of "normality," there would be no occasion for bank reserves at all! To the extent that static conditions are realized, bank cash reserves may be, and _are_, dispensed with. It is well known that England gets along with surprisingly little gold. The total stock in the country has been smaller than the gold reserve of the Banque de France, and much of the gold in England was in use among the people, since small paper money (before the War) was not in use in England. The gold reserve of the Bank of England has been usually only a fraction of that of the Banque de France. Some years since, the distribution of gold as between England and the United States, was, roughly, England six hundred million dollars, the United States, one billion, six hundred million. A larger proportion of gold was in reserves in the United States than in England. Yet England was doing the banking business of the world, while we had trouble in doing our own! The Bank of England carries virtually the only reserve in the country. The Joint Stock Banks, with demand liabilities vastly in excess of the demand liabilities of the Bank of England, carry only "till money" in cash or Bank of England notes, and for the rest, carry as their "reserve" their deposit credits with the Bank. A great deal of criticism, from Bagehot down (to go no further back) has been directed at the "inadequacy" of English banking reserves, and many dire predictions have been made as to the dangers that impended unless the reserves were increased. We shall probably hear less of this after the War! The Bank of England still stands! It has never failed to pay out gold over its counters, even though it has, with the aid of the government, doubtless restricted and controlled foreign shipments of gold. But it has met the unprecedented emergency better than any other bank in Europe, and to-day (Sept. 1916) is in exceedingly good shape. Sterling exchange at New York seems "pegged" at the "lower gold point," and apprehensions regarding the stability of the English financial system seem definitely allayed. It is aside from our present purpose to discuss war time conditions. I am rather interested in analyzing the features of the English money market which have made it possible, in the period preceding the War, for English bankers to get on with so little gold. As will appear, it is because English business and financial affairs have been more nearly "static," have come nearer to realizing the assumptions of static economic theory, than is true of any other country on earth. The very fact, for one thing, that England is the great _international_ banker has meant a scattering of risks. Acute panics do not come in all countries on the same date. Bad business in one country may be offset by good business in another; drains of gold to one country may be met with gold flowing in from others. The same considerations which tend to stabilize the railroad business, as compared with, say, cotton-growing, apply to the international banker as compared with the banks of a single country or section. But further, the London market has developed coöperating agencies for smoothing out friction and eliminating uncertainties to a degree unknown anywhere else. An anonymous writer in _The Americas_ for April, 1916,[570] has given an exceedingly interesting account of this organization of the London market,--the product of the development of generations. Let us enumerate some of the points: There is nowhere in the world so much expert judgment in the grading and evaluating of hundreds of commodities from all parts of the world. There is, coupled with this, a worldwide reputation for the experts of absolute integrity, so that producers in remote countries regularly ship ("consign") to London cargoes without definite arrangements, knowing that there are in London organized facilities by which the commodities are warehoused, expertly and fairly judged, and either sold at once or else made the basis of a collateral loan against which they can draw immediately. The institutions which make this possible are (a) the system of warehousing, with its certificates or warrants which give absolute title to the goods, and which are easily negotiable; (b) the organized arrangements in connection with the warehouses by which commodities are received and either graded as they are, or separated and mixed with others to form standard blends readily marketable--this with rigid integrity and expertness which the whole world trusts; (c) a speculative community which has unlimited banking credit, ready to buy at a concession in price virtually any commodity--honey in the comb, sealing wax, pianos, farm machinery, what not; (d) the organized markets or periodical auctions which speculation and final purchase together support; (e) the banks, which, relying on the standardization of the commodities and the readiness of the speculative community, can without hesitation lend the money on which the distant shipper is relying to conduct his business. What comes to London is fluid. Everything comes to London! The multiplicity of items dealt in gives stability to that business which deals with all--the banking business. The London Stock Exchange is no provincial affair, easily demoralized by an adverse rate decision! Securities of every country on earth are listed there, and speculated in. It must be a world catastrophe which really demoralizes the London stock market! It will doubtless seem strange to many to say that New York cannot displace London as the centre of world finance, that the dollar cannot displace the pound sterling in financing international trade, because New Yorkers do not speculate enough! They do speculate enormously, but not in many things. A restricted list of stock exchange securities--almost wholly American; cotton--in which New York is the world centre; coffee, in which New York has the largest volume of speculative futures, though yielding precedence, ordinarily, to Havre, Hamburg and Santos[571] in spot transactions. There is extensive sugar speculation at the New York Coffee Exchange, which has, indeed, recently changed its name to indicate the fact. There is a produce exchange in New York, but it is a very small affair as compared with the Chicago Board of Trade, and its operations and scope are infinitesimal when compared with the produce speculation in London. Of course, there is a vast deal of _unorganized_ speculation in many things in New York, as in business everywhere, particularly in America. But, while the pecuniary magnitudes of organized speculation in New York are very great, the range of items dealt in is restricted. New York banks cannot possibly get such a variety of collateral, based on standardized and readily marketable goods and securities, as can London. New York, consequently, cannot finance international trade, save as an auxiliary to London--and New York banks must have vastly more gold in their vaults than London bankers need! As goods and securities become _more_ marketable, gold--whose services are needed because of its _superior_ marketability--becomes _less_ necessary. The whole story of London's organization would be a long one. London financial institutions have a degree of expertness, growing out of specialization, in large part, which makes all manner of paper fluid in the London money market which would lack fluidity in New York. The Acceptance Houses are a sort of international Bradstreet and Dun. They know intimately the standing and business of houses all over the world. They do not give out their information, but they do put their stamp on the paper of business houses, thus standardizing it, lending, not money, but "pure credit," while the other banks, relieved of the necessity of investigating the paper, can buy it as a miller might buy No. 1 wheat. There is the extraordinary extension of insurance, so that virtually any kind of risk may be shifted to those well able to bear it. All this makes for liquidity, for "static" conditions in the money market, and dispenses with the need for gold. As we approach static conditions, we need less and less gold reserve behind bank demand liabilities. _The static law of bank reserves is that none are needed!_ I think we have here the real reason why writers who have sought to give us the law for a "normal" ratio have given us such vague phrases as "shown by experience to be necessary," and the like. When irregularity of income and outgo in a bank's business, non-liquid assets, business cycles, uncertainties, legislative changes affecting business, crop failures, changes in demand, new inventions, wars, are abstracted from, no reason can be given why a banker should keep any reserve at all! But these things are dynamic things. And it is characteristic of irregularities that they are irregular. To get a "normal" ratio out of them is not easy. On the static assumptions, an "ideal credit economy" is perfectly possible. If everything that needs to be marketed is perfectly marketable, if the stream of business flows regularly and without friction in the same channels, if all contingencies are foreseen and dated in advance, a bank needs no cash reserve. All payments can be made by bank-credit. Banks bookkeeping becomes merely a refinement of barter, with _money_ remaining as a measure of values, a unit for reckoning, but not being used as a medium of exchange, or as a bearer of options, or in reserves. The measure of values function is the great static function of money. To the extent that static assumptions are not realized, we need money in bank reserves. This extent is a thing that varies from time to time, and from place to place. It is not the same for a given place from time to time, nor is it the same at all places at a given time. It is not the same for the whole world from time to time. Since friction, preventing the free marketing of goods and securities and services, exists, since there are dynamic changes which require readjustments through exchanges, we need the work of the banker and he needs cash. But there are other things than money which make for the "statification" of the market. The speculator does it. And the other agencies of the sort represented in the London market do it. They are substitutes for gold. Gold has no monopoly. The services performed by gold can be performed in many other ways, and by many other agencies. There is enormous flexibility in the matter. PART IV. THE RECONCILIATION OF STATICS AND DYNAMICS CHAPTER XXV THE RECONCILIATION OF STATICS AND DYNAMICS In the foregoing discussion of the value of money it has appeared that the value of money is not an isolated problem! Not only have we found it necessary to consider it as part of the general theory of value, but it has been advisable to bring it into relation with a large number of the special theorems of economics, including the law of supply and demand, cost of production, the capitalization theory, the doctrine of appreciation and interest, the theory of international gold movements, Gresham's Law, the theory of elastic bank-credit, and the general theory of prosperity. The book has thus become a book on general economic theory, viewed from the standpoint of the theory of money. It has been as contributing to the problem of the value of money that these other doctrines have been discussed, but I trust that they, too, have gained something of clarification from being considered in this relation, and that the emphasis on the rôle of money in general economic theory has helped in bringing the various elements in our current theory into a closer-knit interdependence. The present chapter seeks to carry the conclusions so far reached toward a further unification of economic doctrine, by finding for certain contrasts, like that between statics and dynamics, a higher synthesis, so that it may be possible for students of dynamics and students of statics to speak a common language, to use common measures, to find that their phenomena are not, after all, of essentially different nature, and to come to agreement as to the relative importance of "static" and "dynamic" tendencies. It will appear that the theory of money and exchange plays an important rôle in effecting that higher synthesis, and is itself clarified by it. The "theory of goods vs. the theory of prosperity," "statics vs. dynamics," "normal vs. transitional tendencies," "long run vs. short run" laws, "market vs. normal price," "abstract theory vs. concrete description," "historical or evolutionary study vs. cross-section analysis," "temporal vs. logical priority," "causation as a temporal sequence vs. causation as timeless logical relationships"--these, and similar contrasts have appeared frequently in the history of social thought, and have been especially refined and elaborated in the history of economics. We have even compounding of the notions into more complicated distinctions, as by Seligman,[572] in his two statements of the law of costs: in the short run, normal price tends to be the maximum cost of production; in the long run, normal price tends to be minimum cost of production. Seligman has illustrated his notion by an adaptation of the familiar figure of the sea-level and the waves: for short-run purposes, we may contrast the surface waves, the market prices, with the sea-level, the normal price; for longer run purposes we may see the level of the sea itself changing, under the influence of the tide, and may have a dynamic normal, which is still to be distinguished from the fluctuations due to the play of winds on the surface. We have further an increasing recognition of the up and down play of forces accelerating and retarding the processes of industry and trade. For earlier writers, panics and crises were anomalies; since Mill's _Principles of Economics_, to go back no further, we have had increasing recognition of such occurrences as more or less periodic and inevitable, bound up in the very nature of economic life itself, and of late there has been a fairly general acceptance of the notion of the business cycle, of an alternating rhythm of prosperity and depression. The explanation of this alternation has been attempted by numerous theories, one of which, that of Joseph Schumpeter,[573] rests the whole case definitely in the distinction between static and dynamic tendencies, and in the conflict between the opposing sets of forces which statics and dynamics undertake to describe. We are told by the orthodox economist that war is wasteful, destroying laborers and goods, and lessening the wealth and productive power of society. We are told that it diverts labor from productive employments, that it turns huge masses of capital and labor to the production of goods which men cannot enjoy, that it burdens the people with taxes, etc. Static theory can see nothing but evil in war, from the standpoint of minimizing human sacrifices, and maximizing human enjoyments. None the less we see many war periods--notably that of our Spanish-American War, and the present World War, so far as the United States are concerned--periods of marked prosperity, growing out of the new expenditures which war itself involves. Mules and other farm products rose in price with the Spanish-American War, as the Federal Government bought them for the army; various factories concerned particularly with war munitions increased their activity, the gains of factory owners and farmers led them to increase their purchases, wages rose, and rose in part because part of the labor force was in the army. The Civil War did spell demoralization and economic ruin for the South, but for the North it gave a great dynamic impetus to trade, transportation and industry--an impetus, strangely enough, that was so great that the new industries and enterprises which had grown up were able to absorb with little shock the million men set free from the Northern armies when the great struggle was over.[574] For static theory, scarcity is an evil. A general overproduction is impossible. For the practical business man, confronted with the momentous problem of marketing his output, overproduction is a vital reality, and there are few times indeed when much more could not be produced if only a satisfactory market could be found for it. Static theory would see the whole explanation of this in maladjustment, too much of some things being produced, too little of others. This simple statement does explain much of the phenomenon, but it is far from telling the whole story, and even if it were a complete explanation, it would by no means dispose of the reality of overproduction as a constant menace, even when not a dire reality, facing almost every business man. Static theory at best tells what a completed adjustment would be; it does not touch the problem of how adjustment is brought about, and maladjustment overcome. Yet just that problem is the vital concern of the business man. For static theory, high or low prices are matters of no concern. And abundance or scarcity of money and credit make no real difference in the economic process. Abundant money and credit exhaust themselves in raising prices, and the rest of economic life goes on unchanged. This doctrine of the quantity theory is, as I have undertaken to show in Part II, bad even as a matter of static theory. But it is only as a matter of static theory that it is even thinkable. The economic theory of the 19th Century, following the lead of Adam Smith and Ricardo, has been accustomed to dismiss as utter folly the notions of the Mercantilists as to the balance of trade, and the importance of an inflow of gold, and has conclusively proved that protective tariffs tend to divert the labor, capital and land of a country from those lines of production they are best adapted to to lines for which they are less well suited. Critics have pointed out, as in the "infant industries" argument, that we cannot treat the labor capacity and technical knowledge of a country as constants, that the temporary encouragement of one line of industry by a tariff may so modify the data of the situation that the country may in time become better adapted to the protected industry than to other lines. And I think that we may well go further, and make substantial concessions to the doctrines of the Mercantilists as they themselves stated them, seeing in a favorable balance of trade, and in expanding exports and diminishing imports sources of impetus which are not subsequently neutralized by the static process of equilibration. I do not conclude from this that protective tariffs are commendable, any more than I conclude that war is commendable. Both may give dynamic impetus, and lead to economic development. Both may lead to political corruption, to iniquities in the distribution of wealth, to waste and suffering of various kinds, in which honest and patriotic men suffer, and cunning and unworthy men gain. The point here is simply that static theory does not tell the whole story regarding either tariffs or wars. It may well be true--I think it is true--that static theory offers the more important principles for judging the results of wars and tariffs.[575] It is the central problem which I have set myself at the outset of this discussion to find a way to bring static and dynamic considerations _under a common measure_, to reduce them to homogeneity so that comparisons may be instituted, and so that the student of statics and the student of dynamics need not talk merely at cross-purposes. But we do not achieve this result by ignoring considerations in either sphere. Bastiat, with a fine show of logic, has sought to rule out of court the doctrines that extravagance and tariffs, etc., are sources of prosperity by his emphasis on the "Unseen," as opposed to the "Seen." The prosperity growing out of the extravagant expenditures of one brother is open to all eyes. The consequences of the savings of the frugal brother men do not see so easily, and do not attribute to his frugality. Doubtless Bastiat is right in his main theses. But one point needs emphasis: that which is "Seen" stirs the imagination of men. And imagination energizes human activity. The motivation of economic life is a psychological matter. And so at a host of points the contrast may be drawn, in one or another form. The pure, abstract, static theory gives one conclusion; the other approach suggests one different.[576] How is it possible to give proper weight to considerations drawn from such divergent spheres of thought? Indeed, how shall we weigh the dynamic considerations at all? Static theory presents itself in quasi-mathematical form. At times, it parades itself in equations, and it readily enough, without arousing a feeling of incongruity, expresses itself in mathematical curves, with ordinates and abscissæ. One static tendency finds itself in marginal equilibrium with another, and the margin is expressed in quantitative units, commonly sums of money. Static doctrine does, indeed, lay claim to precision and exactness, and static tendencies may be weighed against one another. But how shall one undertake to give quantitative measure to such a thing as the educational influence of a tariff on silk manufacture? How measure the dynamic impetus of a new chain of banks on the industry and trade of the region affected? How gauge the importance of a new advertising scheme, or a new invention? Dynamic considerations are commonly presented in vaguer, looser form than static theories. Usually we have merely a statement of a qualitative tendency, without effort to make the importance of the tendency quantitative. Indeed, I think it safe to say that one chief difference between statics and dynamics is that those tendencies which can be most easily formulated have been recognized by statics, while those which are less understood, and less precisely formulated, are left to dynamics! A big part of the difference is methodological, rather than inherent in the nature of the phenomena themselves. I think that it needs little argument to show that all the contrasts listed at the beginning of this chapter do not run on all fours. Compare, let us say, the contrast between "statics and dynamics" with that between "historical and cross-section" study. Concrete, realistic history is not dynamic theory. A realistic description of society viewed at a given short period of time is not static theory. Both statics and dynamics are _abstract_. _Laws_ are not the same thing as description and narration. The assertions of both statics and dynamics are commonly made on the assumption, "_cæteris paribus_." A new bank will stimulate business in a western town if bank-robberies do not come into fashion! A tariff on wool will tend to educate the farmers in sheep-raising if the habit of relying on governmental assistance does not develop, and make them more, rather than less, inert,--or sharpen their political rather than their economic acumen. Concrete history need not always verify dynamic laws![577] It is, above all, important to insist that the distinction between statics and dynamics is not the same as the distinction between theory and description, or between the abstract and the concrete. Evolutionary study may result either in concrete history, or generalized laws; cross-section study may be either concrete description or abstract formulæ concerning forces in equilibrium. And there may be varying degrees of abstractness in both cases. The contrast between long-run and short-run tendencies is not necessarily the same as that between statics and dynamics. This former distinction does recognize one factor which is sometimes classed as "dynamic," namely, "friction."--"Friction," by the way, is a blanket term which covers a multitude of sins of imperfect analysis and lazy thinking! It is far from a simple, unitary thing. Sometimes it seems to mean the action of the whole social order, other than the economic values!--But dynamic, as used by the two writers who have used the term most precisely, J. B. Clark[578] and J. Schumpeter,[579] is reserved for those factors in economic life which make for constructive _change_. Neither writer would call mere habit and inertia, which make readjustments slow, or the necessities of physical nature, which retard readjustment, by the name, "dynamic." It may be noted, in passing, that both writers limit the term quite strictly to changes _in_ economic life growing _out of_[580] economic causes. Schumpeter narrows the dynamic factors to one, namely, _enterprise_, while Clark gives five general classes of dynamic factors, all of which are primarily economic in character. Neither extends his study to cover forces which are not primarily economic in character, but which none the less lead to economic changes. Again, the "theory of prosperity" is not identical with "economic dynamics," though the two in large measure overlap. For one thing, while some writers, as Schumpeter, find the business cycle to be a necessary consequence of dynamic changes, and would maintain that no business cycle, no up and down of tempo in production, no panics or crises, are necessary if changed methods of industry, etc., did not come in, not all writers would so explain the business cycle. Some writers would find the explanation in the inherent instability of a money and credit economy, some in the inherent weakness of a capitalistic system, quite apart from necessary dynamic change. Irving Fisher makes no use of changed methods of production in his explanation of business cycles, though he does mention invention as one possible cause of a disturbance in normal equilibrium.[581] But further, dynamics is largely concerned with problems, like invention, changes in the economic habits of a people, methods of organizing industry, etc., which, while they may well bear on the problems of prosperity and depression, yet have interest for their own sake, and would be studied if there were no business cycles. Further, the notion of statics, the other term in the static-dynamic contrast, is not identical with the "theory of wealth," or "theory of goods," or "theory of the wealth of nations" which such a writer as Veblen[582] would put in contrast with his "theory of prosperity." There is a normative, or practical, and polemical coloring in the body of doctrine growing out of Adam Smith, which Veblen would term, the "theory of the wealth of nations," which is lacking in the more colorless "statics" of to-day. I do not find any of the contrasts thus far discussed quite satisfactory. I have been using the terms, statics and dynamics, as general terms to cover all these contrasts. I shall try to formulate a general contrast which includes most of the ideas passed in review, from a somewhat different angle, and then try to show that the contrast, while useful, is not absolute, and that it is possible to measure considerations drawn from one viewpoint in terms of considerations drawn from the other. Let us take as our starting point the notion of a cross-section picture of society. I have set forth this notion in ch. 13 of my _Social Value_, and have elaborated it in the discussion of von Mises' theory in the chapter on "Marginal Utility" in this book. A cross-section picture may be made more or less concrete and descriptive, or abstract and analytical. If one looks at the picture of society in cross-section as given by Giddings in his _Principles of Sociology_ (Bk. II, chapters on "The Social Population," "The Social Mind," "The Social Composition," and "The Social Constitution"), one finds a picture in which organization and system are made clear, but in which vivid description of concrete social facts is the primary concern. The account given is largely qualitative rather than quantitative. It is a picture of flesh and blood, as well as an account of functioning. It is, perhaps, not easy to realize that Giddings is doing the same general sort of thing that the pure economic theorist is doing, with his picture of a static equilibrium of economic values. But what economic theory is concerned with is, after all, to be found in Giddings' scheme. The pure theorist takes for granted the physiographic environment, whose influence Giddings takes into account. The theorist abstracts from biological and racial factors. He assumes a social population, a social order, a political system. He has not taken into his purview the social mind as a whole, in his static theory. Rather, he has been concerned with only one part of the social mind, namely, the economic values. Economic values, and the objects of economic value, have been the data of the static theorist. Given scales of economic value, such that for one quantity of goods of a given kind, a given value per unit will obtain, given all of these value-scales, and given the quantities of goods and services whose values are in question, and static theory will furnish an equilibrium picture, in which the price relations of different kinds of goods are made clear, and their values are measured. The value-scales, and the absolute magnitudes of value at different points on the scale, are assumed, are data. Further, in order that the notions may be made mathematically precise, a unit of value is needed, and this is commonly the value of the money-unit, which is assumed to be constant. The picture then becomes systematic. There is a system of values, expressed in prices, which is stable, so long as the data do not change. It is mechanically conceived, and illustrated by various mechanical symbols, as balls in a bowl, or connecting reservoirs, or, best of all, by intersecting curves. It is an abstraction from the living, pulsing, organic whole of the social mind--the inter-mental life of men in society. It squeezes much of the life out of the phenomena it describes. It makes them exact, only by making them mechanical. It thus becomes exact by becoming, in considerable degree, superficial and abstract.[583] This is not to condemn static theory. Static theory has proved its usefulness by solving too many problems for such a statement of its limitations to involve a condemnation. But the statement of its limitations will aid us in seeing its relation to that vaguer body of doctrine which we call dynamics, or the theory of prosperity, etc. Now this means that static theory is not _value_ theory. It assumes a theory of value. It assumes the value-scales as data. It assumes the value of money as a datum. Static theories of supply and demand, cost of production, capitalization, etc., assume the value of money, as has been shown in Part I, and static theory, resting in the notion of accomplished transition, normal equilibrium, abstracting from the difficulties of readjustment, abstracting from friction, etc., misses the whole point as to the functions of money, as shown in Part II. Static theory proceeds by assuming a change in one of the elements of its situation, say one of the value-scales, and then tells what the new equilibrium will be after readjustment takes place, assuming that other value-scales remain constant, and that quantities of the objects of value do not change. Or, it assumes a change in the quantity of one of the objects of value, and then predicts the new equilibrium. The new equilibrium will often involve changed values and prices all around, and will often involve altered quantities of other objects of value. But the initial change comes from an alteration _from outside_ the system in one or more of the data of the system.[584] Now dynamics, theory of prosperity, etc., are concerned with the causes of changes in the data with which statics works, in large measure. Among the problems with which statics has not adequately dealt, and in large measure cannot deal, are (1) the nature of value itself, and the laws governing changes in the value-scales; (2) the problems of readjustment, including the problems of money, credit and exchange; (3) the psychology of invention, of enterprise, and the like. (4) The reactions of economic values and economic organization on the non-economic phases of social life. (5) The reaction of the non-economic factors, as law, morals, art, religion, etc., on economic life. (6) The problem of prosperity and depression. I say that statics has not dealt adequately with these problems. Statics in its present narrow form cannot deal with them. But in considerable degree, I am convinced, statics can be made to deal more adequately with them, if its scope be broadened, and its limitations be made less rigid. Schematically, at least, the central ideas of statics can be applied to a large part of these problems. I may add that my list of six classes of problems with which statics has not adequately dealt is not meant as a system of categories. The list is incomplete, and the classes are not mutually exclusive. Rather, they overlap in large measure. In a large way, it might be said that statics is concerned with the laws of the equilibration of values, and that dynamics, theory of prosperity, etc., are concerned with the nature and causes of variations in the values themselves. The contrast may be put, in general, as the contrast between the _theory of value_, and the _theory of price_, statics being price-theory, and dynamics being value-theory. But this is a thesis which calls for much elaboration and qualification before its significance is made clear, to say nothing of its justification being established. * * * * * We may approach the problem of bringing the two terms of the contrast together from either of two angles: (1) we may show that dynamic factors tend, in large degree, to submit themselves to measurement in terms of money-prices, which obey the laws of static marginal equilibrium. (2) We may show that all static prices presuppose values whose explanation is in terms of the same phenomena with which dynamics, the theory of prosperity, etc., have busied themselves, namely, considerations drawn from the study of social psychology, including the psychology of suggestion, imitation, mob-mind, the functional organization of minds into a social mind, social beliefs, social values of other than economic nature, and social institutions. (1) The evidence on the first point is already in considerable measure worked out, particularly by Veblen, in his _Theory of Business Enterprise_, and in his other writings on the nature of capital, etc. Something more in this direction I have done in my _Social Value_, and other writers have elaborated the notion. (2) The case for the second contention has been made in detail in my _Social Value_, and in what follows I shall rely chiefly on the discussion presented there, and in the chapter on "Value" in this book. I take up first the thesis that dynamic factors may come under the static measure. Veblen has made much of the contention that modern "capital" is not, as Smith thought, and as orthodox economists in general have contended, a matter of physical accumulations of goods. The volume of business capital is a pecuniary concept, and may wax and wane with little variation in the physical stocks. "Under modern conditions the magnitude of the business capital and its mutations from day to day are in great measure a question of folk psychology rather than of material fact." (_Theory of Business Enterprise_, p. 149.) And in large measure Veblen's work is given to showing how factors of legal and social psychological nature get a money-measure. The actual capital of a business enterprise does not rest chiefly on the physical equipment, stocks of raw materials, etc., etc., which it possesses. To be added is "good will," and this includes (p. 139) established customary business relations, reputation for fair dealing, franchises, privileges, trade-marks, brands, patent rights, copyrights, exclusive use of processes guarded by law or secrecy, exclusive control of particular sources of materials, etc. Veblen contrasts things of this nature sharply with the concrete equipment, saying that the former are serviceable only to the owners, while the latter are serviceable to the community at large as well. The physical, tangible, and ethically commendable character of the physical equipment is everywhere stressed, while the pathological, anomolous, and sinister character of the less tangible and more recent "capital items" is always set before us--all the more effectively because Veblen maintains a satirical attitude of moral indifference, and presents the case with Olympian aloofness. I am not here concerned with the social welfare aspect of the matter, though I shall later speak of that. My present purpose is to make clear two points in Veblen's doctrine: (1) that he does bring these intangible things, which are the variables involved in his theory of prosperity, under the price measure; and (2) that he considers these prices as anomalies from the standpoint of the general laws governing the values and prices of concrete goods. To this last point I shall later take sharp exception. For the present, I wish to develop further the extent to which such factors may be brought under the general static measure. The feature of static theory which Veblen chiefly employs in giving a money-measure to his "intangible capital" is the capitalization theory.[585] The capital magnitude of the items of good will previously mentioned is a capitalization of the _income_ which they are expected to bring in. And it may be said that a large part of Veblen's doctrine of the causes of the ups and downs of business rests on the complaint that this capitalization process is not rationally carried through--that incomes are overestimated, and that business men are tenacious of capital magnitudes once built up, and refuse to mark them down properly when the facts in the situation have changed. His theory of prosperity thus rests on non-rational enthusiasm on the one hand, and a certain kind of "friction" on the other hand, and apparently the difficulties in the situation as he sees it would largely disappear if these two elements could be rationalized, and the static theory work more perfectly. The elements involved in the capitalization theory, as shown in the chapter on that topic, are three: the anticipated income, the prevailing rate of discount, and the capital value, the last named being the child of the first two. The capital magnitude is a shadow, where the income is the substance. Veblen seems to find the trouble arising in that the capital magnitude takes on a substantial character, and refuses to play the passive rôle of shadow. It is interesting, in passing, to compare this theory of Veblen's with the theory of crises developed by Irving Fisher, from the standpoint of a body of doctrine which is purely static, and which Veblen has criticised as "taxonomic" in a high degree. For Fisher[586] the trouble arises from friction in connection with another element in the capitalization problem, namely, the interest rate. Business men think that "a dollar's a dollar," and refuse to let the interest rate be marked up in accordance with the doctrine of "appreciation and interest." This, likewise, leads to overcapitalization, leaves the passive shadow too big. I must confess that it seems to me that one theory is about as "taxonomic" as the other--that both rest on pointing out divergences from a static, "taxonomic" norm. In general, Veblen's work in this field consists in assimilating the "intangible" capital to the class of land, and other long time concrete income-bearers, but that is after all classification, systematization, "taxonomy." In saying all this, I am as far as possible from questioning the value of Veblen's work. Rather I rate it as of extreme significance. "Taxonomy" does not appear to me so dreadful a word as it does to Veblen. I should rather say that some taxonomy is good and some is bad, depending on whether or not it leads to fruitful generalizations, and deeper insights. It is, as I have said, chiefly the capitalization theory which Veblen applies to these newly important intangible "capital-items." The phenomena of the stock-market, where such things are most actively bought and sold, and where they appear as differential portions of the capital values of securities, doubtless first called attention to them--though the item of "good will" as a business asset, for which a money-price is paid when businesses change hands, is doubtless older and wider than modern corporation finance. The capitalization theory applies to them most readily and obviously, as compared with other elements in the static theory of prices. But as we become better used to the large rôle which these phenomena play,--not that the phenomena are new, but that their present importance is new, and hence our serious study of them is new--we are increasingly able to see that other elements of static theory also apply. _Static theory applies increasingly as understanding increases!_ The vaguely discerned, the novel, the imperfectly analyzed, can be stated only in qualitative terms. As things are better understood, the mind seeks system, taxonomy, quantitative measurement. Business men to-day are well accustomed to applying _cost_ concepts to many of these intangible magnitudes. Advertising, for example, is being worked out with increasing exactness, and business men are increasingly applying accounting processes to the determination of the question of _how much_ advertising "pays." Well-known brands are capital items. Well-known brands have cost money! Business men contemplating the marketing problem may well balance the cost of creating a new brand against the cost of buying an old one, and may balance the cost of creating a new brand against the profit to be made from allowing an old one to deteriorate, through cheapening its process of manufacture. Trade-connections are capital items. They are also items which have been created by patient thought and labor and expense. Franchises, since the days when the public awoke to their value, have cost money to the corporations that possess them, and figure in corporate bookkeeping often. Even in the old days, they often had a cost, which commonly stayed _out_ of the corporations' books, at least in that form,--bribes, entertainments to legislators and members of councils, and so on. In Part II of this book,[587] I have discussed "selling costs" as contrasted with costs of production in the narrow sense, and have pointed out how high a proportion of total costs these selling costs are. I have also indicated how many of these costs tend to be "capitalized." These selling costs are static measures of the elements of "friction" which interfere with the smooth working of static laws! An extension of statics, however, can in considerable degree take account of them. It is, of course, far from true that cost doctrine will explain all of these intangible capital magnitudes. But this is likewise true of the prices of many tangible items. Cost doctrine does not hold universal sway even in the confines of the strictest static theory. I have said that dynamic factors tend to come under the rules of static taxonomy to the extent that they become more accurately understood. The understanding here referred to is not merely on the part of the scientific theorist! The subject-matter of economic science is itself psychological. It includes the psychology of the business man, as well as the psychology of purchasers and laborers, and the general field of social-mental life that bears on economic processes. It includes the theories of the business men, as well as their aspirations and "motives." It includes their methods of computation, and the accuracy or inaccuracy of their prognostications. It has been pointed out recently that at the current price of copper (22c. per pound in Jan. 1916) the prices of copper stocks are very much lower than they were when copper reached the same price some years ago. Calumet and Hecla stands some two or three hundred points lower than it did then, and the same percentage difference is manifest in the case of many other stocks. But the explanation which the broker and market writer offer is that people have awakened to the fact that mining stocks are stocks with wasting assets, that the incomes from copper stocks cannot, therefore, be capitalized on so high a basis as similar incomes from other securities; that people to-day realize this fact as they did not some years ago; that the earlier capital-prices of copper stocks were vastly exaggerated on the basis of a careful estimate of probable total future income, etc. Japan, little used to the great prosperity growing out of sudden great increases of special kinds of business, found herself in such an orgy of war stock speculation that it was necessary to close the stock exchange in 1915. The United States, better familiar with the phenomena of boom and depression, seasoned by many experiences of similar nature, have found that on the whole,--at least in the opinion of many competent judges in January of 1916,--war stock speculation has been kept in reasonable bounds, thanks in large part to the conservatism and caution of bankers and brokers, and that the general economic situation is in fairly stable equilibrium, with most of the probable sources of disaster foreseen and "discounted." To "discount" is to make "static"![588] Whatever the business man can reduce to bookkeeping terms, and whatever he can measure by money in the market, the economist should be able to bring within the "orderly sequences of economic law." In _Social Value_, I have pointed out how wide is the scope of the money measure. Waves of public opinion, of waning or waxing hope and belief, of patriotic fervor, of religious exaltation, of political movements of one or another kind--all these find some sort of money measure in the market. In the gold market in the early '60's in New York, the "bulls" sang "Dixie," and the bears sang "John Brown's Body"! It was patriotic to be a bear, and unpatriotic to be a bull. These considerations affected the prices very appreciably, at times, especially at the beginning of the speculation in Greenbacks. Waning and waxing belief in the triumph of the Northern armies manifested itself very strikingly in the prices in the gold market, as W. C. Mitchell has conclusively proved, with a wealth of detailed evidence, in his _History of the Greenbacks_. But in less systematic markets, in less organized and regular ways, many things besides are given a money measure: "Against what, indeed, shall wealth be measured? Where are the markets which measure its fluctuations? "But such markets exist, always have existed. Are there not streets where woman's virtue is sold? Are there not commonwealths where there is a ruling price for votes? Do not the comparative rewards of occupations indicate what inducements will overcome the love of independence, of safety, of good repute? We see men sacrificing health, or leisure, or family life, or offspring, or friends, or liberty, or honor, or truth, for gain. The volume of such spiritual goods Mammon can lure into the market measures the power of money.... When gold cannot shake the nobleman's pride of caste, the statesman's patriotism, the soldier's honor, the wife's fidelity, the official's sense of duty, or the artist's devotion to his ideal, wealth is cheap. But when maidens yield themselves to senile moneybags, youths swarm about the unattractive heiress, judges take bribes, experts sell their opinions to the highest bidder, and genius champions the cause it does not believe in, wealth is rated high." (Ross, _Foundations of Sociology_, pp. 171-172.) Ross is here interested chiefly in the problem of measuring the varying significance of wealth, symbolized by money, in terms of other and non-economic, goods. But it is equally true that money measures these goods. The range of the money measure is very wide. Nor is it confined to the exchanging process. Gabriel Tarde[589] has pointed out that money may function as a measure of non-material goods through gifts, public subscriptions, etc. It is surely no extravagant claim to make that the methods of static economics may be extended at least as far as the money measure goes! We shall later see reason for believing that fruitful results may come from an even wider extension of the static notion, at least as a schematic device. In reducing static and dynamic considerations to common terms, we have now gone far. We have shown that a wide range indeed of the phenomena deemed dynamic, and largely ignored by current static theory, left to the discussion of such innovating students of the "theory of prosperity" as Veblen, are really in the actual practice of the business world treated in the same way as are the "static" phenomena of the values of physical goods and concrete services. And we have further shown how wide indeed is the scope of the static yardstick, the dollar. But this is only a part of the story. We have generalized statics. Can we similarly generalize dynamics? Or has our generalization of statics merely narrowed the field of dynamic considerations? To this I reply that we may view the whole field likewise from the angle of what we have called dynamics, or theory of prosperity, or similar name. These terms are not satisfactory, in my view, and I have already used terms that appear to me better. My exposition on this point will be briefer than in the generalization of statics, since I may refer to what I have said elsewhere. In stating Veblen's contrast between "business capital" and "the wealth of nations," I quoted him as follows: "Under modern conditions the magnitude of the business capital and its mutations from day to day are in great measure a question of folk psychology rather than of material fact." The capital, or the wealth in general, of older and simpler days was a material matter, concrete goods and services, in his view. The newer items of capital are anomalies, presenting something strange and novel, and sinister. I should maintain that, whether sinister or no, they are in principle at least not _novel_ or _anomalous_. _All economic values are matters of folk-psychology!_ All economic values are social values. All are to be explained on the same general principles that explain the values of the most complicated stock-market phenomena--except of course, that the application of the principles involves less complication in the case of such values as that of a loaf of bread. But value is always a matter of psychological significance, and never a matter of mere material fact. And these psychological significances are not explained by such simple individual phenomena as labor-pain, or marginal utility, but always by reference to the total social-mental system, including its laws, its mores, its institutions, its centres of power and prestige, its modes and fashions, etc. If Veblen has in mind the contrast between goods whose values rest in labor-pain or marginal utility, on the one hand, and values which rest in a folk-psychology on the other hand, the contrast is a false one. The first class does not exist. I shall not elaborate this point. I have developed it at length in _Social Value_, and in the chapter on "Economic Value" in this book. I should make the contrast, then, which seems to me to gather up the central significance of most of the contrasts we have been discussing, as follows: on the one hand, we may view the matter mechanically and abstractly, in terms of the equilibration of values conceived of like physical forces, expressed in prices; on the other hand, we may view the economic situation more fundamentally and realistically, seeing the interplay of men's minds, viewing economic values as parts of a social mind, a functional unity of many minds. We may treat society as a mechanism, or we may treat it as a living, pulsing, psychological organization. In short terms, our contrast may be between the theory of value, and the theory of price. And here we are back to our thesis set forth on p. 559 of this chapter. The theory of value, as thus marked out, is still an abstraction from the totality of our cross-section picture of social, or even of economic, life. The essence of society is indeed psychological. But men have bodies, and live in a material world, and have an elaborate technology. Many of the factors which students of dynamics are concerned with grow out of biological and technological relationships, and are connected with physiographic influences. Can we bring all these into our scheme? Giddings and Spencer would answer affirmatively. For Giddings (_Principles of Sociology_, ed. 1905, p. 363): "All social energy is transmuted physical energy." Giddings guards himself (pp. 365-366) against a thoroughgoing monism, which would leave no distinction between mind and matter, but in general he would hold to the scientific goal of reducing the physical and psychical phenomena in society to a parallelism, so that concomitant percentage variation could be predicated of them, and so that considerations in one sphere could be expressed by considerations in the other. In the hands of Giddings and Spencer, such notions are handled with caution and discrimination, and command respectful consideration. One feels, however, that the starting point is a monistic metaphysics, and that the philosophical doctrine does not justify itself in its scientific application. In the hands of such a writer as Winiarski, however (_Rev. Philosophique_, vol. XLV, pp. 351-386; vol. XLIX, pp. 113-134; summarized by Ross, _Foundations of Sociology_, pp. 156-157), who makes all mental states mere forms of physical energy, and applies to mental processes the laws of mechanics, the doctrine becomes merely bad poetry! From the standpoint of the needs of social science, and from the standpoint of our present knowledge of social facts--to say nothing of general philosophical considerations--it seems clearly best to me to assume the common-sense doctrine of dualism as a premise: mind and matter are two different things; mind acts on matter, and matter acts on mind. We are then at this position, when it comes to bringing technological and physiographic factors into our scheme: on the one hand, the values control technological applications, and control the course of industry. New technological devices will be employed when the present worth of their anticipated products is great enough to overcome the values that compete with them. Land will be employed on that crop which gives the largest rent, etc. Men's physical activities, and their employment of their physical resources, are _motivated_ by values. That is the _function_ of values. On the other hand, physiographic and technological factors modify the lives and characters of men and peoples. _Values_ are in part controlled by physiographic and technological conditions of life. But these technological and physiographic factors, in order to influence economic _conduct_, must first influence the value system. This they do, (1) by affecting the quantities of _objects_ of value, and so modifying the marginal relations among the value-scales and the marginal values; (2) by affecting the lives of the people directly, and so modifying the value-scales themselves. Similarly I see no way of bringing the vitally important factor of heredity into our scheme in a direct manner, _in propriore persona_, but only mediately, as it (1) affects the character of the society, and so changes its value-system or its technological activity and volume of products, or (2) as heredity becomes a matter of concern to the society, and so an object of value, with its own place in the value-system. There remains, therefore, in the field of technological, biological, and physiographic features affecting economic life a considerable residuum of economic problems for which, so far as I can see, no extension of the static method can be devised. I propose no scheme of static price analysis for balancing the effects of poor land and good heredity on the character of a society.[590] The problem must be approached by other methods specially suited to it, which we need not here discuss. But, given the values that rule in that society, we may be sure that our static picture of that value system will sum up much of the influence of the bad land and the good heredity, mingled with the other factors which have determined that set of values. Once a factor has been introduced into the value system, once it has modified the value-scales, we may treat it by the methods of static price theory. The analysis of the factors controlling the value-scales is the problem of value theory. And here is, indeed, the central problem of the "theory of prosperity." What are the causes controlling the _mutations_ of values? What factors cause values to rise, intensifying economic activity, stimulating trade, spreading prosperity? What brings about the crash in economic values (and consequently in prices), in panics and crises? Why the low values of the period of depression, giving slight stimulus to industry and trade, leaving economic life lethargic, inert? Increasingly it is recognized that the problems are problems of values and prices. It is no part of my plan to give answers in specific terms to these questions. That were the task of a large book! And very much of it has already been done. It is my purpose here, simply, to show that price theory, as developed on the basis of static notions, may be extended, and has in considerable measure been extended, to cover these problems, and that for the same reason that price theory is unable to give really fundamental answers to them, often, it is likewise unable to give fundamental answers to the value problem anywhere--that the phenomena of value are of the same stuff and substance as the phenomena treated by "dynamics" and "the theory of prosperity," and that static theory has been busied chiefly with a limited portion of the field only because the problems were easier there. Much has been made, especially in such a book as W. C. Mitchell's _Business Cycles_, of technological factors, and of factors in the psychology of the business man and of the laborer in the ups and downs of business, and particularly of certain elements of scarcity or overabundance of productive resources at critical parts of the economic system, which raise values and prices unduly at certain points, compelling radical readjustments of values and prices elsewhere. Virtually all of these considerations will fit into the scheme here outlined. They work _through_ modifications of the system of values and prices. H. L. Moore's recent _Economic Cycles_ lays heavy emphasis on physiographic factors, particularly variations in rainfall. But these, too, act on the economic situation through affecting the quantities of objects of value, and so through modification of the marginal values of goods. The psychological theory of economic value by no means excludes any amount of influence one can find in physiographic or technological factors. One of the most important factors in the minds of many writers who would treat business cycles, and a factor to which virtually all writers give attention, is the waxing and waning of business confidence, and of the volume of credit. I have given an extended analysis of the psychology of confidence, and of the psychological nature of credit, in my chapters on that topic. It is enough to say here that we have in credit phenomena things which are of the very stuff of economic values in general. Beliefs and hopes are factors in economic values, and values wax and wane with them. There is little indeed in the psychological and institutional aspects of the theory of prosperity which an adequate theory of value would not contain. The theory of _prices_, as an abstract formula of description, is of primary interest to the scientist, who has nothing to do with the manipulation of concrete values, and who has no interests at stake in the behavior of particular values at a particular time. His purposes are ultimately practical, no doubt, but the practical ends he has in view are, after all, only to lay down general rules of public policy, of a high degree of generality, and he consequently may abstract from a great deal of the concrete causal process. The theory of _value_, in its concrete fulness, is the special interest of the active business man, and especially of the business man who wishes, not merely to _adapt himself_ to changes in values, but also in part, to _control_ and _manipulate_ those values. _He_ must study every factor which does, in fact, bring about changes in the value system. We do not find the market-letter of a brokerage house, or the calculations of a captain of industry, or trust promoter, troubling themselves about marginal utilities or labor-pains! Notions of supply and demand, and the relations of the prevailing interest rate to the capital values of securities, they do employ. Notions of money-costs of production they make use of. But they also give very close attention to questions of governmental policy, to court decisions, to movements in the field of labor organization, to money-market phenomena, and particularly to gold movements and the state of the exchanges, to political campaigns, to the strength of the prohibition movement, to changing fashions and modes, and, above all, to the general _tone_, the _consensus_, so far as it is ascertainable, as to whether business is good or bad, whether men are buoyant or depressed, to the ups and downs of business confidence. They pay marked attention to the opinions expressed by certain men, great bankers or industrial leaders, not merely because they think these men good judges, but also, and in part primarily, because these men are centres of power, "radiant points of social control," whose opinions make the opinions of others, and whose statements that times are good tend to make them good, and that times are bad tend to make them bad. For static theory, nothing is more contemptible than the view which "demagogues" often express in Congress that great men in Wall Street make and unmake prosperity, bring about and check panics. For static theory, the only way that big men can lower prices is by selling, and the only way they can raise prices is by buying.[591] Their power to raise and lower prices is thus limited by the amount of their wealth which they are willing to employ in this way. As it is not likely to be profitable to be a bull when the general condition of the "fundamentals" calls for falling prices, and as bear operations, contrary to the fundamentals, are likewise usually costly, the inference would be that the big men will not, even if they could, alter the course of the market. Their wealth is, after all, not so tremendous, as compared with the aggregate wealth of the rest of the community. But the market takes the big men more seriously! When they are selling heavily, other men are often _afraid_ to buy, such is their prestige. When they give out opinions, these opinions _become_ the opinions of a host of others, almost automatically. When Morgan stepped into the breach in the Panic of 1907 with $25,000,000, it was quite as much the fact that _Morgan_ had acted, as it was the millions themselves, which relieved the situation. Indeed, it was in no small degree the prestige of Morgan which relieved the _disorganization_, which restored the discipline, and made it possible for the elements in the market to work in harmony and coöperation again. Society is a functional unity, and the "tone of business," the ups and downs of prosperity, depend in large measure indeed on the degree to which the lines of communication between the different parts are kept open, on the question of whether each part does its expected task at the right time and in the right way, on the all-together-functioning, the _integration_, of the elements. These are phases of the matter from which static theory abstracts. They are organic problems, not mechanistic problems. Of course, mechanisms get out of order too. But tightening a bolt is a very different thing from restoring confidence and discipline to a market! Those who wish to control values have their own technology. There is a technology of industry, a mechanical technology, running in terms of pistons and levers and soil-fertility-equivalents, and butter-fat-content, and ton-miles, which is governed by the values. But there is also a technology of _controlling_ values which involves advertising, making sentiment, keeping up social discipline, effecting the equilibration of values by exchange, keeping "interstitial" adjustments smooth, which involves a different kind of activity, thought, and ability, and which employs different instrumentalities. Its problems are problems of human nature and social relationships, its laws are psychological laws, particularly the laws of suggestion, imitation, and the like, its tools are the newspaper, the sign-board, the whispered word, the cigar and the dinner with wine, sound logic, money and credit instruments, the prestiges of men and institutions. For men whose work lies in controlling and making values, rather than in making passive technical adjustments to existing values, the theory of value, as I have defined it, is of supreme importance. This, I may say for the critic who may consider the social value theory a highly speculative and theoretical notion, does not mean that the active business man or the advertising writer, has formulated the social value theory in terms of a social mind, conceived of, in the light of modern functional psychology, as a functional unity of individual minds! The advertising writer is a student of modern psychology, and reads books on the psychology of advertising, which discuss the psychology of suggestion, and the like. But long before such books were written for him, he studied the phenomena involved in his own way. It is not his business to construct a theoretical economics! It is his business to make a market for his wares. He is interested in the scientific theories of modern social psychology only in so far as they help him in that task. He has no occasion to construct a vast conspectus, which shall summarize the whole economic situation, in its social setting. But my point is, simply, that the kind of phenomena which he does study are indicated and stressed and brought into a system in the theory of social value which I have tried to elaborate. As his purposes are different from those of the economist, his method of approach, and his range of investigation, will necessarily be different. The notion of dynamics has been in a way connected with the idea of evolution, of historical process in time, while the notion of statics has been essentially connected with the notion of a cross-section, a stage, an equilibrium of contemporary forces. How, then, bring the two together? Of course, we may conceive the evolutionary process itself as a series of stages, and the mind does tend almost inevitably to do that. The fact is, of course, a perpetual flow, with unceasing change. The mind grasps such a notion with difficulty, if at all. Logic is mechanical and mathematical, and mathematics and mechanics are static.[592] But further, we may in large measure bring the historical considerations into a cross-section picture, when it is a value system that is involved. _Past_ facts exert their influence through _present_ values; and _future_ facts, which may be expected to modify future values, come into the present equilibrium as discounted _present_ worths. When we view the situation realistically, moreover,--which means, when we view it as a living organic, psychological process,--our cross-section does not need to be narrowed to a moment of time. We may see the values not yet in stable equilibrium, but in process of equilibration, with marginal values and prices fluctuating, tending toward a static goal, but hindered by various cross-currents, of "friction," of uncertainty, of momentary values which rest on beliefs regarding the process of transition itself--as when a "bull" on the war-stocks turns bear temporarily, because he thinks that prices may fall before recovering themselves, and going higher. We may see obstacles in the way of readjustment whose importance is itself subject to static measure--labor temporarily out of work, and labor-time lost, at so much per day; uncertainties which give rise to speculation, which calls for the employment of extra banking credit, at such and such per cent; capital-instruments which have to be "scrapped," representing the loss of so many dollars. We may see the process of building up new trade connections, at such and such a cost, to replace others which formerly functioned, but which no longer serve, which were once worth so much, and which now are valueless. Watching the realistic process of transition, through a period of time, we may still apply our static yardstick to many of its features. Above all, do we get in this connection a realization of the fact that the "immaterial capital" of which Veblen speaks is true social wealth.[593] Whatever is necessary for the carrying on of economic life, whatever, if destroyed, must be replaced, before the economic process can go on, and will be replaced by the expenditure of labor and thought and money, is capital. The sales-force is as truly a part of the labor-force of a corporation as are the mechanics. The trade connections which the sales-force has built up is as truly a part of the capital of the business as the machines which the mechanics have made. The static theory which abstracts from this easily leads to dangerous conclusions. Removing a tariff may well, _after the transition is completed_, give a greater productive efficiency to a country. But what of the cost of transition? May not the values destroyed, and to be recreated, in the form of trade connections, social organization, accomplished adjustments, and the like, be greater than the new values to be gained by better adaptation of industry to the physical resources or the capacities of the labor supply, of the country? In large measure, this question, in a given case, is susceptible to a quantitative answer. The statesman who reckons only the gains which the final static adjustment will bring, and neglects the costs of reaching it, costs not alone in "scrapped" machines, but also, in "scrapped" social organization, has missed a substantial part of his problem. The theory of prosperity, and the theory of value, are largely concerned with just this system of social control, by means of which value scales are altered, and by means of which altered values are brought into a new equilibrium. It is a complicated fabric of psychological relationships, partly institutionalized, partly non-institutional. The institutions--as banks, big corporations, speculative exchanges, and the like, are the nuclei, about which centre much that is temporary, shifting, and flexible. Given time, the whole system is highly flexible--it is organic, and not mechanical. The serious injury of this system in a country may well be a greater disaster than the destruction of physical items. Let unscrupulous men--or misguided men--bring about a legal repudiation of debts, and the disaster may be greater than the destruction of a city by an earthquake. That creditors have been robbed is a minor matter, but that credit has been shaken, so that men will fear to lend again or to sell except for cash, may well mean industrial paralysis. Considerations like these enable us, in substantial degree, to reduce "transitional" considerations to common terms with "normal" considerations. We can apply the static measure to the "transitional considerations," and we find the values which come into equilibrium in the "normal" period to be generically like those whose variations interest us in the period of transition. Indeed, the "normal equilibrium," if it were ever reached, would also contain these intangible capital items, though many of them would be much reduced, since the work that they have to do would be largely gone, if the normal equilibrium were persistent. It does not follow from the foregoing that many of the elements in "modern business capital" are not, as Veblen's analysis suggests, sinister and anti-social. To say that their values are true social economic values, generically the same as the values of wheat or corn or whiskey or opium or Sanatogen or milk or tickets to burlesque shows, or silver sacramental sets, or Ford automobiles, is not necessarily to give them a good moral character! Some of these intangible capital goods are thoroughly anti-social, and should be destroyed. This is particularly true of monopoly power, and of popular brands whose value rests in popular delusion. But even here, caution is needed. Is it socially wise to destroy a wine cellar, containing an hundred thousand dollars worth of fine wines, even assuming that Demon Rum is as black as he is painted, and that Veuve Cliquot is his favorite daughter? Will not the economic values which have been destroyed in this moral fervor be recreated? And will not this tend to divert labor and capital from the creation of a corresponding amount of more wholesome economic goods? Might it not be wiser from the standpoint of the temperance movement itself, to sell the wine cellar--at private sale, of course!--and use the proceeds in the campaign fund of the prohibition party? Of course, there is more still to the story. The destruction of the wine cellar may be done so dramatically, and may be so well advertised, that it will arrest public attention, and tend to create new social values, of a moral and legal sort, which will prevent the recreating of that wine, by changing the direction of demand, and by lessening the sources of supply. Similarly with trade connections, and other intangible capital items. If destroying one means merely that labor and capital will be employed in making others no better, the social gain is very doubtful. And some sort of system of control of interstitial adjustment, of overcoming friction, etc., there must be. I wish to contrast the view I have been here presenting with that developed by Schumpeter, in his _Theorie der Wirtschaftlichen Entwicklung_. In Schumpeter's view, the division between statics and dynamics is much more than methodological. The phenomena of statics and dynamics are different phenomena. Statics is concerned with the influence of individual utility-scales, or utility-scales and psychic cost-scales, hedonistic phenomena. Dynamics is concerned with the influence of "_energisch_" (as distinguished from "_hedonisch_") factors. (_Loc. cit._, 128.) Most men are moved by hedonic considerations. Their economic activity tends toward the equilibrium described in static theory. Seeking to maximize satisfactions, and to minimize pains, they tend to get into the "best-possible" situation ("best-possible" under the "given conditions") and stay there. The "energetic" type of men, moved by motives like love of activity for its own sake, love of creative activity, love of distinction, love of victory over others, love of the game, etc., undertake activities which tend to alter the "given conditions" themselves, to alter the structure and technique of economic society, to introduce new ways of doing things, and so to break the static equilibrium. This last type of men is small in number, but tremendously important. Schumpeter's theory of value rests solely in an analysis of the hedonic factors mentioned, conceived of as individual psychological magnitudes. I have discussed his theory of value in the chapter on "Marginal Utility" in this book, and would refer to that discussion here. He makes virtually no use of the value concept there developed in explaining the causation of dynamic change, but instead, as I have pointed out in that chapter, invents new concepts, which do the work of the value concept, which he calls "_Kaufkraft_," "_Kapital_," and "_Kredit_," which do not rest on marginal utility, but rather on the activities of certain centres of economic power, particularly of banks.[594] His picture of economic evolution is that of a conflict between these static and dynamic forces, between "utility-curves" and the psychological factors of the "energetic" type, the former represented in a set of static price-ratios, the latter in a set of dynamic "powers," conceived of, not as sums of money (even though expressed in money-terms), but as "abstract power," which grows, not merely out of the individual psychologies of the entrepreneurs, but also, and primarily, out of the social influence centered in the banker. This power which the banker to-day supplies was in earlier periods supplied by the political power of the despot, and is distinctly a matter of social organization, and social control, an over-individual, social phenomenon, analogous to the "social value" which I have sought to put behind all prices, whether "static" or "dynamic." The dynamic man needs "power," either political or financial, to "force" the "static" men out of their accustomed ways of activity. They fear and resist him. He must coerce them. The contrast is thus sharply made between abstract price-ratios, resting on individual feeling-scales, and quantitative "powers," measured in money, resting on a social basis. Between the factors underlying static prices, and those underlying dynamic prices there is, thus, nothing in common. Statics and dynamics are concerned with fundamentally different phenomena.[595] If my criticisms of the utility theory of value are sound, and if what has gone before in this chapter holds good, we must restate Schumpeter's contrast.[596] The static tendencies do not rest on any peculiarities of the psychological "stuff" from which static values are derived. They rest rather in the universal tendencies of all values, whatever the psychological factors behind them, to come to an equilibrium. The reason that values, whether they be the values of new and novel things, or the values of old and familiar things, tend to come to an equilibrium is that gains come from equilibrating them. When some values are too low, and some are too high, the opportunities for speculative gain are evident. Arbitraging transactions, as between different places, time-speculation, transferring labor and capital from one enterprise to another, increasing the supplies of some goods and reducing the supplies of other, changing land from wheat to corn, etc., etc.,--all these things are sources of gain, and they will be done, whatever the origin of the values involved. The new, dynamic enterprise, before it becomes actualized in concrete machinery, factory building, etc., and long before its income is actualized in money-receipts from the goods it is destined to produce, becomes an _object of value_. The value is a _future_ value. But it comes into the present as a discounted present worth. As such it functions like any other value, tending to attract in its own direction the land, labor and capital necessary for its realization. It does not differ in its functioning from the present worths of future goods of familiar sorts.[597] It tends, after a process of reëquilibration--which Schumpeter, with his theory of crises, has done much to elucidate--to come into equilibrium with the older, "static" values, becomes itself a static value. Indeed, from its inception, it comes under the static, money measure. It enters at once into the scheme of static values and prices, even though it causes readjustment there. The preëxisting static values are themselves to be explained, not as growing out of individual feeling-scales, but as growing out of a complex social psychology, in which some men and groups of men have vastly greater social "power" than others. The preëxisting static values are of the same stuff as the dynamic values. But this has already been made clear. * * * * * The possibility of presenting an equilibrium picture of social forces, to the extent that those social forces submit themselves to the money measure, the possibility of applying the methods of static price-theory wherever pecuniary concepts may be carried, does not exhaust the possibilities of the static notion, at least as a schematic device. There are many social values, particularly in the legal and moral sphere, which do not readily come under the money measure, and where such measurements as may be made in money terms seem obviously inadequate. Of these values, as of all values, however, the law of equilibration holds. _All_ tend to come into adjustment of a sort that will allow the maximum of values to be realized. Something of the exactness of the static method has recently appeared in a decision by a famous jurist, confronted with the fact of the conflict of two legal principles. Most judges would go on the legal theory that there can be no conflict in the laws of a single sovereign. Of course, we have courses in "Conflicts of Laws" in our law schools, but the subjects treated in such courses relate to conflicts, say, between the laws of New York and the laws of New Jersey. When a judge is presented with a case of conflict between two laws of New York, he will commonly feel it to be his duty to "remove" the conflict, by making distinctions, till the conflict is whittled away. Not a little bad law has thus originated! The law is "absolute." It knows no exceptions. It does not obey the law of diminishing significance. Of course, "_de minimis non curat lex_," but that means, not that there is a delicate margin, where the law ceases to apply, but merely that the law disregards trifles too insignificant to attract its attention at all. They are, in mathematical phrase, "infinitesimals of the second order," discontinuous with the interests of magnitude great enough to attract the attention of the law. There is little room in such a legal theory for notions of the sort discussed in this chapter to find place! But a different theory of the law is implied, and partly expressed, in a recent decision by Mr. Justice Holmes: "All rights tend to declare themselves absolute to their logical extreme. Yet all in fact are limited by the neighborhood of principles of policy which are other than those on which the particular right is founded, and which become strong enough to hold their own when a certain point is reached. The limits set to property by other public interests present themselves as a branch of what is called the police power of the State. The boundary at which the conflicting interests balance cannot be determined by any general formula in advance, but points along the line, or helping to establish it, are fixed by decisions that this or that concrete case falls on the nearer or farther side.... It constantly is necessary to reconcile and adjust different constitutional principles, each of which would be entitled to possession of the disputed ground but for the presence of the others." (Hudson County Water Co. vs. McCarter, 209 U. S., 349, 1908.) Here we have a scheme very like that of static economic theory! "The boundary at which the conflicting interests balance"--the _margin_ where the curves of diminishing value of the two legal principles intersect! A plurality of legal values, in marginal equilibrium! Lacking a tool of thought so convenient as money has proved for the economist, the jurist finds trouble in making his margins precise. He is dealing with quantities for which he has found no common measure. There is no "standard or common measure" of legal values. Hence, most lawyers content themselves with qualitative reasoning, seeking to avoid the necessity of quantitative weighing and comparison of the factors in their problem by making distinctions of _kind_. Mr. Justice Holmes recognizes the necessity and the existence of legal _quantities_, and of making quantitative distinctions, _i. e._, distinctions of _degree_. He sees a generic essence common to the whole body of laws, such that marginal equilibria are possible and actual. So far we have a static system of laws. But the same writer, in a later decision, has said: "And yet again the extent to which legislation may modify and restrict the uses of property consistently with the constitution is not a question for pure abstract theory alone. Tradition and the habits of a community count for more than logic." (Laurel Hill Cemetery _vs._ San Francisco, 216 U. S. 358, 1910.) As these traditions and habits of a community may change, so may the legal values change, and new equilibria need to be reached in a process of readjustment. But further, in this view, and in the view of the best students of jurisprudence in general, the legal values are not an insulated, self-contained system. In the sentence last quoted, Justice Holmes sees their root in a total social situation. And it is easy to show that economic values, in particular, are part of that social situation out of which legal values derive their power. Legal values enter into economic values. Economic values enter into legal values. And between legal values and economic values are marginal equilibria. There is a vast social system of values, legal, economic, moral, religious, etc., in constant dynamic change, but tending also to static equilibrium. Changes at any part of the system compel readjustments throughout. The process of equilibration is often slow, but slow or rapid, smooth or violent, it is in constant process. For the further elaboration of notions like these, I refer again to my _Social Value_. Here, as in the narrower economic sphere, we have men and institutions whose chief activity is concerned with the manipulation and control of these values, with effecting the readjustments, and bringing about the reëquilibrations. They have their appropriate tools and technology. Money and credit are merely part of a much wider system concerned with social control and social adjustment! * * * * * To summarize: The problem of this chapter has been to harmonize statics and dynamics, the "theory of wealth" and the "theory of prosperity," "normal" and "transitional," and similar notions, commonly held to belong to different spheres, and to be incapable of reduction to common terms. A number of such contrasts have been passed in review, and numerous illustrations of the various types of contrast have been given. It is the contention of the present chapter that the most fundamental of these contrasts, and the one which gathers up the meaning of most of them, is that between the theory of value, and the theory of price. The theory of value is dynamic, is concerned with the phenomena of prosperity and depression, is realistic enough to deal with transitions and readjustments; the theory of price is static, and rests in the notion of accomplished equilibrium, abstracting from the problems of friction and transition. The reconciliation comes from two angles: on the one hand we have generalized price theory, showing that in large measure the phenomena with which value theory, theory of prosperity, dynamics, deal come under the money measure, are made "static" by "discounting," and by the application of accounting principles; that this tends to be more and more true as knowledge grows more accurate; that "statics" means especially quantitative, as opposed to merely qualitative, thinking. We have shown further that the static schema is applicable even where the money measure is inapplicable, and even beyond the economic sphere, as illustrated by a recent decision of Justice Holmes. The other angle of approach was to universalize value theory, dynamics, theory of prosperity, by showing that all prices, whether "static" or "dynamic" have the same fundamental sort of explanation, that value is always a matter of social psychology, and never a matter of mere individual psychical magnitudes, or of "material fact." This is not to deny that physical facts have their bearing in the scheme: (a) they are among the objects of value, even though not the only objects, and (b) material facts, technological, physiographic, and biological, are the basis on which human nature rests, out of which it has developed, even though human culture including social values has increasingly emancipated itself from immediate dependence on them, and has acquired a partially independent movement of its own. The effort was not made to reduce mind and matter to common terms, but the case was rested in an irreducible dualism, and the causal influence of non-mental factors on the value-scales themselves cannot be measured by the static scheme. The static scheme, assuming the value-scales, gives a precise answer as to the influence of the quantities of physical objects on the marginal values. The significant fact about the values with which dynamics, theory of prosperity, etc., deal is that they are the values of immaterial social relationships and institutions, in large part, which are concerned with the problems of social adjustment and control, with affecting equilibria in the economic sphere, with overcoming the friction and effecting the transitions from which static theory abstracts. This is a phase of production quite as important as the physical activities of laborers or machines. It has its own technology, appropriate to its problems. In particular, money and credit are part of its tools. Since its problems are to control men's minds, it uses psychological forces. Where the mechanic uses a storage battery, charged with electricity, to move material things, the technologist of economic readjustment employs a dollar, charged with social value, which is power over the action of men. It is as a bearer of value, in form adapted to the problem, that is in highly saleable form, that the dollar functions. It is the psychological significance of the dollar, and not its physical qualities _per se_, that enables it to do its work. The physical weight in gold, which itself is an object of social value, is commonly the immediate basis of the value of the dollar to-day, but money may get its primary value from other sources than valuable bullion. Given this primary value, the dollar may get an enhancement in that value from the services which it performs in the social technology of adjustment. * * * * * INDEX A Aborn, W. H., 252, n. Absolute _vs._ relative conceptions of value. See VALUE, ABSOLUTE _vs._ RELATIVE. Abstinence, 67ff., 484-85. See COST OF PRODUCTION, INTEREST. Abstraction, legitimate and illegitimate, 189-90, 553-54. Acceptance house, 497, 542. Acquisition _vs._ production, 482. Adams, Brooks, 219. Adams, T. S., 13. "Adaptation," 573, n. Advertising, 257-58, 367, 565. Agger, E. E., 140, n. Agio, 148-50, 390, 442-50. See PREMIUM. Agricultural credit, 262, 318-19, 430, 492, 504-05, 528-29. "All other deposits," see "DEPOSITS" in KINLEY'S FIGURES. _Americas, The_, 540. Analytical _vs._ historical theories, 397-400. See also HISTORICAL _vs._ CROSS-SECTION VIEWPOINTS, STATICS, DYNAMICS, ETC. Andrew, A. P., 170, n., 179, n., 537. Animism, social explanation of, 16-17. Ansiaux, M., 4, n. "Appreciation and interest," 76ff., 333, n. See INTEREST. Aquinas, Thomas, 30. Arbitrage, 268, 585. Aristotle, 118, n. Ashley, W. J., 181, n. Assets of banks, 285, 489-97, Ch. XXIV; bonds in, 250, 488, 498, 506, 508, 523; stocks in, 491-93, 498, 506, 523; stock exchange items chief factor in, Ch. XXIV, especially 523ff. See Loans, "COMMERCIAL PAPER," COLLATERAL LOANS, RESERVES, ETC. Atwood, A. W., 173, n. Auspitz and Lieben, 91, n. Austrian School, 56, 70, 94, 300, 486, 562, n. Austria, paper money in, 140, 434, n.; foreign exchange policy of, 181-82, 434, n., 444, 530; money rates and interest rates in, 429. Averages, meaning of, 178, 292, 312-13, 315. See CAUSATION. Weighted. See WEIGHTING. B Babson and May, 501, n. Backwardation, 146. Bagehot, W., 18, 37, 540, n., 580. Baker, G. F., 518, 519, n. Balances, required by banks, 173, 377. Balance of trade, 320, 551. Baldwin, J. M., 18, 37. Balkan Crisis, hoarding of bank-notes in Austria in, 140, n. Banks. See ENGLAND, BANK OF, STATE BANKS, PRIVATE BANKS, ETC. As book-keepers for business, 365; correspondent relations of, 355, n.; bank capital, 489, 491, 524; bank-credit, Ch. IX, 261, 484ff., 489-97, Ch. XXIV; elasticity of, 129, 183, 216, 281-88, 299, 320; relation of, to trade, 260ff., 281. See Trade. Functions of, 484-89, 492-95. See CREDIT, FUNCTIONS OF. Technique of, 489-97, Ch. XXIV; bank-drafts, 355-58, 367; on New York and other centers, 356-58; bank-notes, 129, 139, n., 289, 322-23, 447, 448, 472, 473, 487, 495, 496, 511, 530, 539; as "capital," 261, 484-88; elasticity of, 129, 298, 448. Banking School, 283ff., 395. See CURRENCY SCHOOL. Banker as centre of power, 32, 466, 484ff., 577, 583. Banker's psychology, 141, 304. Barbour, David, 154, 218, n. Barnett, G. E., 347, n. Barter, 99, 100, 130, 133, Ch. XI, 220, 226, 265, 369, 394, 404-07, 419-21, 493, 536; highly important in modern life, Ch. XI, 394; made easier by money as a measure of values, 201, 394, 421; intellectual difficulties of, 418-20; physical difficulties of, 423. Bastiat, F., 552. Bears. See BULLS AND BEARS. "Bearer of options" function of money, 148, 201, 314, n., 418, 424-32, 436, 442, 451, 495, 536, 543; distinguished from store of value, 425; dynamic function of money _par excellence_, 426, 495, 536; reserve function a special case of, 426, n., 536ff. Belgium, National Bank of, 182. Belief, as element in values, 40, 136, 462-68, 486ff., 574-75; relation of, to credit, 262, n., 462-68, 486ff., 581. See CREDIT. Bendixen, F., 435, n. Bergson, H., 579, n. Bilgram, H., 3, n. Bills of exchange, 167, 181-82, 201, 254-55, 288-90, 369, 444, 490-91, 530; speculation in, 254-55, 514, 515, n.; as reserves, 181-82, 444, 530. See also FOREIGN BILLS, AND GOLD MOVEMENTS, INTERNATIONAL. Bimetallism, 219, n., 221; not logically related to quantity theory, 219, n. Biological factors in social life, 571-73, 590. Böhm-Bawerk, E. von, 9, n., 44, 48, 51, 70, 78, n., 91, 94, 96, n., 113, n., 146, n., 301, n., 303, n., 437, 563, n. Bonds, as bearers of options, 147-48, 425, 428; listed, sold "over the counter," 250, 514; bonds sold on Stock Exchange, not "cleared," 370; held by banks. See ASSETS OF BANKS. "One house bond," 147. Book-credit See CREDIT. "Borrowing and carrying," See STOCKS. Bosanquet, B., 18, n. Boston, 289, n., 354, 368, 429 n., 503. Brassage, 450. Brokers, 168, 199, 235, 287, n., 367-68, 371, 372, 374-79, 409, 496-97, 429, n., 521, n., 531, 575. Brown, H. G., 301, n. Business, speculation in, 252ff. "Business capital" vs. capital-goods, 482, 484ff., 560-61, 569, 580-82. See also "GOOD WILL," STATICS, DYNAMICS, FRICTION, ETC. Business confidence, 40-41, 97, 118, 185, 210-11, 214, 463-68, 530-31, 536, 574-75, 577. Business cycle, 187-89, 254, 548-49, 555, 573-75. "Business distrust," 426, 427, n. Business man _vs._ economist, as value theorist, 573-78. Bulls and bears, 145, 371-73, 406, 471-72, 522, 576, 579. "Buying price" _vs._ "selling price," 402-04, 406-07, 476. C Cairnes, J. E., 47, 50, 55, n., 57-59, 62, 64, 67-69, 220, n., 428, n. Call loans, 73, n., 375-78, 382, 425, 428ff.; as "bearers of options," 425, 428ff. Call rates, why low, 428ff. See MONEY RATES, INTEREST. Canada, 216, 284, n., 448, 450. Cannon, J. G., 347, n. Capital, Ch. IV, 98-99, 220, 222-23, 408, 410, 425, 429, 461, 484ff., 526, 551, n, 560-62, 564-66, 569-70, 580-82; circulating _vs._ fixed, 526. Capital goods. See GOODS, INSTRUMENTAL. Capitalist, 264. Capitalization theory, Ch. IV, 260, 297, 300ff., 316, 318, 389, 416, n., 436-42, 459-60, 494, 562-64, 575; assumes "banker's psychology," 305-06; assumes fixed absolute value of money, 76ff., 313-14, 389, 438; limitations of, 305-06,316-17, 481, n., 562, n.; applied to value of money, Ch. IV, 111, 424, 436-42, 456; conflicts with quantity theory, 300ff., 310-11, 389. See also INTEREST, CAPITAL, RENT. Capital value, Ch. IV, 149, 224, 318-19, 402, 424, 436ff., 452, 459. Carey, H. C., 106. Carlile, W. W., 37, n., 397, 400, 407, 411, n. Carver, T. N., 4, n., 419, n., 453, n., 573, n. Causation, 142-43, 190, 204, 224, 279, 292, 312, 315, 336, 403, 433, n., 437, 438, 454, 548; exhibited by _change_, 190, 454-55. Causal theory of value, 14ff., 90ff., 96, 114, n., 163, 165-66, 176-77, 186, 192, 204, 296, Ch. XV, 310, 336, 400-01, 433, n, 437-38. Cause, a definition as, 143, 400-01. Checks, 167, 168, 184, 281, 339ff., 354ff., 364-81, 499; "accommodation checks," 243; certified, 200, 322, 349, 370, 376; cashier's, 349; collection of, 354ff.; proportions of checks and money in payments, 174, 338, 447, 449, 463. Checking accounts, 173-74. See DEPOSITS. Chen-Huang-Chang, 407, n. Chicago, 246, 259, 289, n., 354, 379-80, 503, 542; chief centre for check collections, 354; Board of Trade, 252-52, 268, 327, 379-80, 503, 542; Board of Trade clearing house, 369, 379-80. Circular reasoning in value theory, 15, 88, 89, 92, 100-01, 105, 112, 113, 115, 117, 132, 135, 143, 279, 438, 452. Clark, J. B., 12-13, 48, 96, n., 264, n., 439, n., 440, n., 554-55. Clark's Law, 439. Clark, J. M., 3, n., 11, n., 14, n., 98, n., 413, n. Classical School, 69. See COST OF PRODUCTION, CAIRNES, SENIOR, RICARDO, JAS. MILL, J. S. MILL, LABOR THEORY OF VALUE, ETC. Clearing houses in speculative exchanges. See STOCK EXCHANGE. Clearing houses, bank. See CLEARINGS. New York Clearing House, 346, 354; New York Clearing House banks, 179, 344. Clearings, 200, 237-41, 345-46, 378, 392; as index of "ordinary trade," 240-41, 516; as index of speculation, 237ff., 378, 392, 516; in New York City, 237-41, 339, 341-42, 345-47, 357-59, 360, 516; of New York City trust companies, 345-47; outside New York City, 239-41, 339, 340, 342, 348-53, 357-59, 516, n.; ratio of, to "deposits," 341-42, 348-59, 516, n.; ratio of, to "total transactions," 348-51, 353, 359, n. Clow, F. R., 135, n., 144, n. Coin, 139, n., 167, 443-50; coinage, 443-50; statistics of, 412, n. Collateral loans, 461, 462, 463, 493, 494, 497, 502-06, 513, 523-26; percentages of, on stocks and bonds, and on "other collateral security," 502-09; on "other collateral security" analyzed, 502ff. Collection of out of town checks, 354-55. See CHECKS. Commerce. See TRADE. Commercial banks, 357, 488, 490, 498-99, 519-20, 523-29; financing commerce no longer the chief function of, Ch. XXIV, esp. 523ff. Commercial cities, outgrow manufacturing cities, 259. "Commercial paper," 431, 457, 490, 496-97, 498-520. _Commercial and Financial Chronicle_, 272. Commodity theory (Metallist theory, Bullionist theory), 81, 85, 129, 135, 144, 151-53, 330, 390, 391, 435, n.; hypothetical case illustrating, 151-53, 327-28, 390, 421; contrasted with quantity theory, 151-53. Competitive display, relation of, to value, 410-11, 438-42, 452. Conant, C. A., 73, n., 182, n., 323, n., 347, n., 412, n., 418, n., 428, n., 502, 510, n., 511, n., 535, n. Conant, L. Jr., 252, n. Concatenation of values and prices. See VALUES, PRICES. Consols, 470. Contango, 145. Cooley, C. H., 3, 4, n., 19, 21, n., 30, 37, 484, n. Corporations. See STOCKS, BONDS, STOCK EXCHANGE. Consolidations of, 198-258, 366-67; lead to duplications of "deposits," 366-67; corporation finance, 198-99, 201, n. 3, 432, 460-61, 476-77; corporation securities as credit instruments, 460-61, 476-77, 492-93, 527. Correlation, coefficient of, 237, 237, n. Cost of production, Ch. III, 193, 221, n., 257ff., 295, 300, 306-07, 309, n., 389, 562, n., 565-66; inapplicable to value of money, Ch. III, 389, 451; relation of, to supply and demand, 50, Ch. III; not related to quantity theory, 46ff.; conflicts with quantity theory, 300, 306-07, 310-11, 389; assumes fixed absolute value of money, Ch. III, 313-14, 389, 451; "real costs," 44-45, 64ff., 96, 117, n. See LABOR THEORY OF VALUE. Money costs, Ch. III, 90, 95; Austrian cost theory, 56, Ch. III, 90, 95, 116, n. See also SELLING COSTS. Cotton speculation. See NEW YORK COTTON EXCHANGE, AND SPECULATION. Credit, 42, 98-99, 130, 143-44, 166ff., Ch. IX, Ch. XIII, Ch. XIV, 318, Ch. XVIII, 392-393, 395, 427, 441, 447, Ch. XXIII, Ch. XXIV, 581; not based on money, 326-27; based on values, 326-27, 478-86, 485-86, 528-29; part of general system of values, 40-41, 460, 462-68, 480, 486ff., 574-75; definition of, 459-60, 472-74, 489; distinguished from credit transaction, 473; juridical aspects of, 395, 460-61, 468-73; relation of, to belief. See BELIEF. Functions of, 263-66, 391-92, 395, 407, 441, 475-78, 484ff., 511-12, 523-29; relation of, to money, Ch. IX, Ch. XVIII, 393, 395. See also RESERVES. Relation of, to trade, Ch. XIII, Ch. XIV, 391-92, 393; volume of, a function of dynamic change, 474; elastic. See BANK CREDIT. As "capital," 261, 461, 484ff.; in "equation of exchange," 166ff.; book-credit, 167ff., 226, 369; time-credit, 168. See LOANS, INTEREST. See also BANK-CREDIT, DEPOSITS, LOANS, COLLATERAL LOANS, CALL LOANS, ASSETS OF BANKS, BELIEF, BUSINESS CONFIDENCE, etc. _Crédit Lyonnais_, 530, n. Credit theory of paper money. See PAPER MONEY and GREENBACKS. Crises, 213, 254, 520, 548-49, 555. See PANICS, BUSINESS CYCLES, BUSINESS CONFIDENCE, THEORY OF PROSPERITY. Cross-section analysis. See HISTORICAL _vs._ CROSS-SECTION VIEWPOINTS. Curb, 250. Currency School, 283ff., 395; "currency theory of deposits," 283. Curves applied to money, 451-53. See MARGINAL ANALYSIS. Custom, 36, 109, 135, 136, 183-84, 205ff., 391, 405, 562, n., 589. See HABIT. D Davenport, H. J., 12, n., 14, n., 21, n., 25, 65, n., 67, 78, n., 80, 91, n., 94, 103, n., 113-15, n., 218, n., 314, 418, n., 419, n., 426, n., 429, n., 434, 447, n., 482, n. Davidson, T., 18, n. Dean, Rodney, 354, n. Debtor Class, 139. Debts, 433, n. ff., 472-75, 489; repudiation of, 581. DeCoppet and Doremus, 249, 370. Definition, a, as cause for the circulation of money, 143, 400-01. DeLaunay, L., 412, n., 415, n. Demand. See SUPPLY AND DEMAND. Increase of, 53; nominal increase of, 54; elasticity of, 55, 224-27, 411-13; for money, in what sense used, 62; elasticity of, 224-27; demand curves, 51; applied to gold, 451ff.; social value explanation of, 42, Ch. II, 93; distinguished from utility curves, 49, 52, 70, 80, 113, n., 115, n., 116. "Demand Notes," 322, 448, n. Deposits, 129, 143, Ch. IX, 186, 296, 344, 345-47, 453, 472, 487; by one bank in another, 358, n., 349, 355, n., 357, 365, n., 367, n., 500, n., 508, 515, n., 530-32; relations of, to "money in circulation," Ch. IX, 185, 294; relation of, to reserves, Ch. IX, 286-87, 298-99; activity of, 345-47, 512-16; in Europe 262. SEE GIRO-SYSTEM. Deposits as "bearers of options," 425; relation of, to loans, 285ff., 512; relation of, to trade and prices, Ch. XIII, Ch. XIV, 287; of private banks, 344; deposits distinguished from "deposits," 339, n., 343-44, 512; relation of, to "deposits," 512ff. "Deposits" in Kinley's studies of payments, 230, 232-36, 242-43, 338ff., 392, 512-16; retail "deposits," 232, 243, 269, 338, 367, n., 368, 392, 513; wholesale "deposits," 232, 243, 338, 392, 513; "all other deposits," 232, 235-37, 243, 338, 514; relation of, to trade, 230, 243-45, 248, 339-40. See OVERCOUNTING AND UNDERCOUNTING. New York City, 233, 234, 242, 246, 340ff.; country, 246; in Pittsburg, 245-46; check "deposits," volume of, 339, 360-62, 392. _Deutsche Bank_, 530, n. Dewey, John, 17, n., 22, 579, n. Dibblee, G. B., 259-60. Differential principle, and theory of rent, 430-41; applied to money, 439-41, 529. Director of the Mint, statistics of gold consumption, 413, n. Discount. See TIME-DISCOUNT and CAPITALIZATION THEORY; rate of, see INTEREST; rate of, _vs._ money rates, see INTEREST; on Greenbacks, see GREENBACKS, PREMIUM, AGIO. "Discounting," 298, 597. Distribution of wealth, 15, 31, 33, 37, 38, 97, 102-03, 246, 247, n., 413-16, 465-67. See also INTEREST, CAPITAL, CAPITALIZATION THEORY, RENT, IMPUTATION THEORY. Division of labor in banking, America and Germany contrasted, 527; extent of in England, 530, 540-41, 542. Dodo-Bones, 82, CL VII, 155, 280, 304, 321, 325. "Dollar exchange," 541. "Domestic trade" _vs._ foreign trade, appendix to Ch. XIII. See TRADE. Double counting in estimating volume of trade. See OVERCOUNTING. Dualism, most useful metaphysics for social sciences, 571-72. _Dun's Review_, 272, n., 273, n. Dynamics, 42, 106, 178, n., Ch. X, 254, 262-66, 392-93, 395-96, 426, 474, 484-89, 495, 527-28, Ch. XXV; dynamics and statics, reconciliation of, 42, 395-96, Ch. XXV; "dynamic credit," 484-89. See TRANSITION PERIODS, PROSPERITY, THEORY OF, STATICS, "NORMAL," FRICTION, FLUIDITY, LIQUIDITY, SALEABILITY, EQUILIBRIUM, BUSINESS CAPITAL, INTANGIBLE CAPITAL, etc. E Elasticity. See DEMAND, ELASTICITY OF, AND BANK-CREDIT, ELASTICITY OF. Ellwood, C. A., 4, n., 21, n. Emery, H. C, 146, n., 371, n., 576, n. England, 142, 184, 447-48, 450, 530, 534, 536-43. See LONDON, and LIVERPOOL. Bank of England, 183, 319, 323, 350, 538ff.; "Bank Restriction" in, 323, n. English School, 96. See CLASSICAL SCHOOL. Entrepreneur, 67, 485ff., 539, 583-85. "Epi-phenomenon," money as, 266. "Equation of Exchange," Ch. VIII, 186, 188, 191, 204, 283, Ch. XV, 326, 363, 520-22, 527, n., 528, n.; as equation of "values," 159; mathematical analysis of, 158-66; factors in, highly abstract, 162-63, 176-77; "equation of exchange" _vs._ causal theory, 163, 165-66, 186, 189, n. See CAUSAL THEORY OF VALUE. Statistics of, Ch. XIX. See QUANTITY THEORY, DEPOSITS, VELOCITY, TRADE, VOLUME OF, PRICE-LEVEL, etc. Equation of supply and demand, 51. See SUPPLY AND DEMAND. Equilibrium, 91ff., 105, 115, n., 116, 117, 119, 156, 187, 190, 222, 225, 254, 262-66, 293, 298-99, 328, 333, n., 392-93, 401, 451-57, 557, 570-73, 583, 586-89. European Banking, 262, 497, 511, 523, 527, 530. See ENGLAND, GERMANY, FRANCE, AUSTRIA-HUNGARY, BELGIUM, etc. Exchange, 9-11, 133, 224ff., 398ff., 468-69, 520-23; creates _values_, not _utilities_, 111, n., 145, 423-24, 424, n.; in static state, 262-66, 401-02; relation of, to value, 9-11, 401ff., 468-69. See TRADE, GOLD MOVEMENTS, INTERNATIONAL, ETC. Exchangeability. See SALEABILITY. F Fashion. See SUGGESTION. Federal Government, 147, 322, 332, 368, 432, 476, 549; Federal war tax as index of grain speculation, 251. Federal Reserve System, 299, 490, 499, 518-20; should rediscount stock collateral loans, 518-20; "money trust" and, 518-20. Fetter, F. A., 7, n., 48, 78, n., 301, n., 303, n., 437, 440, n., 562, n. Fiat theory, 136, 142. See also LEGAL THEORY, _Staatliche Theorie_. Fichte, J. G., 22, 137. Fisher, I., 47, 56, 81, 91, n., 99, 117, n., 124, 128, 130, 143, 152, 154ff., 172ff., 186ff., 196, 200, n., 203ff., 209ff., 216ff., 222, 226-29, 231, 240, 247, 248, n., 254, 256, 261, 262, 274, 281ff., 291ff., 301, n., 302-04, 306, 308, 311, 312, 324, 326, 331, 333, n., 335ff., 348-49, 351-52, 360ff., 371, 376, 381-83, 400, 437, 455, 522, 537, 555, 559, 563. Fite, W., 21, n. Fluidity, 143, 403, 456, 476, 542, 563, n. See also LIQUIDITY, SALEABILITY, STATIC THEORY, ETC. Flux, W. A., 49. Foreign bills of exchange, in reserves, 181-82. See BILLS OF EXCHANGE AND GOLD MOVEMENTS, INTERNATIONAL. Foreign trade, 261, 265, 503; ratio of, to "domestic trade," appendix to Ch. XIII. See TRADE, BILLS OF EXCHANGE, GOLD MOVEMENTS, INTERNATIONAL. France, 136, 139, n., 450, 530, n., 533; _Banque de_, 136, 183, 425, 538-39. Friction, 11, 94, 262-66, 392, 426, 543-44, 554-55, 563. See also STATICS, DYNAMICS, SALEABILITY. Functions of money, 76, 81, 83, 93-94, 110-11, 144-48, 151-53, 201, 263-66, 313-14, 327-28, 390-91, 394, 399, Ch. XXII, 536ff., 543; in relation to value of money, 144ff., 390-91, 309-400, Ch. XXII. Functions of value. See VALUE, FUNCTIONS OF. "Futures," 243, 251. See STOCKS, "BORROWING AND CARRYING" OF. Future values, 40, 107, 459-60, 480, 486, 585. See CREDIT, PART OF GENERAL SYSTEM OF VALUES. Futurity, not peculiar to credit, 459-60, 475. G George, Henry, 78, n., 301, n. Germany, 136, 139, n., 145-46, 167, 425, 433, n., 435, n., 527, 530, n.; giro-system in, 150, 167, 289; great use of domestic bills of exchange in, 288-89; limited division of labor in banking in, 527; Reichsbank, 182, 183. Giddings, F. H., 87, n., 556-57, 571, 573, n. Giro-system. See GERMANY. Gold, 84, 143, Ch. XXI, 422, 432, 436, 441-43, 443-44, n., 530, 535-56, 538-39, 567, 591; in arts, 84, 135, 151-53, 224, 314, 330, 390, 400, Ch. XXI, 451-57; as money, 84, 135, 141, 146, 224, 304, 322-23, 390, 408-16, 441-43, 445, 451-57, 495-96, 530, 535-56, 538-39; value of, 84, Ch. XXI, esp. 408-16, 451-57; in reserves, 147, 180-81, 324-28. Gold mining camps, high prices in, 220, n. Gold movements, international, 60-61, 129, 142, 181-82, 183, 261, 280, 292, Ch. XVI, 434, n., 531, 533-34. Gold production and prices, Ch. XVIII, 535-36; new world discoveries, 219ff.; Californian and Australian discoveries, 220-21, 221, n. Goods, consumers', 34ff., 82, 96, 481; ranks or orders of. See RANKS. Instrumental, 38, 81, 297, 482, 484, 500, 569, 579. "Goods side" of "equation of exchange," no, 159. "Good will," 260, 482-83, 561, 564. See BUSINESS CAPITAL, INTANGIBLE CAPITAL, SELLING COSTS, ETC. Grain speculation. See SPECULATION, COMMODITY. Greenbacks, 141, 146, 147, 194, 304, 322-23, 332-33, 422, 432, 435, 436, 567-68. Gresham's Law, 129, 140, n., Ch. XVII; conflicts with quantity theory, Ch. XVII; quantity theory version of, 321-22. H Habit, 104, 109, 138, 225, 554-55, 589. See also CUSTOM. Hadley, A. T., 157. Haig, R. M., 552, n. Hamburg, coffee speculation in, 252; Giro-Bank, 150. Haney, L. H., 3, n. Harvey, "Coin," 327. Havre, coffee speculation in, 252. "Hedging," 243, 253, 264. Hegel, G. W. F., 18, n. Helfferich, Karl, 14, 82, n., 110, n., 134, 418, n., 419, n. Heredity, 571-73. Hermann, F. B. W. von, 438, n. History, economic interpretation of, 33. Historical vs. cross-section viewpoints, 101ff., 119-20, 135-39, 397-400, 548, 553-54, 578-81. See also STATICS, DYNAMICS. Hoarding, 140, n., 174, 207, 208, 211, 333, n. Hobson, J. A., 73, n., 308, n. Hollander, J. H., 154, 250, n. Holmes, Justice O. W., 24, 587-90. Holt, Byron W., 222, 249, 370. Hubbard, Guy C., 260, n. Hughes Commission, 252, n. Hume, David, 21, 47. I Ideal credit economy, 543. Ideal values, 467, 480. Imitation. See SUGGESTION. Imputation theory, 28, 38-40, 99, 300, 389, 424, 481; conflicts with quantity theory, 300, 303-04, 310-11, 389. Income, money. See MONEY INCOME. Income, net, of the United States, appendix to Ch. XIII. Index numbers, of check circulation, 361-62, 383; of net income of the United States, 278; of prices, 278, 381-82, 383, 436; of railway gross receipts, 278; of trade, 227-29, 255-56, 278, 363, 381, 383. See STATISTICS. India, 140, 143, 149, 181, 443, 444, n., 449; a liability, rather than an asset, to quantity theory, 444, n. Individual interest and social advantage, 397-99. Individual values, 19, 43-45. See also VALUE, SUBJECTIVE, PERSONAL, SUBJECTIVE EXCHANGE. Individualistic theories, 14-16, 20, 21, 22ff. Individuality, a social product, 16-19. Industry, rather than commerce, chiefly financed by modern banks, Ch. XXIV, esp. 523-29. See ASSETS OF BANKS, BANK CREDIT, FUNCTIONS OF. Inertia. See HABIT, CUSTOM. Institutional values, 29-30, 413, 484. Institutions, 19, 27, 484, 487, 562, n., 570. Insurance policies as credit instruments, 472. Intangible "capital" _vs._ capital goods, 482-83, Ch. XXV. See also GOOD WILL, BUSINESS CAPITAL, ETC. Interest, 146, 219, 223-24, 225, 301ff., 333, n., 416, n., 428-32, 437, 471, 472; "appreciation and," 76-78; productivity theory of, 224, 302-03, 437; "use" theory of, 437, 438, n.; "pure rate" of, 75, 76, 77, 428-29; _vs._ "money rates," Ch. IV, 224, 428-32, 461, 521, n., 523-24, 526, 529. See also MONEY RATES, CALL RATES, CAPITALIZATION, TIME DISCOUNT. International banker, 409, 446, 539ff. See GOLD MOVEMENTS, INTERNATIONAL. International trade. See FOREIGN TRADE. Investment, 270, 523ff., 528; _vs._ speculation, 521, n., 523-26; banker, 489, 519, 523, n., 527-28. "Invisible items" in foreign trade, 268, 270, 320. J James, William, 579, n. Jenks, J. W., 260, n. Jevons, W. S., 25, 48, 91, n., 107, 522, n. Jewelers, 409, 454-57; paper of, in the money market, 454-57. Johnson, A. S., 4, n., 13, 105, 115, n., 265, n., 403, n., 440, n., 563, n. Johnson, J. F., 73, n., 333, n., 418, n. Joint Stock Banks, 184, 530, 539. See LONDON, ENGLAND. Jurisprudence, 23-24, 588. See LAW, LEGAL VALUES. Juristic thinking, 24-25, 29, 433, n., 586-88; contrasted with economic thinking, 433, n. K Kant, I., 22, 137. Kemmerer, E. W., 48, 129, 135, 140, 141, 156, 157, 167, 170, 175, n., 220, n., 226, 240, n., 254, 256, 274, 312, n., 321, 334-37, 359, n., 361, n., 363-65, 381-83, 400, 426, n., 443, n., 444, n., 522, n., 537, 538, n. Keynes, J. M., 180, 181, 182, n., 184, 207, 443, n., 535. King, W. I., 242, 243, 246, n., 247, n., 248, n., 269, 271-72, 275, n. Kinley, D., 13, 48, 78, n., 80, 110-11, 174, 208, n., 230, 233-36, 237, n., 242-45, 249, 254, 256, 269, 321, 337-45, 349, 350-52, 360, 365, n., 368, 376, 383, n., 419, n., 447, 449, 463, 498, n., 512-15. Kirkbride and Sterret, 347, n. "Kiting," 368. Knapp, G. F., 49, 150, 418, n., 433-5, n. Knies, Carl, 12, 133, 323, n., 418, n., 419, n. Kuhn, Loeb & Co., 343-44, 515, 515, n. L Labor theory of value, 12, 44-45, 64ff., 139, 570. See VALUE, COST OF PRODUCTION, ADAM SMITH, RICARDO, MARX, CAIRNES. Land speculation, 254, 264, 317. See SPECULATION. Laughlin, J. L., 48, 135, 141, 144, 146, 177, 219, n., 281, 282, n., 283, n., 284, 312, n., 319, n., 327, n., 418, n., 419, n., 443, n., 444, n., 459. Law, theories of, 23ff., 586-89; statics and dynamics of, 586-88. LeBon, G., 37. Legal tender, 147, 418, 422, 432-36, 442, 445-47, 448, n. See FUNCTIONS OF MONEY. Legal theory of money, 134, 136, 405, 433n., ff. See _Staatliche Theorie_. Legal thinking. See JURISTIC THINKING. Legal values, 23-29, 40, 138-39, 413, 414, 435, n., 562, n., 586-89. Lewes, G. H., 87, n. Liabilities of banks, 285; relation of, to loans, 286. See DEPOSITS, BANK-NOTES, ETC. Liquid paper, 455, 489-91, 499ff., 513-18. Liquidity, 455, 475, 489, 495, 499ff., 508, 513-18, 526-27, 529-44. See SALEABILITY, STATICS, FRICTION. Liverpool, 252, 259. Loans, on call. See CALL LOANS. On cotton, 481, 504, 508, n.; on grain, 380, 503, 508, n.; to stock market, 375ff., 379, n., 430, 488, 502-03, 507-12, 518-20, 523-28; to wholesalers and retailers, 504-05; consumption, 463; war, see WAR LOANS. Collateral, see COLLATERAL LOANS. Activity of, 512-14; relation of, to deposits, 285ff.; relation of to "deposits," 375-81, 512-14; relation of, to trade, 287, 287, n.; relation of, to international gold movements, 318-19; short loans as bearers of options, 425, 428-32. See also ASSETS OF BANKS, "COMMERCIAL PAPER," "MORNING LOANS," "OVERCERTIFICATIONS." Locke, John, 47. London, 145, 251, 259, 259, n., 497, 522, n., 539ff.; stock exchange, 451; money market, illustrates assumptions of static theory, 539ff. M "Manipulation," of values and prices, 575ff., 589. Manufacturers' "paper," 454, 457, 500, 513, n. "Margins," 372, 488, 489, 493, 521, n., 523-26, 528; "margin operator" as "banker," 524-26. Marginal analysis, 24, 51, 440, Ch. XXV; applied to law, 586-89; applied to money, 152-53, 199, 208, 225, 227, 451-57, 534. Marginal utility, 13, 14-15, 30, 34-35, 38, 40, 42, 44, 46, 49, Ch. V, 137, 440, n., 562, n., 570, 583-86; applied to value of money, Ch. V, 137; essentially static theory, 106ff.; Schumpeter's version of, 44, 90ff., 113, n., ff., 583-86; limitations of, 92ff.; "relative marginal utility," 113-114, n., 115, n., 440, n.; quantity theory and, 46. "Market letter," 222, 575. Marshall, A., 48, 105, 265, n. Marx, Karl, 12. Mathematical economics, 91, n., 117, 139, 142, Ch. VIII, 310, 438, 553. McCulloch, J. R., 66. Mead, G. H., 4, n. Meade, E. S., 198, n., 202, n., 477, n. Measure of values, 133, 150-53, 201, 265, n., 325, 327-28, 391, 417, 418-23, 436, 451, 543, 567-69, 538; must have value, 133, 326; relation of, to commodity theory, 151-53; applied to non-economic values, 567-69. See also FUNCTIONS OF MONEY. Medium of exchange, 133, 201, 327-28, 391, 404, 418, 420-24, 425-26, 433, n., 434, n., 436, 442, 543; must have value, 133. See FUNCTIONS OF MONEY. Meinong, A., 467. Menger, Karl, 14, 48, 82, n., 88, 96, n., 110, 397, 398, 400, 401, n., 402-04, 406, 407, n., 418, 476, 493. Mercantilism, 225, 551. Merriam, L. S., 13, 419, n. Metallist theory. See COMMODITY THEORY. Middlemen, effect of eliminating, on price level, 306-07. Mill, James, 66. Mill, J. S., 46, 47, 50-52, 55, n., 58, 59, 61, 67, 69, 94, 129, 132, 161, n., 172, 192, 193, n., 265, 285, n., 319, n., 333, n., 548. Minneapolis, bills of exchange in, 289, n. Mises, L. von, 14, 48, 49, 80, 83, 88, 100, 109-11, 120, n., 182, n., 418, n., 429, n., 434, n., 556. Mitchell, W. C., 91, n., 179, n., 188, 213, n., 265, n., 286, n., 323, n., 329, n., 332-34, 363, 412, n., 430, n., 448, n., 449, n., 522, n., 533, 536, 568, 574. Mode. See SUGGESTION. Money, abstracted from by static theory, 99, 265-66, 392; definitions of, 167, 169, 325-26, 495-96; functions of, see FUNCTIONS OF MONEY; must have value from non-pecuniary source, Ch. VII, 326, 390-91, 417, 440, 449, 591; origin of, 394, Ch. XXI; money not unique, 82-83, 85, 137, 145, 147, 148, 325, 329-30, 389, 406-07, 417, 425, 437-50, 477-78, 535, 542, 544; peculiarities of, 3, 57-58, 64, 69, 71, 74ff., 78-79, 81-83, 85, 88, 91, 101, 124, Ch. VII, 132, n., 134, 144-45, 153, 392-93, Ch. XXI, Ch. XXII, 406, 437ff.; tool or instrumental good, Ch. IV, 82-83, 224, Ch. XXII, 591; theory of, developed in isolation, 46ff.; theory of, must be dynamic, 262-66, 393. See also STATICS, DYNAMICS. Value of, _vs._ "reciprocal of price-level," 8, 56-57, 77, 100, 123, 128-29, 155-56, 312-13, 382, 388-89, 433, n., 449. See VALUE, ABSOLUTE _vs._ RELATIVE. Relation of, to credit. See CREDIT, RESERVES, RATIO, FIXED, M:M´. Relation of, to trade, Ch. XIII, Ch. XIV. See TRADE. See ANALYTICAL TABLE OF CONTENTS. "Money in circulation," Ch. VIII, 173, 175, n., 179, 185. Money economy, 90, 220, 225, 265, n., 397, 399, Ch. XXI, Ch. XXII, 555. "Money-funds," distinguished from money, 63, 427, 453, 495-96. Money income, distinguished from real income, 89; distinguished from quantity of money, 90, 307-310. Money market, 32, 62, 221, 222, 319, 406, 427, 430, 453-58, 461, 495-97, 516-20, 522, n., 524, 529-44, 575-76. "Money Post," on New York Stock Exchange, 372, 375, 430-31. Money rates, Ch. V, 145, 149, 183, 223, 224-26, 316, 319-20, 378, 406, 428-32, 453-57, 461, 495, 523-24, 526, 529-30, 534; _vs._ interest rates. See INTEREST. Relation of, to bank reserves, 378; to clearings, 378; to international gold movements, 316, 318-20; to dividend and interest payments, 522, n.; to plans for corporate consolidations, 198; to jewelers' profits, 454; to trade, 223, 224, 226; to volume of speculation, 378, 522, n. "Money Trust," 518-20. Monism, unsatisfactory metaphysics for social sciences, 571-72. Moore, H. L., 237, n., 238, n., 574. Morality, theories of, 22-23. Moral values, 22-29, 40, 137-38, 480, 562, n., 567-69, 582, 589. Morgan, J. P., 140, 519, n., 577; J. P. Morgan & Co., 343-44, 375, 515, n. "Morning loans," 376, 377, 509, 510. See "OVERCERTIFICATIONS." N National banks, 234, 338, 342, n., 343, 345, 347, 355, n., 359, 375, 498-99, 502-03. National City Bank, 375, 521, n., 540, n. Negative values, as "real costs," 71, n. New York City, 233-35, 259, 259, n., 340ff., 383, 392, 430-31, 439, n., 502, 503, 506, 511, 514-16, 520, 541-42; as "clearing house" for country, 236, 353ff.; contrasted with London, 541-42; "deposits" in, 233, 340ff., 392, 515; "all other deposits" in, 235-37; Cotton Exchange, 252, 503, 541; Coffee Exchange, 252, 268, 503, 541; Stock Exchange. See STOCK EXCHANGE. Money market. See MONEY MARKET. Clearings. See CLEARINGS. Newcomb, Simon, 156. Nicholson, J. S., 81-82, 124, 129-32, 134, 151, 167, 325-29. "Nominalism" in monetary theory, 433, n., ff. See _Staatliche Theorie_. "Normal tendency," 176, 218, 254, 262-66, 293, 298-99, 315, 392-93, 395, 536ff.; "normal _vs._ transitional." See "TRANSITION PERIODS," STATICS, DYNAMICS. Norton, J. P., 179, n., 287, n. Note-brokers, 496-97, 499. O "Odd lot" dealings in securities, 249, 370. "One house bonds," 147. Origin of money, 394, Ch. XXI. Ornament, and origin of money, 408ff. Orthodox economist, 258, 549, 560. "Other collateral security," analyzed, 502ff. "Other loans and discounts," analyzed, 500ff. "Overcertification," 200, 376, 509, 510. See "MORNING LOANS." Overcounting in estimates of volume of trade, 168, n., 200, n., 230, 243-45, 247, n., 255, 339-40, 364-81. See UNDERCOUNTING. Overproduction, 258, 550. "Over the counter" dealings in securities, 249, 370. P Panics, 174, 273, 435, 446, 448, 520, 548-49, 555. See CRISES, BUSINESS CYCLES. Paper money, 143, 150, 151, 418, 421, 473, 495, 496, 538; inconvertible, 57, 84, 108, 132, 134, 136, 140, n., 141, 321-23, 391; credit theory of, 141, 146. See GREENBACKS, AUSTRIA. Parasitic occupations, 482; gold mining as, 262, n.; American banking as, 527. Patten, S. N., 558, n. Paulsen, F., 22. Payments, 177-78, 338, 367, n.; proportions of money and checks in, 174, 338, 383, 447, 449, 463; wage, 174, 531; relation of, to volume of trade. See OVERCOUNTING, UNDERCOUNTING, BARTER. Pay rolls, money for, 174, 349. Pearson, Karl, 237, n. Perry, R. B., 3, n., 16, n., 21, n., 25, n., 97, n., 117, n., 118, n., 119, n. Persons, W. M., 241, n., 276, n. Phillips, C. A., 174, n. Phillips, Osmund, 272, n., 353, n., 354, n. Physiographic factors in social life, 571-73, 574, 590. Pierson, N. G., 221, n. Pittsburg, "deposits" in, 245-46. "Platform" of quantity theorists, 155. Poker chips, 132. Pope, J. E., 316, 317, 319, n., 502, n., 504, n., 505. Populists, and quantity theory, 141. Positive doctrine, in Parts I and II, summarized, Ch. XX. "Power in exchange," 9-10, 388. Pragmatism in economic theory, 41-42, 93, 96-97, 98-99, 553, 571-72. Pratt, S. S., 248, n., 251, n., 252, n., 369, 370, 374, 476, n. Premium, 146, 194, 322, 332, 390, 442-50, 471. See AGIO. Gold, _vs._ general price level as index of value of money, 194. Prestige as economic power, 33, 37, 41, 405, 409, 411, 438-42, 463, 465-66, 487, 489, 570; prestige values. See VALUES. Price, Theodore, 222. Price, 7ff., 388, 440, n.; and value, 8ff., 298. See VALUE. "Buying price" _vs._ "selling price," 402-04, 406-07, 476; "just price," 24. Price level, 56, 86, 87, Ch. VI, Ch. VIII, 188-89, Ch. XV, 315-17, 328, 381-82, 388-89, 416, 416, n., 456, 520-23; relation of, to particular prices, 156, 183, 295, 311-12, 315-17, 388-89; _weighted_ average, tied to T, 163ff., 363, 381-82; supposed "passiveness" of, 126, 186, 187, 192, 290, Ch. XV, 389; "reciprocal of," _vs._ value of money. See MONEY, VALUE OF. Price-theory _vs._ value-theory, 49, 78, 389, 558-59, 570-77, 589-90. See SUPPLY AND DEMAND, COST OF PRODUCTION, CAPITALIZATION THEORY, IMPUTATION THEORY. Prices, concatenations of, 112-13, 300, 310, 313-14; customary, 144; fluid, 143; world prices, and gold production, Ch. XVIII. Private banks, 338, 343-45, 348, 355, n., 357, 488, 498-99, 514-16, 527-28, 531; deposits in, in New York City, 344, 515; "deposits" in, in New York City, 343-45, 515-16. Produce exchanges, 200, 251ff., 406, 541. See SPECULATION, COMMODITY, CHICAGO BOARD OF TRADE, LONDON MONEY MARKET, NEW YORK COTTON EXCHANGE, ETC. Production, confused with trade. See TRADE. Relation of, to trade, 257ff., 269, 393; exchange as. See EXCHANGE. Factors of, 268, 481-82; index of, 278; money as instrument of. See MONEY. "Productive," meaning of, 257, 591. Prosperity, theory of, 262, 395, 548, 555, 556, 569, 573ff. See STATICS, DYNAMICS. Protective tariffs, 550-52, 553, 580-81. Pujo Committee, 344, 373, n., 375, 491, n., 515, n., 518-19. "Purchasing power," 9-10, 88, 98-99, 484; of money, 86, 88, 155-56, 388, 583-86. Q Qualitative _vs._ quantitative thinking, 191-92, 195, 324, 433, n., 553, 586-88, 590. See JURISTIC _vs._ ECONOMIC THINKING. Quantity theory, 42, 79, 81, 99, 110, Pt. II, esp. Ch. XV, 435, n., 444, n., 448-49, 478, 520-23, 537ff., 550, 558, n.; modicum of truth in, 195, 330, 448-49; as basis of prediction, 334-35; doctrine of, that quantity of money is of no importance, 219, 219, n., Ch. XIII, _passim_, 265, 391-92; conflicts with other theories, see SUPPLY AND DEMAND, COST OF PRODUCTION, CAPITALIZATION THEORY, IMPUTATION THEORY, GRESHAM'S LAW. "Long run" _vs._ "short run" versions of, 170-71, 188-89, 192ff., 262, 393; not a functional theory, 262-66, 400-401; not logically related to bimetallism, 219, n.; applied to international trade, 61, 129, 183, 280-81, 292, Ch. XVI; not related to general theory of value, 46ff., 305; psychological assumptions of, 143-44, 305, 444; relation to medium of exchange function, 152, 266; contrasted with commodity theory, Ch. VII, esp. 151-53; types of, Ch. VII, Ch. VIII, 172, 177, n., 182-85, 192-94, 210, n., 216-17, 218, n., 219, n., 220, Ch. XVIII, 521, n., 522, n., 537, 538, n. See RICARDO, MILL, J. S., TAUSSIG, NICHOLSON, FISHER, WALKER, F. A., JOHNSON, J. F., JEVONS, BARBOUR, ANDREW, DAVENPORT (p. 218, n.), KEMMERER. R Railway gross receipts, 240-41, 278, 516; relation of, to clearings, 240-41. "Ranks" or "orders" of goods, 34, 38, 96, 481, 562, n. See IMPUTATION THEORY, AUSTRIAN SCHOOL, CAPITALIZATION THEORY. Ratio of exchange, 6ff., 25, 92, 388, 584; abstract, as value, 25, 92. See VALUE, ABSOLUTE _vs._ RELATIVE, PRICE, "PURCHASING POWER." Ratio, fixed, M:M´, Ch. IX, 187, 206, 281, 288, 290, 294, 328-29, 529-44. See RESERVES, DEPOSITS, "MONEY IN CIRCULATION." Real estate trade. See TRADE. Rediscounting, 490, 494, 518-20. _Reichsbank._ See GERMANY. Religious values, 414. Rent, 316, 439-41; as cost, 70; of money, as "money rates," Ch. IV, 145, 149, 424, 438-42, 451-57; capitalization of. See CAPITALIZATION. Reserve cities, 233, 343, n., 357, 359, n. Reserve function of money, Ch. XVIII, 418, 421, 424, 436, 536-44; special case of "bearer of options" function, 426, n., 536ff. See FUNCTIONS OF MONEY. Reserves, Ch. IX, Ch. XVIII, 393, 395, 447, 451, 491, 517, 529-44; bills of exchange as, 181-82, 444; legal reserve requirements, 175, n., 184, 447, 448, 449; ratio of, to deposits, 175, n., 179, 286-87, 298, 324ff., 529-44; ratio of, to "money in circulation," 175, n.; relation of, to money rates, 378; "secondary reserves," 530. Resumption of specie payments, 146, 323. Retail "deposits," see "DEPOSITS." Retail trade. See TRADE. Ricardo, David, 47, 50, 51, 64, 65, 66, 106, 131, 550. Ridgeway, W., 407, n. Ripley, W. Z., 275. Risk, 67, 527, 542-43. See DYNAMICS, "BEARER OF OPTIONS." Ross, E. A., 37, 568, 571. Royce, J., 18, n. Rupee. See INDIA. Rural banks, 232-35, 491, 517-18; "all other deposits" in, 233-35; loans by, in Wall Street, 517-18; small volume of transactions of, 235, 342, n. S Saleability, 10, 94, 99, 401-07, 430, 440-41, 453, 475-78, 489, 493ff., 524-25, 526-27, 529, 540ff., 591. Santos, coffee speculation in, 252. Savings banks, 342, n., 409, 472, 498-99, 523. Savigny, F. C., von, 24, 398. Schumpeter, J., 44, 49, n., 80, 83, 90-100, 111, 113, n., ff., 264, n., 265, 401, 429, n., 484-85, 488, 526, 549, 554-55, 558, n., 583-86. Scott, DR, 78, n. Scott, W. A., 13, 48, 81, 132, 141, 144, 327, n., 418, n., 419, n., 422, n., 431, n., 498, n., 501, n. Seager, H. R., 301, n., 303. Sea Board Air Line Adjustment 5's, 471. Seasonal changes, 187, 192, 533. Seignorage, 131. Self, the, 19. Seligman, E. R. A., 73, n., 301, n., 418, n., 548. Selling costs, 257ff., 393, 565. "Selling price" _vs._ "buying price." See "BUYING PRICE." Senior, N. W., 14, n., 67. Sex, social transformation of, 35-36; rôle of, in origin of money, 409-13. Shakspere, 25. Share sales. See STOCK EXCHANGE, CLEARINGS. Shaw, A. W., 259, n. Silver, 139, n., 150, 151, 152, 219, 221, n., 327, 397, 412, 414, 415, 421, 434; certificates, 432. Simmel, G., 101, 418, n. Single tax, 318-19, 552, n. Smith, Adam, 12, 50, 64, 65, 222, 526-27, 550, 556. Smith, B. F., 366, n. Smith, Munroe, 24. Social control, Ch. I, 395, 409, 435. n., 482, 584; technology of, 577ff., 589, 591; "radiant points of," 37, 576. Social psychology, 17, 36-37, 143-44, 560, 569-70, 577-78, 586. Social value theory, Ch. I, 87, n., 98-99, 137ff., 158, 279, 310-11, Ch. XX, 402, n., 408-16, 433, n., 435, n., 438-42, 464-67, 469, 480, 560, 569-82, 586-89; pragmatic character of, 40-42; applied to law, 24, 586-89; applied to morals, 22-24, 589. Social advantage, relation of, to individual interest, 397-99. Social "consciousness," 16; social expectation, 409; social forces, 26; "social marginal utility," 12; social mind, 7, 12, 34, 87, n., 557, 560, 570, 578; social objectivity, theories of, 20ff.; social organism, 16, 577; social "oversoul," 16; "social use-value," 12; social _vs._ individual values, 43-45. "Socially necessary labor-time," 12, 15. Society and individual, 16-26, 118. Soetbeer, A., 413, n. Sombart, W., 220. South Atlantic States, "deposits" in, 233, 246. Spahr, C. B., 274. Specie, 182. Speculation, 60, n., 85, 143, Ch. XIII, 221, 225, 231, 233-41, 248ff., 267, 298, 363-64, 382, 392, 503, 514-28, 540ff., 566-67, 579, 585; by manufacturers, wholesalers, and retailers, 243-44, 252-54; commodity, 251ff., 379-80, 406, 503, 540-42; influence of, on bank clearings, 237-41; land, 254; in London, 540ff.; "odd lot," 249, 370. Speculators, 31, 249, 263, 322, 488, 499, 523-27, 529, 544; _vs._ investors. See INVESTMENT. Spencer, Herbert, 571. "Spot" transactions, 251. Sprague, O. M. W., 174, n., 200, 354, n., 378, 502, n. _Staatliche Theorie_, 433, n., ff. Stabilizing the value of money, 152, 194. Standard, of deferred payments, 326, 391, 418, 436; of value, 133, 201, 390, 418-23. See MEASURE OF VALUES. Money, 135, 325-26, 421, 445; "primary" and "secondary," 422; tabular, 152, 436. State banks, 234, 322, 338, 342, n., 343, 345, 347, 498-99, 505-09; collateral loans in, 505-06, 507. Static theory, 11, 42, 93, 106ff., 176, n., 177, n., Ch. X, 219, n., 223, 254, 262-66, 292-93, 395-96, 403, 426, 433, n., 474, 481, n., 485, 487, 488, 536-44, Ch. XXV; abstracts from money, 99, 265-66, 392; relation of, to speculation, 263ff., 392, 474; dynamics and, reconciliation of, Ch. XXV. See also, SALEABILITY, LIQUIDITY, FLUIDITY, "NORMAL TENDENCY," EQUILIBRIUM, "WEALTH OF NATIONS, THEORY OF," DYNAMICS, TRANSITION PERIOD, PROSPERITY, THEORY OF, GOOD WILL, "BUSINESS CAPITAL," FRICTION, HISTORICAL _vs._ CROSS-SECTION VIEWPOINTS. Statistics, 237, n., 272, n., Ch. XIX; of banking assets, 498, 503-04, 506, 509-11; of bank-drafts on New York and other centres, 357; of "equation of exchange," 191, 213, Ch. XIX; of foreign and domestic trade, appendix to Ch. XIII; of gold consumption, 412, n.; of money in banks, _vs._ money in circulation, 179; of money-rates, 430-31; of net income of the United States, 246, 247, n., 278; of prices, 278; of quantity theory, 285, n., Ch. XIX; ratio, loans to deposits, 286-87, n.; reserves, 178-79, 286-87, n.; of speculation, 248ff.; of trade, 227ff., Ch. XIII, 363-81; "ordinary trade," 240-47; of velocity, 339, 361-63. See WEIGHTING IN STATISTICS. Stevens, W. S., 199, n. St. Louis, 246, 252, 289, n., 503; Merchants' Exchange, 253. Stock exchange, 31, 145, 254, 282, n., 369ff., 406, 458, 491, 520, 521-23, 527, 541, 564; New York Stock Exchange, 242, 248ff., 268, 344, 430-31, 514, 521-23, 541; clearing house in, 199-200, 369-75; share sales on, volume of, 248ff., 521, n., 522, n., 541; share sales on, correlated with bank clearings, 237ff., 516; bond sales on, 249, 370; "odd lot" dealings on, 249, 370, 374; security dealings outside, 250-51, 514; compared with other exchanges, 250, 541. Stocks and bonds, essential identity of, 460-61, 476-77; "borrowing" of, 145-46, 371-74, 471-72; value of. See VALUE. "Stop loss" orders, 249, 373, n. Store of value, 314, n., 408, 418, 424, 426, 451. Sec FUNCTIONS OF MONEY. Substitutes for money. See MONEY, NOT UNIQUE. Suess, Eduard, 413, n. Suggestion, 18, 36-37, 97, 118, 405, 410, 411, 464-66, 560, 570, 577-78. Supply and demand, Ch. II, 80, 295, 299-300, 311, n., 389, 453; applicable to general price level, 299-300, 389; assumes fixed absolute value of money, 52ff., 313-14, 389; conflicts with quantity theory, 299-300, 310-11, 389; not related to quantity theory, 46-47, 59-61, 295; inapplicable to money, Ch. II, 389; applied to money, 59-62, 325, 453, n.; in "money market," 62-63, 224, 453; relation of, to cost of production, 50, 69-70; relation of, to marginal utility, Ch. II, Ch. V, esp. 94-95, and 114, n. T Tabular standard, 152, 436, 451. Tarde, G., 18, 37, 466, 568. Tariff. See PROTECTIVE TARIFF. Taussig, F. W., 48, 49, 107, 123, n., 129, 151, n., 155, 182-85, 192, 216, 254, 276, n., 379, 532, n., 537. "Taxonomy" in economic theory, 563-64, 565, 566. Taylor, Jas. H., 252, n. Taylor, W. G. L., 13. Technology, 571-74, 576, 590-91; "technology of social control." See SOCIAL CONTROL. Temporal _regressus_. See HISTORICAL _vs._ CROSS-SECTION VIEWPOINTS. Thompson, Burton, on barter in New York City real estate dealings, 198, n. Ticker, 248-49, 373, n. "Till money," 183, 530, 539. Time credit. See CREDIT, FUTURITY, BOOK-CREDIT, BILLS OF EXCHANGE. Time discount, Ch. IV, 92, 93, 224. See INTEREST, CAPITALIZATION. Time, influence of, of money-rates, 428-32. Timeless-logical _vs._ causal-temporal, relationships, 403, 548. See CAUSATION, STATICS. Token money, 325, 326. Touzet, A., 412, n. Trade, various meanings of, 267ff.; "domestic" _vs._ foreign, appendix to Ch. XIII; "ordinary," volume of, 241-47, 369. Trade, volume of, 59-61, 117, Ch. VI, 144, 149, 159ff., 194, 215, Ch. XIII, 332, n., 339-40, 363-81, 521-23; an abstract number, distinguished from concrete goods, 161; a pecuniary magnitude, 16-64, 271, 277-78; confusions of, with production, or with stock, 225ff., 281, 296, n., 306-07, 363, n., 521, n.; governed by dynamic causes, 262-66, 392, 474; quantity theory doctrine of causes governing, 217-18, 218, n., 240, 255, 256, 257, 294, 522, n.; real estate trade in, 198, 254, 264, 317; relation of, to money and credit, Ch. XII, Ch. XIV, 391-92, 532-36; relation of, to price level, 160-66, 363, 381-82, 536; retail trade in, 173, 184, 232, 242-44, 369, n., 444-45, 447, 448-49, 463, 489, 531; speculation chief factor in, Ch. XIII. See SPECULATION. Wholesale trade in, 232, 243, 244-46, 253-54, 369, n., 381. See also BARTER, TRANSACTIONS, PAYMENTS, OVERCOUNTING, UNDERCOUNTING. "Transactions, total," relation of, to bank clearings, 348-51, 353, 359, n., 360; relation of, to "deposits," 349-51, 353. "Transition periods," Ch. X, 196, 218, 262-66, 293, 298-99, 392-93, 537ff., 548, 578-81, 589. See "NORMAL TENDENCY," STATICS, DYNAMICS. Trosien, 319, n. Trust companies, 338, 342, n., 343, 345-48, 498-99, 505-09, 516, n.; New York City, "deposits" in, 345-48; clearings of, 345-47; deposits of, 345, 516, n.; collateral loans of, 505-07; reserves of, 346-47, 531 Turgot, 78, n., 301, n. U Undercounting in estimates of volume of trade, 168, n., 200, n., 231, n., 364-65, 369-81. See OVERCOUNTING, BARTER. Underwriters, 32, 488, 523, n. Urban, W. M., 29, n. "Use theory." See INTEREST. Utility. See MARGINAL UTILITY. V Vacuum, monetary, 323. Value, Part I, 388-89 and _passim_; absolute _vs._ relative, 7ff., 56-57, 77-78, 81, 86ff., 109-110, 123, 156, 158-59, 303, 312, 328, 388-89, 402, n., 440, n., 449; abstract units of, 451; exchange and, 9-11, 401ff., 483-84; wealth and, 5, 41, 388; as generic, 26, 288, 467; _differentiæ_ of species of, 26ff.; as quality, 5, 41, 97-98, 388; as quantity, 5, 41, 97, 98, 388; control over, 575ff.; causal theory of. See CAUSAL THEORY. Definition of, 5-7, 388; derived, becomes independent, 40, 137ff., 391, 480, 481, n., 562, n., 563, n. See also IMPUTATION THEORY, CAPITALIZATION THEORY, RANKS OR ORDERS OF GOODS. Formal and logical aspects of, 5ff., 41, 86, 98, 388-89, 401-02, n.; functions of, 10, 27, 43, 57, 87, n., 388, 440, 487, 552, 562, n., 572, 585-86; "human nature," 30, n.; "inner objective," 13, 88, 110, 402, n.; institutional. See INSTITUTIONAL VALUES. "Intrinsic," 24; "intrinsic causes of," 14, n.; objective, 85, 87, 100; of consumers' goods, 34ff., 300; of diamonds, 438-42; of gold. See GOLD. Of instrumental goods, 38ff., 297, 300ff., 304, 467; of money. See MONEY and ANALYTICAL TABLE OF CONTENTS. Of stocks and bonds, 30-31, 32, 36-41, 300ff., 462; "participation," 29, 30, n.; "personal," 19, 86, 88, 89; "prestige," 410-11, 438-42, 452-53; "public economic," 13, 86, 88, 89; "something physical," 135; subjective, 85, 86, 88, 99, 100, 401-02, n.; subjective, in exchange, 88, 89, 91, 99, 100, 101, 112-119, 137, n. See MONEY, VALUE OF, SOCIAL VALUE, PRICE, RATIO OF EXCHANGE, "PURCHASING POWER," "POWER IN EXCHANGE," MARGINAL UTILITY, COST OF PRODUCTION, SUPPLY AND DEMAND, ETC. Value theory _vs._ price theory. See PRICE THEORY. Values, concatenation of, 313-14; simultaneous rise or fall of, 8. Van Antwerp, W. C., 372, n., 374, n. Van Hise, C. R., 208, n. Variables and constants, 97, 119, 143-44, 204-05, 256-57. Veblen, T. B., 37, n., 411, 439, 477, n., 556, 560-64, 569, 570, 580, 582, 585. Velocity of circulation, 85, Ch. VI, 117, 131, 143, 194, Ch. XII, 290, 292, 298, 309, 310, 333, n., 339, 361-63, 394; "coin transfer" _vs._ "person-turnover" concepts of, 203-04, 308; as causal entity, 204, 209, 213-13, 214; quantity theory analysis of causes governing, 143, 203, 205ff., 309; most highly flexible factor in "equation of exchange," 205; varies with trade, 209ff., 306-08, 394; varies with prices, 308-10, 394; varies with value of money, 215; meaningless abstract number, 204. W Wagner, A., 25, n. Walker, Amasa, 401, n. Walker, F. A., 46, 62, 169, 170, n., 219, 220, n., 237, 414, n., 419, n., 521, n. Wall Street. See NEW YORK CITY, STOCK EXCHANGE, NEW YORK CITY CLEARING HOUSE, SPECULATION, MONEY MARKET, "MONEY TRUST," ETC. Walras, L., 91, n. Walsh, C. M., 188, n. Wants, social nature of, 35ff.; competitive. See COMPETITIVE DISPLAY. War, 108, 140, n., 194, 427, 549-51; World War, 136, 139, n., 142, 416, 427, 481, 521, 539, 550, n.; American securities returned during, 521, n. War loans, 463, n., 464, n., 480-81. Wealth, 440; definitions of, 5, n.; relation of, to value, 5; distribution of. See DISTRIBUTION OF WEALTH. "Wealth of nations," theory of, 262, 395, 556, 569. Weighting, in statistics, 163ff., 229, 229, n., 272, n., 341, 361, 383. Weston, N. A., 339, 341, 342, n., 360. Wheat as money, 407. Whitaker, A. C., 65, 154, 319, n. White, Horace, 209, 211, 345, n., 401, n. Wholesale "deposits." See "DEPOSITS." Trade. See TRADE, VOLUME OF. Wicksell, Knut, 128. Wicksteed, P. A., 91, n., 115, n., 116, 117, 214. Wieser, F. von, 14, 48, 49, 70, 80, 83-90, 99, 100, 101, 102, 106, 109, 111, 308, n. Williams, A., 152. Williams, Clark, 347. Willoughby, W. W., 18, n. Wilson, E. B., 164, 165. Withers, Hartley, 221, 222, 540, n. Wittner, Max, 289, n. Wolfe, O. Howard, 349, 353, n., 359, n. Wolff, S., 289, n. X _xy = c_, 149. Y Yule, G. U., 237, n. Printed in the United States of America * * * * * FOOTNOTES [1] _Social Value_, Houghton Mifflin, Boston, 1911. [2] Cooley, C. H., "Valuation as a Social Process," _Psych. Bull._, Dec. 15, 1912; "The Institutional Character of Pecuniary Valuation," _American Journal of Sociology_, Jan. 1913; "The Sphere of Pecuniary Valuation," _Ibid._, Sept. 1913; "The Progress of Pecuniary Valuation," _Quart. Jour. of Econ._, Nov. 1915. Clark, J. M., "The Concept of Value," and "A Rejoinder," _Quart. Jour. of Econ._, Aug. 1915. Anderson, B. M., Jr., "The Concept of Value Further Considered," _Ibid._; "Schumpeter's Dynamic Economics," _Pol. Sci. Quart._, Dec. 1915. Perry, R. B., "Economic Value and Moral Value," _Quart. Jour. of Econ._, May, 1916. Bilgram, Hugo, "The Equivalent Concept of Value," _Ibid._, Nov. 1915. Haney, L. H., "The Social Point of View in Economics," _Ibid._, Nov. 1913 and Feb. 1914. Johnson, A. S., in _American Economic Review_, June, 1912, pp. 320 _et seq._ Carver, T. N., in _Jour. of Pol. Econ._, June, 1912. Mead, G. H., in _Psych. Bull._, Dec. 1911. Ellwood, C. A., in _American Jour. of Sociology_, 1913. Ansiaux, M., in _Archives Sociologiques, Bulletin de l'Institut de Sociologie Solvay_, May 25, 1912, pp. 949-55. Professor Cooley's articles, which I have listed first in this note, have in certain important particulars shifted the emphasis and changed the method of approach. He is more interested in the general sociological aspects of the value problem than in the technical economic aspects. In considering economic value, he is more interested in its general social functions than in its function as a tool of thought for the economic theorist. He has, therefore, been less bound by schemata than I have in the discussion. This different method of approach, coupled with a singular charm in exposition which characterizes everything Professor Cooley writes, makes it seem probable to me that readers who may find the doctrine as I set it forth unconvincing, will be convinced by Professor Cooley's exposition. I hope, too, that Professor Cooley's articles, which have been scattered among three periodicals, may soon appear together under one cover. [3] Including many whose formal definitions are quite different, and who would repudiate the contentions here advanced! _Cf._ my article, "The Concept of Value Further Considered," _Quarterly Journal of Economics_, Aug. 1915, and _Social Value_, chs. 2 and 11. [4] Definitions of wealth differ, and there are few if any definitions of wealth broad enough to make it true that only items of wealth have value. All wealth has value, but not all value is embodied in wealth. Thus, stocks and bonds, and "good will" have value. Few writers would classify them as wealth. The distinction between wealth and property is employed by many writers to meet the difficulty here presented, and it is held that these intangibles have only the value of the wealth to which they give title. In a logical schema, on the assumption of a fluid, static equilibrium, this may serve. It is true in fact, however, that many of these intangibles have value apart from the wealth to which they give title. But these are complications which I reserve for a later part of this chapter, for the chapter on "Statics and Dynamics," and (in the case of irredeemable paper money) for the chapter on "Dodo Bones." [5] The notion of ratio of exchange as a ratio between values is strictly accurate only under static assumptions. Goods, in actual life, are not always exchanged strictly in accordance with their values. _Cf._ my article, "The Concept of Value Further Considered," _Q. J. E._, Aug. 1915, pp. 698-702. In cases where prices, or exchange relations, are not in accord with values, the term "ratio of exchange" is inapplicable, since there are no quantities to be terms of the ratio--except the pure abstract numbers of the commodities, each measured in its own unit, exchanged. [6] In chapter 17 of _Social Value_, I have followed the German usage in broadening the term, price, to cover all exchange relations. This has led to misunderstanding on the part of some readers, and it has seemed best to me to return to what appears to be the more familiar usage. It is purely a question of convenience. Practically, ratios of exchange which are not money-prices rarely come in for discussion, outside the preliminary chapter on definition! Professor Fetter, in his article on the "Definition of Price," in the _American Economic Review_, Dec. 1912, proposes to broaden the term price in the manner which I am here abandoning, and his count of economists would seem to leave usage about equally divided between the broader and narrower uses of the term. It does not seem to me to be a point worth arguing about, however, and since I am practically convinced that cause of misunderstanding will be removed by using price to mean "money-price," I shall so use the term in this book, using ratio of exchange, or exchange relation, to express the broader concept. [7] E. g., Böhm-Bawerk, _Grundzüge der Theorie des wirtschaftlichen Güterwerts_, Conrad's _Jahrbücher_, 1886, p. 478, n.; Carver, "Concept of an Economic Quantity," _Quarterly Journal of Economics_, 1907. [8] This distinction is elaborated _infra_, in the chapter on the "Origin of Money." [9] It is a matter of high importance that the value notion should be extended beyond exchange, if the economist is to be able to apply his theory to such highly important economic problems as socialism. _Cf._ Schäffle, _Quintessence of Socialism_, and Clark, J. M., _Quart. Jour. of Econ._, Aug. 1915, p. 710. [10] As shown, _infra_, in the chapters on "Supply and Demand," "Cost of Production," "Capitalization Theory," etc. [11] _Vide Social Value_, p. 176, n. _Cf._ Davenport, _Value and Distribution_, chapter on "Ricardo." [12] Knies, _Das Geld_, vol. I of _Geld und Credit_, Berlin, 1873, pp. 113-125, esp. 124. [13] Chapter on "Value" in the _Philosophy of Wealth_, and ch. 24 of the _Distribution of Wealth_. [14] _Social Value_, ch. 7. [15] T. S. Adams, "Index Numbers and the Standard of Value," _Jour. of Pol. Econ._, vol. x, 1901-02, pp. 11 and 18-19; Kinley, "Money", p. 62; W. G. L. Taylor, "Values, Relative and Positive," _Annals of the Amer. Acad._, vol. ix; Merriam, L. S., "The Theory of Final Utility in its Relation to Money and the Standard of Deferred Payments," _Annals of the American Acad._, vol. iii. and "Money as a Measure of Value," _Ibid._, vol. iv; Scott, W. A., "Money and Banking", 1903 ed., ch. III. Professor Scott, in a letter to the writer, expresses the opinion that a value concept which makes the value of a good a quantity, socially valid, regardless of the particular holder of the coin or commodity in question, and regardless of the particular exchange ratio into which the value quantity enters as a term, "is absolutely essential to the working out of economic problems." Johnson, A. S., "Davenport's Economics and the Present Problems of Theory," _Quarterly Journal of Economics_, May, 1914, and _American Econ. Rev._, June, 1912, p. 320. [16] Cf. also Wieser's _Natural Value_, p. 53, n. Senior's "intrinsic causes of value" comes to the same thing. [17] Cf. _Quarterly Journal of Economics_, Aug. 1915, pp. 681-82, esp. 681, n. [18] Among the leading figures in economics to whom this doctrine is unacceptable, I would mention especially Professor H. J. Davenport, _Value and Distribution_ and _The Economics of Enterprise_. A writer who seeks to minimize the importance of the issue between the relative and the absolute conceptions of value is Professor J. M. Clark, in _Quarterly Journal of Economics_, Aug. 1915. Professor Clark seems to agree with much of what has been said here, and the present writer would agree with Professor Clark, as indicated above, that for many purposes we do not need to look behind prices--entering a _caveat_ that this is true only so long as we can assume a fixed absolute value of money. [19] The psychology of this statement, which involves hedonism, needs improvement, but the issue need not be discussed here. _Cf. Social Value_, ch. 10. [20] As Professor R. B. Perry, _Quart. Jour. of Econ._, May, 1916. [21] In this I am following a line of thought developed by Professor John Dewey in a lecture delivered before the Harvard Philosophical Club in 1913-14. [22] For the elaboration of these ideas, cf. Hegel, _Philosophy of History_, _passim_; Willoughby, _The Nature of the State_, _passim;_ Davidson, T., _History of Education_, New York, 1900, _passim_; Bosanquet, B., _Philosophical Theory of the State_; Royce, J., _The World and the Individual_. [23] Tarde, _Laws of Imitation_; Baldwin, _Social and Ethical Interpretations_. [24] _Human Nature and the Social Order._ [25] _Cf._ Ellwood, C. H., _Some Prolegomena to Social Psychology_, Chicago, 1901, and Cooley, C. H., _Social Organization_, New York, 1909. See also _Social Value_, ch. 9. [26] _Cf. Social Value_, ch. 8. H. J. Davenport is the best modern representative of this extreme individualism in economics. Individualism is nearly dead in modern political, ethical, and sociological theory. Revivals of it appear, however, in W. Fite, _Individualism_, and in a recent article by R. B. Perry, "Economic Value and Moral Value," _Quart. Journal of Economics_, May, 1916. (I have discussed Professor Fite's views in the _Pol. Sci. Quart._ of June, 1912.) Professor Perry would there appear to reduce ethical value to a purely individual phenomenon. But he really brings in a "categorical imperative," not derived from the values of the individual, by the "back door." "Now our general moral law prescribes that an agent shall take account of all the interests which his conduct affects, or shall judge his conduct by its consequences all round." (_Loc. cit._, p. 481.) Just how this "general moral law" is to be derived from individual values, is not made clear. That the wants of every man should count equally with the wants of the agent is a principle which one would expect from Kant or Fichte, but hardly one which individualism can expect to maintain. [27] I use "volition" here in that wide sense which makes it cover both the motor and the affective phases of mind. Munroe Smith would emphasize the motor aspect, where Savigny stresses feeling and sentiment. [28] "Jurisprudence," a lecture delivered before the faculty of Columbia University, Feb. 1908, New York, The Columbia University Press, 1909, p. 14. [29] I ran across this in Wagner's _Grundlegung_. Wagner had found it in Raul. It is from _Troilus and Cressida_, Act II, Scene II. [30] Davenport, _Value and Distribution_, pp. 184, n., and 330-31, n.; Jevons, _Theory of Political Economy_, pp. 14, 78-84, esp. 83. _Cf. Social Value_, ch. 4. This seems to be the position of Professor R. B. Perry, also, though he is not so extreme as Davenport. _Loc. cit._ [31] This term carries no connotation of teleology, as here used. I am merely trying to state what the different kinds of value _do_, as a matter of fact. [32] The _extent_ to which the values of consumption goods and services are reflected in other economic values will receive attention below, in the present chapter. [33] _Cf. Social Value_, p. 125, and Urban, _Valuation, passim_. Urban's idea of "participation values" is better expressed by Cooley's phrase, "human nature values," while Cooley's excellent phrase, "institutional values" characterizes the more complex values in which classes and institutions are specially _weighted_. _Cf._ Cooley's articles referred to above, and _Social Value_, chs. 11-15, inclusive. [34] "The Institutional Character of Pecuniary Valuation," _American Journal of Sociology_, Jan. 1913, p. 546. [35] This, unfortunately, is not high praise, as the Federal Judiciary in general sets a lamentably low standard in these matters. [36] Neither "desire" nor "satisfaction" is really accurate here, but I do not wish to digress for a discussion of the psychology of value in the individual mind. The present argument can be developed without it. The matter is discussed in detail in ch. 10 of _Social Value_. [37] Ross, E. A., _Social Psychology, passim_. [38] _Cf._ Veblen, T. B., _Theory of the Leisure Class_, and Carlile, W. W., _Evolution of Modern Money_. [39] _Social Value_, chs. 3-7, esp. ch. 5. [40] But land does often have value which it is impossible to explain on the basis of any income which may reasonably be expected from it, even in the remote future. [41] P. 174. [42] _Cf._ the discussion of Wieser, Schumpeter and von Mises in the chapter on "Marginal Utility," _infra_. [43] Flux, W. A., _Economic Principles_, London, 1904, pp. 4, 27, 29; Taussig, F. W., _Principles of Economics_, New York, 1911, vol. I, pp. 141-143. _Cf._ my _Social Value_, ch. 5. [44] _Cf._ the present writer's _Social Value_, chs. 3-6, inclusive. [45] I am here abstracting from an important factor, namely, that not all prices are affected equally by changes in the value of money. Some prices are fixed by law and custom, and some incomes are tied by long time contracts. Thus, it will happen, in many cases, that supply and demand for a given good will be unequally affected by a change in the value of money. This means that certain values are _tied_ to the value of money, rising and falling with it, so that the amount of _power_ which some elements in the economic situation are able to exert through supply-price-offer and demand-price-offer are at the mercy of changes in the value of money. But this is an element which is incalculable, on the basis of the supply and demand concepts, and must be abstracted from if we are to make any definite assertions as to the effect of increase or decrease of demand in the active sense on supply in the passive sense, or vice versa. Unless we make this abstraction, and unless we assume a fixed value of money, we might find increase of demand in the active sense (nominal) leading sometimes to an increase, and sometimes to a decrease of supply in the passive sense, or rather, being accompanied by either increase or decrease of supply in the passive sense. No law would be possible. In practice, both of these abstractions are more or less consciously assumed. [46] I think that it is a feeling that Mill has left out the psychological factors in supply and demand which led Cairnes to the effort to give definiteness to other and vaguer notions on the subject. [47] _Cf. Social Value_, ch. 2; "The Concept of Value Further Considered," _Quart. Jour. of Economics_, Aug. 1915. For the doctrine that supply and demand, and other elements of current price theory, assume a fixed absolute value of money, see _Social Value_, p. 166, n., and ch. 17. [48] _Leading Principles_, ch. on "Supply and Demand." [49] _Cf. Social Value_, pp. 29-30, and 64-71. [50] _Cf._ the discussion, _infra_, of "T" in the "equation of exchange." [51] Cotton is chosen for this illustration because it has actually happened, more than once, that a large crop has sold for a smaller aggregate price than a smaller one. Thus, not to take an extreme illustration, the crop of 1910-11 was 11,568,334 bales. That of 1911-12 was 15,553,073 bales. The average price of spot cotton at New York from Oct. 1910 to June, 1911, inclusive, was almost 15c. per lb.; the average price of spot cotton in New York during the same months in 1911-12 was not quite 10 cents per lb. On this basis, the eleven million odd bales of 1910-11 sold for substantially more than the fifteen million odd bales of 1911-12. [52] Nor is there anything in the hypothesis to reduce the number of times any good needs to be exchanged against money. Rather there would be an increase of exchanging, as speculation took place to bring about the needed readjustments. For the present, I abstract from this. _Cf. infra_, the chapter on "Volume of Money and Volume of Trade." [53] I shall recur to this point in the chapter on "The Quantity Theory and International Gold Movements." [54] _Quart. Jour. of Economics_, 1894-95, p. 372. [55] _Cf._ Davenport, _Value and Distribution_, and Whitaker, _Labor Theory of Value_. [56] _Cf. Social Value_, pp. 29-30; 64-71. [57] I incline to the view that the explanation of costs by foregone positive values needs supplementing by a recognition of the rôle of _negative social values_, and that thus interpreted, "real costs" have a minor part to play. But I have not thought the matter through satisfactorily, and shall find no occasion to use the doctrine in the present volume. [58] This doctrine as applied to rates on call loans appears in Seligman's _Principles of Economics_, 1912 ed., p. 395. The peculiarities of call loans have also been discussed by C. A. Conant, _Principles of Money and Banking_, I, p. 171. Conant there refers to a discussion by Joseph F. Johnson, in _Pol. Sci. Quarterly_, Sept. 1900, p. 500. There are some very interesting distinctions between the "hire price" and the "purchase price" of money developed by J. A. Hobson, in his _Gold, Prices and Wages_, pp. 153 _et. seq._ [59] One "pure rate" of interest, for loans of all periods over, say, three years, is doubtless, a myth, or better, a methodological device for simplifying thinking in connection with the theory of interest, and the capitalization theory. It is not necessary for our purposes, however, to give detailed analysis to the notion. We shall discuss the capitalization theory as we find it, assuming that, as a matter of fact, the difference between loans of 20 years and loans of 35 years, or in perpetuity, of equal quality in other respects, may be abstracted from, with safety. [60] The price-level is a _weighted_ average. These elements dominate it. _Cf._ our discussion, in the chapter on the "Volume of Money and the Volume of Trade," _infra_, of the elements entering into trade. We shall make use of the capitalization theory at various points in our discussion of general prices. _Cf._ the chapter on "The Passiveness of Prices," where it is shown that the capitalization theory and the quantity theory are irreconcilable. [61] There is an extensive body of controversial literature connected with the capitalization theory, which it is unnecessary, for present purposes, to consider. One interesting line of doctrine is that developed by DR Scott (_Jour. of Pol. Econ._, Mar. 1910) and H. J. Davenport (_Yale Review_, Aug. 1910), in which ordinary formulations are criticised as assuming a "social rate" of interest, and in which the effort is made to work the thing out on the basis of extreme individualization, each man having a rate of discount of his own. I have accepted the doctrine in the general form in which it has been developed by Böhm-Bawerk (in criticism of Turgot and Henry George in his _Capital and Interest_), by Fetter, in his _Principles of Economics_, and by Fisher in his _Rate of Interest_, abstracting from points on which these writers disagree. My criticism of their doctrines, were it necessary here to develop it, would rest on the ground that their treatment of the general interest problem is too individualistic, and I should side with them as against Scott and Davenport. But these matters are aside from our present problem. In our chapter on "Marginal Utility" we shall meet the capitalization theory again, as applied to the value of money by David Kinley. We shall also take it up in the chapters on "Dodo Bones," and "The Functions of Money." [62] _Social Value_, chs. 3-7. The point is discussed _infra_ in the present chapter. [63] Fisher, I, _Purchasing Power of Money_, p. 32. [64] Edition of 1903. [65] _Cf._ the chapter on "Dodo Bones," _infra_. [66] _Cf._ Menger's art. "Geld," Conrad's _Handwörterbuch_, 328, 3rd ed., vol iv, p. 566. [67] _Cf._ Helfferich, _Das Geld_, ed. 1903, p. 480. [68] Discussed more fully _infra_, chapter on "Dodo Bones." [69] I make virtually no reference to the "spoken" part, which is chiefly concerned with index numbers. [70] Chapter on "Dodo Bones." [71] Chapter on "Barter." [72] In its psychological explanation, this bears somewhat the same relation to the social value concept of the present writer that the social mind concept of Giddings and Lewes bears to the social mind concept of the present writer. _Cf._ _Social Value_, ch. 9. Wieser's concept excludes individual peculiarities. It is an abstraction from individual values, a distillation of their common essence. The social value concept of the present writer is a focal point in which are summarized all the individual values, whether alike or divergent, and not merely the individual marginal utilities of the goods in question (Wieser's only factors) but also the individual emotions which affect the distribution of wealth. Wieser's concept is based on a study of individual marginal utilities considered as atomic elements; that of the present writer looks on the social mind as an organic whole, in which individual mental processes are phases, and does not try to synthesize a social value out of elements, but rather, to analyze it into elements. In the function in economic theory for which they are destined, however, the two concepts have much in common. Both seek to be the fundamental economic quantity. Both seek to be causal forces, lying behind prices, even though expressed in prices; both oppose the conception of value as merely relative. [73] _Social Value_, chs. 5, 6, 7, and 13. _Infra_ in the present chapter. [74] See especially the chapter on "The Passiveness of Prices." [75] _Cf._ the writer's "Schumpeter's Dynamic Economics," _Political Science Quarterly_, Dec. 1915. Schumpeter's theory, as there presented, is based on the brief discussion in his _Theorie der wirtschaftlichen Entwicklung_ (Leipzig, 1912), pp. 61 et seq., 105, 166-667, 116, 464, and on Schumpeter's verbal expositions of the theory during his American trip. Since that account was published, Professor W. C. Mitchell has given an account of Schumpeter's doctrine, based on the fuller discussion in Schumpeter's _Wesen und Hauptinhalt der theoretischen Nationalökonomie_, which is in accord with the account here given. (Mitchell, in _Papers and Proceedings_, Supplement to March, 1916, _American Econ. Rev._, p. 150.) Mitchell attributes the essential elements of Schumpeter's theory to Walras. The first exposition in English of the conception, so far as the present writer is aware, is in Irving Fisher's _Mathematical Investigations in the Theory of Value and Prices_, _Trans. Conn. Acad. of Arts and Sciences_, 1892. Professor Fisher, in his preface, accords priority to Jevons, Auspitz and Lieben, and to Walras. The conception is not to be found in Jevons, though many of the ideas involved in it are. The first non-mathematical exposition of the doctrine, so far as I know, is by Schumpeter. As will be made clear in a footnote at the end of the present chapter, neither Wicksteed nor Davenport has really forced the problem through, to the full equilibrium picture, and neither has escaped the Austrian circle. I do not concur with Professor Mitchell's interpretation of Wicksteed on this point. It may well be that mathematical method, with a system of simultaneous equations, was necessary for the development of the idea. If so, it illustrates both the strength and the weakness of mathematical economic theory: it clarifies thinking, but it gets no causal theory! At all events, no causal theory emerges in this case. [76] _Positive Theory of Capital_, Bk. IV, and _Grundzüge der Theorie des wirtschaftlichen Güterwerts_, in Conrad's _Jahrbücher_, 1886. The writer who would adhere to Schumpeter's doctrine must give up all notion that any individual occupies a critical "marginal" position. All men are equally marginal in Schumpeter's scheme. [77] _Positive Theory of Capital_, p. 156. [78] Schumpeter's scheme gives no money-prices. No form of this scheme gives any quantitative values. Nothing but ratios can come from it. [79] _Supra_, chs. on "Value" and "Supply and Demand." [80] See, _infra_, the chapters on "Volume of Money and Volume of Trade," and "The Functions of Money." [81] _Infra_, chs. on "Origin of Money," "Functions of Money," and "Credit." [82] _Supra_, ch. on "Supply and Demand." [83] See note at the end of this chapter. [84] _Supra_, chapter on "Cost of Production." [85] That this is wholly alien to Böhm-Bawerk's thought is sufficiently indicated by Böhm-Bawerk's vigorous criticism of Professor J. B. Clark, in "The Ultimate Standard of Value," _Annals of the American Academy_, vol. v, pp. 149-209. It may be noticed that Schumpeter makes use of Menger's and Böhm-Bawerk's general doctrine of imputation of the value of goods of the first order to goods of higher orders, without seeing that his equilibrium picture gives no basis for such a procedure. [86] _Cf._ comments on Professor R. B. Perry's view, in the long note at the end of this chapter. [87] _Cf._ Böhm-Bawerk, _Grundzüge_, etc. (_loc. cit._), pp. 5, 478, n.; _Social Value_, chs. 2 and 11; J. M. Clark and B. M. Anderson, Jr., in _Quarterly Journal of Economics_, 1915--"The Concept of Value." I may add that this equilibrium scheme is, in my judgment, equally useless as the basis of a hedonistic theory of _welfare_, since it is _absolute_ amounts of utility that are significant there. [88] _Theorie der wirtschaftlichen Entwicklung_, pp. 83-84. [89] _Loc. cit._, ch. 3, part ii. [90] _Ibid._, p. 199. [91] For the assimilation of credit phenomena to the general phenomena of value, by means of the social value doctrine, see _infra_ our section on "Credit." The social value doctrine is still further generalized in the chapter on "The Reconciliation of Statics and Dynamics." [92] _Ibid._ p. 169. [93] _Vide Mathematical Investigations_, _loc. cit._, p. 62, where Fisher assumes _one_ price to be unity, "to determine a standard of value." _Purchasing Power of Money_, pp. 174-175. [94] _Loc. cit._, pp. 72 _et seq._ [95] Pp. 132-136. [96] See _Social Value_, chs. vi and vii. [97] Bk. ii, ch. vi. [98] "_Cf._ Davenport, _Value and Distribution_, 560. 'For, in truth, not merely the distribution of the landed and other instrumental, income-commanding wealth in society, but also the distribution of general purchasing power ... are, at any moment in society, to be explained only by appeal to a _long and complex history_ [italics mine], a distribution resting, no doubt, in part upon technological value productivity, past or present, but in part also tracing back to bad institutions of property rights and inheritance, to bad taxation, to class privileges, to stock-exchange manipulation ... and, as well, to every sort of vested right in iniquity.... _But there being no apparent method of bringing this class of facts within the orderly sequences of economic law, we shall--perhaps--do well to dismiss them from our discussion_....' [Italics are mine.] It may be questioned if the 'orderly sequence' is worth very much if it ignore facts so decisive as these! It is precisely this sort of abstractionism which has vitiated so much of value theory. Most economists slur over the omissions; Professor Davenport, seeing clearly and speaking frankly, makes the extent of the abstraction clear. We venture to suggest that the reason he can find no place for facts like these within the orderly sequence of his economic theory is that he lacks an adequate sociological theory at the basis of his economic theory. A historical _regressus_ will not, of course, fit in in any logical manner with a synthetic theory which tries to construct an existing situation out of existing elements. Our plan of a _logical_ analysis of existing psychic forces makes it possible to treat these facts which have come to us from the past, not as facts of different nature from the 'utilities' with which the value theorists have dealt, but rather as fluid psychic forces, of the same nature, and in the same system, as those 'utilities.'" [99] Of course, we do not mean to question the immense light which history throws upon the nature of existing social forces. [100] _Theory of Political Economy_, 4th ed., p. 34. [101] Art. "Geld," in _Handwörterbuch der Staatswissenschaften_. [102] _Cf._ Helfferich, _Das Geld_, Leipzig, 1903, for the same terminology, pp. 485-486. [103] Exchange creates _values_. It does not necessarily create _utilities_. Wheat going from a famine-stricken part of India to a place where it will sell for higher prices does not gain in utility thereby. [104] A possible exception to this general statement might be made for Professor H. J. Davenport, who would insist that his version of the utility theory is based on "relative marginal utility," rather than on marginal utility in Böhm-Bawerk's fashion. No critic has been more merciless than he in the criticism of the Austrian confusions of demand-curves with utility-curves, etc. But it is not clear to me that Professor Davenport has freed himself from the general doctrine that he criticises. I am not sure that he would accept Schumpeter's version of the Austrian theory as correct. It may be possible to _read_ Schumpeter's doctrine _into_ chapter 7 of Davenport's admirable _Economics of Enterprise_, but it is not clear that one could read it _in_ the chapter! That individual price-offer depends on the marginal utilities of alternative goods, in comparison with the marginal utility of the good in question, Davenport does emphasize. But the complication that not merely the utilities of alternative goods, but also their _prices_, have to be taken into account, and that this involves circular reasoning when an effort is made to give a summary of the whole system of prices by means of individual utility calculations, he does not, so far as I can see, grapple with. He summarizes the thing on p. 104: "The steps, then, are from (1) utility to (2) marginal utility, thence to (3) the comparison of marginal utilities, and finally to (4) price-offer." He takes no account here of the complication that the third step is in large degree a comparison, not of marginal utilities proper, but rather, of "subjective values in exchange." Yet just in this lies a vital difficulty of utility theory, in so far as it attempts to explain causation. Moreover, Professor Davenport is seeking to explain the _causal_ relation of utility to _demand_, the old Austrian problem. The explanation of demand is, indeed, the problem with which all theories of value must come to terms, if they are to be of any use. As we have seen, Schumpeter's schema has no bearing whatever on the explanation of demand, or on _causation_ of any sort. Schumpeter's scheme leaves money out, and demand-curves run in money terms. Davenport's scheme assumes money--and "purchasing power." (_Loc. cit._, 91.) We have seen in the chapter on "Supply and Demand" that the notion of demand and supply involves money and a fixed absolute value of money. Professor Davenport is thus doubly assuming value, the thing to be explained! Laws of "relative marginal utility" developed on the assumption of money, and in abstraction from changes in the value of money, are not likely to be of service when the problem of the value of money itself is taken up. On pp. 95-96, Davenport comes closest to Schumpeter's doctrine, saying that "the total situation is directive of each individual in it," and that there are "mutual reactions," such that particular facts are both effects and causes, illustrated by the last person who jumps on a crowded raft--does he sink the others, or do they sink him? This recognizes the complexity of the problem, but it is not clear that it even purports to do more than that. What is called for is a _definition_ of the essential elements in that "total situation," with precise statement as to what is assumed constant and what is allowed to vary, and an analysis of the "mutual reactions," with a starting point and a _terminus ad quem_,--an equilibrium in which "mutual reactions" cease to trouble with their endless circle! Schumpeter's schema, though meeting criticism on other scores, does meet this logical test, but Davenport's does not appear to do so. It is interesting to note that Professor Alvin S. Johnson, in his review of the _Economics of Enterprise_, concludes that Professor Davenport, instead of meaning by "relative marginal utility" anything of the sort that Schumpeter has in mind in his equilibrium picture of all utilities to all individuals, really has an absolute value in mind. (_Quarterly Journal of Economics_, May, 1914, pp. 433-436.) There is much in Professor Davenport's book to justify this interpretation. Professor Davenport's application of "utility" to the problem of the value of money will be found on pp. 267-275 of the _Economics of Enterprise_. The general discussion of money and credit in the _Economics of Enterprise_ has been exceedingly illuminating to me, and my indebtedness to it will appear in the present book. Much of what has been said of Davenport's "relative utility" theory may also be said of Wicksteed's. (_Common Sense of Political Economy_, London, 1910.) This is in many ways a remarkable book, characterized by excellencies of many different sorts. But it fails to present the utility theory in such a way as to avoid circular reasoning. Wicksteed sees the confusion of utility-curves with demand-curves, and protests vigorously and at length against it. (_E. g._, pp. 147-150.) He starts out by assuming money and a set of market prices. His earlier chapters are given to showing how the individual adjusts himself to the market, bringing his "marginal utilities" of various goods into harmony with the market prices. He recognizes that he has made these assumptions (pp. 130-131), and that he cannot use the results thus achieved as an explanation of the market prices. They are "our goal, not our starting point." But by pp. 161-162 he finds himself with the "suspicion" that nothing special or peculiar is to be found in the laws of "market or current prices--a phenomenon which it is obviously impossible to regard as ultimate, which demands explanation, and which we have not yet explained.... Much remains to be done, but we can already see that the preferences of each individual help to determine the terms or conditions under which the choice of other members of the community must be exercised. If you take the individuals of the community two and two it is clear that the marginal preferences of each determine the limits within which direct exchanges with the other can be entertained, and we must already have at least a presentiment that the collective scale is the register of the final and precise 'resultant' of all these mutually determining conditions and forces." This seems to forecast Schumpeter's doctrine, but in the development which follows, we do not find it. The heart of his analysis of the causation of prices is in ch. vi, on "Markets." The "summary" which precedes that chapter again suggests Schumpeter's analysis--the notion of an all-embracing equilibrium. But when we get into the detailed analyses of the chapter we find nothing more than an exceedingly good account of the process by which supply and demand of particular goods, considered separately, become equated, through two-sided competition, and under conditions of monopoly. Instead of "relative marginal utilities," we see customers coming into the market with various money-prices in mind, and sellers trying out various money-prices--not marginal utilities, nor yet two or more marginal utilities in comparison with one another, but rather, money-prices, which, in the minds of the buyers may be supposed to represent "subjective values in exchange," based on both marginal utilities _and_ objective prices of other things that enter into the budget, and which, in the minds of sellers, represent estimates of the prices which buyers may be induced to pay. Wicksteed does not transcend the circle. Finally, despite his caution to avoid the more glaring forms of the circle, and the confounding of demand-curves with utility-curves, and of utility with value, he does lapse into it in its completest form in expounding the Austrian doctrine of cost of production. "The only sense, then, in which cost of production can affect the value of one thing is the sense in which it is itself the value of another thing. Thus what has been variously termed utility, ophelemity, or desiredness, is the sole and ultimate determinant of all exchange values." (P. 391.) Here is the illicit leap from marginal demand price to marginal utility which all utility theorists make, sooner or later! It is true that costs in one place are reflections of _demand_ elsewhere. But it is not true that costs in one place have any definite quantitative relation to _utilities_ in another place! When Wicksteed comes to discuss the value of money, he makes slight use of the notion of abstract ratios among relative utilities, and employs a concept which he has nowhere vindicated or explained: the _value_ of money, as distinct from the reciprocal of the price-level, treating the value of money as something which can be directly influenced by sinister rumors affecting the credit of the Government, and which can be an independent cause affecting velocity of circulation, and the amount of trade done by means of money. _Loc. cit._, p. 623. See _infra_, our chapter on "Velocity of Circulation." The only writers I know at first hand who have really thought the thing through, and avoided the circle in form, are Schumpeter and Irving Fisher. (_Mathematical Investigations in the Theory of Value and Prices_, _Trans. Conn. Acad. of Arts and Sciences_, 1892. See bibliographical note, _supra_, in this chapter.) I have given an exposition of Schumpeter, rather than Fisher, because the former has put the doctrine in non-mathematical form. In the text I have indicated the limitations of their doctrine. Fisher definitely avows the impossibility of applying the doctrine to the problem of the value of money. _Purchasing Power of Money_, p. 174. Schumpeter doesn't apply it to money, and when he tries to work out a utility doctrine of money, he lapses into the Austrian circle in a very obvious form. In later writings, Fisher also seems to forget the limitations imposed on utility theory in his earlier essay. In his _Elementary Principles_, ed. 1912, Fisher lists (pp. 408-409) a great multitude of factors that might affect the price of pig iron, and then says: "Back of these causes lie other causes, multiplying endlessly as we proceed backward. But if we trace back all these causes to their utmost limits, they will all resolve themselves into changes in the marginal desirability or undesirability of satisfactions and of efforts, respectively, at different points of time, and in the marginal rate of impatience as between any one year and the next." Here these marginal psychic magnitudes, which in the earlier essay appeared merely as surface phenomena, resultants of a total situation, proportional to prices, causes of nothing, merely symptoms of a completed equilibrium, are erected into atomic _veræ causæ_, the ultimate ultimates! It is interesting to contrast this with a yet more recent statement by a philosopher who has undertaken a defence of the utility theory of economic value, Professor R. B. Perry, in the _Quarterly Journal of Economics_, for May, 1916. Considering the contentions of the present writer that many general social causes, in addition to the individual utilities concerned with consumption, are needed to explain changes in the values of goods, such as changes in fashion, mode, in general business confidence, in moral attitude toward different sorts of consumption, in the distribution of wealth, in taxes and other laws, Professor Perry says: "If the Austrian School has neglected this, then it needs to be corrected. But the essential contention of that school remains, so far as I can see, unaltered; _in that these changes work through individuals_ and have their _point of application_ in a more or less rational _comparison of needs_ made by the _individual buyer or seller_. Whatever affects these _individual schedules_ on a sufficiently large scale will affect prices. But to ignore the individual channels through which these forces pass, is elliptical." (Pp. 469-470. Italics mine.) Now I call attention to several points in the foregoing. First, I would contrast it with the doctrine quoted from Professor Fisher's _Elementary Principles_. Where Fisher puts the utilities far back in the realm of ultimate causation, making them the source from which spring all the proximate social causes which might affect the price of pig iron (such as "a trade war," "a change in fashion," a "change in incomes," "decreasing foresight," etc., _loc. cit._, p. 409), Professor Perry would make individual utility schedules the final focal point, toward which converge, and through which pass, all the causal forces, however richly explained by antecedent social factors, which affect prices. The utility theory of value means all things to all men! But a second point with reference to Professor Perry's doctrine. It is perfectly true that _all_ social activities are the work of _individuals_. Society is nothing apart from the individuals who make it up. To think of society and the individual as separate and antithetical is a fallacy which I have criticised in detail in Part III of _Social Value_. The social value theory does not mean that there are social forces which do not run through individual channels. This is not to accept the notion that individuals are really, in their psychical nature, isolated monads, however. There is a functional unity of individual minds, and no individual can be understood in abstraction from society. But this view is as old as Aristotle. I have not contended that prices can change apart from the mental activities of individual men, working upon one another. So far there _may_ be no issue with Professor Perry. But there is a big issue when he contends that all the causation is focussed in _individual utility schedules_, and in a more or less rational comparison of needs made by the _individual buyer and seller_. This is _demonstrably erroneous_. Let us assume, for example, that utility schedules of every individual New Yorker remain unchanged, but that, through a change in the law (the work of individual men, under the influence of their own individual emotions and ideas, of, say, ethical character), incomes in New York City are _equalized_. Hold rigidly to the assumption that there are no changes in utility schedules. Will there not be, none the less, a radical readjustment of prices? Will not the prices of Riverside palaces and steam yachts sink and the prices of things which the poor esteem rise? The utility-curves of the erstwhile rich, assumed to remain unchanged, no longer count for so much as before in the market. The rich cannot go so far down their curves in the consumption process as before. The poor, or those who had been poorest, now count for more in the market. They can lower their margins. In other words, the forces affecting the distribution of wealth, in so far as they are legal and moral in character, at least, may affect the price-situation, _without_ altering _utility schedules_. Some social factors, as changes in mode and fashion, will work _through_ the utility schedules, but others will not. One big _variable_ affecting prices which need not, in idea, at least, affect utility schedules at all, and whose main influence is anyhow not directed through them, is the volume of business confidence. This factor we shall analyze in our discussion of credit, _infra_. Professor Perry thus escapes only part of the criticism which we have made (_Social Value_, pp. 45 and 56) of the Austrian theory: (1) that it abstracts the individual from his vital contacts with other individuals, and (2) that, within the individual mind thus abstracted, the Austrians make a further abstraction, taking as relevant only the interests concerned with _consumption of economic goods_, summed up in the utility schedules. The second criticism applies to Professor Perry as well. Men's total interests are not summed up in utility schedules, and do not affect prices exclusively _via_ utility schedules. It may be noticed, also, with reference to Professor Perry's discussion that he has misconstrued the Austrian theory in conceiving it as an analysis of an historical _process_, with a beginning and an end, instead of a static picture, in which preëxisting individual factors come into equilibrium. (_Loc. cit._, 475.) He seeks thus to avoid the Austrian circle, but as we have shown in the discussion of von Mises in the text, this way is not open to the Austrians. Able and penetrating though Professor Perry's discussion is, on the psychological side, it fails, I think, to take adequate account of the complexities with which the economist and sociologist must deal. In general, I find no version of the utility theory of value which is defensible, and, above all, no effort to apply it to the value of money which has met with success. [105] _Vide_ Taussig, _Principles_, I, 432. [106] "Der Bankzins als Regulator der Waarenpreise," Conrad's _Jahrbücher_, 1897. [107] _Loc. cit._, ch. 8. [108] _Cf._ ch. on "Economic Value." [109] Nicholson, J. S., _Money and Monetary Problems_, pp. 64-66; 71-73. [110] _Works_, McCulloch ed. 1852, p. 213. [111] _Cf._ the criticism of Nicholson by W. A. Scott, _Money and Banking_, 1903 ed., ch. 4. [112] _Cf._ Mill, _Principles_, Bk. III, ch. xiii, par. 1. "Nothing more is needful to make a person accept anything as money, and even at any arbitrary value, than the persuasion that it will be taken from him on the same terms by others." It is not quite fair to identify Mill's doctrine with the circle stated above, however, since Mill couples it with a reference to convention, resting on the influence of government--a mention, without analysis, of some of the factors to be discussed shortly. [113] _Cf._ Knies, _Das Geld_, I, p. 140. [114] _Cf. Social Value_, ch. 2. _Infra_, our chapter on "The Functions of Money." [115] _Das Geld_, Leipzig, 1903, p. 477. [116] Laughlin, rejoinder to Clow, "The Quantity Theory and its Critics," in _Jour. of Pol. Econ._, 1902. [117] _Principles of Money_, _passim_. [118] _Cf. Social Value_, pp. 132-136, and _supra_, ch. on "Marginal Utility and Value of Money." [119] Strictly speaking, there is no marginal utility, but only a "subjective value in exchange," for money of the sort here discussed. See _supra_, the chapter on "Marginal Utility." [120] The psychological reactions of the people in times of stress and uncertainty toward different kinds of money cannot be predicted with any certainty, and there seems to be absolutely no definite or universal law governing the matter. The present writer collected a lot of newspaper clippings at the outbreak of the present World War. From these it appears that in both Paris and Berlin there was a very great distrust of bank-notes, and an insistence by retailers, restaurants, landladies, etc., on _coin_. But _silver_, which was not standard money, seems to have been accepted without question. When hoarding is referred to in these clippings, it is invariably gold that is mentioned. A similar hoarding of gold took place during the Balkan crisis at the time of the outbreak of the war between the Balkan Allies and Turkey. Professor E. E. Agger informs me, however, that he has found some evidence that bank-notes as well as gold were hoarded in Austria, at this time. Sometimes we have a suspension of Gresham's law, and an acceptance of all kinds of money at varying ratios. The following clipping from the _Boston Herald_ of March 17, 1914, illustrates this: "Douglas, Ariz., March 16.--Four kinds of money are now circulating in the Mexican territory controlled by the Constitutionalists. These are United States currency, the first issues of the Constitutionalist government and of Sonora state, and 'Villa money,' or that issued by Chihuahua at the instance of the rebel military commander. United States takes precedence. Merchants in Sonora, in order to protect themselves and at the same time observe the laws requiring acceptance of the rebel currency issues, have established a sliding scale of prices. This was discovered when five merchants were arrested at Cananea by Constitutionalist secret service men, who found that for American money they could buy goods for less than half the amount exacted when payment was offered in Mexican currency. The uncertainty of the rebel campaign against Torreon is reflected in the money market. To-day Constitutionalist sold for 22 and 28 cents American on the peso. Mexican federal currency commanded from 30 to 32 cents." In the experience of travellers who have discussed the matter with the writer, there was little of this flexibility of relation between paper money and coin in Berlin, or Paris at the outbreak of the present War. Where paper was refused, it was absolutely refused, and where it was accepted, it seems to have been accepted without discount. No doubt, a fuller investigation would reveal all manner of variation in the behavior of different people in different centres, and at the same centres, at the outbreak of the War. [121] _Money and Banking_, 1903 ed., pp. 58-60; 101-104. [122] _Principles of Money_, p. 530. [123] Written in December, 1914. [124] _Cf._ Clow, F. R., "The Quantity Theory and its Critics," _Jour. of Pol. Econ._, 1902, p. 602. [125] _Cf._ Emery, _Speculation_, pp. 90-91. [126] _Cf._ Böhm-Bawerk's criticisms of the "use" theory of interest. (_Capital and Interest_, _passim_.) Both use theories and productivity theories are probably suggested, in part, by peculiarities which money possesses in pre-eminent degree. See _infra_, the chapter on the "Functions of Money." [127] A more precise analysis of all these points will be given in the chapter on "The Functions of Money." [128] _Cf._ Professor Taussig's account of expansions and contractions of the silver currency in his _Silver Situation_, _passim_. [129] For bibliography, see _Am. Econ. Rev._, Dec., 1914, pp. 838-839. [130] New York, 1911. All references to this book in the present volume are to the 1913 edition, which contains some new matter. [131] _Standard of Value_, London, 1912, p. 48, n. [132] _Papers and Proceedings_, Supplement to March, 1913, number of _American Econ. Review_, p. 131. [133] _American Econ. Rev._, Supplement to March, 1916, number, p. 138. [134] _Loc. cit._, pp. 31-32. [135] _Loc. cit._, pp. 175ff. [136] "The Passiveness of Prices," _infra_. [137] Particularly in view of the elaborate statistics, to be considered below, with which it is sought to make the equation realistic. [138] _Loc. cit._, p. 16ff. [139] _Loc. cit._ p. 25. [140] _Ibid._, p. 26. [141] _Ibid._, p. 27. [142] Where it is not meaningless, as at various points in the theory of mechanics, the product is always of a different denomination from either factor. [143] _Vide_ our ch. on "Supply and Demand," _supra_, for a discussion of Mill's doctrine as to the "demand" for money. [144] What is here said of Fisher's equation of exchange applies, for the most part, to all versions of it. [145] _Loc. cit._, p. 298. _Cf._ our chapter, _infra_, on "Statistical Demonstrations of the Quantity Theory." [146] _Purchasing Power of Money_, p. 290. [147] The amplified equation is MV + M´V´ = PT, which takes account of bank-credit. This is explained, _infra_. [148] _Loc. cit._, p. 487. I recur to this point in discussing the statistics of the "equation of exchange" in ch. 19. [149] _Infra_, ch. on "Quantity Theory and World Prices." [150] _Loc. cit._, p. 48. [151] _Loc. cit._, p. 370. The same position is taken by Kemmerer, _Money and Credit Instruments_, pp. 68 _et seq._ Mill denies the validity of these distinctions. See _Principles_, Bk. III, ch. 12, Par. 8. [152] The above was written before the discussion in the _Annalist_ (Feb. 7, Feb. 21, March 6, March 13, March 20, 1916) in which the present writer urged that Professor Fisher had greatly exaggerated the volume of trade in the United States by taking banking transactions as representative of trade. In reply (see especially the number for Feb. 21, pp. 245 _et seq._) Professor Fisher maintains that the overcounting to which I call attention is offset by undercounting, and considers offsetting book-credits, which actually dispense with the use of money and checks, an important element in the undercounting. I am unable to reconcile this position with the reasons given for excluding book-credits from the "equation of exchange." A detailed discussion of the points at issue appears in later chapters, particularly in the chapter on "Statistical Demonstrations of the Quantity Theory." [153] _Quarterly Journal of Economics_, vols. 8 and 9; _Political Economy_, pp. 169-175; _Money_, chs. 3-8. [154] In our analysis of bank-loans, _infra_, we shall find reason to hold that Walker, though false to the logic of the quantity theory, comes nearer to a tenable doctrine than do Kemmerer, Fisher, Andrew, and most other quantity theorists. [155] _Principles_, Bk. III, chs. 11 and 12. [156] _Purchasing Power of Money._ [157] _Loc. cit._, pp. 50-51. [158] _Loc. cit._, p. 280. [159] A. W. Atwood, "Hoarded Gold," _Saturday Evening Post_, Dec. 12, 1914, p. 26. [160] _Cf._ Kinley, D., _The Use of Credit Instruments_, Senate Document 399, 1910, pp. 192-194. [161] _Ibid._, pp. 102-103. In the same volume, on p. 200, the figures are given _incorrectly_, as 70% checks and 30% cash. C. A. Phillips, _Readings in Money and Banking_, 1916, p. 151, repeats this erroneous statement. [162] _Cf._ Sprague, _Crises under the National Banking System_, Nat. Monetary Commission Report, pp. 71-75; 200, 202. [163] _Cf._ also p. 280 of Fisher's _Purchasing Power of Money_. [164] Kemmerer (_Money and Credit Instruments_, p. 80) maintains that, "under perfectly static conditions," money in circulation and money in bank reserves will keep a fixed relation to one another. He offers no argument to support this view. Of course, "under perfectly static conditions," everything keeps in fixed relation to everything else. The volume of credit will keep a fixed relation to the number of laborers and to the supply of clocks. But this would hardly establish causal connections! Fisher multiplies "fixed relations" of various kinds, without, so far as very diligent search can tell, offering any argument to support them. Thus, we have on p. 105 the statement, "We have seen that normally the quantities of other currency are proportional to the quantity of primary money, which we are supposing to be gold." Where this thesis has been demonstrated, he does not indicate. In view of the fact that gold has been the one really flexible element in our money supply, the thesis is hardly credible. On pp. 146-147, facing this difficulty, Fisher says: "Since, however, almost all the money can be used as bank reserves, even national bank-notes being so used by state banks and trust companies, the proportionate relations between money in circulation, money in reserves, and bank-deposits will hold approximately true as the normal condition of affairs. The legal requirements as to reserves strengthen the tendency." Here is a very substantial growth in the doctrine, with only one new argument, namely, that concerning legal reserve requirements--which gives minimal ratios, not _fixed_ ratios. In what way the fact that most kinds of money can serve as legal reserves gives reason for the doctrine of fixed proportions is not made clear. For Professor Fisher, however, it seems quite enough, for on p. 162, in the heart of his causal theory, he boldly announces: "There must be some relation between the amount of money in circulation, the amount of reserves, and the amount of deposits. Normally _we have seen_ that the three remain in given ratios to each other." (Italics mine.) It is doubtless somewhat dangerous to make a confident negative statement concerning a book which has no index. But careful reading of all that has preceded this statement reveals no references to this topic except those quoted above. "We have seen" is not a legitimate premise when so important an issue is involved. In our discussion of reserves in the section on credit, as well as in the discussion of the volume of trade, it will appear that no "normal" or "static" relations of this kind are possible. [165] "The price-level outside of New York City, for instance, affects the price-level in New York City only _via_ changes in the money in New York City. Within New York City it is the money which influences the price-level, and not the price-level which influences the money. The price-level is effect and not cause." (_Loc. cit._, p. 172.) [166] _Loc. cit._, p. 50. [167] W. C. Mitchell, _Business Cycles_, p. 306. [168] _Ibid._, p. 325. [169] J. P. Norton, _Statistical Studies in the New York Money Market_, p. 71, and chart opposite p. 72. [170] _Ibid._, chart facing p. 72. [171] _Cf._ Mitchell, _loc. cit._, chart, p. 298, and text, p. 295. As the ratio of _reserves_ to _money in circulation_ was greater in 1911 than in 1894, and as the ratio of _deposits to reserves_ was also higher, we have a still wider variation in the ratio of money in _circulation to deposits_--M:M´. [172] See the striking figures collected by A. P. Andrew for 1907. _Quart. Jour. of Econ._, Feb. 1908, p. 297. [173] _Infra_, our discussions of the relations of volume of money and credit to volume of trade, and our discussion of credit in the constructive part of the book. The theory of money and credit must be a dynamic theory. [174] Senate Document, No. 405, 1910. For the Bank of England, see p. 25; for the Crédit Lyonnais, pp. 224-226; for the Deutsche Bank, pp. 374-375. [175] _Statist_, 1912, p. 577. [176] "The Prospects of Money," British _Economic Journal_, Dec. 1914. [177] _Cf._ Ashley, W. J., _Gold and Prices_, N. Y., 1912, pp. 21 _et seq._ [178] _Cf._ von Mises, "The Foreign Exchange Policy of the Austro-Hungarian Bank," British _Econ. Jour._, 1909, vol. 19. _Cf._ Keynes, _Indian Currency and Finance_. [179] Conant, _Principles of Money and Banking_, vol. II, p. 50. In 1899, the reserve of the Bank of Belgium consisted of 107 millions (francs) in specie, and 108 millions in foreign bills. [180] _Principles of Economics_, vol. I, pp. 432 _et seq._ [181] In the chapter on "Quantity Theory and International Gold Movements," _infra_. [182] The Joint Stock Banks in England keep "till money" in cash, even though their "reserves" are chiefly deposits at the Bank of England. [183] Fisher, _loc. cit. passim_. _Vide_ especially ch. 8. [184] _Purchasing Power of Money_. [185] _Business Cycles_, pp. 580, 595-596. [186] _Cf._ C. M. Walsh, _The Measurement of General Exchange Value_, pp. 480-481. [187] On pp. 314-315, and elsewhere, Fisher indicates that _all_ the causes affecting prices operate _through_ the factors in the equation of exchange. _Cf._ p. 74. This would require a concrete equation of exchange throughout. [188] Chapter on "Passiveness of Prices." [189] _Loc. cit._, p. 169. [190] _Cf._ his _Silver Situation_. 1878 to 1891 do not give time enough for quantity of money to dominate volume of credit, in his exposition! [191] Mill, _Principles_, Bk. III, ch. 12, par. 1. [192] Fisher, _loc. cit._, p. 62. [193] "A Compensated Dollar," _Quart. Jour. of Econ._, Feb. 1913. [194] The chapter on "Dodo-Bones," _supra_, and the chapter on "The Quantity Theory and World Prices," _infra_. [195] _Loc. cit._, p. 156. [196] _Ibid._, p. 160. [197] Or organs for pianos, etc. A common practice--less common in the North than formerly--is the payment of bills at country stores in produce. There is not a little barter at secondhand stores in New York City. [198] Mr. Burton Thompson, of No. 7 Wall St., who knows the real estate situation there intimately, states that while dealers do not like to "swap" real estate, and do little of it when business is good, they are forced to do it extensively when business is sluggish, "as has been the case for the past four or five years." [199] _Cf._ E. S. Meade, _Corporation Finance_, p. 376, and _passim_. [200] The same thing often happens when a bond issue is paid off--bond-holders may take their pay in new bonds. "Conversions" of bonds into stocks, or of preferred into common stock, are also barter transactions. $220,000,000 of the $420,000,000 which Mr. Carnegie and his associates received from the Steel Trust for their plants, etc., was paid, not with money and checks, but with bonds. _Vide_ Stevens, _Industrial Combinations and Trusts_, p. 101. [201] The foregoing had been written before the discussion in the _Annalist_ of Feb. and March, 1916 (pp. 183-184, 245-272, 313-317, 344, 377), in which Professor Fisher and the present writer joined issue with reference to Professor Fisher's estimate, 387 billions, for the volume of trade in the United States in 1909. The present writer contended that the banking transactions which Professor Fisher took as representative of trade greatly overcounted trade, since they included loans and repayments, taxes, several checks in one transaction, gifts, etc., etc. Professor Fisher contended that the overcounting was offset by undercounting, and instanced particularly the clearing-house arrangements in the speculative exchanges, where checks are in part dispensed with, and the offsetting in "running accounts" through book-credit. This indicates a substantial change in Professor Fisher's view as compared with that set forth in the _Purchasing Power of Money_, where he maintains, as shown above, that barter is virtually non-existent, that money and checks are "for all practical purposes and all normal cases," "necessities of modern trade," (p. 160), and that book-credit merely postpones, and does not dispense with, the use of money and checks (p. 370). The extent of the offsetting by barter, clearing-houses in the exchanges, and book-credit, though very great, is quite small as compared with Professor Fisher's 387 billions, and does not nearly offset the overcounting. The writer has obtained some fairly definite data on this point, which will be presented in the chapter on "Statistical Demonstrations of the Quantity Theory," in discussing the volume of trade. [202] _Miscellaneous Articles on German Banking_, Report of National Monetary Commission, p. 175. _Cf. infra_, pp. 288-290. [203] _Cf._ our chapter on "The Functions of Money," _infra_. [204] One familiar feature of corporation finance makes barter much preferable to money transactions, in one connection, which involves very many corporations indeed, at their inception. Stock, in order to be marketable, must be "full-paid and non-assessable." If the corporation sells its stock to the first stockholders, this means that money must be paid for it to the full par value, dollar for dollar. This is usually not easy. An especial difficulty would then present itself that the promotor would have trouble in getting any pay for his work. (Meade, _Corporation Finance_, _passim_; Sullivan, _American Corporations_, _passim_.) If, however, the stocks are paid for in _goods and services_, the courts are much less exacting in looking to see if full value has been received. Barring obvious fraud, the courts will usually count the stock full paid and non-assessable even though the value of the goods and services received is not very great. The first sale of the stocks of a new corporation, therefore (if it is important enough to wish to have a public market for its stocks), is a _barter_ transaction, as a rule. [205] _Purchasing Power of Money_, p. 152. [206] _Ibid._, pp. 352 _et seq._ [207] _Infra_, ch. on "Passiveness of Prices." _Weighted_ averages of "person-turnovers" will not save the situation here, if incomes stop entirely, since the persons involved then drop out altogether. Moreover, _weighted_ averages would clearly depend on _incomes_, and hence on _prices_, and hence could not depend on _habits_ exclusively, or _causally explain_ prices. [208] _Loc. cit._, pp. 152-153. [209] _Ibid._, p. 154. Italics mine. [210] _Supra_, ch. on "Volume of Money and Volume of Credit." _Infra_, ch. on "Bank Assets and Bank Reserves." [211] _Cf._ Kinley, _Money_, pp. 145 and 205-206, for the discussion of various moveable margins of this sort. [212] Van Hise, _Concentration and Control_, p. 16. The tendency to accumulate hoards when money is plentiful is notoriously strong in countries like India. [213] _Loc. cit._, pp. 167-168. [214] _Ibid._, p. 164. [215] _Cf._ Davenport's analysis of the causes governing volume of trade, _Economics of Enterprise_, p. 272. [216] _Loc. cit._, p. 110. [217] Perhaps not quite correct, since he does recognize differences in degree as between different places, though, perhaps properly, from the standpoint of his normal theory, saying nothing about differences in degree as between different times in the same place. [218] _Cf._ also p. 315, _loc. cit._, where this is placed as one of three main causes of the historical rise in prices. [219] That the overwhelming bulk of trade is in the cities will appear in our chapter, _infra_, on "Volume of Money and Volume of Trades." [220] On the average, in the United States, the banks have less money than the people have. _Vide_ Mitchell, _Business Cycles_, pp. 295 and 298. [221] Based on arbitrary assumptions as to variability. _Cf._ his p. 477. _Cf._ our chapter, _infra_, on "Statistics of the Quantity Theory." [222] Other passages might be cited to show that Fisher thinks that T and the V's are fundamentally governed by different causes. For example, he says "an increased trade in the Southern States, where the velocity of circulation of money is presumably slow, would tend to lower the average velocity in the United States, simply by giving more weight to the velocity in the slower portions of the country." _Loc. cit._, p. 166. [223] _Cf._, _infra_, our chapter on "Statistical Demonstrations of the Quantity Theory." [224] _Common Sense of Political Economy_, p. 623. [225] _Principles_, I, 432. [226] _Loc. cit._, pp. 432, 438-439. [227] _Ibid._, p. 439. _Cf._ our chapter, _supra_, on "Volume of Money and Volume of Credit," where Taussig's view as to the relation of money and bank-credit is analyzed. [228] _Loc. cit._ [229] Virtually the same expression is to be found in Barbour, David, _The Standard of Value_, London, 1912, p. 43. Barbour denies vigorously that more money can increase business, since it cannot increase the number of laborers, or of machines, or the amount of food, etc. The doctrine that volume of trade is fixed by (1) volume of products, and (2) degree of specialization of production, and hence is independent of volume of money, appears in Davenport, _Econ. of Enterprise_, 271-273. [230] In this view, Fisher typifies the general position of the quantity theory, and, indeed, in part even of those who do not agree with the quantity theory, but who, with the quantity theorists, view the problems of money and banking as matters of static theory. High or low prices, once the transition is made, exhaust the effects of increasing or decreasing the money supply. During the period of transition, certain readjustments in relations between creditors and debtors arise, which lead to either temporary prosperity or temporary distress, but after the transition, it is a matter of indifference whether or not money is abundant. Though the view is, logically, an essential part of quantity theory reasoning, we find much of it vigorously maintained by Laughlin, _Principles of Money_, ch. on "Amount of Money Needed by a Country." Laughlin and Fisher would seem to be at one in maintaining that the quantity of money in a country is a matter of indifference, and from the views of both would follow a condemnation of the idea that any long run consequences for volume of trade, efficiency of production, etc., could follow from increasing or decreasing the volume of money. It may be just as well here to indicate the conviction of the present writer that the relation between the quantity theory and the bimetallic movement is historical rather than logical. Indeed, in laying the stress they did on the importance of an inadequate stock of money in accounting for the depression of the latter part of the 19th Century, the bimetallists were out of harmony with the quantity theory. [231] P. 50. [232] Pp. 358-372, vol. I. [233] _Loc. cit._, p. 160. _Cf._ our chapter on "Barter." [234] The fact that prices are often high in gold mining regions, as compared with prices in the general world markets, has been taken by many writers as proof of the quantity theory. _Cf._ Kemmerer, _Money and Credit Instruments_, pp. 50-51, 58; Cairnes, J. E., _Essays in Political Economy_, particularly the discussion of the Australian episode. It seems to me that this is particularly inconclusive. High prices characterize remote mining regions of all kinds, whether gold, silver, copper, diamonds, tin or what not be the quest. Prices are not lower in the tin and copper region in the northern part of the Seward Peninsula in Alaska than they are in the gold region about Nome in the southern part of that peninsula. They are high in both places, not because of the abundance of gold or of money, but because of the great value of goods, which have to be brought with great trouble and expense from the United States. They are higher in the region of the Saw Tooth Mountains, in the centre of this peninsula, where hydro-electric power for the use of the gold miners about Nome, and for the copper and tin mines further north, is being developed, than they are at Nome itself, on the coast, where the gold is being mined. They were high in Australia because the discovery of gold led everybody to abandon everything but gold mining, and to bring in virtually everything from a distance. Wooden beams were imported to Australia from Sweden! (Pierson, N. G., _Principles of Economics_, I, p. 389.) One would expect prices in gold money to be higher in a silver or copper mining region, which is prospering, than in a gold mining region, equally remote, where a great deal of gold is being mined, but at a cost too great to make the region prosperous. [235] _Loc. cit._, p. 51. [236] _Meaning of Money_, p. 18. [237] Price's address before Western Econ. Asso'n, Nov. 26, 1915; Holt's letter; Dec. 2. [238] _Loc. cit._, p. 172. [239] See our discussion of "money rates" and "interest rates," _supra_, in the chapter on "Capitalization," and _infra_, in the chapters on "The Functions of Money," and on "Credit." [240] _Infra_, chapter on "Functions of Money," and _supra_, chapters on "Capitalization" and "Dodo-Bones." [241] _Cf._ our chapters on "Supply and Demand," and "The Origin of Money." [242] New York City can always use idle funds, "at a price." [243] Kemmerer, as well as Fisher, allows physical production and consumption to dominate his "index" of trade variation. _Loc. cit._, pp. 130-131; Fisher, _loc. cit._, p. 479. _Cf._ our discussion of their statistics, _infra_. [244] This confusion of volume of trade and volume of production is a companion of the confusion discussed on p. 307, _infra_, of quantity of money with volume of money-_income_. The two confusions, found in virtually all expositions of the quantity theory, give it most of its plausibility. [245] _Loc. cit._, ch. 12, and appendix to ch. 12. [246] _Supra_, ch. on "Equation of Exchange." [247] In a letter to the writer, Professor Fisher states that the figures for the physical receipts at the cities, which dominate his index for T, have not been available for recent years, and that since they were discontinued, he has relied chiefly on the indirect calculation of T _via_ the other factors in the equation. These figures were discontinued in 1912. In the _American Economic Review_ for June, 1916 (p. 457, n.) Professor Fisher states that the indirect calculation of T has always had more weight in his figures than the direct calculation. This would serve in some degree to lessen the errors of his index of variation. The extent to which he has allowed his T as directly calculated on the basis of the index to be modified by the indirect calculation, is indicated on p. 302 of the _Purchasing Power of Money_, as follows: "The alterations in T, as shown in Figure 16, though still greater than the preceding, are nevertheless so small and uniform as to preserve an almost perfect parallelism between the original and the altered curve. The differences rarely exceed 10%." Even an indirect calculation of T, however, would not avoid the criticisms here urged, since the other factors, MV, M´V´, and P are all, as we shall see in the chapter on "Statistical Demonstrations of the Quantity Theory," calculated by methods which give very excessive weight to trade outside New York City and to non-speculative transactions. [248] _Loc. cit._, p. 485. [249] _The Use of Credit Instruments in Payments_, Senate Document No. 399, 61st Congress, 2nd Session. [250] This brief account will be amplified for critical discussion in the statistical chapter below. Fisher in fact calculated MV and M´V´ separately. The account above given is strictly accurate only for that part of T, 353 billions, which is carried on by means of checks. The calculation of MV, however, is also based on Kinley's figures. My account here is adequate for the question at issue, which is, not as to the absolute magnitude of trade, but rather, as to the _proportions_ of speculation and other elements in trade. [251] The substance of the argument here presented first appeared in articles in the _Annalist_, to which I am indebted for permission to use it here. See the numbers of Feb. 7, March 6, and March 20, 1916. Professor Fisher's replies, directed wholly against the charge of double counting, appeared in the _Annalist_ of Feb. 21 and March 13, 1916. Professor Fisher does not question my contention that speculation makes up the overwhelming bulk of trade, in these replies. He rather seeks to meet the charge of overcounting by holding that bank-transactions do not fully count speculation! This he thinks particularly true of stock exchange transactions. _Cf._ his article of Feb. 21, 1916. [252] The Census Bureau figures have been subject to a good deal of criticism, and I therefore refrain from trying to draw precise conclusions from them. [253] The figures showing the number of banks reporting from each State, together with the number of reports rejected, will be found on pp. 47-49 of his monograph. The figures above are combinations of figures from his various tables. These tables are so carefully indexed in Dean Kinley's monograph that detailed page references are unnecessary here. [254] _Cf._ our discussion of this topic in the statistical chapter, _infra_. [255] _Loc. cit._, pp. 153-154. [256] _Discussions in Economics and Statistics_, I, 204. Quoted by Kinley, _loc. cit._, 152. [257] The coefficient of correlation has been developed by the biologists, chiefly Karl Pearson, but has been applied to problems in many fields, especially economics, sociology, psychology, and education. A good source is Yule's _Introduction to the Theory of Statistics_. Professor H. L. Moore has made extensive use of the method in his _Laws of Wages_, and his _Economic Cycles_. Connected with the coefficient of correlation, usually, is a figure for "probable error," which depends, primarily, on the square root of the number of observations. When the probable error is low, and the coefficient of correlation high (as .8), it is commonly supposed that a very high degree of causal connection is established. I shall not go into detail in discussion of the method. My personal judgment is that it is overrated, that "spurious" correlations, leading to quite erroneous conclusions, have frequently resulted from it, and that the labor involved in calculating coefficients of correlation is frequently too great for the results obtained. I should never be disposed to accept conclusions based on a "correlation coefficient" unless there were other converging evidence to support it. In effect we have, in the coefficient of correlation, nothing more than a refinement of the method of comparing two curves on a graph. The curves tell the story, in a general way, whereas the coefficient of correlation sums up all the comcomitant variations (and disagreements) in one figure. The eye does not readily compare the degree of relation between two curves with the degree of relation between two others. When it is desired to know which, of several relationships, is closest, the graphic method, or the method of comparing series of figures, burdens the attention. The coefficient of correlation condenses the information to such a degree as to make comparison easy. It is, then, merely a refinement of familiar statistical methods. Used wisely, guided by sound theory, it aids in presenting facts. It enables us to state quantitatively things we already know qualitatively. But there is no magic in it! As I have mentioned both Mr. Silberling and Professor Moore in this connection, it is proper to say that both of them are fully alive to the dangers and limitations of the method, and that Professor Moore emphasises strongly the need for sound _a priori_ testing of hypotheses before submitting them to the test of correlation. One danger, that of getting a high correlation merely because both of the variables compared are _growing rapidly_, has been avoided by Mr. Silberling by the use of successive _percentage_ deviations, instead of absolute figures. For reasons explained by Mr. Silberling in a footnote, he uses, instead of the "probable error," a statement of the number of observations. Thus, "r = .78 (46)" means that the coefficient of correlation is .78, and that there are 46 observations for each of the two variables compared. [258] They get into clearings, however, _two_ days after. [259] Professor Kemmerer, also. See his index of variation of trade, _op. cit._, pp. 130-131. [260] It is unfortunate that weekly figures from railways do not exist in such number, or for roads of sufficient importance, to justify correlations of the weekly figures with clearings. [261] Professor W. M. Persons informs me that Mr. Silberling's results are in accord with calculations which he has made. _Vide_ his article in the _Am. Econ. Rev._ of Dec. 1916. [262] _The Wealth and Income of the People of the United States_, New York, 1915. [263] See our chapter, "Statistical Demonstrations of the Quantity Theory." [264] _Loc. cit._, pp. 78-79. [265] _Jour. of Polit. Econ._, vol. v, p. 165. [266] Even this is too high, for 1909, on the basis of our estimate for net income in 1909, in the Appendix to this chapter. [267] The extent of speculation in wholesale trade is discussed in this chapter, _infra_. "Double counting" is discussed in the chapter on "Statistical Demonstrations of the Quantity Theory." [268] _The Use of Credit Instruments_, p. 151. [269] The figures for rent and wages are from W. I. King, _op. cit._ The other figures are from the _Statistical Abstract of the United States_, unless otherwise stated. King's estimates are for 1910. The other figures are for 1909. Compare this list with my discussion in the _Annalist_, March 6, 1916, p. 317, where I made computations purposely much too large. In that computation I clearly greatly exaggerated salaries and professional incomes, and rent as well as retail and wholesale trade. My figure there included the rent of houses as well as the rent of land. King's figure is only for land rent. However, in view of the fact that a high percentage of real estate is used by the owner, with the result that no rent-payments are required, I think King's figure high enough for the whole item. [270] Professor Fisher has estimated total real estate exchanges in the country at less than 1% of the total 387 billions (_op. cit._, p. 226), and a colleague of the Harvard Business School has given me an estimate of $1,300,000,000 for total advertising in the United States. Neither of these items is properly counted part of the "static" trade that would occur were things in "normal equilibrium." If, however, we counted them, we should add only 1%, say, of the total. When it is seen how insignificant, in comparison with the 387 billions indicated by deposits, the figures for total manufactures, total farm products, and total wages, are, there really is little need to argue the case. It is impossible to find, in the "ordinary trade" we have not mentioned, items whose total will equal the least of these three. Moreover, we have allowed for a multitude of these items in permitting the figure for retail trade to be as high as it is, and have left large leeway in making no deduction for the speculation in wholesale trade, and in counting farm products in full. Interest and dividends I have not counted. They are not "trade." When we have counted stock sales, we have already counted the exchanges in which dividends were sold. The man who buys the stocks has already bought the dividends. To count the dividends in addition would be a case of that double counting of capital and income against which Professor Fisher has warned us in his _Nature of Capital and Income_. Rents and wages represent payment for current services, and are properly items of trade. Interest and dividends are one-sided money payments, completing transactions for which money has already passed, and in which a man is merely getting a delivery of something he has already bought. In general, loans and repayments are not properly counted as part of ordinary, or physical trade. If, however, we counted total corporate dividends and interest we should get only $4,781,000,000 (King's estimate, _loc. cit._, p. 262). This is a little over 1%. What else is there? In his article of March 13, 1916, in the _Annalist_, Professor Fisher failed to meet my suggestion that a bill of particulars was called for! [271] See the table of shares and approximate values in Pratt's _Work of Wall Street_, 1912 ed., p. 187. This table covers the years, 1890-1911. [272] Boston _Transcript_, "Tape Record of Sales Incomplete," May 6, 1916, Pt. I, p. 12. The _Transcript_ quotes as authority the New York _Commercial_. Following the extraordinary market of Sept. 25, 1916, when the ticker recorded 2,317,000 shares sold on the New York Stock Exchange, the newspapers estimated that missed sales, odd lots, and unrecorded sales on stop loss orders, would bring the total above 3,000,000 shares. There was an unusual number of stop orders caught that day. There will be very few other sales of 100 shares missed by the ticker, except in times of extraordinary pressure. See _Boston Herald_, Sept. 26, 1916, p. 1. [273] Hollander, J. H., _Bank Loans and Stock Exchange Speculation_, Senate Document 589, 61st Congress, 2nd Session, p. 23. [274] Pratt, _Work of Wall Street_, 1912 ed., p. 264. [275] _Annalist_, Dec. 27, 1915, p. 719--"Selling Phantom Grain." [276] My information regarding the Coffee Exchange in New York comes from the Treasurer of the Exchange, Mr. Jas. H. Taylor, through the courtesy of Mr. W. H. Aborn, of Aborn and Cushman, New York. [277] Report of the Hughes Commission, in appendix to Pratt's _Work of Wall Street_, Rev. ed., p. 417. This report gives information regarding all the organized exchanges in New York. [278] L. Conant, Jr., "The United States Cotton Futures Act," _American Economic Review_, March, 1915, p. 1. [279] Hughes Commission, _loc. cit._, p. 418. [280] Taussig, _Principles of Economics_, I, p. 405; Kinley, _Report of the Comptroller_ for 1896, p. 89. [281] This is probably more extensive in London than in the United States. [282] _Loc. cit._, p. 47. [283] _Loc. cit._, pp. 130-131. The very title, "_growth_ of business," suggests the fallacy to which we refer in the text, namely, that we have a steady upward movement, with little variation. This is largely true of production and consumption. It is in no sense true of "trade," as distinguished from production. [284] Kemmerer relied on the investigation of 1896, whereas Fisher used more the figures of 1909. Kemmerer does not, in general, assign an absolute magnitude for "trade," but for 1890 he gives a figure. _Loc. cit._, p. 136. _d._ [285] _Loc. cit._, p. 136, _d._ [286] A recent discussion of these problems is to be found in Shaw, A. W., _Some Problems in Market Distribution_, Harvard Univ. Press, 1915. [287] _Op. cit._, pp. 51-52. [288] London, Paris, and New York all do a great deal of manufacturing, particularly of finer things, whose value is high, and which require a high proportion of labor, as compared with machinery. _Cf._ our discussion of the London "Money Market," _infra_, in Part III. [289] _Ibid._, p. 47. [290] _Cf._ Jenks, _The Trust Problem_, Rev. ed., p. 29. The doctrine that these costs are net social loss is challenged by the present writer in an article, "Competition _vs._ Monopoly," in the New York _Independent_, of Oct., 1912. [291] "Royal" has been estimated at $5,000,000; "Spearmint" at $100,000,000. Mr. Guy C. Hubbard, of the _Dry Goods Economist_, New York, has given the writer some exceedingly interesting data regarding the value, as bankable collateral, of various trade-marks and firm names. [292] _Cf._ our discussion of "The Reconciliation of Statics and Dynamics," _infra._ [293] Significant in this connection, is the contention of recent students of American agriculture, that the great need is better organization and credit, facilities for _marketing_. [294] _Loc. cit._, p. 89. Though Fisher does not conclude that banking is bad, he does conclude that gold mining is a parasitic and socially injurious industry, like the making of burglars' "jimmies." See his _Elementary Principles of Economics_, N. Y., 1912, pp. 499-500. [295] Fisher does admit that the _character_ of the banking system, and of the money system, will affect the volume of trade. "There have been times in the history of the world when money was in so uncertain a state that people hesitated to make many contracts because of the lack of knowledge of what would be required of them when the contract should be fulfilled. In the same way, when people cannot depend on the good faith or stability of banks, they will hesitate to use deposits and checks" (78). But there is nowhere an admission that the _amount_ of bank-credit has any influence on the volume of trade, and there are repeated assertions, as already instanced in the text, that the volume of trade is quite independent of the volume of money and bank-credit. [296] Part IV of this book gives a detailed analysis to the problems involved in these contrasts. [297] This thesis was set forth by the present writer at the 1915 meeting of the American Economic Association. See _Papers and Proceedings_, Supplement to March, 1916, _Amer. Econ. Rev._, pp. 168-169. [298] _Cf._ J. B. Clark, _Distribution of Wealth_, _passim_, and J. Schumpeter, _Theorie der wirtschaftlichen Entwicklung_, pp. 1-101. See also the present writer's "Schumpeter's Dynamic Economics," _Pol. Sci. Quart._, Dec, 1915, and A. S. Johnson, in _Quart. Jour. of Econ._, May, 1914. [299] _Principles_, Bk. III, ch. xviii, par. 1. [300] _Theorie der wirtschaftlichen Entwicklung_, p. 77. Since the foregoing was written, Professor W. C. Mitchell has presented an admirable historical paper on "The Rôle of Money in Economic Theory," in which he has multiplied instances, in the history of the science, of this contempt for money, or abstraction from money, in economic theory. He finds that Marshall, and some other later writers, have given much fuller recognition to the rôle of money, which he conceives of primarily as an institution which has rationalized economic behavior, by forcing upon the individual bookkeeping habits of thought. This still leaves it legitimate to abstract from money, however, for "pure theory." Highly important as is the "measure of values" function, it does not explain the main work which money, as money, actually _does_ in economic life, nor need it be a source of value for money. _Cf._, _infra_, our chapter on "The Functions of Money." Professor Mitchell's paper will be found in "Papers and Proceedings," Supplement to the March, 1916, number of the _Am. Econ. Rev._ [301] The materials in this appendix are taken from an article published in the _Annalist_ of Jan. 8, 1917, pp. 39, 53-54, and the New York _Times_ Annual Financial Review of Dec. 31, 1916, and are reprinted by the courtesy of the New York Times Company. [302] _Vide Annalist_, Feb. 7, 1916, pp. 183-184, and Feb. 21, 1916, p. 246. [303] _Wealth and Income of the People of the United States_, p. 129. [304] The justification of this procedure is argued more fully in my article in the _Annalist_ of Feb. 7, 1916, above referred to. [305] The figures for railway gross receipts are taken from the _Commercial and Financial Chronicle_, rather than from Government reports, in order to get figures for calendar rather than fiscal years, and in order to get the latest possible figures. As the absolute figures are not strictly comparable throughout, the method employed has been to calculate _percentage_ gains or losses for the _same roads_ for successive years. This would lead to a cumulative error, if large new roads had been built during the period, and had retained their independence. In point of fact, however, the curves for the absolute figures and for the percentage changes run pretty closely parallel down to 1909, at which time a large number of small roads, not previously counted, are brought into the figures. As the number of roads reported varies, the percentage changes on the same roads give us the more accurate measure of year by year variation. It is, at the date of writing (December, 1916), the only possible method for 1916, since the _Chronicle_ figures which come to the end of November are based on only 37 roads, with a mileage of 84,452 out of over 240,000 miles usually reported. For these roads, a gain of 19.63%, for the first eleven months of 1916 over the same months in 1915, is reported, and our figures for 1916 rest on the assumption that the gain for the whole year over 1915 is 17.27%. (The greatest gains are for the earlier months, as the end of 1915 was a period of great activity.) Much fuller figures supplied me by Mr. Osmund Phillips, of the _New York Times_, for the first _ten_ months of 1915 and 1916 serve to justify this estimate for the gain of 1916 over 1915. For the _Chronicle_ data, see vol. 102, p. 930, vol. 103, p. 2112, and _passim_. The index of prices chosen is Dun's. (See especially _Dun's Review_ of May 11, 1907, Jan. 9, 1915, and later months, and the discussion of Dun's index number in the _Bulletin of the United States Bureau of Labor Statistics_, Whole Number 173, July, 1915, pp. 148 _et seq._) Dun's index number is chosen partly because it is complete for 1916, and partly because it is weighted in accordance with the consumption of different classes of goods, and so particularly suited to this inquiry. I venture to express strong preference for rationally weighted index numbers, and for the use of different index numbers for different purposes. (_Vide_ the discussion of index numbers in ch. 19.) Our price index for each year is an average of the twelve monthly figures given by Dun from 1894 to 1916. For the years 1890-94, our price index is an average of the figures for January and July. This average is lower, in most years, than the average for the whole year, and may well be lower than the average for these years, but no attempt has been made to rectify this possible source of error. The index is recalculated from Dun's figures (where it is not a percentage, but a sum of prices), and made a true percentage index, with a base in 1910. The figures for exports and imports are for _calendar_ years. They were obtained, for the years 1890-1909, from _Statistics of the United States, 1867-1909_ (National Monetary Commission Report), and, for the years since 1909 from the _Commercial and Financial Chronicle_. For 1916, November and December are estimated. [306] Their indicia of variation for "trade," though failing to meet the problems for which they were designed, as shown in chs. 13 and 19, are good indicia of variation for physical production and consumption. [307] That this should have been seriously denied during the recent Presidential campaign, on the basis of the estimate that foreign trade is minute as compared with domestic trade, gives special point to the present discussion. [308] King's figures, for which he estimates a margin of error of 25% are used for these years. (_Loc. cit._, p. 129.) The export and import figures used are for fiscal years. [309] Probably the apparent moderate increase in imports is due wholly to higher prices. The actual physical volume has possibly been reduced, as compared with the period before the War. [310] I am indebted to several colleagues for advice and criticism in connection with these tables, particularly Professors Taussig and W. M. Persons. Mr. N. J. Silberling has been particularly helpful, aiding in the choice of the statistical sources, suggesting methods of handling and interpreting them, and making virtually all the computations in the tables. [311] Retail prices of exports and imports are obtained by adding 50% to the wholesale figures reported, on the assumption that wholesale prices are two-thirds of retail prices. The percentages in the final column are obtained by dividing the figures for foreign trade by the figures for domestic trade. The percentage would reach 100 when foreign trade becomes equal to domestic trade. [312] The figures in column 4 are obtained for any year, say 1905, by taking the index in column 3 for 1905, the index in column 3 for 1910, and the absolute figure in column 4 for 1910, and solving by the "rule of three." [313] The notion of interdependence need not involve circular reasoning, if the facts really justify it. The whole cosmos is, doubtless, interdependent. Often certain systems within the cosmos manifest enough _in_dependence of the rest of the universe to justify us, for some purposes, in thinking only of _inter_relations within the systems. The important thing is to make the circle in theory as big as the circle in fact. _Cf. Social Value_, p. 152, n. [314] In chapter XVI. [315] _Cf._ our chapter, _infra_, on "The Quantity Theory and International Gold Movements." [316] Italics mine. [317] _Loc. cit._, p. 165. [318] The resemblance of the view here maintained to that of Professor Laughlin is at many points close. I am indebted to his _Principles of Money_ for many suggestions. [319] _Loc. cit._, p. 165, n. The doctrine is reiterated on p. 168. [320] This is strikingly true in the stock market--the place where more trade takes place than in any other market. See the figures in the preceding chapter with reference to stock transactions, and the chapter on "Bank Assets and Bank Reserves." [321] For a history of this debate, with bibliography, see Laughlin's _Principles of Money_, ch. 7, on the "History and Literature of the Quantity Theory," esp. pp. 260 and 263-264. Laughlin shows the connection of the currency principle and the quantity theory. [322] It may be that in the brief discussion of elastic bank-notes on p. 173 (_loc. cit._), Fisher means to given an explanation of the theory of elasticity from a quantity theory standpoint. The statement there is that money not only tends to flow away from _places_ where prices are high, but also from _times_ when money is high. "If the price-level is high in January as compared with the rest of the year, bank-notes will not tend to be issued in large quantities then. On the contrary, people will seek to avoid paying money at high prices and wait till prices are lower. When that time comes they may need more currency; bank-notes and deposits may then expand to meet the excessive demand for loans which may ensue. Thus currency expands when prices are low and contracts when prices are high, and such expansions and contractions tend to lower the high prices and to raise the low prices, thus working toward mutual equality." If this be the quantity theory account of elasticity--and it would seem to be about the only thing the quantity theory could say--it is about as far from giving an account of the real facts as any theory could be! Something of this sort is suggested, perhaps, by the behavior of Canadian bank-notes, which do expand in the fall, when prices of wheat are lowest, and contract in January, when wheat prices are higher. This grows, however, out of the peculiarities of an agricultural country, and does not at all illustrate the general doctrine maintained. First, wheat prices in the fall are low because wheat is most abundant then. Wheat prices in January, under the influence of speculation, commonly differ from wheat prices in the fall by an amount about equal to the elevator charges, rattage, insurance, interest, and other carrying charges involved. Second, wheat prices are only one element in the general price-level. Low wheat does not prove that the level is necessarily low. A good wheat crop may mean increases in general prices, and often does. Third, and more important, the real reason for an expansion in Canadian notes at such a time is that the wheat _has to be moved_. The farmers do not want to carry it; the speculators are ready to carry it; and it must be sold. Expanding _trade_, at the season, is the cause of expanding bank-notes. The influence of the _price_ of wheat is exactly the reverse of that which Fisher assigns. If the price of wheat is low in the crop-moving season, _less_ notes will be issued than if the price is high. In other words, the greater the increase in PT, not P or T alone, the greater will be the expansion of bank-notes. Decrease either P or T, and less notes will be issued. In general, the phenomenon of elastic bank-credit is the phenomenon of an expanding bank-note or deposit issue accompanied by rising prices and volume of trade, and a decrease when trade and prices decrease. This is all commonplace, but I feel it best to refer to familiar sources to show how old and well recognized my statement of the case is. The following is from Mill's _Principles of Economics_, Bk. III, ch. 24, par. 1: "Not only has this fixed idea of the currency as the prime agent in the fluctuations of price made them shut their eyes to the multitude of circumstances which, by influencing the expectations of supply, are the true causes of almost all speculations and of almost all fluctuations of price; but in order to bring about the chronological agreement required by their theory, between the variations of bank issues and those of prices, they have played such fantastic tricks with facts and dates as would be thought incredible, if an eminent practical authority had not taken the trouble of meeting them, on the ground of mere history, with an elaborate exposure. I refer, as all conversant with the subject must be aware, to Mr. Tooke's _History of Prices_. The result of Mr. Tooke's investigations was thus stated by himself, in his examination before the Commons Committee on the Bank Charter question in 1832; and the evidences of it stand recorded in his book: 'In point of fact, and historically, as far as my researches have gone, in every signal instance of a rise or fall of prices, the rise or fall has preceded, and therefore could not be the effect of, an enlargement or contraction of the bank circulation.'" I see nothing in Fisher's discussion of credit to differentiate it from the position of the old Currency School. And the reason is a very simple one: Fisher has followed the quantity theory to its logical conclusions! [323] See our chapter on the "Volume of Money and the Volume of Credit." [324] How close the relation between loans and deposits is may be seen from Professor Mitchell's chart, _Business Cycles_, p. 344. The same chart exhibits the variations in the reserve percentage, which is very much greater. The New York Clearing House banks, which we have seen (_supra_, "Volume of Money and Volume of Credit") have a spread of from 24.89% to 37.59% in the yearly average of percentage of reserves to deposits--a spread of over 50%--show a variation in yearly average for the percentage of loans to deposits of only 24.3%--the range being from 83% to 104%. _Ibid._, pp. 325 and 331. For a partially different series of years, see the chart of J. P. Norton, _Statistical Studies in the New York Money Market_, facing p. 104. [325] Neither deposits nor loans vary _proportionately_ with trade. Very active trade may merely increase the activity of loans and deposits, causing both to be shifted more rapidly--larger outgo, larger income, loans more frequently contracted and paid off, larger amounts "deposited" on a given day, but balances, both of loans and deposits, at the end of the day not increased proportionately with the activity. This is strikingly illustrated in the business of the stockbroker. [326] _Supra_, p. 47. [327] Italics mine. [328] "Miscellaneous Articles on German Banking," in _Report of Nat. Mon. Commission_, p. 175. Art. by Max Wittner and Siegfried Wolff. [329] The figures are not easily compared, as the figures for giro-_transfers_ do not indicate the volume of giro-_accounts_, which is doubtless much smaller. I know no estimates for the turnover either of notes or of bills of exchange. To determine what _proportion_ of business is done by each would, thus, not be easy. The volume of bills of exchange for the year is three times as great, for 1907, as the figures for note issue. The giro-system, as is well known, is relatively unimportant as compared with notes. But I do not undertake to assign figures showing proportions of business done. [330] Inland bills of exchanges in connection with the grain trade are still very important, especially at Chicago and Minneapolis. The writer has met frequent reference to cotton bills at St. Louis. Wool bills are frequent in Boston. [331] _Vide_ my criticism of his statistical fallacy in this connection, in the _Annalist_ of Feb. 7, 1916. He rules out foreign trade from his "equation of exchange" by the device of assuming that imports and exports cancel one another. This, however, to the extent that it is true, makes the bill of exchange more, rather than less, important as a substitute for money and deposits. Fisher, _loc. cit._, pp. 306, and 374-375. See appendix to chapter XIII of the present book. [332] _Vide_ ch. 16 for a more precise statement of this part of quantity theory doctrine. [333] _Purchasing Power of Money_, pp. 169-170. [334] _Ibid._, p. 170. [335] _Ibid._, p. 171. [336] _Ibid._, p. 172. [337] _Ibid._, p. 172. Italics mine. [338] _Ibid._, pp. 174-181. [339] I call attention, in passing, to Fisher's confusion, in this sentence, of "commodities" with "trade." This occurs frequently in his argument. _Cf._ pp. 225-226, _supra_. [340] The Capitalization theory is briefly outlined by Böhm-Bawerk, in the critical and historical volume of his _Kapital und Kapitalzins_ (English title of the volume, _Capital and Interest_), in his criticisms of the theories of Henry George and Turgot. It has subsequently been elaborated, and much improved, by Fetter, in his _Principles of Economics_, and, more recently, has been restated, with mathematical formulæ, by Fisher, in his _Rate of Interest_. A good brief statement will be found in Seligman, _Principles of Economics_, ch. on "The Capitalization of Value." Extensive use has been made of it by Veblen. More recently, it has been elaborated in the controversy over the theory of interest participated in by Seager, Fisher, Brown and Fetter, in the _American Economic Review_, 1912-13-14, and the _Quarterly Journal of Economics_, 1913. [341] Italics mine. [342] The criticisms I should make of the present formulations of the time-preference theory of interest, as presented by Böhm-Bawerk, Fetter and Fisher, rest on the individualistic method of approach, and are at many points analogous to the criticisms I have made of the utility theory of value. These criticisms need not affect the points at issue here. On the particular point involved, I agree with Fisher that the productivity theory gives a wrong answer. [343] _E. g._, Fisher, _Purchasing Power of Money_, p. 179. [344] This confusion is a companion of the confusion between volume of _goods in existence_, or volume of _production_, and volume of goods _exchanged_. The errors growing out of this confusion have been dealt with in ch. 13, especially pp. 225-226. Virtually all quantity theorists make both these mistakes. [345] The fundamental causation is psychological, and calls for a theory of _value_, as distinguished from exchange-relations. [346] _Supra_, chapter on "Velocity of Circulation." [347] This distinction is clearly made and developed by von Wieser, in the two articles referred to in our chapter on "Marginal Utility." It is used by him in criticisms of the quantity theory. "Der Geldwert und seine geschichtlichen Veränderungen," _Zeitsch. für Volkswirtschaft, Sozialpolitik und Verwaltung_, XIII, 1904; discussions in _Schriften des Vereins für Sozialpolitik_, 1009, no. 132. A similar distinction runs through J. A. Hobson's _Gold, Prices and Wages_, London, 1913. The present writer had worked out the line of argument here presented before reading either of these discussions. [348] I have chosen maid-servants, to avoid complications of costs of production in the reasoning that might come if other labor, engaged in producing goods for the market, were selected. To tighten the argument a tittle further, I assume that the masters receive their monthly incomes on the first day of the month; that they pay the maids on the same day; that the rest of the expenditures, both of masters and maids, are strung out through the rest of the month. [349] _Op. cit._, p. 27. [350] A possible alternative interpretation of Professor Fisher's conception is suggested in two or three sentences in the passage of the _Purchasing Power of Money_ I have been discussing. On p. 175 he makes a distinction between individual prices _relatively to each other_ and the price-level. But the distinction which he _discusses_ in the passage as a whole is between the price-level and individual prices _not_ considered in relation to each other. Comparison, moreover, with his original enunciation of the notion (Papers and Discussions, 23d Annual Meeting of the American Economic Association, pp. 36-37), would serve to justify the interpretation I give, as nothing at all is said there about super-ratios between individual prices. But the internal evidence is even more convincing. Demand and supply, and cost of production, find their problem, not in the relation between the money price of aspirin and the money price of caviar, but in the money-price of aspirin or the money-price of caviar considered separately. Professor Fisher thus conceives supply and demand in his _Elementary Principles_ (p. 260). This interpretation is especially necessary, since Professor Fisher is joining issue with writers who surely use demand and supply and cost of production as means of explaining money-prices, and not super-ratios between them. Further, the price-level is _not_, on Professor Fisher's own scheme, a factor in determining the relations of the prices of sugar and of wheat _inter se_. With a given price-level, wheat might be worth a dollar and sugar nine cents, and the ratio of their money equivalents would be 100:9; with a price-level twice as high, wheat would be worth two dollars, and sugar eighteen cents, but the ratio between their money equivalents would be still 100:9. The whole discussion is quite meaningless unless the contrast be between concrete money-prices of particular goods, and their average. On either interpretation, moreover, my criticism of the exalting of the average into an entity would stand. [351] _Purchasing Power of Money_, pp. 175-179. [352] I am glad to find myself in agreement with Professors Laughlin and Kemmerer in holding that this notion of Professor Fisher's is untenable. "The distinction Professor Fisher draws between the prices of individual commodities and the general price-level appears to me, as to Professor Laughlin, to be untenable. It is, moreover, contradictory to his general philosophy of money. His index numbers recognize no general price-level distinct from individual prices.... Professor Fisher's illustration of the ocean would be more apposite if he called it a lake whose level was continually changing, and if he considered each particular wave as extending to the bottom." Kemmerer, _Papers and Discussions_, 23d Annual Meeting of the American Economic Association, p. 53. At the same time, I agree with Professor Fisher that there must be something more fundamental than the particular prices to make the scheme work. This something I find in the absolute value of money. [353] _Loc. cit._, p. 14. [354] _Cf. Social Value_, chs. 2 and 11, and "The Concept of Value Further Considered," _Quart. Jour. of Econ._, Aug., 1915. See also, _supra_, the chs. on "Value," "Supply and Demand," "Cost of Production," and "Capitalization." [355] This tendency may be more than offset by the increasing significance of money as a "bearer of options" or "store of value" in periods of panic and depression. See, _infra_, the chapter on "The Functions of Money," and Davenport, _Economics of Enterprise_, pp. 301-03. [356] "Agricultural Credit in the United States," _Quart. Jour. of Econ._, Aug., 1914, p. 708, n. [357] Iowa farm lands are exceedingly active, 18% of the farms being sold annually. The Mississippi lands are much less active. I am indebted to Dr. Pope for information regarding Iowa on this point. [358] The Single Taxer could at least retort that this need not protect landlords in countries, like England, which lend surplus capital abroad. [359] _Cf._ Trosien, _Der landwirtschaftliche Kredit und seine durchgreifende Verbesserung_, p. 29, cited by J. E. Pope, _loc. cit._, p. 705, n. [360] This was seen by Mill, (_Principles_, Bk. III, ch. viii, par. 4), and has been especially emphasized by Laughlin, _Principles of Money_, ch. 10. _Cf._ A. C. Whitaker's discussion in the _Quart. Jour. of Econ._, Feb. 1904. [361] _Supra_, p. 124, and ch. on "Dodo-Bones." [362] Comptroller of the Currency estimates the State bank-notes in 1861 at 202 millions; in 1862, at 183 millions. _Report of the Comptroller of the Currency_, 1915, vol. II, p. 37. [363] W. C. Mitchell, _History of the Greenbacks_, ch. on "The Circulating Medium," and _passim_. [364] See Conant, _Modern Banks of Issue_, New York, 1896, p. 114. An interesting analysis of the course of the gold premium and of prices during the period of the Bank Restriction in England, and of the controversies relating thereto, will be found in Knies, _Der Credit_ (vol. II of _Geld und Credit_), pp. 247 _et seq._ The same period is studied in detail by Thos. Tooke in his _History of Prices_. [365] _Money and Monetary Problems_, p. 105, and preceding. [366] Nicholson, _loc. cit._, 84ff. [367] _Ibid._, 76ff. [368] _Cf._ Laughlin, J. L., _Principles of Money_, and Scott, W. A., _Money and Banking_. [369] _Cf._ _infra_, our discussion of credit. It is not maintained that credit needs to be based on _physical_ goods, but it is maintained that credit is based on _values_, which are generally not the value of a sum of gold. [370] I have elaborated this notion in a hypothetical case in the chapter on "Dodo-Bones," to which I would now refer. See also the analysis of an "ideal credit economy" in the discussion of reserves in the section on Credit, in Part III. [371] _Infra_, the discussion of reserves in Part III. [372] _Cf._ the chapter on "The Origin of Money," _infra_. [373] See especially _History of the Greenbacks_, pp. 188ff.; 207-208; 275-279. [374] Various efforts have been made by adherents of the quantity theory to meet the facts developed by Mitchell with reference to the Greenbacks. Thus, it has been suggested that the coming to par of the Greenbacks shortly before the resumption of specie payments was an accidental coincidence, due to the fact that the volume of trade in the United States just happened to grow to the right amount to bring the Greenbacks to par at that time. No statistical evidence has been offered for this thesis, I believe. It is, indeed, the only logical thing which a quantity theorist could say on the matter, except one alternative, (F. R. Clow, _J. P. E._, vol. II, p. 597) namely, that if the Greenbacks should exist in such quantity that, under the quantity theory, their value ought to fall below the discounted future value of the gold in which they were to be redeemed, speculators would take them out of circulation, holding them for the interest, and so reduce their quantity that the value would rise to that discounted future value. The first thesis, that based on putative changes in the volume of trade, though highly improbable in fact, is logically possible. The second thesis, however (_Purchasing Power of Money_, p. 261) meets serious difficulties. What motive would a speculator have for taking the Greenbacks out of circulation, and hoarding them? The answer is, he gets thereby the "interest," as the Greenbacks approach the date for redemption in gold. If this were the only way in which he could get this gain, the answer would be good. But there is another way in which he can get it, and something more besides, namely, by _lending out_ his Greenbacks. In that case, since the creditor gets the full benefit of an appreciating standard of deferred payments, he would get all the "interest" which he could get by hoarding, and, in addition, he would get contract interest on his loan. Of course, if the principle of "appreciation and interest" worked out with perfect smoothness, he would find his contract interest reduced as the other rose, and one might even expect, if the Greenbacks were very redundant, that contract interest would disappear. There is no evidence that this did happen, however! And so long as any contract interest existed, we have a thoroughly valid reason why a holder of Greenbacks would lend them rather than hoard them. Another effort to harmonize the facts with the theory consists in the contention that _anticipated_ future increases in the Greenbacks would work in the same way as actual increases. But this is to shift the whole basis of the quantity theory, which rests in the notion of a mechanical and--in the mass--unconscious equilibration of quantity of money and number of exchanges. The quantity of money is not increased until it is increased! _Cf._ Mill, _Principles_, Bk. III, ch. 12, par. 2, and Jos. F. Johnson, _Money and Currency_, Rev. ed., p. 235. Professor Fisher has another way to meet the facts of the Greenback régime, and that is by holding that they prove his case! I do not think that anyone, however, who examines the figures he offers on p. 260 (_loc. cit._) will be impressed by the degree of concomitance between money and prices which they exhibit, especially after Mitchell's careful analysis of changes in detail. At another point, Professor Fisher maintains (p. 263) that the rapid changes in gold premium which came with news from the military operations (_e. g._, the 4% drop in Greenbacks after Chickamauga), were due to alterations in velocity of circulation and in volume of trade! As the gold market usually got the news by wire, before the newspapers got it, however, this thesis is not very convincing. [375] Kemmerer, E. W., _Money and Credit Instruments in their Relation to General Prices_, New York, 1907; Fisher, _Purchasing Power of Money_, New York, 1911; subsequent yearly continuations of "The Equation of Exchange" in the _American Economic Review_. The references here, as throughout, are to the 1913 edition of Professor Fisher's book. [376] _History of Prices._ [377] To this type would belong Professor Fisher's figures with reference to the years, 1860-66 on p. 260 of his _Purchasing Power of Money_. [378] This relates particularly to Fisher's figures. [379] _Loc. cit._, p. 298. [380] _Ibid._, p. 297. [381] _Cf._ our chapter, _supra_, on the "Equation of Exchange." [382] These are the "finally adjusted" figures. _Loc. cit._, 304. [383] _Ibid._, p. 277. Fisher's estimate for V, as corresponding more closely to Kinley's figures for the proportions of money and checks in trade, is to be preferred to Kemmerer's. _Cf._ our comments on this point, _infra_, in this chapter. Even the figures for M´ are not correct, since they do not include deposits growing out of "morning loans," cancelled during the day. _Infra_, ch. 24. [384] _Report of the Comptroller_, 1896; _The Use of Credit Instruments in Payments in the United States_, National Monetary Commission Report, Washington, 1910. [385] I am indebted to the _Annalist_ for permission to use here materials first published in the _Annalist_ in articles by the present writer: "Home vs. Foreign Trade," Feb. 6, 1916; "Tests of Home Trade Volume--a Rejoinder," March 6, 1916; "Home Trade Volume," March 20, 1916, p. 377. To these articles Professor Fisher replied: "A Multi-Billion Dollar Nation," _Annalist_ Feb. 21, 1916; and "Over and Under Counting," _Ibid._, March 13, 1916. [386] Except checks deposited by one bank in another. Kinley's figures exclude these in 1909, but not in 1896. [387] The methods and data employed by Professor Fisher are described at length in his _Purchasing Power of Money_, ch. XII, and Appendix to ch. XII. [388] M´ is the _average_ of bank deposits, as shown by the balance sheets, for all banks in the country for the year. Throughout, the reader must distinguish this from the "deposits" of Kinley's figures--amounts "deposited" on March 16. [389] It is easier, sometimes, to make an assumption regarding a set of facts than to find out what they are! In this case, some work was involved. Old newspapers had to be hunted up for various cities, and letters had to be written, to find out, for various cities, (a) clearings for March 17, 1909, and (b) the number of banking days in the year 1909. This work was done by Mr. N. J. Silberling, who got figures from 12 cities which had 69% of all clearings outside New York. These cities are: Chicago, Philadelphia, Boston, St. Louis, Pittsburg, San Francisco, Baltimore, New Orleans, Atlanta, Providence, St. Paul, and Seattle. The daily average of clearings for these cities in 1909 was $136,222,436; the actual clearings for March 17, 1909, was $132,961,273. The ratio of average daily clearings to actual clearings on March 17 was 1.0245:1. The increase needed in the figure for deposits outside New York, then, was only 2.45%. Mr. Silberling, wishing to be conservative in view of the 31% of outside clearings not investigated, allows outside clearings to be 3% below normal. On this basis, following Professor Fisher's method of computation, he multiplies the deposits assigned by Professor Fisher to New York by 1.28, and the deposits assigned to the country outside by 1.03, getting total deposits for the day of 1.11 billions, as against Professor Fisher's figure of 1.20 billions, and a total for the year of 333 billions, as against a total obtained by Professor Fisher of 364 billions. [390] To this 786 millions is added all that comes from the erroneous assumption regarding outside clearings, when figures for the whole year are obtained. Country deposits, for the year, are thus still further exaggerated by 31 billions! [391] _The Use of Credit Instruments_, etc., p. 152. There is abundant evidence in Dean Kinley's figures that only a decidedly minor part of the amount (373 millions) of checks allowed by Professor Weston for the non-reporting banks could have been outside the larger cities. The amount deposited in a day in a country bank is so small that a great multitude of these banks would be required to show as much as a single New York City institution. Thus, ninety banks (27 national banks, 58 State banks, 3 private banks, 1 stock savings bank, 1 trust company) in Arkansas, report only $728,148 in checks, an average of $8,090 per bank. If all the 13,000 non-reporting banks were country banks, and if this ratio held, we should have 105 millions more for the day (instead of Professor Weston's 373 millions), or 31 billions more for the year. This average is based chiefly on State and national banks. The average is too high for the private banks (whose daily average as reported is $4,010), and for the mutual savings banks (whose daily average is $1,254). It is well above the daily average of the stock savings banks, which are, in many States, practically commercial banks ($6,405). In the non-reporting banks there are comparatively few national banks, and about 5,000 private banks and savings banks, of these the great majority being private banks. We cannot make up the 373 millions in the country districts. Nor can we make up the 373 millions by taking in all the reserve and central reserve cities, exclusive of New York. Chicago, in the returns, shows 42.6 millions in checks; St. Louis, 14 millions; Boston, 48.8 millions; Philadelphia, 28.6 millions; the other reserve cities show 40.2 millions--a total of 174 millions. If we doubled the returns for these cities, we should still be 200 millions short of the 373 millions added by Professor Weston to the total! Neither in the country districts, nor in the major cities outside New York can we find enough to make up that addition. Very much of the amount added for non-reporting banks must be found in New York City itself. [392] Dean Kinley's questionnaire asked the banks reporting their deposits for the day to exclude deposits made by other banks. These deposits were not excluded in the 1896 investigation. [393] House Committee on "Money Trust." Feb. 28, 1913. Pp. 57, 78, 145. [394] _Cf._ _supra_, and _infra_ our discussion of the volume of trade, and _infra_, our discussion of credit, particularly the analysis of bank-loans. [395] _Vide_ the opinion expressed by an official of a New York trust company, quoted below, on p. 346. [396] _Cf._ Horace White, _Money and Banking_, 5th ed., p. 364. [397] Kirkbride and Sterret, _The Modern Trust Co._, New York, 1905, pp. 59-60; Cannon, _Clearing Houses_, _Nat. Mon. Com. Report_, p. 178; Conant, _Principles of Money and Banking_, II, p. 244. [398] Inquiry was also made of Professor George E. Barnett, who had cited the figures given by the New York Supt. of Banks at p. 133 of his _State Banks and Trust Companies_. Professor Barnett writes, in part, as follows: "I made no independent inquiry at the time, and accepted the statement of the superintendent of banks without critical examination of its basis. From what you say, it appears highly probable that he was mistaken in his conclusions. The only question in which I was interested was whether the reserves of the trust companies could be reasonably lower than those of the national banks. I did not care so much about the exact ratio of clearings and only quoted that incidentally." For the purposes which both Professor Barnett and Mr. Williams had in view, the exact ratio was unimportant. The higher figures which I have given above would support the thesis in which both were interested, namely, that trust company accounts are less active than bank accounts, and so lower reserves may be safely held by trust companies than by national banks. [399] Fisher, _loc. cit._, p. 444. [400] P. 443. Other discussions of this investigation are in the _Journal of the American Bankers' Association_, Jan. 1914, p. 487; _Ibid._, Feb. 1915, p. 555; _National Banker_, March, 1915. [401] None of the cities covered in the figures given in the _Annalist_ were in New York State. Kinley's figures show that the percentage of checks received in deposits of March 16, 1909, in banks outside New York State was 91%. _Loc. cit._, p. 180. [402] Multiplying the 408 millions of checks deposited outside New York on March 16, 1909 by 303, the assumed number of banking days, gives 123.6 billions. Probably, therefore, 124 billions is too small a figure. But we should be slow in modifying a figure based on 17 months' observations because of the figures from one day's observations. [403] I have greater confidence in this conclusion, since seeing a letter from Mr. Howard Wolfe, who made the investigation of outside clearings and "total transactions" for the American Bankers' Association, to Mr. Osmund Phillips, Editor of the _Annalist_. Mr. Wolfe writes: "I do not believe that the experience of the New York banks would differ from that of other institutions which now supply [these figures]." [404] My information on this point comes from Professor O. M. W. Sprague. It is corroborated by an official of the Bankers Trust Company in New York. [405] _Vide_ Rodney Dean, of the Fifth Avenue Bank, New York, "The Problem of Collecting Transit Items," _Journal of the American Bankers' Association_, Jan. 1914, p. 537. Boston inaugurated the system in 1890-1900; Kansas City five years later. Since the above was written, I have learned that New York, in recent months, has introduced the new system. This does not affect our argument regarding the figures for 1909. [406] Since the foregoing was written, my attention has been called by Mr. Osmund Phillips, Financial Editor of the New York _Times_, and Editor of the _Annalist_, to indirect ways in which items on out of town banks sent to New York for collection will affect New York clearings. Country correspondent banks to which New York banks send these items for collection, may remit for them in four ways: (1) by sending cash; (2) by sending items on out-of-town banks, which the New York bank will send on to some other correspondent for collection; (3) by draft on the New York bank which has sent the items to be collected; (4) by draft on some other New York bank. In the last case, New York clearings are affected. The first case is not, quantitatively, important. The second and third cases would seem to be the normal types, assuming correspondent relations between New York banks and country banks to be _reciprocal_, since the New York bank would be disposed, as far as possible, to turn over its collection business to its own depositors among the country banks. Mr. Phillips says, however, that the fourth case is important. To the extent that this is true, our conclusion that out of town collection items do not affect New York clearings must be modified, and it becomes a matter of importance whether these items are large or small. My information, as stated above, is that Chicago exceeds New York City in this. If, however, the Kansas City and Boston arrangements held in New York, these collection items would be represented _twice_ in New York clearings. The fact that the items do not themselves get into the clearings remains. Direct information regarding New York clearings is very desirable. Our indirect approach must be considered inconclusive until more detailed figures for New York City are at hand. We need figures covering all types of banks in New York, for a period of, say, a year (to allow for seasonal changes), in which deposits made by one bank in another are separated from other deposits. National banks alone would exaggerate the item of deposits by one bank in another, especially as they are the depositories of the great private banks. [407] Or, in some cases, taking the place of cash dealings between banks and a local clearing house. On the face of it, it is incredible that _balances_ between cities, or _within_ cities, after the country clearing houses have done their work, should be so great as to account for a very great part of New York clearings. These balances between cities other than New York, and balances within country clearing houses, must be a minor fraction of _country_ clearings, and country clearings are little more than half of New York clearings. Ordinary commerce, as shown in chapter XIII, cannot give rise to great sums in the aggregate, to say nothing of giving rise to great _balances_. [408] The whole thing is summed up on p. 25 of the Comptroller's _Report_ for 1892. [409] _Cf._ Kemmerer, _Money and Credit Instruments_, p. 117. [410] _Annalist_, July 6, 1914, p. 8. The editor of the _Annalist_ gives me the following information: data for twenty banks, six in New York and fourteen in Chicago, Philadelphia, Boston, and St. Louis, for the week, Aug. 28-Sept. 2, 1916, show that clearings are 71% of "total transactions" in New York, and about 40% in the other cities. These figures are all for national banks, except for one bank in St. Louis. [411] There is one further generalization developed in connection with Mr. Wolfe's investigation of the ratio of clearings to "total transactions" which seems to have relevance here, though I am not sure how it should be interpreted. The average ratio, as stated, is about 40%. This varies, however, for different cities. "The rule seems to be that the larger the proportion of bank deposits to individual deposits, the smaller will be the figure representing this ratio. In Cincinnati, for example, it is 31.4% while in Los Angeles it is 59.7%." (_Jour. of American Bankers' Ass'n_, Jan. 1914, p. 487.) How safely based this generalization is cannot be told from the context, as no further facts are offered. Nor is its bearing on the question at issue, as to whether or not New York clearings bear a higher ratio to New York deposits than country clearings do to country deposits, entirely clear. It would seem to indicate that deposits made by outside bankers in the banks of reserve cities make smaller contributions to clearings than individual deposits do, and this would fit in with the fact that checks on outside banks, deposited for collection by one bank in another, do not get into clearings. What further explanation or significance it has I leave to the reader. It is possible that there are a number of important relevant facts missing regarding New York clearings, and that the conclusions here reached may require later revision. [412] _Loc. cit._, p. 304. [413] But not as a correct estimate of M´V´ for the equation of exchange! We do not know what part of these checks were used in "trade." _Cf._ our discussion of the estimate of T, _infra_. [414] Kemmerer does not do this, but takes total clearings for the country as his index of variation. _Loc. cit._, 118-120. His figures for "check circulation" are, thus, more variable than Fisher's. In this, Kemmerer's results are much to be preferred. [415] I have taken the figures for clearings from Professor Fisher's table, _loc. cit._, p. 448. [416] _Loc. cit._, p. 304. _Cf._ our chapter on "Velocity of Circulation," _supra_. [417] _Loc. cit._, pp. 477-478. [418] There is, of course, the further point, to be emphasized in the discussion of T, _infra_, that MV (and hence V), assuming the calculation otherwise correct, is too large, to the extent that it includes tax payments, loans and repayments, dealings between agent and principal, etc. But this criticism does not so clearly apply to MV as it does to M´V´. [419] _Business Cycles_, p. 308. [420] That volume of trade and volume of physical goods are virtually interchangeable in Fisher's thought is strikingly illustrated on p. 195 of the _Purchasing Power of Money_: "A doubling in the quantities of all commodities _sold_, or (_what is almost the same thing_) a doubling of the quantities _consumed_." Italics are mine. [421] This is strictly true only of the part of T which comes from the figure for M´V´, 353 billions. In calculating MV, Professor Fisher introduces more complexities, into which we shall not enter, as the absolute amount is small--only 34 billions!--and the possible error from this source not great enough to affect a calculation where 20 billions one way or the other is within the "margin of error." [422] _Vide_ _Annalist_, Feb. 17, Feb. 21, March 6, March 13, and March 20, 1916, for a discussion of this point by Professor Fisher and the present writer. [423] _Op. cit._, pp. 112-113. It is interesting to note that Kemmerer's argument takes the form of proving, not that bank transactions do not overcount trade, but merely that they do not _undercount_ trade. With this contention I am in hearty agreement! The overcounting is worse in Kemmerer's figures for 1896 than for Fisher's in 1909, since the 1896 figures included deposits made by one bank in another, while the 1909 figures do not. _Cf._ Kemmerer, p. 105, and Kinley, in _Report of the Comptroller_ for 1896 and in the 1909 monograph, _passim._ [424] _Vide_ the present writer's discussion in the _Annalist_, March 6, 1916, p. 313. [425] I am informed by Mr. B. F. Smith, Treasurer of the Cambridge Trust Company, that the practice of having separate dividend accounts is a very widespread one, especially with the larger corporations. [426] _Statistics of Railways_, 1909, p. 71. [427] Professor Fisher, in his _Annalist_ article of Feb. 21, 1916, quotes Dean Kinley (_The Use of Credit Instruments_, p. 151), as holding that duplications have largely been eliminated from his 1909 figures. Professor Fisher overlooks the fact that Dean Kinley is here referring, not to money value of trade, but merely to volume of checks. Dean Kinley merely indicates that by eliminating deposits made by one bank in another, he has avoided having the same check counted in deposits made in two or more banks on the same day. Even this is not wholly avoided. (_Ibid._, pp. 158-159.) It was extensive in the 1896 figures. Dean Kinley thinks, properly enough, that he has a sufficiently close approximation to the volume of checks, for the reporting banks, but what the checks were drawn for he does not undertake to say. His problem was _payments_, not _trade_. From the angle of volume of trade, he finds duplications even in the retail deposits (_Jour. of Polit. Econ._, vol. 5, p. 165). [428] _Annalist_, March 13, 1916, p. 344. [429] Chapter on "Volume of Money and Volume of Trade," pp. 241-248. We really did not "find" nearly that much. The figures assigned to retail and wholesale trade rest on figures for retail and wholesale bank "deposits," and are, especially the wholesale figures, much too large. [430] _Annalist_, Feb. 21 and March 13, 1916. [431] _Loc. cit._, p. 180. [432] _Ibid._, pp. 166-167; 187; 273. [433] Pratt, _loc. cit._, p. 166. [434] _Ibid._, p. 187. [435] Emery, _Speculation on the Stock and Produce Exchanges_, pp. 89; 74-95. A Boston broker expresses the opinion that the magnitude of artificial borrowing to make the clearance sheet misleading is not great, so far as Boston is concerned. I have got no estimates for New York. [436] The banks, of course, are not borrowing stocks. [437] Van Antwerp, _The Stock Exchange from Within_, New York, 1913, p. 290 [438] It recently happened that Alaska Gold was being "loaned flat" on the Boston Stock Exchange, which was a prelude for a six point advance in the next two or three days, as the bears were driven to cover. [439] One factor complicates this. Are all the hundred share sales recorded? In our chapter on "Volume of Money and Volume of Trade," we called attention to a statement to the effect that brokers get together before the market opens, and compare "stop loss" orders, matching these with other orders, with the understanding that they automatically go into effect if the "market" reaches the prices indicated. The statement indicated that this substantially increases sales beyond the recorded totals, as such sales do not get on the ticker. I think, however, that this cannot throw our reckoning out greatly. The great majority of sales are not on "stop loss" orders. None of the sales of "floor traders," who average a third of the total trading (_Pujo Committee Report_, Feb. 28, 1913, p. 45), would be on "stop loss" orders. The bulk of the rest is not. Moreover, not all stop loss orders, by any means, would be executed in this manner. It is not easy to see how, under the rules and practices of the Exchange, many other sales could go unrecorded, except on days of greatest stress. On September 25, 1916, when over 2,300,000 shares were sold, the daily paper spoke of sales missed by the ticker, which was swamped with sales to be recorded, as an item of some magnitude. But the Ticker is wonderfully efficient. It sometimes gets behind the market by several minutes, but it rarely misses anything, under ordinary conditions. [440] _Ibid._, p. 166. [441] This explains the estimates of Wall Street men that the Clearing House reduces checks by two-thirds. For _their purposes_, the saving is almost that much, of the items offered for clearings. _Cf._ Van Antwerp, _The Stock Exchange from Within_, pp. 121-122. [442] _Ibid._, p. 273. There is one billion difference between Pratt's estimate and mine. I incline to the view that mine is correct, the more as he puts his figure, 14 billions, as a safe lower limit. But a billion one way or the other is trifling! [443] An official of the Bankers Trust Company has secured for me from a broker at the "Money Post" an estimate of 20 to 25 millions as an average, with 50 millions as a maximum, for 1915. The Pujo Committee, in its report in 1913, p. 34, gives a similar estimate. [444] P. 34. [445] _Annalist_, Aug. 14, 1916. [446] N. J. Silberling, "The Mystery of Clearings," _Annalist_, Aug. 14, 1916, p. 223. [447] There is one further piece of evidence which has been obtained through the courtesy of a New York brokerage house. At the request of the gentleman who has supplied the figures, I have altered them by a constant percentage, to prevent possible identification, but the proportions among them hold as they were given. The figures show the business of the house for the month of March, 1916. The figures show: Market value of stocks and bonds bought, 1,644,630 Total deposits made during month, 1,475,502 Average borrowed from banks, 952,000 For this house, then, for this month, the deposits were less than the value of securities sold, by 11.5%. The month, however, was unusual. It was a month of reduced activity, following large activity. This is strikingly shown by the figure for the _average_ bank loans for the month--over two-thirds of the _total_ deposits for the month. The house had a large bull _clientèle_, which was holding its stocks, and not selling on a bear market. The turnover was very slow, as Wall Street goes. It was a time of extraordinarily easy money when banks called few if any loans. The broker, in explanation of his figures, says: "The most of our checks were to other brokers. Checks to banks about equaled checks to customers. Your assumption that we did not pay off many loans in March is, I think, right." The same broker states in another letter that he thinks that, in general, the bulk of checks to and from brokers are in dealings with banks. In this month, then, with this factor reduced to a minimum, we still have deposits undercounting sales by only 11.5%. The figures do not prove my thesis that brokers' deposits greatly overcount their sales, but they at least show that they do not greatly undercount them. In view of the peculiarities of the month chosen, with transactions between banks and brokers cut to the minimum, they are quite consistent with the contention that normally the brokers' deposits will much exceed their sales. [448] Kemmerer's main figures are merely _indicia_ of variation, rather than absolute magnitudes, for trade. On p. 136, _d._ (_loc. cit._), however, he indicates that his figures for "total monetary and check circulation" is also a figure for "total business transactions"--and counts 89% of it as wholesale trade. [449] _Cf._ the discussion of the relation of P and T in the chapter on "The Equation of Exchange." [450] _Op. cit._, p. 136. [451] _Ibid._, pp. 70-71. [452] _Loc. cit._, p. 487. [453] Kemmerer does not accept Kinley's estimate of 75% for checks as compared with money in payments as a "sure minimum" for 1896, but rather counts it as a "fair maximum." (_Loc. cit._, p. 106.) Using this as a basis, he gets a monetary circulation for 1896 of 47.7 billions, and a "velocity of money" (since the monetary stock in circulation in 1896 was a little over 1 billion) of 47. (_Loc. cit._, p. 114.) Kinley's fuller investigation in 1909 has made it clear that his 1896 conclusions understated, rather than overstated, the proportion of checks to money. His "sure minimum" was needlessly low. He concludes in 1909 that 80 to 85% for checks is safe. (_Op. cit._, p. 201.) _Cf._ Fisher's comments, _loc. cit._, pp. 430; 460 _et seq._ Fisher's V is about half as great as Kemmerer's, and varies to some extent. I think Fisher, since his results are closer to Kinley's later figures, has made much the better estimate here. [454] Since I have already compressed the contents of a book of 200 pages into Chapter I of the present book, it seems undesirable to attempt here a further compression of that chapter. These theses, therefore, do not give the substance of the social value theory. [455] Menger, "Geld," _Handwörterbuch der Staatswissenschaften_; Carlile, _Evolution of Modern Money_. [456] We should make a slight and unimportant qualification as to Kemmerer. _Cf._ our chapter on "Dodo-Bones," _supra_. [457] It seems necessary to point out this essential lack of correlation between value and exchangeability, since Mr. Horace White, in his _Money and Banking_ (5th ed., p. 135), identifies value and exchangeability: "Value is an ideal thing in the same sense that weight is. The former means exchangeability; the latter means force of gravity. A dollar is a definite amount of exchangeability." _Cf._ also Amasa Walker's contention that "exchangeable value" is tautology, equivalent to "exchangeable exchangeability!" _Science of Wealth_, 5th ed., p. 9. _Cf._ my article "The Concept of Value Further Considered," _Quart. Jour. of Econ._, Aug. 1915, pp. 696 _et seq._ [458] This is stated by Schumpeter, so far as land is concerned. _Vide Quarterly Journal of Economics_, Aug. 1915, p. 704. It is due Menger to point out that he does not make the distinction between value and exchangeability which I have just made. His theory rests in an analysis of the saleability or exchangeability of goods. But Menger's conception of value is essentially different from my own. He commonly means by "_Wert_" merely subjective value, or marginal utility. He objects to the notion that one good measures the value of another, or that goods, when exchanged, are equivalent in value, on the ground that there must be a surplus in value (subjective value) for each exchanger, or exchange would not take place. He has, as a primary concept, no absolute social value. "_Tauschwert_" is for him a relative value, though he is finally driven to constructing what is virtually an absolute value notion, by distinguishing "_äusserer Tauschwert_" from "_innerer Tauschwert_" in the case of money, the latter being concerned exclusively with the causes affecting prices _from the side_ of money, ignoring changes in prices due to causes affecting goods. (_Cf._ art. "Geld," in _Handwörterbuch der Staatswissenschaften_, 3d ed., pp. 592-593. He does not make this distinction in developing the theory of saleability of goods, however. _Cf._ the chapter, _supra_, on "Marginal Utility and the Value of Money." It is absolute social value which I am here distinguishing from exchangeability. It is equally true, however, that subjective value and exchangeability have no necessary correlation.) [459] _Cf._ A. S. Johnson, "Davenport's Competitive Economics," _Quart. Jour. of Econ._, May, 1914, p. 431. [460] The man who wishes to "break" a twenty dollar bill may well have to go through Menger's process, getting two tens from one man, breaking one of these into two fives with another, and so on. Or he may have to buy something which he does not want to get "change." [461] Ridgeway, _Origin of Metallic Currency_, p. 327; Carlile, _Evolution of Modern Money_, p. 233. Grain is said to have been used in ancient China as money,--not as a standard of value, but as a medium of exchange. Chen Huan Chang, _Economic Principles of Confucius and his School_, vol. II, p. 437. [462] Written in 1914. [463] The Hindu law of inheritance is a factor here. The Hindu woman may retain, after the death of her husband, father or brother, the ornaments he has given her during his lifetime. But all of the rest of the family property must go to male heirs, even remote male heirs coming in before the closest female relatives. [464] _Cf._ Carlile, _Monetary Economics_, introductory chapter. The whole question may hinge on terminology, so far as Carlile is concerned. It is not clear what he means by "value of gold." [465] _Cf._ Conant, _Principles of Money and Banking_, I, ch. 7, esp. p. 102. [466] I do not believe that we have sufficient agreement among the best students of the statistics of the precious metals to justify any statistical conclusions regarding the laws governing the industrial consumption of gold and silver. Even the facts as to the proportions of annual production of gold in recent years going to money and to the arts are in dispute. Thus, DeLaunay (_The World's Gold_, New York, 1908, p. 176), divides the annual output as follows: Exportation to the East, and loss, 16%; coinage, 44%; industry, 40%. The industrial employments are divided as follows: jewelry, 24% (of total annual gold production); watch cases, 10%; gold leaf, 2.25%; watch chains, 1.75%; plate, 0.75%; various uses, as pens, dentistry, chemical works, etc., 1.25%. DeLaunay's competence as an authority is attested by various writers, among them W. C. Mitchell (_Business Cycles_, p. 281). Mitchell, comparing DeLaunay's estimates with divergent estimates of other authorities, concludes that there is not sufficient evidence to justify definite conclusions. I do not think that anyone who has read the criticisms which Touzet has brought together (_Emplois Industriels des Métaux Précieux_, Paris, 1911, pp. 49-52) of the methods employed in the investigations by the Director of the United States Mint in 1879, 1881, 1884, 1886, and 1900, will have large confidence in the exactness of the results reached in those investigations. (See annual reports of the Director of the Mint for the years in question.) Touzet's careful and elaborate study employs the figures of these investigations as the best available, but with substantial misgivings. There are many indeterminate elements in the problem, as shown by both Touzet and DeLaunay, among them, the extent to which coin is melted down for industrial purposes. The Director of the Mint would assign a much higher proportion of the annual output to coinage than would DeLaunay. Earlier studies, by Soetbeer and Suess, seem quite out of harmony with these conclusions. (Suess, Eduard, _The Future of Silver_, Washington, Government Printing Office, 1893, pp. 51-53.) Suess thinks that virtually as much gold was going into the arts uses as was being produced, in 1892, and quotes Soetbeer (_Litteraturnachweis_, p. 285) as admitting that such a contention may not be demonstrable, but at the same time holding that it cannot be disproved. In the face of what seems to be a really indeterminate statistical problem, I content myself with the theoretical conclusions in the text. Because I cannot find adequate grounds for confidence in the main source from which he has drawn his statistics, I refrain from a criticism of the theory and method underlying Professor J. M. Clark's ingenious effort to derive statistical laws for the elasticity of the arts demand for gold. (_American Economic Review_, Sept. 1913.) [467] _Cf._ our chapter on "Economic Value," _supra_, and "Social Value," _passim_. [468] F. A. Walker, _International Bimet_. [469] See DeLaunay, _The World's Gold_, New York, 1908, p. 176. DeLaunay's figures indicate that the use of gold for gold leaf and plate is quantitatively a minor factor in the industrial consumption of gold. Jewelry and watch cases are the most important items. [470] Capital prices of lands and securities might well be lower, if interest rates are markedly higher, and if land rents and "quasi-rents" suffer from higher wages and higher interest. [471] _Cf._ chapter on "Dodo-Bones," _supra_. [472] Among the writers who have treated this topic, I would mention especially Menger, "Geld," in _Handwörterbuch der Staatswissenschaften_; Laughlin, _Principles of Money_; Scott, W. A., _Money and Banking_; Knies, _Das Geld_; Walker, F. A., _Money and Political Economy_; Conant, _Principles of Money and Banking_; Seligman, _Principles of Economics_; Johnson, J. F., _Money and Currency_; von Mises, L., _Theorie des Geldes und der Umlaufsmittel_; Helfferich, K., _Das Geld_; Simmel, _Philosophie des Geldes_; Davenport, H. J., _Economics of Enterprise_. The difference between the standard of value (common measure of values) function, and the medium of exchange function is particularly well illustrated by Scott, _loc. cit._, ch. 1. The legal functions of money are especially treated by Knapp, _Staatliche Theorie des Geldes_. [473] For discussions of the idea of measuring values, and the dependence of this on the conception of value as an absolute quantity, a common or generic quality of wealth, see Knies, _Das Geld_, I, 113ff.; Kinley, _Money_, 61-62; Merriam, L. S., "Money as a Measure of Value," _Annals of the American Academy_, vol. IV; Carver, "The Concept of an Economic Quantity," _Quart. Jour. of Econ._, 1907; Laughlin, _Principles of Money_, 1903, pp. 14-16; Davenport, _Value and Distribution_, p. 181, n.; Anderson, _Social Value_, chs. 2 and 11, and "The Concept of Value Further Considered," _Quart. Journal of Econ._, 1915; Helfferich, _Das Geld_, 1903 ed., pp. 470-478; Scott, _Money and Banking_, ch. 1. [474] See Scott, _Money and Banking_, ch. 3. [475] A further reason for preferring "common measure of values" is that expression carries dearly the connotation of absolute values. "Relative values" cannot be "measured," _Social Value_, pp. 26-27. [476] Current text-books, following the Austrian doctrine, define production as the creation of "utilities." This is incorrect. Production is the creation of _values_. _Cf. Social Value_, pp. 119 and 189. [477] This is the view of H. J. Davenport (_Economics of Enterprise_, pp. 301-302). [478] Kemmerer has shown this to be true of bank reserves. As we shall see, the reserve function is merely a special case of the "bearer of options" function. For Kemmerer's discussion of business distrust, see _Money and Credit Instruments_, pp. 124-126, and 144. [479] "In New York, for instance, loans by banks 'on call' are subject to repayment within an hour or two after notice is given that repayment is desired." Conant, _Principles of Money and Banking_, vol. II, p. 56. In general, the banks are content if the loan is repaid by 3 o'clock on the day it is called. [480] _E. g._, Cairnes, J. E., _Leading Principles of Political Economy_. [481] _One_ "pure rate" is a myth, but the notion has some significance, as setting off a body of causes distinct from the money-market factors under consideration. _Cf. supra_, the ch. on "The Capitalization Theory." [482] See von Mises, "The Foreign Exchange Policy of the Austro-Hungarian Bank," British _Economic Journal_, 1909, pp. 208-209. An able Boston broker, in Feb. 1917, calls attention to the growing difficulty of placing long-time bonds, without very high yield, in view of the scarcity of real capital, despite the exceedingly low "money-rates." I venture to predict an increasing "spread" between "money-rates" and the yield on long-time investments, the longer the War lasts. The view of Davenport and Schumpeter (_Annalist_, Feb. 28, 1916, and _Theorie der wirtschaftlichen Entwicklung_), which would deny the validity of the distinction between money-rates and interest rates, and would make the money-market phenomena the primary cause of all interest phenomena, seems to me indefensible, alike in theory and in fact. [483] _Cf._ the analysis of bank-loans in the United States, _infra_. [484] Mitchell, _Business Cycles_, p. 146. [485] _Journal of Political Economy_, XVI, May, 1908, pp. 273-298. [486] Leipzig, 1905. This book has had wide influence on German thinking on money. It is typical of the tendency in German thought to make the State the centre of everything. Recognizing the historical fact that money has originated in a commodity, it holds that the commodity basis is a phenomenon of historical significance only, that modern money is a creature of the State. The money-unit is not definable as a quantity of metal, of given fineness, but rather is a "nominal" thing, present monetary standards being defined by legal proclamation in terms of past standards. The necessity for this reference to past standards grows out of the existence of past _debts_. The State must preserve the continuity of juristic relations, between debtors and creditors as elsewhere. Knapp holds that the _Zahlungsmittel_ (legal means of quittance, legal tender) function is the primary function of money, and that it is not a concept subordinate to _Tauschmittel_ (medium of exchange). It is not necessary for our purposes to take account of Knapp's theory in detail. He really has little to say about the value of money. Indeed, he confesses, in a later discussion, that his theory is not concerned with that subject! (_Schriften des Vereins für Sozialpolitik_, No. 132, 1909, pp. 559-563.) The amount of economic analysis in the book is not great. It is a striking illustration of the fact that legal thinking is largely concerned with _qualitative distinctions_, rather than with quantitative causal conceptions. (_Cf._ my discussion in the chapter on "The Reconciliation of Statics and Dynamics," _infra_, of the "statics" of the law.) Knapp's book has a forbidding appearance, because of the large number of new terms, based on Greek roots, which he has coined. The German language is inadequate to express his ideas! The Germans themselves have complained much of this. Careful reading of the book discloses, however, that the new terms are admirably adapted to express the distinctions he draws. I think, too, that English readers of the book, who remember enough of their Greek to recognize an occasional Greek root as vaguely familiar, will find less difficulty in giving fixed meanings to his new terms than would be the case with new German compounds. One who takes the trouble to master Knapp's vocabulary will find the effort worth while. Knapp has a high order of dialectical acumen. But the main part of the book has little direct bearing on the problem of the value of money, whether one understand by "value of money" the absolute social value of money, or the reciprocal of the price-level. The main points to be drawn from his discussion are (1) the fact that past debts may tend to sustain the value of an otherwise worthless money; and (2) that the State's willingness to accept money for taxes, etc., may also contribute to its value. Knapp lays heaviest stress on this last point. He seems to concede, however, that the rôle of the State here is not different from that of any other big factor in the market, and that the State's power in this particular is a function of the magnitude of its fiscal operations. Both of these doctrines fit readily into my social value theory. Knapp's discussion of methods of regulating the international exchanges by methods other than gold shipments is interesting, and might well be studied by those who are concerned with the exchange situation in the present war. His thesis that the value of silver depended on the course of the exchanges between gold and silver countries, instead of the course of the exchanges depending on the values of gold and silver, seems to me an absurd exaggeration of a minor qualification into a main theory. His doctrine that international relations alone make the purely legal money, without commodity basis, unsatisfactory, I do not accept. I have discussed this general topic in my chapter on "Dodo-Bones," however, and may content myself with now referring to that chapter. It is not true, as a matter of fact, moreover, that the money-unit is no longer defined as a quantity of metal. Our own American practice is sufficient evidence on this point. Knapp has sought to generalize his own interpretation of the history of Austrian paper into universal laws of money! That his interpretations meet authoritative dissent in Austria is sufficiently evidenced by von Mises' discussion, in his _Theorie des Geldes_ (ch. on "Das Geld und der Staat"), and in his English article on "The Foreign Exchange Policy of the Austro-Hungarian Bank," British _Economic Journal_, 1909. The notion that the legal tender function is prior to the medium of exchange function I regard as quite indefensible. It is doubtless true, in certain cases, that a government may debase its money, defining the new debased money in terms of the old, and that people who have debts to pay may, for a time, accept the debased money as a medium of exchange. But the limit of this is reached when the old debts have been paid. Unless other factors (not necessarily redemption), then come in to sustain the value, the value will sink, to a level commensurate with the debasement. The value would generally sink to a considerable degree, in any case, if only the legal factors worked to sustain it. I have gone over this in the chapter on "Dodo-Bones," _supra_. It was only by being a valuable object, and commonly only by being a medium of exchange, that the money could have become a means of legal quittance in the first place. Men would not have made contracts in terms of it, otherwise. And men would cease making contracts in it as soon as it (or other things tied to it in value) ceased to be an acceptable medium of exchange. Knapp finds a good many phenomena in the history of money for which the quantity theory, and the metallist theory, can give no explanation. He has an exceedingly poor opinion of both theories, and makes many telling points against both. In so far as his doctrine asserts that the phenomena of money are matters of social organization, psychological in nature, I find myself in harmony with it. My dissent comes when he seeks to erect the abstractions of the jurist into a complete social philosophy! Law is only a part of the system of social control, and economic values, while influenced by legal values, are far from being explained when legal factors only are taken into account. Legal factors often play a more direct part in connection with the value of money than in connection with other values, but they do not dominate the value of money. Recent German literature on money (_e. g._, Fr. Bendixsen, _Geld und Kapital_, Leipzig, 1912) has been a good deal influenced by Knapp, and there is a fair chance that American students may have to read his book if they wish to understand the next decade of German monetary history. It will be well for Germany if this is not the case! [487] _Economics of Enterprise_, p. 257. [488] _Cf._ Böhm-Bawerk's _Capital and Interest_, _passim_, particularly his discussion of Hermann, for an exposition and criticism of the "use" theory of interest. [489] _Cf._ Clark, J. B., _The Distribution of Wealth_, pp. 210-245. [490] This is not necessarily true among Asiatics, or on the East Side in New York City. [491] The adherent of the Ricardian analysis who would deny this may fight it out with Clark, Fetter, and A. S. Johnson! [492] A friendly critic--with a radically different theoretical point of view--feels that I am here playing fast and loose with the word, "value," meaning sometimes "total utility," sometimes "marginal utility," sometimes "relative marginal utility," and sometimes "price." I _never_ mean any of these things by "value," when used without qualification, in this book. I mean always _social economic value_, conceived of as _absolute_. [493] I have been unable to satisfy myself that anyone has made a sufficiently thorough study of the course of the gold premium on the Rupee, the agio of the Rupee over its bullion content, or the course of prices in India, during the period from 1893 to 1898, to justify confident statements as to the comparative strength of different elements in the explanation of that history. Kemmerer states (_Money and Credit Instruments_, p. 38) that he can find no evidence at all to support Laughlin's view of the matter. (See Laughlin, _Principles of Money_, pp. 524 et seq.) J. M. Keynes, however, in his _Indian Currency and Finance_, p. 5, says: "The Committee of 1892 did not commit themselves; but the system which their recommendations established was _generally supposed_ [Italics mine.] to be transitional and a first step toward the _introduction of gold_ [italics mine.]." In the arrangements of 1893, moreover, a ratio between English gold and the Rupee was established, of 16d. to the Rupee, even though provisions for holding the Rupee to this ratio were left till the establishment of the "gold exchange standard," several years later. Keynes, on p. 3, discusses the arguments of the silver party against the introduction of gold, which is further evidence that the action of the Committee was understood as looking toward a gold standard. There is _some_ evidence at least for Laughlin's view. That his view offers a complete explanation, I think unlikely. Kemmerer's admirable _Modern Currency Reforms_ (Macmillan, 1916), is at hand while the proof sheets are being revised. It is interesting to note that he finds the statistical evidence regarding Indian prices, trade, etc., far too scanty to justify positive conclusions as to the causes governing the course of the rupee. He prefers, rather, to rest the case for the quantity theory on _a priori_ reasoning and statistics for the United States. _Loc. cit._, pp. 70-71. In the chapter on "Dodo-Bones," I have suggested that India might come nearer than other countries to actualizing the assumptions of the quantity theory. On Kemmerer's showing, however, it appears to be a liability, rather than an asset! [494] This is a national bank. In the same community, the writer asked the president of a State bank about his gold reserve, and was told that light-weight gold coin could not be used, since the State bank examiner made a practice of _weighing_ the gold of State banks. [495] Legal tender can add to value of money only when it confers an option on the _debtor_. In the case discussed, it is the _creditor_ who has the option. But options are not necessarily valuable. [496] As Davenport has pointed out, money is really moneys--there is a hierarchy. _Cf. Economics of Enterprise_, pp. 256-259. [497] The restricted legal tender of small coins, where the coins are limited in amount to the needs of retail trade, is virtually an unrestricted legal tender, in practice, and amounts, in fact, to redemption. The coins are capable of being used where large coins, of standard metal, would otherwise be used, or where checks, redeemable in standard coin, would be used. Legal tender is vastly more effective with reference to a small part of the money system than it would be with the whole of the money supply. The same is true of the privilege of using a particular form of money in paying taxes. _Cf._ W. C. Mitchell's discussion of the "Demand Notes," _History of Greenbacks_, _passim_. [498] _Cf._ Mitchell's account, (_Ibid._, pp. 166-173), of the premium on minor currency, during the Civil War. Pennies were used in rolls of 25 as a substitute for silver quarters, which had left the country under Gresham's Law. The premium was due primarily to the need for small change, rather than to bullion content, though the latter was a factor even for coins made of baser metals, in 1864. [499] _Cf._ my article in the _Annalist_, Feb. 7, 1916, "The Ratio of Foreign to Domestic Trade," and the chapter, _supra_, on "The Quantity of Money and the Volume of Trade." [500] Kinley's figures show a much lower percentage of money than this. He is anxious not to overestimate the extent to which checks are used, however, and so gives the figures of 50 to 60% of checks as a safe lower limit. [501] _Cf. Social Value_, 183-184. [502] _Cf._ Carver's contention that "the demand for money is a demand for value." "Concept of an Economic Quantity," _Quart. Jour. of Econ._, 1907. [503] _Cf._ Laughlin's _Principles of Money_, p. 73. [504] The main modern type of loan for non-business purposes is the public loan for war purposes, or to meet fiscal deficits. In the case of war loans, the emergencies are often so great that the rate of interest makes little difference. [505] No longer true of Europe, probably, since the huge war debts have been incurred. [506] The interest so defaulted is cumulative, like a preferred dividend, for years after 1909. Wall Street speaks of this issue as a "half-bond." [507] _Supra_, chapter on "Origin of Money." [508] "It is needless to say that Government bonds always rank as the very highest class of collateral, and the banks require no margin on such security." Pratt, _Work of Wall Street_, 1912 ed., p. 287. This, it need not be said, is not always true! [509] Veblen has elaborated the doctrine that stocks and bonds are much the same. _Cf._ the discussion in Meade's _Corporation Finance_ of the relation of junior bonds and preferred stocks in reorganizations. [510] I do not accept the imputation theory, or the capitalization theory, without qualification, except as static first approximations. Values of "factors of production" may easily become, and do become, in large part independent of their "presuppositions," _Cf._ the chapter on "Dodo-Bones", _supra_, and the chapter on "Economic Value." [511] This would seem to be Davenport's view. See his article in the _Quarterly Journal of Economics_, Nov. 1910. [512] To a high degree, "good will," trade-marks, etc., are bankable assets. [513] _Social Value_, 1911, _passim_, especially ch. XIII. Cooley, C. H., "Institutional Character of Pecuniary Valuation," _Am. Jour. of Sociology_, Jan. 1913. [514] _Cf._ my article, "Schumpeter's Dynamic Economics," _Political Science Quarterly_, Dec. 1915, and the chapter on "Marginal Utility," _supra_. That the new bank-credit, without the painful _preliminary_ "abstinence" which the classical economics has stressed, is enough to provide capital for a new enterprise is, as Schumpeter insists, true. Schumpeter has made an important contribution in his emphasis on this too much neglected point. But it should be noted that this does not dispense with curtailing of consumption, and "abstinence." It merely shifts the necessity for curtailing consumption to some one else. The new plan of the dynamic entrepreneur, by means of bank credit, draws labor and capital away from the existing static enterprises. That curtails their output. That leaves less goods of the old kinds for people to consume. That means higher prices for consumption goods, in the interval between the starting of the new enterprise and the time when its finished products are added to the "real income" of the community. Extensions of bank credit, there, shift the burden of "abstinence" to the consumer, and to the static producer. "Saving" is still the source of capital, but it is involuntary saving. [515] In 1912, the First National Bank of New York owned 43 millions of bonds, but no stocks. Report of Pujo Committee, Feb. 28, 1913, p. 66. The National City Bank had 33 millions in bonds, but no stocks. _Ibid._, p. 72. State banks own few stocks; trust companies own a good many. [516] _Cf._ the chapter on "The Origin of Money," _supra_. [517] In March, 1916, one of the largest banking houses in Boston informed the writer that over one-fourth of its notes and discounts (including all forms of loans) had been bought through note-brokers. [518] _Cf._, _e. g._, pp. 135ff. of Scott's excellent _Money and Banking_, Rev. ed., New York, 1910. [519] The year 1909 is chosen, in order that comparison may be more readily made with the figures of Dean Kinley's investigations based on reported deposits made on March 16 of that year. The figures quoted are taken from p. 39 of the Report of the Comptroller for 1913. [520] Even excluding the item "due from other banks and bankers," as representing duplications, the item "other loans and discounts" remains approximately only one-fourth of total banking assets. [521] Almost all agricultural processes require more than six months from their inception to the marketing of the product. [522] This view would seem to correspond with the view of Babson and May (_Commercial Paper_, 1912), and of W. A. Scott ("Investment vs. Commercial Banking," _Proceedings of Investment Bankers' Association of America_, 1913, pp. 81-84). Both of these discussions appear in Moulton, _Money and Banking_, Pt. II, pp. 70 and 75-77. Dr. J. E. Pope considers the view correct. On the other hand, Professor O. M. W. Sprague thinks the "other loans and discounts" of large city banks are more liquid than my statement would indicate. [523] _Principles of Money and Banking_, II, p. 52. [524] _Report of the Comptroller of the Currency_, vol. II, pp. 145 _et seq._ [525] Total collateral loans in New York City on that date were $719,327,596. This is for national banks alone. _Report of Comptroller_, 1915, II, 144. There is every reason to suppose that if trust companies and private banks were included, the _proportion_ of stock exchange collateral loans would be very much higher. [526] I am very fortunate in having the views of Dr. J. E. Pope on this question. I know no one whose knowledge of agricultural credit, whether of American or of European conditions, is so thorough and extensive. [527] This table is constructed on the basis of data in the _Report of the Comptroller_ for 1913, pp. 774-78. [528] A single observation does not justify very confident conclusions, and figures for subsequent years may alter this. There is reason for supposing that commodity collateral was unusually large in proportion in the Comptroller's figures for national banks in June, 1915, (1) because the banks had been trying to reduce stock collateral loans, following the collapse of the outbreak of the War, (2) because they were aiding cotton owners to tide over a period of stress, and (3) because of great grain speculation. Later: 1916 figures show this. Comptroller's _Report_, I, p. 30. Stock loans increase from 66% to 71.2%, of collateral loans. [529] The preceding argument would indicate that it is much too high. [530] The figures for 1909 are fairly typical of the proportions of these items in the assets of the three classes of institutions for the ten years from 1904 to 1914. Since 1900, there has been some increase in the percentages of real estate loans and "all other loans," at the expense of the percentage of securities owned, and collateral loans, as these years have been years of reduced activity on the Stock Exchange. The changes are not important enough, however, to modify any conclusions which we shall base on the figures here given. All classes of loans have grown, and investments in securities have grown, but real estate loans and "all other loans," particularly the latter, have grown somewhat more rapidly. [531] These figures are taken from Conant, _Principles of Money and Banking_, vol. II, p. 52. [532] The term "commercial paper," as here used by Conant (whose source is the _Comptroller's Report_ for 1904 and preceding years), doubtless includes a good many items which we have decided not to count as commercial paper. The item, "advances on securities," also includes some items other than stock exchange loans, but not a high percentage in New York City. In 1913 the figures for all reporting banks in New York City were: collateral loans, 1,070; "other loans," 658. _Report of Comptroller_, 1913, p. 779. [533] Taken by Conant (_Ibid._, p. 51) from the _Économiste Européen_ (April 29, 1904), XXV, p. 546. [534] For the depositor who borrows from several banks, but deposits only in one,--as a stockbroker--the items deposited will, of course, substantially exceed the amounts borrowed at the bank where the deposits are made. But this will not affect our argument for _classes_ of depositors from _representative_ banks in the community as a whole. [535] _Supra_, chapters on "Volume of Money and Volume of Trade," and "Statistical Demonstrations of the Quantity Theory." [536] The relevance of comparing wholesale and retail figures with figures for "commercial paper" may well be questioned, since our conception of commercial liquid loans would include manufacturers' paper which represents raw materials, work in process, and bills receivable. However, we have found reason to conclude that Kinley's wholesale deposits include a large percentage of manufacturers' deposits. (_Supra_, p. 245.) The comparison here is in any case rough. We do not need precise figures for the argument. [537] Pratt, _Work of Wall Street_, 1912 ed., p. 264. [538] Returns from private banks in Kinley's investigation of 1909 are virtually negligible, so far as absolute amounts are concerned, for the whole country. For New York City, they are absolutely negligible. The "all other deposits" reported by private banks in New York City for March 16, 1909, are one thousand, nine hundred and eighty-four dollars, in all! The grand total, "all other deposits" for all classes of banks reporting in New York, is over a hundred and ninety-eight millions. The great private banks are, thus, clearly not represented. They are not represented in any form, since Kinley's figures exclude deposits made by such banks in other banks. How important they would be, if included, one cannot be sure, since they keep their affairs pretty secret. Some information, however, is available. Thus, the Pujo Committee reports (_Report_, Feb. 28, 1913, p. 145) that on Nov. 1, 1912, there was $114,000,000 on deposit with J. P. Morgan and Company, exclusive of $49,000,000 on deposit with their Philadelphia branch of Drexel and Co. It is understood to be the practice of J. P. Morgan and Co. to keep no cash on hand, and to deposit with other banks all their cash and checks. On this date, they had on deposit with other banks $12,094,000, "which presumably included all their own funds." It may be assumed, therefore, that the remaining 102 millions was loaned out. There can be no doubt at all, I suppose, that practically all they had lent out was on stock and bond collateral. They are known to be one of the biggest lenders at the "money post" on the Stock Exchange. They are not supposed to do much business with ordinary merchants in the usual discount and deposit way. I have found no figures for Kuhn-Loeb & Co., for total deposits made with them, nor for their deposits in other banks. The Pujo Committee (_Ibid._, p. 73) states that for the six years preceding 1913 this firm held, on the average, deposits from interstate corporations amounting to over 17 millions. For J. P. Morgan & Co., this class of deposits amounted to about half of total deposits. (_Ibid._, p. 57.) There is, of course, no assurance that this proportion holds with Kuhn-Loeb's deposits. These figures are very great, however. For the week ending April 3, 1915, for example, only three banks (the National City Bank, the National Bank of Commerce, and the Chase National Bank), and only two trust companies (the Bankers Trust Company and the Guarantee Trust Company), held deposits exceeding those credited to J. P. Morgan and Co., and only one of these, the National City Bank, very markedly exceeded the Morgan deposits. The majority of the New York Clearing House banks had less than the deposits of interstate corporations with Kuhn-Loeb. As all the big private bankers deal chiefly in stock exchange loans and securities, and foreign exchange, and as this kind of business has been shown to be exceedingly active and to call for large checks and clearings, we may assume that Kinley's figures would be greatly increased if they were included. The trust company reports for New York in Kinley's figures are also very incomplete. New York trust companies report less than twice as much as Boston trust companies, and an absurdly small amount as compared with banks. _Cf._, _supra_, the chapter on "Statistical Demonstrations of the Quantity Theory." [539] It has been supposed by many writers that New York clearings exaggerate New York transactions as compared with the extent to which outside clearings represent transactions. Such evidence as we have would show that this is not true to a sufficient degree to modify the present argument. Clearings are less than deposits in both New York and the country outside, _Supra_, chapter on "Statistical Demonstrations of Quantity Theory." [540] "The Mystery of Clearings," _Annalist_, Aug. 14, 1916, p. 198. _Supra_, chapter on "Volume of Money and Volume of Trade." [541] See any Congressional debate on "the Money Trust." [542] _Pujo Committee Report_, Feb. 28, 1913, p. 130. _Cf._ also p. 138 (statements of Messrs. Baker, Reynolds, Schiff, and Perkins), and p. 160 for Statements regarding the testimony of Messrs. Morgan and Baker. [543] I know no responsible writer who has charged that there is a monopoly, or a tendency toward monopoly, in this matter. [544] I am not naïve enough to suppose that this suggestion can be much more than an illustration of the bearing of my theory! I should even agree that the political difficulties are so great that we would do well to try out our system in times of stress before seriously raising the question of giving the Federal Reserve Banks the power to rediscount loans on stock exchange collateral. [545] Walker's version of the quantity theory, excluding credit transactions, escapes much of this criticism. _Supra_, chapter on "Equation of Exchange." [546] It is nothing for Wall Street to "turn over" many times two billion dollars worth of securities. In a big bull year, this will be accomplished twelve or more times without effort--prices rising merrily, so long as no new supply of stocks and bonds comes in to make trouble. (See our estimate of New York security transactions, _supra_, chapter on "Volume of Money and Volume of Trade.") But let there be a liquidation by investors of anything like two billions, sold once, and the market feels a tremendous drag. It seems universally agreed that foreign selling of securities during the present War has been a great factor in checking advances in security prices in New York. The actual amount of liquidating by foreign investors, however, has been trifling as compared with the volume of sales since the War began. The best estimate of foreign liquidation is probably that of the National City Bank, which has taken careful account of previous estimates, and which has unrivaled sources of "inside information." The estimate of this institution is that from a billion and a half to a billion six hundred million dollars worth of foreign held securities have been liquidated in America since the beginning of the War. (This does not include foreign loans placed here.) This estimate is given in October of 1916. (Monthly circular of the National City Bank on "Economic Conditions, etc.," Oct., 1916, p. 3.) It is safe to say that no amount of "churning" of securities already in the market could have anything like the depressing effect on security prices that an unusual amount of liquidation by investors has. It is not increase in number of _exchanges_ that depresses prices. It is increase in the floating _supply_. Activity in the floating supply makes it easier, rather than harder, for speculators to get banking accommodations which enable them to "hold" and "carry" securities, and activity in sales therefore positively tends to _increase_ rather than to decrease, security prices. The broadening of the range of securities dealt in, moreover, instead of depressing the prices of those already active, helps to sustain them. Thus, brokers and bankers welcomed the recent revival of activity in the rails, following the bull market in war stocks. It gave a broader basis for loans. Banks would lend more liberally, and on narrower margins, if railroad stocks could be mixed with the brokers' war stock collateral. Here again we see the significance of the distinction between long-time interest rates, connected with the volume of real capital, and the "money-rates." Again, periodic payments of interest and dividends, temporarily locking up considerable sums of bank deposits which have to be built up in anticipation of such payments, have a very much more serious effect on the money market than do payments many times greater in connection with stock sales. The tension in the London money market growing out of periodic accumulations and disbursements of the British Government is well known. The summer of 1916 witnessed a temporary tightening in Wall Street (in what was, generally, the period of easiest money the Street has ever known), from a similar cause--a bunching of dividend and interest payments, with some other large financial transactions. Money rates in New York regularly show the influence of such payments, temporarily. Money rates also show the influence of active speculation, as a rule, as shown by Mr. Silberling's investigations ("The Mystery of Clearings," _Annalist_, Aug. 14, 1916), but it takes a very much greater volume of stock sales than of dividend and interest payments to produce a given effect on money rates. [547] As May 9, 1901, when 3,336,695 shares were sold. Compare Mitchell's stock barometer, 1890-1911, _Business Cycles_, p. 175, with records of share sales for those years. [548] _Purchasing Power of Money_, 1913 ed., p. 186. The same criticism applies to Kemmerer, and Jevons. _Cf._ Kemmerer, _Money and Credit Instruments_, pp. 70-71. It is applicable to most quantity theorists. [549] _Ibid._, p. 185. It will be noted that at this point, Fisher lapses from the doctrine that volume of trade is determined by "physical capacities and technique." _Ibid._, p. 155. [550] _Cf._ our discussion, _supra_, in the chapter on the "Functions of Money," of money in retail trade. [551] Our great private banks, bond houses, and investment bankers, etc., of course do buy stocks of new enterprises on a huge scale. Many of our big commercial banks have taken part in underwriting operations. [552] See pp. 428-432, _supra_. [553] _Wealth of Nations_, Bk. II, ch. 2, ed. Cannan, I, pp. 187 and 290-291. [554] _Theorie der wirtschaftlichen Entwicklung_, chs. 2 and 3. [555] _Supra_, chapter on "Volume of Money and Volume of Credit." [556] _Interviews on the Banking and Currency Systems of England, Scotland, etc._, Senate Document No. 405, 1910 (National Monetary Commission Report), p. 25. [557] This is clearly the opinion of European bankers, as indicated in their statements to interviewers for the Monetary Commission. See, _e. g._, statements by the _Deutsche Bank_, _Ibid._, pp. 374-375, and the _Crédit Lyonnais_, _Ibid._, pp. 224-226. [558] The item, "Due from other banks and bankers" in our table of total bank resources for 1909, is 2,563 millions--about 12% of the whole and slightly more than the amount we assigned to "commercial paper." It is a highly important factor making for liquidity. For State, and National banks and trust companies it is almost as great--2,302 millions. The first figure does not include many great private banks. [559] _Vide_ Professor Taussig's history of the years, 1878-1890, in his _Silver Situation_. [560] _Cf._ Mitchell's _Business Cycles_, pp. 495-496; and _passim_. [561] _Cf._ the chapter, _supra_, on "The Quantity Theory and International Gold Movements." [562] "The Prospects of Money," British _Economic Journal_, Dec. 1914. [563] _Cf._ Conant's discussion, _Principles of Money and Banking_, I, ch. 7. [564] This would seem to be Mitchell's view. _Cf. Business Cycles_, p. 494. [565] _Cf._ chapter XIII. [566] _Cf._ the chapter on "The Functions of Money," _supra_. [567] _Money and Credit Instruments_, p. 80. [568] _Ibid._, p. 82. Italics mine. [569] Kemmerer, in general, is less concerned, apparently, with defending a causal quantity theory than with defending the "equation of exchange." To the extent that this is true, I have little quarrel with his doctrines. To "prove" the "equation of exchange," however, is, first, a work of supererogation, and, second, in no sense a proof of the quantity theory. _Vide_ the chapters, _supra_, on the equation of exchange and on statistics of the quantity theory. [570] Published by the National City Bank of New York. _Vide_ also Bagehot. _Lombard Street_, introductory chapter, and Withers, _The Meaning of Money_. [571] This information is supplied me by an official of the New York Coffee Exchange, through the courtesy of Mr. W. H. Aborn, of Aborn and Cushman, Coffee Brokers, 77 Front St., New York. [572] _Principles of Economics_, _passim_. [573] _Theorie der wirtschaftlichen Entwicklung._ [574] The writer has ventured some tentative predictions as to conditions following the present War in the New York _Times_ Sunday magazine of Dec. 10, 1916, pp. 10-11. [575] There are important dynamic and "frictional" considerations opposed to protective tariffs, as well as static considerations. Very many of the "intangibles" later to be discussed depend on free trade. A high percentage of England's "capital" would be destroyed by protective tariffs and trade restrictions, and to a less degree this is true of all countries. _Vide_ N. Y. _Times_ Sunday magazine, Dec. 10, 1916, pp. 10-11. [576] A case in point is the discussion of the effects of increment taxes on the building trade, participated in by Professor R. M. Haig and the present writer in the _Quarterly Journal of Economics_, Aug. 1914, and Aug. 1915. The doctrines criticised in my article were static theories, and my criticisms made the static assumptions. Professor Haig, accepting the validity of my criticisms on the assumptions laid down, for the most part, seeks to recast the argument on a dynamic basis, emphasizing dynamic and "frictional" considerations from which my argument had abstracted. I think that what difference of opinion remains between us would probably be removed if the distinction between static and dynamic were clearly drawn and rigidly adhered to. [577] _Cf._ my review-article, "Schumpeter's Dynamic Economics," _Pol. Sci. Quart._, Dec. 1915, p. 645. [578] _Distribution of Wealth_; _Essentials of Economic Theory_. [579] _Theorie der wirtschaftlichen Entwicklung_. [580] _Cf._ my _Social Value_, pp. 139-140, n. [581] _Purchasing Power of Money_, ch. 4. [582] _Theory of Business Enterprise._ [583] _Vide_ my discussion of Professor Patten's _Reconstruction of Economic Theory_ in the _Political Science Quarterly_ of March, 1913, and the _American Economic Review_, Supplement to the March number, 1913, pp. 90-93. [584] _Cf._ Schumpeter, _loc. cit._, pp. 1-101, and _passim_. That the quantity theory is essentially "static" will appear strikingly if the statements in the text be compared with Fisher's discussion in chs. 5-7 of _The Purchasing Power of Money_. [585] It is only as a matter of highly abstract statics that the capitalization theory (as presented in earlier chapters) can be maintained with any strictness. In fact, capital values are not always passive shadows, yielding freely to changes in anticipated income, and to changes in the rate of discount. Very often capital values become themselves substantial, become divorced from their presuppositions, can no longer be explained by any imputation process. This is particularly likely to be the case with lands in inactive markets. The income-bearer is as much an object of value as is the income; is often _immediately_, for its own sake, an object of value. The long-run tendency to assimilate this value to a capitalization of prospective incomes may be exceedingly slow in working out, if it ever works out. Indeed, a high capital value may sometimes be a means of increasing the income, since in the minds both of lessor and lessee the usual percentage return on capital will be a factor in determining what is a "proper" rental. If a capital value, no longer justified by prospective income, has behind it the sanction of actual cost-outlay, there may easily be a reflex from it on the size of the income itself. Such a capital value, unjustified by prospective income, but still believed in by the market, may function just as effectively as any other capital value. Book-values, not marked down to correspond with changed income-prospects, even when they cannot command purchasers, may still serve as a basis for _loans_--Veblen's theory of crises rests, as we shall see, in part on this fact. Considerations of this sort strengthen still further the case against the marginal utility theory of value. To pass,--as Fetter and the Austrians in general seek to do--from marginal individual consumption values to market prices of consumption goods, then to prices of production goods, or to magnitudes of distributive shares, then, simply, by the capitalization theory, to capital values, with the notion that the original marginal utilities supply the psychological explanation at every stage of the process, the remoter values being merely built up of the original marginal utilities, is quite invalid. At every stage there is a hitch: the marginal utilities do not explain the prices or values of the consumption goods, as has already been elaborately pointed out; and the relation between the values of consumption goods and the capital values is very much looser and less direct than the static theory requires. Institutional, legal, and moral forces come in, not alone at the first step, in giving social weight to the wants of special classes and individuals, but also at the second, giving prestige to certain enterprises, and so higher values to their securities, giving banking support here and refusing it there, giving popular and patriotic support here, and not there, giving direct action of law, custom and tradition on certain _prices_ (whence, indirectly on values), and leaving prices free to change readily in other cases. (_Cf._ my discussion in _Quart. Jour, of Economics_, Aug. 1915, pp. 699-701.) The static theory of capitalization describes an ideal logical relation, while capital values are, in fact, built up by a psychological process which is logical only in part. In large degree, especially when the market lacks perfect fluidity, capital values are _immediate_, and not merely _derived_, values. In this, I think, I am in accord with the view briefly stated by A. S. Johnson in his recent review of Böhm-Bawerk (_Am. Econ. Rev._, March, 1914, pp. 115-116). [586] _Loc. cit._, ch. IV. _Vide_ Veblen's discussion of Fisher in the _Pol. Sci. Quart._ of 1908, and his discussion of Clark in the _Quart. Jour. of Econ._, Feb. 1908. [587] Chapter on "Volume of Money and Volume of Trade." [588] On Oct. 9 of 1916, I still venture the opinion that the stock market has shown wonderful conservatism in the face of extraordinary temptations. From Oct. 1915, to Aug. 1916, the "bears" dominated the market, and prices fell pretty steadily. The "bull" movement of Sept. 1916, seems to have reached its crest without passing the level of a year ago. The market may "run away," but it has not yet done so. [589] _Psychologie Économique_, vol. I, pp. 77-78. [590] Nor do I see any method for bringing into our equilibrium picture the control which the environment retains over values by its power to _eliminate_ those groups whose choices vary too widely from the norms of "survival-necessities." Vide Giddings, _Principles of Sociology_, ed. 1905, p. 20; Carver, _Essays in Social Justice_, _passim_. I think that the range of choices compatible with survival is very wide. Moreover, "adaptation" is not a simple matter of adjustment to the physiographic environment. It includes adjustment to the _social values_, both of the group in question and of other groups. [591] _Cf._ H. C. Emery's discussion of "manipulation" in his _Speculation in the Stock and Produce Exchanges_, pp. 171ff. [592] _Cf._ Dewey, _Essays in Logical Theory_; Bergson, _Time and Free Will_, _passim_, and _Creative Evolution_; James, _Problems of Philosophy_. [593] _Cf._ Bagehot's discussion in _Lombard Street_ of the features of English organization which prevented supremacy in the Eastern trade from passing to Greece and Italy with the opening of the Suez Canal. (Introductory chapter.) See also the discussion of the English money market in ch. XXIV, _supra_. [594] _Cf._ my article on "Schumpeter's Dynamic Economics" in _Political Science Quarterly_, Dec. 1915, and ch. XXIII, _supra_. [595] In my article on Schumpeter's theory above mentioned, I have pointed out that his contrast between statics and dynamics is not by any means a fixed one, and that in particular he shifts back and forth between a hypothetical static state, primarily a methodological device, which assumes perfect fluidity and mobility of the objects of exchange, on the one hand, and a realistic static state, immobile, held in the bonds of custom and tradition, illustrated by India and China, on the other hand. The version of the distinction between statics and dynamics here discussed is only one of several which he gives. It is, however, the one which at present I wish to contrast with my own view. With many of Schumpeter's doctrines I am in hearty accord, and I have learned much from his book. I think that his book affords abundant evidence of the usefulness of the static-dynamic contrast. [596] Schumpeter's contrast between statics and dynamics is in most essentials closely parallel to Veblen's contrast between the theory of wealth and the theory of prosperity, and his main conclusions resemble Veblen's, despite Schumpeter's optimism and Veblen's pessimism, and despite temperamental and methodological differences. Most of my criticisms of Veblen apply also to Schumpeter. [597] _Cf._ our discussion, _supra_, of the relation of credit to futurity. * * * * * TRANSCRIBER'S NOTES 1. Passages in italics are surrounded by _underscores_. 2. Footnotes have been moved from the middle of a paragraph to the end of the e-text. 3. The original text includes Greek sigma character. For this e-text version it has been replaced with its transliteration [Greek: S]. 4. Fractions are indicated as in the example below: 6-1/4 indicates whole number 6 with fractional part of one-fourth. 5. The following misprints have been corrected: "thing" corrected to "think" (page 124) "theorrists" corrected to "theorists" (page 155) "$75,00,000.00" corrected to "$75,000,000.00" (page 208) "theory theory" corrected to "theory" (page 330) "practive" corrected to "practice" (page 428) "this held" corrected to "thus held" (page 442) "in in" corrected to "in" (page 476) "clasess" corrected to "classes" (page 509) "legarthic" corrected to "lethargic" (page 573) "enchancement" corrected to "enhancement" (page 591) "74-71" corrected to "64-71" (ftn. 55) "equilibbrium" corrected to "equilibrium" (ftn. 86) "Instrnmeuts" corrected to "Instruments" (ftn. 163) "reguularly" corrected to "regularly" (ftn. 545) Missing text added in footnotes 412, 468, 595. 6. Some of the page references in the index have been corrected. 7. Other than the corrections listed above, printer's inconsistencies in spelling and hyphenation have been retained. 
35120	----	http://www.archive.org/details/readingsnimoney00philuoft Transcriber's note: Text enclosed by tilde characters is in bold face (~bold~). Text enclosed by underscores is in italics (_italics_). An underscore followed by a letter enclosed in curly braces indicates that the enclosed letter is a subscript. (Example: C_{b} indicates that the "b" is a subscript). READINGS IN MONEY AND BANKING * * * * * THE MACMILLAN COMPANY NEW YORK · BOSTON · CHICAGO · DALLAS ATLANTA · SAN FRANCISCO MACMILLAN & CO. LIMITED LONDON · BOMBAY · CALCUTTA MELBOURNE THE MACMILLAN CO. OF CANADA. LTD. TORONTO * * * * * READINGS IN MONEY AND BANKING Selected And Adapted by CHESTER ARTHUR PHILLIPS Assistant Professor of Economics in Dartmouth College and Assistant Professor of Banking in the Amos Tuck School of Administration and Finance New York The Macmillan Company 1921 All rights reserved Printed in the United States of America Copyright 1916 By the Macmillan Company Set up and electrotyped. Published September, 1916. Ferris Printing Company New York City PREFACE Designed mainly for class room use in connection with one of the introductory manuals on the subject of Money and Banking or of Money and Currency, this volume, _in itself_, lays no claim to completeness. Where its use is contemplated the problems of emphasis and proportion are, accordingly, to be solved by the selection of one or another of the available texts, or by the choice of supplementary lecture topics and materials. The contents of the introductory manuals are so divergent in character as to render possible combinations of text and readings that will include, it is hoped, matter of such range and variety as may be desired. Fullness of treatment has been attempted, however, in the chapters dealing with the important recent developments in the "mechanism of exchange," and my aim has been throughout to select and, in many instances, to adapt with a view to meeting the wants of those who are interested chiefly in the modern phases of the subject. For valuable suggestions in the preparation of the volume I am greatly indebted to Professors F. H. Dixon and G. R. Wicker and Mr. J. M. Shortliffe of Dartmouth, Professor Hastings Lyon of Columbia, Professor E. E. Day of Harvard, and to my former teacher, Professor F. R. Fairchild of Yale. I desire also to mention my great obligation to authors and publishers who alike have generously permitted the reproduction of copyrighted material. CHESTER ARTHUR PHILLIPS. Dartmouth College, Hanover, N. H., July, 1916. TABLE OF CONTENTS CHAPTER PAGE I THE ORIGIN AND FUNCTIONS OF MONEY 1 II THE EARLY HISTORY OF MONEY 10 III QUALITIES OF THE MATERIAL OF MONEY 18 IV LEGAL TENDER 26 V THE GREENBACK ISSUES 33 VI INTERNATIONAL BIMETALLISM 71 VII THE SILVER QUESTION IN THE UNITED STATES 82 VIII INDEX NUMBERS 115 IX BANKING OPERATIONS AND ACCOUNTS 121 X THE USE OF CREDIT INSTRUMENTS IN PAYMENTS IN THE UNITED STATES 150 XI A SYMPOSIUM ON THE RELATION BETWEEN MONEY AND GENERAL PRICES 159 XII THE GOLD EXCHANGE STANDARD 213 XIII A PLAN FOR A COMPENSATED DOLLAR 229 XIV MONETARY SYSTEMS OF FOREIGN COUNTRIES 246 XV THE NATURE AND FUNCTIONS OF TRUST COMPANIES 256 XVI SAVINGS BANKS 270 XVII DOMESTIC EXCHANGE 290 XVIII FOREIGN EXCHANGE 305 XIX CLEARING HOUSES 355 XX STATE BANKS AND TRUST COMPANIES SINCE THE PASSAGE OF THE NATIONAL BANK ACT 381 XXI THE CANADIAN BANKING SYSTEM 406 XXII THE ENGLISH BANKING SYSTEM 435 XXIII THE SCOTCH BANKS 474 XXIV THE FRENCH BANKING SYSTEM 488 XXV THE GERMAN BANKING SYSTEM 526 XXVI BANKING IN SOUTH AMERICA 559 XXVII AGRICULTURAL CREDIT IN THE UNITED STATES 575 XXVIII THE CONCENTRATION OF CONTROL OF MONEY AND CREDIT 606 XXIX CRISES 627 XXX THE WEAKNESSES OF OUR BANKING SYSTEM PRIOR TO THE ESTABLISHMENT OF THE FEDERAL RESERVE SYSTEM 672 XXXI THE FEDERAL RESERVE SYSTEM 723 XXXII THE EUROPEAN WAR IN RELATION TO MONEY, BANKING AND FINANCE 797 APPENDICES 830 READINGS IN MONEY AND BANKING CHAPTER I THE ORIGIN AND FUNCTIONS OF MONEY [1]In order to understand the manifold functions of a Circulating Medium, there is no better way than to consider what are the principal inconveniences which we should experience if we had not such a medium. The first and most obvious would be the want of a common measure for values of different sorts. If a tailor had only coats, and wanted to buy bread or a horse, it would be very troublesome to ascertain how much bread he ought to obtain for a coat, or how many coats he should give for a horse. The calculation must be recommenced on different data, every time he bartered his coats for a different kind of article; and there could be no current price, or regular quotations of value. Whereas now each thing has a current price in money, and he gets over all difficulties by reckoning his coat at £4 or £5, and a four-pound loaf at 6_d._ or 7_d_. As it is much easier to compare different lengths by expressing them in a common language of feet and inches, so it is much easier to compare values by means of a common language of pounds, shillings, and pence. In no other way can values be arranged one above another in a scale: in no other can a person conveniently calculate the sum of his possessions; and it is easier to ascertain and remember the relations of many things to one thing, than their innumerable cross relations with one another. This advantage of having a common language in which values may be expressed, is, even by itself, so important, that some such mode of expressing and computing them would probably be used even if a pound or a shilling did not express any real thing, but a mere unit of calculation. It is said that there are African tribes in which this somewhat artificial contrivance actually prevails. They calculate the value of things in a sort of money of account, called macutes. They say, one thing is worth ten macutes, another fifteen, another twenty. There is no real thing called a macute: it is a conventional unit, for the more convenient comparison of things with one another. This advantage, however, forms but an inconsiderable part of the economical benefits derived from the use of money. The inconveniences of barter are so great, that without some more commodious means of effecting exchanges, the division of employments could hardly have been carried to any considerable extent. A tailor, who had nothing but coats, might starve before he could find any person having bread to sell who wanted a coat: besides, he would not want as much bread at a time as would be worth a coat, and the coat could not be divided. Every person, therefore, would at all times hasten to dispose of his commodity in exchange for anything which, though it might not be fitted to his own immediate wants, was in great and general demand, and easily divisible, so that he might be sure of being able to purchase with it, whatever was offered for sale. The primary necessaries of life possess these properties in a high degree. Bread is extremely divisible, and an object of universal desire. Still, this is not the sort of thing required: for, of food, unless in expectation of a scarcity, no one wishes to possess more at once than is wanted for immediate consumption; so that a person is never sure of finding an immediate purchaser for articles of food; and unless soon disposed of, most of them perish. The thing which people would select to keep by them for making purchases, must be one which, besides being divisible, and generally desired, does not deteriorate by keeping. This reduces the choice to a small number of articles. By a tacit concurrence, almost all nations, at a very early period, fixed upon certain metals, and especially gold and silver, to serve this purpose. No other substances unite the necessary qualities in so great a degree, with so many subordinate advantages. Next to food and clothing, and in some climates even before clothing, the strongest inclination in a rude state of society is for personal ornament, and for the kind of distinction which is obtained by rarity or costliness in such ornaments. After the immediate necessities of life were satisfied, every one was eager to accumulate as great a store as possible of things at once costly and ornamental; which were chiefly gold, silver, and jewels. These were the things which it most pleased every one to possess, and which there was most certainty of finding others willing to receive in exchange for any kind of produce. They were among the most imperishable of all substances. They were also portable, and containing great value in small bulk, were easily hid; a consideration of much importance in an age of insecurity. Jewels are inferior to gold and silver in the quality of divisibility; and are of very various qualities, not to be accurately discriminated without great trouble. Gold and silver are eminently divisible, and when pure, always of the same quality; and their purity may be ascertained and certified by a public authority. Accordingly, though furs have been employed as money in some countries, cattle in others, in Chinese Tartary cubes of tea closely pressed together, the shells called cowries on the coast of Western Africa, and in Abyssinia at this day blocks of rock salt; though even of metals, the less costly have sometimes been chosen, as iron in Lacedæmon from ascetic policy, copper in the early Roman republic from the poverty of the people; gold and silver have been generally preferred by nations which were able to obtain them, either by industry, commerce, or conquest. To the qualities which originally recommended them, another came to be added, the importance of which only unfolded itself by degrees. Of all commodities, they are among the least influenced by any of the causes which produce fluctuations of value. They fluctuate less than almost any other things in their cost of production. And from their durability, the total quantity in existence is at all times so great in proportion to the annual supply, that the effect on value even of a change in the cost of production is not sudden: a very long time being required to diminish materially the quantity in existence, and even to increase it very greatly not being a rapid process. Gold and silver, therefore, are more fit than any other commodity to be the subject of engagements for receiving or paying a given quantity at some distant period. If the engagement were made in corn, a failure of crops might increase the burthen of the payment in one year to fourfold what was intended, or an exuberant harvest sink it in another to one-fourth. If stipulated in cloth, some manufacturing invention might permanently reduce the payment to a tenth of its original value. Such things have occurred even in the case of payments stipulated in gold and silver; but the great fall of their value after the discovery of America, is, as yet, the only authenticated instance; and in this case the change was extremely gradual, being spread over a period of many years. When gold and silver had become virtually a medium of exchange, by becoming the things for which people generally sold, and with which they generally bought, whatever they had to sell or to buy; the contrivance of coining obviously suggested itself. By this process the metal was divided into convenient portions, of any degree of smallness, and bearing a recognized proportion to one another; and the trouble was saved of weighing and assaying at every change of possessors, an inconvenience which on the occasion of small purchases would soon have become insupportable. Governments found it their interest to take the operation into their own hands, and to interdict all coining by private persons; indeed, their guarantee was often the only one which would have been relied on, a reliance however which very often it ill deserved; profligate governments having until a very modern period seldom scrupled, for the sake of robbing their creditors, to confer on all other debtors a licence to rob theirs, by the shallow and impudent artifice of lowering the standard; that least covert of all modes of knavery, which consists in calling a shilling a pound, that a debt of a hundred pounds may be cancelled by the payment of a hundred shillings. It would have been as simple a plan, and would have answered the purpose as well, to have enacted that "a hundred" should always be interpreted to mean five, which would have effected the same reduction in all pecuniary contracts, and would not have been at all more shameless. Such strokes of policy have not wholly ceased to be recommended, but they have ceased to be practised; except occasionally through the medium of paper money, in which case the character of the transaction, from the greater obscurity of the subject, is a little less barefaced. Money, when its use has grown habitual, is the medium through which the incomes of the different members of the community are distributed to them, and the measure by which they estimate their possessions. As it is always by means of money that people provide for their different necessities, there grows up in their minds a powerful association leading them to regard money as wealth in a more peculiar sense than any other article; and even those who pass their lives in the production of the most useful objects, acquire the habit of regarding those objects as chiefly important by their capacity of being exchanged for money. A person who parts with money to obtain commodities, unless he intends to sell them, appears to the imagination to be making a worse bargain than a person who parts with commodities to get money; the one seems to be spending his means, the other adding to them. Illusions which, though now in some measure dispelled, were long powerful enough to overmaster the mind of every politician, both speculative and practical, in Europe. It must be evident, however, that the mere introduction of a particular mode of exchanging things for one another, by first exchanging a thing for money, and then exchanging the money for something else, makes no difference in the essential character of transactions. It is not with money that things are really purchased. Nobody's income (except that of the gold or silver miner) is derived from the precious metals. The pounds or shillings which a person receives weekly or yearly, are not what constitutes his income; they are a sort of tickets or orders which he can present for payment at any shop he pleases, and which entitle him to receive a certain value of any commodity that he makes choice of. The farmer pays his laborers and his landlord in these tickets, as the most convenient plan for himself and them; but their real income is their share of his corn, cattle, and hay, and it makes no essential difference whether he distributes it to them directly or sells it for them and gives them the price; but as they would have to sell it for money if he did not, and he is a seller at any rate, it best suits the purposes of all, that he should sell their share along with his own, and leave the laborers more leisure for work and the landlord for being idle. The capitalists, except those who are producers of the precious metals, derive no part of their income from those metals, since they only get them by buying them with their own produce: while all other persons have their incomes paid to them by the capitalists, or by those who have received payment from the capitalists, and as the capitalists have nothing, from the first, except their produce, it is that and nothing else which supplies all incomes furnished by them. There cannot, in short, be intrinsically a more insignificant thing, in the economy of society, than money; except in the character of a contrivance for sparing time and labor. It is a machine for doing quickly and commodiously, what would be done, though less quickly and commodiously, without it: and like many other kinds of machinery, it only exerts a distinct and independent influence of its own when it gets out of order. The introduction of money does not interfere with the operation of any of the Laws of Value.... The reasons which make the temporary or market value of things depend on the demand and supply, and their average and permanent values upon their cost of production, are as applicable to a money system as to a system of barter. Things which by barter would exchange for one another, will, if sold for money, sell for an equal amount of it, and so will exchange for one another still, though the process of exchanging them will consist of two operations instead of only one. The relations of commodities to one another remain unaltered by money: the only new relation introduced, is their relation to money itself; how much or how little money they will exchange for; in other words, how the Exchange Value of money itself is determined. And this is not a question of any difficulty, when the illusion is dispelled, which caused money to be looked upon as a peculiar thing, not governed by the same laws as other things. Money is a commodity, and its value is determined like that of other commodities, temporarily by demand and supply, permanently and on the average by cost of production. In the foregoing,[2] attention has been directed mainly to the two functions of money known (1) as the Standard or Common Denominator of Value, and (2) as the Medium of Exchange. Concerning transactions begun and ended on the spot nothing more need be said; but the fact of contracts over a period of time introduces an important element--the time element. Whenever a contract is made covering a period of time, within which serious changes in the economic world may take place, then difficulties may arise as to what is a just standard of payments. Various articles might serve equally well as a standard for exchanges performed on the spot, but it is not so when any one article is chosen as a standard for deferred payments. Without much regard to theory, the world has in fact used the same standard for transactions whether settled on the spot, or whether extending over a period of time. In order to work with perfection as a standard for deferred payments, the article chosen as that standard should place both debtors and creditors in exactly the same absolute, and the same relative, position to each other at the end of a contract that they occupied at its beginning; this implies that the chosen article should maintain the same exchange value in relation to goods, rents, and the wages of labour at the end as at the beginning of the contract, and it implies that the borrower and lender should preserve the same relative position as regards their fellow producers and consumers at the later as at the earlier point of time, and that they have not changed this relation, one at the loss of the other. This makes demands which any article that can be suggested as a standard cannot satisfy. And yet it is a practical necessity of society that some one article should in fact be selected as the standard. The business world has thus been forced to find some commodity which--while admittedly never capable of perfection--provides more nearly than anything else all the essentials of a desirable standard. The causes which may bring about changes in the relations between goods and labor, on the one side, and the standard, on the other, are various. We may, for instance, compare wheat with the existing gold standard. The quantity of gold for which the wheat will exchange is its price. As wheat falls in value relatively to gold, it exchanges for less gold, that is, its price falls; or, _vice versa_, gold exchanges for more wheat, and relatively to wheat gold has risen. As one goes up, the other term in the ratio necessarily goes down; just as certainly as a rise in one end of a plank balanced on a log necessitates a fall in the other end of the plank. Therefore, changes in prices can be caused by forces affecting either the gold side or the wheat side of the ratio; by forces affecting either the money standard or the goods compared with that standard. Consequences of importance follow from this explanation. First suppose that commodities and labor remain unchanged in their production and reward, respectively; then, anything affecting the supply of and demand for gold will affect in general the value of gold in comparison with goods and labor. Or, second, if we suppose an equilibrium between the demand for and supply of gold, then, prices and wages can be affected also by anything affecting the cost of obtaining goods or labor. It is one-sided to look for changes in prices solely from causes touching gold, or one term of the price ratio. If, however, it should be desired that prices should remain stationary, then this can be brought about only by finding for the standard an article that would automatically move in extent, and in the proper compensating direction, so as to meet any changes in value arising not only from causes affecting itself, but also from causes affecting labor and the vast number of goods that may be quoted in price. No commodity ever existed which could thus move in value. During long periods of time--within which gains in mechanical skill and invention, revolutions in political and social habits, changes in taste or fashion, settlement of new countries, opening of new markets, may take place--great alterations in the value of the standard may occur wholly from natural causes affecting the commodity side of the price ratio. And yet, in default of a perfect standard, persons who borrow and lend create debts and obligations expressed in terms of that article which has been adopted as the standard by the concurring habits of the commercial community of which they form a part. It should be understood, whenever men enter into obligations reaching over a period of time, that a necessary part of the risks involved in this undertaking is the possibility of an alteration in the exchange values of goods, on the one hand, and in the standard metal on the other, due to industrial changes and natural causes. This is one of the risks which belong to individual enterprise, differing in no way from other possibilities of gain and loss. For instance, prices rose, as indicated by an index number of 100 in 1860 to an index number of 216 in 1865. Therefore, in the United States, in this period of rising prices the creditor lost and the debtor gained. On the other hand, from 1865 to 1878, prices fell from 216 to 101, and in this period of falling prices the creditor gained and the debtor lost. It is to be observed, however, that these figures refer to actual quotations of prices during the fluctuations of our paper money. But it is evident in such movements as these, that parties to a time-contract must take their own chances of changes; and indeed it is much more wholesome that they should do so. It should be kept well in mind that it is not a proper function of government to step in and save men from the ordinary risks of trade and industry. It goes without saying that if changes in the value of the standard due to natural causes take place during the continuance of a contract, it is not the business of government to indemnify either party to the contract. This is a matter on which every individual who enters into time obligations must bear his own responsibility. FOOTNOTES: [1] John Stuart Mill, _Principles of Political Economy_, Vol. II, pp. 17-23. [2] Adapted from _The Report of the Commission of the Indianapolis Convention_, pp. 92, 93, 103, 104. The University of Chicago Press, 1898. CHAPTER II THE EARLY HISTORY OF MONEY [3]Living in civilized communities, and accustomed to the use of coined metallic money, we learn to identify money with gold and silver; hence spring hurtful and insidious fallacies. It is always useful, therefore, to be reminded of the truth, so well stated by Turgot, that every kind of merchandise has the two properties of measuring value and transferring value. It is entirely a question of degree what commodities will in any given state of society form the most convenient currency, and this truth will be best impressed upon us by a brief consideration of the very numerous things which have at one time or other been employed as money. Though there are many numismatists and many political economists, the natural history of money is almost a virgin subject, upon which I should like to dilate; but the narrow limits of my space forbid me from attempting more than a brief sketch of the many interesting facts which may be collected. CURRENCY IN THE HUNTING STATE Perhaps the most rudimentary state of industry is that in which subsistence is gained by hunting wild animals. The proceeds of the chase would, in such a state, be the property of most generally recognized value. The meat of the animals captured would, indeed, be too perishable in nature to be hoarded or often exchanged; but it is otherwise with the skins, which, being preserved and valued for clothing, became one of the earliest materials of currency. Accordingly, there is abundant evidence that furs or skins were employed as money in many ancient nations. They serve this purpose to the present day in some parts of the world. In the book of Job (ii, 4) we read, "Skin for skin, yea, all that a man hath will he give for his life"; a statement clearly implying that skins were taken as the representative of value among the ancient Oriental nations. Etymological research shows that the same may be said of the northern nations from the earliest times. In the Esthonian language the word _râha_ generally signifies money, but its equivalent in the kindred Lappish tongue has not yet altogether lost the original meaning of skin or fur. Leather money is said to have circulated in Russia as late as the reign of Peter the Great, and it is worthy of notice, that classical writers have recorded traditions to the effect that the earliest currency used at Rome, Lacedæmon, and Carthage, was formed of leather. We need not go back, however, to such early times to study the use of rude currencies. In the traffic of the Hudson's Bay Company with the North American Indians, furs, in spite of their differences of quality and size, long formed the medium of exchange. It is very instructive, and corroborative of the previous evidence to find that even after the use of coin had become common among the Indians the skin was still commonly used as the money of account. Thus Whymper says, "a gun, nominally worth about forty shillings, bought twenty 'skins.' This term is the old one employed by the company. One skin (beaver) is supposed to be worth two shillings, and it represents two marten, and so on. You heard a great deal about 'skins' at Fort Yukon, as the workmen were also charged for clothing, etc., in this way." CURRENCY IN THE PASTORAL STATE In the next higher stage of civilization, the pastoral state, sheep and cattle naturally form the most valuable and negotiable kind of property. They are easily transferable, convey themselves about, and can be kept for many years, so that they readily perform some of the functions of money. We have abundance of evidence, traditional, written, and etymological, to show this. In the Homeric poems oxen are distinctly and repeatedly mentioned as the commodity in terms of which other objects are valued. The arms of Diomed are stated to be worth nine oxen, and are compared with those of Glaucos, worth one hundred. The tripod, the first prize for wrestlers in the 23rd Iliad, was valued at twelve oxen, and a woman captive, skilled in industry, at four. It is peculiarly interesting to find oxen thus used as the common measure of value, because from other passages it is probable, as already mentioned, that the precious metals, though as yet uncoined, were used as a store of value, and occasionally as a medium of exchange. The several functions of money were thus clearly performed by different commodities at this early period. In several languages the name for money is identical with that of some kind of cattle or domesticated animal. It is generally allowed that _pecunia_, the Latin word for money, is derived from _pecus_, cattle. From the Agamemnon of Æschylus we learn that the figure of an ox was the sign first impressed upon coins, and the same is said to have been the case with the earliest issues of the Roman _As_. Numismatic researches fail to bear out these traditions, which were probably invented to explain the connection between the name of the coin and the animal. A corresponding connection between these notions may be detected in much more modern languages. Our common expression for the payment of a sum of money is _fee_, which is nothing but the Anglo-Saxon _feoh_, meaning alike money and cattle, a word cognate with the German _vieh_, which still bears only the original meaning of cattle. In the ancient German codes of law, fines and penalties are actually defined in terms of live-stock. In the Zend Avesta, as Professor Theodores ... informs me, the scale of rewards to be paid to physicians is carefully stated, and in every case the fee consists in some sort of cattle. The fifth and sixth lectures in Sir H. S. Maine's most interesting work on _The Early History of Institutions_, which has just been published, are full of curious information showing the importance of live-stock in a primitive state of society. Being counted by the head, the kine was called capitale, whence the economical term capital, the law term chattel, and our common name cattle. In countries where slaves form one of the most common and valuable possessions, it is quite natural that they should serve as the medium of exchange like cattle. Pausanias mentions their use in this way, and in Central Africa and some other places where slavery still flourishes, they are the medium of exchange along with cattle and ivory tusks. According to Earl's account of New Guinea, there is in that island a large traffic in slaves, and a slave forms the unit of value. Even in England slaves are believed to have been exchanged at one time in the manner of money. ARTICLES OF ORNAMENT AS CURRENCY A passion for personal adornment is one of the most primitive and powerful instincts of the human race, and as articles used for such purposes would be durable, universally esteemed, and easily transferable, it is natural that they should be circulated as money. The _wampumpeag_ of the North American Indians is a case in point, as it certainly served as jewellery. It consisted of beads made of the ends of black and white shells, rubbed down and polished, and then strung into belts or necklaces, which were valued according to their length, and also according to their color and luster, a foot of black _peag_ being worth two feet of white _peag_. It was so well established as currency among the natives that the Court of Massachusetts ordered in 1649, that it should be received in the payment of debts among settlers to the amount of forty shillings. It is curious to learn, too, that just as European misers hoard up gold and silver coins, the richer Indian chiefs secrete piles of wampum beads, having no better means of investing their superfluous wealth. Exactly analogous to this North American currency, is that of the cowry shells, which, under one name or another--_chamgos_, _zimbis_, _bouges_, _porcelanes_, etc.--have long been used in the East Indies as small money. In British India, Siam, the West Coast of Africa, and elsewhere on the tropical coasts, they are still used as small change, being collected on the shores of the Maldive and Laccadive Islands, and exported for the purpose. Their value varies somewhat, according to the abundance of the yield, but in India the current rate used to be about five thousand shells for one rupee, at which rate each shell is worth about the two-hundredth part of a penny. Among our interesting fellow-subjects, the Fijians, whale's teeth served in the place of cowries, and white teeth were exchanged for red teeth somewhat in the ratio of shillings to sovereigns. Among other articles of ornament or of special value used as currency, may be mentioned yellow amber, engraved stones, such as the Egyptian scarabæi, and tusks of ivory. CURRENCY IN THE AGRICULTURAL STATE Many vegetable productions are at least as well suited for circulation as some of the articles which have been mentioned. It is not surprising to find, then, that among a people supporting themselves by agriculture, the more durable products were thus used. Corn has been the medium of exchange in remote parts of Europe from the time of the ancient Greeks to the present day. In Norway corn is even deposited in banks, and lent and borrowed. What wheat, barley, and oats are to Europe, such is maize in parts of Central America, especially Mexico, where it formerly circulated. In many of the countries surrounding the Mediterranean, olive oil is one of the commonest articles of produce and consumption; being, moreover, pretty uniform in quality, durable, and easily divisible, it has long served as currency in the Ionian Islands, Mytilene, some towns of Asia Minor, and elsewhere in the Levant. Just as cowries circulate in the East Indies, so cacao nuts, in Central America and Yucatan, form a perfectly recognized and probably an ancient fractional money. Travellers have published many distinct statements as to their value, but it is impossible to reconcile these statements without supposing great changes of value either in the nuts or in the coins with which they are compared. In 1521, at Caracas, about thirty cacao nuts were worth one penny English, whereas recently ten beans would go to a penny, according to Squier's statements. In the European countries, where almonds are commonly grown, they have circulated to some extent like the cacao nuts, but are variable in value, according to the success of the harvest. It is not only, however, as a minor currency that vegetable products have been used in modern times. In the American settlements and the West India Islands, in former days, specie used to become inconveniently scarce, and the legislators fell back upon the device of obliging creditors to receive payment in produce at stated rates. In 1618, the Governor of the Plantations of Virginia ordered that tobacco should be received at the rate of three shillings for the pound weight, under the penalty of three years' hard labor. We are told that, when the Virginia Company imported young women as wives for the settlers, the price per head was one hundred pounds of tobacco, subsequently raised to one hundred and fifty. As late as 1732, the legislature of Maryland made tobacco and Indian corn legal tenders; and in 1641 there were similar laws concerning corn in Massachusetts. The governments of some of the West India Islands seem to have made attempts to imitate these peculiar currency laws, and it was provided that the successful plaintiff in a lawsuit should be obliged to accept various kinds of raw produce, such as sugar, rum, molasses, ginger, indigo, or tobacco.... The perishable nature of most kinds of animal food prevents them from being much used as money; but eggs are said to have circulated in the Alpine villages of Switzerland, and dried codfish have certainly acted as currency in the colony of Newfoundland. MANUFACTURED AND MISCELLANEOUS ARTICLES AS CURRENCY The enumeration of articles which have served as money may already seem long enough for the purposes in view. I will, therefore, only add briefly that a great number of manufactured commodities have been used as a medium of exchange in various times and places. Such are the pieces of cotton cloth, called _Guinea pieces_, used for traffic upon the banks of the Senegal, or the somewhat similar pieces circulated in Abyssinia, the Soulou Archipelago, Sumatra, Mexico, Peru, Siberia, and among the Veddahs. It is less easy to understand the origin of the curious straw money which circulated until 1694 in the Portuguese possessions in Angola, and which consisted of small mats, called _libongos_, woven out of rice straw, and worth about 1-1/2_d._ each. These mats must have had, at least originally, some purpose apart from their use as currency, and were perhaps analogous to the fine woven mats so much valued by the Samoans, and also treated by them as a medium of exchange. Salt has been circulated not only in Abyssinia, but in Sumatra, Mexico, and elsewhere. Cubes of benzoin gum or beeswax in Sumatra, red feathers in the Islands of the Pacific Ocean, cubes of tea in Tartary, iron shovels or hoes among the Malagasy, are other peculiar forms of currency. The remarks of Adam Smith concerning the use of hand-made nails as money in some Scotch villages will be remembered by many readers, and need not be repeated. M. Chevalier has adduced an exactly corresponding case from one of the French coalfields. Were space available it would be interesting to discuss the not improbable suggestion of Boucher de Perthes, that, perhaps, after all, the finely worked stone implements now so frequently discovered were among the earliest mediums of exchange. Some of them are certainly made of jade, nephrite, or other hard stones, only found in distant countries, so that an active traffic in such implements must have existed in times of which we have no records whatever. There are some obscure allusions in classical authors to a wooden money circulating among the Byzantines, and to a wooden talent used at Antioch and Alexandria, but in the absence of fuller information as to their nature, it is impossible to do more than mention them.... THE INVENTION OF COINING The date of the invention of coining can be assigned with some degree of probability. Coined money was clearly unknown in the Homeric times, and it was known in the time of Lycurgus. We might therefore assume, with various authorities, that it was invented in the mean time, or about 900 B. C. There is tradition, moreover, that Pheidon, King of Argos, first struck silver money in the island of Ægina about 895 B. C., and the tradition is supported by the existence of small stamped ingots of silver, which have been found in Ægina. Later inquiries, however, lead to the conclusion that Pheidon lived in the middle of the eighth century B. C., and Grote has shown good reasons for believing that what he did accomplish was done in Argos, and not in Ægina. The mode in which the invention happened is sufficiently evident. Seals were familiarly employed in very early times, as we learn from the Egyptian paintings or the stamped bricks of Nineveh. Being employed to signify possession, or to ratify contracts, they came to indicate authority. When a ruler first undertook to certify the weights of pieces of metal, he naturally employed his seal to make the fact known, just as, at Goldsmiths' Hall, a small punch is used to certify the fineness of plate. In the earliest forms of coinage there were no attempts at so fashioning the metal that its weight could not be altered without destroying the stamp or design. The earliest coins struck, both in Lydia and in the Peloponnesus, were stamped on one side only.... FOOTNOTES: [3] W. Stanley Jevons, _Money and the Mechanism of Exchange_, D. Appleton and Company, New York, 1902, pp. 19-28, 54, 55. CHAPTER III QUALITIES OF THE MATERIAL OF MONEY [4]Many recent writers, such as Huskisson, MacCulloch, James Mill, Garnier, Chevalier, and Walras, have satisfactorily described the qualities which should be possessed by the material of money. Earlier writers seem, however, to have understood the subject almost as well.... Of all writers, M. Chevalier ... probably gives the most accurate and full account of the properties which money should possess, and I shall in many points follow his views. The prevailing defect in the treatment of the subject is the failure to observe that money requires different properties as regards different functions. To decide upon the best material for money is thus a problem of great complexity, because we must take into account at once the relative importance of the several functions of money, the degree in which money is employed for each function, and the importance of each of the physical qualities of the substance with respect to each function. In a simple state of industry money is chiefly required to pass about between buyers and sellers. It should, then, be conveniently portable, divisible into pieces of various size, so that any sum may readily be made up, and easily distinguishable by its appearance, or by the design impressed upon it. When money, however, comes to serve, as it will at some future time, almost exclusively as a measure and standard of value, the system of exchange, being one of perfected barter, such properties become a matter of comparative indifference, and stability of value, joined perhaps to portability, is the most important quality. Before venturing, however, to discuss such complex questions, we must proceed to a preliminary discussion of the properties in question, which may thus perhaps be enumerated in the order of their importance: 1. Utility and value. 2. Portability. 3. Indestructibility. 4. Homogeneity. 5. Divisibility. 6. Stability of value. 7. Cognisability. 1. UTILITY AND VALUE Since money has to be exchanged for valuable goods, it should itself possess value and it must therefore have utility as the basis of value. Money, when once in full currency, is only received in order to be passed on, so that if all people could be induced to take worthless bits of material at a fixed rate of valuation, it might seem that money does not really require to have substantial value. Something like this does frequently happen in the history of currencies, and apparently valueless shells, bits of leather, or scraps of paper are actually received in exchange for costly commodities. This strange phenomenon is, however, in most cases capable of easy explanation, and if we were acquainted with the history of every kind of money the like explanation would no doubt be possible in other cases. The essential point is that people should be induced to receive money, and pass it on freely at steady ratios of exchange for other objects; but there must always be some sufficient reason first inducing people to accept the money. The force of habit, convention, or legal enactment may do much to maintain money in circulation when once it is afloat, but it is doubtful whether the most powerful government could oblige its subjects to accept and circulate as money a worthless substance which they had no other motive for receiving. Certainly, in the early stages of society, the use of money was not based on legal regulations, so that the utility of the substance for other purposes must have been the prior condition of its employment as money. Thus the singular _peag_ currency, or _wampumpeag_, which was found in circulation among the North American Indians by the early explorers, was esteemed for the purpose of adornment, as already mentioned.... The cowry shells, so widely used as a small currency in the East, are valued for ornamental purposes on the West Coast of Africa, and were in all probability employed as ornaments before they were employed as money. All the other articles [previously] mentioned ... such as oxen, corn, skins, tobacco, salt, cacao nuts, tea, olive oil, etc., which have performed the functions of money in one place or another, possessed independent utility and value. If there are any apparent exceptions at all to this rule, they would doubtless admit of explanation by fuller knowledge. We may, therefore, agree with Storch when he says: "It is impossible that a substance which has no direct value should be introduced as money, however suitable it may be in other respects for this use." When once a substance is widely employed as money, it is conceivable that its utility will come to depend mainly upon the services which it thus confers upon the community. Gold, for instance, is far more important as the material of money than in the production of plate, jewellery, watches, gold-leaf, etc. A substance originally used for many purposes may eventually serve only as money, and yet, by the demand for currency and the force of habit, may maintain its value. The cowry circulation of the Indian coasts is probably a case in point. The importance of habit, personal or hereditary, is at least as great in monetary science as it is, according to Mr. Herbert Spencer, in morals and sociological phenomena generally. There is, however, no reason to suppose that the value of gold and silver is at present due solely to their conventional use as money. These metals are endowed with such singularly useful properties that, if we could only get them in sufficient abundance, they would supplant all the other metals in the manufacture of household utensils, ornaments, fittings of all kinds, and an infinite multitude of small articles, which are now made of brass, copper, bronze, pewter, German silver, or other inferior metals and alloys. In order that money may perform some of its functions efficiently, especially those of a medium of exchange and a store of value, to be carried about, it is important that it should be made of a substance valued highly in all parts of the world, and, if possible, almost equally esteemed by all peoples. There is reason to think that gold and silver have been admired and valued by all tribes which have been lucky enough to procure them. The beautiful lustre of these metals must have drawn attention and excited admiration as much in the earliest as in the present times. 2. PORTABILITY The material of money must not only be valuable, but the value must be so related to the weight and bulk of the material, that the money shall not be inconveniently heavy on the one hand, nor inconveniently minute on the other. There was a tradition in Greece that Lycurgus obliged the Lacedæmonians to use iron money, in order that its weight might deter them from overmuch trading. However this may be, it is certain that iron money could not be used in cash payments at the present day, since a penny would weigh about a pound, and instead of a five-pound note, we should have to deliver a ton of iron. During the last century copper was actually used as the chief medium of exchange in Sweden; and merchants had to take a wheelbarrow with them when they went to receive payments in copper _dalers_. Many of the substances used as currency in former times must have been sadly wanting in portability. Oxen and sheep, indeed, would transport themselves on their own legs; but corn, skins, oil, nuts, almonds, etc., though in several respects forming fair currency, would be intolerably bulky and troublesome to transfer. The portability of money is an important quality not merely because it enables the owner to carry small sums in the pocket without trouble, but because large sums can be transferred from place to place, or from continent to continent, at little cost. The result is to secure an approximate uniformity in the value of money in all parts of the world. A substance which is very heavy and bulky in proportion to value, like corn or coal, may be very scarce in one place and over-abundant in another; yet the supply and demand cannot be equalised without great expense in carriage. The cost of conveying gold or silver from London to Paris, including insurance, is only about four-tenths of one per cent.; and between the most distant parts of the world it does not exceed from 2 to 3 per cent. Substances may be too valuable as well as too cheap, so that for ordinary transactions it would be necessary to call in the aid of the microscope and the chemical balance. Diamonds, apart from other objections, would be far too valuable for small transactions. The value of such stones is said to vary as the square of the weight, so that we cannot institute any exact comparison with metals of which the value is simply proportional to the weight. But taking a one-carat diamond (four grains) as worth £15, we find it is, weight for weight, 460 times as valuable as gold. There are several rare metals, such as iridium and osmium, which would likewise be far too valuable to circulate. Even gold and silver are too costly for small currency. A silver penny now weighs 7-1/4 grains, and a gold penny would weigh only half a grain. The pretty octagonal quarter-dollar tokens circulated in California are the smallest gold coins I have seen, weighing less than four grains each, and are so thin that they can almost be blown away. 3. INDESTRUCTIBILITY If it is to be passed about in trade, and kept in reserve, money must not be subject to easy deterioration or loss. It must not evaporate like alcohol, nor putrefy like animal substances, nor decay like wood, nor rust like iron. Destructible articles, such as eggs, dried codfish, cattle, or oil, have certainly been used as currency; but what is treated as money one day must soon afterwards be eaten up. Thus a large stock of such perishable commodities cannot be kept on hand, and their value must be very variable. The several kinds of corn are less subject to this objection, since, when well dried at first, they suffer no appreciable deterioration for several years. 4. HOMOGENEITY All portions of specimens of the substance used as money should be homogeneous, that is, of the same quality, so that equal weights will have exactly the same value. In order that we may correctly count in terms of any unit, the units must be equal and similar, so that twice two will always make four. If we were to count in precious stones, it would seldom happen that four stones would be just twice as valuable as two stones. Even the precious metals, as found in the native state, are not perfectly homogeneous, being mixed together in almost all proportions; but this produces little inconvenience, because the assayer readily determines the quantity of each pure metal present in any ingot. In the processes of refining and coining, the metals are afterwards reduced to almost exactly uniform degrees of fineness, so that equal weights are then of exactly equal value. 5. DIVISIBILITY Closely connected with the last property is that of divisibility. Every material is, indeed, mechanically divisible, almost without limit. The hardest gems can be broken, and steel can be cut by harder steel. But the material of money should be not merely capable of division, but the aggregate value of the mass after division should be almost exactly the same as before division. If we cut up a skin or fur the pieces will, as a general rule, be far less valuable than the whole skin or fur, except for a special intended purpose; and the same is the case with timber, stone, and most other materials in which reunion is impossible. But portions of metal can be melted together again whenever it is desirable, and the cost of doing this, including the metal lost, is in the case of precious metals very inconsiderable, varying from 1/4_d._ to 1/2_d._ per ounce. Thus, approximately speaking, the value of any piece of gold or silver is simply proportional to the weight of fine metal which it contains. 6. STABILITY OF VALUE It is evidently desirable that the currency should not be subject to fluctuations of value. The ratios in which money exchanges for other commodities should be maintained as nearly as possible invariable on the average. This would be a matter of comparatively minor importance were money used only as a measure of values at any one moment, and as a medium of exchange. If all prices were altered in like proportion as soon as money varied in value, no one would lose or gain, except as regards the coin which he happened to have in his pocket, safe, or bank balance. But, practically speaking, as we have seen, people do employ money as a standard of value for long contracts, and they often maintain payments at the same variable rate, by custom or law, even when the real value of the payment is much altered. Hence every change in the value of money does some injury to society. It might be plausibly said, indeed, that the debtor gains as much as the creditor loses, or vice versa, so that on the whole the community is as rich as before; but this is not really true. A mathematical analysis of the subject shows that to take any sum of money from one and give it to another will, on the average of cases, injure the loser more than it benefits the receiver. A person with an income of one hundred pounds a year would suffer more by losing ten pounds than he would gain by an addition of ten pounds, because the degree of utility of money to him is considerably higher at ninety pounds than it is at one hundred and ten. On the same principle, all gaming, betting, pure speculation, or other accidental modes of transferring property involve, on the average, a dead loss of utility. The whole incitement to industry and commerce and the accumulation of capital depends upon the expectation of enjoyment thence arising, and every variation of the currency tends in some degree to frustrate such expectation and to lessen the motives for exertion. 7. COGNISABILITY By this name we may denote the capability of a substance for being easily recognised and distinguished from all other substances. As a medium of exchange, money has to be continually handed about, and it will occasion great trouble if every person receiving currency has to scrutinize, weigh, and test it. If it requires any skill to discriminate good money from bad, poor ignorant people are sure to be imposed upon. Hence the medium of exchange should have certain distinct marks which nobody can mistake. Precious stones, even if in other respects good as money, could not be so used, because only a skilled lapidary can surely distinguish between true and imitation gems. Under cognisability we may properly include what has been aptly called _impressibility_, namely, the capability of a substance to receive such an impression, seal, or design, as shall establish its character as current money of certain value. We might more simply say, that the material of money should be coinable, so that a portion, being once issued according to proper regulations with the impress of the state, may be known to all as good and legal currency, equal in weight, size, and value to all similarly marked currency.... FOOTNOTES: [4] W. Stanley Jevons, _Money and the Mechanism of Exchange_, pp. 29-39. D. Appleton & Company, New York, 1902. CHAPTER IV LEGAL TENDER[5] The essential idea of "legal tender" is that quality given to money by law which obliges the creditor to receive it in full satisfaction of a past debt when expressed in general terms of the money of a country. A debt is a sum of money due by contract, express or implied. When our laws, for instance, declare that United States notes are legal tender--and this is the only complete designation of a legal-tender money--for "all debts public and private," it must be understood that this provision does not cover any operations not arising from contract. Current buying and selling do not make a situation calling for legal tender; a purchaser cannot compel the delivery of goods over a counter by offering legal-tender money for them, because, as yet, no debt has been created.[6] Contracts made in general terms of the money units of the country must necessarily often be interpreted by the courts. The existence of contracts calling for a given sum of dollars and the necessity of adjudicating and enforcing such contracts, require that there should be an accurate legal interpretation of what a dollar is. As every one knows, the name, or unit of account, is affixed to a given number of grains of a specified fineness of a certain metal. This being the standard, and this having been chosen by the concurring habits of the business world, it is fit that the law should designate that, when only dollars are mentioned in a contract, it should be satisfied only by the payment of that which is the standard money of the community. Since prices and contracts are expressed in terms of the standard article, it is clear that the legal-tender quality should not be equally affixed to different articles having different values, but called by the same name. This method would be sure to bring confusion, uncertainty, and injustice into trade and industry. No one who had made a contract would know in what he was to be paid. The legal-tender quality, then, should be confined to that which is the sole standard. And it is also obvious that when a standard is satisfactorily determined upon, and when various effective media of exchange, like bank notes, checks, or bills of exchange, have sprung up, the legal-tender quality should not be given to these instruments of convenience. They are themselves expressed in, and are resolvable into, the standard metal; so the power to satisfy debts should be given not to the shadow, but to the substance, not to the devices drawn in terms of the standard, but only to the standard itself, even though, as a matter of fact, nine-tenths of the debts and contracts are actually settled by means of these devices. So long as these instruments are convertible into, and thus made fully equal to, the standard in terms of which they are drawn, they will be used by the business community for the settlement of debts without being made a legal tender. And whenever they are worth less than the standard they certainly should not be made a legal tender, because of the injustice which in such a case they would work. Having shown that the legal-tender quality is only a necessary legal complement of the choice of a standard, it will not be difficult to see that the state properly chooses an article fit to have the legal-tender attribute for exactly the reasons that governed the selection of the same article as a standard. The whole history of money shows that the standard article was the one which had utility to the community using it. As the evolution of the money commodity went on from cattle to silver and gold, so the legal-tender provisions naturally followed this course. A state may select a valueless commodity as a standard, but that will not make it of value to those who would already give nothing for it; and so, it may give the legal-tender quality to a thing which has become valueless, but that will not of itself insure the maintenance of its former value. This proposition may, at first, appear to be opposed to a widely-spread belief; but its soundness can be fully supported. It should be learned that a commodity, or a standard, holds its value for reasons quite independent of the fact that it is given legal recognition. It has happened that legal recognition has been given to it because it possessed qualities that gave it value to the commercial world, and not that it came to have these qualities and this value because it was made a legal tender. A good illustration of this truth is to be found in international trade. Money which is not dependent on artificial influences for its value, and which is not redeemable in something else, is good the world over at its actual commercial value, not at its value as fixed by any legal-tender laws. It is not the legal-tender stamp that gives a coin its value in international payments. A sovereign, an eagle, a napoleon, is constantly given and received in international trade not because of the stamp it bears, but because of the number of grains of a given fineness of gold which it contains--the value of which is determined in the markets of the world. And an enormous trade among the great commercial countries goes on easily and effectively without regard to the legal-tender laws of the particular country whose coins are used. By imposing the attribute of legal tender, however, upon a given metal or money, it may be believed that thereby a new demand is created for that metal, and that its value is thus controlled. And in theory there is some basis for this belief. It is, of course, true that, in so far as giving to money a legal-tender power creates a new demand for it (which without that power would not have existed) an effect upon its value can be produced. But this effect is undoubtedly much less than is usually supposed. It must be remembered that the value of gold, for instance, is affected by world influences; that its value is determined by the demand of the whole world as compared with the whole existing supply in the world. In order to affect the value of gold in any one country, a demand created by a legal-tender enactment must be sufficient to affect the world-value of gold. Evidently the effect will be only in the proportion that the new demand bears to the whole stock in the world. It is like the addition of a barrel of water to a pond; theoretically the surface level is raised, but not to any appreciable extent. It may now be permissible to examine into the extent to which a demand is created by legal-tender laws. If the article endowed with a legal-tender power is already used as the standard and as a medium of exchange, it is given no value which it did not have before. The customs and business habits of a country alone determine how much of the standard coin will be carried about and used in hand-to-hand purchases, and how much of the business will be performed by other media of exchange, such as checks or drafts. The decision of a country to adopt gold--when it had only paper before, as was the case in Italy--would create a demand for gold to an extent determined by the monetary habits of that country; and this demand has an effect, as was said, only in the proportion of this amount to the total supply in the world. This operation arises from choosing gold as the standard of prices and as the medium of exchange. To give this standard a legal-tender power in addition does not increase the demand for it, because the stamp on the coin does not in any way alter the existing habits of the community as to the quantity of money it will use. But in case an equal power to pay debts is given to fixed quantities of two metals, while each quantity so fixed has a different metallic value but the same denomination in the coinage, Gresham's law is set in operation with the result that the cheaper metal becomes the standard. After this change has been accomplished, the legal tender has no value-giving force. When the cheaper metal has become the standard, its legal-tender quality does not raise the value of the coin beyond the value of its content. This cheaper standard, in international trade, would be worth no more in the purchase of goods because it bore the stamp of any one country. Prices must necessarily be adjusted between the relative values of goods and the standard with which they are compared. If the standard is cheaper, prices will be higher, irrespective of legal-tender acts. Where two metals are concerned, then, the only effect of a legal-tender clause is an injurious one, in that the metal which is overvalued drives out that which is under-valued. The example of an inconvertible paper, such as our United States notes (greenbacks) in 1862-1879, is still more conclusive. Although a full legal tender for all debts public and private, their value steadily sank until they were at one time worth only 35 cents in gold. In California, moreover, these notes, although legal-tender, were even kept out of circulation by public opinion. In short, the value of inconvertible paper can be but little affected by legal-tender powers. Its value is more directly governed, as in the case of token coins, by the probabilities of redemption.[7] As bearing on the point that the value of the paper was more influenced by the chances of redemption than by legal-tender laws, we may cite the sudden fluctuations in the value of our United States notes during the Civil War. With no change in the legal-tender quality and no change in the indebtedness which might be paid with such notes, their value frequently rose or fell many per cent. in a single day owing to reports of Federal successes or defeats in battle, which had a tendency to affect one way or the other the public estimate of the probabilities of an early resumption of specie payments. The fact that they were legal tender evidently had no effect whatever in maintaining their value. In view of the evident fact that legal-tender acts do not preserve the value of money, it is clear that the demand created by such legislation must be insignificant. And this must be so in principle as well as in fact. There is but one thing which the legal-tender quality enables money to do which it could not equally well do without being a legal tender; that is, to pay past debts. An examination, however, shows that this use of money is very small compared with its other uses. The amount of past debts coming due and which might be paid in any year, month or day is insignificant when compared with the total transactions of that year, month or day--so very small as to lose all measurable value-giving power. In other words, the one thing which legal-tender money can surely do in spite of the habits, wishes or prejudices of the business community in which it exists, namely, cancel past debt, is infinitesimally small when compared with those other things which man wishes money to do for him. It is for this reason that it ceases to give value, and this is why history has shown so many instances where money endowed with legal-tender power has become utterly valueless. The legal-tender money is no longer money if it will not secure for man the things which are most important for his welfare, if it will not buy food, clothes and shelter; for it performs none of the functions of money except the subsidiary one of cancelling past debts. Moreover, the obligatory uses of legal-tender money are in fact very inconsiderable. A law requiring a past debt to be satisfied with money of a certain kind has for its essence only the payment of something of a definite value, or its equivalent; in practice, it does not even bring about the actual use of a legal money, since the monetary habits of the community will not necessarily require the debt to be paid in such money. Take the extreme case of a judgment by a court against a defendant for fulfilment of a contract; in such an example, of all others, it would be supposed that legal money would be exacted. But even here, the judgment would most probably be satisfied by the attorney's check, or at most by a certified check. If such media of exchange are of common usage in the community they will be resorted to in practice even for legal-tender payments. The necessity of paying that which would be mutually satisfactory to payer and payee also makes clear why the existence of a legal-tender money does not necessarily cause its actual use in payments. The business habits of the community are stronger than legislative powers. Business men will not as a rule take advantage of a legal-tender act to pay debts in a cheaper money, if they look forward to remaining in business. For, if, by taking advantage of legal devices they defraud the creditor, they cannot expect credit again from the same source; and since loans are a necessity of legitimate modern trade, such action would ruin their credit and cut them off from business activity in the future. Gold was not driven out of circulation by paper money during the years 1862-1879 in California, because the sentiment of the business public was against the use of our depreciated greenback currency; and a discrimination was made against merchants who resorted to the use of paper. Explanation has been given of the principles according to which legal-tender laws should be applied, if at all. It is not wholly clear that there is any reason for their existence. It may now be well to indicate briefly the origin of legal-tender provisions. It can scarcely be doubted that their use arose from the desire of defaulting monarchs to ease their indebtedness by forcing upon creditors a debased coinage. Having possession of the mints, the right of coinage vesting in the lord, the rulers of previous centuries have covered the pages of history with the records of successive debasements of the money of account. The legal-tender enactment was the instrument by which the full payment of debts was evaded. There would have been no reason for debasing coins, if they could not be forced upon unwilling creditors. It is, therefore, strange indeed that, in imitation of monarchical morals of a past day, republican countries should have thought it a wise policy to clothe depreciated money with a nominal value for paying debts. Although the people are now sovereign, they should not embrace the vices of mediæval sovereignty for their own dishonest gain in scaling debts. FOOTNOTES: [5] _Report of the Monetary Commission of the Indianapolis Convention_, pp. 131-7. The Hollenbeck Press, Indianapolis, 1900. [6] "A contract payable in money generally is, undoubtedly, payable in any kind of money made by law legal tender, at the option of the debtor at the time of payment. He contracts simply to pay so much money, and creates a debt pure and simple; and by paying what the law says is money his contract is performed. But, if he agrees to pay in gold coin, it is not an agreement to pay money simply, but to pay or deliver a specific kind of money and nothing else; and the payment in any other is not a fulfilment of the contract according to its terms or the intention of the parties." 25 California 564, Carpenter _vs._ Atherton. [7] For a contrary view, see Joseph French Johnson, _Money and Currency_, Chapter 13.--EDITOR. CHAPTER V THE GREENBACKS THE GREENBACK ISSUES [8]The greenbacks were an outgrowth of the Civil War. Soon after the opening of the struggle the Secretary of the Treasury negotiated a loan of $150,000,000 with Eastern banks. Partly because of Confederate successes and partly because of the failure of Secretary Chase to adopt a firm policy of loans supported by taxation, public credit greatly declined, and Government bonds became almost unsaleable. The outlook became alarming and depositors withdrew gold from the New York banks in such large amounts that specie payments were suspended, December 30, 1861. In February, 1862, Congress provided for the issue of $150,000,000 in United States notes or greenbacks. Bond sales proceeded slowly and a second issue of $150,000,000 of notes was authorised in July of the same year. As a result of "military necessity" a third issue of $100,000,000 was authorised January 17, 1863, and temporarily increased March 3 to $150,000,000. Provision was made for the reissue of the greenbacks and $400,000,000 were outstanding at the close of the war. THE FLUCTUATING PREMIUM ON GOLD Depreciation of the greenbacks occurred at once and the value of gold as expressed in greenbacks was subject to almost constant change. During the year 1862 the premium varied from 2 to 32; in 1863 from 25 to 60; and in 1864 from 55 to 185. Among the most important political and economic factors which caused these fluctuations may be mentioned: (1) The increase in the amount of the greenbacks. Each new issue was reflected in a rise in the premium. (2) The condition of the treasury. The annual reports of the Secretary of the Treasury were anxiously awaited and their appearance caused a rise or fall of the premium according as the condition of the finances seemed gloomy or hopeful. (3) Ability of the Government to borrow. The fate of a loan indicated public confidence or distrust. (4) Changes in the officials of the treasury department. Secretary Chase's resignation, July 1, 1864, depressed the currency decidedly. (5) War news. Every victory raised the price of currency and every defeat depressed it. From 1862 to 1865 the premium on gold and the median of relative prices correspond so well that one cannot resist the conclusion that these changes were mainly due to a common cause, which can hardly be other than the varying esteem in which the notes of the Government that constituted the standard money of the country were held. If this conclusion be accepted, it follows that the suspension of specie payments and the legal-tender acts must be held almost entirely responsible for all the far-reaching economic disturbances following from the price upheaval which it is our task now to trace in detail. THE EFFECTS OF GREENBACKS UPON WAGES Statistical evidence supports unequivocally the common theory that persons whose incomes are derived from wages suffer seriously from a depreciation of the currency. The confirmation seems particularly striking when the conditions other than monetary affecting the labour market are taken into consideration. American workingmen are intelligent and keenly alive to their interests. There are probably few districts where custom plays a smaller and competition a larger rôle in determining wages than in the Northern States. While labor organisations had not yet attained their present power, manual laborers did not fail to avail themselves of the help of concerted action in the attempt to secure more pay. Strikes were frequent. All these facts favored a speedy readjustment of money wages to correspond with changed prices. But more than all else, a very considerable part of the labor supply was withdrawn from the market into the army and navy. In 1864 and 1865 about one million of men seem to have been enrolled. About one-seventh of the labor supply withdrew from the market. But despite all these favoring circumstances, the men who stayed at home did not succeed in obtaining an advance in pay at all commensurate with the increase in living expenses. Women on the whole succeeded less well than men in the struggle to readjust money wages to the increased cost of living. It is sometimes argued that the withdrawal of laborers from industrial life was the chief cause of the price disturbances of the war period. This withdrawal, it is said, caused the advance of wages, and greater cost of labor led to the rise of prices. The baselessness of this view is shown by two well established facts--first, that the advance of wages was later than the advance of prices, and second, that wages continued to rise in 1866 after the volunteer armies had been disbanded and the men gone back to work. Wage-earners, however, seem to have been more fully employed during the war than in common times of prosperity. Of course, the enlistment of so many thousands of the most efficient workers made places for many who might otherwise have found it difficult to secure work. Moreover, the paper currency itself tended to obtain full employment for the laborer, for the very reason that it diminished his real income. In the distribution of what Marshall has termed the "national dividend" a diminution of the proportion received by the laborer must have been accompanied by an increase in the share of some one else. Nor is it difficult to determine who this person was. The beneficiary was the active employer, who found that the money wages, interest, and rent he had to pay increased less rapidly than the money prices of his products. The difference between the increase of receipts and the increase of expenses swelled his profits. Of course, the possibility of making high profits provided an incentive for employing as many hands as possible. After an examination of the change in the condition of the great mass of wage-earners, it may seem surprising that few complaints were heard from them of unusual privations. This silence may be due in part to the fact that a considerable increase of money income produces in the minds of many a fatuous feeling of prosperity, even though it be more than offset by an increase of prices. But doubtless the chief reason is to be found in the absorption of public interest in the events of the war. The people both of the South and North were so vitally concerned with the struggle that they bore without murmuring the hardships it entailed of whatever kind. Government taxation that under other circumstances might have been felt to be intolerable was submitted to with cheerfulness. The paper currency imposed upon wage-earners a heavier tax--amounting to confiscation of perhaps a fifth or a sixth of real incomes. But the workingmen of the North were receiving considerably more than a bare subsistence minimum before the war, and reduction of consumption was possible without producing serious want. Accordingly the currency tax, like the tariff and the internal revenue duties, was accepted as a necessary sacrifice to the common cause and paid without protest by severe retrenchment. RENT URBAN RENTS In studying the influence of depreciation upon rent, it is necessary to use that term in its popular rather than in its scientific sense. This fact is less to be lamented, because the theorist himself admits that the distinction becomes sadly blurred when he attempts to deal with short intervals of time. Capital once invested in improvements can seldom be withdrawn rapidly. In "the short run," therefore, it is practically a part of the land, and the return to it follows the analogy of rent rather than of interest. The renting landlord found that the degree in which he was affected by the fluctuations in the value of the paper money depended largely upon the terms of the contract into which he had entered. It is clear from a careful examination that the landlord who before suspension had leased his property for a considerable period without opportunity for revaluation must have suffered severely if paid in greenbacks. The number of "dollars" received as rental might be the same in 1865 as in 1860, but their purchasing power was less than one-half as great. Somewhat less hard was the situation of the landlord who had let his property for but one or two years. At the expiration of the leases he had opportunities to make new contracts with the tenants. In his capacity as special commissioner of the revenue, Mr. David A. Wells devoted some attention to the rise of rent. His report for December, 1866, says: The average advance in the rents of houses occupied by mechanics and laborers in the great manufacturing centres of the country is estimated to have been about 90 per cent.; in some sections, however, a much greater advance has been experienced, as for example, at Pittsburgh, where 200 per cent. and upward is reported. In many of the rural districts, on the other hand, the advance has been much less. Mr. Wells later modified this estimate somewhat. The advance in rents was greater in cities than in minor towns. In some cities--_e. g._, Cincinnati and Louisville--owners of workingmen's tenements appear to have been able to increase their money incomes rather more rapidly than prices advanced, but in Boston, Philadelphia, St. Louis, and in smaller towns, their money incomes appear to have increased more slowly than living expenses. These conclusions rest, however, on a narrow statistical basis. FARM RENTS The rural landowner suffered serious injury from the paper currency when he let his land for a money rent. But renting farms for a fixed sum of money has always been less common in the United States than renting for a definite share of the products. It is probable that at the time of the Civil War more than three-quarters of the rented farms were let "on shares." Inasmuch as no money payments entered into such arrangements, the pecuniary relations of landlord and tenant were not directly affected by the change in the monetary standard. Farm owners who had let their places on these conditions escaped the direct losses that weighed so heavily on the recipients of money rents. But even they did not avoid all loss. For the price of agricultural products for the greater part of the war period lagged considerably behind the price of other goods. This difference, of course, meant loss to men whose incomes were paid in bushels of grain. INTEREST AND LOAN CAPITAL THE PROBLEM OF LENDERS AND BORROWERS OF CAPITAL The task of ascertaining the effect of the greenback issues upon the situation of lenders and borrowers of capital is in one respect more simple and in another respect more complex than the task of dealing with wage-earners. It is simpler in that there are not different grades of capital to be considered like the different grades of labor. But it is more complex in that the capitalist must be considered not only as the recipient of a money income, as is the laborer, but also as the possessor of certain property that may be affected by changes in the standard money. The problem is further complicated by the fact that the relative importance of these two items--rate of interest and value of principal--is not the same in all cases. Whether a lender is affected more by the one item or the other depends upon what he intends to do with his property at the expiration of existing contracts. A widow left in 1860 with an estate of say $10,000, who expected to keep this sum constantly at interest and to find new borrowers as soon as the old loans were paid, could neglect everything but the net rate of interest received. On the other hand, if this estate had been left to a youth of twenty who intended to invest his property in some business after a few years, the rate of interest would be of relatively less importance to him than the purchasing power of the principal when the time came to set up for himself. Of course, the same difference exists in the case of different borrowers. Those borrowers who expected to renew old loans on maturity would have to consider little beyond the interest demanded by lenders, while borrowers who expected to pay off the loans out of the proceeds of their ventures would be interested primarily in the amount of goods that would sell for sufficient money to make up the principal. Although these two classes of cases are by no means independent of each other, the following discussion will be rendered clearer by observing the broad difference between them. Accordingly, attention will first be directed to the effect of the price fluctuations upon the purchasing power of the principal of loans, and afterward to changes in the rate of interest. PURCHASING POWER OF THE PRINCIPAL OF LOANS Most persons who made loans in the earlier part of the Civil War and were repaid in greenbacks must have suffered heavy losses from the smaller purchasing power of the principal when it was returned to them. But while this general fact is clear, it is difficult to make a quantitative statement of the degree of the loss that will be even tolerably satisfactory. In the case of almost all loans made before the middle of 1864 and repaid prior to 1866, the creditor found that the sum returned to him had a purchasing power much less than the purchasing power that had been transferred to the borrower when the loan was made. This decline varied from 1 to more than 50 per cent. On loans made in the middle of 1864 or later, on the contrary, the creditor gained as a rule. In the case of loans made in January, 1865, and repaid six months later, the increase in purchasing power was over 40 per cent. THE RATE OF INTEREST In turning to study the fortunes of men who have no thought of employing their capital for themselves, but expect to seek new borrowers as rapidly as old loans are repaid, one finds it necessary to distinguish between cases where loans have been made for short and for long terms; between the cases, that is, where there is and where there is not an opportunity to make a new contract regarding the rate of interest. The latter cases may be dismissed with a word. The capitalist who lent $10,000 for five years in April, 1862, at 6 per cent. interest, would be in relatively the same position as the workingman who received no advance in money wages; while his money income remained the same, the rise of prices would decrease his real income in 1864 and 1865 by about one-half. Of course, this loss to the creditor is a gain to the debtor; for to the business man using borrowed capital the advance of prices means that he can raise his interest money by selling a smaller proportion of his output. More interesting is the case of loans maturing and made afresh during the period under examination. The important question is: How far did the lender secure compensation for the diminished purchasing power of the money in which he was paid by contracting for a higher rate of interest? The advance in the rate of interest was comparatively small--much too small to compensate for the increased cost of living. While prices rose approximately 85 per cent. and money wages somewhat less than 60 per cent. during the years 1860-65, rates of interest on call and time loans increased less than 15 per cent. during the same period. The conclusion is not only that persons who derived their income from capital lent at interest for short terms were injured by the issues of the greenbacks, but also that their injuries were more serious than those suffered by wage-earners. To explain this state of affairs is not easy. The first reason that suggests itself to the mind considering the problem is that both lenders and borrowers failed to foresee the changes that would take place in the purchasing power of money between the dates when loans were made and repaid. No doubt there is much force in this explanation. If, for instance, men arranging for loans in April, 1862, to be repaid a year later, had known that in the meantime the purchasing power of money would decline 30 per cent., they would have agreed upon a very high rate of interest. Men able to discern the future course of prices would not have lent money at the ordinary rates, and if the rates prevailing in the New York market throughout all 1862 and 1863 were less than 7 per cent., it must have been because the extraordinary rise of prices was not foreseen by borrowers and lenders. Nor is it surprising that business men failed to see what was coming; for the course of prices depended chiefly upon the valuation set upon the greenbacks, and this valuation, in turn, depended chiefly upon the state of the finances and the fortunes of war--matters that no one could foresee with certainty. Indeed, there was much of the time a very general disposition to take an unwarrantedly optimistic view of the military situation and the chances of an early peace. Many members of the business community seem to have felt that the premium on gold was artificial and must soon drop, that prices were inflated and must collapse. To the extent that such views prevailed borrowers would be cautious about making engagements to repay money in a future that might well present a lower range of prices, and lenders would expect a gain instead of a loss from the changes in the purchasing power of money. But the full explanation of the slight advance in interest cannot be found in this inability to foresee the future--at least not without further analysis of what consequences such inability entailed. Workingmen are commonly credited with less foresight than capitalists, and nevertheless they seem, according to the figures, to have succeeded better in making bargains with employers of labour than did lenders with employers of capital. The explanation of this less success seems to be found in the difference between the way in which depreciation affected what the capitalist and the laborer had to offer in return for interest and wages. There is no reason for assuming that an artisan who changed employers during the war would render less efficient service in his new than in his old position, or that a landlord who changed tenants had less advantages to put at the disposal of the incoming lessee. In both these cases the good offered to the active business man remained substantially the same, and it may safely be assumed that, other things being equal, this business man could afford to give quite as much for the labor and the land after as before suspension. From the business man's point of view, therefore, there seems to have been room for a doubling of money wages and rent when the purchasing power of money had fallen one-half. But in the case of the borrower of capital the like was not true. The thousand dollars which Mr. A offered him in 1865 was not, like the labour of John Smith or the farm of Mr. B, as efficient for his purposes as it would have been five years before. For, with the thousand dollars he could not purchase anything like the same amount of machinery, material, or labor. And since the same nominal amount of capital was of less efficiency in the hands of the borrower, he could not without loss to himself increase the interest which he paid for new loans in proportion to the decline in the purchasing power of money, as he could increase the wages of laborers or the rent for land. It should also be pointed out that on one important class of loans capitalists suffered comparatively little even during the war. Interest on many forms of Government bonds was paid in gold. Capitalists who invested their means in these securities consequently received an income of almost unvarying specie value. If the person who made these investments were an American, he would be able to sell his gold-interest money at a high premium, but he would also have to pay correspondingly high prices for commodities, so that upon the whole his position would not be greatly different from that of the foreign investor. That such opportunities for investment as these securities offered should exist when men were most of the time loaning money for short terms at 7 per cent. or less, is perhaps the most emphatic proof that could be offered of the inability of the public to foresee what the future had in store. PROFITS Laborers, landlords, and lending capitalists are all alike in that the amount of remuneration received by them for the aid which they render to production is commonly fixed in advance by agreement, and is not immediately affected by the profitableness or unprofitableness of the undertaking. It remains to examine the economic fortunes of those men whose money incomes are made up by the sums left over in any business after all the stipulated expenses have been met. A very important part of the solution of the problem of profits has already been contributed by the preceding studies of wages, rent, and interest. The evidence has been found to support the conclusion that in almost all cases the sums of money wages, rent, and interest received by laborers, landlords, and capitalists increased much less rapidly than did the general price level. If the wording of this conclusion be reversed--the prices of products rose more rapidly than wages, rent, or interest--we come at once to the proposition that as a rule profits must have increased more rapidly than prices. For, if the sums paid to all the other co-operating parties were increased in just the same ratio as the prices of the articles sold, it would follow that, other things remaining the same, money profits also would increase in the same ratio. But if, while prices doubled, the payments to labourers, landlords, and capitalists increased in any ratio less than 100 per cent., the sums of money left for the residual claimants must have more than doubled. In other words, the effect of the depreciation of the paper currency upon the distribution of wealth may be summed up in the proposition: The shares of wage-earners, landowners, and lenders in the national dividend were diminished and the share of residual claimants was increased. Two other general propositions respecting profits are suggested. First, other things being equal, profits varied inversely as the average wage per day paid to employees. This conclusion follows directly from the fact that the money wages of men earning $1-$1.49 per day before the perturbation of prices increased in higher ratio than those of men earning $1.50-$1.99; that the wages of the latter class increased more than the wages of men in the next higher wage class, etc. Second, other things being equal, profits varied directly as the complexity of the business organization. By this proposition is meant, for example, that a farmer who paid money rent, used borrowed capital, and employed hired labourers, made a higher percentage of profits than a farmer of whom any one of these suppositions did not hold true. If, as has been argued, the increase of profits was made at the expense of laborers, landlords, and capitalists, it follows that that _entrepreneur_ fared best whose contracts enabled him to exploit the largest number of these other persons. PROFITS IN AGRICULTURE The farmers of the loyal states were among the unfortunate producers whose products rose in price less than the majority of other articles, and from this standpoint they were losers rather than gainers by the paper currency. Of course, it is possible that the farmer's loss from this inequality of price fluctuations might be more than offset by his gains at the expense of labourers, landlord, and lending capitalist. But there is good reason for believing that the increase of the _entrepreneur's_ profits in the latter fashion was less in farming than in any other important industry. This conclusion seems to follow from the proposition that, other things being equal, profits varied directly as the complexity of business organization. The American farmers of the Civil War were in a large proportion of cases their own landlords, capitalists, and laborers. So far as this was true, they had few important pecuniary contracts with other persons of which they could take advantage by paying in depreciated dollars. Of those farmers who hired labor very many paid wages partly in board and lodging--an arrangement which threw a considerable part of the increased cost of living upon them instead of upon their employees. Finally, the renting farmer probably gained less on the average from the contract with his landlord than tenants of any other class, because in a majority of cases the rent was not a sum of money, but a share of the produce. While, then, the general effect of the paper standard was in the direction of increasing profits, it seems very doubtful whether farmers as a whole did not lose more than they gained because of the price disturbances. STATISTICAL EVIDENCE REGARDING PROFITS It would be highly desirable to test our general conclusions by means of direct information regarding profits made in various branches of trade, but the data available for such a purpose are very meager. What scraps of information are available, however, support the view that profits were uncommonly large. Mr. David A. Wells, for example, in his reports as special commissioner of the revenue, has stories of "most anomalous and extraordinary" profits that were realized in the paper, woolen, pig-iron, and salt industries. A more general indication of the profitableness of business is afforded by the remark in the annual circular of Dun's Mercantile Agency for 1864, that "it is generally conceded that the average profits on trade range from 12 to 15 per cent." But the most important piece of evidence is found in the statistics of failures compiled by the same agency. The following table shows Dun's report of the number of bankruptcies and the amount of liabilities in the loyal States from the panic year 1857 to the end of the war: _Year_ _Number_ _Liabilities_ 1857 4,257 $265,500,000 1858 3,113 73,600,000 1859 2,959 51,300,000 1860 2,733 61,700,000 1861 5,935 $178,600,000 1862 1,652 23,000,000 1863 495 7,900,000 1864 510 8,600,000 1865 500 17,600,000 The very great decrease both in the number and the liabilities of firms that failed is the best proof that almost all business enterprises were "making money." From one point of view the small number of failures is surprising. An unstable currency is generally held to make business unsafe, and seldom has the standard money of a mercantile community proven so unstable, undergone such violent fluctuations in so short a time, as in the United States during the Civil War. Yet, instead of being extremely hazardous, business seems from the statistics of failures to have been more than usually safe. The explanation of the anomaly seems to be that the very extremity of the danger proved a safeguard. Business men realized that the inflation of prices was due to the depreciation of the currency, and that when the war was over gold would fall and prices follow. They realized very clearly the necessity of taking precautions against being caught in a position where a sudden decline of prices would ruin them. They did this by curtailing credits. So long as prices continued to rise such precautions were really not needed by the man in active business except, in so far as he was a creditor of other men; but when prices commenced to fall prudence had its reward. Such a sudden and violent drop of prices as occurred between January and July, 1865, would have brought a financial revulsion of a most serious character upon a business community under ordinary circumstances. But so well had the change been prepared for, that the number of failures was actually less than it had been in the preceding year of rapidly rising prices. The whole situation can hardly be explained better than it was by a New York business man writing in _Harper's Monthly Magazine_: "When the war ended," he said, "we all knew we should have a panic. Some of us, like Mr. Hoar, expected that greenbacks and volunteers would be disbanded together. Others expected gold to fall to 101 or 102 in a few days. Others saw a collapse of manufacturing industry, owing to the cessation of Government purchases. But we all knew a 'crisis' was coming, and having set our houses in order accordingly, the 'crisis' of course never came." THE PRODUCTION AND CONSUMPTION OF WEALTH PRODUCTION What influence did the greenback currency have as one of the many factors that affected the production of wealth? In the first place, the paper standard was responsible in large measure for the feeling of "prosperity" that seems from all the evidence to have characterized the public's frame of mind. Almost every owner of property found that the price of his possessions had increased, and almost every wage-earner found that his pay was advanced. Strive as people may to emancipate themselves from the feeling that a dollar represents a fixed quantity of desirable things, it is very difficult for them to resist a pleasurable sensation when the money value of their property rises or their incomes increase. They are almost certain to feel cheerful over the larger sums that they can spend, even though the amount of commodities the larger sums will buy is decreased. Habit is too strong for arithmetic. But, more than this, "business" in the common meaning of the word was unusually profitable during the war. The "residual claimant" is in most enterprises the active business man, and, as has been shown, his money income did as a rule rise more rapidly than the cost of living. In other words, "business" was, in reality as well as in appearance, rendered more profitable by the greenbacks. There is therefore no error in saying that the business of the country enjoyed unwonted prosperity during the war. And it may be added that the active business man is probably a more potent factor in determining the community's feeling about "good times" and "bad times" than is the workingman, the landlord, or the lending capitalist. The effect of high profits, however, is not limited to producing a cheerful frame of mind among business men. Under ordinary circumstances one would say that when the great majority of men already in business are "making money" with more than usual rapidity they will be inclined to enlarge their operations, that others will be inclined to enter the field, and that thus the production of wealth will be stimulated. But the circumstances of the war period were not ordinary and this conclusion cannot be accepted without serious modifications. 1. It has been shown that business men realised the precariousness of all operations that depended for their success upon the future course of prices--and nearly all operations that involved any considerable time for their consummation were thus dependent. So far did this disposition prevail that it produced a marked curtailment in the use of credit. The prudent man might be willing to push his business as far as possible with the means at his own disposal, but he showed a disinclination to borrow for the purpose. Thus the uncertainty which all men felt about the future in a large measure counteracted the influence of high profits in increasing production. 2. The foregoing consideration of course weighed most heavily in the minds of cautious men. But not all business men are cautious. Among many the chance of winning large profits in case of success is sufficient to induce them to undertake heavy risks of loss. On the whole, Americans seem to display a decided propensity toward speculative ventures and are not easily deterred by having to take chances. To men of this type it seems that the business opportunities offered by the fluctuating currency would make a strong appeal. But, while the force of this observation may be admitted, it does not necessitate a reconsideration of the conclusion that the instability of prices tended to diminish the production of wealth. For in a time of great price fluctuations the possibilities of making fortunes rapidly are much greater in trade than in agriculture, mining, or manufactures. Every rise and fall in quotations holds out an alluring promise of quick gain to the man who believes in his shrewdness and good fortune, and who does not hesitate to take chances. The probable profits of productive industry in the narrower sense might be larger than common, but this would not attract investors in large numbers if the probable profits of trading were larger yet; and such seems clearly to have been the case during the war when the paper currency offered such brilliant possibilities to fortunate speculators in gold, in stocks, or in commodities. Instead, then, of the greenbacks being credited with stimulating the production of wealth, they must be charged with offering inducements to abandon agriculture and manufactures for the more speculative forms of trade. This tendency of the times did not escape observation. On the contrary, it was often remarked and lamented in terms that seem exaggerated. Hugh McCulloch, for instance, in his report as Secretary of the Treasury for 1865, said: There are no indications of real and permanent prosperity ... in the splendid fortunes reported to be made by skilful manipulations at the gold room or the stock board; no evidences of increasing wealth in the facts that railroads and steamboats are crowded with passengers, and hotels with guests; that cities are full to overflowing, and rents and the necessities of life, as well as luxuries, are daily advancing. All these things prove rather ... that the number of non-producers is increasing, and that productive industry is being diminished. In one of his reports as special commissioner of the revenue, Mr. Wells said: During the last few years large numbers of our population, under the influence and example of high profits realized in trading during the period of monetary expansion, have abandoned employments directly productive of national wealth, and sought employments connected with commerce, trading, or speculation. As a consequence we everywhere find large additions to the population of our commercial cities, an increase in the number and cost of the buildings devoted to banking, brokerage, insurance, commission business, and agencies of all kinds, the spirit of trading and speculating pervading the whole community, as distinguished from the spirit of production. Within the period under review, then, it seems very doubtful whether the high profits had their usual effect of leading to a larger production of raw materials or to an increase in manufactures. The prudent man hesitated to expand his undertakings because of the instability of the inflated level of prices; the man with a turn for speculative ventures found more alluring opportunities in trade. CONSUMPTION No one can read contemporary comments on American social life of the later years of the war without being impressed by the charges of extravagance made against the people of the North. Newspapers and pulpits were at one in denouncing the sinful waste that, they declared, was increasing at a most alarming rate. The "shoddy aristocracy" with its ostentatious display of wealth became a stock subject for cartoonists at home, and earned a well-merited reputation for vulgarity abroad. In trying to account for this unpleasant phase of social development, men usually laid the blame upon the paper standard. High prices were said to make every one feel suddenly richer and so to tempt every one to adopt a more lavish style of living than his former wont. Thus the view gained general credence that the greenbacks were ultimately responsible for a great increase in the consumption of wealth. However, such a view regarding the consumption of wealth can be but partially true. The enormous profits of _entrepreneurs_ made possible the rapid accumulation of an unusual number of fortunes, and the families thus lifted into sudden affluence enjoyed spending their money in the ostentatious fashion characteristic of the newly rich. It is therefore true that the monetary situation was largely responsible for the appearance of a considerable class of persons--of whom the fortunate speculator and the army contractor are typical--who plunged into the recklessly extravagant habits that called down upon their heads the condemnation of the popular moralist. But if the greenbacks were in the last resort a chief cause of the increased consumption of articles of luxury by families whom they had aided in enriching, they were not less truly a cause of restricted consumption by a much larger class of humbler folk. The laboring man whose money wages increased but one-half, while the cost of living doubled, could not continue to provide for his family's wants so fully as before. He was forced to practise economies--to wear his old clothing longer, to use less coffee and less sugar, to substitute cheaper for better qualities in every line of expenditure where possible. Similar retrenchment of living expenses must have been practised by the families of many owners of land and lenders of capital. In other words, the war time fortunes resulted in a very large measure from the mere transfer of wealth from a wide circle of persons to the relatively small number of residual claimants to the proceeds of business enterprises. The enlarged consumption of wealth which the paper currency made possible for the fortunate few was therefore contrasted with a diminished consumption on the part of the unfortunate many on whose slender means the greenbacks levied contributions for the benefit of their employers. That the diminished consumption of wealth by large numbers of poor people escaped general notice, while the extravagance of the newly rich attracted so much attention, need not shake one's confidence in the validity of these conclusions. The purchase of a fast trotting-horse by a Government contractor, and the elaborateness of his wife's gowns and jewelry, are much more conspicuous facts than the petty economies practised by his employees. The same trait that leads fortunate people to flaunt their material prosperity in the eyes of the world leads the unfortunate to conceal their small privations. Even an attentive observer may fail to notice that the wives of workingmen are still wearing their last year's dresses and that the children are running barefoot longer than usual. But though the newspapers were not full of comments on the enforced economies of the mass of the population, wholesale dealers in staple articles of food and clothing noticed a decrease in sales. In reviewing the trade situation in September, 1864. when real wages were near their lowest ebb, Hunt's _Merchants' Magazine_ remarked that "the rise in the prices of commodities has ... outrun the power of consumption and the fall trade has been almost at a stand. Those articles such as coffee, sugar, low grade goods, which form the staple products of the great mass of the people in moderate circumstances, have reached such high rates that the decline in consumption is very marked, amounting almost to a stagnation of the fall trade." The consumption of many articles of luxury increased very greatly, while the consumption of many staple articles declined. THE GREENBACKS AND THE COST OF THE CIVIL WAR The reader who goes back to the debates upon the legal-tender bills will find that most of the unfortunate consequences that followed their enactment were foretold in Congress--the decline of real wages, the injury done creditors, the uncertainty of prices that hampered legitimate business and fostered speculation. But a majority of this Congress were ready to subject the community to such ills because they believed that the relief of the treasury from its embarrassments was of more importance than the maintenance of a relatively stable monetary standard. GREENBACKS AND EXPENDITURES What effect had the greenbacks upon the amount of expenditures incurred? Few questions raised by the legal-tender acts have attracted more attention than this. Even while the first legal-tender bill was being considered its critics declared that if made a law it would increase the cost of waging the war by causing an advance in the prices of articles that the Government had to buy. As the war went on the soundness of this view became apparent. When the war was over and the divers reasons that had deterred many men from criticizing the financial policy of the government were removed, competent writers began to express similar views with freedom. For example, Mr. C. P. Williams put the increase of debt at one-third to two-fifths; S. T. Spear, at a billion dollars; L. H. Courtney, an English critic, at nearly $900,000,000. Of later discussions that of H. C. Adams has attracted the most attention. He estimated that of the gross receipts from debts created between January 1, 1862, and September 30, 1865, amounting to $2,565,000,000 the gold value was but $1,695,000,000--a difference of $870,000,000 between value received and obligations incurred. A detailed consideration of the elements that enter the problem would seem to warrant a reduction of the estimates given to $791,000,000. It is hardly necessary to insist strenuously that this is but a very rough estimate. THE GREENBACKS AND RECEIPTS The total increase of receipts was approximately $174,000,000, as shown in the following table: (In millions of dollars) _1862_ _Fiscal Year_ _1866_ _(Six Months) 1863 1864 1865 (Two Months)_ Current receipts: From customs 33.5 69.1 102.3 84.9 31.3 From sales of public lands .1 .2 .6 1.0 .1 From direct tax 1.8 1.5 .5 1.2 .0 From miscellaneous sources .5 3.0 47.5 33.0 12.3 From internal revenue ... 37.6 109.7 209.5 64.4 ---- ----- ----- ----- ----- 35.9 111.4 260.6 329.6 108.1 Estimated actual increase 0 10 39 106 19 The caution is hardly necessary that the above results are to be accepted subject also to a wide margin of error. There were other financial consequences of the shift from the specie to the paper standard, however, that were not unimportant, though they were indirect and difficult to gauge. Two of the most prominent must be indicated. 1. It is probable that not a little of the lavishness with which public funds were appropriated by Congress during the war can be traced to the paper-money policy. 2. If the paper currency tempted the Government to reckless expenditures, it also predisposed the people to submit more willingly to heavy taxation. It has been remarked several times that the advance of money wages and of money prices made most people feel wealthier, and, feeling wealthier, they were less inclined to grumble over the taxes. While these indirect effects of the paper currency on expenditures and receipts could not by any system of bookkeeping be brought to definite quantitative statement, it is probable that their net result was unfavorable to the treasury. CONTRACTION AND INFLATION OF THE LEGAL TENDERS[9] The policy of a permanent currency of government legal-tender paper at the close of the Civil War was unknown. Upwards of four hundred million notes of the United States were, it is true, in circulation at the return of peace. There were doubtless many individuals who approved the continuance of exactly this form of currency. But no such proposition had been advanced by any public man of influence or by any political organization. That the resort to legal-tender powers was an evil justified only by extreme emergency, and that the circulation of government notes in any form was a purely temporary measure, were the unanimous convictions of the statesmen who contrived the system. The logical inference that these Government notes would be paid off and cancelled, as soon as the war deficiency had ended, was publicly accepted. Such was the theory and purpose of the public men through whom the Legal-Tender Act was constructed and applied. Nor is the general position of our statesmen, at the close of the Civil War, any more obscure than their original position. The first financial resolution adopted by Congress, in December, 1865, was an explicit promise to retire the legal tenders. The first legislation of that Congress gave discretionary powers to the Secretary of the Treasury for continuous contraction. Very few legislative victories are won without at least a temporary popular endorsement, and the votes of December, 1865, and of March, 1866, were no exceptions. But the popular approval of contraction in that year, exception as it was to all our subsequent legislation, is readily enough explained. Public opinion, when the war ended, was governed by impatience with inflated prices; inflation far beyond the European level, and properly ascribed to the condition of the currency. The cost of living reached during 1865 the highest point recorded in this country's history. From 1860 to 1865, inclusive, the average of European prices rose only 4 to 6 per cent.; average prices in the United States advanced, in the same period, no less than 116 per cent. With flour at $16 a barrel, butter at 55 cents a pound, coal at $10 a ton, and wages and salaries advanced since 1860 hardly one-third as far as prices, the demand for currency reform obtained ready endorsement from the people. This popular sentiment was further strengthened by the Administration's attitude at the opening of Lincoln's second term. Mr. McCulloch's first official Treasury report, dated December 4, 1865, took positive ground for the reduction of the legal-tender debt. He asked authority to issue bonds in his discretion, at 6 per cent. or less, "for the purpose of retiring not only the compound interest notes, but the United States notes." Two weeks after the publication of this report, on December 18, 1865, the House of Representatives resolved, by a vote of 144 to 6, that this house cordially concurs in the view of the Secretary of the Treasury in relation to the necessity of a contraction of the currency, with a view to as early a resumption of specie payments as the business interests of this country will permit; and we hereby pledge co-operative action to this end as speedily as practicable. This resolution of 1865, however, marked the climax of the movement. Never thereafter did the policy of retiring the legal-tender notes even approach success. The truth is, that the inflated prices had begun already, during the three months after the resolution of December, to recede. This was inevitable, from the very nature of the previous expansion; and it was a welcome movement to consumers. But it necessarily caused some derangement in the plans of trade, and politicians began to ask, when they had to face the fulfilment of their pledge through a formal act of Congress, how the contraction policy would be greeted by producers. The bill, as originally introduced, granted full powers to the Secretary of the Treasury to issue new bonds for the retirement both of interest-bearing and of noninterest-bearing debt. In the spring of 1866 this measure was defeated in the House of Representatives by a vote of 70 to 64. Reconsidered and amended so as to restrict contraction of the legal tenders to $10,000,000 in the first six months and to $4,000,000 per month thereafter, the compromise measure did indeed pass the House by 83 to 53, and the Senate by 32 to 7. But a victory thus won was ominous. Mr. McCulloch himself declared the amended act to be awkward and ineffective. Still more significant was the character of opposition developed in the course of the debate. It had a dozen varying grounds of argument, most of them pretty certain to appeal to popular prejudice later on. Some Congressmen objected to the discretionary powers as revolutionary, and, while conceding Mr. McCulloch's ability and conservatism, pointed out that a very different Treasury Secretary might succeed him. Others pronounced the notion of immediate resumption of specie payments to be "Utopian in the extreme." Much was heard of the comfortable theory that if Congress would "allow things to go on without active interference," the "natural development of events" would automatically bring about resumption. More than one legislator could not understand, "when we have $450,000,000 [debt] bearing no interest, and which need bear no interest, why it is to be taken up and put into bonds." The excellence of a circulating medium "that rests on the property of the whole country, and has for its security the faith and patriotism of the greatest and freest country on the face of the globe," played its usual part in the discussion; so did the argument that "the amount of legal tenders now outstanding is not too much for the present condition of the country." In short, all the arguments which have been made familiar by the twenty subsequent years of controversy, cut a figure in this opening discussion. As a matter of fact, even the restricted powers of note retirement granted under the law of March, 1866, were revoked within two years. Little or no progress had meantime been made towards resumption of specie payments. The Secretary himself had officially pointed out that two commercial influences must be removed before resumption would be possible; the excessively high prices in the United States and the heavy balance of foreign trade against us. But prices continued above the European level, and, as a consequence, export of merchandise was checked and imports greatly stimulated. The entire gold product of each year in the United States was sent abroad. Contraction of the inflated currency, even if pursued under the limitations of the Act of 1866, would in time have brought about conditions under which resumption might have been planned. But events outside of the United States now moved in such a way as to turn the entire financial community against the Secretary's policy. Hardly two months after the vote of March came a wholly unexpected crisis in the foreign money markets. The London collapse, precipitated by the Overend-Gurney failure of May, 1866, was in some respects as complete as any in the history of England. It affected every nation with which Great Britain had commercial dealings; not least of all the United States, of whose securities it was estimated that European investors even then held $600,000,000. During three months the Bank of England kept its minimum discount rate at the panic figure of 10 per cent.; the consequent sudden recall of foreign capital put a heavy strain on the American markets. With the familiar disposition of the trade community to lay the blame for disordered markets on some move of public policy, the Treasury's operations to reduce outstanding notes were made the scapegoat. Politicians with an eye to popularity were quick to catch this drift of public sentiment. Some of them honestly believed that McCulloch's action in the currency was the cause of the trade distress; others, better informed but equally politic, avoided personal declaration of opinion, but characteristically announced that whether the theory was correct or not, the public believed it, and that in deference to the public, currency contraction ought to cease. The usual result ensued. Under the previous question, and without debate, a measure revoking absolutely the Secretary's power of contraction passed the House of Representatives in December, 1867, by a vote of 127 to 32. In the Senate there was an able show of opposition, but it was plainly put on the defensive, and on January 22, 1868, the resolution passed both chambers in its original and final shape. This was the end of the McCulloch plan. It was the end of all serious debate upon resumption, for at least six years. It was also, and very logically, the beginning of the fiat-money party. The Republicans were forced into open defence of sound financial principles by the very recklessness of their opponents. Helped by the great personal prestige of its candidate, General Grant, the Republican party won a sweeping victory. President Johnson, who was then at open odds with his party, had produced in his Annual Message of December 7, 1868, the extraordinary suggestion that "the 6 per cent. interest now paid by the Government" on its debt "should be applied to the reduction of the principal in semi-annual instalments"; in other words, that the plan of repudiating interest obligations--since adopted, with no agreeable results, by Turkey and Greece--should be formally approved by the United States. This remarkable utterance was first condemned by an overwhelming vote in both House and Senate; next, by an almost equally decisive vote, on March 3, 1869, Congress adopted the Public Credit Act, promising coin redemption of both notes and bonds, solemnly pledging its faith "to make provision, at the earliest practicable period, for the redemption of the United States notes in coin." The promise was as easily made as the similar pledge of December, 1865; was still more easily broken. No such arrangement was made, nor any serious attempt in that direction, until the matter was forced on the party by the exigency of politics. Not only was no effort made to reduce outstanding legal tenders, but the supply in circulation was heavily increased; rising from $314,704,000 in the middle of 1869 to $346,168,000 in 1872, and two years later, as a result of the Treasury's weak experiments in the panic, to $371,421,000. This period was congenial to such juggling with public credit and legislative pledges. Socially, financially, and politically, it stands out quite apart from any other decade of the century. Moral sense for a time seemed to have deteriorated in the whole community; it was a sorry audience, at Washington or elsewhere, to which to address appeals for economy, retrenchment, and rigid preservation of the public faith. The Government's financial recklessness was readily imitated by the community at large; debt was the order of the day in the affairs of both. As the period approached its culmination, foreign trade reflected the nature of the situation. Merchandise imports in the fiscal year 1871 rose $84,000,000 over 1870; in 1872 they increased $106,000,000 over 1871. This movement was the familiar warning of an approaching crash; but the warning fell on deaf ears, as it usually does. In 1873 the house of cards collapsed. The panic of 1873 left the country's financial and commercial structure almost a ruin. It had, however, several ulterior results so valuable that it is not wholly unreasonable to describe the wreck of credit as a blessing in disguise. American prices, long out of joint with the markets of the world, and thoroughly artificial in themselves, were certain to be eventually brought down. This very liquidating process served a useful double purpose; it disclosed the nation's true resources, and it placed the United States on equal footing with the commercial world at large. With the bursting of the bubble of inflated debt and inflated prices, the excessive importations ceased. Simultaneously the export trade, which had halted during 1872, in spite of the continued agricultural expansion, rose to proportions never before approached in our commercial history. In 1874, the balance of foreign trade turned permanently in our favor. By 1876, even the continuous outflow of gold was checked. In short, the two conditions fixed by Hugh McCulloch, ten years before, as indispensable to resumption of specie payments, had now been realized. Congress was not by any means disposed, however, to seize the opportunity. The first result of the money market crisis in 1873, as in all similar years, was urgent public clamor for more currency. The Supreme Court had decided finally, in 1871, for the constitutionality of the legal tenders; the Secretary of the Treasury, in 1873, had so far yielded to the prevalent excitement as to reissue legal-tender notes already formally retired. The first response of Congress, therefore, was an inflation measure. By a vote of 140 to 102 in the House of Representatives, and of 29 to 24 in the Senate, a law was passed for the permanent increase of the legal-tender currency, by $18,000,000. The Republican party controlled Congress by unusually large majorities; but 60 per cent. of the party's vote in each chamber was cast in favor of the bill. Only the interposition of Grant's Presidential veto prevented this first positive backward step in the direction of fiat money. It is reasonable to suppose that this curious vote of the Administration party, which occurred in April, 1874, measured the party's political desperation. They were about to receive, in the Congressional elections, the usual chastisement experienced by a dominant party when the people vote in a period of hard times; the inflation act was an anchor thrown desperately to windward. The experiment was in all respects a failure. Even the party's own State conventions failed to say a good word for the inflation bill, and it gained no mitigation of sentence in the November vote. PASSAGE OF THE RESUMPTION ACT[10] The Forty-third Congress had three months of existence left to it after the vote of November, 1874. Already defeated overwhelmingly at the polls, it had nothing to risk by a move in sound-money legislation, and possibly much to gain. It used this three-months' period to enact a law of the first importance, not only to the nation, but to the Republican party's future history--a law which must fairly be described, however, under the circumstances of the time, as an expression of death-bed repentance. This was the Specie-Resumption Act, drawn up by a party committee, and submitted to Congress, in December, 1874, by Senator John Sherman. It fixed the date for resumption of specie payments at January 1, 1879, provided for the reduction of legal-tender notes from $382,000,000 to $300,000,000, but made no provision for any further retirement of the notes. It went through Congress on January 7, 1875. It was contended by some that under the Resumption Act of 1875 there could be no reissue of the greenbacks once received into the Treasury. Inflationist successes of 1877-1878 settled this uncertainty, as Congress, May 31, 1878, ordered that there be no further destruction of greenbacks. The amount then outstanding was $346,681,000--the volume of legal tenders still current. THE STRUGGLE FOR RESUMPTION[11] The Resumption Act is one of the most curious laws in financial history. It was plain in its requirement that on and after January 1, 1879, the Treasury should "redeem in coin the United States legal-tender notes then outstanding, on their presentation for redemption"; but it left the Treasury to make whatever arrangements it might choose. The law, it is true, conferred ample powers. In order "to prepare and provide for the redemption in this Act authorized or required," it empowered the Secretary of the Treasury "to use any surplus revenues, from time to time, in the Treasury not otherwise appropriated, and to issue, sell, and dispose of bonds of the United States at not less than par in coin." This power was perpetual. The Law of 1875 involved the double problem of providing for resumption at the stipulated date, and of maintaining it afterward. It is the first of these undertakings, which we shall now sketch. There were, as we have already seen, two influences at work in 1875, which made possible the achievement as it would not have been in 1866. These influences--the shifting of the foreign trade balance in favor of the United States and the subsequent check to gold exports--were factors on which no finance minister could have reckoned. Both in fact developed after the passage of the Resumption Law. But even after allowing for these accidental commercial advantages, the credit for the return to specie payments on January 1, 1879, belongs individually and without dispute to John Sherman. As one of the authors of the Resumption Act, Mr. Sherman was responsible both for its virtues and its vices. His appointment to the Treasury, therefore, in the Administration under which resumption must by law be carried out, was entirely logical. Yet the practical efficiency of Mr. Sherman, in an administrative office, could not then have been foretold. The Secretary's previous career, though useful and industrious, had been marred by weaknesses which did not promise well. As a legislator, he belonged to the school of compromisers who have indirectly been responsible, in a score of critical emergencies, for the gravest mischief in our history. But Mr. Sherman was not the first of public men to show that the faults or weakness of a legislator, whose purpose is to obtain enactment of a policy, will sometimes disappear in the administrator, who presses settled policies into execution. As Secretary he was unwavering in pursuit of the resumption goal; practical, resolute, and adroit in the means employed. It was in the face of the repudiation clamor that he declared officially for payment of the Government bonds in gold. Equally distinct was the Secretary's public declaration that the Act of 1875 conferred the power to issue bonds after, as well as before, resumption; another precedent which did invaluable service sixteen years afterward. To say that Secretary Sherman's management of the Treasury achieved during his time precisely the results proposed, and achieved them promptly, is to concede his administration's practical success. Nor were these results attained through extravagance or waste. In his refunding and resumption operations, Mr. Sherman placed the bonds of the United States on better terms than any of his predecessors. ARRANGEMENTS FOR RESUMPTION[12] The Secretary of the Treasury now put the final touches on his arrangements for resumption. Partly by accident and partly through stress of circumstances, the Treasury gold reserve was defined, in later years, at a fixed and arbitrary minimum. The theory adopted by Mr. Sherman, however, in his early operations, was different and undoubtedly better. Following probably the practice of the Bank of England, he fixed his reserve at 40 per cent. of outstanding notes--"the smallest reserve," he wrote to Congress, "upon which resumption could be prudently commenced and successfully maintained." On this basis he held in the Treasury, on December 31, 1878, $114,193,000 gold in excess of outstanding gold certificates, which was a trifle over 40 per cent. of the Government notes then circulating outside the Treasury. Of this gold reserve, $95,500,000 had been obtained through sale of bonds, part of the coin being procured in Europe. There remained now to be settled only the formal machinery of exchange between the Treasury and outside institutions. If the Treasury had left the banks to pursue unchanged their policy of keeping special gold deposits, the Government reserve would have been at once imperilled. If the banks had continued to present their individual drafts for redemption across the counter of the Sub-Treasury, any timid or blundering banker might have started a general drain of gold. Against these possibilities Mr. Sherman now took measures. He secured the admission of the New York Sub-Treasury as a member of the clearing-house. At New York and Boston the clearing-houses modified their rules, agreed to abolish "gold deposits" after January 1st, and to accept the legal tenders freely in discharge of balances against one another and against the Government. At the same time, the requirement of coin payment of customs duties was revoked, and public officers were directed to receive coin or legal tenders at the payer's option--a move of obvious propriety, since refusal to take notes in payment would merely send the importer to the Treasury's redemption office to convert them into coin. All these preliminaries had been formally and positively settled before the close of 1878. On December 17th, the premium on gold disappeared, for the first time since 1861; on January 1st, specie payments were quietly resumed. SHOULD THE GREENBACKS BE RETIRED? [13]Let us now consider for a moment an issue which twenty years ago was urgently pertinent, was in fact the very crux of so-called "currency reform," and which still persists as a live issue in the minds of some of the veteran "reformers" of those days, although the conditions which then gave it point have long since disappeared. In the middle nineties, when it was estimated that the total gold stock of the entire country was only about 600 million dollars and less than 200 millions of this was in the vaults of the treasury, the Government's fiduciary currency, consisting of 346 millions of greenbacks and 400 millions or more of overvalued silver, presented beyond question a serious menace to the country's monetary standard. It meant that the treasury had outstanding currency obligations payable in gold to the extent of three or four times its own gold holdings, and amounting to far more than all of the gold in the country, including the holdings of the treasury, the banks, and the general public. At that time fluctuations in the trade balance of a single year sometimes almost equalled the treasury's gold holdings in amount, and it was quite conceivable, in fact not improbable, that a sudden unfavorable change in that balance might drain the treasury of all of its gold, and leave the country with a currency standard of depreciated silver or paper. This was the situation which continually menaced Mr. Cleveland's second administration, causing great financial anxiety and forcing the treasury during those years of peace and normal expenditures to borrow 262 million dollars in gold in order to replenish its continually dwindling reserve. Such a situation inevitably led the advocates of monetary legislation in the nineties to place first and foremost among their proposals the necessity of getting rid of the precarious greenback, and most of the plans proposed by bankers' associations, chambers of commerce, and financial experts generally at that time emphasized the urgency of this measure. WHY RETIREMENT IS NOT IMPORTANT It sometimes happens that, with the lapse of time and with changed conditions, infirmities, long left untreated, cure themselves, and so it has been with the one-time bothersome greenback. Twenty years ago, when the outstanding greenbacks amounted to twice the gold holdings of the treasury and to much more than half of the country's entire gold stock, there was abundant reason for anxiety on account of their continued circulation. The situation is utterly different to-day. Gold has accumulated in the treasury beyond the wildest "dreams of avarice" of the nineties. From less than 200 millions in the middle nineties the treasury's gold holdings have grown to approximately 1,250 millions to-day, and the estimated gold stock of the country has increased from 600 to more than 1,800 millions, despite the fact that the Director of the Mint in 1907 reduced the estimate for gold in circulation by 135 millions as compared with the basis of previous years. The greenback has thus become each year a relatively less important element in our currency system, an element of ever less and less potency for harm. Doubtless the absolute amount of outstanding greenbacks has diminished considerably through loss and destruction during fifty years, and is to-day far less than the $346,000,000 issued during the Civil War, which are still carried as an obligation on the Government books.... The greenbacks are less menacing to-day for the further reason that they are being rapidly transformed into small denominations which are absorbed in the general circulation, and which could only with great difficulty be collected in sufficiently large amounts to cause a serious drain upon the treasury through presentation for redemption.... So great and continuous is the demand for notes of small denominations that one may safely predict that in another decade practically all of the greenbacks still in existence will be in small denominations in the pockets of the people. The "endless chain" with its ineffectual bond issues, the imminence of specie suspension, and the fear of treasury bankruptcy will never again result from the outstanding greenbacks. Their dangers, lurid and nerve-racking though they were twenty years ago, are now only memories. THE CONFEDERATE CURRENCY[14] The financial system adopted by the Confederate Government was singularly simple and free from technicalities. It consisted chiefly in the issue of treasury notes enough to meet all the expenses of the Government, and in the present advanced state of the art of printing there was but one difficulty incident to this process; namely, the impossibility of having the notes signed in the Treasury Department, as fast as they were needed. There happened, however, to be several thousand young ladies in Richmond willing to accept light and remunerative employment at their homes, and as it was really a matter of small moment whose name the notes bore, they were given out in sheets to these young ladies, who signed and returned them for a consideration. I shall not undertake to guess how many Confederate treasury notes were issued. Indeed, I am credibly informed by a gentleman who was high in office in the Treasury Department, that even the Secretary himself did not certainly know. It was clearly out of the power of the Government ever to redeem the notes, and whatever may have been the state of affairs within the treasury, nobody outside its precincts ever cared to muddle his head in an attempt to get at exact figures. We knew only that money was astonishingly abundant. Provisions fell short sometimes, and the supply of clothing was not always as large as we should have liked, but nobody found it difficult to get money enough. It was to be had almost for the asking. And to some extent the abundance of the currency really seemed to atone for its extreme badness. Money was so easily got, and its value was so utterly uncertain, that we were never able to determine what was a fair price for anything. We fell into the habit of paying whatever was asked, knowing that to-morrow we should have to pay more. Speculation became the easiest and surest thing imaginable. The speculator saw no risks of loss. Every article of merchandise rose in value every day, and to buy anything this week and sell it next was to make an enormous profit quite as a matter of course. So uncertain were prices, or rather so constantly did they tend upward, that when a cargo of cadet gray cloths was brought into Charleston once, an officer in my battery, attending the sale, was able to secure enough of the cloth to make two suits of clothes, without any expense whatever, merely by speculating upon an immediate advance. Naturally enough, speculation soon fell into very bad repute, and the epithet "speculator" came to be considered the most opprobrious in the whole vocabulary of invective. The feeling was universal that the speculators were fattening upon the necessities of the country and the sufferings of the people. Nearly all mercantile business was regarded at least with suspicion, and much of it fell into the hands of people with no reputations to lose, a fact which certainly did not tend to relieve the community in the matter of high prices. The prices which obtained were almost fabulous, and singularly enough there seemed to be no sort of ratio existing between the values of different articles. I bought coffee at forty dollars and tea at thirty dollars a pound on the same day. My dinner at a hotel cost me twenty dollars, while five dollars gained me a seat in the dress circle of the theatre. I paid one dollar the next morning for a copy of the _Examiner_, but I might have got the _Whig_, _Dispatch_, _Enquirer_, or _Sentinel_, for half that sum. For some wretched tallow candles I paid ten dollars a pound. The utter absence of proportion between these several prices is apparent, and I know of no way of explaining it except upon the theory that the unstable character of the money had superinduced a reckless disregard of all value on the part of both buyers and sellers. A facetious friend used to say prices were so high that nobody could see them, and that they "got mixed for want of supervision." He held, however, that the difference between the old and the new order of things was a trifling one. "Before the war," he said, "I went to market with the money in my pocket, and brought back my purchases in a basket; now I take the money in the basket, and bring the things home in my pocket." As I was returning to my home after the surrender at Appomattox Court House, a party of us stopped at the residence of a planter for supper, and as the country was full of marauders and horse thieves, deserters from both armies, bent upon indiscriminate plunder, our host set a little black boy to watch our horses while we ate, with instructions to give the alarm if anybody should approach. After supper we dealt liberally with little Sam. Silver and gold we had none, of course, but Confederate money was ours in great abundance, and we bestowed the crisp notes upon the guardian of our horses, to the extent of several hundreds of dollars. A richer person than that little negro I have never seen. Money, even at par, never carried more of happiness with it than did those promises of a dead government to pay. We frankly told Sam that he could buy nothing with the notes, but the information brought no sadness to his simple heart. "I don' want to buy nothin', master," he replied. "I's gwine to keep dis always." I fancy his regard for the worthless paper, merely because it was called money, was closely akin to the feeling which had made it circulate among better-informed people than he. Everybody knew, long before the surrender, that these notes never could be redeemed. There was little reason to hope, during the last two years of the war, that the "ratification of a treaty of peace between the Confederate States and the United States," on which the payment was conditioned, would ever come. We knew the paper was worthless, and yet it continued to circulate. It professed to be money, and on the strength of that profession people continued to take it in payment for goods. The amount of it for which the owner of any article would part with his possession was always uncertain. Prices were regulated largely by accident, and were therefore wholly incongruous. In the winter of 1863-64 Congress became aware of the fact that prices were higher than they should be under a sound currency. If Congress suspected this at any earlier date, there is nothing in the proceedings of that body to indicate it. Now, however, the newspapers were calling attention to an uncommonly ugly phase of the matter, and reminding Congress that what the Government bought with a currency depreciated to less than one per cent. of its face, the Government must some day pay for in gold at par. The lawgivers took the alarm and sat themselves down to devise a remedy for the evil condition of affairs. With that infantile simplicity which characterized nearly all the doings and quite all the financial legislation of the Richmond Congress, it was decided that the very best way to enhance the value of the currency was to depreciate it still further by a declaratory statute, and then to issue a good deal more of it. The act set a day, after which the currency already in circulation should be worth only two-thirds of its face, at which rate it was made convertible into notes of the new issue, which some, at least, of the members of Congress were innocent enough to believe would be worth very nearly their par value. This measure was intended, of course, to compel the funding of the currency, and it had that effect to some extent, without doubt. Much of the old currency remained in circulation, however, even after the new notes were issued. For a time people calculated the discount, in passing and receiving the old paper, but as the new notes showed an undiminished tendency to still further depreciation, there were people, not a few, who spared themselves the trouble of making the distinction. I am sometimes asked at what time prices attained their highest point in the Confederacy, and I find that memory fails to answer the question satisfactorily. They were about as high as they could be in the fall of 1863, and I should be disposed to fix upon that as the time when the climax was reached, but for my consciousness that the law of constant depreciation was a fixed one throughout the war. The financial condition got steadily worse to the end. The Government's course in levying a tax in kind, as the only possible way of making the taxation amount to anything, led speedily to the adoption of a similar plan, as far as possible, by the people. A physician would order from his planter friend ten or twenty visits' worth of corn, and the transaction was a perfectly intelligible one to both. The visits would be counted at ante-war rates, and the corn estimated by the same standard. In the early spring of 1865 I wanted a horse, and a friend having one to spare, I sent for the animal, offering to pay whatever the owner should ask for it. He could not fix a price, having literally no standard of value to which he could appeal, but he sent me the horse, writing, in reply to my note: "Take the horse, and when the war shall be over, if we are both alive and you are able, give me as good a one in return. Don't send any note or due-bill. It might complicate matters if either should die." A few months later I paid my debt by returning the very horse I had bought. I give this incident merely to show how utterly without financial compass or rudder we were. How did people manage to live during such a time? I am often asked; and as I look back at the history of those years, I can hardly persuade myself that the problem was solved at all. A large part of the people, however, was in the army, and drew rations from the Government. The country people raised upon their plantations all the necessaries of life, and were generally allowed to keep enough of them to live on, the remainder being taken by the subsistence officers for army use. In the cities, living was not by any means so easy as in the country. Business was paralyzed, and abundant as money was, it seems almost incredible that city people got enough of it to live on. Very many of them were employed, however, in various capacities, in the arsenals, departments, bureaus, etc., and these were allowed to buy rations at fixed rates, after the post-office clerks in Richmond had brought matters to a crisis by resigning their clerkships to go into the army, because they could not support life on their salaries of nine thousand dollars a year. For the rest, if people had anything to sell, they got enormous prices for it, and could live a while on the proceeds. Above all, a kindly, helpful spirit was developed by the common suffering, and this, without doubt, kept many thousands of people from starvation. Nobody formed any plans or laid by any money for to-morrow or next week or next year, and indeed to most of us there really seemed to be no future. We were not used to think of ourselves as possible survivors of a struggle which was every day perceptibly thinning our ranks. The coming of ultimate failure we saw clearly enough, but the future beyond was a blank. The reader may find it difficult to believe that with gold at a hundred and twenty-five for one, or 12,400 per cent. premium; when every day made the hopelessness of the struggle more apparent; when our last man was in the field; when the resources of the country were visibly at an end, there were financial theorists who honestly believed that by a mere trick of legislation the currency could be brought back to par. I heard some of these people explain their plan during a two days' stay in Richmond. Gold, they said, is an inconvenient currency always, and nobody wants it, except as a basis. The Government has some gold--several millions in fact--and if Congress will only be bold enough to declare the treasury notes redeemable at par in coin, we shall have no further difficulty with our finances. So long as notes are redeemable in gold at the option of the holder, nobody wants them redeemed.... The gold which the Government holds will suffice to satisfy a few timid ones, and there will be an end of high prices and depreciated currency. I am not jesting. This is, as nearly as I can repeat it, the utterance of a member of the Confederate Congress. The matter of prices was frequently made a subject for jesting in private, but for the most part it was carefully avoided in the newspapers. As with the accounts of battles in which our arms were not successful, necessary references to the condition of the finances were crowded into a corner, as far out of sight as possible. The _Examiner_, however, on one occasion denounced with some fierceness the charges prevailing in the schools; and I quote a passage from Prof. Sidney H. Owens's reply, which is interesting as a summary of the condition of things in the South at that time: "The charges made for tuition are about five or six times as high as in 1860. Now, sir, your shoemaker, carpenter, butcher, market man, etc., demand from twenty, to thirty, to forty times as much as in 1860. Will you show me a civilian who is charging only six times the prices charged in 1860, except the teacher only? As to the amassing of fortunes by teachers, spoken of in your article, make your calculations, sir, and you will find that to be almost an absurdity, since they pay from twenty to forty prices for everything used, and are denounced exorbitant and unreasonable in demanding five or six prices for their own labor and skill!" There were compensations, however. When gold was at 12,000 per cent. premium with us, we had the consolation of knowing that it was in the neighborhood of one hundred above par in New York, and a Richmond paper of September 22, 1864, now before me, fairly chuckles over the high prices prevailing at the North, in a two-line paragraph which says, "Tar is selling in New York at two dollars a pound. It used to cost eighty cents a barrel." That paragraph doubtless made many a five-dollar beefsteak palatable. FOOTNOTES: [8] Adapted from Wesley Clair Mitchell, _A History of the Greenbacks_, Part II, The University of Chicago Press, 1903. [9] Adapted from A. D. Noyes, _Forty Years of American Finance_, pp. 7-20. G. P. Putnam's Sons, New York and London, 1909. [10] _Ibid._, pp. 21-22. [11] _Ibid._, pp. 23-31. [12] _Ibid._, pp. 44-47. [13] A. Piatt Andrew, The Essential and the Unessential in Currency Legislation, in _Questions of Public Policy_, Addresses delivered in the Page Lecture Series, 1913, before the Senior Class of the Sheffield Scientific School, Yale University, pp. 55-59. Yale University Press, New Haven, Connecticut. 1913. [14] Adapted from George Gary Eggleston, _A Rebel's Recollections_, pp. 78-107. Hurd and Houghton. Boston, 1875. CHAPTER VI INTERNATIONAL BIMETALLISM [15]... There are natural and commercial causes which may operate to produce either an incessant fluctuation in the relative value of silver and gold, or a wide and increasing divergence, from year to year, through a long period, from the ratio of exchange existing between the two metals at the commencement of the period. So far are the sources and conditions of supply of the one different from those of the other that, notwithstanding the influence of the durableness of the metals in giving steadiness of value to either by turns, and hence to the two in their relation to each other, it would be in the highest degree unreasonable to assume that the ratio of exchange between gold and silver would remain unaltered through any considerable term of years. The annual or monthly variations may take the form of oscillations, now on one side and now on the other of any historical ratio, or they may be cumulative on one side of that ratio, producing a divergence increasing from month to month, and year to year; but variations in some degree, in some direction, are to be expected under the unrestrained operation of causes influencing the demand for, or the supply of, each metal. The conditions, natural and commercial, which determine the ratio of exchange of the two metals being such, we have seen that government may enter, and, by making the two indifferently legal tender for debts at a ratio fixed by law, may, for the time, counteract the operation of any and all forces tending to produce divergence. So long as any country establishing such a principle holds a considerable amount of that metal which, under the natural and commercial conditions of supply and demand prevailing at the time, tends to become the dearer of the two, it is impossible that the cheapened metal should there, or in any market, fall far below that ratio. By the force of the bimetallic law, the substitution of the cheapened for the dearer metal will at once begin; and so long as that continues, the divergence of the market ratio from the mint ratio can never be wide. Why should any one in London or New York pay much more than fifteen and a half ounces of silver for an ounce of gold, when gold can, at any time and in any amount, be obtained for silver at the rate of fifteen and a half in Paris? This operation of the bimetallic system can not be denied; but there is ground for dispute as to the degree of the advantages to result, and as to the cost at which those advantages are to be obtained. The monometallist, or advocate of the so-called single standard, is disposed to disparage the benefits to be expected, and to magnify the expense of this system. He points to the fact that the two metals do not actually circulate in the same country, at the same time, in any considerable degree; that it is always the one metal or the other which is used as money, according as the market ratio diverges to the one side or the other of the mint ratio, while the coin made from the dearer metal acquires a premium, and is exported or hoarded. Hence it is said bimetallism really means the use of but one metal in a country at a time. It is not a double standard, but an alternate standard. To this the bimetallist replies that the concurrent use of the two money metals, side by side, in the same markets, is a matter wholly of indifference. The merit of the bimetallic scheme does not depend on this at all. The object of bimetallism is, by joining the two metals together in the coinage, at a fixed ratio, to diminish the extent of the fluctuations to which the value of each would be separately liable, by generating a compensatory action between the two, by which the cheapening metal shall receive a larger use, while the appreciating metal drops partially out of its former demand, thus making the two fall together, if there must be a fall, or rise together, in the opposite case: or, conceivably, making the tendency of one to fall precisely counteract the tendency of the other to rise. Thus we may suppose four successive cases to illustrate the working of this principle. The first is, where the demand for the use of either metal in trade remaining the same, a large increase in the supply of one metal, A, takes place, the supply of the other, B, remaining unchanged. In this case, without the bimetallic system, the value of A would tend to fall rapidly through a considerable space, while the value of B would stand fast. With the bimetallic system, the joint supply of the two metals would be applicable to meet the joint demand for the two. Now, as the joint supply has been increased without any change in the joint demand, there must be a fall in value; but the fall will be in the two indistinguishably, except for a slight degree of delay and friction in exchange. Both will fall, but the depth of the fall will be diminished as the surface over which it is to take place has been enlarged. The second is where, the demands of trade for both metals remaining the same, a diminution occurs in the supply of A, while the supply of B remains unchanged. Here, by the operation of the same principle, a rise in the value of money will take place, since the joint supply has been reduced without any corresponding change in the joint demand. The rise will be a rise of the two metals indistinguishably, the height of the rise being diminished as the surface over which it is to take place has been enlarged. The third case is where, demand remaining the same, the supply of both metals undergoes a change in the same direction, either of increase or of diminution, at the same time. In this event, the fall or rise will again be of the two indistinguishably, the point reached being a mean between the points which would have been reached by the two severally. The fourth case is where, demand remaining the same, the supply of the two metals undergoes a change at the same time, but in opposite directions, A through diminution, B through increase. In this case, the opposite tendencies will counteract each other. If of equal force, the value of money will be stable; if of unequal force, there will be movement in the direction of the stronger to the extent of the difference between the two. Instead of one falling and the other rising in value, the change will be wrought in the two indistinguishably. It will appear from the foregoing statements that, under the bimetallic system, the value of money will be liable to vary more frequently than under the monometallic system. That is, a change in respect to either constituent of the money mass will produce a change of value; and it is apparent that the chances of change are greater with two constituents than with one. On the other hand, the variations under the bimetallic system are likely to be less extensive. Indeed, it is a matter of practical certainty that they will be far less extensive than they would be under the monometallic system, whichever metal were adopted as the standard of deferred payments. But, again, the monometallist interposes the objection that the bimetallic system is only to be supported at great expense to the States maintaining it; that they lose by the exchange of the dearer for the cheapened metal, even though they acquire a certain premium in doing so, and that sooner or later the stock of the dearer metal in the bimetallic countries will become exhausted, and the system will collapse, the price of the two metals no longer being held closely or nearly at the former ratio by the possibility of exchanging them at that ratio, freely, in any amount. How far a bimetallic country loses by the alternation of the metals in circulation, as now one and now the other becomes the cheaper at the coinage ratio, is a nice question. That the service rendered to the commerce of the world by establishing a normal price for each metal in terms of the other, and thus creating and maintaining a par-of-exchange between gold countries and silver countries, is worth far more than its cost, seems to me beyond a rational doubt. It would, in my view, be as reasonable to doubt whether London Bridge repays the expense of its erection and repair. Were the cost of this bimetallic service, whatever it is, properly assessed upon and collected from each commercial nation of the world by turns, according to the proportion in which it derives advantage therefrom, I think it might safely be said that no one of these nations would sustain a single other charge which so fully justified itself in the return it made, whether that other charge were for works of construction, for the administration of justice, or for any other strictly necessary purpose. But there is no assurance that the cost of the bimetallic system will be thus equitably assessed. If the whole charge of erecting and repairing London Bridge were thrown upon the merchants of the two or three streets nearest thereto, while yet the whole population were allowed to use the bridge, free of toll, there would not unnaturally arise a strong sense of injustice on the part of those who bore this burden for the public benefit; it might even become a question whether the undoubted advantages derived by them from the use of the bridge repaid the disproportionate expense which it caused them. If the maintenance of the bimetallic system involves a certain burden on the nations which sustain it, as I am disposed to think is the case, it fairly becomes a question whether those individual nations are compensated for bearing the whole expense of the service by their share of the advantages resulting therefrom to the trade and industry of the world. That England could well have afforded, throughout the present century, to maintain this system for her own benefit, whatever it cost, even though other nations profited by it in greater or less degree, is clear as the light. That France, a country of far less extended international trade, has been compensated for bearing so large a part as she has done of the burden of maintaining a par-of-exchange for the commerce of the world, by her share of the resulting advantages, I make no question; but it must be admitted to be fairly a matter of dispute. On such a point it is evidence of no small value that the French people themselves and the French statesmen, though singularly acute and sagacious in matters of finance, have apparently not doubted that the bimetallic system was for the interest of their country. Certain of the French political economists--MM. Chevalier, Levasseur, Bonnet, Mannequin, Leroy Beaulieu--from their theory of the subject have held that France lost by her policy in this respect; but the financiers of that remarkable nation held firmly to the "double standard" from 1785 to 1874. And though France at the latter date restricted her silver coinage, and two years later stopped it altogether, it was not done as the result of any change of views. Partly it was from deference to her monetary allies, Belgium and Switzerland, but chiefly because the demonetization of silver by Germany and the sale of the discarded metal of that empire brought a sudden strain upon the bimetallic system which threatened to break it violently down. Hence France closed her mints to silver, but not with any confession that her policy had been erroneous under the conditions previously existing; not from any desire to abandon that policy should the future offer conditions which would admit the resumption of bimetallism. It was the declaration of M. Léon Say, the French Minister of Finance, the President of the International Monetary Conference of 1878, that France, in suspending the coinage of silver, had taken no step towards the single gold standard, but had placed herself in a position to await events, a position which she would not leave till good reasons for action should appear, and then most probably to re-enter on the system of the double standard.... The objection that the stock of the dearer metal in the bimetallic States must, if the drain be indefinitely continued, become after a while exhausted, and that the system will then lose all its efficiency in holding the two metals together, is unquestionably valid; but an altogether unreasonable weight has been assigned to it in the discussion of bimetallism as a scheme of practical statesmanship. If we look at almost any treatise written from the monometallic point of view, we shall find that it is taken as conclusive against that scheme, that conditions of supply and demand can be assumed for the two metals separately which would result in the complete exhaustion of the dearer metal, and the consequent loss of all virtue in the bimetallic scheme. The bimetallist is confronted with a series of adverse conditions, taken each at its maximum and piled one above the other without the least regard to the modesty of nature, or the experience of the past; and is then challenged to say whether the system he proposes could be maintained under such circumstances. If he is candid enough to admit that bimetallism would fail there, it is taken for granted that the whole question is disposed of. Now, human institutions are not to be judged of, and approved or disapproved, by such methods. The folly of reasoning like this would be seen at once were it applied to ordinary political matters. No government on earth could stand against one-fourth or one-tenth of the elements of hostility which might conceivably be arrayed against it. Mankind do not, therefore, refuse to form governments. Bimetallism is a political institution for practical ends, and is entitled to be judged with reference to reasonable probabilities. It may claim the benefit of the chance that adverse conditions will be offset by conditions favourable, and that the adverse conditions will not prove so severe at the start as they may be conceived, and that their force will be more quickly spent than might be feared. It would be perfectly legitimate ground on which to establish European bimetallism, that the French system, with so little of support from other States, passed within a quarter of a century through the three successive shocks of the gold discoveries of Siberia, the gold discoveries of California, and the gold discoveries of Australia, and yet was not brought to the ground. With Germany, France, and England joined in a monetary union, no changes reasonably to be anticipated in the conditions of supply of the one metal or the other would succeed in moving the market ratio far apart from the mint ratio thus supported by maintaining over so wide a surface a legal equivalence between the two metals in payment of debts. And, moreover, while bimetallism is entitled to be judged like any other political institution, with reference to the reasonable probabilities of the future, the allowance which requires to be made for error and extraneous force is less than in most political institutions, inasmuch as the failure of bimetallism involves no disaster to industry or society. When an engineer designs a bridge which is intended to sustain a weight of eighty tons, he introduces a "factor of safety," say three or five, and makes the bridge strong enough to bear two hundred and forty or four hundred tons. The greater the calamity which would result from the breaking down of the bridge--the deeper the chasm which it spans, the swifter the torrent below--the larger the factor of safety. With many political institutions, likewise, the consequences of failure would be so disastrous that the statesman seeks to introduce a high factor of safety; but in the case of bimetallism no catastrophe whatever is to be anticipated, even in the event of failure. At the worst, after the drain of the dearer metal, in consequence of changes in the conditions of supply, is completed, the bimetallic country is simply in the same position with the countries of the single standard using the cheapened metal. While the process of substitution is going on, it sells the dearer metal at a premium; when the process is over, it is no worse off than it would have been had it originally selected as its sole money of full legal-tender power the metal which it has bought at a discount, and which other countries, perhaps its immediate neighbours, are still using. It is not the case of a country seeking to reject the cheapening metal, and to supply its place with the metal which is continually becoming scarcer and dearer.... There is all the difference, in the two cases, between going down hill and going up hill. Not only is no catastrophe involved in the failure of bimetallism through the exhaustion of the dearer metal, but it is always in the power of the Government to arrest the drain at any point without shock. Thus, in 1874, France and her monetary allies, seeing the prospect of a considerable drain of gold through the importation of the discarded and cheapened silver of Germany, and having decided, whether wisely or unwisely, not to prevent that drain, restricted the coinage of silver without repealing or suspending the law which made gold and silver legal tender indifferently at a fixed ratio. Two years later, finding that the forces operating to lower the value of silver were powerful and persistent, the coinage of silver was peremptorily stopped. Can one point to any sign that France has suffered any special injury to her trade and production from this act?... We now have to note ... that every additional State which joins the bimetallic group, having the same mint ratio between gold and silver, does not only share the cost or the burden with those already in the system, but diminishes the aggregate cost or burden to be borne, and this, not in a slight, but in an important degree, so that should the monetary league become general, the total cost or burden to be divided among the many allies would be inappreciable; while, should the system come to embrace all commercial States, there would, in theory, be no burden at all to be borne by any one. Thus let us suppose the commercial world to be divided into sixteen States, A to P, inclusive, the first six having the single gold standard, four, G to J, the so-called double standard of gold and silver, say at 15-1/2:1; the remaining six States having the single standard of silver, thus: A, B, C, D, E, F (G, H, I, J), K, L, M, N, O, P. It is evident that in the case of a change in the conditions of supply tending to cheapen silver relatively to gold, the new silver would pass into the countries of the double standard, G to J, be there exchanged for gold at the rate of 15-1/2: 1, with some small premium as the profit of the transaction, and the gold would go to the gold countries, A to F, in settlement of trade balances. The rapidity with which this substitution of silver for gold will go forward will depend, first, on the force of the natural causes operating to cheapen silver, and, secondly, on the force of the commercial causes operating to maintain or advance the value of gold. The length of time during which the drain of the dearer metal can be sustained without exhaustion will (given the rate of movement) depend solely on the stock of that metal existing in the bimetallic States jointly when the drain begins. But chief among the commercial causes operating to maintain or advance the value of gold is the exclusive power with which gold is invested by law to pay debts within States A to F; while the stock of the dearer metal available to sustain the drain described is made up, not of all the gold in the sixteen States A to P, or in the ten States A to J, but only of the gold in the four bimetallic States, G to J. Hence we see that for every gold State which adopts the "double standard" the amount of gold available, in the case of a cheapening of silver, to meet the drain of the dearer metal (on which the virtue of the bimetallic system depends) is increased; while the demand for gold in preference to silver at 15-1/2:1 (the only cause which threatens the stability of the bimetallic system) is, in just so far, diminished. On the other hand, every silver State that adopts the "double standard" strengthens the bimetallic system in the case of a cheapening of gold. Let us suppose the sixteen commercial States to be divided as four gold States, eight gold and silver States, and four silver States, as follows: A, B, C, D (E, F, G, H, I, J, K, L), M, N, O, F. We see that the bimetallic system is now not twice as strong merely as in the case first assumed, but many times as strong, since not only is the amount of the dearer metal (whichever that may at the time be) subject to drain greatly increased, but the demand for that metal, in preference to silver at 15-1/2:1, now comes from four countries only, instead of six, as formerly. The transfer of still another State from each of the two single-standard groups would vastly increase the stability of the bimetallic system, A, B, C (D, E, F, G, H, I, J, K, L, M), N, O, P. Not only would the base of the system be broadened by bringing the dearer metal of ten States, D to M, under tribute in the event of changes operating on the supply of either to affect its value; but the force of the causes threatening the equilibrium of the system would be reduced, since the demand for the dearer metal would now come from only three States: A, B, C, in the case of a cheapening of silver relatively to gold; N, O, P, in the case of a cheapening of gold relatively to silver. Bring still another State from each group into the monetary union, and the danger of a breaking down of the system, under any change in the conditions of supply which it would be reasonable to anticipate, almost disappears. A, B (C, D, E, F, G, H, I, J, K, L, M, N), O, P. Twelve States now supply the dearer metal; only two States will take it in preference to the other at the ratio of the mint. Those two States--whether A, B, or O, P--can not take the dearer metal indefinitely. They will soon be surfeited. A further increase of money in them would only be followed by a fall in its value, which would soon proceed so far as to bring the metals together again. What the one metal would tend to lose in value through increase of supply, the other would tend to lose through diminution of demand. This is the Modern Bimetallic Scheme advocated by Wolowski and Cernuschi in France, Malou and de Laveleye in Belgium, Mees and Vrolik in Holland, Schneider in Germany, Haupt in Austria, Seyd and the Liverpool writers in England, Horton, Nourse, and George Walker in the United States. It differs widely from the plan of the so-called "double standard," which was pronounced impracticable by Locke, Adam Smith, and Ricardo. Not the smallest presumption against the reasonableness of this scheme is created by the fact that eminent economists of the past century, and of the first half of the present, declared in favour of the single standard, whether of gold or of silver. Those writers contemplated a condition of international relations in which anything like general and permanent concert of action, in establishing and maintaining a ratio between the metals in the coinage, would have been wholly beyond reasonable expectation.... A general or universal system of bimetallism would involve no machinery, no international accounts, no detail whatever. The simple agreement of governments to coin at a certain ratio would be sufficient for all the objects that have been discussed. If unification of coinage, identity of moneypieces, and mutual acceptance of coins by the several nations forming such a monetary league, were to be added, some machinery for the redemption of worn pieces might require to be brought into existence; but this is not a necessary feature of successful bimetallism, which would be entirely compatible with the retention by each State of its own devices and denominations, and with the exchange of moneys as at present effected.... FOOTNOTES: [15] Francis A. Walker. _Money in Its Relations to Trade and Industry_, pp. 164-176; 178-182. Henry Holt & Company. New York. 1889. CHAPTER VII THE SILVER QUESTION IN THE UNITED STATES [16]Such was the singular combination of events after the peace of 1865 that almost at the moment when a million citizens were turned from organised destruction to pursuit of peaceful industry, the avenues of American employment and production were widened in a degree unprecedented in the history of trade. Within eight years after Lee's surrender, the railway mileage of the United States was literally doubled. Only a fraction of this increase belonged to the transcontinental lines which linked the two oceans in 1869. Quite aside from the 1,800 miles of the Pacific railways, upwards of 30,000 miles of track were laid in the United States between 1865 and 1873. Four noteworthy economic developments accompanied this extension of the transportation system. A fertile interior domain, hitherto untouched, was opened up to industry. With the rush of population to these Western districts, not only did the disbanded army resume production without industrial overcrowding such as followed the Napoleonic wars, but provision was made for three or four hundred thousand immigrants annually. European capital in enormous volume was drawn upon to provide the means for this development. Finally, the United States rose from the position of a second- or third-class commercial State to the first rank among agricultural producers and exporters. Each of these several phenomena had its special influence on the period. Not less immediately connected with this opening up and settlement of our agricultural West was still another phenomenon, of peculiar interest to the study of the ensuing period. The average price of grain had advanced with great rapidity during the Civil War. In 1867, the price of wheat, even on the Chicago market, reached the remarkable level of $2.85 per bushel; nor was this price very greatly above the annual maximum of the period. In a large degree, this advance resulted from inflation of the American currency. But the upward movement was world-wide; in 1867 and 1868 the average price, even in England, was close to the equivalent of two dollars a bushel. That any such abnormal market could be maintained in the face of the new American supplies was at least improbable. The increase in cereal production was twice as rapid as the country's increase in population; the United States became therefore the leading figure in the world's export markets; and this was certain to have important influence on prices. As in America, so in Europe, production received immediate stimulus. While American capital was opening up the Mississippi Valley, European capital was similarly busy along the fertile river basins of the Dnieper and the Danube. The Russian railway system grew during this period from something like 2,000 miles to upwards of 13,000. In Austria-Hungary the percentage of increase was almost equally large. All of these new transportation lines, like our own new Granger railways, were at once engaged in carrying to the seaboard supplies of grain which never before had reached an export market. The problem of an earlier generation had been how to feed the constantly increasing population; a wholly new problem was presently to arise, based on the question how to find a ready and profitable market for the year's output of breadstuffs. Prices, in short, which rose almost continuously throughout the world during the period of slack production from 1858 to 1873, receded almost as continuously in the ensuing generation. Nowhere was this phenomenon destined to have more immediate importance, economically, socially, and politically, than in the United States. The opinion is more or less widely held that the decline in prices, notably of grain, has resulted from legislation on the currency. Without for the present arguing that proposition, it may be affirmed with entire safety that a good share of the period's currency legislation has resulted from the decline in the price of grain. The fall in wheat has been the typical argument for arbitrary increase of the silver or paper currency in almost every Congressional debate since 1872. What is perhaps even more significant, the division in almost every Congressional vote upon these subjects has been, not political but geographical--the commercial East against the agricultural West. AGITATION FOR SILVER AND THE PASSAGE OF THE BLAND BILL [17]In the summer session of 1876, several bills had been introduced, providing for increased silver coinage and for remonetization of the silver dollar. None of these propositions came to anything; they were chiefly remarkable from the fact that they first gave vogue to the theory of the "crime of 1873"--a theory which assumed that the dropping of the silver dollar from the list of coins in the statutes of that year was the outcome of a conspiracy which carried its legislation through in secret. The entire baselessness of this assertion has been demonstrated often enough and in convincing detail; this very provision regarding the silver dollar was a subject of public discussion in the House, and met with no serious opposition. The assertion in itself is so patently absurd that I shall not pause to discuss it. The truth is that silver in 1873, and during a generation before that date, was worth more to its owner in the form of bullion than in the form of coin. In 1872 the silver requisite to coin a dollar at the established ratio was worth $1.02. For years, therefore, nobody thought of bringing his silver to the mint for coinage; he sold it in the commercial markets. The total silver-dollar coinage of the United States, between 1789 and 1873, was barely eight million dollars, and when, in 1873, the law provided that except for the so-called trade dollar coined for export, "no deposit of silver for other coinage shall be received," no one had interest enough in the matter to offer criticism. But in 1874 and 1875 came one of those curious coincidences which render possible for all time conflicting theories of an economic event. Germany, having adopted the gold standard of currency in July, 1873, began to sell its old silver coin as bullion. At exactly the same time, Mackay and Fair, in the heart of the Nevada Mountains, were opening up the Great Bonanza. The Pacific Coast was in fact going wild over the rise in mining shares while the East was financially and industrially paralysed. The statute dropping the silver dollar from this country's coinage list was enacted February 12, 1873; the German law for retirement of silver coinage was adopted July 9, 1873; and a year later the news of the rich Nevada "ore-finds" became public property. Between the German sales and the sales at Nevada City, the price of silver yielded. In 1874, for the first time in a generation, 412-1/2 grains of standard silver would have been worth more when coined into a legal-tender dollar than when sold in the bullion market. The motive of the mining interest in the free-silver coinage agitation of 1876 and 1877 was not mysterious. The motive of the anti-Administration party in Congress was somewhat different. There is not the slightest question that the silver-coinage movement, in the agricultural West particularly, had the same origin and the same following as the paper inflation movement of a few years before. Mr. Bland himself, the author of the silver bill, declared that the question was presented as between what he called "honest resumption" with silver coinage, "or on the other hand a forced unlimited inflation of paper money." In the heat of debate on the silver bill, the same statesman declared in Congress that if his coinage plan could not be passed, he was "in favour of issuing paper money enough to stuff down the bondholders until they are sick." The point of these remarks lies in their frank assumption that the free-silver sentiment and the fiat-money sentiment were interchangeable. So much, then, for the origin and nature of the silver movement. The Bland Bill passed the House on November 5, 1877, under the previous question and without debate, by a vote of 164 to 34, and the resumption operations of the Government came to an instant halt. The market price of silver then was such that the legal-tender dollar of the Act would have been worth intrinsically less than ninety cents. Foreign subscribers to our resumption bonds suspected instantly that payment of the Government debt in a depreciated coin was planned by Congress; their suspicions were confirmed by a resolution introduced December 6th by Stanley Matthews, Mr. Sherman's own successor in the Senate, and passed by both houses. The resolution explicitly declared that in the opinion of Congress, all the bonds of the United States, "issued or authorized to be issued," were payable in the silver dollars of the Bland Law. The extraordinary character of this resolution may be judged from the fact that it was proposed and passed in both houses while the Coinage Act was still pending, and while, therefore, there was not in existence the coin which was duly declared a legal tender for settlement with public creditors. To the conservative portion of the public, the resolution seemed a piece of financial lunacy; to the Treasury, it was not only embarrassing but humiliating. Hardly a month before, in his annual report to Congress, the Secretary had repeated his official statement, previously made to bond subscribers, that payment of the bonds in gold might safely be anticipated. The publication of this statement in New York and London had been followed by greatly increased subscriptions to the bonds, in payment of which gold was required by the Government. The Matthews resolution amounted, so far as Congress was concerned, to repudiation of a formal bargain of which the Government had already obtained the fruits. The debate was such as might have been expected on a measure of the sort. It centred repeatedly on denunciation of Government bond investors. Foreign subscribers were treated with especial scorn; indeed, our foreign customers in general were not spared. It was this debate which drew forth Senator Matthews's somewhat celebrated query: "What have we got to do with abroad?"--a remark which was perhaps as typical of the session's deliberations as any utterance made from the floor of Congress. The situation, during the early months of 1878, was extremely critical. For the time the three direct assaults on the public credit were warded off. The Matthews resolution was "concurrent," and hence a mere expression of opinion without binding force. The bill repealing the Resumption Act of 1875 was killed by disagreement in the Senate. Meantime the Silver-Coinage Act was modified by the Senate into a compromise requiring purchase and coinage by the Government of two to four millions' worth of silver monthly. Even thus modified, it encountered the veto of the President, but was passed over his veto, without a day's delay, by the requisite two-thirds majority. Executive conservatism seemed to be fruitless; nevertheless, there is no doubt whatever that the steadfast policy of Mr. Hayes did much to stem the current of reaction. Congress adjourned on June 19th. Even before Congressional adjournment, the canvass for the November State elections had begun. The State Convention platforms in the summer of 1878, were not in all respects such as the session's work in Congress would have suggested. The opposition had gone too far in Congress, and popular opinion to that effect was expressed with sufficient emphasis in November, 1878. The Administration party gained what amounted to a decided victory. There were but four States, East or West, where opposition majorities were increased in 1878 or Administration majorities diminished, and these were agricultural States, where the season's sharp decline in wheat had stirred up discontent. There was not much danger from the closing session of a Congress whose earlier ventures had received this response from the people. PROVISIONS OF THE ACT OF 1878 [18]Although the silver dollar of which the coinage was resumed in 1878, dates back as a coin to the earlier days of the Republic, its reissue in that year marks a policy so radically new that the experience of previous years throws practically no light on its working. The act of 1878 provided for the purchase by the Government, each month, of not less than two million dollars' worth, and not more than four million dollars' worth of silver bullion, for coinage into silver dollars at the rate of 412-1/2 grains of standard silver (or 371-1/4 grains of fine silver) for each dollar. The amount of the purchases, within the specified limits, was left to the discretion of the Secretary of the Treasury. As every Secretary of the Treasury, throughout the period in which the act was in force, kept to the minimum amount, the practical result was a monthly purchase of two million dollars' worth of silver bullion. The act is sometimes described as having called for a monthly issue of two million silver dollars; but this was not the exact situation. The amount of silver obtainable with two million dollars obviously varies according to the price of the metal in terms of the dollars with which the purchases are made. In February, 1878, when the first purchases were made, those dollars were the inconvertible United States notes, or greenbacks, worth something less than their face in gold. The amount of silver bullion obtainable with two million such dollars depended, on the one hand, on the price of silver bullion in terms of gold, and on the other hand on the value of the dollars themselves in terms of gold. When specie payments were resumed, on the first of January, 1879, and the greenbacks became redeemable in gold, the measure of value in the United States became gold, and the extent of the coinage of silver dollars under the act of 1878 became simply a question of how much silver bullion could be bought with two million dollars of gold. The price of silver in 1878 was, in terms of gold, not far from a dollar for an ounce of standard silver. Since 1878 it has gone down almost steadily, and ... in 1889 was barely above 80 cents an ounce.[19] The silver dollar of 412-1/2 grains contains less than an ounce (480 grains) of standard silver. The monthly purchase of two million dollars' worth of silver has therefore always yielded more than two million silver dollars, the amount being obviously greater as the price of silver went lower. On the average, the monthly yield [was] not far from two million and a half of silver dollars.... Thirty millions of silver dollars a year was roughly the addition to the currency of the community from the act of 1878. SILVER CERTIFICATES [20]An important provision of the act of 1878 was that authorising the issue of silver certificates against the deposit of silver dollars. This authority was limited at the time to certificates in denominations only of ten dollars and upward: a restriction which ... proved to be of great importance. At the time it does not seem to have been expected that the silver certificates would enter directly into the circulating medium; we may infer from the restriction to large denominations that no such expectation was entertained. But in fact, it has been chiefly in the form of certificates that the silver has entered into circulation. These certificates, it is true, are not, like the dollars themselves, a legal tender; but they are receivable for all public dues, customs included, and they pass from hand to hand at least as readily as the bulky pieces which they represent. CAUSES OF THE ACT [21]The passage of that act was due to causes easily described. It was part of the opposition to the contraction of the currency and the resumption of specie payments which forms the most important episode in our financial history between 1867 and 1879. The resumption of specie payments had been provided for by the act of 1875, and was to take place on January 1, 1879. In the meanwhile, the long-continued depression which followed the crisis of 1873 intensified the demand for more money and higher prices. That demand led to the inflation bill passed by both Houses of Congress in 1878, and killed by the veto of President Grant. The same feeling led to the silver act. The great fall in the price of silver, beginning in 1873, and showing itself markedly in 1876, made silver, at the old ratio, a cheaper currency than gold, and so caused the opponents of the return to specie payments to prefer silver to gold, as they preferred paper to either. No doubt some additional force was given to the movement in favor of the use of silver from the desire of the silver-mining States and their representatives, that the price of the metal should be kept up through a larger use of it for coinage.... WHEREIN PECULIAR [22]Although the specific measure passed in 1878 thus rested on a long train of historical causes, it contained details that were essentially new, not only in our own experience, but in that of the world at large.... It ... provided for a regular mechanical addition of large amount to the general circulating medium. No precise experiment of this kind had ever been tried. It is true that Germany and the countries of the Latin Union possess, in their circulating medium, large quantities of overvalued thalers and five-franc pieces which are exactly like our silver dollars. They also are legal tender without limit; their total quantity is limited; and it is only by this limitation of the quantity that their value is kept above that of the bullion contained in them. But the thalers and francs in these countries are not new additions to the currency. They are remnants from an earlier period, when Germany had a silver standard, and the Latin Union a complete bimetallic standard. No addition whatever to the thalers is made in Germany; and if some coinage of five-franc pieces takes place in France and in other countries of the Latin Union, the additions are meant merely to fill the place of abraded coins, to provide for the ordinary losses from daily use, and to make any additions to the supply which may be needed for convenience in making small change. No other country has ever entered on an addition of overvalued coin to its circulating medium having the object and extent of that made by our silver act of 1878. This characteristic of the measure, it need hardly be said, was the result not of any deliberate intention to try a new experiment, but of the spirit of compromise which explains so many anomalies in the legislation of democratic communities. The silver act, as passed by the House of Representatives, provided for complete bimetallism--for the free and unlimited coinage of the silver dollar at the old ratio of 16 to 1. In the Senate, it was amended by the substitution of the provisions for a limited coinage, which were finally enacted. The compromise was meant to satisfy both those who objected to the cheaper standard and those who wanted more money; and it afforded a welcome escape to the legislators who were trying to satisfy all parties. At the time, no one probably expected that the measure would remain in force for any great length of time. The conservative element hoped that it would be repealed after a short trial; the inflationists (for by that name they might, then at least, fairly be called) believed that it would soon be superseded by the free and unlimited coinage of silver. As it happened, the act remained in force, unamended, and indeed without very serious attempt at amendment, for over twelve years; and the measure which succeeded it in 1890, though different in many details, followed the same method of forcing a large regular injection into the circulating medium of money based on silver purchases by the Government. LIMITED CIRCULATION OF THE SILVER DOLLARS [23]The Government has made every effort to get the dollar coins out of its hands.... But the great bulk of the coins thus got out of the treasury return to it almost at once. The degree of favor which they meet with of course ... varies in different parts of the country, apparently reflecting in a curious way the popular feeling as to the desirability of having silver currency at all. They circulate very little east of the Alleghanies, but are used more freely and permanently in the Mississippi Valley. Among the negroes of the South the big pieces are said to be favorites, and to find a permanent lodgment. Their greatest circulation ... was reached in 1886; after that time the change in the denominations of silver certificates caused a decline in the amount used. PROVISIONS OF THE ACT OF 1890 [24]The act of July 14, 1890, is[25] more remarkable than that of 1878. It is unique in monetary history. It provides that the Secretary of the Treasury shall purchase each month at the market price four and a half million ounces of silver bullion. In payment he shall issue Treasury notes of the United States, in denominations of between one dollar and one thousand dollars. These Treasury notes, unlike the old silver certificates, are a direct legal tender for all debts, public or private, unless a different medium is expressly stipulated in the contract. They differ from the silver certificates in another respect; they are redeemable either in gold or silver coin, at the discretion of the Secretary of the Treasury. The indirect process of redemption which,... was applied to the silver certificates, is replaced for the new notes by direct redemption. The avowed object is to keep the silver money equal to gold, for it is declared to be "the established policy of the United States to maintain the two metals at a parity with each other on the present legal ratio, or such ratio as may be provided by law." The act of 1878 is repealed; but the coinage of two million ounces of silver into dollars is to be continued for a year (until July 1, 1891). Thereafter it is directed that only so many silver dollars shall be coined as may be needed for redeeming any Treasury notes presented for redemption. Practically this means that the coinage shall cease; redemption in silver dollars will not be called for under present conditions. The coinage of silver dollars accordingly was suspended by the Treasury on July 1, 1891; a change which was the occasion of some vociferous abuse and equally vociferous praise, but which in reality was of no consequence whatever. AMOUNT OF MONTHLY ISSUES [26]The monthly issues of the new Treasury notes vary, like those of the old silver certificates, with the price of silver. But the new issues vary directly with the price of silver, while as we have seen, the old issues varied inversely with the price. The volume of Treasury notes issued is equal to the market price of four and one-half million ounces of silver. For a month or two after the passage of the act, the price of silver advanced rapidly, and at its highest, on August 19, 1890, touched $1.20. After September a steady decline set in.... THE POLICY OF THE BANKS [27]Shortly after the passage of the act [of 1890], some sort of understanding seems to have been reached between the Treasury Department and the banks of New York. The banks came to an agreement that the new notes were to be treated as "current funds," receivable in all payments, clearing-house settlements included.... The fact that the new notes were received by the banks from the Sub-Treasury in settlement of clearings, was of sensible advantage to the Government. The success of the Government in maintaining its nominal willingness to pay gold to all comers was due to the forbearance of the banks. Gold was called for by them only when needed for export. THE ARGUMENT FOR SILVER THE BIMETALLIST ARGUMENTS [28]... Is it desirable that we should have more money? Does the maintenance of the gold standard involve injustice or hardship to debtors, or to any class in the community? Does it have any ill effects in hampering industry or checking the advance of production? Is the free coinage of silver, or any measure leading ultimately to a silver basis, fairly open to the objections commonly urged against it on the grounds of dishonesty and injustice?... In considering these questions, we must look to the ultimate and permanent results of the silver standard. The details ... as to the mode in which the silver issues circulate and the degree of promptness with which they will affect prices, are here of no great importance. Under a silver standard the rise in prices will take place in the end; and we are concerned with the social consequences of such an eventual result.... I propose here to take up chiefly one set of serious arguments--those which rest on the changes in general prices which have taken place throughout the civilised world in the last twenty years. The conclusions in favor of a wider use of silver, drawn from such changes, have been maintained by distinguished economists. It is true that the particular plans for the use of silver which are now in vogue in the United States have generally been opposed by these economists. They have urged international agreements for the wider use of silver, and have deprecated independent action by any one nation. But the more thoroughgoing advocates of free silver in the United States say, certainly with much force, that an international agreement has proved to be simply impracticable, and that if the wider use of silver is to be deferred until there is concerted action by the great nations, it will never come. If anything in this direction is to be done, some one country must be courageous enough to take the lead, trusting that others will follow in due time. And certainly it is true that the scheme for international bimetallism has practically no prospect of adoption; while, on the other hand, the serious arguments urged by its advocates tell, in some degree, in favor of any scheme for enlarging the use of silver as money. These arguments, moreover, are of weight, and deserve a more painstaking consideration than is often admitted by those who oppose the silver legislation of the United States. The serious and important arguments, then, among those who, both in this country and in Europe, advocate a greater use of silver as money, are derived from the general fall in prices which has been so conspicuous among the economic phenomena of the last twenty years. To that fall they ascribe two evils: first, an unjust increase in the burdens of debtors; and, second, a check to enterprise and to the efficient working of the productive machinery of the community. The increase in the burdens of debtors is one which all economists have pointed to as the result of a general fall in prices, or rise in the value of the circulating medium. The debtor who borrows a hundred dollars now, and repays them five years hence, when all prices have fallen, gives back more than he received. On debts running for short periods of time, changes in general prices are not likely to be great enough to cause serious hardship; but on debts running over long periods the loss to debtors and the gain to creditors will be great and continuing. But such a steady and continuous fall, it is urged, has taken place since 1873; and the fall is likely to continue further, and to renew its hardships on each new act of borrowing, because its cause is a permanent one. That cause is found in the growing scarcity of gold, which has been selected as the sole standard of value among civilised countries. The production of gold, after having increased with great rapidity in the twenty years following the Californian and Australian discoveries in 1850, has gone on but slowly since 1870. Meanwhile, the population of the civilized countries, their wealth, their production of commodities to be exchanged, have increased with extraordinary rapidity; while the adoption of the gold standard by Germany in 1873, and the resumption of specie payments by the United States in 1879 and by Italy in 1883, have added to the demands for which the scanty annual supply of gold must suffice. Hence the general fall in prices; in other words, the appreciation of gold. The second effect of the appreciation of gold, in checking industrial progress and promoting industrial depression, has been less insisted on in the United States than in European countries. The classic economists had generally reasoned that a general rise or fall in prices was indifferent, except in regard to the relations of debtor and creditor. If money became scarce, if its value rose and all prices fell, every producer, to be sure, would receive a smaller money income than before, and would have a smaller money capital. But he would be able to buy as many commodities and as much labor as before, and would be in reality just as rich and prosperous. In the middle of the eighteenth century, when economic thought was just beginning to assume its modern form, David Hume had argued that though a fall in prices is at bottom indifferent to everybody (except as debtor or creditor), it would yet, in its effects on men's spirits and expectations, which are all connected with money and with terms of money, exert a depressing influence on industry, and would so be harmful; while rising prices, though also really indifferent to all, would stimulate hope and confidence, and so arouse to more active exertion and more plentiful production. The younger Mill, in his _Political Economy_, thought it worth while to enter on a careful refutation of Hume's reasoning. But the bimetallists of our time are disposed to agree with the shrewd Scotchman. They say that the active manager of industry, the business man or _entrepreneur_, in the first place is always more or less in debt; in the second place, is always buying labor, or materials, or goods, with the intention of selling a product at a later date at an advance in price. He habitually measures his gains in terms of money, and not in terms of the commodities he can buy with the money. In times when prices are falling, he finds it harder to meet his debts, and to dispose of his goods in hand at a money advance over what they cost him. But the business man, or entrepreneur, in our day is the director and initiator of industry. He employs labor, borrows capital, sets the wheels of industry in motion; it is his expectations and fears and hopes which determine primarily whether the investment of capital shall take place in large or small amount, and whether the machinery of production shall move smoothly and effectively, or slowly, hesitatingly, inefficiently. The argument certainly does not lack plausibility; nor can it be said to have often been squarely met. No doubt it takes the form, in the United States, more frequently of confused encomiums on the inspiriting effects of plentiful money, than of direct reasoning as to the ill effects of too little money, such as I have endeavored to state with fairness in the preceding sentences. Yet it does not lack weighty backing. So eminent an economist as President Francis A. Walker has ... insisted on the evils of a deficient supply of money as strangling the arteries of industrial life. On the whole, however, the other argument, bearing on the increase in the burdens of debtors under falling prices, has been more often heard in the United States, and certainly has been of more effect. Prosperity, activity, general industrial advance, have been in this country so great and so obvious that the argument as to any check to industry could take serious hold only in occasional periods of depression or slackened advance. The burden on American debtors from falling prices has therefore been much more steadily complained of, chiefly in regard to the debts of the farmers and other borrowers on a comparatively small scale. No doubt there are other debtors whose burdens are affected at least as much, notably the railways, among whom the practice of borrowing heavily on long time has sometimes had its serious effects. But it is the farmer whose case has received most attention, and in some ways doubtless has deserved it most. The discussion of the relations of debtors and creditors under the gold standard has led to some further conclusions as to the "honesty" of the gold and silver standards. Those who oppose a silver basis speak of the silver dollar as a "dishonest" coin. But those who attack the gold standard retort that the really dishonest dollar is that of gold. It is pointed out by them that the fall in the price of silver which has taken place since 1873 has not been greater than that in the prices of commodities generally. As compared with commodities, therefore, silver has been more steady in value than gold. The fall in the gold price of silver, which is adduced by the mono-metallists to show that silver is not a good standard of value, is said to be the very thing which proves it to be a good standard of value; for a given amount of silver will buy the same amount of commodities, roughly, as it would twenty years ago, while a given amount of gold will buy more. If debts had been expressed in terms of silver, the debtor would have had to repay the creditor the same amount of commodities that he received--not more commodities, as he has had to do, with debts measured and repaid in terms of gold. So far as the attainment of the closest possible approach to ideal justice is concerned, a silver standard would have served the purpose better than a gold one. THE EFFECT OF IMPROVEMENTS IN PRODUCTION The bimetallist agitation for a return to the wider use of silver concurrently with gold first became prominent in the years of depression which followed the crisis of 1873. For some time those who opposed it took the ground that the alleged evils did not exist--that in fact there had been no permanent fall in general prices. The decline in the years after 1873 was supposed to be simply the usual reaction from the rise in prices which marks a period of speculative activity. It was expected that the upward movement of the next period of activity would bring the average range of prices as high as it had been before. The general revival which set in after 1879 in all civilized countries did indeed check the downward tendency, and in some countries brought about an appreciable rise. But this counter-movement by no means offset the marked fall which had preceded it; and in any case it soon came to an end, and was followed by a new fall, which has continued with no considerable interruption to the present time (1891). It is true that some part of the fall is no more than a recoil from the abnormally high prices of the years 1871-73. It is true, also, that some commodities have shown a tendency to rise, and that in one very important respect--in money incomes and the money rate of wages--there has been a striking exception to the general movement. Further, it must be borne in mind that even the lowered level which has now been reached cannot be described as abnormally low, being still as high as that which obtained at the middle of the present century. But on the whole, the fact of a general fall in the prices of commodities during the last fifteen or twenty years cannot be denied. The fall has not been uninterrupted; it has not been so rapid or general as to bear on the face of it proof of harmful results; but it has been steady, and, in the opinion of the present writer at least, is likely to continue slowly and steadily for some time to come. Recently, therefore, those who combat the bimetallist reasoning have taken a different position. They have reasoned that while prices may in fact have gone down, the fall is not due, as the bimetallists allege, to an appreciation of gold. It is to be accounted for, they say, by other causes, notably by the extraordinary improvements in the production of commodities. New inventions and the perfecting of old ones have cheapened almost all manufactured articles. Raw materials and food products have been cheapened partly by the discovery of new sources of supply, and partly by that improvement which has been transforming the industrial situation more radically than any other--the wonderful cheapening of transportation by railways and steamships, which has made the resources of the plains of our West and of the sheep-runs of Australia available for the supply of the markets of London and New York. So far as this train of reasoning undertakes to explain the mode in which the fall in prices has been brought about, it seems to me impregnable. But in so far as it endeavors to disprove the appreciation of gold, or to show that the general fall is not due to this appreciation, I have never been able to see its force. In truth, both the bimetallists and their opponents seem to confuse the question when they speak of the appreciation of gold as causing lower prices. The appreciation of gold _is_ the general fall in prices. The two are not related as cause and effect; they are simply two names for one and the same thing--namely, a different rate of exchange between gold on the one hand and commodities in general on the other, by which the same amount of gold buys more commodities than before. When the general fall in prices is admitted, the case of the bimetallists as to the appreciation of gold is established once for all. Improvements in the production of commodities may explain how it happens that they are more abundant, and exchange on less favorable terms with gold, of which the quantity has not been increased by new rich mines or great improvements in production; but the fact of the depreciation of commodities, or of the appreciation of gold, is not thereby explained away. Nevertheless, the improvements in production do seem to me to have an important bearing on the question in hand: a bearing not on the simple fact of the appreciation of gold, but on the social consequences which are said to flow from it, and therefore on the questions of policy which are here under consideration. A moment's thought will show, for example, that a general increase in the efficiency of labor affects very materially the mode in which a fall in prices acts on the relations of debtor and creditor. If A borrows from B a hundred dollars, repayable in five years, and if at the end of the five years prices in general have fallen to one-half of the previous rates, B, in paying back to A the one hundred dollars, clearly returns twice as many commodities as he got. But if, at the same time, the efficiency of labor has been doubled by improvements in production, B can produce with the same labor twice as many commodities as before; and he returns to A the product of the same quantity of labor as he received. The classic economists and the socialists (at least some schools of socialists) have maintained alike that the ideally perfect standard of justice in the exchange of commodities and services is equality of sacrifice or labor; that if things so exchanged for each other that equal sacrifice got the same reward, complete justice would be attained. Applying this test to the relations of debtor and creditor in the case supposed, we find it not one of hardship to the debtor, but apparently one of justice to both parties. It is true the creditor gets more commodities than he gave; but he gets the product of the same amount of labor as he devoted to the commodities originally lent; and why should he not share with the rest of the community the benefits of a general increase in the productiveness of labor? This line of reasoning will become simpler and more concrete if we approach it from another point of view. Reference has already been made to the most striking and important exception to the general tendency of prices to fall, namely, that money wages and incomes in all civilized countries have shown a tendency not to fall, but to rise. Whether the incomes of the rich have increased faster than those of the poor, or whether the movement has shown itself with rough uniformity for all classes, is immaterial for the present discussion. The admitted fact of a general upward movement alike among rich, middle class, and poor is the significant thing. In other words, there has been an inverse movement of money wages and of the prices of commodities, the one going up while the other went down. Now, such an inverse movement is what must take place in case of any real improvement in material welfare. The only concrete way in which civilized people can become better off, is by being able to buy more--by their money incomes going further in the purchase of commodities. The improvement may take the form either of higher money incomes, with stationary prices; or that of stationary incomes, with lower prices; or the intermediate form which in fact seems to have occurred, of money incomes rising somewhat and prices at the same time falling somewhat. If we assume a monetary supply that is limited, or does not increase as fast as improved means of production cause the quantities of commodities to increase, one or the other of the two forms last mentioned must be found. In such a state of things there can hardly be said to be any real hardship for the debtor. It is true that prices have fallen, and that the money he repays the creditor will buy more goods than it did when the loan was contracted; but his own money income has risen, or at least has not fallen, and the repayment of the loan can cause him no special hardship--none greater than he must have expected. The case clearly differs fundamentally from that of a simple rise in the value of money, or general fall in both prices and wages.... The fall in prices in the United States since 1879, and that in European countries in the period since 1873, are the result, on the whole and in the long run, of ... the general improvements in production; they have not been accompanied by a fall in money incomes, and they cannot be said to have caused an increase in the burden of debtors. The reasoning of the preceding paragraphs bears also on the second part of the bimetallist indictment--that, namely, as to the depressing effects of falling prices on industrial enterprise. Whether a simple rise in the value of money, unaccompanied by any other circumstance, would have the depressing effects which the bimetallists predict and the classic economists deny, is a question radically different from that which in fact presents itself. It may be that in this simple case the bimetallists might prove to be, in some degree at least, in the right, and that the classic reasoning, here as on many other subjects, while sound in the long run, would need some qualifications and correction. In the long run, no doubt, it is immaterial whether prices are high or low, whether money returns fall or rise; and yet it might turn out that the habitual association of gain or loss with "making money" would cause a period of simple falling prices to be one of hesitating investment of capital and unenterprising conduct of business. But what the world in fact has seen has been the complex case of a fall in prices accompanied by great improvements in production. The business man and capitalist has had, to be sure, to deal with falling prices; but the same amount of capital and labor has turned out more commodities than before; and his total money returns, so far from declining, have generally increased. The money incomes of the managers of industry have shown the same upward movement as the money incomes of the other classes in society. So long as this is the case, it is idle to talk of a depressing effect on enterprise from the fall in prices, or of a strangling of the industrial organism from insufficiency of the circulating medium. In fact, the immediate cause of the fall in prices has been the pushing on the market for sale of larger and larger quantities of commodities, produced with profit at lower and lower cost: a state of things fortunate for the community, and surely not depressing for the business man.... This effect on the entrepreneur of improvements and of falling prices combined, doubtless accounts for the failure of the bimetallist agitation to secure any appreciable hold in the business world. The bimetallists, both in England and on the Continent, have labored zealously to engage support among the business men, but never with a degree of success at all proportionate to the energy displayed. The simple reason is that the business world has not been in any state of chronic depression. In the ups and downs of industrial activity there have been periods which seemed to confirm the pessimistic accounts of the bimetallist and of other persons malcontent with the present order of things; but in due time the tide has always turned.... On the whole, then, the fall in prices, when considered in connection with the other great changes which have accompanied it, does not afford so much countenance to the bimetallist proposal as at first sight it seems to. The rise in money incomes and the improvements in production disprove any intolerable burden on debtors, and make it highly improbable that the change has had any general depressing effect on industry. THE CASE OF THE FARMER Nevertheless, there is something more to be said, in explanation and justification of the discontent with falling prices, and of the silver agitation which rests on that discontent. While the effects of the fall in prices on debtors as a class and on producers as a whole have not given real grounds for complaint, certain particular debtors and producers have undoubtedly been injured. The case of these latter have given plausibility to the general arguments of the bimetallists, and, what is more important at the present juncture, has given strength to the movement in the United States for more money and more silver. The situation will be best understood if we contrast for a moment the different modes in which the improvements in production have been brought about in manufacturing industries on the one hand, in agriculture on the other hand. In manufactures the improvements have been better machinery, new processes, labor-saving inventions, the conduct of business on a larger scale, and so the greater and more effective division of labor. In agriculture the main cause of cheaper production has been different: it has been the opening up of new lands and new sources of supply. No doubt there are important exceptions to these general statements. In agriculture there have been advances in the arts--new plants, better fertilizers, improved implements, more effective ways of cultivating the soil. In manufactures, on the other hand, there have been important changes due to the discovery of new and rich mines of materials, such as coal, iron, copper. But on the whole, the difference holds good. In agriculture undoubtedly the opening of new lands through the improvements in transportation has been the most important single cause at work. The cheapening of agricultural products has been due not so much to the more effective use of the soil already under cultivation, as to the development of soil not formerly available for the supply of the market. The changes in production and prices have consequently affected the producers in these two branches of production in very different ways. In manufactures all alike have felt them, and have been able to accommodate themselves to the effects. No doubt the shrewder producers adopt improvements and new inventions first, and, so long as they keep in the lead, have the advantage of their competitors. They gain by doing a large business at lower prices, while for the time being their slower competitors lose. But new processes and new inventions spread over the whole field in no long time. The opening of a new source of supply, on the other hand, cheapens production through a process which the holders of the old source of supply cannot avail themselves of. If wheat is raised in large quantities in Dakota, the price goes down as effectively as if the wheat fields of England and New York had suddenly become more fertile; but as those wheat fields produce no more than before, the farmer or land owner on the old soil has nothing to offset the lower price. This is the explanation of the agricultural distress of which so much has been heard in Europe in recent years, and which has been the main occasion of the revival of protectionist feeling in France, Germany, and other countries of the Continent. The farmer on the old lands does not find in improvements in production any compensation for lower prices. If he owns the land, he must pocket the loss, and perhaps in the end abandon his land and turn to something else; such has been a common case in New England. If he is a tenant on the land, he will probably, after a period of struggle and hardship, get lower rents, leaving the landlord as the permanent sufferer; such has been the outcome in old England. If he was in debt before the change took place, he will find his debts growing more burdensome as his money income goes down; such has been the result with many a Western farmer. It is in causes of this sort that we find the explanation, in part at least, of the restlessness among the Western farmers of which the silver agitation is one sign. The fall in the prices of wheat, corn, and other staples has been due to enormously increased production in regions which were formerly out of reach of the market: in India, Australia, Russia, as well as in California, Dakota, Washington, Oregon, and the Far West generally.... It is probable that some of the complaints in regard to the burden of debt on the farmers are simply a legacy from the old days of inflated paper money. Not a few of the debts of the present [1891] go back to the years before 1870, when we had prices high in terms of over-issued paper money. These debts have been renewed and continued, in whole or in part; and the fall in prices has made them heavier and heavier to bear. The evil here again is real, and a remedy is now hard to find. The only conclusion which can be laid down with perfect conviction is that we should make sure of preventing the recurrence of a new era of excessive paper money. ... Another important circumstance is the general transition in agricultural methods inevitable in those western states which have been settled for a generation or more. When new land is first taken into cultivation the most effective use of it is found in the continuous production of some staple crop like wheat and corn, which can be grown, so long as the cream of the soil is not exhausted, year after year with large returns. After a while, however, the land begins to show signs of exhaustion. The staple crops do not yield as largely as before, and less crude methods of using the soil must be resorted to. Manures have to be applied, and the rotation and selection of crops practised. Meat and dairy products, vegetables, fruits, and the miscellaneous agricultural articles, must take their place in rural economy. This change has been carried through very largely in states like New York, Pennsylvania, and Ohio. In the heart of the Mississippi Valley it is now under way; but the transition is trying, and to some of the farmers it is impossible. A good share of the American agricultural population has been so steadily bred to the easy and careless use of virgin soil that it cannot accommodate itself to more intensive methods. It is constantly moving westward; settling for a generation in one spot, and then, as the land shows signs of exhaustion, moving farther west. The more intelligent and versatile stay behind, adapt themselves to new conditions, and in time prosper under them. The least active also stay behind, and flounder hopelessly in the old ways. But a large number are always moving west. In every state between the Alleghanies and the Missouri river there are large tracts formerly cultivated by native settlers, who have sold their lands, as they showed signs of giving out, to German or Swedish immigrants. These latter have not infrequently paid good prices for the lands: but they have been bred to intensive farming, to careful and varied use of the soil, and they have prospered where their native predecessors have been unwilling or unable to adapt themselves to the new conditions. The period of transition is a hard one for all of the native farmers, whether they stay behind or move on, and the lesson of using the soil with more skill and care is learned only under the pressure of necessity. In such periods all sorts of remedies for hard times make their appearance and have their run. THE REPEAL OF THE SHERMAN SILVER PURCHASE ACT AND THE FINANCIAL AND ECONOMIC CONSEQUENCES OF SILVER LEGISLATION [29]For fourteen years, 1878-1892, only an insignificant amount of gold was paid out of the Treasury in the redemption of legal-tender notes; the total amount of gold in the Treasury increased almost steadily and continuously from $140,000,000 on January 1, 1879, to $300,000,000 in 1891. In 1890 the new issue of Treasury notes, together with a change in commercial conditions, placed heavy burdens upon the reserve, the rapid diminution of which is shown in the following figures: _Date_ _Net gold reserve_ June 30, 1890 $190,232,405 June 30, 1891 117,667,723 June 30, 1892 114,342,367 June 30, 1893 95,485,413 June 30, 1894 64,873,025 The reasons for the fall in the gold reserve are too various and complicated to be treated here: the failure of the great English banking-house of Baring Brothers in 1890 brought about a considerable withdrawal of English capital invested in the United States; and an unhealthy and inflated industrial development in this country was stimulated by the new tariff. To outward appearances the country was very prosperous; expenditures were large, imports increased, and a failure of the crops in Europe in 1891 enlarged our grain exports. For a brief season only, were the natural effects of the Sherman law delayed: Europe soon recovered, American exports fell, and in the six months ending June 30, 1893, the balance of trade against the United States was $68,800,000. The tariff of 1890 was followed by diminished customs receipts. The revenue from customs was as follows: 1890 $229,668,000 1891 219,522,000 1892 177,452,000 1893 203,355,000 1894 131,818,000 ... Fortunately the internal revenue receipts maintained their customary level with something to spare; but increased appropriations, due largely to the passage of a dependent pension bill in 1890, cut deep into the funds of the Treasury. In 1890 the surplus was $105,344,000; in 1891, $37,239,000; in 1892, $9,914,000; in 1893, $2,341,000; but in 1894 appeared a deficit amounting to $69,803,000. The Treasury had been weakened by the reluctance of Secretary Windom to deposit government funds in national bank depositories, and by his preference to rely entirely upon the purchase of bonds for getting money back into circulation. In the earlier years of Harrison's administration, bonds were purchased freely--too generously in view of the impending strain upon the resources of the Treasury. Another element of concern was due to the change in the kind of money received by the Government in the payment of revenue. Before the passage of the Sherman Act nine-tenths or more of the customs receipts at the New York custom-house were paid in gold and gold certificates; in the summer of 1891 the proportion of gold and gold certificates fell as low as 12 per cent., and in September, 1892, to less than 4 per cent. The use of United States notes and Treasury notes of 1890 correspondingly increased.... The reason for this substitution of notes for gold was partly due to a reversal in Treasury practice. For many years it had been the custom of the Sub-Treasury in New York to settle its clearing-house balances almost exclusively in gold or gold certificates. For example, in the fiscal year 1889-1890 the Sub-Treasury paid gold balances to the banks of nearly $230,000,000, and in the next year $212,000,000. The banks were thus daily supplied with gold which they in turn could furnish to their customers either for customs purposes or export deliveries. In August, 1890, the Treasury began the policy of using ... the new Treasury notes in the settlement of New York balances, and in the year ending June, 1891, Secretary Foster, apparently convinced of the need of a larger gold reserve to support the credit of the Treasury notes, increased the use of the older United States notes and held on to the gold reserve. The unexpected result was that the banks, deprived of their usual supply of gold for trade purposes, sought for it at the Treasury by the presentation of government notes.... In March, 1893, Cleveland for a second time entered upon the presidency. He demanded as the first condition of relief the suspension of silver purchases. The silver advocates, however, were still powerful in both parties, and President Cleveland was at a disadvantage in not having the undivided support of his own party. Even the position of Secretary Carlisle was ... doubted: it was publicly declared that he stood ready, if expediency demanded it, to redeem the Treasury notes of 1890 in silver instead of gold, and, while standing upon the letter of the law which demanded their redemption in _coin_, practically to cut asunder the parity of gold and silver which had thus far been maintained. Although the President attempted by a specific declaration to make clear the harmonious purpose of the administration that redemption would continue in gold, public apprehension would not be allayed. Whatever might be the wishes of the administration, it was feared that it would not have power to carry them out; particularly when it was announced in April, 1893, that the gold reserve had been drawn down to $96,000,000 by redeeming the Treasury notes of 1890. At this juncture of financial and commercial difficulties, in June, 1893, the British Government closed the mints in India to the free coinage of silver. The price of silver bullion fell promptly and rapidly, and, while such a decline might on another occasion have produced no immediately serious consequences to the Treasury, it came at a moment when public opinion, at least in the Eastern States, was aroused to a belief that the entire financial problem was associated with the coinage of silver; and it thus furnished one of the contributory forces which drove the commercial community into a state of panic. It was not until June 30, 1893, when the panic was well under way, that a special session of Congress was called for August 7; only by the most strenuous efforts could an adequate support, composed of elements in both political parties, be rallied to uphold the President's insistence that purchases of silver by the Government should cease. The House quickly acquiesced, and on August 21, by a vote of 239 to 108, passed a bill for the repeal of the purchasing clause; but the Senate was stubborn, and not until October 30 could a favorable vote, 43 to 32, be secured. So far as the Treasury was concerned, the mischief had been done; although the Government was relieved from further purchase of silver which increased the volume of the obligations to be supported by gold, the old burdens still were sufficiently heavy, in connection with the low state of commerce and industry, to exhaust its immediate revenues. Thus on December 1, 1893, the actual net balance in the Treasury above the gold reserve, pledged funds, and agency accounts was only $11,038,448. Trade and industry had been disorganized; the panic of 1893 extended into every department of industrial life. In December, 1893, the Comptroller of the Currency announced the failure during the year of 158 national banks, 172 state banks, 177 private banks, 47 savings banks, 13 loan and trust companies, and 6 mortgage companies. Some of these institutions afterwards resumed business, but the permanent damage was great. The fright of depositors was general and the shrinkage in deposits enormous; bank clearings were the lowest since 1885; clearing-house loan certificates were once more resorted to, this time on a much larger scale than ever before, and extended to cities throughout the country. The production of coal, both anthracite and bituminous, fell off; the output of pig-iron, which had been about 9,157,000 tons in 1892, fell to 6,657,000 tons in 1894; new railway construction almost ceased; in 1894 there were 156 railways, operating a mileage of nearly 39,000 miles, in the hands of receivers; among these were three great railway systems,--the Erie, Northern Pacific, and Union Pacific. The total capitalization in the hands of receivers was about $2,500,000,000, or one-fourth of the railway capital of the country. The earnings of railroads and the dividends paid to stockholders were seriously affected; securities fell to one-half and even one-quarter their former value; commercial failures increased from 10,344 in 1892, with liabilities of $114,000,000, to 15,242 in 1893, with liabilities of $346,000,000. The problem of the unemployed became general; special committees were organized in nearly all of the large cities to provide food, and in many places relief work by public bodies was instituted. In the spring of 1894 general want and distress led to labor strikes and riots, as in Chicago, and even to more abnormal outbreaks, as seen by the march of Coxey's army of unemployed from Ohio to Washington. The distress was increased by the failure of the corn crop in 1894; the demand for wheat in Europe fell off and wheat was sold on the Western farm for less than fifty cents a bushel. SALE OF BONDS FOR GOLD Under these adverse conditions it was inevitable that the revenues of the Government should continue to decline. In the six months, January to June, 1893, the excess of expenditures over receipts was $4,198,000, and during the fiscal year ending June 30, 1894, this excess increased to $69,803,000. It was even necessary to encroach upon the gold reserve for current expenses, and for months this fund was far less than caution and prudence demanded. When the integrity of the gold reserve was first assailed, both Secretary Foster, in the closing months of Harrison's administration, and Secretary Carlisle, at the beginning of Cleveland's term, endeavored, with some success, to tide over emergencies by appealing to the banks to exchange gold for legal tenders. The banks recognized that the instability of Government credit seriously affected the value of all securities in which they were interested; and in February, 1893, they handed over to the Treasury about $6,000,000 in gold, and in March and April about $25,000,000 more. The expedient was not enough to stop the continued drain upon the Treasury. At the very moment that the Government was relieved of notes through the exchange of gold by the banks, other notes were presented to the Treasury for redemption, largely to draw gold for exportation in the settlement of trade balances.... The only way to protect the fund of gold reserve under the circumstances was borrowing--that is, the sale of bonds for gold--yet some people who were opposed to the overthrow of the gold standard consistently urged that borrowing be postponed until the last moment, so as to add as little as possible to the resources available for purchases of silver. Some of the gold party would even have permitted the drain to go on to the end, notwithstanding the inevitable evils, in the belief that the country could be convinced of its errors in no other way. Eventually, to prevent a suspension of specie payments in gold, the Treasury Department made successive issues of bonds for the purchase of gold. These issues are very interesting to the student of finance. No administration wishes to add to public indebtedness in times of peace; and Secretary Carlisle had scruples against selling bonds, except with the authority of the Congress then sitting; hence the issue of bonds was put off to the last possible moment. The only existing authority for selling bonds was the resumption act of 1875; this provided only for ten-year 5 per cent., fifteen-year 4-1/2, and thirty-year 4 per cent. bonds, all of which would command a premium so high as to diminish their attractiveness as an investment, and, taken in connection with the length of time which they ran, to hamper the Treasury in purchasing or refunding the debt when the crisis was over. The administration asked for the issue of low-rate bonds, but Congress, inspired in part by free silver arguments, and in part by political intrigues to discredit the administration, paid no attention to the recommendation of the Secretary. Finally, in January, 1894, without special legislation, but under the ancient authority of the resumption act, $50,000,000 of 5 per cent. ten-year bonds were sold, yielding $58,660,917; and again in November an equal amount of bonds with like conditions were marketed, yielding $58,538,500. The sale of the first issue was on the whole creditable, considering that at about the same time the President was obliged to veto a bill providing for coining the silver seigniorage, and that an effort had been made in the courts to enjoin the Secretary of the Treasury from selling bonds under the law of 1875. In each case the sale of bonds called for subscriptions in gold, but the new supplies were quickly exhausted by fresh redemption of notes. The fluctuations in the volume of gold in the Treasury as a consequence of the bond sales is seen in the following figures: _Date_ _Gold in Treasury_ January 31, 1894 $65,650,000 February 10, " 104,119,000 _Bond issue._ November 20, " 59,054,000 November 30, " 105,424,000 _Bond issue._ February 9, 1895 41,393,000 The endless chain appeared to be in full and unceasing operation; not only was gold being withdrawn for export but also for individual hoarding, in fear of an impending suspension of gold payments. The Treasury finally recognized the futility of selling bonds for gold, most of which was drawn out of the Treasury itself, by the presentation of legal-tender notes for redemption. A new device was tried: in February, 1895, the Secretary of the Treasury entered into a contract with certain bankers for the purchase of 3,500,000 ounces of standard gold at the price of $17.80441 per ounce, to be paid for by the delivery of United States bonds having thirty years to run and bearing 4 per cent. interest; not less than one-half of this gold was to be procured abroad, and the parties with whom the contract was made stipulated that they would "as far as lies in their power exert all financial influence and make all legitimate efforts to protect the Treasury of the United States against the withdrawals of gold, pending the complete performance of this contract." An ounce of standard gold was worth $18.60465, and the difference between that sum and the contract price represented the premium received by the Government on the bonds, making the price at which the bonds were accepted $104.4946. A condition was affixed to the contract, by which, in case Congressional authority could be secured, a 3 per cent. _gold_ bond might be substituted, and for this the syndicate agreed to pay a higher price. In view of the unfavorable terms of the bargain imposed by this contract, the administration hoped that Congress would promptly act and authorize the issue of the lower and more remunerative bond. Faithful in its adherence to silver, Congress could not be swerved; it defeated the bill authorizing the sale of a low-rate gold bond, and then engaged in an angry debate denouncing the Executive for his subserviency to the gold standard banking interests in entering into a contract not only disgraceful but illegal. In reply it could be shown that the New York Sub-Treasury was within forty-eight hours of gold exhaustion.... At first the syndicate was successful, because of some slight improvement in trade, but later it practically failed to control the price of exchange. It once more became cheaper for merchants to ship gold than to purchase bills, and gold continued to be withdrawn from the Treasury. On December 3, 1895, the gold reserve stood at $79,333,000, and after the commercial apprehension caused by President Cleveland's Venezuelan message a fortnight later, the reserve was still further reduced. Once more the administration resorted to a bond sale, and again the action was preceded by a special message from the President to Congress asking for a grant of authority to issue gold bonds instead of coin bonds, and also for the retirement of the legal-tender notes which continued in an endless chain their journey to the Treasury, and drove off gold to the commercial market. As Congress still refused to act, the Treasury resorted to a fourth issue of $100,000,000 4 per cent. bonds. The Treasury now carefully avoided any appearance of dealing through a syndicate and publicly advertised for offers, with the encouraging result of 4,640 bids, amounting to $684,262,850. Seven hundred and eighty-one bids were accepted and the premium yielded about $11,000,000. The relief obtained by the Treasury, however, was meagre, for it is estimated that $40,000,000 of the bonds were purchased with gold withdrawn from the Treasury by the redemption of notes. This was the Government's penalty for its endeavor to separate itself from all dealings with a banking syndicate. In spite of this sale of bonds the reserve remained near the traditional danger line. In July, 1896, it fell to $90,000,000 because of hoarding due to popular apprehension as to the success of the silver movement in the November presidential election. Fearful that a new bond issue might strengthen the claims of the silver advocates, bankers and dealers in foreign exchange voluntarily combined to support the Treasury by exchanging gold for notes. The effort succeeded, and the reserve was placed in safety. After the elections in November gold came out from its hiding-places, and was turned into the Treasury in large amounts. Business and revenue improved and the difficulties of the Treasury Department were tided over. Many Republicans held the earnest conviction that the issue of bonds would not have been necessary if the revenue had been sufficient. Not only had industry and commerce been unsettled by the tariff act of 1894, but the operations of the endless chain must certainly continue, it was held, until there was a generous income in excess of expenditures, whereby a considerable part of the credit currency might be covered into the Treasury and thus lessen the possible claims for redemption. The administration emphatically replied that at no time when bonds were issued was there intention of paying the expenses of the Government with their proceeds, and that the Treasury Department had no authority whatever to issue bonds for such purposes. President Cleveland was insistent that on each occasion of a bond issue there were sufficient funds in the Treasury to meet the ordinary expenditures of the Government. The proceeds of the bonds sold for the maintenance of the national credit were, however, turned into the general fund of the Treasury, and consequently, though not originally designed for that purpose, employed to meet indiscriminately all demands made upon the Government, whether for redemption of notes or the payment of debts.... There was a series of deficits beginning with 1894, but the deficit by no means equalled the amounts of bonds sold. FOOTNOTES: [16] Adapted from A. D. Noyes, _Forty Years of American Finance_, pp. 2-6 G. P. Putnam's Sons, New York and London. 1909. [17] _Ibid._, pp. 35-44. [18] F. W. Taussig, _The Silver Situation in the United States_, pp. 8, 9. G. P. Putnam's Sons. New York. 1893. [19] I have stated the price here, for simplicity, in terms of so much per ounce of standard silver, _i. e._, silver containing 10 per cent. of alloy. The usual quotation in the United States is per ounce of fine silver. [Thus, the New York price, March 10, 1916, was 56-3/4 cents per ounce of fine silver.] [20] _Ibid._, pp. 9, 10. [21] _Ibid._, pp. 10, 11. [22] _Ibid._, pp. 11-13. [23] _Ibid._, pp. 19, 20. [24] _Ibid._, pp. 50, 51. [25] [Present tense because written while the act was still in force.] [26] _Ibid._, pp. 51, 52. [27] _Ibid._, pp. 52, 59. [28] _Ibid._, pp. 84-106. [29] Davis R. Dewey, _Financial History of the United States_, pp. 442-455. Longmans, Green and Company, New York, 1915. CHAPTER VIII INDEX NUMBERS [30]Index numbers are used to indicate changes in the value of money. The objects for which this measurement is undertaken are thus well stated by Sir R. Giffen (Second Report of the committee appointed for the purpose of investigating the best method of ascertaining and measuring variations in the value of the monetary standard. Report of the British Association, 1888): (1) The fixation of rents or other deferred payments extending over long periods of time, for which it has been desired to obtain a currency of a more stable sort than money is supposed to be. (2) To enable comparisons to be made between the value of money incomes in different places, which is often an object of great practical interest; not only individuals contemplating residential changes, but also governments and other large spending bodies, spending money in widely distant places, having to consider this question. (3) To enable historians and other students making comparisons between past and present to give an approximate meaning to the money expressions which they deal with, and say roughly what a given fine, or payment, or amount of national revenue or expenditure in a past age would mean in modern language. To which some would add: (4) To afford a measure of the extent to which trade and industry have been injuriously affected by a variation in prices; and of the correction which it would be desirable to apply to the currency. An index number is constructed by combining several items, each of which is a ratio between the price of a certain article at a particular date under consideration (_e. g._, last year or month) and the price of the same article at a period taken as base or standard (_e. g._, 1867-77, in the index number constructed by Mr. Sauerbeck, _Journal of the Statistical Society_, 1886 and 1893). These ratios are generally expressed as percentages. _E. g._, the percentage for _flour_ in 1885, as given by Mr. Sauerbeck, is 63; meaning that the price of flour in 1885 is to the average price of the same article in 1867-77 as 63:100. The term index number is sometimes applied (_e. g._, by Mr. Sauerbeck, _op. cit._) to each of these items, as well as to their combination. The percentages are usually compounded by taking an AVERAGE of them. But a result of equal generality may be obtained by taking their sum. One of the best-known index numbers, that of the _Economist_, is thus constructed. Twenty-two articles having been selected, the price of each article at the current date compared with its price at the standard period (1845-50) is expressed as a percentage; and the sum of these percentages is put as the index number. Thus the _Economist_ index number for the year 1873 is 2947; such a sum is easily reduced to the form of an average by simple division (_e. g._, 2947 ÷ 22 = 134). Accordingly in what follows it will be sufficient to consider the latter form only. The construction of an index number presents the following problems: (_a_) What are the commodities of which the prices are to be taken? (_b_) How are the prices to be ascertained? (_c_) How are the ratios between the prices of each article at the current and the standard dates to be combined? The answers to these questions vary according to the purpose in hand.... As appropriate to the first purpose, a standard of deferred payments, two methods present themselves, viz., to arrange that the debtor should pay, the creditor receive, either (1) the same quantity of goods and services, the same amount of utility, so to speak; or (2) the product of the same quantity of labour--or more exactly effort and sacrifice. Of these methods the former has been more generally accepted. It is adopted for instance by the British Association Committee already referred to, as _par excellence_ the measure of the change in the value of the monetary standard. The former method is indeed more intelligible. However, in favour of the latter there are some weighty considerations and authorities. It seems to be the nearest possible approach to Ricardo's conception of a commodity invariable in value, "which at all times requires the same sacrifice of toil and labour to produce it." (_Principles_, iii. ch. xx., "On Value and Riches," cp. Mill, bk. iii. ch. xv., "On a Measure of Value.") "A standard," says Mr. Leonard Courtney, "should be something which as far as possible involves the same labour and the same sacrifice in obtaining it" (_Nineteenth Century_, March, 1893). Prof. Marshall, in his evidence before the royal commission on gold and silver, says, speaking of appreciation of gold: "When it is used as denoting a rise in the real value of gold, I then regard it as measured by the diminution in the power which gold has of purchasing labour of all kinds--that is, not only manual labour, but the labour of business men and all others engaged in industry of any kind" (Question 9625). If the first method is adopted, the answers to the questions above set are as follows: (_a_) The commodities of which the prices are to be taken should be articles of consumption rather than materials and implements. Payments for personal services should be included, but not wages in general. (_b_) Retail prices should be used. (_c_) The proper combination of the ratios is an average of the kind technically called _weighted_.... The general principle according to which the weights are to be assigned is that they should represent the importance of each commodity to the consumer. But this idea may be embodied in different plans. 1. One plan is to assign as the weight of each percentage, or ratio between prices, the value of the corresponding commodity at the initial or standard period. According to this plan the index number is the ratio between these two values: the quantities initially consumed at the prices of the current date, and the same quantities at the standard prices. This method is exemplified by Sir R. Giffen's estimate of the change in the value of money between 1873 (and 1883) and _earlier_ years, in his report on prices of exports and imports, 1885, table v. 2. Another plan is to assign, as the relative importance of each percentage, its value at the particular epoch, the current year. This plan is adopted by Mr. Palgrave in his memorandum on _Currency and Standard of Value_ ... in the third report of the royal commission on depression of trade and industry, table xxvii. 3. According to another plan, the index number is the ratio between the following two values: the quantities consumed at the current date at the current prices, and the same quantities at standard prices. This plan is adopted by Mr. Sauerbeck (_Journ. Stat. Soc._, 1886, p. 595). 4. Or, instead of taking either the initial quantities or those of the current date, a mean between the two may be taken. This is the plan adopted by the British Association Committee. They estimate "the average national expenditure on each class of article at present and for the last few years"; and put for the relative importance of each commodity a round number corresponding to that estimate. Thus the estimated expenditure per annum on _wheat_ is £60,000,000, and on _meat_ £100,000,000: that is respectively 6.5 per cent., and 11 per cent. of the sum of the corresponding estimates for all the commodities utilized by the committee. As convenient approximations, the weights five and ten are recommended by the committee. If the index number based on labour ... rather than on consumption, is adopted as the standard for deferred payments, it would be proper by analogy to take as the measure of appreciation or depreciation the change in the pecuniary remuneration of a certain set of services, namely all, or the principal, which are rendered in the course of production throughout the community during a year, either at the initial or the current epoch; or some expression intermediate between the two specified. But it may be doubted whether the statistics requisite for this method are available. With regard to the second and third of the purposes above enumerated, the determination of the comparative value of money at distant places and remote times--one or other of the two methods indicated would seem to be theoretically proper. For the fourth purpose, the regulation of currency, the proper construction of the index number would seem to be as follows: (_a_) The "articles" of which the prices are taken into account should be both commodities and services; (_b_) both wholesale and retail prices should be used; (_c_) the relative importance of each article should be proportioned to the demand upon the currency which it makes. But here as in other parts of the subject theory halts a little, and statistics lag far behind theory. Considering the theoretical doubts and statistical difficulties which attend the determination of _weights_ proper to each purpose, there is much to be said in favour of assigning equal relative importance to all the items; especially if care is taken to include many articles such as _corn_, _cotton_, etc., which for any of the purposes which may be contemplated must be of first-rate importance. Such is the character of some of the principal index numbers which have been constructed--those of the _Economist_, of Jevons, of Soetbeer, and of Mr. Sauerbeck. In the construction of such an index number the use of the arithmetic mean is not imperative. Jevons employs the geometric mean. His reasons for preferring it are not very clear (the "Variation of Prices," _Currency and Finance_, p. 120).... The geometric mean has also the advantage of being less liable than the ordinary average to be unduly affected by extremely high prices (_Report of the British Association_, 1887, p. 283). The great objection to the geometric mean is its cumbrousness. There is another kind of mean which has some of the advantages of the geometric, and is free from its essential disadvantage; namely, the median ... which is formed by arranging the items in the order of magnitude, and taking as the mean that figure which has as many of the items above as below it. For instance the median of the forty-five percentages on which Mr. Sauerbeck's index number is based was, for 1892, 66; while the arithmetic mean was 68. It is difficult to see why the latter result is preferable to the former; if what is required is an _index_ of the change in general prices, not specially referred to any particular purpose, such as of securing a constant benefit to a legatee. The perplexity of a choice between such a variety of methods is much reduced by the two following considerations. _First_, beggars cannot be choosers. The paucity of statistical data (see the report drawn up by Sir R. Giffen in the _Report of the British Association_ for 1888, p. 183) restricts the operation. Thus for the purpose of index numbers based on consumption ... retail prices are theoretically appropriate; but "practically it is found that only the prices of leading commodities, capable of being dealt with in large wholesale markets, can be made use of" (Giffen, _loc. cit._). _Second_, the difference between the results of different methods is likely to be less than at first sight appears. For instance, the probable difference between the index number constructed by the British Association committee, and six others which have been proposed by high authorities--supposing the different methods to be applied to the same data, viz., the prices of twenty-one articles specified by the Committee may thus be expressed. The discrepancy which is as likely as not to occur between the committee's and other results is from 2 to 2.5 per cent. The discrepancy which is very unlikely to occur is from 8 to 11 per cent. (_Report of the British Association_ for 1888, p. 217). In fact, the index number for the year 1885, as determined from the same data by seven different methods, proved to be 70, 70.6, 73, 69, 72, 72, 69.5 (_ibid._, p. 211). The practical outcome of these two considerations is thus well expressed by Giffen (_loc. cit._ p. 184), "The articles as to which records of prices are obtainable being themselves only a portion of the whole, nearly as good a final result may apparently be arrived at by a selection without bias, according to no better principle than accessibility of record, as by a careful attention to weighting.... Practically the committee would recommend the use of a weighted index number of some kind, as, on the whole, commanding more confidence.... A weighted index number, in one aspect, is almost an unnecessary precaution to secure accuracy, though, on the whole, the committee recommend it." FOOTNOTES: [30] _Dictionary of Political Economy_, edited by R. H. T. Palgrave. Vol. II, pp. 384-7. Macmillan and Company, Limited. London. 1912. CHAPTER IX BANKING OPERATIONS AND ACCOUNTS [31]The intermediate employed in actual transactions is, in increasing degree, that form of currency called credit, the lowest order of currency, rather than money itself. Checks and drafts make up a progressively larger share of the circulating medium. The net deposit credits in the national banks in the United States--to say nothing of the other banks--are double the volume of the actual money in the country. And a large share of this actual money is really employed as reserves to support the credit circulation. More than 90 per cent. of the larger sorts of transactions are mediated through the use of deposit credit, and probably more than one-half of the remaining transactions are similarly effected. Thus the study of banking is essential to any understanding of monetary problems.... [32]For a bank, as well as for any other considerable establishment, it is requisite that a capital should be provided at the outset. There can be no constant proportion between the amount of this capital and the extent of the business which may be built up by its means. We can only say that, other things being equal, the larger the business that can be carried on with safety with a given capital, the larger will be the field from which profits can be earned, and the higher the proportion which the profits will bear to the original investment; but the point at which the extension of the business passes the line of safety, must be determined by the circumstances of the particular bank, by the kind of business carried on by those dealing with it, and by the condition of the community in which it is established. The attempt has sometimes been made to limit by law for incorporated banks the proportion of transactions for a given amount of capital, but no such provision has any foundation except a conjectured average, too rough to be of service in any individual case. In this respect, as in so many others, the judgment of the persons most interested, acting under the law of self-preservation, is far more trustworthy than any legislative decision. The capital thus to be provided at the outset is, of course, in the case of a private bank, the contribution of the partners, as in any other undertaking. In the case of an incorporated bank the capital is divided by law into equal shares or units of fixed amount; as _e. g._, under the law of the United States, a capital of $100,000 is divided into 1,000 shares of $100 each; and these shares are contributed by the individual shareholders, in such proportion as they please. The law may as a matter of public policy limit the proportion of capital stock to be owned by any one individual or firm, and it may also limit the liability of shareholders for debts due by the bank, in case of its failure; but in general, in the absence of special provisions to the contrary, the powers, rights, and liabilities of every shareholder are now usually determined by the number of shares of the stock contributed or owned by him. In the election of directors and of other officers for the immediate management of the business, every share entitles its owner to cast one vote; the dividend of profit is divided in the ratio of shares owned, and contributions to meet losses, if required by law, are called for in the same ratio. The capital subscribed by the intending shareholders must necessarily be paid in in money or in the legal tender of the country. It is not necessary that the whole should be paid in at the outset, but the payment of the whole usually precedes the full establishment of the business; and, in the case of incorporated banks, the law often requires that some definite proportion, as _e. g._, one-half, shall be paid in before the opening of business, in order to insure good faith and a solid basis for the business undertaken. If, now, we undertake to represent by a brief statement of account the condition of a bank having a capital of $100,000 paid in, in specie, on the morning when it opens its doors for business, we shall have the following: _Liabilities_ _Resources_ Capital $100,000 Specie $100,000 It may at first sight appear to be a contradiction in terms, that the capital should be set down as a liability and not as a resource. But we must here distinguish between the financial liability for what has been received from the shareholders and the right of property in the thing received. The bank has become accountable to its shareholders for the amounts paid in by them respectively, but the money actually paid in has become the property of the bank; or, in the language of accountants, the bank has become liable for its capital, and the money in hand is for the present its resource for meeting this liability, or for explaining the disposition made of what has been received. As the bank requires banking-rooms and a certain supply of furniture and fixtures for the convenient transaction of its business, we may suppose it to expend $5,000 of its cash in providing this "plant." The property thus procured, with the remaining $95,000 in cash, will then be the aggregate resources by means of which the capital is to be accounted for, and the account will stand as follows: _Liabilities_ _Resources_ Capital $100,000 Real estate, furniture, fixtures, etc. $ 5,000 Specie 95,000 -------- -------- $100,000 $100,000 The bank, however, cannot answer the purposes of its existence, or earn a profit for its shareholders, until its idle cash is converted into some kind of interest-bearing security. Nor is it enough that a permanent investment of the ordinary kind should be made, as by the simple exchange of the cash for government bonds or railway securities. It is the chief business of the bank to afford to purchasers and dealers the means of using, by anticipation, funds which are receivable by them in the future, and this implies both the purchase of private securities or "business paper" to a considerable extent, and also frequent change and renewal of purchases. Moreover, while the private capitalist finds it advantageous to make simple investments of a permanent sort, this would plainly be insufficient for the shareholders of a bank, who have to pay from its profits some serious expenses of management, and need, therefore, a larger field for earnings than the ordinary returns on their capital alone. The bank being obliged then to extend its operations beyond the amount of its capital, is compelled for this purpose to make use of its credit. In fact, it is only by such a use of its credit that the establishment becomes in reality a bank. Most of the conditions of the case are best answered by the "discount" of commercial paper as above described. The time for which such obligations have to run varies with the custom of the trade which gives rise to them, but is in most cases short enough to imply early repayment to the bank. And even where custom gives the paper longer time, if the paper itself is used only as a collateral security, the note which is the actual object of negotiation with the bank is by preference usually made not to exceed four months. It is easy then to arrange the purchases of paper with reference to the times of maturity, so as to provide for a steady succession of payments to the bank, and thus facilitate the reduction of the business, if necessary, or its direction into new channels, as prudence or good policy may require. The certainty of prompt payment at maturity, needed for this end, is presented in a high degree by the paper created in the ordinary course of business. Independently of the collateral security which the bank may hold, the written promise of a merchant or manufacturer to pay on a fixed day is an engagement which involves the credit of the promisor so far that failure is an act both of legal insolvency and of commercial dishonor. Selected with judgment, then, such paper is not only the investment which most completely answers the purposes of the bank's existence, but is probably as safe as any investment which could be found. It may easily happen, however, that the bank may find it desirable to invest a part of its resources in some other form, either because good commercial paper cannot be procured in sufficient amount, or as a matter of policy. In this case it will purchase such other securities as offer not only complete safety of investment, but the possibility of easy conversion into cash in case of need. In this country United States bonds, and many descriptions of State, municipal, and corporation bonds might answer this purpose. Stocks would more rarely answer it, being more liable to the fluctuations in price caused by misfortune or the ordinary vicissitudes of business. Mortgages on real estate, however, would not be admissible, except when held as a security, collateral to some other which is more easily convertible, for even when the mortgaged property is so ample and stable as to insure the goodness of the mortgage, the conversion of the mortgage into cash by sale is not always easy, and is especially difficult at those times when the bank most needs to have all its resources at command. Indeed, the danger to be apprehended from the locking up of resources, in securities which may be solid but are not easily realized, is so great, that it has been said to be the first duty of the banker to learn to distinguish between a note and a mortgage, his business lying with the former. Real estate, of course, cannot be regarded as a banking security, however desirable it may be as an investment for individuals, for it is not only subject to great fluctuations in value, but is at times unsaleable.... The results of the process of investment in commercial paper and in other securities are best understood when we trace the effect in the account of the bank. Taking then the account as it stood after the purchase of fixtures, let us suppose that the bank buys paper or securities from those dealing with it, or, in the common phrase, makes "loans to its customers," to the amount of $90,000, the paper being in many pieces and having various lengths of time to run, but averaging about three months. Supposing the interest to be computed at 6 per cent., we should have the account changed by the operation as follows: _Liabilities_ _Resources_ Capital $100,000 Loans $90,000 Undivided profits 1,350 Real estate, furniture, fixtures, etc. 5,000 Deposit 88,650 Specie 95,000 -------- -------- $190,000 $190,000 Here we have the securities which certify the right of the bank to demand and receive $90,000 at a future date placed among the resources; the net proceeds of the securities, or the aggregate of the sums which the bank holds itself liable to pay for them on demand, stand among the liabilities as deposits; and the interest deducted in advance, or the profit on the operation, which the bank must at the proper time account for to the stockholders, also stands as a liability. This, however, is the condition of the account at the moment of making the investment, when the bank has made its purchase of securities by merely creating a liability. As this liability is real and must be met, so far as the depositors at any time see fit to press it, let us suppose that depositors call for cash to the amount of $15,000, and we shall have a further change in the account as follows: _Liabilities_ Capital $100,000 Undivided profits 1,350 Deposits 73,650 ------ $175,000 _Resources_ Loans $90,000 Real estate, etc 5,000 Specie 80,000 ------ $175,000 It is clear that, unless the enforcement of the liability for deposits and consequent withdrawal of specie goes much farther than this, the bank can safely increase its loans or its purchase of securities, although its method of doing so is by the increase of its liabilities. We will suppose it, therefore, to have expanded its affairs until it has reached something like the average condition of those banks in the United States, which, being incorporated under the laws of the several States, are not authorized to issue notes. It will then stand thus: _Liabilities_ Capital $100,000 Surplus 29,000 Undivided profits 10,000 Deposits 305,000 -------- $444,000 _Resources_ Loans $305,000 Bonds and stocks 23,000 Real estate 15,000 Other assets 20,000 Expenses 1,000 Legal-tender notes } Cash items } 80,000 Specie } -------- $444,000 Postponing for the present the consideration of some terms which here occur for the first time, it appears from the above account that purchases of securities have been made to more than three times the amount of the capital, and that this has been effected chiefly by the creation of liabilities in the form of deposits. What determines the limit to which this process can be carried? If depositors seldom demanded the payment to which they are entitled, but were contented with the mere transfer of their rights among themselves as a conventional currency, the bank might dispense with holding any large amount of specie or cash in any form and keep most of its resources employed in its productive securities. The expansion of the deposits would then resemble in its effects the expansion of any other currency and might go on until a check should be interposed by the consequent rise of prices and demand for specie for exportation. And it is true, as we shall see, that in communities where banking is largely practised, the use of deposits as currency by transfer from hand to hand is so extensive, that a bank in good credit can rely upon their being withdrawn so slowly, or rather to so small an extent, as to make it unnecessary to have cash in readiness for the payment of more than a small proportion at any given moment. But in a period of financial disorder or alarm, withdrawals may be made earlier or more frequently, and a larger provision of cash may be needed for safety, than at other times; the kind of business carried on by depositors may expose one bank, or the banks in one place, to heavier occasional demands, or may on the other hand make demands steadier, than is the case elsewhere; and a city bank may be more subject to heavy calls from depositors than a country bank. In general, then, for every bank, in its place and under the circumstances of the time, there is some line below which its provision of cash cannot safely fall. This provision of cash, which in the account last given includes the cash items, specie, and legal-tender notes, is called the reserve, and the necessity of maintaining a certain minimum reserve fixes a limit to the ability of the bank to increase its securities. For obviously any increase of securities, that is, of loans or bonds, must ordinarily be effected, either by an increase of deposits, or by an actual expenditure of cash. If, then, the reserve were already as low as prudence would allow, or were threatened by approaching heavy demands from depositors, no increase of securities could be made without serious risk. What proportion the reserve should bear to the liabilities which it is to protect is a question which the law has sometimes attempted to settle, by requiring a certain minimum, leaving it to every individual bank to determine for itself how much may be required in addition to this minimum. And this is no doubt as far as any general rule can go. As has already been suggested, the requirements for safety of different banks and in different places must vary, and so must the requirements of the same bank at different times. In fact, the question as to the proper amount of reserve never depends simply on the absolute ratio of the reserve to the liabilities, but always involves further questions as to the probable receipts of cash by the bank and probable demands upon it, in the near future. It can only be said that the reserve should be large enough, not only to insure the immediate payment of any probable demand from depositors, but also to secure the bank from being brought down to the "danger line" by any such demand. If 25 per cent. is the minimum consistent with safety, the reserve should be far enough above this to be secure from reduction to a point where any further demand or accident may make the situation hazardous. In the management of its reserve the bank itself necessarily feels a strong conflict of interests. On the one hand, it is impelled to increase its securities as far as possible, for it is from them that it derives its profits, and the retention of a large amount of idle cash is felt as a loss. On the other hand, the maintenance of a reserve sufficient, not only to enable the bank to continue its payments but to inspire the public with confidence in its ability to continue them, is a necessity of its existence, even though a part of its resources do thus appear to be kept permanently idle. As a natural consequence, the actual settlement of the question in favor of a large or of a small reserve in any particular case will depend in good measure on the temperament of the managers. In every banking community may be found "conservative" banks, the caution of whose managers forbids them to take risks by extending their business at the expense of an ample reserve; and by their side may be seen the more "active" banks, whose managers habitually spread all possible sail, and provide for the storm only when it comes. It is to be observed that the necessity of providing a cash reserve is not met by the excellence of the securities held by the bank. Although their certainty of payment at maturity be absolute, still the demands upon the banks are demands for cash, and cannot be answered by the offer of even the best securities. If the depositor or creditor does not receive cash in full for his demand when it is made, the bank has failed, and any satisfaction of his claim by the delivery of a security is, as it were, only the beginning of a division of the property of the bank among its creditors. Specie, therefore, or the paper which is a substitute for it as a legal tender for debt, forms the real banking reserve. The reserve of the bank may, however, be greatly strengthened by the judicious selection of securities. For example, if, in the account above given, the "bonds and stocks" are, as they should be, of descriptions which are readily saleable, they afford the means of replenishing the reserve in case of need, without foregoing the enjoyment of an income from this amount of resources for the present. In extreme cases of general financial panic, it is true, even the strongest government securities may find but few purchasers; still such a provision is the best support which can be had in the absence of, or as an auxiliary to, a sufficient reserve of actual cash. The natural method of securing the proper apportionment of resources between securities and reserve, under ordinary circumstances, is by increasing or diminishing the loans, or, in other words, the purchases of securities made from day to day in the regular course of business. That part of the securities which consists of the promises of individuals or firms to pay to the bank at fixed dates, is made up of many such pieces of commercial paper, maturing, if properly marshalled, in tolerably steady succession. The payment of one of these engagements when it becomes due may be made either in money, or by the surrender to the bank of an equal amount of its own liabilities ... [in the form of deposits]. In the former case, the payment of the maturing paper to the bank is in fact the conversion of a security into cash, and increases the reserve without change in the liabilities; in the latter, the reduction of securities is balanced by a reduction of liabilities which raises the proportion of reserve. If, then, the bank stops its "discounts" or the investments in new securities, or if it even slackens its usual activity in making such investments, the regular succession of maturing paper will gradually strengthen its reserve; if it increases its activity in investment, it will weaken or lower its reserve; and if it adjusts the amount of its new investments to the regular stream of payments made by its debtors, it may keep the strength of its reserve unaltered, until some change in the condition of affairs brings cash to it or takes cash away by some other process. This natural dependence of the reserve upon the more or less rapid re-investment of its resources by the bank is distinctly recognized by the law of the United States, which provides that when the reserve of any national bank falls below the legal minimum, such bank "shall not increase its liabilities by making any new loans or discounts," until its reserve has been restored to its required proportion. By a less harsh application of the same principle, the Bank of England operates upon its reserve by lowering or raising its rate of discount, and thus encouraging or discouraging applications for loans. And it was with a view of facilitating the replenishment of the reserve by the curtailment of loans, that the law of Louisiana formerly provided that the banks of New Orleans should hold what were called "short bills," or paper maturing within ninety days, to the amount of two-thirds of their cash liabilities, so that the constant stream of payments of such paper might always insure to every bank the early command of a large part of its resources. To return, in conclusion, to the account last given; we have there among the liabilities certain sums classified as "surplus" and as "undivided profits." Taken together these sums represent the profits which have been made, but not divided among the stockholders, and which are therefore to be accounted for by the bank. The surplus is that portion of these profits which as a matter of policy it has been determined not to divide and pay over to the stockholders, but to retain in the business, as in fact, although not in name, an addition to the capital. The remaining portion, the undivided profits, is the fund from which, after payment of current expenses and of any losses which may occur, the next dividend to the stockholders will be made. The current expenses are for the present entered on the other side of the account, as they represent a certain amount of cash which has disappeared; but at the periodical settlement of accounts they must be deducted from the undivided profits, and will thus drop out from the statement. "Other assets," here set down as an investment, may be supposed to cover any form of property held by the bank and not otherwise classified, but especially the doubtful securities, or such property, not properly dealt in by a bank, as it may have been necessary to take and to hold temporarily, for the purpose of securing some debt not otherwise recoverable. For example, although the bank could not properly invest in a mortgage, it might be wise for it to accept a mortgage in settlement with an embarrassed debtor, and in this case the mortgage would stand among the "other assets." And, finally, "cash items" include such demands on individuals or other banks as are collectible in cash and can therefore fairly be deemed the equivalent of cash in hand. In the absence of any legal provision limiting the classification of such demands as reserve, they may be regarded as virtually a part of the reserve, which in the case before us may therefore be treated as made up of cash items, specie, and legal-tender notes. To illustrate what has been said in this chapter we will now suppose the bank to make the following operations: a. To add to its securities $20,000, by discount of three-months paper at 6 per cent., three-fourths being purchased by the creation of liabilities, and one-fourth by the expenditure of cash. The account would then stand as follows: _Liabilities_ Capital $100,000 Surplus 29,000 Undivided profits 10,300 Deposits 319,775 -------- $459,075 _Resources_ Loans $325,000 Bonds and stocks 23,000 Real estate 15,000 Other assets 20,000 Expenses 1,000 Reserve 75,075 -------- $459,075 b. To retrace its steps by diminishing its "discounts" or holding of securities to the extent of $50,000, of which four-fifths are paid to it by the surrender of demands for deposits to a like amount and one-fifth in cash; to pay $1,250 for current expenses; and further to increase its reserve by the sale of bonds and stocks to the amount of $10,000. The following would then be the state of the account: _Liabilities_ Capital $100,000 Surplus 29,000 Undivided profits 10,300 Deposits 279,775 -------- $419,075 _Resources_ Loans $275,000 Bonds and stocks 13,000 Real estate 15,000 Other assets 20,000 Expenses 2,250 Reserve 93,825 -------- $419,075 c. To sell $2,000 of its other assets for cash with a loss of $500; to make a semi-annual dividend of 4 per cent., of which one-half is credited to stockholders who happen to be depositors also, and one-half is paid in cash; to sell $4,000 of bonds at a profit of 15 per cent., and to carry $1,000 of its undivided profits to surplus. The account would then stand at the beginning of the new half year, as follows: _Liabilities_ Capital $100,000 Surplus 30,000 Undivided profits 3,150 Deposits 281,775 -------- $414,925 _Resources_ Loans $275,000 Bonds and stocks 9,000 Real estate 15,000 Other assets 18,000 Reserve 97,925 -------- $414,925 STATEMENT OF A REPRESENTATIVE NATIONAL BANK _Resources_ Loans and discounts $739,743.27 Overdrafts, secured 973.08 U. S. bonds deposited to secure circulation 100,000.00 U. S. bonds pledged to secure U. S. deposits 1,000.00 Bonds other than U. S. bonds pledged to secure postal savings deposits 7,000.00 Other Securities 191,098.05 Stock of Federal Reserve bank 4,800.00 Banking House 30,000.00 Furniture and Fixtures 5,000.00 Due from Federal Reserve Bank 20,000.00 Due from approved reserve agents 89,919.25 Due from other banks 12,074.23 Checks on banks in same city 6,051.46 Outside checks and other cash items 13,171.83 Fractional currency, nickels, and cents 283.14 Notes of other national banks 1,295.00 Coin and certificates 38,604.05 Legal-tender notes 25,000.00 Redemption fund 3,500.00 ------------- $1,289,513.36 _Liabilities_ Capital stock paid in $100,000.00 Surplus fund 60,000.00 Undivided profits 40,877.46 Less current expenses, interest, and taxes paid 17,110.28 23,767.18 Circulating Notes Out-standing 98,500.00 Individual deposits subject to check 404,871.37 Certificates of deposit due in less than 30 days 596,335.82 Certified Checks 125.00 United States deposits 1,000.00 Postal savings deposits 4,913.99 ------------- $1,289,513.36 [33]~The Method and Extent of Credit Issue.--~Assume that a bank with a cash capital of $100,000 is opening for business in an isolated town and is the only bank in that town. How much can it lend? Ordinarily a bank lends by discounting a customer's note and by giving the customer a deposit credit upon its books for the proceeds of the note.... If, now, our bank in question lends $100,000, giving deposit credit for this sum, it has $100,000 of cash on hand against $100,000 of cash liability. Its statement will stand as follows: _Resources_ Cash $100,000 Notes 100,000 -------- $200,000 _Liabilities_ Capital Stock $100,000 Deposits 100,000 -------- $200,000 Now let it lend another $100,000. With its loans and deposits each standing at $200,000 its reserves are 50 per cent. of its demand liability. Only with $666,666 of loans will its reserves have reached ... [a] 15 per cent. limit: _Resources_ Cash $100,000 Notes (Loans and Discounts) 666,666 -------- $766,666 _Liabilities_ Capital Stock $100,000 Deposits 666,666 -------- $766,666 Further: Suppose that $100,000 of cash is deposited with the bank from the channels of business; how much more can it lend? Fifteen thousand dollars must be retained as reserve against the new liability; $85,000 is available as reserves against further lending. Based upon these further reserves loans may be granted to the extent of nearly $600,000 more. In fact, only with an expansion of $1,233,333 in loans and in derived deposits--a total deposit of $1,333,333--has its reserve fallen to the ratio of 15 per cent. of its liability. _Resources_ Cash (original) $100,000 Loans and Discounts 666,666 Cash (new) (85,000 (15,000 L & D (new) 566,666 ---------- $1,433,333 _Liabilities_ Capital Stock $100,000 Deposits 666,666 Deposits (new) (100,000 (566,666 ---------- $1,433,333 The situation summarizes as follows: On its asset side the bank has $200,000 of cash and $1,233,333 of securities (Bills and Notes). Its deposit liabilities amount to $1,333,333. Its cash is 2/13.3+ of its liability--15 per cent. ~The Function of Reserves.~--If this is what actual banking means, is banking safe? What would happen if all these deposits were immediately called for in cash? True, not all are likely to be called for, but some cash will be demanded. In fact, the borrowers, instead of accepting all of the proceeds of these notes in deposit credit, will in some measure require and receive cash. Precisely so; and so the bank must keep on hand a cash reserve to meet this possibility. For the most part, however, the customers of the bank make payments through checks upon the bank, and these credits are deposited in turn to the credit of other customers. No cash, but only bookkeeping, is required. And if some customers draw out cash, other customers will probably receive it and return it to the bank. A reserve of 15 per cent. is enough for the case. There, would, indeed, be small gain in banking if against every deposit an equal sum in cash must be held in store by the bank. ~Economy of Redemption Money.~--It is thus evident that the employment of $200,000 cash as a banking reserve has made possible the existence of a more than sixfold volume of circulating medium--currency. Against each $1,000 of deposit liability there need be only $150 of actual cash. The bank customer, however, thinks of his deposit claim as money, and it really serves him all the purposes of money. The right to have the money when desired is as good as the actual money, is more convenient, and is as readily and as serviceably transferred. The economy of money through the use of credit substitutes for money extends really further than the foregoing analysis indicates. Under the [now superseded] law, three-fifths of the reserves of a rural bank may be on deposit with banks in reserve cities. Thus against $100,000 of deposit liability the rural bank needs hold only $6,000 of reserve money. Against the deposit of the remaining $9,000, the reserve city bank is required in turn to hold a reserve of only 25 per cent.--$2,250. And of this required $2,250, one-half may be represented by deposits in central reserve cities, _e. g._, New York, Chicago, and St. Louis. Against the $1,125 deposited with it the central reserve bank is required to hold only 25 per cent. of reserves--$281.25. Thus at the outside limit of credit extension, $100,000 of deposit currency may be supported by only $7,406.25 of reserves in money, (6000 + 1/2 × (9000/4) + (1125/4)). one dollar of reserves upholding $13 of currency.[34] It is, of course, not true that the banks ordinarily allow their reserves to run as low as the legal limit, or make the utmost possible use of the privilege of counting claims against one another as legal reserves. Nor is it accurately true that all forms of money are of equal efficiency in the support of credit. Not all forms of money, but only those of the higher levels in the money scale, are allowed to be counted as legal reserves.... Some forms of money make demands upon other forms for redemption, or are limited in exchange power to the exchange power of the form in which redemption is to be made. The total exchange efficiency of the money of a country is, then, not accurately to be computed on the assumption that all moneys are equally efficient for all purposes--that some are not in varying degree burdens upon the money functions of the others. ~Banking Viewed in Detail and in the Aggregate.~--And one further modification is called for. The analysis so far made, while valid for any isolated bank, or for the banking system regarded as an aggregate, is not precisely accurate for the affairs of any one competing bank among other banks. When the check drawn by the borrowing depositor may be deposited in other banks and collected by them against the lending bank, its granting of credits rapidly draws down its reserves to swell the reserves of its competitors. One hundred thousand dollars of new reserves may not mean to it an increase of lending power of more than, say, $125,000. For banks in the aggregate, however, this increase of reserves brings its full several-fold increase of lending power, provided that all the reserve efficiency is utilized in whatever bank it rests. As the lending by each bank is depleting its reserves, the lending which other banks are doing is reinforcing these reserves. The aggregate possible extension of credit is not changed. ~What Banks Actually Do and Lend.~--It follows from the foregoing analysis that, in the main, banks do not lend their deposits, but rather, by their own extensions of credit, create the deposits; that these deposits are funds which the deposit-creditors of the bank can lend if they will, and that many men into whose hands these deposits fall through transfer are certain to use them as funds to be lent. In fact, also, even when the deposits in the bank are not derived from the lending activity of the bank, but are really funds deposited from outside sources, these funds are commonly used by the bank as a reserve basis on which loans are extended rather than as funds which are themselves loaned out by the bank. Banks are, in truth, mostly intermediaries between debtors and creditors--but not in the sense of borrowing funds from one class of customers in order to lend them to another class, but rather in the sense of creating for their borrowing customers funds which may be used by these borrowers as present purchasing power. The borrower becomes indebted to the bank in order that for his own purposes he may use the promise of the bank as the equivalent of cash to himself. In the form of a deposit liability the bank becomes a debtor to whomever the borrower shall nominate. The fact that the borrower pays interest while the bank undertakes a noninterest-bearing obligation, or pays relatively low interest, explains in the main the gains attending the business of commercial banking. ~Deposits and Solvency.~--It is, therefore, a sheer blunder to infer that a bank is rich or strong because of its great total of deposits, or to regard deposits in banking institutions as making part of the aggregate wealth of the community. Instead, the deposits indicate for a bank the extent of its operations, and indicate for a community the extent to which the banks, under the guise of noninterest-bearing obligations, have assumed the debts of business men, on terms of these business men becoming debtors--and interest-paying debtors--to the banks. The solvency of the bank is in its portfolio of securities. Its deposits are not its assets, but its liabilities. These liabilities it has mostly created for the use of its borrowers. The further it may safely go in assuming liabilities, the larger its holdings of borrowers' notes may be, and the more interest or discount charges it may collect. Essentially, therefore, the business of a bank is a form of suretyship--the guaranteeing of its borrowers' solvency--an underwriting of the credit of its customers. The bank transfers its customers' prospective future paying power into present funds. It is for this reason that the contract takes the form of a money loan and the premium the guise of an interest payment. ~Bank Loans Related to Currency and Loan Funds.~--And note now that it is precisely because the business of a bank is to furnish to its borrower a present purchasing power for his own use that the business of banking becomes the source of the larger part of the circulating medium of society. In their service to their customers the banks create currency; and in creating currency they create loan funds which, in the hands of the holders of them, are available like other currency for any purpose, either lending or other. ~The Sources of Currency Supply.~--It is, then, clear that the larger part of the circulating medium of society is not money; that not all of the money that there is is bullion money; and that not even all of the bullion money need be ultimate money--redemption money of the highest rank. The sources of currency in society are various--some of it bullion, with a cost of production limit upon its supply, some of it government paper, substantially free of cost, some of it banking credit with certain peculiar and appropriate costs attending its issue. ~Currency and Its Cost of Production.~--It is obvious that the actual limitations upon the supply of exchange media must be made clear if we are to understand the influences which are fundamental to the exchange values of the currency unit. Only, indeed, by this investigation of the sources of the supply, and of the terms on which each different factor of the supply is available, are we in position to understand the influences which impose upon bidders for money a certain level of sacrifice in obtaining it. What, then, are the limitations upon the supply of credit currency supplied by the banks? In other words, what are the banking costs in the granting of demand deposit rights to customers? Evidently limitations there must be, and limitations in the nature of costs, else the competitive activity of the banks would indefinitely increase the supply of currency, and any would-be purchaser of goods or payor of debts or projector of an enterprise could have the time use of purchasing power gratis; no limit would exist to the rise in prices which must attend this increase in the circulating medium. What are these limitations? (1) Each bank must conform the volume of its lending, and therewith its issue of circulating credit, to the fundamental requirement that it be always able to make good its agreement to discharge its deposit liabilities on demand. To maintain reserves involves expense. Especially may it be expensive if they have been allowed to get low; securities may have to be marketed at a sacrifice, or good customers pressed for payment at inconvenient times. In periods of general pressure or panic, other banks are not likely to be in a position to lend their own reserve funds or to consent to create deposit credit in aid of still other suffering banks. Not rarely the Bank of England, in the attempt to attract reserve funds, advances bank notes or deposit credit to importers of gold, without imposing the customary interest charge for the covering of the delays of the mint. In at least one case, in 1890, it borrowed reserves from the Bank of France. In 1907 the United States Treasury made especially large money deposits with the national banks of New York to help eke out the needed reserves. Meantime the interior banks were compelled to pay to exporting merchants generous premiums for exchange bills upon Europe, through which, despite the high interest rates ruling in European markets, these banks were able to import 107 millions of gold for their own reserve requirements. In fact, the banking business involves the hazard not merely that some of the debtors of the bank may become insolvent, but also the general and overhead hazard attaching to its underwriting service that it may itself in time of stress become unable to meet its obligations. Its liabilities must not be allowed to get seriously out of ratio to its cash resources. ~The Protection of Reserves.~--In point of fact also the efforts of the various different banks to maintain each its own reserve place a limit on the extent to which any one bank can extend its activity in the expansion of loans and of the derivative liabilities. Just as a relatively liberal granting of credit by one bank must tend to transfer its reserves to other banks, so a relatively great extension of credit in one center or in one country must tend to transfer the reserves, _e. g._, gold, to other centers or countries. Even were it true that a local credit expansion has no effect upon local prices and thereby upon the currents of trade, some transfers of reserves would still take place, and would impose a policy of restriction in credit accommodations.... The influence is actually exerted by both methods. ~(2) Another Cost in Bank-Made Currency.~--The loan rates of the bank must also provide a fund to cover its costs of administration--salaries, clerk hire, rents, and the like. Where transactions run in large units the ratio of expense to the volume of business may be low. This is in part the explanation for the low rates of discount in the great financial centers compared with the rates outside. Credit currency has its cost of production rate as truly as any other service upon the market.... THE RELATION BETWEEN LOANS AND DEPOSITS [35]The money of modern English commerce and finance is the cheque, and the credit dealt in in the London money market is the right to draw a cheque.... Now that we have come to the point at which the manufacture of the right to draw cheques has to be made as clear as may be, it will be well to come into close touch with the facts of the case and look at a bank balance-sheet of to-day. In order to get a fair average specimen I have taken the latest available balance-sheets of half a dozen of the biggest London banks, and put their figures together.... Let us examine the aggregated specimen that I have drawn up. _Millions of £_ Capital paid up 16 Reserve Fund 11 Current and deposit accounts 249 Acceptance on behalf of customers 16-1/2 Profit and Loss account 1-1/2 ------- 294 _Millions of £_ Cash in hand and at the Bank of England 43 Loans at call and short notice 27-1/2 Bills discounted and advances 153 Investments 48 Liability of customers on acceptances 16-1/2 Premises 6 ------- 294 The above statement does not include the figures of the Bank of England, but is an agglomeration of the balance-sheets of six of the biggest of the ordinary joint-stock banks. The first feature that strikes the casual observer is the smallness of the paid-up capital of the banks when compared with the vastness of the figures that they handle. We see that only 16 millions out of the 294 that they have to account for have been actually paid up by shareholders, though 11 millions have been retained out of past profits and accumulated in reserve funds ["surplus," in United States], and 1-1/2 millions are due to shareholders, for distribution as dividend or addition to reserve, in the shape of the profit and loss account balance for the period covered by the balance-sheet. A profit of 1-1/2 millions on 16 is handsome enough, especially when it is considered that most of these balance-sheets covered a half-year's work, but 1-1/2 millions out of 294 is a trifle, and it thus appears that a narrow margin of profit on their total turnover enables the banks to pay good dividends, and that the business of credit manufacture earns its reward, as might be expected, out of the credit that it makes. Proceeding in our examination, we see that the item of acceptances on behalf of customers on one side is balanced by the liability of customers on the other. This means that the banks have accepted bills for their customers (so making them first-class paper and easily negotiable), and are so technically liable to meet them on maturity; but since the customers are expected to meet them, and have presumably given due security, this liability of the customer to the bank is an offsetting asset against the acceptance. And since the acceptance business is a comparatively small item, and a bank's liability under its acceptances is not a liability in quite the same sense as its deposits, and does not immediately affect the present question of the manufacture of currency, it may be omitted for the present. We can thus simplify the balance-sheet by taking out this contra entry on both sides. Further analysis of the liabilities shows that the capital, reserves, or surplus, and profit and loss balance may be regarded as due from the banks to their shareholders, and that the remaining big item, current and deposit accounts, is due to their customers. This is the item which is usually spoken of as the deposits, according to the tiresome habit of monetary nomenclature which seems to delight in applying the same name to a genus and one of the species into which it is divided. Just as the bill of exchange is divided into cheques and bills of exchange, so the English banks' deposit accounts are divided into current and deposit accounts. But most people who have a banking account know the meaning of this distinction. Your current account is the amount at your credit which you can draw out, or against which you can draw cheques, at any moment; your deposit account is the amount that you have placed on deposit with the bank and can only withdraw on a week's or longer notice, and it earns a rate of interest, usually 1-1/2 per cent. below the Bank of England's official rate. The essential point to be grasped is the fact that the banks' deposits, as usually spoken of, include both the current and deposit accounts, and are due by the banks to their customers. Now let us see how this huge debt from the banks to the public has been created. An examination of the assets side of the balance-sheet proves that most of it has been created by money lent to their customers by the banks, and that the cheque currency of to-day is, like the note currency of a former day, based on mutual indebtedness between the banks and their customers. For the assets side shows that the banks hold 43 millions in cash and at the Bank of England, 48 millions in investments, and 6 millions invested in their premises--the buildings in which they conduct their business--and that 180-1/2 millions have been lent by them to their customers, either by the discounting of bills or by advances to borrowers, or by loans at call or short notice. We can now reconstruct our balance-sheet, leaving out the acceptances on both sides, as follows: _Millions of £._ _Millions of £._ Due to shareholders 28-1/2 Cash in hand and at Bank Due to customers 249 of England 43 -------- Investments 48 277-1/2 Premises 6 Due from customers 180-1/2 -------- 277-1/2 And it thus appears that nearly three-quarters of the amount due from the banks to their customers are due from their customers to the banks, having been borrowed from them in one form or another. And this proportion would perhaps be exceeded if we could take the figures of English banking as a whole. But that cannot be done at present, because some of the smaller banks do not separate their cash from their loans at call in their published statements. The greater part of the banks' deposits is thus seen to consist, not of cash paid in, but of credits borrowed. For every loan makes a deposit, and since our balance-sheet shows 180-1/2 millions of loans, 180-1/2 out of the 249 millions of deposits have been created by loans. To show how a loan makes a deposit, let us suppose that you want to buy a thousand-guinea motor-car and raise the wherewithal from your banker, pledging with him marketable securities, and receiving from him an advance, which is added to your current account. Being a prudent person you make this arrangement several days before you have to pay for the car, and so for this period the bank's deposits are swollen by your £1,050, and on the other side of its balance-sheet the entry "advances to customers" is also increased by this amount, and the loan has clearly created a deposit. But you raised your loan for a definite purpose, and not to leave with your bank, and it might be thought that when you use it to pay for your car the deposit would be cancelled. But not so. If the seller of your car banks at your bank, which we will suppose to be Parr's, he will pay your cheque into his own account, and Parr's bank's position with regard to its deposits will be unchanged, still showing the increase due to your loan. But if, as is obviously more probable, he banks elsewhere--perhaps at Lloyd's--he will pay your cheque into his account at Lloyd's bank, and it will be the creditor of Parr's for the amount of £1,050. In actual fact, of course, so small a transaction would be swallowed up in the vast mass of the cross-entries which each of the banks every day makes against all the others, and would be a mere needle in a bottle of hay. But for the sake of clearness we will suppose that this little cheque is the only transaction between Parr's and Lloyd's on the day on which it is presented; the result would be that Parr's would transfer to Lloyd's £1,050 of its balance at the Bank of England, where all the banks keep an account for clearing purposes. And the final outcome of the operation would be that Parr's would have £1,050 more "advances to customers" and £1,050 less cash at the Bank of England among its assets, while Lloyd's would have £1,050 more deposits and £1,050 more cash at the Bank of England. And the £1,050 increase in Lloyd's deposits would have been created by your loan, and though it will be drawn against by the man who sold you the car, it will only be transferred perhaps in smaller fragments to the deposits of other banks; and as long as your loan is outstanding there will be a deposit against it in the books of one bank or another, unless, as is most unlikely, it is used for the withdrawal of coin or notes; and even then the coin and notes are probably paid into some other bank, and become a deposit again; and so we come back to our original conclusion that your borrowing of £1,050 has increased the sum of banking deposits, as a whole, by that amount. The same reasoning applies whenever a bank makes a loan, whatever be the collateral, or pledge deposited by the borrower, whether Stock Exchange securities, as in the case cited, or bales of cotton or tons of copper; or, again, whenever it discounts a bill. In each case it gives the borrower or the seller of the bill a credit in its books--in other words, a deposit; and though this deposit is probably--almost certainly--transferred to another bank, the sum of banking deposits is thereby increased, and remains so, as long as the loans are in existence. And so it appears that the loans of one bank make the deposits of others, and its deposits consist largely of other banks' loans.... RELATION BETWEEN RESERVES AND DEMAND LIABILITIES AGAIN [36]... a bank must so regulate its loans and note issues as to keep on hand a sufficient cash reserve, and thus prevent insufficiency of cash from ... threatening. It can regulate the reserve by alternately selling securities for cash and loaning cash on securities. The more the loans in proportion to the cash on hand, the greater the profits, but the greater the danger also. In the long run a bank maintains its necessary reserve by means of adjusting the interest rate charged for loans. If it has few loans and a reserve large enough to support loans of much greater volume, it will endeavor to extend its loans by lowering the rate of interest. If its loans are large and it fears too great demands on the reserve, it will restrict the loans by a high interest charge. Thus, by alternately raising and lowering interest, a bank keeps its loans within the sum which the reserve can support, but endeavors to keep them (for the sake of profit) as high as the reserve will support. If the sums owed to individual depositors are large, relatively to the total liabilities, the reserve should be proportionately large, since the action of a small number of depositors can deplete it rapidly. Similarly, the reserves should be larger against fluctuating deposits (as of stock brokers) or those known to be temporary. The reserve in a large city of great bank activity needs to be greater in proportion to its demand liabilities than in a small town with infrequent banking transactions. Experience dictates differently the average size of deposit accounts for different banks according to the general character and amount of their business. For every bank there is a normal ratio and hence for a whole community there is also a normal ratio--an average of the ratios for the different banks. No absolute numerical rule can be given. Arbitrary rules are often imposed by law. National banks in the United States, for instance, are required to keep a reserve for their deposits, varying according as they are or are not situated in certain cities designated by law as "reserve" cities, _i. e._, cities where national banks hold deposits of banks elsewhere. These reserves are all in defense of deposits. In defense of notes, on the other hand, no cash reserve is required--that is, of national banks. True, the same economic principles apply to both bank notes and deposits, but the law treats them differently. The Government itself chooses to undertake to redeem the national bank notes on demand. The state banks are subject to varying restrictions. Thus the requirement as to the ratio of reserve to deposits varies from 12-1/2 per cent. to 22-1/2 per cent., being usually between 15 per cent. and 20 per cent. Of the reserve, the part which must be cash varies from 10 per cent. (of the reserve) to 50 per cent., usually 40 per cent. Such legal regulation of banking reserves, however, is not a necessary development of banking.... THE RÔLE OF A SPECIE RESERVE ILLUSTRATED BY THE INCONVERTIBLE NOTES OF THE BANK OF ENGLAND ISSUED DURING THE OPERATION OF THE RESTRICTION ACT[37] [38]... Your Committee proceeded, in the first instance, to ascertain what the price of gold bullion [in terms of Bank of England notes] had been, as well as the rates of the foreign exchanges, for some time past; particularly during the last year. Your Committee have found that the price of gold bullion, which, by the regulations of his Majesty's Mint, is £3 17_s._ 10-1/2_d._ per ounce of standard fineness, was, during the years 1806, 1807, and 1808, as high as £4 in the market. Towards the end of 1808 it began to advance very rapidly, and continued very high during the whole year 1809; the market price of standard gold in bars fluctuating from £4 9_s._ to £4 12_s._ per ounce. The market price at £4 10_s._ is about 15-1/2 per cent. above the Mint price.... It is due,... in justice to the present Directors of the Bank of England, to remind the House that the suspension of their cash payments, though it appears in some degree to have originated in a mistaken view taken by the Bank of the peculiar difficulties of that time, was not a measure sought for by the Bank, but imposed upon it by the Legislature for what were held to be urgent reasons of state policy and public expediency. And it ought not to be urged as matter of charge against the Directors, if in this novel situation in which their commercial company was placed by the law, and entrusted with the regulation and control of the whole circulating medium of the country, they were not fully aware of the principles by which so delicate a trust should be executed, but continued to conduct their business of discounts and advances according to their former routine. It is important at the same time to observe that under the former system, when the Bank was bound to answer its notes in specie upon demand, the state of the foreign exchanges and the price of gold did most materially influence its conduct in the issue of those notes, though it was not the practice of the Directors systematically to watch either the one or the other. So long as gold was demandable for their paper, they were speedily apprised of a depression of the exchange, and a rise in the price of gold, by a run upon them for that article. If at any time they incautiously exceeded the proper limit of their advances and issues, the paper was quickly brought back to them, by those who were tempted to profit by the market price of gold or by the rate of exchange. In this manner the evil soon cured itself. The Directors of the Bank having their apprehensions excited by the reduction of their stock of gold, and being able to replace their loss only by reiterated purchases of bullion at a very losing price, naturally contracted their issues of paper, and thus gave to the remaining paper, as well as to the coin for which it was interchangeable, an increased value, while the clandestine exportation either of the coin, or the gold produced from it, combined in improving the state of the exchange and in producing a corresponding diminution of the difference between the market price and Mint price of gold, or of paper convertible into gold. Your Committee do not mean to represent that the manner in which this effect resulted from the conduct which they have described, was distinctly perceived by the Bank Directors. The fact of limiting their paper as often as they experienced any great drain of gold, is, however, unquestionable.... It was a necessary consequence of the suspension of cash payments, to exempt the Bank from that drain of gold, which, in former times, was sure to result from an unfavourable exchange and a high price of bullion. And the Directors, released from all fears of such a drain, and no longer feeling any inconvenience from such a state of things, have not been prompted to restore the exchanges and the price of gold to their proper level by a reduction of their advances and issues. The Directors, in former times, did not perhaps perceive and acknowledge the principle more distinctly than those of the present day, but they felt the inconvenience, and obeyed its impulse; which practically established a check and limitation to the issue of paper. In the present times the inconvenience is not felt; and the check, accordingly, is no longer in force.... By far the most important ... consequence ... [of the Restriction Act] is, that while the convertibility into specie no longer exists as a check to an over-issue of paper, the Bank Directors have not perceived that the removal of that check rendered it possible that such an excess might be issued by the discount of perfectly good bills. So far from perceiving this ... they maintain the contrary doctrine with the utmost confidence.... That this doctrine is a very fallacious one, your Committee cannot entertain a doubt. The fallacy, upon which it is founded, lies in not distinguishing between an advance of capital to merchants, and an addition of supply of currency to the general mass of circulating medium. If the advance of capital only is considered, as made to those who are ready to employ it in judicious and productive undertakings, it is evident there need be no other limit to the total amount of advances than what the means of the lender, and his prudence in the selection of borrowers, may impose. But in the present situation of the Bank, intrusted as it is with the function of supplying the public with that paper currency which forms the basis of our circulation, and at the same time not subjected to the liability of converting the paper into specie, every advance which it makes of capital to the merchants in the shape of discount, becomes an addition also to the mass of circulating medium. In the first instance, when the advance is made by notes paid in discount of a bill, it is undoubtedly so much capital, so much power of making purchases, placed in the hands of the merchant who receives the notes; and if those hands are safe, the operation is so far, and in this its first step, useful and productive to the public. But as soon as the portion of circulating medium in which the advance was thus made performs in the hands of him to whom it was advanced this its first operation as capital, as soon as the notes are exchanged by him for some other article which is capital, they fall into the channel of circulation as so much circulating medium, and form an addition to the mass of currency. The necessary effect of every such addition to the mass is to diminish the relative value of any given portion of that mass in exchange for commodities. If the addition were made by notes convertible into specie, this diminution of the relative value of any given portion of the whole mass would speedily bring back upon the Bank which issued the notes as much as was excessive. But if by law they are not so convertible, of course this excess will not be brought back, but will remain in the channel of circulation, until paid in again to the Bank itself in discharge of the bills which were originally discounted. During the whole time they remain out, they perform all the functions of circulating medium; and before they come to be paid in discharge of those bills, they have already been followed by a new issue of notes in a similar operation of discounting. Each successive advance repeats the same process. If the whole sum of discounts continues outstanding at a given amount, there will remain permanently out in circulation a corresponding amount of paper; and if the amount of discounts is progressively increasing, the amount of paper, which remains out in circulation over and above what is otherwise wanted for the occasions of the public, will progressively increase also, and the money prices of commodities will progressively rise. This progress may be as indefinite as the range of speculation and adventure in a great commercial country.... FOOTNOTES: [31] Herbert Joseph Davenport, _The Economics of Enterprise_, pp. 259, 60. The Macmillan Company, New York. 1913. [32] Charles F. Dunbar, _Chapters on the Theory and History of Banking_, pp. 20-38, G. P. Putnam's Sons, New York and London. 1902. [33] Herbert Joseph Davenport, _The Economics of Enterprise_, pp. 260-6. The Macmillan Company. New York. 1913. [34] It should not be overlooked, furthermore, that the velocity of the circulation of deposits is approximately two and one-half times that of money.--EDITOR. [35] Hartley Withers, _The Meaning of Money_, pp. 57-73. E. P. Dutton and Company. New York. 1914. [36] Irving Fisher, _The Purchasing Power of Money_, pp. 45-47. The Macmillan Company. New York. 1911. [37] This act, passed in 1797 in order to prevent a drain of gold to the continent during the Napoleonic War, forbade the Bank of England to redeem its notes. It remained in force until 1821, when specie payment was resumed.--EDITOR. [38] Report from the Select Committee on the High Price of Gold Bullion. Ordered by the House of Commons, to be printed, 8 June, 1810. CHAPTER X THE USE OF CREDIT INSTRUMENTS IN PAYMENTS IN THE UNITED STATES [39]Discussions concerning the issue of notes by banking institutions, which largely occupied the attention of students of finance and business men in the eighteenth and the first three quarters of the nineteenth centuries, have been succeeded by equally intense discussions of the amount and influence of credit deposits on the books of the banks, when drawn on by their customers with checks. The fact that the use of checks against deposits renders unnecessary a large amount of money, or currency, attracted attention early in the history of deposit banking, and efforts have been made from time to time to determine the proportion of money, or currency, replaced with checks and credit documents of similar character.[40] We may summarize the results of our inquiry and inferences therefrom briefly as follows: 1. In the first place, it is very clear that a large proportion of the business of the country, even the retail trade, is done by means of credit instruments. While it is probably true that wage-earners, as a class, do not commonly use checks, it is also true that a great many of them do. Moreover, the use of checks is common among people who derive their income from other sources, even though it be not larger than the well-paid day laborer. We are justified ... in concluding that 50 or 60 per cent. of the retail trade of the country is settled in this way. 2.... Over 90 per cent. of the wholesale trade of the country is done with checks and other credit documents. 3. The very general use of checks is shown in the deposits of "all other" depositors. The average is close up to that of the wholesale trade, and while many corporations, public and private, are doubtless represented here, and many speculative transactions are included, there is no reason for excluding any one of those in determining the proportion of business done, whatever we may think of its legitimacy from the point of view of public morals or public utility. 4. The use of checks is promoted in a measure by the payment of wages by check. It appears from our investigation that of weekly pay rolls reported by the banks, aggregating $134,800,000 for the week ending March 13 last, 70 per cent. was in checks.... 5. The great use of checks is shown also by the large number of accounts under $500.... 6. We may therefore safely accept an average of 80 to 85 per cent. as the probable percentage of business of this country done by check. 7. The fact that so large a proportion of business is done with credit paper may or may not be a good thing. Whether it is or not depends on circumstances. If any part of the country is compelled to use checks because of the lack of currency, when it would prefer the latter, the situation is an evil. 8. The transaction of so large a volume of our business by checks is an element of danger in times of stringency and crisis. In such times the uncalled balance of credit transactions creates a larger demand for money, but the habit of settling by check has meantime kept the available amount of money at a minimum. 9. Consequently there ought to be some means of supplying additional currency when credit as a means of payment diminishes. This currency ought to be as safe and as uniform as the ordinary currency, and it should be capable of being quickly emitted and recalled. That is, it should possess elasticity. 10. The large money circulation of the country is explained by the facts that our prices and wages range high, that our people probably carry a larger average amount of money on their persons than do foreigners, that some portion of our currency has been destroyed or lost or hoarded.... As our business grows, the amount of money needed as reserve to perform this vast volume of business transactions increases, too.... 13. The volume of credit transactions very likely tends to increase as population and business grow. It does not increase uniformly, however, but by periodic movements. That is to say, the rate of increase of credit transactions, as compared with the whole volume of business, grows, as it were, by jerks and at a decreasing rate. Several important questions are closely related to the inquiry which has been [made and summarized]. Among them are these: 1. What is the amount of money rendered unnecessary by the use of credit paper? 2. What is the influence of the vast volume of credit transactions on the value of money or the level of prices?[41] 3. Why is it that our per capita circulation is so large and where is the money in active circulation?... 1. We will take these questions up in order.... No one can say ... with definiteness what is the amount of money released if 75 or 80 per cent. of our business transactions are settled by means of credit paper. This is a matter in which the long experience of practical bankers is the only safe guide, because the amount in question is changing from day to day as the conditions change. No simple rule about it can be laid down.... One point needs to be carefully borne in mind. However great the volume of credit exchanges, however extensive the use of credit may become in a community, they can never fully displace sales for direct money payment. The extensive use of credit is not of itself a sign that a community is well off. Credit is used in poor as well as in rich communities. Its extensive use in a poor and undeveloped country is likely to indicate a lack of capital rather than an abundance of wealth. Every community tends to use the cheapest medium of exchange accessible to it. If its capital is of very high value for producing goods for direct consumption, a community will be averse to investing much of it in a medium of exchange. This is the reason why undeveloped countries, as our own was a century ago, try to effect their exchanges by means of credit paper to a larger extent than wealthier communities. Under such conditions paper money is commonly thought to be the cheapest medium of exchange. If, now, part of the money exchanges are replaced with credit exchanges, the amount of money released, or the amount without which the community could now get on, would be the whole amount formerly used in money payments ... minus the reserve necessary to do this credit business. The important point, however, is that less money is necessary. How much less we can not be sure. We can get some light on the subject, however, by noting the volume of business done by credit paper and the balances which from time to time are carried as a basis of settlement. It is important to note also that an increase in the volume of credit transactions does not necessarily mean that we must get a proportionate increase in our reserve of money. Every refinement of the credit mechanism makes it possible to do a larger volume of business on the same reserve.... The volume of business that can be done by credit paper depends on several circumstances. Obviously, in the first place, it depends upon the banking facilities of the country. If the banks are widely distributed, if they are willing to deal in transactions small enough to be within the reach of large numbers of people, many more transactions will be settled through them than would otherwise be the case. This fact undoubtedly explains in large measure the development of what may be called the "banking habit" among the people of the United States. Undoubtedly our people pay by check much more commonly and much more largely than people of any other country. We settle smaller transactions by check; our banks are willing to carry smaller accounts. Indeed, the rapid industrial development of our country is probably due in no small degree to our system of independent banks and the facility with which we have permitted banks to be established. The small independent bank in the country community has felt that its interests and success were bound up with the interests and success of the community, and, therefore, has undoubtedly been willing to do more for the general interests than a branch of a large bank in some remote commercial center would have felt like doing, even if it had been justified in doing so. The small capital with which we have permitted banks to be established also has undoubtedly been a contributing factor to our rapid economic development, as well as to the promotion of the banking habit among our people. In the next place, the density of population is, of course, an important factor for the growth of credit exchanges. A larger volume of business is settled by bank paper in a commercial center than in an agricultural community, even though the proportion of total business thus settled may not be larger. However, it is necessary that there should be a certain number of people within reach of a common center in order to have a bank established there. Of course the smaller the bank the fewer the people thus required. Thus again our inclination in the past to favor the establishment of the small independent banks has facilitated the spread of banking and promoted the volume of business settled in the country districts by credit payment and stimulated the banking habit among our people. Finally, the general education and intelligence of the mass of the people is an important factor. Men do not use banks unless they have confidence in them, and they have come to be regarded as a settled part of the ordinary commercial mechanism of the community. Our people are people of a wide general education and high order of intelligence. They understand the place and work of the bank in a community much better than the same number of people, for example, in a European country. This fact is strikingly brought out by a study of the proportion of retail business settled by means of checks, in what are called the "foreign" districts of our large cities, on the one hand, and in an agricultural community on the other. The European immigrant is not a man who has had banking connections in his home country, and he does not use them here, even though the facilities are more numerous. Such evidence as there is seems to indicate that payment by check has shown an increase during the past few years: (a) In the first place, the returns of our reports show a larger percentage in retail trade.... (b) The prosperity of the farmers in the Central West has enabled many to have bank accounts who fifteen years ago could not carry balances. The writer's information from central Illinois is strongly in this direction. (c) The third evidence is found in the growth of the number of small banks, especially in the country districts.... (d) The appearance of a considerable proportion of checks in the deposits of mutual savings banks is also, to some degree, significant.... On the other hand, the increase of that part of the population which consists of the wage-earning class, by whom the use of checks is small, is undoubtedly greater than that of our other classes of population. However, the wealthy classes, though fewer in number, have more to spend and their use of checks raises the proportion of credit paper in payments. We can not expect any social movement to continue steadily in one direction for an indefinite time. Such evidence as inquiries of this character furnish seems to show that there is a certain ebb and flow in the proportion of checks used in business payments. With a given amount of money a certain proportion of it can be used for bank reserves on which to build credit transactions. For a time the volume of business will increase more rapidly than the money supplies, so that the proportion of credit business to the whole will increase, the improvement of the credit machinery in the meantime facilitating the movement. But the perfection of the facilities for utilizing to the utmost a given reserve, or a slowly increasing one, will come to a stop after a time, and it will be necessary to increase the money supply for any further expansion of credit. In the language of business, another unit of capital must be added to plant. The unit added to the social capital devoted to exchange--that is, the additional amount of money--will be larger than is necessary for most profitable immediate use, consequently the proportion of money exchanges will for a time show an increase. We may conclude, therefore, that the volume of business done on credit gradually increases as the population and total amount of business are enlarged, but at a decreasing rate and with occasional or periodic retardations. 2. _Relation of credit exchanges to the volume of money and prices._--It is pertinent to inquire, now, what effect, if any, this great settlement of indebtedness by means of credit paper has upon the value of money. Evidently, it can influence this value, or the general price level, only as it changes the amount of demand for money. We have seen reason, now, to think that 80 per cent. of our business transactions are settled by means of credit paper. Credit paper cancellation enables a larger amount of business to be done with the same amount of money and has an effect in determining the value of money by increasing the demand for reserves.... ... The use of credit paper in effecting credit exchanges makes possible a far larger volume of business than could otherwise be done, and that this increased volume of business must in some way influence prices seem[s] undeniable.... ... We are told by many that there is a vast amount of credit transactions embodied in banking and clearing-house statistics which may be termed "fictitious." That is to say, they are not a part of the necessary work of exchange in a community. For example, the cotton and wheat crops are sold several times over on the exchanges of the country, but not all these purchases and sales are a necessary part of the process of getting the cotton from the planter to the manufacturer. These sales, we are told, are purely speculative and born out of the credit organization, which, it is urged, merely makes the transactions possible.... However,... these exchanges actually exist. All the purchases involved constitute a part of the demand for means of settlement. Therefore they are to be regarded as a proper part of the exchange business of the country, and in some degree they must influence the need for money.... ... The demand for money to effect exchanges includes, first, demand for money for direct exchanges; second, demand for reserves for credit exchanges. Some goods exchange by direct barter and still more probably by indirect barter. If these last exchanges just cancelled one another, the credit paper that grows out of them would also cancel, and no balances would remain to be settled with money. Usually, however, they do not cancel, and the balance must be settled with cash; hence a reserve is necessary.... This demand for reserve is certainly one of the influences that go to determine the value of money. In short, the demand for money includes a demand for direct payment and a demand for reserve.... 3. _Our monetary circulation._--Our per capita circulation, as estimated by the Comptroller of the Currency, has increased from $21.10 in 1906 to $34.72 in 1908.[42] This is larger than the per capita circulation of other great industrial and commercial countries with the exception of France. Why is it necessary and where is it? It is necessary, perhaps, for the following reasons: (a) A larger amount of money is needed in this country because, in the first place, our prices range higher. If the prices of articles commonly consumed range 20 per cent. higher than they do abroad, the people who buy them and pay for them with money need a larger amount to make their purchases. The same cause makes a larger reserve necessary to exchange a given volume of goods by credit. The demand for money, therefore, both for reserve and direct money transactions, is greater on account of the higher scale of prices. (b) The same kind of reasoning applies to our wage scale. Whether the wage scale be the cause of the higher cost of living or the higher cost of living be the cause of the higher wage scale, more money will be needed in proportion to the trade. If wages are paid with checks, more money will be needed by the amount that the reserve must be increased to furnish a basis for the checks. (c) Our country is more sparsely settled than England, France, or Germany. In spite of the large increase in the banking facilities of the country, it still remains true that very many places are remote from banks, so that business, so far as it is not barter, will probably be carried on with money. It is necessary, therefore, to have a larger amount of money than if population were denser.... (d) It may be that our spirit of individualism plays some part. So large a proportion of our wage-earning population have come from conditions where they had opportunity to handle very little money, that they like to carry money on their persons. It makes them feel, as one man said to the writer, "more independent." To quote the same informant, they would "rather pay higher prices and have more money to pay with." (e) Doubtless there is a good deal of hoarding by people who distrust banks or are not near enough to use them. It might be urged that no larger proportion of people here hoard than is the case in Europe. Without disputing this, it is true, however, that if only the same proportion hoard and in the same relative amounts as is done by corresponding classes of the population, the absolute amount thus withdrawn would be larger because of our higher scale of wages and prices.... FOOTNOTES: [39] David Kinley, _The Use of Credit Instruments in Payments in the United States_, pp. 1, 2; 199-216. Senate Document No. 399. 61st Congress, _2d Session_. [40] In this discussion the phrase "credit documents" or "credit instruments" does not include bank notes. [41] [The effect of credit exchanges on the value of money, treated at length in the next chapter, is only briefly discussed in the extracts here reproduced.] [42] [Approximately $40 in 1916.] CHAPTER XI A SYMPOSIUM ON THE RELATION BETWEEN MONEY AND GENERAL PRICES The form of this chapter was suggested by the proceedings of a session of the 1910 Meeting of the American Economic Association, devoted to a consideration of the causes of the rise in prices between 1896 and 1909. Selections from papers there presented, and from the relative discussion, make up a considerable part of the chapter, and it is suggested that all of the selections, except the last, may well be considered for purposes of study as having come from the papers and discussion of the session referred to, although numerous additions and substitutions have been made in order to render the treatment one of principles involved in the determination of general prices without special reference to any particular period of years. IRVING FISHER[43]: Overlooking the influence of deposit currency, or checks, the price level may be said to depend on only three sets of causes: (1) the quantity of money in circulation; (2) its "efficiency" or velocity of circulation (or the average number of times a year money is exchanged for goods); and (3) the volume of trade (or amount of goods bought by money). The so-called "quantity theory,"[44] _i.e._, that prices vary proportionately to money, has often been incorrectly formulated, but (overlooking checks) the theory is correct in the sense that the level of prices varies directly with the quantity of money in circulation, provided the velocity of circulation of that money and the volume of trade which it is obliged to perform are not changed. The quantity theory has been one of the most bitterly contested theories in economics, largely because the recognition of its truth or falsity affected powerful interests in commerce and politics. It has been maintained--and the assertion is scarcely an exaggeration--that the theorems of Euclid would be bitterly controverted if financial or political interests were involved. The quantity theory has, unfortunately, been made the basis of arguments for unsound currency schemes. It has been invoked in behalf of irredeemable paper money and of national free coinage of silver at the ratio of 16 to 1. As a consequence, not a few "sound money men," believing that a theory used to support such vagaries must be wrong, and fearing the political effects of its propagation, have drifted into the position of opposing, not only the unsound propaganda, but also the sound principles by which its advocates sought to bolster it up.[45] These attacks upon the quantity theory have been rendered easy by the imperfect comprehension of it on the part of those who have thus invoked it in a bad cause. Personally, I believe that few mental attitudes are more pernicious, and in the end more disastrous, than those which would uphold sound practice by denying sound principles because some thinkers make unsound application of those principles. At any rate, in scientific study there is no choice but to find and state the unvarnished truth. The quantity theory will be made more clear by the equation of exchange, which is now to be explained. The equation of exchange is a statement, in mathematical form, of the total transactions effected in a certain period in a given community. It is obtained simply by adding together the equations of exchange for all individual transactions. Suppose, for instance, that a person buys 10 pounds of sugar at 7 cents per pound. This is an exchange transaction, in which 10 pounds of sugar have been regarded as equal to 70 cents, and this fact may be expressed thus: 70 cents = 10 pounds of sugar multiplied by 7 cents a pound. Every other sale and purchase may be expressed similarly, and by adding them all together we get the equation of exchange _for a certain period in a given community_. During this same period, however, the same money may serve, and usually does serve, for several transactions. For that reason the money side of the equation is of course greater than the total amount of money in circulation. The equation of exchange relates to all the purchases made by money in a certain community during a certain time. We shall continue to ignore checks or any circulating medium not money. We shall also ignore foreign trade and thus restrict ourselves to trade within a hypothetical community. Later we shall reinclude these factors, proceeding by a series of approximations through successive hypothetical conditions to the actual conditions which prevail to-day. We must, of course, not forget that the conclusions expressed in each successive approximation are true solely on the particular hypothesis assumed. The equation of exchange is simply the sum of the equations involved in all individual exchanges in a year. In each sale and purchase, the money and goods exchanged are _ipso facto_ equivalent; for instance, the money paid for sugar is equivalent to the sugar bought. And in the grand total of all exchanges for a year, the total money paid is equal in value to the total value of the goods bought. The equation thus has a money side and a goods side. The money side is the total money paid, and may be considered as the product of the quantity of money multiplied by its rapidity of circulation. The goods side is made up of the products of quantities of goods exchanged multiplied by their respective prices. The important magnitude, called the velocity of circulation, or rapidity of turnover, is simply the quotient obtained by dividing the total money payments for goods in the course of a year by the average amount of money in circulation by which those payments are effected. This velocity of circulation for an entire community is a sort of average of the rates of turnover of money for different persons. Each person has his own rate of turnover which he can readily calculate by dividing the amount of money he expends per year by the average amount he carries. Let us begin with the money side. If the number of dollars in a country is 5,000,000, and their velocity of circulation is twenty times per year, then the total amount of money changing hands (for goods) per year is 5,000,000 times twenty, or $100,000,000. This is the _money_ side of the equation of exchange. Since the money side of the equation is $100,000,000, the goods side must be the same. For if $100,000,000 has been spent for goods in the course of the year, then $100,000,000 worth of goods must have been sold in that year. In order to avoid the necessity of writing out the quantities and prices of the innumerable varieties of goods which are actually exchanged, let us assume for the present that there are only three kinds of goods,--bread, coal, and cloth; and that the sales are: 200,000,000 loaves of bread at $ .10 a loaf, 10,000,000 tons of coal at 5.00 a ton, and 30,000,000 yards of cloth at 1.00 a yard. The value of these transactions is evidently $100,000,000, _i. e._, $20,000,000 worth of bread plus $50,000,000 worth of coal plus $30,000,000 worth of cloth. The equation of exchange therefore (remember that the money side consisted of $5,000,000 exchanged 20 times) is as follows: $5,000,000 × 20 times a year = 200,000,000 loaves × $ .10 a loaf + 10,000,000 tons × 5.00 a ton + 30,000,000 yards × 1.00 a yard This equation contains on the money side two magnitudes, viz. (1) the quantity of money and (2) its velocity of circulation; and on the goods side two _groups_ of magnitudes in two columns, viz. (1) the quantities of goods exchanged (loaves, tons, yards), and (2) the prices of these goods. The equation shows that these four sets of magnitudes are mutually related. Because this equation must be fulfilled, the prices must bear a relation to the three other sets of magnitudes--quantity of money, rapidity of circulation, and quantities of goods exchanged. Consequently, these prices must, as a whole, vary proportionally with the quantity of money and with its velocity of circulation, and inversely with the quantities of goods exchanged. Suppose, for instance, that the quantity of money were doubled, while its velocity of circulation and the quantities of goods exchanged remained the same. Then it would be quite impossible for prices to remain unchanged. The money side would now be $10,000,000 × 20 times a year or $200,000,000; whereas, if prices should not change, the goods would remain $100,000,000, and the equation would be violated. Since exchanges, individually and collectively, always involve an equivalent _quid pro quo_, the two sides _must_ be equal. Not only must purchases and sales be equal in amount--since every article bought by one person is necessarily sold by another--but the total value of goods sold must equal the total amount of money exchanged. Therefore, under the given conditions, prices must change in such a way as to raise the goods side from $100,000,000 to $200,000,000. This doubling may be accomplished by an even or uneven rise in prices but some sort of _a rise of prices there must be_. If the prices rise evenly, they will evidently all be exactly doubled.... If the prices rise unevenly, the doubling must evidently be brought about by compensation; if some prices rise by less than double, others must rise by enough more than double to exactly compensate. But whether all prices increase uniformly, each being exactly doubled, or some prices increase more and some less (so as still to double the total money value of the goods purchased), the prices _are_ doubled _on the average_.... From the mere fact, therefore, that the money spent for goods must equal the quantities of those goods multiplied by their prices, it follows that the level of prices must rise or fall according to changes in the quantity of money, _unless_ there are changes in its velocity of circulation or in the quantities of goods exchanged. If changes in the quantity of money affect prices, so will changes in the other factors--quantities of goods and velocity of circulation--affect prices, and in a very similar manner. Thus a doubling in the velocity of circulation of money will double the level of prices, provided the quantity of money in circulation and the quantities of goods exchanged for money remain as before.... Again, a doubling in the quantities of goods exchanged will not double, but halve, the height of the price level, _provided_ the quantity of money and its velocity of circulation remain the same.... Finally, if there is a simultaneous change in two or all of the three influences, _i. e._, quantity of money, velocity of circulation, and quantities of goods exchanged, the price level will be a compound or resultant of these various influences. If, for example, the quantity of money is doubled, and its velocity of circulation is halved, while the quantity of goods exchanged remains constant, the price level will be undisturbed. Likewise, it will be undisturbed if the quantity of money is doubled and the quantity of goods is doubled, while the velocity of circulation remains the same. To double the quantity of money, therefore, is not always to double prices. We must distinctly recognize that the quantity of money is only one of three factors, all equally important in determining the price level.... We now come to the strict algebraic statement of the equation of exchange.... Let us denote the total circulation of money, _i. e._, the amount of money expended for goods in a given community during a given year, by _E_ (expenditure); and the average amount of money in circulation in the community during the year by _M_ (money). _M_ will be the simple arithmetical average of the amounts of money existing at successive instants separated from each other by equal intervals of time indefinitely small. If we divide the year's expenditures, _E_, by the average amount of money, _M_, we shall obtain what is called the average rate of turnover of money in its exchange for goods, _E_/_M_ that is, the velocity of circulation of money. This velocity may be denoted by _V_, so that _E_/_M_ = _V_; then _E_ may be expressed as _MV_. In words: the total circulation of money in the sense of money expended is equal to the total money in circulation multiplied by its velocity of circulation or turnover. _E_ or _MV_, therefore, expresses the money side of the equation of exchange. Turning to the goods side of the equation, we have to deal with the prices of goods exchanged and quantities of goods exchanged. The average price of sale of any particular good, such as bread, purchased in the given community during the given year, may be represented by _p_ (price); and the total quantity of it purchased, by _Q_ (quantity); likewise the average price of another good (say coal) may be represented by _p´_ and the total quantity of it exchanged, by _Q´_; the average price and the total quantity of a third good (say cloth) may be represented by _p´´_ and _Q´´_ respectively; and so on, for all other goods exchanged, however numerous. The equation of exchange may evidently be expressed as follows: _MV_ = _pQ_ + _p´Q´_ + _p´´Q´´_ + etc. The right-hand side of this equation is the sum of terms of the form _pQ_--a price multiplied by a quantity bought. It is customary in mathematics to abbreviate such a sum of terms (all of which are of the same form) by using "Sigma" as a symbol of summation. This symbol does not signify a _magnitude_ as do the symbols _M, V, p, Q_, etc. It signifies merely the _operation_ of addition and should be read "the sum of terms of the following type." The equation of exchange may therefore be written: _MV_ = Sigma_pQ_. That is, the magnitudes _E_, _M_, _V_, the _p_'s and the _Q_'s relate to the _entire_ community and an _entire_ year; but they are based on and related to corresponding magnitudes for the individual persons of which the community is composed and for the individual moments of time of which the year is composed. The algebraic derivation of this equation is, of course, essentially the same as the arithmetical derivation previously given. It consists simply _in adding together the equations for all individual purchases within the community during the year_.... [We are now] ... prepared for the inclusion of bank deposits or circulating credit in the equation of exchange. We shall still use _M_ to express the quantity of actual money, and _V_ to express the velocity of its circulation.[46] Similarly, we shall now use _M´_ to express the total deposits subject to transfer by check; and _V´_ to express the average velocity of circulation. The total value of purchases in a year is therefore no longer to be measured by _MV_, but by _MV_ + _M´V´´_. The equation of exchange, therefore, becomes: _MV_ + _M´V´_ = Sigma_pQ_ = _PT_[47].... With the extension of the equation of monetary circulation to include deposit circulation, the influence exerted by the quantity of money on general prices becomes less direct; and the process of tracing this influence becomes more difficult and complicated. It has even been argued that this interposition of circulating credit breaks whatever connection there may be between prices and the quantity of money.[48] This would be true if circulating credit were independent of money. But the fact is that the quantity of circulating credit, _M´_, tends to hold a definite relation to _M_, the quantity of money in circulation; that is, deposits are normally a more or less definite multiple of money. Two facts normally give deposits a more or less definite ratio to money. The first ... [is] that bank reserves are kept in a more or less definite ratio to bank deposits. The second is that individuals, firms, and corporations preserve more or less definite ratios between their cash transactions and their check transactions, and also between their money and deposit balances.[49] These ratios are determined by motives of individual convenience and habit. In general, business firms use money for wage payments, and for small miscellaneous transactions included under the term "petty cash"; while for settlements with each other they usually prefer checks. These preferences are so strong that we could not imagine them overridden except temporarily and to a small degree. A business firm would hardly pay car fares with checks and liquidate its large liabilities with cash. Each person strikes an equilibrium between his use of the two methods of payment, and does not greatly disturb it except for short periods of time. He keeps his stock of money or his bank balance in constant adjustment to the payments he makes in money or by check. Whenever his stock of money becomes relatively small and his bank balance relatively large, he cashes a check. In the opposite event, he deposits cash. In this way he is constantly converting one of the two media of exchange into the other. A private individual usually feeds his purse from his bank account; a retail commercial firm usually feeds its bank account from its till. The bank acts as intermediary for both. In a given community the quantitative relation of deposit currency to money is determined by several considerations of convenience. In the first place, the more highly developed the business of a community, the more prevalent the use of checks. Where business is conducted on a large scale, merchants habitually transact their larger operations with each other by means of checks, and their smaller ones by means of cash. Again, the more concentrated the population, the more prevalent the use of checks. In cities it is more convenient both for the payer and the payee to make large payments by check; whereas, in the country, trips to a bank are too expensive in time and effort to be convenient, and therefore more money is used in proportion to the amount of business done. Again, the wealthier the members of the community, the more largely will they use checks. Laborers seldom use them; but capitalists, professional and salaried men use them habitually, for personal as well as business transactions. There is, then, a relation of convenience and custom between check and cash circulation, and a more or less stable ratio between the deposit balance of the average man or corporation and the stock of money kept in pocket or till. This fact, as applied to the country as a whole, means that by convenience a rough ratio is fixed between _M_ and _M´_. If that ratio is disturbed temporarily, there will come into play a tendency to restore it. Individuals will deposit surplus cash, or they will cash surplus deposits. Hence, both money in circulation ... and money in reserve ... tend to keep in a fixed ratio to deposits. It follows that the two must be in a fixed ratio to each other. It further follows that any change in _M_, the quantity of money in circulation, requiring as it normally does a proportional change in _M´_, the volume of bank deposits subject to check, will result in an exactly proportional change in the general level of prices except, of course, so far as this effect be interfered with by concomitant changes in the _V_'s or the _Q_'s. The truth of this proposition is evident from the equation _MV_ + _M´V´_ = Sigma_pQ_; for if, say, _M_ and _M´_ are doubled, while _V_ and _V´_ remain the same, the left side of the equation is doubled and therefore the right side must be doubled also. But if the _Q_'s remain unchanged, then evidently all the _p_'s must be doubled, or else if some are less than doubled, others must be enough more than doubled to compensate.... The factors in the equation of exchange are ... continually seeking normal adjustment. A ship in a calm sea will "pitch" only a few times before coming to rest, but in a high sea, the pitching never ceases. While continually seeking equilibrium, the ship continually encounters causes which accentuate the oscillation. The factors seeking mutual adjustment are money in circulation, deposits, their velocities, the _Q_'s and the _p_'s. These magnitudes must always be linked together by the equation _MV_ + _M´V´_ = Sigma_pQ_. This represents the mechanism of exchange. But in order to conform to such a relation the displacement of any one part of the mechanism spreads its effects during the transition periods [_i.e._, periods of rising or falling prices] over all parts. Since periods of transition are the rule and those of equilibrium the exception, the mechanism of exchange is almost always in a dynamic rather than a static condition....[50] [Illustration] [51]It is interesting to make a quantitative comparison of the various magnitudes with the increase in the quantity of money as the most important factor in raising the price level. While it is true, as shown by the diagram, that the volume of deposits subject to check has increased greatly, the major part of the increase has to be ascribed to the increase in the quantity of money. Only so far as the volume of deposits subject to check has increased relatively to the money in circulation, can the increase of deposits be regarded as an independent cause of the rise in prices. We have thus to consider the relative importance of the five causes affecting prices: 1. The quantity of money in circulation (M). 2. The volume of bank deposits subject to check considered relatively to money (M´/M). 3. The velocity of the former (V´). 4. The velocity of the latter (V). 5. The volume of trade (T). We may best compare the relative importance of these five magnitudes by answering the question: What would the result have been had any one of these magnitudes remained unchanged, assuming that the other four changed in the same manner that they actually did change. We find (1) that if the money in circulation, M, had not changed, between the years 1896 and 1909, for example, the price level of 1909 would have been 45 per cent. lower than it actually was; (2) that if M´/M, the relative deposits, had not changed, during the same period the price level in 1909 would have been 23 per cent. lower than it actually was; (3) if the velocity of circulation of money, V, had not changed, the price level for 1909 would have been 1 per cent. lower; (4) if the velocity of circulation of deposits, V´, had not changed, the price level in 1909 would have been 28 per cent. lower; (5) if T had not changed, the price level in 1909 would have been 106 per cent. _higher_. Thus the changes in the first four factors have tended to raise prices, while the change in T has tended to lower prices. The relative importance of the four price-raising causes may be stated in terms of the per cent. already given which represents how much lower prices would have been except for each of these causes separately considered. According to this test we find the relative importance of the four price-raising factors to be as follows: The importance of V is represented by 1, The importance of M´/M is represented by 23, The importance of V is represented by 28, The importance of M is represented by 45. That is, the increase in the quantity of money had an importance nearly double that of any other one price-raising factor, during the period mentioned. INDIRECT INFLUENCES ON PURCHASING POWER[52] Thus far we have considered the level of prices as affected by the volume of trade, by the velocities of circulation of money and of deposits, and by the quantities of money and of deposits. These are the only influences which can _directly_ affect the level of prices. Any other influences on prices must act through these five. There are myriads of such influences (outside of the equation of exchange) that affect prices through these five. It is our purpose ... to note the chief among them.... We shall first consider the outside influences that affect the volume of trade and, through it, the price level. The conditions which determine the extent of trade are numerous and technical. The most important may be classified as follows: 1. _Conditions affecting producers._ (a) Geographical differences in natural resources. (b) The division of labor. (c) Knowledge of the technique of production. (d) The accumulation of capital. 2. _Conditions affecting consumers._ (a) The extent and variety of human wants. 3. _Conditions connecting producers and consumers._ (a) Facilities for transportation. (b) Relative freedom of trade. (c) Character of monetary and banking systems. (d) Business confidence. 1 (a). It is evident that if all localities were exactly alike in their natural resources, in other words, in their comparative costs of production, no trade would be set up between them.... Cattle raising in Texas, the production of coal in Pennsylvania, of oranges in Florida, and of apples in Oregon have increased the volume of trade for these communities respectively. 1 (b). Equally obvious is the influence of the division of labor.... 1 (c).... The state of knowledge of production will affect trade. Vast coal fields in China await development, largely for lack of knowledge of how to extract and market the coal. Egypt awaits the advent of scientific agriculture, to usher in trade expansion. Nowadays, trade schools in Germany, England, and the United States are increasing and diffusing knowledge of productive technique. 1 (d). But knowledge, to be of use, must be applied; and its application usually requires the aid of capital. The greater and the more productive the stock or capital in any community, the more goods it can put into the currents of trade.... Since increase in trade tends to decrease the general level of prices, anything which tends to increase trade likewise tends to decrease the general level of prices. We conclude, therefore, that among the causes tending to decrease prices are increasing geographical or personal specialization, improved productive technique, and the accumulation of capital. The history of commerce shows that all these causes have been increasingly operative during a long period including the last century. Consequently, there has been a constant tendency, from these sources at least, for prices to fall. 2 (a).... An increase of wants, by leading to an increase in trade, tends to lower the price level. Historically, during recent times through invention, education, and the emulation coming from increased contact in centers of population, there has been a great intensification and diversification of human wants and therefore increased trade. Consequently, there has been from these causes a tendency of prices to fall. 3 (a). Anything which facilitates intercourse tends to increase trade. Anything that interferes with intercourse tends to decrease trade. First of all, there are the mechanical facilities for transport. As Macaulay said, with the exception of the alphabet and the printing press, no set of inventions has tended to alter civilization so much as those which abridge distance,--such as the railway, the steamship, the telephone, the telegraph, and that conveyer of information and advertisements, the newspaper. These all tend, therefore, to decrease prices. 3 (b). Trade barriers are not only physical but legal. A tariff between countries has the same influence in decreasing trade as a chain of mountains. The freer the trade, the more of it there will be.... 3 (c). The development of efficient monetary and banking systems tends to increase trade. There have been times in the history of the world when money was in so uncertain a state that people hesitated to make many trade contracts because of the lack of knowledge of what would be required of them when the contract should be fulfilled. In the same way, when people cannot depend on the good faith or stability of banks, they will hesitate to use deposits and checks. 3 (d). Confidence, not only in banks in particular, but in business in general, is truly said to be "the soul of trade." Without this confidence there cannot be a great volume of contracts. Anything that tends to increase this confidence tends to increase trade.... We see, then, that prices will tend to fall through increase in trade, which may in turn be brought about by improved transportation, by increased freedom of trade, by improved monetary and banking systems, and by business confidence. Historically, during recent years, all of these causes have tended to grow in power, except freedom of trade.... Having examined those causes outside the equation which affect the volume of trade, our next task is to consider the outside causes that affect the velocities of circulation of money and of deposits. For the most part, the causes affecting one of these velocities affect the other also. These causes may be classified as follows: 1. _Habits of the individual._ (a) As to thrift and hoarding. (b) As to book credit. (c) As to the use of checks. 2. _Systems of payments in the community._ (a) As to frequency of receipts and of disbursements. (b) As to regularity of receipts and disbursements. (c) As to correspondence between times and amounts of receipts and disbursements. 3. _General causes._ (a) Density of population. (b) Rapidity of transportation. 1 (a). Taking these up in order, we may first consider what influence thrift has on the velocity of circulation. Velocity of circulation of money is the same thing as its rate of turnover. It is found by dividing the total payments effected by money in a year by the amount of money in circulation in a year. It depends upon the rates of turnover of the individuals who compose the society. This velocity of circulation or rapidity of turnover of money is the greater for each individual the more he spends, with a given average amount of cash on hand; or the less average cash he keeps, with a given yearly expenditure.... 1 (b). The habit of "charging," _i.e._, using book credit, tends to _increase_ the velocity of circulation of money, because the man who gets things "charged" does not need to keep _on hand_ as much money as he would if he made all payments in cash. A man who pays _cash_ daily needs to keep cash for daily contingencies. The system of cash payments, unlike the system of book credit, requires that money shall be kept on hand _in advance_ of purchases. Evidently, if money must be provided in advance, it must be provided in larger quantities than when merely required to liquidate past debts.... But we have seen that to increase the rate of turnover will tend to increase the price level. Therefore, book credit tends to increase the price level.... 1 (c). The habit of using checks rather than money will also affect the velocity of circulation; because a depositor's surplus money will immediately be put into the bank in return for a right to draw by check.... We see, then, that three habits--spendthrift habits, the habit of charging, and the habit of using checks--all tend to raise the level of prices.... 2 (a). The more frequently money or checks are received and disbursed, the shorter is the average interval between the receipt and the expenditure of money or checks and the more rapid is the velocity of circulation. This may best be seen from an example. A change from monthly to weekly wage payments tends to increase the velocity of circulation of money. If a laborer is paid weekly $7 and reduces this evenly each day, ending each week empty-handed, his average cash ... would be a little over half of $7, or about $4. This makes his turnover nearly twice a week. Under monthly payments the laborer who receives and spends an average of $1 a day will have to spread the $30 more or less evenly over the following 30 days. If, at the next pay day, he comes out empty-handed, his average money during the month has been about $15. This makes his turnover about twice a month. Thus the rate of turnover is more rapid under weekly than under monthly payments.... Frequency of disbursements evidently has an effect similar to the effect of frequency of receipts; _i.e._, it tends to accelerate the velocity of turnover, or circulation. 2 (b). _Regularity_ of payments also facilitates the turnover. When the workingman can be fairly certain of both his receipts and expenditures, he can, by close calculation, adjust them so precisely as safely to end each payment cycle with an empty pocket. This habit is extremely common among certain classes of city laborers. On the other hand, if the receipts and expenditures are irregular, either in amount or in time, prudence requires the worker to keep a larger sum on hand, to insure against mishaps.... We may, therefore, conclude that regularity, both of receipts and of payments, tends to increase velocity of circulation. 2 (c). Next, consider the synchronizing of receipts and disbursements, _i. e._, making payments at the same intervals as obtaining receipts.... This arrangement obviates the necessity of keeping much money or deposits on hand, and therefore increases their velocity of circulation.... 3 (a). The more densely populated a locality, the more rapid will be the velocity of circulation. There is definite evidence that this is true of bank deposits. The following figures give the velocities of circulation of deposits in ten cities, arranged in order of size: Paris 116 Berlin 161 Brussels 123 Madrid 14 Rome 43 Lisbon 29 Indianapolis 30 New Haven 16 Athens 4 Santa Barbara 1 Madrid is the only city seriously out of its order in respect to velocity of circulation. 3 (b). Again the more extensive and the speedier the transportation in general, the more rapid the circulation of money. Anything which makes it easier to pass money from one person to another will tend to increase the velocity of circulation. Railways have this effect.... Mail and express, by facilitating the transmission of bank deposits and money, have likewise tended to increase their velocity of circulation. We conclude, then, that density of population and rapidity of transportation have tended to increase prices by increasing velocities. Historically this concentration of population in cities has been an important factor in raising prices in the United States.... [SUMMARY] [53]The purchasing power ... of money has been studied as the effect of five, and only five, groups of causes. The five groups are money, deposits, their velocities of circulation, and the volume of trade. These and their effects, prices, we saw to be connected by an equation called the equation of exchange, _MV + M'V' = SigmapQ_. The five causes, in turn,... are themselves effects of antecedent causes lying entirely outside of the equation of exchange, as follows: the volume of trade will be increased, and therefore the price level correspondingly decreased by the differentiation of human wants; by diversification of industry; and by facilitation of transportation. The velocities of circulation will be increased, and therefore also the price level increased by improvident habits; by the use of book credit; and by rapid transportation. The quantity of money will be increased and therefore the price level increased correspondingly by the import and minting of money, and, antecedently, by the mining of the money metal; by the introduction of another and initially cheaper money metal through bimetallism; and by the issue of bank notes and other paper money. The quantity of deposits will be increased, and therefore the price level increased by extension of the banking system and by the use of book credit. The reverse causes produce, of course, reverse effects. Thus, behind the five sets of causes which alone affect the purchasing power of money, we find over a dozen antecedent causes. If we chose to pursue the inquiry to still remoter stages, the number of causes would be found to increase at each stage in much the same way as the number of one's ancestors increases with each generation into the past. In the last analysis myriads of factors play upon the purchasing power of money; but it would be neither feasible nor profitable to catalogue them. The value of our analysis consists rather in simplifying the problem by setting forth clearly the five proximate causes through which all others whatsoever must operate. At the close of our study, as at the beginning, stands forth the equation of exchange as the great determinant of the purchasing power of money. J. Laurence Laughlin[54]: To my mind, the following propositions contain the essence of the theory of prices.... As every one will appreciate, only general statements, without any limiting qualifications to speak of, can be given in so small a compass. 1. The price of a commodity is measured by the quantity of a given standard for which it will exchange. 2. A change of prices may be due to changes in the conditions affecting the supply (thus including expenses of production) of goods, as well as to changes in the demand for and supply of gold. A statistical statement of a change of price is not a statement of the cause of the change. 3. Probably there is not so much difference of opinion regarding the theory of prices as is sometimes supposed. Other causes being supposed constant, an increased supply of gold would tend to raise prices. No one can fail to see that, if by "money" is meant gold, a change in its quantity would, other things being equal, be a factor affecting prices. An increasing demand for gold, however, would work against the effect of an increasing supply. If the new demand offset the new supply, then, if changes of prices occurred, their cause must be sought in the influences touching the producing and marketing of goods. 4. The effective demand for goods (granting their utility) is limited by the buyer's purchasing power. This purchasing power is not identical with the quantity of the media of exchange in circulation, any more than the value of the total exchangeable wealth of the community is identical with the value of the total money in circulation. 5. The general level of prices is not independent of particular prices; since there can be no such thing as a general level, or average, of prices which is not the resultant of a number of particular prices each arrived at by individual buyers and sellers. The causes of price changes must be sought in the forces settling particular prices. This does not exclude the consideration of any causes affecting the value of the standard in which the prices of goods are expressed, because the standard is itself a particular commodity. 6. In particular cases, competitive prices in this country are arrived at by the higgling of the market, which depends on buyers' and sellers' judgment of the demand and supply of the commodity (_e. g._, wheat); and, when the price is fixed, the credit medium by which the commodity is passed from seller to buyer comes easily and naturally into existence and, of course, for a sum exactly equaling the price agreed upon, multiplied by the number of units of goods. Price-making generally precedes the demand upon the media of exchange, and does not at all imply any necessary demand at the moment upon the standard in which the prices are expressed (cf. 10). 7. The offer of "money" for goods is only a resultant of price-making forces previously at work, and does not measure the demand for goods (cf. 6). That is, the quantity of the actual media of exchange thus brought into use is a result and not a cause of the price-making process. The supposed offer of money has no money as its basis, but is only the offer of a purchasing power, previously existing, based on saleable goods, which at the moment of payment appears expressed in terms of the standard. By credit devices the actual transfer of the standard is reduced to an inconsiderable minimum. In reality (as in foreign trade) goods are exchanged against goods. 8. The effect of credit on prices is to be found mainly in banking facilities by which goods are coined into means of payment, so that, expressed in terms of the standard gold, they may be exchanged against each other. Thus credit devices relieve the standard to an incredibly great degree from the demand for the use of gold as a medium of exchange, and thus remove a demand, as trade increases, which would otherwise have enormously affected the value of gold. Thus the effect of credit on the general level of prices in considerable periods of time is shown by a tendency to reduce the demand on the standard gold, and hence to prevent the tendency toward falling prices. 9. A general proposition is that banks are limited in making loans by the possession of capital, a bank of large capital and deposits being able to make large loans, a bank of small capital and deposits, small loans. A second proposition is that the demand for legitimate loans varies with the exchanges of goods and collateral and the opportunities for investment. With an increasing activity in business, however--either sound or speculative--the expansion of loans is limited by the resources of the bank. Next, a bank trying to carry a certain amount of loans, must hold a specified proportion of reserves to demand liabilities under the rule of banking experience or law. The amount of its capital and the funds left with it determine the relative size of its loan item; and the sum of its loans and resultant deposits determine the amount of its reserves. The reserves of a bank are thus a consequence of the loan operations. This conclusion, however, as it affects the practical problem of the present day, is not, in my opinion, invalidated by the conceivable cases arising, when business tends to outrun banking facilities, in which anything that makes increasing reserves possible would increase the power of the banks to lend. When gold becomes increasingly abundant, the banks having large resources more easily get the gold reserves needed for their operations. It still remains true that the fact of an increased supply of gold does not of itself increase loans, unless conditions of business demand an increase in loans. Therefore, the expansion of business is not a necessary consequence of an increasing supply of gold, any more than an expansion of railway traffic is the necessary consequence of an increasing supply of cars. If increasing goods are in existence to be transported, then, of course, there is an increasing demand for cars. Likewise, if there are more bank resources and loans, there is an increasing demand for that which is lawful reserve; from which it is claimed that the use of new gold in bank reserves, under present conditions, is not the significant causal force which expands business and raises prices (although it may be contemporary with it). 10. The problem of explaining the general level of prices is one of arriving at the adjustment between two terms of a ratio (the standard on the one side, and goods on the other), each of which is influenced by supply and demand. Gold being one, and goods being many, a cause working on gold alone, and important enough to show an appreciable effect, might explain a general movement of prices. In practical operation, however, because of the large existing stock of gold, very considerable additions may take place in the supply of gold without materially changing the world value of gold as related to goods in general. Rapid changes of prices are hence more likely to be due to influences in the market for goods, to speculative changes of demand for goods, or to psychological forces working independently of facts.... In the problem of discovering the causes of changes in the level of prices, it is necessary first to reach a conclusion as to those causes which operate on the gold standard in which our prices are expressed. By so doing we may locate the general level--so far as the standard is concerned--or the one thing which might work as a cause common to all goods. The relation between gold and goods might be illustrated by the familiar mechanical illustration: a rod balanced on a fulcrum, on one end of which works the forces affecting the value of gold, and on the other end the forces affecting the value of particular goods. The relation between goods and gold being a ratio, as one end of the rod goes up, the other necessarily goes down. There are, as we all know, various forces at work to produce the resultant price level. We may here start from a proposition on which we can all agree. An increase in the quantity of the monetary standard in the world--such as gold--would tend, _other things being equal_, to lower its value and thus raise prices. In trying to find the causes in the price level at any given time (as in 1896-1909) it is necessary, therefore, after stating the facts as to the increase of gold, to examine into the influence of "the other things." To begin, we may take up the demand for gold, which, of course, is both monetary and non-monetary. First as to the non-monetary uses, such as abrasion, shipwreck, and disappearance in the arts: The statistics of consumption in the arts are unsatisfactory; at the best they are only estimates. Although the total production of the world, 1493-1850, was $3,158,000,000, there is no evidence as to the available stock in 1850. My belief is that there was not more than $2,000,000,000.[55] In the period of 1851-1895, the production was $5,641,000,000, and the consumption in the arts, at the average rate of $50,000,000 a year requires a deduction of $2,250,000,000, which leaves $3,391,000,000. The arts in recent years are estimated to use more than $100,000,000.[56] In the period, 1896-1905, if $1,000,000,000 be deducted from the production of $2,899,000,000 we have $1,899,000,000. Thus the total available stock in 1905 would be about $7,690,000,000. The production of the last four years, 1906-1910, is about $1,600,000,000, or, less the consumption in the arts, about $1,200,000,000. The monetary demand for gold, on the other hand, has shown certain definite characteristics. Whether it be prejudice, or enlightened business judgment, the commercial nations of the world have shown a persistent and continuing disposition to adopt a gold monetary system as soon as their own means, or the forthcoming supply of gold, has made it possible. The United States led in 1853, when we declined to change the ratio in order to bring silver into circulation when only gold was in use. From 1871-3, Germany, the countries of the Latin Union, Austria-Hungary, the United States (with the resumption in gold in 1879), and India (in 1893), in response to the preferences of the commercial world, placed themselves on the gold standard by legal enactments. The demand for gold all through this period was based upon considerations independent of the movement of prices. For this was a time of falling prices when much was heard of the appreciation of gold and the need of silver. In spite of this tendency toward falling prices, the movement toward the adoption of gold went on.... It was precisely this large new supply of gold which enabled the commercial nations to gratify their desire for what they believed was a more stable standard. As we enter the present period (1896-1909) we find this momentum towards the gold standard still in force: and other countries in emulation planned to put themselves on an equally stable standard with those whose means had permitted an earlier action--quite irrespective of the fact that this last was a period of rising prices, while the former was one of falling prices. In this period, Russia, Japan, various states in South America, such as Peru, Argentina, and Brazil, and recently Mexico, have emphasized the movement away from silver to gold. Moreover, as backward lands, like Turkey, parts of Asia, Egypt, and various districts of Africa, have developed their resources and increased their trade, they have taken on gold in their monetary systems. With increasing trade also there are more exchanges of goods; hence, even in countries (like Great Britain and the United States) that do not use gold to speak of, except in reserves, there are increasing loans and deposits and thus a demand for more gold reserves. Consequently, in countries long ago established on the gold standard there will be a steadily increasing demand for gold as exchanges expand. We find thus a special characteristic of the demand for gold (certainly not existing in the demand for silver). The power of developing countries to soak up new gold is as marked a part of present conditions as is the power of a porous and sandy soil to soak up a heavy rainfall. We must, therefore, take full account of the noticeable fact that the recent demand for gold seems about to keep pace with the new supply; that a shipment of gold from the mines to London is to-day eagerly competed for, not only by European countries, but by Egypt, India, Turkey, Argentina, and Brazil. Consequently it may be of interest to see which countries have taken the largest amounts of gold into their stocks since 1895: United States $994,000,000 Russia 427,000,000 Germany 419,000,000 South American States 213,000,000 British Empire 194,000,000 Austria-Hungary 163,000,000 Italy 160,000,000 Besides the demand for gold in the arts, and the apparent monetary demand, as thus already presented, we must not omit to take into account also the large stocks of gold held by banks and institutions which publish no statements. In the hands of large private institutions like those of the Rothschilds, Bleichroders, and others, great amounts of gold are carried. It is from such stores that the needs of states, such as Austria-Hungary, France, Italy, and even the United States (in Cleveland's administration), have been supplied without drawing down visible reserves. Thus far, then, we have examined the one factor of demand for gold, among the "other things" (which were supposed to remain equal). There is abundant evidence to show that the demand for gold, in this recent period of rising prices (1896-1909) has been as strong as, or even stronger than, the demand for gold in the previous period (1873-1896) of falling prices. It looks very much as if we must seek for the causes of rising prices since 1896 in some of the "other things" not yet examined. There is no time, however, for extended discussion on these points.... The effects of Tariffs and Taxation, Unionism and higher Wages, and changing Agricultural Conditions in increasing expenses of production in all industries are so patent as to require no enlargement. Immediately after the passage of the Dingley Act in 1897, a large list of articles rose in price precipitously. Moreover, just so far as higher money wages for the same work, or the same money wages for a reduced number of hours, have been granted without a corresponding increase in the efficiency of the labor, the expenses of producing goods in general--and consequently prices--have risen. But, without doubt, one of the most important factors in raising prices--directly and indirectly--has been the increased price of food due to the changing conditions of agriculture. This most influential cause of higher prices is one of the "other things" which has been at work quite independent of the quantity of new gold. Moreover, the indirect effect of high prices of food produces the most serious practical problem. It wipes out all the gain of previous increases of wages, and drives laborers to repeat their demands for higher pay, thus working again to increase expenses of production. It is not too much to say that the gains of industry, shown by the fall in prices, as they stood about 1890 have been lost to us by the high tariffs of 1897 and the wastes of bad farming and the recent high costs of agriculture. Our analysis would be inadequate, however, if we stopped here with our examination of expenses of production. The really practical problem is still before us in trying to analyze the forces at work fixing prices in that vague and dangerous margin between actual expenses of production and the prices in fact paid by the consumer.... The whole _raison d'être_ of monopolistic combinations is to control prices, and prevent active competition. As every economist knows, in the conditions under which many industries are to-day organized, expenses of production have no direct relation to prices. In such conditions, there is a field in which the policy of charging "what the traffic will bear" prevails; and this includes industries that are not public utilities. Furthermore, we must face the fact of increasing riches not only in this country, but all over the world. New wealth makes a liberal spender. The retail dealer finding his expenses increasing and--even when they are not--tries the experiment of charging his richer customers an increasing price. The newly rich pay and do not feel it. But what can the poorer unorganized buyer do when retail prices are raised? What can he do if his meat bill, or his plumbing-repairs bill, rises enormously? The extravagance of the rich has increased the cost of traveling, the rates at hotels, the fees, the luxury of steamships and automobiles, the consumption of fruits and vegetables out of season once never thought of, and has generally raised the standard of expenditure. Those of smaller income find they also must pay the higher prices. Thus we have reached a point where we have to pay almost whatever any one asks. Organized buyers are the only offset to organized sellers. Moreover, rising prices due to high expenses of production, or to combinations of sellers, present a paradise for speculation. A movement upward based on facts can be easily converted into a further rise based only on speculative manipulation. A rise of prices which brings large profits to a combination, thus directly affects earnings and gives especial opportunity to speculation in the securities of industrials. Hence, the field of speculation spreads from commodities to securities. The facts as to the movement of prices of securities are well shown in Brookmire's Economic Charts since 1885; and, while the presence of gold serves as a fund of lawful money in reserves, the spread of speculation has gone on seemingly unaffected by the new supplies of gold. That is, speculative conditions may arise and disappear antecedent to and seemingly independent of the gold supplies. * * * * * D. F. Houston[57]: The discussion of money and prices to-day reminds one very strongly of the discussion forty years ago. Now, as then, the opinion is that prices have risen; but now, as then, there is wide difference as to the explanation. Now, as then, a highly respectable body of economists attribute the rise mainly to the new gold; and now, as then, a number of economists attribute the rise to influences immediately affecting the cost of production of commodities in general, instancing such things as labor unions, monopolies, extravagance, the tariff, general prosperity, etc.... That the tariff has played a part in the situation, I should of course not deny. By preventing us from securing supplies where they can be more economically produced, and by making it possible for domestic manufacturers to monopolize the market, and by tending to compel the payment for exports in gold, it has unquestionably played a part and is a notable factor.... In considering the tariff as a factor, however, we must not forget that we have had the tariff since the beginning, and that the rates have been nearly as high since the Civil War as they are to-day; and we must remember, further, that in one of the great countries which has no protective tariff the tendency of price has been upward; furthermore, we must not overlook the fact that many of the tariff rates, which are very high now, are not effective or not nearly so effective as they were in the earlier period, and also that its influence is probably greater in things in which the rise of price has been less marked. I should not deny that labor unions and monopolies have had an influence in increasing price. The evidence seems to justify the conclusion that monopolies have had some effect in increasing price. I am not sure that there is sufficient evidence in regard to labor unions to enable us to form a conclusion.... Much has been said in discussion about the influence of extravagance. This has played a part in similar discussions at all times; every era has its cry of extravagance, and it is not clear that it has been more marked in our time than in former times. And one thing is quite clear, that the extravagance, or economic waste, resulting from the prosecution of war and its after effects, has been conspicuously absent during the last fifteen years.... The stock of gold in the leading western commercial nations, with which we are concerned in discussing prices, probably did not exceed $5,000,000,000 at the end of 1895. During the next fourteen years there was added to the stock of gold of these countries an amount nearly equal to the existing stock. In addition, a number of these countries enormously developed their credit devices. According to all economic law, these facts create a strong presumption that gold has been the main factor affecting price. No sufficient evidence has been presented to overthrow this presumption. * * * * * E. W. Kemmerer[58]: An adequate discussion of the papers presented by Professors Fisher and Laughlin would require much more time than the few minutes at my disposal. I shall accordingly limit myself to a few points and support my conclusions principally by footnote references. This procedure is perhaps the more justifiable in view of the fact that my own philosophy of the relationship between money and prices is given in detail in the book[59] on money and prices to which Professor Fisher has so generously referred.[60] I have had the opportunity of reading in manuscript Professor Fisher's forthcoming book on Price Levels, of which his paper to-day represents one chapter, and find myself in substantial agreement with his main contentions. His discussion is a permanent contribution to monetary science of very great value. To a number of minor points, however, it seems to me, exception must be taken.... Professor Fisher's formula expressing the relationship between the circulating media and prices is essentially the same as my own,[61] but he pays little attention to the factor of business confidence, which is a most important consideration in the interpretation of the formula. The ratio of deposit currency to bank reserves is a function of business confidence.[62] The distinction Professor Fisher draws between the prices of individual commodities and the general price level appears to me, as to Professor Laughlin, to be untenable. It is, moreover, contradictory to his general philosophy of money. His index numbers recognize no general price level distinct from individual prices. He illustrates the point that the price of any individual commodity presupposes a general price level by saying that "the position of a particular wave in the ocean depends on the general level of the ocean." I can conceive of no such distinction between the general price level and individual prices as his statements seem to imply. General prices "are but a combination, or composite photograph, as it were, of individual prices."...[63] Passing to Professor Laughlin's paper, which has been presented to me merely in the form of an abstract, we find ten propositions, which to a considerable extent are repetitious. His first five propositions are rather commonplace generalizations and few economists will be disposed to dissent from their essential soundness. They place him much closer to the quantity theory of money than most of us, judging him from his previous writings, were disposed to think he would go; and in his third proposition he says, "Probably there is not so much difference of mind regarding the theory of prices as is sometimes supposed." With reference to Professor Laughlin's fourth proposition it may be said that no economist of standing claims that purchasing power is "identical with the quantity of the media of exchange in circulation." Effective purchasing power, however, in our modern business communities, does depend upon the possession of money or of the right to demand money. The amount of deposit currency which can be used at any time in purchasing goods is limited by bank reserves because commercial deposits are payable in money on demand at the order of the depositor. Other assets, no matter how good, cannot be used for the purpose of meeting deposit obligations, except when the entire credit machinery breaks down and suspension is resorted to under the euphemistic name of clearing house loan certificates. Professor Laughlin's sixth and seventh points are essentially the same and may be considered together. He says: ... Price-making generally precedes the demand upon the media of exchange, and does not at all imply any necessary demand at the moment upon the standard in which the prices are expressed.... The offer of money for goods is only a resultant of price-making forces previously at work, and does not measure the demand for goods.... That is, the quantity of the actual media of exchange thus brought into use is a result and not a cause of the price-making process.... This contention appears to me to result from a superficial view of the price-making process. The offer of money for goods and the offer of goods for money are of course not the first steps. Each person has his own individual or subjective prices on all sorts of commodities; these subjective prices represent the valuations which he places upon the respective commodities in terms of the valuation which he places upon the money unit. The more of a particular commodity he has the lower his subjective valuation of a unit of that commodity; the more money he owns the lower his estimation of a dollar and the higher his subjective prices; and _vice versa_. Through a process of competition, selection, and adaptation, some of these subjective prices develop into market prices, that is, prices at which both buyer and seller benefit, and at which therefore an exchange takes place. To paraphrase an old adage, the proof of the market price is in the exchange. It is a common observation that stock quotations to be of much value must show the number of sales effected at the prices quoted. A stock for which the maximum bids were 100 and the minimum offers were 110, would not possess a market price in the strict sense of the word. The fact that sales have recently been made at a certain price, or are now being so made, is of course presumptive evidence that intending purchasers can buy at about that price. A market price, however, is the amount of money paid for a commodity, not the amount asked, offered, or promised. Professor Laughlin's ninth proposition I find very difficult to follow. His premise that reserves are "a consequence of the loan operations" is a dangerous half truth; they are also a consequence of most other kinds of banking operations, cash deposits, cash withdrawals and clearing house balances, foreign and domestic exchange operations, etc. His other premise, that "the fact of an increased supply of gold does not _of itself_ [the italics are mine] increase loans, unless the bank possesses the control of the capital which is a condition precedent to the loans," contains an element of truth, but is misleading. While an increased supply of gold does not of itself increase loans it normally has that result; and the bank's discount rate and the condition of its reserve are powerful factors in influencing its loan account. His premises, I believe, are not sound, and his conclusion, namely, that "the expansion of business is not a direct consequence of an increasing supply of gold, any more than an expansion of railway traffic is the direct consequence of an increasing supply of cars," would not follow from his premises, even if they were sound. The normal causal chain is more nearly this: increased gold production results in greatly increased amounts of gold coming into the monetary uses.[64] This gold comes into the hands of individuals and is to a large extent deposited in banks; increased money incomes on the part of individuals lower their estimations of the value of the money unit, raise subjective prices, and as a consequence market prices; larger money deposits in banks result in larger reserves, banks do not make interest on money held in reserves, and accordingly take measures to invest such surplus money, keeping these reserves as low as is consistent with law and their ideas of safety;[65] inducements to borrowers are made in the form of more favorable discount rates; collateral is not scrutinized so carefully; the speculative market is stimulated by increasing supplies of call money; confidence everywhere increases; new enterprises spring up and old ones are expanded; and in a short time the new gold is absorbed by a higher price level and an overstimulated business activity. This was the situation after the Californian and Australian gold discoveries of the last century and it has been the result of the greatly increased gold production of the last few years. Professor Laughlin's final point is that since 1895 the new demand for gold has roughly equalled the new supply, and that the changes in prices since 1896 must be sought mainly in the "other things," which have not remained equal. In support of this conclusion he offers two principal arguments. The first is as follows: ... Because of the large existing stock of gold, very considerable changes may take place in the supply of gold without materially changing the world value of gold as related to goods in general. Rapid changes of price are hence more likely to be due to influences in the market for goods, to speculative changes of demand for goods, or to psychological forces working independently of facts.... In reply it may be said that the production of gold since 1895 represents a very large percentage of the total supply. The Soetbeer figures as supplemented by those of the Director of the Mint show that the world's gold production for the 405 years 1492-1896 inclusive was in round numbers $8,982,000,000,[66] and that for the eleven years 1897-1907, was $3,513,000,000; in other words, for these eleven years it was over 39 per cent. of the total for the preceding 405 years. Probably the effective supply represents a much larger proportion of recent gold because of (1) the large amount of loss chiefly by abrasion of the gold produced in the earlier years, and of (2) the greater degree to which this early gold has assumed specialized forms, such as jewelry, plate, etc. Satisfactory index numbers of prices for recent years are not available for all the principal countries of the world. Such as we have, however, point to a decided rise of prices in all gold standard countries since about 1897. Comparing standard price index numbers in six of the chief countries of the world for the years 1897 and 1907, we find the general price level to have risen as follows:[67] United States--Bureau of Labor figures 44.4% Canada--Coats figures, (weighted) 43.7% England--Sauerbeck figures 29.0% France--de Foville, figures for export prices[68] 13.3% Germany--Hamburg figures 30.8% Italy--Necco figures for export prices 23.4% If we average these figures together, assigning the same importance to the figures of each country, in order to get a _rough_ idea of the movement of world prices in gold standard countries during the eleven years in question, we find that the average increase was 30.8 per cent. If we follow Professor Laughlin and compare the years 1895 and 1907, we find the average increase in prices to have been 25.8 per cent., and the world's gold production for the 13 years 1895 to 1907 to have been about 42 per cent. of that for the preceding 404 years. When to this is added the fact that the evidence points to a smaller percentage of the world's annual gold production going into the industrial uses than formerly, and the further fact that during the period in question the increase and improvements in the world's banking facilities have greatly economized the uses of money, we see that a very substantial increase in general prices would be expected, despite a great expansion of business. World prices in fact have not increased nearly as rapidly as the flow of gold into monetary uses since 1897, not to mention the enormous development of deposit currency. The Director of the Mint estimates each year the amount of the world's new gold used in the industrial arts. Computations I have made based upon these figures show a tendency for a decreasing percentage of the annual production to be used in the arts, although there is considerable irregularity. For the seven years 1895-1901 the average percentage was 27.1, and for the seven years 1902-1908 it was 25.3.[69] Professor Laughlin's second argument in favor of the proposition that the recent rise in prices has not been due primarily to the increased gold production is one of the most beautiful examples of begging the question that I have seen in economic literature. He says: "In recent discussions one of the 'other' factors which has been slighted is the demand for gold since 1895. The examination shows that the new demand in countries turning to the gold standard, and in those already using gold and extending their demand, amounts in round numbers to about $3,000,000,000. Hence the new demand has roughly equalled the new supply, since 1895--a fact which jumps with the known conditions in the great financial markets like London, where new arrivals of gold are eagerly competed for by European banks." Of course the demand for gold equals the supply, as does the demand for wheat or any other commodity, when one interprets demand and supply as one should, in terms of market prices. The general price level is the very thing which equilibrates the demand for gold and the supply. The higher price level about which we are talking is an expression of the absorption of most of this new gold into the world's circulation. Banks and merchants eagerly compete for it, because higher prices require more money to do a given amount of exchange work, and rising prices stimulate business. * * * * * Joseph French Johnson[70]: I am glad to observe that there appears to be a tendency toward agreement with regard to the fact that the value of money depends upon the demand for it and supply of it. Professor Laughlin likes the word standard better than I do. It suggests something permanent and fixed, whereas money is a very changeable thing. While I am in agreement with Professor Laughlin in the conclusion that the general level of prices depends upon the demand for and supply of money, I am unable to give assent to many of the propositions which he puts forward as links in the chain of reasoning leading to that conclusion. For example, Professor Laughlin says, "A change of prices may be due to changes in the demand for and supply of (thus including the expenses of production) goods as well as to changes in the demand for and supply of gold." This proposition is true with regard to changes in the prices of particular commodities. The price of wheat may rise or fall as a result of a change in the demand for or in the supply of wheat. The proposition, however, is not true with regard to a change in the general level of prices. An increase in the supply of goods will lower the level of prices for the simple reason that it will increase the demand for gold. I am not certain that I have understood Professor Laughlin's exposition of his theory, but he certainly seemed to me to argue that there could be a change in the general level of prices without any change whatever in the demand for or supply of gold. Such a position, it seems to me, is absolutely untenable. That Professor Laughlin seeks to hold this untenable position, it seems to me, is made evident by the qualification with which he accepts the statement that a change in the quantity of money, other things being equal, would be a factor affecting prices. He says, "An increasing demand for gold, however, would work against the effect of an increasing supply. If the new demand offset the new supply, then, if changes of price occurred, their cause must be sought in the influences touching the producing and marketing of goods." The second conditional clause in that last sentence introduces an impossible supposition, for if a new supply of gold is offset by a new demand for it, there could be no change in the general level of prices, so that no cause for any change would have to be sought in the "influences touching the producing and marketing of goods." Professor Laughlin appears to have in mind forces affecting the general level of prices which are entirely hidden from my sight. A change in the level of prices means a change in the value of gold, and how can there be a change in that if the new demand for gold just offsets the new supply? Professor Laughlin's analysis of the price-making process is incomplete and misleading. He is correct when he says that the causes of price changes must be sought in the forces settling particular prices, but he is manifestly wrong when he states that the price of wheat is "arrived at by the higgling of the market, which depends on the buyers' and sellers' judgment of the demand for and supply of wheat." Such higgling would determine only the value of wheat. The price of wheat is not fixed until buyer and seller have reached an agreement in their estimates as to the value not only of wheat, but also of money. If wheat is comparatively easy to get, the price falls. If money is easier to get, the price rises. The demand for and supply of money is evidently just as important in the determination of the price of wheat as is the demand for and supply of wheat itself. When Professor Laughlin says that the offer of money for goods is only a resultant of price-making forces previously at work, he must have in mind some price-making process and price-making forces of which I have never heard. I know of no market in which goods are lowered in price except for the reason that at the higher price not enough money is offered to absorb the supply; nor of any market in which goods are raised in price except for the reason that buyers are willing to offer more money for the goods. In his analysis of credit and its relation to the value of money, Professor Laughlin seems to me to have in mind a hypothetical financial world, the like of which does not and could not exist on earth. He strives to show that a bank's ability to make loans depends upon the amount of its capital and deposits, and that therefore any increase in the supply of gold would not in itself lead to an increase of loans. "Expansion of business," he remarks, "is not a direct consequence of an increasing supply of gold any more than an expansion of railway traffic is the direct consequence of an increasing supply of cars." He is quite right if he means that an increase in the amount of gold will not necessarily cause the exchange of more goods. But this does not appear to be his meaning. He holds that the use of new gold in bank reserves cannot be a causal force raising prices, for the bankers cannot increase their loans, in his opinion, unless the condition of business demands such an increase. In his hypothetical financial world bankers are willing to carry idle stocks of gold and to wait until business conditions make necessary an increase in their loans. In the real financial world, of course, bankers do nothing of the sort. Bankers with surplus gold immediately tempt borrowers by lowering the rate of discount and thus increasing the money demand for goods in the markets. As a result there is an irregular and general rise of prices. More goods may not be bought and sold and there may be no expansion of business, but expressed in terms of money the totals are bigger. There is no analogy between dollars and freight cars. The carrying capacity of a car is fixed and unchangeable, but the carrying capacity of a dollar is elastic--so elastic, in fact, that dollars are always fully loaded no matter how small the supply of goods. As Professor Laughlin points out, although he apparently does not see its significance, the new demand for gold since 1895 has "roughly equalled the new supply." Surely it could not have been otherwise, and no statistics are necessary to prove the fact. * * * * * Murray S. Wildman[71]: My comments on these interesting papers will be directed upon the methods employed, and certain assumptions involved, in the arguments of both. Granting that Professor Fisher's analysis shows a perfect correspondence between the course of prices on the one hand and the quantity of money and credit instruments on the other hand, I am still unable to see which magnitudes are properly to be regarded as causes and which as effects. That variations in the value of gold and in the price level must be reciprocal, all will admit. If we regard M as denoting the gold supply for the present, a causal relation between M and P cannot be denied. But may it not be possible that variations in M´, or credit, and V and V´, the velocity of circulation of both money and credit, be simply in consequence of the variation in M and P? Why is P the only passive term or why is it passive at all? Suppose that the problem set was to discover the cause of credit expansion from 1896 to 1910. Would we not seek at once to explain it by reference to rising prices and greater volume of goods, making a broader basis for credit, while along with that is a greater gold supply which promotes the convertibility of an extended credit? Then might we not invoke Professor Fisher's algebraic formula, with terms rearranged, and show by this method of reasoning, supported by statistical verification, that the high prices afford an adequate cause for the present expansion of credit? But we are seeking the cause or causes of rise in the price level. This is equivalent to seeking the cause of decline in the value of gold. Does the "quantity theory" as newly expounded give us the solution? I think not. Rather it shows us that as gold has grown in supply, and fallen in value, credit has grown in magnitude and in rapidity of circulation, and that these changes in values and volumes have gone hand in hand with proportional changes in the price level and in the magnitude of commodity exchanges. This view of the case brings me to substantial approval of Professor Laughlin's method of analysis and argument. That is, we must seek the facts regarding supply and demand as applied to gold, and those which bear upon supply and demand as touching goods, in so far as the demand for goods is expressed in offers of gold and gold representatives. Here the algebraic formula would be invoked to support his reasoning since M´ and V and V´ may be regarded as factors in the demand for gold. To accept Professor Laughlin's method does not involve the necessity of his conclusions. The terms, by this method, do not lend themselves to exact mathematical statement and statistical proof, so conclusions cannot be exact and definite. This may be illustrated in a consideration of demand for gold. Some say that demand has grown step by step with supply and therefore gold has not been cheapened. Others say that supply has grown more rapidly than demand, and so gold has been cheapened and to that extent prices are raised. Either statement may be wrong. I do not believe we have yet any reliable data regarding the demand for gold in the sense of a value-making factor. Most efforts to measure demand are based on statistics of gold in use. If one can show that consumption of gold in the arts, in the circulation, and in greater bank reserves, has increased _pari passu_ with production, we are told that the value of gold has not been lowered by the greater supply. But statistics of consumption give no clue to demand in the value-determining sense. We have many staple commodities, such as wheat and cotton, whose price drops sharply when the supply exceeds a certain normal volume, even though the whole crop is consumed. Statistically speaking, the demand for a cotton crop always rises as supply rises, and falls as supply falls, but that is because demand and supply become equated through a variation in price. Demand, in this sense of quantity demanded, is in part a result rather than a cause of value. When we can properly speak of demand as potent for the determination of value, we are thinking of demand from the point of view of _intensity_ rather than the point of view of _magnitude_. But the demand which makes for value--demand intensively considered--is only measured by the purchasing power offered. Applied to gold, I know of no measure of demand except in the goods and services offered in exchange. To say that goods and services offered for an ounce of gold in 1910 are less than are offered for an ounce of gold in 1896, is simply to say that prices are higher. But it is these prices that we are trying to explain by giving the effect for the cause, when we say that demand has risen with supply. Those staple commodities whose value falls off abruptly with any increase of supply beyond a customary stock are said to be subject to an inelastic demand, and those whose value declines uniformly with excessive supplies are said to have an elastic demand. Is the demand for gold elastic, or is it inelastic? And is it possible by independent analysis to construct the curve of elasticity which properly belongs to gold, and so avoid circular reasoning from the very prices we are trying to explain? If the demand for gold is inelastic and the demand curve drops off abruptly after a certain supply is in evidence, the presumption is that in the conditions of gold production, rather than in the conditions of commodity production, lies the cause of our high prices. Moreover, if this be the case, we can readily see the cause of cheapening of gold, even though the product of a single year bears a small proportion to the existing stock. If on the other hand the demand for gold be very elastic, so that it expands with growing supplies with no substantial alterations in value, then we are driven to seek the cause of high prices in influences directly touching the goods and services rather than in those directly affecting gold. It would seem therefore that both methods of treatment have left something to be desired. The algebraic analysis, even as verified, presents the relations between magnitudes without showing the cause of high prices. The argument directed immediately at the value of gold of necessity involves consideration of the demand for gold, which, as a price-making factor, remains an unknown quantity. * * * * * T. N. Carver[72]: Professor Fisher ... has demonstrated beyond all question the accuracy of his formula. The question remains, however, whether his formula supports his own conclusion or Professor Laughlin's. If, for example, it should be found that P is the cause of M, the formula would to that extent support Professor Laughlin's position. I believe that to a certain extent P is actually the cause of M. If the growing scarcity of agricultural land, or the increase in population and the increased demand for agricultural products without an increase in land, should increase the marginal cost of producing agricultural products to supply this larger demand, that would tend to increase the exchange value of these products, even according to the formula of Cairnes as quoted by President Houston.[73] Even without any increase in the gold supply, this would cause each unit of product to exchange for a little more gold; then, in order that a given number of exchanges in agricultural products could be carried on, it would be necessary to have a larger number of ounces of gold, or a larger number of gold coins, or some other form of money of given denominations to do the money work. This, in other words, would necessitate a larger supply of money: and, if other forms than gold were not forthcoming, it would necessitate that a larger proportion of the stock of gold should be coined into money in order to do the work. Thus, without any increase whatever in the world's total gold supply, there would come to be an increase in the proportion of that supply used as money, or in the amount of gold coin actually used in circulation. I believe that this has taken place, and that it is one of the factors in the problem, although there has also been a very large increase in the gold supply to still further accentuate the tendency. * * * * * F. W. Taussig[74]: I congratulate Professor Fisher on his admirable paper. I am in accord with him in his method of reasoning and in all his essential results. His investigation of this subject adds another to the brilliant studies with which he has enriched economic science. It deserves to be said, perhaps, that the term M´ (deposits) in his equation is not entirely independent, but is in some degree a function of T. I say to some degree; it is dependent on T in part only, and not for very long periods. Professor Fisher has here treated it as dependent simply on M.... He has indicated the qualifications which must be attached to this dependence of deposits on bank reserves. He has pointed out that though a general dependence appears over long periods of time, it is affected by changes in banking ways, and by the tendency to build up a higher superstructure of deposits in times of active business. But there is also a connection between T, volume of trade, and M´. That is, for short periods--nay, for periods of some years--an increasing volume of trade tends of itself to bring about an increasing volume of deposits. (I may say, parenthetically, that "volume of trade" does not seem to me an apt expression; "units of commodities," the other phrase used by Professor Fisher, is better.) Though I would by no means go the length of Professor Laughlin's reasoning, which seems to imply that every act of exchange supplies automatically its own medium of exchange, it does seem to me that our modern mechanism of deposit banking supplies an elastic source of deposits, which, for considerable periods, enables them to run _pari passu_ with the transactions and loans resting on them. In the end, an increase of deposits finds its limit in the volume of cash held by the banks. But there is some elasticity of adjustment, by which loans and deposits increase as fast as transactions or faster; and this accounts in no small degree for the rise in prices during periods of activity. The phenomenon shows itself most strikingly in stock exchange loans, especially in a center like New York. There the business creates for itself quasi-automatically its own medium of exchange. I suspect it is undue generalization from operations of this sort that has led Professor Laughlin to take his extreme position--a position which I can not but think untenable. Some allowance for the temporary interaction between M´ and T is necessary for the completeness of Professor Fisher's reasoning. * * * * * Ralph H. Hess[75]: Professor Fisher's formula (MV + M´V´ = PT) approximately expresses the mathematical equality of purchase and payment which cannot be questioned. I say _approximately_ because M´ (defined by Professor Fisher as "bank deposits subject to check"), if it be made to express an accurate measure of circulating credit, should include not only open bank accounts, but certain other values which constitute _current means of payment_, such as bankers' bills, trade bills, cashiers' checks, and certified checks.... The relation which Professor Taussig has pointed out between M´ and T (the _value of negotiable credit_ and the contemporary _volume of trade_) is not only possible, but, in any community of modernized commerce, is actual. Moreover, a knowledge of the process by which commerce is financed by the existing mechanism of discount, loan, deposit, and draft justifies the conclusion that, if the volume of trade (T) be resolved into its factors, namely, _materials of trade_ and their _frequency of exchange_, the latter factor of T is quite commensurate with the velocity of credit (V´). To me it seems incontestable that the volume and velocity of credit currency, as represented by bank deposits and other circulating media, vary directly as the volume and value of the materials of trade in the process of exchange, and are, mathematically speaking, dependent functions thereof. Granting this relation, an analysis of the equation of exchange establishes PT as the major determinant of M´V´, and, in so far as paper money may be authorized and issued upon the security of commercial assets, of M. That part of the money in circulation which does not derive its circulating powers from actual and potential commercial values is itself material of barter incorporating so-called intrinsic values. The conclusion is clear that P (price) is independent of all other terms and factors of Professor Fisher's equation, that V and V´ are determined by the mechanical circumstances and organization of exchange, and that the value of M and M´, taken collectively, is a spontaneous derivative of PT. The fundamental determinants of prices and of "price levels," therefore, are to be found outside of monetary and credit agencies _per se_. As to the nature and order of the price-making process and the actual forces behind price movements, I am in substantial accord with Professor Laughlin. That prices, individually and collectively considered, express the value-proportion of demand for and supply of goods on the market to demand for and "visible supply" of the standard commodity is fundamentally logical. Nor is there occasion to quibble over the paradox of disturbed equilibrium of demand and supply. Physically considered, the goods which objectify these terms are, of course, identical; but, in the valuation process, demand and supply denominate, respectively, _desire_ and _utility_--the generally acknowledged antecedents of value. Price is the equalizing factor between the effective demand for gold and the effective demand for other goods, each taken in conventional units; and price changes are resultants of, and commensurate with, net variations in the value-factors of the standard and of the objects of exchange. Referring to the nature of credit and the economic qualities of credit instruments, the somewhat figurative expression "goods coined into a means of payment" is a striking and accurate characterization. It is possible that all legitimate market values, under normal trade conditions, may be liquidized through credit agencies, and the goods in which they are incorporated be thus rendered immediately and conveniently exchangeable. This process may be consummated independently of prices and with slight regard to the actual supply of money. The truth of this assertion is, in fact, demonstrated daily in the marts of trade. * * * * * J. Laurence Laughlin[76]: There is time to answer briefly only a few of the points raised by several speakers. First, Professor Fisher's equation of MV + M´V´ = PT is to my mind not a solution, but only a statement, of the problem of price levels. It can be read backward as well as forward. For instance, it does not follow that the level of prices (P) will rise with an increase of M´, since--as Professor Taussig has pointed out already--an active development of trade and industry (T) would itself be a reason for an increase of banking loans and deposits subject to check (M´), thus equalizing effects on both sides of the equation without necessarily increasing P. This result is, in fact, one of the points on which I have steadily insisted in my own exposition of the theory of prices and credit; and Professor Fisher's equation allows it to appear distinctly. His equation does not show causes; it states a static situation, into which various causes may be read. The facts between 1876 and 1896 disclose an increase of bank deposits of 500 or 600 per cent., and yet that period was distinguished as one of falling prices. Therefore M´ cannot be regarded as having been proved to be a cause of higher prices. Second, Professor Fisher ... seeks to establish a causal relation between the amount of money in circulation (M) and the amount of deposits (M´) which, in my judgment, is wholly unfounded. He has developed this in his paper in the _Royal Statistical Journal_. The error consists in supposing that a man's deposit account at any time varies with the amount of money in his possession. Rather, the deposit account varies with a man's wealth. The rich man does not carry much more money to pass from hand to hand than the man of moderate means. Monetary habits in the community require a certain level of circulation for all persons, but the deposits of an individual may soar above the common level without regard to the money he keeps in circulation. His bank deposits are rather a measure of the saleable goods he has sold, "coined into means of payment." Third, I well recognize the high position Professor Fisher occupies in the mathematical school of Walras and others; but has he not made an error in stating the essence of the price relation in his mathematical symbols? So far as I understand him, he seems to deny the fundamental value-concept (on which there has hitherto been general agreement) that price is a ratio between goods and gold. In furtherance of that idea, he thinks that, before individual prices can be arrived at, the general price level must be ascertained. Now, in my exposition using the ratio-concept, I explained in detail how the general level of prices might be affected by causes affecting the gold side of the ratio. Therefore, I did not neglect to account for the general level and that too without doing violence to the accepted value-concept. But the ratio-concept (which Professor Fisher seems to deny) allows the forces acting on goods also to affect the general level of prices as I have shown. In my opinion, he wrongly works from a general level of prices to particular prices; while I hold that particular prices, or actual quotations, are the bases from which all averages, or price levels, are always and inevitably computed. Moreover, in his diagrams, the level of prices he used was the one computed from individual quotations. Hence his whole reasoning on the conformity of the statistics to the terms of his equation is vitiated. Indeed the better agreement he finds--after elaborate statistical computations--between the elements and their result on prices ...--is due, I think, to relying on an equation which is nothing more than a statement that the whole is equal to the sum of its parts.... Finally, when Professor Johnson suggests that I am wrong in stating that forces affecting the goods side of the price ratio have an influence on prices, he certainly cannot mean that conditions affecting the producing, marketing, and financing of goods have no effect on prices. How else, for instance, can we explain the rise of the prices of agricultural products? The special causes affecting them have little to do with the quantity of "money." Moreover, the term "money" itself is used so loosely and vaguely that we can come to agreement on price theories only by first agreeing upon what we mean by "money." In my paper, I have discussed the relations of goods, and their prices, to gold. But, in this country, we use gold little as a medium by which goods are exchanged. Thus the relation of the prices of goods to our media of exchange has been practically omitted. And yet the price-making process generally precedes the creation of the usual banking media of exchange by which most goods are exchanged. * * * * * Irving Fisher[77]: In connection with the statement and explanation of the equation of exchange it was shown (1) that prices vary directly as the quantity of money, provided the volume of trade and the velocities of circulation remain unchanged; (2) that prices vary directly as the velocities of circulation (if these velocities vary together), provided the quantity of money and the volume of trade remain unchanged, and (3) that prices vary inversely as the volume of trade, provided the quantity of money--and therefore deposits--and their velocities remain unchanged. Let us now inquire how far these propositions are really _causal_ propositions. An examination of the influence of each of the six magnitudes on each of the other five will afford answers to the objections which have been raised to the quantity theory of money. To set forth all the facts and possibilities as to causation we need to study the effects of varying, one at a time, the various magnitudes in the equation of exchange. Our first question is: given (say) a doubling of the quantity of money in circulation (_M_) what are the normal or ultimate effects on the other magnitudes in the equation of exchange, viz.: _M´_, _V_, _V´_, the _p_'s and the _Q_'s? We have seen that normally the effect of doubling money in circulation (_M_) is to double deposits (_M´_) because under any given conditions of industry and civilization deposits tend to hold a fixed or normal ratio to money in circulation. Hence the ultimate effect of a doubling in _M_ is the same as that of doubling both _M_ and _M´_. We propose next to show that this doubling of _M_ and _M´_ does not normally change _V_, _V´_ or the _Q_'s, but only the _p_'s. The equation of exchange of itself does not affirm or deny these propositions. For aught the equation of exchange itself tells us, the quantities of money and deposits might even vary inversely as their respective velocities of circulation. Were this true, an increase in the quantity of money would exhaust all its effects in reducing the velocity of circulation, and could not produce any effect on prices. If the opponents of the "quantity theory" could establish such a relationship, they would have proven their case despite the equation of exchange. But they have not even attempted to prove such a proposition. As a matter of fact, the velocities of circulation of money and of deposits depend, as will be seen, on technical conditions and bear no discoverable relation to the quantity of money in circulation. Velocity of circulation is the average rate of "turnover", and depends on countless individual rates of turnover. These depend on individual habits. Each person regulates his turnover to suit his convenience. A given rate of turnover for any person implies a given time of turnover--that is, an average length of time a dollar remains in his hands. He adjusts this time of turnover by adjusting his average quantity of pocket money, or till money, to suit his expenditures. He will try to avoid carrying too little lest, on occasion, he be unduly embarrassed; and on the other hand to avoid encumbrance, waste of interest, and risk of robbery, he will avoid carrying too much. Each man's adjustment is, of course, somewhat rough, and dependent largely on the accident of the moment; but, in the long run and for a large number of people, the average rate of turnover, or what amounts to the same thing, the average time money remains in the same hands, will be very closely determined. It will depend on density of population, commercial customs, rapidity of transport, and other technical conditions, but not on the quantity of money and deposits nor on the price level. These may change without any effect on velocity. If the quantities of money and deposits are doubled, there is nothing, so far as velocity of circulation is concerned, to prevent the price level from doubling. On the contrary, doubling money, deposits, and prices would necessarily leave velocity quite unchanged. Each individual would need to spend more money for the same goods, and to keep more on hand. The ratio of money expended to money on hand would not vary. If the number of dollars in circulation and in deposit should be doubled and a dollar should come to have only half its former purchasing power, the change would imply merely that twice as many dollars as before were expended by each person and twice as many kept on hand. The ratio of expenditure to stock on hand would be unaffected. If it be objected that this _assumes_ that with the doubling in _M_ and _M´_ there would be also a doubling of prices, we may meet the objection by putting the argument in a slightly different form. Suppose, for a moment, that a doubling in the currency in circulation should not at once raise prices, but should halve the velocities instead; such a result would evidently upset for each individual the adjustment which he had made of cash on hand. Prices being unchanged, he now has double the amount of money and deposits which his convenience had taught him to keep on hand. He will then try to get rid of the surplus money and deposits by buying goods. But as somebody else must be found to take the money off his hands, its mere transfer will not diminish the amount in the community. It will simply increase somebody else's surplus. Everybody has money on his hands beyond what experience and convenience have shown to be necessary. Everybody will want to exchange this relatively useless extra money for goods, and the desire so to do must surely drive up the price of goods. No one can deny that the effect of every one's desiring to spend more money will be to raise prices. Obviously this tendency will continue until there is found another adjustment of quantities to expenditures, and the _V_'s are the same as originally. That is, if there is no change in the quantities sold (the _Q_'s), the only possible effect of doubling _M_ and _M´_ will be a doubling of the _p_'s; for we have just seen that the _V_'s cannot be permanently reduced without causing people to have surplus money and deposits, and there cannot be surplus money and deposits without a desire to spend it, and there cannot be a desire to spend it without a rise in prices. In short, the only way to get rid of a plethora of money is to raise prices to correspond. So far as the surplus deposits are concerned, there might seem to be a way of getting rid of them by cancelling bank loans, but this would reduce the normal ratio which _M´_ bears to _M_, which we have seen tends to be maintained. We come back to the conclusion that the velocity of circulation either of money or deposits is independent of the quantity of money or of deposits. No reason has been, or, so far as is apparent, can be assigned, to show why the velocity of circulation of money, or deposits, should be different, when the quantity of money, or deposits, is great, from what it is when the quantity is small. There still remains one seeming way of escape from the conclusion that the sole effect of an increase in the quantity of money in circulation will be to increase prices. It may be claimed--in fact it has been claimed--that such an increase results in an increased volume of trade. We now proceed to show that (except during transition periods) the volume of trade, like the velocity of circulation of money, is independent of the quantity of money. An inflation of the currency cannot increase the product of farms and factories, nor the speed of freight trains or ships. The stream of business depends on natural resources and technical conditions, not on the quantity of money. The whole machinery of production, transportation, and sale is a matter of physical capacities and technique, none of which depend on the quantity of money. The only way in which the quantities of trade appear to be affected by the quantity of money is by influencing trades accessory to the creation of money and to the money metal. An increase of gold money will, as has been noted, bring with it an increase in the trade in gold objects. It will also bring about an increase in the sales of gold mining machinery, in gold miners' services, in assaying apparatus and labor. These changes may entail changes in associated trades. Thus if more gold ornaments are sold, fewer silver ornaments and diamonds may be sold. Again the issue of paper money may affect the paper and printing trades, the employment of bank and government clerks, etc. In fact, there is no end to the minute changes in the _Q_'s which the changes mentioned, and others, might bring about. But from a practical or statistical point of view they amount to nothing, for they could not add to nor subtract one-tenth of 1 per cent. from the general aggregate of trade. Only a very few _Q_'s would be appreciably affected, and those few very insignificant. We conclude, therefore, that a change in the quantity of money will not appreciably affect the quantities of goods sold for money. Since, then, a doubling in the quantity of money: (1) will normally double deposits subject to check in the same ratio, and (2) will not appreciably affect either the velocity of circulation of money or of deposits or the volume of trade, it follows necessarily and mathematically that the level of prices must double. While, therefore, the equation of exchange, of itself, asserts no causal relations between quantity of money and price level, any more than it asserts a causal relation between any other two factors, yet, when we take into account conditions known quite apart from that equation, viz., that a change in _M_ produces a proportional change in _M´_, and no changes in _V_, _V´_, or the _Q_'s, there is no possible escape from the conclusion that a change in the quantity of money (_M_) must _normally_ cause a proportional change in the price level (the _p_'s). While the equation of exchange is, if we choose, a mere "truism," based on the equivalence, in all purchases, of the money or checks expended, on the one hand, and what they buy, on the other, yet in view of supplementary knowledge as to the relation of _M_ to _M´_, and the non-relation of _M_ to _V_, _V´_, and the _Q_'s, this equation is the means of demonstrating the fact that normally the _p_'s vary directly as _M_, that is, demonstrating the quantity theory. To throw away contemptuously the equation of exchange because it is so obviously true is to neglect the chance to formulate for economic science some of the most important and exact laws of which it is capable. We may now restate, then, in what causal sense the quantity theory is true. It is true in the sense that one of the _normal effects of an increase in the quantity of money is an exactly proportional increase in the general level of prices_. I have no desire, as some one has humorously suggested, to hide behind an equation, but I do find it necessary to take refuge behind my book on the _Purchasing Power of Money_. So many new questions have been asked that, in the few moments at my disposal, I could not answer them all satisfactorily. I believe they have all been answered in the book referred to. For instance, a chapter has been devoted to transition periods in which it has been shown, as Professor Taussig has suggested, that during transition periods an increase in _T_ may cause an increase in _M´_. THE TESTIMONY OF RICARDO [78]Let us suppose that the circulation of all countries were carried on by the precious metals only, and that the proportion which England possessed were one million; let us further suppose, that, at once, half of the currencies of all countries, excepting that of England, were suddenly annihilated, would it be possible for England to continue to retain the million which she before possessed? Would not her currency become relatively excessive compared with that of other countries? If a quarter of wheat, for example, had been both in France and England of the same value as an ounce of coined gold, would not half an ounce now purchase it in France, whilst in England it continued of the same value as one ounce? Could we by any laws, under such circumstances, prevent wheat or some other commodity (for all would be equally affected) from being imported into England, and gold coin from being exported? If ... the exportation of bullion were free, gold might rise 100 per cent.; and for the same reason, if 35 Flemish schillings in Hamburgh had before been of equal value with a pound sterling, 17-1/2 schillings would now attain that value. If the currency of England only had been doubled, the effects would have been precisely the same. Suppose, again, the case reversed, and that all other currencies remained as before, while half that of England was retrenched. If the coinage of money at the mint was on the present footing, would not the prices of commodities be so reduced here that cheapness would invite foreign purchasers, and would not this continue till the relative proportions in the different currencies were restored? If such would be the effects of a diminution of money below its natural level, and that such would be the consequences the most celebrated writers on political economy are agreed, how can it be justly contended that the increase or diminution of money has nothing to do either with the foreign exchanges, or with the price of bullion? Now, a paper circulation, not convertible into specie, differs in its effects in no respect from a metallic currency, with the law against exportation strictly executed. Supposing, then, the first case to occur whilst our circulation consisted wholly of paper, would not the exchanges fall, and the price of bullion rise in the manner which I have been representing; and would not our currency be depreciated, because it was no longer of the same value in the markets of the world as the bullion which it professed to represent? The fact of depreciation could not be denied, however the Bank Directors might assure the public that they never discounted but good bills for bona fide transactions; however they might assert that they never forced a note into circulation; that the quantity of money was no more than it had always been, and was only adequate to the wants of commerce, which had increased and not diminished;[79] that the price of gold, which was here at twice its mint value, was equally high, or higher, abroad, as might be proved by sending an ounce of bullion to Hamburgh, and having the produce remitted by bill payable in London bank notes; and that the increase or diminution of their notes could not possibly either affect the exchange or the price of bullion. All this, except the last, might be true, and yet would any man refuse his assent to the fact of the currency being depreciated? Could the symptoms which I have been enumerating proceed from any other cause but a relative excess in our currency? Could our currency be restored to its bullion value by any other means than by a reduction in its quantity, which should raise it to the value of the currencies of other countries; or by the increase of the precious metals, which lower the value of theirs to the level of ours? FOOTNOTES: [43] _The Purchasing Power of Money_, pp. 14-71. The Macmillan Company. New York. 1911. [44] This theory, though often crudely formulated, has been accepted by Locke, Hume, Adam Smith, Ricardo Mill, Walker, Marshall, Hadley, Fetter, Kemmerer and most writers on the subject. The Roman Julius Paulus, about 200 A. D., stated his belief that the value of money depends on its quantity. See Zuckerkandl, _Theorie des Preises_: Kemmerer, _Money and Credit Instruments in their Relation to General Prices_, New York (Holt), 1909. It is true that many writers still oppose the quantity theory. See especially, Laughlin, _Principles of Money_, New York (Scribner). 1903. [45] See Scott, "It has been a most fruitful source of false doctrines regarding monetary matters, and is constantly and successfully employed in defense of harmful legislation and as a means of preventing needed monetary reforms." _Money and Banking._ New York, 1903, p. 68. [46] [For a method of determining the velocity of the circulation of money, see Appendix A.] [47] It is important to bear in mind that wherever _P_ is used in this chapter it represents the index number, or scale of prices, at which the trade, _T_, is conducted.--EDITOR. [48] An almost opposite view is that of Laughlin that normal credit cannot affect prices because it is not an offer of standard money and cannot affect the value of the standard which alone determines general prices. See the _Principles of Money_, New York (Scribner), 1903, p. 97. Both views are inconsistent with that upheld ... [here]. [49] This fact is apparently overlooked by Laughlin when he argues that there is not "any reason for limiting the amount of the deposit currency, or the assumption of an absolute scarcity of specie reserves." See _Principles of Money_, p. 127. [50] Interesting changes in the magnitudes of the equation of exchange between 1896 and 1914 are given in the appended diagram, which is taken from a reprint of Professor Fisher's article, _The Equation of Exchange for 1914, and the War_, the _American Economic Review_, Vol. V, No. 2, June, 1915.--EDITOR. [51] Adapted from Irving Fisher. _Recent Changes in Price Levels and Their Causes_, Bulletin of the American Economic Association. Fourth Series, No. 2, Papers and Discussions of the Twenty-third Annual Meeting, December, 1910, pp. 43-44. [52] Irving Fisher, _The Purchasing Power of Money_, pp. 74-88. [53] _Ibid._, pp. 149, 150. [54] _Causes of the Changes in Prices since 1896._ Bulletin of the American Economic Association, Fourth Series, No. 2, Papers and Discussions of the Twenty-third Annual Meeting, December, 1910, pp. 27-36. [55] There is a possible error here of perhaps $500,000,000. [56] The estimate for 1908 is $113,996,000. Cf. U. S. Report of Director of Mint, 1909, p. 80. [57] Bulletin, Am. Econ. Assoc., Fourth Series, No. 2, 1910, pp. 46-52. [58] _Ibid._, pp. 52-61. [59] _Money and Credit Instruments in their Relation to General Prices_, 2d edition, 1909. New York: Henry Holt & Company. [60] The passages referred to are omitted.--EDITOR. [61] Kemmerer, _Money and Credit Instruments_, pp. 9-18, 74-82. [62] _Ibid._, pp. 82-8, 121-6, 145-8. [63] _Ibid._, p. 9. [See Fisher: _Purchasing Power of Money_, pp. 175-180.] [64] The value of gold bullion deposited at the United States mints and assay offices increased from $87,924,000 for 1897 to $205,036,000 for 1907. Figures furnished by the Director of the Mint. [65] It is noteworthy that the reserves of the New York associated banks for example are usually kept very close to the legal reserve requirements. Cf. Sprague, _Crises under the National Banking System_, p. 222. [66] Gold produced before 1492 represents an insignificant part of the existing supply. [67] Useful tables summarizing all of these index numbers, except those of Canada, are given by Achille Necco, in his article on _La curva dei prezzi delle merci in Italia negli anni 1881-1909_, in _La Riforma Sociale_, Sept.-Oct., 1910. [68] Comparison is for 1897 and 1906, figures for 1907 not being available. [69] De Launay thinks that the industrial consumption averages somewhere between 40 and 50 per cent. of the annual output, but believes that for several years past the industrial uses have been absorbing a decreasing proportion, though an increasing amount. (_The World's Gold_, pp. 176-7.) [70] Bulletin, Am. Econ. Assoc., Fourth Series, No. 2, 1910, pp. 59-61. [71] _Ibid._, pp. 61-63. [72] _Ibid._, p. 64. [73] The quotation here referred to is omitted.--EDITOR. [74] _Ibid._, pp. 64-65. [75] _Ibid._, pp. 65-67. [76] _Ibid._, pp. 67-69. [77] Adapted from _The Purchasing Power of Money_, pp. 150-157; and Bulletin of the American Economic Association, Fourth Series, No. 2. Papers and Discussions of the Twenty-third Annual Meeting, December, 1910. p. 70. [78] David Ricardo, _Reply to Mr. Bosanquet's Practical Observations on the Report of the Bullion Committee_, Works, pp. 326-328. John Murray. London. 1888. [79] The Bank could not on their own principles, then urge that most erroneous opinion, that the rate of interest would be affected in the money market if their issues were excessive, and would therefore cause their notes to return to them, because, in the case here supposed, the actual amount of the money of the world being greatly diminished, they must contend that the rate of interest would generally rise, and they might therefore increase their issues. If, after the able exposition of Dr. Smith, any further argument were necessary to prove that the rate of interest is governed wholly by the relation of the amount of capital with the means of employing it, and is entirely independent of the abundance or scarcity of the circulating medium, this illustration would I think afford it. CHAPTER XII THE GOLD EXCHANGE STANDARD It is an essential feature of the gold exchange standard as it exists in the Philippines, for example, that premiums charged by the Government in Manila for exchange on New York, and in New York for exchange on Manila are fixed at a point somewhat below the gold export points in each case. Thus the would-be exporter of gold in the Philippines never finds it profitable to ship gold to New York. On the other hand, international bankers in New York never find it profitable to ship gold or currency to the Philippines, because the authorised agent of the Philippine government in New York always stands ready to sell in exchange for United States currency, drafts drawn upon Manila at a premium less than the cost of shipping gold or currency. Through a regulation of the supply of silver pesos in actual circulation in the Philippines they are maintained at a definite ratio to--not gold in the Philippines, but--gold, or its equivalent, in New York. The way in which the supply of local currency in the gold-exchange country is regulated will be made clear in what follows. The gold exchange standard has not entirely escaped criticism. Professor J. Shield Nicholson has recently attacked this standard in India. (_Economic Journal_, June, 1914.) It is his contention that inflation may occur in India, if it has not already occurred, on account of the "impeded convertibility of rupees into gold." After a certain point is reached in the inflation the decline in the general purchasing power of the rupee must be followed, he affirms, by a specific depreciation as regards gold; and then the main object of the plan would be defeated. He offers no evidence, however, that prices have risen faster in India than in gold standard countries. With the exception of Mexico, where currency conditions have become extremely chaotic, the historical material here reprinted is in accord with the recent monetary history of the countries under discussion. [80]When the Government of British India sought, in 1893, to give a fixed gold value to about £120,000,000 in rupee silver, it undertook an experiment of great importance to the financial world, and one which was naturally viewed in many quarters with grave misgivings. The experience of fifteen years which have followed that experiment has taught many lessons in monetary science. It may, indeed, be said to have blazed a new path in the principles of money--at least, in their practical application. The effort to raise the coins to a fixed gold value by scarcity alone was not successful, but it led to other devices, which, imitated or improved upon in Mexico, the Philippines, and the Straits Settlements, as well as in India, have created a new type of monetary system which has come to bear the title of the gold exchange standard. The gold exchange standard differs in several respects from the limping standard. It has been the product of definite purpose and plan in the Philippines and in Mexico and to a certain extent in India. While in British India it has been, like the limping standard, a compromise with existing conditions, it has there, as elsewhere, received a definite form and substance which separated it from the limping standard as evolved in France and in other countries which found themselves with a large amount of legal-tender silver on their hands when the metal had fallen below the official parity. There are two other essential differences between the limping standard and the gold exchange standard. One is that the gold exchange standard contemplates a circulation of token coins of silver without any necessary concurrent circulation of gold or paper. The other is that the gold exchange standard contemplates definite and comprehensive measures to maintain the value of token coins at par with gold instead of relying purely upon custom and scarcity to give them value. The essential principle upon which the exchange standard has been established is that the value of money is governed by the law of supply and demand. So long as supply was indefinite and excessive, as under the system of the free coinage of silver, there was no way of preventing safely and effectively the decline in the gold value of the coins to the bullion value of their silver contents. The moment, however, that Government undertook to limit the supply of coins to the demand for them, it took an important step to separate their value from that of their bullion contents and to give them a value based upon the demand for them as money signs required for carrying on exchanges. Strangely enough, while this principle had been in operation for many years in the case of subsidiary coins, its bearing upon the use of silver in countries where the standard had been depreciating was not clearly comprehended until within recent years. Those who understood the principle doubted its sufficiency to give a fixed value to silver coins as the sole medium of exchange, or they distrusted the ability of any government to judge accurately the number of coins required. Upon the latter point they would have been correct if dependence had been placed upon guesswork or any empirical method of determining the amount needed. It remained to find the true solution of the problem by so regulating the quantity of the coins that it would respond automatically to the demands of trade. The correct method of doing this is through the system of exchange funds. As this system is operated in the Philippines, it is not possible to obtain gold coin for silver certificates in small quantities; but it is possible always to obtain drafts upon New York at par, plus the usual charges for exchange between gold standard countries. These drafts have to be purchased with actual silver coin or coin certificates. In either case the coins and certificates are, by the requirements of the coinage law, held in the Philippine Treasury. The law does not permit their deposit by the Treasury in current account at a bank, which would turn them back into the general circulation. For practical purposes the volume of currency in circulation is contracted to the same extent as if a corresponding amount of gold were taken from the circulation for export. When the current turns and rates for money become high in the Philippines, Philippine currency can be released for local circulation by the purchase in New York from the gold standard fund of bills upon the Philippine Treasury. This rule of locking up the proceeds of the sale of bills is not rigidly applied to the funds in New York, because the influence of the Philippine purchases upon the local circulation there would be insignificant. On the contrary, the Government obtains a generous interest rate, which has at times been as high as 4 per cent., upon the deposit of Philippine funds with New York bankers. During the stress of the autumn of 1907 considerable transfers of capital were made from Manila to New York by means of the purchase of New York drafts from the Philippine Treasury. The process, often repeated even under less serious pressure, clearly shows that the monetary system of the Philippines is linked to gold, and that capital can be freely transferred upon a gold basis between Manila and other markets. The experience of fifteen years since the free coinage of rupees was first suspended in British India, of five years since the new system was established in the Philippines, and of nearly four years since it was in operation in Mexico, have settled most of the doubts which were felt when the experiment was undertaken in India. In the first place, it has been made clear that the value of the coins in exchange, as fixed by law, has not been influenced by variations in the price of silver bullion. This statement, of course, applies only to one side of the problem--the fall of the gold value of the silver in the coin below its face value. It would not be possible under any system yet discovered, except such uneconomic devices as prohibiting exportation, to prevent the disappearance of silver coins when the [bullion] value of their contents rises above the legal value in exchange. Both the Philippines and Mexico have faced this menace to their monetary circulation since their systems were inaugurated, but both have succeeded in removing it. In the Philippines the contents of the silver unit--the peso--was reduced in 1906 from about 371 grains to 247 grains in pure silver. The amount fixed by the law of 1903 was practically the same as the contents of the old Mexican dollar. The adoption of a coin of this weight was caused partly by the desire to avoid the distrust which some feared might arise from reducing the weight. At the time of the passage of the law, moreover, the price of silver was nearly at the lowest point in its history, having touched the minimum of 21-11/16 pence in January, 1903, and being at an average price of 22-1/2 pence in March. The adoption of so heavy a coin, however, was not in accordance with the original recommendation made by the present writer to the War Department in November, 1901. The weight then recommended was 385 grains, nine-tenths fine, or about 347 grains of pure silver. In Mexico the rise of the silver coins above the legal gold value proved a blessing in disguise. It enabled Mexico to go almost to an absolute gold standard by selling her silver at a premium. From May 1st, 1905, to October 22nd, 1907, the old silver piasters were exported to the amount of $85,956,202, while gold coinage was executed to the amount of $71,646,500 (about £7,200,000).[81] The gold has gone chiefly into the reserves of the banks, which have in circulation about $95,000,000 in notes. Gold holdings of the banks, which were only $15,832,840 in January, 1906, were $54,165,483 in October, 1907, while silver holdings declined over the same period from $49,781,155 to $14,399,924.[82] This influx of gold came about because silver at 33 pence was above the Mexican coinage ratio of about 32 to 1, and much of it was sold by the Commission on Money and Exchange at a direct profit to the Mexican Treasury. In view of the subsequent fall in silver below 23 pence, at which rate Mexico is in a position to replenish her supply of subsidiary coinage, her statesmen may claim the credit of following the great rule of profit in the commercial world as well as on the stock exchange--to sell when things are dear and to buy when things are cheap. The coincidence in the rise of silver and the adoption of the Mexican monetary reform in 1905 was in some degree accidental. It facilitated the reform, not only by introducing gold, but by removing the objections which would otherwise have been heard from the miners of silver to the rise in gold wages which would have accompanied a fixing of the exchange at a point above the value of silver bullion. It was the intention of the Mexican Government, however, to proceed resolutely, though deliberately, to a fixed exchange, and they would undoubtedly have accomplished this result, even if they had not been aided by the rise in the value of silver. Its subsequent fall has in no wise impaired the stability of the gold standard. Some fears were expressed in the Philippines as to the willingness of the natives and of Chinese traders to accept a silver coin at a gold value fixed by law which was obviously above its value as bullion. This difficulty has proved almost negligible. Silver within less than three years has been above 33 pence per ounce and below 23 pence. It is doubtful if the Government officials in India or the Philippines have so much as taken note of the daily fluctuations since the price dropped below the legal parity of the coins, and it is certain that the exchange value of the coins has been in no wise impaired by their fall in bullion value. When the last reduction was made in the weight and fineness of the Philippine coins, lowering by almost 30 per cent. their silver contents, the precaution was taken of advising the public by means of an official circular, translated into the various languages and dialects of the Islands, why the change had been made, and that it would not affect the exchange value of the coins. Provincial and municipal treasurers were also directed to carry on a campaign of education among the people by way of explaining the character and effect of the change. The greatest menace to the value of the new coins lay with the Chinese, for in China for many hundreds of years local bankers and merchants have adhered to the rule that a coin derived no value from the stamp, but was worth just what it would fetch on the scales. The Chinese traders at first undertook to discriminate in this manner against the new coins of the Philippines. In some cases they refused to receive them except at a discount varying from 20 to 40 per cent. They also offered 105 in the new coins for 100 in the old, evidently in the hope of exporting the old at a profit while they continued to be worth as bullion more than their legal gold value. The success of this discrimination was local and extremely short-lived. The first consignment of the new coins reached Manila on May 4, 1907, and when the Treasurer of the Islands prepared his annual report on October 15th, 1907, he was able to make the following statement of conditions: At this time, October 15, the new coin is accepted without question in every part of the Islands, and no reports or complaints have been received for the past two months as to discounting it, and, so far as can be ascertained, no premium is now paid for the old coin. In fact, the demand for the new coin for exchange purposes has so far exceeded the supply that it became necessary to withdraw nearly half a million of the new pesos from the banks to meet the requisitions therefor from the provinces. The hesitation which prevailed, therefore, in many quarters in regard to the ability of a government to overcome the conservatism of the East in its preference for coins of full bullion value has not been warranted by events. This demonstration is of importance if the exchange standard is to be considered for China. At present the Government of China is not perhaps strong enough and sufficiently centralised to assure its subjects that it can give a definite gold value to a token coin and maintain it honestly and efficiently. The trial of the system, however, in the Philippines, in British India, and in the Straits Settlements, in all of which there are many Chinese, has probably so far cleared the air upon this point that the Chinese Imperial Government would be able to establish the gold exchange system if it did so under sufficient guarantees to the financial world that it would be honestly and intelligently maintained. Next in importance to the settlement of this question of native willingness to accept the new system may be considered the degree of difficulty in maintaining it. It is not surprising, perhaps, that when it was proposed in an incomplete form for British India, it should have been denounced as a "fair weather" device--"a leap in the dark," which would not stand the test of business depression, deficient crops, and an unfavourable balance of trade.[83] The most serious difficulty which has been foreseen by critics of the gold exchange system relates to the sufficiency of the exchange funds. Up to the period of the general panic of 1907 and the crop failure in India in the spring of 1908, it might fairly be said, perhaps, that the system had not been subjected to any but "fair weather" conditions. The experience of India, however, has thrown striking light upon the possibilities and limitations of the system in time of stress. The test in India has been of such magnitude, moreover, that its results are much more conclusive than any test which might have been afforded in a smaller country dealing with a less enormous mass of token coins. If the test had come before the exchange funds had acquired a respectable size, the system might have been allowed to break down, through timidity and delay in taking proper measures of protection, and discredit have thus been cast upon it before it had been fairly tried. What happened in India was that the failure of the crops deprived the country of the usual means of compensating by exports the heavy imports of foreign goods which had been contracted for. It became necessary, under the settled principles of exchange, to find gold to fill the gap. Usually the exchange account substantially balanced itself by the sale in London of Council drafts upon the Indian Government to obtain gold to pay the interest on the debt held in England. These drafts were purchased by importers in London, and used to pay for the Indian crops; but all through the spring of 1908 purchasers for drafts failed to appear, because there had been no considerable exports of Indian crops to be paid for. Hence Council drafts were without a market, and for a moment it seemed that the link which bound the Indian monetary system to the gold market of London had been severed, and that the silver rupee might drop as disastrously as the Mexican dollar before its free coinage was suspended. This would have added the influence of an appalling disaster to the burden already imposed upon Indian finance by the failure of the crops, for it would have compelled the Indian importer of English goods to find a greatly increased number of rupees to meet his gold obligations in London. Obviously, it was a disaster which, if it had occurred, would have invited the bankruptcy of the country, reflected lasting disgrace upon English financial foresight, and perhaps even have led to organised revolt. The Indian Government had available for meeting the crisis about £18,500,000, principally invested in securities in London. This fund, known as the gold standard reserve, was distinct from the currency reserve, consisting of gold received for currency notes, which amounted in the spring of 1908 to about £12,000,000. It was against the former fund that the Indian Government felt compelled to offer to sell exchange in India. Such offers were made for a time in limited amounts of £500,000 each, but they proved substantially adequate for meeting the demand, and by early summer the demand fell below the supply. The offer of exchange in this form for rupees maintained the value of the rupee coinage, contracted the amount of rupees in circulation in India, and enabled the Indian merchants to meet their obligations without the loss which they must have suffered if the currency had been allowed to depreciate in gold value. The actual sales of bills upon the exchange funds in London reached, between March 26th and August 13th, 1908, the considerable total of £8,058,000. Of this amount about £2,000,000 was taken from the currency reserve in gold, which was "earmarked" at the Bank of England, incidentally affording relief to the London money market which was keenly appreciated. Most of the remainder was obtained by the sale of securities to an amount which reduced such holdings from £14,019,676 on March 31st to £9,415,708 on July 31st. The test to which the Indian system, as the most important example of the gold exchange standard, was thus subjected was perhaps of a higher importance than was realised by those in the thick of the conflict. It was plainly intimated, however, in the annual report on financial conditions for 1908 that, if necessary, the Indian Government would have issued short-dated securities in order to still further replenish the exchange funds in London. This would have been the true means of meeting the situation if the existing fund had been unduly impaired. The argument against it would have been that the demand was indefinite, and might become so large as to be unmanageable. The fact that the demand for exchange was met without the issue of new securities and without trenching upon the reserve funds beyond the amount of £8,000,000 out of £18,500,000 affords pretty strong evidence that there is a natural limit to such demands. It is in this principle, that there is a natural limit to the possible drain upon the exchange funds, that the security of the new system lies.... It is only the supply of local currency on the margin of possible export demands which needs to be safeguarded. The substratum, which can never leave the country unless under the influence of an almost inconceivable economic cataclysm, is analogous in some respects to the "authorised" circulation of the Bank of England. It represents the irreducible minimum below which the local need for currency can never fall. If the supply on the margin of the international exchange movement is adequately guarded, then the whole system is secure. If it were conceivable that the demand for exchange would equal the whole amount of the local currency, or even the half of it, then it would be necessary to maintain exchange funds equal to the whole amount of token coins or the half of them in order to insure safety. But obviously this could never be the case. This argument against the exchange standard is only a repetition of the dilemma sometimes presented by untrained minds in regard to bank-notes: what would happen if all the notes should be presented at one time for redemption? That question has been answered by banking experience; the question in regard to the gold exchange system has been and must be answered by experience in substantially the same manner. No country can be subjected to such stress as to consent to part with its entire monetary circulation, or even the half of it. On the contrary, every influence which tends to contract the circulation tends to create a condition which makes further contraction more difficult. Rates for the loan of money are affected, prices of imported goods are influenced, imports fall off and exports increase, and inevitably in the modern money market local equilibrium is restored, often with considerable strain, but none the less without pulling down the pillars of the financial temple. The experience of last spring in India proves the adequacy of a reserve of 15 or 20 per cent. of the circulation to maintain the steady parity of a token coinage. There is apparently no evidence that serious distrust of the rupee arose, even when the Government was hesitating as to just what steps should be taken to meet the demand for exchange. Even if such distrust had arisen, however, it could have expressed itself through financial channels only by the demand for drafts on London. These would not have been very valuable to the average local tradesman except as he was able to sell them back again to the banks for the very rupees which had aroused his distrust. In this respect the gold exchange standard may be said to put a brake upon the disposition to export currency from fear alone, when the exportation is not demanded by the balance of trade. If any mistake was made in the management of the Indian currency, it was in the investment of too large a proportion of the gold standard reserve in securities. While investment in securities is naturally attractive because of the income earned, and while it is not subject to just criticism while kept within certain limits, the possession of actual gold to a considerable amount is highly desirable. It would not be necessary, perhaps, that such gold should be "earmarked." If the Indian Government had a large deposit account in such an institution as the Union of London and Smith's Bank, or the London City and Midland, it would possess for the purposes of the Indian Government the character of gold. Drafts against such a deposit could be sold without the discount or delay which might be required in disposing of securities. It seems highly desirable, therefore, in spite of the prudence with which the recent pressure was met, that at least 30 or 40 per cent. of the gold standard reserve should in the future be kept either in "earmarked" gold or in the form of demand deposits. In the case of the Philippine Islands the reserve is not "earmarked," but is at present entirely in the form of deposits with New York bankers. The problem in the Philippines is really child's play compared to that in British India. The entire circulation of the Philippine Islands is about 40,000,000 pesos (£4,000,000), against which a large reserve has accumulated as the result of the recoinage at a reduced rate as well as by the profits on the original coinage. It is hardly conceivable that an emergency would arise which would impair this reserve; but if this should occur, the scratch of a pen in Washington would remedy the situation. This would be accomplished by depositing gold or its equivalent in the exchange fund in New York to the credit of the war and navy, and placing an equivalent amount of local currency at the command of the military forces in the Philippines. Such a deposit would operate to increase the resources at the command of military disbursing officers in the Islands without increasing the amount actually in circulation until the occasion arose to disburse it. The Panama currency has been steadily maintained at par by friendly interchanges of this sort, even with a very insignificant official exchange fund. No Governor of the Philippines, therefore, need have any fear of his ability to maintain the parity of the Philippine coinage. Whether the exchange standard would stand the strain of a great war is yet to be subjected to practical test.[84] It may be said, however, that its capacity to meet such a test would run upon all fours with the capacity of any monetary system which does not consist exclusively of gold coin. The experience of France in the war with Prussia seemed to justify the suspension of specie payments for the purpose of husbanding the national stock of gold. The history of the Spanish exchange, where the coins have followed the value of the bank-notes instead of that of silver bullion, is another case in point. Both Russia and Japan, however, in the war of 1904-5, succeeded in maintaining complete convertibility of their bank-notes. There is no reason why the gold exchange standard should not be successfully maintained so long as the country where it was established retained its national independence and pursued a sound financial policy. The issue of large amounts of debt would not in itself impair the stability of the standard, unless the Government, in order to obtain gold, ravished the exchange funds in financial centres. The questions involved would be substantially the same as those involved in maintaining the parity of bank-notes or paper money: first, the disposition of the Government to maintain its credit; secondly, the resources which the Government was able to command. Without either good intentions or monetary resources, the monetary system, along with the fiscal system, would break down. It is not apparent, however, that a country operating upon the gold exchange system would find any greater difficulty in maintaining the system than the Bank of Japan had in maintaining the convertibility of its notes during the war with Russia. If there were a disposition in time of war to transfer capital abroad by excessive demands upon the exchange funds, it could be counteracted in three ways. One would be the automatic influence of the deficiency of currency which would arise at home. Another would be the issue of loans abroad, from which exchange demands could be met. A third would be the deliberate elevation by a small percentage of the charge for exchange. This would amount to a slight depreciation in the currency, but if kept within prudent bounds, it would probably permit the maintenance of an adequate circulation without disturbance to local prices and without even a theoretical depression below the 2 or 2-1/2 per cent. which affected the notes of the Bank of France in the war of 1870. The gold exchange system may indeed be said to be an extension of the bank-note system to token coins. The token coin is, in effect, a metallic bank-note, whose maintenance at gold par is subject to the rules of sound banking. Its advantages over the bank-note in undeveloped countries are that it conforms to a strong prejudice in favour of "hard money," not subject to the vicissitudes of tropical climes, and that the output can be more safely regulated, where new coins are issued only for gold, than where a bank may increase its note issues to take over assets of speculative or doubtful character. In the advanced countries, with a highly organised credit system, gold, and gold alone, is the proper form of full legal-tender coin; but in the less advanced countries of the Orient silver token coins have the advantage that they conform in size and denominations to the small scale of local transactions, that they are not so rapidly absorbed by hoarding, and that their very non-exportability enables the Government to keep in circulation a quantity of currency which might under a different system be drained away to richer countries, and leave the community denuded of an adequate medium for carrying on exchanges. OBJECTIONS TO THE GOLD-EXCHANGE STANDARD FOR THE STRAITS SETTLEMENTS ANSWERED [85]... the establishment of the gold standard in the Straits Settlements ... in the spring of 1903 ... provided for the recoinage of the British and Mexican dollars then circulating in the Malay Peninsula into new Straits Settlements dollars ... of the same weight and fineness as the British dollar, and for the subsequent raising of the value of these new dollars to an unannounced gold par by means of limiting the supply, in accordance with the principle by which India raised the gold value of the rupee.... The objections urged to the adoption of the gold-exchange standard are [were]: (1) That it would unduly interfere with the [foreign exchange] business of the banks. (2) That it would encourage banks to work on dangerously low cash balances, knowing as they would that they could obtain dollars of the Government on a moment's notice by the purchase of cable transfers on Singapore from the crown agents for the colonies in London. (3) That there would be danger of the Government's notes [a part of the circulating medium] depreciating unless they were redeemable in gold in the country itself. (4) That the monetary circulation of the Straits Settlements was too small to make the plan feasible there. (5) That the plan would require a larger reserve fund than would otherwise be necessary, because the Government would be compelled to keep a reserve both in London and Singapore; and that in each place the reserve would have to be large, because drafts on the fund through the sale of telegraphic transfers would not give the Government any such warning in advance of the demands liable to be made as would enable it to replenish the reserve. The above arguments, all of which were urged upon the writer either by officials or business men in the Straits Settlements, do not appear to be conclusive for the following reasons, which may conveniently be stated in the same order as the objections.[86] (1) If the rates for the sale of government drafts were fixed at the "gold points," as they presumably would be under the gold-exchange standard, and if only drafts of large amounts were to be sold by the Government, redemption by the sale of drafts would not interfere appreciably more with the business of the banks than would redemption in coin. Under these circumstances the banks themselves would be the principal purchasers of government drafts, and such drafts would be purchased and forwarded merely in lieu of the shipment of sovereigns. (2) The sale of telegraphic transfers, while desirable in the interest of currency elasticity, is by no means a necessary feature of the gold-exchange standard. If the Government were opposed to making a minimum legal reserve requirement of banks, it could limit its sales of drafts to demand drafts or even, if need be, to short-time drafts. (3) If government notes were redeemable in silver dollars on demand, and if the silver dollars were redeemable in gold exchange on demand, depreciation would be impossible in a country where the people have the confidence in the Government which they have in the Straits Settlements. (4) The system of the gold-exchange standard is better suited to a country with a small circulation than to one with a large circulation. It is evidently easier to maintain a small reserve abroad than a large one and the operations with a small reserve are less disturbing to the money market of the financial center in which the reserve is located. (5) It is not probable that the Straits Settlements would require so large a reserve under the gold-exchange standard as it will under the system to be adopted. Under either system it would need a sovereign reserve and a dollar reserve. Under the system to be adopted both reserves will be located in Singapore; under the gold-exchange standard the dollar reserve would be located in Singapore and the sovereign reserve in London. The sale of cable transfers is not a necessary part of the system, as above pointed out; and, even if it were, the movement of market rates of exchange would ordinarily give ample warning of a demand for dollar drafts or sovereign drafts. Emergency cases, if such should arise, could be met through the temporary transfer of funds to the gold reserve from the security portion of the note guarantee fund, or through the transfer of dollars to the credit of the home government in Singapore in exchange for an equivalent amount of sovereigns placed to the credit of the Straits government in London.... A prolonged and severe drain upon the reserve fund, which in a country like the Straits Settlements would be an extremely improbable contingency if the Government withdrew from circulation dollars presented in the purchase of government drafts, could of course always be met by the forward sale on the London silver market of the redundant dollars piling up in the Government's dollar reserve in Singapore. The gold-exchange standard would probably enable the country to get along with a smaller gold reserve than will the system to be adopted, inasmuch as it would keep gold coins out of circulation and the demands upon it would be limited to the requirements of meeting foreign trade balances--the only monetary use to which the dollars could not be applied. The Straits Settlements, inasmuch as it is a country for whose trade requirements silver coins are better adapted than gold, and a country which is anxious to maintain its reserve at as small an expense as possible, would in fact seem to be a place peculiarly adapted to the gold-exchange standard. The premiums which the Government would realize on its sale of exchange, together with the interest it would obtain on that part of its reserve deposited abroad, would doubtless yield sufficient profit, as in the Philippines, to pay the expenses of administering the currency system and to provide in addition a substantial annual increment to the gold reserve. FOOTNOTES: [80] Charles A. Conant, _The Gold Exchange Standard in the Light of Experience, The Economic Journal_, Vol. 19, June, 1909, pp. 190-200. [81] _Le Marché Financier en 1907-8_, p. 711. [82] These figures are from the annual budget statements of the Minister of Finance. [83] For some of these doubts see _London Bankers' Magazine_, October, 1908, LXXXVI, p. 435. [84] Throughout August, 1914, while sterling rates in other countries rose to unprecedented heights, India succeeded in maintaining rates on London in the neighborhood of the gold export point--a striking testimony to the soundness of the Indian arrangements.--EDITOR. [85] E. W. Kemmerer, _A Gold Standard for the Straits Settlements II., Political Science Quarterly_, Vol. XXI, No. 4, p. 663, 678-680. [86] The answers given to the objections just stated have been confirmed and strengthened by the actual operation of the gold-exchange standard as later adopted by the Straits Settlements.--EDITOR. CHAPTER XIII A PLAN FOR A COMPENSATED DOLLAR [87]In the _Purchasing Power of Money_ (1911) I sketched a plan for controlling the price level, _i. e._, standardizing the purchasing power of monetary units. This plan was presented more briefly, but in more popular language, before the International Congress of Chambers of Commerce, at Boston, September, 1912. The details were most fully elaborated in the _Quarterly Journal of Economics_, February, 1913. Following these and various other presentations of the subject, especially the discussion at the meeting of the American Economic Association in December, 1912, the plan was widely criticized by economists, both favorably and unfavorably, as well as by the general public. On the whole the plan has been received with far more favor than I had dared to hope and even the adverse criticism has usually been tempered by a certain degree of approval. The object of the present paper is briefly to state the plan and to answer the more important and technical objections which have been raised. Answers to the more popular objections, omitted from this article through lack of space, will appear in a book, _Standardising the Dollar_, which I hope to publish in 1915. I shall begin with a skeleton statement of the plan; space is lacking for more. In brief, the plan is _virtually_ to vary each month the weight of the gold dollar, or other unit, and to vary it in such a way as to enable it always to have substantially the same general purchasing power. The word "virtually" is emphasized, lest, as has frequently happened, any one should imagine that the actual gold coins were to be recoined at a new weight each month. The simplest disposition of existing gold coins would be to call them in and issue paper certificates therefor. The virtual gold dollar would then be that varying quantum of gold _bullion_ in which each dollar of these certificates could be redeemed. The situation would be only slightly different from that at present, since very little actual gold now circulates; instead, the public uses gold certificates, obtained on the deposit of gold bullion at the Treasury, and redeemable in gold bullion at the Treasury at the rate of 25.8 grains, nine-tenths fine, per dollar. The only important change which would be introduced by the plan is in the redemption bullion; we would substitute for 25.8 a new figure each month. The gold miner, or other owners of bullion, would, just as now, deposit gold at the United States Mint or Treasury and receive paper representatives, while the jeweler, exporter, and other holders of these certificates would, just as now, present them to the Treasury when gold bullion was desired. There would also be a small fee or "brassage," of, say, 1 per cent. for "coinage," _i. e._, for depositing the bullion and obtaining its paper circulating representative. In other words, the Government would buy gold bullion at 1 per cent less than it sold it. This pair of prices, for buying and selling, would be shifted in unison, both up or both down, from month to month, it being provided, however, that no single shift should exceed 1 per cent., a figure equal to the amount by which the two differ. The object of this proviso is to prevent speculation in gold. To determine each month what the pair of prices should be, or, what is practically the same thing, to determine what amount of gold bullion should be received and paid out in exchange for paper, recourse would be had to an official index number of prices. If, in any month, the index number is found to deviate from the initial par, the weight of bullion in which it shall be redeemable the next month is to be corrected in proportion to this deviation. Thus, the depreciation of gold would lead to a heavier virtual dollar; and an appreciation, to a lighter virtual dollar. There are, of course, other details and possible variants of the plan, some of which will be referred to later when necessary. The objections to the plan are classified under the following heads: 1. "_The plan assumes the truth of the quantity theory of money._" There is nothing whatever in the plan itself which could not be accepted by those who reject the quantity theory altogether. On the contrary, the plan will seem simpler, I think, to those who believe a direct relationship exists between the purchasing power of the dollar and the bullion from which it is made--without any intermediation of the quantity of money--than it will seem to quantity theorists. 2. "_It contradicts the quantity theory._" This objection, the opposite of that above, is raised by some, who, like Professor Boissevain, believe in the quantity theory, but imagine that the operation of the plan could not affect the quantity of money at all (or would not affect it to the degree needed). But evidently an increase in the weight of the virtual dollar, _i. e._, a reduction in the price of gold bullion, would tend to contract the currency, by diverting gold from the mint into the arts; because its reduced price would cause an increased demand and consumption. A decrease, of course, would have the opposite effect. 3. "_It might aggravate the evils it seeks to remedy._" This objection, raised by Professor Taussig and a few others, is based on the preceding. It is claimed that an increase in coined money may take place for years "without visible effect on prices; then comes a flare-up, so to speak." I doubt if Professor Taussig meant the first half of this statement to be quite so strong. The evidence only justifies the statement that the rise is slow at first and rapid later while similarly the effect of a scarcity of money is slow at first and rapid later. Professor Taussig then proceeds to apply the same idea to my plan: The cumulative consequence would be like the cumulative consequence of a long continued decline in gold production. After a season or two of declining bank reserves, tight money, and so on, a sudden collapse might be occasioned, and apparently caused, by the announcement of some particular seigniorage adjustment. Then there might be a decline in prices much greater than in proportion to the bullion change. But the working of the compensated dollar would not be in the least analogous to the operation of gold inflation or contraction, even as Professor Taussig supposes it. The plan always works cumulatively _toward_ par, never cumulatively _away from_ par. One often sees a wagon with its wheels on a street-railway track having some difficulty getting off; the front wheels have to be turned at a large angle before they are forced out of their grooves; then of a sudden they jump away. This is analogous to the delayed "flare-up" of prices which Professor Taussig supposes under the influence of a long continued decline or increase in the gold supply. But if the driver instead of trying to turn out is trying to keep the wagon on the track he will pull the horse back at every tendency to turn to the right or left. The more the horse turns to the right the harder will the driver endeavor to turn him to the left. Clearly the effect of the driver's efforts will be to avert or delay, not to aggravate or hasten, any jumping out of the grooves which other causes may tend to produce. In other words, if it takes as much time as Professor Taussig fears for a pressure on prices to move them, then so much the more certain is it that, under the plan, deviations from par, though they may be persistent, cannot be either rapid or wide. A long continued small deviation gives plenty of time for the counter pressure exerted by the compensating device to accumulate and head off any wide deviation. Suppose that, following Professor Taussig's ideas, some cause such as an increase of gold production would, in the absence of the compensated dollar plan, gradually lift the price level as follows: during the first year, not at all; during the second year, 1 per cent.; during the third year, 2 per cent.; after which would come a "flare-up" of 10 per cent. We may suppose then that, if the plan were in operation during the first year, there being no deviation visible, there would be no change in the weight of the dollar. After the first month of the second year when prices were 1 per cent. above par, the weight of the dollar would according to the plan be raised 1 per cent. If this were unavailing, so that in the second month the deviation were still 1 per cent., the weight of the dollar would be again increased 1 per cent. Every month, as long as the deviation of 1 per cent. lasts, the weight of the dollar would receive an _additional_ 1 per cent. Unless some effect were produced on the supposed original schedule of deviations, the weight of the dollar of the second year would be increased 12 per cent., and by the end of the third year by 24 per cent. more, or 36 per cent. in all. But it is clear that by this time, with so swollen a dollar, the "flare-up" scheduled for the fourth year could not occur, but that a counter movement would set in--in fact, would have set in long before the dollar became so heavily counterpoised. Nor could the result of the counterpoise, even if so heavy, be to swing suddenly prices far below par. Prices would, by hypothesis, yield slowly and again give time for taking the counterpoise off. If the price level sank, say to 1 per cent. below par for six months, then to 2 per cent. for another six months and to 3 per cent. in the next six months, evidently the entire 36 per cent. would be taken off in eighteen months (since 1 × 6 + 2 × 6 + 3 × 6 = 36). The compensating device is thus similar to the governor on a steam engine. It is the balance wheel that is largest and hardest to move which is the most easily controlled by the governor. So if the "flare-up" theory is true, the system will work more perfectly than if it were not true. 4. "_It would not work unless every single mint in the world employed it._" This is an error. Although it could be easily shown to be politically inadvisable for one nation alone to operate the plan, this would not be economically impossible. Those who hold the contrary are deceived by the term "mint price." They reason that our mint price ($18.60 an ounce of gold, 9/10 fine) and England's mint price (£3 17_s._ 10-1/2_d._ for gold 11/12 fine) are now "the same," and that, consequently, if our price were lowered 1 per cent., _i. e._, to $18.41, while the English price remained unchanged, _all_ our gold would be taken to England to take advantage of the "higher" price there. But these comparisons between English and American prices are based on the present "par of exchange" ($4.866 of American money for the English sovereign): which par of exchange is in turn based on the relative weights of the dollar and the sovereign. As soon as our dollar were made 1 per cent. heavier, not only would the new American mint price go down 1 per cent., but the par of exchange would also go down 1 per cent., to $4.82. Consequently, the new mint price of $18.41, although in figures it is lower than the old, yet, being in heavier dollars, would still be "the same" as the English mint price of £3 17_s._ 10-1/2_d._ This sameness of mint price as between the two countries means at bottom merely that an ounce of gold in America is equivalent to an ounce of gold in England. It is true that each increase in the weight of the virtual dollar in America--in other words, each fall in the official American price of gold--would at first discourage the minting of gold in America. The miner would _at first_ send his gold to London, where the mint price was the same as formerly, and realize by selling exchange on the London credit thus obtained. But the rate of exchange would soon be affected through these very operations, by which he attempted to profit, and his profit would soon be reduced to zero; the export of gold to England would increase the supply of bills of exchange in America drawn on London and lower the rate of exchange until there would be no longer any profit in sending gold from the United States to England and selling exchange against it. When this happened it would be as profitable to sell gold to American mints at $18.41 per ounce as to ship it abroad; and $18.41 in America would be the exact equivalent at the new par of exchange ($4.82) of the English mint price of £3 17_s._ 10-1/2_d._ 5. "_The system would be destroyed by war._" Professor Taussig fears that if money were stabilized, the system would itself be upset by war. "Any war would put an end to it." To this I would reply: first, that if war did put an end to it the system would do good so long as it lasted and its discontinuance would do no more harm than the existence of our present unscientific system is doing at all times; secondly I do not see any reason for thinking that war would put an end to it. Possibly Professor Taussig has in mind the first form in which I explained the plan, _viz._, in my book, _The Purchasing Power of Money_. In that form one country was to serve as a centre and all other countries were to have the gold exchange standard in terms of gold reserves in the central country, just as now the Philippines have a gold exchange standard with reference to the United States and India with reference to England. Professor Taussig's objection would undoubtedly apply, to some extent, in cases where the plan was carried out through the gold exchange mechanism. But where the system was independently established in each country simply parallel to the systems in other countries, there would be no more need for its abandonment in case of war than for the abandonment now by Germany of the gold standard because England, its enemy, has the gold standard also. We know, of course, that in time of war, the gold standard is often temporarily abandoned in favor of a paper standard; and the new proposal would not escape such a difficulty. This, however, would not be due to the international character of the plan, but to the exigencies of war. 6. "_The multiple standard is not ideal. Especially is it faulty when the cause of price movements is entirely a matter of the abundance or scarcity of goods in general._" Those who hold this objection point out that an ideal standard would not be one which always smooths out the price level but one which discriminates and leaves unchanged such rises and falls as are due to general scarcity and abundance of goods. There is much to be said in favor of such discrimination as an ideal. It must be admitted that the compensated dollar plan would not discriminate between changes in the price level due to the scarcity or abundance of goods in general and those due to changes in money and credit. It must be further admitted that a theoretically ideal standard would take some account of this distinction. But the compensated dollar plan does not claim to be ideal. The plan would simply correct the gold standard to make it conform to a multiple commodity standard. It does not pretend to correct the multiple commodity standard to make it conform to some "absolute" standard of value. Such an ideal standard is as unattainable as is absolute space. Changes in relative value indicate change in absolute value, either of goods or of money; but it is not possible for us to know, except in a general way, how much of the absolute change is in goods and how much in the dollar. On general principles we may be assured that the absolute change is wholly or mostly in the dollar. We economists in our measurements of value are in much the same predicament as the astronomers. Our economical "fixed stars" are fixed only in a relative sense. We cannot measure the empty spaces of absolute value, but can only express values in terms of visible goods, the general average of which is the nearest approach to absolute invariability we can, in practice, reach. But if it were possible to measure absolute values to our universal satisfaction, in terms, say, of "marginal utility," or of "disutility of labor," or of anything else, there are no statistics by which we can realize such a standard in practice. The only readily available statistics by which we can correct our present standard are price statistics from the great markets. We can, by index numbers based on these price statistics, translate from gold into commodities, but as yet we cannot translate from commodities into any ideal or absolute standard. If I were treating of the problem of an ideal standard of value, I think I should be inclined to agree with Professor Marshall that a standard that represents a gradually descending scale of prices to keep pace with the "real" cheapening improvements in industrial processes is better than one which represents an absolute constancy of prices. But it would be quite impracticable to discover the exact rate of fall of prices which would correctly register the improvement going on in industry, and, moreover, it would, I believe, be so small as not to depart much from the mutiple standard. This I infer is also the opinion of Professor Marshall. Professor Kinley makes the very interesting suggestion that we can suppose a more ideal standard than the tabular by making our unit a definite percentage of the national annual dividend. This appeals to me as a rough and ready way of fixing a unit more nearly ideal than that fixed by the tabular standard. But it would certainly not be practicable. It would not even be quite ideal. But if Professor Kinley will measure his standard, the compensated dollar plan will be able to take care of it. In fact, if we could find a more absolute standard than the tabular standard and could accurately measure it in statistics, precisely the same method of compensating the dollar could be employed to keep the dollar in tune with that standard as with the tabular standard. The only difference would be that the guiding index would be different. The plan for compensating the dollar does not in essence consist in selecting the multiple or any other standard. It consists in a method of making the monetary unit conform to any standard chosen. But there is convincing evidence that the multiple standard is usually near enough to the ideal for all practical purposes and infinitely nearer than the gold standard. _While individual goods may vary greatly in absolute value, the general mass of goods will vary comparatively little and seldom._ There may be some absolute change in the general mass of commodities, but it must usually be extremely small in comparison with changes in any one commodity like gold. It is clear from the theory of chances that this must be the case. The odds are hundreds to one that the variations in absolute value in several hundred commodities will offset each other to a large degree. We very seldom have world feasts or world famines. If the corn crop is short in some places it is abundant in others. If it is short everywhere the crop of wheat or barley or something else is practically certain not to be. We cannot expect that everything will usually move in one and the same direction. If there is a war in Japan, it is not likely that there will also be a war in India. A world war or even anything as near to a world war as the present conflict in Europe is a most unusual thing. A standard composed of several hundred commodities must therefore be, in all human probability, more stable than a standard based, as is our present gold standard, on one commodity. Bimetallists made much of this point when claiming that two metals joined together were steadier than one, just as two tipsy men walk more steadily arm in arm than separately. Still more steady is the average of a hundred commodities just as a line of a hundred tipsy men abreast and holding each other's arms will march even more steadily than two. This is because it is wholly unlikely that every man in the line will lurch in the same direction at the same instant. The lurching of some in one direction can always be depended on to offset almost entirely the lurching of others in the other direction. This theory of probabilities in its application to the present rise of prices is, I believe, borne out by the facts. After a careful study of all available evidence, I am convinced that the present general rise in prices beginning in 1896, cannot be traced to any simultaneous scarcity of goods. I refer the reader to _Why Is the Dollar Shrinking?_ where I have given the summary of the evidence. I think the facts are equally clear that the great fall in prices from 1873 to 1896 can not be laid, wholly at least, to the increasing plentifulness of goods. Finally, even if we could measure and apply an absolute standard, it is doubtful if, in practice, it would be of any more service in regulating contracts, than a multiple standard. For after all, as I have tried to show in _Appreciation and Interest_ what we want in a contract is something that is _dependable_ rather than something that is absolutely constant; and the multiple standard gives dependability in terms of the ordinary staple necessities of life. If we could know that the dollar always means a definite collection of goods, we could know that the bondholder or the salaried man who gets a stated income of $100 a month, would have the same command over actual goods, and such knowledge would be of great service. This whole subject I have discussed in Chapter X of my _Purchasing Power of Money_. 7. "_It would be inadequate to check rapid and large changes of the price level._" Owing to the narrow limits, _e. g._, 1 per cent. as stated, imposed on the monthly adjustments, it is quite true that a sudden and strong tendency of prices to rise or fall could not be completely checked. If prices were to rise 8 per cent. per annum and the plan permitted no more rapid shift than 6 per cent. per annum, this would leave only 2 per cent. per annum uncorrected, or only one-fourth the rate at which prices would rise if wholly uncorrected. But half (or in this illustration three-quarters of) a loaf is better than no bread. Moreover, such extreme cases are rare and when they occur there is all the keener need for mitigation even if it be somewhat inadequate. Ultimately, of course, after the rapid spurt has abated, the counterpoise, in its relentless pursuit, would overtake the escaped price level and bring it back to par. 8. "_The correction always comes too late._" It is objected that the plan does not make any correction until actual deviation has occurred, and so the remedy always lags behind the disease. It is true that the corrections follow the deviations. They could not precede them unless we foreknew what the deviations were to be; and we could not afford to entrust the work of guessing to government officials. In this respect, as in others, the plan does not attain perfection; yet it is infinitely better than the present plan, which leaves the standard haphazard. It is also pointed out that after the correction is applied it may happen that prices will take the opposite turn, in which case the remedy actually aggravates the disease. But, taking the extremely fitful course of prices since 1896 and correcting it according to the plan, month by month, as shown in the _Quarterly Journal of Economics_ diagram, we find that in nine cases out of ten the opposite is true. Even in the few remaining cases the deflections were very slight and were, of course, soon corrected immediately after the following adjustments. If the corrections are sufficiently frequent, it is impossible not to maintain, in general, an extremely steady adjustment. When steering an automobile the chauffeur can only correct the deviation from its intended course _after_ the deviation has occurred; yet, by making these corrections sufficiently frequent, he can keep his course so steady that the aberrations are scarcely perceptible. There seems no reason why the monetary automobile cannot be driven almost equally straight. 9. "_The plan assumes that a 1 per cent. fluctuation can be exactly corrected by a 1 per cent. adjustment of the dollar's weight._" Owing, I fear, to my own fault of phrasing, I have found that several people have acquired the mistaken impression that the plan requires, to be made at each adjustment, an increase of 1 per cent. in the weight of the dollar for every 1 per cent. _increase_ of the index number since the last adjustment; whereas actually the plan requires, to be made at each adjustment, an increase of 1 per cent. in the weight of the dollar for every 1 per cent. excess of the index _above par_ then outstanding. From this mistaken premise it has naturally been inferred that, in order that the plan should work correctly, a 1 per cent. loading of the dollar would always have to exactly correct a 1 per cent. change in the index number, and, very properly, the critics doubted the truth of this. But since the premise was mistaken the objection based on it disappears. 10. "_The plan would be sure to create dissatisfaction and quarrelling._" This fear is, I believe, wholly imaginary. There would be some ground for it if the proposal were to adopt the old "tabular standard" by correcting money payments through the addition to or subtraction from the debt of a certain number of dollars. Under these circumstances the extra dollars paid or the dollars from which the debtors were excused would stand out definitely and would be a subject for debate and dispute, but if the tabular standard were merged in the actual money of the country the ordinary debtor and creditor would be as unaware of how his interests had been affected as he is now unaware of how his interests are affected by gold appreciation. It would still be true that to the ordinary man "a dollar is a dollar." If we cannot get the ordinary man to-day really excited over the fact that his monetary standard has affected him to the tune of some 50 per cent. of his principal of fifteen years ago, it does not seem likely that he could get excited because some one tells him that the index number used in the "compensated dollar" plan robbed him of 1 or 5 per cent. as compared with some other possible system. The debtor class favored in large measure bimetallism, or free silver, as a means of helping them pay debts, while the creditor class opposed it. But this was a question of changing the standard, not of keeping it unchanged. If it were proposed to shorten the yardstick, undoubtedly many who would profit in the outstanding contracts would and ought to oppose it. But there is and can be no contest over efforts to keep the yardstick from changing. 11. "_It has never been tried._" True; but the proposal is, in mechanism, almost identical with the gold exchange device introduced by Great Britain to maintain the Indian currency at par with gold. The system here proposed would really be to-day less of an innovation in principle than was the Indian system when introduced and developed between 1893 and 1900, while the evils it would correct are similar to, but vastly greater than, the evils for which the Indian system was devised. The truth is, unless I am greatly mistaken, that the last named is the only strong objection to the plan in the minds of most of its critics; it is the constitutional objection to any change of the _status quo_. It is simply the temperamental opposition to anything new. As Bunty well says in the play, "anything new is scandalous." The conservative temperament dislikes experiment because it is experiment. Accordingly it is not surprising that we find many of the objectors saying, "let well enough alone," "let us 'rather bear those ills we have than fly to others that we know not of.'" These people seldom give assent to untried experiments; yet after the new plan has been tried and established they invariably turn about and become its most staunch supporters. This fact has been often illustrated in our monetary and banking system. Nothing short of the shock of civil war was required to divert us from a state system of banking to a national one. In spite of the intolerable evils of the former, it was easy to find many arguments in its favor. After the change these arguments never reappeared. The same was true of slavery. But conservatism always yields gradually to pressure. Its resistance is strong but has no resiliency. It is not like the resistance of a steel spring (which, when pushed in one direction, will bend back), but a mass of dough or putty which, though it resists impact strongly, yet when it is moved stays inert and does not return. Under these circumstances, even if progress is made an inch at a time, it seems to me worth while to try to make it. The two steps first necessary have been taken, namely, the perfecting of the plan and the running the gauntlet of criticism. It is not impossible, judging from the many and authoritative endorsements of the plan, that it may be pushed rapidly toward realization. All depends on the opening up of opportunities. After the present war, for instance, it may be that "internationalism" will come into a new vogue and that some special opportunity will be afforded to bring the plan with its endorsements to the serious attention of the world's administrative officials. * * * * * [88]It must be admitted at the outset that the plan, if carried out with iron consistency for a considerable stretch of time, would achieve the result mainly had in view--the prevention of a long-continued and considerable rise in prices. It might not achieve that result as smoothly and evenly as its proposer expects; and the qualifications just stated--that it must be carried out unflinchingly for a long period--should be borne in mind. No one who holds to the doctrine that the general range of prices is determined by the relation between the quantity of commodities and the volume of the circulating medium, and that the volume of the circulating medium in the end depends, _ceteris paribus_, on the amount of coined money, can do otherwise than admit the logical soundness of the scheme. He who maintains that the rise in prices during the last fifteen years is due to the greater gold supply must admit that a restriction of the monetary supply of gold will check the rise. The plan proposed is in essence one for a regulation in the monetary supply of gold. Its effects must be the same in kind as those of a cessation of free coinage, with an apportioned limited coinage.... The question arises whether it would be feasible for one country alone to adopt the plan. It would be feasible, in the same sense that it would be feasible for all countries together to adopt it. One country alone, carrying it out with unflinching consistency, might secure the desired result, subject to the qualifications which have already been indicated. But that any one country would in fact adopt it alone seems to me in the highest degree improbable. Consider for a moment the mode in which the scheme would work in detail if adopted by a single country. Though the immediate effect upon general prices within the country would be unpredictable, the effect upon certain kinds of prices would be certain, predictable, almost instantaneous. Exported commodities would feel the effect at once. Their prices are determined, to use the current expression, by the foreign market. It would be more accurate to say that their prices are determined by the total market, domestic as well as foreign. But it is clear that their prices must be the same (due allowance being made for transportation charges and the like) within the country as without. Now the immediate effect of a seigniorage would be, as Professor Fisher points out, a readjustment of the par of foreign exchange. The exporter would find the par of exchange lessened, and in terms of domestic money (compensated dollars) he would receive less than he got before. All commodities of export would fall in price at once, or fail to rise, to the extent of the seigniorage. Other commodities probably would be unaffected for the moment. In the long run, no doubt, these other commodities (we may call them domestic commodities) would also be affected. But, to repeat, the rapidity and extent of the change in general prices is impossible of prediction. The exporters, none the less, would feel an immediate and unmistakable effect. Beyond question they would be as hotly indignant with the plan as if an excise tax had been imposed on their commodities without any possibility of their raising the price of their products. Consider for a moment what would be the state of mind in our cotton-exporting South. Is it to be supposed that any set of legislators could resist the political pressure from the various exporting sections, and carry out the scheme unflinchingly? Can we imagine a Congressman telling his constituents that they need only wait a while, until all money incomes and all prices had adjusted themselves to the new conditions? that then nobody would be worse off or better off than before? To ask this sort of question is to answer it. The very proposal of the scheme in the halls of Congress would invite the hot opposition of the exporting sections and industries. Its immediate consequences for them would be seen quickly enough, and no promise of ultimate adjustment would lessen their hostility.... Professor Fisher has predicted that prices will rise further. He is disposed to believe that there will be not only a rise, but that there will be a considerable rise. I hesitate very greatly to enter the domain of prediction. I am inclined to believe that the rise in prices will not cease for the next decade; but whether it will be considerable or moderate or negligible in extent, I should not venture to say. Predictions concerning the output from the mines are to be taken with the greatest caution. We all recall the predictions which Suess made in 1892. The distinguished geologist believed that the prospects of an increased production of gold were of the slightest, and that the world must fall back on the use of both metals. How different the course of events has been from that which he predicted! There are those who believe that the output of gold, so far from continuing to increase, has reached, or is approaching, its maximum. For myself, I should not be surprised if there were a cessation in growth, and should certainly be surprised if there were not a relaxation in the rate of growth. Further: it deserves to be borne in mind that the total supply of the precious metals is now so much greater than it was twenty years ago that the same annual increment will have much less effect on prices. This is the familiar consequence of the durability of the precious metals.... Finally, a circumstance should be borne in mind which bears not only upon the intrinsic desirability of a regulative plan, but also upon the attitude of the general public and the consequent political and industrial possibilities. Economists are familiar with the difference between the phrase which they use in describing the new conditions, and that which is current in popular discussion. The economists speak of the "rise in prices"; the general public speaks of the "high cost of living." The difference in phraseology is not due simply to variation of the point of view. It results from the fact that very different phenomena are had in mind by the two sets of persons. The economist is thinking and reasoning about the change which has been of special interest for him--the general rise in prices. The man on the street is thinking about the exceptional rise in the prices of one important set of commodities. Any one who will examine with care the index numbers of our Bureau of Labor will see what a marked rise, much beyond that of the general index number, has appeared in the prices of farm products, and especially in the prices of meat. That special advance has taken place within the last three or four years. It is precisely within this period that general attention has been turned to rising prices. What the public has had chiefly in mind has been the commodities of wide consumption. This, I believe, is the main cause of labor unrest.... Whatever be the particular causes that have led to the high prices of food, economists agree that these causes will operate irrespective of any compensated dollar plan. This would simply serve, at its best, to keep general prices where they are, leaving each particular group of commodities subject to its own particular set of causes. If the compensated dollar plan were to be adopted, and if the prices of food should continue to mount, there would be disappointment for the general public, but nothing to surprise the economist. And conversely, it is entirely possible that the rise in the cost of living, that is, the special rise in the prices of foodstuffs, will reach its end irrespective of any monetary change whatever. The general rise in prices and money incomes ... is not unwelcome to the great majority of people. Its incidental consequences are perceived and debated chiefly by the economists; such as the effects on the creditor class and the slowness of so-called fixed incomes to rise correspondingly. The general public is concerned chiefly with the conspicuous rise in the prices of foodstuffs, which is ascribable to causes very different from those that bring the general rise, and can be reached only by remedies very different.... FOOTNOTES: [87] Adapted from Irving Fisher, _Objections to a Compensated Dollar Answered_, reprint from _The American Economic Review_, Vol. IV, No. 4, December, 1914. [88] F. W. Taussig, _The Plan for a Compensated Dollar_, _The Quarterly Journal of Economics_, Vol. 27, May, 1913, pp. 401-416. CHAPTER XIV MONETARY SYSTEMS OF FOREIGN COUNTRIES ENGLAND[89] [90]The monetary unit is the _pound_, or _sovereign_, equal to $4.8665, divided into 20 _shillings_ of 12 _pence_ each, each penny equal to 4 _farthings_. Originally the pound was a Troy pound of silver, .925 fine. Under the law of 1816 gold was made the standard and silver subsidiary. The coinage of gold is free, and to avoid delay the Bank of England is required to buy all gold and pay for the same at once at the [minimum] rate of £3 17_s._ 9_d._ per ounce, a [maximum] charge of 1-1/2_d._ being imposed for the accommodation. Silver is only coined on government account and the coinage ratio is 14.29 to one. They have the gold _sovereign_ (containing 113.001 grains pure gold), the unit of their currency, also _half-sovereigns_, _crowns_ (5_s._), _double florins_, (4_s._), _half-crowns_, _florins_, _shillings_, _six_ and _three pence_ pieces, _four pence_ (groat), _two pence_ and _penny_, all in silver, also _penny_, _half-penny_, and _farthing_ in bronze. A few English banks, operating under old charters, issue notes to a limited extent, which circulate as money. Otherwise the paper currency of England and Wales consists wholly of notes of the Bank of England.... Extraordinary measures were resorted to by the British government in the early stages of the European war of 1914; with the close of the war currency conditions will doubtless go back to normal, as described above. The Government, also, under date of August 6, authorized an issue of currency notes, in denominations of £1 and 10 shillings.... These notes, which were first issued to the public August 7, were deposited with the Bank of England for account of the British government, as the practical way of getting them into use; they were used for various purposes, including advances to banks at 5 per cent. per annum, up to 20 per cent. of their deposits; the volume outstanding December 30, 1914, was £38,478,164; the amount outstanding on June 23, 1915, was £46,199,705. These notes were protected in part by securities and by an increasingly large gold reserve, exceeding 75 per cent. in March, 1915. Postal orders were made legal tender and so remained until February 4, 1915.... CANADA In 1857 the legislature of Upper and Lower Canada formally adopted dollars and cents as the money in which public accounts should be kept. The Confederation in 1867 adopted the same for the Dominion, retaining, however, the sovereign. In 1871 the Currency Act prescribed the same for all accounts, providing also that the gold coins of the United States of America should be legal tender along with British sovereigns, the latter at a rating of $4.86 2/3. The silver and bronze tokens (including pieces of 50, 25, 20, 10, 5, and 1 cents) had been supplied from the London Mint, or from Birmingham on its behalf, from 1856 to 1907. After the Confederation no more coins were issued for the separate Provinces. The twenty-cent piece (though still retained by Newfoundland) has not been struck for Canada since 1864. From January 2, 1908, the whole supply of British and Canadian coins was undertaken by the Ottawa Mint. By the Ottawa Mint Act the Dominion Parliament undertook the support of a branch of the Royal Mint in Ottawa, the administration to be in the hands of the British Treasury. This system (the same as that of the Australian Branch Mints, Sydney, Melbourne, Perth) was preferred to the plan of an independent Dominion Mint because that was the only way of procuring the privilege of coining British sovereigns. A royal proclamation published on November 2, 1907, duly established a branch of the Royal Mint at Ottawa, and authorized the coinage of British sterling gold coins from dies prepared in England, such coins to rank with those struck in London. The depositor of gold bullion has the right to demand British sovereigns in exchange.... The British sovereign (or pound) is legal tender in Canada at $4.8666. The American gold coins are also legal tender. Canadian silver coins are 925 parts fine, and have a slightly less amount of fine silver than United States of America silver coins of similar circulating values. The dollar, though sanctioned, has not yet been struck. Paper currency consists of legal-tender Dominion notes and bank-notes issued against the credit of the banks; there were at the end of 1914, 22 banks, with 3,130 branches in the Dominion, 20 in Newfoundland and 72 in the United States and other foreign countries.... On July 31, 1914, just before the war, Dominion notes were issuable without limit, providing the amount over $30,000,000 was covered by gold. The volume at that time was $112,821,618.53 and the gold held amounted to $90,292,833.28. As a consequence of the war the limit beyond which Dominion notes may not ordinarily be issued without being entirely covered by gold was by an Act passed in August increased from $30,000,000 to $50,000,000.... BRITISH COLONIES The British West Indies, as also Guiana, make British gold legal tender. United States gold also circulates freely. There are a few banks with limited note-issuing power, and minor coins are similar to those of England. There is a growing use of United States currency. British Honduras has a dollar unit, identical with that of the United States. British India has ... adopted the gold [-exchange] standard and India has for some years been largely absorbing gold; the _pound_ is the unit--the metallic currency, mainly silver, is maintained at parity with gold by an arbitrary valuation or rate of exchange. The principal coin is the _rupee_, equal to $0.3244; by a fixed government rating 15 rupees equal £1. There is a gold [-exchange] standard reserve for India, amounting, March 13, 1915, to £25,627,393, about one-half held in India and one-half in London; it consists of gold and investments.... Paper money is issued only by the Government and is covered by gold, silver largely, and securities to some extent. The Straits Settlements have a _dollar_ currency, divided into 100 _cents_; the value of the dollar was fixed by the Government at 2_s._ 4_d._, on January 29, 1909, and has since been maintained at approximately that rate, a gold [-exchange] standard reserve being accumulated for that purpose. The system is copied after that of India. Hong Kong, silver standard, is the exchange point between gold and silver countries, and hence important. The British _dollar_ of 416 grains is the principal coin. It fluctuates in value with the value of silver bullion. Australia and New Zealand have the British system of banking. There are many banks, some with British charters, and many branches; they issue notes covered by gold. Gold in large quantities has been produced in these states since 1851. British Africa and other minor Eastern possessions have the British system, modified in various respects. Egypt having recently been formally annexed by Great Britain, her monetary system will naturally be closely identified with that of England in the future. The English sovereign has been for many years the gold coin of common use. LATIN UNION The Latin Union consists of France, Italy, Belgium, Switzerland and Greece; they are bimetallic, both gold and silver being full legal tender, and the coinage ratio being 15-1/2 to 1; they have identical systems, and formed a union to maintain the parity of silver and gold, at the above ratio, by accepting each other's silver coins; while their systems are bimetallic in law, silver is now coined only in small denominations and on government account. The general adoption of the gold standard by other countries has embarrassed the efforts of the Union to preserve the parity and also the interchangeability of silver coins between these nations. FRANCE France has the _franc_, equal to $0.193, as the monetary unit; the principal gold coin is the _louis_, equal to 20 francs. The paper currency of France is issued wholly by the Bank of France, a private corporation, privately owned, but whose chief officers are appointed by the Government, which thereby obtains a general control of policy and administration; the maximum amount of note-issue is fixed by law, arbitrarily, and by occasional increase is kept well ahead of the country's necessities; no fixed legal reserve is required, but the total note-issue must be covered by gold, silver, securities, and commercial paper; as a matter of fact it carries very large metallic reserves, and since it may lawfully pay its obligations in either gold or silver, it can always conserve its gold holdings by requiring a premium for the same, or withhold gold payment altogether. It has over 400 branches and the same rate of discount obtains in all branches on the same day; it thus regulates and controls the interest rate throughout France, in the interest of uniformity and fairness; it may do business with banks or individuals and has many very small loans; its notes are a legal tender; the power to issue currency is one of its chief elements of banking power.... BELGIUM Belgium is bimetallic and its coins are the same as those of France and have unlimited lawful currency; bank-notes are issued only by one bank, privately owned; the Government receives a share of the dividends in excess of 6 per cent., and imposes a tax upon the note-issues; demand liabilities, including notes, must be protected by a coin reserve of 33-1/3 per cent. and the notes must be covered by cash, commercial paper and securities. ITALY Italy has the _lira_, equal to $0.193, and divided into 100 _centesimi_; her coins correspond to those of France; the Bank of Italy largely, and two other banks to a lesser extent, issue notes against their credit, limited, however, to three times their capital, unless covered by gold; the issue may be increased, but comes in for a tax of 1 per cent. per annum and must be protected by a 33-1/3 per cent. reserve in coin and foreign exchange.... SWITZERLAND Switzerland's coinage system duplicates that of France, and her Federal Bank is very similar to the Bank of France.... GREECE Greece ... has for its monetary unit the _drachma_, equal to $0.193. Her coinage follows the Latin Union agreement. Paper currency is issued both by the Government and by banks, and both are depreciated. Greece had to resort to emergency measures during the Balkan War, which may have an influence upon her currency for some time. SPAIN Spain ... has the _peseta_, equal to $0.193 United States, as her unit. The Bank of Spain has the sole right to issue notes, which may equal five times its capital and must be protected by a 25 per cent. coin reserve. Gold commands a premium. Silver is coined only on Government account.... GERMANY Germany, gold standard, has for her currency unit the _mark_, of 100 _pfennig_, equal to $0.238; the 5-mark piece contains the same amount of pure silver as the 5-franc piece and two United States half-dollars.... Silver is legal tender to the amount of 20 marks. The coins for her colonies are varied to suit local needs. AUSTRIA-HUNGARY Austria-Hungary, gold standard, has as its unit the _krone_, equal to $0.2026; 20-krone and 10-krone pieces are coined in gold, also gold ducats, worth $2.288; silver coins are of various fineness.... PORTUGAL The Portuguese Government, by decree of May 22, 1911, adopted a new monetary system and the coins will be placed in circulation as soon as possible. The unit of the system, excepting for her possessions in India, is the gold _escudo_,... equal to $1.08 American gold. The escudo is divided into 100 equal parts called _centavos_.... Multiples are 2, 5, and 10 escudos. Divisions of the escudo are of silver, with values of 50, 20, and 10 centavos; subsidiary coins consist of bronze and nickel pieces. Her currency is not maintained at a parity with gold. NETHERLANDS ... The unit is the _florin_ or _guilder_ of 100 cents, equal to $0.402. The 10-florin piece is the principal gold coin; the _ryksdaalder_ (2-1/2 florins), the florin and half-florin in silver are legal tender, as well as all gold coins; silver is maintained at parity with gold by law; coinage of silver is only on Government account; paper money is issued by a central bank and 40 per cent. metallic (gold and silver) reserve is required against deposits as well as notes; the balance of the notes are covered by negotiable instruments. The central bank was organized in 1814. Banking in the Netherlands is excellently managed. SWEDEN--NORWAY--DENMARK (SCANDINAVIAN UNION) These have the gold standard and have for their unit the _krone_, equal to $0.268 United States currency; their subsidiary silver has various fineness; paper currency of Sweden is issued by the Royal Bank, owned by the Government; notes are legal tender and may be issued to a fixed amount in excess of gold on hand or in foreign banks, but must at all times have gold to the extent of at least 10,000,000 _kroner_. Norway has a single bank of issue, controlled by the State, which owns a majority of the stock; notes are legal tender and may be issued to twice the amount of gold on hand and in foreign banks. Denmark's paper money is issued by a privately owned bank, but under strict control by the Government; the notes are legal tender and may be issued to a sum 30,000,000 kroner in excess of the gold on hand. RUSSIA Russia is on a gold basis and has for its unit the _ruble_, of 100 _kopecks_, equal to $0.51456 in United States currency; the silver coins in common use are the ruble, one-half and one-fourth ruble; paper money is issued by the Imperial Bank, which is owned by the Government and managed as part of its finance department; the law requires the coin reserve to equal two-thirds of the note issue.... JAPAN Japan maintains the gold standard and its unit is the _yen_, equal to $0.498; the yen is divided into 100 _sen_, the sen into 10 _rin_. The yen equals 11.574 grains of pure gold. The Bank of Japan may issue notes to the extent of $120,000,000 upon securities, any amount upon specie, and also may issue further sums in excess of specie, subject to a tax of 5 per cent. The stock of the bank is all privately owned. Japan first copied the national banking system of the United States and after trial abandoned the same for a central bank. She has managed her finances and her banking with wonderful ability and great success. Besides the Bank of Japan, there are many strong private banks, notably the Yokohama Specie Bank. CHINA China, silver basis, had for its unit the _tael_, divided into 1000 _cash_; there are said to be sixteen different kinds of tael in the different states of China; the most valuable is the "Haikwan," or "_customs tael_," the one in which customs dues are reckoned, and this equalled $0.664 United States currency, October 1, 1914. The cash is of base metal, with a square hole punched in the centre and is worth less than a mill in our currency. In the last years of the Empire a new system of coinage was established and since continued by the Republic. The unit is the _yuan_ of silver, worth $0.477, but varies with the price of silver; one-half, one-fifth, and one-tenth yuan are also coined in silver and smaller coins in copper and brass.... PHILIPPINES The unit of value is the _peso_, equal to $0.50 in United States currency. The fiscal affairs are administered by the United States and the currency is safe and maintained on [essentially] a gold basis. ARGENTINA At a time when the cultivation and development of trade relations with South America seem most alluring, we find a principal embarrassment in the currency and credit conditions which obtain in most South American States, but Argentina, one of the most favored of South American States, has a stable and sound currency system. Her unit is the _peso_, of 100 _centavos_. The gold peso is equal to $0.9647 in United States money. In 1889 the Government took measures to acquire gold and fixed the relation of paper to gold at 227.27 per cent., and it has since been maintained at that level without fluctuation. This made the paper peso equal to about $0.44 gold. They have a very large gold reserve in their _caja de conversion_, 262,000,000 pesos gold, which protects the paper money and gives it stability. Gold payments were suspended temporarily at the commencement of the European war (1914), but paper money seems to have remained at par.... BRAZIL Brazil was formerly a colony of Portugal, and naturally copies the parent country in her currency system. Her unit is the _milreis_, of 1000 _reis_. Nominally the gold standard prevails, but depreciated paper is the currency of her commerce. The milreis contains 12.686 grains of pure gold and is worth in United States currency $0.546. In 1898 the Government assumed the sole power to issue paper money, and strove to bring the same to a parity with gold; the arbitrary valuation put upon the milreis by the Government was 15_d._ or $0.30. On December 20, 1910, the value of a milreis was raised to 16_d._ The Government accumulated a conversion fund, understood to be $60,000,000 to $70,000,000, but owing to crises at home and abroad it has not yet been able to make gold and paper notes interconvertible. Brazil possesses an enormous area, and is wonderfully rich in undeveloped resources. Her coffee and rubber are especially valuable and should take care of her international trade balances. In the near future her currency should become stable and free from fluctuation. Brazilians receive important service from foreign banks and bankers. CHILI Chili has the gold standard, but her paper currency is not maintained at a parity with gold; her unit is the _peso_, of 100 _centavos_, of the value of 18_d._... FOOTNOTES: [89] The following table, from _The Monetary Systems of the Principal Countries of the World_, compiled in the office of the Director of the Mint, Washington, 1912, gives the weight, fineness, etc., of the coins of Great Britain: GOLD -----------------+-------+------------+-------+--------+--------+-------- | | | | | Pure |Value in Denominations. |Weight.| Fineness. | Fine | Weight.|gold or | United | | |weight.| |silver. |States |Grams. |Thousandths.|Grams. |Grains. |Grains. | money. -----------------+-------+------------+-------+--------+--------+-------- 5 pounds |39.9410| 916-2/3 |36.6125|616.3720|565.0080|$24.3325 2 pounds |15.9764| 916-2/3 |14.6450|246.5488|226.0032| 9.7330 Sovereign | 7.9881| 916-2/3 | 7.3225|123.2744|113.0016| 4.8665 Half sovereign | 3.9941| 916-2/3 | 3.6612| 61.6372| 56.5008| 2.4332 -----------------+-------+------------+-------+--------+--------+-------- SILVER -----------------+-------+------------+-------+--------+--------+-------- Half crown |14.1379| 925 |13.0775|218.1760|201.8119| $0.6083 Florin |11.3103| 925 |10.4620|174.5405|161.4495| .4866 Shilling | 5.6551| 925 | 5.2309| 87.2695| 80.7232| .2433 Sixpence | 2.8275| 925 | 2.6154| 43.6339| 40.3008| .1216 Fourpence (groat)| 1.8850| 925 | 1.7436| 29.0893| 26.9071| .0811 Threepence | 1.4137| 925 | 1.3076| 21.8162| 20.1788| .0608 Twopence | .9425| 925 | .8718| 14.5446| 13.4536| .0405 Penny | .4712| 925 | .4358| 7.2715| 6.7252| .0202 -----------------+-------+------------+-------+--------+--------+-------- [90] A. Barton Hepburn, _A History of Currency in the United States_, pp. 450-473. The Macmillan Company. New York. 1915. CHAPTER XV THE NATURE AND FUNCTIONS OF TRUST COMPANIES [91]The trust company supplements the bank. Through a long process of evolution the bank has developed as a means of facilitating the exchange of commodities. The trust company is a still further step in the same process, and, in a highly organized society, it meets needs which the bank is not able to supply. In a new community the general store forms the centre of the business life of the place. With growth and increasing trade, the private banker sees room for the profitable employment of his funds. The state or national bank meets the needs of further growth. Success and the accumulation of wealth pave the way for the trust company. The bank is organized primarily to serve the needs of active commercial life; the trust company handles funds in less active circulation. It is customary for the courts to designate or approve certain trust companies as depositories for funds paid into court, and the effect of such designation or approval would be to relieve executors, trustees, or others acting in a fiduciary capacity and depositing with these companies from liability for loss through their failure. A person charged with due care in the selection of a depository could not be held to have been wanting in such care in choosing as a depository a trust company which the court has itself approved. The powers of trust companies vary in different states, and when they are created by special legislation, local companies are found with different charter privileges. The capital and surplus of these institutions are liable for their acts in fiduciary capacities, and in some states they are required to deposit with one of the state departments a fund as a special guarantee. The liability assumed is generally accepted by the courts in lieu of the bonds which individuals acting in similar capacities are required to give. The development of trust companies in the United States has been remarkably rapid. Since 1882, when the first legal authority was given for the exercise by corporations of fiduciary powers, they have steadily grown in number until there are now more than fifteen hundred, distributed as follows: Alabama 30 Arizona 9 Arkansas 38 California 24 Colorado 16 Connecticut 31 Delaware 12 District of Columbia 5 Florida 9 Georgia 25 Idaho 10 Illinois 75 Indiana 108 Iowa 29 Kansas 4 Kentucky 42 Louisiana 22 Maine 39 Maryland 21 Massachusetts 56 Michigan 6 Minnesota 4 Mississippi 19 Missouri 49 Montana 7 Nebraska 13 Nevada 1 New Hampshire 4 New Jersey 86 New Mexico 10 New York 78 North Carolina 38 North Dakota 5 Ohio 60 Oklahoma 10 Oregon 20 Pennsylvania 260 Rhode Island 11 South Carolina 17 South Dakota 12 Tennessee 73 Texas 52 Utah 9 Vermont 26 Virginia 19 Washington 20 West Virginia 22 Wisconsin 9 Wyoming 5 Hawaii 5 ---- Total 1555 Their business in all departments has shown a steady increase, and the trust companies of the United States to-day carry deposits amounting to over $3,858,300,000. Net deposits in the 7397 national banks aggregate $5,891,670,000. In some states commercial banking and trust powers are exercised by the same companies. In such cases, separate departments are maintained for the various classes of business. Another method is for the same individuals to organize a national bank and a trust company, the former under national and the latter under state laws. The securities company or trust company organized under state laws and controlled by a national bank with the stock interest in the former distributed among the owners of the stock of the bank and evidenced by indorsement on its certificates is still another expedient which has been resorted to in order to enable a closely affiliated and controlled organization to exercise legitimate functions which are, however, outside the province of a national bank. The earning power of trust companies has equalled and even exceeded that of the banks, and the stock of those companies which are well established and doing a flourishing business sells at such a premium that investment in it at its market value gives a very low return. Trust company failures have been few and far between, and where they have occurred they can be traced to a disregard of sound banking principles and to the assumption of unwarranted risks. Even in the case of companies which have failed there is no record of any impairment of trust funds, whatever loss there was having been borne by the stockholders and, to a less degree, by the depositors. This fact, the result of the absolute separation of trust assets from assets belonging to the company, is the strongest argument for the employment of trust companies in fiduciary capacities, and explains their rapid growth in popular favor. The literature put out by these institutions invariably recites the advantages to be gained by dealing with them instead of with individuals. The following is a good example of such reasoning: THE ADVANTAGES OF A TRUST COMPANY AS TRUSTEE A trust company is preferable to individual trustees, because it possesses every quality of desirability which the individual lacks, to wit:-- (1) Its permanency: it does not die. (2) It does not go abroad. (3) It does not become insane. (4) It does not imperil the trust by failure or dishonesty. (5) Its experience and judgment in trust matters are beyond dispute. (6) It never neglects its work or hands it over to untrustworthy people. (7) It does not refuse to act from caprice or on the ground of inexperience. (8) It is invariably on hand during business hours and can be consulted at all times. (9) Its wide experience of trust business and trust securities is invaluable to the estate. (10) It is absolutely confidential. (11) It has no sympathies or antipathies and no politics. (12) It can be relied upon to act up to its instructions. (13) It does not resign. (14) All new investments of value suitable for trust estates are offered in the first instance to trust companies, and in that way it has a choice of valuable security; and as its purchases are on a scale of magnitude, it can usually buy at a rate which is lower than that at which the individual trustee can purchase. The most common objection to the appointment of corporate trustees is thus stated by Augustus Peabody Loring, Esq.: The trust companies, which have of late years become so numerous, to a considerable extent do away with the element of personal risk attaching to an individual trustee; but they lack the advantages of personal management. These companies sometimes fail from improper management as utterly as individuals do, and as a rule the lack of personal management results in securing the minimum return only on the amount invested, and lacks the great advantages often secured by the able personal oversight of individual trustees. The question, after all, comes back to the personal qualifications of corporate officers and individuals. If the former are less capable than the latter, the fault is with the particular company--not the system, and if interest returns are sometimes less under corporate management, this fact is more than equalized by the added safety to the corpus of the estate. A "Trustee Company" has been suggested as a proper title for the company doing a legitimate trust business, and is the name used in Australia and in New Zealand. In some states the use of the word "trust" in corporate titles is now regulated by law. Confusion has arisen in the popular mind between the trust company and the trusts or industrial combinations. The usual functions of a trust company are: banking in a more or less limited form, execution of corporate trusts, execution of individual trusts, care of securities and valuables. In addition, other functions are sometimes exercised, such as life, title, and fidelity insurance, and the business of becoming surety. The earlier companies in the United States were chartered to manage individual estates only and to act in certain fiduciary capacities; the recent development of the trust company has been in the direction of banking functions and corporate trust business. It is worthy to note that the life insurance companies which originally secured trust powers have, with but few exceptions, given up their life insurance business, and that most of the fidelity insurance and surety business is given over to companies which now make a specialty of such risks. The fact is being recognized that the assumption of vast risks contingent on future occurrences is not compatible with the absolute security which is essential in the transaction of legitimate trust business. BANKING The banking functions of trust companies may include any or all of the following: The receipt of money deposits payable on demand and subject to check, or payable at a fixed date, or according to special agreement. Interest is usually allowed on all deposits above a fixed maximum amount or on the total sum. Money advances secured by the hypothecation of stocks, bonds, life insurance policies, bonds and mortgages, or other personal property. Real estate loans, secured by bond and mortgage. It is customary to loan not over two-thirds of the value of improved property; when the property is unimproved, not more than half. Discounting paper is engaged in principally by companies transacting a commercial banking business. The purchase of unsecured paper is permitted in some states where discounting is not allowed. The purchase and sale of securities. Trust companies sometimes guarantee issues of bonds, or at least set their stamp of approval upon them. The issue or guarantee of letters of credit, and the transaction of a foreign exchange business. The care of savings deposits. For this purpose a separate department is usually maintained. CORPORATE TRUSTS Among the most important functions of a trust company are those relative to the business of other corporations: Of late years the trust companies in the Eastern cities have been selected as trustees instead of individuals whenever the law of the State where the property was situated allowed such selection. Trust companies have manifold advantages over individuals in such a relationship; they do not die; the large amount of financial business which they daily transact provides them with the machinery for such purposes; while their well-known names stand as evidence to the purchasing public that at least the necessary formalities have been complied with. Beyond that responsibility the trustees of corporation mortgages usually assume none. In recent years the trust companies have shown a tendency, when acting as mortgage trustees, to recognize a greater moral responsibility than they at first were willing to bear. Trust companies did not, of course, intend to appear as in any way guaranteeing the bonds to which they certified, though that seems often to have been the erroneous opinion of the unthinking; but trustees now acknowledge themselves bound within the limits of the mortgage to use their influence to protect the interest of the bondholders. A trust company which should now allow the issue of unsecured bonds because of some glaring defect in the language of the mortgage, would not longer be morally excused by financial opinion, though perhaps held technically innocent.[92] As trustee under corporate mortgages and trust deeds, the trust company acts for the bondholders. It is customary for it to authenticate each bond issued subject to the provisions of the mortgage, to represent the bondholders in case of default, and to exercise such other functions as may be provided in the mortgage. A generation ago it was customary for a railroad to name one or more individuals as trustees of the mortgages executed to secure bond issues. The development of trust companies and their manifest advantages over individuals in such a capacity has resulted in their absorbing almost all this business. Trust companies are now generally appointed as trustees in corporation mortgages, and are also often named to succeed individuals who have died or resigned. The appointment is one of the most important and far reaching which the trust company can accept. Its name and reputation serve as an assurance that the transaction is a regular one, and entered into in good faith. Although the modern corporation mortgage is usually explicit in its terms to the effect that the trustee in no way guarantees the value of the security and assumes no liability except for its own negligence, yet the intimate connection between the trustee and the borrowing corporation in the minds of investors makes it necessary that care be taken not to assume trusteeships which may lead to a wrong use of the name and credit of the trust company. As trustee under mortgages securing bond issues, the title to the mortgaged property is vested in the trust company for the benefit of the security holders. The corporation owning the mortgaged property retains physical possession of it so long as the terms of the obligation are complied with, except in the case of securities pledged, which are usually lodged with the trustee. In case of default, however, it devolves upon the trustee to protect the interests of the bondholders, and this may necessitate the foreclosure of the mortgage and sale of the property. As fiscal agent it dispenses coupon and interest payments on bond issues, and dividends on stock. It receives sums set aside as sinking funds to provide for the retirement of obligations at maturity, or when bonds are subject to redemption, draws the specified amount by lot and pays the principal. As registrar the trust company authenticates certificates of stock and bonds in order to prevent an over-issue, and to reduce the chance of loss or theft. As transfer agent, the company attends to perfecting transfers of ownership for stock and bond issues or parts thereof. The New York Stock Exchange, like most other stock exchanges, in its constitution requires that all active listed stocks must be registered. This Exchange also requires that a trust company or other agency shall not at the same time act as registrar and transfer agent of the same corporation. In the popular mind, and even in the minds of some trust company officers, the difference between the duties of the two positions has been more or less confused. Both have been created to safeguard and facilitate the passing of title to shares of stock, but the duties of a transfer agent and a registrar are not synonymous; they are distinctive. One is called upon to examine and give clear titles to property transfers, and the other is merely to record such transfers. As manager of underwriting syndicates, the trust company issues the prospectus and markets the securities of corporations which are being launched, or of established companies which are putting out new securities. In railroad and other reorganizations, the trust company takes a prominent part, acting both as a depositary for, and as a representative of, the committees which formulate and execute the plans of reorganization. Its officers often have a large share in the preparation of such plans. As assignee and receiver, the trust company acts in the same capacity for corporations as for individuals and firms or partnerships, assisting in winding up insolvent businesses and in conducting embarrassed ones. INDIVIDUAL TRUSTS The execution of individual trusts is the function originally assumed by trust companies. The various other forms of business which are now engaged in, have, with the exception of life insurance, been later developments of the trust company idea. The earliest power granted these companies was to receive moneys or other property, real or personal, in trust. The trust company now also acts as executor and administrator of the estates of decedents. As executor appointed by the will of a decedent, it takes out letters testamentary upon probate of the will, advertises, files inventory and appraisement, pays debts, collects claims, makes the requisite accounting to the probate or orphans' court, and makes distribution of the estate in accordance with the terms of the will and the court's decree. As administrator acting under appointment of the register of wills or probate court, it performs similar duties, distributing the estate in accordance with decedent's will if there is one, or if there is none, in accordance with the intestate laws of the state, which specify the order of succession and distributive shares in the case of estates of decedents leaving no wills. There are different kinds of administrators, in any of which capacities a trust company may be called upon to act. As trustee under will, the trust company carries out the provisions of the will, investing and managing the estate or particular fund in accordance with the directions of the testator. As such it may hold real and personal property. As trustee under deed or private agreement, a contract is entered into between the company and the owner of the property, by which the title to the property is vested in the corporation subject to the terms recited in the instrument. Such deeds of trust may be revocable or irrevocable. Marriage settlements are frequently made in this way. The trustee's duty in investing the funds is a double one; namely, to invest them securely so that the principal shall be preserved intact, and to invest them as productively as possible under his powers, so that they shall yield the best rate of interest obtainable for the benefit of the person or persons entitled to the income. He must hold the scales evenly, regarding scrupulously his duties to all beneficiaries. The popular idea that security is the only consideration is erroneous, as the trustee is equally bound to invest the funds as profitably as possible and cannot neglect one duty more than the other. The mistaken impression that the corporate trustee, even more than the individual, is mindful only of the safety of the principal and entirely loses sight of the question of income, has arisen from the restrictions as to investments imposed by law, and frequently also by the will or trust deed, and from the fact that the individual executor or trustee, rightly or wrongly, sometimes assumes risks and personal liability which the proper rules of a trust company would not permit it to assume. The executor or trustee is governed, as to the kinds of investments, by the directions of the will or deed of trust. This may require the purchase of "legal investments" only, or state that the trustee is not to be confined to securities prescribed by law, or give specific directions as to the classes of securities which are to be bought. The terms of such documents are always strictly construed by the courts; if no directions are given, the trustee is expected to buy only "legal" securities, and when he exceeds his powers he is held responsible for any loss. Administrators and guardians without broader powers given by will are obliged to invest, except at their personal risk, in such securities as are sanctioned by law or directed by the court. Some states prescribe by statute the securities in which a trustee may invest. "Where there is no statute or decision of the highest court fixing the class of securities in which a trustee may invest, he can safely follow the rule prescribed for the investment of the funds of savings banks." In general, city, State, and United States bonds, first mortgages secured on improved real estate with ample margin, are among the investments sanctioned by law. As to real estate, stocks, and first mortgage bonds of railroad, manufacturing, and other corporations, the practice varies in the different states. Loans on personal property, second mortgages, and other investments subject to prior liens or of a speculative character are excluded. All investments must possess "intrinsic" value; the courts hold trustees liable for any losses from speculative risks--but any gains accrue to the trust estate. OTHER FUNCTIONS The trust company acts as guardian, curator, or committee of the estates, and in some states, of the persons of minors, those who are insane or mentally incompetent, spendthrifts, drunkards, and any other persons not legally qualified to take charge of their own affairs. In the case of a minor, the trust terminates on the ward's becoming of age; in other cases, when the disability is removed, or in accordance with a decree of court. These appointments are frequently made by order of court, and to it accounting must be made. In some states the company is styled "conservator" when caring for the estates of persons of unsound mind. When acting as attorney in fact, the company obtains its authority by virtue of a letter of attorney which usually is or can be recorded, conveying certain definitely specified powers. This may be either to perform a single act--such as to satisfy a mortgage--or may be broader and continuing, granting authority to sell and transfer securities and collect income. A general power of attorney, as the term indicates, is a delegation to another of the general powers of the person appointing--as to payments, collections, transfers of property, and all transactions of a business nature. As agent merely, the company takes charge of property, real or personal, for its owner, but such agency does not imply nor ordinarily include authority to sell or convey title. Moreover, trust companies as agent often take up lines of business which they either cannot or would not engage in on their own account. Thus, a trust company can act as agent for fire or life insurance companies, for water, gas, and other public service corporations. In new communities and where it is difficult to find responsible representatives, the trust company can often render efficient service and secure a steady income without risk by assuming agencies of various sorts. As assignee the trust company takes possession of the property assigned for the purpose of carrying out the terms of the deed of assignment in the interest both of the assignor and the creditors of the assignor. The deed of assignment is an acknowledgment of an embarrassed or insolvent condition, and the efforts of the assignee are directed to realizing as much as possible from the assets intrusted to its management. As receiver, the duties may be very similar to those of assignee, although they are usually broader in scope. The business may not be insolvent, and the application for the appointment of a receiver may be due to temporary difficulties only. By such an appointment the property is preserved intact and equal treatment is afforded creditors. An able receivership often results in the adjustment of difficulties and the return of the property to its owners on a paying basis. While in the case of assignee the appointment is by the individual, partnership, or corporation executing the deed of assignment which specifies the powers and duties of the assignee, in the case of receiver the appointment is by a court and the company so appointed acts as an appointee or ministerial officer of the court, and as such is directly subject to the court's orders. A trust company acting as receiver is better able than an individual to furnish additional capital, if amply secured, and thus successfully to meet the difficulties which withdrawal of credit and restricted capital have temporarily brought upon an otherwise prosperous business. The courts authorize the issue of receivers' certificates to provide funds for purchase of equipment and the proper maintenance of the property and conduct of the business when the creditors are benefited by such expenditures. Such certificates may be made a first lien on all assets, taking precedence even of mortgages and other secured obligations. The receiver thus secures the capital necessary to make the property more productive and to secure the largest return from the business. As custodian or depositary, the trust company sometimes holds property the title to which is in dispute, delivering the same when the ownership is legally determined. In taking charge of escrows or conditional instruments or deeds delivered to a third party until the condition is performed, the trust company acts in a similar capacity, as the joint representative of both parties. The trust company acts as the representative of both the living and the dead in practically every legal relation in which an individual is qualified to act. Its function is not only to keep intact the estate of which it has charge, but to look to and safeguard the interest of every beneficiary. CARE OF SECURITIES AND VALUABLES The functions already recited have resulted in the assumption of the duty of caring for property other than that of the estates held in the trust department. In the safe deposit department, individual safes are rented, bulky packages--not containing stocks or bonds--are received on storage, certificates of deposit covering securities are issued, and provision is made for access to, and examination of, the property so deposited. For personal property received on storage, the charges are either according to bulk or value. Wills are usually receipted for and kept without charge. INSURANCE The examination and insurance of real estate titles is a later development often found in connection with the usual trust functions. Fidelity insurance and suretyship providing against loss by reason of the dishonesty of individuals and the non-performance of obligations, contracts, etc., have often been combined with the various forms of trust company activity. They are, however, largely passing into the hands of corporations especially organized for the transaction of such business. COMPENSATION When acting as trustee under corporation mortgages, a definite charge may be made for accepting the trust, and a fixed amount per annum thereafter for paying coupons and performing other duties. For the certification of bonds it is usual to charge fifty cents per bond in the case of large issues, and one dollar for small issues. The figures, however, vary in different places. The charge for certifying the bonds may be the only one, although an additional charge is usually made for counsel fees. In case of default and consequent foreclosure of the mortgage, extra payment is made to the trustee covering all services incident to the foreclosure. For the disbursement of sinking funds, interest, or coupons, the temporary use of the money may be considered adequate compensation, if the amount involved is large. A commission on the sum distributed or a fixed amount is charged when acting as fiscal agent, apart from duties in other capacities. For acting as registrar or as transfer agent it is usual to make a fixed charge per annum, based on the amount of labor involved. The transfer agent is usually paid about twice as much as the registrar. Compensation for acting as manager of an underwriting syndicate may be a fixed sum or a commission, according to the provisions of the underwriting agreement. For acting as depositary under plans of reorganization, assignee, or receiver, a lump sum is usually paid covering all services. Agency work of various sorts is paid for in accordance with the usual practice in the business which is undertaken; a fixed sum, or a fixed sum and a commission, or a commission only, may be received. The trust company is in a position to render valuable, and often indispensable, aid to its corporate clients. Large amounts being involved, the great railroad and industrial corporations are willing to pay well for such services. Corporate trust business has, consequently, been a profitable field for the trust companies. GOVERNMENT REGULATION An examination of the laws of the various states is interesting as showing the attempts which are being made at regulation. Most of these laws have been enacted within recent years and to-day there are but few States which do not have such statutes on their books. The step which Massachusetts first took in requiring a legal reserve to secure deposits has been followed by similar action in other states. In general, the wisdom of prohibiting companies which engage in the care of estates from assuming excessive risks is becoming better recognized. The promotion and underwriting of commercial ventures and the assumption of unknown risks are functions not compatible with the proper exercise of the duties of trustee or executor. The supervision of trust companies by the separate states provides an elastic system to supplement the rigidly guarded powers of the national banks, and can adapt itself to changing conditions and enlarging needs, leaving for solution according to the requirements of each section of the country such questions as proper functions, reserves, and the authority to establish branch offices. FOOTNOTES: [91] Adapted from Kirkbride and Sterrett, _The Modern Trust Company_, pp. 1-13, 113, 114, 127, 143-146, 204, 205, 208. The Macmillan Company. 1913. [92] Thomas L. Greene, _Corporation Finance_, p. 59. CHAPTER XVI SAVINGS BANKS [93]The savings bank works with those unacquainted with the ways of business and who could not single handed take good care of their money, or invest it safely or profitably. The bank of discount is generally managed by business men versed in the ways of business, acquainted with monetary affairs, and able to conduct financial operations with intelligence. They combine their _capital_ in order to make it effective; the savings bank combines _savings_ in order to make them _capital_, and as such to acquire a power impossible to the scattered savings. The savings bank is for the saver; its funds are invested permanently, while the business bank opens its doors to business men and loans rather than invests its funds, and for a short time only. The latter deals with borrowers rather than savers, and serves for hire. The one serves best by keeping--the other by lending. One _aims_ at profit, while the other _never_ makes (or should make) profit an end. The savings bank is the receiving reservoir for the little springs, the bank of discount is the distributing reservoir for accumulated capital. We must get the last idea clearly in mind or we get a misconception of the savings bank. However much the element of interest may figure in the management, and whether we pay depositors 4 per cent. or 3 per cent., or no interest at all, the accumulation of interest is not to be compared in importance with the _accumulation of principal_. No man ever acquired riches at 4 per cent. In fact, 4 per cent. upon small deposits is so trifling a matter that it may be ignored in considering the greater value of the increase of capital. However desirable the accumulation of interest may be (and this in the course of years is considerable), the chief end and aim of the savings bank should be the _accumulation of principal_. CLASSIFICATION OF SAVINGS BANKS We may roughly classify savings institutions into: First, mutual (trustee), or philanthropic; second, stock (including "savings and trust companies"); third, co-operative, or democratic, as exemplified in the co-operative banks of Europe. The first are usually managed by a self-perpetuating body of trustees, who do not share the earnings; the second are managed by the directors elected by the stockholders; the third are managed by officials elected by the members. A second classification may be made into public and private institutions; the first includes the postal and municipal banks; the private embraces the mutual, stock, and co-operative. A third classification may still be made into the "unit" and the chain system. In the unit system the bank is an independent entity and has no connection (aside from a managerial standpoint) with any other bank. The banks of the United States are all, excepting the Postal Savings Banks and a few branch savings banks, of this character. In the second, the bank is but a part of a chain, as in the postal system, the municipal banks of Germany, and the co-operative credit banks of Europe. We shall briefly review each system. TRUSTEE SAVINGS BANKS The _original_ savings bank is the trustee bank. As Hamilton says, "It stands for the attempt on the part of the well-to-do to improve the condition of the poorer classes, and involves a self-sacrificing service on the part of a few in the interest of the many." While many of the early savings banks partook of this character, others were organised from purely selfish motives and were characterised by bad management and bad faith from the start. A study of savings bank frauds will amply bear out this statement. The "spirit of commercialism" hereafter spoken of has invaded the domain of the mutual savings bank and it cannot in truth be said that some of the newer banks were organised from any spirit of philanthropy, although the management as a whole may be above suspicion and honorable in the highest degree. But, however this may be, the mutual savings bank is a product of the East and promises to remain so in spite of the fact that some of the Western states have very good, if not excellent, savings bank laws. The distinguishing characteristic of the trustee savings bank is _mutuality_. _All_ the earnings of the bank, less reasonable administrative expenses and the apportionment to surplus or guaranty fund, are divided among the depositors in the form of interest. One or two features of the mutual bank may be mentioned. First, the investments of such institutions are usually carefully restricted, looking primarily to the element of safety; and as long as the trustees keep their funds so invested they cannot be held, either in law or morals, responsible for losses. Second, the predominancy of the mortgage loan. The nature of the deposits being more or less permanent, investments of a permanent character may be made without fear of a sudden demand for their return on the part of depositors; and to safeguard the banks from such unexpected calls, quite generally trustee banks are permitted by law to require notice, the usual time being either sixty or ninety days. The third distinguishing feature is the self-perpetuation of the board of managers. No amount of money can _buy_ a man's way into a mutual savings bank. He cannot, as in stock concerns, buy enough stock to _vote himself_ into office--he can only gain office as the other men advocate his cause. And, on the contrary, he cannot be voted _out_ of office. Only an act, such as bankruptcy (which voids his office), can affect him, and, like a Supreme Court judge, he is appointed during good behavior. The greatest weakness of the trustee bank is this: Lacking the "essential element" that prompts men to undertake such ventures (profit), it does not appeal to the average man of means unless he is sentimentally inclined; and not being indispensable to trade and commerce, like a bank of discount, it does not come to be a commercial necessity. Even in a great State like New York we find twenty-eight counties with no savings banks. And in many of these counties there are large and thriving towns and cities. Thus the city of Jamestown, with over 30,000 population, has no savings banks; while Elmira, with over 35,000 population, has but one, and that with but half a million assets. From the viewpoint of intensive results, as tested by the volume of patronage accorded these institutions, a perusal of the statistics will demonstrate that in some places the trustee bank has had a remarkable record. For instance, in Maine, a sparsely-settled State, and largely of a rural nature, we find one savings account to every 3 of the population. More remarkable is Vermont, the "Green Mountain State," where natural conditions would seem to be much more hostile to such development, we find 30 per cent. of the population having savings bank accounts. New Hampshire has an account for every 2-1/2 of the population, while Massachusetts heads the list, with seventy-five out of every hundred. New York has one to every three. "In seeking an explanation of this remarkable success of the trustee system," says Hamilton, "we are reminded that New England is singularly separate and distinct in its customs, habits and ideals from the rest of the country. Notwithstanding the large foreign population, the dominant type is more homogeneous and more Anglo-Saxon than it is in any other section, and therefore fixed customs have been more rigid and controlling. Among the ideals behind the customs and institutions must be noted a stern, Puritanical sense of simple living, industry and providence, and this spirit is so strong as to be well calculated to give color and direction to the philanthropic impulse. There is also an unusual amount of public spirit, of collective rather than a neighborly character, as seen in the institution of the town meeting." STOCK SAVINGS BANKS The stock savings bank, where it is a savings bank, and not a bank of discount under a savings title, differs in no essential degree from the mutual institution. The mutual bank belongs to the depositors; the stock bank to the stockholders. The mutual bank pays dividends to depositors only; the stock bank pays dividends to both stockholders and depositors. The stock bank does not pretend to be philanthropic in its management. It is purely a business proposition, and where the investments are of the accepted savings bank type, it can justly claim to be on a par with its mutual friends, provided, of course, that it measures up to the standard in its management. As is implied in the term "stock," it issues capital shares and pays dividends thereon. It has, therefore, the added protection of the stockholder's liability, which, together with the accumulated surplus, affords the element of strength so necessary in all financial concerns. It usually pays the depositors a stipulated rate of interest, and the profits beyond this belong to and are distributed to the stockholders as dividends. The partnership idea is entirely lacking, and the depositors get what they bargain for, while the surplus goes to those who invest, not necessarily their savings, but their _capital_, and assume all risks of the business. It could not in law or equity "scale down" its deposits to make good any losses--a feature peculiar to the mutual institution. In this respect one thing is certain: In so far as safety is concerned, especially in a young bank, the stock bank with the stockholders' liability is surely superior to the mutual, unless the trustees of the latter are of such high order and of such financial worth as to be able and _willing_ to assume the burden of any losses that may accrue until the surplus or guaranty fund affords ample protection. This was the trouble in the early days of the mutual savings banks in England. GUARANTY SAVINGS BANKS New Hampshire is the only state in which "guaranty savings banks" are found. These are a combination of mutual and stock--a cross between the two. They do not transact a commercial business, being strictly savings banks in their functions, yet having "special deposits," which to all intents and purposes are capital stock. "The guaranty savings bank differs from the ordinary mutual savings bank in that it has capital stock or _special deposits_, as they are called. It pays a certain stipulated rate of interest to its _general_ depositors and _any surplus of earnings above this dividend is available for dividends on the capital stock or special deposits. These special deposits constitute a guaranty fund for the general depositors, and the charter ordinarily stipulates that the special deposits shall always equal 10 per cent. of the deposits._" Such institutions are savings banks in every sense of the word, but the strictly mutual feature is lacking in the specialising of part of the deposits and paying a higher rate of interest on these deposits. In New York State savings banks cannot take a "special deposit," but in New Hampshire, in return for the higher interest rate, the special depositors assume all the risk of loss or depreciation, and, as in the case of stock concerns, they would be the first to suffer in the event of insolvency. MUNICIPAL SAVINGS BANKS This form of savings banks properly belongs to a strong class of municipalities. They can only thrive in places where the local spirit is strong, the local government pure, and where the local officials are accustomed to wield a large measure of authority. Accordingly, they have come into being and met with success in those countries where the early history of the town made a large measure of local autonomy a necessity. Towns of this class possess the public spirit and the intelligent administration required for the success of such a public venture. They also possess a fund of gratuitous public service among the citizens which may be drawn upon when occasion requires. Such banks are found in Austria, France, Italy, Denmark, Sweden, and Japan. The best examples are to be found in Germany, where they have been in operation for a long period of years. Savings institutions exist here at present in great variety and number, including State or Province Savings Banks, City Savings Banks, Township Savings Banks, County Savings Banks, _Bezirk_ (District) Savings Banks, Private Savings Banks, and Co-operative Savings Banks. These banks have some 19,000,000 pass books out and their deposits amount to 13,500,000,000 marks ($3,213,000,000). These deposits are practically all guaranteed by the various municipalities of the Empire, which condition forms a bulwark of confidence in the security of private wealth and earnings that cannot be shaken by hard times, panics, bank failures, etc. PEOPLE'S BANKS The co-operative banks of Europe, otherwise called "People's Banks," are essentially savings banks, in that they depend for their working capital upon the accumulated savings of their members. The aims of these banks are first _economic_, to enable the economically weak to make themselves financially strong by the power of combination; second, _moral_, to bring the members together in a unity of interests and to develop character by making thrift and good habits the groundwork of their operations; third, educational, to train in business methods and in the handling of money those whose scope has been narrow and whose experiences have been few in this regard. In the establishment of these banks, the cardinal rules have been: Maximum of responsibility, minimum of risk, maximum of publicity. To secure the maximum of responsibility, unlimited liability has been accepted by the members in many cases; that is, each one pledging his all for the good of all; and, second, to secure the minimum of risk, character is made the basis of membership and good habits the prime requisite for membership. No investments are made in speculative enterprises, and the purposes for which the money is borrowed are closely inquired into and due care taken that the funds shall be applied for such purposes only. To secure the maximum of publicity the action of the bank in all matters is given the widest publicity possible in order that the work may have public inspection. The result of these simple rules has been that the poor have proven as good, if not better, creditors than the rich; for once losing credit they can never regain it except by the slow process of years of good behavior. The great pioneers in the "People's Banks" were Raiffeisen and Schulze-Delitzsch. They fully appreciated that any system that would succeed must descend to the level of its beneficiaries and they have admirably adapted the co-operative idea of banking. THE LOCALIZATION OF SAVINGS BANKS IN THE UNITED STATES The home of the mutual savings bank is in the East, where it began operations in 1816, and may even be said to be in the Eastern States; for west of Buffalo and south of Baltimore, we find only 21 savings banks of the mutual character. Out of 647 savings banks of the mutual type found in the United States, 593 are found in New England, New York, and New Jersey; and over one-half, or 334, are found in the two States of New York and Massachusetts. Maine, Vermont, Connecticut and New Hampshire have 215, the total of which accounts for all but 100 of the mutual savings banks in this country. The dearth of savings banks in Pennsylvania is notable. It would seem strange that in a state of such character, where the mutual savings bank had its first test, and where in individual instances it has been extremely popular and successful, the failure of such an institution has been so pronounced; but Pennsylvania is the home of the building and loan association (there are over 1,400 in operation), which seems in a measure at least, to fulfill the same purpose. From a pamphlet issued by the Dollar Savings Bank of Pittsburgh in 1905, the striking sentence is gathered, that to-day at the end of half a century the Dollar Savings Bank stands as the _only_ institution of its kind in Western Pennsylvania. As we go south and west the banks take on a more commercial aspect, and the savings bank as we know it in the East is a rarity, and the word "savings" in their title is a misnomer. This is particularly true of Iowa, where we find practically all state banks using this word, and yet very few of them are other than banks of discount. The reason for the large number may be in the economic conditions of that State, and also the fact that banks may organise with as low as $10,000 in capital, making it possible to establish a bank in even the smallest place. In Illinois, for instance, we find no distinctively savings banks, and in a city like Chicago, where if the same success had attended the savings banks as it has in New York, upwards of a billion dollars would be on deposit, we find no strictly savings institution other than banks of discount and trust companies operating savings departments. The reasons for the absence of mutual savings banks in the West and South lie, no doubt, as Hamilton suggests, in the fact that these sections were not settled from religious, but commercial motives; and the "spirit of New England" being lacking, the savings bank which requires a peculiar spirit of philanthropy, and age, as well, has not become a factor in the development of the country. In fact, the eleemosynary institution, such as the college, the hospital, or the savings bank, the former requiring endowments of money to become successful, and the latter the endowment of gratuitous management to become possible, is last to follow in the economic development of a community. Another reason may be in the pre-ponderance of agriculture among the employments, which does not, until the country becomes highly prosperous, afford much in the way of idle funds which would go into the savings banks. The mutual savings bank is a product of the East and promises to remain so in spite of the fact that some of the Western states have very good, if not excellent, savings banks laws. The dearth of savings banks in the South is, no doubt, due to the prostration following the Civil War, which left the country drained of its resources; the general ignorance of banking functions, and the improvidence of the Negro. POSTAL SAVINGS BANKS The postal savings bank is not a bank, or a banking system, so much as it is an adjunct of the Government; for the fundamental idea is that through the post office the Government holds itself out as willing to accept the savings deposits of the people, invest them in its own securities and become absolutely responsible for the safe return of the funds when called for, with a nominal rate of interest. All the leading countries of the world except Germany and Switzerland now operate the postal savings banks. While the rules may differ in the details, the general scheme is the same, and a review in brief of the system of Great Britain will serve to illustrate the methods of operation of such an institution. The present system was established in England in 1861. The deposits, at whatever office they may be made, can be withdrawn from any other office which transacts a savings bank business. The accounts are kept in London and all moneys are remitted to the headquarters, where it is handed over to the Commissioners for the Reduction of the National Debt, who invest the funds in public securities. Deposits may be made as low as one shilling or multiples thereof, and the limit of deposits for an individual is $150 during one year or $650 in all. Charitable societies may deposit without limit. For the benefit of youthful depositors, who have not a shilling to deposit, cards are issued upon which stamps are placed as purchased, and when filled represent one shilling, and may be turned in as cash. School managers are urged to bring this plan to the attention of the pupils, and it has been productive of good results, over 5,000 schools having adopted this system. The interest rate is fixed at 2-1/2 per cent. and never varies. AMERICAN POSTAL SAVINGS BANKS ARGUMENTS FOR AND AGAINST THE ESTABLISHMENT OF POSTAL SAVINGS BANKS IN THE UNITED STATES. [94]In spite of the numerous differences in the postal savings bank system of the forty-odd countries possessing them, there are certain fundamental features common to all. Whatever else a postal savings bank may be, it is without exception an institution working principally through the post offices, and its primary object is the encouragement of thrift among the poorer classes by providing safe and convenient places for the deposit of savings at a comparatively low rate of interest. In the discussion of the postal savings bank proposition in this country, no one questioned the desirability of encouraging habits of economy and thrift on the part of the public, nor was there any question that adequate savings bank facilities should be provided for this purpose; the debate hinged very largely upon the question whether adequate facilities of this character were not already provided by private initiative. The advocates of a postal savings bank claimed that adequate savings facilities were not and could not be provided by private enterprise, because of the expense of conducting savings banks in small communities, and also in larger communities where the people were not yet educated to the saving habit; and they pointed particularly to the lack of savings facilities in the southern and western states.... ... The country is not nearly so well provided with banks receiving savings accounts as with post offices. In the United States there are 270 square miles of territory to each bank carrying savings accounts and 50 square miles to each post office; there is a population of 8,370 to each such bank and of 1,542 to each post office; and there are 5.4 post offices to each bank carrying savings accounts. A comparison of the figures for the different sections and states shows that it is in the southern, western, and Pacific states that savings bank facilities are most lacking.... The New England, eastern, and middle western states are much better provided with banking facilities than are the other sections; but even in these states post office facilities are much more ample than savings bank facilities.... An objection repeatedly urged against the establishment of a postal savings bank was that it would prove a competitor to existing banks. The fear of such competition appears to have been the chief cause of the opposition of most members of the banking fraternity to all postal savings banks proposals. Senator Cummins of Iowa said in the Senate: The banks of the United States are opposed unanimously to the institution of a postal savings system.... I venture the assertion that during the nearly two years that I have been a member of this body ... I have received the protests of nearly every bank in my state against any such scheme, and those protests have usually been accompanied by a very large number of petitions, secured, I have no doubt, through the industry and energy of the bank officers. It was argued that postal savings banks would have an undue advantage over private institutions because of the great confidence in the Government entertained by working people; and it was asserted that funds would be withdrawn from existing banks and deposited in the postal savings banks.... In reply, the advocates of postal savings banks claimed that existing banks had nothing to fear from governmental competition; that they had the advantages of an established clientele, higher interest rates, higher limits, if any, in the amounts that could be kept on deposit, and of the close personal and advisory relation which so often exists between a bank and its customers. They further argued that postal savings banks would be a help rather than a hindrance to other banks. They would educate the people to habits of thrift and would draw money out of hoards; and the deposits which they received would for the most part be transferred to other banks as soon as the limit fixed for postal savings banks deposits should be reached, or even before, as the depositor began to appreciate the safety of other banks and the advantage of their higher rate of interest.... The immediate occasion of the last active movement for a postal savings bank system in the United States was ... the losses and inconveniences arising from bank failures and from the suspension of cash payments in the panic of 1907. Naturally, therefore, the demand for great safety of savings deposits played an important part in the discussion. The advocates of postal savings banks cited figures showing the number of national bank failures and the losses involved, and similar figures for savings bank failures in certain states. They made much of the large amounts involved and of the hardships in individual cases. On the other hand, the opponents of the postal savings bank scheme quite generally dealt with percentage figures rather than with absolute amounts and showed that for recent years the average losses, in terms of percentage of the amounts on deposit, were almost infinitesimal. The figures cited for bank failures, so far as they relate to savings deposits, are so incomplete as to be of doubtful value in measuring the extent of the losses.... After all, such figures give us no adequate measure for losses of this kind. "Among the experiences of working people none is more demoralizing and few are more cruel than loss of savings through failure of banks or absconding of individuals intrusted with funds." To such people there is cold comfort in the assurance that the average loss of savings bank depositors over a long period of years is but a fraction of a mill on a dollar. The loss is theirs: it is not distributed among all depositors. In urging that a postal savings bank would draw money from hoards into circulation, the advocates of the scheme claimed also that such a bank would keep in the United States money that would otherwise be sent abroad by foreigners.... Much was made of the fact that every year many millions of dollars in money orders payable to self are bought for savings purposes.... In such cases the purchaser not only failed to receive any interest on his savings but was required to pay the money order fee. Many immigrants, moreover, distrust American banks, and, being familiar with postal savings banks in their home countries and having great confidence in government institutions, remit their savings to these home banks. How extensively this is done we have no figures to show.... THE MAIN FEATURES OF THE SYSTEM [95]The Postal Savings Bank System of the United States, which began operations January 3, 1911, by the opening of a postal savings bank in each state, is under the control of a board of trustees, consisting of the Postmaster-General, the Secretary of the Treasury, and the Attorney-General. Depositories for the receipt of such moneys are designated by the Board. An initial appropriation of $100,000 was made to cover the cost of putting the law in operation, which was supplemented by another appropriation of $500,000 in the session of 1911. Any person over ten years of age may deposit, but no person shall have more than one postal savings bank account in his or her own right. Upon making the first deposit, a _certificate of deposit_ is issued, which is to be surrendered when paid, and cancelled; or in the event of making a subsequent deposit is to be surrendered for one calling for a higher amount. The lowest deposit permitted is one dollar, the limit being $100 in a calendar month; but to provide for small deposits, a postal savings card is issued for ten cents, to which may be attached postal savings stamps, which when filled will be accepted in lieu of one dollar. The interest rate allowed is 2 per cent., credited once a year, and the highest balance permitted is $500 to one person. Withdrawals may be made on demand. The funds so received are to be deposited in national and state banks at 2-1/4 per cent. interest. Five per cent. of these deposits may be withdrawn and kept in the Treasury of the United States as reserve. Before becoming a depository, the bank must furnish as security government, state, or municipal bonds, the limit of deposits being an amount equal to the paid-up capital and one-half the surplus.... Not over 30 per cent. of the amount of such funds may be withdrawn by the trustees for investment in United States bonds, and it is the intent of the act that the residue of such funds amounting to 65 per cent., shall remain on deposit in the banks in each state and territory willing to receive the same under the terms of the act, but may be withdrawn for investment in bonds under the direction of the President, "when in his judgment, the general welfare and interests of the United States so require." Provision is also made for the conversion of savings bank deposits into United States bonds, at the request of depositors. "POSTAL SAVINGS BEHIND THE SCENES" Speech of Hon. Carter B. Keene, Director of the United States Postal Savings System at the Banquet of the Investment Bankers Association of America at Denver, Colorado, Tuesday evening, September 21, 1915. _Mr. Toastmaster and Gentlemen:_ I appreciate very highly your invitation to speak here to-night, also the words of commendation from your presiding officer. I have often wondered whether the fact that I am the only director of a big savings institution has anything to do with the ability of that institution to pay every depositor his money on demand. (Laughter and applause.)... The toastmaster was wrong when he said that postal savings has nothing to do with investment bankers. We have a great deal to do with them. Indirectly, we are one of their best customers. More than ninety-four million dollars in bonds are now with the Treasurer of the United States as security for postal savings funds, and you gentlemen have largely supplied the banks with these bonds. Sixteen million dollars are in State and Territory bonds; city, town, and village bonds amount to forty-six millions; county bonds nine; miscellaneous bonds ten; and bonds of the United States Government and its dependencies thirteen.... Since I have been here this week I have heard billions and billions talked about.... I can hardly comprehend what a million is. But I want to tell you that in four and a half years the postal savings system of the United States has become custodian of sixty-eight million dollars, in cash, of the people's savings. Let me lay emphasis on the _cash_, because big figures do not always mean cash. Sixty-five million dollars of this money is on deposit in six thousand banks scattered throughout the country. In other words, practically all of the money we have collected has been released through the banks to channels of trade in the very localities where it originated. I am sure you will agree with me that this is a very creditable showing so far as dollars and cents are concerned. The Federal Reserve Act, which went into effect on the 16th of November last, provided that postal savings funds should not be deposited in non-member banks. The Attorney General for the United States has held that the prohibition relates to funds received on and after November 16th. Therefore, postal savings on deposit in state institutions when the act became effective have been allowed to remain, except as it has been necessary to withdraw it to pay depositors. The Post Office Department has made frequent investigations to determine where postal savings deposits come from; with the invariable result that they are found to come from chimney corners, mattresses, bootlegs, etc., but until very recently no effort has been made to ascertain where postal savings go when withdrawn. And this recent inquiry has been both gratifying and entertaining. It was found that in a vast majority of cases savings were withdrawn for very substantial reasons, prominent among them being payments on homes and the launching of small business enterprises. Occasionally a hospital bill was paid. Some depositors sent money to the old country to bring over a parent or a brother; a wedding trousseau here and there; and in Colorado we have record of a withdrawal to buy an automobile. (Laughter.) I am glad to say that there has been a very great change in the attitude of the banks toward postal savings in the last few years. At the outset, many bankers thought that postal savings was an unwarranted invasion of the domain of private enterprise and that the service would prove a severe drain on their established business. The opposite has been the result. The tarnished coins and soiled currency that come into our postal depositories represent hidden savings--money that is beyond the reach of any corporate banking institution no matter how sound it may be or how conservatively managed. This newly discovered money has been made available for commercial purposes in the very cities and localities from which it was withdrawn, so instead of being a drain on corporate banking institutions postal savings has added to the deposits of some six thousand banks more than sixty-five millions. The bankers now freely admit that postal savings has been a help to them, and it is no uncommon thing for banks, especially in the mining regions of the West, to urge the Post Office Department to extend postal savings facilities in order that more money may be made available for local uses. Among our 540,000 depositors every nation on the face of the earth is represented, also every conceivable occupation. The fisherman, the miner, the shoemaker, the preacher, the bank teller, the butcher, the baker, the candle-stick maker, all have accounts, but the great bulk of our deposits come from the men and women who work with their hands for a daily wage. The foreign born are our most numerous and liberal patrons. An interesting poll of depositors has just been made by the Post Office Department and it was found that 59 per cent. of all postal savings depositors were born outside the United States, while the American born comprise 41 per cent. A still more surprising fact is that the foreign born own 72 per cent. of all the deposits. The Russians lead with $14,000,000 to their credit, or 20.7 per cent. Then follow the Italians with $9,650,000, or 14.2 per cent.; natives of Great Britain and her colonies with $6,000,000, or 8.8 per cent.; the Austrians with $5,900,000, or 8.7 per cent.; Hungarians, $2,900,000, or 4.3 per cent.; Germans, $2,800,000, or 4.1 per cent.; Swedes, $1,500,000, or 2.2 per cent.; and Greeks, $1,200,000, or 1.8 per cent. What a splendid vote of confidence on the part of our foreign-born citizens in the good faith of the United States. And in these figures also is a high testimonial to the industry and frugality of our newly acquired citizens. That they should take most kindly to postal savings is not remarkable when we consider that they were accustomed to a similar service in their native countries.... Another thing that has induced foreigners to become postal savings depositors is the disastrous experiences many of them have had with so-called "private banks," usually operated by people of their own tongue. It is difficult to conceive of a more heinous crime than some of these so-called "bankers"--slick and persuasive--have committed in alluring credulous, hard-working men and women, to entrust their humble savings with them for the deliberate purpose of theft. I am glad to see that prosecuting officers have recently been aroused to the "private bank swindle" and that their promoters are getting the punishment they deserve. When Europe got on fire last year, our postal savings receipts began to increase by leaps and bounds. During the fiscal year 1915, the deposits jumped from $43,440,000 to $65,680,000 and more than 140,000 new accounts were opened. The war still has an influence upon postal savings deposits, but the more immediate cause of large deposits at this time is the remarkable revival of commercial activities. Seven cities now have more than a million dollars on deposit, namely. New York, Brooklyn, Chicago, Boston, Detroit, San Francisco, and Portland, Oregon. Greater New York, including Brooklyn and several other offices in the municipality, now have over one-fourth of all the money in the Postal Savings System. During the past fiscal year New York City gained 200 per cent.; Bridgeport, Connecticut, 188 per cent.; Brooklyn, New York, 167 per cent.; Paterson, New Jersey, 162 per cent.; Jersey City, New Jersey, 122 per cent.; Detroit, Michigan, 112 per cent.; Newark, New Jersey, 100 per cent.; Akron, Ohio, 77 per cent.; Gary, Indiana, 66 per cent.; Pueblo, Colorado, 52 per cent. Now, my friends, I come to a point that I hope will make an impression on your minds--a lasting impression--and that point is that the Postal Savings System from the first has been seriously handicapped by statutory restrictions on the amount that may be accepted. The law permits the acceptance of only one hundred dollars a month and five hundred dollars in all from a depositor. It has been shown that the foreign born are the largest patrons of our savings service and if this service is to reach its full measure of success we must recognize and respect the habits of the foreigner, and one of his habits is to save his money until he gets several hundred dollars together and then take the entire amount to the post office, just as he did in the old country. Because the postmaster cannot accept all that is offered, the intending depositor very frequently goes away in resentment and disappointment without depositing a dollar.... It is the testimony of postmasters from all over the country that they are rejecting about as much money as they are taking in. The Postmaster General last year recommended to Congress that one thousand dollars be accepted with interest and that another thousand dollars be accepted without interest, but for safekeeping. That was a practical and reasonable recommendation--one which would meet all requirements in ninety-five per cent. of the cases. Unfortunately the recommendation failed.... The Postmaster General has indicated that he will repeat the recommendation in his forthcoming annual report and I sincerely hope that Congress will promptly recognize the urgent need of the legislation. Millions of dollars, my friends, are spent every year by uplift societies for the betterment of the foreigners. These foreigners, these begrimed, hard-working foreigners, come to our post offices and ask us to take their humble savings. How unfortunate that we cannot accept what they offer, within reasonable bounds. What an effective agency this would be in bettering in a most practical and permanent way the conditions of the very people we want to Americanize as speedily as possible. ... We have five hundred and forty thousand depositors in the United States to-day and postal savings has a new and different story for each of them. It is not always the big things in life that change or fix our course. Can't you remember when a few dollars or the want of a few dollars tipped you one way or the other in some important matter. Who can estimate the happiness and prosperity that the starting of a postal savings account may lead to. It is a step, and an important one, in the right direction. Some one has well said that the immigrant who opens a postal savings account steps unconsciously on a moving platform; one thing leads to another, and his deposit might lead him into local investment and investment into business and into citizenship. There is a very interesting human-interest side to postal savings in which every phase of good fortune and disaster is reflected. An aged couple at Norfolk without the knowledge of each other had been carrying $100 on their persons as a guaranty of respectable burial. They are now postal savings depositors. Two sisters died in each other's arms in the _Eastland_ disaster in Chicago a few weeks ago--two working girls--and they had postal savings accounts for like amounts. Their savings went to pay for their burial. One of Uncle Sam's bluejackets who went down on the ill-fated submarine _F-4_ was the owner of a substantial postal savings account. Gentlemen, the Postal Savings System means something more than a cold array of assets and liabilities, a balance sheet. Way off in an isolated spot in Russia a money order went not long ago to the home of a humble peasant. That money order represented the savings of a son who was drowned in the Susquehanna River. A few weeks back, a thrifty Mexican girl withdrew her savings from the post office at San Diego, California, to buy a trousseau. After the honeymoon she returned to the office with her new husband and both opened postal savings accounts. Last year Leadville, Colorado, struck a thrift note that was new in this country, so far as I know, and reference to it is particularly timely as Christmas is approaching. A mining company in that city struck the note and I hope it will be heard from one end of this country to the other. It was this: Last December an officer of the company went to the post office and opened a postal savings account for every employee--ninety in all--as a Christmas present. He placed to the credit of each 2 per cent. of what he had earned during the year. These Christmas remembrances amounted to over fifteen hundred dollars. Out of the ninety employees only five had previously opened postal savings accounts. Now, I count that substantial charity; I call that well-directed charity. We have kept track of these particular deposits and the workmen who get their start through that Christmas bounty are adding to their savings weekly by their own personal efforts. (Applause.) Gentlemen, as a rule, we in official life swing back and forth in a measured arc, and the little one can do is so small when compared with the mass of Government activity that we feel insignificant and lost. But I feel, my friends, that in the Postal Savings System my associates and I are doing a positive good for humanity. I believe that we are making people better and happier because postal savings points the way from the sweat shop to the school--it stands for clean homes and empty alleys. Each of you is a stockholder in the Postal Savings System and its success is your success. Your dividends are in the better and happier American citizenship which it encourages and promotes. (Applause.) FOOTNOTES: [93] Adapted from W. H. Kniffin, _The Savings Bank and Its Practical Work_, pp. 54-75. The Bankers Publishing Company. New York, 1912. [94] E. W. Kemmerer, _The United States Postal Savings Bank_, _Political Science Quarterly_, Vol. XXVI, No. 3, September, 1911, pp. 465-77. [95] W. H. Kniffin, _The Savings Bank and Its Practical Work_, pp. 75, 76. The Bankers Publishing Company, New York. 1912. CHAPTER XVII DOMESTIC EXCHANGE [96]The banker has become the bookkeeper and settling agent of the business world. The products of a locality, let us say the State of Georgia, move out to the markets of the world and create credits in favor of that locality on the books of banking institutions in the commercial centers, while at the same time a counter movement of commodities is under way from other localities into Georgia, in like manner creating credits for those localities which are debits against Georgia. The practical effect is that the commodities moving between these communities are exchanged and pay for themselves, the running accounts being kept and settlements effected in the banks. To illustrate the details: A dealer in cotton in Atlanta makes a sale to a mill in Fall River and receives in payment a check or draft drawn on a New York bank, which he deposits for the credit of his account in an Atlanta bank, and which the latter forwards for the credit of its bank account in New York. Meanwhile an Atlanta merchant has bought goods in New York and in order to pay for them buys from the Atlanta bank an order for the New York credit, and this when forwarded completes the circle of payments for cotton and goods. If we would extend the investigation to include the bank accounts of the Fall River mill and the Atlanta dealer we would find, first, that the mill account was built up constantly by deposits of checks and drafts received in payment for goods sold in all parts of the country and perhaps all over the world, with almost no deposits of cash, and that it was drawn down by checks for raw cotton, and supplies and large amounts of cash for the pay-rolls; second, that the cotton dealer's account was built up entirely by deposits of checks or drafts received for cotton shipments and drawn down by checks and cash payments to farmers for cotton. For payments at a distance bank credit in the form of a check or draft is [commonly] used.... The foregoing illustrates the movement of the exchanges constantly proceeding ... between ... different communities.... There is a network of relationship between banks through which each local community and market is connected with all other communities and markets.... No locality is so remote as to be outside of the circle and no community's sales and purchases are so scattered but that they can be brought together in the settlements. Each bank is the center of a circle of which it is the clearing agent; all payments between its own customers may be made by a transfer of credit upon its books. If there are two banks or more banks in a town, all payments between their customers are resolved into offsets between these banks, and in like manner all payments between localities are resolved into offsets between banks, and if not settled in local centers are passed up to larger and larger clearing centers.... But while the cross-payments of trade may be depended upon in the long run to balance and settle themselves, it does not follow that they will do so from day to day, or that they coincide so closely that payments in money are never required. An individual's sales and purchases are seldom made at the same time, and the sales and purchases of communities are not constantly balanced. The trade of a one-crop farming district will not be so evenly balanced as one of a district in which mixed farming prevails, and in every industry there are periods, usually recurring every year, when the payments exceed the current income, and corresponding periods when income exceeds outgo.... A region like the cotton states, whose products move quickly to market, may have large credit balances at one season and at another be wanting to borrow.... The banker is an equalizing agency in the situation. He stands in the breach: he must either supply the missing offsets of credit, or, as a last resort, make the payments in money.... The entire system of settlements, with transfers and offsets and advances and interchange of capital and credit, is exceedingly interesting and wonderfully simple and effective, but depends for its effectiveness upon a scrupulous observance of the principle upon which it is based. That principle is the natural reciprocity of trade.... While there are balances from time to time in the exchanges ... between different localities ... which cannot be settled without shipments of money, they are usually met without inconvenience unless there is a disturbance of credit. EXCHANGE RELATIONS BETWEEN CHICAGO AND NEW YORK [97]... It should always be borne in mind that the fact that New York City is the country's dominating financial market results in making New York funds acceptable everywhere as a means of payment, and in making a ready market for New York exchange throughout the country for a large part of the year. Throughout January money in Chicago relative to that in New York City is cheap. Exchange rates on New York are high and there is a considerable movement of cash from Chicago to the Eastern States--particularly to New York City.... Just prior to January 1 there is normally a large demand in Chicago for New York exchange with which to meet dividend and interest payments due in New York, and the high rates thus created continue somewhat into the new year. The crop-moving and holiday demand, however, being over, money becomes relatively cheap in Chicago and flows to New York City, where it can at least earn the 2 per cent. paid by banks on bankers' balances, and where it is absorbed somewhat in speculative activity and in the higher security prices, which normally rule the latter part of January and the fore part of February. From the last of January to the fore part of March the demand for money in Chicago relative to that in New York rapidly rises. Exchange rates on New York fall to a low point, and shipments of cash to the Eastern States are very small.... ... There is, however, no evidence of a movement of cash from the East to Chicago in February, although there is something of a westward movement in March. During this period the relative demand for money in Chicago is increased by the anticipated opening of navigation on the Great Lakes, for the opening of navigation gives rise to a large amount of New York exchange received in payment of grain bills. There is also a demand on the part of western bankers for currency to meet the spring needs of the western farmers. The first of March in many sections of the Middle West is the commonest time for making settlements of interest and principal on farm mortgages. It is also a common date for paying farm rents. This spring advance in the value of money in Chicago as compared with New York reaches its maximum early in March. The demand then falls off rapidly and with only temporary interruptions (the most noteworthy being about the first of May) until it reaches the low level of the early summer, the latter part of May. It continues at a low level until early in July, when the crop-moving advance begins.... About the first of July the relative demand for money in Chicago and vicinity begins to increase, advancing rapidly, with minor interruptions, until early in September, and then maintaining a high level until the fore part of November. During this period exchange rates rule low and money moves in large quantities from the Eastern States to Chicago.... The primary cause for this increasing and large demand for money in Chicago is of course the anticipated and actual crop-moving demand, there being no sufficiently strong Eastern demand for money at the time to hold it back.... It has been found ... that during the last six to eight weeks of the year, after the crop-moving demand has to a large extent subsided, the relative demand for moneyed capital in both New York City and Chicago is maintained until the time of January settlements at nearly the high level of the crop-moving period. A study of domestic exchange rates and of currency shipments shows that the relative demand for money is stronger during this period in New York City than in Chicago, that exchange rates in Chicago on New York rise, and that cash moves eastward.... Money becomes relatively cheap in Chicago and vicinity during these last six to eight weeks of the year, principally because of the return flow of currency previously shipped to the country districts for crop-moving purposes. There is also considerable demand at this time for New York exchange to meet payments in certain lines of goods, such as hardware and dry goods, that are due New York and New England houses by Western establishments, and to make purchases for the holiday trade.... Comparatively high exchange rates... [near] the end of the year are largely due to preparations for the January disbursements, which Western concerns are called upon to make in New York City....[98] EXCHANGE RELATIONS BETWEEN ST. LOUIS AND NEW YORK [99]... General seasonal movements in the relative demand for money in St. Louis (as compared with New York City), ... are fairly regular in their occurrence. From the beginning of the year until the fore part of May the demand appears to be moderate, exchange rates rule near par, and there is a moderate tendency for cash to move from St. Louis to the Eastern States, with almost no tendency to move in the opposite direction.... The first eighteen weeks of the year, St. Louis bankers say, are a period of comparative inactivity in the local money market. Concerning this period, a prominent St. Louis banker writes: "For the first eighteen weeks in the year... there is comparatively no New York exchange making and also a nominal demand for it, and likewise an easy, quiet money market."... The second noticeable movement in the St. Louis money market is the sharp decline in the relative demand for money from the fore part of May to about the first of June. Exchange on New York rises rapidly at this time, and May is the month of heaviest shipments of cash to the East.... The high exchange rates in May, and the resulting eastward movement of money, are due largely to the fact that at about this time in St. Louis the bills of boot, shoe, hardware, and dry goods merchants mature, and as their paper is held largely in the East, exchange is required in large amounts. The result is large payments to St. Louis banks, the building up of their reserves, and resulting reduction of their credit balances in New York City. From the first of June to the first of November the demand for money in St. Louis relative to that in New York City increases rapidly, advancing from the cheapest money in the year (twenty-first week) to the dearest money (forty-fourth week).... This greatly increasing relative demand for money in St. Louis is, of course, attributable to the crop-moving requirements.... The cashier of a St. Louis bank writes: "New York exchange... always goes to a discount here in the fall of the year, and this is caused by the large cotton drafts drawn in payment of cotton shipped out from the Southwest. The banks down there either send us drafts drawn on New England points or New York, or else they send drafts drawn on the two large cotton buyers here, who, in turn, draw their drafts on Eastern points. The result is a great deal of exchange comes in, for which there is a demand for currency." The resulting low rates of exchange continue as long as the cotton season lasts. During this crop-moving season there are heavy shipments of cash from St. Louis to the Southern States.... After about the first week in November the relative demand for money in St. Louis falls off rapidly until about the first of December, and then fluctuates at a moderate level until the end of the year.... The rise in exchange and easing up of the St. Louis money market in the latter part of November and in December is due to the decline in the crop-moving demand for cash, particularly in the South, and the return movement of cash from that section,... which begins the latter part of November. Southern banks in settling their St. Louis bills first use their eastern exchange and then ship currency. The upward movement of exchange is hastened shortly after the first of November by heavy purchases, for about four weeks, of New York exchange by dry goods, hardware, and boot-and-shoe houses for the purpose of settling their eastern accounts.... DOMESTIC EXCHANGE IN SAN FRANCISCO ON NEW YORK CITY [100]... Before taking up the subject of seasonal variations in San Francisco domestic exchange rates on New York City, it may be well to observe that in a number of respects the San Francisco domestic exchange market is a peculiar one. In the first place the principal kind of money in circulation is gold coin and this fact materially influences the range of domestic exchange fluctuations, _i. e._, the shipping points. Concerning this matter I can do no better than quote from letters of Mr. F. L. Lipman of the Wells Fargo Nevada National Bank. Mr. Lipman writes (under date of February 7, 1908): "In the East the medium of exchange is paper or new gold by weight. In California it is current gold coin by tale, with a mingling of paper and new gold. The first effect of an upward movement of exchange, there, is that at about 40 cents per $1,000 the currency shipping point is reached, which in due course, drains off our paper money. At approximately $1.10 per $1,000 the gold shipping point is reached. Of course the only gold that can be economically shipped is new gold. Now it not infrequently happens that the demand for remittance will be so great as to exhaust (1st) the currency and (2d) the new gold, leaving only our current gold, for which there is practically no shipping point, the discount on worn coin being practically prohibitory." A second peculiarity of the San Francisco exchange market arises from the fact that San Francisco, being the chief port city of the Pacific coast and the seat of one of the United States mints and subtreasury offices, is the recipient of large quantities of gold from gold-producing regions, _i. e._, California, Alaska, and Australia. The United States mint will issue without any charge its transfer drafts on the subtreasury in New York in return for deposits of gold, the new product of mines, or for deposits of imported gold. "Frequently," writes Mr. Lipman, "this usage is without influence on our local market, as when large importations of Australian gold are received for New York on London account. At other times this practice of the Treasury has a decided effect on our exchange market as, for instance, when the early gold shipments come down from Alaska. These shipments command the service of the Treasury Department to the full amount thereof, while a portion at least of the proceeds is used in payment of local bills for supplies to Alaska from this city. This throws on the market an additional supply of exchange when such exchange is desired. The owners of the gold, however, have the privilege of taking gold coin instead of eastern exchange from the Treasury, and this alternative tends to bring exchange to about par. The Government also influences exchange from the other side, by its willingness to transmit money by telegraph from New York and Chicago to this city."... Professor Carl C. Plehn of the University of California, suggests three other characteristics of the San Francisco domestic exchange market, _i. e._, (1) the close exchange relations with the Orient, (2) the fact that in San Francisco, New York bills very frequently represent merely steps in a general arbitrage transaction, and (3) the appreciable interest element involved in demand transactions because of the distance between San Francisco and New York.... From the beginning of January to about the first of March there is a rapid decline in the relative demand for money in San Francisco, resulting in the lowest level of the year during February. The average rate of exchange rose from 30 cents discount in the first week to $1.05 premium in the seventh.... ... Among the principal factors cheapening money in San Francisco at this time and forcing up exchange may be mentioned: (1) the fact that advances which have been made for the movement of general crops up and down the Pacific coast are being repaid very rapidly; (2) the demand for eastern exchange with which to pay bills incurred for holiday purchases; and, finally (3), the latter part of February, the desire of taxpayers to discharge eastern obligations and get movable funds out of the State before the tax returns of the first Monday in March are made to the assessor. From the fore part of March to the fore part of June the demand for money in San Francisco relative to New York City tends to increase.... Among the causes at work in reducing exchange rates at this time may be mentioned: (1) the readjustment after the heavy demands for exchange which were made anticipatory of assessment day: (2) preparation for the second installment of taxes which become delinquent the last Monday in April; (3) demand for funds by the large fruit canneries with which to buy sugar and tin in preparation for the annual fruit pack which begins in May; (4) by May the shipping trade in green fruits has begun, giving rise to many eastern bills; (5) demand for funds for equipping fishing companies going on long trips.... From about the 1st of July to the fore part of September there is an almost continuous increase in the relative demand for money in San Francisco.... ... During August and September, particularly the latter month, substantial transfers of cash [are made] to San Francisco by the United States subtreasury at New York. This decline in exchange is principally due to the large amount of eastern credits available locally at this time from the shipment of California products, especially green fruits, to eastern points; the returns for such shipments being usually available in either Chicago or New York exchange.... The California hay and grain harvests cause considerable demand for funds by the middle of July, while the ships returning from the fisheries in August and September require large sums with which to pay their crews. From about the middle of September (thirty-fourth week) to the latter part of October (thirty-ninth week) New York exchange tends to rule at near par.... During these weeks the outward movements of grain, green fruit, and fish tend to force exchange down, while the fact that this is the quarter of large receipts of gold ... from Alaska, making it a period of large receipts of gold bullion at the Mint, and that the San Francisco Mint makes returns for this gold in gold coin or New York exchange, at the option of the owner of the bullion, tends to keep New York exchange at par. The demand for money in San Francisco relative to New York City increases rapidly from the latter part of October to about the 1st of December when it reaches its highest point in the year.... November and December are the months of largest transfers of cash to San Francisco by the United States subtreasury in New York. The fall in exchange during this period appears to be due primarily to the outward movement of dried fruits, such as raisins, prunes, and apricots. The banks pay out large amounts of actual coin which goes to the country, and receive in return drafts on eastern points which build up their eastern balances. This also represents the most active part of the northern grain season. The low point of the year for exchange is about the last week in November when the tax collector for the city and county of San Francisco withdraws large sums of actual coin from circulation and locks much of it up in the vaults of the city hall. December is a month in which the relative demand for money in San Francisco lightens considerably as the result of the rapid falling off of the crop-moving demand.... The demand for remittances to the East for January 1st settlements tends to force up exchange rates at the end of the year.... CURRENCY MOVEMENTS BETWEEN NEW ENGLAND AND THE EASTERN STATES [101]... The distance between New York City and the principal New England cities is very small, and there is a great community of financial interest among these cities and New York. Between New York City and Boston the currency shipping points are only about 25 cents premium and 25 cents discount. Single financial deals between New York City and Boston are frequently of sufficient moment to lead to considerable shipments of currency, although exchange rates previously were only moderate. The relations among the clearing-house banks of Boston and among those of other New England cities are close, so that when one bank is in need of New York funds it is liable to obtain them from another which may have more than it needs. For this reason, it is said, much less money is now received from New York City and shipped there than was the case a few years ago.... THE DOMESTIC EXCHANGES DURING THE CRISIS OF 1907[102] There is no part of our banking machinery which has received so little elucidation as that of the domestic exchanges. Even for normal times the subject is obscure, and the writer therefore ventures upon an explanation of its course during a period of crisis with hesitation, and he is by no means confident that important considerations may not have been overlooked. As in the case of foreign exchange, domestic exchange rates fluctuate within limits fixed by the cost of shipping money, and also, in the case of cities distant from New York, by the loss of interest while currency is in transit. The quoted rates apply principally to business between banks, the rates being determined by demand and supply. A Boston bank, for example, receives from its customers New York drafts and also checks drawn on banks in New York and its vicinity. All these items will serve to build up its balances in that city. On the other hand, its depositors have been sending out checks, many of which will in the course of time reach New York and reduce its balances there. The Boston bank will also have received from banks of New York and from banks elsewhere items for collection in its vicinity, and remittance in ordinary course will be made by it in New York funds. Similarly it has sent away items for collection to banks in other cities upon which it expects a like remittance. As a result of all these various influences the balances of the Boston bank may either increase or decrease. If they increase it may be ready to sell exchange to other Boston banks whose balances are running low. It may also happen that the bank is desirous of reducing its New York balances, and in that case it will also appear as a seller of exchange in the market. Now, if in the course of a crisis clearing-house loan certificates become the principal or sole medium of payment between banks, it may well happen that a bank will be unwilling to sell exchange unless it is unusually well supplied with New York funds. By the sale of exchange it can at best only secure a favorable clearing-house balance, which will be settled in loan certificates, and if this balance should be unfavorable it can meet it by taking out certificates on its own account. Each bank, therefore, to a greater extent than in normal times, is obliged to rely upon itself for means of payment in New York. The loan certificate does indeed yield a return or involve an expense of 6 or 7 per cent., while the return on New York balances is only 2 per cent. This advantage does not, however, seem to have induced the banks to sell exchange as freely as in normal times. This is, however, not the only disturbing influence. The Boston bank may have remitted to New York upon items collected by it for other banks--let us say those of Philadelphia--but it may happen that the Philadelphia banks delay or even discontinue remitting to New York upon items sent to them for collection by banks of Boston and other cities. The Boston bank can then no longer rely upon what would normally serve to build up its own New York balances. It will be simply acquiring a mass of unavailable credits at scattered points throughout the country. The supply of New York exchange which it might have been willing to sell is consequently diminished, and the premium on exchange must rise to a point at which it will tempt some of the banks to sell exchange, even though it intrenches upon their balances with agents which are available for reserve. The premium would naturally be especially high in those cities where the banks were most unwilling to reduce their New York balances. Philadelphia seems a case in point, as its deposits with reserve agents, which were $30,995,000 on August 22, were reduced to only $29,389,000 on December 3. At that time the premium on currency in Philadelphia ranged from $1.50 to $3 per $1,000. It is, therefore, a reasonable conclusion that the banks were strongly disinclined to make use of their New York balances. In a few cities it is probable that the premium reached a high level because the banks had exhausted their New York balances. St. Louis may be mentioned as a probable example. Being a central reserve city, its banks would naturally have only such balances in New York as normal business requirements made necessary. The dislocation of exchange elsewhere or the course of payments between New York and St. Louis may have combined to produce such a balance of payments as would have required currency shipments if the St. Louis banks had remitted promptly to New York. The extent to which banks in different cities delayed or refused to remit to New York on items collected by them for other banks cannot be determined. Banks in one city, very naturally and honestly, were inclined to lay the blame upon banks elsewhere. The banks in other places, however, may not have been able to secure payment of the items sent to them for collection from other banks in their locality with the usual promptness. When every allowance has been made, however, there can be no question that banks in certain cities, in these as well as in other matters, adopted a policy wholly designed to strengthen themselves regardless of consequences. The general prevalence of the premium on New York exchange is, as we have seen, accounted for in part by the use of clearing-house loan certificates in settling balances between banks and by the delay in remitting in New York funds upon items collected for other banks. It seems probable, however, that, taking the country as a whole, the course of payments was favorable to the New York banks. At the beginning of November withdrawals for crop-moving purposes have in recent years begun to diminish, except to the South, and movements of money from eastern centers are distinctly in favor of New York at that season of the year. If this were indeed the case in 1907, it affords still another reason for thinking that the New York banks might have met the crisis successfully without restricting payments. They would probably have been obliged to meet only withdrawals arising from lack of confidence and not real needs for crop-moving purposes, such as would have increased the difficulties of the situation had the crisis begun at the beginning of September. Finally, it should be noted that the restriction of cash payments to depositors and the currency premium seem to have increased the demand for New York exchange. Only in that city was it possible to buy any considerable quantity of money. Many banks in various parts of the country purchased gold and currency at a premium in New York and, instead of drawing on their own balances, then entered their home market as purchasers of exchange which was remitted in payment. In the few instances where exchange was below par the currency premium was a more direct influence; but exchange could not have dropped to the low figures recorded in 1893 in the case of Chicago [$30 discount per $1,000], because the Chicago banks in 1907 did not maintain payments among themselves as they had done on previous occasions. Exchange was at a discount only in those cities where the course of payments was so strongly against New York that practically all the banks found their balances in that city increasing. Chicago might have been expected to belong to this group, but its banks made extensive use of bills derived from grain exports to secure gold which was shipped directly to them. In general, exchange was at a discount, or at par only, in the Southern States, the banks of which, by means of cotton sales, are normally in position to draw money from the northeastern part of the country during the late autumn. In conclusion, it should perhaps be pointed out that the quoted rates of exchange were often without much significance. The ordinary course of dealings was so completely disorganized in many places that the rates were purely nominal, representing little or no actual transactions. FOOTNOTES: [96] Frank A. Vanderlip, _Modern Banking_, Three Addresses delivered at Chautauqua, New York, August, 1911, pp. 17-29. The National City Bank. New York. 1911 [?]. [97] E. W. Kemmerer, _Seasonal Variations in the Relative Demand for Money and Capital in the United States_. Publication of the National Monetary Commission, Senate Document No. 588, 61st Congress, _2d Session_, pp. 96-100. [98] [Owing to the growth of deposit banking among the farming classes, the increasing diversification of industry in the agricultural States, _Sub-treasury operations_, and the offer of remunerative rates of interest on loans in New York during the fall, the net autumnal currency movement since 1907 has frequently been to New York. See E. M. Patterson, _Certain Changes in New York's Position as a Financial Center_, _Journal of Political Economy_. Vol. XXI, June, 1913, pp. 523-539.] [99] E. W. Kemmerer, _op. cit._, pp. 101-105. [100] _Ibid._, pp. 118-121. [101] _Ibid._, 54. 55. [102] O. M. W. Sprague, _History of Crises under the National Banking System_, Publications of the National Monetary Commission, Senate Document No. 538, 61st Congress, _2d Session_, pp. 293-297. CHAPTER XVIII FOREIGN EXCHANGE THE NATURE OF FOREIGN EXCHANGE [103]The bill, or order to pay money in a foreign centre, is the commodity that is actually bought and sold by dealers in foreign exchange, but it is better for the moment to leave bills out of consideration. They are only the tangible expression of the claim for money in another centre, and at this early stage of our inquiry it is better to keep our minds fixed on what is at the back of the bill, namely, the money in a foreign centre to which it gives its holder a claim. The French buyer of a bill on London buys it, as a rule, because by sending it to his English correspondent he can discharge a debt to him in English money. What he really buys with his francs is so many English pounds, and the labyrinth of the foreign exchanges is much easier to thread if, before we complicate the question by talking about bills, we keep our eye on the comparatively simple problem which is the key to the puzzle, namely, the exchange of one country's money for another's. Thus stripped to its naked simplicity, the problem begins to look as if it were not a problem at all, and a critical inquirer may be excused for thinking that at least in the case of countries that use currencies based on the same metal, there ought to be no need for daily quotations of rates of exchange, because the relative value of their moneys ought to be constant. It is a natural question to ask, why should there be these daily fluctuations, and, since they are evidently there, what is the sense or purport of them? The answer is, that money in France and money in England are two different things, and the relative value of two different things is almost certain to fluctuate. Quite apart from any differences in the fineness of gold coined by two different countries, or the ease or difficulty with which a credit instrument can be turned into gold, mere distance is quite enough to make the difference that will create fluctuation in price. New York and Chicago use exactly the same currencies, but money in New York differs from money in Chicago by being nearly a thousand miles away, and consequently there are frequent variations in their relative value. The English and Australian sovereigns are identical in weight and fineness, but there is constant fluctuation in the buying power of the English sovereign as expressed in its brother that is circulating in the Antipodes. These fluctuations are based on the same influence that sways the movements in the prices of all goods and services that are bought and sold, that is, the influence of supply and demand. Just as the price of boots, Consols, medical advice, football professionals, or anything else that can be the subject of a bargain, will depend in the end upon the number of people who want to buy them compared with that of those who want to sell them, at or near a certain figure, so the price of English pounds, when expressed in francs, guilders, milreis, or Australian sovereigns, depends on the number of people abroad who have to buy money in England as compared with the number of those who have money in England to sell. People abroad have to buy money in England when they owe money to Englishmen and want to pay it; and they have money in England to sell when Englishmen owe them money. Jacques Bonhomme in Paris has been selling shiploads of Christmas kickshaws to John Robinson in London, and so has thousands of English pounds due to him by the said Robinson. But English pounds, as such, are not wanted by M. Bonhomme. He wants to sell them, to turn them into francs, the currency of his own country, with which he makes his daily payments at home. On the other hand, there are always plenty of Frenchmen who have imported English goods or have had services rendered by English bankers, or shipowners, or insurance companies, and so want to buy English money wherewith to pay their English creditors. So it follows that the price that M. Bonhomme will get for his English pounds will depend on the value of goods and services that other Frenchmen have been selling to England, so producing English pounds to be sold in Paris, as compared with the value of the claims that have to be met in London, for the satisfaction of which English pounds have to be bought. If the amount of English money on offer is bigger than the amount wanted, down will go the price of the English pound as expressed in francs, and the seller in francs will get less in francs for his pound. If the amount of English money wanted is the bigger, the price will go up, and the seller will get more for his pound. When the price goes down, the exchange is said to move against London, because there is a depreciation in the value of the sovereign as expressed in francs. When it goes up the exchange moves in favour of London, because the buying power of the sovereign is enhanced. The process is exactly the same, and is even more simple and easy to understand when we take away the complication of the exchange of the moneys of two different nations, and look at it at work between two distant towns of the same country. If in the course of trade New York has large payments to make in Chicago, money in Chicago will be wanted in New York, and competition there will send up the price of it, so that a dollar in Chicago will be worth more for the time being to New Yorkers than a dollar in New York, and any New York bank or firm that has a balance or a credit in Chicago will be able to dispose of it at a premium. The extent of this premium, however, will obviously be limited by the expense involved in sending lawful money, as the Americans call it, from New York to Chicago. If we suppose, for the sake of simplicity, that the cost of sending a dollar and insuring it is covered by a cent, no one in New York will pay much more than one dollar and a cent for a dollar in Chicago. Rather than do so he will send his dollar. He will probably pay a small fraction more to save himself the trouble and time involved by sending and insuring money, and this minute fraction that he will sacrifice is the opportunity of the exchange dealer, who will send money to Chicago, and put himself in funds there, and so be able to supply money in Chicago to any one in New York who will pay for it at the rate of one dollar and one cent plus any profit that the exchange dealer can squeeze out of him. Viewed in this simple example the problem of exchange has few terrors. It is merely a question of the price of money in one place, as expressed in the same money in another, with fluctuations governed by supply and demand and limited by the cost of sending money from place to place. This limitation does not mean that supply and demand cease to govern the market, but merely that at a point supply can be increased to meet any demand by the despatch of currency. "FAVOURABLE" AND "UNFAVOURABLE" EXCHANGES [104]The general feeling with regard to the function of the exchanges, as giving evidence of the mercantile (or rather monetary) situation of any country, is indicated by the usual phrase of a "favourable or unfavourable state of the exchanges." A phrase which occurs so frequently in all banking discussions that it cannot be passed over without remark. It may originally have implied the erroneous theory that the object of commerce is to attract gold, and that that country towards which the tide of bullion sets with the greatest force is _ipso facto_ the most prosperous. Political economists, from their point of view, are correct in their statement that, as regards the country at large and the interchange of commodities, exports and imports are always balanced, and that both the words "unfavourable balance of trade" and "unfavourable exchanges" involve fallacy. But merchants and bankers are influenced by the feeling, that at any given moment they may be under greater liabilities for imports than they can temporarily meet, owing to the system of credit which disturbs the coincidence of payments for exports and imports, though their value may actually be equal; and further, by the anxiety as to the possibility of meeting these liabilities in that specific mode of payment to which they are pledged, namely, in gold or convertible notes. When, therefore, in banking treatises, it is said that the exchanges are favourable to any particular country, it should be understood that the intention is simply to state the fact that bills of that country upon foreign cities are difficult of sale, whilst bills drawn upon it from abroad are at a premium, indicating an eventual influx of specie. So, when it is said that the exchanges are unfavorable, a situation is described in which foreign bills are in great demand, and when, consequently, their value seems likely to be so enhanced as to render the export of bullion an unavoidable alternative. THE ORIGIN AND SUPPLY OF FOREIGN EXCHANGE [105]Underlying the whole business of foreign exchange is the way in which obligations between creditors in one country and debtors in another have come to be settled--by having the creditor draw a draft directly upon the debtor or upon some bank designated by him. John Smith in London owes me money. I draw on him for 100 pounds, take the draft around to my bank and sell it at, say, 4.86, getting for it a check for $486.00. I have my money, and I am out of the transaction. The fact that the gold in a new British sovereign (or pound sterling) is worth $4.8665 in our money by no means proves, however, that drafts payable in pounds in London can always be bought or sold for $4.8665 per pound. To reduce the case to a unit basis, suppose that you owed one pound in London, and that, finding it difficult to buy a draft to send in payment, you elected to send actual gold. The amount of gold necessary to settle your debt would cost $4.8665, in addition to which you would have to pay all the expenses of remitting. It would be cheaper, therefore, to pay considerably more than $4.8665 for a one-pound draft, and you would probably bid up until somebody consented to sell you the draft you wanted. Which goes to show that the mint par is not what governs the price at which drafts in pounds sterling can be bought, but that demand and supply are the controlling factors. There are exporters who have been shipping merchandise and selling foreign exchange against the shipments all their lives who have never even heard of a mint par of exchange. All they know is, that when exports are running large and bills in great quantity are being offered, bankers are willing to pay them only low rates--$4.83 or $4.84, perhaps, for the commercial bills they want to sell for dollars. Conversely, when exports are running light and bills drawn against shipments are scarce, bankers may be willing to pay 4.87 or 4.88 for them. For a clear understanding of the mechanics of the exchange market there is necessary a clear understanding of what the various forms of obligations are which bring foreign exchange into existence. Practically all bills originate from one of the following causes: 1. Merchandise has been shipped and the shipper draws his draft on the buyer or on a bank abroad designated by him. 2. Securities have been sold abroad and the seller is drawing on the buyer for the purchase price. 3. Foreign money is being loaned in this market, the operation necessitating the drawing of drafts on the lender. 4. Finance-bills are being drawn, _i. e._, a banker abroad is allowing a banker here to draw on him in pounds sterling at 60 or 90 days' sight in order that the drawer of the drafts may sell them (for dollars) and use the proceeds until the drafts come due and have to be paid. 1. Looking at these sources of supply in the order in which they are given, it is apparent, first, that a vast amount of foreign exchange originates from the direct export of merchandise from this country. Not all merchandise is drawn against; in some cases the buyer abroad chooses rather to secure a dollar draft on some American bank and to send that in payment. But in the vast majority of cases the regular course is followed and the seller here draws on the buyer there. 2. The second source of supply is in the sale abroad of stocks and bonds. Origin of bills from this source is apt to exert an important influence on rates, in that it is often sudden and often concentrated on a comparatively short period of time. The announcement of a single big bond issue, often, where it is an assured fact that a large part of it will be placed abroad, is enough to seriously depress the exchange market. Bankers know that when the shipping abroad of the bonds begins, large amounts of bills drawn against them will be offered and that rates will in all probability be driven down. 3. The third great source of supply is in the draft which bankers in one country draw upon bankers in another in the operation of making international loans. The mechanism of such transactions will be treated in greater detail later on, but without any knowledge of the subject whatever, it is plain that the transfer of banking capital, say from England to the United States, can best be effected by having the American house draw upon the English bank which wants to lend the money. The arranging of these loans means the continuous creation of very large amounts of foreign exchange. 4. Drawing of so-called "finance-bills," is the fourth source whence foreign exchange originates. Whenever money rates become decidedly higher in one of the great markets than in the others, bankers at that point who have the requisite facilities and credit, arrange with bankers in other markets to allow them (the bankers at the point where money is high) to draw 60 or 90 days' sight bills. These bills can then be disposed of in the exchange market, dollars being realized on them, which can then be loaned out during the whole life of the bills. These are the principal sources from which foreign exchange originates--shipments of merchandise, sales abroad of securities, transfer of foreign banking capital to this side, sale of finance-bills. Other causes of less importance--interest and profits on American capital invested in Europe, for instance--are responsible for the existence of some quantity of exchange, but the great bulk of it originates from one of the four sources above set forth. THE SOURCES OF THE DEMAND FOR FOREIGN EXCHANGE[106] Turning now to consideration of the various sources from which spring the demand for foreign exchange, it appears that they can be divided about as follows: 1. The need for exchange with which to pay for imports of merchandise. 2. The need for exchange with which to pay for securities (American or foreign) purchased by us in Europe. 3. The necessity of remitting abroad the interest and dividends on the huge sums of foreign capital invested here, and the money which foreigners domiciled in this country are continually sending home. 4. The necessity of remitting abroad freight and insurance money earned here by foreign companies. 5. Money to cover American tourists' disbursements and expenses of wealthy Americans living abroad. 6. The need of exchange with which to pay off maturing foreign short-loans and finance-bills. 1. Payment for merchandise imported constitutes probably the most important source of demand for foreign exchange. Practically the whole amount of our huge importations has had to be paid for with bills of exchange. Whether the merchandise in question is cutlery manufactured in England or coffee grown in Brazil, the chances are it will be paid for by a bill of exchange drawn on London or some other great European financial centre. 2. The second great source of demand originates out of the necessity of making payment for securities purchased abroad. So far as the American participation in foreign bond issues is concerned, the past few years have seen very great developments. Security operations involving a demand for foreign exchange are, however, by no means confined to American participation in foreign bond issues. Accumulated during the course of the past half century, there is a perfectly immense amount of American securities held all over Europe. The greater part of this investment is in bonds and remains untouched for years at a stretch. But then there come times when, for one reason or another, waves of selling pass over the European holdings of "Americans," and we are required to take back millions of dollars' worth of our stock and bonds. Such selling movements do not really get very far below the surface--they do not, for instance, disturb the great blocks of American bonds in which so large a proportion of many of the big foreign fortunes are invested. The same thing is true with stocks, though in that case the selling movements are more frequent and less important. 3. So great is the foreign investment of capital in this country that the necessity of remitting the interest and dividends alone means another continuous demand for very large amounts of foreign exchange. Estimates of how much European money is invested here are little better than guesses. The only sure thing about it is that the figures run well up into the billions and that several hundred millions of dollars' worth of interest and dividends must be sent across the water each year. At the interest periods at the beginning and middle of each year it becomes apparent how large a proportion of our bonds are held in Europe and how great is the demand for exchange with which to make the remittances of accrued interest. At such times the incoming mails of the international banking houses bulge with great quantities of coupons sent over here for collection. For several weeks on either side of the two important interest periods, the exchange market feels the stimulus of the demand for exchange with which the proceeds of these masses of coupons are to be sent abroad. 4. Freights and insurance are responsible for a fourth important source of demand for foreign exchange. A walk along William Street in New York is all that is necessary to give a good idea of the number and importance of the foreign companies doing business in the United States. In some form or other all the premiums paid have to be sent to the other side. Times come, of course, like the year of the Baltimore fire, when losses by these foreign companies greatly outbalance premiums received, the business they do thus resulting in the actual creation of great amounts of foreign exchange, but in the long run--year in, year out--the remitting abroad of the premiums earned means a steady demand for exchange. With freights it is the same proposition, except that the proportion of American shipping business done by foreign companies is much greater than the proportion of insurance business done by foreign companies. An estimate that the yearly freight bill amounts to $150,000,000 is probably not too high. That means that in the course of every year there is a demand for that amount of exchange with which to remit back what has been earned from us. 5. Tourists' expenditures abroad are responsible for a further heavy demand for exchange. The sums spent by American tourists in foreign lands annually aggregate a very large amount--possibly as much as $175,000,000--all of which has eventually to be covered by remittances of exchange from this side. Then again there must be considered the expenditures of wealthy Americans who either live abroad entirely or else spend a large part of their time on the other side. By these expatriates money is spent extremely freely, their drafts on London and Paris requiring the frequent replenishment, by remittances of exchange from this side, of their bank balances at those points. Furthermore, there must be considered the great amounts of American capital transferred abroad by the marriage of wealthy American women with titled foreigners. Such alliances mean not only the transfer of large amounts of capital _en bloc_, but mean as well, usually, an annual remittance of a very large sum of money. No account of the money drained out of the country in this way is kept, of course, but it is an item which certainly runs up into the tens of millions. 6. Lastly, there is the demand for exchange originating from the paying off of the short-term loans which European bankers so continuously make in the American market. These loaning operations, it must be understood, both originate exchange and create a demand for it. They were mentioned as one of the sources from which exchange originates, and now as one of the sources from which, during the course of every year, springs a demand for a very great quantity of exchange. In a general way, it may be pointed out, the sources of demand for exchange conform with influences which cause exchange to go up, and the sources of supply of exchange constitute causes which make for low rates. It is to be noted, however, that money rates are a great factor influencing foreign exchange. Whenever money is cheap at any given centre, and borrowers are bidding only low rates for its use, lenders seek a more profitable field for the employment of their capital. Money rates in the New York market are not often less attractive than those in London, so that American floating capital is not generally employed in the English market, but it does occasionally come about that rates become abnormally low here and that bankers send away their balances to be loaned out at other points. Such a time was the long period of stagnant money conditions following the 1907 panic. Trust companies and banks who were paying interest on large deposits at that time sent very large amounts of money to the other side and kept big balances running with their correspondents at such points as Amsterdam, Copenhagen, St. Petersburg, etc.--anywhere, in fact, where some little demand for money actually existed. Demand for exchange with which to send this money abroad was a big factor in keeping exchange rates at their high level during all that long period. High money rates at some given foreign point as a factor in elevating exchange rates on that point might almost be considered as a corollary of low money here, but special considerations often govern such a condition and make it worth while to note its effect. Suppose, for instance, that at a time when money market conditions all over the world are about normal, rates, for any given reason, begin to rise at some point, say London. Instantly a flow of capital begins in that direction. In New York, Paris, Berlin, and other centres it is realized that London is bidding better rates for money than are obtainable locally, and bankers forthwith make preparations to increase the sterling balances they are employing in London. Exchange on that particular point being in such demand, rates begin to rise, and continue to rise, according to the urgency of the demand. The international money markets are a most decidedly complex proposition, and there is literally never a time when several influences tending to put exchange rates up are not conflicting with several influences tending to put rates down. The actual movement of the rate represents the relative strength of the two sets of influences. To be able to "size up" the influences present and to gauge what movement of rates they will result in, is an operation requiring, first, knowledge, then judgment. The former qualification can perhaps be derived, in small degree, from study of the foregoing pages. The latter is a matter of mental calibre and experience. METHODS OF FINANCING IMPORTS AND EXPORTS[107] The foreign trade of the United States has increased during the last forty years about 370 per cent.... This increase ... reflected not alone our own marvellous development, but as well the wonderful growth of trade throughout the world. The United States stands third among the countries of the world, its foreign trade being exceeded only by that of the United Kingdom ... and Germany.... Our imports and exports[108] are being financed more and more by means of what are known as commercial letters of credit.... An explanation of the operation of the commercial letter of credit will ... disclose the methods and conditions under which our imports are financed. The commercial letter of credit is an authorization, say of an American bank to its London correspondent, to honor drafts for its account drawn at various tenors by foreign shippers or others against shipments of merchandise to this country. These credits are of two kinds, documentary and clean. Under the documentary credit the London bank is authorized to accept drafts for the account of the American bank only when the bill of exchange is accompanied by certain documents described in the letter of credit. These documents may be the bills of lading for the goods, consular invoices, insurance certificates and possibly other papers. Probably a large proportion of such credits requires that drafts be drawn at sixty or ninety days' sight. So many elements of danger are involved in financing commodities under commercial letters of credit, even where the control of the goods is given to the bank issuing the credit or its agents, that the financial standing of those asking for credits must be the first consideration in their issuance. Dishonesty on the part of the shipper, resulting in a drawing under the credit against forged documents or against shipments of inferior merchandise, is always possible, and the financial responsibility of the buyer of the credit is all that stands between the banker issuing the credit and a loss in such cases. In order to obtain a clear understanding of the working of a commercial letter of credit, we will take a concrete example and follow its every transaction. An importer of coffee (A) in New York purchases a certain number of bags of coffee from an exporter (B) in Brazil. A agrees to furnish B with a commercial letter of credit. B is not in position, we will say, to await the arrival of the coffee in New York and the return of a remittance before receiving his pay. A on the other hand is unable to remit B for the coffee before its receipt and sale to his customers. A goes to his banker in New York and requests him to authorize B to draw upon the New York banker's London correspondent at ninety days' sight with bills of lading for coffee to the amount of the purchase attached to the draft, consular invoice and insurance certificate, if B is to furnish insurance. If A's banker is willing to extend the credit he writes a letter (or uses a printed form), requesting his London banker to accept B's drafts upon presentation under the conditions already mentioned and others of minor importance. This letter is issued in duplicate, one copy going to the London banker, the other being delivered to A. A then mails the copy received by him to B. B thereupon arranges to ship the coffee, obtains the bill of lading, invoice, etc., and takes them with the copy of the credit to his banker in Brazil. A draft is then drawn on the London bank under the terms of the credit at ninety days' sight and is discounted by the Brazilian banker, the proceeds being placed to the credit of B's account or given to him in the form of a check or cash. The Brazilian banker then forwards the draft and documents, except such documents as the instructions may require to be forwarded direct to New York, to his London banker. He may secure discount of the bill at once by cable or await its arrival in London before doing so, or he may request his London banker to have the bill accepted and hold it for maturity. If the bill is discounted the Brazilian banker may draw against it immediately and thus put himself in funds to purchase other coffee bills. Upon receipt of the bill by the London correspondent it is presented to the London banker on whom it is drawn for acceptance. The acceptor bank examines the documents and if they are drawn according to the terms of the credit accepts the draft and returns it to the correspondent of the Brazilian bank, retaining the documents, which it then forwards to the New York bank which opened the credit. In accepting the draft the London bank has in effect agreed to pay it at the end of ninety days, or, figuring grace, ninety-three days. Upon maturity payment is made and the amount is charged to the account of the issuing New York bank. Upon receipt of the documents the New York bank delivers them to its customer under a trust receipt or against collateral, and the latter is then in position to obtain the goods. Ten days before the bill of exchange is due in London the New York bank collects the amount from A, together with the commission agreed upon when the credit was opened, and remits the amount to its London banker to meet the draft. On all such transactions the London banker, while not himself advancing any money, is extending a credit for which he charges the New York bank a commission. The result is that we are paying tribute to European bankers amounting to an immense sum annually for the purpose of financing our imports. The fact that London exchange is more marketable generally throughout the world than New York exchange is one of the principal reasons why it is necessary for us to issue credits upon London instead of upon New York. Our imports are distributed generally throughout the United States. The importers, however, are mostly situated at the ports of entry. A very large proportion of them obtain their credits through New York institutions, although some of them deal direct with foreign bankers. Probably a smaller proportion of our exports is financed by means of commercial letters of credit than of our imports. Different commodities are handled in accordance with special customs which have grown up around them, due partly to trade conditions and partly to the nature of the products. Sellers of grain usually draw at sixty days' sight upon the foreign buyer instead of under a bank credit. These bills, under the customs prevailing in most foreign countries, may be rebated by the foreign buyer whenever he desires to obtain the goods at the "bank rate" or 1 per cent. under the bank rate, or such other rate as custom in the country on which the drafts are drawn requires. Such drafts, with bills of lading and such other documents as are necessary, are purchased by American banks and are forwarded by them to their European correspondents. The American banker is obliged to advance the money on such paper, unless he draws his own time bills against them, until such time as they are rebated. In the case of grain bills the average time rebated is probably around fifty-six days, which places the American bank in possession of demand foreign exchange, against which it can draw in order to reimburse itself with the loss of a very few days' interest. Flour bills, which are financed in the same manner as grain bills, usually run nearly to maturity before they are rebated, although the condition of the discount market sometimes influences the purchaser, and causes him to take the bills up more promptly. Many foreign shipments are made under three-day sight bills, which uses the money of the American banks making the advance from four to seven days or more, depending upon whether the laws of the country on which the bills are drawn allow grace or not and whether the bills are purchased with intervening days before the sailing of steamers. Other classes of bills are drawn at sight. This includes a portion of our lumber shipments and miscellaneous articles. Where shipments are made on sailing vessels, drafts are frequently drawn at four or six months' sight, and many other transactions go through against cable payments. As nearly 40 per cent. of our exports consist of cotton, the method under which it is financed is worthy of special consideration. Cotton bills are ordinarily of two kinds: documentary payment bills and bills drawn upon bankers. Documentary payment bills, which are drawn upon cotton merchants or spinners at sixty or ninety days' sight or other tenors, are handled in the same manner as flour bills. The cotton merchant accepts the draft upon presentation and rebates it when the goods arrive, or when he desires to obtain the cotton. A small percentage of cotton is handled in this way. Most of the commodity is financed by means of credits opened by the foreign buyer through his banker. Various abuses have developed under this system, which have caused losses running into millions of dollars to all of the various parties engaged in carrying the transactions to their close. These losses have only been possible because of the turning over of credits by the foreign buyers to irresponsible concerns in America in their endeavor to obtain cotton at lower prices than their competitors. A foreign buyer makes arrangements with certain American concerns to cable him offers of cotton. The American firms whose offers are accepted receive cablegrams from the buyer advising them of the acceptance of their offers and giving them the names of the foreign bankers on whom the drafts in payment of the cotton are to be drawn. The American sellers thereupon ship the cotton to the buyer under bills of lading drawn to the shipper's order and endorsed in blank. The bills of lading are then attached to drafts drawn upon the bankers designated by the buyer at the given tenor, which is usually sixty or ninety days. This exchange is then sold in the market to the highest bidder or it is forwarded to New York to be sold in the same manner upon arrival. The American exchange buyers have no means whatever of designating whose bills shall be upon the market, as the sellers are all agents of the European buyers. The American exchange houses in their need for exchange to meet the demands of their importers have accepted the bills offered in the market, each exchange man endeavoring to keep his "water line" on weak names as low as possible. If the European buyers only dealt with first-class houses only first-class bills would be offered, but when they deal with second- or third-rate houses, or houses with no standing whatever, such bills drawn upon prime European banks come upon the market. The American exchange buyers having the cotton as collateral while the drafts are on the water, and then having the acceptance of a prime European bank for the sixty or ninety days following before maturity of the draft, have accepted these risks, although unwillingly, for want of better bills. They endeavor to protect themselves as far as possible by trying to buy bills only of those in whose honesty they have reason to believe, whether they have any capital back of them or not. If the cotton were actually shipped under a bona fide order, any fluctuation in the value of the cotton which they accepted as collateral, although taken entirely without margin, would probably cause them neither loss nor friction. They have run the risk, however, of having forged documents forced upon them which did not represent goods, or exchange that was drawn without authority. Lines which exchange buyers are willing to take from each cotton shipper before acceptance, and before the name of a prime European banker is added to the paper, have to be based upon this consideration. The old form of the cotton bill of lading which has been signed by freight agents or their assistants or others has been an instrument not possible to authenticate. This was particularly dangerous, due to the manner in which bills of lading were issued. They were formerly given out to the shippers, who filled them in and returned them to the railroad agent, who in turn often signed them without having any knowledge as to whether the goods called for by the bill of lading were in his possession or not. Under a new system bills of lading are not to be given up until the goods are actually in possession of the railroads. This system, which calls for validation certificates, numbered and printed upon a specially protected water-mark paper, to be attached to the bills of lading in such manner as to make it practically impossible to remove them without detection, went into effect September 1, 1910, and it is confidently hoped that it will give sufficient added safety to the bills of lading of American railroads to satisfy the foreign bankers. The very act of guaranteeing such bills is recognized by foreign bankers as being wrong in principle, and while they are requesting that American exchange buyers guarantee bills of lading for exports yet on the other hand they particularly call attention to the fact that no bills of lading which pass through their hands for imports to the United States are guaranteed by them in any way, shape, or manner. CREDIT RISKS OF DRAFTS DRAWN ON BUYERS ABROAD [109]Many American manufacturers do not realize the essential "credit" element of transactions on the basis of drafts drawn on _foreign customers_.... The exporter has received an order; he purchases the goods covered by this order from the manufacturer, and should the customer change his mind the exporter may suffer a loss. Or the customer refuses to accept the goods, and the exporter may again suffer a loss. Or the customer may accept the goods and the draft, but fail to pay, and the exporter once more is the loser.... ... The turning over of the bill of lading vests the property right to the goods in the customer. The customer either pays the value of the draft in cash ("documents against payment," abbreviated d/p) or accepts the draft for payment at some future date, which is the more customary course ("documents against acceptance," d/a). Even in the case of d/p drafts, payment by the customer may be postponed; instead of paying cash he accepts the draft at one to three months, but neither the documents nor the goods are turned over to him. He may want to wait until he has sold the goods, on the basis of samples, perhaps, and the goods are warehoused until he can pay the amount of the draft into the bank or to the forwarding agency. This is frequently done in the Far East. Here the banks maintain so-called "godowns" for this purpose. The goods are occasionally turned over to the customer for warehousing purposes against the so-called "trust receipt." One important feature of "acceptance" of the draft by the customer is the fact that it forms an acknowledgment of indebtedness, which it is then unnecessary to prove item by item in case of litigation. In most countries acceptances are far simpler to collect judicially than open accounts. When an accepted draft is unpaid it is "protested," and the debtors may be proceeded against without further trouble. Frequently open accounts may be neglected by a customer who may find himself for some reason short of immediately available funds, but to neglect the payment of an accepted draft is regarded in the trade and by banks as so serious a matter that the drawee would lose caste with the banks; oversea buyers endeavor in most cases to honor accepted drafts.... ENGLAND DRAWS FEW BILLS, BUT ACCEPTS MANY--THE REASON AND THE RESULT [110]It has been shown that, if two countries buy of each other to the same amount, their transactions need not give rise to two separate sets of bills, but that on the contrary, if the foreigner draws on us to the full value of his exports, the bills so created will be sent as remittances to the exporter on this side and will pay him for his sales. Conversely, if the British exporter draws, there is no necessity for the other side to do so. What, then, are the facts? Does the United Kingdom, generally speaking, draw on abroad, or does the foreigner take the initiative by drawing on London? As a matter of fact, both sides draw; but, as all who are acquainted with the customs of trade are well aware, the bills drawn by Great Britain on abroad are vastly outnumbered by those drawn from abroad on London. Owing chiefly to the magnitude of our trade, but also to several contributory causes--such as the stability of our currency; the certainty that a bill on London means gold and nothing but gold; the facility with which those who deserve credit can obtain it here; our freedom from invasion, etc.--London has become to a great extent the settling-place of Europe and the world, and the seller, wherever he may be, of a good bill on London can always be sure of finding a buyer and of realizing a fair price. As the sale of a bill, moreover, carries the valuable advantage of ready money and a speedy turnover of capital, it is invariably preferred by the foreign exporter, who has consigned or sold produce to us, to the alternative plan of awaiting remittances from this side. The foreign importer, too, who has to pay for the goods he has bought, would rather do so by remitting to London than by allowing us to draw upon him. In the former case, the rate he has to pay depends upon his own success in higgling; in the latter, it is fixed by a London bill-broker, who has not the same interest in the matter. If the same considerations held good on this side also, our merchants and manufacturers might perhaps object to letting the foreigner have it all his own way; but, on the contrary, it appears to suit both buyers and sellers very well--the former, because in the majority of cases they would scarcely know how or where to buy suitable bills, and the latter, because the drawing and negotiation of a foreign bill requires a certain amount of knowledge of the exchanges, which they do not always possess, and entails a certain amount of trouble, which they would gladly be spared. There is also more risk of loss in drawing. In the latter case they have only their correspondent to look to, while on a London remittance they have the additional security of the other parties to the bill. Practically speaking, therefore, the settlement of our foreign trade is effected by means of bills of exchange which are drawn and negotiated abroad, and are accepted and paid in London. To the student of the exchanges this fact is of considerable importance, for, as the rate of exchange between two countries--the price at which bills on the one are sold in the other--must be _fixed by the one that draws and negotiates the bill_, it follows that the exchanges between England and most other countries are controlled from the other side, and that we in London have scarcely part or say in the matter. The rate of exchange, for example, between England and the United States is fixed in New York; between England and Brazil, in Rio; between England and Turkey, in Constantinople; and so on. There may be exceptions, of which the Indian exchange is the most notable, but that is the general rule, and it is one that should be carefully borne in mind. The same fact also supplies a reason for the solicitude with which the foreign trader watches the fluctuations of the exchange, and for the utter indifference with which they are regarded by the British trader. To the former, who intends maybe to draw a few hundred pounds on London in a day or two against the shipment he is preparing, the difference between selling his draft next week instead of this may mean, if the rate should move in his favor, the gain of an additional half per cent.; but to our home manufacturers, who sell their wares in sterling and stipulate for payment in bills on London, the see-saw of rates is but of academic interest. They pay attention to the _course of discount_, because they may have to melt some of their paper before pay-day comes round; but the course of the exchange--the question of the rate rising or falling--hardly concerns them at all. It is not sought to detract from the influence of the English-drawn foreign bill, or, as might be imagined, to explain it away altogether. On the contrary, paper to a considerable amount is, and will continue to be, negotiated on the Royal Exchange (though the total, if compared with that of the paper on London negotiated abroad, would appear quite insignificant).[111] The object in view is merely to bring into prominence, and to impress on the reader, the essential principle that, while the position of every rate of exchange is the outcome of the market conditions _in the two countries combined_, the predominant mass of the dealings take place on the other side, so that, as a consequence, the real significance of the fluctuations can only be grasped by viewing them from the foreign [_e. g._, American] standpoint. THE RECENT RISE OF THE AMERICAN ACCEPTANCE MARKET [112]Probably the most important effect at this time [1915] of the Federal Reserve Act is the establishment of the American acceptance market. It may well be said that heretofore America has had no real money market. The only semblance of a money market previously existing in this country was the call loan market of New York City. That, however, did not truly reflect money conditions in this country, as it has more often reflected the secondary effect of some movement of the stock market. The development of a real money market in this country was greatly hampered by the lack of a standardized credit instrument. In every other country the bank acceptance in which the element of credit risk has been practically eliminated is the standard instrument of credit, and the discount rate of such paper marks the level of the money market. Bank acceptances were not known in this country prior to the operation of the Federal Reserve Act. For the benefit of those who may not be familiar with bank acceptances, I will briefly describe an operation giving rise to such acceptances. Jones, an importer of coffee in New York, desires to purchase a cargo of coffee in Rio de Janeiro. He goes to his bank in New York and arranges with them to finance the deal. Smith, the grower of the coffee in Brazil, makes the shipment to New York and draws a ninety days' sight draft on the New York bank for the amount of his invoice. This draft he then sells to some Brazilian bank.... The Brazilian bank then sends the draft to New York. It is there presented to the New York bank for acceptance. The New York bank accepts the draft by writing the word "accepted" across the face of the draft and affixing its official signature thereto. The draft now becomes the primary obligation of the New York bank. Of course, Jones, for whose account the New York bank accepted the draft, has obligated himself to provide the New York bank with funds to meet the draft, but if he should fail to do so the New York bank must pay the acceptance nevertheless. It is, therefore, the direct obligation of the New York bank, and as such it commands the best discount rates current. This briefly is what is known as a bank acceptance, _i. e._, a draft drawn on and accepted by a prime bank or banker. Although this business is still in its infancy, it has reached important proportions and there is an active market for them in New York City. A number of brokers have taken up the business of buying and selling acceptances. Every morning they make the rounds of the various banks with the list of the acceptances they have for sale and the rates at which they are willing to sell them. Incidentally, they also learn whether the banks have any acceptances for sale and at what rates. As the credit risk is practically eliminated, acceptances are a very attractive form of secondary reserve; they are, as a London banker once expressed it, a means of enabling the banker to eat his cake and have it too--the banker by investing his money in acceptances earns the discount and at the same time he knows that his money is instantly available in case of need, so that they are almost as available as cash. This explains why the discount rate on acceptances ranges so low. Ninety days' sight acceptances sold in New York City at one time as low as 2 per cent. per annum and to-day prime acceptances command the excellent rate of 2-3/8 per cent. THE ECONOMIES AND ADVANTAGES OF "DOLLAR CREDITS"[113] Many radical changes in the mechanism of international finance have occurred during the past fifteen months, since the beginning of the European war. Not the least important among these changes, viewed from the standpoint of the American importer, is the evolution in the methods of financing our importations. Our imports in the way of commodities such as hides, coffee, rubber, wool, etc., etc., run into hundreds of millions of dollars annually, and these are financed generally through the medium of commercial credits established by the purchaser in favor of the vendor of the merchandise. Commercial credits, so called, are in effect a bank guarantee to the seller that his drafts covering certain merchandise, when drawn in accordance with the conditions prescribed in the credit, will meet with due honor on presentation to the accepting bank named in the credit instrument. In order merely to gain an idea as to the importance and volume of such transactions, it is only necessary to glance at the totals of a few of our principal imports. In the year 1914 we imported, among other commodities, the following: Hides and skins $120,289,781.00 Coffee 110,725,392.00 Rubber 131,995,742.00 Wool (unmanufactured) 53,190,767.00 Prior to the outbreak of the war in Europe, it is safe to assume that fully 95 per cent. of the credits issued to cover these importations were passed through London in the form of sterling credits; that is to say, credits available by drafts drawn in pounds sterling on London. Requests for the issuance of credits available by drafts drawn in United States dollars on New York were extremely rare, and they were issued only in exceptional cases. Conditions have changed materially in this respect. The Federal Reserve Act grants to national banks the privilege of accepting drafts or bills of exchange growing out of transactions involving the importation or exportation of goods. This acceptance privilege was accorded to national banks only a short time before the commencement of hostilities abroad, and this fact in conjunction with the resulting dislocation in the delicate machinery of international credit brought about by the war, together with the coincidental establishment of American branch banks in South America, has contributed in a large measure to bring about the use of what is known now as "Dollar Credits." As a factor in creating the existing demand for Dollar Credits, the establishment of American branch banks abroad cannot be emphasized too strongly. Through these branch banks, a new and adequate medium for the liquidation of transactions as between the United States and certain South American countries, especially the Argentine, Brazil, and Uruguay, has been placed at the disposal of our merchants. A direct channel is now open to the ebb and flow of credit transfer between the United States and the countries mentioned, and, as a natural sequence, the former disparity existing against the dollar, as compared with pounds sterling and the principal continental exchanges, has disappeared. The resulting equalization in the rates of exchange benefits the American merchant to the extent of relieving him of the tribute formerly paid to the indirect channels of liquidation, or, in other words, to the foreign banker. The Dollar Credit is of capital importance to every American merchant who is interested either directly or indirectly in the importation of commodities of any character. A study of the advantages accruing from this form of credit will demonstrate the desirability of its general employment as the vehicle for financing not only our own imports but also those of other countries. Primarily, it is more economical than the Sterling or Continental Credit, for the initial commission cost of issuance is lower. Secondly, it is based on a known quantity, the dollar, a factor of supreme importance in these days of extreme and violent fluctuations in the exchange rates, and therefore all exchange risk is eliminated from the operation as far as the importer is concerned. Maturities drawn under Dollar Credits are due and payable in dollars on a given date, and no question arises as to what the exchange rate on London may be ninety days after acceptance of the bill. Under existing conditions in the New York money market, and considering the present low rates of interest actually in effect, the use of Dollar Credits is proving to be particularly attractive to the American importer as the medium for financing his importations. The rate of discount in New York for prime bank acceptances is 2-1/8@2-1/4 per cent. per annum, and a broad, well-developed discount market now exists, with an ever-increasing demand in evidence for this class of paper. On the other hand, the rate of discount in London for prime ninety-day bills is 4-3/4 per cent. per annum, with operations restricted in a far from normal market. A comparison of these two discount rates will show a difference in favor of New York of 2-1/2@2-5/8 per cent. per annum. In addition to this difference in interest, there is also a difference in the initial cost in the form of commission for issuance, as between credits available by ninety-day drafts drawn on New York in dollars and those available by ninety-day drafts drawn on London in pounds sterling. This difference in commission in favor of New York will average 1/2 per cent. per annum, and when added to the saving in discount or interest already noted, will show a net saving on the Dollar Credit of 3@3-1/8 per cent. per annum, which accrues to the importer through the use of Dollar Credits in his operations. Quite apart from the direct economy to the individual resulting from the use of Dollar Credits, is the broader question of the economic value accruing to the nation as a whole through the designation of the dollar as the basis of value in our credit transactions with the rest of the world. Since 1903, when the total of our imports amounted to $1,025,719,237, the volume of our imports has increased rapidly, and in 1914, the total imports reached the enormous sum of $1,893,925,657. These figures cover products from all parts of the world shipped direct to our own shores, and while no nation enjoys higher international credit than the United States, yet it is a fact that in order to finance the movement of our imports we have been compelled to have recourse to indirect channels and call on foreign money centers to furnish us with the necessary credit facilities to take care of a large part of our importations. Naturally, we have been obliged to pay for this accommodation, and the service has cost us millions of dollars annually in interest, commissions, etc. These charges can be saved and an important economy effected, thus benefiting our commerce as a whole by the general designation of dollars in our foreign credit transactions. The purchasing power of the dollar in foreign markets is much greater to-day than it is in normal times because of the varying premium which the dollar commands at present practically throughout the world. The time is unquestionably opportune to increase the prestige of the dollar and to standardize its use in the liquidation of our direct purchases abroad. Co-operation and concerted action on the part of our merchants to the end of generalizing the use of Dollar Credits is therefore a duty, which will bring about lasting benefit to the economic fabric of our commerce. THE NEW YORK FOREIGN EXCHANGE MARKET[114] A market may be defined as the coming together of buyers and sellers. It therefore involves all the mechanism necessary to facilitate their intercourse. One may speak of a general market or of a local market, of a market in one or in another place. Thus, there is the New York market for the buying and selling of exchange on London. A bank in New Haven, Connecticut, may be a part of that market if it buys from and sells to it. That market includes, besides the commercial and industrial organizations which buy or sell drafts, all middlemen of whatever class who engage in the trade. The middlemen may be divided roughly into three classes. First may be mentioned banks which do a regular foreign exchange business, buying bills from those who have them to sell and selling their own drafts on foreign correspondents to persons desiring to remit. Much of this business is done by foreign exchange banks which carry on little or no other business. Some of it is done by ordinary commercial banks, such as United States National Banks, in addition to their other banking business. Second, we may call attention to those exchange dealers whose principal business is to buy commercial and bankers' bills, and to resell them, chiefly to banks. Third are the independent brokers who make small commissions by bringing buyers and sellers together. These do not invest their own capital, do not, that is, buy bills of exchange in the market, but assist those desiring to sell bills to find buyers, and _vice versa_.... NEW YORK CITY PRACTICALLY ABSORBS BY PURCHASE ALL AMERICAN FOREIGN EXCHANGE [115]There is, perhaps, no feature pertaining to banking throughout the country so dependent upon New York financiers, as foreign exchange. The very foundation of this branch of banking is constructed by the New York bankers, and from their banking houses emanate the basic prices and quotations upon which foreign bills are bought and sold throughout the United States. It is the custom of New York foreign exchange brokers to furnish their Western clients, direct, or through their local representatives, daily market quotations, and to promptly advise them of fluctuations throughout the day. So closely is the West allied to the East, in this respect, that any interruption caused by delayed or suspended telegraphic service, immediately superinduces a practical standstill of exchange transactions, and operations thereafter must necessarily be made in the "dark" until free communication is again renewed between the cities.... The absorptive power of the New York market, to digest not only the surplus foreign exchange of the Chicago market, but that of the entire United States as well, has been demonstrated for many years. The reason for this can be attributed to the fact that international trade balances are at the present day, and always will be, adjusted by the financiers of New York City. HOW MONEY IS MADE IN FOREIGN EXCHANGE--THE OPERATIONS OF THE FOREIGN DEPARTMENT [116]Complete description of the various forms of activity of the foreign exchange department of an important firm would fill a large volume, but there are certain stock operations in foreign exchange which are the basis of most of the transactions carried out and the understanding of which ought to go a long way toward making clear what the nature of the foreign exchange department's business really is. I. SELLING "DEMAND" AGAINST "DEMAND" The first and most elementary form of activity is, of course, the buying of demand bills at a certain price and the selling of the banker's own demand drafts against them at a higher price. A banker finds, for instance, that he can buy John Smith & Co.'s sight draft for £1,000, on London, at the rate of 4.86, and that he can sell his own draft for £1,000 on his London banking correspondent at 4.87. All he has to do, therefore, is to buy John Smith's draft for $4,860, send it to London for credit of his account there, and then draw his own draft for £1,000 on the newly created balance, selling it for $4,870. It cost him $4,860 to buy the commercial draft, and he has sold his own draft against it for $4,870. His gross profit on the transaction, therefore, is $10. As may be imagined, not very much money is made in transactions exactly of this kind--the one cited is taken only because it illustrates the principle. For whether the banker sends over in every mail a bewildering assortment of every conceivable form of foreign exchange to be credited to his account abroad, or whether he confines himself to remittances of the simplest kind of bills, the idea remains exactly the same--he is depositing money to the credit of his account in order that he may have a balance on which he can draw. That is, indeed, the sum and substance of the exchange business of the foreign department of most banking houses--the maintaining of deposit accounts in banks at foreign centres on which deposit account the bank here is in a position to draw according to the wants and needs of its customers. II. SELLING CABLES AGAINST DEMAND EXCHANGE A "cable," so-called, differs from a sight draft only in that the banker abroad who is to pay out the money is advised to do so by means of a telegraphic message instead of by a bit of paper instructing him to "pay to the order of so and so." Under ordinary circumstances foreign exchange dealers who engage in the business of selling cables carry adequate balances on the other side, balances which they keep replenishing by continuous remittances of demand exchange. III. SELLING "DEMAND" BILLS AGAINST REMITTANCES OF LONG BILLS If there is a stock operation in the conduct of a foreign exchange business it is the selling by bankers of their demand bills of exchange against remittances of commercial and bankers' long paper. Bills of the latter class make up the bulk of foreign exchange traded in, and its disposal naturally is the most important phase of foreign exchange business. What the foreign exchange business really is grounded on is the existence of commercial bills called into existence by exports of merchandise. Buying and remitting commercial long bills is no pastime for an inexperienced man. Entirely aside from the question of rate, and profit on the exchange end of the transaction, there must be taken into consideration the matter of the credit of the drawer and the drawee, the salability of the merchandise specified in the bill of lading, and a number of other important points. Where documents accompany the draft and the merchandise is formally hypothecated to the buyer of the draft, it might not be thought that the standing of the drawer would be of such great importance. Possession of the merchandise, it is true, gives the banker a certain form of security in case acceptance of the bill is refused by the parties on whom it is drawn or in case they refuse to pay it when it comes due, but the disposal of such collateral is a burdensome and often expensive operation. The banker in New York who buys a sixty-day draft drawn against a shipment of butter is presumably not an expert on the butter market and if he should be forced to sell the butter, might not be able to do so to the fullest possible advantage. Employment of an expert agent is an expensive operation, and, moreover, there is always the danger of legal complication arising out of the banker's having sold the collateral. It is desirable in every way that if there is to be any trouble about the acceptance or payment of a draft, the banker should keep himself out of it. The successive steps in an actual transaction are as follows: The banker in New York having ascertained by cable the rate at which bills "to arrive" in London by a certain steamer will be discounted, buys the bills here and sends them over, with instructions that they be immediately discounted and the proceeds placed to his credit. On this resulting balance he will at once draw his demand draft and sell it in the open market. If, from selling this demand draft, he can realize more dollars than it cost him in dollars to put the balance over there, he has made a gross profit of the difference. To illustrate more specifically: A banker has bought, say, a £1,000 ninety days' sight prime draft, on London, documents deliverable on acceptance. This he has remitted to his foreign correspondent, and his foreign correspondent has had it stamped with the required "bill-stamp," has had it discounted, and after having taken his commission out of the proceeds, has had them placed to the credit of the American bank. In all this process the bill has lost weight. It arrived in London as £1,000, but after commissions, bill-stamps, and ninety-three days' discount have been taken out of it, the amount is reduced well below £1,000. The net proceeds going to make up the balance on which the American banker can draw his draft are, perhaps, not over £990. He paid so-and-so many dollars for the £1,000 ninety-day bill, originally. If he can realize that many dollars by selling a demand draft for £990 he is even on the transaction. IV. THE OPERATION OF MAKING FOREIGN LOANS In its influence upon the other markets, there is perhaps no more important phase of foreign exchange than the making of foreign loans in the American market. The mechanics of these foreign loaning operations, the way in which the money is transferred to this side, etc., will now be taken up. To begin at the very beginning, consider how favorable a field is the American market for the employment of Europe's spare banking capital. Almost invariably loaning rates in New York are higher than they are in London or Paris. This is due, perhaps, to the fact that industry here runs on at a much faster pace than in England or France, or it may be due to the fact that we are a newer country, that there is no such accumulated fund of capital here as there is abroad. Such a hypothesis for our own higher interest rates would seem to be supported by the fact that in Germany, too, interest is consistently on a higher level than in London or Paris, Germany, like ourselves, being a vigorous industrial nation without any very great accumulated fund of capital saved by the people. But whatever the reason, the fact remains that in New York money rates are generally on so much more attractive a basis than they are abroad that there is practically never a time when there are not hundreds of millions of dollars of English and French money loaned out in this market. All through the past ten years London has at various times opened her reservoirs of capital and literally poured money into the American market. To take up the actual operation of loaning foreign money in the American market, suppose conditions to be such that an English bank's managers have made up their minds to loan out £100,000 in New York--not on joint account with the American correspondent, as is often done, but entirely independently. Included in the arrangements for the transaction will be a stipulation as to whether the foreign bank loaning the money wants to loan it on the basis of receiving a commission and letting the borrower take the risk of how demand exchange may fluctuate during the life of the loan, or whether the lender prefers to lend at a fixed rate of interest, say 6 per cent., and himself accept the risk of exchange. What the foregoing means will perhaps become more clear if it is realized that in the first case the American agent of the foreign lender draws a ninety days' sight sterling bill for, say, £100,000 on the lender, and hands the actual bill over to the parties here who want the money. Upon the latter falls the task of selling the bill, and, ninety days later, when the time of repayment comes, the duty of returning a _demand_ bill for £100,000, plus the stipulated commission. In the second kind of a loan the borrower has nothing to do with the exchange part of the transaction, the American banking agent of the foreign lender turning over to the borrower not a sterling draft but the dollar proceeds of a sterling draft. How the exchange market fluctuates in the meantime--what rate may have to be paid at the end of ninety days for the necessary demand draft--concerns the borrower not at all. He received dollars in the first place, and when the loan comes due he pays back dollars, plus 4, 5, or 6 per cent., as the case may be. What rate has to be paid for the demand exchange affects the banker only, not the borrower. Loans made under the first conditions are known as sterling, mark, or franc loans; the other kind are usually called "currency loans." At the risk of repetition, it is to be said that in the case of sterling loans the borrower pays a flat commission and takes the risk of what rate he may have to pay for demand exchange when the loan comes due. In the case of a currency loan the borrower knows nothing about the foreign exchange transaction. He receives dollars, and pays them back with a fixed rate of interest, leaving the whole question and risk of exchange to the lending banker. To illustrate the mechanism of one of these sterling loans. Suppose the London Bank, Ltd., to have arranged with the New York Bank to have the latter loan out £100,000 in the New York market. The New York Bank draws £100,000 of ninety days' sight bills, and, satisfactory collateral having been deposited, turns them over to the brokerage house of Smith & Jones, the borrowers. Smith & Jones at once sell the £100,000, receiving therefor, say, $484,000. The bills sold by Smith & Jones find their way to London by the first steamer, are accepted and discounted. Ninety days later they will come due and have to be paid, and ten days prior to their maturity the New York Bank will be expecting Smith & Jones to send in a _demand_ draft for £100,000, plus 3/8 per cent. commission, making £375 additional. This £100,375 less its commission for having handled the loan, the New York Bank will send to London, where it will arrive a couple of days before the £100,000 of ninety days' sight bills originally drawn on the London Bank, Ltd., mature. What each of the bankers concerned makes out of the transaction is plain enough. As to what Smith & Jones' ninety-day loan cost them, in addition to the flat 3/8 per cent. they had to pay, that depends upon what they realize from the sale of the ninety days' sight bills in the first place and secondly on what rate they had to pay for the demand bill for £100,000. Exchange may have gone up during the life of the loan, making the loan expensive, or it may have gone down, making the cost very little. Plainly stated, unless they secured themselves by buying a "future" for the delivery of a £100,000 demand bill in ninety days at a fixed rate, Messrs. Smith & Jones have been making a mild speculation in foreign exchange. If the same loan had been made on the other basis, the New York Bank would have turned over to Smith & Jones not a _sterling bill_ for £100,000, but the _dollar proceeds_ of such a bill, say a check for $484,000. At the end of ninety days Smith & Jones would have had to pay back $484,000, plus ninety days' interest at 6 per cent., $7,260, all of which cash, less commission, the New York Bank would have invested in a demand bill of exchange and sent over to the London Bank, Ltd. Whatever more than the £100,000 needed to pay off the maturing nineties such a demand draft amounted to, would be the London Bank, Ltd.'s profit. From all of which it is plainly to be seen that when the London bankers are willing to lend money here and figure that the exchange market is on the down track, they will insist upon doing their lending on the "currency loan" basis--taking the risk of exchange themselves. Conversely, when loaning operations seem profitable but rates seem to be on the upturn, lenders will do their best to put their money out in the form of "sterling loans." Bankers are not always right in their views, by any means, but as a general principle it can be said that when big amounts of foreign money offered in this market are all offered on the "sterling loan" basis, a rising exchange market is to be expected. From what has been said about the mechanism of making these foreign loans, it is evident that no transfer of cash actually takes place, and that what really happens is that the foreign banking institution lends out its credit instead of its cash. For in no case is the lender required to put up any money. The foreign lender is at no stage out of any actual capital, although it is true, of course, that he has obligated himself to pay the drafts on maturity, by "accepting" them. Where, then, is the limit of what the foreign bankers can lend in the New York market? On one consideration only does that depend--the amount of accepted long bills which the London discount market will stand. For all the ninety days' sight bills drawn in the course of these transfers of credit must eventually be discounted in the London discount market, and when the London discount market refuses to absorb bills of this kind a material check is naturally administered to their creation. V. THE DRAWING OF FINANCE-BILLS Approaching the subject of finance-bills, the author is well aware that concerning this phase of the foreign exchange business there is a wide difference of opinion. Finance-bills make money, but they make trouble, too. Their existence is one of the chief points of contact between the foreign exchange and the other markets, and one of the principal reasons why a knowledge of foreign exchange is necessary to any well-rounded understanding of banking conditions. Strictly speaking, a finance-bill is a long draft drawn by a banker of one country on a banker in another, sometimes secured by collateral, but more often not, and issued by the drawing banker for the purpose of raising money. Such bills are not always distinguishable from the bills a banker in New York may draw on a banker in London in the operation of lending money for him, but in nature they are essentially different. Whether or not any collateral is put up, the whole purpose of the drawing of finance-bills is to provide an easy way of raising money without the banker here having to go to some other bank to do it. The origin of the ordinary finance-bill is about as follows: A bank here in New York carries a good balance in London and works a substantial foreign exchange business in connection with the London bank where this balance is carried. A time comes when the New York banking house could advantageously use more money. Arrangements are therefore made with the London bank whereby the London bank agrees to "accept" a certain amount of the American banker's long bills, for a commission. In the course of his regular business, then, the American banker simply draws that many more pounds sterling in long bills, sells them, and for the time being has the use of the money. In the great majority of cases no extra collateral is put up, nor is the London bank especially secured in any way. The American banker's credit is good enough to make the English banker willing, for a commission, to "accept" his drafts and obligate himself that the drafts will be paid at maturity. Naturally, a house has to be in good standing and enjoy high credit not only here but on the other side before any reputable London bank can be induced to "accept" its finance paper. The ability to draw finance-bills of this kind often puts a house disposed to take chances with the movement of the exchange market into line for very considerable profit possibilities. Suppose, for instance, that the manager of a house here figures that there is going to be a sharp break in foreign exchange. He, therefore, sells a line of ninety-day bills, putting himself technically short of the exchange market and banking on the chance of being able to buy in his "cover" cheaply when it comes time for him to cover. In the meantime he has the use of the money he derived from the sale of the "nineties" to do with as he pleases, and if he has figured the market aright, it may not cost him any more per pound to buy his "cover" than he realized from the sale of the long bills. In which case he would have had the use of the money for the whole three months practically free of interest. It is plain speculating in exchange--there is no getting away from it, and yet this practice of selling finance-bills gives such an opportunity to the exchange manager shrewd enough to read the situation aright to make money, that many of the big houses go in for it to a large extent. During the summer, for instance, if the outlook is for big crops, the situation is apt to commend itself to this kind of operation. Money in the summer months is apt to be low and exchange high, affording a good basis on which to sell exchange. Then, if the expected crops materialize, large amounts of exchange drawn against exports will come into the market, forcing down rates and giving the operator who has previously sold his long bills an excellent chance to cover them profitably as they come due. VI. ARBITRAGING IN EXCHANGE. Arbitraging in exchange--the buying by a New York banker, for instance, through the medium of the London market, of exchange drawn on Paris--is another broad and profitable field for the operations of the expert foreign exchange manager. Take, for example, a time when exchange on Paris is more plentiful in London than in New York--a shrewd New York exchange manager needing a draft on Paris might well secure it in London rather than in his home city. Between such cities rates are not apt to be wide enough apart to afford a wide margin of profit, but the chance for arbitraging does exist and is being continuously taken advantage of. So keenly, indeed, are the various rates in their possible relation to one another watched by the exchange men that it is next to impossible for them to "open up" to any appreciable extent. The chance to make even a slight profit by shifting balances is so quickly availed of that in the constant demand for exchange wherever any relative weakness is shown, there exists a force which keeps the whole structure at parity. The ability to buy drafts on Paris relatively much cheaper at London than at New York, for instance, would be so quickly taken advantage of by half a dozen watchful exchange men that the London rate on Paris would quickly enough be driven up to its right relative position. If a chance exists to sell a draft on London and then to put the requisite balance there through an arbitration involving Paris, Brussels, and Amsterdam, the chances are that there will be some shrewd manager who will find it out and put through the transaction. Some of the larger banking houses employ men who do little but look for just such opportunities. The foregoing are the main forms of activity of the average foreign department, though there are, of course, many other ways of making money out of foreign exchange. GOLD MOVEMENTS [117]When there is a heavy demand for exchange and little supply, the price of exchange gradually advances. The banker, called on by his customers to draw exchange for them, finding few bills in the market that he can remit to cover his drafts, sends gold and directs its equivalent in foreign coin to be placed to his credit, and against this credit he draws. There may be no market abroad for our crops or manufactures; but gold need not be sold in order to produce money; it need only be coined. As this process can be carried on indefinitely, the cost of sending gold is obviously the limit beyond which the price of demand bills cannot advance. Let us follow this transaction in detail. The pure gold contained in one English sovereign is exactly equal to the pure gold contained in $4.8665 of our gold coins; so that, apart from charges and expenses, $4.8665 of our gold will, when sent abroad, produce a credit of £1; to this cost must be added freight, insurance, and other expenses, amounting to about one-fourth of 1 per cent. This brings the cost of £1 through shipment of gold to about $4.88, which is, roughly, the gold export point for full weight coin. The exporting banker obtains his gold either by drawing gold coin from his bank or else by drawing suitable currency from his bank, and obtaining gold coin for it at the subtreasury. In either case, he obtains coin that has suffered more or less abrasion by handling, and this loss of weight by abrasion, amounting to perhaps one-tenth of 1 per cent., increases the cost of his remittance. Generally, however, the banker can obtain gold bars from the United States Assay Office at the nominal charge of one twenty-fifth of 1 per cent., although at times a larger charge is made. The banker prefers bars, because on these there is no loss by abrasion; the Government can afford to give bars, because their export prevents the export of coin, and so saves the cost of coining new money to replace that shipped. Now for gold import. When there is a large volume of bills offered to bankers, perhaps by grain and cotton exporters, and but little demand from buyers of exchange, the market gradually declines in price, while New York bankers, sending abroad the bills they buy, with little occasion to draw against them, accumulate large sums to their credit in London, with no way of getting the money back to New York through operations in the exchange market. They are not, however, helpless; they can order gold sovereigns sent here, and, once here, can have them melted down at the United States Assay Office and coined into eagles and double eagles, which they can deposit with their banks. Obviously, the amount received in dollars for each melted sovereign will mark the price the banker can afford to pay for sterling bills, and competition among bankers will prevent the rate of exchange from declining below this point by more than a fair margin of profit. The British sovereign, if full weight, will, when sent here and melted down, yield gold for which the United States Assay Office will pay $4.8665; the expense of sending the sovereign, freight, insurance, cartage, and kegs, will amount to about one quarter of 1 per cent., so that the net yield of the full weight sovereign in dollars will be $4.85-3/8. But between the day on which the banker buys the bill of exchange in New York and the day on which he receives in New York the gold which the bill entitled him to collect in London, there must elapse the time needed to send the bill to London, plus the time needed to send the gold back (roughly fifteen days), during which period the banker loses the use of the money. This loss of interest must be deducted from the net yield of the imported sovereign, and thus, if money is worth 6 per cent. per annum, the net yield of full weight sovereigns is brought down to about $4.84-1/4, which is the gold import point for demand exchange, when money is worth 6 per cent. per annum. Losses by abrasion will bring down this point by perhaps one-tenth of 1 per cent., to about $4.83-3/4. When money is higher, the import point will be lower, and _vice versa_. There is therefore a margin of profit in buying demand bills and importing gold sovereigns against the purchase, whenever the rate for demand bills falls below the gold import point. Active exchange bankers take advantage of this profit whenever exchange prices decline to the proper point, and their competition in buying bills to cover their gold importations stops further decline in exchange rates. It is interesting to note that during the recent crisis, when gold and currency were at a premium, bankers could sell the imported gold at a premium, and this constituted an additional and very large profit; gold importers could therefore pay higher prices than ordinarily for exchange bought to cover the importations, and the stress of competition so drove up the rate of exchange that gold was being imported at a profit, though exchange rates stood at what, under ordinary circumstances, would have been the gold export point. Gold is, however, not always imported from England in the form of sovereigns. The Bank of England has in its vaults large quantities of American eagles and double eagles exported to England in the past and held without melting. The bank also holds foreign coin and bar gold. Any holder of Bank of England notes can get sovereigns on demand--other gold he can get only as the result of a special bargain. When gold is wanted for export, the bank is often glad to sell bar gold or double eagles at rates somewhat more advantageous to the exporter than would be the export of sovereigns; this the bank can afford to do, for the expense of coining sovereigns to replace those exported is thus saved, while the exporter, if he can get bar gold on the same basis as sovereigns, avoids the losses of abrasion. Eagles are even more advantageous to the exporter, for they are bought in England by weight and used in America by count; the banker therefore gets an advantage if they are light, so long as that lightness is not so great as to make them uncurrent--practically he buys them as light and uses them as full weight.... The mechanism of gold import to, and export from, Germany is practically the same as with England, the Reichsbank being required to give gold coin in exchange for its circulating notes. At times, however, German exchange has fallen below the theoretical gold import point, owing, not to the refusal of the Reichsbank to give gold, but to the practical obstacles that at times are somehow placed in the way of free export of gold. The Reichsbank does not refuse gold for its bank-notes, but German bankers say to their correspondents: "Don't ask us to get gold for you, or we shall lose caste," and on such occasions German exchange rates drop to a point that is theoretically impossible. I do not mean to criticise them: German banks, when they refuse to demand gold of the Reichsbank, do no more than our own banks and bankers did recently, when asked by foreign correspondents to collect in gold the maturing obligations of railroads and other corporations. As will be remembered, clearing-house funds rather than cash were at that time current here, and New York banks and bankers sent to their foreign correspondents the same answer as the Germans have at times sent us. I cite the German instance in partial mitigation of censure of our own course rather than as a reproach to them. The Bank of France is not compelled to give gold in exchange for its circulating notes; it may at its option give silver. Thus, when it is inconvenient to give gold, the bank can refuse, or, if it prefers, it can exact a premium. This power has been very moderately and very wisely used by the bank to modify foreign demands on the one hand, and, on the other, to keep interest rates low for the requirements of internal trade. Of course, when a premium is exacted, the French gold import point drops accordingly. Between the gold export point and the gold import point, exchange fluctuates under the sway of conflicting currents and tendencies--I had almost said emotions, for these currents and tendencies have their rise in emotions, needs, and passions as varied as life itself, whether they be hunger as expressed in the grain bill, or love of elegance in the importation of silk, or forethought in the profitable investment of capital. This brief review will have made clear what is meant by a free gold market--a market in which current money can at all times be exchanged for gold without delay and without premium. Such a market has great commercial advantages; its stability draws business to it. London is such a market, and its commercial and financial pre-eminence is in great measure due to that fact. Paris is not such a market and does not pretend to be; Berlin pretends to be, but cannot always be counted on; New York was believed to be before our recent panic. I have spoken of the exchange market as an economical mechanism, automatically making delicate international adjustments. In justification of that observation, let me direct attention to the manner in which gold, in moving from financial centre to financial centre, always travels by the most direct route, and that, too, not because some public official is charged with the duty of preventing waste, but because a private trader is trying to make a profit, and is incidentally serving the community; serving it perhaps better than if he had consciously determined to serve it. Useful acts springing from self-interest have one very comforting aspect--we need have no misgivings as to their continuance. Charity may grow weary or disgusted, but self-interest, once enlisted, may be counted on to continue in operation, whether it be the business man's self-interest in a profit or the professional man's self-interest in advancement and fame. Of course, both the business man and the professional man, in addition to seeking the direct rewards of their labor, take an interest in their work as work and make it yield them pleasure. It is therefore satisfactory to know that, so long as the banker looks after his profits, gold will move by the most direct route. Let us suppose the United States to be exporting a large quantity of cotton to England at a time when little merchandise is being imported here from England, but when much is being imported from France. If the volume of exports to England and of imports from France were large enough, we might conceivably be importing gold from England in payment of our produce, and exporting it to France in payment for her luxuries; but, in practice, gold does not move that way. Every morning, the New York exchange banker learns by cable the Paris market rate for demand bills on London. When, therefore, he finds a large volume of bills on London offered for sale, and little demand for such bills, while there is large demand for bills on Paris and little supply, he determines, instead of drawing from New York against his purchases of London bills, to let his Paris agent draw against these purchases, placing the proceeds to his credit in Paris; against this credit in Paris, the New York banker draws his bill in francs, having thus supplied via London the New York demand for bills on Paris. He knows how many dollars each pound sterling costs him in New York, and the Paris rate for bills on London tells him how many francs each pound sterling will net him in Paris, and so he can calculate how many cents each franc will cost him. Moreover, he is not the only banker in New York that receives cable quotations; and so with a large volume of London bills offered and little direct demand for such bills, and large demand for Paris bills with little direct supply, we get a situation where New York bankers, competing with each other to buy the London bills for use via Paris, prevent the price of sterling from falling to the gold import point; and then, as a result, these same bankers, competing with each other to supply the demand for Paris bills, by their competition prevent the Paris rate from rising to gold export point. Lastly, they compete with each other in Paris, where all are sellers of bills on London against their New York purchases of London bills, and by that competition they reduce the rate for London bills in Paris to the point, at which, other things being equal, gold will go from London to Paris. What has happened, therefore, is that instead of our importing gold from London, and then exporting it to Paris, it has gone direct from London to Paris. COMPLICATIONS IN THE DETERMINATION OF GOLD POINTS [118]It is safe to assert that when the exchanges go down to the point at which it pays better to ship gold from London than to buy a bill, gold will go. But in the first place, experts always differ as to where that point begins; and in the second, gold often leaves London long before there is any question of its being the more profitable form of remittance. In fact, it may be asserted that the foreign exchanges very seldom go down to the export gold point, because gold begins to go before they can get there. It has often happened to me, when I was a financial journalist and had to try to find out the how and why of gold movements, to ask several of the most experienced and well-informed cambists in the city whether a gold shipment which had taken place had been made as a genuine exchange transaction or was done for some other reason, and to hear from one that there was a reasonable exchange profit on it, from another that there might be just a shade of a turn to be got out of it if you scraped it very hard with a knife, and from another that you could not find a particle of profit in it if you put it under a microscope for a week. So many complications have to be considered that the most eminent doctors may be pardoned for disagreeing. It may be objected that dealers in exchange, and the comparatively few firms that make a special study of gold shipping, are not in the business for their health, and that shipments would not happen if there were not some profit in them. This is perfectly true, but the profit need not be got from the exchange. As an exchange transaction it only pays to ship gold to America when bills on London can only be sold in New York at a lower price than gold would fetch if brought from London and exchanged into dollars in New York. If bills on London are selling at 4.83-3/4, and gold can be bought and shipped and turned into dollars at the rate of 4.83-7/8, after allowing for all charges and commissions and the loss of interest during transit, then the operation pays as an exchange transaction. If the dollars realized by the gold were at the rate of only 4.83-3/4 the importer would be no better off than if he had sold a bill; if they were at the rate of 4.83-5/8 he would be out of pocket on the business, viewed strictly as an exchange transaction. But this is by no means the only consideration. Gold has such a magical fascination for moneyed mankind, and its movements are so eagerly discussed in their markets and newspapers, that it is often handled and shipped at a loss, especially in America, for the sake of the advertisement that the importing firm thereby gains for itself. Moreover, imports of gold have a very stimulating effect on speculative stock markets, because an increase in the amount of gold available means a roughly corresponding increase in the amount of credit that bankers can give, so that when gold is known to be coming speculators know that credit will be cheaper for carrying their commitments, and will come in and buy, with a light heart, stock that they could not possibly pay for, but hope to pawn with their bankers until they can sell it at a higher price. And so unless the loss on the exchange side of the business is too great, it often pays the leaders of a bull campaign to import gold, having first laid in a line of stock, and make their profit by unloading during the fit of exhilaration produced by the news that the gold is on the way. Or, again, quite apart from any speculative and spectacular motives behind gold shipments, it may pay bankers, in a country where rates for money are ruling high, to import gold at an apparent loss, because of the high rates that they get for the credit that they are thereby enabled to give. They thus, in effect, borrow gold, and recoup themselves by being able to lend, on profitable terms, larger amounts than they borrow, since they can always create credit to larger amounts than that of the gold in their vaults. Sometimes, in fact, in times of pressure banks find themselves obliged to import gold so as to strengthen their position, whatever the loss on exchange may be. For instance, last September, when the Berlin exchange was at the point at which, if theory ruled in these matters, Berlin ought to have been thinking of packing up some gold to send to London, Berlin was buying gold in London and shipping it to the Fatherland, because there is always great pressure for currency in Germany at the end of September when the interest on mortgages falls due and has to be paid in cash, with the result that the Reichsbank's note circulation expands very rapidly and the backing of gold behind it has to be increased. Sometimes, again, in order to attract gold, a central bank will give importers credit for gold that is on the way, so that they may be saved from loss of interest while the metal is afloat. Thus the actual importer may make a profit on the shipment, not as a genuine exchange transaction, but at the expense of the central bank. In these cases two of the many functions performed by gold have to be considered. As a means of international remittance, it may not be as cheap as a bill, but it may have to be sent, not as a means of remittance, but because it is urgently wanted in the importing country as a make-weight for the balloon of credit. So we see that the grumbling bill broker who ... [said] that these confounded exchanges only work one way, was actually understating his case. Not only do we [Englishmen] always lose gold when the exchanges go against us, and often get none when they go in our favour, but we also often lose gold long before the exchanges are sufficiently against us to justify its going, and sometimes even when they are strongly in our favour. The effect on the exchange of an import or export of gold is, of course, just the same as that of the import or export of any other commodity--an import turns the exchange against us and an export turns it in our favour. If we send gold, for example, to Germany we thereby meet a German claim on us or create a claim for ourselves on Germany; in the former case the bills drawn on us will be less by the amount of the gold shipped, and the supply in Berlin of bills on London will be less in relation to the demand, so that the tendency will be for the price of sovereigns, as expressed in marks, to rise. In the latter case some one in Berlin will have a claim to meet in London and will have to bid there for a bill on London, and his bidding will have the same beneficent effect on the exchange. When we import gold, whether brought out of bankers' vaults, or dug out of the bowels of the earth, the country that sends it to us meets claims of ours on it or establishes claims on us. In either case the tendency is for the exchange to move against us. THE HANDLING OF GOLD SHIPMENTS [119]Whether in coined pieces or bars (bullion), the gold is packed in strong kegs or boxes, securely strapped with hoop iron, and carefully sealed with private seals; the latter to discover if tampered with en route. Space is chartered from the steamship company, as in the case of merchandise, although nearly all large fast steamers have rooms especially constructed for such valuable cargo.... As an extra safeguard in case of large shipments, the steamship company details special armed men to guard the room day and night, and sometimes the shipper employs special detectives in citizens' clothes to watch the passengers on the trip, since it is generally known several days in advance when large shipments of gold are to be made. THE SILVER EXCHANGES [120]... It is acknowledged that commerce between gold standard countries is satisfactory to all classes of traders, for both importers and exporters know exactly the return they may expect, but in trade between a silver-using country and one on a gold basis, a large measure of uncertainty invariably exists. Whenever there is a fall in the gold value of silver, either the exporter in the gold standard country or the importer in the silver country must suffer. Let us take the case of the exporter. We will suppose that A. Blank & Company, of Manchester, calico printers, send goods to Shanghai, which they hope to sell there for a total sum of, say, £1,000. The price of silver when the shipment was despatched was, we will say, 25_d._ per standard ounce, and on this basis A. Blank & Company have calculated the selling price which is to yield them £1,000. By the time the calico arrives in Shanghai, the gold price of silver has dropped, we will suppose, to 20_d._ per standard ounce, and this obviously indicates that the manufacturers will receive one-fifth less for their wares, since they are paid in the currency of the province (taels in this instance), and when Blank & Company's money comes to be converted back into British gold pieces, they are face to face with the fact that the outturn is £200 less than they had calculated: they have lost one-fifth, and receive £800 only. This is, of course, an extreme case, as in the ordinary course silver would be unlikely to drop 5_d._ in the period between shipment and arrival of the goods in Shanghai; but whatever the fall, the principle is the same, and the illustration serves to show exactly what happens. It is not only the British exporters who stand to lose in the lottery of trade with countries which have an unstable silver exchange; the capitalist also, and every class of investor, is liable to be adversely affected in operations with silver standard countries. The rate of exchange between such countries and gold standard countries is plainly the exchange between gold and silver; therefore, if a person has invested in undertakings in the silver country, when he receives his dividends in the currency of that country, he will obtain less for his dividend warrant on the London market in proportion to the fall in the price of silver--assuming that it does fall. Conversely, he may reap a higher return on his investment if silver has gone up before the encashment of his dividend. Finally, the principal is affected in the same way, whenever it is desired to convert it back into gold. A further example will show how this works out in practice. We may assume that an investor, encouraged by the chance of earning 6 per cent. on his money, remits to China £1,000. The price of silver on the 1st January, 1914, was 26-7/16_d._ per ounce standard; on the 31st December, 1914, 22-11/16_d._ For the sake of argument, we will imagine our investor sent the money out to the Eastern country on the 1st January, 1914, but circumstances made it advisable for him to recall his money at the end of December in the same year, when the metal had depreciated to 22-11/16_d._; in converting his principal back to British currency he will find himself faced with a sharp loss. Silver, in which the investment stood, has dropped 3-3/4_d._ of its gold equivalent, roughly, one-seventh; consequently on conversion the gold value of his original £1,000 has fallen to about £857.... ... The exchanges of these silver standard countries ... [are] quoted in shillings and pence to the dollar, tael, or rupee, as the case may be, that is, the gold value of the respective silver coins. Hong-Kong, for instance, is quoted 1_s._ 10-3/8_d._ to the dollar, and Shanghai, 2_s._ 5-5/8_d._ to the tael. The rates from these centres ... indicate the price for telegraphic transfers on London: the unit of exchange in the centres named being by general consent the rate for telegraphic transfers on London. Let us take the Shanghai rate as an example: 2_s._ 5-5/8_d._ per tael, means that for every silver tael the remitter hands over to the exchange bank in Shanghai, 2_s._ 5-5/8_d._, or, to give it its real significance, a little less than one-eighth of a sovereign in gold, will be paid to the person in whose favour the remittance is made, as soon as a telegram can reach the bank's London branch.... ... Besides the T. T. rate, as it is called for the sake of brevity, we have the four months' sight and six months' sight rates, which are the quotations for first-class bank bills. Both quotations are higher than for the telegraphic transfers, that is to say, for every silver tael paid in Shanghai the bank will allow more shillings and pence where it is a question of paying the gold value in London four or six months hence, than it would if the payment is to be made on demand or by wire. The reason is, that if a bill drawn on London, payable four months after sight, is sent, the remitter is bound to place the receiver in such a position that if the latter chooses to turn the bill into cash after it has been "sighted" and accepted, he will not be worse off than if the money had been sent by cable.... As may be gathered, therefore, the discount rates ruling on the London market are of great importance to the Eastern bankers and exchange dealers: so important are they in fact, that it is necessary for each side to keep in direct telegraphic communication regarding the existing discount quotations and the probable trend of the markets.... ... The rate at which they are able to cover their drawing operations ... governs the price at which they will sell bills. If a banker has funds deposited with his correspondent upon which he can draw, well and good: if he has no balance with the agent, he must either provide the wherewithal to meet the bills which he has drawn, or, alternatively, he can instruct the agent to draw on him in reimbursement. Finally, there comes a time,... when, as all other means of placing his correspondent in funds have been exhausted, the banker will be obliged to ship ... silver to be sold for what it will fetch.... It is fairly clear that the real trouble in Eastern exchange lies in the fact that we have three main factors to deal with instead of two. In the gold exchanges we have simply the demand for and supply of bills and telegraphic transfers; in the silver exchanges the matter is complicated by the way in which we also have to depend upon the fluctuations in the price of silver on the London market.... Shanghai draws on London for the cost of her exports and remits to London for the value of her imports, and the principal reason for this procedure is that the manufacturer in Great Britain does not wish to be bothered with the variations in exchange, although as the reader has seen, he may be pretty severely affected if silver has depreciated before his goods are sold. Leaving that out of the question, however, we may take it that as all his expenses are payable in gold, he naturally prefers to deal in terms of that metal. Consequently, goods shipped to China are nearly always paid for by remittances, or drawn for in sterling, which comes to the same thing. The Chinese producer is on rather a different footing. His expenses are in silver, and in silver he wishes to be paid. His produce, however, he has sold to Great Britain for a gold price, and either he cannot afford to, or does not want to wait until a remittance can be sent by mail from London. The one way open to him is to draw in sterling and settle the rate of exchange on the spot, which he does and so makes an end of the matter.... FOOTNOTES: [103] Hartley Withers, _Money Changing_, pp. 30-35. E. P. Dutton and Company. New York. 1914. [104] Adapted from the Rt. Hon. Viscount Goschen, _The Theory of the Foreign Exchanges_, pp. 85-88. Effingham Wilson. London. 1913. [105] Adapted from Franklin Escher, _The Elements of Foreign Exchange_, pp. 3-14. Bankers Publishing Company. New York. 1913. [106] _Ibid._, pp. 15-24, 26, 31-33, 44. [107] Adapted from Frederick I. Kent, _Financing Our Foreign Trade_, The Annals of the American Academy of Political and Social Science, Vol. XXXVI, No. 3, November, 1910, pp. 492-500. [108] [The method explained would apply without qualification to our imports generally prior to 1914, whether coffee from Brazil, hides from the Levant or textiles from France. The recent and growing practice of drawing on New York rather than on London is discussed later in this chapter.] [109] Adapted from Archibald J. Wolfe, _Foreign Credits_, pp. 22, 23, Special Agents Series--No. 62. Department of Commerce and Labor. Washington. 1913. [110] George Clare, _The A B C of the Foreign Exchanges_, pp. 11-15. Macmillan and Company. London. 1911. [111] [English bills drawn on our banks have increased in volume since 1914, through the operation of the Federal Reserve Act and the amended New York State Bank Law which make provision for the acceptance of time drafts by National and New York State banks, respectively.] [112] John E. Rovensky, _How the War Affects Practical Operations in International Exchange_, Journal of the American Bankers Association, Vol. 7, No. 12, June, 1915, pp. 1008, 1009. [113] Joseph T. Cosby, _The Economies and Advantages of "Dollar Credits."_ The National City Bank. New York. 1915. [114] Harry G. Brown, _International Trade and Exchange_, pp. 65-66. The Macmillan Company. New York. 1914. [115] Anthony W. Margraff, _International Exchange_, pp. 104-105. Fergus Printing Company. Chicago. 1903. [116] Adapted from Franklin Escher, _Elements of Foreign Exchange_, pp. 68-101. Bankers Publishing Company. 1910. [117] Albert Strauss, _Gold Movements and the Foreign Exchanges_, The Currency Problem and the Present Financial Situation. A Series of Addresses Delivered at Columbia University, 1907-1908, pp. 65-72. The Columbia University Press. 1908. [118] Hartley Withers, _Money Changing_, pp. 159-164. E. P. Dutton and Company. New York. 1914. [119] Address by H. K. Brooks. _Lectures on Commerce_, Edited by Henry Rand Hatfield, University of Chicago Publications of the College of Commerce and Administration, Vol. I., pp. 283-4. The University of Chicago Press. Chicago. 1904. [120] William F. Spalding, _Foreign Exchange and Foreign Bills in Theory and in Practice_, pp. 133-140. Sir Isaac Pitman & Sons, Ltd., Bath, New York and Melbourne. 1915. CHAPTER XIX CLEARING HOUSES The following discussion of clearing houses is confined mainly to the United States and England. References to the clearing houses of France and Germany, where the introduction of the use of checks and the consequent development of clearing facilities have been tardy, are contained in the chapters devoted to the banking systems of those countries. I. IN THE UNITED STATES A CLEARING HOUSE DEFINED [121]What is a clearing house? The Supreme Court of the State of Pennsylvania has defined it thus: It is an ingenious device to simplify and facilitate the work of the banks in reaching an adjustment and payment of the daily balances due to and from each other at one time and in one place on each day. In practical operation it is a place where all the representatives of the banks in a given city meet, and, under the supervision of a competent committee or officer selected by the associated banks, settle their accounts with each other and make or receive payment of balances and so "clear" the transactions of the day for which the settlement is made. But we must go farther than this, for though originally designed as a labor-saving device, the clearing house has expanded far beyond those limits, until it has become a medium for united action among the banks in ways that did not exist even in the imagination of those who were instrumental in its inception. A clearing house, therefore, may be defined as a device to simplify and facilitate the daily exchanges of items and settlements of balances among the banks and a medium for united action upon all questions affecting their mutual welfare. METHODS OF EXCHANGE IN NEW YORK PRIOR TO 1853 [122]During a comparatively short period immediately following 1849 the number of banks in New York increased from 24 to 60. In the daily course of business each bank received checks and other items on each of the other banks, which had to be presented for collection. All such items on hand were assorted and listed on separate slips at the close of the day, and items coming in through the mail on the following morning were added at that time. To make the daily exchanges each bank sent out a porter with a book of entry, or pass book, together with the items to be exchanged. The receiving teller of the first bank visited entered the exchanges brought by the porter on the credit side of his book and the return exchanges on the debit side, who then hurried away to deliver and receive in like manner at the other banks. It often happened that five or six porters would meet at the same bank, thereby retarding one another's progress and causing much delay. Considerable time was consumed in making the circuit. Hence, the entry of the return items in the books of the several banks was delayed until the afternoon, at an hour when the other work of the bank was becoming urgent. A daily settlement of the balances was not attempted by the banks, owing to the time it would have required, but they informally agreed upon a weekly adjustment, the same to take place after the exchanges on Friday morning. At that time the cashier of each bank drew a check for each of the several balances due it, and sent a porter out to collect them. At the same time the porter carried coin with which to pay balances due by his bank. After the settlement had been made, there was a meeting to adjust differences and bring order out of chaos. An old bank officer (J. S. Gibbons), in describing the inconveniences and defects of this system, says that some of the more speculative banks took advantage of the weekly method of settlements by carrying a line of discounts to an amount greater than their legitimate resources would allow. Thus, a bank would manage to carry a small debit balance of $2,000 or $3,000 with thirty or more institutions, making a total debit balance of, say, $100,000 on which it discounted paper. It was the practice to borrow enough on Thursday to make the settlements on Friday, and the return of the loan on Saturday threw it again into the debtor column. Virtually, therefore, the weekly settlements were nominal only, and to show that there was no attempt at economy of time and labor in making them, it is only necessary to say that the cashier drew a check for every balance due him, whereas a draft on one bank in favor of another might have settled two accounts at once. The banks were at liberty to draw on each other for their credit balances without waiting for the settlements on Friday, and hence, when specie was needed, this was not infrequently done. But so far did many of the banks extend their loans and discounts that a single small draft by one bank on another would induce a general drawing and involve them all in confusion and virtual war on each other. Three o'clock would arrive, with the line of drafts incomplete, thus enabling debtor banks ofttimes to add $50,000 to their specie, whereas creditor banks would find themselves at the close of the day depleted in perhaps twice that sum. THE ORIGIN OF THE NEW YORK CLEARING HOUSE [123]The desirability of a substitute for such a system had long been realized, but as yet no plausible scheme had been proposed. As early as 1831 a plan had been suggested by Albert Gallatin, which, to a very remarkable degree, coincided with the one ultimately adopted. But the times were not ripe for the scheme thus proposed. Mr. Gallatin was thinking in advance of the age. In time, however, the question began to be more generally discussed. For nearly a year it was under consideration, and finally it was deemed advisable to call a meeting to take decisive action upon it. On August 23, 1853, 16 presidents, 1 vice-president, and 21 cashiers, representing 38 banks, assembled in the directors' room of the Merchants' Bank, and at this meeting a resolution was passed providing that "a committee be appointed to procure or hire a suitable room in or near Wall Street, for the purpose of holding meetings of the officers of the city banks; that the said committee be requested to submit a plan, at an adjourned meeting of this body, to simplify the system of making exchanges and settling the daily balances; and that when a room is procured or hired for the above purpose, the presidents or cashiers be requested to meet weekly until a plan is agreed upon." In compliance with this request, the committee presented a plan for the daily settlement of balances, at a meeting held on August 31, 1853, which plan was amended so as to provide "that a room be procured for that purpose, sufficiently large to afford suitable accommodations." On September 13, 1853, the scheme was adopted and the committee was "clothed with full power to hire a room, appoint a manager and clerks, and make all the necessary arrangements to carry the plan for a clearing house into effect." The date for beginning operations was fixed for October 11. Accordingly, on the appointed day, the representatives of the banks, members of the association, met in a room which had been procured in the basement at No. 14 Wall Street, and made the first exchanges. The total clearings on that day were $22,648,109.87, and the balances were $1,290,572.38. These clearings have since been eclipsed by over $30,000,000 in the totals of a single bank. The clearing system in America was thus fairly launched, and from that time forth its success exceeded the expectations of even its most ardent projectors. The association consisted at that time of 52 banks, banded together for their common good, which, as they then conceived, consisted solely in the exchange of items and settlement of balances at a uniform time and place. For nearly a year the operations were conducted without a constitution. The adoption of such an instrument was opposed, on the ground that it was not needed and might lead to a dangerous concentration of power in the hands of a few managers, who might use it for personal aggrandizement, or for the exercise of an arbitrary supervision. MEMBERSHIP AND ADMITTANCE FEES AT NEW YORK [124]The association at present (1909) consists of 50 members[125] (32 National Banks and 18 State Banks) and the United States subtreasury located at New York. The latter makes its exchanges only at the clearing house, its balances being settled at its own counter. It has no voice in the government of the association, and pays a nominal sum for actual expenses. The privilege which the subtreasury enjoys of making its exchanges through the clearing house is a matter of great accommodation both to the subtreasury and to the banks. The New York post-office clears through one of the members, but renders no compensation to the association for the privilege. The membership of the association since its organization has been constantly changing, owing to the admission and expulsion of members and voluntary withdrawals, as provided by the constitution. The association began with 51 members, but by 1858 the list had declined to 46, the lowest number in the history of the clearing house. A membership of 67 was attained in 1895. On February 28, 1854, the Bank of the Union was expelled and the clearing-house association was authorized to return to it whatever amount was necessary to offset its advances toward the expenses of the clearing house. In the following December the Empire City Bank was expelled and a similar resolution was passed but in no case thereafter were any such refunds made.... The constitution is very explicit in its terms governing the admission and conduct of members. Applicants are first considered by the clearing-house committee and referred hence to the committee on admissions. The latter committee, if, in its opinion, after a careful examination, the applicants are qualified for membership, refers them to the association for final action, a three-fourths vote of those present being necessary for admission. Banks may be elected to membership at any meeting of the association, but before being considered by the clearing-house committee each applicant must be shown to have an unimpaired capital or an unimpaired capital and surplus of at least $500,000. Each new member is required to signify its assent to the constitution, in the same manner as the original members, and pay an admission fee, according to capital, as follows: A bank the capital of which does not exceed $5,000,000 must pay $5,000; a bank the capital of which exceeds $5,000,000 must pay $7,500. Any member increasing its capital is required to pay in accordance with those rates. [126]METHODS OF SETTLING BALANCES There are no less than five different methods of settling balances, in whole or in part, without the use of money at the clearing house. They are (1) by manager's check on debtor banks given to creditor banks; (2) by borrowing and loaning balances without interest; (3) by borrowing and loaning balances with interest; (4) by the use of one or more of four forms of certificates, viz., gold and currency depository certificates, United States assistant treasurer certificates, and clearing-house loan certificates; and (5) by draft on another city. When money is not used in the adjustment of balances at the clearing house, one of the most common methods of settlement is by manager's check on debtor banks in favor of creditor banks. In such cases the creditor banks send clerks to the clearing house to receive the manager's checks, which may be cashed by the debtor banks, exchanged for cashier's checks or exchange on another city, or sent through the clearings on another day. There is one important advantage of the manager's check over settlements in cash at the clearing house: By its use only one transfer of cash is necessary in making settlements, and thus the risk is greatly diminished. The second mode of settlement, other than on a cash basis, is by borrowing and loaning balances without interest. At Chicago and Pittsburg this method is practised as a matter of convenience to the several members. After the exchanges have been made and the balances determined, a certain length of time is devoted to this transfer. The third method is that of borrowing and loaning balances upon interest, as practised in Boston. The fourth method is that of employing some form of certificate. Many of the large clearing houses provide for a depository to receive in special trust such United States gold coin as any of the banks belonging to the association may voluntarily deposit with it for safekeeping, upon which certificates may be issued, to be used in the settlement of clearing-house balances. Such certificates are usually issued in denominations of $5,000 and $10,000, and are negotiable only among the associated banks. Many of the clearing houses impose a fine for their transfer to any other party than a member of the association. Coin certificates were devised by F. W. Edmunds of New York, and came into use about 1857. The Bank of America first acted as a depository, but after the beginning of the greenback epoch the associated banks chose the United States subtreasury as such depository for both gold and currency. When the new clearing house in Cedar Street was occupied, the gold deposits were transferred to the magnificent vaults with which it is provided, and these at the present time hold a very heavy deposit of gold, as well as a very large amount of currency, against which have been issued clearing-house certificates as before mentioned. The associations in practically all of the large cities of the United States now use these gold depository certificates in the settlement of clearing-house balances. Clearing-house loan certificates are issued only in emergencies. The period during which balances are settled by such instruments lasts usually only three or four months, or until the financial disturbance which called them forth has subsided. The fifth method is by draft on some other city. In some places the option is given of settling in cash or by draft, as at Austin, Tex.; Charleston, S. C.; Frederick, Md.; Jacksonville, Fla.; Kansas City, Mo.; New Orleans, La.; Rochester, N. Y.; and Saginaw, Mich. In others settlements are made exclusively by drafts on another city. Among these are Syracuse, N. Y.; Worcester, Mass.; Fall River, Mass.; Fremont, Ohio; Hartford, Conn.; Holyoke and Lowell, Mass.; and Binghamton, N. Y. Sometimes foreign drafts are used in payments of equal thousands only, as at Wilmington, Del., and Chester, Pa. Generally speaking, about 40 per cent. of the clearing houses of the United States use drafts on other cities in paying their balances. About 30 per cent. settle by manager's check, and about 25 per cent. settle by cash alone, the remaining 5 per cent. settling by a combination of two or more of the foregoing methods. Clearing houses located in New England settle, as a rule, with drafts on Boston or New York, or both. Clearing houses in the vicinity of Philadelphia usually settle with drafts on that city or on New York, and those located in that part of the country lying east of the Mississippi River settle more or less by draft on New York or Chicago. Settlement is also sometimes made by draft on some of the larger cities, such as Baltimore, Washington, Savannah, Kansas City, Detroit, Omaha, and San Francisco. [127]RATIO OF BALANCES TO CLEARINGS The ratio of balances to clearings depends partly upon the number of banks, but much more upon the amount and character of their business and upon their relations one to another. This is illustrated by figures which have just been collected, covering the transactions for the year 1908. At Pittsburg, with 20 members and 128 non-members clearing through members, the balances were 16.5 per cent. of the clearings; at Buffalo, with 11 members and 7 non-members, 12 per cent.; at Chicago, with 20 members and 40 non-members clearing through members, 7.5 per cent.; at Philadelphia, with 31 members and 1 non-member, 11.5 per cent.; at St. Louis, with 17 members and 35 non-members, 9.3 per cent.; while in New York, during the fifty-four years of its existence, the percentage of balances to clearings has been only 4.64 per cent., notwithstanding the operation of the United States assistant treasurer, who almost always has a heavy debit balance. The more nearly the banks stand on an equality with one another, the more nearly will their transactions approach a complete offset, which, of course, would leave no balance to settle. [128]THE NATURE OF CLEARING-HOUSE LOAN CERTIFICATES Clearing-house certificates are of two kinds--those issued upon the deposit of gold coin (and in New York City and Boston on gold and silver certificates and legal-tender notes) and those issued upon the deposit of collateral securities. The former are employed in ordinary times solely as a method of economizing time and labor and reducing risk in handling large sums of money. The latter are employed in times of financial disturbance or panic, and although both are intended for use solely in the settlement of balances at the clearing house, the circumstances that call them forth, the results effected by their use, and the part they play in banking economy have little or nothing in common. The certificates issued upon the deposit of gold, etc., are termed "Clearing-house certificates," and those issued upon the deposit of collateral security are very properly termed "Clearing-house loan certificates," with which latter only are we here concerned. Clearing-house loan certificates may be defined as temporary loans made by the banks associated together as a clearing-house association, to the members thereof, for the purpose of settling clearing-house balances. Such certificates are negotiable, as a rule, only among the members of the association, and are not in any sense to be regarded as currency. They are not even seen by the business community, and do not pass from bank to bank except in payment of clearing-house balances. To obtain an intelligent understanding of the real character and purpose of such certificates it will be well to treat somewhat of the circumstances under which they are issued. In the course of the present century the United States has undergone periodical derangements of business affairs, when confidence was displaced by mistrust, when the payment of debts became difficult, when property values declined, and business houses failed; when industry and trade were paralyzed, and general stagnation ensued in all lines of enterprise. In such times depositors in banks, stricken with fear and sometimes pressed by need, draw out their deposits, in many cases to such an extent as to render it difficult or even impossible for the banks to contract their loans sufficiently to meet the demands thus made upon them. Under our currency system no adequate method is [was] provided for expanding the money volume as occasion demands, whereby the banks can continue their usual loans and discounts, and thus prevent a panic with all its evil consequences. Hence it is left in a large measure to the financiers of each community to work out their own remedy, supplemented by such mutual assistance as a courteous regard for each other may dictate or as business relations may demand. Quick to see the defects in our currency system, and the desirability of in some way supplying it, the bankers of New York, nearly fifty years ago, devised the scheme of issuing clearing-house loan certificates as a method of relief from temporary stringencies. Subsequently, nearly all the clearing houses in the great centres adopted the same device, and by their heroic resort to the measure they have at different times relieved the business community of untold disaster, for which invaluable service they have justly received the grateful recognition of the entire country. The great value of clearing-house loan certificates lies in the fact that they take the place of money in settlements at the clearing house, and hence save the use of so much actual cash, leaving the amount to be used by the banks in making loans and discounts, and in meeting other obligations. The volume of currency, to all intents and purposes, is expanded by this means to the full amount of the certificates issued. The loan certificates are taken out by the clearing-house members through loan committees, specially appointed, and are used, as a rule, only in the payment of balances among the associated banks. Thus, when the stringency in the money market seems sufficient to demand it, the clearing-house association meets and appoints a committee called the "loan committee," consisting usually of five bank officers, to act in concurrence with the president of the clearing-house association, who serves ex officio as a member. It is the duty of such committee to meet each morning at the clearing house and examine the collateral offered as security by the banks and issue loan certificates thereon, in such denominations and proportions to collaterals deposited as may be agreed upon. In the past the denominations have varied from 25 cents to $100,000 in the different associations and in proportions varying from $50 to $100 of certificates to $100 of collateral deposited. These loan certificates bear interest at rates varying from 5 to 10 per cent. per annum, payable by the banks to which they are issued to the banks receiving such certificates in settlement of daily balances. Hence the interest charged against certain banks must exactly equal and offset that credited to certain other banks. The aim is to fix the rates sufficiently high to insure the retirement of the certificates as soon as the emergency which called them forth has passed by. As a rule they are retired by the banks, which take them out as soon as they have obtained sufficient cash to meet their daily obligations. Notice is given by the debtor banks to the committee, calling for such certificates as they wish to retire, and the committee gives notice to the banks holding the same, stating that the interest will cease after a specified date. In due course the holders send the certificates to the clearing house for redemption. Upon the retirement of the certificates the collateral deposited as security is surrendered by the committee in the same proportion to certificates turned in as was required for deposit at the time of issue. It is by no means the general practice for all the members to take out loan certificates when issues are arranged by the association. Some banks are in such condition as to be able to weather the storm without them, while others are weak and in great need of relief. Some banks regard their use of clearing-house loan certificates as a reflection upon their standing, and hence refuse to apply for them unless driven to it by sheer necessity. Others regard it as in no way prejudicial to their interests, but rather as a patriotic movement in which all the banks should engage, both for the purpose of assisting their fellow-members and for the welfare of the community as a whole. CLEARING-HOUSE LOAN CERTIFICATES AND THE EQUALIZATION OF RESERVES[129] Comparison of the course of events during the crisis of 1873 with that in subsequent crises shows a progressively increasing unwillingness or inability among the New York banks to make use of their cash reserves. In 1873 the New York banks at the outset of the crisis held an available reserve of $34,300,000. In the course of four weeks this was reduced to $5,800,000, and the ratio to deposit liabilities was then less than 4.5 per cent.[130] Suspension was not escaped in 1873 but it was of shorter duration than in later crises. The banks at that time were unable to increase their cash resources by any of the means which have been available in later crises. The Government had no surplus of greenbacks, aside from about $12,000,000 which was almost entirely secured and retained by the savings banks. Banknotes could not be issued because the total circulation was at that time limited by law. Finally, additional supplies of gold, secured through imports, were useless for ordinary banking purposes because the business of the country was then carried on by means of an inconvertible and depreciated paper currency. Notwithstanding all these special difficulties, the New York banks, by continuing to use their reserves freely even after payments had been restricted, were able to restore confidence in a comparatively short time, and money began to flow back to them within three weeks after the outbreak of the crisis. In 1893 the New York banks were in what was for them an unusually strong condition at the beginning of the disturbance, having early in June a cash reserve exceeding 30 per cent. of their net deposits. A succession of banking failures in the West and South led to heavy withdrawals from New York during the latter part of June and the beginning of July. Then followed a lull and money began to be returned to New York. During the third week of July banking failures were renewed in the West and South and the drain was resumed. The positively unfavorable aspects of the situation were altogether similar to those of the previous month with the one further circumstance of a reduced cash reserve in New York. On the other hand, additional means with which to meet the situation were becoming available. At the end of July gold imports in large amount had been arranged. Foreign purchases of our securities were heavy, reflecting increasing confidence in the repeal of the silver purchase law. Arrangements had also been made which would certainly lead to a considerable increase in the issues of bank-notes during August and September. Notwithstanding all these favorable circumstances the New York banks suspended, during the first week of August, when they still held a cash reserve of $79,000,000, more than 20 per cent. of their deposit liabilities. In 1907 the New York banks restricted payments when they still held a cash reserve of more than $220,000,000 and when the reserve ratio was also above 20 per cent. Both in 1893 and in 1907 suspension was not a measure of last resort taken after the banks had entirely exhausted their reserves and when there was no means of securing additional cash resources. Moreover, after cash payments were restricted the policy of the banks was unlike that adopted in 1873, in that the banks did not make further use of their reserves; they hoarded them and added to their amount, thus unduly prolonging the period of suspension. Explanation of the failure of the banks in 1893 and 1907 to use their cash resources as completely as in 1873 is simple; but it is of the very greatest significance because it will bring to light the most serious element of weakness in our credit structure. [Written before our banking reform of 1913.] In 1893 and in 1907 the clearing-house loan certificate was the only device resorted to in order to secure the adoption of a common policy by the banks. In 1873, as on earlier occasions when its use was authorized, provision was also made for the equalization of the reserves of the banks. Thus in 1873 the Clearing House Association in addition to the customary arrangements for the issue of loan certificates adopted the following resolution: That in order to accomplish the purposes set forth in this agreement the legal tenders belonging to the associated banks shall be considered and treated as a common fund, held for mutual aid and protection, and the committee appointed shall have power to equalize the same by assessment or otherwise at their discretion. For this purpose a statement shall be made to the committee of the condition of such bank on the morning of every day, before the opening of business, which shall be sent with the exchanges to the manager of the Clearing House, specifying the following items: (1) Loans and discounts. (2) Amount of loan certificates. (3) Amount of United States certificates of deposit and legal tender notes. (4) Amount of deposits deducting therefrom the amount of special gold deposits. Two fairly distinct powers were given the clearing-house committee: the right to issue clearing-house certificates, and control over the currency portion of the reserves of the banks. This machinery was devised (according to tradition) after the crisis of 1857 by George S. Coe, who for more than thirty years was president of the American Exchange National Bank. The purpose of the certificate was to remove certain serious difficulties which had become generally recognized during that crisis. The banks had pursued a policy of loan contraction which ultimately led to general suspension, because it had proved impossible to secure any agreement among them.[131] The banks which were prepared to assist the business community with loans could not do so because they would be certain to be found with unfavorable clearing-house balances in favor of the banks which followed a more selfish course. The loan certificate provided a means of payment other than cash. What was more important, it took away the temptation from any single bank to seek to strengthen itself at the expense of its fellows, and rendered each bank more willing to assist the community with loans to the extent of its power. But in addition to the arrangement for the use of loan certificates provision was also made for what was called the equalization of reserves. The individual banks were not, of course, equally strong in reserves at the times when loan certificates were authorized. From that moment they would be unable to strengthen themselves, aside from the receipt of money from depositors, except in so far as the other banks should choose to meet unfavorable balances in cash. Moreover, withdrawals of cash by depositors would not fall evenly upon the banks. Some would find their reserves falling away rapidly with no adequate means of replenishing them. The enforced suspension of individual banks would pretty certainly involve the other banks in its train. Finally, it would not be impossible for a bank to induce friendly depositors to present checks on other banks directly for cash payment, instead of depositing them for collection and probable payment in loan certificates, through the clearing house. The arrangement for equalizing reserves therefore diminished the likelihood of the banks working at cross purposes--a danger which the use of clearing-house certificates alone cannot entirely remove. These arrangements had enabled the banks to pass through periods of severe strain in 1860 and in 1861 without suspension. In both instances the use of the loan certificate was followed immediately by an increase in the loans of the banks, and in no short time by an increase in their reserves. The situation in 1873 was more serious, and as events proved, the reserve strength of the banks, while sufficient to carry them through the worst of the storm, was not enough to enable them to avoid the resort to suspension. In 1884, the next occasion when clearing-house loan certificates were issued, the opposition to the provision for the equalization of reserves was so widespread that it does not appear that it was even formally considered. The ground for this opposition can be readily understood. In 1873 the practice of paying interest upon bankers' deposits was generally regarded with disfavor. Only twelve of the clearing-house banks offered this inducement to attract deposits; but by this means they had secured the bulk of the balances of outside banks. It was in meeting the requirements of these banks that the reserves of all the banks were exhausted at that time. The noninterest paying banks entered into the arrangement for the equalization of reserves in expectation of securing a clearing-house rule against the practice of paying interest on deposits. But their efforts had resulted in failure. Some of them had employed their reserves for the common good most reluctantly in 1873, and the feeling against a similar arrangement in 1884 was naturally far stronger and more general. Moreover, the working of the pooling agreement in 1873 had occasioned heart-burnings which had not entirely disappeared with the lapse of time. It was believed, and doubtless with reason, that some of the banks had evaded the obligations of the pooling agreement. It was said that some of the banks had encouraged special currency deposits so as not to be obliged to turn money into the common fund. Further, as the arrangement had not included bank-notes, banks exchanged greenbacks for notes in order either to increase their holdings of cash or to secure money for payment over the counter. Here we come upon an objection to the pooling arrangement which doubtless had much weight with the specially strong banks, although it is more apparent than real. In order to supply the pressing requirements of some banks, others who believed that they would have been able to meet all demands of their depositors were obliged to restrict payments. That such an expectation would have proved illusory later experience affords ample proof. When a large number of the banks in any locality suspend, the others cannot escape adopting the same course. But in 1884 the erroneousness of the belief had not been made clear by recent experience. The New York banks weathered the moderate storms of 1884 and 1890 without suspension, by means of the clearing-house loan certificate alone, and in the course of time all recollection of the arrangement for the equalization of reserves seems to have faded from the memory of the banking community. There was, however, in those years another potent influence which tended to lessen the likelihood of suspension following the issue of loan certificates. Many banks were unwilling to take them out, fearing that such action would be regarded as a confession of weakness. The prejudice against them was indeed so strong that needed loan expansion did not follow the authorization of their issue. In 1890 the directors of the Bank of Commerce, then, as now, one of the most important banks of the city, passed a resolution urging other banks to relieve the situation by increasing loans and by taking out loan certificates. In 1893 only a small part of the balances between the banks was settled in certificates at first; but by the end of July practically all balances were settled in that way and suspension followed at once. In 1907 all the banks having unfavorable balances, with but one important exception, took out certificates on the first day that their issue was authorized, and suspension was then for the first time simultaneous with their issue. The connection between suspension and the use of clearing-house loan certificates as the sole medium of payment between the banks is simple and direct. The bank which receives a relatively large amount of drafts and checks on other banks from its customers cannot pay out cash indefinitely if it is unable to secure any money from the banks on which they are drawn. So long as only a few banks are taking out certificates and the bulk of payments are made in money, no difficulty is experienced; but as soon as all the banks make use of that medium, the suspension of the banks which have large numbers of correspondents soon becomes inevitable. The contention of bankers both in 1893 and in 1907 that they had not suspended since they had only refused to honor drafts on other banks was untenable. The clearing-house loan certificate was a device which the banks themselves had adopted and they had failed to provide any means for preventing partial suspension as the result of its use. The further contention of some bankers that they had suspended because they had no money to pay out was doubtless true of a few banks, but for that very reason other banks must have been all the stronger, probably well above their required reserve. That the arrangement for equalizing the reserves, adopted in 1873, would have availed to prevent suspension on subsequent occasions, is highly probable, indeed a practical certainty. In 1893 events proved that the banks had maintained payments up to the very last of the succession of disasters with the results of which they had been contending. During August the number of bank failures was not large and none of them was of great importance. We cannot, of course, know how soon money would have begun to flow back to New York, but certainly the suspension of payments could hardly have hastened the movement. From the beginning of September the reported movements of currency showed a gain for the New York banks, and for the week ending September 16 the gain was no less than $8,000,000. One month more of drain, therefore, was the most that the banks would have been obliged to endure, and for the needs of that month the banks would not, as in 1873, have been confined to the single resource of the $79,000,000 of the cash in their vaults.[132] Similarly, the enormous increase in the money supply of the country in November and December, 1907, would have offset much of the loss of reserve which the banks would have incurred, if they had continued to meet all the demands of their customers for cash. And, finally, it may be observed that in the unlikely event that alarm had not been allayed and suspension in the end had become unavoidable, it would not have made any practical difference to depositors whether the reserves of the banks had been but 10 per cent. rather than 20 per cent. of their demand liabilities. CLEARING-HOUSE BANK EXAMINATIONS[133] Most bank failures are due to the gradual acquirement of undesirable assets over a period of years, and if some authority exists with power to make recommendations of a remedial character, with the further power to enforce such recommendations, if necessary, there is little doubt that many bank failures would be averted. The panic of 1907 presented many striking examples of just what is intended to be here emphasized, viz., that under the careful supervision of a competent and reliable examiner many of the assets of the failed banks, upon which it was impossible for them to realize at a time when they needed their funds, would probably have been liquidated upon his recommendation and advice long before the necessity for such liquidation had arisen. Mr. J. B. Forgan of Chicago, has recently said on this subject: A competent examiner--and there are many such now in the government employ--while he can not pass judgment on all the loans in a bank, can, after a careful examination, or a series of examinations, form a wonderfully correct judgment as to the general character of its assets and as to whether its management is good or bad, conservative or reckless, honest or dishonest. Examinations, as they are now conducted, have a most beneficial influence on bank management, especially by way of restraint. The correspondence carried on by the Comptroller, based on the examiners' reports, does an inestimable lot of good in the way of forcing bank officers to comply with the law and in compelling them to face and provide for known losses as they occur. Supervision by examination does not, however, carry with it control of management and can not, therefore, be held responsible for either errors of judgment or lapses of integrity. Examination is always an event after the act, having no control over a bank's initiative, which rests exclusively with the executive officers and directors, and depends entirely on their business ability, judgment, and honesty of purpose. The clearing-house association of Chicago was the pioneer in the establishment of an independent system of clearing-house bank examinations in this country, its system having been inaugurated on June 1, 1906, with results that have, to the present time, more than fulfilled the expectations of the bankers of that community[134].... In substantially his own words the Chicago examiner operates under the following conditions: The examinations extend to all the associated banks of Chicago and to all non-member institutions. The work is conducted with the aid of five regular assistants, each fitted by experience to thoroughly do that part of the work assigned to him. The examinations include, besides a verification of the assets and liabilities of each bank, so far as is possible, an investigation into the workings of every department and are made as thorough as is practicable. After each examination the examiner prepares a detailed report in duplicate, describing the bank's loans, bonds, investments, and other assets, mentioning specially all loans, either direct or indirect, to officers, directors, or employees, or to corporations in which they may be interested. The report also contains a description of conditions found in every department. One of these reports is filed in the vaults of the clearing house, in the custody of the examiner, and the other is handed to the examined bank's president for the use of its directors. The individual directors are then notified that the examination has been made and that a copy of the examiner's report has been handed to the president for their use. In this way every director is given an opportunity to see the report, and the examiner, in every instance, insists upon receiving acknowledgment of the receipt of these notices. The detailed report retained by the examiner is not submitted to the clearing-house committee, under whose direct supervision he operates, unless the discovery of unusual conditions makes it necessary. A special report in brief form is prepared in every case and read to the clearing-house committee at meetings called for that purpose. The report is made in letter form, and describes in general terms the character of the examined bank's assets, points out all loans, direct or indirect, to officers, directors, or employees, or to corporations in which they may have an interest. It further describes all excessive and important loans, calls attention to any unwarranted conditions, gross irregularities, or dangerous tendencies, should any such exist, and expresses, in a general way, the examiner's opinion of each bank as he finds it. Less than a year after the Chicago Clearing House Association appointed its special examiner the associated banks of Minneapolis took similar action. The conditions under which the Minneapolis examiner operates are substantially the same as those governing the examiner at Chicago, the principal difference being that instead of the examiner sending a copy of his report to the president of the examined bank and notifying each of the directors of such bank that he has made such examination and that the report is in the hands of the president of the institution, as is the rule of procedure at Chicago, and which, in a measure, leaves it to the discretion of the directors whether they examine the report carefully and in detail, the original report is delivered by the examiner at Minneapolis in person to the board of directors of each bank which he examines, at a meeting convened for that purpose. The report is read and the criticisms, if any, are fully discussed, and the recommendations considered. In this way no director can complain that he had not sufficient opportunity to become fully conversant with all the details of his bank. II. CLEARING HOUSES IN ENGLAND THE LONDON BANKERS' CLEARING HOUSE AS THE FOREMOST EXAMPLE [135]The exact origin of the London Bankers' Clearing House will probably never be determined, for, like other institutions whose purpose has been to save time and trouble, its system appears to have been gradually evolved.[136] With the growth of the check system, each banker would daily find himself in possession of a number of drafts for the credit of his customers that needed collection at the offices of other bankers. This would necessitate each bank sending out one or more clerks on what became known as "walks" to obtain cash or notes for these drafts from the houses on which they were drawn. As in London alone there were some fifty or more private firms carrying on a banking business this necessitated a considerable amount of work and was attended with grave risk of robbery. It is probable, therefore, that arrangements were made by some of the bankers, as it is still done in some country towns, to meet at one bank one week and at another the next for the purpose of exchanging checks. But in consequence of the number of the London bankers this method would prove awkward, and about the year 1770 we find that the walk clerks from the city and West End banks had made a practice of meeting at lunch time at a public house called the Five Bells in Dove Court, Lombard Street, close to St. Mary Woolnoth Church, and not so very far from the site of the Bankers' Clearing House of to-day. Here in the public room, or according to tradition on the posts in the court outside, each day after lunch a rough system of exchange of checks was carried on between the clerks from each bank, the balances being settled in notes and cash. From this rough system has developed the efficient organization of to-day. In May, 1854, the clearing house was closed for alterations and enlargement, and the business was temporarily carried on at the Hall of Commerce. Here, on June 6, 1854, applications for admission to the clearing house were received from the following joint-stock banks: The London and Westminster, the London Joint Stock, the Union Bank of London, the Commercial Bank of London, and the London and County Bank; and it was resolved "that the secretary be authorized to comply with such applications, subject to the payment of an annual sum to be fixed by the committee to reimburse them for the outlay that has been found necessary to afford accommodation for their admission." There were at this time 25 private banks in the clearing house. Following on the admission of the five premier joint-stock banks in 1854 there were frequent applications from other joint-stock banks--many from the moment of their foundation. But the wise reply of the committee was invariably that they did not "deem it expedient to take into consideration such applications from any banking establishment that has not been in operation at least for a period of twelve months." Though the joint-stock banks had been admitted to the clearing house yet they were only allowed to rent seats there and had no share in the management, so for the support of their mutual interests they had a committee of their own which settled the rate to be given by the joint-stock banks in the London district for deposit money at seven days' notice. In 1858 the country bankers submitted a plan for establishing a country bankers' clearing house in London and proposed that the clearing house committee should appoint two or three of their number to unite with them as a working committee. The establishment of a separate country bankers' clearing house would have led to many inconveniences, and Mr. John Lubbock, now Lord Avebury, submitted a plan for carrying out a separate country clearing at the clearing house. The committee approved the plan and submitted it to the country bankers' committee, who also gave their approval. Thus was instituted at the Bankers' Clearing House the country clearing, which more than all else has brought about the almost universal use of checks in England, to the exclusion of notes and coin. Mr. Lubbock's scheme was so well thought out that from its initiation to the present time the rules have had to be only very slightly modified. In 1864 the Bank of England entered the clearing house to clear on one side only, the outside, for though the bank presents to the clearing bankers at the clearing house all checks payable by them, all checks and bills drawn on the bank are presented by the clearing bankers at the bank itself, and the proceeds placed to the credit of each bank's account. At the same time the governor of the Bank of England was made ex officio a member of the committee of clearing bankers. After 1864 few changes were made in the working of the clearing house, the volume of the country and town clearings increased greatly, but the house proved capable of meeting any increase. Friction between the old private bankers and the joint-stock banks grew less as amalgamations and absorptions increased, and before many years the committee of London clearing bankers and joint-stock banks committee amalgamated, it being agreed, as a condition of the joint-stock banks committee ceasing to exist, that all the banks would abide by the ruling of the committee as to the rate of deposit at seven days' notice. Henceforth, every bank in the clearing house was entitled to have one representative on the committee. Such representatives have hitherto been chosen solely from the board or the partners and are nominated by their banks and formally elected by the committee. The committee elects its own chairman, vice-chairman, and honorary secretary. This committee meets regularly on the first Thursday in each month, Thursday being the day on which the Bank of England in normal times makes any alteration in the bank rate of discount, but it may be summoned by requisition at any time and meets automatically should the bank rate be altered, since this governs the rate of deposit allowed by the bankers. The committee has full power over all clearing house matters, and from the importance of the banks who compose the clearing house its opinion carries very great weight on all matters in the banking world. It is, however, controlled only by the mutual agreement of its members: and the decision of the majority of its members, though followed loyally, is never used with any ultimate power of compulsion in matters affecting banking in general. In 1907 a third clearing, the Metropolitan, was established. Hitherto, with the exception of one or two city offices which were included in the town clearing, the collection of drafts on London branches of the clearing banks had been effected by the post and by the sending out of walk clerks by each bank; but in 1907 it was determined to do away with such means of collection as far as possible and to collect the branch checks through the clearing house. This proved so successful that the West End banks were approached the following year, and with one exception readily consented to come into the new plan by which their clearing agents had delivered to them at the Metropolitan clearing all checks drawn upon them. This clearing is the first clearing made each morning and is handled so expeditiously that even the most distant London branches get their checks almost earlier than under the old system. They have, therefore, plenty of time to go through them and to make returns of any checks that cannot be paid in time for such return checks to reach the clearing house early in the afternoon. There are now over 330 banks and branches using this clearing. For the better defining of the three clearing areas--town, metropolitan, and country--the letters T M C have been placed in the corner of all bank checks. From February 19, 1907, the date of the initiation of the Metropolitan Clearing, up to December 31 of that year, £482,227,000 was paid in this clearing, while for the year 1908 the total was £647,842,000, as compared with the town clearing total for that year of £10,408,254,000 and the country total of £1,064,266,000, making in all a grand total of £12,120,362,000, which figures, vast as they are, were a decrease of £610,031,000 on the total £12,730,393,000 for the previous year, 1907.[137] The work entailed by such vast figures as these could scarcely have been dealt with by hand alone, but by the installation of adding machines the work is easily and quickly done. It must not be thought that all checks on London are presented through the clearing house, for checks on the London branches of the Scotch banks and of the colonial and foreign banks are still presented over the counter. Moreover, though it is mutually understood between the clearing banks that checks on each other will only be presented through the clearing house, this agreement has no legal binding. Two exceptions are continually made; documents or goods have to be taken up against cash, and the owner before parting wishes to be certain of his money. In this case the presenting banker either presents his check for marking--that is to say, the paying banker having ascertained from his customer's account that there is sufficient money thereon, marks the check for payment, which has the same effect as if the banker had accepted it; or, as is becoming more usual, the paying banker gives one of his own drafts on the Bank of England in exchange for the check. PROVINCIAL CLEARINGS Besides the London clearing house, which is an irregular building of no architectural features whatever, there are eight provincial clearing houses in England--Birmingham, Bristol, Leeds, Leicester, Liverpool, Manchester, Newcastle and Sheffield.[138] Two only of these clear over £100,000,000 in the year. Manchester cleared £320,296,332 in 1907, with an average weekly total of £6,159,545 and an average daily total of £1,039,923, and Liverpool £196,325,829. The others cleared in the same year from £12,000,000 to £61,000,000. Small figures, indeed, compared with London, where the highest total paid on any one day was, in 1907, £106,703,000. In 1908 the highest total paid in one day in the London clearing was £85,833,000 and the lowest £24,903,000. In London, as in the provincial places, the object of the clearing house is primarily the convenience of exchange of checks, not the regulation of banking, and little is regulated save, perhaps, the rate of interest to be paid on deposits at seven days' notice. In these days, too, when the tendency is strong for amalgamation, the local banks are dwarfed by their gigantic competitors, with their branches in many counties and head offices in London, with the result that London each year controls more of the banking in England and the provincial clearings cease more and more to be under local control, but are controlled by their London head offices. This may, if the present tendency of amalgamation continues,[139] result in the committee of London clearing bankers becoming an important controlling body, but that time is not yet at hand, and though, as we have said, an expression of opinion on the part of the committee carries very great weight, yet anything like dictation would very properly be resented by the important and old-established banks in both London and the provinces that are outside the clearing house. FOOTNOTES: [121] James G. Cannon, _Clearing Houses_, Publications of the National Monetary Commission, Senate Document, No. 491, 61st Congress, _2nd Session_, p. 1. [122] _Ibid._, pp. 148-150. [123] _Ibid._, pp. 150-154. [124] _Ibid._, pp. 163-165. [125] 62 members in 1914. [126] _Ibid._, pp. 41, 43, 44-46. [127] _Ibid._, p. 37. [128] _Ibid._, pp. 75-79. [129] O. M. W. Sprague, _Banking Reform in the United States_, pp. 104-113. Harvard University. 1911. [130] The figures in the text refer to the legal tender holdings of the banks. The banks also held a considerable amount of specie but it was not a free asset as most of it had been received on special accounts payable in gold. Including the specie holdings the reserve ratio was 12.8 per cent. [131] C. F. Dunbar, Economic Essays, chap. XVI. [132] The increase in the amount of money in circulation for August, 1893, was estimated at $70,000,000. [133] James G. Cannon, _Clearing Houses_. Publications of the National Monetary Commission, Senate Document No. 491, 61st Congress, _2d Session_, pp. 137-141. [134] [A number of the more important cities such as St. Paul, St. Louis, and Philadelphia, following the example of Chicago and Minneapolis, have instituted clearing house bank examinations since 1907.] [135] Adapted from Robert Martin Holland, _The London Bankers Clearing House_. Publications of the National Monetary Commission, Senate Document No. 492, 61st Congress. _2nd Session_. [136] The date of the establishment of the Clearing House is not known. The Clearing has, however, been in existence about 150 years.--EDITOR. [137] [For the five years 1910-14, the total clearings of the London Clearing House were in the neighborhood of £15,000,000,000 per annum of which the Town, Metropolitan, and Country Clearings were about 86, 5.5, and 8.5 per cent., respectively.] [138] [The approximate number of clearing houses outside of London, in England, in 1915 is twelve, but these are used only for local clearings. In addition, most of the towns in England and Wales have a local exchange which is a clearing on a small scale.] [139] This tendency has continued as to both the joint-stock and private banks.--EDITOR. CHAPTER XX STATE BANKS AND TRUST COMPANIES SINCE THE PASSAGE OF THE NATIONAL BANK ACT [140]The banking institutions of the United States other than national banks are ordinarily classified into (a) state banks, (b) trust companies, (c) stock savings banks, (d) mutual savings banks, and (e) private banks. The following pages deal with two of these classes, viz., state banks and trust companies. It will be desirable at the outset to distinguish them from the other classes, and to outline the history of legislation concerning them since 1865. The term "state bank" has been used in the United States in several different senses; but whatever the variance in meaning, such banks have always had one common characteristic--incorporation under state authority. In the bank reports of some of the States, private banks are not distinguished from state banks. This is due to the fact that in these States incorporated and unincorporated banks are subject to the same regulation. A private bank, however, is an unincorporated bank. Not all banking institutions incorporated by the States are state banks. Mutual savings banks, stock savings banks, and trust companies are also corporations organized under state laws or charters granted by state legislatures. The distinction between mutual savings banks and state banks is clear. Mutual savings banks do not have a capital stock and do not carry on a discount and deposit business--_i. e._, they do not discount commercial paper, and do not receive demand deposits payable on check. State banks, on the other hand, have a capital stock and carry on a discount and deposit business. Many state banks, however, receive also savings deposits. The line of demarcation between state banks and stock savings banks is much less definitely marked. Both state banks and stock savings banks have a capital stock. Stock savings banks are primarily savings banks, and many of them do not do a discount and deposit business, but confine themselves to the savings bank business. But in several States the distinction between state banks and stock savings banks is of the most unsubstantial character, since the stock savings banks carry on the business of a commercial bank, receiving demand deposits payable on check, and discounting commercial paper. Finally, the distinction between state banks and trust companies is not exactly the same in any two of the States. "State banks" then, as the term is used in the following pages, are banks of discount and deposit (as distinguished from savings banks, mutual and stock) incorporated by one of the States or Territories (in contrast with private banks, which are unincorporated, and with national banks, which are organized under the national-bank act).[141] In 1860 there were in the United States 1,562 state banks. Owing to the repressive influence of the national-bank act, hastened in its effect by the 10 per cent. tax on state-bank notes, the number of state banks had by 1868 fallen to 247. One result of this decline in the number and importance of state banks was the cessation of state banking legislation. The old laws regulating state banks of issue were swept away by code revisions, or remained obsolete and unchanged on the statute books. The number of state banks began to increase about 1870. In a few States old banking laws intended for the regulation of banks of issue hampered their development, but in the remaining States they were left for a considerable period almost entirely without regulation. As late as 1892, in his digest of the state statute law, Mr. Stimson said: It seems unnecessary to incorporate the state banking laws in this edition. Nearly all the States, except the newer States and Territories, have special chapters in their corporation acts concerning banks and moneyed institutions, but these chapters are usually of old date, and have practically been superseded for so long a time by the national banking laws that they have become obsolete in use and form. The increasing attention paid in recent years by the state legislatures to the regulation of the state banks has been partly due to the rapid growth of the banks in numbers and in financial importance; but it is to be accounted for primarily by a change of view as to the purpose of banking regulation. The antebellum state-bank regulations were intended to secure the safety of the bank note. Although the depositor was protected by many of the regulations, this protection was purely incidental. The view that note-issuing banks alone required governmental regulation persisted for a considerable time after the passage of the national-bank act. Since the national banks had a monopoly of the issue of bank notes, the regulation of state banks was considered needless. As the importance of note issue as a banking function decreased, banking regulation, as seen in the national-bank act, began to be considered desirable as a protection to depositors. THE EVOLUTION OF THE TRUST COMPANY With the exception of the power to issue notes, which would be unavailable because of the tax on note issue, the powers of the state banks of to-day are essentially the same as the powers of the state banks which were in operation before the Civil War. On the other hand, the trust company is a new type of banking institution, the functions of which are even yet not clearly defined. A great part of the legislation with reference to trust companies, therefore, has had to do with defining the powers of these corporations. The early laws for the incorporation of trust companies show the widest differences of opinion with regard to their field of operation. The one point of agreement appears to have been the idea that a corporation could administer trusts more advantageously and safely than an individual. But the companies in all the States were given additional powers more or less closely connected with their trust powers. Some of the companies, chiefly the very early ones, were empowered to insure lives and to grant annuities. In a considerable number of States the companies were authorized to insure the fidelity of persons in positions of trust and in some States to insure titles to land. Almost all the companies were empowered to do a safe-deposit business. Among these powers there was a certain apparent connection. The power to insure the fidelity of trustees, administrators, and executors seemed a natural addition to the powers of a company which might act in such capacities. Similarly, it appeared that the business of insuring titles to land was one which could be most economically conducted by a corporation which, in its capacity of trustee, would be a large owner of real estate. One other power was given to practically all the companies--the power to receive deposits of money in trust. The following quotation from the Report of the Massachusetts Commissioners of Savings Banks for 1871 shows the use which it was expected would be made of this power: The trust company in Worcester and the New England Trust Company in Boston, both in successful operation, are the first of such corporations established in this State. They were incorporated after a very careful investigation by the legislature, with power to hold money in trust, and so restricted in making loans and investments as to afford the safety which the character of their business requires. A similar institution will soon be organized in Northampton, and others are contemplated. They are well calculated to promote public interests by affording to the owners of capital not engaged in business many of the advantages secured by our savings-bank system for the savings of labor. The development of the trust company as reflected in the legislation with reference to its powers shows two main tendencies: (1) The companies have to a very large extent given up the insuring of the fidelity of persons in positions of trust and the guaranteeing of land titles. (2) They have largely increased their banking activities. 1. In some States which formerly authorised trust companies to insure the fidelity of persons in positions of trust, or to guarantee titles to real estate, the more recent laws do not permit the combination of such business with the business of a trust company. The fidelity insurance business during the past twenty years has been largely concentrated in the hands of a comparatively small number of companies which have agencies in all parts of the country and which do not undertake a trust or banking business. The elimination of fidelity insurance from the functions of the trust company has not been chiefly or even largely due to adverse legislation, but to the nature of the fidelity insurance business. The most successful conduct of that business appears to require, like other kinds of insurance, that the risks shall be numerous and widely distributed. These conditions are best met by companies which carry on business in many different places. For the most economical conduct of the title insurance business an expensive plant is necessary. The business in each city tends therefore to fall into the hands of a single company, which ordinarily finds it profitable to devote itself entirely to the one kind of business. At the present time, only a very small part of the trust companies in the United States insure titles to land. 2. The second great tendency in the development of the powers of the trust company--the enlargement of its banking powers--has also been primarily an economic development and not one due to legislative design. As has already been noted, the early trust companies ordinarily had power to receive trust deposits and to loan money. Some such powers were necessary for the exercise of their trust functions. The opportunity to enlarge the banking powers of the companies lay in the difficulty of distinguishing clearly between the powers which it was intended to confer upon the trust companies and the banking powers possessed by state and national banks. In the greater number of the States the wording of the sections conferring powers to do a trust business was such that the trust companies were either held by the courts to be empowered to do a banking business, or, if the power to do such business seemed not to be granted, were able by some change in the method of doing the kind of banking business in question to bring it within the powers actually conferred. In Missouri, for instance, since 1885 trust companies have been empowered to "receive money in trust and to accumulate the same at such rate as may be obtained or agreed upon or to allow such interest thereon as may be agreed." The supreme court of Missouri in construing the power thereby conferred has held that a trust company can take only interest-bearing deposits, but that such deposits may be demand deposits payable on check. The rate of interest may, however, be nominal. In other States the trust companies have attained legal recognition of their banking powers by slow steps. The history of the Pennsylvania trust companies affords an illustration. In the Pennsylvania general corporation act of 1874 no provision was made for the formation of trust companies, but provision was made for the incorporation of title-insurance companies. By an amendment to the corporation act in 1881 title-insurance companies with a capital of at least $250,000 were given trust and fidelity-insurance powers; but it was expressly provided that such companies were not authorized thereby to do a banking business. In 1885 the trust companies were given the power to receive upon deposit for safekeeping valuable property of every description, and in 1895 trust companies were given power to "receive deposits of money and other personal property and to issue their obligations therefor ... and to loan money on real and personal securities." In 1900 the United States circuit court of Pennsylvania decided that Pennsylvania trust companies might legally receive demand as well as time deposits. Pennsylvania trust companies apparently even now cannot discount commercial paper, but they may loan on it as collateral and may purchase it from the holder. The States in which the banking powers of the trust companies have been most narrowly restricted are Iowa, Michigan, Nebraska, and Wisconsin. In Nebraska a trust company cannot do a banking business. In Iowa trust companies cannot do a banking business except that they may receive time deposits and issue drafts on their depositories. In Michigan trust companies are expressly forbidden to do "a general banking business." The Michigan commissioner of banking in his report for 1906 complained, however, that the law was not clear as to the banking powers of the companies. In Minnesota the trust companies may receive trust deposits, but may not "engage in any banking business except such as is expressly authorized for such a corporation." In Wisconsin the extent of the power of trust companies to receive deposits was much debated until 1909, when the legislature provided for the incorporation of "trust-company banks," which have power to receive time and savings deposits, but do not have power to receive deposits subject to check. The result of the two tendencies described above--the elimination of the insurance powers of the trust company and the addition of banking powers--has gradually standardized the powers of the trust company, until at the present time the trust company, as it appears in the corporation laws of most of the States, may be fairly well defined as a bank which has power to act in the capacity of trustee, administrator, guardian, or executor. In a number of States the legislation concerning trust companies deals with them explicitly from this standpoint. The Illinois bank act of 1887 provided that any bank might have power to execute trusts by complying with the trust-company law. In Alabama and Tennessee any state bank may be appointed and may act as an executor, administrator, receiver, or guardian. In Mississippi any bank with a paid-up capital of $100,000 may do a trust-company business. In Georgia any trust company may acquire banking powers by complying with the laws regulating banks. In Texas banks may acquire trust-company powers. The same tendency is shown in the important banking laws enacted in Ohio in 1905 and California in 1909. The gradual change from the view that the trust company is an institution of markedly different character from the ordinary bank of discount and deposit to the view that the trust company is merely a bank exercising functions additional to those exercised by the majority of banks has been the chief influence in determining the form of the legal regulations imposed upon trust companies. As long as the older view obtained, the regulations concerning trust companies were widely different from those imposed upon banks; but as the trust company has increased both the scope and amount of its banking business, the regulation of the banking business of the trust company has tended to become assimilated to the regulations imposed upon state banks. INCORPORATION Since 1865 state banks and trust companies have been incorporated by the use of one of three methods: (1) By special charter; (2) under the "business incorporation law"; (3) under the general banking law. Not very many of the States have used consecutively all three methods, for the special charter and the "business incorporation law" were used contemporaneously in different sections of the country. Both have given place, in the great mass of States, to the general banking law. From 1865 to 1875 probably the greater number of the banks formed were incorporated under special acts; from 1875 to 1887 incorporation under the "business incorporation law" was the prevailing method, and since then the general banking law has become the almost universal method of incorporating banks and trust companies. CAPITAL AND SURPLUS REQUIREMENTS When the States began to give attention to the regulation of the banking business the question of capital received immediate attention. The national-bank act and the banking laws in New York and the Middle West which had survived from the antebellum period contained provisions concerning the amount and payment of capital. A requirement with regard to capital was recognized as the central point in any system of bank regulation. The capital stock is a buffer interposed between the bank's creditors and losses which the bank may suffer. If there is no capital, losses may fall directly on the creditor, and the larger the capital stock, other things being equal, the less the likelihood of loss to the depositor. The States and Territories may be divided roughly into two groups according to the amount of the smallest permissible capital for state banks: 1. In the Eastern States and the more easterly of the Middle Western States, the banking laws, with one exception, require that banks shall have a capital of at least $25,000. 2. In the other sections of the United States banks in most of the States are incorporated with a capital as small as $10,000, although in a few of these States the smallest permissible capital is $15,000, $20,000, $25,000, and $30,000, and in one, North Carolina, it is $5,000. The amount of capital required, except in a few States, is not a uniform amount, but is graded, usually according to the size of the city in which the bank is located. In 29 of the 37 States and Territories which require under a general law a specified amount of capital for the incorporation of state banks the amount of capital is thus graded. The grading of the amount of capital required according to the population of the place in which a bank is located has been chiefly due to the desire to bring about some adjustment between the capital of each bank and the volume of its business. It is assumed that the larger the business of the bank the greater the chance of its suffering large losses and the larger the capital necessary to protect its depositors against loss. It is also assumed that the size of the city in which it is located is a rough index of the volume of business done by a bank. Under many of the state banking laws the grades are very numerous. The minute gradation of the capital requirements found in many of the state banking laws is due to the desire to encourage the formation of banks in the smaller cities and towns, for it is to be noted that in the greater part of the state laws the grades are not numerous for the larger places. Obviously, if any law requiring a minimum capital for banks is to be effective, it must provide specifically for the payment either of all the capital or of a specified sum; otherwise the directors of the bank may require the payment of only a small part of the capital. The provision in the national-bank act concerning the payment of capital has been the model for similar provisions in the banking laws of a large number of the States. Many of the state banking laws likewise contain the same provision as the national-bank act with reference to surplus. In several States the laws make no provision with reference to the amount of capital required for a trust company. In Connecticut, Delaware, New Hampshire, and Vermont, trust companies are incorporated only under special acts and the amount of their capital is determined in each particular case by the legislature. In Rhode Island trust companies are incorporated by a board which has power to fix the terms of incorporation, including the amount of capital. The first general laws for the incorporation of trust companies in the United States required such companies to have a much larger capital than that required for banks, but the later legislation shows a distinct tendency in the direction of lowering the requirements in regard to capital. In nearly all of the States, however, the requirement for trust companies is still substantially different from that for state banks. The smallest permissible capital for a trust company ranges from $5,000 in North Carolina to $1,000,000 in the District of Columbia. The majority of the States, which provide that trust companies must have a specified minimum capital, do not permit the organization of trust companies with a smaller capital than $100,000. In only one State, Iowa, is the smallest permissible capital less for trust companies than for state banks; in six States it is the same; in all the others it is larger. The accumulation of a surplus is not required in so many States for trust companies as for banks. LIABILITY OF STOCKHOLDERS With the practical prohibition of the issue of state bank notes in 1866 and the consequent decrease in the number of state banks, the liability of stockholders in state banks became in nearly all of the States, except where an additional liability was imposed by the constitution, the same as that of stockholders in ordinary business corporations. Since 1880, however, provisions imposing an additional liability on the stockholders of banking corporations have been placed in the banking and trust-company laws of nearly all the States in which state banks or trust companies have assumed any great importance. In the larger number of the States and Territories the liability is a proportionate one, and the stockholders are responsible "equally and ratably and not one for another." The imposition of the statutory liability on the stockholders of state banks and trust companies has not proved of great service as a protection to bank creditors against loss. As yet little has been accomplished in the way of making the enforcement of the liability effective. RESTRICTIONS ON LOANS AND DISCOUNTS The desirability of some legal limitation on the extent of the liability to a banking institution which any one person, firm, or corporation may incur is largely due to the fact, that, since the American banking system is a system of independent banks, the resources of many of the banks are necessarily small in comparison with the needs of some of their customers for loans. A large manufacturing concern located in a small town may very well be able to use all the assets of the local bank. If the local bank were the branch of a larger bank, the mere fact that a large loan was wanted by a manufacturer in a small town would be of no significance, since the amount of the loan would be small compared with the total assets of the bank. Moreover, in many banks a controlling interest is held by a person, firm, or corporation that is actively engaged in other business enterprises. Such control is far more likely to be found in small banks than in large, and in a system of independent banks than in one of branch banks. One consequence of the close identification of interest thus brought about between banking and other business enterprises is the probability that loans will be made directly or indirectly to some one borrower to an amount larger than a proper distribution of risks would justify. The national-bank act in its original form provided that the total liabilities to any national bank of any person, company, corporation, or firm for money borrowed should not exceed one-tenth of the amount of the paid-in capital stock of the bank. The liabilities of the members of the firm or company were to be included in the liabilities of the firm or company. It was provided, however, that "the discount of bills of exchange in good faith against actually existing values and the discount of commercial or business paper actually owned by the person negotiating the same" should not be considered as money borrowed. This section of the national-bank act remained unchanged until 1906, when it was amended so as to permit a single liability to be contracted equal to one-tenth of the capital and surplus, instead of one-tenth of capital only, but it was also provided that the liability should not, in any case, exceed 30 per cent. of the capital stock. In the banking laws of seven States the limit on the amount of single liability is the same as under the national-bank act. The banking laws of almost all the other States permit a larger amount to be loaned on a single liability than is permitted by the national-bank act. In nearly all of those States in which trust companies have acquired full banking powers the provision limiting the amount of any single liability applies to both banks and trust companies. In only one State or Territory--New Mexico--is there such a provision for trust companies and none for state banks. In a few States--Kansas, Michigan, Minnesota, Missouri, Montana, Oklahoma, New Jersey, Nebraska, and Wisconsin--there are limitations on the amount of a single liability for banks, but none for trust companies. LOANS TO DIRECTORS AND OFFICERS In almost all the banking institutions of the United States the directors or a part of them are actively engaged also in other business enterprises; and in many cases they borrow from the banks or trust companies in which they are directors. Moreover, in some banks one or two of the directors own a controlling interest, and are at the same time large borrowers. The possibility, in such cases, that larger loans may be made than the credit of those directors warrant is very considerable. The national-bank act contains no provisions regarding loans to directors, but in the laws of about one-half of the States attempts have been made to devise rules which would prevent the making of loans to directors in excess of the amount to which their credit entitles them. The requirement that loans to directors shall be formally approved by the board of directors is the one most frequently found. It has been thought that directors would be reluctant to vote for excessive loans to other directors if their vote is to be recorded. REAL ESTATE LOANS There is no more characteristic difference between state banking laws and the national-bank act than the fact that, in almost all the States, state banks and trust companies may make loans on the security of real estate, whereas national banks are [were] prohibited from doing so [before the passage of the Federal Reserve Act]. In some States, where the influence of the example of the national-bank act was strong enough at the beginning of state-bank regulation to secure the insertion in the state banking laws of the prohibition of real estate loans, it has later been found desirable to amend the laws in this respect. The Pennsylvania general banking law of 1878, for instance, did not permit banks to loan on real estate, but was amended in 1901, so as to permit such loans to be made. In North Dakota and South Dakota, also, similar changes have been made in the banking laws. In 1910 trust companies in all the States and Territories where incorporated under general laws were allowed to loan on the security of real estate. State banks so incorporated may also loan on real estate in all the States and Territories except New Mexico and Rhode Island. In Rhode Island, however, banks may loan on real estate part of their savings deposits. A few of the state banking and trust-company laws contain provisions limiting the amount which may be invested in real estate loans. Not withstanding the disadvantages of real estate as a convertible asset, the power to loan on the security of real estate is a valuable one to many of the state banks.[142] Many banks, particularly those in the smaller towns and cities, if restricted to loans on personal security, find it difficult to fully employ their funds. There are not sufficient local loans of this kind to employ all the funds of the bank; and the amount not so employed, if it is to yield a revenue, must either be invested in outside commercial paper or deposited with banks in the great commercial cities. RESERVES In most of the antebellum state banking laws reserves were required only against note issue. In Ohio, for example, the general banking law required a reserve of 30 per cent., against circulation, but none whatever against deposits. Several of the state banking laws which survived the destruction of the state bank-note issue contained, however, provisions requiring banks to hold a reserve against deposits; but in none of these States was the increase in the number of state banks important. In those States in which the state banks were organized under the "business incorporation laws" there were, of course, no reserve requirements. Until 1887 a reserve was required for state banks in only three States, Ohio, Minnesota, Connecticut, and in these the required reserves were small. Even since the revival of state bank regulation, which began in 1887, the requirement of a reserve has not been regarded in many of the States as an important part of the state banking law. The most striking and important difference between the reserve required by the national-bank act and the reserves required by the state banking laws is that under the national-bank act the reserve is a percentage of "deposits"--_i. e._, of all deposits--while under the banking laws of a majority of the States either no reserve is required against time or savings deposits, or a smaller amount of reserve is required than against demand deposits. None of the state banking laws require that the reserve of any class of banks shall consist wholly of cash in bank. All the laws permit balances in other banks to be counted at least as a part of the reserve. There are great differences among the laws, however, with respect to the amount which may be so counted. The laws in all the States leave the banks almost entirely free to deposit their funds in banks in the great commercial centres. The strong economic pressure toward concentration is thus left free to act toward drawing reserves into banks located in the reserve and central reserve cities. In the greater number of States which incorporate both state banks and trust companies the reserve requirement is the same for both classes of credit institutions. Slight differences between the requirements for trust-company reserves and those for state-bank reserves are chiefly of two kinds. In the first place, the provisions for trust-company reserves more frequently permit the counting of bonds as a part of reserve; secondly, the provisions for differing amounts of reserve against time and demand deposits. In recent years there has been much complaint in some States that the reserves required for trust companies are inadequate. BRANCH BANKS The most characteristic feature of American banking is the extent to which the banks and trust companies are independent institutions. The national-bank act makes no provision for the establishment of branch banks except in cases of the conversion of state banks which already have branches. Such banks are allowed to retain their branches on condition that the capital is assigned to the mother bank and the branches in definite proportions, but only a few national banks have branches. Under none of the state banking laws has there been built up an important system of branch banks. This has been partly due to the very general desire of each American community, no matter how small, to have its bank managed by its own citizens, and partly to the fact that in most of the States the establishment of branch banks is either explicitly forbidden or in no way provided for by law. In eight States--Colorado, Connecticut, Mississippi, Missouri, Nevada, Pennsylvania, Texas, and Wisconsin--the opening of branch offices is forbidden by specific enactment. In a large number of other States the banking laws make no provision for the establishment of branches, and it has been held in most of these States that the opening of branch offices is unlawful. The States in which state banks and trust companies are definitely permitted to have branches are California, Delaware, Florida, Georgia, New York, Oregon, Rhode Island, Virginia, and Washington. In Louisiana, Maine, and Massachusetts trust companies may have branches. In Maryland and North Carolina branches are operated by some banks and trust companies which were chartered by special act. There are in several of these States, however, restrictions on the opening of branch offices. In New York and Massachusetts branches may be established only in the city in which the principal office of the bank or trust company is located. In New York, moreover, only banks located in a city of 1,000,000 inhabitants or over may have branches; but any trust company may have branches. In Maine a trust company may establish branches only in the county in which it is located or in an adjoining county. In nearly all the States which permit banks or trust companies to establish branches one or both of two conditions are imposed. In the first place, additional capital is required for each branch bank over and above the amount of the parent bank. Secondly, the establishment of a branch bank must be specifically authorized by some state official or officials. The number of branches of banks and trust companies cannot exceed a few hundred in the entire United States. Compared with the total number of banks and trust companies this is a small development. Moreover, the most important affiliations among banking institutions are among those located in the same city. The "chains" of country banks possess, for the most part, little vitality, and in the total banking business of the country they play an insignificant rôle. The great mass of state banks and trust companies are independent institutions. The most enduring affiliations at present existing among the banking institutions are those between a national bank and a trust company or a state bank and a trust company. The comparatively limited powers of the national banks and in some States of the state banks have made it desirable for many of these institutions to affiliate trust companies with themselves in order that desirable business may not be lost. FURTHER REASON FOR THE LACK OF BRANCH BANKS IN THE UNITED STATES [143]It would seem that there must be a reason for this peculiarity [the small number of branches] in the banking system of the United States. In searching for this reason, the first fact of importance seems to be that, although the organization of branches has been permitted to the non-note-issuing banks in some of the States, they have not been organized, while in other countries they have been established in nearly every case. by note-issuing banks. This seems at once to indicate that in places where notes are the most important medium of exchange a connection of some sort exists between the issue of notes and the establishment of branches. The inducement to the establishment of branches by banks is, of course, the possibility of profit. But as has already been frequently pointed out, profit can be obtained only by making loans. These when greater than the amount of the capital, as it is necessary that they should be, can be made by the loan of funds left with banks by others or by the issue of circulating notes. It is also clear that, were the possibilities of loaning beyond the amount of the capital wholly or chiefly confined to one of these forms of liability--the other being unavailable, as in the case of the state bank notes whose issue is prohibited by the 10 per cent. tax--and were this other form distasteful or impossible of introduction among the community where the branch was to be established, the motive for the creation of the branch would be absent. This motive has been wanting in many parts of the United States. By the laws of the United States, the issue of notes has been made impossible to all save national banks, and the capital of these banks has been limited to $50,000 as a minimum. Banks other than national must, therefore, be established under state laws, some of which have permitted the organization of such institutions with capitals as low as $5,000 or $10,000. They can, however, make use only of deposits as a means of loaning beyond the amount of their capital. But deposits do not provide a desirable form of currency for use in country districts. It follows, therefore, that the state-bank systems supply the deficiencies of the national system only in so far as they furnish independent banks of smaller capital than $50,000 ($25,000 since 1900). Nor would it have been of material assistance had the organization of national banks of capitals smaller than $50,000 been allowed. As the system has worked out, the issue function has been a useless one. The compulsory deposit of bonds to secure circulation has hampered the banks in exercising this function, since the requirement to deposit bonds now cuts off all profit arising from the issue of notes. Moreover, the rural communities are those where interest is highest, and hence where notes can least advantageously be issued under the present system of bond-deposit, owing to the high price of the bonds. These difficulties probably cannot be overcome by the establishment of banks of lower capitals than now exist. [144]At the 1910 convention of the Alabama Bankers' Association, held in Birmingham in May, one of the speakers, whose topic was "State Banks and Their Branches," closed a condemnatory address with the words: "We believe the days of the branch bank are numbered." Two months later, at Cooperstown, Hon. E. B. Vreeland told the bankers of New York State, at their convention: "No one will ever live to see the day when the branch banking system which prevails in Canada and in Germany and in England and in France will be tolerated by the people of the United States."... "The economies of the branch banking system are such that no other system can live beside it. It is just as sure as the sun will rise to-morrow that the branch banking system, if taken up in the United States, would in the end drive out of existence all the banks in every city and town in the country outside of the great financial centres. That is the experience of the world." If this statement means anything it is a confession that the system of local single-office banks is wasteful in operation, and it seems to me that it sets forth one reason why branch banks are inevitable. When a banking system is wasteful it is the stockholders, borrowers, and depositors who suffer from the circumstance, and as soon as they realize the fact its doom is sealed. It should be said here that it is not their economical operation alone that has enabled the branch banks to displace the small local banks in England, Germany, and France. The branch institutions are cleaner, more efficient, and they provide better opportunities for the clerks and officers; they give a better and more complete service to the localities in which they work.... Another reason is found in their stability during crises.... THE NEW YORK STATE BANK ACT OF 1914[145] In June, 1913, George C. Van Tuyl, Jr., superintendent of banks of the State of New York, appointed a commission to look into the banking conditions of the State and to make a thorough revision of the law relating to banks. This commission conducted many public hearings; sought information from banking experts in this State and in other States; made a careful study of private banking conditions, rural credits, and other special banking problems of the State; and, finally, on February 25, 1914, they presented their report in the form of a bill of some 500 pages. After a good many amendments had been made to appease conflicting interests, the bill was passed and became law April 16, 1914. In general, the new law marks a decided improvement and shows a commendable spirit of progressiveness. Its framers believe that it is a law which may well become the model for other States, and there are some who say that it is without question the best balanced and most comprehensive state banking legislation which has ever been enacted. The new law was the outgrowth of the general agitation for banking reform which had swept over this country following the panic of 1907. The inciting cause, however, was the passage of the Federal Reserve Act which made it necessary to revise the state law so that the state banks either might join the federal system or be in a position to compete successfully against the national banks of the State, whose powers had been considerably enlarged by this act. In part, the law is modelled after the federal act, and, in part, European experience has been drawn upon. Under the new law the state banks will have even more importance in the competition for banking business than in the past. From the point of view of banking power, the 278 banks of deposit and discount and trust companies have aggregate deposits in excess of those of the 479 national banks in the sum of $281,786,000.[146] Furthermore, it has been estimated that the total resources of the New York state banks are equivalent to 17 per cent. of the aggregate resources of all banks in the United States, both state and national. Superiority in banking power is one element in the strong competitive position of the state banks, and another element is the privileges granted to these banks under the new law which, in some respects, are superior to those granted the national banks under the federal law. In view of the fact that the state banks can enjoy either directly or indirectly most of the advantages of the federal system and also that in some particulars the state law gives them more liberal powers, it seems probable that these banks will continue to see an advantage in their state charters; and thus the amount of defection from the state system will be negligible. More real power has been given to the banking department in the provisions of the law. Through investigation, authorization certificates, and regular uniform reports, the superintendent of banks has more direct control over the banks than ever before. Besides the extension of the supervisory powers, the penal provisions of the act have been strengthened and made more exacting. 1. _Features of the act relating to banks of deposit and discount and trust companies._ The reserves required against deposits were reduced substantially, and made nearly uniform with those required for national banks. The following table gives the percentage of reserve required and the percentage of reserve on hand which the new law specifies for these banks. ------------------------+---------------------+-------------------------- |Banks of deposit and | | discount | Trust companies |Per cent. of deposits| Per cent. of deposits ------------------------+----------+----------+----------+--------------- Population | Required | Reserve | Required | Reserve | reserve | on hand | reserve | on hand ------------------------+----------+----------+----------+--------------- 2,000,000 or over | 18 | 12 | 15 | 10 1,000,000-2,000,000 | 15 | 10 | 13 | 8 Elsewhere in the state | 12 | 4 | 10 | 4 or 3 ------------------------+----------+----------+----------+--------------- The reserve requirements are made still more definite by the fact that the law compels the banks to keep one-half at least of the reserve on hand in "gold, gold bullion, gold coin, United States gold certificates, or United States notes: and the remainder in any form of currency authorized by the law of the United States other than federal reserve notes." Among the powers granted to these banks is the power "to accept for payment at a future date, drafts drawn upon its customers and to issue letters of credit authorizing the holders thereof to draw drafts upon it or its correspondents at sight or on time not exceeding one year." This clause gives a much wider power to the state banks in the important matter of acceptances than its counterpart in the Federal Reserve Act. In the one case both domestic and foreign acceptances may be made and handled without stipulation as to aggregate amount and bearing maturities of one year or less, while in the other case the acceptances are limited to those arising out of the importation or exportation of goods with maturities not exceeding six months. Seemingly, the state banks have the advantage, and to this extent the state law is superior to the federal act. One other important forward step was taken in relation to this group of banks. They are given the privilege of establishing branches outside the State of New York, either in the United States or in foreign countries. This privilege is qualified, however, by the provision that no bank can establish such branches unless it has a combined capital and surplus of $1,000,000 or over and the written approval of the superintendent of banks. Although the old law permitted trust companies to establish branches in the place where they were incorporated, the practical effect was to limit branch banking to the city of New York. In this particular also the state banks have the advantage over the banks in the federal reserve system which are allowed to establish branches only in foreign countries. 2. _Features relating to private banks and bankers._ The regulation of private banks and bankers is an entirely new departure in the law of this State. In the past the banking department had no authority to supervise that relatively large number of private bankers who receive deposits in small amounts from the wage-earning classes while conducting in connection therewith a mercantile or some other kind of business. Mercantile firms like the Siegel Company, by paying a higher rate of interest upon deposits than savings banks, were able to obtain the savings of many small depositors. This money was invested in the business and secured only by the capital stock of the mercantile establishments. In case the firm failed there was no security back of these deposits but these same shares of stock, and so depositors were fortunate if they received in settlement even 40 per cent. of their claims. Such firms were not doing a legitimate banking business inasmuch as they did not keep their assets in liquid form and carried no reserve against deposits. The new act corrects this situation by giving the banking department authority to conduct independent investigations into any violation of the banking law by a corporation or individual. In the future a corporation which is in any way engaged in the business of banking cannot hide under the wing of the general corporation law when the banking department sees fit to make an investigation of its affairs. Some of the specifications of this part of the law are all securities, property, and the evidences of title thereto in which the permanent capital and the deposits are invested are to be segregated and kept separate from all other property and assets of the private banker; depositors have a prior lien on the assets of the private banker, in case of insolvency or suspension of business; and, in addition, every private banker must maintain a reserve of 15 per cent. against deposits in cities of the first class and a reserve of 10 per cent. in any other city, one-tenth of which shall consist of reserve on hand and the remainder may be kept on deposit subject to call with banks approved by the superintendent of banks. These requirements will go far toward preventing the recurrence of such disasters as the Siegel failure. 3. _Features relating to co-operative credit._ Within the last thirty years the agricultural methods of the State, in harmony with the agricultural methods throughout the United States, have undergone great changes. Scientific farming, improved machinery, and changed market conditions have brought new problems in the field of agricultural credit. To-day agriculture has come to be in a real sense capitalistic and has in consequence laid new requirements on the credit structure of the nation. Moreover, the period of large returns or satisfactory returns from an extensive and rather careless cultivation of the soil, which made possible an ignoring of unit cost, or, at least, brought the farmer to minimize the importance of such cost, has given way, so far as the successful farmer is concerned, to the careful estimates of cost and close calculations of profits on a narrow margin between unit cost and unit selling price. In the field of cost, the rate at which capital or money may be borrowed is no small factor; and with the high rates prevailing in the United States in comparison with those current in Europe, the borrower in this country who pledges his land or agricultural products as security for a loan finds himself at a disadvantage. To meet this condition cheaper agricultural credit has been strongly urged. Europe furnishes the example in her well-organized land banks and co-operative credit unions. Already Massachusetts has a law authorizing co-operative organizations for furnishing cheaper credit facilities to the agriculturalist, and in Illinois there is a "crédit foncier" which has been in successful operation a number of years. New York State has put itself in line with this growing movement to furnish ample and cheaper credit to the farmer and the purchasers of real estate by putting into the new law provisions for the establishment of a land bank and co-operative credit unions. Sections 421-438 authorize ten or more savings and loan associations, the aggregate resources of which shall not be less than $5,000,000, to form a Land Bank of the State of New York. This bank can "issue, sell and redeem debenture bonds secured by bonds and first mortgages made to or held by member associations" and "invest its capital and other funds in bonds secured by first mortgages on real estate situated within the territory in which its members are authorized to make loans." The bank is not permitted to do a general deposit business or incur any indebtedness upon notes and bonds in excess of twenty times the amount of its capital. The debenture bonds authorized by the act are to be issued in series of not less than $50,000, and may be called on any interest day at 102-1/2 provided a sixty-day notice is given. Amortization payments upon mortgages which are given as collateral security for the debentures of the land bank shall be sufficient to liquidate the debt in a period not exceeding forty years. In Article XI the law provides for the establishment of credit unions. A credit union may be organized by any seven or more persons with a share capital the par value of which shall not exceed $25. The objects of the credit union are: (1) to loan money in small amounts on personal security or in larger amounts on endorsed notes at rates not exceeding 1 per cent. per month, inclusive of all charges incident to the making of such loans; (2) to receive the savings of its members in payment of shares on deposit; (3) to borrow money to an amount not to exceed 40 per cent. of its capital; (4) to pay dividends on its share capital. As to the method of making loans, the law prescribes that a credit committee shall pass upon all applications for loans which must be made in writing and must state the purpose for which the loan is desired and the security offered. No loan will be made unless it receives the unanimous approval of the members of the committee present at the meeting, provided always a majority of the committee is present. With the land bank acting as a central clearing agency for the local savings and loan associations and the organization of many rural credit unions the problem of agricultural credit will be largely solved for New York State. This, however, all hinges on the proper functioning of the land bank and the co-operation of the farmers in the establishment of local credit unions. Agriculturists as a class are slow to adopt new methods and it may be only after prolonged education that all the possibilities of this new legislation will be realized. FOOTNOTES: [140] Adapted from George E. Barnett, _State Banks and Trust Companies since the Passage of the National Bank-Act_, Publications of the National Monetary Commission. Senate Document No. 659, 61st Congress, _Second Session_. [141] [At least one savings bank has gained admittance to the Federal Reserve System as a "state" bank.] [142] According to reports to the National Monetary Commission on April 28, 1909, the loans of all the state banks in the United States on the security of real estate were 20.6 per cent. of their total loans and discounts. [143] _The Report of the Monetary Commission of the Indianapolis Convention_, pp. 377-8. The University of Chicago Press. 1898. [144] Adapted from H. M. P. Eckardt, _Branch Banking Among the State Banks_, The Annals of the American Academy of Political and Social Science, Vol. 36, No. 3, November, 1910 pp. 626-630. [145] Adapted from Everett W. Goodhue, _The Revision of the New York State Banking Law_, The American Economic Review, Vol. V, No. 2, pp. 413-421. [146] Annual Report of the Superintendent of Banks of the State of New York, Jan. 6, 1915, p. 33. CHAPTER XXI THE CANADIAN BANKING SYSTEM [147]Financially, Canada is part of the United States. Fully half the gold reserve upon which its credit system is based is lodged in the vaults of the New York Clearing House. In any emergency requiring additional capital Montreal, Toronto, and Winnipeg call on New York for funds just as do St. Paul, Kansas City, and New Orleans. New York exchange is a current and universal medium in Canada and is in constant demand among the banks. A Canadian wishing to invest in securities that may be quickly marketed commonly turns to the New York market for stocks and bonds. Yet the American banker visiting in Canada, if he is unacquainted with the history of banking in his own country, finds himself in a land of financial novelties, for Canada has a banking system unlike any in operation in the United States at the present time. Twenty-nine banks, known as the "chartered banks," transact all the banking business of the Dominion. They have 2,200 branches, and each may establish new branches without increase of its capital stock. [At the close of the year 1915 there were twenty-two banks with approximately 3,200 branches.] They issue notes without depositing security with the Government and in such abundance that no other form of currency in denominations of $5 and above is in circulation. Notwithstanding the fact that the notes are "unsecured," their "goodness" is unquestioned among the Canadian people. THE SYSTEM NOT NEW But to the student of the history of banking in the United States there is little that is radically new in the Canadian system. He finds in it many of the practices and expedients that were found excellent in the United States in the first half of the nineteenth century, and is almost persuaded that but for the Civil War what is now known as the Canadian banking system would everywhere be called the American system. The fiscal exigencies of war, which have caused changes in the banking systems of most countries, have had no influence upon the development of banking in Canada. During the first half of the nineteenth century the commercial and financial interests of Canada and the United States were comparatively intimate and the financial institutions of both countries developed on similar lines. The safety-fund system, first introduced in the State of New York in 1829, found favor also in Canada and is still an integral part of the Canadian banking system. Branch banking, which was most successfully illustrated in this country by the State Bank of Indiana, and which now exists in some form or other in almost all countries except the United States, has always prevailed in Canada. The importance of a prompt redemption of bank notes as exemplified in the old Suffolk banking system in New England before the war, was fully realized in Canada and is probably better illustrated in the present Canadian system than in any other country. There bank notes and bank checks are treated as identical in nature, both being cleared with the same regularity and promptness. The so-called free banking system, which was first adopted in the State of New York in 1839 and thereafter adopted by eighteen other States of the Union, was tried in Canada in the fifties, but not on a large scale. This system, requiring that issues of bank notes should be secured by a segregated deposit of certain classes of stocks and bonds, has never met with approval among the leading bankers of Canada. The Canadian system is a product of evolution. It has taken its present form because of the commercial and financial needs of the Canadian people. It was not created by lawyers or statesmen to meet a fiscal need of the Government, but has grown up gradually under the fostering care of experienced bankers, no changes having been made until experience proved them necessary or advisable. The chartered banks transact the business which in the United States is divided among national banks, trust companies, private banks, and savings banks. They buy and sell commercial paper, discount the notes of their customers, lend money on stocks and bonds, make advances to farmers, and sometimes aid in the financing of railroads and industrial enterprises. To a Canadian the word "bank" means one of the twenty-odd "chartered banks," for the law prohibits the use of the word "bank" by any other institution. OTHER FINANCIAL INSTITUTIONS The only other financial institutions in Canada which possess much importance are the mortgage and loan companies. These usually operate under charters granted by the provincial legislatures and do a business similar to that of the farm and mortgage companies which once flourished in the United States, making loans to farmers for a term of years and taking farm mortgage for security. They also make loans upon urban and suburban real estate and thus aid in the upbuilding of the cities and their suburbs. The business of these institutions is made possible by the fact that the bank act does not permit the chartered banks to accept loans secured by real estate. The Dominion Government maintains a double system of savings banks. One set is managed by the post-office department, every post-office receiving deposits. The other set is managed by the finance department. The post-office department also sells annuities and old-age pensions. The money received through the savings banks is regarded as a loan from the people and is used, like money obtained by taxation, in the payment of the Government's general expenses. The Government is required to carry a gold reserve of 10 per cent. against the savings deposits, but no assets are set aside for their security. The chartered banks pay the same rate of interest and get most of the business, for they offer facilities with which the Government does not attempt to compete. Most of the Government's deposits come from the poorest and most ignorant classes, people who in all countries are suspicious of banks. Some of the Canadian cities maintain municipal savings banks, but they are of relatively small importance. Trust companies in Canada are not financial institutions. They are trust companies in fact as well as in name, their business being to act as trustee and administrator. A few of them accept deposits, although it is not certain that they have a right to do so. The bulk of the money they handle comes to them through the administration of estates and trust funds. Private banking firms are almost unknown in Canada, there being only two or three in the entire Dominion, and these do a mortgage and loan business rather than a strictly commercial banking business. Hence, if any one seeks to understand the financial or banking situation in Canada, he must devote his attention in the main to the chartered banks. These through their branches furnish the loanable capital necessary for the support of the Dominion's trade and industry and for much of its agricultural enterprise. To them the Government turns when funds are needed for internal improvements or when the exchequer faces a deficit. The promoters of street railways, steam railways, steam railroads, and other permanent improvements take counsel with the managers of these chartered banks before they issue their securities. The banks as a rule do not invest their funds in the stocks or bonds of new enterprises, yet their managers are the men most familiar with the world's money markets and their approval, therefore, of any financial undertaking is highly esteemed. THE ESSENTIALS OF THE SYSTEM A chartered bank in Canada is a bank of branches, not a bank with branches. The parent bank, technically known as the "head office," neither takes deposits nor lends money. All the banking business is done by the branches, each enjoying considerable independence, but all subject to the supervision and control of the head office. The law places no restrictions upon the number or location of branches. Canadian banks, therefore, have branches in foreign countries as well as in Canada. PROCESS OF INCORPORATION The provisions of the bank act with respect to the organization of new banks are intended to guard against the entry of unfit or inexperienced persons into the banking business. The minimum required capital of a bank is $500,000, of which all must be subscribed and one-half paid in before a new bank can open. At least five men of integrity and good financial standing must agree to act as provisional directors and secure a favorable report on their project from the parliamentary committee on banking and commerce. These men must agree to subscribe for fairly large blocks of stock, otherwise the committee will be inclined to reject their application. They must convince the committee that their project is a well considered one, that there is need for the new bank. If they satisfy the parliamentary committee it will be granted. The bank, however, cannot yet begin business. Provisional directors now have merely the right to advertise and cause stock books to be opened. If inside of one year capital stock to the amount of $500,000 has been subscribed and $250,000 thereof paid in, the provisional directors may call a meeting of the shareholders, at which a board of regular directors shall be chosen. Before this meeting is held at least $250,000 in cash must be paid over to the Minister of Finance. The regular directors must then apply to a body known as the treasury board for a certificate permitting the bank to issue notes and begin business and the treasury board may refuse this certificate unless it is entirely satisfied that all the requirements of the law have been met. Delay on the part of the treasury board might prove fatal to the new enterprise, for if a new bank does not obtain a certificate within one year from the date of its incorporation, all the rights, powers, and privileges conferred by the act of incorporation cease. These requirements make it impossible to organize a new bank in Canada with any degree of secrecy. NOTE ISSUES Having obtained its charter, a new bank must open its head office in the place designated, and may then proceed to establish branches or agencies, upon the number and location of which the law places no restriction. Under its charter it has authority to issue circulating notes up to the amount of its unimpaired paid-up capital in denominations of $5 and multiples thereof. An amendment of the bank act passed July 20, 1908, gives the bank the right to issue what may be called an emergency circulation during the crop-moving season (October 1 to January 31). During this period the legal maximum of the circulation of a bank is its paid-up capital plus 15 per cent. of its combined paid-up capital and surplus or rest fund. This emergency circulation, which consists of notes in form and in other respects exactly like the regular issues, is subject to a tax at a rate not to exceed 5 per cent. per annum, the rate being fixed by the governor in council. If a bank's circulation does not exceed its paid-up capital, it pays no tax. SECURITY OF NOTES The law is silent on several subjects that seem of great importance to most bankers in the United States. For instance, it does not require that the banks shall deposit with a government official, or in any way set aside any kind of security for the protection of the note holder. It does not even require that the banks shall carry a cash reserve against either notes or deposits, nor does the law make the notes a legal tender for any payment. A bank need not accept the notes of other banks. The Government does not guarantee the redemption of the notes. Neither does it bind itself to receive them in payment of dues to itself. Nevertheless the notes of the Canadian banks are everywhere acceptable at par, the people apparently not being at all concerned about their "goodness." And their confidence in the note has been well justified, for nobody since 1890 has lost a dollar through the failure of a bank to redeem its notes. Following are the legal requirements, which for twenty years have proved adequate protection for the note holder: 1. Every bank must redeem its notes at its head office and in such commercial centres as are designated by the treasury board. The redemption cities are the same for all the banks. They are Toronto, Montreal, Halifax, Winnipeg, Victoria, St. John, and Charlottetown. 2. Each bank must keep on deposit with the Minister of Finance a sum of lawful money (gold or Dominion notes) equal to 5 per cent. of its average circulation; the total so deposited is called the "circulation redemption fund." It is a guaranty or insurance fund for use, if need be, in the redemption of the notes of failed banks. 3. Bank notes possess first lien upon the assets of a bank. 4. Bank stockholders are liable to an assessment equal to the par value of their stock. 5. A bank must make to the Minister of Finance on or before the fifteenth of each month a detailed statement of its assets and liabilities on the last business day of the preceding month. This monthly return, the form for which is set forth in the act, must be signed by three general officers. 6. The Canadian Bankers' Association, an incorporated body of which each bank is a member, is given supervision by the bank act of the issue and cancellation of notes and of the affairs of a failed bank. 7. The notes of a failed bank draw interest at 5 per cent. from the date fixed for their redemption by the Minister of Finance, who may redeem them out of the assets of the bank or out of the "circulation redemption fund." IMPORTANCE OF REDEMPTION Each of these provisions of the law has its value and significance, but only the first is absolutely essential to the successful operation of the system. All the other provisions might be changed or abolished without impairment of the efficiency of the banking system. But the abolishment of this redemption system would at once give Canada a new banking system. The bank note is _almost the sole circulating medium_ in Canada, and the people have confidence in it because it is tested every day at the clearing houses and proves itself as good as gold. This daily test would probably not take place with the same regularity as now if the banks did not have branches or if they were obliged to deposit security against their issues. Canadian banks are national, not local institutions. All but a few of them have branches in every part of the Dominion, and these branches, as fast as they receive the notes of other banks, either send them in to the nearest redemption centre or convert them into lawful money--or its equivalent, a bill of exchange--through branches of the issuing banks located in the same towns. Each bank is seeking, through its branches, to satisfy all the legitimate needs of the people for a circulating medium. When the note of a bank is in circulation it is earning money for the bank, but when it is in the vault or on the counter of the bank it is an idle and useless piece of paper. Hence every bank always pays out its own notes through its branches and sends the notes of other banks in for redemption, thus increasing its own circulation and _strengthening its own reserve_. Furthermore, if the banks were not allowed complete freedom of issue within the prescribed limit, but were required to deposit some form of security, as is required of the national banks in the United States, an investment or speculative risk would arise that would inevitably cause friction. If bonds were designated as security, bankers might often be tempted by high prices to sell their bonds and forego the profit on circulation for the sake of making a larger profit by the sale of the security. Thus the volume of bank notes might contract even at a time when the people needed more currency. In such case, of course, Canada would be obliged to import gold in order to fill the gap in the circulating medium. THE CIRCULATION REDEMPTION FUND The 5 per cent. insurance fund for the redemption of the notes of failed banks is theoretically an important and prominent part of the system, yet practically it would seem to be of little consequence, for not once since 1890 has it been necessary to use a dollar of the fund. Banks have failed, to be sure, but the notes of these banks have always been redeemed either out of the assets or by recourse to the double liability of the shareholders. It is a mistake to suppose that the people of Canada have confidence in bank notes because of the existence of this redemption fund. The average business man knows nothing about the fund and if his attention were called to it as being a source of security for the bank notes, he would probably think a 5 per cent. reserve altogether too small. The real reason why the people have faith in bank notes is because the notes are always honored by the banks and never fail to stand the test of the clearing house. In other words, they believe that bank notes are good for about the same reason that they believe the sun will rise in the east every twenty-four hours, and do not bother themselves about reasons. Nevertheless this redemption fund does contribute to the strength of the banking system. It makes each bank to a certain extent liable for the mistakes of other banks, and as a result gives rise to a spirit of mutual watchfulness and helpfulness. Other features of the system contribute to the same result, especially the fact that a Canadian bank accepts from a depositor without indorsement the notes of other banks. Since the banks have branches in agricultural and mining communities, often distant from the railroad by several days' journey, and these branches are accepting the notes of other banks and giving credit for them as if they were gold itself, it is evidently important that each banker should have all possible information with regard to the status and business of his competitors. As a result one finds among the bankers of Canada a surprisingly intimate knowledge of each other's affairs. TWO NEGATIVE QUALITIES The two negative qualities of the Canadian bank note--its lack of a legal-tender quality and of a government guaranty--at first sight may seem to readers in the United States a source of weakness. Yet Canadian bankers would doubtless all agree that nothing would be gained by making bank notes legal tender for any kind of payment or by making the Government in any measure liable for their ultimate redemption. Such measures would probably be rejected as likely to prove harmful. It would be like hampering a flying machine with unnecessary bars of steel. Bank notes, like bank checks, are mere promises to pay money and are more convenient than money because they can be created as need for a medium of exchange arises. When either has done the work that called it into existence, it should disappear from circulation and be redeemed. If it is made a legal tender like money itself, or if its redemption is guaranteed by a strong government, there is always the danger that ignorant classes of people will regard it as money itself and withdraw it from circulation. The Canadian Government has nothing to do with the daily redemption of bank notes and does not guarantee that they shall be redeemed. It is custodian of the 5 per cent. redemption fund and is under obligation to redeem the notes of failed banks out of this fund, but if a series of bank failures should exhaust it the note holder has no guaranty that government funds will be used for his relief. The possession by the note holder of a first lien upon the assets of a bank, including the funds that may be collected from shareholders on account of their double liability, gives rise to such general confidence in the ultimate convertibility of a bank note that the notes of a failed bank, on account of the interest they bear, sometimes command a premium. As a rule, the notes of such a bank are collected by the other banks and held until the date of redemption has been named by the Minister of Finance. CANADIAN BANKERS' ASSOCIATION The Canadian Bankers' Association is an incorporated body with powers and duties prescribed in an amendment to the Bank Act passed in 1900. Each chartered bank is represented in the membership and has one vote. The association is required by law to supervise the issue of bank notes and to report to the Government all over-issues, to look after the destruction of worn and mutilated notes, and to take charge of suspended banks. Its headquarters are in Ottawa. The expenses of the association are apportioned among the banks and do not apparently constitute a very heavy burden, for the secretary has an exceedingly small staff. All expenses incurred by the association on account of a suspended bank are, of course, a charge against the assets of the bank. When the notes of a bank are so worn or mutilated that it wishes to replace them with new notes, notice is sent to the secretary of the association, a date is fixed, and in the presence of the secretary the old notes are duly counted and taken to a furnace, where they are consumed in the presence of the secretary and other witnesses. After this solemn operation has been performed and the signatures of all parties observing it have been duly attested, new notes are issued by the association to replace those that have been destroyed. The clearing houses in the Dominion are subject to regulation by the association. It also has the power to establish sub-sections and to do educational work by providing for lectures, competitive papers, examinations, etc. The _Journal of the Canadian Bankers' Association_, a quarterly publication of excellent quality, is edited by the secretary and is at present the only educational force at work among bank employees. ELASTICITY OF THE CIRCULATION While the amount of notes that the chartered banks may issue is limited by the Bank Act to the amount of their paid-up capital, experience has proved that this legal limitation is only nominal and that the real and effective limit is imposed unconsciously and automatically by their customers and themselves. Each constantly seeks to increase its issue of notes to the legal limit, yet the combined efforts of all are never able to force into circulation more notes than the people need. The reason why an excessive issue of bank notes in Canada is impossible is found in the two following facts: 1. Every bank must redeem its notes on demand in seven commercial centres in different parts of the Dominion. 2. The monetary circulation of Canada, exclusive of $1 and $2 bills, and "change" consists entirely of bank notes. The redemption system is an automatic and effectual check against inflation. It is easier to get notes redeemed in Canada than it is to secure payment of checks in the United States, for the notes are redeemable at different points throughout the Dominion and no exchange is ever charged. If a country merchant accumulates more currency than he desires to keep on hand, he deposits it, together with his checks and drafts, in the local branch of his bank. This branch immediately sorts out the notes of other banks and treats them as it does checks and drafts upon other banks, either sending them to the nearest redemption agency or using them as an offset in the local clearing house if the issuing banks have branches in the locality. The branches of a bank are not obliged to redeem the notes of the parent bank, but must accept them at par in the payment of all dues. Thus each bank is doing its utmost to bring about the redemption of the notes of other banks. At the same time it is paying out its own notes to all customers who ask for cash, seeking to bring its circulation up to the limit. As a result of these operations, two powerful forces are constantly at work, one putting notes into circulation, the other retiring them, and the people of Canada always have on hand just the amount of currency they need and no more. It is the people, not the banks, who determine how much the circulation of the banks shall be. BANK NOTES HAVE NO COMPETITION The fact that the bank note has exclusive possession of the monetary field in Canada is most important. His ignorance of this fact is one reason why the average banker or business man in the United States has been unable to get a practical understanding of the Canadian system. Its significance is easily seen. If Canada, like the United States, had in circulation a lot of government notes in denominations of $5, $10, $20, the Canadian banks would be able to increase their issues of bank notes almost without limit, for their new notes would simply take the place of the government notes, the latter going into bank reserves. The people of Canada in making deposits would not discriminate against bank notes, but would deposit the government paper quite as freely as the bank paper. As a result, the amount of the government paper in circulation would gradually decrease and the amount of bank notes would increase. The volume of Dominion notes in the vaults of the banks would expand, and as these notes are redeemable in gold the banks would feel justified in larger extension of their credit, so that an increase in deposits and current loans would ensue. Under such circumstances such freedom of issue as is enjoyed by the Canadian banks would doubtless result in inflation. But such conditions do not exist in Canada. All the paper currency in the hands of the people, excepting $1 and $2 bills, is in the form of bank notes. There is no chance to substitute bank notes for government notes. Hence, if at any time business relaxes and the need for money among the people grows less, an increasing tide of bank notes flows into the banks. The people who bring these notes do not ask for money in exchange, for to them the notes are money. They take bank notes to the banks just as people in the United States take greenbacks and silver certificates--to be exchanged for a deposit credit or account. NO LIMIT OF ISSUE REALLY NECESSARY Theoretically there is no reason why any limit should be fixed upon the amount of notes which a bank may issue. Even though a bank has a monopoly of issue in a country--like the Bank of France--it nevertheless is unable to expand its circulation beyond the people's needs. Such a bank, unless it should adopt a reckless policy of lending which would bring ruin quickly upon itself, can exercise very little influence upon the amount of currency in circulation. In a country like Canada, where several banks are issuing currency, no single institution can enlarge its issue of notes beyond the needs of its own customers. If it should endeavor to do this by lending freely to customers who promised to use its notes in different parts of the country, the effort would be futile. The notes would quickly find their way into the branches of other banks and be sent in for redemption. Like most other countries, however, Canada has placed a limit on the note-issuing privilege, fixing it at the amount of a bank's paid-up capital. While there is no scientific necessity that such a limit be fixed in order to prevent the over-issue of notes, nevertheless there are other considerations which justify it. It is an indirect method of compelling banks to increase their capitalization _pari passu_ with the growth of their business. Inasmuch as the capital of a bank is the stockholder's contribution toward its assets, it is exceedingly desirable that this contribution be made as large as possible, for, other things being equal, the strength of a bank varies with the amount of its capital. It is not unreasonable, therefore, to require that banks in return for the useful note-issuing privilege should be required to keep their capital resources large. When a Canadian bank has reached the limit of its note issue--which has rarely happened--it begins at once to treat the notes of other banks very much as if they were its own. Instead of going to the expense of sending them in for redemption, it uses them as counter money, paying them out to depositors in response to their calls for cash. If all the banks in Canada should issue notes up to the limit, as some of them did during the exciting months of 1907, and if the current rate of interest did not warrant the issue of the taxed notes provided for by the amendment of 1908, the note circulation would immediately lose its elasticity. As further expansion would be impossible, the banks would have to meet any increasing demand for currency by paying out gold and Dominion notes, thus depleting their reserves. Such a situation would doubtless lead to a sharp advance in the discount rate and to the importation of gold. THE PRACTICAL LIMIT UNDER THE LEGAL It should be noted that the practical limit of note issue is about 10 per cent. below the legal limit. The manager of a bank having a paid-up capital of $1,000,000 begins to get nervous when his circulation equals $900,000. His office may be in Montreal and his bank may have branches in the far East and in the far West and in the mining wilderness of the North. Some of these branches he can not reach by telegraph and some are distant a week by mail. He immediately sends warning to all the branches and cautions them against any large out-giving of notes and against entering into transactions which will be likely to lead to unusual demands for currency. On account of this situation, even in times of greatest pressure, the total issue of the banks is usually 10 per cent. below the authorized limit. DEPOSITS The liabilities of Canadian banks, like those of commercial banks in Great Britain and the United States, furnish a fairly correct index to the expansion of the country's credit. Since the Canadians, like other Anglo-Saxons, make free use of the check book in the settlement of both business and private accounts, any increase of bank loans and discounts is usually attended by a corresponding increase in deposits. When a Canadian business man discounts his note at his bank he almost invariably leaves the proceeds on deposit with the bank. As he makes his payments by check his own deposit account declines, but the bank accounts of his creditors increase, so that the net result of borrowing in Canada is an increase in the total of bank deposits. Consequently, in good times, when the banks are freely extending credit, the deposits grow, and in periods of dullness and liquidation they decline. A growth of deposits, therefore, is commonly accepted as an indication of business and industrial activity. If a business man in Canada has temporarily a large balance in his bank and realizes that he will not need the money for several months, he will either arrange for its entry as a time or savings bank account, or for the payment of interest on his balance as a current account. Of course, the bankers do not encourage this practice, nor can it be indulged in by a depositor who is also a borrower. Depositors of the class who are paid a small rate of interest--usually 2 per cent.--by national and state banks in the United States, usually have savings department accounts in Canada and get 3 per cent. SAVINGS DEPOSITS ALWAYS PAID ON DEMAND On account of the fact that the time or savings bank deposits contain such a large proportion of money likely to be needed in business at any time, the banks regard both classes of deposit as being essentially the same form of liability. Practically all the deposit liabilities of a Canadian bank are payable on demand, although payment on two-thirds of them at the present time can not legally be demanded until after notice. Custom has made it imperative that a Canadian bank shall pay any and all of its depositors on demand. For any bank to refuse to let a depositor have his money when he calls for it would be regarded by the public as an acknowledgment of weakness. Certainly no Canadian bank would take the risk of making the experiment. Canadian bankers feel that 3 per cent. is too high a rate of interest to pay depositors. This rate is a matter of tacit agreement among the banks and no single bank can afford to lower it, for such action would cause it a loss of business. On the other hand, if any bank, hoping to increase its deposits, should offer to pay 3-1/2 per cent. or 4 per cent., its conduct would be looked upon with grave disapproval by its competitors. Some of the new banks in recent years have obtained business in this manner and have been severely criticised by the managers of the older institutions. SAVINGS DEPOSITORS NOT PROPERLY REWARDED To an outsider it would seem that the savings bank depositor in Canada is not generously treated. In the United States he gets 4 per cent. on his savings even in the large cities. In Canada, a country where real estate mortgages yield from 7 to 9 per cent. and the bonds of new corporations are selling at prices giving the investor a higher return than he can get in the United States, it is certain that a real savings bank could well afford to pay depositors 4 per cent. It is doubtless true that 4 per cent. is a higher rate of interest than most of the savings depositors in the chartered banks have a right to expect. A large part of these deposits are not savings deposits at all. Nevertheless it is doubtful if the banks would be justified in a reduction of the rate. The right solution of the problem seems to lie in another direction, namely, in the making of a sharper distinction between demand and savings deposits. The funds received from both classes of depositors should not be treated alike. The money of savings bank depositors should be invested in bonds and mortgages and then could be made to yield a net return of over 5 per cent. If the depositors were not allowed to check upon their accounts they would be a source of such little expense to a bank that it could easily afford to pay them interest at the rate of 4 per cent. At the present time the banks are paying 3 per cent. interest on money which they are lending to commercial borrowers and for the care of which they are maintaining an expensive force of clerks. Depositors who have checking accounts might be allowed 2 per cent. on large balances, but out-and-out savings depositors, people who make no use of the check book, are certainly entitled to a 4-per-cent. rate in a country where investment capital is as fruitful as it is in Canada. Strictly speaking, the savings departments of the chartered banks are not savings banks, for they do not pretend to devote their time funds to long-time investments. The amount of securities held by the banks is never equal to the amount of time deposits. A thorough reorganization of the savings departments of the chartered banks, to equip them for the real business of a savings bank, would not be possible without an amendment to the Bank Act, which now prohibits them from loaning money upon real estate or upon the security of real-estate mortgages. It is generally believed that this prohibition is commonly evaded by the banks through the acceptance of such mortgages as "additional security" after loans have been made. A savings bank, of course, must have the legal right to accept such security. NO BANKERS' BANK The indebtedness of banks to banks is not large in Canada. The branch system makes it unnecessary for banks to carry balances in other institutions located in the financial centres. Nearly every bank has a branch in either Montreal or Toronto and in these branches carries the major proportion of its cash reserve, so that branches in the far West or in the maritime Provinces are always able to sell exchange on Montreal or Toronto. Canada has no bankers' bank. The Bank of Montreal, which is the largest bank in the Dominion, its assets being equal to about 25 per cent. of the total, is often spoken of as the government bank because it is the largest government depositary, yet it holds a very small amount of funds belonging to other banks. AMOUNT OF THE RESERVE FIXED BY EACH BANK It must not be supposed that the Canadian banks do not carry adequate reserves. On the contrary, every bank manager gives to this subject daily and most conscientious thought. To the Canadian banker the word "reserve" means a fund immediately available for the liquidation of liabilities. How much this fund ought to be depends altogether upon the amount and character of the liabilities to be protected. A Canadian bank manager, having before him the amount of time deposits and demand deposits, respectively, knowing the probable future needs of the various depositors, being in constant touch with branch managers both by wire and by letter, and having back of him information born of many years' experience, easily determines how much his bank's reserve ought to be in order to assure its safety. The law neither helps nor hinders him; it simply requires that the bank shall satisfy the demands of depositors in accordance with the terms of the contract and that it shall redeem its notes on demand. The public by force of custom expects a bank to do a little more than the law requires, for its credit is bound to suffer if it take advantage of its legal privilege to delay payment upon time deposits. The manager is a hired man, sworn to do his utmost to protect the credit of the bank, trained for many years in its service, familiar with its history and its policy, anxious to guard his own reputation and character against criticism. Under these circumstances it would be remarkable if he did not fix the amount of his bank's reserve nearer the ideal figure--if an ideal banking reserve is possible--than could possibly be done by a body of lawmakers or of any other men outside the bank. COMPETITION IS NOT LACKING In many respects banking competition is quite as active in Canada as it is in the United States. Apparently there are only two things which the banks do not like to do in order to attract business--lower the discount rate, or advance the rate paid on depositors' balances. There is no express agreement among the bankers on these points, but every banker knows that he would become _persona non grata_ among his brethren if he should discount certain kinds of paper at less than 6 per cent., or pay his depositors on their monthly minimum balances more than 3 per cent. per annum. In Montreal and Toronto large borrowers can get money at 5 per cent., but the average merchant and manufacturer must pay 6. In Winnipeg borrowers can do almost as well, but farther west the usual rate is 7 per cent., and in some of the remoter districts merchants and farmers alike pay 8 per cent. Bankers do not believe in lowering the discount or interest rate unless they are compelled to do so in order to find a market for their funds. Some of the older institutions would like to prevent competition from absorbing the minor profits which come from collections and transactions in exchange, but they are not entirely successful. The nominal or schedule charges for collections and exchange are frequently cut for the benefit of business men whose favor it is desired to propitiate. In their efforts to get new business, to be the first to open a branch in a promising new community, or to keep their regular customers from being dissatisfied, there seems to be the keenest kind of competition. Few villages of 500 people can complain that their banking facilities are less than they deserve, and many of them, with barely enough business to pay the expenses of one branch, are supplied with two. The recent rapid increase in the number of branches has been caused by the great expansion of the West and by the competition among the more progressive and energetic general managers, each desiring that his bank shall be the first in a promising field, even though his enterprise lead him to establish branches which at first do not pay expenses. In a new mining camp the first bank, like the first saloon or the first boarding house, usually begins business in a tent. Some of the more conservative bank managers in Canada think that new branches are being started in excess of the country's needs, but others are willing to take chances on the country's future and to charge considerable sums to the debit side of the profit and loss account in order to keep their institutions at the front in the great and developing West. BANKING IN DIFFERENT PROVINCES It is generally known that the Eastern branches get heavy deposits and are creditors of the head office, and that the funds they collect are forwarded to the Western branches, whose loans greatly exceed deposits. Bankers will admit that this transference of funds takes place, but there is considerable grumbling about it in the old communities of the East, and the bankers fear that a monthly or even annual publication of the facts would keep them perpetually in hot water. A glance at clearing-house statistics leaves no doubt as to the banking importance of the Western Provinces or as to the relative financial quietude of the East. Between 1900 and 1909 the total of Canada's bank clearings increased 227 per cent., but Halifax gained only 23 per cent., St. John only 90 per cent., and Quebec only 68 per cent. On the other hand, Toronto's clearings increased 179 per cent., Winnipeg's 600 per cent., and Vancouver's 524 per cent. EASTERN PROVINCES HAVE SUFFERED This transference of funds from sluggish to active communities is the inevitable result of a system of branch banking and is the cause of the tendency of the rate of interest toward uniformity in all parts of Canada. Whatever may be said against a system of branch banks, there can be no question that it does bring about a more even distribution of capital in a country than is possible under a system of independent local banks. Canadian bank managers are anxious to put out their money where it is most wanted, for there they get the best possible rate of interest and obtain paper of the best quality. No matter where a manager's headquarters may be, he is most deeply concerned in three questions: (1) Where is idle money accumulating? (2) How can he best draw it into his bank? (3) In what parts of the Dominion is money most needed? In localities of both kinds he establishes branches; in the one the branches accumulate deposits often much in excess of their loans, in the others the loans exceed the deposits. Thus it happens that the savings of the Eastern Provinces, where the growth of industry and trade is slow and the demand for new capital is not increasing, are sent westward and loaned out to merchants and manufacturers and farmers of the new territories. The people of the East supply the capital for the development of the West, though many of them perhaps are entirely ignorant of the useful purpose their savings are made to perform. In the western cities of Canada one hears no talk among business men about the scarcity of capital. A merchant or manufacturer in Manitoba gets the money he needs as easily as does the merchant or manufacturer in Toronto or Montreal. Justifiable as the bank's policy is from a national point of view, one can not help believing that the branch banking system has really checked the development of business and industry in the maritime Provinces. If Canada during the last thirty years had depended, like the United States, upon independent local banks, there would have been a plethora of capital in the East, and Montreal, Quebec, and Halifax, like Boston, New York, and Philadelphia, would years ago have had 4 and 5 per cent. money, while Winnipeg and other Western cities, less populous than now, would still be paying 1 per cent. a month. The relative cheapness of capital undoubtedly helped build up the prosperous industries of Massachusetts. The same cause operating in the maritime Provinces of Canada would doubtless have led to the establishment there of industries of which the people under existing conditions have not ventured to dream. LARGE USE OF DEPOSIT CURRENCY It is sometimes assumed that a free and large use of bank notes tends to discourage the use of the check book and the growth of bank deposits. On the continent of Europe, for instance, where the notes of central banks supply all the currency the people need, the check book is comparatively little used. This fact is sometimes explained by the ease with which people can obtain bank notes for use in making all payments. Experience in Canada makes one doubt the validity of this explanation. The check book is almost as popular there as in the United States, and would probably be used still more than it is if the banks would adopt a policy as liberal as that in vogue in the United States. The Canadian banks not only charge exchange on checks and drafts payable in other localities, but even charge exchange on checks drawn on their own branches. The charge is a small one and probably has no great effect one way or the other, yet it certainly does not encourage the increase of deposits or the use of the check book. When a Canadian starts on a journey it is in a small way economical for him to fill his wallet with all the cash he expects to need. The notes of his bank will be taken at par everywhere throughout the country; his checks, even though he presents them at a branch of his bank, will be cashed only at a discount. Notwithstanding this discrimination against the check, the deposits of Canadian banks have grown much more rapidly than the note circulation and the inference is that the volume of deposit currency has increased at the same rapid pace. Since 1900 the volume of notes has increased approximately 60 per cent., while the deposits by the public showed a gain of 155 per cent. These figures prove that business men in Canada appreciate the advantages of the check as a means of payment, and that the proportion of business transactions settled by it is steadily increasing. BANKS SILENT PARTNERS IN INDUSTRY A large part of the so-called commercial paper of Canadian banks is secured practically by title to goods in warehouses, factories, and wholesale stores. Such security is more saleable than stocks and bonds, and paper having such security back of it is therefore better banking paper than notes secured by stock-market collateral. So far as would seem possible the Canadian Bank Act makes merchandise of all kinds a sort of collateral security for bank advances. It assumes that if a bank advances capital for the conduct of a business it should have a claim upon all the assets of the business and upon all goods as they come and go in the course of trade. No matter how a merchant's stock may change in character, it all belongs to his bank in case he fails to take up his paper or meet his engagements. In the same way a manufacturer's stock of goods, the raw material and the finished products, no matter how they change from day to day and month to month, will become the property of his bank if he fails to pay his note. The law practically makes every bank a silent partner in many wholesale and manufacturing businesses and gives it many rights which no ordinary silent partner can acquire. It has the effect naturally of making bankers keep a close eye upon business conditions as well as upon the affairs of their individual borrowers. Canadian bankers are interested in the lumber market, in the prices of metals, in changes in the tariff, and in the acquisition of foreign markets for Canadian manufactures and products, even as the Wall Street banker is interested in the prices of stocks and bonds. He is in a sense the owner of merchandise of all kinds, and both trade and financial news has equal significance to him. A CUSTOMER'S LINE OF CREDIT In Canada the banks are managed by men whose long experience in the business has taught them to avoid certain banking practices that are in vogue in other countries. Realizing how important is the relation between a bank and its customer, they believe that this relation should be made as intimate and helpful as possible. Among Canadian bankers, therefore, it is part of the law and gospel of banking that a bank is entitled to full knowledge of the financial condition and business operations and prospects of its customers. Hence a bank insists that its customers shall rely _entirely upon itself_, that they shall make a full statement of their affairs at least once a year, and that they shall begin each year with a clean slate. As a result of this policy a business man in Canada deals exclusively with one bank. Once a year he arranges with his bank for a line of credit and learns exactly the amount of paper he will be able to discount. If he happens to need less than he anticipated, he will not exhaust the credit allowed by the bank and will pay interest, of course, only upon such portion of the bank's funds as he actually utilizes. If, on the other hand, his business is unexpectedly large, giving opportunity to make bigger profits and creating the need for more capital, he will find the bank ready to increase his line of credit, provided the manager is satisfied that business conditions and prospects warrant expansion. Under no circumstances, however, must the customer of a bank seek to raise funds elsewhere unless he first gets the consent of his bank. If he sells his notes in the open market, he must do it with the full knowledge of his bank or run the risk of being placed upon the "black list." As one would naturally expect, there is very little commercial paper floating about in the Canadian money market. The bill broker is unknown. Wholesalers and manufacturers, unless shipping to foreign countries, do not draw upon their customers. If credit is granted, it takes the form of a book account or of a promissory note. The promissory notes received by a manufacturer or wholesaler are deposited with his bank. The book accounts under ordinary conditions remain entirely at the disposal of the business, but in extraordinary cases, when the situation is not satisfactory, or if an additional credit at the bank is desired, an assignment of the book accounts to the bank may be required. During the harvest season heavy drafts are made upon the resources of the banks to provide for the movement of the grain crops of the West. In its advance of money for this purpose the law makes it possible for a bank always to have abundant security. Under section 88 of the Bank Act the buyer makes assignment to his bank of the grain purchased. When the grain is delivered to a railroad, the bill of lading becomes the property of the bank. When it reaches Port Arthur, or some other distributing point, and is stored in an elevator, the bank receives a warehouse receipt in exchange for the bill of lading; and when shipment is made to New York, to Montreal, or to Europe, the bank receives on surrendering the warehouse receipt the shipper's draft on the consignee, the bill of lading, and other documents. Throughout the entire transaction, from the purchase from the farmer to the final sale to the Eastern consumer, the bank practically has title to all agricultural products which are being moved by means of its funds. LOANS TO FARMERS The branches of Canadian banks in agricultural districts quite commonly lend assistance to farmers. They do not make a practice of taking mortgages on farm property, but lend outright on the farmer's credit, depending for their security upon his character as a man and ability as a farmer, and often as well upon a neighbor's indorsement. Farmers' paper ranks high among the Canadian bankers and constitutes a considerable proportion of the assets of some of the banks. The banks, of course, do not undertake to supply the farmer with anything more than working capital. They do not help him pay for his land and buildings, but they do let him have at least part of the money he needs for tools, wages, seed, stock, etc. Despite the fact that these advances are unsecured by mortgage, the banks suffer very little loss on farm paper. CALL LOANS IN CANADA AND ELSEWHERE After "current loans in Canada" the next largest item among the assets is "call and short loans elsewhere than in Canada." The call loans outside of Canada consist mainly of loans in the New York market and are as a rule secured by collateral easily convertible into cash. These loans are regarded by Canadian bankers as equivalent to cash and are figured by them as part of their reserve. Only the larger banks make a practice of loaning on call in New York. THE BANKS AS FINANCIAL INSTITUTIONS That the chartered banks of Canada are financial as well as commercial institutions is evidenced by their holdings of stocks and bonds. These securities represent partly an investment carried as a secondary reserve and partly a business carried on for the benefit of their customers. In Canada the demand for long-time investments is not large, but whatever market there is for securities is mainly in the hands of the chartered banks. An investor seeks the advice of a bank manager and often is able to obtain from him securities which satisfy his needs. The banks do not publish a list of their holdings, but it is generally taken for granted that they carry only gilt-edge securities. If a customer desires to obtain second or third rate securities, being eager for a high rate of return, a bank can accommodate him, not by selling him out of its own stock, but by negotiating the purchase of the desired securities in New York or London. As the wealth in Canada increases and idle capital accumulates in excess of its immediate needs, this financial side of the business of Canadian banks will doubtless expand. It may, indeed, during the next generation or two greatly expand and become an important feature of the chartered banks. They are in a position to take care of the business as it develops and will doubtless be able to prevent the establishment of any purely financial banking houses in Canada. THE REVISION OF THE BANK ACT, 1913[148] The Canadian Bank Act, as is well known, is subject to decennial revision. The last revision was due to take place in 1910; but owing to circumstances which it is not necessary here to describe, it was not until the present year that the work was finally undertaken. The leading features of the Canadian banking system are so well known that they may be passed over, and the nature and causes of the recent changes in the act alone described. There were many minor modifications, but the essential changes effected were: (1) provision for a shareholders' audit, (2) the creation of central gold reserves, and (3) the providing of additional facilities for making loans to farmers. In the recent revision of the act the public was most deeply concerned with the problem of securing an adequate system of bank inspection. The immediate reason for this was the disastrous failure of the Farmers' Bank. This institution had gambled away its resources on the Keeley mine; and had, in its failure, brought many farmers as well as others to the verge of ruin. For several years previous, however, there had been an insistent demand for some sort of external bank inspection.... The banks as a whole have been opposed to any change in the method of inspection. The reason they advance is that the keynote of the organization of Canadian banks has always been the centralization of responsibility; and they do not think it wise to divide that responsibility with any outside authority.... As far as the public is concerned it has no means of judging of the soundness of a bank except by examining the monthly returns which are required by law from each bank. These returns are fairly comprehensive, and have been made more so by the revision of the act this year. The Minister of Finance may call for supplementary information from any bank, whenever, in his judgment, such data are required to afford a fuller knowledge of a bank's affairs. Of course, these returns can be taken only for what they are worth. In the case of several failed banks the returns were made with every degree of falsification, because no independent checking of the figures was possible. Nevertheless, in obedience to the strong demand for some sort of independent bank examination, provision was made in the recent revision of the act for a shareholders' audit of each bank's affairs. The auditors are to be chosen by the shareholders from a list of forty names selected by the whole body of the general managers of the banks. The list must be submitted to the Minister of Finance for his approval. If one-third of the shareholders of a bank are dissatisfied with the auditor appointed by the majority, they may appeal to the Minister for the appointment of another auditor. The auditors must submit a statement of their findings to the shareholders at the annual meeting, or on any other occasion the necessity may require. In addition the Minister of Finance may require a special return to be made to him, the cost of the service rendered being paid for by the Government. Canadians would be wise not to expect too much from this system of external examination. After all, it can do no more than verify a bank's statements and books.... In every large undertaking, the soundness of the transaction must depend, as before, upon the judgment of the general manager and the board of directors. The establishment of central gold reserves is the most important feature added to Canada's banking system by the legislation of 1913.... Under the new act each bank may issue any amount of notes that it may desire, provided that it deposits with a board of trustees, at Montreal, gold or Dominion notes to the full amount of the notes issued. These notes are to be identical in form with the ordinary notes of the bank. The gold or Dominion notes deposited with the trustees shall be returned to the bank whenever the notes which the bank has outstanding do not amount to the paid-up capital of the bank together with the amount of legal-tender money deposited with the trustees. In other words, the banks can still issue their notes up to the full amount of their paid-up capital, and an additional amount from September 1 to the end of the following February, which may equal 15 per cent. of a bank's combined capital and surplus. It is only for notes issued in excess of these amounts that legal-tender money must be deposited with the trustees at Montreal. It should be observed, however, that the banks pay a tax of 4 per cent. on the extra issue during the crop-moving period, whereas there is no tax upon gold-reserve notes. And as Canadian banks are not required to keep a legal reserve against their demand liabilities, there is no reason why the idle gold in their reserves should not be sent to Montreal to form the basis of new note issues, especially when it is considered that the gold may be recalled at once when no longer needed to cover notes. The ability to issue notes to any amount required, on a gold basis, will greatly strengthen the position of the banks. The third important new feature in the revision of the act is the power given to the banks to make loans to farmers on grain which is stored on the farm and still in the farmer's possession.... The permission granted them to loan money to farmers on stored grain in the latter's possession is an attempt to extend to the farmers aid similar to that hitherto granted to manufacturers and wholesalers alone. It should not be thought, however, that the banks have not always granted loans liberally to farmers.... The possibility of making advances to the farmers on their grain is expected to be of especial benefit to the West.... It is hoped that, under the new legislation, the farmer will be able to hold his grain for higher prices; and in the meantime secure accommodation from the banks to meet his obligations. Many bankers, however, refuse to see any remedy for the situation in the new legislation. They maintain that it will involve too much risk to extend loans on grain over which the farmer continues to assert control. Only the operation of time will enable us to estimate the value of this feature of the act. COMPARATIVE FIGURES OF CONDITION OF CANADIAN BANKS[149] ASSETS Nov. 30, 1915 June 30, 1914. Gold and subsidiary coin-- In Canada $41,831,732 $28,948,841 Elsewhere 29,527,921 17,160,111 ----------- ----------- Total $71,359,653 $46,108,952 Dominion notes 140,751,331 92,114,482 Deposit with Min. of Finance for security of note circulation 6,770,645 6,667,568 Deposit in central gold reserves 15,100,000 3,050,000 Due from banks 169,429,330 123,608,936 Loans and discounts 881,101,540 925,681,966 Bonds, securities, etc. 121,953,898 102,344,120 Call and short loans in Canada 83,203,787 67,401,484 Call and short loans elsewhere than in Canada 135,530,562 137,120,167 Other assets 76,993,424 71,209,738 -------------- -------------- Total $1,702,194,170 $1,575,307,413 LIABILITIES Capital authorized $188,866,666 $192,866,666 Capital subscribed 114,422,866 115,434,666 Capital paid up 113,987,275 114,811,775 Reserve fund 112,718,473 113,368,898 ------------ ------------ Circulation 124,153,685 99,138,029 Government deposits 36,001,548 44,453,738 Demand deposits 538,764,279 458,067,832 Time deposits 714,219,286 663,650,230 Due to banks 30,973,072 32,426,404 Bills payable 5,081,059 20,096,365 Other liabilities 14,007,918 12,656,085 -------------- -------------- Total, not including capital or reserve fund $1,463,200,847 $1,330,488,683 NOTE.--Owing to the omission of the cents in the official reports, the footings in the above do not exactly agree with the totals given. FOOTNOTES: [147] Adapted from Joseph French Johnson, _The Canadian Banking System_, Publications of the National Monetary Commission, Senate Document No. 583, 61st Congress, _2d Session_. [148] W. W. Swanson. _The Revision of the Canadian Bank Act_, American Economic Review, Vol. 3, December, 1913, pp. 993-998. [149] _The Commercial and Financial Chronicle_, Vol. 102, January 1, 1916, p. 13. CHAPTER XXII THE ENGLISH BANKING SYSTEM FOUNDATION AND GROWTH OF THE BANK OF ENGLAND [150]About the year 1691 the Government of William and Mary experienced considerable difficulty in raising the necessary funds to prosecute the war with France; but "the hour brings the man." The man on this occasion was William Paterson, a merchant of Scotland, who had been educated for the Church, but had led a varied and adventurous life. The scheme he presented for the consideration of the Government for the relief of the situation was the foundation of a public joint-stock bank; which, in return for certain powers and privileges to be conferred, should advance money to the Government.... ... the bill establishing the Bank of England was successfully carried through Parliament, and obtained the royal assent on the 25th April, 1694. The basis of the bill was that £1,200,000 should be voluntarily subscribed by the public, and that the subscribers should be incorporated into a body, to be known as "The Governor and Company of the Bank of England." The whole of the sum forming the capital of the bank was to be lent to the Government, for which the bank was to receive interest at the rate of 8 per cent. per annum, together with an allowance of £4,000 per annum for management and expenses; making in all £100,000 per annum. It was also provided that the sum of £300,000 was to be raised by public subscription, for which the contributors were to receive certain terminable annuities. By its first charter, which was for ten years only, the Bank of England was not allowed to borrow or owe more than the amount of its capital; which meant that it could issue notes to the extent of its capital and no more. If this amount were exceeded the members were liable for such excess, in their private capacities, in proportion to their holding of stock. The capital of the bank was subscribed in a few days, and when duly paid up, the agreed sum of £1,200,000 was handed in to the Exchequer.... The charter originally granted to the bank was for ten years only, as we have already seen; but this charter has from time to time been renewed, and also varied--sometimes in favour of the bank and sometimes curtailing its privileges. The monopoly of joint-stock banking was not granted to the bank by its first charter, but this monopoly was practically conferred on it in 1708. The act passed in that year provides: That during the continuance of the said corporation of the Governor and Company of the Bank of England, it shall not be lawful for any body politic or corporate whatsoever, created or to be created (other than the said Governor and Company of the Bank of England), or for any other persons whatsoever, united or to be united in covenants or partnership, exceeding the number of six persons, in that part of Great Britain called England, to borrow, owe, or take up any sum or sums of money on their bills or notes, payable at demand, or at a less time than six months from the borrowing thereof.... We pass on now to the end of the eighteenth century, when the country was plunged into the throes of war and financial difficulty. Up to this time the bank, since its foundation, had succeeded in meeting its notes when presented; but in the year 1796 a steady drain on the reserve of the bank commenced, owing to the fear of invasion. This drain began to assume a very serious aspect in the early part of 1797, and it appeared probable that the bank would be subjected to the danger and humiliation of a temporary stoppage. The directors, fully aware of this danger ahead of them, laid the position before the Government, and left the solution of the difficulty in its hands. After due consideration, an Order in Council was issued on the 26th February, 1797, requiring the bank not to pay its notes in gold.... It was not until 1823 that the restriction was entirely withdrawn, although as a matter of fact the bank really resumed paying in cash on demand on May 1, 1821, deeming it then safe to do so. Although a period of safety and prosperity then appeared to have dawned, the bank was not quite clear of its troubles. The very prosperity of the times led imperceptibly to another period of distress and danger, culminating in the panic of 1825.... In 1826 the Bank of England, by arrangement with the Government, agreed to establish branches in various parts of the country, and gave up their monopoly of joint-stock banking, except within a radius of sixty-five miles of London. The year 1833, however, saw a further restriction in the powers of the bank, when, after protracted negotiations, and in return for a further renewal of its charter, the bank surrendered its monopoly of joint-stock banking entirely, provided that no bank having more than six partners might issue notes within the sixty-five-mile limit of London. It is a curious point that the charter of the bank never did restrict joint-stock banking in its present accepted form, but only the issue of notes by joint-stock bankers or banks having more than six partners. Up to this time the issue of notes by a bank had been thought to be its main business; so much so, that it was believed to be useless to attempt to conduct a bank without power of issue, and consequently no joint-stock bank had been founded. But about this time the need of such institutions began to be felt, and the presumed monopoly of the Bank of England was called in question--largely by Mr. Gilbart, the founder of the London and Westminster Bank. The bank tried to assert their monopoly, but without success, and in order to settle the matter effectually, the following clause was inserted in the act passed in 1833 dealing with the bank charter: Be it therefore declared and enacted, that any body politic or corporate, or society, or company, or partnership, although consisting of more than six persons, may carry on the trade or business of banking in London, or within sixty-five miles thereof, provided that such body politic or corporate, or society, or company, or partnership, do not borrow, owe or take up in England, any sum or sums of money on their bills or notes payable on demand, or at any less time than six months from the borrowing thereof, during the continuance of the privileges granted by this Act to the said Governor and Company of the Bank of England. It may be noted that this act of 1833 constituted Bank of England notes a legal tender, except by the bank itself or its branches.... PEEL'S ACT OR THE BANK CHARTER ACT OF 1844, AND ITS SUSPENSIONS [151]After the renewal of the charter in 1833, the directors of the Bank of England laid down as a principle on which their future operations were to be guided, that one-third of their liabilities should be kept in cash and bullion, and the remaining two-thirds in securities. If this principle had been acted on, the bank would have been saved from many of the troubles which shortly assailed it; but though the intentions of the directors were good, circumstances were too strong for them, and the actual proportions of cash and securities to liabilities, respectively, often differed materially from the standard laid down. This was notably the case during the periods of financial pressure which were experienced in the years 1836 and 1837. In the year 1839 matters assumed a very serious aspect. In the early part of this year the amount of cash held by the bank was about one-third of the amount of securities, but during the year the amount invested in securities increased at the expense of the amount held in cash; and by September we find that securities stood at nearly £29,000,000, while the cash was reduced to a tenth of that figure, and stood at £2,936,000 only. In order to avert a calamity which appeared to be impending, the bank arranged loans in Paris and Hamburg to the extent of between three and four millions. This manifest exhibition of weakness on the part of the bank led to the appointment of a committee of the House of Commons to inquire into the matter. The committee condemned the principles on which the bank was working, but were powerless to effect any alteration, owing to the charter of the bank not expiring till 1844. On the expiry of the charter, however, Sir Robert Peel brought forward his famous act for remodelling the bank, and regulating the issues of the country banks throughout. England and Wales. The act was passed on the 19th July, 1844, and continues without alteration to the present day. The main provisions enacted thereby, briefly stated, are as follows: I. The issue department and the ordinary banking department of the Bank of England were to be entirely separated as from the 31st August, 1844. II. On such separation taking place, securities to the value of £14,000,000 (including the [book] debt due to the bank from the Government) were to be transferred to the issue department, together with so much gold coin and bullion that the total so transferred should equal the total amount of notes then outstanding. Thereafter (with the exception noted below) the issue department must not issue any notes in excess of a total of £14,000,000 except in exchange for gold coin or bullion. III. The issue department might not at any time hold more silver than one-fourth part of the gold held. As a matter of fact the issue department holds no silver. IV. Notes might be demanded from the issue department by any person in exchange for gold at the rate of £3 17_s._ 9_d._ per standard ounce. V. If any banker having the power of issue on the 6th May, 1844, should relinquish such issue, the issue department may be authorised to increase its issue of notes against securities to the extent of two-thirds of the issue so relinquished; but all the profits on such increased issue against securities were to belong to the Government. VI. The bank must issue a weekly statement of the position of both its issue and banking departments, in a prescribed form. VII. Bankers having the right to issue their own notes on the 6th May, 1844, might continue such issue under certain conditions, and to an agreed amount; but no provision was made compelling such bankers to keep any reserve either in cash or securities against their issues. If any issue lapsed, from any cause, it could not be resuscitated; and no institutions could acquire the right of issue in the future. VIII. Banks consisting of more than six partners, though within the sixty-five-mile radius of London, might draw, accept, or endorse bills of exchange not being payable to bearer on demand. The first return issued by the bank in accordance with the regulations of the new act was that of the 7th September, 1844, and was as follows: ACCOUNT OF THE LIABILITIES AND ASSETS OF THE BANK OF ENGLAND For the Week ending 7th September, 1844 DR. ISSUE DEPARTMENT CR. Notes issued £28,351,295 Government debt 11,015,100 Other Securities 2,984,900 Gold coin and bullion 12,657,208 Silver bullion 1,694,087 ----------- ----------- £28,351,295 £28,351,295 DR. BANKING DEPARTMENT CR. Proprietor's capital 14,553,000 Government securities 14,554,834 Rest 3,564,729 Other securities 7,835,616 Public deposits 3,630,809 Notes 8,175,025 Other deposits 8,644,348 Gold and silver coin 857,765 Seven-day and other bills 1,030,354 ----------- ----------- £31,423,240 £31,423,240 ... Taken as a whole the act has worked well, and has succeeded, in combination with greater knowledge and foresight, in maintaining our banking system in a sound condition.... The main point of contention between the supporters and opponents of the act lies in its want of elasticity in time of need. Under no circumstances can the bank increase its issue of notes against securities beyond the prescribed limit, without a breach of the law; but on three occasions in the past the law has been broken, though with the consent of the Government, and subsequent confirmation of Parliament.... We will now briefly review the ... occasions on which the Bank Act was suspended, and the effect of such suspensions. The first of these occasions was during the panic in the year 1847--known as the "railway panic." Shortly previous to this year a great accumulation of capital had led to a demand for new investments, which were duly provided for the public by those concerned with such matters. Added to this, interest rates had ruled low for some time, and this conduced to a period of speculative activity. Too much capital was put into fixed investments--chiefly railways--and in one session of Parliament sanction was asked for various railway schemes involving a total capital of £340,000,000. Wild gambling in railway stocks ensued, credit was inflated above all reason, and then the turn came. This was primarily due to a bad harvest and potato crop, causing a heavy importation of corn, and consequent export of gold. During the panic which ensued, the reserve of the Bank of England fell to £1,600,000, but when the panic was at its height, the act, passed only three years before, was suspended. The bank was authorised to increase its accommodation to the public by exceeding, to an indefinite extent, the limit fixed for the issue of notes not secured against gold. The effect of this suspension of the act was immediate and complete. The fear that "there was not enough to go round" passed from men's minds. As a matter of fact, the issue on this occasion did not exceed the normal limit, the mere knowledge that the bank was empowered to exceed this limit proving sufficient to allay the panic. The second suspension of the Bank Act was due to the crisis of 1857, a crisis that was brought about by reckless overtrading, and came upon the public very suddenly and with practically no warning.... The third suspension of the Bank Act took place in 1866.[152] Many elements of disturbance to the money market had been in force during two or three preceding years. The Civil War in America had resulted in gold being sent to this country; but the stoppage of the supply of cotton from America, owing to the war, disorganised one of our staple national industries, and supplies of cotton had to be obtained from elsewhere at high prices, and paid for in cash. Hence a drain of gold set in on a large scale. In addition, a large speculation had been built up on credit in the stocks and shares of the many new limited liability companies which were formed at that time. General uneasiness began to prevail towards the end of 1865; in January, 1866, the bank raised its discount rate to 8 per cent., and a crisis began to develop rapidly.... On the 9th May the bank rate was raised to 9 per cent. On the 10th May the failure of Overend, Gurney, and Company--for upwards of ten millions--was announced, and the bank rate went to 10 per cent. This failure was not made known till after business hours, so it was not till Friday, the 11th May, 1866--known as "Black Friday"--that the crisis reached its height. The stoppage of this large house affected the whole world, and general failure seemed imminent, when, in the afternoon of the day on which the failure became known, it was announced that the Bank Act was again suspended, and calm began to take the place of mania. But though the panic was allayed, many failures shortly took place, which delayed the quick restoration of a sense of security.... From the above brief records of the financial tragedies of the past, we see that on each occasion reckless speculation and overtrading had been allowed to reach a dangerous height before any steps were taken to check them, and on each occasion the check came too late. But we also see the marvellously quick effect which the suspension of the act had on the situation.... THE FUNCTIONS OF THE BANK OF ENGLAND [153]The distinctive functions of the Bank of England consist in its acting as: 1. Banker to the British Government. 2. Banker to the joint stock and private banks. 3. (a) Sole possessor of the right to issue notes which are legal tender in England; (b) sole possessor, among joint stock banks with an office in London, of the right to issue notes at all. 4. Provider of emergency currency. 5. Keeper of the gold reserve for British banking. 6. Keeper of the gold reserve which is most readily available for the purposes of international banking. These various functions fit into and supplement one another, and though their diversity is sometimes pointed to as throwing too much responsibility onto one institution, it in fact enables the bank to carry out its duties with extraordinary ease, and with the least possible disturbance to the financial community. By the fact that it keeps the balances of the other banks, the Bank of England is enabled to conduct the payment of the interest on the British debt largely by transfers in its books. By the fact that it keeps the balances of the Government and has the monopoly of the legal-tender note issue, the Bank has a great prestige in the eyes of the general public, which it communicates to the other banks which bank with it. There is an impression that the Government is always behind the bank, and that the bank is always behind the other banks, and this feeling has certainly done much to foster the confidence of the British public in its banking system. A credit in the books of the Bank of England has come to be regarded as just as good as so much gold; and the other banks, with one exception, habitually state their "cash in hand and at the Bank of England" as one item in their balance sheets, as if there were no difference between an actual holding of gold or legal tender and a balance at the Bank of England. It thus follows at times when an increase of currency is desirable, it can be expanded by an increase in the balances of the other banks at the Bank of England, since they thus become possessed of more cash to be used as the basis of credit. For currency in England chiefly consists of cheques, and customers who apply to the banks for accommodation, by way of discount or advance, use it by drawing a cheque which is passed on and so creates a deposit; and expansion of currency thus consists chiefly in expansion of banking deposits. This expansion is only limited by the proportion between deposits and cash which the banks think fit to keep, and as long as they can increase their cash by increasing their credit in the Bank of England's books the creation of currency can proceed without let or hindrance. Their balances can be increased by borrowing from the Bank of England, which is generally carried out not by the banks themselves but by their customers from whom they have called in loans, and the Bank of England is thus enabled to provide emergency currency with great ease, by means of loans and discounts which are used to swell the balances of the other banks, which thus show an increase of the cash at the Bank of England which they use as a basis for credit operations. The elasticity of the system is thus remarkable, and the merchants and bill brokers of London can by taking approved security to the Bank of England, increase the basis of English credit in a few minutes by borrowing. 1. Examining these functions of the Bank of England in closer detail we find that its first and most obvious one, which originally brought it into being, of financing the British Government and acting as its banker, is now perhaps its least difficult and important duty. Apart from the prestige which it thus acquires and its close touch with the Government and the officials of the Treasury, the bank's position as government banker is of little direct material advantage. Its duties as such, besides the normal relation between a bank and a customer, consist chiefly in making advances to the Treasury in the shape of "deficiency advances" when the government balances are too low to admit of the payment of the quarterly interest on the British debt without replenishment, or against "ways and means" advances at times when the revenue is coming in more slowly than government expenditure is proceeding. It also, when the Government has to borrow to a greater extent, manages its issues of Treasury bills, or any loan operation that the Government may have to undertake. 2. The second of the Bank of England's distinctive functions--its acting as banker to the rest of the English banking community--is the one which throws upon it its most serious responsibilities and gives it most of its actual power and ease in working. The Government gives it prestige in the eyes of the multitude, which considers that governments are omnipotent; the other banks give it the power of providing emergency currency by making entries in its books, and so acting as the easily efficient centre of a banking system in which elasticity and the economy of gold are carried to a perfection which is almost excessive. Nevertheless, it pays heavily for its apparently privileged position as bankers' bank. At first sight it would appear that these customers, keeping a regular balance of twenty-odd millions, which varies little and on which the Bank of England pays no interest, were a source of comfortable income and no anxiety to it. But in the first place it is obvious that a liability which is regarded as cash by the rest of the banking community requires special treatment by its custodian, and in practice it is so specially treated that the Bank of England maintains a proportion of cash to liabilities which is fully twice as high as that of the strictest of the other banks. This proportion rarely is allowed to fall below 33 per cent. and generally ranges between 40 and 50 per cent., and it need not be said that this high level of cash holding tells heavily on the earning power of the Bank of England. Moreover, it is its position as bankers' bank that exposes the Bank of England to the responsibility of maintaining the gold reserve for English banking and being prepared to meet, in gold, any draft on London that any one abroad who has acquired or borrowed the right to draw wishes to turn into metal to be shipped to a foreign country. The amount of the bankers' balances is not separately stated, but is wrapped up in the total of the other deposits in the Bank of England's weekly return. It is believed to average about 22 millions in these days, and it is often contended that valuable light would be thrown on the monetary position if this item were separated from the balances of the other customers of the bank. Many of the outer bankers are in favor of this change, but there is a serious practical objection to it, in that a dangerous impression might be created in the public mind if at any time it were seen that the bank's cash reserve was below its liability to its banking customers; and the separate publication of the bankers' balances might thus check the readiness with which the Bank of England creates emergency credit. Another suggestion that is sometimes made by the many critics of the existing order of things in English banking is that the banks should keep their cash reserves themselves; but this very revolutionary change would deprive the system of its two great advantages, a centralised organisation with a centre which specialises on the duties involved by acting as centre, and the extreme elasticity with which the present arrangements work. At the same time it must be admitted that the system by which the other banks treat their balances at the Bank of England as cash leads to the existence of a vast amount of "cash" in England which on being looked into is found to consist of paper securities or promises to pay. 3. The Bank of England's monopoly of note issue, which once gave it the monopoly of joint-stock banking in London, is now a matter of comparatively minor importance, owing to the change in English banking habits by which the cheque has ousted the bank note for the purpose of daily commercial payments, and the regulations which were imposed on the note issue by the Bank Act of 1844. This monopoly was conferred on the bank in 1706 and was maintained until 1826, when the implied monopoly in joint-stock banking was restricted to a sixty-five-mile radius around London. In 1833 joint-stock banks were established in London itself, since it had been discovered that the Bank of England's alleged monopoly only reserved to it the privilege of note issue, and the private bankers in London had already found that it was more convenient to banker and customer to work by the system of deposit and cheque. The development of this system was quickened by the provisions of Peel's act of 1844, which, under the influence of banking disasters that had arisen out of reckless note issuing by private banking firms in the counties, laid down an iron rule for the regulation of note issues in England. None of the other note issuers were allowed to increase their issues under any circumstances, and the Bank of England, for every additional note issued beyond £14,000,000, was to hold metal in its vaults. Under the terms of Peel's act one-fifth of this metal might be silver, and in the early returns issued by the bank under the act a certain amount of silver is found among the assets of the issue department. But since 1853, no silver has been held in the issue department of the bank, and in 1897, when the influence of the bimetallists on the existing Government led to a proposal that the proportion of silver allowed by law should be held by the bank as backing for its note issue, public opinion expressed itself so vigorously that the suggestion was promptly buried. The bank's fiduciary note issue, thus fixed at £14,000,000, was only allowed to increase by the lapse of the issues of the existing issuers, the bank being empowered to increase it by two-thirds of the amount lapsed. The lapsing process has proceeded steadily by the amalgamation of country banks with banks which have London offices and so are prohibited by the bank's monopoly. And the bank's fiduciary issue has thus been raised from the original £14,000,000 to £18,450,000. Above this line it can not go except by means of the suspension of the Bank Act, which has been found necessary occasionally in the past. The English currency system is thus, as far as the law can rule it, entirely inelastic, but it has already been shown that even when the law of 1844 was passed, the cheque currency, over which the law exercises no restriction, was already driving out the note, and banks without any right of note issue had been eleven years established in London. The Bank of England's note issue is now chiefly used by other banks as "till money," or part of the store of legal-tender cash they keep to meet demands on them. It has thus become part of the basis of credit in England, since the other banks roughly base their operations on their holding of cash in hand and at the Bank of England. Their cash at the Bank of England has already been discussed above: their cash in hand consists of coin and notes, and since the latter have thus become part of the foundation on which the deposit liabilities of the other banks are based, there is reasonable ground for the contention often put forward by practical expert critics of the English system, that the fiduciary note issue should be reduced by the repayment by the Government of the whole or part of a government debt of £11,000,000 to the bank, which backs the greater part of it, and its replacement by gold. It is evident that the amount of metallic backing for a note issue which is intended to circulate as currency is a different matter from that required in the case of a note issue which is held by bankers as a reserve and used by them as a foundation for a pyramid of credit operations. 4. By the ease with which the Bank of England provides emergency currency, it gives the English banking system the great advantage of extreme elasticity and adaptability; and it is enabled to do this by the fact that it acts as banker to the other banks, and that every credit which they have in its books is regarded by them and by the rest of the community as "cash" to be taken as practically equal to so much gold. This cash at the Bank of England in the hands of the rest of bankers can be multiplied as rapidly as the Bank of England is prepared to make advances, and as the mercantile and financial community can bring it bills for discount or securities to be borrowed on. There is no legal restriction of any sort or kind, and the close relations between the bank and its borrowing customers enable the necessary operations to be carried through with a celerity which is unrivalled, at any rate in the eastern hemisphere. The process works as follows: In every English bank balance sheet there will be found an item among the assets "cash at call or short notice," though in a few cases the slovenly habit is adopted of including this entry along with the cash in hand. This "cash," as it is called, really consists chiefly of loans made by the banks to the discount houses, and regarded by the banks as the most liquid of their resources. As such, it is at once made use of when for any reason, such as the many payments which have to be made on quarter days, or at the end of the half year when the preparation of balance sheets by firms and companies require an abnormal amount of cash for more or less ornamental purposes, the banks are subjected to extra pressure by their customers, who both withdraw actual currency from them for smaller payments, and require advances in order to show cash with bankers in their balance sheets. The banks in order to meet this pressure, and at the same time to preserve an adequate amount of cash in their own statements, call in their loans from the discount houses; the discount houses, at a point, can only repay them by borrowing from the Bank of England and transferring the credit raised with it to the bankers, whose cash at the Bank of England is thus increased. This book entry takes the place in their balance sheets of the legal-tender cash that their customers have withdrawn, and is used as the basis for the increased deposits that have been created by the loans of the bankers to their customers for ornamental purposes. Similarly at the time of year when the transfer of the taxes to the Government's balance reduces the cash at the Bank of England held by the other banks the gap is filled by the loans made by the Bank of England to the customers of the other banks. In short, by discounting and making advances the Bank of England can at any time create book credits, which are regarded as cash by the English banking community, and on which the latter can base the credits which give the right to draw cheques, which are the most important part of the English currency. The extent to which the Bank of England can create this credit is a matter for its own discretion, but any creation of it diminishes the proportion that it shows in its own weekly returns between its reserve and liabilities. Consequently when it is applied to for amounts which bring that proportion too low the Bank of England has to take steps to reinforce its cash reserve. 5. It has been shown that the Bank of England keeps the balances of the other banks, and from this it follows that the latter look to it for gold or notes at times when the local commercial community requires an extra supply. At the end of every month, especially at the ends of the quarters or at times of national holidays, the bank's note circulation expands and coin is taken from it. The duty is thus thrown upon it of keeping an adequate supply of cash for home purposes, and, as has been already stated, its normal proportion of cash to liabilities is very much higher than that of the other banks. But these movements are tidal and regular, and though times of active trade increase slightly the demand for coin and note currency in England, the extensive and ever-growing use of the cheque reduces the importance of this part of the bank's duties. 6. Much more important is the Bank of England's duty as custodian of the gold store for international banking. London is the only European centre which is always prepared to honor its drafts in gold immediately and to any extent. Consequently the Bank of England has to be prepared to meet demands on it at any time from abroad, based on credits given to foreigners by the English banking community, and it has thus to observe the signs of financial weather in all parts of the world and to regulate the price of money in London so that the exchanges may not be allowed to become or remain adverse to a dangerous point. The difficulties of this task are increased by the extent to which the English banking community works independently of it, by accepting and discounting finance paper, and giving foreigners credits at rates which encourage their further creation. For the low and wholly unregulated proportion of cash to liabilities on which English banking works, enables the other banks to multiply credits ultimately based on the Bank of England's reserve, leaving the responsibility for maintaining the reserve to the bank. This it does by raising its rate when necessary, and so, if it has control of the market and its rate is "effective"--a phrase which will be explained later--raising the general level of money rates in London. When its rate is not effective, the Bank of England finds itself obliged to intervene in the outer money market--consisting of the other banks and their customers--and control the rates current in it. This it does by borrowing some of the floating funds in this market, so lessening their supply and forcing up the price of money. By means of this borrowing it diminishes the balances kept with it by the other banks, either directly or indirectly--directly if it borrows from them, indirectly if it borrows from their customers who hand the advance to it in the shape of a cheque on them. The result is that so much of the "cash at the Bank of England," which the English banking community uses as part of its basis of credit, is wiped out, money--which in London generally means the price at which the bankers are prepared to lend for a day or for a short period to the discount houses--becomes dearer, the market rate of discount consequently tends to advance, the foreign exchanges move in favor of London, and the tide of gold sets in the direction of the Bank of England's vaults, and it is enabled to replenish its reserve or check the drain on it. That the Bank of England should have to go through this clumsy ceremony of borrowing money that it does not want, in order to deprive the outer market of a surplus which depresses discount rates in a manner that is dangerous owing to its effect on the foreign exchanges, arises from the want of connection between bank rate and market rate. In former days the London money market never had enough money to work without help from the Bank of England. Bagehot, in his great work on Lombard Street, published in 1873, says that "at all ordinary moments there is not money enough in Lombard Street to discount all the bills in Lombard Street without taking some money from the Bank of England." As long as this was so, bank rate--the price at which the bank would discount bills--was at all times an important influence on the market rate. Since then, however, the business of credit making has been so quickly and skillfully extended that Lombard Street is frequently able to ignore bank rate, knowing that it will easily be able to supply its needs from the other banks, at rates which are normally below it. Currency in England consists of cheques drawn against deposits which are largely created by the loans and discounts of the other banks. There is no legal limit whatever on the extent to which these loans and discounts can be multiplied, and the only limits imposed are those of publicity, which is applied rarely in all cases and in some not at all, and of the prudence with which the banks conduct their business. Hence it follows that competition between the banks often impels them to continue to make advances or discount bills at low rates when the Bank of England, as custodian of the English gold reserve, thinks it advisable in the interests of the foreign exchanges to impose a higher level. This it does by borrowing some of the credit manufactured by the other banks, in order to create artificial scarcity of money, and make its own official rate effective. It thus appears that the Bank of England's official rate is often through long periods a mere empty symbol, bearing no actual relation to the real price of money in London; and only becomes effective, and a factor in the monetary position (1) when the trade demand for credit is keen enough to tax the credit-making facilities of the other banks to their full extent, (2) when the payment of taxes transfers large sums from the other banks to the Government's account at the Bank of England, so reducing the "cash at the bank" on which they build credit operations, and (3) when, owing to foreign demands for gold, the Bank of England takes measures, by borrowing, to restrict credits in the open market and to make its rate effective. In other respects its official rate differs materially from the rates quoted by ordinary dealers in credit. It does not fluctuate according to the supply and demand for bills, but is regularly fixed once a week at the meetings of the Bank of England court on Thursday morning. It is extremely rare for any change to be made in the Bank of England rate on any day except Thursday. Instances occur rarely when some sudden change of position makes it essential, as at the end of 1906, when the bank rate was raised to 6 per cent. on a Friday morning. In normal times the rate which is fixed on one Thursday is maintained until the next, though the rate is only a minimum and the Bank of England occasionally takes advantage of this fact and refuses to discount at its minimum, which still remains ostensibly the bank rate, while the bank actually makes a rather higher charge, which is usually made the official rate on the next Thursday. But it must not be supposed that when bank rate is ineffective the Bank of England is doing no business. It discounts bills and makes advances at market rates at its branches, and also at its head office to its private customers. Bank rate may be described as the price at which the bank is prepared to discount in its official capacity as centre of the London market, and it is because appeal is only made in exceptional circumstances to the bank to provide credit in this capacity that bank rate is often ineffective. THE JOINT-STOCK BANKS The most obvious function of the joint-stock banks of England is the business of taking care of money for customers and meeting cheques drawn against their balances. Customers place money with them either on current or deposit account. On current account it can be withdrawn at any time and earns, as a rule, no interest. Many banks make it a condition that unless the current account is maintained at a certain figure, generally £100, a charge shall be made for keeping it. A usual charge is £1 5_s._ 0_d._ each half year, but arrangements vary according to the terms agreed with different customers, and the keen competition now prevalent enables many to obtain the convenience of a bank account for nothing. Sums left on deposit are generally placed for a week or longer, and if placed for a week the rate paid on them by the banks is generally 1-1/2 per cent. below bank rate. Out of this function of meeting checks drawn by customers against the sums deposited has grown the banker's chief duty, which is now the provision of cheque currency for the mercantile and financial community. Currency in England consists of coins, notes, and cheques. The note issues are almost obsolete as currency, the Bank of England's being used chiefly as reserve by the other banks, while the issues of the country banks are so small as to be negligible. Most of the commercial and financial transactions of England to-day are settled by cheques drawn on the banks by their customers. These cheques are not legal tender, since it would obviously be impossible that a cheque drawn by an individual on a bank could be legally made acceptable by a creditor whether he wished to take it or not. There is no legal obligation of any sort on them to maintain any regular proportion between cash and liabilities, and as their position in this respect is only subjected to occasional publicity they are not obliged to consider even the effect upon their customers of any considerable variation in the proportion between cash and liabilities which they keep. The system thus works with extreme elasticity and banking facilities can be provided in England with extraordinary ease. It has of late years been frequently contended that the ease and elasticity with which it works have carried the English banking machinery to a somewhat extreme length in the matter of the economy of gold and legal tenders and the extent of the credit pyramid which it builds up on them. After the crisis of 1890, Lord Goschen seems to have been strongly imbued with the conviction that the system had been carried too far. He therefore urged upon the London banks that they should make a monthly statement of their position, and this suggestion was adopted by the majority of them. The result was that they published a monthly statement showing how they stood on one day at the end of each month, and it thus followed that on one day at the end of each month the banks showed a proportion of cash to liabilities which they considered sufficiently adequate to stand the light of publicity. But the system has long been seen to be faulty, and a certain amount of abuse has grown up round it. It is strongly suspected, for example, that some of the banks which publish these statements make preparations for them by calling in loans or reducing their discounts for the day on which the statements are drawn up. As far as this is done the statement is to a certain extent misleading, and this practice of "window dressing," as it is called in Lombard Street, has been subject to frequent criticism, so much so that one of the leading London banks--the London and County--adopted early in 1908 the practice of showing its daily average cash holding, thus demonstrating that it was not in the habit of preparing a statement which did not represent its position fairly throughout the month. It has been stated by a president of the English Bankers' Institute that the proportion of cash to liabilities shown by country banks ranges down to a point as low as 2.2 per cent. No one can contend that this is an adequate cash basis for banking to work on, and as long as certain members of the banking community conduct their business on these lines an obvious hardship is involved on those which keep a more prudent and strong reserve of cash. It is contended by the big strong banks that their smaller brethren compete with them by providing more credit than they have any right to create, relying on their assistance in times of difficulty. Apart from this danger of the over-multiplication of credit on an inadequate cash basis, the complete absence of any legal or other restrictions on the operations of English banking enables it to work with extraordinary ease and readiness. As long as good unpledged security, whether in the form of bills of exchange, commodities, or Stock Exchange securities, are available in the hands of customers the banks can advance against them to any extent that they consider prudent. Prudence dictates in the case of a great majority of them that a certain proportion of cash to liabilities shall be maintained, but, as was shown above in dealing with the Bank of England, the cash of English banking consists partly of credits with the Bank of England. These credits with the Bank of England, and consequently the cash credits of English banking, can be multiplied as rapidly as the Bank of England is prepared to make advances or discount bills, and so give credit in its books. The Bank of England must publish its account weekly, and it watches over its proportion of cash to liabilities with a vigilance which is greater than that of the rest of the banking community as a whole. Nevertheless, its prudence in this respect is the only restriction on it, and we thus arrive at the conclusion that the chief function of the English joint stock banks, that of providing the mercantile community with currency and credit, can be carried out to any extent as long as their customers have security to offer and their proportion of cash remains adequate to their sense of prudence. And further, their proportion of cash can be increased as rapidly as the Bank of England is prepared to make advances, which it can and does to an extent which again is only limited by its own prudence. Besides this absence of outside regulation, the English monetary system is also distinguished by a remarkable lack of cohesion and co-operation among the members of its own body. Except to a certain extent in the country districts, where the rates allowed to depositors and charged to customers are to a certain extent a matter of convention, English banking works almost entirely at the mercy of very keen internal competition. This extreme development of competition leaves the market liable to pronounced depression in rates at times when slackness of trade or other causes decrease the demand for credits. At these times the adroit bill brokers and discount houses, which are in some respects the most important borrowing customers of the banks in London, are enabled by the use of this weapon of competition to obtain loans from the banks at rates which are often below the price that the bankers are paying to their depositors. Hence, it follows that in these times of monetary ease the credit machine goes on turning out its product at rates which are quite unremunerative and have a detrimental effect on the market rate of discount, and so on the foreign exchanges, thus increasing the difficulties of the Bank of England, which at these times of extreme ease is without any control of the position. Against this weakness of the system, however, must be set the advantage which the unrestricted and fiercely competitive manufacture of credit confers on the mercantile and trading community. A few words should be said concerning the form of cheques with which the English banks provide their customers as currency. Legally a cheque is a bill of exchange drawn on a bank and payable on demand. That is to say, it is an order signed by a customer of the bank directing it to pay a certain sum to another party or to himself. The form, however, can be varied in various methods, increasing or diminishing the ease with which the cheque can be turned into cash. The cheque can be made payable to A B or bearer, and in this form can be taken to the bank drawn on and immediately turned into cash. When drawn to A B or order, a cheque has to be indorsed, or signed on the back, by A B before the bank drawn on will pay it. A still further restriction is the English system of crossing cheques, that is to say, of drawing two lines across the face of the cheque, by which mark it is shown that the cheque is not to be paid in cash across the counter by the bank drawn on, but must be paid into a bank by the payee, and so only becomes credited to him in his own banking account through the operations of the clearing house. It is evident that this protection greatly increases the safety of the cheque, since if it fell into the wrong hands its chance of being made fraudulent use of is greatly diminished. As the lines drawn across the face of the check by the bankers' customers are often faint and irregular, it has been found in practice that they lend themselves to the ingenuity of the fraudulent, who are easily enabled to erase them and so obtain possession of money that is not meant for them. Some of the banks therefore print these crossing lines on all of the cheques that they issue to their customers to be filled in, and when the customer wishes to obtain cash from his bank on one of these cheques he is consequently obliged to write upon it "Please pay cash," and sign this note upon it. The extensive use of crossed cheques thus tends to make the cheque still further an instrument which merely transfers banking credits from the books of one bank to another, since every crossed cheque implies that it can not be turned into cash directly, but can only transfer credit with one bank to credit with another. Another restriction with which custom has protected the English cheque is the system of writing "Not negotiable" on the face of it. These words do not mean that the cheque is really not negotiable, but their legal effect is that the holder of the cheque can not establish a better right to it than the party from whom he received it. If therefore the party from whom he received it had no right to it, his claim against the paying bank is _nil_. With these safeguards, and with the enormous convenience of being drawn to any amount to fit the exact requirements of each transaction, the cheque, although not legal tender, has been enabled to supersede the bank note in English currency. The chief function of the joint stock banks having thus been shown to be the provision of currency for the English community, it may further be noted that a remarkable development of their activity has been the rapidity with which they have covered England with branch establishments. It was estimated in 1858 that the total number of bank offices in the whole of the United Kingdom was just over 2,000; at the present moment the aggregate branch offices of four of the English joint stock banks which are richest in respect of branch establishments have exceeded this total. One bank in England has over 600 offices, one has over 550, two have over 400, three have more than 200, twelve have more than 100. This multiplication of branch offices has been carried out partly by the absorption by the joint-stock banks of the smaller institutions in the country, whether private or joint stock, and partly by the rapidity with which they have opened branches in the great provincial centres and their suburbs, and to a moderate extent in the small country towns. The result of it is to give the English monetary system the power of easily supplying the needs of the various parts of the community as the requirements of others ebb and flow. At the same time this rapid development increases the competition between the various English banks, which we have already shown to be carried to an almost excessive degree, and by the wide local distribution of their liabilities enhances the possibility of strain on them in times of difficulty. Some of the banks include under the heading "cash at call and short notice" advances which they make to the Stock Exchange for the fortnightly periods that elapse between its settlements. The funds that they so use obviously have an important effect upon the marketability and price of securities in London. On the first day of every settlement it is usual to see rates quoted as those at which the banks are lending to their stock exchange clients for the financing of speculative commitments. In the arrangement of these rates a certain amount of combination and co-operation among the banks, or some of them, has grown up as a matter of custom, but since for this class of accommodation the bankers are subject to competition on the part of the agencies of the foreign banks and the big finance houses it is often found difficult to maintain even this amount of harmonious working among the bankers. It has been shown that the rate at which the banks make advances to the discount houses has an important effect upon the market rate of discount in London, but the banks exercise a still more important and direct effect upon this discount by being themselves large buyers of bills. It is impossible to gauge exactly the extent to which they hold bills among their assets, since many of them in their balance sheets include their discounts along with their loans and advances. Among the many suggestions that reformers have put forward in the matter of English banking, one is that this item of the banks' holding of bills should be separately stated. But though this obscurity in the statements of the English banks makes it impossible to know the precise extent to which they hold bills, there is no doubt their purchases of them are on the whole the most important influence upon the market rate of discount in London. Nearly all the discount houses, whose functions will be described later, buy bills, largely with the intention of reselling them to customers, among whom the joint-stock banks are the largest and most important and most regular buyers, and it is contended by the discount houses that the market rate of discount, for which they themselves are generally supposed to be responsible, is really and in fact regulated by the price at which the big joint-stock banks are prepared to buy. This being so, since the market rate of discount is perhaps the most important influence on the foreign exchanges and so on the inward and outward movements of gold, it will be seen that this function of the bankers is one of the greatest possible importance from the point of view of London's free market in gold. Besides thus regulating the price at which bills of exchange can be discounted in London, the banks have in recent years taken an increasingly large and important part in the creation of bills of exchange by placing their acceptances at the disposal of their customers. The increasing extent to which the bankers have in recent years intruded into this class of business is a grievance that is resented rather keenly by the merchant firms, or accepting houses, as they are often called. It is contended by the latter that the business of acceptance is a special function for which special training is required, and that the joint-stock banks rarely have available the special abilities that make for its proper conduct. On the other hand, the high standing of the joint-stock banks and their big reserve resource in the shape of their uncalled capital makes their acceptances an exceptionally fine credit instrument, and it seems natural enough that they should, to a certain extent and within moderate limits, place these facilities at the service of their customers. Finally it may be added that the English joint-stock banks are now showing a disposition to engage to some extent in the business of dealing in foreign exchange which has hitherto been left to the finance houses and foreign firms established in London. The London and County and the London City and Midland banks have now established regular foreign exchange departments. This development is generally welcomed as a sign of a desire on the part of the banks to widen their horizon and to come into closer touch with the affairs of the financial world at large, but, as in the case of the banks' increasing interest in acceptance, there are some critics who consider that it is better for the bankers to stick to their obvious and highly important function of providing the community with credit and currency, and taking care of the money of their customers. THE PRIVATE BANKS Any differences that exist between the private and joint-stock banks of England lie in their ownership rather than in their functions. Their functions are the same, but the manner in which they carry them out is perhaps influenced to a slight extent by the fact, which really distinguishes them, that the private banks are owned by a few partners who generally conduct the business for themselves or exert more or less influence on it, while the joint-stock banks are managed by salaried directors and officials on behalf of a large body of shareholders formed into a public company, the shares in which can as a rule be bought and sold on the London Stock Exchange. Since private enterprise naturally precedes joint-stock institutions, it goes without saying that the private banks of England were the pioneers of the banking business. There are still in existence private firms which were founded before the Bank of England. A goldsmith called Child was doing business of a banking character soon after 1660, and Child's Bank still exists. Hoare's Bank was instituted in about 1680, fourteen years before the Bank of England received its charter. Modern developments have almost driven them out of the field, and among the leading banks in the city of London only two are left which can still be called private in the old sense of the word. There are one or two other institutions which are on the borderland: and at the west end of the town several old firms, including Child's and Hoare's, have retained their old constitutions. THE MERCHANT BANKERS AND ACCEPTING HOUSES The most important function of the merchant bankers is not that of banking, but of accepting. Banking, in the strict sense of the term, they do not engage in--that is to say, they are not prepared to meet claims upon them by an immediate payment of cash or legal tender over the counter, but by payment of a cheque on one of the banks in the stricter sense of the term. The function of the London accepting houses, though of enormous importance, is still to a certain extent subordinate to the judgment of the English banks. They finally decide whose paper is most readily negotiable, and, in times when the credit machine is felt to be somewhat out of gear, the bankers occasionally discriminate against the paper of firms which they consider to have been giving their acceptance too freely. In this respect, as in so many others, the Bank of England remains the final arbiter, since the paper of an accepting house which is questioned by the other banks can be negotiated at the Bank of England through a discount house, and the Bank of England has before now intervened with effect when it considered that questions raised concerning certain acceptances have been without justification. This business of acceptance is one into which the other banks have themselves recently intruded with considerable effect, accepting bills for their customers, home and foreign, for a commission; and there is a certain apparent anomaly in the position which makes them guardians of the volume of acceptance created by the private firms and acceptors themselves on a steadily increasing scale. Nevertheless, this anomaly has little or no untoward effect in practice. The bankers are naturally extremely cautious in raising any question as to the security of general credit in London, and they are in many ways closely connected with the private accepting houses, so that the system, which appears to be full of uncomfortable possibilities on paper, works easily enough in practice. Other functions of the merchant firms and accepting houses are their activity in general finance and in exchange business. Both these functions arise out of their old business as merchants, which gave them close connection both with the governments and the business communities of foreign countries. THE DISCOUNT HOUSES The great volume and diversity of the bills of exchange which come into the London market to be melted and turned into present cash before their date of maturity has caused the existence of a class of dealers in bills (bill brokers) who specialise in handling them and may be regarded as intermediaries between the holders of the bills--that is to say, originally, the drawers of them, or their representatives, or any one else into whose hands they may have passed them on--and the bankers, who are the ultimate buyers and hold them as investments until maturity. It is the business of the discount houses to buy these bills on a wholesale scale, using for this purpose funds largely lent them by the banks, and to meet the requirements of the bankers with regard to the date named and quality of the bill, providing them out of the store that they keep constantly replenished. We have also seen that the discount houses fulfill a very important function by borrowing funds from the bankers at call and short notice. These funds are regarded by the bankers, and actually described in their balance sheets, as cash, cash at call, and short notice. It is a somewhat elastic extension of the term "cash" to apply it to money that is being lent to any borrower, even of the highest credit and against the most liquid possible collateral. But it is always assumed by the bankers that these funds placed in the discount market can be called in readily at any moment. That they can be called in is practically a fact; but it arises chiefly from the ability of the discount houses when pressed for repayment of these loans by the bankers to fill the gap in credit by an appeal to the Bank of England and the production of fresh cash, as it is called, by borrowing from it. The discount houses take security to the Bank of England and raise with it the right to draw cheques. These cheques they pay to their bankers, whose cash at the Bank of England, which we have already seen to be regularly used as a part of the basis of credit in England, is thus increased. Besides the money that they habitually borrow for short periods from bankers, the discount houses also have considerable amounts placed on deposit with them by other lenders, some of which they employ, especially in times when the volume of bills is comparatively small, by loans to the Stock Exchange for financing the speculative commitments of the public, and by holding or carrying securities of a reasonably liquid character. They also take some part in the underwriting of new loans and in the general financial business of the London market. [154]It is impossible to exaggerate the importance of the functions which the bill brokers discharge in the London money market. They are only about twenty in number, including three joint stock companies. One or two of the brokers work on commission, as your brokers do, but the majority are really dealers in bills. That is, they buy or discount, and sell, or rediscount, bills of exchange. Let me illustrate their method of working: A bank in New York may buy $1,000,000 worth of sterling bills drawn on England and send them forward to its London agent to be discounted with the bill broker. The bill broker will discount these bills at, say, 4 per cent. If he thinks rates are likely to fall, he will hold the bills; if he thinks them likely to rise, he will try to sell the bills at about 3-3/4 per cent. or 3-7/8 per cent. discount, thus making a profit on the transaction of 1/4 per cent. or 1/8 per cent. per annum. Similarly he may discount large parcels of bills for Eastern and South American banks. Many of these bills will be bills drawn on and accepted by banks and finance houses. These are known as "bank bills." But on the other hand, the bill brokers are free buyers of "trade bills." The trade bill in England arises in the following way: Trader A sells goods to trader B. He will draw a draft on trader B at, say, three months date. Trader B will accept the draft and return it to trader A, who will discount it with his banker or with the bill broker. The rate of discount for trade bills is usually 1/2 per cent. per annum higher than the rate for bank bills. The essential feature of almost all the bills on the market is that they represent a commercial transaction, such as a sale of goods, where value passes. It is this that lends them their self-liquidating quality; for they are usually liquidated by the acceptor out of the proceeds of the resale of the goods during the currency of the bill. The bill broker not only employs his own capital in buying bills, but also money which he borrows from the banks and others at call or at short notice. Enormous sums are employed in this way. INTERVIEW WITH THE GOVERNOR AND DIRECTORS OF THE BANK OF ENGLAND [155]Q. When does your present charter expire? A. The bank's exclusive privileges of banking continue subject to one year's notice and to repayment by the Government of the debt of £11,015,100 and of all other public debt held by the bank at the time. Q. What is the par value and present selling price of your shares? A. The bank's capital is in the form of stock, £100 of which is at present quoted at about £267. Q. How many stockholders have you? A. There are at present over 10,000 accounts. Q. Is the stock fully paid? A. Yes. Q. Have your shareholders any liabilities in addition to the ownership of shares? A. Legal opinion is to the effect that there is no further liability on bank stock. Q. Is there any limit to the number of shares which may be held by any one person, and is your approval required before a transfer of your stock can be made? A. There is no limit--the bank's approval is not required. Q. Does every share have a vote at shareholders' meetings? A. To have a vote a proprietor must hold £500 of stock, but no matter how much additional stock a proprietor may hold he can not have more than one vote. Q. Is there any custom restricting the class from which the directors may be selected? A. There is no legal restriction as to the class from which directors may be selected, except that they must be "natural-born subjects of England, or naturalized," but in actual practice the selection is confined to those who are, or have been, members of mercantile or financial houses, excluding bankers, brokers, bill discounters, or directors of other banks operating in the United Kingdom. Q. How many branches have you? A. There are eleven branches--two in London and nine in the provinces. Q. Is the business conducted at your branches of the same class as at your main office in London? A. Yes. Q. Do your branches have business relations with merchants, farmers, and all classes of people in their respective localities? A. There are no restrictions of any kind as to the class of people with whom the bank has business relations. Q. Is the Bank of England a member of the London Clearing House? A. Yes; but "on one side only," as it is termed. The Bank of England presents, through the clearing house, all drafts drawn on clearing bankers paid in to it by its customers; but the clearing bankers do not present, through the clearing house, drafts on the Bank of England paid in to them by their customers. Such drafts are paid direct to the credit of their accounts at the Bank of England. Q. Do you at any time allow interest on special deposits? A. It is not the practice of the bank to allow interest on any deposit. Q. Can you state approximately the average length of time and the average size of bills discounted by you? A. Time, forty to fifty days; size, probably about £1,000. Q. What is the distinction between what are known as "prime bills" and other bills? A. A "prime" bill we should define as a bill accepted by a London or provincial bank in first-class credit or a merchant or merchant banker of the first class whose business it is to grant credits. Q. Do you discount any prime bills? A. Yes. Q. Do you discount to any considerable amount for individuals and merchants? A. The bank discounts all approved bills offered to it by persons or firms having properly constituted accounts. Q. Is it your custom to employ surplus funds in purchase of bills from discount houses? A. No. Q. Do you rediscount bills for the joint stock or other banks? A. The bank is always prepared to rediscount for other banks at its official rate, and does a large business from time to time with the colonial and foreign exchange banks who are from the nature of their business always sellers of bills. Q. Would you charge a merchant house having a good account with you the bank rate or the market rate for prime bills? A. The market rate. Q. To what extent does bank rate govern your discount and loan transactions? A. The rates for discount and loan transactions at the bank usually approximate more or less closely to the bank rate. Q. Do you at times discount bills for parties having no account with you? A. No. Q. Are a considerable number of your loans on call? A. None. Q. When and under what conditions is the bank rate changed? A. The bank rate is raised with the object either of preventing gold from leaving the country, and lowered when it is completely out of touch with the market rate and circumstances do not render it necessary to induce the import of gold. Q. Does the bank sometimes borrow money in the open market for the purpose of raising the market rate? A. Yes. Q. Do you sometimes sell consols for the same purpose? A. Yes; on rare occasions. INTERVIEW WITH SIR FELIX SCHUSTER, GOVERNOR OF THE UNION OF LONDON AND SMITH'S BANK LIMITED [156]Q. Your bank is organised under the General Companies Acts as are all joint stock banks in England? A. Yes. Q. You are not under government supervision or examination? A. No. Q. The authorised par of your stock is £100, and £15 10_s._ have been paid on each? A. Yes. Q. Are your shares held by individuals and corporations? A. By individuals, not by corporations. There are upwards of 8,600 different shareholders. Q. In the transfer of shares, do you require the name of the transferee to be submitted and approved before the transfer is made? A. Yes. Q. That of course is in order to insure the responsibility of your stockholder? A. This is in order to insure the responsibility of our stockholder, and to prevent one holder from securing too large a holding. Furthermore we give no single proprietor more than 20 votes, however large his holding may be. Every 10 shares carry one vote, so the holder of 200 shares has a maximum number of votes. Q. Is that the usual custom with the joint-stock banks of England? A. I am afraid I cannot answer offhand. I suppose it is so in some cases, but the practice varies. Q. In London there is usually a difference between the rates charged on loans and bills in favor of bills, is there not? A. Yes. Q. Would you say that that difference is perhaps from one-half to 1 per cent. in favor of the bill? A. It depends so very much on the circumstances of the moment that it is very difficult to generalise. At the present moment I would say a three months' bill is worth 1-7/8, and a three months' loan would be worth perhaps 3-1/2. Q. Were most of your branches organised by you or were most of them other institutions purchased by you? A. Some of them were other institutions; some of them were organised by us; most of them were those old banking firms which were carried on as private businesses and have since become branches of our bank. Q. The tendency is for the consolidation of banking in Great Britain, is it not? A. Yes. Q. Very strongly in that direction? A. Very strongly in that direction, yes. Q. As a matter of fact, a large part of the commercial banking in England is done by about a dozen institutions, is it not? A. In Liverpool and Manchester there are very important local banks. However, it is no doubt the fact that four or five banks do about half the banking business. Q. In the main you believe that the banking situation is stronger and better and the country is better served through the system of branches than through the independent banks? A. I am quite convinced of that, if only for one reason, that I do believe the indiscriminate granting of credits to the individual is injurious to himself, the private bankers being too much in the habit of regarding old family associations and not so careful as the joint-stock company would be, and he has accustomed people to trade on the credit that they get from the banker. I do not think that is banking business. The bank ought never to supply the trader with working capital. I think it is bad for the trader. Q. Is it not quite essential to the success of a financial institution doing a commercial business to become a member of the Clearing House if it is to meet with a large degree of success? A. No. After all, there are only seventeen banks, I believe, now in the Clearing House, but there are a great many other institutions who are not members of the Clearing House and who do not suffer from that fact. Scotch banks with branches here who do a large banking business are not members of the Clearing House. There are all the colonial banks with head offices or branches in London and other large institutions; those are not members of the Clearing House. There are Barings and Rothschilds; they are not members of the Clearing House. Q. Would you say the Bank of England is in any way a competitor of the other banks in England? A. Yes. That is a source of very grave complaint by the other banks. Q. The Bank of England do not pay interest on any accounts? A. No; but in some cases they act as intermediaries for lending money. It is a very subtle distinction. Q. While the bank rate is fixed and is to-day, say 2-1/2 per cent., is it not a fact that the Bank of England does some business for its customers and also purchases bills for their account at a lower rate? A. That is so, and that is one of the matters of complaint. By fixing the rate at 2-1/2 per cent., or 3 per cent., or 4 per cent., they can regulate the rate we fix for our own customers. We regulate our deposit rate in accordance with the bank rate. We also regulate the rate we charge for our loans in accordance with the bank rate, and we are bound by it to a certain extent, and they themselves feel at liberty to depart from it. Q. What does the bank rate mean; what does it govern in fact? A. It means the general charge to the trade of the country, because although we say that bills in the market are discounted at a lower rate than bank rate, yet there is a vast number of trade bills which are purely governed by the bank rate. Q. We found both in Germany and in France the question of the amount of reserves, either in specie or in bank, was regarded as of little importance by the bankers. They depend on the Reichsbank and the Bank of France for rediscount in times of need. A. Both in France and in Germany banks are much more dependent on the central institution than we are here. They lean on their central institution to a very great extent; for instance, the rediscounting of bills and borrowing from the central institution is, I believe, quite a usual occurrence. Here it is an occurrence which would only take place in the last resort. As far as I am aware this bank has never as long as it has been in existence had one penny from the Bank of England, whether by way of advance or by way of a discounted bill. We do not rediscount our bills in the market either; so every transaction we enter into we have to see through to the very end. INTERVIEW WITH MR. CHARLES GOW, GENERAL MANAGER OF THE LONDON JOINT STOCK BANK, LIMITED [157]Q. Your capital stock is £100 authorised, £15 paid? A. Yes. Q. Does your board pass upon a new stockholder? A. Yes. Q. Who really conducts the business of the bank? A. The managers, who are appointed by the directors; that is to say, myself and all those belonging to me. Q. Are most of your acceptances secured? A. Every one. Q. How are they secured, generally speaking? A. They are secured in the great majority of cases by bills of exchange, by first-class securities with plenty of margin, even by cash in hand to a moderate extent, and to a very small extent by bills of lading for produce shipped. That is a very small item. Q. Can you state the reason for accepting bills instead of furnishing the cash? A. We accept those bills because it happens to be the custom of the particular banks to draw a long bill. The customer himself who buys cotton in Bombay, or wherever it may be, acts according to the custom there to draw a bill to a certain usance. Now, for instance, with regard to an inland bill, we would not give credit of that sort to a man in London, but wherever there is a regular course of business abroad to draw at long usance we comply with it. Q. What is the character of your bills discounted? A. Those are all marketable bills, trade bills; you know what they are; they are between the manufacturer and the man to whom he sells. Q. You always require two names? A. Always. Q. What does the form of obligation by the borrowers upon collateral take? A. Just the same form as your promissory note. Q. You have branches, have you not? A. We have about forty-odd branches all in London and close to London. Q. You do not then endeavor to acquire a country business through your branches? A. For this reason, that we commenced as a purely London bank, and we have so far kept to that original determination of not launching out into country business, because, as I say, it differs from the ordinary London business. Country business is not quite so liquid, and can not be. Q. If you had an account of a man running, say, a hat store, his account was satisfactory in character and had been carried with you for several years, and he wanted to stock up on hats, there would be no way in which he could go to you and borrow the money with which to buy those goods unless it was through a guarantor? A. No. He would go then to the wholesaler from whom he would buy the goods, and give that wholesaler his bill, and that bill would be a discountable article, and that is how the money would be raised. Q. Do you ever allow overdrafts, as they do in Scotland? A. They are not unheard of, but not a principle of our business. Overdraft is a principle of country banking. Q. My observation leads me to believe that the banking situation in London is practically controlled by twelve or fourteen of what are known as the London joint-stock banks, through their offices and through their branches? A. Yes; I think that is right. However, there are still independent banks in the country, and I doubt whether amalgamation will go very much farther than it has gone. You see, these amalgamated banks have already become so large that they begin to get a little unwieldy. Lloyds Bank is an enormous thing, with $350,000,000 of current and deposit accounts. Q. Would you say that the public are better served through these branches than they were through the independent banks? A. Some say that they are not so well served, that accommodations are curtailed now as compared with what they used to be, and that I can understand to some extent, because, working a very large concern from one centre, you see, fiats will go forth, "Cut that man's credit off," and not listen to taking a large view. They say, "I have enough of that kind of accommodation; I have 100 shipbuilders or shipowners; I am not going to give out more than a proportion of my money into that particular trade; therefore, I will not have any more," whereas the independent banks would be perhaps a little more accommodating. Q. If I were to go to you to-day with a ninety-day trade bill, the acceptor known to you as good, and also with a loan secured by Pennsylvania Railroad bonds, my loan to mature in ninety days, what rate would you charge me on those separate items? A. The bank rate to-day is 2-1/2 per cent. You are a good customer, and I should charge you 2-1/2 per cent. for discounting that trade bill, and I might charge you 3 per cent., or even perhaps 3-1/2 per cent. on the Pennsylvania Railroad collateral for this reason, that one is not as realisable as the other. When the bill becomes due it has to be paid, or I give it back to my customer, and say "Give me the money for that." I can not quite say the same to him about his collateral. Q. What per cent. of earnings on your capital did you show last year? A. Roughly, our net earnings were 20 per cent. It cost us 50 per cent. of our gross earnings to run the business. Q. What taxes do you have to pay? A. We pay income tax on all our earnings, and deduct from our gross profits. We are entitled to deduct, roughly speaking, our expenses, and then upon the remainder we have to pay the income tax, or whatever it is, at 1 shilling in the pound, for instance, now. Q. Would you say that the Bank of England is a popular banking institution among other banks in England? A. Yes, I should say so decidedly. Its popularity goes to this extent, that it is absolutely indispensable to them. Some of them may grumble at this proceeding or that proceeding, but they have one and all to own that the Bank of England is indispensable to them. Q. As a matter of fact, if you had presented to the Bank of England last fall some bills which had been negotiated through you which appeared to be finance bills, do you not think they might have gently hinted that it was not agreeable to them to have you negotiate any more finance bills? A. I may say they have that recourse, and they might say to me if I gave them any just cause for doing it, just the same as anybody else. Q. In other words, the Bank of England has such a commanding position here among the financial institutions which control all the finances of Great Britain that they dominate it when they choose to? A. When they choose. Q. It is the custom of the bank to co-operate very cordially with the other banks, is it not? A. Oh, yes; we are as free as free can be. There is very little conference, or anything of the kind; we are all pretty good friends all round. FOOTNOTES: [150] F. Straker, _The Money Market_, pp. 7-16. Methuen and Company. London. 1904. [151] _Ibid._, pp. 28-40. [152] [The fourth suspension occurred August 6, 1914.] [153] Adapted from Hartley Withers, _The English Banking System_, Publications of the National Monetary Commission, Senate Document No. 492, 61st Congress, _2nd Session_, pp. 3-64. [154] James H. Simpson, _Some Leading Features of the London Money and Discount Markets_, an address delivered at the annual banquet of the bankers of the city of New York, Jan. 19, 1914. (In Banking and Currency at Home and Abroad, Distributed with the Compliments of the National City Bank.) [155] Adapted from _Interviews on Banking and Currency Systems of England, Scotland, France, Germany, Switzerland, and Italy_, Publications of the National Monetary Commission, Senate Document No. 492, 61st Congress, _2nd Session_, pp. 7-29. [156] _Ibid._, pp. 34-55. [157] _Ibid._, pp. 60-91. CHAPTER XXIII THE SCOTCH BANKS [158]The functions performed by the eight Scotch banks and their 1,245 branches[159] are essentially similar to those already described as being carried out by their English brethren. The differences between the currency systems of the two countries are in degree rather than in essence. In Scotland the note issue has made a harder fight for its existence than in England, owing no doubt to the fact that the Bank of England's monopoly did not extend to Scotland and that the great Scotch joint-stock banks therefore extended the system of using notes as currency, while the development of joint-stock banking in England was necessarily opposed to it, since joint-stock banks in England with an office in London were unable to issue notes. Nevertheless, even in Scotland the advantages of the cheque have told in its favour, and, as will be seen below, liabilities of Scotch banks under note issue are now much smaller than those under deposit as current accounts. DEMOCRACY OF SCOTCH BANKING The Scotch note circulation increased from £5,332,000 in 1872 to £7,173,000 in 1908. This increase, when compared with the fact that the note issues of the English country banks have during the same period diminished almost to vanishing point, shows that the bank note is much more tenacious of life north of the Tweed. This is partly owing to the fact that in Scotland notes may be issued of the denomination of £1, whereas in England the smallest allowed is of £5, so that the note was thus circulated more easily among the poorer classes in Scotland and so gained and retained a hold upon a much wider circle of the community. In this respect, as in others, Scotch banking is more democratic than English, and provides its facilities for a poorer and lower class of the community, though this distinction between the banking systems of the two countries is being rapidly diminished. Especially in its early days it laid itself out much more readily to the encouragement of the small capitalist and borrower, often granting him facilities against security, or an absence of security, which would have been only regarded as feasible under quite exceptional circumstances in England. A very interesting system was at one time fairly general in Scotland, and is even now by no means obsolete. It was the system described as that of cash credits, by which borrowers were able to go to banks and obtain advances against the joint personal security of themselves and one, or two, or three friends. By this means, in which a kind of co-operative responsibility was recognised as a security by the Scotch bankers, very poor borrowers were enabled to obtain banking facilities, and many instances are recorded in which by a loan of this kind, of quite small importance from the banking point of view, foundations of fortunes have been laid and the general commercial prosperity of the community has been furthered in a very satisfactory manner. And even now the essential difference between Scotch and English banking is this readiness of the former to take into consideration the personal standing of the applicant rather than the stuff or paper which he brings to it as security for an advance. USE OF NOTES AS "TILL MONEY" IN RELATION TO THE ESTABLISHMENT OF BRANCHES Banking by branches in Scotland has proceeded even more rapidly than in England, and the percentage of branches per head of the population is higher in the northern part of the Kingdom. This wide diffusion of banking facilities in Scotland has been largely brought about by the fact that its banks, having the privilege of note issue, were able to hold their own notes as "till money," so economising in the matter of cash. The following passage is from a work entitled _Scottish Banking, 1865-1896_, by A. W. Kerr, author of a _History of Banking in Scotland_: Were it not for the power to issue notes, and the readiness with which the public receive them, the banks could never have afforded to open a third of the branches which have been established. The reason for this is a very simple one. Without the right of issue a bank must, at every one of its offices, hold the whole of its balance of cash in the shape of coin, or of notes of other banks, which, as far as it is concerned, are as unprofitable as coin. Such balances entail a complete loss of interest which can only be borne where the amount of business is of considerable extent. There are probably not above 100 (at most 200) localities in Scotland that would satisfy such conditions. When, however, a bank can hold its till money in the shape of notes, it is enabled to extend its operations into districts which would otherwise be quite inaccessible.... The authority of a practical Scotch banker is equally emphatic on the point. Mr. Robert Blyth, general manager of the Union Bank of Scotland, read a paper at the thirty-first annual convention of the American Banking Association, in October, 1905, on the subject of Scottish banking. In the course of this very interesting paper he made the following statement: "It is in another quarter altogether that the Scotch banks find the value of the £1 note. It is the unissued notes in the tills of the branch offices, forming the till money at more than a thousand branches, wherein the real value lies. Without them the banks would require to keep £8,000,000 or £10,000,000 of gold coin, not as a reserve but as till money. It is these £1 notes which have enabled branch offices to be planted in every part of the country." It thus appears, from the highest possible authority, that the Scotch banks are enabled by their right of note issue to economise gold to the extent of £8,000,000 or £10,000,000, and it is amusing to observe how the objects aimed at by Peel's legislation with regard to note issue have thus been defeated even more completely in Scotland than in England. In England banking turned the flank of Peel's Act by developing the use of cheques, which superseded the note as the common form of payment in daily transactions. In Scotland, banking evaded the spirit of Peel's regulations, which were intended to insure that every addition to currency should be secured on an addition to the bullion held by it, by actually economising bullion to the extent of £8,000,000 or £10,000,000. EVASION OF PEEL'S ACT Scotland used the same weapons as England, namely, the cheque and the development of deposit banking. The eight Scotch banks have, according to their latest balance sheets, £7,000,000 of notes outstanding, and £108,000,000 of liability on deposits and drafts. With regard to the latter item Peel's regulations had nothing to say, and since ordinary banking prudence demanded that some cash should be held against it, and since the gold held against notes was not specially earmarked as such, Scotch banking was able to treat its cash against deposits as the basis both of its notes and deposits and so produce the economy which is boasted of by its champions. The law says nothing concerning cash to be held against deposits, and the metallic basis of these is probably extremely slender, if the cash held against notes is set on one side; but it is impossible to detect its actual amount, since the Scotch banks include with their cash their balances at the Bank of England, etc. And the net result is, that when the proportion of its cash to its total liabilities on notes and deposits is worked out it is found to be decidedly low, even when compared with English practice. For the eight banks taken together, gold and silver coin, notes of other banks, cash at Bank of England, and cheques in course of transmission represent almost exactly 10 per cent. of their note and deposit liabilities. It should be observed that the notes which the Scotch banks hold as till money do not appear in their statements, for until they are issued they are not a liability, and though they are treated by the banks in practice as an asset, they can not figure as such in a balance sheet. That they are practically treated as such is witnessed by Mr. Blyth, as quoted above, when he says that without them the banks would require to keep £8,000,000 or £10,000,000 of gold coin. And it is, of course, this habit of regarding unissued notes as a banking asset in the shape of till money that accounts for the low reserve of actual cash that the Scotch banks show. DEFECTS Scotch banking is so generally regarded as one of the highest achievements of the banking intelligence that some hesitation is natural in criticising the system by which, according to its own evidence, it has obtained most of its success. At the same time, it is difficult to avoid the conclusion that a serious danger lurks in a system which regards a banker's unissued promise to pay in the light of a banking asset. Mr. Blyth points out that these unissued notes are "not a reserve but till money," but the distinction between till money and reserve is one upon which it is possible to lay too much stress. In assessing the strength of a bank it is usual to compare the amount of its cash in hand, as a whole, with the amount of its liability to the public on deposit and current account, etc., and note circulation if any. The cash in hand, as a whole, consists of the till money and cash reserve. If the till money consists to any extent of the bank's own promises to pay, it follows that the bank's cash reserve as a whole is to that extent weakened, for it need not be said that in case of serious trouble, which is a contingency of which all provident bankers have at all times to beware, a bank's own promises to pay would be of little service to it. If a bank's credit were doubted, these promises to pay would not be available for it in meeting demands upon it. At such periods the public requires from its bankers not promises to pay but physical gold. In Scotland the confidence of the public in its bankers is so great, and the readiness with which it circulates their promises to pay appears to be so ingrained in the national character, that the contingency of the demand of the public for gold seems to be extremely remote. The criticism therefore which detects a weak point in this asset upon which Scotch banking prides itself so highly may be said to be merely academic. Nevertheless, when we examine Scotch banking by the test of figures, we find that it does actually work, as indeed would be expected from the statement of its exponents, on a cash basis which is decidedly narrow. Though the functions that they perform are practically the same as those of the English bankers, Scotchmen have succeeded in avoiding the excessive competition in carrying them out which is a weakness of English banking. In Scotland, on the other hand, cohesion and co-operation among the banks are carried to an extreme of which the mercantile community frequently complains. The banks are few and stand together like a close corporation; they agree absolutely and arbitrarily among themselves as to the rates they will allow to depositors, the rates at which they will advance or discount, and the terms and commissions for which they will do business for customers. The extent to which this regulation of the price of the product that they turn out is carried, is almost incredible from the English point of view, and though it is contended by the champions of the Scotch system that it encourages that wholesome democratic influence in Scotch banking which is in favor of the small borrower of limited resources, who is thus able to obtain accommodation on the same terms as much larger and more important customers, yet it must be obvious that the Scotch banks, by making these hard and fast agreements among themselves as to the price of the accommodation that they will give, and maintaining it in every case, are in fact putting the same price upon a very different article. The result of it is beginning to tell upon them a little in these days, since, when the big Scotch merchants and manufacturers find that their local bankers charge them the same rates for accommodation as the small tradesmen of the towns, they are naturally impelled to make arrangements to provide themselves with monetary facilities somewhere south of the Tweed, where rates are ruled by the circumstances of each case, and competition and higgling often in times of monetary ease deliver the bankers into the hands of the borrowers. As it is, the Scotch banks in regular conclave fix their rates in accordance with those current in the London money market or the Bank of England's official minimum, and, having fixed them, stick to them. The system is very profitable to themselves, and their customers certainly can not complain on the whole of the facilities with which they provide them. Nevertheless, the cast-iron rigor with which they work hand in hand in combination appears to be an excessive development of banking unity, and an ideal banking system would seem to lie somewhere in the middle between the excessive competition of the English bankers and the cast-iron combination of their Scotch brethren. Finally, it may be added that it is a little inaccurate to speak of a Scotch banking system, if the phrase be taken to imply that Scotch banking stands by itself and works on its own resources. In fact, it is only an appendage of the English system and relies habitually on drawing gold from the Bank of England, as its centre and the keeper of its reserve. BANK OF SCOTLAND INTERVIEW WITH SIR GEORGE ANDERSON, GENERAL MANAGER[160] Q. When was the Bank of Scotland founded? A. In 1695. Q. When does your present charter expire? A. By act of Parliament the "governor and company of the Bank of Scotland" have "perpetual succession." Q. How many branches have you? A. One hundred and sixty-three branches and twelve sub-branches in Scotland: also an office in London. Q. How are your branches managed? A. By agents (managers at London and Glasgow) appointed by the directors. Q. Do your branches have business relations with merchants, farmers, and all classes of people in their respective localities? A. Yes. Q. What is the law governing your note issues, and how are note issues limited and how secured? A. The bank is authorised to issue, without holding coin against them, notes to the value of £396,852, but for any excess beyond that amount we must hold, at the head office, an equivalent value in gold coin, one-fourth of which may, however, be in silver coin. Q. Will you state (a) the class of bills usually discounted by you, giving the number of names required; (b) the minimum size; and (c) the maximum length of time to run? A. Mercantile bills, also a few accommodation bills, usually two names; minimum, say, £10. The maximum length of time to run is six months. Q. What classes of collateral are accepted by you for loans? A. Personal security, marketable securities, life policies, mortgages over ships, shipping documents, etc. In the important banking centers of Scotland lending against collateral security has become largely prevalent. Q. Do you rediscount bills from other banks? A. No. Q. Explain the phrase "cash credits," and upon what conditions are they given? A. A "cash credit" is a credit allowed, in virtue of which a customer may draw cheques on the bank until the balance due to us reaches a certain fixed limit. The account is an ordinary operative one, and interest is charged on the balances actually due to the bank from day to day. Q. Have you in mind how many branches you had ten years ago? A. One hundred and twenty. Q. Do you ever buy any shares of railroad or industrial companies? A. Yes; of the highest class. Q. Do you ever own bank shares? A. No. ROYAL BANK OF SCOTLAND INTERVIEW WITH ADAM TAIT, CASHIER AND GENERAL MANAGER[161] Q. When was the Royal Bank of Scotland founded? A. In the year 1727. Q. When does your present charter expire? A. It is perpetual. Q. How many branches have you? A. One hundred and fifty-two. Q. Are all your branches of the same class, or have you main and subsidiary branches? A. In some cases there are sub-branches. Some are mainly or almost entirely deposit branches; others have few deposits, but a large advance business. Q. Is the business conducted at your branches of the same class as at your office in London? A. No; the London office is itself a branch office and much of the ultimate settlement of balances takes place there. The conduct of the ordinary London business is on the same lines as that of any other London branch bank. No notes can be issued in London. Q. Do your branches have business relations with merchants, farmers, and all classes of people in their respective localities? A. Yes, they have business relations with all classes of people. Q. What is the law governing your note issues, and how are note issues limited and how secured? A. The act of Parliament of 1845 governs our note issue. There is no limit to the amount of notes that may be issued, but the bank is required to hold gold (and silver to an extent not exceeding one-fifth of the total) against the notes in the hands of the public on the average of each month, and that at its head office in Edinburgh--gold held at branch offices does not count--to an amount sufficient each week on Saturday to cover the notes in the hands of the public in excess of a certain amount specified, £216,451. Q. To what extent are your notes legal tender in Great Britain? A. Our notes are not legal tender at all. Q. What other banks have the right of issue in Scotland? A. The Bank of Scotland, the British Linen Bank, the Commercial Bank of Scotland (Limited), the National Bank of Scotland (Limited), the North of Scotland and Town and County Bank (Limited), the Union Bank of Scotland (Limited), the Clydesdale Bank (Limited). Q. Are the notes of your issuing banks secured; and if so, how? A. They are not secured. In case of the liquidation of the five last-named banks, however, their shareholders are unlimitedly liable for their notes and they are liable to contribute a sum necessary to restore to the general assets the sums that may have been paid out of the same in respect of claims under notes. Q. What is the total amount of their outstanding issues? A. About £7,500,000. Q. Do you pay the Government in the form of taxes or otherwise, either directly or indirectly, for your privilege of note issue? A. Yes, we all pay a license duty of £30 for each place at which notes are issued, and a tax of 8_s._ 4_d._ per £100, or a penny per £1, on the average amount of notes in the hands of the public at the close of each week. Q. Is it your custom to carry a fixed amount in government securities? A. Yes, but the amount is not rigidly fixed. Q. Do you discount any but prime bills? A. Yes; we do all classes of business. Q. Is it your custom to employ surplus funds in purchase of bills from discount houses? A. Yes; bills accepted by London banks. Q. Do you rediscount bills for other banks? A. No; except for foreign or colonial banks who are correspondents. Q. Is the bank, through its branches, employed by other banks to any considerable extent for the transfer of funds from one city to another? A. Yes. Q. What, if any, artificial means are taken by you to secure changes in the volume of currency (notes and coin) to make it responsive to business demands? A. None are deemed necessary. Our system works automatically. Our note issue is unlimited; we are only required to provide gold to cover the amount in the hands of the public at the close of each week and on the average of each four weeks. Q. What is the customary charge for acceptance of a ninety-day bill? A. Five shillings per cent. Q. Your acceptance constitutes what is known in London as a prime bill? A. Yes. Q. Do you pay interest on both current accounts and deposit accounts? A. It is our custom to pay interest on deposits only. In London, however, it is different; there interest is allowed in special cases on large balances on current accounts if left for some time. Q. How does the bank rate affect the rate allowed by you on deposit? A. The Scotch banks all allow the same rate and charge the same rates for discounts and overdrafts, and these are fixed relatively to the Bank of England rate. Our deposit rate is usually 1-1/2 per cent. under the minimum bank rate. Q. Were most of your branches organised by you or were most of them other institutions purchased by you? A. Most of them were originated by ourselves. Q. Have you in mind how many branches you had ten years ago? A. About 136. Q. What relations do the Scotch banks bear to the Bank of England? Do they deal with it directly? A. The Royal Bank of Scotland has an account with the Bank of England, which has been in operation since 1728, and it collects bills and cheques for the Bank of England all over Scotland. Q. Do you regard your system of currency issue as sufficiently elastic for your needs? A. Yes; there never has been any difficulty. Moreover, no Scotch bank has ever failed to pay its creditors, including the holders of notes, in full. COMMERCIAL BANK OF SCOTLAND (LIMITED) INTERVIEW WITH ALEXANDER BOGIE, GENERAL MANAGER[162] Q. When was the Commercial Bank of Scotland (Limited) founded? A. In the year 1810. Q. When does your present charter expire? A. It is not limited in point of time. Q. Has the Government any voice in the management of the bank or any interest in it through the ownership of shares? A. None. Q. Have the managers of the branches full control of the business in granting discounts, etc.; if not, what discretion is usually given them? A. Agents have power to grant advances, but subject to the approval of head office. In advances of considerable amount, an agent's duty is to get authority from the head office before granting it. The discretion allowed is dependent on the size of the branch and the nature of the business and the class of customer, and on the record of the agent. By our system of reports on advances (weekly, monthly, and quarterly) we keep in close touch with the advances and means of borrowers. The London branch is, of course, on different lines, and our manager there has greater powers than an agent at a branch in Scotland. Q. Is the business conducted at your branches of the same class as at your main office in Edinburgh? A. Yes; very much the same. The head office has administrative work and supervision of branches, investment, etc., which does not, of course, arise elsewhere. Q. Do you discount to any considerable amount for individuals and merchants? A. Yes; it would perhaps be well to point out that in Scotland a large portion of advances made to traders are granted in the form of overdrafts on current accounts. _The number and amount of bills in Scotland are less now than in former years. Cash payments for the purpose of obtaining discount are more frequent, and the number of bills discounted by wholesale houses is reduced in consequence._ Q. Is it your custom to employ surplus funds in purchase of bills from discount houses? A. Only occasionally, when rates suit. Q. Do you rediscount bills for other banks? A. It is not our practice to do so. Q. To what extent does bank rate govern your discount and loan transactions? A. In ordinary transactions, altogether. In all transactions the bank rate governs as regards the minimum. Q. Explain the phrase "cash credits," and upon what conditions are they given? A. A cash credit account is an operative current account in security of which the principal debtor and two or more co-obligants have granted a personal bond in favor of the bank. The account is operated upon by the principal debtor, but all the parties are bound as principals and are jointly and severally liable to the bank.[163] Q. Is the bank, through its branches, employed by other banks to any considerable extent for the transfer of funds from one city to another? A. We act as correspondents for the large English and Irish banks and for colonial and foreign banks. Q. Do you favor the issue of £1 notes? Why? A. Yes; under the Scottish system, as it enables the banks to plant branches at little expense and so to open up the trade of the country in all districts and directions. Q. It is your practice to employ your surplus funds in the purchase of prime bills through bill brokers? A. We occasionally have such transactions. Q. Were most of your branches organised by you, or were most of them other institutions purchased by you? A. All of them were organised by ourselves. Q. Is the question of the amount of reserves, either in specie or in bank, regarded as of importance by Scotch bankers? A. I should think so, though I only know positively my own opinion. Q. Do you ever buy any shares of railroad or industrial companies? A. No industrial company shares and only gilt-edged railway stocks. Q. Do you ever own bank shares? A. No. UNION BANK OF SCOTLAND (LIMITED) INTERVIEW WITH ROBERT BLYTH, GENERAL MANAGER[164] Q. When was the Union Bank of Scotland (Limited) founded? A. In 1830. Q. When does your present charter expire? A. The bank has no charter expiring at any specified time. It is incorporated under the companies acts. Q. Have the obligations of the bank to the public or to the Government been changed from time to time? A. The liability of the shareholders was formerly unlimited, but when the bank became registered under the companies act, 1879, the liability of the shareholders--unless in respect of notes--was limited to the amount of the uncalled capital. Q. The tendency is for the consolidation of banking in Great Britain, is it not? A. It is, but this tendency set in at a much earlier period in Scotland than it has done in England. Q. Do you rediscount bills for other banks? A. Yes; but only to a very limited extent. Q. Is private banking carried on in Scotland? A. Private banking ceased to exist in Scotland prior to 1845. Q. Do you ever buy any shares of railroad or industrial companies? A. No. Q. Do you ever own bank shares? A. No. FOOTNOTES: [158] Adapted from Hartley Withers, _The English Banking System_. Publication of The National Monetary Commission, Senate Document No. 492, 61st Congress, _2nd Session_, pp. 41-50. [159] (September, 1915). [160] Adapted from _Interviews on the Banking and Currency Systems of England, Scotland, France, Germany, Switzerland and Italy_, Publications of the National Monetary Commission, Senate Document No. 405. 61st Congress, _2nd Session_, pp. 142-155. [161] _Ibid._, pp. 127-139. [162] _Ibid._, pp. 172-185. [163] The cash credit system, sometimes pointed to as a unique feature of Scotch banking, is by no means unknown in England.--EDITOR. [164] _Ibid._, pp. 157-170. CHAPTER XXIV THE FRENCH BANKING SYSTEM THE BANK OF FRANCE [165]The Bank of France was established in the year 1800, and was at first an entirely private concern, with a capital of $6,000,000. Among the first subscribers were Napoleon Bonaparte, Hortense Beauharnais, and bearers of names which are still prominent in the French banking world, such as Mallet, Hottinguer, Seillers, etc. At that time, the privilege of issuing notes was not confined to a single bank. But in 1806 the Bank of France was placed under state control, and, by and by, the other issuing banks disappeared, by amalgamation or otherwise, and the Bank of France became, and has ever remained since, the only issuing bank in Continental France. The present capital is $36,500,000, all paid, divided in $200 shares.... [Francs are given in terms of dollars.] These shares are held by the public, the average being about 5-1/2 shares for each shareholder. One-third of the shares are held by persons possessing only one share. They are dealt in freely in the market, their quotation being at present about 465 per cent. The profits go to the shareholders, as in every other company. In 1912 the bank earned a net profit of $8,200,000. The last yearly dividend was paid at the rate of 20.83 per cent.... The governor of the Bank of France and the two sub-governors are appointed by the State. They are assisted by fifteen regents, nominated by the meeting of the shareholders. The same meeting appoints three censors whom you would call auditors. The board, composed of the governors and regents, decides all questions concerning the rate of discount on loans, the issue of notes, etc. Three of the regents, assisted by twelve shareholders chosen from amongst the prominent members of the commercial and industrial profession, compose the "discount committee," which meets at least three times a week and decides upon the acceptance or refusal of the bills presented for discount.... The notes are ... legal tender, but, of course, may be exchanged, at sight, against cash--I don't say against gold, as I will explain presently. The denominations circulating at present are $10, $20, $100, and $200. One dollar and $4 notes were issued at critical times, but have been withdrawn since. In case of need, they would be resorted to again, and in this respect I should like to mention the fact, demonstrated by experience, that even where the circulation is already sufficient, a supplementary issue of small notes--unless, of course, the amount be too unreasonable--is much less likely to depreciate the currency than an issue of larger ones. In a certain sense, we may consider that a country which refrains from issuing small notes in normal times, possesses _ipso facto_ a valuable reserve in case of emergency.... I need not recall the remarkable rôle played by the Bank of France, under the leadership of its very distinguished governor, M. Pallain, during critical periods such as 1907, when that institution succeeded in keeping the French discount rate on an exceptionally moderate level, while giving valuable and effective aid, at the same time, to the London market. How is this successful policy of the Bank of France materially possible? Precisely because it has the option to pay in silver as well as in gold. When the situation is such that withdrawals of yellow metal are to be feared, the bank quotes a premium on gold. At present, for instance, the quotation is about one-tenth of one per cent. premium, that is to say, you will only get $999 in gold against $1,000 in notes. If you want to get $1,000 cash, you can get them, but in silver. As a consequence, there is no necessity to raise the discount rate in order to protect the gold reserve, and French commerce has the privilege of benefiting, as a rule, by the lowest rate of discount in the world. Thus the average bank rate, in 1912, was 3.37 per cent. in France, as against 3.77 per cent. in England, and 4.95 per cent. in Germany. If we consider a period of fifteen years, from 1898 to 1912, the average rates are: _per cent._ France 3.8 Holland 3.52 England 3.62 Belgium 3.65 Switzerland 4.14 Austria 4.22 Germany 4.50 CASH HOLDINGS OF THE BANK OF FRANCE [166]The undeniable characteristic of our present currency system is that it presents a transition between the money system and the clearing system, the ultimate form of which we are unable accurately to define. This period of transition, which began when the idea of genuine credit was conceived, will last for centuries before we can rid ourselves of money as a medium. The system of purely fiduciary currency, which is in process of becoming firmly established, is not yet sufficiently stable to prevent us from being thrust rudely back into the old ways whenever we exceed the limits of our resources. Crises afford a striking proof of this fact. The initial period, the precursor of the crisis, is nothing but an abnormal extension of credit and of speculation. At such times the need of leaning upon the solid foundation of metallic currency is felt with a new intensity; and when, with a blindness resulting from overconfidence, this need has been neglected, when, from a disregard of the functions of money, a crisis is brought about by the violent rupture of the equilibrium of credit, gold at once resumes its rights, is sought for on all sides, and, according to the seriousness of the offence, exacts complete amends, with the honors of a premium as high as it may choose to make. It clearly appears, therefore, that this quest for simplification in the means of credit, which each nation ardently pursues in the interest of its own industrial and commercial development, demands the greatest circumspection. In developing credit, metallic currency must not be too much overlooked. We must not lose sight of the fact that "credit, in order to be solid and permanent, must have a solid and permanent foundation." The first care of the architect who is about to erect a great building is to secure for it a broad and firm foundation. Likewise, in the vast and continuous upbuilding of a nation's credit, the metallic base requires the most attentive and enlightened consideration. To provide for it, the entire resources of the State are not too great. It is difficult to understand how, in certain countries, an undertaking of such universal interest should be left to private enterprise. How can the latter be powerful enough to accumulate holdings in currency which may have to remain idle for long periods, and which can unflinchingly resist all assaults and all storms? In France a system which has already passed the hundred-year mark and has been particularly fortunate as to results, intrusts the Bank of France with the duty of building up and preserving the metal holdings, and this great organisation shows itself fully worthy of the confidence which the Government has always reposed in it. During its long career the bank has never ceased to control credit with rare foresight and a remarkably steady hand. From 1870 up to the present time the cash holdings of the Bank of France have not ceased to grow. But the bank, of its own volition, could not have made such an accumulation. The exchanges are usually in our favor, owing to our position as lenders to foreign countries and to the extent of our exports, and this for many years past has resulted in the continual flowing of the precious metal into the vaults of the Bank of France. In thirty-five years the amount of our metallic reserves has increased almost threefold. And it is worthy of note that while the amount of circulation increases together with that of discounts, loans, and current accounts, the fact is nevertheless established that the bank note tends to be more and more exclusively represented by cash holdings. The silver holdings are continually diminishing, while the total holdings have increased. Indeed, the Bank of France avails itself of every opportunity to relieve its coffers of this depreciated currency. Since 1898 a considerable portion of the holdings have been absorbed by the recoinage of a certain number of 5-franc pieces into subsidiary coins. PLACE OF THE BANK OF FRANCE IN THE DISTRIBUTION OF CREDIT We purpose now to investigate the organs of French credit, and to assign to each of these organs its function, in order then to ascertain what operations the Bank of France can perform and within what limitations. We have therefore to examine (1) the function of local banks and of financial institutions; (2) in what manner the Bank of France promotes the free distribution of credit; (3) in what measure the bank must control credit. LOCAL BANKS AND THE FINANCIAL INSTITUTIONS The natural organs for the distribution of credit are the banks, but not all are able to spread it or popularise it in the same degree. Thus the "Haute Banque" (the great banking interests of Paris), solely engaged in operations of higher speculation or in international financial relations, does not interest us. The function of distribution is reserved for the local banks and the financial institutions, while the function of the Bank of France is to preside over this distribution. Local banks, pre-eminent less than one hundred years ago, have gradually seen their field of activity growing smaller, and a large number of them have been amalgamated with great institutions, possessed of much greater resources, with branches over the entire country, and, it must be said, free from the routine which caused the downfall of many provincial houses. With their decline we greatly regret to see the disappearance of personal credit, which it is more and more difficult to make available. The _intuitus personae_ (the judgment of character), which may serve as a basis for credit granted to a neighbor by a neighbor, can not be considered by a corporation official who has almost no means of estimating the solvency of individuals except from the material and tangible side. The local banks, as far as they have survived, have adopted methods which do not bring them into competition with their powerful rivals. They have been obliged to grant long-term credits or content themselves with being intermediaries for the Bank of France in granting credits to parties known to them, generally farmers or small landed proprietors, with a view to rediscounting the paper. On this point again there is cause to regret, if not their disappearance, at least their effacement. The institutions for agricultural credit, in spite of all the attention they have received, have not yet been able to replace the local banks in the distribution of personal credit applied to agriculture. The great financial institutions, of which the four most important are the Crédit Lyonnais, the Comptoir National d'Escompte de Paris, the Société Générale, and the Crédit Industriel et Commercial, have a much more important part in the distribution of credit. Thanks to their numerous agencies, to their attractive conduct of business, with the service of a courteous and attentive staff, they have gradually taught the people new habits in investment and confidence in credit, to such a degree that he who but yesterday hoarded in a stocking prefers to-day, if not to speculate on the Bourse, at least to make deposits in the savings banks. The great financial institutions have done much to give even the lowest classes confidence in credit, and to introduce a system of clearing. In closer contact with the public than the Bank of France, which is restricted by having to protect the reserve of which we have spoken, these institutions are able more readily and effectually to reach and to mould the public. But that is not their only service nor the only reason for their existence. There are transactions which they alone undertake, which they alone can undertake, and which must be performed because they are in the line of progress. These operations are sources of profit in the same way as are discounts and loans for the Bank of France. Such are demand deposits, stock-market orders, and the flotation of securities. These operations cannot be undertaken by the local banks. Occupied for the most part with long-term dealings, they have no use for deposits payable on demand. If they should have such deposits, their total would never reach a sufficient proportion safely to permit the investing of an important amount. On the other hand, the Bank of France does not and, even if it wished, cannot compete with the financial institutions in undertaking such operations. Neither the acceptance of interest-paying deposits nor the flotation of securities can come within the province of a bank of issue. The flotation of securities necessitates a certain contingent responsibility, and the institutions which place securities on the market sometimes engage their credit for very large sums, which are sufficiently guaranteed by their capital, but the credit which is intended to safeguard the stability of the bank note cannot be pledged for that purpose. It happens that the Bank of France sometimes transmits subscriptions, but this is a gratuitous and entirely voluntary service. In no case can the bank take for its own account bundles of securities in order to dispose of them to the public. The purchase and sale of securities, which is so profitable a business in all financial institutions, could never, it is clear, be a successful undertaking in the Bank of France. The staff of the bank has no special information as to the various securities dealt in on the Bourse, and cannot, therefore, give valuable advice. Its rôle would apparently be confined to handing out the financial journals and passively awaiting orders. If it should act otherwise, the staff would engage the moral responsibility of the Bank of France; but the bank, evidently reluctant to undertake such operations, prefers to leave that field to its auxiliaries, the financial institutions. However, at the present time, the Bank of France tends to compete with these institutions for the purpose of maintaining sound conditions of credit which inclines more and more to speculation. Thus it is extending its department for the purchase and sale of securities in order to safeguard a poorly informed public against the excesses of speculation which dazzle with the hope of an always illusive gain. IN WHAT MANNER THE BANK OF FRANCE PROMOTES THE FREE DISTRIBUTION OF CREDIT IN FRANCE Thus the Bank of France must leave entire freedom of action to the financial institutions and must not encroach, theoretically at least, on their functions, which, as has been shown, differ materially from its own. The bank even owes them its protection, since they are valuable auxiliaries in pursuing its aim of extending credit as liberally as our metallic base permits. In the interest of the public the cash holdings are daily at their disposal. The help and protection of which we speak are not mere passive professions. Unfortunately, there have already been numerous cases where the bank has had to interfere in order to bring effective assistance to private banks. The bank has, of course, acted thus for the welfare of the entire community, but also for the satisfaction of protecting its auxiliaries with all its power in the fulfilment of a difficult task. Let us recall the failure of the Société des Dépôts et Comptes Courants, in the beginning of 1891. "The Bank of France, after exacting such security as the concern could still offer and, furthermore, the guaranty of several large banking institutions, for the purpose of limiting possible losses, authorised discounts to the amount of 49,228,206.87 francs. Thanks to this assistance, all deposits were paid off, and the dreaded effects of a panic were once more averted."[167] However, in spite of the precautions that had been taken, the liquidation was slow. Whenever the financial institutions have found themselves in need of effective pecuniary assistance, the Bank of France has regarded it a duty to help them, and in normal times, by assisting them with its resources, it facilitates liberal credits. IN WHAT MEASURE THE BANK MUST CONTROL CREDIT It may happen that the great financial institutions expand too rapidly or unwisely this or that branch of credit. Mindful, above all, of their own interest, which is but natural, they have no especial regard for the public welfare, their only aim being to make their capital bear fruit and to pay large dividends to their shareholders. The Bank of France aspires to a nobler ideal, and many of its policies are primarily for the public good. The development of credit is an extremely delicate matter; there are many instances where the application of this agency has led to great catastrophes. It is undoubtedly impossible to exercise a strict supervision over the financial institutions; any such measure would soon appear vexatious and would be, moreover, contrary to our spirit of liberty and independence. But we can quite justly ask whether these concerns are fully sheltered against disasters; whether nothing can happen to them of a nature to shake their credit; and in such a contingency what should be the attitude of the Bank of France. The preceding instance, and others that might be referred to, inform us sufficiently as to the possibility of failures. The house of Baring Bros., the Union Générale, and others enjoyed an immense credit, thought to be unshakable, and the events of a day flatly contradicted that opinion. In the course of the discussion concerning the last renewal of the charter of the Bank of France, much was said as to the possibility of allowing a certain interest to depositors in the bank.... M. Burdeau[168] has shown that it is impossible for the Bank of France to become a bank of deposit. The issue of bank notes and the receipt of interest-bearing deposits are absolutely incompatible services. Their union in a single hand "would replace the present organization by an entirely new one, which, in case of a crisis, would offer much less vitality and power of resistance." For us it is sufficient to know that the payment to depositors of 1 per cent. on deposits subject to check would attract to the bank nearly all inactive funds, and that a sum in the neighbourhood of 1,000,000,000 francs would leave the private banks. This would be their death-blow--a result which we are unwilling to contemplate. By their very nature the financial institutions are liable to weakness, and for the public good there must be some means of supporting them. For this reason the Bank of France, which presides over the distribution of credit, can permit the expansion of its auxiliaries only up to the point where its help would suffice to prevent the collapse of the market. Such a measure appears imperative in a country where the protecting wisdom of the Bank of France has always been relied upon. Fortunate land, fortunate institution, which excites the envy of foreigners, especially of England, where the least failure may result in disastrous consequences. Thus the banks of deposit have contributed to progress by gathering and giving life to sums previously lying scattered and idle. They are valuable auxiliaries in the distribution of credit. For this reason they deserve help and protection. The bank, the mission of which is of a wider and loftier scope,[169] has shown on many occasions that its helpfulness is not a pretence; daily, in fact, it assists them by rediscounting their bills. The prosperity of the financial institutions has continually increased. It is associated with the confidence and growing security of our times.[170] But the bank must be ready to meet even improbable contingencies in order to be in a position to recapture the market with a sure hand as soon as danger threatens it. Under these circumstances, what can the bank do? In the first place, it can utilise its powerful reserve which has been accumulated for this purpose. It can, in the next place, curb the action of the banks by competing with them when they appear to enter upon a dangerous course, and by showing them what steps to take.[171] On the other hand, there is a whole series of operations which private banks do not undertake, or do not tend to develop as they deserve. Directed by self-interest toward the more profitable transactions, they somewhat neglect the others. The Bank of France finds no one engaged in these less remunerative operations, and is, moreover, the better able to undertake them itself, because they are not incompatible with the duties of a bank of issue. Foremost, perhaps, among these operations is the popularising of credit by means of an ever increasing number of small loans, frequently accepting as pledge securities such as State rentes, bonds of the Crédit Foncier, of cities, railroads, and industrials. An enormous transfer business is also carried on for both banks and the public at very low cost. Moreover, the bank clears large sums, annually relieving the clearing house of this burden. The small business man, much more than the small rentier, reaps continually greater benefit from the advantages offered to the public by the Bank of France. We shall here simply call to mind the dates of some innovations favorable to the democratisation of credit. January 15, 1824.--Creation of transfer drafts. April 29, 1824.--Creation of transferable certificates of deposit. January 13, 1830.--Reduction of interest on loans against bars and coin from 4 per cent. to 1 per cent. 1834.--Loans against rentes and public securities. 1837.--Daily discounting of paper except on holidays. Law of June 30, 1840, article 2.--Option of replacing the third signature, exacted for discount, by deposit of any French public securities. Decree of March 26, 1848.--Similar option of replacing by warehouse receipts. Law of November 17, 1897.--Admission of bills for discount carrying the signature of an agricultural syndicate. The minimum for bills discounted is reduced to 5 francs. There is here a whole series of measures, which, with the assurance of a cordial welcome, should induce the small business man to trade with the bank. The bank accepts large quantities of small paper with small signatures, and it finds itself, accordingly, in normal times deprived of first-rate paper, of that which is as good as gold in international commerce. Gilt-edged paper always finds its market at lower rates than in the bank, and M. d'Eichthal, a regent of the bank, wrote as far back as fifty years ago: "Whatever may be the discount rate, among the bills discounted there will be found but few with the signatures of the Rothschilds, the Hottinguers, and other houses of the same rank. Those are delicacies which always command a premium."[172]... The bank has always resolutely undertaken to carry through a whole series of operations which could not show great profit; above all, it has unremittingly aimed to be of service to the greatest number. The number of bills discounted grows continuously, while the total amounts, smaller during the most prosperous periods, invariably increase in periods of tight money. The average amount and term of bills is 600 francs for twenty days. This result would be considerably modified, if we were to take into account the bills handed in for collection only, the average value of which hardly exceeds 200 to 250 francs. TERRITORIAL EXPANSION OF THE BANK OF FRANCE With its growth in extent the bank has not only developed its services to meet new business needs, by providing an increased staff, and larger, more attractive, and better conducted offices, but it has also endeavored to reach a more and more widely extended territory. Indeed, the mere fact that the bank has entered a place, if only to make collections there, gives a favorable turn to credit conditions; credit becomes cheaper, in that the basis for money rates becomes the official discount rate, because the financial institutions have then a more economical method of replenishing their cash. The smallest provincial town where the bank has entered is, therefore, in regard to low money rates, as favored as Paris. Exchange between cities, particularly when joined with a special commission, reaches sometimes a considerable sum. As soon as the bank opens its branch, exchange is no longer possible. Therefore, whenever the charter of the bank has been renewed, the legislator, in response to the wishes of the public, has wisely required new territorial expansion of the bank. If the bank has not always taken the initiative in this mode of expansion, it is because it has been restrained by several motives. In the first place, the opening of new offices entails considerable expense. It is necessary to count upon several years of deficit, during which the running expenses, including salaries of staff, are just as high as if the profits were large. We could name several cities which for years have shown constant deficits. It can therefore be understood that the Bank of France, which is already established in the 200 towns most important from a commercial standpoint, and which, by means of its collecting department, touches 265 towns of less importance, extends its service only with caution to new localities, since each new branch must necessarily produce a larger and more persistent deficit. Thus territorial expansion is for the bank an ever-increasing burden; it is equivalent to an additional tax imposed by the legislature at every renewal of the charter. The bank submits to this with good grace for the benefit of the public. In the second place, there is a limit to that expansion. Where the bank has no branches, the financial institutions may take root and develop among a population which appreciates their services. Their profits come largely, it appears, from small towns, where competition is less keen. We have already said enough concerning the service of these institutions in the development of French credit to show the danger of inflicting upon them fresh injury. On whatever side the bank desires to expand it finds this limit. If the bank encroaches a little on all sides, the result may be very appreciable. The territorial expansion is further perceptibly increased by what is known in the bank as the exterior accounts. This system, of quite recent origin, allows any person not residing in the town where the branch is established to enjoy the same privileges as residents. Business may be transacted by mail with the aid of certain accounting forms, which often differ from those used for ordinary accounts. Each transaction is the subject of a special report, addressed to the customer by the branch. Not only is the transaction itself reported, but useful information as to the position of the account is also given, thus permitting the customer to follow the movement of the account until the half-yearly statement is sent. This department is highly esteemed by the suburban public, and renders many services to landed proprietors and to farmers, especially in the cattle-raising trade. Thus the direct expansion, which, as has been seen, meets with serious obstacles, is assisted by this indirect expansion.[173] Evidently we are far from realising the attractive dream of a France no longer deprived in part of banking facilities, but with all bills taken at par because the bank would reach everywhere. But for the sake of this end, no doubt desirable in itself, is it worth while to go to extremes for a scarcely perceptible advantage, to disturb an institution in other respects strong and useful, and thus perhaps to risk disorganising the general credit system of France? On the contrary, we should be content with and even congratulate ourselves upon a progress which leads us, slowly perhaps, but surely, toward the realisation of credit on low terms everywhere and for all. THE BANK OF FRANCE AND AGRICULTURAL CREDIT "There is no such thing as agricultural credit; there is only credit," said M. Dupin in 1845.[174] Matters have not changed since. It is certain, for instance, that Scotland, which for a long time was the classical land of pauperism, owes its prosperity to the banks, which, by developing credit in favor of agriculture, have entirely transformed the soil and the country. Indeed, more than any other, the Scotch farmer needed credit, and more than any other he has benefited by it. It may be said that personal credit is peculiar to agriculture. Thus it suffered as a result of the evolution already mentioned, which, by causing the disappearance of local banks or by giving them a new direction, struck a fatal blow to personal credit. We know that "agricultural credit" includes loans from seed-time to harvest. The first labor done, the first loan made to the land can only be repaid much later. The average time necessary for agricultural loans is five or six months at least. Now, for other reasons the by-laws of the bank prohibit the discounting of paper having more than ninety days to run. By a special favor which would not be accorded in business, where each loan has a different object, the bank allows the renewals necessary for agricultural loans, which almost exclusively take the form of bills payable to order. The bill returned to the maker on the day of maturity is renewed the following day. The date of maturity alone is changed. A very important agricultural industry, which we have already mentioned, is that of cattle-raising. The cattlemen are, for the most part, customers of the bank wherever it has a branch. This customer of a somewhat special kind appears, by the very nature of his trade, to be indicated as a suitable client for the bank and not for the financial institutions. The bank permits the cattlemen to indorse each other's paper, and thus can accommodate them without intermediaries. There results a very useful co-operation. Moreover, by using the bank the cattlemen effect great savings, the full value of which they alone can estimate. After the law of July 18, 1898, and the legislation that followed, it might have been expected that the use of agricultural warehouse receipts would be greatly extended. This legislation makes a serious exception to the common law for the benefit of agriculture. It "constitutes the landowner, so to speak, a public warehouse. It is he who, without any other controlling appraisement, makes declaration as to quantity and commercial value to the clerk of the justice of the peace. In short, the agriculturist enjoys a confidence which so far has been denied to industry and commerce." Notwithstanding this favor, the agricultural warehouse receipts are little used,[175] and the bank, despite its willingness to take them freely, regrets to find them among its discounts in such very small number. Our survey would not be complete should we fail to say a word concerning the agricultural credit associations, of which also much was expected and which have only in a very limited measure fulfilled the high hopes of their founders.[176] For the support of agricultural credit the State draws from two sources the funds required to supply the organs of distribution, the local and regional associations. The first source is the loan of 40,000,000 francs made by the bank on November 17, 1897, when the charter was renewed. This amount, like the 140,000,000 francs already advanced in 1857 and 1878, bears no interest. The second source is the yearly payment made by the Bank of France on the profit-yielding circulation. This payment cannot be less than 2,000,000 francs yearly, and more often it is in the neighborhood of 5,000,000 francs. All these sums, intended for agriculture, are distributed by the Government, and are used in endowing the associations of agricultural credit. The regional associations, which are the pivot of the present organisation, are self-governing societies, with a capital of their own. This capital, added to the advance made by the State, is invested in first-class securities, which are then deposited in the Bank of France, as discount guarantee to take the place of the third signature, if need be. The local offices send their paper to the regional office, which then takes it to the bank, as the needs of funds are felt. Such is the part of the Bank of France in the distribution of agricultural credit. Effective intervention was obviously very difficult, yet the bank has contrived, even beyond its legal obligations, to give the benefit of its credit to agriculture, which so justly deserves the care it is receiving. THE BANK OF FRANCE INTERVIEW WITH M. PALLAIN, GOVERNOR OF THE BANK OF FRANCE[177] Q. Is the Bank of France ever attacked in the controversies between political parties? A. No charge has ever been made that the bank favored or aided any political party. There is never any claim that politics enters in any degree into the management of the bank. Q. Is the capital entirely private property? A. Yes. All the shares are divided between 30,000 shareholders, of whom about 10,000 have not more than one share. Q. How are your branches managed? A. All branches are managed by a manager, assisted by a local board of directors, selected from among the best qualified commercial, industrial, and agricultural representatives in the region. Q. Do the branches have business relations with the merchants, farmers, and all classes of people of the locality? A. Yes, they are open to everybody. Q. You have, I suppose, in the branches regular clients who have an account with you? A. Yes, and a considerable number of them. Q. Do your branches do the same kind of business as the branches of the Crédit Lyonnais? A. The Bank of France and its numerous branches do all banking business consistent with the laws properly regulating a bank of issue. Q. A bill drawn in New York on France, on a bank, for instance, the Crédit Lyonnais, at Paris, and accepted by it, would it be admissible for discount? A. Yes, if it bore, besides the signature of the French establishment accepting it, at least one other French signature; that of the person presenting it, for instance, having a current account at the Bank of France. Q. A part of your portfolio comes from rediscounting for banks? A. Certainly, and it is an important part. Q. Could you give us an estimate of the proportion of bills which are discounted for banks and those discounted for other customers? A. I should estimate that about 70 per cent. of the paper now held bears the signature of some bank as one of the indorsers; but it is manifest to us that the number of merchants and manufacturers who appreciate the facilities given by the bank for direct discounting and who profit by it increases perceptibly every day. Q. Does the Bank of France make the same charge for the discount of bills and for loans upon collateral? A. The bank usually charges somewhat more for loans upon collateral than for the discount of bills. The rates at present are 3 per cent. and 4 per cent., respectively. Q. Could we obtain an estimate of the percentage of the deposits of the other banks at the Bank of France in comparison with the whole of such deposits? A. In the credit establishments which you will visit you will be able to establish the fact that the liquid cash is, in comparison with their turnover, relatively very small. In France we consider that the strength of a bank consists more in the composition of its portfolio, _i. e._, in the value of its commercial bills, rather than in the importance of its cash reserve. Q. Is the amount of all taxes paid by the bank to the State included in your report? A. Yes. The public charges of the bank in 1907 were more than 11,000,000 francs, whereas the profits distributed were 31,000,000 francs. Q. Have you a system of transfers similar to that used by the Reichsbank? A. Yes, this system, in France, dates as far back as a century or more. Q. What is your method of transfer? A. Transfers from place to place are made by simple notification to branches. Q. Are the other banks accustomed to use the Bank of France in order to transfer their funds? A. The greater part of the banks use no other method, even to increase the cash in one of their branches in a remote part of France. Q. Is the Bank of France subject to examination by the Government? A. There is no regular system of examination, but the Minister of Finance has the right to ask for information whenever he chooses. Q. Is the Bank of France regarded as a bank for banks or as a bank for the people? A. The Bank of France remained for a long time, indeed, the bank for banks, but since it has covered so much territory with its numerous branches; since the minimum amount of all its operations has been lowered; since it has opened deposit accounts to all, it is already and it tends to become more and more--as you ask--the bank of all the French public. Q. Is there any contention in banking or economic circles that it is necessary to restore or extend the right of issue to banks, other than the Bank of France, to enable them to increase their own profits or to afford adequate facilities to borrowers or to meet legitimate business demands? A. The unity of issue was achieved in France in 1848, and at no time since then has there been any question, in responsible circles, of a possible return to plurality of issue. The same tendency is leading, little by little, to an absolute monopoly in England, Germany, and even in Italy. I think that it would also be interesting for you to examine the recent example of Switzerland, which had its note-issue system founded, as in America, on the plurality of banks and which has now substituted for this system one single privileged bank. This transformation has received popular approval by referendum. Q. Does the export of gold reduce the volume of notes? A. Not necessarily. It may happen that among our assets a certain fraction of the gold is replaced by an equal amount of bills in our portfolio, and that without changing the total of notes in circulation. Q. There is nothing in the law requiring your notes to be covered by a certain proportion of gold? A. No regulation of this kind exists in our legislation. Q. Do you rely upon raising the rates of discount to stimulate the importation and to prevent the exportation of gold? A. It is a principle consecrated by experience that the supreme means of defence for an issue bank, to protect its metallic reserve, is to raise the rate of discount, and we never lose sight of this principle. However, the extent of our reserves allows us to contemplate without emotion important variations of our metallic stock, and we only exceptionally have recourse to a measure which is always painful for commerce and industry. The stability and the moderation of the rate of discount are considered as precious advantages, which the French market owes to the organisation and traditional conduct of the Bank of France. Q. Would you like to express an opinion as to why the Bank of France is able to hold its gold with a bank rate of 4 per cent. when the rates elsewhere are higher? A. The causes of this phenomenon are multiple. Theory teaches us that capital goes where it can obtain the highest remuneration, but in considering this remuneration account must be taken of risks; these are numerous and of different kinds; I mean, of course, commercial risks; risk of losing on exchange when the capital is brought back, etc. This at once explains why it is possible in France to maintain a rate of discount lower than elsewhere. French capitalists might fear, perhaps, that the higher interest obtainable outside might be offset or more than offset by the risks incurred. Account must be taken, secondly, of the situation always held by France as a creditor nation, and which by the constant income of capital which it assures to us certainly contributes to counter-balance the current of exportation which might result from the lowering of the rate of discount. Q. Does the Bank of France sometimes take steps to maintain the bank rate by the purchase of bills in the market or otherwise? A. No, never. Q. The tradition and the reputation of the Bank of France make it important that it should hold a larger reserve than any other bank in the world? A. It is true that France keeps locked up in its bank a proportionately larger amount of specie than any other country, but this policy is not without important compensations. Suppose the French public, changing its mind, should reduce by one-half its monetary reserve of which the bank is the guardian. It would gain thereafter the interest on perhaps two milliards of francs released and which would have become productive--that is to say, a saving of from 80 to 100 millions of francs per year at the maximum--but if one reflects that it would lose the advantage of the reduced rates of discount which the extent and character of our reserves enable us to maintain and from which all French production profits; that it would lose, in addition, the sentiment of absolute security, of complete financial independence, which every crisis has strengthened, one would be less tempted to conclude--with certain critics--that the policy of maintaining heavy reserves, the natural expression of the country's instincts, is an unwise policy from an economic and practical standpoint. Q. You have, I believe, no requirement of law by which the Bank of France is obliged to purchase gold at a certain fixed price? A. The bank buys gold according to the tariff of the Mint, but it is not obliged to do so. Private individuals, instead of having their money coined for themselves, find it more advantageous to sell their ingots to the bank, which has them coined when needed. THE CRÉDIT LYONNAIS INTERVIEWS WITH BARON BRINCARD, ADMINISTRATEUR DÉLÉGUÉ, AND OTHER OFFICIALS OF THE CRÉDIT LYONNAIS[178] Q. What is the date of the organisation of the Crédit Lyonnais? A. July 6, 1863. Q. Under what law was it organised? A. We are under the general law, a general companies law. Q. What is the minimum amount of capital required? A. There is no minimum, but at least one-fourth of the capital is required by law to be actually paid in. Q. How many shareholders have you? A. Our capital is divided into 500,000 shares, but as many of these shares are issued to "bearer" we do not know how many shareholders we have. Q. The cash in hand is merely carried for the necessities of business? A. Yes. Any bank, if it has need for additional cash, may present for rediscount at the Bank of France the bills and other commercial paper which it has in its vaults. Q. What per cent. of your deposits do you intend to carry in cash either in your own vaults or in other banks? A. Eight to 10 per cent. on the average. Q. Does the Bank of France ever loan below its published rate? A. No. It never does. Q. It is not, I believe, the policy of your bank to buy public securities in large amounts? A. No. Our idea is to buy all the commercial paper that we can get. That is our business. At present it is almost impossible to get any commercial paper because business is so slack; therefore, we are obliged to go outside and buy treasury bills. Q. To what kinds of banks do you lend on collateral? A. Mostly foreign banks; for instance, banks in New Orleans during the cotton season. It is not to our interest to lend to French banks. We lend money to foreign banks and to French merchants, but never to foreign merchants or to French banks. We never lend on real estate. That is the business of the Crédit Foncier. Q. Do you own all of the securities you sell, or do you take orders and buy and sell them on commission? A. The greater part of our transactions are made on commission. Q. In your statement of liabilities you show deposits about $132,000,000, and current accounts about $168,000,000. Will you kindly explain the difference between these two accounts? A. Deposits are sums of money deposited, especially by private people. Accounts current represent the balances to the credit of business people. Q. If I come here and open an account with you and make a deposit and say I want to transact business with you, borrowing money from time to time, and depositing and drawing daily, would you put that account in your "accounts current"? A. If you were not a merchant, you would have a deposit account opened for your daily deposits and drawings. Your account could never show a debit balance and the amounts which you might borrow would have to be secured by deposit of securities and would be placed under the item "loans on securities." If you were a merchant, an account current would be opened for the requirements of your business, and this account could become debtor. Q. Deposits and current accounts are payable on demand? A. Yes; on demand. Deposits are made up of sums deposited by customers whose accounts are not active; they are more in the nature of reserve deposits, whereas current accounts represent deposits made by customers mostly in active business. Q. Do you pay interest on practically all of your deposits and current accounts? A. Yes. Q. Do you find that the Bank of France competes with you in any way? A. In no way. Q. They receive accounts from individuals and small tradesmen in the branches, do they not? A. Yes; but they do not grant uncovered credits. There is no competition between the Bank of France and the other banks, because they do not do the same kind of business. The Bank of France receives deposits, but does not allow interest upon them; it only discounts bills with three signatures; it is the bankers' bank; it acts as the regulator of the money market. Q. Do its branches receive deposits? A. Yes; they receive deposits, without allowing any interest. In times when money is cheap the rate of discount of the Bank of France is rarely below 3 per cent., and in the Crédit Lyonnais and other banks the rate may be sensibly below that of the Bank of France. Q. Can you state the number of employés in the Crédit Lyonnais? A. About 14,000. It varies according to the time of year. Q. Are all of the important banks in the City of Paris members of the clearing house? A. Yes; about 13 of the most important. Q. How frequently are the clearings made? A. Three times a day. As a matter of fact, our clearing house is not so important as yours in America. Q. The clearing houses in the cities of France are in no sense a factor; they are merely the machinery through which the cheques are cleared, are they not? A. To our knowledge there is but one clearing house; it is in Paris and is merely a mechanism for settling balances. Q. Are you examined at any time and in any way by the Government? A. No. The control of the Government is limited to the supervision for taxes, to which every company is subject. Q. Your relations with the Bank of France are very intimate and cordial, are they not? A. Yes. Q. Is that true with all the banks in France? A. The Bank of France is quite impartial; it gives no preference to any one; there is no favoritism. Q. I understand none of the farmers or peasants will use cheques. A. The use is extremely rare. Q. How about your tradesmen all through the small towns, and the doctor and lawyer and professional man; would they draw the money out and pay their bills in cash? A. Certainly; most of them. Q. When you establish a branch in a small town, you generally find a local independent bank there. Can this local bank compete with you? A. There are certain places where the private banks have kept on, but the tendency is for the private banker to disappear. We take small sums and have numerous branches. One great distinction is that the private bank is always in the hands of a family. A man who originally starts a private bank may be a good banker, financier, and business man, but it does not always follow that his son, who in all likelihood will inherit the business, will be capable of running it. Our joint-stock banks do not go from father to son, but are always under efficient management. Q. What proportion of your own payments are made in gold? A. A very small proportion. The people prefer notes. Q. Do the French people hoard money as much as formerly? A. No; it is becoming more the custom to put money in the banks. Thirty years ago they kept the money at home. COMPTOIR D'ESCOMPTE INTERVIEW WITH M. ULLMANN, DIRECTOR OF THE COMPTOIR D'ESCOMPTE[179] Q. One of the things that we have in mind is to inquire in regard to the character of the business done by your branches. A. Yes. We are especially a discount bank and our customers are mostly commercial people engaged in commerce and industry, so that our principal business in our branch offices consists in discounting commercial paper, in making advances against securities, goods, or warehouse receipts, or sometimes giving blank credits to our customers for commercial requirements. Q. Have you stock in other banks which you control? A. We are interested in the Banque de l'Indo Chine, which is an issue bank in the French colonies, but we do not control it; we hold a certain amount of shares. Q. Are there any other banks which you control? A. No. Q. You have not been in the habit of buying up other banks? A. No. The system here is to establish agencies of our own; the Germans, on the contrary, control other banks in order to arrive at the same result, viz., to get as much influence as possible throughout the country. We try to come to the same result by establishing our own agencies. Q. Is that true of the Crédit Lyonnais? A. The Crédit Lyonnais and the Société Générale have the same system. Q. Is it usual for large banks in Paris to confine their underwriting operations to bond syndicates? A. Yes; banks receiving deposits, such as the Crédit Lyonnais and the Société Générale, do not usually participate in syndicate operations covering the _shares_ of industrial concerns; other banks, such as the Banque de Paris et des Pays-Bas, do so, but they are not deposit banks. They have more liberty to engage their own capital in any enterprise. Q. You are not restricted by law in doing any business you please? A. No; it is only the custom and rules of our society. Q. If there were a large industrial corporation in France which wanted to develop its business and issue bonds upon it, and if they were customers of yours of unquestioned financial standing, would you take their bonds and sell them? A. Yes. Q. But not their stock? A. If they were a well-known concern we would sell their shares too; we have done so. Q. Is there co-operation between the large banks? A. We meet very often and often have common interests in business. Q. Do you, in a sense, divide the field? I suppose you have a certain field in which you do business and other banks do not; Turkey, for instance? A. Turkey is reserved for the Banque Ottomane. Q. Take the electrical business, for instance. A. As far as we are concerned we are connected with the Thomson-Houston; and it is natural if the Thomson-Houston and their friends have any business to do, that they deal with us. Q. There is nothing in the law which restricts you to any class of investment? A. No. Q. And nothing that requires you to keep any reserve; that is, any amount of cash as against your liabilities? A. No. Q. Is the Bank of France your principal reliance in case you need money? Do you think it necessary to carry any additional reserve? A. Under our French system we consider the commercial paper we keep in the portfolio a cash reserve, as we can rediscount it at the Bank of France. We know the Bank of France will discount these bills and thus enable us to convert the bills instantly into cash; this is the basis of the French banking system. Q. Outside of Paris it happens that you have branches at many of the same places as the Bank of France; is there competition between the branches of the Bank of France and your own branches? A. No; the Bank of France does more rediscounting than discounting, and the Bank of France also has more conservative rules than the other banks. We may lend under the Bank of France rate, so our clients have an interest in keeping their accounts with us. Q. You do not consider the Bank of France as an active competitor? A. No; competition is greater with the Crédit Lyonnais and with the other private banks than with the Bank of France. Q. You do considerable rediscounting of bills, I take it? A. Yes. Q. At a lower rate than the Bank of France? A. Frequently. Q. Is the development of branches a matter of recent times? A. Yes; we began the system of establishing branches about twenty years ago. Q. How many employés have you? A. Including the country, something like 5,000. Q. Have you a pension system for your employés? A. Our clerks consent to a rebate of 5 per cent. on their salaries, and we duplicate this rebate by a voluntary contribution, in order to constitute a pension fund; it amounts now to about 7,000,000 francs. Q. If a new bank were to be organised here, would it be admitted as a member of the clearing house? A. Certainly. Q. You have no new banks except the Union Parisienne? A. There is also the Banque Française, managed by M. Rouvier, who formerly was Premier. BANQUE DE PARIS ET DES PAYS-BAS INTERVIEW WITH M. MORET, MANAGER OF THE BANQUE DE PARIS ET DES PAYS-BAS[180] Q. We assume that your business is in many respects quite unlike that of the other joint-stock banks? A. Yes; in some respects. Q. What is the difference? A. The Société Générale, Crédit Lyonnais, etc., receive deposits from the public; they invest these deposits and try to make the most of them, paying a small rate of interest on them; they also loan money on commercial paper which can be rediscounted at the Bank of France. Here we are more a business bank; we do not care for deposits from the public; we work with our own money, with the money which is the capital of the bank, and we are occasionally assisted by the capital of the directors, the people who sit around this table, who are all rich people and some of them bankers. As a rule we do not receive deposits from the public. Q. But you do receive some deposits? A. We receive the deposits of big companies which we have created or promoted or whose stocks we have issued--they are our customers--but we do not receive deposits of small accounts from the public. Q. What is your capital? A. 75,000,000 francs. Q. You have current accounts--190,000,000 francs? A. They are current accounts, from manufacturing concerns, railway companies, big organisations of any kind. Q. You have a considerable foreign business? A. We have connections all over the world, and very often we take an interest in business abroad. Q. Do you operate more particularly in one part of the world than in another? A. No; although we have only three branches--one in Brussels, one in Amsterdam, and one in Geneva. Q. Do you endeavor to carry any special amount of cash at the Bank of France? Or are you indifferent as to the amount of balance you have there? A. We always calculate what sum each day will be likely to be withdrawn; besides which we always have a large amount of commercial paper which we could rediscount at the Bank of France at once. Therefore we keep just enough cash in vault to meet any cheques which may be presented. Q. Do you carry an account in New York? A. We lend money to bankers there. Different kinds of loans, some are at sixty days or ninety days. Q. You are not restricted in any way as to the character of the undertakings you may make? A. No; we can do as we like. Q. Do you specialise in practice or do you consider propositions of various kinds? A. All sorts of propositions, railway building, harbors, tramways, electrical enterprises, etc. Q. Do you sometimes take an interest in business such as placing Pennsylvania Railroad and Union Pacific bonds? A. Yes. Q. You frequently act as managers of syndicates which might include the other banks of France? A. Very often we take the head of syndicates. Q. You are the leading bank in that business in France? A. They say so. Q. Is there cordial co-operation between the banks of Paris and the Bank of France, generally speaking? A. Yes; business as a rule is done, when it is a big business, with several of these big societies or banks, and perhaps with all of them together. Q. Are there particular corporations in which you have a permanent interest? A. Yes; so as to have some control in certain large companies. Q. What do you think of the attitude of the Government toward the Bank of France? That is to say, are they exacting more and more from it? A. I do not think that they exact too much from it. The shares of the Bank of France are always very high in price; it has not hurt at all the development of the bank. CRÉDIT FONCIER DE FRANCE INTERVIEW WITH M. TOUCHARD, SECRETARY[181] Q. Is the Crédit Foncier a public institution? A. Yes, it is a mixed institution; it is at the same time a joint-stock company and a society under the control of the Government by reason of privileges which the Government has granted to it. Q. Who are the shareholders? A. Any one; the shares are dealt in on the Bourse. The firm capital is at present 200,000,000 francs; the shares are issued at 500 francs. Q. What dividend do you pay? A. We now pay 6 per cent.; for several years it was only 5 per cent. Q. Does the Government receive no income from it? A. No; on the contrary, the Government began by giving us a subsidy of 10,000,000 francs; that was at the beginning, in 1852, in order to help us make loans at a rate advantageous for that time. This subsidy was not renewed, and the State does not intervene now, except occasionally to exercise its control. Q. Does the company appoint the officers? A. The Government appoints the governor and the two sub-governors. There must also be three treasurers-general among the 23 members of the council of administration. These treasurers, as well as the other administrators, are named by the general assembly of stockholders; but before presenting their names to this assembly, it is customary to obtain the approval of the Minister of Finance. Q. Do you pay the same taxes as the other banks? A. Yes. We are treated like any ordinary bank. We have the special privilege of issuing bonds secured by mortgages. It is a very complicated system in France; there are legal complications which would render it impossible for any corporation to undertake the business unless it had special privileges. Q. Are you confined by law to business with mortgages? A. We have two principal kinds of operations--mortgage loans and communal loans. The total business of the two branches of operations amounts at present to about 4,000,000,000 francs. Operations on so large a scale involve a considerable transfer of funds, and make necessary a treasury service requiring, of course, the use of banking methods. Our statutes, therefore, recognise our right to carry on ordinary banking operations, within certain rather sharply defined limits. Q. How is your banking business limited? A. We are allowed to receive deposits up to a maximum of 100,000,000 francs. Q. Do you invest in securities other than mortgages? A. We employ our deposit funds in discounting commercial bills on condition that they have two signatures and can be presented to the Bank of France; that is to say, they must not run over three months. Q. You take mortgages on private estates? A. Our mortgages may be on houses or on rural property. Q. What is the precise relationship of the stockholders to the business of the company? Have they really a voice in the administration? A. The two hundred largest stockholders meet once a year to ratify accounts, vote the dividend, and consider the questions docketed for the day of the meeting. Q. What is the usual length of time for mortgages on real estate? A. Our statutes allow us to loan for seventy-five years on ordinary rural or city property. In the case of summer resorts and certain other property liable to depreciate rapidly, for the sake of prudence we do not generally lend for more than thirty years; besides, the borrowers always have the right to repay at any time, and they often avail themselves of this right, so that the average length of our loans is much less--hardly exceeding fifteen or twenty years. Q. What is the cost for amortisation in the long mortgages on property in the country? A. The amortisation is spread over the whole duration of the loan, so that the total of the interest paid and the capital reimbursed forms a constant yearly annuity. Q. Do you employ your amortisation funds to buy new mortgages? A. Yes; we lend again. Q. May you call your bonds at par? Are they payable at par at your option? A. In our recent issue we have put that clause in, viz., that we can redeem our bonds at par. Generally we only redeem a certain portion of them each year, which are drawn by lottery. Q. What is the minimum size of your mortgages on private estates? A. There is no minimum; but we do not care to make very small loans because it costs too much to foreclose. Q. What percentage of your total business is in the country and what in the city? A. About one-half in Paris, and our best business is in Paris. The urban mortgages cause us less difficulty, and the tendency is for the proportion of them to increase. Q. Who are the subscribers to the bonds, and what are the usual sums subscribed? Are they small or large? A. They are bought by small people, and generally remain in the hands of persons of small capital. This is one of the reasons why their quotations show so little fluctuation. Q. Do you lend on farms? A. Yes. Up to one-half, except on forest land, vineyards, and the like, on which we lend only one-third. We do not lend on mines. On factory buildings we lend only on the value of the ground and of the building, independently of its industrial value. Q. What other institutions of this character are there in France? A. There are no others; we no longer have a _legal_ monopoly, but we very nearly have a _practical_ monopoly. There are private individuals who make mortgage loans, but no large company makes this the principal feature of its business. Q. How long has it been the privilege of the Crédit Foncier to add lotteries to its loans? A. It has done so from the beginning, although we are obliged to ask the permission of the Minister, but it is on that account that we have been able to place our bonds so low. CAISSE DES DÉPÔTS ET CONSIGNATIONS INTERVIEW WITH M. DELATOUR, GENERAL DIRECTOR OF THE CAISSE DES DÉPÔTS ET CONSIGNATIONS[182] Q. We should like to know the general character of the business conducted by your institution. A. The mission of the Caisse des Dépôts et Consignations is to receive, hold, and repay all private funds intrusted to the State either voluntarily or under compulsion. Q. You say that you also do an insurance business. What do you mean by that? A. The insurance office, managed by the Caisse, issues policies of life insurance, insurance payable after death or in case of accident, like any private insurance company. As regards accidents to employés while at work, it insures only against such accidents as cause death or permanent total or partial incapacity for work. Q. Is this a corporation? A. The Caisse des Dépôts et Consignations is not a corporation. It is a state organism, but, while charging the Caisse with the management of all private funds, which may be turned over to it by the State under different headings, the legislature bestows upon it full autonomy, in order to avoid even a semblance of possible confusion in the handling of private moneys with the handling of public moneys. Moreover, it has placed the Caisse under the direct supervision and the guaranty of the legislative powers. Q. What is done with the profits realised from the business? A. Profits earned by the Caisse on deposits of the savings banks are turned over to the reserve and guaranty fund of savings banks. Q. What restrictions govern the investment of your funds? A. As long-term investments, we make loans to departments and municipalities, sometimes to the State; we take government rentes, treasury securities, guaranteed railroad bonds, etc. As short-term investments, we take treasury bonds, bonds of the Monte de Piété of Paris (municipal pawnshop), etc. Finally, we keep large sums in cash, either in our own vaults or to our credit in the treasury and the Bank of France, which, for that purpose, keep account currents on demand for us. Q. You do not, as a rule, invest in mortgages? A. No; owing to the difficulty in disposing of such investments. Q. You purchase no bills and do no commercial business whatever? A. No; that rôle is played by the Bank of France. Sometimes we make advances on securities, but only on treasury bonds. Q. Your organisation is quite unique in the world, is it not? A. There is nothing like it in England or America, but there are similar institutions in Belgium and Italy, for instance. In France this institution is highly appreciated by the lawmakers, who steadily increase its functions, and the number of laws and regulations governing the Caisse is ever growing. Q. It is customary in France for savings banks to carry their reserve with this establishment? A. The savings banks are bound to turn over to us all they receive from their depositors, except such sums as may be required to meet immediate demands. Q. Then, as a matter of fact, this is a central bank for the savings banks of France? A. Precisely. CRÉDIT AGRICOLE INTERVIEW WITH M. DECHARME, CHEF DU SERVICE DU CRÉDIT MUTUEL ET DE LA COOPÉRATION AGRICOLE AT THE MINISTÈRE DE L'AGRICULTURE[183] Q. What is the nature of the business of the Crédit Agricole and when was it instituted? A. The first law was in 1899. The first bank was opened in 1900. The Crédit Agricole is based upon local organisations. France is divided into 86 departments, in each of which we are to have a regional bank (_caisse régionale_); and we hope eventually to have a local office (_caisse locale_) in each commune of each department. Among these 36,000 communes there are many which are cities, which naturally would not have agricultural banks. There are only 2 out of the 86 departments in France which have not already established a regional bank. Q. Who furnishes the capital? A. The basis of the system is the local office of the Crédit Agricole in which each member--local farmers--has one or many shares of 20 francs, but on which he has to pay only 5 francs down. On payment of these 5 francs he becomes a stockholder. When a local office has been established it turns all of its capital over to the regional office. Then comes the State which advances to the regional bank an amount four times the capital which has been subscribed by the local banks. The money given by the Government is not really given; it is lent without charge, without interest. Q. For what purposes can this capital be used? A. The regional office does not lend directly to the farmers; it lends to the local office, and the local office has a board of directors which examines the demands of the various members. Q. Under what conditions do they make loans to farmers, and are their loans confined entirely to people engaged in agriculture? A. The State loans to the regional office without interest; the regional office loans to the local office at 3 per cent.: the local office loans to the farmers at between 3-1/2 and 4 per cent.; in the northern region at 3-1/2 per cent.; in the southern at 4 per cent. Q. Under what conditions? A. The farmer who wants to borrow from the local office draws a bill upon himself, takes it to the local office, and the board of administration there considers it. If they approve it, the president signs it--and it has then two signatures--and then sends it to the regional office; if the regional office has plenty of money they will lend the money directly; if not, the president of the regional office signs it--it has then three signatures and is bankable paper--and it is taken to the Bank of France. During the crisis in the south of France last year in the wine-growing region at Montpellier, the centre, the regional office had one million capital; the Government then added 4; that made 5, but they lent at that office all together 16 millions, and the difference was obtained from the Bank of France in the way described by using paper with three signatures. Before the founding of these agricultural societies it would have been difficult for a farmer to obtain the three signatures necessary to borrow from the Bank of France, and what happened last year in the south of France could not have occurred before the organisation of the Crédit Agricole. It should be added there has never been one cent lost by the Crédit Agricole. Q. Are all loans made to members? A. Yes; exclusively to members. Q. Who can become a member? A. Farmers; agricultural workmen are excluded. We do not lend to people for nourishment to support themselves. We lend them money to increase the production of the land. Q. Must a man have some share in the crops? A. We lend money to buy a horse, a cow, or to buy fertilizer. We will lend to a man who rents a farm, but does not own it, to buy machinery, cattle, etc., but we will not lend to a man who wants to borrow the money for his own consumption; we do not lend money for a man to buy a coat, for instance. These local offices are in communities where everybody knows everybody else, and they always ask what the man wants to borrow for, and if he says he wants 400 francs to buy a cow, they watch him, and if four or five days afterwards he has no cow, they know it. As the liability is without limit, the other members of the locality would be responsible. At the beginning the farmers were afraid of unlimited liability, and on that account they had to make it limited, but now, in all of the new offices, the responsibility is unlimited. Q. What are your co-operative societies? A. They are societies for the production, preservation, sale, or transformation of agricultural products. There are co-operative agricultural societies in the wine-growing regions which have their own wine cellar; there are co-operative dairy societies for making butter and cheese; there are also co-operative societies which use waterfalls and electricity; co-operative mills to grind corn; co-operative railways to bring beet roots to the sugar refinery; co-operative distilleries and co-operative warehouses for corn. To these co-operative societies we make loans for twenty-five years. The Government loans without charge to the regional office and the regional office lends to these co-operative societies for twenty-five years at 2 per cent. Q. What is the security? A. The guarantee is the consolidated liability of all of the members of these co-operative societies and also a mortgage upon their real estate; their responsibility is absolutely without limit. Q. Do you compete at all with the branches of the other banks or with the Bank of France? A. No; we have an entirely different class of customers. Q. Is there any other institution of this character in France, or do you practically cover the field? A. The members of these local offices are people who up to the time these local offices were organised had never had any banking connection at all. The only persons with whom the local offices compete are individuals who used to loan to farmers at very high rates of interest. FOOTNOTES: [165] M. Robert Masson, Sous-Directeur du Crédit Lyonnais, _The Bank of France_, an address delivered at the annual banquet of the bankers of the city of New York, January 19, 1914. [166] Adapted from Maurice Patron, _The Bank of France in Its Relation to National and International Credit_. Publications of the National Monetary Commission, Senate Document No. 494, 61st Congress, _2d Session_. [167] "Compte rendu de l'assemblée générale des actionnaires de la Banque de France," 1891. [168] Burdeau, "Discours sur le renouvellement du privilège de la Banque de France," June 29 and July 6, 1892, in the Officiel of June 30 and July 7. [169] The Bank of France, during periods of quiet and prosperity, aims at a gradual effacement, at a more complete retreat toward a very high but very restricted sphere of economic activity. But as soon as the least trouble appears ... the Bank assumes again its place at the head of our great financial institutions. (Brouilhet, "Le nouveau régime de la Banque de France." Revue d'Economie Politique, 1899.) [170] The discounts and loans of the financial institutions are growing in importance, and are steadily increasing in proportion to those of the Bank. This condition, revealed by statistics, is in itself not alarming, but it once more justifies that intervention, so many motives for which we have brought out. [171] It seems that this protective mission especially applies to the department for stock market orders, originally reserved for the customers of the Bank, and later opened to everybody. Thus it prevents the financial institutions from driving us toward excessive speculation. This purpose explains, according to our notion, the growth and broadening of the business of stock market orders at the Bank of France. [172] P. Coq, "Les circulations en Banque," Paris, Guillaumin, 1865, p. 38. [173] The indirect expansion might be increased by wider use of the "crossed check." It will be long before we may expect good results from this practice, since we are as yet too far from the time when this check, almost unknown in France, will be currently used. [174] Journal Officiel, 1845, p. 2471. [175] The main reason lies in the numerous formalities which the law of April 30, 1906, has simplified but not suppressed, in the many expenses caused by the organisation, and also, it appears, in the inexperience of some of the officials. The clerks of the justices of the peace, intrusted with the delicate and novel functions of registrars of chattel mortgages, are, as a rule, little fitted to perform them. [176] The model of these institutions came to us from foreign countries; but the foreign differ from ours materially, because of the diversity of their origin. With our neighbors, the movement began slowly in the lowest levels of the rural population. With us, on the contrary, the system of agricultural associations began at the top. Thus, these institutions penetrate only with difficulty into the rural districts, where economic education has but just begun. [177] Adapted from _Interviews on the Banking and Currency Systems of England, Scotland, France, Germany, Switzerland, and Italy_. Publications of the National Monetary Commission, Senate Document No. 405, 61st Congress, _2nd Session_, pp. 189-218. [178] Adapted from _Interviews on the Banking and Currency Systems of England, Scotland, France, Germany, Switzerland and Italy_. Publications of the National Monetary Commission, Senate Document No. 405, 61st Congress, _2nd Session_, pp. 219-248. [179] Adapted from _Interviews on the Banking and Currency Systems of England, Scotland, France, Germany, Switzerland, and Italy_. Publications of the National Monetary Commission, Senate Document No. 405, 61st Congress, _2nd Session_, pp. 249-267. [180] Adapted from _Interviews on the Banking and Currency Systems of England, Scotland, France, Germany, Switzerland, and Italy_. Publications of the National Monetary Commission, Senate Document, No. 405, 61st Congress, _2nd Session_, pp. 268-276. [181] Adapted from _Interviews on the Banking and Currency Systems of England, Scotland, France, Germany, Switzerland, and Italy_, Publications of the National Monetary Commission, Senate Document, No. 405, 61st Congress, _2nd Session_, pp. 277-291. [182] Adapted from _Interviews on the Banking and Currency Systems of England, Scotland, France, Germany, Switzerland, and Italy_, Publications of the National Monetary Commission, Senate Document, No. 405, 61st Congress, _2nd Session_, pp. 296-308. [183] Adapted from _Interviews on the Banking and Currency Systems of England, Scotland, France, Germany, Switzerland, and Italy_. Publications of the National Monetary Commission, Senate Document, No. 405, 61st Congress, _2nd Session_, pp. 309-322. CHAPTER XXV THE GERMAN BANKING SYSTEM BANKING ARRANGEMENTS IN GERMANY [184]Various systems can be adopted in the banking profession for the transaction of business. The most lucrative method, at all events the one in which the power of large capital is most effectively turned to account, is that of the Rothschild firms, whose example was followed by many large private concerns at home and abroad. These firms avoid troublesome current business, maintain only a few connections, and concentrate their whole energies on isolated but important ventures and undertakings in which, owing to the large amount of means immediately required, no competition worth mentioning existed before the growth of capable joint-stock banks. Up to the middle of last century these firms actually possessed a monopoly so far as the loan issues of most European States were concerned, and they earned enormous profits according to present-day ideas. In the course of the last decades, however, this monopoly has been done away with so far as European States are concerned and only prevails to a limited extent in some foreign countries. Since that time the Rothschilds have devoted themselves to several large industrial enterprises, such as the Russian naphtha industry, the Spanish copper and quicksilver mines, etc. Another system consists in the division of work and specialisation, customary in England, but which has been frequently abandoned of late. In England the issuing and syndicate business is carried on by special houses which, like Rothschild, do not call themselves bankers, but merchants. Brokers and jobbers carry on stock broking on the stock exchange and in the open market, the former (theoretically at least) on account of third persons and the latter on their own account. It is the exclusive business of other firms to place credit at the disposal of home and foreign firms by giving acceptance to bills. These firms, strange to say, are mostly of German origin (Frühling & Goschen, Frederik Huth & Co., Kleinwort & Sons, etc.), and carry on business in such a reliable manner that they are allowed to enter into bill obligations amounting to more than five times their estimated means. The clearing and deposit banks manage moneys on account of third parties. It must be noted that the division of labour and its operation are based on free business practice in England without any legal compulsion. Consequently, no opposition is offered in that country to the different methods of carrying on business employed by the so-called foreign banks, _i. e._, the numerous branches of continental banks, including the branch offices of the Deutsche Bank, the Dresdner Bank, and the Disconto-Gesellschaft, despite the fact that their competition is unpleasant for the English institutions. In Germany, in consequence of business requirements and also of the small amount of capital in the country at the beginning of its modern economic development, the peculiar system has developed that credit banks combine all kinds of financial business (generally with the sole exception of mortgage-credit transactions), so that every customer can settle all his financial affairs in one spot on comparatively the cheapest terms possible. Account-current transactions form the fundamental branch of business. The bank undertakes all the financial business of its client in return for a moderate commission on the turnover calculated on that side of the account which happens to be the greater, makes and receives payments, collects bills, checks, and other documents, and pays, or charges, interest on the balance, generally at 1 per cent. below the Reichsbank discount rate for credit balances and 1 per cent. above the Reichsbank discount rate for balances debited. The bank discounts the bills received by its customers, special arrangements being made as to the limit of the amount and terms, according to the quality of the bill, _i. e._, according to the trustworthiness of the other persons figuring on it. Should a customer require foreign bills to settle his liabilities abroad, _i. e._, checks or bills payable in the country concerned, the bank provides them from its own stock or draws bills or checks to the amount desired on its agents or correspondents in the country in question. Should the debit balance not be a merely temporary one, or one soon covered by fresh receipts, the granting of special credit is necessary, and arrangements have to be made as to the amount and conditions of the same. Such credit is either covered or uncovered credit. The cover consists principally of current securities with a margin against fluctuations according to the nature of the security, and which is higher for shares than for securities bearing a fixed rate of interest. Uncovered credit is only granted in exceptional cases to others than business men--as a rule only to first-class mercantile firms of repute, whose affairs are in strict order. Bankers and other firms with large cash transactions keep a so-called "cheque" account at their bank in addition to the chief account, in which no debit balances may occur; no interest is paid on the amount deposited, which is always kept in suitable proportion to the payments made, but, on the other hand, no turnover commission is charged. Those customers are appreciated most who claim credit during their buying seasons, but who not only pay back the borrowed money during their selling season, but who have balances to their credit. This is the case with a great number of commercial firms and in many branches of industry, more especially in Berlin. The seasons in different branches occurring at different times of the year, it follows that a large bank, with branches and connections in all industrial parts of Germany, has the advantage of a suitable distribution of accounts among all branches of trade, etc., and the best possible adjustment of its debit and credit arrangements. The debtors in a bank's balance sheet comprise not only those who have received advances of ready money but also those to whom the bank has granted credit by bill acceptance; the bill drawn by the debtor and accepted by the bank is discounted elsewhere. It is the duty of the drawer of the bill to cover it before it matures, and when the bill is accepted he is booked simultaneously as a debtor to the bank under _the date of maturity_. Whether the general public will make an extensive use of checks is doubtful. In England the conditions necessary for check transactions exist, as every one has a banking account, and all payments to be made or received are effected through the banks. To Germans this seems very strange; a large part of the public cannot keep a banking account, and when it is in a position to do so either expects high rates of interest or keeps no permanent balances and pays no commissions. Under such circumstances there is no sense, from a business point of view, in the shoemaker, who has no banking account, accepting a check, which he has to cash, instead of ready money; for the shoemaker has to take an unprofitable walk, and the bank has to examine the check, pay and book it, and in some cases notify by letter the customer of its payment. The ingenuous idea prevails that by some cabalistic method of procedure the bank earns something by such transactions that in reality only cause irksome work. The Reichsbank, with a creative and organising spirit, laid the foundations of the system of payments by means of transfers to, and deductions from accounts current that obtains in Germany, the so-called giro system.[185] It was in every way preordained for this creative work, for at the time of its foundation it was the only financial institution whose activities extended over the whole Empire, while in the territorially restricted and immature banking systems of those days the conditions were lacking for the development either of a giro business or of a system of payments by means of checks. In the giro system, with its splendid organisation, the Reichsbank has created an institution that has given the German system of payments its characteristic stamp, just as the apparatus of checks and clearing houses has imparted a typical character to the system of payments in other countries, like England and the United States. The giro business in Germany, however, is far from having attained the dimensions that the use of checks has in England and America. The number of long-distance transfers is about double that of the locals. This is as it should be, as it is mainly in the matter of long-distance transfers that the giro system has the advantage over the method of payment by check. In the matter of local transfers, on the other hand, giro and check are probably about on a level with respect to the number of transactions. To prevent themselves from being ruined by the competition of the Reichsbank, the private banks of issue[186] have been obliged to offer various inducements to their customers in the matter of the giro business. They make no demands in regard to a minimum balance, pay interest on deposits, do not oblige their customers to domicile bills drawn on them at the bank, and exact no charge from persons having no account with them who desire to have sums placed to the account of depositors (to some extent also making cash payments free to third parties who are nondepositors for account of depositors). The private banks of issue sustained a severe blow in 1900 on the occasion of the renewal of the bank laws through the provision prohibiting them from discounting bills at a lower rate than the Reichsbank whenever its rate reaches or exceeds 4 per cent. and not allowing them to go more than one-fourth of 1 per cent. below the official rate and one-eighth of 1 per cent. below whatever private rate the Reichsbank may have whenever the bank rate is below 4 per cent. These trammels imposed upon the principal business of the banks was bound to affect their giro business injuriously in spite of the efforts made to counteract the mischief by the establishment (especially in Württemberg) of many new branches and agencies. These banks of issue have never had any great importance as regards the giro business, and even at the present day the volume of their transactions is relatively insignificant. The post-check system supplements in a most effective manner the giro system of the Reichsbank in that it brings in connection with the five hundred establishments (more or less) of the Reichsbank about 39,000 post-offices and post agencies. As all the post stations are included in the post-check system, the Reichsbank's network of branches is spread out uniformly in a compact manner over the whole Empire. The post-check system, inaugurated January 1, 1909, would more appropriately be termed the post giro system. For at bottom its purpose is to become a giro system, a system of monetary transfers by means of assignments to, and deductions from accounts current. What it is aiming at is to make it unnecessary for German letter carriers to be lugging around millions in cash every day. The money sent through the German post-office in 1907 amounted to no less than 13-1/3 billion marks. The post-check system has this in common with the giro system of the Reichsbank that it extends over the whole length and breadth of the German Empire, while the activity of all other institutions carrying on a system of giro, as well as check, payments, with the exception of the union of the Schulze-Delitzsch credit associations, is territorially or locally restricted. The giro network and that of the post-check system are connected with each other by certain channels that render it possible for payments to travel unhindered from the one system over to the other without the intervention of cash. GENERAL SKETCH OF BANK AND CREDIT ORGANISATION IN GERMANY [187]Germany witnessed a tremendous economic expansion during the twenty-year period 1888-1907. There occurred a considerable increase and extensive circulation of capital. This movement of capital naturally passes through the banks and is brought about by them. As collectors and distributors of capital, the banks are, so to speak, the focal points of economic life. We are here concerned with three kinds of credit institutions--the note banks (banks of issue), the credit banks, and the land credit institutions (mortgage banks and land mortgage associations). BANKS OF ISSUE The present organisation of the note-bank system is based on the bank act of March 14, 1875, and the supplement to this act of June 7, 1899. Even previous to the founding of the German Empire the greater part of Germany had become united commercially through the formation of the Customs Union (Zollverein). Similar further movements toward union, however, had met with but little success in the domain of currency and with none whatever in that of banking. In the newly founded German Empire seven different monetary systems were in existence, and as all German States, with the exception of the free city of Bremen, were on a silver basis, there was above all a great want of a well regulated and adequate circulation of gold coin. The prevalence of paper circulation was felt in the most annoying manner. Thirty-two banks had the right to issue notes, and in the absence of adequate legislation, it was found on many occasions that the notes issued were not sufficiently secured. The first step which the Government took to improve these conditions was the act of December 4, 1871, concerning the coining of imperial gold pieces. The coinage act of July 9, 1873, which proclaimed the gold standard for the Empire, formally completed the organisation of the German currency system. It was recognised more and more that, in order to give effect to the gold standard, which for the time being existed merely on paper, and in order to regulate and supervise the entire currency circulation, the establishment of a central bank was an absolute necessity. This consideration finally led to the establishment of the German Reichsbank, which came into being on January 1, 1876, absorbing at the same time the Bank of Prussia (note bank). The predominance of the Reichsbank over the private note banks was secured through its considerably larger capital, further through the volume of its tax-free note contingent, which exceeded considerably the amount of all the other contingents, and which subsequently was to increase still more through the accretion of the contingents of the note banks which might renounce their rights of issue. COMMERCIAL BANKS AND THEIR RELATION TO INDUSTRY AND COMMERCE The close relation of the so-called regular banking business to that of the floating of enterprises, the trading in and the issue of shares is typical of the organisation of the German credit-bank system. The development of the railroad system beginning about the middle of the last century, which caused a considerable demand for and circulation of capital, and the greater extension of state credit, induced the banks to turn to the flotation and issue business. The period following the founding of the German Empire, as mentioned before, witnessed a vigorous development of German industry, especially of the mining and (beginning with the nineties) of the electrical industries, which required a continuous inflow of new capital. At the same time German foreign commerce, particularly with oversea countries, kept on steadily increasing. Under such conditions the economic policy of the banks of placing the funds entrusted to them at the service of the new development must be regarded as perfectly proper. The banks furthered this development by forming stock companies, granting long-term credit, assuming shares and bonds, placing the new industrials on the stock market and selling them to the public. There is no doubt that but for their policy of furthering the industries, the economic development of Germany would have taken considerably longer than has been the case. In order to obtain the means for granting industrial credit and to dispose of the enormous amounts of newly created industrial securities, it was and is necessary to attract in as large a measure as possible the surplus funds of the community available for capital investments. For this purpose the joint-stock banks spread a network of deposit branches, destined to serve as reservoirs for the inflow of available funds, and at the same time as distributors for the industrial securities created. With the same end in view the large Berlin banks, either through the acquisition or exchange of stock (for permanent investment), entered into friendly alliances with the provincial banks. It cannot be said that the banks created our industries, since the funds which are gathered by the banks in increasing volume are mainly the result of the increasing productivity of capital invested in industrial undertakings. It is true, however, that the creative power which in a comparatively short time placed German industry in its present commanding position took its origin with the men who put to practical use and in the interest of economic progress of the nation the achievements and inventions in the domain of science and technique. It is the undisputed merit of the persons at the head of the banks that they appreciated those endeavours and supported them by advancing the requisite capital, oftentimes incurring great risks for the banks. It is almost self-evident that the banks, which in carrying out their policy of furthering industry had often to assume considerable risks, have tried to secure, and in a large measure have succeeded in securing, a lasting and decisive control over industrial corporations. Until the seventies of the last century the financial regulation of German foreign oversea trade had been almost exclusively in the hands of London banks. The establishment in 1870 of the Deutsche Bank at Berlin meant a turning point in this regard. The founders of the Deutsche Bank had recognised that there existed in the organisation of the German banking and credit system a gap which had to be filled in order to render German foreign trade independent of the English intermediary, and to secure for German commerce a firm position in the international market. It was rather difficult to carry out this programme during the early years, the more so, because Germany at that time had no gold standard and bills of exchange made out in various kinds of currency were neither known nor liked in the international market. The introduction of the gold standard in Germany in 1873 did away with these difficulties, and by establishing branches at the central points of German oversea trade (Bremen and Hamburg) and by opening an agency in London the Deutsche Bank succeeded in vigorously furthering its programme. Very much later the other Berlin joint-stock banks, especially the Disconto Gesellschaft and the Dresdner Bank, followed the example of the Deutsche Bank, and during the last years particularly the Berlin joint-stock banks have shown great energy in extending the sphere of their interests abroad. Among the customers of the joint-stock credit banks figure chiefly members of the commercial and industrial classes, who obtain from these banks both their long- and short-term credit, and in the second place holders of medium-sized and large agricultural property, who apply to them for short-term "operation" credit. The credit demands of the members of the small-farm class and of the small independent producers are generally met by the co-operative credit societies. LAND CREDIT INSTITUTIONS As regards the credit on landed property there is hardly a country with an organisation as perfect as Germany. The beginning of this organisation dates back about one hundred and thirty years. The Prussian State had emerged from the storms of the Seven Years' War (1756-1763) as a recognised European power, but the sacrifices of the years of war had completely exhausted the country. As the landed nobility was then the principal support of the State and was so regarded by the Government, it became a matter of public interest to relieve the financial distress of the landed proprietors by enabling them to pay off systematically their mortgage debts. The efforts in this direction, in which the Prussian King, Frederick the Great, personally took an active part, led to the creation of the land-mortgage associations (_Landschaften_), which must be considered the first important step toward the organisation of land credit. "Landschaften" are associations endowed with the rights of a corporation and operating under state control. Their boards of directors have the attributes of official authority. They are autonomous institutions within the limits set by the state supervision. The Landschaften obtain the funds for the granting of credit through the issues of letters of mortgage or mortgage bonds--_i. e._, as a rule, the borrowers receive the loan in the shape of mortgage bonds of the association, and it is left to them to negotiate these bonds on the stock exchange. At first the letters of mortgage were made out on a certain estate (estate debentures). But as the purchaser of such letters of mortgage was forced to keep watch over the condition and management of the mortgaged estate--even though the association itself maintained permanent control of the debtor--the sphere of circulation and the ease with which these bonds could be sold were naturally limited. It was only when the issue of corporate mortgage bonds was started, the security of which was guaranteed either by the entire mortgage claims of the association or the collective responsibility of their members, and when these bonds were given a large market through their admission to exchange transactions, that the highest degree of mobility was reached. It was mainly to meet the needs of credit on urban real estate that mortgage banks (_Hypothekenbanken_) were created, and thus a special organisation of city real estate credit was formed. The greater number of the mortgage banks now in existence was founded during the decade 1862 to 1872; practically all the others were founded during the building boom of 1894-1896. Most of the mortgage banks cater exclusively to the demand for real estate credit; some others combine this specialty with other lines of banking. While the land-mortgage associations are based on the principle of co-operation and do not pursue a profit-making policy, the mortgage banks have been founded as joint-stock companies. The capital stock serves as working capital as well as guaranty fund. Bonds are issued against acquired mortgages and secured by the latter. Almost all these banks issue their bonds to bearer, a privilege granted them by the State. Inasmuch as the bonds are held in many cases by small investors, the State, in order to protect the interests of these bondholders, from the very beginning secured to itself the right of control, limiting at the same time the field of operation of these banks by certain legal enactments and regulations. On the whole, interest rates on mortgage loans are subject to but slight variations. It should be remarked, however, that the borrower when obtaining a mortgage loan has to pay a bonus the rate of which will be considerably higher in times when money is scarce than in times when its supply is redundant. In times of a large increase in the supply of bonds the mortgage banks may go into the market to buy their own bonds. Such action prevents serious fluctuations in the quotations of these securities and fits them to be objects of permanent as well as temporary investments, including the investment of funds which must be kept in liquid shape. In the present day when complaints are urged against the great indebtedness of country landowners, the fact must not be lost sight of that the transition from extensive to intensive operations in agriculture could not have been accomplished without a wide use of mortgage credit, and that such development was necessary to feed the rapidly increasing population of the country. Moreover, through this great growth in the population a basis was created for industrial activity on a large scale. RAIFFEISEN AND SCHULZE-DELITZSCH BANKS [188]The Raiffeisen bank is the Schulze-Delitzsch bank applied to the country, with the variations required and justified by the difference of environment. The model rules of the Raiffeisen societies state that: "the object of the society is to improve the situation of its members both materially and morally, to take the necessary steps for the same, to obtain through the common guarantee the necessary capital for granting loans to members for the development of their business and their household, and to bring idle capital into productive use, for which purpose a savings bank will be attached to the society." One word in the above, viz., "morally," intimates at the outset a distinctive trait. Raiffeisen always kept the moral aspect very prominently before him. He insisted that all the members of his institutions should profess the Christian virtues. In his propaganda he used to the full the one intelligent power in rural districts, the parish priest or pastor. With their help he developed a new parochial life around the village bank. With their help he touched in the peasant the chord of neighbourly affection and stirred him to give it practical effect. What is the structure of a Raiffeisen bank? and, first of all, whence comes the working capital? The subscribed capital of the bank is practically nil; there is nothing but the universal unlimited liability of the associating members. Schulze-Delitzsch, dealing with industrialists subject to unseen risks, who operated in trade matters out of sight and control of the society, obliged his associates to subscribe a considerable share capital, not only as a proof of thrift, but as a material guarantee for their individual and corporate debts. Raiffeisen, dealing with agriculturists and villagers, demanded no such security, since each member possessed in his little farm, his cattle or implements, material guarantee far beyond those of any subscribed share. In addition he avoided the danger to which a share bank is always exposed, namely, that the concern may be run for the benefit of a few non-borrowing shareholders, rather than for that of the general credit-seeking members. Unfortunately this natural difference was elevated, or rather dragged down, into an issue of principle; and the law of 1889, drawn up under the guidance of the Schulze-Delitzsch party, insisted that every co-operative society should have shares. The Raiffeisen societies comply with this by nominal shares of (say) 10 marks[189] on which no dividend is declared; though, occasionally, some of the annual profit is indirectly returned to individuals in the shape of a slight addition to deposit rates and a slight deduction from loan charges, calculated at the end of the year. Because Raiffeisen wished to create credit among small agriculturists out of the immaterial asset of mutual knowledge, he limited the size of each society to a single village. For his purpose he was right, but his partisans are not right when they look askance at the larger areas of the town bank, where the nature of the members' business and the society's control is different. All profits remain the collective property of the society, to be used for the society's good. They are divided into two classes of reserve fund--(1) reserve fund proper; (2) foundation fund. The former is regulated in the same way as in town banks. The second corresponds to the shareholders' dividend. It is undesirable to have nothing beyond an ordinary reserve fund, because money thus placed can only be withdrawn to cover losses: while if placed in the foundation fund it can be used for positive improvements, such as the extension of premises or the establishment of a burial fund. In actual figures, the reserve funds are not so strong as in the town bank, owing in part to the lower loan charges. The loan capital, as in the town banks, is made up of small savings and deposits. It is drawn, either from within the area covered by the bank, in which case it comes both from members and non-members, the former being where possible rewarded at slightly higher rates in order to encourage membership; or from without the area, in which case it of necessity comes from non-members. Savings are received in sums from one mark upwards: the smaller amounts being collected by penny stamp books, similar to those used in the Post Office Savings banks of England. The willingness with which the peasants bring their savings to the bank is a triumphant proof of Raiffeisen's contention that the small agriculturists by a combination of unlimited liability and close supervision can become absolutely credit-worthy. No savings since the foundation of the first village bank have ever been lost through bankruptcy. In addition the bank obtains credit from a central bank with which it has a current account. The funds thus raised are utilised for three kinds of credit--(1) Simple loans; (2) current accounts; (3) property transfers. Current accounts are rare except in villages where there is a little industry. With regard to the simple loan, the security, as in town banks, is personal pledge, land mortgage, or (very rarely) deposit of collateral. The personal pledge, as with Schulze-Delitzsch, is the most frequent. But Raiffeisen interpreted it more strictly than Schulze-Delitzsch. Not only must the credit-seeker produce an outside testimony to his character: he must also convince his society that he really merits this testimony. The member of the Schulze-Delitzsch bank is accepted on the strength of his general business reputation, added to his security, personal or material. The member of the Raiffeisen bank, though he have the best of pledges, is rejected unless he is known in his private life to be virtuous and industrious. The man of doubtful sobriety has no chance of obtaining anything from a country bank. If it happen that an applicant is little known or new in the district, so that no one will go pledge for him, then the society, provided it is convinced of his good character, will grant a loan against land mortgage. This is not to be confused with the real credit granted by a land bank, where the value of the estate alone is considered. It is personal credit with a material caution, and it is not a long-term loan. Furthermore, the society requires to know not only the character of the borrower, but also the specific object for which his loan is destined. It must be satisfied not only that the borrower wishes to employ the loan in his business, but also that the operation proposed is likely to turn out successful. Property transfers are not strictly credit business. They are in the nature of investments for superfluous money, just as a town bank might invest in railway shares, with the difference that the investment is local and designed to meet indirectly the credit wants of members. The nature of the operation is as follows: A dies, leaving his estate to his heirs; and these, perhaps because they wish to leave the neighbourhood or because they want ready money for other reasons, put up the estate for sale in allotments. Or perhaps A during his lifetime wishes to get rid of a part of his estate. X, Y, Z, neighbouring peasants, are buyers, but they can pay only gradually--which they are allowed to do by law. The credit bank steps in as intermediary. It pays to the heirs of A or to A himself, as the case may be, the price of the estate minus a small commission. X, Y, Z become the debtors of the credit society, paying off their debt by regular instalments, which include principal and interest. The bank cuts out small traffickers in land, usually Jews, to the benefit of sellers and buyers. It benefits the sellers by charging them a moderate instead of an extravagant commission: the buyers by saving them from permanent relationship with land dealers who seek their ruin. The bank insists on regular payment of the instalments, because it wants its money back, while the dealer is constantly tempting the buyers to fall into arrears in order that he may eventually acquire the land himself. There is a second form of property transfer, where the bank not only acts as intermediary but itself holds the estate for a time. Some land dealer, having obtained a mortgage on the estate of A, demands payment. A cannot pay and is forced to sell his estate by public auction. The dealer forces the sale, just when the estate market is likely to be most unfavourable, hoping to buy the estate for himself at an absurdly low rate. Thereupon the bank steps in; it bids against the dealer, and if he does not offer a good price, buys the estate itself and resells it later in the year, when the market is more favourable. In this way A can pay off his debts at once. Moreover, the bank does not keep the difference between the price of purchase and final resale. After the deduction of a moderate commission, it is handed over to A, who thus obtains a further sum with which he can make a fresh start. These dealings in property transfers are confined to Southwest Germany, where estates are sold to be split up into little lots. The banks only enter on these transactions where the following conditions are satisfied--(a) where they have a superfluity of money over and above that needed in their ordinary loan business; (b) where some party to the transaction is a member of the society: either the seller or the buyer or the creditors of the seller holding second and third mortgages, who would obtain nothing were the estate sold below its real value. What is the nature of the machinery by which this work is conducted? A Raiffeisen bank is never what a Schulze-Delitzsch bank sometimes is; a handsome building with barred windows, within which are a number of clerks discharging a constant round of business, while the directors interview special clients in a room apart. It is a small single room, probably at the back of a farm building, opened twice a week and presided over by a single occupant--the accountant. Business is apt to proceed desultorily; a small child brings in a few savings; an hour afterwards a palsied old man, signing by a cross, draws out a couple of pounds, and so on to the end of the day. But this is the unimportant part of the business. The really important part is the weekly meeting of the directors, half a dozen in number, who meet to discuss the various credit claims which have arisen. They are unpaid, as by the nature of their work they can afford to be. The accountant, their executive clerk who keeps the books, "the soul of the society," as Raiffeisen called him, is the only salaried official. The committee of supervision and the general assembly function as in the town banks; except that their control is more decided, probably because their knowledge is more on a level with that of the directorate, which is itself unspecialised. What are the results achieved by the rural bank, thus operating and thus controlled? More than ten times the number of country banks grant only one-sixth of the credit afforded by the town banks. The total membership of the country banks is nearly twice as large, but the average membership per bank is nearly seven times as small. The average credit advanced per member is 500 marks. The average rate of interest is not exactly known; it appears to be between 4 and 5 per cent., _i. e._, nearly 1 per cent. cheaper than in the town bank. The duration of loans varies between one and ten years in accordance with the requirements of agriculture. They are repayable in small instalments, covering principal and interest, although the member may repay in lump if he wishes. The loan can always be called on four weeks' notice, but the right is never exercised, unless the borrower is allowing his property to deteriorate or is becoming insolvent through extravagance or has misapplied money lent for a particular purpose. The inculcation of punctuality in payment, as a moral duty, was the hardest of Raiffeisen's tasks, as it was his greatest triumph. If it be asked finally what Raiffeisen banks have done, which other banks have not, it may be replied that Raiffeisen created out of hopeless chaos the only kind of credit organisation possible for the small agriculturist. Industry necessarily brings business men together to some extent. Agriculture in itself holds the farmer apart, and preserves him in lonely ignorance to be the victim of the perambulating money-lender. To-day more than 50 per cent. of the independent agriculturists of Germany are members of rural banks; and another 10 per cent., chiefly the larger farmers, are members of town banks. The non-co-operative agriculturist is becoming the exception. The Raiffeisen banks are thickest in the southwest of Germany, the home of the small peasant proprietors. Indeed the change wrought in many of these villages is nothing short of a revolution. The experience of the parent village bank may serve in illustration: "About an hour's walk from Neuwied on the Rhine is situated on a plateau bordering the Westerwald the little village of Anhausen. The district is not very fertile and the inhabitants are mostly small peasant proprietors, some with only sufficient land to graze a single ox or cow. An owner of ten acres is a rich man. Before the year 1862 the village presented a sorry aspect; rickety buildings, untidy yards, in rainy weather running with filth; the inhabitants themselves ragged and immoral; drunkenness and quarrelling universal. Houses and oxen belonged with few exceptions to Jewish dealers. Agricultural implements were scanty and dilapidated; and badly-worked fields brought in poor returns. The villagers had lost confidence and hope, they were the serfs of dealers and usurers. To-day Anhausen is a clean and friendly-looking village, the buildings well kept, the farmyards clean even on work days. The inhabitants are well if simply clothed, and their manners are reputable. They own the cattle in their stalls. They are out of debt to dealers and usurers. Modern implements are used by nearly every farmer, the value of the farms has risen and the fields, carefully and thoroughly cultivated, yield large crops." And this change, which is something more than statistics can express, is the work of a simple Raiffeisen bank. Both town and country banks are formed into higher unions for general organisation and educational propaganda; the country banks also unite for credit business. The partisans of the town banks are apt to pride themselves on their complete self-sufficiency. They forget that this is possible for them, not because they have sufficient funds in their own coffers to supply every credit need, but because an increasing part of their business is conducted through the trade bill of exchange, which is a marketable commodity that can be rediscounted by any outside bank, the Imperial Bank, the Dresdner Bank or any other. But agricultural societies, inasmuch as their loan papers cannot readily be bought and sold on the open market, require a special organisation. Hence central organisations act as money equalisers between the different societies. In some districts money is superabundant, in others it is deficient. The central bank acts as a channel through which the abundance of one district can be drawn to supply the scarcity of another, the operations being conducted by means of current accounts with both parties. In Germany as a whole the societies of small agriculturists of the Southwest have always an abundance of money, which is one reason why they dispense so much of their funds in the purchase of property transfers. The societies of large agriculturists in the Northeast (the Ost-Elbien Provinces), where the capital employed on each farm is large and the population thin, are as a whole in continual want of it. INTERVIEW WITH HERR KLEEMANN, DIRECTOR OF THE DRESDNER BANK [190]Q. When were the first of your co-operative societies organised? A. In 1848. They were organised on a voluntary basis and for philanthropic purposes. They developed very rapidly. The first form which developed was for the purchase of means of subsistence, such as sugar, coffee, grain, wine, cigars, etc. Then they bought agricultural machinery, threshing machines, etc., which they would rent to small farmers in the country who could not purchase such machinery. They also formed societies to build houses for peasants and working people. There might be six or seven with different purposes. Later on Schulze-Delitzsch came to the conclusion that it would serve working people and small tradesmen to have co-operative societies founded simply for the purpose of extending credit to them. That was the last development in the system. Q. How many kinds of co-operative societies are there in Germany? A. It is very difficult to classify them. The Raiffeisen societies are confined to Prussia. There are other organisations in Saxony, Bavaria, and different States in Germany. Q. The attitude of the Reichsbank is the same toward them as toward any other bank? A. Yes; and their bills are frequently offered and taken by the Reichsbank as from other institutions. Q. Do they carry their reserve with the Reichsbank or with the Dresdner Bank? A. Principally with the Dresdner Bank, because they get interest upon it. Q. Do they pay interest on deposits? A. They pay an average of 4 per cent., which may be considered as an almost permanent rate. The money they get is in most cases money for a long period. They have to compete with the savings banks. Q. Are the small societies at all in competition with the Reichsbank, where they have a branch? A. No. There is no competition. They do a business which the Reichsbank would not do. They give credit to people who would not suit the Reichsbank, because they could not give the guarantee. THE REICHSBANK INTERVIEWS WITH HERR DR. VON GLASENAPP, VICE-PRESIDENT, AND HERR DR. VON LUMM, DIRECTOR, OF THE REICHSBANK[191] Q. By whom are the shares of the Reichsbank owned? A. It is all private ownership. The shares are held mostly in Germany and Holland, and distributed in small lots. Q. Would the bank discount a bill drawn by one merchant and accepted by another? A. Yes. The Reichsbank is not only a bank for banks, but for the commercial and industrial enterprises of the Empire. Q. If a railroad finds it necessary to make improvements and wants to borrow money could they get money at the Reichsbank? A. Only on collateral acceptable by the Reichsbank. The railroad would probably in such a case go to private banks to be financed. Q. Assume that there is a manufacturer in Bremen, making well-known articles, which he ships to a merchant in Berlin and draws a bill against that merchant, would it be a satisfactory bill to the Reichsbank? A. Yes; but in that instance also the merchant would probably go to the private bank, where he would get a better rate of discount. Q. If there were a severe money stringency, would he still go to his bank? A. Yes; that would probably be the case, and his bank might afterwards take his bills to the Reichsbank. Q. What is the smallest bill the bank will discount? A. We have no minimum. We discount bills as low as 10 marks. Q. Upon what kind of a bill does the farmer secure an advance from the bank? A. He sells his produce, draws a bill upon the purchaser, and takes the bill to the bank as any other man would do, or a bill might be drawn upon a farmer and accepted by him. Q. When he borrows money in the spring with which to buy seeds, how does he secure the cash? A. He goes to his own bank for that. There are co-operative societies for this purpose, which are a great factor in Germany. Q. Will the manager of a branch of the Reichsbank renew a farmer's three months' bill if desired? A. Yes; an exception is made for the farmer. Other bills are not renewed. Q. The bank rate is 4 per cent. Does that mean 4 per cent. is charged on three months' bills? A. The Reichsbank has only one rate of discount. There was a time when the Reichsbank did a similar business to that which the Bank of England does now, _i. e._, that they would purchase in the market prime bills at a more favourable rate, but in 1896 it was decided to have but one rate for everybody. Q. Please state the reason for the change of policy. A. The most important reason was that it was thought that a great central institution like the Reichsbank, with its tasks and duties to the whole of the community, ought not to make a distinction of any class, or make an exception in favour of any one. It is the policy of the bank to serve all alike. Q. Is the Reichsbank disposed to favour every application for discount or loans if the character of the offering be satisfactory? A. It is their duty to listen to every one who comes for accommodation, whether he has an account or not. The principle of the Reichsbank is not to serve a part of the community, but the whole. The Reichsbank is for everybody. Q. Are your deposits subject to check? A. The money is drawn against check. There are two kinds of check--white and pink. The white is for withdrawing cash over the counter, the pink for making transfers. Q. Have you different classes of deposits? A. No. Q. Do you pay interest on your deposits? A. The Reichsbank does not pay interest on money deposited with it. It receives money on deposit and for transfer. Most large houses keep an account with the Reichsbank. The Reichsbank does a large transfer business for them. Q. Is it the custom for banks in Berlin and other important centres to carry balances in the Reichsbank as a part of their reserve? A. It is the custom for the banks to keep a large part of their cash with the Reichsbank. They keep only a small amount of cash in their tills. Q. Is that true of banks in other cities than Berlin? A. Yes. Q. Does the Reichsbank pay the same taxes that the other banks do? For instance, income tax and other taxes? A. No; we are free from the government income tax, and the license fees, but we must pay the real-estate tax. Q. What is the relation between this bank and other banks, such as the Deutsche and the Dresdner--that is, as to the character of business transacted? Are you not competitors? A. It may be said that the Reichsbank is more restricted by law. At a private bank the rate of discount may be much cheaper than at the Reichsbank. The private banker knows his clients, and he may be willing to accept from them a bill that the Reichsbank would not and could not accept. Q. Then there is to some extent competition? A. Yes; but that competition is not large. It is not felt that the Reichsbank is a competitor of other banks, but it is a public institution. The Reichsbank has its official rate, which is higher than the private rate. A bank will take bills on its own account running three months or more and hold them, and in case of need will take bills running ten days or less to the Reichsbank for discount. The Reichsbank pays no interest and acts as agent for transfer of currency and credit to all parts of the Empire without charge. Q. Has there been any feeling that your branches were supplanting the private local banks in small towns? A. There may have been some instances where a banker may have been dissatisfied at the Reichsbank opening a branch in his locality, but as a rule the banks at such a place are quite pleased to have the Reichsbank open a branch in order that they may have the benefits of its facilities. Q. The government deposits are received and treated exactly the same as the deposits of farmers? A. Yes. The business for the Government and its departments is handled the same as for others, and no interest is paid on deposits. There is, however, one exception; every private institution is required to keep a minimum balance to its credit, but not so with the departments of the Government. The Empire keeps in the aggregate sufficient to compensate. Q. Do you always charge a higher rate of discount for bills when you have a large amount of taxed notes outstanding? A. No. On occasions the Reichsbank has not increased its rate of discount above 5 per cent. At times we have discounted even at 3 per cent., when we have had to pay a tax of 5 per cent. Q. It has been suggested to us as a matter of policy in times of stress that it would be better for you to add the 5 per cent. tax to the rate of discount. A. The Reichsbank must be considered in the first place as a public institution which has to take care of the public interest, and secondarily as a money-making institution. Q. Is there any restriction as to the percentage of silver in your reserve? A. No; but there is another law, the coinage act, by which the amount of silver coined depends upon the population. They do not coin more than 20 marks per capita. Q. What steps do you take to increase your gold reserve or to protect it? A. We always have a large amount of bills of exchange payable in foreign countries, payable in gold. We also increase the rate of discount. We consider that the latter measure is the only effective one. We also make advances without interest to importers for the time the gold is in transit; we do that even in times when the ordinary gold import point is not reached. Then we may raise our tariff for the purchase of foreign gold coins, as the Bank of England does. Q. Do you take any steps to prevent exports of gold? We have been told that it is the habit of the Reichsbank, in case of large exports of gold from Germany, to suggest to the other banks that it is not agreeable to have the gold exported. A. It has never been the case and never will be the case that any such suggestion has been made by the Reichsbank to anybody. KÖNIGLICHE SEEHANDLUNG (ROYAL SEA-TRADE SOCIETY) INTERVIEW WITH HERR GEH. OBERFINANZRAT LOTTNER, DIRECTOR OF THE ROYAL SEEHANDLUNG, PRUSSIAN STATE BANK[192] Q. When was this bank organised? A. In 1772. Q. What is the capital of the bank? A. One hundred million marks. Q. By whom are the shares owned? A. There are no shares; the capital is owned by the bank, which may be regarded as a juristic person, an independent legal subject. Q. Who invested the money? A. The money was originally invested by stockholders in the time of Frederick II, but afterwards the shareholders gave up their stock, for which they were paid. The shares were mostly owned by the King and by his associates, and they handed them over to the bank, so the capital is really owned by the bank itself. The proceeds in excess of all the expenses are paid to the Prussian State. Q. Who is responsible for the conduct of the business? A. The president. Q. Has he associated with him directors? A. No; he is personally responsible. Q. By whom is the president appointed? A. By the King of Prussia for life. Q. What are the particular functions of the bank? A. In the first place, it is an organisation to help the State of Prussia. The principal part of the business is to finance the loans of the State. It may undertake the loans alone, but as a rule it heads a syndicate of the large banks. Q. Do you compete for deposits from merchants, manufacturing concerns, banks, etc., with the Deutsche Bank or the Dresdner Bank? A. Yes, to some extent. It is not our intention to do so, but of course we practically compete in some ways. Our rates on deposits are less favorable than those of these banks. Q. Do you take real estate mortgages? A. No. Q. You are known as the sea-trade (Seehandlung) society. Why is that? A. Frederick the Great founded the Seehandlung to promote Prussian trade, especially the oversea trade. At one time this company had a salt monopoly and a wax monopoly. The salt which came into the different ports of Prussia and the wax which came from Poland were bought up by the Seehandlung. At one time the Seehandlung also had mills, spinning and weaving plants, iron foundries, and river steamers. We still own two industrial establishments, the flour mills in Bromberg and a linen spinnery in Landeshut in Silesia. Q. A large percentage of your funds is loaned on the stock exchange? A. Yes. Q. And your discount business is comparatively insignificant? A. Not insignificant, but small compared with our loans on the stock exchange. Q. Do you receive promissory notes from customers? A. No. Q. Do you transact business of any other character than that heretofore mentioned? A. We have a branch known as the Royal Loan Office, which lends money in small amounts upon the pledge of different kinds of goods as security. This was established in 1834. In 1906 we made 99,000 loans upon watches, jewels, clothing, etc., at an average of 31 marks per loan. Two-thirds of the borrowers are labourers; last year about 16 per cent. were widows and spinsters, also a few were mechanics--occasionally professional men--artists, actors, and the like. Our rate is very low, 12 per cent. for the year, which is low compared with the ordinary pawnshops. No other banks conduct a business of this class. DEUTSCHE BANK INTERVIEWS WITH HERR PAUL MANKIEWITZ, DIRECTOR, AND HERR A. BLINZIG, ALTERNATE, OF THE DEUTSCHE BANK[193] Q. When was your bank organised? A. In the year 1870. Q. How is your stock owned? A. By a large number of shareholders. Our shareholders are principally in Germany, but also in England, France, Austria, and elsewhere. Q. What does the item "Shares in other banks," $19,000,000, represent? A. This represents the purchase by us of practically the controlling interest in 13 independent banks in the Empire. We are represented upon each board and we are kept closely informed of the business. Our return is in the dividends. Q. A large percentage of the stock exchange business is really handled through the incorporated banks, is it not? A. Yes. We ourselves have fifty members on the stock exchange. Q. You mean that the Deutsche Bank has fifty men, members of the stock exchange, who trade there on the floor? A. Yes. There is quite a difference, however, in our method of handling the business from that followed in New York. We do not have the margin system. Most of our customers who do not pay in full pay at least for half the amount involved in the purchase. Q. Are the clearing-house associations important factors in the cities in Germany? A. No. They are not associations of importance or power, but merely pieces of machinery through which cheques are cleared. Q. You all go to the Reichsbank to clear? A. Yes; once a day. There are 14 clearing houses and 160 members in the Empire. Q. What taxes do you have to pay? A. We pay to the State 4 per cent. on our income remaining after deduction of 3-1/2 per cent. of our share capital, which is exempt, and to the city of Berlin 4 per cent. on our income. All banks pay on the same basis. Q. Is there a limit to the amount of discretion given to the branch directors on first-class bills? A. Each of the main branches has a fixed capital arbitrarily set aside by the Deutsche Bank. They have a sum according to the importance of the branch, and they must do business according to it. Q. The Reichsbank has branches everywhere? A. Yes; in every place where there is sufficient business. It has about 500 branches. We transferred through the Reichsbank last year 21,000,000,000 marks. Our strength is the Reichsbank. Our branch in Bremen, for instance, wants money when cotton shipments start, and the money is transferred to them. The importers in Bremen sell the cotton to the large manufacturers. When they get the money the money comes back to us. Q. In London the joint-stock banks usually pay interest at about 1-1/2 per cent. below the bank rate. In the country they have to pay more. What is the custom here? A. There is no strict rule. The bank rate is now 4 per cent. and we allow 1-1/2 per cent. on call money. In the interior our branches allow a little more. It is the same as in England. Q. Does the bank rate influence your rate for discounts? A. Yes; we are influenced. The bank rate is now 4 per cent. and our private discount rate is 2-1/2 per cent. Q. If a mercantile customer came with a four months' bill satisfactory in character, what would be the rate to him? A. We have no fixed rate. It depends upon the man and the bill. Q. How do you invest your surplus funds when you have no demand from customers? A. We buy bills in the open market, or accept offerings made to us from houses desiring to borrow. DRESDNER BANK INTERVIEWS WITH HERR SCHUSTER AND HERR NATHAN, DIRECTORS OF THE DRESDNER BANK[194] Q. What is the date of your organisation? A. 1872. Q. In practice, you and all other banks endeavour to fully employ all available funds? A. Yes; we only carry in the Reichsbank and other banks sufficient cash for the conduct of business. Q. You regard your item "Bills discounted" as one of practical reserve? A. Yes; it is immediately convertible into cash at the Reichsbank. Q. Referring to the item "Shares in other banks," $6,662,753, do you control all banks in which you have any interest? A. Yes; practically. We probably have not the majority of the stock in any bank; but our holdings are sufficiently large to give us control. Q. Is the tendency toward bank consolidation? Are the smaller banks becoming more closely affiliated with the larger banks? A. Yes; because it serves a mutual advantage. The smaller bank needs better facilities to take care of the increasing business. If a bank wants to increase its capital, and the shareholders do not care to subscribe for the increase, the new shares are frequently offered to us. We look out for the business of these banks in the centres and give them participations in some of our important undertakings. Q. In Great Britain we found that banking interests were practically controlled by from 15 to 20 large banks. Does that condition prevail in Germany? A. No; but the tendency is in that direction. One difference between the banks of England and Germany is this--in England the primary purpose of the banks seems to be to secure large earnings for their shareholders. In Germany our banks are largely responsible for the development in the Empire, having fostered and built up its industries. Q. Would it be any reflection upon a bank if it should go to the Reichsbank for discounts or loans in easy times? A. No; we seldom go in easy times, however, because there is no need of our doing so. Q. Is there strong competition between the important banks of Berlin or do they work more or less together? A. Of course there is strong competition between the large, important banks, but there is no lack of harmony, and they very frequently work together in syndicate operations. While it is the desire and endeavour of each bank to build up its business, it must be recognised that each institution has more or less its own field of operation, which is in a measure respected by the other banks. As, for instance, the Deutsche Bank has done a very large volume of business with Turkey, and business emanating from that source is expected to and naturally does go to the Deutsche Bank, while another institution may have been largely identified with Roumania, or another with some large local interest. We ourselves are recognised as representing the Krupp interest and have just recently formed a syndicate to finance one of their operations. Q. Our understanding is that a merchant, a customer of yours, may arrange with you for a credit of, say, 100,000 marks, which may or may not be secured, and may draw a ninety-day bill upon you for that amount. He may send that bill to the Deutsche Bank for discount. If the Deutsche Bank will discount it, they present it to you and you accept it. Will you kindly state why this custom prevails? A. One reason is that it makes a bill which is acceptable at the Reichsbank and is a prime bill. We receive one-fourth of 1 per cent., or more, for our acceptance, and the Deutsche Bank, or any other bank discounting, invests its money at a rate for the period. It might be that we would prefer to give our customers a cash credit rather than to accept his bill, in which event we would so arrange. Q. Then this practically enables you to sell your credit without using your cash? A. Yes. Q. We understand this is the usual custom in Germany. A. Yes. Q. Is it not a fact that in the last analysis the customer who uses the money usually pays more than the bank rate--that is, would it not cost him, in such a transaction to-day, say 5 or 6 per cent., while the bank rate is 4 per cent.? A. Yes. Q. Is it your endeavour to reach the small country towns? A. No. Q. In the United States we have brokers who handle commercial paper, and many of the banks purchase it to employ their surplus funds. In London we found discount houses whose sole business was to handle paper for sale to banks to employ their surplus funds. What corresponds to that agency in Berlin? A. In Berlin there are two brokers who handle prime bills, but they are not an important factor. Q. How do you employ your surplus funds? A. We buy bills in the market or through these brokers. Q. In employing your surplus funds do you buy any other bills than those which the Reichsbank would accept? A. No. Q. Would you consider the issue of taxed notes by the Reichsbank in a sense an evidence of an abnormal condition? A. No: on the contrary, it is quite normal. Last year it happened twenty-five times. Q. In times of trouble do the large banks, like your own, the Deutsche Bank, and Disconto, co-operate with the Reichsbank in an endeavour to prevent the exportation of gold? A. Yes. Opinions are divided as to whether it is for the good of our country to do so or not. Last year, for instance, many people asked for gold. It was refused at first in some quarters; later we shipped freely. Q. Are you members of the stock exchange? A. All banks and bankers are members of the stock exchange. Q. By virtue of their being banks? A. Yes; they have to pay a tax for the exchange. Q. Are the seats expensive? A. No. You do not buy a seat. There is no limit to the number of people admitted. We have from twenty to thirty people go to execute our orders. BANK DES BERLINER KASSEN-VEREINS INTERVIEW WITH HERR HOPPENSTEDT[195] Q. When was this bank organised? A. In 1823, under the general companies act. Q. What are its particular functions? A. This bank might be called strictly a clearing bank. It clears transactions made on the stock exchange and also cheques on banks which do not clear through the Reichsbank Clearing House. As you know, our banks do a large stock exchange business. It is their custom to send to us all securities sold to others clearing through us with a list of the purchasers. We charge the purchasers the amounts due from them and credit the amounts received from them, balancing every night. The securities are delivered to the various purchasers. _Some settlements are made daily and others monthly._ A large volume of cheques and bills are also cleared. This is simply a clearing business. Q. You show loans and discounts in your statement. What is the character of these? A. We invest our funds in first-class loans and prime bills. Q. Is this bank owned by the other banks? A. It is partly owned by other banks. There is also a commission of shareholders of the bank, among whom are the first banks of our city. These are members of our board. Q. Is it the custom for all banks which clear through you to have a balance in order to facilitate the payment of debits through clearing? A. Yes. FOOTNOTES: [184] Adapted from Geh. Oberfinanzrat Waldemar Mueller, _The Organization of Credit and Banking Arrangements in Germany_; Max Wittner and Siegfried Wolff, _The Method of Payment by means of Bank-Account Transfers and the Use of Checks in Germany_. Publications of the National Monetary Commission, Senate Document No. 508, 61st Congress, _2nd Session_, pp. 117-271. [185] In order to facilitate its giro business and reduce the friction to a minimum, the Reichsbank has special printed forms prepared for the various kinds of transactions, the use of which is made compulsory on the public. For a simple transfer of money from one customer to another, whether they be in the same town or in different places, the "red check" is employed, which is filled out by the party making the transfer and handed in to the bank. It is not a check in the proper sense of the term, but is so called because the printed forms resemble checks and are put up in books in the same way as checks. The word "check" does not occur in the printed matter of the blank; neither is the instrument transferable. When a number of payments are made simultaneously the party making the transfers is furnished with a blanket form on which the names of the individual firms and the various sums are entered and which has to be accompanied by a red check covering the aggregate amount. For the so-called "great banks" of Berlin, some of which have a volume of transfer transactions amounting to as much as one hundred transfers for each bank per diem, there are blanket forms which are of a different colour for each bank. When cash is wanted the so-called "white check" is employed. This is a legally constituted check. There are special printed forms for the use of those who have no account with the Reichsbank. [186] Banks of issue were formerly numerous in Germany. Gradually, however, nearly all of them renounced the privilege of issue, as the laws relating to banking made their existence as banks of issue more and more difficult. At the present time there are only 4 such banks besides the Reichsbank, viz.: the Bayerische Notenbank, the Wurttembergische Notenbank, the Sachsische Bank, and the Badische Bank. [187] Adapted from Robert Franz, _The Statistical History of the German Banking System, 1888-1907_, Publications of the National Monetary Commission, Senate Document No. 508, 61st Congress, _2nd Session_, pp. 7-115. [188] Adapted from C.R. Fay, _Co-operation at Home and Abroad_, pp. 42-51, 56. P.S. King and Son, London. 1908. [189] Occasionally even as low as 1_d._ or less. [190] Adapted from _Interviews on the Banking and Currency Systems of England, Scotland, France, Germany, Switzerland, and Italy_, Publications of the National Monetary Commission, Senate Document No. 405, 61st Congress, 2d. Session, pp. 452-468. [191] _Ibid._, pp. 335-358. [192] _Ibid._, pp. 359-370. [193] _Ibid._, pp. 371-391. [194] _Ibid._, pp. 392-418. [195] _Ibid._, pp. 486, 487. CHAPTER XXVI BANKING IN SOUTH AMERICA [196]The special interest in South American banking which exists at this time is the product of at least four distinct factors: First. It has been evident for some years that the trade between North and South America is rapidly developing. In the ten years, 1903-1913, the exports from the United States to the ten Republics of South America increased 274 per cent. against an increase of all our exports during the same period of 73 per cent. In spite of inexperience, crude methods, lack of banks and of ships we have made notable gains in South American trade. There seems to be no reason to question the probability of a continued rapid increase during the next few years. OUR GROWING SURPLUS FOR FOREIGN INVESTMENT Second. Other forces have gradually been bringing this country more and more into the position of looking for investment opportunities abroad. While it is true that the United States is a debtor nation in the sense that a large amount (estimated at $3,000,000,000 to $6,000,000,000) of European capital is invested here, it is also true, on the other hand, that the national income has for some years been sufficient to meet annual payments abroad, to make large fresh investments in our own enterprises, and still to leave a considerable surplus for investment in neighbouring countries. It is estimated that American capital in Mexico and Canada amounts approximately to $1,500,000,000. In South America there are already American investments of perhaps $300,000,000 to $400,000,000. As the national income and savings expand and as the opportunities for exceptionally profitable investment within this country decrease, it is clear that there must be a stronger and stronger tendency toward investment abroad. The immense sums, for instance, that have been flowing into railroad construction and rebuilding will not be needed to so great an extent in future. A considerable proportion of this overflow of capital may certainly be expected to spread into South America. GREATER LENDING POWER OF BANKS Third. The adoption of the federal reserve system has made a remarkable improvement in the handling of gold and of credit. It has released and made available for other forms of financing great sums which were formerly tied up in scattered reserves. We have only to look at the monetary history of the German Empire during the last forty years to see how powerful an influence on industry, trade, and investment is exerted by the centralisation and control of bank reserves. The London _Statist_ has calculated the ultimate increased lending power of American banks, under the federal reserve system, at $3,000,000,000. EUROPEAN WAR Fourth. The European war has suddenly stimulated the tendencies which were previously evident. It has temporarily cut off a considerable amount of European trade in South America, thus leaving an opening for even more rapid development of our trade than would otherwise have taken place. It has deprived South America for a period of several years of the steady inflow of European capital. It has enormously increased the exports and decreased the imports of this country, thus placing suddenly at our disposal greatly enlarged financial power, possibly as much as $1,000,000,000 per annum above normal. Its ultimate effect, we may safely assume, must be to increase considerably rates of interest the world over, thus stimulating the tendency toward an enlarged outflow of capital from the United States into neighbouring countries. By reason of the war the same kind of a situation that would otherwise have developed slowly in a period of years now confronts us suddenly when we are as yet in a state of financial unpreparedness. The new machinery provided by the federal reserve act is not yet fully utilised or adjusted in its final form. It will require careful study, combined with prompt action, to utilise the financial opportunities now before us with greatest advantage to all concerned. ENGLISH BANKS IN SOUTH AMERICA Although English interests have share holdings in other institutions, there are only five banks in South America that stand out as unmistakably British. In the order of their development, these are the London and River Plate, London and Brazilian, British Bank of South America, Anglo-South American Bank, and Commercial Bank of Spanish America. Each institution, with one exception, has concentrated on one country, in which it has established most of its branches and to which it has devoted its first efforts. The exception is the British Bank of South America, which has followed the contrary policy of having only a few branches strategically located in important cities; in other words, this bank has concentrated on selected cities rather than on a given territory. ENGLISH TRADE AND BANKS DEVELOP TOGETHER The development of commercial banking by British interests has everywhere gone hand in hand with the development of British investment and British trade. The accounts of the railways, mercantile firms, steamship lines, public utilities, and other enterprises conducted by their fellow countrymen form the great bulk of the business of the four leading institutions; the Commercial Bank of Spanish America is, however, operating under different conditions. Indeed, it may even be said--again speaking in broad terms--that the English banks have made comparatively little effort to secure the accounts of domestic enterprises. It is certainly safe to say that they have not made efforts in this field at all comparable with the efforts of the German, Spanish, French, and Italian banks. It is interesting to note also in this connection that the management and even the clerical force are, with few exceptions, brought over from England. After more than fifty years the three leading institutions remain as distinctively British as they were at the beginning. GERMAN BANKS IN SOUTH AMERICA To understand the energetic development of German banks in South America during the last forty-five years we must consider the conditions prevailing in Germany during that period and the strong forces working toward industrial and banking expansion. Beginning immediately after the Franco-Prussian War of 1870-71, German industrial interests, with the strong support of the German Government, began to struggle more vigorously and more effectively than ever before for a larger share of trade in international markets, particularly in the Far East and in South America. It was clearly realised that Germany needed a large and rapidly growing export trade in order to maintain her own prosperous development. In order to get this trade it was necessary to follow a definite programme which included the provision of better shipping facilities and of better facilities for financing. Up to that time Germany had been fully as dependent as the United States is to-day upon foreign ships and foreign banks. It was also clearly realised that the tendency was toward large scale production in most industries and that those concerns which could secure large sales in the world-wide markets would soon come to enjoy an overwhelming advantage over smaller competitors. The German industries, in conjunction with the great German banks, began to follow, therefore, a programme of concentration, which has since gone steadily forward. These two forces--expansion in foreign markets and concentration at home--have had a controlling influence on Germany's foreign trade, and incidentally on her foreign banking. OTHER INFLUENCES IN BANK EXPANSION Another influence of importance is the fairly well-marked division of German industrial interests into a small number of groups, each one of which centres about and is allied to one of the great banks. To some extent this is true in other countries, especially where banking is centralised--notably in Canada, for instance--but it is especially clear and well recognised in Germany. Hence each one of the great banks is under especially strong pressure to foster and develop the interests of its important clients, even at the expense of some temporary risk or sacrifice for itself. This is doubtless the primary motive which has induced the great German banks one after another to enter foreign fields. There is a wide-spread notion outside Germany that the German Government has itself actively intervened for the purpose of stimulating foreign trade expansion and has brought pressure to bear on German banking interests, leading them to push ahead more rapidly than their private business interests would have required. This idea may or may not be correct; so far as the writer is aware there is no special evidence pertaining to South American banking development to sustain it. At any rate, it is easy to explain the policy of these banks as being based upon purely business considerations. As a matter of fact, there has probably been much exaggeration of the thought that the German banks are primarily self-sacrificing instruments of an ambitious national programme rather than ordinary business enterprises. The statement is frequently repeated that the English banks in South America aim first and all the time for profits, while the German banks aim for development of their national interests. Of the four large German banks in South America only one is remarkable for energetic and successful expansion. The others have been moderately successful. The difference is to all appearances chiefly due to management. Although these four banks were presumably designed primarily to advance the business interests of the banks which organised them, they have incidentally had a powerful influence on investment of capital and on trade. The German manufacturers of machinery, steel products, and the like, have been especially helped by the ability of the German banks, both in South America and at home, to help in finding capital and in financing. The German banks have not found political or economic conditions in South America which were insuperable obstacles to sound or profitable banking. OTHER BANKING INSTITUTIONS Other nationalities besides the English and the Germans have invaded the banking field in South America. The French, the Italians, and the Spanish have all been active, particularly on the east coast, and are represented by large institutions. AMERICAN BANKS Only after the federal reserve act went into force in November, 1914, was it possible for any bank organised under the national-bank act of the United States to establish branches abroad. The act restricts this privilege to institutions having capital and surplus of $1,000,000 or more, and gives the Federal Reserve Board discretion to withhold its consent. Up to this writing the only institution which has taken advantage of the powers granted by the federal reserve act to enter South America is the National City Bank of New York, which has established branches in Buenos Aires, Montevideo, Rio de Janeiro, Santos, and São Paulo. Other branches will probably be established in the near future. Especial attention is being given to the collection of credit information. The bank also maintains a foreign trade department, which gives information and advice to its depositors as to building up business abroad. This department is now equipped to make specific reports on trade openings in Argentina, Uruguay, Brazil, Colombia, and Venezuela. The Buenos Aires branch, which was the one first established, is understood to have done a satisfactory amount of exchange business. It stood ninth in volume of clearings in January, 1915, among the twenty-odd commercial banks of that city. The other branches have not been in operation long enough to show clear results. The branches in Argentina (including the subbranch at Montevideo) and Brazil have each $1,000,000 allocated to them--though this is purely formal, as the bank's whole capital and surplus are behind the obligations of every branch. The expansion of the National City Bank in South America has been much more rapid than that of any preceding institutions, including even the aggressive German banks. As a natural result, there is apparently less effort at this stage to build up local connections and influence in each city. So far the policy of the National City Bank appears to be to furnish foreign trade facilities to American exporters over as wide a territory as possible, rather than to concentrate its activities in any restricted region. Other national banks in this country are known to be desirous of aiding in the financing of foreign trade, but have not up to this time found it practicable to take action under the provisions of the banking law as it now stands. DOMESTIC BANKS There are many important and successful banks in South American countries which are strictly domestic institutions, not only incorporated under the laws of the country in which they do business, but owned and managed by local interests. The notion sometimes seriously put forward that South American banking is almost wholly in the hands of foreigners is quite unfounded. It is true that trading operations are generally handled either by foreign houses or by houses in which there is a strong foreign influence and that the financing of nearly all foreign trade and of much local trade is likely to go to foreign banks. But the accounts of the rest of the domestic trading firms, of land owners, and of governmental corporations, as a rule, gravitate toward the domestic banks. Following is an approximate statement of the total of deposits and credits in account current in each South American country on or about December 31, 1913, and an estimate of the distribution between foreign and domestic institutions: ---------------------+-------------+------------------+------------------ Countries. | Total bank | In | In | deposits. | European banks. | domestic banks. ---------------------+-------------+------------+-----+------------+----- | | Amount. | Per | Amount. | Per | | |cent.| |cent. | | | | | Brazil | $190,000,000| $78,000,000| 40|$112,000,000| 60 Uruguay | 42,500,000| 14,000,000| 33| 28,500,000| 67 Argentina | 626,000,000| 173,000,000| 28| 453,000,000| 72 Paraguay | 3,500,000| | | 3,500,000| 100 +-------------+------------+-----+------------+----- Total, east coast | 862,000,000| 265,000,000| 30| 597,000,000| 70 | | | | | Chile | 104,500,000| 29,500,000| 28| 75,000,000| 72 Bolivia | 8,800,000| 1,500,000| 17| 7,300,000| 83 Peru | 28,500,000| 7,500,000| 26| 21,000,000| 74 Ecuador | 4,000,000| | | 4,000,000| 100 +-------------+------------+-----+------------+----- Total, west coast | 145,800,000| 38,500,000| 26| 107,300,000| 74 | | | | | Colombia | 5,800,000| | | 5,800,000| 100 Venezuela | 6,200,000| | | 6,200,000| 100 +-------------+------------+-----+------------+----- Total, north coast | 12,000,000| | | 12,000,000| 100 | | | | | Total, South America |1,019,800,000| 303,500,000| 30| 716,300,000| 70 ---------------------+-------------+------------+-----+------------+----- The great Banco de la Nación Argentina (Bank of the Argentine Nation) is an official institution, all the shares of which are owned by the National Government. It is a successor of the former national bank, which was driven into insolvency in the great financial crisis of 1890 and was afterwards liquidated. Although it was organised during a period of disaster and there were many prophecies of its certain failure, the Bank of the Argentine Nation has had a wonderful development and to-day ranks as the seventeenth in size among the great banks of the world. The bank pays no dividends, but carries 50 per cent. of its profits to the credit of capital account and 50 per cent. to reserves. Entirely through this process the capital and reserve funds have increased from approximately $22,000,000 in 1892 to over $100,000,000 at the present time. During the same period deposits have grown from $21,000,000 to $205,000,000, and discounts and advances from $47,000,000 to $208,000,000. There are now more than 150 branches. The bank differs from most other governmental institutions in that it carries on distinctly a commercial banking business more or less in competition with private commercial banks. Until the crisis of 1914 it did no rediscounting for other banks, and even during the crisis its activities in assisting other banks were much restricted. LAND MORTGAGE BANKS In several of the South American countries there is a well-organised system of land-mortgage banks following European models. In some cases the banks are owned and operated by the National Government and in other cases receive some special support or guarantee. The plan under which they all operate is the following: The owner of land who desires to raise money on mortgage approaches the bank and requests an investigation and appraisal, the expenses of which he usually pays. If the property is shown to be unencumbered with prior claims and meets other conditions, the bank delivers to the owner the mortgage bonds in convenient denominations up to a given proportion, usually 50 per cent., of the appraised value. These mortgage bonds are part of a series and are themselves secured, not by any specific piece of property, but by all the property covered by the series; they are also backed by the credit of the issuing bank. The owner of the property then offers the bonds for sale through a broker, and in this way obtains the desired funds. He pays the bank a small commission, from one-fourth of 1 per cent. to 1 per cent., for its services. In Argentina, where this system is developed to its highest extent, these land-mortgage bonds are known as "cedulas," and are issued by the Banco Hipotecario Nacional (National Land Mortgage Bank). At the present time the Argentine "cedulas" tend to sell on a 7 per cent. basis, more or less. Uruguay, Brazil, and Chile all have similar issues, which sell on bases ranging from 7 to 9 per cent. or even higher. Broadly speaking, and without attempting to assign a definite value to any one of these issues, they are sound, conservatively issued, well protected, and under normal conditions readily marketable. The more important issues have been widely sold in England, France, and Belgium. If they were properly introduced and made well-known in the United States, there is no reason to question their finding a good market here also. Side by side with the land-mortgage banks there are operating in the Argentine a number of English mortgage companies, which directly invest their own funds in land mortgages and have earned highly satisfactory profits. In several countries there are state-owned savings banks, a large portion of the funds of which also go into land mortgages. CONDITIONS OF COMMERCIAL BANKING A banking business, like any other, must adapt itself to surrounding conditions, including laws, business customs, precedents created by older banks, and the like. In South America these conditions differ in a number of respects from those which prevail in the United States. Probably the first impression of most observers gives an exaggerated idea of the differences. However, they should be fully and carefully considered. The chief differences that directly affect banking operations are the following: (1) Comparative absence of banking regulation on the part of governments or associations; (2) national colonies; (3) social character of business relations; (4) lack of highly developed economic organisation; (5) relatively high and stable rates of interest; and (6) in some countries fluctuating currencies. The first five of these circumstances call for brief comment. LITTLE CONTROL OR CO-OPERATION Not only is there a marked absence of laws directly applicable to banking concerns, but there is also an equally noteworthy absence of control exercised either by the Government or by associations among the banks. Even the large governmental or semi-governmental banks in Brazil, Uruguay, Argentina, Chile, and Bolivia are competitive with the other banks. Whatever influence they exercise is secured through their active and direct competition, not through any special authority over the other banks conferred upon them. In the fall of 1914, for the first time, there was some rediscounting of the paper held by other banks on the part of the Bank of the Argentine Nation and of the Bank of the Republic of Uruguay; but this tendency did not go far. The other banks objected to placing information as to their relations with customers in the hands of the governmental institutions. In other countries there has not been even this much of an attempt toward fulfilling the functions of a central bank of rediscount. It is difficult to secure in most of the South American cities even the most elementary kind of co-operation among the banking institutions. How is it possible that they should continue to stand apart when they would obviously gain so much by coming together? A partial answer is to be found in the peculiarity that has already been pointed out, namely, the fact that many of the more powerful institutions are the offspring of European countries. Each one is fighting to support the trade of a certain well-defined group of clients. The national antagonisms among them are deep-seated and sometimes virulent. All this was true even before the European war. It will be tenfold true for a number of years to follow. NATIONAL COLONIES This leads to mention of the second condition, one which operates in favour of European-owned banks to the relative disadvantage perhaps of American banks. This condition is the presence in some of the large South American cities, notably Buenos Aires, of a large colony representing each one of several important European nations. Naturally the tendency of each colony is to support banks of its own nationality. On the whole, although this matter of national affiliations is undoubtedly a factor to be reckoned with, it appears to be by no means decisive. The German banks, for instance, have been able to expand with much greater rapidity than we should have been justified in expecting on the basis of their national trade and national colonies alone. This is true likewise of the Italian and French banks. A great proportion of the business men of South America, even those of foreign origin, are governed less by their national sentiments than by their business interests. PERSONAL CHARACTER OF BUSINESS DEALINGS To an observer accustomed to European or American methods, one of the most striking features of business life in the South American cities is its strongly personal and social flavour. We are accustomed in this country to emphasise the principle that friendship is not a safe guide in business dealings. In South America the contrary is more nearly true. Family ties are apt to be a controlling factor in choosing partners and employés. If one's ultimate object is to have business dealings with a firm, he must first cultivate the personal friendship of the head of the firm. Social relations and business relations become confused, and it is hopeless to expect the purely impersonal view of a business proposition that is considered correct in this country. Like all sweeping statements, this one is subject to exceptions. There are many American, German, and English firms, especially in Buenos Aires, which prefer what we denominate "businesslike methods," but they are not numerous enough to give the tone to business life. This is a condition which directly affects banking practice. It makes it very difficult, for example, to introduce the custom of securing full financial statements from all applicants for credit. The request for a statement is apt to be construed (as was the case in this country not many years ago) as a reflection on the personal honesty and credit standing of the applicant. For the same reason it is difficult, and may frequently be poor policy, for a bank officer to ask a customer a direct question as to the status of his business. He is likely not to take an impersonal attitude toward the question, but to resent it as if it were an attempt to pry into his purely personal affairs. Consequently, all business men, including bankers, are forced to rely to a great extent in estimating the credit standing of individuals and firms on their personal impressions, on such information as they are able to secure through indirect hints and questions and on the business gossip which they pick up. It must be remembered that, except for Buenos Aires, most of the business communities are comparatively small and isolated. There is little opportunity, therefore, for long-continued fraud. A man who shows traces of dishonesty is much more plainly marked than in larger communities. As a consequence, the lack of the machinery and the customs that we consider indispensable in extending credit does not prevent the formation of correct ideas as to the wealth and character of a business man. UNDEVELOPED ECONOMIC ORGANISATION Most of the South American countries, we should keep in mind, are still sparsely populated and have no need for the elaborate machinery of trade and finance which exists in Europe and North America. The region farthest advanced in its economic development, the River Plate Basin, may be roughly compared to agricultural States like Iowa, Kansas, and Nebraska as they were thirty years ago. Farming methods are usually not economical. The small farmers have little money of their own, their lands are heavily mortgaged, and they are "carried" from one crop to another by the local general retailer, who makes advances to them both in goods and in money. The retailer must in turn secure liberal credits from wholesalers, who are in their turn partly "carried" by the banks. There is no clear-cut distinction between dealers in commodities and bankers, for the dealers are forced to finance most of their own sales. Such an arrangement of course favours extravagant credits, high prices, speculation, and crises, just as it did in the United States. It is rapidly giving way to a more complex organisation, in which the farmer has funds of his own, does his short-term borrowing at a bank, and pays cash for his purchases. Without attempting to comment on intermediate grades of organisation we may consider briefly the manner in which trade and finance are conducted in the north coast countries. An officer of a bank there asserts that banking in the north coast countries is not to any great extent a matter of handling currency or money funds. The intermediary system of brokers, merchants, and other middlemen between the producer and his market, to which we are accustomed, is lacking, and the banker must take the place of all of them. He must himself inspect and sell produce. Loans are made, for instance, secured by growing crops; the bank sends a man to the plantation to look over the coffee or cocoa, or whatever the crop may be, and report on its condition and prospects; to protect itself the bank sees that it is properly prepared for shipment, and takes care of the sale in the New York, London, or Hamburg market. The bank collects the proceeds and credits the customer with his share. Interest rates run from 8 to 15 per cent. and commissions for selling from 1 to 3 per cent. INTEREST RATES Interest rates average considerably higher--even making allowance for increased risk--in South America than in the United States. They are, however, much more stable and more uniform over the whole continent. The uniformity is no doubt to be ascribed chiefly to the large English and German banks, with their branches in several different countries and their ready access to European financial centres. The stability in rates over a period of years is presumably due in part to the relatively gradual development of banking, commerce, and production, so that sudden shifts in the demand for and supply of banking capital are not frequent. There are, however, a number of exceptions to the general stability. In Argentina the crop-moving season creates, though to a much smaller extent, the same kind of extra demand for currency as in the United States, and tends to make some seasonal variations in discount rates. They vary from as low as 6 per cent. to as high as 12 per cent., but do not normally move far from 8 or 9 per cent. COMPENSATION OF DIRECTORATE The German, French, Italian, Spanish, and many of the domestic banks, especially in Argentina and Peru, follow the European custom of compensating the home office directorate by allowing them a fixed percentage of the net profits. The president, manager, founder, and others may also be compensated in the same way. The net profits of the Banco Español del Río de la Plata are distributed: 2-1/4 per cent. to certain specified charities, 1 per cent. to the founder, 12 per cent. to the reserve fund, 2 per cent. to the directors and managers, 2-3/4 per cent. to the fund for employés, 80 per cent. to the shareholders for dividends and dividend reserves; those of the Banco de Italia y Río de la Plata: 1/2 per cent. to charity, 5 per cent. to the reserve fund, 7 per cent. to the directorate, 1-1/2 per cent. to the fund for employés, 86 per cent. to the shareholders. There is apparently no general rule which governs the distribution except possibly that the larger the bank the smaller is the percentage for the directorate and management. In England the directors are more likely to receive a fixed compensation. Whether this plan of having a paid directorate works better than the American method of having a directorate made up usually of some of the larger shareholders, whose payment is purely nominal, is an open question. It is largely a matter of national custom. CLASSES OF BUSINESS OF FOREIGN BANKS First. The foreign banks in South America usually start by devoting a large proportion of their energy and capital to operations in exchange. Second. In this connection they purchase and make advances against commercial bills drawn on importers in the countries where they are doing business. Third. At the same time the home office in London, Hamburg, or Berlin is probably developing a business in acceptances which involves comparatively little direct expense and allows considerable profits. Fourth. All South American banks are called upon to handle collection of drafts and sometimes to take care of ordinary mercantile transactions, both on a commission basis. Fifth. An activity which may be of some importance from the beginning consists of underwriting and selling securities. Sixth. As quickly as possible the foreign banks build up a local account current and loan and discount business. Seventh. Some of the banks, especially the German banks, have participations in syndicates and in industrial enterprises. Eighth. In some branches they receive money and securities for safekeeping or rent safe-deposit boxes. Ninth. Many banks have savings and mortgage-loan departments. None of the distinctively foreign banks in South America has as yet issued circulating notes; this is being done, however, by some of the domestic banks in which foreign capital is heavily interested. There may, of course, be other miscellaneous activities. FOOTNOTES: [196] Adapted from William H. Lough, _Banking Opportunities in South America_, Department of Commerce, Special Agents Series, No. 106. Washington. 1915. CHAPTER XXVII AGRICULTURAL CREDIT IN THE UNITED STATES While agricultural credit has been a subject of intermittent discussion in the United States for almost a generation, the movement has had its main development within recent years. In November, 1911, the American Bankers' Association created a committee to study land and agricultural credit at home and abroad. In March, 1912, American ambassadors and ministers were instructed by the State Department to gather information concerning rural credit institutions in Europe. A year later the Southern Commercial Congress also instituted a careful investigation. These acts, and reports published gave the movement a national character and scope. Several states, such as Massachusetts, New York, and Missouri, have recently made legislative provision for rural credit institutions and during the last two years very numerous bills pertaining to rural credit have been introduced in Congress. It seems not unlikely that legislation providing for the establishment of a federal system of land banks and rural credit associations, subsidized by the Government, will be enacted in the near future. The functions and work of rural credit institutions in Europe, briefly discussed in the first two selections of this chapter, are treated more fully in connection with the chapters on the banking systems of European countries, notably those of Germany and France. [197]Various European nations, with soil naturally inferior to ours, have established agricultural credit and thereby have greatly eased the burden of the cost of living. Hitherto we have lived on the bountiful overflow of our rich land, and the pinch of necessity has not been felt; but now our population has grown enormous, our standards of living have been greatly raised, and our land is showing the effect of generations of taking out with very little putting back. We must do better or suffer. By the installation of agricultural credit, farming will not only be made more profitable, but it will in the end make country life more attractive. The banking system of to-day is adapted to the needs of manufacture and commerce. The processes of nature are so much slower, however, that banking for farmers must be organised on a basis of credit for much longer periods. Our present system of borrowing on land is by mortgages running from three to five years, the entire principal coming due at one time. This is expensive, involving renewals, and dangerous from the possibility of the mortgage falling due at a time of restricted credit so that it cannot be renewed. On the continent of Europe this business is handled by so-called land-mortgage banks, or rather associations. The mortgages granted are pledged for the security of bonds which the institution issues and sells in the general market. These bonds have no fixed maturity, but can be retired at par or some small premium at any time. When the borrower mortgages his land to the bank he agrees to pay a certain fixed sum semi-annually. This is called the "annuity" and is composed of the annual interest plus an amount, generally 1/2 per cent., toward the reduction of the principal of the debt and known as "amortisation," and an additional amount, about 1/4 per cent., toward the expenses of the bank. The borrower, therefore, at once begins to extinguish the principal of the debt; and as each year the principal decreases, the interest, of course, decreases also, and, the annuity being fixed, the proportion of it applicable toward the extinction of the mortgage increases. Thus it happens that, beginning with a payment of 1/2 per cent. toward principal, the mortgage bearing 4 per cent. to 4-1/2 per cent., which are the general rates, the entire debt is extinguished in between fifty and sixty years. The mortgaging of land is known as long-term credit, and it may be handled by joint-stock institutions or by associations of borrowers, but in institutions furnishing the credit required by farmers for working capital, such as the purchase of seeds, fertilizer, payment for labour, etc., which is known as short-term credit, the aim that the borrower should be primarily considered rather than the lender assumes fundamental importance. On the continent of Europe a solution of the problem of short-term credit is found in the organisation of banks by the application of so-called co-operative principles. The purpose is to provide organisations in which the borrower receives consideration rather than the lender, also to keep the money of any body of individuals for the use of that body. Under our present system a great deal of money belonging to farmers finds its way into Wall Street. At present the lenders are organised; whereas the borrower stands alone. AGRICULTURAL CREDIT CONDITIONS IN THE UNITED STATES [198]The United States, although the leading country of the world in the amount of its agricultural products and in the extent of its banking business, is behind nearly every other progressive country of importance in the development of agricultural credit, _i. e._, short-time non-mortgage credit. Our manufacturing and commercial businesses are financed largely by means of such credit, and the capital invested in these industries is thereby rendered manifoldly efficient; not so with agriculture. Most farmers apparently make little or no use of short-time credit. There seems to be a wide acceptance in this country even among the farmers themselves of the dictum of Louis XIV, that: "Credit supports agriculture, as the cord supports the hanged." Is this a correct description of the situation? If so, what is the explanation, and what remedies if any are needed? The object of this paper is to throw light upon the answers to these questions. First, as to existing banking facilities for agricultural credit, and their utilization by farmers. It is well known that the banking capital of the country is concentrated to a great extent in our large cities--to a greater extent than it would be if we had a well-developed system of branch banks like Canada--and that the banks of these cities are prevented by reason of their location from making many agricultural loans, even if they were so inclined. Of the 7,301 national banks in the United States September 1, 1911, 191 or 2.6 per cent. were located in the dozen largest cities of the country.[199] The national banks of these twelve cities, representing but 14 per cent. of the population of the country, had 37 per cent. of the national banking capital (capital, surplus, and undivided profits), 33 per cent. of the individual deposits, and 40 per cent. of the loans. It should be noted, however, that since the act of 1900, authorizing the establishment of national banks with a capital of less than $50,000 in small towns, there has been a continual and rapid increase in the number of national banks in small communities. On September 1, 1911, out of the total 7,301 national banks there were 1,966 with a capital of $25,000, and therefore presumably located in towns of less than 3,000 population, 372 with a capital between $25,000 and $50,000, and therefore presumably in towns of less than 6,000 population, and 2,297 with a capital between $50,000 and $100,000. Except for banks in towns not exceeding 6,000 population, the law as amended in 1900 does not permit any national bank to be organized with a capital less than $100,000. Are the national banks which are accessible to farmers in a position under the law to meet farmers' needs? The answer to this question must be in the affirmative. Aside from the fact that national banks are not permitted to make loans on real estate security,[200] there is no restriction in the national banking act which would interfere with loans to farmers for agricultural purposes. Personal security alone is legally acceptable; the range of possible collateral security is practically unlimited; and there is no limitation fixed by law as to the period of loans. National banks therefore have a very free hand in regard to loans to farmers. When we inquire concerning agricultural credit in banks under state charters we find conditions varying with the different States, but, with a few minor qualifications, it may be said that the state banking laws are free from restrictions that would hamper state banks and trust companies in extending credit liberally to responsible farmers. They are in a much better position in one respect to deal with farmers than are national banks, that is, in the matter of accepting real estate security. No state denies state banks this privilege, and such restrictions as exist upon its exercise are generally not onerous. If commercial banks are comparatively unhampered by law in making short-time loans to farmers, it may be asked: To what extent are such loans made? Unfortunately practically no information is available on this question. In answer to an inquiry the Comptroller of the Currency wrote, under date of May 27 of this year, that no information with reference to short-time loans made to farmers by national banks had ever been compiled by the comptroller's office. The writer has found no trace of any investigation of this subject by state banking departments. For about a year he has taken occasion to inquire at every opportunity of individual bankers concerning their experience with regard to loans to farmers in different parts of the country. The replies received are so divergent that no conclusion can be drawn from them, except that the practice varies widely in different sections of the country and even in different communities in the same section, and that probably the farmers of the North Central and Western States borrow of commercial banks more than do those of the Eastern and Southern States. There is not sufficient evidence, however, for this latter inference to make it much more than a guess. In the absence of any comprehensive data, I shall resort to the unsatisfactory but representative replies from different parts of the country. Neither of the two national banks in the city of Ithaca, N. Y., makes any appreciable amount of loans to farmers. Both claim to be willing to do so, but say there is practically no demand. In some of the neighboring cities, however, such loans by national banks are more common. The cashier of a national bank in a town of about 800 population in an agricultural section of northeastern Pennsylvania writes: Our farmers as a rule are not large borrowers and want loans only in small amounts for short periods. Farmers in general will not go on each other's paper no matter how good the parties are, for they have been so often taken in by wild-cat schemes that they are shy when their names are required to be placed upon paper. They realize also that they are not familiar with business methods in the commercial world and dare not trust themselves. There is a moderate amount of borrowing by farmers in western New Jersey. Estimates made by bankers in Princeton as to the proportion of farmers in that neighborhood who borrow for short periods of local banks vary from 15 to 40 per cent. A former president of a national bank in Indianapolis writes: We came very little in contact with farmers. We made special effort to secure such business by sending to a considerable mailing list of carefully selected farmers, circulars and personal letters ... but the business did not come. My inference was that they dealt with the nearby small banks. Of the situation in Lafayette, Indiana, a former vice-president of a national bank, writes: About 50 per cent. of our business was with farmers. They borrow frequently from commercial banks, funds to be used for crop planting, crop gathering, purchase of agricultural machinery, improvements on the farm, purchase of cattle, and the carrying of cattle or hogs to maturity. Through Indiana these farmers' loans are very usual in the country banks, many preferring state charters so they may make these loans not only on personal but also on mortgage security. Farmers are seldom able to give any but personal or mortgage security. A large percentage of them are sufficiently responsible to be entitled to and to receive reasonable credit without security. Farmers seem to endorse for each other much more readily than do those of other classes.... The reason is, I think, clear. Each knows pretty much everything about his neighbor's financial status, the amount and value of his land, his live-stock, and other visible personal property, the amount of any mortgage and when due. So much being thus in the open there is less of the secretive habit, so that the extent of the invisible personal property and debts is apt to be known. A similar report comes from a national bank in Lincoln, Nebraska, from which the following extracts are taken: The farmers of this state have need of accommodations of this kind to carry them through the crop season. As a matter of fact, they use short-time credit to fully as great an extent as do the business men in the city and smaller towns. In fact, I think it is true that in the smaller towns the bankers favor the farmers in preference to the small business men.... There is no doubt about the average well-to-do farmer in this state being able to furnish satisfactory security aside from mortgaging his farm for such temporary loans within any reasonable limitations. In some cases the banks take chattel mortgages on cattle or other live-stock, and in some cases where the farmer has a good equity in his farm they will not hesitate to take his personal note. While I do not know that there is any particular difference between farmers and other classes in this state as to their willingness to go security for each other, yet very little of this is done any more. There was a time when it was not an uncommon thing, but it has become less and less until now there is very little signing done for others. In fact, the farmers feel that they are able to take care of themselves and do not ask others to sign with them, and are able to handle themselves without such an endorsement. This is true of all classes in this state. I have never felt that in this locality farmers suffered in any way from lack of credit facilities.... A former bank examiner in the state of California, himself a farmer, writes: The farmers of California do not to any considerable extent make a practice of borrowing money from local banks or money lenders for short periods.... In reviewing the various bank examiners' reports on some 500 state banks I recall very few instances of crop mortgages, and it impresses me that in many of the cases the mortgage was taken to obtain additional security for loans previously granted and secured otherwise. I think it would be safe to say that the bankers as a rule have not favored short-time unsecured loans to farmers. They are, however, fast awakening to the fact that as a rule these are the safest loans a bank can make, and are making an effort to get in closer touch with the farmer. It would also be safe to say that the average small farmer does not as yet realize that he _can_ obtain such credit at a bank. Our farmers as a class are exceedingly reluctant "to go each other's security." Two-name paper is mostly confined to commercial transactions. A college professor in the state of Washington informs me that short-time loans to farmers are common in that state, but that frequently the rate of interest charged is 2 per cent. higher than that on commercial loans--the explanation commonly given being that a farmer borrowing generally reduces the resulting deposit credit more rapidly than does a merchant. In the Southern States, particularly in the cotton, rice, and tobacco sections, the use of crop liens for short-time loans appears to be much greater than in other sections of the country.[201] Such meager testimony as I have been able to secure seems to show that the amount of short-time agricultural credit extended by banks in the South is relatively small but rather rapidly increasing. The banks are catering more and more to this class of business. Other evidence might be cited, but the above gives a fair picture of the situation as revealed by all the testimony received--a confused picture of widely varying conditions. Public opinion is now being aroused on the subject of agricultural credit, and pressure is liable to be brought for hasty and perhaps radical legislation. Obviously, the first step to be taken in the interest of a sane solution of the problem is to find out exactly what the problem is. To this end the writer would urge strongly the need of investigations by the Comptroller of the Currency and by the various state banking departments of the present facilities and practices in the matter of agricultural loans. In view of the increasing public interest in the subject the investigations cannot be undertaken too soon. Although the farmers in any section of the country may not resort to the banks for short-time credit it does not follow that they are not receiving such credit. As a matter of fact they are often receiving it on a considerable scale and in the most expensive way. _i. e._, in the form of book credits with merchants. It is a common practice throughout the country for farmers to run up book accounts with local merchants during the spring and summer to be paid in the fall when the crops are sold. When this is done on any considerable scale the farmer probably pays more than bank interest under the guise of prices; and this is particularly true when he obligates himself to sell his crops to the creditor merchant. In the South this practice is carried to the extreme in the familiar "store-lien" system which holds many farmers in the cotton belt in a condition bordering on perpetual servitude. The custom is for the farmer to buy supplies of the local general store on credit for the year, agreeing to sell to the merchant his cotton crop in the fall, thereby cancelling the debt. A crop lien is generally given, and the merchant often dictates the character and the amount of the planting. The prices paid for cotton under this system are liable to be exceptionally low, and the prices paid by the farmer for his supplies exceptionally high. The system has proven a curse to many sections of the South. Witnesses before the United States Industrial Commission estimated the interest rates imposed by this system at from 20 per cent. upwards. Mr. George K. Holmes of the United States Department of Agriculture testified: The rate of interest on the liens on the cotton crop of the South, it is safe to say, probably averages 50 per cent. a year. All cotton men will agree that it is at least that. The store system of the South is a sort of peonage; that is what it amounts to with the cotton planter.[202] Since the Industrial Commission's report was published the banking facilities of the South have been greatly increased, and the banks are coming into closer touch with farmers, with the result that the store-lien system is gradually breaking down. Another form of credit to farmers is that obtained from dealers in farm implements and machinery which the farmers frequently buy on time, paying interest during the credit period. One informant, who has been a bank examiner, writes from California--and his testimony is applicable to many other sections of the country: The new generation of merchants is not disposed to carry the farmer as of old and insists that overdue accounts be covered by promissory notes which are in turn hypothecated with their bank. In other words a clearer demarcation of function is being gradually brought about to the best interests of all concerned. Such in general is the present situation in the United States in the matter of short-time agricultural credit as evidenced by the very indefinite and scant information available. What are the causes? Perhaps in them will appear some suggestions for the remedy. The chief reasons for the backwardness of the United States as compared with Europe with regard to agricultural credit may be briefly summarized as follows: (1) Our wonderful agricultural domain where good land could be had almost for the asking, and where for generations land was so cheap and labor and capital so dear that intensive cultivation was generally unprofitable. (2) The prosperity of our farmers who have not been forced by dire necessity to resort to credit as were the farmers of Germany at the middle of the last century when the Raiffeisen co-operative banks were first organized. (3) The nomadic character of a considerable part of our agricultural population as it has moved continually westward in taking up of new lands, and more recently as it has been retracing its steps or moving northward. (4) The isolation of our farmers in this country of large farms and "magnificent distances." (5) The rapid growth of the manufacturing and commercial business of the country--and that largely in the hands of the same class of people who control the bulk of the banking business.[203] Add to these circumstances the obstacles which farmers always encounter in the matter of credit, as compared with manufacturers and merchants, obstacles such as the uncertainty of crops and the strongly seasonal character of the farmer's credit demands, and we have a sufficient explanation for the backwardness of agricultural credit in this country. To emphasize most of these causes, however, is to brand oneself as belonging to a past generation. Our domain of free arable land is practically gone; good farms must be bought, and for them ever increasing prices must be paid.[204] The era of hand cultivation is giving way to that of farm machinery propelled by horse-power and even by steam, gasoline, or electricity, with its resulting great increase in the efficiency of labor. Eleven years ago the editor of _The Dakota Farmer_, in his testimony before the United States Industrial Commission, put the matter tersely, and with little exaggeration, as affecting his own section of the country, at least, when he said: "When I first worked out it took five binders to follow a machine, one man to rake off, and one to carry the bundles together. Now the hired girl frequently drives a machine that does the whole business."[205] Some idea of the extent of this increase may be obtained by reference to the following figures compiled from census reports: VALUE OF FARM IMPLEMENTS AND MACHINERY IN THE U. S.[206] _Year_ _Value_ _Per Cent. 000,000 Increase_ 1910 $1,265 69 1900 750 52 1890 494 22 1880 407 50 1870[207] 271 10 1860 246 62 The increase in the value of farm implements and machinery per acre of land in farms from 1900 to 1910 was from $0.89 to $1.44, or 61.8 per cent. An analysis of the figures for farm machinery by geographic divisions shows a marked difference in the rates of increase, but the tendency in all sections during the last forty years has been decidedly upwards, the greatest growth having been witnessed in the decade ending 1910. During that decade the lowest rate of increase in any section was that of New England, 39 per cent., and the highest that of the Mountain States, 163 per cent.[208] Another development which is making larger demands upon the farmer for working capital is the increasing use of artificial fertilizers, the expenditure for which in the United States approximately doubled from 1880 to 1900. As the result of such tendencies and of the rapid depletion of our free domain, farming in the United States is losing its old-time kinship to mining and becoming more like manufacturing. More and better machinery and more power are needed on most farms in the interest of efficiency. This calls for short-time credit. But a supply of good machinery requires a fair sized farm for its efficient utilization--hence the need for larger farms and for mortgage credit to make their purchase possible. Upon this subject there are some very illuminating data in Warren and Livermore's _Agricultural Survey_ of four townships in Tompkins County, N. Y., from which the following is quoted: The value of farm machinery increases rapidly with the size of the farm.... Any one who has ever made a list of the necessary farm machinery will see at once how inadequately these small farms are equipped. Yet their machinery costs nearly twice as much per acre as that on the larger farms that have nearly three times as much machinery. Machinery can be used more effectively on large farms. One mower, one hay rake, one tedder, one hay loader, one corn harvester, one grain harvester, one grain drill, one manure spreader, one potato digger, one potato planter, can do their work on a 250 acre farm as readily as on a small farm. Few of the small farms have half of these tools. If a small farm does have nearly all the list, it cannot use them enough to pay for the investment. The more efficient and numerous machines become, the larger our farms should be. It is interesting to notice how many of the tools are of very recent development. Almost half of the value of farm machinery on a well-equipped farm is invested in machinery that has been perfected in the last few years. Much the same situation exists in regard to an adequate equipment of horses. Three or four horses are the smallest number that can be used efficiently with modern machinery.... The small farms have not enough horses to make efficient teams and yet they are over-supplied with horses compared with their area. On these farms there are only 15 acres per horse. On the largest farms, one horse farms three times this area, with no resulting decrease in crop yields.... When we consider the cost of keeping a horse we see what a great advantage the larger farms have. Forces like these are counteracting what is commonly thought of as the normal tendency of agriculture to move toward more intensive cultivation _on small farms_, with the result that the average amount of improved farm land per farm actually increased instead of diminishing in the United States during the last decade. This does not mean less intensive cultivation, in fact quite the contrary; it means more intensive cultivation, but by the efficient utilization of good machinery and of power. It means further, as said above, a demand for mortgage credit for the purpose of enlarging farms--and that, at rapidly increasing farm prices. The farming population is becoming more settled now that the free lands are practically gone and the frontier has disappeared.[209] The isolation of the farmer is rapidly becoming a thing of the past, with the advent of rural free delivery, rural telephone, the automobile, and the parcels post. The farmer no longer buys gold-bricks nor is duped by fraudulent lightning-rod schemes except in the pages of the comic supplements. When seeking credit the farmer can offer better security than ever before. His markets are larger, better organized, more certain, and more accessible. The risk of crop failure is less, thanks to the wonderful progress of scientific agriculture. There are few pests which cannot now be readily controlled by the intelligent farmer, who takes time by the forelock. The problem of moisture is growing less serious every year with the improvements in irrigation, dry farming, and the more scientific diversification of crops. Conditions then point to an increasing need for agricultural credit, and to improving circumstances for its safe development. If the time is ripe for a greater use of bank credit in agriculture, how is that credit to be obtained? Broadly speaking, four methods may be mentioned, only the last two of which are deserving of much attention at the present time. They are: (1) Establish government agricultural banks; (2) adopt the Egyptian plan of a government guaranty to an agricultural bank established with private capital; (3) encourage the farmers to organize co-operative credit societies on some such plan as the Raiffeisen or Schulze-Delitzsch banks of Germany; (4) utilize more effectively in the interest of the farmer our present banking machinery, and improve it where it is defective. The suggestion of an agricultural bank owned and operated by government, either state or federal, is not worthy of serious consideration in this country at the present time. The history of such banks both in Europe and America has generally been a disastrous one, although a few have succeeded. Some exist to-day which are performing useful services to farmers, notably in the line of mortgage credit, among which may be mentioned those of the Australian States and New Zealand,[210] and the recently established one in the Philippine Islands. The success of such institutions is not such as to justify any attempt to establish them in the United States, at least until every reasonable effort has been made to solve the problem by means of private and co-operative effort. The other plan, commonly known as the Egyptian plan[211] from its most important example, seeks to eliminate the evils of a purely government bank and to take advantage of its meritorious features. In Egypt the agricultural bank is owned and financed by private capital; it enjoys, however a government guaranty of principal and of 3 per cent. interest. Its administrative expenses are kept low by an arrangement with the Egyptian Government by which the Government tax collectors make collection of instalments on the Bank's loans at the time of the collection of the regular land tax, for which the Bank pays a small commission. The Agricultural Bank of Egypt has had a phenomenal success, rendering an invaluable service to the Egyptian fellaheen, and at the same time yielding good profits to its owners. It was this type of bank that the United States Government authorized established in the Philippines by the act of March 4, 1907, but the interest guaranty of 4 per cent. has so far proved too low to attract capital into the enterprise.[212] A bank organized on the Egyptian plan is well adapted to do pioneer work among ignorant farmers, where the apparent risks and heavy administrative expenses prevent private capital from entering the field. A government guaranty, however, hardly seems necessary in the United States, and our people would probably look askance at any proposal for a great agricultural bank or banks of this type with branches scattered throughout the country. It is contrary to our banking traditions, and, like the plan for a strictly government bank, should not be thought of until plans for meeting the need by private initiative have been fairly tried and found wanting. When one considers the question of the improvement of agricultural credit in the United States one instinctively thinks of the co-operative credit banks of the old world, because of their phenomenal success for a half century and more, the simplicity of their structures, the ease with which they may be established, and their ready adaptability to the widely varying conditions found in a great country like the United States. The description of the wonderful success of these institutions as told by Henry W. Wolff in his _People's Banks_ reads like a fairy story. Although the success of co-operative banks has been great in nearly every country of Continental Europe, nowhere else has it been so great as in Germany, the country of their origin, and it is to Germany one naturally turns first for suggestions. There we find four types of co-operative credit banks, Landschaften, Ritterschaften, Schulze-Delitzsch banks and Raiffeisen banks. The first two are co-operative associations loaning money on land mortgages, and securing funds largely through the issue of bonds against the collective mortgages. Being concerned with long-time mortgage credit they do not fall within the province of this paper. The other two types of banks deal especially with short-time credit, the one chiefly in the towns and cities, and the other with farmers in the rural communities. It is with the latter that we are most concerned. Let us therefore consider briefly the essential features of the Raiffeisen system. These features are: (1) Organization on the strictly co-operative principle, none but members having the right to borrow, although non-members may make deposits. (2) Limitation of loan operations to a very small area in which all farmers are acquainted with each other. A bank's field of business, the founder believed, should not cover a parish of less than 400 people nor of more than 1,500. The banks were to be, therefore, purely neighborhood affairs. There is a sympathetic but well-informed neighborhood opinion which prevents the squandering of loans. (3) Unlimited liability of all members for the debts of the bank, a necessary corollary of which is the provision that membership is obtained only by election by those already members. (4) The working capital of the bank is obtained chiefly from the following sources: (a) Small savings "drawn, either from within the area covered by the bank, in which case it comes both from members and non-members, the former being rewarded where possible at slightly higher rates in order to encourage membership; or from without the area, in which case it of necessity comes from non-members."[213] (b) Loans from the provincial bank of the district, or more importantly from the central bank of the Empire at which the local bank keeps a current account and with which it may rediscount its paper. Funds are also sometimes obtained from other banks or from private individuals. (c) A purely nominal share capital which the banks did not originally have, and which they have been forced against their will to issue. The requirement is now usually met by the issue of a few low-priced shares of which no member can hold more than one and upon which no dividend is paid. (d) Two surplus funds called reserve funds; one used exclusively to cover losses, and the other being the principal reserve fund (_Stiftungsfund_), commonly used for "positive improvements, such as the extension of the premises or the establishment of a burial fund."[214] In this fund must be placed two-thirds of the annual profits. The fund cannot be distributed among the members, even though the bank be dissolved. In such a case it is held in trust for a time for a new bank, should one be established, and if no such bank is established it must be used for some work of public utility. A recent publication of the International Institute of Agriculture[215] analyses the total working capital of the rural banks of Germany for the year 1909 as follows: _Amount Percentage in Marks 000,000_ Share capital 22.4 1.2 Reserves 51.0 2.6 Deposits on current account 189.1 9.8 Savings deposits 1,455.6 75.2 Other liabilities[216] 217.5 11.2 Total working capital 1,935.5 100.0 The striking fact brought out by these figures is that out of nearly two billion marks placed at the disposal of farmers, less than[217] 11.2 per cent. was furnished by outsiders, while more than 88.8 per cent., was provided by the savings and other deposits of the farmers themselves and of the local public. (5) A fifth feature of the Raiffeisen system is that the bank's administrative organization is simple and democratic. Final authority on local questions resides in the general meeting in which every member has one vote. There is elected annually a committee of management consisting usually of five or six directors who meet weekly. As a check upon this executive committee there is also elected annually a council of supervision consisting of from six to nine members. A biennial audit is made of the accounts of each bank by an accountant employed by the district or central union. The books of the bank, except the individual deposit ledger, are open to the inspection of all members. Officers of the local banks serve without compensation, except the treasurer who has no vote in the making of loans.... (6) Advances take two forms: the ordinary loan (of which the name is sufficiently descriptive), and the current account which is similar to the Scotch cash credit. The latter constitute about a third[218] of the total and show a tendency to increase in proportion to the ordinary loans. The period of the ordinary loan varies from six months to three years; and in exceptional cases it may be even longer.[219] Loans are repayable in instalments covering interest and part of the principal, or in lump sums. Banks reserve the right to call a loan on four weeks' notice. The average credit advanced per member is 500 marks, and the average interest rate probably somewhere between 4 and 5 per cent. Although mortgage and other collateral security is sometimes accepted, the banks' chief reliance is personal security, and the great bulk of the loans are made on two-name paper. The Raiffeisen banks are organized into provincial federations with provincial banks at their head, and these in turn into a national federation with a central bank at its head. These provincial banks and the central bank "equalize the need of credit of the individual banks, supplying them with money when required and employing their surplus funds."[220] A large proportion of the German co-operative banks and other co-operative agricultural societies are federated in a single national organization, the National Federation of Darmstadt.[221] Such are the leading features of the greatest agricultural credit system of the world. To the American the surprising thing about it all is that such co-operative credit banks are practically unknown in the United States, although there has been a remarkable development here in recent years of other forms of co-operation among farmers.[222] This surprise is the greater when one bears in mind that "whole counties have been populated in the Northwest by European agriculturists who came from neighborhoods where they were familiar with agricultural co-operative credit, and yet not a society of co-operative credit for these immigrants has been established from the beginning to the present time."...[223] What is needed now--and possibly about all that will be needed in the future--is a campaign of education among the farmers themselves rather than one of legislation; although the development of such societies will doubtless be furthered in many states by legislation, such as was recently enacted in Massachusetts (ch. 419, Acts of 1909), freeing them from some of the hampering provisions of the general banking act of the state. Conditions are so widely different in different sections of the country, and among different classes in the same section, that co-operative agricultural credit societies will need to be given a fairly free hand in such matters as limited or unlimited liability, the amount of share capital, receipt of deposits, etc., so that they may adapt themselves to local needs. A reasonable amount of government supervision on the part of the banking departments of the states seems desirable. Passing now to the question of the better utilization of our existing banking machinery, we may consider it first from the standpoint of the Government, then from that of the banks, and finally from that of the farmers themselves. The provisions of the national banking act _(Revised Statutes_, Sec. 5137) are too rigid in the matter of loans on real estate security.[224] National banks are, of course, intended to be banks for business men, and their assets should be quick assets in so far as their liabilities are quick liabilities. But it should not be overlooked that the modern farmer is a business man, that he needs active credit for the efficient conduct of his current business, and that land is the only kind of collateral many farmers can give that is acceptable to bankers. Many worthy farmers are not willing and some are not able to secure satisfactory endorsers to their paper. Crop liens, except in the South, are not usually very acceptable to banks. The ability of the farmer to give mortgage security to national banks in case of need would often prove a great help. Furthermore, now that a majority of our national banks have savings departments, and that savings deposits might wisely be made withdrawable subject to advance notice, it is not unreasonable that these banks should be permitted to invest at least a substantial part of their savings funds in the same kinds of mortgage securities that are open to the investment of funds of savings banks; provided, of course, that due care be taken to prevent the juggling of accounts between the commercial department and the savings department of the bank. Another form of desirable legislation in the interest of the farmer consists in the abandonment of our unscientific bond secured bank-note circulation for a scientific system, and in the rendering of our deposit currency more elastic. The more the farmer resorts to bank credit as a means of financing his current business the more will he suffer from the seasonal inelasticity of our bank-note and deposit currency. Farming business is pre-eminently seasonal in character; the farmers over the greater part of the country need funds most at about the same times of the year, _i.e._, the fall and spring. A great increase in the demand for currency and capital, say in the fall, under an inelastic currency and credit system like our own, means to the farmer, highest interest rates at just the time when he needs most to borrow, greatest scarcity of cash at just the time when his need for cash is the most urgent, and prices depressed by a tight money market at the time of the year when he has most to sell. It is doubtful if any class of people in the country would benefit more from a thoroughgoing reform of our banking system than would the farmers. The apportionment of responsibility between farmer and banker for their not having gotten together better is an impossible task. Although some exceptions must be made, particularly in the Middle West, as a general proposition neither has appreciated the opportunity which the other offered. The banker must be brought to realize that one of the best kinds of paper in the world is short-time business paper bearing the names of two responsible farmers. He should be an adviser and friend to the farmer as much as to the city customer. He should make the farmer feel that a productive loan to him is not of the nature of a favor reluctantly granted--as so many farmers complain--but rather a business proposition profitable to both, as gladly given as it is received. He should further co-operate with the local business men in preparing financial ratings of farmers, to fill the gap left by the inability, to be hoped temporary, of mercantile credit agencies to rate farmers as extensively as they do other business men of like capital. The farmer, on the other hand, must be educated by the banker, the press, and the agricultural school and college, to the advantages of credit as a mean to the more efficient working of his farm. This should be done with caution, for credit is a two-edged sword. The farmer should be encouraged to borrow only when it is very clear that he can use additional capital so productively that it will pay. But what industrious farmer could not use profitably some additional capital every year, could he obtain it at as reasonable rates as does the merchant? The farmer must learn to keep careful accounts. He must be made to realize that the banks are open to him as to other business men, and that the bulk of the country's short-time commercial loans, as likewise of the agricultural loans of Europe, are made on the very same security he is capable of giving, _i.e._, two-name paper of honest, industrious business men. FARM CREDIT IN A NORTHWESTERN STATE[225] LONG-TIME LOANS In North Dakota the average farm mortgage runs for 4.94 years; and the average interest rate is approximately 8 per cent. (accurately 7.88 per cent.). This 8 per cent. does not include the expense of abstracting titles, examining the property, and the recording of the mortgage. These fees are invariably paid by the borrower. Nor does this interest rate of 8 per cent. take account of the bonus that is frequently exacted, in the newer regions, from the borrower for the privilege of securing a loan; nor does it allow for the sum the borrower loses in paying his yearly interest in advance, which is deducted from the principal. While the practice of exacting a bonus is not common, it is generally the custom to deduct the entire year's interest in advance; assuming an 8 per cent. rate, the farmer therefore pays $80 interest not on $1,000 but on $920, which brings the rate up to 8.7 per cent. While the average prevailing rate, according to our returns, is approximately 8 per cent., the rate varies in different parts of the state, depending upon the local conditions. The rates are lowest in the eastern tier of counties, and rise gradually towards the western part of the state, where the rate runs up to 10 and 12 per cent., which is also the rate in the eastern part of Montana. That the 8 per cent. rate is quite general for a large part of the state is evidenced from the fact that 25 of the 45 counties report an average rate of 8 per cent. or more. In only 4 counties is the rate less than 7 per cent., and in no county does the average fall below 6 per cent. The above figures are conservative. They are based on returns submitted by bankers who would naturally understate rather than overstate the rate of interest charged in their respective localities. Furthermore, we have a check on these bank returns in the replies received from farmers. As a rule the rates reported by bankers and farmers are nearly identical in their respective counties. It is safe to conclude, therefore, that the average rate on farm mortgages for the entire state is about 8 per cent. SHORT-TIME LOANS Short-time loans are of two kinds, bank loans and book credit advanced by retail stores. The bank loan is made on the farmer's note, generally unsecured, though often secured by a chattel mortgage. According to the reports received from 125 banks, the average length of time for these short-time loans is 8-1/2 months; and the average rate of interest is 10.75 per cent. The average rate reported by farmers residing in 22 different counties was 11.07 per cent. An effort was made to compare rates paid by farmers with those paid by business men on short-time loans in the same locality. The same banks that reported an average of 10.75 per cent. to farmers averaged only 9.18 per cent. on loans made to merchants and manufacturers. Fully 95 out of the 125 reporting banks stated that the rate was higher for agricultural short-time loans than for commercial loans; 26 reported the rate to be the same for both classes; and only 4 reported a lower rate for the farmer. As North Dakota, however, is not a manufacturing nor a jobbing state, commercial paper is scarce, and consequently comparisons of the above nature are apt to be misleading. The significant fact remains that the farmer pays from 10 to 11 per cent. on small loans, for short periods of time. Store or book credit is a form of short-time loan which is perhaps more important than bank credit. In a state where the bank charges a high rate of interest, the farmer is more likely to buy merchandise on credit than to borrow from the bank and pay cash. The North Dakota farmer is rarely denied credit at a country store. To secure information on this form of credit, questionnaires were mailed to implement and hardware dealers, as well as to farmers. One question asked of implement dealers was: "What percentage of farmers pay cash in buying farm machinery?" The answer from 54 firms, located in 35 counties, was that only 13 per cent. of the farmers pay cash, 87 per cent. buying on time. Out of 29 farmers reporting only 6 pay cash in buying machinery and supplies. These book accounts run anywhere from three months to two years; the average account is carried about one year (12.37 months). The farmer contemplates making payment immediately after his prospective crop is marketed. In case of crop failure the retailer will carry the account over until the next harvest season. It is quite common for the dealer to obtain a note from the farmer--the note generally bearing a 10 per cent. interest rate from the date of issue. Often, however, the note does not begin to bear interest until the farmer has failed to make payment at the expected time, that is, immediately following the harvesting season. The 54 implement and hardware dealers reported an average of 10.26 per cent. interest per year on these notes. It is more difficult to secure uniform information from dealers on the subject of book credits, especially with reference to the interest rates charged on such accounts. The practice varies. Usually an interest rate is added to the credit price depending on the duration of the account. There is no common discount rate for cash purchases, though 7 per cent. is most common, that is, 7 per cent. of the credit price. This brings the credit price of a $160 binder down to $150 for cash. As a matter of fact all dealers quote two prices, the cash and the credit price, the difference between the two depending upon the reputation of the buyer, the shrewdness of the seller, and the degree of competition in the particular locality. On this point, replies from farmers do not differ materially from the replies of the implement dealers. The difference between the cash price and the credit price of a binder is usually given as $5 to $10, and a wagon or plough, as $3 to $5. The general discount rate is 7 per cent. off the credit price. The implement dealers and the farmers are all agreed that cash payments would be preferable if rates on bank loans were reduced. The farmer, however, is often afraid to approach the banker for a loan. On the other hand, the farmer does not always see that the book credit is quite as expensive as bank credit, if not more so. The prevailing high bank rate, however, from 10 per cent. to 12 per cent. on short-time loans, does not encourage cash payments. Are the foregoing rates too high as compared with rates in other communities? The _Crop Reporter_ for April, 1913, shows interest rates on short-time loans in every state in the Union. In 1913, the North Dakota rate exceeded that of all other States; in 1912, it exceeded all but Oklahoma. Farmers as a rule think that rates are fixed arbitrarily by the bankers and other money lenders in the community. That fundamental laws of supply and demand have any controlling influence is apt to be overlooked. Without attempting to justify the high rates let us state some of the conditions which help to explain them. The demand for capital in a growing state is always greater than can be met by the local supply. In 1890, North Dakota farms were mortgaged for $11,168,854; in 1910, for $47,841,587; in 1920 it will doubtless reach $150,000,000. Outside capital is attracted into the state by high rates of interest. Two life insurance companies, the Union Central of Cincinnati and the Northwestern Mutual of Milwaukee, loan heavily in the state. In 1910 the Union Central Life Insurance Company reported a total investment of $5,489,087.33 in North Dakota real estate. Local banks use farm mortgages in borrowing money from banks in large cities outside of the state. Every town and village has its money-lender who acts as agent for foreign investors in farm mortgages. Banks within the state compete for capital by offering high rates of interest on time deposits, and pay all the way from 4-1/2 to 7 per cent. interest on deposits. The rate on loans must necessarily be higher under these circumstances than where banks are paying 2-1/2 and 3 per cent. interest. The high interest rate paid on bank deposits is evidence of the lack of local capital to satisfy the local demand. The inability to attract foreign capital on lower terms is due primarily to the character of the investment. The newness of the state, the instability of its population, the character of its agriculture, all make for uncertainty. Hence the speculative character of the farm mortgage as security for a loan. In the eastern counties where the land has long been under cultivation, where the population is more stable, and where mixed farming has in a large measure supplanted the bonanza wheat farm, rates are correspondingly lower than in the newer portions of the state. As the element of risk is eliminated from investments, interest rates will come down. At least this seems to be the consensus of opinion among bankers. The character of the farming is frequently mentioned as a prominent factor in the credit situation. A crop failure under a single crop system, such as is practised in North Dakota, is likely to find the farmer in bad straits. The payment of interest on the mortgage is delayed or deferred. The local bank or loan company is obliged either to carry the farmer along for a year or to foreclose. Since many farm mortgages are held by outside investors, the annoyance is sufficient to reflect itself in an increased rate of interest. Because of this fact many bankers are urging mixed farming as a means of reducing rates. This aspect of the question is well expressed in a communication from a banker in Stark County who says: It is our belief that the scarcity of money and the high interest rates are largely due to poor farming. The people having money to loan know well that our farmers here have a very uncertain income according to their present methods of farming, and would expect a much higher rate commensurate with the risk taken when they can find people where money can be placed more safely. As conditions are here now, some people have not paid all their interest, for at least three or sometimes four years. In the older slates, like Iowa for example, where people farm well, interest rates are much lower. As soon as our farmers can show that they are safe and will take care of their obligations promptly, they can command the lowest interest rates that may exist. We believe it more necessary to work on better farming methods, encouraging them, than on better interest rates, for the lower interest rates are a natural consequence of better farming. Another factor is the character of the population. One prominent banker says of North Dakota farmers: "They lack a sense of responsibility. Farm loans require constant care, hence high rates." Another complaint is: "Farmers are careless in not making prompt payment or renewals of obligations." Some bankers think the high rates due to too much borrowing; that is, too much liberality in the loaning of money. Injudicious loaning leads to extravagance, and naturally calls for high rates to offset the risks involved. One banker in analyzing the situation claims that the legal restrictions placed on the loaning power of banks is responsible for unduly high rates. In support of this view it might be stated that while the total farm mortgages in the state in 1910 reached the $50,000,000 mark, the power to loan on real estate by all banks, state and national, was less than $5,000,000. Banks are forced to loan on the personal note of the farmer, secured by a mortgage, instead of taking a direct mortgage on the property. Other banks turn these mortgage loans over to trust companies, and collect a commission from the farmer for placing the mortgage. Commissions are responsible for at least from one to two per cent. of the rate when loans are handled by real estate agents and loan companies. In the case of loans by life insurance companies, the state agent generally receives one per cent. and the local agent, at interior points, receives one per cent. Two per cent. could be saved by the farmer if the money could be borrowed directly from the investor, without the aid of an agent. Allowing, however, for all these local conditions--the great demand for capital in a new and developing country, the inability to attract sufficient outside capital because of the risky character of investments, the irresponsible character of some elements in the population, the character of farming methods, the commission agent, and the legal restrictions handicapping banks--allowing for all these conditions, and because of some of them, it is believed that the farmers by organizing co-operative credit associations could reduce the rate of interest on both long- and short-time loans; and, furthermore, that such co-operative credit facilities would be a means of improving the methods of farming, would encourage stability in population, and would make the farmer feel that he is not being discriminated against in the borrowing and employment of capital. CATTLE LOAN BANKS[226] Consumers desiring a reduction in the cost of food supplies will be interested in a study of the operations of cattle loan companies and in the development which these may reasonably attain as a result of the provision in the Federal Reserve Act for the rediscounting of agricultural paper. The cattle loan company, commonly referred to as "cattle bank," is a middleman between borrowing cattle-owners and lending bank-managers. Its business methods and forms closely parallel those of real estate mortgage loan companies except for the fact that cattle loans are of shorter duration and secured by mortgages of the chattel variety. Cattle loan companies, incorporated under state charters, have been operating in such cities as Fort Worth, Denver, East St. Louis, St. Joseph, Portland, South St. Paul, Omaha (2), and Kansas City (3), some of them for over twelve years; and one is now being organized in Chicago. These companies have a paid-in capital stock ranging from $50,000 to $300,000, and are usually closely affiliated with a national or state bank, as are trust companies in the larger cities. These companies are informed of desired loans through country bankers, or by receipt of direct applications, the latter usually from the larger "cattle-growers." In some cases the company on its own initiative urges cattlemen in whom it has particular confidence to undertake feeding operations at a time when the beef market offers a favorable opportunity for such production. In every case a salaried examiner of the company inspects the plant and herd of the cattle-grower and his personal capacity and integrity before the granting of a loan. And thereafter the examiner, on his regular circuit, maintains a continuous inspection and volunteers advice designed to protect the value of the security given for the loan. When a loan application has been acted upon favorably, a promissory note and chattel mortgage are taken. The funds of the company then advanced to the borrowers may be utilized to buy more cattle, to pay outstanding debts such as those for feeding expense, or, as is often the case, to buy the very cattle which are pledged as security for the loan. In a few cases where the cattle-grower enjoys an exceptional credit, funds will be advanced for the full purchase price of a herd for seasonal feeding purposes, or to develop two-year-olds into finished four-year-old beef cattle. The loans granted are seldom less than 60 per cent. of the known value of the cattle. To secure a buyer for the note and mortgage is the second primary function of the cattle loan company. If the loan is a small one, usually $10,000, it may be sold entire, the chattel mortgage assigned and the note indorsed to the buyer. If the loan is a larger one, of $50,000 to $100,000, it is necessary to subdivide it in order to provide a ready sale. The mortgage and note are assigned in parts of $5,000, $20,000, or other denominations, to suit the convenience of the buyers of the paper. In this case the assigned parts, since they are indorsed by the loan company, are equivalent to a "debenture" issue secured by a pledge of specified assets held by the company for the protection of the note-holders. The size of mortgage loan most frequently made is $10,000, while loans of $100,000 are exceptional. The business of cattle loan companies approaches closely to the functions of the commercial paper broker. The cattle loan company has an advantage over the commercial paper broker in that the favorable location of the company--always at the receiving cattle-market of the district in which its loans are exclusively placed--enables it fully to protect its interest by claiming the proceeds of sales of mortgaged cattle. This is particularly true in the case of range cattle, which can be readily identified by the mortgaged brands. To cover expenses of administration the cattle loan company secures for itself a part of the interest paid on the loan. The rate charged the borrower is usually determined by conditions in the locality where it is made, sometimes running as high as 10 per cent., and again, influenced by general rates for capital, falling as low as 7 per cent. From this gross interest charge a commission has to be given to the local banker who makes the loan, expenses of examination and management must be met, and an appropriation made to a contingency reserve fund to cover occasional losses incurred from the circumstance that the companies usually become surety, by indorsement, for the final payment of all the loans which they have placed with lenders. These deductions determine what may be safely paid to eastern purchasers of the paper, usually 5 or 6 per cent. Holders of cattle paper have never suffered in times of financial panic from failure to pay at maturity. Cattle, like grain, are a cash commodity purchased by retailers and sold by them, largely for cash, to satisfy a relatively constant consuming demand. This characteristic is retained even in time of panic. Maturities are usually six months for feeding purposes; and less often of two and one-half years for developing two-year-olds for market. This two and one-half year paper is occasionally converted into the six-month variety by the sale of notes running for six months, based upon the two-and-one-half year mortgage. These notes are taken up at maturity by the loan company and reissued or renewed for like succeeding periods until the original loan is repaid. In the past this form of loan has not been so desirable as it will be in the near future. It has been a relatively long-term investment; and while perfectly liquid at maturity and enjoying a good rate of return, it has not possessed a sufficiently wide market to insure salability at those times when the demands of depositors and local customers for accommodation press in upon the investing bank. This difficulty will be fully corrected by the expected operations of the Federal Reserve Act. Eastern bankers possessing these six-month notes will probably find them readily rediscountable with the local federal reserve bank at any time up to maturity. And a considerable amount of two-and-one-half year notes may be held to advantage, since, if properly selected with successive maturities, one-fifth of their total amount will be immediately rediscountable when necessary. By rendering this form of agricultural paper liquid before maturity the Federal Reserve Act will have become a most important influence for enlarging the amount of capital devoted to this branch of industry. Already eastern bankers have scouts touring the Western States to study this form of banking with a view to investing several millions of dollars each. Interest rates upon these loans will unquestionably be reduced in time through such increased competition of lenders. The loan companies will hardly suffer, however. While charging the cattle-grower less, they will be enjoying a larger turnover and should welcome this new development. The four or five million dollars placed in such loans yearly by the average loan company, as at present constituted, is but a fraction of the loans that may be placed by them within a few years. By reducing the interest cost charged to cattle-growers an important service will have been performed for the consumer. Such a reduction will increase, in the first instance, the cattle-man's profit and induce him to increase his holdings. The benefit of increased production at lowered expense should, in time, be passed on to the final consumer of beef. This phase of the operations of the Federal Reserve Act will be of distinct benefit, and possibly also the least dangerous of all forms of legislation designed to assist American agriculture. FOOTNOTES: [197] Adapted from R. B. Van Cortland. _What is Agricultural Credit? North American Review_, Vol. 199, April, 1914, pp. 585-588. [198] E. W. Kemmerer, _Agricultural Credit in the United States, The American Economic Review_, Vol. 2, No. 4, December, 1912, pp. 852-872. [199] New York, Chicago, Philadelphia, St. Louis, Boston, Cleveland, Baltimore, Pittsburgh, Detroit, San Francisco, Milwaukee, and Cincinnati. For Buffalo, the tenth city in population, Cincinnati, the thirteenth city, was substituted, since for Buffalo, which is not a reserve city, satisfactory banking figures are not available. [200] [National banks are now permitted to lend on real estate security by the Federal Reserve Act passed in 1913.] [201] Cf. Testimony before United States Industrial Commission (_Report._ X, under subjects of "Credit System" and "Crop Lien System," _passim_.) [202] _Report_. X, p. 161. [203] In some states farmers themselves own considerable amounts of bank capital. This is said to be particularly true of Iowa. [204] The average value per acre of farm land in the United States rose from $15.57 in 1900 to $32.40 in 1910, a rise of 108 per cent. _Thirteenth Census, Bulletin on Farms and Farm Property_, p. 15. [205] _Report_, X, p. 938. [206] Exclusive of Alaska and Hawaii. [207] Values in gold. [208] Cf. _Twelfth Census_, V, pp. xxix and xxx. and _Thirteenth Census, Bulletin on Farm and Farm Property by States_, pp. 13 and 15. [209] Every census since 1870 has shown a larger percentage of the native population living in state or territory of birth. [210] On this subject see the writer's article on "Agricultural Credit" in L. H. Bailey's _Cyclopedia of American Agriculture_, IV, p. 270; and his _Report to the Treasurer of the Philippine Islands on The Advisability of Establishing a Government Agricultural Bank in the Philippine Islands_, pp. 9-11, 151-154. [211] Cf. E. W. Kemmerer, _Report to the Secretary of War and to the Philippine Commission, on The Agricultural Bank of Egypt_. (Manila, P. I.: 1906. Also published by Bureau of Insular Affairs, Washington, D. C.) [212] Cf. E. W. Kemmerer, _An Agricultural Bank for the Philippines, Yale Review_, November, 1907, pp. 262-279. [213] C. R. Fay, _Co-operation at Home and Abroad_, p. 44. (New York; Macmillan, 1908.) [214] Fay, _Co-operation_, etc., p. 44. [215] _An Outline of the European Co-operative Credit Systems_, pp. 12 and 13. [216] Under "other liabilities" are included in addition to other items the funds which the banks have borrowed from banks and individual capitalists. [217] The capital of the district banks and of the central bank came largely from the local banks. [218] In 1909 the figures for Germany were: Loans on current account, M 425,995,403 and Loans for fixed periods, M 1,082,446,388. The International Institute of Agriculture, _An Outline_, etc., p. 14. [219] _Idem_. [220] _Ibid._, p. 17. [221] _Idem_. [222] "Farmers' economic co-operation in the United States has developed enormously during the period under review [1896-1908], and it safe to say that at the present time more than half of the 6,100,000 farms are represented in economic co-operation; the fraction is much larger if it is based on the total number of medium and better sorts of farmers to which the co-operators mostly belong." The most prominent objects are: Insurance, creameries, cheese factories, co-operative selling organizations of numerous kinds, co-operative buying organizations, co-operative warehouses, co-operative telephones, co-operative irrigation, etc. _Annual Report of the Secretary of Agriculture 1908_, pp. 183, 184. [223] Quoted from a letter from Mr. George K. Holmes, Statistician of the Department of Agriculture, Washington, D. C. [224] For a statement of the more liberal privileges concerning the making continued: of loans on mortgage security conferred on national banks by the Federal Reserve Act see p. 750.--EDITOR. [225] Adapted from Meyer Jacobstein, _Farm Credit in a Northwestern State, American Economic Review_, Vol. 3, September, 1913, pp. 598-605. [226] J. F. Ebersole. _Cattle Loan Banks, The Journal of Political Economy_, Vol. 22. No. 6, June, 1914, pp. 577-580. CHAPTER XXVIII THE CONCENTRATION OF CONTROL OF MONEY AND CREDIT HAVE WE A MONEY TRUST? [227]If by a "money trust" is meant-- An established and well-defined identity and community of interest between a few leaders of finance which has been created and is held together through stock holdings, interlocking directorates, and other forms of domination over banks, trust companies, railroads, public-service and industrial corporations, and which has resulted in a vast and growing concentration of control of money and credit in the hands of a comparatively few men-- your committee has no hesitation in asserting as the result of its investigation that this condition, largely developed within the past five years, exists in this country to-day. The parties to this combination or understanding or community of interest, by whatever name it may be called, may be conveniently classified, for the purpose of differentiation, into four separate groups. First. The first, which for convenience of statement we will call the inner group, consists of J. P. Morgan & Co., the recognised leaders, and George F. Baker and James Stillman in their individual capacities and in their joint administration and control of the First National Bank, the National City Bank, the National Bank of Commerce, the Chase National Bank, the Guaranty Trust Co., and the Bankers Trust Co., with total known resources, in these corporations alone, in excess of $1,300,000,000, and of a number of smaller but important financial institutions. This takes no account of the personal fortunes of these gentlemen. Second. Closely allied with this inner or primary group, and indeed related to them practically as partners in many of their larger financial enterprises, are the powerful international banking houses of Lee, Higginson & Co. and Kidder, Peabody & Co., with three affiliated banks in Boston--the National Shawmut Bank, the First National Bank, and the Old Colony Trust Co.--having at least more than half of the total resources of all the Boston banks; also with interests and representation in other important New England financial institutions. Third. In New York City the international banking house of Messrs. Kuhn, Loeb & Co., with its large foreign clientele and connections, whilst only qualifiedly allied with the inner group, and only in isolated transactions, yet through its close relations with the National City Bank and the National Bank of Commerce and other financial institutions with which it has recently allied itself has many interests in common, conducting large joint-account transactions with them, especially in recent years, and having what virtually amounts to an understanding not to compete, which is defended as a principle of "banking ethics." Together they have with a few exceptions pre-empted the banking business of the important railways of the country. Fourth. In Chicago this inner group associates with and makes issues of securities in joint account or through underwriting participations primarily with the First National Bank and the Illinois Trust & Savings Bank, and has more or less friendly business relations with the Continental & Commercial National Bank, which participates at times in the underwriting of security issues by the inner group. These are the three largest financial institutions in Chicago, with combined resources (including the two affiliated and controlled state institutions of the two national banks) of $561,000,000. Radiating from these principal groups and closely affiliated with them are smaller but important banking houses, such as Kissel Kinnicut & Co., White. Weld & Co., and Harvey Fisk & Sons, who receive large and lucrative patronage from the dominating groups and are used by the latter as jobbers or distributors of securities the issuing of which they control, but which for reasons of their own they prefer not to have issued or distributed under their own names. Messrs. Lee, Higginson & Co., besides being partners with the inner group, are also frequently utilised in this service because of their facilities as distributors of securities. Beyond these inner groups and subgroups are banks and bankers throughout the country who co-operate with them in underwriting or guaranteeing the sale of securities offered to the public and who also act as distributors of such securities. It was impossible to learn the identity of these corporations, owing to the unwillingness of the members of the inner group to disclose the names of their underwriters, but sufficient appears to justify the statement that there are at least hundreds of them and that they extend into many of the cities throughout this and foreign countries. The patronage thus proceeding from the inner group and its subgroups is of great value to these banks and bankers, who are thus tied by self-interest to the great issuing houses and may be regarded as a part of this vast financial organisation. Such patronage yields no inconsiderable part of the income of these banks and bankers and without much risk on account of the facilities of the principal groups for placing issues of securities through their domination of great banks and trust companies and their other domestic affiliations and their foreign connections. The underwriting commissions on issues made by this inner group are usually easily earned and do not ordinarily involve the underwriters in the purchase of the underwritten securities. Their interest in the transaction is generally adjusted, unless they choose to purchase part of the securities, by the payment to them of a commission. There are, however, occasions on which this is not the case. The underwriters are then required to take the securities. Bankers and brokers are so anxious to be permitted to participate in these transactions under the lead of the inner group that as a rule they join when invited to do so, regardless of their approval of the particular business, lest by refusing they should thereafter cease to be invited. It can hardly be expected that the banks, trust companies, and other institutions that are thus seeking participations from this inner group would be likely to engage in business of a character that would be displeasing to the latter or that would interfere with their plans or prestige. And so the protection that can be offered by the members of this inner group constitutes the safest refuge of our great industrial combinations and railroad systems against future competition. The powerful grip of these gentlemen is upon the throttle that controls the wheels of credit and upon their signal those wheels will turn or stop. In the case of the pending New York subway financing of $170,000,000 of bonds by Messrs. Morgan & Co. and their associates, Mr. Davison estimated that there were from 100 to 125 such underwriters who were apparently glad to agree that Messrs. Morgan & Co., the First National Bank, and the National City Bank should receive 3 per cent.--equal to $5,100,000--for forming this syndicate, thus relieving themselves from all liability, whilst the underwriters assumed the risk of what the bonds would realise and of being required to take their share of the unsold portion. This transaction furnishes a fair illustration of the basis on which this inner group is able to capitalise its financial power. It may be that this recently concentrated money power so far has not been abused otherwise than in the possible exaction of excessive profits through absence of competition. Whilst no evidence of abuse has come to the attention of the committee from impartial sources, neither has there been adequate proof or opportunity for proof on the subject. Here again the data have not been available. Sufficient has, however, been developed to demonstrate that neither potentially competing banking institutions nor competing railroad or industrial corporations should be subject to a common source of private control. Your committee is convinced that however well founded may be the assurances of good intentions by those now holding the places of power which have been thus created, the situation is fraught with too great peril to our institutions to be tolerated. THE BORROWER AND THE MONEY TRUST [228]Some trusts are denounced because of their attitude toward their employés. Many trusts are efficient or inefficient because of the way their millions of labourers work. But let us be fair to Big Business. Why not examine its one branch where labour is almost absent, where there is no brawn and all brain? BANKING THE MOST LOGICAL OF TRUSTS A bank in New York City gave its employés a Christmas present equal to half their annual salary. The bank had assets of $100,000,000. A fine example, you say, to other great business concerns! But the bank had only fifty employés. In the entire country there are probably not more than 100,000 persons engaged in banking, either directly or indirectly. The banker has, relatively speaking, no human factor to consider. And that factor with a concern like the United States Steel Corporation or the Pennsylvania Railroad is mammoth, almost baffling. The banker deals not in the production or distribution of wealth itself (in both of which much labor is needed), but solely in the paper representatives of wealth, money, and credit. Thus he can apply far more directly than the manufacturer or railroad manager the economies and efficiencies of Big Business. Banking--the business of dealing in money and credit--is the most logical of trusts. And in practice it has justified the theory. Where banks have become larger they have become stronger, where co-operation and concentration have gone far, there safety and effectiveness have reached a high pitch.... Banking is the one central business of all--it is the business of businesses. So if it has become more efficient as the trust idea, or at least the principle of concentration, has gained sway, how can we have too much concentration and who is there to complain?... If the bankers have, faithfully and well, handled the trust of extending credit to the limit of their ability, yet when the president of the second bank in size in the country acknowledges himself to be one of about a dozen men in whose hands the power of extending credit is, in the last analysis, concentrated--then it is high time, seriously and fearlessly, to consider the subject.... Three main factors are in the main responsible for the concentration of the control of credit and they are the growth of big banks, the growth of big industries, and the financial laws of the country.... NO LACK OF BANKING FACILITIES However great the concentration of money power in this country, it cannot truthfully be said that banking facilities are not also increasing. Figures taken from the reports of the National Monetary Commission and other official sources show that the number of banks is mounting up faster than either wealth or population.... WHERE THE MONEY HAS GONE When one first realises the extent of this country's banking resources he is properly astonished. But how evenly are these resources distributed? It is commonly known that banking facilities in the Southern and Western sections of the country are small indeed as compared with the New England, Eastern, Central, and Pacific Coast sections, where large cities abound. To illustrate, in 1909, when the total banking power was close to twenty-one billions, more than half was represented by forty-seven cities, and close to one-quarter was held by the two hundred banks in New York and Chicago. In other words about 1 per cent. of the country's banks held close to one-quarter of the country's banking power. Now it is a well-known fact that an individual or corporation with large resources and large business exerts an influence in his particular field far in excess of his actual mathematical percentage of the total resources or business. Thus the dominating position of the big banks is even greater than mere figures indicate. But there is still another fact which centralises and cements their power. The only banks which are really large are in a few cities, and the larger they are, the more they tend to the very greatest centres of population. Thus toward the end of 1911, there were 183 banking institutions with deposits of $10,000,000 or more, of which sixty-two were in New York City. There were thirty-six institutions with deposits of $25,000,000 or more. Sixteen of these were in New York City and four in Chicago. There were ten with deposits of $75,000,000 or more, and of these, seven were in New York and two in Chicago. Of the ten largest trust companies six were in New York, three in Chicago, and one in Boston. These great banks and trust companies are of very recent growth. Twenty years ago the deposits of our largest bank were one-twentieth of what they are to-day. At the first inauguration of President McKinley, which was really not so far back as the Dark Ages, there was no bank in New York with more than $30,000,000 of deposits. Now there are six banks each with more than $100,000,000 of deposits. A trust company in New York City, which had deposits of $20,000,000 five years ago, now has deposits of $166,000,000 and its twenty-eight directors sit [1912] in boards of other banking institutions with resources of $1,250,000,000. When it comes to actual cash we find the position of the New York and Chicago banks even more dominant.... CONSOLIDATION--A STEADY PROCESS Despite the disproportionate size of New York and Chicago banks their number is steadily decreasing. This is because the process of consolidation proceeds just as steadily. In 1853 there were fifty-three banks in the New York Clearing House Association, and in 1911 there were fifty, although in the meantime the amount of business had increased twenty times. There are now less than 130 banks in New York, or ten less than ten years ago, although in that time cash holdings have doubled and deposits have increased a third. In ten years no less than 103 banks have gone out of existence, generally through absorption into larger institutions.... In Chicago the same process of consolidation has gone on. One Chicago trust company has absorbed six others in eight years. New York and Chicago are by no means the only cities in which the obvious tendency is to have fewer but larger banks. Look about at random. Akron, Ohio, where the rubber industry has recently become of more than local importance, has felt the necessity of banks large enough to carry on its trade, and consolidation has resulted. In Detroit, where the automobile trade has set in motion a great industrial development, the Old Detroit National has absorbed the American Exchange National. In Seattle, Nashville, Wilmington, Portland, Philadelphia, Baltimore, San Francisco, and Louisville there have been many recent mergers and absorptions. In Cincinnati one of the largest institutions in the Ohio Valley has been formed by the absorption of the Merchants' National by the First National. As for Boston the desire of her capitalists to make New England more powerful in the business life of the country has led to the recent absorption of the City Trust Company by the Old Colony and the steady growth of three financial institutions, the Shawmut National Bank, the First National Bank, and the Old Colony Trust Company, these three far exceeding all others in size.... HOW THE LAW HAS FOSTERED AFFILIATION ... One great cause of the concentration of banking and financial power into a few hands has been the consolidation of banking resources into a few great units and the friendly affiliations of these units. But these units have not grown big merely because their managers or owners willed it so. The banking and currency laws of the country have forced money into a few centres. The banks of New York City employ--mainly in financial or stock market loans--about $600,000,000 which belongs to banks in other parts of the country. Naturally this concentration of money in a few banks "places these banks in a position to control the issuing or granting of credit"--to use the exact words of the president of one of them--"thereby placing the money power in the hands of a comparatively small number of men." But this gravitation of money to New York is because the money is idle and is hunting a job, and not because of any process of usurpation, manipulation, or combination. It naturally arises under and by virtue of the reserve requirements of our National Banking Act.... The bulk of idle country bank cash which finds employment in New York comes here because of the existing reserve system, and there are several great banks in both New York and Chicago which have few customers other than the thousands of country banks whose "correspondents" they are. THE CORPORATION AND THE BANK Thus banking and financial power is concentrated in a few hands not only by the growth of great banks and by the laws of the country, but also by the legitimate business practices which have grown up under these laws. But the massing of this power in a few vast, centralised units has been a development of the last ten or fifteen years only. That is, it has been coincident with the development of trusts and combinations. Big Business and Big Banking have gone hand in hand. Each has made the other possible. By law a bank cannot loan more than one-tenth of its capital and surplus to any one customer. But the customers have grown into behemoths. How then could the banks fail to grow? Before trusts existed and before small railroads were united into large systems the few banking houses of magnitude which existed in Wall Street had engaged in merchant banking, for the industries and railroads had not been large enough to attract their attention. These small industries and railroads were controlled by their owners, and their capital requirements were supplied largely in the localities in which they were situated. But as railroads and industries were consolidated it was found necessary to apply to the larger New York banking firms to supply the funds. These bankers had European connections as well as close affiliations with the big national banks and life insurance companies, and were able not only to furnish the needed capital but also undertook to market the securities of the newly formed combinations. Thus a few banking houses, of which J. P. Morgan & Co. is the chief example, became in a way responsible for these new creations and naturally assumed charge not only of their finances, but to some extent of their other affairs. Thus the headquarters of the trusts and railroads gradually moved to New York. In the treasuries of these companies were vast sums of money to be banked, and it was inevitable that most of it should be placed in New York banks. The average daily balance of the United States Steel Corporation is about $75,000,000 and the American Tobacco Company has perhaps $20,000,000. There is also the Standard Oil Company, whose balance is perhaps as large. These few financial groups, J. P. Morgan & Co., Kuhn, Loeb & Co., and the capitalists identified with the National City Bank and the First National Bank, along with a few others, are primarily in the business of selling securities and loaning money upon them. In fact they may be described as the great security issuing houses. Such influence as their members or directors may exert over railroad and other corporations is largely due to their ability to dispose of securities and to give these securities the stamp of soundness and conservatism. Here it may be added that men like J. P. Morgan would not be directors in so many corporations if their advice and assistance were not eagerly sought. In the small village a small group of men own the bank, the coal yard, the ice-plant, the trolley line, the gas plant, and the little factories. Every day of the year these men, in their different capacities, have to trade with themselves in the purchase of supplies, etc., for their different companies, one from another. No one thinks of accusing them of double dealing, and yet the situation differs not a whit from the vast system of interlocking bank and corporate directors in New York except in degree and in fact, which, however, is vital, that the New York system affects the whole commonwealth whereas the business convolutions of Deacon Jones of Jones' Corners do not. Now it must not be supposed that bankers such as Mr. Morgan and his partners are usually large owners in the companies they influence or even control. Often they do not own 15 per cent. of the stock of the banks they dominate. Often they become directors with but a few shares of qualifying stock. Still more often their influence is exerted merely as financial advisers. Often they nominate the president of a railroad or manufacturing company as Morgan & Co. nominated the president of the Atlas Portland Cement Company. Often the bankers take no part in the direction of companies until these companies have shown incapacity or have had for any reason, business or governmental, to be reorganised, either in form or management. Recent cases which come under one or the other of these heads are the Wabash Railroad, the United States Motors Co., the Westinghouse Electric & Manufacturing Company, the International Paper Company, the American Tobacco Company and the American Sugar Refining Company. HARMONY THE WATCHWORD There is little evidence to show any actual agreement or even arrangement among the great financial groups. Through interlocking directors and the wide following of smaller firms which each of the big groups has, the whole big banking situation in New York is closely knit together. There is a carefully fostered community of interest even among hostile groups, each group having a director or two, like a financial ambassador, in the other banks.[229] In the past there has been keen rivalry. Historically the Morgan and First National Bank groups have long been close, and two members of the Morgan firm were taken from the First National Bank. At one time these two groups bitterly fought the other two powerful groups--the Kuhn, Loeb-National City Bank interests. But in recent years harmony has prevailed.... It must be remembered that the four banking groups are now managed for the most part by young men. These young men are more accustomed to the ways of conciliation than were the late E. H. Harriman, and John D. Rockefeller and J. P. Morgan. The younger men trouble themselves little with the former conflicts of Morgan, Hill, Rockefeller, Schiff, Stillman, Harriman, and Ryan. They have forgotten even the accusations and charges which the life insurance scandals made public. Their aim is more impersonal--it is to "develop business," and the surest way to do that is by working harmoniously together. MONEY POWER NOT DISTINCTLY AMERICAN Striking as the concentration of banking, money, and financial power seems, it is no greater here than abroad, perhaps not so great. In London there are banks with fifty millions of capital, or twice as much as our one largest bank, and deposits of nearly four hundred millions of dollars, or twice as much as our largest bank. Even Canada, with a population less than one-tenth of ours, has a bank as great as our greatest. Relatively its big banks are bigger than ours. Concentration in Canada has gone much farther than here. Six banks in the Dominion hold half its entire banking resources. The autocratic power wielded by the score of great Canadian banks would start a revolution in this country. Germany and France long ago went through the process of bank consolidation. WHY, THEN, DO WE HEAR FEW COMPLAINTS FROM ABROAD? Here is a problem to be faced with intellectual honesty. Money power may be a bad thing, but let us not be so dishonest as to declare it a new thing. The New York Clearing House Association may wield power too autocratic, but let it not be overlooked that a similar organisation in London, with only one-third as many members, has long exercised as great power without raising any hue and cry of a Money Trust. Also consider Germany. If you have the time and courage to undertake such a task, go through the ponderous volume issued by the National Monetary Commission telling of the actual results of the great bank system in that country. It is a weary task reading the long-winded testimony of Herr Professor Doctor Governor this and that, but it is worth the labour. We are told that great banks are more amenable to public opinion than smaller scattered institutions, that the Government is more ably assisted in its financial operations, that fewer reckless loans are made. Quicker prognostication of crises, whether on the Bourse or in commerce and industry, quicker adoption of preventive measures thereby lessening the effects of crises, are other services rendered by concentrated banking in Germany.... In 1907, when there was far less both of co-operation and concentration among the banks of this country than there is to-day, each bank standing weakly isolated and alone, frantically grasped all the cash it could muster. When the panic storm broke banks struggled to call in loans and line their vaults with cash. Business was crippled; industry was squeezed dry of its lifeblood. Last year when Germany was threatened with both war and panic, trouble was averted by the German "Money Trust," which loaned more than $200,000,000. It takes no expert knowledge of finance or banking to perceive that a few great, strong banks, or many smaller ones (provided they are welded closely together) can meet a storm more calmly than scattered, unconnected institutions. WHERE IS THE VITAL DIFFERENCE? If concentration is a good thing, how can there be too much of it? Here is the answer. Concentrated power without responsibility may be the worst possible thing. The other great financial nations have money trusts ... too, but each is capped by a vast central bank, more or less a government institution, and from the necessity of the case operated not only with a view to the general welfare but more or less openly and publicly.... The American "Money Trust" is strictly private, responsible to no one. It may act philanthropically if it chooses, but it is governed by nothing but choice. The money kings can, if they wish, exact any price. R. H. Thomas, former president of the New York Stock Exchange, told the Pujo committee how Wall Street had finally to turn to one man, J. P. Morgan, in the panic of 1907, to save it from complete disaster. He did not know where the relief came from, in what form, nor with what conditions. It just came. Since at that time the entire country was dependent upon Wall Street because its surplus money was there, there is no escaping the fact that the whole financial situation of the country was at the mercy of one man. A 200 per cent. rate for loans would be inconceivable in one of the European financial centres because the central banks of Europe are the guarantors of the stability of the money market. The central banks of Europe depend upon no man, selfish or altruistic. They are the public financial regulators of the whole nation. Has the Money Power been used to crush and squeeze?... Suppose that it has not been so used. Nevertheless, its control is in the hands of a few men. Even if their action be honest and intended for the public interest, they are necessarily most interested in the great undertakings in which we have seen them to be engaged. By reason of these limitations they must check and limit, if they do not destroy, genuine economic freedom and competition.... A handful of men, responsible to no one but themselves and God, have become masters of the lifeblood of commerce and industry. That this power has been more rapidly concentrated into their hands than the people have supposed is the unavoidable conclusion of this article. From private persons, acting in private, and dominated in the main by private motives there cannot be expected the wisest and broadest direction of the flow of money--the lifeblood of business. These men have not asked for this power. They know it is too great for them. On the whole they have behaved with singular restraint. But only a fool would suppose that the best system for financing the small farmer in Florida or the small tin can manufacturer in Oregon is to turn over the entire money power of the nation to J. P. Morgan and a few other private persons. How under such a system could the great trusts fail to thrive at the expense of the small man? THE BANKS AND RAILWAY FINANCE [230]Close relationships of railways with banks or other credit institutions have grown up naturally through the need for new capital constantly imposed upon an expanding railway system. Some railways have been fortunate enough to possess a relatively stable body of stockholders whose confidence in the management is so complete that new funds can be raised by direct appeal of the management to the stockholders without the intervention of outside financial interests. But these cases have thus far been rare in American railway finance. When the policy calls for the raising of funds by the issuance of bonds rather than stock, the appeal is to a wider and to an anonymous public rather than to a corporation's own stockholders. Frequently the appeal must be to a class of investors situated in another section of the country or even in a foreign country. Most railways have not the technical organization nor the established market necessary to handle their issues easily, and usually it is found that in spite of the often exorbitantly high commissions which the bankers exact for their services, the net result is more satisfactory than that secured through the railway's own efforts. To the extent that this is the case, the bankers are performing a service of genuine economic value, and it must be concluded that under present conditions such service cannot readily be dispensed with. Assuming this service as a necessity, the next step is for the banker to seek representation upon the railway board. His house has made itself responsible for a large issue of securities. It appeals to the investing public, not technically guaranteeing the issue, but practically doing so because of solicitude that its reputation for the handling of high-grade securities shall not be impaired. It seeks therefore to protect its own standing, and at the same time to make the securities more attractive to its customers, by demanding a place on the board of directors from which it can follow in detail the employment of the funds secured through its assistance. Large investors like life insurance companies, savings banks, fire insurance companies, guaranty companies, trust companies, demand as a prerequisite to purchase of securities that the underwriting house shall be represented on the board. The railway's credit--its ability to sell its issues--is dependent frequently upon the presence on its directorate of this representative. However, the banker is not in the position solely of a spectator or a detective. His expert advice is sought and usually followed. Often he is in a position where he can stipulate conditions under which alone he will undertake to provide the funds required, and such stipulations are frequently of immense influence in furthering efficient railway management. A recent example is found in the furnishing of money to the Chesapeake and Ohio Railway Company by Kuhn, Loeb & Co. under a stipulation that the road must put back into its property each year a certain amount of its earnings. Instances might be multiplied in which railway corporations have been saved from disaster and set upon their feet through the aid of those who have furnished the funds, and who have stipulated in connection therewith that in order to insure their knowledge of all transactions, and to give them a position from which they might bring their influence to bear, they should be granted representation on the railway board. Of course it must be admitted that the power of the banker may be misused to his own private advantage. The power is there--the power to refuse funds--the power that comes from command of enormous sources of capital, the prestige gained by years of successful experience. Men who have attained such a position have the personal qualities that give them naturally a commanding place in any council of business men. When such men dominate the policy of a railway and the results are disastrous, it is exceedingly difficult fairly to fix the responsibility and assess the blame. The line between good faith and good judgment or between personal ambition that amounts to breach of trust, and a misplaced optimism concerning the outcome of a specific policy, is a very difficult line to draw. Although praise and blame cannot be assigned with any precision between Mr. Morgan and Mr. Mellen in the unfortunate New Haven situation, it is the prevailing opinion of the New England public that it has not been benefited greatly by the presence on the New Haven board of the distinguished banker member. Generally speaking, however, the powerful banking interests have thrown their influence in the direction of railway efficiency and the public advantage. If our judgment as to the desirability of the relationship of railways and credit institutions is to be determined solely by results, we must conclude that the balance swings heavily in favor of the continuance of the present policy. However, opposition to the close association of financial houses and railways has not sprung from any such favorable relationships as we have here described. It grows rather out of the concentration and monopolization of credit. A powerful banking house which has identified its interests with that of one railway system is in position, because of its direct influence on the railway and its close affiliation with all other sources of credit, seriously to hamper if not altogether to prevent the securing of credit by a rival interest. This power over credit is not confined to one city or to one section of the country, but it reaches every section and even extends beyond national boundaries into the foreign sources of investment funds. Local or small enterprises requiring only moderate underwriting are frequently financed independently, but it is an acknowledged fact testified to by the large bankers themselves that with rare exceptions issues of securities in large amounts, except when taken up by the stockholders, must receive at least the tacit approval of the big financial group. Participation by the smaller banking houses in future underwritings depends upon loyalty to the syndicate in whatever enterprises are now being offered. The little fellows are inclined to respect a suggestion not to assist an enterprise of a character likely to interfere with undertakings already financed by the large interests. This informal but none the less effective network of alliances tends to destroy the competitive market for capital, and to restrict the railways to one source of credit. There does not appear to be any serious competition among the large bankers, but rather an understanding in the nature of a division of the field. A railway obtains the services of a single banking house which acts as its fiscal agent, underwrites its securities, receives its deposits, and has a representative on the railway's board of directors. When the railway becomes involved in financial difficulties, the same banking house organizes protective committees, devises reorganization schemes, and creates voting trusts. As Mr. Brandeis has put it, it adds to its duty as midwife also that of undertaker. Is this relationship potentially dangerous for the railways and the public? The late Mr. Morgan, in his illuminating testimony in the money trust investigation, took the position that the situation might be dangerous in the hands of the wrong men, but he clearly implied that there had been no bad results thus far and there were not likely to be in the future with a continuance of the present leadership. His argument reminds one of the young lady who "when she was good was very, very good, and when she was bad she was horrid." Yet this view is that of most of the financial leaders who appeared before the Pujo committee.... Mr. Davison and Mr. Schiff both opposed the policy of concentration through interlocking at the point where the representative of the two interests might wield a dominating influence, but they found it difficult to fix that point. Mr. Baker, who took the position that safety lies in the personnel of the men, that in good hands interlocking could not do any harm, but in bad hands would be very bad, concluded nevertheless that the movement of concentration had gone about far enough. And Mr. George M. Reynolds, of Chicago, thus frankly expressed himself: "I am inclined to think that the concentration, having gone to the extent it has, does constitute a menace." And again, "I think a more wide distribution of the power of credit ... would really be better in the long run." When asked the direct question, "Do you approve of the identity of directors or interlocking directorates in potentially competing institutions?" he replied, "Personally I do not believe that is the best policy." It should be kept in mind that there is no evidence on record that this power has been used oppressively otherwise than in the rate of commission charged. Many of the bankers insist that the monopolization of credit is a physical impossibility.... There is, nevertheless, a concentration of credit in comparatively few hands. If the conclusions thus far established are sound, it becomes clear that the real evil resulting from the interlocking of railways and credit houses, if any evil exists, arises primarily out of the relation of credit institutions to each other, rather than out of their relation to the railways through representation on railway boards. Were this interlocking of railways and banks to be wholly prohibited without any alteration in the organization of the credit market, I am unable to see how the situation would be changed materially. The tendency on the part of the bankers would still be to follow the law of "banking ethics" and divide the field; a railway would still employ a single banking house as its fiscal agent, and this banking house would still exercise a powerful influence in determining the policy of the railway. At the same time the railway would be deprived of the presence on its board of a financial expert whose experience might be drawn upon in the detail of management day by day. As Mr. Reynolds has admitted, the menace is in the concentration of credit. Such power may not thus far have been misused. But as the Pujo committee has said, "whenever the incentive is at hand, the machinery is ready." Those who have the public welfare at heart have no right to assume that such power will never be used to the personal interest of the bankers themselves and to the injury of the public. While I have no great enthusiasm for the popular pastime of rushing to Washington for a statute whenever the economic machinery fails to run smoothly, I am in sympathy with those who are studying the problem of the restoration of an open competitive market for capital. However, this is a problem of extraordinary difficulty, and I do not myself see the way at present to its solution. I am aware that Congress has enacted legislation with the purpose of destroying this concentration of credit, and that many look upon the Clayton Act, so far as it touches our problem, as a distinct step in advance. Personally I am sceptical as to its efficacy in its present form. The opportunities for evasion are too numerous. However, it can be laid down as a general rule that all statutory enactment which really endures is a product of successive increments of legislation--the result of experimental tests and the knowledge that is gained by experience. It is no argument against the interlocking provisions of the Clayton Act that they do not solve the problem and that they can be evaded readily. Such an attitude of timidity and pessimism assumed twenty-five years ago would never have given us our present air-tight Interstate Commerce Act. It may well be, however, that no relief can be found short of the radical step of employing government credit in aid of public-service industries. So vital is the necessity of the service to the people that the time may come when government loans to transportation corporations will appear to be a logical and natural step. But this is a digression. Once this free market for capital is assured, the question again arises, Shall the railway board of directors contain banker members? Obviously the only purpose that the railway could then have in admitting bankers to its directorate would be the opportunity to utilize their experience in the direct management of the property. Quite as obviously the principal motive of the banker in accepting membership on a railway board would be to represent the underwriters and to act as fiscal agent. But with the capital market competitive, I can find no serious objection to such relationship. Even under present conditions the banker in the majority of cases respects his trust, refuses to vote on questions involving his personal interest, and performs loyally his service to the railway; but his mere presence on the board as the embodiment of the railway's only source of credit may be sufficient to control the situation in his behoof. However, with a free credit market, the dominating position of the banker largely disappears and he becomes what he ought to be, an expert adviser on financial matters. It may be asked why, if the banker is now to confine his activities to what Mr. Loree has called the "necessarily intimate relation between the banker and the seeker for accommodation," this cannot be accomplished in the same manner as in unincorporated businesses without putting the banker on the directorate. In reply attention may be called to the fact that even in the case of unincorporated businesses, the credit departments of the large banks are virtually in the position of directors, so intimate and comprehensive is their influence and advice. But more than this the business of a railroad is so complex and extensive, its activities are so multifarious, that an intimacy with its affairs sufficient to make the banker's counsel of value would be impossible except by actual presence on the directorate. Under these changed conditions of credit, I can see greater opportunity for the utilization of the service of expert bankers in railway management. Directorships which have been monopolized in the hands of a few banker specialists in railway securities should then be more widely distributed. It is quite impossible to believe that expert banking talent available for this service is as rare as the present situation would suggest, in which the abilities of a relatively few men are made to do duty in dozens of corporations. This absurd situation springs not from a scarcity of talent but from the narrow market for credit. A liberation of that market would bring latent ability from its hiding-places, and by the infusion of new blood would stimulate the management of our railway enterprises. It would open this field of activity to men "who have been obliged to serve when their abilities entitled them to direct." FOOTNOTES: [227] Adapted from the _Report of the Committee Appointed to Investigate the Concentration of Control of Money and Credit_, 62d Congress, 3d Session, pp. 130-33. [228] Adapted from Albert W. Atwood, _The Borrower and the Money Trust, Review of Reviews_, Vol. 46, August. 1912, pp. 207-218. [229] [Interlocking directorates among the more important banks were prohibited by the Clayton Act, passed in 1914. See p. 624.] [230] Frank Haigh Dixon, _The Economic Significance of Interlocking Directorates in Railway Finance, The Journal of Political Economy_, Vol. 23, No. 2, February, 1915, pp. 938-946. CHAPTER XXIX CRISES THE NATURE OF AN ECONOMIC CRISIS [231]A definition of an economic "crisis" is, like most other definitions, very difficult to construct. By way of introduction we shall quote a few chosen somewhat at random. Adolph Wagner, the German economist, expresses his idea by saying: "Crises imply ... the overwhelming and simultaneous occurrence of inability on the part of independent _entrepreneurs_ to pay their debts." This is similar to the statement of John Stuart Mill: "There is said to be a commercial crisis when a great number of merchants and traders at once either have, or apprehend that they shall have, a difficulty in meeting their engagements." Professor E. D. Jones says: "A crisis is the sudden application of a critical conservatism to business transactions, leading to such a demand for liquidation as to cause a widespread inability among business men to meet their obligations." Senator Theodore E. Burton states: "The word crisis, if employed with entire accuracy, describes a period of acute disturbance in the business world, the prevailing features of which are the breakdown of credit and prices and the destruction of confidence. It has especially to do with the relations of debtor and creditor." None of these definitions gives so clear an idea as does a brief description. Probably no one has ever pictured the crisis and the associated events more effectively than did Frederick Engels in his little volume, _Socialism: Utopian and Scientific_: As a matter of fact, since 1825, when the first general crisis broke out, the whole industrial and commercial world, production and exchange among all civilized peoples and their more or less barbaric hangers-on, are thrown out of joint about once every ten years. Commerce is at a standstill, the markets are glutted, products accumulate, as multitudinous as they are unsaleable, hard cash disappears, credit vanishes, factories are closed, the mass of the workers are in want of the means of subsistence; bankruptcy follows upon bankruptcy, execution upon execution. The stagnation lasts for years; productive forces and products are wasted and destroyed wholesale, until the accumulated mass of commodities finally filter off, more or less depreciated in value, until production and exchange gradually begin to move again. Little by little the pace quickens. It becomes a trot. The industrial trot breaks into a canter, the canter in turn grows into the headlong gallop of a perfect steeplechase of industry, commercial credit, and speculation, which finally, after breakneck leaps, ends where it began--in the ditch of a crisis. And so over and over again. Perhaps even this vivid word picture will be less impressive to some than a few facts as to the serious effects of the crisis and the depression that follows it. Professor Wesley C. Mitchell in his recent volume entitled _Business Cycles_ has recorded the significant features of the crisis of 1907 in England and the United States and the following points have been taken from his account. By the middle of the summer evidences of difficulty had begun to appear in England. British railway stocks had fallen off in price; the shipbuilding yards had few new contracts; costs of production had become so great that many manufacturers were refusing to take new business at the ruling quotations; the building trades were dull; the ratio of net to gross railway receipts declined; commodity prices began to drop; bank clearings fell off; imports gained less rapidly; and the percentage of trade union members unemployed rose from 2.8 per cent. at the end of April to 3.6 per cent. by the close of August. These difficulties came to a climax in the latter half of the year, being intensified by the crash in the United States. The bank rate of the Bank of England rose from 4-1/2 to 7 per cent., where it remained for nearly two months. During this period the market rate averaged from 5-1/2 to 6-1/2 per cent. Imports and exports showed smaller and smaller increases over the preceding year and in the early months of 1908 began to decline; clearings fell off sharply and trade union unemployment increased to nearly 10 per cent. during the latter months of 1908. In the United States, where the crisis degenerated into a panic, conditions were much worse. In advance of the actual outbreak of the panic there was for months evidence of a tension in the investment market. Copper especially fell in price and was followed by copper stocks. This precipitated difficulty among a group of banks that were more or less closely identified with the copper interests. Runs were started and a number of banks were forced to suspend payments. A scramble for cash followed, spreading from New York throughout the United States and accompanied by very serious consequences. Among the worst of the effects were a premium on currency which rose at one time as high as 4 per cent.; the necessity of introducing numerous substitutes for cash; a demoralization of the domestic and foreign exchange markets that caused heavy losses both to bankers and to business men, while the amount and the prices of securities dealt in on the stock exchanges seriously declined. During November and December currency was at a premium of from 1/8 to 4 per cent. Call loan rates were erratic, going as high as 125 per cent. in the latter part of October and fluctuating between 5 and 25 per cent. as late as during the latter half of December. During November there was a decline in the amount of time loans and the quoted rates ranged from 6 to 7 per cent. in October, 12 to 16 per cent. in November, and 8 to 12 per cent. in December. Worse still was the stoppage of business by those enterprises that could not pay the high rates and could make no special arrangements to secure lower ones. Business failures in the United States which had been as low as 161 in the last week of 1906, were 300 for the week ending December 19, 1907, and 435 for the week ending January 9, 1908. In the second quarter of 1907 there were 2,471 and for the first quarter of 1908 there were 4,909. These derangements of business would seem to be of interest primarily to the bankers and brokers or to the large borrowers--to the capitalist class. The counterpart of the picture is to be found in the effect of the crisis upon the man of small means and upon the poor. Inability to borrow may mean considerable inconvenience or even financial ruin for the man of large affairs but it does not usually mean actual suffering. Nevertheless his failure to secure funds and the necessity of selling his securities or commodities at a low price may force him to close his factory, to delay extensions, or at least to curtail operations. He receives fewer orders for goods and as a result buys smaller amounts of raw materials and lessens his own output. This means reductions of wages and discharge of workmen. Some writers have urged that the workingman receives a fixed wage and does not assume industrial risks, which are borne by the capitalist or entrepreneur. Such a statement is fallacious. The employee participates in the risks of modern industry and suffers from a business derangement far more severely than his employer. The capitalist secures less profits but with his accumulated savings ordinarily endures no real privation, while large numbers of the workers with little or no savings face actual hunger or starvation. Demands upon charitable organizations increase, bread lines grow longer, and suffering becomes widespread and intense until the crisis and the ensuing depression are over.... THE CRISIS OF 1907 IN THE LIGHT OF HISTORY [232]... From one point of view ... every economic crisis is a financial crisis. For since values are expressed in terms of money, and since the modern business superstructure is erected on the basis of credit, every economic revulsion expresses itself through the medium of a change in prices; and since the bank is the center of credit operations, every crisis inevitably involves a revolution in the conditions of credit. From this point of view, all crises may be declared to be financial crises. From another standpoint, however, a distinction may be drawn between financial crises proper and commercial or industrial crises in the larger sense. There may be a financial panic or crisis due primarily to temporary and sudden oscillations in the condition of the money market or in the price of securities. Such oscillations, sharp and sudden though they be, may have but little relation, whether of effect or of cause, to the general commercial and industrial interests. Of this character, for instance, were the original Black Friday in England, in 1745, its namesake, the famous Black Friday in 1869 in New York, as well as many spasmodic fluctuations due either to political rumors like that which followed the Venezuelan Message of 1895, or to temporary speculative manipulations, like the Northern Pacific "squeeze" of 1901. Of a distinctly different nature are those wider disturbances which are traceable to more general economic causes and which, even though they culminate in acute financial trouble, are followed by an industrial and commercial depression of more or less magnitude. Into which category is to be put the crisis of 1907; and if in the latter, what were its causes? At the outset it must be remembered that crises are essentially modern phenomena. We have had financial transactions, and that, too, on a large scale, for many centuries and in many civilizations. But crises, in contradistinction to temporary panics, have existed in England only since the middle of the eighteenth, and in other countries only since the beginning of the nineteenth, century. The first crisis in England, barring the financial flurry connected with the South Sea Scheme in 1720, was that of 1763, followed by the minor disturbances of 1772 and 1783, and the more widespread convulsions of 1793, 1810, and 1825. The first crisis in the United States was that of 1817; and it was not until 1837 that we find the first international crisis, spreading from the United States to England and then to France. In Germany the period of important crises was ushered in even later. Crises, in other words, are products of modern economic life. Modern economic life, however, has as its basal characteristic industrial capitalism, with the factory system and the newer methods of production for a wide market. This transition to modern industrial capitalism began in England in the latter half of the eighteenth century, was initiated in America in the first two decades of the nineteenth century, and took place on the continent at a later date, last of all in Germany. The explanation of crises must therefore be sought in some feature of our modern capitalistic life. The current explanations may be divided into two categories. Of these the first includes what might be termed the superficial theories. Thus it is commonly stated that the outbreak of a crisis is due to lack of confidence--as if the lack of confidence was not in itself the very thing which needs to be explained. Of still slighter value is the attempt to associate a crisis with some particular governmental policy, or with some action of a country's executive. Such puerile interpretations have commonly been confined to countries like the United States, where the political passions of a democracy have had the fullest sway. Thus the crisis of 1893 was ascribed by the Republicans to the impending Democratic tariff of 1894; and the crisis of 1907 has by some been termed the "Roosevelt panic," utterly oblivious of the fact that from the time of President Jackson, who was held responsible for the troubles of 1837, every successive crisis has had its presidential scapegoat, and has been followed by a political revulsion. The crisis of 1857 helped to weaken the Democrats; the crisis of 1873 resulted in a popular majority for Tilden; the crisis of 1884 put Cleveland into the presidential chair; and the crisis of 1893, with the ensuing depression, brought the Republicans back to power. Opposed to these popular, but wholly unfounded, interpretations is the second class of explanations, which seek to burrow beneath the surface and to discover the more occult and fundamental causes of the periodicity of crises. Here we find an interesting and progressive series of attempts to grapple with the difficulties of the problem. For a long time economists and business men advanced the theory of overproduction, forgetful of the fact that there really cannot be any such phenomenon as too much actual production of wealth. With the disappearance of this doctrine there came into prominence its variant, which put the emphasis on relative, rather than absolute, or universal overproduction, that is, the overproduction of some things and the underproduction of others. This theory also failed to command general assent, for the reason that no one could show in what respects there was any underproduction of wealth, or any lack of particular products during the years preceding a crisis. Others again, have sought the causal fact in underconsumption, alleging that the larger consumption of wealth will in itself take up all the slack of production, and thus obviate a crisis. This explanation also is inadequate, because it overlooks the fact that the real falling off in consumption comes after the crisis has developed and not before; in fact, the period of prosperity which precedes a crisis is generally marked by a prodigious increase in consumption. The socialists, again, seek to explain crises by the existence of private property in the means of production, and contend that if we were to cease the exploitation of the laborer by the modern capitalistic method, crises would disappear. While, however, agreeing in this general conclusion, they differ in their detailed analyses. Thus Rodbertus maintains that the secret of crises is to be found in the fact that the progress of industry causes a continually greater output of product, while the exclusion of the laboring classes from any participation in this increased productivity involves a relative diminution in demand, and thus ultimately a fall in price, culminating in a crisis. Marx, on the other hand, puts the emphasis on the fact that the necessary fall in the rate of profits (which, according to him, is a result of the surplus value, or exploitation theory) is incompatible with the greatly increased productivity of fixed capital inherent in the present system, and that the clashing of these two incongruous tendencies of modern industrial life brings about a relative overproduction of capital, and gives rise to periodical explosions. This view, finally, is sharply criticised by the latest and ablest of the socialist theorists, Tugan-Baranowsky, who in turn maintains that crises are due primarily to the fact that under the modern system it is impossible to invest the fresh accumulations of capital proportionally in all branches of industry, and that it is this relative disproportion of accumulated capital to the particular demand that causes the anarchy of the market and the recurrent convulsions of industry. While the socialist scholars have undoubtedly made valuable contributions to the discussion of the problem, they, like the earlier economists, have erred in laying stress on the question of technical production rather than, as is done by the more recent economic thinkers, on that of business enterprise and capitalization. This is manifestly not the place to elaborate a general theory of crises. If we attempt, however, to give the bare outline of the modern explanation. It would be approximately as follows: The problem of crises or industrial depressions is one of relative capitalization. Under the present system of enterprise, production is carried on in mass for a prospective market, rather than as formerly in small quantities to fill a definite order. Even if it be contended that certain factories nowadays are busy with producing to order, it is none the less true that numerous plants are continually being erected in the expectation that orders will be received in the future. The good times, or periods of rising prices, may be due to many causes--either in general to an augmented gold output, or in particular to the increase in the demand for some special product, whether in the iron industry through a new navy program, or in the clothing industry through the outbreak of a war, or in any other industry through a change of fashion or what not. Prices first rise in the particular enterprise, production augments, the movement spreads to other lines of business, and the new enterprises are financed by loans from the banks or trust companies, or by the sale of securities on a capitalization proportionate to the anticipated earnings. In times of buoyancy we are continually capitalizing anticipated earnings and future hopes, and we do this through the utilization of credit on a large scale. We build railways, put millions into steel plants, "boom" land sites, and form combinations of all kinds, employing the credit facilities granted by the banks, or throwing the securities on the stock market. We "water" the stock or, if that be forbidden by law, we drive the market quotations to a high point, because we think that this is warranted by prospective earnings. Sometimes we say that we capitalize the good will or, in the case of quasi-public enterprises, the franchise; but in all cases we capitalize the future because we believe that we shall earn an income which will justify this capitalization. The peculiarity, however, of an up-grade movement which rests on modern credit facilities is that we wear magnifying glasses or look at the future in too roseate a light. It is a natural tendency of human nature to capitalize one's hopes and expectations too liberally. If this is done on a continually larger scale, the capitalization becomes so great that actual earnings do not come up to our anticipations or the fear of a discrepancy between actual and estimated earnings begins to obsess us. It becomes necessary to reduce the capitalization to its true dimensions, _i. e._, to a sum proportioned to actual earnings. This process of readjustment of overcapitalized values obviously involves loss; but readjustment there must be. If the realization of its necessity is sudden, we have a crisis or panic. In the height of the period of exaltation or prosperity, something happens to disturb confidence. A chance occurrence, a mere rumor, may suffice. Some bank considers its credit too heavily engaged, or suspects the adequacy of the collateral. Just at the flood of the tide, when new demands are constantly being made, it finds itself unable or unwilling to respond. Its refusal starts or intensifies the feeling of insecurity, and with the inability of some important concern to meet its obligations, a failure occurs and the crisis is precipitated. If, on the other hand, the situation is well handled, and if the readjustment of the overcapitalized values to actual earning capacity can be brought about more gradually, we have, in lieu of a crisis, a liquidation and a period of depression which lasts until the up-grade movement again sets in. Crises, therefore, are not necessarily the result of increased technical production. The important point is not production, but capitalization. There may be overcapitalization, without overproduction. Overproduction of particular things may indeed accompany overcapitalization, but the stress must be laid, not on the relation between production and consumption, as the old writers assumed, but on the discrepancy between the investment and its returns. While the general features of a crisis are thus everywhere the same, the details differ in each case. Sometimes it is the banks that fail first, sometimes the general business enterprises. Sometimes it is the railway securities that first feel the strain, at other times "the industrials," and at still other times the raw materials. Sometimes the bolt comes out of the clear sky with prices at a maximum, sometimes it is only the last stage of a period of liquidation with progressively lower prices. But however unpredictable and seemingly inscrutable the actual course of events, the fundamental explanation is always the necessary readjustment of capitalization to actual earning capacity. That this is true of all our crises can be seen from a hasty review. The crisis of 1817 was the result of the first utilization of modern capitalist methods in America. The period of the War of 1812 was marked by three facts: first, the industrial revolution in New England and the introduction of the factory system in the textile industry; second, the great development of internal improvements through canal and turnpike companies; third, the sudden multiplication of banks to finance the new enterprises. The consequence was the so-called "Golden Age," which lasted for several years, until checked by the immense imports from England after the war, and destroyed by the collapse of the overcapitalized undertakings. It was well into the twenties before the country recovered from the industrial depression, and then came the second up-grade movement, which culminated in 1837. This was primarily a land and transportation, rather than a purely industrial, phenomenon. The canals and turnpikes in the East were now being replaced by railways, and the spread of slavery caused a rush of cotton planters, not only to the black belt, but to the pine barrens and hill country of the South. It was primarily land values that were being overcapitalized, and the process went on to such an extent that the annual land revenues of the Government now exceeded the total governmental receipts from all sources of a few years before. Finally, to finance this land movement there were called into being hundreds of the "coon-box" banks, that found a champion in President Jackson in his war against the Bank of the United States. As the period of exaltation had been unexampled, so the collapse was proportionally great. The crisis of 1837, followed as it was by those of 1839 and 1841, was still more serious than that of 1817. It was again well-nigh a decade before the readjustment of values had been completed. The following decade was in turn marked by five striking facts: first, the gold discoveries of California and Australia, which soon initiated a general rise of prices; second, the consummation of the revolution in the media of transportation by land and water, and the settlement of the entire Mississippi Valley, the most fertile portion of the continent; third, the abolition of the corn laws in England and the opening up of a market for our incipient surplus of wheat; fourth, the era of industrial invention which resulted in the application of capitalistic methods to new classes of enterprise besides the old textile industries; and fifth, the development of free banking with the "wild-cat" institutions to provide the credit facilities for this prodigious overcapitalization. The crisis of 1857, which was the inevitable result, was perhaps still more acute than its predecessors. The continuance of its depressing influence on industry, however, was checked by the economic effects of the Civil War, which gave an artificial stimulus to many forms of enterprise. In the period immediately succeeding the war, great changes again occurred. The transcontinental roads were completed and the Eastern trunk lines consolidated; the great wheat fields of the country were opened up under the new homestead laws, and the period of large exports began; the Bessemer process revolutionized the iron industry, and the factory system was now applied to boots, sewing-machines, and agricultural implements; the great copper and silver deposits were developed, and the petroleum output grew apace; while the greenbacks and the greenback movement fomented the process of inflation. The discrepancy between the capitalization and the actual earning capacity of the country's business enterprises again became so overwhelming that the necessary readjustment took the form of the convulsion of 1873--a convulsion the depressing effects of which were felt with almost increasing severity for six years. The crises of 1884 and 1893 were both less intensive and more short-lived than their predecessors, for reasons which it is now not difficult to explain. The resumption of specie payment in 1879 was rendered possible, and was followed by a series of abundant crops which revivified enterprise, and which were aided by the use of agricultural machinery on a large scale. The energy and the capital of the nation, however, were devoted in increasing measure to the transportation industry. This resulted in a perfect orgy of new railroad construction, the entire mileage of the country increasing in five years by 50 per cent. As the overcapitalization was primarily a railway overcapitalization, the resulting reaction of 1884 was essentially a railway crisis, leading to but indirect and temporary disturbances in industry at large. Within a year or two recovery was general, and the prosperous years from 1886 onward were reflected in the existence of a huge surplus of governmental revenues. The live-stock and meat-packing business attained its high-water mark; the textile industries made great progress in the finer grades, and the ready-made clothing industry assumed vast dimensions; the iron and steel industry was revolutionized anew by the invention of the open-hearth process and the utilization of cheap ore from the Lake Superior region; the South was being quickly developed by the Northern capital that poured into the cotton mills and the coal and iron mines; electricity was applied to industry on an increasing scale, and the country took rapid strides in its evolution from an agricultural to an industrial community. The movement of overcapitalization, however, was somewhat checked by two important facts: the downward tilt of world prices in general, which had been falling since 1873 and which were fast reaching their lowest point; and the relative shrinkage, not only in the amount of the wheat crop, but also in the value of both the wheat and the cotton crops. The resulting reaction of 1893, which was itself partly due to the ill-timed experiments with silver legislation, was as a consequence neither so profound nor so long-continued, since the discrepancy between anticipated and actual values turned out not to be so excessive. When we come particularly to the crisis of 1907, we find that the general causes were very much the same. The last decade has been characterized by the most unexampled prosperity in our history. The most striking initial cause is the prodigious increase in the gold supply. Whereas the annual average value of the output of gold was under one hundred millions in the first half of the eighties, and only a hundred and twelve millions in the second half, it has grown with such enormous strides that during the past two years it has reached an annual value of about four hundred millions. The result has been a constant rise of prices from the minimum level of 1896. The rapid accumulation of gold, much of which went into the bank reserves, enabled the financial institutions to expand their credit facilities many fold, and as a consequence enterprise flourished in every direction. During the last decade the record crops of cereals and cotton, the extension of dry farming, the effects of irrigation on fruit culture, the development of truck farms, and the unparalleled increase of immigration led to a remarkable enhancement of land values throughout the length and breadth of the land; the output of coal doubled, that of petroleum more than doubled, and that of pig iron, as well as of steel, actually trebled; the huge combinations of capital, now spreading to every form of enterprise, effected prodigious economies and revolutionized business methods; and the transition from the agricultural to the industrial phase of economic development proceeded with unlooked-for celerity. Values were pushed up on all sides and the hopes of a prosperous community were capitalized with a recklessness born of unbounded faith. The pace was too rapid; the reaction was bound to ensue. In the late autumn of 1907 the revulsion was precipitated, with all the familiar accompaniments of an acute panic such as the collapse of several financial institutions, the sudden curtailment of loans, leading to the failures of some prominent business concerns, the hoarding of money, the appearance of a premium on currency, going to over 3 per cent., and the frantic efforts of the financiers to relieve the situation by the importation of gold, the issue of clearing-house certificates and the interference of Government through the dubious expedients of the placing of a new bond issue and the emission of Treasury loan certificates. The crisis of 1907, however, is on the whole not comparable either to that of 1857 or to that of 1873, for reasons which have thus far perhaps not been adequately discussed. These reasons may be classed under five heads. In the first place, the very magnitude of the country's resources has been a favorable factor. The unparalleled prosperity of the past decade has made possible the accumulation of a vast reserve in the case, not only of the great corporations, but also of the average business man. This reserve has acted as a buffer to the shock of reaction, and has softened the impact through a speedy restoration of confidence in the excellence of the country's assets and in the real solvency of business. Secondly, the crops, while not those of a bumper year, have been large and valuable. It is significant that almost each of our great crises in the past has been preceded either by the failure of the harvest at home or by the existence of such a bountiful output abroad as greatly to reduce prices. It must be remembered that, notwithstanding all recent developments, this country is still primarily agricultural, and that upon the varying extent of our great staple crops depends in large measure the effective demand which sets and keeps in motion the wheels of business activity. By a fortunate coincidence, the crisis was attended by a phenomenon which in ordinary times would have spelled prosperity, and which in this extraordinary conjuncture helped to bring back normal conditions. In the third place, the overcapitalization of values was somewhat less conspicuous than hitherto in our greatest industry--that of transportation. Some of our former crises have, as we know, been brought on primarily by the speculative building of railroads. But whereas in the early eighties the annual increase of construction reached ten and eleven thousand miles, during the past five years, with a railway system three times as large, the annual increment of new construction was only four or five thousand miles. The consequence has been that with the rapid upbuilding of the country the railways have grown up to their capitalization, until it is now reasonably certain that there has been for some little time scarcely any actual overcapitalization. A striking proof of the absence of any real discrepancy between normal values and the capitalization of actual earning capacity is afforded by the congestion of traffic of a year or two ago; and even with only normal business activity it is computed that, in order to prevent this congestion in future and to maintain the railways at a reasonable standard of efficiency, there will be required an annual investment of over a billion dollars. Fourthly, the crisis of 1907 was preceded by a period of gradual liquidation. General prices of commodities, with a few notable exceptions like that of copper, were indeed high until well-nigh the outbreak of the panic. But the prices of securities had for some time undergone a marked shrinkage. Some, quite mistakenly, attribute this shrinkage to lack of confidence engendered by the governmental policy toward industry; others, with equal readiness and no less extravagance, ascribe it to the distress caused by the exposure of the methods of "high finance" in positions of trusteeship. In reality, however, the depreciation in securities was caused chiefly by the rise in the rate of interest. In fact the one phenomenon is really the other; for where earnings remain unchanged, the capitalization of the earnings depends on the rate of interest. If it be objected that the price of stocks fell because of the apprehended decrease of future earnings, due to lack of confidence, the retort is obvious that this would not suffice to explain the equal or still greater fall in the capital value of bonds, private or public, with a fixed rate of interest. The depreciation was not national, but international, in character; and it applied not only to our railway and industrial securities, but to the English "Consols" as well. The rise in the interest rate, which explains the fall in the capital value of securities, was due to several causes. First and foremost is the increase in the gold output. For, as is now well established by economic theory and reinforced by the observations of practical men, while any increase in the supply of loanable funds on the call-money market temporarily reduces the "money rate," an increase in the general supply of standard money in the community, on the contrary, raises not only the price level of all commodities, but the price for the use of capital, which we call the general rate of interest. The increase of money as the standard of value inevitably tends to increase the general rate of interest. Again, since the rate of interest is always adjusted to the earnings of the fund of capital at the margin of its employment, the rate of interest has risen because there has been relatively less capital available for employment. The fund of free capital has been rapidly diminishing during the past few years. Hundreds of millions were destroyed in the Boer and Japanese wars; hundreds of millions more disappeared through the destruction of San Francisco and Valparaiso; and countless millions in addition have been utilized to finance the more or less dubious schemes which have sprung up in all countries during the years of prosperity. Even though there was no great overcapitalization of railroads and even though many of the industrial enterprises were really legitimate, the discounting of the future was not quite ample, and the capital was invested more rapidly than the immediate returns would warrant. The replacement fund, in other words, was neither quite large enough nor quite active enough; and with the gradual exhaustion of the available free capital, interest rates necessarily rose and security values as a consequence fell. The period of liquidation was thus a fortunate event. By checking the movement of exaltation and preventing the level of prices from being so extreme, it kept the reaction from being so great. Where the crest of the wave is lower, the shock of its break is less. Had the ascent of prices and values gone on unhindered, the convulsion of 1907 would have been far more severe. From this point of view, even those who mistakenly persist in ascribing the lack of confidence to the President ought in reality to be grateful to him; for to the extent that he may be said to have superinduced the liquidation of the spring and summer, he assuredly contributed to mitigate the shock of the inevitable reaction in the autumn. The fifth and final cause of the lesser magnitude of the crisis is the development of trusts. Until we attain the right perspective, it is always difficult to get a correct view of the far-reaching changes which are taking place under our very eyes. Especially true is this of such a veritable revolution as is typified by the modern concentration and integration of industry into the vast combinations known as trusts. There are indeed many disquieting and untoward symptoms in the development of which this is not the place to speak. But as against the undoubted perils of what we are all now coming to recognize as an inevitable process, we sometimes forget to put at least one countervailing advantage which is of especial importance in this connection. The modern trust, as typified in its most developed form by the United States Steel Corporation, is apt to exert an undeniably steadying influence on prices. Precisely because of the immense interests at stake, and the danger of a reaction, the trust with its consummately able management tends toward conservatism. As compared with the action of a horde of small competitors under similar conditions, it is apt during a period of prosperity to refrain from marking up prices to the top notch, and is likely to make a more adequate provision for the contingencies of the market. With this greater moderation is apt to be associated a more accurate prevision, which succeeds in a more correct adjustment of present investment to future needs. The drift of business enterprise in its newer form is thus toward a relative checking of the discrepancy between estimated and actual earnings, or, in other words, toward a retardation in the process of overcapitalization. The history of trusts is still too recent, and in not all of them are we yet able to discern the working out of what ultimately will come to be recognized as the real laws of their evolution. To those, however, who comprehend what this revolution in business enterprise really implies, it can scarcely be doubted that the fruit of this steadying influence and of the better adaptation of the present to the future is already perceptible. Notwithstanding the quite unexampled prosperity of the last decade, the tempo of overcapitalization has been relatively less rapid and the process of readjustment throughout the world of enterprise has therefore been less extreme. Industry has slackened rather than collapsed, and the disturbance itself has been comparatively short-lived, with the prospects of an early rebound. The influence of trusts in moderating crises and in minimizing depressions will doubtless become more apparent with each ensuing decade in the history of modern industry. While the general causes which are responsible for the crisis of 1907 have been recounted above, there still remains one point of fundamental importance. If we compare our economic history with that of Europe, we observe that acute financial crises have there almost passed away. England has had no severe convulsion since 1866, and in France and Germany also the disturbances are more and more assuming the form of periodic industrial depressions rather than of acute financial crises. The responsibility for the continuance in this country of a phenomenon which is in large measure vanishing elsewhere rests beyond all peradventure of doubt on the inadequacy of our currency system. CURRENT THEORIES OF CRISES TWO POINTS OF AGREEMENT [233]Wide divergences of opinion continue to exist among competent writers upon crises; but in recent years substantial agreement has been reached upon two points of fundamental importance. Crises are no longer treated as sudden catastrophes which interrupt the "normal" course of business, as episodes which can be understood without investigation of the intervening years. On the contrary, the crisis is regarded as but the most dramatic and the briefest of the three phases of a business cycle--prosperity, crisis, and depression.[234] Modern discussions endeavor to show why a crisis is followed by depression, and depression by prosperity, quite as much as to show why prosperity is followed by a crisis. In a word, the theory of crises has grown into the theory of business cycles.[235] This wider grasp of the problem has discredited the view that crises are due to abnormal conditions which tempt industry and trade to forsake their beaten paths and temporarily befog the judgment of business men and investors, or to misguided legislation, unsound business practices, imperfect banking organization, and the like.[236] As business cycles have continued to run their round decade after decade in all nations of highly developed business organization, the idea that each crisis may be accounted for by some special cause has become less tenable. On the contrary, the explanations in favor to-day ascribe the recurrence of crises after periods of prosperity to some inherent characteristic of economic organization or activity. The complex processes which make up business life are analyzed to discover why they inevitably work out a change from good times to bad and from bad times to good. The influence of special conditions is admitted, of course, but rather as a factor which complicates the process than as the leading cause of crises. BEVERIDGE'S "COMPETITION THEORY" Among these theories which seek to account not for crises but for the cyclical fluctuations of economic activity, the "competition theory" tentatively advanced by Beveridge is one of the simplest. In most instances, he begins, production is carried on by several or many establishments, each acting independently, and each seeking to do as large a share of the business as possible. Whenever the demand for their wares increases, each competitor tries to engross a larger portion of the market. "Inevitably, therefore, all the producers together tend to overshoot the demand and to glut the market for a time. This is a result not of wild speculation nor of miscalculation of the total demand; it must be a normal incident wherever competition has a place at all." Such activity among producers constitutes the period of prosperity. But sooner or later the glutting of the market becomes apparent, and then the crisis comes, because the goods cannot all be sold at a profit. Prices fall, production is checked, and a period of depression ensues. Gradually, however, the slackened rate of production allows the accumulated stocks to be cleared, perhaps below cost price, perhaps by waiting until demand grows up to supply. When this excess of demand over supply has once again become patent, business recovers. Depression yields to prosperity, competitors again vie with each other to increase their shares in the output, after a few years the market is glutted again, and a new crisis comes, to be followed once more by depression. Thus business cycles are due in the last resort to "the simple and well nigh universal fact of industrial competition."[237] MAY'S THEORY OF THE DISCREPANCY BETWEEN WAGES AND PRODUCTIVITY Like Beveridge, May conceives crises to result immediately from the glutting of markets for industrial products. But May offers a quite different analysis of the cause of gluts. The continually growing productivity of industry makes necessary a corresponding growth of the market, if disaster is to be avoided. But to enable producers to sell their growing output promptly prices must be reduced and wages must be raised in proportion as the supply of goods increases. For it is only by combining an increase in the money income of the mass of the population with a decrease in the cost of commodities that a country's home markets can be kept expanding with the progress of industrial methods. Periods of prosperity attended by rising prices necessarily violate this condition of business hygiene and inevitably end by glutting markets. Then come crises, which restore the body politic to health by forcing down prices to the point where consumers can purchase the supplies which are offered. The germ of the trouble, then, is the tendency of prices to rise during periods of increasing productivity. Accordingly, May urges as remedy a legal limitation of the rate of profits, in order that producers may be forced to reduce prices as they increase output.[238] HOBSON'S THEORY OF OVER-SAVING A third explanation of how markets come to be glutted periodically is offered by Hobson's theory of over-saving. Hobson holds that at any given time "there is an exact proportion of the current income which, in accordance with existing arts of production and existing foresight, is required to set up new capital so as to make provision for the maximum consumption throughout the near future." Now, if in a period of prosperity the rate of consumption should rise _pari passu_ with the rate of production, there is no inherent reason why the prosperity might not continue indefinitely. But in modern societies, a considerable portion of the wealth produced belongs to a small class. In active times their incomes rise more rapidly than their consumption and the surplus income is perforce saved. There results for the community as a whole a slight deficiency of spending and a corresponding excess of saving. The wealthy class seeks to invest its new savings in productive enterprises--thereby increasing the supply of goods and also increasing the incomes from which further savings will be made. This process runs cumulatively during the years of prosperity until finally the markets become congested with goods which cannot be sold at a profit. Then prices fall, liquidation ensues, capital is written down, and the incomes of the wealthy class are so reduced that savings fall below the proper proportion to spending. During this period of depression the glut of goods weighing upon the market is gradually worked off, and the prospect of profitable investment slowly returns. Saving rises again to the right proportion to spending and good times prevail for a season. But after a while the chronic impulse towards over-saving becomes fully operative once more, and soon or late begets another congestion of the markets and this congestion begets another depression. Proximately, then, the cause of alternating prosperity and depression is the tendency toward over-saving; ultimately it is the existence of the surplus incomes which lead to over-saving.[239] HULL'S THEORY OF THE CHANGING COSTS OF CONSTRUCTION An American business man, George H. Hull, has recently drawn from his experience of practical affairs conclusions which resemble those drawn by [a German] Professor Spiethoff, from his theoretical analysis of economic records. High prices of construction, runs his thesis, is the hitherto "unknown cause of the mysterious depressions" from which the industrial nations suffer. In demonstrating the thesis, Hull contends that agriculture, commerce, and finance fluctuate within relatively narrow limits. Agriculture provides the necessities of life, commerce distributes them, and finance adjusts the bills. The volume of all this business is fairly constant, because the demand for necessities is incapable of sudden expansion or contraction. Industry, on the contrary, may expand or contract indefinitely--especially that part of industry devoted to construction work. For the sources of "booms" and depressions, therefore, we must look to the enterprises which build and equip houses, stores, factories, railways, docks, and the like. Of the huge total of construction, which Hull believes to make over three-quarters of all industrial operations, at least two-thirds, even in the busiest of years, consists of repairs, replacements, and such extensions as are required by the growth of population. This portion of construction is necessary and must be executed every year. But the remaining portion is "optional construction," and is undertaken or not according as investors see a liberal or a meagre profit in providing new equipment. Now, when the costs of construction fall low enough to arouse "the bargain-counter instinct," many of "the far-seeing ones who hold the purse-strings of the country" let heavy contracts, and their example is followed by the less shrewd. The addition of the resulting new business to the regular volume of "necessity construction" plus the provision of ordinary consumers' goods creates a "boom." But, after a year or two, contractors discover that their order books call for more work than they can get labor and materials to finish on contract time. When this oversold condition of the contracting trades is realized, the prices of labor and of raw materials rise rapidly. The estimated cost of construction on new contracts then becomes excessive. Shrewd investors therefore begin to defer the execution of their plans for extending permanent equipment, and the letting of fresh contracts declines apace. As they gradually complete work on their old contracts, all the enterprises making iron, steel, lumber, cement, brick, stone, etc., then face a serious shrinkage of business. Just as the execution of the large contracts for "optional construction," let in the low-priced period, brought on prosperity, so the smallness of such contracts, let in the high-price period, now brings on depression. Then the prices of construction fall until they arouse "the bargain-counter instinct" of investors once more, and the cycle begins afresh. While Hull grants that panics are often caused by strictly financial disorders, he holds that all industrial depressions are caused by high prices of construction, and foreshadowed by high prices of iron. Consequently he believes that depressions could be prevented from occurring if the Government would collect and publish monthly "all pertinent information in relation to the existing volume of construction under contract for future months, and all pertinent information in relation to the capacity of the country to produce construction materials to meet the demand thus indicated."[240] SOMBART'S THEORY OF THE UNEVEN EXPANSION IN THE PRODUCTION OF ORGANIC AND INORGANIC GOODS Sombart, like many of the recent German writers, finds ill-proportioned production the chief cause of crises; but he thinks it inaccurate to say that the overproduction is in industrial equipment. For during the German "boom" which collapsed in 1900-01, overproduction was quite as marked in industries making equipment for electric lighting systems, telephone plants, street railways, dwellings, bicycles, etc., as in industries making machines. The real lack of proportion he sees in the unlike degree of expansion in industries using organic and inorganic materials. The inorganic industries, typified by steel, can expand to an enormous extent within a brief period without being seriously hampered by scarcity of raw materials. The organic industries, typified by cotton-spinning, on the contrary, are always in precarious dependence upon the year's harvests. In the organic industries, one may say, the condition of business is determined by the harvests; in the inorganic industries the condition of business determines the production of raw materials. The modern crisis, then, following upon a period of prosperity, is substantially the result of the different rhythm of production in the organic and inorganic realms. The organic industries dependent upon harvests cannot keep pace with the inorganic when the latter are being rapidly extended by heavy investments of capital.[241] CARVER'S THEORY OF THE DISSIMILAR PRICE FLUCTUATIONS OF PRODUCERS' AND CONSUMERS' GOODS Carver has suggested a way of accounting for business cycles by applying the laws of value which govern producers' goods. He points out that a comparatively small change in a factory's selling prices will cause a much greater change in its profits, if volume of output and expenses remain the same. Since the value of the factory as a going concern is the capitalized value of its prospective profits, a large increase of profits will cause a large increase of the factory's value, provided the high profits are expected to continue long. Hence the law that "the value of producers' goods tends to fluctuate more violently than the value of consumers' goods." It follows that: "A slight rise in the price of consumers' goods will so increase the value of the producers' goods which enter into their production as to lead to larger investments in producers' goods. The resulting larger market for producers' goods again stimulates the production of such goods, and withdraws productive energy from the creation of consumers' goods. This for the time tends to raise the price of consumers' goods still higher, and this again to stimulate still further the creation of producers' goods. There is no check to this tendency until the new stock of producers' goods begin to pour upon the market an increased flow of consumers' goods. This tends to produce a fall in their value, which in turn produces a still greater fall in the value of producers' goods, and so the process goes." Thus, once more, prosperity breeds crisis and depression; but this time the reason is found in the dissimilar fluctuations which the laws of value establish for the goods which people use and the equipment with which they are made.[242] FISHER'S THEORY OF THE LAGGING ADJUSTMENT OF INTEREST Another interesting suggestion comes from Irving Fisher. By statistics he has shown that when for any reason prices begin to rise, interest rates advance, but not fast enough to offset the decline in the purchasing power of the principal caused by the rise of prices. During such periods, accordingly, borrowers on the whole get the better of lenders and make high profits. Since the borrowers consist largely of active business men, precisely the class of greatest foresight, they grasp the situation more quickly than lenders. As a result of their desire to profit by their opportunity, loans are rapidly extended. This extension is effected largely by the lending of bank credits, that is, by the increasing of deposit currency. The greater volume of the currency combines with more rapid circulation of money and checks to increase prices again, and so to start the whole process anew on a higher level. "There is thus set up a vicious circle, which will continue just as long as the rate of interest fails to make a proper adjustment to put on the brakes and prevent over-borrowing." "But the rise in interest, though belated, is progressive, and, as soon as it overtakes the rate of rise in prices, the whole situation is changed." Borrowers can no longer hope to make great profits, and the demand for loans ceases to expand. Further, the higher rate of interest reduces the price of many of the securities used as collateral for loans. Business men "who have counted on renewing their loans at the former rates and for the former amounts are unable to do so. It follows that some of them are destined to fail." There follow suspicions regarding the solvency of the banks, runs for cash, forced curtailment of loans, and exceedingly high rates of interest--in short, the phenomena of crisis. The contraction of loans is accompanied by a reduction of deposit currency and a slower circulation both of money and of checks. Hence prices decline. Again the rate of interest follows; but just as it was slow to rise so now it is slow to fall. Then the business men who borrow find that the sluggish adjustment of interest reduces their profits. Therefore loans, and the deposits based on loans, contract again. But the shrinking volume of deposit currency causes a further fall of prices, and once more interest lags behind and renews the process. Thus the phase of depressions runs cumulatively until at last the progressive reduction of interest has overtaken the fall of prices. At this point business men find their profits rising to the normal level. Borrowing becomes freer, the volume of deposit currency swells, prices start upward, and the cycle begins afresh.[243] * * * * * Beveridge ascribes crises to industrial competition, May to the disproportion between the increase in wages and in productivity, Hobson to over-saving,... Hull to high costs of construction, Lescure to declining prospects of profits,... [Seligman] to a discrepancy between anticipated profits and current capitalization, Sombart to the unlike rhythm of production in the organic and inorganic realms, Carver to the dissimilar price fluctuations of producers' and consumers' goods, Fisher to the slowness with which interest rates are adjusted to changes in the price level. One seeking to understand the recurrent ebb and flow of economic activity characteristic of the present day finds these numerous explanations both suggestive and perplexing. All are plausible, but which is valid? None necessarily excludes all the others, but which is the most important? Each may account for certain phenomena; does any one account for all the phenomena? Or can these rival explanations be combined in such a fashion as to make a consistent theory which is wholly adequate? MITCHELL'S THEORY OF BUSINESS CYCLES [244]Only by putting any theory to the practical test of accounting for actual business experience can its value be determined. The case for the present theory, therefore, and also the case against it, is to be found not in the easy summary which follows, but in the difficult chapters which precede,[245] or better still in an independent effort to use it in interpreting the ceaseless ebb and flow of economic activity. 1. THE CUMULATION OF PROSPERITY With whatever phase of the business cycle analysis begins, it must take for granted the conditions brought about by the preceding phase, postponing explanation of these assumptions until it has worked around the cycle and come again to its starting point. A revival of activity, then, starts with this legacy from depression: a level of prices low in comparison with the prices of prosperity, drastic reductions in the costs of doing business, narrow margins of profit, liberal bank reserves, a conservative policy in capitalizing business enterprises and in granting credits, moderate stocks of goods, and cautious buying. For reasons which will appear in the sequel, such conditions are accompanied by an expansion in the physical volume of trade. Though slow at first, this expansion is cumulative. Now it is only a question of time when an increase in the amount of business transacted which grows more rapid as it proceeds will turn dullness into activity. Left to itself, this transformation is effected by slow degrees; but it is often hastened by some propitious event arising from other than domestic business sources, such as exceptionally profitable harvests, heavy purchases of supplies by Government, or a marked increase in the export demand for the products of home industry. Even when a revival of activity is confined at first within a narrow range of industries or within some single section of the country, it soon spreads to other parts of the business field. For the active enterprises must buy more materials, wares, and current supplies from other enterprises, the latter from still others, and so on without assignable limits. Meanwhile all enterprises which become busier employ more labor, use more borrowed money, and make higher profits. There results an increase in family incomes and an expansion of consumers' demand, which likewise spreads out in ever widening circles. Shopkeepers pass on larger orders for consumers' goods to wholesale merchants, manufacturers, importers, and producers of raw materials. All these enterprises require more supplies of various kinds for handling their growing trade, and increase the sums which they pay out to employés, lenders, and proprietors--thus stimulating afresh the demand for both producers' and consumers' goods. Soon or late this expansion of orders reaches back to the enterprises from which the impetus to greater activity was first received, and then this whole complicated series of reactions begins afresh at a higher pitch of intensity. All this while, the revival of activity is instilling a feeling of optimism among business men, and this feeling both justifies itself and heightens the forces which engendered it by making every one readier to buy with freedom. While the price level is often sagging slowly when a revival begins, the cumulative expansion in the physical volume of trade presently stops the fall and starts a rise. For, when enterprises have in sight as much business as they can handle with their existing facilities of standard efficiency, they stand out for higher prices on additional orders. This policy prevails even in the most keenly competitive trades, because additional orders can be executed only by breaking in new hands, starting old machinery, buying new equipment, or making some other change which involves increased expense. The expectation of its coming hastens the advance. Buyers are anxious to secure or to contract for large supplies while the low level of quotations continues, and the first definite signs of an upward trend of quotations brings out a sudden rush of orders. Like the increase in the physical volume of business, the rise of prices spreads rapidly; for every advance of quotations puts pressure upon some one to recoup himself by making a compensatory advance in the prices of what he has to sell. The resulting changes in prices are far from even, not only as between different commodities, but also as between different parts of the system of prices. Retail prices lag behind wholesale, the prices of staple consumers' behind the prices of staple producers' goods, and the prices of finished products behind the prices of their raw materials. Among raw materials, the prices of mineral products reflect the changed business conditions more regularly than do the prices of raw animal, farm, or forest products. Wages rise often more promptly, but always in less degree than wholesale prices; discount rates rise sometimes more slowly than commodities and sometimes more rapidly; interest rates on long loans always more sluggishly in the early stages of revival, while the prices of stocks--particularly of common stocks--both precede and exceed commodity prices on the rise. The causes of these differences in the promptness and the energy with which various classes of prices respond to the stimulus of business activity are found partly in differences of organization between the markets for commodities, labor, loans, and securities; partly in the technical circumstances affecting the relative demand for and supply of these several classes of goods; and partly in the adjusting of selling prices to changes in the aggregate of buying prices which a business enterprise pays, rather than to changes in the prices of the particular goods bought for resale. In the great majority of enterprises, larger profits result from these divergent price fluctuations coupled with the greater physical volume of sales. For, while the prices of raw materials and of wares bought for resale usually, and the prices of bank loans often, rise faster than selling prices, the prices of labor lag far behind, and the prices which make up supplementary costs, _i. e._, interest, rent, depreciation, insurance, salaries for general officials and the like, are mainly stereotyped for a time by old agreements regarding salaries, leases, and bonds. This increase of profits, combined with the prevalence of business optimism, leads to a marked expansion of investments. Of course the heavy orders for machinery, the large contracts for new construction, etc., which result, swell still further the physical volume of business, and render yet stronger the forces which are driving prices upward. Indeed, the salient characteristic of this phase of the business cycle is the cumulative working of the various processes which are converting a revival of trade into intense prosperity. Not only does every increase in the physical volume of trade cause other increases, every convert to optimism makes new converts, and every advance of prices furnishes an incentive for fresh advances; but the growth of trade also helps to spread optimism and to raise prices, while optimism and rising prices both support each other and stimulate the growth of trade. Finally, as has just been said, the changes going forward in these three factors swell profits and encourage investments, while high profits and heavy investments react by augmenting trade, justifying optimism, and raising prices. 2. HOW PROSPERITY BREEDS A CRISIS While the processes just sketched work cumulatively for a time to enhance prosperity, they also cause a slow accumulation of stresses within the balanced system of business--stresses which ultimately undermine the conditions upon which prosperity rests. Among these stresses is the gradual increase in the costs of doing business. The decline in supplementary costs per unit of output ceases when enterprises have once secured all the business they can handle with their standard equipment, and a slow increase of these costs begins when the expiration of old contracts makes necessary renewals at the high rates of interest, rent, and salaries which prevail in prosperity. Meanwhile prime costs, wages and raw materials, rise at a relatively rapid rate. Equipment which is antiquated and plants which are ill located or otherwise work at some disadvantage are brought again into operation. The price of labor rises, not only because standard rates of wages go up, but also because of the prevalence of higher pay for overtime. More serious still is the fact that the efficiency of labor declines, because overtime brings weariness, because of the employment of "undesirables," and because crews cannot be driven at top speed when jobs are more numerous than men to fill them. The prices of raw materials continue to rise faster on the average than the selling prices of products. Finally, the numerous small wastes, incident to the conduct of business enterprises, creep up when managers are hurried by a press of orders demanding prompt delivery. A second stress is the accumulating tension of the investment and money markets. The supply of funds available at the old rates of interest for the purchase of bonds, for lending on mortgages, and the like, fails to keep pace with the rapidly swelling demand. It becomes difficult to negotiate new issues of securities except on onerous terms, and men of affairs complain of the "scarcity of capital." Nor does the supply of bank loans grow fast enough to keep up with the demand. For the supply is limited by the reserves which bankers hold against their expanding demand liabilities. Full employment and active retail trade cause such a large amount of money to remain suspended in active circulation that the cash left in the banks increases rather slowly, even when the gold output is rising most rapidly. On the other hand, the demand for bank loans grows not only with the physical volume of trade, but also with the rise of prices, and with the desire of men of affairs to use their own funds for controlling as many business ventures as possible. Moreover, this demand is relatively inelastic, since many borrowers think they can pay high rates of discount for a few months and still make profits on their turnover, and since the corporations which are unwilling to sell long-time bonds at the hard terms which have come to prevail try to raise part of the funds they require by discounting one- or two-year notes. Tension in the bond and money markets is unfavorable to the continuance of prosperity, not only because high rates of interest reduce the prospective margins of profit, but also because they check the expansion in the volume of trade out of which prosperity developed. Many projected ventures are relinquished or postponed, either because borrowers conclude that the interest would absorb too much of their profits, or because lenders refuse to extend their commitments farther. There is one important group of enterprises which suffers an especially severe check from this cause in conjunction with high prices--the group which depends primarily upon the demand for industrial equipment. In the earlier stages of prosperity, this group usually enjoys a season of exceptionally intense activity. But when the market for bonds becomes stringent, and--what is often more important--when the cost of construction has become high, business enterprises and individual capitalists alike defer the execution of many plans for extending old and erecting new plants. As a result, contracts for this kind of work become less numerous as the climax of prosperity approaches. Then the steel mills, foundries, machine factories, copper smelters, quarries, lumber mills, cement plants, construction companies, general contractors, and the like find their orders for future delivery falling off. While for the present they may be working at high pressure to complete old contracts within the stipulated time, they face a serious restriction of trade in the near future. The imposing fabric of prosperity is built with a liberal factor of safety: but the larger grows the structure the more severe become these internal stresses. The only effective means of preventing disaster while continuing to build is to raise selling prices time after time high enough to offset the encroachments of costs upon profits, to cancel the advancing rates of interest, and to keep investors willing to contract for fresh industrial equipment. But it is impossible to keep selling prices rising for an indefinite time. In default of other checks, the inadequacy of cash reserves would ultimately compel the banks to refuse a further expansion of loans upon any terms. But before this stage has been reached, the rise of prices is stopped by the consequences of its own inevitable inequalities. These inequalities become more glaring the higher the general level is forced; after a time they threaten serious reduction of profits to certain business enterprises, and the troubles of these victims dissolve that confidence in the security of credits with which the whole towering structure of prosperity has been cemented. What, then, are the lines of business in which selling prices cannot be raised sufficiently to prevent a reduction of profits? There are certain lines in which selling prices are stereotyped by law, by public commissions, by contracts of long term, by custom, or by business policy, and in which no advance, or but meagre advances can be made. There are other lines in which prices are always subject to the incalculable chances of the harvests, and in which the market value of all accumulated stocks of materials and finished goods wavers with the crop reports. There are always some lines in which the recent construction of new equipment has increased the capacity for production faster than the demand for their wares has expanded under the repressing influence of the high prices which must be charged to prevent a reduction of profits. The unwillingness of investors to let fresh contracts threatens loss not only to contracting firms of all sorts, but also to all the enterprises from whom they buy materials and supplies. The high rates of interest not only check the current demand for wares of various kinds, but also clog the effort to maintain prices by keeping large stocks of goods off the market until they can be sold to better advantage. Finally, the very success of other enterprises in raising selling prices fast enough to defend their profits aggravates the difficulties of the men who are in trouble. For to the latter every further rise of prices for products which they buy means a further strain upon their already stretched resources. As prosperity approaches its height, then, a sharp contrast develops between the business prospects of different enterprises. Many, probably the majority, are making more money than at any previous stage of the business cycle. But an important minority, at least, face the prospect of declining profits. The more intense prosperity becomes, the larger grows this threatened group. It is only a question of time when these conditions, bred by prosperity, will force some radical readjustment. Now such a decline of profits threatens worse consequences than the failure to realize expected dividends. For it arouses doubt concerning the security of outstanding credits. Business credit is based primarily upon the capitalized value of present and prospective profits, and the volume of credits outstanding at the zenith of prosperity is adjusted to the great expectations which prevail when the volume of trade is enormous, when prices are high, and when men of affairs are optimistic. The rise of interest rates has already narrowed the margins of security behind credits by reducing the capitalized value of given profits. When profits themselves begin to waver the case becomes worse. Cautious creditors fear lest the shrinkage in the market rating of the business enterprises which owe them money will leave no adequate security for repayment. Hence they begin to refuse renewals of old loans to the enterprises which cannot stave off a decline of profits, and to press for a settlement of outstanding accounts. Thus prosperity ultimately brings on conditions which start a liquidation of the huge credits which it has piled up. And in the course of this liquidation prosperity merges into crisis. 3. CRISES AND PANICS Once begun, the process of liquidation extends rapidly, partly because most enterprises which are called upon to settle their maturing obligations in turn put similar pressure upon their own debtors, and partly because, despite all efforts to keep secret what is going forward, news presently leaks out and other creditors take alarm. While this financial readjustment is under way, the problem of making profits on current transactions is subordinated to the more vital problem of maintaining solvency. Business managers concentrate their energies upon providing for their outstanding liabilities and upon nursing their financial resources, instead of upon pushing their sales. In consequence, the volume of new orders falls off rapidly. That is, the factors which were already dimming the prospects of profits in certain lines of business are reinforced and extended. Even when the overwhelming majority of enterprises meet the demand for payment with success, the tenor of business developments therefore undergoes a change. Expansion gives place to contraction, though without a violent wrench. Discount rates rise higher than usual, securities and commodities fall in price, and as old orders are completed working forces are reduced; but there is no epidemic of bankruptcies, no run upon banks, and no spasmodic interruption of the ordinary business processes. At the opposite extreme from crises of this mild order stand the crises which degenerate into panics. When the process of liquidation reaches a weak link in the chain of interlocking credits and the bankruptcy of some conspicuous enterprise spreads unreasoning alarm among the business public, then the banks are suddenly forced to meet a double strain--a sharp increase in the demand for loans, and a sharp increase in the demand for repayment of deposits. If the banks prove able to honor both demands without flinching, the alarm quickly subsides. But if, as has happened twice in America since 1890, many solvent business men are refused accommodation at any price, and if depositors are refused payment in full, the alarm turns into panic. A restriction of payments by the banks gives rise to a premium upon currency, to hoarding of cash, and to the use of various unlawful substitutes for money. A refusal by the banks to expand their loans, still more a policy of contraction, sends interest rates up to three or four times their usual figures, and causes forced suspensions and bankruptcies. There follow appeals to the Government for extraordinary aid, frantic efforts to import gold, the issue of clearing-house loan certificates, and an increase of bank-note circulation as rapid as the existing system permits. Collections fall into arrears, domestic-exchange rates are dislocated, workmen are discharged because employers cannot get money for pay-rolls or fear lest they cannot get pay for goods when delivered, stocks fall to extremely low levels, even the best bonds decline somewhat in price, commodity markets are disorganized by sacrifice sales, and the volume of business is violently contracted. That crises still degenerate on occasion into panics in America, but not in England, France, or Germany, arises primarily from differences in banking organization and practice. In each of the three European countries, the banking system as a whole is so organized by the prevalence of branch banking and the existence of a central bank that reserves which bear a small proportion to the aggregate demand liabilities of all the offices can be applied when and where they are most needed. The central bank not only carries a reserve which is far in excess of immediate requirements in ordinary times, but also uses this reserve boldly in times of stress, presenting in both these respects a marked contrast to the policy of American banks. As a result, European business men need not fear either a refusal to lend or a restriction of payments by the banks on which they depend. And panic has small chance to develop where the depositor can get his money at need and the solvent business man can borrow. [Written before the establishment of the Federal Reserve system.] 4. DEPRESSION The close of a panic is usually followed by the reopening of numerous enterprises which had been shut during the weeks of severest pressure. But this prompt revival of activity is partial and short-lived. It is based chiefly upon the finishing of orders received but not completely executed in the preceding period of prosperity, or upon the effort to work up and market large stocks of materials already on hand or contracted for. It comes to an end as this work is gradually finished, because new orders are not forthcoming in sufficient volume to keep the mills and factories busy. There follows a period during which depression spreads over the whole field of business and grows more severe. Consumers' demand declines in consequence of wholesale discharges of wage-earners, the gradual exhaustion of past savings, and the reduction of other classes of family incomes. With consumers' demand falls the business demand for raw materials, current supplies, and equipment used in making consumers' goods. Still more severe is the shrinkage of investors' demand for construction work of all kinds, since few individuals or enterprises care to sink money in new business ventures so long as trade remains depressed and the price level is declining. The contraction in the physical volume of business which results from these several shrinkages in demand is cumulative, since every reduction of employment causes a reduction of consumers' demand, and every decline in consumers' demand depresses current business demand and discourages investment, thereby causing further discharges of employés and reducing consumers' demand once more. With the contraction in the physical volume of trade goes a fall of prices. For, when current orders are insufficient to employ the existing equipment for production, competition for what business is to be had becomes keener. This decline spreads through the regular commercial channels which connect one enterprise with another, and is cumulative, since every reduction in price facilitates, if it does not force, reductions in other prices, and the latter reductions react in their turn to cause fresh reductions at the starting point. As the rise of prices which accompanied revival, so the fall which accompanies depression is characterized by certain regularly recurring differences in degree. Wholesale prices fall faster than retail, the prices of producers' goods faster than those of consumers' goods, and the prices of raw materials faster than those of manufactured products. The prices of raw mineral products follow a more regular course than those of raw forest, farm, or animal products. As compared with general index numbers of commodity prices at wholesale, index numbers of wages and interest on long-time loans decline in less degree, while index numbers of discount rates and of stocks decline in greater degree. The only important group of prices to rise in the face of depression is that of high-grade bonds. Of course the contraction in the physical volume of trade and the fall of prices reduce the margin of present and prospective profits, spread discouragement among business men, and check enterprise. But they also set in motion certain processes of readjustment by which depression is gradually overcome. The prime costs of doing business are reduced by the rapid fall in the prices of raw materials and of bank loans, by the marked increase in the efficiency of labor which comes when employment is scarce and men are anxious to hold their jobs, and by close economy on the part of managers. Supplementary costs also are reduced by reorganizing enterprises which have actually become or which threaten to become insolvent, by the sale of other enterprises at low figures, by reduction of rentals and refunding of loans, by charging off bad debts and writing down depreciated properties, and by admitting that a recapitalization of business enterprises--corresponding to the lower prices of stocks--has been effected on the basis of lower profits. While these reductions in costs are still being made, the demand for goods ceases to shrink and then begins slowly to expand--a change which usually comes in the second or third year of depression. Accumulated stocks left over from prosperity are gradually exhausted, and current consumption requires current production. Clothing, furniture, machinery and other moderately durable articles which have been used as long as possible are finally discarded and replaced. Population continues to increase at a fairly uniform rate: the new mouths must be fed and the new backs clothed. New tastes appear among consumers and new methods among producers, giving rise to demand for novel products. Most important of all, the investment demand for industrial equipment revives; for though saving may slacken it does not cease, with the cessation of foreclosure sales and corporate reorganizations the opportunities to buy into old enterprises at bargain prices become fewer, capitalists become less timid as the crisis recedes into the past, the low rates of interest on long-term bonds encourage borrowing, the accumulated technical improvements of several years may be utilized, and contracts can be let on most favorable conditions as to cost and prompt execution. Once these various forces have set the physical volume of trade to expanding again, the increase proves cumulative, though for a time the pace of growth is kept slow by the continued sagging of prices. But while the latter maintains the pressure upon business men and prevents the increased volume of orders from producing a rapid rise of profits, still business prospects become gradually brighter. Old debts have been paid, accumulated stocks of commodities have been absorbed, weak enterprises have been reorganized, the banks are strong-all the clouds upon the financial horizon have disappeared. Everything is ready for a revival of activity, which will begin whenever some fortunate circumstance gives a sudden fillip to demand, or, in the absence of such an event, when the slow growth of the volume of business has filled order books and paved the way for a new rise of prices. Such is the stage of the business cycle with which the analysis began, and, having accounted for its own beginning, the analysis ends. MOORE'S "RAINFALL" THEORY [246]To Professor Moore the fundamental problem of economic dynamics is to formulate the law governing the "ebb and flow of economic life" which is "the most general and characteristic phenomenon of a changing society." The motto of the department of agriculture of the United States--"Agriculture is the foundation of manufacture and commerce"--is significant and that the farmer is at the mercy of the weather is proverbial. There may be such a close connection between the weather, the crops, and crises that we shall be able to find in weather changes the cause of crises. An examination of all the numerous factors involved in the problem would be a stupendous task and Professor Moore limits himself to a consideration of a selected few. "The variation in the quantity of the rainfall is one of the weather changes known to have a marked effect upon the yield of the crops." Hence the inquiry is directed to an examination of the "appropriate data with reference to three things: (1) the periodicity of rainfall; (2) the effect of rainfall on the crops; (3) the relation of the yield of the crops to economic cycles." The study is a statistical one conducted with the greatest of care to avoid error and the conclusions are deserving of the most careful consideration. All generalizations are made carefully and used cautiously with a full realization that a limited area--the upper Mississippi Valley--has been used and a period of only seventy-two years surveyed. Of the numerous climatic factors only rainfall has been examined. Remembering that these limitations are fully realized we may state the conclusions in Professor Moore's own words: "The fundamental, persistent cause of the cycles in the yield of the crops is the cyclical movement in the weather conditions represented by the rhythmically changing amount of rainfall; the cyclical movement in the yield of the crops is the fundamental, persistent cause of economic cycles." This should be supplemented with a statement of the law that has been sought and which may be formulated thus: The weather conditions represented by the rainfall in the central part of the United States, and probably in other continental areas, pass through cycles of approximately thirty-three years and eight years in duration, causing like cycles in the yield per acre of the crops; these cycles of crops constitute the natural, material current which drags upon its surface the lagging, rhythmically changing values and prices with which the economist is more immediately concerned.... In conclusion we may merely observe that many theories are obviously presented to defend some of the other views of their advocates. The connection of the socialist theory with the socialistic idea of value is an obvious one. It may also be true that interest in some particular phase of study may cause the investigator to overlook the importance of other elements in the problem. Thus to Professor Moore climatic conditions seem of great importance, while Professor Mitchell relegates them to a very minor position. As time passes it will doubtless be possible to estimate the significance of each factor with more accuracy. When this is done a more satisfactory theory can be formulated and methods of prevention and alleviation employed to better advantage. STRINGENT MONEY AND FINANCIAL PANICS[247] Is there any tendency for financial panics to occur more frequently in the seasons of the year when the money market is normally stringent? It has been found that the two periods of the year in which the money market is most likely to be strained are the periods of the spring trade revival (about March and April) and that of the crop-moving demand in the fall; and that the two periods of the easiest money market are the "readjustment period," extending from about the middle of January to about the first of March, and the period of the summer depression, extending through the summer months. Of the eight panics which have occurred since 1873, four occurred in the fall or early winter (_i. e._, those of 1873, 1890, 1899, and 1907); and one (_i. e._, that of 1903) extended from March until well along in November. Out of a total of twenty-one minor panics or "panicky periods" occurring between 1876 and 1908, inclusive, nine occurred during the fall and early winter, eight during the spring, one began in May and extended into June, three occurred during the summer months, and one occurred in February. The evidence accordingly points to a tendency for the panics to occur during the seasons normally characterized by a stringent money market. HOW BANKS SHOULD HANDLE PANICS [248]Whatever persons--one bank or many banks--in any country hold the banking reserve of that country, ought at the very beginning of an unfavourable foreign exchange at once to raise the rate of interest, so as to prevent their reserve from being diminished farther, and so as to replenish it by imports of bullion.... A domestic drain is very different. Such a drain arises from a disturbance of credit within the country, and the difficulty of dealing with it is the greater, because it is often caused, or at least often enhanced, by a foreign drain. Times without number the public have been alarmed mainly because they saw that the banking reserve was already low, and that it was daily getting lower. The two maladies--an external drain and an internal--often attack the money market at once. What then ought to be done? In opposition to what might be at first sight supposed, the best way for the bank or banks who have the custody of the bank reserve to deal with a drain arising from internal discredit, is to lend freely. The first instinct of every one is the contrary. There being a large demand on a fund which you want to preserve, the most obvious way to preserve it is to hoard it--to get in as much as you can, and to let nothing go out which you can help. But every banker knows that this is not the way to diminish discredit. This discredit means, "an opinion that you have not got any money," and to dissipate that opinion, you must, if possible, show that you have money: you must employ it for the public benefit in order that the public may know that you have it. The time for economy and for accumulation is before. A good banker will have accumulated in ordinary times the reserve he is to make use of in extraordinary times. Ordinarily discredit does not at first settle on any particular bank, still less does it at first concentrate itself on the bank or banks holding the principal cash reserve. These banks are almost sure to be those in best credit, or they would not be in that position, and, having the reserve, they are likely to look stronger and seem stronger than any others. At first, incipient panic amounts to a kind of vague conversation: Is A B as good as he used to be? Has not C D lost money? and a thousand such questions. A hundred people are talked about, and a thousand think--"Am I talked about, or am I not?" "Is my credit as good as it used to be, or is it less?" And every day, as a panic grows, this floating suspicion becomes both more intense and more diffused; it attacks more persons, and attacks them all more virulently than at first. All men of experience, therefore, try to "strengthen themselves," as it is called, in the early stage of a panic; they borrow money while they can; they come to their banker and offer bills for discount, which commonly they would not have offered for days or weeks to come. And if the merchant be a regular customer, a banker does not like to refuse, because if he does he will be said, or may be said, to be in want of money, and so may attract the panic to himself. Not only merchants but all persons under pecuniary liabilities--present or imminent--feel this wish to "strengthen themselves," and in proportion to those liabilities.... A panic, in a word, is a species of neuralgia, and according to the rules of science you must not starve it. The holders of the cash reserve must be ready not only to keep it for their own liabilities, but to advance it most freely for the liabilities of others. They must lend to merchants, to minor bankers, to "this man and that man," whenever the security is good. In wild periods of alarm, one failure makes many, and the best way to prevent the derivative failures is to arrest the primary failure which causes them. The way in which the panic of 1825 was stopped by advancing money has been described in so broad and graphic a way that the passage has become classical. "We lent it," said Mr. Harmon, on behalf of the Bank of England, "by every possible means and in modes we had never adopted before; we took in stock on security, we purchased Exchequer bills, we made advances on Exchequer bills, we not only discounted outright, but we made advances on the deposit of bills of exchange to an immense amount, in short, by every possible means consistent with the safety of the bank, and we were not on some occasions over-nice. Seeing the dreadful state in which the public were, we rendered every assistance in our power." After a day or two of this treatment, the entire panic subsided, and the "City" was quite calm. The problem of managing a panic must not be thought of as mainly a "banking" problem. It is primarily a mercantile one. All merchants are under liabilities; they have bills to meet soon,... are dependent on borrowing money, and large merchants are dependent on borrowing much money. At the slightest symptom of panic many merchants want to borrow more than usual; they think they will supply themselves with the means of meeting their bills while those means are still forthcoming. If the bankers gratify the merchants, they must lend largely just when they like it least; if they do not gratify them, there is a panic. On the surface there seems a great inconsistency in all this. First, you establish in some bank or banks a certain reserve; you make of it or them a kind of ultimate treasury, where the last shilling of the country is deposited and kept. And then you go on to say that this final treasury is also to be the last lending-house; that out of it unbounded, or at any rate immense, advances are to be made when no one else lends. This seems like saying--first, that the reserve should be kept, and then that it should not be kept. But there is no puzzle in the matter. The ultimate banking reserve of a country (by whomsoever kept) is not kept out of show, but for certain essential purposes, and one of those purposes is the meeting of a demand for cash caused by an alarm within the country. It is not unreasonable that our ultimate treasure in particular cases should be lent; on the contrary, we keep that treasure for the very reason that in particular cases it should be lent. When reduced to abstract principle, the subject comes to this. An "alarm" is an opinion that the money of certain persons will not pay their creditors when those creditors want to be paid. If possible, that alarm is best met by enabling those persons to pay their creditors to the very moment. For this purpose only a little money is wanted. If that alarm is not so met, it aggravates into a panic, which is an opinion that most people, or very many people, will not pay their creditors; and this too can only be met by enabling all those persons to pay what they owe, which takes a great deal of money. No one has enough money, or anything like enough, but the holders of the bank reserve.... ... Before 1844, an issue of notes [of the Bank of England], as in 1825, to quell a panic entirely internal did not diminish the bullion reserve. The notes went out, but they did not return. They were issued as loans to the public, but the public wanted no more; they never presented them for payment; they never asked that sovereigns should be given for them. But the acceptance of a great liability during an augmenting alarm, though not as bad as an equal advance of cash, [_i. e._, specie] is the thing next worst. At any moment the cash may be demanded. Supposing the panic to grow, it will be demanded, and the reserve will be lessened accordingly.... "On extraordinary occasions," says Ricardo, "a general panic may seize the country, when every one becomes desirous of possessing himself of the precious metals as the most convenient mode of realizing or concealing his property--against such panic banks have no security on any system." The bank or banks which hold the reserve may last a little longer than the others; but if apprehension pass a certain bound, they must perish too. The use of credit is, that it enables debtors to use a certain part of the money their creditors have lent them. If all those creditors demand all that money at once, they cannot have it, for that which their debtors have used, is for the time employed, and not to be obtained. With the advantages of credit we must take the disadvantages, too; but to lessen them as much as we can; we must keep a great store of ready money always available, and advance out of it very freely in periods of panic, and in times of incipient alarm. FOOTNOTES: [231] E. M. Patterson, _The Theories Advanced in Explanation of Economic Crises. Annals of American Academy of Political and Social Science_, Vol. 59, May, 1915, pp. 133-6. [232] Address by Edwin R. A. Seligman, _The Crisis of 1907 in the Light of History_, in _The Currency Problem and the Present Financial Situation_, A Series of Addresses Delivered at Columbia University, 1907-1908, ix-xxv. The Columbia University Press, 1908. [233] Wesley Clair Mitchell, _Business Cycles_, _pp._ 5-19. The University of California Press. Berkeley, 1913. [234] The not infrequent statement that prosperity sometimes merges into depression without the intervention of a crisis means simply that the writers understand by crisis a violent disturbance of business conditions. It is in closer accord with every-day usage to call such occurrences "panics," and to apply the term "crisis" to the transition from prosperity to depression even when accomplished quietly. On closer inspection, a business cycle is often found to be complicated by minor changes, such as the interruption of depression by a premature resumption of activity, the occurrence of a pause or even a slight crisis in the midst of prosperity, and the like. But for the present it is wise to confine attention to the broadest features of the cycle. [235] Compare W. Sombart, _Versuch, einer Systematik der Wirtschaftskrisen_, Archiv für Sozialwissenschaft, 1904, pp. 1-21. [236] The first type of theories mentioned in the preceding section. [237] W. H. Beveridge, _Unemployment_, ed. 3 (London, 1912), chapter iv. [238] R.E. May, _Das Grundgesetz der Wirtschaftskrisen_ (Berlin, 1902). [239] I have followed Mr. Hobson's latest exposition, _The Industrial System_ (London, 1909), chapters iii and xviii. [240] George H. Hull, _Industrial Depressions_ (New York, 1911), p. 218. [241] W. Sombart, _Die Störungen im deutschen Wirtschaftsleben_, Schriften des Vereins für Socialpolitik, vol. 113, pp. 130-133. [242] T. N. Carver, "A Suggestion for a Theory of Industrial Depressions," _Quarterly Journal of Economics_, May, 1903, pp. 497-500. [243] Irving Fisher, _The Purchasing Power of Money_ (New York, 1911), chapter iv, and chapter xi, §§ 15, 16, 17. Compare the same writer's summary statement of his theory in _Moody's Magazine_, February, 1909, pp. 110-114, and H. G. Brown's paper "Typical Commercial Crises _versus_ A Money Panic," _Yale Review_, August, 1910. [244] Adapted from Wesley Clair Mitchell, _Business Cycles_, pp. 571-579. The University of California Press. 1913. [245] The extract here reproduced is from the concluding chapter of the work indicated.--EDITOR. [246] E. M. Patterson, _The Theories Advanced in Explanation of Economic Crises_. _Annals of American Academy of Political and Social Science_, Vol. 59, May, 1915, pp. 140, 141, 147. [247] E. W. Kemmerer, _Seasonal Variations in the Relative Demand for Currency and Capital in the United States_, p. 232. Publications of the National Monetary Commission, Senate Document No. 588, 61st Congress, 2d Session. [248] Walter Bagehot, _Lombard Street_, pp. 46-56. Charles Scribner's Sons. New York. 1892. (First Edition, 1873.) CHAPTER XXX THE WEAKNESSES OF OUR BANKING SYSTEM PRIOR TO THE ESTABLISHMENT OF THE FEDERAL RESERVE SYSTEM CONFLICTING OPINIONS [249]For fifty years the United States has lived rather happily under the National Bank Act, born in the strife of the Civil War and developed in the period of the nation's greatest expansion and growth. This act has, by its record, earned for itself a place as a great piece of constructive legislation; and the recognition of this fact is responsible for the preservation of our national banking system almost intact under the Federal Reserve Act. The National Bank Act removed the ills of wild-cat banking, which so afflicted the country prior to the Civil War; gave us an absolutely safe form of money which, although not legal tender, is taken without question by everyone; and has made possible an enormous expansion in the banking resources and facilities of the country. In spite of the denunciation and abuse which have been heaped upon it, the act has been reasonably satisfactory in operation. Anyone who reviews the figures of the material growth and prosperity of the nation and the rise of its financial power will be forced to the conclusion that no act that was fundamentally unsound could have been an integral part of the achievement of such a notable record. Designed for the purpose of encouraging a system of independent banks, the act has been responsible, directly and indirectly, for the creation of some twenty-five thousand banking institutions in this country, practically all of which are independent of each other. Instead of a small banking class and an equally small group of banks, all under the domination of one or a very few interests, we have developed a system of banking which has sprung from the people, and which is closer to the people than that of any other country. [250]We have grown and prospered in spite of an imperfect, repressing, and perilous banking and currency system. We have grown as a vine sometimes forces its way through a crevice in a wall, our very growth inviting disaster and death, our wonderful vitality hastening catastrophe.... Over fifty years of growth under the old banking act has been forced by the generosity of the soil of a new land, by the unconquerable energy and resiliency of a virile and courageous people; yet it has been interrupted by periods of business depression and stagnation; our progress punctuated by panics, discreditable, appalling--to many ruinous.... The immediate results ... have been crashing of banks and commercial houses, the wholesale stoppage of industries, the wiping away or cruel draining of the results of honest thrift, denial to willing and hungry labor of the opportunity to earn bread and shelter. [251]A physician would probably say that what primarily ails our currency system and causes panics and desperate stringencies is something akin to _arteriosclerosis_. The veins and arteries of credit, which in order to function properly ought to be elastic and contractile like rubber, are hard and brittle as glass. When subjected to unusual strain they can yield but little and are very liable to rupture, and when once stretched they are apt to remain over-enlarged.... The temporary act of May 30, 1908, which relaxed the rigor of the law in moments of critical emergency [as to note issues] by permitting additions to the currency to be based upon other security by payment of a heavy and increasing tax, was no real solution of the situation. It contained no provision to render the currency responsive to ordinary fluctuations in currency demand, and resort to its provisions in times of great stress might easily precipitate a panic if one did not already exist. It was only enacted for six years, and was only regarded by its sponsors as a temporary palliative pending the preparation of a permanent cure. _One universally recognized essential ... of a proper banking and currency plan is provision for a more flexible and responsive note issue_. INFLEXIBILITY OF LEDGER BALANCES When we turn to credit in the form of ledger balances or "deposits" and enquire as to the causes of their inflexibility, the explanation also rests in quite familiar facts. There are two peculiar features of our banking system which are practically without counterpart in other important countries, and which render ledger balances or deposit credits in this country less flexible and responsive than such balances or credits are elsewhere. The _first_ is the rigidity of our reserve laws, and the _second_ is the lack of any bankers' bank or similar institution, with ample resources and lending power, from which the banks can replenish their own reserves when necessary. RIGID RESERVE REQUIREMENTS Outside of the United States I know of only one other country in which the law requires a cash reserve to be held against deposits. That country is Holland, and the law applies to only one institution, the Bank of the Netherlands, and that institution does not hold enough deposits to make it worth mentioning in this connection (less than $3,000,000). Our national banking law, however, and the banking laws of most of the states are unreasonably and unsoundly rigorous in this regard. Not only must stated proportions of all deposits be held by the banks in reserve, but these reserves, according to the law, can never under any circumstances be used. It is very much as if the Government, having established naval and military reserve forces in times of peace, were to insist that these forces should not be used in time of war, in order to maintain them intact as reserves. Whenever the cash held by a bank has fallen to the required minimum, the bank cannot legally continue to extend accommodation. It cannot issue more notes unless it has additional government bonds to deposit for their security, and it cannot enlarge its ledger balances unless it has additional reserves. No matter what may be the stress of an emergency, or whether it is due to war, catastrophe, or unreasoning fear, there are no legal means for relaxing this requirement. And so, in moments of great sensitiveness and anxiety, legal spokes are apt to be suddenly thrust into the wheels of credit, and the whole machinery of business brought crunching to a standstill. _A second essential then of any adequate currency plan is some provision which will render the reserve requirements pliable and the reserves of possible use._ NEED OF BANKERS' BANK Our banks also have less flexibility in their power to lend ledger balances than the banks of practically all other countries for another reason, because of the lack of any permanent institution or institutions which can perform for them services similar to those which they perform for their customers. An individual bank makes the money of each and all of its customers flexible in amount, by rendering it of mutual service, and available to those who most need it, when they most need it, and, in order that the money of individual banks may be similarly flexible in amount, of mutual service to each other and available to those institutions which most need it, when they most need it, they require in their turn some agency which will do for them severally and jointly what they do for the general public.... It does not matter what such an agency may be called. It may be a discount bureau, or a rediscount bureau, a national clearing house, or a national or regional reserve association. Out of deference to those great financial experts who write the banking clauses of political platforms and whose bans and edicts are blessed with sacerdotal infallibility, when such an institution is proposed for this country, it must not be called a central bank. Such an institution is perhaps most plainly designated if it is called a "bankers' bank," but by whatever name it is referred to, the need of such an institution is the fact of primary importance in the American banking situation. Just as an individual bank economizes and mobilizes and makes flexible in amount the funds of individual members of a community, so a bankers' bank mobilizes and economizes and makes flexible in amount the money of the banks. It collects money from institutions and localities when and where they do not need it, and lends it to others when and where they do. In like manner the active deposits of the various banks, as they are not all wanted simultaneously, furnish the bankers' banks with a large surplus reserve of lending power, which in turn is an invaluable source of flexibility to the individual banks. By its means they can, if need be, rediscount their commercial paper, exchange their unmatured assets for actual cash, and secure its still better known credit in place of their own. By its means their reserves can be replenished and their lending power made responsive to the needs of their communities. A bankers' bank makes it possible for the money of the individual banks to do many times the work it would do if left in the separate institutions, and to do it far more effectively. It is the only ultimate safeguard, the only scientific deposit guarantee, the only sound basis of flexibility in any banking system. As some philosopher once said of God--if such an institution did not already exist, people would certainly have to invent one, and, as we have no such institution permanently and legally established in America to-day, _the prime essential of any sufficient banking plan is the equipment of our system in some way or other with the facilities of a bankers' bank_. THE PARCELLATION OF RESERVES [252]If the absolute certainty of ability to pay all depositors in money on demand be taken as the _summum bonum_ of banking, an idea which quite generally prevails among the unthinking, it is interesting to reckon the cost. A bank has no fairy wand with a wave of which it can transmute into gold the amounts due it, whether represented by borrowers' notes or balances due from other banks. Such repayments have an element of uncertainty which pervades all human affairs. All uncertainty could be eliminated only by having in money on hand an amount equal to the total of liabilities to depositors. A deposit with a bank would then be simply a warehousing transaction. If a readjustment to such a condition were accomplished, and if we consider only the ultimate result, and not the cataclysm of the process, it would clearly prove such an extinguishing restriction of commerce as would cost fabulously more than the value of the advantage gained. It would be like preferring the constitution of a jelly-fish to that of a human being in order to avoid the hazard of fracturing a bone. Only by having banks which employ in loans a part of depositors' capital lodged with them, can the best interests of the whole people be served, even if this entails something less than an absolute certainty of power to liquidate deposits on demand. That banking system must then be best which combines equally the largest measure of each of two elements: the use in commerce of funds deposited, and the certainty of paying depositors in money on demand. Turning now to the vast system of banks throughout the country, if the separate reserves of all the banks were gathered into one mass, available to meet the demands of depositors for payment in money, whether made in Maine or Texas, New York or California, the banks of the whole system would be able to operate with the highest degree of safety by having a total sum of money equal to only a small percentage of the aggregate amount owing to depositors, and consequently would be able to lend for use in the commerce of the country the greater proportion of the funds deposited. The total of deposits and withdrawals made throughout the country would very nearly offset one another. Very little of the reserve money would actually be used. A special requirement of one section would represent only a small percentage of the total massed reserves. The country has such vast area, and the requirements in different parts so vary in season that a deficiency of money in some sections would find a measurably offsetting surplus in others. While theoretically an institution so constituted would be strongest and most efficient, none such exists, and no one would advocate such a system. Omniscience and omnipotence would be required for its wise administration. But the conclusion seems clear that only in proportion to the massing of reserves can efficiency in lending for commerce be combined with strength to pay depositors. The greater the proportion of the entire reserves gathered into one mass, the greater the efficiency and strength rendered possible. This principle is fundamental. The fundamental defect of our banking system, then, is the parcellation of the entire reserves among the separate self-independent banks, necessitating either a wastefully large proportion of reserve for assured ability to pay, with correspondingly inefficient service to commerce, or efficient service with the hazard of unexpected exhaustion of reserves and consequent inability to make good the contracts to pay depositors in money on demand. [253]If after a prolonged drought a thunderstorm threatens, what would be the consequence if the wise mayor of a town should attempt to meet the danger of fire by distributing the available water, giving each house owner one pailful? When the lightning strikes, the unfortunate householder will in vain fight the fire with his one pailful of water, while the other citizens will all frantically hold on to their own little supply, their only defence in the face of danger. The fire will spread and resistance will be impossible. If, however, instead of uselessly dividing the water, it had remained concentrated in one reservoir with an effective system of pipes to direct it where it was wanted for short, energetic, and efficient use, the town would have been safe. We have parallel conditions in our currency system, but, ridiculous as these may appear, our true condition is even more preposterous. For not only is the water uselessly distributed into 21,000 pails, but we are permitted to use the water only in small portions at a time, in proportion as the house burns down. If the structure consists of four floors, we must keep one-fourth of the contents of our pail for each floor. We must not try to extinguish the fire by freely using the water in the beginning. That would not be fair to the other floors. Let the fire spread and give each part of the house, as it burns, its equal and inefficient proportion of water. _Pereat mundus, fiat justitia!_ REDEPOSITED OR OVERLAPPING RESERVES [254]If we are to understand the radical change which will be worked by the Federal Reserve Act in the reserve situation in this country it is necessary to examine at some length the system heretofore prevailing. Under the National Bank Act these banks were divided into three groups or classes, referred to as the country banks, the reserve city banks and the central reserve city banks. There are three central reserve cities: New York, Chicago, and St. Louis. Every national bank in these cities is a central reserve city bank. The reserve cities are forty-seven in number and include the larger cities of the country. Every bank not situated in any one of the three central reserve cities or the forty-seven reserve cities is a country bank. This last term includes all the national banks of the smaller cities in the country, of the manufacturing towns and communities of New England and the Middle States and thousands of national institutions doing business in the agricultural sections. ~The Country Banks.~--The country banks, by the terms of the National Bank Act, are required to keep a cash reserve at all times equal to 15 per cent. of their deposits. Under the old law the country bank must keep only 40 per cent. of this required reserve in its own vaults, while it is allowed to deposit 60 per cent. of the required reserve on call in such national banks in any of the reserve cities or central reserve cities as may be approved as "reserve agents" for it by the Comptroller of the Currency.... ~The Reserve and Central Reserve Cities.~--The second class of national banks, known as reserve city banks, includes all national banks located in forty-seven cities of the country, which from time to time have been designated as reserve cities. Every national bank in them is required to keep a reserve at all times equal to at least 25 per cent. of its deposits. It must be borne in mind that the deposits of a reserve city bank include not only what the banker refers to as individual deposits--the deposits of individuals, firms, partnerships, and corporations--but also deposits which have been made with the reserve city bank by country banks, for which it is the reserve agent. A reserve city bank is permitted by the National Bank Act to keep one-half of its required reserve on deposit, subject to withdrawal on demand, in a national bank or banks in a central reserve city, approved by the Comptroller of the Currency, as its reserve agent.... Every national bank within the central reserve cities must keep a reserve equal in amount to at least 25 per cent. of its deposits, including not only individual deposits but deposits by bankers for whom it acts as reserve agent or correspondent. ~The Reasons for the System.~--This rather complicated system of reserves was authorized by Congress because it was necessary to allow the banks of the country districts or smaller cities to keep reserves in other banks in the larger centres of trade in order to facilitate the commercial exchanges of the country; and also because it was necessary to have some means by which banks of the larger cities could finance payments for their customers in the great centres of the country, especially in New York, Chicago, and St. Louis.... ~Its Weaknesses.~--Our system of deposited reserves has failed miserably in times of stress, although it has worked reasonably well in ordinary times. It is contended that it has, to a large degree, built up the great centres, and more especially New York City, at the expense of country districts. It has been responsible for the seasonal withdrawal of money which was at one time a most serious embarrassment to business, especially in New York, Chicago, and other large cities in the fall months, but which has practically disappeared in New York City since the panic of 1907.... It was not until the system of deposited reserves brought about the panic of 1907 that the country at large became convinced that this feature of the national banking system was vicious, dangerous, and likely to produce trouble at any time. With this conviction began the movement which finally ended in the enactment of the Federal Reserve Act. ~Much of Our Reserve Fictitious.~--As a matter of fact, the actual available reserves of the three classes of national banks in the country are much less than is indicated by the percentage specified in the act quoted above.... This condition is referred to frequently as the pyramiding of reserves, which means, in substance, that the national banks of this country, omitting from consideration the state banks where the same conditions exist in an even more aggravated form, are doing business largely upon a paper reserve, which experience has shown is utterly useless in times of panic. The seven thousand five hundred and nine national banks held cash and paper reserves on October 21, 1913, as follows: _Cash in vaults._ _Due from banks._ Country banks $294,000,000 $534,000,000 Reserve city banks. 251,000,000 258,000,000 Central reserve city banks 381,000,000 ------------ ------------ $926,000,000 $792,000,000 As a matter of fact the national banks of the country held $926,000,000 in cash as against total deposits subject to reserve requirements of $7,172,000,000, or about 12.8 per cent. of the liabilities subject to the requirements. ~Dangers of the System.~--So conclusive are the lessons to be learned from the experience of the last half century with the system of redeposited reserves, that there is a practical unanimity among bankers and financial experts that the reserves of our banks, with the exception of the money actually held in the vaults, are, in the words of William Ingle, vice-president of the Merchants and Mechanics National Bank of Baltimore, "A great deal of a delusion and a snare." In every panic, the country banks and the reserve city banks have found that it has been impossible for them to secure the return of the portion of these reserves which has been redeposited in New York, Chicago, and St. Louis. At a time of great stress, when the banks have been subjected to a drain, they have been suddenly bereft of the support which, in theory, should have been forthcoming from their reserve agents, and have been forced to depend upon the 6 per cent. or 12-1/2 per cent. reserve, which was contained in their own vaults. What is even worse, the outbreak of a panic in New York City, where every panic of the last half century has started, was the signal for the suspension of cash payments by every bank in the country, within a few hours.... Thus a local panic, in many cases occurring when business conditions were exceedingly prosperous and healthy, has completely disorganized the exchanges of the country and brought business to a standstill. THE PERVERSE ELASTICITY OF NATIONAL BANK NOTES [255]... It is not quite correct to call our national bank notes inelastic. They are decidedly elastic. The trouble is that their elasticity is of a wrong sort; they expand when there is need of contraction, and contract when the need is for more currency. By calling the notes inelastic we mean that their volume does not correspond automatically to the need for currency. This is true, and is one of the most serious defects of the bond-secured notes.... The demand for currency depends upon the volume of business to be transacted, and is continually in a state of fluctuation. Various causes have only to be mentioned to explain the unequal demand at different times. We have thus the payments of salaries, bills, etc., coming usually, on the first of each month. Then there are the quarterly payments of dividends, interest, etc., falling generally on the first of January and at intervals of three months thereafter during the year. Above all, we have in this country a regularly recurring seasonal change in the volume of business, due to the harvesting and moving of the crops every fall and early winter. Besides these normal fluctuations in the demand for currency there are of course such abnormal circumstances as business emergencies, panics, depressions, etc., which at irregular intervals call for expansion or contraction of the currency. To meet all these varied demands an elastic currency is a necessity. The most serious evils of inelasticity in this country are seen in connection with the annual handling of the crops. It may be safely said that for this purpose the United States needs every fall at least one hundred and fifty million dollars of extra currency. Since our monetary system contains no really elastic element, this extra business of the fall has to be done with little or no increase of the country's currency. The crops must be handled by means of a shifting of currency from one part of the country to another. In the spring and early summer the agricultural districts are apt to have more money than they need. Accordingly, the country banks are in the habit of depositing part of their reserves in banks situated in the reserve cities. A large part of these sums eventually finds its way into the money markets of New York and other Eastern cities, where a low rate of interest is paid to outside banks for such deposits. Now comes the harvest season, and a demand goes up from the country banks for the return of their deposits. Every fall the clearing-house banks of New York City alone give up about fifty millions of "lawful money" to meet this demand.[256] Of course this means a tight money market. In the spring and summer the funds obtained from the country banks were loaned out or used as reserves for deposits. Money was in excess, interest rates were low, and speculation was encouraged. Now loans must be called in and deposits reduced. This sudden contraction is a hard blow to all business interests. It is especially hard on the speculators, and their desperate demands cause the enormous rates on call loans which are witnessed every fall on the New York money market.... It has ... been suggested that the inelasticity of the national bank notes does not mean that their volume never changes. As a matter of fact, the circulation has been marked by enormous fluctuations, and these fluctuations, having no relation to the demands of business, have simply aggravated the evils of inelasticity which have been described. Thus, between June 1, 1880, and June 1, 1891, the total volume of bank notes outstanding declined from $345,000,000 to $169,000,000, a decrease of $176,000,000, or 51 per cent. This retirement of half the circulation came during a decade marked by large growth in population and wealth, and by remarkable industrial expansion and business activity. The reason for this decline lies in the fact that the Government was using part of its large surplus revenue to pay off the debt. In eleven years the Treasury paid $1,105,000,000, reducing the debt by more than half, something without parallel in the history of public finance. The retirement of half the debt caused a scarcity of United States bonds, and their prices went soaring. Four per cents of 1907 rose from 103-113 in 1880 to 125-130 in 1888. The inevitable result was the decline of circulation. The opposite course of events has been seen in recent years.... [The subjoined diagram (suggested by a similar one for 1902-1906, accompanying the article a part of which is here reproduced) illustrates the comparative seasonal elasticity of the notes of our national banks and the circulation of the chartered banks of Canada for the period 1910-1914. The marked expansion of national bank notes in 1914 was due to the crisis brought on by the outbreak of the European war. The Aldrich-Vreeland notes which were issued in that emergency were retired in a few months and the volume of national bank notes assumed normal proportions. For the Canadian statistics involved the editor is indebted to Mr. G. W. Morley, Secretary of the Canadian Bankers' Association.] [Illustration] NATIONAL BANK NOTES UNSOUND AND UNSAFE [257]... Any correct system of credit currency must be based on a foundation of gold. Bank credit is issued in the two forms of deposits and notes. The former are based on a reserve of gold, the latter are not. We have here a fundamental weakness of our bank-note system. Under proper banking methods, deposits cannot expand without a proportional increase of the gold reserves of the banks. This furnishes the natural and necessary check to inflation. Our bank notes, however, have no such connecting link with the business and the monetary stock of the world. The basis of the American bank-note currency is the government debt, a very inferior kind of foundation. Such a system carries with it the possibility of paper money inflation of a peculiarly dangerous kind, because its real meaning is apt to be concealed. For example, between January 1, 1900, and January 1, 1908, the volume of national bank notes outstanding increased from $246,000,000 to $690,000,000, an expansion of $444,000,000. In other words, the circulation nearly trebled in eight years. The cause of this great increase was not the need of more currency but the changes in the National Bank Act made in 1900, changes which made the establishment of national banks easier and the issue of notes more profitable.... The future is likely to witness further expansion, unless some change is made in our system.... It is undoubtedly the present intention to give ... to future [bond] issues [the privilege of being used as security for notes]. Indeed, unless this privilege is given, there will be no market for the 2 per cent. bonds. We may expect, therefore, to see each issue made the basis of a further increase in the volume of bank notes. All this means inflation, and inflation by means of a circulating medium having no connection with the gold stock of the world. To make room for the additional currency, gold must be forced to leave the country, and our whole monetary system, by no means too strong to-day, will be weakened at its foundation. This is the fundamental difference between expansion of credit by means of deposits and expansion by means of national bank notes. The one is based on gold; the other is based on the government debt. When deposits expand, the reserves of the banks must increase proportionately and, if carried far enough, the result must be to bring in gold rather than to force it out. In like manner, deposits cannot for any considerable time be in excess of business needs. But bank notes may be increased indefinitely, if the Government only borrows enough, and the result will be the expulsion of gold whenever the currency becomes redundant. That this is an actually present danger is sufficiently demonstrated by the recent action of the Secretary of the Treasury, who has seen fit to add to the national debt at a time when the Treasury had a surplus of over 250 millions, for the sole purpose of increasing the circulation of the national banks. Our currency system can never be sound until the bank circulation is entirely divorced from the government debt. The danger of inflating our monetary system with bank notes having no gold reserve back of them is all the more serious from the fact that the notes of the national banks are used as reserves by state banks, private banks, trust companies, etc. They are part of the "cash reserves" on which these banks base their deposits. Thus we have a system of credit based on credit, and any weakness in the national bank note is carried over and multiplied in the deposits of other banks. The complete _reductio ad absurdum_ of this multiple credit system came when at a recent convention of the American Bankers' Association it was seriously proposed that it be made lawful for national banks to count their notes as "lawful money" in their own reserves. There is good reason to believe that this is actually practised to some extent by national banks to-day, though the practice is, of course, illegal. The safety of the national bank notes is seldom questioned. Whenever the evils of our currency system are pointed out and plans for asset currency or other reforms are proposed, the reformer is apt to be met by the reply that, at any rate, our bank notes are perfectly safe, and we had better put up with their other shortcomings rather than launch out on new schemes which may possibly sacrifice that safety which we now enjoy. The foregoing discussion should already have cast some suspicion on this complacent attitude. It will be further weakened by a closer analysis of the basis of the national bank circulation. National banks may issue their notes up to the amount of their paid-up capital, and up to 100 per cent. of the par value of United States bonds deposited with the Treasury, but never in excess of the market value of the bonds. The notes are engraved by the Government and issued to the banks. When signed by the proper officers of the bank, they become the bank's promise to pay upon demand and may be issued for circulation. The United States Treasury is also required by law to redeem on demand all notes of national banks presented to it. For this purpose each bank must keep with the Treasury a reserve fund equal to 5 per cent. of its circulation. The duty of the Treasury to pay notes on demand, however, is not limited to the amount of this reserve, but applies to all notes properly presented. In case of the failure of a national bank, the Treasury is required by law to immediately redeem all its notes. The Treasury is secured against loss by the bonds deposited, by the 5 per cent. cash reserve, by its prior lien on the assets of the banks, and by the personal liability of the stockholders for an amount equal to their stock investments. It is thus seen that the popular idea that the holder of a national bank note is secured against loss by the government bonds deposited in Washington is not strictly correct. What protects the holder of a note is the absolute responsibility of the Treasury to redeem all notes on demand. The bonds are to secure the Treasury, not the individual noteholder, against loss. The noteholder is secured so long as the Treasury is able to meet its legal obligations. Let us examine the character of our government bonds as security to enable the Treasury to meet its obligations. To understand the situation, it should be remembered that the leading purpose in the establishment of the national banking system was not the creation of a scientific currency system. The National Bank Act was a war measure enacted largely for the purpose of improving the market for government bonds during the Civil War. It was for this purpose that the circulation of state banks was forced out of existence by a 10 per cent. tax and the right of issue restricted to national banks on condition of the deposit of government bonds as security. In the accomplishment of this purpose the act has been eminently successful. United States bonds have been given a new utility over and above their utility as an investment. From the very beginning, this has given them an added value and enabled the Government to borrow at lower rates of interest than it would otherwise have had to pay. The act of March 14, 1900, made provision for the ultimate refunding of all the United States debt into 2 per cent. bonds, and gave an added inducement to the use of these bonds as note security by lowering the annual tax on circulation from 1 per cent. to one-half of 1 per cent., provided the notes were secured by the new 2 per cent. bonds. All bonds issued since 1900 have borne 2 per cent. interest. Yet the market value of these bonds has always stood above par.... Obviously, this value is not based on earnings. British consols paying 2-1/2 per cent. are to-day quoted in the neighborhood of 85, which makes them yield about 3 per cent. on the investment. The French and German 3 per cent. loans are both considerably below par. United States bonds have been given an artificial value through their use as security for bank circulation. The national banks to-day hold for this purpose about two-thirds of the total funded debt of the United States. Remove this privilege from the national debt, and we should see the 2 per cent. bonds (which compose two-thirds of the interest-bearing debt of the United States) fall to perhaps seventy cents on the dollar, very likely even lower. Here we have a remarkable situation. Our national bank notes are safe because they are secured by government bonds, and our government bonds are valuable because they are security for national bank notes. This looks very much like lifting oneself by one's bootstraps. If we are to cling to the bond-secured note system, this matter of the artificial value of government bonds will become an important practical problem whenever it becomes necessary for the United States to make any addition to its debt. Either the rate of interest will have to be raised to 3 per cent. or higher, or, if that alternative is rejected, means will have to be found to induce the banks to use the greater part of the new loans as security for additional note issues.[258] In practical effect, this is only a thinly disguised resort to the time-honored but now thoroughly discredited practice of compelling the people to use the government debt as a circulating medium. The bearing of this matter on the safety of the national bank note is simple. The burden of the ultimate redemption of the bank notes has been placed on the shoulders of the Treasury, to add to its other burdens of maintaining the value of the greenbacks and of the silver dollars. If loss of confidence in the bank notes should ever lead people to demand their wholesale redemption, the Treasury would have to meet the demand in gold. But the moment it tried to sell the bonds, it would find there was no market for them except at a discount of perhaps 30 or 40 per cent. It is true that the Treasury would still be able to recoup itself for this loss in the value of the bonds by exercising its prior lien on the assets of the banks. But this leads us to the important conclusion that the final security for our bond-secured notes rests on the assets of the banks after all. A more striking argument for asset currency could hardly be discovered. It must be remembered, however, that the foreclosure by the Government of its claim on the assets of the national banks would cut into the wealth on which deposits are based and so have a most disastrous effect on the deposit system. The pressure upon the Government to refrain from such a crushing blow to credit would be overwhelming. It is almost inconceivable that in time of panic or a national crisis the Government would resort to such a procedure. Almost any alternative would be preferred. It would not be too difficult a matter for the Government to persuade itself that the wiser and safer course would be to suspend specie payments, perhaps even declaring the bank notes a legal tender. A more plausible case could be made out in favor of such action than was found sufficient to justify the issue of the greenbacks of the Civil War. Yet such action would mean the breakdown of our financial system. This is, of course, looking into the future and anticipating a state of disaster which may never come. But a system which bids fair to break down in time of disaster should be remodelled before disaster comes. And we should not rest too confidently in the notion that disaster can never reach us. It is only thirteen years ago [1895] that the burden of supporting its paper and silver currency brought the United States within twenty-four hours of suspension.... SPECULATION INVOLVED IN THE ISSUE OF NOTES [259]When a banker takes out currency he engages in two distinct transactions and enters upon two different hazards. In one transaction he assumes the risk and holds the expectation of greater profit for taking out circulation. Since buying bonds and taking out circulation most of the time shows some theoretical profit over loaning direct, presumably if there were no other consideration, most of the time our bankers would keep outstanding all the notes they could. In the other transaction, however, the banker engages in a speculation in government securities. As a matter of fact, if the price of government bonds advances, the profit from taking out circulation declines; but our banker is pretty likely to view with equanimity the declining circulation profit when he considers the profit he is making in his speculation in bonds. On the other hand, as the price of government bonds declines, circulation grows more profitable. The banker is likely to view this with sour satisfaction when he looks on his loss in his bond speculation. Profit or loss in the bond speculation is likely to outbalance loss or profit in the circulation transaction.[260] Let us examine the situation more closely. Just what is the profit or loss from taking out circulation? In the first place the bank gets the regular current money rates on the loans it makes through issuing notes. Also it gets the interest on the government bonds it buys. This, of course, means the real interest, or income on the investment, called basis, taking into consideration coupon interest, price paid, and date of maturity. Excepting for the tax of 1/2 per cent. on the circulation taken out (1 per cent. if taken out on the 3's or 4's) and for the expenses attendant on taking out circulation, which the government actuaries compute to average $63 on the $100,000, this interest on the government bonds looks like clear "velvet." It would be, too, if the banker did not have to pay more for the bonds than the amount of circulation he can take out against them. To figure his net profit he must deduct from the gain items just stated what he would have made if he had loaned his funds direct instead of investing in bonds. Expressed as an algebraic equation the situation becomes much clearer. Let x = current money rate; y = basis rate at which government bonds are bought; z = price of government bonds; b = circulation received ($100,000 used as basis of calculation); c = taxes, redemption, and other circulation expenses. (As already stated, government actuaries have calculated that circulation expenses average to cost the banks $63 on the $100,000 of circulation taken out. Taxes depend on whether the 2's, in which case the tax is 1/2 per cent., or the 3's or 4's, in which case the tax is 1 per cent., are bought. Taxes, then, amount to either b(.01) or b(.005). We can take b as a constant in our calculations and base all our computations on taking out $100,000 of circulation.) The equation of profit or loss on taking out circulation then reads: yz + bx - xz - c = profit or loss. But circulation taken out (b) can never be greater than the amount of money paid for the bonds (z). If government bonds should be at par or at a discount, the nominal profit would always be just the basis interest on the bonds, less the tax and the cost of taking out circulation, or a constant advantage in the case of the 2's of 1.437 per cent. For the purpose of this discussion we will consider only the 2's of 1930. In the regular case, then, the money paid for the bonds (z) is greater than the amount of circulation received (b). With that statement in mind we can draw certain very definite conclusions about our circulation direct from the equation we have formed; z is greater than b. Repeating the equation in order to have it directly before us: yz + bx - xz - c = profit or loss. Then as the current interest rate (x) increases, if all the other quantities remain constant, the negative influence in the equation grows greater, or profit from circulation decreases. We can, then, make definitely: STATEMENT I _If all other circumstances remain the same, circulation grows less profitable as the current money rate advances._ As business increases and the demand for both credit and money increases, as reflected in the rising interest rates, taking out circulation _cæteris paribus_, with the inexorability of a mathematical law, becomes _less_ profitable. Further, there is an intimate relationship between y and z. If the price of bonds (z) declines, the basis rate (y) must advance. As a matter of fact as z declines yz grows greater. If, then, x remains constant and z declines the influence of the negative quantities of the equation is growing less. Then follows: STATEMENT II _As the price of bonds declines, if the current interest rate remains constant, the profit from taking out circulation increases._ That gives the absolute mathematical basis for such general statements as that "the price of bonds is too high to make circulation profitable." These two facts set out in Statement I and Statement II place the banker who has taken out circulation between the devil and the deep, blue sea. If the price of bonds remains the same and the current interest rate rises, his circulation grows steadily less profitable. A decline in the price of bonds affords the only offset to an increasing interest rate. But if the price of bonds declines enough to offset the advance in the current interest rate, the banks must mark off enough profits to cover the loss on the capital value of the bonds. Speculating in securities properly forms no part of a bank's business. It is an anomalous situation that in order to fulfil a proper function of note issue a bank should have to undertake such an improper speculation. THE LACK OF ADJUSTMENT BETWEEN BANK NOTES AND DEPOSITS [261]Under our present currency system the volume of money in circulation is perfectly flexible. It constantly expands and contracts in automatic adjustment to the requirements of trade and the convenience of the people. An increase in the volume of cash transactions brings promptly an increase in the volume of currency in circulation through the current withdrawals of money exceeding the current deposits of money. A lessening in the volume of cash transactions promptly drives unneeded currency out of circulation through the deposits of money exceeding the withdrawals. No other system could provide a currency which would adjust its volume in circulation more exactly to the needs of trade and the preferences of the people. There is a ceaseless flow of the money in circulation into bank reserves, and of money in bank reserves into circulation--ceaseless except in an occasional crisis when the natural flow of money from bank reserves into circulation is arbitrarily stopped by banks refusing, for self-protection, to continue paying out to the point of exhausting reserves. While the volume of money in circulation is thus perfectly and automatically adjusted to trade requirements, it is to be noted that this flexibility arises from the flow back and forth, between the mass of money in circulation and the mass in bank reserves. In this lies the main economic defect of our present currency system. An expansion in the volume of money in circulation entails a corresponding contraction in the volume of bank reserves, and necessarily a corresponding contraction in loans. A period of expanding business would naturally be attended by both an increased volume of loans and an increased volume of cash transactions, such as increased pay-rolls, increased retail sales. Increased cash transactions cause a larger volume of money to flow into circulation. But this flow is out of bank reserves, thus contracting them and necessitating a contraction of loans depending upon them, at the very time when loans would naturally expand. Obviously, if business becomes very active, the effect upon bank reserves is so adverse, and the contraction of loans depending upon reserves so important, that embarrassment is widespread and panic ensues. The main defect, then, of our present currency system is that the volume of currency in circulation has its adjustment in the flow from bank reserves into money in circulation and from money in circulation into bank reserves, causing a contraction of bank reserves and the loans depending on them as business expands. A remedy would be the use of bank notes through which the volume of currency in circulation would have its adjustment in the flow from bank deposits into bank notes in circulation, and from bank notes in circulation into bank deposits, thus protecting from disturbance both bank reserves and the loans based on them. THE COMMERCIAL PAPER SITUATION IN THE UNITED STATES [262]... At the present time the commercial paper situation in the United States is peculiar. "Commercial paper" in the old and strict sense is little used in this country. "Trade paper," as it is now called, arises in less than 3 per cent. of the credit transactions in the United States.[263] In some lines of trade, especially where a local wholesaler does a large business with small tradesmen, the wholesaler will extend credit by taking the retailers' notes; but in obtaining credit for himself the wholesaler will not surrender control of the bundle of retailers' notes, preferring instead to give simply his own note on a general understanding with his banker that the personal note rests on, and is fully covered by, the retailers' notes.[264] The wholesaler hesitates to surrender to the banker the notes that he receives because he fears that his competitors might get some inkling of his trade connections, etc. In general, "trade paper" is used to settle accounts only when the credit terms are still long, that is, four months or more.[265] What generally passes as "commercial paper" in the United States is single-name paper. As in the case of the wholesaler referred to above, the borrower of bank credit in these days offers for discount simply his own promissory note. Some of this paper, particularly corporation notes, carries indorsements, but these are largely "accommodation" indorsements, which may buttress the security of the paper but which indicate nothing as to its purpose. The wide use of single-name paper in this country is largely explained by the fact that the prevailing terms of payment in business transactions are net in 30 or 60 days, with a discount for payment in cash within variously from 10 days to one month. The cash discount allowed is usually so large that a purchaser can ill afford not to take advantage of it. Two per cent. discount for cash within 10 days, for example, with "60 days net" is equivalent to a return of 12 per cent. per annum on one's capital. In actual practice the allowance is often even more liberal. Hence where competition is at all keen the business man is practically forced to adopt the system of cash payments, depending upon his bank to advance to him, on his own notes, the necessary funds. Moreover, so broadly has the custom of taking cash discounts spread that a failure to take advantage of them is generally regarded as an indication of weakness, and tends to undermine general confidence in the business man's credit standing. Hence the necessity for maintaining his credit rating, as well as competition, virtually forces the business man into making anticipatory cash payments and thus, more or less as a consequence, into the general practice of discounting his personal paper.[266] Furthermore, as business operations have grown to a larger and larger scale, especially in the case of large corporate enterprises, the credit needs of business have in many cases expanded beyond the capacity of the local banks to supply them. The necessity arose, therefore, to go elsewhere for accommodation. This was met in some cases by the opening of bank accounts in other centers, but obvious difficulties and restrictions attend this method of procedure. More elastic possibilities and fewer difficulties grew out of the employment of middlemen to market the paper over the country as a whole on the best available terms. Hence the note-broker is to-day an important factor in the discount market. As a result of the note-broker's activities there has come to be established an extensive open market for commercial (single-name) paper in this country, and the rates at which such paper is discounted are regularly reported in the daily newspapers. This development of a commercial-paper market reflects, of course, a considerable development of the demand of the banks for this form of investment.[267] "Country banks" especially have in the last few years heavily increased their purchases in the open market, because the necessity of writing off heavy losses due to the shrinkage of bond values has tended to make them more timid about investing in securities, and because they have also learned by experience that paper purchased through a broker does not have to be renewed, as does most of the purely local paper.[268] This development has, of course, tended to put an increasingly heavy responsibility on the note-broker and has brought about, at least to some extent, a readjustment of his business methods. At first note-brokers simply solicited paper from merchants and charged a brokerage fee. Latterly, the custom has grown up for the broker to buy up the paper outright.[269] This forces the broker "to stand between the maker and the bank," and to the extent that any given piece of paper may be left on his hands, even though he does not indorse the paper that he sells, it compels him to be very circumspect about the paper that he purchases. Moreover, some banks now purchase paper with an option of return within a specified period, making it a point carefully to inquire about the maker of the paper before the option expires. In the last few years banks as well as brokers have established carefully organized credit departments, the purpose of which is, through careful inquiry into the character and standing of sellers of paper, to enable both brokers and bankers to select paper with sounder discrimination. This characteristically American discount system differs greatly from that which prevails in Europe. Abroad, single-name paper is very little used.[270] The European banker demands more than one signature, not only as a guaranty of security, but also as an assurance of the validity of the transaction out of which the paper offered for discount grew. When the prospective borrower, for some sufficient reason, does not wish to divulge the names of his clients, as would be necessary if he drew bills on them, he may arrange with his bank for an overdraft (known as a cash advance),[271] or by paying a small commission he may get the bank to "accept" a bill drawn directly on it. With a bank's acceptance a bill, even though drawn by the humblest shopkeeper, becomes a prime investment and may be sold openly on the market at the lowest terms that prevail.[272] On the Continent bank acceptances thus open the market widely to all who can arrange for them, while the open market for single-name paper in this country is restricted to large firms of established reputations. In view of the prevailing practice in Europe it is interesting to inquire why in America there should have been this peculiar development in the discount field. It has been pointed out that before the Civil War trade paper, as it is now called, was pretty generally used, but the exigencies growing out of the war completely changed the situation. The excessive issue of the greenbacks and the uncertain value of credit instruments covering any appreciable period of time led sellers to endeavor to bring business to a cash basis. Credits were shortened to 30 or even to 10 days, and strong emphasis was placed on immediate payment. With cash discounts alluringly liberal, merchants could ill afford to forego them, and cash payments tended to become more and more common. Big houses offered single-name paper to raise the needed funds, and little by little the older system of settling by the promissory note of the debtor was supplanted by the system of selling on open account, with the choice given to the debtor of a liberal discount for cash or the payment of the due amount "net" at the expiration of a relatively short credit period. The transition was hastened by the development of the practice of selling goods by sample instead of by personal selection from an accumulated stock. Under the old practice the buyer bought under the rule of _caveat emptor_, but when purchasing by sample he had a right to demand that the delivered goods attain the standard of the sample, and there grew up in consequence the doctrine of "implied warranties." These warranties have in some lines been pushed very far,[273] but in any case the buyer would hesitate to pay for goods until he had had a chance to inspect them, and hence he would as a rule demand that they be consigned to him on open account. The seller, however, cannot afford to wait for payment until his accounts become due. Too much of his capital would be tied up. He is forced, therefore, to go to his banker and, on the basis of his accounts receivable, to offer his own note and thus to obtain release of the capital otherwise temporarily beyond reach.... Single-name paper virtually monopolizes the field.... NO SYSTEM OF BANK ACCEPTANCES AND THE ABSENCE OF AN OPEN DISCOUNT MARKET [274]The weakness of our banking system as compared with the systems of Europe may very certainly be attributed in part to the omission of the bank act to permit bank acceptances. It is a weakness, furthermore, which involves the country in serious economic loss. Without a national discount market, the great majority of our merchants and manufacturers are compelled to confine their borrowings to American capital, either through the discounting of their paper with their local banks or through its sale to note brokers. All but the strongest and largest are practically excluded from the benefits of foreign competition for their paper. Aside from the great concerns with international ramifications, which are able to arrange their own credits abroad, our merchants and manufacturers are not benefited by low foreign discount rates, except in so far as note brokers, who make it a practice to borrow in Europe with commercial paper as collateral, are better able to finance their purchases. What is more, they receive relatively little advantage from an accumulation of funds in New York banks. Low call loan rates have an indirect rather than a direct effect on the rate which the mercantile community has to pay for money. Low call rates, in other words, are an indication more especially of stagnation in the stock market than of a lack of demand for accommodation from merchants and manufacturers. Such rates do not act as a stimulus to trade in general any more than high call rates act as an immediate check to over-expansion. It is not only in our domestic trade that the country suffers through the want of a discount market. Without bank acceptances we are at a distinct disadvantage in connection with our foreign trade. Our importers, unable to open credits with their banks, as is done abroad, are not in a position to finance their purchases upon as favorable a basis as the importers in other countries, as English cotton spinners, for example. The English spinner about to purchase cotton in America arranges for his bank to accept sixty or ninety days' sight bills drawn on it by the American shipper. The latter draws his bills on the English bank and attaches the documents covering the shipment, such as the bills of lading, insurance certificates, invoices, etc. He then sells them to a New York bank, thereby receiving immediate payment for his cotton. The New York bank forwards the bills to its London correspondent, which presents them for acceptance to the bank upon which they are drawn. Upon the acceptance of the bills the documents are delivered to the accepting bank, which then turns them over to the spinner upon whatever arrangement has previously been made. The accepted bills are discounted by the New York bank in London and the proceeds placed to its credit there. The New York bank can afford to pay a high rate for such bills, as they are drawn on prime bankers, rendering certain their ultimate payment. The purchase of the bills does not, moreover, necessitate any outlay of money, as against the credit to be received through the discount of the bills the New York bank can immediately sell its checks on London. Without such banking facilities--that is, the ability to arrange with his bank to accept time bills drawn on it by a foreign shipper, the American importer is compelled to finance his purchases in either one of two ways. He may pay for the goods at once by remitting funds direct to the shipper. This, however, ordinarily necessitates the negotiation by the importer of a loan on his promissory note. If he is not in a position to secure such an advance he must shift the burden of providing funds to finance the shipment, from the time it is forwarded until it is to be paid for, upon the foreign shipper, who is then in a position to exact terms more favorable to himself through an adjustment of prices. The practice in connection with this method of making payment for foreign purchases is for the shipper to draw his draft on the American importer and turn it over to his banker to forward for collection. Such drafts, drawn as they are on individual importers and not on banks whose standing is well known abroad, must be sent for collection since there is no general market for them. Practically the only way in which a foreign shipper can realize immediately on bills of this character is to dispose of them to his own banker or get him to make an advance on them. Either of these two methods of financing our imports is expensive even when the time between the shipment and the receipt of the goods is short. When the time is much longer, as in the case of imports from South America and the Far East, the cost is almost prohibitive--that is, so great that we can not compete on an even basis with foreign buyers. In fact, we might be practically excluded from these markets if a makeshift were not possible. Our importer gets around our lack of banking facilities by having his bank arrange a credit with its London correspondent. He receives an undertaking, called a commercial letter of credit, giving the terms of the credit--that is, the name of the London bank upon which the bills are to be drawn, the amount which may be drawn, the character of the goods which are to be purchased, the tenor of the bills, and the documents which must accompany them. On the strength of such a letter of credit, the shipper in South America, for example, is able to dispose of his bills on London and thus receive immediate payment for his goods. The local bank which buys the bills sends them with the documents to its London correspondent, which presents the bills to the bank on which they are drawn--that is, the bank with which the credit was opened. Upon the acceptance of the bills the documents are delivered. They are then sent by the London accepting bank to the New York bank which opened the credit and the latter delivers them to the importer against his trust receipt. Twelve days prior to the maturity of the bills in London the New York bank presents a statement to the importer indicating the amount of pounds sterling which must be remitted to London to provide for their payment at maturity or rather a bill stated in dollars for the amount of pounds sterling drawn under the credit. In this purchase of exchange the importer makes payment for his goods. This method while workable is obviously cumbersome, yet it is practically the only one which the American importer can follow in connection with such imports. It is expensive for the importer, for not only must he pay his bank a commission for arranging the credit, but there is included in this commission a charge made by the London bank for its acceptance. Further than that the importer must take a material risk in exchange. At the time a credit is opened the cost of remitting, say £10,000 to take up the bills in London, might be only $48,600, or at the rate of $4.86, whereas by the time the bills actually mature exchange may have risen and cost him $4.87, or $48,700. As a result of the inability of our banks to finance imports through the acceptance of time bills, American importers are, then, made dependent to a large extent upon London, and are required to pay London a considerable annual tribute in the way of acceptance commissions. This practice not only adds to the importance of London and militates against the development of New York as a financial center, but it at the same time works serious injury to our export trade. Since time bills can not be drawn on our banks from foreign points against shipments of goods to the United States, there are consequently in such foreign countries very few bills which can be purchased for remittance to the United States in payment for goods which have been bought here. In other words, under our present banking system our imports do not create a supply of exchange on New York, for example, which can be sold in foreign countries to those who have payments to make in New York. This means that our exporters are also, to their great disadvantage, made dependent upon London. It means that when they are shipping goods to South America and to the Orient they can not, when they are subject to competition, advantageously bill them in United States dollars. They naturally do not care to value their goods in local currency--that is, in the money of the country to which the goods are going--so their only alternative is to value them in francs or marks or sterling, preferably the latter, owing to the distribution and extent of British trade, creating throughout the world, as it does under the English banking system, a fairly constant supply of and demand for exchange on London. When we come to bill our goods in sterling, however, it is at once seen that our exporters are obliged to take a risk of exchange, which is a serious handicap when competing with British exporters. Our exporters who are to receive payment for their goods in sterling must previously decide on what rate of exchange will make the transaction profitable. If, in an effort to safeguard themselves against a loss in exchange, they calculate on too low a rate for the ultimate conversion of their sterling into dollars, their prices become unfavorable compared to those made by British exporters and they lose the business. If they do not calculate on a sufficiently low rate they get the business but lose money on the transaction through a loss in exchange. The prohibition of bank acceptances not only acts as a hamper upon our domestic and foreign trade, but is detrimental to our banks as well. It is the small country bank which is chiefly affected. The business of the country bank, so far as the employment of its funds is concerned, may be divided into two classes--that which relates to advances to local customers and that connected with the investment of its surplus. It is in respect to the latter that the matter of acceptances is important. Under the present limitations of the National Bank Act there are three principal ways in which a country bank may render its surplus funds productive. It may deposit them with its reserve agent. This means a low interest return, too low in fact to permit of only a relatively small amount being thus employed. It may invest in bonds. In this way an increased interest return can be secured, providing a wise selection of securities is made, but it partakes of the nature of speculation. The third way is to buy commercial paper. Such purchases give an ample interest return and there is no savor of speculation. Even this method of employing a bank's funds, however, is far from satisfactory. It means the investment in a security for the strength of which the bank must depend on the word of note brokers, the rating of the mercantile agencies, or the opinion of some correspondent bank. It means, furthermore, the tying up of the bank's funds for a fixed period. If national banks were permitted to accept time bills the country bank could then invest its funds in paper bearing the guaranty of some great bank with whose standing it is perfectly familiar. Risk such as now has to be taken would be eliminated. What is vital, however, is that with a national discount market an investment in a bank-accepted bill is one which could be realized upon immediately. Commercial paper and bank acceptances are both discountable. The prime difference between them, as affecting a country bank, is that they are not both readily rediscountable. Herein probably lies the reason for the strong prejudice against rediscounts which exists among bankers in the United States. In this country when a bank discounts a piece of commercial paper it is discounting something which for its security depends solely on its maker. Should the bank desire to realize on this paper it could do so by rediscounting it, but such a rediscount would be practically equivalent to a loan to the bank on the strength of its own name. In other words, to rediscount its commercial paper would affect a bank's credit. To ask for a rediscount is to ask for accommodation. This would not be the case with bank-accepted bills. If such bills were discounted by a country bank as a means of investing its surplus and it was desired to realize on them such a rediscount would be made not on the name of the country bank, but on the name of the accepting bank. A rediscount in this instance would not constitute a loan to the country bank and would have absolutely no effect on its credit. It would merely indicate that some more profitable business had arisen in which to employ its funds or that it was desirous of increasing its reserve. Since the reserves of interior banks are so largely concentrated with them and it is essential that they keep their assets in an especially liquid condition, the prohibition of bank acceptances works injury to the banks at the country's financial center, New York, in a different way. It deprives them of what London banks, for example, have--that is, a mass of the soundest securities against which to loan their money on call or in which they may invest their funds for very brief periods--bills of exchange, covering genuine commercial transactions, bearing the acceptance of prime bankers. Unquestionably such securities as a basis for loans are preferable to stock and bonds, but without them New York banks must have recourse to day-to-day loans on the Stock Exchange. Moreover, when the demand for such loans is limited. New York banks are forced into the keenest kind of competition, a competition which, as has been pointed out, is not only of little benefit to trade but which, through the lowering of the money rate, actually stimulates speculation. Furthermore, without a steady money rate such as exists in countries possessing discount markets, New York banks are left with no reasonable or satisfactory basis upon which to fix a rate of interest to pay for the deposits of country banks. In London interest on bank deposits is fixed at a certain percentage below the Bank of England discount rate, usually 1-1/2 per cent.--that is, a rate which fluctuates with the value of money and normally leaves a certain margin of profit to the London bank. The same practice is followed in all the great financial centers of Europe. With us, country banks receive a fixed rate of interest for their deposits, usually 2 per cent., the year around, regardless of fluctuations in the value of money. The unscientific nature of such a rate is obvious. When the call loan rate is high country banks do not receive interest in proportion to the value of their deposits. When it is low the New York banks pay more interest than the deposits are worth. In the latter instance the New York banks are forced into injurious competition with one another. They are in much the same position as competing railroads were earlier in our history, with results similarly baneful. With the railroads it was worth while to secure traffic even at a losing rate, as no matter what the return it helped, if only a little, toward meeting fixed charges. Oftentimes with the New York banks to-day any rate which they can secure for their money whether losing or not is acceptable as helping to meet this fixed interest charge on bank deposits. To pay 2 per cent. for deposits and to keep a 25 per cent. reserve a bank must loan its money at 2-3/4 per cent., to come out even, taking into consideration the actual expense of making and recording the transaction. It is better to loan at 1-3/4 per cent., however, than to let the money lie idle. It is better to lose 1 per cent. than to lose the entire 2-3/4 per cent., as would be done in case no loans at all were made, clerk-hire being just as much a fixed charge as interest. With the amendment of the National Bank Act, to permit the acceptance of time bills, such ruinous competition would cease. The funds of the banks would come to be principally invested in trade paper and stock-exchange loans would be relegated to a position of secondary importance, as in London and on the Continent. The field for the investment of their deposits would be greatly broadened, to the benefit both of the banks and trade in general. To remedy this primary defect in our banking system, to make possible the financing of our domestic and foreign trade along the lines which have proved so advantageous in other countries, to provide negotiable paper of a character suitable to the investment of foreign funds, paper which can not only be discounted but rediscounted, to give trade the advantage of bank surpluses accumulated both in the country at large and in New York, to lessen the evils of speculation, to afford a reasonable basis for the calculation of interest rates on bank deposits in central reserve cities, to bring New York into the circle of those financial centers between which funds move naturally as discount rates rise or decline, to secure the advantage of the competition of foreign capital for our trade paper, can be put in the way of accomplishment by the insertion of a paragraph or two in the National Bank Act. * * * * * [275]The European financial system is constructed upon discounts as its foundation; the American system is constructed upon bonds and stocks as its foundation. Bank notes in Europe are issued mainly against bullion and discounts; in the United States mainly against bullion and bonds. The quick assets held by European banks against their deposits consist of discounts or call loans, largely secured by discounts. The quick assets of American banks ... are primarily call loans on stock and bond collateral. In Europe the daily plus and minus of money requirements are adjusted by the use of the discount market--that is to say, in a final analysis, by purchase or sale of bills. (Calling in or putting out money on call where the loans are secured by bills amounts, in effect, to a sale or a purchase of bills.) In a last analysis this means that in Europe attempts to liquidate are primarily appeals to the whole nation to liquidate its temporary commercial investments, the brunt of such liquidation being borne by the entire community, and the pressure being constantly subdivided, every member of the community thus contributing his share. As a majority of discounts represent goods in process of production or on the way to consumption, liquidation with them primarily expresses itself by a falling off in new production, while the consumer, on the other hand, can not stop consuming and must therefore continue to pay. The brunt is thus borne by the whole nation and adjustment follows without violent convulsions. In sharp contrast with such a system the attempts to liquidate in the United States are directed primarily at the contractors of stock exchange loans. This means that a comparatively limited number of debtors are called upon to sell their securities. This they can do only by finding new investors, who, as a rule, are at such times comparatively rare, because when acute pressure arises it generally originates in the inability of the investor to purchase because of lack of funds or in his unwillingness by reason of his distrust of the financial situation. The concomitant of this is that those forced to sell securities at such times must offer them at sufficiently reduced prices to bring about an entire change in the attitude of the investor. The difficulty here is that violent reductions of prices in themselves cause distrust, and low prices caused by distrust not only frighten away purchasers but, in addition, unsettle the owners of securities and thus cause them to join the ranks of the sellers. An acute convulsion, therefore, must inevitably follow before the tide can be turned.... Of course, general liquidation in Europe includes a liquidation of securities, just as liquidation in the United States also includes liquidation of commercial paper as it matures. But the difference is that in Europe bills will be the main factor and securities will play a much more subordinate part, while with us just the reverse is true. THE ESSENTIAL CONDITIONS FOR THE ESTABLISHMENT OF AN INTERNATIONAL DISCOUNT MARKET [276]The essential conditions for the establishment of an international discount market are: 1. Every bill offered for discount should be based on a commercial transaction where value passes. Finance or accommodation bills should be extremely rare and capable of satisfactory explanation. 2. It follows that almost invariably the bill will arise out of a sale of goods and will be in the form of a draft by the seller upon the buyer, and accepted by the buyer. 3. It will thus be a two-name bill, and not an individual promissory note. How far you can change your system in this respect and how far the powers of your new Federal banks can be used to induce such a change, is a question which I cannot pretend to answer, but which you will no doubt be able to answer. 4. The bill should be drawn for a period neither too long nor too short. The period should be sufficient to allow of a resale of the goods on which the bill is based, thus making the bill in a sense self-liquidating. The usual period is three months. 5. While there should be a large proportion of trade bills, there should be a still larger proportion of acceptances by banks and finance houses, based, of course, on collateral, which usually takes the form of imported produce. In Germany, however, I understand that banks accept a good many drafts arising out of internal transactions. 6. If the market is not to be merely a home market, but international: that is, attractive to foreign bill buyers, an important and desirable step would be the opening of American banks or branches of American banks in foreign exchange centres, such as London, Paris, Berlin, Amsterdam, Buenos Aires, Shanghai, and so on, and these banks should always be prepared to encourage American bills by buying, at reasonable rates of exchange, bills on New York, Chicago, and other American centres, payable in dollars. 7. Your usury laws would have to be modified so as to allow discount rates to move freely upwards if required. 8. Your Federal reserve banks which are intended to be the equivalent of the Central banks of other countries, such as the Bank of England, Bank of France, and the Reichsbank, should be prepared to rediscount approved bills at all times and to any extent. The advantages to you of such a market would be the same advantages that we possess, namely, liquid employment for short money; power to meet demands for money without disorganizing stock exchange prices; power to check overtrading at home, and finally, power to check a foreign drain of gold. CASH STOCK EXCHANGE DEALINGS [277]In England, France, and Germany there exist monthly or half-monthly settlements of stock exchange transactions, and as stock exchange loans run from one settlement to the next the amount of money employed on the stock exchange between settlements remains stationary. If, at the settlement, it develops that commitments on the stock exchange have increased and that a larger amount of money is needed there, so much additional money will under normal circumstances be withdrawn from the bill market and go into the stock exchange. If less money is wanted on the stock exchange, so much more will go into the bill market. Without entering upon a discussion of the question of cash stock exchange dealings versus stock exchange dealings per settlement (for which, be it said in passing, a suitable method of weekly stock exchange settlements can probably be devised for this country, combined with provisions for proper margining in order to prevent over-stimulation to gambling), we are, for the purposes of this article, interested only in the effect of this method of cash dealings on the whole financial system. An exclusive system of cash dealings brings about the pre-ponderance of the call loan on stock exchange collateral. But for the existence of the seducing call loan, which is one of the gravest dangers and curses of our system, we should have been forced to develop our bill market as a regulator of our daily money requirements. In that case, instead of seeing the idle money of the whole nation poured into stock exchange loans when trade is inactive--thus unduly stimulating speculation when it should be discouraged--and again withdrawing money from the stock exchanges in order to provide for the business of the whole nation when trade becomes active--thus bringing about anxiety and convulsions on the stock exchange in the face of prosperity--we should have a system based on bills; that is to say, based on the broad foundations consisting of the commerce and trade of the whole nation, and we should then enjoy an almost uniform rate of interest all over the country, gently rising and falling within moderate bounds, instead of the violent fluctuations and unbearable conditions to which we are now subjected. The aggregate amount invested by a nation in trade and commerce should be and is many times the amount invested in stock exchange loans, which latter represent undigested securities and securities carried for speculative investors. Our way of doing business may be illustrated by two adjoining reservoirs, one small and one very large. The small one represents the stock exchange and contains the call loans; the large one represents the general business of the country, as expressed by commerce and industry. In Europe the small reservoir is regulated by pumping water into it from the large one or by withdrawing water from it into the large one. In this way the outflow and inflow of the large reservoir are scarcely perceptible, and yet there is no difficulty in regulating the small one. With us, the reverse is done. If there is a shortage of water in the large reservoir we draw on the small one and, in order to increase the water in the large reservoir by perhaps an inch, we empty the small one altogether, or else in order to decrease the amount of water in the large reservoir by an inch, we fill the small one to overflowing. NO POWER TO LEND ON REAL ESTATE[278] Most of the restrictions in the national banking law have to do with loans, reserves, or the issue of notes. Of these the restrictions upon loans are by far the most serious impediment in competing for business with state banks and trust companies. For the banks outside the large cities this is particularly true of the provision which forbids loans upon real estate as security. This restriction is based upon a sound banking principle, learned after much bitter experience. But the experience which led to a complete prohibition of real estate loans was gained amid the economic conditions of the first half of the last century, and the principle itself is one which is applicable only to a particular form of banking organization. While the country was in process of settlement, with an abundance of unoccupied fertile land, real estate was a security of most uncertain value. Moreover, the wildest of the speculative movements which preceded all our early crises were invariably in land. At present, land values are far more stable, and real estate is everywhere included among the most conservative of investments, proper for all with the one exception of commercial banks. For banks, all of whose obligations are payable upon demand, the real estate loan, quite regardless of its safety, is wisely considered unsuitable. Such loans are commonly wanted by borrowers for a considerable period of time and, therefore, they can not readily be reduced in amount even by an individual bank. In other words, they are not liquid. But the importance of this quality in all its assets disappears when a bank begins to acquire time or savings deposits, as well as those payable on demand.... The example of the trust companies shows that a great variety of financial business can be carried on safely and profitably under a single management. Failures among them have been comparatively few in number, and it would be difficult to find a single instance of disaster which could be attributed to the variety of business carried on. Some of the advantages which the banks would derive if they were able to lend on real estate are so evident that they require little more than mere mention. It would give them more of the most profitable kind of business, that which has its origin in the neighborhood of the bank. The immediate return is generally greater than can be secured from the employment of funds in the money centers or in the purchase of paper from note brokers. Moreover, in fostering the growth of wealth and population in its locality a bank is laying a solid foundation for the future expansion of its own business. Finally, the ability to lend on real estate will often enable a bank to secure valuable customers who would otherwise go elsewhere. It has been the unpleasant experience of many a national banker to be obliged to refuse a loan to a would-be borrower who has nothing but real estate to offer as security and to see him enter a neighboring state bank or trust company where there was no legal obstacle to the transaction. Relations once established are pretty certain to continue even after the borrower has security which falls within the provisions of the national law. There are then at least three distinct advantages which may be expected to follow if the national banks are permitted to lend on real estate. It would be profitable for the banks; it would be of advantage to the localities served by the banks; and, finally, it would enable the banks to compete with state institutions upon a more equal footing,[279] thus checking to some extent the relative decline of banking under the national law. THE INDEPENDENT TREASURY AS A SOURCE OF WEAKNESS IN OUR BANKING SYSTEM[280] For many years the banks of this country have conducted a persistent agitation for the abolition of the Independent Treasury system. It has been their contention that the Independent Treasury was an archaic and inefficient system of administering the finances of the nation; that it worked serious hardship upon the banks and the business of the country, and that any system of reform should include its abolition. The treasury is, in reality, a central bank of deposit with branches, run by the Government, in which the Government is the only depositor, and from which there are no borrowers. The central office of the Treasury is situated in Washington, while there are ten subtreasuries or branches scattered among the various large cities of the country. The most important subtreasury, from the standpoint of the volume of business handled, is located in New York City.... The United States is the only large nation in the world which has a treasury system of this sort, and this fact has been made much of in the agitation for its abolition. DIFFICULTIES ARISING FROM THE TREASURY SYSTEM There is no room for dispute that many features of the Independent Treasury have, in the past, been the source of serious difficulties. However, we must recognize that within the last decade, and particularly within the last two or three years, most of the glaring defects have been eliminated through a liberalization in methods, involving, in brief, a deposit of a very considerable amount of the Government's money in national banks rather than carrying it locked up in the vaults of the Treasury, through more liberal administrative regulations by which payments to the Treasury could be made with certified checks, and through facilitating in other ways the transactions of business men with the Treasury Department. CORRESPONDENCE OF TREASURY RECEIPTS AND DISBURSEMENTS ... The real criticism against the Treasury is that it causes the tying up of money, not over a series of years, but during the months in which the banking system of the country most needs it. This condition is the result of the lack of correspondence between government receipts and disbursements. During the first four months of the year the receipts are less than in any other period. During the month of May, the receipts sharply increase, reaching their maximum about the first of June, and continuing at a very high rate over that month. In July the income falls off, reaching by the end of the month a point a little above that which prevailed in April, after which it gradually increases during August and September. About October first the tide turns and the receipts fall off sharply during that month, while during December the revenue again increases. As contrasted with this the government expenditures change only in a general way.... EXAGGERATION OF TREASURY EVILS It should be stated that whatever embarrassment exists because of this condition, and which as a matter of fact has been grossly exaggerated, is found almost entirely in New York City. However, in order to reduce as much as possible the objections raised by the bankers and to prevent money being taken out of circulation and buried in the Treasury, where it would be of no service to the country, the Secretary of the Treasury, on January 9, 1913, issued the following order, which inaugurated a radical change in the manner of handling and disbursing the public funds. The objects to be accomplished were announced in the order as follows: "For the purpose of bringing the ordinary fiscal transactions of the Federal Government more nearly into harmony with present business practices, it has been determined that the daily receipts of the Government shall be placed with the national bank depositaries to the credit of the Treasurer of the United States. Disbursements will be made by warrant or check drawn on the Treasurer, but payable by national bank depositaries, as well as by the Treasury and subtreasuries." Secretary McAdoo, in his report for the fiscal year ending June 30, 1913, in speaking of this, stated that while it had caused some embarrassment "the difficulties at first encountered are disappearing, and the system appears to respond to the public requirements, and to be accomplishing the purposes for which it was devised." LACK OF CENTRAL CONTROL [281]There is no country in the world where the volume of currency in circulation and the demand for bank credits fluctuate more widely than in the United States. This is due to the great expanse of our territory, to the annual harvest requirements of the agricultural sections, to the prevailing business activity and enterprise, and to the rapid and unequal increase of population and wealth in different sections. Furthermore, there is no country in the world where intelligent control over bank credits and bank reserves is needed more than in the United States. There are in the United States nearly seven thousand national banks, besides twice as many state banks and trust companies. Each of these institutions acts for its individual interest alone, independently of the others, and the prevailing tendency of each at all times is to expand its credits to the limit permitted by law. The country banks lend their surplus resources in the form of deposits at interest to the banks in the larger cities, and the banks in the principal money centres commonly expand their credits as much as practicable by lending on call such sums as they deem it unsafe to lend on time or by discount of commercial paper. Each bank with a deposit in another bank assumes that, in case of need, it can strengthen its reserve by drawing upon this deposit; but it fails to consider that, when thus it strengthens its own reserve, it must to the same extent weaken the reserve of the other bank, and that the deposits of banks with other banks add no strength to the general credit situation. Each bank that has loaned money on call assumes that, in case of need, it can strengthen its reserve by calling such loans; but it fails to consider that, generally, when a loan is called the borrower is obliged to borrow the same sum from some other bank, although a high rate of interest may be exacted, and, therefore, that call loans affect the security of the entire bank situation practically to the same extent as time loans. In the United States there is no way of regulating the supply of bank credits and of holding part of the potential supply in reserve for periods of financial stringency. Consequently, nearly always there is either an over-abundance of money (meaning credit which the banks are ready to lend) or a money famine. It has been argued that the volume of credits granted by the banks depends upon business activity and upon the consequent demand for credit and not upon the power of the banks to grant credits, and, therefore, that low interest rates have little effect in causing an expansion of bank credits. Experience, however, shows that the contrary is the case, at least in the United States. It is true that, when there is loss of confidence and when business is depressed, interest rates are low, because there is less currency in circulation and more in the bank reserves, while at the same time the demand for bank credits is diminished. It is true, also, that low interest rates will not stimulate speculation and enterprise unless people have confidence and are ready to speculate and to embark in new enterprises. But we know by experience that when people are in a mood for speculation and for business expansion low interest rates operate as a powerful stimulus to speculation and business expansion. A leading banker has said: "In the long run commerce suffers more from the periods of over-abundance (of money) than from those of scarcity. The origin of each recurring period of tight money can be traced to preceding periods of easy money. Whenever money becomes so over-abundant that bankers, in order to keep it earning something, have to force it out at abnormally low rates of interest, the foundations are laid for a period of stringency in the not far distant future, for then speculation is encouraged, prices are inflated, and all sorts of securities are floated until the money market is glutted with them."[282] [The need of intelligent control over discount rates and bank credits is (was) imperative.] ABSENCE OF REGULATION OF RATIO OF DEPOSITS TO CAPITAL AND SURPLUS [283]The reports of condition of the national banks, according to the statements of September 12, 1914, to the Comptroller of the Currency, show that, on an average, the total deposits of all national banks amount to about four and six-tenths times their total capital and surplus. This means that the average capital and surplus of these banks is equal to approximately 21 per cent. of the total amount of deposits. There are, however, national banks whose deposits amount to ten or more times their capital and surplus, and in these cases the margin of protection to depositors is only 10 per cent. or less of the sum total of deposits. Usually the amount of money which a bank has invested in loans approximates the amount of its deposits. In the case of a bank whose loans equal its deposits, and whose deposits are approximately ten times its capital and surplus, it is obvious that the loss of over 10 per cent. in loans would wipe out both capital and surplus and destroy the solvency of the bank, rendering it unable to pay its depositors. The view is held by many practical bankers and experienced economists that it is not sound banking for an active commercial bank to be allowed to receive deposits in excess of ten times its capital and surplus. I am firmly impressed with the correctness of this view, and respectfully recommend to the Congress that the national-bank act be amended so as to provide that no national bank shall be permitted to hold deposits in excess of ten times its unimpaired capital and surplus. Perhaps it might be wiser to make this limitation eight times the capital and surplus. Such a limitation need not interfere with the growth and development of the bank. When its deposits approach an amount equal to ten times its capital and surplus, or whatever other limitation may be fixed, arrangements may be made to increase its capital. A bank whose deposits amount to ten times the capital and surplus, if efficiently managed, should be so profitable that there would be no difficulty in providing for an increase of capital by the sale of additional stock, and when the proposed increase shall have been authorized by two-thirds of its stockholders and approved by the Comptroller of the Currency, it can be made promptly effective. A commercial bank whose capital and surplus amount to less than one-tenth of its deposits is, except possibly under very exceptional conditions, doing business on too small a capital and upon too narrow a margin for safety, and does not furnish its creditors the protection to which they are entitled against unexpected losses and contingencies which are liable to, and do, so frequently arise.... BANKING ABUSES [284]... Among the many abuses and violations of law and regulations with which the department has to contend are excessive loans; overdrafts; loose and unbusinesslike methods of accounting; excessive borrowings by the banks; investment of the bank's funds in securities not authorized by law; charging of usurious rates of interest; unlawful loans on real estate; excessive loans to officers, clerks, and employés of the bank employing them; loans to a bank's officers or employés and others through "dummies"; loaning money, directly or indirectly, upon the bank's own stock; transaction of a brokerage or commission business by the bank's executive officers, the commissions thus collected being sometimes appropriated personally by the officers and sometimes going directly or indirectly to the bank; false statements of directors as to ownership of stock; false statements made by bank officers, such as including as cash or cash items memoranda of moneys due from one source or another which do not represent actual cash and can not be immediately converted into cash; and failure or refusal when so directed to charge off bad debts and other ascertained losses; delay on the part of directors in taking the oath of office. For many of the offences indicated the only penalty which can be enforced by the Comptroller's office is the forfeiture of the bank's charter by suit in the United States Court. This in many cases would prove a great hardship to innocent stockholders and depositors, and can only be resorted to with much reluctance by this office.... USURIOUS INTEREST RATES [285]All the national banks of the country have been required in each report of condition made to the Comptroller's office since January 1 last to state under oath the highest rate of interest they have charged since the preceding report and the average rate of interest charged by them on all loans since the preceding report. The reports received at the Comptroller's office show indisputably that in some States and sections borrowers, especially small borrowers, have been and are being subjected to extortions and exactions which the average man would consider impossible in this enlightened age. One thousand and twenty banks in different sections of the country, out of the total of 7,615 banks, admitted that they were receiving an average of 10 per cent. or more--some an average of 18 per cent.--on all their loans. Those receiving an average of 10 per cent. and upwards included 2 banks in Illinois, 6 in Minnesota, 2 in Missouri, 23 in Georgia, 6 in Florida, 21 in Alabama, 2 in Louisiana, 315 in Texas, 17 in Arkansas, 3 in Tennessee, 90 in North Dakota, 25 in South Dakota, 18 in Nebraska, 5 in Kansas, 38 in Montana, 14 in Wyoming, 37 in Colorado, 25 in New Mexico, 300 in Oklahoma, 12 in Washington, 10 in Oregon, 13 in California, 2 in Utah, 1 in Nevada, and 33 banks in Idaho. Let me illustrate the methods of some of these bankers by giving you the facts and figures as taken from the sworn statements submitted to the Comptroller's office by the national banks in two particular States in the Southwest. In one of these States there were 131 banks which reported that they charged a maximum rate of interest ranging from 15 per cent. to 24 per cent. per annum, 67 banks whose maximum rate ranged between 25 per cent. and 60 per cent. per annum, 22 banks which charged between 60 per cent. per annum and 100 per cent. per annum, 18 banks whose maximum rate was from 100 per cent. to 200 per cent. per annum, and 8 banks which owned up to having charged maximum rates ranging between 200 per cent. and 2,000 per cent. Most of these disgraceful and unprecedented rates were for comparatively small loans.... These figures are not results of the rule, applied by many banks, not to pass a loan on their books for less than a dollar.... When we find loans made by national banks for $25, $50, $100, $200, $500, and $2,000 or more, at 40, 50, 100, or 1,000 per cent., it is merely a hideous gamble on how long the borrower can keep starvation from his door and live and work. Yet I am told on good authority that in one State, largely agricultural, reports from nearly 200 banks--lending chiefly or largely to farmers--show losses of only a fraction of 1 per cent. on farmers' loans, while the average interest rate in these particular banks is 12 per cent. to 15 per cent.--and the maximum rate 30 per cent. or 40 per cent., the banks paying large dividends. We read much of the infernos of the slums of the great cities, of degradation and misery and squalor, of the grinding callousness of tenement landlords and sweatshop operators. Here in the country we find bankers, men in business that should be the most respectable, as it is the most responsible, of all secular avocations, literally crushing the faces of their neighbors, deliberately fastening their fangs in the very heart of poverty.... A well thought out, carefully constructed, conservative system of rural credits for the development of agriculture and the increase of our wealth and resources by offering encouragement and opportunity to the ambitious farmer will come presently. When it comes all of us will share the splendid results.... BANKERS' VIEW OF USURIOUS INTEREST RATES [286]On February 25 the following statement was "given out" from the office of the Comptroller of the Currency: The Comptroller of the Currency received to-day from the Farmers' Grain Dealers' Association of Iowa notification of the adoption at the convention of that association in Des Moines, Iowa, on the 17th instant, of the following resolution: _Be It Resolved_, By the Farmers' Grain Dealers' Association of Iowa, representing 40,000 members, as follows: That we are as much opposed to bank discrimination in interest rates as to railroad discrimination in freight rates. We oppose private control of the public currency. That we strongly commend the Comptroller of the Currency for his courageous exposure of bank usury; and we unalterably oppose the efforts of the guilty parties to abolish his office. There has been no better statement of the Comptroller's position than is here given--credit standing and variations of it must have no influence on interest rates and anyone who wishes his office abolished is guilty of usury; or, conversely, only those guilty of usury wish the office abolished. The statement is inadequate only in the failure to define what is meant by "private control of the public currency." FOOTNOTES: [249] Conway and Patterson, _The Operation of the New Bank Act_, pp. 1, 2. J. B. Lippincott Company, Philadelphia, 1914. [250] John Skelton Williams, Comptroller of the Currency, _Democracy in Banking_, Address delivered before the annual convention of the North Carolina Bankers' Association, Raleigh, May 13, 1914. Printed in _Congressional Record_, 63d Congress, 2d Session, Vol. 51, pp. 10150-53. [251] A. Piatt Andrew, _The Essential and the Unessential in Currency Legislation_, in Questions of Public Policy, Addresses delivered in the Page Lecture Series, 1913, before the Senior Class of the Sheffield Scientific School, Yale University, pp. 62-70. Yale University Press, New Haven, Connecticut, 1913. [252] Adapted from John Perrin, _What is Wrong with Our Banking and Currency System?, The Journal of Political Economy_, Vol. 19, No. 10, December, 1911, pp. 856-865. [253] Paul M. Warburg. _The Discount System in Europe_, Publications of the National Monetary Commission, Senate Document, No. 402, 61st Congress, 2nd Session, pp. 33, 34. [254] Conway and Patterson, _The Operation of the New Bank Act_, pp. 203-207. J. B. Lippincott Company. Philadelphia. 1914. [255] Fred Rogers Fairchild, _Bond-Secured Bank Notes and Elasticity_, _The Outlook_, Vol. 88, No. 11, March 14, 1908, pp. 590-93. [256] [As was pointed out in an earlier chapter, the autumnal demand for currency in the agricultural sections of the country has fallen off appreciably since 1907.] [257] Fred Rogers Fairchild. _Fundamental Defects of the Bond-Secured Bank Notes_, _Bankers Magazine_, Vol. LXXVI, No. 4, April, 1908, pp. 487-90. [258] We are not considering the third alternative of issuing bonds at a heavy discount. [259] Adapted from W. H. Lyon, _A Gamble in Governments_, _Moody's Magazine_, Vol. XI, No. 1, January, 1911, pp. 181-186. [260] [In this extract the explanation of the so-called perverse elasticity of our national bank notes is given incidentally but very clearly.] [261] Adapted from John Perrin, _What is Wrong with Our Banking and Currency System?_, _The Journal of Political Economy_, Vol. 19, No. 10 December, 1911, pp. 856-865. [262] Eugene E. Agger. _The Commercial Paper Debate. The Journal of Political Economy_, Vol. 22, No. 7, July, 1914, pp. 663-667. [263] _Annalist_, March 9, 1914, p. 293. [264] _Annalist_, March 9, 1914, p. 294. [265] J. J. Klein, _Annalist_, March 23, 1914, p. 361. [266] _Ibid._ [267] During 1912 over $1,700,000,000 in notes were sold by reputable brokers, and they represented in these transactions from 2,500 to 3,000 concerns. In one large eastern state over two-thirds of the state banks and trust companies regularly invest a portion of their funds in this class of paper (J. A. Broderick, _Finance_, October 4, 1913, p. 328). On August 9, 1913, according to the report of the Comptroller of the Currency, the national banks held over six billions of dollars of commercial paper, most of which was single-name. [268] _Financier_, June 22, 1912. [269] J. G. Cannon, _Financial Age_, October 19, 1908. [270] P. M. Warburg, _The Discount System in Europe_, in Report of the National Monetary Commission. [271] _Ibid._: see also William Jacobs, _Bank Acceptances_, in Report of the National Monetary Commission. [272] Warburg, _loc. cit._ [273] E. D. Page, _Annalist_, March 16, 1914, p. 324. [274] Lawrence Merton Jacobs, _Bank Acceptances_, Publications of the National Monetary Commission, Senate Document No. 569, 61st Congress, 2d Session, pp. 9-19. [275] Paul M. Warburg, _The Discount System in Europe_, Publications of the National Monetary Commission, Senate Document, No. 402, 61st Congress, 2nd Session, pp. 23-25. [276] Adapted from James H. Simpson, General Manager, Bank of Liverpool, Ltd., _Some Leading Features of the London Money and Discount Markets_, an address delivered at the annual banquet of the bankers of the city of New York, January 19, 1914. [277] Paul M. Warburg, op. cit., pp. 28-30. [278] O. W. M. Sprague, _Banking Reform in the United States_, pp. 72-75, Harvard University, 1911. [279] The importance of real estate to the state banking institutions is shown in the Special Report from the Banks of the United States on April 28, 1909, recently published by the National Monetary Commission. For state banks real estate loans and mortgages amounted to $414,000,000 or 12-1/2 per cent. of total resources and for the trust companies to $377,000,000, more than 9 per cent. of their resources. [280] Conway and Patterson, _The Operation of the New Bank Act_, pp. 184-192. J. B. Lippincott Company. Philadelphia, 1914. [281] Victor Morawetz, _The Banking and Currency Problem in the United States_, pp. 47-50. North American Review Publishing Company. 1909. [282] From an address by Mr. James B. Forgan to the Texas Bankers' Association. [283] Report of the Comptroller of the Currency, 1914, pp. 20, 21. [284] _Ibid._, pp. 16, 17. [285] John Skelton Williams, Address before the Kentucky Bankers' Association, October 6, 1915. _The Commercial and Financial Chronicle_, Vol. 101, No. 2624, October 9, 1915, pp. 1137, 1138. [286] _Journal of the American Bankers' Association_, Vol. VIII, No. 9, March, 1916, pp. 755-6. CHAPTER XXXI THE FEDERAL RESERVE SYSTEM THE FEDERAL RESERVE ACT[287] THE SPIRIT AND OBJECTS OF THE ACT The primary purpose of the Federal Reserve Act of December 23, 1913, is to make certain that there will always be an available supply of money and credit in this country with which to meet unusual banking requirements. Banks of a new class, to be known as Federal Reserve Banks, are to be established, and upon these banks is to rest the heavy responsibility of supporting the structure of credit in periods of financial strain. The new banks are expected to keep themselves in a condition of such strength in ordinary times that the other banks may safely rely upon them for all needed cash and credit in emergencies. In the past, the banks in this country, when subjected to financial pressure, have relied mainly upon loan contraction and the selling of securities. In future it is expected that they will resort to the Federal Reserve Banks, securing additional funds from these by rediscounting commercial loans. If the new arrangements work well, loans in future will not be reduced merely for the purpose of strengthening the banks. Loan contraction will take place only when there is evidence of an over-extended condition of business; and even then contraction will be carried through gradually, so as to conserve all interests so far as may be possible. Under the new system a most important influence, if not the most important single influence determining the character of banking operations, will be just the reverse of what it has been in the past. To meet the heavy responsibilities placed upon the Federal Reserve Banks, two things are absolutely essential--good management, and ample powers and resources. Good management cannot be secured with certainty by means of legislative provisions, however carefully designed with that end in view. In the particular instance of the Federal Reserve Act, an ingenious combination of government and banking influence in selecting the management is provided. Purely banking operations are very largely to be handled by boards of directors, a majority of the membership of which is to be chosen by banks. General supervision, and for some purposes control, is placed with the Federal Reserve Board, which is to be appointed by the President of the United States, by and with the advice and consent of the Senate. Experience alone can determine the wisdom of these arrangements for securing effective management. The Federal Reserve Banks are to exercise wide powers, and would seem likely to have ample resources. The country is to be divided into not less than eight, nor more than twelve districts, in each of which a federal reserve bank is to be established.[288] All national banks are required, and qualified state banking institutions are invited, to subscribe to the capital of the reserve bank in their district. Subscribing banks, to be known as member banks, are required to keep a part of their reserve with their Federal Reserve Bank. These banks will presumably receive most if not all of the general funds of the United States Government. They will provide an elastic currency, issuing notes secured by their commercial assets. They are also empowered to undertake the business of collecting, and clearing checks throughout the entire country, thus providing an organization for making settlements between banks in different places, the lack of which has been one of the most serious defects in our banking system. Each Federal Reserve Bank will be a central bank for the section of the country which it is to serve. It will have all the responsibilities and most of the powers of central banks in the various European countries; but largely because the system is to be superimposed upon a fully developed banking system, some important provisions of the Federal Reserve Act are unlike anything to be found in European legislation. The Federal Reserve Banks are to receive deposits from the Government and from member banks only. Ordinarily they will lend to member banks only. All European central banks, though the bulk of their business is with banks and bankers, may deal with the general public and do so. The most striking divergence from European example, however, is the really novel plan of a system of regional banks in place of a single central bank. But the extent of this divergence is generally exaggerated. Political boundaries are indeed in large measure economic and financial boundaries as well; but central banks in the European countries do act and react upon each other, often working in harmony, and yet at times very much at cross purposes. If all Europe were brought under a single government, very likely the various existing central banks would be merged into a single institution. In some respects this would be advantageous, but it would not be absolutely necessary. Certainly European arrangements are not so fundamentally unlike those of a system of regional banks in a single country of great size, as to afford ground for the opinion that in setting up this system foreign experience has been altogether disregarded. The various considerations which led to the adoption of the plan for regional banks, rather than a single central institution, deserve careful attention, since they indicate the spirit and purpose of the Federal Reserve Act. A single central bank was the solution of the banking problem reached without a dissenting voice by the members of the National Monetary Commission. The bill which the commission prepared was a notable achievement. Pioneer work though much of it necessarily was, very few defects on the technical banking side were disclosed in the discussion which followed the statement of the proposed measure. Its provisions regarding banking operations, including relations with other banks, are embodied with few changes of an essential character in the Federal Reserve Act. Most of the important differences between the bill and the Federal Reserve Act reflect differences in spirit and purpose rather than in methods. A central bank and also the system of regional banks necessarily involve placing somewhere very extensive power to influence and control credit. In the present temper of public opinion, the possession of great economic power is not tolerated in the absence of a large measure of government supervision and control. But unfortunately, in framing its measure the monetary commission failed to realize the fundamental importance of this consideration as a factor in securing general public approval. In devising a form of organization, competent management and approval in banking circles were evidently the controlling factors. An organization was proposed under which out of forty-five directors, but three were to represent the Government, the remainder being selected in various ways by bankers. Support from some who were the most bitter opponents of the measure might have been secured if the bill had provided for a larger measure of government control; but an equal or even greater number of adherents would probably have been lost. Under the plan of the commission and indeed under any central bank plan, government supervision and control cannot be made effective without at the same time placing the details of operation in charge of government officials. Few of the most ardent advocates of a central bank were prepared to take this extreme step. Under the plan of organization of regional banks, the difficulty of combining government control and private management vanished. Purely banking matters, such as the granting of loans, could be placed with boards entirely or mainly composed of persons selected by the bankers whose funds were to provide most of the necessary resources. On the other hand, supervision and whatever measure of control might be deemed advisable, could be placed with a board mainly or entirely appointed by the President of the United States. Differences of opinion may be entertained regarding the particular arrangements in the Federal Reserve Act for selecting the various administrative bodies, and regarding the division of power between the directorates of the federal reserve banks and the Federal Reserve Board. If experience should disclose defects in this form of organization, it is flexible enough to permit at any time an extension of government or of banking influence. Another important advantage of the regional system is to be noted. The operation of a central bank would be far more likely to give rise to sectional antagonism. This danger was apparently fully realized by the members of the National Monetary Commission, and elaborate arrangements for selecting the management were devised in order to make certain that each section of the country should be properly represented. But obviously regional banks, managed by local people, are very much more certain to meet this requirement. Apparently it was an endeavor to remove still further the danger of sectional dissatisfaction that led the Monetary Commission to make its one serious departure from sound banking principle in framing its bill. A provision was inserted requiring rediscounts to be made at a uniform rate throughout the entire country, regardless of the wide differences in the demand and supply of capital, which occasion the existing wide differences in lending rates. Under the regional plan no such indefensible provision was found necessary. This important feature of the Federal Reserve Act outweighs such advantages in economy of resources and effectiveness in management as were sacrificed in substituting for a central bank the regional banks. The Monetary Commission in framing its bill seems to have been guided by two principles generally wise in legislation--the scope of the measure was limited to the single purpose of removing purely banking defects in our banking system, and no greater departure from existing arrangements was proposed than was essential for the purpose in hand. The Federal Reserve Act certainly runs counter to the first of these principles. Its primary purpose is similar to that of the bill of the monetary commission; but a secondary purpose evidently exercised a potent influence. This purpose was to decentralize credits by lessening the concentration of banking funds in a few large banks in the chief financial centers, and especially in New York. The regional system itself gained much support because it was believed by many that it would lessen the financial predominance of New York City. No comprehensive scheme of legislation with this object in view was inserted in the bill; but wherever two or more means of accomplishing the primary purpose of the bill were open, that one was evidently selected which it was believed might tend toward decentralization. In general the desire to decentralize credits explains why the act makes very much greater changes in existing arrangements than were proposed in the bill of the Monetary Commission. In the latter, the practice of depositing a part of the required reserves of the banks with reserve agents was left undisturbed. Under the terms of the Federal Reserve Act, such deposits are to be reduced by successive installments, and discontinued entirely three years after the passage of the act. From a purely banking point of view, much can be said for this great change; but it was certainly not absolutely necessary in order to secure the desired improvements in the working of our banking system. The new banking institutions for which the Federal Reserve Act makes provision cannot be put in successful operation (and in this it resembles the bill of the Monetary Commission) unless a considerable number of the existing banks enter into relations with them. An institution might have been established with large capital, and a monopoly of the right of note issue, authorized to act as government fiscal agent, and to deal with the general public. Such an institution would presumably in the course of time have become a central bank, the main reliance of other banks in emergencies. In order to avoid competition with existing banks, the act provides that the receipt of deposits by the Federal Reserve Banks, and their normal lending operations shall be confined to those banks which subscribe to the capital and maintain balances with them. Obviously, then, if banks in large numbers do not accept the arrangement, subscribing to the capital and relying upon the new banks for accommodation, the system cannot be put into effective operation. Moreover, it is necessary that many banks shall enter the system at the outset. An attitude of hesitation would change to one of positive distrust, if the initial response were inadequate. In the case of the bill of the Monetary Commission, reliance was placed simply upon the attractiveness of the measure. No bank would have suffered positive loss from failure to enter the system, though certain slight inducements were held out to those banks which accepted the arrangement at the outset. Whether a sufficient number of banks would have entered that system, if it had been established, may be thought probable but is not certain. Bankers are naturally and properly a conservative class and the inclination of many would have been to wait until the system was in successful operation. The attitude of bankers toward the Federal Reserve Act while it was passing through Congress was distinctly unfavorable. Most of its provisions already referred to, as well as others in which it differed from the Monetary Commission bill, were disliked. It was evident that in the absence of positive pressure, the number of banks which would accept its terms would be too small to make successful operation possible. No attempt was made, however, to insert provisions which would bring pressure upon state banking institutions. Perhaps it would be possible, either under the inter-state commerce or the postal clause in the Constitution; but it would have been contrary to the constitutional traditions of the party in power, and it was not necessary. If the national banks very generally enter the system, the resources of the Federal Reserve Banks will be sufficient to test the effectiveness of the measure. Accordingly the Federal Reserve Act contains a number of provisions designed to bring pressure to bear upon these to enter the system immediately. Failure to accept the terms of the act within one year after its passage involves forfeiture of the national charter. This alone would be no great business sacrifice, since banking in most States is quite as profitable under a state as under a national charter. Loss of the national charter, however, involves a loss of the right to issue bank notes and calls for the deposit of lawful money in Washington equivalent to the amount of outstanding circulation. Most national bank notes are secured by 2 per cent. government bonds, the price of which, in the absence of the circulation privilege, would be perhaps about two-thirds of the price (somewhat above par) at which they were purchased by the banks. No considerable number of national banks could refuse to enter the system without involving themselves in a heavy immediate loss. A further provision in the act puts more immediate pressure upon the national banks in reserve cities. If within sixty days after the passage of the act, a reserve agent bank fails to signify acceptance of its terms, it must cease to exercise the reserve-holding right upon thirty days' notice from the Federal Reserve Board. Many bankers bitterly condemned the compulsory features in the act while it was on its passage through Congress. This feeling was perfectly natural, but it was not very generally shared outside banking circles. Impartially considered, the act imposes no unreasonable burden upon those who have invested capital in national banks. No one fears the loss of the funds which may be subscribed to the capital stock of the federal reserve banks or placed on deposit with them. If loss should be incurred, it would be primarily due to unsound banking on the part of the boards of directors of the Reserve Banks, a majority of the membership of which is to be chosen by the banks themselves. Some bankers have doubted whether the act would prove an effective measure of banking reform; but few if any have felt that results under its operation could possibly be more unsatisfactory than those under the present system; and all agree that it is a long step toward a perfected system. ORGANIZATION The new system is to be organized under the supervision and direction of the "Reserve Bank Organization Committee," consisting of the Secretary of the Treasury, the Secretary of Agriculture, and the Comptroller of the Currency. The most important function of this committee is to determine, "with due regard to the convenience and the customary course of business," the number and area of the Federal Reserve districts into which the country is to be divided, and to designate the city in each district in which a Federal Reserve Bank is to be established. Not less than eight, nor more than twelve districts are to be created. This is a most difficult task. However carefully the initial lines of demarcation may be drawn, more or less modification is to be expected after there has been some experience with the working of the system. Changes in area of districts, and additional districts if the organization committee designates less than twelve, may be made at any time in the future by the Federal Reserve Board. While the rivalry of cities may tempt the committee to start the system with a larger number, it is to be hoped that it will be found feasible to begin with no more than eight or nine districts. The problems which will confront the management of the Federal Reserve Banks are in many respects unlike those with which our bankers have had experience. A somewhat higher average of capacity in the management may more confidently be looked for if the smaller number of banks is established. Moreover, especially at the outset, mere size will contribute not a little to the prestige of the banks, and so inspire public confidence in the new system. A greater variety of occupations in large areas will lessen, though not much, extremes of seasonal variation in demands for accommodation upon the federal reserve banks. Then, too, the task of the Federal Reserve Board in supervising and co-ordinating the system will be materially simplified, if the minimum rather than the maximum number of federal districts is decided upon. Within sixty days after the passage of the act, in other words before February 22, 1914, national banks are required, and properly qualified state banks are invited, to signify their acceptance of the terms of the act. Within thirty days after the reserve districts have been designated, each national bank must subscribe to the capital of the reserve bank of its district an amount equal to 6 per cent. of its capital and surplus. One-sixth of this subscription is to be paid at the call of the organization committee, another sixth within three months, and still another within six months thereafter. The remaining half of the subscription may be called at any time by the Federal Reserve Board. All these payments are to be made in gold or in gold certificates. It will be observed that the exact time when the system will be established is uncertain. The organization committee is only required to designate the reserve districts as soon as is practicable; thirty days is then allowed for the banks to subscribe; and payments will begin sometime thereafter at the call of the committee.... After the minimum capital (four million dollars for any federal reserve bank) has been subscribed, the certificate of organization is to be executed by any five member banks designated for the purpose by the organization committee. The final duty of the committee will be to supervise all arrangements for the election of the six of the nine directors of each Federal Reserve Bank, who are to be chosen by the member banks. For electoral purposes the banks of each district are to be divided into three groups--each group to "contain as nearly as may be one-third of the aggregate number of the member banks ... and as nearly as may be banks of similar capitalization." While the number of banks in each group will be the same, the capitalization will be very different. All the banks with a capitalization above the average in a district will certainly be in one group; those of somewhat less than average capital, in the second group; while the third group will be composed of banks having a very small capitalization. Under this ingenious arrangement, it is evident that the direct influence of the banks of the large cities in selecting the directorates of the Federal Reserve Banks is limited. Local alignments are also avoided. On the other hand, this is not a grouping to which the banks have been accustomed in the past, and therefore there is some uncertainty as to whether at the outset it will be conducive to the selection of capable directorates. Each group of banks is to choose two directors: a Class A director, who is to be an active banker representing the stock-holding banks, and a Class B director, who must be actively engaged in commerce, agriculture, or some other industrial pursuit in his district. The board of directors of each member bank is to elect a district reserve elector. Candidates for the position of director of a Federal Reserve Bank may be nominated by any member bank; but nomination is not necessary. Electors are to signify their first, second, and other choices for one director in each class on a preferential ballot. In addition to the six directors chosen by the banks, three directors (Class C) are to be appointed by the Federal Reserve Board. Two of these must be persons of "tested banking experience," one to serve as chairman of the board of directors and district reserve agent, the other as deputy chairman and deputy reserve agent. These reserve agents are the official representatives of the Reserve Board, through whom it will exercise its powers of supervision and control over the reserve banks. The act contains no provision regarding the officers to whom the operation of the banks will be entrusted. Presumably each board of directors will appoint one of its members (probably one of the Class A directors) as president and manager. The term of office of all directors is three years, but at the outset they are to be classified so that the term of one director of each of the three classes shall expire annually. The appointment of Class C directors will be the first duty of the Federal Reserve Board; inasmuch as the organization of the system can hardly be completed before the beginning of the summer, the appointment of this board could be deferred until that time. The selection of these directors for each of the eight or more Federal Reserve Banks is, however, no small task in itself; and since public confidence in the new system will largely be based at the outset upon the character of the Federal Reserve Board, its early selection is much to be desired. The Federal Reserve Board itself is to consist of seven members: the Secretary of the Treasury and Comptroller of the Currency _ex officio_, and five members appointed by the President of the United States by and with the [advice and] consent of the Senate. Of the five appointed members, at least two must be persons experienced in banking or finance. Not more than one shall be appointed from any federal reserve district, and due regard is to be given to the different commercial, industrial, and geographical divisions of the country. The term of office of the appointed members is ten years; but those first selected are to serve one for two, one for four years, and so on, so that the term of office of one member may expire every two years. Under this arrangement a majority of the board, in the absence of death and resignation, will never be reconstituted at any one time. Each President will select two of the appointed members: one in the second year of his term of office, and one in the fourth. The Secretary of the Treasury will, of course, be a new member appointed at the beginning of each presidential term. The term of office of the Comptroller of the Currency is for five years, so that here a variable element is introduced. It may happen that some Presidents will never appoint more than three members during their term of office. Generally, however, each President will appoint four members; but the last appointment, giving a majority on the board, will not be made until his final year of office. Lack of continuity and the possibility of a political board were much greater under the provisions for selecting the Federal Reserve Board which were in the measure at various stages while it was passing through Congress. The arrangements finally adopted would seem to make it reasonably certain that the Federal Reserve Board will be free from both these defects. Organization of the system will be complete[289] with the selection of the members of the Federal Advisory Council. This Council is to consist of as many members as there are Federal Reserve districts, the board of directors of each Federal Reserve Bank selecting one member. The function and powers of the council are purely consultative. It is to meet regularly four times each year at Washington, and at other times there or elsewhere if deemed necessary by the Council itself. It is authorized to confer directly with the Federal Reserve Board, to call for information, and make oral or written representations concerning matters within the jurisdiction of the Federal Reserve Board. It may prove to be an important part of the organization, but this does not seem probable. With a scattered membership and holding regular meetings only at long intervals, it is not to be expected that the Council will be in close touch with the Federal Reserve Board, or in a position to formulate policies and urge them effectively. From individual members of the Council, the Federal Reserve Board should secure valuable information regarding conditions in different parts of the country; but the work of the council itself as an organized body seems likely to be of a formal and perfunctory nature. The importance of the Council would doubtless have been measurably increased if the proposal had been adopted that its chairman should sit, even though without a vote, on the Federal Reserve Board. CAPITAL, EARNINGS, DEPOSITS OF THE FEDERAL RESERVE BANKS Since the capital stock of each of the Federal Reserve Banks is to be exactly 6 per cent. of the capital and surplus of the member banks in its district, it will always be subject to slight variations. If all national banks enter the system at the outset, the total subscribed capital of the Federal Reserve Banks will be a little more than one hundred million dollars. Subscriptions may perhaps fall somewhat below this amount, since with the exception of the reserve agent banks, no penalty attaches to failure to subscribe until twelve months after the passage of the act. Few state banking institutions will enter the system at the beginning. In many states legislation is necessary to permit them to invest in the stock of the Federal Reserve Banks, and to enable them to count balances with the Federal Reserve Banks as a part of their required reserves. It is to be presumed also, that such institutions, since they can enter at any time, will wait to see whether the system is working to the satisfaction of neighboring national banks.[290] There will always be wide differences between the capital and other resources of the various Federal Reserve Banks. Neither the capital nor the resources of existing banks can be made the basis for dividing the country into Federal Reserve districts. Geographical consideration will necessarily require the creation of a number of districts in sparsely settled parts of the country, in which banking resources are comparatively small. No Federal Reserve Bank may, however, be established until it has a subscribed capital stock of at least four million dollars. It would, therefore, seem to follow that the organization committee is precluded from forming any district in which 6 per cent. of the capital and surplus of the national and state banks is less than this minimum amount. There are indeed provisions in the act designed to meet the contingency of failure by banks to subscribe in sufficient numbers to provide a minimum capital; but they would not seem to authorize the organization committee to create districts in which resort to these provisions would be inevitable.[291] Whether the capital of the Federal Reserve Banks is large or small is a matter of no great importance. Subscriptions to capital provide a comparatively small part of the resources of banks. The capital is an indication that those conducting a bank have something at stake, and is also a margin of safety against loss to depositors. These Federal Reserve Banks are, however, to accept deposits from banks only, and are ordinarily to confine their dealings to the banks. In these circumstances, there is practically no difference between the funds which the federal reserve banks will secure from member banks in payment of subscriptions to capital stock, and the funds which will be deposited with them by member banks. The depositors are the stockholders and, therefore, there is no separate interest to be protected by a margin of safety. Shareholders in the reserve banks are entitled to a cumulative dividend of 6 per cent. A limited dividend is obviously wise, since it tends to eliminate the profit-making motive in the management. Whether all the Federal Reserve Banks will regularly earn the 6 per cent. dividend is, of course, not certain; but it seems highly probable, since the danger of serious losses is remote, and interest will presumably not be paid to the member banks on their balances. All earnings in excess of the dividend are to be paid to the Government of the United States as a franchise tax; but half of these surplus earnings are to be paid into a surplus fund until it has become 40 per cent. of the capital stock. Whatever is received by the Government from the Federal Reserve Banks is to be used at the discretion of the Secretary of the Treasury, either to increase the gold reserve against United States notes or for the reduction of the interest-bearing debt. The federal reserve banks will doubtless secure very large resources through the deposit with them of the moneys held in the general fund of the Treasury of the United States, although no power over the disposition which shall be made of these funds is granted either to the Federal Reserve Banks or to the Federal Reserve Board. Entire discretion remains with the Secretary of the Treasury. He may continue the independent treasury system without change; he may continue to deposit funds with member banks, just as hitherto he has placed deposits with national banks; and finally he may deposit with any or all of the Federal Reserve Banks, using them as government fiscal agencies. The responsibility of the Secretary of the Treasury is in no way changed. Almost certainly in practice, however, the bulk of the free funds of the Government will be placed with the Federal Reserve Banks, and doubtless the opinion of the Federal Reserve Board will determine the distribution of these funds between the various banks. The lion's share of the cash resources of the Federal Reserve Banks will come from the reserves and working balances deposited with them by member banks. Under the terms of the act, part of the required reserves of member banks _must_ be placed with Federal Reserve Banks. This is a novelty in central banking legislation, but is based upon sound principle, and is especially to be commended for this country where, on account of the absence of branch banking, the number of banks to be served by the regional banks will be very great. It makes certain some increase in the resources of the Federal Reserve Banks, along with the expansion of the credit liabilities of the member banks. It also lessens somewhat the danger of unnecessary withdrawals of funds from the reserve banks in emergencies. Reserve requirements of the national banking law are radically changed. In addition to the requirement that a part of the reserve of the banks be kept with the Federal Reserve Banks, the reserve ratio is reduced for all classes of banks: the practice of keeping a part of the reserve of country and reserve city banks with reserve agents is to be discontinued; and a distinction for reserve purposes is made between time and demand deposits. Some of these changes become effective as soon as the new system is established; others are to be made in a succession of steps and completed three years after the passage of the act. Time deposits are to comprise deposits payable after thirty days, and are to include certificates of deposit and savings accounts subject to thirty days' notice. A reserve of 5 per cent. is required against these deposits, and no distinction is made between country and city banks. This low reserve requirement will certainly lead the banks to encourage the conversion of demand obligations into time obligations. A relatively large part of the deposits of banks in most European countries is payable at notice. It is obviously an arrangement which shields the banks somewhat from the effects of sudden waves of distrust. Against demand deposits the ratio of reserves is also to be reduced at once; but the existing classification of banks is to be retained. The required ratio for country banks is reduced from 15 to 12 per cent., for reserve city banks, from 25 to 15 per cent., and for central reserve city banks from 25 to 18 per cent. A provision in the bill excluding from reserves the 5 per cent. fund held in Washington against outstanding circulation is a slight offset to this reduction in reserve ratios. As regards the banks in central reserve cities, the initial arrangement regarding the disposition to be made of their reserve is also the _final_ arrangement. They must hold 6/18 of their reserve in vault, 7/18 in their Federal Reserve Bank, and the remaining 5/18 either in vault or with their federal reserve bank. Other banks are allowed a period of transition. Reserve city banks for three years must hold 6/15 of their reserve in vault, thereafter 5/15; for twelve months they must keep with their Federal Reserve Bank 3/15, adding an additional 1/15 every six months; so that at the end of two years they will have a deposit of 6/15. During the three year period the remainder of the reserve may be deposited with reserve agent banks in a central reserve city, or by what would seem to be an inadvertent extension of existing practice with those in reserve cities; but thereafter it must be either in vault or with a Federal Reserve Bank. Country banks must hold in vault 5/12 of their reserve for three years, thereafter 4/12; for twelve months must deposit with their Federal Reserve Bank 2/12, and an additional 1/12 every six months until 5/12 are deposited at the end of two years. The remainder of the reserve may be kept for three years with reserve agent banks, but at the end of that period must be either in vault or in a Federal Reserve Bank. Whether these changes in reserves, together with payments by the banks of subscriptions to the capital stock of the reserve banks, will make necessary any considerable amount of loan contraction, cannot be precisely determined. If numbers of state banking institutions enter the system at the beginning, some strain may be occasioned, since, although these requirements are less than those to which the national banks have been subject, they exceed those imposed upon banks by the law of many of the states. In order to enable the banks to avoid contraction, the act contains a provision under which one-half of each instalment of reserve to be placed in reserve banks may be received in the form of the kinds of commercial bills of exchange which the reserve banks may purchase in the open market. It is, however, most unlikely that the banks will be able to make much use of this arrangement, because of the scanty amount of such paper available. FEDERAL RESERVE NOTES AND NATIONAL BANK NOTES The power to issue notes is a useful but not indispensable resource for institutions having the responsibilities which are placed upon the Federal Reserve Banks. The issue of notes by a central bank enables it to supply domestic requirements for currency without reducing its holdings of reserve money. In the absence of the right of issue, it would only be necessary to accumulate in ordinary times a somewhat greater amount of reserve money, to provide for seasonal and emergency needs. General public confidence in the Federal Reserve Banks would, however, be far less secure if they were not empowered to issue notes. This is because of the exaggerated importance almost universally attached to the right of note issue, even in countries in which the check has become a universal medium of payment. The particular provisions in the act regarding the issue of notes are extremely complicated, and are in some respects quite without precedent. The notes for which provision was made in the bill of the Monetary Commission were to be bank notes pure and simple, subject to a variety of restrictions designed to keep the total amount issued within safe limits. The notes which are to be issued under the provisions of the act are certainly quite as well safeguarded in this respect. In addition, the notes are made obligations of the Government of the United States, which also undertakes to redeem them at Washington. The obligation of the Government is in addition to and does not take the place of any banking safeguard. It is designed to meet the desires of the very large number of people throughout the country who believe that the issue of money is a government function. To many bankers and others familiar with our past financial history, this provision in the bill was most distasteful. Their opposition, though natural, was, however, neither very practical nor reasonable. It was based very largely upon the fear that the government obligation on the notes would prove an entering wedge for an issue of fiat money at some future time. But paper money cannot be issued under the terms of the act for the purpose of meeting government expenditures. Additional legislation would be necessary, and the possibility of such legislation is not appreciably increased by making the notes which are to be issued by the reserve banks an obligation of the Government. On the other hand, this provision won many friends for this important piece of banking legislation; it allayed opposition which would always have been a serious menace to the permanence of the new system. The quantity of the new notes which may be issued is wholly within the control of the Federal Reserve Board; but the initiative in taking out circulation rests entirely with the boards of directors of the reserve banks. Applications for notes may be made at any time by a reserve bank to its district reserve agent, the member of its board of directors who is the medium of communication between the bank and the Board. Rediscounted commercial loans equal in amount to the notes applied for must be deposited with the agent, and a reserve in gold of 40 per cent. must be maintained. (A reserve of 35 per cent. in gold or lawful money is required against deposits.) The Board may grant in whole or in part, or reject entirely, applications for notes, and may also impose such interest charge upon the notes as it may deem advisable. The notes are to be a prior lien on the assets of the issuing banks, and there is, therefore, no possibility of loss to note holders, nor any to the Government on account of the obligation which it assumes. Such part of the 40 per cent. gold reserve against the notes as may be deemed advisable by the Secretary of the Treasury, but in no case less than 5 per cent., must be deposited in the Treasury of the United States for the redemption of the notes in Washington. Each Reserve Bank is required to redeem not only its own notes but also those of the other Reserve Banks either in gold or in lawful money; redemption in Washington is in gold alone. In practice it is certain that Reserve Banks will redeem the notes in gold over the counter; and it is also certain that slight use will be made of the redemption machinery at Washington. Member banks will certainly deposit the notes with their own reserve banks, which are required to accept the notes of other banks at par. The reserve banks, in turn, are required under the law to return for redemption the notes issued by other reserve banks. Redemption at Washington has apparently been provided because national bank notes are redeemed there in large volume every year; a result of the circumstance that the present number of issuing banks is so large as to make counter redemption much more costly. Various provisions in the act are evidently designed to keep the issue of notes within safe limits; but not much reliance should be placed upon them. Reserve Banks may not, under penalty of a prohibitive tax of 10 per cent., pay out the notes of other Reserve Banks. If these banks, like the Scotch banks, were working in the same territory, regular redemption would check over-issue on the part of any one of them. But under a system of regional banks, each with its own territory, there will be only a very irregular relation between the amount of notes put out by any one and the amount which will be received by the others. Moreover, it should be borne in mind that regular redemption is no check whatever upon general expansion, either in the form of notes or of deposits, when all banks are expanding credit at the same time. Not much effect also in checking over-issue is to be looked for from those provisions in the act which require a 40 per cent. reserve in gold and impose a graduated tax upon reserve deficiencies. A considerable part of the total reserves of the Reserve Banks is certain to be in gold; and deposit liabilities are certain to be vastly greater than those for notes in circulation. The circumstances are hardly conceivable in which a Reserve Bank would not have an amount of gold in its entire reserve ample to provide a gold reserve for such notes as it might issue. The special tax on note reserve deficiency can therefore be readily evaded by shifting the deficiency to the reserve against deposits. Deficient reserves are only allowed when reserve requirements are suspended by the Federal Reserve Board. The Board is to impose a graduated tax on all deficiencies except in the note reserve. On note reserve deficiencies, the tax imposed in the law is to be added to the rate of discount of the reserve banks. The arrangement would seem to be a most unworkable one, since there is no means of knowing to what extent a borrowing bank will have occasion to use the proceeds of its loan in the form of notes. Fortunately this provision of the act is never likely to become operative. After all, for proper use of the right of issue under the act the main reliance must and should be on wise and experienced management for the reserve banks, and above all on a conservative Federal Reserve Board. Restrictions which would make over-issue impossible would also deprive the right of issue of all usefulness as a means of extending credit. Moreover, the danger of the over-expansion of credit in the form of deposits is vastly greater than it is in the form of bank notes in any country in which deposit credits have become the more important credit medium. One of the most perplexing questions that presented itself in framing the act was the disposition to be made of the national bank notes and the 2 per cent. government bonds which secure very nearly all of them. When the measure reached the Senate, it contained provisions which contemplated the gradual substitution of Federal Reserve notes for the national bank notes. But when it was pointed out that this would require the Reserve Banks regularly to rediscount at least seven hundred million dollars of commercial paper, in order to support the existing volume of currency, it was felt that some other arrangement must be made. A plan to unify all the varieties of paper money now in circulation, with the exception of the silver certificate, by the issue of an equal amount of United States notes, backed by an ample gold reserve, found influential support; but it was wisely decided to present this in a separate measure. The particular provisions regarding the national bank notes and the bonds contained in the act should be regarded, therefore, as a temporary arrangement pending future legislation. In order to avoid the contraction of the currency which would follow the refusal of many national banks to enter the system, each Reserve Bank is authorized to purchase bonds and take out circulation similar in all respects to the notes issued by the national banks. After the end of a period of two years, additional bonds may be purchased, but only from member banks, and at the discretion of the Federal Reserve Board. Member banks desiring to retire circulation and dispose of their bonds, may make application to the Board, which may require the Reserve Banks to purchase them. No more than twenty-five million dollars of bonds may be purchased in any one year, and the amount purchased is to be distributed among the various Reserve Banks in proportion to their capital stock. Bonds thus purchased may be used as a basis for additional national bank notes by the reserve banks, or they may be converted into 3 per cent. government obligations--one-half into thirty-year 3 per cent. bonds, and one-half into one-year 3 per cent. notes, both issues without the circulation privilege. In taking the one-year notes, a Reserve Bank enters into an obligation to purchase an equal amount at each successive maturity for thirty years. The purpose of the notes is to provide the Reserve Banks with a readily marketable asset, the sale of which abroad may prove serviceable in periods of strain, and the domestic sale of which will enable the Reserve Banks to make their discount rates effective in the money market. Government short-term obligations are used for these purposes by many of the European central banks. The existing volume of national bank notes will not be reduced under the terms of the act, except in so far as the Reserve Banks convert 2 per cent. bonds into 3 per cent. bonds or notes. There may even be some slight increase in the total of national bank notes in circulation, since banks may use for this purpose the small quantity of bonds not already absorbed in this way. Little concern, however, need be felt because the national bank notes are not to be retired. Present requirements for money to be used outside the banks are sufficient to absorb all the notes at present; and with the growth in population a somewhat greater quantity could be absorbed in future. LENDING OPERATIONS OF THE FEDERAL RESERVE BANKS The normal lending operations of the Federal Reserve banks are limited to the rediscounting for member banks of commercial loans maturing within ninety days. Commercial loans are generally defined in the act as "notes, drafts, and bills of exchange arising out of actual commercial transactions; that is, notes, drafts, and bills of exchange issued or drawn for agricultural, industrial, or commercial purposes, or the proceeds of which have been used or are to be used for such purposes." The Federal Reserve Board is authorized to define more precisely the nature and character of eligible paper. To make assurance doubly sure, the rediscount of loans secured by stocks and bonds is specifically prohibited. The act also provides that six months' maturities of paper drawn and used for agricultural purposes or based on live stock may be rediscounted. In confining rediscounts to commercial loans, the act is more stringent than that governing the operations of central banks in Europe. In practice, however, the bulk of the loans of these institutions are in connection with commercial transactions. While this restriction may in some particular emergency hamper the Reserve Banks in giving assistance to some threatened bank, it is upon the whole amply justifiable. Under our banking system in the past the collateral loan has enjoyed a prestige which it is hoped will be transferred to commercial loans. Exclusion of collateral loans from rediscount will certainly contribute much to bring this about. The restriction also gives the public greater confidence that the resources of the Reserve Banks will be generally available throughout the entire country. One of the reasons which has been advanced for confining rediscounts to commercial loans is based upon certain misconceptions of the true nature of commercial paper--misconceptions which, if adopted by the management of the Reserve Banks in formulating their policy, may have disastrous consequences. It has been contended on all sides during the last few years that commercial paper was from its very nature liquid; and further, that credit could therefore safely be granted to an extent limited only by the amount of such paper. Both of these contentions are hopelessly fallacious. In an emergency, no kind of loan is liquid to any considerable extent. Business cannot suddenly be deprived of the amount of credit to which it has become adjusted. It is, indeed, often said that loans based upon any commodity entering into general consumption can be quickly liquidated. This can be done as regards any particular loan; but supplies for the immediate and distant future must be in process of production and they will require a new batch of loans. The view that credit can be safely granted to the full extent of merchandise in process of distribution and even in process of manufacture is equally fallacious. Credit affects price. Liberal discounts may cause speculative advances in commodity prices, stimulating excessive prices by wholesalers, jobbers, and retailers, as well as by speculative holders pure and simple. There is no mechanical or statistical test for the amount of credit which may be safely granted, whether the loans be commercial or collateral. Over-expansion is possible by both operations. Commercial loans will become the most liquid asset that member banks can hold, simply because they can be rediscounted with the Reserve Banks. A smaller amount of Bank funds will be employed in the call loan market. But whatever amount remains available for that use will be subject to far less seasonal fluctuation both in volume and in rates. The retention of fixed reserve ratios, even though they may be suspended by the Federal Reserve Board, will probably lead many city banks to use the call loan market to a moderate extent, since it will enable them to avoid the necessity of resorting to the reserve banks for rediscounts whenever reserves momentarily drop below legal requirements. A somewhat larger proportion of time loans will doubtless be used in connection with stock exchange dealings; but the available supply of call money will presumably be sufficient to permit the continuance of the present American practice of daily delivery of securities. At the outset, on account of the widespread prejudice among bankers against rediscounting, the demand for accommodation from the Reserve Banks may not be large; but this prejudice will surely die away in time, and most if not all of the Reserve Banks will suffer from no lack of regular business, except in periods of business depression. Member banks in those parts of the country in which the supply of credit is inadequate for local requirements will lend more closely, while banks which regularly have more funds than can be thus employed will purchase more commercial paper from note brokers and perhaps rediscount for banks in those parts of the country in which rates are normally high. Aside from the government account, member banks are to provide the funds for the reserve banking system. Competition with member banks would therefore and justly occasion serious dissatisfaction. Managed by boards of directors a majority of the membership of which is to be selected by the member banks, there would seem to be little danger of serious competition from the Reserve Banks. Nevertheless the act places such restrictions upon dealings by the Reserve Banks with the general public that little or no competition will be possible. The Reserve Banks are permitted to engage in three kinds of open market operations: (1) dealings in government securities, and also in obligations of the states and local bodies, maturing within six months and issued in anticipation of taxes; (2) dealings in foreign exchange; and (3) dealings in domestic bills of exchange. The purchase and sale of government bonds and notes and state and local short-term obligations require no detailed consideration. In periods of inactive demand for rediscounts, investments of this kind will doubtless be made by the Reserve Banks in order to employ surplus funds. The right to engage in foreign exchange dealings will also be similarly useful, surplus funds being invested in foreign bills. Moreover, if any of the Reserve Banks find that their resources are regularly in excess of domestic requirements, they may be used to facilitate the financing of the foreign trade of the country with domestic capital. It is also very generally believed that the power to engage in foreign exchange operations may be so used that it will be possible to rely upon securing abundant foreign funds in periods of financial strain. This is most unlikely. It is entirely possible for a small country to rely upon holdings of foreign bills as a means of influencing the foreign exchanges, and even for such supplies of gold as may be needed on occasions when confidence is threatened. But the banks of a large country must rely mainly upon domestic resources, since the amount of cash and credit needed in an emergency is too great to be secured from foreign money markets. It should be the policy of the Reserve Banks to maintain themselves in a condition of such abundant strength as to be wholly independent of foreign assistance. Moreover, if they maintain strong reserves in ordinary times, they will not be disturbed on account of gold exports. Gold exports amounting to fifty, or even a hundred million dollars should not be made the occasion for obstructive measures such as are adopted by many of the European central banks. Measures of this kind are generally an indication that the credit structure rests upon an inadequate foundation. New York has been a free gold market in the past, and even under our imperfect banking system, there has always been a sufficient amount of gold for every banking purpose. Moreover, restrictions placed upon gold movements can have but temporary effects; in the long run the distribution of gold among the various commercial countries is determined by fundamental influences which override all such artificial barriers. The act permits only one kind of banking business between Reserve Banks and the general public. They are allowed to buy and sell to or from individuals, firms, and corporations, as well as domestic and foreign banks, bills of exchange of the kinds which are made eligible for rediscount. The purpose of this provision in the act is to enable the Reserve Banks to secure some employment for their funds when the demand for rediscounts slackens, and to develop a broad discount market. A broad discount market may be developed under the new banking arrangements; but the prediction is ventured that this provision in the act will not contribute to its development and that in general it will be barren of results. It should be observed that the promissory note, the usual borrowing instrument in this country, although it may be used for rediscounting purposes, cannot be bought and sold in the open market by the reserve banks. Aside from foreign trade, the mercantile bill of exchange, payable at a future date, has largely fallen into disuse in most advanced commercial countries. More and more cash payments are either insisted upon, or are favored by the offer of trade discounts for cash considerably greater than bank discounts. When a purchaser pays cash, obviously a mercantile time bill of exchange cannot come into existence. In European countries, many purchasers who pay at once often draw a bill of exchange on their own bank and, after it has been accepted, discount it in the open market. In this country banks are to be allowed under the act to accept only bills drawn in connection with merchandise exports and imports. Material will, therefore, be lacking for a broad discount market, if its development is dependent upon open market operations by the Reserve Banks. Fortunately the development of a broad discount market does not require open market operations on their part. A broad discount market is one to which many borrowers resort with full assurance that they will find many lenders. Even under past banking arrangements, many borrowers and lenders have been brought together through note brokers; but owing to the lack of an available supply of cash and credit with which to meet emergencies, this market has been subject to violent perturbations, and at times dealings have been almost entirely discontinued. In the future a solvent borrower will feel more certain that his paper can always be marketed by his note broker; and banks will purchase more largely, since they will prefer to use such paper for rediscounting purposes rather than that of their own regular customers. ADDITIONAL POWERS OF NATIONAL BANKS Nearly half of the national banks have established savings departments and now hold more than eight hundred millions of savings deposits. This has been a recent development, and one for which there was no specific authority in the national banking law; but under the liberal interpretation of that law by the Comptroller of the Currency in recent years, it has been permitted because it was not forbidden. Many have doubted, however, whether the banks could enforce the thirty and sixty days' notice of the withdrawal of deposits which, following the practice of regular savings banks, appeared on the passbooks issued to depositors. This uncertainty has been removed by implication by the new act, which includes in its definition of time deposits, savings accounts subject to at least thirty days' notice. It is of course a great advantage to the national banks, that in the employment of these deposits they are subject to much less restriction than is imposed upon savings banks in many of the states. Subject to the permission of the Federal Reserve Board, and when not in contravention of state laws, national banks may act as trustees, executors, administrators, and registrars of stocks and bonds. Many banks will find this a useful extension of their powers. If trust companies may properly engage in banking, there can be no good reason why banks should not undertake trust functions. The department store principle in banking has made rapid headway in most countries in recent years. Under proper supervision every kind of reasonable and safe financial business can be handled by a single institution safely and in a way which is convenient for the business community. In some states legislation may be necessary to permit national banks to undertake trust functions. In Massachusetts, it seems to be the opinion among lawyers that no legislation is required. Inability to lend on mortgage security has been the most serious disadvantage experienced by country national banks in competition with state institutions. Land has been by far the best local security available over large parts of the country. Rural bankers have, in fact, taken it into account in making loans and by various devices have succeeded in making it the security for many of the loans which they have granted. Under the Federal Reserve Act all banks, except those in central reserve cities, may lend for periods not exceeding five years 25 per cent. of their capital and surplus, or one-third of their time deposits, on the security of unencumbered and improved farm land to 50 per cent. of its market value. Two changes are made in the law for the purpose of facilitating financial business with foreign countries. National banks having a capital of at least one million dollars may establish foreign branches, subject to the approval of the Federal Reserve Board, and to such regulations as it may formulate for conducting this business. Banks may also accept bills of exchange maturing within six months drawn in connection with exports and imports of merchandise. These are desirable changes in the law. It is not, however, probable that many foreign branches will be established in the near future, and it is most unlikely that the American acceptance will make rapid headway in foreign markets. The scope of the following provision in the act is uncertain. "Other than the usual salary or director's fee paid to any officer, director, or employee of a member bank, and other than a reasonable fee paid by said bank to such officer, director, or employee for services rendered to such bank, no officer, director, employee, or attorney of a member bank shall be a beneficiary of, or receive, directly or indirectly, any fee, commission, gift, or other consideration for or in connection with any transaction or business of the bank." This prohibition obviously covers payments to bank directors and officers in return for aid in securing accommodation from the banks. It may be held that all purchases by a bank of commercial paper from a firm of note brokers, or of securities from a banking house, are forbidden if any of the partners of such firms are on its board of directors. In this event, a few banks would lose valuable directors; but the question of the wisdom of such exclusion is too complex to be given consideration in this paper.[292] SUPERVISORY FUNCTIONS OF THE FEDERAL RESERVE BOARD A variety of functions of a supervisory or administrative nature are to be exercised by the Federal Reserve Board. It is to formulate detailed regulations regarding various matters concerning which only general provisions are contained in the act. Among important matters regarding which the Board is to formulate regulations may be mentioned: rules for conducting branch offices; the regulation of state banks which become member banks; rules defining precisely commercial loans eligible for rediscount; and the regulations for the operation of foreign branches.[293] The Board is to exercise many supervisory functions over the reserve banks which are similar to those which have long been exercised by the Comptroller of the Currency over the national banks. Examination of the Reserve Banks is under its direction. There must be one examination each year, and additional examinations must be ordered upon the application of ten member banks.[294] The Board is also to publish once each week, a statement showing the condition of each Reserve Bank, and a consolidated statement for all these institutions. It is also given a number of important powers to be exercised at its discretion. It may suspend reserve requirements for a period of thirty days, and renew such suspension for successive fifteen day periods. For violations of law, it may suspend the operation of a reserve bank, and administer or liquidate it. The Board may also reclassify cities as reserve or central reserve cities, or terminate their designation as such. The method of banking reform which has now been adopted, necessarily involves placing somewhere enormous power to expand credit. This power cannot be surrounded by sufficient safeguards to prevent all possibility of its misuse, because in so doing, its wise use would be quite as seriously interfered with. Competent management is therefore absolutely essential if satisfactory results are to follow the passage of the Federal Reserve Act. In the operation of the new system, the boards of directors of the reserve banks may prove the most important part of the organization; or that place may be occupied by the Federal Reserve Board. The boards of directors will exercise all the ordinary powers of such boards, except in so far as they are subject to control by the Board. All the loans of the Reserve Banks are to be made by the boards of those banks. In this matter, the Board has no power whatever, except that it may require, on the affirmative vote of five members, one Reserve Bank to rediscount paper for others. Here is a power that seems to be designed merely to prevent any working at cross purposes among the Reserve Banks. Few or no occasions for its use will present themselves if all the Reserve Banks are well managed by their own boards. All rates of discount are to be fixed in the first instance by the boards, subject to review and determination by the Federal Board. Here again the decision of the Reserve Bank boards is altogether unlikely to be overruled if these banks are skilfully managed. [Illustration: THE FEDERAL RESERVE DISTRICTS] The power of the Federal Reserve Board to restrain the Reserve Banks is vastly greater than its power to force them to take positive action which might lead to the inflation of credit. This was clearly the purpose in view in giving the Board the more important of its many powers. It may, for example, reject applications of Reserve Banks for notes, but this will not endanger assets, it will simply lessen power to expand operations. Its power over the discount rates of Reserve Banks will obviously be more effective when used to advance rates which it deems too low than it will be if used to enforce a rate lower than the management approves. The directors of the Reserve Bank would still determine the amount of accommodation which it might safely grant to member banks at the enforced low rate. Officers and directors of Reserve Banks may be removed at any time by the Federal Board, which is merely required to communicate its reasons for removal in writing; but the right of member banks to choose successors will still remain. While it is impossible to make any prediction as to the relative place which the Reserve Bank directors and the Federal Board will hold, it is evident that, in the absence of harmonious co-operation, the system will not work smoothly, even if it can be made to work at all. If all the Reserve Banks and the Federal Board adopt a wise and conservative policy, the system will surely work well. If the Reserve Banks alone are conservative, the system may work well but with much friction. If the Federal Board alone is conservative, it may force good results from the system. On the other hand, if some of the Reserve Banks and the Federal Board are reckless, the system will probably break down; and if all the Reserve Banks and the Federal Board adopt a reckless policy, the results will be disastrous. Both the directors of Reserve Banks, and the Federal Board will be confronted with numerous problems, many novel and some intricate. The possibilities of the new system cannot be foreseen, and the extent and nature of the responsibilities resting upon the Reserve Banks cannot be determined beforehand.... THE FEDERAL RESERVE ACT--AN EXPERIMENT [295]Banking is the most delicate and sensitive of all businesses in which men engage. It goes without saying that it is a business in which the law maker should not needlessly interfere. Perhaps some of you may not know that modern banking is a product of evolution. In this respect it is like all great human institutions. No language worth while was ever invented by a human being. Speech, with all its intricacies and inconsistencies of grammar and syntax, was not planned by some master mind centuries ago, but is the result of countless ages of effort on the part of the human animal, guided only by his sub-conscious intelligence--that which we call instinct in the lower animals--to give expression to his emotions and his more or less hazy concepts. Language, like the comb in which the bee stores its honey, has come to us as the product of the labor of our ancestors through many millions of years. Money, credit, and banking are in like manner evolutionary products. If we attempt to tinker with them artificially without regard to the lessons of experience and in disregard of the forces of evolution, believing that our reason transcends the consolidated experience of our ancestry, we shall meet the fate that we deserve, the fate of the conceited bee who thinks he can improve the honey comb, or of the conceited grammarian who would make me walk a literary Bridge of Sighs for saying "it is me."... I am quite willing to admit that in some of its details the Federal Reserve Act[296] has taken leaves from the experience of banking institutions of this and other countries, but in its essentials, in its anatomy, in its bony structure as it has been called, it is an animal absolutely unknown to the natural history of finance. Let me briefly call attention to the following novelties in banking: First. It provides for a system of twelve competing banking institutions which shall control the currency supply of this country, and over which there shall be no controlling body with power sufficient to compel them to regard the national welfare in the issue of currency and in the extension of their credit. It is taken for granted that the financial welfare of the people will be safe provided that these competing regional banks are required to hold gold or lawful money reserves of 35 per cent. against deposits and 40 per cent. gold (free from tax) against notes, and are not permitted to issue notes except upon deposit of good commercial paper.[297] Second. The act provides that the Federal Reserve Banks shall have the right to deal only with banks, nay more, they may deal only with such banks as have contributed to their capital stock. This again is a novelty in the banking world. If these banks are to be in touch with all American business and industry and be powerful agents for the prevention and alleviation of panic, why should they be thus restricted in their operations? Third. The capital of these regional banks is not a matter of voluntary subscription. It is not founded on business principles. The framers of the measure seemed to fear lest the banks they were planning might not prove profitable investments, hence, they have provided that our national banks must subscribe the necessary capital or forfeit their charters. No country on this green and prosperous earth has ever found it necessary to resort to such undemocratic compulsion in order to persuade people to go into the profitable business of banking. Fourth. The bank notes issued by these Federal Reserve Banks are called government obligations and must be redeemed on demand by the United States Treasury. In no country will you find that any such bank note has ever been issued or even proposed, and I submit that in the United States, whose people for half a century have confessedly been subject to periods of anxiety and distress and panic because of the Government's liability for the daily redemption of paper money, this provision of the Federal Reserve Act is amazing, inexplicable, and indefensible. The United States Treasury is not a bank and is not made one by this act. It cannot control the issue of the notes, nor the credit operations of the banks who do issue them. Why then should the treasury be compelled to redeem these notes? Fifth. The Federal Reserve Act provides for an arbitrary shifting of bank reserves such as has never been attempted before. Nobody can foretell what the result will be, but we know nothing of the sort has ever been attempted before and we also know that many banks will be obliged to reduce their loans and discounts, and that their customers, the business men of the country, may suffer serious losses in consequence. The United States has tried many financial experiments--indeed, our present national banking system was an experiment in finance and has been found wanting--but the Federal Reserve Act, if it could be put on exhibition in a world's financial museum, would, I feel sure, be voted the newest and most spectacular thing we have yet constructed. THE FEDERAL RESERVE ACT AND DEMOCRACY IN BANKING [298]Beneath his skin every American citizen of every station and avocation, and whatever party name he may wear, is a Democrat in all the essentials and fundamentals. That is, he is attached passionately to the principles of local self-government, of the widest individual liberty compatible with the general weal and order of society. This new currency measure is democratic essentially. It looks to decentralisation of direct financial control, to financial local self-government, so far as is consistent with stability and the general safety; to a currency which will be worth its face value everywhere, which will be based on the actual values it purports to represent, as well as the faith and credit of the General Government, and which yet will be elastic, expanding to meet needs where and when they develop, receding when not needed; a system fitted to meet any emergency, moving smoothly and noiselessly for the ordinary uses of business in tranquil times. Too much money and too little money are alike evil and dangerous. Opinions differ as to which is the worse. Probably one is as bad as the other. The design of the new law is to supply just enough money or credit, when and where business needs it, to create for our commerce, as has been said, foundations so even, so broadly laid, and so deeply planted that they can not be shaken. As it is, the country bleeds and sweats to the big financial centres. Take the South as an instance--and the conditions with which you here in North Carolina are familiar exist everywhere in the country. Most of our railway systems are controlled frequently through the trust known as the voting trust--by men who are interested in the great banks in the three central reserve cities. So it happens that the large deposits of the railways, their collections from the Southern people, as also from the Western people, are sent on largely to those banks. The same is true of the telegraph and telephone companies, the life and fire insurance companies, and of many of the larger manufacturing enterprises. The merchants and manufacturers of North Carolina pay their freight bills to the railways. The money goes largely and promptly to New York, and is lent out and used there in stock-market operations, or as the directors of the banks, who are also often the directors of the roads and other corporations, may elect. Of course there is no law which provides for the carrying of the reserves and bank balances of railways and industrial corporations in the central reserve cities, where the national banks of the country have also been accustomed to keep their reserves. When North Carolina needs money to move the cotton crop her banks must call on New York for money which should be in their own vaults; for the return of money paid in here in freight bills, insurance premiums, and otherwise; and your banks sometimes think themselves lucky if they can be allowed the use of any part of it.... It is not hard to see how centralization of financial resources and money supply and concentration of financial power has been forced, and the invisible and irresponsible despotism created by acts of Congress and policies of government made necessary by those acts. Now, we do not propose to use violence to force disintegration and decentralization, to do anything with a jolt and a jerk. It is understood clearly that to rush headlong and at full speed over an evil or an obstacle may cause derailment or jarring, uncomfortable and bad for passengers. The thought or plan, as I understand it, is to invite decentralization, to encourage it, to give opportunity for it, to make local self-government possible, to remove the influences which draw to a few centres the money that is paid out to the corporations and deposited in the local banks.... The law does not require a single business man to change his account from the bank with which he has kept it or any business man or bank to suspend dealings with the bank or banks in the central reserve or reserve cities with which they have in the past been doing business. It does offer to banks freedom of choice. It says to the banker that he can follow his preferences, sentiments, or habit in selecting the source of his borrowing; and the member banker of any federal reserve district may feel free and peaceful and at ease when he knows that he has in his portfolio notes, drafts, and bills of exchange arising out of actual commercial transactions, which he can convert into money at his federal reserve bank with greater ease and promptness than it has sometimes been possible for him to withdraw his cash balances from his reserve agents and almost with as much ease as it has ever been possible to draw on credit balances with any correspondent. He is not dependent on the whims or fortunes of any other bank. He need not shiver at the prospect of abundant crops for fear he may not have available the funds with which to meet demands for moving them. He will know that if he needs money to accommodate the bank's customers he can, as a matter of right, call on his federal reserve bank. Among other benefits the new currency law, by its direct system of clearances, will release and make available for purposes of trade and commerce hundreds of millions of dollars which under the old system have been tied up in tedious processes of collection. It will also save to banks and to merchants and business men generally some millions of dollars which they are now paying, directly and indirectly, for the collection of country checks and checks on outside cities. To refer more particularly to your own district, the fifth, I will try to explain to you how the new method will work in transactions of domestic exchange. In this district, embracing the States of North and South Carolina, Virginia, West Virginia (except four counties), the District of Columbia, and Maryland, there are some 475 member banks. A cotton mill at Columbia, S. C., under the old plan sends its check on its Columbia bank for a shipment of coal to the coal company at Bluefield, W. Va. The local bank at Bluefield forwards this check to its correspondent in Richmond. This correspondent sends the check to its own correspondent in Columbia, who makes the collection from the Columbia bank and then draws a check on New York for New York exchange, which it remits to Richmond. The Richmond bank thereupon notifies the Bluefield bank of the collection of the item. The collection and exchange charges on distant country banks amount usually to from one-tenth to one-fourth of 1 per cent., or possibly more, and probably a week or more elapses between the remittance of the South Carolina check to the Bluefield bank and the time when the Bluefield bank gets its report that the item has been collected and placed to its credit in Richmond. Under the new currency act "every Federal Reserve Bank shall receive on deposit at par from member banks ... checks and drafts drawn upon any of its depositors." That means that the Bluefield bank receiving the check on the Columbia, S. C., bank mails it to the federal reserve bank at Richmond. The federal reserve bank at Richmond thereupon charges the Columbia bank with the amount of the check, credits the Bluefield bank with the proceeds, and notifies the two banks accordingly. The Federal Reserve Act also provides that each federal reserve bank shall receive at par, and credit accordingly, all checks and drafts drawn upon any of its member banks, from every other federal reserve bank; that all checks and drafts drawn by any depositor--that is to say, by any member bank--on any federal reserve bank shall be received and credited at par by every other federal reserve bank. This means that the checks of the member banks in the country towns throughout these five States are worth their full face value, without deduction for exchange or collection charges, to every other member bank, and that the amount of each check may be cashed at par immediately, without following the devious and roundabout courses now observed in the collection of checks. Virtually every bank in the fifth district is only one night distant from Richmond, and a check mailed one afternoon in the most distant portions of the district should reach Richmond the following day in time to be included in that day's operations of the federal reserve bank. Let us now consider another aspect of the new law: Under the old National Bank Act a national bank with a capital of, say, $200,000, deposits of, say, $1,500,000, bills receivable amounting to $1,200,000, and $300,000 reserve, would only be permitted to borrow a total of $200,000, the amount of its capital. If a run should start on such a bank, the amount which it could raise by loans, if strictly held to the old law, would be but $200,000, the amount of its capital, which might be quite inadequate to meet a run, and the bank, though thoroughly solvent, might be forced to suspend. Under the new law, however, if a bank with $200,000 capital and deposits of $1,500,000 should have loaned $1,200,000 to its customers on commercial paper and should encounter an unexpected run, in addition to borrowing $200,000, the amount of its capital, such a bank would have authority to rediscount with the federal reserve bank of which it is a member, notes, drafts, and bills of exchange issued or drawn for agricultural, industrial, or commercial purposes, having not more than ninety days to run, to any reasonable extent which may be approved by the federal reserve bank to which application for such rediscounts may be made.... We can not overestimate the value of the additional security which this provision of the act confers upon every honestly, capably managed member bank, and the relief from strain and anxiety and from the fear and apprehension of panics and unreasoning runs which it gives to the officers of every member bank. Another important change provided by the Federal Reserve Act is the new arrangement for the compensation of national bank examiners. Under the present law the compensation of national bank examiners is based, except as to reserve cities, on the capital stock of the bank examined. Under the operations of this law a national bank examiner has been receiving for the examination of a certain national bank in the fifth district, with over $9,000,000 of assets and many thousands of accounts, the munificent sum of $25. It is, of course, clear that an examiner could make only an imperfect examination of such a bank in the space of three days at a compensation of, say, $8 per day, out of which $8 allowance he has to pay his own railroad fare, hotel expenses, as well as clerical assistance. It is not unnatural that but few examiners would willingly spend the ten days or two weeks which it might require to make a thorough examination of such a bank when he is running personally in debt in doing so. Under the new currency law the Federal Reserve Board, upon the recommendation of the Comptroller of the Currency, is given authority to fix the compensation of bank examiners on the basis of annual salary, so that those banks which need additional time and attention from the examiner may receive the careful, close scrutiny which the case may call for. It is believed that the new system of bank examinations will reduce materially the number of bank failures and enable the department to check up many abuses and correct many evil situations which in the past have been ignored or glossed over by examiners in their hasty and incomplete investigations. I thank you, gentlemen, for the opportunity to address you. Approaching the study of this new and revolutionary measure with the caution natural to every man trained in banking under the system with which we have grown up, I have become more thoroughly aroused to its merits and more deeply impressed as I have watched the methods of construction, the processes of growth, and have considered the underlying principles directing those who did the work. THE ELASTICITY OF NOTE ISSUE UNDER THE NEW CURRENCY LAW[299] To anyone who has been interested in currency reform for, say, twenty years, probably nothing is more striking than the change in emphasis which has taken place among the advocates of reform during this period. The typical reform plan of the earlier time, for example the so-called Baltimore plan brought forward in 1894, devoted itself almost exclusively to providing a thoroughly elastic note issue, based on ordinary assets. In contrast, the new law has as its central, primary object the organization into at least regional unity of something like the entire banking system of the country. Doubtless this difference in the two reform plans was not altogether due to a fundamental difference of opinion with respect to what would be the ideal scheme. The reformers of the earlier period were not indifferent to the need for centralized organization in the banking system. But they considered any scheme involving a central bank, like the old Bank of the United States, quite chimerical; and they were probably right. But times change; and men change with them. For one reason or another we have all become more tolerant of centralization in business matters, as also more tolerant of that increase in governmental control which increased centralization in business seems to make necessary. With at least fairly general approval, a system of regional organization has been set up, involving a very high degree of centralization and a very high degree of governmental control. But with this change in the method of reform, it became inevitable that the more important ends which earlier schemes sought to accomplish by giving the note a high degree of elasticity should be, in no small measure, attained by other means. In consequence, the need for elasticity in the note issue will be much diminished under the new law. Nevertheless, it is admitted that this need will not disappear altogether. Elasticity in the note issue will be wanted partly to assist in utilizing the newer methods of dealing with the difficulties involved and partly to supplement those newer methods. Accordingly, the question "How far does the note issue under the new system seem likely to prove an elastic one?" is still important. From the beginnings of agitation for currency reform the advocates of elasticity have recognized more or less clearly two kinds: (1) what we may call _seasonal_ or ordinary elasticity, and (2) what we may call _emergency_ elasticity. By the former was meant the power of a note issue to adjust its volume to those moderate changes in the need for money which show themselves in the course of an ordinary year. By emergency elasticity was meant the power of a note issue to adjust its volume to those extraordinary changes in need which connect themselves with the typical banking panic. The evils which it was believed that seasonal or ordinary elasticity would remedy were principally (1) the summer shortage of currency for moving crops, together with the temporary but more or less serious stringency in the New York money market which accompanies that shortage, and (2) the plethora or excess of currency which usually appears three or four months after the crop-moving period has terminated. The evils which emergency elasticity was expected to relieve were principally (1) the stringency which precipitates the panic, (2) the money famine consequent on general bank suspension after the panic has fully developed, and (3) the glut of currency which attends the depression following a panic, often leading to excessive exports of gold and thus endangering the whole credit system of the country. Let us, now, take up seasonal or ordinary elasticity, and ask ourselves whether the new notes are likely to possess this characteristic. First, how about the expansibility needed to supply adequate funds for crop-moving? At this point, it must at once be admitted that the new currency does not meet the demands of the case in quite the thoroughgoing way which the earlier schemes thought to be necessary. The ideal of the earlier plans was to provide an adequate and easily utilized power of issue, located at the very place where the need for expansion is felt, _i. e._, in the local bank. The new law gives up this idea entirely. The local bank will not have power to issue the new currency at all. In so far as its customers are to get any benefit from that currency the benefit must come through two channels which the country bank could use in getting the needed funds, even if the currency had no expansibility, namely, (1) calling in its balances kept with banks more centrally situated, and (2) borrowing from such central banks. In other words, the new power of issue will help out in the crop-moving period merely because it will put the reserve banks in a better position to respond to the call of the country banks for the return of their own balances and for advances on discounted paper. Judged from this point of view only, the elasticity provided by the new law is doubtless adequate. If the reserve banks have not kept themselves in a position to meet the calls of their country members from money already in possession, they will surely be able to put themselves into such a position by expanding their issue of notes. In one sense, then, the new issue has adequate expansibility for ordinary needs. There still perhaps remains a doubt whether effective elasticity is after all assured, for it is not clear that the country bank which needs money for crop-moving purposes will have the wherewithal to get advances from the reserve bank--that is, that it will have paper of the proper kind and in sufficient amount for rediscount. However, it seems probable that the act as finally passed has met this need by providing that agricultural paper shall be admitted on rather more liberal terms than paper arising out of ordinary commercial or manufacturing business. If this be so, it would seem that the provisions of the new law for securing one phase of seasonal elasticity--expansibility--are fairly adequate. Passing, now, to the other side of elasticity--_i.e._, contractility--can we say as much? Will the new issues promptly retire when their special task is over? _Prima facie_, the verdict here is less favorable than in the previous case. In general, there are two principal processes by which a note circulation may be contracted: (1) _driving_ the notes out of circulation, and (2) _drawing_ them out. In so far as the former process is depended upon, means are devised to make sure that the notes shall persistently return to the issuer even against his will--they shall have good homing power. By the second process, it is made to the advantage of the issuer of the notes to hasten their withdrawal himself. As respects insuring contractility by the former of these processes, the act certainly cannot claim to promise high efficiency. The driving-out process requires roughly the fulfilment of two conditions: (1) keeping the channels for the return of notes to the issuer fairly open, and (2) supplying outsiders with a motive for sending the notes home. As regards the former of these conditions, the new system probably is all right. The return of the notes to the issuer seems not to be impeded by the inconvenience or expensiveness of the process. All member banks and all reserve banks must receive these notes; and the reserve banks will probably have branches within easy reach of any part of the district. Hence, any holder desiring to get notes back to the issuing bank will find the process easy and the way open. But good homing power requires more than this. It requires, namely, that adequate motives be supplied to people generally, or, at least, to banks generally, for seeing that the notes get back. It is not enough that the track be smooth; people must desire to use it. Now, earlier plans for securing elasticity relied on two principal motives for inducing holders to send notes back to the issuer: (1) the desire of such holders to make room for their own notes, and (2) their desire to exchange money which has various limitations imposed upon it for money which is free from those limitations. It is plain that the new system makes only a limited use of the former of these methods of procedure. _Within_ the district for which any particular reserve bank is the central bank, this particular force will be practically inoperative; for the power to issue notes on the basis of common assets is not given to any but the reserve banks, and the profitableness of the power to issue the old type of note has always proved too low to induce banks generally to take much trouble to get their own notes into circulation. As between the reserve banks of the different districts, however, this particular motive will, of course, be more or less in evidence, since these reserve banks will all be competitors for this opportunity. But even here the motive in question will not play a large part, since more effective means for insuring the return of the notes from outside reserve banks are provided in other parts of the law. As regards the second motive for returning idle notes--that is, the desire to exchange a money subject to various limitations or disabilities for one not subject to those limitations--the new act does somewhat better than it does in respect to the first motive. It is, indeed, true that, within their own district, no special disability, like being forbidden to be paid out by other banks, is put on the new notes. But they are always subject to the disability of not being legal reserve money in the case of federal banks; and hence such banks will be more or less disposed to return the notes issued by their own reserve banks, in order to exchange them for reserve money. It may be doubted, however, whether in ordinary times this will prove a very potent force, since country banks will usually keep reserves considerably in excess of legal requirements, and so will not need to discriminate nicely between the two sorts of money. As between different districts, the case for the homing power of the new notes is rather stronger, since reserve banks are prohibited from paying out the notes of other reserve banks under penalty of a 10 per cent. tax. Even here, however, the provisions are none too adequate. While the notes of a particular reserve bank must not be paid out by the reserve banks of other districts, there is no prohibition against their being paid out by the member banks of other districts; and it is doubtful whether there is sufficient motive to induce said member banks of other districts to send in these notes to their own reserve banks and so start them on their homeward journey. The desire to exchange money which cannot be used as reserve for that which can be would have some force; but, under many circumstances, it would probably prove rather inadequate. Another disability which contributes to the homing power of a bank note, and which is actually used in the case of our old note, is not used with this new note--I mean, the fact that they are not receivable for customs dues. The decision to omit this provision was perhaps wise; but it throws out a potent motive for sending notes home, and thus throws away an opportunity to make better provision for their contractility. On the whole, then, it must be acknowledged that, in so far as homing power is dependent on giving to outsiders strong and persistent motives for sending notes home, the new law is not altogether satisfactory. We have seen that there is very little in the new system to secure that the notes shall have good homing power--shall get home by what we have called the _driving-in_ process. Is the system better off as respects the _drawing-in_ process? Are matters so arranged that the issuing bank will have the power and the desire to withdraw its notes--or at least contract the currency proportionately--when the need for the notes has fallen off? As respects the first part--making sure that the issuing bank shall have the power to retire its notes, or at any rate to effect a corresponding contraction of the currency--the new system is practically perfect, as indeed was the old one. That is, any reserve bank desiring to contract its note obligations may at its discretion deposit with the federal reserve agent reserve notes, gold, or lawful money. Obviously, this, if not strictly a contraction of its note circulation, at least brings about the desired contraction of the general circulation. When, however, we consider the provisions of the new law for insuring that reserve banks shall desire to contract their circulation when the special need has passed, we find that the law does not promise quite so well. The favorite device for accomplishing this result has been, of course, a tax on issues, similar to the 5 per cent. tax of the German system. Apparently, the new law provides for something equivalent to this in the shape of an interest charge by the Federal Reserve Board, the rate to be fixed by said board. How far this device will prove effective in practice it is not safe to predict. In order that it should induce the banks to contract their circulation, circumstances must have arisen under which the issuing bank would be earning on its outstanding notes a profit smaller than the tax itself. Now, it does not seem certain that an excessive issue of notes would necessarily bring about this condition. In the first place, in the absence of good homing power, a volume of notes in excess of business needs would not necessarily cause an accumulation of those notes in the vaults of the bank issuing them. Secondly, so long as member banks are free to keep their balances in banking institutions other than their reserve banks, an excess of notes would not necessarily cause the general cash holdings of reserve banks to be abnormally large. For, so long as the ordinary New York banks are permitted to pay interest on bankers' balances, country banks will to a considerable extent keep their balances with these outside New York banks; and it seems not unlikely that the excessive monetary stock thus accumulating in New York City would, instead of getting into the hands of the New York reserve bank, largely remain in the hands of the outside banking institutions and be employed more or less as it has been in the past, that is, in financing doubtful enterprises and supporting excessive speculation. But if the reserve banks do not feel the pressure of excessive issues in the shape of accumulations of notes or some form of money in their own vaults, they may conceivably be able to invest advantageously all the funds in their possession, and, in that case, the rate of interest charged by the Federal Reserve Board will not furnish an adequate motive for the retirement of their issues. Doubtless, however, this may in some degree be answered by saying that even an excess which was felt only outside the reserve bank would, after all, compel the reserve bank to contract its issues, since it would lower the rate of discount so greatly that reserve banks could not profitably invest their ordinary holdings, and consequently would wish to get rid of the interest charge. Perhaps this is true; but it would by no means insure the prompt and full contraction which most reformers have considered desirable. From the foregoing it would seem that one of the devices for inducing the reserve banks to contract their issues after the need for them had passed--that is, charging interest upon such issues--is not certain, at any rate, to prove adequate; it will not surely eliminate the winter plethora in New York City which is supposed to stimulate and support excessive stock speculation. But the new law contains another provision which may be viewed as a device for supplying the issuing banks with a motive for contracting their issues, namely, the requirement that such banks shall keep a gold reserve equal to 40 per cent. of their issues. Is this likely to prove effective? Probably not. Whatever might be true in panicky times, it seems certain that in an ordinary year the gold holdings of a reserve bank will be much above 40 per cent. of its note issue. If this be true, the maintenance of this 40 per cent. could become difficult only when the excess of money was so great as to cause a dangerous exportation of gold from the country, and this surely would show a very inadequate degree of contractility. In short, the new law does not insure that issuing banks shall be sufficiently disposed to draw in their notes any more than it insures that outsiders will drive them in. It would seem, then, that the new law does not promise to give to the note issue the degree of contractility which has hitherto been considered desirable. In other words, there is some point in the fear expressed by many bankers that the new law will result in note inflation--at least in so far as the avoiding of this danger is dependent on the contractility of the note issue. Very likely, however, the possibility of such inflation is sufficiently guarded against by other provisions of the law. We have discussed the adequacy of the new note issue in respect to seasonal or ordinary elasticity. We pass on now to consider its adequacy in respect to emergency elasticity--the elasticity which enables a currency to adjust itself to those extraordinary fluctuations in need which mark a banking panic and the depression that follows. Broadly speaking, it is pretty certain that at this point the new law will get a more favorable verdict than in the previous case. As pointed out in an earlier connection, the banking panic, when fully developed, gives rise to three difficulties and so to three needs: (1) funds to relieve the antecedent stringency which threatens a complete collapse of the credit structure; (2) a circulating medium for ordinary trade when a general suspension of payment by the banks has brought on a money famine; and (3) a prompt and thoroughgoing contraction of the circulation in the depression which follows the panic. Now, there surely can be no doubt that, under the new law, the availability of an issue sufficient in volume instantly to relieve the antecedent stringency, and so to put a stop to a panic before it had developed serious dimensions, is assured. In fact, it is not at all improbable that, under the new system, the reserve banks will be able to check the development of such a panic at the very outset without increasing at all their note issues. But, if this does not prove true--if it turns out that more currency is needed for this purpose--there would seem to be no shadow of doubt that the new system will insure the forthcoming of such currency both of a quality and in a quantity which will be fully adequate to the task put upon it. (1) The notes to be issued, being obligations of the Federal Treasury, will be as acceptable as gold even on the eve of a panic. (2) There is no limit to the absolute amount of these notes. (3) The practical limit set by the requirement that discounted paper shall be furnished as a basis for their issue is of no real significance, since such paper will undoubtedly be vastly greater in volume than any need which could arise. Accordingly, there can be no doubt that the new system provides all the expansibility needed to abort, or reduce to comparative harmlessness, any panic which might arise. A word now with respect to the second need which an emergency circulation is supposed to meet, that is, an ordinary circulating medium for trade when banks have by common consent suspended payment. In the first place, if we are right in supposing that the new law will surely prevent any panic from reaching such a degree of intensity, it is obvious that we shall not have occasion to meet the particular difficulty here under consideration--that our note issue will not be called on to display this particular sort of elasticity. If, however, it be supposed that the foregoing prediction does not turn out to be correct--if experience proves that panics can still go so far as to cause banks generally to suspend payments, to hold on to every form of reasonably solid money, and to try to satisfy the public with substitutes--our verdict for the new currency would necessarily be less favorable. We should have to admit that the new law does little or nothing to relieve such a situation. Broadly speaking, the new money will be altogether too good to meet this particular need. Banks that had reached a stage of panic sufficiently intense to cause them to suspend payment--to hoard the ordinary forms of money--would be sure to hoard money as good as those notes are bound to be. That is, the new issue would immediately pass into hoards, as did the greenbacks which the Secretary of the Treasury reissued during the panic of 1873, and, therefore, would bring little if any relief to the currency famine which had developed. In fact, it is almost impossible to conceive any form of note fitted for this particular task except one which was so bad that there was no danger of its being hoarded. That is, the only proper way to meet this particular need of a severe panic is to make sure that it does not arise at all; and, in this respect, the new law promises well. We come, finally, to the third need which emergency elasticity is supposed to meet, that is, a prompt and great contraction of the circulation when the panic has passed and the inevitable business depression consequent upon such a panic has set in. Here, again, though not in the same degree as in the last case, if the new law proves as successful as many conservative students expect, the need in question will be little, if at all, experienced. We shall usually escape the extreme business inflation of the antepanic period; the panic itself will be much abated, if not completely eliminated; and, in consequence, the trade reaction which naturally follows a panic will be much diminished in intensity. If this turns out to be true, the circulation will never again show such an extraordinary glut as characterized the winter of 1893-94. Nevertheless, it can hardly be doubted that, after even an incipient panic, there will be some reaction, and consequently a more or less plethoric condition of the currency will follow. Will the new issue have sufficient contractility to meet this need? Earlier in this paper we have seen that the conditions attached to the new issue are in general not favorable to contractility, in that they do not provide for either the prompt driving home or the prompt drawing home of the notes when the necessity for their issue is past. Outsiders lack adequate motives for sending the notes home; issuers lack adequate motives for calling them home. The case for emergency contractility, however, is somewhat better than the case for ordinary contractility. First, it is probable that the homing power of the note will prove greater at such a time than in an ordinary year, for, at such a time, outside banks will not be able to find investments for their funds, since speculative trading will disappear altogether and business generally will be at a very low ebb. Again, it seems certain that the issuing bank will, in this case, have more than the usual motive for bringing about a contraction of the circulation. The chief reason why such a bank may not be eager in ordinary times to hasten the retirement of its notes is the fact that, provided the notes do not accumulate in its own vaults, such a bank will gain more by using the funds in its possession to make loans than it would by using them to retire notes, assuming that the interest charge made by the Federal Reserve Board is not placed excessively high. But it is practically certain that, in the depression which follows a panic, no reserve bank will have opportunities for keeping all of its funds busy; and since, in that case, the interest charge, however small, will be a dead loss, the bank will have adequate motive for effecting, as promptly as possible, an adequate contraction of its note liabilities. This motive would be still further strengthened should the glut prove sufficient to cause a decided drain of gold, since, in that case, the reserve banks will find difficulty in maintaining the required 40 per cent. reserve. On the whole, then, we seem warranted in affirming that, as respects emergency elasticity, the new notes will give no serious disappointment. Finally, as respects elasticity in general, though the note issue, viewed by itself, does not seem quite fitted to satisfy the tests which an old-fashioned advocate of elasticity is inclined to impose upon it, yet, when we take the new law as a whole, it seems not unreasonable to affirm that it promises to accomplish, directly or indirectly, most of the ends which we had hoped to attain through elasticity and hence promises to give us a system which in essentials is truly and adequately elastic. NOTES PRINTED AND ISSUED [300]During the year 1915 the circulation of Federal Reserve notes has increased to $188,817,000 as of December 31, 1915. Believing that the country should be prepared against any contingency, the Board had authorized the printing of about $700,000,000 of these notes. Almost one-quarter of the total supply printed has been placed in circulation. On December 31, 1915, however, only $16,675,000 of notes secured by commercial paper pledged with the Federal Reserve Agents was outstanding as an obligation of the Federal Reserve Banks. The liability of the Federal Reserve Banks as to the remainder has been discharged by the deposit with the Federal Reserve Agents of a like amount of gold and lawful money. This result has been achieved by the Federal Reserve Banks in responding to requirements, for currency by issuing Federal Reserve notes rather than by parting with gold. While the gold pledged with the Federal Reserve Agents represents a very valuable protection in case of a substantial demand for gold, it must be observed that the process is expensive without, at the same time, giving to the Federal Reserve Banks that additional strength and lending power which they would secure in case the law were amended so that the Federal Reserve Banks would remain liable for the outstanding notes, but, on the other hand, would retain property title to the gold delivered to the federal reserve agents, which, in that case, would not be paid in to extinguish the liability upon the notes but would be deposited as collateral security against them. IMPOUNDING GOLD [301]On November 16, 1914, the first shipment of Federal Reserve notes was received by the Federal Reserve Agent [of the Federal Reserve Bank of New York] from the Comptroller of the Currency. On November 19 the bank pledged with the Federal Reserve Agent $500,000 of commercial paper rediscounted by member banks and received from him a similar amount of Federal Reserve Notes. These notes were not required by the banks which made the rediscounts, as they had already withdrawn by checks the credits so established. They were taken by this bank for its general use. The issue of Federal Reserve notes gave the reserve bank the opportunity of affording to its member banks complete interchangeability between book and note credits. The bank therefore established the policy of issuing Federal Reserve notes freely to any member bank desiring them whether the credit thus withdrawn was established by it through rediscounting, or the deposit of checks, or the deposit of gold or lawful money. In practice, however, most credits withdrawn by notes have been established by the deposit of checks which have been collected by this bank in gold or lawful money through the clearing house. Accordingly, the accumulation of cover in the hands of the Federal Reserve Agent has been mainly gold, with but a small amount of rediscounts. The processes provided by the act for the issue of Federal Reserve notes to the reserve bank permit complete interchangeability between gold and rediscounts held by the agent. Gold may be substituted for rediscounts and rediscounts for gold, in accordance with the requirements of the reserve bank. During the entire period its requirements have been for notes with which it might exercise its statutory right to "exchange federal reserve notes for gold, gold coin, or gold certificates." The policy of the Federal Reserve Bank has resulted in greatly strengthening its gold position and its ability to assist its member banks or other Federal Reserve Banks should they at any future time seek credit in order to withdraw gold for domestic or foreign uses. Through this policy also it has been able potentially, at least, to retard the expansion of credit by impounding in the hands of the agent a large volume of gold which might otherwise have found its way into bank reserves already superabundant. Furthermore, through this policy it has been able to take the first step toward accomplishing one of the purposes of the act set forth in its title, _e. g._, "to furnish an elastic currency." There are two forms of elasticity, one of _quantity_ and the other of _quality_, both provided for in the act. From the point of view of cover, the gold certificate is completely inelastic. It stands at one extreme of our currency, with a dollar of gold set aside behind each dollar of paper. At the other extreme stands the national-bank note, with only 5 cents of gold set aside behind each dollar of paper. The assets of the issuing bank make it good, but its elasticity is nullified by the requirement that it must be secured dollar for dollar by government bonds. Between these two extremes the Federal Reserve note, a new form of currency, has been introduced. For each dollar of this paper there is set aside from 40 cents to $1 of gold. As in the case of the national-bank note, the obligation of the United States and the assets of the issuing bank secure it. The process in which this and other Federal Reserve Banks have been engaged is the substitution, as a circulating medium, of a note which is elastic in quality for the inelastic gold certificate. Gold is the most uneconomical medium of hand-to-hand circulation since, when held in bank reserves, it will support a volume of credit equal to four or five times its own volume. What the reserve bank does in accumulating gold behind its Federal Reserve notes is to establish with the holder of each note a credit which may be availed of whenever the occasion requires. With this credit established it can convert at will its gold-covered notes into notes covered partly by gold and partly by commercial paper. In times when credit is becoming strained and bank reserves need strengthening or when gold must be exported, this conversion will take place, and after the strain is over the gold cover will be restored through the repayment of the rediscounts substituted for it. In this way elasticity of quality in our currency is obtainable. But it should not be construed as in any way a deterioration of the currency contemplated by the act. Quite the reverse is true. The act provides for the issue of Federal Reserve notes in unlimited amounts, with 40 cents of gold behind each dollar of paper. This is elasticity of quantity and it becomes operative with the minimum of gold cover. Elasticity of quality, on the other hand, operates with a gold cover always above the 40 per cent. minimum and ranging as high as 100 per cent. In order to be prepared for any currency demands which might be made upon it, the Federal Reserve Bank of New York in the spring of 1915 adopted the policy of having printed and keeping constantly on hand a supply of Federal Reserve notes substantially in excess of the amount of emergency currency which, experience shows, this district might be called upon to supply. The maintenance of this policy and of the policy of issuing Federal Reserve notes freely has entailed a heavy cost upon this bank. Unissued Federal Reserve notes are carried at cost on the books of the bank, and at the end of each month the amount of notes issued to the bank during the month is charged off at cost. The shipment of notes unfit for circulation to the Comptroller of the Currency at Washington for cancellation and destruction is a further item of expense in connection with the maintenance of these policies. The directors and officers of the bank, however, feel that the results accomplished amply justify the expense incurred, and consider that the added strength furnished the bank by the gold thus accumulated is perhaps the most important result of the operations of the period. Some reduction has already been made in the cost of printing Federal Reserve notes, and it is to be hoped that further experience and study will enable other substantial reductions to be made in the cost of preparing for issue what has already become an important element of the circulating medium of the country. The act provides that all expenses in connection with the issue and redemption of Federal Reserve notes shall be borne by the Federal Reserve Banks, and in view of the service the banks are performing in accumulating gold through the medium of these notes, the feeling is quite general among their officers that the notes should be furnished to them at the lowest possible cost consistent with the high quality of workmanship required. The design of the notes is not altogether satisfactory for efficient handling. In sorting notes it is necessary to be able readily to distinguish between notes of this bank and notes of other reserve banks. This would be greatly facilitated if the printing of the distinctive number and letter of each bank were made more general on the face of the note. THE FINANCIAL POLICY OF THE FEDERAL RESERVE BANKS[302] It seems clear that the cardinal principle in the management of the Federal Reserve Banks will be to disregard the course which will lead to maximum profits, following instead the path which will lead to the greatest safety and which will permit these banks to be of the greatest service to the nation. Large reserves should be maintained, and these should consist chiefly of gold. The payment of interest upon bankers' deposits and government deposits should be avoided, if possible, for the reason that the payment of interest will force the keeping of smaller reserves, if the cumulative dividend is to be earned. The banks should be managed, not from the standpoint of profit, but from the standpoint of safety. Yet this is but one side of the policy of the Federal Reserve Banks. Their power and influence can be made to extend much farther than would result solely from the wise management of their own affairs. These banks are the financial trustees of the nation. The country will look to them to see that they exercise over the member banks a closer supervision and discipline than has been possible in the past. Supplementing a negative control by the bank examiners, who are powerless so long as the letter of the law is observed, the federal reserve banks will be a great positive force. The Federal Reserve Banks, with the approval of the Federal Reserve Agent or the Federal Reserve Board, may conduct examinations of a member bank, both for the purpose of ascertaining its condition, and, what will be of equal importance, for the purpose of determining the lines of credit which are being extended by it. In the long run, the greatest work which the Federal Reserve Banks can do for the business men of this country is to improve and standardize the methods of commercial borrowing. I believe it is possible for these banks, with the approval of the Federal Reserve Board, under the power just quoted, to establish a comprehensive credit information clearing service through which the aggregate loans of all large borrowers can be known by any bank official and through which excessive borrowing or the lending of money to concerns pursuing unwise financial policies can be checked before disaster overtakes them. This is one of the greatest needs of our banking system.... RELATIONS OF FEDERAL RESERVE BANKS WITH MEMBER BANKS[303] The aim of this bank [Federal Reserve Bank of New York] at all times has been to maintain frank and friendly relations with its member banks. At every meeting of the New York or New Jersey Bankers' Associations, or of their groups, to which invitations have been received, one or more of the directors or officers have been present and discussed the development of the various functions of the system. When the establishment of an intradistrict collection system was under consideration, the directors and officers invited representative member bankers from all parts of the district to confer with them at the office of the bank. The plan finally adopted was thoroughly discussed in all its aspects and a consensus of opinion seemed to prevail that it was a fair and reasonable plan. When the conditions under which State banks should be admitted to the reserve system were under consideration three conferences were held by the directors and officers of the bank, one with national bankers, one with State bankers, and one with trust company officers, from various parts of the district, to ascertain their views upon the question at issue. In every case the policy has been pursued of dealing frankly with those present, in order that they might understand fully how the action under consideration would affect them. The officers have expressed themselves at all times as desirous of establishing personal relations with officers of member banks and have invited them to call at the bank when in New York City. Yet a year has gone by and officers of probably not over 15 per cent. of the member banks have done so. Many of them still have the feeling that the bank is a branch of the Government. Their experience with the Government consists principally of the statutory and supervisory relationship which exists between them and the Comptroller's office. The conception of the relation of this institution with them as co-operative makes headway slowly. The fact that the national banks were practically compelled to join the system naturally retards the development of the co-operative idea. The change of attitude, upon which the success of the system will ultimately depend, will probably come slowly, but there are already signs, as we enter upon the second year of the system, that the banks are getting more accustomed to it and appreciate the results it has already accomplished. It is hoped that during the coming year, with organization pressure somewhat lessened, more time can be devoted by the officers to developing personal relations with the officers of member banks. The present attitude of the member banks toward the reserve bank may be summarized as follows: The New York City banks, upon which the strain of all crises first and chiefly falls, fully understand the value and benefits of the system. While regretting the loss of bank deposits which will probably be drawn from them (estimated to be as high as $250,000,000), they are nevertheless hearty supporters of the system, at all times co-operative in their attitude. Many of the banks in other large cities are unable to take full advantage of the lowered reserve requirements, but in spite of the loss of interest on their reserve balance, most of them understand what the system in its larger aspects means for American banking and generally give it their support. While the same may be said of many of the country banks, yet it is among the country banks as a class that most of the apathy and hostility to the federal reserve system which still persists is found. Their opportunities and earnings are relatively small, and in order to live they must figure closely. They feel the loss of interest on reserve deposits; the absence, as yet, of dividends on their capital contribution; and the prospective loss or decrease of the exchange they generally charge on remitting for checks drawn upon them. Many banks in industrial centres are precluded by the activity of their business from taking advantage of the reduction in the required reserve. They believe that they will, in fact, be required to carry an even larger reserve than heretofore in order to obtain collection service for notes, drafts, and non-member bank checks and the various other services now rendered by their reserve agents, but not yet undertaken, by the reserve banks. It is very natural that they should view with reluctance the termination or diminution of long-standing business associations with their reserve agents. Few of them, as yet, conceive of the reserve bank as their active reserve agent, performing all the services which go with the relationship. The dormant accounts most of the banks maintain with the reserve bank are, perhaps, indicative of their attitude toward it. Relatively few banks of this district are borrowers; in good times and bad they have been able when necessary to borrow from their city correspondents on bonds or on the indorsement of their directors, two avenues which are now to be closed to them. The rediscounting privilege has been little availed of and the larger functions of the Federal Reserve System, such as influencing domestic rates and international gold movements through the development of a discount market and by dealing in foreign bills, appear remote from their spheres of activity. They feel that the system has few advantages to offer in return for the cost it entails upon them. All of these points will be felt with increasing acuteness by the country banker as his reserve transfers approach completion and as reduced balances result in reduced service from his city correspondent. His point of view is outlined thus frankly in order that the difficulties he sees may be clearly recognized and steps taken gradually to remove them. The development of a more satisfied relationship requires progress on the part of the reserve bank and a willingness to co-operate on the part of the country banker. The reserve bank should organize a complete collection system embracing the handling of notes, drafts, and items on non-member banks, which eventually will bring all the members into daily active relations with the bank. It must be ready to act for member banks in the purchase, sale, and custody of securities; to supply credit information on names whose paper is offered by brokers; to give its members information concerning methods of developing the new functions which the act authorizes them to exercise; to perform the services now rendered by their reserve agents; and generally to assist them in every reasonable way. The member banks should look upon the reserve bank not as an alien but as their own institution. They own all its capital and most of its resources, and they control its management through the directors they elect, subject always to the supervision of the Reserve Board. At the reserve bank they may borrow as a standing right and not as a favor which may be cut off. They no longer have to buy or carry bonds to serve as security for loans; the paper of their own customers, large or small, will now serve as their security. While panics in the past may not have affected them, they have been disastrous to the business interests of the country, who are their customers; and their contributions to the reserve bank should be recognized as a form of insurance not merely for themselves but for their customers as well. If this insurance is expensive and makes some changes in the nature of their business, the act should be carefully studied with a view to making the most of the new functions it provides. New avenues of activity should be looked for. The banks which will get the most out of membership are those which are the first to see and develop the opportunities it provides and to educate their customers to the protection and facilities they will enjoy through the system. The occasion is a favorable one also for the correction of abuses. Customers will do things in the name of the Federal Reserve System which they have never done before. The experience of banks in using the forms provided by the reserve bank to get statements from their borrowers is evidence of this. The occasion should be seized also to increase the balances of depositors who carry unprofitable accounts. To assist member banks in studying their accounts this bank has had under preparation by chartered public accountants a reasonably simple form for analyzing accounts which may be obtained by banks desiring to use it. It is the duty of the directors and officers to understand not only the problems of the reserve bank but those of the member banks as well; and it has been their endeavor during the past year to give special study to those of the country bank. Several suggestions for the relief of the country bank have come to their notice. One of these, which the American Bankers' Association at its 1915 Seattle convention favored, was to permit the 3 per cent. of reserve which the member bank may carry either in its vaults or in the reserve bank, to be deposited with member banks not more than 300 miles distant and count as reserve. This seems to be contrary to the spirit and intent of the act, which is primarily to centralize reserves in Federal Reserve Banks. Another suggestion which seems more worthy of consideration is that the percentage of reserve required for country banks should be somewhat further reduced. When the reserve transfers are completed checks in transit can no longer count as reserves. It is clear, therefore, that the reserve reduction contemplated by the act will not be realized in practice. A further reduction in the reserve requirements would, in the case of many banks, result in a reserve less than the amount their business actually required, and would enable them to carry the amount thus freed wherever it would best serve their particular business, and, if they so desired, to maintain some relations with present city correspondents. It would lead away from the present rigidity of bank reserves toward greater flexibility and a better understanding of their meaning and purpose. RELATIONS BETWEEN THE FEDERAL RESERVE BANK OF MINNEAPOLIS AND ITS MEMBERS [304]The Ninth Federal Reserve Bank has sought to make the Federal Reserve Act fully operative within its district. During the spring of 1915 it had opportunity to demonstrate its effectiveness in meeting the requirements of agriculture in the Northwest during the planting season, and rediscounted liberally for member banks, in order to enable them to better satisfy the requirements of farmers. It relieved local pressure at a number of points where manufacturing enterprises and general business were depressed because of war conditions, and had opportunity to show that it can efficiently meet the demands of industry. Again, in the fall of the year, when an adverse season had created large amounts of immature corn, it was able to perform a very valuable service in assisting member banks to meet the requirements of farmers who were suddenly compelled to make provision for utilizing a valuable forage crop. During the prevalence of the foot-and-mouth disease it was able to come to the assistance of many banks in the western part of its territory, which had applications for loans from numerous stockmen who had cattle ready for market, but were unable to ship on account of quarantine conditions. The service above indicated, while not perhaps of notable consequence in any single case, consists in the aggregate of a very valuable degree of assistance, which would not have been available except for the Federal Reserve Bank, and without which, portions of the district would have encountered considerable hardships. RELATIONS BETWEEN THE FEDERAL RESERVE BANK OF BOSTON AND ITS MEMBER BANKS [305]Owing to the unusual conditions existing in the money market, and to the fact that the reserve city banks offer facilities to the country banks which this bank has not yet developed, more particularly in connection with the collection of checks and other items, the latter banks have carried only their minimum reserve requirements with this bank and have used its facilities only to a limited extent. The relations between country bank officials and the officials of this bank have been most cordial. While many of the banks in this district are borrowing, most of them find it much more convenient to go to their correspondent bank and borrow, either in the form of a demand loan, with or without collateral, or against a certificate of deposit. The Comptroller's calls on the several dates show the total borrowings of member banks in the district as compared with their rediscounts with this bank, as follows: _Total _Borrowed, Borrowed._ F.R.B._ Dec. 31, 1914 $4,738,416 $105,000 Mar. 4, 1915 4,047,708 234,531 May 1, 1915 3,969,796 410,723 June 23, 1915 4,284,445 270,441 Sept. 2, 1915 3,398,856 190,849 Nov. 10, 1915 2,985,406 131,725 The officials of the city banks on the other hand are apparently satisfied with the progress made in the development of this bank's functions. While but few of the Boston banks have rediscounted with us, almost all have intimated that should occasion arise they would do so. Furthermore, several Boston banks have entered into the acceptance business to a large extent, and the assistance that this bank has given in the matter of rates and market for acceptances has done much to bring it into favor with those banks. The Boston banks have also used this bank to a large extent in exchange transactions, and the services offered by the gold settlement fund have been used almost exclusively by those banks. Thus far Boston banks have received more benefits from this bank than have the other banks in this district. A possible exception to this is in Aroostook County, Me., where, owing to an unusual situation surrounding the principal industry, the potato crop, banks have relied on this bank to a considerable extent to carry them through a trying period. The moral effect of having the Federal Reserve Bank of Boston stand behind them was not only appreciated by those banks, but enabled them to handle their business much more satisfactorily and to finance themselves without having to call upon this bank to an undue extent for rediscounts or without embarrassing their customers. FEDERAL RESERVE BANKS AND THE ACCEPTANCE MARKET [306]The right to accept drafts was conferred on New York State banking institutions by the act of April 16, 1914. Shortly afterwards a few acceptances were reported, principally against securities. It was not until the derangement of international credit facilities at the opening of the European war that American bankers' acceptances, especially those relating to foreign commerce, came into existence in substantial volume. At that time some of the trust companies with foreign connections extended credits freely to their customers to replace credits formerly granted by European banks which had been either withdrawn or reduced; they also accepted drafts in large volume. On and after May 18, 1914, member banks were authorized also to accept drafts drawn upon them involving the importation or exportation of goods.... The monthly purchases of acceptances by this bank [the Federal Reserve Bank of New York] in the New York market have been: 1915 _Number_ _Number_ _of pieces._ _Amount._ _of pieces._ _Amount._ _For itself._ _For other reserve banks._ February 41 1,659,740.21 86 1,263,871.25 March 140 3,343,143.17 250 3,799,809.42 April 86 1,272,694.36 84 1,700,396.57 May 46 867,420.18 48 1,305,873.80 June 132 3,083,261.75 34 602,558.89 July 106 2,496,865.67 147 2,348,050.89 August 103 1,597,630.63 89 1,910,417.47 September 89 1,769,880.50 172 1,948,243.05 October 68 2,199,679.95 163 2,028,098.36 November 115 1,899,606.56 246 2,594,951.04 December 310 5,648,708.78 313 2,809,823.59 Total 1,236 25,833,631.76 1,632 22,312,094.33 The policy pursued by this bank thus far has been to purchase good acceptances whether or not the acceptor was a member bank.... The reserve bank and the market rate for the discount of such bills in New York has been for nearly a year, and is now, lower than the rate for similar bills in London. The relatively small volume of such credits which American banks have succeeded in making operative even under the unusually favorable opportunity which the war presents for their extension, is evidence of the difficulty which will be encountered in developing the acceptance business in the United States. Some of the fundamental difficulties are: (1) The disinclination to break old banking connections. (2) The difficulty of educating handlers of bills in distant places as to American credits. (3) The lack of bill buyers in foreign countries who will quote as low rates on dollar as on sterling bills. (4) The natural prejudice of bill buyers in foreign countries in favor of a bill of known currency and against a bill of as yet unknown currency. (5) The lack of men trained to exercise the judgment and financial responsibility required of them as managers of branches or agencies which American banks might establish in foreign countries. (6) The inferior communications for both goods and mail between the United States and foreign countries as compared with those between Great Britain and foreign countries. Only time, experience, and patient effort will remove these handicaps to the elevation of dollar exchange to its proper position in international finance. The business, however, is developing and will continue to grow as our banking machinery and connections extend throughout the world. The Act permits member banks to accept an amount of bills not exceeding 50 per cent. of their capital and surplus. By the amendment of March 3, 1915, under certain conditions they may be authorized by the Federal Reserve Board to accept up to 100 per cent. of the capital and surplus. The following banks in this district have received such authorization: _Amount of capital and surplus._ Bank of New York, New York $6,000,000 Mechanics & Metals National Bank, New York 12,000,000 Atlantic National Bank, New York 1,600,000 American Exchange National Bank, New York 8,000,000 As this bank has probably been the largest single purchaser of bankers' acceptances, it has been able, as it gained experience, to exert some influence toward standardizing practice and form.... The amended regulation[307] issued September 7, 1915, considerably broadened the field of acceptances eligible for purchase and encouraged an increased volume of these instruments. The further amended regulation issued December 4, 1915, covering the purchase of bankers' acceptances arising out of domestic transactions relates to a class of bills which national banks are not authorized to accept. When accepted by institutions of high credit they have a ready market, though at a fractionally higher rate than acceptances based on foreign transactions. [308]New England imports a large volume of hides and wool from South America and cotton and jute from the Orient and other sections of the world. These shipments in the past have been financed through credits drawn on European centers. Since the opening of the Federal Reserve Banks these foreign trade transactions have been financed to a large extent through dollar credits drawn on this country and the acceptances arising there from have found a ready market in the Federal Reserve Banks. Several of the member banks in this district have entered this new field of finance and the Federal Reserve Bank of Boston has used every effort to further and develop that business, not only by buying a large amount of that class of paper, but also through furnishing favorable forward discount rates to assist in protecting its member banks. The following member banks have entered this field: 1. First National Bank, Boston, Mass. 2. Fourth-Atlantic National Bank, Boston, Mass. 3. Merchants National Bank, Boston, Mass. 4. National Shawmut Bank, Boston, Mass. 5. Old Colony Trust Co., Boston, Mass. 6. Second National Bank, Boston, Mass. 7. Merchants National Bank, Worcester, Mass. Under special permission of the Federal Reserve Board the First National Bank, of Boston, and the National Shawmut Bank, of Boston, have been given authority to accept up to 100 per cent. of their capital and surplus. It is of interest to note that the former bank has reported the largest amount of acceptances of any member bank of the Federal Reserve System. CLEARINGS AND COLLECTIONS IN PRACTICE [309]Section 16 of the Federal Reserve Act made general provision for the establishment of a system of clearance of checks throughout the United States, each Federal Reserve Bank being required to act as a clearing house for its members if directed by the Federal Reserve Board, while the Federal Reserve Board was authorized to clear for the reserve banks themselves. The Board had from the first recognized its duty to make this provision of the law effective as fully and at as early a date as conditions would permit; and in its first report spoke of this as "one of the most important responsibilities with which it is charged under the Act." So, regarding its duty in this particular, it undertook early in 1915 the preparation of a general circular and regulations intended to provide for the clearing of checks within the several Federal Reserve districts, while it also took under advisement the establishment of a gold settlement fund at Washington for the purpose of clearing obligations between Federal Reserve Banks. The latter undertaking has been carried to a successful conclusion and the gold settlement fund has been in full and satisfactory operation since about the first of June. The Board, however, had not advanced far with its work relating to the intradistrict branch of the clearance system before technical and other difficulties began to make their appearance. Many banks, both city and country, throughout the system were opposed to the enforcement of the provisions of the law because of the loss of exchange charges which would thereby be entailed upon them. Legal questions were also raised, it being argued that there is no power to compel a member bank not located in a Federal Reserve city to pay or have charged to its account at the Federal Reserve Bank of its district a check which it had not seen and approved prior to the time of presentation at its own counter. For the purpose of ascertaining the Board's powers in this connection the opinion of the Attorney General has been requested. While the Board was not inclined to attach undue importance to objections based upon self-interest, it felt that it must take cognizance of all legal objections, and it recognized that the clearing question was essentially a reserve problem rather than a technical question or a mere matter of administration. Inasmuch as the Federal Reserve Act had granted a period of three years within which to effect the final transfer of reserves to Federal Reserve Banks (balances with correspondents counting as reserves in the meantime), there was a certain ground for objection to the immediate introduction of complete clearance at Federal Reserve Banks. As is well known, reserve balances in some reserve cities have heretofore been used for the purpose of providing for exchange and collection operations, and so long as this function on the part of city correspondents continued there was some argument in favor of deferring any compulsory application of par clearance at the reserve banks. Study of the problem, moreover, shows that, pending the time when state banks enter the system in larger numbers, it may be necessary for some member banks to collect and clear through their correspondents in reserve cities. So complex was the situation and so serious the difficulty involved in the compulsory application of any system, however carefully conceived, that the Board felt it would be well if member banks could be brought to recognize of their own free will the advantages of a general and nation-wide clearing system--advantages which would inure not only to the benefit of the public at large, but ultimately to the direct benefit of the member banks themselves from the purely business standpoint. It therefore took under favorable consideration the question of a voluntary clearing system. Both the difficulties of a compulsory plan and the probable merits of a voluntary system had been strongly represented to the Board by the governors of the respective Federal Reserve Banks who at various meetings had thoroughly canvassed the whole situation. Under a plan, proposed by the governors, which in most districts became effective during June, 1915, provision was made for the acceptance at par by the Federal Reserve Bank of each district of checks drawn upon any member bank of that district which had previously assented to the provisions of the scheme. It was hoped that a very large number of member banks would promptly affiliate themselves with the new system of clearing and that the natural force of economic competition would ultimately attract to it those who at first might hesitate. This system, as already stated, became operative in most districts during June, 1915. Prior to this whole discussion, however, two districts had already undertaken the application of the clearing provision of the law. Early in December, 1914, district No. 10 and district No. 8 (Kansas City and St. Louis) had sought and obtained permission to apply to their members a complete system of required clearing. This system had been in full operation in both districts prior to the general application of the voluntary system. Upon the inauguration of the latter the directors of the Federal Reserve Bank of St. Louis deemed it wise to offer to their member banks the option of withdrawing from the clearance system if they so desired; but so successful had been the working of the plan that comparatively few retired, about 80 per cent. of all continuing their membership. The Federal Reserve Bank of Kansas City continued its required system as before for the benefit of all its member banks, numbering 950. As about 365 banks continued their membership in the St. Louis district, a total of approximately 1,300 was included in the clearing system of the two districts in question. Outside of these two districts about 1,100 member banks voluntarily affiliated themselves with the clearing system within a short time after its inauguration, and there was a subsequent net inward movement of about 50 additional members, making approximately 1,150 banks which of their own free will have assented to the voluntary clearing plan. This is considerably less than 25 per cent, of the institutions eligible for membership, and the proportion has been so small as to prove a severe disappointment to those who had confidently expected that the foresight and enlightened self-interest of the member banks would speedily accomplish the desired result. Some progress has been made through the action of the banks, both member and non-member, in improving exchange conditions and in providing for the clearance of country checks at points where this practice has never before prevailed; but in the main comparatively small advance has thus far been made in rendering effective the provisions of the law requiring the standardization of exchange and clearance practices. This slowness is largely due to the failure of jobbers and merchants to appreciate the advantages of the clearance system and to enlarge its membership by insisting that their own banks join and co-operate in the plan. The subject has recently been reopened at the conferences between the governors of the Federal Reserve Banks, the Federal Reserve Agents, the transit managers of the reserve banks, and the Board itself, with a view to extending the present system not only in the several districts themselves but as between the various districts. For many years it has been lawful for banks to count as reserves deposits with other banks. It was never the intention of the Federal Reserve Act that member banks should continue the maintenance of these reserve accounts. On the contrary, the full meaning of the act is manifestly opposed to such an idea. It is the plain conception of the Act that the reserve banks should, to a very large extent, if not entirely, perform the work that is now being done by correspondent banks in this respect. This means that the reserve balances to be carried in the future by the reserve banks instead of by the correspondent banks should serve as the basis for a system of clearing and collecting the exchanges of the country. Whatever can be done to bring about the prompt and effective use of this new system of bank settlement will be done. BRANCHES AND AGENCIES [310]The question of branches of federal reserve banks has received careful attention during the past year. There has been intimation from several quarters that the establishment of a branch at a given point would be acceptable to the banks of that place. Only in one instance--that of New Orleans--did the Board receive a definite request from a Federal Reserve Bank to establish a branch. Believing that New Orleans and the adjacent territory could make advantageous use of this additional banking machinery, the Board authorized the establishment of a branch of the Federal Reserve Bank of Atlanta to be located in New Orleans, and this branch was opened for business on September 10. Operations at the New Orleans branch have proceeded satisfactorily, and the institution has been of considerable use to the local banks. The branch is already more than self-supporting. Investigation and experience have seemed to show that, at least for some years to come, the organization of branches with completely equipped offices, vaults, and the like, and with a full staff of salaried officials, will be too heavy an expense for most of the reserve banks, yet, that valuable service could be performed by local offices of the several banks in not a few places. The Board has, therefore, had under consideration the question whether establishing local agencies might not meet the requirements of the case better than the more fully organized branch office. Competent legal opinion is to the effect that the creation of such local offices is permissible under the terms of the law, and the Board believes that it may prove practicable to meet banking necessities in many sections of the country by this means. PROPOSED AMENDMENTS TO FEDERAL RESERVE ACT[311] A year's experience in the operation of the Federal Reserve Act has confirmed the Board in its profound conviction that the act has been one of the most beneficial pieces of legislation ever adopted by Congress. Not only have its fundamental principles been fully vindicated but in most details the working of the measure has been successful. The act, however, is a progressive piece of legislation and creates new conditions as the result of its own operation. Modification in its terms growing in part out of these new conditions will subsequently be required from time to time. For the present the Board presents the following suggestions for amendments to the act: (1) In addition to powers now possessed in this connection by Federal Reserve Banks and national banks, the latter should be permitted to subscribe for and hold stock in banks organized for the special purpose of doing a banking business in foreign countries. (2) With the approval of the Federal Reserve Board the issue of Federal Reserve notes to Federal Reserve Banks should be permitted either against the deposit of an equal amount, face value, of notes, drafts, bills of exchange, and bankers' acceptances acquired by Federal Reserve Banks under sections 13 and 14 of the Act, or of gold, or of both, provided, however, that gold so deposited with a Federal Reserve Agent shall count as part of the reserve required by the Act to be maintained by the bank against such notes outstanding. (3) The acceptance system, provision for which is made in foreign trade operations by the Federal Reserve Act, should be extended to the domestic trade in so far as relates to documentary acceptances secured by shipping documents or warehouse receipts, covering readily marketable commodities or against the pledge of goods actually sold. There can be but little question of the safety of such acceptances, and their use will tend to equalize interest rates the country over and help to broaden the discount market. (4) Permission should be granted to national banks to establish branch offices within the city, or within the county, in which they are located. (5) In order to enable member banks to obtain prompt and economical accommodations for periods not to exceed fifteen days, the Federal Reserve Banks should be permitted to make advances to member banks against their promissory notes secured by such notes, drafts, bills of exchange, and bankers' acceptances as the law at present permits to be rediscounted or purchased; or against the deposit or pledge of United States Government bonds, the purchase of which is now permitted under the law. (6) The Board furthermore recommends that the power of national banks to make loans on farm lands as provided in section 24 be extended so as to permit any national bank not situated in a central reserve city to make loans secured by improved and unencumbered farm land situated within its Federal Reserve district, or within a radius of 100 miles from the place in which such bank is located, irrespective of district lines. It also recommends that the powers of national banks be further extended to permit any such bank to make loans on any improved and unencumbered real estate located within 100 miles of the place in which such bank is located, irrespective of district lines; provided, however, that the aggregate of farm land loans and other real estate loans made by any national bank shall not exceed 25 per centum of its capital and surplus or one-third of its time deposits; and provided further, that no such real estate loan, as distinguished from a farm land loan, shall exceed a period of one year nor exceed 50 per centum of the actual value of the property offered as security. It is believed that the enactment of these amendments will, besides enlarging the usefulness of the national banks, result in greatly strengthening the operation of the Federal Reserve Act, and more completely realize the purposes of its framers. The text of the amendments designed to carry out these recommendations will be submitted by the Board at an early date. The Board has under consideration other suggestions for amendments to the Federal Reserve Act concerning which no conclusions have yet been reached, and regarding which the Board will take occasion to submit its views to the Congress at an appropriate time in the future. STATEMENT OF CONDITION OF FEDERAL RESERVE BANKS.[312] _Combined resources and liabilities of all Federal Reserve Banks as at close of business on the last Friday of each month during 1915._ RESOURCES. [In thousands of dollars.] ---------------------------+---------+---------+---------+---------+---------+ | Dec. | Jan. | Feb. | Mar. | Apr. | | 31. | 29. | 26. | 26. | 30. | | 1914. | | | | | ---------------------------+---------+---------+---------+---------+---------+ Gold coins and certificates| | | | | | in vault | 228,641 | 235,417 | 248,256 | 241,344 | 237,278 | Gold settlement fund | | | | | | Gold redemption fund | 428 | 488 | 653 | 824 | 950 | +---------+---------+---------+---------+---------+ Total gold reserve | 229,069 | 235,905 | 248,909 | 242,168 | 238,228 | Legal tender notes, silver,| | | | | | etc. | 26,578 | 20,882 | 29,085 | 23,098 | 26,518 | +---------+---------+---------+---------+---------+ Total reserve | 255,647 | 256,787 | 277,994 | 265,266 | 264,746 | Commercial paper | 9,909 | 13,955 | 18,577 | 22,001 | 22,774 | Bankers' acceptances | | | 1,892 | 9,682 | 13,812 | United States Bonds | 205 | 2,015 | 5,406 | 6,639 | 6,813 | Municipal warrants | 734 | 11,165 | 12,011 | 14,940 | 18,656 | Federal Reserve notes, | | | | | | net assets | 5,418 | 3,179 | 3,215 | 6,091 | 6,909 | Due from other Federal | | | | | | Reserve Banks, net | 7,930 | 7,421 | 8,088 | 5,573 | 9,468 | All other resources | 5,931 | 7,712 | 4,550 | 3,019 | 4,425 | +---------+---------+---------+---------+---------+ Total resources | 285,774 | 302,234 | 331,733 | 333,211 | 347,603 | ---------------------------+---------+---------+---------+---------+---------+ LIABILITIES. ---------------------------+---------+---------+---------+---------+---------+ | Dec. | Jan. | Feb. | Mar. | Apr. | | 31. | 29. | 26. | 26. | 30. | | 1914. | | | | | ---------------------------+---------+---------+---------+---------+---------+ Capital paid in | 18,051 | 20,440 | 36,069 | 36,105 | 39,669 | Government deposits | | | | | | Reserve deposits, net | 263,948 | 279,516 | 290,336 | 288,217 | 294,832 | Federal Reserve notes, | | | | | | net liability | 3,775 | 2,278 | 5,328 | 8,889 | 11,038 | All other liabilities | | | | | 2,064 | +---------+---------+---------+---------+---------+ Total liabilities | 285,774 | 302,234 | 331,733 | 333,211 | 347,603 | ---------------------------+---------+---------+---------+---------+---------+ RESOURCES. (continued) [In thousands of dollars.] ---------------------------+---------+---------+---------+---------+---------+ | May. | June | July | Aug. | Sept. | | 28. | 25. | 30. | 27. | 24. | | | | | | | ---------------------------+---------+---------+---------+---------+---------+ Gold coins and certificates| | | | | | in vault | 219,187 | 222,746 | 212,988 | 211,145 | 229,972 | Gold settlement fund | 23,426 | 31,360 | 52,140 | 55,930 | 59,050 | Gold redemption fund | 1,027 | 1,081 | 1,064 | 1,104 | 1,202 | |---------+---------+---------+---------+---------+ Total gold reserve | 243,640 | 255,187 | 266,192 | 268,179 | 290,224 | Legal tender notes, silver,| | | | | | etc. | 31,989 | 47,848 | 22,092 | 19,878 | 22,920 | +---------+---------+---------+---------+---------+ Total reserve | 275,629 | 303,035 | 288,284 | 288,057 | 313,144 | Commercial paper | 24,747 | 25,996 | 29,102 | 29,275 | 31,373 | Bankers' acceptances | 9,204 | 10,379 | 11,625 | 13,564 | 13,058 | United States Bonds | 6,947 | 7,601 | 7,923 | 8,836 | 9,328 | Municipal warrants | 23,094 | 11,509 | 16,107 | 25,808 | 24,945 | Federal Reserve notes, | | | | | | net assets | 7,765 | 9,124 | 11,029 | 12,491 | 14,866 | Due from other Federal | | | | | | Reserve Banks, net | 7,435 | 8,311 | 7,078 | 6,990 | 7,409 | All other resources | 5,426 | 5,501 | 5,904 | 4,962 | 3,577 | +---------+---------+---------+---------+---------+ Total resources | 360,247 | 381,456 | 377,052 | 389,983 | 417,700 | ---------------------------+---------+---------+---------+---------+---------+ LIABILITIES. ---------------------------+---------+---------+---------+---------+---------+ | May | June | July | Aug. | Sept. | | 28. | 25. | 30. | 27. | 24. | | | | | | | ---------------------------+---------+---------+---------+---------+---------+ Capital paid in | 54,158 | 54,200 | 54,181 | 54,689 | 54,748 | Government deposits | | | | | 15,000 | Reserve deposits, net | 292,050 | 311,349 | 306,183 | 316,989 | 329,941 | Federal Reserve notes, | | | | | | net liability | 10,921 | 12,617 | 14,965 | 16,738 | 15,348 | All other liabilities | 3,118 | 3,290 | 1,723 | 1,567 | 2,663 | ---------------------------+---------+---------+---------+---------+---------+ Total liabilities | 360,247 | 381,456 | 377,052 | 389,983 | 417,700 | ---------------------------+---------+---------+---------+---------+---------+ RESOURCES. (continued) [In thousands of dollars.] ----------------------------+---------+---------+--------- | Oct. | Nov. | Dec. | 29. | 26. | 30. | | | ----------------------------+---------+---------+--------- Gold coins and certificates | | | in vault | 218,224 | 245,986 | 266,546 Gold settlement fund | 61,960 | 73,830 | 77,293 Gold redemption fund | 1,222 | 1,252 | 1,124 +---------+---------+--------- Total gold reserve | 281,406 | 321,068 | 344,963 Legal tender notes, silver, | | | etc. | 37,058 | 37,212 | 13,525 +---------+---------+--------- Total reserve | 318,464 | 358,280 | 358,488 Commercial paper | 30,448 | 32,794 | 32,368 Bankers' acceptances | 13,619 | 16,179 | 23,013 United States Bonds | 10,505 | 12,919 | 15,797 Municipal warrants | 25,014 | 27,308 | 12,220 Federal Reserve notes, | | | net assets | 19,723 | 19,176 | 21,910 Due from other Federal | | | Reserve Banks, net | 8,533 | 14,053 | 20,767 All other resources | 3,645 | 4,633 | 6,547 |---------+---------+--------- Total resources | 429,951 | 485,342 | 491,110 ----------------------------+---------+---------+--------- LIABILITIES. ----------------------------+---------+---------+--------- | Oct. | Nov. | Dec. | 29. | 26. | 30. | | | ----------------------------+---------|---------+--------- Capital paid in | 54,838 | 54,846 | 54,915 Government deposits | 15,000 | 15,000 | 15,000 Reserve deposits, net | 343,554 | 397,952 | 400,012 Federal Reserve notes, | | | net liability | 13,918 | 13,385 | 13,486 All other liabilities | 2,641 | 4,159 | 7,697 ----------------------------+---------+---------+--------- Total liabilities | 429,951 | 485,342 | 491,110 ----------------------------+---------+---------+--------- FOOTNOTES: [287] O. M. W. Sprague, _The Federal Reserve Act of 1913_, _The Quarterly Journal of Economics_, Vol. 28, No. 2, February, 1914, pp. 213-254. [288] [The country has been divided into twelve districts in each of which a Federal Reserve Bank began operations November 16, 1914.] [289] After the Reserve Banks have been in operation long enough to be running smoothly, not a few branches will doubtless be organized. Branches are to have boards of directors, three of the members of which are to be chosen by the Federal Reserve Board, and four by the directors of the parent Reserve Bank. Branches are to be operated under rules and regulations approved by the Federal Reserve Board. [290] State banks and trust companies are eligible for membership, if they have a sufficient capital to entitle them to become national banks in the places where they are situated. On becoming member banks, they must comply with the provisions of the national banking law regarding reserves, examinations (the state examinations may be accepted), and various other general provisions of the national banking law. [291] In case subscriptions by the banks of a district are inadequate, stock is to be offered to the general public; and if the response of the public is inadequate, the stock is to be taken by the Government of the United States. Neither privately owned nor government stock is entitled to voting power. [In no district were subscriptions by the banks "inadequate."] [292] The inability of the Pujo money trust committee to secure desired information from the banks evidently occasioned the following clause: "No bank shall be subject to any visitatorial powers other than such as are authorized by law, or vested in the courts of justice, or such as shall be or shall have been exercised or directed by Congress, or by either House thereof, or by any committee of Congress of either House duly authorized." [293] [Several of the more important regulations of the Federal Reserve Board are contained in Appendix B.] [294] The law regarding the examination of national banks is recast. The only important changes are that hereafter all examiners are to be paid salaries, and that the Federal Reserve Banks are empowered to conduct special examinations of member banks. [295] Adapted from Joseph French Johnson, _Fundamental Weakness of the Glass-Owen Bill_, an address delivered before the Economic Club of New York City, Monday evening, November 10, 1913. [296] Although the address in part here reproduced was delivered as a criticism of the Glass-Owen Bill, one of the measures that led up to the passage of the Federal Reserve Act, that criticism, as a result of a few slight changes made, applies with almost equal force to the Federal Reserve Act itself. The preceding article by Professor Sprague answers with striking directness Professor Johnson's trenchant argument.--EDITOR. [297] [It is commonly held that ample controlling power has been conferred upon the Federal Reserve Board by the act as finally passed. It is of interest that Senator Owen listened to the address of which an adaptation is here given.] [298] John Skelton Williams, Comptroller of the Currency, "Democracy in Banking," an address delivered before the annual convention of the North Carolina Bankers' Association in the House of Representatives at the capitol at Raleigh, May 13, 1914. Printed in _Congressional Record_, 63d Congress, 2d Session, Vol. 51, pp. 10150-53. [299] F. M. Taylor, _The Elasticity of Note Issue under the New Currency Law_. _The Journal of Political Economy_, Vol. 22, No. 5, May, 1914, pp. 453-463. [300] _Second Annual Report of the Federal Reserve Board_, p. 16. 1916. [301] _First Annual Report of the Federal Reserve Bank of New York_, pp. 19, 20. 1916. [302] Thomas Conway, Jr., _The Financial Policy of the Federal Reserve Banks_, _The Journal of Political Economy_, Vol. 22, No. 4, April, 1914, pp. 319-331. [303] _First Annual Report of the Federal Reserve Bank of New York_, pp. 34-36. 1916. [304] Second Annual Report of the Federal Reserve Board, pp. 313, 314. 1916. [305] _Ibid._, pp. 134-6. [306] _Ibid._, pp. 23-25. [307] [For regulations issued by the Federal Reserve Board see Appendix B.] [308] _Second Annual Report of the Federal Reserve Board_, pp. 134. 135, 1916. [309] _Ibid._, pp. 14-17. [310] _Ibid._, p. 18. [311] _Ibid._, pp. 21, 22. [312] _Ibid._, pp. 45, 46. CHAPTER XXXII THE EARLY EVENTS OF THE EUROPEAN WAR IN RELATION TO MONEY BANKING AND FINANCE AMERICAN FINANCE AND THE EUROPEAN WAR [313]During the half-century that has elapsed since the Civil War, there has probably been no period of six months within which there have occurred transformations of so far-reaching a nature in American banking and finance as during the half-year between July 1, 1914, and January 1, 1915. It will be long before the full meaning and significance of these events are thoroughly understood; for what has been done cannot be finally interpreted until facts which have not yet been ascertained have developed their consequences. On the other hand, it would be impossible to forecast the ultimate effect of the European war should any one of certain tendencies which are still at least possible be fully carried out. What has already taken place, however, comprises a range of events full of important lessons and significant for the light they throw upon the methods to be employed in the near future in the management of industrial and commercial enterprises. This experience has been particularly rich in its bearing upon the relationship between banking and finance in the strict sense of the terms on the one hand, and the future of commerce and industry in general on the other. Though it be true that only hasty thinkers will endeavor to draw final conclusions from what has thus far occurred, it is, nevertheless, also true that much can be learned from the mere marshaling of recent events in their relation one to another. I Upon the outbreak of the European war, it was at once evident to all that very striking changes would result in every department of business life. There was, of course, at the outset no knowledge of the strategy or probable methods to be employed by any of the belligerents, and the general attitude of the business community was based upon the assumption that commerce would, for a time at least, become nearly impossible. As a corollary to that assumption, there prevailed the belief in many circles that American indebtedness to foreign countries would have to be liquidated in cash, and that this process would result in draining away from the United States a corresponding amount of gold. It was natural, therefore, that the first phenomenon of the war should be the suspension of dealings which it was believed would promote this gold movement, or would cause more serious trouble in any direction than would otherwise be inevitable. The closing of the principal stock exchanges of the country almost immediately upon the definite announcement that war was unavoidable was thus dictated by two considerations: (1) the belief that prices for stocks and other securities would be reduced to a point so low as to bring about the repurchase of the securities by Americans, who would then be obliged to pay for them in gold; (2) the belief that, in consequence of this reduction of prices, many bank loans based upon securities would have to be "called," thereby bringing about failures and incidentally assisting in the movement of specie out of the country. In the case of the cotton exchanges, it was at once perceived that the cotton crop, which is so largely produced for export, could not now move abroad with any degree of facility, and that the demand for cotton would undoubtedly be slack. The very fact of the war, therefore, implied heavy reductions in the price of cotton, and the closing of the cotton exchanges was a measure of self-preservation on the part of the operators, who decided to protect themselves against the inevitable failures which would result from the fulfilment of existing contracts at very low prices. To close the exchanges would result in gaining time, and would, therefore, enable operators to meet their maturing obligations, besides perhaps affording an opportunity for actual recovery in cotton prices. This very fact, however, of the closing of the exchanges and the consequent removal of any other established method of determining prices for standard securities and for a staple like cotton involved most profound and far-reaching effects. The exchanges had closed in previous years, but never for the reasons which now controlled them. That they should close because of the fear of failure and the loss of gold implied a serious danger of disaster which appealed powerfully to the public mind, and which presented a problem that could not be explained away. The fact that, coincident with this closing of the exchanges, international trade was practically suspended for several days, and was seriously interrupted for several weeks, until British vessels assumed virtual control of the North Atlantic, tended greatly to increase the public anxiety. It formed, apparently, good ground for the suspension of business operations and for the non-fulfilment of contracts, even when the very difficult conditions did not themselves compel a recourse to such methods. The fact that foreign countries had adopted legislation deferring the date when debts need be paid or contracts fulfilled, although not paralleled here, produced a sympathetic influence upon business in the United States, which practically resulted in the partial or tentative adoption of a somewhat similar relaxation of commercial requirements in many industries and branches of trade. It is notable that the Produce Exchange of New York and the other grain exchanges of the country continued in operation and did an enormous business in spite of the prevailing conditions. This was due to the fact that grain of all kinds, provisions, and every sort of food-stuff were, for the time being, subject to a very rapid upward movement. It was early perceived that a long continuance of the war would bring about a steady advance in the prices of all food products, the markets for which are not dependent upon temporary fluctuations for support, but are subject to far-reaching and semi-permanent influences. The fact that these exchanges continued open while those whose staples were subject to decline closed so speedily, naturally produced its own effect upon the public mind. Many who had thought the exchanges invariably faithful registers of price fluctuations were now reluctantly obliged to confess that this could not be the case, since those exchanges where prices were rising continued to operate without interruption, while those where prices were falling were obliged to suspend business. From one point of view, undoubtedly, the closing of the stock and cotton exchanges tended still further to deepen the attitude of dissatisfaction with these institutions that had been prevalent for some years among the American public. On the other hand, however, as time went on, it became clear that the exchanges of the country and the service they performed when in operation were being appreciated as never before by the conservative popular mind of the nation. With the exchanges closed it was seen that the lack of a regular and established market subject to natural conditions meant suffering and inability to secure the advantage of free competition in the establishment of the price of products. This view was once more emphasized when, later on, the cotton exchanges reopened; for it was then seen that the effect of trading upon the exchanges was to advance the price of the staple rather than to lower it, a view the precise reverse of that which had been originally prevalent for a long time past. Both in the psychological, as well as in the actual, effect of these closings, and in the influence the episode exerted upon public opinion, the suspension of the exchanges throughout the United States must be regarded as a fact of first-rate importance in the financial history of the United States during the European war. II Even without the suspension of certain classes of trading throughout the country, partially due as it was to the frenzied demand of European holders of American investments for money, the strain thrown upon our banks as a result of the great change in conditions would have been enormous. The closing of the exchanges, as already seen, had relieved matters to some extent by enabling the banks to avoid the calling of loans, and thereby to avoid the necessity of forcing customers into liquidation, with the resultant disastrous effect upon themselves. But on the other hand, the suspension of operations and the corresponding loss by the public would, it was felt, tend to the hoarding of legal-tender money. In order to meet this situation, the banks in many of the large financial centres sought to limit specie payments, taking out emergency currency and clearing-house certificates for the purpose of meeting their indebtedness to the public and to one another.... A phase of this phenomenon was seen in the tremendous rise in foreign exchange rates, the rates becoming practically prohibitive and thereby causing what amounted to a suspension of financial relationship between the United States and foreign countries, particularly Great Britain. III It was early understood that the real difficulty and danger in the international situation did not lie in the superficial symptoms of trouble, but were found much deeper, being directly due to the fact that international business had been practically suspended as the result of the war. This was a factor of prime and material importance in the whole situation, because the maintenance of established relations between the United States and foreign countries was directly dependent upon the regular exportation of goods. As was customary during the summer months, there had been large expenditures by American tourists in Europe; and we had become indebted to other countries, particularly Great Britain, for material sums in excess of what we were currently able to liquidate. This was on the assumption, as usual, that such indebtedness would be liquidated through the shipment of agricultural products, particularly of cotton, the country's principal cash crop. The breakdown of trade with Europe through the inability of vessels to run regularly at the outset of the war, and through the reduction of buying power, due to the interruption of all regular industrial, commercial, and financial operations, meant that in the absence of some restoration of the normal course of business it would be necessary to find other means of liquidating our obligations to foreign countries. The first phase of the difficulty was met by investigating the extent of international indebtedness, which, in the absence of other means of payment, would necessitate the draining-away of gold from the United States. Such an investigation was undertaken by the Federal Reserve Board, which, by sending out questions to the principal international bankers of the country, succeeded in forming a more or less trustworthy estimate of the indebtedness on current accounts, these being, of course, of varying maturities extending over several months. The problem thus raised was how to provide for liquidating the debts without losing so much of the underlying gold supply as to impair the convertibility of American securities, and therewith general confidence in American ability to meet obligations. The two chief proposals put forward for bridging over the period of difficulty were the establishment of a joint gold fund by the bankers of the country, and the undertaking of negotiations with Great Britain whereby some relaxation of foreign demands on the United States might be arranged for. These two phases of policy may best be cursorily sketched at this point. Since the new banks had not yet been established and could not be put into operation for some weeks, it was deemed desirable to furnish a makeshift substitute for the co-operative effort which would have been available for the relief of the situation had the banks been in existence. It was therefore determined to suggest to a number of representative bankers the establishment of a joint gold fund to be used in providing exchange on Great Britain, and to have this joint fund developed at the earliest possible moment. A letter was consequently sent out to the presidents of clearing-house associations throughout the country, under date of September 21, in which request was made for subscriptions to a fund intended to aggregate about one hundred million dollars. This letter had previously been considered and approved at meetings of representative bankers summoned to meet in Washington on September 4 and 19 respectively, and was, therefore, issued with their moral support. The answer to this invitation was prompt and effective, a total of over one hundred and eight million dollars being subscribed and rendered available. It was almost immediately evident that the operation of this fund was proving decidedly beneficial notwithstanding that only a comparatively small percentage of the amount subscribed was asked for, and that a still smaller percentage was actually used to furnish a basis for gold shipments. Nevertheless, it seemed, during the ten days immediately following the completion of the subscriptions, as if there might be need for still further relief to the situation. Some of those who were closely connected with the administration of the gold exchange fund brought the subject to the attention of the Secretary of the Treasury and he extended an invitation to the British Government to send representatives to this country mainly for the purpose of considering the possibility of further adjustment, in the event that the United States did not succeed in liquidating its indebtedness to Great Britain by the natural movement of commodities within a reasonably early period. The British Government designated Sir George Paish and Mr. B. P. Blackett, who came to the United States and on October 23 held a conference with the Federal Reserve Board. Subsequently another conference, attended by a number of representative bankers, was also held and the situation was discussed in very great detail. Meantime the establishment of a better understanding with reference to commodities to be considered as contraband and the more effective policing of the North Atlantic rendered possible the restoration of trade with European nations, and the development of the export trade proceeded with a speed which showed that current obligations of the United States to Great Britain and other countries would be liquidated at an early date without any necessity for further interference. By the time the reserve banks were ready to open [November 16], exchange sales on London had fallen to normal, and there was, therefore, no danger that when opened the reserve banks might, as was for a time feared by some, find their gold rapidly drawn away from them in order to meet the requirements of the gold export movement. In another way it was deemed desirable that the Federal Reserve Board should help to facilitate the restoration of customary conditions in the financial market. Almost immediately after the outbreak of war it was seen that, unless hostilities should terminate within a very much shorter period than anyone thought likely, serious injury would be inflicted upon the cotton-producing states. As is well known, the cotton crop is largely grown for export, about two-thirds of the total production of the United States being annually sold abroad. It happened that an unusually large crop had been planted and was approaching maturity at the moment of the outbreak of the war. This would in any event have depressed prices of cotton, even under ordinary conditions. The almost immediate closing of the cotton exchanges of the country was, however, precipitated by reason of the interruption to the movement of cotton and the general understanding that, in view of the great area involved in the hostilities, it would not be reasonable to expect a normal demand for the staple to manifest itself. With the exchanges closed, and with shipments of cotton interrupted, the price was unstable and abnormally low, many sales undoubtedly having occurred at five cents per pound. Inasmuch as the cotton crop is raised very largely upon credit, it was necessary to provide some means whereby the Southern planter could be assisted to such extension of accommodation as he might require in meeting the obligations he would ordinarily have provided for by the sale of his crop in the open market. Various suggestions were brought to the attention of the Federal Reserve Board, one of them being that of Mr. Festus J. Wade of St. Louis, who suggested, both to the Board and to the Secretary of the Treasury, the establishment of a cotton loan fund somewhat similar in purpose and management to the gold exchange fund. After very anxious consideration, the conclusion was reached that some measure of the sort would probably furnish relief to cotton-growers. Various conferences were held with banking interests for the purpose of securing their co-operation and advice in regard to the matter. Ultimately the bankers of New York pledged fifty million dollars in subscriptions to the fund, provided that fifty millions more should be raised from other bankers in non-cotton-producing states. It was understood that to the one hundred million dollars thus raised should be added thirty-five million dollars contributed by the bankers of the cotton-producing states under a special plan devised for that purpose.[314] IV It was not, however, through any of these artificial means that real relief was brought to the community. While bankers were laboring to perfect the gold fund, and while the negotiations with Great Britain were in progress, foreign trade was being re-established through the effective policing of the North Atlantic, the re-establishment of demands, and the resumption of the ordinary course of business. What took place during the months of August and September can be understood from ... comparative figures for importation and exportation which make an impressive showing of the suffering to which the United States was subjected through this decline in business. With the opening of October there came, however, a decided improvement. Time had now been given for the establishment of normal conditions.... V With foreign trade in a fair way to recover, it was still necessary to secure a restoration of normal trade conditions within the United States, and for this purpose the thing most fundamentally necessary was the setting in motion of the federal reserve banking system which had been provided for by act of Congress the 23d of December preceding. The time intervening between December 23, 1913, and the opening of the war had been occupied in carrying out the preliminaries of organization; but it still remained for the Federal Reserve Board, the controlling mechanism of the new system, to appoint officers and to provide for the active operation of the banks under its direction. The first detail to which the Board necessarily addressed itself was the completion of the boards of directors of the several institutions, it being necessary to select and elect three in each institution, or thirty-six in all. The task required an elaborate process of comparison of the names and qualifications of the several candidates and was not completed until early in October. With the announcement of the thirty-six directors, it was possible to proceed to the active opening of the institutions. The Board called for the first payment of capital stock on November 2, and the Secretary of the Treasury, who by law had been vested with that function, named November 16 as the actual date for opening.... The establishment of the system ... greatly relieved the banking situation.... Sec. 19 of the Federal Reserve Act provided for a readjustment of reserves upon a new and lower basis.... This readjustment, by the terms of the law, took effect immediately upon the establishment of the new banks, _i. e._, on November 16. From the outbreak of hostilities in Europe, there had been a difficult reserve situation in most of the financial centers, New York banks particularly being much of the time largely under their reserve requirements because of the heavy drafts made upon them by interior banks and by the public. The change in reserve requirements, however, made a very material alteration in this condition of affairs, and released, not only in New York, but throughout the country, a very considerable amount of funds which had previously been held by the banks in order to bring themselves within the requirements of law. Precisely what amount of reserves was thus released throughout the country has not been accurately estimated, and probably cannot be. It is, however, an undoubted fact that the release of actual cash was very large, and that the release of lending power as computed on the basis of reserves on the part of member banks was correspondingly larger. Member banks were thereby enabled to extend loans to their customers very much more freely than they had previously been able to do, while at the same time they were able to grant lower rates of interest in due proportion. The prevailing rate of discount for prime commercial paper in New York at the beginning of November was about 6 per cent., while other paper was considerably higher than that figure, and even more difficult conditions prevailed elsewhere. The opening of the reserve system enabled New York banks, because of the very great relief given to them through the release of reserves, to reduce this rate largely, and within two weeks after the new banks had come into existence prevailing interest rates for the best paper went as low as 3-1/2 per cent. and 4 per cent. while acceptances, which had been provided for by the Federal Reserve Act, were marketed at a still lower rate. In some parts of the South, Northern bankers were able to grant accommodation as low as 4 per cent. and in considerable amounts. In view of the greater ease and material relief which was thus accorded, the federal reserve banks were naturally not called upon to assist member banks with accommodation, such banks naturally refraining from asking aid when they themselves were fully able to meet the situation. The opening of the reserve banks released, as already shown, a large amount of bank funds, and thereby rendered it possible to extend many loans which otherwise could not have been carried by the banks. It was also seen, soon after November 16, that the existence of the cotton fund, as was the case with the gold fund, had done its work by stimulating confidence and by leading to a more liberal extension of credit. With the cotton fund available for long-time loans, and with short-term credit much more freely extended by member banks in view of the reduction of national bank reserve requirements, it was possible for the reserve banks to open with full confidence that the work thus done in safeguarding the situation would relieve them from undue strain, while fully protecting the cotton-producers who were willing to pay a moderate rate of interest in order to carry their cotton until such time as would enable them to realize full market value for it. As has been shown by the Secretary of the Treasury in his annual report,[315] an early phenomenon of the war was the issue by clearing-houses in many cities of clearing-house certificates. Simultaneously therewith large quantities of emergency currency were issued under the provisions of the act of 1908, which had been amended and extended by the Federal Reserve Act, and which were still further amended by Congress on August 4, so as to permit the freer issue of notes.... The total amount of the emergency currency taken out by associations had aggregated about three hundred and eighty million dollars, but it is probable that the clearing-house certificates were issued to a considerably larger sum. The channels of circulation were thus clogged long before the end of the summer, notwithstanding the fact that large quantities of gold and gold certificates were withdrawn and hoarded either by banks or by individuals. This condition of affairs made it certain that the reserve banks, upon their organization, would not be instantly pressed for the issue of reserve notes. Two factors combined to produce this result--the circumstance that many banks had placed their best paper with the national currency associations in order to protect emergency currency, and the further circumstance that the tax on this currency at the lower rate established by Congress would not, for some considerable time, be likely to approximate the rate of discount which every bank would have to pay to federal reserve banks in order to get the rediscounts that would enable them to obtain the notes they needed. Combined with these factors was, of course, the natural inertia which in all such cases tends to prevent the withdrawal of one kind of currency and the issue of another. Upon the organization of the federal reserve banks, moreover, the urgent pressure for note accommodation passed away as quickly as it had come. Gold reappeared in circulation at an early date, and the retirement both of the clearing-house certificates and of the emergency currency was undertaken. In those cities where rates of interest on clearing-house certificates were very high, the reserve banks aided in the retirement of the certificates remaining in circulation. The emergency currency itself immediately began to be retired by its issuers.... Had the reserve banks been in operation at the beginning of August, they would naturally have supplied the great volume of currency which was called for; but not having done so, a field of business which would naturally be theirs has been temporarily taken from them by reason of the fact that it was occupied by the clearing-house certificates and emergency notes.[316] VI The result of the restoration of trade, banking, and credit to earlier and more normal conditions has been steadily apparent. Cotton exchanges reopened on November 16, and stock exchanges opened for restricted trading shortly thereafter. In brief, by the close of the year, the phenomenal conditions growing directly out of the European war had been met and overcome. It is a notable fact that under the wholly unusual circumstances prevailing, the recovery was so prompt and effective. What share in this early improvement is to be assigned to the organization of the new banking system and to the effectiveness with which the Treasury Department co-operated in meeting the needs of the country cannot accurately be stated, and will probably afford grounds for difference of opinion. That it was great cannot be denied.... NATIONAL BANK FAILURES AND SUSPENSIONS--1914 COMPARED WITH 1893 AND 1907[317] A comparison of the failures and suspensions of national banks during the past year with failures and suspensions in the panic periods of 1893 and 1907 may be interesting at this time. The figures show that for the 12 months ended October 31, 1914, 26 national banks, with aggregate capital stock of $2,510,000, failed or suspended payment. The total liabilities of these banks (in the case of receiverships claims proved) amounted to $14,177,408. In the case of six recent failures, the figures of total liabilities, less capital, surplus, and undivided profits, are used in lieu of the "claims proved," no report of the latter having yet been received as to these six banks. For the 12 months ending October 31, 1893, 158 national banks suspended, with capital of $30,350,000. Sixty-five banks, with total capital stock of $10,935,000, were insolvent and required the appointment of receivers; 86, with capital stock aggregating $18,205,000, were able to resume business; and 7, with capital stock of $1,210,000, were placed in charge of examiners in the expectation of resumption. The total liabilities of failed and suspended banks for the period mentioned was $83,042,347--in the case of failed banks, "claims proved" being considered as "total liabilities." During the six-months period from October 1, 1907, to April 1, 1908, there were 22 national bank failures and suspensions, and the total liabilities (in the case of receiverships these being "claims proved") were $32,443,978; the total capital stock, $6,540,000. Of these banks, however, 7, with capital stock of $1,440,000 and liabilities of $22,124,662, resumed business. It is worthy of special note that in the crisis of 1914, unlike the panics of 1893 and 1907, there was no suspension of currency payments on the part of the banks of this country, either in the large cities or in the smaller towns. In the panics of 1893 and 1907, in addition to clearing-house checks, many artificial methods of supplying a temporary currency were resorted to, while actual currency commanded a premium of from 3 per cent. to 5 per cent.--$100 in currency costing anywhere from $103 to $105, or more, in certified bank checks. In 1914 the banks of the country were enabled, as a result of the instant and active co-operation of the Treasury Department, and through the operations of the act of May 30, 1908, as amended by the Federal Reserve Act, to supply actual currency, even during the period of greatest stringency, to their customers and correspondents, both over the counter and in response to requests for shipments. Whenever any indications were seen of an attempt or disposition on the part of any solvent bank or banks to withhold or suspend cash payments, the subject was taken up immediately by the Treasury Department, and payments of currency over the counter and shipments by the banks upon demand, from the centers to the nearby and far-off districts, and vice versa, have been maintained practically without interruption throughout this crisis. THE EFFECTS OF THE WAR WITH SPECIAL REFERENCE TO THE CENTRAL BANKS OF FRANCE, GERMANY, AND ENGLAND I [318]In France the gold held by the Bank of France (February, 1916) is, in actual quantity, larger by about 25 per cent. than that held in normal times before the war. Instead of former gold reserves of about $800,000,000, they are now well over $1,000,000,000. The percentage of gold to the notes--the main demand liability--has, of course, fallen from about 65 to 35 per cent. because of the increase of notes from about $1,200,000,000 to $2,800,000,000. This increased supply of gold has come from hoardings and private holdings which have been placed at the disposal of the bank in return for bank-notes. There has been no reduction of this gold fund through demands from note-holders, since the bank was freed from redemption in gold at the very beginning of the war. That is, notes of the Bank of France are inconvertible. As contrasted with the dollar of the United States, when expressed in bills of exchange between New York and Paris, the Bank of France note has depreciated nearly 14 per cent. Any paper money not having immediate redemption will depreciate. As regards the future it is a question of ultimate redemption. With so large an available gold supply, there can be little question as to the future intention or probability of redeeming the notes in gold. It looks very much as if the same policy adopted in the war of 1871-3 had been consciously followed. Then, also, the _cours forcee_ was declared, and the gold carefully retained in the vaults of the bank. The presence of a large gold fund was an assurance of the ability to return to specie payments after the close of the war. The war was short, and the notes were not seriously depreciated, bearing a discount as compared with gold of 1-1/2 to 4 per cent. In the present war, the same steps have been taken; but this war is extending over a much longer time than the former one, and the depreciation has already become much greater. It is equally clear, however, that if the gold were now to be paid out for redemption uses, it would become scattered, exported, and might even pass through Holland or Switzerland into Germany. The increase and preservation of this large fund of gold is the strongest evidence of the ability of the bank to resume the gold redemption of its notes soon after the close of the war. The actual time, however will depend upon the rapidity with which the Government can repay some of its large loans from the bank, since the excessive note issues have been largely due to loans to the State. II In Germany, likewise, every effort has been made to accumulate gold, even though the notes of the Reichsbank were made inconvertible at the beginning of the war. Not only was the requirement to redeem the notes in coin removed, but the regulations regarding a tax upon all notes uncovered by a specie beyond a specified _Kontingent_ were suspended. Thus, restrictions on the limit of note issues do not exist; and they have risen from about $500,000,000 before the war to about $1,500,000,000 (February, 1916), while the stock of coin and bullion has changed from about $300,000,000 to over $600,000,000. That is, the coin, which is mostly gold, is about 40 per cent. of the notes. Here, again there is an obvious tendency to increase and maintain the gold reserves so that Germany may have the means of resuming gold payments at no great time after the close of the war. The campaign to collect gold from the public and from hoards was remarkable. It was successfully made a test of patriotism to hand in gold in return for Reichsbank notes, and a house-to-house canvass in many places resulted in providing the gold which so signally increased the reserves behind the notes. Of course, the usual international operations for obtaining gold were denied to Germany. It was this campaign which was imitated by France. At the present time, certainly, no thought has ever occurred to Germans that they would not go back to a gold basis. Nevertheless, Germany has clearly fallen into the same confusion of mind which characterized our own policy in regard to the issue of greenbacks in the Civil War. We confused the monetary with the fiscal functions of the Treasury. So has Germany. Thinking the war would be short and decisive, to be followed by large indemnities levied on her enemies, she had expected to finance her expenditure by temporary expedients. That is, the Government was led into the policy of borrowing through the increase of monetary forms. It does not change the principle that this increase of paper money was not made solely by Imperial Treasury notes, but by a very large addition to the circulation in the form of Reichsbank notes and _Darlehnskassen_ notes. It was the loans by the Reichsbank to the Government which undoubtedly caused the main increase in the notes of this bank (just as was true of the Bank of France), and the reduction of these issues, and their redemption in gold, will depend directly on the power and readiness of the Government to pay off its obligations to the Reichsbank after the war. The amount of borrowing by processes which led to an increase of the circulation was necessarily limited; and very soon borrowing through issues of paper money had to be followed by regular fiscal operations in the form of long- or short-term bonds which would not affect the quantity of the circulation. Expenses could not well be met to any extent by current taxation, because taxes were already high, and in the few years before the war, no doubt in anticipation of it, some four or five hundred million dollars in taxes over and above normal taxation had already been levied. In 1913 a non-recurring tax of $250,000,000 had been imposed on the wealthier classes. In addition a bonded debt, since the war, has been floated to the amount of $10,000,000,000 over and above the existing public debt before the war of about $1,200,000,000. But all these fiscal operations should be, for our present purposes, separated from monetary operations. The carrying of these heavy government debts is a question of the future production of goods, of commerce, and of saving. Whatever the burden of debts, the gold question is concerned with the mechanism of exchange by which taxes, subscriptions to loans, payments by the Government for munitions and supplies, current purchases of goods by the public, payments to and by banks, are made. At present this medium is paper money depreciated, as in the case of the Reichsbank notes, by nearly 30 per cent. Of course, the Darlehnskassen issues would follow the value set by the notes of the Reichsbank. It is interesting to mention that the increase of paper money has not been in answer to any need of the public for additional media of exchange; for ordinary business transactions have decreased, and would require a less quantity of money. It was an error not to separate borrowing entirely from monetary issues. Moreover, as bearing on the maintenance of the gold standard after the war, it is worth noting that the rule requiring the Reichsbank to keep one-third of its note issues covered by gold has not been violated. At last reports (February, 1916) the gold item stood at $613,750,000, as against $1,612,500,000 notes, or about 38.1 per cent. That is, the greatest efforts have been made to concentrate the gold holdings of the nation, including the "war chest" of about $30,000,000, in the reserves of the Reichsbank. At the same time no gold is paid out in redemption of notes, nor is it allowed to be exported. Some sums have been sent to Holland in a vain attempt to support German exchange in that country; but the difficulty in exchange rates lies deeper than the relative supply of and demand for bills, since the depreciation of German paper money determines the general level about which the fluctuations of exchange due to demand and supply range. In fact, wherever gold is not freely moved in international exchange there are no shipping points, and hence no limits to which exchange can fall short of the discount of the paper in terms of gold. III As regards Great Britain, the gold standard is yet preserved for all practical purposes. To her credit be it said that she has not fallen into the error of borrowing by excessive issues of paper money; so far she has not confused the fiscal with the monetary functions of the Treasury. She resorted at once to fiscal operations in the form of heavy taxation and loans in the form of short-time Treasury bills and longer-term bonds. The issue of government paper money is, indeed, a new departure; but its purpose has been more distinctly monetary than fiscal. The currency notes are emergency notes, issued under the act of August 6, 1914, directly by the Treasury, and not by the Bank of England, although authorized by the same act which suspended the Bank Act in regard to additional issues of bank notes not covered by gold. In other crises the act of 1844 has been suspended to allow more notes based on consols than permitted by the act (_i. e._, above the £18,750,000). In August, 1914, such a suspension was in the future made legal, if authorized by the Treasury, thus avoiding the old resort to a bill of indemnity by Parliament. But in spite of the usual suspension of the Bank Act, no use was made of it. That is, a demand for more currency in the hands of the public could have been supplied by the bank, but was not. In truth, the Lloyd George currency notes need not have been issued. Nevertheless, when once issued, they made unnecessary any resort to additional Bank of England notes. There was no need of both. But in one respect the currency notes helped to maintain the country's gold standard. By issuing them in small denominations of one pound, and ten shillings, they replaced the gold in general use for these denominations, and allowed it to be used as reserves. Yet, it must be remembered that sound policy required a gold reserve (which has been generally kept at about 40 per cent.) behind these currency notes, so that the whole amount of gold replaced was not, in fact, a gain. As all know, the question of gold for Great Britain pivots on the reserves of the Bank of England, which is the agent for the Government, receiving its taxes and paying out its expenses, as well as the holder of reserves for other banks--being thus a bankers' bank, as well as a national agent. Moreover, the reserves mentioned, and which are of prime importance, are those of the banking department--and these are chiefly Bank of England notes (not gold). The percentage of reserves to deposits, which marks the safety line for England, refers to the items in the banking department. These notes, however, are protected (except the bottom layer of £18,750,000 covered by consols), pound for pound, by gold in the issue department. Hence, they can be turned into gold at any moment. Then, to what do these facts lead us? Simply that gold has increased just in proportion to the issue of bank notes. In addition, the currency notes of the Government served in the place _pro tanto_ of the Bank of England notes. Hence, at the end of the war, the provision for redemption of Bank of England notes will work automatically. Nor can there be any question as to the gold being there to redeem them; for they cannot get out without a previous deposit of gold. Indeed, the questions of difficulty cannot arise regarding the basic currency of Great Britain; they will arise, if at all, in connection with the assets in the loan item of the banking department, since they will determine the safety of the deposits chiefly created as the result of loans. The bank discounted large sums of pre-moratorium acceptances and paper; and yet even in these assets it is protected by the guarantee of the Government. DARLEHNSKASSEN AND OTHER FINANCIAL NOVELTIES IN GERMANY [319]Germany, at the outbreak of the war, removed the limit of notes issuable by the Reichsbank without tax; created about 1,800 Darlehnskassen (loan banks), located throughout the Empire, wherever the Reichsbank maintained a branch; they were started without capital, in lieu of which they issued _Darlehnskassen Scheine_ (Imperial Loan Bank notes) in denominations of one mark and upwards, the aggregate amount being limited to 1,500,000,000 marks; these banks made loans against stocks, shares, produce, any personal property of a non-perishable character, as collateral, and issued certificates, having the quality of bank notes, to the borrowers; the loans ran for three and sometimes six months; the minimum loan was 100 marks; a very wide margin of safety was required, making the loans good beyond question; these certificates were receivable for public dues and by the Reichsbank; the smaller denominations circulated as money, the Reichsbank received the larger, giving its notes in exchange; these certificates were not legal tender, but were given the quality of gold and "may be considered by the Reichsbank as gold cover, which means that against 100 marks of these Scheine in its vault the Reichsbank is allowed to issue 300 marks of its own notes." (I. De Bruyn.)[320]... Sir Edward H. Holden, president of the London City and Midland Bank, in a speech to his board of directors, January 29, 1915, said: Germany proceeded to establish War Loan Banks, War Credit Banks and War Aid Banks under the patronage of corporations, municipalities and private financiers, and to make use of the Mortgage Banks already established.... The Mortgage Banks are under the control of Chambers of Commerce and municipalities, and they make advances on the mortgage of properties by an issue of notes.... Germany made greater use (than of the Darlehnskassen) of the Mortgage Banks, the notes of which are identical in power and use with the notes of the Darlehnskassen. Another part of their scheme was to relieve the pressure on insurance companies (life), by forming an insurance bank, which advanced 40 per cent. on the value of policies. These advances were paid on notes which were exchanged for Reichsbank notes in the same way as the notes of the Darlehnskassen and Mortgage Banks. Germany, with characteristic system and detail, provided different kinds of banks to deal with different phases of the situation. War credit banks were designed to aid Germans whose credits became unavailable, owing to the exigencies of the war, as for instance those who had sold and shipped goods abroad (the enemy's country), whose accounts would be temporarily uncollectible, and those who might be otherwise embarrassed in their foreign trade because of the interruption of business caused by the war. War credit banks were more general in their dealings than war loan banks. In Germany, business is largely done upon credit, and especially so by small concerns and individuals, who possess no extended bank credit nor available collateral, and hence are not in position to make use of the Reichsbank or other commercial banks, or the Darlehnskassen. A German banker says: "It was deemed advisable to create an institution of an intermediary character which would bear the greater share of the risks involved. The so-called war credit banks are designed to serve this purpose. They were established throughout the country, have their own capital, and the obligations undertaken by them are guaranteed, and losses, if any, refunded by the respective municipalities and commercial associations. The war credit bank of Greater Berlin, for instance, was established with a capital of 18 millions of marks, of which 25 per cent. are fully paid in. In addition thereto, there is a liability of 11.5 million marks by official bodies of commercial organizations." Still another kind of war credit bank was created on the co-operative plan to assist the middle and lower classes. Through the instrumentality of these institutions, a large amount of credit instruments, possessing a currency function, was brought into existence in Germany.... THE WAR AND THE WORLD'S FINANCIAL CENTRE [321]With the end of the moratorium on November 4, it may be said that the crisis produced by the outbreak of war was over. When peace comes and prices [of securities] adapt themselves to the new price of capital that the present destruction of some eight to ten millions of it a day will bring about, and creditors begin to try to collect debts from impoverished debtors in war-wasted countries, then there will be a new set of problems, the acuteness of which will largely depend on the length of the war and the extent to which the fighters are worn out. These problems will exercise all the ingenuity and strength that Lombard Street can muster. For the present it is enough to see how we stand at the end of the opening period of the war, and what have been the effects of the financial tornado with which its beginning was heralded.... The crisis of last August was the greatest evidence of London's strength as a financial centre that it could have desired or dreamt of. It was so strong that it did not know how strong it was. Consequently, being a little flustered by the suddenness of the outbreak of war, on a scale that mankind had never seen before, it made the mistake of asking its debtors to repay it, not the thousands of millions that it had lent in the form of permanent investment, but the comparatively trifling amount--perhaps 150 or 200 millions--that it had lent in the shape of bills of exchange drawn on it, and other forms of short credits. Thereby it put the rest of the economically civilized world, for the time being, into the bankruptcy court, and so, finding that none of its debtors could pay, it thought itself obliged to ask for time from its own creditors at home. Foreign creditors it had none, except Paris. It sent gold to Paris as fast as it could be shipped and insured, and so seems to have liquidated its debt. For when a market in exchange reopened after the first shock of war, the Paris cheque soon steadied itself at a more or less normal level, above the point at which gold could be sent to France as an exchange operation. It is possible, however, that London was still in debt to Paris, and that Paris preferred for obvious reasons to leave its money on this side of the Channel. Of the three possible rivals to London as a financial centre, Paris was the only one that gave any evidence of real financial strength. Behind Paris stands the enormous power of the thrifty French investor, who probably accumulates a greater proportion of his income than anybody in the world, except, perhaps, some classes of Scotsmen. This accumulating power of the French gives the Paris money market a position of first-rate importance in the financial world, because capital has to be saved, and a saving people has capital to lend. The advantage that London holds in its more elastic credit system is partly balanced by the advantage given to Paris by the thrifty habits of the French people. If Paris adopted a more businesslike policy with regard to her huge store of gold, which she has hitherto seemed to regard as a precious asset to be sat on and protected by the charge of a premium to audacious people who want to withdraw a bit of it, she might, in normal times, be a much more dangerous rival to London than she is. But it need hardly be said that Paris, as a financial centre, was soon wrapped in the cloud of war and invasion, and had no chance of making any effort to oust London from her pride of chief place. Berlin was equally cut off from competition, for Berlin had to devote herself to the task of financing war for Germany. Moreover, the rapid depreciation in the value of the mark that took place before the war began showed that Germany was still a debtor country in the short-loan market. The Berlin exchange, while war was as yet only a dreaded possibility, rose from 20 m. 50 pf. to 20 m. 60 pf. Germany invests money abroad, but she seems to borrow as much, and more, in the discount markets of London and Paris. So it came to pass that, in spite of the big sales of securities that she had thrown on the markets of New York and London, she still had to pay when the big day of settlement came, and to pay so fast that she had not a bill on London left to pay with. It was the chance of a century for New York. American ambition has long ago informed the world that the United States, having been the world's granary, is now the world's most progressive manufacturer, and means soon to be the world's banker. This may happen some day, and might have happened already if American policy in currency, financial and fiscal matters had been more enlightened, and if her people had been more thrifty. But they have tied their credit system in the bonds of narrow banking laws and their trade in those of a cramping tariff. These bonds they have just begun to shake off, and if the crisis had happened a few years later they might perhaps have made a bid for London's place as world banker. But it is hardly likely, for the development of the enormous resources of the country still craves for much more capital than its people can provide. The United States is still a debtor to the world at large and seems likely to be so for some time to come, and it is doubtful whether even New York, with all its skill in the jugglery of finance, can make itself a great banking centre as long as its heavy balance of indebtedness is always waiting to turn the world's exchanges against it, whenever the monetary sky is overcast. It was the chance of a century, but New York could not take it. When London called in its credits from other countries, any centre that could have said to these countries, "We will give you the credit that London has cut off, and lend you the money to pay London," would have stepped straight on to London's financial throne and set London a very difficult task to regain it after the war was over. In spite of the large amounts of gold taken from America to Europe before the war, the United States had still a huge store within its borders--some estimates of it ranged up to 400 millions sterling. If the United States had had the courage to use this mountain of metal and let other countries draw on it, London would have had more gold than it knew what to do with, and New York would have had a big slice of London's business. The United States were at peace, and, with all the chief countries of this antiquated hemisphere engaged in the mediæval business of killing one another's citizens and destroying one another's property, the United States might have been expected to leap into the position of economic leadership. But America feared to use its gold, and held on to it as tightly as it could, fearful of internal trouble and a run on its banks if too much of the metal went abroad. In New York, as in most other centres, the question of the moment was, not to take London's business, but to pay what she owed to London and to buy bills on London at skyrocket prices wherever they could be found. The strength of the fat old money-lender, whom the Australian papers, angry with him because he did not lend fast enough, used to call John Bull Cohen, was never more wonderfully made manifest. Strength in money bags is not everything--very far from it--but at least J. B. Cohen can claim that he has made good use of it. He has peopled and fertilized the uttermost ends of the earth with his sons and his capital, and he alone among the nations has had the courage and the homely wit to throw his ports open to all and to tell all the peoples of the world to send their stuff along if it is worth buying. Moreover, he has lately shown that, in spite of all his alleged decadence, he can still tuck up his sleeves on occasion and fight at least as well as anybody else. So far was New York from being able to supplant London that, as we have seen, the United States had to make special arrangements to tide over the difficulty which London's claims on her had produced.... The American Government found it necessary to ask officials of the British Treasury to come over and help it to find ways and means for meeting part of the debt of the United States to England, without shipping any more American gold. This could only be done by England's giving America some sort of credit to take the place of the finance bills and other forms of accommodation which Lombard Street had withdrawn. At the same time there is no doubt that New York did some of the business for herself that London had formerly done for her. If she was not in a position to finance other countries, she did make a beginning in financing her own imports. Exporters of goods from South America to the United States who had formerly taken payment by drawing bills on London, and were no longer able to do so, drew on financial institutions in New York instead. Some of these bills were used to make three-cornered payments from South America to London, and a very costly means of payment they were to the debtor, owing to the high rate of discount in New York, and the depreciation of the American dollar as compared with the pound sterling.... It seems likely that this business of financing American trade New York will keep in her own hands to a greater extent than she did before. Probably she would have taken more of it to herself even if there had been no war. Her new banking legislation has included in its aim the establishment of branches of American banks abroad, and the development of acceptance business in New York. It could not be expected that New York would always be content to see the greater part of America's external trade financed with English credit. Her next step will be to endeavor to finance other people's trade, and she is already beginning to set about taking it, being assisted by Lombard Street's shyness in the matter of new acceptance business. If the war should be long continued, its appalling drain on the combatants ought to help her by exhausting the rivals whom she hopes to drive out of the field. So far, then, from the late crisis having given any evidence of weakness on the part of London, or of any likelihood that she will lose her supremacy as the world's banker, the commanding strength of her portion has been made abundantly manifest. The only weak point was not in her armor but in that of her foreign customers. The question arises whether she was wise in lending so much to debtors who showed such unanimous inability to pay on the due dates. I have heard it contended by a disinterested and well-qualified critic, that the risk run by Lombard Street in allowing bills to be drawn on her from all parts of the world against goods shipped from one country to another, has been shown by the late crisis to be too great to be worth the candle. Bills drawn against goods coming to England are safe enough, for as long as the goods come to port and can be sold for them, the acceptor is sure of his money. But when the goods go from China to Peru, and Peru finds that it cannot remit to meet the bill, the acceptor is inconvenienced, and the bank or bill broker who holds the bill finds that he has got a security which was not quite as gilt-edged as he thought it. This is all quite true, but contrariwise it may be argued that this sort of world crisis is not going to happen again very soon, and that if all finance had to be arranged on the theory that it was likely to recur frequently, there would be very little finance of any kind. These bills drawn against international shipments of goods do much to make the bill on London popular all over the world, and if they are to be frowned on there will be a considerable restriction of international commerce, which will react unpleasantly on England. In ordinary times these bills are safe enough, if due precautions are taken. If mistakes are made they happen rarely and the resources of the accepting houses are easily able to repair the damage. As to finance bills, it has already been admitted that much credit was given by their means which was used for purposes with which bills of exchange ought not to be associated. The essence of a bill of exchange is that it has to be met at its due date, and so it should only be drawn to finance some commercial operation that will mature before the bill falls due, or to provide means of remittance when they are scarce, owing to seasonal causes which will have passed before the bill's maturity. When rolling credits, as they are called, are established, which go on from year to year, each bill being met by drawing another, and the money so raised in the borrowing country is put into bricks and mortar or machinery or other forms of fixed capital, the uses of the bill of exchange are being strained. When a jolt comes to the machinery and the rolling credit stops rolling, it is not possible to sell the factory or plant to provide a means of remittance. But there is no doubt that for a time, at least, this kind of finance bill is likely to be scarcer than it was; in fact, as we have seen, it was the excessive suddenness of the fit of virtue that seized Lombard Street on this subject that made the crisis more acute than it need have been, by reducing the means of remittance and so keeping the exchanges at an abnormal point. Lombard Street has thus shown that it has fully learnt the only lesson that the external side of the crisis had to teach it. Too many finance bills of the wrong kind were out, and Lombard Street saw the fact so clearly that for some weeks it rang with the cry that there must never be any more finance bills of any kind at all. This exaggerated view is already discredited, and there is good reason to hope that opinion will settle down to a sensible midway path, taking the finance bill as a quite legitimate and necessary convenience, dangerous only when abused and distorted.... MR. WITHERS A GOOD ENGLISHMAN [322]Mr. Withers is a very good Englishman indeed and points out with pardonable pride how the London market stood the shock which rocked the rest of the financial world to its very foundations. What would have been his attitude had the book been written a little later, however, when the pound sterling had fallen to a discount of over 2 per cent. as compared with the dollar, is an interesting subject of speculation. London financing the world is, from the Englishman's point of view, an inspiring sight, but the pound sterling obtainable in New York for $4.76 ... is something which it would be interesting to hear Mr. Withers explain. _War and Lombard Street_ treats only with the beginning of a very big subject. It is sincerely to be hoped that a little later we shall have a continuation of the work from Mr. Withers' pen. AMERICA'S CHANCE OF HOLDING WORLD PURSE-STRINGS[323] Since the outbreak of the war New York has assumed a position of leadership in international banking. Will this position be permanent or will its duration be limited practically to the period of the war? Is the mantle of world financial leadership about to pass from London to New York, as it passed after the Napoleonic Wars from Amsterdam to London? These are questions which many are asking, but which no one can answer positively, because so much depends upon those incalculable items--the duration of the war and the financial strength of the belligerents at its close.... At the end of 1913 our provincial banking system was overhauled by the Federal Reserve Act, and put in shape to meet the needs of our growing trade, both domestic and foreign. By this act American commercial paper, which previously had been essentially local paper, was given an opportunity to assume a national, or even international, character, through the provisions for bank acceptances, rediscount, and "open market operations." An open discount market began to develop on American soil; and slowly, but surely, short-time paper of an international character and standing began to appear.... By the beginning of 1914, therefore, it may be said, that the way was opened for our financial metropolis, New York, to play an increasingly important rôle in the international money market, and that there was already a movement in that direction. To this movement the European war gave a strong impetus, and to-day New York clearly holds the premier position in the field of international finance, although at a time when national finance in the leading countries of Europe has assumed proportions never before dreamed of. The European exchange markets have been demoralized, and specie payments among the belligerent countries of Europe have become little more than a name. On the other hand, "dollar exchange" is now quoted in the principal cities of Latin America, the Orient, and Australia; and the American trade with those sections, which was formerly financed chiefly through London, is now being financed directly, and in dollars.... The United States has brought back home from a billion to two billion dollars' worth of the six billion dollars' worth of its securities estimated to have been held abroad, and is preparing to take more, either by purchase or as security for loans. It has loaned upwards of a billion dollars to the belligerent countries, and has had a net importation of gold during the year just closed greater than that of any five years of its history. Our banks are carrying heavy surplus reserves, those of the New York Clearing House banks alone on December 31 having amounted to $143,000,000, and the gold reserve against net liabilities of the twelve federal reserve banks on December 23 having amounted to 86 per cent.; and this, at a time when the large gold reserves of the European banks are strained to the breaking point by the tremendous liabilities placed upon them. Our export trade has reached unprecedented heights, and for the year 1915 was approximately equal to twice that of 1906.... This war is likely to leave her [England] still with a secure position, a great and loyal colonial empire, an efficient banking system, and the control of the seas. Her position as a creditor nation will lie greatly weakened, and she may even become a heavy debtor nation, but her foreign trade connections have been so long and so well established that it does not seem likely that they will be permanently impaired in any large degree by the readjustments necessitated by the war. If she disposes of her Latin-American and Asiatic investments to the United States she will doubtless greatly weaken her trade position in those countries, but the present evidence is that these will be about the last foreign investments she will dispose of. So far we have not made great progress in securing Europe's Latin-American trade. Europe discontinued financing Latin America at the same time that she discontinued her normal trading with Latin America. For us to take her place it became necessary for us to loan before we could sell and buy. But loaning to European belligerents and selling war supplies offered larger immediate profits; and so our chief efforts have been turned eastward rather than southward. An analysis of our large export trade of last year shows that much of it was of a very abnormal character, and gives promise of being but temporary. The following figures comparing the exports of a few selected commodities for the ten months ended October, 1915, with those for the same period of 1914 will make this point clear: _Ten Months Ended Oct. 31_ _Commodities. 1914. 1915._ Breadstuffs $212,025,814 $461,074,547 Iron and steel and mfrs. thereof, incl. wire 109,232,270 294,822,223 Meat products 110,180,785 214,212,955 Animals (notable horses and mules) 6,668,121 107,201,175 Explosives 6,439,693 103,527,382 Cars, carriages, etc. 36,844,923 117,366,359 Leather and mfrs. thereof 47,123,910 135,847,788 A glance at these articles will show that most of them were intended chiefly for military uses, and that their heavy exportation presumably will be but temporary. It is interesting to note that some other articles of customary export showed large declines in 1915 as compared with 1914. During the same ten months' period, for example, our exports of agricultural implements (and parts) declined from $21,028,588 in 1914 to $11,162,609 in 1915; of wood and manufactures thereof, from $68,904,895 to $45,325,146; of fertilizers, from $7,735,613 to $3,758,598; and of sewing machines, from $7,757,421 to $4,902,594. Viewed from the standpoint of the destination of the articles exported, the significant fact is that the increase in exports was chiefly to Europe, and not to Central and South America and Asia--the places in which we have been strenuously endeavoring in recent years to build up a permanent export trade.... ... After the war is over Europe will presumably discontinue, or greatly reduce, her importations from the United States of most of the articles which figured so largely in the great increase of 1915. As her needs tend to become normal again she will immediately endeavor to resume her old-time trade connections, both import and export, at least in so far as the trading centres are in countries that were friendly or neutral during the war. In seeking to re-establish these connections the merchants of the belligerent countries will be strongly backed by their Governments, which the war will have made more socialistic and more aggressive. They will have a great advantage in the fact of long-established business relations, and in the fact that the war trade will have been to such a large extent abnormal, both as regards the products dealt in and the parties to the trade. Europe's banking machinery in South and Central America, although it may not be very actively functioning in these trying times, still exists, and will be ready to resume its former activities as soon as peace is declared.... On the basis of London Stock Exchange listings British investments in Latin America early in 1914 were computed at nearly $6,000,000,000. Germany also has a large number of banking establishments in South America and heavy investments.... United States investments in South America are very small as compared with those of England and Germany, while only one American bank has established branches on that continent. These branches are only five in number, and the oldest of them is but a little over a year old. The conclusion seems clear that the war will need to be very long and very disastrous to England; and American merchants, bankers, and investors will need to be much more active and far-sighted in their exploitation of South American opportunities than they have been in the past, if London is to yield to New York her financial premiership for South America. Other obstacles to New York's becoming permanently the world's financial centre are its great distance from the financial markets of Europe, America's small merchant marine, its provincial protective tariff policy, the absence of an adequate supply of men possessing the necessary training both in foreign languages and in commerce and international finance to go into these foreign fields and to "tie them up" commercially and financially with the United States, and the slowness with which our recently reorganized banking system and our American discount market must grow, as regards international business, if it is to have roots that are strong and grow deep. The United States has before it a great opportunity. Much depends upon the foresight with which Americans prepare themselves to meet the tremendous readjustments that will be demanded at the close of the war. That will be the supreme test. Now is the time to build for the future, and to avoid paying too much attention to immediate profits. New York can hardly be expected to succeed to London's position as the world's financial centre, at least for some time to come; dollar exchange will not at once take permanent rank ahead of sterling, or even alongside it; none the less, if the United States refuses to be blinded by the glamour of large immediate profits from a type of trade that is necessarily abnormal and temporary, and if she seriously turns her attention to the opportunities now open to her in Latin America, she will make a long step forward in the direction of financial leadership. FOOTNOTES: [313] H. Parker Willis, _American Finance and the European War_, _The Journal of Political Economy_, Vol. 23, No. 2. February, 1915, pp. 144-165. [314] A fuller account of the gold fund and cotton loan plans will be found in the _First Annual Report of the Federal Reserve Board_, Washington, January 15, 1915. [315] _Report of Secretary of the Treasury_, December 7, 1914. [316] _First Annual Report of the Federal Reserve Board_, p. 16. [317] _Report of the Comptroller of the Currency_, 1914, pp. 15, 16. [318] J. Laurence Laughlin, _Will the Gold Basis Survive in Europe?_, _The Annalist_, Vol. 7, No. 162, Feb. 21, 1916, pp. 244, 252. [319] A. Barton Hepburn, _A History of Currency in the United States_, pp. 463-466. The Macmillan Company. New York. 1915. [320] Of Boissevain Co. [321] Hartley Withers, _War and Lombard Street_, pp. 98-111. E. P. Dutton and Company. 1915. [322] Franklin Escher, Review of _War and Lombard Street_, _The American Economic Review_, Vol. 5, No. 3, September, 1915, pp. 624-5. [323] E. W. Kemmerer, _America's Chance of Holding World Purse-Strings_, _The Annalist_, Vol. 7, No. 158, Jan. 24, 1916, pp. 119-121, 144. APPENDIX A AN APPROXIMATE FORMULA FOR DETERMINING THE VELOCITY OF THE CIRCULATION OF MONEY [324]For the purpose of tracing the circulation of money, and measuring it by bank records,[325] we may classify the persons who use money in purchase of goods into three groups: 1. Commercial depositors, _i. e._, all engaged in business--firms, companies, and others--who have bank deposits mainly or wholly apart from personal accounts. 2. All other depositors, chiefly private persons. 3. All who, like most wage earners, are not depositors at all. These three classes we shall distinguish as "Commercial depositors," "Other depositors," and "Nondepositors," or C, O, and N. The money in the possession of "Commercial depositors" we shall call "till money," and the rest "pocket money." The three groups necessarily include all in the community who circulate money. By circulating money is meant expending it in exchange, not for some other circulating medium, as checks, but for goods.... ... The category of "commercial depositors" coincides for all practical purposes with the category of business establishments. "Other depositors" include most proprietors, professional, and salaried persons. Almost no wage earners are included, and almost no business establishments or business men in a business capacity.... ... Although "other depositors" include most proprietors and professional and salaried persons, yet some proprietors and professional men, especially in rural communities, and some salaried persons, chiefly small clerks, are "Nondepositors."... ... "Nondepositors" consist chiefly of those who are classed in statistics as wage earners. While there are some wage earners who are depositors,[326] they are rare: and while there are some "nondepositors" who are not wage earners, especially (as just indicated) the agricultural proprietors (farmers) and small clerks, the amount of money circulated by them is small in comparison with the total circulation. While the line separating wages and salaries is not definitely marked in theory, it is usually easily recognised in practice.... We may now picture concretely the main currents of the monetary flow, including the circulation of money in exchange for goods.... [The figure here given] illustrates the three principal types. [Illustration] The corners of the triangle, C, O, and N, represent the three groups of "commercial depositors," "other depositors," and "nondepositors," and the B's represent banks. The arrows represent the flow of money from each of these four categories to the others. Thus B_{o} represents the annual withdrawals from banks by "other depositors," O_{c} the spending of this withdrawn money by "other depositors" among "commercial depositors," and C_{b} the return of the money from the "commercial depositors" to the banks. This circuit (B_{o} O_{c} C_{b}) of three links is very common. A second type of circuit is represented by a chain of four arrows (B_{o} O_{n} N_{c} C_{b}). It is illustrated by private depositors drawing money (B_{o}), and paying wages (O_{n}) to servants who in turn spend the money (N_{c}) among tradesmen who finally deposit it (C_{b}). A third type of circuit, also fourfold, is represented by the arrows B_{c} C_{n} N_{c} C_{b}. It is illustrated by commercial firms cashing their checks at banks (B_{c}) for pay rolls, with the cash so obtained paying wages (C_{n}) to workmen who spend it (N_{c}) among other tradesmen who redeposit it in banks (C_{b}). These three types are not the only ones, but they are so much more important than any others that they merit out undivided attention before a completer study is undertaken.... [The accompanying figure] has been constructed for the purpose of exhibiting them uncomplicated by other details. It will be noted that not all of the flows described are examples of the _circulation_ of money. As already indicated, money may be said to circulate only when it passes in exchange for _goods_. Its entrance into and exit from banks is a flow, but not a circulation against goods. In the diagram the horizontal arrows represent such mere banking operations, not true circulation. On the other hand, the arrows along the sides of the triangle represent actual circulation. The diagram shows four such arrows, representing the four chief types of circulation: O_{c} payments of money from "other depositors" to "commercial depositors" in the purchase of goods; O_{o} payments from "other depositors" to "nondepositors," as when a housewife pays wages; C_{n} payments from "commercial depositors" to "nondepositors," as when a firm pays wages; and N_{c} payments from "nondepositors" to "commercial depositors," as when a wage earner buys goods of a merchant. There four types of circulation of money occur in the three circuits already described, being sandwiched between the flows from and to the banks. The first, O_{c}, is contained within the circuit B_{o} O_{c} C_{b} and, since no "nondepositors" intervene, represents money changing hands once between its withdrawal from bank and its redeposit there. The remaining types (O_{n}, C_{n}, and N_{c}) are contained within the two other circuits (B_{o} O_{n} N_{c} C_{b} and B_{c} C_{n} N_{c} C_{b}), and, owing to the fact that "nondepositors" intervene, represent money circulating twice between withdrawal and redeposit. In short, one of the three circuits (B_{o} O_{c} C_{b}) shows money circulating once out of bank. Both the others pass through N, and show money circulating twice out of bank. The diagram, then, represents all circulating money as springing from and returning to the banks; all of it as circulating at least once in the interim; and that portion handled by "nondepositors" as circulating once in addition. Therefore, the total circulation exceeds the total flow from and to banks by the amount flowing through "nondepositors." In other words, the total circulation in the diagram is simply the sum of the annual money flowing from and to banks and the money handled by "nondepositors." The quotient of this sum divided by the amount of money in circulation will give approximately the velocity of circulation of money.... FOOTNOTES: [324] Irving Fisher, _Purchasing Power of Money_, Appendix XII. pp. 448-454. _The Macmillan Company. New York. 1911._ [325] For a complete formula for determining the velocity of the circulation of money see pages 448-460, of the Purchasing Power of Money. [326] The term "depositors," as here used, does not, of course, include savings bank depositors. A savings bank is not a true bank of deposit, providing circulating credit. APPENDIX B SOME REGULATIONS OF THE FEDERAL RESERVE BOARD FEDERAL RESERVE BOARD WASHINGTON, January 12, 1915. ACCEPTANCE OF STATEMENTS IN LIEU OF CERTIFICATES AS TO CHARACTER OF COMMERCIAL PAPER Whenever a member bank shall offer for rediscount any note, draft, or bill of exchange bearing the indorsement of such member bank, with waiver of demand notice and protest, the directors or executive committee of the federal reserve bank may, until July 15, 1915, accept as evidence that the proceeds of such note, draft, or bill of exchange were or are to be used for agricultural, industrial, or commercial purposes (and that such notes, drafts, or bills of exchange in other respects comply with the regulations of the board), a written statement from the officer of the applying bank that of his own knowledge and belief the original loan was made for one of the purposes mentioned, and that the provisions of the act and regulations issued by the board have been complied with. CHARLES S. HAMLIN, Governor. H. PARKER WILLIS, Secretary. FEDERAL RESERVE BOARD WASHINGTON, April 2, 1915. BANKERS' ACCEPTANCES I DEFINITION In this regulation the term "acceptance" is defined as a draft or bill of exchange drawn to order, having a definite maturity, and payable in dollars, in the United States, the obligation to pay which has been accepted by an acknowledgment written or stamped and signed across the face of the instrument by the party on whom it is drawn; such agreement to be to the effect that the acceptor will pay at maturity according to the tenor of such draft or bill without qualifying conditions. II STATUTORY REQUIREMENTS UNDER SECTIONS 13 AND 14 Section 13 of the Federal Reserve Act as amended provides that: (a) Any federal reserve bank may discount acceptances: (1) Which are based on the importation or exportation of goods; (2) Which have a maturity at time of discount of not more than three months; and (3) Which are indorsed by at least one member bank. (b) The amount of acceptances so discounted shall at no time exceed one-half the paid-up capital stock and surplus of the bank for which the rediscounts are made, except by authority of the Federal Reserve Board and of such general regulations as said board may prescribe, but not to exceed the capital stock and surplus of such bank. (c) The aggregate of notes and bills bearing the signature or indorsement of any one person, company, firm, or corporation rediscounted for any one bank shall at no time exceed 10 per centum of the unimpaired capital and surplus of said bank; but this restriction shall not apply to the discount of bills of exchange drawn in good faith against actually existing values. Section 14 of the Federal Reserve Act permits federal reserve banks, under regulations to be prescribed by the Federal Reserve Board, to purchase and sell in the open market bankers' acceptances, with or without the indorsement of member bank. III RULING The Federal Reserve Board, exercising its power of regulation with reference to paragraph II (b) hereof, rules as follows: Any federal reserve bank shall be permitted to discount for any member bank "bankers' acceptances" as hereinafter defined up to an amount not to exceed the capital stock and surplus of the bank for which the rediscounts are made. IV ELIGIBILITY The Federal Reserve Board has determined that, until further order, to be eligible for discount under section 13, by federal reserve banks, at the rates to be established for bankers' acceptances: (a) Acceptances must comply with the provisions of paragraph II (a), (b), (c) hereof; (b) Acceptances must have been made by a member bank, non-member bank, trust company, or by some private banking firm, person, company, or corporation engaged in the business of accepting or discounting. Such acceptances will hereafter be referred to as "bankers'" acceptances;[327] (c) A banker's acceptance must be drawn by a commercial, industrial, or agricultural concern (that is some person, firm, company, or corporation) directly connected with the importation or exportation of the goods involved in the transaction in which the acceptance originated, or by a "banker." In the latter case the goods, the importation or exportation of which is to be financed by the acceptance, must be clearly specified in the agreement with or the letter of advice to the acceptor. The bill must not be drawn or renewed after the goods have been surrendered to the purchaser or consignee. (d) A banker's acceptance must bear on its face or be accompanied by evidence in form satisfactory to a federal reserve bank that it originated in an actual _bona fide_ sale or consignment involving the importation or exportation of goods. Such evidence may consist of a certificate on or accompanying the acceptance to the following effect: This acceptance is based upon a transaction involving the importation or exportation of goods. Reference No. ----. Name of acceptor ----. (e) Bankers' acceptances, other than those of member banks, shall be eligible only after the acceptors shall have agreed in writing to furnish to the federal reserve banks of their respective districts, upon request, information concerning the nature of the transactions against which acceptances (certified or bearing evidence under IV (d) hereof) have been made. (f) A bill of exchange accepted by a "banker" may be considered as drawn in good faith against "actually existing values," under II (c) hereof, when the acceptor is secured by a lien on or by transfer of title to the goods to be transported; or, in case of release of the goods before payment of the acceptance, by the substitution of other adequate security; (g) Except in so far as they may be secured by a lien on or by transfer of the title to the goods to be transported, as under (f), the bills of any person, firm, company, or corporation, drawn on and accepted by any private banking firm, person, company, or corporation (other than a bank or trust company) engaged in the business of discounting and accepting, and discounted by a federal reserve bank, shall at no time exceed in the aggregate a sum equal to 5 per centum of the paid-in capital of such federal reserve bank; (h) The aggregate of acceptances of any private banking firm, person, company, or corporation (other than a bank or trust company) engaged in the business of discounting or accepting, discounted or purchased by a federal reserve bank, shall at no time exceed a sum equal to 25 per centum of the paid-in capital of such federal reserve bank. To be eligible for purchase by federal reserve banks under section 14, bankers' acceptances must comply with all requirements and be subject to all limitations hereinbefore stated, except that they need not be indorsed by a member bank: _Provided, however_, That no federal reserve bank shall purchase the acceptance of a "banker" other than a member bank which does not bear the indorsement of a member bank, unless a federal reserve bank has first secured a satisfactory statement of the financial condition of the acceptor in form to be approved by the Federal Reserve Board. V POLICY AS TO PURCHASES While it would appear impracticable to fix a maximum sum or percentage up to which federal reserve banks may invest in bankers' acceptances, both under section 13 and section 14, it will be necessary to watch carefully the aggregate amount to be held from time to time. In framing their policy with respect to transactions in acceptances, federal reserve banks will have to consider not only the local demands to be expected from their own members, but also requirements to be met in other districts. The plan to be followed must in each case adapt itself to the constantly varying needs of the country. CHARLES S. HAMLIN, Governor. H. PARKER WILLIS, Secretary. FEDERAL RESERVE BOARD WASHINGTON, April 2, 1915. ACCEPTANCE BY MEMBER BANKS By act of Congress approved March 3, 1915, section 13 (paragraphs 3, 4, and 5 of the Federal Reserve Act) was amended and re-enacted so as to read as follows: Any federal reserve bank may discount acceptances which are based on the importation or exportation of goods and which have a maturity at time of discount of not more than three months and indorsed by at least one member bank. The amount of acceptances so discounted shall at no time exceed one-half the paid-up and unimpaired capital stock and surplus of the bank for which the rediscounts are made, except by authority of the Federal Reserve Board, under such general regulations as said board may prescribe, but not to exceed the capital stock and surplus of such bank. The aggregate of such notes and bills bearing the signature or indorsement of any one such person, company, firm, or corporation rediscounted for any one bank shall at no time exceed 10 per centum of the unimpaired capital and surplus of said bank; but this restriction shall not apply to the discount of bills of exchange drawn in good faith against actually existing values. Any member bank may accept drafts or bills of exchange drawn upon it and growing out of transactions involving the importation of exportation of goods having not more than six months' sight to run; but no bank shall accept such bills to an amount equal at any time in the aggregate to more than one-half of its paid-up and unimpaired capital stock and surplus, except by authority of the Federal Reserve Board, under such general regulations as said board may prescribe, but not to exceed the capital stock and surplus of such bank, and such regulations shall apply to all banks alike, regardless of the amount of capital stock and surplus. In order to give effect to the above amendment of the law, the Federal Reserve Board issues the appended Regulation K, series of 1915, stating the conditions under which member banks may accept, up to 100 per cent. of their capital and surplus, drafts or bills of exchange growing out of transactions involving the importation or exportation of goods and having not more than six months' sight to run. CHARLES S. HAMLIN, Governor. H. PARKER WILLIS, Secretary. FEDERAL RESERVE BOARD WASHINGTON, May 8, 1915. CLEARINGS BETWEEN FEDERAL RESERVE BANKS I STATUTORY PROVISIONS UNDER SECTION 16 "The Federal Reserve Board shall make and promulgate from time to time regulations governing the transfer of funds and charges therefore among federal reserve banks and their branches, and may at its discretion exercise the functions of a clearing house for such federal reserve banks, or may designate a federal reserve bank to exercise such functions, and may also require each such bank to exercise the functions of a clearing house for its member banks." II GENERAL PROVISIONS In the exercise of the functions of the clearing house authorised under the provisions of section 16, quoted above, the Federal Reserve Board and the federal reserve banks will be governed by and subject to the following regulations and the Federal Reserve Board will be the custodian of the funds hereinafter termed the gold settlement fund. The board will appoint a settling agent who shall keep the necessary records and accounts. III DEPOSITS IN THE GOLD SETTLEMENT FUND (a) Each federal reserve bank shall, not later than May 24, 1915, forward to the Treasury or the nearest Sub-Treasury, for credit to the account of the gold settlement fund $1,000,000 in gold, gold certificates or gold order certificates, and, in addition, an amount at least equal to its net indebtedness due to all federal reserve banks. (b) The Treasurer of the United States or Assistant Treasurer will, in accordance with arrangements made with the Treasury Department, advise the Federal Reserve Board, by mail or telegraph, of the receipt of all funds deposited on account of the gold settlement fund, and the Treasurer will issue and deliver to the Federal Reserve Board gold order certificates made "payable to the order of the Federal Reserve Board" covering the sum so deposited. (c) Each federal reserve bank shall maintain a balance in the gold settlement fund of not less than $1,000,000. (d) Excess balances may, at the convenience of each federal reserve bank, remain deposited with the gold settlement fund. IV CUSTODY OF FUNDS (a) A safe in the Treasury vault will be set apart for the exclusive use of the Federal Reserve Board. (b) To open the Treasury vault, the presence of two persons designated by the Secretary of the Treasury is required. The combination of the safe set apart for the use of the board will be controlled by two persons designated by the board. (c) A vault record shall be kept, giving a memorandum of all entrances to the safe, by whom made, for what purpose, and the certificates deposited or withdrawn. Each entry on the vault record book shall be signed by the persons having access to the safe. V ACCOUNTS In its relations with other federal reserve banks each federal reserve bank shall keep an account showing balances "due to" other federal reserve banks representing the proceeds of items which it has actually collected, and payments and transfers which have been made to it for the account of such other federal reserve banks; and an account showing balances "due from" other federal reserve banks representing the proceeds of items which it has sent to such other federal reserve banks, and payments and transfer which have been made to such other federal reserve banks for its account. VI PROCEDURE (a) At the close of business each Wednesday night, each federal reserve bank shall telegraph to the Federal Reserve Board, confirming such telegram by mail, the amounts in even thousands due to each other federal reserve bank as of that date, as indicated by its "due to" account provided for in Rule V. If Wednesday is a holiday in the State in which a federal reserve bank is located, then such bank shall telegraph as herein provided on Tuesday, at the close of business. (b) The settling agent shall, on each Thursday, make the proper debits and credits in the accounts of each federal reserve bank with the gold settlement fund, and shall telegraph to each bank the amounts, in even thousands, of credits to its settlement account, giving the name of each federal reserve bank from which each of its credits was received and also its net debit or credit balance in the weekly settlement. (c) Each federal reserve bank shall, on receipt of the telegram from the settling agent, debit the "due to" federal reserve banks' accounts, and shall credit the gold settlement fund; and shall credit the "due from" federal reserve banks' accounts and charge the gold settlement fund. The difference between the total debits and credits shall equal the net debit or credit to the gold settlement fund, as advised in the telegram from the settling agent. VII DEFICITS (a) Should the debit settlement balance of any federal reserve bank be in excess of the amount of its credit in the gold settlement fund, such deficit must be immediately covered either by the deposit of gold, gold certificates, or gold order certificates in the Treasury or nearest Sub-Treasury, or by credit operations with other federal reserve banks which have an excess balance with the gold settlement fund. Any delay in covering such deficit shall be subject to such charge as the Federal Reserve Board may impose. (b) As required in III (c) of this regulation, each federal reserve bank shall maintain a balance in the gold settlement fund of not less than $1,000,000. Should the credit balance of any federal reserve bank in such fund fall below $1,000,000, such bank shall restore its balance to that amount in either manner indicated under VII (a) of this regulation on or before Tuesday of the following week. VIII EXCESS BALANCES Any excess balance shall, on request, either by telegraph or letter, of the federal reserve bank to which it is due, be refunded by the return to the reserve bank of the gold order certificates held by the gold settlement fund properly indorsed; or by the indorsement and delivery to the Treasurer of a like amount of such certificates for which he will give in exchange bearer gold certificates, which the Federal Reserve Board may send by registered mail, insured, to the banks, if they want funds other than gold order certificates, or in lieu of such payment, the Treasurer may by wire or mail direct payment to be made by a Sub-Treasury office through the medium of the general account, provided funds are held in such office available for the purpose. Gold order certificates will, when presented at the office of the Treasurer of the United States or any Sub-Treasury, bearing the signatures of duly authorised officers of the federal reserve bank, be payable in gold or gold certificates. If the Treasury finds it necessary to ship from one point to another in order to have the gold or gold certificates available at the Sub-Treasury to which such gold order certificates are presented, the Federal Reserve Board will, for the account of the gold settlement fund, refund any expense incurred by the Treasury in making such shipments. IX RESERVE Each federal reserve bank shall count as a part of its legal reserve the funds standing to the credit of its account on the books of the gold settlement fund. X EXPENSES Cost of operation of and shipment of currency by the gold settlement fund shall be apportioned by a semi-annual accounting among the 12 federal reserve banks on a basis to be hereafter determined by the board after consultations with the federal reserve banks. XI AUDIT At least once in each three months an audit shall be made of the gold settlement fund by a representative of the Federal Reserve Board and representative appointed by the federal reserve banks. XII The Federal Reserve Board reserves the right to add to, alter, or amend these regulations. CHARLES S. HAMLIN, Governor. H. PARKER WILLIS, Secretary. FEDERAL RESERVE BOARD WASHINGTON, June 7, 1915. MEMBERSHIP OF STATE BANKS I STATUTORY REQUIREMENTS Specific provisions of the Federal Reserve Act applicable to State banks and trust companies which become member banks are quoted at the end of this regulation. II BANKS ELIGIBLE FOR MEMBERSHIP A State bank or a trust company to be eligible for membership in a federal reserve bank must comply with the following conditions: (1) It must have been incorporated under a special or general law of the State or district in which it is located. (2) It must have a minimum paid-up unimpaired capital stock as follows: In cities or towns not exceeding 3,000 inhabitants, $25,000. In cities or towns exceeding 3,000 but not exceeding 6,000 inhabitants, $50,000. In cities or towns exceeding 6,000 but not exceeding 50,000 inhabitants, $100,000. In cities exceeding 50,000 inhabitants, $200,000. III APPLICATION FOR MEMBERSHIP Any eligible State bank or trust company may make application on Form 83, made a part of this regulation, to the federal reserve agent of its district for an amount of capital stock in the federal reserve bank of such district equal to 6 per cent. of the paid-up capital stock and surplus of such State bank or trust company.[328] Upon receipt of such application the federal reserve agent shall submit the same to a committee composed of the federal reserve agent, the governor of the federal reserve bank, and at least one other member of the board of directors of such bank, to be appointed by such board, but no Class A director whose bank is in the same city or town as the applying bank or trust company shall be a member of such committee. This committee shall, after receiving the report of such examination as may be required by the federal reserve bank in pursuance of directions from the Federal Reserve Board, consider the application and transmit it to the Federal Reserve Board with its report and recommendations. IV APPROVAL OF APPLICATION In passing upon an application the Federal Reserve Board will consider especially: (1) The financial condition of the applying bank or trust company and the general character of its management. (2) Whether the nature of the powers exercised by the said bank or trust company and its charter provisions are consistent with the proper conduct of the business of banking and with membership in the federal reserve bank. (3) Whether the laws of the State or district in which the applying bank or trust company is located contain provisions likely to interfere with the proper regulation and supervision of member banks. If, in the judgment of the Federal Reserve Board, an applying bank or trust company conforms to all the requirements of the Federal Reserve Act and these regulations, and is otherwise qualified for membership, the board will issue a certificate of approval. Whenever the board may deem it necessary, it will impose such conditions as will insure compliance with the act and these regulations. When the certificate of approval and any conditions contained therein have been accepted by the applying bank or trust company, stock in the federal reserve bank of the district in which the applying bank or trust company is located shall be issued and paid for under the regulations of the Federal Reserve Act provided for national banks which become stockholders in the federal reserve banks. V POWERS AND RESTRICTIONS Every State bank or trust company while a member of the federal reserve system: (1) Shall retain its full charter and statutory rights as a State bank or trust company, and may continue to exercise the same functions as before admission, except as provided in the Federal Reserve Act and the regulations of the Federal Reserve Board, including any conditions embodied in the certificate of approval. (2) Shall invest only in loans on real estate or mortgages of a character and to an extent which, considering the nature of its liabilities, will not impair its liquid condition. (3) Shall adjust, to conform with the requirements of the Federal Reserve Act and these regulations, within such reasonable time as may be determined by the board in each case, any loans it may have at the time of its admission to membership which are secured by its own stock, or any loans to one person, firm, or corporation aggregating more than 10 per cent. of its capital and surplus or more than 30 per cent. of its capital, or any real estate loans which, in the judgment of the Federal Reserve board, impair its liquid condition. (4) Shall maintain such improvements and changes in its banking practice as may have been specifically required of it by the Federal Reserve Board as a condition of its admission, and shall not lower the standard of banking then required of it: and (5) Shall enjoy all the privileges an observe all those requirements of the Federal Reserve Act and of the regulations of the Federal Reserve Board applicable to State banks and trust companies which have become member banks. VI WITHDRAWALS Any State bank or trust company desiring to withdraw from membership in a federal reserve bank may do so twelve months after written notice of its intention to withdraw shall have been filed with the Federal Reserve Board. The board will immediately notify the federal reserve bank of the receipt of such notice. At the expiration of said twelve months, such bank or trust company shall surrender all of its holdings of capital stock in the federal reserve bank, which stock shall then be cancelled and the withdrawing bank or trust company shall thereupon be released from its stock subscription not previously called. Such bank or trust company shall, immediately upon the cancellation of its stock, cease to be a member of the federal reserve bank, and the federal reserve bank shall then refund to such bank or trust company a sum equal to the cash-paid subscription on the shares surrendered, with interest at the rate of one-half of one per centum per month computed from the last dividend, if earned, not to exceed the book value thereof, and the reserve deposits, less any liability of such member to the federal reserve bank: _Provided_, That no federal reserve bank shall, except by the specific authority of the Federal Reserve Board, cancel within the same calendar year more than 10 per cent. of its capital stock for the purpose of effecting voluntary withdrawals during that year. All applications, including therein any on which action may have been deferred because in excess of the aforesaid 10 per cent. limitation, will be dealt with in the order in which they were originally filed with the board. Any State bank or trust company desiring to withdraw from membership at the expiration of the twelve months' notice, notwithstanding the fact that the federal reserve bank has previously cancelled 10 per cent. of its stock during the same calendar year, may do so. In such case, however, the federal reserve bank shall not be required to repay to the withdrawing bank or trust company the sums due as above, until such time as its stock would have been cancelled had it not exercised this option. The federal reserve bank shall, however, give a receipt for the stock surrendered. VII EXAMINATIONS Every State bank or trust company, while a member of the Federal Reserve system, shall be subject to such examinations as may be prescribed by the Federal Reserve Board in pursuance to the provisions of the Federal Reserve Act. In order to avoid duplication, the board will exercise the broad discretion vested in it by the act in accepting examinations of State banks and trust companies made by State authorities wherever these are satisfactory to the board and are found to be of the same standard of thoroughness as national bank examinations, and where in addition satisfactory arrangements for co-operation in the matter of examination between the designated examiners of the Board and those of the States already exist or can be effected with State authorities. Examiners from the staff of the board or of the federal reserve banks will, whenever desirable, be designated by the board to act with the examination staff of the State in order that uniformity in the standard of examination may be assured. VIII FUTURE REGULATIONS The Federal Reserve Board reserves the right to make such amendments and adopt and issue, from time to time, such further regulations authorised by the act as it may deem necessary, but no amendment of section VI of these regulations, relating to voluntary withdrawals, shall take effect until six months after its adoption and issue by the board. CHARLES S. HAMLIN, Governor. H. PARKER WILLIS, Secretary. FOOTNOTES: [327] Drafts and bills of exchange eligible for rediscount under section 13, other than "bankers'" acceptances, have been dealt with by Regulation B, series of 1915. [328] Three per cent. has already been called from national and other member banks, but the remainder of the subscription or any part of it shall be subject to call if deemed necessary by the Federal Reserve Board.