The value of money

Front matter

^m fork

Cornell University Library HG 229.A55

3 1924 013 734 235

Preface

The following pages have as their central problem the value of money. But the value of money cannot be studied successfully as an isolated problem, and in order to reach conclusions upon this topic, it has been necessary to consider virtually the whole range of economic theory; the general theory of value; the r61e of money in economic theory and the functions of money in economic life; the theory of the values of stocks and bonds, of "good will," established trade connections, trade-marks, and other "intangibles"; the theory of credit; the causes governing the volume of trade, and particularly the place of speculation in the volume of trade; the relation of "static" economic theory to "dynamic" economic theory.

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

This thesis has seemed to require statistical verification, and the effort has been made to measure the elements in

VIU PREFACE

trade, to assign proportions for retail trade and for wholesale trade, to obtain indicia of the extent and variation of speculation in securities, grain, and other things on the organized exchanges, and to indicate something of the extent of less organized speculation running through the whole of business. The ratio of foreign to domestic trade has been studied, for the years, 1890-1916.

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

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

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

PREFACE IX

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

The theory of value set forth in Chapter I, and presupposed in the positive argimient of the book, is that first set forth in an earlier book by the present writer, Social Value, published in 1911. That book grew out of earlier studies in the theory of money, in the course of which the writer reached the conclusion that the problem of money could not be solved until an adequate general theory of value should be developed. The present book thus represents .investigations which run through a good many years, and to which the major part of the past six years has been given. On the basis of this general theory of value, and a dynamic theory of money and exchange, our positive conclusions regarding the value of money are reached. On the same basis, a psychological theory of credit is developed, in which the laws of credit are assimilated to the general laws of value.

In a final section, the constructive theory of the book is made the basis for a "reconciliation" of "statics" and "dynamics" in economic theory — an effort to bring together the abstract theory of price {i. e., "statics") which has hitherto chiefly busied economists, and the more realistic studies of economic change (i.e., "dynamics") to which a smaller number of economists have given their attention. These two bodies of doctrine have hitherto had little connection, and the science of economics has suffered as a consequence.

This book was not written with the college student primarily in mind. None the less, I incline to the view that the book, with the exception of the chapter on "Marginal Utility," is suitable for use as a text with Juniors and seniors in money and banking, if supplemented by some general

X PREFACE

descriptive and historical book on the subject, and that the whole book may very well be used with such students in advanced courses in economic theory. I think that bankers, brokers, and other, business men who are interested in the general problems of money, trade, speculation and credit, will find the book of use. Naturally, however, it is my hope that the special student of money and banking, and the special student of economic theory will find the book of ^ interest. The book may interest also certain students of philosophy and sociology, who are concerned with the applications of philosophy and social philosophy to concrete problems.

My obligations to others, running through a good many years, are very great. With Professor E. E. Agger, I talked over very many of the problems here discussed, in the course of two years of close association at Columbia University, and gained very much from his suggestions and criticisms. Professor E. R. A. Sehgman has read portions of the manuscript, and given valuable advice. Professor H. J. Davenport has given the first draft an exceedingly careful reading, and his criticisms have been especially helpful. Professor Jesse E. Pope supervised my investigations in the quantity theory of money in 1904-5, in his seminar at the University of Missouri, and gave me invaluable guidance in the general theory of money and credit then. More recently, his intimate first hand kiiowledge of European and American conditions, both in agricultural credit and in general banking, has been of great service to me. Mr. N. J. Silberling, of the Department of Economics at Harvard University, has been helpful in various ways, particularly by making certain statistical investigations, to which reference will be made in the text, at my request. Various bankers, brokers, and others closely in touch with the subjects here discussed have been more than generous in supply-

PREFACE XI

ing needed information. Among these may be especially mentioned Mr. Byron W. Holt, of New York, Mr. Osmund Phillips, Editor of the Annalist and Financial Editor of the New York Times, Messrs. L. H. Parkhurst and W. B. Donham, of the Old Colony Trust Company in Boston, various gentlemen in the offices of Charles Head & Co., and Pearmain and Brooks, in Boston, Mr. B. F. Smith, of the Cambridge Trust Company, Mr. W. H. Aborn, Coffee Broker, New York, Mr. Burton Thompson,'Real Estate Broker, New York, Mr. Jas. H. Taylor, Treasurer of the New York Coffee Exchange, Mr. J. C. T. Merrill, Secretary of the Chicago Board of Trade, DeCoppet and Doremus, New York, and Mr. F. I. Kent, Vice President of the Bankers Trust Company, New York. My greatest obligations are to two colleagues at Harvard University. Professor F. W. Taussig has given the manuscript very careful consideration, from the standpoint of style as well as of doctrine, and has discussed many problems with me in detail. Professor O. M. W. Sprague has placed freely at my service his rich store of practical knowledge of virtually every phase of modern money and banking, and has read critically every page of the manuscript. None of these gentlemen, of course, is to be held responsible for my mistakes. I also make grateful acknowledgment of the aid and sjmapathy of my wife.

In the course of the discussion, frequent criticisms are directed against the doctrines of Professors E. W. Kemmerer and Irving Fisher, particularly the latter, as the chief representatives of the present day formulation of the quantity theory. Both their theories and their statistics are fundamentally criticised. I find myself in radical dissent on all the main theses of Professor Fisher's Purchasing Power of Money, and at very many points of detail. To a less degree, I find myself unable to concur with Professor

XU PREFACE

Kemmerer. But I should be sorry if the reader should feel that I fail to recognize the distinguished services which both of these writers have performed ior the scientific study of money and banking, or should feel that dissent precludes admiration. I acknowledge my own indebtedness to both, not alone for the gain which comes from having an opposing view clearly defined and ably presented, but also for much information and many new ideas. My general doctrinal obligations in the theory of money and credit are far too numerous to mention in a preface. My greatest debt in general economic theory is to Professor J. B. Clark.

B. M. Anderson, Jr.

Harvard University, March 31, 1917.

ANALYTICAL TABLE OF CONTENTS

Chapter I Page

Problem of value of money special case of general theory of

value; present chapter concerned with general theory ... i

Formal and logical aspects of value: value as quality; value

as quantity; value and wealth 5-6

Absolute vs. relative conceptions of value: value of money vs. "reciprocal of price-level"; value prior to exchange; value and exchangeability; do prices correctly express values? 6-12

Doctrine so far in accord with main current of economic

opinion 12-14

Causal theory of value new: marginal utility, labor theory,

etc., rejected 14-16

Social explanation required: "individual" a' social product,

both in history of individual and in history of race i6-ig

And above individual impersonal psychic forces, law, public

opinion, morality, economic values 19-20

Three types of theory have dealt with these: theory of extrahuman objective forces; extreme individualism; social value theory 20-21

Illustrated in jurisprudence, ethics, and economic theory .... 21-26

Law, morals, and economic values generically alike, but have

differentia 26-28

But not differentiated on' basis of states of consciousness of individual immediately moved by them, because many '

minds in organic interplay involved 28-33

xiii

XIV ANALYTICAL TABLE OF CONTENTS

PAGE Economic social value (a) of consumers' goods and services: "utility" and scarcity; "marginal utility": social explanation of marginal utility; marginal utilities the conscious/oc2« of economic values of consumers' goods; but only minor part of these values; individuals, classes and institutions heavily weighted by legal, moral, and other social values, in power over economic values of consumers' goods 33~38

Economic social value (b) of labor, land, stocks, bonds, "good will," etc.; based only in part on values of consumers' goods; partially independent, directly influenced

by contagion, and centers of power and prestige 38-41

Pragmatic character of theory 41-43

Relation of social values to individual values 43^45

CHAPTER II StrPPLY AND DEMAND, AND THE VALUE OF MONEY

Hiatus between general theory of value and theory of value of

Partly because former has been developed by different writers from those who have developed latter 47^49

But chiefly because supply and demand, cost of production, etc., assume fixed value of money, and are theories of price, rather than value 49

Supply and demand useful but superficial formula, common

Crude and unanalyzed in Smith and Ricardo; first made precise by J. S. MiU, who gives essentials of modern doctrine ' 49-51

Bohm-Bawerk's pseudo-psychology spoils Mill's clean-cut

doctrine 51-52

Supply and demand assumes fixed value of money-unit, and

hence inapplicable to money itself 52-56

But supply and demand does not assume fixed price-level. . . 56-57

Cairnes vs. Mill S7-S8

Mill's unsuccessful effort to apply supply and demand to

money 59-62

Walker's attempt 62

Supply and demand in the "money market" 62-63

ANALYTICAL TABLE OF CONTENTS XV

Chapter III Cost Of Production And The Value Of Money

PAGE

Types of cost theory: modern cost doctrine is "money costs"

doctrine, and inapplicable to value of money 64

Labor cost: Smith; Ricardo; Ricardo's confession of failure; "real costs" in Senior and Cairnes; Mill's "money-outlay" cost doctrine, and Cairnes' criticism; but

"money-cost" has survived 64-67

Because " real cost " doctrine does not square with facts 67-69

"Money-cost" of producing money-metal 69-70

Austrian cost doctrine runs stiU in money terms, assuming

value, money, and fixed value of money 70-7 1

".Negative social values" as "real costs" note, 71

Chapter IV The Capitalization Theory And The Value Of Money

Money as "capital good," and "money-rates'' as rentals. . . 72-73

Capitalization theory; formula; capital value passive resultant of annual income and rate of discoimt 73""74

But in case of money, rental and rate of discount not independent variables 74-76

And in case of money, capital value not passive shadow, but

active cause of income 76

Capitalization theory assumes money, and fixed value of

money 76-77

Assumed fixed value of money absolute, and not relative 77-78

Capitalization theory, in current formulation, inapplicable ; to value of money 78-79

Chapter V Marginal Utility And The Value Of Money

Marginal utility theory usually thinly disguised version of

supply and demand, and hence inapplicable to money . . 80

View that money is imique in having no utility per se 81-83

XVI ANALYTICAL TABLE OF CONTENTS

PAGE Marginal utility and " conunodity theory " of money-value . . 81-82

Quantity theorists and marginal utility of money 81-82

Money an instrumental good, and marginal utility no less applicablfe here than elsewhere; marginal utility invalid as general theory of value, hence invalid when applied to

Wieser's theory of value of money 83-88

A circle in reasoning 88-go

Schumpeter's similar circle 100

But Schumpeter's general utility theory, though inapplicable

. to value of money, in form avoids a causal circle go-98

Schumpeter's conspectus; different from Bohm-Bawerk and

most utility theorists 90-92, 113-120

Defects and limitations of Schumpeter's general theory .... 90-98

Schimipeter's substitutes for social value concept 98-99

Von Mises sees circle of Wieser and Schumpeter 100

Seeks to avoid it by construing utility theory as historical,

instead of static, theory loi

But this departs from fundamentals of utility theory; other

difficulties loi-iio

Kinley's doctrine iio-iii

General criticism of utility theory iii-iiS

Davenport, Wicksteed, Fisher, Perry 113-120

Part II, The Quantity Theory Chapter VI

THE QUANTITY THEORY OF PRICES. INTRODUCTION

Preliminary statement of quantity theory, and of critical theses to be developed in following chapters. Virtually every contention and every assumption of quantity theory to be challenged 123-129

CHAPTER Vn

Quantity theory doctrine that valueless objects can serve as money; Nicholson's assumption: money made of dodo-bones 130-131

ANALYTICAL TABLE OF CONTENTS XVll

PAGE

Fisher's view also 130

And Ricardo's 131-132

Will dodo-bones circulate? Dodo-bones and poker chips;

circular reasoning 132

Both medium of exchange and standard of value must be

valuable 133

Is inconvertible paper an exception? 133-134

Doctrine that money gives legal claim to things in general . 134

Kemmerer's assumptions; money made of commodity, once

valuaWe, now used only as money 135

Commodity theory requires present commodity value 135

Historical vs. cross-section view: possibility that such money

would circulate 135-136

Value not tied up with marginal utility or commodities: social value theory; derived values often become independent of original presuppositions, in economic as

well as legal and moral spheres 136-139

But this no basis for quantity theory: social psychology, not

mechanics 139 '

"Banker's psychology" vs. psychology of blind habit: India, Austria, United States; monetary phenomena of war

times; "credit theory" of Greenbacks 139-142

Question-begging definitions 142-143

Assumptions of quantity theory: blind habit and fluid prices 143-144 Extreme commodity theory denies that money-use adds to value of money; usually not true; analysis of money-functions 144-150

Hypothetical case in which whole value of money comes from

commodity value 150-152

Money must have value apart from monetary employments, but, in general, gains additional value from employment as money ' 152-153

CHAPTER VIII

THE "equation OF EXCHANGE"

Fisher leading, most consistent, most uncompromising

quantity theorist : wide acceptance of his views 1 54

Taussig vs. Fisher i5S

XVIU ANALYTICAL TABLE OF CONTENTS

PAGE Fisher and dodo-bone doctrine: logical part of quantity

theory; Fisher's value concept 155-156

" Equation of exchange " : analysis of Fisher's version, typical

In what sense equality between two sides of equation? Meaning of "T" ; 158-161

No "goods side" to equation; both sides sums of money;

equal because identical; equation meaningless 161-162

AH factors in equation highly abstract 162-163

"P" and "T" cannot both be given independent definitions: P defined as weighted average, with T in denominator; and must be changed from year to year, as elements in T

change, even though no prices change 164-166

This makes circular theory: problem defined in terms of ex-

planation 165-166

Causal theory associated with equation of exchange r66

Equation amplified to include credit; not acceptable to Nicholson or Walker, and caricature of conditions in

Germany and France 166-170

Book-credit, bills of exchange, etc., excluded 167-170

Why a one-year period? 170-171

CHAPTER IX

THE VOLUME OF MONEY AM) THE VOLUME OF CREDIT

Mill thought credit acts on prices like money, and that this reduces quantity theory tendency to indeterminate degree; Fisher holds volume of money in circulation governs volume of credit, so that quantity theory stands .... 172 Fisher's argimaents for fixed ratio, money to bank-deposits ... 1 7 2-1 73

Argument a non-sequitur, even if contentions true 173-177

Contentions untrue: no fixed ratio between reserves and deposits, or reserves and- demand UabiHties, either in

America or Europe 177-182

Taussig's views; virtually surrender of quantity theory in -

modern conditions 182-185

Bulk of quantity theorists in between Fisher and Taussig,

but nearer to Fisher's view than to Taussig's 185

ANALYTICAL TABLE OF CONTENTS XIX

CHAPTER X

PAGE

Quantity theory qualified by distinction between "normal" and "transitional" effects of change in quantity of

money, etc i86

Meaning of distinction, and extent of qualification hard to determine: is "normal period" real period in time? How long is "transitional period"? Is it realistic, or hypothetical? Is equation of exchange realistic? Concrete vs. hypothetical price-levels : 186-189

Legitimate and illegitimate abstraction 189-190

Causation and temporal order 190-191

Fisher admits very slight qualification of "normal theory" 192

Mill's quantity theory "short run" theory; Taussig's "long

run'' theory; radically different logic in the two 192-193

Fisher's theory sometimes "long run'' and sometimes "short

CHAPTER XI

BARTER

Quantity theory spoiled if resort to barter possible and important 196

Extent of barter and other flexible substitutes for money and bank-credit; simple barter; different methods of corporate consohdations; flexibility, with state of money-market; clearing-house arrangements in speculative exchanges; offsetting book-credits 197-200

Barter made easier under money economy, by measure of

value function of money 201

Bills of exchange; foreign trade 201

CHAPTER XII

Velocity conceived by quantity theory as causal entity, independent of quantity of money and prices; necessary assumption for law of proportionality 203

XX ANALYTICAL TABLE OF CONTENTS

PAGE

"Coin- transfer" vs. "person- turnover" concepts 203-204

Velocity really non-essential by-product, meaningless average 204-205 Doctrine that velocity independent of money; habit and convenience; hoarding; hoarding by banks 205-209

Velocity and volume of trade; vary together 209-214

Value of money causally governs velocity 214-215

CHAPTER XIII

THE VOLUME OF MONEV AND THE VOLUME OJ TRADE — TRADE AND SPECULATION

Quantity theory doctrine that volume of trade, and volume of money (and credit), are independent; trade governed

by physical and technical conditions, not money 216-219

View that quantity of money vitally affects production and

trade 219

Walker, Sombart, Withers, Price, Holt 219-222

Increase of money increases trade, even on static theory:

increase of money increase of capital; lowered margin in -

exchanges; money-rates and interest; money tool of exchange; elasticity of demand for money-service; in

Arizona and New York City 222-225

Trade distinguished from production and from stock 225-226

Trade chiefly speculation; Fisher's $387,000,000,000 of trade in U. S. in 1909 analyzed; index of variation in trade; figure based on Kinley's returns from 12,000 banks;

double-counting 227-230

Figure largely represents speculation; statistics of , total wealth of U. S.; small role of wholesale and retail deposits; "all other deposits" bunched in speculative centers, especially New York; trifling "deposits" in country banks; evidence of bank-clearings: clearings and stock

speculation; clearings and ordinary business 230-241

Measurement of "ordinary trade" 241-248

Volume of stock speculation 248-251

Commodity speculation 251-252

Unorganized speculation 252-254

Bill and note speculation 255

ANALYTICAL TABLE OF CONTENTS XXI

PAGE Fisher's and Kemmerer's indicia of trade variation wholly

misleading 255-257

Production waits on trade; selling costs vs. "cost of produc->

tion"; "goodwill"; are banks useless? 257-262

"Normal vs. transitional": statics vs. dynamics; money and credit make static assumptions possible; very little trade in "normal equilibrium" or static state; volume of trade depends on transitions and dynamic changes; functional theory of money and credit must be dynamic theory; abstraction from money by, static theory; no static theory of money and credit possible; quantity theory misses whole point of money-functions 262-266

Appendix To Chapter XIII

THE RELATION OF FOREIGN TO DOMESTIC TRADE IN THE UNITED STATES

Ambiguity of "domestic trade": figures comparable with export and import figures cannot include turnovers; net income of United States, minus imports on retail basis, counted as domestic trade; exports on retail basis counted as foreign trade; net income for 1910; index of variation for other years; cautions and qualifications; ratio of foreign to domestic trade, 1890-1916 267-278

CHAPTER XIV

THE VOLUME OF TRADE AND THE VOLUME OF MONEY AND CREDIT

Interdependence of trade, and money (and credit) ; increasing

trade causes increase of money and credit 279-281

Quantity theory doctrine: Fisher vs. Laughlin 281-282

Quantity theory has no explanation of elastic bank credit:

"Currency Theory" of deposits 282-285

Loans and deposits 285-288

Bills of exchange 288-290

Summary of quantity theory doctrine 290-291

XXU ANALYTICAL TABLE OF CONTENTS

CHAPTER XV

THE QUANTITY THEORY: THE "pASSIVENESS OF PRICES"

PAGE

Heart of quantity theory: price-level cannot change without prior change in money, deposits, trade, or velocities: independently rising price-level, unable to alter trade or velocities, would drive money away, and so be unable to sustain itself; individual prices can rise independently, but other prices must fall to compensate 292-295

Criticism: argument impressive only because it assumes an uncaused rise in general price-level ; when causes assigned, prices can independently rise, compelling modification in other factors in "equation of exchange"; "transitional" and "normal" effects: instances 295-299

Quantity theory conflicts with supply and demand: supply and demand holds good: particular prices and price-level 299-300

Generalization of conflict to include cost of production,

capitalization theory, imputation theory 300

Capitalization theory vs. quantity theory; different psychological assumptions of the two theories 300-306

Cost of production vs. quantity theory; money-income vs.

quantity of money 306-308

Quantity theory false, granting all its assumptions 308-310

Doctrine that price-level independent of particular prices, and presupposed by them, false ; absolute value of money, not price-level, presupposed; price-level may change with value of money constant, through changes in absolute values of goods 310-314

CHAPTER XVI

THE QUANTITY THEORY AND INTERNATIONAL GOLD MOVEMENTS

Quantity theory holds that gold movements depend on price-levels; but price-level mere average, cause of nothing- ' 31S-316

Some prices, rising, tend to repel gold, but most prices have

no such effect 316-317

ANALYTICAL TABLE OF CONTENTS XXUl

PAGE

Some prices, rising, bring in gold 317-319

Gold movements and money-rates 319-320

CHAPTER XVII

THE QtJANTITY THEORY VS. GRESHAM's LAW 321-323

CHAPTER XVIII

THE QUANTITY THEORY AND "WORLD PRICES"

T3fpes of quantity theory: world's voliime of gold vs. quantity of money in given country; standard vs. token money; abandonment of dodo-bone theory and "equation of -exchange" 324-326

Credit does not rest on money: measure of values vs. reserves;

loansandwealth; value of money M. price-level 326-328

Loose relation of reserves and credit in world as whole; no proportionality of quantity of gold to value of gold; no quantity theory needed to assert that value of gold related to its quantity 328-330

CHAPTER XIX

STATISTICAL DEMONSTRATIONS OF THE QUANTITY THEORY — THE RE- DISCOVERY OF A BURIED CITY

Criticism of quantity theory statistics yields constructive conclusions; Mitchell and Greenbacks; Kemmerer's and Fisher's statistics of "equation of exchange"; Kemmerer's criticism of earher statistics 33I-33S

Kemmerer's and Fisher's figures all wron^ except for volume of money and deposits, and prices in base year; if correct, would not prove quantity theory 33S-337

Fisher's statistics, resting on Kemmerer's, chiefly studied:

their relation to Kinley's "deposits" figures SSISS^

M' V calculated : errors in calculation ; New York very incomplete in Kinley's figures; private banks and trust companies; clearings and "deposits," in New York and outside; "total transactions" and clearings; Fisher exaggerates country checks by at least 116 billions, for 1909; major part of all "check deposits " in New York City . . . 48-353

XXIV ANALYTICAL TABLE OF CONTENTS .

PAGE

New York as "clearing house" for United States: extent of, and influence of on New York clearings, much overestimated; bulk of New York clearings and New York "deposits" grow out of New York business 3S3~36i

Index of variation for M'V wrongly weighted; V wrongly

calculated for all years; which upsets calculation of V . . . 361-363

Volume of trade: greatly exaggerated by bank transactions, which include vast deal of duplications in checks, loans and repayments, etc 363-368

Fisher's reply; undercovmtingoSaeta oue^-counting 368-369

Main items of undercounting in clearing houses of speculative exchanges; measurement of, in New York Stock Exchange, and Chicago Board of Trade; swamped by call loan transactions, which exceed security sales 369-381

Price-indexes of Kemmerer and Fisher, dominated by wholesale prices, have no relevance to their "equations of exchange" 381-383

In general, their figures bury speculation and New York City 383

PART III. THE VALUE OF MONEY CHAPTER XX Recapitulation of constructive theses of Parts I and II, and

program of Parts III and IV 387-396

CHAPTER XXI

Problem stated , 397-401

Value vs. saleability: degrees of saleability; theory of saleability ; " buying price " vs. " seUing price " ; indirect exchange in barter economy; development of commodity of superior saleability into money 401-406

Money never unique 406-407

ANALYTICAL TABLE OF CONTENTS XXV

PAGE

Origin of gold money: ornament; store of value; social prestige of prodigality and of ornament; love of approbation, sex-impulse, and competitive display; elastic value-curve of gold; industrial employments of gold 407-413

Distribution of wealth and power, and value of gold 413-416

CHAPTER XXn

THE FUNCTIONS OF MONEY AND THE VALUE OF MONEY

Classification 417-418

Measure of values (standard of value) distinguished from medium of exchange; former does not add value to

money metal, latter does 418-424

Reserve function 424

Money as "bearer of options"; distinguished from store of value; the dynamiciunction of money par excellence; explanation of low rates on call loans, and short loans, and low yield of high grade bonds, which share "bearer of options" function; "pure rate" of interest vs. "money

rates ": Austria; the New York money market 424-432

Legal tender; the StaaUiche Theorie 432-436

Standard of deferred payments; which functions add to value

of money metal? 436

Relation of money rates to capital value of money 436-442

Agio when coinage is restricted : India vs. Western World .... 442-450 Equilibrium of gold in arts and gold as money: difficulties of

marginal analysis; the money-market phenomena 450-458

CHAPTER XXIII

Analysis rather than definition: "futurity" not essence of credit; credit part of general value system; stocks as credit instruments; juridical and accounting phases. . . . 459-462

Confidence; involved in general value phenomena as well as credit; social psychology of confidence; contagions; influence of centers of prestige; nothing unique in credit; selling vs. borrowing 462-469

XXVI ANALYTICAL TABLE OF CONTENTS

PAGE

Definition of credit; credit vs. credit transaction; credit and exchange; bulk of credit grows out of dynamic conditions 469-474

Functions of credit; increasing saleability of non-pecuniary wealth; corporate organization; limits of credit expansion 475-478

Consideration of objections: that personal loans do not rest on wealth; public loans; that value behind loan would not exist if loan were not made 478-484

Schumpeter's "heresies"; his view of the fimction of the banker: "dynamic credit"; Aiperica vs. Continental Europe 484-488

Pecuharities and functions of bank credit; technique of banking: capital; assets; reserves; "hquidity"; money market 488-496

CHAPTER XXIV

Traditional view that Uquid commercial loans normal and dominant type of bank asset disproved; cannot exceed II J^ per cent of assets of American banks; analysis of bank assets: "other loans and discounts"; stock collateral loans; loans on "other collateral security"; stocks and bonds held by banks; classes of banks; various combinations; excluding real estate loans, more than half of credit extended by State and national banks and trust companies is to stock market; rapid development of stock collateral loans: New York; Europe 498-512

Activity of different types of loans: banking assets get liquidity chiefly from stock market, and from produce speculators 512-516

Credit extended to Wall Street not at expense of ordinary

commerce; country banks and Wall Street 516-518

Federal Reserve Banks should rediscount stock collateral loans; "Money Trust" a trust in financing corporations, not ordinary commerce; panics and Federal Reserve System 520

ANALYTICAL TABLE OF CONTENTS XXvii

PAGE Quantity theory, putting all exchanges on a par, grotesque:

volume of trade and prices in the stock market 520-523

Direct and indirect financing of corporations by banks;

"margin dealer" as "banker" 523-526

Adam Smith's view of banker's functions,- and of safe bank

Correct on basis of facts of his day, but corporate organization and organized stock market have made smelting

house as liquid as consumers' goods 527

Division of labor in banking : America vs. Germany 527-528

Agriculture in money market 528-529

Reserve problem: special case of problem of liquid assets;

many flexible substitutes for cash 529-532

Causal relation runs from deposits to reserves; gold production and reserve-ratio 532-535