The great power: its origin, use, and influence. A brief explanation of the necessity for monetary reform ...

Front matter

Its Origin Use and; Influence

M, DE P, WEBB

Cornell University Library

Preface

PARADOXICAL as it may sound, money is one of those peculiar subjects which, although continually engaging a large share of men's thoughts, is nevertheless at the same time very widely neglected. Whilst practically every member of civilised society is actively endeavouring to accumulate wealth in some form or another, not one in a thousand troubles about the history, laws, or uses of the wonderful device without which not only would wealth creation be impossible, but civilisation itself would cease to be. The consequences of this neglect in the past have been most serious. Every conceivable method of trickery and fraud has been played on the people — their ignorance of the simplest facts concerning the functions of money rendering them the easy prey of both the governing and money-lending classes. In later times, when sincere efforts were made to lay down some principles regarding the nature and functions of money, owing to the

X PREFACE.

general lack of information on the subject, the theory eventually established did but little credit to the Englishman's usually alert and practical mind. It, nevertheless, had a very perceptible influence on the legislation undertaken to improve his monetary system ; and although both theory and system were defective and injurious, they were accepted by the great mass of the people of the United Kingdom practically without protest or comment. Moreover, they are current to this day.

The object of the present work is twofold : —

(i) To draw attention to the inadequacy and imperfections of the theory of money now generally received.

(2) To arouse some interest in the consequences to British industries which the continued acceptance of a monetary system based upon an inadequate and imperfect theory, must inevitably induce.

In attempting this end the author has endeavoured to set forth his arguments in the most succinct form, and with only such brief references to figures as are absolutely necessary to confirm the truth of his conclusions. Should the reader desire to go further into details, he will find much corroborative evidence in the accounts of commercial progress that appear in the Press, in the various Diplomatic and Consular Reports

PREFACE. XI

issued by the Foreign Office, in the Board of Trade Statistical Abstracts and other Returns, and in the rapidly increasing crop of currency publications now springing up on all sides.

Those who labour in far corners of the British Empire, may sometimes perceive facts that are not so clearly visible to the many at home. A residence of some years amongst the industries of the East has not only enabled the author to experience the power and utility of a monetary system other than that employed by Great Britain, but it has at the same time afforded him ocular demonstration of the check to British enterprise, and the loss to British trade, which has arisen owing solely to the recent fluctuation in the relative values of gold and silver. He claims, therefore, to speak with some authority on the practical side of his subject.

Money is the Great Power : that all admit. But in the United Kingdom there is another Great Power, without the aid of which progress is delayed, and reform indefinitely postponed : and that Power is the Press. Up to the present the greater portion of the Press has not shown much active interest in currency reform, and in this respect it has doubtless reflected popular feeling. But Blue Books and statistics are not popular forms of literature, and it is hardly to be expected that phenomena which are

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only clearly perceptible through such media will attract public attention, except by the aid of the Press. And what better subject could be found for treatment by the British Press than facts and figures in which are involved the prosperity and welfare of the British Empire }

For the ready reference of those who may desire to acquaint themselves with the exact letter of the law regarding the extent of the control over the currency exercised by the Legislature of the United Kingdom, the Coinage Acts of 1870, 1889, and 1891 are added to this work, and will be found in Appendices A, B, and C.

Bombay, 22nd June, 1897.

Chapter I

What is money ? — Diversity of opinion on the subject : consequent necessity for investigation— The origin of the value of the precious metals^The influence of. gold and silver on the actions of mankind before and after the adoption of the metals as money . . I

CHAPTER n.

The introduction and development of England's silver coins — Early currency abuses— Introduction of gold coins — The monetary difficulties of former days . l6

Chapter III

Effects of the advance of civilisation on the recognised methods of obtaining gold and silver — Grovyrth of economic ideas in England — A new conception of " wealth " — Influence of the new conception of wealth on currency legislation . . . . 31

Chapter VIII

An application of theory to fact — The recent divergence in the values of gold and silver — Cause of this divergence — Nature of the divergence — Index Numbers — Theoretical consequences of fluctuations in the value of money . . . ... 93

Chapter XII

Details to be considered in the improvement of England's monetary system — The Currency Department of State — The money of the future . ... 167

APPENDIX A.

The Coinage Act, 1870 . . . . 183

APPENDIX B.

The Coinage Act of 1889 . ... 200

APPENDIX C.

The Coinage Act of 1891 . ... 203

Virgil, ySneid III. '. . . . Money answereth all things."

Ecclesiastes x. 19.

THE GREAT POWER.

Chapter I

What is money? — Diversity of opinion on the subject — Consequent necessity for investigation — The origin of the value of the precious metals — The influence of gold and silver on the actions of mankind before and after the adoption of the metals as money.

WHAT is money? The question appears too simple to require a moment's thought. We all know what money is. We are handling it every minute of the day either in the form of coins of bronze, silver or gold ; or if not actually in coins, then in bank notes, cheques, bills, or some other substitute for coins. Money is simply the means whereby we get what we want : or to be perhaps more accurate, money is the only means whereby we can get practically everything we want. This is a matter of such common experience that it hardly appears open to question.

And yet if we turn for a moment to the conclusions of some of the most eminent writers on the subject, we shall find a diversity of opinion so marvellous as to almost shake our belief in the evidence of our senses. Although nearly every philosopher from Aristotle to Herbert Spencer tacitly admits that money is the means whereby we get what we want, hardly any two agree exactly as to the nature and functions of the invention. Some say that it is simply a medium of exchange ; others that it is a device created by the State to measure values. Locke and his followers considered money to be the most substantial and desirable form of wealth. Adam Smith and the modern school of economists, on the other hand, considering money to be simply a contrivance for facilitating ■ the operation of barter, argued that it was the least desirable form of wealth, even if it could be considered wealth at all. Whence money derives its value currency writers even to this day are unable to agree. John Stuart Mill, with Bastiat, McCulloch, Ricardo, and other eminent economists, maintained that it was a commodity: and that its value, like that of all other commodities, depended temporarily upon demand and supply, and permanently, and on the average, upon cost of production. Others contended that money was simply a counter representative of commodities and services,. and that its value was determined by the number of counters in circulation— a matter, the regulation of which was in the hands of the State. This last opinion is very generally supported by American writers and by others who have experienced the conveniences of a paper currency. Mr. Alexander del Mar, for instance, argues that value is given to money solely by the law which makes it legal tender, and claiming that most of the authorities, ancient and modern, recognise this fact, calls upon the world to discontinue the use of the precious metals and to henceforth adopt paper.*

Amidst this sea of contention the ordinary reader is very apt to lose sight of the familiar landmarks of common experience, and in consequence, to be stranded amongst the absurdities to which modern economists have reduced the theory of money. Forgetting the old dramatist's description of it as

"... the strength, the sinews of the world, The health, the soul, the beauty most divine, . . . Heaven's physic, life's restorative," — t

a description to the accuracy of which men's actions to this day fully testify, — some modern writers have been so far seduced by the delusive logic of the economists of the first half of the present century as to treat money solely as a device that enables the unequal exchanges of services, merchandise, &c., between man and man, to be conveniently and expeditiously

* Vide The Science of Money, London, 1896. t Thomas Dekker's Old Fortunatus, adjusted. * If money plays no more important part in the economy of life than of a "machine for doing quickly and commodiously what would be done, though less quickly and commodiously, without it,"t why then have poets in all ages and ■ in all countries sung in praise of its almost illimitable power .-' Why do many earnest men call it a blessing : and others equally earnest, a curse .''

The truth is, the subject has not yet been popularly and practically investigated. Those philosophical writers who have set themselves to elucidate the mystery, have very . obviously lost sight of some of the facts of which men of business have every-day experience. Men of .business, on the other hand, perceiving that " Money makes the mare go," have rested content in the endeavour to accumulate such gold, silver, or paper wealth as would enable them to obtain all they required. The result has been that the great economists, in tracing money to its origin and in finding the motives that first led to its adoption, have argued that those same motives explain the laws of the complicated invention we are using to-day ; whilst men of business, occupied mainly with their efforts to accumulate money, have lost sight of the fact that money is considerably more than "an instrument of purchase." The

• Vide Mr. DUNNING McLeod's Elements of Banking. t J. S. Mill.

economists have, in short — to borrow a wellknown metaphor — described the steam engine as though it were a tea kettle, and men of business have become so familiar with one kind of engine that they have forgotten to how many uses steam can be, and has been, applied.

It is very necessary, therefore, that the matter should be further investigated, for, as beforementioned, the neglect so to do has led to the most serious consequences in the past, and may be so doing again. The great majority are in the habit of taking such money as they can get, much as they do the air they breathe, asking nothing about it, and hardly realizing its vital importance. When a resident of the tropics happens to be consumed by a fever that medicine cannot arrest, the doctor will at length probably tell him that the locality in which he is living is an unhealthy one, that there is malaria in the air, and that he must therefore have a change of climate. This may be the truth, although neither eyes nor nose can detect the poison. Similarly in the United Kingdom if business profits are not all that can be desired, and repeated doses of "foreign competition" and "over-production" do not afford a satisfactory solution to the difficulty, it may possibly be to the interest of the suffering merchant to listen to the currency doctors, who say that the money he is using is out of order (although he cannot perceive the fact), and that the only thing that will cure him is a change of financial atmosphere. Some such currency doctor may say, " Go to South America," or "Take a factory in Mexico," or " Transfer your mill to Bombay ; that is the only cure." In proof of the healthy condition of the industries of the East, such a doctor may probably refer to Japan and China, where progress is now being made at a pace that, if widely realized, would probably arouse the attention of the great commercial nations of Europe.*

All this may or may not be true. If we reflect that the air is an element of the universe in the origin of which man has had no hand, whereas money is a human device, controlled to this day by human power, there are reasons for believing that the latter is more likely to be out of order than the former. In any case it is hardly wise to entirely neglect all study of that which the majority of the human race are so continuously struggling to possess, and on the acquisition of which civilised existence so largely depends.

What then is money .■' The late Professor Walker, the eminent American economist,, said that " Money is as money does." Although this observation applies with equal truth to

• Vide Foreign Office Diplomatic and Consular Reports, Nos. 1779, 1786, 1803, 181 1, 1824, &c.

every instrument man has devised, it nevertheless serves to direct attention to the necessity throughout this enquiry of testing theory by reference to fact — a precaution very generally omitted by modern economists and currency writers. Had Jean Baptiste Say, for instance, tried his theories by such a touchstone he could never have given assent to so absurd a dogma as that commodities are purchased with commodities ; nor could Mr. (now Sir) Robert Giffen have so deceived himself as to believe that gold and silver remain subject to exactly the same laws of exchange after they are converted into money, as before : for facts most emphatically contradict both contentions.* At the same time, when endeavouring to discover what money is, by a reference to what it does, we cannot be too careful to assure ourselves that the facts to which we turn are those of which the world is at this day having experience. It is of no more practical use to establish a theory which only satisfies a condition of affairs that existed in bygone ages, than it is to construct one which can only be turned to account in a Utopia of enlightened and perfect mortals, such as we are never likely to see. Yet eminent English economists have done the former, and almost equally eminent American writers have advocated the latter,

* Vide "A Problem in Money," Nineteenth Century, November, 1889; also, "The Case Against Bimetallism."

to the indescribable confusion of all who are desirous of a clear understanding of the subject. A theory of money to be of any practical value must stand the test of a reference to facts around us at this day — facts not peculiar to one locality or one nation, but facts that are of common experience in every part of the world. To construct such a theory must be our first endeavour.

With these preliminary words of caution in our minds we cannot begin better than by turning to history for information as to the money used in the past, and the views held regarding that money. It is not necessary for our purpose to speculate on the idiosyncrasies of the human animal, which find expression in his propensity to truck and barter, and his inclination for personal ornament ; suffice it to say that both peculiarities are facts that we must recognise and take into consideration if we wish to understand our subject. As the desire for personal ornament, and for the "kind of distinction which is obtained by variety or costliness in such ornaments," ranks only second in strength, amongst the majority of the human race, to those other appetites which we possess, in common with all members of the animal creation, we can conclude that when our earliest forefathers first commenced to truck and barter, the objects of their exchanges consisted largely of articles which served to gratify this peculiar desire. Such evidence as we can gather from the condition in which modern discoverers have found the aboriginal inhabitants of Africa, America, and Australia, not only corroborates this conclusion, but at the same time informs us of the nature of those objects which have especially gratified the vanities of primitive man. Peculiar shells, glittering stones, and metals of bright colours, have always been greatly esteemed ; but above all, gold and silver are metals to which mankind in all parts of the world have invariably paid unusual consideration. Not only are these metals comparatively rare, but they are of a more splendid appearance than all the others ; their beauty is not readily disfigured by rust, and they are practically indestructible by air, fire, or water ; they are easily workable, and are consequently as useful as they are beautiful ; finally, he who possessed them was always sure of the envy and admiration of his fellow-men. Can we be surprised under these circumstances that gold and silver have always been in universal demand ?

Of the actual period when money was first used we have no authentic record. The device was probably known to the Chinese nearly 5000 years ago. It will not be necessaryj however, to go back to this remote period, as the object we have in view will be sufficiently served by a brief reference to what has occurred in more recent times. Trading by the aid of some metallic go-between was an established custom long before either gold or silver became sufficiently abundant to enable them to be employed as money ; yet even in such early periods the desire for the precious metals for ornamental and other purposes was sufficiently powerful to induce men to risk their lives in the effort to obtain the fascinating gold and silver. The invasion of the southern shores of Europe by the Phoenicians, seventeen or eighteen centuries before the Christian era, was in a great measure prompted by that thirst for wealth which found gratification in the acquisition of the more precious metals. The great value which the desires — vain and otherwise — of mankind had already given to gold and silver, received an almost incredible addition when, for irresistible reasons, practically the whole world at length decided to make use of these metals as money. The demand for them, which before had been measured by the extent of human vanity, now increased beyond all bounds. At first the value of the new money was determined by the strength of the demand for the precious metals for ornamental purposes : but as the desire for money gradually outstripped this demand, the position was reversed, and the value of the gold and silver freshly unearthed was at length determined by the purchasing power of those metals when con-

THE GREAT POWER. II

verted into money. And so it remains to this day. Senior, in one of his lectures on the value of money, observes : " The value of the precious metals as money must depend ultimately on their value as materials of jewellery and plate, since if they were not used as commodities they could not circulate as money." But Senior is obviously wrong, for if either metal should prove more useful, or be more widely sought for as a commodity than as money, it would very soon disappear from circulation as coin. And this is a fact that cannot too strongly be impressed upon the mind : for it enables us to clearly perceive that gold and silver, although in wide demand for ornamental and other purposes, nevertheless now derive the greater part of their value from that legislation by the operation of which their use as money has been so generally confirmed.

Wherever the institution of money has become thoroughly established, there, those who possessed sufficient money, have generally been able by its aid to obtain from their immediate neighbours such necessaries and luxuries as they required, and as were considered desirable in the age and locality in which they lived. When the money consisted simply of pieces of iron, tin, or copper, bearing a seal or stamp indicative of their weight, it was only received by those who recognised the authority conveyed by the stamp, or by those who were satisfied of the commercial value of the iron, tin, or copper as metals. The use of such money was therefore of necessity restricted to certain peoples in certain districts. As soon as silver and gold became sufficiently abundant to be utilised as instruments of commerce and warfare, every government endeavoured to manufacture its money of those more precious metals ; for whether the stamp of authority was recognised or not, the silver and gold in themselves commanded the services of practically every people in every part of the world. And as the significance of this fact came to be more widely understood, so the desire for the gold and silver increased. Every man longed for that money the possession of which not only brought him admiration and envy, but at the same time enabled him to obtain whatever his fancy dictated. If he were a merchant he could purchase such articles of commerce as yidded in their sale sufficient profit to enable him to add to the stock of money he already possessed, and to the fame and luxury that generally accompanied wealth of this nature ; if he were a monarch he could gratify his various extravagances how and where he liked, even to the extent of buying men who, at the risk of their lives, would attack and seize for him the territories and riches of other monarchs. With such facts in common evidence, can we wonder that people, statesmen, philosophers, and kings were all agreed that silver and gold were the most useful and powerful forms of wealth? And can we be surprised, considering the nature of semi-civilised man, that all classes who could do so, joined hands in a selfish and often brutal struggle to possess themselves of these precious metals ?

The struggle was carried on in a variety of ways, according to the circumstances of the moment. At one time it was by pillage and treachery: at another, by cunning and barbarous legislation. Just as the thirst for metallic wealth explains in a large measure the invasion of Europe by the Phoenicians, so the desire for gold and silver explains the conquest and plunder of America by the Spaniards. It is true that Columbus, when he set forth on his memorable expedition, thought to find a shorter route to those East Indies the rich products of which had for centuries aroused the cupidity of the people of the West ; but the reports he brought back to the sovereigns of Castile and Arragon of the mineral wealth of the new lands he had discovered, although absurdly exaggerated, were nevertheless productive of most wonderful and far-reaching results. As the inhabitants of the West Indies did not appear to be able to defend themselves, the Council of Castile determined to take possession of the islands. The pious purpose of converting the people to Christianity sanctified the project, but the real and sole motive was the hope of finding gold. All the other Spanish enterprises in the New World, subsequent to the expedition of Columbus, appear to have been prompted by the same motive. " It was the sacred thirst of gold that carried Oieda, Nicuessa, and Vasco Nunes de Bilboa to the Isthmus of Darien, that carried Cortez to Mexico, and Almagro and Pizarro to Chili and Peru. , . . Every Spaniard who sailed to America expected to find an Eldorado. Fortune, too, did upon this what she has done upon very few other occasions : she realized in some measure the extravagant hopes of her votaries, and in the discovery and conquest of Mexico and Peru . . . she presented them with something not very unlike that profusion of the precious metals which they sought for."* Although the barbarities and treachery which were characteristic of the military enterprises undertaken by the Spaniards in America, could not, owing to the superior ability of the people to defend themselves, be enacted in Europe, the insatiable greed and disgraceful extravagances of the reigning monarchs led to other courses, whereby it was hoped that the precious metals might be acquired and retained. As these courses were of a nature that seriously affected the coins in every-day use, and as they were productive of consequences that eventually led to the adoption of the monetary system we now

* Adam Smith, Wealth of Nations, Book iv., chap. vii.

employ, it will be necessary to glance at them somewhat in detail.

In the meantime the two facts that must be carefully noted are : —

(i) That gold and silver have always been in wide demand, and have therefore considerably influenced men's actions, before they were utilised as money.

(2) That after the general adoption of those metals as legal instruments of commerce and effective aids to warfare, the demand for them became practicably insatiable, and their powers, consequently, all but irresistible.

Chapter II

The introduction and development of England's silver coins — Early currency abuses — Introduction of gold coins — The monetary difficulties of former days.

FOR about a thousand years the English people have been familiar with the use of silver in their currency. Coins made of this metal were first introduced by the Saxons in the ninth century, and were found to be still current at the time of the Norman Conquest. Anterior to the Saxon invasion Roman coins of copper were in circulation, together with certain brass and iron money manufactured by the early Britons.* William the Conqueror allowed the Saxon money to circulate, but, following the usual custom of conquerors, he issued his own money, — silver "pennies," — weighing about eighteen grains, f and of the same size as the Saxon pennies. The silver pennies issued by William I. and by the subsequent kings of England, formed for some centuries the basis of England's currency system.

* C/ESAr's Commentaries, Book v., chap. x. t History of Money in Ancient Countries, Alexander DEL Mar.

i6

It will be useful to note here the primitive methods employed in the manufacture of money in those early times. Two wooden blocks were prepared, and in each of these blocks was fixed a die, one to give the impression on the obverse, the other on the reverse of the coin. One of the wooden blocks was fastened to a bench, the other was fitted with a handle. The metal was first divided with shears, laid on the lower block, then heavily struck again and again, until a sufficiently good impression was made. It necessarily followed from the rudeness of the implements employed, that the " pennies " when completed were but very poor coins in comparison with those we are now accustomed to use. Some contained a little more, some a little less than the right quantity of silver ; the edges of the pieces were not marked at all, whilst but very few of the coins were exactly round. Yet this primitive method of making money was not improved upon until late in the sixteenth century. It can be readily understood that with coins of such very poor workmanship in circulation, fraud of every description in connection with the currency was not only possible, but was actually of frequent occurrence. Goldsmiths and others used to clip pieces of silver from the pennies and otherwise partially destroy them. The " moneyers " whom the king employed to manufacture his coins, very often themselves surreptitiously issued coins of ligh^ c weight, and so caused inconvenience and dissatisfaction amongst the people. On other occasions the king himself, when in want of money, would not hesitate to adopt the fraudulent device of reducing the weight of his coins, whilst still continuing to stamp them as before, thus gaining a certain amount of silver at the expense of his subjects. With such practices in vogue, we cannot be surprised that the money of those days was always more or less in a state of confusion. So long as the people could be induced to accept light-weight coins, it is obvious that even if good money were issued by the king it would soon be clipped, or so reduced in weight, as to make it correspond with the worse kind of money current ; and with the silver dealers, the moneyers, and the king himself always tampering with the coins, we must expect to find continual currency difficulties. It is well to -bear these facts in mind, as they go far to explain much of the legislation afterwards taken in the effort to establish a thoroughly sound monetary system.

We are accustomed at the present day to call the sovereign a " pound," but the original pound sterling was a pound weight of silver. No silver pounds were ever struck, but as twelve silver pennies equalled one shilling, and twenty shillings were considered the equivalent of one pound, we can infer that 240 silver pennies were originally supposed to represent one pound of silver.