THE BANKING LAW JOURNAL

DEVOTED TO BANKING, FINANCE AND LAW.

Published Monthly at 27 Thames Street, N. Y. City. Telephone Rector 2610

ALFRED F. WHITE.

VOL, XXX. MAY, 1913.

What Is Money ?
As announced in the April number of the JoURNAL, we print on other
pages of this issue the paper of Mr. A. Mitchell Innes on the question
of money, and commend it to the thoughtful consideration of our read-
ers without further discussion at this time than to say that, if Adam
Smith was in error in his conception of the fundamentals, and all other
economists followed him without critical examination of his data, a con-
tention that appears to be proved by historical citations in the paper
herein presented, the entire theory built up on those fundamentals
must be revised, and in the revision new light is likely to come to us.
We invite serious discussion of the paper by our readers, to the end
that such new light may be thrown upon the subject. Fair and free
discussion is the true way to get at results.

Attacking Speciat Secretary McAdoo of the Treasury has given an

Privileges. example of the purpose of the Wilson Adminis-
tration to cut out special privileges, a number
of which grew up during the Republican reign and have been allowed
to continue. The particular item of privilege was that given to the
National City Bank of New York, (colloquially known as the chief Stand-
ard Oil Bank) to have a clerk located in the Treasury to get a first
‘look in’’ in the reports of national banks as they came in to the office
of the Comptroller of the Currency five times a year, and incidentally
gather such other valuable information as might be thus obtained.
This privilege was one that several hundred banks would have been
glad to get; but it was handed over exclusively to the City Bank repre-
sentatives, and evidently fora reason. The plea has been made for
the Bank that the information contained in the reports is published in
the local papers throughout the country, and this method was merely
to enable the Bank to get the information more easily. Even if this
were entirely sincere several hundred other banks were entitled to the
same privilege, but that would have been out of the question. But in
 WHAT IS MONEY?
By A. MitcHet. INNEs.
—
The fundamental theories on which the modern science of political
economy is based are these:
That under primitive conditions men lived and live by barter;
That as life becomes more complex barter no longer suffices as a
method of exchanging commodities, and by common consent one
particular commodity is fixed on which is generally acceptable, and which
therefore, everyone will take in exchange for the things he produces or
the services he renders and which each in turn can equally pass on to
others in exchange for whatever he may want;
That this commodity thus becomes a ‘“‘ medium of exchange and
measure of value.”
That a sale is the exchange of a commodity for this intermediate
commodity which is called ‘‘ money;”’
That many different commodities have at various times and places
served as this medium of exchange,—cattle, iron, salt, shells, dried cod,
tobacco, sugar, nails, etc. ;
That gradually the metals, gold, silver, copper, and more especially
the first two, came to be regarded as being by their inherent qualities
more suitable for this purpose than any other commodities and these
metals early became by common consent the only medium of exchange;
That a certain fixed weight of one of these metals of a known fineness
became a standard of value, and to guarantee this weight and quality it
became incumbent on governments to issue pieces of metal stamped with
their peculiar sign, the forging of which was punishable with severe
penalties;
That Emperors, Kings, Princes and their advisers, vied with each
other in the middle ages in swindling the people by debasing their coins,
so that those who thought that they were obtaining a certain weight
of gold or silver for their produce were; in reality, getting less, and
that this situation produced serious evils among which were a de-
preciation of the value of money and a consequent rise of prices in
proportion as the coinage became more and more debased in quality or
light in weight;
That to economize the use of the metals and to prevent their constant
transport a machinery called “ credit ’? has grown up in modern days,
by means of which, instead of handing over a certain weight of metal
at each transaction, a promise to do so is given, which under favorable
circumstances has the same value as the metal itself. Credit is called a
substitute for gold.
So universal is the belief in these theories among economists that they
have grown to be considered almost as axioms which hardly require
proof, and nothing is more noticeable in economic works than the scant
378 THE BANKING LAW JOURNAL

historical evidence on which they rest, and the absence of critical exam-
ination of their worth.
Broadly speaking these doctrines may be said to rest on the word of
Adam Smith, backed up by a few passages from Homer and Aristotle and
the writings of travelers in primitive lands. But modern research in the
domain of commercial history and numismatics, and especially recent
discoveries in Babylonia, have brought to light a mass of evidence which
was not available to the earlier economists, and in the light of which it
may be positively stated that none of these theories rest on a solid basis
of historical proof—that in fact they are false.
To start, with Adam Smith’s error as to the two most generally quoted
instances of the use of commodities as money in modern times, namely
that of nails in a Scotch village and that of dried cod in Newfoundland,
have already been exposed, the one in Playfair’s edition of the Wealth
of Nations as long ago as 1805 and the other in an Essay on Currency
and Banking by Thomas Smith, published in Philadelphia, in 1832; and
it is curious how, in the face of the evidently correct explanation given
by those authors, Adam Smith’s mistake has been perpetuated.
In the Scotch village the dealers sold materials and food to the nail
makers, and bought from them the finished nails the value of which was
charged off against the debt.
The use of money was as well known to the fishers who frequented
the coasts and banks of Newfoundland as it is to us, but no metal cur-
rency was used simply because it was not wanted. In the early days of
the Newfoundland fishing industry, there was no permanent European
population; the fishers went there for the fishing season only, and those
who were not fishers were traders who bought the dried fish and sold to
the fishers their daily supplies. The latter sold their catch to the traders
at the market price in pounds, shillings and pence, and obtained in return
a credit on their books, with which they paid for their supplies. Balances
due by the traders were paid for by drafts on England or France. A
moment's reflection shows that a staple commodity could not be used as
money, because ex hypothesi, the medium of exchange is equally receivable
by all members of the community. Thus if the fishers paid for their
supplies in cod, the traders would equally have to pay for their cod in
cod, an obvious absurdity.
In both these instances in which Adam Smith believes that he has dis-
covered a tangible currency, he has, in fact, merely found—credit.
Then again as regards the various colonial laws, making corn, tobacco,
etc., receivable in payment of debt and taxes, these commodities were
never a medium of exchange in the economic sense of a commodity, in
terms of which the value.of all other things is measured. They were to
be taken at their market price in money. Nor is there, as far as I know,
any warrant for the assumption usually made that the commodities
thus made receivable were a general medium of exchange in any sense
of the words. The laws merely put into the hands of debtors a method
 WHAT IS MONEY 379

of liberating themselves in case of necessity, in the absence of other more

usual means. But it is not to be supposed that such a necessity was of
frequent occurrence, except, perhaps in country districts far from a town
and without easy means of communication.
The misunderstanding that has arisen on this subject is due to the
difficulty of realizing that the use of money does not necessarily imply the
physical presence of a metallic currency, nor even the existence of a
metallic standard of value. We are so accustomed to a system in which
the dollar or the sovereign of a definite weight of gold corresponds to a
dollar or a pound of money that we cannot easily believe that there could
exist a pound without a sovereign or a dollar without a gold or silver
dollar of a definite known weight. But throughout the whole range of
history, not only is there no evidence of the existence of a metallic stand-
ard of value to which the commercial monetary denomination, the ‘money
of account ”"’ as it is usually called, corresponds, but there is overwhelming
evidence that there never was, a monetary unit which depended on the
value of a coin or on a weight of metal; that there never was,
until quite modern days, any fixed relationship between the mon-
etary unit and any metal; that, in fact, there never was such
a thing as a metallic standard of value. It is impossible within
the compass of an article like this to present the voluminous evidence
on which this statement is based; all that can be done is to offer a sum-
mary of the writer’s conclusions drawn from a study extending over
several years, referring the reader who wishes to pursue the subject
further to the detailed work which the writer hopes before long to
publish
The earliest known coins of the western world are those of ancient
Greece, the oldest of which, belonging to the settlements on the coast of
Asia Minor, date from the sixth or seventh centuries B. C. Some are
of gold, some of silver, others are of bronze, while the oldest of all are of
an alloy of the gold and silver, known as electrum. So numerous are the
variations in size and weight of these coins that hardly any two are alike,
and none bear any indication of value. Many learned writers, Barclay
Head, Lenormant, Vazquez Queipo, Babelon, have essayed to classify
these coins so as to discover the standard of value of the different Greek
States; but the system adopted by each is different; the weights given by
them are merely the mean weight calculated from a number of coins, the
weights of which more or less approximate to that mean; and there are
many coins which cannot be made to fit into any of the systems, while the
weights of the supposed fractional coins do not correspond to those of the
units in the system to which they are held to belong. As to the electrum
coins, which are the oldest coins known to us, their composition varies
in the most extraordinary way. While some contain more than 60 per
cent of gold, others known to be of the same origin contain more than 60
per cent of silver, and between these extremes, there is every degree of
alloy, so that they could not possibly have a fixed intrinsic value. All
380 THE BANKING LAW JOURNAL

writers are agreed that the bronze coins of ancient Greece are tokens,
the value of which does not depend on their weight.
All that is definitely known is that, while the various Greek States
used the same money denominations, stater, drachma, etc., the value of
these units differed greatly in different States, and their relative value
was not constant,—in modern parlance the exchange between the different
States varied at different periods. There is, in fact, no historical evidence
in ancient Greece on which a theory of a metallic standard can be based.
The ancient coins of Rome, unlike these of Greece, had their distinc-
tive marks of value, and the most striking thing about them is the extreme
irregularity of their weight. The oldest coins are the As and its frac-
tions,and there has always been a tradition that the As, which was divided
into 12 ounces, was originally a pound-weight of copper. But the Roman
pound weighed about 3273 grammes and Mommsen, the great historian
of the Roman mint, pointed out that not only did none of the extant coins
(and there were very many) approach this weight, but that they were
besides heavily alloyed with lead; so that even the heaviest of them,
which were also the earliest, did not contain more than two-thirds of a
pound of copper, while the fractional coins were based on an As still
lighter. As early as the third century B.C. the As had fallen to not more
than four ounces and by the end of the second century B.C. it weighed
no more than half an ounce or less.
Within the last few years a new theory has been developed by Dr.
Haeberlin, according to whom the original weight of the As was based
not on the Roman pound but on what he calls the ‘‘Oscan”’ pound,
weighing only about 273 grammes; and he seeks to prove the theory by
taking the average of a large number of coins of the different denomina-
tions. He certainly arrives at a mean weight pretty closely approxima-
ting his supposed standard, but let us look at the coins from which he
obtains his averages. The Asses which ought to weigh a pound, vary in
fact from 208 grammes to 312 grammes with every shade of weight be-
tween these two extremes. The Half-Asses, which ought to weigh 136.5
grammes weigh from 94 grammes to 173 grammes; the Thirds-
of-an-As, which ought to weigh 91 grammes, weigh from 66 grammes
to 113 grammes, and the Sixth-of-an-As, weigh from 32 grammes
to 62 grammes, and so on for the rest. This, however, is not the only
difficulty in accepting Haeberlin’s theory, which is inherently too im-
probable and rests on too scant historical evidence to be credible. An
average standard based on coins showing such wide variations is in-
conceivable; though coins may and do circulate at a nominal
rate greater than their intrinsic value as bullion they cannot cir-
culate at a rate below their intrinsic value. They would, in this
case, as later history abundantly proves, be at once melted and
used as bullion. And what would be the use of a standard coin-weight
which showed such extraordinary variations? What would be the use of
a vard-measure which might be sometimes two foot six and sometimes
 WHAT IS MONEY 381

three foot six, at the whim of the maker; or of a pint which might some-
times be but two-thirds of a pint and sometimes a pint and a half?
I have not space here to go into the ingenious hypothesis by which
Haeberlin explains the subsequent reduction of the As, at first to one-half
the Oscan pound and then gradually sinking as time went on; both of
our historians are agreed that from about B.C. 268 the copper coins were
mere tokens and that both heavy and light coins circulated indiscrimi-
nately.
Up to this time the As had been the fixed monetary unit, however
much the coins may have varied; but from now on the situation is com-
plicated by the introduction of several units or ‘‘ monies of account,”
which are used at the same time,* the Sesterce or Numus, represented
by a silver coin identical in value with the old As Aeris Gravis or Libral
As, as it was sometimes called; a new As worth two-fifths of the old As,
and the Denarius worth ten of the new Asses and therefore four Libral
Asses, and represented, like the Sesterce, by a silver coin.
The coining of the Sesterce was soon abandoned and it only reap-
peared fitfully much later on as a token coin of bronze or brass. But as
the official unit of account it continued till the reign of the Emperor
Diocletian in the third century of our era, and we thus get the remarkable
fact that for many hundreds of years the unit of account remained un-
altered independently of the coinage which passed through many
vicissitudes.
As a general rule, though there were exceptions, the silver Denarii
remained of good metal until the time of Nero who put about ten per
cent of alloy in them. Under subsequent Emperors the amount of
alloy constantly increased till the coins were either of copper with a small
amount of silver, or were made of a copper core between two thin plates
of silver, or were mere copper coins distinguishable from the other copper
coins only by the devices stamped on them; but they continued to be
called silver.
Whether or not the silver Denarius was intrinsically worth its nominal
value or not is a matter of speculation, but fifty years later, according
to Mommeen, the legal value of the coin was one-third greater than its
real value, and a gold coin was for the first time introduced rated at far
above its intrinsic value.
In spite of the degradation of the coin, however, the Denarius, as a
money of account, maintained its primitive relation to the Sesterce, and
it remained the unit long after the Sesterce had disappeared.
Gold coins were but little used till the time of the Empire, and though,
as a general rule, the quality of the metal remained good, the average
weight, decreased as time went on, and the variations in their weight,
even in the same reign, were quite as remarkable as in the others.
For example in the reign of Aurelian the gold coins weighed from three-
*The same phenomenon of more than one monetary unit at the same time is
common in later ages.
382 THE BANKING LAW JOURNAL

and-a-half grammes to nine grammes, and in that of Gallienus from four-

fifths of a gramme to about six-and-three-quarters grammes, without any
difference greater than half a gramme between any one coin and that
nearest it in weight.
There can hardly be stronger evidence than we here get that the
monetary standard was a thing entirely apart from the weight of the
coins or the material of which they were composed. These varied con-
stantly, while the money unit remained the same for centuries.
An important thing to remember in reference to Roman money is
that, while the debased coins were undoubtedly tokens, there is no
question of their representing a certain weight of gold or silver. The
public had no right to obtain gold or silver in exchange for the coins.
They were all equally legal tender, and it was an offense to refuse them;
and there is good historical evidence to show that though the govern-
ment endeavored to fix an official value for gold, it was only obtainable
at a premium.
The coins of ancient Gaul and Britain are very various both in types
and in composition, and as they were modelled on the coins in circulation
in Greece, Sicily and Spain, it may be presumed that they were issued
by foreign, probably Jewish, merchants, though some appear to have
been issued by tribal chieftains. Anyhow, there was no metallic standard
and though many of the coins are classed by collectors as gold or silver,
owing to their being imitated from foreign gold or silver coins, the so-
called gold coins more often than not, contain but a small proportion of
gold, and the silver coins but little silver. Gold, silver, lead and tin all
enter into their composition. None of them bear any mark of value, so
that their classification is pure guess-work, and there can be no reason-
able doubt but that they were tokens.
Under the Frankish Kings, who reigned for three hundred years
(A. D. 457-751), the use of coins was much developed, and they are of
great variety both as to type and alloy. The monetary unit was the Sol
or Sou, and it is generally held that the coins represented either the Sou
or the Triens, the third part of a Sou, though, for the purposes of accounts
the Sou was divided into twelve Denarii. They are of all shades of alloy
of gold with silver, from almost pure gold to almost pure silver, while
some of the silver coins bear traces of gilding. They were issued by the
kings themselves or various of their administrators, by ecclesiastical
institutions, by the administrators of towns, castles, camps, or by
merchants, bankers, jewellers, etc. There was, in fact, during the whole
of this period, complete liberty of issuing coins without any form of official
supervision. Throughout this time there was not a single law on the cur-
rency, and yet we do not hear of any confusion arising out of this liberty.
There can be no doubt that all the coins were tokens and that the
weight or composition was not regarded as a matter of importance.
What was important was the name or distinguishing mark of the issuer,
which is never absent.
 \\'HAT I l\IONEY

I have made this rapid survey of early coinages to show that from
the beginning of the ris of the art of coining metal, there is no evidence
of a metallic standard of value, but later history, especially that of
France up to the Revolution, demonstrates with such singular clearness
the fact that no such standard ever existed, that it may be said without
exaggeration that no scientific theory has cwr been put forward which
was more completely lacking in foundation. If, in this article, I con­
fine myself almost cxclusi,·cly to French history, it is not that other
historic contain anything which uld disprove my ntention,­
indeed all that is known to me of English, German, Italian, :\lohammedan
and Chinese history amply support it,-but the characteristic phenomena
of the monetary situation are strongly marked in Fran , and the old
records contain more abundant evidence than seems to be the case in
other countries. :\loreo,·er, French historians have devoted more atten­
tion to this branch of history than, far as I know, those of other
countri s. We thus get from French history a peculiarly clear and con­
nected account of the monetary unit and its connection with commerce
on the one hand and the coinage on the other. But the principles of
money and the methods of commerce arc identical the world over, and
whatever history we choose for our study, we shall b carried to the same
conclusions.
The modem monetary history of France may be held to date from the
accession of the Carolingian dynasty at the end of the eighth century.
The Sou and the Denarius or Denier its twelfth part, continued to be
used for money computation, and there was added a larger denomination,
the Livre, diYided into twenty Sous, which b came the highest unit,
and these denominations subsist d right up to th R volution in 1 79.
The English pound, di\;ded into twenty shillings and 2-10 pence corres­
ponds to the LiYre and its di\; ions, from which the British sy tern seems
to b derivcd.
Le Blanc, the seventeenth century historian f the French coinage
avers, and later authorities have followed him, that th /it•re of money
was originally a pound-weight of silver, just as English historians ha,·e
maintained that the English money pound ,;•as a pound of silver. He
supports his contention by a few quotations, which do not necessarily
bear the meaning he gfrcs them, and there is no direct cvidC't1CC' in favor
of the statement. In the first place there never was a coin equivalent
to a lit•re, nor till long after Carolingian times w s th re one equivalC'nt
to a so11.• The only Royal coin at that time, so far Wt' knm , was the
denier, and its value, if it had a fixed value, is unknown. The word
denier, wh n applied to coin, just as the English penny, frc:-qucntly mc:-ans
merely a coin in gen ral, without reference t its value, and coins of
many different values were called by these names. l\Ioreov r, the
deniers of that time vary in weight and to some extent in alloy, and we
*The Gros Tournois of the thirteenth century. It did not, however, long
remain of the value of a sou.
384 THE BANKING LAW JOURNAL

know positively from a contemporary document that the term livre

as applied to a commercial weight, was not identified with any single
weight but was merely the name of a unit which varied in different
communities. The fact is that the wish to prove the identity between a
livre of money and a livre of weight is father to the thought. We know
nothing on the subject, and when some time later we do obtain a certain
knowledge, the livre and the pound of money were by no means the
equivalent of a livre or a pound weight of silver. What we do know for
certain is that the Sol and the Denier in France and the Shilling and the
Penny in England were the units of account long before the Livre and the
Pound came into use, and could not have been related to a weight of silver.
There are only two things which we know for certain about the Caro-
lingian coins. The first is that the coinage brought a profit to the issuer.
When a king granted a charter to one of his vassals to mint coins, it is
expressly stated that he is granted that right with the profits and emolu-
ments arising therefrom. The second thing is that there was consider-
able difficulty at different times in getting the public to accept the coins,
and one of the kings devised a punishment to fit the crime of refusing
one of his coins. The coin which had been refused was heated red-hot
and pressed onto the forehead of the culprit, ‘“‘ the veins being uninjured
so that the man shall not perish, but shall show his punishment to those
who see him.’”’ There can be no profit from minting coins of their full
face value in metal, but rather a loss, and it is impossible to think that
such disagreeable punishments would have been necessary to force the
public to accept such coins, so that it is practically certain that they
must have been below their face value and therefore were tokens, just
as were those of earlier days. It must be said, however, that there is
evidence to show that the kings of this dynasty were careful both of
the weight and the purity of their coins, and this fact has given
color to the theory that their value depended on their weight
and purity. We find, however, the same pride of accuracy with the
Roman mints; and also in later days when the coinage was of base metal,
the directions to the masters of the mints as to the weight, alloy and
design were just as careful, although the value of the coin could not
thereby be affected. Accuracy was important more to enable the public
to distinguish between a true and a counterfeit coin than for any other
reason.
From the time of the rise of the Capetian dynasty in A. D. 987, our
knowledge of the coinage and of other methods employed in making pay-
ments becomes constantly clearer. The researches of modern French
historians have put into our possession a wealth of information, the
knowledge of which is absolutely essential to a proper understanding of
monetary problems, but which has unfortunately been ignored by econo-
mists, with the result that their statements are based on a false view of
the historical facts, and it is only by a distortion of those facts that the
belief in the existence of a metallic standard has been possible.
 WHAT IS MONEY 385

Throughout the feudal period the right of coinage belonged not alone
to the king but was also an appanage of feudal overlordship, so that in
France there were beside the royal monies, eighty different coinages,
issued by barons and ecclesiastics, each entirely independent of the other,
and differing as to weights, denominations, alloys and types. There
were, at the same time, more than twenty different monetary systems.
Each system had as its unit the livre, with its subdivisions, the sol and
the denier, but the value of the livre varied in different parts of the country
and each different livre had its distinguishing title, such as livre parists,
livre tournois, livre estevenante, etc. And not only did the value of each
one of these twenty or more livres differ from all the others, but the
relationship between them varied from time to time. Thus the livre de
tern was in the first half of the thirteenth century worth approximately
the same as the livre tournois; but in 1265 it was worth 1.4 of the tour-
nois, in 1409 it was worth 1.5 of a tournois, and from 1531 till its disap-
pearance, it was worth two tournois. At the beginning of the thirteenth
century the livre tournois was worth 0.68 of a livre parisis, while fifty
years later it was worth 0.8 of a parisis; 1.e., five tournois equalled four
parisis, at which rate they appear to have remained fixed. These two
units were both in common use in official accounts.
From the time of Hugues Capet down to that of Louis XIV
(1638) almost the entire coinage was of base metal containing for
the most part less than one-half of silver, and for at least two centuries
previous to the accession of Saint Louis, in A. D. 1226, there was probably
not a coin of good silver in the whole kingdom.
We now come to the most characteristic feature of the finance ot
feudal France and the one which has apparently given rise to the un-
founded accusations of historians regarding the debasement of the
coinage. The coins were not marked with a face value, and were known
by various names, such as Gros Tournois, Blanc 4 la Couronne, Petit
Parisis, etc. They were issued at arbitrary values, and when the king
was in want of money, he “ mua sa monnaie,”’ as the phrase was, that is
to say, he decreed a reduction of the nominal value of the coins. This
was a perfectly well recognized method of taxation acquiesced in by the
people, who only complained when the process was repeated too often,
just as they complained of any other system of taxation which the king
abused. How this system of taxation worked will be explained later on.
The important thing to bear in mind for the present is the fact—abund-
antly proved by modern researches—that the alterations in the value of
the coins did not affect prices.
Some kings, especially Philippe le Bel and Jean le Bon, whose constant
wars kept their treasuries permanently depleted, were perpetually
‘* erying down ”’ the coinage, in this way and issuing new coins of different
types, which in their turn were cried down, till the system became a
serious abuse. Under these circumstances the coins had no stable value,
and they were bought and sold at market prices which sometimes
386 THE BANKING LAW JOURNAL

fluctuated daily, and generally with great frequency. The coins were
always issued at a nominal value in excess of their intrinsic value, and
the amount of the excess constantly varied. The nominal value of the
gold coins bore no fixed ratio to that of the silver coins, so that historians
who have tried to calculate the ratio subsisting between gold and silver
have been led to surprising results; sometimes the ratio being 14 or 15
to 1 or more, and at other times the value of the gold apparently being
hardly if at all superior to that of silver.
The fact is that the official values were purely arbitrary and had noth-
ing to do with the intrinsic value of the coins. Indeed when the kings
desired to reduce their coins to the least possible nominal value they
issued edicts that they should only be taken at their bullion value. At
times there were so many edicts in force referring to changes in the value
of the coins, that none but an expert could tell what the values of the
various coins of different issues were, and they became a highly specula-
tive commodity. The monetary units, the livre, sol and denier, are
perfectly distinct from the coins and the variations in the value of the
latter did not affect the former, though, as will be seen, the circumstances
which led up to the abuse of the system of ‘‘ mutations ’’ caused the
depreciation of the monetary unit.
But the general idea that the kings wilfully debased their coinage,
in the sense of reducing their weight and fineness is without foundation.
On the contrary towards the end of the thirteenth century, the feeling
grew up that financial stability depended somehow on the uniformity of
the coinage, and this idea took firm root after the publication of a treatise
by one Nicole Oresme (famous in his time), written to prove the import-
ance of a properly adjusted system of coinage issued if not at its intrinsic
value, at least at a rate not greatly exceeding that value, the gold and
silver coins each in their proper ratio; and he attached especial import-
ance to their maintenance at a fixed price.
The reign of Saint Louis (1226-1270), a wise and prudent financier,
had been a time of great prosperity, and amid the trouble of succeeding
reigns, the purchasing power of money decreased with extraordinary
rapidity. The money had, as people said, become “ faible,’ and they
clamored for the ‘ forte monnaie’’ of the regretted Saint Louis. The
price of silver as paid by the mints, rose greatly, and with every new issue
of money the coins had to be rated higher than before; and the Advisers
of the Kings, influenced, no doubt, by the teaching of Oresme, believed
that in the rise of the price of silver lay the real secret of the rise of
prices in general. When, therefore, the prevailing distress could no
longer be ignored, attempts were made from time to time to bring
back “forte monnaie,”’ by officially reducing the price of silver and by
issuing new coins at a lower rating compared with the amount of
silver in them, and by lowering the nominal value of the existing coins
in like proportion.
But prices still moved upwards, and a ‘‘ cours volontaire,”’ a voluntary
 WHAT IS MONEY 387

rating, was given by the public to the coins, above their official value.
In vain Kings expressed their royal displeasure in edicts which declared
that they had re-introduced “‘ forte monnaie ”’ and in which they perempt-
orily commanded that prices in the markets should be reduced and that
their coins should only circulate at their official value. The disobedient
merchants were threatened with severe penalties; but the more the
kings threatened, the worse became the confusion. The markets were
deserted.
Impotent to carry out their well-meant but mistaken measures, the
kings had to cancel their edicts, or to acquiesce in their remaining a dead
letter.
The most famous of these attempts to return to ‘forte monnaie,”
by means of a reduction of the price of silver, was that introduced by
Charles the Fifth, the pupil in financial matters, of Nicole Oresme. With
the most praiseworthy obstinancy he stuck to his point, persuaded that he
could force the recalcitrant metals to return to their old prices. As the
coins disappeared from circulation, owing to their bullion value being
higher than their nominal value, the king manfully sacrificed his silver
plate to the mint as well as that of his subjects, and persuaded the Pope
to excommunicate the neighboring princes who counterfeited his coins,
or at least manufactured coins of less value for circulation in France. He
kept up the struggle for the sixteen years of his reign, but the attempt was
a failure and was abandoned at his death amid the rejoicing of the people.
It is a curious* fact that it was generally the attempts at reform of the
currency that raised the greatest protests of the people. Indeed one such
attempt was the cause of the outbreak of a serious revolt in Paris, which
had to be supressed with great rigor.
The system of wilful ‘‘ mutations’ of the money, for the purpose of
taxation, was not confined to France, but was common throughout
Germany, whilt the other phenomena which we meet with in the French
currency are present in all the great commercial countries and cities.
The issue of coins at an arbitrary value above their intrinsic value; the
want of stability in their value; the strenuous endeavors of the govern-
ments to prevent by law the rise of the price of the precious metals and to
stop the people from giving a price of their own to the coins higher or
lower than those fixed by the government; the failureof these attempts;
the endeavor to prevent the circulation of foreign coins lighter for their
value than the local money; the belief that there was some secret evil
agency at work to confound the good intentions of the government and to
cause the mysterious disappearance of the good coins issued by the
government, so that there was always a dearth of money; the futile
search for the evil doers, and equally futile watch kept on the ports to
prevent the export of coins or bullion,—the history not only of France,
but of England, the German States, Hamburg, Amsterdam and Venice
*Curious that is to say, to those who hold to the metallic theory of money.
In fact it is quite simple, though I have not here space to explain it.
388 THE BANKING LAW JOURNAL

is full of such incidents. In all these countries and cities, the monetary
unit was distinct from the coins, (even when they bore the same name, )
and the latter varied in terms of the former independently of any legisla-
tion, in accordance possibly with the apparently ceaseless fluctuations
in the price of the precious metals. In Amsterdam and in Hamburg in
the eighteenth century, an exchange list was published at short intervals,
and affixed in the Bourse, giving the current value of the coins in circula-
tion in the City, both foreign and domestic, in terms of the monetary
unit—the Florin in Amsterdam and the Thaler in Hamburg, both of them
purely imaginary units. The value of these coins fluctuated almost
daily, nor did their value depend solely on their weight and fineness.
Coins of similar weight and fineness circulated at different prices, accord-
ing to the country to which they belonged.
It must be remembered that, until recent years there was no idea that
in France or England there was one standard coin, all the others being
subsidiary tokens representing a certain part of the standard. Quite
the contrary; all were equally good or bad, all were equally good tender
according to the law. Just as in Roman times, there was no obligation
to give gold or silver for the over-valued coins, and none was ever given.
The only reason why the intrinsic value of some of the coins ever equalled
or exceeded their nominal value was because of the constant rise of the
price of precious metals, or (what produced the same result) the continu-
ous fall in the value of the monetary unit.
Though it would be hard to imagine a greater contrast than that
between the condition of feudal France and that of North America in the
eighteenth century, vet it is interesting to observe the close analogy in
some respects between the monetary situation in olden France and that
of the new world in colonial days and in the early days of the United
States. There the Pound behaved just as the Livre had done in France.
It was the monetary unit in all the colonies and subsequently for a time
in all the States, but its value was not everywhere the same. Thus in
1782 the silver dollar was worth five shillings in Georgia, eight shillings
in New York, six shillings in the New England States, and thirty-two
shillings and sixpence in South Carolina.
But there were no coins bearing a fixed relation to any of these various
pounds and, in consequence, when Alexander Hamilton wrote his report
on the establishment of a mint, he declared that, while it was easy to
state what was the unit of account, it was ‘‘ not equally easy to pronounce
what is considered as the unit in the coins.’’ There being, as he said, no
formal regulation on the point it could only be inferred from usage; and
he came to the conclusion that on the whole the coin best entitled to the
character of the unit was the Spanish dollar. But the arguments which
he gave in favor of the dollar lost, as he himself said, much of their weight
owing to the fact that ‘“‘ that species of coin has never had any settled
or standard value according to weight or fineness; but has been permitted
to circulate by tale without regard to either.’”’ Embarrassed by this cir-
 WHAT IS MONEY 389

cumstance, and finding in fact that gold was the less fluctuating metal of
the two, Hamilton had difficulty in deciding to which of the precious
metals the monetary unit of the United States should in future be
‘* annexed ”’ and he finally concluded to give the preference to neither,
but to establish a bi-metallic system, which, however, in practice was
found to be unsuccessful.
One of the popular fallacies in connection with commerce is that in
modern days a money-saving device has been introduced called credit
and that, before this device was known, all purchases were paid for in
cash, in other words in coins. A careful investigation shows that the
precise reverse is true. In olden days coins played a far smaller part in
commerce than they do to-day. Indeed so small was the quantity of
coins, that they did not even suffice for the needs of the Roval household
and estates which regularly used tokens of various kinds for the purpose
of making small payments. So unimportant indeed was the coinage that
sometimes Kings did not hesitate to call it all in for re-minting and re-issue
and still commerce went on just the same.
The modern practice of selling coins to the public seems to have been
quite unknown in old days. The metal was bought by the Mint and the
coins were issued by the King in payment of the expenses of the Govern-
ment, largely I gather from contemporary documents, for the payment of
the King’s soldiers. One of the most difficult things to understand is the
extraordinary differences in the price which was paid for the precious
metal by the French Mint, even on the same day. The fact that the
price often, if not always, bore no relation to the market value of the metal
has been remarked on by writers, but there is nothing in any record to
show on what it was based. The probable explanation is that the pur-
chase and sale of gold and silver was in the hands of a very few great
bankers who were large creditors of the Treasury and the purchase of the
metals by the Mint involved a financial transaction by which part pay-
ment of the debt was made in the guise of an exorbitant price for the metal.
From long before the fourteenth century in England and France (and
I think, in all countries), there were in common use large quantities of
private metal tokens against which the governments made constant
war with little success. It was not indeed till well on in the nine-
teenth century that their use was suppressed in England and the United
States. We are so accustomed to our present system of a government
monopoly of coinage, that we have come to regard it as one of the prime
functions of government, and we firmly hold the doctrine that some
catastrophe would occur if this monopoly were not maintained. History
does not bear out this contention; and the reasons which led the medieval
governments to make repeated attempts to establish their monopoly was
in France at any rate not altogether parental care for the good of their
subjects, but partly because they hoped by suppressing private tokens
which were convenient and seemed generally (though not always) to have
enjoyed the full confidence of the public, that the people would be forced
390 THE BANKING LAW JOURNAL

by the necessity of having some instrument for retail commerce to make

more general use of the government coins which from frequent ‘‘ muta-
tions ’’ were not always popular, and partly because it was believed that
the circulation of a large quantity of base tokens somehow tended to
raise the price of the precious metals, or rather, perhaps, to lower the
value of the coinage; just as economists to-day teach that the value of our
token coinage is only maintained by strictly limiting its output.
The reason why in modern days the use of private tokens has dis-
appeared is more due to natural causes, than to the more efficient en-
forcement of the law. Owing to improved finance coins have acquired
a stability they used not to have, and the public has come to have confi-
dence in them. Owing to the enormous growth of government initiative
these tokens have come to have a circulation which no private tokens
could enjoy, and they have thus supplanted the latter in the public esti-
mation, and those who want tokens for small amounts are content to buy
them from the government.
Now if it is true that coins had no stable value, that for centuries
at a time there was no gold or silver coinage, but only coins of base metal
of various alloys, that changes in the coinage did not affect prices, that
the coinage never played any considerable part in commerce, that the
monetary unit was distinct from the coinage and that the price of gold
and silver fluctuated constantly in terms of that unit (and these proposi-
tions are so abundantly proved by historical evidence that there is no
doubt of their truth), then it is clear that the precious metals could not
have been a standard of value nor could they have been the medium of
exchange. That is to say that the theory that a sale is the exchange of
a commodity for a definite weight of a universally acceptable metal will
not bear investigation, and we must seek for another explanation of the
nature of a sale and purchase and of the nature of money, which undoubt-
edly is the thing for which the commodities are exchange.
If we assume that in pre-historic ages, man lived by barter, what is
the development that would naturally have taken place, whereby he
grew to his present knowledge of the methods of commerce? The situ-
ation is thus explained by Adam Smith:
‘* But when the division of labor first began to take place, this power
of exchanging must frequently have been very much clogged and em-
barrassed in its operations. One man, we shall suppose, has more of a
certain commodity than he himself has occasion for, while another has
less. The former consequently would be glad to dispose of, and the latter
to purchase, a part of this superfluity. But if this latter should chance to
have nothing that for former stands in need of, no exchange can be made
between them. The butcher has more meat in his shop than he himself
can consume, and the brewer and the baker would each of them be willing
to purchase a part of it. But they have nothing to offer in exchange, ex-
cept the different productions of their respective trades, and the butcher
is already provided with all the bread and beer which he has immediate
occasion for. No change can in this case be made between them. He
cannot offer to be their merchant nor they his customers; and they are
 WHAT IS MONEY 391

all of them thus mutually less serviceable to one another. In order to

avoid the inconveniency of such situations, every prudent man in every
period of society, after the first establishment of the division of labor,
must naturally have endeavored tomanage his affairs in such a manner, as
to have at all times by him, besides the peculiar produce of his own in-
dustry, a certain quantity of some one commodity or other, such as he
imagined that few people would be likely to refuse in exchange for the
produce of their industry.”
' “ Many different commodites, it is probable, were successively both
thought of and employed for this purpose.......... In all countries,
however, men seem at last to have been determined by irresistible rea-
sons to give the preference, for this employment, to metals above every
other commodity.”
Adam Smith’s position depends on the truth of the proposition that, if
the baker or the brewer wants meat from the butcher, but has (the latter
being sufficiently provided with bread and beer) nothing to offer in ex-
change, no exchange can be made between them. If this were true, the
doctrine of a medium of exchange would, perhaps, be correct. But is it
true?
Assuming the baker and the brewer to be honest men, and honesty is
no modern virtue, the butcher could take from them an acknowledgment
that they had bought from him so much meat, and all we have to assume
is that the community would recognize the obligation of the baker and
the brewer to redeem these acknowledgments in bread or beer at the
relative values current in the village market, whenever they might be
presented to them, and we at once have a good and sufficient currency.
A sale, according to this theory, is not the exchange of a commodity for
some intermediate commodity called the ‘“‘ medium of exchange,’ but
the exchange of a commodity for a credit.
There is absolutely no reason for assuming the existence of so clumsy
a device as a medium of exchange when so simple a system would do all
that was required. What we have to prove is not a strange general agree-
ment to accept gold and silver, but a general sense of the sanctity of an
obligation. In other words, the present theory is based on the antiquity
of the law of debt.
We are here fortunately on solid historical ground. From the earliest
days of which we have historical records, we are in the presence of a law
of debt, and when we shall find, as we surely shall, records of ages still
earlier than that of the great king Hamurabi, who compiled his code of the
laws of Babylonia 2000 years B.C., we shall, I doubt not, still find traces
of the same law. The sanctity of an obligation is, indeed, the foundation
of all societies not only in all times, but at all stages of civilization; and
the idea that to those whom we are accustomed to call savages, credit
is unknown and only barter is used, is without foundation. From the
merchant of China to the Redskin of America; from the Arab of the desert
to the Hottentot of South Africa or the Maori of New Zealand, debts and
credits are equally familiar to all, and the breaking of the pledged word,
or the refusal to carry out an obligation is held equally disgraceful.
392 THE BANKING LAW JOURNAL

It is here necessary to explain the primitive and the only true commer-
cial or economic meaning of the word ‘“‘ credit.”” It is simply the correla-
tive of debt. What A owes to B is A’s debt to B and B’s credit on A. A
is B’s debtor and B is A’screditor. The words “ credit ’’ and ‘“ debt ”
express a legal relationship between two parties, and they express the
same legal relationship seen from two opposite sides. A will speak of this
relationship as a debt, while B will speak of it as a credit. As I shall
have frequent occasion to use these two words, it is necessary that the
reader should familiarize himself with this conception which, though
simple enough to the banker or financial expert, is apt to be confusing
to the ordinary reader, owing to the many derivative meanings which are
associated with the word “ credit.’’ Whether, therefore, in the following
pages, the word credit or debt is used, the thing spoken of is precisely
the same in both cases, the-one or the other word being used according
as the situation is being looked at from the point of view of the creditor
or of the debtor.
A first class credit is the most valuable kind of property. Having no
corporeal existence, it has no weight and takes no room. It can easily
be transferred, often without any formality whatever. It is movable
at will from place to place by a simple order with nothing but the cost
of a letter or a telegram. It can be immediately used to supply any
material want, and it can be guarded against destruction and theft at
little expense. It is the most easily handled of all forms of property and is
one of the most permanent. It lives with thedebtor and shares his fortunes,
and when he dies, it passes to the heirs of his estate. As long as the estate
exists, the obligation continues,* and under favorable circumstances and
in a healthy state of commerce there seems to be no reason why it should
ever suffer deterioration.
Credit is the purchasing power so often mentioned in economic works
as being one of the principal attributes of money, and, as I shall try to
show, credit and credit alone is money. Credit and not gold or silver is
the one property which all men seek, the acquisition of which is the aim
and object of all commerce.
The word “cc credit ’’ is generally technically defined as being the
right to demand and sue for payment of a debt, and this no doubt is the
legal aspect of a credit today; while we are so accustomed to paying
a multitude of small purchases in coin that we have come to adopt the
idea, fostered by the laws of legal tender, that the right to payment of
a debt means the right to payment in coin or its equivalent. And further,
owing to our modern systems of coinage, we have been led to the notion
that payment in coin means payment in a certain weight of gold.
Before we can understand the principles of commerce we must wholly
divest our minds of this false idea. The root meaning of the verb ‘‘ to
pay ” is that of “‘ to appease,’”’ ‘‘ to pacify,” ‘‘ to satisfy,’’ and while a
*In modern days statutes of limitation have been passed subjecting the
permanence of credits to certain limitations. But they do not affect the principle.
On the contrary, they confirm it.
 WHAT IS MONEY 393

debtor must be in a position to satisfy his creditor, the really important

characteristic of a credit is not the right which it gives to ‘“‘ payment ”
of a debt, but the right that it confers on the holder to liberate himself
from debt by its means—a right recognized by all societies. By buying
we become debtors and by selling we become creditors, and being all
both buyers and sellers we are all debtors and creditors. As debtor we
can compel our creditor to cancel our obligation to him by handing to
him his own acknowledgment of a debt to an equivalent amount which he,
in his turn, hasincurred. For example, A having bought goods from B to
the value of $100, is B’s debtor for that amount. A can rid himself of
his obligation to B by selling to C goods of an equivalent value and
taking from him in payment an acknowledgment of debt which he
(C, that is to say) has received from B. By presenting this acknowledg-
ment to B, A can compel him to cancel the debt due to him. A has used
the credit which he has procured to release himself from his debt. It is
his privilege.
This is the primitive law of commerce. The constant creation of
credits and debts, and their extinction by being cancelled against one
another, forms the whole mechanism of commerce and it is so simple
that there is no one who cannot understand it.
Credit and debt have nothing and never have had anything to do
with gold and silver. There is not and there never has been, so far as I
am aware, a law compelling a debtor to pay his debt in gold or silver,
or in any other commodity; nor so far as I know, has there ever been a
law compelling a creditor to receive payment of a debt in gold or silver
bullion, and the instances in colonial days of legislation compelling credi-
tors to accept payment in tobacco and other commodities were exceptional
and due to the stress of peculiar circumstances. Legislatures may of
course, and do, use their sovereign power to prescribe a particular method
by which debts may be paid, but we must be chary of accepting statute
laws on currency, coinage or legal tender, as illustrations of the principles
of commerce.
The value of a credit depends not on the existence of any gold or silver
or other property behind it, but solely on the “‘ solvency ”’ of the debtor,
and that depends solely on whether, when the debt becomes due, he in
his turn has sufficient credits on others to set off against his debts. If
the debtor neither possesses nor can acquire credits which can be offset
against his debts, then the possession of those debts is of no value to the
creditors who own them. It is by selling, I repeat, and by selling alone—
whether it be by the sale of property or the sale of the use of our talents
or of our land—that we acquire the credits by which we liberate ourselves
from debt, and it is by his selling power that a prudent banker estimates
his client’s value as a debtor.
Debts due at a certain moment can only be cancelled by being offset
against credits which become available at that moment; that is to say
that a creditor cannot be compelled to accept in payment of a debt due
to him an acknowledgment of indebtedness which he himself has given
394 THE BANKING LAW JOURNAL

and which only falls due at a later time. Hence it follows that a man is
only solvent if he has immediately available credits at least equal to the
amount of his debts immediately due and presented for payment. If,
therefore, the sum of his immediate debts exceeds the sum of his immed-
iate credits, the real value of these debts to his creditors will fall to an
amount which will make them equal to the amount of his credits. This
is one of the most important principles of commerce.
Another important point to remember is that when a seller has deliv-
ered the commodity bought and has accepted an acknowledgment of
debt from the purchaser, the transaction is complete, the payment of the
purchase is final; and the new relationship which arises between the
seller and the purchaser, the creditor and the debtor, is distinct from the
sale and purchase.
For many centuries, how many we do not know, the principal instru-
ment of commerce was neither the coin nor the private token, but the
tally,* (Lat. falea. Fr. taille. Ger. Kerbholz), a stick of squared
hazel-wood, notched in a certain manner to indicate the amount
of the purchase or debt. The name of the debtor and the
date of the transaction were written on two opposite sides of the
stick, which was then split down the middle in such a way that the notches
were cut in half, and the name and date appeared on both pieces of the
tally. The split was stopped by a cross-cut about an inch from the base
of the stick, so that one of the pieces was shorter than the other. One
piece, called the “‘ stock,’’t was issued to the seller or creditor, while the
other called the ‘‘ stub ” or ‘‘ counter-stock,’’ was kept by the buyer or
debtor. Both halves were thus a complete record of the credit and debt
and the debtor was protected by his stub from the fraudulent imitation
of or tampering with his tally.
The labors of modern archaeologists have brought to light numbers of
objects of extreme antiquity, which may with confidence be pronounced
to be ancient tallies, or instruments of a precisely similar nature; so that
we can hardly doubt that commerce from the most primitive times was
carried on by means of credit, and not with any “ medium of exchange.”
In the treasure hoards of Italy there have been found many pieces of
copper generally heavily alloyed with iron. The earliest of these, which
date from between 1000 and 2000 years B.C., a thousand years before
the introduction of coins,are called aes rude and are either shapeless ingots
or are cast into circular discs or oblong cakes. The later pieces, called
aes signatum, are all cast into cakes or tablets and bear various devices.
These pieces of metal are known to have been used as money, and their
use was continued some considerable time after the introduction of coins.
The characteristic thing about the aes rude and the aes signatum is
that, with rare exceptions, all of the pieces have been purposely broken
at the time of manufacture while the metal was still hot and brittle or
*Their use was not entirely abandoned till the beginning of the nineteenth
century.
tHence the modern term “ stock ’’ as meaning “‘ capital.”’
 WHAT IS MONEY 395

‘*‘short,”’ as it is technically called. A chisel was placed on the metal

and struck a light blow. The chisel was then removed and the metal was
easily broken through with a hammer blow, one piece being usually much
smaller than the other. There can be no reasonable doubt but that these
were ancient tallies, the broken metal affording the debtor the same pro-
tection as did the split hazel stick in later days.
The condition of the early Roman coinage shows that the practice
of breaking off a piece of the coins—thus amply proving their token
character—was common down to the time when the casting of the coins
was superseded by the more perfect method of striking them.
In Taranto, the ancient Greek colony of Tarentum, a hoard has lately
been found in which were a number of cakes of silver (whether pure or
base metal is not stated), stamped with a mark similar to that found
on early Greek coins. All of them have a piece purposely broken off.
There were also found thin discs, with pieces cut or torn off so as to
leave an irregularly serrated edge.
In hoards in Germany, a few bars of an alloy of silver have been found,
of the same age as the Italian copper cakes. While some of these are
whole, others have a piece hacked off one end.
Among recent discoveries in ancient Babylonia, far the most common
commercial documents which have been found are what are called
“‘contract tablets ’’ or ‘ shubati tablets ’’—the word shubati, which is
present on nearly all of them, meaning ‘““received.’’ These tablets, the
oldest of which were in use from 2000 to 3000 years B. C., are of baked
or sun-dried clay, resembling in shape and size the ordinary cake of
toilet soap, and very similar to the Italian copper cakes. The greater
number are simple records of transactions in terms of “sé she,’’ which is
understood by archaeologists to be grain of some sort.
They bear the following indications:—
The quantity of grain.
The word “ shubati’”’ or received.
The name of the person from whom received.
The name of the person by whom received.
The date.
The seal of the receiver or, when the King is the receiver, that of
his “ scribe ’”’ or “‘ servant.”
From the frequency with which these tablets have been met with,
from the durability of the material of which they are made, from the care
with which they were preserved in temples which are known to have
served as banks, and more especially from the nature of the inscriptions,
it may be judged that they correspond to the medieval tally and to the
modern bill of exchange; that is to say, that they are simple acknowledg-
ments of indebtedness given to the seller by the buyer in payment of
a purchase, and that they were the common instrument of commerce.
But perhaps a still more convincing proof of their nature is to be found
in the fact that some of the tablets are entirely enclosed in tight-fitting
clay envelopes or “‘ cases,”’ as they are called, which have to be broken off
396 THE BANKING LAW JOURNAL

before the tablet itself can be inspected. On these ‘‘ case tablets,”

they are called, the inscription is found on the case, and it is repeated on
the inclosed tablet, with two notable omissions. The name and seal
of the receiver are not found inside. It is self-evident that the repetition
of the essential features of the transaction on the inner tablet which
could only be touched by destroying the case, was, just as in the other
instances, for the protection of the debtor against the danger of his tablet
being fraudulently tampered with, if it fell into dishonest hands. The
particular significance of these “ case tablets ”’ lies in the fact that they
were obviously not intended as mere records to remain in the possession
of the debtor, but that they were signed and sealed documents, and were
issued to the creditor, and no doubt passed from hand to hand like tallies
and bills of exchange. When the debt was paid, we are told that it was
customary to break the tablet.
We know, of course, hardly anything about the commerce of those
far-off days, but what we do know is that great commerce was carried
on and that the transfer of credit from hand to hand and from place to
place was as well known to the Babylonians as it is to us. We have the
accounts of great merchant or banking firms taking part in state finance
and state tax collection, just as the great Genoese and Florentine bankers
did in the middle ages, and as our banks do to-day.
In China, also, in times as remote as those of the Babylonian Empire,
we find banks and instruments of credit long before any coins existed,
and throughout practically the whole of Chinese history, so far as I have
been able to learn, the coins have always been mere tokens.
There is no question but that credit is far older than cash.
From this excursion into the history of far remote ages, I now return
to the consideration of business methods in days nearer to our own,
and yet extending far enough back to convince the most sceptical reader
of the antiquity of credit.
Tallies were transferable, negotiable instruments, just like bills of
exchange, bank-notes or coins. Private tokens (in England and the
American colonies, at least) were chiefly used for quite small sums—a
penny or a half-penny—and were issued by tradesmen and merchants
of all kinds. As a general statement it is true to say that all commerce
was for many centuries carried on entirely with tallies. By their means
all purchases of goods, all loans of money were made, and all debts cleared.
The clearing houses of old were the great periodical fairs, whither went
merchants great and small, bringing with them their tallies, to settle their
mutual debts and credits. ‘‘ Justiciaries’’ were set over the fairs to
hear and determine all commercial disputes, and to “ prove the tallies
according to the commercial law, if the plaintiff desires this.”” The great-
est of these fairs in England was that of St. Giles in Winchester, while
the most famous probably in all Europe were those of Champagne and
Brie in France, to which came merchants and bankers from all countries.
Exchange booths were established and debts and credits were cleared to
enormous amounts without the use of a single coin.
 WHAT IS MONEY 397

The origin of the fairs of which I have spoken is lost in the mists of
antiquity. Most of the charters of which we have record, granting to
feudal lords the right to hold a fair, stipulate for the maintenance of the
ancient customs of the fairs, thus showing that they dated from before
the charter which merely legalized the position of the lord or granted him
a monopoly. So important were these fairs that the person and property
of merchants traveling to them was everywhere held sacred. During
war, safe conducts were granted to them by the princes through whose
territory they had to pass and severe punishment was inflicted for vio-
lence offered to them on the road. It was a very general practice in draw-
ing up contracts, to make debts payable at one or other of the fairs, and
the general clearance at which the debts were paid was called the paga-
mentum. Nor was the custom of holding fairs confined to medieval
Europe. They were held in ancient Greece under the name of panegyris
and in Rome they were called nundinae, a name which in the middle ages
was also frequently used. They are known to have been held in Mesopo-
tamia and in India. In Mexico they are recorded by the historians of the
conquest, and not many years ago at the fairs of Egypt, customs might
have been seen which were known to Herodotus.
At some fairs no other business was done except the settlement of
debt’ and credits, but in most a brisk retail trade was carried on. Little
by little as governments developed their postal. systems and powerful
banking corporations grew up, the value of fairs as clearing houses
dwindled, and they ceased to be frequented for that purpose, long remain-
ing as nothing but festive gatherings until at last there linger but few,
and those a mere shadow of their golden greatness.
The relation between religion and finance is significant. It is in the
temples of Babylonia that most if not all of the commercial documents
have been found. The temple of Jerusalem was in part a financial or
banking institution, so also was the temple of Apollo at Delphi. The fairs
of Europe were held in front of the churches, and were called by the names
of the Saints, on or around whose festival they were held. In Amsterdam
the Bourse, was established in front of or, in bad weather, in one of the
churches.
They were a strange jumble, these old fairs, of finance and trading
and religion and orgy, the latter often being inextricably mixed up with
the church ceremonies to the no small scandal of devout priests, alarmed
lest the wrath of the Saint should be visited on the community for the
shocking desecration of his holy name.
There is little doubt to my mind that the religious festival and the
settlement of debts were the origin of all fairs and that the commerce
which was there carried on was a later development. If this is true, the
connection between religion and the payment of debts is an additional
indication if any were needed, of the extreme antiquity of credit.
The method by which governments carry on their finance by means of
debts and credits is particularly interesting. Just like any private indi-
vidual, the government pays by giving acknowledgments of indebted-
398 THE BANKING LAW JOURNAL

ness—draftsonthe Royal Treasury, or on some other branch of the govern-

ment or on the government bank. This is well seen in medieval England,
where the regular method used by the government for paying a creditor
was by “ raising a tally ’’ on the Customs or on some other revenue-
getting department, that is to say by giving to the creditor as an acknowl-
edgment of indebtedness a wooden tally. The Exchequer accounts
are full of entries such as the following:—‘‘ To Thomas de Bello Campo,
Earl of Warwick, by divers tallies raised this day, containing 500 marks
delivered to the same Earl.” ‘“‘To.....by one tally raised this day
in the name of the Collectors of the small customs in the Port of London
containing £40.’ The system was not finally abandoned till the begin-
nining of the nineteenth century.
I have already explained how such acknowledgments acquire a value
in the case of private persons. We are all engaged in buying and selling,
we manufacture commodities for sale, we cultivate the ground and sell
the produce, we sell the labor of our hands or the work of our intelli-
gence or the use of our property, and the only way in which we can be
paid for the services we thus render is by receiving back from our
purchasers the tallies which we ourselves have given in payment of like
services which we have received from others. ’
But a government produces nothing for sale, and owns little or no
property; of what value, then, are these tallies to the creditors of the
government? They acquire their value in this way. The government by
law obliges certain selected persons to become its debtors. It declares
that so-and-so, who imports goods from abroad, shall owe the government
so much on all that he imports, or that so-and-so, who owns land, shall
owe to the government so much per acre. This procedure is called levy-
ing a tax, and the persons thus forced into the position of debtors to the
government must in theory seek out the holders of the tallies or other
instrument acknowledging a debt due by the government, and acquire
from them the tallies by selling to them some commodity or in doing them
some service, in exchange for which they may be induced to part with
their tallies. When these are returned to the government treasury, the
taxes are paid. How literally true this is can be seen by examining the
accounts of the sheriffs in England in olden days. They were the
collectors of inland taxes, and had to bring their revenues to London
periodically. The bulk of their collections always consisted of exchequer
tallies, and though, of course, there was often a certain quantity of coin,
just as often there was,one at all, the whole consisting of tallies.
The general belief that the Exchequer was a place where gold or silver
was received, stored and paid out is wholly false. Practically the entire
business of the English Exchequer consisted in the issuing and receiving
of tallies, in comparing the tallies and the counter-tallies, the stock and
the stub, as the two parts of the tally were popularly called, in keeping
the accounts of the government debtors and creditors, and in cancelling
the tallies when returned to the Exchequer. It was, in fact, the great
clearing house for government credits and debts.
 WHAT IS MONEY 399

We can now understand the effect of the ‘‘ mutations de la monnaie,”’

which I have mentioned as being one of the financial expedients of medie-
val French kings. The coins which they issued were tokens of indebted-
ness with which they made small payments, such as the daily wages of
their soldiers and sailors. When they arbitrarily reduced the official
value of their tokens, they reduced by so much the value of the credits on
the government which the holders of the coins possessed. It was simply
a rough and ready method of taxation, which, being spread over a large
number of people, was not an unfair one, provided that it was not abused.
Taxpayers in olden days did not, of course, have in fact to search out
the owners of the tallies any more than to have to-day to seek for the hold-
ers of drafts on the Bank of England. This was done through the bankers,
who from the earliest days of history were always the financial agents
of the governments. In Babylon it was the Sons of Egibi and the Sons
of Marashu, in medieval Europe it was the Jewish and Florentine and
Genoese bankers whose names figure in history.
There can be little doubt that banking was brought to Europe by the
Jews of Babylonia, who spread over the Greek Colonies of the Asiatic
coast settled on the Grecian mainland and in the coast towns of northern
Africa long before the Christian era. Westward they travelled and
established themselves in the cities of Italy, Gaul and Spain either
before or soon after the Christian era, and, though historians believe
that they did not reach Britain till the time of the Roman conquest, it
appears to me highly probable that the Jews of Gaul had their agents
in the English coast towns over against Gaul, and that the early British
coins were chiefly their work.
The monetary unit is merely an arbitrary denomination, by which
commodities are measured in terms of credit, and which serves, therefore,
as a more or less accurate measure of the value of all commodities.
Pounds, shillings and pence are merely the a, b,c, of algebra, where
a = 20, b = 240 c. What was the origin of the terms now in use is un-
known. It may be that they once stood for a certain quantity or weight
of some commodity. If it is so, it would make no difference to the fact
that they do not now and have not for countless generations represented
any commodity. Let us assume that the unit did once represent a com-
modity. Let us assume, for example, that in the beginning of things,
some merchant thought fit to keep his customers’ accounts in terms of a
certain weight of silver called a shekel, a term much used in antiquity.
Silver was, of course, a commodity like any other; there was no law of
legal tender, and no one was entitled to pay his debts in silver, any more
than any one was obliged to accept payment of his credits in silver.
Debts and credits were set off against one another as they are to-day.
Let us assume that a hundred bushels of corn and a shekel of silver were
of the same value. Then so long as the price of the two did not vary, all
would be well; a man bringing to the merchant a shekel’s weight of
silver or a hundred bushels of corn would equally receive in his books a
credit of one shekel. But supposing that for some reason, the value of
400 THE BANKING LAW JOURNAL

silver fell, so that a hundred bushels of corn would now exchange not for
a shekel of silver but for a shekel and a tenth. What would then happen?
Would all the creditors of the merchant suddenly lose because their
credit was written down as shekels of silver, and the debtors of the mer-
chant gain in the same proportion, although their transactions may have
had nothing whatever to do with silver? Obviously not; it is hardly likely
that the creditors would agree to lose a tenth of their money merely
because the merchant had found it convenient to keep their accounts in
shekels. This is what would happen: The owner of a shekel of silver,
the price of which had fallen, would be informed by the merchant that
silver had gone to a discount, and that in future he would only receive
nine-tenths of a shekel of credit for each shekel of silver. A shekel of
credit and a shekel weight of silver would no longer be the same; a
monetary unit called a shekel would have arisen having no fixed relation
to the weight of the metal the name of which it bore, and the debts and
credits of the merchants and his customers would be unaffected by the
change of the value of silver. A recent author gives an example of this
when he mentions a case of accounts being kept in beaver-skins. The
beaver-skin of account remained fixed, and was equivalent to two
shillings, while the real skin varied in value, one real skin being worth
several imaginary skins of account.
All our modern legislation fixing the price of gold is merely a survival
of the late-medieval theory that the disastrous variability of the mone-
tary unit had some mysterious connection with the price of the precious
metals, and that, if only that price could be controlled and made invari-
able, the monetary unit also would remain fixed. It is hard for us to
realize the situation of those times. The people often saw the prices of
the necessaries of life rise with great rapidity, so that from day to day
no one knew what his income might be worth in commodities. At the
same time, they saw the precious metals rising, and coins made of a high
grade of gold or silver going to a premium, while those that circulated
at their former value were reduced in weight by clipping. They saw an
evident connection between these phenomena, and very naturally attri-
buted the fall in the value of money to the rise of the value of the metals
and the consequent deplorable condition of the coinage. They mistook
effect for cause, and we have inherited their error. Many attempts
were made to regulate the price of the precious metals, but until the
nineteenth century, always unsuccessfully.
The great cause of the monetary perturbations of the middle ages
were not the rise of the price of the precious metals, but the fall of the
value of the credit unit, owing to the ravages of war, pestilence and fam-
ine. Wecan hardly realize to-day the appalling condition to which these
three causes reduced Europe time after time. An historian thus describes
the condition of France in the fourteenth and fifteenth centuries:
“The ravages of an English army on a hostile soil were terrible, the
ravages of the French troops in their own country were not less terrible,
the ravages of roving bands of half-disciplined soldiers, who were almost
 WHAT IS MONEY 401

robbers by instinct, were still more terrible, and behind all these, more
terrible, if possible, than the English or French armies, or the ‘“* free com-
panies,’’ were the gangs of criminals let loose from prison to do all kinds
of villainy, and the bands of infuriated peasants robbed of their homes,
who sallied forth from the woods or caves which had sheltered them and
burnt up what in their hasty marches the troops had left undestroyed.
No regard for station, or age, or sex was there—no difference was made
between friend or foe. At no time in the whole history of France was
misery so universal and prodigious. . . . Fromthe Somme to the
frontiers of Germany, a distance of three hundred miles, the whole
country was a silent tangle of thorns and brushwood. The people had
all perished or had fled for shelter to the town to escape the merciless
outrages of armed men. They hardly found the shelter they sought;
the towns suffered as the country districts suffered, the herds of wolves,
driven, through lack of food from the forests, sought their prey in the
streets. . . War outside the walls stimulated the fiercer war
within; starvation clung close to the footsteps of war; strange forms of
disease which the chroniclers of those times sum up in the names of
‘“ black death ” or ‘‘ plague ’’ were born of hunger and overleapt the high-
est barriers, pierced the strongest walls and ran riot in the overcrowded
cities. Two-thirds of the population of France, it has been computed,
fell, before the terrible self-infliction of war, pestilence and famine.”’
The sufferings of the fifteenth century were hardly less terrible than
those of the fourteenth and the picture given of England differs but little
from that of France.
‘““ Whilst the northern countries, up to the walls of Lancaster and the
banks of Mersey on one side of England, and to the gates of York and the
mouth of the Humber on the other, were being ravaged by the Scots, and
whilst French, Flemish, Scottish and other pirates were burning the towns
and killing the inhabitants of the East, the West and the South coasts of
England, or carrying them off as slaves, two other enemies were let loose
upon this country. Famine and pestilence, the fruits of war, destroyed
what man failed to reach.’
Again and again the country was swept by famines and plagues, and
murrain mowed down flocks and herds. And it was not only in those early
days that such terrible ravages occurred. The condition of Germany at
the end of the Thirty Years’ War (1618 to 1648) was little less pitiable
than that of England and France in the fourteenth century.
Purchases are paid for by sales, or in other words, debts are paid for by
credits, and, as I have said before, the value of a credit depends on the
debtor being also a creditor; in a situation such as that which I have
described (though it must not be thought that there were no intervals
of comparative prosperity), commerce was practically at a standstill,
credits were of little value. At the same time the governments had
accumulated great debts to maintain their armies and to carry on their
continual war-like operations, and were unable to levy the taxes which
should pay for them. It was impossible that, under such conditions, the
value of credit (in other words the value of the monetary unit) should
not fall. It is quite unnecessary to search for imaginary arbitrary depre-
ciations of the coinage to explain the phenomenon.
The reader may here raise the objection that whatever may have
been the practice in olden times and whatever may be the scientific theory
402 THE BANKING LAW JOURNAL

we do in the present day in fact use gold for making payments besides
using credit instruments. A dollar ora sovereign, he will say, are a certain
weight of gold and we are legally entitled to pay our debts with them.
But what are the facts? Let us take the situation here in the United
States. The government accepts all the gold of standard fineness and
gives in exchange gold coins weight for weight, or paper certificates rep-
resenting such coins. Now the general impression is that the only effect
of transforming the gold into coins is to cut it into pieces of a certain
weight and to stamp these pieces with the government mark guaranteeing
their weight and fineness. But is this really all that has been done?
By no means. What has really happened is that the government has
put upon the pieces of gold a stamp which conveys the promise that they
will be received by the government in payment of taxes or other debts
due to it. By issuing a coin, the government has incurred a liability
towards its possessor just as it would have done had it made a purchase,
has incurred, that is to say, an obligation to provide a credit by taxation
or otherwise for the redemption of the coin and thus enable its possessor
to get value for his money.
In virtue of the stamp it bears, the gold has changed its character
from that of a mere commodity to that of a token of indebtedness. In
England the Bank of England buys the gold and gives in exchange coin,
or bank-notes or a credit on its books. In the United States, the gold is
deposited with the Mint and the depositor receives either coin or paper
certificates in exchange. The seller and the depositor alike receive a
credit, the one on the official bank and the other direct on the government
treasury. The effect is precisely the same in both cases. The coin, the
paper certificates, the bank-notes and the credit on the books of the bank,
are all indentical in their nature, whatever the difference of form or of
intrinsic value. <A priceless gem or a worthless bit of paper may equally
be a token of debt, so long as the receiver knows what it stands for and the
giver acknowledges his obligation to take it back in payment of a debt due.
Money, then, is credit and nothing but credit. A’s money is B’s debt
to him, and when B pays his debt, A’s money disappears. This is the
whole theory of money.
Debts and credits are perpetually trying to get into touch with one
another, so that they may be written off against each other, and it is the
business of the banker to bring them together. This is done in two ways:
either by discounting bills, or by making loans. The first is the more old
fashioned method and in Europe the bulk of the banking business consists
in discounts while in the United States the more usual procedure is by
way of loans.
The process of discounting bills is as follows: A sells goods to B, C and
D, who thereby become A’s debtors and give him their acknowledgments
of indebtedness, which are technically called bills of exchange, or more
shortly bills. That is to say A acquires a credit on B, C and D. A buys
goods from E, F and G and gives his bill to each in payment. That is
to say E, F and G have acquired creditson A. If B, Cand D could sell
 WHAT IS MONEY 403

goods to E, F and G and take in payment the bills given by A, they could
then present these bills to A and by so doing release themselves from their
debt. So long as trade takes place in a small circle, say in one village or in
a small group of near-by villages, B, C and D might be able to get hold
of the bills in the possession of E, F and G. But as soon as commerce
widened out, and the various debtors and creditors lived far apart and
were unacquainted with one another, it is obvious that without some
system of centralizing debts and credits commerce would not goon. Then
arose the merchant or banker, the latter being merely a more specialized
variety of the former. The banker buys from A the bills held by him on
B, C and D, and A now becomes the creditor of the banker, the latter in
his turn becoming the creditor of B, C and D. A’s credit on the banker
is called his deposit and he is called a depositor. E, F and G also sell to
the banker the bills which they hold on A, and when they become due the
banker debits A with the amount thus cancelling his former credit. A’s
debts and credits have been “‘
“cc
cleared,’’ and his name drops out, leaving
B, C and D as debtors to the bank and E, F and G as the corresponding
creditors. Meanwhile B, C and D have been doing business and in pay-
ment of sales which they have made, they receive bills on H, I and K.
When their original bills held by the banker become due, they sell to him
the bills which H, I and K have given them, and which balance their debt.
Thus their debts and credits are “‘ cleared ”’ in their turn, and their names
drop out, leaving H, I and K as debtors and E, F and G as creditors of
the bank and so on. The modern bill is the lineal descendant of the
medieval tally, and the more ancient Babylonian clay tablet.
Now let us see how the same result is reached by means of a loan
instead of by taking the purchaser’s bill and selling it to the banker. In
this case the banking operation, instead of following the sale and purchase,
anticipates it. B,C and D before buying the goods they require make an
agreement with the banker by which he undertakes to become the debtor
of Ain their place, while they at the same time agree to become the debtors
of the banker. Having made this agreement B, C and D make their
purchases from A and instead of giving him their bills which he sells to
the banker, they give him a bill direct on the banker. These bills of
exchange on a banker are called cheques or drafts.
It is evident that the situation thus created is precisely the same which
ever procedure is adopted, and the debts and credits are cleared in the
same manner. There is a slight difference in the details of the mechan-
ism, that is all.
There is thus a constant circulation of debts and credits through the
medium of the banker who brings them together and clears them as the
debts fall due. This is the whole science of banking as it was three thou-
sand years before Christ, and as it is to-day. It is a common error among
economic writers to suppose that a bank was originally a place of safe
deposit for gold and silver, which the owner could take out as he required
it. The idea is wholly erroneous and can be shown to be so from the study
of the ancient banks.
404 THE BANKING LAW JOURNAL

Whatever commercial or financial transaction we examine, whether

it be the purchase of a penn’orth of vegetables in the market or the issue
of a billion dollar loan by a government, we find in each and all of them
the same principle involved; either an old credit is transferred or new ones
are created, and a State or a banker or a peasant is prosperous or bankrupt
according as the principle is observed or not, that debts, as they fall due,
must be met by credits available at the same moment.
The object of every good banker is to see that at the end of each day’s
operations, his debts to other bankers do not exceed his credits on those
bankers, and in addition the amount of the “ lawful money ”’ or credits
on the government in his possession. This requirement limits the
amount of money he has to “‘lend.’’ He knows by experience pretty
accurately the amount of the cheques he will have to present for payment
to other bankers and the amount of those which will be presented for his
payment, and he will refuse to buy bills or to lend money—that is to say,
he will refuse to incur present obligations in return for future payments
if by so doing he is going to risk having more debts due by him on a cer-
tain day than he will have credits on that day to set against them. It
must be remembered that a credit due for payment at a future time cannot
be set off against a debt due to another bankerimmediately. Debts and
credits to be set off against each other must be “‘ due ”’ at the same time.
Too much importance is popularly attached to what in England is
called the cash in hand and in the United States the reserves, that is to
say the amount of /awful money in the possession of the bank, and it is
generally supposed that in the natural order of things, the lending power
and the solvency of the bank depends on the amount of these reserves.
In fact, and this cannot be too clearly and emphatically stated, these re-
serves of lawful money have, from the scientific point of view, no more
importance than any other of the bank assets. They are merely credits
like any others, and whether they are 25 per cent or 10 per cent or one
per cent or a quarter per cent of the amount of the deposits, would not
in the least affect the solvency of the bank, and it is unfortunate that the
United States has by legislation given an importance to these reserves
which they should never have possessed. Such legislation was, no doubt,
due to the erroneous view that has grown up in modern days that a
depositor has the right to have his deposit paid in gold or in “lawful
money.’ I am not aware of any law expressly giving him such a right,
and under normal conditions, at any rate, he would not have it. A de-
positor sells to his banker his right on someone else* and, properly
speaking, his sole right so long as the banker is solvent, is to transfer his
credit to someone else, should the latter choose to accept it. But the
laws of legal tender which most countriest have adopted, have produced
indirect consequences which were not originally foreseen or intended.
The purpose of such laws was not to make gold or silver a standard of
payment but merely to require that creditors should not refuse payment
*This contract was called in Roman law a “‘ mutuum.”’
TChina, a great commercial country, has no such law. It appears to be an
European invention.
 WHAT IS MONEY 405

of their credit in coins issued by the government at the value officially put
upon them, no matter of what metal they were made; and the reason for
these lzlaws was not at all to provide a legal means of paying a debt, but to
keep up the value of the coins, which, as I have explained, were liable to
constant fluctuation either by reason of the governments issuing them at
one value and accepting them at another, or by reason of the insolvency
of the government sowing to their excessive indebtedness.
We may leave to lawyers the discussion of what may be the legal
effect of such laws; the practical effect in the mind of the public is all
that concerns us. It is but natural that in countries in which, like Eng-
land and America, the standard coin is a certain weight of gold, a law
providing that creditors shall accept these coins or the equivalent notes
in full satisfaction of their debts, and mentioning no other method of
settling a debt, should breed in the public mind the idea that that is the
only legal way of settling a debt and that, therefore, the creditor is en-
titled to demand gold coins.

The effect of this impression is peculiarly unfortunate. When sus-

picion arises in the minds of depositors, they immediately demand pay-
ment of their credit in coins or their equivalent namely a credit on the
State bank, or “ lawful money,’’—a demand which cannot possibly be
complied with, and the result is to augment the panic by the idea getting
abroad that the bank is insolvent. Consequently at the beginning of a
stringency, every bank tries to force its debtors to pay their debts in coin
or credits on the government, and these debtors, in their turn, have to
try to extract the same payment from their debtors, and to protect them-
selves, are thus forced to curtail their expenditure as much as possible.
When this situation becomes general, buying and selling are restricted
within comparatively narrow limits, and, as it is only by buying that
credits can be reduced and by selling that debts can be paid, it comes to
pass that everybody is clamoring for payment of the debts due to them
and no one can pay them, because no one can sell. Thus the panic runs
in a vicious circle.
The abolition of the law of legal tender would help to mitigate such
a situation by making everybody realize that, once he had become a
depositor in a bank, he had sold his credit to that bank and was not en-
titled to demand payment in coin or government obligations. Under
normal conditions a banker would keep only enough coins or credits on the
government to satisfy those of his clients who want them, just as a boot-
maker keeps a stock of boots of different varieties, sufficient for the normal
conditions of his trade; and the banker can no more pay all his depositors
in cash than the bootmaker could supply boots of one variety to all his
customers if such a demand were suddenly to be made on him. If bankers
keep a supply of cash more than is normally required, it is either because
there is a law compelling them to do so, as in the United States,
or because a large supply of cash gives confidence to the public in the
solvency of the bank, owing to the idea that has grown up regarding the
necessity for a “cc metallic basis ’’ for loans; or again because, owing to
406 THE BANKING LAW JOURNAL

the prevalence of this idea, there may suddenly occur an abnormal

demand for the payment of deposits in this form.
It would be hard, probably, to say to what extent laws of legal tender
can be successful in maintaining the real or the apparent value of coins
or notes. They do not appear to have been so in colonial days, and indeed
Chief Justice Chase, in his dissenting opinion in the famous legal tender
cases of 1872, expressed the view that their effect was the reverse of what
was intended; that, instead of keeping up the value of the government
notes, the law actually tended to depress them. However this may be,
and I am not inclined to agree with Mr. Chase, it seems to me to be cer-
tain that such laws are unnecessary for the maintenance of the mone-
tary unit in a country with properly conducted finances. ‘* Receivability
for debts due the government,”’ to use Chief Justice Chase’s expression,
relative to inconvertible notes, is the real support of the currency, not
laws of legal tender.
But it may be argued that it is at least necessary that the govern-
ment should provide some standard ‘* money ”’ which a creditor is bound
to accept in payment of his debt in order to avoid disputes as to the nature
of the satisfaction which he shall receive for the debt. But in practice
no difficulty would be experienced on this score. When a creditor wants
his debt paid, he usually means that he wants to change his debtor; that
is to say he wants a credit on a banker, so that he can use it easily, or
keep it unused with safety. He, therefore, insists that every private
debtor shall, when the debt is due, transfer to him a credit on a reputable
banker; and every solvent debtor can satisfy his creditor in this manner.
No law is required; the whole business regulates itself automatically.
During the suspension of specie payments in England for more than
twenty years, from 1797 in 1820, there was no gold coin in circulation,
its place being taken by Bank of England notes which were not legal
tender, and the value of which constantly varied in terms of gold. Yet
no embarrassment was noticed on this score, and commerce went on
just as before. China (and I believe other Asiatic countries) could hardly
have continued its commerce without such a law, if it had been of material
importance.
On no banking question does there éxist more confusion of ideas than
on the subject of the nature of a banknote. It is generally supposed to be
a substitute for gold and, therefore, it is deemed to be necessary to the
safety of the notes that their issue should be strictly controlled. In the
United States the issue of bank notes is said to be ‘“‘ based on ”’ govern-
ment debt, and in England they are said to be “‘ based on ” gold. Their
value is believed to depend on the fact that they are convertible into gold,
but here again history disproves the theory. When, during the period
just mentioned, the payment of Bank of England notes in gold was sus-
pended, and the famous Bullion Committee was bound to acknowledge
that a gold standard no longer existed, the value of the note in the country
was not affected, as was testified by many witnesses of great business
experience. If gold went to a premium and the exchange value of the
 WHAT IS MONEY 407

English banknote together with that of all English money fell, it

was due, as was amply proved by Thomas Tooke in his famous
‘“‘ History of Prices.”’ to the fact that Great Britain, by its enormous ex-
penditure abroad for its military operations and its subventions to foreign
countries, had accumulated a load of debt which greatly exceeded its
credits on those countries, and a fall of the value of the English pound in
terms of the money of other countries was the necessary result. When
the debt was gradually liquidated, and English credit returned to its
normal value, the price of gold of course fell in terms of the pound.
Again when for many years, Greek money was at a discount in foreign
countries, this was due to the excessive indebtedness of Greece to foreign
countries, and what did more than anything else to gradually re-establish
parity was the constantly increasing deposits paid in to Greek banks from
the savings of Greek emigrants to the United States. These deposits
constituted a debt due from the United States to Greece and counter-
balanced the periodical payments which had to be made by Greece for
the interest on her external debt. ;
In the United States, on the contrary, at the time of the depreciation
of greenbacks, the money was depreciated in the country itself, owing to
the excessive indebtedness of the government to the people of the country.
A bank note differs in no essential way from an entry in the de-
posit registerof a bank. Just like such an entry, it is an acknowledg-
ment of the banker’s indebtedness, and like all acknowledgments of the
kind, it is a ‘‘ promise to pay.’ The only difference between a deposit
entry and a bank note is that the one is written in a book and the other
is on a loose leaf; the one is an acknowledgment standing in the name of
the depositor, the other in the nameof “‘ the bearer.’’ Both these methods
of registering the debts of the bank have their particular use. In the one
case the deposit ~r any portion of it can be transferred by draft, and in the
other it, ora fixed porticn of it, can be transferred by merely transferring
the receipt from hand to hand.
The quantitative theory cf money has im :elled all governments to
regulate the note issue, so a to prevent an over issue of ‘“‘ money.”’
But the idea that some special danger lurks in the bank-note is without
foundation. The holder of a bank-note is simply a depositor in a bank,
and the issue of bank-notes is merely a convenience to depositors. Laws
regulating the issue of bank-notes may make the limitations so elastic as
to produce no effect, in which case they are useless; or they may so limit
them as to be a real inconvenience to commerce, in which case they are a
nuisance. To attempt the regulation of banking by limiting the note issue
is to entirely misunderstand the whole banking problem, and to start
at the wrong end. The danger lies not in the bank-note but in impru-
dent or dishonest banking. Once insure that banking shall be carried
on by honest people under a proper understanding of the principles of
credit and debt, and the note issue may be left to take care of itself.
Commerce, I repeat, has never had anything to do with the precious
metals, and if every piece of gold and silver now in the world were to
408 THE BANKING LAW JOURNAL

disappear, it would go on just as before and no other effect would be

produced than the loss of so much valuable property.
The gold myth, coupled with the law of legal tender, has fostered
the feeling that there is some peculiar virtue in a central bank. It is
supposed to fulfil an important function in protecting the country’s
stock of gold. This is, perhaps, as good a place as any other for explain-
ing what was really accomplished when, after centuries of inefiectual
efforts to fix the price of both the precious metals, the governments of
Europe succeeded in fixing that of gold, or at least in keeping the price
within narrow limits of fluctuation.
It was in the vear 1717 that the price of gold was fixed by law at its
present value in England, slightly above the then market value, but it
was not until some time after the close of the Napoleonic wars that the
metal obeyed the Royal mandate for any length of time, and when it did
there were two main reasons: The greater stability of the value of credit
and the enormous increase in the production of gold during the nineteenth
century. The first of these causes was the result of the disappearance of
plagues and famines and the mitigation of the ravages which accompanied
earlier wars, and the better organization of governments, especially as re-
gards their finance. These changes produced a prosperity and a stability
in the value of credit—especially government credit—unknown in earlier
days. The second cause prevented any appreciation of the market value
of gold, and the obligation undertaken by the Government and the Bank
=ngland to buy gold in any quantity at a fixed price and to sell it again
at practically the same price prevented its depreciation. Had they not
done so, it is safe to say that the market price of gold would not now be,
as it is, £3. 17. 103 an ounce. For some years, indeed, after the resumption
of cash payments in England gold did actually fall to £3. 17. 6 an ounce.
The governments of the world have, in fact, conspired together to
make a corner in gold and to hold it up at a prohibitive price, to the great
profit of the mine owners and the loss of the rest of mankind. The result
of this policy is that billions of dollars worth of gold are stored in the
vaults of banks and treasuries, from the recesses of which they will never
emerge, till a more rational policy is adopted.
Limitations of space compel me to close this article here, and prevent
the consideration of many interesting questions to which the credit theory
of money gives rise; the most important of which, perhaps, is the inti-
mate relation between existing currency systems and the rise of prices.
Future ages will laugh at their forefathers of the nineteenth and
twentieth centuries, who gravely bought gold to imprisan in dungeons
in the belief that they were thereby obeying a high economic law and
increasing the wealth and prosperity of the world.
A strange delusion, my masters, for a generation which prides itself
on its knowledge of Economy and Finance and one which, let us hope,
will not long survive. When once the precious metal has been freed from
the shackles of laws which are unworthy of the age in which we live, who
knows what uses may not be in store for it to benefit the whole world?