Meaning Of Money - Summary And Conclusion
( Originally Published 1909 )
AFTER long ramble through rough country, it is perhaps worth while to review and sum up the conclusions arrived at in its course. We have seen that gold and silver were the commodities which universal acceptance advanced to the position of being taken in payment for all goods and services, and so became money as man emerged from the state of barter.
That gold finally reduced silver to a secondary place, and is now the only metal which is legal tender in England in payment of unlimited amounts, our silver coins being mere tokens, current by convention.
That banking economized the use of gold by the issue of bank-notes, payable on demand in gold by the issuing bank.
That, after a period of much groping and uncertainty concerning the principles which should regulate the note issue, the law laid down a hard-and-fast rule which stated the number of notes which might be issued in England against securities, ordaining that any more notes required by the commerce and finance of the country must be based on metal.
That this restriction of the basis of paper money was evaded by the banking community by means of the use of cheques, drawn against banking credit; that these cheques, though payable in gold on demand, are, to an overwhelming proportion, met by book entries, and crossed off against one another by the various banks through the mechanism of the Clearing house ; and that their safety and convenience have almost ousted the bank-note and caused the cheque to take its place as the currency of commerce.
That the responsibility for the manufacture of currency and credit has thus passed into the hands of the banks, which carry it on without any restriction except that dictated by their own discretion and judgment.
That a credit system has thus been evolved of extraordinary elasticity and perfection, so perfect in fact that its perfection is its only weakness.
This weakness arises from the ease with which credit and currency can be created without any relation to the gold basis on which they are ultimately founded, since gold is still the only form of payment that is certain of acceptance in times of crisis.
That this multiplication of credit increases the difficulty of maintaining the gold reserve, a task which has been entrusted by custom and common consent to the Bank of England.
And though this book is intended merely as an elementary explanation, and not a criticism, still less an attempt at construction, we have amused ourselves by considering some of the many devices suggested by which the admitted inadequacy of the gold basis of our credit manufacture could be increased. And we came to the conclusion that the cheapest, simplest, and most efficacious would be (1) the establishment of a connection quite elastic and only occasionally operative between Bank rate and market rate, so that the power of the Bank to influence the foreign exchanges should not have to be enforced or created by artificial and clumsy methods ; and (2) greater publicity of banking accounts, so that all banks should periodically show their position, not on any given day, but on the average throughout the preceding period. By this means it was hoped that much of the over-extension of credit now complained of would be abolished, and it might be possible to do away with the unfairness of the present system by which the strong prudent banks keep a strong prudent cash reserve, and their weaker brethren, sheltered behind their strength, carry on business in a manner which they are seemingly reluctant to submit to the test of publicity.
Measures of this kind could be carried out by bankers themselves, without any Parliamentary interference or discussion, which, once started, might lead to unforeseen and undesirable results.
For this reason we dismissed as impracticable a reform which is theoretically attractive, namely, the reduction of Bank of England's fiduciary note issue.
It need not be supposed that the periodical statement of the average position is an unheard of and revolutionary principle, as applied to English banking. The Bank Act of 1844 provided " that a weekly account shall be sent by every banker issuing notes to the Commissioners of Stamps and Taxes, of the amount in circulation each day of the week; and also an average amount of the said weekly circulation ; ... the weekly average to be published in the London Gazette." Also "that the said Commissioners shall have full power to examine all books at all seasonable times, of such bankers as issue notes." These weekly averages appear to this day in the London Gazette, but the ousting of the bank-note by the cheque has robbed this effort by Parliament to secure publicity, of most of its intended effect.
We have seen how rough and heavy a hand this same Act laid on the delicate banking machine, prescribing that in future it was to issue no more notes except against metal, and so taking away from it all its power of economizing metal by the use of notes, and restricting its energies to printing bullion certificates. Happily the banking machine was able to evade these drastic restrictions, but the manner in which it was then handled should serve as a reminder to those who now manage it, that it is above all things desirable that they should themselves make some serious attempt to carry out the reform which has been pointed to as necessary by leading members of their own body.