The Economics of Money, Credit and Banking

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UNIVERSITY OF VICTORIA LIBRARY

THE

ECONOMICS

MONEY,

OF

CREDIT AND

BANKING By

F. CYRIL

JAMES,

ASSISTANT

B. Com. (Lonpon); Pu. D.

PROFESSOR

UNIVERSITY

THE

RONALD

OF

FINANCE

IN

THE

OF PENNSYLVANIA

PRESS

COMPANY

NEW YORK

IA UNIVERSITY OF VICTOR LIBRARY

Victoria,

8. C,

Copyright, 1930, by Press CoMPANY

THE RonAtp

All Rights Reserved The

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thereof

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manner

text

whatsoever writing

publication

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part

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permission publisher.

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Is AFFECTIONATELY DEDICATED.

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PREFACE Perhaps George Berkeley, famous Bishop of Cloyne, was wiser than his generation when he asked, ‘whether, in the rude

origin of society, the first step was not the exchange of commodities ; the next, the substitution of metals by weight as the common medium of exchange; after this, the making of coin; lastly, a further refinement by the use of paper with proper marks and signatures? And whether this, as it is the last, is

*

not also the greatest improvement?” Had he lived a century later, this brilliant predecessor of the father of political economy would not have stopped his question with the bank note— he would have carried it one stage further, and included the bank check by means of which an overwhelming portion of the payments made in the United States is effected today. While we are still upon a gold standard, and occasionally handle coin in our everyday transactions, the financial organization of society has evolved to a point at which it is necessary to examine much of our body of theoretical knowledge in the light of the facts which surround us. To an increasing extent, bank credit tends to perform the functions of money, which were originally regarded as typical of a metallic coinage. As the only financial institution which can create purchasing power, the commercial banks have become more and more important as economic organization has assumed the nature of a credit economy. The commercial banking system, under the leadership of the central banks, has in all countries become the nucleus around which the economic organization of society is built up. Whether we regard the problems connected with the general level of prices and the value of money, or those which v

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PREFACE

exist in regard to the supply of capital and its distribution among the numerots business enterprises which seek to use it, we find that commercial banking policy exercises a predominant influence. Nor is it possible to escape from the conclusion that these are the two most important problems which face the world today, so that any study of the financial system must be undertaken in such a manner as to throw them into bold relief. If an apology were needed for this addition to the multitude of existing books dealing with the subject of money and banking, it would be found in this fact. With one or two brilliant exceptions, all of the books which have come to my attention adopt the institutional method of approach. The reader is offered a great deal of information in regard to the structure of existing financial institutions and to the legal regulations under which they operate. But the mass of detail often tends to obscure any clear demonstration of function, and leaves the student with an imperfect idea of the part which the financial system plays in the economic activity of a modern nation. In this book the functional method of approach has been uniformly followed. Matters of structural detail and legal regulation have been omitted in all those cases in which they were not of importance to an understanding of the economic functions under discussion. As a result, it has been possible to give more attention to the economic and social results of financial policy, permitting the reader to see the financial system as a coordinated organization and to appreciate some of the problems with which it is faced. While the opinions expressed in this book are my own, I should like to acknowledge my obligation to the many friends who have assisted me with advice and information. In particular, I am indebted to my friends and colleagues, Professors W. C. Schluter and A. E. Taylor, for having read and criticized the manuscript, as well as to Miss A. B. Rice for her

PREFACE

ape

assistance in the preparation of it. Finally, 1 must acknowledge the debt which I owe to my wife, whose unfailing cooperation and assistance have made possible the writing of this book. F, Cyrit JAMES Philadelphia, Pa., May 2, 1930.

CONTENTS PAGE CHAPTER

MONEY

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