CHAPTER XXVII

FOR BANKERS AND FINANCIERS [Sidenote: Social History] Of all classes of business men, bankers and financiers study most closely the general tendencies of public opinion and the general course of industrial and commercial development. Each day’s financial news reports a position which has been reached in the path of a movement of which the origin and earlier course—and therefore the direction—must be sought in the record of past months and years, and sometimes in the record of a past century. But the banker who turns to the standard histories in his library with the desire to trace the course of any gradual and long-continued development is generally disappointed. It is only of late that historical investigation has been directed to social and commercial activities rather than to politics and wars. Yet the history of civilization may be said to lie in the course of finance and commerce much more than in party strife and in civil and international wars. For the latter always arrest for the moment, even if they ultimately further, the progress of civilization. [Sidenote: International Finance] The new Britannica has been called “the most comprehensive of all surveys of past and present civilization,” and its treatment of finance and commerce possesses a breadth and sweep directly due to the international character of the book. The American financier knows that under existing conditions he must take into account the laws and usages of foreign countries in regard to banking, currency, taxation, stock exchange transactions, corporations and all the other methods and appliances used in dealing with money and credit. The Britannica could not have covered this broad field authoritatively if its articles had all been written by Americans instead of being contributed, as they are, by specialists of twenty countries. And the very first step, in examining any question of American finance, may be to consider what has been done abroad. For example, there has been adopted in Louisiana a system of rural credit such as was strongly urged, for more general use, during President Taft’s administration. That would seem to be purely a matter of internal policy. But for a description of the actual working of such a system, the sources of information are in the Britannica article RAIFFEISEN (Vol. 22, p. 817), the German banker who perfected the system of agrarian credits, in the article SCHULZE-DELITZSCH (Vol. 24, p. 383), the Saxon economist who founded the German central bureau of co-operative societies, and in the article CO-OPERATION (Vol. 7, p. 82), where the Danish system of financing farmers is described and compared with the German and French methods. Systematic reading in the Britannica on financial subjects should begin with the article FINANCE (Vol. 10, p. 347, equivalent to 20 pages of this Guide), by C. F. Bastable, professor of political economy in the University of Dublin, whose books on economics have been largely read in the United States. This article deals with state revenue and expenditure, or _public_ finance, after pointing out the prevailing looseness in the use of the word finance. It is interesting to know that “in the later middle ages, especially in Germany, the word _finance_ acquired the sense of usurious or oppressive dealing with money and capital.” So long ago did an unpopular meaning attach to a term connected with “big business.” The same is true of the word _usury_, which originally meant use, or interest; and the Britannica in an article on USURY (Vol. 27, p. 811) says “usury, if used in the old sense of the term could embrace a multitude of modes of receiving interest upon capital to which not the slightest moral taint is attached.” In each case there may have been some reason besides chance for the development of the unpleasant meaning, and it has always been the custom of the spendthrift and the gambler to make the wrong use of words as well as of business methods. But what we call public finance was a century ago called political economy, “political” being used strictly to apply to the state, and “economy” in its original sense of housekeeping or house-rule. The word “economy” has thus become broader, as the word “usury” has become narrower, in significance. [Sidenote: Early Economics] It is curious to see how one page after another of the historical section of this article describes theories of finance which are to-day propounded by popular agitators as if they were absolutely new and not only describes them but shows how they were tried and how they failed. The eastern empires taxed land produce, usually to the extent of one fourth or one fifth (two tithes). In Athens, under a more elaborate system, the state owned and administered agricultural land and silver mines, and yet this state ownership, instead of making for democratic equality, resulted in too rigid a separation of classes; and the Athenian attempt to surtax the rich citizens in order to defray the cost of public games and theatrical performances and to equip ships (in this case a close parallel to certain recent German legislation) led, as class taxation always does, to ingenious evasions and, in the end, increased the power it sought to restrict. In Rome, home taxes were suspended as soon as conquests brought tribute from Spain and Africa. But taxes were always the curse of the provinces, and the vexatious _method_ of the tax “may be regarded as an additional tax.” “The defects of the financial organization were a serious influence in the complex of causes that brought about the fall of the Republic.” The early Empire took its revenues from public lands, from monopolies, from the land tax, from customs, and from taxes on inheritances (5%), sales (10%) and the purchase of slaves (40%). There was no just distribution of taxation among the territorial divisions, and the burden fell too much upon the actual workers and their employers. In the kingdoms which succeeded the Empire after its fall, Roman customs survived in finance, as in all departments of government; and there was a want of coherent policy until the time of Charlemagne, when centralization produced a better system. But scientific taxation did not really exist until, in the 15th century, under Charles VII, the first French standing army was created, and its needs led to a new and more intelligent system. In England, the co-ordination and control of public revenue and expenditure was similarly due to the growth of the navy. Since then the tendency has been to include taxes in general categories; the need for national credit has developed a system of national debts; and expenditures and receipts are now governed by legislative sanction. Local finance has been revolutionized by modern business methods, too slowly adopted it is true, and by the gradual change from private to public control of water supply, lighting and transportation. [Sidenote: Taxation and Tariff] The articles TAXATION, NATIONAL DEBT and TARIFF should be read after this article on public finance. TAXATION (Vol. 26, p. 458; equivalent to 25 pages of this Guide), by Sir Robert Giffen, formerly Controller-General of the British Board of Trade, classifies taxes, points out that direct and indirect taxes are not intrinsically different and that such a classification is merely a matter of convenience, and the article proceeds to describe the principal taxes. It should be supplemented by reading the sections on finance in the articles on various countries and especially by the article ENGLISH FINANCE (Vol. 9, p. 458; equivalent to 25 pages in this Guide), the section on Finance in the article UNITED STATES (Vol. 27, p. 660) and similar sections in the articles on each of the states of the Union. These articles give definite information about public debts, national or state, but the student should read carefully the main treatment in the article NATIONAL DEBT (Vol. 19, p. 266). The articles TARIFF (Vol. 26, p. 422), by Prof. F. W. Taussig of Harvard, author of _The Tariff History of the United States_; PROTECTION (Vol. 22, p. 464), by Edmund Janes James, president of the University of Illinois and author of the well-known _History of American Tariff Legislation_; and FREE TRADE (Vol. 11, p. 88), by William Cunningham, author of _Growth of English Industry and Commerce_, will be of great interest. The student should read besides the sketches in the Britannica of HENRY CLAY (Vol. 6, p. 470), by Carl Schurz, of WILLIAM MCKINLEY (Vol. 17, p. 256), ROGER Q. MILLS (Vol. 18, p. 475), and of other American tariff-leaders, and, for the tariff reform movement in England, the articles on JOSEPH CHAMBERLAIN (Vol. 5, p. 813) and ARTHUR J. BALFOUR (Vol. 3, p. 250). Before turning from public to private finance the reader should study the articles EXCHEQUER (Vol. 10, p. 54) and TREASURY (Vol. 27, p. 228). [Sidenote: Private Finance] For what may be called _private_ finance, the student should turn first to the article BANKS AND BANKING (Vol. 3, p. 334; equivalent to nearly 60 pages in this Guide), by Sir R. H. I. Palgrave, director of Barclay & Co., Ltd., Bankers; Charles A. Conant, author of _The Principles of Money and Banking_; and Sir J. R. Paget, author of the _Law of Banking_. Further information on the early history of banking in the United States will be found in the historical section of the article UNITED STATES (Vol. 27, especially p. 697), and in the article ANDREW JACKSON (Vol. 15, p. 107) by Prof. W. G. Sumner of Yale. [Sidenote: Currency] Next in his course of reading, he should study the article MONEY (Vol. 18, p. 694; equivalent to 45 pages in this Guide), by C. F. Bastable. This deals with: the functions and varieties of money, including coined money and all else that can take its place _in facilitating exchange_, _in estimating comparative values_, _as a standard of value_ or of _deferred payments_, as _a store of value_; the determining causes of the value of money and of the quantity of money required by a country, the credit theory, early forms of currency—greenstones, ochre, shells, furs, oxen, grain; metals as money; coinage and state control; representative money, and credit as money; economic aspects of the production and consumption of precious metals; review of the history of some important currencies—Greek, Roman, medieval, English and French coinages are treated in the article NUMISMATICS (Vol. 19, pp. 869–911, equivalent to 135 pages of this Guide, with 6 plates and 11 other text illustrations); which discusses such questions as the constitution of money; typical currency systems; statistics of production of gold and silver since the discovery of America, and coinage systems. Other relevant articles are BIMETALLISM, and MONETARY CONFERENCES for the relation of the metals; and the articles GOLD, SILVER, SEIGNIORAGE, DEMONETIZATION, GRESHAM’S LAW, TOKEN MONEY and GREENBACKS. In the article on the GEORGE JUNIOR REPUBLIC (Vol. 11, p. 749), the “children’s state” at Freeville, N. Y., the student will find an interesting proof of the relation of “token” to “real” money. “The government issued its own currency in tin and later in aluminium and ‘American’ money could not be passed within the 48 acres of the Republic until 1906, when depreciation forced the Republic’s coinage out of use and ‘American’ coin was made legal tender.” [Sidenote: Banking] For information as to the methods of financial business the reader should study the articles SAVINGS BANKS (Vol. 24, p. 243) by Sir G. C. T. Bartley, founder of the National Penny Bank, and Bradford Rhodes, founder of the 34th St. National Bank, N. Y. FRIENDLY SOCIETIES (Vol. 11, p. 217); TRUST COMPANY (Vol. 27, p. 329), by Charles A. Conant, author of _The Principles of Money and Banking_; CLEARING HOUSE (Vol. 6, p. 476); LETTER OF CREDIT (Vol. 16, p. 501); STOCK EXCHANGE (Vol. 25, p. 930); BILL OF EXCHANGE (Vol. 3, p. 940); EXCHANGE (Vol. 10, p. 50); FUTURES (Vol. 11, p. 375); TIME BARGAINS (Vol. 26, p. 988); MARKET (Vol. 17, p. 731), by Wynnard Hooper, financial editor of _The Times_, London, with sections on Movements of Prices, Cycles, Tendency to Equilibrium, Disturbance of Equilibrium, Future Delivery, Corners, Money Market, The Great Banks, Foreign Loans, and Discount Houses; CONSOLS (Vol. 6, p. 979); COUPON (Vol. 7, p. 318); DIVIDEND (Vol. 8, p. 331); and PREMIUM (Vol. 22, p. 279). Information on distinctive banking and business laws in the separate states will be found in the section on finance of the article on each state. For instance in the article OKLAHOMA (Vol. 20, p. 60) there is a summary of the bank deposit guaranty fund. For insurance see the chapter in this Guide _For Insurance Men_. [Sidenote: Lives of Financiers] In financial biography, as in history, theory and practice, the Britannica is valuable because of its full, clear and authoritative treatment. The student will find articles on great financiers, such as the Astors, the Vanderbilts, the Barings, the Rothschilds, James Law, George Peabody, James Fisk, Jay Gould, E. H. Harriman, James J. Hill, J. P. Morgan; and on great authors on the subjects of economics and finance,—for instance, Malthus, Adam Smith, Walter Bagehot, Ricardo, Roscher, Boehm von Bawerk, Thorold Rogers, H. C. Carey, E. R. A. Seligman, F. A. Walker, J. W. Jenks, F. W. Taussig, Richmond Mayo-Smith and A. T. Hadley. ALPHABETICAL LIST OF ARTICLES IN THE ENCYCLOPAEDIA BRITANNICA OF INTEREST TO BANKERS Account Accountants Achenwall, Gottfried Adams, Henry Carter Agio Aguado, A. M. Alcavala Aldrich, N. W. Allport, Sir J. J. Alstromer, Jonas Amortization Angel Anna Annuity Arbitrage Armour, P. L. Ashley, W. J. Assignats Astor, John Jacob (and family) Atkinson, Edward Attwood, Thomas Audit and Auditor Backwardation Bagehot, Walter Balance of Trade Bank Notes Bank Rate Banks and Banking Barbon, Nicholas Baring (family) Barter Bastiat, Frédéric Bates, Joshua Baudrillart, H. J. L. Bawbee Baxter, Robert Dudley Bemis, E. W. Bezant Biddle, Nicholas Bill of Exchange Bimetallism Blanqui, J. A. Bliss, C. N. Block, Maurice Bodin, Jean Bodle Boehm von Bawerk Boisguilbert, Sieur de Book-keeping Bourse Breaking Bulk Brentano, L. J. Broker Bucketshop Budget Bullion Buying in Cairnes, John Elliott Call Capital Carey, Henry Charles Carli-Rubbi Carrying-over Cash Chase, S. P. Cheque, or Check Chevalier, Michel Child, Sir Josiah Circular Note Claflin, H. B. Clark, John Bates Clearing House Cohn, Gustav Coin Coeur, Jacques Colston, Edward Combination Commerce Commercial Treaties Consols Contango Cooke, Jay Co-operation Cooper, Peter Cossa, Luigi Coulisse Coupon Courcelle-Seneuil, J. G. Cournot, A. Coutts, Thomas Cover Credit Crédit Foncier Crockford, William Crore Crown (coin) Cunningham, William Custom Duties Custom House Davenant, Charles Decker, Sir Matthew Decimal Coinage Delessert, J. P. B. Delfico, Melchiorre Demonetization Dewey, Davis Rich Dime Discount Distribution Dividend Dock Warrant Dollar Drawback Drexel, A. J. Ducat Ely, Richard Theodore Engel, Ernst English Finance Exchange Exchequer Excise Farr, William Farrer, Baron Farthing Florin Field, Cyrus West Fisk, James Fix, Theodore Fouquet, Nicolas Franc Free Trade Friendly Societies Futures Gabelle Gallatin, Albert Ganilh, Charles Garnier, C. J. Garnier, Marquis Genovesi, Antonio George, Henry Giffen, Sir Robert Gilds Gilbart, James William Gioja, Melchiorre Girard, Stephen Goldsmid (family) Gould, Jay (and family) Grain Trade Greenbacks Gresham, Sir Thomas Gresham’s Law Groat Guinea Gurney (family) Hadley, A. T. Hamilton, Alexander Hamilton, Robert Hanna, M. A. Harriman, Edward H. Haxthausen, L. von Hermann, F. B. W. von Hill, James J. Horner, Francis Horton, Samuel Dana Hudson, George Hufeland, Gottlieb Income Tax Ingram, J. K. Insurance Invoice Jakob, L. H. von Jenks, J. W. Jesup, M. K. Jevons, William S. Jones, Richard Kay, Joseph Laing, Samuel Lakh Laveleye, E. L. V. de Law, John Lawrence, Amos Le Play, P. G. Frédéric Leroy-Beaulieu, P. P. Leslie, Thomas E. C. Letter of Credit Levasseur, Pierre Emile Levi, Leone Lingen, Baron Lipton, Sir T. J. Lira List, Friedrich Lloyd’s M’Culloch, John R. Mackay, John William Macleod, Henry Dunning Making-up Price Malthus, Thomas Robert Mark Market Marshall, Alfred Marx, Heinrich Karl Mayo-Smith, Richmond Mint Mohur Moidore Monopoly Monetary Conferences (International) Money Money-lending Moon, Sir Richard Moratorium Morgan, John Pierpont Morris, Robert Morton, L. P. Mun, Thomas National Debt Newmarch, William North, Sir Dudley Octroi Overstone, 1st baron Par Paterson, William Pauperism Pawnbroking Peabody, George Pender, Sir John Penny Penrhyn, 2nd baron Peseta Petty, Sir William Picayune Pistole Poll-tax Pound Premium Price, Bonamy Production Profit-sharing Protection Proudhon, P. J. Pyx Quesnay, François Raiffeisen, F. W. Rau, Karl Heinrich Rebate Reciprocity Revenue Ricardo, David Rockefeller, J. D. Rodbertus, K. J. Rogers, James Edwin Roscher, W. G. F. Rothschild (family) Royalty Rupee Sadler, Michael Thomas Sage, Russell Saint-Simon, Comte de Savings Banks Say, Jean Baptiste Say, Leon Schäffle, A. E. F. Schmoller, Gustav Schulze-Delitzsch, F. H. Seigniorage Seligman, E. R. A. Senior, Nassau William Sequin Shekel Shell-money Sherman, John Shilling Slater, John Fox Smith, Adam Sou Sovereign (coin) Spreckels, Claus Stag Stamp Standards Department Sterling Steuart, Sir J. D. Stewart, A. T. Stock Exchange Sumner, W. G. Tael Tariff Taxation Taussig, Frank William Thornton, Henry Thornton, W. T. Time Bargains Title Guarantee Companies Token Money Tonnage and Poundage Tontine Tooke, Thomas Torrens, Robert Torrens, William Torrens M’Cullagh Trusts Trust Company Tucker, Josiah Vanderbilt, Cornelius (and family) Wagner, Adolf Wages Walker, Francis Amasa Walras, M. E. L. Wanamaker, John Watkin, Sir E. W. Wealth Wells, David Ames Window Tax Wolowski, L. F. M. R. Wright, Carroll D. Zollverein