Part 1 — CHAPTER XXVII FOR BANKERS AND FINANCIERS

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.

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 152(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.

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 153created, 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.

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).

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.

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 154as 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.”

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.

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.

155Ashley, 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.

156Stock 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