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sion from M. Cautillon, who wrote in the last century, referring to such operations as those carried out by the higher mechanism of exchange, as "barter by valuation." But this phrase while it strikingly describes the result, seems to me unduly to ignore and obscure the processes by which it is attained.

The mechanism of exchange does, no doubt, so generalize the values of different commodities that imports from almost any one country may be set against exports from almost any others. Thus we may pay for cotton from America by goods sent to China, provided that America will take, say tea, which we thus pay for on her account. These and other far more circuitous routes of trade are as bills of exchange expressing value in the common terms of money. certain and well worn as any others.* All this is done by means of the Clearing House.

The mechanism of the Clearing House has been so often and so well described that it would be a waste of time to refer to it further, but we cannot rightly appreciate the monetary system which culminates in it until we realise how thoroughly its work is done by adapting its agency to all the many expedients which an infinitely varied commerce requires. Thus we have to use the general term "value," which Mr. Jevons rightly says is too vague for his purposes. But this vagueness, or, rather, undeterminedness, of the word consists with some of the conditions with which we have habitually to deal. Take again the case of a bill of exchange, drawn and sold to pay the cost of cotton bought in America and sent to a merchant in Liverpool. The value in pounds sterling expressed in the bill may or may not be the exact equivalent of the cotton when bought in America, but that is past and done with. It now stands merely as a matter of contract between the acceptor and the payee very definite as regards themselves, but no further. The first cost and the intermediate contract based upon it alike bear an undetermined proportion to the definite price which will eventually be obtained for the cotton. "Abstract values so based on commodities of the most various kinds and from the most distant quarters may thus be exchanged, but the commodities themselves, though relieved of what may be regarded as an equitable charge or lien on them, change hands only by other and quite distinct transactions. It is rather an undue strain on words to call these farreaching adjustments "barter," or even as Professor Bonamy Price calls them, "double barter." Such terms may no doubt be forcibly used in the course of exposition, but still we must, I think, come back to the conclusion that no idea of the reduplication of the restricted operations of barter can adequately represent that exchange of commodities for money, at once so simple for the dealers immediately concerned, and yet so subtly and intimately connected with the many varied and changeful conditions by which our highly organised society is governed.

* See Appendix, pages 18-21.

The vast aggregate passed through the Clearing House is swelled by innumerable processes of this kind, and when men had to deal with notes and coin the trouble of using them was economised in every way, but now it is a great convenience to give and receive cheques for each separate transaction, and very many subdivisions of labour are consecutively paid for before its products pass into consumption. Many purely speculative operations which serve no useful purposes whatever, and some which are clearly obnoxious, alike pass through it, but this is not the fault of the mechanism. If we estimate" Bank money" in terms borrowed from physics as "mass multiplied by velocity," its energy is the most potent of all. Those who control it must be answerable for its misuse. But again these operations in any stage included in the adjustments through the Clearing House, are not mere barter. The owners of the several commodities said to be bartered are in no way brought together, nor do their dealings in any special way affect the prices of the several commodities in which they are thus indirectly concerned. For each actually receives the general "purchasing power," which is, in fact, money, and thus at once can enter any other markets he further desires to deal in as one of the common aggregate of buyers. It is true he may not touch his money or hold it for any appreciable time, but this will only be because he knows what he has to receive, and arranges beforehand what he will do with it. A bag of sovereigns might be transferred in just the same way; but in both cases equally he has the advantage of the full "purchasing power" of money, and not merely the limited purchasing power of any one commodity.

I refer with the most unfeigned respect to the works of Professor Jevons. Though his line of argument is somewhat hard to follow, especially by one who is not a practised mathematician, there is such a thoroughness about his investigations that the study of them well repays the pains. Yet, still I cannot but think that in his recent attempt to determine the "ratio of exchange" between any two commodities, he does not adequately recognise how essential and instinctive the use of money has become. The effect of quantitative fluctuations on utility is hard indeed to estimate. The exact statistics required to account for the fleeting changes of the day could only be collected and verified by most lengthened and laborious investigation.

Nor is this all: The current language of the markets is often quizzed. It is no doubt highly elliptical and somewhat quaintly graphic, but for all that the broker's clerk who talks of lead as lively", or spirits as "depressed," instinctively feels what many theorists of higher pretensions fail to realise, that he has actually to do with the "states of feeling" of those who deal in these articles. The law of supply and demand is not an ordinance claiming implicit obedience to the exhibition of statistics. Keen active

traders do not accept an adverse verdict on any such grounds. Is scarcity apprehended? Not only are all sources of supply looked after and all stocks economised, but any substitute which can or may more or less take the place of the enhanced commodity, is eagerly sought for. The same energy is shown when excess of supply induces the owners to seek out new uses for their stock. On all sides and as far forward as foresight can go, each one tries to work out the expedients most favourable to himself, though for the most part dealing with uncertainties arising not only from imperfect information, but from the commercial necessity of taking the risk of conditions which are still among the secrets of the future. And further not only do individuals err in judgment, but the market has a life and tone of its own which by its reflex action sways the minds of those who form it. Enterprize is now excited even to rashness, now depressed even to timidity, and it is feeling rather than knowledge that gathers strength from the sympathy of association.

The result of all this activity when its effects are not marred by extreme folly or dishonesty, is that under the conditions of the great law of average adjustments are so worked out that an intolerable strain rarely falls on any part of our organisation. But the special conditions which determine the ratio of exchange between any one commodity and others become infinitely complicated, and though in the "struggle for life" the exchange value of the fittest will be the most certainly maintained at a rate ensuring its production, the effect of its survival on other commodities is in the last degree recondite, uncertain and obscure. The result, however, is given with sufficient clearness in the common terms of the money which is familiar to all and by reference to which each one has been severally guided. Accepting money prices as showing nothing more than the result, for the moment, of many disparate and conflicting causes which we cannot fully trace, we have yet an ample field for inquiry, carried on with scientific method and in the true spirit of science, into the validity and permanence of those causes which can be made manifest. In the present stage of economic knowledge we have much need of this rougher process of (so to speak) "qualitative" analysis before accepting the "quantitative" returns presented by the best attainable statistics. Nevertheless, such thorough work as that of Professor Jevons can never be without its value in any department. Though the ground gained by science may appear small, it is gained once and for all, and no true lover of science will estimate the worth of the labours of its pioneers by their immediate, or even by their visible results.

I fully agree with those who regard a commercial crisis as essentially a rectification of accounts., Losses long since made, but concealed, are brought to light, and the re-statement is by no means a

grateful operation. But, from the point of view of the trader, I would say that while he can face the competition, in any form or from any quarter, of those who fairly strive to get a living out of their business, no man can stand that of one who has both his hands in his neighbour's pockets, and deals in the markets merely for purposes which are euphemistically described as "financing. The sustentation, not the failure, of such trading is the evil which really eats into the heart of industry.

Men

But as far as "money" is concerned, however severe the strain may be in a crisis, enongh is always found within the banking circle to meet all requirements, unless a panic supervene. What is it that then happens? The rapid circulation is impeded. forestall and hold money. There is congestion here and deficiency there. Under the influence of fear we fall back for a while into a lower state of monetary organisation, and even notes and gold may be hoarded. This is at once a reason why legal tender notes may be issued as a remedy for panic and why the excess will assuredly be sent back out of the circulation when it is over. It has always seemed to me that the suspension of the restrictive provisions of the Bank Act in a time of panic is not in any sense an admission of the failure of the Act. Such cases are in their very nature abnormal, and if we have failed in the prevention we must accept the humiliation of an exceptional cure. The convertibility of the note is not imperilled because the issue is made to satisfy and does satisfy a domestic demand which, though urgent, can only be temporary. When bank book money again circulates freely experience has constantly shown that it is ample for the adjustment of all difficulties through the Clearing House.

But it is not the less the fact that the ultimate reserve of the whole mercantile community is the gold in the Issue Department in the Bank of England, which must be available for both home and foreign demand if we are to keep our "money" securely based on the world-wide average value of gold. But anyone who wants gold can most readily obtain it by means of notes drawn from the Reserve of the Banking Department. It does not thus specially hold notes because of any connection, legal or customary, with the Issue Department, but because it is the Bank of Bankers. Their business is mostly carried on by means of the book entries described, and they pay in as a matter of course the excess of notes which they do not themselves require. The argument that each bank should hold its own reserve of notes has only a slight show of reason. They do hold their own reserves in the form their own requirements dictate. Such pressure as might arise from a foreign demand on our reserve of bullion would not be averted by this expedient, but only obscured and probably neglected, according to the old proverb that what is everybody's business is nobody's business. In short, if a bankers' bank did not exist as the Bank of England,

one would have to be created for the final adjustments which can only be made at a centre common to all.

It is the peculiar nature of the Bank of England's reserve that requires it to watch so sedulously the movements of the bullion with which it is thus so closely associated. It sees an excess of gold go out without concern, but as the amount remaining with it is reduced, its reserve and the gold in the Issue Department practically come to mean very much the same thing, and it fulfils the special functions which have fallen to it by shaping its course so as to obviate a scarcity of this ultimate reserve (within the limits of ordinary banking resources) and most essential part of our money.

Gold no doubt there is in that portion of the circulation which is little affected by any casual commercial troubles. Our national gold currency has been estimated at over £100,000,000, a great part of which would be a resource in case of extreme necessity; or to revert to another view of the question, all of which would have to be affected before any permanent change could take place in the value of gold from increased supply, or the reverse; but into this question time will not permit me to enter further.

I

I have not attempted to give any precise material definition of what does and what does not constitute money. A cheque is normally merely an order for a transfer in a bank's books, but if it is sent about the country to do the work of money, so far it is money. The same may be said of bills of exchange. Postage stamps also are used as a paper currency, and that, too, without any special bullion reserve in defiance of all sound financial principles! But if we attempt to go into minute and casual details of this kind, we shall soon find that we have left substantial realities and are dealing with mere names and words. I remember reading of a soldier in the days when troopers' swords were ill balanced and brittle who did heroic work with a broomstick. quite believe the story and fully appreciate his choice of what in his hands was assuredly a most effective weapon, but for all that 1 do not add the words " a weapon of war to the definitions under the head of "broomstick" in my dictionary. So it is with money. No one can prevent a certain use of substitutes if they are more convenient than the forms supplied. We must recognise the practical truth that the only way to prevent such objectionable money from gaining a place in our circulation is by providing an adequate supply of that which is not liable to perversion or abuse. Every country will show some differences in the forms used. What we have to care for is that our own money is from first to last coherent, and, whether used as a reserve or as a common measure, expresses exchange value in consistent terms throughout, while its forms are diversified to meet all our manifold requirements with the greatest possible safety and convenience.

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