Readings in Money and Banking / Selected and Adapted
THE MACMILLAN COMPANY NEW YORK · BOSTON · CHICAGO · DALLAS ATLANTA · SAN FRANCISCO MACMILLAN & CO. Limited LONDON · BOMBAY · CALCUTTA MELBOURNE THE MACMILLAN CO. OF CANADA. Ltd. TORONTO
Assistant Professor of Economics in Dartmouth College and Assistant Professor of Banking in the Amos Tuck School of Administration and Finance New York THE MACMILLAN COMPANY 1921 All rights reserved PRINTED IN THE UNITED STATES OF AMERICA Copyright 1916 By THE MACMILLAN COMPANY Set up and electrotyped. Published September, 1916. FERRIS PRINTING COMPANY NEW YORK CITY
Designed mainly for class room use in connection with one of the introductory manuals on the subject of Money and Banking or of Money and Currency, this volume, in itself , lays no claim to completeness. Where its use is contemplated the problems of emphasis and proportion are, accordingly, to be solved by the selection of one or another of the available texts, or by the choice of supplementary lecture topics and materials. The contents of the introductory manuals are so divergent in character as to render possible combinations of text and readings that will include, it is hoped, matter of such range and variety as may be desired.
Fullness of treatment has been attempted, however, in the chapters dealing with the important recent developments in the mechanism of exchange, and my aim has been throughout to select and, in many instances, to adapt with a view to meeting the wants of those who are interested chiefly in the modern phases of the subject.
For valuable suggestions in the preparation of the volume I am greatly indebted to Professors F. H. Dixon and G. R. Wicker and Mr. J. M. Shortliffe of Dartmouth, Professor Hastings Lyon of Columbia, Professor E. E. Day of Harvard, and to my former teacher, Professor F. R. Fairchild of Yale. I desire also to mention my great obligation to authors and publishers who alike have generously permitted the reproduction of copyrighted material.
Chester Arthur Phillips.
Chester Arthur Phillips
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READINGS IN MONEY AND BANKING
READINGS IN MONEY AND BANKING
CHESTER ARTHUR PHILLIPS
PREFACE
TABLE OF CONTENTS
READINGS IN MONEY AND BANKING
CHAPTER I
THE ORIGIN AND FUNCTIONS OF MONEY
FOOTNOTES:
CHAPTER II
THE EARLY HISTORY OF MONEY
Currency in the Hunting State
Currency in the Pastoral State
Articles of Ornament as Currency
Currency in the Agricultural State
Manufactured and Miscellaneous Articles as Currency
The Invention of Coining
FOOTNOTES:
CHAPTER III
QUALITIES OF THE MATERIAL OF MONEY
1. Utility and Value
2. Portability
3. Indestructibility
4. Homogeneity
5. Divisibility
6. Stability of Value
7. Cognisability
FOOTNOTES:
CHAPTER IV
FOOTNOTES:
CHAPTER V
The Fluctuating Premium on Gold
The Effects of Greenbacks upon Wages
Rent
Interest and Loan Capital
Profits
The Production and Consumption of Wealth
The Greenbacks and the Cost of the Civil War
Should the Greenbacks Be Retired?
FOOTNOTES:
CHAPTER VI
INTERNATIONAL BIMETALLISM
FOOTNOTES:
CHAPTER VII
THE SILVER QUESTION IN THE UNITED STATES
Agitation for Silver and the Passage of the Bland Bill
Provisions of the Act of 1878
Causes of the Act
Wherein Peculiar
Limited Circulation of the Silver Dollars
Provisions of the Act of 1890
The Argument for Silver
The Repeal of the Sherman Silver Purchase Act and the Financial and Economic Consequences of Silver Legislation
FOOTNOTES:
CHAPTER VIII
INDEX NUMBERS
FOOTNOTES:
CHAPTER IX
BANKING OPERATIONS AND ACCOUNTS
Statement of A Representative National Bank
The Relation Between Loans and Deposits
Relation Between Reserves and Demand Liabilities Again
FOOTNOTES:
CHAPTER X
THE USE OF CREDIT INSTRUMENTS IN PAYMENTS IN THE UNITED STATES
FOOTNOTES:
CHAPTER XI
A SYMPOSIUM ON THE RELATION BETWEEN MONEY AND GENERAL PRICES
[Summary]
The Testimony of Ricardo
FOOTNOTES:
CHAPTER XII
THE GOLD EXCHANGE STANDARD
Objections To The Gold-Exchange Standard For The Straits Settlements Answered
FOOTNOTES:
CHAPTER XIII
A PLAN FOR A COMPENSATED DOLLAR
FOOTNOTES:
CHAPTER XIV
Canada
British Colonies
Latin Union
France
Belgium
Italy
Switzerland
Greece
Spain
Germany
Austria-Hungary
Portugal
Netherlands
Sweden—Norway—Denmark (Scandinavian Union)
Russia
Japan
China
Philippines
Argentina
Brazil
Chili
FOOTNOTES:
CHAPTER XV
THE NATURE AND FUNCTIONS OF TRUST COMPANIES
The Advantages of a Trust Company as Trustee
Banking
Corporate Trusts
Individual Trusts
Other Functions
Care of Securities and Valuables
Insurance
Compensation
Government Regulation
FOOTNOTES:
CHAPTER XVI
SAVINGS BANKS
Classification of Savings Banks
Trustee Savings Banks
Stock Savings Banks
Guaranty Savings Banks
Municipal Savings Banks
People's Banks
The Localization of Savings Banks in the United States
Postal Savings Banks
American Postal Savings Banks
"Postal Savings Behind the Scenes"
FOOTNOTES:
CHAPTER XVII
DOMESTIC EXCHANGE
Exchange Relations Between Chicago and New York
Exchange Relations Between St. Louis and New York
Domestic Exchange in San Francisco on New York City
Currency Movements Between New England and the Eastern States
FOOTNOTES:
CHAPTER XVIII
"Favourable" and "Unfavourable" Exchanges
The Origin and Supply of Foreign Exchange
Credit Risks of Drafts Drawn on Buyers Abroad
England Draws Few Bills, But Accepts Many—The Reason and the Result
The Recent Rise of the American Acceptance Market
New York City Practically Absorbs by Purchase All American Foreign Exchange
How Money Is Made in Foreign Exchange—The Operations of the Foreign Department
Gold Movements
The Silver Exchanges
FOOTNOTES:
CHAPTER XIX
CLEARING HOUSES
I. In the United States
II. Clearing Houses in England
FOOTNOTES:
CHAPTER XX
STATE BANKS AND TRUST COMPANIES SINCE THE PASSAGE OF THE NATIONAL BANK ACT
The Evolution of the Trust Company
Incorporation
Capital and Surplus Requirements
Liability of Stockholders
Restrictions on Loans and Discounts
Reserves
Branch Banks
Further Reason for the Lack of Branch Banks in the United States
FOOTNOTES:
CHAPTER XXI
THE CANADIAN BANKING SYSTEM
The System Not New
Other Financial Institutions
The Essentials of the System
Deposits
No Bankers' Bank
Amount of the Reserve Fixed by Each Bank
Competition Is Not Lacking
Banking in Different Provinces
Large Use of Deposit Currency
Banks Silent Partners in Industry
A Customer's Line of Credit
Loans to Farmers
Call Loans in Canada and Elsewhere
The Banks as Financial Institutions
FOOTNOTES:
CHAPTER XXII
Peel's Act or the Bank Charter Act of 1844, and its Suspensions
Account of the Liabilities and Assets of the Bank of England
The Functions of the Bank of England
The Joint-Stock Banks
The Private Banks
The Merchant Bankers and Accepting Houses
The Discount Houses
Interview with the Governor and Directors of the Bank of England
Interview with Sir Felix Schuster, Governor of the Union of London and Smith's Bank Limited
Interview with Mr. Charles Gow, General Manager of the London Joint Stock Bank, Limited
FOOTNOTES:
CHAPTER XXIII
THE SCOTCH BANKS
Democracy of Scotch Banking
Use of Notes as "Till Money" in Relation to the Establishment of Branches
Evasion of Peel's Act
Defects
Bank of Scotland
Royal Bank of Scotland
Commercial Bank of Scotland (Limited)
Union Bank of Scotland (Limited)
FOOTNOTES:
CHAPTER XXIV
The Bank of France
Place of the Bank of France in the Distribution of Credit
Territorial Expansion of the Bank of France
The Bank of France and Agricultural Credit
The Bank of France
The Crédit Lyonnais
Comptoir d'Escompte
Banque de Paris et des Pays-Bas
Crédit Foncier de France
Caisse des Dépôts et Consignations
Crédit Agricole
FOOTNOTES:
CHAPTER XXV
General Sketch of Bank and Credit Organisation in Germany
Interview with Herr Kleemann, Director of the Dresdner Bank
The Reichsbank
Deutsche Bank
Dresdner Bank
Bank des Berliner Kassen-Vereins
FOOTNOTES:
CHAPTER XXVI
BANKING IN SOUTH AMERICA
Our Growing Surplus for Foreign Investment
Greater Lending Power of Banks
European War
English Banks in South America
German Banks in South America
Other Banking Institutions
Conditions of Commercial Banking
FOOTNOTES:
CHAPTER XXVII
AGRICULTURAL CREDIT IN THE UNITED STATES
Agricultural Credit Conditions in the United States
FOOTNOTES:
CHAPTER XXVIII
The Borrower and the Money Trust
The Banks and Railway Finance
FOOTNOTES:
CHAPTER XXIX
The Crisis of 1907 in the Light of History
Current Theories of Crises
Mitchell's Theory of Business Cycles
Moore's "Rainfall" Theory
How Banks Should Handle Panics
FOOTNOTES:
CHAPTER XXX
Inflexibility of Ledger Balances
The Parcellation of Reserves
Redeposited or Overlapping Reserves
The Perverse Elasticity of National Bank Notes
National Bank Notes Unsound and Unsafe
Speculation Involved in the Issue of Notes
The Lack of Adjustment Between Bank Notes and Deposits
The Commercial Paper Situation in the United States
No System of Bank Acceptances and the Absence of an Open Discount Market
Cash Stock Exchange Dealings
Lack of Central Control
Absence of Regulation of Ratio of Deposits to Capital and Surplus
Banking Abuses
FOOTNOTES:
CHAPTER XXXI
The Federal Reserve Act—an Experiment
The Federal Reserve Act and Democracy in Banking
Notes Printed and Issued
Impounding Gold
Federal Reserve Banks and the Acceptance Market
Clearings and Collections in Practice
Branches and Agencies
FOOTNOTES:
CHAPTER XXXII
I
II
III
IV
V
VI
The Effects of the War with Special Reference to the Central Banks of France, Germany, and England
I
II
III
Darlehnskassen and Other Financial Novelties in Germany
The War and the World's Financial Centre
FOOTNOTES:
APPENDIX A
AN APPROXIMATE FORMULA FOR DETERMINING THE VELOCITY OF THE CIRCULATION OF MONEY
FOOTNOTES:
APPENDIX B
SOME REGULATIONS OF THE FEDERAL RESERVE BOARD
I
II
III
IV
V
I
II
III
IV
V
VI
VII
VIII
IX
X
XI
XII
I
II
III
IV
V
VI
VII
VIII
FOOTNOTES: