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 (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 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.
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