XV. MONEY AND BANKING.

Probably on no subject has there been such confused thinking or have such widely varying views been held as on that of money. There is, however, substantial unanimity of opinion on the important points among economists today, though in practice there still remain many unsolved problems. The modern industrial system has already been characterized as one of capitalistic production, of large-scale enterprises with extended use of machinery. Not less fundamental are the processes of valuation and exchange made possible by the use of money and credit; and also by the machinery for the geographical distribution of goods, our railroads and steamship lines. The modern stage of economic development has been described by Hildebrand as one of “credit economy,” as opposed to those of barter and money economy, which preceded. It is inconceivable that the modern complex system of exchange could be maintained without the extended use of money and credit. Without attempting to define these terms or to trace their historical development, we may proceed at once to state some of the problems to which they have given rise.

The first question that suggests itself is, what determines the value of money? The generally accepted answer may be briefly stated: it is, that the value of money depends, other things remaining the same, upon its quantity. According to the quantity theory an increase in the

supply of money will cause a fall in the value of each unit, just as an increase in the supply of wheat or cotton will cause a fall in the value of each bushel or bale. Conversely, a decrease in the quantity of money will cause a rise in the value of money. It is simply an application of the general law of value to money. The phrase “other things remaining the same” is however an important one, for it assumes that the amount of business and the methods by which it is conducted will remain substantially unchanged. Of course if an increase in the amount of money is accompanied by an equivalent expansion of trade, the one may offset the other and the value of money remain unchanged. Now, inasmuch as the prices of all goods and services are measured and expressed in terms of money, it is clear that a fall in the value of money means a rise of general prices; the value of each commodity is now expressed in terms of a larger number of less valuable units or dollars. Prices will be high if the quantity of money in circulation in a country is large; they will be low if the quantity is small. To the question, which is better for a country, high prices or low prices, it may be answered that it is a matter of indifference, provided only that there is enough money to do the work of exchange efficiently and that fluctuations are prevented. Just how much constitutes enough is, however, a matter of contention. In the undeveloped sections of our country, where capital is scarce and banking facilities undeveloped and where most of the people are debtors, there has always been a demand for cheap and abundant money. Capital and money have been confused and the need of one has led to a demand for the other.

It is not a matter of indifference, however, whether prices be rising or falling, that is, whether inflation or contraction of the currency is taking place. A period of falling prices means hardship and injustice to debtors and producers of goods, as farmers, manufacturers, etc. Having

contracted obligations and engaged in the production of commodities with the expectation of a given price, they find their goods worth less when ready for the market and themselves confronted with a loss instead of the anticipated profit. Under such circumstances a contraction of the currency and falling prices means lessened production of wealth. Consequently many writers, and even so good an economist as President Walker, have urged that a slow steady inflation of the currency would promote trade and “give a fillip to industry.” The monetary history of the United States is filled with attempts to realize this in practice: colonial and revolutionary bills of credit were first issued; when these were forbidden by the new Constitution resort was had to issues by state banks. When the Federal Government began the issue of greenbacks and restricted the use of state bank notes, the inflationists looked to this source for assistance. After the defeat of the Greenback party, they turned finally to the coinage of silver, which was now falling in price, and the question of bimetallism in the United States was made a practical political issue.

Down to 1870 practically all the nations of Europe and America had the system of bimetallism at ratios of 15½ or 16 to 1. About that date the great increase in the supply of gold and the fall in the value of silver led one country after another to abandon the latter and to adopt the system of gold monometallism. This was vigorously resisted by many persons and several fruitless efforts made to secure a system of international bimetallism. Failing that, the friends of silver in this country endeavored to secure independent action by the United States alone, and were ultimately successful in obtaining the purchase by the Federal Government of practically the entire silver output of the country during the years 1878-1893.

Development of the Manufacturing Industries in the United States, 1800-1905.
Fiscal Year, ending June 30—Population
June 1.		Wealth.Production of wool.[B]Raw wool imported.
Total.Per capita.
Dollars.Dollars.Pounds.Pounds.
18005,308,483…………
18107,239,881…………
18209,638,453…………
183012,866,020……35,802,114669,883
184017,069,453……52,516,9599,898,740
185023,191,8767,135,780,000

307.69

…18,695,294
185123,995,000………32,607,315
185224,802,000………18,343,218
185325,615,000………21,616,035
185426,433,000………20,228,035
185527,256,000………18,599,784
185628,083,000………14,778,496
185728,916,000………16,505,216
185829,758,000…………
185930,596,000……60,264,913…
186031,443,32116,159,616,000

513.93

75,000,000…
186132,064,000……90,000,000…
186232,704,000……106,000,00042,131,061
186333,365,000……123,000,00073,931,944
186434,046,000……142,000,00090,464,002
186534,748,000……155,000,00043,877,408
186635,469,000……160,000,00067,918,253
186736,211,000……168,000,00016,558,046
186836,973,000……180,000,00024,124,803
186937,756,000……162,000,00039,275,926
187038,558,37130,068,518,000

779.83

160,000,00049,230,199
187139,555,000……150,000,00068,058,028
187240,596,000……158,000,000122,256,499
187341,677,000……170,000,00085,496,049
187442,796,000……181,000,00042,939,541
187543,951,000……192,000,00054,901,760
187645,137,000……200,000,00044,642,836
187746,353,000……208,250,00042,171,192
187847,598,000……211,000,00048,449,079
187948,866,000……232,500,00039,005,155
188050,155,78343,642,000,000

850.20

240,000,000128,131,747
188151,316,000……272,000,00055,964,236
188252,495,000……290,000,00067,861,744
188353,693,000……300,000,00070,575,478
188454,911,000……308,000,00078,350,651
188556,148,000……302,000,00070,596,170
188657,404,000……285,000,000129,084,958
188758,680,000……269,000,000114,038,030
188859,974,000……265,000,000113,558,753
188961,289,000……276,000,000126,487,729
189062,622,25065,037,091,0001,038.57285,000,000105,431,285
189163,844,000……294,000,000129,303,648
189265,086,000……303,153,000148,670,652
189366,349,000……298,057,384172,433,838
189467,632,000……309,748,00055,152,585
189568,934,00077,000,000,0001,117.01272,474,708206,033,906
189670,254,000……259,153,251230,911,473
189771,592,000……266,720,684350,852,026
189872,947,000……272,191,330132,795,202
189974,318,000……288,636,62176,736,209
190076,303,38788,517,306,7751,164.79302,502,328155,928,455
190179,003,000……287,450,000166,576,966
190380,372,000……291,783,032177,137,796
190481,752,000107,104,211,9171,310.11295,488,438173,742,834
190583,143,000……298,915,130249,135,746
190684,216,433……298,294,750201,688,668
190785,817,239……311,138,321203,847,545
190887,189,392………125,980,524
Fiscal Year, ending June 30—Production
of cotton.[B]
(500-lb. bales,
gross weight.)		Manufactures of cotton.
Thousands of spindles in operation on Sept. 1st.Thousands of bales of domestic cotton taken by mills.
In Southern States.In Northern States.Total United States.In Southern States.In Northern States.Total United States
Number.Thou-
sands.		Thou-
sands.		Thou-
sands.		Thou-
sands.		Thou-
sands.		Thou-
sands.
180073,222………………
1810177,824………………
1820334,728………………
1830732,218………………
18401,347,6401812,1042,28571166237
18502,136,0832653,7333,99878497575
18512,799,290………60404464
18523,130,338………111588699
18532,766,194………153650803
18542,708,082………145592737
18553,220,782………135571706
18563,873,680………138633771
18573,012,016………154666820
18583,758,273………143452595
18594,309,642………167760927
18603,841,4163244,9125,23694751845
18614,490,586………153650803
18621,596,653………………
1863449,059………………
1864299,372………………
18652,093,658………………
18661,948,077………127541668
18672,345,610………150573723
18682,198,141………168800968
18692,409,597………173822995
18704,024,5273286,8047,13269728797
18712,756,564………911,0721,163
18723,650,932………1209771,097
18733,873,750………1381,0631,201
18743,528,276………1281,1921,320
18754,302,818………1301,0711,201
18764,118,390………1341,2201,354
18774,494,224………1271,3021,429
18784,745,078………1511,3451,496
18795,466,387………1861,3751,561
18806,356,99856110,09210,6531891,3821,570
18815,136,447………2251,7131,938
18826,833,442………2871,6771,964
18835,521,96386011,80012,6603131,7592,072
18845,477,4481,05012,25013,3003401,5371,877
18856,369,3411,12512,25013,3753161,4371,753
18866,314,5611,15012,25013,4003811,7812,162
18876,884,6671,20012,30013,5004011,6872,088
18886,923,7751,25012,30013,5504561,8052,261
18897,742,5111,3602,70014,0604801,7902,270
18908,562,0891,57012,81414,3845391,9792,518
18918,940,8671,74012,90014,6406132,0272,640
18926,658,3131,95013,25015,2006842,1722,856
18937,433.0562,10013,45015,5507231,6522,375
189410,025,5342,20013,50015,7007111,5802,291
18957,146,7722,40013,70016,1008522,0192,871
18968,515,6402,85013,80016,6509001,6052,505
189710,985,0403,25013,90017,1509991,7932,792
189811,435,3683,55013,90017,4501,2542,2113,465
18999,459,9353,95014,15018,1001,4152,2173,632
190010,266,5274,36815,10419,4721,5232,3503,873
19019,675,7715,50011,70020,2001,5831,9643,547
190210,827,1686,40015,00021,4002,0172,0664,083
190310,045,6156,90015,10022,0001,9581,9663,924
190413,679,9547,65015,20022,8501,8892,0463,935
190510,804,5567,63116,05623,6872,1402,1394,279
190613,595,4988,99516,25525,2502,3732,5364,909
190711,375,4619,52816,84726,2752,4112,5744,985
190813,587,30610,20117,30427,5052,1872,3524,539