Book One - The Money Mechanism

The Roman coin in the account was a denarius, at the time a piece of relatively pure silver and the Imperial standard of account. Before the close of the epoch, however, it had been debased to a piece of copper and the lowest status in the monetary scale. Its cultural descendant is the English penny, by which the name was translated in the King James Version, still signified by the letter d in the symbols for pounds, shillings, and pence. I. Render Unto Caesar The pages that follow are, in a sense, an account of the history of money in the hands of Caesar, that is to say, the sovereignties of history, and their capacity or incapacity for moral restraint in handling that which has been entrusted to them. To understand the nature of the moral question raised by the incident, as distinct from the legal or economic aspects of money, we must recall the imperatives of the Jewish faith, and their influence in the continuing Judaic-Christian tradition.

These imperatives had both moral and cultural content. First, let us note the Mosaic prohibition against the mingling of diverse kinds. Thus, the devout Jew was forbidden to wear garments of mingled linen and woolen, to sow a field with 4 MONEY AND MAN mingled seed, to mate cattle of diverse kinds, or plough with an ox and an ass together.2 The economic values of these rules have often been questioned—just as monetary economists today question the value of reserve requirements for paper money emissions—but the moral value may perhaps be seen in the restraint they imposed upon the impulse to exploit to the limit the natural resources available to man. The moral element is clearer to us in the Mosaic law against tampering with the weights and measures: "Just balances, just weights, a just ephah, and a just hin, shall ye have: I am the Lord your God."3 Whether the prohibitions against mingling diverse kinds applied to the metals, as to prevent alloying, is not clear. There are references in the Old Testament to brass, but generally the word refers to a simple metal and means copper.4 The Jews were under obligation to pay to the Temple yearly, as atonement offering, a half shekel of silver.5 So far as is known, no coin or piece of shekel or half-shekel weight was ever struck by the Jews before the very close of Jewish national history, that is, during the Jewish War of 66-73 A.D. that ended with the destruction of the Temple. That shekel was a piece of alloyed silver weighing approximately 14.3 grams and containing 16.6 per cent copper.6 The extant coins were all struck within a period of five years and consequently the opportunities for depreciation or debasement were limited. We have no way of measuring the influence upon these times of the Prophet Amos' invective of nine centuries earlier against those who "make the ephah small and the shekel great, and falsifying the balances by deceit."7 Thus, the Jewish tradition only stated the moral question; we must look elsewhere for its practical resolution in the conditions of monetary management. Nevertheless, the statement is important for the historian of money, and clews our instant task, which we see as one of examining the phenomena of money in the light of a moral imperative, in tracing the destiny of money under one or the other influence.

THE MONEY MECHANISM 5 //. The Economy of Money THE difficulty in discussing the phenomena of money is the inherent one of separating the concept of money from the concept of wealth. Wealth has seemed good to mankind; a rising standard of living and a growth of material comfort have been accepted, despite the warnings of prophets and the renunciations of garret poets, as wholesome and valuable things. Indeed, poets could not exist unless someone toiled to feed them. Art requires a patron; and the creation of music, science, literature, architecture, flower gardens, and all that tends to increase the spiritual and esthetic values of life, could hardly be possible without the accumulation of a store of wealth to support this endeavor. It is not into a consideration of the influence of wealth that we are entering, which is, indeed, a field of its own, but into its more limited expression and vehicle—money and the money mechanism. By wealth we mean the sum total of those physical goods which contribute to the welfare and happiness of mankind. By money we mean those particular items of actual or nominal wealth by which the market value of all other wealth is measured, and in terms of which, is stated. By the money mechanism we mean the functioning of money in the market place, the instruments by which its functioning is effected, and the institutions by which, in turn, the functioning of money and the instruments of money are controlled.

Money, we may freely recognize, has a useful and essential service to perform in the economic life of mankind. It has made possible the division of labor by which the man who is especially skilful in making shoes may buy with money the other articles necessary for a well-rounded life. By providing a store of value, it has made possible leisure, the saving up of wealth for a comfortable old age, or for travel or artistic endeavor. By putting contributions to the state on a money basis, rather than on the basis of service or commodities, as was common in feudal times, money has made possible strong, well-ordered governments. Money has made possible international trade, and the intercourse of nations. The economic system by which a handful 6 MONEY AND MAN of cassiterite won by a Chinese miner from the alluvial deposits of Malaya is smelted into tin in Singapore or Liverpool, which in turn is coated over a sheet of steel in Maryland, transported to Alaska, there, as a can, to enclose a morsel of salmon, then is shipped to a nitrate worker in Chile, is supported and made possible by a complex of monetary and banking transactions involving dealings in piasters, pounds, dollars and pesos, and by the media of drafts, deposits, bills of exchange, and metallic coin. Money has, in short, created the vast and complicated structure of modern economic society. And we may add— ominously—that money may destroy it.

If a money economy makes possible the integration of industry, the security and leisure of old age, the establishments of government, the intercourse of nations, the focusing upon a common objective of activity in diverse parts of the world, then these things rest upon and are supported by money. If at any point the chain is broken, if anywhere the money mechanism fails to function, the whole vast system breaks down and men in four continents may be thrown into hunger. The removal of a bar of gold from the vaults of the Bank of England to a waiting steamship may have more influence upon the output of an assembly line in a Detroit automobile plant than the functioning of a crane which sets a motor upon that line for the waiting workmen. More men may go hungry from a rise in the interest rate than a rise in the price of bread. A bank failure may produce more misery than a plague. A change in the money standard may provoke a revolution. "It may well be doubted," said Macaulay, "whether all the misery which had been inflicted on the English nation in a quarter century by bad kings, bad ministers, bad Parliaments, and bad judges was equal to the misery caused by bad crowns and bad shillings."1 The stability of the modern world rests upon the stability of its money. Yet nothing is more obvious than the fact that money is not stable, that nowhere is money under control. Biologists may control the growth of microscopic bacteria in a culture; engineers, the power of exploding dynamite; electricians, the THE MONEY MECHANISM 7 radiations in the ether, but no one has succeeded in controlling money. Yet money is, more than anything else, the creation of man, a device of his own making.

The history of civilization, said Alexander Del Mar, is the history of money. We may add that the history of money is the story of man's struggle to control it, to live with it, to bring it to do his tasks. Man lives with money, but so far it has not been a successful union. ///. The Perspective SUCH is the complexity of the money problem that any attempt to plunge into the current conflict and to unravel the tangled threads of theory and practice is apt to result only in more confusion for the general reader primarily interested in a solution of its immediate and personal implications. We must retire to a distance for perspective. Reserve ratios, bimetallism, the gold standard, the gold exchange standard and the gold bullion standard, gold and silver purchases, price levels, inflation and deflation—these can have meaning only when examined in their historical background. This determines our approach. Keeping an eye fixed upon the immediate struggle we shall, in the pages that follow, trace the conflict of man with money from the time that money first appeared as a formal institution of society with the purpose of obtaining what light we can upon the modern problem.

An all-embracing account of money from the earliest times to the present is, however, beyond the scope of this volume, and much that may be of interest to the strictly monetary historian or economist must of necessity be omitted. We are interested primarily in the human experience, and the human conflict will be the thread upon which our story is strung. We shall seek, in particular, to examine the manner in which the money mechanism has subdued mankind with its fascination, to trace the phenomena of money as they have affected the social and economic life of the time, but most im8 MONEY AND MAN portantly, to unravel the threads which bind the problems of the present with the experience of the past, to match the pattern of our present distress with that of our forebears. When prospectors make borings at intervals and bring up a common ore they know they have struck a vein, and by this process they chart the underlying strata, and predict when it will emerge. This method is implicit in our approach. We shall make borings into the silt of history in an effort to reach the bedrock upon which a sounder monetary philosophy of the future may be built. We shall, where we find rich ore, cross section and undermine with leisure until we have exhausted the veined wealth of history. We shall seek to find in the comments and conclusions of the leading thinkers and scholars in the field of money a common train of thought, a vein of philosophy, sometimes deeply submerged, but yet which may be traced in all their commentary made in diverse ages and in diverse environments, which shall guide us in charting the drift of modern monetary practice, and perhaps predict for us whether it is to emerge on the hillsides of certainty or in the morass of despair and confusion.