In an earlier post at Economics in the Rear-view Mirror we met the economist Robert Ellis Thompson who was dismissed from the Wharton School for his support of protectionist policies. He started his career as an educational administrator as president of Central High School in Philadelphia in 1894. In that same year he published the following brief syllabus for six lectures that were offered for an extension course in money and banking.
_______________________
[SERIES D.]
University Extension Lectures
UNDER THE AUSPICES OF
THE AMERICAN SOCIETY
FOR THE
EXTENSION OF UNIVERSITY TEACHING.
SYLLABUS
COURSE OF SIX LECTURES
MONEY and BANKING
BY
PROF. ROBERT ELLIS THOMPSON, S.T.D.,
President of Central High School.
No. 3. Price, 10 Cents.
Copyright 1894, by
The American Society for the Extension of University Teaching.
The Weekly Papers. — Every student has the privilege of writing and sending to the lecturer each week, while the course is in progress, a paper containing answers to two or more questions from the lists given at the end of the syllabus. The paper should have at the head of the first sheet the name of the writer and the name of the centre.
The Class. — At the close of each lecture a class will be held. All are urged to attend it and to take an active part. The subjects discussed will ordinarily be those treated in the lecture of the same evening. Where possible a conference will be held at a different hour for the benefit of the students who write weekly papers. Where this is not feasible, a part or the whole of the regular class hour will be given to a discussion of the papers, and under such conditions the subjects discussed will be those treated in the lecture of the previous week. Students are invited to add to their papers any questions, or to suggest any topics relevant to the subject, which may seem to them to require more detailed explanation. All persons attending the lecture are invited to attend the class, whether they have sent in weekly papers or not.
The Examination. — Those students whose papers and attendance upon the class exercises have satisfied the lecturer of the thoroughness of their work will be admitted to the examination at the close of the course. Each person who passes the examination successfully will receive from the Society a certificate in testimony thereof.
Reading. — Students who are writing weekly papers will find it advisable to spend the larger part of the spare time available each week in reading on the subjects treated in the preceding lecture, thus preparing themselves for the conference, or class, and for the writing of the papers. Those who are not writing the papers will probably find it more advantageous to read consecutively one or more of the texts recommended, without particular reference to the order in which the subjects are discussed in the lectures. Students with considerable time at their disposal may be able to combine both methods of study.
Students’ Associations. — The formation of Students’ Associations for reading and study before and after the lecture course, as well as during its continuance, is strongly urged. In every case where this is done, the lecturer would be glad of any opportunity to make special suggestions in advance about books and subjects. The suggestions in this syllabus are of too general a nature for the guidance of these associations. They are intended rather for the use of individual readers whose time and previous knowledge vary widely, and to whom, therefore, no specific direction can be given.
MONEY AND BANKING.
LECTURE I.
DEFINITION AND GENERAL HISTORY OF MONEY.
Money is the instrument of association, and therefore of production, as well as of exchange; and is a standard of value only in a limited sense. Importance of economic Association. How the ordinary definition of money originated. The harm it has done.
The age of barter. Use of cattle as money. Then hides or skins (peltries): Job, colonial America and Hudson Bay territory. Silver and gold desired as ornaments by primitive man. Used as money: (1) by weight; (2) in pieces of shape and value of cattle; (3) as coins since Darius Hystaspis († 485 B.C). Phoenicians and Greeks follow Persian example.
Difficulties attending use of gold and silver: (1) diversion of labor to mining; (2) abrasion; (3) uncertainty as to values.
The two metals vary in relative value. Gold cheaper than silver for a time in some places. Adjustment of value to relative scarcity. Greek ratio 1:13; Roman 1:10. Rise of silver in middle ages. Effect of discovery of America in lowering silver and promoting Association. Ratio of 1785, 1:15.5. Lasts till our time.
Depreciation of coinage in middle ages and later. The English “pound” equals sixty-six shillings. Scotch and American parallels.
Introduction of representative money. (1) Bank notes. Bankers of antiquity. Jews and Caursins in middle ages. Venice and Genoa. English “goldsmith’s notes.” The modern bank note first issued by bank of England. (2) Bills of exchange a form of money. (3) Credit money created on the ledger of a bank. Its volume and use in wholesale trade. Panics attending its contraction and its collapse. Effect of credit and paper money on demand for coin.
Substitutes, tried or proposed, for gold and silver coin. Platinum. Goldoid. The complex unit of value (Ricardo and Andrews).
LECTURE II.
THE HUME-TORRENS THEORY OF MONEY.
The mercantilists exaggerate the importance of money. Their justification. Reaction seen in Turgot: “Money is a commodity like any other.” Hume forms a theory of its passivity in relation to the industrial movement: “More money means higher prices; less money means lower prices.” Temporary effect of increase on production admitted. Permanent denied.
Theory not verified by facts, though widely current among economists, even of the latest school. Tooke and Newmarch’s “History of Prices” disproves it for England. American experience and that of Japan and of Portugal.
Rejected by the business world. “Mercantilism of the Money Article” (Stanley Jevons). The struggle for gold.
Relation of the theory to international trade. “Export of money secures more useful commodities in exchange.” Money the most useful of commodities. Like an irreplaceable rolling-stock. Shall we exchange power for the products of power? “Export of money makes a country a good place to buy in by lowering prices, and thus secure a readjustment.” No case given in illustration. Our present situation. The effect of an abundance of money on prices may be to lower them. Carey’s shilling in Thibet. Gold and raw materials move on same lines. “Money goes to where the demand is greatest.” “Demand” is not need, but such a need as carries with it the means of supply. Physical analogies mislead. No “abhorrence of a vacuum” in economics. “To him that hath shall be given.”
LECTURE III.
THE SILVER PROBLEM.
Meaning of value. No fixed values. Progress reduces them steadily. In other things this a gain however fast the reduction. In money, a calamity, if metals fall faster than average of commodities. Equally a calamity if rise in value.
Silver precedes gold. The coinage of the majority. First disturbed by English legislation in 1819, following Bullion Report of 1810. Imitated by the United States in 1835. Rise of a monometallist school. Gold discoveries of 1840-54 alarm economists. Chevalier and Cobden propose its demonetization. Great silver deposits found in Nevada cause a new alarm. Dr. Linderman’s exaggerated estimates. The Latin Union (1865-1881), to sustain silver. First Monetary Conference of 1867, and America’s strange attitude. The Franco-Prussian war-indemnity paid in gold (1871), and used to replace the silver coinage of Germany. Effect on the silver market. Holland and the Scandinavian States abandon silver. First attempt to retrieve silver by Bland Law of 1879. The new ratio, 1:16. Failure of the attempt. Mr. Windrim’s plan of silver certificates redeemable at market rates only partly adopted. The recent depression traced to silver, and its coinage stopped. Why this the best policy.
The Indian situation. A policy of improvements after 1858. Debt contracted in England to be paid in gold. Sale of exchange on Calcutta depends on market price of silver, so long as Indian mints are open. The mints closed to maintain price at sixteen pence for the rupee. Will the policy succeed? Hardships of public servants in India. Relief by bimetallism.
“Why not go on with gold?” Coin rises in value rapidly; amount and supply small; and military chests. All debts increased in real amount, e.g., our national debt. Hence unwillingness to borrow. Equally bad if silver alone. Effect on savings banks. Can an international ratio be maintained?
LECTURE IV.
THE HISTORY OF ENGLISH BANKING.
A bank exists to convert a portion of the property and credit of the community into the instrument of industrial Association. Sometimes the nation undertakes the work by issue of paper money. Some claim this power to borrow from the community without paying interest should be a government monopoly [sic]. Peel and Gladstone. Objections: the excessive centralization of money issues in a big country; and no government could create pure credit money.
Departments of a bank: (1) Discount (or credit) business, making advances on mercantile paper (England and America) or permanent bonds (Scotland). Interest charged and collected in advance; (2) its work as a clearing-house between its own customers, and as a branch of a larger clearing-house; (3) its issue department, supplying money for those who keep no bank account; (4) its acceptance of money on deposit to maintain its reserve. Not to be confounded with the “deposits” of the reports.
First banks simple. Venice an association of public creditors. Genoa an association of usurers. Bank of England (1694) a modern bank. Demand notes, check payments, discounts, etc. Its half-public character: “Run on the bank, and stop the Duke!” Reconstruction in 1844 by Peel’s Bank Act. Objections to that legislation and to its effects. Fear of over-issue since 1810. Helps to make panics.
Recent changes by abolishing monoply [sic]. Joint stock banks. England’s vast loans, e.g., to Argentine Confederation and Australia. The Baring panic of 1891, and its continuance.
LECTURE V.
BANKING IN SCOTLAND AND IN AMERICA.
The condition of Scotland in 1695. Thriftlessness and poverty of the people. Hot tempers. Contrast with the modern Scotchman. Change due to many influences.
The Bank of Scotland (1695), the first private banking corporation. Growth of the system. It includes agriculturists as well as trades, and creates manufactures. It supplies paper money to a moneyless country. Scott’s testimony as to its effects. Copied in Scandinavian States.
(1) Based on mutual responsibility of customers, while English banks deal with individuals or single firms. The joint-bond plan; (2) interest charged only on money used. No pressure to speculate; (3) local banks do local business. Country traders pay cash by check on home bank. No “insurance” in the prices they pay; (4) safety of the method. Three failures in two hundred years.
Scotland accepts the union on condition of keeping her own institutions. Her church and her banks peculiarly her own. England meddles with both. Proposal of 1826 defeated by Scott. Legislation of 1844 forbids extension of Scotch bank circulation.
America copies English banking. Robert Morris refuses loans to farmers. Great debate on repeal of charter of Bank of North America. First bank of the United States (1791-1811). Interregnum of State banks (1811-1816). Free trade in money. “The Little Frenchman.” The Second Bank of the United States (1816-1836) and Jackson’s war on it. Was he right? The Independent Treasury system. Second interregnum of State banks (1836-1863). “Wild cat” banks. The Bank of Athens discovered.
Bank loans to government at opening of the war. Secretary Chase issues treasury notes, convertible into bonds. Plans a banking system to sustain market for bonds. Taxes State bank circulation out of existence. Merits and defects of his plan. The decline of bank-note circulation. Demand for State banks, or for abolition of banks of issue.
LECTURE VI.
THE PRESENT AND THE FUTURE.
Our actual currency: Gold coin diminishing in amount; silver coin and certificates fallen and falling in value; treasury notes fixed in amount, with the fund for redemption disappearing; national bank-notes vanishing with redemption of debt.
Proposals: (A) Unlimited issue of national notes by treasury. (B) Free coinage of silver at present ratio, involving the adoption of the silver standard. (C) The extension of the circulation of the national banks on the basis of a first lien on the bank’s capital. (D) The restoration of State banks of issue of such sort as each State may choose. (E) The establishment of local institutions of credit by the national government to accommodate farmers by loans on their crops. (F) Perseverance in the single gold standard policy and gradual elimination of silver. B and E, and C and F generally united. A and B tend to centralization: A, B, and probably D, would be as injurious to creditors as F to debtors. C offers inadequate security.
To combine all advantages sought: A new banking system, like that of Scotland, with deposits of any kind of government bonds as security for circulation. Features of Land Banks and People’s Banks on the European continent might be included. Mutual responsibility, localization of issues and of business, adjustment of money supply to actual need, its value changing with that of commodities generally.
Works of reference: Stephen Colwell’s “Ways and Means of Payment” (Philadelphia, 1859); A.S. Bolles’s “Financial History of the United States” (New York, 1880-86) [Vol 1, 1774 to 1789; Vol 2, 1789-1860; Vol 3, 1861-1885]; J.L. Laughlin’s “History of Bimetallism in the United States” (New York, 1886); Van Buren Denslow’s “Principles of Economic Philosophy” (New York, 1888); Francis A. Walker’s “Money, Trade and Industry” (New York, 1879); R.H. Patterson’s “Economy of Capital” (Edinburgh, 1870), and “The New Golden Age” (London, 1882) [Volume I; Volume II].
Source: Robert Ellis Thompson, Syllabus of a course of six lectures on money and banking. Philadelphia, 1894.
Image Source: Robert Ellis Thompson, ca. 1880. University of Pennsylvania. University Archives & Record Center. Web series “Penn People”.