Pulls

Coran

usually corresponded nearly to the prevailing ratio of 15, and therefore the price of silver may be taken as a fairly trustworthy test of specie prices. In the following table are shown the prices of gold and silver and of bills on Hamburg and Paris, expressed on a percentage basis, par in each case being £100. The last three columns show Jevons' index numbers of prices, the computed prices in silver, and the ratio of gold to silver at Hamburg :

The figures for gold, silver, and the foreign exchanges are based on the Appendices to the Reports of the Lords and Commons Committees on the Resumption of Cash Payments in 1819. Before 1811 the quotations for gold are spasmodic, never covering a complete calendar year, and the averages are therefore not reliable. For a number of years the figures for silver are based not on standard silver, but on dollars (with a par of 59'3d.). The ratios in the last column are taken from Soetbeer. The foreign exchange columns give the premium on francs and banco money— i.e., the pars ought strictly to be given as 9.515d. to the franc, and 6 d. to the banco schilling.

The statistics show a general tendency towards increasing

depreciation, reaching a maximum rather before the end of the war. But this general tendency is broken by very considerable fluctuations. The maximum index number, both for paper prices and for specie prices, comes in the years 1809 and 1810. The maximum depreciation as tested by the foreign exchanges comes in 1811. As tested by the prices of gold and silver, it comes in 1813, the last complete year of war.

Space would not permit of a detailed examination of the various causes which contributed to produce this depreciation, or of the heated political controversies that were occasioned by it from 1810, the date of the Report of the Committee on the High Price of Gold Bullion, till 1819, when cash payments were finally resumed. It will be sufficient here to point out two or three salient factors. With the beginning of the Peninsular War in 1809, and still more with the great military coalition against Napoleon in 1813, the strain of war finance became greater than ever. The unfunded debt grew from £14,000,000 in 1802 to £57,000,000 in. 1814. Napoleon's Continental system, based on the complete exclusion of British trade from Europe, began in 1806, and was made rigorous with the annexation of Holland and Hamburg in 1810. Another important influence was an acute financial crisis to which all the commercial centres of the Continent were subject in 1811, and from which credit on the Continent did not really recover till after the end of the war. The effects of the corresponding crisis in England, which occurred in 1810, were staved off at the cost of an inflation and consequent depreciation of the paper currency. But they were only postponed, and in 1814 peace brought a disastrous fall in values which almost extinguished the premium on gold at the cost of a terrible tale of bankruptcies and a period of extreme depression and distress. R. G. HAWTREY

No. 109.-VOL. XXVIII.

F

REVIEWS

The Value of Money. By B. M. ANDERSON, Jun., Ph.D., Assistant Professor of Economics, Harvard University. Author of Social Value. (New York: The Macmillan Co. 1917. Pp. 610.)

"THE theory of the value of money is a special case of the general theory of value. . .

6

"Value is not a ratio of exchange or purchasing power,' but is an absolute quantity prior to exchange.

990

"Economic value is a species of the genus, social value, coordinate with legal value and moral value. . .

"The value of money, being a special case of economic value, is subject to the same general laws. . . .'

These propositions are taken from a summary in which the author recapitulates theorems propounded in the first two parts of his treatise, constituting about two-thirds of the entire work. Thirty-six articles are required to sum up the reformed economic faith. Or, rather, only the fundamental doctrines are set forth in this confessio fidei. On this basis is reared a superstructure of higher theory, culminating in a sublime topic, "the reconciliation of statics and dynamics."

We shall not attempt to sketch the imposing system as a whole. We shall direct attention to some important points, with respect to which we either dissent from the author or suspend our judgment.

Agreeing with Dr. Marshall as to the relation between cost of production and value, we disagree from the following statements:

To the Austrian economists we owe a rational theory of costs. . . . Value causation comes ultimately, not from the side of supply, but from the side of demand. . . . "The real cost doctrine of the Classical School has failed . . ."it is virtually only as a pecuniary doctrine, costs from the entre

...

1 See Principles of Economics as to Cost of Production passim, and as to Mill, Book ch. iii, § 2, p. 339 note (ed. 6).

v,

preneur point of view, that the cost doctrine is met in modern theory. Cost as conceived by Mill is a superficial pecuniary notion" (Chapter III.).

Our attitude towards other pronouncements is more neutral. They produce no conviction, but they provoke no contradiction. We have no strong opinion about the relation of the individual to society-with what truth an "organic unity" may be predicated of minds. We do not deny that "absolute value" may be attributed to money in some intelligible sense. We have not carefully compared the doctrines of Wieser, Mises, and Schumpeter as to marginal utility. We do not feel qualified to pronounce on the distinction drawn by one of them between the "inner objective value of money" and the "outer objective value of money" (Ch. V.).

We are disposed to agree with the author's dictum that the ultimate test of scientific theory must be practice the capacity to solve problems. But we are not convinced that the new theory of social value would come out well from the test. Consider the following questions. If the money incomes of a class be increased ceteris paribus, in what circumstances is it possible that they will buy less than before of certain commodities? Is it true that if a rise in the price of bread raises the marginal utility of money to the poorer classes, they may consume more bread.1 Marginal utility as used by mathematical writers seems more adequate to resolve such knotty problems than the new refine

ments.

Fortunately on the flood of dialectics some stray facts are found floating. The particulars given about the ways of business seem to us more valuable than the general theories which they are intended to illustrate. Thus, after perusing the chapter (Ch. XXIII.) which deals with credit in general, we do not find ourselves much wiser. But the following chapter, which deals with credit in relation to bank assets and bank reserves, contains some interesting information. It appears that only a small portion of the assets held by American banks can be regarded as liquid. Only a very small portion consists of "commercial paper "; and of the rest not so much as might be supposed is immediately available. The following case is described as typical :

A New York bank is at present lending to a small manufacturer of automobile supplies about $30,000. Of this, about $10,000 is liquid, periodically covered by "bills receivable," and if the bills receivable should fail, in the period in question, to cover the $10,000, the bank would insist on a

1 See ECONOMIC JOURNAL, Vol. xxv (1915) pp. 47, 61, 190, referring to Marshall (Principles of Economics, Book iii, ch. vi, sec. 4), who refers to Giffen.

reduction of the loan. The remaining $20,000, however, is not liquid. It was spent for non-movable equipment; the bank expects to renew the notes for this sum periodically, and is well aware that it could not force collection without bringing the business to a close-or else forcing the factory to get accommodation elsewhere."

Loans on the security of crops having a natural term may be considered liquid; loans on animals being fed for the market belong to the same category. But of the loans on the security of livestock fully two-thirds are to breeders and not feeders, and hence are not liquid. We accept the facts about bank assets on the writer's authority. We do not endorse his theory that the function of bank reserves is entirely "dynamic": "the static law of bank reserves is that none are needed."

The characteristics which we have attributed to the work as a whole are noticeable also in that part of the work to which we would direct the reader's special attention: Part II, in which the quantity theory of money formulated by Professor Irving Fisher is disputed. Here, too, the facts appear to us more important than the theory. The higher theory of statistics which deals with index numbers seems to be ignored when it is asked, with reference to "T," the denominator in Professor Fisher's expression for the price-level, "how does one sum up pounds of sugar, loaves of bread, tons of coal, yards of cloth, etc.?" "T" is equally increased by adding a hundred papers of pins, a hundred diamonds or a hundred newspapers "-and so forth.1 While we differ from our author's statistical reasoning we are almost indifferent about the logical issues for which he contends hotly, the questions raised in passages such as the following:

"Rapidity of circulation, whether of money or of goods, is not a causal factor independent of prices, but rather in part depends on prices". . . "the first change in the situation may appear in prices themselves " (Chap. VI.). "Particular prices can and do rise without a prior increase in money. or bank deposits, or change in the volume of trade, or in velocity of money or deposits, and also without compensating fall in other particular prices." "The cause is with the prices." (Chap. XV.)

The statement last cited refers to the following clean cut apophthegm :

'Suppose we assume a combination of employers of maidservants which forces down the wages of maidservants from $20 to $10 per month. . . . The masters now have $10 a month each more to spend. . . . The maidservants now have $10 each less to spend. . . . These last two changes exactly neutralise one another. The first change, in the price of domestic

1 See on this and other points connected with the attack on Professor Fisher's theory Currency and Finance in Time of War. By the present writer.