by Thomas Allen

In 1877, Henry Varnum Poor (1812-1905) wrote Money and Its Laws: Embracing a History of Monetary Theories, and a History of the Currency of the United States. He was a financial analyst and founder of a company that evolved into Standard & Poor’s. Poor was a proponent of the real bills doctrine and the classical gold-coin standard and, thus, the quality theory of money. He gave little credence to the quantity theory of money — especially if credit money, such as bank notes, were convertible on demand in species. Also, he contended that the value of money depends on and is derived from the value of the material of which it is made and with paper money, its representation of such value.

In the latter part of his book, he discusses leading monetary theorists from Aristotle (350 B.C.) to David A. Wells (1875). Most of the economists whom he discussed were proponents of the quantity theory of money. We will look at his discussion on Bonamy Price. My comments are in brackets. Referenced page numbers enclosed in parentheses are to Poor’s book.

Bonamy Price (1807-1888) was an English political economist and a professor of political economy at the University of Oxford. Among his works are The Principles of Currency (1869), Currency and Banking (1876), Chapters on Practical Political Economy (1878). Poor reviews Principles of Currency.

Price provides this profound observation:

It [political economy] never seems to make a final and permanent lodgment of any of its truths in the public mind. They float on a tide which often carries the vessel backward as fast as it progresses forward. The tendency to backslide seems to be incessant and irresistible, — not often from any fault of its own, or from want of ability and demonstrating power in its teachers, but from the strength of the adverse forces which every one of its conclusions is ceaselessly obliged to encounter. A centrifugal force is ever acting on some large section of society, — sometimes, even, on a whole population, — which makes it forget all that it has learned, and draws it back into the darkness of ignorance (p. 401).

[Ever since the abandonment of the gold standard accompanied by the real bills doctrine with World War I, mankind has been charging ever more swiftly into the “darkness of ignorance.”] In other sciences, once a truth is established, people do not return to the errors, fables, and falsehoods that it has corrected and replaced. For some reason, the political economist has difficulty in confirming his observations; about this issue, Price writes:

The reason of this difference of fortune does not consist in the certainty attached to the subject-matter of the one, and the inherent uncertainty of the other. Some of the positions reached by Political Economy attain the quality of demonstration; and yet they are denied or ignored as readily as if they were the hypothesis of an empiric. They are not argued against and refuted; no second trial is summoned to retest their value: they are simply passed over; and then the error which they were supposed to have dispelled resumes its possession of the public mind, just as if it were the infallible suggestion of instinct (p. 401).

According to Price, the explanation for people continually returning to false economic principles “is to be found in the ceaseless action of selfishness, in the never-dying force of class and personal interests, in the steady and constant effort to promote private gains at the cost of the whole community” (p. 401). To Price, promoting private gain at the cost of the whole community is just a manifestation of the mercantile theory. Price follows his explanation with a discussion on mercantilism (pp. 402-403).

Poor strongly objects to Price attitude about merchants: “A reader of the Economists cannot fail to be struck with the hostility, not to say hatred, which all of them display toward merchants” (p. 404). Then Poor asks, “What is the reason of this hatred, with a sharper tooth even than that of the odium theologicum? — the practice of treating gold as wealth, and the highest form of wealth” (p. 407). Also, Poor expresses his low opinion of Adam Smith’s treatment of merchants. He writes, “Smith did his best to sustain his theory by sneers and flings at those who grew rich by its violation. He declared them to be a mean and selfish race, the abettors of the worst forms of monopoly, and the disturbers of the peace of the world” (p. 407). Then, Poor adds that “Price, in his grotesque way, attempts to paint them in still blacker colors” (p. 407). Moreover, Poor states that Price “admits that if the merchant, if the universal instinct of the race, is to be trusted, the teachings of Adam Smith, so far as they relate to money, are shams” (p. 407). Continuing, Poor writes:

The only refuge of the Economists is in crying that the science has been overborne by the selfishness of men of affairs. They cannot deny that these grow rich by pursuing methods precisely the opposite to those which they lay down. . .  The Economists fiercely reply that truth is sacrificed to mammon; but if it be the office of Political Economy to teach the method of wealth, why has not the man of millions the true method; and what need of going beyond his rules? As for the selfishness of the race, we fear that Political Economists have no prescription for its cure (pp. 407-408).

[If the merchant looks to the government to gain an advantage over others, he is a villain of society — and even more so are those in government who conspire with him to give him an advantage. {Governmental officials who seek to penalize merchants because they are merchants are also scoundrels.} However, if a merchant concentrates on providing the customer with goods and services of the highest quality at the lowest price instead of seeking governmentally protected advantage, then he is a great asset to the community.]

Price rejects the notion that bills of exchange and checks represent money. Moreover, he declares that they are not money. They are “[o]rders to pay money, which can be legally enforced; title-deeds to money which lead directly to the obtaining of money. They are all warrants or evidences of debt” (p. 404). [Bills of exchange, checks, and even bank notes are forms of credit {credit money} and are not real money themselves. Price is correct in that they do not represent money, i.e., gold coin. However, they do represent the equivalent value of gold coin. That is a $10 bank note, or a check written for $10, represents the value of a $10 gold coin; it does not represent the $10 gold coin. Credit money is merely the promise to pay the value, i.e., the amount of gold, stated on the note, check, or bill. {Today, notes and checks are promises to pay some unknown nebulous abstraction. Moreover, it is a promise that the issuer has no intention of keeping.}]

According to Price only a small amount of buying and selling is done with coin or bank notes. Most buying and selling and borrowing and lending are done with checks and bills, that is, it is done by exchanging debt (p. 405). [In today’s monetary system, all exchanges are made with debt. All “money” is credit. Therefore, the only way to extinguish debt is bankruptcy and reputation.]

Copyright © 2017 by Thomas Coley Allen.