Such preferences have been very common historically, and they persisted well into the age usually considered modern. Medieval coinages, bearing the likeness or seal of some king or prince who authorized them, were public in a sense, since it was expected that they would be accepted throughout some territory, and the right to coin money was quickly established as a prerogative of sovereignty. But pre-modern rulers were never so clearly public persons as modern ones are expected to be; heredity bound princely authority to the body, and even to its most “private” parts, royal governments evolved out of arrangements to manage the king’s household, and our very word “state” developed from the phrase status regis, the king’s personal status or condition (a confusion of what we think of as public and private spheres that is still preserved in the French usage of the word état to mean both a political entity and an occupation). Whether medieval or early modern people trusted a particular coinage or not depended very much on what they knew about the personal qualities of a given ruler, since they were well aware that governments could enrich themselves by debasing coins with cheaper metals, thus increasing the amount of money in circulation and appropriating the increment to themselves. In addition, coins could be and often were counterfeited or clipped by people willing to risk prosecution, and the many uncertainties about them meant that they commonly circulated below their stated value.
The private character of paper money was even more marked, albeit for different reasons. Before the mid nineteenth century, most paper currency took the form of either bills or banknotes. Bills could be of various kinds, but all of them involved a claim for payment; people quickly realized that if the obligation a bill declared could be put off for some period of time, then it could be transferred from the original creditor to some other individual who would accept it, and who could pass it on in turn. Annotated in accepted ways (with marks or signatures), bills could be used to pay debts or make loans; they thus functioned as money, although they often circulated at a discount. One particular kind of bill came to have special importance as currency, namely the “bill of exchange.” Such bills took the form of requests or orders issued by some person and addressed to a second one, to pay a certain amount to a third (a situation better named by the French term “lettre d’échange”); they were rather like modern checks, save that they were drawn by one individual on another rather than on a bank. Like modern checks, however, they often rested on some kind of actual or assumed pre-existing obligation to the writer on the part of the person to whom they were addressed, and they were commonly accepted by people who knew, or thought they knew (or were willing to take a chance) that the person on whom they were drawn was likely to honor the request. Eventually, however, the responsibility to pay came back to the person who issued the bill (by requesting the second party to pay it), except that if a bill of exchange was “accepted” (rather than merely “noted”) by the person on whom it was drawn, in recognition of some liability to the person who drew it up (as between regular trading partners), then the responsibility passed to him or her. Bills of exchange seem first to have arisen in international trade sometime late in the fourteenth century, but came to be employed at closer range later on. They could be used as financial instruments for a wide variety of purposes, as payment for goods, as means for transferring credit or settling debts, and, since they were drawn up so that payment was due on a certain date, as loans (with interest open or hidden). Their actual value in circulation varied widely (we will see some examples of this below), depending on what a person to whom they were offered knew about the original issuer and or the endorser, and how soon the bill fell due and could be presented for payment.
Banknotes worked similarly. They were receipts for deposits (whether of specie or some other value accepted by the bank), and could also be passed from one person to another, sometimes requiring a personal endorsement, sometimes simply payable to the bearer. Their value fluctuated too, especially since many were issued by very small banks about whose condition the people to whom they were offered might know very little, especially outside the locales where they originated.
Compared to the money used in developed countries today these practices are likely to seem confusingly complex. They were also ingenious, however, and it is hardly surprising that something like them grew up in situations where most transactions were local, and where few authorities could be trusted even to guarantee the value of a currency inside a narrow territory, much less be able to vouch for it at a distance. The actual values of notes and bills, as opposed to their nominal ones, reflected some knowledge, or lack of knowledge, about the issuers, who were almost always private persons or entities. As money, they were far from what Simmel would later theorize as its true form. There were no national banks even of a quasi-public character able to issue notes before the late seventeenth century (a Swedish bank may have been the first to do so, around 1660, but it soon abandoned the practice; the Massachusetts Bay Colony was also a pioneer issuer of public money, and we will come to the Bank of England in a moment); even after such institutions began to function, the notes they provided were usually issued either in irregular amounts, reflecting the value of deposits, or in sums too large to be usable for everyday transactions. Moreover, it took much time before such currency effectively replaced the traditional kinds issued by some known nearby entity, or based on some personal relationship. This can be illustrated in the histories of the three countries we are focusing on here, albeit in somewhat different ways.
England was the country where paper money assumed a regular public or at least quasi-public character earliest, a development closely tied up with the establishment of Parliamentary control over state finances. Before 1688 the two chief forms of money were the royal coinage and notes issued by private banks, especially those operated by London goldsmiths, who gave out the paper in return for deposits, and used the resources they gained to make profitable loans to the king. This system collapsed in the 1670s when the Stuarts defaulted on their debt (the “Stop of the Exchequer”), ruining many goldsmith bankers and undermining confidence in their notes. The Bank of England, established in 1694, provided a different and in the end famously successful new system of government finance, whereby private investors could own shares in a permanently funded national debt, its use and administration overseen by Parliament. We have already taken note of the important role the Bank played in giving England a solid fiscal system, in stark contrast to the French one; we will come in a moment to its role as a lender. From the start, however, it was also a creator of money, issuing its first notes in the year it was founded. These were able to command much greater confidence than the goldsmiths’ paper so sorely tried twenty years earlier, but they were far from being a national currency. Their quasi-public character was signaled by Parliament’s setting the death penalty for counterfeiting them (which gave them a status akin to the royal coinage), but they were not legal tender, that is no one was required to accept them as payment for debts, and many other banks (mostly small and private, since restrictions were placed on the creation of other joint-stock banks) continued to issue notes that also served as money. Bills of all kinds functioned as currency too, and as economic activity expanded in the eighteenth century so did the quantity of paper money in circulation, surpassing the quantity of specie for the first time.5
The resulting situation was both ridden with problems and chaotic, however. Bank of England notes, issued on partly printed paper that left details to be completed by a clerk, were often for odd amounts, although by the mid eighteenth century regular denominations as low as £20 (still a large sum at the time) were available. By the end of the 1700s valuations as low as £1 were in circulation. But the notes were treated with considerable suspicion by many people, partly from memories of the South Sea Bubble crisis that reached its high point in 1720 (when a private company sought to take over a large part of the national debt from the Bank, causing a flurry of speculation and a sharp rise in its shares, followed by a disastrou
s collapse), and partly because extra borrowing in wartime led to inflation and a fall in the notes’ values. Radical critics in search of remedies for poverty often focused on the country’s financial system as especially damaging to the poor, and decried paper money as a tool of speculation and corruption. These attitudes helped to preserve a preference for both local currency and metallic coins.
Neither served very well however. Coins were in short supply, especially as business expanded; one expedient to which people turned was private coinage, which (modern readers may be surprised to learn) was not illegal so long as it did not copy the designs of the official mint. Both James Watt’s partner Matthew Boulton and John Wilkinson (the eighteenth-century “iron king”) issued coins with their own symbols stamped on them. Some manufacturers (most of whom bought raw materials and sold products largely by way of bills of exchange) had no coin or paper currency with which to pay their workers; at least one went into retail trade in order to acquire money for this purpose, and others set up “truck” systems because they made it possible to pay workers in “shop notes” when no other form of money was available (the abuses of the “truck” system have often been noted, but recent writers suggest it was partly justified by the shortage of currency). As one historian concluded: “So many manufacturers were forced to adopt such measures that the first decade of the nineteenth century witnessed the heyday of the private token coin. When this stage was reached the government had almost completely lost control over the metallic currency of the Kingdom.”6
Its control over paper currency was not much better, weakened in part by the preference people retained, particularly in some regions, for non-governmental issues. Notes from local banks appealed to many because their issuers were known to nearby people; many of these were also active as merchants or lawyers, and most were untainted by speculation in national funds or war finance. But such currency was often subject to being discounted outside the place where it was issued (as was true of private coinages). In addition, as long as Bank of England notes were not officially designated as legal tender, leaving people free to refuse them as payment, local banks faced with difficulty of some kind were moved to exchange the ones they held for gold, thus drawing reserves from the Bank, and putting downward pressure on the value of its paper.
Persisting economic difficulties in the 1820s and 1830s produced much public discussion of these problems, and a growing desire for a more stable and predictable currency. The result was, as one recent historian of money notes, to move dominant sectors of the public to agree that banknotes had to be recognized as “real money” in the same way as specie, and that some central authority had to take responsibility for their stability. Parliament undertook to do this in a series of acts. When the Bank’s charter was renewed in 1833 its notes were declared to be legal tender throughout England and Wales (Scotland had its own Bank), ending the motive for local banks to drain away its reserves in a crisis. A comprehensive banking act in 1844 stabilized the value of the Bank’s notes by establishing a “gold standard”: the volume of paper money allowed to circulate was set in proportion to the reserves of gold bullion and government securities held by the Bank. The same act also set strict limits on the power of other banks within 65 miles of London to issue circulating notes, thus giving the Bank major control over paper currency. At the same time the Bank was now charged with adjusting the amount of money in circulation by raising or lowering the rate at which it would discount bills, thus contracting or expanding the supply. By later in the century it would use this power to set interest rates and stabilize the value of the pound in international trade. In the terms of contemporary debate, this marked the triumph of the “banking school” over the “currency school,” since representatives of the latter had argued that banks should not attempt to control the circulation of money, on the grounds that currency was created by the transactions that engendered notes and bills, making the money supply grow or contract in response to business conditions themselves. In Simmel’s terms to which we referred earlier, the victory of the “banking school” marked the point at which the monetary system came to rest on an understanding that money in a developed commercial society involved not just relations between private individuals, but their common relation to society as a whole: money was recognized as essentially a public and social function, its stability guaranteed by the state.7
One writer who drew the consequences of this step a bit later was the noted political commentator Walter Bagehot, in his book Lombard Street (the name given to the London money market) of 1873. Bagehot argued against the still widely held notion that the Bank ought to hold tightly to its monetary reserve in times of economic difficulty, lest the country’s store of real wealth (the gold) be swallowed up in some whirlpool of commercial turbulence. The real wealth of the country was not in the Bank’s vaults, Bagehot insisted, but in the exchanges that produced goods and services on a national level. The Bank’s central function was to foster these in good times and bad; in moments when slowdowns in economic activity threatened valuable enterprises with collapse this meant making sure that funds were available to tide them over. Far from tightening credit at such moments, it should be eased, so that worthy but squeezed business people could borrow and thus survive. Even though a national bank looks like “a kind of ultimate treasury, where the last shilling of the country is deposited and kept,” so that to lend it at moments of danger seemed palpably wrong, in fact this “ultimate banking reserve … is not kept out of show, but for certain essential purposes, and one of those purposes is the meeting of a demand for cash caused by an alarm within the country.” Bagehot did not quite say so, but his point was that an older idea of money tied up with its association with specie made people imagine the nation on the model of a private person who needed to hold on to his or her inheritance in order to survive, whereas what made money a source of wealth in a modern economy was its ability to serve as the medium by which commercial exchanges between large numbers of anonymous people take place. Bagehot saw the need to revise people’s understanding of money as exactly parallel to the way he urged them to think differently about the state. In his more famous treatise on The English Constitution of 1867 he urged the public to look on state action not as “an imposed tyranny from without,” but as “our own action … as the consummated result of our own organised wishes.”8 Similarly, the Bank’s role in a crisis was to serve as an organized support for the nation as a community of economic interaction.
In practice, however, private bills of exchange remained an important form of currency, and in fact a growing one in England until around 1880, and in some respects for considerably longer. London’s importance as a money market rested on the presence there of many firms that specialized in raising funds, settling debts and transferring money through discounting bills of exchange. Their operations stretched around the world, and in international commerce their importance lasted well into the twentieth century (in different forms it still survives today). Domestically, however, their role (and with it that of the bills they issued) receded beginning in the mid 1860s, following the egregious collapse of some major houses (notably the firm of Overend and Gurney) during the commercial crisis of 1866 (an event that also resulted in restricting the supply of capital for British industry, as noted above). The eventual decline in the use of bills of exchange had other causes as well, ones tied up with the large-scale developments in economic and social relations ushered in by the completion of the railroad network. The faster transport and communication gave merchants quicker access to both materials and customers, allowing them to expand production and fill orders more quickly when demand rose, thus eliminating the need to keep large stocks of unsold goods in reserve to meet fluctuations in the market. Bills of exchange provided much of the credit required to keep up these inventories; as the pressure to maintain them declined, so did the need for the bills. At the same time the centralization of banking, with major London houses establishing regional branches, made it easie
r to use checks for payment, and bank finance, usually in the form of overdrafts, for credit. In this way banking operations, regulated centrally as part of the recognition of the public nature of money, increasingly replaced the privately generated currency of bills.9 The move to the conception of money as a public function was part of the continuing transformation by which distant and abstractly mediated kinds of relations entered into people’s lives at points where local and personal ones had predominated before.
Similar movements from private to public forms of money took place in France and Germany. In eighteenth-century France when people spoke about a sufficient or insufficient supply of money to effect commercial transactions, they often had in mind the quantity of bills of exchange available to be used for payment. Other forms of currency were often in very short supply.10 The importance of such bills had not diminished by the middle of the nineteenth century, as Balzac testified in his great novel Lost Illusions. There he gave the still common use of bills in the publishing industry a prominent role in the final stages of Lucien Chardon’s fall from the glittering heights he seemed to have achieved in Paris. “Then, as today [Balzac was writing around 1840 about a story set some two decades earlier], works were bought from authors in bills drawn to fall due in six, nine or twelve months’ time – a payment based on the nature of the sale which publishers settle among themselves by means of even longer-termed values. The publishers paid the paper-manufacturers and the printers in the same currency.” These practices allowed publishers (whose ways Balzac knew well, having been one himself) to operate speculatively and without having to assemble much capital of their own, or to subject their operations to oversight by banks concerned about the solvency of borrowers. In the story, Lucien (who had made a name for himself in journalism) receives the 5,000 franc payment for his historical novel in bills drawn up by the two partners who agree to publish it. When he and a friend run around Paris trying to exchange them for specie, however, they discover that their face value cannot be realized. The first broker to whom they turn offers them 3,000 francs, a hefty discount, but he is willing to go even that high only because he knows that the partners who issued the bills have debts they need to cover quickly, so that he will be able to pressure them into taking the bills back at their face value in exchange for the rights to two recently issued books with good future prospects but slow current sales. Hurt and believing he can do better (but knowing that the offer will not be renewed), Lucien refuses. A second broker at first says he will take the bills for 1,500 francs, but closely examining the dates (and knowing that Lucien himself has fallen into debt), he too makes the proposal conditional on the publisher giving him rights over the sale of some promising books. In the end nobody will take the bills, Lucien having rejected the proposal of letting his actor mistress ask a former lover who is a rich businessmen to exchange them for cash, knowing what the merchant would want from Coralie in return. Many things are bought with coin in Balzac’s Paris, to be sure, but on the scale where well-off people live, cash appears as a privilege of those wealthy enough to stash it away. Without quite saying that discounted notes and bills cannot fulfill the function people expect money to serve because no public authority has found a way to guarantee their value, Balzac pictures this “money” as subject to the same kinds of corrupt manipulation as are – in his perhaps exaggeratedly jaundiced view – ideals, reputations, political principles, and personal destinies.11
Modernity and Bourgeois Life Page 36
