158 



DISCOVERY 



unit of money and how iiioiuy lui> ht-cn bearing its 

 burden. 



The invention of money was made far back in 

 antiquity anil originated in the great difficulties that 

 arose under a system of simple barter. Any measure 

 of freedom and case in the exchange of goods made it 

 necessary for some commodity, or commodities, to be 

 commonly acceptable in exchange for things which 

 individuals desired to acquire. Although in various 

 times and places many different commodities have 

 passed as currency, certain metals have proved most 

 suitable for this purpose, and gold and silver — the 

 " precious metals " — have been the most widely used. 

 Both have been eagerly sought after for purposes of 

 personal adornment, and their comparative scarcity has 

 given them a high value. The weight and bulk of these 

 metals needed to carry through normal transactions 

 is thus rendered reasonably convenient. While both 

 metals have been used for currency purposes from early 

 times, at the commencement of the Christian Era, and 

 for many centuries, silver w-as the metal more commonly 

 used in England and on the European continent. 

 During the nineteenth century circumstances (in- 

 cluding the discovery of supplies of gold in California, 

 Australia and, later, in the Witwatersrand) caused 

 gold to gain much in popularity for currency purposes. 

 For a period of about forty years prior to the outbreak 

 of the Great War, gold was the basis of nearly all cur- 

 rencies in the world. 



While, before the war, gold was in circulation in this 

 country as a currency, in reality it was used only to a 

 very small extent in the settlement of private and, to 

 an even less extent, of business transactions, in propor- 

 tion to the amount of business done. For transactions 

 within the United Kingdom cheques were used for the 

 settlement of the greater volume of debts. In the 

 settlement of debts due to and by persons outside the 

 United Kingdom, i.e. in settlement of foreign trade 

 transactions, the bill of exchange largely fulfilled 

 the functions of the cheque at home. In addition, it 

 fulfilled other functions with which it is not here 

 necessary to deal. 



When the cheque was invented in this country by 

 the goldsmiths in the City of London in the seven- 

 teenth century, it was merely an order by a customer 

 instnicting the goldsmith to pay a creditor of the 

 customer a certain sum out of the money left with the 

 goldsmith for safe keeping. The goldsmiths found 

 that, although customers were always withdrawing and 

 depositing money with them, yet, on balance, there was 

 always a considerable sum which was not, in the 

 ordinary way, required by customers. As a result, 

 they began the practice of lending out for their own 

 profit so much of this steady balance as they considered 

 it safe to part with. If they lent out too freely they 



found themselves, sooner or later, with insufficient ready 

 money to pay a customer's cheque and had to suspend 

 payment. In this practice of lending balances com- 

 menced the practice of banking as distinct from the 

 provision of safe deposit facilities for money. To-day the 

 relending of customers' money has developed very far in 

 this country. Bankers lend part of the funds entrusted 

 to them by their customers to other customers — by 

 allowing these latter to draw cheques upon them for 

 an amount greater than the deposits of the borrowing 

 customer, i.e. by allowing overdrafts. Money is also 

 lent by them in other ways — by purchasing securities 

 and by providing funds to persons whose function it is 

 to relend them in the facilitation of trade transactions 

 (by discounting and lending on bills of exchange). 

 If it had been compulsory to use gold in the settle- 

 ment of all debts, trade upon the present scale would 

 have been impossible, for there was sufficient gold in 

 this country in 1914 to pay only a very small percentage 

 of the amounts which bankers owed their customers. 

 Bankers still endeavoured to arrange their business in 

 such a way as always to be able to supply gold when it 

 was demanded, but now, in the knowledge that any great 

 demand for gold w-as improbable, they relied mainly 

 upon being able to get gold from the Bank of England, 

 w'hich relied largely upon its power to set in motion 

 influences that would check the demand for gold. To 

 attempt the task of paying out simultaneously in gold 

 all the sums it owed would have been attempting the 

 impossible. 



Thus, for all practical purposes, cheques formed a 

 very great addition to the gold currency of the country. 

 In the days before the goldsmiths relent the balances 

 in their hands, cheques, if passed from hand to hand, 

 merely represented a portion of the gold in the vault 

 below the goldsmith's shop, and were not an addition 

 to, but rather a temporary substitute for, the gold coins. 

 The amount of this addition to the gold currency is 

 decided by bankers when they determine the extent 

 to which they will relend the funds in their hands. 

 They cannot, of course, lend more than the total 

 deposits with them ; they dare not lend nearly all these 

 deposits — or how are they to meet their customers' 

 demands day by day ? They must clearly make some 

 decision — endeavouring to lend as much as possible in 

 order to make as much profit as possible and yet always 

 keeping ample funds to meet all demands. 



Bank of England notes were also, before the war, an 

 important part of our currency system ; but as all notes 

 in excess of an amount fixed by an Act of Parliament of 

 1844 — and termed the " fiduciary issue" — were repre- 

 sented by actual gold at the Bank, these notes were in 

 the nature of mere safe deposit receipts for gold in the 

 same way as the original cheques on goldsmiths. 



Small change moneys of silver, nickel, and bronze are 



