Poor on Bowen

Poor on Bowen

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 Francis Bowen. My comments are in brackets. Referenced page numbers enclosed in parentheses are to Poor’s book.
    Francis Bowen (1811-1890) was an American philosopher, writer, and educationalist and a professor of political economy at Harvard University. Among his works are Lectures on Political Economy (1850), The Principles of Political Economy applied to the Condition, Resources and Institutions of the American People (1856), and American Political Economy (1870), which Poor reviews.
    Poor describes American Political Economy as “a feeble and garrulous restatement of Adam Smith, Stewart, Ricardo, Tooke, McCulloch, and Mill, to whose absurdities and errors an emphasis is given by no means to be found in the originals” (p. 409).
    Bowen writes “that money is merely a contrivance for diminishing the friction of exchange; and, though safe and convenient, it is also a very costly contrivance for this end” (p. 409). Money is part of a country’s wealth, but it is not capital. It does not yield profit or interest. Only the goods transferred by the means of money yield profit. Because money is not consumed, “it is not productive” (p. 409). Therefore, “[t]he specie which a merchant or a banker holds in store, to provide against daily calls or sudden emergencies, is the only unproductive portion of his capital: he is subject to a loss of interest on the whole amount thus retained” (p. 409). “The coin which a man keeps in his pocket does not, like his shoes or his hat, contribute to his comfort: it is a convenience to him only as it supplies immediate means for making small purchases or satisfying small demands” (p. 409).
    Poor replies

[C]oin has a great many functions beside “diminishing the friction of exchange.” It cannot be called unproductive so long as it can be loaned at interest, and is absolutely indispensable in the process of distribution, without which there can be no capital worthy the name. It would be just as proper to say that a wagon or railroad car was unproductive, for the reason that it did not produce the merchandise transported by it (pp. 409-410).

[Expressing the same sentiment, Hutt states, “The essences of all these services [of money] is availability. . . . [M]oney assets are not unemployed or resting when they are in our pockets, or in our tills, or in our banking accounts, but in pseudo-idleness, like a piano when it is not being played, or a fireman or a fire engine when there are no fires.”[1] In essence, Bowen is presenting the sterility-gold-coin argument against the gold standard.]
    About exchanges, Bowen writes, “Every exchange is a barter of a quantity of merchandise for a certain sum of money which is its equivalent” (p. 410). Because money is not consumed when it is exchanged, a community does not need as much money as there is merchandise; therefore, money is immediately ready for another purchase. Bowen declares:

The circulation of money and of merchandise bears some relation to the momentum spoken of in physical science, which is composed of the velocity multiplied by the mass; the momenta are equal, though the velocity should be increased tenfold, provided that the mass is but one tenth part as great. So, also, the momentum of wealth is its value multiplied by the rapidity of its circulation. As money circulates far more rapidly than merchandise, it is evident that (the number of exchanges on both sides being equal) there must necessarily be less value in the money than in the merchandise, and as much less as the circulation of the money is more rapid than that of the merchandise (p. 410).

    Next Bowen presents an algebraic equation to describe his concept: gs=mr, where g = quantity of goods on sale; s = number of times the goods are resold; m = quantity of money in circulation; r = number of purchases effected by each piece of money. [This equation is similar to Irvin Fisher’s equation: MV=PT, where M = the amount of money; V = the velocity of money; P = prices; T = the number of transactions. In The Value of Money, Benjamin Anderson explains in great detail the flaws of Fisher’s equation and the quantity theory of money.]
    With this equation, Bowen shows “that the value of money will be inversely as its quantity” (p. 411). [That is, as the quantity of money increases, its value decreases if everything else remains constant. By value, he seems to mean purchasing power.]
    Poor remarks that Bowen errs because “[m]omentum and effective value are identical terms. All kinds of merchandise, wealth being a generic term, obey the same law. Whatever value can be predicated of one kind, due to the rapidity of its circulation, can be of all other kinds” (p. 411).
    Continuing, if Bowen is correct, then according to Poor, “the great problem for society is to determine the degree of momentum that can be secured for its merchandise, as its wealth will be increased in like ratio” (p. 411). Then, using Bowen’s equation, Poor defines “g” to stand for the “goose” instead of “goods.” Next, he states:

Now, “the value of the goose is inversely as its quantity multiplied by the rapidity of its circulation.” Assuming the formula given to express the ordinary rapidity of circulation, or, what is equivalent, the momentum, and consequently, value of the goose; then, if its momentum, or value, be doubled, the formula has only to be altered; thus: — gs=2mr, or mr=gs/2. The goose has now a value twice greater than it had before (pp. 411-412).

According to Bowen’s equation, the value of the goose is inverse to its quantity. Therefore, using Bowen’s equation, if the quantity of the goose is reduced by half, the quantity of money doubles — assuming that demand remains the same. Thus, Poor notes:

If the crop of geese should be short, and it should be desirable to increase their momentum, or effective value, say tenfold, all that would have to be done would be to increase their rapidity of circulation to be expressed by the following change in Mr. Bowen’s formula; thus: — gs/10=mr, or 10mr=gs. When the last degree of momentum was secured, a wing or a leg of the goose would have a value equal to that of the whole bird. Society will be the gainer in an equal degree, by being able to devote to other purposes the land formerly dedicated to goose-culture.

Continuing, Poor writes:

Admitting the conclusiveness of his demonstration, it must be applicable to all kinds of merchandise; for, as has already been shown, money, after it has been spent, is as functus officio to its late owner as is the goose to its owner after it is eaten. If it be objected that the money is still in existence, and the goose is not, it may be replied: that the goose has indeed been eaten, but productively, to appear in new geese, or, in other kinds of merchandise; so that whoever uses the money the second time is still confronted by a new goose or its equivalent. If the goose or its equivalent do not reappear, then the money does not. Each responds, and with equal alacrity, to the call of the other (pp. 412-413).

    Bowen notes that a large portion of specie currency can be replaced with paper currency or other substitutes. However, “the total amount of the currency will remain just as before; the value of the paper and the precious metals, taken together, will be just what the specie alone would be if paper were not used” (p. 413). Wealth and commodities are estimated in the monetary unit, such as the dollar, “and it is by the aid of such estimates that all exchanges are made” (p. 413). “Thus, the idea of money aids us, when the reality is seldom employed” (p. 413). He asserts, “Money is even now only a hypothetical or abstract medium of exchange in all the larger transactions of commerce” (p. 413). Bowen anticipates “the time, in the progress of invention and the discovery of new expedients and facilities in commerce, when it will become so universally; when, at any rate, so costly and useless a realization of the idea as gold and silver coin will be entirely done away” (p. 413). [If Bowen had lived another 85 years, he would have witnessed his dream as gold and silver were no longer part of the monetary system. Also, he could have witnessed the economic disaster that the abandonment of gold and silver coin has brought.]
    Poor responds that Bowen is greatly mistaken:

Money is still, as many find to their cost, far more than a mere scale of valuation. The holders of property, when they sell it, still persist in demanding something more than “hypothetical or abstract media of exchange.” They may be very uncivilized and selfish to demand a quid pro quo in all transactions, and the laws which uphold them very barbarous; but these laws, nevertheless, have maintained their force since laws existed (pp. 413-414).

[Today, what passes for money is little more than an abstract counter, an abstract medium of exchange. It cannot extinguish debt as it is debt. At least mankind is no longer “uncivilized and selfish” as they no longer demand “quid pro quo.” They exchange goods and services for that which has no value in itself and does not represent value.]
    Bowen explains the difference between convertible bank currency and inconvertible paper money. Convertible currency cannot be overissued. If inconvertible paper money “could be kept precisely equal to what the amount of metallic currency would be in case there were no paper in circulation, then there would be no depreciation of the paper; nay, the paper might even command a premium over the coin, if the aggregate value of it were made less than what the coin would amount to, and if it were also possible to prevent the importation of specie.” (p. 414). [Bowen errs. Uncertainty causes inconvertible legal-tender government notes to depreciate. The excessive issue of these notes, as Bowen and the quantity theory of money claims, is not the cause of their depreciation. However, an excess of issue can influence the value of these notes by affecting uncertainty. Uncertainties that affect the value of inconvertible government notes include (1) the uncertainty of when they will be paid or even if they will be a paid, (2) the ability of the government to pay, (3) the willingness of the government to pay, and (4) the kind of coin that will be used for payment. S. McLean Hardy’s statistical study of the U.S. note between 1862 and 1873 shows that uncertainty, and not the quantity of notes, was the driving force behind the depreciation of U.S. notes.] Bowen adds, “Money acquires the power of exercising its functions, not from any intrinsic quality that it possesses, but solely from convention” (p. 414). [The economists whom Poor reviews needed to study the origins of money. They would have found that money acquired “the power of exercising its functions” not from convention, but solely from its intrinsic quality that it possesses. A good place to start is the works of Karl Menger and William. W. Carlile.] Continuing, Bowen writes, “The value of paper money, not depending at all upon its cost of production, is regulated solely by its quantity” (p. 414). [Thus, the quantity theory of money explains the value of money. However, the quantity theory of money seems to have failed to explain the downward trend in prices during the last three decades of the nineteenth century in the United States. Money supply more than doubled, yet general prices declined.] Then he remarks:

A certain determinable sum of money is needed in every nation to effect its current exchanges, and to maintain prices at an equilibrium with the average prices of commodities throughout the commercial world. Coin being banished, if the issue of paper money is less than this sum, the paper will be at a premium; if greater, it will be at a discount (pp. 414-415).

[For decades, every country has operated with a monetary system of inconvertible paper money completely divorced from gold. If Bowen is correct in that the managers of the inconvertible currency can maintain price stability, then the monetary system of every country is operated by either incompetents who lack the knowledge and ability to manage properly their monetary systems or criminals who are deliberately destroying the currencies of their countries. Fiat monetary reformers would argue that they are both. They are criminals transporting the country’s wealth to the rich and powerful by destroying the currency. They are ignorant incompetents for failing to follow the fiat money reformer’s scheme for issuing the currency. However, the fiat money reformers do not agree on the correct scheme to follow except that the government, which is controlled by the rich and powerful, should issue the currency. The fiat money reformers are probably correct in that the money managers are both incompetent and criminals. For that reason, the issuance and regulation of money should be taken from governments and their central banks and left to the markets. In monetary matters, the only action required by the government is to define the monetary unit as a specific weight of precious metal and to punish violations of contracts and acts of fraud.]
    In his concluding remarks about Bowen, Poor writes:

Were Mr. Bowen the only one to be affected by his opinions, they would be of very little consequence; but they become of the greatest importance when taught to young men about to enter the world of affairs, especially when they relate to a subject which concerns, more deeply almost than any other, the welfare of society. What would be thought of a professorship in a university that should still seek to establish the wonderful properties of the philosopher’s stone? The attempt would not be a whit more absurd than his teachings upon the subject of money. The thing chiefly to be regretted is, that there does not seem to be any way in which to rid the universities and the world of such nonsense. So far as money is concerned, all are Alchemists, all are believers in the philosopher's stone, all are intent upon its realization. The first step in the way of reform should be to abolish the “professorship of Political Economy,” not only in this, but in all institutions in which it is now pretended to be taught; and either abandon instruction in it altogether, or put its duties in commission. In the latter case, whatever was taught would at least have the merit of being as broad as the course of instruction would allow (p. 415).

Endnote

1. William Harold Hutt, Individual Freedom: Selected Works of William H. Hutt, editors Svetozar Pejovich and David Klingaman (Westport, Connecticut: Greenwood Press, 1975), pp.207-209.

Copyright © 2017 by Thomas Coley Allen.

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Poor on Stewart

Poor on Stewart

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 Dugald Stewart. My comments are in brackets. Referenced page numbers enclosed in parentheses are to Poor’s book.
    Dugald Stewart (1753-1828) was a Scottish philosopher and mathematician, who popularizing the Scottish Enlightenment. He was a professor of moral philosophy at the University of Edinburgh. Among his writings are Elements of the Philosophy of the Human Mind (in three volumes, 1792, 1814, and 1827), Outlines of Moral Philosophy (1793), and The Philosophy of the Active and Moral Powers (1828). Poor reviews Stewart’s monetary philosophy as presented in his Lectures on Political Economy.
    Poor writes, “Stewart was an ardent admirer of [Adam] Smith, and assumed to reduce to precise and logical terms what his great master only more generally outlined”  (p. 171). Nevertheless, Stewart objected to Smith’s belief that the value of gold and silver depended largely on “their beauty, utility in the arts, and scarcity; that such qualities, among others still more important, fitted them to serve as money” (p. 171). For Stewart, the intrinsic value of gold and silver in a coin is “merely accidental circumstances.” Stewart asserts, “When gold is converted into coin, its possessor never thinks of any thing but its exchangeable value” (p. 171). If the intrinsic value of gold and silver are annihilated, i.e., their conversion to flatware, jewelry, etc., they could still function as money as they did when they had intrinsic value. Money is merely a ticket or counter. “It is general consent alone which distinguishes them [gold and silver], when employed as money, from any thing else which circulates in a country; from the paper money, for instance, which circulates in Scotland and England.” (p. 172). If a country were isolated from the rest of the world, gold or silver coin as a medium of exchange would have no advantage over paper currency. Also, whether the circulation medium consists of gold or paper would make no difference on the national wealth. Moreover, according to Stewart, whether gold or silver was abundant or scant would not matter. “The only utility which is essential to gold and silver as media of exchange is their peculiar adaptation (divisibility, durability, &c.) to this purpose” (p. 172). [For the most part, fiat money proponents agree with Stewart’s monetary theory.]
    Poor replies that like Smith, Stewart errs in his assumption “that money was an invention, — an arrangement entered into from a sense of its necessity” (p. 172). Stewart also errs in his conclusion “that value is not a necessary attribute of money” (p. 173). [Poor is correct: Money was not an invention. It evolved over time from spontaneous market operations. Only after money came into being did governments get involved.]
    However, Stewart’s idea of money is a logical derivation from Smith’s idea. From the premises laid down by Smith, Stewart concluded that “value is no attribute of money.” Poor remarks, “the real value of money must equal its nominal value, or, in case of symbols, the values of what they represent must equal their nominal value in coin, or value is no attribute of money whatever” (p. 173). [Today’s fiat paper money is based on Stewart’s premise that value is no attribute of money. That is, the quality of money is irrelevant. Force is the only thing behind, or backing, today’s fiat paper money.]
    Stewart states, “We never think when we receive the precious metals as money, of their value in the arts” (p. 173). To which Poor replies, “But were they not first taken, and chiefly, for their value in the arts? and if we do not now consciously go through the same mental process that was gone through when they were first taken, is it not that such consciousness is concealed from us by habit, not that it does not exist” (p. 173)? People practice many things without conscious thought about how such practice came into being. Acting this way “is no proof that the mind is not engaged in one case as in the other” (p. 173). Poor notes:

Stewart, however, wholly misstated the fact that gold and silver are taken without any consciousness of their value in the arts. As a rule, we do not raise the inquiry; we assume from experience that coins are what they purport to be: but let it be noised abroad that debased coins of a particular denomination are in circulation, then every one of the kind, good or bad, will be subjected to the closest scrutiny, and, if taken at all, will only be taken at its value in the arts, measured by the amount of pure metal it contains (pp. 173-174).

    Stewart claims that if all gold and silver mines were exhausted, all the gold and silver in existence would be converted to money. Poor disagrees. First, he doubts the possibility of exhausting of all mines. If gold and silver were to disappear, civilization would disappear with them. However, if all mines were exhausted, Poor doubts that all gold and silver would be converted to money. Poor writes:

As it [gold] gradually disappeared from loss and attrition, commerce and trade, and with these, civilization and wealth, would gradually die out. As these disappeared, gold and silver would gradually flow back into the arts, and almost wholly in time; for, as there would be no trade, money would not be wanted. It is a fact of universal observation, that gold and silver possessed by the savage races are not used as money, but almost wholly in the arts (p. 174).

    To Stewart’s belief that “gold and silver, as a medium of exchange, would possess no value over the most worthless of substances” (p. 175), Poor replies:

This absurdity is repeated by every subsequent writer upon the subject of money. Suppose England to be the world, what then? Would all sense of beauty, of utility or value be lost to its people? Suppose, as Stewart assumes, England isolated, a Yorkshire grazier should take with him to London a lot of beeves; and upon their sale should be offered a leather medal, with curious hieroglyphics stamped upon it, in payment. The seller at first might consider the offer as a good joke; but, on finding the purchaser in earnest, he would believe himself to be dealing with a madman, and would take good care to get his beeves into his possession again, and to rid himself of such a dangerous customer. To be logical, Stewart must assume that, were England isolated from all the world, its people would have a sense of neither use nor beauty; in other words, that they would be lower in the scale than any race or tribe ever yet discovered. If the precious metals have no intrinsic value, then the Scythian was correct in assuming money to be useful only for the purpose of assisting in numeration and arithmetic. It is for this reason that Stewart held their value to be disadvantageous, in complicating thereby the theory of money. If value be not an attribute of money, he was quite right in eliminating from it all idea of such quality (p. 175).

[The fiat paper monetary system that has now taken over the world supports Stewart’s notion of money better than it does Poor’s. However, Poor’s notion is much closer to the truth than Stewart’s. Because of believing Stewart, the world is now on the edge of a monetary crisis the likes of which the world has never before witnessed. Civilization is on the verge of collapsing into an economic abyss from which it may never recover, such as that which happened when the dying Roman civilization collapsed into the Dark Age — only this time the collapse may be worse. Only a return to a commodity monetary standard, such as the gold standard, where money has real value in non-monetary uses and can extinguish debt because it is no one else’s obligation, can save it.]
    Poor asks if Stewart is correct in that money as such has no value, then what harm can come from debasing coins? When a coin is debased, the denomination remains the same. However, the precious metal content of the coin is reduced. [Historically, when precious-metal coins were debased, prices quickly rose to adjust to the precious metal content of the debased coin. Even the death penalty could not deter this price adjustment.] Poor remarks, “If the sole use of money, as asserted by Stewart, be to assist in numeration and arithmetic, then the different denominations of coin have only the force of numerals; and a piece of leather upon which is imprinted the word ‘dollar’ is in its proper essence the same thing as a piece of gold upon which the same word is impressed” (p. 176). He continues,

Hume was more logical and consistent. Agreeing with Stewart that the only value of money, as such, was to assist in numeration and arithmetic, he took the ground that the currency should be debased, as the means of eliminating value from it; naively remarking, that such debasement should be effected in such a sly way that the people should not discover the swindle. Of the two, Hume is to be preferred. The admission that the debasement was a swindle had the merit, at least, of putting the people on their guard (p. 176).

    Stewart writes that money provides a “scale of value” instead of a “standard of value,” which is the term that Smith uses. Thus, Stewart is more accurate than Smith about his concept of money. Poor notes, “It would be a contradiction in terms to call that a standard of value which had no value. A thing may be a scale, without being a standard. A yardstick is a scale for measuring distance or extension, but not the standard of distance or extension” (p. 177).
    Poor asks, “If all value is to be abstracted from money, then of what advantage are the qualities of divisibility and fusibility, in the materials composing it” (p. 177)? These are two of the qualities that Stewart claims make gold useful as money (p. 176). Moreover, Poor continues, “Why not have the denominations which are fitted to express ‘every conceivable variation, of value’ all of the same size and fineness? A bank-note for a thousand dollars has precisely the same size and quality of material as a note for one dollar. The only difference is in their inscriptions” (p. 177).
    Continuing his comment on Stewart’s claim that divisibility and fusibility were qualities that fitted gold and silver for money, Poor writes, “According to Stewart’s theory, the qualities which fit gold and silver for money — divisibility and fusibility — are of the least importance; for pieces of similar size may be made by their inscriptions to express ‘every conceivable variation of value’” (p. 177).
    Stewart claims that a scale of value renders “the ideas of value much more precise and definite than they otherwise would have been” (p. 177). Poor asks, “But how can ideas of relative value be made more precise by comparing them with a scale from which all value is abstracted? How can nothing be made to be the measure of the value of something” (p. 177)? [A great question. As far as I know, no one has satisfactorily explained how something of no value and does not represent something of value can measure value.] Continuing with an example, Poor writes, “A definite idea is conveyed in the statement that a gold dollar measures the value of a bushel of corn; but what idea can be formed of the value of the corn from a statement that its value is that expressed upon a worthless piece of leather or paper” (p. 177)? [With today’s fiat paper money, value is “measured” with worthless pieces of paper. Perhaps trying to measure something with nothing explains, at least in part, the devastating economic crisis looming before the world.]
    Stewart also suggests that “the quantity of money required by a community was in ratio to the rapidity of its circulation” [i.e., the velocity of money or the velocity of circulation] (p. 178). [The concept of the velocity of money is an important component of the quantity theory of money.] To which Poor replies, “This suggestion, which naturally resulted from the assumption that money is not capital, but a scale of valuation, or an aid in enumeration and arithmetic, has become an axiom among all modern Economists” (p. 178). [Today, nearly all economists continue to agree with Stewart on this issue.] Commenting on the event that Stewart used to deduce his conclusion on the rapidity of circulation, Poor writes:

The result of these transactions was, that in the course of seven weeks the garrison had been paid 49,000 florins, the sutlers had sold supplies to the amount of 49,000 florins, and the commandant or government owed them 49,000 florins: so that in the end the latter had converted their supplies into money, and had in hand 7,000 florins, and a debt against the government or commandant for 49,000 florins. From all this Stewart deduces a law, — that the amount of currency required is in ratio to its activity. Suppose the garrison had required a certain amount of forage lying twenty miles off; and that, having but one horse, ten days were required for its transportation. With ten horses, the same work might have been done in a single day. Would Stewart from this fact have attempted to prove that one horse could do the work of ten? We wonder he did not fortify his argument by the following syllogism: ‘ten horses can do so much work in one day; one horse can do the same work in ten days; therefore one horse can do the work of ten horses (p. 179).

    Stewart states “that the quantity of money and notes in circulation must bear but a small proportion to the value of the goods to be bought and sold, and that this proportion must vary according to the quickness with which the money circulates or shifts from one hand to another” (p. 179). To this claim, Poor replies, “If the proportion of money to the goods to be bought and sold be small, then the amount of goods bought and sold will be small. Stewart has only shown that, with a small amount of money, seven weeks were required to effect exchanges which might, with an adequate amount, have been made in one” (p. 179).
    Continuing his comments on the rapidity of the circulation of money, Poor writes:

If money be capital, or the representative of capital, and if when it is exchanged it is exchanged for other kinds of capital, then there can be no greater activity in money than in other kinds of capital; and there can be no relation whatever between its activity and quantity. There would be just as much sense in saying that the quantity of wheat necessary for the consumption of a community was in ratio to the rapidity of its movement: that is, if the rapidity of its motion be made twice as great, one-half the ordinary quantity will suffice. . . . [Stewart] overlooked the fact, that, when money was used as the measure of value or the scale of valuation, the thing, the scale itself, passed from the party using it to the party whose goods had been purchased and measured by it. . . . With Stewart . . . money is an entity, possessed of volition and will, flying about the country eager to do some good deed; an active and lively piece doing twice the work of a dull, phlegmatic one. But money cannot move unless something else moves, no matter how eager it may be for work. Its eagerness must find its complement in some other kind of property; so that if volition, will, and activity be predicated of one, volition, will, and activity must be predicated of the other. Money has no attribute of activity different from that possessed by all other kinds of merchandise. The use of one involves the use of the other; the employment of one involves the employment of the other (pp. 180-181).

    Poor concludes his review of Stewart with this comment:

One of the great evils resulting from the reputation of such a man as Dugald Stewart is, that every word that he uttered, which was recorded by himself or by others, is carefully gathered up and put into his ‘works.’ In the case of Stewart, these are swelled to eleven ponderous volumes, full of propositions of the correctness of not one of which the reader can have the least assurance. Had his ‘literary executor,’ instead of carefully raking up, burned three quarters of all he left, he would have rid the world of a vast mass of rubbish, and the painstaking student of a great deal of the most irksome toil. It may be set down as a maxim, that a person who assumes to write authoritatively upon every subject will write well upon none. Life is not long enough for one man to know every thing, or to construct an universal science (p. 182).

Copyright © 2016 by Thomas Coley Allen.

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Poor on the Velocity of Money

Poor on the Velocity of Money

Thomas Allen

    Henry Varnum Poor (1812-1905) was a financial analyst and founder of a company that evolved into Standard & Poor’s. He was a proponent of the real bills doctrine. Like Anton Fekete, he saw the Quantity Theory of Money as a highly flawed theory. (In Money and Its Laws, he discusses flaws in the Quantity Theory of Money.)
    The velocity of money is the rate at which a given amount of money changes hand during a specific time. It measures how fast people are spending.
    Poor contends that the velocity of money, which was gold when he wrote, has no effect on its value. Even when representative money (bank notes) is included, velocity has no effect on money’s value. Thus, the number of times that money changes hands during a day, a week, or a month neither increases nor decreases its value.
    Money only changes hands when goods and services are being sold. As the selling of goods and services increases, the velocity of money increases. Poor wrote, “The relationship of one to the other, both in quantity and activity, must be uniform.”
    Poor considers money to be capital and the representation of capital. If it were not capital or its representation, it is a scale of valuation — “an instrument of commerce like a set of weights.”
    The Bullion Committee,[1] which was a proponent of the Quantity Theory of Money, contended that “the effective currency of a country depends upon the quickness of circulation and the number of exchanges performed in a given time, as well as upon its numerical amount.” Poor strongly objects to this assertion. He illustrates the absurdity of the Bullion Committee’s statement with a barrel of flour. If the Bullion Committee’s conclusion were true, then “one barrel of flour, by the rapidity of its circulation, may serve the purpose of three barrels.” Poor concluded, “The quantity of money must always be in ratio to the exchanges that are made.”

Endnote
1. The Bullion Committee was set up after the Napoleonic Wars to provide recommendations for stabilizing British finances and returning Great Britain to the gold standard.

Copyright © 2016 by Thomas Coley Allen.

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