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PRINCIPLES AND PRACTICE OF

FINANCE.

PART I.

PRINCIPLES OF FINANCE.

CHAPTER I.

Introductory-Barter-Value-Barter-Money-Bullion-Metal Money

Fiat Money-Paper Money-Government Regulation of Money and Currency.

IN order that the subject of this work "Finance," should be clearly presented and intelligently read, it is deemed necessary to point out, if but briefly, the natural development of its different principles; and after the development of those principles has been indicated, their application to business and financial methods and systems will be discussed.

The various articles on the principles of Finance are not intended to be exhaustive, but simply to lay a groundwork for the proper understanding of those principles in their application to the business of Finance.

First. As to the development of principles; which it is well to trace from their birth.

In the earliest stage of human existence, when primitive man secured or accumulated by effort or by accident something which was either useful to or which was desired by others, and for the possession of which they were willing to part with some possession, such thing became valuable, and the principle of value was established.

So soon as an exchange was effected of one thing for another, that minute the principle of barter came into being. It was not possible however that the possessor of a particular commodity in excess of his immediate needs should be able to exchange that commodity for all the other commodities or things which he desired; resort was therefore had to the conversion of such surplus into some intermediate commodity which the owner could use at his pleasure in procuring what he wished, and upon the exchange of such surplus for this intermediate value or commodity, the third great principle of finance and the first and chief function of true money was established. Necessarily this intermediate value must be one of as nearly as possible staple and indestructible value and hence naturally would become not only an intermediate value, but also the agent of divisibility of value, and by reason of its possession of these qualities it naturally became the measure of the value of other commodities and the fourth principle, a measure of value, arose.

So soon as this surplus product could be converted into value of a permanent character, and thus made available for future use, an accumulation of value or capital became a fact.

Credit was surely created when the possessor of one value delivered that value to another, receiving at the time of the delivery a promise that at some future time an equivalent in value would be given.

The first charge made for the use of capital or credit was "Interest.”

The money-changers were probably the earliest bankers.

They not only changed money, but kept it for others, and loaned it at interest.

The simplest example of what has since developed into exchange, is where A having a claim against B, and owing a similar amount to C, directs B to pay to C, which being done both debts are cancelled.

The assumption by early kings of the sole right to issue coins and to compel their circulation, whether possessed of the value stamped on them or not, was the beginning of fiat money, and out of this assumption naturally grew governmental control of both metal and paper money, bankers and banks.

The money value of things is termed "Price," and "Price" has existed ever since money has been used as a means of expressing values.

The above constitutes all the real principles of Finance, and on them, singly or combined, every transaction must rest; and to one or more of them every financial proposition is deducible.

We shall now discuss these principles somewhat in detail.

Barter. The simultaneous and direct exchange of one commodity, thing, or value, for another commodity, thing, or value, without the intervention of an intermediate commodity, such as money, or the promise of some other value or commodity, as credit.

Barter presupposes a recognition of property rights, as a person would not be likely to make an exchange with another except for what he believed and admitted to be the property of that person. This recognition of property rights marks the first step in the moral development of man from the plane of the lower animals, where, without regard to, or recognition of, the rights of others, he took that which his wishes or necessities dictated, peaceably, stealthily, or forcibly, as occasion required or his mood suggested. When, however, owing to climatic conditions

or the danger of destruction from other animals more powerful and ferocious than himself, he found it necessary for his protection and preservation to live with other men, then a community of interest was created, the very corner-stone of which was individual effort; but individual effort, in order to be put forth, must be sure of its reward; this reward must be recognized and accorded by others to be fully enjoyed, i. e., property rights (value).

Value. Before proceeding further with the discussion of barter we must define Value, the existence of which must be anterior to barter, although barter may be the act which frequently fixes the value of a thing.

Value-the amount of other commodities for which a thing can be exchanged in open market, the ratio in which one thing exchanges against others, the command which one commodity has over others in traffic,-in political economy distinguished from "price," which is worth esti mated in money, while "value" is worth estimated in commodities in general,-the quantity of labor, or of the product of labor, which will exchange for a given quantity of some other product thereof.

Hence, while value is in the first instance the creation of labor—and nothing which Nature supplies in such abundance as to require no labor on the part of man to adapt to his use has any exchangeable value,-yet labor is not the only element in determining the exchangeable worth or value of a thing, but supply and demand are also factors. As a broad proposition, however, the amount of labor expended or required in the procuring or production of a given article, and therefore the amount of labor for which that article can be exchanged, indicates its value. While values are created by labor, it does not follow that all labor creates values, consequently only labor producing some commodity or conferring some good for which man is willing to part with some other commodity or service need be considered.

Limitation of quantity and capability of measurement are two essential elements in order that a thing may possess value. Another requisite is that the commodity have in itself some quality or substance useful or agreeable to man or necessary to the maintenance of other life on which his depends, and by a selection fostered by necessity and ranging over the period of human life these intrinsic qualities of things have been discovered and adapted to man's needs, and the possession of these qualities in any substance constitutes, if not the greatest, at any rate, a large portion of their value.

Barter-Resumed.-While transactions in barter are perhaps fewer as civilization progresses, yet it is the real basis of all trade and commerce, and the relative values of commodities to each other, as fixed by barter, are what govern now just as much as they ever did, and although the merchant sells his wheat or cotton for so much in money, that amount is regulated after all by how much manufactured product or other commodities the wheat or cotton, for example, will exchange for.

In order that even Barter should be practised, it immediately became necessary that the respective persons to the trade should agree upon some measure of the value of the respective thing or things which they desired to exchange. The ultimate measure of this value was necessarily the amount of effort put forth in the production or procuring of the things to be exchanged,—in other words, the labor.

As long as barter was confined to individuals of the same tribe, probably the article of most general use in the tribe was accepted as such measure. Thus, among pastoral people, the sheep, horse, or cow was the measure of value; whereas, among agricultural people, a given quantity of some cereal was doubtless used for this purpose. As long as this barter did not go beyond the confines of trade-which, in its more restricted and technical mean

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