MR. PATTERSON'S ESSAYS ON CURRENCY AND BANKING.*

Mn. PATTER,SON hardly does himself justice by calling his book the Science of Finance. We doubt, in the first place, if his subjeci is, properly speaking, "finance." The word would lead us to expect a treatise on the revenue and expenditure of States, on taxation and its effects, on national debts, and the like, such as we find in fact in M. Garnier's Traite de FinancLs ; but Mr. Patterson shoves all these matters into a small corner of his bulky volume. He has got the notion that finance means anything which relates to money or currency, and perhaps has been impressed with the slang use of the word which finance companies and financing have made familiar. We would not say it is wrong of him to use the term 'finance" in a more extended sense than has been customary, but the practice is confusing to readers who may be somewhat old-fashioned. There is no mistake, however, about the wrong Mr. Patterson does himself in saying the science of finance, and calling his book a practical treatise. He does not worry us with scientific disquisitions, or with those details which are needed by practical men. The book does contain a few suggestions which might be labelled "prac- tical," because, although quite impracticable, they are meant, or are said to be meant, for practice ; but something more is ob- viously needed for a practical work. If Mr. Patterson had said "Popular Essays on Currency and Banking, with Miscellaneous Additions," his title would have been nearer the mark, and would have furnished a better standard for judging his success or failure. We shall not do him the injustice of applying any other test, though we fear his intention really is to set up as a great authority and teacher in science. If the strict test were applied, it would be necessary to say very hard things indeed. Mr. Patterson would have to bear the odium of claiming to be a scientific writer on finance, and yet introducing his work by mottoes from such eminent financial authorities as Mr. Disraeli and Boz. Nor could we pass over statements that "a good financial system" is "the chief adjuvant of industry," and " furnishes " the sinews of war, which we encounter in the very preface. How can a system furnish anything when it may simply be one of many instruments employed in producing a common result to which it only contributes ? Mr. Patterson as a scientific writer might also have been called on to furnish authorities for many of his so-called facts,—for a state- ment like this, for instance, that during the summer of 1866 "several vessels, with cargoes of goods which had come as usual to our ports, had to weigh anchor again and sail to France, the merchants finding it impossible to obtain their usual banking accommodation in England, even at 10 per cent., whereas they could get it readily in France at 4 per cent." What facts, again, has Mr. Patterson got to prove that to raise the Bank rate from 4 or 5 to 9 or 10 per cent. depresses the markets to the extent of 20 or 23 per cent. below their former ordinary price ? An assertion like this, upsetting Tooke's laborious calculations to prove the independence of prices on bank rates or the expansion or contraction of the currency, should have been supported by an array of authority in a scientific book. It would farther have been necessary to charge against Mr. Patterson deficiencies in method and arrangement, repetitions, and similar blunders, which would have been inexcusable in a scientific treatise; but we are fortunately enabled to be less harsh when we judge the book in its real character, and not as its author, in the natural over- flow of parental fondness, has been pleased to entitle it.

As a collection, then, of detached currency essays, written in a popular style, Mr. Patterson's book is not without some merit. He has a certain capacity for exposition, and he can thus set forth correctly and intelligibly many of the most familiar phenomena in our currency and banking system. The use of bills and notes and cheques in economizing the use of money, the multiplication of productive force by machinery, the proposals for paying off the National Debt by terminable annuities, competing plans for giv- ing Government assistance to railways, and similar topics, are all within his range of descriptive power. It is probably a necessity of the case that he should have some other exposition before him. What is said on commercial bills reads like an echo of parts of Mr. Goschen's book on the exchanges ; the functions of notes and cheques have also been the subject of more than one recent exposition, while the chapter on the use of machinery in produc- tion—the economy of Force—is borrowed in substance from Chevalier. Mr. Patterson is thus not an expositor of difficult facts and theories which he has himself investigated, but he i3

* The Science of Finance. A Practical Treatise, by R. H. Patterson, Member of the Society of Political Economy of Paris. London W. Blackwood and Sons.

entitled to all the credit of putting the thoughts of other men into a different shape, and so disseminating what is received truth upon certain subjects. It would be better for a student to get the facts from an ordinary manual rather than read Mr. Patterson, but a student who happened to fall in with him first would undoubtedly get some enlightenment. It way be admitted, too, that certain peculiarities in style may have an attraction for some minds. Some people may be charmed into the study of currency mysteries by talk about " engirdling seas" and "magic tents," grandiloquent descriptions of the 'War of the Banks," and such comparisons as that of commerce under a contracted currency to a tree in an iron vase, of which Mr. Patterson is so fond as to use it two or three times. Our sole doubt is whether the only people likely to appreciate such writing would not be " floored " (to quote Mr. Patterson) by the dreary look of his seven hundred pages and his piles of figures.

But while commending Mr. Patterson so far, we fear that the unenlightened who resorted to him for information would get some rather queer ideas along with what is sound and familiar. Mr. Patterson's ambition has led hint astray. If he could have been bound down to write only of common phenomena without note or comment, his labours would perhaps have been use- ful; but this was impossible, and his book is consequently dangerous to beginners or the unlearned, for whom alone it is otherwise suitable, by reason of the magnitude of its blunders; Thus we have hardly read a dozen pages till we find Adam Smith set down by Mr. Patterson, who assures the neophyte whom we suppose him initiating into the mysteries that the mercantile system was "quite right in its day." There was a time, it seems, when the precious metals were necessary to a country to store up its reserve wealth, whatever that may mean, and nations were quite right in watching the balance of trade to see that the precious metals were retained, were quite right in those wonder- ful expedients of bounties, and drawbacks, and competing tariffs which characterized the system, and did not attain the end in view. Mr. Patterson again devotes a whole chapter to prove that "the sole effect of a sinking of capital, from a national point of view, is simply this : that no addition is thereby made to the amount of the national wealth. But no diminution of the national wealth is occa- sioned by it." People, he says, talk as if so many sovereigns were actually built up in works which turn out to be absolutely useless. The truth is, by the new light he sheds on science, a nation may now eat its cake and have it. It may go on sinking all its capital for centuries and yet be no poorer : the capital only "changes hands " ! It does not matter that the nation should plough, or sow, or reap, or manufacture cotton goods, in order to prevent starvation ; it may spend everything in gunpowder, and if the money be spent at home it is as rich as ever. Would not the money which is spent on the gunpowder come back into the banks as fast as it flowed out? This is Mr. Patterson's comfortable doctrine ; but whether a nation which acted up to it would not in the end be forced to part with all its goods in order to live is a problem Ile does not consider. It is impossible to conceive a more extreme case of looking only at "what is seen" and not also at "what is not seen" in political economy.

To take another instance, the chapter on the proper subject of the book, according to the title,—what Mr. Patterson calls

State finance,— abounds in curious mistakes and omissions. There is no mystery in the matter, says Mr. Patterson ;

the State only receives and pays, as if only receiving and paying were not very difficult questions indeed. But Mr. Patter- son omits altogether the whole problem of taxation, and the knotty points which practical financiers must disentangle, and leaves out of account as well the extent to which the State may engage in a profitable business or may derive profit from adminis- tering a common property. He only deals with State finance, "pure and simple." The whole subject, again, is thrown into false relief by points like this being dwelt upon—that the amount of

coin needed for a State's receipts and payments is part of the cost of taxation. This may possibly be true ; but has Mr. Patterson ever reflected what an infinitely entail proportion the taxation of this country, for instance, bears to the aggregate payments which are made ? The same may be said of his statements that taxation is more burdensome in proportion as it is spent abroad, and so forth, as if the important points in State finance were not something wholly different. Strange to say, the main point he discusses is the propriety of paying off debt, yet he omits to notice altogether one of the main argu- ments, that paying off debt may be advantageous by taking from

a community what would otherwise be consumed, and appropriat- ing it in a way which will make it be employed productively.

Incidentally, Mr. Patterson assures us that it is "usually the case, the expenses of Government are no greater than is requisite for the right discharge of its functions "—for which consolatory assurance to the world respecting them Governments will no doubt thank him, and particularly the present Tory Government, driven to bay by a too critical Opposition.

We quite despair of giving any correct notion of Mr. Patterson's currency doctrine, diffused as it is and repeated over hundreds of pages in essays on the "Rate of Interest," "The Bank of England," "The State and the Currency," and the like—we need not repeat all the titles. The theory about sunk capital may have given the

reader a foretaste of what it may be. The foils et °rig° mall is the notion that Mr. Patterson has got into his head that capital is anything else but commodities—objects of value of some sort. He evidently thinks that signs of value like a bank-note or a bond are themselves capital. Thus of bank-notes he says :— "That the thousand pounds in bank-notes which a man may have in his pocket are capital, quite as much as if they were a thousand sovereigns, need not, we think, be discussed. Notes which are con- vertible into coin are identical in value with coin."

Then of bills :— " If the bill be equal in value (i.e., exchangeable for the amount of money) to the property parted with,—and it obviously must be so, as zio man will take less,—the bill is manifestly as truly capital as regards its possessor as the goods which he gave away."

In another passage the following comparison is drawn between the cost of a paper and that of a gold currency :-

"If two locomotives be equally effective, their exchangeable value is the same, howsoever great a difference there may have been in the cost of constructing them. In like manner, when a man can buy as much with a bank-note as with a sovereign, it does not matter to him that the intrinsic value (i e., cost of production) of the one is greater than that of the other. When paper money has the same purchasing power or is as exchangeable as coin, it is equal to coin as currency, just as coin, from the same cause, became equal in exchange transactions to commodities which are the necessaries of life."

Risum teneatis? Was there ever such confusion between acts

and documents which prove them, between debts and the evidence of debts ? We suppose Mr. Patterson would hold that a warrant

is as good as the tons of iron or the wine of which it ordered the delivery ; surely he would not say that it is the iron or the

wine, yet he speaks of documents ordering the payment of money as if they were money. No doubt such documents can be made to economize money, to serve the same purpose in effecting payments, just as warrants effect an enormous economy in the transfer of goods, but that is not to say that the documents are what they represent. The wonder is how men with their five wits, Mr. Patterson not being solitary in his thinking, not only do not see this, but actually found grand schemes on their supposition that paper is as good as money. Mr. Patterson, however, has few equals in the painful extent to which he repeats and diffuses and illustrates his theory, and carries it out in various practical propositions, into which it would be perilous to one's sanity to follow him. That tun is beyond our reach who talks of the process of discounting bills as the exchange of "banking currency" (notes or cheques) Or "commercial currency" (commercial bills); who calls the rate of discount the rate which banks charge for the use of their currency, and who tells us that finance—that is, the finance of financial companies—" acts as the cook by which commodities are prepared or rendered suitable for the operations of banking, by which their negotiability or convertibility into general currency is perfected." To understand all this we must share the common delusion, though even then the talk might not be intelligible ; and except on this condition the discussions about issuing notes to prevent fluctua- tions of the currency—to keep the measure of value, as we are told, from fluctuating—are equally meaningless. Much is pos-

sible when one thinks of paper as anything else in truth than a promise to pay in gold or some other commodity to which men

attach value, but we are not equal to the effort. It is not pleasant dealing with pure nonsense, and we trust we have already shown cause enough for our impression that students of political economy or finance would get rather queer impressions from Mr. Patterson, always supposing they could read him through.