for fixed capital, i.e., plant and equipment, and for working, or operating, capital, through the use of investment and commercial credit instruments in the form of stock and bonds, and bills of exchange and promissory notes, respectively, and the problems associated therewith. The corporation, as the prevailing form of business organization, is considered in its aspect as a financial institution, designed to facilitate the raising of capital; and much of the discussion is devoted to an analysis of the services rendered by the numerous types of financial institutions that have been developed in connection with the marketing of corporate securities-underwriting syndicates, distributing bond houses, savings banks, insurance companies, commercial banks, brokerage concerns, the stock exchange, etc. The treatise also naturally includes a study of the financing of agricultural business and the market mechanism that this has required; as also private borrowing for non-business purposes and the organization of co-operative loan associations. Of predominant importance in the entire financial mechanism is the commercial banking system. This is discussed in relation to the furnishing of funds for fixed capital, both by the outright purchase of securities and by advances of funds to investment bankers and to stock exchange "margin" operators, as well as in relation to the furnishing of working capital to producing, manufacturing, and mercantile establishments. The regulation of commercial banking, the weaknesses that developed in practice under the national banking system, particularly in connection with the ebb and flow of business activities at different seasons of the year and at different periods of the business cycle, are set forth as a background for a study of the Federal Reserve System and the machinery that has been devised thereunder for the more efficient, adjustment of finance to the varying requirements of business. If the reader will turn to the charts on pages 134, 136 and 650, he will be afforded a general view of the various financial institutions which enable the business operators of the modern industrial system to raise the funds required for the conduct of partnership, corporate, and agricultural industry, respectively. A study of the financial organization of society should clearly reveal the economic functions performed by the various types of financial agencies that have been developed. And it should inquire whether these agencies on the whole promote an efficient and well-balanced national life. It should disclose such weaknesses as have developed from time to time in the financial mechanism and indicate how and to what extent these have been eliminad through private and government regulation. It should also be the purpose to ascertain what defects in the financial organization of society still persist and, where possible, to point the way to their elimination. It is apparent that, thus conceived, a study of the financial organization of society is of very broad scope. The many types of financial institutions and instrumentalities which function in the modern industrial system are, moreover, not to be regarded merely as isolated economic agencies. They constitute an intricate financial structure that is closely interwoven with the entire economic organization by means of which the wants of the world are supplied. CHAPTER II THE NATURE AND FUNCTIONS OF A PECUNIARY UNIT The complex social and industrial system of the present day is commonly said to be organized on the basis of a pecuniary unit of calculation called, according to the country, the dollar, pound sterling, franc, mark, ruble, etc. In this chapter it is our purpose to consider the precise nature of the monetary unit and to disclose the various ways in which it is of service to society. It will help to avert misunderstanding on the part of the reader if it is stated at the outset that the function of a pecuniary unit of calculation is quite different from that of a medium of exchange, discussion of which is reserved for the fourth chapter. I. DEFINITION AND ORIGIN OF THE PECUNIARY UNIT The significance of the monetary unit may best be appreciated if it is thought of as a certain definite weight and fineness of metal. For instance, the unit in the United States (the gold dollar) is composed of 25.8 grains of metal, of which nine-tenths is gold and one-tenth copper alloy. How this particular amount of metal came to be chosen as the unit need not be considered here. It is sufficient for our present purposes to know that Congress is not much more likely to change the weight and fineness of the dollar than to change other units of measurement, such as the pound, foot, gallon, etc. It may also be noted in passing that this monetary unit does not necessarily circulate in the form of currency; indeed, it need not be coined at all. The American gold dollar, for example, is not coined because it would be too small for convenience in the channels of circulation. The pecuniary unit is a sort of language device. To understand the functions of this pecuniary, or calculating, unit, it will be well to regard it as a sort of language device, a final step, as it were, in the development of means of communicating ideas. Because of restricted vocabulary primitive man found great difficulty in exchanging ideas with his fellows, with a result that both intellectual and material progress were seriously retarded. Trading operations were early impeded, moreover, not only because of inadequate word symbols for the communication of ideas, but also because of the lack of numerical symbols for reckoning quantities. It was necessary for a system of notation to be developed before trading could be conducted on any considerable scale; for it is apparent that without a means of quantitative measurement of the goods to be purchased or sold, the risk involved in trading operations would be so great as to prevent all except the simplest transactions. But the development of a system of notation was not sufficient of itself to lay the basis for extensive trading operations. A still further step in the development of the language of trade and business was necessary, namely, that of expressing a variety of quantitative units in terms of some qualitative, or value, unit. It is very difficult to trade yards of cloth for tons of coal, or bushels of wheat for skins of animals, without some means of reckoning the relative values of physical quantities of unlike goods. It is probable that the use of money as a pecuniary unit, in terms of which the values of unlike quantities are measured, developed earlier than its use as a medium of exchange. The word "pecuniary" comes from the Latin word for money, pecunia, and it is generally allowed that pecunia is derived from pecus, meaning cattle. Now cattle were probably not used as media of exchange; one would suppose, rather, that since their approximate value was a matter of common knowledge during the pastoral stage of economic development, cattle served merely as a means of measuring values. Among barbaric tribes 1 "But now Zeus, son of Kronos, took from Glaucus his wits, in that he made exchange with Diomedes, Tydeus' son, of golden armor for bronze, the price of fivescore oxen for the price of nine."-Iliad, Book vi, 118, Lang, Leaf and Meyers' translation. wealth has often been expressed in terms of shells, precious stones, skins, or whatever commodity was most widely known. Wherever they were found in sufficient quantity the precious metals, gold and silver, naturally came to be used for the same purpose. But gold and silver, shells, etc., unlike cattle, were also serviceable as media for effecting actual exchanges of goods. It would seem that the use of money as a medium of exchange was necessarily of later development than its use as a common denominator of values; for it is difficult to conceive of an exchange of goods for money where there had not already been a pre-existing evaluation of the goods in terms of a pecuniary unit. In any event, the development of a pecuniary unit gave the necessary commensurability to pounds, quarts, and bushelsand to wheat, cattle, and cloth-and was thus one of the most significant developments in history. It was the final vital step in the evolution of means of communicating ideas. It made language and numbers intelligible for the purposes of business. II. THE PECUNIARY UNIT AND BUSINESS We have been saying that without a unit for measuring values exchange operations are very difficult and involve large risks. We shall now see that a pecuniary unit is of the greatest importance from the standpoint of efficient production. Let us take a simple case and endeavor to ascertain the difficulties that would arise in the conduct of a business in the absence of a pecuniary unit such as the dollar. Mr. X is a manufacturer. He finds that he has 10,000 yards of finished cloth on hand, 12,000 pounds of raw cotton in his warehouse, and 5,000 yards of cloth in process of manufacture. He has supplies in his shop, consisting of so many gallons of oil, rolls of packing, etc. He has a building that is 100 feet long and 60 feet wide, with two stories, each 14 feet high. The building is made of reinforced concrete material. His power and heating plant is five years of age, with five years of wear remaining. He owns two delivery wagons and four horses, all somewhat the worse for wear and tear. He manufactures |