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61ST CONGRESS

2d Session

SENATE

DOCUMENT

(

N o . 494

NATIONAL MONETARY COMMISSION

The Bank of France in Its
Relation to National and
International Credit
By MAURICE PATRON
Barrister

And an Article upon French Savings
By ALFRED NEYMARCK
Editor of the "Rentier"

Washington : Government Printing Office : 1910

NATIONAL MONETARY COMMISSION.

NELSON W. ALDRICH, Rhode Island, Chairman.
EDWARD B . VREELAND, New York, Vice-Chairman.
J U L I U S C. B U R R O W S , Michigan.
E U G E N E H A L E , Maine.
PHILANDER C. K N O X , Pennsylvania.
THEODORE E . BURTON, Ohio.
J O H N W . D A N I E L , Virginia.
H E N R Y M. T E L L E R , Colorado.
HERNANDO D. MONEY, Mississippi.
JOSEPH W . BAILEY, Texas.

J E S S E OVERSTREET, Indiana.
J O H N W . W E E K S , Massachusetts.
R O B E R T W . BONYNGE, Colorado.
SYLVESTER C. SMITH, California.
L E M U E L P . PADGETT, Tennessee.
G E O R G E I ? . BURGESS, Texas.
A R S £ N E P . P U J O , Louisiana.
ARTHUR B . SHELTON, Secretary.

A. PiATT ANDREW, Special Assistant to Commission.

TABLE OF CONTENTS.
T H E BANK OF FRANCE IN ITS RELATIONS TO NATIONAL AN&
INTERNATIONAL CREDIT.
BY

MAURICE PATRON.
Page.

Introduction

7
P R E L I M I N A R Y CHAPTER.

The Bank of France and its metal holdings:
SECTION I.—Cash holdings of the Bank
SECTION II.—Immediate results of the dominating position of
the Bank
P A R T I.

11
27

P L A C E OF T H E B A N K OF F R A N C E IN THE DEVELOPMENT OF THE
NATIONAL CREDIT

Chapter I.
Place of the Bank of France in the distribution of credit
SECTION I.—Local banks and the financial institutions
SECTION II.—In what manner the Bank of France promotes the
free distribution of credit in France
SECTION I I I . — I n what measure the Bank must control credit-Conclusion

40
40
46
50
57

Chapter II.
Evidences of the activity of the Bank of France in connection with *
the national credit:
SECTION I.—Development of instruments of credit in the Bank
of France
Checks
Transfers
SECTION II.—Popularization of instruments of credit
SECTION III.—Territorial expansion of the Bank of France
SECTION IV.—The Bank of France and agricultural credit

60
63
69
75
86
89

National

Monetary

Commission

PART II.
THE

B A N K OF F R A N C E AND INTERNATIONAL CREDIT

Chapter I.
International markets:
Page.
SECTION I.—International financial solidarity
98
SECTION II.—Place of the Bank of France in the international
market
105
Chapter II.
The Bank of France and crises
SECTION I.—Monetary crises
SECTION II.—Customary measures of defense against crises
SECTION III.—Present policy of the Bank of France
Appendix to Section I I I : Project for an international b a n k .
Chapter

113
113
122
138
146

III.

The Bank and war
Conclusion
Bibliography

149
155
160

FRENCH SAVINGS AND THEIR INFLUENCE UPON THE BANK
OF FRANCE AND UPON FRENCH BANKS.
BY

A L F R E D NEYMARCK.
Page.

i.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.

Some facts and
figures
Formation and development of French savings
Savings institutions
French rentes
Lottery bonds
Railroad bonds
Total of securities belonging to French capitalists
Annual savings
Improved and unimproved property
Inheritance statistics
Importance of French savings and their consequences
The supremacy of the French banks
The Bank of France

165
166
167
168
169
170
171
172
173
173
174
179
180

The Bank of France in Its Relation to
National and International Credit

By
MAURICE PATRON
Barrister

T H E BANK OF FRANCE IN ITS RELATION TO NATIONAL AND INTERNATIONAL CREDIT.
INTRODUCTION.
The interesting evolution of means of exchange which
we are witnessing and which is familiar to everybody
seems to be leading us, after the well-defined periods of
barter and money, to a system of mere clearing of balances. All exchange operations would then be settled
by simple book transfers. Coin, thus reduced to the
condition of money of account, would cease to play any
real part. Economists are even thinking of a return to
barter, which would complete the cycle, bringing us back
to the original state after thousands of years and combinations of all kinds. Such would be the course of this
evolution.
At any rate, the undeniable characteristic of our present
system is that it presents a transition between the money
system and the clearing system, the ultimate form of
which we are unable accurately to define. This period
of transition, which began when the idea of genuine
credit was conceived, will last for centuries before we
can rid ourselves of money as a medium. The system of
purely fiduciary currency, which is in process of becoming
firmly established, is not yet sufficiently stable to prevent
us from being thrust rudely back into the old ways whenever we exceed the limits of our resources.
Crises afford a striking proof of this fact. The initial
period, the precursor of the crisis, is nothing but an ab~

National

Monetary

Commission

normal extension of credit and of speculation. At such
times the need of leaning upon the solid foundation of
metallic currency is felt with a new intensity; and when,
with the blindness resulting from overconfidence, this need
has been neglected, when, from a disregard of the functions of money, a crisis is brought about by the violent
rupture of the equilibrium of credit, gold at once resumes
its rights, is sought for on all sides, and, according to the
seriousness of the offense, exacts complete amends, with
the honors of a premium as high as it may choose to
make it.
It clearly appears, therefore, that this quest for simplification in the means of credit, which each nation ardently pursues in the interest of its own industrial and
commercial development, demands the greatest circumspection. In developing credit, metallic currency must
not be too much overlooked. We must not lose sight of
the fact that " credit, in order to be solid and permanent,
must have a solid and permanent foundation." 0
It devolves upon the bank of issue to watch over this
solidity and permanence. It can do so by means of its
note—that hybrid document, the offspring of both
money and credit 5 —which is subjected to a more and
more close dependence on money, in proportion as credit
increases, and which constitutes a valuable means of transition in our time of transition. 0
a Sir Edward Fitzgerald Law, in the National Review, cited by A. Raffalovich, Economiste Europe'en of November 16, 1906, p. 617.
&L6on Say and Chailley, "Nouveau dictionnaire d'economie
politique"
under the word "billet de banque." " T h e bank note is a t the same time
an instrument of credit and a substitute for metallic currency."
cLet us for a moment consider these instruments of credit which justly
do honor to our modern civilization; their number increases constantly;
in addition to bank notes, checks, transfer orders, certificates of deposit,

Bank

T h

F r a n c e

One hundred years ago the bank note, secured almost
solely by discounts, was the chief element of a credit
which was then little developed.0 But nowadays, the
tremendous growth of credit and the necessity of a large
metallic basis compel us to provide a heavy gold counterpart for the bank note. It tends to become nothing
more than a token representing money. Its issue is
no longer a credit operation, but essentially a monetary operation which, it seems, should secure for the bank
note its maximum development. By means of its notes,
the Bank is in a position, under all circumstances, to
bills of exchange, bills payable to order, drafts, storage certificates, we have
stock-market securities, treasury bonds, mortgages, warehouse receipts
coupons; in short, obligations of the most varied nature which are to-day
in use for credit transactions.
All these instruments are employed in making settlements; they supplement advantageously the use of coin, or multiply it, and they gradually
lead toward t h a t period of simple clearing which some economists believe
is already in sight. There would be cause for unmixed gratification in
their great number and the frequent use made of them, if we were not
aware of the serious disturbances resulting from the excessive and careless
use of credit. We do not deny the unquestionable advantages of these
instruments; on the contrary, wTe believe the time has come to give them
greater extension; but we lay down as a principle t h a t the importance
of the bank note in a fiduciary currency should not be belittled, as some
people are inclined to do. To give to the credit structure any other foundation would, in our opinion, be equivalent to building on sand. The bank
note alone permits the creation of a metal reserve strong enough to become,
in case of need, a valuable war chest and a sinking fund for crises.
a
This is shown by the following table (Cf. Pantel, " Les fonctions de la
Banque de France" Montpellier, 1903, pp. 26 and 27):
[In millions of francs.]
Circulation.

Discounts.

Deposits and
current accounts.

Cash.

Year.
Maximum.
1800
1801
1802

22
25
45

Minimum.
8
15
16

Maximum.

Minimum

24
45
83

5
18
36

Maximum.
11
10
15

Minimum

4
5
4

Maximum.
6
9
16

Minimum.
r
5

National

Monetary

Commission

maintain an exact proportion between money and credit
and to help develop the latter in precise proportion to its
holdings.
Such, then, are the aims of the Bank when it extends
credit under the most varied forms and over a steadily
increasing area, adapting it to wider and more democratic
social conditions, and when, supported by its metallic
reserve, it removes the threat of war to which financial
questions are so closely related, or at least dispels financial storms by some action based on world-wide solidarity.
We shall study the part taken by the Bank of France
in the building up of the country's metallic reserves.
We shall see the immediate and beneficial results of this
extensive operation. Then we shall show how this great
institution, thanks to its enormous power, is able to influence, first, national credit, and, second, international
credit.

PRELIMINARY CHAPTER.

THE BANK OF FRANCE AND ITS METAL HOLDINGS,
SECTION

I. Cash holdings of the Bank.

The first care of the architect who is about to erect a
great building is t o secure for it a broad and firm foundation. Likewise, in t h e vast and continuous upbuilding
of a nation's credit, the metallic base requires t h e most
attentive and enlightened consideration. To provide for
it, the entire resources of the State are not too great. I t is
difficult t o understand how, in certain countries, an undertaking of such universal interest should be left t o private
enterprise. How can the latter be powerful enough to
accumulate holdings of currency which may have to remain
idle for long periods, and which can unflinchingly resist all
assaults and all storms?
" T h e maintenance of a country's gold reserve m a y be
considered a public function. " a This function, however,
can not be performed b y t h e State itself, b u t by t h e very
force of things it naturally devolves upon t h e banks of
issue. 6 I n France a system which has already passed the
hundred-year mark and has been particularly fortunate as
to results, intrusts t h e Bank of France with t h e d u t y of
building up and preserving the metal holdings, and this
great organization shows itself fully worthy of the confidence which t h e Government has always reposed in it.
a

Villefredo Pareto, " Cours d'e'conomie politique,'" Vol. I, p. 390.
& In the United States, to be sure, this burden falls upon the Treasury, but
it is unnecessary to lay stress on the fact t h a t at the present time the American financial system does not deserve to be taken as a model.

National

Monetary

Commission

During its long career the Bank has never ceased to control
credit with rare foresight and a remarkably steady hand.
We wish, at the outset, to call attention to the fact that
the Bank of France is not, as might be supposed, directly
or personally interested in the possession of enormous cash
holdings. The note issues which contribute to the formation of these cash holdings do not represent clear profits;
far from it. In increasing its gold reserve the Bank is
working against the interests of its shareholders, and consequently against its own interests. There are two reasons
for this: first, the expense of maintaining an additional
reserve, and the cost of issuing notes against the same,
represent a clear loss for the shareholders. If the holdings
were smaller, the amounts of assets and liabilities would
decrease evenly in the accounts of coin and bars, and notes
to bearer, without interfering with the profit and loss
account. In other words, the circulation which alone can
yield a profit has nothing to gain from the increase in the
circulation which is covered by a metallic reserve. In the
second place, smaller holdings would lead, for the very
safety of the country, to frequent rises in the discount rate,
which are the main source of profit for banks of issue.a
Thus, considering its own interest only, it matters little to
the Bank if its holdings fall from 3,000,000,000 or 3,500,000,000 francs to 1,000,000,000 or 1,500,000,000 francs—
the point at which they stood only twenty-five years ago.
The Bank's credit would not suffer, its profit-yielding
circulation would not be decreased, and it would be relieved
a Indeed, the tolls can only apply to operations made in normal times,
when t h e discount rate yields just about enough to cover the expenses of
management. When t h e rate rises the expenses remain about the same,
and the profits increase considerably.

The

B a n k

F r a n c e

of very heavy ° stamp duties, of the expense of manufacturing the notes which it would not be called upon to issue,
and of the charges for safekeeping the corresponding
metallic currency.
From 1870 up to the present time the cash holdings of
the Bank of France have not ceased to grow, as shown
below by the table of quinquennial averages. Moreover,
the Bank, of its own volition, could not have made such an
accumulation. The exchanges are usually in our favor,
owing to our position as lenders to foreign countries 6 and
a

One-fifth of 1 per cent.
The amounts of French investments known to be made abroad, estimated in 1903 by t h e Administration des Domaines, and published in the
Officiel, are as follows:
6

Francs.

Europe
Asia
Africa
America
Oceania

21, 012, 000, 000
1, 121, 000, 000
3, 693, 000, 000
3, 972, 000, 000
57, 000, 000

Total
29, 855, 000, 000
• Very nearly 30,000,000,000 francs, which make us each year creditors
for an income of 1,000,000,000 to 1,500,000,000 francs.
Since the balance remains in our favor, many of these settlements are
made in gold. After deducting the sums which are deposited or circulated
in France there remains a sufficient amount for reinvestment in numerous
foreign securities, thus again increasing our national capital. This is the
reason for the saying that France is the greatest gold producer in the world.
These figures could but increase since 1903. M. Lajusan ("La crise
francaise; essai de solution" Paris, Giard & Briere, 1906) estimates that
on the average we save 3,000,000,000 francs yearly, and M. Neymarck, at
the meeting of the Soci6te d'Economie Politique de Paris on November 4,
1905 (Journal des Economistes, 1905, p. 248), estimated the amount due
us yearly by foreigners, on account of coupons or redeemable bonds, at
1,500,000,000 to 2,000,000,000 francs. This condition is the prerogative of
the oldest nations of the old continent. England owns 55,000,000,000
francs of foreign securities.
We shall not join M. Lajusan (op. cit.) in saying that this taste for saving is the evil of our French society; neither shall we unduly lament with

National

Monetary

Commission

to the extent of our exports, and this for many years past
has resulted in the continual flowing of the precious metal
into the vaults of the Bank of France. c
M. D. Aubry ("La Banque et le commerce" R6forme Economique, July
10, 1904) as to the stand taken by bankers in favoring foreign investments,
but we shall more readily conclude with M. Aupetit (Revue Econ. Intern.,
1904, Vol. I l l , p. 707) t h a t there must be and that in fact there is an harmonious relation between investments at home and investments abroad.
Of course, the development of the national industry must not be paralyzed
by withholding from it the indispensable capital. Still, we must unreservedly congratulate ourselves on the fact t h a t to such a large extent we
are able to participate in foreign enterprises. F a r from creating competition for us, we succeed in stimulating our own production, and no one will
deny t h a t it is more advantageous for a nation to cause other nations to
work and to draw from them 2,000,000,000 francs yearly than to procure
similar results by work at home. (Cf. Rev. d'Econ. Pol., Vol. X I I I , p .
154; Revue Econ. Intern., 1906, Vol. II, p. 223.)
c

Imports and exports of gold.

[Bureau of Customs, Statistical Documents on French Commerce.]
[In millions of francs.]
Coin and bars.

Excess of—

Year.
Imports.

Exports,

194
234
284
64
127
243
261

408
223
192
134
82
201
199
258
193
129
251
235
in
117
108
244

1880.
1881
1882
1883
1884
1885
1886
1887

93
102
338
117
362
387
305
461
253

1888
1889
1890
1891
1892
1893

1894
1895

Exports
over
imports.

Imports
over
exports.

45
42
62

165
9i

127

276
188
353
9

The

B a n

F r a n c e

In thirty-five years the amount of our metallic reserves
has increased almost threefold.
Imports and exports of

gold—Continued.

Coin and bars.
Year.
Imports.

Exports.

301
291
200
319
459
429
441
314
656

311
132
313
162
126
145
127
130
124

1896
1897
1898
1899
1900
1901

1902
19031904

Total

Excess ofExports
over
imports.

Imports
over
exports.

i57
333
284
3M
184
532

4,655

The above table gives the figures for gold imports and exports during the
last few years. They show t h a t gold flows rapidly into France, and that in
spite of numerous cases of export the holdings keep on increasing.
We give also for reference the amount of gold used yearly in the arts.
The information, however, is not sufficient to permit of ascertaining the
yearly increase in coined gold and gold bars, or what may be called international money; other particulars should be taken into account, such as
recoinage, which the custom-house can not estimate.
Gold used in the arts.
1882
1883
1884
1885
1886
1887
1888
1889
189O
189I
1892

Kilograms.
__ 20,859
18,585
16,131
I3»729
14,226
16,395
17,639
22, 148
21,851
21,253
l8, I90

1893
1894
1895
1896
1897
1898
1899
1900
1901
1902

Kilograms.
17,254
18,935
20,829
20,246
20,368
23,629
27,671
27,359
28,446
25,600

National

Monetary

Commission

Statement of the Bank of France for the last week of each year.
[In millions of francs.]
Specie.

Current accounts.

Year.

Circulation.

Discounts.

Loans.

Individual.

Ratio of
cash to
Treas- circulation.
ury.

Gold.

Silver.

Total.

1890.-

1,120

1, 241

670

249

402

177

1, i 3 7
1, 70s
1, 702
1,821

1,253
1, 267
1, 261

2,361
2,390
2,972

3.186

1891-1892--

3 . 194
3.298

761

298

433

244

55o

297

419

291

0.741
.748
. 901

3.58i
3.476

579

303

405

128

.827

573

297

445

160

.887

1895-1896--

2, 048

3.527
3.607

544

312

547

202

• 933

1,978

1,244
1,244

2,963
3,084
3,292
3 . 222

693

364

566

237

1897-1898--

1,963

1, 222

3.689

730

358

492

221

1,875
1,866

1, 225

3.18S
3 , 100
3,062

3.094
3.820

798

49i

491

252

828

344

477

207

.893
.863
1. 002
.802

3,507

4,187
4.287

848

5IO

507

269

846

523

560

167

4,494

826

483

462

104

.834
.826
.806

4.491
4,325
4,566

1,040

508

447

236

.770

765

502

604

238

1,098

503

716

39o

.869
.865

4.714
4. 801

i,25S
1,215

578

608

337

578

489

258

1893-1894--

1899-1900-I90i__
I902__

2,399
2,449
2,519

1903-- j 2,361
I 9 0 4 - - 2,659
1905-- 2,878
1906.1907--

1, 263

1, 196
1, 108
1, 096
1,098
I , IOI
1, 102

3,545
3.617
3.462

1,075

3,953
3,703
3.615

2, 706
2,691

997
924

3.76i

• 791
• 752

Average of specie holdings.
Francs.
1, 520, 000, 000
2, 010, 000, 000
2, 200, 000, 000
2, 520, 000, 000
3, 150, 000, 000
3, 320, 000, 000
3, 770, 000, 000

1873-1877
1878-1882
1883-1887
1888-1892
1893-1897
1898-1902
1903-1907

The above table shows the condition of the most interesting accounts of the Bank of France at the last weeklystatement of each year since 1890. It appears therefrom
that while the amount of circulation increases together
with that of discounts, loans, and current accounts, the
fact is nevertheless established that the bank note tends
to be more and more exclusively represented by cash
holdings.

The

Bank

F r a n c e

We have said that the Bank, while increasing the total
of its specie, had given especial attention to its quality.
The single gold standard has now been adopted in most
countries. a There remain but Mexico, the European
populations of the Far East, and China, which compulsorily, if we may so express it, maintain the silver standard,
though China has, properly speaking, no national monetary system. From the standpoint of international relations gold is therefore the only metal which can be
exported. It was the duty of the Bank of France to see
to it that our bimetallic system should not place us at
a disadvantage in our relations with foreign countries.
This bimetallic system has remained incomplete since
1878, when the coinage of 5-franc pieces was definitely
suspended. The former order of things left on our hands
considerable holdings of coin, the real value of which
was much inferior to the nominal value. But at present
in our holdings of 5-franc pieces many are found to be of
countries which belong to the Latin Union. We have
withdrawn from their market such a quantity of these
coins that, if the Union were dissolved and an accounting
made, we would probably have to return to them more
pieces than they would have to return to us, and the balance would have to be settled in gold. It is quite evident
that this formidable quantity of 5-franc pieces of inferior
quality might materially reduce the exact value of the
circulating medium. The aim of the Bank was to dispose
of as much of this silver as possible, in order, if not to
a

England was the first to teach the value of gold and to declare that
this metal alone was fit to form the basis of a sound monetary system.
Germany made use of the 5,000,000,000 francs indemnity to adopt monometallism in 1872. A law of March 14, 1900, established it in the United
States.
83704—10

National

Monetary

Commission

get rid of it altogether, at least to reduce the amount to a
point where it would cease to be a cause of inconvenience
and obstruction. 0
It appears from a scrutiny of the preceding table that
the silver holdings are continually diminishing, while the
total holdings have increased. Indeed, the Bank of
France avails itself of every opportunity to relieve its
coffers of this depreciated currency. 6 Since 1898 a
a M. de Molinari thinks that in order to bring back the silver holdings
to the condition they were in before 1850—that is, before the creation of
the 10-franc gold piece which was intended to take the place of the disappearing silver—it would be necessary to call in these pieces. The value
of those outstanding is 600,000,000 francs. This would cause t h e same
amount in silver pieces or thereabouts to come out of the Bank. (Cf.
Journal des Economistes, 1903, Vol. I I , p. 12.) In our opinion this system, among other disadvantages, would overburden the circulation with
a heavy and depreciated money.
& The following table of exports and imports of silver coins demonstrates that the French holdings have always shown an excess of exports.
[Bureau of Customs, Statistical Documents on French Commerce, pp. 84 and 144.]
[In thousands of francs.]
Exports. I Imports. | ^ c e s s of
I90i___
I902__
1903-1904-1905-1906°-

128,637
106,006
9L5I5
78,028
41,816
79.574

57.475
60,807
68,696
41.918
40,145
71.034

71,162
45.199
22, 819

36. n o
1. 671
8,540

« Amounts for 1906 are provisional.

This has led certain foreign authors, especially Austrians, to claim t h a t
we have a compulsory tender. Their reasoning is, in brief, t h a t since
the 5-franc piece has only a fiduciary value, and the notes of the Bank
of France may be redeemed exclusively in 5-franc pieces, there is, therefore, a condition of compulsory tender.
There is hardly need to show the error of this reasoning. Compulsory
currency in itself implies no redemption, and what we are reproached with
simply amounts to stating t h a t the 5-franc piece is legal tender and that
its intrinsic value is not equal to its face value. Everybody knows it;
nobody complains about it. Can it be said analogously t h a t there is
compulsory tender in all countries where subsidiary coins and copper are
legal tender within certain limits and within these limits may be paid in
redemption of notes?
18

The

B a n k

F r a n c e

portion of the holdings has been absorbed by the recoinage of a certain number of 5-franc pieces into subsidiary
coins, an operation which, according to the terms of the
agreement of May 15, 1898, must be carried out up to
the amount of 127,000,000 francs.
Our colonies also provide a large outlet for our silver
reserves. In many of them, especially in regions somewhat remote from the coast, the custom of barter still
exists. It is only recently, and in some countries, as
in the upper Congo, only since a few months, that the
natives journeying to the river with ivory, rubber, or
other produce have begun willingly to accept coin in
place of bags of salt or rice. For them the monetary
unit is the 5-franc piece. The subsidiary coins of 1 franc
and 50 centimes are doubtless known to them, and some
of them even have seen gold coins; but these pieces are
rarely in use. On several occasions, we are told, barrels of
subsidiary coins, after remaining for a long time in the
stores of the exporters who had secured them as a medium
for their purchases, had to be sent back unopened because
they could not be used.
It is, therefore, the 5-franc piece which is in greatest
demand in these countries, and this demand appears
strong enough to last for a considerable period. 0 On the
a

In this connection it may be interesting to note that in countries where
commercial enterprise is least developed silver is taken in preference to gold;
then, as economic knowledge increases, gold gives way to bank notes and
bank notes to checks.
This is shown by the tables resulting from the inquiry of October i 5 ;
1903, on the circulation of coins and paper. I t is shown t h a t the proportion of bank notes in circulation is only 63.08 in the Department of
Ain, 65.75 m t h e Department of Haute Savoie, 66.45 m the Department of
Lozere, 68.82 in the Department of Lot, 68.96 in the Department of Var; it
reaches 90 to 91 per cent in the departments of Aude, Rh6ne, and the

National

Monetary

Commission

other hand, the members of the Latin Union, especially
Belgium and Switzerland, 0 owing to their demands for
Bouches du Rh6ne, and exceeds 92 per cent in the departments of the
Seine and t h e Gironde.
The average percentage of the various mediums of exchange was:
Bank notes
Gold
T
5-franc silver pieces
Fractional silver currency
Copper

85. 56
9.13
3.62
1.58
. 11

At the same time a perceptible progress in general economic knowledge
is evident, since the figures of the year 1897 indicate a larger use of metal:
Bank notes

82. 91

Gold

1 1 . 10

5-franc silver pieces
Fractional silver currency
Copper

4-45
1.42
. 12

Concerning the evolution in money types and the struggle of the standards (Cf. Nicholson, "Bankers Money," London, Black, 1902, p. 4 and following), it may be added that there seems to be a constant progression toward
a money of lighter weight. The French bank note, value for value, weighs
two hundred times less than the equivalent in gold and three thousand
times less than the equivalent in silver. (Cf. B. Th£ry, " Les arrivages
d'or," Econ. Europ., May 8, 1892.)
a
There is between Belgium and Switzerland on the one side, and France
on the other, an important and continuous movement of 5 franc pieces.
The restocking of these two countries requires at times large amounts, as
may be seen from the figures taken from M. Ansiaux ("Les problemes de la
circulation" Revue Economique Internationale, 1907, Vol. IV, p. 260; cf.
Meyer, "Les banques suisses demission etle drainage des 6cus," Lille, Le
Bigot freres, 1903):
[In millions of francs.]
Year.
1898

Belgium.

Switzerland.

38.0

60. 0

103

35-5
14. 5
11. 0

Year.

Belgium.
25.0

1 1904.

12. 0

1905

24. 0

! 1906

81.s

Switzerland.

The

Bank

F r a n c e

5-franc silver pieces, give us a considerable market for our
embarrassing stock. And even if all these outlets were not
open for our silver, the fact alone that our gold reserve
keeps on growing would produce a steady decrease in the
proportion of the silver holdings. The amount would be
still smaller than appears from the above figures if the
Bank, acting in the public interest, had not endeavored,
during the last few years, to relieve the circulation by
disbursing more and more gold and drawing silver to its
vaults.
Now, neglecting our coined silver which can only be
used in the home trade, if our gold holdings are compared
with those of other nations, it will be seen that they are in
no wise inferior:
Holdings of gold at the end of June,

igo^fl
Francs.
3>39i> ooo, ooo
2, 776, 500, 000
2, 222, 700, 000
1, 189, 700, 000
883, 500, 000
469, 200, 000
367, 900, 000
138, 000, 000
118, 600, 000
116, 700, 000
101, 400, 000
82, 600, 000
68, 500, 000
40, 900, 000
27, 000, 000
21, 300, 000
18, 000, 000

United States &
France
Russia
Bank of Austria-Hungary
England
Italy
Spain
Netherlands
Denmark
Switzerland
Naples
Sweden
Roumania
Sicily
Portugal
Finland
Servia

a
If the latest figures had been taken, it might be thought that they were
influenced by the crises of 1907-8. I t therefore seems preferable to select
a year which was free from disturbances, and a time of the year when the
calls for money are least, aiming thus to rind a more correct level than during
a period of agitation.
& Holdings of gold of the Treasury on October 1, 1903.

National

Monetary

Commission

The four countries whose holdings exceed i ,000,000,000
francs each are, as may be seen, the United States, France,
Russia, and Austria-Hungary. The United States, owing
to its precarious banking system, far from being able to
defive any advantage from holding the largest reserve,
has recently undergone a financial crisis of the severest
kind, and has withdrawn much metal from Europe. 0
Moreover, the United States Treasury is only a department
of the Government, and not a commercial institution.
Russia has of late experienced some violent commotions.
That country, however, somewhat like Austria-Hungary,
is just enough outside the lines of international commerce
to find but little use for its heavy reserve. This reserve is
an appendage of the Russian Treasury, and a large percentage of the gold does not actually repose in its vaults,
but is deposited abroad to the credit of the Bank or to the
credit of the State.
France is, therefore, the richest country of the world in
gold, thanks to its Bank, which has skillfully watched
over and centralized arrivals of the precious metal.
Owing to the uses the Bank can make of this gold, and
to the shipments it sends abroad, Paris has become the
most important gold market. It is thus with justice
that France has repeatedly been called the greatest gold
producer of the world, and at any rate, it is the great storehouse of that metal. It is therefore easy to understand
how holdings as considerable as ours can withstand many
shocks. It is not, however, in the public interest that
these holdings should be indefinitely enlarged, and thus a
a

The amount of gold exported from Europe to the United States during
the recent crisis is estimated a t about 400,000,000 or 500,000,000 francs
at least.

The

Bank

F r a n c e

pause in the movement seems to be, if not probable, at
least possible.
After these remarks on the holdings of the Bank, from
the point of view of their nominal importance and their
quality, we now come to an examination of the function
of the Bank in preserving what has been called the
holdings of individuals. a The Bank properly considers
that the very quality of the metal in circulation is a
corollary of the considerable and judiciously constituted
reserve in its keeping; this is simply an application of
Gresham's law. In case of a panic, the duties of the
Bank would be distinctly more serious, if it had not
only to watch over its own reserve but also to repair
the damage caused by a diminution or depreciation of
the specie in circulation.
When, on March 21, 1907, the board of regents raised
the rate of discount from 3 to 3K per cent, that step
was taken not for the purpose of safeguarding the reserve—
which was enormous, consisting of 2,600,000,000 francs
in gold, and which for a year, during periods much more
favorable for exportation, had diminished only 400 to
500 million francs—but in order, by raising the discount
rate, to avoid a decrease of the money in circulation,
which would have resulted from the tempting and persistent offers from abroad, where discount rates ruled
much higher. The incentive to export was too high, a
counteraction was needed, and the Bank accomplished it
by the means above described. During the week when
the discount rate was raised, the monetary situation
a Cf. Pour & Contre of March 24, 1907: "Revue du marche""

National

Monetary

Commission

was not strained, because the gold reserve decreased only
3,000,000 francs, while discounts and loans decreased
4,000,000 francs; there was no inflation. Probably this
rise was also intended to obstruct the outflow of capital,
which, fearing the creation of an income tax, was ready
to take shelter abroad. a This is a remarkable instance
of the vigorous measures taken by the Bank to protect
the money of individuals. It is equally certain that the
same reasons had a great influence on the decision which,
on November 7, 1907, raised the rate from 3 ^ to 4
per cent.
On the other hand, and especially in 1904, the financial
policy of the Bank was to flood the French market with
gold and to withdraw all silver that was not required for
circulation. That silver, as we saw, was shipped abroad;
the aim was to get rid of all that which, not being needed
for circulation, was only depreciated money. Does this
mean that we should reduce the holdings of silver in
order to reach gold monometallism as quickly and as
a
According to M. de Foville's calculations, the amount of gold circulating in France reaches the sum of 4,000,000,000 francs. In England
the coined gold outside the Bank would not exceed 2,000,000,000 francs,
while in Germany it would reach the sum of 5,000,000,000 francs.
(Raffalovich, Economiste Frangais, Nov. 23, 1907, p. 727.) But if it is possible, when speaking of the gold reserve of a country, to base calculations
upon a concrete figure and to draw conclusions as to the amount of resistance, it is necessary, when considering the money in circulation, to
bear in mind the extent of the territory and the density of the population.
The latter is far from being alike in these three countries. In France
there are 73 inhabitants per square kilometer, against 112 in Germany
and 215 in England. If this factor is considered, the quantity of money
per inhabitant will be seen to be greater with us than with our neighbors.
The conclusion necessarily follows that, if the channels of circulation in
England and Germany contain more metal than in France, nevertheless
every Frenchman has a greater amount of circulating medium at his
disposal.

The

Bank

F r a n c e

easily as possible ?a We think not. We remember that
between i860 and 1870 the question of a single metal was
raised, as it is to-day, but in a contrary direction. The
question then was how to get rid of the debased gold,
and it was silver which was used as shield for the yellow
metal. It is possible that new discoveries may result in
a considerable reduction in the price of that metal. A
general lowering of prices would result, which would
give silver an increased value, and gold being depreciated
in turn, would once more be safeguarded by silver. Thus
we believe that, provided silver does not form a major part
of the reserve, and provided the holdings of gold are able
by themselves to meet the requirements of international
trade, silver should not be entirely displaced. In our
opinion the principle could be advanced that a strongly
and wisely constituted reserve must aim to maintain
between the gold holdings and the silver holdings about
the same proportion as that between the value of the two
metals. 6
Now that a smaller production of silver and an increased
production of gold is anticipated, the time would probably
not be very favorable for putting this principle into practice. But when bimetallism was general there could have
been established, and if in the future, as is quite possible,
it again prevails, there might in our opinion again be
established a ratio between the amount of gold holdings
a
" Our silver money is our militia; it guards our forts and frontiers at
home, while gold is our regular army, which goes abroad and returns
after profitable campaigns."
(A Neymarck, Meeting of the Societe"
d'Economie Politique of November 4, 1905, reported in the Journal des
Economistes, 1905, p. 248.)
& See in the Officiel, in the report of the Senate session of February 5,
1877, the discussion of the question of bimetallism.

National

Monetary

Commission

and the amount of silver holdings inversely proportionate
to that existing between (i) the official ratio of values of
the two metals, (2) the actual ratio of the same values; for
instance: J
«° t Jf l g s =-^—?. Under the hypothetical
Silver holdings 1 5 ^
conditions which we have assumed, this equation would
have offered and would offer the best means of counterbalancing the inconveniences of an ever-changing ratio of
values. But as monometallism tends to become the rule
and, moreover, as in all international commercial relations,
settlements are made by taking as basis of value the
ratio to gold bullion, which alone at the present time
remains unchangeable, we are led to make large reductions in the holdings of silver. It is a delicate matter,
however, to decide what limit should be placed to this
reduction.
A thorough examination of the question of monometallism and bimetallism does not enter into the scope of our
study, and we shall therefore add nothing to the above.
In any case, if we confine ourselves to a view of the present situation and of the resistance which the unloading of
the declining metal is able to offer to the fluctuation of
values, we are led to be content with the incomplete
bimetallism which now governs us, and once more to
acknowledge the wisdom of the Bank of France, which
preserves for us the statu quo.

The
SECTION

Bank

F r a n c e

II. Immediate results of the dominating position
of the Bank.

The utility of a low discount rate for the commercial
welfare of a country is well known. a Now, the rate tends
to fall when the cash holdings increase and to rise when
they decrease. In short, it is completely controlled by the
holdings. On the other hand, it would not be correct to
say that the amount of cash on hand follows the movements of the discount rate. Thus, of the two conditions
we have under examination—low rate of discount, strength
of holdings—the latter is the more useful. If it is advantageous to have a moderate discount rate, it is still more
so to possess large cash holdings. This is the case in
France, and as a natural result of our strong holdings,
both as to quantity and quality, we enjoy a moderate
rate of discount. This situation is so generally known,
even in its details, that we shall recall its fortunate consequences as briefly as possible and only as far as is required
for the unity of this investigation.
The normal rate of discount fixed by the bank of issue is
imposed within rather narrow limits upon holders of funds.
To raise it artificially for the greater contentment of a few
o In this connection we cite the authoritative opinion of two English
economists, Cairnes and B as table: " What a nation is interested in is not
in having its prices high or low, but in having its gold cheap—understanding
by cheapness not low value, but low cost" (Cairnes, "Leading
Principles"
p. 494, cited by Bastable, p. 97 of the translation by Sauvaire-Jourdan, Paris,
1900); t h a t is to say, not a gold value intrinsically low, but a small cost
price, due to the inexpensive means used to obtain it. The idea, however,
is not new. Napoleon said: " I have created the Bank in order to allow
discount at 4 per c e n t / ' This was a very low rate one hundred years ago,
and these few words show t h a t the founder of the Bank meant, also, that it
should remain stable. Cf. Camille Pelletan in the Chamber of Deputies,
session of January 17, 1907, Journal Officiel of the 18th, p. 71.)

National

Monetary

Commission

ardent capitalists must not be thought of any more than
to reduce it to naught, as Proudhon 0 dreamed, and as
despairingly wished for by the most fervent collectivists. b
The cost of manufacturing the notes, the taxes, and the
general expenses of a bank of issue set a limit for the discount rate toward which the normal rate constantly tends. c
But that minimum itself may be raised owing to the influence of the minima existing in other countries. de
In the table below are found grouped the average rates
of official discount in the principal markets of the world.
It will be seen that the French rate, with remarkable steadiness, rules perceptibly lower than that of other countries.
a Proudhon had created a people's bank with the aim of making capital
available free of charge. I t failed wretchedly.
& To those who may find the present rate of discount too high, let us
recall that, like ethics, political economy has laws which vary somewhat
according to time and place. The Chinese, for instance, surprise us with
the peculiarities of their civilization, however far advanced it may be in
certain respects. Their conception of ancestor worship and of family ties
is entirely different from ours; their music sounds queer to us; and, to keep
to our topic, some time ago they were quite pleased to see their discount rate
ruling at only 30 per cent. Their economists asserted that a lower rate
would be dangerous. Cf. Journal des Economistes, 1879, I, p. 79.
c These taxes must not be indefinitely increased. If they should rise
above certain limits, it would become necessary for the bank to transfer the
burden to those who bring in bills for discount. In some cases the bank
may cut down the profits; but when these are brought down to the ordinary
level it is not possible to reduce them further without endangering the
concern.
d Cf. Revue d?Economie Politique, Vol. X I I I , p. 307.
« I t is obviously impossible to determine a priori upon a fixed rate which
would at once be sufficiently low and sufficiently high and which could be
kept invariable. The problem of cheap money is far from so easy a solution.
The rate would lack stability if it were not kept in close dependence on a
certain number of economic conditions—such, for instance, as abundance of
money in the home market or even in the world's market, money rates abroad,
etc. On the other hand, a plethora of money is known to be one of the
causes of crises, because excessively low rates for loans and discounts during
a period of overconfidence permit enterprises which are often hazardous.

d 3

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The

Bank

F r a n c e

Some great nations, England, Germany, and even the
United States, enjoy, as is well known, a commercial
expansion vastly superior to ours in its intensity. Nevertheless, they pay higher for money than we do. Does
this mean that a low discount rate has no influence on
that expansion? We do not think so; indeed, we consider
that there is here a grave mistake. Even admitting that
a low rate, because it demonstrates a limited demand
for money, also discloses only a moderate degree of
prosperity—which is debatable—that low rate is nevertheless an element of impulse toward a period of greater
activity, in that it allows money to be obtained on favorable terms. Should it be objected, however, that France,
the land of cheap money, has permitted herself to be
outdistanced by the commerce of her rivals, we would
take this opportunity to show that from a financial
standpoint France for the last thirty years has been ready
for an onward movement which is only awaiting an impulse similar to that of which our neighbors have given
us an example. In this question, moreover, we must carefully distinguish between the monetary factor and the
economic point of view, and we must avoid attributing,
under pretext of relationship, to the one the defects of
the other. We shall have occasion again to return to this
subject.
" There is something more important for a country than
the figure of the discount rate, and that is the uniformity
of this rate in space and in time. While it is not possible
to reach absolutely fixed and uniform rates of discount
and credit conditions, the nearer they are approached

National

Monetary

Commission

the nearer we are to perfection." ° A discount rate subject
to constant change would cause, at each variation, the
gravest disturbances in commercial relations. On the
other hand, a stable rate allows a certain prevision of the
future and is highly advantageous to serious men of
business. h
The advantages of as stable a rate as possible appear
unquestionable. Let us recall, however, the classical
controversy over the system of invariable discount as
opposed to that of variable discount, 0 which ended by
reducing the rate when money is abundant and raising
it when money is scarce. It appears that here also, as
in regard to low rates, it is necessary to discriminate.
If the general welfare of commerce is at stake, the rate
must remain as steady as possible; if the more complex
problem of the elements composing the cash holdings is
to be solved, then the question as to a change of rate may
be raised. That question is then so related to the problem
«Courcelle-Seneuil, " Les operations de banque. TraiU thiorique et
pratique," ninth ed., Paris, Alcan, 1905, p. 39.
& This is so true t h a t among the plans for reorganization of the banks of
issue in the United States there is one suggesting the adoption of certain
measures, the chief merit of which would be the establishment of a sure
guaranty against variations in the rate of discount. This plan was
developed on September 3, 1903, by Mr. Shaw, Secretary of the United
States Treasury (cf. Econ. Europ., Sept. 11, 1903, p. 349). I t has behind
it the authority of a Cabinet officer who is also a distinguished economist.
I t is well known t h a t in the United States there are many banks of
issue. The notes are very strictly secured by deposits of government
bonds. The result is a lack of elasticity which is disastrous to public
credit. On many occasions the defective organization of its banks has
caused monetary crises in t h a t country, though it is the richest in the
world in metallic currency. A reform of its financial system has long
been needed.
c This discussion is brought out in a clear and thorough manner, with reference to present conditions, by M. L6on Faucher (Journal des Economistes, 1847, I, pp. 206 and following).

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(To face page 33.)

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7.5 H

VARIATIONS IN THE OFFICIAL DISCOUNT RATE IN FRANCE, ENGLAND, AND GERMAN^ FROM JANUARY. 1898

~~Oct

1
|
1898
Discoud . .(Sk J» J §ns ~\
HATES | a | | ^ | I I I

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rT~ L*.

x tt
M

1
rx

i_L

1 1

• ™*""^6Im'

J L

ELu.

The

B a n k

F r a n c e

of the choice between the policies of "premiums" and
of "discount," that we shall later make a special study
of it when considering the gold premium and the rise in
the discount rate. No doubt countries can be mentioned
where the rate varies even less than in ours, but it appears, at the same time, that their position is not a leading
one from the standpoint of international commerce; they
deserve no credit for this relative stability, nor do they
derive any benefit from it. "Countries lying outside the
great international currents are as if in stagnant water,
and they are able to preserve longer the same discount
rates. " a
The table we present a little further on for the purpose
of showing how often the discount rate has changed in
different countries points out in a striking manner how
steady our market is as against the two greatest markets
with which it can be compared, those of Germany and
England. 6 This table reaches from January i, 1870, to
December 31, 1907. It is unnecessary to give earlier
figures. This long period is amply sufficient to prove
that the stability of the French rate is not the result of
circumstances created by mere chance or peculiar to our
time. c d
a

V. Pareto, "Cours d'iconomie politique", p. 386.
& On this point there is an English saying: " J o h n Bull can stand most
things, but he can not stand 2 per cent."
c
On January 1, 1908, the principal rates of discount were as follows:
Germany and Russia, y}4 per cent; England and Denmark, 7; Austria and
Belgium, 6; Switzerland and Italy, $%\ Holland, 5; France, 4.
d Up to 1867 the changes in the bank rate were quite frequent. Since
our reserve rose to 1,000,000,000 francs, the fluctuations have always been
important and of long duration. (Cf. Nitti, Essai sur les variations du
taux de Vescompte".
Revue d'Economie P O / . , I 8 Q 8 , p. 384.)

83704—10

National

Monetary

Commission

Number of changes in the rate of discount per year.
Bank of
France.

Bank of
England.

1870-.
i87i_.
187a..
187318741875187618771878.
1879i88o_
i88i_
i88a_
1883188418851886,
1887.
1888,
1889189018911892189318941895189618971898.
18991900.
19011902,
1903190419051906.
1907-

If the fluctuations of the official discount rate in the
three great markets of the world be presented in chartform, a striking demonstration is obtained of the fact

The

B a n k

F r a n c e

that we enjoy the greatest stability in the best money
market.
We can further draw the following conclusions, which
will be useful in the course of this study. The end of the
year is regularly a period of important settlements; money
is then in greater demand and rates rise. With the appearance of the crises of 1900 and 1907, the rates of discount reach their maximum. There are also periods of
liquidation, of stagnation, and of that too rapid prosperity which by undue credit expansion prepares the way
for the crisis. Finally, we may trace the sensitiveness of
foreign markets, and in the midst of their movements the
comparative immobility of ours.
So far we have dealt only with the official rate. But
everybody knows that, besides this rate, there exists
another called the outside market rate, which is, perhaps,
in greater use than the former. a One might be led to
believe that the differences noted above between our
situation and that abroad are, in part at least, the result
of our having omitted this factor, and that the general
average rate would materially differ from the official rate.
Such, however, is not the case.
It is true that in foreign countries—in England especially and in Germany 5 —the officially published rate is in
reality a maximum, and the banks of issue, through their
commercial departments, may discount at lower rates.
a

The outside rates indicate as accurately as possible the relations
between the supply and demand of metallic currency. They tend everywhere to vary in the same direction. When they are too high or too low
they force the bank rate to be raised or lowered. In this sense it has
sometimes been said t h a t the official rate was in a manner artificial.
b This system has been used by the German Imperial Bank only between
1880 and April, 1896.

National

Monetary

Commission

They avail themselves of that privilege for the discounting of prime paper. 0 Certain it is that in this respect a
difference may be noted. But, on the other hand, the
great French banks of deposit, and in the first rank, the
Credit Lyonnais, the Comptoir National d'Escompte de
Paris, and the Soci£t6 G&ierale, owing to the powerful
resources at their disposal for keeping their cash boxes
replenished at low cost, are in a position to discount prime
bills at a rate often lower than that of the Bank of France.
If it happens that these concerns depart from the
official rate by a considerable excess, it is merely that to
a steady rate is added a premium justified by the risks of
insolvency. It should be observed, moreover, that in
England and Germany the exceptional rates granted by
the banks of issue to especially prosperous concerns are
not so generally used as notably to affect the average rate,
and the private banks can not compete with our great
financial institutions when it comes to offering very cheap
money in the open market.
This indicates sufficiently for our purpose that any list
which might be made of outside market rates, either
abroad or in France, would necessarily be incorrect, and
would furnish only an inexact average rate, the causes
of which would still have to be analyzed. Besides,
should the comparison be made, it would again show
the favorable position of our commerce.
a
This system of plural rates applied, even by banks of issue, in their
commercial departments has been greatly admired by some economists,
who regret that the Bank of France does not pursue this policy. They
seem to believe that ultimately the Bank may adopt it. On this subject
see Pour & Contre, of March 5, 1905, "Chronique financiere du temps" 1905.

T h

B a n k

F r a n c

Yearly averages of private discount rates.0.
1
18871889.
1891.
18931895189718991900.

Berlin.

London.

2.30

2.S8

2. 63

3-25
1.So

3.02
3.17
2. or

1.67

3 0 9

1.87
3-29
3-70
3 . 20

1902,

4-45
4-41
3-06
2.19

1903-

3.00

1904-

3- 13

3.40
2. 70

i9oi_

° F r o m T h o r w a r t : " Le marche
tionale, 1905, V o l . I V , p . 119.

financier

allemand,"

Revue

.81

2.99

Financiere

Paris.
2-53
2.60
2.63
2. 25
1.63
1. 96
2.96
3.i7
2.48
2.43
2.78
2.19
Interna-

So far we have seen the astonishing strength of France
from a monetary point of view. The Bank of France has
made it its duty to constitute for the country the largest
metallic reserve in the world. This was necessary for the
upbuilding of credit, and mathematically, as the reserve
grew, the discount rate acquired a conspicuous steadiness
and moderation. Local crises, whether monetary or of
credit, are not to be feared when such powerful resistance
can be brought to bear, and if they occur, it can only be
in a world-wide disturbance. We shall, therefore, discuss
this point only in connection with international credit.
Thus perfectly secure in its foundation, the Bank of
France is enabled constantly to promote the development
of credit. In this difficult undertaking we shall see the
manifestations of its eminent wisdom as well as of its
boldness. In spite of the complications of its task, we
shall find the Bank always the leader in matters of credit
as well as of money, unremittingly faithful to the great
mission which the State intrusts to it, and its mastery of
which we all acknowledge.

PART I.

PLACE OF THE BANK OF FRANCE IN T H E
DEVELOPMENT OF THE NATIONAL CREDIT.
We have seen what especial care the Bank of France
has given to the building up, for itself and for the country,
of a large and sound reserve and what were the immediate and fortunate results of this favorable situation.
With such a cash reserve as basis, credit rests on solid
and irreproachable foundations. We have assured ourselves of its power of resistance in our study of its most
interesting aspects. On this basis the Bank can now
erect and develop the structure of credit. If it controls
the monetary situation, it must equally control credit or
fail in its duty. There exists, indeed, between these two
forces a close relationship, which, from the outset, we have
endeavored to emphasize. The Bank, however, seems
occasionally to lose this supremacy during the most
prosperous periods, when confidence is unlimited and
credit expands with excessive intensity. Money in the
open market then often falls below the very low official
minimum permitted by the expense of issuing bank
notes. Other financial institutions, owing to their powerful resources in cash, become temporarily more prominent than the regulating bank, which sometimes shifts
upon these more zealous auxiliaries the task of developing credit. But, if the least disturbance unexpectedly
arises in the business world, the Bank immediately increases the discounts, and takes up again the reins which

The

B a n k

F r a n c e

for a moment it had permitted to slacken. Would it be
possible for the Bank to do this if it did not have the command of credit? By intrusting to it the care of Treasury
funds the State acknowledges that the Bank has the
power of regulating the money market and, as a consequence, of controlling credit. 0 The Bank ought to permit the extension of credit outside its control only so far
as it is able to recover the leadership of the market as
soon as this is threatened.
We shall see in this first part what is its exact place
as a distributor by studying its relations with the great
financial institutions. We shall then examine the manner in which the Bank develops credit, by increasing the
number of instruments of credit, by making them available to the greatest number, by extending the area of its
operations, and, finally, by fostering agricultural credit.
a

It has often been said that the Bank derives its strength from the fact
that the administration displays extraordinary confidence in it. On the
contrary, it would be truer to say that if the Bank is intrusted with duties
such as the care of government funds, if there is a disposition to intrust it
with ever new duties, it is on account of its strength, and because it is
recognized as worthy of absolute confidence, the past being a sure guaranty
for the future.

CHAPTER I.

PLACE OF THE BANK OF FRANCE IN THE
DISTRIBUTION OF CREDIT.
We purpose to investigate the organs of French credit,
and to assign to each of these organs its function, in order
then to ascertain what operations the Bank of France can
perform and within what limitations. We have therefore
to examine (i) the function of local banks and of financial
institutions; (2) in what manner the Bank of France
promotes the free distribution of credit; (3) in what
measure the Bank must control credit.
SECTION

I. Local banks and the financial institutions.

The natural organs for the distribution of credit are the
banks, a b but not all are able to spread it or popularize it
in the same degree. Thus the "Haute Banque" (the
great banking interests of Paris), solely engaged in
operations of higher speculation or in international finan« " A bank is a reservoir from which commerce must always be able to
draw the metallic currency, of which, at a given time, it may have need in
order to provide the community with products or services which can only
be paid for in cash." (H. Lefevre, ' Le change et la Banque" Paris,
Ch. Delagrave, 1880, p. 396.)
& In beginning this chapter it seems to us interesting to draw attention
to the fact t h a t the capital employed in France in the operating of banks is
notably less than that which is used in England or in Germany. The following figures, borrowed from the journal Le Rentier of March 7, 1905,
demonstrate this sufficiently.

B a n k

T h

F r a n c e

cial relations, does not interest us. The function of distribution is reserved for the local banks and the financial
Subscribed and paid-in capital of the large banks of France, England, and
Germany.
FRANCE.
Name of bank.

Subscribed.
Francs.

Banque de France
Credit Lyonnais
Societe Generate
Comptoir National d'Escompte de Paris
Credit Industriel et Commercial
Banque de Paris et des Pays-Bas
Banque Francaise pour le Commerce et 1'Indus
trie
Banque de l'Union Parisienne

182,500,000

182,5

250,000,000

250,0

200,OOO,OOO

50,0

150,000,000

150.0

80,000,000

20, 0

62,500,000

62,5

60,ooo,000

60, 0

40,000,000

40, 0

1,025,000,000

815,0

ENGLAND.
Bank of England
Union of London and Smiths B a n k . .
Lloyds Bank
National Provincial Bank of England
London City and Midland Bank
London and Westminster Bank
London Joint Stock Bank
Parr's Bank
London and County Bank
Bank of Liverpool
National Bank
Capital and Counties Bank
Williams Deacon's Bank
Manchester and County Bank
Union Bank of Scotland
Metropolitan Bank
National Bank of Scotland

^14,553,000

£ 1 4 553,000

22,934,000

3 554,000
3 548,000

22,175,OOO

14,400, 0 0 0

3 OOO,OOO
3 OOO,OOO

14,000,000

2 800,000

12,OOO,OOO

I 800,000

15,900,000

8,542,000

I 708,000

8,000,000

2 OOO,OOO

8,000,000

I OOO,OOO

7, 5 0 0 , 0 0 0

I 500,000

6,700,000

I 340,000

6,250,000

928,000

5,000,000

I OOO,OOO

5,000,000

500,000

5,000,000

I OOO,OOO

181,414,000

OOO,OOO

5,460,000

231,000

National

Monetary

Commission

institutions, while the function of the Bank of France is
to preside over this distribution. 0
Local banks, preeminent less than one hundred years
ago, have gradually seen their field of activity growing
smaller, and a large number of them have been amalgamated with great institutions, possessed of much greater
resources, with branches over the entire country, and, it
must be said, free from the routine which caused the
downfall of many provincial houses. With their decline
<* " T h e Bank constitutes to-day such an inherent p a r t of the economic
organization of France t h a t the country can hardly be thought of without
this mechanism." (Flour de Saint-Genis, "La Banque de France a travers
le siecle,,t Paris, Guillaumin, 1896, p. 123.)
Subscribed and paid-in

capital of the large banks of France, England, and
Germany—Continued.
GERMANY.

Name of bank.

Reichsbank
Disconto-Gesellschaft
Deutsche Bank
Bank fur Handel and Industrie
Dresdner Bank
Berliner Handelsgesellschaft
Schaffhausenscher Bankverein
Allgemeine Credit Anstalt
Rheinische Credit Bank
National Bank fiir Deutschland
Bergisch Markische Bank
Breslauer Disconto Bank
Commerz und Disconto Bank
Norddeutsche Bank
Pfalzische Bank
Mitteldeutsche Creditbank
Berliner Bank_
_

Subscribed.

Paid in.

Marks.

180,000,000
170,000,000
160,000,000
132,000, 000
130,000,000
100,000,000
100,000, 000
75,000,000
61,000,000
60,000,000
54, 2 5 0 , 0 0 0
50, 000, 000

180,000,000
170,000,000
160,000,000
132, 0 0 0 , 000
130,000,000

50,000, 000

50,000,000

5 0 , 0 0 0 , 000

50,000,000

92, 596, 000
100,000, 000
75,000,000
61,000,000
60,000,000
54, 250,000
25,000,000

50,000,000

45,000,000
42,000,000

45,ooo,000

it 5 0 9 . 2 5 0 , 0 0 0

1,476,846,000

42,000,000

The

Bank

F r a n c e

we greatly regret to see the disappearance of personal
credit, which it is more and more difficult to make available. The "intuitus personae" (the judgment of character) , which may serve as a basis for credit granted to a
neighbor by a neighbor, can not be considered by a corporation official who has almost no means of estimating
the solvency of individuals except from the material and
tangible side.
The local banks, as far as they have survived, have
adopted methods which do not bring them into competition with their powerful rivals. They have been obliged
to grant long-term credits or content themselves with
being intermediaries for the Bank of France in granting
credits to parties known to them, generally farmers or
small landed proprietors, with a view to rediscounting
the paper. On this point again there is cause to regret,
if not their disappearance, at least their effacement. We
shall see, indeed, that the institutions for agricultural
credit, in spite of all the attention they have received,
have not yet been able to replace the local banks in the
distribution of personal credit applied to agriculture.
The great financial institutions, of which the four most
important are the Credit Lyonnais, the Comptoir National
d'Escompte de Paris, the Societe Generate, and the
The disproportion between Germany, England, and France would be
still greater if, as in France, all banks having a subscribed capital equal to
40,000,000 francs at least had been mentioned. However, if we figure the
pound sterling and the mark at par, the pound sterling at 25.22 francs, and
the mark at 1.2345 francs, we shall find as subscribed capital in France
1,025,000,000 francs, in England 4,575,000,000 francs, and in Germany
1,863,000,000 francs. And as capital paid in: France 815,000,000 francs,
England 1,115,000,000 francs, Germany 1,823,000,000 francs.

National

Monetary

Commission

Credit Industriel et Commercial, have a much more
important part in the distribution of credit. Thanks
to their numerous agencies, to their attractive conduct
of business, with the service of a courteous and attentive
staff, they have gradually taught the people new habits
in investment and confidence in credit, to such a degree
that he who but yesterday hoarded in a stocking prefers
to-day, if not to speculate on the Bourse, at least to make
deposits in the savings banks. The great financial institutions have done much to give even the lowest classes
confidence in credit, and to introduce a system of clearing.
In closer contact with the public than the Bank of
France, which is restricted by having to protect the reserve
of which we have spoken, these institutions are able more
readily and effectually to reach and to mold the public.
But that is not their only service nor the only reason for
their existence. There are transactions which they alone
undertake, which they alone can undertake, and which
must be performed because they are in the line of progress.
These operations are sources of profit in the same way as
are discounts and loans for the Bank of France. Such
are deposits, stock-market orders, and the flotation of
securities. These operations can not be undertaken by
the local banks. Occupied for the most part with longterm dealings, they have no use for deposits payable on
demand. If they should have such deposits, their total
would never reach a sufficient proportion safely to permit
the investing of an important amount.
On the other hand, the Bank of France does not and,
even if it wished, can not compete with the financial institutions in undertaking such operations. Neither the

The

B a n k

F r a n c e

acceptance of interest-paying deposits nor the flotation of
securities can come within the province of a bank of issue.0
The flotation of securities necessitates a certain contingent
responsibility, and the institutions which place securities
on the market sometimes engage their credit for very large
sums, which are sufficiently guaranteed by their capital,
but the credit which is intended to safeguard the stability
of the bank note 6 can not be pledged for that purpose.
At most, the Bank may handle over its counters an issue
of government and treasury bonds, as it bound itself to do
when it accepted the terms of the last renewal of its charter.
It happens that the Bank of France sometimes transmits
subscriptions, but this is a gratuitous and entirely voluntary service. In no case can the Bank take for its own account bundles of securities in order to dispose of them to
the public. Even the purchase and sale of securities,
which is so profitable a business in all financial institutions, could never, it is clear, be a successful undertaking in the Bank of France. The staff of the Bank has
no special information as to the various securities dealt in
on the Bourse, and can not, therefore, give valuable advice.
Its role would apparently be confined to handing out the
financial journals and passively awaiting orders. If it
should act otherwise, the staff would engage the moral
responsibility of the Bank of France; but the Bank, evia
" Evolution tends less and less to make banks of issue institutions of
credit in the true sense of the word, and more and more to make of them
accurate, watchful, and skillful clearing cashiers." (P. Leroy-Beaulieu,
"Traits thiorique et pratique oV ico-nomie politique,'" Paris, Guillaumin, 1896,
Vol. I l l , p. 666.)
& The reason why the Bank of France requires capital is that it is impossible to secure an absolutely infallible discount board and to discount only
paper that is absolutely safe. (Cf. Journal Officiel of June 30, 1892, report
of M. Burdeau.)

National

Monetary

Commission

dently reluctant to undertake such operations, prefers
to leave that field to its auxiliaries, the financial institutions.
However, at the present time, as we shall see, the Bank
of France tends to compete with these institutions for
the purpose of maintaining sound conditions of credit
which inclines more and more to speculation. Thus it is
extending its department for the purchase and sale of
securities in order to safeguard a poorly informed public
against the excesses of speculation which dazzle with the
hope of an always illusive gain.
SECTION

II. In what manner the Bank of France promotes
the free distribution of credit in France,

Thus the Bank of France must leave entire freedom of
action to the financial institutions and must not encroach,
theoretically at least, on their functions, which, as has been
shown, differ materially from its own. The Bank even
owes them its protection, since they are valuable auxiliaries in pursuing its aim of extending credit as liberally
as our metallic base permits. In the interest of the public
the cash holdings are daily at their disposal. " The banks
of issue, as well as the treasuries of the State, are treasuries
for private banks. Thus the national credit rests entirely
upon them." a The help and protection of which we speak
are not mere passive professions. Unfortunately, there
have already been numerous cases where the Bank has had
to interfere in order to bring effective assistance to private
banks. The Bank has, of course, acted thus for the welfare of the entire community, but also for the satisfaction
« M. Clement, " Des variations du taux de I'escompte,"
154.

Nimes, 1902, p .

The

Bank

F r a n c e

of protecting its auxiliaries with all its power in the fulfillment of a difficult task.
Let us recall, in the first place, the terrible crash of the
Union Generale, in January, 1882. The manager and M.
Bontoux, the president of the board of directors, were
both arrested on the 1st of February. The Union Generale was so powerful that the French market, as a whole,
was considerably influenced by this disaster. The financial institutions, heavily engaged, had serious fears for
their own credit, as many Frenchmen may still sadly
remember. Then the Bank of France intervened. " I t
contributed greatly to the restoration of confidence; it
came to the rescue of the compromised institutions by
rediscounting a part of their commercial paper; it helped
individuals by receiving as current accounts the sums
they had withdrawn from the banks, and brought general
relief by making the discount rate 3 ^ percent." 0 From
this period dates the prosperity of the better managed
banks, which, having remained unharmed, gathered in the
customers of the discredited institutions.
In April, 1889, the Comptoir d'Escompte calamity
nearly compromised the condition of the banks of deposit,
which, however, had acquired stability, were engaged at
the time in short-term transactions, easily convertible
into cash, and appeared, therefore, less vulnerable than
ever. " A heavy speculation in copper had been organized in 1888 with the help of the old Comptoir d'Escompte.
In the beginning of 1889, owing to various circumstances,
the copper market gave way, involving the Comptoir
d'Escompte. M. Rouvier, the minister of finance, called
a
E. Th£ry, " La France £conomique & financiere pendant le dernier quart
de sikcle" p. 231.
47

National

Monetary

Commission

upon the Bank of France for help. The authorities of the
Bank felt that in the face of such events they could not
afford to remain passive, and they placed at the disposal
of the Comptoir d'Escompte a sum of 140,000,000 francs,
thus permitting the repayment of all its deposits, and a
liquidation, which, for want of that help, might have
proved disastrous. The liquidation was effected on favorable terms and caused no loss to the Bank or to the firms
which had given their guaranty." 0
The Comptoir d'Escompte was then the only French
financial concern having important branches in the Far
East and abroad. Its disappearance, in addition to causing confusion in the home market, would have cast an
unfavorable shadow on our credit abroad. The same
syndicate of bankers, which rallied around the Bank of
France to facilitate the liquidation of the old concern,
furthered the subscription to the securities issued by the
new company, the Comptoir National d'Escompte de
Paris, which took over the business and the various
agencies of the old company. 6
Later we shall take occasion to speak of the failure of the
house of Baring Bros., London, and of the part played
by the Bank of France in the task of relieving the depressed London market. We shall concern ourselves, for
the present, only with those incidents which could affect
the French market, and we come now to the failure of the
Soci6te des Depots et Comptes Courants, in the beginning
of 1 8 9 1 .
a E- Th6ry, op. cit., p. 277.
& Cf. Germain-Martin & Leo Polier, " Cours dUconomie politique, I I , Le
credit,h p. 260.

The

B a n k

F r a n c e

"The Bank of France, after exacting such security as
the concern could still offer and, furthermore, the guaranty of several large banking institutions, for the purpose
of limiting possible losses, authorized discounts to the
amount of 49,228,206.87 francs. Thanks to this assistance, all deposits were paid off, and the dreaded effects of
a panic were once more averted. " a In spite of the precautions that had been taken, the liquidation was slow.
In 1894 there still remained 16,000,000 francs which the
Bank had been unable to recover, and in 1895 7,500,000
francs. It was only in the following year that this account disappeared entirely from the balance sheet of the
Bank. b
In the midst of the most perfect confidence and the
greatest prosperity, it is again the Bank of France which
renders it possible to secure an economical management
of the cash reserve so important for the financial institutions. Indeed, by the rediscounting of some of their paper,
they may at any moment readjust the proper balance
between their receipts and disbursements, thus keeping on
hand but a slender cash balance. Their payments can not
exactly correspond to their collections, as neither can be
accurately gauged in advance.
While it is possible for the public treasury to remedy
this discrepancy, as far as its own transactions are concerned, by issuing short-term treasury bonds, in the case
of the financial institutions the cashier's certificates can
a " Compte rendu de Vassemblee ginerale des actionnaires de la Banque de
France" 1891.
& Cf. also for this episode, Juglar, " Des crises commerciales et de leur retour
p£riodique en France, en Angleterre et aux Etats-Unis"
Paris, Guillaumin,
1889, and speech of M. Rouvier in the Chamber of Deputies in 1891.
83704—10

National

Monetary

Commission

not fulfill the same purpose as surely, and resort is had to
rediscounting. Therefore, a wise rule of internal regulation exacts that a fixed portion, usually one-third or onehalf, of the paper they discount shall consist of bills
acceptable to the Bank of France. It may be said, therefore, that in rediscounting such paper the Bank permits
the financial institutions to discount paper that does not
come up to its own requirement (not bankable) and to
transact any other operation such as financing commercial
undertakings.
Thus, whenever the financial institutions have found
themselves in need of effective pecuniary assistance, the
Bank of France has regarded it a duty to help them,
and in normal times, by assisting them with its resources,
it facilitates liberal credits.
SECTION

III. In what measure the Bank must control
credit.

It may happen, on the other hand, that the great
financial institutions expand too rapidly or unwisely
this or that branch of credit. Mindful, above all, of
their own interest, which is but natural, they have no
especial regard for the public welfare, their only aim
being to make their capital bear fruit and to pay large
dividends to their shareholders.
We have already seen that the Bank of France aspires
to a nobler ideal, and we remember some of its policies
adopted primarily for the public good.0 The development
of credit is an extremely delicate matter; there are many
instances where the application of this agency has led

° Cf. supra, p. 10.
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to great catastrophes. It is undoubtedly impossible to
exercise a strict supervision over the financial institutions; any such measure would soon appear vexatious
and would be, moreover, contrary to our spirit of liberty
and independence. But we can quite justly ask whether
these concerns are fully sheltered against disasters; whether
nothing can happen to them of a nature to shake their
credit; and in such a contingency what should be the
attitude of the Bank of France.
The preceding instances, briefly noticed above, inform
us sufficiently as to the possibility of failures. The house
of Baring Bros., the Union Generate, and others enjoyed an
immense credit, thought to be unshakable, and the events
of a day flatly contradicted that opinion. The various
newspaper campaigns during a number of years against
the financial oligarchy, of which the controversy of Lysis
and Testis 0 is but an episode among many others, could
have jeopardized, at least in a measure, the credit of the
great banking establishments. Public opinion, however,
has passed upon it.
But in considering matters more closely, we shall recall
that deposits, stock-market orders, and the flotation
of securities are the three branches which bring prosperity and profits to the great financial institutions.
The steady expansion of these departments is the surest
cause of their success. We may, however, ask whether
tnis considerable increase, as shown by the statistics,
may not some time be checked. Will the public continue
a
Lysis, " Contre Voligarchie financiere en France," La Revue (anc. Revue
des Revues), 1907. Testis, "La vSriU sur les propos de Lysis, le rdle des
Uablissements de credit en France" Revue Politique et Parlementaire, 1907,
Vol. 52, p. 456; Vol. 53, pp. 5, 241, 449; Vol. 54, pp. 25 and 229.

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every year to deposit new amounts, which, added to the
previous deposits, would constantly augment them without any conceivable limitation? Will the public long
submit to the system of speculation, the results of which
can only be doubtful? Will its love of gain push it to
multiply these operations indefinitely, in the hope of
ultimate riches? And will the French market always
continue to remain the great producer of capital as we
know it, the land of constant thrift, inexhaustible, supplying all who come, while issues of securities increase
and are indefinitely renewed, thus absorbing the national
savings?
On these various points there would be matter for a
long and interesting discussion, in which we shall not
engage. But whatever others may think, to us it
does not seem rash to state that the three sources of
profit mentioned above will not continue to expand
indefinitely in the proportions we now witness. However, what does not go forward goes backward. Since
restriction is impossible, a change is sooner or later inevitable. Just like individuals accustomed to live beyond
their means, the financial institutions, engaged in a movement of ever-growing operations, will not readily slacken
their pace, and perhaps in the end they will let themselves
be drawn into more or less hazardous transactions. Even
if we suppose that each one of them is able to develop
satisfactorily, it would still be necessary that the transformed banking methods should present opportunities for
profits comparable to those hitherto enjoyed. Perhaps
such opportunities may then arise, but we greatly fear
that they may be sought amidst the risks of unrestrained

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speculation, as has just happened in the United States,
which, in this respect, is unhappily preeminent. 0
In any case, we may ask whether in the future the
actual monopoly enjoyed by the financial institutions
could not be checked by competition. Without speaking
of stock market orders and the flotation of securities,
transactions which are essentially vulnerable, let us
consider only the deposits, that part most vital and
sensitive in that it supplies the cash which is obviously
so important for a bank. In regard to their deposits the
financial institutions have especial reasons for fear. What
is called in banking parlance the deposit account is nothing but a current account and carries no privileges for
the client. The common belief which tends to consider
such deposits as preferred claims is absolutely erroneous. There is no analogy between the special kind of
deposit we are speaking of and the one aimed at in
articles 1915 and following of the Civil Code. h
« The United States offers an example of speculation of which we can
hardly form an idea in France.
The New York Stock Exchange has over 1,350 members. In each member's office all operations of the Stock Exchange are recorded by telegraph, which allows the numerous customers to follow the prices a t any
moment and to buy and sell incessantly, thus facilitating frantic speculation. The American spirit is so intent at the game t h a t few among
the rich speculators know the extent of their fortune; some even do not
know if they are really rich. Such a one, after having purchased sufficient
shares to control the stock of a certain concern, and especially to govern
its quotations, will pledge his holdings and with the amount raised will
buy the shares of some other great company of which he will gain control
in the same way and the securities of which he will pledge again.
With a comparatively small capital the American speculator can manage thus to expand considerably his credit and to rule the market at many
points at the same time. But how gravely the least oscillation of this
unstable edifice threatens the entire business world!
&Cf. M. & A. Meliot, " Dictionnaire financier international, tMorique et
pratique," under the word " Banque." Paris, Berger-Levrault & Cie., 1904.

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The internal organization of financial institutions is so
well known that a few words concerning it will suffice.
Their numerous accounts, nearly all showing credit
balances, assure them large sums which they hold without
charge, even allowing depositors a moderate interest,
varying, however, according to the cash requirements of
the depositary, and according to the length of time the
depositors agree to leave their funds in the bank. The
same institutions also issue certificates of deposit similar
to treasury bonds, which pay a small interest. The
maximum of interest paid to depositors rarely exceeds 2
per cent per annum in the most favorable cases. But
most deposits, especially those subject to check, which
are in a majority, generally draw interest at one-half
of 1 per cent. Thus we see at what low rate the-banks
of deposit procure their floating capital. They make use
of it to provide for their various departments, loans,
discounts, stock-market loans, credit accounts, which
bring higher rates of interest, close to the official rate for
certain operations, still higher for others, and often close
to the outside rate. The banks of deposit are therefore
greatly interested in the figure of the discount rate of the
Bank of France. Here also we find a limit to the indefinite
lowering of the official rate, because a decrease, even
though imperceptible to commerce, might in certain cases
endanger the vitality of the banks of deposit. With
this in view M. K. T h 6 y could say: "When the outside rate for money has fallen below 1% per cent, what
would become of the banks of deposit if the Bank of
France, mindful only of its own interests and not of the

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superior interests of our public credit, should suddenly
lower its discount rate to 2 per cent?" a
This new limit to a reduction of the official rate should
be noted, because we have seen how important is the
prosperity of our financial institutions for the national
credit. b This consideration should suffice for the rejection
of the system of multiple rates which consists in allowing
the bank of issue, when it is thought expedient, to discount
below the official rate for the benefit of certain customers.
There appears to be in this an act of hidden competition
which, in the interest of the country, the Bank could not
possibly countenance. We shall see, in addition, that
if the Bank wishes to recapture the market it has many
other means at its disposal.
In the course of the discussion concerning the last renewal of the charter of the Bank of France, much was said
as to the possibility of allowing a certain interest to dea

Edmond Thery, "Trop de prudence," Econ. Europe April 17, 1892.
We are of course aware that there are other limits to the lowering of
the discount rate. I n the first place, if it is not indispensable to follow
the rates of foreign markets, it is nevertheless not possible to maintain,
artificially or arbitrarily, an independent rate. There is, in the next place,
a minimum fixed by the cost of manufacturing bank notes, the safe-keeping
of the metallic reserve, and the expenses of management. These rather high
expenses amount to a rate of about 1 % per cent. If the various taxes and
stamps are added, we reach a figure for general expenses so considerable
that it alone would prevent an indefinite reduction. Moreover, it should
be noticed t h a t the rate of 3 per cent, which tends to be stable, yields to
the shareholders but a very small dividend, if we take into consideration
that the market value of a share of the Bank of France fluctuates about
4,000 francs, having quadrupled in one hundred years. This, indeed,
appears normal enough, since money was scarcer a t the beginning of the
nineteenth century than now, and values have probably increased fourfold.
The big dividends paid were earned in times when discounts were high,
not arbitrarily, as is well known, b u t quite naturally, since elementary
caution requires that a corporation shall manage to operate without having
to rely upon the exceptionally favorable periods.
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positors in the Bank. a After what has gone before,
it does not seem necessary to dwell at length on this
point. M. Burdeau 5 has shown that it is impossible
for the Bank of France to become a bank of deposit.
The issue of bank notes and the receipt of interest-bearing
deposits are absolutely incompatible services. Their
union in a single hand " would replace the present organization by an entirely new one, which, in case of a crisis,
would offer much less vitality and power of resistance.''
For us it is sufficient to know that the payment to depositors of i per cent on deposits subject to check would
attract to the Bank nearly all inactive funds, and that a
sum in the neighborhood of 1,000,000,000 francs would
leave the private banks. This would be their deathblow—a result which we are unwilling to contemplate.
On the other hand, the future of the banks of deposit
depends upon the interest paid by the Caisse des Dep6ts
et Consignations to its depositors. It is for their interest
that the Caisse should not raise its rate. If, for instance,
the Caisse should pay over 2 per cent, the banks of deposit, which can allow such a rate only in very exceptional cases, would for this reason receive much less, and
their means of action would be correspondingly decreased. c
a This idea is not new. Before 1869 M. Horn had demanded t h a t interest be allowed on deposits in banks of issue. (Cf. Wolowski, " Le
change et la circulation," Paris, 1869, pp. 12, 26, 33.) And it is found
again in M. L£on Say's book, " Dix jours dans la Haute ltalie,n p. 63.
The arguments pro and con are, however, always the same.
b Burdeau, " Discours sur le renouvellement du privilege de la Banque de
France" June 29 and July 6, 1892, in the Ofjiciel of June 30 and July 7.
c
A. Moireau, "La Banque de France, prorogation du privilege, le Credit
Fonder, La Caisse des D6pdts & Consignations"
Paris, Perrin & Cie, 1891,
P- 183.

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To sum up, we may say that by their very nature the
financial institutions are liable to weakness, and for the
public good there must be some means of supporting
them. For this reason the Bank of France, which presides over the distribution of credit, can permit the expansion of its auxiliaries only up to the point where its
help would suffice to prevent the collapse of the market.
Such a measure appears imperative in a country where
the protecting wisdom of the Bank of France has always
been relied upon. Fortunate land, fortunate institution,
which excites the envy of foreigners, especially of England,
where, as we shall soon have occasion to see, the least
failure may result in disastrous consequences.a
CONCLUSION.

Thus the banks of deposit have contributed to progress
"by gathering and giving life to sums until then lying
scattered and idle/' 6 They are valuable auxiliaries in
the distribution of credit. For this reason they deserve
help and protection. The Bank, the mission of which is
of a wider and loftier scope,c has shown on many occasions that its helpfulness is not a pretense; daily, in fact,
a I t should be noticed t h a t the strongest defense of the system of the
Bank of France is found in English books and papers, notably the Statist.
(Statist of December i, 1906, mentioned in the Economiste Europeen of
December 7, 1907, and Statist of February 15, 1908, mentioned in the
Messager de Paris of February 20, 1908.)
& Burdeau, June 29 and July 6, 1892, in the Officiel of June 30 and July 7.
c " T h e Bank of France, during periods of quiet and prosperity, aims at
a gradual effacement, at a more complete retreat toward a very high but
very restricted sphere of economic activity. But as soon as the least
trouble appears * * * the Bank assumes again its place at the head
of our great financial institutions." (Brouilhet, " L e nouveau regime de la
Banque de France" Revue d'Economie Politique, 1899.)

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it assists them by rediscounting their bills. We have
also seen that the prosperity of the financial institutions
has continually increased. It is associated with the confidence and growing security of our times. a But should
a war or other calamity occur, quiet and security would
disappear, and deposits would correspondingly decrease.
At such a time, these banks might give way. Or again,
should a lively competition develop, should the direction of
opinion or of affairs be changed, that alone might suffice to
arouse fear of defection among these auxiliaries of credit.
Such a possibility is enough to impose upon the Bank of
France the duty of foreseeing and of providing for it.
The Bank must be ready to meet even improbable contingencies in order to be in a position to recapture the
market with a sure hand as soon as danger threatens it.
Under these circumstances, what can the Bank do?
In the first place, it can utilize its powerful reserve which
has been accumulated for this purpose. It can, in the
next place, curb the action of the banks by competing
with them when they appear to enter upon a dangerous
course, and by showing them what steps to take. b
<* The discounts and loans of the financial institutions are growing in
importance, and are steadily increasing in proportion to those of the Bank.
This condition, revealed by statistics, is in itself not alarming, but it once
more justifies t h a t intervention, so many motives for which we have
brought out in the course of this chapter.
b It seems that this protective mission especially applies to the department for stock market orders, originally reserved for the customers of the
Bank, and later opened to everybody. Thus it prevents the financial
institutions from driving us toward excessive speculation. This purpose
explains, according to our notion, the growth and broadening of the business of stock market orders at the Bank of France. The same may be
said of the relatively recent measures which permit deposit accounts without interest, and give the loan accounts the privilege of having a credit
balance.

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On the other hand, there is a whole series of operations
which private banks do not undertake, or do not tend to
develop as they deserve. The reason for this we have
seen; directed by self-interest toward the more profitable
transactions, they somewhat neglect the others. The
Bank of France finds no one engaged in these less remunerative operations, and is, moreover, the better able
to undertake them itself, because they are not incompatible with the duties of a bank of issue.
In this short essay on the physiology of the distributors of credit, we have endeavored to ascertain theoretically in what measure the Bank of France could and
should intervene. We have noticed that on many occasions credit has had the greatest need of being purified,
that the colossal expansion of the great financial institutions has demanded the intervention of the Bank, only
possible in case of failure. We have said, moreover, that
not all credit operations can be carried out by the financial institutions.
It remains for us to show, and this will be the subject
of Chapter II, with what activity the Bank of France has
developed the credit operations of which it may or should
take charge.

CHAPTER II.

EVIDENCES OF THE ACTIVITY OF THE BANK OF
FRANCE IN CONNECTION WITH THE NATIONAL
CREDIT.
SECTION I.

Development of instruments of credit in the Bank of
France.

The instruments of credit which we have previously
enumerated 0 comprise almost exclusively those transactions which the Bank of France is not able to undertake.
To increase the number of commercial bills, bills of
exchange, bills payable to order, negotiable warehouse
receipts, drafts, etc., is altogether beyond its control.
Its mission merely consists in being always prepared to
receive and welcome them. The case is different when
it comes to instruments for simplifying accounting, such
as checks, transfers, letters of credit, bills payable to
order, and even bank notes, the aim of which is to abolish or reduce the transportation of specie.6 As far as
these are concerned, the Bank can advantageously intervene in developing their use.
Concerning the bank note, which is mentioned among
the instruments of credit because its equivalent is not
represented in full by cash, we have said enough, so that
a Cf. supra, p. 6, note c.
& This increase of monetary instruments leads, if not to a sure and
universal rise in prices—because, as economic wants become more numerous, consumption goods also tend to increase—then certainly to a general
stability of prices, for it will be more difficult to realize a relative increase
or decrease in a commodity, the greater the quantity in which the latter
exists.

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we shall not need to recur to it. a Moreover, if there is
need for its development, it is because upon this very
development depends that of the other instruments.
Upon it alone falls the duty of assuring the metallic
reserve for credit as a whole. We are well aware—and
this, perhaps, is the only objection that might be raised
against the conception—that the ideal mission of instruments of credit is always to avoid the use of metallic currency, even in times of panic. Unfortunately not all of
these instruments come up to this ideal. The clearing
vouchers of the Bank are alone perfect from this point of
view, and these are the real precursors of the system
toward which we are nowadays tending. Therefore the
Bank applies itself especially to their development. We
shall presently study them.
In order that we may devote our attention to checks
and transfers, the two really interesting instruments, let
us first say a word on the bill payable to order and the
letter of credit, instruments which are not as perfect,
« I t is known that more than four-fifths of the bank notes are represented
by the metal holdings, the other fifth resting on the discounts, capital,
reserves, and credit of the Bank, Nearly all the notes can therefore be
considered as deposit receipts, which, in order to be absolutely legal, only
require to have a counterpart " i n specie" instead of " i n genere." They
may be said to be checks of deposit according to the civil law, always to
bearer, imprescriptable, the taxes on which are borne by the depositary and
not by the depositor.
On the other hand, checks against deposit accounts, which financial
exigencies have permitted to deviate from the common law, are not subjected to the obligation of holding a counterpart. I t is a curious circumstance, all the inconveniences of which have not yet been revealed by
events, that the deposit most legal in form is the object of all the attention, caution, and regulations of the lawmaker, while the other—probably
because it is less classical and less legal than it is imposing, owing to its
modern and impressive development—enjoys general and unlimited confidence.

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but are worthy of mention, because they render useful
service to the public.
The bill payable to order here referred to is a special
form of the commercial bill. It is used for transfers of
funds. This instrument is within the reach of all and does
not require either for the sender or for the recipient that
an account be kept with the Bank. Whoever wishes to
transfer funds from a city where the Bank has a branch
or an auxiliary office to another city similarly provided,
has only to deposit the money. There is then handed to
him a bill payable to order, worded like all such bills, by
which the Bank binds itself to pay to the beneficiary the
sum mentioned. The sender has the advantage that his
name can remain unknown to all except the office by which
the bill was issued. If he prefers, he can let the name of
the recipient remain unknown to all except the office on
which it is drawn, by having the bill made to his own order
instead of to the order of a third party. The charge of 25
centimes allows in many cases a considerable saving as
compared with other means of transfer. This bill may be
regarded indeed, from a legal point of view, as a check,
because by the very fact of its creation an account is opened
and payment made to meet it. On that account it is not
subject to the graduated stamp tax, and bears only the
fixed tax of 20 centimes, like out-of-town checks.
The letter of credit05 is very useful to business men and
to all travelers who do not wish to carry large sums with
them. It enables them to obtain cash in all the offices of
the Bank of France up to the amount indicated. It is
a Letters of credit form, in the Bank of France, a new department, which
dates only from 1902.

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valid for six months. Payments are made on it without
commission, and if the traveler has an account with the
Bank, that account is debited on the day he draws the
money.
CHECKS."

The check is the instrument of the current account.
The first condition for rendering its use general is to facilitate the working of that account. The Bank permits three
kinds, current account with discount privilege, current
account for deposits, current account for loans. Article
33 of the Law of 24 Germinal, Year XI (April 14, 1803),
which is still in force, declares that amounts deposited in
current account can not be attached.
The growing number of these different accounts facilitates and teaches the wider use of the check. There is
one variety of check on which emphasis should be laid,
that is, the check against a current account based on a loan.
This appears to be the latest improvement in instruments
of credit, and is the one which is the most useful to domestic economy. Such advances, indeed, appear to be developing in a new direction. Originally they were especially
intended to assist, or, at least, to allow stock market transfers. It is for this reason that the rate for advances must
follow the rate for call money h and not the discount rates.
This was evidently the original purpose of the loans.
° " The complaint is sometimes made that the check is used less in France
than in England. But it is not sufficiently understood t h a t the Bank of
France note is the check par excellence. * * * I t is certainly cheaper
than the personal check which does not circulate, or at least disappears as
soon as it is cashed." (E- Thery " Circulation ftduciaire de la Banque de
France " Econ. Europe January 19, 1906.)
& Cf. infra, p. 129.

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In Paris, especially, many loan accounts are opened, with
a view to operations on the Stock Exchange. But this is
not the case in the country; the account based on loans
has there become an instrument of domestic economy.
Whoever possesses a certain competence, down to the
smallest "rentier," makes use of this account. The old
prejudice has disappeared, which considered the opening of such a loan account as the sign of an embarrassed
condition, as if it were no different from borrowing on a
mortgage. Nowadays, in some towns, there is not a
"rentier" who has not a loan account, or at any rate it
would be easier to name those who have no such account.
Let us briefly explain the operation of this system. The
Bank accepts as pledge many kinds of securities, State
rentes, bonds of the Credit Foncier, of cities, railroads—in
short, those securities which are considered absolutely safe
and which are found in the hands of every capitalist. In
order to open a loan account a certain number of these
securities are deposited, on which the Bank allows a
credit of 75 to 80 per cent of the market value on the
day of deposit. If the borrower is not in present need
of funds, he may advantageously withdraw a certain
amount, which he may apply, for instance, to the purchase of securities. He will pay interest on the sum
borrowed from day to day at the official rate, which varies,
but generally holds at 3 ^ per cent. The use of these borrowed funds may bring him a net interest, which can
easily be estimated, and which we may suppose to be 3 per
cent. For the moment, the operation will have been a
losing one, because he will still have to pay 1 per cent or
one-half of 1 per cent on the sum borrowed.

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But this disadvantage disappears or is largely compensated, even from a pecuniary standpoint, in this way.
Everyone, however modest his mode of living, will at
times experience heavy drafts on his income, for which it
is necessary to be prepared long in advance, or again it
may happen that the dates for his collections do not
correspond to the dates of his payments. He must,
therefore, keep unemployed, for some days at least, sums
which, however small, might be usefully invested. But
if he has a loan account, he can keep just enough funds
for current expenses and deposit the surplus in the Bank
as it may accrue. In the same way, he can draw out
sums to meet his expenditures just when necessary instead
of keeping them idle at home while waiting for payment
to fall due.
The advantage of this kind of an account is that it
never suffers the smallest sums to remain unproductive.
It is not too much to say that one of the chief reasons why
so many households are wrecked is the lack of foresight
and the discrepancy between the dates of receipts and the
dates of outlays; it is this condition of disorder which
unduly fills the purse one day and carelessly empties it
the next.
It is evident that the economic management of a loan
account demands from the holder sufficient force of
character to guard against the temptation of rapidly
squandering the available sums, which he knows require
but his signature to enter his purse; so that, after all,
it may be asked whether the opening of such an account
is a safe economic device. This is, we acknowledge, a
most serious objection, though it does not appear to us
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conclusive. The very act of opening a loan account
implies a certain amount of self-control and an earnest
leaning toward order and thrift. It is a first step in the
right direction, and there is reason to hope that the
beneficiary will persevere. To withdraw money but a
sign is needed; still, the sign must be given, and he may
hesitate to give it without sufficient cause. And besides,
the means of dissipating a fortune are not wanting; the
holder of a loan account who will squander his means
in spite of this account would doubtless have done just
as much, if not worse, if he had his securities in his own
keeping, since securities nowadays are money, whether
they are in the bank or at home.
Moreover, the man who can not control his own impulses
need not open an account. This device promotes the
sense of order and thrift, but does not create it. No
doubt tradespeople are little accustomed to this mode
of payment-; however, the holder of a loan account, in
order to pay his large bills or those that may be settled
by check, has only to detach a form from his check book,
after having filled it out and signed it. This paper,
handed to the creditor in settlement, will probably remain
in his hands for several days before being paid. The
account will be debited only on the day when the amount
is actually withdrawn. Owing to this now common
device, all sums which hitherto lay idle in private coffers
are thus rendered active, and for a time, at least as long
as the period they would have remained unused at home,
they earn a considerable interest, equal to the rate for
loans. If the rate is 3 % per cent, the result will be equal
to that of a savings bank, opened every day for deposits

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and withdrawals, paying 3X per cent figured from day to
day. It is seen that if the holder had to pay 3 ^ per cent
on the amount borrowed in the first place, as the sums
even only temporarily deposited are deducted from the
original loan, it is exactly as if they earned 3% per cent.
Moreover, one perceives how much is saved when collections do not at all coincide with disbursements, or follow
them, only to be much later renewed, while, in the meantime, expenditures are unceasing and irregular.
The same applies to liquidations, settlements of estates,
or any other cases which may necessitate the advancing
or the holding available of rather large sums. For this
reason we have taken care from the start to suppose the
account a debtor one; otherwise it would usually have
a credit balance, and as the Bank allows no interest on the
balances of its credit accounts the operation would have
no significance.
On the other hand, it is seen that the interest, which
we have estimated at one-half of 1 per cent to 1 per cent
on the amount originally borrowed, would be soon
recovered. Such, from the individual standpoint, is the
pecuniary aspect of this system. But it is not the only
one. As seen from a social standpoint, it tends to spread
a spirit of order and thrift by forcing everyone to keep
track of his affairs, and even to do a little bookkeeping,
for which the half yearly statements of the account will
form a sufficient basis. From an economic standpoint
this system allows the withdrawing of the unused portion
of the circulating medium. It is a powerful economic
lesson; it renders credit generally available, and is a
step toward the clearing system.

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The check drawn against a loan account is only the
instrument of that account, and in order to know what
it is, we have been obliged to study its workings in detail.
In our opinion this check is the most perfect and generally
available instrument of credit. It needs only to be used
by certain people in order soon to become so well known
that it would reach the humblest classes through the
intermediary of tradespeople, who would be the first to
receive it; it would then develop that "habit of banking'' which is the most wholesome and useful in respect
to household economy, and the most desirable with regard
to the clearing system.
It is interesting to notice that a party has been formed
in the Chamber of Deputies to protest against the extension
of loans at the Bank of France, on the ground that the
reserve for the bank notes was no longer secure. The same
men reproached the Bank for having antidemocratic tendencies. This is evidently inconsistent. Either we must
leave to the Bank the task of developing a democratic loan
policy, or demand an indefinite increase of its gold reserve,
and release it from being democratic. It can not at the
same time do two things which are so absolutely antagonistic. But what it can do, and what it does, is to conciliate both by undertaking the expansion of both money
and credit, without seeking to suppress the one for the
benefit of the other.
This complex task is precisely the subject of our study.
We shall endeavor to show in the course of the following
section that the term " antidemocratic " can not rightly be
applied to the Bank. This error is the more difficult to
explain since it does not stand alone. It is hard to under-

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stand why the Socialist party should oppose the monopoly
of the Bank of France, which is but a sure step toward
social equality. If it is the word "monopoly " which gives
offense, let us drop the word, and consider the thing itself.
It will be remembered that the democratic Labor party,
after having fought for centuries a to obtain salaries for
representatives in Parliament, is the very one in whose
midst are voiced the sharpest protests against this eminently democratic reform.
TRANSFERS.

The operation of transfers from one account to another,
especially bank transfers, has not ceased to attract attention, because of the greater simplicity which it has
introduced. The operation consists in causing a sum to
pass from the credit of one account to the credit of another.
From the standpoint of bookkeeping nothing is easier.
The simplicity is just as great for the holder of the account.
He gives the order to debit his account and to credit such
other as he may designate, existing in France. This is
done with no other cost than the 10 centimes for the stamp
on the receipt which is handed to him. 6 He sends this
receipt to the recipient, who is thus notified. If, however,
he prefers, he need not take a receipt, the amount being
immediately transferred to the new account, which is
credited on the day of the transfer. It is clear what
a Witness English history, witness France itself, where the immense effort
of the revolution was required to attain this end.
&The only condition for this free service is that the sender shall have
discounted with the Bank, within ten days, a sum equal to the amount he
is sending, or that the recipient be a debtor for a similar amount. If one
of these conditions is not fulfilled, a commission of 25 centimes per 1,000
francs is charged. But in practice the cases ate very rare where commission is charged.

National

Monetary

Commission

economy results from the use of this system for banks with
a considerable volume of business.
It is especially advantageous for private bankers who
must frequently cover themselves, sometimes at the shortest notice. Many banks, however, owing to an inexplicable routine, overlook, or feign to overlook, this system
because it would oblige them to make certain bookings to
which they are not accustomed. Many therefore settle
with their correspondents in other ways, either by mail
or by direct shipments of specie—obviously a very expensive method—or by remittance of bills of exchange.
And then they must keep open an account, often for a
long time and without profit, with correspondents with
whom they have had, perhaps, but a single transaction.
They recoup themselves, though inadequately, by increased charges on bills that come back unpaid.
Another mode of making use of the Bank, consists in
remitting a check to the correspondent. This system
may do when the correspondent has no account with the
Bank, but it is inconceivable if he has an account. First
of all, the check must be stamped with 20 centimes, and
it is generally sent by registered mail. Moreover, the
beneficiary does not receive a book credit at once, but
only when the check is presented, since it is impossible
to credit his account from the day the check was sent.
Undoubtedly these are petty expenses, but we know, in
banking matters, small savings here and there make big
profits. Many private bankers, as we have said, neglect
this system. On the other hand, those who use it make
transfers on a large scale, and most of them even make it a
practice to settle with their correspondents almost daily.

The

Bank

F r a n c e

As to the financial institutions, it is understood that,
at least in the provinces, they do not, as a rule, have
recourse to the transfers of the Bank of France. They
have their own transfer system, which is also at the
disposal of the public. They may, however, make use of
the Bank transfers for everything relating to their cash
and the replenishing of their cash holdings. Here again
business customs are found to vary according to institutions and locations, and even according to managers.
Sometimes the cash is replenished by means of transfers,
sometimes by checks, sometimes by remittances of very
large bankable bills, which financial institutions can
immediately rediscount in order to obtain the cash they
require.® Moreover, the total of transfers effected in
the provinces is a great deal smaller than that of the
transfers effected in Paris—a result of financial centralization. The amount, which is nearly 4,000,000,000 francs
in the provinces, is not far from 200,000,000,000 francs
in Paris.
The amount of the balances thus cleared through the
Bank of France reaches annually a colossal sum, which,
a
In this connection there may be noted a similar mode of settling with
correspondents, frequently used by large commercial houses, which alone,
moreover, can advantageously use it. These houses are accustomed to
do banking of a sort for themselves, and to pay one another by drafts
which are only handed in at the Bank for collection at maturity, or are
even collected by the last indorser himself.
This method saves the commission charged by the banks, and even
the discounts which would have to be paid when remitting the drafts.
These bills circulate like money, and their time of maturity usually corresponds approximately to the period of thirty or ninety days customary
in business for the payment of purchases. Something may be saved in
this manner. In any case, if there is reciprocity of situation between buyer
and seller, the differences in the discount rate become immaterial.

National

Monetary

C ommis s to n

moreover, grows with industrial and commercial progress,
and with the increased popularity of that great institution.
Total of credit balances cleared by transfers through the Bank of France.
[In thousands of francs.]
1896
1897
1898

85,258, 288
86,275,994
93, 594, 205

1899
1900
1901

102,620,960
102,447,026
111,827,905

1902
1903
1904
1905
1906
1907

120,233,500
124,963,172
152,822, 496
171,227,727
189,233,491
179,399.452

It has often been said that the clearing of these large
sums directly through the Bank relieves our Clearing
House of the burden of this operation. In this fact has
been found the explanation of the relative unimportance
of our Clearing House as compared with others. Indeed,
the London Clearing House yearly effects clearings for a
formidable sum, exceeding 300,000,000,000 francs.
Operations of the London Clearing

House.a

[In millions of pounds.]
18711876.
i88o_
18811882.
1883.
1884.
1885i886_
1887.
i888_
18891890.
1891.
1892.

£ 4 826
4 963
5 ,794
6; 357
6; 221
5: 929
5 ,798
5: 5 i i
5 902
6 077
6 942
7 ,618
7 801
6 ,847
6 ,481

1893
189418951896.
1897
1898.
18991900,
1901,
1902
1903
1904
1905
1906

£6,478
6,337
7,593
7,575
7,491
8,097
9, 150
8,960
9,561
10,029
10, 120
10,564
12,288.
12,711

^Bulletin de Statistique et de Legislation Comparte, March, 1907, p. 377.

B a n

o f

r a n e e

In the United States the amounts -cleared reach a
much higher total. In 1906 the 112 clearing houses in
the United States had cleared £32,028,000,000, and New
York alone £11,092,000,000.®
Compared to these figures, those of our Clearing House
are very small. Established in 1872, on the model of
the English and American clearing houses, the French
Clearing House comprises the Bank of France, the Credit
Foncier, the Credit Iyyonnais, the Comptoir d'Escompte,
the Banque de Paris et des Pays-Bas, the Societe Generale,
the Credit Industriel and Commercial, the Banque Internationale, and others.
Operations of the Paris Clearing House from April

i to March 31.

[In millions of francs.]
Presented.
6, 003

1891-

4,868
4. 715
5>379

1893189418951896.
1897-

6, 143
7.351
7.549
8.54S
9,567

18991900.
i90i_
1902.
1903190419051906-

10,655
10,663
9.964
10,816
11,833
13,887
17,855

Cleared

4, 721
3.889
3.823
4,360
5,527
4, 916
4,874
571
245
948
201
353
023
8,585
10,326
13,507

As may be seen, these figures are almost insignificant
when compared to the hundreds of billions in England.
a

Bulletin

de Statistique

et de Legislation

Comparie,

May, 1907, p. 607.

National

Monetary

Commission

But if there be added the amounts cleared by the Bank of
France, the two results may stand comparison. Several
authors, however, claim that the transfers of the Bank of
France can not be compared to clearing-house operations,
and for this view they give three reasons. 0 In the first
place, foreign clearing houses, like the French Clearing
House, are available for bankers only, and not for others.
But bank transfers represent transactions effected by all
holders of accounts, whether bankers or not. Moreover,
the clearings made at the clearing houses are gratuitous,
while those of the Bank are subject to a heavy charge. 6
Finally, the former are made uncovered; the latter require
a deposit on which interest must of course be paid.
We do not wish to tarry over the discussion of these
three considerations. It is quite certain that bank transfers and clearing-house operations are not identical,
but it is also certain, on the one hand, that if the
200,000,000,000 francs cleared by the Bank could not
pass through that channel they would, for the most part,
pass through the Clearing House. If, on the other hand,
between the two means of extinguishing balances, it is
preferred to clear such large amounts at the Bank, it is
because this offers the advantage of rapidity and economy.
Moreover, we do not pretend that the relatively insignificant position of our own Clearing House, as compared
a
The works in which we have found this opinion sustained with the
greatest emphasis are: M. & A Meliot, " Dictionnaire financier international
theorique et pratique," Paris, Berger-Levrault & Cie., 1904, under the word
" V i r e m e n t ; " and E. Grillon, "Une nouvelle institution financiered" Paris,
Guillaumin, 1895.
& We fail to see the force of this objection. We have explained under
what conditions the bank transfers are gratuitous. We repeat t h a t the
cases where there is cause for charging one-fourth of 1 per cent are very
rare. (Cf. supra, p. 67, note b.)
74

The

B a n k

F r a n c e

with foreign clearing houses, is explained by this single
reason. There are, in our opinion, several others. It
must be considered, in the first place, that in France the
bank note, owing to its wide diffusion, automatically does
the clearing for a large number of balances. In the second
place, the still rather restricted use of checks and our
practical ignorance of the "crossed check" give the banks
less occasion to clear than in England. 0 Finally, France
has few international debts to settle, since most of these
pass through the London money market. We shall then
admit that the Bank transfers, which absorb a considerable part of the clearings, explain the rest.
Thus, in apportioning a share to each of these various
factors, it is seen that, even from the standpoint of the
clearing system and of the economy in the cost of transporting specie for settlement of balances—which is the
useful result aimed at—we need not be envious of England. This situation, again, is due to the Bank of France,
which has to such an astonishing degree developed the
service of free transfers from one account to another.
SECTION

II. Popularization of instruments of credit.

The Bank of France has often been reproached with
being a closed institution, accessible only to a few persons, to rich people and great industries, multiplying and
complicating formalities, in order to keep the great public
away and to confine itself to the profitable business furnished only by rediscounting, by the large manufacturers,
a

In France almost all transactions are subject to a time settlement,
while in England they are almost all settled for cash—that is, by checks
Cf. G. Francois, "Circulation el virements en Banque," Journal des Econcmistes, June, 1906, p. 384

National

Monetary

Commission

and by the business men who hold large loan accounts.
We see that a certain class of customers prefers to the
Bank of France the luxurious quarters of the financial
institutions, where a courteous staff, with engaging
familiarity, places at the disposal of visitors numerous
newspapers, exhibits tempting statistical charts, and to
all offeis the help of shrewd experience. Between the
staff of these-banks and the customer there is frequently
established a kind of intimacy which is flattering and is
cleverly kept up by visits as interesting as they are interested. Sometimes the call is from the submanager of
the. bond department or some higher official of the bank.
As compared with these allurements, what attraction is
there in the somewhat austere premises of the Bank of
France, its staff gravely poring over figures, or busy
weighing and packing gold into bags, which at once disappear into the depths of its vaults? Some people see there
only a kind of prison for gold or a bank-note factory,
having little to do with the usual business of bankers.
How can such a state of mind be met? As the public
acquires the habit of frequenting the Bank, it becomes
better acquainted with that institution, and personal interest becomes its best educator. This is but natural and
right. It is often stated, and not without reason, that
certain practices of the Bank keep away a class of people
who would be greatly benefited by its services. The
practice of requiring three names on paper, of allowing no interest on deposits, etc., is criticized. Now, the
Bank would like nothing better than to grant greater
facilities for the discounting of commercial paper, to
pay interest on deposits, and the rest; but it must be

The

B a n k

F r a n c e

remembered that certain difficulties stand in the way.
A credit too widely extended is incompatible with the
necessity of preserving the metallic reserve. We have
been careful, furthermore, to define and delimit the
operations which the Bank of France may allow itself
to undertake in the distribution of credit without injury
to its monetary function. It must, in general, confine itself to those operations which bring no profit,
because they do not necessitate the locking up of large
amounts, and do not make any demand upon the cash
holdings. But without emerging from this sphere of
activity, it has many opportunities for abundantly
supplying the wants of the public.
It must be admitted that this popularization of credit
by the Bank of France meets with little appreciation
at home. Derisive laughter often greets him who
speaks of the democratic tendencies of this great establishment. It must be acknowledged with regret that
our countrymen are almost the last to recognize such
benefits, but must listen to foreigners in order to hear
them appreciated at their true value. The English,
especially, who are very well informed'in financial matters, profess the most lively admiration for our great
institution of credit, and call attention to the gradual
democratization of its services as an astonishing as
well as fortunate phenomenon. a
But it will be asked how the Bank of France which,
owing to the very nature of its constitution, can not
&Cf. especially an article in the Statist of February 15, 1908, already
mentioned, a translation of which is given by the Messager de Paris in
its number of February 20; and another article in the same paper of
December 1, 1906, translated in the Economiste Europeen of December
7, 1906.
77

National

Monetary

Commission

easily popularize credit has been able to win such praise?
We have already seen how the Bank helps its customers
to make considerable domestic economies by means
of the check against a loan account, a popular method
which is perfectly accessible to every one. To this subject we shall not revert. Let us recall, however, that
the number of small loans, from 250 to 500 francs, was
4,534 on January 1, 1908.
Small loans [250 to 500 francs).
Paris.

On January 11900.
1901.
1902.
1903.
1904.
19051906.
1907.
1908.

Provinces.

3.721

2,861

3,49i
3,063
2, 827

3,163
2,302

2, 279

2,074 1
1.883

2, 135
2,552

3,512

2,389
1.987

2,777

2,922

2,547

Total.
582
654
365
901
162
947
474
166
534

If there are considerable differences from one year to
another, the reason is that these small accounts, unlike
the large accounts, are mostly opened for a short period,
and that their numbers vary with periods of more or
less general prosperity and more or less money stringency.
For the small rentier the Bank, as we have seen, offers
not only loan accounts, deposit accounts, facilities for
transfers, and letters of credit, but also a department
for stock market orders, which transmits all orders
received, and even attends to all operations in which
securities are concerned. Furthermore, in some of the
branches safety deposit vaults have been installed,
and boxes may be rented by the month or the year

The

B a n k

F r a n c e

for a small sum. These vaults are very interesting
to inspect, owing to the security they offer against
theft or carelessness. For people availing themselves
of this accommodation the Bank collects all coupons,
a useful service which the public little appreciates,
accustomed as it is to collect its coupons without cost
in the financial institutions often before they are due.
This constitutes, nevertheless, on the part of the Bank,
an earnest and gratuitous effort to serve the public;
the Bank, indeed, is not adapted to these operations,
nor is its staff.
There is a more important point—that is, the safekeeping of securities. In consideration of a fee of 20
centimes per year for each share or bond, the Bank
of France will hold all securities entrusted to it, and
collect the coupons without cost to the holder of the
receipt. Watching for drawn numbers of bond issues
is another special service performed free of charge.
A department, only recently made self-supporting, for
insuring against the risk of the repayment of bonds at
par, distributes the risks according to a calculation of
probabilities and on a mutual basis as between the depositors who desire to avail themselves of this accommodation. Russian bonds, which were held in France in
such great numbers and had flowed into the Bank, enjoy
a special privilege. Owing to an agreement between the
Russian Government and the Bank of France in 1895,
Russian bonds are kept in safe deposit free of charged All
« These bonds, the number of which steadily increases in the vaults of the
Bank, were represented on December 24, 1907, by 97,567 certificates. For
this safekeeping, free to the public, the Russian Government pays 10 centimes yearly for each bond, on the yearly average of deposited bonds.

National

Monetary

Commission

securities deposited are centralized in Paris and kept in the
annex at the Place Ventadour. 0 There, in a remarkable
manner, the greatest safety is guaranteed, and the special
staff alone is allowed within the gratings. The numbers
of the bonds are kept on separate lists for each customer
and each kind of security; these lists are signed by the depositors and by the Bank. The originals are kept in Paris,
and the duplicates in Havre. Thus the risk of fire is
guarded against as far as possible. This department is as
interesting as it is important. At the end of the year 1906
the value of the securities thus deposited was 7,233,000,000
francs, distributed among 11,439,839 certificates and
92,508 depositors.
It is still more interesting to see in what measure the
small rentiers have been able to benefit by this service.
We can not readily obtain an idea of this without taking
the average of the entries for safe deposits, as given in
the following table:
Average holdings of depositors.
Year.

Depositors.
Provinces.
Francs.

Francs.

18971898.
1899-

249

67,470

67,948

1900 _

620

69,579

64,791

1901 _

67,096

64.463

63,899

62,604

1903-

348
377
354

62,552

62,834

1904 _

100

60,168

61,047

1905-

979
508
646

58,568

64, 280

58,031

57.427

58,480

56.454

1902 _

19061907-

o At the present time the branches at Lyons, Lille, Bordeaux, Marseilles, and Orleans
relieve somewhat the congested condition of the Paris office.

The

Bank

F r a n c e

The table shows that the average amount of the holdings
in safe deposit is decreasing, while the number of depositors is increasing. As each year the number of withdrawals is very small, it must be admitted that new depositors bring to the Bank smaller and smaller deposits, hence
the lowering of the average.
The small business man, much more than the small
rentier, reaps continually greater benefit from the advantages offered to the public by the Bank of France. Without touching again upon the advantages of the loan
account to the small trader, or upon the benefit derived
from the low and stable discount rate—all matters well
known and mentioned before—we shall simply call to
mind the dates of some innovations favorable to the
democratization of credit.
January 15, 1824.—Creation of transfer drafts.
April 29, 1824.—Creation of transferable certificates of
deposit.
January 13, 1820.—Reduction of interest on loans
against bars and coin from 4 per cent to 1 per cent.
1834.—Loans against rentes and public securities.
1837.—Daily discounting of paper except on holidays.
Law of June 30, 1840, article 2.—Option of replacing the
third signature, exacted for discount, by deposit of any
French public securities.
Decree of March 26, 1848.—Similar option of replacing
by warehouse receipts.
Law of November 17, 1897.—Admission of bills for discount carrying the signature of an agricultural syndicate.
The minimum for bills discounted is reduced to 5 francs.
There is here a whole series of measures, which, with the
assurance of a cordial welcome, should induce the small
83704—10

National

Monetary

Commission

business man to trade with the Bank. Furthermore, the
recent law of December 20, 1906, which modifies Article I
of the law of July 13, 1905, favors, if not the small business
man, at least the short-time bills, by delaying their maturity by one and even by two, three, or four days, when it
falls on the morrow of holidays occurring on Friday, or the
day before holidays occurring on Tuesday. That is an
advantage proportionately more important on short-time
than on long-time bills.a
It remains for us to furnish positive proof of the service
rendered to the small business man. This can be done by
means of the following tables which show the increasing
number of bills discounted, the decreasing average value
of the notes and the shorter average time they run, the
increasing proportion of small bills and the constant
growth in the number of collections.
Let us add that if the Bank accepts large quantities of
small paper with small signatures, it finds itself, on the
other hand, in normal times deprived of first-rate paper,
of that which, as we shall see, is as good as gold in international commerce. Gilt-edged paper always finds its
market at lower rates than in the Bank, and M. d'Eichthal,
a regent of the Bank, wrote as far back as fifty years ago:
" Whatever may be the discount rate, among the bills discounted there will be found but few with the signatures of
the Rothschilds, the Hottinguers, and other houses of the
« There is another respect in which short-time bills are favored. Bank discount being always figured in full (not true discount) the party discounting,
when handing in paper tardily, profits in the end by the interest on the interest he would have had to pay. T h a t is, of course, a petty profit, but
this reason added to the above may explain why bankers rediscount, by
preference, short-time bills and items on which the collection charge would
often amount to more than the discount deducted by the Bank.

T h

B a n

F r a n c e

same rank. Those are delicacies which always command
a premium." 0
Bills discounted by the Bank of France.
Average.
Number.
Value.
Francs.

Francs.

Term.
Days.

757

2 7. oo»

1891-

9,609,788,000
10,018,070,700

754

27. 8o>

1892.

8,415,769,400

643

1893-

8,922,244,100

662

1894-

647
644

25. 0 0

1896.

8,725,047.400
8,621, 954.500
9,924,672,000

25.00
24. 50
24.84

679

27. 2©;

1897-

10,364,834,800

705

27.33

1898-

11,032,083,200

721

27-50

1 1 , 7 4 5 . 9 8 4 . 100
12,247,155,500
9,936,321,500
9.555.893,300
1 1 , 684, 936, 900
10,834,338,500
10,967,589,000

726

27.60

1890.

1895-

1899-

16,172,162

1900-

16,784,993

1901.

16,866,855

1902.

1 7 , 4 5 4 , 223

1903 -

18,435.938

1904-

19,115.498

1905-

19. i 4 9 . 5 o 6

1906.

20,464.594

1907-

21,540,925

13,980,874,900
15,769,106,100

729

26. 9 6

588

21.47

547

21.00

633

21. 64

566

23.61

573

20. 92-

683

24.03

732

26. 0 6

Bills for collection.
Number.

Year.

,181,893
.293,032
,488,804
,606,021
,637,870
,801,241
,804,478
,054,853
, 151,271
,416,046
,480,972
,450,673
,576,137
,734,268
,867,304
,621,556
,725,929
,914,980

1890-

1893189418951896..
18971898-.
18991900..
19011902.
19031904-.
19051906.
1907-.

Amounts.
Francs.
552,939,
606,701,
665,847,
614,153.
599,6i7,
576,923,
553,253,
570,343,
557,314,
593,452,
625,344,
544,917,
531,624,
508,588,
552,925,
5 7 0 , 619,
561,088,
555.997,

° P . Coq, "Les circulations en Banque," Paris, Guillaumin, 1865, p. 38.

90c
800
900
600
367
40000a
600
40o<
IOC
800
200
100
703
500
500
40a
20©

National

Monetary

Commission

Small bills discounted by the Bank (for

From
5 t o 10

francs.

From
II

From

t o 50

51 t o 100

francs.

Paris).

Total of
small bills.

I, 160,945
I, 224, 326
1,349, 270
I.58i,5i5
1,590,839
1,592,675
1,668,800
I, 820,473
1,931,589
1,943,688
19,350
26,136
26,183
31.783
23.474
24. 130
22,910
190,020
208,600

745.500
886,149
931,002
984,496
826,595
914.093
868,850
792,210
822,780

1,013,751
I.155,792
I,168,292
1,172,678
I,016,485
I,136,318
966,656
966,570
1,070, 450

69,400

1, 1 5 3 . 5 0 0
1,409,021
1,434.394
L559.509
1,710,103
1.776,519
1,893,087

1,105,400
I,181,229
1, 169, 832
1, 241, 590
1,299,854
1,336,564
1,389,386
1,399, 292

89,674
90,606
99.974
165,728
167,862
232.074
236,401

2, 010, 536

1, 778,601
2, 068,077
2,125,477
2,188,957
1,866,554
2,074,541
1,858,416
1, 948,800
2,101,830
2,328,300
2,679,924
2,694.832
2,901, 073
3,175.685
3,a8o,945
3.514.547
3,646,229

T h

B a n
Proportion

o f

of small bills to total bills

r a n e e
discounted.

Total bills
discounted.

Per cent of
small bills
to total.

1893.
1894
1895.
1896.
1897.
1898.
1899.

5,695*921
5,574,911
5,868,772
5,805,774
5, 592,606
5,865,101
5,688,308
5,820,786
5,966,221

1900.

6,029,500

36
36
38
33
35
33
34
35

1901.

6,128,773

1902.

6,263,121

1903.

6,548,030

2904-

6,882,820

1905-

7,017,969

1906.

7,348, 290

1907-

7,503,127

The Bank has always resolutely undertaken to carry
through a whole series of operations which could not
show great profit; above all, it has unremittingly aimed
to be of service to the greatest number. The preceding
tables show that the number of bills discounted grows
continuously, while the total amounts, smaller during
the most prosperous periods, invariably increase in periods of tight money. The average amount and term of
bills is 600 francs for twenty days. This result would be
considerably modified, if we were to take into account the
bills handed in for collection only, the average value of
which hardly exceeds 200 to 250 francs.
For Paris, it is possible to be a little more precise.
The table shows that the totals of the smallest bills, from 5
to 10 francs, have steadily grown at a considerable rate,
reaching in 1907 the number of 236,401. A similar

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increase has taken place for the total of small bills not
exceeding ioo francs in value. The proportionate importance of these bills in the general total is constantly developing; in 1907 it was nearly 50 per cent.
After the testimony of these figures, it appears superfluous to draw any other conclusion than that, by the
help which the Bank of France offers to all with increasing success, its solicitude is shown for the interests
of the democracy, of which it has become an essential
factor.
SECTION

III. Territorial expansion of the Bank of France.

With its growth in extent the Bank has not only developed its services to meet new business needs, by providing an increased staff, and larger, more attractive, and
better conducted offices, but it has also endeavored to
reach a more and more widely extended territory. Indeed, the mere fact that the Bank has entered a place, if
only to make collections there, gives a favorable turn to
credit conditions; credit becomes cheaper, in that the
basis for money rates becomes the official discount rate,
because the financial institutions have then a more economical method of replenishing their cash. The smallest
provincial town where the Bank has entered is, therefore, in regard to low money rates, as favored as Paris.
Exchange between cities, particularly when joined with
a special commission, reaches sometimes a considerable
sum. As soon as the Bank opens its branch, exchange is
no longer possible. Therefore, whenever the charter of
the Bank has been renewed, the legislator, in response to
the wishes of the public, has wisely required new territo-

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rial expansion of the Bank. If the Bank has not always
taken the initiative in this mode of expansion, it is because it has been restrained by several motives. In the
first place, the opening of new offices entails considerable
expense. It is necessary to count upon several years of
deficit, during which the running expenses, including salaries of staff, are just as high as if the profits were large.
We could name several cities which for years have shown
constant deficits. It can therefore be understood that
the Bank of France, which is already established in the
200 towns a most important from a commercial standpoint, and which, by means of its collecting department, touches 265 towns of less importance, extends its
service only with caution to new localities, since each new
branch must necessarily produce a larger and more persistent deficit. Thus territorial expansion is for the Bank
an ever-increasing burden; it is equivalent to an additional tax imposed by the legislature at every renewal of
the charter. The Bank submits to this with good grace
for the benefit of the public.
In the second place, there is a limit to that expansion,
as shown in one of the preceding chapters. Where the
Bank has no branches, the financial institutions may
take root and develop among a population which appreciates their services. Their profits come largely, it appears, from small towns, where competition is less keen.
We have already said enough concerning the service
of these institutions in the development of French credit,
a

In round numbers. On January 1, 1908, there was the central Bank in
Paris; and in the provinces, 127 branches, 55 auxiliary offices, 284 con*
nected towns, which gives a total of 467 banking places, 20 more than o»
January 1, 1907.

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to show the danger of inflicting upon them fresh injury.
On whatever side the Bank desires to expand it finds
this limit. If the Bank encroaches a little on all sides,
the result may be very appreciable.
The territorial expansion is further perceptibly increased
by what is known in the Bank as the exterior accounts.
This system, of quite recent origin, allows any person not
residing in the town where the branch is established to
enjoy the same privileges as residents. Business may be
transacted by mail with the aid of certain accounting
forms, which often differ from those used for ordinary
accounts. Each transaction is the subject of a special
report, addressed to the customer by the branch. Not
only is the transaction itself reported, but useful information as to the position of the account is also given,
thus permitting the customer to follow the movement
of the account until the half-yearly statement is sent.
This department is highly esteemed by the suburban
public, and renders many services to landed proprietors
and to farmers, especially in the cattle-raising trade.
Since this trade is confined to a certain time of the year,
and with its large initial outlays requires a considerable
movement of capital for several months, frequent and
important transactions are thereby necessitated.
Thus the direct expansion, which, as has been seen,
meets with serious obstacles, is assisted by this indirect
expansion. 0
<* The indirect expansion might be increased by wider use of the " crossed
check." I t will be long before we may expect good results from this
practice, since we are as yet too far from the time when this check, almost
unknown in France, will be currently used.

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Evidently we are far from realizing the attractive
dream of a France no longer deprived in part of banking
facilities, but with all bills taken at par because the Bank
would reach everywhere. But for the sake of this end,
no doubt desirable in itself, is it worth while to go to
extremes for a scarcely perceptible advantage, to disturb
an institution in other respects strong and useful, and
thus perhaps to risk disorganizing the general credit
system of France? On the contrary, we should be content with and even congratulate ourselves upon a progress which leads us, slowly perhaps, but surely, toward
the realization of credit on low terms everywhere and
for all.
SECTION

IV. The Bank of France and agricultural credit.

'* There is no such thing as agricultural credit, there is
only credit," said M. Dupin in 1845.a Matters have not
changed since. It is certain, for instance, that Scotland,
which for a long time was the classical land of pauperism,
owes its prosperity to the banks, which, by developing
credit in favor of agriculture, have entirely transformed
the soil and the country. Indeed, more than any other, the
Scotch farmer needed credit, and more than any other
he has benefited by it. It may be said that personal
credit is peculiar to agriculture. Thus it suffered as a
result of the evolution already mentioned, 6 which, by
causing the disappearance of local banks or by giving
them a new direction, struck a fatal blow to personal
credit.
In order to palliate the socially disastrous results of this
defect what is known as agricultural credit was devised.
>lJournalI Officiel, 1845, p. 2471.

~b Cf. supra, p. 40.
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But is this not the more or less exact application to agriculture of the idea of credit pure and simple—that is, real
credit? Although, in our opinion, with much effort some
good results may be obtained, this branch of industry, so
important to the wealth of France, can not be truly developed until it shall have gained to its fullest extent the
use of personal credit, until everywhere a country moneylender will be able, upon his estimation of the individual
qualities of the husbandman, to place at his disposal the
money he needs, and thus animate the labor, activity,
thrift, and intelligence so widely diffused in France, even
to the humblest cottage. Such business relations, loyally
maintained, do not exclude caution and tact. Unfortunately, it appears to us difficult at the present moment to
reconcile personal credit with the evolution of banking,
which is moving in an entirely different direction, and we
doubt whether, until a long time has passed, the efforts of
legislation can produce, by means of this form of credit,
any very striking improvement in agriculture. Let this
suffice to indicate the limits of results that may be expected of new institutions favorable to popular credit.
The Bank of France in particular must measure its devotion to this task by the limits of real credit and of its
own statutes. But an evident proof of its good will and
interest is that in every branch office there must be
among the directors a representative of the agricultural
interests.
We know that " agricultural credit" includes loans from
seed-time to harvest. The first labor done, the first loan
made to the land, can only be repaid much later. The
average time necessary for agricultural loans is five or

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six months at least. Now, for other reasons the by-laws
of the Bank prohibit the discounting of paper having
more than ninety days to run. By a special favor
which would not be accorded in business, where each
loan has a different object, the Bank allows the renewals
necessary for agricultural loans, which almost exclusively
take the form of bills payable to order. The bill returned
to the maker on the day of maturity is renewed the
following day. The date of maturity alone is changed.
A very important agricultural industry, which we
have already mentioned, is that of cattle-raising. The
cattlemen are, for the most part, customers of the Bank
wherever it has a branch. This customer of a somewhat
special kind appears, by the very nature of his trade, to
be indicated as a suitable client for the Bank and not for
the financial institutions. His only business with the
Bank is discounting, and his only mode of withdrawal is
shipping of money, nearly always in the form of bills.
The Bank requires the cattlemen to indorse each other's
paper, and thus can accommodate them without intermediaries. There results a very useful cooperation, which
in no way destroys the competition in production. Moreover, by using the Bank the cattlemen effect great savings, the full value of which they alone can estimate.
After the law of July 18, 1898, and the legislation
that followed, it might have been expected that the use of
agricultural warehouse receipts would be greatly extended.
This legislation makes a serious exception to the common
law for the benefit of agriculture. It " constitutes the
landowner, so to speak, a public warehouse. It is he
who, without any other controlling appraisement, makes

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declaration as to quantity and commercial value to the
clerk of the justice of the peace. * * * In short, the
agriculturist enjoys a confidence which so far has been
denied to industry and commerce. " a Notwithstanding
this favor, the agricultural warehouse receipts are little
used, 6 and the Bank, despite its willingness to take them
freely, regrets to find them among its discounts in such
very small number.
Our survey would not be complete should we fail to
say a word concerning the agricultural credit associations,
of which also much was expected and which have only
in a very limited measure fulfilled the high hopes of
their founders.0
For the support of agricultural credit the State draws
from two sources the funds required to supply the organs of
distribution, the local and regional associations. The first
source is the loan of 40,000,000 francs made by the Bank
on November 17, 1897, when the charter was renewed.
This amount, like the 140,000,000 francs already advanced
in 1857 and 1878, bears no interest. The second source is
the yearly payment made by the Bank of France on the
a

Carpentier, " Le credit agricole," Orleans, 1905, p. 16.
b The main reason lies in the numerous formalities which the law of
April 30, 1906, has simplified b u t not suppressed, in the many expenses
caused by the organization, and also, it appears, in the inexperience of
some of the officials. The clerks of the justices of the peace, intrusted
with the delicate and novel functions of registrars of chattel mortgages,
are, as a rule, little fitted to perform them.
cThe model of these institutions came to us from foreign countries; but
the foreign differ from ours materially, because of the diversity of their
origin. With our neighbors the movement began slowly in the lowest
levels of the rural population. With us, on the contrary, the system of
agricultural associations began a t the top. Thus, these institutions penetrate only with difficulty into the rural districts, where economic education
has but just begun.

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profit-yielding circulation. This payment can not be less
than 2,000,000 francs yearly," and more often it is in the
neighborhood of 5,000,000 francs.
All these sums, intended for agriculture, are distributed
by the Government, and are used in endowing the associations of agricultural credit. The regional associations,
which are the pivot of the present organization, are selfgoverning societies, with a capital of their own. This capital, added to the advance made by the State, is invested
in first-class securities, which are then deposited in the
Bank of France, as discount guarantee to take the place
of the third signature, if need be. The local offices send
their paper to the regional office, which then takes it to
the Bank, as the needs of funds are felt.
Such is the part of the Bank of France in the distribution of agricultural credit. Effective intervention was
obviously very difficult, yet the Bank has contrived, even
beyond its legal obligations, to give the benefit of its
credit to agriculture, which so justly deserves the care
it is receiving.
a
This yearly payment, independent of all charges, direct taxes, stamp, t a x
on circulation, stamp tax on stocks, tax of 4 per cent on dividends, tax of
4 per cent on the interest of loans to societies, and cost of transportation of
currency, is equal to the proceeds of one-eighth of the average discount rate,
multiplied by the average of the profit-yielding circulation, which is equal
to the quotient obtained by dividing the daily totals of discounts, loans, and
bills by the number of business days.

PART

II.

THE BANK OF FRANCE AND INTERNATIONAL
CREDIT.
Credit conditions, as we have considered them thus far,
that is, from an exclusively national standpoint, become
somewhat modified and more involved, when it is a question of regulating and facilitating the multifarious and
complex operations of international credit. Bills drawn
against shipments of goods over long distances require
much more time to run; the various systems of appraisal
of values have not all the same standard of comparison;
the degree of confidence accorded to the exporting country
involves a more or less extended investigation of the liabilities of that country; the condition of exchanges, sometimes depreciated and always fluctuating, the great differences between offer and demand in one place as compared
with another, in short, the state of the balance of trade at
any moment, and even of the balance of accounts—all these
are important factors which figure in the settlements to be
effected. These diverse factors, with many others, give
rise to difficulties sufficient to hamper the development of
international credit.
This development, though it is constant, is nevertheless
behind that of the national credit, and more than the
latter, it must be based on the monetary system. And
when we say monetary system, the expression must not
be taken in the precise sense we have hitherto given to it.

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Legal regulation can here play no part, and in this case,
especially, it is strictly correct to say with Turgot "all
merchandise is money and all money is merchandise." 0 6
From an international, as well as from a national standpoint, the means of distributing credit are not always
those which strictly assure an easy and rapid liquidation
through the use of money, the medium of traffic. Certain
states, more advanced in the organization of international
credit, manage to settle a notable part of the world's operations. Others, more prudent and perhaps wiser, limit
their activity in this respect, in order to increase their
power of resistance. On shifting ground, the insecurity
of which is apparent, a lofty house with poor foundations,
which a storm would overthrow and which must repeatedly
be restored, is obviously less desirable than one built
low and broad, but strong and firm.
a

Parliamentary documents published in 1859 by the ministry of finance.
& Nevertheless, there exist in international commerce certain wares
which are more commonly used for equalizing exchanges, because they have
a sure market. Such are international exchange securities, and especially
gold. The important part played in settlements by securities quoted on
the principal exchanges of the world was for the first time manifest in 1847,
when France, threatened by famine, paid for Russian wheat by French
rentes sold to the Emperor Nicholas. They were again of the highest
importance during the American Civil War and the settlement of the war
indemnity in 1871. (Cf. on this subject Arnaun6, "La monnaie, le credit
et le change" pp. 76 and following.) More recently they were used in the
United States during the crisis of 1893. The excess of export of securities
from July 1, 1893, to June 30, 1894, is estimated at $237,000,000. England,
in 1890, after the Baring failure, sold a large quantity of stocks and bonds of
American railroads. These securities were mostly repurchased by the
United States. As for gold, when it is used in international settlements,
it is only as a commodity. Each country receives it only on t h e basis of
weight, unless, of course, it should happen to be the local coin. This is the
only money t h a t can be exported. Silver coin, from t h e standpoint of
international settlements, is only a sort of bank note struck in silver, instead
of being printed on paper. (Cf. Journal des Economistes, 1888, p. 265.)

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Our first chapter will be devoted to the explanation of
the world-wide inter-relation of the different international
markets and to the determination of the place which may
be assigned to the Bank of France. The following chapters will show how the two perils of credit, crisis and
war, are foreseen by the Bank and what means of resistance it can oppose to them.

83704—10

CHAPTER

INTERNATIONAL MARKETS.
SECTION

I. International financial solidarity.

Thus far we have spoken only of the place of the Bank
in the national credit, and we have taken no account of the
influence of foreign markets on the French market. Such
is the method of writers on the theory of credit and especially on the theory of exchange. We must now examine
the influence of the international factors on our money
market.
Long ago the hamlet or borough ceased to be a selfsufficient economic unit, and expanded in order to gratify
constantly growing wants. Commerce early created a
community of interests between the different parts of the
same province, then of the State. This steady development has now resulted in a close harmony of the interests
of the different markets of the world, through the universal solidarity of production and consumption.
This interdependence is manifested in numerous instances which may readily be recalled. Let there be a
poor wheat crop in America, as was the case in 1905, and
exports cease at once; European consumers are the first
to suffer. There is no scarcity, because one can not speak
of universal scarcity, but the total supply no longer fully
suffices for consumption, and a general rise in prices results.
It is also known that the English market, and indirectly

The

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all the others, is influenced by poor cotton crops, which
render idle a large part of British industry. It is the rates
of exchange which give us constant warning of our position
in relation to foreign markets. We need not insist
further on the solidarity and harmony of international
interests, which has long since been set forth with great
clearness by many distinguished writers.
It would be more interesting but much more difficult
to discover what forms the basis of this solidarity. No
doubt we shall be told that the satisfaction of economic
wants is not bounded by country, that these wants tend
to become identical in all countries through the diffusion
of knowledge, of education, in a word, through progress,
and that here is a sufficient explanation. We shall not
contradict this statement. But such a moral consideration can not have much weight in the organization of
international markets which, like all markets, are governed only by very material causes. Even if we admit
that the world-wide unity of science and of economic
wants is a reason for international solidarity, it could not
furnish the concrete basis or the bond of material union
essential for permanence and strength.
What is, then, the basis? It can not be the rate of discount, since, as we pointed out at the beginning of our
study, the differences in this rate are, in fact, too large
and variable to permit the idea, however pleasing, of its
serving in such a capacity. a
a I t may, however, be recalled t h a t in 1866 the Bank of England, after
rates of 6, 7, 8, and 9, reached 10 per cent, where it remained for some time;
meanwhile the Bank of France kept the discount at 4 per cent. (Cf. Journot des Economistes, 1866, 2, p. 440.)

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It appears that metal reserves alone can form the basis
in question. They make business possible. Following
a natural current, they bring with them into the organism of markets a flow of invigorating blood. At the
same time they furnish assurance of the necessary sanctions, when their influence has been disregarded. A few
details may suitably be given on this subject. After the
use made of biological methods, applied under the name
of sociology to all social phenomena, we may without
presumption compare the monetary circulation, not the
fiduciary, to the circulation of the blood in the body. A
certain amount of metal, as of blood, is required to maintain life. A sufficient reserve of good money is the sign
of a flourishing State. A money which is scarce or
depreciated induces an anaemic condition of the State.
Of this Spain bears witness, since the always precarious
condition of her exchanges paralyzes all her activity and
renders impossible the progress which ought otherwise to
occur. Superabundance of metal discloses the plethora
of a sanguine temperament subject to crises. The monetary congestion, so to speak, of Germany after the war and
the payment of the indemnity offers a sufficient example.
A monetary bloodletting in a healthy and prosperous
State may stimulate activity. Proof of this is furnished
by the rapidity with which France recuperated after the
exhausting drain of a costly war and the payment of the
indemnity.
It might be said, to continue the comparison, that there is
between all the gold circulating over the face of the earth
the same affinity as between the blood corpuscles circulating

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in the organism. The vital processes of both are similar,
and in both, to a certain degree, quantity is of less importance than quality. It is therefore needless, from a
general standpoint, of course, to attach much importance
to the abundance or scarcity of gold. It is only essential
that its world-wide distribution be constantly assured in
close correspondence with the needs of the given country
and the supply of the neighboring state. For this reason
M. Aupetit could say: ''The metal market is of necessity
international. Gold or silver bars circulate across the
frontiers, like all commodities, and by these movements
their prices reach everywhere a common level." a
A given amount of metallic currency cannot, therefore,
be thrown at will on any market at any time without the
immediate dispersion of this supply over the whole range
of markets. To act contrary to this principle would be
like attempting to stay the flow of a river. To close the
outlets on all sides would be in vain; the water would
nevertheless filter through. "When money is brought
into internal commerce, it will be employed as a means of
remedying every rupture in the equation of international
demands." b
A country can never succeed in building up gold reserves
by artificial means; first of all, it must create the need of
gold, and then the international market will of itself
undertake to supply its need. It is thus that owing to
our late development of the system of checks and transfers
a
A . Aupetit, "Essai sur la iMorie generate de la monnaie" Paris, Alcan,
p. 177.
& Cf. Bastable, " Theory oj International Trade," in the translation by
Sauvaire-Jourdan, Paris, 1900, p. 72.

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we have created a considerable need of gold, which the
international market has had to supply. a
Furthermore, it is well known how, for thirty years, the
discovery of gold mines has flooded the market with metal,
and how the metal increase has been continuous in the
different countries. The United States in particular,
with a very large population spread over a vast territory,
owes the increase of its metal holdings to the increase of
the metal holdings of other nations. h In this connection,
it would be especially interesting to follow one of the most
recent and most considerable transfers of specie, the
200,000,000 francs imported into France as the result of the
buying out of the Panama Company. These 200,000,000
francs in gold, coming from the United States, originated in large part from shipments made by Japan in payment of purchases of war material. A very large part of
this gold, when it had passed into French hands, was
absorbed by the Russian loan. M. Aupetit calls attention
a On the other hand, the Latin Union did not limit the coinage of 5-franc
pieces until January 31, 1874, while Germany had adopted the single gold
standard in 1872. During that time it is estimated t h a t 500,000,000 francs
of gold were drawn by Germany from the countries in the Latin Union, to their
injury, because of the coinage of silver. (Cf. X. * * * " Bimitallisme
international," Revue Politique et Parlementaire, 1896, 2, p. 589.) However,
this monometallic situation, added to the drain on the circulation caused by
the withdrawal of 5,000,000,000 francs, had, according to many authors,
the advantage of stimulating a new movement of business activity and
of enabling us to withstand the crisis of 1873, which raged especially in
Germany, the United States, and Austria. (Cf. Juglar, " Des crises commercialese Paris, Guillaumin, 1889.) I t may be added that if Germany
had required the war indemnity to be paid in rentes, a t least in part, she
would have secured great advantages for the future, without diminishing
her actual power of monetary resistance.
&Cf. J. Pallain, "Des rapports entres les variations du change et les prix.n
Sancerre, Pigelet, 1905, pp. 28 and following.

102

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to this singular irony of fate, which opens the channels
for a movement of money between belligerents.a
We may say in conclusion that "the distribution of
gold reserves is not susceptible of arbitrary agreement,
but is in a large measure the inevitable result of the
development of custom and of the financial requirements
of the different countries." 6 It appears, therefore, that
the monetary circulation may be considered, to a certain
extent, as automatic. Each market possesses the amount
of gold which it should have, no more, no less. This
international distribution is effected, by the very nature
of things, with perfect precision. Any act of authority,
any arbitrary measure, would be powerless to secure a
larger gold supply; this is possible only in so far as new
needs are created. Such is, we believe, the indispensable
basis upon which the international markets rest. The factor of gold supply, which must be reckoned with, is independent of the speculator, and any operation which should
neglect it would lack support and prove to be a dangerous error.
We have added that this system carries with it its own
sanction, and can not be disobeyed with impunity. In
this regard crises afford a great lesson. When a nation,
carried away by the blind confidence of an already long
period of easy credit and great prosperity, neglects more
and more the metallic basis and the progress of other
nations toward a clearing system, and thinks it can foroCf. J. Pallain, op. cit., p. 35, and Revue Economique
Internationale,
A. Aupetit, " Chronique financiered June 15, 1904, p. 216.
& Georges Cochery, former minister of finance, cited by Aupetit in Revue
Economique Internationale, 1907, Vol. IV, p. 664.

103

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ever increase credit and exalt speculation, the crisis is at
hand and will suddenly appear; then, as the penalty for
ignoring the necessarily slow processes of evolution, it
must submit to the humiliation of asking the world for
help.
In the constant tendency toward an unattainable
perfection in the equation of the world's holdings, exchange
rates are the reliable barometer which at every moment
indicates the situation of a country with reference to
others. If exchange is favorable and if the import gold
point is near, the incoming of gold may be counted upon,
and in the contrary case gold exports may be foreseen. It
is such movements in our favor or to our prejudice which
it is important to regulate or to check, but it has been
shown that, owing to the multiplicity of interests engaged,
this may not always be an easy matter. However, it is
all the more necessary to avoid these movements because
we know the importance of a strong metallic reserve and
the difficulty of maintaining it at a high level. If, indeed,
a crisis occurs abroad, it will absorb the metallic currency
of the country and will create, besides, a demand for currency as much greater as credit was formerly more
extended and business more prosperous.
The country suffering from the crisis will thereupon
induce in all the other countries a desire for metal which
is sometimes irresistible. This desire will be shown in
a very definite form and in the following maimer: When
money has acquired a considerable value in the country
where the crisis exists, foreign capital will not fail to flow
in. Capital, it is said, knows no patriotism or country,
and no consideration of sentiment or morality will for a

104

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moment hold it back. Rates of exchange will soon show
an enormous falling off, the gold points will be exceeded,
and gold, if it is not retained, will overflow the affected
market. It is evident that this sudden reaction may
hasten its return to normal conditions, but the neighboring
markets will have suffered so much, in their turn, that
the crisis, like a contagious disease, will infect them also,
and the world market will regain some stability only after
a general fever which will have destroyed the feebler members of the financial world.
We believe we have thus sufficiently demonstrated what
close solidarity, from a monetary point of view, exists
between the different markets. In closing, let us revert
to our biological comparison. Like the limbs and the
organs of the human body, nations may be. classified
according to their importance in the vital economy, but
it is very rare that a disturbance of any serious nature
develops in any part without affecting the entire organism; there is much difficulty in localizing it altogether.
Before, however, inquiring how in such an organic unity
of the money markets the reaction upon others of disturbances affecting one part may be prevented, we shall endeavor to indicate the place occupied by France and its
essential instrument, the Bank of France.
SECTION

II.—Place of the Bank of France in the international market.

At the beginning of this study we have shown that it is
to the interest of a nation to possess an important metallic
reserve, and we have just laid down as a principle the
automatic character of circulation. Although these two

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rules seem to be contradictory, they are not so in reality;
we are therefore brought back to our starting point.
France has with deliberation permitted the development
of its instruments of credit, especially of its bank notes,
and has in this manner created the need of gold to be
used as a reserve. It has utilized periods of favorable
exchange to build up a reserve which is to-day the strongest and the most important in the world. We need not
further insist upon the commanding position of the Bank
of France from a monetary standpoint. A study of the
situation of our neighbors in this respect would, in our
opinion, be more conclusive; we shall also see whether the
lack of a similar reserve does not cause them serious
inconvenience.
We must remember, in the first place, that the number
of international markets is reduced to a single one for each
State. It is in Paris that the operations of France with the
entire world are settled. The same holds true of London,
Berlin, Brussels, etc., for their respective countries. This
may be considered as an exact statement of the situation;
other financial relations which may exist are confined to
very limited amounts and to local transactions of quite
secondary importance. The fact that the rates of exchange are quoted simply by the names of Paris, London,
etc., sufficiently indicates the significance of markets in
international commerce.
Numerous minor countries with relatively small commerce need not be considered. Their transactions pass
through the intermediary of a more important neighboring market, or, in case of a colony, through the
metropolis.

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It is seen that if the markets of international commerce
are heavily burdened with operations for settlements,
their number, on the other hand, is very limited. Nevertheless, the equation of the various demands and offers
for the whole world can not be solved by transferring
all credits indifferently to some one market, and relying
upon it to send to other markets all those credits which
it alone will have been unable to clear. There is a current,
normally established, which leads to the remittance of
claims not easily clearable, to the most active and important market, which is able to dispose of them more
easily and economically, and most willingly undertakes
the transaction.
It is thus that England, whose enterprise and commercial expansion over the entire globe has greatly
favored, if it has not created, the development of this
special commerce, has always appeared, so to speak, as
the chief banker of the world. London has been called
"the financial Rome of civilized nations—that is, the
world's clearing house and its principal financial market." 0
It is there that almost all international credits are settled
"France and Germany, however, are not entirely included
in this mechanism," 6 and the operations peculiar to them
are to a large extent subject to direct negotiation.
This incontestable supremacy, this position as the
clearing house of the world, imposes a heavy obligation
upon England. It must not be forgotten, indeed, that
a A. E. Sayous, Meeting on February 5, 1900, of the Societe d'Economie
Politique de Paris, reported in the Economiste Franqais of March 3, 1900,
p. 271.

& Sayous, loc. c i t

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in monetary transactions ultimate solvency is not sufficients but that the possibility of immediate realization
is essential. Even if a bank has assets and liabilities
which leave no doubt as to its final solvency, it must
above all be able to respond immediately to all demands
for cash which may be made upon it. This is the very
essence of banking.
Any bank in the world, however skillful in clearing
operations, must certainly at times furnish a little cash.
Some of its clients will prefer to be paid in gold rather
than by means of clearing house settlements. We may
obviously regret that education is not sufficiently advanced to eliminate such demands, but in the meantime
it is necessary to conform to the habits of our time.
These withdrawals of cash, however, are usually made at
expected times and for known destinations. 6 England
can then meet them, because, within a certain measure,
they may be foreseen.
Gold withdrawals from the Bank of England during September, October, and
November.
1

Destination.
Egypt

\£*

1903.
Q3S.OOO

1905.

£l,52Q,OOO
I,543.000

807, 000

£ 3 . 0 2 0 . OQO
I,483,000
1,358,000

10,oqo

50,000

28,000
450,000

351,000

Germany
_ France
_
Other European countries. _ _ . _ _
United States
_
_
Various

1904.

190,000

501,000

151,000
19P,000

264,000

087,000

6, 252, 000

3.795.000

203,OQQ

«Cf. J. S. Nicholson, "Bankers' Money," London, Black, 1902, p. 63.
& The greatest demand for cash comes toward t h e end of the year. Egypt and India,
at the times of their wheat deliveries, require important metal payments.

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The above table shows that, even in normal times,
there is a drain as serious as it is unavoidable, since it
is the consequence of financial supremacy. On the other
hand, as soon as there is the least trouble in any market,
London is the first place called upon for shipments of
metal. Compelled to be the medium of exchanges, the
customary purveyor of all kinds of merchandise, London
undertakes to meet all demands from abroad made necessary by scarcity of money. The numerous banks of the
city are often asked for large amounts for export. Lombard street, therefore, which in a way monopolizes the
banking business, and considers itself dispensed from
holding a cash reserve because it has large credit balances
in the Bank of England, calls for metallic currency with
increasing insistence. Thus all demands are found to be
made on the Bank of England, which at the same time
is restricted by the provisions of the Peel Act. It may be
imagined what a metallic reserve the Bank should have at
its disposal, in order to provide for such an extensive
market.
Thus the fact that a country undertakes international
settlements carries with it the obligation of supplying
gold. Financial leadership implies monetary leadership,
and such should necessitate strong reserves. Is this
the case with England? Far from it. Experience shows
that England "has made too heavy sacrifices to her
classical principle of using a minimum of metallic currency for her payments at home and abroad." 0 London
has not a sufficient amount of gold to satisfy the needs of
"Aupetit, "La vie financiered Rev. Econ. Intern., 1907, Vol. IV, p. 654.

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Great Britain and to meet the demands of foreign peoples.
This deficiency is acknowledged by the English themselves.a They have for a long time talked of modifying
the Peel Act. At a meeting of the Bankers' Institute,
which was held in London in November, 1906, the insufficiency of the reserve was discussed. It was recognized
that, in general, the banks do not appear to realize the
necessity of having sufficient reserves to maintain the
immense credit structure they must support. b
An example for the formation of reserves has, however,
been given. The Lancashire and Yorkshire Bank undertook some years ago to imitate the French policy. This
innovation has yielded highly satisfactory results. It has,
however, remained unnoticed/ because all the banks,
including the Bank of England, too willingly shirk this
crushing yet delicate task. d
The situation we have just outlined, which particularly
concerns England, but which partially affects all great
markets, can not fail to cause some anxiety, and we have
a
Mr. Goschen wrote t h a t it is a dangerous and deceptive system which
leads to reliance on services to be expected, in case of a crisis, from the
Bank of England. Arnaun£, La monnaie, le crSdit et le change, ist ed.,
Paris, Alcan, 1894, p. 394.
& Cf. Moniteur des InUrHs MaUriels, October 26, 1906, p. 3523; November
16 and 26, 1906, pp. 3778 and 4291.
c Cf. Messager de Paris, February 20, 1903, "La Banque de France et
Vopinion Urangere."
d I t is comprehensible t h a t the private banks should rely on the bank
of issue and consider the credit at their disposal as available cash. But it
seems hazardous for the Bank of England itself to count on the others;
yet this actually takes place. To give b u t a single instance, let us recall that it insists upon a certain regulation of the use of the available
funds of Lombard street. When it finds t h a t Lombard street uses too
much money it forces the banks to raise their rates. For t h a t purpose
the Bank itself borrows on the consols it owns, and thus monopolizes a
large portion of the available funds. (Cf. Rozenraad, "Le marcM de
Londres," Revue Economique Internationale, 1906, Vol. I I , p. 79.)
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witnessed during the last few years the almost universal
regret that a stronger metallic reserve was not provided.
The last crisis has especially drawn attention to the general scarcity, and every country has perceived that it
lacked gold." The remedy for this state of things would
necessitate a revolution in well-established financial systems. On the first return of prosperity optimism becomes
general and causes the dark days to be soon forgotten.
"English financiers are too conservative to appreciably
modify an antiquated structure or to devise some new
system." 6 It is not, therefore, very surprising to note
that the financial supremacy of England tends to decline.
France and Germany, as we have said, are, in a certain
measure, emancipating themselves. " In 1890, at the time
of the Baring failure, the question could be asked whether
London would not at once lose its position as the financial
center of the world and whether the English market was
not undermined." c It would be sufficient for France to
become monometallist in order to capture the direction
a
The president of the London Bankers' Institute, at the opening meeting
of the annual session, regretting the insufficiency of the reserve, and showing
its increasingly indispensable character, proposed the formation of a special
fund, which would permit £5,000,000 to £10,000,000 to be shipped to New
York, without causing a rise in the rate of exchange. (Cf. Raffalovich,
"Marche" financier en 1907," Journal des Economistes, January 15, 1908.)
Germany is also aware of its lack of gold. Various methods have been
used of late to increase the reserves by a systematic depletion of the circulation. (Cf., infra, p. 128, note c.) In order to reduce the demands for
gold, which became alarming, a circular was sent at the end of December,
1907, to all public officials, recalling another circular, quite recent but
already forgotten, which advised officials to take their salary in bank notes
and not to insist upon gold.
& A. E- Sayous, meeting on February 5, 1900, of the Societe d'Economie
Politique de Paris, reported in the Economiste Frangais, March 3, 1900, p.
271.
c An often repeated phrase of Mr. Goschen. Cf. Bulletin de Statistiqus
et de Legislation Comparee, February, 1891.

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of credit, Paris then becoming the international money
market. The possibility of this succession possesses a
significance which is fully appreciated, but it is not certain, especially now when English policy appears to be
turning from extreme colonial expansion, that such a succession would be entirely advantageous. Instead of this
very lofty, but none the less dangerous and insecure position, would it not be preferable to maintain the calm and
safe place we occupy in the financial world?
Conclusion.—If the Bank of England is for the present
the great clearing house of the world, the Bank of France
is and remains the general gold reservoir. This monetary
supremacy assures us a highly privileged situation even
from the standpoint of international credit, which, moreover, it is not necessary to control more fully.

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CHAPTER

II.

THE BANK OF FRANCE AND CRISES.
There is perhaps no economic subject more discussed at
present t h a n t h a t of crises.

We may suitably indicate,

first of all, in w h a t measure crises which do not result
from monetary conditions may be of interest.

W e shall

then see what are the classical means by which the banks
can avoid them.

We shall finally study the present

policy of the Bank of France in this regard.
SECTION

I. Monetary crises.

This very complex subject has been often treated by
economists, legislators, and financiers who have vied with
each other in scientific zeal, in order to determine accurately the physiology of crises.

The causes of the evil

must first be known before t h e remedy m a y be indicated.
I n this arduous quest, impelled by t h e logic of fascinating
systems, theorists often assign to crises not only very different causes, b u t also very different characteristics.
The word crisis has no sufficiently definite meaning of its
own, and for want of a previous agreement as to t h e sense
in which it should be used, discussion is endless and turns
solely upon an ambiguity.

I t is not our intention to throw

new light on such a complex question.

This would de-

mand not only a competence to which we could not pretend, b u t also a space devoted to this p a r t of our work
greater t h a n is permitted by its narrow limits.

Our only

aim in stating what we mean by a crisis is to determine
83704—10—8

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the cases in which the Bank of France might intervene.
For that purpose alone we must classify crises and recall
the elementary divisions, which, in our opinion, are too
often lost sight of.
In the first place, from the standpoint of their extent,
there are local crises, national crises, and world crises.
The first are restricted to a certain region, like the recent
crisis in the wine-growing regions, or limited to a special
industry, like the one which was felt but lately in the automobile industry. Everyone will find, within his personal
recollection or experience, numerous instances of the same
kind.
National crises are more complicated and more serious,
from the very fact that they affect the economic condition
of a country in its entirety. The disturbance of the exchanges in Spain furnishes a concrete example; all commerce and industry suffered from it.
World crises result from the interdependence of the
different international markets. This is so close that a
violent disturbance in one commercial nation must react
upon foreign markets. Like a rapidly spreading epidemic,
it will surely affect other nations to an extent which is
sometimes very serious. For a long time world crises
have been recorded and carefully studied.
From another point of view a distinction can also be
made between crises resulting from growth and crises resulting from contact. Attention has frequently been
called to the former because they reveal youthful enterprise in production. Such is the crisis which too strenuous America has recently experienced. Nations, like
men, are not immortal. If but little thought is given to

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the possibility of their extinction, it is because our own
individual existence is only a minute period of theirs.
But, like us, they have their youth, their maturity, and
their decline. For a nation which has reached maturity,
crises resulting from growth are no longer to be dreaded.
If they should still occur, they are rare and of little
severity, and they can not happen unless a return of
youth, a certain access of vitality, leads to some recklessness. Then comes the period of crises resulting from
contact, which are due to that solidarity of which we have
just now spoken. We shall presently have occasion to
remark that, except ephemeral crises, only crises from
contact are now experienced by us, and even these are
much attenuated. We do not mean to imply that our
country enjoys to-day the sorry privilege of escaping the
diseases of youth; this would be almost an avowal of
senile decay. Let us rather say that since it is a question of sickness there may be remedies, and that the object
of our study is precisely the examination of the means, if
not to avert crises, at least to diminish their intensity.
This would be our answer to M. V. Pareto's® highly
interesting question: "If it were possible to prevent
crises altogether, would it be advantageous to do so?"
He himself answers as follows: " Proper measures for
diminishing the intensity of crises may be beneficial;
but to suppress entirely a certain movement, or, in
exceptional cases, to endeavor to attenuate its violence,
are essentially different things." If, to become strong,
it is well to be accustomed to all seasons and hardened
°Villefredo Pareto, " Cours d''economic politique"

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to all inclemencies, there is at any rate no necessity
of courting colds and bronchitis.
So far we have made no mention of monetary crises
and of crises of production. This distinction is the
most important for our subject, and it is also the one
which leads to the greatest misunderstandings.
It is well understood that the crisis of production,
resulting from the lack of correspondence between the
curve of production and the curve of consumption, the
disastrous effects of which Malthus endeavored to suppress by his advice as to the increase of population, has
a very close relation to the monetary crisis. They must
not, however, be confused; in many instances they
are perfectly distinct. Just here is the cause for the
differences of opinion among authors. In general, they
tend to explain the noncorrespondence of the curves,
that is, overproduction or underproduction, by various
theories which depend upon differences of temperament. 0
But usually, as the sole basis of all these theories, only the
relation between production and consumption is considered. The division which we have above indicated,
elementary as it may appear, shows sufficiently that this
basis is not wide enough.
It is indisputable that there are crises which are exclusively monetary, such, for instance, as crises of exchange.
On the other hand, there are commercial or industrial
crises of production or overproduction—the word matters little—which are not monetary in character. The
monetary crisis itself is almost always only an episode
°Cf. Lescure, " Des crises g^nirales et ptriodiques de surproduction."
Bordeaux, 1906, Chapter II, Sec. I I , pp. 455 and following.

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of the general crisis. The former has too often been erroneously considered as the cause of the latter. On this
false notion was based the Bank Charter Act of 1844.®
In one of the greatest crises which could be instanced,
and which, moreover, is still very present to our minds,
that in the United States, it has been possible to observe
very clearly the phase of a production crisis. On this
point, M. Paul Leroy-Beaulieu writes: "As to the lack
of mpney, and the defective organization of national
banks, they have been merely accessory, and have played
no part until after the crisis had begun; they may have
somewhat intensified it and widened its scope, but they
remain only secondary elements." b
This distinction between monetary crises and commercial crises is, therefore, not artificial. They have
been, however, so persistently confused that some people, often taking the effect for the cause, are ready to
throw upon the poor organization of credit and of banking the heavy responsibility for the whole crisis. It
would appear to us more logical and more useful to
seek a remedy for both sides at the same time. The
banks can correct the bad effects of crises only so far
as these, after affecting credit, disturb the monetary
harmony.
As for the correction of crises from an economic standpoint, legislators and economists may devote themselves
<* This refers to the so-called Peel Act, which organized the Bank of
England by starting from the principle that convertibility is not in itself
a sufficient safeguard against overissue of notes, and that this overissue
being a cause of crises, all danger would be averted if a proper proportion should be maintained between reserves and circulation.
bEconomiste Franqais, November 30, 1907, p. 766.

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to the regulation of production and consumption. The
subject under discussion on February 5, 1902, by the
Societe d'Economie Politique de Paris was the question
whether great public works could avert or cause crises.
This discussion followed the proposal of a law on March
1, 1901, by M. Baudin, the minister of public works. 0
More recently MM. Viviani and Vaillant have discussed
in the Chamber of Deputies a plan for the distribution
of public works in such a way as to avoid unemployment during crises.6 In other countries, on the other
hand, trusts and manufacturers' agreements hope, by
regulating production, to avert crises.
Such is the train of ideas which could be developed
by studying the methods of meeting commercial crises.
But our aim here is to inquire into the part played by
the banks in monetary crises, and to prevent confusing
these crises with others. Is it not asking the impossible
to demand of the banks that they should cause the specter
of crises, of whatever nature they may be, to disappear
forever?
The modern tendency to subject everything to a rigorous
determinism has led to the conjecture that crises obey a
law of immutable periodicity. The clue to this has been
sought in the most diverse and unexpected causes, even
in sun-spots. c In continuation of M. Juglar's long and
«Cf. Economiste Frangais, February 22, 1902, p. 245.
&Cf. Journal Officiel, Chamber of Deputies, session of November n ,
1907, pp. 2, 129 and following.
c Theory of Stanley Jevons, repeated by many distinguished economists.
See especially J. S. Nicholson, "Bankers' Money," London, Black, 1902,
p. 80.

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authoritative enumeration^ new crises have been, without
hesitation, predicted for i900-1907.
We do not deny that during this period there have been
severe disturbances which were the cause of almost worldwide crises, but from our national point of view an exception might have been made. The famous crisis of 1900
started in Russia, and this country was the first to give
the alarm. Germany suffered especially.5 In France,
beyond some slight labor disturbances, a result of the
Exposition, which caused the well-known strikes, what
monetary crisis was noticeable? On this point, even
M. Siegfried0 was forced to express some doubt: "The
a

Juglar, " Des crises generates et de leur retour periodique"
Table of crises according to Juglar's system.

[

France.

England.

1804

1803

1810

1813
1818

1815
1818

1814
1818

1826

1826
1830

1826

1837
1839
1847
1857
1864
1866

1837
1839
1848
1857
W a r of secession.
W a r of secession.

1873
1882

1873
1884

1830
1836

1839
1847
1857
1864

1882
1891

United States.

1890

The author gives the above list of crises. Each line corresponds to a
crisis and indicates the date of its reaction on the three markets described.
& On the effects of the crisis of 1900-1901 in Germany, cf. Depitre, " Le
mouuement de concentration des banques allemandes," Paris, Rousseau, 1905,
p. 104.
c

M. Siegfried, whose name is well known to those who at present paysome attention to political economy, is self-confessedly the most earnest as
well as the most accurate interpreter of the Juglar theory, of which he is the
continuator.

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crisis, * * * if we are to call what took place in 1900
a crisis, for this crisis was much lighter than those which
preceded, and we might almost call it the liquidation of
1900."^ Is not this an admission? What would M. Siegfried say concerning the crisis of 1907? Nevertheless, to
trust to his barometer, there should have been hard times
in 1900, as well as in 1907.
It does not seem to us possible to find in France an
economic reaction from this last general crisis. Beyond
some uneasiness in the stock market, which, as is well
known, is extremely sensitive, the recent and indisputable
rise in prices of certain commodities should be attributed
to an entirely different cause. We assert, in the first place,
that this rise can not have been the sign of a crisis for the
excellent reason that, on the contrary, a fall in prices would
have been observed, since metal would have become scarcer
and would have then acquired a greater purchasing power.
The very fact of the rise would suffice to show that we
did not suffer from a crisis. Furthermore, a perceptible
movement in the prices of commodities is the sign of a
crisis only when it is temporary. Now, the present rise
is acknowledged by all to be permanent. It is accounted
for almost entirely by the labor laws recently put in force,
by the enormous taxes imposed on manufacturers, etc.
The considerable increase in general expenses resulting
therefrom can not remain a charge on industry, and the
necessary shifting of its incidence takes the form of a rise
in prices.
a

cis,

Bulletin mensuel de la Fidtration
April, 1907, p. 533.

des Industrials et Commerqants

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Not only has there been no commercial crisis, but there
has been no monetary crisis. Credit accommodations
have in no wise been affected, and the momentary rise of
the official discount rate, explained, moreover, by another
cause, can not point to a disturbance in our monetary
conditions. The reserves, furthermore, have not diminished.a This last crisis, to which very precise limits have
been assigned, from Wednesday, October 23, 1907, the
beginning of the crisis, to Thursday, January 2, 1908,
when the English discount rate was lowered, has certainly not been for us a period of affliction, and the smiling
sun at the end of December, 1907, did not appear as the
irony of fate to a wretched and starving people.
From that which precedes two conclusions may be
drawn. On the one hand, it is important to distinguish
between the economic and the monetary phases of crises,
and not to demand that the one shall correct the imperfections of the other. On the other hand, if it is undeniable that crises have hitherto tended to be universal
a
The economic and commercial situation remains fundamentally most
prosperous, as evidenced by the general increase in foreign trade, the railroad receipts, and the t a x collections. The crisis in the United States
resulting from considerable overproduction, from a wretched financial
system, from shameful speculation and too frequent frauds, was certainly
a calamity, but it may be said that the general situation has not been seriously affected. Cf. George Moreau, "La crise americaine," Le Censeur,
February 29, 1908; Germain Martin, " La crise am£ricaine" Revue d*Economie Politique, March 15, 1908, p. 203; Raphael Georges Levy, "La crise
economique de 1907 et les Etats-Unis d'Ame'rique," Revue des Deux Mondes,
December 15, 1907, p. 805.
The same can not be said of Germany, where everything discloses a
decline of prosperity. Customs receipts have fallen off, taxes have shown
a serious deficit, and it seems that the consequences of the crisis, more
gradual in that country, are for it the sign of a progressive decline.

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and periodic, for some time past, at least, they have
spared France.
We have thus reached the object we had in view, since
the above considerations of themselves indicate the limit
of that which can be obtained from the Bank of France
when its intervention is demanded to allay crises. We
see also that for the last fifteen years this intervention
has been able to banish all crises and all reactions of
crises from our national market.
II. Customary measures of defense against crises.
Like a vigilant nation which keeps itself always on the
costly footing of armed peace, a bank of issue must
always be powerful enough to avert the numerous perils
which from all sides are incessantly threatening. Just as
the good condition of arms and supplies may sometimes
prevent the horrors of war, so may a strong reserve
suffice to avoid the monetary difficulties, which are the
precursors of crises.0
SECTION

a The symptoms are well known. Crises are always ushered in by a contraction of credit. Credit, poorly established on an insufficient metallic
basis, totters and falls wholly or in part; transactions then tend more and
more to a cash basis. From all parts money is wanted for the settlement
of obligations already incurred. If the bank of issue, regulating credit, is
able to resort to such an undertaking, it will throw on the market the
amount of metal which the emergency requires, taking credit bills for its
own account, and the panic will thus be averted.
If, on the contrary, the bank can not act thus, more and more pressing
demands will assail its reserve and will tend to absorb it. We shall then
have the prospect of the discredited bank note, bankruptcies, and all the
horror of a general panic, with the alternative, in case of insufficient reserve,
either to let gold go out to allay the storm, with the risk t h a t the impoverished bank may find itself discredited and may carry the entire market
down in its ruin, or to defend the gold reserve, and thus by aggravating
the conditions of an already weakened credit to hasten the disasters of the
crisis. The dangers to be averted are, therefore, the drain of metallic
currency by foreign countries, the indefinite lowering of the reserves,
and the impossibility of continuing to discount, or at least of maintaining
a reasonable rate.

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A study of the customary measures for mitigating crises
may appear superfluous, since the Bank of France, owing
to the formidable reserve which we know it possesses,
presents an unprecedented power of resistance to all
attacks capable of overthrowing credit. It is the Bank
which provides that reservoir of reserves of which so
much has been said, and thanks to which, for the last
fifteen years, even the possibility of the outbreak of a
crisis has disappeared. The greatest treasury, if intrusted to unskillful hands, could not, of course, render
much service, and while it is true to say that our holdings
are in themselves sufficient, yet much depends on the
manner of directing their advantageous use. a These
means of resistance, which for the most part have long
since been carefully studied, we shall now pass rapidly in
review.
As soon as the cash holdings of the bank of issue begin
to be exhausted, as soon as it is no longer possible, without extreme prudence, to allow the reserve to be further
diminished, then the monetary crisis commences. It is
then also that all the efforts of the bank, the resources
and credit of which will diminish at the same tirne^ will
tend toward facilitating the collection of funds and restricting the outgo. Like a reservoir which, after having
for some time distributed more water than it receives, is
soon exhausted or becomes useless for want of pressure,
so the holdings of a bank require that the receipts and
outgoes of currency be properly regulated. And for the
sole purpose of avoiding the lowering of the reserves,
Q> To be convinced of this it suffices to remember that the United States
and France have reserves about equal as far as amount is concerned, and
yet their powers of resistance are quite different.

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efforts will be made either to replenish the holdings with
larger receipts, or to avoid causes for withdrawing the
metallic currency. a
Among the measures to replenish the holdings we find,
in the first place, the purchase of gold bars. This does
not refer, of course, to the daily purchases which form
one of the current transactions of banks, 6 but to the
> increase of these purchases by offering a certain premium,
and, if need be, by importing from abroad. This exceedingly costly system is in principle universally abandoned. Nevertheless, it has been greatly in favor in
every country. The most characteristic historical instance is when the United States, from 1878 to 1893,
purchased for its monetary needs, 459,949,701 ounces
of silver for about $464,000,000.° In France the Bank
had to purchase abroad in the three years from 1855 to
1858, 1,384,553,000 francs gold, which cost a premium
of 15,893,000 francs. In 1858 it abandoned this system,
but had to resort to it again in 1864, a n d during the crisis
of that year purchased 229,000,000 francs in gold.d In
a

We shall speak only of measures applicable to a system with a bank of
issue similar to ours. The study of the present American system would
lead us to mention, among other things, the various expedients which tend
to give the banks a little elasticity, such, for instance, as the creation of
clearing-house certificates. Such a study, however interesting it might be,
would carry us outside the limits which we desire to assign to this work.
&The Bank of France buys gold bars and pays at once, without discount,
as a t the mint. This method was suspended in January, 1906, owing to
the fear of exceeding the limit of circulation, and resumed again as soon
as the law of February 9, 1906, was promulgated. In Germany, also, the
Reichsbank is bound to purchase all fine gold bars offered at the price of
2,784 marks per kilogram.
c
Cf. L. Poinsard, " Questions monetaires contemporaines," Paris, A. L.
Charles, 1899, p. 300.
^Cf. CI. Juglar, " Des crises commerciales et de leur retour p€riodique,"
427.

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Germany the Reichsbank has purchased altogether, from
1876 to 1905, 3,312,000,000 marks in gold.0 The Bank
of England, during the last crisis, reconstituted its reserve
mainly by purchases of bars in the London open market,
to the amount of £20,000,000.b Spain and Belgium
could also be mentioned as instances.
Another system consists in putting a premium on gold.c
This can only be applied in bimetallic countries, which,
as such, put the two metals on a parity in payments. de
It consists in offering silver, a metal depreciated from the
standpoint of international relations, and in refusing to
part with gold, except in return for a certain premium./
This most interesting system would deserve a much more
thorough study than we can here give to it. After being
«Cf. Dr. Louis Katzenstein, " La Banque de VEmpire allemand" Revue
Economique Internationale, 1906, Vol. IV, p. 524.
&Cf. Aupetit, " La vie financiered Revue Econ. Intern., 1908, I, 180.
cBastable discusses the policy of the premium on gold. He assimilates
it to a t a x on currency, at importation or exportation, and considers that
it is in reality a seigniorage. Cf. Bastable, "Theory of International
Trade," in the translation by Sauvaire-Jourdan, Paris, 1900, pp. 171 and
following.
^On this application in most of the bimetallic countries, see the Economiste Europien of January 24, April 25, September 26, 1902, January 3
and February 13, 1903.
e
M. Houdard, "Essai sur le service des billets de banque" Paris, 1891,
p. 18, shows that the discount rate comprises three elements, the charge
for the services of the Bank, the interest on the capital loaned, and the
premium on gold, the only element which varies according to different circumstances. He draws the conclusion t h a t a rise in the discount rate is
nothing but an extra t a x corresponding to the gold premium, and as he
would like to see it paid solely by those who desire gold, he demands a
uniformly low and steady rate.
/ T h o u g h generally very small, in 1885 this premium rose to 227 per cent
in the Argentine Republic. Cf. Revue de Statistique, April 29, 1900, p. 48.

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highly esteemed for many years, it became the object of
violent criticism, which has caused it to be abandoned. a
We shall not attempt its rehabilitation, for we are too
well aware of its serious drawbacks, and, moreover, there
is something much better to take its place. It seems,
however, to be as justifiable as the conversion of rentes,
an operation deemed admirable, yet none the less an
imperfectly concealed spoliation, which, however legal, is
usually preceded by highly artificial even though legitimate quotations. 6 This policy of premiums on gold,
moreoyer, alarmed no one, neither the public nor the
banks; and the bank note, even when the premium was
in force, continued to be received on a par with gold in
almost all the banks of the world, although it was legally
redeemable in silver only. Furthermore, there are special
cases, such as systematic and constant drains of metallic
currency at some point on the frontier, in which the propriety and efficacy of a defensive premium is incontestable. Thanks to the lowering of the normal gold point,
owing to the reduction of distances, a profitable and
a
The present Spanish system rests upon a somewhat similar idea. Good
money having been driven out, the bank note is used. This has no forced
circulation, but on presentation is redeemable in silver. It accordingly
suffers a heavy depreciation, which allows our notes or our gold to command an enormous premium. Nevertheless, though Spain finds this system
inconvenient, it has managed hitherto to endure a considerable depreciation in its exchanges. I t would not be considered as such if an exact
ratio was made between the value of their money and ours.
b I t should be remembered t h a t the investments in French rentes which
are made obligatory by law are very numerous. Without speaking of
the reinvestment of dowries, etc., the Caisse des Dep6ts et Consignations
must invest all its available funds in rentes. For this reason, there is a
considerable demand for rentes which will tend soon to absorb them, and
which suffices to explain the high rate at which they are quoted.

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undesirable business can be transacted which a local
premium would destroy. a
But the great drawback is that England and Germanystand in the way of a system which is impracticable for
them. h This does not exclude a certain regret on their part
at their inability to avail themselves of this policy, as
is evident from the existence at the present time of a
bimetallist movement. 0
Some people, among whom are numbered certain professors of law, would like to see the policy of the gold premium restored. d As far as we are concerned, it is enough
to recall that this was the policy of the Bank of France up
to 1897, and the system could not have been as obnoxious
as might have been believed, since some people regret its
disappearance. It will be seen that we have adopted in
its place a system which is far preferable, and which our
neighbors are content to admire without being able to
imitate.
^Cf. Meyer, " Les banques suisses demission et le drainage des ecus,"
Lille, Le Bigot freres, 1903.
& Germany, being monometallist since 1872, cannot adopt the premium
system, but the Reichsbank replaces it by a measure certainly more vexatious. It does not refuse gold for export, but it ceases to aid the exporters;
their discounts are rejected and their accounts closed, if need be. (Cf.
Ansiaux, "Les problemes de la circulation," Revue Econ. Intern., 1907,
Vol, IV, p. 277.) One frown from the director will repress any idea of
withdrawing gold. This system of brutal absolutism does not, of course^
prevent withdrawals from the circulating medium.
c This bimetallist movement is just now especially marked in Germany.
All the evils of the recent crisis are willingly attributed to gold monometallism, and a comparison is made between the difficulties in the midst of which
the German market is struggling and the calm which the bimetallist French
market has preserved. On January 14, 1908, Count Kanitz put a question
before the Reichstag, the purport of which was that " a wall of silver be
built around our gold, in order to prevent the latter from leaving us."
d Cf. Bulletin Mensuel de la Federation des Industriels, April, 1907, p. 524.

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We shall not speak of certain arbitrary measures which
belong to other countries and other times. There is an
occasional revival of the old ideas of brutal domination
cherished by the mercantilists, who fancied they could
prevent the escape of metallic currency by a mere prohibition, as if gold or silver would ask the authorities for
permission, or were likely to do aught but follow their own
interest. 0 These systems of taxes on imports or exports
are very old, and have long since been abolished. b
Another expedient is to limit bank-note issues so that,
since a smaller metallic counterpart is required, the reserve may be allowed to diminish. This system is very
efficacious when a weakened reserve causes the depreciation of the bank note. Thus recourse to forced currency
may be avoided. On the other hand, if the bank note
does not suffer any depreciation, the expansion of issues
results in an increase of circulation, and may dissipate the
crisis. This was the purpose of the suspension of the Peel
« We find a typical instance in the following decree promulgated in
August, 1903, by the President of the Republic of Nicaragua:
" Whereas there exists no knowrn means of preventing the disappearance
of silver coins the export of which is detrimental to the national treasury;
and whereas the continual exporting of silver coin is the principal cause of
the depression of the national paper money, and in order to preserve the
equilibrium pf value which each coin represents for the nation, the President
of t h e Republic decrees:
" ARTICLE I . The exporting of silver coin is prohibited from the date of
the present decree. Consequently, it shall be considered as contraband
goods, and the penalties shall be imposed as for t h a t offense.
" ART. 2. The customs superintendents, the fiscal authorities, and the
police shall most carefully examine the luggage and parcels of travelers
leaving the Republic.
" ART 3, The present decree cancels all previous decrees which might be
construed in another sense." (Cf. Economiste Europe'en, September 11,
1903-)

& Cf. Levasseur, " La question de I'or," Paris, Guillaumin, 1858, pp. 300
and following.

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Act in England during the crises of 1847, 1857, and 1866,
when such a procedure was found necessary.
The cash holdings can also be replenished by issuing
very small fractional notes, which effect a withdrawal of
the unused portion of the circulation. This system was
applied in France in 1870-71. The note of 25 francs was
authorized by the law of August 12, 1870, the note of
20 francs, by the decree of December 12 of the same year
the note of 5 francs by the law of December 29, i87i. a *
In Germany much has been recently said about withdrawing gold from circulation by various methods, especially
by issuing notes of 50 and 20 marks. However, the question is not new. c In England, Mr. Goschen, chancellor of
« The note of 50 francs dates only from June 9, 1857, and the note of 100
francs from March 15, 1848.
& Toward the end of the year 1870 the scarcity of gold and silver was such
t h a t all transactions, even the smallest, became well-nigh impossible.
Neither could bank notes be counted on to make small payments, because
fractional notes had not yet been legally authorized. There was, in short,
the greatest need of a medium of exchange for small transactions, and no
means of creating them. Private initiative, in a certain measure, was able
to meet this need. Thus a syndicate of bankers and merchants in Chalonsur-Saone was formed, which deposited in the branch of the Bank of France
in t h a t city a certain sum, not less than 100,000 francs, in notes of 1,000
francs. The syndicate issued notes of 1, 5, and 10 francs for an equal
amount, and these fractional notes, accepted with confidence by the people,
were of genuine service to the communities of Chalon and the neighborhood.
The fractional note of 1 franc was rose-color. The 5-franc note was a
little larger and was green. The 10-franc note, which was larger still,
without, however, reaching the size of the 5-franc note issued the following
year by the Bank of France, was blue. The numbers of the series and of
the notes and the two signatures were affixed by hand when the notes
were detached from the stubs. The signatures were those of M Antoine
Chevrier, a merchant, as president, and of M. Henry Druard, banker as
secretary.
We might also mention the instance of the " siege notes," such as were
issued during the war by order of General Roland, governor of the city of
Besancon.
c Cf. Pour & Contre, October 15, 1905.
83704—10

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the exchequer, proposed in 1891 to issue notes of £1 each
for £20,000,000, in order to increase the cash holdings of
the Bank. This amount would be set aside, and, in time
of crisis, would serve to cover not only the £20,000,000
already issued, but also the additional £10,000,000 in fractional notes which would then be issued.0 In the United
States also, more than a year before the crisis, there was
already talk of issuing bank notes of $5, $10, and $20. b
A similar procedure for withdrawing a part of the monetary circulation consists in making popular the use of the
substitutes of the bank note, such as the check.0 But this
is no longer a question of a temporary measure, and its
effects are permanent. It is conceivable, however, that
a period of monetary stringency could be utilized to bring
about this popularization. d
We have just seen how it is possible to act directly
upon the cash holdings by endeavoring to replenish them.
Let us now see how they may be kept at a high level by
restricting the causes of withdrawal. There exists a whole
series of rather ineffective measures, which at most can
<* Cf. Journal des Economistes, 1891, Vol. I, p. 400.
6 Cf. Economiste Franqais, November 23, 1907, p. 723.
c In Germany, in imitation of Switzerland and Austria-Hungary, the aim
is to increase the use of the check, and a great deal is said about introducing postal checks. I n Austria postal checks and transfers, reserved to
holders of savings-bank books, were created by ordinance of October 29,
1883, December 1, 1883, September 1, 1884, and then definitely organized
by t h e law of November 19, 1887. Substantial services were thus rendered. There are 100,000 depositors, with a movement of 19,000,000,000
crowns. These checks are received a t the public offices and are admitted
to clearance through the Austro-Hungarian Bank. In Switzerland a similar system was created by the federal law of June 16, 1905. Germany is
seeking along this line the means to remedy the insufficiency of her metallic
resources.
<*Cf. Economiste Europien, October 25, 1907, p. 516; Revue Economique
Internationale, October, 1907; Journal des Economistes, J a n u a r y 15, 1908.

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meet only a slight and temporary strain. We note, in
the first place, that the two exits by which the metallic
currency leaves the bank are discounts and loans. These
may be closed more or less to benefit the cash holdings.
Very numerous limitations on loans may be devised,
such as forbidding the opening of accounts and new credits,
and especially raising the rate on loans. Naturally this
rise is effected long before a rise in the discount rate can
be thought of. Indeed, the rate on loans is determined
by that prevailing for stock market operations. a At the
first warning, the Stock Exchange, the most sensitive
barometer of credit, is strongly affected. The rates for
carrying over rise rapidly and must influence the rates
for loans. Thus it was that in the middle of January,
1907, the Bank of France was obliged to raise from 3 ^ to
4 per cent the rate for loans in order to curb speculation,
which, after the rise in the rate for carrying over, relied
upon borrowing from the Bank at 3 ^ per cent with the
object of using the funds thus obtained to carry stocks
till the next settlement.
Likewise for discounts, it is possible more or less to close
the exits by which the precious metal to be husbanded
goes into circulation. This can be done by measures
such, for instance, as the reduction of the maximum limit
a Loans are less than formerly, but still very often, like stock-market
advances, granted for speculative purposes, the pledge for which consists
of securities which can be realized only for what they will bring. The
difference between loans and stock-market advances lies only, for the latter,
in the dela}^ for repayment, in the rate, which is more variable, and for the
former, in the margin between the price of the security quoted on the
Bourse and the loan granted. But these two operations are so similar that
it is impossible to perceive any marked difference between their respective
rates.

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of maturity of paper discounted. a This system was the
rule at the Bank of France up to 1853. It was used for
restricting operations and for keeping the discount rate
unchanged. b
The really standard and effective measure is to raise the
discount rate. The effects of this are certain, because
in this way, by diminishing the advantage that may be
had from allowing capital to leave the country, the resulting interest of foreigners in bringing their funds to us is
increased. This system, at present unanimously approved
in spite of its grave defects, has not always been unreservedly accepted. The Bank of England was the first
to employ this policy in discounting. The commission
of inquiry appointed in 1848 by the House of Lords,
after the crisis of 1847, insisted upon the necessity of
raising the bank rate. Since then the Bank of England
has remained faithful to this policy, and employs it
whenever the metallic reserve falls below one-third of the
combined accounts of the treasury and the public services, and of individuals. "For England a rise in the discount rate is no longer the heroic remedy resorted to in
desperate extremity; it is a kind of prophylactic which
is applied as soon as the faintest symptoms of danger are
manifested." c
In France the Bank first adopted this system in 1858,
but it hampered itself by following too closely the discount
variations of the Bank of England, which is differently
o Cf. Juglar, " Des crises commercialese Paris, Guillaumin, 1889, p. 138.
b Cf. Courcelle-Seneuil, " Les operations de banque, Traiti Morique et
pratique," 9 th ed., Paris, Alcan, 1905, p. 260.
c Arnaun6, "La monnaie, le credit et le change" Paris, Alcan, 1st ed.
1894, P- 392-

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constituted, a practice which in 1864 it was obliged in
part to relinquish in favor of a policy of greater stability
of rates. ''Experience proved, moreover, that the bank
rate could be different in Paris and in London without
immediately causing export of money from one place to
the other." a
There are evidently in every country special reasons
why the rate should be high or low. The relations
between the rate of exchange and the rate of discount
are undoubtedly numerous, but this does not necessarily
imply that they must always remain closely and unalterably linked in order to permit a normal and sufficient
circulation. "The bank rate has not the power to regulate the national monetary holdings. A moment's reflection shows that, under such conditions, each country
would have its proportion of metallic reserve when its
discount rate was on the same level as that of other
countries/' 6
This very effectual method c of defending the national
cash holdings is nevertheless fraught with danger. d It
causes commerce alone to bear the brunt of all demands
for currency. To apply it means to contract credit, to
check business, and perhaps to disturb the development
a

Courcelle-Seneuil, "Les

operations

de banque"

9th ed., Paris, Alcan

1905, p . 262.
b
Pallain, " Des rapports entre les variations du change et les prix," Sancerre, Pigelet, 1905, p. 38.
c
Certain special conditions might, however, be named in which the discount rate is ineffective. Cf. Meyer, " Les banques suisses dy Amission et le
drainage des £cus." Lille, Le Bigot freres, 1903, p. 270.
& V. Pareto, " Cours d'tconomie politique," Vol. I, p. 389, views this
situation with great fortitude. He says, "Those who can not afford to
pay the price corresponding to the equilibrium must naturally fail and
disappear. The safety of the whole country makes this necessary."

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of prosperous industries. In a word, since this measure
is most often taken to ward off foreign demands for
funds, it is, so to speak, administering an energetic remedy
to our national commerce when the only trouble lies in
having sick neighbors. It is therefore obvious that the
Bank, though sometimes forced to resort to this expedient,
only uses it in case of extreme necessity, and that it taxes
its ingenuity to find certain devices which may defer the
rise in the discount rate.
It would still be possible at certain periods when
exchanges are momentarily strained to have recourse to
another system. The very needs of international credit
justify the existence of large banking houses which
make a specialty of exchange transactions and control
the commercial relations with foreign countries. They
constantly keep open accounts with each other. It is easy
for them to accept a bill of exchange a against a check,
that is to say, a document payable at maturity against
another payable on demand, and to turn credit into
cash, thus modifying the true balance of accounts to
give the greatest possible stability to rates of exchange.
This system b of international checks and of international bills from one bank to another can not, however,
render any considerable service, because it necessarily
depends on private initiative.
a In international commerce the bill of exchange is not only a means of
clearing, but an instrument of credit. Not only does it allow the accumulation of reciprocal balances to an equal amount, but it also avoids the settling of differences by giving to the debtor country the power to defer payment until it becomes a creditor for a similar amount. B. Nogaro, "Le
rdle de la monnaie dans le commerce international et la thiorie
quantitative"
Paris, Giard et Briere, 1904, p. 89.
&Cf. Economiste Europe'en, July 8, 1904, pp. 37 and following. A.
Conant, " Les changes exterieurs.,y

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The discounting of foreign bills, much discussed of
late, tends to give stability to exchange. This practice
is the rule in Belgium, where the paper discounted is
almost all French. When exchange becomes unfavorable, the Bank sells its bills on Paris, London, Berlin,
and Amsterdam, and thus influences the rate of exchange.
These holdings of foreign bills are replenished later, at
periods of the year when the demand for bills falls off. It
is thus possible, to a certain extent, to regulate the rates
of exchange. The National Bank of Belgium is, however,
the only one which has made this negotiation of foreign
bills a settled policy.0 According to its by-laws its
reserve must equal one-third of all its sight obligations.
For a long time, at least one-half of this reserve has been
represented by foreign bills.
But that which is feasible for the Bank of Belgium,
as a satellite of the Bank of France, ceases to be possible
for a great bank. Belgium can invest its reserves in
purchases of foreign bills, because it will always find
more powerful banks able to replenish its coffers. It
knows the organization of the Bank of France, and considers that the possession of French paper exempts it from
holding metal. But it would be difficult to imagine
the Bank of France adopting this line of conduct unless
in exceptional cases.
The idea of holding foreign bills in France is, however, not a new one. In 1865, during the inquiry on the
monetary and fiduciary circulation, this system had its
adherents. When the Bank charter was renewed, M.
a
Cf. R. G. L£vy, "Les grands marches internationaux."
mique Internationale, 1905, p. 491.

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d'Hubbard suggested that this be made a special policy
of the Bank. M. Burdeau showed that the system could
not be employed as a rule in normal times, but that it
could be resorted to in exceptional or special cases.
Much has also been said for some years past about the
holding of various international securities, which, when
exchange rates are unfavorable and in order to readjust
them, could be thrown on the foreign markets instead of
currency, thus avoiding the shipment of metal. This very
attractive proceeding does not appear to us to be practical.
It will be impossible, by distributing the purchased securities in numerous divisions, to avoid a general depreciation when they are sold. Since the various markets are
subject to the same impulse, if exchange rates necessitate the forwarding of securities in order to avoid a shipment of cash, there will be a considerable depreciation in
whatever market they are disposed of. This will occur
just at the time of falling prices, the moment when, with
every one selling, quotations are low, and when it would
be advisable to buy. a
Finally, if the situation is so serious that the bank of
issue has become unable to redeem on demand the numerous notes, which no longer possess the confidence of the
public, the legislator will decree a forced currency. b This
is the very calamity which all the measures we have exama Another drawback of this system is that it throws upon future generations the burden of paying a debt of the present. I t only defers the time of
settlement, and exchange will be much higher at the fixed dates, when the
interest on the securities is due.
b Sometimes endeavors have been made to defer the date of suspension df
payments by keeping only one window open for the redemption of notes, a t
which the slowest clerk is instructed to redeem as slowly as possible the notes
presented. I t is needless to remark on the lamentable weakness shown by
such a procedure.
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The

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ined aim to avoid. We have, unfortunately, had an
experience of this kind in France. Cautious as the Bank
has been, it was only at this cost that it was able to
weather the storms of 1848 and 1870, but it is well known
with what rapidity it recovered and with what strength
for the future. a
It must not, therefore, be claimed that the Bank has
never been forced to yield before the storm, but we shall
see that its power of resistance has only grown, and that
it is more than ever ready to meet emergencies.
<* The decree of March 15, 1848, established a forced currency and fixed
the limit of the issue. The law of August 6, 1850, repealed the two provisions of that decree. In establishing again a forced currency, the law of
August 12, 1870, also fixed a limit for the issue. But when the law of January 1, 1878, again abolished the forced currency, it allowed the limitation
of issue, which was a consequence of it, to continue. I t is proper to recall
that the total of the loans made by the Bank to the State during the war
amounted to 1,470,000,000 francs. This sum, which does not include the
210,000,000 francs loaned to the city of Paris, by virtue of the decree of
February 11, 1871, the 16,500,000 francs requisitioned by the Commune,
and of which but 9,500,000 francs were reimbursed, or the 60,000,000 francs
previously advanced in accordance with the law of June 9, 1867, was dealt
with in the agreement of July 3, 1871. The loans were as follows:
Francs.

July 18,1870
August 18, 1870
August 19, 1870
September 24, 1870
December 5, 1870
December 5, 1870
January 11, 1871
March 13, 1871
March 30, 1871
April 15, 1871
May 17, 1871
June 10, 1871
July 3, 1871 (paid only on the 9th)
Loans from Metz to Strassburg

50,000,000
50,000,000
40,000, 000
75,000,000
100,000,000
100, 000, 000
400,000,000
50,000,000
90,000, 000
75,000,000
150,000,000
50,000,000
210, 000, 000
30, 000, 000

1, 470,000, 000
These loans were not finally repaid until March 14, 1879. The Bank,
nevertheless, had redeemed its notes at sight since 1874.

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III. Present policy of the Bank of France.

The Bank of France, since 1858, has always employed
the discount policy. How could it do otherwise? Unanimously adopted, fortunate in its effects, extolled by theory,
imposed by the interdependence of discount rates between
the various countries, this policy was inevitable, notwithstanding its well-known and serious drawbacks. Moreover, since 1864 the Bank has always endeavored to mitigate the dangers of this policy by employing it only as a
last resource, as under compulsion, and by substituting
for it, as far as possible, a less radical procedures
Let us recall once more the unprecedented strength
which France possesses, thanks to the colossal holdings of
the bank of issue. These holdings place us in a quite
special position, singularly favorable for resisting crises.
Domestic crises are not to be feared, but those coming
from abroad, with the inevitable reaction resulting from
the cosmopolitan character of capital, may reach our
market, though only in a weakened form. 6
Up to 1897 the policy of the gold premium was combined with the discount policy. This system, which we
o I n the same way, the Reichsbank has endeavored for several years to
complete its discount policy by making loans without interest on gold imports. This measure, however, can be of but little help.
& There exists another force of resistance, which is also due to the Bank of
France. Crises, as we have seen, are always accompanied and even preceded by a general decline on the Stock Exchange. But, a t a period of
crisis, the shares of the Bank of France, far from following this movement,
tend on the contrary to rise. Prices on the Stock Exchange move together,
upward or downward. The result is t h a t the shares of the Bank of France,
in resisting the movement of general depression, tend to diminish its intensity.
This is not the case abroad, where the banks of issue, much more vulnerable, sometimes see their shares not only following the decline of other
securities, but even leading and intensifying that decline.

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have previously explained, resulted in a certain increase
of the number of grades in the discount rate, and rendered
them less noticeable. Since 1897 the Bank, with new
men, has apparently entered into a new path, which we
shall endeavor to define, though it appears as yet somewhat obscure.
We have just said that it is not so much the outbreak of
a national crisis which France has to fear as the reaction
from a world-wide crisis which may affect our market, despite its resistance. Since this influence can not be altogether avoided, it becomes apparent that no remedy can
be of benefit to us as long as we keep in view only our
national market. The only way for us to meet the effects
of the evil seems to be to attack it at its source. Thus
the remedy for us consists in bringing relief to the afflicted
neighbor. This is a singularly delicate proceeding, since
the first step is to find the sensitive point where the
remedy may be applied to the best purpose. From some
obscure origin the disease develops, and if the instability
of any market offers favoring conditions, it soon spreads
through the world, scattering on its way desolation and
death. To bring relief to all who are stricken is impossible,
but in the midst of the general depression there are found
some who, being less affected and possessing more power of
resistance, need but a helping hand to rise again, and, by
their return to health, may promote and hasten the general recovery. If it is a delicate matter to discover these
vital points, it is still more difficult to gauge the measure
of assistance it is proper to give. And those who bring
the relief should not be disturbed when public opinion,
for want of the information which it is not at all fitted to

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receive, sometimes goes astray and objects to the wisest
measures of preservation.
Have we succeeded in showing what appears to us to
be the present policy of the Bank of France? With a
comparatively small sum, with which it can temporarily
assist a solvent and well-managed foreign concern, for
the moment in difficulties, it is able to take an effective
part in the relief of international markets, and to avoid
the disastrous effects of the contagion on our own market.
It is scarcely easier, as we have said, to make the public
comprehend this system than to carry it through to completion. If, for instance, announcement is made of a
shipment of currency abroad, and a few days later there
follows a rise in the rate of discount,® many people will
declare that they can not understand this policy, that if
money is dearer, it is because of its scarcity, and therefore
it should not be exported. This reasoning is very natural,
but it dates from a period when nothing was known of
the international character of capital and of the practices
resulting from world-wide relations.
Reflection can only increase admiration for this policy,
since, in fact, it reveals a financial organization of immense
power, and permits us to be justifiably proud of calling
ourselves, in a way, the monetary physicians of the world.
It is thus that the Bank appears to us to have replaced the
obsolete premium system, not used since 1897. But it is
well known only to those who have astonished the world
by this wise and happy audacity.
The history of such temporary loans guaranteed by
paper of undoubted character is brief. " On July 16, 1839,
a

As happened in the month of November, 1907.

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the reserve of the Bank of England fell to £3,000,000,
and that institution found itself compelled, in order to
strengthen its position, to ask for help from Baring
Bros., even at that time one of the first banking houses
in the city. They succeeded in borrowing for the Bank
of England from the Bank of France £2,000,000 in gold." a
After this occurrence, in order to remedy the failure of
the Bank of England to resist the crisis, the Bank Charter
Act of 1844, more commonly known as the "Peel Act,"
was passed. It is well known that this measure, which
still governs the Bank of England, has not always been
happily applied. The act had to be suspended in 1847,
1857, and 1866. It would have been again suspended in
1890, had it not been for the loan of 75,000,000 francs in
gold which the Bank of France made to this great institution. In fact, the house of Baring Bros., though it
enjoyed considerable credit, was heavily involved in Portuguese and South American speculations, and in November suspended its payments. The Bank of England
gave such help as it could, but was not able to prevent
the flurried and anxious English market from flooding
the Paris market with international securities. 6 Checks
on London rose to 25.40, at which rate the Bank of France
could not maintain the discount rate at 3 per cent. In
London, the discount rate remained at 6 per cent only
because all paper was closely scrutinized and credit was
a
Rozenraad, " Le marchi de Londres" Revue Econ. Intern. 1906, 2,
p. 70.
b Cf. Th6ry, "La France iconomique & financiered p. 286; Moniteur des
Inttrets Mattriels, November 18, 1906, p. 3811; "Le regime monUaire de la
Banque d'Angleterre," Journal des Economistes, 1891, I, p. 398; Moireau,
"La Banque de France^ prorogation du privilege" pp. 101 and following,
Paris, Perrin & Cie., 1891.

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often refused. It was then that the Bank of France furnished the Bank of England with 75,000,000 francs in gold,
repayable at three months, with a promise of renewal,
and secured by exchequer bonds. It seems that these
75,000,000 francs were not only returned to the Bank of
France with seals unbroken, but that they did not even
cross the channel. It was enough that the public was
conscious of such moral and material support for the
frenzy to disappear.
The difference in the power of resistance of the two
establishments was then clearly visible. The Bank of
France had just endured unflinchingly the downfall of the
old Comptoir d'Escompte, while the Bank of England, in
like circumstances, found it necessary not only to raise its
discount rate to 6 per cent but to ask for foreign help.
England then fruitlessly resolved to modify the act of
1844. The Bank of France was severely criticized on
account of this loan, even in the Chamber of Deputies. a
In these two instances of 1839 and 1890, when the
Bank of France helped the Bank of England, first through
Baring Bros, and then because of Baring Bros., it seems
to have done this only under the pressure of business
necessity, just as any other bank might have done.
Russia, indeed, also assisted the English market, and evidently had no notion that in this she was following any
special policy. h
a
Interpellation and answer of M. Rouvier, minister of finance, in the
Chamber, January 17, 1891.
& The same applies to the aid furnished in 1898 by the Bank of England
and the Bank of France to the German banks, temporarily embarrassed.
Cf. Revue d'Economie Politique, 1899, Vol. X I I I , p. 165.

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These are the only two cases of assistance given abroad
by the Bank of France up to the renewal of the charter.
From that time on we shall see this assistance becoming
more frequent and assuming apparently a different character. The Bank, already regulating the French money
market, after being forced by urgent necessity to regulate
the money market of the world, seems thereafter to apply
itself assiduously to this new task. Until then, gold
shipments had only been considered as the result of simple practical necessities; no theorist had expressed the
idea of making them the object of a financial policy.
The two recent instances of 1906 and 1907, and the explanations furnished on this subject in the reports to the
shareholders, have sufficed to reveal that there was here
something more than a normal banking operation.
In the autumn of 1906 a a general and considerable
monetary stringency affected the London market, where
the demand for gold became intense, especially on the
part of the United States. The Bank of England had
also to meet considerable demands from Egypt 6 and
Brazil. The Bank of France did not hesitate to furnish
it with 75,000,000 francs in gold by discounting English
commercial paper. It also brought indirect aid by releasing £200,000 for shipment to Egypt. Let us remark,
however, that the Bank of France did not let any of its
a

Cf. Moniteur des InUrets Matiriels, November 9, 1906, p. 3679; Economiste Europe'en, u Chronique monetaire," December 7, 1906; Pour &
Contre, "Revue du Marche"," 1906 and 1907.
6
Bgypt, in addition to her usual requirements of currency a t the end of
the year, was beginning to suffer from a severe financial crisis. Cf.
Arminion, " La crise financiere actuelle," Revue des deux Mondes, September 1, 1907.

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gold go to New York, and that for two reasons. In the
first place, America, with abundant currency, was engaged in a general and frenzied speculation, which assistance of this kind might have intensified and rendered still
more dangerous. And furthermore, since it was in the
power of the Secretary of the Treasury very effectively to
intervene, he should be the first to give support. English
public opinion for a moment believed that the Bank of
France would intervene, but it was deceived in this expectation. The reason is, as we have said, that the Bank did
not believe in giving its gold except to good purpose, nor
in directing it elsewhere than to the points where it would
be really effective.
One year later, in the fall of 1907,0 the same demand
for gold reappeared in intensified form. The Bank again
lent its assistance to the English market. In answer to a
mere telegram it forwarded to London 80,000,000 francs
in gold eagles of the United States. Some days later the
reaction of the crisis forced the Bank to raise its discount
rate. It was at the time of this developing crisis that the
Bank of France was unreasonably reproached with its indifference to the monetary situation in the United States,
and with its refusal to give aid. The critics forgot that
the Bank was prevented by its statutes from the direct
shipment of sums for which the Federal Government refused to become responsible, and that, nevertheless, it
forwarded 80,000,000 francs in American coin, which
0

Cf. Economiste Europien, November 29, 1907, p. 676; Raffalovich,
"La crise amiricaine"
Bulletin Mensuel de la FMration des Industrials
et Commergants Frangais, No. 52, p. 126.

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merely passed through London. Certain negotiations
took place at that time between the American Government and the Bank of France with a view to dealing
directly without the intervention of the London market.
It is only because that Government would not or could not
offer such guarantees as the Bank of France considered
adequate that it made use of the London market, which
has a much greater interest than ours in the prosperity of
the United States.
The occasions which we have just mentioned are not
the only ones in which the Bank of France has had to intervene. In the first days of May, 1906, it loaned 40,000,000 francs to the Bank of England in order that the latter
might avoid raising the discount rate. In September,
1906, it sold several millions in American eagles, with the
knowledge that they would at once make their way to
New York. More recently, in the very midst of the
crisis, the Bank released many millions of eagles and sovereigns under similar conditions. It would therefore appear that this policy of relief has been definitely adopted
by the Bank of France.
The discounting of foreign bills has already been discussed.0 This system, applied as it is by the Bank of
France to the momentary regulation of rates of exchange, and with the especial object of giving valuable
and effective aid to the points most affected by pressing
demands for currency, appears to yield excellent results.
It can not, however, be considered as constituting a special
0

83704—10

Cf. supra, p. 133,

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policy, because it can only be of temporary service, 0 and
for the most part merely accompanies the policy of gold
shipments, which we have just explained.
Thus the Bank succeeds in diminishing to the greatest
possible extent the reaction of crises on our market. In
working for the prosperity of France it may also be justlyproud of being the indispensable financial organ of the
prosperity and progress of the world.
APPENDIX TO SECTION

III. Project for an international
bank.

The weakness of many markets and the great strength of
ours, added to the growing cosmopolitanism of capital, was
bound to suggest the idea of* creating an international
institution in order to establish obligatory mutual assistance as between the different markets. This idea has been
duly formulated.
A few well-known men have canvassed the question of
assigning a special international market for international
money transactions. At the time of the monetary conference of Brussels in 1892, M. de Foville presented the idea
of creating an international storehouse for gold on neutral
territory. International shipments would thus be avoided
since it would be sufficient to transfer the ownership of
a portion of the gold deposits. In 1895 M. Poinsard
« For a number of years the foreign exchanges have been almost always
favorable to us, and therefore hardly need to be defended. (Cf. J. Faure,
"La Banque de France et le portefeuille Mranger," La France Economique
et Financiere, December 22, 1906.) If recently they have sometimes
ceased to be favorable, it is the result of an abnormal withdrawal of
money, thus revealing a very strained situation abroad. More effective
measures must then be employed, and the appearance of foreign bills is
only the natural consequence.

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developed the conception of an international money,
comprising gold, silver, and bank notes. 0 M. Paul LeroyBeaulieu is inclined to believe in the future appearance of
an international money distinct from domestic money. 5
The plan which M. Luzzati is now endeavoring to introduce is more complex. It would involve an international
agreement between banks of issue or government treasuries
for the purpose of making permanent and obligatory such
financial relief as, during recent years, we have seen voluntarily extended by the Bank of France. Such was at
least the essence of M. X,uzzati's plan. c But, as thus outlined our National Bank would be forced to adopt, as
an obligatory rule of conduct, a measure which, after all,
is employed only as an exception, and at such times as it
deems opportune. It is easy to foresee what would happen
under such a system. France, financially the strongest
country, would have very little to expect from abroad,
while it would find its aid urgently solicited at the least
alarm of its neighbors; its position as moderator, from
being voluntarily assumed as it is now, would become obligatory and subordinate, and this would be evidently
unacceptable.
M. Luzzati's initial plan has therefore been modified; it
has become more restrained in form, more philosophic,
more attractive, but the substance remains unchanged.
As a corresponding member of the Academy of Moral and
o Poinsard, " Questions monetaires contemporaines," Paris. A. L,. Charles,
1899, pp. 253 and following.
& Session of th'e Societe d'Economie Politique, of November 4, 1905,
reported in the Journal des Economistes, 1905, p. 248.
cCf. Raffalovich, "Notes sur la crise americaine," Economiste Europ£en
November 29, 1907, p. 683.

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Political Sciences, M. Luzzati presented his views before
that learned assembly on January 18, 1908.° He now
proposes international conferences between banks and
treasuries, in which the various financial arrangements
would be examined and compared, thus leading naturally
to the reform of what might be found obsolete or erroneous.
It might then be possible to come to an understanding as
to the measures for mutual assistance. In this altered
form it is not difficult to recognize the initial idea of the
learned economist. It does not appear very attractive
for us in France, because it would always tend to create
for the world a certain claim on our reserves. We give
because we choose to do so, but by no means do we intend
to be forced to give, even with the advantage of a promise
to reciprocate. It does not please us that under this
pretext foreigners should enter our councils; that would
be dispossession in their favor.
It would be quite another thing to create a clearing
house on neutral soil, with means for international action.
But nothing is said of this; that would be dispossessing
London.
a Cf. Journal Officiel, January 23, 1908, p. 593.

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CHAPTER

III.

THE BANK AND WAR.
Everyone knows what an admirable part was played by
the Bank of France in the settlement of the war indemnity
imposed by Germany in 1871.® It was thanks to the
Bank that M. Thiers was able to effect that early liberation of French territory, which so greatly surprised our
victors. The confidence in the Bank, already great, increased still further, and from that time, in remembrance
of the services rendered, it has been regarded as the
keeper of the war chest. We have no intention of rewriting, after so many others, that sad but glorious history. Our aim is to show what numerous and sometimes
unnoticed services this great institution performs or can
perform now that the fighting power of a nation seems to
have no other limit than the financial effort of which it is
capable.
Wars become increasingly expensive. Each man under
arms costs more and more money, while the number of
those who would be subjected to active service constantly
grows. During the war of 1870-71 the average cost per
soldier was 7.50 francs per diem. We can no longer
a

France had to disburse nearly 6,000,000,000 francs, divided as follows:
Francs.
War indemnity
5, 315, 758, 853
Amount paid Germany for maintaining the army of occupation
248, 625,000
Indemnities of cities.
251,000,000
Amount directly collected by Germany as taxes
62,580,000

5, 877, 963,853
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count on making war at such low cost, now that England
and Germany, in their recent campaigns in South Africa
and China, have exceeded the figures of 17.50 francs per
diem for each man. The effective forces are also increasing, and merely as the result of her new military regulations, without taking account of the increase of population, Germany will have available in 1922 at least
10,000,000 men subject to military service. To keep
such an army in the field would require over 76,000,000
francs a day, more than 2,000,000,000 francs a month, or
over 27,000,000,000 francs a year. And even these figures
neglect the inevitable increase in the price of food and the
numerous expenses imposed by the necessity of sustaining
an entire population reduced to poverty.
Under the present conditions of war, these expenses,
which it would be impossible to disregard, would reach a
figure too enormous to estimate. Not only is there no
financial organization strong enough to warrant undertaking a long war, but the inevitable expenses of all sorts
are so great that they rigorously limit armaments.
"Obligatory military service merely constitutes a reservoir of men, which can be drawn upon only to the extent
of the available financial resources. But, nevertheless,
the financial preparation for war can not be considered as
complete unless this eventuality has also been foreseen."*1
It is therefore true to state that nowadays the fighting
power of a nation seems to be strictly limited by the financial effort it can endure. More than ever governments
must base their plans for military mobilization on a most
a
Captain Painvain "La preparation financiere et la guerre" Revue du
Cercle Militaire, December, 1902, and January, 1903.

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carefully prepared financial mobilization.** Financial
plans exist in every country, but are kept jealously
guarded like everything pertaining to national defense.
Let us, however, consider for a moment of what effort
Germany is capable, that great military nation the development of which particularly interests us to-day. To
meet the very numerous expenses which we have briefly
indicated, the Reichsbank may, in time of war, issue an
additional 1,000,000,000 marks. But in order to avoid
being discredited, it would be at the same time prudent
to cease publishing its weekly reports. 6 On the other
hand, the system of requisitions, many of which could
not be paid for, would constitute the normal way of
obtaining supplies.0 German forecasts even count in
the largest measure upon requisitions of food and money
to be made in the enemy's country. d Thus, financially speaking, Germany is conscious of being unable
to carry on a modern war with all the required development, unless it be on the express condition of operating
in the enemy's territory. Financial mobilization would
compel Germany to invade, at any cost; in no case could
it sustain a war for any length of time in its own territory.
Since, in determining the sources whence the colossal
sums required may be derived, reliance can be placed only
a
A. E- Sayous goes so far as to say: " I t is perhaps as much to its
financiers as to its generals that contemporary Germany owes its greatness and power." " Les banques allemandes" Revue Politique et Parlementaire, 1899, I I I , p. 311.
&
Cf. Raffalovich, "La mobilisation financiered Semaine Politique et LitUraire, December 7, 1901.
c
Is not the result of this at once to exasperate the population, and after
starving it to incur the heavy burden of later assuring its subsistence?
d
Cf. Painvain, op. cit.

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to a very small extent upon the national taxpayers, it
will be necessary to resort to loans and to various credit
operations. But " among the most precious instruments
of which the State is obliged to make use must be placed
good and sound money resting upon a solid basis, and a
central bank of issue provided with a strong metallic
reserve, without an excessive note circulation, thus permitting the domestic channels of trade to be fully supplied
withgold." a The advantages of a perfectly solvent
bank of issue, which is able to avoid forced currency or
redemption of its notes, are obvious. To maintain confidence and to develop stronger credit conditions is indeed
a necessity for that unstable period when the abnormal
expansion of credit results almost certainly in a crisis,
and thus complicates the difficulties of war by domestic
disturbances.
In this respect, Germany has but little power of resistance. We are aware x)f the moderate size of its cash
holdings, and we have witnessed the monetary uneasiness
which troubles it while in the midst of peace. We may
therefore say that the weak point of its military organization is the monetary side. The entire German press
is the first to recognize and to deplore this fact.
The recent Russo-Japanese war, for which financially
Russia was as well prepared as, from a military standpoint,
it appeared to be poorly prepared, furnishes a striking
example of what may be expected in time of war from
a firm financial organization. During that distant and
costly war, despite disorders at home, Russia was able to
a
K. Raph, "La Banque Impiriale d'Allemagne en cas de guerre," Economiste Europe'en, October 27, 1905, p. 323.

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maintain its credit at a high level by reason of its immense holdings of gold, only little impaired, and at the
same time to acquire, on advantageous terms, all that
was necessary to meet the imperious needs of war.
To provide for such an eventuality, which must never
be lost sight of, France appears to be armed as well as
possible by the enormous reserve held by the Bank of
France. There is every reason to believe that a credit
even stronger than ours would long have been shaken
while we would still be offering resistance. And who
knows but that these sinews of war would save us? " War
carried on without good provision of money has but a
mere breath of vigor. Money makes the sinews of war." a
The constitution and the employment of this force are,
we may say, mere details of internal organization, regulated by the plans of mobilization. These are not known,
but it is evident that in time of war the Bank of France,
covering the entire territory by its numerous branches,
the cashiers and managers of which are not subject to
military service, would be entrusted with the duty of
meeting the financial needs of the army, by distributing
currency or notes to the military units in accordance with
their requirements. It would also be obliged to distribute
the metal reserves over the entire territory in order to
diminish the chances of their falling into the hands of the
enemy.
From a political and even from a diplomatic point of
view the indisputable strength of France places us in a
peculiarly advantageous position. When there exists

a Rabelais, Bk. I., Chap. XLVI.

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between two states the relation of creditor and debtor,
or, what is better still, when one of them possesses a kind
of pecuniary supremacy, has not the stronger the very
justifiable right to use its superiority in order to obtain
political concessions or economic advantages? Although
this factor has no recognized weight in international relations, it nevertheless carries " a prestige, which, on many
occasions, may be valuable for our diplomacy. From this
point of view, the position of France is particularly
enviable. It is courted by all foreign nations.'' a
The resources of France may not only assure pleasanter
relations, in a general way, with foreign countries, but
even bring about effective intervention. "At the time
of the Algesiras conference the financial groups of Berlin
had used all their influence to induce their government
to recede from its uncompromising attitude." 6 This is,
indeed, a pleasing instance of direct intervention. The
Berlin bankers, who better than anyone else were aware
of their insufficient preparation for war, and of our great
financial strength, are entitled to unanimous gratitude for
having prevented this scourge.
Even before this, "if war had broken out between
France and England at the time of the Fashoda incident,
what would have become of the German banks ?" The
withdrawal of considerable amounts would have had very
serious consequences.0 It would perhaps not be inaccurate to state that, even on this occasion, the German finan» Lewandowski, "Le marche" de Paris" Revue Economique Internationale,
1906, II, p. 223.
b Lewandowski, op. cit.
«Andr6 E. Sayous, " Les banquet allemandes en cas de crise ou de guerre,11
Revue d* Economic Politique, No. 13, p. 149, note 2.

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cial groups influenced international politics in favor of the
friendly agreement at which we arrived.
It may therefore be said that at the present moment
the question of armament in its full sense is more and more
a question of finance. It is money which limits the expansion of credit; it is also money which limits the expansion of military force. Here again we see that, as always,
the race is to the richest, not in imponderable treasures,
but in money. The centuries have not yet accustomed us
to this sad philosophy, which nevertheless must be acknowledged and endured. If man, taken individually, has
the right to be altruistic, he is none the less bound, from a
social standpoint, to take every means of guarding against
foreign invasion, since he must defend his hearthstone,
his family, his very existence. It is our duty jealously to
preserve our National Bank, which is our strength, to glory
and take pride in it, never forgetting what we may expect
from it. Some will say that this is a policy of selfishness.
Perhaps, but it is a national selfishness which the exigencies of foreign politics will impose upon us for many years
to come despite ourselves and despite M. Luzzati's proposals.
CONCLUSION.
There exists a close correlation between monetary holdings and the credit system. Their importance and their
quality constitute its entire power. This fundamental
idea, which we expressed at the beginning of this work,
is also its conclusion and should be clearly evident. If we
have attained our object, we have shown that the formation and maintenance of the powerful Bank reserve is tke

*55

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safeguard of French commerce, the guaranty of our prestige abroad, the palladium of our independence.
We have seen how the Bank of France increases the gold
reserve of which it is the guardian, how it watches over its
quality, and assures for circulation an abundance of sound
money. Thus, in its gold supply, France is the richest
of coimtries, and this unshakable strength will permit the
gradual elimination, though not the entire abolition, of
silver, which as a monetary medium is depreciated but in
some respects is still useful. It is because we have relied
on the reserve that we have taken such a decided stand
on the question of bimetallism, and that we have declared
ourselves for the statu quo.
The immediate consequence of our superior monetary
position is the low discount rate, and, in this respect, as
we have pointed out, France enjoys the greatest stability
and the best money market. It is this same condition
which permits the Bank to act as guardian both of national
and international credit.
An examination of the physiology of the agencies for
distributing national credit has shown us that it often
needs to be purified. We have seen that by the evolution
of banking methods the weakening or even the disappearance of any one of our great financial institutions should
not be considered as a priori impossible. For this reason
it has seemed to us that the social interest demands a tutelary institution always ready to intervene in their behalf.
The examples we have given of the intervention of the
Bank are neither isolated nor accidental. They are the
normal manifestation of the part the Bank designs to take
in the work of distributing credit. We have shown that

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under all circumstances it knows how to fulfill this lofty
mission without trammeling the freedom of action of
other banks. It confines itself to serving them as regulator, and intervenes only so far as is necessary to curb
speculation, and thus to protect credit against all dangers.
Through its reserves the Bank is also able to encourage
the development of the instruments of credit, especially
of checks and transfers, and to make itself accessible to the
small dealer, the small rentier, and the plain husbandman.
We have seen how its territorial expansion is further increased indirectly by the recent institution of outside
accounts, and what efforts it makes in favor of agricultural
credit. This is certainly one of the most interesting indications of its position as guardian of the metallic holdings.
It assures low rates for money to everybody, everywhere,
sometimes at the expense of its own interests, but always
for the greater benefit of national commerce and industry.
It accomplishes even greater and better things in the
markets of the world through that preponderant influence of its reserve, the importance of which must constantly be emphasized. We have been obliged, in this
connection, to take up the study of monetary questions
in order to show that international financial solidarity
has no other basis than the metallic holdings. Since
France is in this respect so rich, its position appeared
to us then as exceedingly privileged.
Our reserve has such a powerful influence upon the
international financial situation that it is able to avert
foreign crises and to furnish effective means of preserving France from dangerous reactions by bringing relief
to the foreign source of disturbance. In order to formu-

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late properly this serious question of crises we were obliged
to use a somewhat detailed classification; but it alone
could lead to the definite conclusion that, whatever
their character, they may be successfully combated by
the banks, in so far as they become monetary.
Since 1893 France has experienced no crises. Such is
at least our claim. The means employed by the banks
to avert them held for a time our attention, and permitted us to form a sufficiently correct idea of the present
policy of the Bank. It is apparent that, with a view to
modifying the harshness of the unavoidable discount
policy, it has abandoned the policy of the gold premium
for another, that singularly happy device of internationalism, which we have just characterized. Admiration
must be accorded to this policy, which is a great credit
not only to the Bank but also to all France.
Its strong reserve, admirably managed, is not only
our insurance against crises but also our surest guaranty
against the recurrence of great wars. We have shown
that the fighting power of a nation has now no limit
other than the financial effort of which it is capable.
It is not going too far to state that the formidable cost
which a war would involve has more than once caused our
possible enemies to recoil, and that in the settlement of
political or diplomatic questions the nation which is
richest in gold is always the one which commands the
most respect.
Gold is always the great motive of human activity.
I t is above all the soul of credit; from this point of view
it is indispensable, and we have no apology to offer for
having given it such an important place in this study.

158

The

B a n k

F r a n c e

It is owing to its wealth in gold that " France need not
fear the considerable progress made by the commerce
and industry of the surrounding countries, " a and the formidable cost of armed peace. Recognizing the great
importance of monetary questions in political and social
economy, we know that while our advance may be slow
and must not, indeed, be unduly hurried, we are assuredly
on the road of progress.
A large part of our power of resistance we owe to the
institution of the Bank of France, as guardian of our
enormous monetary reserve. But what would become
of this reserve without the wise and firm management
of men who join to experience of affairs the science of
distinguished economists? It is to the Bank and to its
eminent staff that our respects are naturally addressed
in concluding this study of their labors.
a
J. Siegfried, "Expansion
Mondes, June 15, 1907.

commerciale de la France,"

159

Revue des Deux

BIBLIOGRAPHY.
I. PERIODICALS.
Bulletin Mensuel de la Federation des Industrials et Commercants Francais.
Bulletin de Statistique et de Legislation Comparee.
Le Censeur.
Documents Statistiques sur le Commerce de la France, Direction des
Douanes.
Economiste European.
Economiste Francais.
La France Economiste et Financiere.
Journal des Economistes.
Journal Officiel de la Republique Francaise.
Le Messager de Paris.
Le Moniteur des I n t e n t s Mat Uriels.
Pour et Contre.
R6forme Economique.
Le Rentier.
Revue du Cercle Militaire.
Revue des Deux-Mondes.
Revue Economique Internationale.
Revue (La) (anc. Revue des Revues).
Revue d'Economie Politique.
Revue Politique et Parlementaire.
Revue de Statistique.
Semaine Politique et Litteraire.
I I . VARIOUS PUBLICATIONS.
Arnaune, La monnaie, le credit et le change, 3 r d ed., Paris, Alcan, 1906.
A. Aupetit, Essai sur la theorie g6n6rale de la monnaie, Paris, Alcan, 1901.
Bas table, The Theory of International Trade, Dublin, 1887. French
translation with an introduction by Sauvaire-Jourdan, Paris, 1900.
Carpentier, Le credit agricole, Orleans, 1905.
P. Coq, Les circulations en banque, Paris, Guillaumin, 1865.
Comptes rendus de 1'assembled generale des actionnaires de la Banque
de France depuis 1891.
Courcelle-Seneuil, Les operations de banque. Traits theorique et pratique
9 t h ed., Paris, Alcan, 1905.
M. Clement, Des variations du taux de l'escompte, Nimes, Imprimerie
Cooperative, 1902.
Depitre, Le mouvement de concentration des banques allemandes, Paris,
Rousseau, 1905.
Documents parlementaires publies en 1859 par le Ministere des Finances.

160

The

Bank

F r a n c e

Enqu£te sur les principes et faits generaux qui regissent la circulation
monetaire et fiduciaire, 1865.
Flour de Saint-Genis, La Banque de France a travers le siecle, Paris,
Guillaumin, 1896.
Germain-Martin et Leon Polier, Cours d'economie politique, II, Le credit.
E. Grillon, Une nouvelle institution financiere francaise. Reponse aux
critiques du livre " Le cheque b a r r e " et aux partisans du privilege de
la Banque de France, Paris, Guillaumin, 1895.
A. Houdard, Essai sur le service des billets de banque, a propos du projet
de prorogation du privilege de la Banque de France, Paris, 1891.
CI. Juglar, Des crises commerciales et de leur retour periodique en France,
en Angleterre, et aux Etats-Unis, 2 nd ed., Paris, Guillaumin, 1889.
A. Lajusan, La crise francaise. Un essai de solution, Paris, Giard et Briere,
1906.
H. Lefevre, Le change et la Banque, Paris, Ch. Delagrave, 1880.
P. Leroy-Beaulieu, Traite theorique et pratique d'economie politique,
Paris, Guillaumin, 1896.
Lescure, Des crises generates et periodiques de surproduction, Bordeaux,
1906.
Levasseur, La question de Tor, Paris, Guillaumin, 1858.
M. & A. Meliot, Dictionnaire financier international theorique et pratique,
Paris, Berger-Levrault & Cie., 1904.
R. Meyer, Les banques suisses d'emission et le drainage des ecus, Lille,
Le Bigot freres, 1903.
A. Moireau, La Banque de France, prorogation du privilege. Le Credit
Foncier, la Caisse des Depots et Consignations, Paris, Perrin & Cie.,
1891.
J. S. Nicholson, Bankers' Money, London, Black, 1902.
B. Nogaro, Le role de la monnaie dans le commerce international et la
theorie quantitative, Paris, Giard & Briere, 1904.
J. Pallain, Des rapports entre les variations du change et les prix, Sancerre, Pigelet, 1905.
Pantel, Les fonctions de la Banque de France, Montpellier, 1903.
L. Poinsard, Questions monetaires contemporaines, Paris, A. L. Charles,
1899.
V. Pareto, Cours d'economie politique.
Leon Say & Joseph Chailley, Nouveau dictionnaire d'economie politique.
Leon Say, Dix jours dans la Haute-Italie.
A. Soetbeer, Materiaux pour faciliter Pintelligence et l'examen des rapports economiques des m e t a u x precieux et de la question monetaire
2 nd ed., Paris, 1889.
E. Thery, La France £conomique et financiere pendant le dernier quart
de siecle, Paris (*Economiste Europeen), 1900.
Wolowski, Le change et la circulation, Paris, 1869.

83704—10

161

French Savings and Their Influence
Upon the Bank of France and
Upon French Banks

By
ALFRED NEYMARCK
Editor of " Le Rentier"

163

FRENCH SAVINGS AND THEIR INFLUENCE UPON THE BANK OF FRANCE
AND UPON FRENCH BANKS.
By ALFRED NEYMARCK,

Editor of the "Rentier," Vice-President of the Societe d'Economie
formerly President of the Societe* Statistique of Paris.

Politique,

I.
SOME FACTS AND F I G U R E S .

In view of the monetary, financial, economic, commercial, and industrial crises which break out almost periodically in all countries, and with the destructive force of a
cyclone sweep everything before them, the question has
been asked how France has escaped these disturbances,
or at least has been able to meet with ease their reaction.
Many reasons have been given, some of which could not
be passed over in a careful examination, for the scientific
and mathematical truth of the resulting conclusions is so
clearly evident. These reasons are in our opinion:
(i) The large amount of French savings and of available capital.
(2) The increase and distribution of French and foreign
securities held in France.

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National

Monetary

Commission

(3) T h e influence exercised upon t h e rate of interest,
the discount rate, and upon t h e banks, their reserves a n d
deposits, b y this wealth of resources.
Many volumes would be necessary to develop these
few facts in all their details, b u t we shall confine ourselves
t o their demonstration b y brief and precise figures. This
will be our contribution t o t h e thorough investigation
which is being conducted b y t h e National Monetary
Commission of t h e United States and in which it has
asked us to collaborate.
2.

FORMATION AND DEVELOPMENT OF FRENCH SAVINGS. THE
PSYCHOLOGY OF FRENCH RENTES.
There are in France 10,000,000 electors, almost all
taxpayers. All or nearly all save their money with t h e
intention of p u t t i n g something b y for their old age.
There are savings in t h e special organizations called
savings institutions, in t h e m u t u a l benefit societies, in
b a n k s a n d securities, in lands, unimproved property, a n d
in houses, improved property. Such is t h e composition of
t h e private wealth of France, a wealth which is infinitely
disseminated. I t can be proved, in fact, t h a t of these
10,000,000 electors 9,000,000, a t least, have a book a t
some savings institution, a government rente, a railroad
or Credit Foncier bond or some other security, a strip
of land, or a house, whether large or small. And this is
n o t all. T h e French rentier does not invest everything
he has, b u t always keeps b y him some available means
in gold, silver, or b a n k notes to provide for sudden

166

French

Savings

and their

Influence

emergencies. He wishes t h u s to avoid having t o realize
his investments either in whole or in part, since to sell
his securities is a resolution he takes only in case of absolute necessity.
3SAVINGS INSTITUTIONS.
W h a t is, then, the situation as regards savings in
France? How is t h e capital arising from savings divided
a n d distributed? T h a t is t h e first question which must
be answered.
On J a n u a r y i, 1908, there were in France 4,976,000,000
francs deposited in the sayings institutions and divided
among 12,828,847 books, representing an average of 387
francs per book. I n these figures, 395,000,000 francs
a n d 1,797,542 books are counted in Paris and t h e departm e n t of t h e Seine.
According to t h e statistics as to t h e distribution of
books, of these 12,828,847 books more t h a n 4,000,000,
t h a t is to say more t h a n one-third, were for 20 francs or
less; almost 2,500,000 were for 21 t o 100 francs; about
1,100,000 were for 101 to 200 francs. This is t h e democratization of savings in its most extreme form. Of sums
for 1,001 to 1,500 francs, which is the highest amount
authorized for deposit in t h e savings institutions, there
are less t h a n 1,100,000 depositors. I t can not be said t h a t
these 5,000,000,000 francs, in round numbers, deposited
in t h e institutions for savings belong to the wealthy
class. I t is not the wealthy who resort t o such institutions for t h e investment of their capital, b u t people of
modest means who gather a little property, franc b y franc,

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National

Monetary

Commission

a n d lay it aside in order t o use it later, either in t e m p o r a r y
or in definite and more profitable investments.
The development of these interesting small savings can
be clearly shown b y three figures. I n 1850 there were
deposited in t h e savings institutions 135,000,000 francs;
in 1869, 711,000,000 francs; to-day t h e sum is 4,976,000,000
francs. I n t h e nineteen years from 1850 to 1869 t h e
increase was 576,000,000 francs; in thirty-eight y e a r s
from 1870 to 1908 it has been 4,265,000,000 francs.

4FRENCH RENTES.
Let us t a k e t h e case of a small investor who has placed
his first earnings. W h e n he obtains new funds t o invest
he t u r n s t o government rentes. H e determines t o possess
a French rente a n d t o m a k e it t h e basis of his holdings.
T h e following situation results. There are, in round n u m bers, 26,000,000,000 francs worth of French 3 per cent
rentes, p a r t perpetual a n d p a r t redeemable. F r o m these
26,000,000,000 francs there m u s t b e deducted 3,800,000,000
francs of redeemable rentes which are found in t h e h a n d s
of large investors; also, 1,000,000,000 francs of rentes
belonging t o t h e great insurance companies, endowments,
a n d various associations, leaving 21,000,000,000 francs.
I t has been estimated t h a t these 21,000,000,000 francs
are in great p a r t in t h e holdings of 1,500,000 investors.
T h e a t t e m p t has even been m a d e t o determine t h e average
a m o u n t of rentes which these investors might possess,
b u t as averages are always disputable we shall n o t p a u s e
t o discuss them. W h a t is certain is t h a t three-fourths of

168

French

Savings

and their

Influence

these 21,000,000,000 francs of rentes consist of registered
certificates. Of every 100 francs of rentes in circulation,
75 francs are in registered certificates and 25 francs in
certificates payable to bearer. I t is interesting t o note,
then, as a sign of t h e confidence with which t h e credit of
t h e State inspires t h e French democracy, t h a t of 10,000,000
voters 1,500,000 persons hold a government rente, a n d
t h a t there are more t h a n 12,000,000 persons, adults or
minors, who have a book a t some savings institution.
5LOTTERY BONDS.
The third stage t o which t h e French investor advances
in placing his savings is t h e acquisition of a lottery bond.
Everybody desires to leave t h e door open to fortune, and
t h e smallest holdings, as well as the largest, contain a
lottery bond of t h e city of Paris, of t h e Credit Foncier, or
of some provincial town, or some foreign lottery certificates negotiable in France, such as t h e Austrian bonds
of i860, etc.
W e possess 6,000,000,000 francs in lottery bonds, representing 17,000,000 certificates outstanding, and yielding annually 30,000,000 in lottery premiums. The capital
invested in these bonds results again from t h e economy
of small investors and represents p a r t of t h e savings
of t h e democracy. Neither in England nor in t h e United
States is there found such a use of funds, for there is not in
those countries, as in France, an army of people who p u t
b y small savings.

169

National

Monetary

Commission

If, now, we recapitulate this first division of the popular savings, we have 5,000,000,000 francs in savings
institutions; 21,000,000,000 francs in State rentes;
6,000,000,000 francs in lottery bonds.
This constitutes a first total of 32,000,000,000 francs in
investments essentially of the nature of savings belonging
to millions of persons.
6.
RAILROAD BONDS.
Let us ascend a step further in the scale of capitalists
and small investors. We shall then have before us those
pieces of paper called railroad bonds, and, higher still,
railroad shares. The capital represented by railroad
bonds amounts to 14,500,000,000 francs, while that represented by railroad shares amounts to 3,500,000,000
francs. Now, to whom do these 18,000,000,000 francs
belong? To more than 700,000 families, numbering more
than 2,000,000 persons. These 18,000,000,000 francs are
in certificates payable to bearer and in registered certificates. The registered certificates exceed 900,000. We
have, then, including the railroad bonds, 50,000,000,000
francs invested from savings and 55,000,000,000 to
56,000,000,000 francs if we add the rentes belonging to the
great holdings. It is certain that there can nowhere else be
found a similar accumulation and dissemination of wealth
invested in securities yielding such low interest—1 to 1 ^
per cent in the savings institutions, 3 to 3 ^ per cent from
railroad bonds and shares, and 1 to 2% per cent from lottery bonds.

170

French

Savings

and their

Influence

B u t this is not all, for we now come t o w h a t m a y be
called t h e fourth degree in t h e scale of investments, French
securities of variable revenue, and foreign rentes and
securities of fixed revenue and of variable revenue.
Furthermore, among these varieties of investments belong
the funds placed in m u t u a l benefit societies and funds
deposited in financial institutions, t o say nothing of those
which every person keeps b y him without investing to
provide for unforeseen expenditures or needs. Let us
examine these different classes to see w h a t t h e exact
statistics m a y tell us.
7TOTAL OF SECURITIES BELONGING TO FRENCH CAPITALISTS.
On December 31, 1908, t h e total of French and foreign
securities, including government bonds, negotiable only on
the Paris Bourse, without counting securities negotiable
either at t h e banks or on t h e departmental exchanges,
amounted to 133,383,000,000 francs, of which 65,738,000,000 were in French bonds and securities, and 67,645,000,000 were in foreign bonds and securities. Together with
t h e securities negotiable on t h e market, a t t h e Bank, and
on t h e departmental exchanges, t h e total of t h e securities
negotiable in France is not less t h a n 155,000,000,000 to
160,000,000,000 francs. At t h e present time French capitalists possess 105,000,000,000 to 110,000,000,000 francs
in bonds and securities, yielding t h e m annually from
4,000,000,000 to 5,000,000,000 francs, for t h e income
from these investments m u s t be estimated not according
t o t h e present reduced rate, b u t according t o t h e rate at the

171

National

Monetary

Commission

time when the investments were made. To these 105,000,000,000 to 110,000,000,000 francs must still be added
the capital invested abroad in banks or various enterprises, the capital described as deposited in the savings
institutions, and that which has been paid into mutual
benefit societies, an amount exceeding several hundred million francs. There must finally be added what may be
called the floating funds of savings—that is, capital deposited in current accounts or accounts subject to check
in the banks and financial institutions—which, year in
and year out, are above rather than below 2,000,000,000
francs.
8.

ANNUAL SAVINGS.
Thanks to the abundance of its resources, of its economies, and of its available funds, France—that is, the
French investors—saves annually on the average 1,500,000,000 to 2,000,000,000 francs (more rather than less),
whatever may be the inclemency of the seasons, whatever the political crises at home or abroad, whatever may
be even the speculative crises and the losses which, from
time to time, are borne by capitalists in hazardous investments such as the Panama Canal or the gold mines.
Such losses, however extensive they may be, produce only
a temporary effect, because they are divided among a
large number of persons. It is seldom that a capitalist
loses all he possesses in a single venture; he loses something, to be sure, but not all that he has put by, just as
he does not make his fortune by engaging simply in one
prosperous and successful enterprise.

172

French

Savings

and their

Influence

9IMPROVED AND UNIMPROVED PROPERTY.
To this wealth, consisting of movable securities, m u s t
be added t h a t consisting of immovable securities, improved and unimproved property. A single statement
will suffice to make this situation clear. Of 12,000000,
households in France, there are 9,000,000 each possessing and occupying its own house without renting from
others. As for unimproved property, there are 150,500,000 parcels of land and 62,000,000 town lots, while the
number of proprietors is estimated at 8,500,000.
10.
INHERITANCE STATISTICS.
France is a country of financial democracy. The inheritance statistics show t h a t there are less t h a n 20,000
millionaires. There were altogether 401,574 inheritances
declared in 1907, which m a y be tabulated according to
the a m o u n t of the inheritance as follows:
1 to
501 to
2, 001 to
10, 001 to
50, 001 to
100, 001 to
250, 001 to
500, 001 to
1,000,001 to
2, 000, 001 to
5,000,001 to
10, 000, 001 to
50, 000, 001 to

500 francs
2, 000 francs
10, 000 francs
50, 000 francs
100, 000 francs
250, 000 francs
500, 000 francs
1, 000, 000 francs
2, 000, 000 francs
5, 000, 000 francs
10, 000, 000 francs
50, 000, 000 francs

116,323
106,807
114,691
47,967
7,703
5, 018
I
>7 1 3
814
360
134
33
7
7

Hence, if we should use a pyramid to represent t h e
gradation of inheritances according to their importance,

173

National

Mon etary

Commission

allowing t h e b r e a d t h of a millimeter a t t h e summit t o
indicate

inheritances

under

5,0,000,000,

this

pyramid

would enlarge rapidly until it reached a base besides 16
meters broad, indicating t h e number of small inheritances
in proportion to large inheritances.
II.

THE IMPORTANCE OF FRENCH SAVINGS AND THEIR CONSEQUENCES.
I t is clear, therefore, without t h e necessity of further
emphasis, w h a t enormous strength is imparted t o t h e
country b y t h e extent of its savings.
(i) Since France is everywhere a creditor a n d nowhere
a debtor, each year brings in, under t h e form of interest
a n d of repayments, t h e capital which has been loaned
abroad a n d which is then invested anew.
(2) As France p u t s aside every year 1,500,000,000 t o
2,000,000,000 francs, it has no need to borrow abroad,
b u t has a b u n d a n t means t o supply its own requirements.
(3) Since, as we have seen, t h e total of t h e French
holdings in foreign securities and bonds yields a yearly
average of 1,500,000,000 to 2,000,000,000 francs, this sum,
which is paid t o us annually, comes back in t h e form of
gold, and, allowance being m a d e for t h e new uses t o which
we p u t a p a r t of these returns of t h e yellow metal, increases our gold reserve.
(4) As we utilize a portion of our savings t o m a k e new
investments abroad, t h e income of these new investments
is added t o t h e old and increases b y so much t h e sums
which are annually paid t o us in gold b y foreign borrowers.

174

French

Savings

and their

Influence

These simple facts explain why the stock of gold possessed by France (the most considerable that it has ever
had) automatically increases every year. a
This stock would diminish—
(i) If one or more poor harvests should make it necessary to export gold for the purchase of cereals.
(2) If, on the other hand, foreign loans effected in
France should take on a greater development.
(3) Or, again, if for any reason we should be obliged to
purchase a larger quantity of commodities abroad, and
if the sum of these purchases should not find a full or
practical equivalent in the sales which we should effect.
(4) I t must also be said that the visible stock of gold
might diminish in the event of a serious political crisis
abroad.
(5) But as things are, simply by the natural play of
economic and financial laws and facts, and as long as
France remains a creditor abroad, gold will continue to
a

T h e following table indicates t h e triple movement of gold, silver, and

notes of t h e Bank of F r a n c e within t h e last ten years.
[Amounts are expressed in millions of francs.]

Gold,

End of December—

1898
1899
1900
1901
1902
1903
1904
1905
1906
1907
1908

175

Silver.

1, 8 1 0 . 4
1,866 4

1,205.5
1 156.6

2,334 3

2,449 0
2, 519 2

2,357 4
2, 650 2
2,864 3
2, 671 9

099. 5
096.8
1 098. 4
1

100.0 j
098.9 i

071.2 j

2, 676 1

993-5
917.6 1

3,489 2

883.3 I

Bank
notes.

3,754-1
3,937-8
4,146 4
4,072.2
4,304.3
4,244.2
4,257-7
4.151.1
4,689.4
4,800. 6
5.225.5

National

Monetary

Commission

increase in the country normally and automatically.
Contrary to what might be thought, and to what has been
stated in several foreign journals, we do not purchase
and we do not need to purchase gold abroad. This gold,
as has been said, comes to us naturally in payment of the
interest or capital of debts. And such will be the case,
we repeat, as long as France remains a creditor abroad
and not a debtor. 0
(6) This, furthermore, explains the fact that from 1898
to the close of 1906 the difference in favor of gold imports
into France was 2,613,000,000 francs. In 1907 the excess
of imports over exports—although the customs statistics
as to the precious metals must be used with caution—
was 296,000,000 francs. This would give, then, a total of
about 2,909,000,000 francs in gold, which in the natural
course of business entered France between 1898 and the
close of 1907.
a

According to our latest valuation the foreign securities held by French
capitalists (government bonds included) reach the minimum figure of
30,000,000,000 francs. The distribution by countries is as follows:
Billions
of francs.

Russia
England
Belgium, the Netherlands
Germany
Turkey, Servia, Bulgaria
Roumania, Greece
Austria-Hungary
Italy
Switzerland
Spain, Portugal
United States, Canada
Egypt, Suez
Argentine, Brazil, Mexico
China, J a p a n
Tunis, the French colonies

9-10
}4
%
)
J

176

'*
3-4
2
1-1K
%
-$%
>£-i
3-4
2
H~Z
1
2-3

French

Savings

and their

Influence

The economic, monetary, and financial strength of
France, which protects it from crises, is therefore clearly
shown by the facts which we have presented.
(i) An abundance of exportable securities. We possess 30,000,000,000 francs in foreign bonds and securities,
of which 20,000,000,000 to 25,000,000,000 in international
bonds are negotiable on our markets and upon the exchanges of those foreign countries which are our debtors.
This is a great advantage to us, for these debts, as long
as they are regularly settled, guarantee us favorable conditions of exchange and are the equivalent of an addition
to our exports of commodities yielding a good profit.
(2) A considerable metallic reserve; that is, again, an
amount of exportable money which at any given moment
can, and always should, procure us important economic
and commercial advantages, not to mention political
compensations and advantages.
(3) A great abundance of floating funds issuing from
our savings. These funds are continually renewed, for
each year, whatever may be the political or other crises or
the unfavorable character of the seasons, France saves
1,500,000,000 to 2,000,000,000francs (some even claim that
these savings exceed 2,500,000,000),° so that we are able
not only to provide for our own needs, but also to lend
a portion abroad. 6
a

"Uipargne francaise et son developpement annuel. A combien s'elevent
annuellement les placements de Vepargne francaise."
Communication to
the Societe de Statistique de Paris, March 26, 1906. Published 1906.
b " Vepargne francaise."
Discussion of the Societe Amicale de la Marne,
October 28, 1908. Published 1908.

83704—10

177

National

Monetary

Commission

(4) An indisputable credit, as shown by two circumstances. First, the French 3 per cent rente sells for 11
francs more than the German rente. Furthermore, when
recently the the minister of finance, M. Caillaux, raised
the rate of interest on treasury bonds, payable from three
months to one year later, by only one-half of 1 per cent,
more than 200,000,000 francs entered the treasury within
twenty-four hours. No one will suppose that the increased interest attracted the subscribers, nor will it be
maintained that unless the credit of France were unquestionable such a large amount of capital would be confided
to the treasury.
(5) The fact that France is everywhere a creditor and
nowhere a debtor® explains also the return of capital which
under the form of arrearages or repayments comes in from
all sides, while France owes nothing, and so has nothing
to pay anywhere.
(6) France is the only country in the w^orld in which
the public debt has not increased for the last ten years. h
This assertion, incredible as it may seem to those who
do not study our budgets and the financial statements
annexed to them, is absolutely true, although in other
countries the public debt has grown. In the Rentier of
November 7, 1908, we have given the proof of this apparently bold affirmation, together with figures and documents to support it. The growth of the budgets is, indeed,
inevitable, for, in the words of our regretted teacher, M.
Leon Say, " Our democracy tends to transfer to the State
a

"La
situation financiere de la France."
Discussion of the Societe*
Amicale de la Marne, October 23, 1907. Published 1907.
b " L'expose" des motifs et la discussion des budgets de IOOJ et 1908."

178

French

Savings

and their

Influence

many functions with which it was not formerly burdened.'^ But, despite this fact, the budgets of France
show, on comparison, the least increase.
And, finally, it is in France that the quotations of government bonds have been most stable, maintaining with
English consols the highest level of prices.
12.

THE SUPREMACY OF THE FRENCH BANKS.

All these facts explain the constant support given to
the great French banks and the financial institutions
which have been established.
The supremacy of the French banks in national and
international finance is to-day undeniable. The principal
French banks, the Credit Lyonnais, Comptoir National
d'Escompte, Societe Generate, Banque de Paris et des
Pays-Bas, Banque Franchise pour le Commerce et l'lndustrie, Credit Industriel et Commercial, and the Union
Parisienne, had at the close of 1908 a nominal capital of
1,095,000,000 francs, of which 785,000,000 were paid in;
they had, besides, more than 250,000,000 francs in reserves.
The French banks abroad and in the colonies had a nominal capital of more than 800,000,000 francs, while the
French and foreign Credits Fonciers had a capital of
nearly 600,000,000 francs without counting the reserves,
etc. The paid-in capital of these different French banks,
operating in France and abroad, is therefore not less than
1,300,000,000 francs. In this respect few English or
American banks can be compared with them.
a Leon Say, Chamber of Deputies, October 27, 1890.
laire manuel oVeconomie politique," Colin et Cie.

179

Cf. our " Vocabu-

National

Monetary

Commission

13.
THE BANK OF FRANCE.

The strength of the French banks has, then, its source
first, as we have said, in the magnitude of French savings;
second, in their own internal and external organization;*and
third, and above all, in the effective organization of the
Bank of France. The great French banks know that
they can count upon it to rediscount their paper. For,
to use the expression of M. Leon Say, the difference between the Bank of France and all the other banks and
financial institutions is that it could liquidate them all,
while not one of them could liquidate it. The Bank of
France regulates the monetary situation of the country;
it releases the banks from all fear regarding internal
circulation and, consequently, regarding domestic commerce. The fixed and stable value of the notes of the
Bank of France, the credit which they enjoy at home,
and the favor with which they are received abroad, on
an equality with gold, give to the domestic and foreign
affairs of the country, in financial or commercial transactions, the greatest security.
A single comparison will make this apparent. If there
had been in the United States a central bank operating
on the same basis and according to the same principles
as the Bank of France, the crisis which recently occurred
there could never have reached so acute a stage as it did,
for the banks and the bankers of the United States would
have found means to have their paper discounted or to
procure part or all of the capital which they needed. A
healthy circulation of the notes which a bank of issue

180

French

Savings

and their

Influence

can put out is the basis of a healthy condition of banking;
the proof of this economic fact has been given by the
Bank of France. The example which it has furnished
ought not to be ignored in countries where the banks
have a circulation out of proportion to the metallic
reserve.
But it must be recognized that the excellent condition
of the Bank of France and of the large financial institutions and private banks in France has been aided by that
wonderful system of small savings so widely disseminated
over the country, and each year renewed and increased.
If, in any part of the world, the attempt should be made
to establish a central bank of issue with the same statutes
and regulations as those of the Bank of France, in the
hope of obtaining the same results, the experiment might
end in failure if there should be lacking in the country
that spirit of thrift and saving which governs the French
capitalist, large or small, the rich as well as the most
insignificant bourgeois, and the humblest laborers, peasants, and clerks.
Such, then, are the facts which we have endeavored to
establish in this brief study of the diffusion of French
savings and their influence upon the successful operation
and the prosperity of the Bank of France.

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181

Full text of The Bank of France in Its Relation to National and International Credit

FRASER