(1) Philosophy.
(2) Mathematics.
The nature of the examination may be indicated by the following
requirements in Branch (I):--
Written
(i.) An essay in French on a philosophical subject.
(ii.) An examination in physical and natural science.
Oral
(i.) Interrogation on philosophy and philosophical writers.
(ii.) Interrogation on contemporary history.
(iii.) Interrogation on physical science.
(iv.) Interrogation on natural science.
V. Co-ordination with Teaching.
The syllabus of the examination is that prescribed for the higher
classes in the Government secondary schools.
The candidate may submit his _livret scolaire_, or school record,
which will be taken into account.
VI. Examiners.
The Board of Examiners (or "jury") consists of (i.) University
examiners being members of a faculty of letters or faculty of
sciences; (ii.) secondary teachers, active or retired, selected by
the minister of public instruction. The Board consists of from four
to six examiners, of whom, when the number is even, half are chosen
from either category.
VII. Nature of Examination and General Remarks.
The written portion of Part I. extends over from 9 to 10 hours in
all (not on a single day), in periods of 3 or 4 hours each; the
written portion of Part II. extends over from 6 to 9 hours. The oral
examination for each part lasts 3/4 hour on the average, and is
public.
TABLE III.--SCOTLAND: SCHOOL-LEAVING EXAMINATION
I. Name of Examination.
Scottish school-leaving examination (established 1888). (See
pamphlet on the "Leaving Certificate Examination" issued by the
Scottish Education Department, 1908.)
II. Minimum Age for Entry.
17 on 1st of January following the year in which the candidate
passes the last of the written examinations.
III. Length of Course of Study.
4 years.
IV. Subjects.
Candidates must pass in four subjects on the higher grade standard,
or in three subjects on the higher grade standard and two on the
lower. A pass in drawing is accepted in lieu of one of the two lower
grade passes. A pass in Gaelic is reckoned as a pass on lower grade.
All candidates must have passed in higher English and in either
higher or lower grade mathematics. The remaining subjects may be
either science with one or more languages (Latin Greek, French,
German, Spanish, or Italian), or languages only. But where two or
more languages other than English are taken, the candidate's group
must include either higher or lower grade Latin. A pass in Spanish,
Italian, or science (in which subjects there is only one
examination) is reckoned as a pass on the higher grade standard.
V. Co-ordination with Teaching.
Schools are inspected, and the course of instruction must be
approved by the Scottish Education Department, but the examinations
are conducted by external examiners with whom teachers are not
associated.
VI. Examiners.
The examiners are appointed by the Scottish Education Department.
VII. Nature of Examination and General Remarks.
The examination consists of a written examination and an oral
examination, on which stress is laid. The length of the examination
varies with the subjects selected. The periods of examination vary
from 1 to 2-1/2 hours. If the candidate selects on the higher grade,
English, Latin, mathematics, and French, the examination extends
over 19-1/2 hours.
TABLE IV.--UNIVERSITY OF LONDON SCHOOL EXAMINATION, MATRICULATION STANDARD
I. Name of Examination.
School examination, matriculation standard (established in 1902).
_Note_--A higher school-leaving certificate is awarded to pupils who
(i.) have pursued an approved course of study for a period of years
at a school or schools under inspection approved by the University;
and (ii.) being matriculated students, have passed the "higher
school examination" in at least three subjects at one and the same
examination.
II. Minimum Age For Entry.
The minimum age of entry is 15, but if the candidate is under 16 he
must remain at school until he is 16 years of age in order to be
qualified for the school-leaving certificate, and cannot be
registered as a student of the University until he has reached that
age.
III. Length of Course of Study.
The curriculum of each school is considered on its own merits.
IV. Subjects.
Pupils must satisfy the examiners in not less than five subjects, as
follows:--
(1) English.
(2) Elementary mathematics.
(3) Latin, or elementary mechanics, or elementary physics--heat,
light and sound, or elementary chemistry, or elementary botany, or
general elementary science.
(4) and (5) Two of the following subjects, neither of which has
already been taken under section (3). If Latin be not taken, one of
the other subjects selected must be another language, either ancient
or modern, from the list, and languages other than those included in
the list may be taken if approved by the University, provided that
the language is included in the regular curriculum:--Latin, Greek,
French, German, ancient history, modern history, history and
geography, physical and general geography, logic, geometrical and
mechanical drawing, mathematics (more advanced), elementary
mechanics, elementary chemistry, elementary physics--heat, light and
sound, elementary physics--electricity and magnetism, elementary
biology--botany, elementary biology--zoology, general elementary
science (chemistry and physics).
V. Co-ordination with Teaching.
Schools under approved inspection, and course of instruction
approved by the University.
The papers are ordinarily set on the matriculation syllabus, but
papers may be specially set more closely in accordance with the
school curriculum provided that the syllabus proposed is approved by
the University as at least equivalent to that for which it is
substituted.
VI. Examiners.
The examiners are ordinarily those appointed by the University for
the ordinary matriculation examination.
VII. Nature of Examination and General Remarks.
The examination extends over at least 18 hours, and includes an oral
examination in modern languages.
Practical.
The laboratory examination may be used in subjects like physics,
chemistry, geology, zoology, botany, anatomy, physiology, to test powers
of manipulation and knowledge of experimental methods. In some cases
(e.g. in certain honours examinations) the examination may be prolonged
over one or more days, and may test higher powers of investigation. But
such powers can only be fully tested by the performance of original
work, under conditions difficult to fulfil in the examination room or
laboratory. At the French examinations for the _prix de Rome_ the
candidates are required to execute a painting in a given number of days,
under strict supervision (_en loge_).
In medicine the clinical examination of a patient is a test carried out
under conditions more nearly approaching those of actual work than any
other; and distinction in medical examinations is probably more often
followed by distinction in after life than is the case in other
examinations.
Thesis.
For the doctor's degree (where this is not an honorary distinction) a
thesis or dissertation is generally, though not invariably, required in
England. Of recent years the thesis has been introduced into lower
examinations; it is required for the master's degree at London in the
case of internal students, in subjects other than mathematics (1910);
both at Oxford and London, the B.Sc. degree, and at Cambridge the B.A.
degree, may be given for research, although the number of students
proceeding to a degree in this way is at present relatively small. In
certain of the honours B.A. and B.Sc. examinations at Manchester and
Liverpool, candidates may take the written portion of the examination at
the end of the second year's course of study and submit a dissertation
at the end of the third year. Theses are generally examined by two or
more specialists.
5. _Competitive Examinations._--The arrangement of students in order of
merit led naturally to the use of examinations not only as a qualifying
but also as a selective test, and to the offering of money prizes
(including exhibitions, scholarships and fellowships) on the results. In
1854 selection by examination as a method of appointment to posts in the
English public service was first substituted for the patronage system,
which had caused grave dissatisfaction (see Macaulay's speech on the
subject, _The Times_ of the 25th of June 1853). The first public
competitive examination for the Royal Military Academy, Woolwich, took
place in 1855, and in 1870 the principle of open competition for the
civil service was adopted as a general rule. (For further details see
CIVIL SERVICE.)
In the Wurttemberg civil service candidates are admitted to a year's
probation after passing a theoretical examination, at the conclusion of
which they must pass an examination of a more practical character (A.
Herbert, _Sacrifice of Education_ ..., 1889, p. 111).
In the award of scholarships, &c., it should be definitely decided
whether the scholarship is to be awarded (1) for attainment, in which
case the examination-test pure and simple may suffice, or (2) for
promise, in which case personal information and a _curriculum vitae_ are
necessary. To take a simple instance: a candidate partly educated in
Germany may obtain more marks in German at a scholarship examination
than another who is more gifted, but whose opportunities have been less;
the question at once arises, are the examiners to take the circumstances
of the candidate into account or not? It is understood that at the
colleges of the older universities such circumstances are considered. It
must again be decided whether the financial circumstances of candidates
are to be taken into account; are scholarships intended as prizes, or as
a means of enabling poor students to obtain a university education? In
some cases wealthy students have been known to return the emoluments of
scholarships. In many universities of the United States there is a
definite understanding that emoluments shall only be accepted by those
needing them. It would not be difficult to ask candidates to make a
confidential declaration on this subject on entrance and to establish in
Great Britain a tradition similar to that of the United States, and
steps in this direction have been taken both at Oxford and Cambridge
(Lord Curzon of Kedleston, _University Reform_, p. 86).
A special allowance may be made for age. In certain scholarship
examinations held formerly by the London County Council a percentage was
added to the marks of each candidate proportionate to the number of
months by which his age fell short of the maximum age for entry. The
whole subject of entrance scholarships at English schools and
universities, and especially their tendency to produce premature
specialization, has recently been much discussed.
6. _The Organization and Conduct of Examinations._--The organization and
conduct of examinations, in such a way that each candidate shall be
treated in precisely the same way as every other candidate, is a complex
matter, especially where several thousand candidates are concerned. The
greatest precautions must be taken to ensure the secrecy of the
examination papers before the examination, and the effective isolation
of individual candidates during the examination. The supervision should
be adequate to remove all temptation to copying. The hygienic conditions
should be such as to reduce the strain to a minimum. The question of the
mental fatigue produced by examinations has been studied by certain
German observers, but has not yet been fully investigated.
7. _Marking, Classification and Errors of Detail._--In applying a single
test in a qualifying examination it would be sufficient to mark
candidates as passing or failing. But examinations consist as a rule of
a number of tests, each one of which is complex; and a mark is recorded
in respect of each test or portion of a test in order to enable the
examining body to estimate the performance, considered as a whole, of
the candidate. At Oxford the marks are not numerical, but the papers are
judged as of this or that supposed "class," and various degrees of merit
are indicated by the symbols [alpha], [beta], [gamma], [delta], to which
the signs + or -may be prefixed, according as they are above or below a
certain standard within each class. At Cambridge, numerical marks are
used. The advantage of numerical marks is that they are more easily
manipulated than symbols; the disadvantage, that they produce the false
impression that merit can be estimated with mathematical accuracy.
Professor F.Y. Edgeworth, in two papers on "The Statistics of
Examinations" and the "Element of Chance in Competitive Examinations"
(_Journal of the Royal Statistical Society_, 1888 and 1890), has dealt
with the subject, although on somewhat limited lines. His
investigations show clearly that with candidates near the border-line of
failure, which must necessarily be fixed at a given point (subject to
certain allowances, where more than one subject is considered), the
element of chance necessarily enters largely into the question of pass
and failure. The fact may be stated in this way:--the general efficiency
of the test being granted, it is true to say that the large majority of
those who pass an examination will be superior in efficiency to those
who fail; but a few of those who fail may be superior to a few of those
who pass. These errors are not peculiar to the examination system, they
are inherent in all human judgments. It is necessary to allow for them
in considering the failure of an individual candidate as an index of
inefficiency.
The element of chance, which prevails in the region on either side of
the border between pass and failure, obviously prevails equally on
either side of the border between "classes," where candidates are
classified; it has been suggested by Dr Schuster that numerical order
should accompany classification so as to avoid the creation of an
artificial gap between the last candidate in one class and the highest
in the next. Edgeworth's objection to such an argument is that the
number of uncertainties is far less when candidates are classed than
when they are placed in ostensible order of merit.
The difficulties of comparison of marks are further complicated when
students take different subjects and it is necessary to compare their
merit by means of marks allotted by different examiners and added
together. In a pass examination the question has to be considered how
far, if at all, excellence in one subject shall compensate for
deficiency in another, a question which is indeterminate until the
precise object of the whole examination is formulated. In the
competitive examination for the Indian civil service, places are
allotted on the aggregate of marks obtained in a number of subjects
selected by the candidate from a list of thirty-two. The successful
candidates are compared a year later on the results of another
examination in which there is again a choice, though a much more limited
one. The order of merit in the two examinations is, as a rule, very
different.
Two further points may be noted. An examiner may have underestimated the
time required to answer the questions which he has set; this will be
obvious if with a large number of candidates (say 300 or 400) none
approaches the maximum mark. In this case the maximum should be reduced.
Again, it is generally recognized to be undesirable to give marks for a
smattering. In order to avoid this various devices are adopted. The
simplest is to award a proportion of marks (say 10 to 15, or even 20%)
for "general impression." In some examinations, unless say 20% or more
marks are obtained for a particular subject, no credit is given for the
paper in that subject. Latham (_The Action of Examinations_, 1877, p.
490) describes other numerical adjustments used to meet this difficulty,
especially that used in English civil service examinations. The
numerical results of the civil service examinations are reduced so as to
conform to a certain symmetrical "frequency-curve," of which the
abscissae represent percentages of marks between definite limits and the
ordinates the number of candidates obtaining marks between those limits.
C.E. Fawsitt (_The Education of the Examiner_, Royal Philosophical
Society of Glasgow, 1905) shows that frequency-curves deduced from
actual investigation of class-marks are not symmetrical, but have two
maxima corresponding to the performance of "non-workers" and of
"workers." In pass examinations of a well-known character there is a
maximum just beyond the pass mark, this being the point of efficiency at
which many students aim.
8. _The Object and Efficiency of Examinations, and their Indirect
Effects._--In order to estimate the efficiency of an examination as a
test, the precise question should be asked in each case--what is it
intended to test? Much of the evil attributed to, and resulting from,
examinations is due to the fact that this question has not been
definitely put, and that a test legitimate for certain purposes has been
used for others to which it is unsuited. Examinations are suited in the
first instance for the purpose for which they were originally designed
in medieval universities--the test of technical and professional
capacity; it has never been proposed to abolish qualifying examinations
for doctors, pharmaceutical chemists, &c.; the tests applied are (or
should be) direct tests of capacity carried out under conditions as
nearly as possible like those of actual practice. If a student can
auscultate correctly, or make up a prescription, at an examination, he
will in all probability be able to do so in other circumstances.
Examinations as tests of the knowledge of isolated facts are necessarily
of relatively small value, because the memory of such facts is
transient; and memorization of a large number of facts for examination
purposes is generally admitted to be specially transient; the
"knowledge-test," considered apart from a test of capacity, is in fact
not a test of permanent knowledge, but of the power of retaining facts
for a length of time which it is impossible to estimate and which with
some candidates extends over a few weeks only. When used as tests of
"general culture," examinations, in the view of Paulsen, based on a
study of German education, not only fail in their purpose, but tend to
destroy the faculties which it is desired to develop (_Geschichte des
gelehrten Unterrichts_, ii. 684 et seq.); to prepare ready answers to
the numberless questions which an examiner may ask on a large variety of
subjects is to paralyse the natural and free activity of the mind (cf.
A.C. Benson on the results of English secondary classical education,
_From a College Window_, 3rd ed., 1906, pp. 154-177). If pushed to its
logical conclusion the view of Paulsen must, it is submitted, lead to
the complete abandonment at examinations of tests of "knowledge" as
distinguished from direct tests of capacity. Thus isolated questions on
details of grammar would disappear from papers on the mother-tongue and
on foreign languages, in which the test would consist mainly or entirely
of composition and translation. Erudition would be tested by the power
of writing, at leisure, a dissertation on some subject selected by the
examiners or the candidate or, in the case of a teacher, by the delivery
of a lecture on the subject. At the French _agregation_ candidates are
given twenty-four hours for the preparation of a lecture of this kind.
Such examinations would test the "skill in the manipulation of facts
which is the true sign of a trained intelligence" (cf. K. Pearson, "The
Function of Science in the Modern State," _Ency. Brit._ 10th ed. xxxii.
Prefatory essay). They might possibly be supplemented by easy oral
examinations to test both range of knowledge and readiness of mind. But
in the case of a pupil who had passed through a good secondary school it
would be as safe to rely for supplementary information under this head
on the testimony of his teachers, as it is to rely on their evidence
with regard to the fundamental and all-important element on which no
examination supplies direct information--personal character.
The main arguments of those opposed to the examination system may be
summarized as follows: (i.) Examinations tend to destroy natural
interests and exclude from the attention of the pupil all matters
outside the purview of the examination (they would not do so if
examinations were so limited in character that preparation therefor
could absorb only a fraction of the pupil's time); (ii.) they tend to
cultivate a personal judgment where no personal basis of judgment is
possible (this argument, directed mainly against the Oxford essay
system, applies not to examinations in general, but to the character of
the subjects set for essays); (iii.) competitive examinations on the
home and Indian civil services scheme tend to diffuse mental energy over
too many subjects (but see (xviii.) below); (iv.) examinations,
especially competitive examinations, tend to become more and more
difficult, difficulty being confused with efficiency--this has shown
itself with the Cambridge mathematical tripos, in which for years
questions of increasing difficulty were set on relatively unimportant
subjects, until the examination was reformed (reply: all examinations
should be overhauled periodically); (v.) they tend to paralyse the
powers of exposition, all statements of knowledge being thrown into a
form suitable, not for an uninstructed person, but for one who already
possesses it, the examiner (this tendency should be counteracted by
definite training in composition); (vi.) the sample of knowledge and
capacity yielded at an examination is frequently not a fair sample; it
is liable to extreme variations in a favourable sense, if the candidate
happens to have prepared the precise questions asked; in an unfavourable
sense, if the candidate is suffering from misfortune or from accidental
ill-health, the latter, owing to the periodic function, occurring much
more frequently in the case of women than of men--[the reform of
examination methods may remove to a great extent the element of chance
in questions set; in a competitive examination it is impossible to allow
for ill-health; in a qualifying examination it is difficult to make any
allowance unless the examination is definitely conducted in whole or in
part by the teachers, and the past record of the candidate is taken into
account (cf. Paulsen, _The German Universities_, pp. 344-345)]; (vii.)
examinations of several hundred candidates at a time cannot be
rationally conducted so as to be equally fair to the individuality of
all candidates; the individual test is the only complete one (it is
admitted that examinations on a large scale necessarily involve a margin
of error; but this error may be reduced to a minimum, especially by a
combination of oral and practical with written work); (viii.) the
multiplicity of school examinations required for different reasons
produces confusion in our secondary education (there is a growing
tendency to admit equivalence of "school-leaving" and entrance
examinations; thus entrance examinations of Oxford, Cambridge and
London, and the Northern Universities Joint Board are interchangeable
under certain conditions); (ix.) the multiplicity of examinations tends
to "underselling" (the success of the London examinations in medicine
proves that a high standard attracts candidates as well as a low one;
possibly intermediate standards may be killed in the competition; it is
by no means obvious that a uniform system of examinations would conduce
to efficiency); (x.) examinations produce physical damage to health,
especially in the case of women-students (on this point more statistical
evidence is needed; see, however, Engelmann quoted by G. Stanley Hall,
_Adolescence_, 1905, ii. 588 et seq.); (xi.) examinations have in
England mechanically cast the education of women into the same mould as
that of men, without reference to the different social functions of the
two sexes (the remedy is obvious); (xii.) it is unjustifiable to give a
man a university position on the results of his performance in the
examination room, a practice common in England though almost unknown on
the continent; a just estimate of a man's powers in research or for
teaching can only be properly based on his performance. The present
system merely leads to the transmission of the sterile art of passing
examinations. (At Oxford and Cambridge many fellowships are now awarded
on the results of examination; it is sometimes stated, in defence of
this system, that young men cannot be expected to carry out research in
classics or philosophy.)
On the other hand, the defenders of examinations reply that (xiii.)
examinations are necessary in order to test the efficiency of schools to
which grants of public money are given (this argument has become
somewhat out of date owing to the recent substitution of "inspection"
for examination as a test of the efficiency of schools; a combination of
inspection and examination is also sometimes used); (xiv.) they serve as
a necessary incentive to steady and concentrated work[4] (the reply made
to this is that the incentive is a bad one, and that with efficient
teachers it is unnecessary); (xv.) they show both student and teacher
where they have failed (unnecessary for efficient teachers); (xvi.)
though possibly harmful to the highest class of men, they are good for
the mass (reply: no system which damages the highest class of men is
tolerable); (xvii.) they are indispensable as an impartial means of
selecting men for the civil service; (xviii.) in a difficult examination
like the first class civil service examination the qualities of
quickness of comprehension, industry, concentration, power of rapidly
passing from one subject to another, good health, are necessary for
success, though not tested directly, and these qualities are valuable in
any kind of work (this appears to be incontrovertible); (xix.)
examination records show that success in examinations is generally
followed by success in after-life, and the test is therefore efficient
(it does not follow that certain rejected candidates may not be
extremely efficient); (xx.) as a plea for purely "external
examinations," teachers cannot be trusted to be impartial and it is
better for a boy to "cram" than to curry favour with his teacher
(Latham).
The brief comments in brackets, appended above to the arguments, merely
indicate what has been said or can be said on the other side. It can
scarcely be doubted that in spite of the powerful objections that have
been advanced against examinations, they are, in the view of the
majority of English people, an indispensable element in the social
organization of a highly specialized democratic state, which prefers to
trust nearly all decisions to committees rather than to individuals. But
in view of the extreme importance of the matter, and especially of the
evidence that, for some cause or other (which may or may not be the
examination system), intellectual interest and initiative seem to
diminish in many cases very markedly during school and college life in
England, the whole subject seems to call for a searching and impartial
inquiry.
SOURCES OF INFORMATION.--The works mentioned above, and T.D. Acland,
_Some Account of the Origin and Objects of the New Oxford Examinations
for the Title of Associate in Arts_ (London, 1858); Matthew Arnold,
_Higher Schools and Universities in Germany_ (1874); Graham Balfour,
_The Educational Systems of Great Britain and Ireland_ (2nd ed.,
Oxford, 1903); W.W. Rouse Ball, _Origin and History of the
Mathematical Tripos_ (Cambridge, 1880); Adolf Beier, _Die hoheren
Schulen in Preussen und ihre Lehrer_ (1902-1906) (in progress);
Cloudesley Brereton, "A New Method of awarding Scholarships," _School
World_, 1907, p. 409; G.C. Brodrick, _A History of the University of
Oxford_ (London, 1886); F. Buisson, _Dictionnaire de pedagogie_
(1880-1887); Lord Curzon of Kedleston, _Principles and Methods of
University Reform_ (1909); J. Demogeot and H. Montucci, _De
l'enseignement superieur en Angleterre et en Ecosse_ (1870); H.
Denifle, _Die Universitaten des Mittelalters bis 1400_ (Berlin, 1885);
F.Y. Edgeworth, "The Statistics of Examinations," and "The Element of
Chance in Competitive Examinations," _Journal of the Statistical
Society_, 1888 and 1890 respectively; H.W. Eve, Lecture "On Marking,"
in _The Practice of Education_ (Cambridge, 1883); Charles E. Fawsitt,
_The Education of the Examiner_ (Royal Philosophical Society of
Glasgow) (Glasgow, 1905); J.G. Fitch, "The Proposed Admission of Girls
to the University Local Examination," _Education Miscellanies_ (1865),
vol. x.; W. Garnett, "The Representation of certain Examination
Results," _Journ. Statist. Soc._ (Jan. 1910); G. Stanley Hall,
_Adolescence_ (London, 1905); Sir W. Hamilton, _Discussions on
Philosophy_ (London, 1853); P.J. Hartog, "Universities, Schools and
Examinations" in the _University Review_ (July 1905); P.J. Hartog and
Mrs A.H. Langdon, _The Writing of English_ (1907); Auberon Herbert
(edited by), _The Sacrifice of Education to Examination_, Letters from
"All Sorts and Conditions of Men" (1889); _Influence of Examinations_,
Report by a Committee, British Association Reports for 1903, p. 434.
and for 1904, p. 360; John Jebb, _Remarks upon the Present Mode of
Education in the University of Cambridge_ (4th ed., 1774); Henry
Latham, _On the Action of Examinations_ (Cambridge, 1877); H.C.
Maxwell Lyte, _A History of the University of Oxford to the Year 1530_
(London, 1886); W.A.P. Martin, _The Lore of Cathay_ (Edinburgh and
London, 1901); J.B. Mullinger, _The University of Cambridge_
(Cambridge, 1873); _How to pass Examinations successfully_, by an
Oxford Coach; Mark Pattison, _Suggestions on Academical Organization_
(Edinburgh, 1868); Friedrich Paulsen, _The German Universities and
University Study_ (London, 1906) and _Geschichte des gelehrten
Unterrichts_ (Leipzig, 1896); George Peacock, _Observations on the
Statutes of the University of Cambridge_ (1841); _Programme des
examens du nouveau baccalaureat de l'enseignement secondaire_,
Delalain freres, Paris; Hastings Rashdall, _The Universities of Europe
in the Middle Ages_ (Oxford, 1895); Rein's _Encyklopadisches Handbuch
der Padagogik_ (2nd ed., 1902, &c.), articles "Prufungen" (by F.
Paulsen), &c.; Third Report of the Royal Commissioners on Scientific
Instructions, 1873; J.E. Thorold Rogers, _Education in Oxford_ (1861);
M.E. Sadler, "Memorandum on the Leaving Examinations ... in the
Secondary Schools of Prussia," in Report of Royal Commission on
Secondary Education, vol. v. p. 27 (1895); C.A. Schmid, _Geschichte
der Erziehung_ (Stuttgart, 1884, &c.), and _Encyklopadie des gesammten
Erziehungs- und Unterrichtswesens_ (2nd ed., 1876-87), articles
"Prufung," "Schulprufungen," "Versetzungsprufungen," &c.;
Scholarships, various papers on, by H.B. Baker, A.A. David, H.A.
Miers, M.E. Sadler and H. Bompas Smith, and others, British
Association Report, 1907, pp. 707-718; Arthur Schuster, article on
"Universities and Examinations" in the University Review (May 1905);
W.H. Sharp, _The Educational System of Japan_ (Office of the
Director-General of Education in India) (Bombay, 1906); Special
Educational Reports, issued by the Board of Education, _passim_;
A.M.M. Stedman, _Oxford: its Life and Schools_ (London, 1887); I.
Todhunter, _Conflict of Studies_ (1873); William Whewell, _Of a
Liberal Education_ (London, 1845); Christopher Wordsworth, _Scholae
academicae_ (Cambridge, 1877); Etienne Zi (or Siu or Seu), _Pratique
des examens litteraires en Chine_ (Shanghai, 1894). Private
information from Professor M.E. Sadler and Mr A.E. Twentyman.
(P. J. H.; A. Wn.)
FOOTNOTES:
[1] W.W. Rouse Ball in his _History of the Study of Mathematics at
Cambridge_ (1889), p. 193, states that he can find no record of any
European examinations by means of written papers earlier than those
introduced by R. Bentley at Trinity College, Cambridge, in 1702.
[2] It should be mentioned that the professors of chemistry of a
number of German, Austrian and Swiss universities, have, by
agreement, instituted an intermediate examination in that subject
which students are required to pass before beginning work on the
doctoral thesis. The examination of the students is conducted by the
teachers concerned.
[3] See E.E. Brown in _Monographs on Education in the United States_
(ed. by N.M. Butler, 1900, i. 164), and T. Gregory Foster and H.R.
Reichel, _Report of Mosely Educational Commission_ (1904), pp.
117-119 and 288-289.
[4] The Oxford commissioners of 1852 reported that "the examinations
have become the chief instruments not only for testing the
proficiency of the students but also for stimulating and directing
the studies of the place" (_Report_, p. 61).
EXARCH ([Greek: exarchos], a chief person or leader), a title that has
been conferred at different periods on certain chief officers or
governors, both in secular and ecclesiastical matters. Of these, the
most important were the exarchs of Ravenna (q.v.). In the ecclesiastical
organization the exarch of a _diocese_ (the word being here used of the
political division) was in the 4th and 5th centuries the same as
primate. This dignity was intermediate between the patriarchal and the
metropolitan, the name patriarch being restricted after A.D. 451 to the
chief bishops of the most important cities (see PATRIARCH). The title of
Exarch was also formerly given in the Eastern Church to a general or
superior over several monasteries, and to certain ecclesiastics deputed
by the patriarch of Constantinople to collect the tribute payable by the
Church to the Turkish government. In the modern Greek Church an exarch
is a deputy, or legate _a latere_, of the patriarch, whose office it is
to visit the clergy and churches in the provinces allotted to him. The
title of exarch has been borne by the head of the Bulgarian Church (see
BULGARIA), since in 1872 it repudiated the jurisdiction of the Greek
patriarch of Constantinople. Hence the names of the politico-religious
parties in the recent history of the Near East: "Exarchists" and
"Patriarchists."
EXCAMBION (a word connected with a large class of Low Latin and Romance
forms, such as _cambium_, _concambium_, _scambium_, from Lat. _cambire_,
Gr. [Greek: kambein] or [Greek: kamptein], to bend, turn or fold), in
Scots law, the exchange (q.v.) of one heritable subject for another. The
modern Scottish excambion may consist in the exchange of any heritable
subjects whatever, e.g. a patronage or, what often occurs, a portion of
a glebe for servitude. Writing is not, by the law of Scotland, essential
to an excambion. Chiefly in favour of the class of cottars and small
feuars, and for convenience in straightening marches, the law will
consider the most informal memoranda, and even a verbal agreement, if
supported by the subsequent possession. The power to excamb was
gradually conferred on entailed proprietors. The Montgomery Act, which
was passed in 1770, to facilitate agricultural improvements, permitted
50 acres arable and 100 acres not fit for the plough to be excambed.
This was enlarged by the Rosebery Act in 1836, under which one-fourth of
an entailed estate, not including the mansion-house, home farm and
policies, might be excambed, provided the heirs took no higher grassum
(O.E. _gersum_, fine) than L200. The power was applied to the whole
estate by the Rutherford Act of 1848, and the necessary consents of
substitute heirs are now regulated by the Entail (Scotland) Act 1882.
EXCELLENCY (Lat. _excellentia_, excellence), a title or predicate of
honour. The earliest records of its use are associated with the Frank
and Lombard kings; e.g. Anastasius Bibliothecarius (d. c. 886) in his
life of Pope Honorius refers to Charlemagne as "his excellency" (_ejus
excellentia_); and during the middle ages it was freely applied to or
assumed by emperors, kings and sovereign princes generally, though
rather as a rhetorical flourish than as a part of their formal style.
Its use is well illustrated in the various charters in the Red Book of
the exchequer, where the addresses to the king vary between "your
excellency," "your dignity" (_vestra dignitas_), "your sublimity"
(_vestra sublimitas_) and the like, according to the taste and
inventiveness of the writers. Du Cange also gives examples of the style
_excellentia_ being applied to the pope and even to a bishop (in a
charter of 1182). With the gradual stereotyping of titles of honour that
of "excellency" was definitively superseded in the case of sovereigns of
the highest rank, about the beginning of the 15th century, by those of
"highness" and "grace," and later by "majesty," first assumed in England
by King Henry VIII. Dukes and counts of the Empire and the Italian
reigning princes continued, however, to be "excellencies" for a while
longer. In 1593 the bestowal of the title of _excellence_ by Henry IV.
of France on the duc de Nevers, his ambassador at Rome, set a precedent
that was universally followed from the time of the treaty of Westphalia
(1648). This, together with the reservation in 1640 of the title
"eminence" (q.v.) to the cardinals, led the Italian princes to adopt the
style of "highness" (_altezza_) instead of "excellency." In France, from
1654 onwards, the title of _excellence_ was given to all high civil and
military officials, and this example was followed in Germany in the 18th
century.
The subsequent fate of the title varies very greatly in different
countries. In Great Britain it is borne by the viceroy of India, the
lord-lieutenant of Ireland, all governors of colonies and ambassadors. In
the United States it is part of the official style of the governors of
states, but not of that of the president; though diplomatic usage varies
in this respect, some states (e.g. France) conceding to him the style of
"excellency," others (e.g. Belgium) refusing it. The custom of other
republics differs: in France the president is addressed as _excellence_
by courtesy; in Switzerland the title is omitted; in the South American
republics it is part of the official style (Pradier-Fodere, _Cours de
droit diplom._ i. 89). In Spain the title of _excelencia_ properly
belonged to the grandees and to those who had the right to be covered in
the royal presence, but it was extended also to high officials, viceroys,
ministers, captains-general, lieutenants-general, ambassadors and knights
of the Golden Fleece. In Austria the title _Exzellenz_ belongs properly
to privy councillors. It has, however, gradually been extended by custom
to all the higher military commands from lieutenant-field-marshal
upwards. Ministers, even when not privy councillors, are styled
_Exzellenz_. In Germany the title is borne by the imperial chancellor,
the principal secretaries of state, ministers and _Oberprasidenten_ in
Prussia, by generals from the rank of lieutenant-general upwards, by the
chief court officials, and it is also sometimes bestowed as a title of
honour in cases where it is not attached to the office held by its
recipient. In Russia the title is very common, being borne by all
officers from major-general upwards and by all officials above the rank
of acting privy councillor. Officers and officials of the highest rank
have the title of "high excellency." Finally, in Italy, the title
_eccelenza_, which had come to be used in the republics of Venice and
Genoa as the usual form of address to nobles, has become as meaningless
as the English title of "esquire" or the address of "sir," being,
especially in the south, the usual form of address to any stranger.
In the diplomatic service the title of excellency is technically
reserved to ambassadors, but in addressing envoys also this form is
commonly used by courtesy. (W. A. P.)
EXCHANGE, in general, the action of mutual giving and receiving objects,
interests, benefits, rights, &c. The word comes through the French from
the Late Lat. _excambium_ (see EXCAMBION). The present article deals
with the theory and practice of exchange in monetary transactions, but
this may conveniently be prefaced by a brief statement as to the law
relating to the exchange of property and other matters. In English law
exchange is defined as the mutual grant of equal interests, the one in
consideration of the other. The ancient common law conveyance had
certain restrictions, e.g. identity in quantity of interest, fee-simple
for fee-simple, &c., entry to perfect the conveyance, and an implied
warranty of title and right of entry by either party in case of
eviction. Such exchanges are now effected by mutual conveyances with the
usual covenants for title. Exchanges are also frequently made by order
of the Board of Agriculture under the Inclosure Acts, and there are also
statutes enabling ecclesiastical corporations to exchange benefices with
the approval of the ecclesiastical commissioners. The international
exchange of territories is effected by treaties. The exchange of
prisoners of war is regulated by documents called "cartels" (Med. Lat.
_cartellus_, diminutive of _carta_, paper, bill), which specify a
certain agreed-on value for each rank of prisoners. The practice
superseded the older one of ransom at the end of a war. By the
Regimental Exchanges Act 1875 the sovereign may by regulation authorize
exchanges by officers from one regiment to another. (For "labour
exchanges" see UNEMPLOYMENT.)
Exchange in relation to money affairs denotes a species of barter not of
goods but of the value of goods, a payment in one place being exchanged
for a payment in another place. The popular statement of the theory of
exchange represents four principals involved in two transactions. A and
B are two persons residing in one place different from the domicile of C
and D; A sells goods to C; B buys goods from D; A sells his claim on C
to B, who remits it to D in satisfaction of his debt, and D receives the
cash from C, so that, assuming the two transactions to be of equal
value, one piece of paper satisfies the four parties to these two
transactions, and the trouble, expense and risk of sending money from
both places are avoided. The piece of paper which performs the service
may be a telegraphic order, cheque or bill of exchange. In this
elementary proposition there would be no difficulty of exchange, as the
full value of A's claim on C would be paid for by B, who is under the
necessity of sending in exactly similar amount of money to D; but it can
be seen that in actual practice the claims of one place on another place
would not be exactly balanced by the necessities of the one place to
meet obligations in the other place; thus arises the complication of
exchange, which may best be described as the price of monetary claims on
distant debtors.
Supposing, for example, that A in London had a claim on C in Edinburgh
amounting to L100, and that B in London did not require to remit more
than L90 to D in Edinburgh, it is evident that B in London must be
offered some inducement to take over the whole of A's claim. B might
give A L99:19:0, and could then, after satisfying his debt to D, have
L10 to his credit in Edinburgh, which he could retain there at interest
until he had incurred further liability to D, or he could have the
balance of L10 returned him in coin at an expense, say, of sixpence;
this would leave B with a profit of sixpence on the transaction, and,
assuming that these figures are reasonable, exchange on Edinburgh in
London would be one shilling discount per L100. Supposing the
necessities of B induced him to offer A only L99:14:0 for his L100
claim, A would then prefer that C remitted him L100 in coin, which, on
the above scale of expenses would cost 5s. and A would receive L99:15:0
net. On these premises, exchange on Edinburgh in London cannot fall
below 1/4% discount, and the same circumstances prevent it from rising
above 1/4% premium, for B, in no case, would pay more for A's claim than
L100 plus the cost of sending coin to Scotland. If this basis is
appreciated, all exchange problems between different countries can be
mastered, and the quotations in the daily papers of cable payments,
sight drafts (cheques) and long bills are then understood and supply an
interesting indication of the state of international financial
relations. As shown above, the balance of indebtedness must eventually
be remitted by coin, and consequently when exchange in any city is
quoted at one or other of the limit points given in our example as 1/4%
discount or 1/4% premium, this exchange immediately acquires a very
serious importance, because with the development of modern monetary
systems under which enormous trade is carried on with a most moderate
foundation of actual coin the weakening or strengthening of that
foundation is a very vital matter.
While the understanding of the theory is essential for any facile
interpretation of an exchange, there are of course innumerable details
of practice which require to be known to identify the limit points of
exchange in any particular city. The limit points can only be taken
advantage of by banking experts, and, although we assume a trader
remitting his indebtedness in coin when he is asked to pay too high a
price for his bill of exchange, in actual affairs the banker will supply
the cheque or bill and himself will do the professional business of
sending away bullion. Similarly, we have represented one trader drawing
on another trader and selling his draft to a third trader who remits the
draft to a fourth. In actual practice, however, No. 1 draws on No. 2 and
disposes of his draft to a banker; No. 4 draws on No. 3 and sells his
draft to a banker; because, speaking generally, whenever goods are
shipped, the shipper immediately requires his money; he draws a bill
against the goods, and it is the function of a banker to help, as a sort
of debt-collecting agency, by buying these drafts; and the bank, being a
mart for all forms of remittance, gets an immense variety of demand for
cable payments, cheques and bills on all centres. This does not affect
the theory, for it must be remembered that the banker is a necessary
link between the buyer and seller of exchange, because the seller can
only sell what he has and the buyer must have exactly what he wants.
To return to the question of limit points: if a universal currency
system existed, with the same monetary standard that is used in England,
and the coinage kept in a proper condition of weight and fineness, and
the coin readily supplied to meet every reasonable claim--if, in fact,
the pound sterling were the prevalent coin and the English banking
system obtained everywhere, then we should find all exchange quotations
as simple as our case of London and Edinburgh, that is to say, all
exchanges would be quoted at par or a premium or a discount. The limit
points in any place of the exchange on London would represent simply and
obviously the cost of the transmission of the coin. These limit points
would vary at each place according to the distance from London, the cost
of freight, the risk involved in the transmission and the local rate of
interest. On the continent of Europe some advance has been made in the
direction of a universal coinage. Countries subscribing to the Latin
Union have agreed on the franc as a common unit, and Belgium,
Switzerland, France and Italy quote exchange between themselves at a
premium or discount. Greece, Spain and other countries are also parties
to the arrangement, but their currencies are in a bad state, and the
exchange quotations involve a considerable element of speculation. We
have, however, to deal with another factor in international finance,
namely, the enormous variety of currency systems; and we have then to
discover, in each case, the exchange which represents par and
corresponds to our L100 for L100 in the London-Edinburgh example. The
United States furnishes perhaps the easiest problem, and we must find
out how many dollars in gold contain exactly the same amount of the
precious metal as is contained in one hundred sovereigns. The answer is
486-5/8, and the arithmetic is a question of the mint laws of the two
countries. Gold coin in the United States contains one-tenth alloy and
in England one-twelfth alloy. Ten dollars contain 258 grains of gold,
nine-tenths fine. One pound contains 123.274 grains of gold,
eleven-twelfths fine, consequently L100 is worth $486-5/8, or, to be
exact, $486-2/3, and when cable payments between London and New York are
quoted at 4.86-5/8 for the L1 sterling, exchange is about par. As a
cable payment is an immediate transfer from one city to another, no
question of interest or other charge is involved. Owing to the cost of
sending gold as detailed above, the New York cable exchange varies from
about 4.84 to 4.89-1/2; at the former point gold leaves London for New
York, and at the latter point gold comes to England. Besides insurance,
freight, packing, commission and interest, there must also be considered
the circumstance that coin taken in bulk is always a little worn and
under full weight, and in the process of turning sovereigns into
dollars, the result would not bear out the calculation based on the mint
regulations: consequently, when taking gold from London, the demand
would first fall on the raw metal as received from South Africa or
Australia to be minted in the United States, then on any stock of
American coin the Bank of England might have and be willing to sell by
weight (which would be accounted by tale in New York), and lastly the
demand would be satisfied by sovereigns taken by tale from the Bank of
England and converted by weight in America.
The instance of the American quotation may be further taken to explain
some of the numerous points which the study of the exchange involves. In
the first place, it will be noted that we have quoted the price in
dollars. In London, business in bills, &c., on New York is quoted either
in pence or in dollars, that is to say, payments are negotiated for so
many dollars either at 49-3/16 pence per dollar, or at the equivalent
rate $4.88 for the pound. In practice it is much more convenient to
quote in London in the money of the foreign country, as it makes
comparison with the foreign rate on London very simple. Some foreign
countries quote exchange on London in pence, and then, of course, in
relation to those countries the same practice will obtain in England,
but the majority of the exchange quotations on London are in francs,
marks, gulden, lire, kronen or other foreign money. Another point which
must be explained is the reason why exchange varies between what we have
called the limit points; why there is sometimes so much demand for bills
on London and why at other times so many bills are being offered.
Similar causes operate on other exchanges, and if we develop the New
York case we shall provide explanations for exchange movements in other
countries.
At one time the financial relations between England and America were as
follows. England was the principal creditor of the United States, and
the latter country had to remit continually very large amounts in
payment of interest on English money and profits on English investments,
in payment for shipping freights, for banking commissions, insurance
premiums and an immense variety of services, besides paying for the
large imports which crossed the Atlantic from English ports. In the fall
of the year these payments would be more than offset by the enormous
exports of food-stuffs, cotton, tobacco, &c., so that during the first
half of the year exchange would be at or about the limit of 4.89-1/2 and
gold would have to be sent from New York to supplement the deficient
quantity of bills. In the autumn the produce bills would flood the
exchange market and gold would be sent from London as exchange got to
the other limit point of 4.84. These conditions are still very potent,
but latterly another element has entered into the position, and the new
development is so powerful as to reverse sometimes what we may call the
natural and legitimate movement in the exchange. This new element is the
more intimate banking and financial relationship which has been
established between the two countries. As American conditions have
become more stable, with better security for capital and an assured
feeling about the currency of the United States, bankers in London have
gladly allowed their banking friends in New York and other large cities
to draw bills on London whenever there was a good demand for sterling
remittances. We have, therefore, to consider a fresh type of bill of
which the drawer has no claim on the drawee, but, on the other hand,
incurs a debt to the drawee. To take a very usual method, a banker in
Wall Street, New York, will advance money to stockbrokers, investors and
speculators against bonds and shares with a 20% margin. He deposits this
security with a trust company in New York which acts both for the
American and English banker. The Wall Street banker then draws a bill at
60 days' sight or 90 days' sight on the banker in Lombard Street and
sells this draft to supply the money he lends the stockbroker. Two or
three months hence the New York banker must send money to London with
which to meet the bill, so that, whereas, in the case of a commercial
bill, the produce is despatched and in due course the consignee must
find the money for the bill, in the case of a finance bill, as it is
called, the bill is drawn and in due course the drawer must send the
value with which it is to be honoured. In any event the acceptor, the
London banker, has to pay the bill, so that it will be easily understood
that relations of the greatest confidence are necessary between the
drawer and drawee before finance bills of this class can be created.
The profit arising from the transaction we have sketched is realized by
the separate parties in this way. The New York banker lends money for
three months, say, at 5% per annum, he pays a commission of 1/32% to the
trust company which has custody of the security, a charge equivalent to
1/8% interest per annum. He draws on London at 90 days' sight and sells
the bill at 4.83-5/8, the cable rate being 4.87-3/4, the buyer of a
three months' bill making the allowance for the English bill stamp of
1/2 per mille and the London discount rate of 3%. The drawer of the bill
must also pay a commission of 3/16% to the London banker who accepts the
draft; this is equivalent to another 3/4% per annum in the rate of
discount, so that money raised in this way costs 1/8% for the trust
company, 3% the London discount rate, about 1/4% for bill stamps, and
3/4% for London commission--altogether, 4-1/8%; and, as the money is
loaned at 5%, there appears to be 7/8% profit to the drawer of the bill.
This, however, is on the assumption that the cable rate is still
4.87-3/4 when the bill falls due for payment and that the drawer would
have to pay that price to telegraph the money to meet the draft. But
exchange on London can go up or down between 4.84 and 4.89-1/2, and if
at the end of the three months the cable rate is 4.84 the New York
banker will be able to cover his bill at almost the same rate at which
he sold it and will only be out of pocket to the extent of the
commissions and stamps, so that the accommodation will only cost him
1-1/2% and his profit will be 3-1/2%. If he has to pay more than
4.87-3/4 for his cable at the maturity of the bill his profit will be
less than 7/8%, and he may even be a loser on the transaction.
It is obvious, then, that a high rate of interest in New York, with a
high rate of exchange on London and a low rate of discount in England,
would induce the creation of these finance bills. The supply of these
bills would prevent New York exchange reaching the limit point at which
gold leaves the United States, and the maturity of these bills in the
autumn would ensure a demand for the produce bills and possibly prevent
exchange from falling to the other limit point at which London has to
send gold to New York.
We have pointed out the essential difference between these finance bills
and what we have called produce bills, but there is another very
striking difference, that of the question of supply. These finance bills
are obviously very difficult to limit in their amounts; produce bills
are, of course, limited by the extent of the surplus crops of the United
States and by the demand for the produce in Europe, but so long as it is
mutually satisfactory to the big finance houses in both countries to
draw on credit granted in London, so long may these accommodation bills
be created, and the pressure of the bills in New York may depress
exchange so much that gold leaves London at a time when it is required
in other directions. In such a case the embarrassment caused by this
artificial drain of the gold reserve would much more than offset the
amount of the commission earned by the accepting houses. The Bank of
England may have to raise its rate of discount at the expense of the
entire home trade; probably, also, with the rise in the value of money,
consequent on the diminished resources, all investment securities fall
in value and more onerous terms must be submitted to by the government,
corporations and colonies, in the issue of any loans they may require.
It will, therefore, be appreciated that, although these finance bills
may be perfectly safe, their excessive creation is viewed with great
disfavour, and considerable apprehension is felt when the adventures of
speculators in New York make great demands for loans against stocks and
shares, and, through the instrumentality of these finance bills, shift
the burden on to the shoulders of the London discount market. The effect
of this is to level money rates as between New York and London, and in
the process the pressure falls on London and the relief goes to America.
Eventually, of course, the bills must be met and funds sent for that
purpose from across the Atlantic, but in the meanwhile the disturbance
of the gold supply is an inconvenience.
We have explained the process of employing credits granted in London to
finance Wall Street; there are, also, many other types of bill to which
the acceptor lends his name on the assurance that he will in due course
be supplied with the funds required to meet the acceptance. In the case
of the produce bills, a London banker will accept the bills in order
that they may be more easily marketable than if they were drawn direct
on the actual consignee of the cotton, tobacco or wheat. The consignees
in Liverpool, &c., pay a commission for this assistance and reimburse
the London bank as the produce is gradually disposed of. The transaction
appears slightly more complicated when English bankers accept bills for
produce shipped from the United States to merchants living in Hamburg,
Genoa, Singapore and all other great ports, but the principle is the
same, and the influence of such business on the exchange affects, in the
first instance, the quotation between America and London, but
afterwards, when money must be sent to London with which to honour the
bills, the exchanges with Germany, Italy or the Straits Settlements bear
their share in the eventual adjustment, the spinners, tobacco
manufacturers and corn factors requiring drafts on London where so much
of the trade of the world is financed.
We shall have to consider later the reasons which ensure to London this
peculiar and predominant position. We have so far used the American
exchange as an example to explain causes which produce fluctuations in
all the principal exchanges on London and to show the points between
which fluctuations are limited. The fact that America is still
developing at a much greater rate than the Old World makes an important
distinction between the financial position in New York and the financial
position of the big capitals in Europe. There is not in America the huge
accumulation of savings and investment money which the Old World has
collected, so that whereas Europe helps to finance the United States,
the latter country has so many home enterprises that she can spare none
of her funds to assist Europe. It would not be possible for London to
draw on New York such bills as we have described as finance bills, for
they could never be discounted there except on the most onerous terms,
and there is nothing in America which corresponds to the London money
market.
We have to deal with dollars and cents in America, with francs in
France, with marks in Germany, and different money units in nearly every
country; but, given the mint regulations, the theoretical par of
exchange and the theoretical limit points are arrived at by simple
arithmetic. An exhaustive statement with reference to every country
would involve an amount of tedious repetition, so that for the purposes
of this article it is more instructive to consider the essential
differences between the important exchanges than to go into the details
of coinage, which would appeal rather to the numismatist than to the
exchange expert.
The United States, offering as it does a vast field for profitable
investment, must annually remit huge amounts for interest on bonds and
shares held by Europeans; coupons and dividend warrants payable in
America are offered for sale daily in London, and at the end of the
quarters the amount of these claims, coupons and drawn bonds is very
large, and a considerable set off to the indebtedness of Europe for
American produce. It is often asserted that the United States is rapidly
getting sufficiently wealthy to repurchase all these bonds and shares;
but whenever trade conditions are exceptionally good in the States,
fresh evidence is forthcoming that assistance from London and Europe is
essential to finance the commercial development of the United States.
This illustrates a feature common to all new countries, and the effect
is that they make annual payments to the older countries and especially
to England.
A government loan or other large borrowing arranged abroad will
immediately move the exchange in favour of the borrowing country. A
tendency adverse to the United States results from the drafts and
letters of credit of the large number of holiday makers who cross the
Atlantic and spend so much money in Europe. When remittance is made of
the incomes of Americans who have taken up their residence in the Old
World the exchange is affected in a similar manner.
In one respect the United States stands far superior to most of the
older countries. There are no restrictions on the free export of gold
when exchange reaches the limit point showing that the demand for bills
on London exceeds the supply. New York (with London and India) is a free
gold market, and this is undoubtedly one of the reasons why money is so
readily advanced to the United States, and the finance bills, to which
we referred above, would not be allowed to the same extent were it not
for the fact that New York will remit gold when other forms of
remittance are insufficient to satisfy foreign creditors. When exchange
between Paris and London reaches the theoretical limit point of 25.32
(25 francs 32 centimes for the L1 sterling), gold does not leave Paris
for London unless the Bank of France is willing to allow it. By law,
silver is also legal tender in France, and if the State Bank is pressed
for gold a premium will be charged for it if it is supplied. Gold may be
collected on cheaper terms in small amounts from the great trading
corporations or from the offices of the railways, but a large shipment
can only be made by special arrangement with the Bank of France.
Similarly, in Germany, where a gold standard is supposed to obtain, if a
banker requires a large amount of gold from the Reichsbank he is warned
that he had better not take it, and if he persists he incurs the
displeasure of the government institution to the prejudice of his
business, so that the theoretical limit point of 20 marks 52 pf. to the
pound sterling has no practical significance, and gold cannot be secured
from Berlin when exchange is against that city, and Germany has, when
put to the test, an inconvertible and sometimes a debased currency.
There is no state bank in the United States, and no government
interference with the natural course of paying debts. On the other hand,
when monetary conditions in New York indicate a great shortage of funds,
and rates of interest are uncomfortably high, the United States treasury
has sometimes parted with some of its revenue accumulations to the
principal New York bankers on condition that they at once engage a
similar amount of gold for import from abroad, which shall be turned
over to the treasury on arrival. As these advances are made free of
interest the effect is to adjust the limit point of 484 to about 485,
and the United States treasury seems to have taken a leaf out of the
book of the German Reichsbank, which frequently offers similar
facilities to gold importers and creates an artificial limit point in
the Berlin Exchange. The Reichsbank gives credit in Berlin for gold that
has only got as far as Hamburg, and sometimes gives so many days' credit
that the agent in London of German banking houses can afford an
extravagant price for bar gold and even risk the loss in weight on a
withdrawal of sovereigns, although the exchange may not have fallen to
the other limit point of 20.32. In England the only effort that is made
to attract gold is some action by the Bank of England in the direction
of raising discount rates; occasionally, also, the bank outbids other
purchasers for the arrivals of raw gold from South Africa, Australia and
other mining countries. Quite exceptionally, for instance during the
Boer War, the Bank of England allowed advances free of interest against
gold shipped to London.
Many of the principal banking houses in all the important capitals
receive continually throughout the day telegraphic information of the
tendency and movement of all the exchanges, and on the smallest margin
of profit a large business is done in what is called arbitrage (q.v.).
For instance, cheques or bills on London will be bought by X in Paris
and remitted to Y in London. X will recoup himself by selling a cable
payment on Z in New York. Z will put himself in funds to meet the cable
payment by selling 60 days' sight drafts on Y, who pays the 60 days'
drafts at maturity out of the proceeds of the cheques or bills received
from Paris, and this complicated transaction, involving no outlay of
capital, must show some minute profit after all expense of bill stamps,
discount, cables and commissions has been allowed for. Such business is
very difficult and very technical. The arbitrageur must be in
first-class credit, must make the most exact calculation, and be prompt
to take advantage of the small differences in exchange, differences
which can be only temporary, as these operations soon bring about an
adjustment.
The European exchanges with which London is chiefly concerned are Paris
and Berlin, through which centres most of the financial business of the
rest of Europe is conducted; for example, Scandinavia, Russia and
Austria bank more largely with Berlin than elsewhere. Italy,
Switzerland, Belgium and Spain bank chiefly in Paris. European claims on
London or debts to London are settled mostly through Germany or France,
and consequently the German and French rates of exchange are affected by
the relation of England with the rest of the Continent. The exchanges on
Paris and Berlin are therefore most carefully watched by all those big
interests which are concerned with the rate of discount and the value of
money in London.
If the Paris cheque falls to 25.12, gold arrivals in the London bullion
market will be taken by French bankers unless the profit shown by the
exchange on some other country enables other buyers to pay more for the
gold than Paris can afford. If the Paris cheque falls still further, it
would pay to take sovereigns from the Bank of England for export, and so
much would be taken as would satisfy the demand to send money to France,
or until the consequent scarcity of money in London made rates of
interest so high in England that French bankers would prefer to leave
money and perhaps increase their balances. As between London and Paris
and Berlin the greatest factor operating the exchanges is the relative
value of money in the three centres. There is no great excess of trade
balance at any season in favour of Germany or France and against
England. On the other hand the banking relations between those countries
are very intimate, and if funds can be very profitably employed in one
of these places, there will be a good demand for remittance, and
exchange will move in favour of that place, that is to say, exchange
will go towards that limit point at which gold will be sent. The great
pastoral and agricultural countries like South America, Egypt and India
are in a position to draw very largely on London when their crops or
other products are ready for shipment. In the early months of the year
gold goes freely to South America to pay for the cereals, hides and
meat, and in the autumn Egypt and India send such quantities of cotton
and wheat that exchange moves heavily in favour of those countries, and
gold must go to adjust the trade balance. During the rest of the year
the gold tends to return as these countries always require bills on
London or some form of payment to meet interest and dividends on
European money invested in their government debts, railways and trading
enterprises, and to pay for the European manufactures which they import.
Exchange then moves in favour of England, and the Bank of England can
replenish its reserve. Over the greater part of the world the rate of
exchange on London is an indication simply of the trade balance. The
greater part of the world receives payment for food stuffs, and has to
pay for European manufactures, shipping freights, banking services and
professional commissions.
The greatest complication in exchange questions arises when we have to
deal with a country employing a silver standard, and, fortunately for
the development of trade, this problem has disappeared of late years in
the case of India, Ceylon, Japan, Mexico and the Straits Settlements,
and now the only important country using silver as a standard is China.
When the monetary standard in one country is only a commodity in another
country we are as far removed from the ideal of an international
currency as can be imagined. We can fix no limit points to the exchange
and we cannot settle any theoretical par of exchange. The price of
silver in the gold-using country may vary as much as the price of copper
or tin, and in the silver-using country gold is dealt in just as any
other metal. In both cases the only metal of constant price is the metal
which is used as the money standard. The easiest method of explaining
the position is to consider that any one in a gold-using country having
a claim in currency on a silver-using country has to offer for sale so
many ounces of silver, and vice versa the exporter in a silver-using
country sending produce to London has to offer a draft representing so
many ounces of gold. This introduces a very unsatisfactory element. To
take a practical example:--a tea-grower in China has raised his crop in
spite of the usual experience of weather and labour difficulties and the
endless risks that a planter must face; the tea is then sent to London
to take its chance of good or bad prices, and at the same time the
planter has a draft to sell representing locally a certain weight of
gold; now, in addition to all the risks of weather and trading
conditions, and the chances of the fluctuations in the tea market, he is
compelled to gamble in the metal market on the price of gold. Some years
ago when a large number of important countries employed a silver
standard it was seriously suggested that a fixed ratio should be agreed
internationally at which gold and silver should be exchanged. This
advocacy of bimetallism (q.v.) was especially persistent at a time when
silver had suffered a very great fall in price and the prominent
exponents could generally be identified either as extremely practical
men who were interested in the price of silver, or as very inexperienced
theorists. The difficulty of the two standards was successfully solved
by discarding the use of silver, and the chief silver-using countries
adopted a gold standard which has given greater security for the
investment of foreign capital, has simplified business and brought about
a large increase of trade.
In the case of a country of which the government has been subject to
great financial difficulties, gold has been shipped to satisfy foreign
creditors so long as the supply held out, and the exchange with such a
country will continue to move adversely with every fresh political
embarrassment and any other economic cause reflecting on the national
credit. With the collapse of the monarchy in Brazil the value of the
milreis fell from 27d. to 5d., and all the Spanish-American countries
have from time to time afforded most distressing examples of the
demoralizing effects on the currency of unstable and reckless
administration. In Europe similar results have been shown by the
mistrust inspired by the governments of Spain, Greece, Italy and some
other states. The raising of revenue by the use of the printing press
creates an inconvertible and depreciating paper currency which frightens
foreign capital and severely taxes the unfortunate country which must
make payment abroad for the service of debt and other obligations. With
the tardy appreciation of the old proverb that "honesty is the best
policy" nearly every country of importance has made strenuous efforts to
improve the integrity of its money.
Exchange quotations are not published from many of the British colonies,
as their financial business is in the hands of a comparatively few
excellently managed banks, which establish, by agreement, conventional
exchanges fixed for a considerable period, notably in the case of
Australia, New Zealand and South Africa. The Scottish and Irish banks
supply similar examples of a monopoly in exchange.