'I 1 
 
 It
 
 BIMETALLISM
 
 L- 
 
 BIMETALLISM 
 
 A SUMMARY AND EXAMINATION OF THE 
 
 ARGUMENTS FOR AND AGAINST A 
 
 BIMETALLIC SYSTEM OF 
 
 CURRENCY 
 
 LONDON 
 JOHN MURRAY, ALBEMARLE STREET 
 
 1897
 
 LONDON : 
 
 PRINTED BY WILLIAM CLOWES AND SONS, LIMITED, 
 STAMFOKD STREET AND CHARINO CKO6S. 
 
 DIVERSITY OF SOUTHERN 'CAUFORUto L1BR^RY
 
 PKEFACE. 
 
 MY thanks are due to Mr. Alfred Marshall, 
 Professor of Political Economy in the 
 University of Cambridge, and to Mr. H. S. 
 Foxwell, Professor of Political Economy at 
 University College, London, for the very 
 kind way in which they have answered my 
 inquiries on the subjects here discussed ; 
 also to Mr. W. E. Darwin, Major- General 
 T. Eraser, and Dr. E. H. Mill for kindly 
 assisting me in the revision of the proofs. 
 
 October, 1897.
 
 DIAGRAM SHOWING THE RELATIVE VALUES OF 
 GOLD AND SILVER BETWEEN 1687 AND 1895. 
 
 1700 1725 1750 1775 1800 1825 1850 1875 18$ 
 
 32 1 
 31 1 
 
 30 ,, l 
 29 1 
 28 1 
 27 1 
 26 J 
 25 1 
 24 1 
 23 1 
 22 1 
 21 1 
 20 1 
 19 1 
 18 1 
 17 1 
 16 1 
 15 1 
 14 1 
 
 13 .. 1 
 
 
 
 
 
 
 
 
 
 \ 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 1 
 
 - 
 
 
 
 
 
 
 
 
 J 
 
 - 
 
 
 
 
 
 
 
 
 1 
 
 ^ 
 
 <c>^ 
 
 W^ 
 
 yiK 
 
 ff 
 
 f\AJ r~~ 
 
 ^A/WX/^V 
 
 1 j-" 1 
 
 
 ,q/V 
 
 
 
 W' 
 
 
 3 
 
 
 
 
 
 
 
 
 
 
 
 NOTE. The curved line shows the ratio in the market. The 
 straight line shows approximately the legal ratio in France, 
 without reference to seigniorage ; it has not been found possible 
 to plot this line between 1689 and 1726. The French legal 
 ratio is shown because it was the last to be abolished ; the legal 
 ratio adopted by other nations in the eighteenth century fre- 
 quently differed from the French ratio. The information from 
 which this table was compiled was taken, almost without 
 exception, from the Report of the Director of the Mint of the 
 United States, and from Shaw's " History of Currency." The 
 ordinates are logarithms of the ratios ; that is to say, that the 
 ratio of 32 to 1 is as "much above the ratio of 16 to 1 as the 
 ratio of 16 to 1 would be above the ratio of 8 to 1.
 
 CONTENTS. 
 
 THE BIMETALLIC THEORY. 
 
 CHAPTER PAGE 
 
 I. CAN THE KATIO BE MAINTAINED? ... ... 3 
 
 II. THE THEORY OF THE MAINTENANCE OF THE RATIO 11 
 III. AIMS AND OBJECTS OF BIMETALLISTS ... 35 
 
 THE CHOICE OF A RATIO. 
 
 IV. THE CHOICE OF A RATIO ... ... ... 47 
 
 V. THE MAIN OBJECT OF ADOPTING A Low RATIO is 
 
 TO RAISE PRICES ... ... ... ... 61 
 
 VI. FREE COINAGE OF SILVER IN THE UNITED STATES 80 
 
 VII. ARGUMENTS IN FAVOUR OF A Low RATIO ... 87 
 
 VIII. ARGUMENTS AGAINST THE Low RATIO ... ... 99 
 
 IX. CONCLUSIONS AS TO THE CHOICE OF A RATIO 106 
 
 BIMETALLISM VERSUS MONOMETALLISM. 
 
 X. PRICES WILL BE STEADIER UNDER A BIMETALLIC 
 
 SYSTEM ... ... ... ... ... 119 
 
 XI. ADVANTAGES OF A STEADY RATE OF EXCHANGE 
 
 WITH SILVER-USING COUNTRIES ... ... 127 
 
 XII. DISADVANTAGES OF BIMETALLISM DANGERS RE- 
 SULTING FROM A BREAKDOWN OF THE SYSTEM... 134 
 XIII. OTHER OBJECTIONS TO BIMETALLISM 143
 
 Ylll 
 
 CONTENTS. 
 
 RISING AND FALLING PRICES. 
 
 CHAPTER PAGE 
 
 XIV. ARGUMENTS BASED ON THE KECENT FALL IN PBICES 157 
 XV. WOULD PRICES HAVE FALLEN LESS RAPIDLY HAD 
 
 BIMETALLISM BEEN MAINTAINED? ... ... 164 
 
 XVI. CREDIT, AND THE QUANTITATIVE THEORY OF PRICES 180 
 XVII. THE EFFECT ON PRODUCTION OF APPRECIATING AND 
 
 DEPRECIATING STANDARDS ... ... ... 204 
 
 XVIII. THE EFFECT ON DISTRIBUTION OF APPRECIATING 
 
 AND DEPRECIATING STANDARDS ... ... 229 
 
 XIX. HAS THE RECENT FALL IN PRICES BEEN TOO RAPID ? 258 
 XX. CONCLUSION OF THE ARGUMENT BASED ON THE 
 
 RECENT FALL IN PRICES . 271 
 
 FOREIGN TRADE. 
 
 XXI. THE OPINIONS OF BIMETALLISTS AS TO THE EFFECTS 
 
 OF INTERNATIONAL TRADE ... ... ... 283 
 
 XXII. THE INFLUENCE OF TRADE WITH A COUNTRY HAVING 
 
 A DIFFERENT STANDARD OF VALUE , 299 
 
 CONCLUSION. 
 
 XXIII. RECAPITULATION AND CONCLUSIONS 
 A.PPENDIX . 
 
 327 
 339
 
 THE BIMETALLIC THEOEY.
 
 BIMETALLISM. 
 
 CHAPTER I. 
 
 CAN THE RATIO BE MAINTAINED ? 
 
 THE members of the Gold and Silver Commission, All ques- 
 in the first page of their Eeport, declared that from ^nected 
 the commencement of their inquiry they were " pro- with 
 foundly impressed with the extreme complexity of arTvery 
 the questions submitted for " their consideration. 1 (liffi cult to 
 If the difficulty of mastering these currency problems 
 was so keenly felt by this exceptionally able body 
 of commissioners, no one ought to expect to be able 
 to understand the subject without careful study. 
 There are some inquirers who apparently hope to be 
 in a position after a few hours' work to form a definite 
 opinion as to whether a bimetallic system ought or 
 ought not to be adopted ; but if any reader should 
 open these pages in that spirit, I hope he will close 
 
 1 Gold and Silver Commission. Final Report of the Royal 
 Commission appointed to inquire into the recent changes in the 
 relative values of the precious metals, 1888, p. 1.
 
 4 THE BIMETALLIC THEOKY. [On. I. 
 
 them again without reading another line. I myself 
 have found the path of inquiry so strewn with 
 difficulties, many of them apparently insurmount- 
 able, that I cannot pretend to point out a royal road 
 to a quick and certain decision. At the best, all I 
 can hope to do is to give an outline of the main 
 arguments which ought to be weighed by those who 
 desire to form an independent judgment. 
 What is There are two methods of bringing such an essay 
 
 attempted ^ ^hi s within moderate dimensions ; the one is to 
 
 in this 
 
 volume is sketch lightly, or omit, all but the main argu- 
 
 summaryof ments > relying rather on the assertion of the con- 
 
 the argu- elusions arrived at by the author ; the other is, 
 
 both sides ; whilst endeavouring to state fairly all the main 
 
 arguments on both sides, to condense them very 
 
 greatly. The former of these methods, no doubt, has 
 
 its advantages, but the latter plan has been adopted 
 
 here, although it naturally makes the task of reading 
 
 these pages more severe. When I approached this 
 
 subject with an open mind a few years ago, I felt 
 
 the want of such a summary and examination of 
 
 the arguments for and against a bimetallic system, 
 
 and I hope, therefore, that my labours may be of 
 
 some use to others under similar circumstances. 
 
 whilst the The true or alleged recent depression in trade, 
 
 w^rt'of the variation in the relative value of the precious 
 
 facts will metals during the last twenty years, and the causes 
 
 not be , . , , 
 
 discussed to which these occurrences are due, are questions 
 
 tenet?* wn i c h nave occupied much of the attention of 
 
 bimetallists. These subjects will not be discussed 
 
 at any great length, for it is rather with the
 
 CH. I.] DEFINITION OP BIMETALLISM. 5 
 
 principles which should be present in the minds of 
 those who are desirous of considering the facts for 
 themselves that I shall attempt to deal. 
 
 The word " bimetallism " l is now well understood, Definition 
 but, as it is a somewhat misleading phrase, it may ^ 
 be as well to commence by clearly stating what is 
 the meaning here attached to it. The adoption of 
 bimetallism in this country would entail such an 
 alteration in the law as would permit any one who 
 now owes a certain weight of coined gold a certain 
 number of pounds sterling to discharge that debt, 
 either by paying the said weight of coined gold, or 
 by paying a proportionately larger weight of coined 
 silver, the ratio between the two weights being 
 enacted once for all on the establishment of the 
 system. Or, to put the matter more generally, bi- 
 metallism means any currency system which would 
 establish a right on the part of the debtor to dis- 
 charge his liabilities at his option in either of the 
 two metals at a ratio fixed by law. A system of 
 bimetallism in which the option was given to the 
 creditor as to the metal in which the payment might 
 be made would be impracticable, because (amongst 
 other reasons) giving that option to the creditor 
 instead of to the debtor, would necessitate all debtors, 
 
 1 The symmetallic system is not discussed in this volume, for, 
 though probably theoretically preferable to bimetallism, it does 
 not appear to me to come within the region of practical 
 politics. This system, which was proposed by Professor Alfred 
 Marshall, would enable the Government to issue certificates, each 
 certificate representing a sum of gold and a sum of silver, the 
 ratio between the two being fixed internationally.
 
 6 THE BIMETALLIC THEORY. [On. I. 
 
 including banks, keeping nearly twice as much 
 coin in hand as they do now one reserve of silver 
 and the other of gold if they were always to be in a 
 position to meet their liabilities with the same degree 
 of certainty as at present. It is a necessary part of 
 the bimetallic system that the leading commercial 
 nations of the world should adopt it, fixing on the 
 same ratio, and that they should allow their mints 
 to be open, without restrictions as to quantity, to all 
 who desire to have either metal coined. The term 
 " bimetallism," as thus defined, gives no indication 
 as to what the ratio may be. 
 
 The The objection most commonly urged in the press, 
 
 conversation, against the adoption of bi- 
 
 to bimetal- metallism is that it is impossible to alter by law the 
 
 lism is that . . , , , , 
 
 the ratio value of any material, because value depends on 
 
 cannot be inherent qualities outside the scope of legislative 
 maintained. u * 
 
 power. 1 In considering the efficacy of bimetallic laws, 
 
 many of us may think it wisest to base our opinions 
 largely on the authority of others more capable of 
 judging than ourselves, and, if that be the case, we 
 
 1 This is in part due to a confusion between two meanings of 
 the word "value." " The word ' value,' " says Adam Smith, " has 
 two different meanings, and sometimes expresses the utility of 
 some particular object, and sometimes the power of purchasing 
 other goods which the possession of that object conveys. The 
 one may be called value in use, the other value in exchange." 
 In the place of " value in use " we now speak of " utility," while 
 instead of " value in exchange " we often say " exchange value " 
 or simply " value." " Value " by itself always means value 
 in exchange. (Marshall's " Principles of Economics," p. 8.) 
 The " money value " of a sum in currency merely indicates the 
 number of units pounds or dollars which it contains.
 
 OH. I.] RELATIVE VALUE. 7 
 
 cannot do better than consult the Eeport of the Gold 
 and Silver Commission, the members of which 
 originally consisted of an equal number of mono- 
 inetallists and bimetallists. They unanimously re- Authorities 
 ported that they were "irresistibly led to the ^SUtSw 
 conclusion that the operation of " the bimetallic that value 
 system of the Latin Union, which existed in full altered by 
 force until 1873, had " exerted a material influence lawa ^ e 
 upon the relative value of the two metals." l This 
 statement, if accepted as final, completely destroys 
 the idea that it is impossible to alter the relative 
 values of the metals by law; and the only out- 
 standing question is whether the forces which are 
 admitted to have existed in the past, would in 
 the future be sufficiently powerful, if international, 
 bimetallism were adopted, to maintain the selected 
 ratio between the value of gold and silver coins 
 with sufficient accuracy to enable them both to cir- 
 culate in the currency at the same time and place. 
 Of course the bimetallist members of the Commis- 
 sion declared that this was possible, and even the 
 monometallists admitted " that in any conditions 
 fairly to be contemplated in the future, ... a 
 stable ratio might be maintained if" the United 
 Kingdom, Germany, the United States, and the 
 Latin Union "were to accept and strictly adhere 
 to " bimetallism at a ratio approximating to that 
 now obtaining in the market. 2 Sir John Lubbock 
 and Mr. Birch, however, though signing the Eeport, 
 expressed their grave doubts as to this paragraph, 
 1 Final Report, pp. 58, 59. * Ibid., p. 85.
 
 8 THE BIMETALLIC THEOKY. [Cn. I. 
 
 but did not "deny that such a combination might 
 for a considerable time be able to maintain the 
 ratio adopted." l In fact, as ten out of the twelve 
 commissioners considered that the ratio might be 
 maintained, the two remaining members only doubt- 
 fully dissenting, the majority of the most powerful 
 jury that has ever sat on this question may be said 
 to have given their verdict in favour of the practica- 
 bility of bimetallism in this respect. 
 
 Historical The commissioners arrived at the above con- 
 for and" * elusions " as well from a priori reasoning as from 
 against the. t ne experience of the last half century." As for 
 
 belief that . .* * 
 
 bimetallic historical proofs, a diagram has already been given 
 effective snowm g the relative value of the metals in the 
 when in open market for about two centuries, which helps to 
 illustrate the points at issue. Bimetallic laws were 
 in force in various parts of Europe during the 
 whole of the period included in the table up till 
 the year 1873 ; in that year, France, and the other 
 countries composing the Latin Union, commenced 
 the abandonment of their bimetallic system ; and 
 after the completion of that movement, Europe and 
 America passed into a period of pure monometallism 
 for the first time in history. Coincidently with this 
 change, or nearly so, there began the most extra- 
 ordinary fall in the gold price of silver, and bimetal- 
 lists declare that this fall was due to the untying 
 of the legal bonds which held the two metals 
 together. Against this view, monometallists argue 
 that the fall began a year or two before the legal 
 1 Final Report, p. 93.
 
 CH. I.] HISTORICAL PROOFS. 9 
 
 changes of 1873, and that the bimetallic tie in 
 reality broke down under the excessive strain of 
 natural forces. Bimetallists reply that there is 
 every reason to believe that as great or greater 
 strains had been successfully resisted in the past ; l 
 and that the small fall which occurred before 1873 
 is accounted for, both by the apprehensions which 
 were felt as to the anticipated changes in the law, 
 and also by the monetary troubles in France, the 
 chief bimetallic nation, which made her influence 
 on the relative value of the metals less effective. 
 Monometallists also call attention to the fact that 
 the ratio was not accurately maintained in the past 
 by the bimetallic laws, and that there is, therefore, 
 no reason to believe it would be maintained in 
 the future. To this contention bimetallists reply 
 that these ancient bimetallic laws were of a very 
 imperfect kind, and that the countries adopting 
 them did not constitute a wide enough area to 
 make them thoroughly effective ; they also point 
 out that tables and diagrams always indicate the 
 relative value of gold and silver bullion in the 
 market, and not the ratio of the value of the coined 
 metals, which is the really important matter; and 
 that from various causes coin and bullion may 
 differ in value, to a limited extent, one from the 
 other. In countries where there is a charge made 
 at the mint for coining, it will be seen, in a later 
 chapter, that the value of bullion may be either 
 
 1 See tables in the Appendix showing the relative production 
 of the precious metals.
 
 10 THE BIMETALLIC THEORY. [On. I. 
 
 higher or lower than the value of same weight of 
 pure metal in coins. 1 Even in England, the value 
 of gold bullion and the value of gold in sovereigns 
 is not always identical ; because the purchaser of 
 bullion is sometimes willing to pay a small " agio " 
 to the vendor for the trouble of collecting and 
 melting down the sovereigns, and for the loss on 
 account of their being light in weight. Moreover, 
 the prices in the English and German markets form 
 an uncertain guide as to the ratio of the value even 
 of bullion in France, because the cost of transporta- 
 tion of the metals make it possible for a permanent 
 difference between the ratios in different places to 
 be maintained. These considerations show that it 
 is, at all events, quite possible that the relative 
 value of silver and gold bullion before 1873 might 
 have varied slightly in France, and still more in 
 England, without there having been any correspond- 
 ing variation in the relative values of the Latin 
 Union coins ; and bimetallists assert that this was 
 actually the case. In my opinion, the bimetallists 
 have the best of the argument in this historical 
 controversy, the details of which cannot be given 
 here at length. 
 
 1 See p. 136.
 
 CH. II.] THE MAINTENANCE OF THE RATIO. 11 
 
 CHAPTER II. 
 
 THE THEORY OF THE MAINTENANCE OF THE RATIO. 
 
 BEFORE discussing the arguments which have led The 
 economists to the conclusion that a suitable ratio thevalue 
 between the metals can be maintained, some idea of money 
 must be given of the theory of the value of be con- 
 money. sidered - 
 
 It will in the first place be convenient to consider Under 
 the case of a country under purely hypothetical j^aUon"- 
 conditions. Let us assume that it is quite isolated ditions, the 
 from all surroundings ; that it has an inconvertible i nc0 n- 
 note currency ; that these notes form the only vertitl e 
 
 * J notes 
 
 kind of money in existence ; and that no com- would vary 
 rnercial transactions are made without money 
 
 passing neither barter taking place, nor credit quantity ; 
 being given. Such conditions, no doubt, give W0 uid van- 
 a tone of unreality to the discussion, but it is ? cc rd- 
 
 ' ingly. 
 
 only by completely separating any one cause 
 from all other causes that we can hope to study 
 its particular effects. What, under these supposed 
 conditions, would determine the value of these 
 inconvertible paper notes? The use of such a 
 currency would be to facilitate the exchange of
 
 12 THE BIMETALLIC THEORY. [On. II. 
 
 commodities, and, as these pieces of paper would be 
 practically of no value in themselves, their value 
 as notes would depend entirely on their usefulness 
 for that purpose. There would exist, therefore, in 
 this hypothetical country, a certain definite number 
 of notes in circulation, and this currency would 
 be used as the only and exclusive medium of ex- 
 change. A certain number of money transactions 
 would be taking place at one time, and, for each 
 one of these transactions, a certain amount of the 
 note issue would be used; a definite proportion 
 of the whole currency would be utilized in each 
 transaction. If large additions were suddenly made 
 to the currency, some notes might lie idle for a 
 time; but, generally speaking, the owners of the 
 notes would all desire to utilize their possessions ; 
 and this they could only do, under the assumed con- 
 ditions, by discharging their liabilities with them, 
 and by thus passing them into general circulation. 
 Thus the whole of the notes in the country would 
 be in use in facilitating the exchange of com- 
 modities in this manner ; and it is, therefore, 
 evident, assuming other things to remain the same, 
 that if the total issue of notes is increased, the 
 number of notes utilized in each transaction must 
 increase also. If, for example, the number or money 
 value of the notes in circulation were doubled, 
 other things remaining the same, the number 
 or money value of the notes used in the trans- 
 action of each bargain must be doubled also ; 
 in other words, prices would be doubled, or the
 
 CH. II.] THE QUANTITATIVE THEORY. 13 
 
 value of the notes, as measured in commodities, 
 would be halved. Thus, in such a primitive isolated 
 country, it is evident that the value of the notes 
 would vary inversely with the quantity or total 
 money value of the notes in circulation; the 
 greater the quantity, the less would be their value, 
 and the higher would be prices as measured by 
 them. This is known as the " quantitative theory This pro- 
 of prices." It is a theory which is now generally ]^ n ls 
 held by economists to indicate an important prin- as the 
 ciple, but one which must be accepted with modi- ta ^ n l 
 fications when applied to a metallic currency theory^of 
 circulating under modern conditions. No doubt, 
 in the complex condition of existing commercial The quan- 
 niethods, a great many different circumstances have 
 
 an influence on prices ; but the quantitative theory not strictly 
 
 ,. . . ,, i in applicable 
 
 still remains true in the main ; for we shall see no to modern 
 reason to doubt that, under all circumstances, an conditlons ; 
 increase of the currency will tend to raise the 
 general level of prices, though the rise may not be 
 in direct proportion to that increase. 
 
 As an argument to show that the quantitative because, 
 theory is not applicable to the existing con- an^ci-ease 
 dition of things, it may be said that an increase in the 
 
 f -n . ., ,, T . f currency 
 
 of currency will in itself produce an increase 01 does cause 
 business an increase in the number of commercial an I! 
 
 mediate 
 
 transactions and that the amount of money needed increase of 
 for each transaction will not, therefore, increase in 
 proportion to the increase of notes or coin. This 
 is no doubt true. But an increase in the currency 
 will only cause an increase in business by raising
 
 14 THE BIMETALLIC THEOEY. [On. II. 
 
 prices ; and this, therefore, affords no argument for 
 denying that a rise Avill take place ; it only shows 
 that the rise will not be in proportion to the incre- 
 though the ment of the currency. Moreover, when discussing 
 tne effect of bimetallism on prices, it will be shown 
 
 still follow that it is highly probable that such means of in- 
 flating trade produce no permanent results; that 
 a rise in prices will give an immediate stimulus to 
 commerce by easing the burden of indebtedness, 
 but that in the long run the quantity of com- 
 modities exchanged will be independent of the 
 number, weight, or name of the "counters" used 
 in making that exchange. If we imagine that the 
 owners of all the money in the world woke up one 
 morning to find all their money doubled, and to 
 find that, at the same time, all debts and all prices 
 had been doubled also, then things might go on 
 exactly as before ; and this new commercial equili- 
 brium, with doubled prices, is the state of things 
 which doubling the currency would probably slowly 
 tend to produce. If this be the case, the fact that 
 business increases with an increase of the currency 
 does not prove that the quantitative theory of 
 prices is not accurately true as far as the ultimate 
 effects of changes in the volume of the currency are 
 concerned. 
 
 Thedis- ^ ne e ^ ec ^ of credit on prices is a much more 
 mission on debatable subject, the discussion of which had 
 postponed better be postponed. When this question is ap- 
 to^Chapter p roa ched it will be seen that the immense increase 
 in the use of credit instruments, such as cheques,
 
 On. II.] METALLIC VALUE. 15 
 
 etc., does affect the quantitative theory more than 
 any other circumstance ; but that there is no 
 reason to doubt the general conclusion that there 
 is an intimate relationship between the volume 
 of the currency and the general level of prices. 
 And this view, as far as inconvertible notes is con- 
 cerned, is greatly strengthened by historical facts. 
 Whenever the issue of such notes has been largely 
 increased, their value has fallen, and prices, as 
 measured by this currency, have risen ; the tremen- 
 dous depreciation in the value of the French assignats 
 in 1794-95, corresponding with each new issue, being 
 the most familiar example of such a change. 
 
 In considering the application of the quantitative With a 
 theory to the case of a metallic currency, it is J^ncy, 
 natural to urge that the value of the sovereign prices 
 depends on the value of the gold in the sovereign, sa id to 
 and not on the number of sovereigns in circulation. de P end 
 
 either oil 
 
 At this stage it is merely necessary to remark that the 
 the difference between the two views is largely a 
 question of words. For example, when the pro- tion r on 
 duction of gold is increasing, more metal will flow O f the 
 into the market ; and, as with any other commodity, etal . m 
 this will tend to lower its value as an article of 
 merchandise. As the value of a sovereign is equal 
 to the value of the gold contained in the coin, it 
 is evident that, in these circumstances, the value 
 of the sovereign will fall also; and that prices as 
 measured by sovereigns will rise. But when the 
 production of gold is increasing, more of that metal 
 will also flow into the gold currencies of the world ;
 
 16 
 
 THE BIMETALLIC THEORY. [Cn. II. 
 
 The 
 
 bimetallic 
 problem 
 now to be 
 
 discussed. 
 
 If free 
 coinage 
 and the 
 melting 
 down of 
 coins were 
 stopped, 
 metal coins 
 would 
 
 and, as we have seen, an increase of the currency is, 
 according to the quantitative theory of prices, 
 normally accompanied by a rise in prices. The 
 question of prices with a metallic currency can, in 
 fact, always be studied, as in the above example, 
 either with reference to the value of the metal in 
 the standard coin, or with reference to the number 
 of standard coins in circulation ; and it will be 
 found that, by whichever of these two ways we 
 approach the subject, we shall always arrive at the 
 same result. 
 
 After these preliminary observations on the gene- 
 rally accepted views as to the value of money, it 
 is now possible to pass on to the bimetallic problem. 
 Reverting for a moment to the consideration of an 
 inconvertible note currency, it will be universally 
 admitted that prices will be the same whether the 
 issue consists of a thousand one-pound notes or of 
 a hundred ten-pound notes; prices will, in fact, 
 vary with the total money value of the notes in 
 circulation. It will also be readily admitted that 
 no amount of additional issue of, say, ten-pound 
 notes would alter the relative value of ten-pound 
 and one-pound notes ; though it would affect the 
 actual value of both. 
 
 Passing on to the consideration of a metallic 
 currency, it should first be noted that if restric- 
 tions are placed at the mint on the coinage of 
 the metals, thens the value of the coins will not, as 
 a rule, be the same as the value of the metal in 
 them. Thus in India, where the mints are now
 
 CH. II.] THE BIMETALLIC THEORY. 17 
 
 closed to the coinage of silver, the rupee is worth obtain a 
 more than the silver it contains. If the old laws the^ame 
 against the melting down of coins could have been wa ? aa ^~ 
 
 convertible 
 
 enforced, there is no doubt, if enough coins were notes ; 
 issued, that the value of the currency could in 
 like manner have been kept below the value of 
 the metal in it. Thus, if both the melting down 
 or export of coins and the free coinage of bullion 
 were stopped, a monometallic currency would be, 
 in respect to its value, in the same position as a 
 currency of inconvertible notes ; decrease or increase 
 the quantity, and we can raise or lower the value 
 of the coins to any extent either above or below 
 their metallic value; that is, above or below the 
 value of the metal in the coin, if sold in the 
 market as an article of merchandise. 
 
 If these supposed restrictions on free coinage and a bimetallic 
 
 system 
 melting down of coin were effectively maintained, W0 uld then 
 
 it is evident that, with a bimetallic currency, the ^^ k f 
 value of the coins would be determined in the same different 
 manner as with a monometallic system ; the value 
 
 of the metal itself would have nothing to do with printed 
 the matter ; the value of the whole currency would 
 vary with the total money value of both metals 
 in circulation ; notes of a lower denomination being, 
 as it were, printed on silver, and those of a higher 
 denomination being printed on gold, according to 
 some legalized ratio. With inconvertible notes it 
 has been seen that no additional issues of notes of 
 one donomination will alter the relative value of the 
 different notes ; and, in the same way, under these
 
 18 THE BIMETALLIC THEORY. [On. II. 
 
 conditions, no amount of additional coinage of one 
 
 metal would alter the relative value of gold and 
 
 silver coins. If it were enacted that twenty shillings 
 
 were to be worth a sovereign, the issue of additional 
 
 shillings would alter the value of both shillings 
 
 and of sovereigns, but not the relative value of the 
 
 two; and, under such hypothetical conditions, the 
 
 and the bimetallic ratio thus enacted would be maintained 
 
 would be w i* n mathematical precision, at all events in all 
 
 maintained, transactions where shillings and sovereigns could 
 
 be used with equal convenience. 
 
 If free In this discussion it has been assumed that the 
 
 wereper- metals could not be freely taken to the mint. Free 
 mitted, and coinage is, however, the essence of bimetallism. Let 
 
 the metals . 
 
 were not it, therefore, be assumed, as the next step in the 
 artf the he ar g ument tnat tne metals can be freely coined or 
 parity melted down, but that, in the hypothetical country 
 torn- l under consideration, they are not used for any other 
 afiected. purpose whatever than for legal tender coinage. 
 Under these conditions it is true that both the 
 relative and the actual quantity of the two metals 
 would depend on the output from the mines ; whereas 
 the relative and the actual quantity of inconvertible 
 notes of different denominations, whether printed 
 on paper or on metal, would depend on the caprice 
 of the Government; but the reasons which settle 
 the quantity of notes or coins in circulation cannot 
 affect the laws which determine their value when 
 once they are in circulation. Thus an increase in 
 the coinage of either of the two metals would, with- 
 out doubt, increase the total money value of the
 
 CH.IL] THE BIMETALLIC THEORY. 19 
 
 metals in circulation, and would thus raise prices ; 
 but this addition to the currency would not tend 
 to alter the ratio fixed by law between the two 
 kinds of coins. How could it do so? If, for 
 example, an increase in the output of silver from 
 the mines took place, and if, to assume an impos- 
 sibility, the ratio between gold and uncoined silver 
 changed, so that the value of uncoined silver was 
 less than the value of silver in coins, the owners 
 of uncoined silver would at once have their metal 
 coined; and, when coined, it would immediately 
 acquire for the only use it could be put to under 
 the assumed conditions that is, as coin for paying 
 debts its full relative value as compared with gold. 
 On the other hand, we cannot conceive gold rising 
 in value as a metal above its value as a coin ; for 
 such a rise in value could only result from a demand 
 for it for some other use ; and we have assumed no 
 other use to exist. Thus, on the supposition that 
 the metals are used for no other purpose than for 
 legal tender, it seems that the bimetallic ratio will 
 be maintained with equal certainty whether the 
 right of free coinage exists or not. 
 
 It now remains to be seen how the question is But the 
 affected by the other uses to which the precious t^e other 
 metals are put, and this is the real point at issue, uses of the 
 The importance of this subject is not fully recog- j^e T ^ 
 nized till it is known that only about half the total P? int in 
 stock of gold or silver is used for currency purposes. 
 In the first place it should be noted that, even 
 under the hypothetical conditions just discussed,
 
 20 THE BIMETALLIC THEORY. [On. II. 
 
 the ratio between the value of the metals might 
 be so fixed, by bimetallic legislation, that in the 
 case of one or other of them, it would no longer 
 be profitable to work the mines ; then that metal 
 would, through wear and tear, gradually disappear 
 from circulation, and monometallism would in the 
 end be established in spite of bimetallic laws. In 
 considering the adoption of a bimetallic system in 
 the future, the actual cessation of the production 
 of either gold or silver is a contingency which need 
 not be considered, because the use of the precious 
 metals in the arts would always create a demand 
 for them, whatever the legal ratio might be. The 
 output of both metals will, of course, continue 
 under all possible currency conditions. 
 Definition In order to understand the effect on prices of 
 
 ratio 1 "* 1 1 tne use f tne P rec i us metals in the arts, it 
 is best to begin by imagining a condition of affairs 
 when neither silver nor gold is used for currency 
 purposes. It is evident, if this were the case, that 
 the demand for these metals in the arts would 
 establish a fluctuating ratio of value between 
 them, varying with every alteration of their use 
 in the arts, and with every change in their re- 
 lative output from the mines; and this ratio we 
 may, for want of a better term, call the "natural 
 If, in a ratio." If, under such hypothetical conditions, a 
 \rithouta bimetallic system of currency was introduced, and 
 currency, a if the ratio adopted was this " natural " ratio, a 
 system at proportion of both metals would be withdrawn from 
 1 ^ e arts * n orc ^ er to ^ e con verted into coins, and
 
 CH. II.] USE OF METALS IN THE ARTS. 21 
 
 this new demand would raise the value of both adopted, 
 metals in the market as compared with other com- wou id r j sc 
 modities : and, as lonq as the value of the two metals equally m 
 
 * . * value, and 
 
 rose equally, the natural ratio, which we assume to the ratio 
 have been sanctioned by law, would, of course, ^ 1 ^ in _ 
 remain as the ratio between the value or price of the tamed ; 
 metals as bought or sold in the market. But the 
 question at issue is whether, under these circum- 
 stances, the metals would rise equally in value. Let 
 it be imagined that they did not do so ; let it be 
 supposed, for example, that after a while the coinage 
 of gold bullion, and the consequent diminution in 
 the amount of that metal available for use in the 
 arts, did raise its value in the market more quickly 
 than the rise in value of silver from similar causes. 
 Under the bimetallic system supposed to be esta- 
 blished, the ratio of the weight of a gold dollar if 
 that were the name of the coin in use to the weight 
 of a silver dollar would be the bimetallic ratio fixed 
 by law ; and as long as the ratio of the value of the 
 metals in the market remained the same as this 
 bimetallic ratio as long, that is, as the two metals 
 rose equally in value the amount of commodities 
 which could be obtained in exchange for a gold 
 dollar's weight of gold would be the same as the 
 amount which could be obtained in exchange for 
 a silver dollar's weight of silver. Whilst this con- 
 dition of things lasted, the owners of gold or of 
 silver bullion, if they had debts to pay, payable in 
 legal tender, could each with equal advantage get 
 their metal coined, and thus obtain the coins with
 
 22 THE BIMETALLIC THEORY. [On. II. 
 
 which to discharge their liabilities. But as soon 
 as gold began to rise in value more quickly than 
 silver, more commodities could be obtained in 
 exchange for the gold dollar's weight of gold than 
 for the silver dollar's weight of silver ; and, con- 
 sequently, the gold dollar's weight of gold could be 
 exchanged directly or indirectly for more silver 
 than that contained in the silver dollar. Under 
 these circumstances, the debtor owning gold would 
 sell or exchange his metal in the market for silver, 
 and thus obtain a greater number of legal tender 
 coins than if he had got his gold coined at the mint ; 
 no more gold would, therefore, be coined for the 
 purpose of discharging liabilities ; the rise in the 
 value of that metal, due to the decrease of bullion 
 in the market, would cease ; and this state of things 
 would continue until the rise in the value of silver, 
 due to the continued demand for that metal for 
 coinage purposes, again established the natural ratio 
 as the ratio between the two in the market. The 
 disturbance in the ratio could thus only be of a 
 temporary character ; and, generally speaking, both 
 metals would rise equally in value, and the ratio in 
 the market would continue to be the same as the 
 ratio established by law. 
 
 but if, Continuing the consideration of the introduction 
 
 conditions ^ bimetallism into a country where the precious 
 an extreme metals had not previously been used for coinage 
 
 ratio were ., , . 
 
 adopted, purposes, it can be seen, by reasoning similar to 
 
 Stel ne that used in the last P ara g ra ph> tn at if the legalized 
 would be ratio differed somewhat from the natural ratio, or
 
 OH. II.] FAILURE OF BIMETALLISM. 23 
 
 that originally ruling the market, then there would coined, 
 
 i. , j ^ * i * i and the 
 
 be an obvious tendency at first to take one metal currency 
 
 rather than the other to the mint ; to take what would te 
 
 mono- 
 may be called the cheaper metal, or the metal for metallic. 
 
 a given value of which the greatest number or 
 money value of coins could be obtained. The value 
 in the market of only one of the two metals would 
 thus at first be raised, and in this manner the ratio 
 in the market would be altered until it became the 
 same as the ratio fixed by law. When this equality 
 was established, both metals would be taken to the 
 mint indifferently. It is, of course, obvious that the 
 more the legalized ratio differed from the natural 
 ratio, the longer would last this process of adjust- 
 ment; and, if the two ratios differed sufficiently, 
 the demand for coins would be satisfied by the 
 coinage of one of the metals only before any of the 
 other was attracted to the mint. When, with such an 
 extreme ratio, the normal condition of things was 
 reached, and the mints ceased to increase the 
 currency, then no further alteration in the ratio 
 in the market would take place ; the ratio in the 
 market would never become the same as the ratio 
 enacted by law ; and the currency would continue 
 to consist wholly of one metal. Bimetallic laws 
 would have been passed, but a monometallic system 
 would have been established. 
 
 This discussion of the result of planting a bi- The ratio 
 metallic system on new soil makes it clear that, market is 
 when we find a bimetallic system being success- * be best 
 fully maintained, we cannot assume that the ratio unreliable
 
 24 
 
 THE BIMETALLIC THEORY. 
 
 [Cn. II. 
 
 guide as to 
 
 natural 
 
 The 
 
 arrivecTat 
 is that 
 
 the parity 
 
 will be 
 
 in the market or the legalized ratio they will be 
 identical is the same as the natural ratio, or the 
 ra tio which would have existed if the metals had 
 not been in demand for currency purposes. If, on 
 the other hand, the systems in existence are mono- 
 metallic, and especially if they create a greater 
 demand for one metal than for the other, the ratio 
 in the market will also, in this case, differ more or 
 less considerably from the natural ratio. Under 
 all circumstances, the ratio in the market and the 
 natural ratio may differ widely, one from the other, 
 but unfortunately the ratio in the market is almost 
 our only guide as to what the natural ratio may be. 
 Putting aside, at last, all hypothesis as to existing 
 monetary conditions, if a bimetallic system were now 
 established legalizing the natural ratio, as long 
 
 . . 
 
 as that natural ratio remained unaltered as long, 
 *kat * s ' as *ke con ditions of supply and of demand 
 
 for the metals for use in the arts remained the same 
 
 , . , ., , . 
 
 we can see, by reasoning analogous to that just 
 
 given, that this legalized ratio would be maintained 
 as the ratio in the market, and that both metals 
 would continue to circulate freely in the currency. 
 Similarly, if. the legalized ratio differed sufficiently 
 from the natural ratio, either in the first instance 
 or eventually, it can be seen that the whole of one 
 of the two metals would be driven out of circula- 
 tion, and a monometallic system would in reality 
 be established ; but that the more nearly the two 
 ratios coincided in the first instance, the less likely 
 would such a result be to occur. When it is
 
 CH.1L] COST OF PRODUCTION. 25 
 
 remembered that the gold coinage of the world 
 (including reserves) is over 800,000,000 in money 
 value, it would appear to be out of the question, if 
 the ratio adopted approximated to the natural ratio, 
 that all this metal should be driven out of the 
 currency and used up in the arts. Some gold 
 would remain in circulation as legal tender, and 
 that gold, for the ordinary purposes of paying 
 debts, could only be used at the ratio fixed by law. 
 
 It has been asserted that the relative cost of the 
 production of the two rnetals is bound ultimately tche 
 to regulate their relative value, and that, as the t j s s ^' 
 cost of production will not be affected by any that . the 
 bimetallic legislation, and as that cost is certain cost of 
 to vary from time to time, it follows that corre- P roductlon 
 
 . . regulates 
 
 spending changes in the ratio of the value of the the ratio 
 two metals must inevitably take place in spite of ThiTis 6 
 bimetallic laws. No doubt if two mines were situated only true 
 near together, one producing nothing but gold and se nse. 
 the other nothing but silver, and if both were only 
 just paying their working expenses, then the ratio 
 of the prime cost of production of an equal' weight 
 of metal in the two cases would closely coincide 
 with the legal bimetallic ratio as long as that ratio 
 was maintained in the market ; for if a pound of 
 silver only produced just enough silver coins to pay 
 for the cost of producing that pound of silver, and if 
 a pound of gold only produced just enough gold 
 coins to pay for the cost of producing that pound of 
 gold, then the ratio of the cost of production would 
 be the ratio of the value of a pound weight of silver
 
 26 THE BIMETALLIC THEOEY. [Cn. II. 
 
 coins to a pound weight of gold coins that is, the 
 bimetallic ratio. If it could be assumed that the 
 number of mines could be indefinitely multiplied, 
 then it would be true that their number would 
 increase until the rate of profit in the least profitable 
 mines would be reduced to the minimum required 
 to attract capital to the industry ; and this rate of 
 profit would be the same for silver and for gold 
 mines. If it could also be assumed that all mines 
 were worked under similar conditions, then it would 
 also be true that capital would flow into the mining 
 industry until the mines were all only just paying 
 their working expenses and making this minimum 
 profit. If these assumptions were true, then the 
 foregoing arguments prove that the ratio of the 
 values of the two metals would always be tending 
 to coincide closely with the ratio of the cost of 
 production. But neither of them is true. The 
 mine fields are not of unlimited extent. And, 
 what is more important, there are great variations 
 in the cost of production in different localities, and 
 in different mines in the same locality. Putting 
 aside recent ventures, worked as a speculation, it 
 may however be said, with some approach to truth, 
 that in the least profitable mines regularly worked 
 (where no valuable by-products are produced to 
 help to maintain the profits) the ratio of the cost 
 of production would be the same as the legal ratio. 
 If some process were discovered, after the adoption of 
 bimetallism, which considerably cheapened the cost 
 of production of one only of the metals, the result
 
 OH. II.] A FLOOD OF SILVEE. 27 
 
 would be that some new mines of that metal would 
 be opened, and that some of the least profitable 
 mines of the other metal would be closed ; and that 
 this process would go on until, in time, the prime 
 cost of production in the least profitable similarly 
 situated mines would again roughly approximate 
 to the bimetallic ratio. 
 
 There are some authorities, no doubt, who think The 
 that the output of silver will increase with great 
 
 rapidity, even under existing conditions, and that flood of 
 the increase will be still more marked if the value a t the 
 of silver is maintained or increased by means of P resent 
 bimetallic legislation. Of course, if the output of not-justified 
 silver did increase beyond a certain point, all gold by facts ; 
 coinage would be driven out of circulation in 
 bimetallic countries. Such an excessive production . 
 would be due either to the opening of new silver 
 fields, or to a further diminution in the cost of 
 production, or to both causes. As to the possible 
 influence of the development of new silver fields, it 
 is no doubt true that great variations in production 
 have resulted in past times from this cause ; for the 
 best available records indicate that during the last 
 four centuries the weight of silver annually pro- 
 duced has been sometimes over fifty, and sometimes 
 under five times the weight of the output of gold. 1 
 What has happened in the past will probably 
 happen again in the future; but in the past the 
 excessive relative output of the one metal has 
 always gradually subsided, together with the 
 1 See tables in Appendix.
 
 28 THE BIMETALLIC THEOEY. [On. II. 
 
 apprehensions which it caused. According to what 
 appears to have been the opinion of the majority 
 of American experts, there were in 1887 " certainly 
 no threatenings of a sudden or serious increase in 
 the annual production of either" metal, and, 
 although the events of the last few years were 
 not then foreseen, the broad facts on which their 
 conclusions were based may still justify their state- 
 ments as far as the more distant future is concerned. 1 
 Comparing the production in the year 1895 with 
 that in any year since 1885, it appears that the 
 output of gold has increased somewhat more rapidly 
 than that of silver. In these circumstances there 
 are no sufficient grounds for confidently asserting 
 which metal will increase in value, relatively to the 
 other, during the next few years, granted the con- 
 tinuance of existing monetary arrangements. 
 
 Turning to the other possible cause of a great 
 increase in output, it is almost impossible to 
 predict the effect of any future diminution in the 
 cost of production. Of course, if any new method 
 was discovered which was only applicable to one 
 of the precious metals, it would affect the ratio 
 of production; but as regards all the expenses 
 connected with winning the ore or rock a con- 
 siderable fraction of the prime cost any new 
 mechanical improvements will affect the cost of 
 production of both metals, and will not, in all 
 
 1 See Report by Mr. Newbeny (whose words are quoted) and 
 by other experts, at pp. 414-433, Reports from the Consuls of 
 the U. S., vol. 24, 1887.
 
 CH.IL] A FLOOD OF SILVER. 29 
 
 probability, seriously alter the ratio of output. As 
 to the immediate future, it may, perhaps, be said 
 that there is no reason to anticipate any great 
 variation in the relative value from this cause. 
 
 Thus far, the ratio of production has been dis- but it is 
 cussed on the assumption that no great alteration 
 
 in the demand for the metals for coinage purposes "whatwould 
 will take place. If the value of silver were raised effect on 
 
 by bimetallic legislation, this would be a circum- Production 
 
 J ot raising 
 
 stance tending to increase the production of that the value 
 metal more or less considerably ; for there are said bimetallic 7 
 to be " large quantities of low-grade silver ore legislation. 
 which are constantly seeking a sale at the smelting 
 works, but in vain, because the price of silver now 
 leaves no margin to the owner of the ore after 
 smelting charges have been deducted." 1 But it 
 is extremely difficult to foretell to what extent the 
 silver industry would be stimulated by any proposed 
 legislation; paying mines are now, in most cases, 
 being worked to their utmost, and we do not know 
 what percentage of all the mines now in work pro- 
 duce these low-grade ores, or what new mines are 
 likely to be opened under such circumstances. 
 My own impression is that some of the bimetallic 
 proposals now before the public would lead to a 
 
 1 Reports from the Consuls of the U. S., vol. 24, 1887, p. 420. 
 It should be noted that the ratio may also change through the 
 lowering of the value of gold ; and that that would not tend to 
 increase the output of silver. This is important, if, as I believe, 
 the value of gold would fall more than the value of silver would 
 rise in consequence of any bimetallic legislation.
 
 30 THE BIMETALLIC THEORY. [On. II. 
 
 great outburst of silver production, which would 
 gradually subside, at all events if the production 
 is measured by its ratio to the production of gold. 
 When discussing the choice of the bimetallic ratio 
 it will, however, be seen that the probability of 
 gold being driven out of circulation by this 
 " avalanche " of silver depends on the ratio adopted, 
 and this point may, therefore, be dismissed for the 
 present. 
 
 Thus it Thus it appears, if these conclusions are correct, 
 concluded * na * * ne Vft l ue f the precious metals is influenced 
 
 that the by their use in the arts, by their use as money, and 
 ratio will by the cost of their production ; but that the legal 
 govern the ra ti o between the two will nevertheless be main- 
 
 bullion 
 
 market tained as the ratio in the market as lon as both 
 
 
 continue to circulate as legal tender as long as 
 driven out neither metal is driven out of circulation. If this 
 tion; is not clear already, let it be supposed, for the 
 purposes of argument, that one of the metals, say, 
 silver, continues to depreciate as compared with 
 gold in spite of the passing of bimetallic legis- 
 lation, and that gold goes to a premium. Why, 
 under these circumstances, should any one use 
 gold for the payment of debts, or for making 
 purchases, when he could obtain more value for his 
 metal by selling it in the open market ? Gold coins 
 would be melted down and sold, and this process 
 would reduce the price of gold bullion by throwing 
 and mono- more of that metal on the market : this cheapening: 
 
 metallists , , , . .... . r 
 
 should process would be so rapid that an equilibrium would 
 indicate immediately be re-established ; the two metals would
 
 CH.II.] A BIMETALLIC UNION. 31 
 
 continue to circulate in the currency at the legal what they 
 ratio, and this legal ratio would again govern the 
 
 bullion market. In fact, in the opinion of bi- happen to 
 metallists, this process, or something equivalent to C oinage g 
 
 it, would take place so quickly that no depreciation ^ hen '* 
 
 . . , -I-11 disappears 
 
 of either metal could in reality be observable in the from the 
 market. If silver continued to be produced in m 
 increasingly large quantities, the expulsion of gold 
 from the currency would no doubt go on until the 
 whole of that metal was driven out of circulation, 
 and until silver was exclusively used for monetary 
 purposes; then the process by which the ratio in 
 the market had previously been adjusted so as to 
 make it coincide with the ratio fixed by law would 
 cease to operate ; then, and not till then, the ratio 
 in the market would differ from the legal ratio, and 
 the currency would cease to be bimetallic. One or 
 other of the metals must be entirely or almost 
 entirely driven out of circulation before the bi- 
 metallic system can fail, and monometallists ought, 
 if they still predict the continued depreciation of 
 silver under bimetallism, to tell us what is going 
 to happen to the 800,000,000 of gold coins now 
 in existence. Until they do so, they have not 
 made out their case against the practicability of 
 bimetallism. 
 
 To account for the disappearance of one of the The 
 metals from the currency, monometallists have argued Uuiou, it 
 that gold will flow in sufficient quantities to drain 18 tr ! 1 ?' 
 the bimetallic countries of their gold currency into elude a 
 those countries which do not join the Bimetallic WI
 
 32 THE BIMETALLIC THEORY. [On. II. 
 
 to be Union, and thus to force that metal to a premium. 
 Silver-using countries would, in this respect, be a 
 greater source of danger than gold-using countries ; 
 because, by partially substituting gold for silver in 
 their coinage, they could absorb vast quantities of 
 gold. This might also be, in my opinion, a real 
 danger to bimetallism, and in order to guard 
 against it, it is most desirable that the Bimetallic 
 Union should comprise India and Japan as well 
 as the other countries previously mentioned. 
 China would, in those circumstances, remain as the 
 solitary great silver-using commercial nation, to 
 which gold might be attracted; but as China is 
 conservative and barbaric, and as she has no gold 
 currency at present, this is but a remote contingency, 
 which the influence of Japan might overcome if it 
 ever occurred. 
 
 It is Monometallists have also asserted that gold would 
 
 thaf gold be withdrawn from circulation on the establishment 
 may be o f bimetallism, and that it would be hoarded in the 
 
 hoarded ; . 
 
 expectation of its going to a premium at the break- 
 down of the system. We shall have to return to 
 this point later on, when it will be seen that this 
 is a true source of danger to the maintenance of 
 a bimetallic system, if the ratio adopted differs 
 widely from the ratio now governing the market. 1 
 
 and that As another reason for anticipating the failure of 
 any bimetallic system, it is suggested by mono- 
 metallists that gold might be used as a kind of 
 se P arate currency, independent of the laws of legal 
 
 ascurrenc y * Seep. 101.
 
 CH. II.] CONTRACTING OUT. 33 
 
 tender, independent of the silver currency, and at a indepen- 
 premium compared with it. The fear of payments the laws 
 
 being made in silver would often, it is said, make of 
 
 . tender ; 
 
 financiers negotiate loans in gold by weight, and but the 
 
 not in currency ; contracts would be made in the 
 
 same way ; and the use of gold in such bargains dangers to 
 
 would be sufficient to maintain that metal at a 1^ a 
 
 premium compared with silver. It will be shown <i e P end ? on 
 
 . the ratio 
 
 m a subsequent discussion that, it a suitable ratio adopted. 
 is selected, no rational reason can be given for avoid- 
 ing the use of the ordinary legal tender, and that 
 this danger may then be neglected. This, however, 
 is a point to which bimetallists have not devoted 
 sufficient attention, for either the objection is 
 groundless, under all circumstances, or legislation 
 prohibiting " contracting-out " of the usual currency 
 arrangements would appear to be a necessary part of 
 the proposed international agreements, at all events 
 in the case of the adoption of an unsuitable ratio. 
 In order to prohibit such contracting out, it would 
 be necessary to enact as to future contracts (except 
 such as deal with metal used for non-monetary pur- 
 poses), that where the word " gold " occurs, the word 
 " silver " may be read in its place, with an appro- 
 priate alteration in the weights specified. An inter- 
 ference with the freedom of contract is no doubt an 
 objectionable feature in any scheme, to be avoided 
 if possible ; but the difficulty of drafting clear and 
 suitable legislation which would be acceptable as 
 part of the international agreements, forms, in my 
 opinion, a far stronger objection to such a proposal. 
 
 u
 
 34 THE BIMETALLIC THEORY. [On. II. 
 
 When, if ever, bimetallism comes within the region 
 of practical politics, it would be advisable to con- 
 sider if some such legislation of a temporary nature 
 could be adopted ; for the tendency to contract un- 
 reasonably out of any new arrangements is always 
 felt most strongly at first. If, however, after a few 
 years, bimetallism proved to be so distasteful to 
 the commercial community that it could not stand 
 without the aid of permanent legislation of this 
 character, then perhaps the sooner it fell the better. 
 The verdict If none of these methods of escape for gold are 
 
 is on the at a r j i j 
 
 whole sufficiently serious to be a source of real danger, 
 favourable then it is difficult to see how bimetallism can break 
 
 to bimetal- 
 lists as down as long as the international agreements are 
 
 main- & maintained ; for as long as gold remains in circula- 
 tenance of tion as legal tender, it can only be used at the ratio 
 
 the ratio. f J 
 
 fixed by law. 
 
 Thus, whether the appeal is made to the best 
 available authorities, or to historic facts, or to 
 theoretical arguments, the verdict as to the main- 
 tenance of properly selected legal ratio is, I think, 
 on the whole, favourable to the bimetallists.
 
 CH.IIL] AIMS OF BIMETALLISTS. 35 
 
 CHAPTEE III. 
 
 AIMS AND OBJECTS OF BIMETALLISTS. 
 
 IF it is agreed that a suitable ratio of value between The objects 
 the metals can be maintained with sufficient ac- ij sm e(i) 
 curacy for practical purposes, it is next necessary to steady 
 
 ._ , 11- i i i , IT prices, and 
 
 to consider what are the objects which bimetallists (2) to raise 
 hope to obtain by their proposed reforms. Here 
 
 we meet with our first difficulty, for on this point often said 
 there is far too much ambiguity in bimetallic inevitable 
 
 literature. It may, however, be broadly stated that result of 
 
 . * bimetal- 
 
 bimetallists desire one or both of the following lism, but 
 
 objects:- 3 te 
 
 (1) To make prices more steady by lessening the which the 
 fluctuations in the value of money, and to minimize demanded. 
 the troubles due to the fluctuations in foreign 
 exchanges. 
 
 (2) To raise the price of commodities generally, 
 including the price of silver. 
 
 Bimetallists claim that, by creating a feeling of 
 confidence as to the future, their monetary system 
 would stimulate commerce an object desired by 
 all and that it would thus raise prices. Putting 
 aside, for the present, such indirect results, and
 
 36 THE BIMETALLIC THEORY. [On. III. 
 
 considering only the direct and immediate rise in 
 prices which, it is generally anticipated, would result 
 from the introduction of a bimetallic system whether 
 the volume of trade were increased or not, it will no 
 doubt be urged by some currency reformers that 
 they do not demand this reform with the definite 
 object of producing any such effect. It would be, 
 they will say, merely a result, probably a beneficial 
 result, which would necessarily accompany bimetal- 
 lism ; an inevitable by-product, as it were, for which 
 they are not responsible. This is, I believe, a 
 common and a serious error, which has arisen from 
 not clearly distinguishing between the different 
 objects aimed at by bimetallists, and from not dis- 
 cussing them separately. 
 This is To point out the nature of the error of those who 
 
 ar g ue i n ^ s manner, it is first of all necessary to 
 
 of bimetal- show that bimetallism, even if successfully adopted, 
 
 ratio of a need not be accompanied by any direct and im- 
 
 i5jto i mediate rise in general prices. The discussion of 
 
 to increase this subject will be greatly facilitated by taking 
 
 rency U [n actuft l figures for consideration, both as to the pro- 
 
 gold-using posed legal ratio, and as to an assumed ratio in the 
 
 and thus ' market at the time the system is being introduced. 
 
 to raise AS to the proposed legal ratio, the one most 
 
 therein ; frequently mentioned is 15| to 1 ; that is to say, 
 
 if that ratio were adopted, 15J ozs. of silver coins 
 
 would have the same money value as one ounce 
 
 of gold coins. 1 What would have been the effect 
 
 1 This is not strictly accurate, because the coins are not made 
 of pure gold and silver.
 
 CH. TIL] A RISE IN GOLD PRICES. 37 
 
 of enacting this ratio in 1893, for example, when 
 24^ ozs. of silver could have been exchanged for 
 one ounce of gold in the open market? At that 
 time, with the ratio in the market at 24 to 1, one 
 ounce of pure silver could have been sold for about 
 3s. 6d. But if a change in the law had been made 
 which permitted the owner of the ounce of silver 
 to have had it coined at a legal ratio of 15^ to 1, it 
 is evident that it could then have been converted 
 into more currency than that for which it could pre- 
 viously have been sold in the market ; in fact, taking 
 the proportion of 15 to 24, it will readily be seen 
 that, instead of the 3s. 6d., he would receive from 
 the mint the sum of about 5s. Qd. for every ounce 
 of silver he took there. It is, therefore, perfectly 
 clear that this change in the law would increase 
 the value of silver for coinage purposes, and that 
 the owners of that metal, instead of selling it 
 in the market, would take it to the mint. The 
 amount of silver for sale in the market would be 
 reduced, and its price and value would, therefore, 
 rise. But the silver thus taken from the arts, 
 etc., would be added to the coinage, and thus the 
 total currency in circulation would be increased; 
 and, according to the quantitative theory of prices, 
 an increased currency is normally accompanied 
 by a rise in prices. A rise in prices is, of 
 course, equivalent to a fall in the value of the 
 thing by means of which the price is estimated; 
 a rise in prices in gold -using countries means, 
 therefore, that the value of the gold currency is
 
 38 THE BIMETALLIC THEORY. [On. III. 
 
 lowered. But the increase of silver coins would be 
 no reason why gold, as an article of merchandise, 
 should fall in value ; and there would at first, there- 
 fore, be a tendency for gold in the currency to fall 
 in value as compared with gold in bullion. This 
 difference in value would, however, be rapidly cor- 
 rected both because gold from the mines would be 
 taken to the best market the bullion market 
 instead of being taken to the mint, and because 
 gold coins would be melted down as long as gold 
 was more valuable in the form of bullion ; and these 
 additional supplies thrown on the market, would 
 lower the value of gold bullion pari passu with the 
 fall in the value of the gold currency. In short, 
 more silver would be coined, and the metal thus 
 used would diminish the supply in the market, 
 thus raising its value; and gold would be taken 
 from the mines and from the currency, and thrown 
 on the market, thus reducing its value as bullion. 
 These two processes would go on till the ratio 
 between the value of gold and silver in the market 
 coincided with the ratio established by law; and 
 the fall in the value of gold would indicate the 
 rise in prices in gold-using countries. 
 
 and to Thus far, we have been considering the effect of 
 
 thTcur- tne adoption of bimetallism at a ratio of 15^ to 1 
 
 rencyin in gold-using countries like England; but in the 
 silver-using ., 
 
 countries, case ot silver-using countries, the results would be 
 towe? rices ver y Different. Silver, we have seen, would tend 
 therein. to rise in value ; and therefore it is evident, con- 
 sidering the value of the metal in the coinage, that
 
 CH. III.] A FALL IN SILVER PRICES. 39 
 
 prices measured in silver coins silver prices would 
 
 fall. This result can also be arrived at in a more 
 
 elaborate way by looking at the question from the 
 
 point of view of the quantitative theory of prices. 
 
 In India, for example, every one had the right in 
 
 1893 l to take silver to the mint, and to have it coined 
 
 into rupees ; the introduction of a bimetallic system 
 
 would have created no additional inducement to 
 
 coin that metal, for a given weight of silver would 
 
 produce the same number of rupees before and after 
 
 the change ; no more silver would, therefore, have 
 
 been coined in consequence of bimetallic laws. 
 
 And as to gold, which was a mere article of 
 
 merchandise in the East, the owner of an ounce 
 
 of that metal could have sold it in the market 
 
 at that time, when the ratio in the market was 
 
 24 to 1, for about 70 rupees; but if he had 
 
 taken it to the mint, after the establishment of 
 
 bimetallism at 15 to 1, he could only have had 
 
 it converted into coins of the money value of 
 
 45 rupees. Thus no gold would be taken to the 
 
 mint, and the currency would not be increased by 
 
 the exceptional coinage of either metal ; in fact, 
 
 the introduction of bimetallism at that ratio, would 
 
 have produced no direct effect whatever in India. 
 
 There are, however, important indirect influences 
 
 to be considered. As far as has thus been seen, 
 
 the establishment of the legal ratio would have 
 
 had no influence on the price of gold in India, and 
 
 it would, therefore, have remained at its old ratio, 
 
 1 This is true only of the early part of the year.
 
 40 THE BIMETALLIC THEORY. [On. III. 
 
 compared with silver at a ratio of 1 to 24^. But 
 on the supposition that the bimetallic system had 
 been successfully established, it has been seen that 
 the value of silver would have risen in gold-using 
 countries until the legal ratio of 15^ to 1 was 
 established in that market. When this had taken 
 place, it would have been a profitable business to 
 have melted down Indian silver currency ; to have 
 taken the metal to England to be coined ; and, in 
 exchange, to have brought back to the East the 
 melted-down English gold coins, in order to satisfy 
 the demand for that metal ; and this influx of gold 
 into India would have lowered its value there. This 
 exchange of coin would be a profitable business, and 
 it would go on until the ratio became the same in the 
 two countries ; until, in fact, the legalized ratio of 
 15^ to 1 had been established in the Eastern market 
 also. Now, if gold coins were taken from England, 
 and if they were replaced, as in this instance, by the 
 same nominal value of silver coins, the total money 
 value of the coinage in England would remain 
 unaltered by the exchange, and no direct effect 
 would be produced on English prices. But in 
 India the gold brought into the country would be 
 absorbed into the arts until the ratio was adjusted ; 
 nothing would have been added to the currency, 
 and silver the melted down rupees would have 
 been subtracted from it ; the volume of currency in 
 circulation would, therefore, be lessened ; and prices 
 would have a tendency to fall. 1 
 
 1 This tendency of silver to flow out of the Indian currency
 
 CH. III.] A HIGH KATIO. 41 
 
 Thus far the result of this discussion has been 
 to indicate the probability that the introduction of 
 the 15 to 1 ratio, at a period when the ratio in 
 the market was 24 to 1, would have raised prices 
 in gold-using countries, and would have lowered 
 them in silver-using countries. But the effect of 
 the adoption of other ratios must be considered. 
 To have introduced a bimetallic system at a ratio 
 of 40 to 1, would have involved just about the same 
 departure from the then existing condition of things 
 .as that just contemplated ; l it would, no doubt, 
 have been a change in the opposite direction, but 
 a change quite as conceivable for the purposes of 
 discussion. 
 
 If, on this new supposition the adoption of a But if a 
 40 to 1 ratio, when the ratio in the market was ra 1 |[ e th a ii 
 24i to 1 we retrace the arguments iust given that ruling 
 
 ., . * IT -11 the market 
 
 in support of the view that bimetallism will raise were 
 prices in England, and lower them in silver-using ad .P ted 
 countries, we shall find that every one of them is would be 
 reversed. For example, the owner of one ounce of g^Yd.^jng 
 
 countries 
 should not be forgotten by those bimetallists who are so keenly and raised 
 
 advocating the opening of the Indian mints. No doubt the in silver- 
 opening of the mints would help to raise the value of silver 
 until the value of the silver in the monopoly rupee was equal to 
 the value of the monopoly rupee itself; but directly silver rose 
 above that point, the opening of the mints would give no further 
 assistance towards the establishment of the legal ratio, for then 
 the tendency would be for silver to flow out of the Indian 
 currency. An undertaking not to open the mint to gold, except 
 at the adopted bimetallic ratio, would be a far more important 
 concession to the demands of bimetallists. 
 1 1 to 15 : 1 to 24 : : 1 to 24 : 1 to 39.
 
 42 
 
 THE BIMETALLIC THEORY. [On. III. 
 
 gold could have sold it in India in 1893 for about 
 70 rupees ; but had bimetallism at a 40 to 1 ratio 
 been then in force, he would have been able to have 
 taken it to the mint, and to have had it coined into 
 coins of the value of about 115 rupees ; his gold 
 under this bimetallic system would have become 
 far more valuable for coinage purposes. Gold 
 would, therefore, have been taken from the arts 
 and from hoards to the mints in the East ; the 
 currency would have increased there, and, other con- 
 ditions remaining the same, prices would have risen. 
 In gold-using countries, on the other hand, there 
 would have been no reason why, in consequence of 
 this reform, more silver bullion should have been 
 converted into coins ; and similar reasons to those 
 above given would indicate the probability that 
 gold would leave gold-using countries, thus dimi- 
 nishing the currency, and lowering prices. 
 Thus bi- Thus, it is possible to introduce either a system 
 metallism o f bimetallism which will make prices fall, or one 
 
 may not * 
 
 have the which will make them rise ; and those who desire 
 raisin^ ^at prices should rise in gold-using countries 
 prices, and must advocate, not only bimetallism in general, but 
 ratio must & special form of it a bimetallism, namely, in 
 be advo- wn ich the ratio is 15i to 1, or, at all events, a ratio 
 
 cated if . ' 
 
 that end nearer that ratio than the ratio now ruling the 
 
 * A * A 
 
 ' market. No one would have been likely to advocate 
 bimetallism at a ratio of 40 to 1 at a time when the 
 ratio in the market was only 24 to 1. Extreme 
 suppositions are, however, often useful in discussions, 
 and in this instance they make it clear that there
 
 Cii.IIL] IMPORTANCE OP THE RATIO. 43 
 
 must be some ratio which would not tend to 
 have any such immediate influences on prices as 
 those above described, either in one direction or the 
 other. What that ratio would be for various reasons 
 we cannot accurately foretell ; but, if we adopt the 
 ratio in the market for the time being as the bi- 
 metallic ratio, it would seem probable, as far as 
 these considerations are concerned, that the volume 
 of the currency would be little affected by the 
 change, and that the introduction of bimetallism 
 would cause but little rise or fall in general prices. 
 
 Some of the above arguments may be objected Thus the 
 to by monometallists ; for, it is true, they are too thTratio 
 brief to present the whole case, and also that some ^ ad Better 
 
 , r . be settled 
 
 assumptions have undoubtedly been made in favour before 
 of the views of bimetallists. But, for the moment, 
 
 all that it is necessary to prove is that those bi- merits 
 metallists who advocate bimetallism at the ratio me taiiism 
 of 15i to 1, on the ground that it can and will an( * bj- 
 
 . i T . . i metalhsm. 
 
 raise prices in gold-using countries, cannot deny 
 that it would be equally possible to depress prices 
 by selecting a ratio suitable for that purpose. Bi- 
 metallism and the immediate raising of prices have, 
 therefore, no necessary connection one with the 
 other. 
 
 Thus we have two distinct questions to consider 
 
 (1) Would the introduction of bimetallism be a 
 beneficial currency reform ? 
 
 (2) If it is to be introduced, ought we to adopt 
 such a ratio as would tend to raise prices ? 
 
 The above is, no doubt, the natural order in which
 
 44 THE BIMETALLIC THEOEY. [On. III. 
 
 these questions occur to the inquirer; but sound 
 conclusions may perhaps be more easily reached if 
 we attack the problem another way, and ask our- 
 selves in the first instance 
 
 (1) Assuming that bimetallism is preferable to 
 monometallism, can we lay down any principles 
 with regard to the ratio ? 
 
 (2) And, secondly, which would be best, the 
 existing monometallic monetary systems, or an 
 international bimetallic system with a ratio selected 
 in accordance with the principles laid down in the 
 answer to the first question ? 
 
 The reason why this is a better method of 
 approaching the subject is that many of the argu- 
 ments brought forward for or against bimetallism 
 only apply in reality to one form of the system. 
 In considering any reform, it is clearly necessary 
 to decide as to what are the objects we hope to 
 attain before settling how we shall endeavour to 
 attain them ; the choice of the ratio will, however, 
 depend in great measure on whether it is or is 
 not desirable to raise prices by means of currency 
 reforms; and the proposed division of the subject 
 will, in effect, be nearly equivalent to the discussion 
 of the second object, the raising of prices, before 
 the discussion of the first, the steadying of prices. 
 After concluding this first inquiry as to the ratio, 
 those who accept my conclusions will be able to 
 dismiss altogether many of the ordinary arguments, 
 when, in the second inquiry, the broad question of 
 adoption or rejection of the bimetallic system is 
 being considered.
 
 THE CHOICE OF A RATIO.
 
 CH. IV.] THE CHOICE OF A RATIO. 47 
 
 CHAPTER IV. 
 
 THE CHOICE OF A RATIO. 
 
 THE first question, therefore, to be discussed is the The choice 
 ratio, and here practically the choice lies between the {j^^keT 
 extremes of 15 to 1 a ratio which existed for many ratio and 
 years in France on the one hand, and, on the other i^^i ^ s 
 hand, a ratio closely approximating to the ratio extremes, 
 governing the market at the time of the introduction 
 of the system. It may here be noted with regard to 
 the latter form of bimetallism, that it would, no 
 doubt, be necessary to take into consideration any 
 speculative operations tending to alter the relative 
 value of the precious metals with a view to the 
 coming change, and to see that the selection of the 
 ratio was not influenced by any such proceedings. 
 
 At the present time the ratio in the market is Definition 
 somewhere about 35 to 1, and this ratio would be f, ^^ ' 
 popularly described as being " higher " than the and 
 old Latin Union ratio of 15| to 1. The term " low ra ti . 
 ratio" will, therefore, be used to denote the ratio 
 of 15 to 1, or some close approximation to that 
 ratio ; whilst " market - ratio " bimetallism will 
 signify the system if the ratio adopted is the
 
 48 THE CHOICE OF A RATIO. [Cn. IV 
 
 same as, or nearly the same as the ratio in the 
 market at the time of the introduction of the re- 
 form. The phrase "low ratio" is selected for 
 want of a better, for it is attended with some in- 
 conveniences. If the idea attached to it is carried 
 out, we must say that the ratio has been " rising " 
 since 1873, though the change which has taken 
 place is usually associated with the idea of a fall in 
 the price of silver. It is, however, equally true that 
 the price of gold, as measured in silver or in rupees, 
 has been rising, and when a low ratio is mentioned, 
 the idea of a low value or silver price of gold should 
 be brought to our minds. The expression " market 
 ratio" may perhaps give the idea that the legal 
 ratio is to be a shifting one, varying with every 
 subsequent variation of the ratio in the market. 
 This, however, is not intended to be the case. The 
 legal ratio would be fixed once for all, and, if the 
 system were a success, there would be no further 
 variation in the ratio in the market. Market-ratio 
 bimetallism would, in fact, be intended to stereotype 
 the ratio which ruled the market at the time of its 
 introduction. 
 
 Therein,- These, then, are the two extreme ratios which 
 of low- must be discussed. Of course, some ratio between 
 
 ^6 two m *gkt b adopted as a compromise, but, by 
 ratio bi- considering the extremes, we shall best be able to 
 SowSe J ud & of the tenacit J with which we should adhere 
 considered, to any conclusions arrived at. What then are the 
 relative advantages, disadvantages, and risks of 
 these two forms of bimetallism? It may be best
 
 GH. IV.] WEIGHT OF SILVER COINS. 4.9 
 
 to begin by discussing the arguments to which 
 least weight should be attached. 
 
 A low ratio, as compared with a higher ratio, has The greater 
 been advocated on the ground of convenience, and ^4 C oins 
 it is true that the sovereign in silver would weigh is an 
 twice as much, if the ratio adopted were 31 to 1, to the 
 as it would if it were only 15i to 1. But it must m ^ ket 
 
 , i T , , ratio as 
 
 be remembered, as already pointed out, that under compared 
 the low-ratio system the value of the sovereign i^-ltU) 
 would fall ; that the sovereign would purchase less ; 
 and that the money value of the money which we 
 should have to carry about in gold-using countries 
 for the general purposes of life would be greater than 
 at present, or than under the market-ratio system. 
 The greater convenience of low-ratio bi-metallism 
 is, therefore, partly fictitious, though the argument 
 is true in a great degree. It is, moreover, to be but the use 
 observed that the annoyance due to the increased an^ken 
 weight of silver coins under a market-ratio system coins would 
 might be mitigated by a more extensive use of^fncoa. 
 paper currency ; and that it is doubtful if there would veni ence ; 
 be any necessity for increasing the weight of the 
 coins in circulation, for they might well remain mere 
 tokens as at present ; whilst the full weight silver 
 reserves might lie in the banks' till wanted for the 
 purposes of international trade. But in discussing 
 the question of convenience another very important 
 point must be considered. A decrease in the value 
 of gold, and an increase in the value of silver due 
 to a low- ratio system, are certain, as already pointed 
 out, to be followed by an increase of the silver 
 
 E
 
 50 THE CHOICE OF A KATIO. [Cn. IV. 
 
 currency, and a diminished supply of gold coins. 
 and the Now, as this diminution in the gold coinage would 
 
 market , , , .,, , 
 
 ratio would be attended with more or less inconvenience in 
 
 keep more coun tries where gold is habitually used 'as currency, 
 
 circulation, it would seem on the whole, as far as convenience 
 
 is concerned, that the balance of argument is, if 
 
 anything, against the low-ratio system, if we look 
 
 at the question from an English point of view. If 
 
 the market ratio were adopted, there is little reason 
 
 to suppose that any material alteration in the pro- 
 
 portion of the metals used in coinage would occur 
 
 on the introduction of bimetallism. 
 
 If, under The controversy about the weight of silver coins 
 e " * s > however, likely to be much less severe than that 
 
 system, concerning their present money value. France, to 
 to recoin take the case of one of the nations most affected, 
 
 has a large amount of silver five-franc pieces in 
 decrease reserve and in circulation, which have now a money 
 Sey value of about 84,000,000 that is, taking twenty- 
 value ; five francs as being equivalent to a sovereign. 1 But 
 silver has fallen greatly in value since the silver 
 in twenty-five francs was equal in value to the gold 
 in a sovereign that is, since the ratio of 15^ to 1 
 ruled the market ; and these five-franc pieces do not 
 therefore now contain silver of the above value. If 
 the silver coinage of France were melted down in 
 order to be recoined under a market-ratio bimetallic 
 system let us say at a ratio of 35 to 1, which is 
 
 1 " Colloquy on Currency," p. 33. In addition to this, there 
 are silver coins of lower denominations, coined at a somewhat 
 different ratio.
 
 CH. IV.] TOKEN COINS. 51 
 
 not very far from the existing ratio the metal 
 obtained from these pieces would, therefore, only 
 produce coins to the value of about 37,000,000. 
 Thus the coinage of France, for the purposes of 
 internal trade, would be reduced in money value 
 by 47,000,000 ; and it is generally said that 
 France would, under the assumed circumstances, 
 lose that sum by the proposed currency reform. 
 But this is a very unfair way of stating the case, but she 
 for, in a sense, France would lose nothing by the ^ e ^. not 
 establishment of market-ratio bimetallism. For poverished 
 the purposes of external trade, her silver coinage is ^ other y 
 now worth less than half its money value, because it nations ; 
 can only be exported as metal ; after the establish- 
 ment of market-ratio bimetallism, it would also be 
 exported at its metallic value, and that metallic 
 value would not be altered by the adoption of 
 such a system. Thus France, in comparison with 
 other nations, would be relatively neither richer nor 
 poorer in consequence of the change. It is said, 
 however, that she would be put to a considerable 
 expense, if a market-ratio system were adopted, on 
 account of the necessity of increasing the weight of 
 her silver coinage, so as to make its metallic value 
 the same as its money value. But this expendi- and such 
 ture would not be necessary if it were found to wouw as 
 be possible, after the establishment of bimetallism, P rota Wy 
 
 . . be un- 
 
 to maintain the existing silver coinage at its pre- necessary. 
 
 sent money value. If notes of convenient money 
 value were given by the State in exchange for 
 bullion, and if this bullion were kept in the banks
 
 52 THE CHOICE OF A RATIO. [Cn. IV. 
 
 as a deposit against these notes, then the State 
 might, as at present, reserve to itself the monopoly 
 of coining the current silver pieces, and might 
 retain the whole of the existing silver coinage in 
 circulation at its present token value. The risk 
 of false coinage is often urged as an objection to 
 such a proposal ; but that risk exists at present, and 
 it would not be increased by- any such reform. 
 If, however, any inconvenience or difficulty were 
 experienced in retaining the existing token coinage 
 in circulation or reserve, it cannot be denied that 
 the cost of the recoinage might be greatly lessened 
 by not recoining the whole of it at its full metallic 
 value by, in fact, retaining some token coinage 
 in circulation. Moreover, if there is any objection 
 to the present system, and if France had to incur 
 some expenditure on recoinage, then she would at 
 all events obtain the advantage of removing these 
 defects attaching to her present monetary condition. 
 In short, if market-ratio bimetallism were adopted, 
 France would not be impoverished relatively to 
 other nations, and she might, at the worst, find 
 herself under the necessity of incurring a more 
 or less considerable expenditure on recoinage, with 
 the compensating advantage that her currency 
 would be placed on a sounder footing than at 
 present. 
 
 Market- If, as some believe, the tide will soon turn, and 
 metallism silver will rise in value as compared with gold, 
 is evident that the metallic value of silver 
 
 France currency will, by a natural process, rise slowly
 
 CH. IV.] TOKEN COINS. 53 
 
 towards its money value. If it be granted that against 
 market-ratio bimetallism is some day to be adopted, *f a further 
 it is evident that France, on the above assumption, fall in 
 would prefer the change to come later rather than 
 sooner; for the lower the ratio at the time of the 
 adoption of such a system of bimetallism, the less 
 would be the diminution in money value of such 
 silver as had to be recoined; the more nearly 
 would the ratio at which it would be recoined 
 approach to the old ratio of 15 to 1. But, on 
 the other hand, if silver is going to continue to 
 fall in gold price, the currency of France will 
 become more and more overvalued, and in time 
 serious difficulties would probably arise from this 
 cause. Thus, market-ratio bimetallism, whilst it 
 would prevent France from speculating for a rise 
 in silver, would insure her against the inconvenience 
 of a further fall ; it is, therefore, difficult to prove 
 that it would do her any harm as regards the value 
 of her silver coinage. 
 
 Thus far, we have been considering the effect of but a 
 the introduction of market-ratio bimetallism into 
 
 France. But if a low-ratio system were adopted, the direct 
 case would be very different. The result of such France. 
 a reform would be to link the two metals together, 
 and to pull up the value of silver by pulling down 
 the value of gold. France would have the silver 
 in her currency brought up to its money value at 
 the expense of the gold stocks of the world. 1 As 
 
 1 It is, however, very questionable whether the French, as a 
 nation, would gain by low-ratio bimetallism to the extent here
 
 54 THE CHOICE OF A EATIO. [Cn. IV. 
 
 France possesses a greater proportion of silver than 
 England, she would gain in comparison with Eng- 
 land. If we, in England, desired to bring up the 
 metal in our token coinage to its money value, no 
 one would argue for a moment that we should adopt 
 bimetallism for that sole purpose. If this were the 
 only question at issue, we should certainly prefer 
 to pay, out of the general taxation of the country, 
 for the additional silver necessary to increase the 
 weight of our coinage. Why, then, should we be 
 asked to make a pecuniary sacrifice to enable 
 France to bring about a currency reform in a 
 manner we ourselves should not adopt? It can, 
 at the best, only be urged that the appreciation of 
 silver token coins in all countries where they are 
 current, and the consequent immunity from the 
 risks of false coinage, would be one of the beneficial 
 by-products of low-ratio bimetallism ; which is but 
 a feeble reason in favour of England adopting that 
 system. 
 
 indicated. The amount to which her silver currency is over 
 valued the 47,000,000 may be looked upon as a Government 
 credit issue. This credit would be extinguished by the introduc- 
 tion of this type of bimetallism. The result would be, I think, 
 that prices would tend to fall in France relatively to other 
 countries. This inequality would be rectified by the precious 
 metals flowing into France, thus displacing other imports. Thus 
 France would suffer by exporting goods for which she would get 
 no goods in return, which were available for distribution a clear 
 loss to France, and a clear gain to the other nations concerned 
 in the traffic. This is the way France, and the United States 
 also, would, I believe, in large measure pay for having their silver 
 coinage brought up to its full metallic value.
 
 CH. IV.] FOREIGN INVESTMENTS. 55 
 
 France may, however, simply state that she 
 declines to agree to market-ratio bimetallism on 
 account of the expense believed to be involved. If 
 that were to be the case, it might be right, from 
 motives of expediency, to give way to a certain 
 extent on the question of the ratio. But France 
 cannot claim this concession on the grounds of 
 equity, and the amount of the concession must be 
 measured solely by the strength of our desire for 
 the establishment of bimetallism for other reasons. 
 
 Thus, in considering the question of the ratio Thus, 
 with reference to the money value of the exist- reference 
 
 ing silver currencies, the balance of argument to . the 
 
 coinage 
 
 is in favour of 15 to 1 as far as France is con- only, 
 
 cerned, and in favour of the market ratio, if the 
 question is regarded from an English point of prefer the 
 view. But it is to be noted, though the subject England 
 is not now under discussion, that as compared with thf.market 
 
 n i ratl - 
 
 monometallism, the only argument that can be 
 founded on these considerations against market- 
 ratio bimetallism is that it might possibly necessi- 
 tate a more or less heavy expenditure, in order to 
 bring up some of the existing token coinage to its 
 full metallic value. 
 
 If we are to view the matter from a national Tne lo ^ 
 standpoint, we must consider the way in which the lower the 
 lowering of the value of gold will affect foreign yj^ u . e , of 
 
 the interest 
 
 remittances. Every year Great Britain receives on foreign 
 immense sums of gold, or the value of such sums 
 in goods, in payment of the interest on loans to 
 foreign Governments, and on other investments out
 
 56 
 
 THE CHOICE OF A EATIO. [On. IV. 
 
 hut it 
 would 
 lessen the 
 hurden of 
 indebted- 
 ness of 
 India, for 
 which 
 England 
 may be held 
 responsible. 
 
 of the United Kingdom. Lower the value of gold, 
 and we shall as a nation be proportionately poorer, 
 as far as this source of income is concerned. From 
 motives of self-interest we ought, on this ground, 
 to be opposed to low-ratio bimetallism, and to this 
 argument the only reply that can be made is, that 
 in great movements of this kind, we ought to sink 
 our national interests for the common good. This, 
 no doubt, would be the most .high-minded policy to 
 adopt ; but each nation must consider its own well- 
 being first of all, and it could not even be sug- 
 gested that we should neglect the consideration of 
 any of our own interests, unless the case for this 
 reform on other grounds were proved up to the 
 hilt. Moreover, we can hardly be asked to abandon 
 the study of our own national gains and losses, and 
 only to consider the damage that might be done 
 to our neighbours by any proposed currency re- 
 form. If we are to dismiss the consideration of our 
 foreign loans, France and the United States must 
 give up any arguments founded on their over-valued 
 currencies. 
 
 There can be no doubt that if the introduction 
 of low-ratio bimetallism would injuriously affect 
 Great Britain as far as foreign debts are concerned, 
 it would in a similar way be a great benefit te the 
 Government of India. If the value of silver as com- 
 pared with gold were more than doubled, the burden 
 of indebtedness would be enormously decreased in 
 countries like India before 1893, where the taxes 
 are raised in silver, and the national debts paid in
 
 CH. IV.] NATIONAL DEBT OF INDIA. 57 
 
 gold. The effect of the recent fall in the gold price 
 of silver has no doubt been to greatly increase the 
 strain on the resources of India due to her gold 
 debts. In all probability the financial troubles of 
 our great dependency would not have been so great 
 if the Indian Government had raised the money 
 they wanted by silver loans; the interest in that 
 case would have been higher, but the full burden of 
 the debt would have been apparent at once. The 
 cause of the higher rate of interest paid at present 
 for loans raised in silver, in comparison with those 
 raised in gold, is the fear that financiers always 
 have before them of a further depreciation in the 
 gold price of silver, and of the consequent fall in 
 the value of the fixed silver interest when paid 
 in English currency; and if this higher rate of 
 interest had been paid, the excess might fairly have 
 been regarded as an insurance against the fall in 
 the rupee. The Government, rightly or wrongly, 
 did not care to pay the insurance demanded, and 
 the loss now therefore falls on them. As the 
 British Government, representing the British people, 
 are the autocratic irresponsible rulers of India, a 
 plea may be urged that we, as a nation, are respon- 
 sible for this blunder, and that we, the gold-using 
 country, ought not therefore to object to having 
 our gold reduced in value in order to lessen the 
 burden of this gold debt on the people of India. 
 But if the case is clear enough to serve as the 
 foundation for such an argument as this, it is clear 
 enough to act as the basis for a demand for a
 
 58 THE CHOICE OF A RATIO. [Cn. IV. 
 
 direct money subvention from us, especially as 
 such a subvention would be the cheapest way of 
 discharging this moral liability, if it be one. A 
 direct money payment to India would benefit that 
 country alone, whereas, by the bimetallic method 
 of settling the question, we should be incurring a 
 sacrifice for the benefit of many other silver-using 
 countries, for whose financial administration we are 
 in no way responsible. And, as far as her national 
 interests are concerned, England would, I believe, 
 be wise if she were to give this financial assistance 
 to India, rather than in any way to encourage low- 
 ratio bimetallism. But, looking at the question 
 from a more practical point of view, the Government 
 of India may well feel that it would be impossible 
 to extract any money from the English taxpayer 
 on such theoretical grounds as these; and they 
 may, therefore, desire to reduce the burden of 
 natural indebtedness by the introduction of low- 
 ratio bimetallism. 1 
 
 But the It must not, however, be forgotten that there 
 appreci- an w iH ^ e compensating disadvantages to silver-using 
 ating cur- countries accompanying such a reform. It will be 
 
 rcncv must 
 
 not be for- seen in the following chapter, and in Chapter XVII., 
 that the effect of low-ratio bimetallism would pro- 
 bably be to raise the value of silver, and thus to 
 depress trade in silver-using countries. And, even 
 if the question is regarded from the point of view 
 of the Government rather than from that of the 
 
 1 A recent despatch proves that this is not the view of the 
 present Government of India.
 
 CH. IV.] A FALL IN SILVER PRICES. 59 
 
 people, the gain arising from the change in the 
 ratio will not be an unmixed one. If the value of 
 silver rises, there ought to be a corresponding 
 decrease of expenditure reckoned in silver currency. 
 Such a reduction would not, however, take place for 
 a very long time in certain articles of expenditure ; 
 as, for example, in the pay of the native army. 
 And whatever proportion of the national expendi- 
 ture remains constant in money value, that propor- 
 tion must increase in real value ; and the revenue 
 for such purposes must press more heavily on the 
 people, and be more difficult to collect. Thus, on 
 the whole, it may well be doubted whether India 
 would not be injured rather than benefited by the 
 adoption of any ratio approaching 15 to 1. 
 
 Many of the foregoing arguments merely indicate The 
 the balance of certain advantages and disadvantages of the n 
 which would be experienced by different nations ratio can - 
 on the introduction of low-ratio as compared with settled by 
 market-ratio bimetallism. If these were the only ^^^ 
 points to be considered, it would be hopeless to tions like 
 endeavour to negotiate the necessary international 
 agreements. Strong arguments must be forth- 
 coming, in favour of one proposal or the other, 
 which are applicable to all nations, if either system 
 is to be brought within the range of practical politics. 
 
 It will be remembered that we divided the aims Nor does 
 of bimetallists under two separate headings, and that sideration 
 of these, the first was to make prices more steady. ? f * h , e .,. 
 
 J ' instability 
 
 both by maintaining a constant rate of exchange of foreign 
 between countries using gold currencies and those exchan s es
 
 60 THE CHOICE OF A RATIO. [Cn. IV. 
 
 help to using silver currencies, and by lessening the fluctua- 
 
 S roblem e t ^ ons * n t ^ ie va l ue ^ m o ne 7- We should first, 
 as either therefore, inquire which ratio would be most likely 
 curethe to produce beneficial results in the way thus antici- 
 evils com- p a t e d. What bimetallists hope to do is to tie the two 
 metals together, so as to destroy the influence which 
 the variations in the relative value of silver and gold 
 have on foreign exchanges, and in order that one 
 metal may act as a check on any oscillations in the 
 value of money due to causes affecting the other 
 metal only. The variations in the rate of foreign 
 exchanges depend on several causes ; in so far as 
 the instability is caused by alterations in the balance 
 of international indebtedness, no permanent benefit 
 will be derived from any currency reform ; but in 
 so far as it is due to fluctuations in the relative 
 value of gold and silver, and the consequent varia- 
 tions in the rate of exchange of gold and silver 
 moneys, stability will be insured by any fixed ratio 
 of value being established between the metals ; and 
 it is of no consequence, as far as this consideration 
 is concerned, what that ratio may be. The dis- 
 cussion of the question as to which ratio is likely 
 to reduce the fluctuations in the value of money 
 to a minimum, may conveniently be postponed for 
 the present ; 1 but at a later stage it will be seen 
 that the arguments founded on such considerations, 
 whether valid or invalid, are, at all events, not likely 
 to form the basis of a popular demand for the one 
 system of bimetallism rather than for the other. 
 1 See p. 90.
 
 On. V.] TO RAISE PRICES. 61 
 
 CHAPTER V. 
 
 THE MAIN OBJECT OF ADOPTING A LOW RATIO 
 IS TO RAISE PRICES. 
 
 IP we are to find the real basis of the demand for The object 
 low-ratio bimetallism, we must pass on to discuss 
 
 the second group of objects aimed at by bimetallists. metaJlism 
 
 is to raise 
 
 The main desire of many of those who advocate prices. 
 this system of currency is, no doubt, to raise prices 
 in gold-using countries, and thus to stimulate trade, 
 especially the trade with countries having a silver 
 currency. 
 
 Would low-ratio bimetallism cause an immediate The low 
 rise in prices? This is the first question that 
 
 naturally presents itself, and, on this point, it has raiseprices, 
 already been shown that forces would be set at work reform 
 which would tend to bring about that result in gold- J^*""' , 
 
 be discussed 
 
 using countries. But other forces might also be on the 
 brought into play which would act in the opposite thatTt^ 1 
 direction. For example, the fear of a sudden would do 
 
 SO 
 
 alteration in the value of money might cause great 
 commercial confusion, shaking credit, and bringing 
 down prices with a run ; though bimetallists think 
 that this danger might be avoided by making the
 
 62 THE CHOICE OF A KATIO. [On. V. 
 
 change a gradual one. Whatever might be the 
 immediate results, I cannot doubt that prices would 
 rise eventually. But assuming, for the sake of 
 argument, that this is a mistaken assumption, and 
 that, as a fact, prices would not rise, then any 
 argument founded on the hope of their rising is 
 completely annihilated. If, on the other hand, we 
 assume that prices would rise, and if, arguing the 
 case on this assumption, we are driven to the con- 
 clusion that it is not desirable to raise prices 
 artificially in this way, we then destroy this argu- 
 ment in favour of low-ratio bimetallism, whatever 
 might, in reality, be its immediate effect on 
 prices. 
 The low Assuming;, then, that prices would be raised by 
 
 ratio can- J 
 
 not be such a system 01 bimetallism, what we have to 
 
 a^usUom Discuss * s tne question whether it is desirable to 
 
 pensation raise them in this manner. The case can be argued 
 
 for the rS on tne grounds either of justice or of expediency. 
 
 injury done To deal with the question of justice first, the case 
 
 falling for the low-ratio bimetallists may be stated thus. 
 
 prices ; jf p r i ces nave fallen owing to the increase in the 
 
 value of gold caused by the increased demand due 
 
 to legislative changes, " it follows that just so far as 
 
 debtors have been prejudiced by currency legislation 
 
 since 1873, to that extent and no more will they be 
 
 benefited by the adoption of bimetallism at the old 
 
 ratio of 15 to 1; and to that extent it may," it 
 
 is urged, " be said that an act of justice would be 
 
 done." l It is true, no doubt, that in 1873 France 
 
 1 " A Bimetallic Primer," H. C. Gibbs, p. 52.
 
 CH. VJ AN ACT OF JUSTICE. 63 
 
 and the other nations included in the Latin Union 
 commenced the abandonment of their bimetallic 
 system, with its free coinage of silver at a ratio of 
 15 \ to 1, and also that there has been much im- 
 portant currency legislation on the Continent during 
 recent years, all tending to a lessened use of silver. 
 Keasons will be given later on for believing that 
 these changes, by increasing the demand for gold, 
 and thus raising its value, did influence prices ; but 
 it is a most startling doctrine that one party to a 
 contract made in England between Englishmen has 
 equitable grounds for demanding that his contract 
 shall be modified to the disadvantage of the other 
 party because of the effects of foreign legislation. 
 Yet, no doubt, the effect of contracts would be 
 modified if prices were raised by means of low-ratio 
 bimetallism ; for the value of money depends on 
 the commodities it will purchase, and raising prices 
 is equivalent to reducing debts ; the debtor, who 
 would find money more easily made, would gain, 
 and the creditor, whose money would purchase less, 
 would lose. But if we look more carefully into the 
 claim it becomes still more surprising. All that 
 can possibly be urged is that by now adopting a 
 low-ratio bimetallic system in Europe, we should 
 produce the same state of things which would have 
 existed if the Latin Union had never abandoned 
 bimetallism, and if England had adopted it some 
 twenty years ago ; in fact, the debtor, in a country 
 which has been strictly monometallic for nearly 
 a century, is demanding compensation for the
 
 64 THE CHOICE OF A EATIO. [Cn. V. 
 
 for, inter fact that bimetallism was not adopted in England 
 existing"^ a * a particular epoch. Was ever such a plea urged 
 debtors before? But even granting that such compensation 
 been in- can justly be demanded by the debtor; granted 
 that fall a ^ SO) *kat no cre( iitor has any right to demand that 
 the rise in prices between 1850 and 1873 shall 
 be taken into consideration; what justification 
 can be given for the interference with debts which 
 either have recently changed hands, or have 
 been recently contracted? In the first case, the 
 person benefited will not, even on the bimetallic 
 hypothesis, be the person who has any claim for 
 compensation. And as to the recent debtor, he 
 will gain just as much as the debtor of twenty 
 years' standing by the introduction of low-ratio 
 bimetallism, though he will not have been in the 
 slightest degree injured by English or foreign 
 legislation ; in his case also there is, therefore, not 
 a shadow of justification for the demand for com- 
 pensation. Whenever one man is thus benefited, 
 another man must be injured, and, looking to all 
 these different possibilities, bimetallists must admit 
 that the number of creditors who would thus be 
 inequitably injured might exceed the number of 
 debtors whom they would consider to be justly 
 compensated. It does not seem possible, in fact, 
 to sustain this plea for low-ratio bimetallism. 
 
 In discussing the advocacy of low-ratio bimetal- 
 lism on the ground that it would be an act of 
 justice, we have tacitly admitted the bimetallic 
 contention that the recent appreciation of gold has
 
 CH. V.] THE CHOICE OF A RATIO. 65 
 
 resulted from currency legislation on the Continent. 
 No point has been more keenly discussed in this 
 controversy than the question whether the fall in 
 prices since 1873 has been due to causes primarily 
 affecting gold or to causes primarily affecting com- 
 modities. One of the commonest arguments in 
 favour of the belief that low-ratio bimetallism will 
 cause prices to rise is founded on the fact that 
 prices have fallen heavily since the abandonment 
 of bimetallism by the Latin Union ; if, however, it 
 could be proved (contrary to my belief) that this 
 recent fall in prices was in no way connected with 
 currency legislation, of course the expectation of 
 a rise of prices at the reintroduction of bimetallism 
 would be greatly lessened, and the plea for com- 
 pensation for the injury done by such legislation 
 would be entirely destroyed. We are here, how- 
 ever, assuming for the purposes of argument that 
 prices would, as a fact, rise, and this point need 
 not, therefore, now be discussed. 
 
 It is to be noted that the above arguments On the 
 only prove that the low ratio cannot be demanded 
 
 on the ground of abstract justice ; they do not lism should 
 tend to show that this reform should be resisted sar ay be 
 because of its uniust effects. Most reforms cause PP? s ed on 
 
 J . . equitable 
 
 some suffering to individuals, and, although that grounds. 
 suffering should be duly weighed in considering 
 the advantages and disadvantages of any proposed 
 legislation, it must not be allowed to bar the way 
 to all progress. Reforms which will benefit com- 
 munities for all time must be judged on wide 
 
 F
 
 66 THE CHOICE OF A RATIO. [Cii. V. 
 
 national grounds, without too sensitive a considera- 
 tion for personal hardships. 
 The In passing on to consider the demand for low- 
 
 bimetallism on the grounds of expediency, 
 
 be discussed we need pay less heed to the causes which have 
 
 grounds of recently influenced prices, and we may confine our 
 
 expediency, attention to the effects of the proposed legislation ; 
 
 because the expediency of any action must be 
 
 judged entirely by its probable effects. 
 
 Assuming On the assumption that low-ratio bimetallism will 
 
 that prices /. -, , ^i / i 
 
 will be force up prices, what we now, therefore, have to 
 raised by consider is whether it will also stimulate trade ; and, 
 
 the low . . ..." 
 
 ratio, it is if so, whether such stimulated trade will in reality 
 certain that ^ e l> ene fi c i a l * the nation. This subject will be 
 trade will discussed at length in Chapter XVII. Here, per- 
 
 rilsO 1)P 
 
 stimulated, haps, it will be sufficient to quote the statement of 
 Jevons, that the fall in value of gold due to the 
 Australian discoveries had " a most powerfully bene- 
 ficial effect." Such a fall " loosens the country, as 
 nothing else could, from its old bonds of debt and 
 habit. It throw's increased rewards before all who 
 are making and acquiring wealth, somewhat at 
 the expense of those who are enjoying acquired 
 wealth. . . . All this is effected," if the fall comes 
 from new discoveries of gold, " without a breach of 
 national good faith, which nothing could compen- 
 sate." l The assumed effect of low-ratio bimetallism 
 would be in many respects similar to such a fall 
 in the value of gold, and it seems almost certain, 
 therefore, if prices are raised, that trade will 
 1 " Investigations in Currency and Finance," pp. 96, 97.
 
 CH.V.] STIMULATED TRADE. 67 
 
 be stimulated. Kaising prices is the same thing 
 as lowering the value of the standard ; and lowering 
 the value of the standard must reduce the burden 
 of fixed debts payable in that standard, and thus 
 set free capital which can be used to promote further 
 production. The probability of these beneficial 
 results is, however, far from proving the wisdom 
 or expediency of introducing such a system. 
 
 The effect of lowering the ratio between the two liut iu 
 metals must be considered with regard to silver, as ^^" 
 well as with regard to gold-using countries. Those countries 
 who advocate bimetallism from a cosmopolitan be lowered 
 point of view, must select their arguments very ^ ud , tra(J " 
 cunningly if, whilst proving that benefits are to be 
 expected from the assumed rise in prices at home, 
 they do not show that it is highly probable that 
 the same causes will result in a lowering of prices 
 in silver-using countries, to the injury of their 
 inhabitants. In the same way that lowering the 
 value of gold will ease the burden of fixed debts 
 at home, the effect of raising the value of silver 
 will be to increase the pressure of silver debts in 
 silver-using countries, thus throwing an increased 
 burden on those carrying on ordinary commercial 
 transactions. To raise prices, by means of low-ratio 
 bimetallism, would undoubtedly, in this respect, 
 be a benefit to the English manufacturer; but, if 
 it is necessarily accompanied by a lowering of silver 
 prices, would it not as certainly be a disadvantage 
 to those carrying on business in a silver-using 
 country ?
 
 68 THE CHOICE OF A RATIO. [On. V. 
 
 It is, how- It is, however, denied that the effect of bimetal- 
 nied that li sm would be to lower prices in silver-using 
 silver prices countries : if, it is urged, prices in India did not 
 
 would fall. 
 
 commence to rise in any marked manner at the 
 
 time when bimetallism was abandoned on the 
 Continent, there is no reason to suppose that they 
 would begin to fall at the re-establishment of that 
 system. There is some force in this argument. 
 There are reasons, I think, for believing that the 
 fall in prices in silver-using countries at the intro- 
 duction of low-ratio bimetallism would be less than 
 the rise in prices in gold-using countries. The 
 ratio would be adjusted by silver being taken from 
 the market for coinage purposes, thus raising its 
 value as an article of merchandise ; and by gold 
 being driven out of, or diverted from, the currency 
 into the market, thus lowering the value of that 
 metal. Now if the rise in the value of silver due 
 to the subtraction of a given value of that metal 
 from the market would be less than the fall in the 
 value of gold due to the same value of gold being 
 thrown on the market, then it follows that, in the 
 adjustment of the ratio, the fall in the value of 
 gold would be greater than the rise in the value 
 of silver ; and considering the glutted state of the 
 silver market, this would, I believe, probably be the 
 case. There is, therefore, some reason to believe 
 that the prices in silver-using countries would not 
 fall at the introduction of low-ratio bimetallism 
 as much as would at first sight appear probable. 1 
 1 Probably the fall in the gold price of silver, which has
 
 CH.V.] SILVER-USING COUNTRIES. 69 
 
 But in considering the effect of the change in the Silver- 
 ratio on our commerce with silver-using countries 
 
 (a subject to be discussed at greater length in if regarded 
 Chapters XXI. and XXII.) we must look on them W0 uld in 
 in two capacities that is, both as rivals and as * Q 7 c ? se , 
 
 be injured 
 
 customers. As rivals, the more their commerce is by the low 
 injured, the better for us. If the value of silver ia 
 does not rise when low-ratio bimetallism is being 
 introduced, it is true that there will be no reason 
 for an actual depression in trade in silver-using 
 countries. But, in that case, it is evident that the 
 value of gold must fall all the more in order to 
 bring about the necessary adjustment of the ratio ; 
 and trade in gold-using countries will be subject 
 to a proportionately greater stimulating influence. 
 Thus the relative advantage to gold-using countries 
 in this competitive trade, which would accompany a 
 given change in the ratio, would be much the same 
 whether silver did or did not rise in value ; for it 
 is the relative inflation or depression of the trade 
 of the two countries which has to be considered. 
 Silver-using countries, if regarded as rivals in 
 trade, would, therefore, in any case be injured by 
 the adoption of low-ratio bimetallism. And bimetallic 
 members of Parliament, who remember with appre- 
 ciation Sir Henry Fowler's eloquent appeal to them 
 
 occurred since 1893, would be easily reversed by the reopening 
 of the Indian mints. But internal silver prices in China and 
 Mexico, the only large silver-using countries now remaining, 
 have probably not yet risen in comparison with gold prices in 
 proportion to this fall in the gold price of silver.
 
 70 THE CHOICE OF A RATIO. [On. V. 
 
 to look upon themselves as members for India, 
 would, I imagine, feel very uncomfortable in voting 
 for any currency reform which would injure Indian 
 commerce by giving a stimulus to British competi- 
 tion, unless the plea of justice on which it was 
 demanded was based on very sure foundations, 
 but as Any stimulus to trade in gold-using countries 
 
 thTbuik w ^ create fresh demands for imported goods, and 
 of their this demand will produce a corresponding though 
 are reasons much slighter stimulating effect in silver-using 
 * believe countries. This is, I believe, strictly true in so 
 
 that the J 
 
 injury far as silver-using countries are to be regarded, not 
 y as rivals* but as customers ; and that is certainly the 
 . more important aspect of this branch of international 
 trade. Granted that this is the case, silver-using 
 countries would have no cause of complaint, in this 
 respect, on account of the inflation of trade in gold- 
 using countries due to any fall in the value of gold. 
 As to the internal trade of silver-using countries, the 
 less silver prices are forced down by any currency 
 reform, the less their trade will be depressed, 
 and the less reason they will have to complain. 
 The reasons just given for disbelieving in a heavy 
 fall in silver prices at the introduction of low-ratio 
 bimetallism have therefore an important bearing 
 on this question. Then again, it is to be noted 
 that the depressing effect due to any fall in prices 
 which might take place would be in consequence 
 of the way in which both the burden of industrial 
 debts and the rate of real wages would increase at 
 such times (see Chap. XVII.). But in the less
 
 CH. V.] INDIAN INTERESTS. 71 
 
 civilized silver-using countries such influences as 
 these would have less effect than under the complex 
 industrial systems of gold-using countries; and 
 silver-using countries would therefore suffer less 
 from a fall in prices than would appear probable 
 judging from the experience gained in gold-using 
 countries. All these circumstances mitigate the 
 injustice which it might be anticipated would be 
 done to silver-using countries by the introduction 
 of low-ratio bimetallism ; though they do not prove 
 that no harmful effects would follow that reform. 
 
 As to India, she can no longer be regarded as India 
 belonging to the category of ordinary silver-using accept 1 
 countries. By closing her mints to the free coinage market- 
 of silver, the value of the rupee has been forced up metallism, 
 above the value of the silver contained in that coin ; ? n ^ h * bls 
 and these monopoly rupees may best be regarded strongest 
 as inconvertible notes printed on silver. It is "corn- r 
 evident, therefore, that when silver is rising in promise 
 value, it will not be till the value of the silver in question, 
 the rupee becomes equal to the value of the 
 monopoly rupee itself that the value of that coin 
 will tend to rise, or that prices measured in rupees 
 will tend to fall. 1 A certain increase in the value 
 of silver would therefore do no harm to India. 
 Moreover, it would be very difficult for the Govern- 
 ment of India to adopt any bimetallic system which 
 did not raise the gold price of silver to the level 
 at which they have succeeded in maintaining the 
 gold price of the monopoly rupee. Their object in 
 1 Assuming that a gold standard is not adopted.
 
 72 THE CHOICE OF A RATIO. [On. V. 
 
 closing the mints has been to lessen the burden of 
 the gold debts of India ; and from that policy they 
 are not likely to recede. They cannot, therefore, 
 well accept market-ratio bimetallism, or indeed any 
 form of bimetallism which would lower the gold 
 price of the rupee ; for to do so would certainly in- 
 crease the amount of the silver revenue necessary 
 to meet the interest on the gold debts of India. 
 This consideration, taken in connection with the 
 facts mentioned in the preceding paragraph, appears 
 to me to afford the only strong argument in favour 
 of adopting a bimetallic system with a ratio some- 
 what lower than the ratio now ruling the market. 
 But, as previously stated, the balance of argument 
 as regards India is, I think, very strongly against 
 bimetallism with a ratio anywhere nearly approach- 
 ing the ratio of 15 to 1 ; for, though the value of 
 her gold debts would thus be greatly reduced, yet 
 the depressing effect on silver prices of such a re- 
 form, and the increased difficulty of raising a given 
 revenue in silver, would more than counterbalance 
 any such advantage to India. 
 
 The rise Returning to the consideration of the case of gold- 
 iu laid- us i n g countries, the most important fact to remember 
 using i s that probably little or no absolutely permanent 
 will pro- effect, and certainly no permanently active influence 
 duce no on trade will be produced by the immediate rise in 
 
 permanent . * ( _ J 
 
 beneficial prices due to the introduction of bimetallism at any 
 
 lce ' fixed ratio. The stimulus will become less and less 
 the more nearly we approach a position of stability 
 of prices ; and, though it may hasten the progress
 
 CH. V.] TEMPORARY EFFECTS. 73 
 
 of commerce, it is not improbable that trade would 
 ultimately reach almost the same position without 
 such artificial means being used to force it on. 
 " Of course it cannot matter," as is admitted by 
 bimetallists, " whether prices are permanently high 
 or permanently low, for commodities are ex- 
 changed against commodities " ; 1 and, therefore, 
 though it might be a long time before prices 
 ceased to rise slowly in consequence of any 
 currency reform, and before all the other inci- 
 dents of production had adjusted themselves to the 
 new level of prices, yet, when they had done so, 
 the direct beneficial influence of the rise in prices 
 on trade would have ceased to be operative. This 
 argument applies with equal force to our foreign 
 as to our home trade. Low-ratio bimetallism has 
 been advocated, as we have seen, because it is 
 hoped that it will produce an opposite effect to 
 that resulting from the gradual fall in the gold 
 price of silver. But "it would appear to be ad- 
 mitted, by almost all witnesses " before the Gold 
 and Silver Commission, that when the adjustment 
 between the levels of prices in silver and gold-using 
 countries "has been completely carried out, the 
 conditions of international trade will be precisely 
 the same as before the divergence between the 
 values of the two currencies occurred." 2 It is 
 probably true, however, that no change can take 
 
 1 Address on Bimetallism to the London Institution. H. C. 
 Gibbs, May, 1895. 
 
 2 Gold and Silver Commission, p. 35.
 
 74 THE CHOICE OF A RATIO. [On. V. 
 
 place without leaving some traces behind it; but 
 the relics of the inflation would in most cases be 
 insignificant. Thus, putting aside all the many 
 other causes affecting commerce, when the adjust- 
 ment of all the factors of trade after the intro- 
 duction of bimetallism had been completed, the 
 conditions of international and home trade would be 
 almost precisely the same as at present ; though it 
 is fair to admit that it would be a very long time 
 before this adjustment would be quite completed. 
 Bimetallists have, as a rule, advocated their pro- 
 posed system on the ground that it would increase 
 monetary stability, but here we see they are 
 demanding an unstable condition of things, with 
 the expectation that the adjustment of the in- 
 stability, so long as it continues, will have a bene- 
 ficial influence. " Stability should be the great 
 object of all proposals for monetary reform," l and 
 the nearer the ratio adopted is to the existing ratio, 
 the sooner must stability be reached. 2 
 The But even if the first influence on trade of such 
 
 stimulus 
 
 may be 1 " A Bimetallic Primer," H. C. Gibbs, p. 43. 
 
 lollo'nsed 2 It should, however, be noted that if the causes of the recent 
 fall in prices have not yet produced then- full effects, it is 
 evident the fall will continue even if we fix existing currency 
 conditions as far as possible even if the market ratio is adopted. 
 This, therefore, gives a logical argument in favour of some 
 compromise on the question of the ratio. If our object is to 
 steady prices, and not to raise or lower them, we should adopt 
 the ratio which would tend to produce the existing actual level 
 of prices as its ultimate or normal effect ; and this ratio may 
 be presumed, on this assumption, to be somewhat lower than 
 the existing ratio.
 
 CH. V.] A REACTION. 75 
 
 a rise in prices were beneficial, it is by no means 
 certain that the total effect would not be harmful. 
 If this artificial stimulant did produce exceptional 
 activity, a reaction would almost certainly follow, 
 and the evils of the depression might more than 
 counterbalance the good produced by the " over pro- 
 duction." Those who believe that this would be the 
 case must admit that it affords a strong argument in 
 favour of steady as against inflated prices. At all 
 events, the probability of a reaction must be taken as 
 a set-off against the advantages claimed for inflation. 
 
 Then again, we must ask whether a passing and the 
 stimulus to trade will benefit all classes. Putting ^ ^ 
 
 aside all those living on fixed incomes, who must 
 
 CiftSSGS IS 
 
 suffer from a rise in prices, and whose sufferings it doubtful. 
 is not now the fashion to consider, and looking only 
 to those who are working for their livings under 
 conditions which make a rise of income possible, it 
 is at first sight natural to suppose that they all must 
 gain by the change ; but this answer cannot be 
 given with certainty. If the production of luxuries 
 for the many is stationary, whilst the production of 
 luxuries for the few increases largely, we can, at all 
 events, imagine an increase of trade taking place 
 unaccompanied by any general increase of comfort, 
 or even accompanied by a decrease of comfort to the 
 many on account of the necessarily increased labour. 
 If the working classes are not to be injured, either 
 their wages must rise in proportion to the rise in 
 price of the commodities they buy, or else the 
 greater regularity of their work must augment their
 
 76 THE CHOICE OP A RATIO. [Cn. V. 
 
 total earnings sufficiently to compensate them both 
 for the extra work and for the lessened purchasing 
 power of each day's wage. Can either of these 
 results be predicted with any degree of certainty ? 
 In the case of a durable increase in the volume of 
 trade, it can hardly be doubted that a large pro- 
 portion of the increase of production would before 
 very long find its way to all classes. But when 
 the rise in prices is spasmodic, possibly creating a 
 harmful reaction, this result cannot be said even to 
 be probable. It is easy to see that the owners of 
 industrial concerns might be able to expend more 
 on luxuries out of their increased profits due to 
 higher prices ; but it is not clear that the un- 
 organized and casual labourers and employees, who 
 form the majority of the working classes, would 
 be able, before the reaction commenced, to force 
 their wages up so as to gain a proportionately in- 
 creased margin of expenditure. Moreover, strikes 
 frequently accompany the raising of wages, and on 
 this point it is interesting to note that Jevons stated 
 that " it is not unlikely that the great strikes which 
 occurred a few years ago were partly caused by the 
 depreciation of gold " due to the Australian gold 
 discoveries. We must not judge these questions 
 solely with reference to the total wealth acquired.. 
 Even if we go so far as to admit, with Jevons, 
 that "the wealth created during such a period of 
 unwonted activity probably far overbalances any 
 loss which follows," 1 we may also urge, as far as the 
 " Investigation in Currency and Finance," Jevons, p. 29.
 
 CH. V.] WAGES. 77 
 
 mass of the people is concerned, that the want and 
 suffering caused by even a moderate period of 
 depression is a heavy penalty to pay for the enjoy- 
 ments obtained by the often improvident expendi- 
 ture during seasons of inflation. Wages will keep 
 oscillating, but the social advancement of a nation 
 depends on the low tide rather than on the high tide 
 of the real value of the earnings of labour ; and we 
 must be satisfied that the net gain of wealth from 
 inflation, after deducting the " loss which follows," 
 is sufficiently great to permeate even to the ranks of 
 unorganized labour before we can be certain that the 
 results experienced during the period of disturbance 
 will, on the whole, be beneficial. In Chapter XVIII. 
 the reasons for thinking that too great a rise in 
 prices is always objectionable will be discussed at 
 greater length. Here it is sufficient to remark that 
 it is by no means clear that a violent stimulus to 
 trade, such as that resulting from the introduction 
 of low-ratio bimetallism, would be a benefit to the 
 working classes. 
 
 Thus far reasons have been given for thinking Confidence 
 that it is not certain that the whole community a ? be 
 
 shaken, 
 
 would be benefited by a temporary inflation of trade. 1 and ob- 
 But, putting aside these doubts, we must remember ^umen\a 
 that the mere proof that beneficial results will flow endorsed. 
 from any act is not enough to prove its expediency. 
 There is many an individual whose removal from the 
 
 1 The word "temporary" is here and elsewhere used in a 
 sense opposite to that of " permanent " or " perpetual ; " and 
 not as indicating duration for a short time only.
 
 78 THE CHOICE OF A RATIO. [On. V. 
 
 world would be an unquestionable and undoubted 
 benefit ; but that does not, even in such a case, 
 make murder expedient. Putting morality aside, 
 the practical objections to such a crime are that the 
 fear of a repetition of the deed creates a general 
 feeling of insecurity, and that a first offence in many 
 ways greatly facilitates a second, when the victim 
 may not be chosen on such sound principles. 
 Exactly the same type of arguments can be brought 
 against any currency reform, which is demanded on 
 the ground that it will benefit the general com- 
 munity at the expense of a minority. We cannot 
 be certain that the evils due to permanent appre- 
 hensions of further arbitrary changes in the effect of 
 contracts would not more than outweigh the benefits 
 due to any temporary inflation of trade. Then again, 
 if we once give way to the temptation to raise 
 prices artificially, we shall find it far harder to resist 
 similar movements in future. If we admit the force 
 of the arguments in favour of thus stimulating 
 commerce, we must also admit the validity of many 
 of the reasons which could be brought forward in 
 support of any proposals for tampering with the 
 coinage, or for the partial repudiation of national 
 debts ; and if a bimetallic system should ever be 
 introduced, we should have to admit nearly all the 
 pleas which might be urged in favour of a further 
 reduction in the ratio. We should thus find our 
 power of opposition to all these proposals greatly 
 weakened. 
 h * . The want of fixity of the bimetallic ratio is, at all 
 
 climb- *
 
 CH. V.] A CLIMBING RATIO. 79 
 
 events, uo fancy danger, for we have already heard ing " ratio 
 of arguments being advanced in favour of " bi- w^ 
 metallism on a climbing ratio," without any definite outcome of 
 
 11 -iiii low-ratio 
 
 reason being given why the ratio should be pre- bimetal- 
 vented from climbing above any fixed limit. And lism- 
 this climbing ratio or falling ratio, as I should 
 prefer to call it is a perfectly logical outcome of the 
 contentions of low-ratio bimetallists. They declare 
 that years of depression have been caused by a con- 
 tinually increasing divergence between the values 
 of the metals, and they want to reverse the opera- 
 tion ; but to make the ratio between silver and 
 gold give a sudden jump from that now ruling 
 the market to a ratio of 15 to 1, would in no 
 sense be a reversal of this process. If low-ratio 
 bimetallists intend to obtain a long period of 
 commercial activity to correspond to the long-drawn- 
 out depression, their policy should be to obtain, 
 under a climbing-ratio system, a period of instability 
 lasting as long as possible. Establish bimetallism 
 with the hope of inflating trade, and we shall never 
 feel that we have reached finality until, indeed, the 
 ratio is so low that gold is entirely driven out of 
 circulation, and we have practically obtained a silver 
 monometallic system. If we desire stability or 
 finality, we must at the outset resist any attempt to 
 adopt bimetallism with the view of raising prices.
 
 80 THE CHOICE OF A RATIO. [Cn. VI. 
 
 CHAPTER VI. 
 
 FKEE COINAGE OF SILVER IN THE UNITED STATES. 
 
 If free BEFORE passing on to consider any further argu- 
 the ILS!A. ments in favour of low-ratio bimetallism, it may be 
 established as we n nere briefly to allude to the monetary situa- 
 
 the parity . ' ' * 
 
 in the tion in the United btates. In that country one 01 
 
 would*' li * ne g rea t political parties has adopted the free 
 
 simply be coinage of silver at a ratio of 16 to 1 as a plank of 
 
 bimetal- its platform. If it is thus intended to introduce 
 
 lism; a low-ratio bimetallic system, all the arguments 
 
 brought forward in the two preceding chapters 
 
 against that proposal are applicable in this case. 
 
 But in these discussions it has been assumed that 
 
 the legalized ratio would coincide with the ratio 
 
 between the value of the metals in the market. 
 
 Would this be the case if the United States alone 
 
 were to commence the free coinage of silver at 16 
 
 to 1 ? Nothing is so rash as to prophesy on currency 
 
 questions, but it does seem probable that silver 
 
 would not rise in gold price to that extent. If such 
 
 legislation were ever passed in America, we may be 
 
 certain that a force would be established tending to 
 
 drive gold out of- the United States ; and that any
 
 CH. VI.] THE UNITED STATES. 81 
 
 gold flowing to Europe would tend to increase the 
 gold currency in gold-using countries and thus to 
 raise gold prices, including the gold price of silver. 
 The gold leaving the American currency and 
 reserves would be replaced by silver, and the in- 
 creased demand for silver thus caused would tend 
 to raise its value and therefore its gold price. 
 Would these two movements raise the gold price of 
 silver until the ratio in the market became 16 to 1 ? 
 If the proposed legislation really produced that 
 result, and the ratio of 16 to 1 was maintained in 
 the market, then the United States would, in future, 
 play the same part that France and the Latin 
 Union played before 1873 ; that nation alone would 
 control the relative value of the two metals through- 
 out the world by its bimetallic laws. The advocates 
 of this policy declare that the United States is 
 certainly as able to do this now as France was able 
 to do it in the past. If this is really the case, then 
 the proposed American reform would simply be the 
 establishment of low-ratio bimetallism, and we must 
 judge it accordingly. 
 
 But on the whole it appears improbable that the but if that 
 action of the United States alone could have the the case, 
 desired effect on the relative values of the precious the ff? 1 * 
 
 would be 
 
 metals. If it be a fact that France and the Latin silver 
 Union could have maintained the ratio of 15 to 1 
 until the present day, then it is no doubt possible 
 that the United States might now be able to esta- 
 blish the ratio of 16 to 1 in the market ; but, even on 
 this assumption, we cannot say that this is more than
 
 82 THE CHOICE OF A EATIO. [On. VI. 
 
 a possibility. Thirty years ago it was generally 
 believed that the parity of exchange between the 
 metals would always be approximately maintained, 
 and that belief was a force which may then have 
 helped to make the bimetallic laws more effective. 
 That force is now non-existent. Moreover, to sud- 
 denly alter the ratio from, say, 35 to 1 to 16 to 1 
 is a very different operation from preventing that 
 ratio from altering after it has once been established. 
 Many bimetallists consider that the Latin Union 
 alone could hardly have maintained the old ratio 
 approximately unaltered in face of the many forces 
 recently arrayed against silver ; and nearly all 
 European bimetallists think that it would be unwise 
 to attempt to introduce a bimetallic system without 
 an international agreement comprising many of the 
 principal commercial nations. Thus even keen bi- 
 metallists may logically anticipate that the value 
 of the American dollar would sink until it coincided 
 with the value of the silver metal in the coin, and 
 this without the gold price of silver rising until 
 the ratio became 16 to 1. If these anticipations 
 are correct, the parity in the market would not be 
 established ; gold would cease to circulate as legal 
 tender in the United States ; and the currency 
 would consist of one metal only. In fact, the 
 reform would not be bimetallism at all; it would 
 be silver monometallism, combined with a sudden 
 drop in the value of the standard coin. 
 
 If France were to join in this bimetallic move- 
 ment, no doubt the success of the enterprise would
 
 CH. VI.] THE UNITED STATES. 83 
 
 be more probable. But even in that case grave 
 doubts may well be entertained as to whether the 
 selected ratio could be maintained in the market in 
 the face of the probably greatly increased produc- 
 tion of silver. 
 
 It has been seen that bimetallic legislation would, This 
 in any case, produce a tendency for gold to depre- 
 ciate and for silver to appreciate. If the legalized would 
 ratio were not established in the market, it would debts less 
 be because the depreciation of gold and the appre- ^J ilver 
 ciation of silver were not sufficient to produce that than true 
 result ; that is to say, the value of gold would not 
 be as much reduced as if a true international bi- 
 metallic system were successfully adopted. Thus, 
 with this nominal bimetallism, the diminution of 
 the value of debts payable in gold, including 
 much of the indebtedness to Europe, would be less 
 than under international bimetallism ; this, how- 
 ever, would be an unintentional result of the free- 
 coinage policy, and one for which the authors of 
 the scheme can take no credit. The great bulk 
 of the debts of a nation are, however, contracted 
 in legal tender, and are not payable in a definite 
 metal ; and it is to these obligations that the 
 American citizens should turn their main attention. 
 If the bimetallic ratio were not established in the 
 market, the value of silver would not rise so much 
 as if that result were obtained ; the fall in the value 
 of the dollar would be even greater than if a true 
 bimetallic system at 16 to 1 were successfully in- 
 troduced ; and, putting aside the results of the
 
 84 THE CHOICE OF A KATIO. [On. VI. 
 
 commercial panic which such a reform would cer- 
 tainly produce, it would seem that prices would be 
 raised even higher than if the parity of the metals 
 was established and maintained. Thus those who 
 think it right to attempt to raise prices in this 
 manner have theoretical grounds for hoping to 
 achieve their ends even more effectively, as far 
 as internal debts are concerned, by this kind of 
 nominal bimetallism than by means of a currency 
 system which succeeded in maintaining the adopted 
 ratio in the market ; but to those who think such 
 methods should be condemned, this proposal will 
 appear doubly objectionable. 
 
 The plea It is true that the demand for the joint standard 
 metallism n the grounds of abstract justice is somewhat 
 on the stronger in the case of the United States than it is 
 
 ground ot . 
 
 abstract with the United Kingdom, where bimetallism was 
 somewhat abandoned in 1816. Had no changes in monetary 
 stronger laws been made in 1873 and in subsequent years, 
 of the the currency of the United States would now be 
 bimetallic; and, as regards all debts contracted 
 before that date, bimetallism would merely re-estab- 
 lish the legal conditions in force at the time at 
 which such debts were contracted. But, even in the 
 case of the United States, it is, I think, undoubtedly 
 true that the great majority of existing debts were 
 contracted since the abandonment of bimetallism ; 
 and that the number of creditors inequitably in- 
 jured would exceed the number of debtors who 
 could, adopting the bimetallic view of equity, be said 
 to be equitably compensated. With regard, also, to
 
 THE UNITED STATES. 85 
 
 debts contracted in the bimetallic times, previous 
 to 1873, it must be remembered that the majority 
 have changed hands in the interval, and that the 
 price paid was based on the belief that the Govern- 
 ment intended to maintain the existing condition of 
 things ; the purchasers would, therefore, be just as 
 much injured by a reduction in the value of the 
 dollar, and almost as inequitably, as if the debt had 
 been contracted recently. 
 
 Of course if on the establishment of low-ratio The free- 
 bimetallism the ratio was not maintained, then the ^ c r 
 dollar would cease to retain its present gold value, illustrates 
 
 ,, . , . ,, ,, ,, the dangers 
 
 But this does not very materially alter the case O f i ow . 
 from an equitable point of view ; because, if the rat i.| ) . 1 " 
 
 ...... metalhsra. 
 
 United States could not now establish the parity 
 
 between the metals, it is most probable that, had 
 
 the old bimetallic laws remained in force, the dollar 
 
 would now have sunk to its value in silver. In that 
 
 case, also, it would therefore be true that the free 
 
 coinage of silver would, as far as a large number 
 
 of debts is concerned, merely be a return to the 
 
 conditions which would have existed if no change 
 
 in the monetary laws had been made ; and it makes 
 
 the matter little if any worse from the point of view 
 
 of abstract justice. But these considerations do 
 
 illustrate, and illustrate very forcibly, the dangers 
 
 of low-ratio bimetallism. For here we see that an 
 
 arbitrary reduction of internal debts to an unknown 
 
 amount, possibly rising to a maximum of nearly 
 
 fifty per cent., can be defended by much the same 
 
 arguments as those which must, I think, be used by
 
 86 THE CHOICE OF A RATIO. [On. VI. 
 
 low-ratio bimetallists. And do not let us imagine 
 that in England we are free from such dangers ; 
 for here in past times we have heard " arguments 
 in favour of the change to a silver standard, which 
 are neither more nor less than pleas for deprecia- 
 tion, and consequently for debtors generally at 
 the expense of their creditors, in violation of the 
 broadest principles of justice and sound policy." l 
 1 Tooke's " History of Prices," vol. iii. p. 215, 1840.
 
 CH. VII.] FOR THE LOW RATIO. 87 
 
 CHAPTER VII. 
 
 ARGUMENTS IN FAVOUR OF A LOW RATIO. 
 
 IT has been urged in favour of the low, or the 15 If the 
 to 1 ratio, that the total amount of silver now in currency 
 existence in the currencies of the world weighs 151 weighs 
 
 -,-,-1' ii 15J times 
 
 times as much as the total gold coinage, and that the gold 
 
 this, therefore, seems to be the natural ratio to adopt. 
 This is often gravely brought forward as an argu- no argu- 
 ment, without the slightest hint being given why 
 there should be any connection between the ratio of ratio - 
 the weights and the ratio of the values of the metals. 
 As thus stated, the fact has no more argumentative 
 value than a bad pun. It might, no doubt, be 
 urged that the chance of one or other of the metals 
 being driven out of circulation by unforeseen cir- 
 cumstances would be reduced to a minimum if the 
 currency was equally divided between silver and 
 gold, the metals being measured by their value. 
 Now, if it be a fact that the existing silver coinage 
 weighs 15 times the existing gold coinage, it is true 
 that, at the first introduction of bimetallism at a 
 15 to 1 ratio, the total value of the two metals in 
 circulation would be the same, and we should have
 
 88 THE CHOICE OF A RATIO. [Cn. VII. 
 
 obtained this theoretical advantage. But such a 
 ratio would, as we have seen, raise the value of silver 
 as compared with other commodities, as well as in 
 comparison with gold ; this would have the double 
 effect of stimulating the silver-mining industry, and 
 of diminishing the demand for silver in the arts; 
 and for both reasons, the amount of silver in cir- 
 culation would be increased more or less rapidly. 
 Moreover, the amount of gold in circulation would 
 be diminished in similar ways; and the equality 
 of value of gold and silver in the currencies of the 
 world at first obtained would very soon be destroyed. 
 If any weight at all is to be attached to this argu- 
 ment, which is doubtful, it points to the adoption 
 of a ratio higher, but no one can say how much 
 higher, than 15^ to I. 1 
 
 The ratio It has also been urged that the fact of a ratio 
 should be between 15 to 1 and 16 to 1 having existed for so 
 mosUikel man y vears > points to the conclusion that the safest 
 to survive,' course would be to go back to the old and well- 
 difficult* to tr ^ ra ti f 1'^i to 1- But this is hardly a strong 
 
 select that argument in the mouth of a bimetallist; for the 
 ratio. 
 
 1 In a similar manner it might be argued that the maximum 
 stability would be obtained if the two streams of metals flowing 
 into the common reservoir were of equal volume ; that the value 
 of the total output of silver should be equal to the value of the 
 total output of gold. This would indicate a ratio of 19 to 1, 
 taking the relative output in 1893, 1894, and 1895 as a guide. 
 But this argument, in the same way, in reality only points to 
 some ratio an indefinite amount higher than the ratio of 19 to 1 
 as being theoretically the best ; for, with a ratio of 19 to 1, the 
 output of silver would increase.
 
 CH. VII.] CHANCE OF SURVIVAL. 89 
 
 continued existence, before 1873, of the low ratio 
 pointed, according to the bimetallic theory, to the 
 continued existence of laws legalizing a low ratio, 
 and not to any inherent qualities in the metals 
 themselves. The ratio to be aimed at is no doubt 
 the one most likely to maintain a large proportion 
 of both metals in circulation ; but it is extremely 
 difficult to ascertain what ratio would fulfil that 
 condition. Those who believe in a flood of silver 
 would select a high ratio to check that flood ; but 
 those who believe that the production of gold will 
 increase more rapidly than that of silver would 
 naturally endeavour to equalize the output by means 
 of a low ratio. It has been seen that if a bimetallic 
 system were being started in an isolated country 
 without a metallic currency, the natural ratio would 
 be the safest one to adopt. But what is the natural 
 ratio ? If all the gold and all the silver coin in the 
 world were demonetized, the natural ratio would 
 then in time be established in the market ; but 
 who would venture to predict what would be the 
 ultimate effect on the relative values of the metals 
 of such an event ? The gold coinage of the world 
 is now more valuable than the silver coinage, and 
 therefore it might be argued that gold would fall 
 in value more than silver if the whole, or even if 
 an equal proportional part, of the two metals were 
 demonetized ; that is to say, that the natural ratio 
 would be lower than the existing ratio. But, on the 
 other hand, the recent rise in the ratio, if due to 
 inherent causes, seems to point to natural forces
 
 90 THE CHOICE OF A RATIO. [Cn. VII. 
 
 tending in the opposite direction. The choice of 
 the best ratio to adopt ought to be largely de- 
 pendent on the relative cost of production of the 
 two metals, and on this point we are badly in need 
 of more accurate information. 
 
 Thus far the balance of argument has been against 
 the adoption of the low ratio, but there are some 
 points in its favour which are well worthy of 
 consideration. 
 
 Thegreater In the first place it is urged that the lower the 
 Spricl ratio ' the more perfectly will the currency fulfil its 
 is said to function as a standard of value. It is well known 
 ttufadop- that prices as measured by gold gold prices 
 k ftve keen filing during the last twenty years ; and, 
 neglecting oscillations extending over periods of 
 less than five or six years, it also appears to be 
 almost certainly true that prices as measured by 
 silver silver prices have been comparatively 
 steady. From these facts it has been argued that 
 silver is inherently a better standard of value than 
 gold, and that the greater the weight given to 
 silver in the bimetallic marriage, the more stable 
 will prices be as measured by the joint standard. 
 The effects of appreciating and depreciating 
 standards of value will be discussed at length in 
 Chapters XVII., XVIII., and XIX. ; but, assuming 
 for the present that the fall in gold prices has 
 been too rapid for the well-being of the com- 
 munity, this argument, no doubt, points to a low 
 ratio; for to establish the ratio of 15 to 1 would 
 undoubtedly encourage the production and coinage
 
 OH. VII.] STABILITY OP SILVER PRICES. 91 
 
 of silver, and discourage the production and coin- 
 age of gold. And if a larger proportion of silver in 
 the joint currency will produce a better standard of 
 value, this is a legitimate argument against adopting 
 the market ratio, and one which must be considered. 
 
 Bimetallists, as a rule, declare that the fall in If the fall 
 the gold price of silver has been due to the increased s i\ V ea 
 use of gold and the diminished use of silver on the due either 
 
 , c ,.. -iii .to bimetal- 
 
 Continent, and on this point, as will be seen later H C legisla- 
 
 on, they are probably more or less justified in their ^rieutal 
 conclusions. 1 But when they go on to state that cpnserva- 
 the influences which caused this fall in the gold a ^' e 
 
 price of silver have been influences which affected argument 
 
 i -i ! -i IT 11 is unsound; 
 
 gold and not silver that gold prices, in gold-using 
 countries, have been greatly influenced, and that 
 silver prices, in silver-using countries, hardly in- 
 fluenced at all by the demonetization of silver in 
 Europe and the United States, they do not support 
 their contentions with solid arguments. It would 
 appear far more probable that prices have been 
 affected everywhere by this currency legislation 
 tending to discourage the use of silver and to en- 
 courage the use of gold ; that, as a result of other 
 causes, there would have been a more or less con- 
 siderable fall in prices everywhere, if bimetallism 
 had been effectively maintained, both in silver-using 
 and gold-using countries; that the influence of 
 these alterations in the currencies of Europe and 
 America has been to increase this fall in prices in 
 gold-using countries, and to diminish or cancel it in 
 1 See Chapter XV.
 
 92 THE CHOICE OF A RATIO. [On. VII. 
 
 the silver-using countries ; and that the steadiness 
 of Indian prices before 1893 may, therefore, be said, 
 in a sense, to be due to the abandonment of bi- 
 metallism in Europe. Moreover, it has been 
 suggested that the greater stability of Eastern 
 prices is partly accounted for by the greater con- 
 servatism of the people; but, if so, it is evident 
 that to that extent it has nothing to do with the 
 standard value. 1 And to whatever extent we admit 
 the superior steadiness of silver prices to have been 
 due, either to the abandonment of bimetallism in 
 Europe or to the less advanced methods of trade 
 in the East, to that extent do we destroy the argu- 
 ment that silver ought to be given extra weight 
 in the bimetallic marriage, because of its inherent 
 but if it is tendency to produce more stable prices. If, on the 
 tcTinherent other hand, the change in the relative value of the 
 causes, this precious metals has been largely due to causes other 
 to the than the lessened demand for silver and the in- 
 ratio'beino- crease( ^ demand for gold for monetary purposes- 
 nearer than in fact, that it has been largely due to qualities 
 ratio to inherent in the metals themselves then, no doubt, 
 the natural this argument in favour of silver is logical. But, 
 assuming that the divergence in the value of the 
 metals has been due to such inherent causes, then 
 it seems probable that the present ratio in the 
 market is nearer to the natural ratio than is the 
 
 1 This explanation of the superior steadiness of silver prices 
 might account for it as far as short-period oscillations are con- 
 cerned ; that is, for the kind of steadiness which has not been 
 proved to exist.
 
 CH. VII.] FUTURE OUTPUT OF METAL. 93 
 
 ratio of 15 to 1 ; and that by adopting the market 
 ratio we shall subject the bimetallic tie to a less 
 severe strain than if we re-establish the ratio of 15 
 to 1, and thus reverse the natural process which, 
 according to this view, has been in operation since 
 1873. In fact, to whatever extent this contention 
 in favour of silver is not fallacious, to that extent 
 an argument pointing in the opposite direction in 
 favour of the market ratio has to be weighed in 
 the balance. 
 
 The arguments above discussed, as well as some These 
 other points which will be considered in this chapter, 
 
 are all founded on the monetary and mining ex- that . the 
 
 existing 
 
 periences of the last few years. As to the superior conditions 
 steadiness of silver prices, if we look to more ancient t/ nsetc" 
 history, it would be difficult to prove which standard will con- 
 has varied most. And such records as are available which is im- 
 are not very apposite ; for, up till 1873 that is, probable. 
 while any of the great Powers had bimetallic laws in 
 force such oscillations in the relative value of the 
 two metals as did occur are but little guide as to 
 what would have happened if these imperfect bi- 
 metallic ties had not existed. Judging by the past 
 variations in output, it seems probable that each 
 metal, if it remains free, will at some future time, 
 near or distant, tend to appreciate, and at other 
 times tend to depreciate. If this is a true forecast, 
 all that bimetallists can hope to do is to tie the two 
 standards together, so that, when causes tending to 
 produce instability in the value of one metal only 
 are operative, the tendency of the joint standard to
 
 94 THE CHOICE OF A RATIO. [On. VII. 
 
 vary in value will be mitigated by the weight of the 
 other metal. They can hardly hope to predict what 
 ratio will produce the most stable currency in the 
 long run. 
 
 The ratio Other and more weighty arguments in favour of 
 should be *^ e ^ ow ra ^i can > however, be brought forward, if it 
 the one be granted, as, I think, the discussions in these later 
 the greatest chapters will prove, that a change from stable prices 
 annual ^ o f a i}i n or prices is more harmful than a change to 
 
 increment _ _ 
 
 of money, rising prices, and that (though this is more doubt- 
 doubtful ful) a currency with a permanent tendency to 
 
 what that appreciate is objectionable. The coinage in circu- 
 
 ratio would *T . ,...,. 
 
 be. lation is always diminishing through wear and tear 
 
 and loss, and such a diminution of the currency 
 must be a force tending to raise prices. Then 
 again, the natural increase of the population must 
 be accompanied by an increase of money, or else, 
 other things remaining the same, the strain on the 
 currency will increase. An annual increment of 
 metallic money is therefore normally necessary to 
 prevent prices from tending to rise as a result of 
 these two causes ; and it would be better to err 
 on the side of too great an increment rather than 
 in the opposite direction, because a rise in prices, 
 though objectionable, is, generally speaking, not so 
 harmful as a fall in prices. Accepting these pre- 
 mises in so far as the effect of the standard of value 
 in the future is concerned, the bimetallic ratio most 
 likely to produce the greatest proportional annual 
 increment of coinage is the one to be adopted. Mr. 
 Foxwell says, that " the fundamental consideration
 
 CH. VII.] FUTURE OUTPUT OF METAL. 95 
 
 determining the choice of a ratio is the considera- 
 tion which ratio is most likely to give us such a 
 supply of money as will duly keep pace with the 
 requirements of advancing population and trade. 
 This is a matter which depends on estimates none 
 of which can be very exact. It seems clear that 
 the higher the gold price of silver the larger will 
 be the available supply of money." l And in another 
 place the same author tells us that " it is the 
 opinion of certain experts that a rise in the price 
 of silver in relation to gold would increase its 
 production. But it is very doubtful if any similar 
 effect on the supply of gold would result from an 
 alteration of the ratio in favour of gold." This 
 consideration, therefore, points to the adoption of 
 the low ratio. But if Lord Aldenham, another 
 great bimetallic authority, is right in saying (as 
 I understand him) that any prophecy as to the 
 probable increase of the output of silver on the 
 introduction of bimetallism " is in a great degree 
 guesswork," it would hardly appear that a very 
 forcible argument can be founded on this basis. 2 
 No doubt, when capital has been invested in any 
 industrial concern, the undertaking is not readily 
 abandoned even when it ceases to be profitable ; 
 and it follows that, if the value of gold were 
 lowered and the value of silver raised by any 
 bimetallic legislation, we might expect that the 
 diminution in the output of gold, through the 
 
 1 National Liberal Club : " Pol. Econ. Circle," vol. ii. p. 194. 
 - ; ' Colloquy on Currency," p. 73.
 
 96 THE CHOICE OF A RATIO. [On. VII. 
 
 abandonment of expensively worked mines, would 
 be a slower process than the increase in the output 
 of silver through the opening of new mines. Low- 
 ratio bimetallism would, therefore, in the first in- 
 stance, be accompanied by an increased total output 
 of the metals ; this would result in an increase 
 in the currency, and it would be an additional 
 reason for anticipating an upward movement of 
 prices in gold-using countries. But, if the ratio 
 of 60 to 1 were adopted, similar results might be 
 expected to follow, except that the increase of pro- 
 duction would be in gold and not in silver ; and, in 
 this case, the additional production would act as a 
 check on the fall in prices in gold-using countries 
 which would follow such a form of bimetallism. In 
 fact, any departure from the ratio in the market 
 would tend in this way to increase the output of 
 the metals. But in any case the results would be 
 merely temporary ; for unprofitable mines would 
 be closed before very long, and the mining indus- 
 tries would gradually accommodate themselves to 
 the new relative values resulting from the introduc- 
 tion of bimetallism ; and, after the completion of 
 such an adjustment, I am unable to see why it is 
 thought that one ratio is likely to produce a greater 
 annual increment of metallic money rather than 
 another. But this, no doubt, is a question for ex- 
 perts, and one well worthy of consideration. 1 
 
 1 If I understand Prof. Foxwell's argument right, it is depen- 
 dent on the assumption that the greater the weight that is given 
 to silver in the bimetallic tie, the less will be the tendency for
 
 CH. VIL] THE CHOICE OF A RATIO. 97 
 
 In Chapter V. it was seen that the stimulus to The desire 
 trade, due to a rise in prices, on the introduction of continuous 
 low-ratio bimetallism is not a sufficient justification fall in _ 
 
 pricGS is 
 
 for adopting that system. On the other hand, it has not in- 
 just been admitted that we ought to adopt the ratio ^J^ 1 "* 
 which is least likely to cause a continuous fall in objection 
 prices in the future. These two attitudes may at attempt to 
 first sight appear somewhat contradictory ; but they inflate 
 are not so, and the distinction between the two 
 views is important. If prices are raised through the 
 introduction of low-ratio bimetallism, the active 
 beneficial influence will die out in time, and the 
 advantages aimed at are for one generation at 
 most ; the comparatively sudden rise in prices which 
 would probably follow such a reform, would almost 
 certainly be followed by a reaction more or less 
 severe ; and, as there would be a temptation to 
 produce another rise in prices by a further altera- 
 tion in the ratio, the confidence in the maintenance 
 of the system when adopted would be shaken by the 
 very arguments used in favour of its adoption. But 
 to advocate the selection of a ratio whatever that 
 ratio might be which would be most likely to 
 permanently lessen the tendency to falling prices 
 is to seek advantages of a very different order. To 
 prevent prices from permanently declining would 
 
 the currency to appreciate, not only in the immediate future, 
 but also in perpetuity. If this is true, does it not follow that 
 there will be perpetual tendency on the part of silver to fall in 
 value as compared with gold ? And if there is such a tendency, 
 bimetallism at a fixed ratio cannot last indefinitely. 
 
 H
 
 98 THE CHOICE OF A RATIO. [On. VII. 
 
 probably produce permanent benefits ; it could not 
 tend to produce any reaction ; and the temptation 
 to a further alteration in the ratio would hardly 
 be stimulated by any arguments based on the en- 
 deavour to secure such advantages. If it is true 
 that, after the disturbances due to the reform had 
 subsided, low-ratio bimetallism would be more 
 likely than market-ratio bimetallism to prevent 
 prices from falling, then this is a point in its favour. 
 I do not myself think that much weight should be 
 attached to these pleas in favour of a low ratio, but 
 to say that they are worthy of being weighed in 
 the balance when selecting a ratio is not incon- 
 sistent with the attitude adopted in Chapter V. 
 The effect One other argument in favour of the low ratio 
 recohiage rema i ns to be considered. It was seen that the 
 of silver adoption of the market ratio might necessitate 
 market the recoinage of a portion, large or small, of the 
 ratio to be existing silver-token coinage, and that, when re- 
 coined, its nominal value would be diminished. 
 This would be equivalent to a contraction of the 
 currency, and it would, therefore, be a cause tending 
 to produce a further fall in prices a result certainly 
 not to be desired. My own impression is that very 
 little recoinage would be necessary, and that the 
 consequent fall in prices would be very small. 
 These pleas In this chapter some reasons have been given for 
 ratio h are W Demanding a compromise on the question of the 
 not strong, ratio, which are worthy of consideration, although, 
 in my opinion, no great weight should be attached 
 to them.
 
 OH. VIII.] AGAINST THE LOW RATIO. 99 
 
 CHAPTER VIII. 
 
 ARGUMENTS AGAINST THE LOW RATIO. 
 
 IN considering some of the dangers which would If the 
 attend a breakdown of a bimetallic system if once 
 
 established, we may fairly place the advocates bimetal- 
 of the low ratio on the horns of a dilemma. If i873caused 
 trade has not been depressed during the last twenty ^depression 
 years, or if its depression has had nothing to do we shouid 
 with the abandonment of bimetallism on the Con- 
 
 tinent, then bimetallists themselves would be the recurrence 
 first to admit that their case for the re-establishment evil. 
 of the low ratio would be nearly destroyed. If, on 
 the other hand, we admit that more than twenty 
 years of distress have been due to the action of the 
 Latin Union in abandoning bimetallism, surely it is 
 obvious that we ought to jealously guard against 
 the chance of a recurrence of this trouble. But, if 
 we adopt the ratio of 15^ to 1, we are going to re- 
 produce, as far as possible, the monetary situation 
 which existed in 1873 ; we are going, in fact, to 
 place the world under financial conditions which 
 would, according to the views of bimetallists, 
 necessitate a breakdown of the system being
 
 100 THE CHOICE OF A RATIO. [Cn. VIII. 
 
 followed by a long period of commercial depression. 
 This is a risk that must be considered, because, 
 since bimetallism is absolutely dependent on inter- 
 national agreements, bimetallists cannot assert with 
 certainty that it would last for ever. Bimetallists 
 admit, as already pointed out, that it is falling 
 prices, not low prices, which do the mischief ; if this 
 is so, it is evident that during all this period of 
 falling prices which we have just passed through, 
 forces have been at work tending to readjust the 
 burdens on industry, and that these forces have 
 already neutralized part of the evil effect of the fall 
 in prices. We have, so bimetallists would urge, paid 
 a heavy penalty for the folly of abandoning bi- 
 metallism ; but surely it would be equally an act of 
 folly to place ourselves in such a position that we 
 might have to undergo that punishment again 
 through no fault of our own. This is a strong argu- 
 ment against low-ratio bimetallism, but it is one 
 which cannot be urged against a bimetallic system 
 if the ratio adopted is that ruling the market when 
 it is introduced. If, in case of the continuance 
 of the existing monometallic system, there are 
 troubles in store for us which might be cured 
 or alleviated by market-ratio bimetallism, these 
 troubles would merely be postponed but not in- 
 creased by the adoption of that system for a limited 
 period ; the return to monometallism after such a 
 temporary bimetallic period would leave us where 
 we are now as far as the ratio is concerned, and 
 the troubles due to a further divergence in the
 
 CH.VIIL] THE NATURAL RATIO. 101 
 
 values of the metals would have to be faced then 
 instead of now. Monometallists may attach little 
 importance to this argument, but bimetallists must, 
 I think, admit that it tells greatly in favour of the 
 market ratio. 
 
 Bimetallism once established, bimetallists would The 
 evidently look upon its abandonment as a great mis- of the " 
 
 fortune, and the greater the probability of per- m /J n *y,, 
 
 1 1 i of tne Gold 
 
 manency, the better, in their opinion, would be the and Silver 
 
 system. On these grounds also the low ratio must ^ j^ s c ~ an 
 be condemned. The monometallic members of the only be 
 Gold and Silver Commission reported that a stable four o7 
 ratio might be maintained if the market ratio were ^ P os ^- 
 
 bihty of 
 
 adopted, but their great authority cannot be quoted maintain - 
 in favour of the maintenance of the low ratio, a ^frket 
 system which they considered " would be fraught ratio. 
 with serious danger." 1 It is, in fact, generally 
 admitted that bimetallism can only be maintained if 
 the ratio adopted does not differ too much from the 
 natural ratio of the values of the metals, and, from 
 this point of view, it would seem reasonable to sup- 
 pose that bimetallism had a better chance of survival 
 with a market ratio than with a ratio of 15 to 1. 
 But the arguments in the last chapter show that 
 no very great weight can be attached to this conten- 
 tion, because there may be an ample margin of 
 safety whether we adopt the market or the low ratio, 
 and also because it is very doubtful which of the 
 two is in reality nearer to the natural ratio. 
 
 The chief danger of the low ratio will, probably, The low , , 
 
 ratio would 
 1 Gold and Silver Commission, p. 85. induce
 
 102 THE CHOICE OF A KATIO. [On. VIII. 
 
 govern- lie in the temptation to hoard gold which it will 
 hoard gold cause. The bimetallic members of the Gold and 
 rather than Silver Commission, whose authority ought not to be 
 this would lightly neglected, declared that " all inducement to 
 dement accumulate gold would cease with a return to a 
 of in- stable ratio of value between " l the metals ; but they 
 
 , T*I*J * 
 
 may have forgotten that the whole world would not 
 have their implicit faith in the durability of the 
 system. We may well have doubts as to what would 
 happen in reality if a bimetallic system broke down, 
 but we can speculate with far greater certainty as to 
 anticipated effects of a breakdown whilst yet the 
 system remained unshaken ; and it can hardly be 
 denied that there would be a general expectation 
 that the abandonment of bimetallism would be 
 accompanied by return to gold monometallism in 
 those countries where that system now prevails^ 
 whilst doubts might be entertained as to whether 
 some of the existing silver-using countries would 
 not take the opportunity of adopting gold as their 
 single standard. Arguing from this belief, it would 
 be generally held that the abandonment of low-ratio 
 bimetallism would be followed by a rise in the ratio, 
 leading to a difference in value between the metals 
 as great or even greater than that which now exists. 
 The various governments would, in all probability, 
 believe that if they hoarded silver, they would find, 
 on the breakdown of the system, that the only way 
 they could avoid a loss on that metal would be to 
 convert it into token coinage at a very false ratio ; 
 1 Final Report of Gold and Silver Commission, p. 103.
 
 CH. VIII.] HOARDED GOLD. 103 
 
 and the memory of the present condition of the 
 French currency would be a warning to them not to 
 fall into the trap in which that nation has been 
 caught. But if gold were hoarded instead of silver, 
 the reserves thus accumulated would consist of the 
 metal which, it would be thought, would increase 
 rather than that which would decrease in value on 
 a return to a monometallic system. For this reason 
 it would be thought desirable that the currency 
 should be composed of gold rather than silver, and 
 to bring about that result, greater facilities would, 
 perhaps, be given for the coinage of gold rather 
 than for the coinage of silver ; and this might be 
 done in ways difficult to control by international 
 agreement. The fear that other nations were doing 
 these things would make every Government sus- 
 picious, and this, in itself, would be an element of 
 instability. If any one of the great Powers had 
 either hoarded a large amount of gold, or had in 
 any way attracted an unusual supply of that metal 
 within its dominions, its Government might be 
 tempted to adopt monometallism, in the hope that 
 this action would break up the Bimetallic Union 
 and destroy the bimetallic tie, and that this would 
 lead to an increase in the value of their gold 
 currency and reserves ; this would be especially 
 probable at the commencement of a war, when 
 one or other of the combatants might think they 
 could thus gain a distinct advantage over their 
 opponents. . Thus the belief that gold would 
 increase in value at any general abandonment of
 
 104 THE CHOICE OF A RATIO. [On. VIIL 
 
 bimetallism a belief which almost certainly would 
 exist would evidently be a cause of danger to a 
 low-ratio bimetallic system. Whereas, if the ratio 
 adopted was the one governing the market at the 
 time the system was introduced, it would be im- 
 possible for any one to predict, after the lapse of a 
 few years, which metal would go to a premium on 
 a return to monometallism ; there would, therefore, 
 be no inducement, as far as this consideration was 
 concerned, to hold one metal rather than the other 
 in reserve, and this possible cause of a breakdown 
 would be non-existent. 
 The low The anticipation of an increase in the value of 
 as com P are d w it n silver that is, in the silver 
 
 likely than price of gold at the breakdown of a low-ratio bi- 
 ratiote> r e metallic system, might also give rise to the practice 
 encourage o f making contracts in gold coins instead of legal 
 
 "contract- & 
 
 ing- out." tender, in order to insure the creditor against any 
 loss in the event of such a breakdown. In these 
 circumstances, gold rather than silver would be held 
 in reserve by all debtors making such contracts, and, 
 if these negotiations were sufficiently numerous, 
 this separate use of gold might drive it to a premium 
 compared with silver. With the market-ratio system, 
 on the other hand, it has been seen that no one 
 could tell which metal would go to a premium at 
 the break down of the system, and the fear of such 
 a possibility would create no special inducement to 
 make contracts in either metal in place of legal 
 tender. It should be noted, however, that as more 
 than 99 per cent, of the monetary transactions in
 
 CH. VIII.] CONTRACTING OUT. 105 
 
 England are in credit and not in coin, and that as 
 the credit instruments employed, under a bimetallic 
 system, would be based on silver and gold indif- 
 ferently, the separate use of gold would be attended 
 with considerable inconvenience. For this reason 
 separate contracts in gold would, I believe, be rare 
 under any bimetallic system. 1 But the point of 
 the present argument is to show that if this is a 
 real danger to bimetallism, it is one which would 
 be comparatively little felt if the market ratio 
 were adopted. 
 
 1 About forty years ago, when the same scare prevailed about 
 gold that now prevails about silver, a certain great water-power 
 in Massachusetts was leased at a rent of so many pennyweights 
 of silver. The inconvenience of this plan prevented it being 
 common. See Consular Reports, U.S.A., vol. 24, p. 401, 1887.
 
 106 THE CHOICE OF A RATIO. [Cn. IX. 
 
 CHAPTEE IX. 
 
 CONCLUSIONS AS TO THE CHOICE OF A RATIO. 
 
 Summary HAVING discussed the merits and demerits of the 
 
 relative rft ti of 15J to 1, as compared with a ratio closely 
 
 merits of approximating to that governing the market at the 
 
 ferent" time of the introduction of the bimetallic system, 
 
 ratios as j^ on iy remains to recapitulate the various arguments, 
 
 regards the ^ 
 
 conflicting and to strike a balance between them. Keasons 
 serrate f nave been given for believing that a low ratio would 
 nationali- in certain respects be advantageous to France, to 
 the United States, and to the Government of India, 
 and disadvantageous to England ; and that it would 
 be a cause tending to stimulate or inflate trade in 
 gold-using countries, and to depress it in those where 
 silver forms the standard. Here there is a balance 
 of conflicting interests, and no reasons can be given 
 why one nation or the other should give way, unless 
 it can be proved that by so doing the world at 
 large would be so much benefited, that each separate 
 nation would be indemnified for its individual losses. 
 What, then, are the advantages and disadvantages 
 of the low ratio, which would be applicable to all 
 alike ? To answer this question, we find ourselves
 
 It'S 
 
 CH. IX.] SUMMARY. 107 
 
 involved in the controversy whether it is right and 
 expedient to attempt to stimulate trade by raising 
 gold prices. 
 
 In discussing this subject, it was first assumed, 
 for the purposes of argument, that there would be a 
 rise in prices in gold-using countries, if the ratio 
 of 15^ to 1 were adopted, and, on that assumption, 
 the relative advantages and disadvantages were 
 found to be as follows : 
 
 For the 15 to 1, or Low Ratio. Such a form Summary 
 of bimetallism would, in all probability, produce * *^ ent9 
 an increased activity of all trade in gold-using tor the low 
 countries ; but, in reply, it is urged that this might the* r'epli 
 l>e merely discounting future prosperity to a more thereto 
 or less considerable extent ; for the depression, 
 which would be almost sure to follow the inflation, 
 must be taken as a set-off against this advantage. 
 Though theoretical considerations point to the con- 
 clusion that low-ratio bimetallism would produce an 
 opposite effect in silver-using countries, it is never- 
 theless urged that such a view is proved by the ex- 
 perience of the past to be unsound; for, as there 
 has been no marked rise in silver prices since 1873, 
 we have no reason, it is said, to expect that there 
 would be a fall in prices at the re-establishment 
 of bimetallism ; and silver-using countries have, 
 therefore, no reason to oppose the change. To this 
 argument it is, however, replied that prices in 
 silver-using countries might have fallen had silver 
 not been demonetized; and that the fact if fact 
 it be that silver prices did not rise after the
 
 108 THE CHOICE OF A RATIO. [On. IX. 
 
 demonetization of silver does not prove that they 
 would not fall if the demand for that metal for 
 coinage purposes were now to increase ; though it 
 is true that there are reasons for believing that a 
 fall in prices would be less prejudicial in its results 
 in silver-using countries than in gold-using countries. 
 It is also vehemently urged that low-ratio bimetal- 
 lism, by stimulating our trade at home, would 
 benefit us in our competition with silver-using 
 countries ; but, if this would be the case, it cannot 
 be denied that the benefits thus gained by us would 
 be exactly measured by the injury done to the silver- 
 using countries. 
 
 Summary For the Market Ratio. Market-ratio bimetallism 
 arguments can ^ e advocated without resorting to any argu- 
 forthe ments which are favourable either to the repudia- 
 
 market . . .11 . 
 
 ratio, and tion of debts, or to tampering with the coinage, or 
 thereto 1168 * ^ e issue of inconvertible paper money, or to a 
 further alteration of the bimetallic ratio ; whereas 
 our position in opposing any such disastrous pro- 
 posals would be weakened if any sanction were 
 given to those arguments in favour of the low ratio 
 which are likely to attract the popular vote. The 
 condition of our working classes appears to be 
 steadily improving, judging by pauperism returns ; 
 if a market ratio were adopted, no sudden change 
 would take place to interfere with this progress ; 
 whereas, under the low-ratio system, since wages 
 rise less quickly than prices, since strikes might 
 be brought about by the attempt to get wages 
 raised, and since much suffering might occur
 
 CH. IX.] SUMMARY. 109 
 
 during the reactionary period of depression, the 
 possibility that this temporary stimulus to trade 
 would in reality be an injury to the poor in gold- 
 using countries must be considered. Assuming, 
 as we have done all through this discussion, that 
 the bimetallic ratio can be maintained, the introduc- 
 tion of a market-ratio system would leave contracts 
 practically unchanged ; whereas a low-ratio system 
 would most materially alter the effect of existing 
 commercial bargains, thus tending to shake credit, 
 temporarily or permanently. The stimulus to trade 
 in gold-using countries due to a rise of prices would 
 die out in time, and low-ratio bimetallism would, 
 therefore, merely produce a temporary beneficial 
 effect in this way. But considerations of a permanent 
 character, which ought to have most weight, seem 
 to tell in favour of a market ratio ; for the low-ratio 
 system is more likely to break down ; and if it does 
 collapse, it will lead, if bimetallic arguments are 
 sound, to another long period of depression in gold- 
 using countries, which need not necessarily be the 
 case after a breakdown of the market-ratio system. 
 
 Thus, on the assumption that prices would rise on The 
 the adoption of the low ratio, the above considera- 
 
 tions seem to point, on the whole, strongly against is Ui 
 that system. Taking into consideration the panics the market 
 which might result from so great a change in the f{| tlo ' h 
 value of money, and from the consequent loss of some 
 commercial confidence, some authorities have ex- "com^ 
 pressed great doubts whether a ratio of 15 to 1 promise 
 
 would cause a rise in prices ; and it is evident that admitted.
 
 110 THE CHOICE OF A RATIO. [Cn. IX. 
 
 if it did not do so, the whole of the arguments 
 founded on the anticipated inflation of trade would 
 be annihilated. I cannot myself doubt that prices 
 would rise eventually ; but, considering the great 
 harm that might be done before confidence was in 
 a measure restored, it seems to me that the balance 
 of argument is overwhelmingly in favour of the 
 market ratio, as compared with the ratio of 15 to 1. 
 It is, however, necessary to draw a distinction between 
 the advocacy of the low ratio on the ground that 
 prices will be inflated at its introduction a rise in 
 prices which will create no permanent beneficial 
 influence and the advocacy of this ratio on the 
 ground that it is lesa likely than the market ratio 
 to produce a permanent tendency to falling prices. 
 The arguments in favour of the view that the low 
 ratio is more likely than the market ratio to ward 
 off the dangers of falling prices in the future do not 
 seem to be based on strong foundations ; but, if they 
 can be sustained, this merit must be fairly weighed 
 in the balance in selecting the ratio. We have been 
 considering the 15| to 1 and the market ratios as 
 the extremes between which the chosen ratio must 
 lie. An intermediate ratio might be adopted as a 
 compromise between the demands of those who 
 advocate these two types of bimetallism ; and the 
 difficulties which the Government of India would 
 experience in accepting bimetallism with a ratio 
 higher than, say, 25 to 1, on account of their 
 monopoly-rupee system, affords a strong argument 
 in favour of such a proposal. But, on the whole,
 
 CH. IX.] AGRICULTURE. Ill 
 
 the case against the low ratio is, in my opinion, so 
 strong that we ought to make but little compromise 
 with those who desire to make the reform of the 
 currency an engine for raising prices, unless the com- 
 promise is demanded on other grounds than the 
 desire for inflation. 
 
 Those who accept these conclusions will do so Agricul- 
 with deep regret if they have been considering the ^stress i s 
 bimetallic question with the sincere hope of finding due partly 
 a cure for the present depressed condition of agri- P r duc- 
 culture. It must, however, be recognized that the tlon " * nd 
 
 partly to 
 
 benefits of bimetallism have often been grossly the fall 
 exaggerated. The true cause of the bulk of these ^^,1 
 agricultural troubles is not to be traced to any prices 
 system of currency, but to the fact that virgin soils other J 
 under sunny skies have been brought, as it were, P rices ; 
 
 J fo . ' troubles 
 
 to our very doors by means 01 excessively cheap sea not to be 
 transit. It may be that more land has been brought remedied 
 into cultivation than would be needed to supply metallism. 
 the ordinary wants of mankind if the whole of it 
 were worked so as to bring to the farmer the best 
 return for the capital invested ; if this is the case, 
 the only remedy for the trouble is that the surplus 
 land should go out of cultivation. Moreover, the 
 actual fall in prices is not the only point to be 
 considered. If the price of the produce of an in- 
 dustry either falls more or rises less than the average 
 price of commodities, then an increased burden must 
 be thrown on those carrying on that industry ; for 
 their produce will, in either case, exchange for so 
 much the less of the produce of other industries.
 
 112 THE CHOICE OF A RATIO. [Cn. IX. 
 
 The fact that agricultural prices have fallen more 
 than average prices does not in the least indicate 
 that they would rise more than the average on 
 the introduction of bimetallism ; no such currency 
 reform would affect the relative prices of different 
 commodities ; and, as far as the depression in agri- 
 culture is due to a change in the relative value of 
 agricultural produce as compared with other com- 
 modities, no alleviation can be expected from the 
 joint standard. 
 
 A rise in As to the rise in prices to be anticipated as the 
 would result of low-ratio bimetallism, it is easy to over- 
 stimulate state the probable benefits. Even if the introduc- 
 all gold- tion of the joint standard with a low ratio would be 
 u^S . an advantage to agriculturists in England, it must 
 alike ; and be remembered that it would also be a benefit to 
 tolgricul- farmers in all other gold-using countries, and 
 turists Englishmen would thus get no assistance in their 
 chiefly due competition with the United States or Canada. In 
 to the order to consider the effect on the home trade, and 
 
 lessening of 
 
 the burden to put the case clearly, let it be assumed that 
 general prices would rise 20 per cent, after the 
 introduction of low-ratio bimetallism. The total 
 income of the farmer would thus be raised 20 per 
 cent. But how about the outgoings ? We are told 
 that labour is to get its fair share of the spoils ; 
 wages, therefore, ought to rise 20 per cent, at once. 
 Will not the landlord want, or rather will not he be 
 able to obtain some advantage for himself from the 
 reform he is asked to advocate ? Of course he will, 
 and, taking the case of land on short leases, the rent
 
 CH. IX.] AGRICULTURE. 113 
 
 may rise 20 per cent. also. Then the price of every- 
 thing the farmer buys for his trade will rise 20 per 
 cent. that is part of our assumption. In fact, all 
 his income will rise 20 per cent., and, taking the 
 case of a farmer who is not in debt, so will all, or 
 nearly all, his outgoings. But it may be said that 
 anyhow his margin of profit will have risen 20 per 
 cent. ; that is true, but everything that the farmer 
 wants to buy, as a private individual, will also have 
 risen 20 per cent. Where, then, is his advantage ? 
 It is all, or nearly all, gone. Farmers who are in 
 debt that is, a large proportion of the whole body 
 of agriculturists will no doubt gain, and so will 
 all manufacturers in similar circumstances ; because 
 the interest they have to pay on their loans 
 would remain as a fixed payment out of their in- 
 creased incomes, thus increasing their margin of 
 profit. But the farmer with a short lease, who is 
 not in debt, will only gain either on account of his 
 competition with silver-using countries ; or in so 
 far as the different manufacturers he deals with, 
 by not raising their prices to the full 20 per cent., 
 allow him, as it were, to share with them in the 
 increase in the profit they make because of the 
 increase of their business, and because of the reduc- 
 tion of the burden of their fixed payments ; or be- 
 cause taxes do not rise as much as prices ; l or because 
 the landlord does not raise his rent to the full amount. 
 
 1 These are, moreover, the only reasons which can, in my 
 opinion, be given in favour of the belief that land, now derelict, 
 could be cultivated at a profit after a general rise in prices. 
 
 I
 
 114 THE CHOICE OF A RATIO. [On. IX. 
 
 It may be urged, in reply, that farmers would 
 gain, not directly, but by the indirect effect of the 
 general stimulus to all kinds of trade. Manufac- 
 turers instinctively feel that they will derive a benefit 
 from a general rise in prices ; but a rise in prices and 
 an increase in production are so intimately connected 
 in their minds that they hardly separate the two 
 movements. In the case of agriculturists, who can- 
 not, as a rule, increase their production, it is difficult 
 to see how a general rise of prices, due to inflated 
 commerce, can benefit them in any way, except in 
 the manner above indicated. The farmer on a long 
 lease will, no doubt, gain in the same way as the 
 farmer in debt, because his rent is temporarily a 
 fixed charge ; but, in that case, the unencumbered 
 landlord will gain nothing, and will suffer on 
 account of the general rise in prices. Though it is 
 true that the total agricultural debt of the gold- 
 using world amounts to an enormous sum, yet this 
 is not quite the glorious prospect which is so often 
 held out to agriculturists by bimetallic orators. 
 Real wages It may be said that the fallacy in the above 
 toMHn ar g ument lies i n the assumed movement in wages, 
 gold-using and that this false assumption hides one of the chief 
 andt^rise wa ys in which our trade may be benefited by the 
 in silver- proposed reform. Possibly this is so. Wages in 
 countries, gold-using countries would very likely not rise as 
 quickly as prices ; but, if they did not do so, low- 
 ratio bimetallism would reduce the purchasing 
 power of the labourer's earnings ; and this would 
 be exactly equivalent to a reduction in his wages.
 
 On. IX.] WAGES. 115 
 
 As to silver-using countries, it has been seen that 
 bimetallism will cause a fall in silver prices ; and 
 if wages were stationary whilst silver prices fell, it 
 would, in the same way, be equivalent in effect to 
 an increase in wages. If this is the change which 
 is really anticipated, then the prospective benefits 
 of low-ratio bimetallism amount, if placed in a 
 naked form, to an expectation that by reducing 
 wages in gold-using countries and by raising them 
 in silver-using countries in a manner unperceived 
 by the working classes, not only will the profits of 
 our home trade be increased, but our manufacturers 
 will gain a distinct advantage over their silver-using 
 competitors. If this is one of the benefits of bi- 
 metallism, the point should, at all events, be made 
 clear to those most concerned to the working 
 classes. 
 
 In concluding this part of the subject, I cannot The 
 help regretting the way in which bimetallists refrain the ratio 
 from showing their hands clearly on this vital is a vital 
 
 i . T/ i i one, and Di- 
 
 matter of the ratio. If they intend obstinately to metallists 
 adhere to a low ratio, then we may be certain that con&eal DOt 
 their real object is to force up prices. If that their views 
 is the case, I, for one, am prepared to meet them 
 as an open foe. But if they admit, with the 
 bimetallic members of the Gold and Silver Com- 
 mission, 1 that the particular ratio to be adopted is 
 a matter of detail, if they agree with the view some- 
 times expressed by their leaders, that this ques- 
 tion of the ratio " is comparatively of very small 
 1 Final Report, p. 104.
 
 116 THE CHOICE OF A EATIO. [Cii. IX. 
 
 importance," 1 they must allow that the raising of 
 prices is not one of their main objects. We may still, 
 then, hope that they will reconsider their position, 
 and be brought to see that this attempt either to 
 inflate trade by altering the effect of contracts, or 
 to benefit our own country at the expense of India, 
 would bring them in perilously close company with 
 those who would advocate measures which may 
 fairly be described as "breaches of national good 
 faith, which nothing could compensate." It is, how- 
 ever, to be feared that the strength of the bimetallic 
 movement lies in the desire to ease the burden of 
 debts, and thus stimulate commerce ; but, with the 
 hope that this is not the case, it may be worth 
 while to proceed to consider whether bimetallism at 
 a market ratio is or is not preferable to gold and 
 silver monometallism. 
 
 1 " A Bimetallic Primer," p. 53, H. C. Gibbs.
 
 BIMETALLISM VEBSUS MONO- 
 METALLISM.
 
 CH. X.] STABILITY OF PRICES. 119 
 
 CHAPTER X. 
 
 PRICES WILL BE STEADIER UNDER A BIMETALLIC 
 SYSTEM. 
 
 THUS far it has been assumed that bimetallism is By reject- 
 both a good and a practicable system, and the 
 
 question of the ratio has been debated on this may at 
 assumption ; the arguments discussed have all been poge O f " 
 for or against one form of bimetallism, and not for man y 
 
 i mi arguments 
 
 or against the system as a whole. The question against bi- 
 whether market-ratio bimetallism is or is not pre- metalllsin - 
 ferable to monometallism remains to be considered ; 
 and those who agree with my conclusions on the 
 first point, may dismiss all the arguments against 
 bimetallism which are founded on its tendency to 
 artificially inflate trade, because, with the market 
 ratio, it will not have that effect. This disposes 
 at once of a large proportion of the objections 
 usually urged against this proposed currency reform, 
 because they are only applicable if a low ratio is 
 adopted. 
 
 It will be best to commence by considering the 
 merits of market -ratio bimetallism, and then to pass 
 to consider its demerits. As to its advantages, it is
 
 120 BIMETALLISM V. MONOMETALLISM. [On. X. 
 
 urged that it will diminish such variations in prices 
 as are due to causes primarily affecting the precious 
 rnetale ; that it will remove great difficulties from 
 the path of the Government of India ; and that it 
 will greatly facilitate commerce between gold and 
 silver-using countries. 
 
 The With regard to the first of these alleged merits 
 
 hTprices 118 t ne steadying effect of bimetallism the arguments 
 would be on wn i cn this claim is based are of a somewhat 
 
 less severe 
 
 under a speculative nature, though the claim is not generally 
 system 1 - 110 denied. Bimetallists hope to permanently fix the 
 relative value of the precious metals ; and if gold 
 and silver can be thus tied together, it appears 
 evident that any force, at present tending to cause 
 fluctuations in the value of only one of them, will 
 have a diminished effect when applied to the two 
 combined. The belief that this would be the case 
 rests, in the words of Mr. Foxwell, "upon the 
 general presumption that where you have two 
 sources of supply each equally likely to fluctuate 
 in quantity, the joint supply would be more stable 
 than either of the separate sources. This is the 
 principle upon which you would go in choosing to 
 select for a water supply two sources rather than to 
 leave yourself dependent upon one, provided that 
 there was no reasonable presumption beforehand 
 that both sources of supply would follow exactly 
 the same variations." J If we look to the value of 
 the metals as articles of merchandise, the way in 
 
 1 Professor H. S. Foxwell's evidence before the Koyal 
 Commission on Agriculture of 1894, Q. 23838.
 
 CH.X.] STABILITY OF PRICES. 121 
 
 which the oscillations in prices would be checked 
 may be illustrated as follows : A rise in prices 
 under bimetallism necessitates a fall in the value 
 of both the gold and the silver in currency. And 
 if silver coins fall in value, silver would flow out of 
 the currency into the market, thus causing a fall in 
 its value as an article of merchandise. Thus any 
 increase in the volume of the currency due to the 
 influx of gold would be partly compensated by a 
 decrease in the amount of silver in circulation; 
 whereas, under existing monometallic conditions, 
 no such compensating effect is obtained. A given 
 disturbing influence would, therefore, produce less 
 disturbance in prices under bimetallism than under 
 monometallism. In fact, the variations from the 
 mean would be less, and, as it is to the extreme 
 limits reached by prices in their oscillations that 
 we should chiefly look in estimating the resulting 
 evils, this would be a great gain. As a single 
 example of this last truth, it will be readily con- 
 ceded that a manufactory might be closed altogether, 
 and hundreds of hands thrown out of work, by a 
 severe fall in prices ; whilst with a somewhat less 
 severe fall, the business might have struggled on ; 
 and that the relative suffering in the two cases 
 might be out of all proportion to the relative fall in 
 the prices. It can hardly be denied that separate 
 fluctuations do take place in the value of the two 
 metals ; for even those monometallists, who deny 
 that the fall in prices in England is largely due to 
 causes primarily affecting gold, have to search about
 
 122 BIMETALLISM V. MONOMETALLISM. [Cn. X. 
 
 tor independent causes affecting the value of silver 
 in order to account for the alterations in its gold 
 price; both parties, in fact, consider that one or 
 other of the metals has recently varied in value 
 from causes not primarily affecting commodities. 
 And if we admit that the values of gold and silver 
 act, in some respects, as independent variables, and 
 if it is agreed that it is practicable to link them 
 together so that each may have an influence on 
 the value of currency after their marriage, it hardly 
 seems possible to deny that bimetallism would pro- 
 duce a certain steadying effect. 
 
 though the It would no doubt be most important if we could 
 get conclusive information as to the relative steadi- 
 
 UlJLL'tJS SllltsC *-J 
 
 1873 can- ness of prices before and after the abandonment 
 quoted in of bimetallism on the Continent. No one denies 
 that there has been a great fall in prices, and if 
 this fall has been due to forces previously con- 
 trolled by the bimetallic tie, it is probable that 
 we have not yet reached the normal condition of 
 things under the new currency arrangements. Of 
 course if this fall in prices has been harmful, and 
 if the forces producing this fall are still in opera- 
 tion, it is evidently most desirable that the restrain- 
 ing influence of the bimetallic laws should be again 
 brought into operation ; this point will, however, be 
 considered in connection with the discussion on the 
 increased use of gold in the future. Putting aside 
 the general downward trend of prices, and consider- 
 ing only relative unsteadiness or the minor oscilla- 
 tions, we find that there is little reliable information 
 
 favour of 
 this view.
 
 CH.X.] STABILITY OF PRICES. 
 
 to guide us. The time has been too short for such 
 comparisons ; and, moreover, so many other factors 
 have been at work that the separate results of these 
 changes in the condition of the currency cannot be 
 disentangled. It is, however, asserted that the tables 
 of index numbers of general prices do not tend to 
 support the view that prices have been more un- 
 steady under existing monometallic conditions. On 
 the other hand, the price of silver has not only been 
 falling, but has also become more unstable than in 
 the past ; and as far as that is an indication of the 
 movement of silver prices, it would seem to confirm 
 the theoretical conclusions as to the steadying effect 
 of bimetallism. 
 
 But although it is impossible to prove from actual if bi- 
 figures that a bimetallic standard tends to be more es 
 
 stable than one based on a single metal, yet this prices, it 
 
 i- 11 1-11 11 TI umloubt- 
 
 truth is seldom denied by those who have studied edly affords 
 the subject, even if they are keen in the mono- e ^^" 
 metallic faith. And, if this is admitted, it must be favour of 
 held to be a point in favour of bimetallism ; for the e sys 
 rise and fall in prices, due to variations in the value 
 of the currency, must help to create periods of de- 
 pression and inflation, and to produce other evils 
 arising from alterations in the burden of indebted- 
 ness, which are in almost every way harmful to the 
 trade and to the well-being of the community ; and 
 these evils would thus be minimized by means of 
 bimetallism. It has, however, recently been demon- 
 strated by Professor Edgeworth that, according to 
 the Calculus of Probabilities, the steadying effect
 
 124 BIMETALLISM F. MONOMETALLISM. [Cn. X. 
 
 of bimetallism may be expected to be relatively 
 small. Even if the variations in average prices 
 were solely due to changes in the conditions 
 primarily affecting the precious metals, according 
 to these calculations these variations would not be 
 very greatly reduced by the introduction of the 
 joint standard. 1 But variations due to other im- 
 portant considerations, such as the state of credit, 
 are superimposed on these monetary variations in 
 prices ; and for this reason the comparative increase 
 of stability in prices due to bimetallism would, it 
 is said, be very small indeed. Whether Professor 
 Edgeworth's conclusions will be accepted in their 
 entirety by other economists remains to be seen. 
 But his examination of the subject should at all 
 events make us pause before attaching any very 
 great weight to this plea in favour of bimetallism. 
 
 1 In ordinary language, only in about the proportion of 10 
 to 7 (Journal of the Royal Statistical Society, September, 1897). 
 
 NOTE. It can, I think, be proved that the adoption of the joint 
 standard would increase the stability of prices for other reasons 
 besides the one given in the text, which has regard only to the 
 question of supply; especially if the ultimate rather than the 
 immediate results of such a reform are under consideration. 
 Let us suppose the supply of both metals absolutely invariable. 
 We may look on this supply, in the case of each of the two 
 metals, as falling into two reservoirs, one representing the metal 
 in the arts, and the other the metal in the currencies. In each 
 case free coinage connects the two reservoirs together, so that 
 they must remain at the same level ; the level representing the 
 value of the metal. An effective bimetallic system would connect
 
 CH. X.] STABILITY OF PRICES. 125 
 
 the whole mass of silver with the whole mass of gold in a similar 
 way, and prevent any variations in relative value ; and this it 
 would do as effectively " when only one nation is bimetallic as 
 when the whole world adopts the system " (Dr. Irving Fisher, 
 Economic Journal, September, 1894, p. 536). If the size of 
 these reservoirs varies, the level of the liquid in them must vary 
 also ; and, in this way, the effect of variations in demand may be 
 represented. If the size of the reservoir changes through a 
 portion only of its retaining wall moving, then the larger the 
 surface of the reservoir, the less will be the change in level thus 
 produced. In this way the effect of such demands for currency 
 as that created by a single nation resuming specie payment will 
 be represented. And it follows that the greater the number of 
 nations adopting any particular standard, the greater will be 
 the stability of prices as measured by that standard. But there 
 is also another principle to be held hi view. The average 
 demand for the metals for the arts throughout the world changes 
 very slowly, and the level of the liquid in the metal-in-the-arts 
 reservoir would rise or fall with great uniformity, if no other 
 changes were taking place ; whereas the level in the metal-in-the- 
 currencies reservoir may be subject to great variations through 
 changes in monetary legislation, etc. When the two reservoirs 
 are connected, the larger the surface of the more stable reser- 
 voir in comparison with the more unstable reservoir, the less 
 will be the variations of level in the joint system. Hence it 
 follows that the greater the proportion of the standard commodity 
 employed in the arts, the steadier will be prices as measured by 
 that standard. If the gold standard were to be universally 
 adopted, instead of occupying a limited area as at present, prices 
 would be more unstable because of the smaller proportion of 
 metal employed in the arts, and more stable because of the 
 greater number of nations adopting the same system ; the latter 
 influence, I believe, preponderating in the end. In considering 
 the stability of the joint standard, it must be remembered that, 
 according to the quantitative theory of prices, the total value of 
 the currencies of the world is not affected by variations in the 
 values of the metals composing them ; and that, at any given 
 moment, the size of the metal-in-the-currencies reservoir may
 
 126 BIMETALLISM 7. MONOMETALLISM. [On. X. 
 
 be regarded as not varying with the system of currency in force. 
 Thus, in comparing bimetallism with universal monometallism, 
 the size of the reservoir of metal in the currencies will be the 
 same in the two cases ; whereas the reservoir of metals in the 
 arts will evidently be approximately twice as big with effective 
 bimetallism as it would be with universal gold monometallism. 
 Hence it follows that the joint standard, even if only partially 
 adopted, but effectively maintained, would immediately increase 
 the stability of prices as compared with a universal gold standard, 
 both because of the greater proportion of metal in the arts, and 
 because of the greater volume of metal effected by any variations 
 in demand. This view of the matter does not appear to me to 
 have been sufficiently considered by Professor Edgeworth or 
 other economists.
 
 CH. XL] FOREIGN EXCHANGES. 127 
 
 CHAPTEE XL 
 
 ADVANTAGES OF A STEADY RATE OP EXCHANGE 
 WITH SILVER-USING COUNTRIES. 
 
 BESIDES claiming the greater inherent stability of The dis- 
 
 CU.SS10U 01 
 
 the joint standard, bimetallists have also urged the indirect 
 that the general level of prices in gold-using ^f^th 
 countries has been lowered, not only by causes silver-using 
 primarily affecting the value of gold, but also postponed 
 by the indirect influence of commerce with silver- to Chapters 
 
 . , XXI. and 
 
 using countries ; and that bimetallism will be a XXII. 
 cure for this evil. This raises the most difficult 
 point in the whole of this difficult controversy, and 
 one which it will be convenient to postpone until 
 after the discussion of the effect of rising and falling 
 prices on trade. It will, then, be seen that an altera- 
 tion in the value of silver, though it will produce 
 no ultimate effect on the level of gold prices, will 
 temporarily disturb trade in an injurious way ; and 
 that this is a trouble which would, of course, be 
 cured by the adoption of a common standard. The 
 bimetallic contention on this point appears there- 
 fore to be partly, though not wholly, justified.
 
 128 BIMETALLISM V. MONOMETALLISM. [On. XL 
 
 The When we pass on to consider the troubles which 
 
 experienced nave ar i sen i n India (especially before the closing 
 by silver- o f the mints) and in other silver-using countries, 
 countries, as a direct result of fluctuations in the rate of 
 and . es |- exchange, we are luckily on less debatable ground. 
 India, on Here the evils are not denied, and all that is urged 
 
 tScreaL in re P 1 7 is that tlie y nave been g reatl J exaggerated, 
 in the and that resulting disadvantages have to be fairly 
 fixed^ebts weighed in considering any proposed change. The 
 are not appreciation of gold in comparison with silver, which 
 has recently taken place, means that the number of 
 rupees which have to be given in exchange for a 
 given amount of gold has been increasing. India 
 has contracted large debts, the interest on which is 
 payable in gold ; and, as the revenue is collected in 
 silver, this change in the relative value of the metals 
 has necessitated an increased sum being raised by 
 taxation in order to pay the increased amount of 
 silver representing the fixed gold interest on these 
 debts. An increase of taxation is objectionable in 
 any country, but it is especially objectionable in 
 India, where the poverty and the conservative 
 habits of the people make it almost impossible to 
 impose new taxes. Moreover, the movements in the 
 rate of exchange, whilst the mints were still open, 
 made it extremely difficult for the Government of 
 India to foretell, with any approach to accuracy, 
 the number of rupees which would be required in 
 any one year for the payment of this interest, for 
 the purchase of any stores in England, or for other 
 payments which had to be made in gold ; and the
 
 CH.XL] THE GOVERNMENT OF INDIA. 129 
 
 inconveniences due to inaccurate budget estimates 
 were, therefore, constantly felt. In the opinion 
 of the monometallic members of the Gold and 
 Silver Commission "there can be no doubt that 
 the uncertainty created by the want of a fixed 
 ratio, the apprehension of a further fall, and the 
 impossibility of determining to what point that 
 fall may reach, do make the task of the Govern- 
 ment of India a very difficult one, and constitute a 
 real and very serious evil ; " 1 whilst the bimetallic 
 members (amongst whom were to be found the only 
 Commissioners who had any personal experience of 
 India) declared that " the uncertainty attaching to 
 the future must be a matter of great embarrassment 
 to the Government " ; 2 whilst Sir L. Mallet alluded 
 to the " injurious, not to say disastrous effect of the 
 absence of a common standard between this country 
 and its greatest dependency." 3 It is certain that 
 if bimetallism could be maintained as a permanency, 
 this difficulty would be completely removed for the 
 future ; here, therefore, we have an undoubted merit 
 of the proposed system as compared with silver 
 monometallism. It is true that the Government 
 of India, in order to diminish the burden of existing 
 debts, would have preferred, whilst the mints were 
 still open, to have adopted a ratio considerably 
 lower than the ratio governing the market; but 
 this preference is no argument against market-ratio 
 bimetallism as compared with monometallism ; for 
 they appeared to regard " the re-establishment of a 
 1 Final Report, p. 63. * Ibid., p. ( J8. a Ibid., p. 121. 
 
 K
 
 130 BIMETALLISM F. MONOMETALLISM. [On. XI. 
 
 fixity of ratio between gold and silver as of even 
 greater moment than the restoration of silver to its 
 former value as compared with gold." l 
 Iu con- The difficulties above described were so keenly 
 
 oHhese 6 felt b y the Government of India that, in 1893, it was 
 troubles decided to close the mints to the free coinage of 
 adopteclTiie silver, and to allow the public to purchase rupees 
 
 monopoly- w ith g O \^ a t the rate of fifteen rupees to the sove- 
 system. reign, or one shilling and four pence the rupee. It 
 is thus intended, by creating an artificial scarcity 
 of rupees, to force up their value, and therefore, 
 probably, their gold price. The gold price of the 
 rupee will, however, be prevented from rising about 
 the point at which rupees can be purchased for 
 gold ; because, at that point, new metal will com- 
 mence to flow into the currency. And when the 
 gold price of the rupee is raised to this limit, a 
 stable rate of exchange between rupees and gold 
 may, therefore, be established. The price of the 
 rupee has not yet risen to the gold limit, and 
 this system the system of monopoly rupees has 
 not yet been long enough in existence to enable 
 us fairly to judge of its results. It is probable 
 that this reform will be successful in creating a 
 steady rate of exchange between monopoly rupees 
 and gold, and in lessening the anxiety of the 
 Government of India as to the future ; 2 but, whether 
 
 1 Final Report, p. G3. 
 
 2 It is certain that the closing of the mints will tend to slowly 
 raise the value of the rupee. But there are no grounds for 
 being certain that the rupee will rise in value more quickly than 
 any particular article of merchandise, such as gold is in India.
 
 CH. XL] MONOPOLY RUPEES. 131 
 
 it does so or not, it is evident that the rupee 
 will no longer be valued by the silver it contains ; 
 and also that the same disquieting influences 
 which, it is alleged, hampered the trade between 
 India and gold-using countries before the closing of 
 the mints, will, in future, be introduced into the 
 trade between India and ordinary silver-using 
 countries. 1 If all the great commercial nations 
 were to adopt gold monometallism, the difficulties 
 arising from fluctuations in the rate of exchange, 
 in so far as they are due to currency causes, would, 
 no doubt, vanish. But, even with regard to India, 
 such a proposal is not certainly practicable; for, 
 according to Sir Eobert GifFen, "the weight of 
 Indian expert opinion," as far as he could judge, 
 " as to the desirability and even the practicability 
 of a gold standard for India is entirely against " 
 the views of those who advocate that proposal. 2 
 The difficulty of accomplishing such a reform 
 presumably lies both in the expense of creating 
 the necessary gold reserve, and in the danger of 
 discontent (also inherent to the present system) 
 because of the fact that the hoards of silver 
 accumulated by the natives would no longer be 
 convertible weight for weight into rupees. On the 
 merits of this controversy as to the future policy 
 
 The increasing use of gold by other nations may raise its value 
 with such rapidity as to render this method of introducing the 
 gold standard into India an impossibility. 
 
 1 Report of the Committee to inquire into the Indian Cur- 
 rency, 1893, p. 30. 
 
 2 Times, September 25, 1897.
 
 132 BIMETALLISM V. MONOMETALLISM. [On. XL 
 
 for India I do not pretend to judge ; but I have no 
 doubt that the monopoly -rupee System is thoroughly 
 unsound, and should only be tolerated as a tem- 
 porary arrangement. 
 
 Fluctua- The case of India is an exceptional one, but it 
 exchano-e canno * be denied that fluctuations in the rate of 
 constitute exchange do cause an impediment to all commerce 
 doubted between gold and silver-using countries. The ratio, 
 burden on an( j consequently the rate of exchange, has been 
 very unstable since 1873, and every transaction has 
 been subject to the risk of an alteration in the value 
 of the metal in which the payment had to be taken 
 or made. 1 Under such conditions, commercial 
 transactions become more or less speculative, and, 
 though it is possible to insure against many of 
 the risks which are thus experienced, the price 
 paid for the insurance constitutes a true burden on 
 trade. Moreover, this same uncertainty as to future 
 rates of exchange discourages capitalists from in- 
 vesting their capital in countries where gold is not 
 the standard. English financiers, as already re- 
 marked, demand a higher rate of interest for a silver 
 than for a gold loan, as a compensation for the risk 
 of a further fall in the gold price of silver. The 
 higher rate of interest necessary to attract capital 
 into silver-using countries, no doubt, acts as a harm- 
 ful check on their development. 
 
 In reply to the arguments in favour of bimetallism 
 contained in this and the preceding chapter, it is 
 sometimes urged that fluctuations in the value of 
 1 Final Keport of Gold and Silver Commission, p. 26.
 
 CH. XI.] FOREIGN EXCHANGES. 133 
 
 inconvertible paper currencies produce evils of the 
 same kind as those here described, but of even 
 greater magnitude ; and that these the greater 
 evils will be untouched by bimetallism. This may 
 or may not be true ; but the existence of one evil is 
 no argument against attempting to cure another. 
 
 If we turn from these theoretical considerations These 
 to the dry facts of commerce, it is true that it is yeniences 
 difficult to show the evil effect of the harmful could be 
 influences under discussion. It is true also that by bi- 
 experts, who alone probably can accurately estimate metallism - 
 the weight of these considerations, differ widely as 
 to the gravity of the dangers disclosed. But no one 
 denies that the alterations in the ratio constitute 
 an impediment to commerce, and all will admit, in 
 the words of the unanimous Keport of the Gold 
 and Silver Commissioners, that " everything which 
 hampers complete freedom of commercial inter- 
 course between two countries, or which imposes on 
 it any additional burden, is, undoubtedly, an evil to 
 be avoided or removed if possible. If, therefore, a 
 remedy could be devised to accomplish this end, 
 without involving the risk of other disadvantages, 
 there cannot be two opinions that it would be worth 
 while to apply such a remedy." l Either bimetal- 
 lism or universal monometallism would, without 
 doubt, effect a complete or almost complete cure, 
 and the question in each case is whether the remedy 
 is practicable, and whether its accompanying dis- 
 advantages do not outweigh its undoubted merits. 
 1 Final Report, pp. 62, 94.
 
 134 BIMETALLISM F. MONOMETALLISM. [On. XII. 
 
 CHAPTEE XII. 
 
 DISADVANTAGES OF BIMETALLISM DANGERS RESULT- 
 ING FROM A BREAKDOWN OF THE SYSTEM. 
 
 The com- WHAT, then, are the objections to market-ratio 
 argument bimetallism ? The argument most commonly used 
 against bi- j n conversation against this reform is that a fixed 
 
 metallism . . . 
 
 is that the ratio cannot be maintained ; that it is, and always 
 e, impossible to alter the value of any material 
 
 main- by law, because value depends on inherent qualities 
 Chapters I. outside the scope of legislative power. This point 
 
 and ii. h as already been discussed at considerable length in 
 
 this view J: 
 
 was con- Chapters I. and II., and it is not necessary to go over 
 
 especially tne same g roun d again. It may, however, be as well 
 as to to recapitulate the arguments proving that the more 
 
 market- r , 
 
 ratio hi- nearly the legal ratio adopted coincides with the 
 metallism. mt j o j n ^ mar k e t at ^he time of its adoption, 
 the greater is the probability of its being possible 
 to establish and maintain a bimetallic system. It 
 was seen in that discussion that the stability of a 
 bimetallic system depends on the fact that all, or 
 nearly all, either of the gold or of the silver must 
 disappear from circulation as full-weight legal 
 tender before the ratio in the market will differ
 
 OR. XII.] STABILITY OF BIMETALLISM. 135 
 
 from the legal ratio ; and it was shown that the 
 more nearly the ratio adopted coincides with the 
 " natural " ratio, the less likely is this to occur ; and 
 that the market ratio is the best, though an unre- 
 liable, indication as to what the " natural " ratio may 
 be. Market-ratio bimetallism would have little or 
 no effect on prices, and the precious metals would in 
 all probability, after its adoption, be no more or no 
 less valuable than at present ; there would, therefore, 
 be no reason to believe that either more or less of 
 them would be used in the arts than at present, and 
 there would be no tendency for either metal to be 
 withdrawn from circulation to any greater extent 
 than at present to supply such demands. The flow 
 of the metals from one country to another is deter- 
 mined by the difference of the ratio between their 
 values in the two places ; and as the establishment of 
 market-ratio bimetallism would produce no alteration 
 in the ratio anywhere, this reform would, therefore, 
 produce no tendency for gold to escape into those 
 countries which did not join the Bimetallic Union, 
 because no profit could be made by the traffic in 
 bullion. According to some authorities, gold would 
 be withdrawn from circulation and from the reserves 
 held against notes in order to be hoarded, with the 
 expectation that the bimetallic system would break 
 down and that gold would then go to a premium ; 
 in fact, it is suggested that there would be a vast 
 speculation for a rise in gold. Reasons were given 
 for believing that this might be the case if a low ratio 
 were adopted ; but that there would be little fear
 
 136 BIMETALLISM V. MONOMETALLISM. [On. XII. 
 
 of such an occurrence with market-ratio bimetallism, 
 because no one could foretell which metal would 
 tend to go to a premium on the breakdown of the 
 system. With any ratio, moreover, this tendency to 
 speculate would grow less, the more the permanence 
 of the system became assured. These are the main 
 arguments in favour of the belief that a permanent 
 parity of exchange can be established if the ratio 
 adopted does not differ too widely from that ruling 
 the market. 
 
 Variations In this discussion, little was said about mint 
 relative charges or seigniorage. It was shown how the ratio 
 value of in the market would always be the same as the ratio 
 
 111 
 
 silver* 111 fixed by law, because any difference between the two 
 bullion which might arise locally would be corrected either, 
 
 are possible 111 i \ 
 
 it there on the one hand, by metal being taken to the mint, 
 
 or ' on ^ G other, by coin being melted down to 
 littlemcon- supply the demand in the market. But this argu- 
 w'ouTdlhow- m ent assumed that the various governments would 
 ever, be no t only coin metal in unlimited quantities, but also 
 
 i'ti. llst_'tl lH 
 
 tins way. that they would make no charge for so doing. If a 
 charge were demanded for minting, either to cover 
 the actual cost of the process or to be a source of 
 revenue to the State, then it is possible that the 
 ratio in the market might differ from the legal ratio 
 to an extent proportional to that charge ; for, assum- 
 ing a difference between the legal and the market 
 ratios to exist, if coins of the undervalued metal were 
 melted down, and exchanged in the market for the 
 other metal in bullion, and if this bullion were then 
 taken to the mint to be coined, a net profit on the
 
 CH. XII.] MINT CHARGES. 137 
 
 transaction would only be made if the legal ratio 
 differed so widely from the ratio in the market 
 that the gross profit on the transaction was more 
 than sufficient to pay the mint charges. Thus, with 
 a seigniorage system, the ratio in the market might 
 not accurately coincide with the fixed legal ratio* 
 and might, therefore, vary within certain fixed 
 limits. But if it did not pay to melt down under- 
 valued metal in this way, it would remain in 
 circulation, and it would continue to circulate at 
 the legal ratio. As it is the ratio between the 
 value of the coins that we desire to fix, and as this 
 would not therefore be affected by mint charges or 
 seigniorage, there is no reason to think that these 
 slight variations in the ratio in the market would 
 cause any inconvenience as far as internal trade is 
 concerned. It is, however, conceivable that slight 
 variations in the rate of foreign exchanges might 
 be caused in this way. 
 
 Monometallists often urge that history proves the The ebb 
 falsity of the theories of bimetallists ; but the study 
 
 of Shaw's "History of Currency," and of other P* 8 * times 
 works written in support of that view, leads me to countries 
 exactly the opposite conclusion. All that is proved, j^^ 
 in my opinion, is that without international agree- metallic 
 ments there was in past times a perpetual ebb and ^^en" 
 flow of the precious metals between countries with against in- 
 different legal ratios, and that this led to constant bimetal 
 changes in those legal ratios in order to endea- lism - 
 vour to stop this movement. The experiment of 
 legalizing the same ratio in all countries was never
 
 138 BIMETALLISM F. MONOMETALLISM. [Cii. XII. 
 
 tried. It is true that there were, on this account, fre- 
 quent alterations in the legal ratio, but it is equally 
 true, I believe, that in the history of two and a 
 half, if not of six centuries, there is no example on 
 record of any change in ratio so great or so sudden 
 as that which has occurred during the last twenty 
 years that is, since the repeal of the last bimetallic 
 laws. This can only be accounted for by the fact 
 that the old imperfect bimetallic laws, though they 
 differed in different countries, and though they 
 did encourage an interchanging movement of the 
 precious metals, nevertheless did tend to maintain 
 the mean ratio adopted as the ratio between the 
 metals in the open market. If that be so, the period 
 before 1873 is no guide as to the extent and amount 
 of the changes in the relative value of gold and 
 silver which we may expect in the future in the 
 absence of bimetallic legislation. 
 
 The chief As long, therefore, as there is no way in which 
 bimftal- tne 800,000,000 of gold in currency can be other- 
 lism is the w i se absorbed, we may predict with confidence that 
 
 breaking ,,. 
 
 of inter- a bimetallic system at a market ratio would not 
 
 break down, granted the continuance of the inter- 
 ments. national agreements. Of course the most probable 
 is small danger is that these treaties would be broken or 
 with a neglected by some of the contracting parties, thus 
 
 market- ' . J . ' . 5 .' 
 
 ratio creating a reservoir large enough to receive all 
 
 system. fa e g O ]^ c i rcu l a ting in the remaining bimetallic 
 
 countries. But the gold in the faithful bimetallic 
 
 countries would only tend to flow out of those coun- 
 
 tries if a change in the ratio took place in the
 
 CH. XII.] FAILURE OF BIMETALLISM. 139 
 
 deserting countries if, that is, a difference were 
 established between the ratio in the two areas ; and 
 the more nearly the legal ratio adopted coincided 
 with the ratio in the market or the smaller the 
 change of ratio brought about by the establishment 
 of the system the less likely would it be that 
 there should be any change at its abandonment. 
 Thus, with market-ratio bimetallism, desertions 
 from the Bimetallic Union need not necessarily 
 cause the system to fail generally ; and it is, more- 
 over, difficult to see what should tempt any nation 
 to disregard their obligations if that ratio were 
 adopted. 
 
 Not only must the probability of a failure of The evils 
 bimetallism be discussed, but the probable damage o^the 1 
 caused by such an event, should it occur, must form breakdown 
 
 11 . 11- /-* * niarket- 
 
 a material element in our calculations. Certain ratio bi- 
 arguments in support of the view that a breakdown "^beTno 
 of a low-ratio system would be followed by years greater 
 of trade depression, the force of which bimetallists produced* 
 can hardly deny, have already been discussed ; but b >" the 
 
 . , * _ same forces 
 
 no suggestion has yet been made as to any dangers under 
 which would result from the abandonment of market- 
 ratio bimetallism. If we look to the teaching of 
 history, we shall see that when the Latin Union 
 forsook bimetallism in favour of their present 
 standard, no sudden panic or collapse occurred, and 
 the alteration in ratio, which subsequently took 
 place, was a gradual process. If market-ratio bi- 
 metallism were now introduced, there is no reason 
 to believe, judging from this example, that any
 
 140 BIMETALLISM F. MONOMETALLISM. [On. XII. 
 
 immediate consequences of a serious nature would 
 accompany its breakdown ; nor, it will be seen, can 
 we predict that the evils due to any subsequent 
 slow alteration in the ratio after such a break- 
 down would be any more harmful than the troubles 
 which the fates have in store for us from similar 
 causes if we maintain the existing currency systems. 
 Monometallists frequently urge that there has been 
 no trade depression during the last twenty years ; 
 or, if they admit its existence, they declare that 
 it has had nothing to do with currency causes ; 
 if they adopt either of these attitudes they cannot 
 point to the past as a proof that any evil results 
 whatever will follow the rupture of a Bimetallic 
 Union; in fact, they would hail the event as a 
 blessing. But if it is admitted that evil results 
 would follow the abandonment of bimetallism, it 
 will not do only to look at one half of the picture, 
 and only to consider those evils which would arise 
 if some natural tendency of the metals to vary 
 in value should burst the bonds of bimetallism, 
 without endeavouring to estimate the probable 
 effects of the same causes under the existing 
 systems. It must be admitted that it is but a 
 choice of evils. For example, if it be assumed that 
 the disruptive forces could only be restrained by 
 legislative means for, let us say, half a century, then 
 the relative advantages and disadvantages would be 
 as follows. If, on the one hand, the existing gold 
 and silver monometallic systems were maintained, 
 we should have fifty years of fluctuating exchanges,
 
 OH. XII.] FAILURE OF BIMETALLISM. 141 
 
 with a general drift in one direction ; and, if that 
 direction were towards the further depreciation of 
 silver, the difficulties of the Governments of the 
 United States and of France would soon become 
 serious. If, on the other hand, bimetallism were 
 introduced, we should have half a century of steady 
 exchanges and of steadier prices, followed by what- 
 ever evils might accompany the sudden return to 
 monometallism under such conditions. No doubt 
 when the restraining force was removed at the end 
 of the bimetallic period there would be a more 
 rapid change in the ratio than would take place 
 if it had been free to act during the whole inter- 
 val; but there is no reason to think that the 
 total change would be greater in the one case than 
 in the other. The choice may, in fact, be likened 
 to that between a lingering ailment and a sharp 
 short illness, and, of these, it is hardly possible 
 to be quite certain which would be the greater 
 evil. 
 
 These considerations, therefore, lead to the con- Market- 
 elusion that there is a high degree of probability 
 
 that market-ratio bimetallism could be maintained ; if once 
 that it is probable that it would be maintained ; \ 
 
 that the evils accompanying its abandonment may be P er " 
 
 r J J raanent 
 
 be easily exaggerated ; and, should such an event but, if it 
 take place, that the troubles due to alterations in thTdam<re 
 the ratio might be little or no more than those will not be 
 which must accompany the present system. If 
 these conclusions are correct, it is evident that, as 
 bimetallism has been proved to possess undoubted
 
 142 BIMETALLISM F. MONOMETALLISM. [On. XII. 
 
 advantages, other arguments ought to be forth- 
 coming before it is rejected. The additional ob- 
 jections against market-ratio bimetallism, which 
 are few in number, will now be considered.
 
 Cu. XIIL] OBJECTIONS TO BIMETALLISM. 143 
 
 CHAPTER XIII. 
 
 OTHER OBJECTIONS TO BIMETALLISM. 
 
 IN the first place it is claimed for gold that it is Silver, 
 intrinsically a better metal for coinage purposes ^^fer for 
 than silver, both because it forms a more stable a given 
 standard of value, and also because it is in every goi^ ^ ] ess 
 
 way more convenient ; and, on these assumptions, it 
 
 J ' . ' except foi- 
 
 ls urged that the adoption of the joint standard small 
 would be an injury to existing gold-using countries, ^ut^old 
 As to the relative stability in value of the two wou ld not 
 metals, something will be said later on ; but it O ut of 
 
 cannot be denied that gold coins are more 
 nient than silver coins, except for the purposes of ratio bi- 
 small change, being lighter in weight for a given m 
 value. As to the relative cost of conveyance of the 
 two metals, the greater weight of silver is said to 
 be almost compensated for by the fact that gold 
 is more easily stolen, and requires more careful 
 packing. Thus gold is the more convenient metal 
 of the two for coins of considerable value, and if 
 it could be shown that bimetallism would tend to 
 drive it out of circulation in considerable quanti- 
 ties, the proof would afford, no doubt, a legitimate
 
 144 BIMETALLISM F. MONOMETALLISM. [On. XIII. 
 
 argument against this reform. As far as can be 
 seen this would not be the case with market-ratio 
 bimetallism. The amount of either metal in cir- 
 culation depends on the total amount of metal in 
 existence, and on the amount used for hoarding 
 and in the arts ; it is the difference between the 
 two. If the introduction of bimetallism did not 
 cause any variation in the relative values of the 
 two metals (that is, if we adopted the market ratio), 
 there is no reason why it should cause any variation 
 in the relative output of gold and silver from the 
 mines ; and, if this reform did not alter their 
 relative values, neither would it affect the relative 
 demand for the two metals either for use in the 
 arts, or for hoarding ; and if neither the total pro- 
 duction of the two metals, nor their total consump- 
 tion for non-monetary purposes is affected by bi- 
 metallism, the difference between the two, or the 
 amount used for currency, will be unaffected also. 
 The amount of gold in circulation will not, there- 
 fore, be decreased, and no inconvenience will on the 
 whole be caused in this way. It is possible, however, 
 that the increased use of gold in the currencies of 
 the East might necessitate more silver being used 
 in the West in order to adjust the balance, as it 
 were ; and it may be true that we should suffer, in 
 this way, for the increased convenience of silver-using 
 countries. But, if the metal used for coinage is 
 determined by the habits of the people, as is often 
 asserted by monometallists, there is no reason to 
 expect that such a change will occur to any material
 
 CH. XIIL] TOKEN COINS. 145 
 
 extent. And it must be remembered that if more 
 silver did flow into the Western currencies, the 
 inconveniences thus caused might be completely, 
 or almost completely, obviated by the increased use 
 of paper money. 
 
 Objection has also been taken to market-ratio With the 
 bimetallism on account of the cost and inconvenience 
 
 of increasing the weight of silver token coins so as rat .i, the 
 to bring them up to their full metallic value. This silver coins, 
 
 is, no doubt, pro tanto a legitimate argument. It 
 is true that a vast amount of silver has been coined would be 
 at a low ratio. But it is doubtful whether much ^creased 
 or any expenditure in recoining this metal would But the 
 prove to be necessary, because some or all of these system 
 existing token coins might remain in circulation sh fuld be 
 after the proposed reform. The only objection to a and greater 
 moderate use of token coinage is the temptation ^ e c ^_ 
 it affords to false coining. This does not appear to tible notes. 
 be a very serious evil, and it should be weighed 
 against the many merits of the token system, some 
 of which we are apt to forget. Token coins are, of 
 course, convenient as being lighter than those which 
 contain their full weight of silver ; this is true now, 
 and it would be true under a market-ratio bimetallic 
 system. We all recognize the convenience of having 
 a sufficiency of small change freely circulating about 
 the country, and this is greatly facilitated by the 
 token system ; in the first place, the profit made by 
 governments in issuing coins at a greater value 
 than the value of the metal they contain affords a 
 strong inducement to get as much small change 
 
 L
 
 146 BIMETALLISM F. MONOMETALLISM. [On. XIII. 
 
 into circulation as possible ; and, in the second 
 place, there is no temptation to melt down such 
 coins for use in the arts at home or for export, 
 because, when melted into bullion, they lose much 
 of their value ; no one exports shillings, because 
 they are only worth about sixpence abroad. In 
 bimetallic discussions we often hear of the danger 
 of gold leaving the country, but never of the danger 
 of a scarcity of silver ; yet under a bimetallic 
 system, with no token coinage, a diminution in the 
 amount of available silver might, in some countries 
 and under certain conditions, become a source of 
 very considerable inconvenience. Thus there are 
 excellent reasons, besides the mere cost of recoinage, 
 why something of the nature of the existing token 
 system should be retained ; and, if it is retained, 
 the plea against bimetallism, on the ground that it 
 will increase the weight of silver coins, is completely 
 answered as far as small change is concerned. It 
 would, however, be necessary to coin a standard full- 
 weight silver coin, because the mints would not, 
 of course, be freely open to the coinage of token 
 coins; but, by means of an increase in the use of 
 convertible notes, much of this heavy silver might 
 be allowed to remain in deposit in the vaults of the 
 banks. To still further obviate these inconveniences, 
 it has been suggested and the suggestion is a 
 good one that the mints should issue notes against 
 deposited bullion, without actually going to the 
 expense of coining the metal at all. But, whatever 
 plan was finally adopted, there' can be no doubt
 
 CH. XIIL] EFFECT ON CONTRACTS. 147 
 
 that the difficulties due to the increase in the 
 weight of the new silver coinage might be more or 
 less completely overcome by means of an increase 
 in the use of notes, and by the retention of the 
 system of token coinage. 
 
 In discussing the choice of a ratio, it was seen The effect 
 that forces would be brought into play which would ^tiois?* 
 raise, or tend to raise, the general level of prices if metallism 
 a low ratio were adopted. This would, of course, contracts^ 
 alter the effect of contracts, for both the interest wouldl >e 
 
 small, and 
 
 and the capital due to creditors would become less the in- 
 valuable ; and the result would, therefore, be in- |{^ j e _ 
 equitable. But, if the ratio in the market were dividual 
 adopted as the legal ratio, no change in prices would 
 be caused by this reform, and this adverse plea falls 
 to the ground. It has, no doubt, been frequently 
 suggested that bimetallism of any kind would be an 
 unfair interference with existing contracts, because it 
 would give to the debtor an option, not contemplated 
 in the contract, of paying in either metal, whichever 
 might be cheapest. But this objection assumes the 
 failure of the system ; because, if it is successful, the 
 two metals would remain permanently at the same 
 relative value, and one of them could not be said, in 
 this sense, to be cheaper than the other. Directly 
 the one metal did become cheaper than the other, 
 all debts would be paid in that metal, and the cir- 
 culation of the dearer metal as legal tender would 
 entirely cease ; and this has been seen to be a very 
 improbable contingency. The objection may, how- 
 ever, be raised in another form. If gold prices
 
 148 BIMETALLISM F. MONOMETALLISM. [On. XIII. 
 
 continue to fall, it is true that, in gold-using 
 countries, creditors and the receivers of fixed gold 
 payments will find their receipts becoming more 
 and more valuable under the existing system. 
 Whereas, according to the views of bimetallists, 
 international bimetallism would place a check on 
 the increasing use of gold, and consequently on the 
 increasing value of all payments measured by that 
 standard. The creditor would, in fact, by this 
 reform, be deprived of the advantages which he 
 may now expect to derive from the effect on gold 
 prices of any further abandonment of the use of 
 silver, and, to a certain extent, of the advantages 
 due to any rise in the value of gold caused by 
 any increase in the use of that metal in the arts. 1 
 On this assumption, the debtor would, no doubt, 
 gain and the creditor would lose to a certain extent 
 by the introduction of market-ratio bimetallism. 
 It may perhaps be worth noting that it is possible, 
 though, I think, improbable, that the creditor in 
 gold-using countries might be benefited by the 
 adoption of bimetallism. The belief in the con- 
 tinuation of the recent fall, both in the general 
 level of prices and in the price of silver, may be 
 fallacious. If, under existing currency conditions, 
 we are in reality about to enter on a period of rising 
 prices, and if silver is about to rise in gold price, 
 then the introduction of the joint standard at the 
 
 1 In just the same way that the debtor in India, by the 
 introduction of the monopoly-rupee system, has been deprived 
 of the benefits of a fall in the value of silver.
 
 CH. XIIL] EFFECT ON CONTRACTS. 149 
 
 present moment would act as a check on this 
 rise in prices ; and international market-ratio bi- 
 metallism would prove to be a benefit to the creditor 
 rather than to the debtor. But, in either case, the 
 problematical injustice to the individual thus fore- 
 shadowed is, I think, of the type and of the degree 
 which should be neglected in considering broad 
 national issues. 
 
 It is more material to observe that if it would be The in- 
 dishonest to interfere with existing contracts by or the 
 
 giving the debtor, by introducing a bimetallic 
 system, an option as to the method of payment metallism 
 which was not taken into consideration when t 
 
 contract was agreed to, it would be equally dishonest, censure it 
 
 , v , . . . , ir \ i ,, the effect 
 
 by abolishing a bimetallic system, to deprive the O f contracts 
 debtor, to the supposed advantage of the creditor, of we F| ?* 
 the option virtually included in his contract as to altered 
 the metal in which the payment was to be made ; the 
 establishment or the abandonment of bimetallism 
 are in this respect equally open to attack. Mono- 
 metallists are apt to accuse the advocates of bi- 
 metallism of dishonesty ; but it is evident, as far 
 as this consideration is concerned, that they ought 
 equally to censure any nation, like the United States 
 or France, which abandons bimetallism in favour of 
 monometallism ; and an impartial consideration of 
 this fact will lead, I think, to the conclusion that 
 both charges may, under certain conditions, be 
 dismissed. It must be remembered that, at the 
 termination of the Latin Union system, no sudden 
 alteration in the ratio took place, and the holders
 
 150 BIMETALLISM F. MONOMETALLISM. [On. XIII. 
 
 of gold and silver bullion, coins, debts or securities 
 did not immediately find their situation altered ; 
 the introduction of bimetallism would, in all proba- 
 bility, equally escape the charge of dishonesty if, in 
 like manner, it caused no sudden change in liabilities 
 or credits; and this could only be the case if the 
 ratio in the market were selected as the bimetallic 
 ratio. 
 
 It is a If a bimetallic system, after being introduced, 
 
 ar^TunenT were to break down, eacn nationality might, it may 
 against bi- be urged, then drift into or adopt a monometallic 
 thatarTop- system with the cheaper metal as their standard, 
 portunity thus lessening the burden of national and com- 
 of adopting mercial debts. If the parity of exchange is not 
 maintained, it has already been seen that the 
 
 the stan- cheaper metal will be used in all legal tender 
 system & transactions, to the complete exclusion of the dearer 
 should metal. The risk of drifting, in those circumstances, 
 down. into monometallism with a depreciated standard is, 
 therefore, an objection to bimetallism, and one that 
 must be considered in balancing its advantages 
 and disadvantages. As to the deliberate adoption 
 of monometallism with this object, any change in 
 the currency no doubt makes it more easy to accom- 
 plish other changes an argument that may be 
 urged against all reform and the intervening bi- 
 metallic period would, therefore, make this kind of 
 veiled repudiation of existing liabilities slightly 
 more probable. This inequitable method of easing 
 the pressure of debts, contracted before the estab- 
 lishment of bimetallism, could only be adopted by
 
 CH. XIII.J THE CHEAPER METAL. 151 
 
 any existing monometallic country if, at the break- 
 down of bimetallism, monometallism with a different 
 metal to that in use at the present time were 
 adopted ; because to return to the use of the metal 
 which was legal tender at the time at which the 
 contract was made can hardly be called inequitable. 
 Are existing gold-using countries likely to adopt 
 silver monometallism in such circumstances in order 
 to lessen the burden of debts ? To me this seems a 
 very improbable contingency. As to silver-using 
 countries, it is true that they might adopt the gold 
 standard if they found, when the Bimetallic Union 
 had dissolved, that silver had risen in gold price ; 
 and, as far as their action affected debts contracted 
 in silver before the establishment of bimetallism, it 
 would no doubt amount to a kind of repudiation. 
 But if international bimetallism is ever established, 
 it will, I believe, only be abandoned as the result 
 of some unforeseen and very serious disturbance in 
 the relative values of the precious metals ; and the 
 risk of the kind of repudiation here under consider- 
 ation appears, therefore, to be small, and must, 
 moreover, be weighed against the evils which the 
 same causes would produce Under monometallic 
 conditions. 
 
 With regard to all contracts made after the 
 establishment of bimetallism, the uncertainty as to 
 the metal in which payments would be made if the 
 system were to be abandoned would, it is suggested, 
 raise the rate of interest on loans as an insurance 
 against the risk of the depreciated metal being
 
 152 BIMETALLISM F. MONOMETALLISM. [On. XIII. 
 
 selected. This is no doubt a legitimate argument ; 
 but if bimetallism were to last for some time, the 
 belief in its continuance would reduce the insurance 
 against this risk to a vanishing point. 
 
 The com- England has become, so .monometallists declare, 
 mercial the great commercial centre of the world because 
 
 greatness . 
 
 of England oi her gold monometallic system ; because it is 
 to her dUe known that English debts are certain to be paid in 
 currency gold. If by this it is meant that gold monometallic 
 tTother U nations must have great advantages in commerce 
 causes. OV er bimetallic countries, then the assertion may 
 indicate a reason for the commercial supremacy of 
 England in Europe in so far as it was gained during 
 the half-century before 1873. It cannot account 
 for our relative progress during the eighteenth 
 century, because all the great commercial nations 
 of Europe were then bimetallic. And as to the last 
 twenty-five years, the currency systems adopted by 
 our great European commercial rivals are so nearly 
 similar to ours in their general effects, that we are 
 practically competing on equal terms with them in 
 this respect at all events as far as industrial enter- 
 prise is concerned ; and, as we should still compete 
 with them on equal terms after the establishment 
 of international bimetallism, it is difficult to see 
 why the change should materially influence our 
 position. In France no doubt silver coin is legal 
 tender to any extent, and if this " limping " standard, 
 as it is called, is in reality a disadvantage to that 
 country, it is one she can remove (at a certain cost) 
 at any time by altering her laws ; the existing
 
 CH. XIII.] ENGLISH COMMERCE. 153 
 
 system is (or may be) a disadvantage to France 
 rather than an advantage to us, and though we can 
 hardly be expected to advocate reform on the 
 ground that it will place the currency of a rival on 
 a sounder footing, it is questionable if that ought 
 to be a reason for resisting it. If monometallists 
 contend that our currency system has created a 
 general belief that England is less likely than other 
 nations to take any step which would have the 
 effect of a partial repudiation of debts, it may be 
 replied that if this belief really does exist, it is 
 due to our high reputation for commercial honesty, 
 which would remain as an advantage to us under 
 any sound system of currency. If it is contended 
 that our gold coinage gives us an element of 
 superiority in trade over silver-using countries, 
 the advantage, even if admitted, is one likely to 
 diminish as the use of gold monometallism becomes 
 more and more widely extended. But if, as seems to 
 me most probable, our commercial supremacy, such 
 as it is, is due to causes more deeply seated than 
 our currency system such as our coal supply, our 
 accumulated capital and industrial experience, the 
 two centuries of internal peace we have enjoyed, 
 our naval supremacy, etc. then no doubt this 
 objection to bimetallism, based as it is on the 
 supposed benefits we have received from mono- 
 metallism, is quite unsound. It must, however, be 
 admitted that London is the place where gold is 
 obtained with most certainty and ease, and that it 
 is difficult to tell how much this is the cause and
 
 154 BIMETALLISM V. MONOMETALLISM. [On. XIII. 
 
 how much the result of London being such an 
 important financial centre. Bankers are, as a rule, 
 especially nervous as to the results of bimetallism ; 
 but, as Mr. Goschen has said, the primary cause 
 which makes London the great banking centre of 
 the world, "is to be found in the stupendous and 
 never-ceasing exports of England, which have for 
 effect that every country in the world, being in 
 constant receipt of English manufactures, is under 
 the necessity of making remittances to pay for 
 them." 1 If this is the correct explanation, there is 
 reason to think that our position will be maintained 
 as well under one system of currency as under 
 another, provided that we are at no disadvantage 
 compared with our neighbours in this respect. In 
 any case this is a national and not an international 
 argument against bimetallism. Of course each 
 nation must consider its own interests ; France and 
 the United States may desire a low ratio in order to 
 increase the value of their stocks of silver, or may 
 prefer a postponement of any detailed settlement 
 of the question in the belief that silver is about 
 to appreciate in value ; other countries may have 
 individual circumstances to consider; but those 
 who come to the conclusion that an international 
 bimetallic system would be an advantage to all 
 nations their own included must be prepared to 
 sink separate national considerations to a certain 
 limited extent in order to bring about a common 
 agreement. 
 
 1 " The Theory of Foreign Exchanges," Goschen, p. 33.
 
 RISING AND FALLING PRICES.
 
 CH.XIV.] THE FALL IN PRICES. 157 
 
 CHAPTER XIV. 
 
 ARGUMENTS BASED ON THE RECENT FALL IN PRICES. 
 
 ALL the objections which can reasonably be urged 4 
 against bimetallism with a suitable ratio have now, mBst not 
 I believe, been considered. This is, however, only be c J m '. j ,, 
 
 i T pared with 
 
 one side of the argument ; for the disadvantages the existing 
 attached to future currency arrangements, if bi- 
 metallism is not adopted, must be weighed in the 
 balance. The problematical evils of bimetallism 
 must not be compared with the existing condition 
 of things, for we are passing through a transition 
 period. The saying, " A devil you know is better 
 than a devil you don't know," expresses the spirit of 
 many of the arguments in favour of gold brought 
 forward by those who admit that the present 
 currency arrangements are anything but perfect; 
 but the truth is that the immediate past is, in any 
 case, but little guide as to the future. It is said 
 that bimetallism would be a leap in the dark, but 
 the diagram showing the ratio in the market may 
 well lead any one to doubt which of the two ought 
 to be described in that way a bimetallic currency 
 policy resembling in many respects that which
 
 158 RISING AND FALLING PRICES. [On. XIV. 
 
 existed for centuries up to the year 1873, or a 
 monometallic policy, the full effect of which has 
 only been observable since the abandonment of the 
 last bimetallic laws at that date. We are now 
 leaping into the dark, if by that is meant that 
 unforeseen dangers may at any moment spring up 
 in our path. One of the great political parties in 
 the United States is advocating the free coinage 
 of silver without waiting for international agree- 
 ments ; and if it be true that the hidden spring of 
 this movement is the desire for a partial repudia- 
 tion of debts, it must be admitted that such a 
 method of repudiation would have been impossible, 
 and that this cry could not have arisen, as long 
 as the parity of exchange at the old ratio had 
 been maintained by the bimetallic tie. The great 
 change in the ratio which has taken place since 
 1873 has forced the government of India to adopt 
 a currency system which is defended by abso- 
 lutely no one, except as a stop-gap. Surely the 
 advent of such unexpected evils as these in the 
 space of only a quarter of a century is enough to 
 justify us in asserting that this is an epoch of 
 great monetary changes. 
 
 because The closing of the Indian mints is certainly the 
 fn future mos t striking proof that we are passing through a 
 play a transition period, for this action was intended to 
 important ^ e a provisional step leading directly to gold mono- 
 part than metallism. But there are many other signs of 
 
 it does even ... 
 
 at present, instability in the currency arrangements of the 
 world. Eussia is moving in the same direction
 
 Cn. XIV.] INCREASING USE OF GOLD. 159 
 
 as India, only even more decidedly. In Japan, a 
 country already accustomed to the idea of a gold 
 coinage, a law has been promulgated for the intro- 
 duction of a gold standard. China and Mexico 
 remain as the solitary great silver-using countries, 
 and China is likely to be largely influenced by 
 Kussia and Japan as to her commercial policy. 
 Such an abandonment of the use of silver by these 
 countries will lessen the demand for that metal, and 
 will increase the demand for gold as its substitute ; 
 and this will certainly be a cause tending to 
 produce a still further fall in the gold price of 
 silver. The trouble may not stop here ; for, if 
 silver does fall still lower in price, the danger of 
 false coinage may make it impossible for the 
 governments of gold-using countries to maintain 
 the existing token silver coins in circulation. If 
 this proves to be the case, the weight of each token 
 must be increased; the silver coinage will have 
 to be withdrawn to be recoined into a smaller 
 number of pieces. The deficiency in the currency 
 thus created might be filled either by the coinage 
 of additional silver, or by the natural flow of gold 
 into the currency ; and, as in these circumstances, 
 silver coins would become inconveniently heavy, 
 the latter seems the most probable contingency. 
 If, therefore, as seems probable, the majority of the 
 existing silver-using countries do definitely adopt 
 a gold standard, not only will they absorb vast 
 additional quantities of that metal for coinage and 
 reserves, but more gold may also be required by
 
 160 RISING AND FALLING PEICES. [On. XIV. 
 
 existing gold-using countries. The world appears 
 to be drifting towards gold monometallism, and, 
 in discussing a hypothetical bimetallic future, we 
 must compare it with the probable monometallic 
 future, when gold will both be more in demand 
 and will play a far more important part than it 
 does at present. 
 
 The truth of this forecast may, of course, be 
 denied. The Silver Party in the United States may 
 carry their point ; and, if the mints are open to 
 the free coinage of silver without international 
 agreements, it is very probable that this would lead 
 to what would, in reality, be silver monometallism 
 in America. And, as to India, it may be urged that 
 the monopoly-rupee system must give way to a 
 true silver coinage. There is, however, nothing 
 in these views to dispel the belief that we are 
 passing through a period of great monetary unrest. 
 And, if it is true that there is to be such reaction 
 in favour of silver, it is evident that the evils due 
 to fluctuations in the rate of exchange will be more 
 severely felt in the future than at present, because 
 the volume of international trade passing between 
 gold and silver-using countries would be vastly 
 increased by such a change. But, in my opinion, 
 a movement in favour of gold is a more probable 
 contingency than a reversion to silver mono- 
 metallism. 
 
 Universal Many currency reformers no doubt view the in- 
 mo ". creasing use of gold with complete satisfaction ; and 
 
 metallism r . 
 
 and inter- it is true that one of the most important benefits to
 
 CH.XIV.] INCREASING USE OF GOLD. 161 
 
 be derived from bimetallism the establishment of national bi- 
 a common standard of value throughout the world will equally 
 would be gained equally effectively by means of jj mi * th . e 
 universal monometallism. The general movement in foreign 
 in favour of the gold standard may be said to excbanges - 
 indicate that this means of curing the evils due to 
 fluctuating foreign exchanges is more easy of attain- 
 ment than is the establishment of international 
 bimetallism ; if this is so, and it can be shown that 
 no serious evils will follow in its train, we have 
 here a strong argument in favour of monometallism. 
 The consideration of the objections to a universal 
 gold standard must, therefore, form an important 
 part of any discussion on bimetallism. 
 
 It is often asserted that the recent adoption of The 
 gold monometallism by various countries proves ^^Jj'L 
 that their governments consider that system to be silyer- 
 preferable to bimetallism. This statement, how- coJ^gg 
 ever, gives an erroneous impression. Every silver- d e . s ot 
 using country can, at its pleasure, adopt the gold that mono- 
 standard ; but each, separately, is powerless to bring "^^ 
 about a system of international bimetallism with a able to in- 
 common ratio. These two courses are not alterna- 
 tives between which these governments can choose, lism - 
 and all that their action proves is that they con- 
 sider gold monometallism preferable either to 
 silver monometallism or to bimetallism without in- 
 ternational agreements. Granting, for the sake of 
 argument, that it is right for any country at this 
 moment to forsake the silver standard, all that this 
 indicates is that the advantage to any nation of 
 
 M
 
 162 KISING AND FALLING PRICES. [Ca. XIV 
 
 having the same standard of value as the great 
 commercial nations of the world outweighs the 
 disadvantages, if any, due to the use of gold. 
 Silver-using nations may be right, under existing . 
 conditions, in adopting a gold standard ; but this 
 does not prove that they would be wrong to adopt 
 international bimetallism, had they the chance of 
 doing so. 
 
 The In considering the evils alleged to be due to the 
 
 lliied 101 S increasing use of gold, we are at once brought to 
 
 against the consider various questions connected with the recent 
 
 tended use fall in prices. No one denies that there has, in 
 
 defend on Europe at all events, been a great fall in average 
 
 the evils prices during the last twenty-five years ; for a mere 
 
 ing prices." glance at any table of Index numbers is sufficient 
 
 to prove this assertion. 1 Bimetallists, as a rule, 
 
 advocate their proposals on the assumption that 
 
 the abolition of bimetallism on the Continent 
 
 caused a fall in average prices ; that the fall in 
 
 prices caused a depression in trade; and that the 
 
 re-establishment of bimetallism would, therefore, 
 
 produce a commercial revival. The argument can 
 
 hardly, however, be adduced in this form in favour 
 
 of market-ratio bimetallism ; for the introduction 
 
 of such a system would not even be an attempt 
 
 to force up prices to their old level. If it is 
 
 agreed that bimetallism is not to be made an 
 
 engine for inflating trade, we must accept any 
 
 injuries that have resulted in the past from falling 
 
 prices as troubles which time will cure, but for 
 
 1 See Appendix.
 
 On. XIV.] THE FALL IN PRICES. 163 
 
 which there is no other remedy. But if it is true 
 that the abandonment of bimetallism did cause a 
 fall in prices, and if it is also true that the fall 
 in prices has caused a depression in trade, then it 
 may fairly be argued that the re-establishment of 
 bimetallism will nullify some of the forces still 
 tending to lower prices, and that it will, therefore, 
 have a beneficial effect in lessening such evil 
 influences in future. 
 
 To fully consider the fall in prices and all its Division 
 results, would necessitate a lengthy inquiry into aliment 
 the statistics of trade, and that, as already stated, in *o four 
 does not come within the scope of this volume. A inquiries. 
 general outline of the points raised in the discussion 
 will, however, be given, and to do this it will be 
 convenient to divide the argument into four separate 
 inquiries 
 
 (1) If bimetallism had been effectively main- 
 tained, would the fall in prices have been less rapid ? 
 
 (2) If prices had fallen less rapidly, would it 
 have been better for the general well-being of the 
 community ? 
 
 (3) Are prices likely to continue to fall too 
 rapidly under existing conditions ? 
 
 (4) Will the reintroduction of bimetallism check 
 the action of any of the causes tending to pro- 
 duce this fall in prices without producing any evil 
 effects ? 
 
 If all these questions can be answered in the 
 affirmative, then, we have a valid argument in 
 favour of international bimetallism.
 
 164 KISING AND FALLING PRICES. [Cn. XV. 
 
 CHAPTER XV. 
 
 WOULD PRICES HAVE FALLEN LESS EAPIDLY HAD 
 BIMETALLISM BEEN MAINTAINED ? 
 
 Bimetal- THE first question, therefore, for consideration is 
 
 lists claim w h e ther the abandonment of bimetallism in America 
 
 that the 
 
 demand for and on the Continent did cause a fall in prices ; or, 
 have been * P u * * ne inquiry in a more logical form, would 
 less, and average prices have fallen less rapidly if bimetallism 
 would had been effectively maintained? The bimetallic 
 M^her^had ar g umen t i* 1 favour of answering this question in 
 silvermain- the affirmative depends on the monetary changes 
 old place which took place in 1873 and in subsequent years. 
 in the At that date, France took the first step towards the 
 
 ClUTGUCV 
 
 systems of abandonment of the free coinage of silver. The 
 the world. d emanc [ f or g O \^ a i so began to increase in Germany 
 at about the same time, because of the substitution 
 of a gold for a silver standard. In the Netherlands, 
 by a law passed in 1875, the adoption of a gold 
 coinage was authorized, and the free coinage of 
 silver, which had been the standard metal till that 
 date, was permanently suspended. By a convention 
 ratified in 1876, Norway, Sweden, and Denmark
 
 OH. XV.] DEMAND FOR GOLD. 165 
 
 adopted a common system of currency, based on the 
 single gold standard ; that previously in use having 
 been silver. The demand for gold for the United 
 States was created by the anticipated resumption 
 of specie payment on a gold basis in 1879 ; the 
 currency had been on an inconvertible paper basis 
 for many years before that date ; but, as regards the 
 state of the law, it had been bimetallic till 1873 ; 
 and, had specie payment been resumed without any 
 alteration in the law, the demand for gold would 
 probably have been less. Thus there have been 
 many demands for gold which would not have been 
 felt had silver been allowed to occupy its old place 
 in the currency systems of the world; and the 
 effect of these demands has been, according to the 
 bimetallic view, to raise the value of gold, and 
 therefore to lower the price of all things measured 
 by gold as a standard. Prices, according to this 
 view, would have remained stationary, or, at all 
 events, would have fallen less rapidly had bimetallism 
 been maintained. 
 
 The reply most commonly made by monometallists The recent 
 to this argument is that production has increased 1^^ 
 enormously during the last twenty -five years, and said to be 
 that this is the true explanation of the fall in in c e reas i ns 
 
 prices. production. 
 
 In examining this contention, it is necessary to 
 be extremely careful as to the exact meaning which 
 it is intended should be attached to the various 
 words employed ; for there is no more fruitful source 
 of confusion than the use of terms with vague
 
 166 RISING AND FALLING PRICES. [Cn. XV. 
 
 significations. It will be as well, therefore, first 
 to clear the ground in this respect. 
 
 Definition The " value " of any object means, according to 
 of value. moc iern economists, the power of purchasing other 
 commodities which the possession of that object 
 conveys. If we imagine a minute sample of every 
 commodity, using the term in its widest sense, to 
 be thrown together as one lot on the market, the 
 size of the sample in each case being in proportion 
 to the amount of business done in that commodity ; 
 and if we also imagine a commodity which always 
 agreed in value and in price with this lot of 
 samples, we may conveniently give the name of 
 " the average commodity " to this hypothetical 
 substance. The value of any object will then be 
 measured by the amount of the average commodity 
 which can be obtained in exchange for a given 
 measure of the object in question. And, as this 
 is a general definition, it must also be true in the 
 case of gold, silver, and paper notes ; that is to say, 
 it holds good of all things whether they happen 
 to be used as standards of value or not. Thus the 
 value of gold is measured by the amount of the 
 average commodity which can be bought for a 
 sovereign. 
 
 Definition The "price" of a commodity is the number of 
 units of the standard of value which have to be 
 given in exchange for a given measure of the com- 
 modity in question ; in fact, it is the amount of 
 money for which it can be bought. In order to 
 connect the terms " price " and " value," let it be
 
 OH. XV.] VALUE AND PRICE. 167 
 
 supposed that the exchange here contemplated is 
 not made directly, but that both the money let us 
 say the sovereigns and the object are first ex- 
 changed for the average commodity. It has been 
 seen that each sovereign will exchange for the 
 amount of the average commodity which may be 
 taken as representing the value of gold ; and the 
 object to be bought will exchange for an amount of 
 the average commodity which represents its value. 
 From this it is evident that the price to be paid 
 is determined by the number of measures of the 
 value of gold which go to make up the measure of 
 the value of the object in question. That is to say, 
 price is the ratio of the value of the commodity in 
 question to the value of the standard ; and price will 
 vary with every change in the value of the com- 
 modity, and inversely with every change in the 
 value of the standard. To many minds this will 
 seem to be almost self-evident ; but the proof has 
 been given in extenso because it is a fundamental 
 proposition without which the whole subject is chaos. 
 
 The following may perhaps be given as a useful The value 
 illustration of the confusion due to the inaccurate standard 
 use of words. The price of a commodity, according an . d average 
 
 ___.,. . ,_ _ prices UTG 
 
 to the definition just given, is the amount ot money measured 
 which has to be given in exchange for a unit ^ ftv he on e rae 
 
 measure of the commodity in question ; and from being the 
 ,1 . ., / 11 ,1 , ,-, /> . reciprocal 
 
 this it follows that the measure of average prices is of t e 
 
 the amount of money the number of sovereigns other - 
 which has to be given in exchange for a unit 
 measure of the average commodity. But it was
 
 168 RISING AND FALLING PRICES. [On. XV. 
 
 seen that the value of gold is measured by the 
 amount of the average commodity which can be 
 obtained in exchange for a unit of the standard of 
 value for a sovereign. Thus " average prices " and 
 the " value of gold " mean exactly the same thing, 
 only they are measured in opposite ways; or, in 
 more accurate words, one is the reciprocal of the 
 other. And when we hear the candid monometallist 
 remark that he is prepared to admit that the fall 
 in average prices may have something, though it 
 cannot have much to do with the value of gold, we 
 can see that either he is talking absolute nonsense, 
 or else that he is giving some unknown meaning to 
 his words. 
 
 With in- After defining the words to be used, the question 
 notes e i n nan( i the eifect on average prices of an increase 
 prices will of production can now be considered. The level of 
 fall in average prices is measured by the amount of the 
 to r< tn rtl n standard of value which has to be given in exchange 
 increase of for a given amount of the average commodity. If 
 trans 3 / inconvertible notes form the standard of value; if 
 actions. the number of notes in circulation does not alter ; 
 and if all other things, including the state of credit, 
 remain the same ; then the increase of business 
 transactions, which must accompany any increase of 
 production, will cause an increase in the demand for 
 these notes, without any increase in their supply ; 
 this will raise their value ; and this rise in the value 
 of the standard is the same thing as a fall in prices. 
 This is, in fact, the simplest example of the quanti- 
 tative theory of prices. The rapidity of the fall in
 
 CH.XV.] INCREASING PRODUCTION. 169 
 
 prices measured in inconvertible notes will roughly 
 approximate to the rapidity of the increase in 
 production ; or, more accurately, to the increase in 
 volume of business transacted; because, as the 
 number of transactions increases, the proportion of 
 the fixed note circulation utilized in each trans- 
 action must diminish proportionately to that in- 
 crease. An increase in the value of inconvertible 
 notes when their number is diminishing has fre- 
 quently been observed ; and as this fact is capable 
 of the same explanation as that given above, it 
 helps to prove the truth of the foregoing argument. 
 
 Very different results may, however, follow an But with 
 increase of production if any article of merchandise *" **&&* 
 is used as the standard of value. If our money had chandise 
 been made of aluminium, or if wheat had been used standard 
 as the standard of value, then average prices would P rices m &y 
 
 , ij- ,1 either rise 
 
 have risen enormously during recent years ; these or fall if 
 
 articles have fallen in price more than the average, p roductlon 
 \ increases, 
 
 and therefore more of them would have to be given 
 
 in exchange for a given amount of the average 
 commodity ; that is to say, they have fallen in 
 value, and prices, if measured by them, would have 
 risen. If we had had an aluminium coinage, it might 
 well have been said that the effect of modern 
 mechanical and scientific progress had been the 
 cause of phenomenal rise in prices. On the other 
 hand, it has been asserted that prices remained nearly 
 stationary for several years with silver as the 
 standard ; whilst there has been a steady and con- 
 tinuous fall in gold prices for a very long period.
 
 170 
 
 RISING AND FALLING PRICES. [On. XV. 
 
 If the 
 value of 
 the,stan- 
 dard rises, 
 prices fall ; 
 and vice 
 versa. 
 
 A general 
 increase of 
 production 
 tends to 
 produce a 
 rise in the 
 value of 
 the pre- 
 cious 
 
 metals, and 
 therefore a 
 fall in 
 prices. 
 
 Thus, when production is increasing, the effect on 
 prices varies greatly with the standard of value used. 
 The value of any commodity depends on the demand 
 for and on the supply of that commodity. When 
 changes are taking place in the factors of production, 
 the variations in supply and demand will cause some 
 substances to rise in value and others to fall. And 
 as the value of the standard is the same thing as 
 average prices, only measured inversely, it follows 
 that if the standard of value is a substance which 
 rises in value in these circumstances, then average 
 prices will fall ; and if the standard falls in value, 
 average prices will rise. This briefly gives the clue 
 to the whole question. 
 
 The " supply" of a commodity is, of course, a very 
 different thing from its annual production. The 
 supply is the amount on the market, or readily avail- 
 able to be brought on the market, and the supply 
 in this sense may take years to accumulate. The 
 stock of gold in the world is the result of centuries 
 of production ; and it follows that even a large pro- 
 portional increase in the annual output of that metal 
 would cause but a very small proportional increase 
 in the supply. With commodities, generally, this is 
 not the case ; and a given proportional increase in 
 production would, therefore, cause a greater propor- 
 tional increase in the supply of the average com- 
 modity than in the supply of gold. But when the 
 supply increases, the value normally falls. Thus a 
 general increase of production will cause the value 
 of gold to rise in comparison with the value of the
 
 CH. XV.] INCREASING PRODUCTION. 171 
 
 average commodity ; or, in other words, more of the 
 average commodity will be exchangeable for a given 
 quantity of gold, and there will be a fall in average 
 prices. Then, again, looking to the question of 
 demand, the market is very easily glutted with 
 commodities of which there is a limited consump- 
 tion, such as wheat, for example ; and a small 
 increase of production in such cases would cause a 
 relatively great fall in price. In the case of the 
 precious metals the demand is less easily satisfied, 
 and a given increase of production will cause a 
 comparatively small fall in price. Gold cannot, of 
 course, fall in gold price ; but, by reasoning similar 
 to that just given, it is evident that gold will rise 
 in value in the case of a uniform increase of pro- 
 duction of all things, even including gold. Thus, 
 as regards both supply and demand, if the output 
 of gold were to increase proportionately to the 
 increase of the output of commodities in general, it 
 would seem that the value of that metal would 
 tend to rise, and that prices as measured by that 
 standard would therefore tend to fall. 1 
 
 The result of this investigation is to show that But even 
 
 'f tVi' ' 
 
 monometallists are right in asserting that an in- \ 
 
 crease of production is a cause tending to produce a causes 
 fall in gold prices. But to agree with them thus far t h e value 
 
 in no way affects the answer to be given to the of ^ 
 
 their due 
 
 1 This argument may not apply to a permanent and steady effect on 
 increase of production, lasting for a very long period. See prices ; and 
 Prof. Edgeworth on "Monetary Reform" in Economic Journal 
 for September, 1895.
 
 172 RISING AND FALLING PRICES. [On. XV. 
 
 be higher question under discussion. Price is a ratio the 
 metaiiism rat i f ^ e value of gold to the value of the com- 
 beenmain- mo ditv ; and what we have to inquire is whether 
 tained. -, i i j- ^ 
 
 any causes have been at work tending to raise tne 
 
 value of gold which would not have been in opera- 
 tion had bimetallism been effectively maintained. 
 No matter what can be proved as to the effect of 
 any general increase of production on the value of 
 various commodities, it will still be true that prices 
 would have been higher if any independent cause 
 tending to raise the value of gold had not been 
 operative. It is not, as a rule, contended that the 
 abolition of bimetallism actually caused an increase 
 of production ; production would have increased in 
 the same way under a bimetallic regime ; and, if 
 this is so, so far as the comparison between the 
 present level of prices and the level of prices 
 under bimetallism is concerned, the direct effect of 
 the increase of production in recent years may be 
 neglected as being equally applicable to both 
 cases. After what has been said as to the way 
 in which various countries have increased their 
 demands for gold for coinage purposes since 
 1873 demands intimately connected with the 
 abolition of bimetallism it cannot be denied that 
 new forces have been brought into play tending to 
 raise the value of gold ; and it is therefore, as it 
 seems to me, equally impossible to deny that all 
 prices now measured in gold would have been higher 
 had bimetallism been maintained. 
 
 Of course these arguments may be met by the
 
 CH. XV.] CAUSE OF THE FALL IN PRICES. 173 
 
 assertion that the ratio could not have been main- 
 tained under any circumstances. This is, however, 
 to reopen the questions already disposed of in 
 Chapters I. and II. If the United States and 
 France had maintained their bimetallic laws, with- 
 out succeeding in maintaining the legal ratio as 
 the ratio between the value of the metals in the 
 market, these countries would have found themselves, 
 in fact, on a silver basis. But, even in that case, the 
 demand for gold would have been less than it has 
 been ; the value of gold would have been lower ; 
 and gold prices would have been higher than at 
 present, though not as much higher as if the 
 relative value of the metals had remained unaltered. 
 
 The authority of the Gold and Silver Commission Views of 
 has already been frequently quoted, and it may be an a suver 
 interesting to note the opinion of the commissioners Commis- 
 on this important point. The monometallic members 
 of the Commission only went so far as to state that 
 the recent " fall in the price of commodities may 
 be in part due to an appreciation of gold," l by 
 which they probably intended to indicate their 
 belief that the more extended use of gold, together 
 with its lessened output, may have been amongst 
 the many causes of the fall in prices ; though why 
 a doubt 'arose in their minds is not apparent. To 
 what extent this one cause had been operative, they 
 thought it " impossible to determine." 
 
 The Commission, however, unanimously reported If a Bi- 
 that they were " irresistibly led to the conclusion union had 
 1 Final Keport, p. 83. continued
 
 174 RISING AND FALLING PRICES. [On. XV. 
 
 to control that the operation of" the Bimetallic Union had 
 
 the ratio, n . , . ., , , . 
 
 either gold " exerted a material influence upon the relative 
 
 va l ue f tne two metals." This conclusion appears 
 higher or to me to involve the admission that, if a powerful 
 muTthave 8 Bimetallic Union had been maintained, it would 
 been lower; na ve continued to have had a material influence on 
 bothresults the ratio ; that is to say, that it would have prevented 
 
 followed^ 6 ^ e ^ * n *k e ^ P r * ce ^ s ^ ver either entirely or 
 to a material extent. It follows, therefore, as regards 
 all goods influenced by the trade between gold and 
 silver-using countries, that either their gold prices 
 would have been higher ; or that their silver prices 
 would have been lower ; or that both results would 
 have followed. One of these results must inevitably 
 have followed the maintenance of the Bimetallic 
 Union, granted its controlling influence ; and, as it 
 seems probable that the effect of bimetallism would 
 have been felt in both silver and gold-using 
 countries, this view of the case tends to confirm the 
 belief that, but for the action of the Latin Union 
 and of the United States, gold prices would every- 
 where have been at a higher level, and silver prices 
 would everywhere have been at a lower level. 
 
 but it is But if we inquire, not only whether, but also to 
 
 almost , J 
 
 impossible what extent prices would have been higher under 
 how mud? ^ supposed conditions, then we enter a region of 
 higher or extreme doubt. I myself have never seen how such 
 prices problems can be satisfactorily solved ; we can do no 
 
 bee^ d have m re than give vague indications of tne answer. 
 If the ^^ e ar g um ents based on the increase of pro- 
 
 increase of duction appear to imply that monometallists believe
 
 On. XV.] CAUSE OF THE FALL IN PRICES. 175 
 
 that prices would, in any case, have fallen nearly as production 
 much as they have done, and that the abolition of t ^ e m ^ 
 bimetallism produced but little effect. It may be factor, then 
 noted, by the way, that if this deduction is admitted i n prices 
 by monometallists, it weakens their plea against wo^d have 
 the restoration of the old ratio on the ground that closely 
 it would cause a disastrous rise in prices, and it variations 
 would, therefore, be an act of robbery. If the aboli- in produc- 
 tion of bimetallism produced no fall in prices, why this has 
 
 should its restoration cause a rise ? But a logical ** been 
 
 . the case. 
 
 argument to prove that the increase of production 
 is the main factor to be considered in estimating 
 the level of prices under different conditions would 
 run somewhat as follows. If it could be said that we 
 have an accurate record of the rate of the increase of 
 production for a long period, and if it could be shown 
 that the variations in average prices coincided more 
 or less closely with the variations in the rate of 
 the increase of production, then we should have the 
 strongest evidence, not only that the two were inti- 
 mately connected, but that all other factors might 
 be more or less completely neglected in estimating 
 future prices. This would be logical, but, unfortu- 
 nately for those who would use such an argument, 
 it would be entirely unsupported by facts. We have 
 not an accurate record of the increase of average pro- 
 duction even in the principal commercial countries 
 of the world ; and, as far as can be seen, the varia- 
 tions in average prices have not coincided at all 
 closely with the variations in the average output. 
 No one denies that the amount of commodities
 
 176 RISING AND FALLING PRICES. [On. XV. 
 
 There are 
 evidently 
 other 
 factors of 
 great 
 
 importance 
 influencing 
 average 
 prices ; 
 and recent 
 events are 
 consistent 
 
 produced in 1884 was vastly greater than the amount 
 produced in 1854 ; yet wholesale prices in England 
 were at about the same level at these two dates. It 
 is true that prices have been falling heavily since 
 1873 ; and, to account for the fall in prices having 
 commenced at the date at which bimetallism was 
 abandoned on the Continent, it is asserted that pro- 
 duction has been increasing more rapidly during the 
 comparatively peaceful period since that date than 
 it did during the disturbed times between 1850 and 
 1873 ; also that a period of inflation, such as that of 
 1871-1873, is naturally followed by a corresponding 
 period of depression. To these contentions, bimetal- 
 lists reply that the increase in the rate of the increase 
 of production since 1873 has not been proved ; that, 
 in any case, it is not denied that there was a great 
 increase of output in 1884 as compared with 1854, 
 without a corresponding fall in prices; that the 
 steady decline in prices since 1873 does not in the 
 least bear the character of an ordinary period of 
 depression in trade; and that this fall has been 
 more severe than any which has occurred for many 
 years. 
 
 The above is a brief outline of the arguments 
 used by the contending parties. Though the sub- 
 ject is one of great complexity, it is quite evident, 
 in my opinion, that other factors of great importance, 
 beside the increase of production, have greatly 
 affected the general level of prices. Looking to 
 the century as a whole, there can be no doubt that 
 prices have shown a general downward tendency
 
 CH. XV.] CHANGES IN PARTICULAR PRICES. 177 
 
 which is quite consistent with the view that an with the 
 increase of production tends to produce that result. 
 
 But the rise in prices which took place after 1850 would have 
 
 * . IT T been higher 
 
 had every appearance, and was at the time believed had bi- 
 
 to be due, in great measure, to the Australian gold 
 discoveries. The severity of the fall in prices tained. 
 since 1873 is certainly consistent with the view 
 that the increase in the demand for gold since that 
 date has materially augmented the fall in prices 
 which the increase in production would have tended 
 to have produced. All these considerations seem 
 to me to make it certain that average gold prices 
 have been materially affected by the conditions 
 primarily affecting the currency, and that they 
 would now be considerably above their present level 
 if bimetallism had been effectively maintained. 
 
 Before passing on to consider the question dis- it i s urged, 
 cussed in this chapter from a somewhat different ^ r f?L y ' 
 point of view, the commonest, but, as it seems to fact that 
 me, the most feeble argument in favour of the belief noHallen^ 
 
 that the recent fall in prices has had little con- uniformly 
 
 ... . , , T i proves that 
 
 uection with the various changes in the laws of cur- this fall 
 rency, must be mentioned. It is often urged that ot 
 
 if the recent movements in average prices " were any cause 
 due to the appreciation of gold, surely the fall in thecur? 
 the price of all articles would be universal and rency. 
 would be uniform ; " and, as this has certainly not 
 been the case, we must look elsewhere for an ex- 
 planation of the phenomenon. 1 Here, again, the 
 
 1 See, for example, the speech of Sir M. Hicks-Beach in the 
 House of Commons, on March 17, 1896. 
 
 N
 
 178 RISING AND FALLING PRICES. [Cn. XV. 
 
 word appreciation is used in some ill-defined sense, 
 for an appreciation of gold is a general fall in prices 
 according to the definition here adopted. Probably 
 what is implied by such observations as these is the 
 belief that the causes which have been mentioned 
 as being likely to influence the value of gold, and 
 therefore to influence all prices alike, have not 
 in reality had the effect attributed to them. In 
 such matters as these, many minds are influenced 
 by analogies, though the analogy is often but half 
 worked out. In this case, a rise in the value of 
 gold may have been likened to the effect of a tide, 
 which sweeps all floating objects at a uniform pace 
 in one direction ; whilst the movement in particular 
 prices may have been compared to boats moving 
 under other forces on the surface of the moving 
 water. If we were to notice a considerable amount 
 of movement amongst rowing boats on a tidal river, 
 some few moving up, but the majority moving 
 down stream, we might, perhaps, be tempted to 
 argue that there could not be a very strong tide 
 running, or all would be swept together in one 
 direction. Arguing in this way, it might be 
 urged that the causes affecting gold cannot have 
 had much influence, or all prices would have 
 simultaneously fallen in a nearly uniform way. 
 But, returning to the simile of the tidal river, all 
 we should, in reality, know as to the tide would 
 be that it could not be running very fast as com- 
 pared with the average movement of the boats on the 
 water; and, from this analogy, it may truly be
 
 CH. XV.] CHANGES IN PARTICULAK PRICES. 179 
 
 said that the alterations in the causes affecting 
 the value of gold cannot be very great as compared 
 with the average alteration in the causes affecting 
 the values of particular commodities. This, however, 
 gives ample margin for a considerable effect being 
 produced by the causes primarily affecting gold. 
 
 But this analogy, or others like it, must be used But the 
 with great care ; for it is wholly false in one very f^f^u 
 important particular. The visible movement of the lar prices 
 boats is the movement produced by the rowers sub- prov^the 
 tracted from (or added to) the movement produced absence 
 
 i i - > i ^ i j i i * causes 
 
 by the tide ; whereas price is a ratio, and the altera- affecting 
 tion in the price of any commodity is the result of a11 pnces - 
 the effect of the causes primarily affecting the value 
 of that commodity divided (or multiplied) by the 
 effect of the causes primarily affecting the value 
 of gold. No alteration in the value of gold will 
 directly affect the ratio of the prices of any two 
 commodities; and it is not easy to see, therefore, 
 how any change in such relative prices can give us 
 any certain clue to the changes in price due to 
 causes primarily affecting the value of gold. 1 
 
 1 This argument is capable of mathematical demonstration. 
 Let a and b be the values of the commodities A and B ; let 
 
 x be the value of gold ; then - and - will be the prices of A 
 
 and B. The price of A will, therefore, be to the price of B as 
 a is to b ; and, as this ratio is independent of x, it can be seen 
 that no variation in x, the value of gold, can cause any variation 
 in the relative prices of A and B. And however accurately 
 
 we may know the variations in the ratio r we cannot ascertain 
 
 o, 
 the variations in x therefrom.
 
 180 RISING AND FALLING PRICES. [On. XVI. 
 
 CHAPTER XVI. 
 
 CREDIT, AND THE QUANTITATIVE THEORY OF 
 PRICES. 
 
 It is neces- IN discussing the way in which the general level of 
 pravethat prices would have been affected by the retention of 
 the views bimetallism, prices have thus far been regarded as 
 in the last being measured by the ratio of the value of particular 
 chapter are commodities to the value of one standard commodity. 
 
 m harmony 
 
 with the According to the quantitative theory of prices in 
 $vetheor r ^ s cm de form, prices are, however, said to be deter- 
 mined by the quantity of money in circulation ; and 
 it may be as well to show that this theory is not 
 antagonistic to the views expressed in the last 
 chapter, if it is correctly interpreted. At the 
 same time, it will be possible to discuss certain 
 objections which have been raised in opposition to 
 the views of bimetallists as to the effect on prices 
 of the recent changes in the laws of currency ; 
 though the discussion is rendered difficult by the 
 vague way in which the objections are generally 
 brought forward. 
 It is denied It has been seen that, during the last twenty-five 
 
 that the , . . ' . 
 
 new de- years, a number 01 countries, including the United
 
 CH. XVI.] THE QUANTITATIVE THEORY. 181 
 
 States, France, and Germany, have altered their mands for 
 monetary systems, making gold the sole standard. lessened the 
 Bimetallists believe that if the continental bimetallic ain unt of 
 
 gold in 
 
 systems had been effectively maintained, more silver circulation 
 would have been coined, and less gold would have J^ 
 been used by these nations ; and they argue that countries, 
 the additional amount of gold thus left available for 
 currency purposes would have been used in the 
 currencies of gold-using countries, and that it would, 
 in accordance with the quantitative theory of prices, 
 have maintained prices at a higher level than that 
 to which they have now fallen. In reply, it appears 
 in the first place to be suggested that, granted the 
 correctness of the views here expressed as to the 
 demands for gold in countries formerly bimetallic, it 
 is not certain that the volume of gold in the English 
 currency, for example, would have been greater had 
 these demands never been created ; and that, even 
 accepting the quantitative theory of prices, it cannot, 
 therefore, be confidently asserted that prices would 
 have been higher under bimetallic conditions. 
 
 If it is agreed that more gold has been absorbed The gold 
 into the currencies of countries formerly bimetallic Jjjfc^fca 
 than would have been the case had the continental might now 
 currency system remained unaltered, the question is, j n the 
 where would that gold now be had it not been thus ear * n ? * 
 
 P used in the 
 
 absorbed ? This is the first point for consideration, arts, or in 
 It is obvious that either it might now be in the 
 earth, and not yet available for use in any way ; or 
 it might now be swelling the currencies of England 
 and other gold-using countries ; or it might now be 
 
 cies.
 
 182 RISING AND FALLING PRICES. [On. XVI. 
 
 employed in the arts. Each of these three sup- 
 positions must be considered separately. 
 The in- With regard to the first of these alternatives, if it 
 thTdemand * s asserte( l tnat a ^ tne g ^ now added to the foreign 
 for gold currencies would still have been in the earth had no 
 havebeen monetary changes taken place, it is evident that this 
 partially j s equivalent to stating that these recent demands 
 
 satisfied * 
 
 by an for gold have been completely met by an increase 
 outpuT f of output. If no changes had taken place in the 
 currency systems of the world, it is certainly 
 possible, and it seems to me most probable, that the 
 output of gold would have increased nearly as much 
 as it has done ; and it is important to note that it 
 is only the increase of output, which would not 
 have taken place had bimetallism been maintained, 
 which should be taken into consideration in the 
 comparison between the present volume of gold and 
 the volume which would now have been in existence 
 under bimetallic conditions. But if these new 
 demands for gold did, as bimetallists believe, raise 
 the value of that metal, then it is no doubt true 
 that the gold industry has had an additional 
 stimulus applied to it ; and that the output of gold 
 may have been increased in this manner, thus 
 partially satisfying these new demands for the 
 foreign currencies. But these demands cannot have 
 been entirely satisfied in this way; for any such 
 additional output of gold can only result from an 
 increase in the value of gold due to the extra 
 pressure of such demands ; and if the demands had 
 been quite satisfied by the additional output, there
 
 CH. XVI.] VOLUME OF GOLD CURRENCIES. 183 
 
 would be no reason for there being any such extra 
 pressure, or any such additional output. More- 
 over, the stimulus to the gold industry has in all 
 probability not been very effective ; because it can 
 only have acted with much force in the case of 
 mines where the receipts and expenditure nearly 
 balance each other, which is probably the case in 
 only a minority of instances; for all other mines 
 would have been kept fully active in any case. 
 Thus the idea that the new needs of foreign countries 
 have been supplied to any material extent by an 
 increase in the production of gold, which would not 
 have taken place under a bimetallic regime, may be 
 dismissed ; and it must be admitted that, but for the 
 currency legislation on the continent and in America, 
 there would at the present time have been more gold 
 either in the currencies of other gold-using countries 
 or in use in the arts in various parts of the world. 
 
 When gold is required for foreign currency pur- Extraneous 
 poses, the part which comes from England will no fogoid 8 
 doubt, in the first instance, be taken from the banking wil1 lessen 
 
 , the amount 
 
 reserves or the currency rather than from the metal O f metal 
 in use in the arts, using that word in its widest, j^,^* 116 
 and now somewhat obsolete, meaning. Assuming in the 
 the quantitative theory of prices to be true, prices andfwilf ' 
 will therefore be lowered in consequence of any such tbus lower 
 
 prices. 
 
 foreign demands; that is to say, that these demands 
 will have the effect of making a larger amount of 
 commodities exchangeable for a given quantity of 
 gold. At present, people are willing to give a 
 certain amount of commodities for a certain amount
 
 184 EISING AND FALLING PEICES. [On. XVI. 
 
 of gold for use in the arts; but if only a di- 
 minished quantity of gold could be obtained for 
 the same amount of commodities (i.e. if prices were 
 falling), there would, other things remaining the 
 same, be a decrease in the use of that metal in the 
 arts, and a corresponding increase in the amount 
 available for the currency. Thus, when prices are 
 lowered by money being taken out of the currency 
 for foreign export, the effect of the fall in prices is 
 that a certain amount of gold is withdrawn from the 
 arts, and that the demand is thus partially satisfied. 
 On the other hand, if the gold for export should in 
 reality be taken directly from the bullion market 
 or from the arts, it is evident that the result would 
 be to raise the value of gold as an article of mer- 
 chandise, without at first raising the value of the 
 sovereign. Sovereigns would, however, immediately 
 be melted down, and the void created in the bullion 
 market would thus be partially filled ; and this 
 abstraction of gold from the currency would lower 
 the level of average prices. In whatever way we 
 imagine the extraneous demands for gold to be 
 satisfied, it is therefore evident that in the end the 
 result of such demands will be a lessening of the 
 gold in circulation, and, granting the truth of 
 the quantitative theory of prices, a fall in average 
 prices; though the fact that gold is an article of 
 merchandise as well as the standard of value will 
 to a certain extent mitigate the fall. 
 
 tendeTuse In the fore g oin g argument, the truth of the 
 of credit quantitative theory of prices has been assumed ; but
 
 CH. XVI.] CREDIT INSTRUMENTS. 185 
 
 the right to make any such assumption is denied, was not 
 In a former chapter it was proved that, in a very in^Lcuss- 
 
 primitive state of society, prices would depend on ln s the 
 
 f ix- j *i. 4. quantita- 
 
 the quantity of money in circulation, and that, tive theory 
 
 under such conditions, a diminution in the amount of P nces - 
 of money would cause a fall in prices, because there 
 would be less money available for each transaction. 
 In that discussion it was assumed that an issue of 
 inconvertible notes was the only form of money in 
 use. But, in considering the application of the 
 quantitative theory to modern times, the effect of the 
 use of such credit instruments as cheques, fiduciary 
 notes, bills, book-entries, etc., becomes of the highest 
 importance. The arguments which were used to 
 prove that prices vary with the quantity of money 
 in circulation depended on the fact that the in- 
 convertible notes, when one transaction had been 
 completed, would be certain to be used again im- 
 mediately because, being valuable, they would not 
 be allowed to lie idle. If this was the case with 
 all forms of money in circulation, each trans- 
 action would employ a definite proportion of the 
 whole currency, and there would be a definite pro- 
 portional relationship between the volume of the 
 currency and the level of average prices. But 
 these assumed conditions as to the continuous 
 circulation of money no longer hold good; notes, 
 when returned to the bank, are not certain to be 
 reissued ; cheques are, as a rule, created and de- 
 stroyed at each transaction ; and, when business is 
 done by book-entries, there is no transfer of anything
 
 186 EISING AND FALLING PRICES. [On. XVI. 
 
 which can be called money, even in the widest sense 
 of the word. It is, therefore, suggested that no re- 
 liance can be placed on the quantitative theory of 
 prices, for the conditions on which its proof is based 
 are no longer fulfilled. Moreover, as prices vary im- 
 mensely with the state of credit, and as the actual 
 transference of gold now takes place in only a minute 
 fraction of all business transactions, it is urged that 
 it is credit, and not coin, bullion, or notes, which 
 regulates prices. 
 In the ob- In discussions such as these, the true difficulty 
 
 lhiftheoi * s * & e * a C ^ ear * ssue between the contending 
 itis assumed parties. Here the real question underlying these 
 isnore 6 - 3 doubts as to the truth of the quantitative theory of 
 lationship prices is whether, at any one time, there is or is not 
 
 between r . . . . 
 
 the volume a definite quantitative relationship between the 
 trans- ney amoun t f c i n i n circulation and the total money 
 actions and value of the business being transacted by aid of the 
 
 the amount - , . . -, ^ ^ 
 
 of coin in currency in question; that is to say, whether an 
 circulation, increase or a decrease of the one will always, other 
 things remaining the same, be accompanied by an 
 increase or a decrease of the other. It is easy 
 enough to see, by aid of a numerical example, that 
 if there is such a relationship, the quantitative 
 theory of prices is right in principle, however ex- 
 tended may be the use of credit. Let it be assumed 
 that transactions, which would involve the transfer 
 of 200,000 sovereigns if conducted in coin which 
 may be called transactions to the money value of 
 200,000 are being carried through by the use 
 of only 4000 in gold, or with that sum of coin as
 
 CH. XVI.] CREDIT. 187 
 
 a basis ; then, on the supposition that a quantitative 
 relationship exists between the money value of the 
 transactions and the amount of gold in circula- 
 tion, and that this relation is one of simple pro- 
 portion, it follows that if the coin is reduced to 
 2000, the business transactions must be reduced 
 in money value to 100,000. Now, if all other 
 things remain the same, the amount of commodities 
 changing hands in the two cases must be the same ; 
 and it is evident, on these suppositions, that prices 
 must be halved at the same time that the amount 
 of gold in circulation is halved. In fact, after the 
 reduction of the amount of coin in the above ex- 
 ample, the half-sovereign will, on these assumptions, 
 have the same value as the sovereign had before 
 the reduction ; and 4000 half-sovereigns will then 
 play the same part as the 4000 sovereigns did 
 previously. If such a relationship exists, prices 
 will therefore vary as the quantity of coin in 
 circulation, even if every transaction is made by 
 cheque or book-entry, and however small may be 
 the fraction of business transactions in which gold 
 actually passes. 
 
 In passing on to state the reasons for believing 
 that some such relationship does exist, it must first 
 be admitted that any alteration in the amount of 
 coin available, contrary to the assumptions just 
 made, does in all probability cause a temporary 
 alteration in the rate of production, and therefore 
 in the quantity of commodities being exchanged 
 through the medium of money. But in speaking
 
 188 RISING AND FALLING PRICES. [On. XVI. 
 
 of the level of prices resulting from any change in 
 the currency, what is meant is the level that prices 
 would ultimately attain when trade had returned to 
 its normal condition, if all other things remained 
 unchanged ; and trade would ultimately return very 
 nearly to its original normal condition if no other 
 change besides that connected with the currency 
 were to take place, because the amount of counters 
 used in business transactions cannot ultimately 
 govern the amount of human energy displayed. 
 Moreover, it cannot, I think, be proved that the 
 relationship between the volume of the currency 
 and average prices is one of simple proportion as 
 indicated in the above example ; though I see no 
 reason for thinking that any other relationship is 
 more likely to hold good. But if it can be shown 
 that the amount of the standard of value in circula- 
 tion and the money value of business transactions 
 are tied together in any manner so that an increase 
 or a decrease of the one must be accompanied by an 
 increase or a decrease of the other, then it follows 
 that prices will rise with an increase of coin; and 
 that gold prices would have been higher had the 
 state of the foreign currencies allowed more gold to 
 remain in circulation in gold-using countries. 
 Prices are In considering the effect of credit on prices, a 
 v^g tly distmction must be made between two different kinds 
 without of influences; though, as between other distinct 
 tionhTtne tnm g s > the line of separation is often hard to deter- 
 amount of mine. On the one hand, there is the slow growth 
 
 com m & 
 
 circulation of modern commercial methods, leading to the more
 
 CH. XVI.] COMMERCIAL CONFIDENCE. 189 
 
 and more extended use of credit instruments in because of 
 place of gold ; and, on the other hand, there is the 
 constant expansion and contraction of credit, due 
 mainly to variations in the state of commercial con- 
 fidence. With regard to the latter of these in- 
 fluences the variations in commercial confidence 
 no doubt a general increase of credit, if considered 
 separately, appears to be a force tending to raise 
 prices. " The demand which influences the prices of 
 commodities consists of the money offered for them." 
 The purchaser "may make purchases with money 
 which he only expects to have, or even only pretends 
 to expect. He may obtain goods in return for his 
 acceptances payable at a future time ; or on his note 
 of hand ; or on a simple book credit, that is, on a 
 mere promise to pay. All these purchases have," 
 according to Mill, " exactly the same effect on price, 
 as if they were made with ready money ; " 1 and such 
 purchases no doubt increase with an increase of 
 credit. This explanation, however, it seems to me, 
 is not strictly accurate; for the effect on prices 
 appears to be due to the action of the resultant of 
 several forces. On the one hand, an increase of 
 business due to an increase of credit causes an 
 increase in the demand for gold, both for use in the 
 arts, and to serve as a basis for these additional 
 transactions in gold-using countries; and this in- 
 crease in the demand for gold raises the value of 
 that metal as measured by its exchangeability with 
 the average commodity. On the other hand, there 
 1 Mill's "Political Economy," vol. 2, pp. 51, 52.
 
 190 RISING AND FALLING PRICES. [On. XVI. 
 
 is the above-mentioned increase in the demand for 
 all other commodities, which raises the value of 
 commodities, in general, in comparison with gold. 
 And the change in the level of prices will depend 
 on the equilibrium established between these op- 
 posing forces. The demand for gold as an article 
 of merchandise is, however, very inelastic, and will 
 not increase greatly in times of inflated trade ; more- 
 over, the general increase of confidence in the times 
 of increasing credit induces the mercantile world to 
 undertake business with a smaller stock of coin to 
 meet a given amount of liabilities ; and, for both 
 these reasons, the demand for the average commodity 
 increases more rapidly than the demand for gold ; 
 and this means a fall in the value of gold, or a 
 rise in average prices. 1 But, whether this is the true 
 explanation or not, it can hardly be denied that 
 commercial confidence and the state of credit are 
 constantly varying, and that prices vary accordingly, 
 even when there is no alteration whatever in the 
 amount of coin in circulation. 
 
 Some This constant variation in the level of prices, 
 
 tams- J without any corresponding variation in the basis of 
 
 actions are, 
 
 110 doubt, i If iron were the standard of value, a general increase of 
 
 out any 1 * '" conndence m 'ght be followed by a fall in prices ; because, in 
 
 regard to these circumstances, the demand for iron increases more rapidly 
 
 the volume than the demand for the average commodity ; iron might then 
 
 currenc TIS& ' m value > and ^ so > prices as measured by iron would fall. 
 
 ' ' The reserves of iron in the banks (if such an idea is conceivable) 
 
 would be used up rapidly in trade at such times, thus, in harmony 
 
 with the quantitative theory of prices, reducing the amount of 
 
 the standard " coin " in circulation.
 
 CH. XVL] BARTER. 191 
 
 coin, in no way proves, however, that, for a given 
 condition of commercial confidence and of the other 
 variables, there is not a definite quantitative rela- 
 tionship between the volume of the currency and 
 prices. It is true, no doubt, that as regards some 
 business transactions, there is no such direct relation- 
 ship ; for additional sales and purchases may take 
 place without even the most indirect use of money, 
 and therefore without creating any additional 
 demand for the commodity selected as the standard 
 of value. An increase of business of this descrip- 
 tion will have no direct effect on the value of the 
 standard, or on average prices measured thereby. 
 This is, I think, obviously the case when cross pay- 
 ments are made for a simultaneous exchange of 
 commodities by a mere balance of book-entries ; for 
 this is really a case of barter, the documents used 
 in such transactions being mere certificates of rela- 
 tive value. If, with such book-entries, the value 
 of wheat, for example, was used as the standard of 
 comparison, there is no reason why an increase of 
 these entries should have any effect on the demand 
 for wheat ; the value of wheat would be unaltered 
 by any increase in these transactions, and so 
 would prices as measured by wheat. Prices in such 
 transactions are measured solely by the value of the 
 standard as an article of merchandise, and have no 
 direct connection with the amount of coin in circu- 
 lation. On the assumption that a state of society 
 may exist where all transactions are made by book- 
 entries of this type, it becomes hardly possible
 
 192 RISING AND FALLING PRICES. [On. XVI. 
 
 to discuss whether, in these circumstances, an in- 
 crease of the currency would affect prices, for there 
 would be no necessity for the existence of a currency 
 at all ; the 1,600,000,000 worth of gold and silver 
 coins would all have disappeared from circulation ; 
 and prices would be regulated by the value of the 
 standard as an article of commerce ; that is, in the 
 case of a gold standard by the value of gold, and, 
 in the case of an inconvertible paper standard, pre- 
 sumably by the value of waste paper ; proof enough 
 that we are very far from such an imaginary state 
 of things. No doubt, under such hypothetical con- 
 ditions, when all transactions would be done in 
 credit, there would still be a rise in gold prices 
 with an increase of confidence ; but this would 
 have nothing to do with the currency ; it would 
 be entirely due to the different way in which the 
 metal gold and the average commodity would be 
 affected by the general increase in trade, 
 but this But the special point to be noted in the foregoing 
 affectthe P ara g ra P n is that it must be admitted that a pro- 
 principle portion of all money transactions is conducted with- 
 quantita- ou t an y regard whatever to the amount of coin in 
 tive theory circulation. The effect on the problem in hand 
 
 oi prices. 5 
 
 of the existence of such transactions may best be 
 illustrated by returning to the numerical example 
 above given. Out of the transactions to the 
 money value of 200,000, which are supposed to 
 be negotiated in a unit of time, let it be assumed 
 that transactions to the money value of 50,000 
 are carried out by simultaneous book-entries, or by
 
 CH. XVI.] BARTER. 193 
 
 some other method having no regard to the volume 
 of the currency ; and, as to the remaining 150,000 
 worth of transactions, that there is a definite pro- 
 portional relationship between their money value 
 and the amount of coin in circulation, which was 
 assumed to be 4000. Now, if the coin is reduced 
 so that only 2000 remains permanently in cir- 
 culation, other things remaining the same, then, 
 ex hypothesi, the money value of this latter fraction 
 of the total transactions will fall to 75,000, and 
 the price paid for all commodities included in these 
 transactions will be halved. This means that the 
 value of the gold in the coinage will be doubled. 
 But the value of gold as an article of merchandise 
 must be the same as the value of the gold in the 
 coinage ; and, as prices in the balance of the total 
 transactions, formerly worth 50,000, are regulated 
 solely by the value of gold as an article of mer- 
 chandise, these prices will be halved also ; and prices 
 in all commercial transactions will be affected alike. 
 Thus, if with regard to a definite fraction of all 
 business transactions, there is a definite quantita- 
 tive relationship between prices and the volume of 
 the currency, then there is nothing in the existence 
 of even a very large proportion of transactions of 
 the nature of simultaneous book-entries to shake 
 the belief in the general principle of the quantitative 
 theory of prices. 
 
 And surely no man of business will deny that a 
 very large proportion of all monetary transactions as to the 
 are affected by variations in the amount of the
 
 194 RISING AND FALLING PRICES. [CH. XVI. 
 
 monetary standard of value available. In most instances the 
 
 actions, a connection between prices and the volume of the 
 
 quantita- currency is indirect and is difficult to trace through 
 
 lationship the ramifications of commerce ; and it is undoubtedly 
 
 pricefand tme tnat > on t ^ ie avera g e > tne basis of coin for a 
 the amount given volume of transactions is exceedingly minute, 
 in the All mercantile engagements, under the present 
 currency, legislation in England, involve promises to pay in 
 tative gold ; and, according to Mr. Goschen, " it is of the 
 prkesfis highest importance to the whole banking and 
 correct in mercantile community, with the view to the certain 
 fulfilment of such engagements, that the aggregate 
 stock of bullion in the country should suffice to 
 meet all wants." The amount of credit transaction 
 depends entirely on the sentiment and will of the 
 great body of creditors ; one creditor may rely on 
 another, but the ultimate creditors pay the greatest 
 attention to the amount of coin available to this 
 matter which is to them of the " highest import- 
 ance." If the available coin increases, there will 
 also be an increase in the money value of the 
 advances made by the ultimate creditors ; and the 
 two will, as I think, ultimately increase in the same 
 proportion. But, in any case, if both these variables 
 do increase simultaneously, it will be according to 
 some economic law ; and a definite, though possibly 
 a variable, relationship between the coin available 
 and the total credit transactions will continue to 
 exist. To deny that there is a relationship is 
 equivalent to saying that bankers and others in 
 gold-using countries are just as ready to advance
 
 CH. XVI.] CREDIT AND COIN. 195 
 
 money when they have little gold at their com- 
 mand as when large reserves of specie are available, 
 either in their own hands, or held for them by 
 others. If we trace credit to its roots, we shall find 
 that there is always or nearly always some negotia- 
 tion in which the possibility of having to find coin 
 or bullion to meet the liability must be present in 
 the minds of the financiers engaged. And the eager- 
 ness with which the Bank of England reserves are 
 watched at all times, and the serious consequences 
 which follow an exceptional rise in the rate of dis- 
 count consequent on any exceptional variation in 
 the quantity of gold held in reserve, prove that the 
 amount of gold in the country is a factor of the 
 utmost importance in regulating credit. Com- 
 mercial confidence varies immensely, and prices vary 
 with the state of commercial confidence and with 
 other variables ; but, for a given condition of all 
 these variables, the forces just described must, it 
 seems to me, create a fixed relationship between the 
 amount of coin in circulation and the total money 
 value of a very large proportion, at all events, of all 
 the money transactions in which the standard in 
 question is used, either in the form of coin or of 
 credit instruments ; and, other things remaining the 
 same, this relationship will make prices, not only in 
 the transactions in question, but throughout all 
 commerce, vary with the volume of the currency. 
 No doubt it cannot be assumed that other things 
 will remain the same. If, for example, the currency 
 is increased by an increase of the banking reserves,
 
 196 KISING AND FALLING PRICES. [On. XVI. 
 
 then discounts will be lowered, and a stimulus will 
 be given to trade. The number of business trans- 
 actions will at first be increased ; but, as already 
 remarked, it is impossible to believe that the number 
 of counters used in trade will ultimately affect human 
 energy ; and it is certain, therefore, that, in a more 
 or less considerable time, the inflation of trade will 
 subside, and the number of transactions will sink 
 back to very near their former level, assuming that 
 the other conditions of commerce remain unaltered. 
 And if the money value of all credit increases, and 
 if the number of transactions remains the same, it 
 is only possible to reconcile these two conditions 
 by a rise in prices. In fact, however largely credit 
 instruments may be used in commerce, an increase 
 or a decrease of the currency will be accompanied 
 by a rise or a fall in prices, if all the other con- 
 ditions remain constant. 
 
 The recent If an average of prices is taken over a sufficient 
 
 prices is number of years, it is evident that it will cover 
 
 not con- periods of commercial confidence and of commercial 
 
 credit. depression. We shall, therefore, with such an average, 
 
 get a level of prices independent of the particular 
 
 variable under discussion ; that is, independent of 
 
 the factors which cause inflations and restrictions of 
 
 trade. If the period of the average is not a short 
 
 one, it can be shown that average wholesale prices 
 
 have fallen continuously since 1873 ; and the cause 
 
 of this fall can hardly, therefore, be connected with 
 
 the state of credit. But even if it could be shown 
 
 that during these years there had been a decline in
 
 CH. XVI.] COMMERCIAL EVOLUTION. 197 
 
 commercial confidence, and that this decline had 
 lowered prices, the proof of this fact would hardly 
 affect the question under discussion. It could not 
 be held that this decrease of confidence was due to 
 the abandonment of bimetallism on the Continent 
 or in America ; if the Latin Union had continued 
 to control the ratio, the factors of credit would 
 have been in the same condition as they are now ; 
 and neither the comparison between the existing 
 state of things and the state of things which 
 would have existed had bimetallism been retained, 
 nor the conclusion previously reached, that gold 
 prices would now have been higher in the remaining 
 gold-using countries had more gold remained in 
 their currencies, are in any way affected by these 
 considerations. 
 
 But, as already noted, there is another variable Economies 
 element connected with credit which has to be con- ^ j^ 6 
 sidered ; an element which has little or nothing to raise 
 do with the forces which create periods of depression at 'any' one 
 
 or inflation. The difference between this subject * ime this 
 
 -i-i i " oes no * 
 
 and the one just discussed may be illustrated by the influence 
 
 following example. If a customer gets an additional i^onsim) 
 overdraft from his bank, the banker knows that he between 
 becomes liable for a further amount, and he has there- and the 
 fore to keep more gold by him ; whilst the customer, currency, 
 by the purchases made with this credit, increases 
 the general demand for commodities ; the net result 
 of the opposing forces being a rise in prices. This 
 illustrates the subject disposed of in the preceding 
 paragraphs. But, taking-the case of an old-fashioned
 
 198 RISING AND FALLING PRICES. [Cn. XVI. 
 
 gentleman who never wrote a cheque for less than 
 5, and who paid all bills for smaller sums in coin, 
 if at his death his property were to fall into the 
 hands of a more modern individual, who paid almost 
 every bill by cheque, here we have an illustration of 
 the second variable element connected with credit. 
 The effect, in this instance, is that the banker, as 
 soon as he knows that the new conditions of business 
 are permanently established, will keep less gold by 
 him, for less will be demanded across the counter. 
 Less gold being kept by bankers will lessen the 
 total demand for the metal, and this will lower its 
 value, and thus raise gold prices. This example of 
 the slow growth of modern commercial methods 
 illustrates an important movement in commercial 
 evolution ; for there are many other ways in which 
 the use of gold is being economized ; the increasing 
 use of book-entries, notes, and bills being the chief 
 methods employed. Every arrangement which in- 
 creases the pace at which business is done, as, for 
 example, telegraphic transfers, also acts in the same 
 way ; for gold is thus set free and made available 
 for a second transaction more quickly than would be 
 the case without such contrivances. There can be 
 no doubt that all these reforms do tend to lessen the 
 demand for gold, and therefore to lessen its value 
 or to raise gold prices. But, at any one time, the 
 economic forces controlling these matters are very 
 rigid. Whether much or little money is drawn in 
 cash, the banker has to keep a certain amount of 
 gold in reserve in his safe; and the fact that the
 
 CH. XVI] COMMERCIAL EVOLUTION. 199 
 
 banker of the next generation will be able to carry 
 on business with a smaller reserve does not in 
 the slightest degree influence the existing banker 
 in deciding the amount of coin he now thinks it 
 wise to keep in hand. There is nothing in this 
 slow organic development of commercial life to 
 give rise to any doubt as to the existence, at any 
 one period, of a definite quantitative relationship 
 between the amount of the standard of value in 
 circulation and the total money value of the trans- 
 actions in which the standard in question is used. 
 
 It has no doubt often been said that the economies And the 
 in the use of gold may be relied on to keep up these 
 prices in future, and that the fears of bimetallists are economies 
 
 , , . would nave 
 
 therefore illusory. As lar as the immediate point at been the 
 issue is concerned that is, as to the effect of foreign ^meta d 
 legislation on prices this remark is certainly not lism been 
 to the point. This progress in commercial methods tained. 
 is not said to have been due to the abandonment of 
 bimetallism on the Continent, and it would have 
 taken place under any probable conditions. It does 
 not, therefore, affect the comparison between prices 
 as they are and prices as they would have been if 
 bimetallism had been effectively maintained. 
 
 The questions connected with commercial evolu- It should, 
 
 how6V6r 
 
 tion are, however, very important ; for it is true that be noted 
 the economies in the use of gold do tend to raise j^eUhei 6 
 prices. But it may be as well to point out here, causes 
 though it is somewhat wide of the present discussion, \w s 
 that there are other forces at work tending in the 
 opposite direction. Monometallists usually connect
 
 200 RISING AND FALLING PRICES. [On. XVI. 
 
 the fall in prices with the vast increase in the 
 facilities for the production of commodities ; but 
 they forget, as a rule, that it may also be connected 
 with the growing tendency to complexity in busi- 
 ness methods. In old times the raw material for the 
 manufacture of any article may only have changed 
 hands once ; it may have passed direct from the 
 producer of the raw material to the consumer of the 
 finished article. But at present all commodities 
 in the market, or parts of them, have in almost 
 every instance passed through the hands of many 
 firms, including those connected with their trans- 
 port, during the course of their manufacture. If, 
 for example, during any period the number of 
 times the material changes hands is on an average 
 doubled, then the number, or rather the volume of 
 business transactions measured by the value of the 
 average commodity, will be doubled also, even if 
 there is no increase of production ; and the increase 
 in the amount of coin required on account of the 
 increase in the number of these transactions may, at 
 all events, outweigh the effect of the economies in 
 the use of gold in each one of them. If prices have 
 fallen in proportion to the increase of production, 
 then the increase of production is not a reason for 
 any additional gold being held in reserve ; if any 
 economy has been made in the amount of gold 
 required as a basis for the monetary transactions 
 connected with the production of each finished 
 article, then it would on this account be possible 
 to actually reduce the reserve of specie. But, as a
 
 CH. XVI] BANK RESERVES. 201 
 
 fact, banks have in recent years largely increased their 
 stocks of metal, 1 and there must be some forces at 
 work, such as those due to the increased complexity 
 of business methods, which are not generally recog- 
 nized. And we cannot count on prices being main- 
 tained by economies in the use of gold in the 
 future, any more than they have been in the past. 
 
 It is often urged that the great increase in bank and that 
 reserves, above mentioned, proves that there is no s carc ity 
 " scarcity " of gold, and the prices cannot, therefore, ? f g ld 
 have been lowered by that scarcity. What is the pression 
 
 exact meaning intended to be attached to the word 
 " scarcity " ? I do not know, but I presume the argu- meaning. 
 ment hints in a vague way at a denial of the exist- 
 ence of a quantitative relationship between the coin 
 in circulation, including reserves, and the money 
 value of business transactions. This point has 
 already been discussed. But those who argue in 
 this way fail to recognize that this accumulation of 
 gold is kept in the banking reserves for a definite 
 purpose ; it is not lying idle there, heaped up by 
 some fortuitous circumstance ; it is not accumulated 
 " hastily and without any pertinent reason." With 
 regard to America, " what it means, beyond a shadow 
 of doubt, is that the supply of gold is so abundant 
 that the character and safety of the note circulation 
 have been improved in a signal manner." 2 The desire 
 
 1 See Gold Standard Defence Association Papers, No. 23. 
 
 2 Prof. Laughlin's words quoted in Wells's " Recent Economic 
 Changes," p. 209, though mine is not, probably, the deduction 
 he would draw from them.
 
 202 RISING AND FALLING PRICES. [On. XVI. 
 
 to improve the stability of credit, after the Baring 
 and other experiences, has been strong enough to 
 induce bankers to retain this gold in reserve, with- 
 out reference to the wants it might otherwise have 
 satisfied ; and this tendency to increase the reserves 
 of specie may have been one of the very causes 
 tending to raise the value of gold, and thus to lower 
 gold prices. 
 
 Thus But to return to the subject immediately in hand, 
 
 nothin^ in *^ e discussion in this chapter shows, I believe, that 
 these con- the quantitative theory of prices may be relied on, 
 concerning if accurately stated. It may, I think, with truth be 
 C ^k th asser * e d that, though there are many variable factors 
 belief that affecting prices, yet for a given condition of all 
 woull have these other variables, there is a definite quantitative 
 been higher relationship between the ultimate level of prices and 
 bimetallic the quantity of the standard of value in circula- 
 ^ on . Chough, possibly, the relation is not one of 
 simple proportion. The quantitative theory, even 
 if correctly stated, has, however, the mischievous 
 effect of merely drawing our attention to the gold in 
 the currency, and of thus taking it away from the 
 equally important consideration of gold as an article 
 of merchandise. It is most important to keep in 
 mind that, in Lord Farrer's words, " gold is the 
 measure of value as well as a medium of exchange, 
 and, as all credit is expressed in terms of gold, any 
 alteration in the value of gold affects proportionately 
 the value of each item of the whole fabric of credit." * 
 However much credit may swell or contract, a 1 
 1 " What do we pay with? " Lord Farrer, p. 67.
 
 CH. XVI ] CAUSE OF THE FALL IN PRICES. 20:3 
 
 credit instrument will be normally worth a sovereign, 
 and the sovereign will be worth no more and no less 
 than the value of the gold in the sovereign ; l this 
 will be true where a system of free and gratuitous 
 coinage exists, for any difference between the value 
 of the coin itself and the value of the metal in the 
 coin will be at once corrected by metal flowing in 
 or out of the currency. The value of the metal 
 gold is the ultimate regulator of gold prices, and 
 that value depends on the equation of supply and 
 demand, the demand being the total demand for 
 the metal for use in the currency and in the arts. 
 If the demand for gold is lessened by that metal 
 being partially displaced from the currencies of 
 certain countries by the substitution of silver, then 
 its value will be lowered. But if the value of gold 
 is lowered, more of that metal will flow out of the 
 currencies of countries remaining on a purely gold 
 basis, thus, in accordance with the quantitative 
 theory, diminishing their total volume, and raising 
 prices. And, whether we look to the quantity of 
 metal in circulation, or to its value as an article 
 of merchandise, there is nothing in these considera- 
 tions to shake the belief that, had bimetallism been 
 effectively maintained on the Continent, average 
 gold prices would now be higher in all gold mono- 
 metallic countries ; or, by similar reasoning, that 
 average silver prices would now be lower in silver 
 monometallic countries. 
 
 1 Neglecting the small differences due to causes mentioned 
 on p. 10.
 
 204 RISING AND FALLING PRICES. [On. XVII. 
 
 CHAPTEK XVII. 
 
 THE EFFECT ON PRODUCTION OF APPRECIATING AND 
 DEPRECIATING STANDARDS. 
 
 Before THE next question for consideration is whether 
 it would have been for the well-being of the corn- 
 
 argument, nmnity if the fall in prices in recent years had been 
 
 theeffectof J . i *v u * 
 
 alterations less rapid ; but, in order to solve this problem, it is 
 of *k; value necessary to review the whole question of appre- 
 standard ciating and depreciating standards of value. The 
 considered. wor d " appreciating " is not always used in the same 
 sense. Here, an appreciating standard of value is 
 merely intended to denote a standard in use at a 
 time when the average price of commodities, as 
 measured by that standard, is falling, without any 
 regard to the causes which are producing that fall. 
 In this chapter we shall be occupied in considering 
 the influence of rising and falling prices on trade 
 on the production of commodities. In the next 
 chapter, the way in which the distribution of com- 
 modities amongst the different classes of consumers 
 is influenced by the variations in the value of the 
 standard will be discussed.
 
 CH. XVII.] EFFECT ON PRODUCTION. 205 
 
 In the first instance, an objection which may be It is the 
 urged against the line of argument followed in an P no t ^ 
 these two chapters should be noticed. The ultimate ultimate 
 results of any changes in economic conditions are any suc h 
 no doubt those to which most attention should, as ttwrtwoa 
 
 which are 
 
 a general rule, be paid ; but, this is no reason for not important, 
 fully considering the temporary effects of economic 
 causes. To prove that a result will only be felt for 
 a limited period no doubt reduces the weight which 
 should be attached to that result in shaping our 
 future policy ; it does not in the least indicate that 
 it should be neglected. And, in judging of the 
 importance of any economic cause producing merely 
 temporary results, we must consider both how fre- 
 quently the cause is likely to be operative, and also 
 how slowly its influence dies out. Far greater 
 weight should, for example, be attached to the 
 effects of the ordinary variations in the value of 
 the standard, which are being perpetually felt, than 
 to similar effects which may only be experienced on 
 one occasion, as at the introduction of a bimetallic 
 system. If any cause is constantly recurring, and if 
 its effects last for a long time, then almost the same 
 consideration should be given to it as if it produced 
 some permanent results. Few, if any, of the effects 
 of an appreciation or a depreciation of the standard, 
 it is true, will be felt for all time ; but as such 
 disturbances subside very slowly, the changes in 
 the currency which produce them have, neverthe- 
 less, it appears to me, a very considerable influence 
 on the well-being of the community.
 
 206 RISING AND FALLING PRICES. [On. XVII. 
 
 The in- 
 fluence of 
 falling 
 prices will 
 be here 
 discussed. 
 
 Two lines 
 of argu- 
 ment will 
 be pursued. 
 
 In the 
 first place, 
 when 
 prices fall, 
 profits are 
 diminished, 
 less capital 
 expendi- 
 ture is 
 incurred, 
 and pro- 
 duction is 
 checked, 
 
 The opinion of Jevons as to the beneficial effects 
 of the rise in prices due to the Australian gold 
 discoveries has already been quoted ; and other 
 economic writers might be cited in the same sense. 
 The testimony of men who actually witnessed these 
 events is very valuable, though it is quite possible 
 that the stimulus to trade, which they attributed to 
 the increase in the currency, may have been in part, 
 at all events, due to other causes. So far only a 
 brief allusion has been made to the actual way in 
 which such beneficial results are produced. Here, 
 I propose to deal almost exclusively with the effects 
 of falling prices. The arguments used, however, all 
 apply, if reversed, to a depreciating standard, and 
 the influence of a rise in prices is easily deducible 
 from any conclusions arrived at with regard to the 
 effects of falling prices. 
 
 Two very distinct reasons can, I think, be given 
 for believing that an appreciation of the currency 
 will have a tendency to put a drag on trade, and to 
 check production. 
 
 It is generally admitted that any cause tending to 
 raise the value of the standard, such as an increase 
 in the demand for the precious metals for non-mone- 
 tary purposes, will lower prices, but that a long time 
 will elapse before they will fall to their ultimate 
 level. Such a cause will thus produce a gradual fall 
 in prices, and, therefore, a gradual diminution in the 
 gross income of all industrial concerns. It is also 
 generally admitted that various items of expenditure, 
 such as the interest on debts, taxes, salaries, wages,
 
 CH. XV11.] DECREASING PROFITS. 207 
 
 freights, etc., will, at first, at all events, fall more 
 slowly than prices. Expenditure decreasing less 
 than income means, of course, a diminution in 
 profits ; and this result of a fall in prices is a fact 
 so well established by experience that it hardly 
 requires any theoretical reasoning to establish its 
 truth. Now the owner of any industrial concern, like 
 every other individual, is under a strong temptation 
 to keep his personal expenditure up to its usual 
 money level ; and, in the same way, in order to 
 meet the views of their shareholders, directors of 
 companies are always anxious not to declare a lower 
 dividend than usual. And it is evident that if the 
 private expenditure of producers and the dividends 
 of companies do not diminish sufficiently rapidly 
 to balance the whole of the diminution in profits, 
 then there must be some diminution in the in- 
 dustrial expenditure to make good the loss. Pro- 
 ducers will in consequence probably curtail their 
 expenditure either by not maintaining machinery 
 or other fixed capital up to its former level of 
 efficiency; or by ceasing to make expensive im- 
 provements in the methods of manufacture ; or by 
 turning out an inferior article ; or by keeping less 
 stock in hand ; or by diminishing the expenditure 
 connected with the distribution of goods ; or by 
 not paying off debts ; or by not starting new com- 
 mercial enterprises, etc., etc. As far as existing 
 industries are concerned, there is perhaps no reason 
 to expect, if profits are large, that there will be 
 any great diminution in productive expenditure ;
 
 208 RISING AND FALLING PEICES. [On. XVII. 
 
 but such economies, to whatever extent they are 
 made, must all result, sooner or later, in a diminu- 
 tion of production, at all events in comparison with 
 the production which would have taken place if 
 these economies had not been made. 
 
 and when It was assumed above that the profits made by the 
 totosses 11 " 1 manufacturer are considerable. If, however, the 
 this in- margin of profit is so small that the diminution of 
 
 fluencewill . . 
 
 be quickly gross income due to any lall in prices turns that 
 profit into a loss, then the only alternatives for the 
 manufacturer are either to live on his capital, or to 
 borrow, or to economize by some of the methods 
 mentioned in the preceding paragraph, or to suspend 
 work more or less completely. If he either lives 
 on his capital or borrows, he is using up capital 
 which would probably have been employed pro- 
 ductively in other ways. Thus, whichever alter- 
 native he selects, it must be one tending to check 
 production. 
 
 The It is true that in some cases the lessening of 
 
 inventive* P ron ^s may stimulate the energies and inventive 
 power powers of producers in a beneficial manner ; but the 
 counter- stimulus of the ever-present desire for an increase 
 
 of wealth is so great that little can, I think, be 
 influences, expected from this additional incentive. The 
 diminution of profits will, moreover, diminish the 
 desire to embark more capital in industry ; and, on 
 the whole, there is no reason to doubt that falling 
 prices will tend after a time either to actually 
 dimmish, or to check the rate of increase of pro- 
 duction in all industries, and that, if the profits in
 
 CH. XVIL] DECREASING PROFITS. 209 
 
 any trade are so small as to be turned into losses, 
 these results will be quickly felt. 
 
 In reply to this argument, it may be said that A fall in 
 a fall in prices does not diminish the wealth of ^"t^estroy 
 the world ; it only transfers it from one person to wealth ; 
 
 ... . , . . but wealth 
 
 another ; and, therefore, there will be no diminu- & thus 
 tion in the fund available for capital expendi- ^^^ 
 ture. This objection must be answered, but, un- less likely 
 fortunately, the answer is here somewhat out ofJ^f,^ 1 . 
 place. It is no doubt strictly true that the de- tivel y- 
 struction of wealth is not the primary effect of a 
 fall in prices ; it is at first a mere transfer ; but is 
 the person to whom the wealth is transferred as 
 likely to invest it in productive works as was the 
 person from whom it was taken ? We have seen 
 that the effect of a fall in prices is to diminish the 
 producer's profits, and therefore to lessen the pro- 
 ductive expenditure incurred by him. But, on the 
 other hand, when prices are falling the purchasing 
 power of moiiey increases, and this is a benefit to the 
 labourer and to all to whom fixed payments are due, 
 either as interest on loans, or for any other reason. 
 In fact, the wealth which the producers lose is trans- 
 ferred to the working classes, and to what may, per- 
 haps, be called the creditor class, though it includes 
 others besides creditors. One or both of these classes 
 might, therefore, in these circumstances, be able 
 to utilize some of this additional wealth for capital 
 expenditure, whilst continuing to purchase the same 
 amount of necessaries and luxuries as before ; and 
 the question is whether they are likely in this way 
 
 p
 
 210 RISING AND PALLING PRICES. [On. XVII. 
 
 to make up the deficiency in productive expenditure 
 due to the falling off in the amount forthcoming 
 from the producers. As to the working classes, they 
 habitually spend the bulk of their earnings imme- 
 diately ; and little of the capital not expended by 
 the producer is likely to be replaced by the labourer. 
 As to creditors, no doubt some additional savings 
 will be forthcoming from that quarter ; but many 
 of this class will, like the labourer, spend the whole 
 of their incomes, notwithstanding the increased 
 purchasing power of the fixed money payments they 
 receive. Moreover, various portions of the fixed 
 charges on industrial concerns (taxes, for example), 
 do not go directly to individuals ; and the loss to the 
 producer, due to the increase in the value of such 
 payments, is not likely to result in a correspond- 
 ing economy on the part of the corporate bodies 
 receiving them. Thus, though it is true that the 
 first result of a fall in prices is to transfer wealth 
 from one class to another, yet that transfer will have 
 the effect of diminishing productive expenditure, 
 and, therefore, sooner or later, of diminishing pro- 
 duction. 
 
 A rise in Turning to the consideration of rising prices for a 
 
 stimulates momen *> ^ ^ e r i se comes from causes primarily 
 
 production, affecting the currency, profits will increase, and the 
 
 producer will be the only person immediately 
 
 benefited by the change. He will be in a position 
 
 to expend more either on himself or on his business 
 
 enterprise. He will no doubt do both. But his 
 
 increased prosperity will probably make him more
 
 CH. XVII.] INCREASING PROFITS. 211 
 
 desirous of increasing his out-put. He may supply 
 the necessary new capital out of his additional 
 profits, or by means of credit ; and the credit 
 will be all the more easily obtainable because 
 of his increasing profits. Thus a rise in prices 
 will, in this manner, certainly stimulate production. 
 No doubt there will also be some corresponding 
 diminution in capital expenditure; for the rise in 
 prices will diminish the savings of the labourer and 
 creditor classes. As to the working classes, who, as 
 a general rule, live up to their incomes, they must 
 perforce reduce the amount of commodities they 
 purchase ; they, in fact, must economize, and their 
 economies are transferred to the producers. Here 
 we are only concerned with the question of pro- 
 duction, and whatever else may be said, it appears 
 certain that this transfer will be accompanied by an 
 increase of productive expenditure, and therefore, 
 sooner or later, by an increase of production, other 
 things remaining the same. 
 
 Keturning to the question of an appreciating x 
 
 standard, it has been seen that a fall in prices will conditions 
 
 . , will no 
 
 at first increase the purchasing power of wages and doubt ob- 
 
 salaries ; that is to say, it will increase the real *f^ r a | am 
 wages of the great mass of the people. This will long 
 have the effect of increasing the demand for com- m 
 modities, an increase which will tend to raise average 
 prices. It has been seen, also, that, under the same 
 conditions, there will be a decrease in production ; 
 which, according to the quantitative theory of 
 prices, is another circumstance tending to raise
 
 212 EISING AND FALLING PRICES. [On. XVII. 
 
 prices. Thus a fall in prices will be checked by 
 itself creating forces tending to act in the opposite 
 direction; and this is one of the reasons why an 
 alteration in the conditions primarily affecting the 
 standard of value may be expected only to produce 
 a gradual fall in prices. In time the diminution of 
 production, by throwing men out of employment, 
 will bring down wages and salaries ; and, the cost 
 of production thus being lowered, prices will fall. 
 New industrial concerns will also be started under 
 the new economic conditions ; all the fixed capital 
 thus created, the buildings, machinery, etc., will be 
 obtained at a lower price. These new ventures will, 
 therefore, be less burdened with debt ; no part of 
 their indebtedness will by due to the fall in prices ; 
 and the profits they make will be as great, when 
 wages have fallen to their ultimate level, other 
 things remaining the same, as those made by the 
 original manufacturers before the fall in prices. 
 Thus, after a time, the normal condition of things 
 will be reached, and the effects of the apprecia- 
 tion of the standard will die out. It will be 
 said, no doubt, in order to minimize the import- 
 ance of these temporary influences, that trade ac- 
 commodates itself quickly to its surrounding con- 
 ditions. This is true in a sense. During the process 
 of adjustment after any change in the value of the 
 standard, the primary conditions to which trade has 
 to adjust itself are not the same as those which 
 existed before the disturbing cause ; and, considering 
 the length of time during which some of the factors of
 
 CH. XVII.] PRIME COST. 213 
 
 trade will remain in an abnormal condition, it would 
 appear that a long period must elapse before an 
 appreciation of the currency will have completely 
 worked out its full effects in lowering profits, and, 
 consequently, in producing a benumbing effect on 
 trade. 
 
 Passing on to the second reason for believing that In the 
 a fall in prices will put a check on production, it is p^ce, 
 
 first of all necessary to prove somewhat more fully prime cost 
 
 . J . J tends to 
 
 that prices only respond slowly to any alteration respond but 
 
 in the conditions which determine the value of ^rlatums 
 the standard. This is due to several causes. In in the 
 the first place, when prices are falling, a certain $, e e 
 force is required to overcome the disinclination standard ; 
 of each manufacturer to lower his price list ; the 
 mere conservative instinct of mankind will, in this 
 manner, prevent a fall in prices due to any change 
 in the conditions of the standard from taking place 
 coincidently with that change. No doubt custom 
 and habit will often produce very little effect, but 
 in a minority of cases these forces may have con- 
 siderable influence. 1 
 
 A more important effect on prices is, however, 
 produced in the following manner. In settling 
 price lists, the managers of going industrial con- 
 cerns must chiefly take into consideration those 
 
 1 Prices of finished articles will respond less readily to 
 economic forces than prices of raw materials. But if, as the 
 sequel will show, this delay will check the sale of the finished 
 article, it will equally check the sale of the raw material. For 
 no more raw material is sold than is required for the manufacture 
 of the finished article.
 
 214 RISING AND FALLING PRICES. [On. XVII. 
 
 items of expenditure which they can diminish by 
 diminishing their production; that is to say, the 
 prime cost of producing their goods. If, when 
 prices are falling, the prime cost does not fall as 
 quickly as the price of the product, then the profit 
 on the turnover will diminish ; and when the price 
 reaches the point at which the profit on the turnover 
 vanishes, then the manufacturer will, as a general 
 rule, decline to lower his prices any further, because 
 it would pay him better to lose his trade rather than 
 to do so. Of course a desire to keep up trade-con- 
 nections will often induce firms to trade at a lower 
 price, and therefore at a loss ; but, even in that 
 case, business will be pushed with less vigour. But, 
 on the other hand, manufacturers will often have 
 decided, as the result of experience, on the profit on 
 the turnover which they ought to make to cover the 
 standing expenses of their industry ; and, when that 
 is the case, they will frequently refuse to lower 
 their prices except in proportion to the fall in the 
 prime cost, whatever may be the result of their 
 policy. Thus the prime cost of goods plays an 
 important part in settling prices. Now many of the 
 items which make up the prime cost, and conse- 
 quently the prime cost itself, will fall very slowly 
 as a result of any change in the value of the 
 standard ; as, for example, taxation (when included 
 in prime cost), railway charges, royalties, the price 
 of some raw materials (e.g. to take an extreme case, 
 water when supplied by a corporate body), etc., etc. 
 The most important items included in the prime
 
 CH. XVIL] PRIME COST. 215 
 
 cost are, however, wages and salaries ; the wages and 
 salaries paid by the manufacturer himself, and those 
 paid by the makers of the raw material he buys, and 
 by other firms that he deals with. When prices are 
 falling, trade will be depressed, and wages will be 
 forced down. But the question is whether the 
 earnings of labour will immediately, or even quickly, 
 respond to any cause affecting the value of the 
 standard. Of course when men are actually thrown 
 out of employment they will, after a time, be ready 
 to work on almost any terms ; and, then, their 
 competition will act as a powerful lever in forcing 
 down the level of wages. But very commonly the 
 first effect of slack trade is merely to shorten the 
 hours of work per week, without throwing men out 
 of employment, and without altering the nominal 
 rate of pay. In these circumstances, the hope of 
 stimulating trade and of thus increasing their total 
 earnings is not a sufficient inducement to make 
 workmen willing to accept a lower rate of wages ; 
 for, though it might really be sound policy for them 
 to submit to the fall, yet they could hardly tell 
 whether the result would not merely be to increase 
 their master's profits. Even when trade is actually 
 being checked by a fall in prices, it is very difficult 
 for the working classes to be certain that the greater 
 regularity of work accompanying a reduction of 
 their money wages would compensate them for that 
 reduction; and, when trade is naturally progress- 
 ing, it becomes still more difficult for them either 
 to prove or realize this conclusion. Commonly,
 
 216 KISING AND PALLING PKICES. [On. XVII. 
 
 therefore, wages will not respond quickly to the effect 
 f f a lli n g prices. And as to salaries, they are always 
 dependent largely regulated by custom, and custom changes 
 cost 3 6 but slowly. Thus, on the whole, it may be concluded 
 not, there- that many of the items of expenditure, including 
 
 fore,answer . J . . . , . . 
 
 quickly to salaries, which make up the prime cost of any 
 c * us ?? article, will respond slowly, and wages, the main 
 
 affecting ' _ J ' 
 
 the stan- item, will not respond quickly to any change in the 
 value of the standard. And as the prime cost plays 
 an important part in settling prices, it is evident 
 that average prices will not, therefore, respond 
 quickly to any changes in the conditions of the 
 currency. 
 
 Prices must According to the quantitative theory, prices 
 proportion var y w ^ ^ G ( l uan tity of money in circulation, 
 to any the smaller the quantity, the lower being prices. 
 in the Now in the case of each individual manufacturer, 
 currency, ft j s obvious that if he postpones the lowering of 
 volume of prices unduly, he will be under-sold by others, and 
 wlUbe 8 kis sales, and consequently his production, will 
 diminished, diminish. This will be readily admitted. And if 
 there is a general delay on the part of all manu- 
 facturers to drop their prices in a manner corre- 
 sponding with any decrease in the currency, it is 
 equally true, though the result is not so apparent, 
 that their action will result in a general limitation 
 of production. If all those coming to a market to 
 buy bring less money with them, and if all those 
 coming to sell decline to lower their prices in pro- 
 portion, it is obvious that the usual amount of busi- 
 ness will not be done. Or, to put the matter more
 
 CH. XVII.] THE CHECK ON PKODUCTION. 217 
 
 generally, it has been seen that there is a certain 
 relationship between the volume of the currency 
 and the money value of business transactions ; if, 
 therefore, the quantity of currency in circulation 
 diminishes without a corresponding fall in prices, 
 then there must be a diminution in the volume of 
 business done, other things remaining the same. It 
 is extremely difficult to tell how effective the forces, 
 described above, will be in delaying the lowering of 
 prices ; but, to whatever extent they do act in that 
 manner, they must have the effect of putting an 
 immediate check on trade. 
 
 Several objections may be raised in opposition to Trade will 
 this view as to the influence of the standard of value pere( j t, y 
 
 on production. In the first place, it will perhaps 
 
 be said that a large proportion of commercial trans- standard 
 
 actions do not necessitate, even indirectly, the use 
 
 of any gold whatever ; and that, in such cases at not used as 
 
 * , , T amediumof 
 
 all events, the scarcity of the currency can have exchange. 
 no effect whatever in hampering trade. In many 
 transactions gold is, undoubtedly, only used as the 
 standard of value, and not as the medium of ex- 
 change ; the exchange of commodities by simul- 
 taneous book-entries being a typical example of 
 this method of conducting business. But the drag 
 on trade when prices are falling is, in reality, due 
 to the price demanded, rather than to any diminu- 
 tion in the volume of the currency ; and the effect 
 is the same whether the standard is or is not used 
 as the medium of exchange. To make this point 
 clear, let it be assumed that, in some gold-using
 
 218 RISING AND FALLING PRICES. [Cn. XVII. 
 
 country, the manufacturers of two commodities, 
 A and B, exchange their goods by simultaneous 
 book-entries ; but that they use wheat as the 
 standard of value in place of gold. If equal values 
 of A and B are exchanged, then the book-entries 
 will exactly cancel each other ; no wheat will be 
 used in the transaction ; and no liability in wheat 
 will be created. Now when actual transactions are 
 made by book-entries in gold-using countries, it is 
 not denied that the goods exchanged are really 
 equal in value to the gold contained in the number 
 of coins at which they are priced ; it is not denied, 
 in fact, that gold is the standard of value in such 
 cases. In the same way, in the hypothetical case 
 under discussion, it may be assumed that the amounts 
 of A and B thus exchanged are really equal in value 
 to the amount of wheat at which they are nominally 
 priced in the book-entries. For simplicity, let it 
 be assumed that A and B are equally valuable, and 
 that a ton of each of them is equal in value to a 
 quarter of wheat ; a " quarter " is then the price in 
 wheat of these commodities per ton. Next, let it be 
 assumed that there comes a bad harvest, and that 
 wheat rises in value ; prices in wheat must then 
 tend to fall. If, however, the manufacturer of A 
 refuses to drop his price in wheat, he is in fact con- 
 tinuing to demand, in exchange for every ton of A, 
 either a quarter of wheat, or an amount of B equal 
 in value to a quarter of wheat ; but the quarter of 
 wheat, having risen in value, is now worth more 
 than a ton of B. Hence, by declining to lower his
 
 CH. XVIL] THE CHECK ON PRODUCTION. 219 
 
 price list, the manufacturer of A is in fact declaring 
 that he will not do business unless he gets more of 
 B in exchange for his goods than he did before ; 
 and it is easy to see that this is also true if, though 
 lowering his price in wheat, he does not lower it 
 at once in proportion to the rise in the value of 
 wheat. Similar reasoning would of course show that, 
 if the price of B is not at once dropped to this full 
 amount, the manufacturer of that commodity is in 
 like manner demanding more of A than he got 
 before. And if both hold out, each for an increase 
 in the amount of the goods made by the other, 
 they cannot possibly come to terms, and no business 
 will be done. In this way sales will be stopped, and 
 this will soon put a check on production. When 
 the amount of any commodity in the market de- 
 creases, its value rises as compared with other com- 
 modities ; A and B will both begin to rise in value 
 as compared with wheat ; and, taking the case when 
 both manufacturers obstinately refuse to make any 
 reduction in price, this will go on (if no other makers 
 of A and B exist) until these goods acquire their 
 old relative value compared with wheat their 
 old price in wheat, which the makers continue to 
 demand ; and then of course business can go on as 
 before. If, however, the prices of A and B in wheat 
 are somewhat reduced by the makers, then business 
 can be resumed at a proportionately earlier date. 
 
 If the production of wheat remained stationary, 
 whilst improvements in machinery (or other causes) 
 tended to increase the production of A and B, that
 
 220 RISING AND FALLING PEICES. [On. XVII. 
 
 would also be a circumstance tending to raise the 
 value of wheat as compared with A and B. If this 
 assumption had been made in the foregoing argu- 
 ment, it could equally well have been proved that 
 if the manufacturers of A and B did not lower their 
 prices as measured by wheat, then the full increase 
 of production which might normally be expected to 
 follow such improvements in the method of manu- 
 facture would not take place. In fact, the stability 
 of price would put a check on trade. 
 
 If goldi If these conclusions are true with regard to the 
 noUallin exchange of any two articles, they must also be true 
 
 proportion w ^h re nr ar d to all. Thus if wheat were used as the 
 
 to any ten- 
 
 dency on standard of value, and if average prices did not fall 
 
 a * once "* accor d ance with any tendency on the 
 in value, part of wheat to rise in value, then sales would be 
 volume of checked and production would slacken (absolutely 
 business or relatively to the production which would other- 
 diminish. wise have taken place) until a position of equili- 
 brium was reached. And when gold is used as the 
 standard of value, exactly the same thing must occur. 
 No doubt a certain complication arises on account of 
 the fact that gold is also the medium of exchange ; 
 for any general diminution of business, by lessen- 
 ing the demand for the currency, directly tends to 
 raise prices; but as the decrease in the demand 
 for currency is the effect of a decrease in the number 
 of business transactions, that effect cannot be felt 
 until such business has diminished; and the only 
 result of such a rise in prices will be to bring things 
 to a position of temporary equilibrium somewhat
 
 OH. XVH.] THE CHECK ON PRODUCTION. 221 
 
 more rapidly. We may, therefore, lay down, the 
 following as a general law : Any cause, which affects 
 the standard in a manner tending to raise its value, 
 will, if the production of commodities goes on at the 
 same rate as before, produce a definite fall (relative 
 or absolute) in prices ; and when, other things re- 
 maining the same, such a cause does come into opera- 
 tion, either average prices must fall (relatively or 
 absolutely) at once to that definite extent, or sales 
 must be stopped, and production checked, until 
 the equation of demand and supply is again adjusted. 
 But it has been seen that average prices will not 
 respond quickly to causes primarily affecting the 
 standard ; and, if this is so, the other alternative a 
 diminution in production would appear to be the 
 inevitable result of falling prices. Of course it is 
 not possible to perceive that at one moment sales 
 are stopped, and that at another moment they begin 
 again ; the only symptom observable will be that 
 drag on trade which producers always associate with 
 falling prices. 
 
 In stating our conclusion as to the general result This check 
 of falling prices, it was assumed that all other tk.n may 
 things remain the same. This is a legitimate perhaps, 
 assumption in studying the effect of any particular 
 
 n 
 
 cause, provided that, under cover of these words, certain 
 none of the effects of the cause under examination 
 are omitted from consideration. And, in this in- 
 stance, it is true that a fall in prices will have other 
 influences which cannot altogether be neglected. 
 When, in a primitive country, prices are falling and
 
 222 RISING AND FALLING PRICES. [On. XVII. 
 
 profits consequently diminishing, those who have 
 hoarded money will be induced to discharge some of 
 their liabilities with coins taken from their hoards. 
 This will increase the currency, and the tendency to 
 rising prices, thus produced, will help to restore 
 things to a position of temporary equilibrium. In 
 fact, if a sufficient quantity of coin were thus added 
 to the circulation, even though prices did not fall as 
 quickly as the other causes affecting the value of 
 the standard appeared to demand, yet production 
 might go on unchecked. But this influence will 
 not be a powerful one ; for, in uncivilized countries, 
 this supply of coin will quickly dry up; and, in 
 civilized countries, falling prices will have little 
 tendency to induce bankers to lessen their reserves. 
 Another influence of a similar character is due to 
 the effect of .custom on credit. If, when prices are 
 falling, the same amount of money as usual is lent 
 to a customer, this will in reality be an increase in 
 the amount of real credit ; and such an increase of 
 credit will help to check the fall in prices. But the 
 depressing effects of an appreciating standard will, on 
 the other hand, tend to contract credit ; and little 
 or no easement is likely to be felt as the net result 
 of these opposing influences. Thus neither of these 
 methods, by which a fall in prices might be pre- 
 vented, as it were, from checking production, are 
 likely to have any very material influence. 
 
 sm^rna"- ^ ma ^ a ^ so ' P erna P s > ^ e urged, in reply to these 
 
 perhaps,' arguments, that what is really suggested is that 
 
 producers will try to check any natural fall in 

 
 OH. XVII.] LIMITATION OF OUTPUT. 223 
 
 prices by limiting their output ; that this would P aml to a 
 
 J ,. , combiua- 
 
 amount to an endeavour to lorin a gigantic trade tion to 
 combination ; and that such attempts never succeed 
 for long. Such a comparison is rather far-fetched. 
 But it is true that the effect of falling prices is 
 somewhat similar to that which would be produced 
 by a universal combination ; the union would, how- 
 ever, be an unconscious one, having no acknow- 
 ledged object, the lessening of output not being 
 recognized by its members as being the result of 
 their combined action. Ordinary combinations 
 usually break down because a few firms either 
 desert, or refuse to join the union, in the hope of 
 greatly increasing their business by underselling 
 those in the " trust " ; and they will be able to carry 
 out their design if the combination has actually 
 succeeded in raising prices above their normal level. 
 But, with the unpremeditated union produced by 
 falling prices, there will at first be no such tempta- 
 tion ; because we may assume that prices are con- 
 stantly being lowered by the ordinary forces of com- 
 petition in proportion, or nearly so, to the fall in 
 the prime cost of manufacture. Of course if any 
 one manufacturer could break the bonds which 
 force all producers to act alike if he could at 
 once lower wages, salaries, royalties, taxes, freights, 
 etc., to their normal level then, no doubt, such 
 action would not only be extremely profitable to 
 him, but it would also help to bring down the level 
 of prices, and would thus hasten the return to the 
 original scale of production. But manufacturers
 
 224 RISING AND FALLING PRICES. [On. XVII, 
 
 generally will be powerless to do this, and so long 
 as that is the case, prices will remain above and 
 production will remain below their normal levels. 
 Eking If the foregoing arguments are reversed, they 
 
 P ces , prove that rising prices stimulate trade and pro- 
 
 stimulate * . \ 
 
 production; duction. But, it may be said, an inconvertible 
 P a P er currency, continually being depreciated by 
 
 justify fresh issues of notes, affords a ready means of 
 continuously raising prices, and therefore of obtain- 
 ing these benefits; and as no one whose opinion 
 is worth regarding, could now be found to advocate 
 such a system, this is equivalent to a general 
 denial of the beneficial effects of rising prices. 
 The evils resulting from an inflation of the cur- 
 rency are, however, due to the way in which any 
 such action on the part of a government would 
 destroy confidence in commercial continuity, and 
 possibly in commercial honesty. If confidence had 
 previously been destroyed, then perhaps the bene- 
 ficial effect of such inflation might be apparent ; 
 because the evil effects, not being produced, would 
 not hide them. In this connection it may be in- 
 teresting to note the opinions of Arthur Young, who 
 closely watched the influence of the depreciation of 
 the assignats in revolutionary France at the end 
 of the eighteenth century, during a period of the 
 greatest social disorder. He writes that " the very 
 circumstances which, according to common ideas, 
 should have continued " the depression of manufac- 
 tures " has most unaccountably revived them in some 
 measure ; I mean the depreciation of the assignats."
 
 CH. XVIL] INFLATION NOT JUSTIFIABLE. 225 
 
 The explanation he gives is not very clear, but pre- 
 sumably he intends to indicate that the price of 
 labour became so low that master manufacturers 
 could " sell the product of that labour to such an 
 advantage as to create demand enough to animate 
 their business." * Another objection to the use of 
 inconvertible notes lies in the fact that, if a 
 metallic currency is ever to be resumed after such 
 periods of inflation, the only alternatives are either 
 a general act of repudiation, or a gradual restora- 
 tion of the standard to its old value, when all the 
 evils attributed to an appreciating standard will be 
 felt to the full. The initial benefits arising from 
 artificial inflation will be dearly bought by the sub- 
 sequent troubles; and to assert that there may be 
 initial benefits in no way justifies any such systems 
 of inflation. 
 
 Lastly, as a reason for distrusting all the argu- The history 
 ments tending to prove that a fall in prices checks n 
 
 production, it will no doubt be said that facts are years helps 
 against this conclusion ; for it cannot be denied 
 that, though during the last twenty-five years there 
 has been a continuous fall in the average price of 
 wholesale goods in England, this state of things 
 has been accompanied by a great increase of 
 production. But there is no evidence to show that 
 production would not have increased still more 
 rapidly if prices had remained steady. It is 
 possible to conceive that some independent cause, 
 
 1 Youngs' " Travels in France," edited by Betham Edwards, 
 p. 346. 
 
 Q
 
 226 RISING AND FALLING PRICES. [On. XVII. 
 
 such as a great increase in the supply of gold, 
 might have come into operation at the time the fall 
 in prices commenced, and that prices might thus 
 have been maintained at a higher level ; and, had 
 such been the case, recent events do not prove that 
 the increase in the production of commodities 
 would not in those circumstances have been even 
 greater than it has been. In fact, if causes 
 primarily affecting the currency have tended to 
 produce a fall in prices, it is impossible to prove 
 that commerce would not have been even more 
 active if no such causes had existed. The ex- 
 periences gained in recent years helps us but little 
 in solving this problem. 
 
 Recapitu- Thus there are two reasons for believing that 
 a fall in prices will tend to dimmish production. 
 To put the matter in a somewhat paradoxical form, 
 when the standard is appreciating, on the one hand, 
 prices will be too low for the usual profits to be 
 made, or for the usual productive expenditure to be 
 incurred ; and, on the other hand, prices will not 
 be low enough for the original amount of business 
 to be transacted. Exactly the opposite effects will 
 be produced with rising prices. Profits, and con- 
 sequently productive expenditure will increase. 
 And, looking at the commerce of the world as 
 barter, it will be as if all manufacturers entered 
 the market ready to part with goods for less 
 of their neighbour's products than they received 
 before ; commerce will be readily transacted ; busi- 
 ness will increase ; and the increase of production
 
 AN INCREASE OF REAL WAGES. 227 
 
 will go on till a new position of equilibrium is 
 reached. 
 
 If a general diminution in production takes place, Tliese 
 it is evident that there will be fewer commodities ar e in 
 to distribute amongst the various classes of the f ? v . our Ol 
 
 rising 
 
 community. In these circumstances some, and prices ; but 
 probably all, must receive less of the necessaries or Ji n^ eb " 
 luxuries of life ; and such an event is, therefore, the distribution 
 greatest economic misfortune that can happen to to be 
 a country. The foregoing arguments, therefore, all discussed. 
 tend to show that the community will be made more 
 prosperous by a rise in prices, because production 
 will thus be stimulated. But, on the other hand, 
 it is now generally admitted that, up to a point 
 probably in many instances not yet reached, the 
 higher the wages of labour the more productive 
 it becomes ; and here, therefore, is an argument in 
 favour of falling prices, even if the question is 
 regarded solely from the point of view of produc- 
 tion ; for falling prices will, at first at all events, 
 increase the real wages of the labourer by increasing 
 the purchasing power of his earnings. How much 
 force should be attached to this argument is, how- 
 ever, doubtful. After a fall in prices, the factors 
 of production all in time return to their normal 
 condition, and no ultimate effect would be produced 
 on real wages by such a cause ; production cannot, 
 therefore, ultimately be stimulated in this manner. 
 But in all probability the increased productivity of 
 labour is an effect which is only attained after a 
 higher rate of real wages has continued for a long
 
 228 RISING AND FALLING PEICES. [Cn. XVII. 
 
 time ; for, at first, the increased value of earnings 
 is apt to be wastefully dissipated; and it is only 
 gradually that the labourer learns to use his in- 
 creased wealth in a manner likely to make himself 
 or his children more efficient in the production of 
 wealth. If, however, production would in truth be 
 comparatively quickly stimulated by the increased 
 prosperity of the working classes, what we have to 
 inquire is whether that result would in reality be 
 produced by a fall in prices. This opens up the 
 whole question of the distribution of commodities 
 amongst the various classes of the community ; a 
 subject as important as that of production in 
 balancing the advantages and disadvantages of 
 appreciating and depreciating standards.
 
 CH. XVIII.] DISTRIBUTION. 229 
 
 CHAPTER XVIII. 
 
 THE EFFECT ON DISTRIBUTION OF APPRECIATING 
 AND DEPRECIATING STANDARDS. 
 
 IN discussing the distribution of commodities Monetary 
 amongst the different classes of society, we shall produce no 
 again mainly be dealing with the temporary effects great 
 of variations in the value of the standard. We 
 
 are not, in fact, concerned with normal distribution, di 
 
 . . tion. 
 
 a subject fully dealt with in many treatises on 
 
 economics. Nor will it be necessary again to revert 
 to the way in which the variations from the normal, 
 due to monetary causes, gradually die out, or to the 
 rapidity with which such influences may be expected 
 to subside ; for that subject was considered in the 
 preceding chapter, where it was seen that these 
 effects may be appreciably felt for a very long time. 
 
 In the short space here available, onlv the The dis- 
 
 . ! ,- 
 
 broadest views of this subject can be given. 
 
 bably the easiest way to consider this problem is to of a typical 
 imagine a hypothetical manufactory, which may be tory be- 
 
 taken as typical of the industry of the world, and 
 
 to see how an appreciation or a depreciation of the earners, 
 
 currency will affect the different parties interested, and r
 
 230 RISING AND FALLING PRICES. [On. XVIII. 
 
 ceivers The recipients of the benefits arising from this 
 payments typical industry may be divided into three large 
 will now be groups. 
 
 (1) The wage-earners ; including all those who 
 make their living by their own exertions, and who 
 receive wages, salaries, or other payments. 
 
 (2) The producers; or the parties to whom the 
 profits made at the typical manufactory accrue. 
 This group includes the ordinary shareholder ; and 
 also the farmer, agriculture being included amongst 
 the industries which the manufactory is supposed to 
 
 typify- 
 
 (3) The receivers of fixed payments ; including 
 creditors receiving interest on loans, debenture- 
 holders, landlords receiving rents on land and build- 
 ings, mortgagees, pensioners with a legal claim for 
 their pensions, etc. Taxes must also be included in 
 the fixed payments. 
 
 These groups really merge one into the other, so 
 that the precise boundary is often difficult to define ; 
 for example, a landlord, granting short leases, should 
 rather be classed as a producer, if he regularly 
 appropriates to himself any additional profit made 
 by his tenants in good seasons by temporarily 
 raising their rents. Moreover, the same individual 
 may belong to two or three of these groups. But 
 the general idea of distribution, which can be 
 obtained by studying the way in which the receipts 
 of our typical manufactory are shared between the 
 wage-earner, the producer, and the receiver of fixed 
 payments, is sufficiently accurate for our purposes.
 
 CH. XVIII.] A HYPOTHETICAL MANUFACTORY. 231 
 
 The following table has been prepared to facilitate The effect 
 the discussion of this question of distribution. In 
 
 the first column (A) are given the gross receipts and the value 
 the total output of commodities produced by the standard is 
 
 hypothetical manufactory, together with the way 
 in which the receipts are distributed amongst the following 
 different classes. The amount of the commodity 
 thus produced, which could be bought by each of 
 the parties with their receipts is also given ; and, 
 as the manufactory is typical of all industry, the 
 share of the total output of commodities thus, as 
 it were, allotted to each class represents the amount 
 of the average commodity they could purchase with 
 their receipts ; that is to say, the real value either 
 of their wages, or of their profits, or of the interest 
 received, as the case may be. Other columns are 
 given to show how the money and the real receipts 
 vary from this initial distribution when different 
 changes in the condition of the currency take place. 
 It has been seen in the preceding chapter that wages 
 will not at once respond to any change in monetary 
 conditions ; and to illustrate the first effect of such 
 monetary changes, the money paid in wages is 
 shown in the table as remaining constant, unless 
 the gross receipts are insufficient to pay the full 
 amount, or unless it is otherwise stated. It will 
 be observed, also, that nothing is included in the 
 outgoings for the purchase either of raw materials 
 or of other manufactured goods. But, as the ex- 
 penditure incurred in making all goods may be 
 divided in the same way, there is no objection to
 
 tj g 
 
 > s 
 
 P3 ?= 
 
 li 
 5 
 
 OrV 
 
 J H 
 
 ^. 
 
 K & 
 
 a 
 
 W| 
 | 
 
 
 
 
 
 ou LI 
 
 CO ,--. 
 
 O 
 
 e e 
 
 Eg 
 
 & 
 
 le 
 
 Q^ 
 
 ^ H 
 Or* 
 
 B^-B 
 
 S w 
 2 g M 
 
 ill 
 
 ... Fi IH 
 
 I 
 TH 
 PA 
 
 _ : >j i - | _ 
 
 o o o o o o 
 
 ^ S> D, 
 
 Ptd 
 
 O O COCM *! 00 g 
 
 ll p s a 1 
 
 a 
 
 ^^ 
 
 a>^ S 'g.2 S 
 
 
 
 
 
 
 o o o o o o o 
 
 
 ^ X JH GJ O ^ 
 
 
 
 O CD CD CD CD OO OO 
 
 
 ~)"~ - ~ ~ 
 
 .3 ^ 
 
 CNI CM Cf^ Cf^ C|^ 
 
 I'M 
 
 gs 2 00 83 
 
 d 
 
 "* 
 
 
 
 00 
 
 
 O O O O O O 
 
 
 
 s 
 
 
 O O CO CM CM 00 
 C+J (M C(4 rH Cfj 
 
 M 
 
 
 p. 
 
 
 
 
 
 
 
 
 O O O i O IO 
 
 
 
 13 
 
 
 
 00 O CO t> CM 
 Crf CM Cfj C+J r-l 
 
 M 
 
 
 M 
 
 I 
 
 
 
 
 , .w'S*' S , ^ 
 
 
 OO OO OO OO 
 
 
 1 
 
 ll|fs.liii 
 
 0. 
 
 CO CD CD <M CM 
 
 w 
 
 M 
 D 
 
 3 
 
 llllfil 
 
 i 
 
 OO OO OO OO 
 
 OO COCO CDCD 1-HrH 
 CM CM C+J erf r-l rl 
 
 a 
 
 r 
 
 1 
 
 
 OO OO OO OlO 
 
 
 g 
 
 M |-| 
 
 
 * O CO CM CD ITS ITS CM 
 <M CM Crf C^ r-l r-l 
 
 to 
 
 
 
 *< 
 
 
 = rt 
 
 
 o 
 
 ||| |-S| 
 
 
 CM CO CM 00 CD i-HrH 
 
 
 1 
 
 p-ii ^'^^ 
 
 
 =+? 
 
 P-H 
 
 I 
 
 II Hi 
 
 roductioi 
 
 iCO O-* OOO lOflO 
 (NO COCM CD-tl COIN 
 
 "^ 
 
 Q 
 
 
 CO .S 
 
 ^"So-o 
 
 
 
 O O O O O O ,i 
 tfi, O CO CD CM r*< || 
 
 o 
 
 
 g a.o 3 
 M v9 v 
 
 ; t. 
 
 o 
 
 O O O 00 O IN 
 OO O CO CO fi CO 
 
 tt 
 
 
 tfO 
 
 
 
 
 
 paiBdnioo 9q 
 pjnoqs sutanioo aaq^o qoiqM 
 
 OO OO OO OO 
 00 COOT COCO rH 
 
 <! 
 
 qiiAi 'aSirjs iBijiai painnssy 
 
 ^ rt rt 
 
 
 a 
 
 p2 *^ s * 
 
 = 
 
 1 
 
 2 'is 'i s,q 'i 
 
 ^S O S o fl co 
 
 
 A 
 
 ;S>-c| 1^1 '9^ : 
 
 a> 
 
 
 
 o 
 
 S-s 
 
 "H fH ^"^ O O ^~^ 1* O 
 
 a 
 
 11 
 
 J 
 
 O v^-*^ C O ^ 
 
 Saj aS flo-E s 
 " oo "3 ' M P "a -fH 
 
 g 
 2 
 
 a> 
 
 s/s 
 
 oSoS 's 10 'p'oOcig 
 
 H 
 
 o 
 
 1^|* ?ls?3^P 
 
 
 i 
 
 s 
 
 O O f 3 ^ Q ^ Q j 
 
 
 
 *si^X "S^dtaoaj jo uoi)nqu)Si(j; 

 
 CH.XVHI.] STAGNANT TRADE. 233 
 
 taking as our hypothetical industry one in which 
 every stage of the manufacture of the finished 
 article is undertaken, including the production of 
 the raw materials. 
 
 It should, however, be most distinctly understood 
 that this table is merely for the purpose of illus- 
 trating the following arguments ; it is not intended 
 to represent facts. Industries differ immensely one 
 from the other in all these conditions ; and it would 
 be impossible to give with any approach to accuracy 
 any figures representing the average of all industries. 
 
 In order to facilitate the discussion it will, in the 
 first instance, be assumed that the typical industry 
 is not subject to any charges, like royalties, which 
 are obligatory, but which increase proportionately to 
 the output. The effect of such charges will be con- 
 sidered separately. 
 
 In discussing the question of distribution it will Certain 
 be necessary to consider the case of commerce, both 
 
 when it is progressing, and also when it is in a tior ^ being 
 stagnant condition. Taking the latter case first times of 
 
 that is to say, when the production of commodities stagnant 
 J . . , trade, a 
 
 is neither increasing nor decreasing let us consider depretia- 
 
 the effects produced by the adoption of a hypo- ^^f e 
 thetical standard of value which so adjusts itself appears un- 
 that the price of commodities keeps rising ; or, in 
 other words, the effect of a depreciation of the 
 standard. In these circumstances it will be seen 
 (by comparing columns A and D) that the receivers 
 of fixed payments are certain to suffer ; for they, 
 no doubt, would find their incomes of less value
 
 234 RISING AND FALLING PRICES. [Cn. XVIII. 
 
 to them on account of the increase in prices ; and, 
 if this be the intentional result of any monetary re- 
 form, no equitable consideration can be advanced 
 to justify the suffering thus imposed on creditors 
 and landlords, unless indeed they were aware that 
 the standard would depreciate when they lent their 
 money or fixed their rent. This class will, in 
 fact, get a smaller share of the output, and what 
 they lose will be divided between the wage-earner 
 and the producer, between whom there will be a 
 struggle for the lion's share of the spoils. Whilst 
 it is, no doubt, possible that wages might be forced 
 up so much that the workman would be benefited in 
 spite of the increase in prices (column E), it is 
 certain that the wage-earner, if not belonging to a 
 powerful Trades' Union capable of safeguarding his 
 interests, would not have his wages raised to that 
 extent for a long time, and that he would during 
 the interval suffer from the greater cost of the 
 necessaries of life ; and government employees, and 
 those who gain their living in employments not 
 directly connected with industry, might be even in 
 a worse position, because of the greater difficulty of 
 obtaining an increase in their wages or salaries. 
 The producer's money profits would certainly in- 
 crease, because the rise in prices would make the 
 gross receipts increase without any corresponding 
 increase in the fixed payments for loans, rent, etc. ; 
 and the real value of his receipts would increase 
 because the produce of the sales of a smaller propor- 
 tion of his total output would suffice to meet the
 
 CH. XVIIL] A ETSE IN PRICES. 235 
 
 fixed payments. In arriving at any general con- 
 clusions, it is, of course, necessary to consider the 
 question of production as well as the question of dis- 
 tribution ; and in the last chapter it was shown that 
 an increase of profits stimulates productive expendi- 
 ture, and that a depreciation of the standard facili- 
 tates business by rendering transactions more easily 
 negotiable. Thus, on the adoption of such a system 
 of currency, on the one hand, the producer would 
 almost certainly gain ; production would be stimu- 
 lated as a result of his increased profits ; and this 
 would tend to revive trade from its stagnant con- 
 dition, to the benefit of all classes. But, on the 
 other hand, the receiver of fixed charges would be 
 injured ; the least protected class of labourer would 
 certainly suffer; and social discord would arise in 
 consequence of the repeated agitations to force up 
 wages, which would be necessary to prevent actual 
 loss to all classes of workmen. These are the 
 relative advantages and disadvantages of a change 
 from a steady to a depreciating standard. The 
 evils of trade disturbances are so great, and the 
 immediate sufferings to the working classes from a 
 rise of prices are so evident, that the problematical 
 advantages of a rise in prices hardly, perhaps, 
 warrant the advocacy of a depreciating standard, 
 unless indeed further reason for believing that it 
 would be advantageous to the community are forth- 
 coming. Thus far, therefore, it would appear that 
 it would be undesirable to change from a steady 
 standard to one which is depreciating.
 
 236 KISING AND FALLING PEICES. [On. XVIII. 
 
 and an ap- The next case to be considered is that of a fall in 
 of the* 11 tne P r i ces tnat i^ an appreciation of the standard 
 standard whilst trade is stagnant. (Columns B and C.) 
 be very ob- On the adoption of such a standard the receivers 
 jectionable. o f fi xe( j charges would be benefited, because they 
 would be able to purchase more commodities at 
 their reduced price; they would, in fact, as prices 
 decline, receive a continually increasing proportion 
 of the output of commodities, and this would cause 
 a continually increasing loss to be shared between 
 the producer and the wage- earner ; a state of things 
 which would be inequitable if the intentional result 
 of any monetary reform, and which would, in any 
 case, be undesirable. The producer, who would be 
 the first to feel the loss on account of the impossi- 
 bility of an immediate reduction of wages, would 
 find his profits gradually decreasing until, perhaps, 
 they vanished altogether. This would probably 
 cause the condition of trade to turn from one of 
 stagnation into one of actual retrogression, because 
 of the consequent diminution of capital expendi- 
 ture, and because of that drag on the trade due to 
 falling prices, which was described in the preceding 
 chapter. The workman, as long as his earnings 
 kept up, would be benefited by the fall in prices ; 
 but, unless profits were abnormally high, this could 
 not last long, for the depression in trade would 
 soon make a reduction in wages possible, and indeed 
 inevitable. In the first instance (column B), this 
 reduction in wages might not annul the whole 
 benefit to the labourer of the fall in prices, but
 
 CH. XVIIL] A FALL IN PKICES. 237 
 
 the change would probably be resisted exactly as 
 bitterly as if there were no compensating circum- 
 stances in the case. But (column C), as the fall in 
 prices proceeded, a still greater proportion of gross 
 profits would go into the pockets of the receiver 
 of fixed charges, and the necessary reduction in 
 wages would cause actual loss and suffering to the 
 wage-earner. The workman under government or 
 in kindred employments would, like the com- 
 mercial workman, benefit at first ; but, especially 
 in these days when the vote has so much value, his 
 wages would not fall as quickly as those of the 
 ordinary workman ; taxes and customary fees would 
 not fall in proper proportion, and the government 
 labourer would gain at the expense of all other 
 classes. It can hardly be doubted, therefore, that 
 under such circumstances an appreciation of the 
 standard is a most serious evil. 
 
 The introduction either of a standard with an Thus far 
 inherent tendency to appreciate, or of one with a 
 
 tendency to depreciate, would thus far appear to appears 
 be undesirable ; but a comparison of the results in apprecia- 
 the two cases makes it clear that the evils due to * ion w a , 
 
 far greater 
 
 a fall in prices are far greater than the harmful evil than 
 effects resulting from a rise in prices. If we desire ^ rec 
 to estimate truly the effect of any variations in the 
 value of the standard on the different classes of 
 the community, we must consider the distribution 
 of commodities, and not the distribution of money. 
 Rising prices at first force the working classes (and 
 to a lesser extent the creditor and rent-receiving
 
 238 RISING AND FALLING PRICES. [On. XVIII. 
 
 classes) to economize in the consumption of com- 
 modities; and they suffer proportionately. Their 
 savings are transferred to the producers, who are 
 consequently enabled to spend more on themselves 
 and more on productive works. The effect of the 
 additional fixed capital thus accumulated will be 
 felt for a very long time ; and it is probable that 
 the increase in the total output of commodities 
 thus produced will come to be distributed in the 
 normal proportions between the different classes, 
 before this beneficial influence is exhausted ; in 
 which case, if there is no reaction, all may find 
 themselves benefited by the depreciation of the 
 standard. On the other hand, a fall in prices 
 transfers wealth from the producers to the labouring 
 and creditor classes ; and this will on the whole 
 have the effect of diminishing productive, and of 
 increasing non-productive expenditure; the result 
 possibly being that the demand for labour, and 
 consequently the wages of labour, will at first show 
 little tendency to diminish, and the labourer may 
 for a time get the full benefit of the change. But 
 the fall in prices will place a certain drag on trade ; 
 and the diminution of productive expenditure must 
 tell in the long run. In time, therefore, there 
 will be a diminution of real wages, thus putting 
 an end to the immediate and possibly short-lived 
 advantages to the working classes of an apprecia- 
 tion of the standard. In fact, falling prices induce 
 the producer to economize in a way which is often 
 harmful to trade; whereas rising prices force the
 
 CH. XVIII.] THE LABOUR STANDARD. 239 
 
 wage-earner and the creditor to economize with 
 results which are possibly beneficial for a long 
 period afterwards. In both cases there will be 
 suffering ; both thus far appear to be undesirable ; 
 but, on the whole, I cannot doubt that the effects of 
 appreciation are far more harmful than the effects 
 of depreciation. 
 
 In considering the case of progressive trade, when The effects 
 the output of commodities keeps increasing, the t a ndard 
 question becomes more complicated. Let us first giving, 
 imagine a hypothetical standard of value which, in j g pro . 
 
 such circumstances, so adjusts itself that the price of gressmg. a 
 
 J r constant 
 
 the output per man per hour remains constant ; that price to the 
 
 is to say, if the same number of men continue to be 
 
 employed for the same length of time at our typical (here called 
 
 / . . % . - / the labour 
 
 manufactory, prices will fall in proportion to any standard) ; 
 
 increase in production due to new inventions or 
 to other causes ; and the total money receipts will 
 remain constant. (Compare columns A and H.) 
 With this labour standard, 1 as it may conveniently 
 be called, the wage-earner will automatically receive 
 his share of the increase in the output, because, 
 owing to the fall in prices, his wages will purchase 
 more commodities ; the producer will benefit in the 
 same way, as his money profits will also be more 
 valuable ; and so will the receiver of fixed pay- 
 ments ; and a little consideration will show that 
 these three classes will share in exactly the same 
 
 1 This term does not imply that the money-wages of labour 
 remain constant, though it is so shown in the table. A standard 
 always producing that result might be called a wages standard.
 
 240 RISING AND FALLING PKICES. [Cn. XVIII. 
 
 proportion in the advantages arising from the in- 
 creased production. It is also to be noted that, 
 with the labour standard, the workmen employed 
 by governing bodies and employees in situations un- 
 affected by trade prosperity a not inconsiderable 
 proportion of the working world would get, by the 
 fall in prices, their due share in the benefits arising 
 from any advance in civilization, and this without 
 it being necessary to increase taxation, or to raise 
 customary fees and charges. It must, however, be 
 remembered that under these conditions prices will 
 fall continuously, and that an appreciating standard 
 always puts a certain drag on trade, because prices 
 will not immediately respond to the fall in the 
 prime cost of manufacture. The volume of business 
 will thus tend to be less than it would be if prices 
 were stationary. 
 and of a Next (comparing columns A and G), let us 
 
 standard , , ,, ,. , ,, 
 
 - a imagine a second hypothetical system of currency 
 
 which, other things remaining unaltered, would 
 prevent any variation in the average price of com- 
 m dities, notwithstanding any increased activity of 
 
 the com- trade ; a standard which may, consequently, be 
 raoditv n -, ,, ,._, , , J ' '* 
 
 standard) caiA ea the commodity standard. However great the 
 
 considered- P ro ress ^ industry might be, in these circuni- 
 ' stances, the wage-earner would neither lose nor gain 
 immediately as a result of that progress, because 
 his wages would purchase the same amount of 
 commodities as before. For the same reason, the 
 income of the receivers of fixed payments would 
 remain constant or invariable in real as well as in
 
 OH. XVIIL] THE COMMODITY STANDARD. 241 
 
 mouey value ; and they would never share with the 
 others in the benefits arising from the increase in 
 productive power. The whole gain from the in- 
 creased production would, at first, go into the 
 pockets of the producers. With an increased out- 
 put at a constant price (column G), the gross 
 receipts would increase; the fixed charges would 
 absorb a smaller proportion of the whole expendi- 
 ture ; and the increase in profits thus produced, by 
 increasing productive expenditure, would have the 
 effect of stimulating trade. As to the working 
 classes, after a time a rise in wages would certainly 
 follow the increased activity of trade, and in the end 
 they might very possibly find themselves materially 
 better off under this, the commodity standard, than 
 under the labour standard. But, on the other hand, 
 the demands for increased wages would often be 
 accompanied by trade disturbances; and, as to 
 government labourers and all workers not directly 
 dependent on commerce, they would have far greater 
 difficulty in obtaining their just share of the good 
 things of the world, and would in all probability be 
 for a long time in a worse position than if prices 
 were falling. 
 
 In comparing the relative merits of the labour and, thus 
 and the commodity standards, as estimated in this w\dA ap- 
 manner, it appears, therefore, that there is some- P ear ^ at 
 thing to be said in favour of each. Looking merely occupying 
 to the question of distribution, the labour standard, j^J^~ 
 or that in which prices fall proportionately to the position 
 increase of production, would appear to be the best ; thTlabour 
 
 it
 
 242 RISING AND FALLING PRICES. [Cn. XVIII. 
 
 and the because the benefits of progress would be more 
 standards evenly distributed amongst all classes of workers, 
 
 would be an( j because there would be no necessity for social 
 the best. . J 
 
 discord arising from agitations for increased pay 
 
 and wages; though it certainly has the demerit 
 that the receivers of fixed payments including the 
 idle partners would often share in the benefits of 
 progress solely due to the exertions of others. But 
 if the question is considered with reference to pro- 
 duction, this opinion will probably be reversed ; 
 for, when trade is progressing, the fall in prices, 
 which must occur with the labour standard, will 
 tend to hamper trade ; whereas, with the commodity 
 standard, or that in which the average price of 
 commodities remains constant, profits will increase ; 
 and this will tend to increase productive expendi- 
 ture ; a consideration in favour of constant, if not 
 of rising prices at all times. To fairly balance 
 these contradictory arguments would be an almost 
 impossible task, and a compromise naturally suggests 
 itself; that is to say, a standard occupying an 
 intermediate position between the labour standard 
 (column H) and the commodity standard (column G) 
 would appear on the whole to be the best. 
 
 The question of abstract justice between debtor 
 and creditor has been much discussed in connection 
 with this subject. It has been debated whether the 
 creditor, when he lent his money, expected to be 
 paid back in money which would purchase the same 
 quantity of commodities as the money he lent, or 
 in money which would purchase the output of the
 
 CH. XVIII.] THE TWO LIMITS. 243 
 
 same amount of labour. But, in truth, the question 
 never entered his head in anything like that form, 
 and all that justice requires is that we should not 
 make unnecessary and arbitrary alterations in con- 
 tracts, especially if such alterations are intended for 
 the benefit of one party at the expense of the other. 
 As to future contracts, entered into after any change 
 in the monetary system, the question of justice 
 would hardly arise ; because the creditor would 
 know the conditions under which he lent his money. 
 With any metallic standard, however, the future 
 must be so uncertain, that such discussions become 
 almost purely academical. 
 
 Of course the standard may be one tending 
 make the prices move outside the limits indicated n ^ be one 
 by the labour and the commodity standards; it m * kin 
 
 , . ,. . . prices move 
 
 may tend to make the price of commodities rise, or outside 
 it may tend to make prices fall so much that the i 
 price of the total output falls also. Both these 
 cases have to be considered. Taking the case of a 
 rise in prices first, if production increases at the 
 same time that prices rise (column F), it will be 
 seen that similar effects will follow to those de- 
 scribed as resulting from a depreciation of the 
 standard in times of stagnant trade (column D), 
 only, if the result of a deliberate policy, they will 
 be still more inequitable ; for the wage-earner would 
 have to struggle both to prevent being injured by 
 the rise in prices and in order to get his fair share 
 of the benefits arising from the increase in pro- 
 ductive power ; whilst the producers would get the
 
 244 RISING AND FALLING PRICES. [OH. XVIII. 
 
 full benefit of both movements as long as wages were 
 stationary. On the other hand, if we consider the 
 case (columns I and K), when, during times of in- 
 creasing activity of trade, prices fall so much that 
 the price of output per man actually diminishes, we 
 shall find that the results would be almost identical 
 with those described as resulting from an appre- 
 ciation of the standard during times of stagnation 
 (columns B and C) ; the receiver of fixed charges 
 would gain immensely ; the producer would find 
 his profits vanishing ; trade would be checked ; and 
 if the fixed charges were sufficiently heavy, the 
 labourer would suffer, though not so quickly as if 
 output were not increasing. Thus far it has been 
 seen that, in times of progressive trade, the labour 
 standard (column H) is the best from the point of 
 view of distribution, whilst the commodity standard 
 (column G) has certain advantages, and is preferable 
 from the point of view of production ; and we now 
 see that undesirable results will arise if the standard 
 varies beyond these limits, the evils arising from the 
 price of the total output falling being far greater 
 than those resulting from the price of commodities 
 rising. 
 
 Thus far the standard has been discussed with 
 reference to a condition of society capable of being 
 represented by a single typical manufactory. No 
 change was supposed to take place in the conditions 
 of trade, unless specially mentioned. It remains 
 now briefly to inquire in what manner our con- 
 clusions are likely to be influenced by the many
 
 CH. XVIII.] PAKTICULAR INDUSTRIES. 245 
 
 circumstances omitted from such hypothetical 
 discussions. 
 
 In considering these theoretical questions with The 
 regard to the currency, the effect of other causes of 'other 6 
 influencing prices, besides those primarily affecting ? aus( * * 
 the standard, must not be forgotten. For even if makes it 
 
 it were possible in times of progressive trade to 
 adopt a system of currency which would make the price of 
 average price of the output of commodities per man ou tput 
 per hour remain constant that is, to adopt the should 
 labour standard yet these other variants would 
 be certain to cause prices to fall below that limit 
 in many industries ; and, in such cases, profits and, 
 consequently, productive expenditure would tend to 
 diminish. If, on the other hand, it were possible 
 to adopt the commodity standard, thus preventing 
 average prices from varying, these other circum- 
 stances would certainly cause a rise of prices 
 in many industries, thus producing locally the 
 results due to a depreciating standard, which have 
 thus far been held to be undesirable. These con- 
 siderations also point to the selection of a standard 
 occupying an intermediate position between these 
 two extremes ; for then particular industries would 
 be less likely to feel the undesirable effect of either 
 a rise or too great a fall in prices. But the evils of 
 prices falling below the one limit have been seen to 
 be greater than those due to a rise of price above 
 the other limit ; and the more nearly the standard 
 approaches the commodity standard, the fewer 
 will be the number of cases in which individual
 
 246 RISING AND FALLING PRICES. [On. XVIII. 
 
 industries will feel the greater evils due to a fall 
 in the price of the total output. The commodity 
 standard should, therefore, be that most nearly 
 approached. In the case of stagnant trade similar 
 reasoning would indicate the desirability of adopt- 
 ing a standard producing on the average a slight 
 rise in prices, so as to mitigate the evils due to 
 falling prices in industries injuriously affected by 
 other causes. 
 
 The So far we have omitted all consideration of the 
 
 existence , . , , . , . 
 
 of charges many extraneous charges on industry which increase 
 
 of which w jt n an increase of output under all conditions of 
 
 royalties i i 
 
 may be currency, but over which the producer has no control. 
 
 thlTtype Mining royalties are typical of this kind of burden 
 on industry ; railway charges, being seldom changed, 
 also, as a rule, increase proportionately to the amount 
 of business done, independently of any movement 
 in the general level of prices; and many other 
 examples might be given. Now, as to this class 
 of recipients, of whom we may take the royalty 
 holder as the typical example, it is evident that 
 they will find their money receipts increasing with 
 every increase of production under all conditions 
 of currency. With the commodity standard, prices 
 being constant, they will, therefore, be in a position 
 to purchase more and more commodities; and the 
 amount (but not the percentage) of the output 
 allotted to them will increase (columns A, G, and L). 
 In the same circumstances, the producer will also 
 find his profits increasing, because wages and fixed 
 charges will not rise at once in proportion to the
 
 CH. XVIII.] ROYALTIES. 247 
 
 increase of trade. These two classes, the producer 
 and the royalty holder, will at first share between 
 them the whole benefits of the increase in productive 
 power. This is no doubt objectionable; but after 
 a rise in wages, consequent on the prosperity of 
 trade, a fairly equitable distribution of wealth might 
 be obtained, even if the whole of the extraneous 
 charges were of the nature of royalties, provided 
 they were not excessive. On the other hand, with 
 the labour standard, it is evident that an increase 
 of trade will enormously increase the value of the 
 receipts of railway companies and royalty owners ; 
 for their gain will be due both to the increase in 
 the output, bringing with it an increased royalty, 
 and also to the increased purchasing power of the 
 currency in which the royalty is paid. (Compare 
 columns A, H, and M.) With the labour standard 
 we assume that prices will fall so much that the 
 gross receipts will remain constant, notwithstand- 
 ing the increase in trade ; we may also assume 
 that for a time wages and fixed charges will remain 
 unchanged ; and we may therefore conclude that, 
 in the first instance, the difference between these 
 two amounts will be constant also ; that is to say, 
 that there will be a constant amount of money to be 
 shared between the producer and the royalty owner. 
 But, as with every increase of productive power, the 
 royalty owner will receive a larger payment in 
 money, it follows that in the same circumstances 
 the money profits of the producer must get less and 
 less ; and it is not difficult to see that if the royalty
 
 248 KISING AND FALLING PKICES. [On. XVIII. 
 
 charges were heavy, his real profits would diminish 
 in the same way. The conditions of trade cannot 
 be healthy if those managing industrial concerns 
 are placed in such a position that any increase of 
 production will be an injury to them ; and, as with 
 the labour standard this will be the case with all 
 trades subject to charges of the nature of royalties, 
 this consideration indicates that it is very un- 
 desirable, from this point of view, that prices should 
 fall to that level. 
 
 and the In the foregoing discussion it has been tacitly 
 oTnew* 1011 assume( i that no additions to the fixed charges are 
 fixed ever made. This is certainly an erroneous assurnp- 
 maJkf the tion if the commercial concern under discussion is 
 standard to j^ taken as typical of industry generally. The 
 
 glvm ? a ~4i i!L j * * i - t * 
 
 constant increase of the burden of taxation is a fact too 
 
 th^outout familiar to us all ; and new capital is always being 
 of labour invested, the part which takes any form involving 
 be un- the payment of a fixed interest constituting a 
 desirable, definite addition to the weight of indebtedness 
 pressing on industry. These new burdens have to 
 be met, and if the old burdens are not cancelled 
 sufficiently rapidly, and if the money receipts remain 
 constant, the net increase in the fixed charges must 
 come out of the pockets of the producer or of the 
 employee, one or both. Almost every one admits 
 the advantages of keeping down national and muni- 
 cipal indebtedness by constantly paying off a por- 
 tion of the debt ; and the arguments in favour of 
 a diminution of indebtedness are equally strong in 
 the case of industry. This will, probably, be readily
 
 CH. XVIII.] FIXED CHARGES. 249 
 
 admitted if a comparison is made between the com- 
 mercial condition of two industrial companies, the 
 total capital in the two cases being the same, but 
 one having a large debenture debt or mortgage, and 
 the other having none. For, the less the debenture 
 debt, the stronger will be the position of a company 
 to meet difficulties in times of commercial depres- 
 sion ; and if at such times it becomes necessary to 
 reduce dividends, the larger the ordinary capital 
 the smaller need that reduction be ; the hardship 
 of bad times will, in fact, be less severely felt if 
 there are no debenture-holders, because it will be 
 spread over a wider area. But a stronger objection 
 to fixed indebtedness is to be found in the fact that 
 it is only by allowing profits to fluctuate that a 
 tolerably even rate of wages can be maintained ; 
 heavy fixed charges, by diminishing the possible 
 range of such fluctuations in profits, must con- 
 sequently increase the fluctuations in wages. No 
 doubt the decay of old firms, and the establishment 
 of new ones, has the effect of constantly wiping 
 out these burdens. But this is an objectionable 
 way of obtaining the desired result, and it is natural 
 to inquire whether no better method is available. 
 Debts no doubt could be reduced by the introduc- 
 tion of a system of currency producing constantly 
 rising prices ; but there are many strong objections 
 to any steps being taken with that definite object, 
 and such a system would be but a rough and crude 
 way of producing a better distribution of wealth. 
 It is, nevertheless, true that if the price of the
 
 250 KISING AND FALLING PRICES. [On. XVIII. 
 
 total output of the industries of the world does 
 not rise, there will without doubt either be a 
 constant cancelling of old debts through bank- 
 ruptcies, etc., or a perpetual increase of the burden 
 on industry. And this consideration does show 
 that some benefits will be experienced if prices rise 
 when trade is stagnant, or if prices do not fall so 
 much during times of progressive trade that the 
 price of the total output remains constant. 
 Trade The commerce of all countries goes through 
 
 periods of depression, and careful attention should 
 readily if be given to the causes which tend, at such times, 
 rising. *" to produce a revival of trade. When commerce is 
 active, workmen are working full time, and there is 
 a large production of commodities ; these commo- 
 dities are exchanged one for the other, and are then 
 distributed for use and consumption. In times of 
 depression there are many idle days for the labourers 
 in the industries affected, and there are fewer 
 commodities manufactured and available for dis- 
 tribution. Why cannot this state of depression be 
 converted into a state of activity by a simultaneous 
 decision on the part of the managers of all in- 
 dustrial concerns to work more regularly? Each 
 industry would then produce the additional com- 
 modities necessary to exchange with the increased 
 productions of other manufactories. Of course 
 such concerted action is practically impossible, but 
 putting the question in this way may make it 
 easier to appreciate the stumbling-blocks which 
 stand in the way of a commercial revival. In the
 
 THE REVIVAL OP TRADE. 251 
 
 first place, though it is true that the increased 
 activity of one branch of trade always causes an in- 
 creased demand for the output of other trades, yet 
 each manufacturer must feel confident that this in- 
 creased demand, due to the increased activity of 
 other firms, is really about to be felt before he himself 
 will increase his own output. Confidence is above 
 all things necessary, and rising prices, from what- 
 ever causes they may be due, do help to create a 
 feeling of confidence. Not only must there be 
 confidence, but there must be the capacity to meet 
 the increased expenditure for labour, etc., during 
 the process of the manufacture of the additional 
 goods, and for the new machinery, etc., which may 
 be necessary to render the increase in production 
 possible. Now we have seen that a rise in prices 
 will have the effect of increasing capital expendi- 
 ture; and it follows, therefore, that a depreciation 
 of the currency will render a revival of trade more 
 probable. Changes in the value of the currency 
 cannot, it is true, either increase or decrease the total 
 wealth of the world ; all that can be done in this 
 way is to alter the distribution of wealth ; but this 
 redistribution may be done in different ways, some 
 more and some less likely to produce beneficial 
 results. A rise in prices from causes primarily 
 affecting the currency would, in the first instance, 
 transfer wealth from the workman to the producer ; 
 but the injury that the workman would thus suffer 
 might be a step towards better things in the future. 
 These considerations taken alone point to the
 
 252 RISING AND PALLING PEICES. [On. XVIII. 
 
 desirability of establishing a monetary system which 
 in times of progressive trade would not allow prices 
 to fall so rapidly as to cause a diminution in gross 
 receipts, or one which in times of stagnant trade 
 would produce a steady rise in prices. That is to 
 say, the standard should under all circumstances be 
 one tending to cause an increase rather than a 
 decrease in profits ; for then it will be more likely 
 that improvements will be adopted tending to 
 increase the efficiency of labour ; an increase on 
 which the progress of the working classes ultimately 
 depends. But neither the possibility of a period 
 of reaction, nor the immediate harmful effects of a 
 rise in prices, especially on unorganized labour, 
 must be lost sight of for a moment. The deprecia- 
 tion of the standard cannot be beneficial unless it 
 is so slow and steady that a rise in wages follows 
 close on the heels of a rise in prices. 
 
 Thus far In reply to the arguments contained in this, and 
 cussion has ^ n ^ e preceding chapter, it may be urged that we 
 
 not dealt have not been considering: the effects of a continually 
 
 with the . ,. = , 
 
 final equili- appreciating or of a continually depreciating cur- 
 
 " renc y' but rather the results to be anticipated from 
 different a change from a condition of constant prices to one 
 of value. f either falling or rising prices. This is no doubt 
 true in a great measure. In considering the hypo- 
 thetical manufactory, it was tacitly assumed that 
 the initial condition of things, which served as a 
 basis of comparison (column A), represented a 
 position of economic equilibrium ; and a comparison 
 with the other columns, therefore, served to indicate
 
 CH. XVIII.] FINAL EQUILIBRIUM. 253 
 
 only the changes in distribution which would be 
 the first to be felt as the result of any changes in 
 the conditions primarily affecting the standard of 
 value, and not the final equilibrium which would 
 be reached when all the slower movements had fully 
 worked themselves out. But, as the subject under 
 discussion is the effect of the introduction of a 
 bimetallic system, what we want to ascertain is the 
 effect of the change from one system of currency 
 to another, rather than the ultimate position of 
 equilibrium which will be assumed after a very 
 long time. And the foregoing conclusions may, 
 therefore, be accepted as far as the discussion in 
 hand is concerned. 
 
 It has, however, been urged that a bimetallic 
 currency is less likely than one on a monometallic 
 basis to have a permanent tendency to appreciate. 
 As little weight should, I think, be attached to this 
 plea, I do not propose to discuss at any length 
 the relative merits of permanently appreciating and 
 permanently depreciating currencies. But, as some 
 of the arguments in Chapter VII. were based on 
 such considerations as these, a few words on this 
 subject may be necessary. 
 
 In considering the effect of an appreciation of the 
 standard, it was seen that the proportion of the 
 gross receipts absorbed in the discharge of fixed 
 payments would be increased by a fall in prices 
 (columns A, I, and K). But it is evident that this 
 change could not go on for ever ; for, if it did so, 
 the whole of the gross receipts would in time go
 
 254 RISING AND FALLING PRICES. [On. XVIII. 
 
 into the pockets of the creditor class, leaving nothing 
 wherewith to pay the wages. A permanently depre- 
 ciating currency cannot, therefore, be accompanied 
 by a perpetual increase in the real value of the fixed 
 payments. It is true that as long as production 
 remains unaffected by the fall in prices, and as long 
 as the fixed charges remain constant in money 
 value, so long must a fall in prices be accompanied 
 by an increase in the proportion of the gross receipts 
 required to satisfy the fixed charges. And this is 
 where the foregoing table is misleading ; for it 
 indicates that production, fixed charges, and wages 
 (in many instances) would remain constant, which 
 would, of course, not be the case. If a change were 
 to take place in some of the conditions primarily 
 affecting the standard of value (as, for example, an 
 increase in the use of the precious metals in the 
 arts) then it is evident that a new force would be 
 brought into existence which would tend to produce 
 a fall in prices. But this new force would call 
 into existence other forces tending to readjust the 
 equilibrium in many ways. Profits would dimmish. 
 Production would consequently be checked. The 
 diminution in the output would tend both to check 
 the fall in prices and to bring down wages. The 
 diminution in profits would tend to produce a fall 
 in the rate of interest; and the indebtedness on 
 industry would also tend to decrease in money value, 
 because capital of the same value could be obtained 
 at a lower price. Thus the fixed charges on industry 
 would slowly tend to diminish. And in time all
 
 CH. XVIII.] FINAL EQUILIBRIUM. 255 
 
 these forces would so arrange themselves that some 
 new position of equilibrium would be reached. But 
 who would venture to predict with confidence what 
 would be the exact way in which commodities would 
 then be distributed ? We know that fixed charges 
 will alter very slowly ; we believe that wages will 
 rise or fall less rapidly than prices; and we can, 
 therefore, have some idea of the effects which will 
 be experienced for a long time after an appreciation 
 or a depreciation of the standard ; but to ascertain 
 the final position of equilibrium is a very different 
 matter. 
 
 It may be urged that in the long run, and for But the 
 a given condition of all the factors of trade, the contusions 
 same proportion of the gross receipts will always are pro- 
 have to be given to the creditor class as the necessary piicable to 
 inducement to make them part with their capital, tn< ;final as 
 
 . T n WG " ** * 
 
 whatever system of currency might be in force. If the first 
 this is true, then, in the final equilibrium, the appreci- 
 standard selected will make no difference in the atingor de- 
 value of the balance of the gross receipts, which is currencies. 
 available for profit and wages; and no merit can 
 be claimed for one standard over another on account 
 of any permanent tendency either to appreciate or 
 to depreciate. But, considering the complex con- 
 ditions which determine the rate of interest ; con- 
 sidering the impossibility of predicting the future ; 
 and considering the improvident character of human 
 beings ; it appears to me that the rate of interest 
 charged when the currency is permanently appre- 
 ciating will not, on an average, be so much lower
 
 256 RISING AND FALLING PRICES. [On. XVIII. 
 
 than the interest charged when the currency is 
 permanently depreciating, as to compensate for the 
 fact that the real value of the interest on each 
 separate loan will always be increasing with an 
 appreciating currency, and always decreasing with 
 a depreciating currency. If this conclusion is 
 correct, the value of the fixed charges on industry 
 would always be less, and consequently the value 
 of the share of the gross receipts to be divided 
 between profits and wages would always be greater 
 with a depreciating than with an appreciating cur- 
 rency. A diminution in the value of the fixed 
 charges was the main advantage claimed for a 
 depreciation of the currency in the foregoing dis- 
 cussion ; and the conclusions arrived at in the 
 chapter, probably, therefore, apply not only to a 
 change from stability to appreciation or deprecia- 
 tion, but also to perpetually appreciating or per- 
 petually depreciating currencies. 
 
 General The foregoing conclusions may be summarized as 
 a^to the 118 follows. In the first examination of the effects of 
 conditions an appreciation and a depreciation of the standard, it 
 
 which it is x . 
 
 desirable was assumed that prices in all industries rose and fell 
 standard together ; that there were no charges like royalties, 
 of value which increase with an increase of production ; and 
 fulfil. that no new loans or other fixed burdens were con- 
 tracted. Under these hypothetical conditions it was 
 seen that in times of stagnant trade a perfect mone- 
 tary system should tend to produce constant prices ; 
 and that, when trade is progressing, the standard 
 should occupy an intermediate position between that
 
 CH. XVIII.] AN IDEAL STANDARD. 257 
 
 giving a constant price to commodities, that is, the 
 commodity standard, and that giving a constant 
 price to the output of a given amount of labour, 
 or the labour standard. But many circumstances 
 omitted from this preliminary discussion point to 
 the advantages of a depreciating standard ; or, if 
 production is increasing, at all events to the com- 
 modity standard, under which the gross receipts of 
 commercial concerns would tend to increase. For 
 example, the evils due to the price of the total 
 output of commodities falling are far more serious 
 than the disadvantages resulting from a rise in 
 prices. Productive expenditure is stimulated by in- 
 creasing profits, due to a depreciating standard ; and 
 the burden of indebtedness will decrease with rising 
 prices. Whereas royalty owners and others will 
 absorb quite an undue proportion of the proceeds of 
 industry if prices fall ; and an appreciating stan- 
 dard always puts a drag on trade. Thus no objec- 
 tion should be taken to a slow and steady rise in 
 prices in times of stagnant trade ; and, in times of 
 commercial activity, the standard should approach 
 more nearly to the commodity standard than to the 
 labour standard ; that is to say, whilst the price of 
 commodities should fall in those circumstances, there 
 should be an even more decided rise in the price of 
 the total output of commodities. These conclusions 
 are more reliable as indicating the first effects of 
 any change in the condition of the currency, than 
 as a guide to what would occur if the new conditions 
 were to hold good for an unlimited period of time. 
 
 s
 
 258 RISING AND FALLING PRICES. [On. XIX. 
 
 Would it 
 have been 
 better if 
 prices had 
 fallen less 
 rapidly ? 
 
 The con- 
 ditions 
 have been 
 those of 
 progressive 
 trade. 
 
 CHAPTER XIX. 
 
 HAS THE RECENT FALL IN PRICES BEEN TOO 
 RAPID ? 
 
 IT will be remembered that we divided the argument 
 in favour of bimetallism, which was based on the 
 recent fall in prices, into four separate inquiries. 
 The question whether the general level of prices 
 would have been higher had bimetallism been 
 maintained was discussed in Chapters XV. and XVI. ; 
 and an affirmative answer was given. There remain 
 three more questions to be considered, the first being 
 whether it would have been better for the general 
 welfare of the community if the fall in prices during 
 recent years had been less rapid. In seeking a 
 reply to this inquiry we must apply the theoretical 
 conclusions arrived at in the preceding chapter to 
 this problem of real life. 
 
 In the foregoing discussion, the conditions which 
 it is desirable that a standard of value should fulfil 
 in times of stagnant, and in times of progressive 
 trade, were both considered. No one doubts that 
 the output of commodities has, on the whole, been 
 increasing since 1873, and this period has not,
 
 CH. XIX.] THE RECENT FALL IN PRICES. 259 
 
 therefore, been one of stagnation in the sense in 
 which the word has here been used. And the ques- 
 tion is whether, judging by these conclusions as to 
 the best standard for times of progressive trade, 
 gold prices have either risen or fallen more than 
 is desirable since the abandonment of bimetallism 
 in 1873 ; whether, in fact, the change in the level of 
 prices has or has not been, on the whole, beneficial 
 to the community at large. 
 
 No one denies that the last twenty-five years has, The gold 
 on the whole, been a period of falling prices in haawi- 
 Europe, a fact which is easily seen by glancing at doubtedly 
 any of the published series of " Index Numbers " of ciated ; 
 average prices. If, for example, we take the mean 
 of Sauerbeck's " Index Numbers " l for the ten years 
 from 1874 to 1883, and compare it with a similar 
 mean of the years from 1884 to 1893, it will be 
 seen that wholesale commodities fell 21 per cent, 
 in gold price on the average during that mean 
 period of ten years. Ketail prices may have fallen 
 considerably less than this ; but, after making due 
 allowance for that possibility, it cannot be denied 
 that there has been a fall in average gold prices 
 since the abolition of the last bimetallic laws. 
 
 When, however, we pass on to consider whether the bu * the 
 price of the output of a given amount of labour has total out- 
 either risen or fallen, we are on far more debatable P ut Jf 
 
 head has 
 
 ground. We have seen that there is good reason to been not 
 believe that wholesale prices fell about 21 per cent. 
 in a given mean period of ten years. But this fact 
 
 1 See Appendix.
 
 260 RISING AND FALLING PRICES. [On. XIX. 
 
 is of little service to us in this inquiry ; for, even if 
 it could be assumed that this represents the average 
 fall in price of all commodities during that time, yet 
 we should not know what was the average increase in 
 the output of commodities with which to compare 
 it. No doubt more has been produced at a lower 
 price, but has the price of the total output risen or 
 fallen ? If, taking the same decennial averages, we 
 look at the export trade of the United Kingdom, 
 although it undoubtedly increased in volume, we 
 find that the value per head of the population fell 
 from 6 8s. 4:d. to 6 5s. 3d., a fall of 2J per cent. 1 
 Thus, if the exports represent a fair sample of the 
 whole trade of the country, it would appear that 
 the fall in prices was sufficient to produce a fall in 
 the gold price of the total production per head. 
 But a fall in gold price of the total output is the 
 same thing as a diminution in the gross receipts 
 per head ; and it is true that, if such a fall really 
 took place, we should have expected to find that 
 there had been a diminution in wages and profits, 
 one or both (column I). With regard to the move- 
 ment in wages during this period, the evidence, 
 though it is conflicting, on the whole appears to 
 favour the belief that money-earnings have risen 
 somewhat in the last quarter of a century. But 
 such estimates cannot be very reliable ; for though 
 it is comparatively easy to ascertain the rates of 
 wages in the principal trades, it is always difficult 
 to estimate the average number of hours per week 
 1 See Statistical Abstract for the United Kingdom.
 
 PRICE OP THE TOTAL OUTPUT. 261 
 
 during which wages are earned ; and the earnings 
 of casual labour are not at all well known. As to 
 profits, judging from the income-tax returns, they 
 have undoubtedly increased. These returns, how- 
 ever, are for various reasons not quite reliable for 
 the purposes of this comparison. In the first place, 
 they include profits made out of England, including 
 those made in silver-using countries. Then, again, 
 they also include, besides " profits," various other 
 sources of income to individuals, such as interest on 
 loans, etc., etc., which we have here classed as fixed 
 charges, and which may have been increasing. 
 And, lastly, it will be remembered that in discussing 
 royalties, railway charges, etc., it was shown that, if, 
 during a period of increasing trade, the price of the 
 output remained constant, these charges would in- 
 crease at the expense of the owner of the industry, 
 whose profits would diminish in a corresponding 
 manner. . It is interesting to note, in connection with 
 this view, that, judging from the income-tax returns, 
 and comparing the means of the same two decennial 
 periods as before, it appears that the income arising 
 from the railways of the United Kingdom per head 
 of the population increased 11 per cent., whereas 
 the income from ironworks decreased 45 per cent. 1 
 and that from mines 26 per cent, during the same 
 interval. Thus it is possible that the profits made 
 by productive industrial concerns decreased during 
 that period, whilst the total income-tax paying 
 
 1 The years 1874 and 1875 were, no doubt, very exceptional 
 ones.
 
 262 RISING AND FALLING PRICES. [CH. XIX. 
 
 incomes increased. It is necessary, moreover, to be 
 very careful how particular epochs for comparisons 
 of this kind are selected, for a study of the income- 
 tax returns between 1874 and 1887 will show that 
 there is no sign of there having been a general in- 
 crease of profits per head during that interval. 1 
 
 It is, of course, extremely hazardous to venture 
 an opinion on such a debatable subject, but the 
 impression left on my mind is that from about 1874 
 to about 1888 the price of the total output of the 
 United Kingdom was not very far from stationary ; 
 that is to say, that gold followed approximately the 
 law of the labour standard during those years. 
 Since the latter date, there has, I believe, been a 
 slight rise in the price of the total output, the 
 increase in gross profits due to that rise having 
 gone largely into the pockets of those not directly 
 connected with productive industries. 
 
 Only a In the discussions on the effect of appreciating 
 
 Industries an( l depreciating standards, two distinct reasons 
 have were iriv en f or believing that production does not 
 
 escaped 
 
 the be- proceed so rapidly with falling as with either steady 
 
 influence of or r i gm g prices. In the first place, the fact that 
 
 diminish- the price of commodities does not immediately 
 
 ' respond to any change in the conditions primarily 
 
 affecting the value of the standard, affords an 
 
 explanation of the way in which a fall in prices 
 
 puts a more or less serious impediment in the way 
 
 of trade. This check on commerce has, I believe, 
 
 undoubtedly been felt in gold-using countries since 
 
 1 Gold and Silver Commission, p. 19.
 
 OH. XIX.] A BENUMBING INFLUENCE. 263 
 
 1873. The second reason for anticipating a relative 
 diminution in production when the standard is 
 appreciating is due to the way in which a diminu- 
 tion in profits is normally accompanied by a 
 diminution in productive expenditure. Now, it 
 may be urged that until profits actually begin to 
 diminish, no very serious consequences will flow 
 from the appreciation of the standard. This may 
 be true. And if it is also true that, though prices 
 have fallen, the average price of the total output 
 per head has been constant during the greater part 
 of the time since 1873, then it follows that the 
 money income of the average commercial concern 
 has remained approximately stationary; and, as- 
 suming that money wages have not varied materially, 
 it would, at first sight, appear that profits cannot 
 have diminished, and that little or no harm can 
 have arisen in this way. This, however, is not the 
 case. If the price of the total output remains 
 constant, then the profits to the owners of any 
 industrial concern will only remain constant if there 
 is no increase of the fixed charges on that industry, 
 and if it is not subject to any of those charges 
 of which royalties were taken as a typical example. 
 Additions to the fixed charges on industry are con- 
 stantly being made ; and almost every industry is 
 subject to some charges which increase in propor- 
 tion to production. Then, again, the statistics on 
 which the belief in the constancy of the price of 
 the output was founded refer to average prices, 
 and not to prices in particular industries. If the
 
 264 RISING AND FALLING PRICES. [Cn. XIX. 
 
 average price of the output did remain constant 
 during these years, the price of the output of about 
 half the trades in the United Kingdom must have 
 risen above, and the price of the output of about 
 half the trades must have fallen below, that level. 
 Thus, assuming that the average gold price of the 
 output remained constant for many years after 1873, 
 it appears that all average industries which were 
 subject either to an increase in fixed charges or to 
 any charges of the nature of royalties, and all in- 
 dustries in which prices fell below the average 
 (about half the industries of the country) existed 
 during that period under conditions tending to 
 lower the owner's profits, unless, indeed, wages were 
 falling. If our conclusions as to the level of prices 
 are right, but a minority of the productive industries 
 of the United Kingdom have escaped the benumb- 
 ing influence of diminishing profits during the years 
 following the great monetary changes on the Con- 
 tinent, and few, therefore, have been carried on in 
 the way most likely to be ultimately beneficial to 
 all classes. In any case, it cannot be denied that 
 the price of the output of individual industries has 
 recently gone down, and wherever this has occurred, 
 the burden of fixed debts and charges must have 
 been more heavily felt, thus producing a depressing 
 effect. English agricultural interests, for example, 
 must have suffered, to a certain extent, from this 
 cause, though the depression of that great industry 
 is probably in a very great measure due to other 
 influences.
 
 CH. XIX.] WILL THE FALL CONTINUE? 265 
 
 A rise in prices, or an increase of profits, there- Thus, if 
 fore, stimulates trade ; and the circumstances which r^j^ 60 " 
 ultimately govern production are those to which, in elusions are 
 the interest of all classes, most attention should be ft C is pted ' 
 paid. But, on the other hand, the working classes evident it 
 are immediately benefited by a fall in prices. In been better 
 the preceding chapter a compromise between these hJ} 
 two views was suggested. The influences due to less 
 two hypothetical standards of value during times of rapl y ' 
 progressive trade were discussed ; the one, the com- 
 modity standard, giving constant prices; and the 
 other, the labour standard, giving a constant price 
 to the output of human labour ; and the conclusion 
 arrived at was that a perfect standard should lie 
 intermediately between these two limits, but that, 
 of the two, the commodity standard should be the 
 one most nearly approached. But gold prices have, 
 I believe, approached very nearly, if they have 
 not actually touched the other limit the limit 
 indicated by the labour standard ; and if these con- 
 clusions are accepted, it is evident that prices have 
 fallen too rapidly for the ultimate well-being of the 
 community. 
 
 But if it is true that prices have recently been Is the fall 
 falling too rapidly, is this too rapid fall likely to C ontmue ? 
 continue ? That is the next subject of inquiry. 
 
 Average gold prices depend on the demand and Theproba- 
 supply of gold as compared with the demand and 
 
 supply of the average commodity ; and there are, J 1 
 therefore, a great variety of forces at work, some on the 
 tending to appreciate and others to depreciate the u
 
 266 RISING AND FALLING PRICES. [On. XIX. 
 
 many standard of value. Many of these have already 
 been mentioned, but they must be grouped together, 
 and viewed as a whole, if an attempt is to be made 
 to look into the future. 
 
 In the first place, with regard to the forces 
 tending to cause a depreciating of the standard, 
 the demand for gold has been diminishing in recent 
 years on account of the introduction of improved 
 methods of conducting business, by means of which 
 the volume of exchangeable credit on a given 
 metallic foundation has been largely augmented, 
 thus increasing the " money " available for business 
 transactions, without a corresponding increase in 
 the metallic currency. The output of gold is in- 
 creasing, both in South Africa and elsewhere, and 
 this is another circumstance tending to depreciate 
 the standard. 
 
 The above-mentioned influences, which are tending 
 to lower the value of gold, seem likely to increase 
 rather than to diminish in the future. But this is 
 also the case with regard to the forces having an 
 opposite tendency. Eussia, India, and Japan 
 countries which contain between them a very large 
 fraction of the population of the world are adopt- 
 ing, or on the eve of adopting, a gold standard. 
 The smaller the number of the remaining silver- 
 using countries, the more will the isolation of their 
 position be felt, and the more likely are they to 
 abandon their old standard in favour of gold; an 
 increase in the demand for that metal is, therefore, 
 likely to be experienced before long, because of
 
 CH. XIX.] WILL THE FALL CONTINUE ? 267 
 
 other countries (Mexico, for example) adopting the 
 gold standard. Monometallists believe that the 
 increase in the production of commodities has been 
 the main factor in lowering prices ; it has, no doubt, 
 contributed in producing that result, and we must 
 and may hope that this cause of appreciation will 
 continue unabated in the future. The population 
 of the world is rapidly increasing, and the increase 
 of business transactions naturally incident to this 
 increase of population ought to be accompanied by 
 a corresponding increment of money, if there is not 
 to be an increasing pressure put upon the currency. 
 If the greater complexity of modern as compared 
 with more primitive industrial systems necessitates 
 a larger amount of the standard of value being 
 used to serve as a basis for the transactions con- 
 nected with a given volume of production, then 
 this circumstance tends to neutralize the other 
 effects of commercial evolution, namely, those due 
 to the increasing economy in the use of coin result- 
 ing from the more and more extended use of credit 
 instruments as money ; and, indeed, when civiliza- 
 tion is first spreading into new countries, it appears 
 not improbable, that the balance of these opposing 
 forces will give rise to an increase in the demand 
 for a metallic currency. The loss and wear of coins 
 necessitates a considerable annual increment of 
 metal to keep the currencies of the world in sound 
 condition, and this demand for gold will increase 
 in proportion to the increase in the use of gold 
 currencies. And, as the last of the causes of the
 
 268 RISING AND FALLING PRICES. [On. XIX. 
 
 appreciation of gold which will be mentioned, the 
 demand for that metal in the arts is said to be 
 " very steadily increasing." l 
 
 The diffi- In the face of such shifting, such ill-determined, 
 foreteUino- an( l such complex conditions, who will venture to 
 the future foretell the future ? And it is in the impossibility 
 wisest to of foretelling the future that binietallists, I think, 
 thepast fi n( ^ * ne i r strongest argument ; for they may well 
 for guid- say that the wisest course is to shape our policy by 
 the experiences of the past, without attempting to 
 weigh these conflicting considerations as to the 
 future. Prices having fallen in the past too quickly 
 for the general well-being of the community, we 
 should, therefore, according to this view, assume a 
 continuance of this too rapid fall in the future, 
 granted the continuance of existing currency con- 
 ditions. Moreover, as a too rapid fall in prices is 
 more harmful than a rise, a currency policy based 
 on this assumption would be shaped with the view 
 of warding off the greater evil of the two. 
 But if It is, no doubt, difficult to believe that the present 
 
 prices are 
 
 now about enormous output of gold can go on without sooner 
 
 Son^tLme or * ater l werm g tne value of that metal ; and the 
 this plea ' output seems likely to increase rather than to 
 lism 6 l " diminish. If we look forward to a time when the 
 ex i gtm g condition of things will be no guide as 
 to the change which is likely to be produced by 
 tying the two metals together, and if a period of 
 steady or rising prices should now be commencing, 
 
 1 Royal Commission on Agriculture, 1894, p. 439. Mr. 
 Foxwell's evidence.
 
 CH. XIX.] WILL THE FALL CONTINUE? 269 
 
 and should be going to last until this indefinite 
 epoch arrives, then the plea for the introduction of 
 bimetallism, at the present time, on the ground that 
 it will diminish the fall in prices is destroyed. For, 
 on that assumption, prices would continue to rise 
 under existing monetary conditions until a time 
 arrived when the introduction of bimetallism would 
 be as likely to be harmful as to be beneficial in 
 its effects. What is now wanted is a diminution 
 in the rate of the fall in gold prices, no matter how, 
 without shaking commercial confidence, that dimi- 
 nution is brought about. 
 
 Monometallists, who consider that the increase of if the 
 production of commodities is the chief reason for j^J^ji 
 the decline in prices, are naturally and rightly causes is 
 desirous that this cause should be as prominent as t^great, 6 
 
 possible in the future ; and apparently they would the <i ues - 
 
 , ,. . . tion is 
 
 welcome a continuance of the decline in prices to whether 
 
 an unlimited extent. But this view indicates a 
 
 certain confusion of thought. It is not logical the fall 
 to argue that, because an increase of production is 
 
 good, and because an increase of production causes b ? bi .:. 
 
 J . -11 metallism. 
 
 jailing prices, it is therefore wrong to try to check 
 any fall in prices. It would be logical to argue 
 that because a fall in prices produces an increase 
 of production, and because that result is beneficial, 
 we ought, therefore, to force down prices in every 
 legitimate way; this would be logical, but the 
 premises would not be true ; for no one thinks that 
 falling prices do tend to increase production. It is 
 a rise, and not a fall in prices, which stimulates
 
 270 KISING- AND FALLING PKICES. [OH. XIX. 
 
 trade; though it is true that the increase in the 
 output thus caused reacts and tends to lower prices. 
 A fall in prices, if the fall is too great, must be a 
 cause of depression. Moreover, the fall in prices in 
 recent years has been due to many causes, and it 
 is the total fall which has to be considered in esti- 
 mating its effect on trade. If the total fall has 
 been rapid enough to be injurious, and if some of 
 the many causes of that fall produce no direct 
 beneficial results, what possible objection can there 
 be to neutralizing the action of some at least of 
 these forces? This leads to the last of the four 
 inquiries connected with this subject; that is, 
 whether the action of any of the causes tending 
 to produce this fall in prices would be checked by 
 the reintroduction of bimetallism without any evil 
 results arising from that reform.
 
 OH. XX.] FUTURE DEMAND FOR GOLD. 271 
 
 CHAPTER XX. 
 
 CONCLUSION OF THE ARGUMENT BASED ON THE 
 RECENT FALL IN PRICES. 
 
 IT has already been seen that, had bimetallism been Bimetal- 
 maintained, prices would have fallen less rapidly ; 
 and, as the arguments used in demonstrating that 
 this would have been the case, can be applied to f or gold 
 
 the future in almost the same way as to the past, g 
 it seems to follow without further proof that the countries 
 reintroduction of the joint standard would put a ^ e ^ 
 check on the fall in prices in the future. A few ob- the gold 
 servations on this point may, however, be desirable. 
 Whatever might be the effect of the introduction 
 of bimetallism on the other causes of appreciation, 
 it cannot be denied that the demand for gold for 
 monetary purposes would be diminished by the more 
 extended use of silver. India, and the remaining 
 silver-using countries, would not establish gold mono- 
 metallic currencies; and there would cease to be 
 the same necessity for accumulating gold for the 
 reserves of countries, like Kussia and Japan, which 
 are in the act of adopting the gold standard. The 
 fall in prices since 1873 has been exceptionally
 
 272 RISING AND FALLING PEICES. [On. XX. 
 
 severe, and it would, I believe, have been materially 
 less if silver had maintained its old position in the 
 currencies of the world. Market-ratio bimetallism 
 would not cause an immediate rise in prices, but it 
 would stop this movement towards universal gold 
 monometallism, and, thus, prevent a repetition of 
 the influences which have materially helped to 
 produce the recent marked appreciation of the 
 currency. 
 
 Bimetal- It has already been seen that bimetallism will 
 also act produce a more stable standard of value, and its 
 as a check steadying effect must be considered in estimating 
 appretia- the probable changes in level of prices in the im- 
 currency * me diate future. For example, when a nominally 
 because of gold-standard country on an inconvertible paper 
 
 the greater ? . . J *. 
 
 stability of basis resumes specie payments, it will create an in- 
 crease in the demand for gold ; whereas the demand 
 will be both for gold and silver, if its currency laws 
 are bimetallic. In both these cases the effect of 
 the change will be to lower average prices in gold- 
 using countries; but the effect on prices will be 
 greater if the demand is for gold only than if the 
 demand is shared between gold and silver. This 
 will be admitted if the value of the metals as 
 articles of merchandise is considered. When a 
 foreign demand for the standard of value causes 
 the currency to appreciate, sufficient metal is drawn 
 from the market to make its value as an article 
 of merchandise coincide with its value in the 
 coinage. The foreign country demanding specie 
 will probably only require metal of a certain value ;
 
 CH. XX.] CONCLUSION OP THE ARGUMENT. 273 
 
 for the value of the currency which it is proposed to 
 establish will be independent of the particular com- 
 modity chosen as the standard ; l and, if the whole 
 demand is for gold, it is obvious that more gold will 
 be taken from the market, and that that metal 
 will, therefore, rise more in value as an article of 
 merchandise, than if the demand is partially satisfied 
 with silver. Thus, when foreign countries resume 
 specie payment, the fall in prices as measured by 
 gold under universal gold monometallism would 
 be greater than the fall of prices as measured by 
 gold linked to silver under effective bimetallism. 
 Gold currencies may appreciate because of an in- 
 crease in the demand for gold either for making 
 good the waste of the coinage ; or on account of 
 the increase in business transactions incident to 
 the increase of population, or to any increase of 
 production ; or on account of any increase in the 
 complexity of the industrial system ; and, with 
 regard to each of these causes, the appreciation of 
 the standard thus produced will, in the same way, 
 be less rapid if the joint standard is adopted. 
 
 Thus, looking either to the special causes of ap- 
 preciation due to changes in currency legislation, 
 or to the increase in the normal demand for the 
 metals for currency purposes, it appears, granted 
 the continuance of all other existing conditions, 
 
 1 This is evidently true if the quantitative theory of prices 
 may be strictly interpreted ; for, as the number of coins in- 
 creases, the value of each separate coin will decrease pro- 
 portionately. 
 
 T
 
 274 RISING AND FALLING PRICES. [On. XX. 
 
 that we may count on the fall in prices being less 
 severely felt if international bimetallism is adopted. 
 But may But it may be urged that prices will not fall 
 faUm" 563 sufficiently quickly for the well-being of the corn- 
 sufficiently, munity, or may even rise under market-ratio bi- 
 OT even rise meta ni sm . i n t he fi rst pl ace , it is to be noted that 
 market- the introduction of this reform might, in certain 
 metallism? circumstances, be beneficial in checking a too rapid 
 The ex- r j ge j n p r j ces> ^ present the tendency of the gold 
 the past is price of silver is to fall, and the effect of adopting 
 guided a bimetallic system would now be to put a drag 
 answering on the fall in average gold prices. But if gold 
 tion. should commence to fall in value, and if the fall 
 should be sufficient to make the gold price of silver 
 rise, then the introduction of bimetallism would 
 check the rise in average gold prices. The dis- 
 turbance due to any great and sudden increase in 
 the output of gold, combined with a cessation in 
 the demands of the great commercial nations for 
 more metallic currency, would, therefore, under the 
 existing conditions as to the production of silver, 
 very probably be less if bimetallism were adopted. 
 Thus it is possible that the introduction of bi- 
 metallism might be beneficial in preventing either 
 too great a fall or too great a rise in prices; the 
 former being at present far the most probable con- 
 tingency. And the question is whether these two 
 contingencies are sufficiently probable to serve as 
 the foundation for a serious argument in favour of 
 this reform. It was seen that it is almost hopeless 
 to foretell whether gold prices will rise in the
 
 CH. XX.] CONCLUSION OF THE ARGUMENT. 275 
 
 future ; and the case becomes still more complicated 
 if we have to consider the causes affecting the value 
 of silver as well. In order to determine if bi- 
 metallism would produce a beneficial effect, we have 
 to compare gold monometallic prices in the future, 
 when the value of gold may be influenced by further 
 changes in the laws of currency, with prices in the 
 future as measured by the joint standard, which 
 would, if bimetallism were effectively maintained, 
 be influenced in no such way. Bimetallists may 
 again adopt a strong position in saying that, with 
 these complex conditions, it is better to look to past 
 facts rather than attempt any forecast based on 
 theoretical considerations. From this point of view 
 the question for consideration is, therefore, whether 
 the joint standard would have produced beneficial 
 results if it had been adopted in the past. 
 
 Prices, as measured by silver, have, it is generally Had 
 believed, remained fairly constant ; 1 and until about 
 1893 silver fell in gold price in England somewhere bimetallism 
 about as much as the average commodity. We generally 
 may therefore conclude that silver, as a standard jg? te i m 
 of value, has behaved, until the last year or two, standard 
 
 1 Gold and Silver Commission, p. 18. See also an interesting 
 paper by Mr. F. J. Atkinson in the Statistical Review for 
 March, 1897. He concludes that prices are rising; but, from 
 his figures, I should conclude that the oscillations have been so 
 great that it is not possible to determine the general drift of 
 silver prices. See also the Blue Book on the Moral and 
 Material Progress in India during 1891-1892; where, however, 
 the examples of rises in particular prices since 1873 are too 
 isolated, I think, to prove conclusively a continuous rise in 
 average prices.
 
 276 RISING AND FALLING PRICES. [On. XX. 
 
 since that approximately like the commodity standard. It 
 have W ft l so appears to me probable that, for some years 
 
 fulfilled a ft er 1873, the gold price of the output of corn- 
 theoretical *? . L. , n , . , , 
 require- modities per head in England did not vary much, 
 
 ments - and that gold has behaved somewhat like the labour 
 standard. Gold and silver have, therefore, repre- 
 sented with rough approximation these two hypo- 
 thetical standards ; and if it was right to conclude 
 that a perfect standard of value should occupy an 
 intermediate position between these two extremes, 
 approaching, however, more nearly to the commodity 
 standard than to the labour standard, then it would 
 seem that, had the two metals been tied together by 
 market-ratio bimetallism in 1873, a standard in 
 accordance with theoretical requirements, or one 
 which, if it erred at all, would have erred on the 
 side of not keeping up the level of prices suffi- 
 ciently, would have been adopted. Thus, judging 
 by the past, market-ratio bimetallism may now 
 safely be adopted, as far as the level of prices is 
 concerned. 1 
 
 1 To assume, had bimetallism been adopted in the past, that 
 the movement in prices as measured by the joint standard would 
 have been the same as the mean between the movements in 
 prices as actually measured by gold, and as actually measured 
 by silver under existing arrangements, is but a very rough 
 approximation to the truth. This assumption might, I believe, 
 be made if the supply and demand schedules for both gold and 
 silver followed the law of simple proportion, and if, on the 
 supposition that the value of the stocks of gold for monetary 
 and non-monetary purposes differs from the value of the stocks 
 of silver, there is a corresponding difference between the 
 schedules in the two cases. None of these conditions do,
 
 CH. XX.] CONCLUSION OF THE ARGUMENT. 277 
 
 But it must be admitted that it is questionable if The past is 
 the state of trade during the last two or three the best 
 decades should carry much weight as a permanent g^de for 
 
 guide with regard to our future currency policy. {J 
 Bimetallists contend that gold has not fulfilled the unreliable 
 
 j v 
 
 conditions of an ideal standard during recent years, 
 mainly because of the effect of foreign legislation, 
 and not so much because of the inherent qualities 
 of the metal itself. But even if it is urged that 
 either metal, as a commodity, has fulfilled the con- 
 ditions of a standard of value in a more perfect 
 manner than the other, it must be admitted that the 
 time in which gold is said to have " behaved better," 
 or " behaved worse " than silver is too short to serve 
 as any sure guide as to its conduct in the dis- 
 tant future ; and no very strong argument can be 
 based on such narrow foundations, either for or 
 against bimetallism, as far as the permanent merits 
 of the system are concerned. We cannot tell which 
 metal would form the most perfect standard of value 
 when the great commercial nations have ceased to 
 influence the value of money by legislative changes, 
 and when, if ever, the final improvements in con- 
 nection with the mining industries have produced 
 their ultimate effects ; all we can hope to do is to 
 fasten the two together so that the combination will 
 form a steadier standard of value than either taken 
 separately. But as regards the less remote future, 
 
 probably, hold good, but they indicate the kind of error made in 
 assuming that joint-standard prices would have moved as much 
 as the mean movement of gold and silver prices.
 
 278 
 
 RISING AND FALLING PRICES. [On. XX. 
 
 Thus the 
 chain of 
 argument 
 in favour 
 of bi- 
 metallism 
 based on 
 the recent 
 fall in 
 prices is 
 complete, 
 though it 
 has one 
 weak link 
 in it. 
 
 the foregoing considerations appear to afford the 
 best indication obtainable as to the future move- 
 ment of prices under bimetallism, though it may 
 not be a very strong one ; and this indication clearly 
 points to prices neither rising nor falling too much 
 under market-ratio bimetallism. 
 
 Whether bimetallism would be advantageous or 
 not in preventing the further appreciation of the 
 standard is, of course, only one of the questions to 
 be decided in this controversy. The comparison of 
 the merits and the demerits of bimetallism has 
 been the subject to which several of the preceding 
 chapters have been devoted ; and the probability 
 of benefits arising from the check on the fall in 
 prices should be added as a weight in the balance in 
 favour of the joint standard in giving the verdict 
 on the whole currency question. For, to summarize 
 the whole argument, it has been seen that the 
 general level of prices, since the abandonment of 
 bimetallism in 1873, has been falling too rapidly 
 for the ultimate well-being of the community ; that 
 the fall in prices, taking the past as the most re- 
 liable guide, is on the whole likely to continue with 
 too great rapidity in the future, this, however, being 
 the weakest link in the chain of argument; that 
 prices would have fallen less rapidly if bimetallism 
 had been maintained; and, as the arguments on 
 which this last conclusion was based apply to the 
 future as well as to the past, that the reintroduction 
 of bimetallism would put a check, but not too great 
 a check, on the fall in prices in future. It obviously
 
 CH. XX.] CONCLUSION OF THE ARGUMENT. 279 
 
 follows from these premises that the joint standard, 
 if adopted at the present time, would have a bene- 
 ficial effect. 
 
 The natural sentiment of all men of liberal mind General 
 
 , ,,. . , ill remarks on 
 
 is to rejoice at tailing prices ; and, even should a the evils 
 
 study of the subject shake their faith in their of felling 
 
 . , * prices, 
 
 previous convictions, as I think it undoubtedly 
 
 would, many may nevertheless feel that the troubles 
 due to an appreciating currency have been painted 
 in too high colours. Exaggerated language may 
 often have been used with regard to this subject, 
 but, in my opinion, the merits of monometallism 
 and the dangers of bimetallism have been far more 
 grossly and persistently exaggerated. In selecting 
 the best currency system, it is no doubt a choice 
 of relative advantages and relative disadvantages; 
 but, in making this choice, it should be admitted 
 that the evils due to a too rapid fall in prices, 
 though they may not be appalling, are yet suf- 
 ficiently serious to weigh heavily in the balance. As 
 a single illustration of this truth, the national debts 
 of the world now amount to some 6,000,000,000, 1 
 and a fall of 10 per cent, in average prices would 
 have the same effect in increasing the real taxation 
 necessary to pay the fixed money interest on this 
 vast sum, as would have the negotiation by the 
 governments of the world in times of steady prices 
 of a new loan of 600,000,000, a sum about equal 
 to the total value of our own national debt. In 
 both cases the greater real taxation thus thrown on 
 1 Lubbock's " Uses of Life," p. 164.
 
 280 EISING AND FALLING PRICES. [On. XX. 
 
 manufacturers must necessarily lessen the value of 
 the amount available for profit and wages. It is 
 true, no doubt, that the only direct effect of an 
 appreciation of the currency through causes primarily 
 affecting the standard is to transfer wealth from one 
 class to another ; yet this transference has the effect 
 of lessening the expenditure on productive works, 
 of checking output, and of diminishing the value 
 of the funds available for the payment of labour. 
 It is true, also, that little or no ultimate effects are 
 produced by an alteration in the value of the cur- 
 rency; but a consideration of the case of national 
 debts shows how very long it will be before that 
 ultimate condition of things is reached. The fixed 
 charges on industry, though they may not impose 
 such a rigid burden, yet they are enormously greater 
 in amount than all the national and municipal debts 
 combined ; and, even if production is only hindered 
 to a moderate extent by the increase in the pressure 
 of such debts, the effect on the well-being of the 
 community may be very considerable. It may be 
 difficult to point to recent years as a warning for 
 the future; but if it is true that, supposing bi- 
 metallism had been effectively maintained, the out- 
 put of commodities would have increased even more 
 rapidly than it has done, and that the value of the 
 fund out of which the real wages of labour are paid 
 would have been greater, then the check on trade 
 due to the recent fall in prices is none the less a 
 real evil because it is obscured by the general 
 industrial progress due to other causes.
 
 FOREIGN TRADE.
 
 CH. XXI.] OPINIONS OF BIMETALLISTS. 283 
 
 CHAPTEE XXI. 
 
 THE OPINIONS OF BIMETALLISTS AS TO THE 
 EFFECTS OF INTERNATIONAL TRADE. 
 
 THE more obvious and direct disadvantages arising The effect 
 from the fluctuations in the rate of foreign exchanges jfonaltrade 
 were discussed in Chapter XL The consideration has now to 
 of the important and difficult questions connected gidered. 
 with the indirect effects of international trade on 
 home prices was, however, postponed. Having in 
 the mean time dealt with the results to be anticipated 
 from an appreciation or a depreciation of the standard 
 of value, we are now in a position to resume this 
 inquiry. 
 
 It has often been contended that prices have been The views 
 lowered in gold-using countries as a direct conse- metallic " 
 
 quence of the fall in the value of silver ; and that ., 
 
 of the Gold 
 
 a great injury has thus been inflicted on our own and Silver 
 producers. As I do not altogether agree with the ^oiToiitnis 
 opinions usually held by bimetallists on this subject, subject, 
 it will, perhaps, be best to quote the most authorita- 
 tive statement of their views that I can find. The 
 following extract is taken from the minority report
 
 284 FOEEIGN TKADE. [On. XXI. 
 
 presented by the bimetallic members of the Gold 
 and Silver Commission; the italics are, however, 
 mine, being inserted to indicate the passages which 
 appear to me open to criticism. 
 
 " The most familiar, and, perhaps, the simplest illustra- 
 tion of our meaning may be found in the effect of the 
 exchange on the export of wheat from India, and on the 
 relative position of the growers of that commodity in 
 either country. 
 
 " If, when the gold price of wheat is 40s. a quarter, the 
 rupee, measured in gold, is worth 2s., the producer of 
 wheat in India will receive 20 rupees for a quarter 
 of wheat. 
 
 " If the gold price of wheat then falls 25 per cent, to 
 30s. a quarter and the gold price of the rupee falls 25 
 per cent, to Is. 6d., the Indian producer will still receive 
 20 rupees for his quarter, and they will purchase as much 
 as they did before, because prices in India have remained 
 practically the same. 
 
 "The position of the English grower, on the other 
 hand, is materially changed. 
 
 " He will only receive 80s. instead of 2, and unless all 
 other prices have fallen in the same proportion, he must 
 be a loser. And the precise measure of his loss ivill be 
 the difference between the purchasing poiver of 80s. at the 
 present time and the purchasing poiver of 2 at the former 
 period. 
 
 " If, then, the English and the Indian producer were 
 competing upon equal terms, before the fall in the 
 exchange occurred, the result will be to largely reduce 
 the profits of the former and to leave the latter exactly 
 where he was before. He is able to take the lower price 
 of 30s. a quarter for his produce, instead of 40s., without
 
 CH. XXL] OPINIONS OF BIMETALLISTS. 285 
 
 loss to himself, and the market price of wheat in England 
 is thus unduly depressed. 
 
 " A similar result ensues in the case of articles which 
 are sent from England to silver-using countries, as, for 
 instance, in the case of cotton goods exported from 
 Lancashire to India, where the effect of the fall in exchange 
 is equally injurious to the English manufacturer. 
 
 " For example, cotton goods are sent to India, for which, 
 in order to make a profit, the English exporter must 
 receive a certain sum, say 10,000. 
 
 " With the rupee worth 2s., 10,000 is realized by the 
 payment of Rs. 100,000. 
 
 "With the rupee at Is. 6d., Es.133,333 are required to 
 realize that sum. 
 
 " Will the Indian importer give this greatly increased 
 price for precisely the same article as bought before ? 
 
 " Obviously not, because prices in India, as we have 
 seen, remain the same, and the English manufacturer is, 
 in consequence, obliged either to take the same silver 
 price as formerly, viz. Es.100,000, which means a greatly 
 lowered gold price, viz. 7500, or not to sell at all ; and 
 in either case he undergoes a loss ivhich must be traced 
 directly to the fall in the gold price of silver. 
 
 "The industries which have suffered most /row the fall 
 in the exchange are naturally those which are most 
 directly connected with the trade between gold and 
 silver-using countries, such, for example, as the cotton 
 and the agricultural industries of the United Kingdom. 
 
 " We are not prepared to say, and it is not our view, 
 that the fall in the exchange can operate permanently as 
 a bounty on Indian exports, or as a protective duty 
 against imports ; but it is obvious 
 
 " First, that the loss ivhich it occasions to the producer 
 in gold-using countries, whatever that may be, must
 
 286 FOEEIGN TRADE. [C H . XXL 
 
 continue to operate until there has been a general adjust- 
 ment of the price of commodities, or in other words, 
 until all prices and all the incidents of production have 
 on the average fallen in the same proportion. 
 
 " Secondly, that the measure of that loss is the difference 
 between the purchasing poiver of the higher price received 
 for commodities before the fall and that of the price received 
 at present; and 
 
 " Thirdly, that the date of such a general adjustment is 
 uncertain, but will probably be remote, and may be 
 postponed for an indefinite period of time." 1 
 
 contain At first sight this reasoning appears very con- 
 
 theunjusti- ., .. . , , i 
 
 fiableas- elusive ; but a carelul examination of the whole 
 
 tht P there. su ^J ec * ^> I think, show that there is a serious 
 suits de- error running through this and all similar argu- 
 causedby ments. It is no doubt fair for the purposes of 
 the fall in discussion first to assume a change in the ratio 
 
 the gold / 1 -i 1 -I i i 
 
 price of between the values of gold and silver ; and, having 
 made such an assumption, it can, as we shall see, 
 without the least doubt be proved that a change in 
 the relative levels of prices in gold and silver-using 
 countries must occur coincidently, or nearly so, with 
 such a change in the ratio. But from these premises 
 it does not follow that the alteration in the level in 
 prices can, in any sense, be said to be caused by the 
 alteration in the ratio. There is nothing in the 
 foregoing argument which goes to prove that the 
 cause which produced the fall in gold prices would 
 not have been equally operative whether that cause 
 did or did not also tend to produce an effect on the 
 
 1 Final Report, pp. 95, 96.
 
 CH. XXI.] GOLD PRICE AND SILVER PRICE. 287 
 
 relative values of the metals. To whatever extent 
 gold prices would have fallen if no trade had been 
 carried on with silver-using countries, to that extent 
 the fall in gold prices can in no sense be said to be 
 due to the change in the ratio. Herein lies the 
 error in the bimetallic argument, which I hope to 
 be able to demonstrate. 
 
 The idea of price gold price in gold-using Definition 
 
 countries is familiar to all. The gold price of a of silver 
 
 . 111 nil P n ce as ap- 
 
 commodity is measured by the amount of gold plied to a 
 
 which has to be given in exchange for a given 
 quantity of the commodity in question ; it depends, 
 in fact, on the ratio of the value of the commodity 
 to the value of gold. In considering questions 
 connected with international trade it will also be 
 convenient to speak of the silver price of goods, even 
 in gold-using countries. Goods might be obtained 
 in England by exchanging silver for them ; and the 
 amount of silver which would thus have to be given 
 in exchange for such goods may conveniently be 
 called their silver price. The silver price of a com- 
 modity depends, in fact, on the ratio of the value of 
 the commodity to the value of silver. In the same 
 way, in silver-using countries, we may speak of the 
 gold price of goods, though gold is not used as 
 a standard of value. 
 
 In the first instance, let it be assumed that 
 a change takes place in the ratio in a gold-using 
 country, without any change in legal tender prices 
 anywhere. This is at all events a possible assump- 
 tion ; for such a state of things would be the first
 
 288 FOREIGN TRADE. [On. XXI. 
 
 immediate result of an increase in the output of 
 silver in a gold-using country, before the additional 
 metal had time to flow into silver-using countries. 
 Until that flow took place, there would be no reason 
 why silver should fall in value in silver-using coun- 
 tries, or why silver prices should be affected therein ; 
 and gold prices would everywhere remain unaffected. 
 A change For the purposes of illustration let us take the 
 due to ia 10 same example as that selected by the Gold and 
 causes Silver Commissioners the price of wheat in Eng- 
 silver isad- land, and in India before the closing of her mints. 
 sUvCT flow- ^ e take, therefore, the price of a quarter of wheat 
 ing into (or at 40s. in England, and at 20 rupees in India ; and 
 ver-nsing" we take the sovereign to be equal in value to the 
 countries, s ii ver j n 20 rupees ; or, in other words, we take the 
 
 without 
 
 any change rupee as worth 2s. In these circumstances let it be 
 mate^evel supposed that there is a sudden increase in the 
 of gold amount of silver in the market in England, and 
 produced, that, as a first effect, the quantity of silver equal in 
 weight to a rupee falls in price in England from 2s. 
 to Is. 6d. ; that is to say, that the sovereign rises 
 in silver price in England until it becomes equal in 
 value to the silver in 13^ rupees. This change 
 in the gold price of silver will not tend to alter the 
 price of wheat as measured by gold in England, and, 
 as long as the additional silver remains in England, 
 neither will it affect the price of wheat as measured 
 by silver in India. There will, in fact, as the first 
 immediate effect, be a rise in silver prices in Eng- 
 land, without any corresponding rise in silver prices 
 in India.
 
 CH. XXL] TRAFFIC IN BULLION. 289 
 
 Now consider the case of a merchant who has 
 been in the habit of exporting sugar, for example, 
 from England to India, and of importing wheat from 
 India to England. The cost of the carriage both 
 ways must ultimately be divided between the pur- 
 chasers of the goods in the two countries, according 
 to the principles discussed in all treatises on 
 economics; but, with regard to the broad issues 
 here under consideration, this aspect of the question 
 may be neglected. Putting the cost of transport of 
 both goods and specie aside, we can see, therefore, 
 that our merchant will purchase sugar to the value 
 of 2 in England ; he will export it to India, and 
 sell it for 20 rupees ; and with those rupees he will 
 purchase and bring back to England a quarter of 
 wheat. Will he continue to carry on his business 
 in this manner after the fall in the value of silver 
 in England ? He could do so, because prices will 
 at first nowhere be affected ; but he certainly will 
 not. With his 2 he will buy an amount of silver 
 in England which can be coined into 26 f rupees 
 in India ; he will export this metal to India, and 
 with it he will purchase 1 quarters of wheat, or a 
 third of a quarter more than he could have obtained 
 if he had stuck to his old line of business. Thus 
 there will be a diminution in the amount of sugar 
 exported to India, and silver will be exported in its 
 place. The export of silver will raise the value, and 
 therefore the gold price of that metal in England ; 
 the merchant will find, as time goes on, that he can 
 get less and less silver for his sovereigns ; and the 
 
 u
 
 290 FOREIGN TRADE. [On. XXI. 
 
 silver price of wheat and other commodities will fall 
 in England. In India this traffic will have the 
 opposite effect ; silver, becoming more abundant, 
 will fall in value, and silver prices will rise ; and the 
 merchant will find that he is getting less wheat for 
 the silver he sends out. This export of metal to 
 India will, therefore, in time cease to be profitable ; 
 and this will evidently occur at the moment when 
 the silver price of wheat (and of other exportable 
 commodities) has fallen in England and has risen in 
 India to such an extent as to make them identical 
 in the two countries; for then there will be no 
 special gain in shipping silver to India in pre- 
 ference to any other article of merchandise. Then, 
 and not till then, will the merchant go back 
 to his old trade, and the export of sugar will be 
 resumed. 
 
 Thus the equilibrium of trade in the above illus- 
 tration will ultimately be established without any 
 alteration in the value of gold, or any change in the 
 level of gold prices in England. And this flow of 
 metal is certain to take place, being so profitable, 
 provided other things remain the same, and pro- 
 vided no other method of permanently adjusting 
 the level of prices can be shown to exist. The rise 
 of silver prices, or the depreciation of the standard 
 in India, will no doubt cause a long-continued, 
 though not a permanent, disturbance of internal 
 trade, the effect of which must be considered. 
 But looking only to the final results, the raising 
 of prices as measured by silver would appear to be
 
 CH.XXI.] TRAFFIC IN BULLION. 291 
 
 the only ultimate outcome of any cause tending to 
 lower the value of that metal. 
 
 When an attempt is made, by reference to trade J t is diffi- 
 statistics, either to refute or to confirm the belief ce ive th^ 1 " 
 that the adjustment of prices after a disturbance in j^T^ur 
 metallic values is brought about by a flow of metal ing the ad- 
 in one direction or the other, great difficulty is J" 8 * 016111 - 
 experienced in the investigation. The idea of a 
 single merchant carrying on trade in the manner 
 described in the foregoing illustration is, of course, 
 not in accordance with facts, and is only used to 
 indicate the economic forces in action. There are, 
 moreover, always other causes at work, besides those 
 connected with the currency, which tend to alter 
 the relative level of prices in different countries ; 
 and such alterations in level may obviate the neces- 
 sity for any movement of the precious metals, or 
 even make them move in the opposite direction to 
 that anticipated from a mere study of the relative 
 values of the metals. Independent forces primarily 
 affecting the metals themselves, such, for examples, 
 as those connected with their use in the arts, may 
 also affect the amount required for export and im- 
 port. And as any change in monetary conditions 
 is always gradual, and not sudden as in our illus- 
 tration, the method of adjustment of international 
 values above described is generally so masked and 
 confused by other influences as to be indiscernible. 
 
 Although no reason has been seen for believing The pre- 
 that gold prices are permanently influenced by meta ia 
 causes primarily affecting the value of silver, yet bein
 
 292 
 
 FOREIGN TRADE. 
 
 [OH. XXI. 
 
 exported 
 in place 
 of other 
 commodi- 
 ties will 
 cause a dis- 
 turbance of 
 trade. 
 
 This dis- 
 turbance 
 would be 
 slightly 
 lessened if 
 a common 
 interna- 
 tional staii 
 dard were 
 adopted. 
 
 it is obvious that trade will be disturbed in some 
 way or other by the movement of that metal during 
 the period of adjustment. In the illustration above 
 given, it was seen that the export of sugar would be 
 checked. The value of imports must equal the 
 value of exports; and unless there is some reason 
 for an increase in the value of the imports, it is 
 evident that the exported metal must more or less 
 completely displace some other previously exported 
 commodity of the same value. But considering 
 what an enormous superstructure of credit is built 
 in civilized countries on such a comparatively 
 slender metallic foundation, it would appear that 
 the amount of metal, which in most cases has to be 
 exported to produce the necessary adjustment of 
 prices, will be small in comparison with the total 
 volume of the international trade. After the condi- 
 tions affecting the currency have become stable, the 
 equilibrium of prices between the two countries will, 
 therefore, be quickly reached, and no lengthy dis- 
 turbance will be produced by the displacement of 
 other commodities by the precious metals. 
 
 But though such disturbances are not very serious, 
 they are objectionable, and should be remedied or 
 alleviated if possible. Under all currency systems 
 the constant changes in the balance of international 
 indebtedness will tend to cause the metals to flow 
 backwards and forwards between different com- 
 mercial centres. This cannot be helped. But if 
 a universal bimetallic system were adopted, the 
 effect of an increase in the production of silver
 
 CH. XXI.] TRAFFIC IN BULLION. 293 
 
 would eventually be that prices would rise every- 
 where alike ; the new metal would gradually be 
 distributed evenly throughout the commercial world; 
 the amount absorbed into the currency of the 
 country where the output took place would not, of 
 course, be exported in the manner above described ; 
 and the disturbance of trade due to the export of 
 metal would be reduced to that extent. Moreover, 
 if gold, for example, were to rise in value every- 
 where under existing conditions, there would tend 
 to be a decrease in the use of that metal in the 
 arts ; and part of the gold thus dislodged from em- 
 ployment in silver-using countries would flow into 
 gold-using countries for employment in the currency ; 
 whereas, if both countries had bimetallic currencies, 
 there would be no such movement of metal. Dis- 
 turbances to trade of this character would, therefore, 
 no doubt be somewhat lessened by the adoption of 
 a common international standard of value, whether 
 that standard were bimetallic or monometallic. But 
 as the alleviation would be small, and as the troubles 
 complained of are not very serious, bimetallists can 
 claim no great merit for their system in this respect. 
 
 The harmful effects on trade due to the move- The chief 
 ments of the metals are not those, however, of which O f bimetal- 
 bimetallists usually complain, and other and more J^j^ r 
 serious alleged evils have to be investigated. Thus that gold 
 far I have given prima fade reasons for believing |),ff or a c ^| 
 that the necessary adjustment of prices, which must d wn by 
 occur coincidently with a change in the ratio of the silver-using 
 values of the metals, will always be accomplished countriefl -
 
 294 FOREIGN TRADE. [Cn. XXI. 
 
 by an alteration in the level of prices in the country 
 the standard of which is primarily affected, with- 
 out any alteration in the level of prices in the 
 country where the standard is not primarily affected. 
 This would appear to be the obvious result. But 
 it is suggested that silver prices in uncivilized 
 countries are so fixed and regulated by custom that 
 some other method of adjustment than that above 
 described would in reality be found. Changes, it is 
 said, always follow the line of least resistance ; the 
 greater mobility of gold prices will allow them to 
 fall ; and in this way the adjustment will not 
 necessitate the flow of silver from one country to 
 another, and it will be made with little or no rise in 
 silver prices. 
 
 If a change This view as to the influence of international 
 has resulted trade will not, I think, bear careful investigation. 
 from causes j n the first place it is difficult to prove that prices 
 
 affecting *,. . . . i mi 
 
 silver, then are more stable in less civilized countries. 1 Then, 
 
 a g a * n ' ^ m ore silver is thrown on the market, whilst 
 gold prices the conditions affecting other commodities remain 
 been caused unchanged, it is easy to see that more silver will 
 thereby, have to be given in exchange for a given amount of 
 these other commodities ; that is to say, it is evident 
 that an increase in the supply of silver is normally 
 a factor tending to cause a rise in silver prices. If 
 this is so, what is to prevent silver prices rising 
 eventually in proportion to the fall in the value of 
 silver which the increase of that metal on the 
 
 1 See, for example, Mr. F. J. Atkinson's paper on prices in 
 India in the Statistical Journal for March, 1897.
 
 CH.XXI.] A CHANGE IN THE RATIO. 295 
 
 market would naturally tend to produce? This 
 would seem to be the inevitable result ; but if 
 this does not occur, then a fall in gold prices is 
 not necessary to bring things to a state of equi- 
 librium. Moreover, it is not explained how an 
 increase in the amount of silver can alter the value 
 of gold; that is to say, how such a cause can 
 make it possible for more goods to be obtained 
 than previously in exchange for a given amount 
 of gold; for that is what the suggestion really 
 amounts to. Bimetallists rely, as I think rightly, 
 on the quantitative theory of prices ; but, if they do 
 so, they must not throw over that theory because 
 it does not square with their views on any par- 
 ticular question; and in this instance they must 
 explain how the relationship between the volume of 
 the English gold currency and the volume of English 
 business is affected by any change in the demand 
 for or the supply of silver. Until these objections 
 are answered, we shall, I think, be right in adhering 
 to the opinion that prices in gold-using countries 
 cannot be permanently and materially affected by 
 any cause primarily affecting the value of silver. 
 In the following chapter I shall give reasons for 
 believing that prices in one country are temporarily 
 affected by variations in the value of the standard 
 in other countries. But, if our conclusions are 
 right as to the ultimate results, it is evident that 
 the recent fall in gold prices in so far as the fall 
 is permanent cannot have been due to a fall in 
 the value of silver, but must be the result of other
 
 296 FOREIGN TRADE. [On. XXL 
 
 independent influences ; and that no permanent 
 
 suffering to British producers can have been caused 
 
 by any change in the ratio resulting from any 
 
 change in the conditions primarily affecting silver. 
 
 If a change If, on the other hand, a change in the ratio is 
 
 hasresulfed ^ ue to causes primarily affecting gold, it is even 
 
 from causes more evident that producers in gold-using countries 
 
 gold/tifen will experience no permanently injurious effects 
 
 gold prices from trade with silver-using countries. We have 
 
 willulti- . . 
 
 mately fall seen that disturbances due to an increase in the 
 extent su PP lv of silver wil1 be adjusted by a flow of that 
 whether or metal into silver-using countries, without any per- 
 carriedon manent effect being produced on gold prices. It 
 with silver- con i(j o f course, by similar reasoning, be proved 
 
 using coim- ' J 
 
 tries. equally conclusively that any disturbance due to an 
 increase in the demand for gold in any gold-using 
 country, would be adjusted by gold flowing into 
 that country from all other countries (except where 
 it is required to satisfy any similar demand), and 
 by a fall in gold prices in the countries from which 
 it is drawn, without any effect being produced on 
 silver prices. An increase in the demand for gold in 
 gold- using countries would not at first tend to raise 
 the value of that metal in silver-using countries, 
 but this influx of gold into gold-using countries 
 would prevent the rise in the value of gold being 
 greater in gold-using countries than in silver-using 
 countries ; and in this way the gold price of com- 
 modities would remain the same in the two places. 
 But the point to note is that if the fall in gold 
 prices is due to causes primarily affecting gold, then
 
 CH. XXI.] A CHANGE IN THE RATIO. 297 
 
 there is no necessity whatever to drag in the effect 
 of trade with silver-using countries to account for 
 that fall. In the next chapter we shall see reasons 
 for thinking that the fall in gold prices may be 
 hastened, but not increased, by external trade. But 
 whether the fall in gold prices resulting from causes 
 primarily affecting gold is thus hastened or not, it 
 cannot be said to be due to the influence of inter- 
 national trade. The fall would ultimately be 
 equally great whether such trade existed or not. 
 
 It may, perhaps, be said that the foregoing argu- The pro- 
 ment in no way proves that the English producer go id-using 
 will not suffer from such a fall in prices. This may countries 
 be freely admitted. If gold prices are falling, whilst by the fall 
 silver prices remain stationary, it will nevertheless p^f^ but 
 be true that exported or imported goods have every- these nrgu- 
 where fallen alike in gold price. The fall in the gold not prove 
 price of goods made in silver-using countries will be th ** ] ! 
 exactly the same as the fall in the gold price of the are due't 
 same goods made in gold-using countries. It is ^~ 
 true, to revert to the illustration of the Gold and trade. 
 Silver Commissioners, that "the English manu- 
 facturer ... is obliged to take the same silver prices 
 as formerly (for his cotton), viz., Ks.100,000, which 
 means a greatly lowered gold price, viz. 7500 (as 
 compared with 10,000), or not sell at all." But it 
 is equally true, since the assumed rise in the value 
 of gold affects prices in all places alike, that if he is 
 selling his cotton to an English merchant for use at 
 home, he must accept " a greatly lowered gold price, 
 viz. 7500, or not sell at all." The case is precisely
 
 298 FOKEIGN TRADE. [Cn. XXI. 
 
 the same whether he is selling to England or to 
 India, and his sufferings cannot, therefore, " be traced 
 directly to the fall in the gold price of silver." It 
 is also, generally speaking, true that the loss to the 
 producer, due to the diminution in his gross receipts, 
 will go on until " all the incidents of production 
 have on the average fallen in the same proportion ; " 
 but this fact again in no way connects that loss 
 with the effects of international trade. 
 
 Thus far Thus whether we assume the change in the ratio 
 permanent ^ tne ya l ue ^ tne me tals to be due to changes in 
 effects have the causes primarily affecting silver or to changes in 
 * ne causes primarily affecting gold it can be due to 
 no other causes we have thus far seen every reason 
 to believe that trade with silver-using countries 
 produces no permanent effect on gold prices. As 
 to the temporary effects, no reasonable explana- 
 tion has yet been given as to how they can arise. 
 The subject is so difficult and complex that it would 
 be presumptuous to write with confidence concerning 
 it. But I will nevertheless state my own views 
 in the following chapter as to the only possible 
 effects which can arise from variations in the value 
 of the standards in other countries.
 
 CH. XXII.] FOREIGN TRADE. 299 
 
 CHAPTEK XXII. 
 
 THE INFLUENCE OF TRADE WITH A COUNTRY HAVING 
 A DIFFERENT STANDARD OF VALUE. 
 
 IN this chapter we shall be occupied with the 
 question of trade between two countries, the value of 
 the standard in the one being subject to some dis- 
 turbing influence ; whilst, in the other, all conditions 
 affecting the standard are supposed to be stable. 
 
 The influence of commerce of this description will The tern- 
 more easily be discussed if names are given to the 
 countries concerned. Let us take England and 
 
 __. 9 / 7 \ i i ^ country 
 
 India (before the dosing of her mints) as the typical with a de- 
 
 gold and silver-using countries ; and, at a time when 
 both gold and silver prices are in a stationary con- will now be 
 dition, let us assume either that there is an increase co 
 in the output of silver, or that some other change 
 takes place in the conditions of the silver market, 
 which tends to lower the value of that metal; 
 whilst all the other conditions of trade remain un- 
 altered. Silver prices will no doubt begin to rise ; 
 and we have to ascertain what will be the effect of 
 such a rise in prices on international trade. 
 
 The case of rising prices has been selected for
 
 300 
 
 FOKEIGN TRADE. 
 
 [On. XXII. 
 
 Some of 
 the influ- 
 
 encesdue 
 
 to the de- 
 
 vermay 
 studied. 
 
 These 
 be traced to 
 
 actual con- 
 trade differ 
 
 examination in detail. The discussion could be 
 repeated with the assumption of a fall instead of a 
 rise ; but the result would merely be to show that 
 the effects to be anticipated would be the opposite 
 to those here indicated as probable ; and all the 
 necessary conclusions can be extracted from this 
 one example. 
 
 With reference to the application to existing 
 f ac ts of any conclusions which may be arrived at, 
 
 ' . 
 
 it may be urged that rupee prices have not risen, or 
 nave not > a * a ^ even ts, risen very decidedly. But 
 the influence of international trade is due to the 
 relative rather than to the absolute monetary con- 
 ditions of the countries concerned. For example, if 
 it be a fact that silver prices in India would have 
 been lower had silver not been demonetized in 
 Germany, then by discussing the effect of a rise in 
 silver prices in India, whilst gold prices in England 
 are assumed to remain stationary, we shall be study- 
 ing the way in which the existing conditions of 
 trade differ from, or compare with, the conditions 
 which would have existed had the demonetization 
 of silver produced no such effect on silver prices. 
 The value of gold may also have been affected by 
 the same currency legislation, but the effect of such 
 a fall in gold prices must be separately considered. 
 
 I n the chapters dealing with appreciating and 
 depreciating standards, it was seen that little or no 
 P ermanent effect on internal trade is produced by 
 any change in the conditions primarily affecting the 
 standard of value ; for, after a time, the factors of
 
 CH. XXII.] DIFFERENCE FROM THE NORMAL. 301 
 
 trade gradually become adjusted to the new con- from the 
 ditions ; and the disturbance slowly dies out. Thus non j^ 
 
 J conditions 
 
 the absolutely permanent influence on Indian trade during the 
 of the assumed rise in silver prices may be neglected. 
 
 As the conditions affecting gold are assumed to be after the 
 
 j -i i i i-i disturb- 
 
 stable, it may be asserted with even greater con- ance. 
 fidence that English internal trade will ultimately 
 be unaffected by the assumed fall in the value of 
 silver. And if it can be truly asserted of the ulti- 
 mate state of the internal trade of both countries 
 that it is not affected by these monetary changes, 
 it must also be equally true of the trade between 
 them. For example, though the present rate of 
 exchange may have a material influence on the 
 existing trade with India, yet no one would assert 
 that that trade is now materially influenced by any 
 variations in the ratio which took place a century 
 ago. It is, in fact, generally admitted that the 
 effects under discussion will no longer be felt when 
 " all prices and all the incidents of production," 
 including interest on debts, "have on an average 
 fallen in the same proportion," l and to their ulti- 
 mate levels. When the normal is reached, the dis- 
 turbance will have died out ; and, that being the 
 case, it would seem that if we desire to discover 
 what are the effects of the change in the ratio 
 during the process of adjustment, we should turn 
 our attention to the way in which the conditions of 
 trade during that period differ from the normal or 
 ultimate conditions. 
 
 i See p. 28G.
 
 302 FOREIGN TRADE. [On. XXII. 
 
 if the The first effect of the assumed change in the con- 
 
 ditions primarily affecting the value of silver will 
 
 of the stan- no doubt be a gradual rise in silver prices. But so 
 not tend to far no reason has been given for believing that gold 
 
 P r i es w ^ be influenced by the same cause. Thus 
 then it will it would appear that, if the production of goods in 
 would not be influenced by the rise in silver 
 
 interna- prices, merchants would find the same amount of 
 trade. Indian goods in the English market as heretofore, 
 and at the same gold price ; and, if this would in 
 reality be the result, I cannot see how the change 
 in the value of silver could affect their transactions 
 in any way. If the assumed increase in the output of 
 silver does not proceed from mines situated in India, 
 then coincidently, or nearly so, with each step in 
 the rise in silver prices, there would be a flow of 
 silver into India of sufficient magnitude to make the 
 silver price of goods the same in India as in gold- 
 using countries. In all probability silver will dis- 
 place some other commodity from the import trade 
 of India ; but the effect of this displacement may 
 now be neglected, for that is not the complaint we 
 are investigating. Thus the goods entering India 
 from England will rise in silver price. But they 
 will only rise in silver price to the same extent 
 that goods made in India have risen ; and, as buyers 
 and sellers will find that all goods have risen alike, 
 there appears to be no reason why the change in 
 the ratio should affect the way in which Indian 
 and English-made goods are exchanged one for the 
 other; provided that the quantity of both classes of
 
 CH. XXII.] THE EFFECT OF INFLATION. 303 
 
 goods in the market remains unchanged. Thus, as 
 long as the production is unaffected, the change in 
 the level of prices due to any change in the con- 
 ditions affecting the standard of value in either 
 country will have no influence on the international 
 trade between them. 
 
 But can it be assumed that production in India But pro- 
 will not be affected by the rise in silver prices ? ^g *}^'^} 
 This point has been discussed at length in Chapter by the de- 
 XVII., and reasons were there given for believing 
 that a rise in prices does tend to stimulate com- dard - 
 merce for a more or less considerable time. And 
 this is, I think, practically the only circumstance 
 which has to be kept in view in studying the effect 
 of variations in the value of the standard on inter- 
 national trade. The output of commodities would be 
 increased under the influence of such a rise in prices 
 as that assumed ; and we have now to ascertain what 
 will be the effect of such a general increase in pro- 
 duction in India on her trade with England, where 
 no such stimulating influence is supposed to exist. 
 
 The results likely to follow an increase of pro- A rise in 
 
 duction in a silver-using country whether an actual " r ^i ". 
 
 increase, or an increase in comparison with the pro- creases ex- 
 duction which would have taken place had the Exports ; 
 supposed cause affecting the value of silver not 
 been operative are very complicated, and difficult 
 to trace out fully. International trade is, in fact, 
 barter ; and India, having under the supposed con- 
 ditions an increased supply of goods in her market 
 or offering a larger quantity of goods for barter
 
 304 FOREIGN TRADE. [On. XXII. 
 
 will both part with more of her own productions and 
 receive more goods in exchange for them ; that is, 
 in comparison with the state of things which would 
 have existed but for the supposed stimulus to Indian 
 commerce. Indian exports and imports will, in fact, 
 both increase. 1 
 but exports But this will not be the only result of the rise in 
 
 IrithTteble Silver P rices ' At first there Wil1 be n reater 
 standards quantity of English-made goods offered for sale in 
 
 crease more * ne Indian market, because English commerce is 
 thanira- supposed to be subiect to no such stimulating in- 
 
 ports there- J , .. . 
 
 from. nuence, and all the other conditions of trade are 
 supposed to remain in a stable condition. There 
 will, therefore, be an increase in the quantity of 
 Indian-made goods in the market as compared with 
 the quantity of English-made goods. When a com- 
 modity becomes more plentiful, it normally tends to 
 fall in price ; and Indian-made goods will, therefore, 
 fall in price as compared with English-made goods. 
 
 1 If an increase takes place in the production of one com- 
 modity only, it cannot be assumed as even probable that the 
 total product of that commodity will be exchangeable for a 
 greater quantity of commodities produced in other countries. 
 The value of the commodity is quite as likely to fall so much 
 that the total product becomes less valuable. This, I presume, 
 might occur with the whole of the export trade from any country. 
 But, as under the assumed conditions, there will be a general 
 stimulus to all trade in the silver-using country, an increase will 
 take place in the demand for goods of all sorts ; and, in these 
 circumstances, it appears to me almost certain that the import 
 trade will increase also. But, in any case, the conclusions 
 arrived at in this chapter depend on the fact that trade will be 
 disturbed, and not on the particular disturbance which mil occur.
 
 CH. XXII.] RIVALS AND CUSTOMERS. 305 
 
 India will, consequently, have to give more of her 
 own goods for a given quantity of English-made 
 goods ; or, in other words, Indian exports will in- 
 crease in volume as compared with imports into 
 India. Combining this conclusion with the conclu- 
 sion arrived at in the last paragraph, it would appear 
 that the probable result of the assumed change in 
 the conditions affecting the value of silver will be 
 that both exports from and imports to silver-using 
 countries will increase in volume, but that the ex- 
 ports will increase more than the imports. 
 
 In short, under the assumed conditions, the trade 
 of India would be stimulated by currency causes ; 
 and the trade of England would be stimulated by 
 the better terms on which the barter with India 
 could be carried on. 
 
 Thus far silver-using countries have been regarded Silver- 
 as customers with whom gold-using countries are 
 
 dealing rather than as rivals in trade with whom |>e regarded 
 
 mi both a 8 the 
 
 they are competing. The question of rivalry must, customers 
 however, be considered ; though, as far as this par- 
 
 ticular branch of international trade is concerned, gold-using 
 it is the less important consideration of the two. In ^ 
 order to facilitate this discussion, let it be assumed 
 that no commercial intercourse exists between Eng- 
 land and India, but that both countries are engaged 
 in trade with Japan. Assuming, as before, that 
 trade in India is inflated by a rise in prices, whilst 
 production in England remains stationary, it is evi- 
 dent that Indian-made goods entering the Japanese 
 market will increase in volume, whilst the quantity 
 
 x
 
 306 FOREIGN TRADE. [On. XXII. 
 
 of English-made goods for sale will remain stationary. 
 The Indian-made goods will, therefore, tend to fall 
 in price in Japan, which will not be the case with 
 the English-made goods. But goods of one kind 
 must keep on the same level of prices, and English- 
 made goods must, therefore, be dragged down in 
 price by the fall in Indian-made goods; a check 
 will thus be put on this trade, and the importations 
 from England will diminish. It is, in fact, obvious 
 that in these circumstances the imports into Japan 
 from India will increase, and those from England 
 will diminish ; and that this will be an advantage 
 to India and a disadvantage to England. And the 
 general results will not be materially altered if we 
 imagine either that the Indian-made goods are ex- 
 ported to England instead of to Japan, or that they 
 are consumed in India itself. The results indicated 
 in the preceding paragraph as those arising from 
 international trade of a non-competitive nature no 
 doubt remain true ; but from this it is evident that 
 any inflation of trade resulting from a rise in silver 
 prices will be a temporary benefit to silver-using 
 countries, and that it will be a temporary injury to 
 all trades in gold-using countries which compete 
 with silver-using countries, wherever their markets 
 may be. 
 
 Trade with Some of the effects of the change in the ratio will 
 countries be more easily traced out if a hypothetical and ex- 
 
 with stable . J J * 
 
 standards treme case is taken for examination. Let us make 
 thTprocess * ne same assumptions as before, but let silver-using 
 by which countries be represented by a small imaginary island 
 
 prices are
 
 CH.XXIL] THE RETURN TO THE NORMAL. 307 
 
 near England, where there is a rupee currency and brought to 
 an open mint. Let it also be assumed that wheat 
 is the only commodity produced on the island ; that 
 it is all exported to England ; and that the whole 
 of the commodities consumed on the island are im- 
 ported from England. The whole of the commerce 
 of the island will, therefore, consist of an inter- 
 national trade with a country with a different stan- 
 dard of value. Now if a fall takes place in the 
 value of silver, other things remaining the same, 
 a given quantity either of wheat or of gold will be 
 equal in value to an increased amount of silver. In 
 these circumstances the exporter of wheat, if he 
 exchanges his wheat for silver in England, will be 
 able to obtain a larger quantity of metal than here- 
 tofore; and this metal he can get coined into an 
 increased number of rupees in his island, the increase 
 being in exact proportion to the fall in the value of 
 silver. In short, the rupee price of wheat will rise 
 with little or no delay to the normal level due to 
 the fall in the value of silver. And, as to the im- 
 ports into the island, they can only be obtained in 
 exchange either for silver, the money of the island, 
 or for wheat, the only exportable commodity ; wheat, 
 as we have seen, will rise in price at once to its 
 ultimate level; and a given quantity of silver, if 
 exported, will only enable its owner to obtain in 
 exchange for it, in England, a diminished quantity 
 of goods, the diminution being in exact proportion 
 to the fall in the value of silver. Thus both 
 exports and imports that is, in the imaginary
 
 308 FOREIGN TRADE. [On. XXII. 
 
 circumstance, the whole of the commodities to 
 be found on the island will at once rise in silver - 
 price in the same degree that silver falls in value 
 in England. But we have seen that under ordinary 
 conditions the stimulating effect of a rise in prices 
 is in part due to the fact that prices do not tend 
 to respond immediately to any change in the con- 
 ditions affecting the value of the standard ; or, in 
 other words, because they do not reach their normal 
 at once; the explanation already given of this 
 stimulating effect being that the delay in the rise 
 of prices is equivalent to producers being ready to 
 accept less of the goods of others than heretofore in 
 exchange for their own ; a state of things which 
 greatly facilitates commercial transactions. On the 
 imaginary island, prices will, however, as we have 
 seen, rise immediately or almost immediately to 
 their normal level ; and this stimulating influence 
 will therefore be felt but for a very short time, if 
 at all. 
 
 When the standard of value is depreciating, wages 
 and many other elements of prime cost will not rise 
 as quickly as the price of the finished article ; and 
 consequently profits always tend to increase in these 
 circumstances. But when profits are increasing, it 
 is possible for producers to lower their price lists ; 
 or, in the case of a general tendency to rising prices, 
 it is possible for them to raise their price lists less 
 rapidly than that tendency would appear to warrant. 
 Competition between different producers always 
 tends to keep down profits; and competition will,
 
 THE RETURN TO THE NORMAL. 309 
 
 therefore, in times of rising prices, have the effect of 
 preventing producers from raising their prices as 
 quickly as would have been the case if profits showed 
 no tendency to rise ; that is to say, producers will 
 not at once, as it were, take the full advantage of 
 the tendency of the value of the standard to fall. 
 This is why, under ordinary circumstances, prices do 
 not immediately respond to any change in the con- 
 ditions primarily affecting the standard of value. 
 
 But in the small imaginary island, previously And wages 
 under consideration, the wheat-growers, being very ^ her ^ c j_ 
 few in number, will be practically only affected by dents of 
 
 ,1 , . , . AIT < -n i i production 
 
 the competition of the wheat-growers ot England, w m, in the 
 
 where there is supposed to be a stable gold currency, 
 and where wages, etc., will continue to absorb the rapidly ad. 
 same proportion of the gross receipts. Thus the^*^* 
 island wheat-producer, being practically iminflu- conditions. 
 enced by the competition of others similarly cir- 
 cumstanced to himself, will be able at once to raise 
 his prices to the ultimate level; his profits will, 
 therefore, increase very rapidly ; and this will pro- 
 duce a stimulating influence on his trade. But 
 when the labourers see what large profits the pro- 
 ducers are making, they will demand, and. they will 
 be in a position to obtain, an increase in wages. 
 Wages will rise more rapidly because of the more 
 rapid rise in prices. Thus, on the island, not only 
 prices, but wages also, and in like manner all the 
 other factors of trade, will reach their normal state 
 more quickly than would have been the case if no 
 trade with a gold-using country had existed.
 
 310 FOKEIGN TKADE. [On. XXII. 
 
 Commodi- If, contrary to our original supposition, there are 
 moVto^he some commodities on the island which are neither 
 two coun- exported nor imported, nor likely to be exported or 
 
 tries will , . . ... , , , . , , 
 
 reach their imported, then their price will be settled entirely by 
 the competition amongst the producers on the island. 
 quickly We have seen that, when forces are at work tending 
 modifies 1 ' * mft ke the standard depreciate, the competition of 
 peculiar to different producers, all of whom find their profits 
 with the increasing, will normally tend to check the rise in 
 ciatin" prices. This drag on the movement of prices will 
 standard, be fully felt on the island in the case of non-import- 
 able and non-exportable goods, because the com- 
 petition amongst the sellers of such goods will be 
 confined to producers, all equally benefited by the 
 depreciation of the standard. Prices would not, 
 therefore, in their case rise to the normal at once ; 
 whereas the prices of exportable and importable 
 goods, as we have seen, would rise to their ultimate 
 height at once. Hence, until all the economic forces 
 had worked out their full effects, the price of ex- 
 portable and importable goods will have risen more 
 than the price of goods not included in the import 
 or export trade. 
 
 The greater With an extreme case, such as that of the 
 of inter 6 imaginary island, extreme results will be obtained, 
 national B u t the forces disclosed by the consideration of 
 
 trade the . . . . J 
 
 more these sucn hypothetical circumstances will always be felt, 
 tnou S n ' wnen tne two countries are comparable with 
 each other in size, they will be felt less severely. 
 Eeverting to the case of England under stable 
 currency conditions, and of India with free coinage
 
 CH. XXII.] SDMMAKY. 311 
 
 of silver and a depreciating currency, it is, I think, 
 clear that the effect of trade between the two 
 countries would be to force up prices to their normal 
 level in India more quickly than if no such trade 
 existed ; to lessen the duration of the inflation due 
 to the rise in prices, though possibly to increase its 
 intensity for the time being ; and to make all 
 articles common to both countries rise in price more 
 rapidly than goods which are not capable of being 
 exported or imported. Indian cotton, for example, 
 would rise in price, under the assumed conditions, as 
 compared with Indian millet ; but there would be 
 no tendency, except perhaps temporarily, for the 
 silver price of cotton to rise above the level to 
 which in any case it would ultimately attain. 
 
 Thus, to summarize the effects on the commerce of Summary 
 a silver-using country of trade with a gold-using su its O f in- 
 country, when silver is tending to fall in value, and t en j ational 
 
 * - , . 3 . . trade on a 
 
 when gold prices would otherwise be stationary, it silver- 
 appears that both exports and imports will increase, ^^Lr 
 
 exports increasing, however, more than imports ; wh en a fall 
 . v . . . . . j .,1 takes place 
 
 that imports will rise in price as compared with i n the value 
 
 exports ; and that both exports and imports will of silver ; 
 rise in price as compared with goods not affected by 
 the international trade in question. These are the 
 results which will be felt when production is increas- 
 ing in the silver-using country in consequence of a 
 rise in prices ; but when production is diminishing, 
 as it must do when trade is reverting to its normal 
 condition, all these influences will be reversed, until 
 the ultimate equilibrium of trade is reached. Every
 
 312 FOREIGN TRADE. [Cn. XXII. 
 
 such disturbance to trade is, no doubt, certain to 
 be followed before long by other disturbances ; 
 but the results above described are those which 
 would, I believe, be seen to follow any one disturb- 
 ance if it could be completely isolated from all its 
 surroundings. 
 
 and of the The effect of international trade under the same 
 the same conditions on the gold-using country, with its cur- 
 causes on r ency under stable conditions, is easily deducible 
 using from the above conclusions. We have seen that a 
 country. r - ge j n p r j ceg j n a silver-using country will stimulate 
 its trade with all other countries, including gold- 
 using countries. Both the exports from and the 
 imports to the gold-using country will, therefore, 
 increase in volume ; but, as it was seen that Indian 
 exports would increase more than Indian imports 
 under the assumed conditions, it is evident that the 
 imports into a gold-using country will increase in 
 volume more than the exports. We are assuming 
 no change to take place in the conditions affecting 
 trade in the gold-using country ; and the quantity 
 of goods manufactured for export and of those re- 
 ceived as imports will, therefore, increase as com- 
 pared with the amount of goods not included in the 
 international trade. Prices tend to vary inversely 
 with the quantity of goods in the market, and there 
 will, therefore, be a tendency for the price of both 
 exports and imports to fall in comparison with 
 articles not affected by the international trade, im- 
 ports falling more than exports. As there will be 
 an increase of trade in the gold-using country,
 
 CH. XXH.] SUMMARY. 313 
 
 without any corresponding change in the currency, 
 it is also to be observed that, according to the 
 quantitative theory of prices, some tendency to a 
 general fall in prices must be produced. 
 
 We have just seen that the increase of imports Agricul- 
 from silver-using countries into England the ^^jn 
 typical gold-using country will make these goods gold-using 
 fall in price temporarily as compared with English- ^ifbe 68 
 made goods. Thus Indian imported wheat will tend somewhat 
 
 ,f . . , | .,, ... -, adversely 
 
 to fall m price as compared with English-grown affected by 
 
 wheat. All wheat must, however, remain at about * 
 the same level of prices ; and the inevitable result prices ; 
 will be that English wheat will be dragged down in 
 price to a certain extent, great or small, as a result 
 of the rise in silver prices. Here, then, is an instance 
 of the harmful influences arising from the deprecia- 
 tion of silver, which will be felt by those trades 
 in gold-using countries which are competing with 
 similar trades in silver-using countries. But there 
 are, I think, reasons for believing that agricultural 
 prices in gold-using countries cannot have fallen to 
 any serious extent from this cause. We have seen 
 that the influence under discussion is due to the 
 increase in the production of Indian wheat ; and, as 
 we are endeavouring to trace out the effect of any 
 changes in the condition of the currency on prices, 
 we must neglect the influence of any increase of 
 production arising either from the extension of rail- 
 ways in India or in other silver-using countries, or 
 from other causes which would have been equally 
 operative if silver prices had not risen. Statistics
 
 314 FOREIGN TEADE. [On. XXII. 
 
 give us little guide in separating the results of 
 different stimulating influences. It is, however, 
 evident that agriculture, especially in India, will 
 respond less readily than many other industries to 
 the effect of rising prices. The output of cereals 
 cannot be materially increased merely by the appli- 
 cation of more capital to the same land ; and an 
 increase in the profits of any one proprietor will, 
 therefore, have comparatively little effect in in- 
 creasing the productiveness of his holding. More- 
 over, the increase in profits, on which the beneficial 
 effect of rising prices largely depends, can only 
 be fully felt in the case of a complex industrial 
 organization. Take the case of wages ; if the land 
 is cultivated by peasant proprietors, wages and 
 profits merge into one another ; profits cannot be 
 swelled by a smaller proportion of the gross receipts 
 being absorbed by wages ; and profits not increasing, 
 the stimulating effect of any rise in prices will be 
 greatly diminished. For both these reasons it 
 follows that Indian agriculture is likely to have 
 been far . less affected by any rise, relative or 
 absolute, of silver prices than would at first sight 
 appear probable ; and, if this is so, trade with silver- 
 using countries, though it may have produced some 
 slight temporary depressing effect on English agri- 
 culture, cannot account for more than a fraction of 
 the fall in prices which has recently taken place. 
 
 We have also seen that the exports from England 
 will tend to increase with a rise in silver prices. 
 This result will be chiefly, if not entirely, felt in the
 
 OH. XXII. ] AN APPRECIATING STANDARD. 315 
 
 case of goods not also made in the silver-using coun- inj 
 try ; for, if the trade in question is one which com- th 
 petes with the products of silver-using countries, wa T- 
 our home industry would suffer from the increase 
 in the foreign production. If, for example, the 
 cotton industry has been stimulated in India by the 
 relative conditions of the two currencies, then, in 
 all probability, less cotton has been demanded from 
 England than would otherwise have been the case ; 
 and our manufacturers of cotton goods have suffered 
 in consequence. In fact, some English trades will 
 be stimulated, and others probably the smaller 
 number will be injured by any fall in the value of 
 silver ; whilst the result to the mass of the people 
 will be beneficial because of the increase in the 
 imports. 
 
 Space does not permit of a repetition of the above Summary 
 arguments in order to trace out the effects of a rise effects of 
 in the value of the standard. If the assumptions a rise 
 previously made were reversed that is, if we were O f the 
 to take into consideration the case of India with her standard - 
 standard under stable conditions, and of England with 
 her currency appreciating through causes primarily 
 affecting gold then by retracing the whole of the 
 foregoing arguments it could be proved that the 
 trade of England, including her international trade, 
 would be depressed as a direct result of the fall in 
 gold prices ; and that there would be a correspond- 
 ing, though much slighter, wave of depression in 
 India (especially as regards articles affected by the 
 international trade), Because of the change for the
 
 316 FOREIGN TRADE. [On. XXII. 
 
 worse, from an Indian point of view, in the terms of 
 the international barter. Exports from and imports 
 to England would both diminish, but (as in the case 
 of a rise in silver prices) exports would diminish 
 more than imports. Moreover, the price of all com- 
 modities in England, but more especially those 
 included in the international trade, would be forced 
 down to their normal level more quickly than would 
 have been the case if no trade with silver-using 
 countries existed ; though the ultimate fall in prices 
 would not be increased thereby. As the trade of 
 silver-using countries would not be primarily affected 
 by the depressing influence of the fall in gold prices, 
 the demand for goods from gold-using countries 
 would not at first be diminished ; and, consequently, 
 the depression in gold-using countries would be 
 mitigated in the case of certain classes of goods 
 required for export to silver-using countries. Thus, 
 if no external trade existed, all English manu- 
 facturers would suffer through the fall in prices ; 
 whilst the trade with silver-using countries, with its 
 currency assumed to be under stable conditions, 
 would tend to make their suffering shorter and 
 possibly more severe, and would also cause some to 
 suffer more and some less than the average. Looking 
 "at the question from an Indian point of view, it 
 could be proved, as regards those trades where there 
 is rivalry between English-made and Indian-made 
 goods, that India would be benefited by the de- 
 pression in English commerce ; for the diminution of 
 English exports due to the fall in gold prices would
 
 CH. XXII.] AN APPRECIATING STANDARD. 317 
 
 make English-made goods rise in silver price in 
 India as compared with Indian-made goods. English 
 cotton goods, for example, would tend to rise in 
 prices as compared with Indian cotton goods ; but, 
 as all cotton goods must keep at about the same 
 level of prices, the effect will be to raise the price 
 of Indian cotton goods, and to temporarily stimu- 
 late their manufacture in India ; provided that they 
 are sufficiently nearly of the same class of goods 
 as those exported from England to enter into com- 
 petition with them. In this case, as in all others, it 
 must not be forgotten that the effects here described 
 are relative, not absolute ; and that an actual in- 
 crease in the export of English cotton goods, whilst 
 the ratio was rising, would not disprove the existence 
 of the forces described ; for it would be impossible 
 to prove that the export would not have increased 
 still more rapidly had the two countries had a 
 common standard of value. 
 
 Keasons have been given in previous chapters 
 for believing that prices would now be materially 
 higher but for the abandonment of bimetallism. It 
 may, therefore, in a sense, be said that the various 
 continental nations concerned caused a fall in gold 
 prices by the monetary policy adopted in 1873 and 
 subsequent years. If this is true, the disturbing 
 influences indicated in the foregoing paragraph are 
 those which must have resulted from the effects of 
 this currency legislation wherever there was a con- 
 siderable trade with silver-using countries. 
 
 It now remains to be seen to what extent these
 
 318 FOREIGN TRADE. [Cn. XXII. 
 
 An increase complex effects are harmful or beneficial. The only 
 
 m Wit of ar g umen t which can, I think, be suggested in favour 
 
 the return of their being beneficial is that, as the effect of 
 
 conditions commerce with a country whose currency is under 
 
 due to in- stable conditions is to increase the rapidity with 
 
 trade, is a which all the factors of trade reach their normal 
 
 advantage l eve l s > i* appears that international trade of this 
 
 description will shorten the period during which 
 
 industry would be disturbed by any changes in the 
 
 conditions of the currency. This, however, is a 
 
 doubtful advantage. If prices are rising through 
 
 causes primarily affecting the currency, and if they 
 
 are forced up rapidly to their normal level by inter- 
 
 national trade, the danger of a reaction may be 
 
 increased ; whereas, if the rise in prices was more 
 
 gradual, the result might be on the whole beneficial, 
 
 or, at all events, less harmful. If the standard is 
 
 appreciating, the benefits arising from shortening 
 
 the period of falling prices may be dearly paid for 
 
 by the increase in the suffering due to the greater 
 
 rapidity of the fall. But the point is only of 
 
 theoretical importance ; for no one would, I imagine, 
 
 advocate the introduction of a number of different 
 
 standards of value into different countries a policy 
 
 by which alone this assumed advantage could be 
 
 fully reaped. 
 
 The way in Whether we look either to the country with its 
 variations standard under stable conditions, or to the country 
 
 in the re- w ith its standard under unstable conditions, we 
 
 lative 
 
 values of have seen that the most important effect of trade 
 
 standards ^ e t ween tne t wo will be to cause a relative
 
 CH. XXII.] A COMMON STANDARD. 319 
 
 instability in the prices of different commodities, tend to 
 International commerce has, in fact, under such 
 
 conditions, a temporary stimulating effect on some depress 
 trades and a temporary depressing effect on others, industries 
 This result appears to me to be an almost unmixed ls an . al most 
 
 unmixed 
 
 evil. If, for example, the cotton industry of India evil. 
 has been fostered by the fall in prices in England, 
 a reaction must take place when trade returns to its 
 normal condition ; for then this fostering influence 
 will be withdrawn. Such a temporary inflation of 
 a particular industry must be harmful ; for it in- 
 volves a waste of capital and a misdirection of 
 labour. The rapid growth of the manufacture of 
 cotton goods in India may, however, have been 
 largely, if not almost exclusively, due to other 
 influences besides that of the currency. The evils 
 resulting from the fluctuations in the relative value 
 of the standards of different countries are, perhaps, 
 never very strikingly apparent; but they may, 
 nevertheless, be very real. One of the most serious 
 disadvantages of our modern industrial system is 
 that trades are constantly expanding and contract- 
 ing; that the skill acquired in management and 
 execution is constantly being rendered useless; 
 and that capital sunk in moribund enterprises is 
 constantly being lost. Everything which makes for 
 stability without checking progress is an advantage. 
 The adoption of a common international standard 
 would tend to prevent the growth and decline of 
 particular trades through the relative rise and fall 
 in the prime cost of manufacture in different
 
 320 FOREIGN TRADE. [On. XXII. 
 
 countries, and it would not in the slightest degree 
 put a drag on commercial development. Such a 
 reform would, therefore, be highly desirable, unless, 
 indeed, evils of a serious nature, such, for example, 
 as the too great appreciation of the currency, would 
 be bound to follow in its train. 
 Prices and It has also been seen that, when trade is inflated 
 n one country by currency causes, there will be a 
 
 somewhat corresponding though much less marked wave of 
 if a com- increased production in countries not thus primarily 
 
 a ff ecte( l '> accompanied, however, by a slight fall in 
 standard prices. When trade is depressed by an appreciation 
 adopted. f * ne currency, the corresponding movement in 
 countries not thus affected will be one of diminished 
 production and slightly increased prices. Prices 
 and production do, therefore, vary to a certain extent 
 with any variation in the value of the standard of 
 other countries. If two standards of value are 
 equally likely to vary from inherent causes, then it 
 follows that, if one of the two were universally 
 adopted, prices and production would be everywhere 
 somewhat more stable than if some countries adopted 
 the one and some the other ; because only the oscil- 
 lations due to one of the two would then be felt. 
 As far as this argument is concerned, an effective 
 bimetallic system would only be preferable to a 
 universal monometallic system in so far as it is in- 
 herently more stable. It is, however, clear that the 
 adoption of a common standard of value would, in this 
 respect, be advantageous ; and also that every nation 
 is affected by the standard in use in other countries.
 
 CH. XXII.] THE EXTENT OF THE EVIL. 321 
 
 As in all quantitative questions connected with The extent 
 
 the currency, when we endeavour to estimate the ^ ^J 1 
 extent to which all these complex influences may closed de- 
 be expected to be felt, we are landed in almost the extent 
 hopeless difficulties. Statistical inquiries give us * ^ ch . 
 the result of a hundred different causes, and there flated or 
 appears to be no way of disentangling the separate 
 effects of each. We have seen reason to believe 
 
 that the influence on prices and production at home, 
 consequent on the variation in the value of the 
 standards of foreign countries (other than the effects 
 directly arising from the flow of the metals), is 
 due to the way in which production is relatively 
 inflated or depressed in these foreign countries by 
 the relative depreciation or appreciation of their 
 currencies. Those readers of Chapter XVII., who do 
 not agree that a strong case has been made in favour 
 of the belief that causes primarily affecting the 
 currency have a considerable effect on internal trade, 
 will naturally come to the conclusion that the 
 changes in the condition of foreign currencies can 
 have but very little effect on home trade. But, on 
 the other hand, even if we do not go the length of 
 considering that a rise in prices sets in motion a new 
 order of influences " as beneficent as it is mighty," l 
 we may yet believe that a very material influence 
 will be produced on the trade between two countries, 
 and on their competition in neutral markets, when, 
 in the one country, a drag is placed for a long time 
 on commerce by an appreciation of the standard, 
 1 Tooke's " History of Prices," vol. vi. p. 229. 
 
 Y
 
 322 FOREIGN TRADE. [On. XXII. 
 
 whilst, in the other country, trade is facilitated by a 
 
 depreciation of the currency. 
 
 The argu- The result of this long inquiry may be summarized 
 this chapter as follows : The adoption of a universal standard will 
 points to slightly lessen the disturbance of commerce due 
 tages of a to the precious metals ousting other commodities 
 common f rom the flow of international trade. The existing 
 
 inter- . 
 
 national diversity of standards increases the rapidity with 
 without 'in- w ^i cn a ll tne factors of production reach their 
 dicating normal condition in any country where prices are 
 
 what that ' . , * -,-, 
 
 standard changing through currency causes; but this is a 
 should be. c | ou btful advantage, and one which would disappear 
 either with universal gold monometallism or with 
 effective bimetallism. A common international stan- 
 dard would both check the temporary variations in 
 the relative price and production of different com- 
 modities, and, to a much lesser degree, would make 
 the average price of all commodities more stable. 
 Thus the whole argument of this chapter tells 
 strongly in favour of the adoption of one universal 
 standard of value for all countries ; though when 
 we come to the question as to what that standard 
 should be, we get no guidance here, and must look 
 to other considerations to settle that point. 
 Gold-using In conclusion, if I am asked whether a change in 
 
 wflfnoton ^ e rat i a r * se i n tne gold P r i ce f silver will 
 the whole be beneficial to gold-using countries. I can only 
 
 bebene- . , J 
 
 htedbya answer that, granting the correctness 01 my con- 
 ralueof 116 c l us i ns > ^ entirely depends on how that change 
 silver. is brought about. The ratio may alter in the direc- 
 tion indicated either by a fall in the value of gold,
 
 CH. XXII.] A CHANGE IN THE RATIO. 323 
 
 or by a rise in the value of silver, or by a relative 
 movement in the values of the two metals, one 
 rising or falling more quickly than the other. If 
 gold falls in value that is, if gold prices rise 
 manufacturers in gold-using countries will be bene- 
 fited; but whether we should consider this result 
 as being for the well-being of the community in 
 general will depend on the view taken of the argu- 
 ments set forth in Chapters XVII. and XVIII. My 
 opinion being that it would be better if gold prices 
 were to fall much less rapidly than they have 
 done in recent years, I should hold that any cause 
 tending to decrease the value of gold or rather to 
 check its appreciation would be beneficial, unless 
 it tended to shake commercial confidence, or to 
 produce too great or too sudden an effect on prices. 
 On the other hand, if the ratio changes in con- 
 sequence of a rapid rise in the value of silver, 
 commerce will be checked in silver-using countries 
 by the fall in silver prices ; and some trades in 
 gold-using countries will be stimulated thereby, 
 whilst a greater number will be depressed. I see, 
 therefore, no net gain to gold-using countries to be 
 obtained by forcing up the value of silver, unless it is 
 a definite step in the direction of obtaining a steadier 
 standard of valve, or of minimizing the fluctuations 
 in the rate of exchange. And I would ask those 
 who are advocating such a course to consider how 
 the depression of trade in silver-using countries can 
 be an advantage to us. The greater the effect of 
 the appreciation of silver, the greater will be the
 
 324 FOREIGN TRADE. [On. XXII. 
 
 diminution of trade of silver-using countries, whether 
 they are acting as our rivals or as our customers. 
 In estimating the results on our commerce, of this 
 depression in silver-using countries, we must decide 
 which is the more important aspect of this branch 
 of international trade ; and we must remember that 
 it cannot on the whole be an advantage to us to 
 cripple the commerce of other nations who are our 
 customers rather than our rivals.
 
 CONCLUSION.
 
 RECAPITULATION. 327 
 
 CHAPTEK XXIII. 
 
 RECAPITULATION AND CONCLUSIONS. 
 
 IN Chapter IX. a summary was given of the argu- 
 ments relating to the choice of the bimetallic ratio. 
 The ratio in the market at the time of the intro- 
 duction of the system the market ratio and the 
 ratio of 15 to 1 the low ratio were taken as the 
 extremes to be considered ; and the choice between 
 the two was discussed on the hypothesis that bi- 
 metallism is preferable to monometallism. The 
 verdict was strongly in favour of the market ratio, 
 though it was admitted that some arguments point- 
 ing to the advisability of adopting an intermediate 
 ratio were worthy of consideration. In subsequent 
 chapters, all the main arguments which have been 
 advanced for and against the introduction of a 
 system of bimetallism with the market ratio have, 
 I believe, been set forth. The following is a brief 
 recapitulation of the points discussed. 
 
 The main objections to market-ratio bimetallism, Recapitu- 
 
 .., ,, T.I lation of 
 
 with the replies thereto, are : the objec- 
 
 (1) That it would be impossible to obtain the tion . s ur s ed 
 
 mi i against bi- 
 
 necessary international agreements, lhat may be metallism ;
 
 328 CONCLUSION. [On. XXIII. 
 
 true, but it is no argument against trying to obtain 
 them. 
 
 (2) That it would be very unwise to place our 
 currency system at the mercy of foreign powers by 
 entering into any international agreement. But a 
 Bimetallic Union would influence the values of the 
 metals everywhere alike ; and, as regards the general 
 level of prices, those nations who did not join such 
 a union would be exactly as much " at its mercy " 
 as those who did. The international agreement 
 would presumably contain a clause giving a power 
 of repudiation after due notice. Bimetallism would 
 only be adopted after serious consideration ; and a 
 pledge not to hastily reverse a deliberately adopted 
 policy would be the only bond fettering the action 
 of a bimetallic country. 
 
 (3) That a fixed ratio of value between the metals 
 cannot be maintained by the law. In reply, it is 
 urged that the weight of authority is strongly against 
 this view, and, moreover, if the system had to be 
 abandoned, the dangers accompanying such a step 
 may easily be exaggerated. 
 
 (4) That silver, on account of its weight, is an 
 inconvenient metal for coinage. But, in reply, it 
 is contended that, under a market-ratio system, 
 there is no reason to believe that the total amount 
 of silver in circulation would be increased ; and it 
 is urged that, in any case, with the aid of notes 
 and token coinage, the inconvenience attending 
 the use of the joint standard would not be at all 
 serious.
 
 CH. XXIIL] RECAPITULATION. 329 
 
 (5) That to establish such a system would be an 
 unfair interference with existing contracts. But it 
 would be not a whit more unfair than the abandon- 
 ment of bimetallism by the Latin Union, which no 
 rnonometallist has ever yet called a dishonest act. 
 
 (6) It is urged that the position of England in 
 the financial world is due to the soundness of her 
 currency system. But, on the other hand, it is 
 asserted that this is a mere speculation, not based 
 on sound arguments, and that much more deep- 
 seated causes have produced such prosperity as we 
 have obtained. 
 
 The following are the arguments in favour of and of the 
 this system, together with the replies thereto : ^n^tT" 
 
 (1) That bimetallism, by tying gold and silver favour, 
 together, would diminish the variations in average 
 prices whether due to causes affecting only one of 
 
 the metals, or to the indirect effect of commerce 
 between countries with different standards. In reply, 
 it is stated that the result of recent investigations 
 indicates that the steadying effect thus produced 
 will not be very great. 
 
 (2) The Government of India has found itself in 
 serious financial difficulties through the fall in the 
 rupee ; and bimetallism with a suitable ratio, though 
 it would not restore things to their previous con- 
 dition, w.ould insure against further troubles in the 
 future. In reply, it may be urged that these diffi- 
 culties have already been nearly overcome by the 
 monopoly -rupee system ; and that gold mono- 
 metallism, which it is intended to introduce into
 
 330 CONCLUSION. [On. XXIII. 
 
 India, will remedy the evils complained of quite 
 as effectively as bimetallism. 
 
 (3) That commerce between gold and silver- 
 using countries is seriously hampered by the 
 fluctuations in exchange ; that the depreciation of 
 silver has put industrial concerns in gold-using 
 countries at a disadvantage in competing in all 
 markets ; that the existing diversity of standards 
 increases the instability in the relative prices of 
 different commodities, thus temporarily inflating or 
 depressing particular trades in an injurious manner ; 
 and that these evils would be remedied with regard 
 to all gold-using and silver-using countries by 
 means of a powerful Bimetallic Union, even if all 
 were not included in it. In reply, it is stated 
 that these troubles, though no doubt they do exist, 
 have been greatly exaggerated ; that gold mono- 
 metallic systems are rapidly being established 
 throughout the commercial world; and that these 
 difficulties will thus be overcome in so far as they 
 affect commerce between nations adopting this 
 common standard. 
 
 (4) That theoretical considerations show that we 
 ought to adopt a system of currency which in times 
 of commercial progress neither allows prices to rise, 
 nor allows the price of the output per man per day 
 to fall ; that, with the silver standard, the average 
 price of wholesale commodities has remained ap- 
 proximately steady ; that, with the gold standard, 
 the price of the output of labour has not varied 
 greatly; and that, judging by the past, a mean
 
 CH. XXIII.] RECAPITULATION. 331 
 
 between the two would form a standard to which 
 no objection could be raised on such theoretical 
 grounds. Monometallists, on the other hand, con- 
 tend that the fall in prices has been on the whole 
 beneficial, and that the gold standard should, 
 therefore, be maintained in the future. It might 
 be added that it is very doubtful whether the joint 
 standard would permanently diminish the tendency 
 to falling prices; and, if it did so, that there is 
 some doubt as to the advantages thus to be derived. 
 
 (5) Lastly, it is contended that, if bimetallism is 
 not introduced, gold will be more and more used 
 as the standard of value ; that this will cause an 
 increasing demand for that metal for a long time 
 to come ; that we cannot hope always to progress 
 in the methods of economizing the use of the 
 standard as rapidly as during the last half century ; 
 or, at all events, that this check on appreciation 
 cannot be relied on in the future any more than 
 in the past ; and that the appreciation of the 
 currency, resulting from the balance of these con- 
 flicting causes, is certain to produce very harmful 
 effects in depressing trade. In reply, it is urged 
 that the output of gold is increasing, and that this 
 will prevent the undue appreciation of the standard. 
 
 Many facts point to the conclusion that the Of the 
 monetary condition of the world is at present in a ti^s before 
 state of unstable equilibrium. Russia and Japan us, the 
 are in the act of adopting the gold standard. The nance "f 
 Indian currency system cannot remain for long in bo * h old 
 
 . / . . an d silver 
 
 its present unsatisfactory condition ; and though mono-
 
 332 CONCLUSION. [On. XXIII. 
 
 metallic the Government of India apparently looks upon 
 Se^rst 8 the chan g e made in 1893 as a stepping-stone 
 towards gold monometallism, there are, neverthe- 
 less, some high authorities who think that it will 
 be necessary for that country to return to a silver 
 standard. As to the United States, it is clear that 
 all danger of a victory for the silver party is by 
 no means at an end. We are evidently passing 
 through a transition period ; the monetary con- 
 ditions of the future will, in all probability, differ 
 widely from those we see round us at present ; 
 and it is doubtful with what system or systems 
 bimetallism should be compared. Should the United 
 States, or India, or any other great nation revert 
 to silver monometallism, it is possible that gold- 
 % using countries might reap some benefits from the 
 
 change ; for the demand for gold would be 
 diminished thereby, and the tendency for the gold 
 standard to appreciate would thus be checked ; 
 but in other ways the results would be very harmful. 
 If either India or any country which now has a 
 gold standard were to adopt or drift into silver 
 monometallism, then there would be an increase 
 in the amount of goods made in gold-using countries 
 and sold in silver-using countries, and vice versa. 
 In a larger proportion of the trade of the world 
 the freedom of intercourse would be hampered by 
 fluctuations in the rate of exchange. And those 
 evils, which are due to the way in which diversities 
 of standards create an element of instability in the 
 balance and burden of international indebtedness,
 
 CH. XXIIL] CONCLUSION. 333 
 
 would be increased. To divide the world into two 
 camps a silver camp and a gold camp would, in 
 my opinion, be the worst of all the alternatives 
 which lie before us. 
 
 Whatever may be the differences of opinion Universal 
 amongst currency reformers concerning other 
 
 matters, they all agree that it is desirable to and bime - 
 
 . . . , ' , . , , , , , , talhsm are 
 
 minimize the disturbance to trade, and the incon- the most 
 
 venience felt by the Governments of silver-using 
 countries, which result from the fluctuations in the tives. 
 rate of foreign exchanges ; though the benefits thus 
 to be derived are rated more highly by some than 
 by others. This end can only be attained by the 
 adoption of a common international standard of 
 value. In searching for the best standard which 
 can be adopted, we should, therefore, compare the 
 merits of effective bimetallism and universal mono- 
 metallism ; for, even if a standard more perfect 
 than either of these could be devised, it would at 
 present be outside the limits of practical politics ; 
 having no organised party to advocate it. The 
 movement in favour of gold monometallism has 
 not as yet, I think, come to a standstill ; and a 
 monetary system in which gold plays an even more 
 important part than it does at present is the most 
 probable future with which to compare bimetallism. 
 The general adoption of gold monometallism 
 throughout the commercial world would, no doubt, 
 be very advantageous in many respects. Such a 
 movement would probably make the gold standard 
 somewhat more stable ; both because the indirect
 
 334 CONCLUSION. [Cn. XXIII. 
 
 effects of the variations in the value of silver would 
 no longer be felt, and because the increase in the area 
 covered by the gold standard would tend to diminish 
 the size of the waves of disturbance due to the varia- 
 tion in many of the causes affecting the value of 
 gold. At the same time all the evils due to the 
 avoidable fluctuations in the rate of exchange 
 would cease, and no inconvenience connected 
 with the maintenance of international agreements 
 would be felt. But, on the other hand, the 
 increase in the demand for gold would probably 
 cause the appreciation of the standard to continue 
 with its depressing effects on trade. And it is this 
 very fall in prices which is the origin of the existing 
 widely felt temptation to adopt some new system of 
 currency, merely for the purpose of alleviating the 
 pressure of existing debts. There seems to be no 
 chance of any serious consideration being given to 
 the question whether it is possible to put a check 
 on the appreciation of gold by other means than 
 the adoption of bimetallism ; and, unless the in- 
 crease in the production of gold soon begins to 
 have a material influence on the value of that 
 metal, the revolt against existing currency arrange- 
 ments may very possibly tend to increase rather 
 than to subside. It is, consequently, not impro- 
 bable that the movement in favour of gold may 
 add to, rather than diminish, the risk of dangerous 
 monetary revolutions. 
 
 But if market-ratio bimetallism were adopted, 
 no injustice would be inflicted on any class ; the
 
 CH. XX1IL] CONCLUSION. 335 
 
 stability of the standard would be increased; the 
 drag on trade, through the too rapid fall in prices, 
 would diminish ; and the system would be one which 
 might, I conceive, endure for a very long period 
 of time. 
 
 The above is an outline of the arguments to be The 
 considered in forming a judgment on this difficult on t h e 
 
 question. They are in many respects evenly 
 balanced. My own view is that, whatever course market- 
 we adopt, we are stepping into a future for which ^j^ s " m 
 the past gives us most inadequate guidance, but 
 that, on the whole, the balance of probable benefits 
 and evils is distinctly in favour of market-ratio 
 bimetallism. 
 
 As to the exact ratio to be selected, that may Xo coin- 
 not, within limits, be a matter of the highest o^ 6 
 importance ; but it is vitally important to know question 
 
 *u v V *i.- f i J J a of the ratio 
 
 with what objects this relorm is demanded, koine should be 
 arguments in favour of a ratio somewhat lower jg d ? n wlth 
 than the ratio in the market, which are not based flationists. 
 on the desire for inflation, may fairly be weighed in 
 the balance ; but the difficulty which the Govern- 
 ment of India would experience in adopting a ratio 
 higher than 25 to 1 is the only one of these con- 
 siderations which ought, as it appears to me, to carry 
 much weight. No doubt it will be urged that France 
 and the United States would never be parties to bi- 
 metallism with anything like the ratio now ruling 
 the market, and that, if an attitude of resistance to 
 all compromise is adopted, this will be practically 
 equivalent to supporting monometallism. This may
 
 336 CONCLUSION. [Cn. XXIII. 
 
 be so, but in considering the question of a com- 
 promise with those who desire to use bimetallism as 
 an engine for raising prices, we have to weigh the 
 strength of our objection to such a course against 
 the strength of our desire to establish any form of 
 bimetallism. As the evils of an artificial deprecia- 
 tion of the currency are abundantly clear, and as 
 the choice between bimetallism and monometallism 
 is not free from doubt, it appears to me that almost 
 any compromise with those who advocate this reform 
 on such grounds ought to be resisted. 
 
 Franceand The advocates of low-ratio bimetallism seem, 
 states moreover, to be utterly blind to the difficulties 
 bein d alS wn i c h w iU certainly spring up in their path. The 
 favour monometallic party have hardly opened a serious 
 market defensive campaign in England; but when they 
 ratio. d o SO) they will flood the country with orators who 
 will tell the working classes that the main object 
 of the bimetallic agitation is to increase the price 
 of food and of all other commodities, which will be 
 equivalent to a reduction in wages. Bimetallists, 
 who adhere with determination to the low ratio, 
 cannot deny this charge, and can only urge in 
 reply that the revival of trade would be sufficient 
 to make annual earnings rise more rapidly than 
 prices. Even if this argument is sound, it will, 
 I believe, be found quite impossible to persuade 
 the working man that dear food will be a benefit to 
 him. If France bars the way to the adoption of 
 any ratio but that of 15| to 1, the British con- 
 stituencies will prevent the adoption of that ratio
 
 CH. XXIII.] CONCLUSION. 337 
 
 with equal determination. If, however, the electo- 
 rate on the Continent and in America ever come to 
 see that the increase in the value of their stocks of 
 silver will not repay them for the evils resulting 
 from inflation, then a more rational system of 
 bimetallism may be adopted, a system which would 
 at once dispose of the majority of the objections 
 raised by monometallists. 
 
 I believe there are many bimetallists who object, The 
 as I do, to all currency reforms introduced for the 
 
 purpose of artificially forcing up prices, and who ti a 
 yet keep silent for fear of causing a rupture in the 
 bimetallic camp. When the tug of war comes, they 
 will very probably find the inflationist section too 
 strong for them in the councils of their party ; at the 
 last moment they may have to desert, and to join 
 the monometallists in resisting a reform with which 
 they have much sympathy. If they speak now, 
 they may cause wiser opinions to prevail on their 
 own side. This question of the ratio has to be 
 fought out; and, until it is decided, probably no 
 real advance can be made in the bimetallist cause ; 
 certainly no clear understanding can be established 
 as to the objects to be striven for ; and many will 
 feel it quite impossible to decide whether or not to 
 enrol themselves as advocates of the proposed reform.
 
 APPENDIX. 
 
 THE following tables are abridged from those given in 
 the Bimetallist of February, 1897 : 
 
 TABLE I. 
 
 THE WORLD'S PRODUCTION OF GOLD AND SILVER FROM 1493-1885. 
 [Calculated from Soetbeer's figures.] l 
 
 YEARS. 
 
 WEIGHT PBK ANNUM. 
 
 Gold, fine. 
 
 Silver, fine. 
 
 Proportion 
 of gold to 
 silver as 
 1 to 
 
 
 Ounces, troy. 
 
 Ounces, troy. 
 
 
 1493-1520 
 
 186,470 
 
 1,511,050 
 
 8-1 
 
 1521-1544 
 
 230,194 
 
 2,899,930 
 
 12-6 
 
 1545-1560 
 
 273,596 
 
 10,017,940 
 
 36-6 
 
 1561-1580 
 
 220,195 
 
 9,628,925 
 
 43-9 
 
 1581-1600 
 
 237,267 
 
 13,467,635 
 
 57-2 
 
 1601-1620 
 
 273,918 
 
 13,596,235 
 
 49-6 
 
 1621-1640 
 
 266,845 
 
 12,654,240 
 
 47-4 
 
 1641-1660 
 
 281,955 
 
 11,776,545 
 
 41-8 
 
 1661-1680 
 
 297,709 
 
 10,834,550 
 
 36-4 
 
 1681-1700 
 
 346,094 
 
 10,992,085 
 
 31-7 
 
 1701-1720 
 
 412,163 
 
 11,432,540 
 
 27-7 
 
 1721-1740 
 
 613,422 
 
 13,863,080 
 
 22-6 
 
 1741-1760 
 
 791,211 
 
 17,140,611 
 
 21-7 
 
 1761-1780 
 
 675,665 
 
 20,985,591 
 
 31-5 
 
 1781-1800 
 
 571,948 
 
 28,261,779 
 
 49-4 
 
 1801-1810 
 
 571,562 
 
 28,775,858 
 
 50-7 
 
 1811-1820 
 
 367,957 
 
 17,385,756 
 
 47-2 
 
 1821-1830 
 
 457,045 
 
 14,807,005 
 
 32-4 
 
 1831-1840 
 
 652,292 
 
 19,175,868 
 
 29-4 
 
 1841-1850 
 
 1,760,502 
 
 25,090,342 
 
 14-2 
 
 1851-1855 
 
 6,410,325 
 
 28,488,598 
 
 4-4 
 
 1856-1860 
 
 6,485,863 
 
 30,252,829 
 
 4-7 
 
 1861-1865 
 
 5,949,583 
 
 35,401,973 
 
 5-9 
 
 1866-1870 
 
 6,270,086 
 
 43,051,583 
 
 6-9 
 
 1871-1875 
 
 5,591,014 
 
 63,317,014 
 
 11-3 
 
 1876-1880 
 
 5,543,111 
 
 78,775,602 
 
 14-2 
 
 1881-1885 
 
 4,794,755 
 
 92,003,944 
 
 19-2 
 
 1 The whole of the figures, and also the proportions, are calcu- 
 lated from kilogrammes and murks as given in the " Appendix to 
 the Final Report of the Gold and Silver Commission," pp. 146-148.
 
 340 
 
 APPENDIX. 
 
 TABLE II. 
 
 THE WORLD'S PRODUCTION OF GOLD AND SILVER FROM 1873-1895. 
 
 [From Tables issued by the United States Mint.] 
 [Converted at 1 = $5.] 
 
 
 
 
 Proportion 
 
 Years. 
 
 Silver, fine. 
 
 Gold, fine. 
 
 of gold to 
 
 
 
 
 silver as 
 
 
 
 
 Ito 
 
 
 Ounces, troy. 
 
 Ounces, troy. 
 
 
 1873 
 
 63,267,000 
 
 4,654,000 
 
 13-6 
 
 1874 
 
 55,300,000 
 
 4,390,000 
 
 12-6 
 
 1875 
 
 62,262,000 
 
 4,717,000 
 
 13-2 
 
 1876 
 
 67,753,000 
 
 5,016,000 
 
 13-5 
 
 1877 
 
 62,680,000 
 
 5,512,000 
 
 11-4 
 
 1878 
 
 73,385,000 
 
 5,761,000 
 
 12-7 
 
 1879 
 
 74,383,000 
 
 5,262,000 
 
 14-2 
 
 1880 
 
 74,795,000 
 
 5,149,000 
 
 14-5 
 
 1881 
 
 79,021,000 
 
 4,984,000 
 
 15-9 
 
 1882 
 
 86,472,000 
 
 4,934,000 
 
 17-5 
 
 1883 
 
 89,175,000 
 
 4,615,000 
 
 19-4 
 
 1884 
 
 81,568,000 
 
 4,921,000 
 
 16-6 
 
 1885 
 
 91,610,000 
 
 5,246,000 
 
 17-5 
 
 1886 
 
 93,297,000 
 
 5,136,000 
 
 18-2 
 
 1887 
 
 96,124,000 
 
 5,117,000 
 
 18-8 
 
 188* 
 
 108,828,000 
 
 5,331,000 
 
 20-4 
 
 1889 
 
 120,214,000 
 
 5,974,000 
 
 20-2 
 
 1890 
 
 126,095,000 
 
 5,749,000 
 
 22-0 
 
 1891 
 
 137,171,000 
 
 6,320,000 
 
 21-2 
 
 1892 
 
 153,152,000 
 
 7,094,000 
 
 21-6 
 
 1893 
 
 165,473,000 
 
 7,618,000 
 
 21-7 
 
 1894 
 
 164,610,000 
 
 8,783,000 
 
 18-7 
 
 1895 
 
 169,180,000 
 
 9,689,000 
 
 17-5 
 
 Total 
 
 2,295,815,000 
 
 131,972,000 
 
 
 Yearly average 
 
 99,818,000 
 
 5,738,000 
 
 17-4
 
 APPENDIX. 
 
 341 
 
 TABLE III. 
 
 MB. SAUERBECK'S INDEX NUMBERS. 
 
 Years. 
 
 Index-number 
 of 45 principal 
 commodities. 
 
 Years. 
 
 Index-number 
 of 45 principal 
 commodities. 
 
 1867-1877 
 
 100 
 
 1885 ... 
 
 72 
 
 1874 
 
 102 
 
 1886 ... 
 
 69 
 
 1875 
 
 96 
 
 1887 ... 
 
 68 
 
 1876 
 
 95 
 
 1888 ... 
 
 70 
 
 1877 
 
 94 
 
 1889 ... 
 
 72 
 
 1878 
 
 87 
 
 1890 ... 
 
 72 
 
 1879 
 
 83 
 
 1891 ... 
 
 72 
 
 1880 
 
 88 
 
 1892 ... 
 
 68 
 
 1881 
 
 85 
 
 1893 ... 
 
 68 
 
 1882 
 
 84 
 
 1894 ... 
 
 63 
 
 1883 
 
 82 
 
 1895 ... 
 
 62 
 
 1884 
 
 76 
 
 1896 ... 
 
 61
 
 LONDON t 
 
 PRINTED BY WILLIAM CLOWES AND SONS, LIMITED, 
 STAMFORD STREET AND CHARING CROSS.
 
 THE LIBRARY 
 UNIVERSITY OF CALIFORNIA 
 
 Santa Barbara 
 
 THIS BOOK IS DUE ON THE LAST DATE 
 STAMPED BELOW. 
 
 Series 9482 

 
 A 000730912 
 
 '72