•v'Xvv; 
 
 W •" 
 
 /,';.".' *jV 
 
 W'V 
 
 :x 
 
 :c 
 
 ''^'■\'SS. 
 
 VA^ 
 
 M' . i"'i'''' 
 
 ;>!v 
 
 
 ;*:; 
 
 '^M'MMM§ 
 
 562, 
 C74 
 
 A 
 
 
 A 
 
 
 n 
 
 :=, 
 
 
 
 JD 
 
 1 
 
 
 
 
 1 
 
 
 2 
 
 > 
 
 2 
 
 
 5 
 
 
 / 
 
 
 U 
 
 '~ 
 
 3 

 
 LIBRARY ; 
 
 i 
 
 «'%W 
 
 1 
 
 i 
 
 ^
 
 -•>-'ii I LiunMnr 
 
 mmRSlTY OF CALIFORNIA. SAN DfEW 
 LA JOLLA. CALIFORNIA 
 
 THE FUTURE OF THE 
 LIMPING STANDARD 
 
 BY 
 
 CHARLES A. CONANT 
 
 Reprinted from Political Science Quarterly, Vol. XVIII, No. 2 
 
 BOSTON, U.S.A. 
 
 GINN & COMPANY, PUBLISHERS 
 
 SEfjc ^ti)EixsEiim '^um 
 
 1903
 
 THE FUTURE OF THE LIMPING STANDARD. 
 
 EVENTS are stronger than theories in shaping economic ten- 
 dencies. This has been illustrated in a striking manner 
 by the monetary history of the past generation. The limping 
 standard, forced by the logic of events upon France and the 
 other countries of the Latin Union and upon the United States, 
 while deplored by many in those countries as an evil, has con- 
 tributed to diminish among the civilized nations the pressure for 
 gold, and has permitted several important States to obtain, with- 
 out too much difficulty, the supply of the yellow metal necessary 
 to the inauguration of the gold standard. There are difficulties 
 about the operation of the limping standard in the countries 
 where it is now in force, growing out of circumstances which 
 will be hereafter discussed; but these difficulties can be avoided 
 where the creation of a coinage system can be undertaken in the 
 light of present facts, and the limping standard may be made 
 the effective means of restoring the par of exchange between the 
 countries of the East and West, so long broken by the fall in the 
 gold price of silver, and thereby of forging anew the link of com- 
 mercial relationship which is so vital to the prosperity of both 
 hemispheres. 
 
 The hmping standard is so called because silver hmps along 
 behind gold, without enjoying the privilege of free coinage ac- 
 corded to the standard metal, but nevertheless finding a large 
 use as money, and kept at par with the standard. From a 
 theoretical standpoint, the limping standard may be defined as 
 a monetary system requiring free coinage of the standard metal, 
 with the concurrent use of token coins of other metals, such coins 
 having full legal tender power, but kept at par with the standard 
 by Government control of their output. 
 
 The limping standard came about in the countries of the Latin 
 Union as a natural result of the wide departure of the relative 
 bulhon values of silver and gold from the official ratio fixed by the 
 coinage laws. These causes were considered by the law-making 
 powers of those countries as compelling action to prevent the loss 
 
 216
 
 No. 2.] THE LIMPING STANDARD. 217 
 
 of their gold and their descent to the silver basis. It was recog- 
 nized in all these countries that gold was the preferred money of 
 modern commerce by reason of its large value in small bulk, its 
 facility of transportation, and its availabihty for foreign trade 
 and bank reserves. But it was recognized from the beginning 
 that none of these countries could well afford to part with their 
 entire mass of silver at its bullion price, and that the attempt 
 to part with it at the price prevailing at any given date would 
 so load the market with silver bullion that it could be sold only 
 at a still greater loss, if it could be sold at all. Events, rather 
 than deliberate choice, forced upon the countries of the Latin 
 Union the continued use of their silver coins. This was not 
 entirely the case in the United States, where political reasons led 
 to deliberate legislation in favor of silver coinage, but even 
 this legislation, badly conceived and disastrous as it was, may be 
 attributed to the blind instinct which preferred some form of cur- 
 rency during the days of national poverty to the struggle with the 
 richer nations for the existing stock of gold. 
 
 If the annual gold production of the world had continued 
 nearly stationary in the face of a growing demand, as was the 
 case from 1873 to 1888, and the countries of the Latin Union and 
 the United States had deliberately sought to reduce their silver 
 coinage to the proportions of subsidiary money of limited tender, 
 as in the monetary systems of Great Britain and Germany, then 
 indeed, with the constantly expanding "demand for gold in the 
 arts, "the scramble for gold" which has been the nightmare of 
 bimetaUic dreams might have become a reality. Such an influ- 
 ence was probably more felt about the time of the international 
 conference of 1881 than even at a later date, although the anx- 
 iety then expressed on the subject of the scarcity of gold was as 
 exaggerated as the fears felt in 1850 over the abnormal increase 
 of gold. It was at the conference of 1881 that the German dele- 
 gates came forward with the suggestion that Germany would 
 check her sales of old silver bullion, withdraw small gold pieces, 
 and notes of small denominations, and break up her large silver 
 coins into smaller pieces.^ It was of especial significance that such 
 
 ^ International Monetary Conference of 1881, pp. 20-30.
 
 2i8 POLITICAL SCIENCE QUARTERLY. [\^0L. XVIII. 
 
 proposals should come from Germany, because that Government 
 had refused to send delegates to the international conference of 
 three years before. It was at the Conference of 1881 also that 
 Mr. Broch, the delegate of Norway, arguing strongly in favor of 
 the gold standard among the civilized countries of the West, 
 declared that the true field for silver was to be found. 
 
 Not by arbitrarily raising 'the value of this metal in Europe and 
 America, but by encouraging its use in the countries of the Orient 
 which still have a pref erance for it ; in that vast Chinese Empire scarcely 
 yet opened to Europe, in that immense African continent, which is to- 
 day invaded from all sides, and where trade is still carried on under 
 the primitive form of barter, but where it would no doubt be easy to 
 introduce the use of silver money .-^ 
 
 These expressions of Mr. Broch anticipated to some extent the 
 actual course of events. The influence of the status quo always 
 imposes itself with compelhng force upon statesmen, however it 
 may be disregarded by theorists. In the case of the countries of 
 the Latin Union and the United States, it was not possible, with- 
 out great loss to the budget and an economic upheaval, to sub- 
 stitute gold currency for the silver in use. It was possible to 
 rescue the gold standard from disaster by taking under Govern- 
 ment control the output of silver coins, and thereby removing the 
 premium offered to the owners of silver bullion to deluge the 
 country with their product at the expense of its monetary system. 
 France elected, or rather was compelled by the force of circum- 
 stances, to keep in use her two thousand millions of francs of 
 silver rather than to replace it by gold. The United States, real- 
 izing perhaps intuitively the difficulty of withdrawing gold from 
 nations which were then stronger than herself in the competition 
 for surplus capital, pumped silver into her currency until the 
 danger point was reached and passed, and even reasonable 
 bimetallists were compelled to admit that the continuation of 
 silver purchases, instead of promoting bimetallism, would cast 
 the country upon the reef of silver monometallism. 
 
 The most attractive feature of the bimetallic doctrine is the 
 theory of compensation, by which the fluctuations in the supply 
 
 ^ International Conference of 1881, p. 45.
 
 No. 2.] THE LIMPING STANDARD. 219 
 
 and the value of one metal are supposed to be compensated by 
 the fluctuations in the opposite direction of the other metal. This 
 theory, in the words of Professor Foxwell, rests 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, he declares, 
 
 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 were no reasonable presumption beforehand 
 that both sources of supply would follow exactly the same variations,^ 
 
 Unfortunately, even if this theory were well founded, it cannot 
 be worked out in practice without imposing upon one nation or 
 another the function of a sink for the cheaper metal. France 
 would undoubtedly have acted as a parachute for the fall of silver 
 if she had continued after 1873 to keep her mints open to the 
 free coinage of the white metal, but in doing so she would have 
 witnessed the flight of all her gold to those countries which pre- 
 ferred the gold end of the compensation to the silver end. Be- 
 tween France and any group of other nations, the law of compen- 
 sation would have kept the aggregate supply of money at nearer 
 its old value than if France and all other nations had adopted 
 gold and disposed of their silver, but the nations which excluded 
 silver from their monetary system would have received the bulk of 
 the gold, and France would have been burdened with practically 
 all the silver. 
 
 An interesting suggestion for obtaining the benefits of the law 
 of compensation, without the evils of concurrent free coinage for 
 two metals of fluctuating value, was made some years ago by 
 Professor Leon Walras in a little pamphlet entitled Theorie de la 
 Monnaie. He frankly rejected the contention of the bimetallic 
 school that it was possible by law to give absolute fixity of re- 
 lation to two different commodities. He proposed that whichever 
 happened for the moment to be the cheaper metal should be 
 
 ^ Professor H. S. Foxwell's Evidence before the Royal Commission on Agri- 
 culture of 1894, Q. 23, 838.
 
 220 POLITICAL SCIENCE QUARTERLY. [Vol. XVIII. 
 
 treated as a token coin, — that its free coinage on private account 
 should be suspended, and that its output should be regulated by 
 the Government. Admitting the necessity for the adoption, under 
 present conditions, of a new ratio between gold and silver, he 
 maintained that silver should be coined by the Government when- 
 ever there developed a scarcity of money as indicated by a low 
 mean of prices, but that such coinage should cease before the se- 
 curity of the standard was threatened by the excessive exporta- 
 tion of the standard metal. Carried thus far, his project was not 
 beyond the pale of the world of reahties. He proposed, however, 
 in making the project of universal appHcation without regard to 
 time or space, that if gold should again fall below silver at the 
 coinage ratio, then the mints should be closed to the free coinage 
 of gold, and its output should in turn be regulated by the Gov- 
 ernment. An international agreement he conceded to be neces- 
 sary to carry out this system without inviting the evils which 
 would follow an excessive coinage of the undervalued metal by 
 any one nation. He declared that otherwise, 
 
 if the Latin Union alone resumed the coinage of crown pieces, the first 
 effect of this resumption would be to make all its gold drift abroad, 
 and to leave it deprived of its standard money.^ 
 
 Professor Walras pointed out that if these evils were restricted 
 by an international agreement, it would be necessary also that the 
 principal monetary powers should regulate their issues of Govern- 
 ment paper and of legal tender bank notes in the same way as 
 their output of token coins, or the control of the variations of the 
 value of money would prove illusory. In this theory, so thought- 
 fully worked out by Professor Walras, lies probably the intelligent 
 diagnosis of the end towards which the leading countries with 
 the limping standard have, under the pressure of events, been 
 blindly groping. Each of those countries has contributed towards 
 diminishing the pressure upon gold, and towards the prevention 
 of undue changes in the relations of the stock of money to com- 
 modities, by keeping in circulation token coins of full legal 
 tender power up to the limit of the amount demanded by the 
 needs of trade. 
 
 ^ Theorie de la Monnaie, p. 80.
 
 No. 2.] THE LIMPING STANDARD. 221 
 
 It is hardly necessary to combat the extreme form of the bi- 
 metallic theory, which came to the front in the United States in 
 the silver campaign of 1896, that prices are regulated by nothing 
 but the volume of the standard money, and that in meeting the 
 pressure for currency all substitutes and economies count for 
 nothing. Common sense indicates that if the quantitative theory 
 of money has any force, prices must be higher if a community 
 has a currency stock of $1,000,000 in gold, silver, and paper than 
 if it has only one-quarter as much, even though the latter be en- 
 tirely in gold. Intricate as is the problem of the relation of 
 money to prices, there can be no such contention intelligently 
 maintained as that all economies in the use of standard money 
 have no influence in accomplishing the ends for which they have 
 been devised, in diminishing the demand for money and increas- 
 ing its efficiency. 
 
 On its practical side the plan of Professor Walras has been un- 
 consciously followed by the countries of the Latin Union and the 
 United States. They have encountered difficulties, however, 
 which justify a careful examination before the limping standard 
 can be recommended for adoption in any new coinage project. 
 These difficulties may be grouped thus: 
 
 1. The great difference between the bullion value and the face 
 value of the token coins. 
 
 2. The lack of adaptabihty of the token coins to trade require- 
 ments in the advanced countries. 
 
 3. The excess in supply of the token coins, or at least the lack 
 of automatic responsiveness in their amount to the needs of trade. 
 
 I. The difference between the bullion value and the face value 
 of the coins of the Latin Union and the United States is an al- 
 most insuperable obstacle to the substitution of a pure gold cur- 
 rency for these coins, and exposes them to great danger of coun- 
 terfeiting. The coins are now worth only about forty-five per cent 
 of the value for which they pass in retail trade, and may be 
 legally tendered in payment of contracts expressed in money. No 
 loss to the creditor accompanies these conditions, but a heavy 
 burden is imposed upon the credit of the state in keeping the 
 coins at their face value. It was estimated in 1898 that France, 
 if she had attempted to convert her silver coins into pieces corre-
 
 222 POLITICAL SCIENCE QUARTERLY. [Vol. XVIII. 
 
 spending to the market price of silver bullion, at the ratio of 35 to 
 I, would be subjected to an expense of about $235,000,000.^ Such 
 an expense has inevitably deterred her from withdrawing her old 
 five-franc pieces and selling them for gold. The profit in counter- 
 feiting such pieces is more than one hundred per cent, even when 
 the counterfeits contain the full amount of fine silver contained 
 in the oflicial coins. Many such counterfeits have been found in 
 the United States, some of them containing a fraction more of fine 
 silver than the amount required by law, and their wide distribu- 
 tion has been prevented chiefly by the fact that the official coins 
 do not circulate widely, and any suspicious appearance of new 
 pieces in circulation in a given neighborhood would quickly at- 
 tract the attention of the agents of the Secret Service. 
 
 In a country inaugurating a Hmping standard system under 
 present conditions, no such wide departure of the bullion value of 
 the silver coins from their face value need be permitted as has 
 come about in France and the United States. When Japan 
 adopted the gold standard in 1897, the ratio between gold and 
 silver was fixed near the market ratio of the two metals.' This 
 took away any unusual temptation for counterfeiting, and per- 
 mitted the resumption of gold payments without disturbing the 
 relation of prices and -contracts existing at the time. A similar 
 policy was that recommended by the House Committee on In- 
 sular Affairs in the Fifty-seventh Congress, for adoption in the 
 Philippine Islands. Mr. Cooper, the Chairman of that Commit- 
 tee, said regarding the proposed coinage plan : ^ 
 
 The proposed coin would be of substantially the same size as the 
 coins now in use in the Philippines. It is made somewhat lighter than 
 the Mexican silver dollar, in order to prevent its rising above fifty 
 cents in gold in case of a considerable rise in the gold value of silver 
 bullion. Containing as it does 385.8 grains of silver of the fineness 
 
 ^ Darwin, Bimetallism, p. 51. 
 
 ^ The report on the bill declared that "it would be well to raise the rate for 
 our purpose a little, and fix it at one of gold to thirty-two and a fraction of silver"; 
 but the actual silver coins were made only eight-tenths fine, in order to prevent 
 their exportation in case of a rise in silver. — The Adoption of the Gold Stand- 
 ard in Japan, p. 187. 
 
 ' Administration of Civil Affairs in the Philippine Islands, House Report 1540, 
 57th Congress, ist session, p. 7.
 
 No. 2.] THE LIMPING STANDARD. 223 
 
 of 0.835, it is issued at a ratio to gold of about 27I to i, instead of 
 being issued at the rate of 16 to i, which is the rate of the coinage of 
 the standard silver dollar of the United States. The new coin is the- 
 oretically issued at the ratio of 32 to i, or at half the value given to 
 silver in relation to gold by the American coinage law; but it was not 
 thought desirable to coin it exactly at this ratio, because of the possi- 
 bility that a marked rise might occur in future in the price of silver 
 bulHon. If such a rise should carry silver to its bullion value in gold, 
 the coins would be more valuable as bullion than as coin, they would 
 be withdrawn from circulation, and the islands would be subjected to 
 all the evils of a famine in their currency supply. Ample provision 
 is made against such a rise in the price of silver by the margin of about 
 20 per cent between the exchange value of the coin at the ratio of 32 
 to I and the amount of pure silver which the coin would contain. 
 
 It is unquestionable that if the limping standard is to be made 
 applicable to the conditions encountered in the Orient, it must be 
 by the recognition of a new ratio between gold and silver corre- 
 sponding in some degree to the recent market ratio. The coun- 
 tries of the Latin Union and the United States, burdened with 
 many millions of silver, coined at the old ratio of 15^ to i and 
 16 to I, have to deal with a condition whose difficulties they must 
 meet in the best practicable manner; but the limping standard, in 
 its theoretical application, must take some account of the market 
 value of silver, although it furnishes means of guarding against 
 the fluctuations of this value. 
 
 II. The lack of adaptability of large silver coins to the require- 
 ments of trade in the advanced countries has become very clear 
 as wages have risen and wealth has increased. Such a progres- 
 sive development causes a natural evolution from a cheaper to a 
 dearer money metal. Silver was once much more valuable in its 
 relation to gold, to commodities, and to labor, than it is at the 
 present time, even at the legal ratios of 15I to i and 16 to i. 
 When the power of money over commodities was five or six times 
 what it is at present, silver was much more suited to the purposes 
 of money than under modern conditions. As the Vicomte D'Ave- 
 nel declares : ^ 
 
 ^ La Fortune Priv^ a travers Sept Siecles, p. 64.
 
 224 POLITICAL SCIENCE QUARTERLY. [\'oL. XVIII. 
 
 The diminution of the purchasing power of the precious metals has 
 rendered silver inconvenient and unsuited to a multitude of uses which 
 it formerly served. The same object which could be obtained in the 
 year 1400 or in 1500 for one thousand grammes of silver would 
 demand to-day five thousand or six thousand grammes. A kilogram 
 could be carried in the pocket, and five or six kilograms in one's va- 
 lise; but one objects to five or six kilograms in the pocket, and twenty- 
 five or thirty in the valise. 
 
 The situation differs, however, in the undeveloped countries of 
 the Orient from that in the wealthy countries of the West. A 
 currency which contains a large proportion of gold coins is better 
 adapted than a currency of silver to the needs of a wealthy coun- 
 try; but a currency which contains a large proportion of silver 
 coins is best adapted to the needs of a poor country. This is 
 because the standard of wages and prices is higher in the rich 
 country than in the poorer. In British India, China, and the 
 Philippines, where the wages of skilled labor are forty cents a 
 day in silver, or twenty cents in gold, a pure gold currency would 
 leave the average laborer in about as convenient a position in 
 making his retail purchases as Mark Twain found himself in 
 with his million-pound note. 
 
 The smallest practical gold coin represents in the Orient the 
 value of one dollar, or the pay of five days' labor. It is obvious 
 that convenience as well as necessity would lead countries under 
 'such conditions to a large use of silver currency in preference to 
 the attempt to retain and use a pure gold currency. To neglect 
 of this element in the monetary problem are probably due some of 
 the embarrassments which have been felt in Japan since the intro- 
 duction of the gold standard; and it may be questioned whether 
 Russia has not vaulted too far, in view of her present standard 
 of wages and national wealth, in adopting the pure gold currency 
 of her richer rivals, Great Britain and Germany.^ 
 
 ^ The Russian delegate at the International Conference of 1881, fifteen years 
 before the adoption of the gold standard in Russia, called attention to the fact 
 that half of what Russia, Austria-Hungary, and Italy would require for the re- 
 sumption of specie payments would be found if the gold pieces equivalent to ten 
 francs ($2.00) and below were transformed into silver pieces. — Russell, Inter- 
 national Monetary Conferences, p. 287
 
 No. 2.] THE LIMPING STANDARD, 225 
 
 III. That France and the United States have suffered materi- 
 ally from their excessive stock of overvalued silver coins, hardly 
 admits of serious dispute. In the United States a serious panic 
 was invoked in 1893 by the large infusion of silver into the cur- 
 rency beyond any natural demand. The excess of silver tended 
 to expel gold and to destroy the gold basis of the currency system. 
 The difficulty was due, however, to the fact that the Secretary of 
 the Treasury was required by law to purchase silver bulhon to 
 the value of $4,500,000 per month, and issue circulating notes for 
 this silver without regard to the need for currency in the markets. 
 The moment that the supply of silver or silver notes passed the 
 limits of the normal demand, a progressive deterioration of the 
 currency set in. Assuming that the requirement for currency 
 was a constant quantity, every dollar of new silver added to the 
 circulation tended to expel a dollar of gold. This obviously need 
 not occur under a proper regulation of the output of token coins 
 by the Government. 
 
 The essential evil of the token coinages of France and the 
 United States, which has naturally cast discredit upon their mon- 
 etary systems, is that their token coins have been issued far 
 beyond the demand for them in the channels of trade, and, there- 
 fore, far beyond the limit of safety. Both countries have outgrown 
 the prejudice in favor of specie over well-secured paper. Proof of 
 this has been afforded in France by the steady accumulation of 
 silver in the vaults of the Bank of France. From 1869, when the 
 maximum silver holdings of the Bank were 593,300,000 francs 
 ($115,000,000), the silver rose in 1880 to a maximum of 1,282,- 
 500,000 francs ($248,000,000), and has ever since oscillated around 
 this figure. There has been no substantial increase in the de- 
 mand for the white metal for circulation, in spite of the share 
 which has fallen to France of the great increase in the world's 
 volume of trade since 1880. As M. Noel declares: ^ 
 
 In virtue of the economic law which tends to simplify methods of 
 payment, silver was at first less sought and then neglected by the pub- 
 
 ^ Les Banques d'fimission en Europe, I., p. 183. — The maximum silver 
 
 holdings of the Bank of France in the year 1901 Were 1,124,400,000 francs (S217,- 
 
 000,000), and the average was 1,105,900,000 francs. — Bulletin de Statistique 
 (February, 1902), LI., p. 212.
 
 226 POLITICAL SCIENCE QUARTERLY. [Vol. XVIII. 
 
 lie, until it naturally drifted to the private banks and from them to 
 the Bank of France, which serves them as a reservoir. Of the two 
 thousand five hundred millions of silver which France possesses, nearly 
 half is immobihzed in a permanent manner in the reserves of the Bank, 
 from which it never comes out unless to immediately return. 
 
 In the United States the proof that the era of silver has gone 
 by is afforded by the failure of repeated efforts to increase the 
 amount in circulation and the ready acceptance of paper certifi- 
 cates for the coined pieces. The circulation of standard silver 
 dollars was $67,547,023 at the close of December, 1891, and the 
 highest point attained during the succeeding ten years was only 
 $73,113,520 on October 31, 1901. The circulation of silver cer- 
 tificates, on the other hand, rose from $320,817,568 on December 
 31, 1891, to $457,154,585 on March i, 1903. Discredit is inevi- 
 tably cast upon the silver coins of these countries because they 
 are not exchangeable for the standard metal and they were issued 
 at an antiquated ratio, which makes their bullion value much 
 more disproportionate to their face value than ought to be the 
 case. Each of these countries, burdened with a mass of silver 
 issued at the ratio of 15 J to i or 16 to i, is compelled to deal 
 with conditions as they are, and to maintain its token coins at 
 parity by such measures as suggest themselves without imposing 
 too heavy a burden upon the public Treasury. A government 
 inaugurating a token coinage for the first time would properly 
 choose a very different ratio between gold and silver, and would 
 take measures to check the output of token coins whenever the 
 quantity threatened to flood the channels of the Treasury receipts, 
 or to impair their fixed relation to the standard. 
 
 The advantages of the limping standard, under intelligent di- 
 rection, may be thus summed up: 
 
 1. Diminution of the pressure upon the world's supply of gold. 
 
 2. The maintenance of the par of exchange between Oriental 
 and Western countries. 
 
 3. Adaptability to poor or undeveloped countries. 
 
 4. The opening of markets for silver, with the result of steady- 
 ing its value. 
 
 I. The limping standard has become since 1873 the standard 
 of several of the leading commercial nations of the world. These
 
 No. 2.] THE LIMPING STANDARD. 227 
 
 nations are France, Belgium, Switzerland, and the United States. 
 The principal countries which adhere positively to the gold stand- 
 ard, with the use of silver only as a hmited legal tender, are Great 
 Britain, Germany, and Russia. These seven nations represent a 
 very large proportion of the wealth and commerce of the civilized 
 world, and the influence of their policies upon the stock of money 
 metals is necessarily great. Of the total gold money of the world, 
 they hold almost precisely four-fifths, and even of the silver 
 money they hold nearly sixty per cent, outside the great stocks of 
 China and India. The part which is played by gold and silver 
 in the monetary systems of these seven leading nations may be 
 inferred from the following estimate from official sources of their 
 stock of metallic currency on January i, 1901: 
 
 Limping Standard: Gold com. Silver coin. 
 
 France $ 810,600,000 $ 421,200,000 
 
 Belgium 17,800,000 35,000,000 
 
 Switzerland 24,000,000 10,700,000 
 
 United States 1,110,800,000 655,800,000 
 
 $1,963,200,000 $1,122,700,000 
 
 Gold Standard: 
 
 Great Britain $ 511,000,000 $ 116,800,000 
 
 Germany 721,100,000 208,400,000 
 
 Russia 724,300,000 102,500,000 
 
 $1,956,400,000 $ 427,700,000 
 
 These figures show that while the countries with a pure gold 
 standard are compelled to make considerable use of silver, their 
 silver stock is less than twenty-two per cent of their gold stock, 
 while in countries where the limping standard prevails the silver 
 coinage is more than fifty-seven per cent of the standard coins of 
 gold. If the continued use of both metals, therefore, has con- 
 tributed to steadying prices by maintaining that law of com- 
 pensation in the relative supply of the two metals, upon which 
 bimetallists so much rely, it may be fairly contended that the 
 maintenance of the limping standard in these four representative 
 countries has obviated the need for nearly $700,000,000 in gold 
 coin, and thereby diminished by that amount "the scramble for
 
 228 POLITICAL SCIENCE QUARTERLY. [Vol. XVIII. 
 
 gold" which bimetalHsts consider to be so serious a result of the 
 general adoption of the single gold standard. 
 
 II. The interruption of the old par of exchange between the 
 gold standard countries of the West and the silver using countries 
 of the Orient has been one of the most disturbing features of the 
 fall in the value of silver. The evils which it has caused were 
 forcibly set forth by General Walker in his discussion of the sub- 
 ject in 1896: ^ 
 
 Such fluctuations in the relative values of the two money metals 
 continually involve international trade in embarrassment and disturb- 
 ances of a most serious character, and often reduce it to mere gam- 
 bling. Without some tie which can hold the two metals at least near 
 to each other, during the time between the manufacture and sale of 
 commodities and the receipt of the proceeds, the producer in a gold 
 country can never tell for how much silver he must sell his goods in 
 order to make himself whole and perhaps win a profit. The range 
 of possible losses or possible gains from this source is such as to be 
 altogether out of proportion to the range of the ordinary chances of 
 industrial and commercial enterprise. 
 
 It is correctly declared by Major Darwin that 
 
 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. ^ 
 
 The insurance proposed by the bimetallists against these fluctua- 
 tions has been that all nations — whether rich or poor, whether 
 their unit of pay for a day's labor was two dollars or twenty cents 
 — should be chained upon the Procrustean bed of free coinage 
 for both metals. A better insurance is offered by the system of 
 the hmping standard. The logic which makes silver the most 
 useful form of currency in undeveloped countries points out the 
 natural course to be pursued by those countries in the future in 
 adapting their monetary systems to modern conditions. It is pos- 
 sible for all these countries to adopt the gold standard, while re- 
 taining silver in daily use. They thus obtain one of the essential 
 advantages claimed for bimetallism by abolishing the fluctuations 
 
 ^ International Bimetallism, p. 139 " Bimetallism, p. 132.
 
 No. 2.] THE LIMPING STANDARD. 229- 
 
 of exchange between gold and silver countries caused by the de- 
 pression of silver, without drawing heavily upon the world's stock 
 of gold. 
 
 Unconsciously this theory has been worked out in British India, 
 where use is found for nearly $500,000,000 in full legal tender 
 silver, but where all this silver is maintained at a fixed ratio to 
 gold. The British Government by the Act of 1899 established a 
 gold fund in India and at London, for the purpose of maintain- 
 ing the parity of the standard silver coin with gold. This coin, 
 known as the rupee, contained silver worth originally a little less 
 than fifty cents in American money, but it fell gradually to nearly 
 the level of silver bullion until 1893. In that year, as the result 
 of the report of the Indian Currency Commission, the free coin- 
 age of rupees was suspended, and the attempt was made to fix 
 their value at sixteen pence, or about thirty-two cents in American 
 money. At first the experiment was difficult. There was a sur- 
 feit of rupees, and they poured out in great quantities from hoards 
 when it was found that their legal value had been raised above 
 their bullion value. The Government, however, persevered in 
 selling exchange on India at London as near the new ratio as 
 could be obtained, and in receiving the rupees at that ratio for 
 public dues. Under ordinary conditions these measures would 
 almost of themselves have maintained a limited silver coinage at 
 par with the standard. While this result was delayed in India, 
 it was so completely achieved by 1899 that in that year the Indian 
 Government felt strong enough to establish a gold reserve and 
 offer to deliver silver rupees for gold. The offer was not made 
 at first to pay gold for rupees, but it was soon found that the 
 limitation of the coinage had created a demand for rupees which 
 drew gold into the Treasury instead of drawing it out. Com- 
 menting upon these conditions, the Secretary to the Government 
 of India said in his financial statement for 1900-01 : 
 
 We have frequently been told, and with perfect justice, that we 
 could never claim to have a true gold standard in India until we were 
 prepared to exchange gold for rupees as well as rupees for gold. By 
 being prepared to exchange, I do not mean that we should accept a 
 legal liability to give gold for rupees, but that in practice, as for ex- 
 ample in France, anybody who wanted gold for internal purposes
 
 230 POLITICAL SCIENCE QUARTERLY. [Vol. XVIII. 
 
 should be able to obtain gold freely without let or hindrance. The- 
 orists, indeed, argue that neither France nor the United States possess 
 a gold standard in the full and complete sense of the words. But I 
 think no one will dispute that if we can advance to the same position 
 as France we shall have attained a gold standard for all practical pur- 
 poses. A year ago it seemed that we should probably have to sit for 
 a long while under the reproach of our critics, and put up with what 
 has been termed an "exchange standard." It then appeared impos- 
 sible that in twelve months we should be paying out gold to any- 
 body who asked for it. We are doing so now. Whether we shall be 
 able to continue to do so without check or interruption, whether now 
 that we have once started giving gold for rupees we may not have to 
 suspend temporarily, is not a matter about which confident prediction 
 can be made. But it would be reasonable to say that the auguries 
 are not unfavorable for our being able to pursue the path on which 
 we have entered. Our position in respect of gold is strong. In India 
 and London we have accumulated nearly ;^8, 600,000. 
 
 In Japan the same system of a silver coinage on a gold basis 
 prevails to some extent. It is perhaps a weakness rather than a 
 strength of the Japanese system under existing conditions, that 
 the silver coins are not full legal tender, and that a determined 
 effort has been made to introduce gold coins into common use. 
 The coinage of the silver yen, of about the size of the American 
 standard dollar, was discontinued wdth the adoption of the gold 
 standard, and the largest silver piece now issued is for a half yen, 
 or fifty sen. While the Japanese system constitutes the logical 
 application of the gold standard, it represents even more than the 
 gold standard of Russia a somewhat adventurous vault by Japan 
 into the circle of the wealthiest and most advanced commercial 
 nations. The gold standard has been successfully maintained in 
 Japan, in spite of some obstructions growing out of over-specula- 
 tion; but it may be questioned whether she would not have pur- 
 sued the truest economy by following the system of British India, 
 in introducing a gold standard instead of the actual use of gold. 
 
 III. For undeveloped countries the use of silver in large amounts 
 is a vital necessity, and it usually comes into use, even in the face 
 of hostile laws. Silver is the usual medium of exchange in Java, 
 where a gold standard exists with hardly any gold in use, and it
 
 No. 2.] THE LIMPING STANDARD. 231 
 
 is the universal medium in China and other parts of the Orient, 
 even though the coins have to be sought in a foreign and distant 
 country. 
 
 The advantage of a token coinage for comparatively poor or 
 undeveloped countries is the same as the advantage of paper 
 credit : — it permits an economy of capital. The token coins are 
 less expensive than coins of the standard metal, both by the mar- 
 gin between their face value and their bullion value, and by the 
 fact that they are made from the metal for which competition is 
 less severe. A country employing a large volume of token cur- 
 rency is not in danger of losing such a currency by exportation. 
 The coins cannot be melted up for their face value. While they 
 may have the character of gold exchange on the country where 
 they are issued, they can only be converted into gold by sending 
 them back to that country in the form of coin when they drift 
 abroad. 
 
 The maintenance of a token currency, instead of one entirely 
 coined from the standard metal, is an interference to a Hmited 
 extent with the automatic play of the self-interest of individuals 
 which prevails under free coinage, but all coinage systems are the 
 result of official action taken to promote the convenience of the 
 community. Constant intervention by the government is a part 
 of the existence of any system, even where free and gratuitous 
 coinage on private account is authorized by law. The advantage 
 of a token currency maintained constantly at par with the stand- 
 ard metal is that the government takes upon itself the responsibil- 
 ity for maintaining the par value of the token coins by means of 
 a gold reserve, and takes the necessary steps by the issue of a 
 loan or by taxation to maintain this reserve. The government 
 interferes with the law of natural selection which would lead the 
 individual to dispense with currency in order to obtain some more 
 necessary form of capital, but in doing so brings a real advantage 
 to the community by maintaining an adequate medium of ex- 
 change where it would not be obtained under a system of free 
 coinage of the standard metal without token coins. In this, as 
 in many other matters, the Government may properly intervene 
 to obtain a benefit of great importance to the community as a 
 whole, but of a character which would not result from the free
 
 232 POLITICAL SCIENCE QUARTERLY. [Vol. XVIII. 
 
 play of self-interest among individuals, and could not result from 
 it except by concerted action. 
 
 It is a principle now generally admitted, that in order to pre- 
 vent exportation the subsidiary coins of any country should not 
 be of their full face value. The extension of this rule to token 
 coins of full legal tender power is preferable to going without an 
 adequate currency, if the parity of such coins with the standard 
 can be made unquestionable. In spite of the somewhat artifi- 
 cial nature of such a project, a proper system of token coinage, 
 with adequate provision for supplying gold for export, would 
 operate in substantially the same manner as a coinage consisting 
 entirely of the standard metal. When an excess of the token 
 currency was in circulation, it would come to the Treasury offices 
 for redemption in gold, thereby reducing the amount of token 
 pieces in circulation, and permitting the surplus withdrawn from 
 the Treasury to be exported in the metal of international trade. 
 When, on the other hand, a deficiency of token currency was 
 disclosed by the demand for it, the deficiency would be corrected 
 by the importation of the standard metal and its presentation for 
 exchange into the token coins. This is the principle which has 
 been adopted with such success in India, and which would prob- 
 ably be found efficient in all the countries of the Orient. 
 
 It cannot be properly said that such a well-organized system 
 of token coinage involves any other departure from security or 
 sound monetary principles than is involved in other extensions of 
 credit designed to economize the use of the standard metal. The 
 principle is the same as with the issue of bank notes upon a coin 
 reserve, and involves the application of the same banking prin- 
 ciples in the regulation of the quantity of the currency and in 
 keeping intact the reserve necessary to maintain the credit issues 
 at an equality with the standard. Undoubtedly, from a theoret- 
 ical point of view, a token issue of credit paper secured by a 
 proper gold reserve has most of the advantages of a token coin- 
 age of silver, and has also a much greater economy. So far as 
 paper is adapted to economic conditions and popular prejudices, 
 it should be introduced in preference to token coins, especially 
 for currency of the larger denominations. The poverty of Japan 
 and her inability to maintain gold in actual circulation have re-
 
 No. 2.] THE LIMPING STANDARD. 233 
 
 suited in the wide use of paper, even down to the denomination 
 of one yen (49.8 cents). 
 
 The practical problem, however, with which statesmen have to 
 deal, is the prejudice of the peoples of the East, and many of 
 those of the West, for a currency of ringing metal rather than one 
 of paper. The recognition of money as a commodity is instinc- 
 tive among primitive peoples, and leads them to prefer a form of 
 money which possesses tangible value in itself, and permits a more 
 satisfying form of ostentation than the display of a roll of bank 
 bills. The adoption of a token coinage, possessing an exchange 
 value approximating its bullion value, promises to be the most 
 important step which can be taken in our time in educating the 
 undeveloped peoples to the true function of money and credit, 
 and the final evolution of a bank note currency resting upon an 
 adequate gold reserve. MetaUic tokens cannot be entirely dis- 
 pensed with, even among the advanced nations. There are rea- 
 sons connected with the standard of wages and living, and the 
 risks of destruction by weather and insects, which make them 
 naturally preferable to paper in certain tropical and undeveloped 
 countries. Where the bulhon value of the coins, moreover, is 
 only slightly below their face value, a token coinage gives more 
 solidity to the currency system, and is less likely to result in de- 
 mands for the standard metal, than the premature adoption of 
 the highly organized gold-credit currency systems of the nations 
 of the West. 
 
 IV. Injurious as the limping standard has proved in some re- 
 spects to the monetary interests of the countries of the Latin 
 Union and the United States, the logic of events has perhaps, as 
 already suggested, been wiser than abstract theory. If the single 
 gold standard had been adopted in all countries in the form in 
 which it prevails in Great Britain, without regard to their scale 
 of wages and prices or their surplus capital available for invest- 
 ment in the tool of exchange, there would undoubtedly have been 
 a much more severe pressure upon the world's supply of gold 
 than has actually been felt. This pressure would probably have 
 drawn the metallic medium of exchange to the richer countries 
 from the poorer, and left the latter impoverished in their means 
 of carrying on transactions.
 
 234 POLITICAL SCIENCE QUARTERLY. [Vol. XVIII. 
 
 It would have caused a still further fall in the value of silver 
 by diminishing the demand for it. But a large market would be 
 opened for the white metal if the limping standard should be 
 adopted upon a scientific basis in the countries which are now 
 without a currency, or are laboring under the difficulties in their 
 relations with gold countries caused by the single silver standard. 
 Such a system would be an almost unlimited blessing to these 
 less advanced countries for many years to come, and would make 
 their transition to a gold currency almost absolutely automatic if 
 the scale of wages and living increased the demand for gold and 
 checked the demand for silver. The operation of a proper 
 Treasury redemption system would disclose from time to time 
 the demand for either metal, and the coinage of silver could be 
 enlarged or suspended as the demand for it rose or fell. If silver 
 gradually fell into disuse by a rise in the scale of wages and na- 
 tional wealth, the suspension of coinage could be continued in- 
 definitely, as at present in the countries of the Latin Union, and 
 all increments to the metallic circulation would be made there- 
 after in gold. 
 
 Perhaps the most interesting deduction to be drawn from what 
 has preceded relates to the provision to be made for their future 
 monetary systems by Mexico and China. Mexico lingers almost 
 alone under the domain of the silver standard, and her merchants, 
 as a result, suffer from all the fluctuations in exchange and the 
 timidity in the entry of foreign capital which have marked the re- 
 cent history of other countries which have hesitated to adopt the 
 gold standard. By means of the hmping standard it is possible 
 for Mexico and China to adopt a gold basis for their currency 
 without imposing any serious pressure upon the world's supply of 
 gold, or subjecting themselves to a heavy loss in marketing their 
 silver. In the case of Mexico, it would only be necessary to adopt 
 a new gold coin representing about the present gold value of the 
 Mexican silver peso, and to substitute for the peso a new silver 
 coin of about the same weight as the old. Mexico is in an un- 
 usual position in respect to her silver pesos, in that they consti- 
 tute the circulation of China, the Straits, and other parts of the 
 Orient. She could not afford to give a fixed parity to her old 
 coins, because if this parity were even a fraction above the gold
 
 No. 2.] THE LIMPING STANDARD. 235 
 
 value of the coins she would have to deal not only with her own 
 circulation, but with that of the entire East. If she offered to ex- 
 change gold for silver, or even to receive the old coins at a high 
 gold parity for pubhc dues, she would invite a deluge of silver 
 in exchange for gold with which even the strongest nation could 
 hardly cope. By substituting a new coin for the peso, however, 
 and making only the new coin receivable for pubhc dues, and 
 redeemable in gold at the new official ratio, she would avoid the 
 disturbance to wages and prices which would follow the adoption 
 of a new unit, or the attempt to raise her existing coins to a gold 
 footing. 
 
 In China the possibility of establishing the gold standard would 
 possess the fascination of one of the most interesting experiments 
 ever tried in economic history, worked out upon a field larger 
 than that presented by any other country of the world. It prob- 
 ably would not be advisable for China to undertake for many 
 years to offer gold for silver on demand, but if a distinctive na- 
 tional coinage of silver were established, it could be maintained 
 substantially at a gold par. Great quantities of this silver would 
 undoubtedly be absorbed in the interior trade of the country, 
 especially as it developed under the stimulus of Caucasian enter- 
 prise. The only points at which the silver coins would come in 
 contact with the gold standard would be at the treaty ports. If 
 they were received everywhere in China, however, for pubhc dues, 
 at a fixed gold parity, they would rarely sink anywhere materi- 
 ally below their gold value. The Chinese Government, in regu- 
 lating the output of new silver coins, would be able to rely upon 
 the fluctuations in foreign exchange at the open ports. Under 
 such a system the fluctuations of exchange might be somewhat 
 wider than between two gold standard countries, but if the issue 
 of silver was suspended whenever the exchange was unfavorable 
 these fluctuations would probably not be great. It would be 
 possible, moreover, to establish at the treaty ports small gold 
 funds, or to sell drafts upon gold funds at London and the other 
 commercial centres of the West. These gold resources could be 
 employed sparingly by the Chinese Government to provide gold 
 for export, and thereby to maintain something like a par of ex- 
 change without holding out the offer to give gold to all comers.
 
 236 POLITICAL SCIENCE QUARTERLY. [Vol. XVIII. 
 
 This would be practically the system pursued by the Bank of 
 France and the Government of British India. 
 
 The necessary condition of such a system is Government con- 
 trol of the coinage. It is this which differentiates the limping 
 standard from free coinage, and permits a value to be given to 
 coined money, which is different from its value as bullion because 
 of the specific demand for coined money as a medium of exchange 
 and in the execution of legal tender contracts. The importance 
 of this principle, that limitation of the quantity of a commodity 
 in the face of a given demand will raise the value of the com- 
 modity, has too often escaped the attention of the advocates of 
 unlimited issues of silver and of Government paper. Just so 
 much currency as is needed for use at its current value will be 
 absorbed by the community without depreciation in its value. 
 In the case of money, when the quantity exceeds the complex 
 demand, depreciation in value sets in, — first in the rate paid for 
 the rental of money, which draws the surplus abroad to earn 
 higher returns if the money is of a sort accepted everywhere; and 
 second, in the depreciation of its exchange value if the excessive 
 quantity continues to confront only a limited demand. Govern- 
 ment control of the tools of exchange involves dangers which are 
 not to be lightly put aside; but under such a system as is here 
 proposed, there would be little temptation to issue token coins 
 in excess of the demand, because the profit would not be large, 
 and the penalty would be swift in coming, and glaringly plain to 
 the public, in the flight of gold, and the imminent risk that the par 
 of exchange would be broken with all other commercial nations. 
 
 In some such system as this, which links silver to gold by 
 measuring the value of the cheaper metal in the dearer, is to be 
 found the most scientific and the most practicable solution of the 
 monetary problems of the future in the countries which are being 
 opened to the influences of Western civilization. The difficulties 
 of wide fluctuations in exchange are swept away, or at least greatly 
 minimized, without imposing upon either the gold or silver coun- 
 tries of to-day a system ill adapted to their domestic needs. It 
 was declared by the British Gold and Silver Commission of 1888:^ 
 
 ^ United States Senate Misc. Doc, 34, 50th Congress, 2nd session, p. 85.
 
 No. 2.] THE LIMPING STANDARD. 237 
 
 Everything which hampers complete freedom of Intercourse between 
 two countries, or which Imposes on it any additional burden, is un- 
 doubtedly 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. 
 
 To this declaration Major Darwin makes the addendum that 
 
 Either bimetalhsm or universal monometalhsm 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 accompany- 
 ing disadvantages do not outweigh its undoubted merits.^ 
 
 The "accompanying disadvantages" have thus far proved too 
 serious to permit the extension of a pure gold currency or of bi- 
 metallism throughout the world. The experience of British India, 
 and the plan adopted by the United States for the Philippine 
 Islands, point the way for another solution of the problem more 
 in harmony with local conditions in all countries and with the 
 historical evolution of money. This system not only affords a 
 uniform monetary standard for foreign trade among all nations, 
 but has many of the advantages attributed by its advocates to 
 bimetallism in compensating the scarcity of gold by opening the 
 reservoir of the world's supply of metallic money to the steadying 
 current of silver, with the limitation, however, only that the sluice 
 gates may be closed if the new current threatens to raise the 
 common stock above the level of safety, and to spread ruin over 
 the fertile fields of commerce by driving the standard metal from 
 the reservoir, and supplanting it with the more volatile. 
 
 CHARLES A. CONANT. 
 
 New York City. 
 
 ^ Bimetallism, p. 133.
 
 UC SOUTHERN REGIONAL LIBRARY FACILITY 
 
 AA 001 122 570 3 
 
 J
 
 CENTRAL UNIVERSITY LIBRARY 
 University of California, San Diego 
 
 DATE DUE 
 
 J UN 1 (^ iqyn 
 
 
 JUN 07 1979 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 a 39 
 
 UCSD Libr.
 
 m