A so U 1 ,,, rv OF CALIFORNIA SAN DIEeO '■'i!?' i,;v- 'V,- ■■ Hi vï■;!;^^^/• -■■ 1 nt univuivoi 1 I •-■" UNIVERSITY OF CALIFORNIA. SAN DIEGU LA JOLLA. CALIFORNIA THE MONETARY QUESTION THE MONETAEY QUESTION AN ESSAY WHICH OBTAINED THE PRIZE OFFERED BY SIR H. M. MEYSEY- THOMPSON, BART. AT THE PARIS MONETARY CONGRESS OF 1889 G M'-'^OISSEVAIN FELLOW OP THE LONDON INSTITUTE OP BANKERS. MEMBER OF THE COUNCIL OF THE INSTITUTE OP STATISTICS AT AMSTERDAM AND CORRESPONDENT OF THE SOCIETY OF POLITICAL ECONOMY AT PARIS AND OF THE MANCHESTER STATISTICAL SOCIETY TRANSLATED FROM THE FRENCH BY G. TOWNSEND WARNER FELLOW OF JESUS COLLEGE, CAMBRIDGE îlonîion MACMILLAN AND CO. AND NEW YORK 1891 All rights rcscrveil ' Modem Society could not exist in its present complex form without the means which money constitutes of valuing, dis- tributing, and contracting for commodities of various kinds.' Stanley Jevons. Money and the Mechanism of Exchange. PEEFACE The author of the following pages had nearly com- pleted the essay he was proposing to send in for the prize offered at the Paris Monetary Congress Ijy M. Cernuschi, with whom on that occasion Sir Henry Meysey- Thompson had associated himself and offered a second prize, when he learnt from a Note inserted in the Eeport of the Congress that Sir Henry Meysey- Thompson had afterwards come to the conclusion that it would be better that he should give his prize separately, for the best essay on the advantages to be expected from a bimetallic system. Now it happened that the author had conceived his task, and consequently constructed his essay, in a way which allowed him to use it as well in response to the new offer of Sir H. Meysey -Thompson as to the original proposal of M. Cernuschi. What was he to do in these circumstances ? Was he to set to work again in order to divide his essay into two, so that he might adapt each more precisely to the different programmes'? Had he wished to adopt this plan, want of time would have prevented him. But he owns that even if it had vi PREFACE not been physically impossible for him to take such a course, he would have been sorry to do so. His work forms a whole. Whatever criticisms may be passed upon its execution, it is a work of conviction, and, as such, complete in itself; and he was therefore unwilling to divide it. 'Consequently, he determined to present the essay, just as it was, both for M. Cernuschi's prize and for the one offered by Sir H. Meysey-Thompson. In the contest for M. Cernuschi's prize, the honours fell to M. Rochussen. The author of the present treatise has not the slightest wish to quarrel with this decision. M. Rochussen and he treated the subject in an entirely different manner. M. Rochussen has made rather an academic study of it, and has treated the monetary question in a much more abstract way. As is ex- plained below, this is not the way in which the present writer understood the subject announced. He willingly, however, congratulates his competitor for the Cernuschi prize on the manner in which he has acquitted himself of his task on the lines he had laid down. And he is glad to be able to state that, whatever differences there may be between the two essays, M. Rochussen and he are entirely in agreement on the fundamental aspects of the question. The author has now obtained the prize offered by Sir Henry Meysey-Thompson. He regards this as a very great honour : he freely confesses that it is a source of pride and satisfaction to PREFACE vii him. The approval of his work l)y persons so com- petent as Sir H. Meysey- Thompson himself, and the three judges to whom he had entrusted the examina- tion of the essays sent in, is to him an indubitable proof of the correctness of his judgment on the prob- lem in question. Strong in this approval, the author permits himself now to present his essay to the public in general, and especially to the persons to whom he directly addresses it ; having added to it, with the consent of Sir H. Meysey-Thompson, an Appendix. He ardently hopes that by his labours he may contribute to the triumph of a cause which is dear to him — a triumph which he considers of the highest importance to the general welfare. Amsterdam, l^oth November 1890. CONTENTS CHAP. PAOR Preface ...... v SUBJP^CT OF THE PrIZE .... 1 T. The Theory of Bimetallism ... 4 II. The Advantages of Bimetallism . . 24 III. Answers to some Particular Objections . 45 IV. The Present Situation . . . . G3 V. The Selection of the Ratio . .81 VI. The Probable Consequences . .97 VII. M. Cernuschi's Suggestions for a Bimetallic Agreement . . . .105 VIII. Remedies other than the Adoption of Bi- metallism — Conclusion . . .112 Appendix . . . . . .123 Notes to Appendix . .148 SUBJECT OF THE PRIZE M. Cernuschi, in writing to inform M. Magnin of the prize he proposed to offer for an essay on the monetary question, described its subject in the following terms : — " What would be the present and future relative "value of silver and gold if the following monetary " system were simultaneously introduced and put into "operation in England, Germany, the United States, " and France ? 1. " Free and gratuitous coinage. 2. "The monetary unit bimetallic — the Juste. " The Juste in silver to be of the weight and " fineness of the five-franc piece. The Juste in " sold to be of the weioht and fineness of the " United States dollar." M. Cernuschi further remarked, at the sitting of the Monetary Congress when his letter was read by M. Magnin, that it would be seen that the problem, as he had stated it, avoided all questions of a merely statistical or academic nature. It was stated so simply that any one might understand it ; and he trusted that the ofler of the prize would lead to a thorough discussion of the whole matter. If I rightly understand M. Ceruuschi's intention, a direct answer must be given to the question thus stated B THE MONETARY QUESTION by him ; with a full exposition, of course, of the reasonings on which that answer rests. And, further, account must be taken of the main arguments on the other side, and especially of those which have been most recently brought forward. It is clear, however, that M. Cernuschi did not w^ant this competition to result in the production of an academic work on money, starting from the most elementary principles, and thence working down to the actual situation of to-day ; nor did he expect a revision and restatement of all the statistics bearing on the matter. If this were what was intended, a book, and a large one too, would be wanted instead of the essay which he invites. The question might fairly be asked, too, wdiether such a work would be of any service. It would rather seem that for the present, at least, there is no room for any further discussion of an academic character. After the minute and complete investigations made by the English Gold and Silver Commission, and the issue of their Final Report, there is really nothing more to be done in this direction ; especially as we have since had the meetings of the Paris Monetary Congress, at which the most distinguished members of the older school of French economists have stated their points of view and the nature of their objections to the results arrived at by the English Commission. As M. Cernuschi says, time presses. Definite action must be taken. And I cannot better comply with the wishes of the founders of these prizes than by addressing myself at once to the real practical points at issue. I shall therefore take the question as it has been for- mulated by M. Cernuschi, and answer it without further preliminary. But in doing so there are two things with which we shall be concerned, which it will be well to SUBJECT OF THE PRIZE distinguish. There is first of all the monetary system, of which what M. Cernuschi proposes is an application — not of course the only application ; and secondly, there is this application itself. I proj)ose, then, first to deal with the system in question, apart from any special application of it, and afterwards to consider what is to be said of the particu- lar form of it suggested by M. Cernuschi. CHAPTER I THE THEORY UF BIMETALLISM We all know that the system which M. Ceruuschi wishes to see adopted is the bimetallic system. He desires that for the future the two precious metals, gold and silver, should perform the functions of money on a perfectly equal footing. This means, not the adoption of one standard Iw some nations and another by others ; but that the two metals be simultaneously adopted everywhere, or at any rate over an area sufficiently wide to determine the monetary status of the two metals and their relative value throughout the whole world. To bring this about he pro[)Oses that by an international convention or agreement free mintage should be given for silver just the same as for gold, and that full legal tender power should be given to both metals at a fixed ratio of value. This is of course the bimetallic system, or rather the basis of it. We find a similar statement of it in the notice of the prize wliich, following that of M. Cer- nuschi, was offered by Sir H. Meysey Thompson. The notice is as follows : — " A prize will be given to the author of the best essay on the subject of the advantages which might be expected from the simultaneous adoption of a bimetallic THE THEORY OF BIMETALLISM system by France, Germany, the United States, Holland, Belgium, Italy, and England under these conditions : 1. Free mintage of both gold and silver without expense to the public. 2. Full legal tender power for gold and silver in a certain proportion to be fixed by the said nations." I may say that I am absolutely convinced of the advantages of such a system. It is in my opinion the only system by which it is possible to obtain monetary unity in the commercial world taken as a whole. At the same time it is a system which will ensure in the best and most certain manner the stability of the value of money so far as that can be attained. And finally, to look no further than the individual interest of each nation, it is the system which, better than any other, will give us a monetary organisation sound in itself and whose effi- ciency is likely to be permanent. I will proceed to explain the three points I have just stated, and I shall lie careful not to forget to direct attention, from these various points of view, to the great importance of the results obtained by putting the system in practice. But first of all w^e must pause over the initial difficulty of ascertaining if the bimetallic system really rests on a scientific basis, and is sufficiently well adapted to the actual situation for us to be able to say that it will not break down in practice. For I need hardly say all that is still in dispute. Yet let me say at once it is not from the anti-bimetallist party of the Gold and Silver Commission that this opposition comes. On the contrary, we read in paragraph 107 of the THE MONE TARY Q UES TION chap. Final Report, Part II, that is to say, the special re- port of the six members of the Commission who pro- nounced an^ainst the adoi)tion of bimetallism and in favour of al)staining from all fundamental change in the English monetary system, the following: — " We think that in any conditions fairly to be contemplated in the future, so far as we can forecast them from the experience of the past, a stable ratio miiiht be maintained if the nations we have alluded to were to accept and strictly adhere to bimetallism at the suffsested ratio. We think that if in all these countries gold and silver could be freely coined and thus become exchangeable against commodities at the fixed ratio, the market value of silver as measured by gold would con- form to that ratio and not vary to any material extent." ^ • The attacks on the very basis of the bimetallic system have come lately from two different quarters. At the Paris Monetary Congress several most prominent speakers declared war on the system ; two of them, indeed, openly attacked it in 2)rinciple, while two others, although they did not go so far as the first, none the less raised fundamental objections. In England the eminent statistician, Mr. Gifien, after abstaining for a long time from taking any part in the discussion on bimetallism, has suddenly thrown himself into the fray, attacking with extraordinary fury both the system and its sui)}»orters. " We hold," said M. de Puynode, " that the money metals are ordinary commodities subject to the fluctua- tions of supply and demand, and that it is therefore impossible to establish between them a fixed ratio, which shall be constant or nearly so." And while saying that this was the basis of the doctrine held by ^ Gold and Silver Commission. Final Report. THE THEORY OF BIMETALLISM himself and his friends he added : "In like manner the basis of the contrary doctrine, whether stated or passed over in silence, is that the law creates the value of the money metals, and can consequently establish between them a ratio which shall be permanent or nearly permanent." ^ M. Frederic Passy, taking the same text but going more into detail on it, expresses himself to this effect : " We deny that any Government has the right, nay further the power, to maintain a fixed and invariable ratio between two values, between two commodities, both fluctuating, and fluctuating sometimes in one direc- tion, sometimes in another, in proportions impossible to determine.^ " To desire, in spite of these fluctuations (the fluctua- tions in the ratio of the value between gold and silver), to maintain tlie old ratio is — I repeat it ad nauseam — to desire to do violence to nature, it is to say that two and two make at will four or five, and that a twentieth is the same thing as a fifteenth.^ "It is exactly these inevitable fluctuations in the commodity gold and the commodity silver which make it impossible to fix once for all their respective prices/ " Whatever you may say, it is not mintage which gives gold and silver their value. It is the intrinsic value {valeur propre) of gold and silver which gives these metals the power of discharging the functions of money." ^ And at the end, in his eloquent peroration, M. Passy, undertaking the defence of natural laws, aflirmed that the theory of bimetallism rests on the denial of these 1 Congrès Monétaire International : Compte rendu in extenso, p. 2 Ibid., p. 183. 3 75^-^,^ p 184. 4 Ibid., p. 191. 5 jiid^^ p, 194, THE MONETARY QUESTION laws and the substitution for them of the doctrine of the omnipotence of the State. To the quotations I have just made, I need add none from the otlier two French speakers to wliom I alluded above. M. i^nilc Levasseur and M. Clément Juglar, the gentlemen in (juestion, declared frankly that they were opposed to bimetallism. As to the first, however, there is a wide difterence between the basis of his argu- ment and that of the positions of M. de Puynode and M. Passy ; while, as for AI. Juglar, it is not in the field of theory that he has joined issue, but over historical facts, which he has declared are in support of his argument. JUit in Mr. Giflen's writings we again find assertions which bear an obvious resemblance to those of M. de Puynode and M. Passy, although his method of reasoning is, in some places, of an entirely different order. Thus, in an article published by him in the Nineteenth Century of November 1889, he lays down that there is no special relation between the precious metals on the one hand and other commodities on the other. He says that it is wTong to regard the price of commodities as depending on the quantity of precious metals minted, but on the contrary, it is the price which determines the quantity of these metals employed as money. He adds that in his view the ratio of value of the precious metals to other commodities is simply settled, like every other ratio of value, by sujiply and «lemand and by the . cost of production of the last amount required to satisfy the marginal demand. Several times he returns to this conclusion, saying expressly that in his view the demand for the precious metals for use as money in no way determines their rate of exchange with other commodities. And going THE THEORY OF BIMETALLISM on from this assertion he refuses to admit that gold and silver can act as money interchangeably and in- differently, the one, if necessary, supplying the place of the other, even when a fixed ratio for their use in this manner has been settled by law. To conclude from this that the bimetallic system cannot be put in practice is naturally not a long step, since beyond doubt the theory then crumbles from its very base. Mr. Giffen continued his attacks on bimetallism in the Times (26th Dec. 1889, and 4th Jan. 1890). We have here nothing to do with what is at the bottom of these two articles. But it must be noticed that in the first we again find the doctrine which Mr. Giffen developed in the Nineteenth Century. He says that there prevails in the minds of bimetallists a certain confusion of ideas on the subject of the influence of legal tender law, a confusion which he ascribes to a want of definiteness in the terms used in speaking of mintage and the legal tender in a fixed ratio. To mint the two metals in a fixed ratio is nothing, according to Mr. Giffen, but a question of words, of terms. For after the operation, just as before it, the two metals arc nothing but com- modities, and can be nothing else, and so after mintage they will be governed by precisely the same laws of exchange as before. Now, as a matter of fact, the answer which must be given to these various assertions, and the arguments which hang on them, is that the opponents of bimetallism are making a twofold mistake. They are mistaken in what they believe the statements of bimetallists to be, and they are mistaken again as to the objects of the system. Bimetallists in no way claim that law creates the value of the money metals, and can in consequence establish a fixed ratio between them. They recognise ,o THE MONETARY QUESTION quite clearly, and state most emphatically, that what- ever may be the monetary system of a country, from thf lutmient that the minting of money is free and unn-stricted, the value of it conforms to that of the unminted metal, and that the ratio of value between this metal, and consequently also minted metal, and all otlier commodities (that is to say, the price of commodities), is sinq.ly the result of the forces of supply and demand which exercise their influence on either side. Still, at the same time, the bimetallists claim — and this, I think, is a ii-iitli which cannot be disputed — that the choice which the Governments of different countries make between the two precious metals, for use as money, is of the greatest importance in determining the value of these metals. And for this very reason, because it is tliis choice which determines whether these metals be more or less in demand. And they further add, that from time immemorial to the present day, the use of the precious metals for money has so preponderating an influence on the demand for them in general, that practically it is this demand which settles their ratio of value to other commodities. Thus they take their stand on the economic law wliicli lias been mainly formulated by one of the greatest of the English economists, Mr. Stanley Jevons — namely, that when different commodities are used for the same purpose, the conditions of demand and exchange in their ca.ses are not independent ; and they assert that if the Governments of the chief commercial countries were to unite to grant the two precious metals legal currency and legal tender power in a fixed ratio, with unrestricted freedom of mintage, the ratio of the market value of these metals would conform automatically to the mone- tary ratio. THE THEORY OF BIMETALLISM Whatever M. Passy may say, it is perfectly clear that this is a question of applied political economy, and bimetallists in defending their theory are upon the ground of pure science. " Laws," says M. Passy, recall- ing Montesquieu's words, "are the necessary relations of things. Science is the ascertainment of these rela- tions. It consists in observation of facts, in recognition of the relations between them, and the connection of one with another by the chain of cause and effect." Indeed, without offence to this speaker, it would be impossible better to describe the method by which bi- metallists have reached their conclusions. To justify this, I cannot do better than rejiroduce the chain of reasoning by which M. Mees, one of the first economists of Holland, lately explained the theory of bimetallism.^ M. Mees writes : " It is obvious that if everywhere, under any circumstances, three hectolitres of rye and two hectolitres of wheat have the same utility, and give the same satisfaction to every one, the value of these amounts of these two kinds of corn will always be the same whatever the general conditions of their produc- tion and the results of harvests. The quantity of the two kinds of grain will vary, but their ratio of value will be perfectly stable. " And similarly, supposing one kind of grain could alone satisfy some particular need and the other in the same way some other need, the ratio of value of which I have spoken would be unaltered so long as the satisfaction of these particular needs only required, in all cases, and ^ I have already repeated tliis chain of reasoning in my pamjihlet entitled, Quelques observations au sujet des discussions du Coiigrès Monétaire International. But as this pamphlet was not generally circulated, I have thought that it would be well worth while to quote the passage here in its entirety. THE MONETARY QUESTION uuder all circumstances, amounts sufficiently limited as not in any case to absorb the wliole that is produced, so that still a part of what is produced should serve to satisfy the principal need in regard to which three hectolitres of rye and two hectolitres of wheat were absolutely equal. There might be a rise or fall in the value of both kinds of corn, but never in such a way that the value of three hectolitres of the one and two hecto- litres of the other was no longer the same. " It would l)e exactly the same with gold and silver if the system of a double standard at one and the same legal ratio of vakie was in force everywhere, since the projiortiun of these metals which is used for money is far greater than that which is used for all other pur- poses whatsoever. " Suppose these metals were used exclusively as money, and that everyw^here a kilogramme of minted gold was equal to 15^ kilogrammes of silver; plainly the ratio of the market value of the two metals would be the same as the ratio of their monetary value. For why should any one place a higher or lower value on a kilogramme of gold than on 15^ kilogrammes of silver if neither could be employed for any other purpose, and if iu consequence there was no difference of utility between the two ? " Now it is perfectly true that these metals are not used only as money, but on the contrary considerable amounts of gold and silver are employed as primary or secondary factors of production in different industries. " Still, however important the use so made of these metals, it is ])erfectly inconceivable that at any time the whole available quantity of either of them could find employment in industry at a level of value higher than that whieh it could command as money ; supposing I THE THEORY OF BIMETALLISM 13 always that no absolutely unreasonable ratio of value was adopted, " The two metals, then, must always in the great majority of cases be used as money ; and as in this capacity they can only be used in their legal ratio of value, this ratio will determine their ratio of exchange as commodities." To wish that Governments should arrange to estab- lish, in the manner I have mentioned, a single monetary régime — the 7'égi'me of international monetary unity based on the double standard — is surely in no way akin to the heresy of having recourse to a presumed supre- macy of the State to modify in arbitrary fashion the very face of things. It is universally recognised to be the duty of the State to prescribe rules by which the monetary system of a country shall be shaped. To take care that this system supplies in the best manner possible the needs which must be satisfied is not only the right but the duty of every Government. This is true, whether it is expressly stated, as is done in the constitu- tion of the German Empire, or whether it is left unsaid. Why, then, is Government acting within its province when it makes choice of one or other of the precious metals as money, giving it legal currency and legal tender power, and not when it decrees that the two metals shall be used together, and shall both possess the characteristics of money in a fixed ratio of value ? There is certainly one objection which can be made, viz. that any isolated Government can establish in its country a monetary system based on a single standard, and may in this way establish an organisation which will more or less satisfactorily meet the monetary requirements of that country. While for a monetary system based on a double standard to succeed in practice ,4 THE MONETARY QUESTION there must be an agreement among nations to act in concert, })articularly in regard to the ratio to be fixed between tho two metals. But this is no argument a«;aiiist the theory of the system. It merely comes to tliis, that the system of bimetallism can only be put in practice safely when those countries whose agreement is indispensable come to an understanding on the matter. And this is the one thing which the advocates of bimetallism desire. There yet remains the fundamental objection to bimetallism raised by Mr. Giffen, the importance of which, if it were well founded, cannot be denied. Still, without wishing to be discourteous to him, how- ever careless he has shown himself of the feelings of his opponents, no long explanations will be required to refute him. No doubt they would have to be made if we were minded to follow Mr. Giffen's arguments step by step. But his random assertions are so far contra- dictory of everything which is held by all financiers and economists, that such a proceeding would be superfluous. Not only so, but he also contradicts all he has himself jireviously written on the matter. And it is not too much to await his reply to the criticism of Professor Nicholson,^ who at the time demonstrated the falsity of his new views, before entering into a serious dis- cussion over what he has recently advanced. A single remark will sufiice for the present. Mr. Giften declares that the price of commodities, that is to say, their ratio of exchange with the precious metals, is not influenced by the quantity of metal minted, but that the reverse is the case. Prices, he says, determine the amount of j^recious metals used as ^ J. Shield Nicholson: "Mr. G i Hen's Attack on Bimetallism," iV^iwe- Utnih Century, Dec. 1889. THE THEORY OF BIMETALLISM money. Now if this were really the case, there would always have to be a stock of unminted metal, capable of being diminished or increased at will, or at any rate according to the requirements of the hour. For, failing this stock, the rise or fall of prices, which could only manifest itself by an extension or contraction of the monetary circulation, would have no means of obtain- ing this addition or of disposing of a superfluity. The result would be that a rise or f^ill in prices would be counteracted by the monetary situation, and that is exactly what Mr. Giffen says cannot possibly take place. But Mr. Giffen admits, it is true, the existence of a stock of non-money metal. He seems indeed to find some everywhere — in bank reserves, in gold and silver hoarded in the Indies and elsewhere, in trinkets and orna- ments, and generally in everything made from precious metal. Now, to affirm that the reserve of precious metals held by the banks, that is to say, the metallic cover of their liabilities, has nothing to do with the monetary circulation is certainly extraordinary. But it is much more extraordinary to regard the other forms ot precious metals enumerated above as a stock which will increase or diminish just as monetary needs demand. Mr. Giffen's entire argument produces the impression that the author was extremely annoyed by the Report of the anti-bimetallist members of the Gold and Silver Commission, which I have already mentioned ; indeed, in his first article in the Times, he took no pains to conceal his annoyance. Since then he seems to have gone in search of new arguments to destroy the impres- sion caused by the Eeport. But we may say in all con- fidence that he does not appear to have been very fortunate in his search, and that he has not much to show for it. ,6 THE MO NE TARY Q UES TION 1 havi- not yet done with Mr. Giffen, but I must at the same time alhide again to the speech of M. de Puynode. wliich I have quoted above. Both of them, not content with arguments, have invoked the weighty authority of Lord Liverpool and even of Locke to confound the bimetallists. Round these two names, particuharly in England, there has gathered a belief that monometallism is the only really scientific monetary system. Some words of theirs which every one quotes have hardened into a dogma, and to protest against it is considered by every- body as a heresy in political economy. But, like many other do<»'mas, this one too has no true historical founda- tion, and there is good reason to believe that the alleged founders of the dogma would be the first to stand aghast if they were to learn the construction which has been put on their words. 1 am not indeed the first to make this criticism. At the Paris ^lonetary Congress Mr. H. S. Foxwell did full justice to the celebrated essay of Lord Liverpool, demon- strating convincingly that his policy was purely insular. In a most interesting article published in the Times (7th Jan. 1890), in the course of a masterly refutation of Mr. Gitfen, he returned to Locke's connection wdth the subject. He showed that Locke's statements in no way bear the meaning w^hich has actually been placed on them. We have also the most interesting historical papers of .Mr. Dana Horton on the same subject, in whicli this devoted and indefatigable supporter of the rehaljilitation of silver has reached perfectly identical conclusions.^ The best means, however, of grasping the real ^ The Silver Pound and England's Monetary Policy since the Restoration, by S. Dana Horton. London, 1887. I THE THEORY OF BIMETALLISM 17 bearing of the various English writings of preceding centuries on the money policy of England, is to read for oneself the best of the essays and pamphlets in which the question is treated. The study has been rendered easy by the labours of the Political Economy Club, which published in 185G a selection of these tracts, at the desire, if I am not mistaken, of Lord Overstone, with the assistance of Mr. J. R. M'Culloch, who added a preface and notes. ^ Reading these tracts one after the other we get a complete account of the difficulties which the Govern- ments of the seventeenth and eighteenth centuries had to encounter to protect the monetary circulation of the country from an export which was indeed ruinous, because it was due to the differences which existed in various countries as to the ratio in value adopted between the two metals. We understand why in the end England decided to adhere to a single standard, and we rightly appreciate the worth of her enlightened advisors, who for a long time past had pointed to this measure as the sole remedy to solve the difficulties of the time. But at the same time we must see that in all this controversy there was never any question of the mone- tary problem as it has appeared in our day. Excepting one author, Mr. Joseph Harris, Assay Master of the Mint, who wrote in 1757-58, we do not find any plea for the system of a single standard in which the theoretical defence of the system forms the basis of the argument ; and even Harris's contentions have no bearing upon the present situation. Take Locke himself It is true that ^ A Select Collection of scarce and valuable Tracts on Money. London. Printed for the Political Economy Club, 1856. It should be added that the book is scarce and difficult to get ; which is not surpi'ising, as only 125 copies were printed. C , 8 THE MO NE TARY Q UES TION in his first Essay ^ he says : " Only this I will coufi- deutly atiirm, that it is the interest of every country that till the current money of it should be of one and the same metal ; that the several species should be all of the same alloy, and none of a baser mixture ; and that the standard once thus settled should be inviolably and immutably kept to perpetuity."- And in his second Essay ^ he returns to the same subject, and says : " Two metals, as gold and silver, cannot be the measure of commerce both together in any country, because the measure of commerce must be perpetually the same, invariable, and keeping the same proportion of value in all its parts. But so only one metal does or can do to itself: so silver is to silver, and gold to gold. An ounce of silver is always of equal value to an ounce of silver, and an ounce of gold to an ounce of fold, and two ounces of the one or the other of double the value to an ounce of the same. But gold and silver change their value one to another ; for, sup- posing them to be in value as 16 to 1 now, perhaps the next month they may be as 15| or 15|^ to 1. And one may as well make a measure, e.g. a yard, whose parts lengthen and shrink, as a measure of trade of materials that have not always a settled invariable value to one another. ■• But it must not be forojotten that these armiments are only the conclusion of a long chain of reasoning, in which it is clear enough that Locke did not claim to give to his assertions the stamp of absolute truth, but that they ^ Some Considerations of the Consequences of the Lowering of Interest and Rai«inij the Value of Money. I use the first London edition, 1692. Locke's writings liave not been reprinted in the collection of the Political Economy Club. 2 Ji^ij^ pp jgg^ 17Q 3 Further Considerations Concernxnfj Raising the Value of Money, London, 1G'J5. ' Ibid., pp. 20, 21. I THE THEORY OF BIMETALLISM 19 are simply the deductions which he draws from the facts of the time. Thus, just before the first declaration which I have quoted, we read : — " Money is the measure of commerce and of the rate of everything, and therefore ought to be kept (as all other measures) as steady and inyariable as may be. But this cannot be if your money be made of two metals whose proportion, and consequently whose price, constantly varies in respect to one another. . . . And can any law you shall make alter this prop(jrtion here when it is so everywhere else round about you ? If your law set it at 15 when it is at the free market rate in the neighbouring countries as 16 to 1, will they not send hither their silver to fetch away your gold at ^Jg- loss to you ? Or if you will keep its rate to silver as 15 to 1, when in Holland, France, and S^^ain its market value is but 14, will they not send hither their gold and fetch away your silver at yV loss to you ? This is unavoidable if you will make money of both gold and silver at the same time and set rates upon them by law in respect of one another." ^ Such arguments as these show us clearly that Locke did not look at the question from the point of view of a scientific problem, but that he treated it only as he found it practically operating under the circumstances of his time. How, indeed, could a fixed ratio be declared by law if in neighbouring countries the ratio was difierent and changing from day to day ? This is the question which presented itself to him. It is true that he did not discover the solution which Wolowski, Cernuschi, and others have discovered, although it had already been found during the sixteenth century in Italy by Gaspard Scarrufii. But if Locke did not recom- 1 /Some Considerations, etc., pp. 166, 167. THE MONETARY QUESTION raencl this solution, it was not because he was opposed to it, but simply because he had never even thought of it. 1 wish to add one mure quotation to those I have already made. Among the authorities whom Mr. Giffen cites we find Sir Robert Peel, and I tliink it of import- ance in this one case to compare tlie exact words of this statesman with the ideas wliieh are attributed to him at present. For this purpose I will take a speech delivered by him in Parliament on 1st June 1835, in answer to a motion of Mr. Cayley desiring the institution of an inquirv to examine whether anything could be done to remedy the distress under which agriculture suffered by a return to the old monetary standard of silver, or rather of silver jointly with gold. Sir Robert Peel declared himself most strongly opposed to all intentional depreciation of money, from which it would appear that certain persons anticipated benefits to the agricultural class, and he showed that in the then existing circumstances no possible end would be gained by altering the money standard, unless such a depreciation of money were really the end that was hoped to be attained by these means. In his speech he treated explicitly the question of a single or a double standard. He said : " Now if we proceed to alter the currency the first question would be, Shall we have a double standard of gold and silver conjointly, or shall we simply alter our standard from gold to silver. I cannot see any advantiige derivable from the institution of a double standard ; you cannot make a double standard without defining the ratio that is to exist between the nominal values of the two metals. To say that every man shall pay his debt in THE THEORY OF BIMETALLISM silver or gold, whichever he might please, without defining their relative value, would be absurd and impracticable. We might certainly have a double standard, defining the relative values of gold and silver, and leaving it to the option of a party who had money to pay to make his payment either in gold or silver. But this very option seems defeating the object of a standard and introducing unnecessarily uncertainty into contracts. It appears to me a much less simple course than that of adhering to a single standard, and a course unaccompanied by any advantage countervailing the loss of simplicity. Gold and silver seem to have some necessary connection, from being so frequently united in common parlance ; but there is no more reason that they should be united in a standard than that gold and lead, or gold and copper, should be so united. To unite two metals, the value of which is not in a fixed ratio, and cannot be, in a double standard is to diminish the value and advantage of a standard. The more simple the standard the better — the very name implies unity and simplicity. It is the measure of value, and why not have one measure of value as well as one measure of length and capacity ? " ^ At first sioiit these words of Sir Robert Peel seem to lend weight to the side of those who claim to shelter under the greatness of his name their opposition to bimetallism. But if one looks closely at it, it will be seen that this is not the case. In the first place part of the very paragraph quoted proves the contrary ; for instance, the beginning, in which the question is treated in a fashion completely different to that of the op- ponents of bimetallism. But to proceed thus is to ^ The, Speeches of the Late lit. Hon. Sir Robert Peel, Bart. Loiulou, 1853, vol. iii. pp. 131, 132. THE MONETARY QUESTION do injustice to the meaning of the speaker. The pass- age quoted must be taken in its entirety. And then it appears that Peel made no fundamental objection of l)rinciple to the doul)le standard ; but he found the single standard more simple, and perceived no advan- tat^e to be gained by returning to the double standard. But writers like Wolowski, Cernuschi, Gibbs, Nicholson, and Foxwell would have shown Peel that far from his view being true, the double standard afforded a much better guarantee of the stability of the value of money than the single standard ; that the advantages of bi- metallism are much superior to the advantage of sim- jtlicity l)el(»nging to the single standard ; that between L^^ld and silver there is a bond which does not exist l»etween cither of these metals and any other, because these metals alone are employed by civilised nations as monetary standards. Indeed Wolowski would only have had to place before Sir Robert Peel his Notes jyrt'liminaires sur la qiiestion inonétaire, and his Mémoire sur Tor et l'argent,^ to convince him that all comparison between money as a measure of value and measures of length, and the like, is completely false and void of signification, because it rests on a similarity of words and not of conceptions ; and then most cer- tainly Peel would have taken the side of the bi- metallists. Enough, however, of preliminary matters. The theory of bimetallism briefly reduces itself to tliis. The two precious metals, which are used exclu- sively as money, strictly so called, in the commercial world as a whole, owe their value, that is to say, their ^ See La Question Monétaire, by M. Wolowski. I THE THEORY OF BIMETALLISM 23 rate of exchange in relation to other commodities, to this monetary use which is made of them. In consequence it is just as practicable to use both these metals simultaneously as money, as to use one or the other. Provided that the State, with whom it lies to regulate the monetary system of each country, grants legal currency and full legal tender power on a footing of perfect equality to the two metals in a fixed ratio ; and provided further that this monetary system — the system of bimetallic money — be adopted by inter- national agreement over an area sufficiently wide, that for the future it will be the use made of the two metals in this monetary region which will decide their rate of exchange in relation to other commodities throughout the whole commercial world. In the objections of M. Passy, De Puynode, or Mr. Giffen, of which I have spoken, as in all the writings of all the financiers and economists with whom they are in agreement, there is nothing to show that this theory is not reasonable, or that it comes in collision with the doctrines of political economy. Let us then pass on to explain the reasons for which a state of international bimetallism would be preferable, and far preferable, to the existing monetary situation. CHAPTER II THK ADVANTAGES OF BIMETALLISM The first advantage that I claimed for bimetallism was that it is the only system by which it is possible to attain monetary unity in the commercial world. This monetary unity existed, in fact, to a certain extent — I use this phrase for I admit that the state of affairs was not perfect — from the commencement of the century to about 1873. During the whole of this period the system of the double standard with a fixed ratio in France, and later in the countries of the Latin Union, was sufticient, owing to the manner in which at the time other countries were divided, some with a gold standard and others with a silver standard, and the condition of the two metals which was thus established in the vari- ous countries, to maintain everywhere a ratio of value between gold and silver which did not differ widely from the ratio established by law in France. Now, however, we know only too well this practical unity is no longer in existence. Let us review as briefly as possible the causes of the rupture. Between 18G0 and 1870 there was a movement tending to the extension of the monetary union inaugur- ated by the Latin Union, and there was a general inclination to agree that the new bond of union should CHAP. II THE ADVANTAGES OF BIMETALLISM 25 be and could be a gold standard as the only standard. Then came the war of 1870, which put an end to all the negotiations which had been opened on the matter. But after the war Germany, having to organise a mone- tary system for the new empire, adopted for the purpose — whether still under the influence of all that had been said and written on the subject of the monetary ques- tion in preceding years, or whether for other reasons — the gold standard, replacing with it the silver standard, which had hitherto been the monetary standard in all the German countries. Tt is indubitable that this monetary reform brought about a widespread revolution in the state of affairs. The monetary equilibrium which had till then existed was menaced and soon completely destroyed. Could it possibly have been maintained Ijy any action on the part of France or other members of the Latin Union ? That is hardly probable ; we might go further and say that it was quite impossible. It was rendered still more im- possible as Germany, Norway and Sweden, and the Netherlands followed more or less the example set by the German Empire. Above all, at the same time there began an alteration in the annual production of gold and silver which affected the relative importance of the two metals. On the one side the supply of silver in- creased, first because more was produced, and secondly because States who had formerly used it now had it to sell ; so the demand for the metal diminished. On the other side there was a smaller supply of new gold, while at the same time the metal found new purchasers. AVe may then approve the resolve of the French Government and the other members of the Latin Union to suspend the mintino- of silver. But it is none the less true that at a stroke all bond between the two metals was broken. 26 THE MONK TARY Q UES TION Since that time there has been no direct connection between the vahie of gold and silver. Their rate of exchange for other commodities is now perfectly inde- l)endent, and is determined for each of them by the action of supply and demand acting on each separately. To go back upon what has happened in the last fifteen or twenty years is impossible. The practical monetary unity which then existed cannot be re-estab- Hshed as the result of a similar arrangement. There is only one means of regaining this monetary unity : it lies in the organisation of a general agreement, :iud in all the contracting parties taking part in this organisation on a perfectly equal footing. In other words, to re-establish the link which existed formerly between gold and silver in the com- mercial world as a whole, it is necessary now to restore it in each several part of the whole. This will at the same time be the means of establishing it more solidly. Bimetallism is the one monetary system which in practice lends itself to this organisation. In theory certainly it is easy to admit monetary unity based on a single standard, but only up to a certain point. For rich countries would never be will- ing to give up the use of gold altogether ; while it must be remembered that in many countries the adoption of a gold standard would be an absurdity, because it could not be a reality. All the East, and many other countries besides, even at present, use for the greater part of their payments nothing but silver money. But in any case there would be a most serious difficulty of a totally different kind. Once let the commercial world as a whole adopt one and the same single standard, and there would be a disturbance of all present prices, in comparison with which the disturb- II THE ADVANTAGES OF BIMETALLISM 27 ance felt in the last fifteen years would be mere child's play. It is hardly too much to say that by such a course of action a social and economical revolution would be let loose. But it is scarcely necessary to turn aside to look into the consequences of such a contingency, for no one desires or recommends any such extreme course of procedure. It may, notwithstanding, be questioned whether it follows that we arc bound to adopt bimetallism. For, after all, is monetary unity in reality so eminently desirable, so absolutely necessary ? To this question I have no hesitation in making an affirmative answer. There are two thinos to be taken into account. Monetary unity is desirable in itself, as it is a condition of economic progress and development ; and it is still more desirable as the only means of delivering us from a conflict of standards, which, as long as it lasts, will be a cause of uncertainty most injurious to numerous interests. I repeat, monetary unity is a condition of economic progress and development. Money is everywhere the measure of value. Not, indeed, a measure of the same kind as the measures of length and capacity, but in this sense that it serves as a means of comparison for all values. From this point of view alone it is obvious that international commerce must suffer if there are in common use two measures of value instead of one. In fact, money proper disappears out of international trad- insf, and commerce is reduced ao-ain to a state of barter. But, as Jevons has said in the words which I have placed at the beginning of my essay : " Modern society could not exist in its present complex form without the means which money constitutes of valuing, dis- THE MONETARY QUESTION tributing, an«l contracting for commodities of various kinds." But, it is often urged, even between two countries witli different standards there is always a rate of exchange in existence, exactly as there is between a country with a monetary standard, and one which has a system of inconvertible paper money. This is no doubt true. But what is wanting here is stability of exchange, tlie certainty that the rate of exchange can only vary within known limits. Can any one believe that a country with a system of inconvertible paper money is not injured by such a state of things ? I am speaking, be it understood, of the trade of the country taken as a whole, not of particular transactions which persons undertake at such times, transactions which bring in exceptional profits gained only at the expense of other persons. I am certain that science has always shown, and history has always taught, that a country wdth inconvertible paper money as legal tender must feel the effects of it in its trade, and that everything connected with trade suffers in the same way ; and I am further certain, that a country whose trade is injured is in no case the only one to feel the injury, but that the loss must in the end fall, though in a different degree, on all parts of the commercial world. Well, then, I accept the comparison between the cases of two countries with differ- ent monetary standards, and of two countries, one with a monetary standard, and the other with a system of inconvertible paper money. No one surely could desire to put the commercial world in such a position. And further, as far as foreign trade is concerned, it is clear that this would reduce every country without exception to identically the same position as that of a country with a system of inconvertible paper money. Il THE ADVANTAGES OF BIMETALLISM 29 But it might be said these evils are imaginary : all is pure theory. As an example of the real state of affairs, take the commerce between Eno-land and India. The inquiry of the Gold and Silver Commission has demonstrated that all the harm done is reduced to the payment of a trivial bankers' commission. Now, first of all, I may observe that much of the evidence on this point is conflicting ; further, it is true that in two countries in such close relations as Ene^land and India, the harm done is reduced to a minimum ; but this is not so in every case. Besides, in such matters there are effects which are seen, and others which are unseen. Granted for the minute that a Manchester merchant sendinsr a consig-nment of manu- factured goods to India is able to cover himself from loss by exchange. But when he wishes to make an estimate of the probable increase in a given time of the amount of his exports to India, in order to be able to regulate by it his purchases of raw material and various other thino's, he cannot then insure himself ao-ainst the effects which the disturbances of price caused by the fluctuations of the course of exchange may have on his trade. Here, without, doubt, there is a cause of un- certainty in trade and industry which it is impossible to eliminate. We are not yet at the end of the disastrous effects of such a state of things on international trade. Money is not only a measure : it is also an equivalent. As such it occupies, and always will occupy, a most important position in all commercial operations, and especially in international trade. It is only owing to the export and import of the metal which is used as money that the natural relation of prices between two countries is maintained. If the similarity of money THE MONETARY QUESTION staii»lar«l l.etween them is destroyed, the bond which unitfs them in this way is broken. There is still a third consideration. Money is a standard oï value for deferred payments. All loans, all bills, whether of long or short date, are money contracts. Consequently, it is of the greatest importance in all these ojterations, when they are between different coun- tries, to have an identity of monetary standard between the two. The capitalist who makes an investment abroad is not willing to expose himself to losses through deprecia- tion of the money wliich measures its amount. The depreciation of which he feels the effect is not only apparent, but also real in relation to the money of his own country in terms of which he keeps his accounts. All the more does a banker, who does business in capital, often borrowing in one country to lend in another, hesi- tate before running such risks. There must be large compensating- advantages on the other side before he will expose himself to possible loss. It is evident that the breaking of the monetary connection between two countries is a most serious hindrance to all such business, while at the same time easy migration of capital is a vital matter for economic development. If the capital of rich nations can be placed at the disposal of nations which are still in need of it, there will be direct gain to both parties, and general prosperity will be the result. It is not too much to say that the dualism in money which has existed during the last fifteen or sixteen years has done an enormous amount of harm in this respect. From the point of view of the economic j)i'ogress of the world such a state of things should be terminated. Take the case of British India. It is beyond ques- 11 THE ADVANTAGES OF BIMETALLISM 31 tion that the economic condition of the country has greatly improved during late years. But this improve- ment, in the opinion of j)ersons most competent to judge, -is only in the very slightest degree, if at all, due to the jjretended advantages of the alteration of exchange ; in almost every instance the development of railway systems and other works of jjublic utility is the principal reason of the prosperity. How much greater would the prosperity have been if the monetary dualism of England and her Indian Empire had not clogged pro- gress. We have often seen at the very same time the rate of discount at Bombay and Calcutta rise to 10 or 12 per cent, while in London it was no more than 2 or 3 per cent. No one would allow that so high a rate could possibly be advantageous to Indian trade. Still it was only the natural result of the monetary situation which prevented banks from sending their capital abroad. Many countries are in a similar position to British India, except that they have still greater need of European capital to enable them to utilise their natural resources. China, for example, has begun to open itself to modern civilisation. For it also the condition of money matters is a most serious difficulty which almost every project finds in its way. Some private letters written quite recently, which I have had the oppor- tunity of seeing, state most emphatically that this is the great obstacle to the construction of railways in the country. The Chinese Government will not contract loans except in the money of the country — silver money — and bankers will not take uj) its loans unless they are made in gold. I have said that monetary unity is further to be desired as the only means of freeing us from the conflict 32 THE MO NE TARY Q UES TION of Standards. The state of affiiirs wliicli is brought about in the commercial world by this conflict of standards is in itself a serious evil. It is impossible to say what will happen in a great number of cases where the diffi- culty is particularly urgent, or, indeed, may become so at any moment. Thus in the countries of the Latin Union it seems that it will be impossible to keep indefinitely the enor- mous quantity of silver money with which the circu- lation is overloaded, unless the value of silver rises relatively to gold. Yet one cannot say whether it may not actually l)e decided some day or other to demonetise silver, and if so, under what conditions. Again, if Europe does not make up its mind to adopt bimetallism, the United States will some day have to choose between stopping the mintage of silver and the adoption of the metal as the real standard money of the country. It is impo.ssible to say which of these alternatives will be chosen. Then look at the situation as it presents itself, for instance, in Russia. Thanks to the revival in its credit, Russia will soon be able to think of resuming payments in specie. If she does so, will she adopt a gold standard or a silver standard ? In conclusion, the desire has been expressed more than once that the Government of British India should suspend the coinage of silver, and at the same time adopt a gold standard under certain conditions. Is this really to be expected some time or other ? Everywhere there is uncertainty what the future, immediate or remote, will bring us ; and this uncertainty, which is the characteristic mark of the situation, is the direct result of the conflict of standards. Let, however, the monetary dualism come to an end, II THE ADVANTAGES OF BIMETALLISM 33 and all causes of uncertainty will vanish witli it ; and further, the greater number of these problems will be solved at the same time. And even where tliis will not be the case the event will not be doul)tful ; thus Russia when the time comes would surely rally to the standard of bimetallism. Secondly, I have given as a reason for the adoption of bimetallism the probability that by it will be given the best possible guarantee of the stability of the value of money. Every one is agreed that there is no possible way to attain absolute stability. It is inherent in the nature of things that the rate of exchange between the precious metals and other commodities will always be liable to modification ; and money, that is to say, real standard money, of which the mintage is unrestricted, will always be worth just what the metal itself is worth. First of all, there will always be fluctuations in prices — for price, as I have already said, is nothing but the expression of the rate of exchange between money and a particular commodity. There are then, in the first place, fluctuations in prices which indicate that the commodity is more or less in demand, that the cost of production is increasing or diminishing. We need not concern ourselves with these, for they are as a rule merely isolated variations, or at most afl"ecting some particular class of commodities, although their influence often makes itself felt on other commodities also. But in any case it is obvious that in such cases the beginning of the movement does not come from the side of money. And this is still true when there follows a movement D 34 THE MOXETARY QUESTION more or less indeed general, which is the consequence of some political or financial occurrence, such as a war or a crisis in credit. It is not of these variations in prices cither that we have to speak. But there are other fluctuations in prices which are not of this kind. The beginning of the movement can most certainly come just as well from the side of money. Wherever money is used there is a certain ratio between it and all other kinds of material wealth taken in their entirety, — a ratio indeed which is extremely complicated, since it depends on the system of credit in a country, on the movement of business, and many other causes ; but all the same assuredly the ratio does exist, and this ratio is of such a kind that if all the money circulating through the world could at a certain moment be doubled, immediately prices of all commodities, although perhaps they would not actually be doubled, yet would experience a sharp rise. Natur- ally then, as money can be increased or diminished in anKJunt, it follows that there can be variations in prices of which such increase or diminution is the sole and only cause. So it is likely that there must be, so to speak, a continuous series of variations either in one direction or the other. For, to prevent this, there would have to be a constant equilibrium between the causes which affect the supply of money and those which affect the demand for it. Still if nothing abnormal happens these variations can be only of minor importance, and can only make themselves felt very slowly, since every cause of a rise or fall in the value of money has to act upon the enormous amount of the precious metals already existing in the shape of money. II THE ADVANTAGES OF BIMETALLISM 35 Now let ILS consider a little more in detail what are the causes of variations in the value of money. First, there may be a disproportion between the annual production of the precious metals from the mines, a deduction being made for the quantity employed in the arts, and the amount required to maintain the value of the money in circulation. Secondly, there may be new needs for money ; such as a country under a system of paper money changing to a system of metallic money, or new countries being developed and opened to international commerce. The reverse also may occur; either, though this is hardly probable, by a country in a state of civilisation being abandoned, or, what is more likely, by a country with a system of metallic money being reduced to resort to a system of paper money. Now there is one thing that can be stated à priori, namely, that the greater the amount of money on which these various causes of rise and fall have to work, the narrower will be the limits of the variation. But divide the world in two, — into a world of silver money and a world of gold money, — and you expose each part to a double chance of undergoing these effects, and that too in a measure twice as great. First, because in case of a difference between the demand and supply of the product of the mines it may easily happen that this difference applies only to the production of one of the two metals. And secondly, because if the demand for the precious metals undergoes a change from any of the causes I have mentioned, the effect produced by it will be more or less appreciable, according as the area in which it can make itself felt is more or less limited. We have here, in fact, exactly the state of things which Jevons so admirably explained, by his well-known 36 THE MONETARY QUESTION illustration of the two vessels connected by a pipe, or disconnected. But it is not enough to confine ourselves on this point to mere theory. The opponents of bimetallism not only stand up for a single standard and against a double standard, but they particularly advocate the gold standard as a^^ainst the bimetallic one. But it must further be added that while they take this position, it is extremely rarely that they are logical, and dare to follow their proposition to its logical consequences. Thus, to begin with the case of England : while on one side there is no inclination to abandon the gold standard, on the other there is a desire to keep the silver standard for British India ; it is obvious there is still some slight want of conviction in the matter. Unless indeed there were a wish to keep what is good for oneself, and to leave what is not good for others ; but no one would admit that this is the sentiment of England towards its Indian Empire. And in the same way at the Paris Monetary Congress we have heard j\I. Levasseur asserting that with the double standard not only are fluctuations more frequent, but that there is good reason for supposing that they wiU always tend towards a lowering of price. ^ I need not traverse this first statement again. I have already proved that in this respect the double standard undoubtedly promises to give us much greater stability than the single standard. It cannot be ques- tioned, in my opinion, that even should the fluctuations be more frequent, they will be less serious. This cer- tainly will be an advantage. But if one Ijelieves that there is reason to predict ^ See tlie Cowjrh Monétaire ; Compte Rendu, p. 101 seq. II THE ADVANTAGES OF BIMETALLISM 37 that with the double standard these fluctuations will always tend towards a fall, which is the same as saying that the value of money as a whole will feel the influ- ence of the fall in the value of silver ; then one must have a poor opinion of what is likely to be the stal^ility in value of money in a country with a simple silver standard. And yet M. Levasseur does not seem to think that the East, with no other money than silver, would have any reason to complain. I confess that in all this argument M. Levasseur has some appearance of being, just like monometallist England, astride on two opinions, which are contra- dictory. Let us confine ourselves, however, to the assertion that the gold standard promises greater stability in value than the double standard, and see if that is in itself well founded. M. Levasseur said that those who aflirm that gold is scarce, that it is increasing and Avill increase in value, forget two things. First, that instruments of credit to a great extent take the place of money in exchanges, and that there is still in business ample room for the development of methods of clearing and fiduciary circu- lation. Secondly, that new discoveries may add to the stock of precious metals. I think I may say most definitely on the contrary that those who base their belief in the stability of the value of money under a single gold standard upon such reasons as these are building their house upon sand. It is true, however, that instruments of credit can to a great extent supplement money in exchanges, and in several countries great economies of cash might still be made in this w^ay. But the development of a system of credit here 38 riîE MONETARY QUESTION referred to does not usually arise except in connection with a general movement of commercial progress in a country. Perhaps it is even correct to say that it can only be the consequence of such a general move- ment. And if this is so it follows that although it is possible enough in this manner to do away with the necessity of an increase of cash, yet no real economy in comparison with the former state of things can ever be obtained thus. Take as an example of this what has been happening in Germany during the last few years. The use of methods of clearing at the State Bank of Germany has received a great extension, owing to the trouble taken by the directors of the bank to make the process easy. Still even so the development in this direction has hardly kept pace with the progress of business in general. A proof of this is that Germany has required to increase its stock of money rather than to decrease it b}' handing over even the smallest amount to others. And it is a fact beyond question that in no case, at any time or in any country, has such a recourse to instruments of credit with the view of economisino- the use of metallic money ever been successful, if it has Ijeen attempted to introduce the system in a manner more or less artificial, or in the belief that the only thing necessary to make it succeed was to prepare the way for it by legislative measures. Further, there is another thing to add on the subject of the applications which have hitherto been made of this system ; namely, that the enormous development of it which has taken place in England, has only been possible because it is an isolated case. Rugland, no doubt, transacts its business with a minimum of cash, both for active circulation and for II THE ADVANTAGES OF BIMETALLISM 39 the metallic reserve of her banks, and this serves h'er purpose, although the consequence is that from time to time it is necessary for her to make great sacrifices. But it would be out of her power to carry economies of cash to such a point if she could not count on the stock of money in other countries for the purpose of drawing from them a reinforcement of her own store when the necessity manifests itself. And besides, even though there is room for an economy in cash, — and we may admit for the moment that, when everything is taken into account, this is the case, — there are also new demands for cash which come up from time to time. So that actually already there would be no difficulty in mentioning countries whose monetary affairs are in a very sorry state, mainly, if not entirely, because it has been impossible for them to procure good metallic money. But, it is said, there are likely to be discoveries of new gold mines. M. Levasseur, while charging bimetallists with neglecting to take account of such a possibility, has, however, been honest enough to add in their favour that, if they were silent on the subject, it must be con- fessed that nothing definite was known about it. For the sake of argument, let us allow that it is probable, nay more, certain, that mines will be discovered. But even in this case is it quite certain that the gold will flow in bulk to our old countries with metallic money ? M. Levasseur mentions the gold mines of South Africa as likely to become an abundant source of yellow metal. Still more recently M. Leroy -Beaulieu also called the attention of his readers to these mines, advising them, however, at the same time not to disturb themselves with fears of any danger of a marked depreciation in gold and a marked rise in the price of commodities. 40 THE MONETARY QUESTION "For," said he, "I believe such apprehensions would be premature." > AVdl, tlie trutli is that these auriferous stnita of Africa have taken away from Europe more gold than they have returned to her. In the year 1889 the yield of gold in South Africa rose to about £1,750,000, as against £900,000 in 1888 ; but at the same time the export of gold from England to these countries rose from £1,420,394 in 1888 to £2,390,680 in 1889. And there is nothing astonishing in such a circum- stiinee. Under the influence of the discovery of new gold-mines an enormous development of the fortunate country takes place, and especially when this country has been more or less outside the commercial world hitherto. Further, it is naturally in new countries that there is the most likelihood of such discoveries being made. Then all of a sudden there are railways to be made and towns built, and an enormous mass of new wants to be satisfied. The old European countries send thither their labour and capital ; and as the new society thus improvised will reijuire no small amount of cash, the capital will, to a large extent, be transmitted in the form of specie. It requires a certain lapse of time and a really considerable output before new mines can really feed the stock of money in the commercial world. In fact, it seems that from whatever point of view the question be regarded, there is no reason to find in a simple gold standard a guarantee of a stable value of money in any way superior to that held out by the double standard ; and there are many reasons, on the contrary, which in this respect plead for a bimetallic standard. ' M. P. Leroy -Beaulieu, "Le Sud de l'Afrique" (2me partie), Economiste Française, 26th October 1889. THE ADVANTAGES OF BIMETALLISM 41 Now, if a nation could pick out a nice little place for itself in the midst of other countries, and arrange everything so as best to suit its own interest — a gold standard for itself and some few friends ; only acquiring new territory if new gold mines were discovered there ; having besides a little silver cash as subsidiary coinage, while other nations continued to keep silver as their standard money, so that it should not fall too much in value — then indeed this would be in no way unpleasant, that is to say, for the country in this favoured position. Undoubtedly, but the rest ? what would be their posi- tion ? We are speaking here of the interests of all ; it is that which is under consideration. iVnd, as a matter of ftict — and this is far from being- unfortunate for the rest — no single country has the power to acquire such an exceptional position. Far from it. As thin2;s now stand it is between bimetallism and conflicting standards that a choice must be made ; and however opinions may differ as to what would be the best standard to secure the stability in value of money, if things could be arranged to suit a particular taste, I doubt if there w^ill be found any one who does not shrink from conflictino- standards with all their o consequent uncertainties. But this brings us to the third argument which I have advanced in favour of bimetallism. I said that, in the third j)lace, bimetallism was the best monetary system, because, so far as regards the individual interest of each nation, it affords a better basis than any other for a monetary organisation sound in itself and whose efficiency is likely to be permanent. THE MONETARY QUESTION I confess that this appears to me so obvious as scarcely to need expLiDation. Allowing for the moment that it were possible to lin = 3124 415 ^ = 1968 64 )^ = 63 1878-79 609 378 62 1879-80 672^ 412^ 61J 1880-81 746"^ 531' 72"" 1881-82 820 491 60 1882-83 835 ^ = 4116 521 ^ = 2653 62 ^ = 64 1883-84 882 553 63 1884-85 833^ 557^ 67, It is clearly seen from this table that there has certainly been a slight diminution in the amount of importation relatively to exportation in the five-year period from 1870-71 to 1874-75, in comparison with that of 1865-66 to 1869-70; but already towards the end of the period 1870-71 to 1874-75 the former ratio was re-established, and since then it has even been more favourable still. And the trade as a whole has constantly increased since 1872. Now, let us consider the figures of the import and mintage of silver metal in British India during the same period. I append details of this. 72 THE MONETARY QUESTION Ratio of the mean of SlIAKR M ■:tal. In of portation and Mintage to the Years. Millions of Rupees. total Exportation Importation. iliiitage. of Commodities. Per cent. 18G5-6G 186^ 146^ lf = 367 15-8 18G8-69 86 1 42 1869-70 73J 75j 1870-71 91 171 1871-7U 65 17 1872-73 7 > = 152 40 > = 147 5-3 1873-74 25 24 1874-75 46, 49J 187Ô-76 15^ 25^ 187G-77 72 62 1877-78 146 > = 350 162 y = 424 12-4 1878-79 39 72 1879-80 78^ 103, 1880-81 38"! 44"^ 1881-82 53 29 1882-83 74 ^ = 301 73 > = 247 6-7 1883-84 64 41 1884-85 72j 60^ These figures would no doubt require to be very carefully studied in order to gather fropa them any very definite indications as to the economic situation of the country, and if it were desired to use them for such a purpose many things would have to be taken into account. But, taking them just as they are, they certainly show that the importation of silver to British India and its mintage are far from having assumed any extra- ordinary proportions in these latter years. It rather appears from them — by the way — that most certainly, as the development of the interior of the country continues, there will be found additional powers of absorbing this metal. Yet if there had really been a fall in silver in IV THE PRESENT SITUA TION 73 British India, it could only have taken place in con- sequence of a superabundant importation of that metal. It is evident then that the estimate of what has gone on in British India, according to which we should have to take into account a depreciation of silver and not an appreciation of gold, is again erroneous. And now let us return to the history of the money market. Never has this market been characterised by so great and so constant an abundance of disposable capital as of late years. The rates of discount have rarely been lower, and especially have never remained so long at such a low level. And everywhere the optional conversions of State funds and other securities have been the order of the day. This has been said and repeated a hundred times, and it is certainly a fact which no one disputes ; but we have to estimate its real value. Now it is, in fact, the long commercial and industrial depression which everywhere has caused capital to flow into the money market, to seek there a temporary employ- ment, or else to secure itself against the losses resulting from the lowering of the price of commodities by placing itself in the public funds. The abundance of disposable capital is thus the direct consequence of the appreciation of gold. Capital has turned away from commerce and industry, and has taken refuge on 'Change ; while at the same time the course of events has led to diminished demands on the banks for credit. Thus the position of the banks has become very strong, and the visible stock of money has very considerably increased. Nevertheless this abundance of cash was only very relative ; and this is especially the case with respect to gold money, — for there is room here to make a distinction. It is 74 THE MONETARY QUESTION not to be dfiiicd that the metallic reserve of the lîank of France has become very large of late. But its reserve in silver money is of no use for international payments, and cannot therefore be regarded as having the same importance as the reserve of gold. AVe say then that the abundance of cash in the l)anks — which some persons have considered a sufficient proof that there had not been a scarcity of gold — was only relative. This has been quite evident again and again as the real state of things has manifested itself in demands for gold metal for export. To estimate the situation properly we must specially observe the London market. For, as M. Raffalovitch lately said in his Année Economique,^ " The London market is still the first market of the world, and, if it is desired to compile the balance sheet of a year, it is on this side that we must look first." And I add that we must do the same if we wish to make a balance sheet of the general situation at a given time. Now, ^Ir. Giflen, in an essay on the monetary position, written in 1885," has given a résumé oî what has passed in the London market during the whole period from the beginning of which we date the commencement of the contraction of gold. In this résumé he points out that during the whole period from 1871 to 1885 not a year has passed without the rate of discount having temporarily risen in a high degree. At the commencement of this period, he says, at the moment when the prices of commodities were still at their maximum, but when the " contraction of gold " was beginning, the money market was completely upset. 1 L'Aimee Economique, 1888-89, by Arthur Raffalovitch. Paris, 1889. - " Gold Supply ; the rate of Discount and Prices," Essays in Finance. Second Series, by Robert Giffen. London, 1886. IV THE PRESENT SITUA TION 75 But in the following years also, although then the annual average of the rate of discount was not so high as in the preceding years, which indicates a greater abundance of capital, the market continued to be disorganised ; and in each year there was at least one month during which the rate was very high. From 1875 to 1879 there was regularly a fall of the rate down to 2 per cent, and yet the maxima of the monthly averages rose to 4^, 4f, 4|-, 5f, and 4^ per cent. Formerly, when discount fell to 2 per cent, the maximum rates also continued to be low ; and the new state of things can only be attributed, Mr. Giffen says, to special circumstances. These circumstances continued to make their influence felt, though in a less degree, during the years 1880-85 as well. The whole time, he tells us, we were under the influence of the action of the monetary contraction. However, the influx of disposable capital in the London market, as elsewhere, more and more exerted its ascendency on the state of afl"airs ; and the ultimate result has been that plethora in the money market which reached its maximum in the years 1886 to 1887. But what have we seen since ? From 1888 dates a real reaction, which has declared itself generally in all the branches of trade and industry, and which has been on the increase since about the end of 1889. It has had a double cause. A fairly steady fall in the price of commodities up to 1887 had at length brought them back to a level which was in agree- ment with the new monetary situation. At the same time the political situation, which during long years had contributed to the general depression, began to brighten. Business then revived and seemed at last to take a new start. 76 THE MONETARY QUESTION chap. But all this promising movement lasted but a short time. Soon the scarcity of gold came in again to counteract it. Thus, while in the month of July 1889 the rate of discount in London was still at 2j per cent, it had to be raised to 5 per cent in the month of September, antl to G per cent at the end of the year ; and durinsf more than six weeks it had to be maintained at that rate. With regard to these great fluctuations in the rate of discount in London, we must always, however, take into account the quite special organisation of the money market of the country, and the position in which this places the Bank of England. But still the facts which I have just recalled are extremely significant. Let us add, however, that the demands for gold for Brazil and the Argentine Republic which have arisen within the last two or three years have contributed in a certain degree to render the recent situation of the London market more strained. Still — an important fact to notice — these demands have only been complied with in very trifling proportions. But for a long time past they have been a source of great disquietude, and still are so. The bankers who transact the business of those countries have hitherto succeeded in preventing a larger exportation of gold to those countries, but it remains to be seen whether this can be done for long. Li the meantime a great injury has thus been done to the state of things in those countries, though unfor- tunately this is not the only evil from which they are suflering. However, it is not with this side of the question that we are occupied here. But I ask if it can be seriously maintained that the monetary condition of the commercial world is not feeling the disastrous IV THE PRESENT SITUA TION 77 effects of the scarcity of gold, and that a scarcity does not exist, in view of events such as these. The great lesson to be drawn from the financial events of the last few months is this : ^ that the present monetary state of Europe does not permit either the extension of business in Europe itself, or any foreign operation which may occasion an exportation of mone- tary metal. And certainly it is impossible to pretend that this is a desirable and advantageous situation. To convince oneself that this is indeed the case it is only necessary to look through the London financial papers of recent date. In their perusal nothing strikes us so much as the eternal refrain of a situation good as regards the abundance of capital, but at the same time full of danger on account of the demands for gold which may arise at any moment. But, it will perhaps be said, the state of things in the London market is not to be found on the continent, or at least the situation there is not so strained. Now to this observation the answer is that it is very true that the weak side of the situation does not display itself there in the same form, but none the less it exists. The Q-reat continental banks have not to struooie for the preservation of their reserve of gold in the same manner as the Bank of England does ; still they are no less com- pelled to defend that reserve rigorously, and they take good care to do so, but they do it in their own way. That is all the difference. And the continental banks have indeed rightly acted thus, for the most they have been able to do in this way has been to prevent their situation /rom being endangered by demands for gold. What has not been said in certain quarters on the subject ^ [The reader must remember that this essay was originally printed in April 1890 ; seven or eight montlis before the financial difficulties so clearly foreseen by the author. — Tr.] 78 THE MONETARY QUESTION chap. of the increase of the gold reserve in the Bank of France in 1889, and of the general increase of this metal in the ï^reat banks of late years ? But in this matter isolated fitruros are without any real significance. The irold reserve of the Bank of France increased between January 1888 and January 1890, from 1100 to 1261 millions. That is certainly a great augmentation. But here is the total of the figures, which ought to have been taken into consideration in order to estimate the siffnificance of that aucjmentation : — 5tli January 1888. 2d January 1890. Millions of Francs. Gold reserve . Silver „ . . . Notes in circulation Current accounts Proportion of metallic re- serve to liabilities Do. of gold reserve . Whence it results that in January 1890 the position of tlie bank was not even quite as strong as two years before, and that its gold reserve was still below a third of its liabilities. Let us in the same way examine the position of the State Bank in Germany on the 31st of last December, comparing it with that of two years previously : — 31st December 31st December 1887. 1889. Millions of Marks. Gold reserve . . .566 534 Silver „ ... 200 200 (I believe I am not far -wTong in estimating the silver reserve at 200 millions.) Notes in circulation . .1010 1160 1100 1261 1186 1242 2839 3155 532 747 Per cent. Per cent. 64-9 64-1 32-6 32-3 THE PRESENT SITUA TION 79 31st December 31st December 1887. 1889. Millions of Marks. Current accounts and deposits at sight . . 332 348 Proportion of metallic re- serve to liabilities . Per cent. 57-1 Per cent. 48-7 Do. of gold reserve . 42-2 35-4 We see then to what the gold reserve of the above bank was reduced on the 31st of December 1889 ; and yet this bank too was making a great appearance in the tables which were presented as destroying the " fable of the scarcity of gold." For my part, on the contrary, I assert that the in- vestigation of the money market, provided that the true significance of the facts and figures is duly noted, what- ever be the method adopted in doing so — and there is much to be added to what I have said on this subject — shows clearly that the scarcity of gold is no fable, but a fact which is absolutely true. And here once more I find a confirmation of my position respecting the real cause of the alteration in the rate of exchange between the two precious metals. Consequently the problem with which we have now to occupy ourselves may be stated in the following terms : given that the revolution in the monetary situation resulting from the events of the last fifteen or twenty years has caused the appreciation of gold, what are the advantages which may be hoped for from the adoption of bimetallism ? We have not now to consider the intrinsic merits of the system, which have been discussed at the beginning of this essay. 8o THE MO NE TARY Q UES TION The restoration of monetary unity in the commercial world, the better assurance of the stability of the value of money, and of a more solid 1)asis for the monetary orij:ani»ation of every country, — these are not matters of iiididorence to private interests, any more than to social interests taken as a whole. But here we are dealing with advantages so evident and so important for all, that from our present point of view there is really no more to be said on the subject. We may perhaps be allowed to observe with regard to them that they are advantages of the highest order ; and even should it be found that bimetallism, while ad- vantageous to many of the private interests concerned, niiglit be prejudicial to others, we should have to inquire whether these advantages of the first order do not so take the lead of all other considerations that they alone should suffice to decide the question. Let us then continue our inquiry and try to solve the problem indicated. CHAPTER Y THE SELECTION OF THE RATIO At the outset a difficulty presents itself, in regard to which some explanation seems to be required. The influence which the adoption of bimetallism will exert on the progress of events wall be in part independent of the ratio to be established between the two metals as legal tender money. But in part also this influence will greatly depend on the decision to be taken on this point. Now, if my work w^ere simply polemical, it would be perhaps politic to touch on the question of ratio as little and as late as possible. I might try, in the first place, to convince my opponents, and leave this delicate ques- tion aside as long as possible, and then we w^ould turn our attention to it only in the last place. But here it seems to me that I ought to proceed difi'erently, and state at once my opinion on the subject of the ratio which it would be desirable to adopt. Nor have I any reason for not acting thus, since I have a very decided opinion on this point. I am fully convinced that an international agreement can only exist on the footing of the ratio of 1 to 15^, the old legal ratio of France and of the Latin Union, or else 1 to 16, the legal ratio of America. Between these G 82 THE MONETARY QUESTION two ratios there is, in my opinion, no fundamental dis- tinction to be drawn. But in practice it would certainly be better to keep to \^\. In that case a recoinage of the silver money of the United States would be necessary, but this would present few difficulties. And in the contrary case it would be necessary to recoin the silver money of the countries of the Latin Union and of a good many other countries besides, which would be a much less easy matter. Besides, it would be more logical to return to the 15 J than to stop at the 16. To require, on the adoption of bimetallism as a principle, that France and the other countries which are in her position should make the sacrifice of the ratio of 107,, would be to impose upon them a very considerable loss. It is to be feared that this would be a stumbling- block in the way of agreement and an obstacle really insurmountable. And this the more that nowhere has the hope been abandoned of seeing the divergence between the present rate of exchange between the two metals and the former one disappear, at least in a great measure, even without a bimetallic convention. The United States of America especially cling to this hope. In fact, the United States would only have to resolve to carry things with a high hand, to make silver at any moment experience a great rise in relation to gold. I wish, however, to add, on the subject of the pecuniary sacrifice, that if this were the only point arising out of the question of the legal ratio to be adopted, it would certainly be a piece of good policy for the Governments concerned not to refuse absolutely to take it into con- sideration, and to try to bring about negotiations for a compromise if a difficulty should arise. There are, however, interests of a quite different sort at stake in this matter. And so, for my part, I V THE SELECTION OF THE RA TIO 83 think that although the \b\ is not perhaps absolutely the only ratio on the basis of which an agreement might be arrived at, it is, aljove all, the ratio which ought to be adopted. The j)i'iiicipal reasons which plead in its favour are of a quite special order, with which the question of pecuniary sacrifices has nothing to do. This is how the case stands. The rate of exchange between gold and silver has changed, and at the same time that of gold relatively to other commodities. The reason is that the demands for gold have increased, while the supply has not increased and has even diminished : a contraction of money has therefore been experienced in the countries with a gold standard. And further, this contraction threatens to become still more serious. It is in order to prevent an aggravation of the evil and to establish monetary union in the commercial world (though this is a consideration which need not occupy us here) that it would be necessary to return to the use of silver as standard money side by side with gold. The demand for monetary metal would then fall on both the precious metals, and thus would be less, relatively to the supply, than is the case now when it can only be satisfied with gold. At the same time this monetary contraction in the countries with a gold standard, although very marked, has hitherto been much less strong than it would have become if in reality gold coin only had been made use of as a legal tender. But in adopting the gold standard the different Governments have allowed the silver money which was in circulation to subsist as fiduciary money, with the sole exception of the German Government, which, how- ever, has not entirely carried out the demonetisation of 84 THE MO NE TARY Q UESTION silver. Consequently the monetary circulation of the countries with a gold standard has been augmented by all that amount of silver money ; and this not at the actual selling value of the metal, but at its nominal value. And in the United States there has even been an additional coinage since 1878 of a large amount of silver money, which has entered into the circulation of the country under precisely similar conditions. Thus there has been, for the countries concerned, the whole time that this state of things has lasted, — and it lasts still, — a monetary situation which is decidedly irregular and at the same time full of dangers. But the commercial world in general and society at large have profited by it ; because if in these countries people had acted otherwise, the increased dearness of gold would have assumed still larger proportions, and the rate of exchange between the two metals would have underorone a much more marked modification. Once let the bimetallic standard be adopted by an international understanding, and the situation will become normal ao-ain, the white metal beinc^ then rehabilitated and silver money becoming once more really standard coin exactly like gold. But on one condition — that the old legal ratio be also again adopted. For if this is not done all this overvalued silver money will have to undergo recoinage ; and this would have a twofold efi'ect. First, it would impose on the countries in question the pecuniary sacrifice before mentioned. Secondly, and this is the point to which I am coming, it would cause a new contraction of the monetary circulation, which w^ould be of very great importance. Its importance may be judged by the following figures : — THE SELECTION OF THE RATIO 85 In the United States the coinage of standard dollars had reached on 1st October 1889 the sum of . . . . $340,000,000^ Adding for mintage during 6 months 15,000,000 Total on 1st April 1890 . . $355,000,000 We know that the legal ratio in the United States is 1 to 1 6. Let us suppose now that the legal bimetallic ratio should be fixed at 1 to 20. The recoinas^e would then reduce this amount of dollars by 71,000,000. That is to say, a deficit of 368 millions of francs would be created in the monetary circulation of the United States. We have not such reliable data for Europe as for the United States. But, according to the calculations of Dr. Soetbeer and M. Haupt, we may admit that there must be at present in circulation an amount of at least 5 milliards of francs of silver metal in fiduciary money ; this amount is still in circulation at its nominal value, according to the ratio of 1 to 15^. Let the recoinage of this be made on the footing of 1 to 20, and a deficit of 1,125,000,000 francs would be at once created in the monetary circulation of Europe. The two sums united make a total of about a milliard and a half; or nearly £60,000,000. Now, according to the latest estimates of Dr. Soetbeer,- the monetary circulation of Europe, the United States, and Australia may be taken to amount at the present time to — 1 Annual Report of the Secretary of the Treasury, 1889. Ajipendix A, p. 95. 2 See Soetbeer's Material e7i. See also in the Compte Bendu in Extenso of the Monetary Congress of Paris, the Eeport on the Materialcn of Dr. Soetbeer by M. Coste, and the statement of Dr. Soetbeer on tlie pro- duction of gold and silver from 1885 to 1888. 86 THE MONETARY QUESTION chap. Fr. 17,400,000,000 gold money and 10,500,000,000 silver money Total . Fr.27, 900,000,000 and there would result, therefore, from the above recoin- ao^e, a contraction of the entire monetary circulation of these countries by more than 5 j^er cent. And in this I have only taken into account the recoinage of silver money properly so called, not that of subsidiary money. Nevertheless it would be undesirable that the latter should not undergo a similar recoinage. Now in this case the deficit created in the monetary circulation by the necessary recoinage would be augmented by more than a half. Let us take yet another point of comparison : — The annual production of gold is at the present time, still following the latest statistics of Dr. Soetbeer . . . Fr.540,000,000 From which deduct for industrial uses 270,000,000 There remains . . Fr.270,000,000 The production of silver is at its present selling value . . Fr. 530,000,000 From which deduct for industrial uses 70,000,000 There remains . . Fr. 460,000,000 Production of gold and silver together, net amount, 730 millions. It would therefore require the entire production of two years merely to make good the above deficit, without leaving a centime for the natural increase of the world's currency, or for hoarding. And the ^jroduction of three years would be required if subsidiary money were also submitted to recoinage. V THE SELECTION OF THE RATIO 87 To choose such a mode of inaugurating measures intended to remedy the monetary contraction, from which the commercial world has now been suffering for more than fifteen years, would be in truth the height of folly. The pecuniary loss, that is to say, the loss of capital which would be imposed in this way on the countries concerned, would only be, I repeat, the least of the evils thus caused. A new disturbance of prices would result, a general fall exceeding perhaps that w^hich we have witnessed already, and which would be the more difficult to bear, because it would be produced in a much shorter space of time. There could only be one remedy for the commercial and social confusion which would thus be created. Not only must all exportation of silver and gold to the East, and generally to those countries which at the present time have the silver standard, be stopped for three or four years, but besides that those countries must begin to export gold and silver to Europe and the United States by hundreds of millions. Now this again is hardly feasible, and should it take place the result would be a great disturbance of prices in those countries also ; so that in the same degree as the general disturb- ance abated in importance in Europe and the United States, it would extend, on the contrary, to other countries. To all this there is but one conclusion. It is that the adoption of the bimetallic system on the footing of a ratio of 1 to 20 ought really to be regarded as an impossibility. We absolutely must return to the ratio of 1 to 1 5-^, or at least to a ratio not far removed from this. I venture, then, to invite special attention to the considerations which I have brought to bear in favour of 88 THE MO NE TARY Q UES TION the re-establishnu'iit of the ohl French legal ratio. For it seems to me that even amongst bimetallists the great importance of this cardinal point is not always sufHciently taken into account. Let ns examine, however, the reasons brought for- ward in support of the adoption of a different ratio. Or rather, let us see what are the objections especially raised against the ratio of 1 to 15^. We cannot do better in this reference than follow the Second Part of the Final Report of the English Commission, the special Report of those members of that Commission who declared themselves opposed to the adoption of the bimetallic system, and especially to the re-establishment of the said ratio. The first objection which we find stated is that if the events of the last twenty years have caused an increased dearness of gold, which has produced a general fall of prices, or has shown itself in this way, the result of a return to the ratio of 1 to 15^ would be a movement in the opposite direction. A general rise then would follow, and thus, by an act of the State, the bearing of all contracts between debtors and creditors, as well as of all commercial contracts, w^ould be modified. The rise of prices might be considerable and lead up to a commercial crisis ; and it might be above all injurious to the working classes, since wages do not always follow the movement of prices. But in any case, it is said, the measure would be un- just. It would not bring any remedy to the losses sustained before, but would cause new ones ; and if it is difficult to bear losses inflicted by events in which State action has no influence, it is quite a different thing to have to endure them in consequence of its interference. Besides this interference would be doubly culpable, because the V THE SELECTION OF THE RATIO 89 monetary organisation ought not to be meddled with except in extreme cases, and certainly not in order to provoke an artificial rise in prices. The objection of the English Commission is therefore founded on two assertions. The adoption of bimetallism with the ratio of 1 to 15^ would provoke a rise of prices, and is objected to on that ground. And there would be brought about an intervention of the State in an order of things in which hitherto its action has not been felt. As to this first point we have seen already that Mr. GifFen has raised the same objection, or at all events that he too foresees a rise in prices as a consequence of the adoption of bimetallism. And the Times, adopt- ing this view in a leading article of 4th January 1890, said that this is at bottom what the bimetallists are aiming at. At the Congress of Paris M. Levasseur also said that if the reunion of the two precious metals in the ratio of 1 to 15^, to make of them but one mass, one single monetary stock, could be done gradually, he would not have the same objection to the change which would result from it as in the contrary case, but that he too expected that such a measure would cause a sudden and important change, silver then reappearing as master of the situation as if by a coup de théât7'e} Well, I have just demonstrated that these fears and prognostications are without foundation. On the contrary, if we want, as far as possible, to leave things as they are, what we must have is bimetallism at 1 to 15^. And what the partisans of the system are aiming at is not to create a new commercial and economic disturbance, but only to put a stop to the appreciation of gold and all the evils which it has occasioned. And whence indeed should come this sudden rise of ^ Compte Rendu in Extenso, p. 105. 90 THE MONETARY QUESTION chap. prices which is dreaded ? In Europe and the United States silver money is still part of the monetary cir- culation, at the ratio of 1 to 15j or of 1 to 16. And though, as I have said above, the experience of the past teaches us that the export of the precious metals to the East may, under the influence of exceptional circum- stances, slacken for a certain time, or may perhaps for a time cease entirely, yet we could never expect that those countries should on the contrary themselves export monetary metal. Lastly, as to a stock of unmintcd silver, which is said to be waiting for a ftivourable moment to pour itself upon Europe, — I am once more relying on Dr. Soetbeer, — there is none. Then are we not to look for a rise of prices at all ? I think that would be saying too much. A certain upward movement of prices in general would be quite probable, were it only through the moral effect of the de- liverance from the present situation, which during all these late years has weighed like a nightmare on the com- mercial world. Trade and industry, no longer feeling themselves held in by the bridle of the monetary situation, would take a fresh start ; and probably this would not take place without some improvement in prices. But there would be nothing in this movement to cause uneasiness. It would only be the healthy and vigorous recovery of business which we have desired for so many years, by which the working classes would be the first to profit. "I am somewhat surprised at economists groaning over the general fall of prices" — thus M. Levasseur expressed himself at the Paris Congress.^ The effort of men in production, said he, has it not for its aim the abundance and cheapness of wealth ? Certainly abund- ^ Compte Rendu in Extenso, p. 90. V THE SELECTION OF THE RATIO 9» ance and cheapness of wealth is and ought to be the universal desideratum. But who does not know that abundance and cheapness are not synonymous with fall of prices ? The fall of prices which has prevailed in con- sequence of the monetary events of the last twenty years has been most prejudicial to the development of production ; and the low prices which it has procured for us have been the prices of a state of poverty and suffering, suffering especially for working people, to whom the reduction of wao^es and the diminution of work have done immense harm. If an end were put to this fall of prices, we may rely upon it most people would not complain of it, and society at large would greatly profit. But as to a factitious and artificial rise, there is no reason why it should be produced. I will not deny, however, that when business is active there is more danger that the commercial and industrial movement may be pushed too far, and so give rise to exaggerated speculation, than when all is languishing, and trade and industry are under the influence of a general depres- sion. But must we then prevent what is good because some evil may come out of it ? And besides, a period of depression such as we have known of late years is much more injurious to trade than the worst of those crises which are so much dreaded. Indeed this very period of depression has engendered commercial crises just as much as an excessive activity of business could have done. The crises which are occasioned by depres- sion merely have a diff'erent aspect, but they occur all the same. Have not the speculations in metals, which we have seen of late years, terminated also in crises ? And it is really in that very depression, in that con- THE MONETARY QUESTION tinueJ 1m 11 of prices, that the origin of these specula- tions must be sought. People have tried to react against the fall and to force a rise, this time really an artificial one, and so have upset the market, just as might be done at another time by simply exaggerating a natural movement upwards. But we should have to deal — the English Com- mission also said — with an intervention of the State in an order of things in which hitherto its action has not made itself felt. This is, it appears to me, an argument of which the premises are not correct. The monetary situation of a country, up to a certain point, depends infallibly on the legislation on that subject ; and the legislator may not only transgress by his action, he may do so quite as much by his inaction. The English Government has pleaded extenuating circumstances because it was not the one which took the initiative in the measures from which the present condition of affairs is suffering. The plea may pass. But it cannot be a reason for continu- ing to do nothing. Already there is a heavy responsi- bility weighing on England, since it was she who, by refusing in 1881 to rally to the j^roposals of France and the United States, made the execution of them im- possible. And how much easier it would have been to adopt bimetallism then than now; how many of the inconveniences which are inherent in any change of the monetary system would have been felt in a less degree — what evils and miseries would have been prevented. But all these are vain regrets. What is important now is to shake off inaction at last. The consequences of the abstention of the British Government from joining the other States to solve the monetary problem have unfortunately made themselves V THE SELECTION OF THE RA TIO 93 thoroughly felt. Whether it acts or does not act, its share of responsibility for the resulting situation is the same : that is the position. Another objection which is raised Ijy the English Commission against the bimetallic ratio of 1 to 15^- is, that there would result from it increased difficulties in the practical cipplication of the system. We should have to fear, it is said, that it would be an additional reason for some people to give a preference to gold in spite of the bimetallic régime, and to hoard this metal ; and at the same time the dans^er of seeino- the inter- national agreement break up at any moment would be increased. Here it is clear that we have to do with persons who are not convinced of the truth of the theory of the system. But perhaps, too, there is something else. In the countries of the Latin Union, in Holland, etc., people readily grasp the notion that four pieces of five francs, for instance, would really again have the same value as the gold piece of twenty francs. But in England the present generation is not practically acquainted with the system of the double standard — hence a certain hesitation in properly representing to oneself what it would be in practice. It is indeed j)ossible that this disposition of mind might still continue when bimetallism was first adopted ; but no doubt it would soon pass off, and the influence which it might have on the state of things could not but be very limited. England, we read again, is in possession of numerous obligations payable in gold, and any measure which might diminish the purchasing power of that metal would be prejudicial to the country. I confess that this is an aroument aoainst which nothing can be said. If the interests in question are to 94 THE M ONE TARY Q UES TION take the lead of all other English interests, it would certainly be right to oppose anything which would hinder a further increase in the scarcity of gold; thouo-h such a policy would be one of expediency rather than of justice. But I doubt whether the majority of English people would not object to such interests being put in the front rank. In the first place, the com- mercial interests of the country would in this way be sucriticed to the class of fund-holders {rentiers) ; and, secondly, there are in England itself a considerable number of debtors mixed with the creditors, and they certainly do not deserve less consideration. In short, we can understand that the London Stock Exchange should attach importance to the above argument, but it is inconceivable that the Government should be led by it. Next to the English creditors it is the proprietors of the sold mines of Australia and of the other colonies who are the objects of the consideration of the signa- tories of the Second Part of the Final Report. It is a curious thing to meet with such an argument here, since in England people are so often pleased to accuse l)imetallists of being protectionists (though they are only trying to eliminate the obstacles which inter- national commerce finds in the present monetary situation), because they are believed or reputed to be defending the interests of the proprietors of silver mines. How often has this reproach been made to Americans ; and at the Paris Congress, too, this assimi- lation of bimetallists to protectionists was a favourite topic with their opponents. Now, it is undeniable that we find in this passage of the English Report this very protectionist argument of which bimetallists have been accused. V THE SELECTION OF THE RA TIO 95 But let me take the opportunity of saying that nothing can be more unjust than this accusation of protectionism brought against bimetallists as such. They demand that the white metal should be restored to its ancient place as monetary metal, because it is for the public interest ; and this is their only crime. There is no more protectionism in favour of silver in desiring its rehabilitation, than there is protectionism in favour of gold in ojDposing this desire. That, at the same time, there may be in the United States partisans of bimetallism who have rallied to it because they find it favourable to their private interests is possible, or rather we know that it is the case. But this is no reason for doubting the sincerity of American bimetal- lists in oreneral. Lastly, the English Commission, with reference to the question of the 15^, devotes its attention to the different interests concerned in British India. Now, it is not to be denied that here is really the weak side of the situation, in view of the re-establish- ment of the former ratio of gold and silver. The course of exchange between England and British India would be most seriously affected by it, and a sensible modifi- cation of prices in India would be the result. But whatever might be the injuries thus caused to numerous private interests, there would be compensations not less important. First of all, the public finances would find here an immense advantage, and this would be a benefit to the whole population. Then, if only the Government were to take advantage of the new state of things to undertake on a large scale works of public utility, with capital borrowed from England, it might thus neutralise in a great measure the disadvantageous con- sequences of the sudden change from the situation into 96 THE MOXETARY QUESTION which the country has been brought by the present state of tilings. It remains for me to recall, in reference to this question of the 15^, a special consideration which has an importance of its own. The ratio in exchange of the two metals, previous to the events of 1870 and the following years, had, during more than two centuries, only varied within tolerably narrow limits. From the middle of the seven- teenth century to 1870 the ratio maintained itself between 1 to 14^ and 1 to 15f ; and yet what changes there were in that long space of time, as well in the movements of the production of the metals as in the monetary legislation of the different nations. But after 1870 this comparative stability of the ratio gave place to violent fluctuations, and, in the end, to a very great depreciation of silver in comparison with gold. It is in vain to seek for the cause of this in the variations in production during this latter period. We may say, on the contrary, passing over the details of events, that it was entirely the result of the illusion which led Europe to believe that silver might be dispensed with as money properly so called, gold alone being sufficient. Now, if by the adoption of bimetallism a return is made to the simultaneous use of both metals, this will be, so to speak, an acknowledgment that this belief has been mistaken. But then if we would be consistent we must also return to the old ratio. To substitute for that the ratio which has resulted from the mistake w^hich was made would be to perpetuate rather than to remedy the oritrinal blunder. CHAPTER VI THE PROBABLE CONSEQUENCES In treating of the question of the ratio of 15^, I have already spoken at the same time of the results to be expected from the adoption of bimetallism. This sub- ject, however, is of such great importance that I cannot abstain from making it the subject of some further observations of a more specific character. But to avoid repetitions as far as possible I will be brief. The evil from which Europe and the United States, or rather all the countries with a gold standard, have been suffering for nearly twenty years is, as I have al- ready shown at length, the scarcity of gold. Let me here make an observation by the way. I wish to make it clearly understood that in expressing myself thus I do not mean that this is the only evil from which the economic situation has suffered during this period. Thus there has been in addition anxiety on the subject of the political situation, which has during all these years exercised — sometimes more, sometimes less — a disadvantageous influence on business and on the spirit of enterprise. There have been greater military expenses, which, steadily increasing and demanding very heavy sacrifices, both pecuniary and of human productive force, have weighed heavily on the general production. And it H 98 THE MONETARY QUESTION is certainly in these causes, at least in part, that we must seek the explanation of the fact that the general uneasiness has been more felt in Europe than any- where else. There have been also other economic facts which have been prejudicial to a certain number of private interests, if even they were advantageous from the point of view of the general interest. Thus it cannot be doubted that the fall in the price of corn which resulted from the extension of the means of transport, and other events of the same nature, inflicted serious losses on the agriculturists of Europe. These losses indeed were com- pensated, and more than compensated, by the great abundance and cheapness of corn, so far as regards the interests of the population in general ; but at the same time they have affected not only the persons directly concerned but others besides, in consequence of the solidarity of economic interests. But beyond these various facts which have contri- buted to the uneasiness and general depression in many countries, without, however, having the same influence everywhere, there has been the evil we have named, from which the whole economic world has suffered : the scarcity of money in countries with a gold standard. In two ways this scarcity of money has had an un- favourable influence on the course of events — through the lowering of prices and by the disturbance of financial contracts. There are two points to be distinguished on the subject of this lowering of prices, which is the result of the scarcity of money. Let us first recall the well-known fact that as it is true that in the long run the influence of the monetary condition will be felt upon all prices equally, so it is also certain that a change in that condition will only influence prices gradually. VI THE PROBABLE CONSEQUENCES 99 It follows that this change is in itself an element of uncertainty in business, and in that way, if in no other, is more or less injurious to it. Secondly, even when the fall in prices which results from the scarcity of money is only apparent (in the sense that there is really only an alteration in the ratio of exchange between the commodity whose price has fallen and money, and not between this commodity and other commodities), the effect which this fall pro- duces to the eyes of him who suffers the consequences is the same as if it had been otherwise ; and it follows that this is always a cause of discouragement in business. But this is not all. For the manufacturer and the trader the fall of prices, though it may present itself under the above condition, will be for the most part also a cause of very real losses. A commodity is for them, at the moment of realisation, the product of a great many previous expenses ; and to repay themselves they must realise, not an amount which may then have the same purchasing power as the sum expended at the moment of disbursement, but an amount absolutely the same. And this will esj)ecially be the case if the capital required has been obtained on credit. Had it been his own capital only which the manufacturer or trader had used, he would merely have sustained a nominal loss on this capital ; and even this he might have escaped by not entering upon such operations. But when business is carried on by the aid of borrowed capital, in whatever form, it is a very different thing. The borrower in this case has to support, besides the losses which the unequal movement of the fall of prices may perhaps inflict upon him, all the loss involved in the effect of the increased dearness of the monetary metal upon the burden of his debt. loo THE MONETARY QUESTION chap. Now if we take into account the numerous forms under wliicli these loans are carried on in commerce and industry, we shall find that the total amount must be immense. There are first the operations of credit pro- perly so called ; and there are besides those disguised loans which are included in all transactions not strictly for ready money. Then, as regards industry, it is often the case that the fixed capital of the undertaking has only been obtained by means of a loan. We have only to add the sums borrowed by joint -stock companies engaged in industry or commerce, the debentures and obligations of all sorts wdiich have to be counted, and wc arrive at a total really colossal. There are also an immense number of essentially similar loans which are made to private persons. Consequently the increasing scarcity of gold cannot but have been an event really disastrous for commerce and industry. And it is quite natural that there has ensued what has been observed everywhere, a real slack- ening of commercial and industrial activity. First of all, general production has suffered. This explains the fact that during the whole period of the appreciation of gold prices have indeed been low, but yet it has not been a period of real abundance. And secondly, it is on the working classes especially that the state of things has w^eighed heavily, because for them the restriction of business means diminution of work and lowering of wages. But not only working men properly so called have thus felt the consequences of the monetary situation. It is clear from what I have just said that the whole industrial and commercial class has borne the weight of it. But what we must especially observe in all this is that the question is not of losses sustained by some, and 772^^ PROBABLE CONSEQUENCES by which others have profited; for if such has partially- been the case, it has not been the characteristic of the recent course of things. The principal result with which we have to do is the slackenincf of commercial and industrial activity, and the restriction of produc- tion. It is perfectly clear that from these there must follow a diminution of prosperity and of the general wellbeinsr. As to the disturbance of financial contracts which resulted from the increasing scarcity of gold, this on the other hand merely causes a transfer of wealth. The loss of the debtors has become the gain of the creditors. Still, what happened here has not been without signifi- cance from the point of view of the general interest. For the creditors are for the most part the fund- holders and great capitalists. The debtors on the other hand are the workers of every sort. And whatever be the social utility of capital, and although it is undoubtedly necessary that private capital should be respected as one of the bases of society, it is certainly neither for the public interest nor fair that capital should be indirectly benefited to the detriment of labour. There are still two special cases which call for notice here. I refer to land rents and the public debts. The appreciation of money augments the annual rent of the farmer to the profit of the landlord. Here is to be found in part the explanation of the fact that the agricultural class has been so especially affected by the recent monetary situation. As to the question of the national debt, it will be sufiicient, in order to appreciate its significance, to remember the important place which the service of the debt takes in the public expenses of almost every THE MONETARY QUESTION country, and the great importance of these expenses relatively to the distribution of the net produce of the annual production amongst the population. But in all these questions of financial contracts there is one consideration which ought to occupy us even more than that of the different interests concerned. We have in fact to ask before anything else, What does justice demand ? Here I am entirely of the same opinion as M. Levasseur, when at the Paris Congress he said he could not approve of recourse being had to bimetallism as a means of procuring an alleviation of public debts. ^ But 1 hasten to add that, so far as I know, such a desire has never been expressed by any bimetallist. What bimetallists ask is only that an end should be put to a monetary situation, which in a disguised w^ay augments the burden of these debts. And if it is only just that the State, as M. Levasseur said, should not aspire to a result which would ruin its creditors, it is no less just that the State should not permit the continu- ance of a monetary system which for the benefit of its fund-holders ruins its taxpayers. But ]\I. Levasseur says further : " Since the ideal, which would be a standard absolutely invariable in its value, cannot be realised, let us allow the standard to vary in accordance with the natural laws of exchange, but do not let us advise the State to throw its sword into one of the scales of the balance." Similarly M. Passy, in speaking of the relation between creditors and debtors, said : "It is not the business of the law to favour either ; it ought to make contracts respected and hold the balance equal between all." ^ Now there is one thing I must ask, namely, how ^ Compte Rendu in Extenso, p. 93. 2 juj^^^ p 193. VI THE PROBABLE CONSEQUENCES 103 M. Levasseur and M. Passy, while using such a weapon against bimetallism, can at the same time approve of the conduct of the French Government in suspend- ing the free mintage of silver. Has it not, in acting thus, thrown its sword into one of the scales of the balance ? It seems to me that it has certainly done so ; and I have already said that in taking that measure at the time it did rio-ht. But let it continue to do now what it did then, that is, continue to act as circumstances show that it is necessary to act. And that is in fact what the demands of the bimetallists come to. They hold the standard of justice as high as any one else. But they do not think that it is contrary to justice for Government to go back upon a measure, when it no longer produces the results which one has a right to expect from it. Now, in the present case the bimetallists say that the exclusion of silver from ranking as real money along with gold, and on a footing of perfect monetary equality, does a great wrong to a large number of individual interests as well as to the public prosperity in general ; and consequently they demand the rehabilitation of that metal. But here another question presents itself. Would the adoption of bimetallism replace everything in the state in which it was before the recent monetary events ? From what I have said before it will be seen that I for one think that it will not. Bimetallism will put an end to the appreciation of gold, and by that will remedy the present state of things. It may, further, produce a certain reaction which will, however, very much depend on the circum- stances of the moment. But there is no reason to I04 THE MONETARY QUESTION chap, vi expect that the result will be a complete reaction in prices, and all that such a reaction would involve. And that it would not do this, certainly, is not a matter for regret. For, as the Report of the English Commission says, it would not be a reparation of the evil which has been done — or at least only to a very partial extent, — it would rather be a source of new evils. Still, even if there were reason to fear a very stromr reaction, this would not be a sufficient cause for renouncing bimetallism. The chief thing is that the present situation should not be prolonged ; for as long as it lasts we shall have the continuation and conse- quently the aggravation of all the evils which it has engendered, of all the wrongs which it has produced, all the miseries which it has caused. And — we must always return to this — it will mean the keeping up of that monetary dualism which in itself is a very real evil, and a serious obstacle to economic and social progress. CHAPTER VII M. CERNUSCHl's SUGGESTIONS FOR A BIMETALLIC AGREEMENT I COME now to the proj^osition of M. Cerniischi con- cerning the method of applying the bimetallic system. It amounts to this, that England, Germany, the United States, and France should simultaneously adopt one and the same monetary system, of which the unit should be — The Juste in silver of the weight and fineness of the five-franc piece. The Juste in gold of the weight and fineness of a United States gold dollar. The first question to be considered is that of the ratio which would thus be established between the two metals. Now the true weight of the silver five-franc piece being 25 grammes, at the standard of ^^^y fine, and that of the gold dollar 1*67 18 at the same standard, the ratio between gold and silver would be that of 1 to 14-9538. The difierence between this and the old French legal ratio would, therefore, not be very great. At the same time the divergence would not be entirely unim- portant, and there would be no motive for it. If, in adopting bimetallism, we were to return to the io6 THE MONETARY QUESTION chap. old ratio, the 15j of the monetary régime of France and the Latin Union, even those who did not approve our action woidd recognise that it was based on an intelli- trible principle. And in the same way we should be acting intelligibly if, when the agreement were con- cluded, we were to adhere to the existing ratio between the two metals in the open market, or to the average of that ratio during a certain period. But what reason, can there be in taking as the basis of the bimetallic monetary system the ratio of value which exists quite accidentally between the French five- franc piece and the American gold dollar ? Evidently none, except that of borrowing the monetary unit partly from France and j)artly from the United States. We might just as well take as monetary unit the Juste in gold of the weight and fineness of the gold five-franc piece ; and the Juste in silver of the weight and fineness of a United States silver dollar ; and this would even be in some respects preferable. The result of it would be a ratio of 1 to 16*57, which would give a partial satisfaction to those who desire a mean between the old French leral ratio and the recent market ratio. For my part, however, I do not see the necessity of making such a concession to the antagonists of the 1 b\ ; and I have already shown why it is really not desirable to deviate ever so little from that ratio. But I think that a deviation in the opposite direction would be quite as bad, and in some respects, I confess, still worse. It would be giving an extra value to silver for which there is no real reason. But there is much more than the question of ratio in the proposition of M. Cernuschi. If the international monetary union should be agreed upon on this basis, it would imply for France and the vil M. CERNUSCHFS SUGGESTIONS 107 United States the partial recoinage of their money, and for England and Germany the recoinage of all their money. It would thus impose on all the contracting parties an enormous expense, and expense would be the least of the evils of this recoinage. For France, for instance, this is the position which would be created. Her silver money would remain as it is. But the standard weight of the gold money would have to be increased from 1*61290 gramme for every 5 francs to 1'67182 gramme, or, in fine gold, from 1*4516 gramme to 1*5046. This would in fact make it necessary to withdraw all the coined gold from circulation ; whilst for every kilogramme of gold thus obtained, and costing 3100 francs of the old money, plus the loss upon the gold in consequence of the wear of the coin, there would only be reminted an amount of Justes equivalent to 2990*75 francs of the old silver money. These Justes, however, would not, of course, make 2990*75 francs in gold, but 598*15 Justes. But what would be the ratio between the new money and the old, between the Juste and the five francs before the re- coinage ? Would it still be the piece of five francs in silver — the new silver Juste — which would have to be paid to settle an old debt of five francs, from which it would also result that it would require 620 Justes in gold to pay an old debt of 3100 francs? In this case the State would have to bear the loss of the recoinage of the gold, a loss of 109*25 francs on 3100 francs ; and, what is far more serious, all old contracts would undergo a proportionate alteration. Evidently this could not be the solution. But it would have to be, on the contrary, that an old debt of five francs would no longer entitle the creditor to the old silver piece of loS THE MONETARY QUESTION chap. five francs — which indeed would be only fair, since at present it is on the value of gold that the value of French money depends. These, then, would be the consequences of the mone- tary reform. First, that in spite of the silver coin having remained the same, the old monetary unit would no longer hold good, and all the contracts expressed in francs would have, when due, to be paid in new money according to the value of the new money in terms of the old ; for example, the old piece of five francs in silver would be enough to liquidate a debt of 5 '18 francs. Secondly, the holders of silver money would profit by the increased value of that money. In England and in Germany the position would be less complicated. But the recoinage of the whole money of the country would be imposed as an absolute necessity upon both these States. At the same time they w^ould have to make the sacrifice of their existing monetary unit as their money of account. Besides, in the case of England, the recoinage of her money under the desired conditions would also involve the alteration of its stand- ard of fineness. The mere annoyance and confusion which would flow from this measure are enough to make it incredible that it could obtain the consent of the Governments con- cerned. And so much the more that it would not be a case only of temporary annoyances, but that these would continue to make themselves felt for a lono- time to come. At present there are between the gold coins of Eng- land, Germany, and the United States the following differences : — England : 1 sovereign — 7 '32238 grammes fine gold. Germany: 20 marks = 7-168455 „ „ United States : 5 dollars = 7*5232 vu J/. CERNUSCHPS SUGGESTIONS 109 These differences are so important that it is not possible to pass them over, and to establish simple pro- portions of value between the old monetary unit of these two countries and the new international unit. Consequently there would be long calculations to be made at every liquidation of old contracts and accounts. From all this there is, in my opinion, one conclusion only to be drawn : namely, that the mode of appli- cation of bimetallism which M. Cernuschi proposes would create great dijSiculties in putting the system in practice. And it is important to observe that this would be so for two reasons : in consequence of the ratio of value between gold and silver w^hich would result from it, and in consequence of the complications occasioned by the method of procedure. Besides, I have as yet named only the principal difficulties which would have to be taken into account. There would be others besides. But these difficulties would be of a different order, and are such as would always be met with if the agreement to be concluded was to have for its aim the constitution of a monetary union similar to the Latin Union, instead of being confined to an understanding on the subject of the identity of the monetary standard. Yet this latter is the only thing necessary for putting the bimetallic system into practice. This is a point which we cannot insist upon too strongly. How many times have we not heard bimetallism combated for reasons drawn from experi- ence of the difficulties to which the Latin Union has given rise. Now all these difficulties have arisen solely because there is a unity of coins between the contracting parties of the union, and in consequence the coins of the different countries have been able to pass their respective frontiers, not merely to serve as payment, THE MONETARY QUESTION but to enter into the circulation of the country which has imported them. And if there is a unity of coins l)et\veen different countries, instead of merely an identity of monetary standard, there must also be agreement concerning many more details than in the contrary case. It was precisely in this settlement of the details of the monetary organisation that the signatories of the Second Part of the Report of the Gold and Silver Com- mission saw another obstacle to the conclusion of an international arrangement. It is incontestable that the more the different Governments can be left a free hand in regard to the details of the monetary organisation of their respective countries, the better it will be. Now the understand- ing on the subject of the bimetallic standard will in no way require that everything connected with money should be regulated and agreed on by the different con- tracting parties. It will be enough if an agreement is made on the subject of the legal ratio to be established between the two metals, and concerning the measures to be taken in order to ensure their free and unlimited mintage, or else — which would produce the same effect — concerning their acceptance in any amounts by the Treasury or Bank of the country at the legal rate of currency. M. Cernuschi himself submitted to the Monetary Congress of Paris a draft of a bimetallic convention,^ which I permit myself to set against the proposition contained in the conditions of his competition. There are in this draft convention some stipulations which it would perhaps be well to modify or draw up somewhat differently ; but so far as regards the essentials of the convention and its scope, I do not think there is ^ See the Gompte Rendu in Extenso, p. 137. M. CERNUSCHPS SUGGESTIONS anything to find fault with. For my part I fully assent to it. But, I repeat, I do so while making a marked distinction between this draft convention and the scheme suggested in the conditions of the competition. I would make, however, one or two exceptions. M. Cernuschi has on both occasions named only England, Germany, the United States of America, and France as the parties contracting or concluding the desired agreement. Now it seems to me that it would be desirable that on the contrary the understanding should be, from the first, as general as possible. Italy, Belgium, and Holland ought certainly also to take part in it. The adhesion of Spain and Portugal would be desirable, and also that of Austria and Kussia, though in the case of these two States it could only at present be given conditionally. Lastly, I do not see why the Empire of British India should not also be called upon to take part in the bimetallic union. My second observation concerns the last clause of M. Cernuschi's draft convention. According to what is there said, any of the contracting parties might leave the convention at the end of each successive period of ten years. And it appears that, according to the inten- tion of the author of the draft, the convention would then be broken up. I do not at all consider that it would be necessary to make a general rupture of the convention thus dependent on the will of a single one of the contracting parties ; and it certainly ought not to be so prescribed, in case there should be, as seems preferable, a larger number of parties to the understand- ing. It would be desirable to use every means in our power to give a character of stability to the convention. CHAPTER VIII REMEDIES OTHER THAN THE ADOPTION OF BIMETALLISM — CONCLUSION There is one more aspect of the monetary problem which I cannot pass over in silence. What will happen if it continues to be impossible to establish the international agreement which is necessary for the adoption of bimetallism ? Such is the question which must occur to us, unwilling as we may be to consider it. Though it may be impossible to find a definite answer, it seems to me useful to turn our attention to the prospects which present themselves. At the Paris Monetary Congress several speakers, and especially M. Coste and M. Levasseur, pronounced for the status quo, but on condition that it should be definitely established ; that is to say, these speakers desired that France should keep to gold as the only coin having full legal tender power, whilst silver coin should be reduced to the function of subsidiary money, its power of legal tender being limited to an amount which might be 500 francs, or something more, but which at all events should remain below 1000 francs. And M. Coste added expressly that he should not consider this settlement of the monetary problem as applicable only to a part of Europe, but as capable of CHAP. VIII OTHER REMEDIES— CONCLUSION 113 being generally adopted in Europe and America and introduced in India ; and it would then probably create, he said, in each particular country, national demands for silver which would suffice to maintain the value of that metal/ In calling this solution " the maintenance of the status quo," I have only done so in order to use the terms of the speakers themselves. But I do not in the least admit that if this proposal were adopted we should be maintaining the status quo. It is one of the distinctive features of the present state of things that in the principal European countries and in the United States of America, silver money of full legal tender power makes about a fourth part of the monetary circulation taken as a whole. Now if this unsatisfactory money — unsatisfactory only because of the position assigned to it by legislation — has been able hitherto to continue to hold this place in the circulation, it is solely because it has not been deprived of legal tender power. But directly that is done it will be thrown out of circulation in milliards. Thus, to begin with, the banks will not any longer be able to use it as metallic reserve ao-ainst their notes and other eno-a^e- ments. The Bank of France in particular would be in a fine position, with 1200 millions of coin which would not be legal tender except for payments of less than 1000 francs ! It was not then the status quo which M. Coste was proposing ; and it is impossible that the consequences of the measure which he asks for should answer to his expectation. There is one point, however, on which I am quite of his opinion, as I have indeed said before ; namely, that ^ Compte Bend H in Extenso, ji. 65. I 114 THE MONETARY QUESTION chap. there is ample, and very ample, room in the circulation of the commercial world, first in Europe, and still more elsewhere, for silver money. But it is on condition that it is placed on an equality with gold money. To desire on the contrary to reduce silver money to the part of subsidiary money, is to give an impulse — whether we wish it or no — to the continuance of the demonetisation of the white metal. And let it be well understood, if Europe should again begin the demoneti- sation of silver, we should have to fear that the fall of silver relatively to gold would also begin again, and at a erreater rate. Now the g-reater the difference became between the market ratio of the two metals and the old legal ratio, the less would it be possible to preserve for silver money any important place in the circulation. It is therefore idle to say, as M. Levasseur did at the Paris Congress, that there is no intention of keeping- silver out of the circulation;^ it is in vain for him to defend himself, as he and M. Coste did, against the charge of being a gold monometallist : the solution of the monetary problem which these speakers proposed inevitably leads to gold monometallism, at least it would certainly do so if it were generally adopted. Must we then resign ourselves to remaining in the real status quo'l Shall we, that is to say, allow the present state of things to go on ? France, above all, is she willing to keep indefinitely in her monetary circulation some milliards of assignats métalliques, as M. Cernuschi has so aptly called its present silver money ? It seems to me that it would be uncomplimentary to men like M. Levasseur, M. Coste, and all those who at the Paris Congress expressed the same views, to suppose for a moment that they could regard the present ^ Compte Rendu, in Extenso, p. 103. VIII OTHER REMEDIES— CONCLUSION 115 state of things otherwise than as a state of transition. And indeed the proposition of which I have just spoken proves clearly that this is so. How, indeed, could they take any other view ? Who does not see that the fiduciary money which Europe and the United States are making use of at the present time ofi"ends against all the rules of theory, and constitutes in practice a real danger for the countries which use it ? For the countries which belong to the Latin Union, the situation presents further comj)lications, peculiar to themselves. Thus we have lately seen a Commission of men of business demanding of the Belgian Government that it should at last take up seriously the question of the demonetisation of the silver money of the country.^ It is unfortunately only too true that sooner or later the demonetisation of silver will become a necessity to countries which are in the position of the countries of the Latin Union, if they are only willing to treat gold as standard money properly so called. Yet this is not what is desired ; it is quite understood that gold-mono- metallism would be contrary to all economic interests. But the fact is that the first demonetisation of silver, and the rupture of the bond between the two precious metals which has resulted from it, have driven Europe into a corner, and only bimetallism can get her out of it. We begin, however, to see a chance of a certain re- habilitation of silver apart from bimetallism. We do not know as yet at the present moment whether there is a real probability of its taking place, but the thing is sufficiently serious to engage our notice. I am allud- ing particularly to the proposals which are now - under consideration in the United States, with the object of 1 See the Rcqyport die Comité d'Etude de la Question Monétaire en Belgique. Antwerp, 1890. - [April 1890. — Tr.] 1 16 THE MONETAE Y QUESTION augmenting tlie use of silver iu the monetary circula- tion of the country. "Will these proposals come to anything ? The Ameri- can newspapers tell us that ^Ye may depend that in one way or another something will be done in that direction. What appears certain, at all events, is that for the present there is no longer any intention of suspending the coinage of silver. Speaking of this, one cannot help observing that the European States have placed them- selves in a very singular position by their refusal to take part in international negotiations for the solution of the monetary question. During these latter years, the United States have absorbed a quarter of the annual production of silver for their monetary circulation ; now, it is proposed to double that amount. But only yester- day some persons were proposing on the contrary to entirely suspend the coinage of that metal, and to- morrow perhaps they will again revert to a similar proposal. Now every decision on this subject is of im- mense importance to the whole commercial world, and to the private interests of a great number of States ; and yet Europe allows the United States to act as they please. And it is not because it is obliged to resign itself to let the Government of the United States have its own way in the matter. On the contrary, the latter desires nothing more than to come to an understanding with the principal European States, in order to act in common accord wdth t\\v\\\. Its hesitation on the point of the decision to be taken is the direct result of the isolation in which Europe leaves it to decide the question, in the midst of the difficulties wdiich j)resent themselves on all sides. But, once more, Europe lets things take their course ; she looks on with folded arms and tamely waits for the American Government to take measures VI II OTHER REMEDIES— CONCLUSION 117 which may in some small degree remedy the faults of the general situation, or others which may aggravate it still more. Above all, we must wonder, I think, at the decision of the British Government in all this. For it is really with England that it lies to change the aspect of affairs ; and at the same time it is the interests of the British kingdom and of its Indian Empire which are at stake, more than those of any other country. The Ministers of the kingdom are fully persuaded of the importance of every measure which may be taken under existing circumstances, and yet they are looking on, mere spec- tators of events. The question of the chances of the partial rehabilita- tion of silver under the influence of the measures at present proposed in the United States has, however, another side. We have reason to ask whether this rehabilitation would be really an advantageous thing ; and I consider that there is serious reason to doubt it, because it is clear that the monetary situation which would ensue from it for the United States themselves could not last. As fast as silver money increased in the circulation of the country, so fast the moment w^ould approach when a decision would have to be taken regarding the definite place to be assigned to it. Now, for the present at least, it is not at all certain that the Government of the United States will let things go so far as to permit the replacement of gold as the real standard money of the country by silver. As long then as Europe does not definitely decide to lend its co-operation for the per- manent rehabilitation of silver by means of bimetallism, we shall be perpetually threatened with a new mone- ,i8 THE MONETARY QUESTION chap. tary revolution — more formidable in proportion as the recovery in the price of silver in comparison with gold shall have become more considerable. In fact, the execution of the new American proposals would have no other result with regard to the monetary situation than to continue the uncertainty and latent depression of recent times, and to increase the danger that a fresh crisis may arise which would be more serious than ever. And could we even feel assured that the United States would pass to the system of the silver standard, rather than themselves follow the example of Europe by rejecting this metal, we should have here a very imperfect compensation for Europe in having to do without the bimetallic monetary system. No end would thus be put to monetary dualism. On the con- trary, Europe would see an increasing number of trading countries with whom she would have no monetary link. This link w^ould then be broken between her and America also, and probably between her and both Americas. Nor would Europe have made any counter-balancing gains on another side — in respect, that is to say, of those sacrifices which the introduction of bimetallism might involve, and which its opponents are now unwill- ing to make. For if the United States frankly adopt the silver standard, the redistribution of the two precious metals in the commercial world will very certainly again undergo such a modification that the result will be a return to the old ratio of value with all the reaction of prices which will follow, without, however, the certainty of the stability of this ratio. Europe will, it is true, have gained one single thing by leaving events to develop in this way in spite of her, namely, the preservation of her monetary independence. But it is a poor inde- OTHER REMEDIES— CONCLUSION 119 pendence which she will have got by it, since she will have become the sport of circumstances in place of being their master. There is, lastly, a third solution of the monetary problem on which a few words must be said. It is a thing which we have already touched upon in the course of this essay, but to which we must return here — I mean the replacement of coin as a medium of exchange in the commercial transactions of gold standard countries by an extension of the instruments of credit. Let us note, first, that all that could be effected in this way would be to neutralise the harm produced by the scarcity of gold in these countries, and it could never be more than a partial solution of the problem. It would leave untouched the difficulty of monetary dualism. It is very true that this remedy is extolled by prac- tical men, yet I consider that we can only see in it the result of a singular aberration on the subject of the true nature of money. A remarkable instance of such aberration was given lately by an Anglo-Indian author, Mr. H. Bull,^ who, by an extraordinary mental process, has been able entirely to detach in his arguments the pound sterling from the monetary metal. Needless to add, that the value of his ideal pound sterling has no real basis. It ends by being something altogether fanciful. Here and there, however, his meditations recall to memory the old project of monetary organisation of Mr. Archibald Alison.- The essay of this well-known and ^ H. Bull, A Revised Currency System. London, 1887 ; and The Currency Problem and its Solution. London, 1889. ^ Archibald Alison, England in IS 15 and lSJf.3 ; or, a Sufficient and a Contracted Currency. Edinburgh and London, 1845. THE MONETARY (QUESTION liiofhly- esteemed author deserves to be read again at the present day for his explanation of the disadvan- tao-es of the restriction of tlic monetary circidation ; but he, too, sought a remedy in a money which would liave but an imaginary connection with the reality of thino;s. And is it not in some degree on similar ground that a man so eminent as Sir T. H. Farrer has gone astray in his essay, What do ice Pay with f ^ Taking his stand on the well-known theories of Mr. Macleod, he constructs a system of credit which would really be very dangerous ; and this is because he too, in speaking of money, separates the use made of it from its intrinsic value. Now, as Professor Nasse pointed out in his first letter to Sir Ï. H. Farrer, metallic money is not credit, but is really itself a commodity. Every system of credit rests upon the economy of cash as a medium of exchange ; but this economy can never go so far as to do without cash as the basis of the system. In crossing a long space by railway we bear less upon the ground than in going on foot ; but we must have the ground all the same in order to go over the space — we cannot simply fly. If we try to accomplish our progress in this way we shall fall heavily to the ground. Let us be careful not to attempt in the same manner to soar into the air in our commercial and financial transactions ; if a solid support is wanting we shall not go the faster — we shall not go at all. 1 What do we Pay with ? or, Gold, Credit, and Prices, by Sir T. H. Farrer, Bart, [inchuling Correspondence with Professor Erwin Nasse of Bonn on the same subject]. Cassell & Co., 1889. O THER REMEDIES— CONCL USION I CONCLUSION I am at the end of my essay, and my conclusion is this, that not only is bimetallism the best solution of the monetary problem, Ijut that there is nothing else which is a real solution. And yet we do not see that the cause of bimetallism is near its triumph. This is not very consolatory. Let us bear in mind, however, to keep up our courage, that this is not the first occasion on which it has taken time for truth to make its way in practical political economy. When Cobden began his campaign in favour of the suppression of the Corn Laws, an English statesman said to him that it would be easier to suppress the British Constitution itself than to meddle with these laws ; and yet Cobden attained his end, and in Parlia- ment itself the Prime Minister rendered homage to his perseverance. Let us have good hope, then, that bimetallism too will make its way in the end ; and let us trust that M. Cernuschi and his friends in England who have put themselves at the head of the movement may also have their day of triumph. APPENDIX Since the time when, seven months ago/ I finished the foregoing essay, several events have occurred of the greatest importance with regard to the monetary ques- tion. It seems to me that in laying my work before the public it is well not to pass over these events in silence, but on the contrary to call attention to the observations which they suggest and the lessons which may be drawn from them. In the first place, in the month of April last we knew only the first proposals on the subject of the re- vision of the legislation of the United States concern- ing the mintage of silver. Since then these proposals have resulted, after many amendments, in the Act of the 14th of July 1890. In consequence of this Act the monetary situation has experienced a more considerable modification than appeared probable at the time I wrote. In the month of April the question was exclusively, or almost exclusively, confined to the Bill brought in by the Minister of Finance, Mr. Windom. According to this Bill a certain extension would have been given to the use of silver in the circulation of the country, but that only conditionally. The thing would have been done in such a way that there could not have resulted from it any increase in the circulation calculated to interfere with the maintenance of the national money 1 [The Preface and this Appendix were written in Nov. 1890. — Tr.J 124 THE MONETARY QUESTION at its par value in gold. And in so far as this would not have been possible, tlie law would in fact have remained inoperative. For this is in fact the drift of the sub -clause, by which it was stipulated that the notes issued against a deposit of silver should be ex- changeable not solely in coin having full legal tender power, but, further (and this at the will of Government), against silver bullion. This clause, however, was not to the taste of the extreme left of the silver party. This side went so far as to opj^ose to it a proposal tending to re-establish, at least in principle, the free mintage of silver. It would even have resulted from the amendment to that effect which was presented, that from the moment in which the white metal had returned to a price in gold equal to its nominal money value, free mintage would have been ipso facto granted, whatever had been the consequences. The Government, however, declined to push things so far. It has been said, and it appears certain, that if Congress had carried the proposal the President would have opposed his veto to the law. The Minister of Finance, ]\[r. Windom, and the members of Congress who more or less share his opinion, have had in view in the whole of this affair two things : first, to remedy as far as was possible in the actual monetary situation the scarcity of coin which has prevailed in all gold standard countries, owing to the demonetisation of silver in Europe ; and next, to pave the way to a full and complete rehabili- tation of silver by the international adoption of the bi- metallic standard. But they were desirous to protect the United States from the risk, to which the steps necessary to such an end might expose them, of insensibly passing from gold to silver as the real standard of the country. The antagonism of the two parties occasioned long APPENDIX 125 debates both in the House of Eepresentatives and in the Senate, as well as numerous conferences between the delegates of the two sections of the legislative Ijody and the Government ; and a compromise at last resulted. Every stipulation relating to the re-establishment of the free mintage of silver was struck out ; Init, on the other hand, the Minister gave up the optional repayment in uncoined silver of the notes to be issued, and also consented to fix the amount of silver to be bought monthly by the Treasury at 4-g- million ounces. In virtue then of this law the Government of the United States wdll for the future purchase 4^ million ounces of silver a month (as long as the price does not exceed 1 dollar for 37r25 grains of pure silver), and will issue in payment of these purchases notes which will have full legal tender power. At the price of 1 dollar for 371 "25 grains of pure silver, the Treasury would have to issue an amount of about 70 millions of dollars in notes annually. As I have just said, the monetary situation is con- siderably modified in consequence of this new^ legis- lative measure on the part of the United States ; and this in two ways. First, as regards the scarcity of cash in countries with a gold standard ; secondly, as regards the relative value of the two precious metals. So far as the efi'ect of this Act upon the scarcity of cash in gold standard countries is concerned, the situa- tion is as follows : The production of gold has been latterly about 1 GO, 000 kilogrammes a year. But the industrial employment of this metal absorbs annually an amount which, according to the calculations of the best statisticians, should be computed at 100,000 or 110,000 kilogrammes. Besides this there is the export- ation of the metal to the East, which, according to , 26 THE MONETARY Q UES TION Dr. Soetbeer, requires at least 30,000 kilogrammes, tak- ing one year with another. There remain disposable 20,000 or 30,000 kilogrammes. Now if there were only to set against this the ordinary money require- ments of the gold standard countries properly so called, \.e. the requirements regularly arising out of the neces- sity of maintaining the circulation in these countries at its existing level relatively to other commodities and to commercial activity, this amount of 20,000 or 30,000 kiloo-rammes could hardly be considered sufficient. When one thinks how continually the population is increasing even in the old countries, and especially how considerable this increase is in countries relatively new, such as the United States, and how much in consequence the volume of trade constantly tends to develop, it cannot be doubted that there is a permanent need for a laro;e increase in the circulation, notwithstandino- that the development of the system of credit does something to meet these new requirements. And these are not by any means the only require- ments which have to be taken into account. There are besides new demands for gold which come from other countries than those which we have named. Thus of late years demands have come especially from Southern Africa and South America. We find that the net exportation of gold from England alone has been — 1888. 1889. To British India . . £371,882 £1,349,089 To Southern Africa . . 1,420,394 2,390,680 To South America . . 8,620,645 3,358,953 Total . £10,412,921 £7,098,722 averaging in these two years about . .£8,750,000 or in kilogrammes about 64,000 APPENDIX 127 The annual production of gold, as we have said, has lately been about 160,000 kilogrammes, and the in- dustrial employment from 100,000 to 110,000. Adding to this latter amount only the exportation from England to the above countries, we find that, count- ing these two items alone, the production of gold, far from leaving a fairly considerable balance to meet the regular requirements of the circulation in the gold standard countries of Europe and in the United States, has, on the contrary, left a deficit. In these circumstances it has been a fact of the greatest importance, and one may confidently add, for the commercial world in general and Europe in par- ticular, a real benefit, that since 1878 the United States have made room in their circulation for a sum of white metal amounting to from 27 to 33 millions of dollars nominal annually. A corresponding diminution in the demand for yellow metal has been the result. To Europe that has been equivalent to an augmentation of the production of gold to the same amount. And, indeed, one knows not what would have been the consequence of the monetary situation in the gold standard countries, if the United States had not in this manner remedied the insufficiency of the production of gold relatively to the demand for it. What the United States have done since 1878 for an amount of, say, 30 millions of dollars a year, they will do now for an amount of 60 to 70 millions. If it is 70 millions, and the difi"erence therefore one of 40 millions, it will be for the gold standard countries, taken generally, the same as if the production of gold were further in- creased by 60,000 kilogrammes. In proportion to the actual production this is enormous. Consequently, the present monetary situation will be sensibly improved. ,28 THE MONETARY QUESTION As to the influence of the Act upon the relative value of the two precious metals, the fact we have to look at is this : that the United States will henceforward absorb annually into the circulation 54 million ounces, or 1,679,600 kilogrammes, of pure silver, in place of about 770,000 kilogrammes, as they have hitherto done. Now the supply and demand of the white metal have lately been balanced as follows : — According to Dr. Soetbeer, the production in 1888 reached 3,637,000 kilogrammes, and according to the Director of the United States Mint, Mr. Leech, 3,918,600 kilogrammes should be reckoned for 1889. Say, in round numbers, 3,900,000. So much for the supply. Now, as to the demand, we must first take into account the industrial employment, which, according to Dr. Soetbeer, should be valued at 500,000 kilo- mmes. Secondly, there is the absorption of metal into the currency of the United States, which, as we have said, was latterly to the amount of 770,000 kilogrammes. Thirdly, there is the exportation to the East, to Africa and South America, and the absorption for cur- rency purposes in Mexico. And, finally, there is the demand for coinage in the different European countries. According to the commercial statistics of England, the export from that country in 1889 was — To British India . . . 1,366,420 kilos. To China . . . 74,075 „ To Japan . . . 171,038 „ And for South America, not in- cluding Brazil . . . 35,820 „ Total . 1,647,353 kilos. APPENDIX 129 to which must be added the exports from San Francisco, to British India, China, and Japan . . 342,000 kilos. Total exportation to the East (say) . 1,990,000 „ As to the exportation to Africa and the amount of the mintage for currency requirements in Mexico, it is difficult to give exact figures, but if we take it at 140,000 kilogrammes (it will be seen presently why I fix that sum) we shall not be exaggerating. In the différent countries of Europe, including for France her colonies, the mintage has risen (according to the annual reports of Sir Charles Fremantle, Deputy- Master of the English Mint) in 1888 to £5,599,248, and in 1889 (not counting Spain, from which returns were not then known) to £3,894,523. Taking the mean of these two years, we have, then, to reckon under this head for an absorption of at least 500,000 kilogrammes yearly. To sum up : — Kilos. Kilos. Amount produced 3,900,000 Industrial Employment 500,000 Mintage in the United States 770,000 Exportation to the East, etc. 2,130,000 Mintage in Europe Total, equal to that of the 500,000 amount produced . 3,900,000 Such was the state of things in regard to the supply and demand for silver before the revision of the mone- tary legislation of the United States. The annual demand for the mintage of the said country is now increased at a stroke from 770,000 to 1,679,000 kilogrammes, say by 900,000 kilogrammes in round numbers. K ,3o THE MONETARY QUESTION It is easy to understand that speculation, which always anticipates events and discounts them, and even sometimes exaggerates their probable effect, has found means to steadily raise the price of silver from 42 to 54 pence per oz. in the London market. And some have even said that the price would be carried to about 59 pence, that is to say, to the maximum which the American Government is allowed to pay. For the present, however, this has not taken place. On the contrary, the rise has been promptly followed by a reaction, strongly marked from the first, and which soon under the influence of other events has brought the price of the metal back almost to the starting-point of the last rise. It would seem, however, that we are not justified in attaching very great importance to such fluctuations, so far as the ultimate result we have in view is concerned. Even if it were certain that the purchases of the American Government must necessarily in the long run raise the price of silver to the extreme limit imposed by the law, yet in the meantime movements of reaction more or less decided would be likely to occur. But it is quite another question whether the rise of price can be ultimately carried as far as has been said, and even whether the quotation touched at the outset can be re-established and maintained. On this subject almost all the data on which calculation might be based are uncertain. There is first the amount of production. All the predictions on this point are guess-work ; and I think, for my own part, that the jDrobabilities are as much against any important increase as in its favour. At the same time, a certain increase in production in consequence of the great rise in price would be only natural. APPENDIX 131 As to the industrial employment of the metal, there is no reason to expect any very strong influence from the rise in price. For industrial use silver can hardly be much replaced by other metals, unless gold is used, and in comparison with the value of gold a rise in the price of the white metal is not of much consequence. The increase in the demand for currency purposes in the United States is a fact which does not admit of dispute. But it is not less certain that the more this demand raises the value of the metal, the more will the demand for exportation to the East diminish. The amount of this demand will always be affected by the value of the metal in terms of other commodities. A curious calculation may be made on this subject. The United States are to buy silver to the amount of 54 million ounces a year, so long as the price shall not exceed 59 pence ; and that makes, as we have said, an increase of 900,000 kilogrammes on previous purchases of the same nature. At the price of 59 pence the rise would be about 40 per cent above the lowest price at which the metal has been quoted of late years. Suppose now, that the East should continue to absorb silver to the same value in gold as it has lately done, and that the price of silver should really rise to 59 pence ; then the quantity of kilogrammes exported to the East would be diminished in exact proportion to the rise in price, i.e. by 40 per cent. Now, 40 per cent on 2,130,000 kilogrammes makes 850,000 kilogrammes, a figure about equal to that of the increase of the demand on the part of the United States. Thus the interrupted equilibrium would be restored. I give this calculation for what it is worth, that is, merely as a curiosity. For there is no reason to believe that the exportation of silver to the East will continue, 132 THE MONETARY QUESTION notwithstanding the rise in price, to he as consider- able as lieretofore, measured by its value in gold. I think, rather, as I have said in my essay, ^ that althougli there is no reason to expect that in consequence of the rise of price the exportation of silver to the East should give place to a contrary movement, it will undergo, at least temporarily, a very sensible diminution. We may remark, however, on this point, that at first starting the rise of the price of silver has not had this effect.^ But it would be hazardous, as it seems to me, to draw any conclusion from this first movement of exportation. The causes which should have produced a decline of export have been provisionally counterbalanced by others ; and, in fact, just lately the state of things has undergone a sudden change, the export to British India having actually ceased altogether for several weeks. In the last place, we must consider the demand for silver for the monetary requirements of Europe, But on this subject we can only say that every- thing is uncertain. Everything will depend on the monetary policy which Europe may adopt in conse- quence of the new American legislation. It may very likely be that the triumph of bimetallism will be furthered by it. For my part, I think there are good reasons for expecting this, I share in this the opinion of Mr. Robert Barclay, and not that of M. Emile de Laveleye.^ However, this is a point on w^hich I will explain myself farther on. 1 Pp. 54, 90. 2 The export of silver from England to British India was, during the first eight months of 1890, £G,324,209, against £5,282,547 during the same period in 1889. Therefore, even after making allowance for the increased value of the metal in pounds sterling, there is not a trace of diminution in the movement of exportation during this jjeriod. ^ See Robert Barclay, The Silver Question and the Gold Question, 3d edition, pp. 134, 135 ; and Emile de Laveleye, La Belgique et le Silver Bill, Moniteur des Intérêts Alatériels, 24th August 1890. APPENDIX 133 It is possible that, in the expectation of such a result, the coinage of silver in Europe may continue the same as it has lately been, and that further demonetisation may be avoided. But it is just as likely that the coinage may be contracted, and the demonetisation of silver begin afresh. And it is this certainly which we must expect if the Governments which have hitherto opposed the international adoption of the bimetallic standard do not give indubitable evidence of being disposed to put an end to their opposition. To sum up, I say then that for the present any pre- diction on the subject of the price of the white metal appears to me hazardous, since the course of events must depend on several circumstances on which there is very little to be said at present. Still, all things considered, I am led to think that the first rise in the gold price of silver occasioned by the new monetary legislation in the United States was exao-o;erated rather than insufficient. What must be kept in view is that the new demand for silver, which is the consequence of that legislation, is indeed of great importance in comparison with the amount of the annual production of the precious metals ; but that before the ratio of value between the two metals can be modified, it is necessary that the whole mass of those metals which compose the monetary circulation should feel the influence of the immediate cause of the movement. Now the event of which we speak is not in itself of such a nature as to occasion suddenly so considerable a modi- fication of the ratio as that which has occurred. And, though it is true that already before that event silver had a tendency to rise in value relatively to gold, in consequence of an increase of the demand for the former in the East (a fact which, perhaps, better than , 34 THE MO NE TARY Q UES TION any other explains why the rise was at first so ilet-ided), it is equally true that a sharp rise is the very thing to check such an increased demand. To sustain the recovery which has taken place in the price of silver relatively to gold, and especially to push it farther still, it seems that we should require a real modification in the distribution of the two metals in the commercial world ; as yet we have not got so far as this. This, however, is very likely to be the result in the long run of the new monetary law of the United States. But this leads us to turn our attention to another side of the question, namely, to the influence which the above law is to exercise on the monetary situation of that country itself. And on this question hangs another. It is especially necessary to inquire whether in conse- quence of this law the adoption of international bi- metallism ought still to be regarded as the only solution of the monetary problem which is really satisfactory, or whether we are now confronted with new prospects which may render this solution less necessary. I am myself absolutely convinced that there is no reason for renouncing international bimetallism, and I shall presently say why. But let us begin by clearing up the first point. We shall at the same time be laying the foundation of the argument which is necessary in order to explain the question of the solution of the monetary problem in view of the situation as it stands. What we must ask before anything else is what efi"ect the absorption of 70 millions of silver dollars into the monetary circulation of the United States will produce upon the currency as a whole. APPENDIX 13: Statistics dealing with the currency of the United States are not wanting. But we must be cautious in using them. They give us in general rough totals, in which the same element is often twice counted. Here is the résumé of a calculation which I have made con- cerning the circulation at 31st December 1889.^ I find that it was then composed, in round numbers, as follows : — Uncovered Paper Currency . . $257,900,000 Paper issued against metal, and Coin in Circulation, viz. — Gold Coin and Reserve . . 610,170,000 Silver Coin and Reserve . 360,530,000 Subsidiary Coinage . . 76,700,000 Total . $1,305,300,000 Such is then the net total which we must reckon. But we have not simply to ask to what amount the gold in circulation might be replaced by silver with- out ceasing to be the true regulating standard of the monetary circulation. We must also take into account the regular increase of the monetary circula- tion. Now, by applying a calculation more or less analogous to that of which I have just given the results to the whole of the different elements of the monetary circulation in 1873, we find that on the 30th June of that year the net total was $642,500,000." The currency has thus in sixteen years and a half experienced an increase of $662,800,000, say about $40,200,000 average increase per annum. Let us suppose now that it should continue to increase by the same amount annually, say in round ^ For the details of this calcuktion see note A, p. 149. - See below, note B, p. 152. , 36 THE MO NE TARY Q UES TION numbers $40,000,000, and that the uncovered paper circulation should remain at its present amount. The following would then be, after five years, the combined result of this increase and of the annual absorption of 70 millions of silver money. Total of the monetary circulation after five years : — $1,305,300,000 + 5 X 40,000,000 =$1,505,300,000, of which — Uncovered Paper Currency . . $257,900,000 Subsidiary Coinage . . . 76,700,000 Paper issued against metal, and Coin in Circulation, viz. — Silver — Present Stock . $360,530,000 Add 5 X 70,000,000 or . . 350,000,000 710,530,000 Leaving in Gold .... 460,170,000 Total . $1,505,300,000 At this rate at the end of five years the proportion in which the two metals at present enter into the monetary circulation would therefore already have undergone a very important modification ; and one may confidently say that silver would then have replaced gold to the utmost limit compatible with the existing state of thinsfs. I am well aware that there is one uncertain element in my calculation — the amount which I have adopted for the annual increase of the circulation. Opinions may diff"er on this subject, and my figure be thought insufticient. Some perhaps will even say that geometrical progression should be applied rather than arithmetical. I do not deny that there may be APPENDIX 137 objections to my method. But I venture to doubt if these objections can hold good in the end, — and this for a very good reason, namely, that if the United States annually increase their metallic circulation by 40 millions of dollars they are forestalling already the greater part of the monetary metal which is available for all the gold standard countries put together. From which it follows that even if they should feel the need of auofmentiuo- their metallic circulation in a laro-er proportion, they would not find the means of doing so ; unless of course they chose to take still more of the silver and pass on 'per contra the gold to other countries. But in this case again their monetary position, as regards the proportion in which the two metals enter into the currency, would not be improved. In whatever way then I look at the subject I come to this conclusion, that the United States cannot for any great length of time continue to absorb an amount of 70 millions of dollars or more in silver as monetary metal, without touching the limit at which gold can no longer be the money regulating the value of the dollar. Before this point is blindly reached the country must make its choice, and either frankly adopt the white metal as its monetary standard or else discontinue its purchases of silver. In the first case the American monetary law of the 14th July last would in fact result in that redistribution of the two metals in the commercial world of which we have already spoken ; and then without any doubt there would follow a return to a relation of value between the two metals more or less closely approaching the old relation before 1873, whicli would be durable. In the second case, on the contrary, all the ground 1 38 THE MONE TA R Y Q UES TION regained by silver would be lost anew, and the rise in price relatively to gold, with all the disturbances which it has already occasioned (and which it will continue to occasion), would once more give place to a new fall with fresh disturbances ; and so we should fall back more than ever into the situation of depression, uneasiness, and uncertainty which followed the monetary revolu- tion of 1873. It depends on Europe, and especially on England, to prevent this. All may be well if they will rally to international bimetallism, taking up with common accord and right methods the work of the rehabilitation of silver, begun, it must be allowed, in a very imperfect manner (but whose was the fault ?) by the United States. And why should this not be ? why should England still continue her opposition ? At the time of the dis- cussion in Parliament last April, Mr. Goschen said that he thought the proposal of a monetary conference in any case premature ; one would think that this objec- tion can hardly be repeated now. But besides it seemed to him scarcely fair that the British Govern- ment, which has taken no active part in the measures which have led to the fall in the price of silver, should lend its active concurrence to measures intended to raise the price of this metal. And I think I am not wrong in saying that this is the chief objection of the P^nglish jNIinister to the participation of his Government in a bimetallic union. And yet it is not now a case of starting the rehabilitation of white metal and replacing it at its former value relatively to gold, but merely of consolidating and completing the reaction which has taken place already, and in which again the British Government has had no share. And if the British APPENDIX 139 Government should refuse now to combine with other commercial countries to attain this end, it will certainly be upon it that the responsibility will rest if another fall in silver be the result. Or could the reason of such a refusal now be that the co-operation of England had become superfluous, and that the action of the United States, independently of the co-operation of Europe, would suffice to create a better situation ? To this I reply, in the first place, that in any case such an answer would only be justified if it were certain that the United States would rather pass to the simple silver standard than go back upon the last monetary law. Whatever be the probabilities on the subject, I consider that the matter is by no means settled. Political combinations have had something to do with the success of the law of the 14th July. But should the Government pass definitely into the hands of the Democrats, the situation might very likely be changed. And, secondly, another thing must be kept in view, namely, that only the triumph of bimetallism can put a definite end to the possibility of fresh demonetisations of silver in Europe. The countries which are at present under the régime of the étalon boiteux^ will not be able in the long run to abstain from such demonetisa- tions, unless the two metals really again take rank in the monetary circulation on a footing of perfect equality. Whatever be the ratio of value between the two metals which results in the end from the monetary policy of the United States, so long as the commercial world is divided into two parts — countries with a gold 1 That is to say, countries which, though iisiug both gold and silver as unlimited legal tender money at a fixed ratio, have been obliged to restrict the mintage of silver ; e.g. France. — Tr. I40 THE MONETARY QUESTION standard and countries with a silver one — the mainten- ance of a large proportion of silver coin in countries where free coinage is only granted to gold would îdways be in theory a heresy and in practice a real danger. Lastly, in the third place, I reply, and this especially is of very great importance, that nothing but inter- national bimetallism can assure the stability of the ratio of value between the two metals, nor re-establish the unity of the money standard in the commercial world. Indeed from this point of view, i.e. having regard to the unity of the monetary standard, I consider that if the United States should really adopt the silver standard it would be a new cause of embarrassment for Europe, and that its trade would sensibly suffer. Besides this, for England, from the special point of view of the money market, it would be an extremely serious affair, and would result in very real damage. For unless England entirely recasts her banking system she will always find it absolutely essential from time to time to strengthen her metallic reserve by importing gold from abroad. And how could she be assured of being able to meet such requirements if the banks of France and Germany do not depart from their pre- sent line of conduct, and if along with this there be no fixity of exchange between London and New York ; and if, further, it were impossible to be sure of obtaining gold for export in the United States even by making great sacrifices ? For much gold would always remain there, even if it no longer formed a part of the currency properly so called ; but it might be out of sight when it was wanted, and would certainly be at a premium if it were in request for exportation. To conclude, then, I say that the late revision of the APPENDIX 141 monetary legislation of the United States has not yet procured for us a solution of the monetary problem. The only result has been a state of things which cannot last ; it can only be a temporary solution of the question. And I add that, whatever may be the ulterior measures which the United States may take, no solu- tion will ever be reached in this manner which will be nearly as satisfactory as that offered by the adoption of international bimetallism, and which bimetallism, and bimetallism only, can give. At the same time we do owe something to the American monetary law of the 14th July last, namely, that at present the general adoption of the bimetallic standard would be considerably facilitated. Let us hope that Europe will profit by the chance which thus presents itself. It is possible, however, that the partisans of bimetallism in Europe may come into collision with a new difficulty. It may be said that the moment could not be worse chosen to hold out the hand to the United States in view of an international mone- tary understanding. Is Europe, which for more than ten years has turned a deaf ear to the proposals made by the United States in this direction, suddenly to declare itself favourable to their realisation, now that America, by the M'Kinley tariff, has openly declared war against her from the point of view of international commercial interests ? It would be absurd ! As lono- o at least as American commercial policy shall have as its basis " America for the Americans," any Americo-Euro- pean monetary convention becomes an impossibility. Well, I confess at first sight such an objection might really seem reasonable. But yet, if we look at it well, if we go deeply into the question, it will be found that it takes a different aspect. , ,42 THE MONETARY QUESTION 1 will not ask whether Europe, which now complains of the adoption of the M'Kinley tariff, has nothing to reproach itself with on this point ; if its refusal to co- operate with the United States to remedy the fall of prices which resulted from the dethronement of silver from its old place as a monetary metal, and the wrong tlius done to the development of international trade, have not contributed to the triumph of the protectionist movement in America. Let us allow for the present that this has not been so. Yet there is really no reason to reply to the M'Kinley tariff by a suspension of negotiations on the subject of an international mone- tary convention. If Europe had to make a sacrifice in accepting such a convention, and especially if the sacrifice were to be to the advantage of the United States, it might be intelligible that at present a formal refusal should be opposed to all the overtures made from that side to conclude such a convention, or that, at least (and this would in any case be the better plan), the question of tariffs should be made inseparable from the monetary question. But this is not the position. The interest which Europe has in seeing bimetallism triumphant, and re-establishing the monetary unity of the commercial world by the international adoption of the bimetallic standard, is its own interest — its own, at least, as much as that of the United States ; perhaps even more than that of America. For any decision that the United States may take on the subject of the monetary standard in the country itself is of the highest importance to Europe ; and as long as there is not on this subject an agreement binding America as well as Europe, there will be a sword of Damocles sus- pended over the head of the commercial world, and APPENDIX 143 the United States will hold the thread of it in their hands. And let this be considered while there is yet time. To secure the success of the bimetallic system, America requires the co-operation of Europe ; but, in the same way, Europe requires that of the United States. And who knows but that the moment may come when the United States, persisting in their present commercial policy, will consider that they derive greater advantage from dualism than from monetary unity ; their country adopting the same standard as the wide East, and Europe alone remaining shut up within a circle of gold, and so exposed to the disadvantage of an uncertain exchancfe with all the rest of the commercial world. Let Europe, then, in spite of the M'Kinley tariff, consider and act without longer delay. There are besides, in recent events, other reasons for prompt action, quite apart from that (which need not detain us now) of the extreme instability of the ratio of value between the two precious metals, which is the result of the present situation. It is especially worth notice that in Russia and Austria - Hungary the question of returning to payments in specie has come to the front. And in both cases the gold standard is likely to be soon adopted, and for Austria-Hungary at least this may well become necessary, in consequence of the gene- ral state of things in Europe. Now it is indubitable that if Austria - Hungary and Russia, or even the former alone, really decide on this action, the struggle for gold will begin again in Europe. I appeal on this question to an authority whose testimony in this matter no one wdll refuse — I mean Professor Lexis of Gottingen, It is well known that Professor Lexis, in spite of his bimetallic sym- ,44 THE MONETARY QUESTION patines, does not entirely share the opinions of those who believe in an appreciation of gold. Yet all the same, in a quite recent article,^ he has pronounced decidedly against those who declare that Austria could boldly return to payments in gold. On this subject he said, comparing the position of Austria with that of Italy in past times : " So much the less could it (Austria) venture to hope to maintain its new monetary system effective and intact in a serious international struggle for gold, such as would not fail to ensue." And as to Russia, he has expressed the opinion that it would be simply impossible for her to procure gold sufficient for the circulation of the country. I think for my part that in this M. Lexis is per- fectly right. But it is no less true that in both countries illusions on this subject are cherished, and that the attempt to carry the proposed measure might easily become a reality. Now this monetary reform in Austria would be a repetition of the German monetary reform on a smaller scale ; and, like the German Empire, Austria would have to procure a certain amount of gold, and would have, on the other hand, silver to demonetise and sell. This would hold out to Europe the prospect of a return to the state of things which immediately succeeded 1873. Russia, on her part, would probably only require to procure gold. We say she would not be able to find enough. But imagine all the mischief which would result merely from beginning to put such projects into execution 1 ^ Conrad's Jahrbikher for September 16, 1890. — " Um so weniger wiirde es (Oesterreich) hoffen diirfen bei einem ernstliclien internationaleri Kampfe iim das Gold, ch;r nicht aushleiben wiirde, seine neiie Wahrung effektiv und unversehrt zu erlialteu." APPENDIX 145 It lies solely with the other countries of Europe, England chiefly, and France and Germany as well, to prevent the commercial world from being again exposed to the renewal of all the evils and miseries which have characterised the period of the last sixteen or seven- teen years. But what is necessary for this is that the European gold standard countries should take the initiative, and place themselves frankly at the head of the movement in favour of international bi-metallism. And lastly, and above all, is there not an imperative motive for taking up without delay the solution of the monetary problem, by the adoption of international bimetallism, in the crisis to which the commercial world, and especially the London market, have quite recently found themselves exposed, and which it would perhaps be wise to regard as not yet entirely averted ? It is true the monetary situation has not been the cause of this crisis. For my part at least I am fully convinced that the cause lies much more in exaggerated speculations in various securities, and especially in important investments of capital in the Argentine Republic, in Uruguay, etc. — investments from which considerable losses have resulted, and besides — and it is this which for the moment has done immense mis- chief — withdrawals of capital, the want of which at a particular moment has been keenly felt. But it would be puerile to deny that the monetary situation has done much to ao-aravate the crisis. For 00 a long time past the need of strengthening the money market has been felt in London ; and for some time before the recent events the Bank of England had been acting in the necessary direction with great energy. But it was in vain. The gold which it was desired to attract to the London market L , 46 THE M ONE TARY Q UES TION would not come. And in the end, when the danger became very pressing, it was necessary to have recourse to quite excejDtional measures. These measures are honourable, it may be freely said, to all those who were concerned in them. The correctness of view and the energy of which the Governor and the Directors of the Bank of England gave proof, and also the energy and goodwill of the Bank of France, deserve the highest praise. But at the same time the measures taken are very significant of the faults of the present state of things. It appears that the British Government is at present engaged upon measures to be proposed to Parliament, with a view to a reform in the banking system established by the Act of 1844. If I might venture an opinion on this subject, I should say that this is well, but that it is not enough. That the constitution of the Bank should be so modified as to o-ive to the organisation of credit in England a little of that elasticity w^hich we in the Netherlands, in France, and in Germany, owe to our Banks of issue, would certainly be a good thing. But it seems to me that the English habit of economising to the utmost extent the capital sunk in the form of cash is too inveterate for us to expect that any reform of the banking system will fundamentally change the state of things. Thus one must never expect to find in England that abundance of perfectly free capital and of cash which is found in France, and which, I may here remark, is (at least in my personal opinion), far more than the difierence in the monetary system, the reason why the French money market is a stranger, so to speak, to the embarrassments which from time to time make them- selves felt in London. APPENDIX 147 But this is an additional reason, as I have already said in my essay, for the interest which the London market has in a general monetary situation which would allow it to work with a small amount of metallic cur- rency. And it is only the adoption of international bimetallism which can give rise to such a general mone- tary situation. Let us add that if, by some miracle, England were to make up her mind to work with a large margin of metallic currency, such as we find in France, it would be absolutely impossible for her to procure it in the present monetary situation. In whatever way, then, we look at the question, and on whatever special point of the present situation we insist, we have always to come back to the conclusion that the general interest compels us to decide on adopting internationally the double monetary standard — Bimetallism. Not that there will be found in it a palladium against all evils, or even all economic evils. Nothing will be changed after all except the monetary situation. And general prosperity and a sound and strong com- mercial condition do not depend solely on the monetary situation. Yet whether this latter is good or bad can never certainly be a matter of indifference ; and what is more, without a good monetary situation, the com- mercial situation can never be really satisfactory. NOTES TO APPENDIX NOTE A THE MONETARY CIRCULATION OF THE UNITED STATES 3 1st DECEMBER 1889 We know that tliere is no lack of official figures concerning the monetary circulation in the United States, and that in most of their details they are absolutely correct. This is the case with regard to the circulation of State notes, of bank notes, and also of the silver coin, which has never been exported. It is otherwise, however, with regard to the cir- culation of gold coin. The present director of the Mint, Mr. Leech, has had to acknowledge in his latest report ^ that serious doubts have been raised as to the correctness of the fifTures relating; to this circulation. Accordinsj to these figures, there would appear to have been in active circulation at 31st December 1889, over and above the reserve of the banks, an amount of $269,096,645 in gold coin. And as it is well known that in hardly any part of the United States is gold to be seen in use in everyday transactions, or at least only to a very slight extent, it is generally believed that there must have been withdrawals of gold specie from the circulation, either for industrial purposes or for exportation, which have not been taken into account. According to a calculation which I have made, we should have to admit that the official valuation of the amount of gold in circulation is too high by about 80 millions at least. In the calculation which follows, I have allowed myself consequently to credit the circulation with gold coin to a ^ Report upon the production of the precious metals in the United States during the calendar year 1889. APPENDIX 149 total of 80 millions less than the amount mentioned in the official statistics. But with this exception all the figures which I have used are borrowed from official documents. Having said this, I append the results which I have obtained to this Appendix of my essay. Here is first the enimieration of the different elements of which the circulation was composed at the date of 31st December 1889, whether to be found in active circulation or in the public treasury : — In Active Net Balance in Circulation. Treasury. Gold — Total amount in Treasury $3 1 3,8 1 8, 942 Gold certificates issued jjer co?iir« . . $122,985,889 Net balance in Treasury . . . $190,833,053 Gold coin, total amount estimated as in circulation. . . $610,169,991 From wliicli deduct . 313,818,942 Making part of the reserve of the National Banks 71,910,000 Reserve of the other Banks . . . 34,000,000 Balance estimated to be distributed in the country 190,441,049 Silver — Total amount of " standard dollars" in the Treasury $288,535,500 Monetary metal in Treasury 4,654,540 Together . $293,190,040 Silver certificates issued fer contra . . 282,949,073 Net balance in Treasury . . . 10,240,967 Trade dollars in Treasury . . . 6,074,538 Total amount of standard dollars minted to date . . . $349,802,001 Deduct amount in Treasury 288,535,500 Remains in circulation . 61,266,501 Subsidiary Coinage — Total coined . . . $76,699,216 In Treasury . . 21,927,928 21,927,928 In circulation . . . . 54,771,288 Total Coin and Bullion, carried forward .... $818,323,800 $229,076,486 ISO THE MONETARY QUESTION In Active Net Balance in Circulation. Treasury. Total Coin and Bullion, brought forward $818,323,800 $229,076,486 Bank Notes — . $197,078,918 133,253 Present total of notes In Treasury In circulation . State Notes — Total issued In Treasury . In circulation $346,681,016 6,673,925 196,945,665 340,007,091 133,253 6,673,925 Total . I General Total 1,355,276,556 $235,883,664 $1,591,160,220 P>ut iu this enumeration are comprised the fiduciary cir- culation as well as its metallic covering, besides the State notes and bank notes which are in the Treasury. Here we have elements entering twice over, for which allowance must be made. Here, then, is, in the second place, the statement of the real situation : — Fiduciary Circulation (net amount) — State notes $340,007,091 Bank notes 196,945,665 Together Metallic Reserve — Gold iu Treasury . $190,833,053 „ in National Banks 71,910,000 $536,952,756 Total in gold . . $262,743,053 In silver in Treasury 16,315,505 Together Uncovered fiduciary circulation Covered by gold Covered Ijy silver . 279,058,558 $262,743,053 16,315,505 Gold certificates ...... Silver certificates ...... Silver money, standard dollars .... Gold money in Banks other than the National Banks Gold coin distributed in the country . Subsidiary coinage in Treasury . . $21,927,928 „ „ circulation . . 54,771,288 Total 257,894,198 279,058,558 122,985,889 282,949,073 61,266,50] 34,000,000 190,441,049 76,699,216 1,305,294,484 APPENDIX Summary — Uncovered fiduciary circulation ..... $257,894,198 Gold Money — Reserve of fiduciary circulation . . $262,743,053 Certificates 122,985,889 In the Banks .... 34,000,000 In the hands of the public . . 190,441,049 610,169,991 Silver Money — Reserve of fiduciary circulation . . $16,315,505 Certificates 282,949,073 Standard dollars in circulation . . 61,266,501 360,531,079 Subsidiary Money — Various denominations . . .' . . . 76,699,216 Total . . $1,305,294,484 NOTE B MONETARY CIRCULATION OF THE UNITED STATES 30th JUNE 1873 Gk)ld money Gold certificates . Silver money Subsidiary silver money Subsidiary paper money Bank notes . State notes . Various old notes . Total From which deduct — Gold money in Treasury „ „ Banks . Gold certificates in Treasury „ „ Banks Silver money in Treasury Subsidiary silver money in Treasury „ „ Banks . Bank notes in Treasury „ ,, Banks State notes in Treasury „ ,, Banks Net amount $135,000,000 39,460,000 1,149,305 5,000,000 44,799,365 347,267,061 387,730,000 2,100,656 $962,506,387 $72,281,687 3,370,378 5,208,680 22,139,000 1,149,305 905,344 2,440,618 8,304,586 26,955,726 39,265,000 137,996,000 320,016,324 $642,490,063 THE END Printed ^ R. & R. Clark, Edinburgh UC SOUTHERN REGIONAU|B.ÇVFA^^^^^^ AA' 001 023 104 1 I