The Disturbance IK THE Standard of Value ROBERT BARCLAY SECOND EDITIOK PRICE /y&4o7 ISHtxtt fork Hatt (StiUege of Agticulture JVt (focnell UntnccattH Hibtari) Cornell University Library HG 407.B25 The dfsturbance in the standard of value 3 1924 013 734 987 Cornell University Library The original of tliis bool< is in tine Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924013734987 THE DISTURBANCE STANDARD OF VALUE "*«*,/. LORD ALDENHAM (H. H. Gibbs). President of the British Bimetallic League. THE DISTURBANCE STANDARD OF VALUE BY EOBEET BAECLAY ATTTHOB OF 'THE SILVER QUESTION AND THE GOLD QUESTION' SECOND EDITION LONDON EFFINGHAM WILSON, Eoyaii Exchange MANCHESTER J. E. COBNISH, St. Ahu's Squabb 1896 13 Z5 (^H-^^n ? HENRY RIVERSDALE QRENFELL. Chairman of the General Council of the British Bimetallic League. PREFACE. I HAVE written this book in the belief that a short general view of the monetary question might be useful to those who are desirous of understanding it. Too many, perplexed by the conflicting opinions which they find expressed, are apt, I fear, to turn away from the controversy, as deahng with a matter which it is difficult to understand. If it were a thing of little importance, this disposition towards it might be excusable ; but seeing that money touches trade and commerce at every point, and that all interests are affected by the disturbance in the monetary standard, it is a positive duty for every one to try to master the subject, so as to form an intelligent opinion upon it. With regard to nothing else is there a similar indifference manifested, or a cynical confession of ignorance so readily made. A complete technical knowledge of all the elements that have to be dealt with in any vi Preface. trade or profession is, we know, essential to success ; and however diflQcult these may be, they must be, and they are, mastered. Why, then, should money, which all have in some way or other, in their daily avocations, to employ, be the one thing with regard to the nature of which ignorance is supposed to be excusable? No one can doubt that the proper or improper regulation of money affects the interests of every one. Yet no- body feels specially charged with the duty of attending to it. Every one considers that it is some one else's duty to consider and deal with monetary questions. Merchants with the financial obligations of large con- cerns to manage, and with exchange matters constantly before them, are supposed by some to know all about it. Others think that it is a banker's question, and that in the bank parlour everything about money must be fully understood ; but monetary science is something different both from finance and from banking, and we know that the full study of it is as much shirked both by merchants and bankers as by other classes. It is perhaps above all a statesman's question ; but in the multiplicity of matters Preface. vii that engage the attention of our statesmen, how few of them can give time for its study. And nowadays, with partisan projects so completely engrossing their attention, they, as regards all other matters, wait until they are moved, or rather driven, by popular opinion. We are unfortunately bound to recognise this as the condition of legislative action, and it all the more strongly becomes the duty of every citizen to make himself master of the subject, so that an enUghtened pubhc opinion may be formed regarding it. In preparing the present edition I have made important additions in order to embrace every point that should be considered in a comprehensive view of the theory of money, and of the historical evolution of the mone- tary question with which we are face to face to-day. I have adhered to the concise mode of statement pursued in the first edition, not loading the text with details which might obscure the course of the argument, but leaving the reader to follow out these details in the writings of other authors to whom I refer. Monetary questions, I think, are more viii Preface. readily understood when the theory of money in its entirety is kept before the mind, just as by getting a bird's eye view of a city from an eminence in its centre the explorer can more readily and intelligently find his way through its winding streets and alleys. I have in this and another book made frequent reference to the writings of the late Mr. Dana-Horton. As an American, first beginning his studies of money in view of the monetary questions that presented themselves in the United States, he was led back in his search for truth to study the history of money in Europe, and especially in the earlier England, which is the common ances- tral ground of both the present England and America; and both nations are under the greatest obligations to him for the researches he made and for the light which he has thrown upon the history of Enghsh money. He found, even in what were regarded as standard authorities, distorted and erroneous conceptions regarding many historical points, and by his laborious examination of original documents treasured in English Government Offices and in the Archives of the Bank of England he was able to disprove much false Preface. ix history that had been written, and to present the actual facts in their true light. In the present volume I give his portrait, also portraits of Mr. Henry H. Gibbs (now Lord Aldenham) and Mr. H. E. G-renfell, gentlemen who have led and still stand at the head of the Bimetallic movement in England. They, as weU as many others, both Mono- metaUists and BimetalHsts, came much in con- tact with Mr. Horton in his frequent visits to England, and all of us cherish the remembrance of our friendly intercourse with him. We all know how earnest he was in seeking to combat anti-silver views, and how unwearied were his efforts to bring about the accord of nations, through which the position of silver as a monetary metal is to be restored, and its harmonious working with gold re-established. Manchester: Manj, 1896. / S. DANA MORTON. Author of "The Silver Pound " ; a. Representative of the United States at the International Bimetallic Conferences in Paris, 1878 and 1881. CONTENTS. PAGE CHAPTER I.— General Considerations bear- ing on the Standard. The Precious Metals 1 Monetary Laws -2 The Necessity of Money 3 The Measuring Power of^Money ... 5 The Idea of Gold for Rich Nations and Silver for Poor Nations 7 Pull-powered Money stands the Ordeal of Fire 8 The Functions of Money 9 Importance of Metallic Money for Storing Value 9 Other Kinds of Money besides Full-powered Metallic Money 12 I. — The Silver Money of Europe ... 12 II.— The Silver Money of the United States . 13 III.— English Silver Money .... 13 IV. — Paper Money : Bank Notes ... 14 Cheques and Clearing Houses .... 16 Credit Money — how created, and what it is . 16 Money as a Circulating Medium ... 19 Quantity of Money in Coin and Notes that can be used as Currency .... 20 Inconvertible Paper Currency .... 20 The Distinctive Character of Credit Money . 24 Money as a Standard and Store of Value . . 27 Money and Wealth 29 Contents. PAGK CHAPTER II.— The Quantitative Theory of Money. No opposing Theory propounded ... 30 Necessity of distinguishing the different Func- tions of Money 33 In Monetary Transactions a Lien upon Full- powered Money always supposed ... 37 The quantitative Demand as against the quan- titative Supply or Stock of Full-powered Money 40 The reason why Monometallists speak vaguely of the quantitative Theory of Money . . 44 Cheap loanable Money. The Reason of its Cheapness 45 The pressure to have Wealth in the Liquid Form of Money 48 The Eesult of Capitalists avoiding ordinary Industrial Investments .... 61 Neglect of the Science of Money ... 53 CHAPTER III.— Sketch of the History of English Money. Early Silver Money of England ... 57 58 Rating of Gold Coins to Silver Money Currency Discussions at the Beginning of the present Century The Gresham Law The Standard in the Eighteenth Century un affected by the comparative Scarcity of Silver Money . .... The Gold Standard Law of 1816 The Effect of the Gold Discoveries in Call fornia and Australia .... Before 1873 The Closure of the Mints of the Latin Union against Silver 71 60 63 65 66 68 68 Contents. PAGE Divergence of Silver and Gold at first regarded as a Depreciation of Silver .... 72 The Evil found to Consist in the Appreciation of Gold 72 The Position Formerly and Now ... 73 The Pall in Prices, or the Appreciation of Gold 74 The Scarcity of Gold 77 The Supposed Abundance of Silver ... 78 Actual Supplies of the Precious Metals . . 82 Increased Supplies of Gold from South Africa, etc 87 The Non-monetary Uses of the Precious Metals 91 CHAPTER IV.— Origin and Growth of the MonometaUio Ideas that have led to the Disturbance in the Stan- dard and its Effects. Hostility to the Bimetallic Movement . . 94 Reason of this Hostility 95 Influence of the first Lord Liverpool's Treatise on the Coins of the Realm .... 97 Sir Robert Peel's Gold Pound .... 99 Financial Difficulties and Taxation after the Close of the Napoleonic Wars . . .101 Triumph of Free Trade" Doctrines . . .103 Views of Ricardo and J. S. Mill on the sjibject of Money 104 Tendencies against Silver and in favour of Gold 108 The Ideas Cherished as to the Gold Standard . 112 Practical Effects of the Demonetisation of Silver 114 1. The Injury to Productive Industries in Gold Standard Countries from the Fall in Prices rendering them Unprofitable . . 114 Contents. 2. The DifBculties and Dangers to Commerce through the great Fall and violent Fluctua- tions in the Exchange Bates between Gold Standard Countries and Eastern Countries which have their Money based on Silver . 115 3. The Gradual Separation of Eastern and Western Commerce which the Fall in the Gold Value of Silver is leading to . . 116 4. The Tendency under the Present Condition of Things for the very Eich to become Richer and for Middle Class Capitalists employing their Capital in the Industries remaining Stationary or losing their Wealth . . 117 The Working Classes and Falling Prices . . 120 CHAPTER v.— The Remedy for the Dis- tiirbance in the Standard. International Bimetallism Established by a Convention of the leading Nations, with a Fixed Ratio of Equivalence for the two Monetary Metals 122 Not a Proposal Simply to Help Silver . . 123 The New Laws necessary for carrying out International Bimetallism .... 125 The Ratio 127 Considerations that must be kept in view in Fixing the Ratio 130 The Permanent Interests of India and the East require a Settlement near to the Old Ratio 131 The Adjustment of Eastern and Western Prices , under a Fixed Ratio 133 England's Interests in the Ratio to be Fixed . 137 The Interests of the other Western Nations in the Ratio to be Fixed 140 General Fears as to the Effects of Disturbing the Present Gold Standard in England . 144 Contents. FAQE The Advance to the Ratio adopted might be Graduated 149 The Eastern Nations should remain with Silver as their Standard and Currency . 152 The Change sought would affect only the Basis of Money 155 Conclusion 157 APPENDIX. Statement of the Bimetallic League on the Resolution passed by the House of Com- mons, 17th March, 1896 161 THE DISTURBANCE STANDARD OF VALUE. CHAPTER I. — General Considerations Bearing on the Standard. THE PRECIOUS METALS. In the British Museum there is a series of boards on which are arranged in periods the gold and silver coins of all nations and of all ages from long prior to the Christian era down to modem times. The coins thus arranged show that in all civilised countries, through all the ancient civilisations, as well as in those coming nearer to our own days, silver and gold, in somewhat the same relative proportions as we see them to-day, have been the chief mone- tary metals which civilised nations have used. Whenever values have been expressed in price, these metals have been the measure. This, the pages of all history, sacred and profane, fully attest.^ ' For details as to early history of money see History of Money, by Alex. Del Mar. 1 Monetary Laws. The collective designation "the precious metals" applied to gold and silver has reference to this their distinctive use as money. They are precious not only because they cannot be so easily produced as other metals, but also in view of the special monetary functions which, they perform of measuring and storing value. Their fitness for being thus used, from their durability, their homogeneity, their divisi- bility, their portability, and the comparative stability of their values, has led all civilised nations to make them legal tender for the discharge of debts, and thus also the measure and standard of value. MONETARY LAWS. The simplicity of what governments do in respect of monetary laws — merely stamping certain weights of the metals, in guarantee of those weights at a given fineness, and making- the coins thus produced " legal tender " — is apt to hide the real importance of what is done ; but it is none the less this simple action of governments which endues gold and silver with the powerful attributes of money ; and it is the possibility, which open mints maintain, of converting gold and silver, in whatever form or wherever they may exist, into legal tender coin, that mainly constitutes their preciousness " The Necessity of Money. 3 It is not their intrinsic qualities that directly give them their value; these have led to their selection for monetary purposes. It is that selection, and this use of them, chiefly, which make them precious by the demand for them which it creates. THE NECESSITY OF MONEY. The ideas of the olden times which identified wealth simply with the abundance of gold and silver have long since passed away. A nation which actually possesses only a comparatively small store of the precious metals may be richer than another which has far larger visible supplies. All the wealth of any nation, however, might for the moment as regards exchange purposes become in a sense valueless if the aid of trustworthy money in adequate quantity to measure it and to effect these exchanges failed; for prices cannot be quoted, nor can value be expressed, without reference to the standard of value. It is, indeed, as difficult to conceive of the human body without an arterial system by which that body has been built up and is main- tained, as of human society advancing in wealth and civilisation without a monetary system by which the results of industry, with all the ad- vantages and amenities which these secure, are CHAP. I. 4 The Necessity of Money. dispersed throughout the body politic. I be- lieve that just as the Almighty has everywhere given power to produce from the earth food grains for the use of man, and has caused grass to grow for the cattle on a thousand hills, so in His infinite wisdom has He guided man in the use of the precious metals, that by their means the blessings of His goodness might be fully distributed and enjoyed. Money, in gold and silver, is a world-wide institution. Its benefits as a measure and standard of value are for all nations. Prior to 1873, in all parts of the globe, whether the nominal standard of individual nations was gold alone, or silver alone, or gold and silver combined, there was in reality, from the interdependence and interworking of the several systems, a uniform, equitable and fairly stable standard of value for all nations. This standard was based upon the whole mass of the two monetary metals, wherever located, in their aggregate relationship to commodities, services, and properties. Though marred in its beneficent working by the attempt to demonetise silver, this wondrous institution still remains — ^the silver section of it as well as the gold section — and the two, though not now working in harmony, are still accessory the one to the other in forming the basis of value. The Measuring Power of Money. THE MEASURING POWER OF MONEY. The falling and uncertain exchanges with silver standard countries, resulting from the progressive demonetisation of silver, is a very- great evil; but a still greater is the dis- turbance of the measuring power of money which the withdrawal of so much of the silver section of the basis has produced. It is as certain and evident as any demonstration can be, that if you withdraw silver anywhere from its full power as money, you must affect the general basis of value; for wherever silver is withdrawn a void is created which gold must fill up. Gold must thus do a larger amount of work. It must, so to speak, be drawn out to cover a larger area, and each fraction having more work to do, its value must become ap- preciated; in other words, gold prices of commodities must inevitably fall as the pro- cess of withdrawing silver goes on. When the basis of value is fully considered, the increase or decrease of the annual sup- plies of either of the two metals is seen to be comparatively unimportant. It is the whole mass of the existing stock stored up through the ages that constitutes that basis.^ The ^ A Colloquy on Currency, by H. H. Gibbs, pp. 55, 56, 3rd edition. 6 The Measuring Power of Money. annual supplies are only as small uncertain streams falling into a mighty reservoir. It is the whole volume in the reservoir that is the basis. The idea of the whole world having its basis in one metal — the logical issue of mono- metallism — would mean the emptying of the reservoir of one half of its contents, leaving the remaining half to do the work which had previously been done by the whole. Let us for a moment suppose this change completely made and at once carried out. It would mean nothing less than a cataclysm in values. One sovereign would buy as much as two sovereigns formerly did, or, conversely, double quantities of articles would have to be given for one sovereign. As for the stores of silver in the East, they would practically become worthless, and the valuations based upon them would be thrown into confusion. The possessors of silver in India would practically lose their all in that metal, and everywhere there would be an attempt to scuttle out of it. And so it would be also with all who had anything to do with silver, anywhere, or whose capital was linked with the silver valuation. Where England and her Indian Empire might find themselves when such a change had been consummated may be left to the imagination to conceive. CHAP. I. Gold for Rich and Silver for Poor Nations. 7 But this, which appears a monstrous thing when thus proposed with all the naked result in view, is being gradually brought about by the constant and insidious demonetisation of silver that has been going on. THE IDEA OF GOLD FOR RICH NATIONS AND SILVER FOR POOR NATIONS. The idea that rich nations alone might have a single gold standard without the example being followed and without disturbing values is proved to be an absurdity. '' What is sauce for the goose is sauce for the gander," and nation after nation, each with more reason than its predecessors, must go on demonetising silver unless something is done to restore its former position as full-powered money. Till 1893 it was so in India ; and the tenacity of silver valuations generally in the East is now pretty well admitted. But if the East only is to maintain the struggle for the maintenance of silver as money, there will simply be an indefinite perpetuation of present conditions, viz., falling prices resulting from the contrac- tion of the monetary basis. This will tell with ever-increasing severity in the paralysation of industry on account of the impossibility of making industrial enterprises pay with con- tinually falling prices. 8 Full-powered Money stands Ordeal of Fire. Thus far I have been referring only to full- powered money or primary money ; that is, gold and silver money, with open mints, where all the metal presented is freely minted, say as in England to-day with gold, as in India with silver up till June, 1893, and as used to be the case in Europe and America when the mints there were open for both metals. FULL-POWERED METALLIC MONEY STANDS THE ORDEAL OF FIRE. It is one distinctive feature of full-powered money that it stands the ordeal of fire. The whole of the metallic reserves in the Bank of England might be fused into one molten mass without imperilling the value of these reserves, because a given quantity of gold can always be restored to its former condition and power as coin. We know that in India rupees in enormous quantities were constantly being manufactured into ornaments. In this way the natives largely stored then- wealth, because, before the mints were closed, they knew that they could get the silver rupees thus trans- formed, re-transformed into rupees, and in times of famine or other seasons of pressure upon their resources, there were always large quantities of this manufactured silver poured by the natives iuto the Indian mints for The FvMctions of Money. coinage. What effect recent legislation may be having on these habits remains to be seen. THE FUNCTIONS OF MONEY. It may be helpful to state here, and keep in view as we go on, the several functions which money performs. These, as stated by Jevons,^ are : — 1st. A Medium of Exchange. 2nd. A Common Measure of Value. 3rd. A Standard of Value. 4th. A Store of Value. Gold and silver money with open mints fully discharge all these functions ; and not only have these metals power as coin to dis- charge them, but the stock of uncoined metal is also potential money, which, if necessary, can be brought into play ; and, in point of fact, in the matter of reserves, uncoined metal largely plays the same part as coined money. IMPORTANCE OF FULL-POWERED METALLIC MONEY FOR STORING VALUE. I will not here refer to the three first of the functions of money as above stated ; but as regards the fourth, " A Store of Value," I ^ Jevons' Money and the Mechanism of Exchange, ehap. iii. 10 Fidl-powfred Metallic Money. may say that while in practical life and in banking there is no function of money that is so fully recognised, yet in theoretical writ- ings about money there is no function so little noticed or explained. Most writers dwell chiefly upon its intermediary functions as currency, regarding it simply as a tool, or instrument of exchange, and give little atten- tion to the important function of storing value which it also performs. Yet I believe that if we are to understand aright how money does its work, and how it acts as a standard, we must recognise fully this function of its being a store of value. Bank reserves are not myths. Military chests are realities, and so also are the vast hoards of silver money in the East, and the equally great aggregate of the smaller hoards of the precious metals throughout the world. These are all realities, the sum of the whole reaching a grand total of about £1,800,000,000 in money ; and when we add the uncoined metal — which is potential money, especially for standard and storing purposes — the figure would probably reach nearly double that amount. This is the world's basis of value (its primary money), and there is ample employ- ment for the whole, and for whatever more is likely to be produced, in the function it per- Full-powered Metallic Money. 11 forms, in addition to its other uses, as the world's store of value, not only for what it stores in its own substance, but as the necessary basis of all value. Mr. R B. Chapman, in a memo submitted to Lord Herschell's Committee, says on this point : " The ultimate residual " demand for these metals (silver and gold), " that which governs their position in the scale "of values, is in order to hoard or store for " future use the value of the surplus or un- " consumed products of human industry. Now, " as the growth of this surplus, already immense, " is practically unlimited, the consequence must "be a constantly increasing pressure upon the " precious metals ; their equivalent in indus- " trial produce must continually grow." I believe that if no disturbance had taken place in the world's monetary legislation in 1873, the supplies of gold and silver conjointly since then would have no more than maintained a volume of the precious metals sufEcient to preserve a steady equilibrium of prices. Ex- panding industry, expanding commerce, expand- ing civilisation, with the ever-increasing surplus of the products of human industry which they accumulate, need an expanding monetary basis to meet the demands made upon it as a store of value and necessary basis for these accumula- tions. It was only by the one having grown 12 Different Kinds of Money. in relative proportion to the other, that a steady equation was formerly maintained. We know what the fall of prices has been as the result of the partial throwing out of silver that has already taken place ; and Mr. Chapman is justi- fied in saying, in continuation of the above paragraph, that in view of this, it appears " something akin to madness to take any step " calculated to narrow the basis of the standard " of value ". OTHER KINDS OF MONEY BESIDES FULL- P OWERED METALLIC MONEY. I now pass on to consider the other kinds of money that enter into the world's circula- tion, and which all more or less depend upon full-powered me bailie money, or primary money as it is sometimes called. It is a pity that our language does not afibrd a term which would of itself indicate the distinctive and FOUNDATIONAL character of the latter. I would notice, as embracing the chief classes of these other kinds of money: — I.— THE SILVER MONEY OF EUROPE, say under the Latin Union. The position of this silver money, owing to the fact that at present the mints which produced it are closed, removes it from the category of automatic Different Kinds of Money. 13 full-powered money. The existing stock has still full power as legal tender, but it is only in the form of coin that it can discharge its functions. It cannot stand the ordeal of fire ; if melted, it would lose nearly a half of its nominal value, and this could not be restored.^ II.— THE SILVER MONEY OF THE UNITED STATES. This exists chiefly in coin, but partly in bars. A part of the former is in the hands of the people, but the bulk of this and the bars is in deposit. It is all virtually in circulation, however, in the notes based upon it. This silver is much in the same category as the silver money of the Latin Union, but it is a modern creation, and in a more precarious position, as based upon special and avowedly tentative laws.^ III.— ENGLISH SILVER MONEY. This is well understood to be token money. The law of 1816 ordained that instead of a pound of silver being coined at the rate of 62s. to the troy pound — its old fixed relationship to gold — it should be coined at the rate of 66s. to the troy pound, and should not be legal tender for more than 40s. As the price of silver measured in gold declines, its intrinsic ' See A Colloquy on Currency, by H. H. Gibbs, 3rd edition, p. 223. 14 Different Kinds of Money. value is drifting away from the original dif- ference, and it is becoming more fully token money, dependent solely upon the fiat of the State for its value. IV.— PAPER MONEY: BANK NOTES. This has no. pretensions to intrinsic value. Its value depends on the relation that it bears to full-powered metallic money. If CONVERTIBLE on demand, however, it serves the same exchange purposes as me- tallic money. In countries like England the issue of bank notes is scrupulously guarded, so that their convertibility into metallic money may be perfectly assured. The greater part of the Bank of England notes is represented by gold actually in the vaults of the Bank ; but the issue also includes a fiduciary amount, say, about £16,000,000, representing chiefly an old debt of the Government to the Bank, issued on the faith of the Bank's promise to pay when demanded, the calculation being that the notes circulating in the hands of the people will never be contracted to a point that would ex- haust the gold held against the aggregate of the notes issued. The chief advantage of these note issues is that they obviate the carrying of large sums of metallic money. They also save the country interest on the Different Kinds of Money. 15 amount of the fiduciary issue, less the expenses of the issue department. Besides convertible paper money there is also a vast amount of INCONVERTIBLE paper money, i.e., paper money the face value of which is not payable in coin on demand ; and there are, unfortunately, too many places in the world where money of this kind has to be used as the medium of exchange. The name " inconvertible currency," however, is scarcely correct, as it is only inconvertible in the sense that the State or banks which issue it make no provision to secure its convertibility. But inconvertible money is always negotiable at a price, however uncertain and depreciated that price may be ; and countries with an in- convertible currency, no less than countries with a sound currency, have their ultimate standard for determining values in the great basis of full-powered money common to all the world; and it is in terms of the precious metals that the value of inconvertible currency is always measured. These different kinds of what every one re- cognises as money form a large total, but they represent only a fraction of what is practically doing the work of money, because there is, besides all these, the great volume of what is known as credit money, which is so largely 16 Cheques amd Glewring Houses. employed in commerce. Before referring to this, however, I would notice the work in con- nection with money generally that CHEQUES and CLEARING HOUSES perform. CHEQUES AND CLEARING HOUSES. CHEQUES upon bankers also serve in some degree the purposes of circulating money. Their chief utility, however, is in obviating the movement of either bank notes or coin ; and in connection with the settlement of cheques and other instruments of credit there is, besides, the action of CLEARING HOUSES, still further lessening to an enormous degree the movements of legal currency. It is when we realise what the figures mean which indicate the enormous amounts which even in a single day, and in a single city such as London, are passed through these Clearing Houses, that we get a full idea of the enor- mous extent of the monetary transactions con- tinually going on. CREDIT MONEY— HOW CREATED, AND WHAT IT IS. How is credit money, as it is called, created ? What does it represent ? The answer to these questions is, that bills of exchange and the machinery of banks are the chief means by Credit Money. 17 ■which it is created, and that what it represents and embodies is real wealth, the assets of the nations, which it, with all the other monetary- appliances, affords the means of handling and using for the good of men. All that we call capital or wealth, apart from the portion in actual metallic money, ex- ists in commodities, the accumulated result of industry, in property on which labour has been expended, and in the thousand-and-one things that have been rendered valuable by the skill and genius of man. All these things may be monetised for the time by means of credit. Thus the produce floating on its way to Eng- land becomes monetised through the medium of bills of exchange drawn against it, and remains so as long as these bills are running. The goods on their way from England to foreign countries are likewise monetised in the same way, or by credit institutions, which give advances upon them. In internal trade the same process of monetising commodities is also continually going on by means of bills drawn against goods sold on time by the wholesale dealers. Then there is the raising of money, as it is called, by the deposit of railway or other shares with banks, and also by means of mortgages, etc' ' I have assumed that credit money is always based upon something ; but we know that there is also acoom- 2 18 Credit Money. The monetary payments in connection witk all these varied movements of trade and com- merce make a grand total, compared with which the actual movements of metallic money appear petty and insignificant. Nevertheless, metallic money is the indispensable basis on which all this grand structure of credit rests. Perhaps, what happened at the time of the Baring collapse brought home to the country more fully than any experience of modem times the importance of adequate metallic reserves. Thirty millions of credit money had then collapsed. For the moment it was almost valueless ; and, if full failure of Messrs. Baring- had taken place, it would have had to be other- wise met. It was only by the bold and states- man-like action of the authorities of the Bank of England, which practically remonetised the bills, that the full consequences of that crisis were averted. Mr. Goschen's picture in his speech at Leeds of the possibilities as regards • modation paper, bills that are discounted simply in view o£ the credit of the names of the drawers and drawees upon them. If the names are good it is probable that they will exist to provide funds for legitimate transactions, not of a nature that would admit of anything being specially hypothecated, though unfortunately this device is also often used to cover loss or rottenness. If the names are bad, and no value actually received or pledged, the sham cannot go far, in view of the care that is necessarily taken by discounters. Money oi a Circulating Mediwm. 19 England if the immediate effects of that crisis had not been thus averted, was in no way beyond the truth. Even as matters went, it was only with the aid of metallic money, re- ceived from France, and the confidence which the replenished reserves produced, that England's financial and monetary position was saved. I have made this general analysis of the functions of money, and of the various entities to which the name of money may be applied, with a glance at the great work which they perform, in order to see if we cannot trace out more clearly when thus analysed what is actually happening in view of the monetary changes now going on. MONEY AS A CIRCULATING MEDIUM. The function of money simply as currency or a circulating medium, besides being per- formed by full-powered metallic money, is also performed by silver money in the imperfect condition in which we at present find it in most of the countries in Europe, and in the United States of America ; also by paper money, both convertible and inconvertible — ^cheques and Clearing Houses aiding immensely in this work. There are also the enormous monetary movements which are accomplished by Bills and other special credit arrangements. 20 Inconvertible Paper Cnrrency. Money in all these forms and ways serves as a circulating medium and common measure of value. QUANTITY OF MONEY IN COIN AND NOTES THAT CAN BE USED AS CURRENCY. The volume of currency in coin and bank notes that can be thus used as a circulating medium is governed by clear and well-under- stood laws. On a given basis of value in relationship to the commodities it has to move, and the activity with which it may have to do its work, there is little variation in the quantity that requires to be employed. We know for example that the active currency of England in the hands of the people does not vary much. In places where there is inconvertible paper money, any excessive quantity forced into the circulation simply causes a proportionate loss of power to the whole amount in circulation. The multiples are increased, but the power of each multiple becomes diminished, so that the total value of the increased quantity measured in full-powered money will likely not be more than that of the original amount before the additional issues were made. INCONVERTIBLE PAPER CURRENCY. Inconvertible paper money has always be- gun by a change coming over paper money that Inconvertible Paper Currency. 21 had formerly been convertible, its convertibility having been lost through the securities at first taken for conversion having disappeared. The moment default is made, the value of such paper money in relation to full-powered money is depreciated, and a discount upon it is estab- lished. This quickly drives out all full-powered money, and the circulation becoming entirely inconvertible paper money, the country has simply to make the best of the only circulating medium it has left. The conditions of value under which an inconvertible currency does its work are diffi- cult to define. It may continue, under the shadow of its former position, to have for a time approximately the same power for internal purposes as formerly ; but the test of foreign exchanges quickly establishes an important difierence for outside payments, and eventually this tells internally as well. The extent of the difference is determined by the amount of the issues and the probabilities of the Government being willing, and, if willing, of its being able, to restore the convertibility of such money. England's paper currency, we know, was in- convertible for a long series of years early in the century, but the convertibility of her notes was ultimately restored to a metallic basis at full former power. 22 Inconvertible Paper Cwrency. The United States of America also, whose paper currency had become inconvertible dur- ing the civil war, was able, within about twelve years after the conclusion of that war, to rein- state it on its old metallic basis. In countries where an inconvertible currency has become almost permanent, the hope of ultimate restoration, though it may be a faint one, is still an element of value. There may be besides the increasing needs of a growing population and growing trade for an increased volume of the circulating medium, and this also tends to maintain and appreciate the value of inconvertible paper currency, if left alone. On the other hand, impecunious governments which have already served their purposes by excessive issues can never be trusted not again to meet their difficulties in this way ; and there is the constant play of hope and fear at work as to what such governments may do either in the way of making fresh emissions, or of mak- ing genuine efforts to remedy the evil and prepare the way for a restoration of former value. In the midst of all these conflicting hopes and fears, speculation is ever actively watching the daily movements of the gold premium, which measures the relative value of inconvertible money, accentuating, by " bearing " and " bulling " operations, the Inconvertible Paper Cwrrency. 23 movements that may be based on these hopes and fears. And not only has the action of governments to be considered, but also the interests of influential classes affected by these movements ; for vested interests are created by depreciated currencies. Farmers and other producers benefit for a time by the larger amounts of paper money which they receive for their exportable articles, while the wages they pay and other charges do not at once increase. It acts in the way of a bounty in this respect, and also as a protective duty in stimulating internal manufactures, the interests of those affected in these ways being thus opposed to a restoration of old values. I hive referred to the chief features of in- convertible currency because countries afflicted with it ire often left out of view in considering the monetary question. Inconvertible currency forms for them their internal circulating medium ; but, as we have seen, it does not cut them off from the community of nations, as regards th? basis and standard of value which is common to them and to other nations. Their international commerce necessitates a greater or less stock of metallic money in the coins o: other nations in Banks, and the possible denand on the world's stock of the precious mttals in the eyent of their re- CHAP. I. 24 Distinctive Character of Credit Money. establishing convertible currencies is a contingency that must ever be kept in view.^ THE DISTINCTIVE CHARACTER OF CREDIT MONEY. Credit Money. — The money which I have spoken of as being so largely employed in commerce, also performs, in its OMra special way, the function of a circulating medium to an immensely larger degree than all the other forms of money to which I have referred. I have already described what credit money is, and how it is created. It is not a thing apart from the commodities it moves. They and it are one thing, in the sense that a contertible note and the gold that is held againsi it are one thing; but, unlike convertible bank notes, the substance it represents is not intended to be paid or demanded. Its promises t^ pay are ^ In these remarks I have in view the prsctice which exists in Buenos Ayres, where a premium on gold measures the difierenoe in value between the paper currency and gold, the rates for exchange on Europe ieiug always quoted separately in gold dollars. There aie thus iu re- mitting, two operations, first, a purchase of gold dollars, and then a purchase of Bills of Exchange o^ Europe with gold dollars — the variation in the rates in ilie latter case being due simply to the varying state of ihe balance of trade with Europe. In most of the other countries with an inconvertible paper currency these twoj operations are merged into one. Exchange rates for BUls «Q Europe being quoted directly in the paper currency. j CHAP. I. Distinctive Character of Credit Money. 25 promises to pay full-powered money. Its circulation is not general but specific, and usually in large amounts. It is not a con- tinuous thing, but becomes demonetised when the bills mature, or when the goods hypothe- cated go into consumption. While in the movements of trade it is being continually created, it is also being continually cancelled, and the process of cau- celment every time necessitates a reference to, or use of, full-powered money. While it so enormously aids and constitutes the circula- tion, it has no legs of its own on which to run, but at every stage it has to be helped over the stile by other forms of circulating money. It is thus seen to be essentially different in character from these, more especially from full-powered money. Its use is not as a sub- stitute for, but as a complement to, primary money, on which it continually rests, and without which it could not exist. The creation of credit money by the monetisation of commodities is the chief device that has rendered possible the immense developments of trade and commerce that have taken place ; and if it is to perform its functions aright, the basis of full-powered money on which it rests must be in due pro- portion to the extent of the credit structure CHAP. I. 26 Distinctive Character of Credit Money. reared upon it. We have seen this fully illustrated by the experience of the Baring crisis. Mr. F. J. Faraday, in a very important paper on " Credit Money and the Precious " Metals," read before the Manchester Literary and Philosophical Society, and published in the Memoirs and Proceedings of that Society — fourth series, vol. iv., No. 4, 1890-91 — deals very fully and conclusively with the whole of this matter. The following extract bears upon the point above noted : — " What I wish to bring out clearly is that, " granted a relative absolute scarcity of gold, " the influence of credit in preventing a fall "of prices is itself checked by the very "scarcity of gold which is the primary con- " dition inducing the fall. Credit money does " not imply the effective action of the principle "of compensation, because credit money does "not expand as gold money contracts, but, "on the contrary, other things remaining " equal, tends to contract in some ratio with "the contraction of gold money. In this "respect, though I have spoken of credit " money as a kind of polymetallism, it is " fundamentally different from true bimetal- " lism based on the bestowal of full liberatory Money as a Standard and Store of Valve. 27 " power on the two precious metals ; because, "if the theory be sound, true bimetallism " implies the effective action of the principle " of compensation under the assumed con- "ditions, a monetary strain on one metal " being instantly and automatically counter- " acted by a corresponding inflow of the other." MONEY AS A STANDARD AND STORE OF VALVE. So much for money as a circulating medium and common measure of value. • These functions can be performed not only by full- powered money, but also by the other forms of representative and credit money to which I have alluded ; but when we come to consider the functions of money as a STANDARD OF VALUE especially in the more extended sense of a standard for deferred payments, and as a STORE OF VALUE, the case is quite different, and we find that these functions can be per- formed only by full-powered metallic money. The standard must be a true equivalent of the value which it measures, and must have in itself full liberatory power ; so that however long the payment may be deferred, the creditor will get back exactly the same value that he lent, and the debtor will have to pay exactly the same value that he borrowed. Representative money in bank notes could CHAP. I. 28 Money as a Standard and Store of Value. not fulfil these conditions, because it has no intrinsic value, and its representative value might vanish if the bank which issued it failed. As regards credit money, resting as it does upon commodities continually varying in value from day to day, and with no specific continuity, it is obvious that it could not in itself perform the function of a STANDARD. It has no distinctive position apart from those commodities. Besides, they are the very things which the standard has to measure, and to assume that credit, of itself, forms an element in the standard of value is to get landed in the absurdity of a measure measuring itself, being both the measure and the thing measured. Then as a store of value it is equally evident that none of these other kinds of money could perform this function. Money in this sense is a commodity, a definite thing that can be exchanged for other commodities, and every sale of ordinary com- modities implies obtaining the actual owner- ship of so much of the monetary commodity, gold or silver, as it may happen to be. We may enter into full possession of it or not, but our right to possession is complete, and we may at any time exercise that right, and either hold our money in our safes, or send it to any other place or country as we see fit. It is Money and Wealth. 29 only so far as the value of full-powered money in the precious metals is permanent and stable, and capable of being stored without varying in value, that it can truly perform this supreme function of a standard, and be a trustworthy basis on which the whole super- structure of credit and of representative money in all other forms may rest. MONEY AND WEALTH. Wealth would be latent and could not in- crease apart from life-giving contact with this monetary basis. It is like a great store of electric force which communicates to all the par- ticles of the other forms of wealth a oneness of power with itself, making that wealth active, and unfolding and disseminating its power. Money enables wealth to be buUt up, and in proportion as it is built up and its volume increased, a broader basis is needed for a larger storage of that wealth. It is here that the quantitative theory of money comes into fullest play, and it is idle to suppose that any other thing than full-powered money can take its place in this respect. To attempt, therefore, to withdraw one half of this monetary basis, as I have already pointed out, must necessarily, by destroying the stability of the value of the whole, work untold mischief. CHAPTER II. — The Quantitative Theory of Money. The ambiguous manner in which the quanti- tative theory of money is sometimes referred to by prominent monometallists renders it necessary that it should be examined. Is it a true theory ? and, if so, what is the reason for these vague utterances regarding it? I will deal with the second of these questions later on. NO OPPOSING THEORY PROPOUNDED. Is there any opposing theory which those who disparage the quantitative theory advance as affording a better explanation of the princi- ples on which the exchangeable value of money is determined ? I know of none. The quanti- tative theory has been accepted and endorsed by all the masters in political economy who have written on the subject of money, including Adam Smith and John Stuart Mill ; and when the theory is really examined, no one can doubt its truth. It rests upon no obscure or subtle principle, but on the obvious one, which CHAP. II. No Opposing Theory Propownded. 31 we find, always and everywhere in operation, viz., that supply and demand regulate ex- changeable value. In the days of barter a man gave so much of one article for so much of another ; and when gold and silver money came to be used as the medium of exchange among civilised nations, it was simply the giving or getting of a certain quantity of that money for so much of any other article. We cannot rightly apply the term " price " to money, for it is itself the only instrument of price ; but the exchangeable value of a given quantity of money is no less the quantity of articles which so much money can purchase, as that that quantity of money is the exchangeable value or price of these articles. You offer a certain quantity of money for a given object. The seller declines your offer, and wants more. You give him the quantity demanded, and the object is secured. The theory, therefore, that money measures the value of commodities by virtue of the quantity of it on offer in relation to the demand for it as an exchangeable commodity, is a funda- mental one, and cannot be gainsaid. The de- crees of sovereign rulers may within limited areas force the acceptance of certain kinds of money, which in a free condition of society would not pass as such; but even in these 32 No Opposing Theory Propownded. cases it would also be by virtue of its quantity that this fiat money would measure value. No doubt, rulers have also at times attempted to fix prices arbitrarily, and such action was an interference with the principle ; but exceptions of this kind only prove the rule that, in a free condition of society, the principles that deter- mine the value of money, or its purchasing power, are the same as those which determine all values, viz., the play of the quantitative de- mand for the available supply. Advancing in our consideration of the sub- ject from the primary conditions under which money came at first to be used, to the more complex institution which we find bearing this name in modern society, is the quantitative principle still as vital and fundamental ? There can, I think, be no doubt that it is ; but the variety in the forms of modern money, embracing as it does, besides coined gold and silver, bank notes, and all the various forms of credit money, is apt, perhaps, to hide the operation of the theory. The complex nature of the functions which money performs also tends in the same direction, and it is very necessary to keep these distinctive functions fully in view. CHAP. II. The Different Ftmctions of Money. 33 NECESSARY TO DISTINGUISH THE DIFFERENT FUNCTIONS OF MONEY. In our thoughts about money we are apt to forget that it is not a simple thing performing only one kind of work, but a complex thing fulfilling very distinct functions. I have al- ready analysed the different entities to which the name " money " is usually applied, show- ing the extent to which each of them performs the full functions of money. I would here simply make two broad distinctions, viz. : — (1) Those forms of money which can only fulfil the functions of money as currency or medium of exchange; and, (2) Those which I have cedled full-powered money, which, in addition to forming part of the circulating medium, constitute in themselves in the aggregate the standard and store of monetary value, and also form the basis on which credit or repre- sentative money in all its various forms rests. All the different classes of money may enter into the volume of money as a circulat- ing medium, and facilitate exchange; but only full-powered metallic money can, as we have seen, in addition to its availability as a circulating medium, also perform in itself the functions of a standard and store of value. 3 34 The Different Fvmctions of Money. This full-powered metallic money to be such in perfect form must also have existing the essential condition of open mints for the coin- age of such money, which makes it universal money for international purposes. With regard to these two classes, that is, money which only serves as a circulating medium, and full-powered metallic money, which discharges all the functions of money, the quantitative theory of money applies, but in ways that are different. Take represen- tative money in bank notes. In a settled country, with a convertible paper currency, using bank notes for convenience and for their utility in making metallic money go further, the quantitative theory in its application to these notes has to be kept in view. A less quantity than is required for the wants of a country accustomed to the use of notes would cause inconvenience ; but as the metallic money of such a country also serves the purpose of a circulating medium, and this being allied with all other full-powered currencies, the contraction of the paper money would only tell partially in causing prices of commodities to fall. On the other hand, a larger quantity of convertible notes thrown into circulation would only have limited power in raising prices, as these excessive issues would not CHAP. II. The Different Fvmctions of Money. 35 likely all remain in the circulation, but would largely find their way back into the reserves of the banks that issued them. In the case of a country with an inconver- tible paper currency, the operation of the quantitative theory as regards such currency is more obvious and complete. As I have already said, an increased quantity at once causes inflation, prices of commodities in that paper currency rise, and it is quickly seen that its purchasing power falls ; on the other hand, a restriction of issues, or a large with- drawal of notes from the circulation, has the effect of increasing the purchasing power of such currency, leading quickly to lower prices of commodities. The use of paper money throughout the world is an important factor as affecting the general demand for the precious metals ; but the effect upon prices in the several countries of a greater or less quantity of such paper money is purely a local matter. When we come, however, to look at full-powered metallic money, and view its complete functions, not only as a circulating medium but also as that which constitutes the standard and basis of value everywhere, we have to regard it as a world-wide institution, in which all nations have their share, the power of which, or its 36 The Different Functions of Money. relative value, is determined by the universal demand for it. For greater clearness in looking at this point let us go back to the period prior to 1873, when coined gold and silver were practi- cally full-powered money everywhere. The diiferent nations had each their own standard either in gold or silver or in both at a fixed ratio of equivalence; and the whole of these metallic currencies, owing to the open mints of the bimetallic States linking them together, formed in the aggregate one mass of metallic money on the one side, as against commodities, services and every form of wealth throughout the world, that had to be measured or trans- ferred, on the other side. These metallic cur- rencies were aided in doing the work of money, as I have said, by the other forms of repre- sentative money to which I have alluded ; but they in themselves, with the gold and silver bullion in the world, which at any time could be coined, constituted the basis on which the standard of value rested ; and the total quantity of such coin and bullion, in relation to the exchange work which as basis and standard it had to perform for the world, was the quantitative figure of the equation between money on the one side and commodities on the other. CHAP. II. Lien upon Full-powered Money Implied. 37 It is in this aspect that the quantitative theory of money has its fullest significance. ly MONETARY TRANSACTIONS A LIEN UPON FULL-POWERED MONEY ALWA YS SUPPOSED. The transference of commodities can be carried out by means of any of the other kinds of money as long as the parties making the exchange are agreed as to the exact value in metallic money which they represent ; but this depends upon the power always existing, to be used if need be, of converting these represen- tative instruments into metallic money. In every sale the buyer gives, and the seller gets, something which, if it is not actually metallic money, he has the power of converting into metallic money. Ordinarily, the seller will simply pass the notes, or the cheque, or the bill which he receives, to his bankers, to be placed to his credit in account; but there is always the possibility implied of the seller declining to take anything but hard cash, and, if he does take documentary money, that he may exercise his absolute right of converting it into hard cash, and remaining in posses- sion of that hard cash locked up in his safe if he chooses. There is, therefore, in the case of every sale or purchase, an absolute lien received CHAP. II. 38 Lien upon Full-powered Money Implied. or given upon the world's stores of the precious metals. Now, let us follow out what this means ; for it is a principle actively at work through- out the whole realm of money, not only in the case of specific transactions which may be isolated and analysed, but with regard to everything that bears the name and performs in any degree the functions of money. Take first of all bank notes. Where the currency is convertible we know that it is a funda- mental condition, which the State usually sees is rigorously fulfilled, that there shall be a given proportion of gold or silver coin or bullion held in the bank's cofiers, to provide for the certain cashing of all the notes. Even as regards countries with inconvertible paper currency, the value for international pur- poses which that possesses, though varying, is measured by its exchange value in the full- powered gold and silver currencies of other nations ; and there are often in such countries important amounts of metallic money in foreign coins held by banks or otherwise in connection with international trade. Euro- pean loans made to their governments are usually transmitted to them in such coin ; and there is always the possibility of these countries making large demands upon the CHAP. II. Lien upon Full-powered Money Implied. 39 world's stock of the precious metals to redeem their currencies, and put them upon a con- vertible metallic basis. We are apt to think of paper money in bank notes as a substitute for metallic money. It certainly largely aids metallic money in performing scyme of its functions, but can never independently take the place of metallic money and perform all its functions. The larger the amount of paper money there is in the world, the larger must be the foundation in full-powered standard money on which it has to rest. But there are besides bank notes other forms of representative money, which in an enor- mously greater degree aid full-powered metallic money in doing its work. I allude to cheques, bills, and all the modern expedients of com- merce by which the actual handling of hard cash, or notes, is obviated, and by means of which also the wealth of the world in com- modities and everything else may, as we have seen, be practically monetised for the purposes of business and exchange. This credit money, however, cannot, any more than bank notes, of itself take the place of standard or full- powered money. On the contrary, all the multiplied transactions of a credit nature in their enormous totality, also rest directly or 40 Demand as against Supply, or Stock, of Money. indirectly upon the world's standard and store of value in full-powered metallic money. The wealth of the world in commodities, lands, and everything else, receives its vitality as wealth from the possibility of its being thus monetised by instruments of credit, and the action of credit institutions in making it merchantable and exchangeable. The im- mense volume of this credit money must not, however, hide from our view the fact that its appraisement in relation to the measure and standard of value rests upon precisely the same principles as the simple transactions in buying and selling, which I have analysed; and the possible demand for the service of standard money in connection with it, forms merely a larger element than any other in the general demand for standard money, from the play of which demand standard money takes its value. THE QUANTITATIVE DEMAND AS AGAINST THE QUANTITATIVE SUPPLY, OR STOCK , OF FULL-POWERED MONEY. We may now classify the several ways in which the demand for full-powered metallic money comes into force. First, the obvious one, CHAP. II. Dema/nd as against Supply, or Stock, of Monet/. 41 through the full-powered money in the hands of the people, say in Europe and America, as we see in England with gold and silver, and in the East to a vastly greater extent with silver, where enormous quantities pass from hand to hand, and are privately stored or hoarded in a variety of ways, according to the idiosyncrasies of the different peoples. Second, through bank notes in the provisions necessarily made to secure their conversion, and the exigencies of demand, which at any moment may arise in connection with inconvertible paper money being made convertible. Third, through the general opera- tions of credit by means of documents or banking arrangements, — all implying possible enormous demands upon the world's stock of full-powered money. The demand for full-powered money that may arise in connection with fiduciary currency in bank notes is a definable thing; but the demand that may arise through the collapse of credit is indefinable, for it is not only the collapse of what may have been actually fictitious, but also of what was real and fully justified ; and as the structure of credit must grow, as the wealth of the world of which it is the vitalising principle increases, the basis in full-powered money, on which that structure of credit rests, must increase with the growth CHAP. II. 42 Demwnd as against Supply, or Stock, of Money. of wealth, to be an adequate equipoise in sus- taining the weight of value resting upon it. The idea that this modern structure of credit could exist without direct reference to the full-powered money on which it actually rests, is no less absurd than the old dream of perpetual motion being secured without an impelling force, a tree growing with its roots cut away, or a substantial structure resting on airy nothingness. These three forms, which I have enumerated as embracing the chief ways in which the demand for full-powered money comes into play, make up what may be termed the quantitative demand figure of the equation, as against what I have already said is the quan- titative figure of supply in the world's entire stock of full-powered money. As the commerce of the world and its wealth increased, the demand factor of the equation must have been an increasing one; but there were the fresh supplies of gold and silver from the mines always coming in to maintain the equilibrium, and there was thus a tolerably fair balance maintained between supply and demand for full-powered money. Since 1874, while the monetary wants of the world have continued to increase, with its increasing population and wealth, a revolutionary movement, having for CHAP. n. Demand as against Supply, or Stock, of Money. 43 its ultimate issue the cutting off of one half of the supply of full-powered metallic money, has been going on, and a great disturbance of values has necessarily been the result. A given quantity of gold and silver in coin and bullion was doing the world's monetary work as the standard of value. The revolutionary ideas of the gold monometallists would demonetise silver altogether, leaving the basis of value to rest upon gold alone. Now let us put in approximate figures what this actually means. There is estimated to be in the world about £900,000,000 sterling in gold coin, and £900,000,000 sterling in silver coin, besides perhaps equal quantities of both metals uncoined, which, under the regime of open mints, such as formerly ex- isted in Europe for gold and silver, and in India for silver, were actually also potential money, from the possibility of the uncoined metals being at any time converted into coin. This is, or would have been, the basis of the world's standard or measure of value — the quantitative figure of supply or stock as against the world's demand for metallic money. The total in this rough way would be £3,600,000,000, half gold and half silver. Now the complete triumph of monometallism would mean the setting aside of one half of CHAP.- n. 44 Reason for Disparagement of Quantitative Theory. this basis, or say the £1,800,000,000 of silver, and that theremaining half— the £1,800,000,000 of gold alone — should do the work formerly- done by the £3,600,000,000 of gold and silver conjointly. If the quantitative theory of money is true, the equation between money and that which it represents, and measures, must also undergo a proportionate change. The uni- versally implied lien which I have spoken of is now upon a quantitative amount which is being reduced by one half ; and the higgling of the market, or, as it has become in Europe, the scramble for gold, raises its value pro- portionally : hence the appreciation of gold and the universal fall in prices which is prov- ing so disastrous to our industries. THE REASON WHY MONOMETALLISTS SPEAK VAGUELY OF THE QUANTITATIVE THEORY OF MONEY. I asked why it was that prominent mono- metallists were making light of the quantita- tive theory of money. I think the reason will now be obvious. They jfind that the ideas on which monometallism is based are incompatible with it, and they want to get rid of it. To admit it they must practically maintain that £1,800,000,000 of the precious metals can do the world's work as well, and Cheap Loanable Money. 45 upon the same conditions of relative value, as £3,600,000,000. In other words, that the quantity x in an equation can have the same mathematical value as the quantity 2a;. CHEAP LOANABLE MONEY— THE REASON OF ITS CHEAPNESS. It is often said by monometallists, How is it possible that money can be dearer in presence of the fajct that there never was a time when money in the Money Market was more abundant ? Those who propound this difficulty jump at the conclusion that, because money on oifer on loan is abundant and cheap, as shown in discount rates, it cannot therefore cost more to obtain absolute possession of it. They cannot deny the general fall of prices, which is just another way of expressing the fact that gold has appreciated ; but they try to make out that this fall in prices is alto- gether due to other than monetary causes, and insist that money itself cannot be dearer when it is so abundant. The essential difference between the loan- able value of money and the exchangeable value of money has been often pointed out; and it is not necessary to dwell upon it ; but an examination of how this cheapness of loanable money, or rather loanable capital, 46 Cheap Loamable Money. comes about, will throw light upon the matter, and also make clearer the general principles which I have been trying to explain. When anything is advancing in value it is always more difficult to buy. The person who possesses such an article demands a higher price; and if he does not get that price at once he does not care, because he believes that by waiting longer he will get a still higher price. And so it is with the holder of money — the value of which is appreciating. All the exchangeable things in which the holder might invest that money are falling in value, and he does not care to part with it, because later on he may be able to invest it more advantage- ously. Thus it is that in times like these, those who have a proportion of their wealth in what is spoken of as the liquid form of money, and all small possessors of money also, shrink back from investing it. The consequence is, that it accumulates in banks, and banks must lend it at the best rate they can get ; and not only is there the holding back from the investing of money in such times, but there is also the positive withdrawal of capital from industries going on. A capitalist was content formerly to allow his capital to remain in the industries in which he had made his money. Now, in view of the shrinkage in values, in the inter- Cheap Loanahle Money. 47 ests it may be of his family, or on other con- siderations, he sees the necessity of withdraw- ing his capital, in whole or in part, from such investments, and keeping it in the more liquid form of money at his bankers, or in gilt-edged securities. It is not easy now-a-days to effect such withdrawal, and in the case supposed it is perhaps done at a great sacrifice of nominal capital through the creation of a limited company ; but the loss is accepted, and at least some of the fortune placed beyond the reach of falling prices. Owing also to the uncertain gold value of silver, there is always pouring into the European money markets the realised wealth which may have been acquired by Europeans in silver standard countries, a large proportion of which, under the old conditions of comparatively steady exchanges, would have remained as capital in these countries to benefit them, but which the possessors cannot now leave invested there, but must bring to Europe to get it placed securely upon the gold platform. The effect of all these tendencies on the Money Market is, that more loanable capital is thrown upon it, and increased appli- cation also made for gilt-edged securities. The rates of interest obtained for money may be very low ; but there is to be added to the result the increment on the capital sums lent from 48 Pressitre to have Wealth in Money, the .appreciation of gold. In gilt-edged securities, owing to the great demand for them, there is also increment in capital values accruing. THE PRESSURE TO HAVE WEALTH IN THE LIQUID FORM OF MONEY. Now, what does this pressure to have wealth in the liquid form of money mean ? It means simply a greatly increased accumulation of loanable capital in the Money Market ; and bankers in whose hands it is deposited are, as we know, at their wits' end how to employ it. It may be useful here to analyse this liquid capital in money, and see on what it actually rests. Let us take a capitalist whose capital is all invested in mills and property of different kinds. These investments are the tangible embodiment of his capital. Let us now suppose that he determines to realise say £20,000 by the sale of some of his property. Let us also suppose, for clearer illustration, that he gets paid for what he sells in sove- reigns. As long as these sovereigns are in his possession, they also are the tangible embodi- ment of the £20,000 which he now possesses in money; but he deposits them with his bankers, and loses sight of them ; for he now has simply a deposit at his bankers of £20,000 Fresswre to have Wealth in Money. 49 which his bankers are only bound to pay back in legal tender money. The capitalist is now therefore in just the same position as if he had paid in the sum in bank notes or by a cheque. The bankers on their part also quickly lose sight of the sovereigns ; for they in turn lend the money which the sovereigns embodied, and have only against it the obligations of their customers.^ Returning to our capitalist. On what does this liquid capital in money deposited at his bankers, which he now possesses, rest ? It rests first of all upon the solvency of his bankers, and secondly upon the convertibility into metallic money of the legal tender money with which the bankers can discharge their obligations. Eut these are not tangible things. The bank which held his deposit might fail, and he would lose his money ; and the State, or State bank, which guaranteed the legal tender currency, might have to suspend metallic payments, in ' In saying that the depositor loses sight of the tangible «mhodiment of his liquid capital in money when he has simply his bankers' receipt for the amount, it must not be inferred that such embodiment ceases to exist. It could still be traced, say in the goods which the bank's trading ■customer may have bought with the money he borrowed, or in the case of the farming client of the bank in the labour spent, and the seed sown, — lost for the time, but -which wid again become embodied in the crops that at harvest time the husbandman will reap. 4 CHAP. n. 50 Pressure to have Wealth in Money. which case the legal tender money would at once go to a discount. This liquid capital in money deposited in banks rests, therefore, to a large extent upon credit. Apart from banks and monetary institu- tions, there could be no liquid capital in money in any country beyond what actually existed in coin ; but the same quantity of coin through these institutions is made to carry an enor- mously greater amount of liquid capital than that coin in itself could embody. Bankers receive and lend out all the money that is offered to them, under the calculation that, in the average of their business, they will never be called upon to pay out all their deposits at once, and that as one class of customers is taking money out, other classes will be paying money in. Cash in hand, therefore, amounting, it may be, to only a fraction of their liabilities for money deposited, will enable them to meet all claims. And so also with the legal tender currency. A certain proportion in metallic reserves will enable the State, or State bank, to meet all demands upon it for the conversion of its notes. Let us keep all this in view in looking at the loanable capital, or the liquid capital in money, that may be in the market. Invested capital, that is capital invested in securities. CHAP. II. Result of Avoiding Ordinary Investments. 51 has something tangible, as we have seen, against every fraction of it. Liquid capital in money in banks has nothing tangible ear- marked against its several fractions — there is only the total metallic reserves of the nation against the total liquid capital in money of the nation ; yet each possessor of liquid capital in money has an absolute lien on these metallic reserves, and believes that in case of need he can command metallic money to the amount of his liquid capital in money deposited. THE RESULT OF CAPITALISTS AVOIDING ORDINARY INDUSTRIAL INVESTMENTS. Now, what is the result of this condition of things in view of the present tendency to hold back from investing money in ordi- nary securities, and to accumulate increased amounts in liquid capital ? The metallic re- serves of the nation, which are the primary basis of this liquid capital, necessarily increase in the great centres such as London, and the liquid capital in money deposited in banks which these reserves secure, also swells out in an increased proportionate ratio. In other words, the gold platform is enlarged through the drawing in of foreign investments and the checking of outflow in new enterprises, and the numbers crowding upon this platform as CHAP. II. 52 Result of Avoiding Ordinary Investments. holders of liquid capital in money are also perhaps more than proportionately increased. The scramble for gold or to get capital placed upon the gold platform is not a myth, hut a reality, and these accumulations of liquid capital in money, both in metallic money — say as in the Bank of England — and deposited money in all the banks, are at once a result and an evidence of it. The whole condition of things also in this respect affords only another demonstration of the quantitative theory of money, and of the certain working of the principles which that theory represents. The quantitative basis of monetary metal upon which the structure of money and credit rests, being reduced by the withdrawal of silver, a new equation between money on the one hand and the values which it measures and vitalises on the other is working itself out. The conse- quent change in relative value has been mani- festing itself in the fall in prices so fatal to our industries ; and as the result of the stagnation produced by that fall, we have now the glut of loanable capital, and the low rates of interest for best securities, from which the monied classes are in their turn suffering. Neglect of the Science of Money. 53 NEGLECT OF THE SCIENCE OF MONEY. It is passing strange that the science of money is so little understood. It has been the fashion, under the influence, I think, of laissez faire ideas, to speak contemptuously of money as a thing of little importance; and many of our ablest economists have been misled by regarding it merely as a circulating medium, and thus altogether failing to understand the deeper workings of its power. The economic world to-day is like a ship at sea, when, from want of scientific knowledge, the compass has been left exposed to some local magnetic in- fluences which make it untrue. Appearances in sky and sea excite alarm and make all on board suspicious that the ship is not where it should be ; but no one can tell what is wrong. And so with trade at present; we have pro- longed depression which no one can under- stand, falling prices that perplex and alarm all thoughtful men, capital shrinking away from every kind of industrial enterprise and hiding itself in gilt-edged securities. Every one realises that there is something wrong; but who can tell what it is ? Lord Palmerston once read a salutary lesson to a deputation that approached him regarding a cholera epi- demic. His mode of doing so was thought at 54 Neglect of the Science of Money. the time a little irreverent; but the nation never forgot the lesson, and has profited by it. The lesson was, that cholera resulted from disregard of the laws of health and sanitation. These laws have to be understood and obeyed, or suffering must follow. And so it is with the laws of money. It became the fashion to exalt gold and make no account of silver; and through doing so to disregard monetary laws, the ignorance and disregard of which are as sure to bring retribution as the dis- regard of the laws which nature has imposed in the physical world. Money is not a mere conventional thing which nations may alter to suit their fancy. It is an institution built up upon human needs, and the proper understanding of its comple:^ and delicate working is necessary in the highest degree to the temporal welfare of man. The two precious metals conjointly, as we have seen, have been doing their beneficent work as the world's basis of value since the earliest dawn of civilisation, and the sanctions of this long usage have created a system which indi- vidual nations cannot contravene, or even modify, without entailing widespread disaster. Each has contributed by its own national laws to form that system, and the very power to work mischief by individual interference re- Former Ratios. 55 veals the important part that the monetary laws of the nations continually perform in the working of this great international institution. Nature has provided the precious metals ; and human law, in adopting and recognising them as the standard of value, gives them efficacy and power for the great functions which they perform. As we have said, it seems a very simple thing that the nations have done in selecting gold and silver and coining them, yet it is this all-important thing that gives them their power as money; and as civilisation advanced and commercial intercourse was developed, it seemed an equally simple and necessary thing that the relative power of each of them should be de- fined and recognised. Thus, though the ratios of equivalence adopted from time to time by the different nations varied, and though no concerted action was then taken, the two metals formerly always wrought more or less har- moniously in forming conjointly the great universal basis of value; and it is only by restoring through international agreement this conjoint action that the true stability of money can be again secured. CHAPTEE III. — Sketch of the History OF English Money. The discovery of America and the pouring into Europe of the treasures of gold -and silver which resulted from the opening up of the New World was, commercially speaking, as life from the dead to the nations of Europe. During the long dark period of the'Middle Ages commerce had languished, and no doubt the decadence in that period of the former centres of civili- sation was intensified by the exhaustion of the mines from which the Roman empire had drawn its supplies of the precious metals, no fresh sources of supply having been otherwise opened up. But now a new period of com- mercial enterprise was ushered in, in which Spain and Portugal took the lead; England also benefited, though she was for a long time very little in the race as regards international trade, bpcause civil wars and the weak and frivolous government of the Stuarts had kept her in the background ; still, under the general impulse, great progress was made in her in- ternal industries, and the foundation was laid Ea/rly Silver Money of Englamd. 57 for the great advance in international trade which was subsequently achieved. EARLY SILVER MONEY OF ENGLAND. The pound sterling was in the days of William the Conqueror a pound weight of silver. In reckoning by weight the pound was divided into 12 ounces, and the ounces into 20 pennyweights. The reckoning by tale was 20s. to the pound weight of silver, and 12 pennyweights, or sterlings, as they were also called, to the shilling. In either case, 240 pennyweights, or sterlings, went to the pound. The pound weight which then ruled was what was known as the Tower pound, about 6;^ per cent, lighter than the troy pound ; but latterly the troy pound was adopted. The silver pennies, or sterlings, were about the same in the quantity of silver they contained as our threepenny pieces of to-day, and at first they were the only coin minted, the shilling then being merely a matter of account; but further on shillings and also other silver coins were minted. Under a gradual process of debase- ment extending over a long period, but mainly in the 16th century, the pound troy of silver came to be coined into 62 shillings of legal money, and the Mint regulations of CHAP. in. 58 Rating of Gold Coins to Silver Money. the 43rd year of Elizabeth established this as England's standard; and for more than 200 years, or down to the passing of the law of 1816, which repealed them, these regulations were in force. RATING OF GOLD COINS TO SILVER MONEY. Gold coins were not minted in England for a long period after the Conquest; and after the minting of them had begun, foreign gold coins still continued to be largely in use. There were frequent variations in the ratings in standard silver at which the gold coins were taken ; and even after the passing of the free and gratuitous coinage law of the reign of Charles II., these variations continued.^ This law prescribed that gold should be minted at the rate of 4<4>^ guineas to the pound troy. The intention was, that these guineas should pass for 20s. of standard silver; but there was at first no prescriptive rate imposed, and the variations of the rate ' I have given the text of this law in the Appendices to Tfie Silver Qiustinn and the Gold Question. Its existence and operation with regard to both silver and gold from the date of its passing down to its suspension at the end of last century, is one of the most important facts in the history of English money. Any one during all that period could take either gold or silver to the Mint and get it freely and gratuitously coined into English money. Rating of Gold Coins to Silver Money. 59 in silver for these guineas were very great towards the end of the 17th century." This, however, was mainly owing to the imperfect state of the silver coin then in circulation; and this state of things resulted in a crisis about the year 1696, when the re-coinage of all the silver money was carried out at great cost to the country. The whole circumstances of this crisis are vividly portrayed in Lord Macaulay's history of that period.^ After this the rate for guineas settled down to about 22s., then at 21s. 6d., at which they were taken and passed in the Govern- ment offices. Later still, in the year 1718, in view of a report by Sir Isaac Newton, then Master of the Mint, the Government by royal proclamation fixed the silver value of the guinea at 21s. ; and this rate continued down till 1816, when the sovereign, containing ^ part less of gold, was substituted for it. The rate which Sir Isaac Newton recom- mended, in view of the ratios ruling in other countries, was 20s. 6d. ; but Parliament thought it might compromise the matter, and the royal proclamation only reduced the rate to 21s. This was still too high in view of the ratios then ruling in the other European 1 Macaulay's History of England, vol. iv., chap. 21. 60 Currency Discussions early in Present Century. countries ; and the evil which was to be remedied, viz., that of silver disappearing from the currency, still went on. CURRENCY DISCUSSIONS AT THE BEGINNING OF THE PRESENT CEN TURY. In the early years of the present century, owing to imperfect appreciation of the actual facts bearing upon the condition of the gold and silver coinage at the close of the 17th and all through the 18th century, false ideas prevailed as to the reason why gold had taken the place of silver so largely in the coinage of England prior to the suspension of specie payments in 1797. These false ideas were crystallised in the Letter to the King on the coins of the realm, published by the first Lord Liverpool in 1805. The prominence given to the ideas set forth in this letter or treatise was the main cause why England, in 1816, in her efforts to re-establish the convertibility of her paper currency, made gold the sole basis of value, and practically demonetised silver, instead of going back to the former basis of gold and silver at the fixed ratio of 21s. to the guinea. Lord Liverpool fell into the error of supposing that because gold, up to the period of suspension of payments, was so largely Currency Discussions. 61 used as currency, that therefore it, being the chief coin in use, was the actual standard. Nowadays, with the enlightenment which we possess as to the essential difference between the currency and standard functions of money, the error underlying such an assumption can be readily recognised ; but, unfortunately, the question in this respect was not then understood. Lord Liverpool, in making his recom- mendation for a single gold standard, cited the opinion of John Locke in support of his theory.^ Locke certainly said that " one metal " alone can be the money of account and " contract ''. The money he had in view was silver money, but he recognised that gold was also in use as money along with silver, and that it was the practice of all nations to rate the one to the other. He knew that unity of standard was thus secured; and in a report which he signed, dated 22nd Sept., 1698, the recommendation was made in view of the ratios in other places that 15| silver to 1 of gold would be the most suitable rate for England. If this had been adopted then, with regard to English money, it would pro- bably have saved much of the trouble of ' Colloquy mi Ourrency, pp. 86-88, 3rd edition. 62 Cv/rrency Discussions. the period in which he wrote ; and seeing that this rate was subsequently adopted by France, it might perhaps also have prevented the question taking the form that it has un- fortunately done in our days. It should be borne in mind that Locke did not write about money in the way he wrote about the great philosophical ideas for which he became famous.^ He was drawn into the discussion by his appointment on the Council of Trade ; and no doubt his utterances varied somewhat as the questions before the Council opened themselves to his mind. In the abstract one metal would seem the most suitable thing for the unit of value. He also said that " gold is not the money of the world " and measure of commerce, nor fit to he so ". Lord Liverpool tries to argue away Locke's reasons for this contention, and fixes solely upon the one-metal idea ; but Locke, no doubt, in dealing with the actual facts of the case, and seeing that both gold and silver were and must be used, arrived at the right principle, that the true foundation of England's money ' As Looke himself said in 1695-6, in the frankness of correspondence with a friend, " this subject which he had " ' played the fool to print about,' was not one he then "relished, or with most pleasure employed his thoughts " upon ". — Silver Pouiid, p. 82, Maomillan & Co., London. CHAP. m. The Gresham Law. 63 was in both metals rated the one to the other. THE GRESHAM LAW. In connection with the currency questions of the 16th, 17th, and 18th centuries, what is known as the Gresham Law is often referred to. It was well understood in those days to refer to the fact that, with a currency com- posed partly of full-weight coins and partly of coins more or less below the standard weight, the full-weight coins would always be selected for export purposes, either for meeting the ordinary balances due to foreign countries, or to serve the purposes of those who were seeking to make a profit in moving the metals from one country to another. The phrase commonly used to denote the opera- tion of this law, viz., "that the bad money " drove out the good money," is somewhat misleading. The actual fact in those days was, that the good money, i.e., the full-weight coin, was selected for export, and the under- weight coin was left behind. Through all this period constant difficulty was felt in maintaining the silver currency in sufficient volume as well as in sound condition. This arose from the fact, as both John Locke and 64 The Gresha/m Law. Sir Isaac Newton pointed out in their days, that the ratio of silver to gold in England was too high as compared with other European countries, A profit could be made by bring- ing gold to England, getting it coined, and taking away to foreign countries an equiva- lent amount in silver money, and there selling the silver money thus abstracted as bulKon, And not only did the overrating of silver lead to the choice of that metal rather than gold when bullion exports were called for, but also when exchanges were in favour of Eng- land, the same condition of things led to gold and not silver being the metal selected by foreign debtors to send to England as the one with which they could most advantageously to themselves fulfil their obligations. It was this cause, and this cause only, that led to the abundance of gold money in circu- lation, and the comparative scarcity of silver, which Lord Liverpool had observed; and the opinion he expressed as to its being the result of preference and owing to the advance of the country, was based on an insufficient appre- ciation of the actual facts of the case. Even Sir William Petty, whose opinion as favouring the single standard he quotes, speaks of the country as being "pestered with too much "gold". The Stamda/rd in the 18th Century. 65 THE STANDARD IN THE 18 TH CENTURY UN- AFFECTED BY THE COMPARATIVE SCAR- CITY OF SILVER. The country, throughout all the period to which we are now referring, looked upon the insufficiency and inferiority of the silver money, which was so necessary to the currency wants of the people, as a great evil. It did not re- gard the fact of gold taking its place as a com- pensation for that evil; and there was little thought that the presence of gold would be regarded as a reason for changing the standard to one of gold only. Notwithstanding the abundance of gold and the scarcity of silver, the standard still as fully as ever rested on the joint basis of the two metals : — silver, coined as it has been from the days of Elizabeth at the rate of 62s. to the pound troy, and gold rated at 21s. silver money to the guinea, coined at the rate of 44^ guineas to the pound troy of gold, equal to a fixed ratio of 15"21 silver to 1 of gold. By a law passed in 1774, and only for a time in force, it was enacted, in order to prevent light silver coins being tendered for large amounts, that payments in silver for amounts over £25 should not be paid in silver money by tale, but by weight, i.e., that the coin offered should be made up to the proper 5 CHAP. III. 66 The Gold Stcmdard Law of 1816. standard weight ; but this did not in any way affect the actual standard. THE GOLD STANDARD LAW OF 1816. Lord Liverpool's scheme, however, which was embodied in the law of 1816, involved a complete change of standard; and the re- sumption of specie payments with gold alone as legal tender for large amounts was a revolutionary measure the full consequences of which, though retarded for a long time, are showing themselves disastrously in our day.i The fact that the open Mints of France still formed a connecting link between the gold and silver valuations prevented the old ratio of value between them from being affected, so that the country at the time did not realise the fundamental change in the standard of value which this legislation made. Its ostensible object was to "provide a new silver coinage, " and to regulate the currency of gold and " silver coins ' ' ; and it was also spoken of as ' ' a measure to remedy the defective state and "inadequate amount of the silver coinage of " the realm ". I believe it intensified the diffi- culties which in any case had to be faced ' Colloquy on Curreiicy , p. 92. The Gold Standa/rd Law of 1816. 67 when specie payments were resumed; for it entailed the accumulation in one metal alone of an amount sufficient to meet the expected demand; whereas, if both metals would have served, the necessary amount would have been more easily obtained. The commercial con- vulsions which followed the resumption of specie payments, and which culminated in the crisis of 1825, were largely the fruit of the unwise manner in which the resumption was carried out. The twenty years following were marked by falling prices and by great in- dustrial difficulties, in great degree due, I believe, to this same cause. In view of the National Debt, which was then about £850,000,000, the measure, though not passed with any wrong intention, was really an unrighteous one; for it stepped in between the nation and the bondholders, and changed a debt which had _ been contracted under a joint standard of silver and gold into a debt payable in gold alone. The nation did not understand the change, nor perhaps did the bondholders, though it is significant that they did not object to it, and up till 1873 its evil results were not seen. Now, however, we see how this first step in the demonetisation of silver, and the subsequent action of other nations in the same direction resulting from it. CHAP. III. 68 Gold Discoveries, 18Jfi-1852. have led to the appreciation of gold, and that this has increased the weight of what remains of the original debt ; so that it would at present cost the nation more of its material wealth or capital to redeem the £650,000,000 that still remains, than it would have taken at the time to redeem the whole £850,000,000 of 1816. THE EFFECT OF THE GOLD DISCOVERIES IN CALIFORNIA AND AUSTRALIA. With the gold discoveries in California and Australia came a period when trade and com- merce advanced in a way that they had never done before. At the time it was all ascribed to the advent of Free Trade; but from the fuller light which the difficulties of the last twenty years have thrown upon monetary history, we now realise the important part which the additions to the monetary basis from the gold discoveries of 1849 and 1852 played as regards the commercial advance of the subsequent period up to 1873. BEFORE 1873. There need now be no controversy as to the ratio of value between the two metals, viz., about 15 J to 1, which existed up to the year 1873. On what basis did that ratio rest ? It was the outcome and ultimate result of the Before 187 S. 69 varying ratios of the diiferent European countries during the previous century. In those days nations never thought of the possibility of international agreements in such matters, and alterations in the ratios ruling at the different capitals were made to suit the purpose of each individual nation. The difficulty which England felt in re- taining silver, as we have seen, resulted from her ratio of silver to gold being too high, as compared with the ratings at which it passed in other places, such as Hamburg, Amsterdam, or Lisbon. The rating of 22s. to the guinea current in the reign of William III. was equal to 15'93. Later on, in Queen Anne's reign, it was 21s. 6d., equal to 15'58. That ultimately adopted in 1718, when Newton was Master of the Mint, 21s., was equal to 15'21. These various changes were made to bring the rate nearer to the then Continental rates; and these Continental rates were also changed in the interests of the different countries, sometimes in an upward direction, and sometimes downward, but no very great differences were made. When France in 1785 first adopted 15^ to 1, it was in view of the rates ruling in the different countries of Europe ; and De Calonne, the French Minister at the time, under whose guidance it was 70 Before 187S. adopted, had before him, along with other information, the report of Sir Isaac Newton already referred to. Newton's idea, in the in- terests' of England, was to have the rate fixed as near as possible to that which the laws or ordinances of other nations prescribed, and this was the idea which also guided De Calonne in the interests of France. The law passed by the French Eepublic under Napoleon in 1803 (the present law of France) was based upon the law of 1786, and in it the same ratio was adopted. No doubt this ratio (15| to 1) represented a fair consen- sus of the then legal ratios in force in the different countries ; and the valuations based upon them, where silver alone was the legal standard, were also in exact proportions to this ratio. All the way down to 1873 this state of matters continued unaffected by the action of England in demonetising silver, and also un- affected by the action of the United States of America in having adopted first a ratio of 15 to 1 and subsequently of 16 to 1. The centre of gravity, so to speak, was in the French ratio, and when 15 to 1 prevailed in America that country simply lost her gold, and when 16 to 1 prevailed she lost her silver. The relative positions also of the gold and silver valuations. CHAP. ni. The Glosv/re of the Mints of the Latin Union. 71 wherever these were individually in force, re- mained unchanged; nor was there any effect produced upon the relative value of the two metals by the enormous variations in the relative supplies, irst of silver and then of gold, which these years witnessed. THE CLOSURE OF THE MINTS OF THE LATIN UNION. What has been the position of matters since 1873 ? Immediately after the conclusion of the Franco-German War, Germany began to adopt measures for changing the standard of money throughout the Empire, from the basis of silver alone to gold alone. The French indemnity money gave her power to carry out this change, and there were perhaps political motives as well as monetary motives impelling her to it. In 1873 large quantities of the demonetised silver from Germany began to find their way to the mints of France. Seeing this, and no doubt with political as well as monetary motives also stimulating her to checkmate Germany, France and the Latin Union began the restriction of the coinage of silver at their mints, which ended in their complete closure for the coinage of that metal. As these restrictions proceeded and culminated (in 1876), a gradual diver- 72 Divergence of Silver amd Gold. gence from the old ratio of value between, silver and gold showed itself, and became intensified as the German Government pro- ceeded more freely with the sale of its demonetised silver. DIVERGENCE OF SILVER AND GOLD AT FIRST REGARDED AS A DEPRECIATION OF SILVER. This gradual divergence was at first re- garded as simply a depreciation of silver. The standard of England being gold, and the gold valuation of Europe and also of America being regarded as supreme, it was natural with the views then entertained that it should in the first instance be looked upon in this light. The leading economists of that time, with inadequate ideas as to the nature of the service that the French mints had been render- ing in keeping the two monetary metals at a steady level, at first made light of the sup- posed depreciation, and declared that the divergence would only be temporary. THE EVIL FOUND TO CONSIST IN THE AP- PRECIATION OF GOLD. As time wore on, and greater divergence and fluctuations manifested themselves, the increased supplies of silver from California and Nevada, especially from the Comstock The Position Formerly and Now. 73 lode, which was then much talked of, were declared to be the sole cause of the diver- gence,^ the fact being ignored that much greater variations in the relative supplies of the two metals had formerly taken place with- out affecting their relative value. By-and-by it came to be seen that silver in its purchasing power in the East was not following the sup- posed depreciation in Europe, and also that the general gold prices of commodities in Europe were falling, pari passu, with the fall in silver, showing that the divergence in value was actually due to the appreciation of gold rather than to the depreciation of silver. As I have already tried to show, this is exactly what might have been looked for on theoretic grounds as the result of the demonetisation of silver and its withdrawal from the mass of full-powered money which has been going on. THE POSITION FORMERLY AND NOW. The position therefore was this : Prior to 1873 there was not only a practically fixed ratio of relative value between silver and gold, and a fixed par of value between the exchanges based upon them, but there was 1 Colloquy on Currency, pp. 72-73, 3rd edition. CHAP. m. 74 The Fall in Prices, or the Appreciation of Gold. also a fixed relationship of gold and silver valuations everywhere. There was practical unity of money in the two metals, and there was practical uniformity at the established difference between the two "valuations all over the world. Practically the ratio of 15^ to 1 predominated everywhere. What is the position now ? Gold has been exalted, but silver is yet far from having been completely set aside. In the East, valuations based on silver remain practically unchanged, and the millions in India and China, except the few in touch with Europe, remain unconscious of anything having happened to it. Silver in Europe also has only followed the decline in prices of commodities, or perhaps, to speak more correctly, has carried them with it in its relation to gold. Measured in gold, silver has fallen ; but every other article has also fallen to a similar degree, so that the level of silver and commodities remains everywhere the same. Gold alone is the exceptional thing with the gold valuations based upon it. THE FALL IN PRICES, OR THE APPRECIATION OF GOLD. This position of gold is now attracting the attention of all thoughtful men, and they are CHAP. lU. The Fall in Prices, or the Appreciation of Gold. 75 realising the injurious consequences to trade and commerce with which it is fraught. A few indeed still say that the fall in the prices of commodities is due entirely to dimin- ished cost of production resulting from new inventions, labour-saving appliances, and re- duced cost of carriage. Now, no one will deny that all commodities have had their cost re- duced in this way, and the world is richer in consequence ; but the same process was going on through the years prior to 1873, as well as in those subsequent to that date, and we must bear in mind that gold and silver as com- modities have been subject to these same influences, and so far as their value depends upon cost of production, they must also have been affected. If it be said that gold and silver are special articles which cannot be produced at will, like other commodities, but depend upon the lottery of successful finding of them, you advance a step towards the explanation of the matter ; but it is one quite in line with bimetallic theory. If it be said further that the monetary de- mands for these metals are a distinct and dis- tinguishing element in their value, it is an ad- vance still further upon the same line, and this factor in view of what is taking place will fully explain the actual phenomena. The use 76 The Fall in Prices, or the Appreciation of Gold. of gold in substitution for silver money has caused increased demand for that metal, and its value in relation to commodities has in- creased, and the reduced demand for silver, owing to demonetisation of that metal, ex- plains the apparent decline in its value which we see. Admitting that new inventions and other causes named have reduced the cost of all commodities — gold and silver necessarily in- cluded — and that we find from index numbers that gold prices of commodities have fallen 30°/^, to 40°/^, this must necessarily mean that gold has became appreciated to a correspond- ing extent, any difference from diminished cost of production being common to both. Looked at in any way, and banishing if you choose the terms appreciation and depreciation, the fact remains that a lower level of gold prices prevails, meaning necessarily the greater pur- chasing power of gold. It is sometimes said that index numbers, by which the fall in prices is established, are not on a sufficiently broad basis to be trust- worthy; but I think that any one who has fully looked into the Economist figures, and seen how nearly they agree with those of Mr. Sauerbeck, which are on a different and wider basis, cannot fail to be convinced that The Scarcity of Gold. 77 however wide the basis were made, even if it could be framed so as to include every- thing, and every condition that should be taken into account, the result would not be materially diiferent. THE SCARCITY OF GOLD. While this disturbance of values result- ing from interference with the standard by which they are measured is so serious from its bearing on industries and commerce, not less serious in connection with this is the increased demand for gold, and the scramble for that metal among the European nations and other gold standard countries which is going on. This is an aspect of the question which is now causing the most profound alarm, even in quarters where the bimetallic remedy is still ignored from the obvious risks to which England is exposed in the exceptional position she occupies with her free monetary system as regards gold, and as being the only country where there is an absolutely free market for this metal. The phrase " scarcity of gold," so con- stantly used, requires to be carefully exam- ined. Scarcity of gold, like a scarcity of all other articles, may arise from a diminution of the supplies available, or it may arise CHAP. in. 78 The Supposed Ahvmdance of Silver. from an increase in the quantity needed. If we ask what were the supplies of gold during the 15 years prior to 1875, when there was no recognised appreciation of that metal going on, and in the 20 years subsequent to that date, during which that feature has been so marked, we shall find on the whole a fairly steady maintenance in the quantity produced. It declined somewhat in the middle years of the latter period, and lately has again in- creased, leaving last year's figures in excess of those for 1860. The scarcity, therefore, cannot be accounted for by the falling off of supplies since 1875. It must be due to increased demand, and this we know has ex- isted very largely, and goes on increasing, owing to gold money taking the place of sUver money. The scarcity which alarms bankers is therefore due to increased monetary de- mand. T HE SUPPOSED ABUNDANCE OF SILVER. As regards silver the converse of what we see in the case of gold has been happening. While increasing demand has been leading to the appreciation of gold, decreasing demand has been leading to the depreciation of silver as compared with gold. The yearly supplies The Supposed Abimdance of Silver. 79 of silver have increased, but the increase has been no more than would have been readily- absorbed by the growing trade and increasing population of the world if the former monetary conditions had remained what they were, especially in view of the fact that the yearly supplies of gold had for a while been diminish- ing. It is therefore owing to the upset of the old conditions through the breaking of the bimetallic tie when the Latin Union mints were closed, and through the gradual demone- tisation which has since been going on, that the fall of silver in relation to gold has taken place. The proportion of the yearly supplies of silver absorbed or consumed in the arts and industries is small as compared with what is absorbed for monetary purposes. Prior to 1874 all the European currencies took a certain proportion of the fresh yearly supplies to make up for waste, and to add the necessary percentage to their currencies for increased population and trade; but except in the case of silver token money, as in England, this has altogether ceased. The continental countries, under present conditions, can make no addi- tions in silver to their currencies — the fresh metallic additions must be all in gold. America too is for a time cut off from absorb- CHAP. m. ■80 The Supposed Abimdance of Silver. ing in monetary uses any of the fresh supplies of silver. But even in former times, apart from Bland Acts and Sherman Acts, and apart from the currency movements due to changes of standard, the quantity of silver required to keep up the currencies of Europe and America, though important, was only a portion of the monetary demand. A much larger demand has always existed for mone- tary purposes in the East, which was shown not only by the shipments that formerly went to the Imperial mints of India and now go to the silversmiths there, but also by those which ■went and still go in silver dollars for the Asiatic Islands and Japan, and by the amount ■which is sent in bars to China, which, though never coined there, is used throughout China by weight as money. I believe that nothing that has yet happened, not even the closing of the Imperial mints of India, will, or can, materially interfere with the absorption of silver in this way, and in all these places. It should be realised that the peoples in the East, who use silver as money, comprise nearly three-fourths of the population of the ^lobe. It should also be clearly understood that all the rules and theories as to the cir- culating medium of so much currency per CHAP. HI. The Supposed Abundance of Silver. 81 capita, that hold in limited areas in Europe, must go to the winds when the condition of things in the East is under consideration. Silver, there, is not only a circulating medium — passing from hand to hand, and, to speak generally, doing its work without any re- presentative aids in paper money — but it is also for the simple people there the reserve store of wealth, the bank, in a sense, of myriads of poor peasants, who hoard it in coins, and bars, or ornaments, as the only tangible way in which they can keep a reserve to fall back upon for their times of need. When we realise what all this means, we can understand the power and permanence that silver and silver valuations possess in the East. The European ideas in disparagement of silver are entirely foreign to the minds of the mass of Eastern peoples. The demand, therefore, for this quarter of the world will always be maintained, and would continue to increase under a general settlement of the monetary question with the revival of confidence that would follow. This offtake would continue to be an important out- let for fresh supplies when silver comes to be rehabilitated, and the balance of what is pro- duced and not wanted for the East would readily take its place among the reserves of 6 CHAP. ni. 82 Actual Supplies of the Precious Metals. the nations which would join in an international agreement, and would cause no perturbation whatever when once the ratio was adjusted. By-and-by, as confidence in silver was re- stored, the silver currencies of Europe and America would again begin to take off supplies for renewal and increase. Africa also, which may be ranked with the East in this respect, promises in the future to be an expanding area for silver money. The fresh supplies of silver, therefore, which frighten so many* people who have not looked carefully into the matter, would, I believe, be no obstacle to its smooth working when an international agree- ment had been come to on the subject. ACTUAL SUPPLIES OF THE PRECIOUS METALS. There are frequently very exaggerated ideas entertained, in consequence of vague state- ments put forth by those who wish to discredit silver, as to what have been the actual supplies of that metal in recent years. The American mint estimates are the only official figures available, though it is only by courtesy that even they can be called official, because they are merely the result of the efforts of a department in compiling information voluntarily supplied under no statutory obliga- CHAP. III. Acttuil Supplies of the Precious Metals. 83 tions enforcing accuracy. It is said that owing to confusion in the returns from smelters and miners the data supplied often include double returns for the same silver. It is also as- serted that there is often wilful exaggeration of the output of mines, in view for instance of a mine being ofi'ered for sale or floated as a company. There is every likelihood, therefore, that the quantities given are overstated ; but as there are no other figures available that possess even an equal degree of reliability we are obliged to take them as the best that can be got. Dr. Soetbeer is usually quoted as the most trust- worthy compiler of general statistics of the precious metals, but it should be borne in mind that he also took the American mint figures for recent years. The following table is made up from his figures and other sources. CHAP. in. 84 Actual Supplies of the Precious Metals. Annual Production of Gold and Silver in the World since the Discovery of America. Percentage Gold. SUver. of the Average Average annual production. Average annual production. precious metals produced. London prices of silver. (000 omit'd) (000 omitted) Gold. Silver. Ounces. Ounces. 1493—1520 186 1,511 11-0 89-0 1521—1544 230 2,900 7-4 92-6 1545—1560 278 10,018 2-7 97-3 1561—1580 220 9,629 2-2 97-8 1581—1600 237 13,468 1-7 98-3 1601—1620 274 13,596 2-0 98-0 1621—1640 267 12,654 2-1 97-9 1641—1660 282 11,776 2-3 97-7 1661—1680 298 10,835 2-7 97-3 1681—1700 346 10,992 3-1 96-9 1701—1720 412 11,433 3-5 96-5 1721—1740 613 13,863 4-2 95-8 1741—1760 791 17,141 4-4 95-6 1761—1780 666 20,986 3-1 96-9 1781—1800 572 28,262 2-0 98-0 1801—1810 572 28,747 1-9 98-1 1811—1820 368 17,386 2-1 97-9 1821—1830 457 14,807 30 97-0 1831—1840 652 19,176 3-3 96-7 59H 1841—1850 1,761 25,090 6-6 93-4 59$ 1851—1855 6,410 28,489 18-4 81-6 64 1856—1860 6,486 29,095 18-2 81-8 61A 1861—1865 5,950 35,402 14-4 85-6 61A 1866—1870 6,270 43,052 12-7 87-3 60A 1871—1875 5,591 63,317 8-1 91-9 59A 1876—1880 5,543 78,776 6-6 93-4 52tt 1881—1885 4,795 92,004 50 95-0 50| 1886 5,128 93,276 5-2 94-8 45* 1887 5,117 96.124 5-0 95-0 44f 1888 5,331 108,827 4-6 95-4 42| 1889 5,974 120,214 4-7 95-3 42H 1890 5,749 126,095 4-3 95-7 47H 1891 6,320 137,171 4-4 95-6 45tV 1892 7,077 152,940 4-4 95-6 39t4 1893 7,606 161,776 4-5 95-5 35| 1894 8,706 166,602 5-0 950 28H / 1895 \ estimate 10,000 164,000 5-8 94-2 29J CHAP. m. Actual Supplies of the Precious Metals. 85 Important as the increase of silver supplies has been, it is, as I have said, not this, but the changed monetary conditions in Europe alone that have affected its value in relation to gold. I have given current prices for silver for the last fifty years alongside of the actual supplies ; and it is interesting to note the entire absence of effect of falling prices in checking supplies up till the last year or two. Silver mining is on the whole very much a lottery business, with many blanks and only a few rich prizes, and apart from these last there has never been much profit in silver mining. Fifteen years ago it was from the Comstock lode in America that the world was to be deluged with silver, but small account need be taken of that supply now. Latterly the Broken Hill Mine in Australia has bulked out in a similar way ; but that too has recently been giving out; and it is only from hopes in connection with a new process for extracting silver from the sulphur oxides with which that mine abounds that it is still regarded as a hopeful field. The experience in silver mining has always been very erratic, and there is nothing that can be anticipated regarding silver any more than regarding gold which need be feared as a disturbing element. The yearly supplies are doubtless important features in the present CHAP. ni. 86 Actwxl Svffplies of the Precious Metals. disorganised relations of the two monetary- metals ; but formerly they varied as much as they have ever done recently, without causing any disturbance in their relative values, and with a fixed ratio re-established similar uni- formity would again prevail. The table given shows the percentage of the relative supplies of the two metals over a long period. It will be seen how greatly the relative quantities were disturbed during the years subsequent to the gold discoveries in California and Australia, from about 1851 to 1870, notwithstanding which there was no disturbance in the relative value of the two metals. The percentage of gold to silver afterwards returned to about what it had been before these gold discoveries ; and of late years, while silver has been declin- ing in its gold price so violently, the relative supplies of the two metals have been keeping very steady. The supplies of silver have doubtless been increasing in the later years quoted, but so have the supplies of gold. When we carefully examine the actual data in this way it is abundantly evident that it is not the changes which have taken place in the sup- plies of the two metals that have led to the present divergence in their value, but that this divergence is due entirely to ;the changed mone- tary conditions affecting the demand for them. CHAP. III. Increased Supplies of Gold from South Africa, etc. 87 INCREASED SUPPLIES OF GOLD FROM SOUTH AFRICA, ETC. What is supposed by some to be a new phase of the question has recently been opened up by the new gold mining enterprises in South Africa, and Western Australia, and the largely increased supplies of gold that are expected to come from these quarters. We have yet to see how far these expectations will be realised; for, as regards South Africa, a,fter deducting what has gone back in coined gold, only a few millions have so far been available for the rest of the world. But admit- ting that the supplies will be larger, what is likely to be the effect on the present monetary dislocation ? Those who view the monetary question only through the eye of gold, and who regard the supposed scarcity of gold as the only important factor in the present position, think that as these supplies become available the present monetary difficulties will gradually disappear, and that nothing there- fore need now be done in the way of re- habilitating silver. Is there any reason for this belief ? If gold were going to become the universal standard and basis of value — in the Eastern world as well as in the Western world — there would be in some degree a logical CHAP. III. 88 Increased Sivpplies of Gold from South Africa, etc, basis for it; but this idea would imply that gold was going to be found in sufficient quantity to take the place of the silver already existing; and, however sanguine the hopes in connection with the new gold mines may be, no one, I think, can expect that within any reasonable time they could furnish new gold in quantity equal to the existing stock of silver which has been accumulated through the ages. There is, therefore, first of all this initial difficulty of the new gold supplies, however large they might be, being after all utterly inadequate and only a fraction of what would be necessary to substitute for silver as a mone- tary metal altogether. But even if it were otherwise, is it possible to demonetise silver in the East ? Apart from the great injustice to the Eastern people^ and the loss on existing silver in the Eastern countries which it would entail, I believe the thing to be absolutely impossible. The attempt to force even a nominal gold standard upon India has failed. The closing of the Indian mints, and the attempt to give the rupee a scarcity value, has not practically changed the standard, nor lessened the use of silver money, as far as the Indian people are concerned It has only introduced confusion and dislocation be- tween the silver money of India and the silver CHAP. III. Increased Supplies of Gold from South Africa, etc. 89 money of the other Eastern countries, to the disadvantage of India. As regards China, is there even the slightest hope that the im- memorial use of silver as the basis of value there, could be upset ; and that gold used by weight, as silver is used, should be introduced in its stead ? In regard also to all the other Asiatic countries where silver is still the standard, the attempt to change it in favour of gold would be equally hopeless. We may rest assured, therefore, that whatever Europe may do, the East will hold to silver and silver money ; and when we keep in view the pro- portion of the world's population which these silver-using countries embrace, I think we may at once dismiss the idea of gold becoming the universal money of the world. The great evil of the present situation arises from the dislocation of the two valuations due to anti-silver legislation. The world is beginning to see the folly of the attitude towards silver uhat was taken; and I attribute the improve- ment in the value of silver which began in the early part of last year, and has since been main- tained, very largely to the growing sentiment in favour of the maintenance of silver money that we are now witnessing. It suited the monometallist authorities in England to belittle what happened in the German Reichsrath in CHAP. III. 90 Increased Supplies of Gold from South Africa, etc. February, 1895, and also the resolution whieli a little later on was passed by the British Parliament.^ It suits them also to misread and misrepresent the growing sentiment in America in favour of silver, and they try to minimise the important growth of opinion, as evidenced by the formation and vigorous working of BimetalKc Leagues not only in England but also in the leading countries of Europe. All these things, however, are great facts. The nations now realise that silver is not going to be given up as money, and that sooner or later the way will be found for its being restored. Now, what I say with regard to the greatly increased supplies of gold that we may see is this. If a belief in the potency of increased supplies of gold to bring the present mone- tary difficulties to an end should lead to the present growing sentiment in favour of silver being checked, and to a return to the old anti-silver ideas, then the situation will become worse than ever, and the vagaries in exchange rates between the two valuations become greater than ever, to the detriment of industry and commerce everywhere. If, on the other hand, the sentiment in favour of silver continues to grow, and the belief in its 1 See Appendix for further Resolution passed by the British Parliament, 17th March, 1896. CHAP. III. Non-tnonetary Uses of the Precious Metals. 91 full functions as money being restored becomes more and more confirmed, then the increased supplies of gold may be hailed as an element that will greatly favour this restoration of silver by helping to bridge over the difference in relative value that at present separates the two metals. NON-MONETARY USES OF THE PRECIOUS METALS. A great deal is sometimes made of the non-monetary uses of the precious metals as an element of their value. No doubt, a large portion of the yearly supplies are thus used; but I think when we examine closely what these non-monetary uses are, we shall find that a large proportion of them are closely allied to, or dependent upon, the monetary uses of the metals. We have seen that the manufacture of silver ornaments in India is largely identified with money as a store of wealth. In our own country also in olden times, and to some extent it is even so yet, the silver plate of the great families was re- garded as practically monetary wealth stored in this form, and even personal ornaments have a good deal of this character. The gaucho of South America, who wears round his waist a belt covered with silver 92 Nan^^monetary Uses of the Precious Metals. dollars, or the rich hacendado of Mexico, with his belt covered with gold doubloons, are perhaps extreme examples of the orna- mental use of the precious metals in a mone- tary form; but the potential power as money of gold and silver in whatever form is never lost sight of, and it is as much this fact as their utility in the ornamental forms in which they are found, that constitutes the value of these ornaments. It is their being of the, same substance as money that chiefly makes them precious, and this preciousness would to a large extent vanish if the metals composing them ceased to be money. All these considerations, therefore, must be taken into account when we speak of the non-mone- tary uses of the precious metals. As regards gold there has no doubt been a greatly increased demand for articles of luxury ; and although it may not be an actual consumptive demand, it locks up an increas- ing quantity of gold. The real consumption, besides what is lost at sea and in abrasion, consists in such uses as gilding, plating, dentistry, and the like, and the actual con- sumption of gold in all these ways is no doubt also increasing.^ ' Colloquy on Ourrency, p. 114, 3rd edition. Non-monetary Uses of the Precious Metals. 93 But the increased monetary use of gold is the prime cause of the relative scarcity of it that is felt, as is also the decreased monetary use of silver the cause of the supposed over- abundance of that metal. CHAPTER IV.— Origin and Growth of THE Monometallic Ideas that have led to the disturbance in the Standard. HOSTILITY TO THE BIMETALLIC MOVEMENT. When the divergence from the old relative values of silver and gold first began to show itself in the unsettlement and decline of the Eastern exchanges, the economists of the day, believing, as they did, that the previous uni- formity had been due to what they regarded as natural causes, declined to pay any atten- tion to the matter. There being, as they thought, no special cause at work in producing the effects which were harassing merchants, a little patience on their part was all that was necessary. The difficulty would soon pass over. In the fifties they had seen, what they thought, a similar scare from the large sup- plies of gold from California and Australia, leading to proposals that gold should be de- monetised ; but that scare had passed without its being necessary to do anything, and so this CHAP. IV. Reason of the Hostility to JBimetallism. 95 silver difficulty would also come right, if left alone. They gave no heed to the warnings of such men as Wolowski and Seyd, and had nothing but scorn and contempt for the small band of followers who quickly began to take up their parable, and urge upon their country- men the necessity of something being done to restore the connecting link between the two monetary metals which the closure of the French mints had destroyed. REASON OF THIS HOSTILITY. To understand the hostility which the bimetallic movement has encountered, it is necessary to analyse the economic thought regarding money which prevailed when the movement first began. As we have seen, in the 17th and 18th cen- turies the one thing that those who gave atten- tion to monetary matters considered, besides the maintenance of the integrity of the coins, was the relation which the rating of the monetary metals gold and silver in each country bore to the ratings of other nations. England had not the full supply of silver money that she needed, and, as we have seen, Locke and Newton showed that this was owing to the rating of the guinea in silver being too high as compared with the ratings CHAP. IV. 96 Season of the Hostility to Bimetallism, of gold by other nations. The two metals were equally good for the purpose of pay- ments, and the standard was unaltered by the scarcity of silver. All that England wanted was a fuller supply of this metal in full- weight coin. There was no consideration given in those days to the cost of production, or to the extent and relative quantity of the fresh sup- plies of the two precious metals. They were simply regarded in their totality as an existing thing which nations got a share of according to their needs and their power to obtain them. It was not till after the adoption by England of the gold standard in 1816 that any depar- ture was made from the old ideas as to the equal suitability for monetary purposes of the two precious metals. England had chosen to fix her standard in the one metal, instead of continuing it upon the basis of the two as here- tofore. To have one metal only as standard, however, was not in itself a new departure. Silver generally held this position, but the rating of gold to silver was common in all the other countries, as it had been in England. The new departure was in adopting gold alone as full legal tender, and practically shutting out silver for international purposes by diminishing the quantity of silver in the shilling, and by the restriction of the tender Influence of Lord Liverpool's Treatise. 97 of it to 40s. She was the first among the nations to take such a step. INFLUENCE OF THE FIRST LORD LIVERPOOL'S TREATISE ON THE COINS OF THE REALM. I have already referred to Lord Liver- pool's Treatise on the Coins of the Eealm, and the important effect which this work had in forming the opinions of those who carried out the vital and unfortunate change in the coinage laws that was made in 1816. As Sir Charles Jenkinson, Lord Liverpool had taken an important part in promoting the measures for reforming the currency which had been carried out in 1774. The chief object of the measures then passed was to correct the debasement from wear and other causes which had taken place in both the gold and silver coins. It was at that time, as he tells us, that the ideas occurred to him which were set forth in his treatise. He had come to the conclusion that the silver coins might more easily be kept in full supply and proper condition if they were reduced below their standard value in relation to gold, and their legal tender restricted to 40s. Nothing was published as to these ideas during his active life, and, as he himself tells us, it was only 98 Influence of Lord Liverpool's Treatise. after having been for many years laid aside by severe illness and prevented from giving any consideration to such matters, and on his partial recovery, that he collected the materials he had previously prepared, and put his work into shape. The book makes almost no reference to the important phases of the monetary question which had manifested themselves in England during his illness and retirement; and when exhaustive criticism is applied to it, it is found to be defective and inaccurate in its represen- tations of many of the important facts in the previous monetary history of England to which he refers, besides making the erroneous assumption inferred from the use of gold upon which his whole scheme was based. No doubt, the fact of his son, the second Lord Liverpool, being Prime Minister when the necessity of England's getting back to a metallic basis for her currency had to be dealt with, tended to bring the book more pro- minently before England's legislators, and to give the views expressed in it more importance than they might otherwise have had. Ab- sorbed in the endeavour to restore the cur- rency to a metallic basis, it may have appeared to many an unimportant matter whether the conversion was made in one metal or both. CHAP. IV. Sir Robert Peel's Gold Pownd. 99 The chief thing eagerly desired was that the notes should be made convertible in coin at their face value ; and so long as this was secured the novel and experimental nature of the measure in other respects, and its more remote consequences, were not perhaps much thought of. There were some, however, who realised fully what the change meant, and protested against it; but, unfortunately, their protests were of no avail. ^ SIR ROBERT PEEL'S GOLD POUND. Though the Gold Standard law was passed in 1816, many struggles and failures were witnessed before it came into full force, and this was only ultimately accomplished under the guidance of Sir R. Peel in 1823. The period was one of great excitement ; and some of the speeches which that states- man delivered became historic, from the utterances which they contained regarding the gold standard, especially the question which he propounded, " What is a Pound ? " and his reply to it.^ ^ Colloquy on Currency, p. 7. ^In The Silver Pownd, Mr. Dana-Horton refers very fully to these utterances. "He (Sir Robert Peel) asked, 'What is a pound?' " and, seemingly unconscious of the facts here pointed out " (referring to the national unit of account, or abstract 100 Sir Robert Peel's Gold Pownd. For two generations Englishmen every- where regarded these utterances as the very acme of monetary wisdom. A third genera- tion, however, has now for some time been questioning their truth; and the monetary confusion which we see to-day resulting from their adoption and extended embodiment in "pound), maintained that there was only one thing en- " titled to the name (of pound). " From the considerations hereinbefore set forth, it " follows that the real question at issue is to be stated by ' ' the inquiry, ' What substance was best entitled, upon " ' grounds of justice and of sound policy, to be securely " ' established by law as the Pound Sterling ? ' But ,the " theorist of 1819 was quite superior to such considerations. " Standing before Parliament, with the ' Treatise on the " ' Coins of the Realm,' the Bullion report of 1810, and the "Act of 1816 behind him, he was, perhaps, hardly called " upon to ' go behind the record,' and, indeed, had he " applied himself to reconstruct the learning of his time " from his seat in Parliament, he certainly would have " merited unique fame. But no addition is needed to the " picture of Peel criticising John Locke, before the English " Parliament, for not being, so to speak, sound on the Gold " Standard, and praising Newton to the skies for supposed " anachronistic opinions, from which Newton would pro- "bablyhave recoiled, not merely as an imputation upon " his judgment, but upon his honour. The entire state- "ment, so far as it attempts to justify the exclusion of " Silver, is baseless ; and yet it is through the intervention " of Peel that the exclusion of Silver was transmitted to " the present generation, and it is by favour of his mis- "take that people in England to-day believe that the Gold " Standard necessarily implies the exclusion of Silver as "Pull Moaey."— Silver Pound, p. 180, Maomillan & Co., London. CHAP. IV. Finamcial Difficulties after Napoleonic Wars. 101 monetary laws by the community of nations is bringing home to every one the fact that a theory as to the standard of value which ignored one of the two main elements of the basis on which that standard of value rested' must necessarily be incomplete and erroneous. Sir Eobert Peel's gold pound was simply a gold measure which measured things in relation to itself, and served only as a general measure of value because of the link with the silver valuations throughout the world, which was maintained for it by the open mints, at a fixed ratio for silver and gold of other nations. When this nexus was removed, confusion was bound to result, and has resulted, as all the world now fully knows. FINANCIAL DIFFICULTIES AND TAXATION AFTER THE CLOSE OF THE NAPOLEONIC WARS . While this monetary legislation was being carried out, England was also dealing with the difficulties of the general financial posi- tion which the long struggle with Napoleon had entailed, and the enormously increased load of debt which that struggle had left behind it. To meet these difficulties new taxes had to be imposed ; and although all the industries CHAP. IV. 102 Taocation after Close of Napoleonic Wars. of the country were already suffering under the weight of imperial taxation, fresh burdens had to be accepted, and almost everything was made to pay toll to the tax-gatherer. The old ideas of the mercantile system stiU largely prevailed, and taxation which could be levied upon foreign imports had always the preference. In a Parliament largely representative of the landed interest of the country, and possessed with these protective ideas, it was possible, under the plea of helping the agricultural interests of the country, greatly to increase the duties upon foreign corn which had been previously imposed. The economists who came into promi- nence at this period, especially David Ricardo, began to point out the unwise nature of the whole system of taxation that was being pursued. The fundamental ideas of Free Trade, and the injustice and folly of the mercantile system, had been poiuted out by Adam Smith in his Wealth of Nations, published towards the close of the previous century; and his ideas on this subject became the guiding principles of the economic school, which Eicardo, and his disciple John Stuart Mill, may be said to have founded. In this school laissez faire and non-interference with CHAP. IV. Triwnph of Free Trade Doctrines. 103 the individual became watchwords, in opposi- tion to the theories that had previously been the governing principles of action. ^ TRIUMPH OF FREE TRADE DOCT RINES. With the triumph of Free Trade in the abolition of the corn laws, and the general acceptance of Free Trade principles which followed, the economists, whose ideas were supposed to have prevailed, acquired a com- manding influence throughout the entire region of economic thought. Their published works were supposed to have settled definitely the whole basis of economic science, and any ^Adhering to the lines of thought that had been started chiefly by mediaeval traders, and continued by French and Enghsh philosophers in the latter half of the 18th century, Bicardo and his followers developed a theory of the action of free enterprise (or, as they said, free com- petition), which contained many truths that wiU be of high importance so long as the world exists. Their work was wonderfully complete within the narrow area it covered ; but much of the best of it consists of problems relating to rent and the value of corn ; problems on the solution of which the fate of England just then seemed to depend, but which, in the particular form in which they were worked out by Bicardo, have very little direct bearing on the present state of things. A good deal of the rest of their work was narrowed and almost spoiled by its regard- ing too exclusively the peculiar condition of England at that time ; and this narrowness has caused a reaction. — Principles of Economics, by Alfred Marshall, Book I., chap, vii., p. 91. CHAP. IV. 104 Views of Bicardo amd J. S. Mill on Money. one questioning what they had said upon any phase of it, had almost certainly to face the charge of heresy against sound economic doctrine. It is not my purpose to detract from the obligations of gratitude which the country is under for the great and beneficent work which these men in their day accomplished, and the new principles of financial legislation which their teachings initiated. We can recognise all this ; and yet at the same time, in the light of the further advance which economic science has made in our own days, give a juster and more evenly balanced position to the principles which they, and perhaps more fully some of their disciples, tended to carry to extremes. VI^WS OF RICARDO AND J. S. MILL ON TEE SUBJECT OF MONEY . As regards money they fully accepted Peel's definition of a pound ; and any legisla- tion beyond what was necessary to establish this as the standard of value they regarded as unnecessary, if not mischievous. The parity of gold money and silver money in the interchanges of the nations, and the cause of the steadiness that ruled between CHAP. IV. Views of Bicardo and J. S. Mill on Money. 105 them, were never dealt with by them as a matter of exhaustive inquiry.^ They cherished the idea that the action of the State was simply a mere certifying of the coin to be of a given weight and fineness. 1 In a pamphlet on tlie Parity of Money, by Mr. Dana- Horton, being an open letter addressed to Sir Thomas Parrer, now Lord Parrer, he exhaustively examines what Adam Smith, Kioardo, and J. S. Mill have written upon the subject of money, and shows the sketchiness and in- sufficiency of their treatment of it. He asks, " How, then, " did it come to pass that monetary legislation was lightly " dealt with by Smith, Ricardo and Mill? What was the " source of this ' fashion of their thought ' ? Asking, as we " do, how they regarded the Parity of Moneys, and such " Parity being obviously an equilibrium supported by legis- " lation, it is in the path of these inquiries that we shall "surely discover the key to what they may have to say " which bears upon the matter. We have seen that they " lived securely while there was comparative legal equality " between gold and silver, and that this condition of things " seemed so entirely normal and natural, that its causes "were not examined in a scientific spirit. I now inquire " whether there was not an active influence, no longer " negative, but positive, working against truth — a fashion of " thought which produced what I might call an innocently " studied neglect of the scientific basis of monetary legis- " lation, and hence a marked bias in reference to it. "I find such an influence. I find it in the natural " exaggeration of the enthusiasm of the great conflict in " which these great men spent their mental life. A spirit " of reaction was naturally engendered by this conflict, " which obscured the truth about money, but faUed to re- " veal itself as a prejudice to these loverS of truth, because " no serious consequences or erroneous conclusions growing " out of their default could show themselves at the time." — Maomillan & Co., London. CHAP. IV. 106 Views of Ricardo cmd J. S. Mill on Money. This tended to hide from their minds the full importance even of what they thus recognised that the State did in the matter, and led them to take a narrow and insufficient view of the whole scope of monetary doctrine. Owing to the silent working of the regu- lative power of the bimetallic law of France in maintaining a steady ratio of value between gold and silver, they had never before their minds the important and efficacious work which these laws were performing, not for France only, but for all nations, and their utterances on the subject of money take no account whatever of this important factor. They postulated " that gold and silver were "commodities, the same as iron, copper, or " wheat, and that their values were determined "by the same laws". That labour was the " principal factor in determining the value of " all commodities, and, therefore, that the cost " of production must regulate the value of " these monetary metals as well as of all other "things". The fact of the steady relative value of gold and silver was before them, and they knew that a nearly similar ratio had also been maintained through the greater part of the previous century ; but they never thought that there was any inadequacy in accounting for CHAP. IV. Views of Ricardo and J. S. Mill on Money. 107 this evenness of relative value by these principles. Silver and gold kept steady in their relation to each other because, as they thought, the cost of production had also kept steady. They thus ignored the action of de- mand as maintained by monetary laws, and assumed as a fact what had not actually been the case. It was difficult to break through the crust of dogmatic certainty which regarded the postulates mentioned as the "be all" and "end all" of the doctrine of money. It was a hard saying for the men born and bred in this school of thought to be told that there was something the great masters had overlooked,^ and it is no wonder that they at first regarded as foolishness the ideas of those who questioned their teaching. ' Prom the pamphlet by J\Ir. Dana-Horton, already quoted from, I take also the following : — " As I write this, I recall a conversation I had, in 1876, " with one of Mill's earnest students, whose appreciation I " can well believe would have been very gratifying to the " author. It was General Garfield. With his first objeo- " tion to my ideas of joint action of nations to hold the " money metals to their level, came a reference to John " Stuart Mill. If all this was true, why did not he, the " Master, say so ! My answer was then, as now. Mill did "not live to see the sequel of the great legislative attack " upon silver by Germany and the other nations." CHAP. IV. 108 Tendencies against Silver and in favour of Gold. TENDENCIES AGAINST SILVER AND IN FAVOUR OF GOLD. While these general views regarding money prevailed, and were embodied in the teachings of the day, there also began to show itself a tendency averse to silver as standard money, under the idea that gold was the most suitable money for great nations. No doubt this had its origin in what Lord Liverpool had said regarding . it, and the commercial success and greatness of England as a banking centre were generally regarded as largely due to the fact that she had a gold standard. This we know was a mistaken view,"^ but there it was in the ^ Lord Beaconsfield, speaking in 1873 as Lord Rector of the University of Glasgow, said : " I think that a country ."which has a gold standard should, to use a celebrated " expression, think once, think twice, and thrice before it " gives it up. But it is the greatest delusion in the world " to attribute the commercial preponderance and prosperity " of England to our having a gold standard." Mr. Goschen, in his well-known book on the Theory of Foreign Exchanges, referring to the causes which make England the great banking centre of the world, says : " A " partial cause might be found in the credit glranted by " London bankers, and also in the greater reputation " of the London houses, extending to all quarters of the " globe. But this can only be called a secondary reason, " and appears on closer examination to be itself the result ' ' of the primary cause which makes England the great " banking centre of the world. That primary cause is to CHAP. IV. Tendencies agaimst Silver and in favov/r of Gold. 109 national mind, acting in favour of gold and against silver. The fashion or set of thought in this direction received a further impulse during the third quarter of the century from the movement in favour of the metrical system. Those identified with that movement believed that the existence of a silver standard in some countries, and of a joint gold and silver standard in others, rather than a single gold standard in all countries, was an obstacle to the realisation of the unity of money and of a world-wide metrical system as applied to it. They had imbibed the idea to which I have referred, that a gold standard meant nothing more than the stamping of gold in " be found in the stupendous and never-ceasing exports of " England, wWoh have for effect that every country in the " world, being in constant receipt of English manufactures, " is under the necessity of making remittances to pay for " them, either in buUiou, in produce, or in bills." Professor Nicholson, speaking of finance and trade in a paper read in Manchester, said : " Banking began in the " great cities of Northern Italy, when Venice and Florence "and Genoa took the lead in trade ; as soon as Holland " assumed the commercial supremacy of the world, Amster- " dam became the centre of banking and finance ; and it " was not tiU England became queen of the commercial " world that her banking system took root and flourished. "... In one sentence, the gold standard has no more " produced our banking system than our banks have built " our ships and laden them with cargoes." CHAP. IV. 110 Tendencies against Silver and in favour of Gold. given forms in certification of its weight and fineness, and that simply because of this it acted automatically as a standard and took care of itself. This accorded with the mathe- matical exactness and simplicity of the metrical system in other departments ; and the general adoption of the single gold standard seemed to these reformers the first and most essential step towards the goal which they sought to reach. There was thus an active propaganda set agoing in favour of the gold standard being everywhere adopted to the exclusion of silver. I must not be understood as saying anything against the metrical system. It is a proper thing in its place. As regards weights and measures it should have been carried out in England long ago, and it should also be ap- plied as a system of enumeration to money, and could be so applied, with an international standard based on gold and silver as well as on gold alone; but at present the first and transcend ently more important thing to be put right is the standard of value, which is now dislocated and disorganised. Those who sought to prepare the way for the general unity of money by what seemed to them the simple expedient of securing CHAP. IV. Tendencies against Silver and in favov/r of Gold. Ill uniformity of the chief coins in one metal among all nations, were not at the time conscious of the effect that such a change would produce upon the foundations of value. Simplicity in the mode of reckoning was good ; but in seeking to mould the intangible thing "value," so as to adapt itself more readily to a particular mode of reckoning, was making that chief which should be sub- ordinate — a rule of procedure made to domi- nate instead of being servant. The anti-silver views which this movement tended to intensify culminated in the Con- ference of 1867, which met at Paris, and included representatives from all the leading nations, Mr. Thomas Graham, director of the Royal Mint, and Mr. Rivers Wilson being the English representatives. At that Conference all the nations represented declared themselves unanimously in favour of the gold standard.^ 1 " The foUowing extracts from the final report of the " Conference of 1867 show fully its main decision : — " ' By a most singular coincidence, when only two out ' of twenty States had gold for a standard, your Conference ' decided upon it for the standard, with silver as a transitory ' companion ; and this was done because the double ' standard was necessary in certain States that were used ' to it, or where silver was the exclusive standard. " ' This valuable unanimity on a question so import- ' ant, tending to perfect the monetary system of the Con- ' vention of 1865, wiU certainly influence public opinion. CHAP. IV. 112 The Ideas Cherished as to the Gold Stamda/rd. We know full well what was the sequel to all this — the movement begun by Germany, and the disasters that have ensued. My object here, however, is simply to mark the stages in the development of anti-silver views that had been reached before our movement began. THB IDEAS CHERISHED AS TO THE GOLD STANDARD. Gold had not only been the legal standard in England for two generations, but the idea that it was the supreme and only real standard of value had entered into the very fibre of thought regarding money ; and it was almost impossible for an Englishman to view any ' and certain men in the interior of States who may have ' retained any doubt on the question. " ' In thus adopting gold as a basis for the desired ' union, it was only in a common denominator above the ' frano that it was possible to realise the useful equations ' and frequent coincidences in the systems to be brought ' together ; for, in gold coins, the very minute differences ' could not be distinguished with precision by the process ' of coinage, and already the mere distance of five francs ' may be sometimes difficult to express sufficiently in the ' external form of the monetary disks. " ' The weight of five francs in gold of nine-tenths ' fineness, the standard which was unanimously approved, ' and also one of the conditions of the Convention of 1865, 'then appeared to be the proper denominator for the 'basis of the desired assimilation between the monetary ' systems of the twenty States represented.' " See also The Silver Question and the Gold Question, p. 108. CHAP. IV. The Ideas Cherished as to the Gold Stwndard. 113 question involving value without this idea, consciously or unconsciously, being the deter- mining principle ruling in his mind. Thus, in dealing with the question of ratio between the two metals, we have been con- stantly met by the supposed staggering question, " How is it possible to fix the value of any " commodity, the cost of production of which " must necessarily vary ? " Now, here, the idea of gold as the supreme standard is obviously in the mind of the propounder of the diflBculty. He does not put the question with regard to gold, because, as the present standard, it simply is what it is, and cannot measure itself. Now, if you give silver exactly the same position as gold, the question of price, as applied to it, is also banished. It has no separate identity — the two metals become one standard, and the separate moieties of this joint standard could no more be measured by that standard itself than gold can at present be by the gold stan- dard. A ratio of equivalence once fixed inter- nationally, the supplies of the two metals, however they might individually vary, would form, in their aggregate, one thing in maintain- ing or increasing the power of the joint stan- dard as the measure of all other commodities, but such variations would have no efiect what- ever upon the mutual relation of the two 8 CHAP. IV. 114 Practical Effects of the Demonetisation of Silver. metals — their equality of power as elements of this joint standard could not be affected. The effect of opening the mints of the principal nations, which would practically mean all nations, would be, that whatever variations there might be in the relative pro- duction of the two metals,'* exactly similar variations would automatically take place in the demand, and thus their relative value would remain undisturbed. From this examination it will be seen that it has been not so much the difficulty of the subject, as the prepossessions prevailing upon it, that have blocked the way of the new ideas. I will close this chapter with a brief summary of the chief practical effects of the demonetisation of silver that has been going on. PRACTICAL EFFECTS OF THE DEMONETISA- TION OF SILVER. (1) The injury to productive industries in gold standard countries from the fall in prices rendering them unprofitable. — Formerly the monetary basis on which all wealth rested, and by which it was measured, kept steady in the accumulated stores of both gold and silver money — practically linked together by a CHAP. IV. Practical Effects of the Demonetisation of Silver. 115 bimetallic ratio, the fresh additions of both metals from the mines only helping to main- tain the level as against the increasing trade and wealth of the world. A change in the measure having taken place through the demonetisation of silver, a new equation, as we have seen, is being established, and has been working itself out in the fall of prices so disastrous and paralysing to every branch of industry. (2) The difficulties and dangers to com- merce through the great fall and violent iiuc- tuations in the exchange rates between gold standard countries and the Eastern countries which have their money based on silver. — Formerly the rates were comparatively steady, varying only 2% or 3^ on either side of a steady par rate of about 5s. per oz. for silver. The rates are now based upon a value for silver about half this rate. Every one who has anything to do with Eastern trade knows how violent the fluctuations have been in recent years, and how uncertain the outlook must continue to be as long as the present dislocation of the two valuations continues. No doubt the merchant's position is now largely safeguarded by the device of securing exchange prospectively through banks becom- ing a medium for this purpose between im- CHAP. IV. 116 Practical Effects of the Demonetisation of Silver. porters and exporters. But this device does little to help the producer for the East, whose mills must be kept running, nor the retailer in the East, the value of whose stocks is affected by these variations. Beyond all this, however, there are permanent and general efi'ects resulting fr6m the fall in these silver exchanges of still more serious import, and I would note — (3) The gradual separation of Eastern and Western commerce which this fall in the gold value of silver is leading to. — It is an admitted fact that the purchasing power of silver in these Eastern countries has not even yet materially altered, and this fact is proving an immense stimulus to everything which these Eastern countries formerly imported from Europe being manufactured on their own soil and under their own silver standard, and not only is it to supply the wants of the immediate centres where these new mills are being established, but cheap silver is enabling them also to become the strongest competitors of Europe in the other non-producing Eastern countries. It cannot be otherwise. The Eastern nations will be forced to become more and more independent of the West, and will trade more and more among themselves, and that grand international commerce with the CHAP. IV. Practical Effects of the Demonetisation of Silver. 117 East, which has been a bond of amity as well as of interest, and through which England's greatness especially has been built up, will shrivel and decay. This is no mere dream; but already it is the positive drift of things which many now clearly see, and interests are every day being created, the result of present conditions, which will impel more and more strongly in this direction. Surely it is high time that the apathy with regard to these overwhelming dangers should be dispelled. There are other practical effects of a less direct nature which might be specified. One only would I mention, and that is — (4) The tendency under the present con- dition of things for the very rich to become richer, and for the middle-class capitalists employing their capital in the industries to remain stationary, or to lose their wealth. The yeomanry of industry, as well as the yeomanry of farming, are disappearing — the men of moderate wealth and position — the aristocracy of the industrial centres, living in their midst and with humane hand guiding the enterprises in which their capital is embarked. These men, who are the soul and spring of all noble and philanthropic efforts for the good of ' the people among whom they dwell, are find- ing the struggle too great for them, and are CHAP. IV. 118 Practical Effects of the Demonetisation of Silver. giving it up; their concerns — where con- tinued — taking the form of soulless limited companies, whose shareholders may be any- where or anybody, and the managers of them, intent only on making profits, neither pretend- ing to, nor able to, fulfil any of the higher social duties which the former capitalist masters discharged. This is incidental ; but, oh ! the difference from the moral, philanthropic and religious point of view, in many of the industrial centres of England ; and the same might also be said as to the formerly well-to-do farmers all over the country. Lord Farrer is never tired of pointing to the Income Tax returns under schedule " D " as belying the conten- tions of those who assert that our industries are declining. I think the tendency to which I have referred explains the anomaly which he cannot reconcile ; and I find a positive demon- stration of this tendency in an article on " A " New Budget Scheme," by Mr. M. G. Mulhall, published in the November number of the Con- temporary Review. He speaks of " the rapid "increase of wealth among the upper ten "thousand in the last few years — that is to say, " an increase out of all proportion with the nor- "mal growth of the fortunes of the British "people". He goes on to add: "This is dis- CHAP. IV. Practical Effects of the Demonetisation of Silver. 119 " tinctly shown by the Probate Returns. The "Statistical Abstract issued last month gives •' a detailed statement of properties assessed to " Probate-duty in the last eleven years, 1884- " 1894, before the new Death-duties came into " force. If we take the first four years of the " above period and compare them with the con- " eluding four years we find as follows, the "figures being the aggregates in each period: Number of Estates over £1000. Range. 1884-87. 1891-94. Increase. £1000 to £4000. . . . 32,826 . . 38,751 . . 18 per cent. £4000 to £50,000. . . 19,522 . . 23,122 . . 18 „ Over £50,000 1,568 . . 1,935 . . 23^ „ Total 53,916 . . 63,808 . . 19 „ Showing on larger estates over £50,000 an in- crease of 23|%, as against 18% on estates from £1000 to £50,000. The capitalist of moderate wealth, in every sphere of life, usually lives upon the income that may be derived from his capital, and to him a reduction of the yearly return in interest or otherwise from same is a great disadvantage; but to a huge capitalist the yearly income is of less importance, in view of the unearned increment which, through the appreciation of gold, may be swelling out the capital value of his large investments in gilt- edged securities, such as Consols or other similar things. CHAP. IV. 120 The Working Glasses and Fallmg Prices. These are tendencies worthy of the serious attention of the economic student, who has been taught that it is not by the accumulation of great wealth in few hands, and in the great centres only, but rather by the more general distribution of wealth, that the highest welfare of any state or nation is secured. THE WORKING GLASSES AND FALLING PRICES. It is, perhaps, well in this connection also to refer briefly to the present position of the British workman. Thanks to the power of Trades Unionism, he has been able so far to resist in a large degree the pressure to reduce wages which the reduction of proits would otherwise have led to ; but the leaders of the working classes are intelligent enough to see all the peril to the interests of the working men which the present unsatisfactory state of the industries involves. Capital may be spent for a while in paying wages when profits are not earned; but they know that the in- dustry where this is going on cannot be long continued, and however strong their own com- binations may be, they also see that the present state of things is leading to opposing combinations and the marshalling of many in- dustries in great trusts, against which it may be impossible for them to fight. The intelli- CHAP. IV. The Warhing Classes and Falling Prices. 121 gent working man regards a strike as a cruel necessity, and is not blind to the injury it may do to his trade. The leaders in the textile trades of the North of England now fully realise that the shrinkage of profit is the main cause of the difficulties that are now too com- mon, and though it is sometimes plausibly urged that as consumers they benefit by falling prices, yet they are not misled by this argu- ment. They know that permanent employ- ment is of more importance to them than any advantage of this kind. They realise that the monetary question is at the bottom of the shrinkage of the profits of employers, and of the difficulties and friction to which it is giving rise, and they are actively identifying them- selves with the movement which aims at reliev- ing trade from the dangers which the monetary disturbance has brought about. CHAPTEK V. — The Remedy for the Disturb- ance IN THE Standard. INTERNATIONAL BIMETALLISM ESTABLISHED BY A CONVENTION OF THE LEADING NATIONS WITH A FIXED RATIO OF EQUIVA - LENCE FOR THE TWO MONETARY METALS. The proposal is not an intricate one, nor is it in any sense an experimental proposal. It is simply the restoration in a permanent form, and suited to the developed commercial inter- course of the present day, of a system that practically existed up to 1873. International commerce demands that there should be a just and equitable basis of value between the peoples of different nations as well as between the citizens of individual nations. The momentary advantages that may sometimes accrue from a fluctuating basis of value such as at present exists between gold standard and silver standard countries are like gambling advantages, which, while they may benefit some, can only do so to the disadvantage of others. Every economist worthy of the name, every statesman who has CHAP. V. Not a Proposed simply to help Silver. 123 spoken on monetary questions, has held aloft the principle that the first and most essential condition of a standard of value is stability ; and now that trade and commerce are so largely international, justice and equity, as between the trading classes of all nations, de- mand that the old practical stability and evenness of values as between the gold and silver monies of the world, both of which form the basis of that commerce, should be re-established. NOT A PROPOSAL SIMPLY TO HELP SILVER. International bimetallism is not a scheme simply to help silver, or to extend the use of silver, or to raise the value of silver. It is a change, or rather a restoration, that may in its initiation affect silver in all these ways incidentally. But this is not the object of the proposal. It is to change the legal posi- tion of silver by definitely incorporating it with gold in the functions of standard and measure of value as well as medium of ex- change. It is no subordinate place to which it is to be again raised, but one of perfect equality at the prescribed equivalence. Every one knows that twenty silver shillings and one sovereign of our English money have exactly the same liberatory power in dis- CHAP. V. 124 Not a Proposal simply to help Silver. charging a debt for 20s., and that to the seller in retail transactions it makes no difference which of the two is proflFered, because he in turn can proffer either. And so it would be under a general bimetallic r6giine — there would be no difference in international transactions in the liberatory power of either metal, so many- parts of silver (let it be 15J, or 18, or 20 — whatever the ratio fixed might be) and 1 of gold would be equivalent to each other, and have the same liberatory power. The Ameri- can, or the Frenchman, or the Austrian would have the option, when the balance of trade was against their countries, and when bills were scarce, of sending either of these metals in dis- charge of their obligations to England ; and in like manner the Englishman, when the balance of trade was the other way, could send either of the monetary metals in discharge of his debt, if he found it more suitable to remit buUion than to buy bills on America, France, or Austria at the rates ruling. The great body of mercantile traders know nothing of these adjusting arrangements. The money which they know is simply to them legal tender, and chiefly in its representative forms, and it would not be otherwise under International Bimetallism. It rests mainly with a few great houses or banks to maintain The New Laws Necessary. 125 the equipoise of the exchanges by movements of bullion in the way I have described, and to them only would the details of the change be visible. THE NEW LAWS NECESSARY FOR CARRYING OUT INTERNATIONAL BIMETALLISM. If any one wishes to know the form and nature of the legislation required in the different countries to give effect to the pro- posal, they may find it in the law already referred to for the free and gratuitous coinage of gold and silver, which was in force from the time of Charles II. down to the end of last century, and was definitely repealed only in 1816 ; or they may find it in the bimetallic law of 1803, at present on the Statute-book of France, which still rules the internal monetary system of that country, and which is at present suspended only in its provision for the mints being open to all comers bringing fresh silver for coinage. Both of these laws prescribed the exact weights at which the several coins of each metal should be minted. The ratio of equiva- lence in the case of England was first pre- scribed by custom as established by the action of the Government offices ; and latterly, in 126 The New Laws Wecessary. 1718, by a Eoyal proclamation, at 21s. silver money to the gold guinea. In the case of France, both the weights of the coins and their equivalence were established by one law, which fixed the monetary unit in the franc ; one franc in silver weighing 5 grammes, and the five-franc piece (the chief silver coin) weighing 25 grammes — a kilo- gramme of silver being minted into 40 of these pieces, equal to 200 francs. This law also prescribed that gold pieces of 20 and 40 francs should be minted, and that the 20-franc gold pieces should be struck at the rate of 155 such pieces to the kilogramme of gold. Thus a kilogramme of silver was equal to 200 francs, and a kilogramme of gold equal to 3100 francs, both legal tender, equal to a ratio of 15| silver to 1 of gold, the metals in each case being j^ths fine. There was no seigniorage charge in Eng- land, the law providing that any one bringing gold and silver to the mint should get them freely and gratuitously minted in coins of the realm. In the case of France a seigniorage was charged, Article 11th of the law of 1803 providing " for the ' expense of coinage alone ' " being required of those who shall bring mate- " rial of gold or silver to the mint ". These charges were first fixed at 9 francs per kilo- Eatio. 127 gramme for gold, and 3 francs per kilogramme for silver, but they were changed several times. The matter of seigniorage would no doubt have the attention of the contracting powers. Seigniorage or no seigniorage would not affect the principle of International Bimetallism, but it would be well if one general course of action were adopted. If not gratuitous coinage, then a uniform rate of seigniorage by all the Powers for each of the metals, these being coined at the established ratio, whatever the size and denomination of the chief coin might be. RATIO. It is often said that bimetaUists are afraid to face the question of the exact ratio to be fixed in a Conference of the Nations, and that the difficulties which would be met in the dis- cussion of the rate would be fatal to the pro- posal. We do not for a moment disguise the fact that owing to the divergence having been permitted to go on increasing so long there will be difficulties, but we feel confident that when fairly met and examined they will be readily overcome. The ratio cannot be fixed by any one nation ; it must be the outcome of a general agreement of the nations which adopt it. The essential point is not the exact ratio. 128 Ratio. but the admission of the principle that the gold money and the silver money of the ■world should again be linked together and do their work harmoniously. Any ratio would be better than none, and the exact figure to be decided upon is a matter which, if the main principle be ad- mitted, has to be fixed at one point or another. Every nation that joins in the Conference must have its say as to what the ratio should be, and it would have to be decided either by unanimous desire and assent, or by mutual concession. For any one nation to go into the Conference with the determination that the ratio shall be such and such a figure, and no other, would be contrary to all the principles on which international questions are settled. I would ask those who find a stumbling block in this matter of ratio, in view of the rise in the gold value of silver that might ensue as the result of an international settle- ment, to remember that the changes and inconvenience which they dread in connection with this fixing of a ratio are not to be avoided by sitting still; such experience as that of the year 1890 resulting from the in- dividual action of America in passing the Sherman Act, when the value of silver rose Batio. 129 suddenly to 54d., may happen any day apart from international action. The party in America which thinks that that country by itself can force up the value of silver is still a powerful one, and it is quite possible that its action may again cause convulsions. Surely it is far better in view of this that the question should be grappled with and settled by mutual agreement with the least possible disadvantage of incidence to all. I believe that whenever the general prin- ciple is admitted, and it becomes recognised that the relation of the two metals is again to become a fixed thing, there will be an entire change of public sentiment regarding silver — a change which, long before any defi- nite figure is decided upon, will have told immensely upon the question. The mischievous sentiment that silver money was to become a thing of the past, which has been at the bottom of much of the hasty action in demonetising it in Europe, will give place to new views, or rather to the old and correct views, giving silver again its true position, leading to its being again fully recognised as a precious metal, not subordinate to but the equal in all respects of gold in forming the measure and standard of value. 9 130 Considerations in Fixing the Ratio. A newly awakened sense of this will, I believe, be a more potent factor in the fixing of the ratio than any that can now be considered. As in all matters of difficulty, where con- flicting interests come into play, the first thing to be done will be to bring into general view all the interests and considerations that must be taken into account, and to lay down the general principles by which those who are to judge and decide the matter must be governed. Proceeding in this way, what is just and equitable will quickly reveal itself. CONSIDERATIONS TO BE KEPT IN VIEW IN FIXING THE RATIO. The first thing to be looked at will be the state of matters which existed before the disturbance began. There was then, as I have already said, not only practical unity of money in gold and silver at the fixed equivalence which then existed, but there was also practical uniformity at the estab- lished difference in gold and silver valuations everywhere — i.e., in silver countries where there was no gold money, the valuations as compared with valuations in gold standard countries, were in the same proportions as the monetary metals. Now, to-day, though CHAP. V. The Interests of India a/nd the East. 131 gold valuations are changed in relation to silver valuations, the valuations in silver countries remain as yet practically the same.^ This is an all-important condition of matters as affecting the ratio to be fixed. THE PERMANENT INTERESTS OF INDIA AND THE EAST REQUIRE A SETTLEMENT NEAR THE OLD RATIO. We must bear in mind that while no practical change has so far been brought about in the silver valuations internally in India and the East from the conflict of the two standards in the working of interna- tional trade, yet upon the settlement by international agreement of a fixed ratio between the two metals, silver valuations in the East would in all likelihood gradually conform to this universal ratio ; and if a great change were produced in the buying power of silver there as the result of this arrange- ment, a great injustice might be done towards that large section of the world. What I mean is this. Hitherto, say in India, there has been neither rise nor fall in silver prices apparent to the natives of India; but, on a permanent See The Perverse Rupee, The Silver Question and the Gold Question, pp. 103-105. 132 The Interests of India amd the East. settlement being jmade, the valuations inter- nally would very likely gradually conform to that settlement; and if the buying power of India's money internally were to become less than formerly, through a much higher ratio than 15| to 1 being permanently established, there would then be a palpable rise in the cost of living to the poor native, who has always such a narrow margin in what he earns be- tween him and the bare maintenance of his existence. The merchant importing from India sees in the present state of matters a bounty in favour of the Indian exporter, and would be content if this condition remained unchanged ; but this commercial aspect is ordy one phase of the question, and the statesman in deciding upon it will require to keep in view its more general bearings. He must consider the effect of the ratio adopted upon the wealth in the vast masties of silver existing in the East, which would become depreciated in the esti- mation of the Eastern nations if a higher figure of ratio were fully established, . also the permanent settlements based upon the silver that would thus become depreciated, and the general effect of this depreciation on the welfare of the vast populations in the East. The merchant's view takes account only Adjustment of Eastern a/nd Western Prices. 133 of a temporary condition favouring the Indian exporter, in the same way as the depreciation of paper currency temporarily favours the farmer exporting wheat from Buenos Ayres. The statesman in judging and deciding must look at the wider and more permanent effects of the change, and be guided by the great prin- ciples of justice and eqiiity in dealing with it. Many people, under a partial view of the circumstances, believe that the higher the ratio, the better it would be for India and China. I believe it will be found to be quite the contrary, and that the nearer the ratio is fixed to the former level, i.e., the nearer to 15J to 1, the better permanently it will be for the vast masses of the people in those countries. THE ADJUSTMENT OF EASTERN AND WESTERN PRICES UNDER A FIXED RATIO. As regards the adjustment which the fixing of an international ratio would involve, it would come about through changes taking place on both sides ; that is, silver prices of articles exported from the East would fall, and gold prices in Europe of articles exported to the East would probably rise. The gold equiva- lents of silver prices, in view of the rise in Eastern exchanges, being now higher, the European importers of Eastern produce could 134 Adjustment of Eastern and Western Prices. not at once pay them, but the higgling of the market would in most cases lead to an approxi- mating compromise in a higher gold price being ultimately paid by the European and a lower silver price being accepted by the Asiatic. In like manner the silver equivalents of the gold prices of European articles exported to the East would fall in view of the difference in ex- change rates, and higher gold prices for these articles would be obtainable ; but here also the higgling of the market and European competi- tion would lead to the difference being more or less shared, some fall taking place in the silver price and some advance being obtained in the gold price. It should be borne in mind that wholesale prices of raw materials are much more easily and more frequently moved than retail prices of manufactured articles. This fact, with the general stationariness of silver valuations in the East, has been at the bottom of the ex- treme difficulty of getting any equivalent advance in silver prices of European articles when exchanges have been falling, and it also explains the fact observed in Europe that retail prices generally have not fallen in pro- portion to the fall in wholesale prices. Retail prices are apt to become stereotyped. Confi- dence secures custom apart from price, and Adjustment of Eastern amd Western Prices. 135 distributors are able to retain a large part of the difference, customers remaining quite content with a share of what the reduced wholesale prices put it into the power of the retailer to concede. The matter, however, is very different when the necessity to advance retail prices arises. Customers will likely first try the next shop, or go round all the shops, before giving more than they have been accustomed to give. Of course, Eastern traders might suffer or be inconvenienced while the adjustment to the new ratio was taking place, but an adjustment coming from both sides would more or less divide the difference. If gradual, as would probably be arranged, it might be little felt, and in any case it would not be greater than the fluctuations and disturbances which have been experienced in recent years, and to which the trader must always be exposed as long as the question remains unsettled. As regards the disappearance of the bounty, or whatever it may be called, from cheap silver at present favouring the East, and which is leading so strikingly to the transference of manufacturing industries from European to Eastern soil — looking at it as an injustice produced by erroneous legislation with results similar to those of a false balance, it should, in CHAP. V. 136 Adjustment of Eastern amd Western Prices. any case, be remedied. But, even looking at it fully and from the Eastern standpoint, it is, I think, for the true interests of the East that it should disappear. If you destroy imports of manufactured goods, how is the West to pay the East for its produce? and wiU not the international trade of the East with the West in the produce of these Eastern countries, on which they so largely depend, and by which they have been developed, gradually decay? Assuredly, the East would ultimately suffer greatly from this process ; and it is therefore in the true interests of the East, no less than the West, that a just and righteous measure of value between them, fair and equitable to both, should be re-established. Looking at the question from the Eastern point of view, there is nothing that should stand in the way of a fixed international ratio being adopted, either as regards its ultimate consequences to the trade of Eastern nations, or in the incidental effects which might result in making the change. No doubt, the East has cheap labour, and is entitled to the full advan- tage that it gives in manufacturing, as well as otherwise ; but why should the Western world by its fatuous monetary legislation also cheapen the silver money in which this cheap labour is paid, so making the cheap labour cheaper still England's Interests in the Ratio to he Fixed. 137 by about one half in its competitive power as against Europe ? ENGLAND'S INTERESTS IN THE RATIO TO BE FIXED. As regards England, admitting the likeli- hood already referred to, that with the ratio once universally fixed, values everywhere will gradually conform to it, that is, that the valuations in silver countries would again get into harmony with the fixed relative power of the two metals, let us see how the various interests of England would be affected. England is at present suffering from the dislocation of the two valuations, hindering trade through the fluctuations of exchange, and stimulating competition against her from silver-standard countries owing to the purchas- ing power of silver in these countries not moving with the appreciation of gold. On the adoption of a fixed ratio, whatever ratio were adopted, all this would come to an end, the extreme fluctuations of exchange rates on silver countries, necessarily and at once, and the advantages in favour of production in silver-standard countries from monetary causes, even though a higher ratio than 15^ to 1 were adopted, would also gradually dis- appear, as the supremacy of the now stable CHAP. V. 138 Englamd's Interests in the Ratio to be Fixed. and universal monetary standard in the two metals asserted itself in bringing all nations, whichever metal they used internally, to con- form to it in their valuations. Take another class of considerations. The unearned increment in gold and in gold valuations of a permanent nature, that has been realised while this appreciation of gold has been going on, would cease, to the great advantage of borrowers. Surely it is high time that this inequitable gain which is being secured to their detriment should at least terminate; and lenders would have no just cause of complaint if it did so, or even were to some extent readjusted. But they also in turn are being victimised by the present state of matters, and on the whole the lenders, or capitalists, whom it would affect in this way, will also have counterbalancing ad- vantages. They have their troubles now from the diminishing value of the securities on which they have lent their money. And of what account to the general investor is the appreciation of gold, if the net income from their securities does not increase, when, to lend money securely, they have now to ac- cept 2f or 3^, while formerly they got 4 or5%? The nemesis is thus bringing home to money England! s Interests in the Ratio to he Fixed. 139 lenders also in this way the evil resulting from the disturbance in the standard, as it is doing in other ways to the industrial and commercial classes. On the Stock Exchange, how much safer and wider would the whole area for lending money become, were the element of the un- certainty of silver valuations eliminated, and would there not be increased confidence in all great enterprises if a stable and steady standard in both metals were established ? Even as re- gards gold loans to foreign States, is it not questionable whether the bondholders are really benefiting from the increasing weight of these obligations upon the nations that have borrowed? There never was a more shortsighted, not to say unrighteous, view taken of any matter than that expressed by those who say that, England being a creditor nation, it is all right for her however much gold may appreciate. A glance over the world at the position into which most of the borrow- ing States have of late years got — no doubt, also owing to other causes besides this, but to this very largely — may well make bondholders uneasy. It is not to the interest of the lender that the borrower's burden should be un- wittingly increased ; and any gain from un- earned increment, even if it were a real 140 Interests of the other Nations in the Ratio. advantage, does not compensate the results of default. 1 England, I think, when aU her interests are considered, may safely go into a Conference pre- pared to accept whatever ratio may be adopted. The one thing of overwhelming importance to her is the establishment of a stable standard in the two metals, and that that standard should be one which will be uniform for all nations. After this she has to consider what would be best for her great dependency, and also to see that the rate adopted should satisfy as far as possible the principles of justice and equity as between aU the interests aflFected. THE INTERESTS OF THE OTHER WESTERN NATIONS IN THE RATIO TO BE FIXED. The other nations of Europe, and also America, are in much the same position as England, except in respect of the interests they have in the one case in the existing silver money coined at the rate of 15^ to 1, and in the other at the rate of 16 to 1. There would, however, I think, be no insurmountable diffi- culty in the way of an international settle- ment in the existence of this silver money even if the Conference adopted a higher ratio ^ Colloquy on Currevcy, p. 177. Interests of the other Nations in the Ratio. 141 than 15 J to 1. It is all de facto at the present moment out of relation to the legal tender power that it represents, and its position would be no worse, but greatly better, with the ratio fixed at whatever rate might be adopted. It serves the purpose of a circulating medium now at a fictitious value for internal purposes ; and if a higher ratio than the old one were established, it might still continue to circulate in the same way. For it would not, I think, be beyond the wit of man to make an arrange- ment for its continuance that would work harmoniously w/th a fixed international ratio. In international trade it would be chiefly bar silver that would be moved if that metal were taken ; but there would also be a new coin, some special denomination in each country of the existing coinage, that would be coined in conformity with the new ratio, say, for illustration, a four-franc piece in France, and in England a new four-shilling piece (withdraw- ing the present token coin of that denomina- tion). These genuine silver coins, which the mints would strike for all who brought silver to them, could circulate internally along with the existing coins ; but it would be found that they would chiefly enter bank deposits, and would be the coin taken along with bars, for international movements of that metal. CHAP. V. 142 Interests of the other Nations in the Ratio. The existing coin in France might also be thus used in this way at its silver value, say — for example, supposing that a 20 to 1 ratio was adopted, and that the present five-franc piece was only equal in value as silver to the new four-franc coin, the tenderer of five-franc pieces in international transactions would have to provide one-fourth more of this legal tender coin for his shipment. He would thus make a loss of 20 per cent, on his shipment ; but it might be arranged that the nation would bear this loss, all shipments of old five-franc pieces being first melted into bars, and the Govern- ment making good to the shipper the difference between the nominal value of the coins and the actual value of the silver they con- tained. In this way and in each case there would be so much of the old silver circulation dealt with definitely and for ever; for the coins melted could never again make their appear- ance in five-franc pieces. It would not be a heavy drain upon the resources of the countrj' : it would be gradual, and it would not be a process which in itself arbitrageurs, or any one else, could make any profit upon. The coin thus abstracted, when the balance of trade was against France, would be replaced by- and-by by silver or gold in bars or full- CHAP. V. Interests of the other Nations in the Ratio. 143 valued coin when the balance of trade turned the other way. This mode of dealing with the existing silver currency would operate only upon the margin of five-franc pieces that might be available for export, and would avoid the heavy expense and inconvenience of recoining the whole circulation. The new four-franc pieces as minted from fresh silver offered, or as returned from abroad, would remain chiefly as bank deposits, and the old five-franc pieces would continue to keep their present place in the internal circulation. Both France and America, if matters go on as at present, and silver is completely demone- tised, will ultimately have to face a much more serious loss ; and in comparison with what that loss might be, the expense of the gradual pro- cess which I have suggested would be very small indeed. Of course, if the nations see their way to go back to the old ratio, there would be no need of any arrangements such as this ; but the suggestion will show that in the event of a higher ratio than 15 J to 1 being adopted, there would be no insuperable diffi- culty in the existence of the present silver coins to the carrying out of a general arrange- ment. CHAP. V. 144 Fea/rs as to Effects of DistwhiTig Gold Stcmdard. GENERAL FEARS AS TO THE EFFECTS OF DISTURBING THE PRESENT GOLD STANDARD IN ENGLAND. I have already dealt with the incidental consequences of making the change to the joint standard, viewing it from the Eastern stand- point, and as affecting the operations of Western traders with the East, in the event even of the old ratio of 15 J to 1 being established. Are there any other ways in which diflSculty and danger are to be apprehended ? The mono- metallist sees, or thinks that he sees, many dangers. First of all it is said that England would become the dumping ground for silver, against which our gold would be withdrawn. As a matter of fact, England is at present, and for a long time has been, the dumping ground for new silver ; but it is always taken away from her almost as soon as she receives it, and there will be nothing in the changed conditions under a fixed ratio which would interfere with this state of matters. Eather the reverse, for if anything could interfere with this demand it would be such attempts as were made in India to establish a gold standard. The re- adoption of the joint standard in Europe would give fuller scope than ever to silver money in the East, not to speak of the revived CHAP. V. Fears as to Effects of Distwrbing Gold Sta/ndard. 145 demand that would also be seen for the re- newal and increase of silver money in the West. As regards the supplies of new silver, therefore, this fear is utterly groundless. It is also said that bullion dealers would bring the silver money of other countries and take away our gold. Why ? Bullion dealers in carrying out arbitrage operations, just as in the case of any other mercantile operation, have usually some object of advantage or profit in view in doing so. Now, where is the advantage to come in if, under an interna- tional bimetallic arrangement, say 15^ ounces of silver and one ounce of gold become equal in their purchasing power and can be every- where tendered at this rate for any debt ? What advantage could accrue from the move- ment of either metal from one country to another ? If it cost the arbitrageur as much money to get silver anywhere as he could get for it in England or any other place, would there not be actual loss from carriage and other charges in carrying out the operation, rather than profit ? It is only where the balance of trade requires adjustment that specie is ever moved from one country to another. It is so to-day with gold under gold monometallism in Europe and America — it would not be other- wise under bimetallism. The Gresham law 10 CHAP. V. 146 Fears as to Effects of Distwrhing Gold Stcmda/rd. has been invoked like some fetich to confuse and frighten ignorant people regarding the matter ; but it has no bearing whatever upon it, as is admirably demonstrated by Mr. Gibbs in his Colloquy, and in a leaflet in reply to one on the subject by the Gold Standard Defence Association. The danger, therefore, apprehended in this respect is just as unreal as that from the influx of the supplies of new silver. It would not matter though the metals were moved more or less, but as a matter of fact there will be no motive leading to their being moved, and the probability is that the actual distribution and location of the two metals will be, under a bimetallic agree- inent, very much as they are to-day. It is further said that there will be a rush of depositors to withdraw their deposits, as Mr. GifFen has prophesied. Why should people withdraw their deposits, and where wifl they take them ? Where will they be safer than where they are now, seeing that all the banks in any other country will be under the same conditions as regards the tender of either gold or silver as the banks in England will be ? No one is going to abolish the present-day system of monetary transactions. In pocket money for retail purchases our purses will have exactly the same contents as they have CHAP. V. Fears as to Effects of Distwrhing Gold Standard. 147 now; and in all the bigger transactions of trade we shall pay and get paid just as at present, in pounds sterling, by cheques, bills or bank transfers. The pound sterling with its basis fixed in gold and silver under a general bimetallic agreement will inspire as much con- fidence as the pound sterling of to-day; and the power of converting pounds sterling in whatever form they may be paid into metallic money will be as sure as it is now, that metal- lic money forming a basis which will have a much steadier relation as a standard to all the work that' money has to do. It is a false idea that gold alone can be an independent standard apart from the silver money of the world. The two monetary metals are even now interdependent ; and a bimetallic agree- ment with a fixed international ratio will simply secure the harmonious working of the two monetary metals now doing the world's work, and thus bring about the true unity of money everjTTvhere. The half -burlesque notion of our " sixpences " being made into shillings " under a bimet- allic agreement, which Lord Farrer throws out, is just as unreal as the other bogies that have been conjured up by monometallists. Throughout all the incidence of the changes in the relative price of silver to gold which CHAP. V. 148 Fears as to Effects of Distwrhing Gold Stamdard. recent years have seen, even when silver rose to 54d., as in 1890, who in England ever believed or felt that the relation of English money in its several parts was affected ? Our shillings have not been reduced to sixpences in their relation to the pound sterling, nor would any change be felt or seen when their old intrinsic relation was restored. I repeat that it is only in Eastern trading relations that difficulty or inconvenience would be felt. This was the case with Eastern traders in 1890, when the rise was so sudden, owing to the difficulties in collecting accounts from native dealers who suffered from the suddenness of the rise, but otherwise nothing was felt or generally known in England. Last year we had a rise in silver of from 3d. to 4d. per oz., and in Indian exchange of about l^d. per rupee; but it was in the main gradual, and even in Eastern trade in none of its branches was there any dissatisfaction with the change. In the early part of the year it stimulated our export trade with the East, and, as we now know, it has told favourably on the revenue of the Indian Government and given new hope for the finances of that country. The only evil to be apprehended from the advance of silver in its relation to gold on the fixing of an international ratio would be the suddenness CHAP. V. Advance to Ratio Adopted might he Graduated. 149 with which the advance might take place, and in the interests of the Eastern trade pre- cautions to obviate that suddenness might, as I have shown, be readily taken. The initial difficulty over, and a settled international ratio re-established, it would quickly prove itself to be a blessing to England and to all other nations. THE ADVANCE TO THE RATIO ADOPTED MIGHT BE GRADUATED. I have fully admitted that in adopting a 15^ to 1 ratio, or even a higher ratio if that were still one lower than the present market rate, there would be some inconvenience and difficulty in connection with current trade with the East; otherwise I do not think there would be any real difficulty, but in any case, and in view of trade with the East, it would be well that the agreement should be brought gradually into play. It is a difficulty similar to that which has been experienced by many nations, when from war, or other misfortunes, their currencies have become inconvertible, and they have set their faces to the task of getting back to a metallic basis. At such times there have always been voices raised in favour of tampering with the standard and CHAP. V. 150 Advance to Batio Adopted might he Graduated. making conversion easier by resuming upon a lower basis of value. Nowhere was the battle against such proposals fought out so trium- phantly as in England, when she resumed cash payments, after the era of inconvertible paper money, at the beginning of the century. One feature of the Act of 1819, by which the legislation necessary was completed, was the gradual way in which the pound sterling in paper was brought down to the standard that previously existed. It was done in successive steps, over four years, terminating in 1823. Now, it occurs to me to suggest the inquiry whether something similar might not be done to graduate the rise in silver towards the point determined upon by an International Conven- tion; and I have thought of the following plan, which may at least indicate the lines upon which such a graduated arrangement might be made. Let us suppose, for illustration, the ex- treme case of going back ultimately to the ratio of 15^ to 1, to be accomplished in five successive steps over four years. The ratio would be first fixed say at 20 to 1 to begin with, but no coining of silver under the arrangements of the Convention to take place until the successive steps over the four years which would bring the rate to 15J to 1 were CHAP. V. Advance to Ratio Adopted might be Graduated. 151 completed. One year after the fixing of 20 to 1, the ratio would be lowered to 19 to 1. Two years after, to 18 to 1. Three years after, to 17 to 1. Four years after, to 15| to 1. During this transition period, any one bring- ing silver in any form to the mints of the contracting Powers would get it melted into bars of the fineness prescribed by the Conven- tion, and would receive, in the case of England, through the Bank of England, legal tender notes, not ear-marked, for the value of their bars at the ratio ruling for the year. In view of Eastern trade it would also be arranged for this transition period, that any one wanting silver bars for any purpose could demand them at the mints by paying for them in legal tender money at the ratio ruling for the year. The Bank would simply act as the agent of the Government, which would indemnify it, or take the profit that would accrue as the system went on to completion. Silver would already in this way be taking its part in the general basis of our legal tender money. I will take French money for further illustration of what I mean. At 20 to 1. For silver equal to a kilogramme in bars of the prescribed fineness, the CHAP. V. 152 Eastern Nations should Remain with Silver. tenderer would receive 155 francs legal money. At 19 to 1, 163]^ francs legal money. AtlStol, 172A „ At 17 to 1, 1825-^ „ At 15i to 1, 200 Of course, if an intermediate rate were fixed for the ratio, and loss to France and America sustained on existing silver coin, in the way I have previously indicated, there would be profit to go against this from bars sold at a higher rate than they had been taken. It is, I think, probable that with inter- national bimetallism fully established, the precious metals would more fully than hither- to be moved in the condition of bars from country to country for the adjustment of the balance of trade, and thus the expense of the remintage of coins in new forms would be largely avoided. Shorter steps and a longer period might be adopted, but this illustration will serve to show how a graduated advance might be carried out. THE EASTERN NATIONS SHOULD REMAIN WITH SILVER AS THEIR STANDARD AND CURRENCY. The principle of bimetallism is that the debtor should have the power of paying in CHAP. V. Eastern Nations shovM Remain with Silver. 153 either metal ; but I have suggested that in the transition period above contemplated, and perhaps after, those who wish silver should get silver bars supplied when they ask for them. I have suggested this in view of the quantities of silver rather than gold needed for Eastern trade ; for I would judge that with bimetallism established it would be better that the functions of money, which silver alone has so long discharged exclusively for the East, should be allowed to remain un- disturbed. Of course, the attempt to displace it as standard and establish a gold standard without gold, in the way that the Indian Government has been so unadvisedly trying to do, would be given up.^ 1 1 have not thought it necessary to say much in the text regarding the experiment which India made of trying to establish a gold standard in India. This was no doubt authorised by Lord HerscheU's Committee, but it was a step quite in defiance of the balance of evidence given to that Committee. In speaking at Nottingham I described it as " ethereal monometallism — a gold standard without gold, " to be set in a firmament of silver," and this is exactly what it is, something in the clouds above the people of India ; and the best hope that can be expressed regarding it is that it may remain there. Writing to me in July, 1893, Mr. E.. Barclay Chapman, than whom there is no one more competent to give an opinion on the subject, said : " Wherever I go just now, I find gloomy apprehensions " and alarm. No one, not even Lord HerscheU's Oom- " mittee itself or the Government of India, professes the " least confidence in the quack remedy to which they have CHAP. V. 154 Eastern Nations should Remain with Silver. It will be far better, I think, to leave the Eastern nations with their silver standard and their silver money as hitherto. We cannot, in any case, include China in a bimetallic arrangement, and these Eastern nations are not needed in any formal way to maintain the ratio. They do their part in maintaining the equipoise between silver and gold by taking silver, and will continue to do so. India also wUl, as she has always done, take gold, more or less, for hoarding purposes, and she can continue to do so if she chooses. The all-important thing for her, in common with all the Eastern countries, is that a stable basis for the par of exchange between her silver money and the money of Europe should be established, and this international bimetallism would infallibly secure. A most important thing for her also is " dared to resort. Their justification of their conduct is "like that of a oancer-strioken patient for whom real " science can do no more, who then turns to quacks in his " despair. But after all they have not even this sorry " justification ; for there is in their case a true scientific " remedy, and only one, but our Government will none of " it. The Government of India was indeed in desperate " circumstances ; for the remedy, in which they had real " confidence, was not in their power. But they should " have refused to try any other will-o'-the-wisp, and " saddled the Government of Great Britain with the whole " responsibility." Change would Affect only the Basis of Money. 155 that her silver standard should not be debased, as it would most certainly be if the present plan of the Indian Government were really to become effective. That unfortunate scheme would simply vanish on the establishment of international bimetallism ; and the Govern- ment, without any to-do, could readily, when it suited, quietly resume the coinage of silver. As regards India, therefore, and also the other Eastern nations, the mot d'ordre should simply be, "As you were". THE CHANGE SOUGHT WOULD AFFECT ONLY THE BASIS OF MONEY. On the adoption of international bimetal- lism, the general public in Europe and other places, which uses money in the different forms I have otherwise described, would recognise no change whatever having been made. It would simply be a matter of the enlargement and regulation of the basis of money, and would affect only the metallic monetary reserves held by the State, or quasi State, Banks. The Manchester Corporation recently com- pleted the connections with Thirlmere for bringing the water of that lake to Manchester, and it has now this great supply as well as 156 GluMige would Affect only the Basis of Money. the reservoirs at Woodhead to draw upon ; but no change was made in the tanks and piping by which the water is distributed, and the citizens never know what is Woodhead and what is Thirlmere water. This only they know, that the taps are now always available for water supply; and that the dreaded scarcity, with the inconvenience and danger arising from shutting off water which it en- tailed and from which they formerly suffered, is now a thing of the past. We may take the Thirlmere water supply to represent the restoration of silver money, and may rest assured that its effect upon the money we handle and the money of account that we use will be just as little noticed as when the connection of Thirlmere with the Manchester waterworks was established. As in the one case there is now sure steadiness and sufficiency of water supply, so in the other, the contraction of full-powered money, from which trade and commerce have been suffering, will cease, the steadiness of ex- changes with foreign countries will be re- stored, and that confidence in comparative steadiness of values, without which trade cannot prosper, will again be established. Conclusion. 157 CONCLUSION. The bimetallic movement is not a movement for the individual benefit of any one nation, but one that is for the good of all nations; and though in this book I have dealt chiefly with the aspects of the question that present themselves in England, it is because I feel that it is chiefly here that in the interests of all nations the battle has to be fought. It was England that led the way in anti-silver legislation, and it is here that the false theories on which gold monometallism rests had taken the firmest holds on the minds of the people. It is here, therefore, that the most important and far-reaching triumphs for the general advancement of the bimetallic cause are to be gained. The late Mr. Dana- Horton fully perceived this, and hence his devotion to the task of elucidating — as he did in his Silver Pound — the misconcep- tions under which the false departure was made by England in 1816. It is a characteristic feature of the writings of the Gold Standard Defence Association, recently started in London, that they chiefly try to buttress these exploded misconceptions. They make little account of the commercial and industrial diflSculties that have resulted, and 158 Conclusion. are resulting, from the demonetisation of silver, and occupy themselves chiefly with shouting the praises of the gold standard ("Great is Diana of the Ephesians ! "). It is in the main an insular and selfish defence, under mistaken ideas of what is best for the great centre of wealth which the Associa- tion chiefly represents. It ignores the only and true conditions, viz., industrial and com- mercial prosperity throughout the nation and over the world, upon which the wealth of London has been built up, and on which its banking and financial greatness can alone be maintained. It is well to have the authoritative leaflets which the Gold Defence Association is publishing, as they give our Bimetallic League an opportunity of refut- ing their arguments, and thus reaching the strongest centre of the opposition that has to be overcome. I now close this survey, impressed more deeply than ever with the importance of the subject, and with the gravity of the circum- stances in which our country and its great Indian dependency, as well as the rest of Europe and America, have been placed by this Disturbance in the Standard of Value ; and my most earnest desire is that the remedy, which we believe would so certainly cure that dis- Conclusion. 159 turbance, and which has so long been pushed aside by those in power, should as speedily as possible be brought into full play. In the course of our examination, we have seen how much the progress of the bimetallic cause has been hindered by erro- neous prepossessions and supposed fealty to the great economic teachers, of whom England is justly proud. There are, perhaps, few of those who are now bimetallists who were not at one time under the spell of these pre- possessions, and this should make us all the more lenient and patient with those still opposed to us. Events now, more than reasoning, are opening people's eyes; and the rising tide of opinion in our favour, which we see every- where around us, may well enable us to forget the jeers and taunts of the past, and make us ready to welcome into our ranks those whose conversion will only have been a little later than our own. APPENDIX. STATEMENT OF THE BIMETALLIC LEAGUE ON THE RESOLUTION PASSED BY THE HOUSE OP COMMONS, 17th MARCH, 1896. The Bimetallic League desires to call attention to the significance of the Resolution of 17th March, viz. : — " This House is of opinion that the instability of " the relative value of Gold and Silver since the "action of the Latin Union in 1873 has proved " injurious to the best interests of this country, and " urges upon the Government the advisability of " doing all in their power to secure by International " Agreement a stable Monetary Par of Exchange " between Gold and Silver ". This Resolution, unanimously adopted by the House of Commons without amendment or division, marks a distinct advance of public opinion in sup- port of Bimetallism. It is a declaration in favour of an International Bimetallic agreement. If (as the House of Commons has decided) the action of the Latin Union in suspending the Bi- metallic System in force up to 1873 " has proved 11 162 AppcTidix. " injurious to the best interests of this country," and if (as it has further afl5rmed) it be advisable " to secure by International Agreement a stable " Monetary Par of Exchange between Gtold and " Silver," then nothing less than a new Bimetallic agreement can remedy the injuries so inflicted, or restore the stable Monetary Par of Exchange which Bimetallism secured to the world. During the past year the Grold Standard Defence Association has been circulating statements assert- ing:— (1) That the system known as " Bimetallism," which was in operation in the Latin Union, did not maint^ain a parity between Grold and Silver. (2) That the fall in the Glold price of Silver has not been due to the action of the Latin Union in 1873. (3) That the Monetary changes since 1873 have not been injurious to British interests. (4) That nothing has occurred to call for action on the part of Her Majesty's Government to promote an International Agreement amongst the Great Powers, with a view to securing a stable Monetary Par of Exchange between Gold and Silver. All these assertions are practically traversed and repudiated in the Resolution which the House of Commons has adopted. Appendix. 163 Moreover, the attempt of the Monometallists to bind the Government, by a specific resolution of the House, at no time and in no way to commit this country to any International engagement which might endanger the maintenance of the Gold Stan- dard in the United Kingdom, was abandoned by its authors. International Bimetallism therefore still holds the field. The question whether this country should or should not ultimately adopt Bimetallism within the United Kingdom is left by the Resolution a matter for later consideration. The declaration of the Government does not pre- clude the eventual adoption of Bimetallism by this country. The position of the Government, as de- fined by the First Lord of the Treasury and by the Chancellor of the Exchequer, is, that under present circumstances, they do not feel " justified in pro- " posing or accepting a departure from the Gold " Standard of the United Kingdom ". The nation, through its representatives in the House of Com- mons, has formally decided that International Bi- metallism is necessary in its best interests, and has urged the Government to promote that end by every means in their power. If this end cannot be accom- plished without the full co-operation of England, England must co-operate fully or else neglect her best interests. One of the most striking points brought out in the debate was the anomalous condition of the 164 Appendix. Monetary System within the British Empire. This was specially emphasised by Mr. Balfour, the First Lord of the Treasury, in the following words : " The " Chancellor of the Exchequer recalled to the " memory of the House the ludicrous fact that at " the present moment, within the limits of this " Empire, men's debts are measured by three differ- " ent standards. They suffer alteration by three " different sets of causes ; they are subject to in- " fluences arising from three different quarters. We " have a gold standard in this country. We " have a silver standard in the Straits Settlements. " In India there is a standard based neither on gold " nor silver, — a standard varying from day to day " at the will of the Indian Executive and the discre- " tion of the Indian Finance Minister. . . . Nothing " shall persuade me that it is in conformity with " civilisation and common sense that the commercial " world should long tolerate so inconvenient, cruel, " and absurd a system." It has never been seriously suggested, even by Monometallists, that any remedy other than Inter- national Bimetallism would remove this reproach from our Monetary System. The result of the debate may be briefly sum- marised thus. The House of Commons holds that an International Bimetallic Agreement would give the world a stable Monetary Par of Exchange, and therefore be of benefit to the best interests of the Empire. The Government, while approving of this view, say that at present they are not prepared to make such a modification in our Monetary System Appendix. 1 65 as would be involved in this country becoming a party to the Agreement in the same form as other Powers. They are unwilling to ignore altogether the opinions of a small but influential section of Bankers and others in the City of London who are opposed to this course. The Government are, how- ever, desirous that this Empire shall take a real and immediate part in an Agreement with the other Great Powers, and, with this object, they oifer to reopen and to keep open the Indian Mints and to make other provisions in order to secure the full recognition of Silver as Standard money. The Bimetallic League remains convinced that the United Kingdom ought to join without reserve in any International Agreement which may be formed. The prejudices of a class, however influen- tial or select, must ultimately give way to a reform which will promote the best interests of the Empire as a whole, and our Productive Industries, upon which the great mass of the people depend, must, sooner or later, become the first care of the Govern- ment. Meanwhile, the object lesson which would be afibrded by the effective establishment of Bi- metallism throughout the world, would be the best means of removing the ignorance and prejudice which now prevent our full co-operation. The League shares the opinion confidently expressed in the debate by Mr. Balfour, that the time will come when Bimetallism " will be accepted not merely by " all the great commercial nations outside England, " and not only by the great manufacturing classes " of Lancashire, and the vast majority of the repre- 166 Appendix. " sentatives of British agriculture, but also by the " great body of opinion within this commercial " centre of the Empire ". It is our Productive Industries and our vast trade which have given the Empire its commercial supremacy and made London the Monetary Centre of the world. As it is now recognised that a stable and uniform Standard of Value is essential to the maintenance of this paramount position, the Bi- metallic League urges all Bimetallists to redouble their efforts in the great work of education. Great Britain having now approved the principle of Inter- national Bimetallism as necessary to the prosperity of her commerce, the time cannot be far distant when she will recognise that her only true position is in the van of this movement — a position worthy of her Imperial interests, and consonant with her high traditions. ALDENHAM, President. H. E. GEENFELL, Chairman of General Council. EOBEET BAECLAY, Chairman of Executive Council. HEEBEET C. GIBBS, Vice-Chairman of Executive Council. W. H. HOULDSWOETH, Chairman of Parliamentary Committee. HENEY MoNIEL, General Secretary. 29 CoBNHiLL, London, E.G. nth April, 1896. J