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THE DEPRECIATION OF SILVER 
 
SOME ARTICLES 
 
 ON THE 
 
 DEPRECIATION OF SILVER 
 
 AND ON 
 
 TOPICS CONNECTED WITH IT. 
 
 BY THE LATE 
 
 WALTER BAGEHOT. 
 
 3Rfin;intcl> front "®Sf iEconowtsf 
 
 HENRY S. KING AND CO., LONDON, 
 
 1877, 
 
 

 London : feinted at the Exeter Halt, Puisttnq Wurks, 
 18 Exeter Street, Strand, W.C. 
 
 The rights of translation and of reproduction are reserved. 
 
PREFACE 
 
 I VENTURE to bring together these articles on 
 the recent Depreciation of Silver, and on the re- 
 cent Exchanges with India, though I am well aware 
 how incomplete a view they give of the complex 
 subjects to which they relate, and how disagree- 
 able to read a collection of such papers almost 
 necessarily is. If I could, I would have rcAvritten 
 the whole of them in a more systematic form. 
 But I have no time or strength at my disposal 
 for such a task, and I am obliged, therefore, to 
 use this substitute. To elucidate some parts of 
 the chain of reasoning, I have added the evi- 
 dence which I ga^se on one or two points 
 before Mr. Goschen's Committee on the Depre- 
 ciation of Silver, last spring. But even so, there 
 is much I should wish to say in addition, both 
 in exposition and in defence of the opinions 
 which I hold. 
 
 So far as the short experience which we have 
 had goes, I think it contirms the view taken in 
 these articles. 
 
iv. Preface. 
 
 First, I consider that the rise in the price of 
 silver from 47d. last summer to 55^-d. now, sho-vvs 
 the preceding great- fall from 54|d. last February 
 to be only a momentary accident in a aew and 
 weak market, and not the permanent effect of 
 lasting causes. 
 
 Secondly, it has been proved that the dema,nd 
 for the countries which use silver as a currency 
 is stimulated by its cheapness here and in 
 America, and that this has carried off the late 
 supply. China has taken the lead in so doing, 
 mainly because she has had a better and readier 
 means of export ; but sooner or later, all other 
 silver-moneyed countries will do so, according to 
 their magnitude and opportunities. 
 
 And these are the two main propositions Avliich 
 I wish to establish. 
 
 If these are proved, the practical conclusion 
 follows that it would be absurd to make any per- 
 manent changes in our Indian currency or taxa- 
 tion, while all the facts upon which such changes 
 would be founded are changing so much and so 
 rapidly. And though this conclusion does not 
 need support, it is supported by our uncertainty 
 as to the effect of the increased Home charges of 
 our Indian Government — sometimes, fol' shortliess, 
 called the Indian " tribute " — whicli, in ft way 
 which I have tried to explain, complicates the 
 whole subject. 
 
Preface. v. 
 
 The fertility of the new silver mines in America 
 is not very elaborately examined in these articles, 
 for even yet there are no sure data for us. But 
 everything tends to show that the yield of these 
 mines is likely to be far less than what was once 
 thought, and the difficulty of obtaining exact data is 
 an additional reason for being very slow to make any 
 changes founded on an hypothesis as to the future 
 price of silver. As yet no one can prove that the 
 permanent value of silver — whether in relation to 
 gold or in relation to, commodities at large — will 
 change so much as to render any alterations 
 necessary. 
 
 [The Preface, as above -written, was sent to the printers about the 
 beginning of March. It is believed that Mi-. Bagehot at one time 
 contemplated making additions to it, but no memoranda have been 
 left explanatory of his last intentions. 
 
 Economist Office., April, 1877.] 
 
CONTENTS. 
 
 Pane. 
 CHAPTER I. 
 
 The Low Valtje op Silvee, and its Effect on India ... 1 
 
 CHAPTER n. 
 The Eemedies fob the Fall in Silver ... .,. ,., 7 
 
 CHAPTER HI. 
 
 FURTHEE SuaGESTIONR ON THE FaLL IN SiLYEE ,., ... ] .1 
 
 CHAPTER IV. 
 The Effects of the Resumption op Specie Payments in 
 
 France on the Pbice op Silver 18 
 
 CHAPTER V. 
 The Effect of a Depreciation of Silver on oue Foeeign, 
 
 and especially on oue Eastern Trade ... ... 27 
 
 CHAPTER VI. 
 The Extreme Fall in Silver, and the hasty Eemedies 
 
 Proposed 35 
 
 CHAPTER VH. 
 The Eepoet op the Committee on the Depeeoiation op 
 
 Silver 41 
 
 CHAPTER VIII. 
 The Peoposal of the Bensal Chambee op Commeece to 
 
 Suspend the Coinage op Silver in India 58 
 
 CHAPTER IX. 
 The Debate on the Indian Budget 65 
 
viii. Contents. 
 
 CHAPTER X. 
 The Difpeeent Effect on Tbade op a CHEAPHlNiNa op 
 THE Pbeoious Metals, and of a Depbboiation op 
 Inoonvebtiblb Paper 69 
 
 CHAPTER XI. 
 The Ameeican Commission on the Oueeenct la 
 
 CHAPTER Xn. 
 The Permanent Effect op an Increase op "Council 
 Bills'' on the Flow op Silver to India and upon 
 the Indian Exohan&es ... ... ... 84 
 
 CHAPTER Xlir. 
 The Effect op the "Council Bills" on the Indian 
 
 Exchanges 90 
 
 CHAPTER XIV. 
 The Minute op the Indian Government on the Depre- 
 ciation OP Silver 9C 
 
 CHAPTER XV. 
 A Proposed Eemedt for the Depreciation op the Silver 
 
 Coinage op India ... 104 
 
 CHAPTER XVI. 
 The Transition State op the Silver Market 110 
 
 CHAPTER XVII. 
 Bi-Metallism 11'4 
 
 appendix. 
 Evidence before the Select Committee on Depreciation 
 
 op Silver 121 
 
SOME ARTICLES 
 
 0^ THE DEPEECIATIOI OF SILVEE, 
 
 AND ON 
 
 TOPICS COMECTED WITH IT. 
 
 THE LOW VALUE OF SILVEE, AND ITS 
 EFFECT ON INDIA. 
 
 [Fkom the "Economist" op Pebkuaet 5, 1876.] 
 
 When the great gold discoveries were made in 
 Australia and California, most people expected that 
 there would be a more or less rapid fall in the value 
 of gold, as compared with silver. But, as a matter 
 of fact, the effect has been the reverse. The value 
 of silver as compared Avith gold was 59|d. per oz., or 
 as 1 to 15"7, in 1849 j it now is 54|d., or as 1 to 
 17"1. Not only what the best judges expected has not 
 happened, but the very contrary of it has happened. 
 And this has not been the result of any collateral 
 cause ,• it is the direct consequence of the gold dis- 
 
 B 
 
2 Effect of Low Value of Silver on India. 
 
 coveries themselves. The effect of these discoveries 
 has been a great improvement in the currencies of 
 the world, which, without them, would not have been 
 possible. The countries of great commerce and large 
 transactions require a more valuable medium of ex- 
 change, bulk for bulk, than countries of petty trade 
 and minor transactions. The labour of paying 
 £1,000,000 in sovereigns is only a tenth of that of 
 paying it in rupees, and therefore where millions 
 have to be paid sovereigns are a ten times better 
 currency than rupees. Gold is much the best cur- 
 rency for rich nations of large trade ; though silver 
 does well enough, and is in some respects most 
 suitable, for poor nations of little trade. But thirty 
 years ago it would not have been possible for the 
 nations of great commerce to have adopted this best 
 currency. There would not have been gold enough 
 obtainable. The supply from the mines was then 
 barely sufficient to maintain the existing gold cur- 
 rencies ; it would have been entirely insufficient for 
 establishing new currencies on a large scale. No 
 one then would ever have dreamed of proposing it. 
 But, as we all know, Germany has just now tried the 
 experiment on a great scale. She is buying gold, 
 and selling off her silver. And in consequence silver 
 is cheaper than it has ever been before. 
 
 Probably, if there were gold enough for all the 
 world, it would be best that there should be only a 
 single standard of value thoughout the world, and 
 that one— gold. But this is impossible. Some have 
 doubted whether there is gold enough even for the 
 nations which now intend to use it ; and there cer- 
 tainly is not enough for all the world. Happily, the 
 
Effect of Low Value of Silver on India. 3 
 
 East has always been a country which had much 
 silver, and for whose purposes silver was quite suffi- 
 cient. The transactions of the East are smalL in 
 comparison with those of the West, and therefore a 
 bulky paying medium is not so inconvenient there as 
 it would be here. Since economical history has been 
 written silver has been always sent from Europe to 
 China, India, and the richer parts of the East, and 
 never more so than in our own time. The payments 
 of England in silver to India during the cotton 
 famine were probably the greatest cash payments 
 ever made in so short a time by one country to 
 another. There is therefore in the end a certain 
 market for the silver displaced from Europe; it will 
 ultimately go, as the rest has gone, to the East, 
 where it is the ancient and the best-attainable paying 
 medium. 
 
 But for the moment there is a difficulty in disposing 
 of silver. There is lio new sudden demand for it in 
 the East. The case is not like that of the cotton 
 famine. Then we had incurred a large debt to India, 
 and we had to pay it in the only currency which she 
 would take. We had to find an immense quantity 
 of silver on a sudden, and France — owing to the 
 peculiar operation of her double standard — found it 
 for us. But now there is no such debt; the present 
 problem is not to find the silver, but to find the use 
 for the silver. And this is a slower process. 
 
 Sooner or later, however, the ordinary laws that 
 govern foreign exchanges will do it for us. The 
 consequence of the low value of silver is that the 
 rate of exchange is now Is. 9|d. per rupee (or less), 
 the lowest, or almost the lowest, ever known. And 
 
 b2 
 
4 Effect of Low Value of Silver on India. 
 
 this operates as a direct discouragement to ship 
 goods to India. These goods are paid for in rupees, 
 and when the merchant wants to bring home those 
 rupees to England he finds that they do not go so 
 far as they used to do. He has to pay much more 
 for every £1,000 bill on England, and this extra 
 cost destroys or diminishes his profit. 
 
 Secondly, the same state of the exchanges is a 
 direct premium on sending goods from India to 
 England. £1,000 received for those goods here will 
 go further in buying bills on India than it used to 
 do ; in plain English, it will lay down more rupees 
 at Calcutta in the same time than formerly, and 
 this increase is so much extra profit. By this com- 
 bination, therefore, exports from India increasing on 
 one hand, and imports into India diminishing on the 
 other hand, before long a large void will be created, 
 which this silver, set free from Germany, will have 
 to fill. The process will take time, but the efi"ect is 
 inevitable. The tendency of this great import of 
 silver into India will be of course to raise prices, but 
 the degree in which it will have that effect will 
 depend on the degree in which it is counteracted by 
 the causes which have intercepted its effect before — 
 the hoarding habits of the people ; the use of silver 
 in ornaments (the ornaments being a sort of reserve 
 fund to be sold in difficulty) ; the greater extension 
 of silver in rude districts, where barter is still much 
 used ; and the general increase of trade, which rising 
 prices always tend to quicken and develop. 
 
 When this rise of prices has taken place, the en- 
 couragement to exports from and discouragement of 
 imports into India will manifestly cease. The value 
 
Effect of Low .Value of Silver on India. 5 
 
 of the rupee at Calcutta, as against bills on England, 
 may remain as it is now ; but the diminution of that 
 value as compared with former times will be com- 
 pensated by the grea,ter number of rupees which the 
 English exporter to India obtains for the goods 
 which he sells there. The value of the £1,000 in 
 London in purchasing bills payable on India in 
 rupees may be as unusually great as now, if we com- 
 pare it with the past, but there will be a correspond- 
 ing difficulty in obtaining the £1,000 in London. 
 The merchant in India will have to pay more for the 
 goods which he sends to London, and in the end this 
 loss will be equal to the other gain. 
 
 If new silver should still continue to come into 
 the market the same process must go on. The first 
 step must be incessantly repeated. The value of the 
 rupee must fall as against sterling money ; instead 
 of being Is. Ud., it may fall to Is. 6d. And then, 
 mutatis mutandis, what we have just described as 
 happening will happen again. 
 
 The eflfect, therefore, of the fall in the value of 
 silver on the trade of India will be temporary only, 
 but its effect on the financial position of the Indian 
 Government will continue as long as the fall lasts. 
 The Indian revenue is received in silver, and, there- 
 fore, the less far silver goes in buying, the poorer 
 will the Indian Government be. And this is of more 
 instant importance to the Indian Government than 
 almost any other, because its foreign payments exceed 
 those of most Governments, and those payments are 
 made in gold. It has to pay interest in gold on a 
 very large debt in England, to pay home salaries, 
 maintain home dep6ts, and buy English goods and 
 
6 Effect of Low Value of Silver on India. 
 
 stores all in gold; and the less valuable silver is in 
 comparison with gold, the less effectual for these 
 necessary purposes will the Indian revenue be. 
 
 On one species of its debt the Indian Government 
 will, indeed, not lose. The interest upon rupee 
 paper is payable in rupees in Calcutta, and therefore 
 the diminution in the value of the rupee is a loss to 
 the creditor who receives, and not to the Govern- 
 ment which pays. 
 
 How long the fall in the value of silver will 
 continue no one can say. In the last resort, and 
 taking great intervals of time into the reckoning, the 
 relative value of gold and silver will be determined 
 by their cost of production; but in the case of 
 articles so durable, and so Uable to be affected by 
 political events like changes in coinage, it is difficult 
 to say how long an average must be taken in order 
 to exhibit distinctly this final result. 
 
n. 
 
 THE EEMEDIES FOE THE FALL IN SILVER. 
 
 [From the " Economist " op March 4, 1876.] 
 
 The fall in the value of silver, of which we spoke 
 weeks since, and which- has attracted so much atten- 
 tion, proceeds from three causes. First, the actijal 
 increase of the production of silver, especially in 
 America, the extent of which is very considerable, 
 as will be seen by the figures we give below ; 
 secondly, the amount of silver which has been set 
 free by the German coinage operations, and has been 
 sold here and elsewhere ; and, lastly, the perturbed 
 state of men's minds, which is consequent on these 
 events. So large an increase of the supply makes 
 dealers fear a still larger further increase, and there- 
 fore they do not wish to buy, and do not care to 
 hold. When markets are in this temper speculations 
 are for the fall, and not for the rise, and therefore 
 there is just now a disposision to " bear " silver and 
 to force its price down. Over and above the proper 
 effect of the causes in operation, there is an addi- 
 tional effect consequent on apprehensive opinion. 
 
 The evils of the fall thus caused are two, and both 
 of great importance. First, our English exporters 
 to India and the East find their profits diminished or 
 changed into a loss. They are paid in silver, which 
 is the currency of those countries, but when they 
 
 7 
 
8 The Remedies for the Fall in Silver. 
 
 bring that silver home and turn it into gold, which 
 is our currency, they find it is not worth nearly so 
 much as it used to be, and this diminution is so 
 much loss to them. In the presence of stagnant and 
 unprofitable trade, such a sudden change for the 
 worse is not easily borne, and its effect, as is usual 
 in such cases, will be propagated through other 
 trades. Secondly, the Indian revenue is received in 
 silver, and the Indian Government, which has to 
 send some £15,000,000 home annually, for interest 
 on its debt and other purposes, finds, in the same 
 way, that the drafts from England on India, by which 
 the remittance is effected, will not go as far as they 
 used to do. 
 
 In the end, as we before showed, this fall in 
 silver will work its own cure. Every country is 
 bound to take any quantity of its own money in 
 payment for debts due to it. As has been just 
 explained, imports into India are no longer profitable ; 
 and by the converse operation of the same causes, 
 exports from India have become more profitable 
 than usual. The silver price of Indian commodities 
 in India has not as yet risen much, though silver has 
 fallen here as compared with gold, and there is, 
 therefore, more profit than there was in exporting 
 them. They can be bought with the same sum in 
 silver, and that silver can be obtained more easily. 
 The balance of trade will thus be, as the old writers 
 used to count, constantly very favourable to India ; 
 silver will be necessarily sent thither, and the prices 
 there will rise. As far as commerce is concerned, at 
 a certain time everything will be as it was before the 
 fall began. The imports into India will be as profit- 
 
The Remedies for the Fall in Silver. I 
 
 able as before, because the silver prices in India will 
 have risen as much as silver has fallen in relation to 
 gold, and the exports from India for the same 
 reason, turned the other way, will not be more 
 profitable than usual. The equation of trade, as 
 theoretical writers term it, will be as before. And if 
 the Indian Government were like most Governments, 
 its position also would not be altered. As its taxes 
 were paid in a medium of less value as compared 
 with commodities, it must raise its taxes by an 
 equivalent amount. But, unhappily, the position of 
 the Indian Government is peculiar. The best por- 
 tion of its revenue is derived from rent, and not 
 from taxation, and that rent is fixed for stated 
 periods — usually thirty years — in advance. On the 
 £■2 1^000,000 which the Indian Government thus 
 receives there will be a loss, which it will have to 
 make good by some financial expedient ; and, as we 
 well know, financial expedients are not so easy in 
 India as they are in England. Still, such is the 
 natural effect of these economical causes, and such 
 the ultimate cure for the evils which are due to 
 them. 
 
 As usual, however, other cures are suggested 
 which, it is said, will be less painful and quicker — 
 one is that the Indian Government should demonetise 
 silver, as the Germans have been doing, and adopt a 
 gold standard. Biit in this case the remedy would 
 be worse than the disease. We all know Avhat the 
 Germans have had to do, and how painful its effect 
 upon us has been. They have had to buy gold to 
 substitute for that silver, and the result has been an 
 unusual disturbance of the London market, with 
 
,10 The Remedies for the Fall in Silver. 
 
 sometimes very high rates of discount; nor is the 
 operation yet complete. But the effect of a similar 
 operation in India upon vis would be altogether 
 greater and more disturbing, because the Indian 
 silver currency is so very much greater than the 
 German. To get gold enough to supply the place of 
 all this silver the Indian Government would have to 
 buy constantly all the supplies from the gold mines 
 for years, and so straighten incalculably the growing 
 money markets of the world. And then what is the 
 Indian Government to do with the silver ? The sales 
 of the German Government have greatly helped to 
 send the price down already; the Indian sales would 
 be on a much greater scale, and would come upon 
 the market just when the supplies from the new 
 American mines Avere arriving also. So much silver 
 could scarcely be sold at all ; the best result to the 
 Indian Government from this expedient would be 
 far worse than anything which it is enduring now by 
 letting things take their course — besides the disturb- 
 ance to the London and other money markets. 
 
 Secondly, it is suggested that the German Govern- 
 ment should not sell any more silver, and so not 
 reduce the price. But we may be sure that the 
 German Government wiU be guided, as in such a case 
 it ought to be, by a regard to its own interest. When 
 it thinks it best to sell it will sell. Like any other 
 holder of silver, it loses much interest by keeping 
 very large sums ; and looking to the possible magni- 
 tude of the American supply, it will probably not 
 wish to incur for certain that great present loss at 
 the risk also of a still further loss by depreciation. 
 We cannot control the German Government; it 
 
TJie Remedies for the Fall i?i Silver. 11 
 
 will act for its own interest, and it is best ttat it 
 should. 
 
 Thirdly, it is said tliat our Government should 
 oeasc to draw biHs on India. And our Government 
 is quite right in doing so at the present moment. 
 There is, as we said before, at present in our judg- 
 ment an apprehensive opinion which exaggerates the 
 effect of the real causes at work — and also, as we are 
 inclined to believe, speculation acting on and aggra- 
 vating that opinion. In such a state of the market 
 the Indian Government is quite right in doing as 
 little as it can, and it would do ill to hurry to incur 
 a loss which may be saved. But sooner or later it 
 must bring the necessary sums home from India, and 
 must bear whatever loss accompanies its so doing. 
 
 Fourthly, it is suggested by M. Cernuschi, the 
 eminent. French economist, that England, which was 
 the first country to adopt the single gold standard, 
 should take the initiative in abandoning it ; that it 
 should give up the present silver-token currency, and 
 instead, " coin pounds sterling of silver in pieces of 
 four shillings, and, concurrently with gold, put 
 them into circulation." But the English Govern- 
 ment and nation wiU not easily be persuaded to 
 abandon the monetary policy which they invented, 
 and which on the whole has been so successful, just 
 when all other nations are adopting it. The loss of 
 profit on our present gold circulation, the cost of 
 selling it and substituting a silver currency, are in 
 themselves very considerable objections. It would 
 take a very much greater evil than we, or than India, 
 now feel from the present depreciation of silver, to 
 outweigh them. The moment, too, would seem to 
 
12 Tlie Remedies for the Fall in Silver. 
 
 the practical English sense most ill-chosen to choose 
 to coin silver as a concurrent medium with gold, 
 and therefore necessarily in a fixed relation with 
 gold, just when silver is falling in value, and when 
 we are not sure what its relation to gold will be. 
 Monsieur Cernuschi speaks of the " universality of 
 the 15^." "Since 1803," he says, "the silver 
 franc has weighed 15 J francs of gold, and the silver 
 marc now weighs 15j marcs of gold," and he would 
 have us coin on this assumption, and in this pro- 
 portion. But the actual question is whether, in the 
 face of the new and cheap supplies now brought 
 from the American mines, this proportion can be 
 maintained. Even if the best theoretical arguments 
 could be urged for this proposal, it would for many 
 years seem a paradox to our straightforward English 
 minds, and they would be very slow to decide on 
 adopting it. 
 
 But we think the theoretical argument is the other 
 way, that it is in favour of our present English 
 coinage, and not of M. Cernuschi's proposed substi- 
 tute. "We differ from him on a fundamental point 
 of principle. He says that "the cost of production 
 does not determine the value of gold and silver. 
 That value is determined by two elements — the 
 employment and the quantity." But we say, on 
 the other hand, that the value of gold and silver is 
 determined by their cost of production, just like that 
 of all other things ; that in their case — as in all other 
 cases — what is more cheaply produced than usual 
 will be more plentifully produced than usual, and 
 that the purchasing power in consequence will be no 
 doubt less. Being durable articles, gold and silver 
 
The Remedies for the Fall in Silver. 13 
 
 are articles stable in general, though not always, in 
 value, as compared with other things, and a change 
 in their cost of production does not so soon aiFect 
 their value as a corresponding change in the cost of 
 other commodities affects theirs. But the delay does not 
 impair the principle ; in the end, its effects will come. 
 
 The same causes which regulate the value of gold 
 and silver as respects other things determine, as we 
 believe, their value relatively to each other, and, 
 therefore, as the circumstances of production of both 
 are constantly changing, it is contrary to principle to 
 make, or attempt to make by law, a fixed equation 
 between them. So far, therefore, from M. Cer- 
 nuschi's proposal being recommended by abstract 
 argument, we think such argument forbids it, as well 
 as its unlikely look, which, for a long tiiue, will have 
 as much or more effect on most English minds than 
 any argument. 
 
 Lastly, M. Cernuschi recommends that Germany 
 and Holland, which are in the course of demonetising 
 their silver, though at very different stages, should 
 carefully, consider before they go any further. And 
 we do not feel able to say what effect this present 
 fall in the price of silver should have on their present 
 plans. All changes in currency are delicate things, 
 and we quite admit — indeed, we have often before 
 maintained — that this is a particularly delicate one. 
 
 But these are considerations for foreign Govern- 
 ments only. For our own Government and that of 
 British India, we believe that there is no other policy 
 possible except to leave the ordinary economi-cal 
 causes to operate — to suffer the present evil, and to 
 await the ultimate cure. 
 
14 
 
 Tlie Remedies for the Fall in Silver. 
 
 Estimate of Silver Peodttot op the United States (converting 
 the Dollars into Sterling at 4s. each). 
 
 From 1849 to 1858, £10,000 per annum 100,000 
 
 1859 
 
 20,000 
 
 1860 
 
 30,000 
 
 1861 
 
 400,000 
 
 1862 
 
 900,000 
 
 1863 
 
 . 1,700,000 
 
 1864 
 
 . 2,200,000 
 
 1865 
 
 . 2,250,000 
 
 1866 
 
 . 2,000,000 
 
 1867 
 
 . 2,700,000 
 
 1868 
 
 . 2,400,000 
 
 1869 
 
 . 2,400,000 
 
 1870 
 
 . 3,200,000 
 
 1871 
 
 . 4,600,000 
 
 1872 
 
 . 5,750,000 
 
 1873 
 
 . 7,150,000 
 
 1874 (about) 
 
 . 7,000,000 
 
 The above figures are taken from the Eeports of the United States 
 Director of the Mint. 
 
m. 
 
 FUETHER SUGGESTIONS ON THE FALL 
 IN SILVEE. 
 
 [Fkom the "Economist" op Makch 11, 1876.] 
 
 The grave difficulties which the Indian Govern- 
 ment finds in consequence of the fall in silver, and 
 the much graver ones which it has to apprehend 
 if that fall goes further and further, have naturally 
 led to various suggestions, two of which are im- 
 portant enough to deserve notice. First, it has been 
 suggested that the Indian Government should com- 
 pel the ryots to pay the land-revenue in gold at a 
 fixed rate of exchange, say, 10 rupees to the sovereign, 
 and it has been thought we shall so obtain most of 
 the advantages of the demonetisation of silver without 
 any of the disadvantages. But this we believe to 
 be a mistake. The measure, in the first place, 
 would augment the depreciation of silver as com- 
 pared with gold. Silver is at present the medium in 
 which the land-revenue is paid ; if it is excluded 
 from that class of payments and gold substituted, the 
 rejected metal Avill fall and the adopted one rise in 
 comparative value. The ryot who has silver ready 
 to pay his land-tax, finding that silver useless, must 
 exchange it for gold, and an inqessant series of such 
 transactions would augment the depreciation which 
 
 is complained of. 
 
 15 
 
16 Further Suggestions on the Fall in Silver. 
 
 Secondly, the ryot would complain, and justly, of 
 breach of contract. The Government agreed with 
 him to take so much silver for so many years, but 
 now, in effect, it says it must have so much more 
 silver. Suppose the silver rupee were only equal to 
 Is. 8d. in gold, and you make him find gold at 2s. a 
 rupee ; this is equal to an addition of one-sixth to his 
 taxation, and this will be a great hardship. If, 
 indeed, the prices which the ryot gets for his com- 
 modities in silver had risen, he would be benefited as 
 much as he lost, but as yet this is not so. The effect 
 upon the relation of silver to gold has been much 
 quicker than that upon the silver prices of miscella- 
 neous commodities, and it would be a severe tyranny 
 and real breach of faith, to increase the stated land- 
 tax upon the ryot when his means of paying that 
 tax had not been augmented. 
 
 Thirdly, the Indian creditors of the Government, 
 who are paid in silver, would say that their contract 
 ought to be put on the same footing as the ryot's 
 contract; that as he is to pay in gold, at a fixed 
 rate, so ought they to be paid. And their case will 
 be stronger, because, as we have seen, the deprecia- 
 tion of silver will be increased by this action of the 
 Government; and, therefore, its creditors may justly 
 claim not to suffer by that which is, in part, at least, 
 the act of their own debtor. 
 
 Fourthly, the officials of the Indian Government 
 will at once say that they ought to be paid in gold 
 too, at a fixed rate. And there would be a real 
 claim to it as far as the English officials are con- 
 cerned, for they are in much the same position as 
 the Government ; they have to make large remit- 
 
Further Suggestions on the Fall in Silver. 17 
 
 tances to England for the inveatments of their 
 savings, and often for the maintenance of their 
 families. The prospect of making these savings has 
 very much induced them to go to India, and, there- 
 fore, it would be unfair by any act of Government 
 materially to lessen their power of making them. 
 
 Other objections might be urged, but these are, 
 we think, enough to show that the plan cannot be 
 adopted. 
 
 The second scheme is even less plausible ; indeed, 
 we notice it rather because it has been spoken of in 
 the market than for any merit it has. It is that the 
 English Government should abstain from drawing 
 on India, and should negotiate a loan in London. 
 But this would only augment the evil, for the 
 interest on the new loan would have to be paid in 
 gold, and would be so much more if the gold was to 
 be bought by the Indian Government in depreciated 
 silver. 
 
 In so far as the evil is real there is, as we before 
 showed, nothing to be done, except to endure the 
 evil for the present, and to have confidence that the 
 slow action of economical causes will in the end cure 
 it. How far the present apprehensions are well 
 grounded, and in what proportion on the contrary 
 exaggerated, it would be as yet very premature to 
 give an opinion. 
 
IV. 
 
 THE EFFECTS OF THE EESUMPTION OF 
 SPECIE PAYMENTS IN FEANCE ON THE 
 PRICE OF SILVER. 
 
 [From the "Ecokomist" 0¥ Makch 18, 1876.] 
 
 The increased supply of silver from the American 
 mines, the amount of it thrown on the market by the 
 coinage operations of Germany, and the consequent 
 fall in its value as compared ■s^ith gold, have all been 
 much discussed ; but there is another event which will 
 have a great eflfect on the matter, and Avhich must 
 sooner or later happen, that has not received at all 
 equal attention, viz., the resumption of specie payments 
 by the Bank of France. The result of this, unless a 
 change in the French coinage law is made, will be, 
 we think, considerably to raise the price of silver as 
 compared with gold, just as the result of the other 
 causes which have been mentioned has been consider- 
 ably to lower it. 
 
 Our older readers, and those of our younger ones 
 who have followed the history of the London money 
 market, Avill remember the exchange in 1860 of 
 £2,000,000 of silver by the Baiik of France for, 
 £2,000,000 of gold with the Bank of England, and 
 the interest which it excited. We then explained 
 what had happened, and the reason for it : — 
 
 18 
 
Resumption of Specie Payments in France. 19 
 
 " Why, then, do the Bank of France desire this 
 arrangement ? According to their own views, it 
 was from no uneasiness as to their position. Not- 
 withstanding the diminution in their reserve of 
 bullion, they believe that they need feel no anxiety. 
 By their last return their liabilities were : — 
 
 Notes in circulation £30,296,520 
 
 Deposits, &c 15,176,102 
 
 Total £45,472,622 
 
 and their reserve was more than £17,000,000, and 
 they consider that this is amply sufficient. 
 
 "The difficulty of the Bank of France, it is said, 
 is not the amount of bullion they hold, but the 
 nature of that bullion. In their seventeen millions, 
 the proportions are in round numbers : — 
 
 Gold £4,000,000 
 
 Silver 13,000,000 
 
 Total £17,000,000 
 
 And under the French currency laws this is not 
 satisfactory. The Bank of France, for very sufficient 
 reasons, prefer discharging their liabilities in gold 
 instead of in silver. If they were to pay a noteholder 
 £1,000 in silver, he could immediately sell the silver 
 in the market for gold, and gain a substantial 
 premium by the transaction. Accordingly the 
 managers of the Bank of France apprehend that if 
 they began to discharge their liabilities in silver, 
 there would be a run upon them immediately for the 
 sake of this premium. ' If every noteholder knew 
 that he could obtain an appreciable per-centage on 
 
 C 2 
 
20 Anticipated Resumption of 
 
 his note by getting it changed, depend on it,' they 
 say, ' he will get ifr changed. The same causes which 
 have drained the rest of France of silver (except for 
 the smallest purposes, and of insufficient quantities 
 even for those purposes) would begin to act upon us 
 also ; in a short time we should be drained of the 
 whole of our thirteen millions of silver.' And this, 
 they say, is the reason for their proposing this 
 anomalous arrangement to the Directors of the Bank 
 of England. 
 
 " One remark must occur to every one when he 
 hears this reasoning. It is the remark that no bank 
 ever ought to be in this position. There must be 
 some fault somewhere; there must either be bad 
 management or bad legislation ; there must be some 
 peculiar error, or there could hardly be so peculiar a 
 perplexity. For what is the allegation ? The Bank 
 of France say we have a large reserve, but it is not 
 the kind of reserve Ave want. It is in the wrong 
 metal ; it is not gold, but silver. The alternative is 
 irresistible that either the Directors of the Bank have 
 themselves made an error in hoarding a reserve in the 
 wrong metal, or that circumstances beyond their 
 power have forced upon them a hoard which they 
 find they cannot use. They have a useless reserve, 
 they themselves tell us ; either, therefore, they have 
 voluntarily selected it — in which case they are to 
 blame ; or it has, by an unfortunate necessity, been 
 forced upon them — in which case they are not to 
 blame. 
 
 " Nor is this the only remark which must imme- 
 diately be made. There is another very obvious but 
 very important one. This useless reserve is a misfor- 
 
Specie Payments in France. 21 
 
 tune, not to the Bank of France only, not to the French 
 only, but to us also, to Europe, and to the whole 
 monetary world. We have thirteen millions sterling 
 thus locked away in a great banking establishment, 
 which does not dare to use any part of that sum, for 
 fear it may be deprived of all of it ; and we have 
 all been sufferers in consequence. The French 
 demand for gold has been disturbing us for several 
 weeks. 
 
 " In truth the entire difficulty is caused by the 
 French currency laws. There has been a question 
 whether there is a double standard of value in 
 France, and we will not, therefore, use the phrase, 
 but there is indisputably a double paying medium. 
 Both gold and silver circulate in France ; both are 
 legal tenders to any amount; and there is a fixed 
 relation between them. A certain quantity of silver 
 by law will pay a debt of 1,000 francs, and a certain 
 quantity of gold will pay it also. One effect of this 
 twofold currency has been often pointed out. The 
 metal which is relatively depreciated will come into 
 exclusive use; people will pay their debts in the 
 least valuable metal, not in the most valuable ; in the 
 medium which they can obtain most easily, not in the 
 medium which they obtain less easily. But we have 
 now to remark a different effect. Some of the holders 
 of the more valuable metal may be in a difficulty. 
 If they are bound to pay either the less or the more 
 valuable metal to their creditors, and they have not 
 the former, they must use the latter. In consequence, 
 in a country where two metals are a paying medium, 
 those bankers who store up either metal for the 
 necessary purposes of their business run a great risk. 
 
22 AnUcipated Resumption of 
 
 If it increases in value, there may be a run upon 
 
 them, not because their credit is impaired, but because 
 
 the metal they have chosen is desired."* 
 
 And the same cause will act on the Bank of France 
 
 as soon as it resumes specie payments. The Bank of 
 
 France holds now over £70,000,000 in the precious 
 
 metals, and it is known that gold preponderates 
 
 largely. Roughly, it is said that the proportions 
 
 are — 
 
 Gold £50,000,000 
 
 SUver 20,000,000 
 
 Total £70,000,000 
 
 And here, just as in 1860, the principal component 
 in the reserve is the comparatively appreciated metal. 
 The metals have, indeed, changed places ; in 1860 the 
 metal which had augmented in value was silver ; now 
 the metal which has increased in value is gold. But 
 the position of the Bank of France is for the purpose 
 now in hand identical. It now holds an enormous 
 amount of gold, which it would be dangerous to pay 
 away; just as in 1860 it held a much smaller, though 
 still considerable, amount of silver, to pay away 
 which would have been equally dangerous. 
 
 The basis of the difficulty is that the French Mint 
 coins the two metals thus — 
 
 One kilogramme weight of gold ... ... 8,100 francs. 
 
 » » ,5 silver 200 „ 
 
 — or in the proportion of 15^. But this is not the 
 real proportion of the market value. 15^ is equiva- 
 lent to about 60|d. for an ounce of silver, whereas 
 the market price is now 54|;d. The laAv having fixed 
 
 * See Economist, November 24, 1860, pp. 1301-2, 
 
Specie Payments in France. 23 
 
 an equation, bankers will always be in difficulty when 
 the facts with which they must deal do not corre- 
 spond to that equation. 
 
 Of course, as long as the Bank of France suspends 
 specie payments it does not feel this difficulty. If 
 we may be permitted to say so, it is on a lower level 
 altogether. It is not perplexed, by the possibility of 
 having to pay in the appreciated metal, for it does 
 not, except in minor sums and when it chooses, pay 
 in any metal. But as soon as the Bank of France 
 performs its legal obligations, the problem which the 
 defective currency system of France sets before it 
 must be solved. There is, indeed, one obvious mode 
 of solving it. There is something very singular in a 
 difficulty which is caused by holding a commodity 
 which has enhanced in value. The obvious remedy 
 is to sell it in the market, and to obtain the advantage 
 of that value. If the Bank of France could seU its 
 gold for silver at the present price, *it would get a 
 large profit ; it would have done a capital bullion 
 transaction on a magnificent scale, and the share- 
 holders would be large gainers in consequence. In 
 1860, the Emperor Napoleon, to whom the accounts of 
 the Bank of France were then constantly submitted, 
 would not permit this natural remedy to be tried, 
 and, therefore, the Bank of France had to forego the 
 profit, and to change away the dearer metal with the 
 Bank of England. But now there can be no choice; 
 the sums to be dealt with are so large that no such 
 palliative by exchange can be thought of If cash 
 payments are to be resumed in France, large sales of 
 gold for silver must precede and accompany the 
 resumption. ' 
 
24 Aniidpated Resumption of 
 
 And the effect of sucla sales will, of course, be to 
 raise the price of silver as compared with gold. The 
 circumstances of the Bank of France will make the 
 possession of much silver constantly essential to it, 
 and the effect of this new large demand will be a 
 rise of price. 
 
 The only alternative is the demonetisation of sil- 
 ver, and if this could be effected, it would give France 
 a currency much better than the present one, according 
 to our notions. The Jz-metallic system is, we think, 
 condemned by the very discussion in which we are 
 engaged, for the perplexities which that system 
 entails on the Bank of France are the evils of which 
 we are seeking the remedy. But it may be doubted 
 whether France is now prepared to abandon this 
 system. It would be a very costly operation. The 
 amount of five-franc pieces hoarded in France is 
 probably very large, and if they are to be demone- 
 tised, gold must be substituted for them, which, as 
 the example of Germany shows us, is no easy thing 
 to do. Moreover, till 1880, France is bound by a 
 monetary convention with Italy, Switzerland, and 
 Belgium, and can only change as they like. Even 
 after 1880, France would not like to abandon the 
 " Latin Union," as it is called, which is economically 
 convenient — which is her creation, for it is an 
 adoption of the money she desired, and in which 
 she takes a political pride. Probably, if silver is 
 demonetised at all, it will be so at once, not only in 
 France, but in all those other States, which will be 
 ditficult to arrange, and costly to effect. And it 
 will not have the united support of theoretical 
 opinion, for many Continental — and especially 
 
Specie Payments in France. 25 
 
 French — economists adhere to the two-metal plan. 
 And even strong opponents of that plan (like our- 
 selves) may well doubt whether this is the time to 
 abandon it. The Governments who do so under- 
 take, in fact, to substitute gold for silver, and just 
 now they have unusual difficulty in getting the 
 gold, and in disposing of the silver. Germany is 
 just making the substitution, and it is obviously an 
 operation in which many great nations should not 
 engage contemporaneously. An interval ought 
 rather to be left after the completion of the opera- 
 tion by one before another begins. 
 
 It is true that the demonetisation will be facilitated 
 by the clauses in the agreement of the Latin Union, 
 Avhich limit the number of silver pieces less than five- 
 francs to be coined by each State in the union, and 
 which limit the amount for which such subordinate 
 pieces are legal tender. .These pieces might, therefore, 
 still be left to circulate as token-money. But, neverthe- 
 less, the change, especially in so many States at once, 
 would be a heavy task to accompHsh, and not one 
 which it would be easy to get undertaken. And 
 failing this, there is no remedy, except the sale of 
 gold for silvei> by the Bank of France, of which we 
 have spoken, so soon as a return to specie payments 
 is determined on. 
 
 It may, indeed, be suggested that the Bank of 
 France need not return to specie payments at all. 
 But we do not believe that those who have managed 
 her affairs so admirably during the last few years 
 will even consider that alternative. As bankers who 
 have promised to pay on demand, they must wish to 
 maintain their credit by so paying. And Paris can 
 
26 Resumption of Specie Payments in France. 
 
 never again be the exchange centre for Europe which 
 it used to be, and which many concurring circum- 
 stances render it convenient for it to be, while bills 
 on Paris are paid in a purely local medium like the 
 paper of the Bank of France, and not in the precious 
 metals, which are the money of aU the world. 
 
 Sooner or later, therefore, we have no doubt that 
 the Bank of France wiU resume specie payments, and 
 then, unless the fundamental basis of the French 
 currency law shall have been first changed, there 
 will be a very material rise in the value of silver as 
 compared with gold. 
 
V. 
 
 THE EFFECT OF A DEPEEOIATION OF SILVEE 
 ON OUR FOEEIGN, AND ESPEOIALLY ON 
 OUE EASTEEN TEADE. 
 
 [From ihe "Economist" oe May 6, 1876.] 
 
 That the depreciation of silver as compared with 
 gold, which has already begun, and of which we can- 
 not yet predict the final amount, is unfavourable to 
 the Indian Government, is plain. That Government 
 receives- a revenue in silver which it cannot easily 
 augment, and it has to find annually, for the interest 
 on its Debt and for home expenses, a large sum of 
 gold in London. Whatever lessens the value of silver 
 as compared with gold is therefore very disad- 
 vantageous to it. And whatever does so is also detri- 
 mental to the holders of Indian or other securities of 
 which the interest is paid in silver. But it is only 
 States or persons in this position — that is, those in 
 receipt of a more or less fixed sum in silver — who 
 will permanently be aff'ected by it. After the depre- 
 ciation of silver has attained its limit trade will be 
 exactly where it is now, and though during the pro- 
 cess there will be much unsatisfactory uncertainty in 
 the trades with the countries whose prices are in sil-, 
 vei", and though in some parts our trade AVill probably 
 isuffer, yet othei" parts will as probably be benefited ,• 
 
 27 
 
28 Effect on Foreign Trade of Fall in Silver. 
 
 and therefore this change, though like all changes in 
 the value of a currency, a troublesome burthen, is, 
 nevertheless, not an evil of the first magnitude, or at 
 all hkely to produce the disastrous effects, on English 
 commerce especially, which we sometimes see ex- 
 pected from it. 
 
 We must remember that sUver is still practically 
 the main currency of a very large part of the world. 
 The whole of the East uses it, not indeed to the 
 entire exclusion of gold, but still much more than 
 gold. It suits the minuteness of the payments which 
 in Oriental countries, and in all countries in which 
 there is no credit, of necessity make up almost the 
 whole of the daily transactions which carry on com- 
 mon life, and for which the smallest gold coin that 
 can be safely and economically used is very many 
 times too great. Over the vast area of the backward 
 pale of the world an incalculable quantity of silver 
 is now scattered, doing the work of daily life, and 
 doing it almost to the exclusion of all other cur- 
 rencies. And we must remember, too, that with this 
 currency, as with all others, the^efficiency depends on 
 the value. The more things a rupee exchanges for, 
 the fewer rupees wiU be necessary to do the Avork of 
 India. A change of 10 per cent, in the purchasing 
 power of silver would make 10 per cent, more silver 
 necessary in each of these countries ; and though we 
 do not know what 10 per cent, would amount to, 
 because we really cannot tell even approximately the 
 quantity of silver circulating in those countries, yet 
 we see that^t must amount to something very large, 
 for that present circulation must be reckoned by 
 hundreds of millions. To make a permanent change 
 
Effect on Foreign Trade of Fall in Silver. 29 
 
 even of small amount in tlie purchasing power of 
 silver throughout the world is a most costly matter, 
 requiring much time. No commodity is of so stable 
 a value as a great deal of money diffused over many 
 countries, because as soon as you diminish that value 
 even a little, you augment the quantity required in- 
 definitely. In this case, far more than in any other, 
 an addition to the supply of itself generates an addi- 
 tion to the demand. 
 
 And a depreciation of such money is necessarily 
 diffused with more or less rapidity through the 
 various nations who use it. A local congestion, so 
 to speaky is impossible. The laws which distribute 
 the precious metals over the world will gradually 
 lessen the value in all of them, if it is greatly and 
 suddenly lowered in any one. There is a steady 
 tendency to take such a commodity from the country 
 where its purchasing power is small to those in which 
 its purchasing power is great, and, in that way this 
 power settles in all countries at its level. 
 
 Such a change in the value of a metallic money 
 will even generate a new trade between countries 
 which had none before. The discovery of gold in 
 Australia and California gave those countries a buy- 
 ing power which created a great direct commerce 
 with them; the nations from whom they bought 
 obtained a buying power too ; so on with those from 
 whom they bought ; and so an unprecedented acces- 
 sion to the previous trade of the world. 
 
 It would be absurd to expect any results of similar 
 or approaching magnitude from the new silver mines 
 in America, even were their magnitude and fertility 
 many times greater than even the most sanguine 
 
30 Effect on Foreign Trade of Fall in Silver. 
 
 computers make them. But the same cardinal prin- 
 ciples will govern this smaller case which we have 
 seen govern the greater. The silver prices of all 
 articles must gradually and slowly be raised all 
 through the silver countries ; and the rise will be 
 effected the most quickly in those countries which 
 have most share in the commerce of the world, and 
 jwhich export and import most. Take the case of 
 India at this time. The depreciation of silver in 
 London is an encouragement to English capitalists 
 to buy commodities — jute, cotton, indigo, or what- 
 ever it may be — in India. Such commodities are 
 sold in rupees, that is, in silver, in the Calcutta 
 market. Now, an English capitalist must first buy 
 his rupees — for this is the real result of the more 
 complex exchange transactions — before he can 
 obtain these commodities. The cheaper, therefore, 
 he can buy such rupees the better his operation. 
 Supposing an order to buy at a given hour in the 
 Calcutta market to yield neither profit nor loss when 
 rupees were at 2s., it might yield a good profit if the 
 rupee fell to Is. 8d., because then the gold of the 
 English capitalist would go so much further in the 
 purchase of them. 
 
 The very contrary arises in the case of English 
 exports to India. The English exporter of these is 
 paid in rupees at Calcutta or Bombay, and these 
 rupees, when he brings them home to London, are 
 worth .(say) a sixth less than they used to be ; and, 
 therefore, he has a steady and certain motive not to 
 export as much as he used to do. And the sure 
 result of these two changes, of the encouragement 
 of exports from India and of the discouragement of 
 
Effect on Foreign Trade of Fall in Silver. 31 
 
 imports into India, is a flow of silver from hence 
 thither, which must ultimately raise the general 
 standard of prices there. 
 
 It may be objected that this rise of prices will be 
 an evil to India — will throw it out of the world's 
 market; that Indian cotton, for example, which has 
 thus risen in price, will not be able to compete w:ith 
 American cotton, of which the price will be unaltered. 
 But this objection is fallacious ; all which the rise of 
 prices wiU effect will be to withdraw the exceptional 
 encouragement which, as we have just explained, the 
 present state of things gives to the export of Indian 
 cotton. When silver has settled to its new level of 
 value all trade, whether of export to, or import from 
 India, will go on as it did when it was at its old value. 
 Take the case of the English importer from India, 
 silver having fallen (say) 15 per cent. In its relation 
 to gold, he will get 15 per cent, more rupees than he 
 used to do for his gold, but when he goes into the 
 Calcutta market, he will find that these rupees will 
 only purchase an equal per-centage less; his gold will 
 be neither more nor less efficient than at first, and 
 therefore he will neither be encouraged to buy nor 
 discouraged from buying. Conversely, the English 
 exporter to India will not be able to get as much 
 for the rupees for which he sells his goods, when 
 he brings those rupees home here ; but on the other 
 hand, he will have, to a corresponding extent, more 
 rupees, and therefore the final outcome of his trade 
 will not be altered. 
 
 No doubt it is true that during the process of de- 
 preciation our general export trade to some countries 
 will be under a disadvantage. We shall export to 
 
32 Effect on Foreign Trade of Fall in Silver. 
 
 them silver instead of goods ; but on the other hand, 
 certain other branches of our foreign trade will be 
 augmented. The silver which we send to India we 
 shall have sent to us from America, and we shall 
 have to pay for it. And we shall doubtless pay for 
 it in the same way that Ave pay America for the 
 rest of the commodities Avhich she sends us. Our 
 present direct trade with America stands thus : — 
 
 Export from America to England (1874) ... £73,897,000 
 „ England to America „ ... 32,238,000 
 
 Balance in favour of America... ... £41,659,000 
 
 And against this balance America draws drafts to 
 pay for what she buys in India, in China, or in 
 France, and all over the world. The trade is what 
 is called a triangular trade, because the debt due to 
 one nation is paid for, not by the nation which owes 
 it, but by some other nation or nations which are in 
 debt to that nation. The more, therefore, we aug- 
 ment our American trade, the more we shall have to 
 export in goods, not indeed wholly, or probably 
 principally, to America itself, but to other countries to 
 which she is in debt. And as America ahvays buys 
 more in the East than she sells there, curiously 
 enough one of the trades which will most likely be 
 thus stimulated is the trade with the East, which 
 from the first operation of the ncAV cause — ^by the 
 substitution of silver for goods in our direct trade — 
 has been discouraged and depressed. 
 
 The same fact may be put in another way. The 
 United States have acquired by the extraordinary 
 productiveness of their new mines of silver an aug- 
 mented purchasing power in the markets of the 
 
Effect on Foreign Trade of Fall in Silver. 33 
 
 "world. The increase of power they use in buying 
 the commodities which they wish for in the East and 
 throughout the world. But partly owing to her 
 protective system, and partly in consequence of 
 natural causes, America has no direct communi- 
 cation with the countries which produce those goods ; 
 she therefore sends the silver to England, and Eng- 
 land acts for her as a produce-broker on a vast scale 
 — both sends on the silver to the countries which 
 want it, and pays, indirectly, for what she buys to 
 the countries she buys from. That we are able so 
 to pay is one of the many instances in which, in 
 trade, most is given to those who already have most. 
 Our export trade is so much greater and so much 
 more easily augmented than that of any other 
 country, because we are able to settle any debt in 
 commodities far better than any other nation. If 
 the United States buy of nation B, B is more likely 
 to want something of England than of any one else, 
 or if, instead, B buys of C, C is so likely, and so 
 on through the alphabet, till at last you come to 
 England. Our predominant international trade 
 gives us, in a business such as this, an assured pre- 
 eminence. 
 
 This is one compensation for any evil to our 
 present export trade, which may be caused by a 
 change in the value of silver ; and another is that a 
 part of our import trade wiU, as we have seen, be 
 benefited by the same cause; which must either 
 cause — according to circumstances — increased profits 
 to our traders, or diminished prices to our consumers ; 
 and either way, be a gain. 
 
 In thus writing, we have been^ content to assume 
 
 D 
 
34 Effect on Foreign Trade of Fall in Silver. 
 
 that the American production of new silver will be 
 on the largest scale which has ever been alleged, 
 because we wanted to show how large the area of 
 silver-using countries is ; how slow, in consequence, 
 will be the process of depreciation; how much of 
 benefit, as well as of loss, there is to our trade while 
 the process is going on ; and how much commerce 
 will return to its antecedent state when the change 
 has run its course, and the depreciation has termi- 
 nated. 
 
VI. 
 
 THE EXTKEME FALL IN SILVER, AND THE 
 HASTY REMEDIES PROPOSED. 
 
 [Fkom the "Economist" op July 8, 1876.] 
 
 The report of Mr. Goschen's Committee on the 
 depreciation of silver has been laid on the table, and 
 will doubtless appear, immediately. And it is under- 
 stood to contain a most full analysis of all the causes 
 which have combined to produce this perplexing 
 event. But in the meantime the fall of the rupee to 
 Is. 6|d. at the last bidding for Council bills, and of 
 silver to 47d. per oz., have naturally caused the 
 suggestion in various quarters of various hasty 
 remedies, which can be discussed before we get the 
 report, because by the terms of their reference the 
 Committee were debarred from considering remedies, 
 and told to confine themselves to causes. 
 
 The main evils of this depreciation are two. 
 First, and most important, that the Government of 
 India receives the whole of its revenue in silver — 
 partly in land-rents fixed for considerable periods, 
 and partly in taxes which it is difficult to increase, 
 and that this Government has also of necessity to 
 find in London a very large amount in gold 
 annually; so 'that they lose a sum which, taking 
 the rupee at Is. 8d., Sir William Muir, the Indian 
 
 Finance Minister, estimated to be of most serious 
 
 35 
 
36 Tlie Extreme Fall in Silver. 
 
 magnitude, and which, now that the rupee has 
 fallen to Is. 6jd., will be considerably more. So 
 grave a misfortune has seldom happened to any 
 Government so suddenly and so completely from 
 causes out of its control. Secondly, all private 
 persons, such as the holders of rupee paper, who 
 have to receive fixed sums in silver, lose, as is 
 usual when a currency becomes depreciated. 
 Debtors gain and creditors lose in this instance, as 
 in all similar ones. The great peculiarity of the 
 case is the position of the Indian Government, which 
 has so great a burden so rapidly thrown upon it, 
 and is so little able by additional taxation with 
 equal rapidity to find means to bear it. 
 
 The remedies suggested are, first, that the Govern- 
 ment of India should demonetise silver and substitute 
 gold. But those who make this proposal cannot 
 have considered what, in practice it would involve. 
 A Government which abolishes an old money must 
 find a new one. It could not say, " Our law up to 
 the present time has made the silver rupee legal 
 tender, but we now change that, and make a gold 
 coin legal tender, which gold coin you, our subjects, 
 must find for yourselves." If the Indian Govern- 
 ment did so, the losses to its subjects would be 
 enormous. Every holder of the old coinage ■svho 
 Avanted to pay a debt would have to sell silver, 
 which is so rapidly going down, and buy gold, 
 Avhich in comparison is rapidly rising, and the loss 
 would be severe. The only way in which such an 
 operation can be eiFected, is that which the German 
 Government has lately adopted. That Government 
 bought and found the gold which was to form the 
 
The Extreme Fall m Stiver. 37 
 
 new currency, and in so far as the operation is com- 
 plete, has exchanged it for the old one. But no one 
 could now propose this to the Indian Government as 
 a means of relieving itself from financial difficulty, 
 for the cost which it would entail would be enor- 
 mous. Even with all their resources, they would 
 have great difficulty in getting the immense sum 
 required in gold, and they would hardly be able to sell 
 the silver at any price. The present position of the 
 Indian Exchequer is not good, but it is beyond com- 
 parison better than it would be if this expedient 
 were tried. 
 
 Secondly, it is suggested that we should adopt a 
 double standard for India both of gold and silver. 
 But this does not meet the difficulty. The effect of/ 
 a double standard is, at every change in the relative/ 
 value of the two metals, to fill the country with the 
 metal which is falling. France, in this Avay, was' 
 during the cotton famine cleared of a large part of 
 . her silver, and gold was substituted for it. Bullion 
 dealers sent the gold to buy the silver, and made a 
 profit of the transaction. The " bad money " always 
 drives out the "good;" and the Indian Exchequer 
 would gain nothing. The essence of the " double 
 standard " is to create two legal tenders, and give 
 the debtor the choice of paying in which he likes. 
 The Indian ryot would, of course, pay in silver, just 
 as now, and the land revenue would be as much 
 impaired for the purposes for which it is wanted, by 
 the depreciation of silver as it is at present. 
 
 Thirdly, it is suggested that the Indian Govern- 
 ment should cease to coin rupees, and that, in con- 
 sequence, though the value of uncoined silver fell. 
 
3S The Extreme Fall in Silver. 
 
 that of the coin would not fall — its supply being 
 restricted. But the effect of such a measure would 
 be to reduce the price of silver far below even its 
 present low amount, because it would stop the 
 greatest natural demand for it, by stopping additions 
 to the silver currency of India. And then the 
 difference in value between the rupee as a coin and 
 the same quantity of the uncoined silver, would be 
 much greater than it would be possible to maintain. 
 Good rupees would be a profitable article of manu- 
 facture, and would be imported largely from abroad 
 and illicitly mantifactured in India. Many Govern- 
 ments have tried a similar expedient, and have, in 
 the end, always been beaten, and obliged to keep the 
 price of their legal tender-coin near to the cost at 
 which it can be produced. But in no case would the 
 failure be so great as in that of India, because in 
 none has the experiment ever been tried on a coin 
 so important, and of so vast a circulation as the 
 rupee. 
 
 ■ The effect also would be that the difiiculty of dis- 
 posing of silver in London, and the consequent low- 
 ness of the price, would become worse and worse. 
 The natural cure for the depreciation of silver is that 
 it should be diffused over the globe, and especially 
 over the immense area in the East, and elsewhere, 
 which has a silver currency. If silver is depreciated 
 2 per cent, in all countries where it is the sole or 
 main currency, 2 per cent, more silver must be re- 
 quired, and as the amount of silver in circulation in 
 such countries is enormous, 2 per cent, upon it would 
 be a very great demand, and take out of this market 
 a very large quantity of sUver. As we have shown 
 
The Extreme Fall in Silver. 39 
 
 on a former occasion,* the laws of trade will infallibly 
 create this demand, though this action is necessarily- 
 slow. But the effect of not coining the rupee, in so 
 far as it is successful, would be to suspend them alto- 
 gether, as far as India is concerned, because it is only 
 by arresting the reduction in the exchange value of 
 the rupee that this step can help the Indian Govern- 
 ment, and that reduction is the means by which, as 
 we showed, the new course of trade is created, and 
 the increased quantity of rupees required; to do the 
 work of Indian currency after that reduction consti- 
 tutes the new demand for silver and the new use 
 of it. 
 
 The example of the States called the " Latin 
 Union " — that is, of France, Italy, Belgium, Switzer- 
 land, and Greece — ^is appealed to as a precedent for 
 this policy, since they have limited their coinage of 
 silver, as we have often explained. But their cir- 
 cumstances are very different from those of India. 
 In France, which is so much the greatest, and also 
 in Italy, inconvertible paper is really the ruling 
 currency ; it is that which settles prices, and every- 
 thing has to conform to that. And even so the 
 expedient is only regarded as a momentary one ; it 
 is acknowledged that |;he Latin Union must soon 
 either return to the double standard, and coin silver 
 without limit, or must demonetise silver altogether. 
 And if we did not coin rupees, the fall in the price 
 of silver which it would cause would probably deter- 
 mine them to decide on its demonetisationj whereas 
 it is still possible that they may return to the double 
 
 * July 8, 1876, 
 
40 The Extreme Fall in Silver. 
 
 standard, whicli would raise the price of silver more 
 than anything else. 
 
 This possible effect on the Latin Union is, how- 
 ever, but a minor reason for not thinking of this, or 
 any similar plan. The main reason is that the fall in 
 silver ^vill be greatly lessened if we allow the ordi- 
 nary action of trade to spread it through the world, 
 so that the depreciation may be everywhere alike, 
 and affect prices everywhere where silver is the 
 currency; and that all plans which impede that 
 action tend to keep the silver in this market, to 
 enhance its depreciation here, and to prevent its 
 diffusion, which is the only cure. 
 
vn. 
 
 THE EEPOET OF THE COMMITTEE ON THE 
 DEPEEOIATION OF SILVEE. 
 
 [From the " Economist " op July 15, 1876.] 
 
 The Report of the Commons Committee on thei 
 depreciation of silver is a very able document. It 
 appears to have been drawn up by the chairman, 
 Mr. Goschen, and accepted, with comparatively 
 minor amendments, by the Committee, — and it has 
 the clearness, the precision, and the great informa- , 
 tion — no matter at what labour acquired — for which 
 Mr. Goschen's writings on such subjects are remark- 
 able. The Committee was excluded, by the terms 
 of its appointment, from investigating remedies eo 
 nomine, but by describing precisely the events which 
 have happened, and analysing, as far as is possible, the 
 causes of each of those events, they have enormously 
 facilitated the discussion of future policy. In all 
 cases an accurate diagnosis of a disease must come 
 before a discussion of remedies, and in a very com- 
 plex case like this such a preliminary is especially 
 needful, or else we may find that we have been trying 
 to cure disease 'A. with medicine fit only for disease B, 
 and so have made things no better, or worse. 
 
 The most striking cause of the depreciation of 
 silver, and that which the Committee treat of first, 
 
 41 
 
42 
 
 Tlie B&port of the Silver Committee. 
 
 is the productiveness of the new mines in America. 
 And looked at in this relation, the most remarkable 
 thing about it is its rapidity. In former analogous 
 cases the effect has been muclj slower. Adam Smith 
 was of opinion that prices in England did not even 
 begin to be sensibly affected by the American mines 
 tm 1570, though the first shipments of specie were 
 made in 1502, and though the mines of Potosi— the 
 most productive of all — ^were discovered in 1542. 
 And even then the depreciation was slight, and con- 
 tinued to increase only at a slow rate for many years. 
 When gold was discovered in our own time so exten- 
 sively in California and in Australia, most persons 
 thought it would at once affect general prices. But 
 it did not. Even yet there is a controversy on the 
 subject, and though we believe that, especially since 
 Mr. Jevons' investigations, there can be little doubt 
 that a rise in gold prices has happened to some ex- 
 tent, we should not like to state its extent precisely, 
 and should fear to exaggerate it. 
 
 But now, the American mines were not much 
 heard of in this country till last autumn, and the 
 Committee tell us that the effect on the price of 
 silver has been this : — 
 
 
 d. d. 
 
 1875 Yearly average 
 
 . 561 
 
 1876 Fluctuations in Jianuaiy between . 
 
 .. 56i and 54| 
 
 „ „ February „ 
 
 .. 54f „ 53 
 
 „ „ March „ 
 
 • 54i „ 521 
 
 „ „ April „ . 
 
 .. 54 „ 53^ 
 
 „ „ May „ . 
 
 .. 54 „ 52 
 
 - » « June „ . 
 
 » 52 „ 50 
 
 and as we write it is 48d., showing a reduction of 16 
 per cent, from the average of 1875. 
 
 But we must observe that in this contrast we are 
 
Tlie Import of the Silver Committee. 43 
 
 not comparing the same tilings. This teil^le is a com- 
 parison of the price of silver with that of gold only ; 
 when we spoke of the previous discoyer;es ve spoke 
 of the general prices of ppmodities. But there is no 
 evidence whatever that general prices in any country 
 where prices are measured in silver have risen in any 
 such ratio; indeed, as we have understood, careful 
 inquiry seems to show that they have not sensibly 
 risen at all. General prices have obeyed in this case 
 the same law as in former cases; they are being acted 
 on very slowly. Ipdeed, it is evident that they must 
 be so ; if they had risen 20 per cent, over the whole 
 of the countries usiiig silver as their principal 
 currency, or over any very large part of them, 20 
 per cent, more on the silver currency used would 
 have been wanted to circulate commodities at those 
 prices, which, as there are few " economising expe- 
 dients " in such countries, would have been a very 
 large amount indeed. But no such new silver exists. 
 The Committee say : — " It is, however, an important 
 and remarkable fact, to which it may be convenient 
 to call attention at once, that though the increased 
 production of silver in the United States is a fact 
 beyond question, no actual increase in the imports of 
 silver from the United States to Great Britain has 
 taken place since the year 1873, when the average 
 price of silver was still 59|d. per oz. Indeed, the 
 amount of the imports into Great Britain from the 
 United States for the year 1875, viz., £3,092,000, is 
 the smallest gince the year 1869. In the same way, 
 though the new currency laws of Germany affected 
 p, vast silver coin^-ge, the s?des of sUver actually made 
 up to the 26th of April in the present year do not 
 
44 
 
 Tlie Report of the Silver Committee. 
 
 appear to have exceeded £6,000,000 distributed over 
 several years." 
 
 Except a small amount of silver which goes from 
 San Francisco to China direct, aU the silver which 
 leaves America comes here, and therefore it is plain 
 that no such additional silver as would be required 
 by very greatly raised prices over the large areas of 
 the East anywhere exists. General prices there have 
 not risen in any such ratio as 20 per cent. ; what has 
 alone so varied is the relation of silver to gold in the 
 London market, and in the markets guided by it. 
 
 But even this variation is most curious. Nothing 
 hke it happened when gold was discovered in 
 Australia and California. It did not fall then in 
 relation to silver at all as silver has now fallen in 
 relation to it. The course of prices then was 
 
 this : — 
 
 Per oz. — d. 
 
 ... 591 
 
 ... 59-i 
 
 ... 60tL 
 
 ... 61 
 
 ... 60^ 
 
 ... 6U 
 
 ... 6li 
 
 ... 61^ 
 
 ... 61tV 
 
 — ^which is certainly wonderfully little in comparison 
 with what we now see, though the discoveries of 
 gold then were every way as remarkable — indeed, 
 more remarkable — ^than those of silver now. The 
 difference is certainly not from any excessively 
 quick supply now. As the Committee shows, in 
 1875 the silver sent from America was less than in 
 previous years, and for the first six months of 1876 
 the figures have been these : — 
 
 In 1848 the 
 
 ave 
 
 rage price of silver was . 
 
 1849 
 
 
 t 11 ' 
 
 1850 
 
 
 t 11 
 
 1851 
 
 
 1 n ' 
 
 1852 
 
 
 1 11 * 
 
 1853 
 
 
 1 11 * 
 
 1854 
 
 
 1 11 
 
 1855 
 
 
 1 11 * 
 
 1856 
 
 
 1 H 
 
The Rejwrt of the Silver Committee. 45 
 
 Import of Silver fbom United States, 
 
 1874 (First six months) £2,046,925 
 
 1875 „ 1,293,258 
 
 1876 „ 1,293,851 
 
 — SO that, in fact, notwithstanding the great fall of 
 silver in this market, owing in great part to the 
 apprehension caused by the new mines, we have had 
 from them no extra supply as yet at all. 
 
 The explanation is that the report of this new dis- 
 covery came on a market where prices were previously 
 falling, and which was most perturbed and sensitive. 
 The Committee tell us that — 
 
 Between 1862 and 1866 the yearly average d. d. 
 
 price was between ... ... ... 62 and 61 
 
 Between 1867 and 1872 the yearly average 
 
 price was between ... ... ... 61 and 60 
 
 In 1873 the yearly average was ... ... 59J 
 
 „ 1874 „ „ 58VW 
 
 ^16 
 
 „ 1875 „ „ 56i 
 
 — showing a considerable fall. And they analyse 
 the causes which were in action, weakening the 
 temper of men's minds, and preparing them easily to 
 allow of a stiU greater fall. 
 
 The first of these is the introduction of a gold 
 currency into Germany in place of a silver one, of 
 which the report gives a very clear and consecutive 
 account. This cause, as our readers know, has 
 been one peculiarly perturbing, because it has been 
 incalculable as well as powerful. Dealers in silver 
 have never for several years known either what quan- 
 tity of it the German Government was anxious to 
 dispose of, or what price it would take for that 
 quantity. Nothing depresses the tone of a market 
 
46 The Report of the Silver Committee. 
 
 Alike uncertainty, 'and this subterranean political 
 agency, if we may so describe it, has, now for a 
 considerable period been a cause of uncertainty, in 
 incessant action, and of the first magnitude. And 
 its action still continues, for the amount of the thaler 
 silver currency, which will have to be demonetised, 
 is most uncertain, the estimat'es of it differing by 
 many millions ; and, therefore, we do not in the 
 least know either what the German Crovernment 
 have in hand, or what they have to s^ll, or when 
 they will have to sell it. The silver market is, con- 
 sequently, affected exactly as the Liverpool cotton 
 market would be if there was an immense unknown 
 quantity to arrive. Such a market always^ as the 
 phrase is, lives from hand-to-mouth, sells as soon as 
 it can, and the prices in it fall to an extent and with 
 a rapidity which an observer, acquainted only with 
 the visible supply or the visible demand, would not 
 be able at all to account for. 
 
 The second cause is the policy of the Latin Union 
 to which we have so often drawn the attention of 
 our readers. The States comprising it — France, 
 Belgium, Italy, Switzerland (and now Greece) — in 
 1873 adhered strictly to the principle of the double 
 standard of gold and silver, — ^that is, they allowed 
 any one to bring to the Mint any quantity of either 
 metal, and they coined it for him. Li consequence, 
 at every change they were always coining the metal 
 of lesser value, and that metal, when coined, was 
 used to buy and take away the metal of higher 
 value. In this way, during the cotton famine 
 France was half emptied of Silver which was wanted 
 for exp6rt to the East, and was filled with gold 
 
TKe Report of the Silver Committee. Ail 
 
 which was not so wanted. If these States had con- 
 tinued to adhere to this principle, the great effect on 
 the general sliver market produced by the German 
 operations would have been much diminished and 
 rendered scarcely observable. As soon as silver 
 began to fall it would have gone to France and been 
 used there to buy gold which had risen. Thus 
 silver would have been taken, from the general 
 market, and gold would have been broiight to it, till 
 the former level of comparative values, or something 
 like it, had been reached. But France- and the rest 
 of the Latin Union could not endure this. Partly 
 from political, and partly from economical motives, 
 they would not take the "cast off" German silver. 
 They limited the amount of the silver which they 
 would coin, and thus the silver market was at the 
 same inoment perturbed by two extra-commercial 
 causes: one set of countries sold off silver as they' 
 had never before done, and so increased the supply ; 
 and another refused to take it in a way in which 
 they had never before done, and thus diminished 
 the demand. 
 
 Thirdly, there has been another cause, also not 
 commercial, though of a very different kind, which 
 has tended to diminish the demand for silver. This 
 is the increase in the amount which the Home 
 Government draws for upon India, as to which the 
 Committee tell us : — " The yearly amount payable 
 by India for the disbursements of the Home Govern- 
 ment has risen since the Indian Mutiny from 
 £5,000,000 to £15,000,000, a difference of which the 
 magnitude will be appreciated when it is remembered 
 that it is considerahiy more than half of the total 
 amount of silver annually produced. 
 
48 The Repoi't of the Silver Committee. 
 
 " That tlie full effect of this substitution has only 
 been recently felt, as that effect was retarded by the 
 construction of the Indian railways, which involved 
 an expenditure in India of money raised in England, 
 counterbalancing therefore an equal amount of ex- 
 penditure in England of money raised in India, 
 
 " That the amount of the disbursements which 
 has just been stated appears to represent the present 
 normal expenditure of the Home Government, and 
 that, therefore, unless by some marked change of 
 policy, no diminution of that amount can be looked 
 for." 
 
 / The effect of this increase of the tribute, for such 
 I economically it is, which India pays to England is 
 peculiar, because the ordinary relation of the two 
 countries commercially has been peculiar. Gene- 
 rally the existence of such a tribute makes no 
 difference in the amount of the precious metals 
 transmitted from one country to the other. Mr. 
 Mill explains this very clearly. " Commerce," he 
 says, " being supposed to be in a state of equili- 
 brium when the obligatory remittances begin, the 
 first remittance is necessarily made in money. 
 This lowers prices in the remitting country, and 
 raises them in the receiving. The natural effect 
 is that more commodities are exported than before 
 and fewer imported ; and that, on the score of com- 
 merce alone, a balance of money will be constantly 
 due from the receiving to the paying country. When 
 the debt thus annually due to the tributary country 
 becomes equal to the annual tribute or other regular 
 payment due from it, no further transmission of 
 money takes place ; the equilibrium of exports and 
 
The Report of the Silver Committee. 49 
 
 imports will no longer exist, but that of pa3niients 
 will ; the exchange will be at par, the two debts will 
 be set off against one another, and the tribute or 
 remittance will be virtually paid in goods." 
 
 But in the case of this increase of the tribute from 
 India to England, the primary supposition of Mr. 
 Mill does not hold. The exchanges were not before 
 in what he calls " equilibrium " — that is, one which 
 did not admit of a transmission either way of the 
 precious metals. There was a constant export of 
 silver from England to India — a sum of money con- 
 stantly paid by the dominant to the dependent 
 country. And in such case the effect of an increase 
 of the sum due from the dependency almost always 
 at first is, and perhaps may permanently continue to 
 be, a diminution of the cash which the superior 
 country has to transmit. This is one effectual mode 
 of rectifying the balance ; it is the simplest, it is 
 always the first taken. And it has been so here. 
 From a most careful and valuable examination in 
 the Committee's report, it appears that — 
 
 Between 1868-9 and 1871-2, the annual 
 average export of silver to India from 
 
 England was £10,000,000 
 
 Ditto ditto 1872-3 and 1875-6 ... 4,100,000 
 
 Diminution £5,900,000 
 
 But on the other hand, the increase in the " tribute 
 money," as we call it, or the Government drafts, is : — 
 
 Between 1872-3 and 1875-6, the average of 
 
 Q-overnment bills on India was... ... £12,600,000 
 
 Ditto ditto 1868-9 and 1871-2 7,400,000 • 
 
 Increase £5,200,000 
 
 E 
 
50 The Report of the Silver Committee. 
 
 And the diminution in the demand for silver thus 
 caused has been weighing on the silver market, 
 making it constantly sensitive, and tending more 
 and more to reduce the price. 
 
 These, with some minor ones on which we cannot 
 dwell, are the causes why the silver discoveries now 
 have produced so much more sudden an effect on the 
 bullion market, that is, on the relative value of silver 
 to gold, than the gold discoveries did on the relation 
 of gold to silver five-and-twenty years ago. And 
 surprising as that difference is, they are fully suffi- 
 cient to account for it. 
 
 As to the discoveries themselves, the Committee 
 speak with much caution. They very properly ab- 
 stained from calling evidence from persons connected 
 with the mines, as otherwise their report might have 
 been made a "puffing machine," to raise the price of 
 the shares in particular companies. They rely on 
 the official documents which the American Govern- 
 ment issued, the contents of which we have, we 
 believe, laid before our readers from time to time. 
 
 They estimate the total yield of the United States: — 
 
 Average annual yield from 1864 to 1867 . 
 
 .. £2,300,000 
 
 Yield in 1872 
 
 .. 5,750,000 
 
 „ 1874 
 
 .. 6,400,000 
 
 „ 1875 (perhaps) 
 
 .. 6,400,000 
 
 » 1876 „ 
 
 ... 9,000,000 
 
 These figures are not very large, and would come 
 to very little when distributed over all the countries 
 of the world which use silver as their standard of 
 value, and in comparison with gold the effect is less, 
 because the yield of gold from the new mines is 
 itself very large. " Mr. Whitehill, the State Minera- 
 
The liejjuii of the Silver Committee. 51 
 
 legist " for the State of Nevada, the Committee tells 
 us, " states that, ' during the past two years (1873 
 and 1874) this mine has yielded bullion to the value 
 of 5,000,000 dollars, the principal of it since last 
 June. The yield for September was 562,000 dollars, 
 and for October 610,000 dollars. The daily yield of 
 the ore is about 400 tons ; about 44 per cent, of the 
 value of the bullion is gold.' " 
 
 If in the end the supply of gold from these 
 mines is increased on a sudden nearly equally with 
 that of silver, the ultimate effects will not be at all 
 like that which the recent state of prices has shown. 
 
 Now, from full infermation, we see the nature of 
 the evil from which we are suifering. We are not 
 suffering from a depreciation of silver as against 
 commodities in the countries where silver is the 
 standard value, for there is no supply sufficient to 
 produce such a depreciation, nor time if there had 
 been such a supply to diffuse it, and there is no such 
 depreciation in fact. We are not suffering from a 
 depreciation of silver as against gold caused by a 
 sudden excess in the supply of silver, for the new 
 supplies of silver have been only moderate, and none 
 of them have come here. We are not suffering from 
 a depreciation of silver as against gold caused by a 
 diminution in the cost of productioia of silver, for 
 there has been no time, or anything approaching to 
 time, to say what the ultimate cost of production will 
 be. No doubt certain min«s of singular fertility have 
 been discovered, but it is not silver produced in the 
 best mine which determines the price of silver, as a 
 whole, any more than it is the corn grown on the best 
 land which determines the price of corn as a wh<i>le; 
 
 E 2 
 
52 The Report of the Silver Committee. 
 
 that which does determine it is the cost of production 
 in the worst mine which can maintain itself in work- 
 ing. The producer in the least favourable circum- 
 stances always fixes the price ; those in better 
 circumstances takie that price, and get an extra profit. 
 And what that mine will be in the case of silver we 
 cannot as yet tell ; the experience of years alone can 
 determine it. All that we can now safely say is that, 
 judging from all past similar events, it will not be any 
 of the new mines now discovered, or any of fertility 
 approaching to theirs, but some other far down in 
 the scale, some one which has been in some degree 
 better than some others till now, and therefore will 
 be able to maintain itself when those others are 
 obliged to desist from working. 
 
 What we are suffering from is the apprehension of 
 increased production of silver suddenly supervening 
 on a market previously perturbed, upon which one 
 Government had forced an extra supply, from 
 which a union of other Governments had refused to 
 take, as usual, any supply, and in which another 
 Government, by an increase of the tribute it requires 
 from a silver-importing country, has temporarily, if 
 not permanently, lessened the demand. 
 
 This explanation of the real malady at once dis- 
 poses of a crowd of unreal remedies. No competent 
 person can propose a demonetisation of silver in 
 India, and a substitution of gold for it, just at a 
 moment when the price of silver has been thrust 
 down by so strong an apprehension caused by such 
 peculiar circumstances. It would be to require the 
 Indian Government to buy the largest amount of gold 
 ever bought in the dearest market for. gold, and to 
 
The Report of the Silver Committee. 53 
 
 dispose of the largest amount of silver in the cheapest 
 market for silver, which ever existed. The present 
 financial position of the Indian Government is no 
 doubt impaired by this sudden depreciation of the 
 metal in which it receives its revenue ; but the 
 remedy for a minor deficit would bring in, in lieu of 
 it, a deficit of the first magnitude ; it would be 
 nothing else but financial ruin. 
 
 Again, no one would propose to arrest coining 
 silver in the East as a remedy for such a state of 
 things, for this would only disorder the silver market 
 still further. It would add a new political difficulty 
 to those previous political difficulties which have 
 caused so much disturbance, and so make the existing 
 confusion far worse than before. Nor can it be 
 maintained that the Indian Government should now 
 require the ryot, whose rent has been formerly fixed 
 in silver, to pay either in gold itself, or in so much 
 more silver as would purchase the same quantity of 
 gold as that fixed rent would have purchased when 
 the settlement was made. If silver in India had 
 become depreciated as against commodities in 
 general, it might have been possible to say to the 
 ryot, " You are selling your commodities for more 
 silver, and therefore it is not unfair to ask you to 
 pay us — the Government — a proportionate amount 
 more." Even then the ryot would have been pro- 
 bably discontented ; he would have said, " If prices 
 had gone down, the Government would never have 
 let me ofi", and it is not fair that they should take 
 the benefit of good times when they leave me the 
 misfortune of hard times." Still, in this case, if the 
 depreciation of silver had been against commodities 
 
54 The Report of the Silver Committee. 
 
 in general, it would have been perhaps substantially, 
 though not intelligibly, equitable to adopt such a 
 policy. But now that there is no such depreciation 
 of silver as compared with commodities, such a scheme 
 is not feasible. The ryot in India does not sell his 
 produce a bit dearer than he did a year ago ; his 
 income, as yet, is just what it was, and it must be so 
 till a vast amount of silver has gone to India to raise 
 the prices of daily life. Clearly, therefore, he must 
 not be additionally taxed because the silver market 
 is apprehensive, and because certain Governments 
 (the Indian Government being one of them) have 
 perturbed it. 
 
 The real remedy, as we have shown several times, 
 is to leave the great natural forces of trade to operate 
 unrestricted. The true remedy for an enfeebled market 
 is an access of demand, and in this case the laws of 
 commerce, if not suspended or crippled by State 
 interference, will produce that demand. The neces- 
 sary eiFect of a depreciation of silver as against gold 
 is to give a bounty on exports from India and the 
 other silver-using countries to England. An English 
 merchant can now buy many more rupees than he 
 formerly could with the same number of sovereigns, 
 and therefore he can import from India, though 
 prices at Calcutta are not at a level at which it 
 would have paid him to operate if he had not 
 had that novel facility in getting rupees.' Simi- 
 larly, shippers to India cannot afford to sell at the 
 same price in rupees which they could have formerly, 
 for they will lose in bringing those rupees home. 
 And the combined effect of this bounty on exports 
 from India, and of this fine on imports into India, 
 
The Beport of the Silver Committee. 55 
 
 must sooner or later be an unfavourable balance of 
 trade, and a consequent flow of silver to the East, 
 A new demand of great magnitude will eventually 
 relieve the silver market, if we only leave it alone. 
 
 It has been objected that as yet this process has 
 not begun. But in this complexly organised world, 
 it is never safe to reason that a force, even of great 
 magnitude, does not exist because its effect may be 
 impeded. No doubt, as the first table we print at 
 the end of this article shows, the exports from India 
 to this country have in many instances not increased, 
 though in some they have; but then table No. 2 
 shows why. The prices of those articles in England 
 have gone down, and, therefore, though there might 
 be a gain in comparison with last year on the ex- 
 change, there might be a loss as compared with last 
 year on the whole transaction. As to the diminution 
 of profitableness of shipments to India from' hence, 
 there is, unhappily, no doubt. Every trade circular 
 dealing with the East records — every Chamber of 
 Commerce in cities interested in the East resounds 
 with complaints — that it is so. Sooner or later this 
 must cause a large diminution in that branch — a 
 diminution, no doubt, universally to be much re- 
 gretted, but nevertheless an evil necessary to be 
 endured, because it is part of the appropriate remedy 
 at the present time. We have spoken of India be- 
 cause that is the silver-using country which comes 
 most easily to an Englishman's naouth ; but the same 
 thing is true of China, of the whole East, and of 
 every other part of the world. To them all, there 
 must ere long be an export of silver. In a time 
 when the speculative part of the business world were 
 
56 The Beport of the Silver Committee. 
 
 eager and animated, this would have happened long 
 ere this ; but even the present indisposition to begin 
 new things, and the recent ruin of so many of those 
 who were most disposed to do so, cannot long delay it. 
 At what price silver will settle down, nothing but 
 experience can determine ; but the two cardinal 
 points in the matter are — first, that that price will be 
 determined by the cost in the least good mine which 
 pays to keep at work ; secondly, that the extra 
 demand for silver to countries where it is the 
 standard money will require a very large sum, if the 
 value of silver as against commodities is to be de- 
 preciated in all of them, because the efficiency of a 
 metal as money depends on it. By whatever per- 
 centage you depreciate it, you make it necessary by 
 that very per-centage, cceteris paribus, to have more 
 of it. And as the quantity of silver now circulating 
 is immense, even a small per-centage on it comes to 
 a good sum, so that ultimately mines of far inferior 
 grade to those now so much talked of will continue 
 to be worked, will settle the value of silver, regulate 
 its price, and in all likelihood prevent any such de- 
 preciation of it as the peculiar perturbations of the 
 present moment have led many to apprehend; 
 
 Table of Peinoipal Aetioleb Impoetbd into the United Kingdom 
 PEOM Beitish India. 
 
 f First Half -Year , 
 
 1876. 1875. luoreaae. Decrease. 
 
 Wheat owts. 1,166,000 
 
 Cotton , 1,152,000 ... 1,617,000 ... ' ...' ... 466,000 
 
 Hemp „ 29,000 ... 57,000 28;000 
 
 Hides, dry 187,000 ... 218,000 31,000 
 
 Seed.flax, and linseed ,, 603,000 
 
 Silk, raw lbs. 89,000... 244,000 '. ...155,000 
 
 _ar, unrefined ...owts. 47,000 ... 205,000 168,000 
 
 Tea lbs. 9,903,000 ... 10,708,000 805,000 
 
 Wool, sheep, and lambs „ 13.117,000 
 
 119,000 .. 
 
 1,047,000 
 
 1,617,000 .. 
 
 • 
 
 57,000 .. 
 
 • •• • 
 
 218,000 .. 
 
 • •> • 
 
 205,000 .. 
 
 398,000 . 
 
 244,000 .. 
 
 ... 
 
 205,000 .. 
 
 
 10,708,000 .. 
 
 ... 
 
 10,194,000 .. 
 
 2,923,000 
 
The Report of the Silver Committee. 
 
 57 
 
 AVEBAGE PeiCES OF IMPORTS TEOM BeiTISH IkSIA. 
 
 
 , First Half-Year , 
 
 
 
 
 1876. 1875. 
 
 Increase. 
 
 Decrease 
 
 
 £ %. A. £ s. d. 
 
 9. d. 
 
 s. d. 
 
 Wheat percwt. 
 
 10 ... 9 5 . 
 
 ..07. 
 
 t*> 
 
 Cotton , 
 
 2 9 6 ... 2 15 . 
 
 
 . 5 6 
 
 Hemp , 
 
 19 5 ... 1 1 9 . 
 
 
 . 2 4 
 
 Hides, dry ... „ 
 
 3 15 ... 3 19 9 . 
 
 
 . 4 9 
 
 Seed, flax and linseed per qr. 
 
 2 9 3 ... 2 14 3 . 
 
 
 . 5 
 
 Tea per lb. 
 
 1 8f ... 1 9i . 
 9| ... 101 . 
 
 
 .0 0- 
 
 Wool „ 
 
 
 . 
 
vm. 
 
 THE PROPOSAL OP THE BENGAL CHAMBER 
 OF COMMERCE TO SUSPEND THE COINAGE 
 OF SILVER IN INDIA. 
 
 [Fbom the "Economist" op August 5, 1876.] 
 
 The Chamber of Commerce of Bengal have resolved 
 "that it is expedient for the Government to suspend 
 clause 19 of Act 23 of 1870, which makes it obliga- 
 tory on the Indian Mint to receive all silver tendered 
 for coinage;" as also " section 1 of clause 11 of Act 3 
 of 1871, which makes it obligatory on the Currency 
 Department to issue notes against silver bullion sent 
 in, and that during such suspension it be unlawful 
 to import coined rupees." The weight of the 
 authority of that Chamber has, therefore, been given 
 to the proposal to suspend the coinage of silver, and 
 thus to maintain the value of the rupee by diminish- 
 ing the numbers of it in circulation, although the 
 silver out of which it is made is falling in value. 
 
 The effect of this plan would be, as is obvious, 
 to hold out the greatest stimulus to private coin- 
 age which has ever been given in the world. The 
 basis of the whole proceeding is that the silver as a 
 metal is likely to fall much and rapidly in value, in 
 consequence of the new mines in America. But if 
 this is so, the Americana will not lose the Indian 
 market if they can help it. If the Government will 
 58 
 
Proposed Suspension of Silver Coinage in India. 59 
 
 not coin these rupees they will do it for themselves, 
 and no law will be able to keep what they coin out 
 of India. 
 
 We have also proved that this plan would have 
 the necessary effect of suspending the natural cure 
 for the present evil. The silver market is now dis- 
 organised, not by a great supply, but by an excessive 
 apprehension. And the proper cure for such a 
 market (and it is often a rapid one) is a brisk demand. 
 Now the nature of the present fall in the exchange 
 value of the rupee is, as has been at length explained, 
 to give a bounty on exports from India, to give a 
 discouragement to imports into India, and thus to 
 create a balance of trade favourable to India, and a 
 flow of silver thither. As there is no excess of supply 
 in the silver market, the demand thus created will 
 greatly sustain its value. ' 
 
 But there are other objections than these to the 
 plan which, as they arise from its bad effect on 
 Indian trade, should have prevented the Bengal 
 Chamber of Commerce from recommending it. A 
 metallic currency, of which the quantity is artifi- 
 cially regulated, of which whoever likes cannot get as 
 much coined as he wishes, is as much a currency of 
 fictitious value as a currency of inconvertible paper 
 — and a nation which takes it is exposed to the same 
 evil. A rupee " limited " — that is to say, a rupee of 
 which the numbers could not by law be augmented 
 — would do in India much what the greenback has 
 done in America. It would be an appreciated arti- 
 ficial currency, instead of a depreciated artificial one, 
 but it would be an obstacle to commerce, and would 
 tend to isolate the country exactly in the same way. 
 
60 Proposed Suspension of Silver Coinage in India. 
 
 In dealing with America now, as we need not ex- 
 plain, there are two problems for the English exporter ; 
 he has to consider for how many greenbacks he can 
 sell his article, and then how much " sterling ex- 
 change " he can buy with those greenbacks. In 
 dealing with a country which has a metallic currency 
 there is always a limit to the fluctuations of exchange. 
 The premium on bills can never rise beyond "the 
 specie point " — the point at which it will pay to ex- 
 port gold or silver, as the case may be. But in the 
 case of a fictitious currency, there is no such final 
 point, for that currency cannot be exported. The 
 premium on bills may rise to any height, as the de- 
 preciated paper is more and more multiplied. Upon 
 an average, any extra high paper-price for his 
 article obtained in America by the English merchant 
 will be compensated by an equal loss on turning the 
 paper into sterling. When other things rise in 
 paper-price, the paper-price of gold as a rule will 
 rise too, and with it the price of bills on London 
 payable in gold. But though this is the general 
 tendency, and a perfectly sure tendency on the aver- 
 age, it is only so sure on the average ; it may fail in 
 a particular case, and very often does. During the 
 Civil War, and at other times when gold has been an 
 article of great speculation, the fluctuations in the 
 premium on it have been very violent. And there 
 were no corresponding fluctuations in commodities 
 because there was no similar speculation in them. 
 At other times there might be speculation in commo- 
 dities not shared by gold or bills. And thus the 
 whole trade is confused. The profit is uncertain, be- 
 cause it depends in the long run on the counter- 
 
Proposed Suspension of Silver Coinage in India. 61 
 
 balancing effect of two bargains, and very often the 
 two do not counterbalance. 
 
 All persons engaged in the American trade are 
 most anxious to get rid of this impediment, but the 
 effect of the scheme of the Bengal Chamber would 
 be to introduce into the Indian trade a similar impe- 
 diment — only, so to speak, with the other side turned 
 up. Prices in India would fall, not rise, in con- 
 sequence of the non-coinage of the rupee. We must 
 remember that the currency of a stationary country 
 requires constant renewal, and that of a progressive 
 country requires constant increase ; and therefore, if 
 you keep the quantity fixed, prices are sure to fall. 
 And as the rupee cannot be imported, there is no 
 check on this fall. Smuggling rupees apart — the 
 decline will continue so long as the fixity in quantity 
 of the rupee is maintained, and it will be quicker or 
 slower in proportion as the increase of the country 
 is so. 
 
 No doubt the price of bills on England will in the 
 long run fall too, like that of other things. There 
 will be less money as a rule coming to England, because 
 English imports into India have sold for less. But 
 there will be no reliance on this being so in any par- 
 ticular case. The trade will be in confusion. As long 
 as silver can pass as money between the two countries, 
 there is a limit to fluctuation in exchange ; but the 
 moment you limit the coinage of the rupee, you pre- 
 vent that passage. Silver, if the Bengal Chamber 
 have their way, will be quoted with incessant fluctua- 
 tions in Calcutta, just as gold is in New York, and its 
 price and that of bills payable in it will be as much 
 liable to the influence of speculation. 
 
62 Proposed Suspension of Silver Coinage in India. 
 
 Though, on the whole, this appreciation of the 
 coin-rupee would probably be better than the depre- 
 ciation of the greenback, its first effects would be . 
 more painful. The fall in prices would make people 
 think that they were getting poorer ; whereas, in the 
 opposite case, the rise makes them imagine they arc 
 getting richer. And the " contraction," as Americans 
 call it, would raise the rate of interest. There would 
 be less money to lend, just as in the case of depre- 
 ciation there is more money to lend — again a painful 
 effect instead of a pleasant. Both are temporary ; 
 the change of prices makes the desire of persons to 
 borrow less in the one case or more in the other, and 
 that change likewise makes their power of borrowing 
 less or greater, because the value of securities 
 decreases or increases. Still, for the time, the first 
 effect of an appreciation is not pleasant, and neither 
 the Indian nor any other mercantile community 
 which has been exposed to it has ever liked it. 
 
 And then, what is to be the end ? Either the de- 
 preciation of silver depends on passing causes, and 
 then this appreciation is needless — it would be better 
 not to disturb the ordinary course of trade; or, on 
 tiie other hand, the depreciation of silver is more or 
 less to be permanent, and then this appreciation of 
 the rupee is mischievous. It will cause a motion of 
 prices in the wrong direction to the natural one. It 
 wiU cause prices to fall just when, from the legiti* 
 mate effect of circumstances, they should rise. And 
 this wrong movement will have to be corrected ; this 
 artificial rise wiU have to be undone ; and so, in addi- 
 tion to the inevitable fall of the value of the rupee 
 with that of silver, there will be a needless fall of the 
 rupee to that of silver, 
 
Proposed Suspension of Silver Coinage in India. 63 
 
 An idea seems indistinctly to float in many minds 
 that in thife way an opportunity will be obtained for 
 introducing gold. But how will it be gained ? The 
 difficulty of introducing gold in place of silver is 
 that you must demonetise silver, and give gold in 
 place of it. But the silver is so great in amount 
 that the Indian Government could hardly get gold to 
 replace it, and could never afford the cost of the 
 change. No doubt there would be fewer rupees in 
 circulation the longer the coinage was suspended; 
 but then each of these rupees would be of higher 
 value as coin than as silver, and when it came after 
 the demonetisation to be sold as silver there would 
 be so much extra loss. 
 
 It is asked, too, why should not we do in India as 
 the Latin Union do in Europe ; why should we not 
 assume their " expectant attitude ?" But the cases are 
 not similar. In India, silver is practically the only 
 legal tender ; in France and Italy, it is one of three, 
 and in the rest of the Latin Union, one of two. The 
 main currency in the first two countries, which are 
 by far the greater and richer part of the Latin Union, 
 is .inconvertible paper, which is now really the 
 standard, and not metal at all. And in the other 
 countries gold circulates as well as silver, so that 
 practically, silver is only a subordinate currency in 
 the Latin Union, taking it as a whole, and therefore 
 the limitation of its quantity does not cause pi'icesto 
 fall, for prices are not measured in it. The scale is 
 so much smaller too, that false coining has not yet 
 operated, any more than it does in our own token 
 coinage. And the whole position is different. The 
 Latin Union was a group of double-standard 
 
64 Proposed Suspension of Silver Coiiiage in India. 
 
 countries largely using gold, and the question for 
 them is whether they will give up" their gold and be- 
 come silver countries exclusively — which would 
 happen if they were to abandon the limitation o± 
 coinage while silver is as cheap as now — or whether 
 they will demonetise silver and use gold as a standard 
 only. This would be troublesome and costly, but 
 still it could be done. But India has no problem 
 to consider ; she is irrevocably committed to a sole 
 silver currency, and therefore a similar attitude 
 would in her case, besides being mischievous, have 
 no meaning. 
 
 The true remedy, as we have often shown, is not 
 to impede silver's going to India, but to permit the 
 laws of trade to diffuse silver through India and 
 through the world. This will cause an immense 
 demand for silver, for the countries where it is the 
 only currency are still vast and numerous. 
 
IX. 
 THE DEBATE ON THE INDIAN BUDGET. 
 
 [From the "Economist" of August 12, 1876.] 
 
 The whole interest of the debate on the Indian 
 Budget centred in the discussion on the value of 
 silver. Independently of this, the finances of India 
 were in a fairly good position — as compared with 
 that of most Governments in the world, a very good 
 one. It is true that if you include the amount ex- 
 pended on reproductive works, there is a deficit of 
 about two millions last year, and that there always is 
 a large one. But then few other Governments make 
 any similar expenditure, and treat it in the Budget as 
 the Indian Government does, and for many purposes 
 this way of spending money must be separated from 
 others. It is at least meant to be an investment, 
 which no other kind of Government expenditure is, 
 , and vou have to discuss in relation to it commercial 
 questions of profit and loss, with which in the ac- 
 coiints of Governments you have ordinarily nothing 
 to do. With these we need not now meddle ; those 
 who at this moment care most for the matter, care 
 for it in relation to the depreciation of silver, and to 
 nothing else. 
 
 Lord George Hamilton estimated the loss by ex- 
 change at £2,312,000 for the year 1876-7, but he 
 did not expect a deficit as against the ordinary ex- 
 65 F 
 
66 The Debate on tlie Indian Budget. 
 
 penditure in consequence. On the contrary, he 
 reckoned — 
 
 Eevenue £50,480,000 
 
 Ordinary expenditure ... ... ... 50,336,000 
 
 Surplus £144,000 
 
 — a result which he said was very good, and which, 
 no doubt, is so, if (which we do not now deny) the 
 extraordinary expenditure is good and proper. 
 
 This loss on exchange arises, as the report of Mr. 
 Goschen's Committee showed, in two ways; first, 
 from the depreciation of silver ; and next, from the 
 increase of the Council drafts — of what may be 
 called the tribute from India. As to the first. Lord 
 George explained very clearly that the Government 
 had no intention of touching noAV any of the reme- 
 dies which have been proposed — either the suspension 
 of silver coinage, or the introduction of a gold one, 
 or an adjustment of the land revenue. And he 
 assigned what seem to us to be excellent reasons 
 for so doing, which we need not, however, give at 
 length, as we have at various times placed them 
 before our readers. He said, too, what is well 
 known, but what it is nevertheless desirable to have 
 confirmed by ofiicial authority, that the natural 
 remedies were operating, that the price of Indian 
 commodities measured in silver had not risen, and 
 that in consequence a great encouragement had been 
 given to the exports from India, which would cause 
 a demand for silver here, and would relieve the 
 market. And we may now expect that this process 
 will go on more rapidly than before. One great 
 cause of hesitation has been the fear that Govern- 
 
Tlie Debate on the Indian Budget. 
 
 67 
 
 ment might " do something," something that might 
 be anything, and which would derange the usual 
 course of business. But now that the wise policy of 
 the Government has been announced, there will no 
 longer be any such fear of disturbance. 
 
 Mr. Goschen added on this point the weight of 
 his authority — especially great, as having recently 
 elaborately investigated the whole subject, as chair- 
 man of the late committee — to that of the Govern- 
 ment. He showed at length that none of the plans 
 which had been proposed were at present at all fit 
 for adoption. And he said especially that he had 
 seen statistics which seemed to show that prices had 
 not risen in India, which all other information con- 
 firms. And even without statistics, common-sensu 
 would show that such is likely to have been the 
 case. A great rise in the price of all commodities 
 through a country using a metallic currency only 
 requires a great increase in that currency to carry 
 itno. But no such amounts of silver have gone to 
 India, or anything like them, as the following figures 
 show : — 
 
 Impobtb of Silveb into India. 
 Net Imports (after deducting Exports). 
 
 In 1866-67 ... 
 
 
 ... ... ••• ... 
 
 £6,960,000 
 
 1867-68 ... 
 
 
 
 5,590,000 
 
 1868-69 ... 
 
 
 
 8,600,900 
 
 1869-70 ... 
 
 
 
 7,320,000 
 
 1870-71 ... 
 
 
 
 940,000 
 
 1871-72 ... 
 
 
 
 6,515,000 
 
 1872-73 ... 
 
 
 
 705,000 
 
 1873-74 ... 
 
 
 
 2,450,000 
 
 1874-75 ... 
 
 
 
 4,640,000 
 
 And in tlie year 
 
 just 
 
 concluded, I.e., 1875-76 
 
 1,555,000 
 
 And therefore silver prices cannot have risen, for 
 
 F 2 
 
68 Tke Debate on the Indian Budc/et. 
 
 there has been no silver to raise them with. The 
 indisposition to admit this arises from not understand- 
 ' ing the distinction between the depreciation of silver, 
 which we elsewhere explain,* as against gold in a 
 market Avhere it is not a money, and its depreciation 
 as against commodities in a market, where it is a 
 nionej^ When this distinction is clearly seen there 
 is no longer any difficulty in this part of the 
 subject. 
 
 As to the second element in the loss -by exchange 
 — the " tribute," as it may be called — the Govern- 
 ment stand in a very different position. They are 
 bound to do something here, for they have to bring 
 home their money from India. But they are not 
 bound to bring it home except in the way in which 
 they lose the least — or rather, they are bound to 
 bring it home in that way. There could be no 
 objection at times to their lending money in India 
 and borrowing it at home at the same moment, if the 
 time did not appear favourable for bringing it home. 
 And they can choose any mode of remittance they 
 think best; it is merely a matter of business, like the 
 remittance of any other money. And this ' Lord 
 George Hamilton very well explained. Of course, 
 however, the finance policy of the Government should 
 be calculable, and the amounts for which it is going 
 to draw on India should be made known some time 
 in advance, as otherwise they will make business 
 uncertain, and so diminish it. 
 
 * See Chapter X. 
 
THE DIFFERENT EFFECT ON TRADE OF A 
 CHEAPENING OF THE PRECIOUS METALS, 
 AND OF A DEPRECIATION OF INCONVERT- 
 IBLE PAPER. 
 
 [FnoM THE "Economist" of Adgust 12, 1876.] 
 
 We showed last week that neither the depreciation of 
 an inconvertible paper, nor the appreciation of an 
 artifically limited coin, produces as a rule any effect 
 on trade. What an English exporter to America 
 gains on the one hand, in the additional price for his 
 goods, conseqiient on the depreciation of green- 
 backs, he loses on the other, by the additional price 
 which he has to pay for gold, or a bill payable in 
 gold, which he requires to bring that price to Eng- 
 land. Greenbacks are of no use here, and their 
 depreciation upon an average, though by no means 
 always in every particular case, aifects the prices 
 equally of all things. It is a local depreciation, 
 beginning in a particular country, affecting alike all 
 the property and products of that country, but affect- 
 ing nothing out of it. 
 
 But it is necessary to distinguish this most care- 
 fully from a depreciation of the precious metals 
 caused by a large new supply. That new supply is 
 a new exportable product, sent from the country of 
 its origin through the world, and thus affects more 
 
 69 
 
70 Depreciation of Metals 
 
 or less, in proportion to its magnitude, the world's 
 trade. 
 
 Suppose, for simplicity, that silver were the only 
 precious metal in the world — that all nations used it 
 as money, and that none of them used gold in that 
 way at aU — ^the process of depreciation by such new 
 supplies as are expected from Nevada would be 
 this : prices in Nevada and in the rest of the United 
 States would rise ; in consequence, imports into the 
 United States would tend to increase, exports from 
 them would tend to decrease, and so an unfavourable 
 " balance of trade," as the phrase is, being created, 
 silver would be exported ; it would be the best way 
 in which America could pay for her imports, and she 
 would so pay for them. On the other hand, the 
 country from which those imports came — suppose it 
 was India — would receive that silver, and in propor- 
 tion as it received more and more,' its prices would be 
 more and more raised. What happened, in con- 
 sequence of the new silver, in the country of its 
 origin, will again happen in the country of its first 
 receipt. Imports into that country' will be stimulated, 
 exports from it checked, an unfavourable balance of 
 trade created, and silver will be sent to the countries 
 which it has to pay. Then, in their turn, these 
 countries — the countries of second receipt, as we may 
 call them— will undergo all the same changes. The 
 depreciation of a depreciated paper is a stationary 
 depreciation, fixed in the country which makes the 
 paper; but that of a precious metal is a travelling 
 depreciation, which passes slowly over the civilised 
 Avorld, altering trade everywhere, creating a new 
 article of export, first from one country and then 
 
and Paper Money Compared. 71 
 
 another, and in consequence, generating a new trade 
 of export to pay for it in the country which re- 
 ceives it. 
 
 The modus operandi of this process is much affected 
 in the usual state of the world by there being two 
 precious metals used as money — gold and silver — 
 and also by gold being in many ways the principal 
 of the two ; but though the detail is changed, the 
 principle is the same. In a country which uses goM ' 
 only as a standard currency, silver is a commodity 
 having its price only in gold, just as silk or cotton ; 
 that price goes up and down in the same way, and is 
 quoted in the same way. And London is the prin-j 
 cipal centre of the wholesale commerce, and especially 
 of the new wholesale commerce, of the world. We 
 buy more readily than any other nation, for we have 
 much more money than any other of equal enterprise ; 
 and, therefore, all great business requiring new 
 capital on a sudden comes here. Accordingly, the 
 new silver for the most part goes not straight to 
 India and the East, where it is a money, but to Eng- 
 land, where it is a common article, and we send it 
 over the world and to the nations where it is a 
 money. But this is only a change in the route of the 
 depreciation. It interposes a sort of house of call, 
 it does not change the essence of the matter. 
 
 No doubt the first effect has been to advertise and 
 make far more obvious than it woijld otherwise have 
 been the depreciation of silver. If silver had been 
 our money, as gold is, we should scarcely have been 
 as yet conscious of its being depreciated. A few 
 millions more silver (from Germany or elsewhere^ 
 would have gone into the Bank, would have eased 
 
72 Depreciation of Metals 
 
 the Money Market, and have tended to raise prices. 
 And we should have had to pay for that silver, just 
 as we pay for the gold which does come. But this 
 process would have been very gradual — probably, as 
 yet, nearly unfelt. The ready demand for silver as a 
 currency in England would have much maintained 
 its value here. You could not have depreciated it 
 much without increasing its quantity — ^both the 
 quantity in the Bank and the quantity in out-of-door 
 circulation — very largely. But as silver is not a 
 money (except as a token), not a money regulating 
 prices, not a money which more and more is wanted 
 as the value falls more and more, there has been no 
 new English demand of equal or comparable size. 
 Some more silver may, in consequence of the cheap- 
 ness, have been taken for the arts, but this is aU. 
 The actual supply from Germany and the appre- 
 hended supply from America have come to a market 
 which other circumstances had made bare of demand. 
 They generated no new demand, and in conse- 
 quence, there is a great fall in the value of silver in 
 England. The travelling depreciation has come here, 
 and has been intensified, as has been shown. 
 
 This sudden fall in the value of silver in England 
 has caused a corresponding alteration in the exchange 
 with the countries whose money is silver. As is well 
 known, between two countries which use the same 
 metal for money, there is a natural and fixed par of 
 exchange. A certain weight of that metal of a 
 certain fineness, in the currency of one of these 
 countries, will always exchange for an equal weight 
 of like quality in the currency of the other. But 
 between two countries, one which employs gold and 
 
and Paper Money Compared. 73 
 
 the other silver, there is no such natural par. The 
 relation between the two currencies depends on the 
 amount of the one metal which will exchange for a 
 given amount of the other. When, as now, that 
 amount much varies in England, there is an im- 
 mediate change in the relation of the Enghsh gold 
 currency to foreign silver currencies, because the 
 amount of gold which it would take here to buy any 
 given amount of silver, to export it and coin it into 
 those silver currencies, varies. 
 
 And this is the process by which the . depreciation 
 travels on another step. Silver being cheaper here, 
 more of it will be bought and sent to the countries 
 where silver is money. But its value there against 
 commodities will not fall as suddenly as it has here. 
 We see that it would not, if silver had been the only 
 metal used as money in the world. And the countries 
 where it is used are, within their own boundaries, in 
 the same position. The more silver falls in pur- 
 chasing power, the more of it will be wanted to 
 purchase commodities, and the demand for it, there- 
 fore, will increase incessantly where the supply is 
 augmented. The silver prices of commodities will be 
 slowly raised everywhere where silver is money, and 
 a great deal of it will be required in the process, and 
 the course of trade will be changed. The silver 
 countries must find exports to pay for this new article, 
 silvei', which is coming in upon them. 
 
 We must, therefore, carefully distinguish two 
 things which are often confounded in discussing this 
 subject. First, we must see that a depreciation of a 
 metal used as money, whether silver or gold, is 
 utterly different in its effects from those of a depre- j 
 
74 Depreciation of Metals, ^c. 
 
 elation of a currency of paper, for it creates an inter- 
 national trade, and that of paper a local one only. 
 
 Secondly, we must see that the depreciation of 
 silver in London, where it is only a commodity, is a 
 wholly different thing from its depreciation in 
 countries where it is a money. The first, as we have 
 seen, is very rapid, but the second is very sIoav 
 indeed. And the second will counteract the effect 
 of the first, as it is now daily doing, and will tend to 
 raise the value of silver in London — in the entrepot — 
 where the market is so sensitive, by distributing it 
 over vast regions where much more will be wanted if 
 the value falls comparatively but a little. 
 
 Thirdly, we must observe that this process is not 
 at all bad for the trade of England. No doubt the 
 faU in the rate of exchange is a disadvantage to 
 shippers to the countries where money is silver. But 
 then another class of exporters will be benefited, for 
 we import that silver, .and have to pay for it. The 
 loss, on the other hand, will be counterbalanced by a 
 gain on the other. 
 
XI. 
 
 THE AMERICAN COMMISSION ON THE 
 CUKRENOY. 
 
 [From the " Economist," op September 21, 1876.] 
 
 The last act of the Congress was to appoint a Com- 
 mission, to consider and report on the currency 
 question in its various present bearings, that is, — 
 
 " First, into the change which has taken place in 
 the relative value of gold and silver; the causes 
 thereof; whether permanent or otherwise; the effects 
 thereof upon trade, commerce, finance, and pro- 
 ductive interests of the country, and upon the 
 standard of value in this and foreign countries : 
 
 " Second, into the policy of the restoration of the 
 double standard in this country, and if restored, 
 what the legal relation between the two coins, silver 
 and gold, should be : 
 
 " Third, into the policy of continuing legal-tended 
 notes concurrently with the metallic standards, and 
 the effects thereof upon the labour, industries, and 
 wealth of the country ; and, 
 
 " Fourth, into the best means of providing for 
 facilitating the resumption of specie payments." 
 
 And this Commission will, no doubt, be of use to 
 European economists in collecting information as to 
 many American matters connected with the currency, 
 
 75 
 
76 I'he American Commission on the Currency. 
 
 upon which it is now very difficult to find a trust- 
 worthy authority. But as far as respects the prac- 
 tical questions to be determined in the United States, 
 " half would have -been more than the whole ;" it 
 would — at least, if we may judge as this distance — 
 have been much better to have restricted the Com- 
 mission to fewer points, than to empower them, as 
 has been practically done, to inquire into anything 
 and everything as to American currency. In the 
 heat of a Presidential contest, the Commission must 
 be active-minded indeed if they can thoroughly work 
 out all this. 
 
 The set of facts most wanting inquiry certainly is 
 the new set — that relating to the change in the value 
 of silver. The conditions of resumption — the mode 
 in which a satisfactory paper currency should be 
 maintained after resumption — are old matters, on 
 which American statesmen can find no difficulty in 
 obtaining information quite as good as this Commis- 
 sion will collect for them. But the present relative 
 position of silver and gold is a perfectly new thing in 
 the world, and America, as a principal producer of 
 both, and as having to settle whether she will have a 
 currency of both or either, ought certainly to in- 
 vestigate it as soon and as completely as possible. 
 
 The cardinal present novelty is that silver and gold 
 are, in relation to one another, simply ordinary com- 
 modities. Until now they have not been so. A A'ery 
 great part of the Avoi'ld adhered to the bi-metallic 
 system, which made both gold and silver legal tend- 
 ers, and which established a fixed relation betAveen 
 them. In consequence, whenever the value of the 
 two metals altered, these countries acted as equalising 
 
TJie American Commission on the (Jun-enaj. 77 
 
 machines. They took the metal which fell; they 
 sold the metal which rose ; and thus the relative value 
 of the two was kept at its old point. But now this 
 curious mechanism is broken up. There is no great 
 country now really acting on this system. The 
 "Latin Union," it is true, adhere to the name, but 
 they have abandoned the thing. As they do not 
 allow silver to be coined except in limited quantities, 
 they have no longer an equalising action ; they no 
 longer receive the depreciated or part with the ap- 
 preciated metal, and, therefore, the two metals now 
 exchange for one another, just as other commodities. 
 
 The gold-price of silver is now like the gold-price"" 
 of tin — left practically, for the first time in history, 
 without artificial regulation, and free from the 
 manipulation of Governments. And it is into the 
 consequences of this that the United States should 
 now inquire, for they have nowhere been fully 
 treated of 
 
 The first effect is that to which M. Leon Say drew 
 attention not long ago, in a speech of much ability — 
 the instability of the value of the two metals. In 
 former times, he justly said that the fluctuations in 
 the relative value of the two metals were few and 
 small, but now they are many and large. Particular 
 causes, no doubt, aggravate that instability at this 
 moment — especially the demonetisation of silver by 
 Germany, and the supposed likelihood of great sup- 
 plies from Nevada. But though the instability is 
 aggravated by these causes, it is hot created by them, 
 and it will not cease with them.. There is no inherent 
 reason why the gold price of silver should be uniform, 
 any more than why the gold price of platinum should 
 
78 Tlie American Commission on the Currency. 
 
 be the same. The old notion of extreme steadiness 
 is one generated by the practice of Governments, 
 and which has ceased when the practice ceased, and 
 will not revive till it revives. 
 
 The United States, therefore, which have a 
 " money" to choose, must observe that they have 
 three courses to choose from, and must see what are 
 the consequences of each. First — they may choose 
 the old bi-metallic, or double-standard plan. But if 
 they do, they must make up their mind to be always 
 changing their coinage. The natural value of the 
 two metals now being, • as we see, fluctuating, a 
 nation which takes both will be incessantly changing 
 from one to the other — it will always be taking the 
 worse and giving the better. The existence of such 
 a country, or set of countries, is an advantage to the 
 world at large, because, as we have seen, it preserves 
 a uniformity between the two metals, one or other of 
 which is used by all civilised nations to count value. 
 But the expense and inconvenience of a changing 
 currency are great, and how far a nation would be 
 wise to undergo them for the good of the world, we 
 are not sure. She herself obtains no advantage ; she 
 sells gold for silver, or silver for gold, and the 
 brokers get their commission ; but this is all. And 
 to a great borrowing nation like America, it would 
 always be an objection that she would pay in the 
 worse coin at the time of payment, whatever it might 
 be. At the present moment, America would become 
 a silver country, and the interest and principal on 
 her obligations would be paid in silver. The evil, of 
 course, would not be what the momentary circum- 
 stances of the market would noAv suggest. Silver 
 
The American Commission on the Currency. 79 
 
 would not be at 5 2d. per ounce if America was a 
 country with a sole silver currency. So large a 
 demand as her coin requirements would send the 
 price up very rapidly — perhaps to its old amount. 
 Still, as the debts of America are so large, the pro- 
 bable objection which a lender might make to the 
 certainty of his having to accept the inferior mode of 
 repayment is to her important ; she wpuld possibly 
 have to borrow on terms somewhat less good. 
 
 Secondly — the United States might take the single 
 gold standard like oui*selves ; and this is what, tiU very 
 lately, every English economist would have advised 
 them to do. The evils of this plan had not then been 
 seen, but its good was very apparent. That all great 
 commercial nations should have the same metal for 
 money is, per se, a plain gain. The objection is that 
 there may be some difficulty in getting the gold for 
 so many, very rapidly. The total production of 
 gold, according to the estimate laid before the Silver 
 Committee, for recent years is : — 
 
 in 1872 £17,569,000 
 
 1873 21,946,000 
 
 1874 19,880,000 
 
 1875 20,353,000 
 
 > Total £79,748,000 
 
 or nearly £20,000,000 a year. And this is not at all 
 a large amount to provide for the yearly uses of the 
 world. 
 
 In the 13 years from 1858-75 the imports of gold 
 
 into the United Kingdom were £331,179,000 
 
 Exports from 251,413,000 
 
 Total absorption in 18 years £79,766,000 
 
 or at the rate of £4,432,000 a year, being more than 
 
80 The American Commission on the Currency. 
 
 one-fifth of the whole. So that if Germany, America, 
 and perhaps the Latin Union, were all to take to a gold 
 currency, there would certainly not be too much 
 gold. Probably the money markets of the world 
 would be straitened by there Aot being sufficient. 
 
 The third and last course open to the United States 
 is to make silver their sole standard. A few weeks 
 ago this would have been generally deemed to be 
 beyond the limits of consideration ; at that time thei'e 
 was a panic, and it was imagined that the price of 
 silver was going to fall lower and lower tiU it became 
 worth hardly anything. But experience has now 
 shown, as theory always suggested, that there would 
 be a demand for silver for the East consequent on its 
 cheapness — that this demand would grow with its 
 cheapness — and then an almost indefinite quantity, 
 if supplied, would in time be taken off the market. 
 As the supply here is small, the price has risen 
 rapidly, though it has for a moment been checked 
 again by the financial operations of the Council of 
 India in drawing for their tribute. The extreme 
 panic as to the price of silver has, therefore, passed 
 away, and we are able to consider calmly whether it 
 would be wise for the United States to take it for a 
 standard of value or not. 
 
 If they did, it is certain that the price of silver 
 would for the moment rise, because so very large an 
 extra quantity would at once be required ; and it is 
 very possible that this price might not again fall. 
 The final regulator of the price of silver is the cost 
 at which it can be produced in the least fertile 
 mine that can maintain itself in working. At the 
 present moment, there arc ncAv mines as to whose 
 
The American Commission on the Currency. 81 
 
 extent there are very various accounts, which may 
 supersede some of the worst of those at work, and so 
 lessen the maximum cost of the production of silver — 
 the cost which fixes its price. But if so large a new 
 demand for silver as that for supplying the United 
 States with money were added to the existing demands, 
 very possibly the extra fertility of these new mines 
 might be exhausted before that demand was satisfied. 
 These mines might come to be not so much better 
 than the old mines as to throw any old mine out o'f 
 work; and if so, the price of silver would remain 
 what it formerly was. And if this happened, silver 
 would be as good a standard of value as it has ever 
 been. 
 
 There would, undoubtedly, be several difficulties in 
 the adoption of a.silver standard by the United States. 
 First — Much of the interest of their Debt is now pay- 
 able in gold coin. This would not, however, cause 
 much difficulty, if the price of silver )vere to rise, as 
 we have suggested, to something like the old level. 
 The United States might then either continue to 
 receive their Customs' duties, as they now dp, in gold 
 only, and to pay their interest with such gold, or they 
 might pay an equivalent in silver. The difficulty 
 would be one of detail only, and might be met. 
 
 Secondly — What is more serious — ^the trade between 
 the United States and the gold-using countries would 
 be liable to be disturbed by every fluctuation in the 
 value of gold and silver. And we are not yet in 
 a position to say what the amount of this incon- 
 venience would be, because the changes in the relative 
 values of the two will in future probably be greater 
 and more frequent than they used to be. As we have 
 
82 The American Commission on the Curfmcy. 
 
 explained, thpdouble-standardnations used to equalise 
 trie price for the rest o£ the world, and now it seems 
 probable that they will do so no longer. An element 
 of uncertainty would thus be introduced into the 
 largest international operations of the United States, 
 which mig|it be very important, and which it is diffi- 
 cult to estimate beforehand. But in all likelihood 
 this uncertainty would not be so great as that caused 
 by the inconvertible and ever-fluctuating greenbacks 
 which the United States have nowborne very patiently 
 for many years. 
 
 Thirdly — ^The United States will, by choosing silver 
 for their money, undoubtedly suiFer by using the less 
 convenient metal for large transactions instead of the 
 more convenient. Silver is bulky to carry, and cum- 
 bersome to count. But a good and secure system of 
 pappr money might easily be devised, which would re- 
 duce this disadvantage to minor proportions ; though 
 that system, like all systems of paper money, is liable 
 to the objection that it may be at any moment de- 
 parted from, and a bad paper money substituted for 
 a good. No nation which is engaged in first-rate 
 commerce should select a silver money, unless it 
 believes that its circumstances, the character of its 
 people, and the peculiarities of its Government enable 
 it to manage a paper one. 
 
 The great reason for inquiring whether it would 
 not be best for the United States to take silver as a 
 money, and not gold, is that it is much more likely 
 to be done. It is always a great advantage to have 
 a strong private interest concurring with and enforc- 
 ing a great national interest. And here the silver- 
 producers are anxious to seU theij* silver, and fearful 
 
The American Commission on the Currency. 83 
 
 that they may not be able to do so. Whereas the 
 gold-producers, on the other hand, feel sure of their 
 market, and are careless what happens. The fear is 
 that the United States may go on for many years to 
 come with inconvertible paper, as they have for many 
 years past ; the difficulties of resuming specie pay-; 
 ment are very considerable, and when resumed it 
 may not be kept to unless it is some one's interest 
 that it should be so. But the silver-producers are 
 clearly strong in Congress, wish to get their silver 
 substituted for greenbacks, and would be watchful 
 to see that owing to keeping too small a reserve or 
 other mismanagement, greenbacks did not come back 
 again, if they had once been got rid of And these 
 producers can put the argument in a way very at- 
 tractive to American nationalism. They can say, 
 ■' If you use silver you will raise its value, not only 
 here, but throughout the civilised world. You will 
 support an interest which needs supporting, and you 
 will hurt no one, but make America richer by so 
 doing." And all nations — especially nations which 
 govern themselves — are apt to be much moved by 
 such reasoning. 
 
 We hope, therefore, that the American Commis- 
 sion will not be distracted by the old phases of the 
 currency question, and that they will give their 
 attention to the new points presented by the present 
 new relation between gold and silver, and the re- 
 spective advantages and disadvantages of the courses 
 they have to choose from. There is not one of them 
 which has not much of both, and, in such case, only 
 very deliberate study can show how to bring out the 
 most good with the least evil. 
 
 a 2 
 
XII. 
 
 THE PERMANENT EFFECT OF AN INCREASE 
 OF " COUNCIL BILLS " ON THE FLOW OF 
 SILVER TO INDIA AND UPON THE INDIAN 
 EXCHANGES. 
 
 [Fkom the "Economist" op October 7, 1876.] 
 
 The depreciation of silver and its eflfect on the Indian 
 exchanges have been much discussed, and with the 
 best result. The Indian Government, we are glad to 
 say, have announced that they would adhere to right 
 principles, notwithstanding the greatness and sudden- 
 ness of the difficulty in which they are placed, and 
 the number of wrong schemes obtruded upon them. 
 But another fact, of which the practical effects are 
 inextricably intermingled with those of this deprecia- 
 tion, — the recent great increase of the political pay- 
 ment of tribute which England derives from India, — 
 has not been studied with equal care. It appears 
 from the investigations of Mr. Goschen's Committee 
 that the "Indian Council" bills, which represent that 
 payment, have increased in the last ten years as fol- 
 lows : — 
 84 
 
Effect of an Increase of " Council Bills." 85 
 
 Bills of Exchange 
 Tear. Drawn on India. 
 
 1865-66 
 
 1866-67 
 1867-68 
 1868-69 
 1869-70 
 1870-71 
 1871-72 
 1872-73 
 1873-74 
 1874-75 
 1875-76 
 
 £6,998,899 
 
 5,613,746 
 
 4,187,285 
 
 3,705,741 
 
 6,980,122 
 
 8,443,509 
 
 10,310,339 
 
 13,939,095 
 
 13,285,678 
 
 10,841,615 
 
 12,389,613 
 
 It appears also from the same authority that most 
 of the effect which this great increase in the payment 
 from India to England might be expected to have 
 upon the exchanges, was delayed by a simultaneous 
 increase in the payments made from England to India. 
 Till quite recently we have been very largely invest- 
 ing capital in railways and other public works ; the 
 funds necessary for these were raised in London, and 
 were sent out to India ; and so compensated for the 
 increase of the tribute. But now there is no longer 
 any equal transmission of capital to India, and we, 
 therefore, for the first time feel the effect of that in- 
 crease. 
 
 The immediate result has naturally been to coun- 
 teract the flow of silver to the East. When com- 
 merce is left to itself, the imports England takes from 
 India are much greater than the imports which India 
 takes from England, and a part of the balance has to 
 be paid for in specie — ^the rest being settled in in- 
 direct ways, of which we need not speak now. But 
 the increase in the " Council bills " provided a com- 
 peting remittance with silver ; if a merchant wanted 
 to make a payment in Calcutta, he had the choice 
 
86 Effeet of an Increase of " Council Bills." 
 
 either to buy bills, or send out silver, and of course 
 so much less silver was sent. 
 
 The efFect was the greater because the Government 
 of India must bring their money home from India, 
 and, therefore, must sell their bills ; whereas "silver," 
 like any other commodity, may go to many markets, 
 and m^y be held when its price falls. This is the 
 reason of the saying, " the price of Council bills 
 rules the price of silver — not the price of silver that 
 of Council bills." It is the price which the more 
 anxious seller must accept that for the monient pre- 
 dominates, ahd not that which the less anxious can 
 wait for. 
 
 So far all is clear, and has befen well discussed ; 
 but what has not been equally discussed is the ques- 
 tion — Will this effect be pei-itianent ? How fdr will 
 the increase of it& pdlitical payinetits prevent India 
 from obtaining silver, which is the material of its 
 money ? And if it ceases to have this effect, why 
 does it do so ? 
 
 it clearly cannot have this feffect always, or a 
 country like India might be pi-evented, by an in- 
 crease in the tribute which she has to pay, from 
 obtaining money altogether. Suppose a dependent 
 country obtains all hel- supplied of bullion from the 
 dominant country to which she belongs, and that the 
 dominant country imposes an afinUal tribute ec[ual 
 to the amount of silver which she anhiially takes — if 
 the consequence of the tribute be to prevent the 
 export Of buUion by an equal aniOiint, the dependent 
 country would cease to obtain money altogether, and 
 prices in it would fall and fall indefinitely. 
 
 In fact, of course, this will not happen, because as 
 
Bff^t of an Increase of " Council Bills." 87 
 
 soon as prices fall below a certain amciunt an en- 
 couragement is given to the expoirt and a discourage- 
 ment to the import trade, «lnd so a new adverse balance 
 of trade is created, which will take bullion to the 
 dependent country. The eflfects of the imposition of 
 a tribute oii the industry of a dependent country are 
 two : first, to drive away all cosmopolitan capital, 
 which can carry on its busitiess elsewhfere. It takes 
 for the use of the Government a certain portion of 
 what used to be the profit of the capitalist, and if in 
 any other country capital does not pay an equal tax, 
 that large class of capitalists who now belong to all 
 countries will go to some other, and will carry on 
 their business there. And secondly, the residential 
 capitalists, whom no motive will tempt away, must 
 be content mth a less rate of profit than they used to 
 receive. Particular industries, for which the depend- 
 ent countrj^ has special advantages^ will to some 
 extent be an exception, but, as a rule, the efiect of 
 the augmented tribute will be to lower prices, because 
 as a rule, and for almost all commodities, it wiU fix 
 profits on a lower range. 
 
 A country which has a tribute to pay of £15,000,000 
 annually must send abroad annUally £15,000,000 
 worth of commodities more than she receives; the 
 profits of her various industries must be less by that 
 £15,000,000 ; prices must be lessened to efiect this ; 
 and (supposing, as is the case With India, that this 
 country does not produce the precious metals) prices 
 wiU be thus lessened by a corresponding deduction 
 in the import of those metals. 
 
 Thus, in the case of India, the efifect of her aug- 
 mented political payments will be to lower the level 
 
88 Effect of an Increase of " Council Bills." 
 
 of prices, till her exports rise above her imports by 
 an equal sum. Till that level is reached, silver will 
 not be sent from England, but when it is reached 
 silver will be sent at once. The effect of the augmen- 
 tation, therefore, is not to lessen the export of silver 
 from England to India permanently, but only to 
 diminish it temporarily and till the course of com- 
 merce has adapted itself to the new circumstances. 
 India will not, indeed, receive quite as much as before 
 the increase of her tribute ; she will have a somewhat 
 smaller stock of silver to maintain, in order to carry 
 on her trade, as prices are lower (which means that 
 less silver does the same work), and, therefore, the 
 annual supply requisite to maintain prices at that 
 level will be less. But this is but a very minor effect, 
 which is not of much practical account, and, except 
 so far as its influence extends, the import of silver 
 into India will eventually be as much, now that 
 Council bills are £15,000,000, as it used to be 
 when they were £5,000,000. 
 
 Some persons who have been much in contact with 
 the recent phenomena of the silver market, but who 
 have not considered the more permanent parts of the 
 subject, will probably be surprised at this conclusion, 
 but this is only one of very many instances in which 
 a great familiarity with the momentary facts of a 
 particular kind of business is a wrong, rather than a 
 right guide, as to what the course of that business in 
 the long run will be. 
 
 It will be seen that the case of India is a very 
 peculiar one. Not only is she, politically, dependent 
 on England, but she derives her silver from hence, 
 too. The country which imposes the tribute, and 
 
Effect of an Increase of '■^Council Bilk." 89 
 
 thereby tends to take money, is also the country 
 which supplies money. Ordinarily the imposition of 
 a tribute on a subject-country is much simpler in its 
 eflFeots. The dominant and the subject-countries are 
 only connected by the usual trading relations ; coin 
 and bullion only pass to settle the balance of trade, 
 and, in the long run, pass about equally both ways. 
 In this case the effect on the flow of bullion is, on the 
 face of it, only temporary; There being no continuous 
 export of bullion from the dominant country to be 
 arrested, the question whether it will or will not be 
 arrested does not arise. The dominant country 
 simply takes a portion of the produce of the industry 
 of the dependent, and so far renders it less profitable. 
 The range of prices in the dependent country must 
 necessarily be lowered to effect this end, and for a 
 time the supply of the precious metals to it will be 
 diminished. But upon its permanent import of those 
 metals the imposition of the tribute will have no 
 effect. As soon as the proper range of prices is 
 reached, the bullion trade will go on as usual. And 
 so it is in the case of India also, though England's 
 being the country which supplies bullion as well as 
 that which imposes the political payment, seems at 
 first to make a difficulty. Substantially the effect of 
 the new tribute will be the same in this case as in all 
 others. 
 
 But though the increase of the Council bills will 
 not, as we have thus shown, change the quantity of 
 silver sent to the East, it may have lasting effects on 
 the Indian exchanges, and next week we will examine 
 whether it has or not. 
 
xm. 
 
 THE EFFECT OF THE "COUNCIL BILLS" ON 
 THE INDIAN EXCHANGES. 
 
 [Fkom the "Economist" op Octobeis 14, 1876.] 
 
 We proved last week that the effect of the augmen- 
 tation of the political payment from India to Eng- 
 land, shown by the recent increase of the bUls drawii 
 by the Indian Council upon India, wiU have no per- 
 manent effect whatever on the export of silver to 
 India. The great influence which it has had in that 
 respect will be transitory only. We have now to see 
 whether the equally great effect which that increase 
 has had on the Indian exchange will be equally tem- 
 porary. 
 
 To simplify the subject, which is complex, let us 
 first take the simple case of a dominant and a subject- 
 country, which have the same currency, whose 
 trade exports usually balance each other, and neither 
 of which produces the precious metals, or depends 
 on the other for the supply of the precious naetals. 
 In this case, there being only one currency in the 
 two countries, the quotations of exchange will be 
 always made in their most intelligible form, that is, 
 by the premium or discount on the bills which each 
 country draws on the other. In this case, bills on 
 the dominant country in the dependent, and bills oii 
 
 the dependent in the dominant, will, as a rule, be 
 90 
 
Effect of an Increase of " Council Bills." 91 
 
 equally often at a premium. The trade exports from 
 thfe ruler to the subject exactly equal those from the 
 subject to the ruler ; the bills generated by them will, 
 therefore, be equal, and also the demand for means 
 of remittance. There is no indebtedness between 
 the countries to be settled, and so, on the average* 
 everything will be even between them. 
 
 If this state of things is disturbed by the imposi- 
 tion of a tribute, the first effect is that bills in the 
 dependency on its superior rise to a premium ; that 
 tribute has to be paid, and these bills are inquired 
 for as the best means of payment. It becomes more 
 difficttlt (as Indians would say) to " remit home," 
 because there is more to be remitted, and no increase 
 in the irieans of remittance. The premium will pro- 
 bably rise above the specie point, and coin or bullion 
 will be temporarily sent to the dominant country in 
 consequence. But it can only be so sent tempo- 
 rarily, for the dependency we are considering does 
 not produce the precious metals. In time, therefore, 
 some other means of payment must be found ; the 
 tribute must be paid not in gold or silver, but in 
 other commodities. These commodities will begin 
 to be exported as soon as that export becomes profit- 
 able ; and that profit wiU consist of two, elements — 
 first, of the difference between the price of the com- 
 modities in the dominant country and the price in 
 the dependency; and secondly, of the premium at 
 which the merchant in the dependency can sell his 
 bill. The imposition of the tribute will have caused 
 both elements of profit. By producing an export of 
 specie from the dependency, it will have lowered 
 prices there ; and by creg^ting a demand for the means 
 
92 Effect of an Increase of " Council Bills." 
 
 of remittance, it will have raised the price of the 
 bills. There will, so to say, be a bounty on export 
 caused by the state of the exchange, and the export 
 will be made when the price-profit, plu^ that bounty, 
 are together up to the rate which the capitalist wants. 
 Before that the export will not take place, but after 
 that it immediately wiU. 
 
 And this state of prices and of the exchange will, 
 except other causes interfere with it, tend to be per- 
 manent. There is nothing in the relation of the 
 dominant and inferior country to alter either. Till 
 the whole tribute is paid both will, as a rule, continue 
 in this condition, and if the tribute is an annual pay- 
 ment, every year the same causes will be at work, and 
 the same consequences will happen. The profit on 
 the sale of the bill will more or less help the price- 
 profit, and cause the operation to be made earlier 
 than it would if the price-profit only could be ob- 
 tained. 
 
 The efifect of this is to enable the dependency to 
 " get ofi^," so to speak, and pay its tribute with a less 
 alteration in the level of its prices than would other- 
 wise have been necessary. In so far as the payment 
 of the tribute is aided by the state of the exchange, 
 it is in fact aided by a loan. The seller of the bill 
 gains funds from the money market, which return to 
 that market when that bill is paid. As the transac- 
 tion is a continual one, always being renewed, the 
 final result is that the dependency pays a part of its 
 annual tribute by a chronic floating debt, which the 
 exporters of its commodities borrow, and from which 
 it derives the benefit. And it will make no matter if 
 the exports are shipped not directly to the dominant 
 
Effect of an Increase of " Council Bills.'' 93 
 
 country, but to some third country, to which the 
 dominant country owes money. In the latter case, 
 the country which receives the exports from the 
 dependency pays for them by a draft on the dominant 
 country, and that draft is taken as a payment of the 
 tribute. The dependency pays the debt of the ruling 
 country, and this is quite as good as the direct export 
 of value to it. 
 
 And no part of this will in the least be altered by 
 the fact that the two countries, the dominant and the 
 dependent, use different currencies, if these currencies 
 are both of the same metal, whether gold or silver. 
 The mode of expressing the exchange by the equation 
 between the coins is only a complex way of ex- 
 pressing the premium and the discount on bills at the 
 moment. Two calculations have in such a case neces- 
 sarily to be made in buying and selling a bill ; the 
 currency of one country has to be turned into that 
 of the other, and the premium or discount of the bill 
 to be ascertained. And for convenience' sake, in the 
 common mode of quoting the exchange, the two com- 
 putations are put together, and their joint effect told. 
 But there may be a real temporary difference, if the 
 currencies are of different metals. If the metal of 
 the currency in which the relative tribute is fixed 
 falls in value, the tribute is lightened, and if it rises, 
 the tribute is made heavier. And this will affect 
 prices and the exchange, just as an increase or decrease 
 of the tribute in any other way. But the principle 
 of the argument is unaffected. 
 
 Nor is that principle really changed if the depend- 
 ency, like India, receives its supplies of the precious 
 metals, that is, of money, from the dominant country. 
 
94 Effect of an Increase of '■^Council Bills." 
 
 In that case, before the tribute is enforced, the ex- 
 ports from the dependency to or on account of the 
 dominant country will be greater than its imports 
 from it. Bills in the dependency drawn on the 
 dominant country will be in general at a discount, 
 and those drawn in the dominant country at a pre- 
 mium. There will be a greater facility of remitting 
 money from the inferior to the superior country 
 than, vice versa, from the superior to the inferior. 
 And therefore, when the tribute is imposed, the neAV 
 demand for remittance, so created in the inferior 
 country, will have " some lee-way " to make up. 
 Finding bills at a discount, it will have to go on till it 
 makes them at a premium. It mil have to stop the 
 flow of specie to the dependency, and if this is not 
 enough to reduce prices, it must go on till it turns the 
 tide the other way, and sends bullion, contrary to its 
 natural course, back from the dependent to the 
 dominant country. But it cannot permanently have 
 this effect because, as we have seen, the supplies of 
 bullion will in the long-run be the same after the im- 
 position of the tribute as before it. The exchange 
 will settle down so that the usual amount of bullion ' 
 will pass. But subject to this, the consequences will 
 be the same as before. Bills in the dependencies will 
 not be so often or so much at a discount as they 
 would otherwise have been, or bills in the dominant 
 country so often or so much at a premium. And the 
 exports from the dependency, which used to be de- 
 pressed by that discount, will be less depressed, and 
 the exports from the superior country, which used to 
 be encouraged by that premium, will be less en- 
 couraged. But the final effect will be the same ; the 
 
Effect of an Increase of ^'■Council Bills.'''' 95 
 
 adjustiKient of prices and the adjustment of the 
 average exchange taken together will be such as to 
 cause the imports from the dependency to the domi- 
 nant country to exceed, by the extent of the tribute, 
 those from the dominant country to the dependency 
 (specie included). The tribute will be paid in an ex- 
 cels qf value cpnsigned from the dependepcy to pr 
 on account of the dominant coij]i.t;ry a|jovp that con- 
 signed the contrary way. In so far as that result is 
 attained by a change in the premium on bills, and not 
 by a change of prices, the dependency is enabled, in 
 this case as before, to pay its tribute by an exporta- 
 tion of fewer commodities than it would otherwise 
 have to export. It obtains a loan to that extent 
 from the money market, just in the same way and 
 just with the same effect as before. 
 
 The last case we have been considering is that of 
 India exactly, and it therefore appears that though 
 the increase of the " Council bills " will have no per- 
 manent effect on the export of silver to the East, yet 
 it will have a considerable effect on the value of the 
 rupee as quoted for exchange, and that it will tend 
 to make remittances from England to India easier, and 
 from India to England less easy, as long as it con- 
 tinues. 
 
XIV. 
 
 THE MINUTE OF THE INDIAN GOVERNMENT 
 ON THE DEPRECIATION OF SILVER. 
 
 [From the " Economist " op Octobek 28, 1876.] 
 
 The Minute in which the Government of India have 
 replied to the petition of the Bengal Chamber of 
 Commerce that they would suspend the coinage of 
 silver for private persons is a very able document. 
 It shows with admirable clearness that the effect of 
 the plan proposed by the Chamber would be to give 
 the rupee an artificial value, to lower prices, and to 
 disorder trade. It observes that " it is essential to a 
 sound system of currency that it be automatic. No 
 man, or body of men, can ascertain whether, at any 
 particular moment, the interests of the community, 
 as a whole, require an increase or diminution of the 
 currency ; still less, how much increase or how much 
 decrease is, at any moment, exactly needed. No 
 Government which aspires to keep its currency in a 
 sound condition would be justified in attempting 
 that impossible task ; or, in leaving the community, 
 even for a short interval, without a fixed metallic 
 standard of value. Under an ' open-coinage system,' 
 these things regulate themselves Avithout ofiicial in- 
 terference." 
 
 And on this ground it declines to become the sole 
 96 
 
The Minute of the Indian Government. 97 
 
 coiner of rupees in India, and says that the amount 
 of the silver coinage must be left as before, to the 
 action of the Indian people, who are the best judges 
 of their own wants. 
 
 The Minute shows also by a careful review of all 
 the circumstances, that there is, at any rate as yet, 
 no reason for a change in the Indian currency, as no 
 one can yet say what will be the value of silver, 
 either as compared with gold or with commodities. 
 As has been abundantly proved in this country, no 
 action in the matter is at present required of the 
 Government of India, and by far the preponder- 
 ant probability is that no action will ever be re- 
 quired of it. 
 
 The newest, and to us the most interesting, part of 
 the Minute is that which is devoted to explaining 
 that, in the judgment of the Indian Government, it 
 is not yet proved that there is any depreciation at 
 all, certainly not a depreciation to tlie extent which 
 is commonly believed: — " The divergence now notice- 
 able in the values of gold and silver does not necessarily 
 prove a diminution in the value of silver. It may be 
 equally well accounted for by a rise in the value of gold; 
 and, in fact, it is probable that, since the commencement 
 of this divergence in November, 1872, there has been 
 an increase in the value of gold as well as a decrease 
 in the value of silver. The actual values, measured 
 in silver, of general commodities, whether in India or 
 in England, afford, as yet, no evidence of any recent, 
 sudden, or violent fall in the value of silver ; and, if 
 a priori considerations strongly indicate that silver 
 must have fallen, such considerations also make it pro- 
 bable that gold must have risen in value. Appended to 
 this resolution is a series of tables of prices in London 
 
98 Tl}e Minute of the Indian Governmfi^f. 
 
 and in India, the information contained ii^ which 
 points to two iconclusions : — First, that gold has risen 
 in yalue since March, 1873, and especially since last 
 December.* Secondly, that it is not shown that silver 
 has fallen in value, z'.e., as compared with commodi- 
 ties in general, either in London or in India, during 
 the same period. These conclusions are open to cor- 
 rection on a wider review of the economical causes 
 which have been at work during the period ; but they 
 appear to indicate a rise in the value of gold as at 
 least one of the causes which have disturbed the 
 equilibrium of the two metals. The bearing of both 
 conclusions upon the questions now before the Govern- 
 ment of India is important." 
 
 As far as gold is concerned, the tables which are 
 given by the Government are ostensibly those which 
 we have often laid before our readers. It is un- 
 deniably true that the gold-prices of conimodities 
 are, as a rule, less in 1876 than they were in 1873. 
 And in this sense it is true that gold has appreciated, 
 as against commodities. But then it is equally true, 
 and equally shown by the figures of the Minute, that 
 the gold-prices of commodities were more in 1873 
 than they were in 1869 or 1870. And if we are to'say 
 that gold is appreciated now as against 1873, we must, 
 by parity of reasoning, say that it was (depreciated 
 in 1873 as against 1869. In fact, as all our readers 
 are aware, 1873 was the culminating point of one of 
 the rising periods of price, just as 1869 was the lowest 
 point of the falling period. We wrote on the subject 
 at the time, — on the 4th January, 1873 : — 
 
 " The main cause of these cycles in price and trade 
 
 * i.e., Deoember, 1875. 
 
The Minute of the Indian Government. 99 
 
 is, as we have often shown, the different amounts of 
 loanable capital which are available at different times 
 for the supply of trade. After great panics like 1847, 
 1857, and 1866, for a very long period enterprise is 
 so slack and credit so bad, that there is no possibility 
 of employing an increasing capital to advantage. 
 Trade continues much as it Avas, whereas the savings 
 of the country are accumulating constantly. Accord- 
 ingly there is at such seasons a constant excess in the 
 supply of loanable capital over good bills and other 
 accredited securities ; the rate of interest, which is 
 the barometer of the relative supply of these articles, 
 continues very low generally through a series of 
 years. After a certain period some circutnstance more 
 or less powerful occurs to augment trade ; and then 
 the effect of that capital is felt. Enterprise revives 
 as credit grows, and that capital is lent largely. Till 
 some stimulating event happens, experience shows 
 that such capital may lie almost idle, and that in con- 
 sequence for years the rate of interest may continue 
 long very low. Bankers — the principal holders of 
 that capital — do not and cannot manufacture securi- 
 ties ; they remain quiet and passive; till securities of 
 what they consider a substantial kind are offered to 
 them. But when from some cause peculiar to itself 
 trade does revive, bankers are only too eager to lend, 
 and trade, so far from wanting the money which it 
 reqv^ires, finds the accumulated capital of bankers 
 lying ready and waiting to be used by it. The de- 
 velopment of one trade, too, is never isolated. If any 
 one great industry — say the iron trade — starts into 
 sudden prosperity, the purchasing power of all persons 
 
 connected with the iron trade is largely augmented, 
 
 h2 
 
100 The Minute of the Indian Government. 
 
 and all the dependent trades, and all the trades in 
 which those concerned in the iron trade lay out their 
 money increasingly, thrive in consequence. And these 
 second and dependent trades quicken other third 
 trades dependent on them, and so on through the 
 industrial world. The first period of every industrial 
 cycle is a period of immense new production, and of 
 great prosperity running through and permeating all 
 trades. 
 
 " This period is also one of very high price. The 
 loanable capital — the deposits which have accumu- 
 lated in the years of depression — are then poured into 
 trade. These have the effect of new money. They 
 are a new purchasing power, which augments all 
 prices dealt in, and especially the prices of wholesale 
 articles, which are those upon Avhich enterprise most 
 acts, and in which speculation is quickest and most 
 constant. Experience shows, too, that the rise in 
 prices so produced is a cardinal element in every in- 
 vestigation of the value of money. The effect of the 
 Australian and Californian gold cannot, as Mr. Jevons 
 Avas the first to show, be even tolerably investigated 
 unless this periodical cause of elevation in price is 
 first eliminated, and its effects separately set aside." 
 
 And in the same way now we must be careful not to 
 confound this sort of appreciation of gold with that 
 which would arise from a diminished production con- 
 sequent on increased difficulty of attainment. This 
 last would have a tendency to be permanent — at least, 
 to last as long as the increased difficulty of attainment 
 lasted ; but the appreciation, which is part of the 
 cycle of prices, is sure not to be permanent; it is 
 only a passing incident in the mercantile world, and 
 is sure to be followed by an equal depression. 
 
The Minute of the Indian Government. 101 
 
 It may be said that the present appreciation of gold 
 is due to the new demand for it in Germany and else- 
 where. But this demand tells two ways. What we 
 are comparing is the high range of prices in 1873 as 
 compared with the low one in 1876 ; and one of the 
 eflfects of the German demand for gold in 1872 and 
 1873 was to make the rate of discount often much 
 higher in Lombard Street than it would otherwise 
 have been, and so to reduce the prices of all commo- 
 dities which rise in the speculative times. If it had 
 not been for the German demand for gold, the range 
 of prices in 1873 would have been higher than it was. 
 We cannot, therefore, attribute the fall in prices since 
 1873 to that demand, for it was then already pro- 
 ducing a great effect — a greater, indeed, we think we 
 could show if necessary, than it ever did afterwards. 
 
 The gold-price of silver has now been affected in 
 the same way as the gold price of other commodities 
 for the first time, because it has been now for the 
 first time a commodity in the same position as other 
 commodities. Formerly, the existence of a " double 
 standard" in various important countries took off 
 from the market part of any sudden extra supply of 
 gold or silver, replaced it by an equal supply of the 
 other, and so equalised the price. But now that the 
 " equilibrating apparatus " has been withdrawn, the 
 price of silver in gold upon the London market Avill 
 be affected by the causes which produce cycles of 
 price, just like anything else. How far in this case 
 it has been so affected it is difiicult to say, because 
 we have no experience. All commodities are not 
 equally affected by these cycles ; some are more so, 
 some less, and we cannot say beforehand what will 
 
102 The Minidg of the Indian 'Goverfwrient. 
 
 be the effect on any one. The csiuses which deter- 
 mine this are too many, and their proportions too 
 unkhown, for a priori reasoning. 
 
 But, as far as we can judge, we should not be dis- 
 posed to attribute go much effect to this cause as the 
 Indian Government would seem, from the promin- 
 ence they have given to it, to be inclined to do. So 
 long as silver is largely used as a currency by many 
 countries, it is likely to be a commodity superior to 
 the average of commodities in stable value. All cur- 
 rency commodities, so to speak, are so. Their effi- 
 ciency in exchange diminishes with any decrease in 
 their value, and a greater quantity of them is re- 
 quired. In no other kind of article does a fall in 
 price generate so large an increase of demand, and 
 therefore so much tend to be its own cure. We 
 should therefore expect silver to be ordinarily much 
 less affected by the causes making " cycles " of price 
 than other commodities. 
 
 The figures contained in the table attached to the 
 Minute confirm this view. They show that, taking 
 the prices of each article in March, 1873, as 100, 
 the price of the following articles in the London 
 market was — 
 
 Prices in London op Oertain Commodities in March, 1873, 
 Compared with April, 1876. 
 
 
 March, 1873. 
 
 April, 187« 
 
 Beef, inferior... 
 
 . 100 . 
 
 . 110-00 
 
 Coffee 
 
 . 100 . 
 
 . 95-37 
 
 Beef, prime small ... 
 
 . 100 . 
 
 . 104-76 
 
 Silver, bar ... ' 
 
 . 100 . 
 
 . 89-54 
 
 Copper, Chili bars ... 
 
 . 100 . 
 
 . 88-27 
 
 Flour, town made ... 
 
 . 100 . 
 
 . 86-17 
 
 „ New York 
 
 
 
 . 83-20 
 
 Wheat, American red spring, at N. Y 
 
 
 . 90-06 
 
 Wool, South Down hogs 
 
 . 100 . 
 
 . 80-48 
 
The 'Minute of the Indian Government. 103 
 
 March, 1873. April, 1876. 
 
 Saltpetre 100 ... 80-18 
 
 Cotton, No. 40 mule twist 100 ... 80-35 
 
 Wheat 100 ... 81-90 
 
 Pepper 100 ... 64-77 
 
 Sugar, foreign Muscovado 100 ... 71-79 
 
 Cotton, middling uplands 100 ... 68-92 
 
 Coals, Hetton Wallsend, London ... 100 ... 63-43 
 
 Sugar, Mauritius 100 ... 69-08 
 
 Straits tin 100 ... 49-14 
 
 Scotch pig iron (warrants) 100 ... 49-19 
 
 From this we see that silver has not, in matter of 
 fact, changed as much during the time we are con- 
 sidering as many other articles. And upon the 
 whole, the well known causes tending for the moment 
 to depreciate it — the extra supply from Germany, 
 the want of demand from the "Latin Union," and 
 the apprehension of the new mines — seem to us, as 
 far as we can measure them, causes of a far greater 
 probable effect than the cyclical causes, as far as they 
 affect silver. The utmost we should be inclined to 
 say is, that the cyclical causes produced a weak 
 market, and that the effect of the other causes was 
 in some degree aggravated by this weakness. We 
 believe the special causes affecting silver to be those 
 to which its depreciation is principally owing, and 
 that the causes acting on the value of all commodi- 
 ties only in a minor degree contributed to it. 
 
 We are not indeed sure that the Minute was meant 
 to claim for the appreciation of gold more than this 
 subsidiary effect ; but the prominent place which is 
 given to it might mislead unwary readers into think- 
 ing otherwise. As a whole, both in its conclusions 
 and its reasonings, the " Minute " is most admirable. 
 India is singularly fortunate in having rulers so well 
 able to understand and to cope with a difficulty so 
 peculiar and so little expected. 
 
XV. 
 
 A PROPOSED EEMEDY FOK THE DEPRECIATION 
 OF THE SILVER COINAGE OF INDIA. 
 
 [Fkom the "Economist" of Nov. 11, 1876.] 
 
 It has been suggested that the coinage of rupees 
 should be suspended in India ; that their importation 
 should be prohibited ; that gold should be coined for 
 any one who will take it to the mint at a fixed rate 
 (say at 2s. the rupee) ; that both rupees and gold 
 should be legal tender, which every one must accept, 
 but that for the present, at least, no one should be 
 able to demand gold. And in this way it is hoped 
 that a gold standard would be introduced into India, 
 without the Indian Government having to buy gold 
 to exchange for silver, the cost of which would be 
 more than it could afford. 
 
 But when examined, it will be seen that this is a plan 
 not for introducing into India a gold standard, but 
 a double standard of a peculiar sort. Though the 
 coinage of rupees is suspended, they are still to be 
 legal tender, and their value will therefore continually 
 rise; they will be "monopoly coins," so to speak, 
 circulating at a scarcity value, and they will so cir- 
 culate concurrently with gold. And this is to be the 
 perpetual currency of India, for the only motive for 
 
 thinking of it is that silver is already about to fall 
 104 
 
Remedy for Depreciation of Silver Coinage. 105 
 
 greatly in value ; — its very adoption would for a very 
 long time cause such a fall, because it would close the 
 Indian market against silver — and therefore the cost 
 of buying gold to exchange for the rupee currency 
 of India will be, years hence, more insuperable than 
 it is now. 
 
 But to this plan there are the gravest objections. 
 First — a currency of " monopoly coins," circulating 
 much above their cost- value, is sure to cause their 
 forgery. This is as certain as that a high tariff will 
 cause smuggling. If silver should fall enough to 
 make this scheme worth thinking of, the gain by 
 coining rupees in India, or importing them into India, 
 would be very great, and we may depend upon it 
 capital would go into the business. Some of the 
 shrewdest people in the world — the American pro- 
 . ducers of silver — would have an interest in mana.ging 
 it, and we may be sure they would manage it. The 
 case must not be confounded with that of a " token 
 coinage " of silver such as we have in this country, 
 because our silver coins are only legal tender for small 
 sums, and therefore great masses of them are useless. 
 But in the plan supposed, " monopoly coins " would 
 be the main currency of India, and any quantity of 
 them could be got rid of. India would seem to have 
 most unusual facilities for the operation, for there are 
 native States embedded in our territory where we 
 hardly know what happens, and there is a rich mone- 
 tary class of shroffs and bankers who would feel no 
 effectual moral scruple against disposing of illicit 
 rupees. The moral objection to such a currency as 
 one of perpetual use is very great, for it is an incessant 
 temptation to diffused fraud, and this evil woiild be 
 fastened on India for ever. 
 
106 Proposed Remedy for Depreciation 
 
 Secondly — the confusion in trade it would cause 
 would be extreme. Suppose it were now enacted 
 that no more rupees should be coined, and that gold 
 should be coined at 2s. the rupee, the export trade 
 from India, now stimulated by the low exchange, 
 would be stopped, for the exchange would gradually 
 rise ; nor for a time at least would the import trade 
 into India find a corresponding gain, for a great un- 
 certainty would be produced, in which no new busi- 
 ness would be created, though old business would be 
 stopped. 
 
 Thirdly — this would deprive India of the great ad- 
 vantage she will gain, if the present state of things 
 continue, as the entrepdt through which silver is in- 
 troduced into the East. This is always the effect of 
 a lowered value of the currency-metals. The first 
 persons who get them from the mines gain much ; 
 those who buy them from the mining people gain 
 much too ; and so on, till the depreciation is effected. 
 In the case of India, the importation of silver will 
 gradually raise silver prices ; this wiU bring imports 
 into India from other countries where they have not 
 risen. For very many years England has, in this 
 way, derived the greatest advantage from being the 
 first country to which the Australian gold was sent, 
 and from which it was diffused. The Indian Finance 
 Minister is no doubt troubled by the faU of silver, 
 because he has to buy gold in London, but India 
 itself will probably be benefited by it, for it would 
 give her an easy money market and an extending 
 trade for exports and imports, which the suggested 
 scheme would spoil. 
 
 Fourthly — the currency so introduced would be a 
 
of Indian Silver Coinage. 107 
 
 very bad one. There would be one currency fit for 
 foreign payments — the gold — and another not so fit. 
 The " monopoly coins " would be unexportable, and 
 so, when any one wanted to make a foreign payment, 
 he would have to get gold, which, as a rule, would 
 make gold at a premium. The effect would be just 
 like that of a plan, often discussed formerly jn Eng- 
 land, viz., making the notes issued on securities by 
 the Bank of England (the £15,000,000) inconvertible 
 — the rest remaining convertible. The "nionopoly" 
 rupees would be of limited number and artificial 
 value, just like the security, or Government notes, 
 we used to discuss, and their effect would be exactly 
 what Lord Overstone predicted, in 1857, in his evi- 
 dence on Bank Acts : — " Our affairs would then go 
 on very much in the way that a maii would walk 
 with one of his legs six inches shorter than the other. 
 One set of notes would circulate at a depreciation 
 compared with the other set of notes ; hence great in- 
 convenience and confusion would arise. 
 
 "4050. What would be the real effect of it?— 
 The effect would be, that you would have paper 
 money of two different characters in the country, 
 not of equivalent value ; not circulating indiscrimi- 
 nately each for all purposes, but some useful for one 
 purpose and some useful for the other, and that 
 there would be intolerable confusion. A man would 
 have Government notes, and he would present them 
 to another man in payment; that man would say, 
 ' I do not want Government notes ; I want to make 
 a remittance abroad ; I cannot get bullion for those 
 Government notes ; I will not take them.' 
 
 " 4051. Are they both to be a legal tender ? — ^They 
 
108 Proposed Remedy for Depreciation 
 
 would both be a legal tender as far as the* Govern- 
 ment is concerned, but the Government note would 
 not be a legal tender between individuals. — Then 
 what is that individual to do ? — The other man says 
 to him, ' You must go and get me the other notes. 
 Either you or I must pay a premium for them.' 
 
 "4052. What would be the harm of that?— The 
 harm would be, enormous injustice and intolerable 
 confusion." 
 
 In the plan now suggested — monopoly coins being 
 compulsory tender — gold not being demandable, — it 
 would be settled which party should pay the " pre- 
 mium." Everybody would be obliged to take the 
 purely domestic medium of exchange, and to buy 
 with it the medium which is also of foreign use. 
 But in other respects the evil would be exactly what 
 Lord Overstone describes. There would be two cur- 
 rencies in the country with different values, and 
 prices in one would, as far as the discrepancy went, 
 be different from those in the other. 
 
 For a short time, and during a period of transition, 
 we can quite imagine that this inconvenience might 
 be endured. But the present plan is by its essence a 
 permanent plan — a plan for making a currency for 
 India for all time; and then an inherent effect of 
 great magnitude such as this becomes a most grav e 
 objection. As Lord Overstone said of the old plan — 
 " Then, you would have a certain proportion of the 
 monetary system of the country circulating at a dis- 
 count ; I cannot conceive a greater state of monetary 
 disorganisation than that." 
 
 No doubt, it is said, that the Indian Government 
 may "regulate" the currency; that it may withdraw 
 
of Indian Silver Coinage. 109 
 
 rupees from circulation ; that it may add to the gold 
 in circulation, and so equalise the value of rupees 
 and gpld. But to succeed in such an attempt, the 
 Indian Government would Avant to know the amount 
 of currency required for foreign payments, which is 
 that which causes the difference between silver and 
 gold; and this they never could know. And Ameri- 
 can experience of " gold sales " and greenback with- 
 drawals is a great warning against giving any Govern- 
 ment the power of arranging the currency. It is sure 
 to injure the good repute if not the real good faith of 
 the Government (for it necessarily creates pecuniary 
 secrets of great value), and, nevertheless, it is not at all 
 sure to attain its end, and to equalise, as is intended, 
 the two kinds of currency. 
 
 For these reasons, we cannot think that the sug- 
 gested plan for a new Indian currency would be a 
 good one, even if it could be shown that silver was 
 sure to be permanently excessively depreciated. And 
 as the preponderating probability seems at present to 
 be, that it will not be so depreciated, we are still 
 more of opinion that it would be unAvise to begin a 
 policy on the face of it, and almost admittedly, so 
 anomalous. 
 
XVI. 
 
 THE TRANSITION STATE OF THE SILVER 
 MARKET. 
 
 [Fkom the " Economist " or December 9, 1876.] 
 
 The delicacy of the silver market at present is curi- 
 ously illustrated by the course of the price of silver 
 in the London Market this year. First, there was an 
 immense fall, and now there has been an equivalent 
 rise. The figures are — 
 
 
 
 d. d. 
 
 In 1876 the fluctuations in January were between ... 56^ and 54f 
 
 
 , „ February , 
 
 ... 54f „ 53 
 
 
 , „ March , 
 
 ... 54i „ 521 
 
 
 „ April , 
 
 ... 54 ■ „ 531 
 
 
 ,) May , 
 
 ... 54 „ 52 
 
 
 , „ June , 
 
 ... 52 „ 50 
 
 
 July 
 
 ... 511 „ 46| 
 
 
 , „ August , 
 
 ... 53f „ 50 
 
 
 , „ September , 
 
 ... 52,L „ 51i 
 
 
 , „ October , 
 
 , ... 531 ,, 52 
 
 
 , „ November , 
 
 ... 55 „ 53i 
 
 Present price, December 10th, 56id. 
 
 Such rapid changes of so great a magnitude could 
 only happen in a very delicate market, where a little 
 extra supply, or even only an apprehension of an 
 extra supply, will at once send down prices, and 
 where a slight extra demand, especially when it 
 seems at all likely to be permanent, will at once send 
 them up. The delicacy in this case has been due to 
 11) 
 
The Transition State of the Silver Marhet. Ill 
 
 the fact that the silver market is now in an entirely 
 new state, and that until the conditions which regu- 
 late that state are discovered, all dealers are fearful 
 of keeping any considerable amount on hand. They 
 sell what comes as it comes, which sends down the 
 price ; and in consequence they have none to sell 
 when there is a sudden demand for an extra quantity, 
 and therefore the price rises. 
 
 In former times it was not necessary to keep a 
 stock of silver, and there was no motive for it, for 
 the " Latin Union," being a collection of countries 
 with a double standard, held an immense stock for 
 all the world. If silver showed a tendency to rise in 
 price, gold immedi9,tely was sent to purchase it in 
 the country where it could be obtained at a fixed 
 price in gold. And similarly, any stock of silver 
 which accumulated here was carried off to the 
 " Latin Union " as soon as it ha.d the least tendency 
 to depress the price. Much silver could not be kept 
 in stock, and there was no motive for keeping any. 
 But now this peculiar organisation has ceased to act, 
 for the " Latin Union " has practically ceased to be 
 a "double standard" league, because it does not coin, 
 and therefore does not take new silver in indefinite 
 amounts when required. 
 
 The silver market will therefore in future, like ajl 
 other markets, have to secure its stability by keeping 
 a " stock on hand." Dealers will hold for what they 
 think a good price, which will usually prevent an ex- 
 treme fall of price, and get rid of more or less of this 
 accumulation when there is an unusual demand, 
 which will commonly prevent an extreme rise. But 
 a great number of causes as yet prevent the dealers 
 
112 The Transition State of the Silver Market. 
 
 from doing so. First, the uncertain quantity which 
 the German Government may at any time sell hangs 
 over the market ; the effect of the increase of the 
 " Council bills " on the Indian demand for silver has 
 still to be fully tested in practice — indeed, it will 
 require years so to test it ; the American production 
 is still an unknown quantity, though everything seems 
 to show that it will be much less than it was thought 
 to be ; the " Latin Union " is still in an "expectant 
 attitude," and may possibly resume its old policy. 
 Till these causes have ceased to operate as powerfully 
 as they now do, no important stock of silver will be 
 kept, since the future is too uncertain to justify it, 
 and until it is kept the price will probably fluctuate 
 a good deal, though not as much as during the past 
 year, when most of the influences that cause variation 
 have been at a maximum, and most of those which 
 cause stability at a minimum. 
 
 The rise in the price of silver which has just taken 
 place is as local as the fall which preceded it. The 
 great mass of prices in the countries using silver as a 
 money are wholly unaffected by it. Indeed, such 
 perturbations as a rise of 20 per cent., and then a fall 
 to the old level, during a single year in the general 
 prices of great countries, would have been economical 
 phenomena such as the world has never seen, and 
 such as would have caused a vast derangement of 
 transactions. 
 
 The silver market must settle down into its normal 
 condition before we shall know what will be the 
 normal price of silver in relation to gold or to com- 
 modities. The disturbing forces with which we have 
 had so long to deal must first pass away. And until 
 
The Transition State of the Silver Market. 113 
 
 they have so passed, it will be desirable that no 
 Government shall involve itself in a currency change, 
 depending on the mutual relations of silver and 
 gold, which has not begun one already. Unless in 
 case of vital necessity, such currency changes should 
 be made at the time when the circumstances attend- 
 ant on them can be best foreseen, and that is when 
 the course of trade is most regular, and the chief 
 markets in the matter most in their normal condition. 
 
XVII. 
 BI-METALLISM. 
 
 [Fbom thb "Economist" of December 30, 1876.] 
 
 We haye written mucti this year on the subject of 
 silver, and on the evils of its depreciation, but we 
 have hardly, we think, referred to the scheme which 
 some persons think would set right everything — the 
 scheme of universal " bi-metallism." But the truth 
 is, that we regard that scheme as so entirely beyond 
 the boundaries of practical finance that we did not 
 think it worth discussing, and we only discuss it now 
 because we continue to receive ingenious pamphlets, 
 some of them written by men of business, which main- 
 tain that it is both practicable and advisable. We 
 shall, therefore, state as shortly as possible our reasons 
 for thinking that it is neither. 
 
 The plan is, that by means of an " international 
 conference," or otherwise, all nations should agree to 
 use both gold and silver as legal tender for all amounts, 
 and to use them in the same proportions ; which, it 
 is said, would cure any evils which now arise from 
 changes in the relative value of gold and silver, and 
 in the cost of production of both or either of them. 
 
 But first, any such attempt would be such an alter- 
 ation in the monetary system of- most countries, that 
 it would be difficult to get most of them to take it 
 into consideration, and impossible to induce many of 
 them to agree to it. Take our own case, ^England 
 has a currency now resting solely on the gold stand- 
 ard, which exactly suits her wants, which is known 
 
 114 
 
Bi-metdlism. 115 
 
 throughout the civilised world as hers, and which is 
 most closely united to all her mercantile and banking 
 habits. What motive, that an English Parliament 
 could ever be got to understand, is there that would 
 induce them to alter it ? You cannot even begin an 
 argument which would seem to have a sufficiently 
 striking sound. Some time ago it was indeed said that 
 the finances of our Indian Empire were thrown into 
 confusion by the fall in the price of silver, and that, 
 therefore, the English and the Indian currency should 
 be assimilated, and both be on the " double standard " 
 principle. But even in that case the English people 
 would, rightly or wrongly, never have consented to 
 change their currency ; they would have told the 
 Indian financiers to adjust their system of raising a 
 revenue to the new circumstances. They would not 
 have altered the sovereign for anything which might 
 happen to the rupee. 
 
 And still less would the English people think of 
 doing so when silver has risen in price, and when 
 our Indian finance is no longer inconvenienced. 
 They would say, with their usual untheoretical com- 
 mon-sense, " This event shows how dangerous it is 
 to make great changes upon fine arguments in im- 
 portant matters. You — the advocate^ of bi-metallism 
 — wanted us to make a most troublesome and diffi- 
 cult change to cure our evil, which has, now for a 
 time entirely, and perhaps for ever, cured itself. "We 
 certainly shall be cautious how we listen to you again." 
 
 Then it is said that under our present system the 
 fall in silver throws exchanges into confusion, which, 
 no doubt, alters the course of trade. But practical 
 commerce soon adapts itself to such changes, arid a 
 nation which at present has a good currency, and 
 
 I 2 
 
11.6- Bi-metallism. 
 
 one Avhich suits it, would be very foolish to make a 
 change merely to keep the exchanges from possible 
 fluctuation. And as we have often shown before, 
 the fluctuations in the Indian exchange, which have 
 hampered our export trade to India, are not by any 
 means wholly due to the change in the price of silver ; 
 they are partly owing to the increase in remittances 
 from the East for interest of debt, and on other ac- 
 counts ; the effect of which was long suspended, but 
 now is fully felt. And, as we have also often shown, 
 though the trade to India is impeded by a fall of 
 silver, our trade from India — our imports from thence 
 — are stimulated. The same cause which tends to 
 impair the one, tends equally and necessarily to add 
 to the other. A change in the monetary system of 
 any one country can rarely be effected, except to 
 prevent some great evil ; a change of the system of 
 a very large number of countries could only be made 
 to meet some superlative evil, and in this case neither 
 exists. 
 
 Most advocates of "bi-metallism" now admit that 
 unless all countries adopt it, and unless all countries 
 keep to it, it is a very faulty system. It is not a cur- 
 rency of two metals, but an alternative currency, 
 sometimes of one and sometimes of another. Coun- 
 tries with such an alternative currency always 
 use the cheaper metal and sell the dearer metal. 
 Creditors in it are always injured by being paid 
 in the cheaper metal; debtors are always bene- 
 fited by being enabled to pay in it. The cur- 
 rency of France was thus a few years ago changed 
 from gold to silver, and would now have been 
 changed back again to gold, if it had not refused 
 to take the silver, and had not, in so doing, practi- 
 
Bi-metallism. 
 
 117 
 
 cally abandoned the bi-metallic system. And a sys- 
 tem which requires that every one should agree to 
 make it good, is certainly a system which is diffi- 
 cult to make good, and which is always liable to 
 become bad. 
 
 And even if this system was at once, say, by 
 " miracle," imposed on all the human race, it would 
 be very imperfect. It forces an arbitrary equation, 
 in -which there is no naturalness, between gold and 
 silver. But their natural relative price has varied 
 exceedingly. The following table, published by Mr. 
 Goschen's Committee, shows this clearly : — 
 
 Date. 
 
 Ratio. 
 
 Anthority. 
 
 A.D. 
 
 
 1526 
 
 11-30 
 
 1543 
 
 11-10 
 
 1561. 
 
 11-70 
 
 1575 
 
 11-68 
 
 1551 
 
 11-17 
 
 1559 
 
 11-44 
 
 1604 
 
 12-10 
 
 1612 
 
 13-30 
 
 1619 
 
 13-35 
 
 1623 
 
 11-74 
 
 1640 
 
 13-51 
 
 1665 
 
 15-10 
 
 1667 
 
 14-16 
 
 1669 
 
 15-11 
 
 1670 
 
 14-60 
 
 1679 
 
 15-00 
 
 1680 
 
 15-40 
 
 1687—1700 
 
 14-97 
 
 1701—1720 
 
 15-21 
 
 1721-1740 
 
 15-08 
 
 1741—1790 
 
 14-74 
 
 1791—1800 
 
 15 42 
 
 1801—1810 
 
 15-61 
 
 181 1—1820 
 
 15-61 
 
 1821—1830 
 
 15-80 
 
 1831— mo 
 
 16-67 
 
 1841-1850 
 
 15-83 
 
 I Apparent relation of market value as deduced from the 
 < British Mint regulatvins, eeme absurd and unsuccessful 
 \ experiments in coinage being disregarded. 
 
 V French Mint regulations. 
 
 y German Imperial Mint regulations. 
 
 > British Mint regulations ; experiments disregarded. 
 
 Upper German regulations. 
 >- French Mint regulations. 
 
 > Upper German regulations. 
 British regulations. 
 
 I French regulations. 
 
 Katios calculated from the bi-weekly quotations of the 
 Hamburg prices-current, giving the value of the gold 
 ducats of Holland in silver thalers, down to 1771, and 
 after that in fine silver bars. The nominal par of ex- 
 change during this period was 1 : 14-80, and the quota- 
 tions show the variations of the market-rate in per- 
 centage above or below this. At par, six silver marks- 
 banco were equivalent to one ducat, 68}^ ducats coa - 
 taining one mark (weight) of fine gold, and 27J silver 
 marks-banco, containing one mark (weight) of tine 
 silver. Hence, 6 multiplied by 68^^, divided by 27f , 
 equals 14-80, the par ratio. 
 
118 Bi-metallism. 
 
 Anfi the effect of the bi-metallic system, if uni- 
 versal, would be to fill the world with the cheaper 
 metal only. That which could be brought to market 
 most easily would come to market ; that which cotild 
 least easily be brought to market would not come. 
 And there would, in consequence, bfe an incessant 
 tendency to change of prices. No doubt that tendency 
 Avould be impeded by the magnitude of the stock of 
 the precious metals which now exists, and of which it 
 would have to change the value. But still it would 
 exist, and would be a constant evil. 
 
 But this and other characteristics, whether for 
 good or evil, which may belong to universal bi- 
 metallism are, in our judgment, scarcely worth con- 
 sidering; they seem to us fit only for theoretical 
 books, because the plg,n is only a theory on paper, 
 and will never be in practice tried. 
 
APPENDIX. 
 
APPENDIX. 
 
 EVIDENCE BEFORE THE SELECT COMMITTEE 
 ON DEPRECIATION OF SILVER. 
 
 MONDAY, 8th MAY, 1876. 
 
 Mb. Baxter. 
 
 Me. Gave. 
 
 Mb. Ohbibtopher Beckett 
 
 Denison. 
 Mb. Fawcett. 
 Mb. Gosohxn. 
 
 MEMBERS PRESENT: 
 
 LoBD Geoboe Hamilton. 
 
 Mb. Hebmon. 
 
 Mb. Eibeman Hosqson. 
 
 Mb. Hubbabd. 
 
 Mb. Masbet. 
 
 Sib Chables Mills. 
 
 Mb. Shaw. 
 The Eight Hon. Geobge Joaohim Gosohen, in the Chair. 
 
 Mb. Walteb Bagehot, called in; and Examined. 
 
 Chaibman. 
 
 1361. You have been for many years, I believe, the Editor of the 
 Economist ? — ^Yes. 
 
 1362. I think you have given particular attention to this Silver 
 question ? — ^Yes. 
 
 1363. Have you considered the relation between the depreciation 
 of silver and the Indian exchanges ? — I have devoted a certain 
 amount of attention to it, and it appears to me to be almost certain 
 that the first immediate effect of the depreciation of silver will be to 
 
122 Evidence before the Silver Committee. 
 
 cause an unfavourable balance of trade with tbe East ; and, in con- 
 quence, a great export of silver to the East. 
 
 1364. It has been alleged that the depression of the Indian trade 
 has in part contributed already to the depreciation of silver ? — I 
 should hardlj' like to give an opinion on such a point with6ut read- 
 ing the evidence which has been given before this Committee, which 
 I understand has on this head been contradictory ; it appears to me 
 that, to a great extent, the depression in the trade has been common 
 both to exports and imports ; and, therefore, would not affect the 
 balance of trade, or, in consequence, the exportation of silver to the 
 East. 
 
 1365. If the fall in the value of the crops exported from India to 
 England had been compensated by a corresponding diminution in 
 the exports from England to India, trade might be depressed, but 
 the price of silver would remain unaffected ? — Quite unaffected, as 
 far as that goes. 
 
 1366. Do you share in the view that has been expressed that the 
 drafts of the Council of India' have contributed considerably to the 
 depreciation of silver ? — I should rather put it in this way, that the 
 drafts in India represent an increase in the tribute, a beneficial tribute 
 no doubt, which India pays to this country, and, of course, that 
 being a payment which she has to make, alters the exchange, tends 
 to make it unnecessary to remit silver from this country, and, there- 
 fore, diminishes the demand for silver. 
 
 1367. Do you believe that the fall in the price of silver has 
 operated unfavourably, or is calculated to operate unfavourably, on 
 Indian trade, either temporarily or permanently ? — ^I should say that 
 the effect of the depreciation of silver was to cause an increased ex- 
 port of goods from India to this country, a diminished export from 
 this country to India, and, in that Inanner, to cause an unfavourable 
 
 \ balance of trade. 
 
 1368. Could you explain that a little ipore fully to the Com- 
 mittee ? — I think the increase of the export of goods from India to 
 this country will arise in this way : a merchant in London, who is 
 thinking of importing goods from the East, looks at the price current 
 in Calcutta, and he sees the price quoted in rupees. The merchant 
 in London is in possession of sovereigns in London, therefore he has 
 two operations ; first, he has to buy his rupees in India ; next, with 
 those rupees he has to buy the article which he saw in the price 
 current. The question of profit and loss to him is compounded of 
 
Evidence before the Silver Committee. 123 
 
 the result of those two operations ; if , therefore, he can buy hia 
 rupees in Calcutta on more favourable terms, he will find it to his 
 interest to go into a speculation which would not otherwise be pro- 
 fitable. If he can get rupees at Is. 8d. instead of 2s., and he can 
 buy his goods in Calcutta with the same number of rupees, that ia 
 so much extra gain to him. Conversely, the English exporter of 
 goods to the East will receive payment in rupees, and he will have 
 to sell those rupees ; and if he sells .them for a less amount of sove- 
 reigns, he will suffer a loss, and that is a discouragement to exporting 
 from this country to India. The result of these two operations, of 
 the encouragement of exports from India to this country, and the 
 discouragement of exports from hence to India, necessarily is an in- 
 crease of the balance which this country has to pay to India, and 
 consequently a flow of silver to the East, 
 
 1369. And is, so far, a counterbalancing element tending to raise 
 the price of silver as compared with the other causes which have 
 been mentioned, which might depress the price of silver ? — Quite so ; 
 and I should say a cause of even greater magnitude than any which 
 tend to depress it. 
 
 1370. It is a rectifying cause ? — A rectifying cause, and a rectify- 
 ing cause of the first magnitude, because what I have said extends not 
 only to India, but to all countries which have a silver currency. Those 
 countries are the great majority of the world ; the circulation of 
 silver in those countries is something enormous, and to all those 
 countries ybii wiU have to send a certain amount, if the depreciation 
 of silver continues. The quotations of prices in all those countries 
 are made in silver; Traders with those countries have to go through 
 the operation both ways, as to exports and imports, which I have 
 described, in silver. As to all those countries, there will be a bounty 
 on exporting from them, and a discouragement to importing into 
 them, and in consequence to every one of those there will be a flow 
 of silver. 
 
 1371. In order that the Committee may thoroughly possess them- 
 selves of those particular points, do I understand you correctly that 
 the operation is as follows : a depreciation of silver in India and the 
 depreciation of the Indian exchange, have the following effect, that a 
 London merchant desiring to speculate in Indian produce, will be 
 able with his gold to buy a larger number of rupees ; and that if the 
 prices remain stationary in India, he will, having a larger number of 
 rupees, be able to buy the exports of India at a cheaper rate him- 
 
124 Evidence before the Silver Committee. 
 
 self, and therefore make a larger profit ? — Yes, that is one side of the 
 operation. 
 
 1372. And, on the other side, that the exporter of goods from this 
 country to India will realise, if the prices have not risen (which is 
 the same supposition), the same number of rupees in India, but in 
 turning them into gold, he will find that the identical number of 
 rupees will furnish him with a smaller amount of gold in return here 
 for his outlay, and that therefore he will make a less profit ? — Yes, 
 that is exactly my meaning. 
 
 Mb. Fawcett. 
 
 1373. That opinion, though, is based on the supposition, that as 
 the depreciation of silver continues the prices remain stationary, is 
 it not ? But very soon after the depreciation commences in those 
 countries, where silver is a standard of currency,'the rise in prices will 
 be exactly proportioned to the depreciation of silver ? — When it is, 
 of course, the encouragement is withdrawn. 
 
 1374. After all, the depreciation of a metal which is chosen for 
 the standard of currency is measured and is marked by the rise in 
 prices ; that is what depreciation of money means. If you say that 
 money is depreciated 10 per cent.,. you mean that prices have risen 
 10 per cent. ? — I do not quite understand the question you ask. 
 
 1375. If gold were depreciated in this country 10 per cent., it 
 means that gold possesses 10 per cent, less purchasing value ? — ^Yes. 
 
 1376. Or, in other words, prices had risen to that extent ? — ^Yes. 
 
 1377. The same way in India, where silver, not gold, is the cur- 
 re,ncy, if silver is depreciated to a certain extent, prices must rise 
 to the same extent, therefore, your reasoning is based on an hypo- 
 thesis which cannot take place in actual life ? — No ; I consider that 
 it is based on the present facts. The purchasing power of gold over 
 silver by the English merchants is at this moment increased ; gold 
 will buy a great deal more silver than it used to do ; but the silver 
 prices of articles in Calcutta have not been affected. Silver is not, 
 as yet, depreciated in the East. It is only during the process of 
 depreciation that my argument holds. 
 
 Chairman. 
 
 1378. When I asked you your opinion, I drew a distinction 
 between a temporary effect and a permanent effect ; the opinion you 
 have stated, I understand you to mean is, the temporary and first 
 
Evidence before the Silver Commitlee. 125 
 
 effect ? — Yes ; as soon as the depreciation of silver, as respects the 
 Indian commodities, is equal to its depreciation as respects the gold 
 of the English merchant, then the process which I have described 
 is at an end. 
 
 Mb. Fawoett. 
 
 1379. What I understand is this, that for a time, it may be 
 shorter or longer, during which the depreciation of silver may take 
 place without affecting general prices, you have indicated the prices 
 which will exercise an influence to restore the value of silver to its 
 former level of value ? — The point I wish to make before the Com- 
 mittee is this, that all over the East the process I have described 
 will go on, and that to depreciate silver 2 per cent, all over the 
 East will require a vast amount of silver currency, because the region 
 is so large. No doubt it wUl stop when the depreciation of 2 per 
 cent., or whatever it may be, has been effected, but that will take a 
 long time. 
 
 Chairman. 
 
 1380. The first operation is such as you have described ; the next 
 operation would probably be, would it not, that the prices of com- 
 modities in India would rise ? — ^Yes. 
 
 1381. While silver had been depreciated? — ^Yes. 
 
 1382. Then in proportion as the price of silver rose you would re- 
 quire a larger amount of silver to do the work than had been used 
 before ? — Yes. 
 
 1383. That increasing need for silver to pay for the aggregate in- 
 crease due to the rise in prices would be spread over a vast surface, 
 in your opinion ? — ^Yes, that is my meaning. 
 
 1384. Namely, over the countries with the silver valuation in the 
 East generally ? — ^Yes. 
 
 1385. The greater demand for silver during this process would 
 tend to arrest the fall of silver, pro tanto, in your opinion ? — That 
 would be a main cause, supposing other causes which tend to depre- 
 ciate silver to have the effect which is supposed. 
 
 1386. In the first instance prices might remain stationary for a 
 short time ; then the flow of sUver would take place to the country, 
 owing to the encouragement to export and the discouragement of 
 import. — ^Yes. 
 
 1387. And when that was past, and prices rose to their level, so 
 that there was neither that encouragement nor discouragement, the 
 
126 Evidence before the Silver Committee. 
 
 aggregate amount of silver needed for the commerce of those 
 countries would have been increased ? — Yes. 
 
 1388. After a rise of price all over the East, due to the deprecia- 
 tion of silver, more silver would be required for carrying on the 
 general trade of those countries than before ? — Yes ; to a very great 
 extent. 
 
 1389. Have you at all calculated the surface covered by what is 
 called the silver valuation, as compared with that which is covered 
 by the gold valuation ? — It used to be said until a few years ago, 
 that England and Portugal were the only countries where gold was 
 the standard of value ; and there were certain countries which had a 
 double standard, but those were not very many ; and all the rest 
 were silver. Silver is the normal currency of the world, and from a 
 natural cause, because silver is a much cheaper metal, and is suited 
 to those small transactions which constitute the bulk of the dealings 
 of mankind. 
 
 1390. Have you examined the statistics which are available to the 
 public with regard to the aggregate amount of silver and gold in 
 various countries ? — I have examined them, but I regret to say that 
 I do not think they are of such value as to be made the basis of 
 sound reasoning in such investigations as this. It appears to me 
 that you neither know with certainty the present stock of silver in 
 the world, nor are you able to estimate the probable augmentation of 
 it ; nor do you know the effect which any given per-centage, say 
 10 per cent, on the stock, would have upon its value. The last 
 part is a matter which has not even been discussed, I think. 
 
 1391. You would question, after all the study you have given to 
 the subject, both the accuracy and the real substantial value of 
 figures that go into the aggregate amount of silver and gold in the 
 world, and the proportions of the metals to each other ? — I do not 
 believe they are worth the paper on which they are written. I do 
 not consider that any one knows anything about them, or has the 
 means of knowing. 
 
 1392. To resume the point of the effect of the depreciation of 
 silver on the Indian exchanges, which is one point referred to this 
 Cominittee, can you treat that question as one of exports and im- 
 ports between India and this country alone ; I have heard a remark 
 with regard to the effect upon other countries ? — Of course it will be 
 evident that if this country has to export silver to the East, it must 
 buy that silver somewhere. That silver it will have to buy in 
 
Evidence before the Silver Committee. 127 
 
 America, and therefore a consequence of tte new state ot things will 
 be that the English exporters of goods to some parts of the world 
 will be benefited. I do not say the English exporters of goods to 
 America, for probably we shall not pay America directly. The 
 nature of the trade between America and this country is, that 
 America sends us directly a great deal more than we send her, and 
 America buys, in various parts of the world, coffee, and rice, and 
 tea, and a variety of articles, and that the sellers of those articles 
 draw upon England, and so the balance is struck ; we shall have to 
 pay America in some way for the silver, and we shall pay her by 
 exporting to the countries from whom she buys some of those 
 articles, and therefore, though it is perfectly true to say that the 
 effect of the depreciation of silver may be unfavourable to the 
 English exporter of goods to the. East, yet it will be favourable to 
 another class of English exporters, that is to say, those who pay 
 America. 
 
 1393. You mean this, that as the silver is to be produced, and 
 comes to Europe, or when it comes to Europe, it must be paid for by 
 some means ? — It comes here, and we must pay for it. We shall pay 
 for it, not to America directly, in all probability, but by exporting 
 goods to various parts of the world where America buys. She buys 
 in Brazil, in Cuba, and in the East, and in France, and all those 
 countries draw drafts upon England, and ultimately the account is 
 settled in commodities. 
 
 1394. If America draws more Eastern produce ia consequence of 
 producing more silver, and therefore having something to sell which 
 it can turn into commodities abroad, then a certain amount of new 
 purchasing power is given to those countries from which it draws 
 its exports ? — Yes. 
 
 1395. And that purchasing power they may again avail them- 
 selves of in purchasing from this country ? — ^Yes ; such are the 
 dimensions of our trade, that ultimately they come to buy of us. 
 We are the great settling-house of the world. 
 
 1396. Have you examined the effect of the depreciation of silver 
 upon our trade up to this date ?>— I cannot say that I have made such 
 an examination of it as I should like to lay before the Committee, 
 especially as I understand that contradictory opinions have been 
 expressed upon it, and I should rather rely on the general principle 
 I have stated, because the facts of a particular year are far more 
 difficult to discover than the general tendencies which operate over 
 a long period of time. 
 
128 Evidence before the Silver Commitlee. 
 
 1397. There are so many disturbing causes in any particular 
 year ? — Yes ; and it is so diflScult to get at tke precise facts of any 
 particular year. Statements may be made as to depression of par- 
 ticular trades. We]l, what does depression mean ? The traders 
 will not come and show you their books ; you ought to have a com- 
 parative statement of their profits in the period at which the depres- 
 sion is said to commence, and at the period of which you are talking. 
 Now no such account is ever given in, and therefore you are -dealing 
 with a statement which you have no means of measuring or testing. 
 
 1398. Do I understand you rather to question the prolonged de- 
 pression in the Indian trade ? — I do not doubt that there is a great 
 depression in the export trade from this country, and that that arises 
 very largely from the causes of which I have been speaJdng. The 
 depreciation of silver has necessarily caused discouragement to export 
 to the East ; the people who most call themselves the Eastern trade 
 are the exporters to the East. 
 
 1399. Unless the manufacturers and producers in our manufacturing 
 districts have got stocks of articles already manufactured for India 
 which they are bound to sell ? — TSo doubt they will have to sell them 
 practically at reduced prices, because they will sell them in rupees, 
 and when they bring these rupees home they will yield less in sterling 
 money. 
 
 1400. Still if they are manufactured they would be likely to be 
 exported ? — ^Yes, and perhaps for other reasons. Some part of the 
 export trade, I would not at all say it is true of the Eastern trade, 
 but some amount of trade is carried on by drawing on consignees for 
 the creation of bills, which bills are discounted in this country ; and 
 that trade, which is not of a very healthy description, will always go 
 on, whatever the prices may be. 
 
 1401. Do I understand you to mean in very general terms that it 
 is difficult to arrest any particular branch of manufacture and export 
 the moment it becomes unprofitable ? — ^Very difficult indeed. In the 
 first place, an amount of fixed capital is sunk in it which has to be 
 moved, and people have formed habits and connections ; and such a 
 general cause as I have been speaking of will not operate perhaps for 
 a considerable period of time. 
 
 1402. The export trade from this country to another great con- 
 suming eoiintry might be prolonged sometimes without its being 
 exactly evidence that that export was the result of sound trade and 
 permanent causes ? — Quite so, without its being at all a conclusive 
 
Evidence hefbre the Siber Committee. 1SJ9 
 
 indication that it was sucli a trade as ouglit to be carried on, or such 
 a trade as anybody would begin. 
 
 1403. Would the- depreciation of silver have this effect, that it 
 would prevent the extension of business or the initiation of new busi- 
 ness while alarm was felt as to the uncertainty of returns through 
 the fluctuations in silver, but it would not cause an immediate cessa- 
 tion and diminution of the trade ? — Yes, it would have that effect, 
 it would have a gradual tendency in that direction, a tendency to 
 make the export trade to India cease. 
 
 140-t. Turning to another subject, the evidence before the Com- 
 mittee, I think, has been generally to the effect that the deprecia- 
 tion of silver has been caused by the increased production or the 
 impression produced by the increased production in America, by the 
 demonetisation in Germany, and by the increase of the drafts of the 
 Indian Council ; do you agree in the existence of these causes ? — I 
 think that those causes are real, but I think a fourth ought to be 
 added to them. 
 
 1405. What is that' fourth cause ? — A number of States which 
 are grouped together in what is cjjUed the Latin Union have 
 ceased to coin silver ever since the year 1871 in the same manner 
 which they did before ; as the Committee are aware, the Latin 
 Union is a name for five States, France, Belgium, Italy, Switzerland, 
 and Greece, which up to the year 1874 had what they called a double 
 standard, that is to say, silver and gold were tenders for any amount 
 for debts, and the coinage was framed on the relation of 15-g- to 1. 
 Up to that time it was open to anybody to go to the French, or any 
 other mints, with silver or gold, as the case might be, and get it 
 coined ; the consequence of course was, that the moment metal be- 
 came depreciated, the holders took it to those mints and had it 
 coined ; but in the year 1874 that process was arrested, because those 
 Governments limited the amount of silver which they would coin, 
 and if it had not been for that change of policy, all the silver which 
 is now flooding the London market, and lowering the price, would 
 have been long since in the mints of those countries ; it would have 
 released gold from them, and the combined effect of ^the two operations 
 would have been, that the comparative value of gold and silver would 
 have been very little altered, probably not at all. 
 
 1406. Without giving an opinion as to whether they did right or 
 wrong in the steps they have taken, do I understand you to mean 
 
 K 
 
130 Evidence before the Silver Committee. 
 
 tliat their abstention from purchasing, whereas formerly they were 
 buyers, must be added to the effect of the demonetisation in Germany ? 
 — The operation of the double-standard caused a supply on specula- 
 tion ; the moment any one of the two metals becomes depreciated 
 there is a motive to < any bullion-dealer to take the depreciated metal 
 to the mint, leave it there, have it coined, and with that he can buy 
 the appreciated metal and have a profit ; in that way, in former times, 
 the old silver currency of France was entirely taken away, and gold 
 substituted for it, merely because gold was cheaper ; in the same 
 way now, if the Latin Union continued to coin as before, gold would 
 have been taken away and silver taken back. 
 
 1-107. Are you aware that the stock of silver in the Bank of 
 France has increased of late years ? — Yes, I am aware that it ia now 
 20 millions or more. 
 
 1408. You contend that but for their cessation of coinage a larger 
 figure than that would have accumulated ? — ^Yes, and gold would 
 have been taken away from them. 
 
 1409. To the same amount ? — To an equivalent amount, not only 
 of France, but the Latin Union generally. 
 
 1410. There has been once or twice before, has there not, in 
 France, a change from silver to gold and from gold to silver ? — Yes, 
 we were enabled to pay India in silver for the cotton we wanted 
 during the famine, by getting it from the french currency in this 
 way. 
 
 1411. Was France at that time drained of a large portion of its 
 silver currency ? — A very large portion. It was the saying in France 
 at that time, "The English have taken away the silver," meaning 
 that we had sent it to India. It was quite true that it was bought 
 up with gold. 
 
 1412. Did we pay a premium on silver at the time ? — Gold was 
 much depreciated as against the legal equation, just as silver is now 
 against the legal equation, and therefore it was profitable to send 
 gold to the Mint. 
 
 1413. Had the Governments in the Latin Union not curtailed 
 their coinage even before the year 1874? — 1874 is the first year in 
 which they made a treaty on this' subject, I think. 
 
 1414. Can you state to the Committee any facts with regard to 
 the legislation as to Holland ? — It appears to mo that the difficulty 
 of Holland in this question is far greater than that of any other country, 
 because they have, as England has, an Indian Empire, and they have 
 
Evidence before the Silver Committee. 131 
 
 tlie same currency in the Indian Empire as they have at home. They 
 are much in the same position that we should be in it we had a 
 rupee currency here, and we thought of demonetising rupees. It has 
 been proposed to demonetise the Dutch dollar, which is the coinage 
 both of Holland and of Java, and of other Dutch possessions, which 
 circulates in the East to an enormous extent. 
 
 1415. The Dutch dollar has not yet been demonetised ? — It has 
 not, but proposals are constantly being made, and an experimental 
 step was made last year towards its demonetisation. 
 
 1416. Was a Bill passed with regard to it? — Yes; but like many 
 experimental measures, it was very complex ; I should not like to 
 explain its exact effect ; I have had it explained to me in various 
 ways ; it was a small Act in itself, and only of importance as an 
 indication of a policy which was to follow. 
 
 1417. Was it a temporary Act or a permanent Act? — Temporary- 
 
 1418. To coase when ? — To cease very soon, I think, but I am 
 not perfectly certain. 
 
 1419. As a matter of fact, when that Act ceases, will the Govern- 
 ment of Holland have to make up its mind one way or the other 
 again, and to take some measures ? — Either to make a change, or 
 leave things as they are ; Holland demonetised gold years ago, and 
 has only a silver currency. ' 
 
 1420. As a matter of fact, without expressing any speculative 
 opinion, they have not yet established a gold valuation ? — No, they 
 have greater difHoulties in going in that direction than any other 
 country. 
 
 1421. I have seen it stated in some publications that Holland was 
 one of those countries that adopted the gold valuation ? — That is a 
 complete error ; many circumstances much impede them in so doing. 
 
 1422. Have they been buying silver or gold latterly to your know- 
 ledge ? — I could not lay the details before the Committee. 
 
 Mb. Fawcett. 
 
 1423. The Latin Union, or the Latin Convention, continues in 
 operation till 1880, does it not? — Till some date of that kind. 
 
 1424. Therefore its polic}', which you think has been influential 
 in assisting the depreciation of silver, will continue till the time 
 when it ceases, when the Confederation breaks up ? — Not neces- 
 sarily ; it has an annual meeting, by which it determines the amount 
 of silver which it will coin ; I should say that in 1874 they had 
 
 K 2 
 
132 Evidence hefore the Silver Committee. 
 
 made s cardinal alteration in their policy ; tliQtlieor}' of the donble 
 standard is that any one should be able to biing his money to the 
 mint and get it coined in any amount, but that was altered. 
 
 Chairman. 
 
 1425. What was the original policy of the Latin Union ? — It was 
 the policy of the double standard, as it is called, in which both gold 
 and silver circulate, and are legal tenders for any amount, and in 
 which the relation between them was that of 15-|- to 1. 
 
 1426. Wliat was the object of their combining? — It was, I sup- 
 pose, partly a political movement on the part of the French Empire 
 to gain an influence in those countries, and partly the natural wish 
 of countries so intimately connected to have the same coinage, and 
 they adopted the French coinage of that time, as being that of the 
 predominant Power. 
 
 1427. The Latin Union was not formed with reference at all to 
 the question as between silver and gold ? — They simply adopted the 
 French currency of that time. 
 
 1428. The policy to suspend the coinage is the common policy 
 that has been adopted by them in the course of their union, but is 
 not one of the principles of their union ? — It is contrary to the fun- 
 damental principles of their union. They gave up the double 
 standard the moment they allowed their metal to be limited. The 
 cardinal principle was abandoned. 
 
 Mn. Fawoett. 
 
 1429. Did not they come to some agreement with reference to the 
 coinage of silver, which agreement was to continue in operation till 
 1880; I think we have had evidence to that effect? — They met 
 annually, and determined the amount of silver which they should 
 coin. 
 
 1430. I think Mr. Giffen gave the evidence, but I fancy we have 
 had evidence to this effect, that when they met in 1874, one of their 
 agreements was that they should continue a certain policy with 
 regard to the coinage until 1880, and that they should be bound by 
 that agreement until that year ? — They re-vote annually what the 
 amount shall be, and it is open now to the annual meeting to change, 
 and to go back to the double standard pure and simple. In 1874, 
 the amount which they agreed to coin was £4,800,000. In 1875 
 it was raised to £6,000,000, and now it has gone back to £4,800,000, 
 in 1876. It is divided between the countries. 
 
Evidence before the Silver Committee. ' 133 
 
 1431. You say they cardinally changed their policy in 1874 with 
 regard to the coinage of silver, and their policy with regard to the 
 future of course is uncertain ? — Very uncertain. It is a possibility, 
 I do not say that it is a probability, that they might begin to coin 
 silver in unlimited amounts, and that would take the silver off the 
 market, 
 
 1432. On the other hand, it is possible that they may continue 
 this policy, which you think has been influential in assisting the 
 depreciation ? — Yes ; or they may go further, and demonetise the 
 silver in France. That has been proposed, and that would throw an 
 additional amount of silver on the market. 
 
 1433. Their policy one way or the other will have a considerable 
 effect either in promoting the depreciation of silver, or in retarding 
 its depreciation, and that policy with regard to the future is, in your 
 opinion, obscure and uncertain ? — Yes ; it will be a force of the first 
 magnitude. 
 
 1434. You would not like, at any rate, positively to predict in 
 what direction that force, which you have described as one of the 
 first magnitude, will operate ? — I think there are very great diffi- 
 culties in the way of demonetising silver in France, and it is certain, 
 I believe, that the present rulers of France wish to preserve what 
 they call an expectant attitude, and to continue the present state of 
 things, only coining limited amounts, but whether they will be able 
 so to continue I do not know. 
 
 1435. Do you think that one element in considering what the 
 value of silver is, is this, — that the value of the precious metal, after 
 all, is determined by the same considerations as the value of any 
 other mineral, or any other commodity, and that consequently the 
 cost of producing those metals, or the. cost of raising them, must 
 have an important bearing on their future value ? — Undoubtedly. 
 
 1436. Therefore, if the cost of producing silver should greatly 
 diminish, that must sooner or later, just in the same way as if the 
 cost of producing any other article greatly diminished, have its effect 
 upon its value ? — That will of course have an effect upon the value, 
 but it will be limited by several considerations ; one is, that it is the 
 cost of production under the most difficult circumstances which 
 regulates the price, not the cost of production in those mines of 
 splendid fertility which we hear of, but the cost of production in the 
 least of the old mines which keeps itself at work. 
 
 1487. To draw an analogy, if you suddenly discovered in a 
 
134- Evidence before the Silver Committee. 
 
 country a great tract of fertile land, the immediate effect of tliat 
 land being discovered, which -would enable agricultural produce to 
 be, produced cheaper, would not necessarily be to lower the value of 
 agricultural produce if the demand for it keep on increasing, so that 
 it was necessary to keep the comparatively speaking unfertile land 
 in cultivation, which before had been cultivated ? — Quite so. 
 
 1438. But if, on the other hand, this fertile land should so adfl 
 to agricultural produce that the more unproductive sources of supply 
 which had been before worked should be given up, then the cost of 
 producing that produce would diminish ? — Yes. 
 
 1439. You think that would apply as an analogy to the valne of 
 the precious metals ? — ^Yes ; I think it would be the niine of the 
 least fertility that should keep itself at work that would regulate 
 the price. 
 
 1440. You have described to us very clearly what you think will 
 be the effect on the trade of India, if the depreciation of silver con- 
 tinues, but have you considered what its effect on the revenue of India 
 is ? — I suppose that it will be unfavourable to the revenue of 
 India, because the Indian Government are so unfortunate as not to 
 be able to increase their taxation. 
 
 1441. And the peculiarly unfavom-able effect it will produce is 
 this, that one considerable portion of the land revenue of India is 
 either permanently or for a considerable period fixed in pecuniary 
 amount, which amount is estimated in silver ? — Yes. 
 
 1442. Therefore, although from that circumstance inferences 
 may come into operation to correct any bad effect which it may 
 have on the trade of India, the loss which would arise to the revenue 
 of India from that circumstance cannot be got over by any of the 
 circumstances to which you have referred ? — I do not think there is 
 any connection between the trade of India and the revenue of India 
 for this purpose in the peculiar circumstances of the Indian Govern- 
 ment, because they do not seem to be able to apply additional tax- 
 ation. 
 
 1443. But as to the loss on the revenue, even if they could apply 
 additional taxation, which is a fixed pecuniary amount, either fixed 
 permanently or for a considerable number of years, there is no way 
 of meeting that ? — No ; that is a matter of agreement which cannot 
 be altered. 
 
 Sib Charles Mills. 
 
 1444. You mentioned the demonetisation of silver by Germany 
 
Evidence before the Silver Committee. 135 
 
 as being one of tlie causes. I suppose you will supplement that by 
 the cessation of the demand for fresh, coinage ? — Quite so. 
 
 1445. It includes not only the selling of the silver, but also the 
 cessation of the demand for fresh silver ? — Yes. 
 
 1446. You stated that you thought it was very difficult to form 
 any opinion as to the amount of silver and gold there was in circu- 
 lation in the world ? I think you go further, do you not, and say it 
 is very difficult to form even an opinion as to the amount of gold in 
 circulation in England ? — There are very various estimates by very 
 competent persons. Of course, it is much more possible to get near 
 that than the circulation of the world, but such estimates are more 
 matters of scientific conjecture than anything else. 
 
 1447. We had some figures given us as to the amount of thalers 
 in Germany, do you think that those are also very doubtful ? — Very 
 dubious indeed. I have a strong belief that the Government do not 
 themselves know ; their whole policy is perplexed by uncertainty as 
 to that, as far as an external observer can judge. 
 
 Chaieman. 
 
 1448. When you speak of the drafts of the Government .of India, 
 you consider that those drafts, I presume, are determined by the 
 amount that they require ; it is not an open question how much 
 money they can raise, or how much they need not raise ?— 'I sup-- 
 pose that the drafts are regulated by the necessities of the Indian 
 Government at home. They have a certain interest to pay, certain 
 salaries to discharge, and certain things to buy, which are absolute 
 necessities, I suppose. 
 
 1449. You do not wish to convey the idea, when you stated, as 
 other witnesses have stated, that the increase in the drafts of the 
 Indian Council are one of the causes which have led to the deprecia* 
 tion of silver, that it was at all a cause which the Indian Govern- 
 ment could have avoided ?— I apprehend it is not optional at all. 
 
 Mb. Pawcett. 
 
 1450. The great part of the expenditure of India is quite within 
 the control of the Home Government here. I will give one illus- 
 tration ; for instance, so much had to be remitted from India to 
 England for the payment for the buildings at the India Office. It 
 was perfectly optional with the Government here whether they 
 erected buildings. I do not mean to say whether they were wise in 
 
136 Evidence 'before the Silver Committee. 
 
 erecting tlie buildings they have, but it was optional for tbem to 
 spend more or less, or the exact amount -which they did spend on 
 those buildings. Therefore the expenditure is within their control, 
 but having sanctioned a certain expenditure, of course the amount 
 they have to withdraw is not within their control ? — Yes, it. is only 
 in that sense optional. Having determined their expenditure by 
 political considerations, the money must come. 
 
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