OCCASIONAL PAPERS ISSUED BY CIjc fnlcrnatioital fftonclaw jllanirartr ^ssanation. Sfo. 72 . MEMORANDUM ON The Existing Relations between Gold and Silver as Affecting British Trade. PREPARED AT THE REQUEST OF THE LONDON CHAMBER OF COMMERCE, EAST INDIA AND CHINA SECTION. BY PAUL F. TIDMAN. LONDON, 1886. ASSOCIATION FOE THE ESTABLISHMENT OF AN INTERNATIONAL MONETARY STANDARD OBJECT. THE PROMOTION OF THE STABILITY OF VALUES : By establishing the free coinage of Silver and its use as money, under the same conditions as Gold. By advocating and furthering an International Agreement, whereby a fixed relative value between Gold and Silver may be established, and the two metals may jointly form the currency of civilised nations ; thus facilitating the adjustment of International Balances, and lessening the excessive and needless risks which have now become attendant on Home and Foreign Trade. ^hesibent. Henry Hucks Gibbs. TTicc-^rcsitient. H. R. Grenfell. RT. HON. ARTHUR JAS. BALFOUR, M.P. SIR GEORGE CAMPBELL, M.P., K.C.S.I., D.C.L. ALFRED LOUIS COHEN. HENRY COKE. ALDERMAN COTTON. SIR ARCH. ORR-EWING, BART., M.P. ROBERT GLADSTONE. ABRAHAM HAWORTH. EDWARD LANGLEY. SIR ROPER LETHBRIDGE, M.P., C.I.E. ffiounctl. SAMPSON S. LLOYD. SAMUEL MONTAGU, M.P. JOHN MUIR. EDWARD HOWLEY PALMER. SIR ALBERT A. DAVID SASSOON, C.S.L I. SELIGMAN. SAMUEL SMITH, M.P. THOS. SUTHERLAND, M.P. PAUL F. TIDMAN. STEPHEN WILLIAMSON. (Errcutibc Committee. RT. HON. ARTHUR JAS. BALFOUR, M.P. J. HOWARD GWYTHER. SAMPSON S. LLOYD. SAMUEL MONTAGU, M.P. BENJAMIN KISCH. PAUL F. TIDMAN. Sccrctarg. G. J. FRASER. $onorarg Correspontitng Secretaries. Liverpool— Joseph carter redish. Birmingham— Frederick ash. Manchester —Robert Barclay. j. p . turner. Glasgow— WM. EWING. Bradford JOHN M. maclaren. Blackburn— Alex, carus. The qualification for Membership is a Subscription of £1 Is. Cheques may be made payable to the Secretary, 34, Leadenhall Street, London, E.C. MEMORANDUM ON THE (feting Relations between (Sold and jliltreij, PREPARED AT THE REQUEST OF THE LONDON CHAMBER OF COMMERCE— EAST INDIA AND CHINA TRADE SECTION, By PAUL F. TIDMAN. February, 1886. GOLD, 1. The purchasing power of Gold, or its exchangeable value, as against that of other commodities, has increased, and must continue to increase, under present conditions, because of:— (a.) The necessity laid upon Gold to fulfil monetary functions, formerly discharged by Silver or paper. Within the last ten years the resump¬ tion of specie payments in America, the de¬ monetisation of Silver by Germany, and the reserves of Gold acquired by Italy, have absorbed £200,000,000 of Gold, or more than one-quarter of the entire stock available for the world’s currency. (6.) The falling-off in production, see Table No. 1. ( c .) The increase of population and trade in the countries using Gold as the standard of value. (d.) The extending consumption of Gold in the arts 4 and manufactures—an amount varying, accord¬ ing to different estimates, from ten to fifteen millions sterling annually. (e.) The absorption of Gold in India in the shape of treasure, ornaments, etc. This has been, for some years past, at the rate of five millions sterling per annum (see Indian Government returns). 2. The increased purchasing power of Gold, or the “ appreciation of Gold,” is practically synonymous with a fall in the prices of commodities, whenever such com¬ modities are measured in Gold, because :— The price of commodities, is a term involving the amount of these which exchanges for a given quantity of Gold; price being primarily the relation of the available quantity of commodities, to the volume of Gold that exists for exchange or currency purposes. The effect of credit on prices, and also the expan¬ sion of monetary power by the cheque system, is fully admitted; but Commerce has no ultimate and safe basis of exchange except the precious metals. For the course of prices of commodities in England, see Table No. 2. For the same in America, see Table No. 3. 3. A continuous fall in the prices of commodities, if sufficiently prolonged, must exhaust the industries of a country. The advantage of low prices to the consumer is a one-sided aspect of the question. England being a nation of producers, a fall in the value of our productions and manufactures, goes side by side with a fall in the prices of imports. The profits from Agriculture (which is still the most important industry of the country) and from Manufac¬ tures have been greatly reduced, and in many cases 5 have already disappeared. The position of agricultu¬ rists and manufacturers must become unbearable, if while the prices of all that they produce continue to fall, they have at the same time to pay for rent and labour an equal amount in Gold, which has increased in purchasing power. Rents have already fallen in all parts of the country, but it is now affirmed to be the case, that although in many instances if rents are remitted altogether, the producer can make nothing, owing to the heavy decline in values. The effects must become felt over a still wider area, now that the security of the immense mass of mortgages on land and manu¬ facturing and house property is being threatened. Wages are beginning to give way, and must fall considerably before there can be a fair margin of profit on manufactures generally. The number of labourers without any employment is on the increase. 4. It may be matter for question how far the appre¬ ciation of Gold influences fluctuations in the charge for loanable capital, i.e., the rate of discount. But it is desir¬ able to point out, that the rate does not rise or fall in accord with the dullness or activity of trade, but is to a large extent dependent on the quantity of gold imported or exported and in reserve. 5. The prejudicial effects of the appreciation of Gold from a National point of view, may be considered to be outside the scope of this inquiry. They include the increasing burden of the National Debt, the greater pressure of taxa¬ tion, and the change which is being effected between the debtor and creditor classes, to the detriment of the former. But on this branch of the enquiry the words of Mr. Jevons, in 1863 (at a time when monetary conditions were the reverse of what they now are, i.e., when there was a depreciation of Gold to the extent of 9 per cent.) are 6 applicable:—“ The country may be said to be looking “ calmly on, while every contract, including that of the “ National Debt, is being violated against the intention of “ the contracting parties.” 6. There have been contributory causes to the fall in prices, but of these, some would appear to have acted in particular cases, not on prices as a whole, and others have been temporary only. Each article of commerce has its own history, which records incidental causes for variations in price. The appreciation of Gold will be found to be a factor in them all. Silver. 7. The market price of Silver in London has fallen from 60 Jd. per oz., the average at which it stood from 1827 to 1872, to 46^d. per oz. This is not the result of the increased production of the metal, because— {a.) Whereas, between the years 1849 and 1872, the world’s production of Silver had fluctuated between seven and fifteen millions sterling per annum, while the production of Gold had varied between five and thirty-one millions per annum the exchangeable value of Silver to Gold in London, deviated from the normal ratio only to the fractional extent explicable by the ex¬ change, transport charges, &c. (b.) Where Silver is still current, and in full or partial use as legal tender, its local purchasing power shows scarcely any alteration. In India, China, and the United States, Silver will still purchase the same amount of land, of the necessaries of life, and of labour, as it did ten years ago. Railway and steam companies and other employers, have made no change in their rate of wages, and it would appear that the cost of living to Asiatic natives is, if possible, rather less than formerly. (See Indian Go¬ vernment Report, 1885.) In Bi-metallic coun¬ tries, of course, the exchangeable value of Silver, not only as against commodities, but as against Gold, is maintained at the fixed ratio. (c.) The market price of Silver in London has con¬ tinued to fall, out of all proportion to the production, see Table No. 1. 8. The continuous fall in the price of Silver can no longer be attributed to forced sales of the metal, such as were made by Germany ten years ago. 9. The main demand for Silver has ceased since 1874, when the free coinage of it was suspended. From that time onward the downward course of prices has been assured, and must continue unless the demand for Silver as money be again revived. 10. There are no indications at present of any such revival. In the United States, the advocates of the stop¬ page of silver coinage have the support of the Government, and of the banking and financial classes, so that although they may be defeated this year, they will continue to struggle for the adoption of the single Gold Standard. 11. There is a growing sentimental feeling against Silver, on the ground of its fall in value in Europe, which is well illustrated by the Italian Finance Minister’s statement in the Chambers, that “ Italy must secure Gold, because she would not expose herself to serve as a reservoir of debased metal.” 12. The existing relations between Gold and Silver, as compared with those permanently settled in 1873, may be commercially expressed thus :— (ci.) The Mexican dollar, the currency of India and the far East, has fallen in value relative to Gold from 4s. 5d. to 3s. 4d. ( b .) The Rupee the currency of two hundred millions 8 of British subjects in India, has fallen in value relative to Gold from 2s. to Is. 6d., the stock of Silver money in India formerly estimated at two hundred millions sterling, being now worth only one hundred and fifty millions when measured in Gold. 13. Among the results of the fall in Silver, are the fol¬ lowing :— (a.) A stimulus to industrial enterprise and agricul¬ tural production, in countries upon the Silver Standard. Manufactured goods of many kinds can be produced more cheaply in India, for local consumption and export to other silver¬ using countries, than they can be imported from England; the whole operation from first to last being conducted on the same firm and stable basis of values as between buyer and seller. ( b .) Cultivators of the soil obtain more Silver for their produce intended for export, because thirteen rupees are now the exchangeable equivalent of the sovereign, as against ten rupees for¬ merly. In other words, an export bounty equal to the fall in the price of Silver, is being paid to the Indian as against the Home pro¬ ducer. 14. The annual indebtedness of the Indian to the Im¬ perial Government increases annually, by reason of the loss in exchange, which now amounts to four millions per annum, and, as the inevitable consequence, there has been resort to increased taxation in India. 15. The trade of Great Britain with Silver-using countries which are her most important customers, is seriously inter¬ fered with, and its proper development checked, as is evidenced by the falling-off in the value of our exports to Silver-using markets, as compared with those upon the single Gold Standard. (See Table No. 4.) 9 16. Silver-using countries have ceased to be a profitable field for the investment of British capital. Wherever the capital and interest is returnable in Silver, a prospective heavy loss by exchange must be faced by the investor. If the interest be guaranteed in Gold, a tax of 20 per cent, is at once laid on the profits of any undertaking for which such capital is supplied. The extension of the railway system in India, as well as its development in Burmah and China, cannot at present be viewed as a safe investment for English capitalists. The foregoing, indicates generally the present disturbed relations between Gold and Silver, which, up to 1873, had jointly and harmoniously served as the standard of value for the world’s commodities. 1/. It was not “a Double Standard,” but a Compensating Standard, a short supply of one metal, being compen¬ sated for by an increased output of the other. Had the single Gold Standard been universally adopted, as was recommended in 1852, when the Gold production was thirty-six millions sterling, what would have been the effect on prices of commodities by 1872, when the produc¬ tion had fallen to nineteen millions, and the consumption, apart from currency purposes, had largely increased ? On the other hand, if the single Silver Standard had been reverted to, what must have been the course of markets as between 1852, when the production of Silver was eight millions sterling, and 1872, when it had risen to thirteen millions ? 18. The use of The Compensating or Bi-metallic Standard made the addition to the currency of the world in— 1852. 1872. Millions. Millions. Gold . ... 36 20 Silver . ... 8 13 Total ... 44 33 thus maintaining practical stability in the Standard of value. 10 Remedial Measures. 19. Various schemes have been suggested, the most noteworthy being:— (a.) That Gold should be retained as the sole Standard of value among the wealthier countries, and Silver reserved for those in a more backward state of development. But all such arbitrary proposals must fail to ensure general international assent, if only because of the strength of popular sentiment, illustrated in the case of Italy. And even were it possible to carry out such an arrangement, it has already become clear, that the annual additions to the Gold currency, are even now inadequate to the increasing needs of the nations and commerce which already depend upon the single Gold Standard. Moreover, no such appropriation of Metallic Money would lessen the difficulties of conducting International Commerce, an aim only secondary in importance to that of maintaining stability of values. ( b .) That, as her contribution to an International Bi-metallic Convention, Great Britain should undertake to maintain the free coinage of Silver in India, and that the Bank of England should engage to hold the legalized proportion of its reserves in the same metal. To this, the answer of the other partners to the Convention seems obvious. India would not, by this means, render any fresh assistance in maintaining the demand for Silver as money. But it may be doubted whether the Government of India could without incurring grave risks, financial and political, suspend free coinage, which would mean a further depreciation of the 11 monetary wealth of the country and increased taxation to meet the larger indebtedness which a fresh fall in exchange would cause to India. The possibilities of a Gold coinage for India are not denied, but cannot be regarded as at present within the scope of practical discussion. The Bank of England have expressed their willingness to exercise the power referred to, but the amount of Silver held by them would in that case be only five millions, far too insignificant a proportion of the stock, to be a sufficient consideration to the countries of the civilized world, for reopening their Mints to free coinage. (c.) Various measures of compromise are being dis¬ cussed in the United States, but all of them fall short of any efficient settlement of the question. 20. The course of events is drifting towards one of two consummations. The further demonetisation of Silver and a scramble to get rid of it, which, to adopt the words of Mr. Goschen, “ might provoke one of the gravest crises ever undergone by commerceor a renewed use of it as Money, by the establishment of an International Con¬ vention. 21. Can the relations between Silver and Gold be made fixed and permanent? is the practical question before the Chamber. The weight of opinion among Political Economists is (a.) That with the Compensating or Bimetallic Standard composed jointly of Gold and Silver, there would be greater stability of values in commodities. (See Jevons, Bonamy Price, Sidgwick.) ( b .) That the existence of such a Compensating or Bi-metallic Standard up to 1873, did actually tend to further such stability. (See Dr Soetbeer’s letter in London Economist , of 15th August, 1885.) 12 22. The issue, therefore, to be decided, is whether such a Monetary Convention as has existed among the states of the Latin Union since the year 1865, can be extended to the leading nations of Europe as well as to the United States, and if so extended, whether it can be worked without fear of interruption ? 23. The German Finance Minister, in his recent speech doubts the permanence of such a Convention, on the last ground that seems left for such a doubt, viz., that it might prove to the interest of one State to withdraw from it. Such a fear appears groundless, because it can be shown that any such individual interest would be non-existent, and that the withdrawal of one State must act prejudicially to itself, while it left the remaining States of the Convention untouched. Any one State in a Bi-metallic Convention, attempting to change its metallic Monetary Standard, must pro¬ ceed to sell its stock, say of Silver, in order to replace it with Gold. But from whom is it to obtain the Gold ?—because, on the hypothesis, all the other civilized States are members of the Bi-metallic Con¬ vention and would exercise their right of discharging any indebtedness they might have contracted to the seceding State, in Silver and not in Gold. It is diffi¬ cult to see that anything could result to the seceding State, except confusion to her commerce and loss to her Exchequer. If, pressed by the necessities of war, one State were to suspend specie payments and sell both her stock of Silver and Gold, there would be no derangement of the currency of the States which supplied commodities against the Gold and Silver so disposed of. 24. An objection is sometimes raised to England’s re¬ suming the Bi-metallic Standard of value, on the ground that it would involve an act of national dishonesty to the creditor class. It is said that holders of Consols have 13 bought on the faith of being paid in sovereigns. It may be pointed out in reply :— (a.) That a very large portion of our National Debt was contracted before Gold was adopted as the standard of value. ( b .) That on the resumption of specie payments in England, Silver was discarded as money without any recognition by the country of the gravity of the change that was being made—a change which has proved to be in the interests of the Creditor against the Debtor, the few as against the many. (c.) That every nation has the right to declare what shall be legal tender in discharge of indebted¬ ness, and that if the Bi-metallic standard were resumed by England, as one of the parties to a European and American Convention, no in¬ justice would arise, because twenty shillings in standard Silver would equally discharge in¬ debtedness with one sovereign. The same prin¬ ciple would hold good throughout all countries comprising the Monetary Union. ( d .) That if it be granted that the holders of Consols are entitled to a given number of sovereigns, or in other words, a fixed weight of Gold, the Nation neither had nor could have power to determine, that Gold should be for ever the standard of value or legal tender; and that supposing the laws relating to legal tender were altered, holders of Consols might find it to their prejudice to be paid in Gold. 25. The plea raised as to the inconvenience of Silver on account of its weight, can hardly be considered a serious one in face of the cheque system universal in England, and of the fact, that the issue of small notes would be perfectly legitimate, so long as they represented reserves of Silver or Gold. 14 Table No. 1. LONDON MARKET [ Supply. Pro- . portion Total Price of of Date. Katio. GOLD. SILVER. Gold Gold of to and Silver | Silver. Silver per oz. Millions Millions 1 1 to £ £ £ 1801—1810 15-61 \ 2-6 7-7 2-97 10-3 1811—1820 1821—1830 15-51 15-80 \ 1-6 3-6 2-25 5-2 1831—1840 15-67 # # # # 1841—1850 15-83 1849 15-80 5*4 7-8 1-44 13-2 1850 15-83 8-9 7-8 0-88 16-7 1851 15-46 13-5 8-0 0-59 21-5 1852 15-57 36-6 8-1 0-22 44-7 1853 15-33 31-1 8-1 0-26 39-2 1854 15-33 25-5 8-1 0-32 33-6 1855 15-36 27*0 8-1 0-30 35-1 1856 15-33 o 29-5 8-2 0-28 37-7 1857 15-27 26-7 8-1 0-30 34-8 1858 15-36 &> 24-9 8-1 0-32 33*0 1859 15-21 2 - 23-9 8-2 0-34 32-1 1861 15-47 22-8 8-5 0-37 31-3 1862 15-36 21-6 9-0 0-42 30-6 1863 15-38 21-4 9-8 0-46 31-2 1864 15-40 22-6 10-3 0-45 32-9 1865 15-33 24-0 10-4 0-43 34-4 1866 15-44 24-2 10-1 0-42 34-3 1867 15-57 22-8 10-8 0-48 33-6 1868 15-60 22-0 10 0 0-45 32-0 1869 15-60 21-2 9-5 0-45 30-7 1870 15-60 21-4 10-3 0-48 31-7 1871 15-59 21-4 12-2 0-57 33-6 1872 15-63 / 19-9 13-1 0-66 33-0 1873 15-90 '58 U 19-2 17-9 0-93 37*1 1874 16-15 6 8 | 18-2 14-3 0-79 32-5 1875 16-76 19-5 16-1 0-82 35-6 1876 Highest 20*17 ) Lowest 16-62 J [ 17-68 52f 19-0 14-8 0-78 33-8 1877 Highest 17-58 \ Lowest 16-84 j 17-22 55f 19-4 16-2 0-84 35-6 1878 Highest 19-00 i Lowest 17*14 • 17-92 52/e 17-3 14-7 0-85 32-0 1879 18-24 514 20-8 18-6 0-89 39-4 1880 17-89 524 21-0 18-2 0-87 39-2 1881 18-07 51if 19-9 18-8 0-94 38-7 1882 18-04 514 19-3 20-5 1-06 39-8 1883 18-46 5 Of 18.3 21-4 1-17 39-7 1884 18-51 17-9 21-4 1-20 39-3 15 Table No. 2. In the following Table the system of “ index numbers ” is used. The market prices of all the important articles of trade, ruling at any chosen time, is ascertained and formed into an aggregate or index number. This aggre¬ gate represents the general level of prices at the date selected. The same method is practised as to other periods, and a table of index numbers is thus constructed repre¬ senting the aggregate of prices for the respective periods. The first period chosen as a basis for comparison, is that from 1845 to 1850, and the index number, representing the aggregate of prices for it, proves to be 2,200. It was a period in which the low prices prevailed, which ruled before the Gold of California and Australia had come into use. It will be seen that general prices rose under the influence of the new metallic supply until 1873, when the index number had run up to 2,947, showing an average increase of thirty-four per cent, between 1850 and 1873. Assuming 2,947 as the index number representing values in 1872, when both Gold and Silver were in use through the greater part of Europe (except England) as the standard of value, the falling off in prices since that year coincides with the appreciation of Gold. It will be seen that the index number declined from 2,947 in 1873 to 2,098 in 1885, or 28 per cent. Table Indicating the Rise of General Prices until 1873 and the Fall since as Compared with Gold. 1845-1860 2,200 1874 . . 2.891 1857 2,996 1875 . . 2,778 1858 2,612 1876 . . 2,711 1865 3,575 1877 . . 2,723 1866 3,564 1878 . . 2,529 1867 3,024 1879 . . 2,202 1868 2,682 1880 . . 2,538 1869 2,666 1881 . . 2,376 1870 2,689 1882 . . 2,435 1871 2,590 1883 . . 2.342 1872 2,835 1884 . . 2,221 1873 2,947 1885 . . 2,098 16 The next Table gives the prices of some principal articles. Table showing Prices of Certain Articles in London in Different Years. 1873. 1879. 1885. Scotch pig iron, per ton 127s. 43s. 41s. 9d. Steam Coals, per ton. 21s. 9s. 3d. 10s. 6d. Copper, per ton . £85 £58 £44 Tin, per ton. £131 £71 £86 Wheat, av. per qr., . 55s. 1 Id. 39s. 7d. 34s. lid. Flour, per sack . 47s. 6d. 37s. 32s. Beef, per 8 lbs. 3s. lOd. 2s. lOd. 4s. Cotton, mid. up., per lb. 9d. 6 T 6 ed. 5§d. Wool, per sack . £23 £13 £11 Sugar, Manilla, per cwt. 20s. 6d. 20s. 12s. Pepper, bl., Malabar, per lb. 7d. 4|d. 8d. Saltpetre, for., per cwt 29s. 19s. 15s. 3d. Table No. 3. Average and Comparative Prices of some of the Principal Domestic Commodities Exported from the United States. Commodities. Average Price during Fiscal Years. Percentage of price of 1884 to price of 1884. 1870. 1883- 1884. Sheep. head $2,405 3.424 3.105 129.1 Indian Corn bushel .924 .683 .611 101.2 Wheat. bushel 1.289 1.126 1.066 82.7 Coal, Bituminous ton 6.632 3.440 4.705 70.9 Copper, Pig and bar .. pound .174 .157 .148 85.0 Cotton, Sea Island .. pound .537 .202 .323 60.1 Iron, Pig. .016 .015 .013 81.2 Mineral Oil, Crude .. gallon .206 .074 079 38.3 Butter. pound .293 .185 .182 62.1 Salt . ,, .401 .319 .392 97.7 Sugar, Brown .. .112 .086 .073 65.2 Timber, Sawed .. cubic feet .171 .163 .112 65.5 Wool, Raw. pound — .342 .296 Table No. 4. Comparison of British Exports to Countries on the Gold and Silver Standard, as between 1880 and 1885. Gold Standard .. .. .. .. Nett Increase 15 per cent. Silver Standard .. .. .. Nett Decrease 7 per cent. PAPEES ISSUED BY THE ASSOCIATION. Supplement to “The Bullionist,” January—August, 1882. Nos. 1 to 6. OCCASIONAL PAPERS. No. 1. — Report on the Bi-Metallic Conference at Cologne. No. 2.—The Ratio Between Gold and Silver. No. 3.—The Appreciation of Gold and its Effects on Industry. No. 4.—The Fall in Prices and its Explanation. No. 5.—Report of Proceedings at First Annual Meet¬ ing. No. 6.—The Gold Question and the Fall of Prices. No. 7.—Foreign Competition and the Silver Question. No. 8.—The Future of Silver, &c. No. 9.—Report of the Bankers’ Union of Paris and the Provinces upon the Monetary Ques¬ tion No. 10.—Report of the Proceedings at the Annual Meeting, 1886. No. 11. —Speech of Mr. H. R. Grenfell at Manches¬ ter, February, 1886. WERTHEIMER, LEA AND CO., PRINTERS, CIRCUS PLACE, LONDON WALL.