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• Preface to the Fourth Edition
• Preface to the First Edition
• Part I: The United States, 1792-1873
• Part I, Chapter I: The Arguments of Bimetallists and Monometallists
• Part I, Chapter II: The Silver Period, 1792-1834
• Part I, Chapter III: Cause of the Change In the Relative Values of Gold and Silver, 1780-1820
• Part I, Chapter IV: Change of the Legal Ratio By the Act of 1834
• Part I, Chapter V: The Gold Discoveries and the Act of 1853
• Part I, Chapter VI: The Gold Standard, 1853-1873
• Part I, Chapter VII: The Demonetization of Silver
• Part II: The Late Fall In the Value of Silver
• Part Ii, Chapter VIII: The Production of Gold Since 1850
• Part Ii, Chapter IX: India and the East
• Part Ii, Chapter X: Germany Displaces Silver With Gold
• Part Ii, Chapter XI: France and the Latin Union
• Part Ii, Chapter XII: Cause of the Late Fall In the Value of Silver
• Part Ii, Chapter XIII: The Continued Fall In the Value of Silver Since 1885
• Part III: The United States Since 1873
• Part Iii, Chapter XIV: Silver Legislation In 1878
• Part Iii, Chapter XV: Operation of the Act of 1878
• Part Iii, Chapter XVI: Act of 1890
• Part Iii, Chapter XVII: Cessation of Silver Purchases, 1893
• Appendix II: Relative Values of Gold and Silver
• Appendix Iv, Coinage Laws
• Appendix VII: Consumption of the Precious Metals In the Arts.

Part II

THE LATE FALL IN THE VALUE OF SILVER

Part II, Chapter VIII

The Production of Gold since 1850

§ 1. The reason for making so considerable a digression in our story of the bimetallic experiences of the United States as to discuss the action of France, Germany, India, and the Latin Union in the chapters of Part II, is to make it possible to get a rational view of events in the United States in the period subsequent to 1873. There came into the monetary world, beginning in 1872 and amounting to a panic in July, 1876, a most unusual disturbance in the silver market. Nor did silver recover itself after 1876. The depreciation brought with it frequent fluctuations in value, which have ended in a generally lower level; and, in September, 1885, the fall was almost, if not quite, as low as in July, 1876. So far as it has become a matter of public discussion, bimetallism dates from this monetary event. In our country the fall of silver introduced the declining metal into politics, in Europe it has excited great discussion, and led to the meeting of two International Monetary Conferences—one in 1878, another in 1881. It becomes highly essential to the history of bimetallism in the United States,—if we are to understand its movements with some show of insight, to know what the facts were which affected the value of silver in Europe and the East, and to try to reach some conclusion as to the probable cause of the extraordinary fall. We could then know better how to judge the actions of the United States in the field of its monetary policy.

§ 2. In a preceding chapter, while discussing the act of 1853, we had occasion to speak of the gold discoveries in the United States and Australia. The importance of these discoveries, and their social and economic influences, are now well recognized; but our nearness to the events has concealed, perhaps, some of their effects, or at least public attention has not been called to them. The economic influences have been discussed by the ablest writers.1 The effect upon contracts and obligations of long standing of an enormous production of gold has been fully considered. Mr. Cairnes has, in a series of remarkable essays, explained the process by which the new wealth was distributed from the gold-producing countries over the remainder of the world and has given an exposition of the social and economic changes which were produced by this action. Mr. Jevons demonstrated beyond any reasonable doubt that the increase of the gold production had resulted in a fall of its purchasing power of at least 9 per cent, and probably of 15 per cent. It will not now be questioned, I think, that a change was produced in the value or purchasing power of gold; in other words, that it bought less of other goods than before 1850. That is, gold prices rose, without implying an increase in the cost of production of articles for which the gold was exchanged.

There is no sacredness about the value of gold. Even though some persons think its value is absolutely stable, this belief must have been destroyed by the events which have happened since 1848. It is true people in general do not think gold changes in value, or at least they think it changes very little. And there is no doubt whatever that it is the least changeable of the two metals. It must, however, be frankly admitted that both the precious metals have within thirty years shown that, like other commodities, they are affected by ordinary forces, and vary in their normal value under the same laws which control the valve of other things. In short, when it is admitted that both gold and silver are capable of a change in value, due to unforeseen but natural causes, a step forward has been made in the discussion of bimetallism. Without doubt silver has changed in value more easily than gold. And, if either gold or silver change in value because of natural forces, it makes it impossible to keep both of the metals at such a permanent relation to each other as will maintain an invariable ratio. The events of 1848 and subsequent years are cumulative proof of this position. Moreover, as we shall soon see, the change in the value of one metal produces, ipso facto, a change in the other. The intimate connection of the two metals causes reflex changes upon each other; yet the action of silver upon gold is not the same as the action of gold upon silver.

In this chapter I shall confine myself to stating the actual facts of the gold production; to marking the influence of this production on the relative values of the two metals; and, later, to discussing their effect upon our question of bimetallism in the United States. We have already seen one effect in the establishment in 1853 of a single gold currency in this country. Silver was driven out, and we gladly accepted gold in its place. In brief, the United States was the first country of the world to take advantage of the new production, and from its surplus treasures to secure for itself a gold currency. We shall soon see hove the same thing was accomplished in other countries.

§ 3. The magnitude of the gold production since 1850 is the marked characteristic of this period. The annual yield of gold in past centuries has been insignificant in comparison with the annual production in the years following the discoveries in Australia and California. Some years before, the Russian mines had been increasing the supply; but from a production of about $15,000,000 a year in 1840, the supply rose to more than $150,000,000 a year soon after 1850. This phenomenon, moreover, was accompanied by an increase in the production of silver of from 25 to 50 per cent a year. The comparative extent of the new gold production may be seen by Chart IX, previously mentioned, which gives the yield from the mines in the years since the discovery of America. The sudden and remarkable ascent of the gold product on the chart after 1850 is all the more noticeable because of the comparison with previous years. In fact, the gold production is the striking feature in this portion of our monetary history.

The figures which have been collected at length in Appendix I give information only as to the annual supply. No confidence is to be placed in guesses as to the amount of the precious metals actually in existence in 1848, or in any other period. In the nature of things we can not know how much has been irretrievably last, consumed in the arts, or for ever withdrawn from money uses. The estimates made are worthless as statistics from which generalizations can be drawn in regard to the effects of the new supply upon the value of the two metals. The statistics of the annual supply are more trustworthy, although even these vary with every authority. No two persons agree even in regard to the annual supply. In the period preceding 18502 I have used the figures prepared by the distinguished German economist, Dr. Adolf Soetbeer. In regard to the annual production since 1850, I have carefully collated all the tables which have been compiled by leading authorities in Germany, England, France, and the United States, and placed them in parallel columns for comparison. It will be noticed that Soetbeer's figures are larger than those of any other authority, and yet I am inclined to think that they are not far from the truth. In considering the total production of gold and silver in the years between 1850 and 1876, it will be found that there is a rough correspondence in the totals. That the figures are approximately correct there can be little doubt, and they will, therefore, serve our general purpose. The reader will consequently have in these tables all the necessary data for a knowledge of the extraordinary gold production since the middle of the present century. It is the third great increase in the production of the precious metals, of which the first occurred soon after the discovery of America, and the second at the close of the last century. The first two lowered the value of silver relatively to other articles, including gold; the last lowered the value of gold relatively to other articles, including silver; but, then, later it had another effect on silver itself.

§ 4. Inasmuch as gold and silver are known to have changed in value, like other commodities, under the influence of a lowered cost of production, which has increased the supply and so the total quantity in existence, we are led at once to discuss briefly the reasons which give gold and silver value as money. Any commodity has value which is limited in quantity and yet satisfies some human desire. Apart from their power to please as ornaments and for uses in the arts, gold and silver satisfy certain desires arising from the need of a medium of exchange. The inconveniences of barter gave rise to desires for money. The metals which have best satisfied these desires are gold and silver.3 The business world desires as money a metal which is as stable in value as possible, and which remains in this condition for as long a time as possible; one which has considerable value in small bulk, especially where transactions are large; and which possesses the other accepted qualities, such as homogeneity, divisibility, cognizability, etc.

Steadiness of value, as we saw in Hamilton's report, is popularly supposed to belong to gold. Moreover, in great centers of commerce and trade, where the total of transactions rose to great sums, gold was preferred to silver because of its smaller bulk. Then, as credit devices grew and extended, the actual handling of the metal was saved by the use of banks of deposit. The business world began to shun a cumbrous medium, and at the same time to cling to what was believed to be most stable in value. Without now asserting that one metal is more stable than the other in value, what I do assert is that monetary history reveals in every modern commercial country a prejudice in favor of gold as against silver. Granted that it is only a prejudice, yet, whatever it may be termed, it exists. The world of commerce, whatever the reason may be, believes in gold. Nor will we say whether this belief is fortunate or not. It is our endeavor only to ascertain the fact. But it is a fact which must be taken into account in discussing the influence of the gold discoveries on the values of gold and silver. The proof of it will be found as we go on with our story. It has already been displayed in the legislation which gave the United States a gold currency in 1853. In brief, gold satisfies the desires of men for a medium of exchange better than silver. This is not a theoretical proposition. It is simply a fact to be ascertained by a historical inquiry.

If, then, it be true that men in trade have a greater desire for gold than for silver as money, this is the cause of a demand for gold; since demand is a desire for a commodity coupled with purchasing power. This desire for gold is the desire for it as a medium of exchange.4 That is, if men of business are left to seek the metal they naturally prefer, gold will be chosen. Now, however, the law of a land, which fixes a legal-tender value of a given amount upon one or the other metal, can, through the operation of Gresham's law, bring into circulation the cheapest metal, whether the community has a preference for it or not. But whenever the state follows the wishes of its people, if it is a commercial state, it will be found that there is a very strong tendency among its population to the adoption of gold in preference to silver. In other words, although law can override popular wishes in this respect and decide that the cheapest metal shall be used, the natural forces governing demand still exist, and will, sooner or later, make themselves felt. It is quite unlikely, therefore, that there will be any falling off in the demand for gold for money uses. The only question, as all must admit, is rather, whether the supply will be sufficient or not. Law can create a demand for the metal, which would not naturally be chosen, only by overvaluing it in its legal ratio, and thus making it profitable to drive the preferred metal from use. The gain of the money-changer can be absolutely depended upon to bring this about. But if both metals were put upon an equal basis at the Mint—if such a thing is possible for any time—it will be found that gold is preferred in large payments and silver for small payments. The natural convenience of a trading population demands this. A comparison of the countries which use silver—China, India, and semi-civilized countries with the important commercial states—England, Germany, and the United States—which use gold, affords a striking illustration of this proposition.

§ 5. Setting before us as an object to discover the reasons for the fall in the value of silver in 1876—which has been the beginning of modern bimetallic discussions—we shall confine ourselves to the effect which the great production of gold has had upon the value of silver. And to this end we must bear in mind what has been said in the last section in regard to the prejudice for gold. Then there must be taken with this preference for gold the possibility of satisfying the demand. The amount of gold produced, therefore, is an important part of our problem. We should then proceed to get some idea of this amount.

We find ourselves, in the period following 1850, confronted with an enormously increased production of gold. How enormous it was I do not think has been generally recognized in our monetary discussions, particularly of late in those dealing with the appreciation of gold. It seems almost incredible to say that, in the 25 years following 1850, as much gold was given forth by the mines as had been produced to that time since the discovery of America by Columbus. And yet it is literally true:

The facts may be more conveniently seen in their proper relations in Chart X, which represents, first, by square areas, the total quantities of gold and silver5 produced since the discovery of America down to 1850. During this time of 357 years it will be seen that more than twice as much silver as gold, in respect to value, was produced. And we have already seen that in this period there occurred two great falls in the value of silver, or at least an almost continuous fall of silver (see Chart IV). But what is remarkable is that—while gold to an amount so much more than enough for the ordinary uses of commerce was produced from 1493 to 1850 that it fell in its purchasing power—in the 25 years succeeding 1850 an amount equal to the product of the previous 357 years was suddenly added to the existing stock of the world. This was an amount far more than was necessary for the growth of trade and population in those 25 years, and, as Prof. Jevons has shown, it resulted in a loss of its purchasing power of from 9 to 15 per cent. The wonder is that its value did not fall more; and it would have fallen more if it had not been for the influences which, as we shall later see, widened the field for its use. Chart X, in the second place, shows an area, for the period since 1850 as great for gold as in the previous period; but, while in the previous period the area for silver was twice as large as that of gold, in the later and short period of 25 years the silver product is less than one half as much as that of gold, and about one fifth of the silver product from 1493 to 1850.

§ 6. Now what was the effect upon the relative values of the two metals of suddenly doubling the quantity of gold, without anything like a proportional increase of silver? First of all, gold fell in value, both in regard to silver and to all commodities. The ratio between gold and silver, which had risen from 1:15 to 1:16, now showed the effect of the cheapening in gold by dropping to 1:15.3 for a time. This was the first effect. But a second effect soon became visible. The cheapened gold began to drive out silver from the currencies of the United States and Europe, because, at former ratios fixed before the gold discoveries, gold was overvalued at the mints, and so by Gresham's law came into circulation as the sole medium of exchange. But the matter worthy of most attention is that this exchange of gold for silver was seen and watched, not only without opposition, but even with satisfaction. Had there been a similar flow of silver into the place of gold, there would have been no such complacency. Here, again, is the preference for gold which we find so constantly present. The effect of this movement was, of course, to prevent gold from falling in value as much as it would otherwise have done; and to withdraw the previously existing demand from silver for use as a medium of exchange in Western commercial nations. The very cheapness and abundance of gold increased the demand for it for use as a medium of exchange, and ipso facto diminished the demand for silver. The world could choose between the two. There was silver enough; but, as soon as gold became plentiful, there was no doubt for a moment which metal was preferred. It was in the same spirit in which the modern world made choice between the railway and the stage-coach as a means of transportation. Wherever choice was possible, the best and most convenient means of locomotion was taken. The same idea has been expressed by Mr. Cairnes6 in the following words:

In succeeding chapters we shall find abundant evidence of this interchange of gold and silver, which was begun by the United States in 1853. At the present we shall go on to narrate how France followed this example; and subsequently we shall see how Germany did the same. Then it will remain to show how the Latin Union was forced to follow practically the same course.

§ 7. The first marked effect of the new gold on the currencies of Europe was seen in France, furnishing again a very striking illustration of Gresham's law.

Since 1803 a legal ratio of 1:15½ had been maintained by France without change. Inasmuch as the market ratio had never been as low as 1:15½ between 1820 and 1850, but rather nearer 1:16, the French legal ratio gave gold a less value in the form of coin than it possessed in the form of bullion, while silver was given a greater value in coin than it possessed as bullion. As a natural consequence, gold disappeared from circulation and silver took its place; so that by 1850 the main part of the circulation in France consisted of silver.

The discoveries of gold exactly reversed this situation. Gold fell in value; its relation to silver changed so that the ratio remained below 15½ until 1867 (see Chart XIII. Under these conditions, consequently, a revolution took place in the French currency between 1853 and 1865. As things then stood, the ratio at the Mint was still 1:15½, while in the market it was lower than that, or somewhat nearer 1:15. As a consequence of this, money-changers quickly saw that an ounce of gold exchanged for 15½ ounces of silver in the shape of coin, but for less than 15½ ounces of silver in the shape of bullion. That is, gold was now overvalued by the legal ratio (as silver had been before); and in the form of bullion silver bought more of gold than it did in the form of coin. Consequently, as long as this state of affairs continued, and since "free coinage" existed, there was a stream of gold flowing to the French Mint for coinage, while the silver rapidly disappeared from circulation, and even left the country. How this process went on may be seen by the following table (accompanying Chart XI), which gives in millions of dollars the excess of exports and imports from and into France7 after 1849:

During the years from 1852 to 1864 France absorbed through direct imports about $680,000,000 of gold, and ejected about $345,000,000 of silver. The French mints were actively engaged in coining this gold into the form in which its legal value was greater than as bullion.

The effect of this great absorption of gold by France on the value of silver is thus fully noticed by Mr. Cairnes8 while the movement was going on in 1860:

Part II, Chapter IX

India and the East

§ 1. The discarded silver of France found a home in the East. As early as 1860 Mr. Cairnes wrote9 of the substitution of gold for silver:

France and the United States saved gold from depreciation to a certain extent by absorbing a vast quantity of the new supply; this process, however, displaced a great amount of silver. India, on the other hand, now saved silver from depreciation to a certain extent by its absorption of the heavier metal no longer in use by Europe. This power of India and the East to absorb apparently an unlimited amount of silver is, and has been, one of the chief factors in the question of the relative values of the two precious metals, and requires some further notice.

The demand of Oriental nations for the precious metals, and especially for silver, is a natural consequence of their barbaric taste for ornaments and their want of civilized methods of exchange.

The passion for ornaments seems to be a source of demand for silver which is likely to continue until the race outgrows its barbaric conditions. Once given the passion for ornament, that one of the precious metals will be most in demand which is cheapest, and consequently within the reach of an indigent population. This is the reason why silver is so much desired by Eastern merchants for purchases. Although the people of India are very poor, and are miserably housed, yet they place their little all in the form of ornaments, when the peasantry of England would have added to their stock of utensils or or furniture. The silver rupees coined by the Indian Government and circulated in India suffer from a very considerable melting down by the natives to satisfy this demand for decoration. "In every large village there is a silversmith, or some one who works in silver, and as soon as a man gets a few rupees he employs a silversmith to come to his house and make the ornaments there, who brings his little implements required for manufacturing it, and there the rupees are made into ornaments."10 "The natives never invest their money in the way in which civilized nations look upon an investment. A native, when he realizes a little money, puts it into the form of ornaments on the females of his family, and in times of scarcity these ornaments are taken to the bankers and sold."11 "Some of the records of the old Benares Mint show that, in times of scarcity, the greater part of the silver brought to that Mint to be coined was in the shape of ornaments."12 That this condition of affairs still prevails may be seen by the events of the last few years. During the recent famine in India, from 1877 to 1880, the following amounts13 of silver ornaments were brought to the mints for coinage:

The desire for decoration is not confined in its effects to silver alone. The poorest can only expect to have brass or clay, but those who can afford it have silver or gold.14 It is a matter of pride at great festivals that the children should make a display of ornaments, and they vie with each other in showing the greatest number. In this process they have as eager a demand for gold as for silver, provided they can obtain gold. "When a man (in India) gets a considerable amount of silver ornaments, he will sell these for the purpose of converting them into one gold ornament; because it adds to his prestige in the village if one individual of his family has a large gold armlet, or other ornament."15 Indeed, the demand of India for gold is of considerable importance,16 as may be seen by the tables giving the imports of both gold and silver into British India in Appendix VI. More than $450,000,000 of gold was retained by India between 1855 and 1880. The demand for gold is only one form of expression of the insatiate passion for ornament, since gold is not a legal tender, and is not used as a medium of exchange in India to any extent. But as silver is the cheaper of the two metals, both of which are desired for this purpose of ornament, the heaviest demand of a population of about 237,000,000 of people, which is by no means rich, falls upon silver.

§ 2. The second cause of a demand for silver in the East, so soon as the need of money is appreciated, is for its use as a medium of exchange. Throughout a large extent of territory in India, transactions are still carried on by barter.17 In the interior of Bengal, some years ago, exchanges were effected chiefly by copper coins and cowry-shells, while but very little of silver was in circulation, and whatever appeared was either hoarded or manufactured into ornaments. But silver will be the best natural medium of exchange for the greater part of India, because the mass of the people are poor, and consequently the transactions are on a scale so small that they can be settled only by the use of the cheaper metal. There being much value in a small bulk of gold, it is needed only in comparatively large transactions. This is the explanation why silver is the usual currency of semi-civilized countries. India, however, is in a condition to use more silver money. Not only can the scanty circulation in districts where the advantages of a medium of exchange are already recognized be profitably enlarged, but the districts where little, if any, money is in use must, as they come under the influence of civilized habits and business customs, some day feel the need of silver as an escape from the inconveniences of barter. The capacity, therefore, of Eastern nations like India to absorb a very large amount of silver as a medium of exchange is very great. But, coupled with their extraordinary passion for gold and silver ornaments, we can see why it is that it has been generally believed that the East has a practically unlimited demand for silver. (We have already seen how the United States tried to take advantage of this characteristic in the coinage of the trade-dollar.) So that whenever the Eastern demand for silver falls off it is a matter of surprise, and some explanation is to be sought in exceptional causes.

§ 3. As Europe and the United States preferred gold to silver when the former metal could be had, the market for the displaced silver in the East was naturally of essential importance to the relative values of the two precious metals. We have seen that France (Chart XI) had expelled about $345,000,000 of silver by 1804, while there had been exported to the East from Europe no less than $764,000,000 in the same period; and from 1852 to 1875 at least $1,000,000,000 of silver had been shipped from England and Mediterranean ports to India and the East, while the total production of silver in the same years from the mines had not been very much more than that amount.18 The general movement of silver into British India since 1852 may be seen by consulting Chart XII. Before 1855 the net imports of silver into India averaged only about $9,000,000, while the annual production of silver averaged about $30,000,000 a year.

From 1855 to 1862 the imports of silver increased. During this period occurred the Sepoy mutiny,19 the transfer of the Indian Government from the East India Company to the Crown, the borrowing20 of large sums of money for India in England, and the extensive building of public works. These events rendered necessary large remittances to India, and a demand was therefore felt for silver for shipment.

These conditions were materially affected by the "cotton famine" in England, which began after the cessation of cotton shipments to Europe from the United States during our Civil War. India was pushed to supply the demand for cotton in these years, and this created an abnormal excess of payments to India in the international exchanges, which of course led to larger shipments of silver than ever. This effect lasted from 1861 to 1866. Large exports of gold were made from London to the Continent in order to purchase the silver which English merchants needed for Indian remittances; and silver was also shipped directly from France to the East in large sums.

In 1867 a diminution was clearly marked in the flow of silver to the East, which continued at a less sum until 1876.21 This was due to the use of bills of exchange sold by the India Council, the Government of India residing in London, and called "council bills." India had been borrowing on a large scale. The departments in India were required to raise funds there with which to pay the interest on her debt, on railway loans, pensions, etc., to a sum which in 1876 amounted to about $75,000,000 a year. Now, if this sum was due from India to the India Council in London, the latter would sell their claims to this money in India by going into the London market with bills of exchange drawn on Calcutta or Bombay. Inasmuch as the Indian presidencies collect all their revenues in silver, these bills of exchange were claims only to certain sums of silver, and would naturally be bought by any one wishing to make payments in silver in India for goods brought front that country. It must be apparent, therefore, that just as the expenses of the Indian Government rose, and just in proportion to the number of council bills which were offered for sale in London, would the exportation of silver to India be saved. The amount of silver due from India counterbalanced an equal amount due to India; and the two sums were offset against each other by the use of bills of exchange. The number of council bills rapidly increased about 1872,22 as may be seen by the following figures:

The fall, therefore, in the line of Chart XII from 1871 to 1876, showing a decline in shipments of silver to India, is due to the increase of payments from India to London as manifested in the form of an increased supply of council bills on the London market. A merchant having a debt to pay in India would buy either silver or a council bill, according as he could buy one or the other cheapest.

The rise in the imports of silver into India in 1876 was thus explained by Mr. Bagehot:23 "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 the result of these two operations; if, therefore, he can buy his rupees in Calcutta on more favorable terms, he will find it to his interest to go into a speculation which would not otherwise be profitable. If he can get rupees at 1s. 8d. instead of 2s., and he can buy his goods in Calcutta with the same number of rupees, that is 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 sovereigns, 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 hence to India—necessarily is an increase of the balance which this country has to pay to India, and consequently a flow of silver to the East." The increasing exports of silver in 1876, therefore, were a consequence of the fall in silver.

§ 4. The conclusions reached by the Government of India in regard to this movement of silver are as follows:24

In an earlier part of the chapter we have seen that two strong reasons existed for the continuance of the Indian demand for silver: the passion for ornament, and the need of an adequate medium of exchange for a population of 237,000,000. With respect to the former it is clear that any change must necessarily be slow, and that the desire for decoration can be subdued only by the gradual progress of the race in civilization.

For a long time to come, however, we must believe that silver and gold will be used by the people of Hindostan for ornaments.

In regard to the second reason—the need of a medium of exchange—all information leads us to suppose that comparatively little silver is in use as money, that conditions of barter still exit over great areas, and that the districts where money is used can employ a much greater amount. Yet even in this matter the economizing expedients of Western nations must aid in preventing the whole demand for money from falling on gold and silver alone.

A system of paper money was inaugurated March 1, 1862, and it is quite likely that, in proportion as banking accommodations are extended in India, there will be some check to the absorption of silver,—but of that sum only which would have been used as a medium of exchange and not for ornament. The reserve of more than 50 per cent of the circulation is, of course, largely of silver; but the extent to which bank-notes are already in use may be seen from the annexed table.27

§ 5. If we eliminate the exceptional period of 1861-1866, during the cotton famine, we shall find that there is a probability of continued imports of silver into India so long as the demand for ornaments, and the evident need of a medium of exchange, exists. It would seem to me that for a very considerable time banking devices will not much offset the need of silver for money in common circulation. For some time to come India will require much more silver than she now has for her currency. The progress of banking facilities, moreover, implies also that kind of growth in comprehending the uses of money which is likely to bring with it a change from barter to civilized methods of exchange in remoter districts, and thus to increase the need of silver for circulation, as much or more than credit devices will diminish it.

In addition to all this it must be remembered that at present India is a poor country, and that its vast resources have not yet been advantageously worked. If India begins to grow more wheat for exportation to European markets; if, with the growth of civilization, new methods of production come into vogue, and more products which India can send abroad are brought to market; or if she should furnish herself with substitutes for goods now imported—then India would, in the terms of international exchange, have due to her additional sums of treasure which would be liquidated by silver. But the flow of specie from Europe will, on the other hand, be effectually prevented by any means which will offset this indebtedness of Europe to India. One offset has had an influence already, and drawn considerable attention—it is the debt owed by India to Europe, owing to the increased expenses of government, the sums due England for interest on her debt, and other expenditures. This influence is chiefly apparent by the amounts of India council bills placed on the London market. The following table will show how great this force has been in the past, and the extent of its growth to 1880. The column containing these figures might be otherwise defined as "sums obtained for bills drawn by the Court of Directors, or Secretary of State, on the several governments of India." The column giving the excess of exports of merchandise gives the means of knowing how India pays for her silver, and shows to what extent she has drawn for silver beyond the amounts of the council bills (which serve as an offset to the sum of exports in striking the international balance). Should her exports continue to increase as they have in the past—and they leave increased from an average of about $125,000,000 in 1856 to about $300,000,000 in 1880—India will be enabled to buy more silver and continue her absorption of the cheaper metal. [Sums are given in millions.]

In considering the effects of the Indian demand on the value of silver, an examination of Chart XII reveals the fact that the value of silver relatively to gold did not show any immediate sensitiveness to a falling off in the export of silver to the East. From 1870 to 1875 there had been a marked decline in the net imports of silver into India; but it was not until 1872-1873 that a slight downward movement in the value of silver was apparent, while it was not until 1876 that the very considerable break in the value of silver manifested itself. In looking forward to our object in Part II, which is to study the causes affecting the late fall in the value of silver, I can not think that the decline of the Indian demand has been so strong an influence in depressing the value of silver as it has been supposed to be by many writers. A temporary withdrawal of the usual demand at a critical time for the value of silver no doubt had a greater effect than it could have had at other times. An increased demand from India, to the extent to which it permanently absorbs a greater quantity of silver, would, of course, help to lighten the influences which are weighing down the value of this metal; but I am not inclined to believe that the flow of silver to the East has been the principal factor in our problem.28 What makes me think that the Indian demand29 is not a very potent influence in maintaining the general value of silver is the slight influence of its increased demand from 1877-79 in raising the value.

The total production of gold from 1850 to 1876 was about $3,000,000,000; of silver, about $1,200,000,000. Thus far we have seen that France added about $350,000,000 of silver to the supply, and that India took somewhat more than $,1,000,000,000. Of the new gold, France in the same time coined about $1,160,000,000, and India imported $440,000,000, leaving about $1,400,000,000 of gold to be accounted for. Not all the excess of the production of gold over the former average production was absorbed by the action of France and India. Making large allowances for consumption in the arts, and for increase in their currencies by gold-using countries, a very large part of this $1,400,000,000 of gold remains as a potent, and, to my mind, the chief factor in bringing about a disturbance in the relative values of gold and silver. The absorption of gold by France from 1853 to 1865 limited the demand for silver in its function as a medium of exchange. If the still remaining quantity of gold tempts some other country to take advantage of the abundant gold supply to improve its currency by taking the better medium instead of the poorer—that is, the gold instead of the silver (we are speaking of the preference for gold whenever choice between gold and silver is possible)—then we shall see the field for the employment of silver still further contracted, and the demand for silver withdrawn, because the needs of the community are better served by the other metal which the prodigality of nature has poured upon the world since 1850. In the next chapter we shall see how, in consonance with this supposition, the new gold usurped the place of silver in another country, and left the latter to find a sale in a market already somewhat sated by a full supply.

Part II, Chapter X

Germany Displaces Silver with Gold

§ 1. The movement inaugurated by the United States and France—both of which countries accepted with complacency the substitution of gold for silver—was assisted by Germany. Seeing the great commercial nations of the West taking heed of the opportunity to provide themselves with gold, Germany was shrewd enough to seize her opportunity before it was too late. Had she not done so, she would have but offered to her rival, France, the occasion to do the same thing—the thing which France would to-day most willingly do if it were possible for her to do it. As we have seen, France and India had not absorbed more than about one half of the new gold. Probably $1,500,000,000 of the gold produced from 1850 to 1876 was yet to find a demand either in the arts or in the currencies of other nations. It was from this source that Germany proposed to help herself before it was too late, and thereby array herself in the rank of commercial states which, having large transactions, chose gold, not merely as the most stable in value of the two metals, but as the best medium of exchange for large payments. Here, again, we meet with the undoubted preference for gold over silver. No matter what the cause is, the simple historical fact is undeniable that among commercial nations most men concur in believing gold to be the most stable in value, and the most convenient and trustworthy of the two metals as a medium of exchange. We will not say that this is an unmixed good; but so it is, as a fact of modern history. If any modern commercial country were placed in a position where it could choose on even terms (or even at some sacrifice) between gold and silver, there is no more doubt that gold would be preferred than there is that of two pieces of land a farmer would select for cultivation the one which (other things being equal) was the more fertile and accessible.

Germany, consequently, saw an opportunity to secure gold instead of silver, and was far-sighted enough to understand that, if other countries were permitted to anticipate her in the course of monetary progress, the acquisition of gold necessary to the up-building of a great commercial state with large transactions might later on possibly become a more costly proceeding. At the close of the Franco-Prussian war the new German Empire found the opportunity referred to in the plan for the establishment of a uniform coinage throughout its numerous small states, and was essentially aided in its plan at this time by the receipt of the enormous war-indemnity from France, of which $,54,600,000 was paid to Germany in French gold coin.30 Besides this, Germany received from France bills of exchange in payment of the indemnity which gave Germany the title to gold in places, such as London, on which the bills were drawn. Gold in this way left London for Berlin. With a large stock of gold on hand, Germany began a series of measures to change her circulation from silver to gold. Her circulation in 1870, before the change was made, was composed substantially of silver and paper money, with no more than 4 per cent of the whole circulation in gold, as may be seen by the following statement:31

By this it will be seen that in 1870 Germany had but $22,750,000 of gold in circulation, and as much as $375,000,000 of silver possessing full legal-tender power. The sales of silver by Germany were generally believed to have been responsible for the fall in the value of silver in 1876. I do not think that this can be substantiated by a study of the chronological order of events affecting the value of silver, which will be made in another place.33 But for the present, it will be well first to describe the measures by which Germany carried through the reform of her coinage.

§ 2. The substitution of gold instead of silver in a country like Germany which had a single silver medium was carried out by a path which led first to temporary bimetallism and later to gold monometallism. And for this purpose the preparatory measures34 were passed December 4, 1871:

This law of 1871 created new gold coins, current equally with existing silver coins, at rates of exchange which were based on a ratio35 between the gold and silver coins of 1:15½. The silver coins were not demonetized by this law; their coinage was for the present only discontinued; but there was no doubt as to the intention of the Government in the future, since in Section 6 reference was distinctly made to further action looking to the withdrawal and permanent retirement of large silver pieces. Therefore, so far as Germany had had an annual demand for silver hitherto to replenish her currency, that demand ceased with the end of the year 1871. Existing silver coins still remained a legal tender equally with gold in a bimetallic system based on a ratio of 1:15½.

The next and decisive step toward a single gold standard was taken by the act of July 9, 1873:

By this measure gold was established as the monetary standard of the country, with the "mark" as the unit, and silver was used, as in the United States in 1853, in a subsidiary service. Before this change, when silver was coined at its full weight, 90 marks were coined from one pound of fine silver. By the law of 1873, 100 marks were coined from one pound of fine silver. One hundred coins having been issued where 90 had been before, there was an overvaluation of 1/9 in the new imperial silver currency, or, in other words, silver coins were issued 1/9 below their nominal value, or 11 1/9 per cent. The subsidiary coinage, as in the United States, contains less silver than its nominal or tale value expresses; but its legal-tender value was limited to 20 marks (five dollars), and it was redeemable at government depositories. The silver coin, therefore, was regulated by the usual principles governing subsidiary coinage, Germany thus following in the steps of the United States and of England.

The act also limited the amount of the overvalued silver to ten marks for each inhabitant of the Empire, a comparatively low figure. It will be evident that this fact is to be kept in mind in considering the total of silver liberated by Germany, since the amount of the new silver coined and issued was an offset to the total amount withdrawn; that is, not all the silver drawn in was sold, since some of it was recoined and issued in the new form.

The reform in the gold and silver coinage was accompanied by measures affecting the bank-notes and paper money in circulation. The issues of the various small states were withdrawn and a new paper money issued, distributed according to population among the various states, and redeemable in the new imperial currency. The inconvenience of the heavy silver in use in Germany had formerly stimulated the use of substitutes for specie in the form of bank-notes. The act of 1873 regulated the issues of the banks, and bank-notes of a denomination less than 100 marks ($25) were forbidden. This was an important measure, because it opened a new demand for silver to take the place of the prohibited bank-notes. If no notes were issued under 100 marks, more coin would be needed to fill the vacancy caused by their retirement.

§ 3. Under the terms of this legislation Germany began to withdraw her old silver coinage, and to sell as bullion whatever silver was not recoined into the new subsidiary currency. The following table37 will show the amounts of silver sold in the open market by Germany, and the price at which it was sold, until the end of May, 1879, when sales were suspended:

The silver withdrawn by the end of the year 1880 was 7,474,644 pounds of fine silver;38 of this it is stated that, at the end of 1880, there remained unsold in the hands of the German Government 339,353 pounds of fine silver. Germany was interrupted in her sales of silver by the decline in the value of silver in 1874, and particularly in 1876; but she adopted the policy of stopping her sales when the price of silver was low, and again selling when the price rose. It will be seen by the table given above that the largest sales were made in the year 1877, when the price of silver was much higher than it had been in 1876. In May, 1879, however, the Government suspended all further sales of silver, and has not resumed them to the present time.

It has been thought by many that the sales of silver by Germany, to the extent of the new supply of silver which was thrown on the market, had been the cause of the extraordinary fall in the value of silver in 1876. It was, therefore, held that if the sales of silver were suspended, the price should recover something of its former height. It was this opinion which led the managers of the Imperial Bank of Germany, in whose vaults a large amount of the old thalers had collected and had not yet been redeemed, to advise the cessation of further sales in 1879. Their advice was taken; but the price of silver did not show the expected buoyancy after sales were suspended. It can hardly be thought now that the fall of silver, which has continued to the present day, was due to the sales of Germany which ceased in 1879.

The later status of the reform in the gold and silver coinage will make our statements in regard to 1876 somewhat clearer. We have the advantage of ten years later information39 than that which was accessible in 1876 to either the German Government, or to the Committee of the House of Commons, which investigated the causes of the depreciation of silver in that year:

The population by 1880 had increased to 45,194,172, making the amount of fractional silver which can legally be issued 450,000,000 marks, or about $113,000,000. This would absorb $7,000,000 of old silver coin outstanding and yet to be withdrawn. It is quite likely, moreover, that ten marks per head will not prove a sufficient allowance for the silver medium. A rate of twelve marks per head is already discussed. Then it is to be remembered that the thaler pieces yet out must be replaced by other coinage.

Now, adding to $164,000,000 (which was the amount actually to be sold as the result of withdrawals less recoinage to 1880) the sum of thalers yet outstanding, $105,000,000, we get as a maximum about $270,000,000 as the total amount of silver which Germany could throw upon the market as the result of her policy of displacing silver with gold.40 I think this is a very liberal estimate, and yet it is not a sum in itself to which a very extraordinary revolution in the price of silver can be attributed; the less so because, between 1873 and 1885, or in twelve years, only $141,000,000 of Germany's silver have actually been put upon the market.

But inasmuch as our object in Part II is to arrive at an explanation of the causes which affected the price of silver in 1876 and subsequent years, it will be necessary to discover what effect German demonetization had had by 1876. By that year Germany had sold in the open market only from $30,000,000 to $35,000,000. That sum represented the actual and visible addition to the supply of silver caused by the German act of 1873. But dealers in silver bullion must always take into consideration more than the actual sales; they in must consider also the potential supply. The proper theory of market value has regard not merely to the actual visible supply present and offered for sale, but also to the amount of the prospective supply, the amount which, although not actually present, is capable of being brought at once to market. The potential supply, therefore, was naturally taken into account by dealers in silver, and estimates as to its amount had an important influence upon the price of silver. But, as given above, the total supply of silver which Germany could by all her operations put upon the market was about $270,000,000. Subtracting $30,000,000, the amount actually sold by 1876, the potential supply was about $240,000,000. In 1876, however, the German Government underrated the quantity of the old silver still to be withdrawn. To that date $110,000,000 had been withdrawn, leaving about $265,000,000 still outstanding. In 1876 the estimates on this sum varied from $40,000,000 to $150,000,000. One of the best authorities41 believed that the face value of the coin to be withdrawn was $195,000,000, which Dr. Soetbeer now assures us was $375,000,000 in 1870.

§ 4. At the same time that Germany was liberating silver she was absorbing gold in her new coinage. In order that a comparison may be made between the condition of the currency in Germany under the old silver régime and the present condition under the new coinage system, I take42 from Dr. Soetbeer a table, corresponding to that of 1870 before given, which will show the progress made toward a gold standard by 1885:

It will be seen by comparison with the previous statement for 1870 that the amounts of gold and silver coins in 1885 are almost exactly reversed. In 1870 there were 1,500,000,000 marks of silver; in 1885, 1,500,000,000 marks of gold coin. But the substitution of the new for the old silver coins has not yet been finished, since 450,000,000 marks of silver thalers are yet to be withdrawn.

The coinage43 of gold in Germany from 1873 to the end of 1880 is as follows:

The old gold coinage of about $23,000,000 previously in circulation is to be subtracted from the total coinage of $437,000,000, leaving $414,000,000 as the probable demand of Germany on the gold stock of the world.44 The German demand on the new gold which resulted from the discoveries in California and Australia then amounted to $414,000,000 to a date as late as 1880. With the $1,160,000,000 coined by France, and the $440,000,000 imported by India, this makes a total of about $2,000,000,000 taken out of the new supplies of gold by what was practically a new demand in these three countries. I include in Germany's demand the sums absorbed as late as 1880, that there may be no danger of undervaluing the demand for gold, although our immediate purpose confines us properly to the period ending in 1876. There is thus left about $1,000,000,000 of the production of gold from 1850 to 1876 to be accounted for.

Following in the lead of Germany, Denmark, Norway, and Sweden changed their silver circulation to gold, but threw upon the market45 only about $90,000,000 of silver.

Part II, Chapter XI

France and the Latin Union

§ 1. The gold discoveries of California and Australia were directly the cause of the Latin Union. It will be remembered that in 1853, when the subsidiary silver of the United States had disappeared before the cheapened gold, we reduced the quantity of silver in the small coins sufficiently to keep them dollar for dollar below the value of gold. Switzerland followed this example of the United States in her law of January 31, 1860; but, instead of distinctly reducing the weight of pure silver in her small coins, she accomplished the same end by lowering the fineness of standard for these coins to 800 thousandths fine. This, of course, only amounted to the same thing as a reduction of weight; since if, without altering the standard weight of a coin, more alloy is used (as, in this case, introducing 2/10 instead of 1/10 alloy), there will be less pure silver in the coin than before. Like the United States, Switzerland was forced—by the fall in the value of gold, or the corresponding rise in the value of silver relatively to gold—to reduce the amount of silver in her small coins in order to keep them in circulation. The fall in the value of gold affected countries differently according as they had, or had not, a unit of low value in their coinage. Where countries, like France, had the franc as a unit, it is easy to see that a fall in the ratio of silver to gold should have driven out silver, and so removed from circulation in these states the silver currency in which a unit of low value was necessarily established. Such changes were very serious to the convenience of the people in ordinary payments. In order to keep such a unit in such a metal, they would be obliged to alter the weight of their small coins, and so to change the character of their common unit of account. To meet this difficulty, Switzerland, when she found that her silver coins were fast being exported, made the five-franc piece (instead of the franc) her monetary unit,46 which was maintained at its former weight and fineness (900); but she lowered the value of her silver pieces of two francs, of one franc, and of fifty centimes, to the position of subsidiary coins, at 800 thousandths fine.

Meanwhile France47 and Italy had a higher standard for their coins than Switzerland, and as the neighboring states, which had the franc system of coinage in common, found each other's coins in circulation within their own limits, it was clear that the cheaper Swiss coins, according to Gresham's law, must drive out the dearer French and Italian coins, which contained more pure silver, but which passed current at the same nominal value. The Swiss coins of 800 thousandths fine began to pass the French frontier and to displace the French coins of a similar denomination; and the French coins were exported, melted, and recoined in Switzerland at a profit. This, of course, brought forth a decree in France (April 14, 1564) which prohibited the receipt of these Swiss coins at the public offices of France, the customs-offices, etc., and they were consequently refused in common trade among individuals.

Belgium also, as well as Switzerland, began to think it necessary to deal with the questions affecting her silver small coins, which were leaving that country for the same reason that they were leaving Switzerland. Belgium then undertook to make overtures to France,48 in order that some concerted action might be undertaken by the four countries using the franc system—Italy, Belgium, France, and Switzerland—to remedy the evil to which all were exposed by the disappearance of their silver coin needed in every-day transactions. The discoveries of gold had forced a reconsideration of their coinages systems. In consequence of these overtures, a conference of delegates representing the Latin states just mentioned assembled in Paris, November 20, 1865, and, passing from the immediate question of the subsidiary coins, they advanced to the discussion of the general metallic circulation of the four countries. Belgium, Switzerland, and Italy strongly urged the adoption of a single gold standard, retaining silver in a subsidiary office for coins of denominations below five francs. This was defeated by the action of the French delegates, under influences said49 to come from the Bank of France and the Rothschilds. But the Conference, fully realizing the effects of the fall of gold in driving out their silver coins, agreed to establish a uniform coinage in the four countries, on the essential principles adopted by the United States in 1853. They lowered the silver pieces of two francs, one franc, fifty centimes, and twenty centimes from a standard of 900 thousandths fine to a uniform fineness of 835 thousandths, reducing these coins to the position of a subsidiary currency. They retained for the countries of the Latin Union, however, the system of bimetallism. Gold pieces of one hundred, fifty, twenty, ten, and five francs were to be coined, together with five-franc pieces of silver, and all at a standard of 900 thousandths fine. Free coinage, at a ratio of 1 15½:1, was thereby granted to any holder of either gold or silver bullion who wanted silver coins of five francs, or gold coins from five francs and upward. Each coin, although stamped by either of the four countries with the distinctive devices of the issuing country upon it, was to be of uniform weight, fineness, diameter, and tolerance, as may be learned from the treaty signed December 23, 1865, which is elsewhere given.50 The subsidiary silver coins (below five francs) were made a legal tender between individuals of the state which coined them to the amount of fifty francs; and the issuing state agreed to receive them from their own citizens in any amount. The quantity of coin outstanding was to be limited to a quota of six francs per capita, as follows:

As regards five-franc silver pieces, however, there was unlimited free coinage to any individual in the Latin Union at the old ratio of l5½:1.

The treaty was ratified, and went into effect51 August 1, 1866, to continue until January 1, 1880, or about fifteen years, as decreed by Article 14: "The present convention shall remain in force until January 1, 1880. If not dissolved a year before the expiration of this term, it shall remain in full force for a new period of fifteen years, and so on, fifteen years at a time, if not dissolved."

The Latin Union, while due primarily to the disturbances caused by the new gold, was aided in its formation by the growing disposition in enlightened minds to demand a uniform international coinage; by the natural wish of countries having the same monetary unit to prevent as much as possible all friction in trade across their frontiers; and largely, no doubt, by political considerations which led the French Empire to strengthen its dominant position over its smaller neighbors.52

§ 2. The ratio of 15½:1 retained by the Latin Union had been adopted by France in 180353 (An XI), at the beginning of her bimetallic legislation. We saw, in the course of our story,54 that the United States had established a double standard in 1792, but that, owing to the fall in the value of silver, it soon resulted in a single standard of silver. It will be recalled that, in that discussion, it had been claimed that silver had not fallen, but that gold had risen, in value. Moreover, it had been asserted that the reason why gold left the United States in that period was the existence of a ratio in France of 15½:1, different from ours; which, by offering half an ounce more of silver in exchange for gold than was secured by the ratio of 15:1 in the United States, led to the exportation of silver to France .55 Unfortunately for this theory, the facts are against it, for M. Chevalier has told56 us that soon after the year 1803 there occurred the first of three great movements which have disarranged the French coinage from that time to this. He assures us that soon after the law of 1803 was passed the relative values of gold and silver in France changed so considerably, in comparison with what they had been before, that the market rate no longer coincided with the Mint ratio of 15½:1; that the market ratio in France rose beyond 15½:1; so that an ounce of gold bought more silver in the bullion market than it did at the Mint. As a consequence, gold was bought and sold only as merchandise. Now this was exactly the process which we found going on in the United States at the same time; and, to my mind, there can not be a moment's doubt that the events in the two countries were due to the same cause—the enormous production of Mexican silver after 1780. And, moreover, if gold was being withdrawn from the French circulation, it is difficult to understand how it could have gone from the United States to France, attracted by the French Mint ratio of 15½:1, when gold was not being coined there. In fact, the simultaneous withdrawal of gold in two widely separated countries, so soon as the market ratio diverged from the Mint ratio, starts the presumption that a cause was at work of greater fundamental importance than the difference between the legal ratios of two countries, which acted the one upon the other. France, however, did not modify her ratio, as did the United States in 1834, but remained content with a circulation which, as M. Chevalier states, was composed almost exclusively of silver. This state of affairs continued with some interruptions until 1848, during which the market ratio sometimes approached more nearly to 15½:1, because the production of gold from the Russian mines had largely increased by the year 1841. To 1848, consequently, and during the greater part of the period since 1803, France had virtually but a single standard of silver; although by law she had a double standard of both gold and silver.

The second experience of France with her coinage began with the discoveries of gold in California and Australia. In comparing the beginning of the century with 1864 it appears that the production of gold had increased fourteen or fifteen times, while the production of silver had increased only one third. The consequent effects of this enormous production of gold on the French coinage after 1850 I have already described.57 The circulation of France underwent a complete change,58 in spite of the frequent representations that the ratio established in 1803 had kept the relative value of gold and silver within such limits as to preserve the concurrent circulation of the two metals. In such questions more satisfaction is to be derived from facts than from vague declamations. After 1850, not only five-franc silver pieces, but the small coins employed in the retail transactions of every-day use, began to disappear. The absence of small silver led, as we have seen in the last section, to the events which brought about the convention of the Latin Union in 1865. But the appearance of gold was hailed by the public of France with that evident satisfaction which, as has been referred to many times before, always results from the universal preference of mankind in commercial and civilized countries for gold over silver. In the years preceding 1848 international commerce with France had been but little developed,59 and there had been little need for the transportation abroad of very large sums of specie. After 1850, however, commercial conditions began to change, and the use of gold in large payments was naturally a great convenience. The state of mind in France is thus described by M. Chevalier, from whom I again quote:60

Such was the condition of monetary affairs in France at the time of the creation of the Latin Union in 1865. Since 1803 she had first lost her gold and taken an alternative standard of silver instead; and then, reversing the process, because she still maintained the legal ratio of 15½:1, she lost her silver and took an alternative standard of gold. This last operation undoubtedly acted as a "parachute" to lessen the fall which otherwise gold must have suffered.

The whole of this history is a striking commentary on the fact that an increase in the production of silver does not lead to an additional employment of it by the civilized world as a medium of exchange; but that an increase in the production of gold, so long as human nature remains what it now is, does lead inevitably to a more extended use of it as a medium of exchange in modern commercial countries; and just to the extent of its increase does gold push out of use the silver it displaces, as an inferior instrument of exchange, thus contracting the monetary field in which silver can be used, and lessening the demand for it. An increased production of gold has caused a depreciation in silver which forms a part of the movement by which mankind is furnishing itself with better instead of inferior tools in all the departments of commerce and industry. When new and lighter plows come into competition with the heavy and cumbrous machines of the last century, the latter will go out of use and decline in value. So it will be with the heavier and more cumbrous of the precious metals.

§ 3. The International Monetary Conference of 1867, which assembled in Paris with the original motive of bringing about a uniform system of coins throughout the world, was led to ask, Of what metal shall the uniform coins be struck? The almost unanimous verdict of this conference was that the single standard of gold should be recommended. Such was the state of public opinion in the chief commercial nations in 1867. Several elaborate monetary reports were made by French commissions created for the purpose between 1867 and 1870, and it seemed as if the adoption of a gold standard by France in 1870 was a settled thing. Then the Franco-Prussian war broke out, and the close of the war was immediately followed by the German monetary reform. There can scarcely be any doubt that, had not Germany acted when she did, France and wide-awake Belgium would have demonetized silver, and done exactly what Germany anticipated them in doing.

Cut off from this policy, France and the Latin Union, however, were soon forced to consider the effects of another change (the third since 1803) in their monetary system arising from unforeseen movements in the relative values of gold and silver. The convention of 1865 had been entered into because gold had become cheaper than silver. But, a very few years after the contracting powers had ratified this convention of 1865, a change in the market value of silver removed all ground for its existence. Silver began to fall61 relatively to gold as early as 1872, and soon reached a value more nearly in accordance with the ratio of 15.5:1. Had the fall ended there, all further difficulty would have been avoided. But the progress of events was against this supposition. The fall of silver (which did not reach its culmination until 1876) continued, and the countries of the Latin Union were threatened with conditions the very opposite of those which existed in 1865; then they were studying how to keep gold from driving out even their subsidiary silver coins; by 1873, on the contrary, they were occupied with the question how the enormous influx of silver could be prevented: "When, then, toward the end of 1873, Prussia having announced its intention of demonetizing silver, which at that time had already undergone a sensible depreciation in the market, some of the states bound by the convention thought it necessary to protect themselves against an excessive and sudden influx of this coin, and called a new meeting of the Conference. Any restrictive measure, such as the limitation or suspension of coinage, if undertaken separately, would be ineffective so long as any of the allied states continued to issue coins which would be introduced into other states of the Union."

The downward tendency of silver in 1873 led the Latin Union to fear that the demonetized silver of Germany would flood their own mints if they continued the free coinage of five-franc silver pieces at a legal ratio of 15½:1. Fifteen and a half ounces of silver were still counted as equal to one ounce of gold at the Mint; but since in the market more than that number of ounces of silver were needed to buy one ounce of gold, naturally silver rushed to the mints of the Latin Union. In 1871-1872, before the fall in the value of silver was noticeable, there had been presented at the French Mint for coinage into five-franc pieces only 5,000,000 francs of silver bullion; in Belgium, only 33,000,000; but in 1873 alone, because it was profitable to money-brokers, there was suddenly presented at the French Mint 154,000,000, and at the Belgian Mint 111,000,000 francs. As a consequence of this movement, December 18, 1873, an act was passed by Belgium which gave the government authority to suspend the coinage of silver five-franc pieces.

This condition of things led to the meeting of delegates from the countries of the Latin Union at Paris, January 30, 1874, who there agreed to a treaty supplementary62 to that originally formed in 1865, and determined on withdrawing from individuals the full power of free coinage by limiting to a moderate sums the amount of silver five-franc pieces63 which should be coined by each state of the Union during the year 1874. The date of this suspension of coinage by the Latin Union is regarded by all authorities as of great import in regard to the value of silver. At the time perhaps its importance did not seem so evident.64 The French authorities believed that the action of Germany was only a temporary incident affecting the value of silver; they stated,65 therefore, that "to an irregular and accidental event they [the Latin Union] opposed a temporary measure, as exceptional as the decision which called it forth." They did not then see that the action of Germany was important, not for itself, but because of its place in a series of events due to the progress of monetary ideas. We must, therefore, regard the suspension of unlimited coinage of silver by the Latin Union as a very important step, because it forms another event in the series to which the demonetization of silver by Germany belongs.

§ 4. The suspension of the free coinage of five-franc silver pieces by the Latin Union was a consequence of the falling value of silver. So long as the ratio of silver to gold remained above 1:15½, these four countries could not continue to receive silver at their mints unless they were willing to see gold disappear from their reserves and from circulation, and to see silver alone take its place. About this decision there was no hesitation whatever; the Latin Union had no intention of giving up gold, once that it had flowed into their territories. The preference for gold over silver, when there is a free choice between the two, again received a striking illustration. And all the subsequent movements of the Latin Union have been prompted not so much by the wish to show a preference for a silver medium as by a desire to protect themselves against the loss arising from the possibility of selling the silver with which they have already burdened themselves. They would all, at this moment, gladly embrace an opportunity to place themselves on a gold basis if they could do so without serious loss in disposing of their silver.

After 1874 the Latin Union, owing to the continued decline in the value of silver, maintained their policy of restricting the coinage. In 1875, pursuant to the agreement of a year before, another monetary conference was held in Paris, and limited quotas66 of silver were fixed for coinage by each state. The annual conference in 1876 lessened the total amount67 to be coined to 120,000,000 francs for the whole Union. About this same time Holland, a country not a member of the Latin Union, took a step away from a silver medium by forbidding68 any further coinage of silver after July 1, 1875. The various states of the Latin Union, moreover, did not coin all the silver assigned to them as their quotas. In 1875 and 1876 Switzerland cautiously did not coin any of her quota.

In studying this example of a monetary union between different states it is to be noticed that each state reserved to itself the power to suspend the coinage entirely. The agreements of the convention fixed only the maximum amounts beyond which the coinage of silver should not go. As we have already seen, Belgium had passed a law in 1873 giving the government power to suspend the coinage of silver entirely. France likewise found it expedient,69 on August 5, 1876, to shut the doors of the Mint to silver. It will be seen, therefore, that one country after another, so long as the old ratio of 1:15½ was adhered to, was obliged to close its mints to the coinage of silver.

In 1877 the Union suspended entirely the coinage of five-franc pieces for that year (except a sum of 10,000,000 francs for Italy). This position in regard to silver, however, was only preliminary to the decisive action of the Union in a treaty of November 5, 1878. In order to prevent gold from disappearing and being replaced by silver, a policy of successive restriction was originally adopted in 1874; but in 1878 the final policy of complete suspension was accepted. It was mutually agreed by the contracting parties that the "coinage of silver five-franc pieces is provisionally suspended. It may be resumed when a unanimous agreement to that effect shall be established between all the contracting states."70 This agreement was to hold until January 1, 1886. The Union was not, however, dissolved, because they continued their coinage of subsidiary coinage (at 835 thousandths fine) on the common terms of the original convention of 1865. The suspension of five-franc pieces was the important point of the treaty of 1878, because it was the only silver piece which bore a ratio of 15½:1 to the gold coins.71

Since 1878, therefore, the chief bimetallic countries of Europe decided that, so long as they chose to retain the legal ratio of 15½:1 between gold and silver coins, it was impossible to keep open the mints for the presentation of silver bullion. This was their "expectant attitude" toward silver; they hoped that, if the value of silver rose, the coinage of silver might be again resumed. They are evidently hoping against hope, for since then Italy has resumed specie payments, in 1883, while Switzerland and Belgium are evidently anxious to place themselves on a gold basis; and, worst of all for the continuance of a coinage convention based on a ratio of 15½:1, silver has steadily fallen in value since 1878, and at the present writing (September, 1885) the price has fallen to 47¼d. per ounce in London, equivalent to a ratio of more than 20:1. In the face of such facts, the return to a bimetallic system at 15½:1 by the Latin Union is an impossible thing. I do not think it will ever occur.

The depreciation of silver weighs heavily on France, because she has coined a vast quantity of five-franc pieces since 1865, which have entered into circulation or have accumulated in the reserves of the Bank of France; and whenever in the course of the international exchanges a payment of specie is to be made by France to a foreign country, it must be made in gold out of a fund in the bank which is not over large. France can not return to the double standard, nor can she adopt a single gold standard, because the sale of her superfluous silver, except at a very great sacrifice, is now a practical impossibility. France is forced into her present "expectant attitude" because of the quantity of silver she has to dispose of. It is her object, therefore, to continue the Latin Union as long as possible, for a dissolution of the league would necessarily oblige each state to liquidate its own issues of silver coinage. In the future each state must have its own system, and the coins of one country would not be received reciprocally by the others, and, when rejected, they would be sent home to the banks of the issuing country under such financial pressure as would make it necessary to redeem them in some form or other. Of a total sum of 6,117,000,000 francs coined by the countries composing the Union, 3,910,000,000 are still on hand,72 of which 3,100,000,000 bear the stamp of the French Mint. In case of a dissolution of the Union, the Belgian and Italian pieces in France would be sent out for redemption in gold to the issuing states, and to that extent France would be temporarily better off. For this reason some persons in France are urging the dissolution of the Latin Union. The silver pieces of other states are not a legal tender in France, although the Bank of France has hitherto received such silver on sufferance. The existence of a large amount of silver in the reserves of the bank requires that its wishes should be consulted by the authorities of France in a settlement of this question. More silver is in circulation in the Latin Union than can pass current at the legal rate, and it flows to the large banking-houses and encumbers the vaults of the bank.

The treaty of 1878 expires January 1,1886, and even now the delegates of the Union are assembled in Paris discussing the continuance of the present agreements. Belgium, which has been very energetic in dealing with economic questions, is now anxious to demonetize silver and adopt the gold standard. The same is true of Switzerland, and France stands almost alone. The negotiations looking to a renewal of the Union are not yet fully known. France demands "that each of the powers forming the Union shall bind itself to redeem at their par value all its silver five-franc pieces that may be circulating abroad if and when the Union comes to an end."73 Belgium objects, because coins have been issued from her Mint not only for herself, but on the account of Switzerland, of Italy, and even of France. Belgium, however, will be forced in some way to redeem her coinage, and it is highly probable that the Union will be continued. At the third sitting of the Conference, which began July 20, 1885, Belgium declined to accept the demands of France, and declared that, if this was a sine qua non for the renewal of the treaty, she preferred to withdraw; but, whatever the result of this last Conference, it is quite clear that they have no thought whatever of adding to their burden of silver, from which it is now their problem to escape. This being true, there is not a mint in Europe now open to the free coinage of silver.

Part II, Chapter XII

Cause of the Late Fall in the Value of Silver

§ 1. After having thus presented in the foregoing chapters of Part II the monetary events which have affected the relative values of the two precious metals since 1850, it is now intended to make a brief statement of the conclusions to be drawn from this account as to the value of silver, and to give in brief form what seems to me to have been the essential cause of the depreciation of silver. Before this can be done, however, it will be necessary to show whether a fall of silver actually did take place, and to what extent a depreciation has been proved.

At the beginning of the present century the price of silver fell until about 1825; then the course of its value remained fairly unchanged until about 1850, when the new gold was discovered; and until 1872 no great fluctuations had occurred. The movement of its value in later years may be seen by the line of Chart XIII, which shows the yearly changes since 1687. A comparison with Chart IV will show that since the discovery of America the value of silver relatively to gold has been moving steadily downward, while, as we know, gold itself has also fallen in value; but in the present century, after the effect of the Mexican production was finally realized in a generally lower level, there had been nothing of great importance to disturb its position until the later period with which we are now dealing. A glance at Chart XIII will make it clear how marked and sudden a change took place after 1872, and in the years immediately following, as compared with the general movement of silver since 1687. This sharp and distinct fall, especially after 1874, and continuing since then to 1885, has no parallel in the whole history of the precious metals. Within ten years the ratio of silver to gold has been changed from an annual average relation of about 15½:1 to nearly 19:1.

As is well known, London is the chief silver market of the world, and prices of silver74 are given in pence per ounce for English standard silver, 37/40 fine. That is, the price of silver is estimated in the English gold currency. From 1853 to 1866 the price did not change much from about 61d. per ounce, which is equivalent75 to a ratio of 15.46:1; from 1867 to 1872 the price was a little more than 60d. per ounce. By examining the table76 of monthly prices of silver, it will be seen that the fall first began in November, 1872, when the price was about 59½d. Then from November, 1872, until January, 1876, there was a steady decline, as seen from the monthly prices, to about 55d. And in the year 1876 the price fell still more rapidly, from about 55d. in January to the lowest recorded price of 46¾d. in July (equivalent to a ratio of 1:20.17). Since then there have been reactions toward better prices, but, on the whole, the price has steadily declined until, in September, 1885, the price is almost, if not fully, as low as it ever was in 1876.

It will appear from this statement, therefore, that silver has unquestionably fallen very seriously since 1872 in its relation to gold. But the question may very justly be asked, Has this fall been accompanied by a general increase of purchasing power in gold as regards other commodities? If so, the fall of silver relatively to gold, when other articles have also fallen relatively to gold, will have left silver in the same relative position to other goods as before; and so it can not be said that silver has fallen, but that gold has risen, in value. This question, while eminently fair, is not capable of being answered in a brief way; and to answer it fully would lead me away from the object of this inquiry. It has been urged by Mr. Goschen and Mr. Giffen that there has been an appreciation of gold by 1879 as compared with 1873; but I shall not now consider their positions because the years to be here compared, in order to keep parallel with the movements of silver, are, on the one hand, 1871, and on the other, 1876 or 1877. And I waive for the present—what is of the utmost importance in discussing the appreciation of gold—the fact that there was a great collapse of credit in 1873 and a fall of prices due to other causes than the abundance or scarcity of specie in the world. In order to bring the fall of silver into comparison with the movement of prices between 1871 and, 1877 I subjoin the following table of prices, taken77 from the London "Economist's" figures for the first of January each year, being the prices of 22 articles, each on a scale of 100, making a total scale of 2,200, which represents the average prices of these articles in 1845-1850:

From these figures it will be seen that prices were as high in 1876 and 1877 as they were in 1875, and even higher than from 1868 to 1871 (inclusive). That is, so far as prices tell the story, it can not be said with any show of truth that gold had appreciated (that is, increased in its purchasing power, because prices had fallen). If, then, gold continued to buy about the same quantities of other goods from 1871 to 1877, and if in that time silver fell relatively to gold from about 60d. to 46¾d. per ounce, it is quite correct to say that silver fell not merely with reference to gold, but with reference to all other commodities, including gold. As compared with 60¼d., the average price in I722, the fall to 46¾d. in July, 1876, indicates a depreciation in the value of silver of more than 22 per cent; that is, silver lost general purchasing power over other commodities by July, 1876, equivalent to 22 per cent, and it is to explain this fall in the value of silver that the chapters of Part II were written. In this chapter it is intended to collect the threads which have been followed in preceding pages and to present our conclusions, based on the historical evidence which has been gathered.

§ 2. In the reasons heretofore assigned for the fall in the value of silver, nearness to the events, in my opinion, has acted to magnify immediate causes and obscure distant ones, or those acting under a general progress of events. Such an objection, it seems to me, is to be urged against the conclusions reached by the Committee of the House of Commons which reported on the "Depreciation of Silver" in 1876. Inasmuch as these conclusions have been quite generally received, it may be just to include them here before passing on to any criticism

In this very clear statement, account is taken of immediate causes, and none whatever of the more fundamental causes lying behind these operations—causes which might be supposed to show that there was some sequence in these events, and that they were controlled by a common force. Although it is not formally included in their reasons for the fall of silver, they have, however, hinted at some deeper cause. In the first place, they admit that the actual changes in the supply could not be supposed to have brought about so serious a fall in the value of silver; for, after having formally given the causes of the depreciation of silver as already recited, the Committee qualify their report by some very important statements, which to my mind come very much nearer the truth than their formal enumeration of causes: "It is, however, an important and remarkable fact... that, though the increased production of silver in the United States is a fact beyond question, no actual increase of imports of silver from the United States to Great Britain has taken place since the year 1873.... Indeed, the amount of the imports into Great Britain from the United States for the year 1875—viz., 3,092,000l.—is the smallest since the year 1869. In the same way, though the new currency laws of Germany affected a vast silver coinage, the sales of silver actually made up to the 26th of April in the present year [1876] do not appear to have exceeded 6,000,000l., distributed over several years."79 This Committee, moreover, show that in the early part of the century silver was produced, as compared with gold, in the proportion of 3 to 1; in 1848, of .68 to 1; between 1852 and 1856, of .27 to 1; and between 1857 and 1875, of .68 to 1. Therefore, notwithstanding the new product of silver in Nevada since 1871, the relative production of silver to gold has not been very different in late years from the relation in 1848, to say nothing of the early part of the century. Consequently, the Committee decide80 "that a review of the relations of the metals in times past shews that the fall in the price of silver is not due to any excessive production as compared with gold." Although the fears of dealers may have magnified the potential supply, we may, therefore, in agreement with this conclusion, understand that the fall was not explicable on any sufficient grounds arising from an increased supply.

Indeed, the Committee only touched upon the true explanation when, leaving the question of supply and taking up the question of demand, they assert: "The fact is that, as was correctly pointed out by Mr. Giffen in his evidence, the changes have been in the uses of the metals. Gold has come more generally into use than before, and, indeed, the condition of trade and the situation of various countries using gold and silver respectively have entirely changed."81

§ 3. A change in the uses of the metals has undoubtedly, taken place; and the cause of it is to be sought in the natural forces which underlie the processes of exchange and trade. The increase of commerce and the need of making large payments in wholesale transactions, while it has developed the check and clearing-house system, and all banking devices82 by which the risk in the actual handling of large sums of metallic money has been avoided, has at the same time increased the demand for that one of the two precious metals which has the greatest value in the smallest bulk. This is the modern form of the preference, or prejudice, for gold as compared with silver, and it is most evident in the countries which have the largest commercial interests at stake.

This being the character of the monetary desires of modern nations, the opportunity of satisfying these desires, rendered possible to a very large extent by the enormous production of gold since 1850, has been, in my judgment, the cause of the fall in the value of silver. The situation, in brief, was this: In 1850 the Western world possessed a certain sum of both gold and silver (with the exception of England and the United States, chiefly silver) in use as a medium of exchange, both metals, be it observed, being in use for a common purpose—the interchange of goods. Now, there was suddenly added in 1850-1875 about $3,000,000,000 of gold. What was the effect? A very simple and natural increase in the use of gold by all the countries which could get it. But just to the extent to which the desire for gold could be satisfied, by countries which had hitherto used silver wholly or in part, so far was the demand for silver as a medium of exchange diminished. The new gold, therefore, because it was always preferred to silver, pushed it out of place, and, by filling the vacancy, took away from silver a part of the previous demand for the heavier metal. To the mind of the commercial world it was a substitution of a more convenient for a clumsier medium of exchange. In considering this movement in monetary progress, and comparing it with similar events in industrial progress in almost every branch of activity, no illustration seems to me more exactly to describe the change caused by the introduction of the new gold than that of steam. In former days the world carried on its exchanges by the slow, uncertain, and clumsy methods of coaches, wagons, and sails; now all is done, at less expense, more rapidly and conveniently, by railways and steamships. Both coaches and railways existed to transfer passengers and freight; so both gold and silver were used to interchange goods. Formerly coaches were our chief dependence; so was it with silver. In later years the railway has supplanted the coach because it does the same service much better, leaving the coach to do minor work in other directions; in the same way gold is supplanting silver because it serves the needs of commerce better, and silver is relegated to use as subsidiary coin for retail transactions. Consequently, when there is offered to a commercial country the choice between using gold and using silver, we should as soon expect it to prefer silver as we should expect merchants to-day to send their goods from New York to Chicago by wagons instead of by railway. This is the tendency among modern states to which we wish to call attention. Inasmuch as the production of gold from 1854 to 1875 was as great as in the 357 years preceding 1850, it can easily be seen what an opportunity was given to gratify the universal preference for gold to silver, coming as it did at the opportune moment when commerce began to expand in an unusual degree. To the extent of the surplus gold this absorption of gold could go on without interfering with its value, except to keep it from a fall. This is a striking fact in monetary history: increase the production of gold enormously, and it is eagerly absorbed, and so does not undergo much depreciation; but if the production of silver be increased to the same extent, it is not permitted to displace gold in the commercial states, as in the case of gold; and the increase of silver only creates distress to know whether the usual outlets for silver in the East are sufficient to carry off the surplus.

Thirty-five years ago England and Portugal alone83 had a legal gold standard; all other countries, either by law or by the effect of circumstances, employed a silver currency. The United States had a double standard with but little silver in use; but Germany, France, and the countries of Continental Europe had a silver medium.84 Today the situation is entirely reversed. In Europe there is not a Mint open to the free coinage of silver. Gold has unquestionably become the only real medium of exchange for commercial Europe. And all this, I contend, has been brought about by two things:85 the commercial preference for gold, and the extraordinary production of gold in California and Australia.

In proportion as gold found a market, silver was deprived of one, since they were both in use for the same purpose.

§ 4. The operation of this cause, which has thus been only generally stated, may now be traced more in detail in each of the monetary events which have happened since 1850; and I trust that the grounds for my conclusion may be clearly seen in the history of these last thirty-five years.

The first in the series of events, after the action of the United States in 1853, caused by the new gold was the displacement of silver by gold in France as early as 1865. The willingness of France to take gold and give up silver sustained the value of the former, and to the same extent deprived the latter of a market. In other words, France, from 1853 to 1865, first began the movement in Europe against silver; and the latter would at that time have felt the effects of this change in demand by a fall in value, had not the exceptional circumstances connected with the "cotton famine" in England, and the extraordinary shipments of silver to India from 1861 to 1866, served to find a new market to counterbalance the loss of an old one.

In the whole progress of this monetary revolution caused by the new gold, whenever the substitution of gold for silver in the West threw an amount of surplus silver on the market, the part played by the Indian demand86 was only so far important that, as the market successively failed in the West, the East was anxiously watched by dealers in silver to see how far it could take the surplus off the market and permanently absorb it. It was as if the horses, which may have been thrown out of use by the building of a railway in the United States, should have been shipped off to South America for sale in countries where railways had not yet taken away the use of wagons for transportation. But if the South American market should have become sated, the price of horses in the United States formerly used in transportation would fall, and fall in proportion to the curtailed demand at home. India and the East, therefore, play the part in this movement of silver as a drainage-ground for the West; the question always is whether the East can absorb as fast as the West produces or discards silver.

As we have said, France began the march away from silver to gold (unless we place the United States ahead in 1853). In 1867 the International Monetary Conference, in its recorded preference for the single gold standard, but expressed the universal tendencies of commercial nations at that time. When Germany anticipated France87 in establishing a single gold standard in 1871-1873, thus following the advice of the Conference of 1867 in that respect, another mass of silver was thrown on the world's hands. Could this sum be drained off to the East? As we have seen, by 1870 India could not take as much silver as before, owing to its indebtedness to England. The value of silver accordingly began to fall; but it fell not in proportion to the sales88 of silver by Germany (for the price did not rise when the sales stopped), but in such a determined headlong descent, when in 1874 the Latin Union suspended free coinage of silver, as to indicate fear so very decided that it could have had its roots only in some deeper reason than the actual demonetization of silver. That is, the German sales did not much depress silver; but when, in addition to the German monetary reform, the whole Latin Union decided to give up silver rather than lose their gold, it became clear that the new gold had begun to have its perfect work. I can not think that the fall of silver is to be attributed to the action of Germany alone, or to the suspension of silver coinage by the Latin Union alone (but if to any one thing alone, then chiefly to the action of the Latin Union); but to the displacement of silver by the new gold, which had by this time accumulated momentum enough to reach a large mass of the silver currency of Europe, and so to disclose what was to be the tendency of things in modern states. To assign the incentive to Germany is to ignore the real, and to magnify the indirect or secondary, cause. During a recent hurricane in a small village a man in the street was overwhelmed by the flying timbers of a house and instantly killed. If it had been said that the man came to his death by a piece of falling timber, the statement would have been correct, but it would not have given the true cause, which was that the man came to his death by the hurricane. If he had not been killed by that one piece of timber, he would have been by any one of several others, all of which had been set in motion by the original disturbing cause, the hurricane. So in regard to the fall of silver after the demonetization by Germany. It might be said that in 1872 and 1873 the fall began; this forced the Latin Union to suspend coinage; and so it may be said that silver fell because Germany demonetized silver. And the answer is true; but true only in so far as it was true to say that the man above referred to was killed by a piece of timber. If we stop there the whole truth is not told. We need to be told that the hurricane set the timbers in motion; so we need to be told that the new gold set in motion a displacement of silver, which must continue as long as any surplus gold remained; and that as this new supply made it possible for Germany to put herself on an equal basis of gold with commercial states like England and the United States, and to satisfy the universal preference for gold, it left the discarded silver to find its own market; that, as a consequence of there being no unlimited absorptive power in India, this silver (or the possible rather than the actual amount) fell with a heavy weight on its own market and depressed the price.

The action of the Latin Union in 1874 and in 1878 was only a further register of events of the same kind; inasmuch, as it meant that states which held large amounts of silver, and so would have done what they could for the maintenance of its value on selfish grounds, had decided to keep possession of their gold. It meant that there was no longer any market whatever for silver in Europe. The territory formerly occupied by silver was invaded by gold (first Germany, and then the Latin Union), and silver was obliged to retreat either to India and the East, or submit to a feeble decline from lack of attention. Just in proportion as the gold, augmented in quantity since 1850, covered more territory, in that proportion silver was shut off from gaining nourishment for its life from that district, and obliged to subsist on a narrower space; and now that space seems to be narrowing still more. The general influence of these causes may, therefore, be seen not merely in the sudden fall of silver in 1876, but in the subsequent downward tendency of the value of silver after 1876, as shown in Chart XIV. This chart shows the monthly fluctuations89 of silver from the beginning of 1876 to the end of 1879. It will be noticed that the general movement of which I have been speaking, not manifesting itself in one event, but in many, has not felt the influence of a single counteracting cause like that of the attempt of the United States in 1878 to uphold the price of silver by passing the Bland-Allison Bill.

All the appeals of later days for bimetallism have united in demanding a remonetization of silver by all the above-mentioned countries, in order to reinvigorate the value of silver. Things, however, can not go back to the former status unless we eradicate the preference for gold, and annihilate the enormous production of gold in the last thirty-five years. The countries having gold do not complain of any disadvantage in their situation; it is the countries like France and the United States, which, having silver to dispose of and to protect, want something to be done to save them from the loss due to the late depreciation. The drift of events, in my judgment, is against them, and they must suffer for their lack of foresight in not avoiding their present predicament.

Of course, the natural result of this neglect of silver as a medium of exchange is to turn all eyes toward gold, and to consider whether there is enough gold for all countries should they all adopt the single gold standard. I shall not attempt to answer that question here. My object now is only to discover what has been the cause of the late fall in the value of silver; but a résumé of the series of events which I have described in Part II as acting on the value of silver may profitably be arranged in the following form [000,000 omitted]:

This statement, therefore, leaves about $1,000,000,000 of the new gold mined from 1850 to 1875 still to be accounted90 for, and which might have been absorbed into already existing gold currencies to satisfy any needs arising from the growth of commerce not met by the growth of banking devices. This showing does not indicate a "gold famine" at present, although, on the other hand, it discloses a large surplus of about $800,000,000 of silver left to find a place in the market.

Part II, Chapter XIII

The Continued Fall in the Value of Silver since 1885

§ 1: The events affecting the relative values of gold and silver since 1855 are so striking and so unprecedented in the whole previous history of the precious metals that we are practically face to face with a new problem. In the previous editions of this book issued to 1885, the decline in the value of silver relatively to gold from about 1:15½ in 1870 to about 1:20 in 1885 seemed momentous enough to require the most serious investigation; and this change of value had stirred the liveliest discussion among students of money. But the problem presented by the changes since 1885 are far and away so much more phenomenal that our attention is forcibly arrested. By reference to Chart XV, it is seen that the really revolutionary action in the downward movement of silver has come since 1890. From a ratio of about 1:20 we have to discuss a change to a level of 1:34. In the short period between September, 1890, and March, 1894, the price of silver fell to one-half its value on the former date (the average monthly ratio for September, 1890, being 1:17.26, and for March, 1894, 1:34.36). No such change has ever before been recorded in the history of gold and silver. Neither the famous output of silver from the South American mines in the sixteenth century (see Chart V), nor the greater production of silver in Mexico about 1761-1820 (see Chart VI), had anything like such an effect. To what causes can this last and greatest change in the relative values of gold and silver be attributed? This, without doubt, is the most absorbing and interesting part of our whole inquiry. In order to address ourselves properly to this question, we shall first recount the recent events which, in Europe, have had an important bearing upon it.

§ 2. In order to gain a more complete conspectus of the intentions of European countries regarding gold and silver, brief mention should be made of the action of Holland. In 1816, September 28, a legal double standard was established at a ratio of 1:15.87 between the silver guldens (9.61 grains fine) and the ten-gulden gold pieces (6.056 grains fine gold). This legal rate did not conform to the market rate, especially before 1821, and as gold bought more coined silver than silver bullion, gold went to the mints, and silver, except clipped coins, was withdrawn from circulation. To correct this difficulty the ratio was changed, March 22,1839, to 1:15.60, without success.

After long debates in the Chambers on the question of a double standard, the single silver standard was established, November 26, 1847, on the basis of the silver gulden (10.945 grains fine) as a unit.

The action of Germany in 1873 led Holland to suspend the coinage of silver (provisionally) on May 21, 1873 (and definitively December 3, 1873). The curious state of affairs was presented of a country stopping the free coinage of silver, when not allowing the coinage of gold. By a limitation of the silver coins, which yet retained their function of legal payment to the state and between individuals, they were saved from depreciation. This, however, was not a sound position, and June, 1875, the Dutch mint was opened to the coinage of gold (the relation to the over-valued silver guldens being 1:12 5/8), while the coinage of silver (except for subsidiary purposes) remained suspended. As is the case with the silver thaler in Germany, the Dutch silver gulden remains, an unlimited legal tender; but silver coins are not immediately redeemable in gold.91 Holland, therefore, although a small country, has felt the influence of the events which are leading all European commercial countries to the gold standard.

§ 3. The attitude of the states constituting the Latin Union has been such since 1885 as to afford little hope of any change of policy regarding silver. In the official discussions of the Union the question of reopening the mints to the free coinage of silver has been entirely dropped out. No suggestion in that direction is ever heard, because it is recognized as an impossibility by men of all shades of monetary belief. In the Conference of 1885 at Paris, it was emphasized that, whatever might have been the character of the Union in the past, a transformation had taken place in its purposes; that it preserved nothing of a bimetallic nature; that all transactions and exchange were now based upon gold; that, in short, "the bimetallic rose had withered."

The Conference of the Latin Union in 1885 claims attention, however, from the fact that it produced a new treaty; that Belgium seceded, and subsequently returned; and that the Union at present continues to prolong its existence from year to year under the provisions of this new treaty.92 The discussions of this Conference and its conclusions related mainly to the practical means for escaping from the consequences of the fall in the value of silver, in case of a disruption of the Union. These states found themselves with a quantity of silver five-franc coins issued at the ratio of 1:15½ with gold; now they are worth intrinsically but one-half as much. The problem of maintaining this silver coinage at par is for the Latin Union the important necessity. Nor is there any hesitation about accepting the obligation. The only question raised was, Upon what states, and in what proportion, shall the burden of redeeming the silver issued by the Union be placed? Should a situation be created by which redemption of the depreciated silver could be forced upon the issuing country, it would mean that its budget must provide means for that purpose to the extent of about one-half of the whole quantity of five-franc pieces in circulation. It was therefore a question of ways and means; and according to the condition of the budget would each country be affected by the dissolution of the Union. For the dissolution of the Union would immediately throw upon each state the necessity of caring for its own coinage.

The Conference of 1885 provided an agreement by which the countries of the Union should redeem their respective five-franc silver coins, in case of a dissolution of the Union. Redemption of this silver coinage would have been undertaken then and there, a gold currency with a subsidiary silver coinage would have been at once established, but for the sheer financial inability of the several contracting states. To meet the demands for redemption of their silver five-franc pieces, consequent upon the disruption of the Union, meant financial ruin to the weaker states, and a great strain upon France. Hence, in 1885, the Union was continued, and it exists to-day, because of the actual impossibility of ceasing to exist. Like the man who fell from the platform of an express train, but caught on the railing with a single hand, he must hold on in the hope of coming aid; to let go means certain damage. But such an "expectant attitude" has its evident perils.

Inasmuch as the coins of all the states were uniform, they circulated indifferently throughout the Union; Belgian coins were in use in France or Italy, or vice versa. Moreover, more coins than Belgium, for example, would need in its own circulation had been struck at the Belgian mint, during the years when there was a premium on sending silver to be coined, and before coinage had been stopped. The question arose, Should Belgium be obliged to redeem all the silver which bore its stamp, even though much of it had never circulated within its own territory? In this connection the real nature of the Union distinctly emerged. Was the Union a cohering mass, so that the burden of future redemption should be borne proportionately among the population of the several states? Or should each state be held individually responsible for its own past acts? It was then disclosed that the Union was of a negative rather than of a positive character. For instance, the Union had not even dictated the amount that each state should coin; it had only regulated details, such as the weight and fineness of coins; and it had omitted any control over bank and state paper issues.

Belgium felt constrained to refuse responsibility for redeeming all the coins bearing her stamp. France, as the country having the largest volume of transactions, naturally drew the coins of Belgium into her channels of circulation. She firmly demanded that Belgium should redeem all Belgian coins. The counter proposals of Belgium being refused, the latter seceded from the Conference. This result explains why the treaty of 1885 was ratified without the assent of Belgium. And yet, if Belgium did not re-enter the Conference and ratify the new treaty before January 1, 1886, it meant the practical disruption of the Union. If it had been a political or financial possibility, Belgium (with other states) would have been only too willing to establish the gold standard. But France could not throw over her depreciated silver coins. So long as she could maintain these coins at par she would not be willing to liquidate. Finally, in Belgium, the party that foresaw the ultimate necessity of redeeming her silver, even if she seceded, brought about a compromise; and as 12½ per cent of the French circulation was composed of Belgian coins, France could have presented this coin and greatly embarrassed her neighbor. Nor did France enjoy the independent attitude, together with the attraction toward the single gold standard, evident among the other states. As, a, compromise, France met Belgium half way: it was agreed that only one half of the Belgian coins should be presented for redemption conformably to the terms of the new treaty, and in respect to the other half the coins might be returned by the usual channels of exchange, and Belgium would not hinder this process. Thereupon Belgium ratified the treaty before the expiration of the year 1885.

The new treaty of November 6, 1885, went into effect January 1, 1886, and remained in force to January 1, 1891. Then, as agreed in the treaty, "if, one year before this time, it has not been denounced, it shall be extended in full force from year to year by tacit renewal, and shall continue to be obligatory during one year after the January 1st which shall follow the denunciation." Under this system of tacit renewal the Union remains in existence to this time. The peculiar complications in the Italian paper currency led to special provisions for the redemption of their coinage, such as were contained in the treaty of the Latin Union of November 15, 1893. But the essential provisions of the treaty now in force relate to redemption in case of possible disruption of the agreement. The idea constantly present and fully understood is that the course of monetary events has brought about a situation in which not only is the coinage of more silver five-franc pieces entirely given up, but the contingency is ever present of a break-up in the Union, in order to allow the individual attraction among the members toward a single gold standard to take effect. The bimetallic character of the Union has now wholly disappeared. It exists only under an agreement to regulate the burdens of redemption of coins issued under a system now discarded. There is admittedly no intention of ever returning to that system. The limitation of the old treaty of 1865 (providing for coinage of silver five-franc piece) by that of 1878 (entirely suspending their coinage), and finally the substitution for existing agreements by that of 1885 (dealing with plans for possible liquidation at short notice), has a significance which can not be mistaken.

§ 4. The monetary history of Italy is closely connected, of course, with that of the Latin Union, of which she is a member; but the accumulation of gold in preparation for resumption of specie payments in 1883 is an essential part of the recent history of gold and silver, and we shall recount the events which will give us a clear view of this measure.

Suspension of specie payments in Italy, May 1, 1866, had its roots in the financial burdens incurred immediately upon the proclamation of the new kingdom, March 17, 1861. The assumption of the debts of the old governments; the cost of removal of the capital; the taking on of useless officials; the large standing army; the annexation of the Church estates (1862), of Venice (1866), and of Rome (1870); the establishment of schools and public works—all created a heavy burden on the young nation, and heavy deficits to 1866.93 Increase of the debt and declining credit followed, Italian rentes falling from 86½ in 1860 to 66 in 1865.

The financial stringency throughout the money centers of Europe in the winter and spring of 1866 was severely felt in Italy. The pressure upon the banks in Turin, Genoa, and Florence was such as to render failures imminent; and these failures would have brought on a general commercial ruin. As if this situation were not bad enough, the breaking out of hostilities between Prussia and Austria forced Italy to join the war against Austria (entering into a treaty with Prussia, April 20, 1866). The outlook was certainly very dark: the deficit for the year was estimated at 265 million lire; no loans could be obtained from Italian sources; and large funds for the war had to be provided just at the time of an impending commercial crisis. In this emergency the Italian minister Scialoja decreed the "corso forzoso," or suspension of specie payments, on May 1, 1866.94 Thus began a period of irredeemable paper money, lasting seventeen years, until 1883—the same length of time as the paper-money period in the United States, from 1862 to 1879.

The issue of irredeemable paper money, originally intended as a temporary measure (the usual illusion in all such cases), passed beyond control. The state issues increased from 250 million lire in 1866 (the loan from the National Bank) to 940 million by 1875. The issues of the banks, over which the Government had little control, expanded from 245.9 million lire in 1866 to 633.2 million in 1874. The result was to have been expected: the paper money depreciated, as shown by a premium on gold of 20½ per cent in 1866,95 and all the metallic money, including the subsidiary coinage, disappeared from circulation. Since the smallest denomination of paper money was 20 lire, a great gap in the circulation—just as in the United States in July, 1862—was created.

It will thus be clear to the reader that, in the next year after the establishment of the Latin Union in 1865, Italy, by suspension of specie payments, practically placed herself out of any important relation to the gold and silver circulation of the Union. Her relation to that system was only nominal. By driving out her metallic circulation during the years between 1866 and 1883, Italy really escaped, in a measure, the effect of the fall in silver which took place in that period; for she did not accumulate a large silver circulation at a high value, which subsequently fell to about one-half its former value. Some coinage, it is true, took place according to the regulations of the Union; but Italy's action was insignificant in this respect. Her relations to the Union until 1883 were mainly those brought about by the presence of a depreciated paper at home. And this furnishes interesting illustration of the operation of a monetary Union; since it is quite impossible that the Union itself should dictate to an individual state its entire policy in regard to monetary affairs, the issue of irredeemable paper must always remain a matter of internal financial policy. With this general understanding regarding the position of Italy in the Latin Union, we may now turn to the attempts made to resume specie payments, and the effect of this upon the relative values of the previous metals.

The evil effects on trade of the depreciated and fluctuating standard of payments began to require a reform. Magliani declared that "Italy paid a discount, owing to the depreciation of her paper money, on exports and imports of 10 per cent; and this discount rose at times even to 16 and 17 per cent." That is, foreigners exacted returns sufficient to protect them against the risks of fluctuation in Italian money.96 The notes, moreover, had only local circulation. "In spite of the forced circulation, notes issued at Naples did not pass in Milan; and at Florence, all notes except those having a Tuscan origin were refused."97 Indeed, the situation was similar to that in the United States under the old State bank system. This confusion was reduced by creating the "consorzio" of six banks, to whom the right of issue98 was confined, April 30, 1874.

Several schemes99 for resumption failed in the face of an economic condition of the country and of serious deficits, which made it impossible to accumulate the needed reserves. Toward 1880, however, the industrial situation had so far improved as to produce a decided change for the better.100 The exports of cattle, meat, poultry, eggs, hemp, garden products, oil, wine, and fruit increased, and less cereals were imported. The increased yield from taxation brought about the happy result of a surplus, regularly recurring after 1875,101 and a general consensus of public opinion in favor of resuming specie payments sprang up. The plan102 which was finally successful in abolishing the "corso forzoso" and resuming specie payments in 1883 was introduced by Magliani, November 15, 1880. The scheme as presented to the Chamber is given in Appendix IV. It appeared on examination that the speculative element introduced into all transactions by a fluctuating paper had caused a higher rate of discount in Italy than elsewhere in Europe, and that the existence of a paper money would prove a menace in case of political complications or war with other states. The adoption of the reform would save Italy an annual burden of about fifteen million lire; and the marketing of bonds to secure the gold reserve would of itself tend to raise the price at which these bonds could be sold. Nor would there be any final contraction of the circulation. After vigorous discussion, the plan, with very slight modifications, passed the Chamber by a vote of 266 to 27. It received no modifications in the Senate, and became a law April 7, 1881.

By this measure the "consorzio" of banks was dissolved on June 30, 1881, and their notes made convertible into coin. These were the notes furnished to the state by the "consorzio," and were assumed by the state. After a withdrawal and cancellation of notes until the amount of 600 million lire was reached,103 the customs duties should be paid in gold (for all sums above 50 lire). To provide the means for collecting the gold reserve, the Government was authorized to sell 644 million lire of bonds, at least 400 millions of which should be for gold. And, of course, if the state provided for the redemption of the "consorzio" notes, the rentes deposited for the security of these notes would be released. From this source the necessary bonds to be sold for gold were to be obtained (Art. XI).

The operation of this plan is of supreme interest in the study of gold and silver, because it touches the demand for gold. But it should be recalled here that bimetallic writers have emphasized this demand of Italy for gold about 1883 as an important factor in causing an "appreciation of gold." And yet Italy is a member of the Latin Union—that is, although nominally a part of the Latin Union, Italy, in 1881, proceeded to resume specie payments in gold, and as a resumption in gold its effects have generally been discussed the world over. This is significant matter for judging of the essentially un-bimetallic character of the Latin Union as early as 1881. It shows indisputably that the closing of the mints to free coinage of silver by the Latin Union was virtually a declaration for the gold standard. Italy's position was exceptional among members of the Latin Union, because (owing to her paper régime) she had practically no accumulated stock104 of silver on hand to weigh her down, as was the case with other members of the Union. To be sure, the other states of the Union have also put themselves on the gold standard in fact; but they have also to maintain a large quantity of depreciated silver at par with gold. They have stopped the coinage of silver, because that was necessary to the maintenance of the gold basis.

Italy carried her plan into execution with great skill. A contract was made with a syndicate composed of the National Bank of the Kingdom, and the Credito Mobilare, the Banque d'Escompte of Paris, and the London houses of Baring Brothers and Company and C. J. Hambro and Sons, to dispose of the 5-per-cent rentes to the nominal sum of 729,745,000 lire at 88.25, in return for providing the 444,000,000 lire of gold and 200,000,000 of silver by September 30, 1882. The limit of time was later extended to February 15, 1883, a concession which led to an agreement to provide in addition 47,000,000 lire of gold—or 491,000,000 lire in all (about $98,000,000).

This was not a large sum of gold, but fear was expressed that a new demand of this sort would excite anxiety, even if it did not produce a disturbance in the money market. In the years 1880 and 1881 the United States was importing gold to the amount of about $100,000,000, while the annual production was somewhat smaller than usual. Prices, however, showed no "appreciation of gold" in this country, at least during this operation;105 prices being, in fact, higher in 1880-1883 than before, and so gold was cheaper. The gold for Italy, however, was secured so skillfully and quietly that it had hardly any appreciable effect. "Sometimes the influence of the operation appears in the fact that gold on the way from Australia to an English port is intercepted on its passage. Sometimes a report comes that a supply has been drawn from an out-of-the-way foreign bank, where the existence even of any stock on a comparatively large scale had scarcely been imagined."106 Various countries furnished amounts of gold,107 Italy herself providing the largest quota. By the end of 1881 150.5 million lire of gold and 16 million lire of silver had been paid in. Installments were regularly paid in throughout 1882; on January 31, 1883, the syndicate closed its account with the Italian Government; and on March 1st it was dissolved after declaring a profit of a little over 1 per cent.108 As the success of the scheme appeared certain, the premium on gold fell; and a royal decree of March 1, 1883, appointed April 12th as the day for the resumption of specie payments. On and after that date no pressure for specie was felt, and in operation the plan achieved a triumphant success. In 1886 "the total stock of metal actually in hand after three years of specie redemption" was "291.13 million lire."109

The needless disasters which have lately fallen upon the Italian currency are due to the failure to take advantage of the lessons learned in the régime of depreciated paper. The resumption of specie payments gave Italy abundant foreign credit; the prosperity produced overtrading and speculation; the cholera of 1884 was followed by the bad harvests of 1885; and a financial crisis arrived in 1887, due partly to "the extensive building operations carried on by a system of loans granted by loan associations to builders, often upon very easy terms," and partly to the withdrawal of foreign capital which followed "as an inevitable consequence of the reappearance of a premium on gold."110 The depreciation of paper had been caused anew by the unrestrained and misguided fatuity of the banks. They had again issued more notes than they could redeem on demand, and redemption became a fiction. In the law of 1881 the regulation of the bank issue had been left (Art. XVI) to the future, and not until after the crisis of 1887(in August, 1893) was the regulation of the bank issues enacted. Therefore, while nominally on a gold basis, Italy is struggling with a paper circulation not easily kept at par.

§ 5. The chain of events looking to the abandonment of silver and the adoption of gold did not by any means end with the action of Italy. The place which Austria occupies in this chain is admirably expressed by an Austrian economist:111 "Until very recently few Austrians would have dared to believe that their country, which they had heard characterized as burdened with debt, creditless, deficient in capital, feeble, should be in condition to supply itself, in a time of general demand for gold, with the great quantity of the precious metal necessary for securing the gold standard. Ten years, or even five years earlier, there had seemed scarcely a prospect that we should be able to supply our necessities. But the condition of the market had changed. The 'gold blanket' which, according to Bismarck, was found to be short, has since, throughout Europe, grown broad in all directions. The great banks were able steadily to increase their stock of gold. Discounts fell, showing that the money markets were well supplied; at the same time the news from the gold-producing countries was growing more favorable, the annual output was increasing, and approached the largest production which had ever been known in the years of greatest abundance. Those European countries which had decided to adopt a gold standard, or (as, e.g., the Latin Union) to reorganize their double standard with gold as a basis for calculation had for the most part concluded their operations, or at any rate brought them nearer a provisional conclusion. This gave an opportunity for additional states to supply themselves out of this abundant output, and among the European countries yet remaining it was undoubtedly Austria's turn next. The writer of economic history will at some future time be able to take a clear survey of the process by which, from 1850 on, the channels of circulation were filled with gold—gradually, now here, now there; first partly, then completely; first temporarily, then permanently; the states following each other in a more or less definite order, which was conditioned by the degree of industrial development and of wealth, by inherited currency laws and customs of reckoning, and by accidental circumstances; and although broken in some cases by precipitate action, this order was governed, on the whole, by a sort of tacit understanding. Austria, which had long voluntarily held back, might therefore well feel that it was her turn to act."

Since 1857 silver had been the Austrian standard of value; but as early as 1867, in the Treaty of Commerce between Austria and Hungary (Art. XII), the conviction was expressed that, in an advanced community, silver alone can not be retained as the permanent standard of value.112 The same tendency appeared when, although not made legal tender, gold coins wWere struck in 1870; and again in 1876, when both parts of the empire issued loans on a gold basis. But for financial reasons the matter was left in abeyance. The events finally culminating in the crisis in the silver market in 1876 practically gave the quietus to any serious discussion of the double standard in Austria-Hungary.

Although on the silver standard since 1857, the note circulation based on silver was irredeemable. From 1848 to 1858 the discount on the paper money averaged 14.73 per cent; from 1859 to 1865, of 23.09 per cent; and from 1866 to 1870 of 20.21 per cent. And the discount on paper113 relatively to gold was about the same in these periods. When the fall in the value of silver began after 1874, the market value of silver in the gulden (or standard coin) declined relatively to the value of paper money. Some vague association even then existed between paper and possible redemption on a gold basis; so that silver fell relatively to paper. Finally, in 1878, the fall of silver brought it to par with the depreciated paper (while the premium on gold remained). And, further, it became profitable to import silver into Austria, because silver fell below the value of paper money. Silver then flooded the circulation, to the great surprise of a community that had had only irredeemable paper for generations. Silver rushed to the mints for coinage, as the less valuable money always does.114 To save herself from complications arising from an accumulation of silver, Austria promptly suspended free coinage of silver in 1879, "when the ministers gave directions to the mints at Vienna and Kremnitz to accept no further orders from private persons for the coinage of the legal-tender silver coins. Thereafter silver was to be coined only in moderate quantities on account of the Government."115 Here, then, in 1879 was another action of a most decisive character affecting the estimate of silver as a monetary metal. Taken in connection with the complete suspension of silver coinage by the Latin Union in 1878, and as an indication of the future policy of Austria, it had a far-reaching importance not understood or generally known at the time.

The actual suspension of silver coinage in 1879 throws light on the previous phenomenon of an irredeemable paper (nominally based on silver coins) retaining its value while the silver coins on which it was based (although inconvertible) fell in value below the irredeemable paper.116 The closing of the mints to silver was a practical declaration for a possible gold standard, and as such it was generally regarded. The diffusion of such a conviction in 1879 must have been anticipated and discounted years before by those familiar with monetary matters; and long previous to 1879 the hope of a transfer from a silver to a gold standard, which we have already mentioned, adds evidence to show that tacitly the paper money had its value set by the chances of future redemption in gold. And that these chances were far from illusory was strongly manifest in the suspension of silver coinage in 1879. Silver could no longer be regarded as the standard, because it was virtually reduced to the position of a subsidiary money,117 being limited in its access to the circulating medium. The money which was in practice the standard was the Government note, depending for its value on the possibility of future redemption—no longer in silver, but—in gold.

The radical departure undertaken by Austria in 1879, in closing its mints to silver, was, of course, only a first step in the new direction in which she was facing. The continued fluctuations and uncertainty in the value of silver had frightened the public. If they had not escaped the silver standard, "year after year, all our payments to and from foreign countries, our entire foreign market with its scale of prices, the fate of the countless enterprises and individuals, and especially the finances of Austria and of Hungary, burdened with obligations calling for payment in gold, would have been exposed to the danger of fluctuations incalculable in extent."118 The inevitable result of the action of 1879 was the determination to adopt a gold standard.

The effect of the act of July 14, 1890 (the "Sherman Act"), in the United States, and the consequent speculation in the silver market in New York, and London, which temporarily raised the value of silver to about 18:1 (see Chart XV), produced a "curious result in Austria. While the premium on gold as compared with silver guldens in 1887 averaged 23.68 per cent, on September 2, 1890, it was not quite 9 per cent.119 (The value of the paper money would, of course, depend on the growing strength of the credit and finances of the state.) The collapse of the silver speculation, and the consequent headlong plunge in the value of silver, brought to the public mind a new idea. The suspension of silver coinage in 1879 had been intended to secure the standard of payments against depreciation. But this sudden appreciation in the silver gulden excited alarm quite as great as the opposite movement. "For the very reason that it was so sudden and so great, this 'improvement,' however advantageous to individual, was detrimental to the general interest, in that it was a considerable alteration in a standard which completely serves its purpose only when it remains unaltered."'120 Such insecurity, arising not only from a fall but from a rise in the value of silver, caused general recognition of the complete insecurity of the Austrian currency system, and led to a final determination to resume specie payments in gold.

Even before the Government measures121 were proposed the collection of gold began (1890-1892). In carrying out these measures two steps were necessary: (1) The change from the old metallic basis of silver to that of gold, and (2) the acquisition of means for redemption on the new gold standard. The peculiar conditions in Austria made this first question complicated, because of the necessity of establishing a relation between the new gold standard and the paper gulden in general use. Consequently the enactments of 1892, which are primarily concerned with this first of the two steps, are known as "the regulation of the standard," and do not complete the scheme for resumption of gold payments; and to the present year (1896) no final arrangements have been made.

The average quotations of the previous thirteen years were taken as the basis of the relation between the paper gulden and gold, which is nearly expressed by the proportion of 100 of gold to 119 of paper. Although actual redemption has not taken place, this regulation has given a permanency of value to the paper never before obtained. It is evidently accepted that actual resumption in the future at this rate is a certainty.

The provisions122 of the Austrian monetary reform create the krone instead of the gulden (or florin) as the unit of account, the krone123 being one half the gulden, and legal tender only to the amount of 50 krone. Silver is therefore refused both free coinage and unlimited legal-tender power. Silver is highly overvalued, and appears only as subsidiary coinage in the new system. For standard coins only gold pieces of 10 and 20 krone are proposed.124 The kilogramme of fine gold is to be coined into 328 10-krone pieces, or 164 20-krone pieces (of 6.09756 grammes each).125

It is to be borne in mind that Austria has some surplus of silver to be disposed of. The country people have hoarded much of the old silver, and there is the whole of the recent coinage. Taking no account of the sums of silver in the hands of the public, April 28, 1892, there was in the public treasuries, in the hands of railroads and banks, something over 180,000,000 gulden;126 although in 1888 the whole mass of silver was estimated at 230,000,000 gulden. But the exact amount is said to be unknown. As against this stock, in the conversion into the new krone, only about 75,000,000 gulden will be needed to make the limited sum of about 200,000,000 over-valued krone. The surplus of silver to be disposed of, or indefinitely carried by Austria, is probably not less than 175,000,000 gulden (or about $77,000,000). But it is assumed that no silver will be sold, from fear of affecting the general situation.

The second step in the reform which was concerned with providing means for collecting the gold was begun, but not finished, in the laws of 1892. Act V gave authority for a gold loan of 153,456,000 gold florins for Austria and 78,000,000 for Hungary. Of the sum of 312,000,000 florins of state notes to be redeemed, Austria is responsible for 70 per cent, or 218,400,000 florins (which, on the ratio of 100 to 119, is about equal to the new loan of 183,456,000 florins). The rest of the 312,000,000, or 30 per cent, is to be provided for by Hungary. By the end of 1894, 100,000,000 florins of bonds had been sold by Austria for gold, and the gold delivered to the mint. Since then two installments of 25,000,000 florins each have been issued, and at least 150,000,000 florins of gold have been accumulated by Austria. Hungary, however, has sold only 42,000,000 florins of the 78,000,000 of bonds authorized, but shows no disposition at present to go further in obtaining the required amount. Austria, therefore, is delayed in completing the scheme until Hungary is quite ready. While only about 32 per cent of gold is now held against the bank and state paper, competent observers believe that at least 100,000,000 florins more of gold will be required.

The gains from the new plan are regarded in Austria as clear. "The chronic scarcity of money which resulted from our paper standard, and the high rate of interest to which it led, lead us to expect a stimulus to... an influx of gold.... The steady growth of capital in our national economy will now find a secure foundation and a steadily growing circulation.... Greater emancipation from foreign capital, increasing stimulus to domestic industry, enlarged consumption by the entire population, are the objects to be attained."127

It remains to be said that no difficulty was experienced in obtaining the required gold. Europe seems to have been preserved from any drain by the conditions which sent gold out of the United States. Von Wieser remarks: "The increase of our gold supply has been achieved without perceptible draft on the stock of other European countries; particularly, the reserves of the great banks of issue have not been trenched upon. The foreign financial world, which at first regarded our purposes with mistrust, now recognizes the skill and discretion of our agents, who leave thus far in no way disturbed the monetary system of Europe.... That which worked for our good still more, and beyond all expectation; was the fact that an unusually abundant supply of gold flowed out from the United States just at the moment when Austria applied herself to procuring a stock of that metal. All the great European banks of issue profited by this opportunity, and we, too, made the most of it. It is in part your republican eagles, stamped with the imperial eagle of Austria or the royal crown of St. Stephan of Hungary, that are just now furnishing the basis of our gold standard."128 Although the relatively small amount of about $88,000,000 of gold in all has been thus far accumulated by Austria-Hungary—or only about two years' annual product of this country—it is suggestive of the character of our irrational silver legislation that distrust at home has sent our gold abroad to aid the countries of Europe in strengthening their monetary position while weakening our own.129

§ 6. The movement of silver to India in recent years furnishes no grounds for changing the conclusion reached in Chapter IX, that the Indian demand for silver has had but little influence in regulating the market value of silver. The revision of Chart XII makes it clearer than ever that the line indicating the ratio of silver to gold not only has no correspondence with the line indicating the imports of silver into India, but that the two have gone in opposite directions. While India has been importing increasing quantities of silver since 1880-'81, the value of silver steadily fell for years, then rose during the silver speculation of 1890, and finally took a plunge downward out of sight. The exports of silver to India are one of the forms of demand for silver; but in view of the large supply and of the lessening demand in other directions, the needs of India for a relatively small amount (perhaps $50,000,000 or $60,000,000) does not suffice to maintain its value in the market.

The reasons for the importation remain just what they have always been; and the amount of silver imported still depends upon the extent of purchasing power which the industrial condition of the country allows to be expended upon silver, especially for hoarding, and upon the events which cause the Indian Government to make large expenditures in India (requiring, therefore, imports of silver to cover their expenses). The bad harvests and famine during the years 1875-1879 reduced the population by 5.25 million,130 and lessened the purchasing power of the people enormously. The extraordinary import of silver in 1877-1878 was due to the sums sent by the Government to relieve the distress. Since 1880 the purchasing power of its population has increased, and silver has again flowed in.

The exceptional imports of silver in 1890-1891 bear interesting evidence on the extent to which the great silver speculation of 1890 spread. The passage of the Act of July 14, 1890 (the "Sherman Act") in the United States was followed by a concerted speculation in all the silver markets of the world to push up the price of silver. The price was carried as high as 54 5/8d. per standard ounce in London (and to $1.21 per fine ounce in New York) in September, 1890. The silver brought to India was for speculation, probably in view of a further rise.131 The people of India, instead of taking this additional supply of silver, perversely saw in the rise in the price of silver an unusually favorable opportunity to exchange silver for gold. Consequently the silver speculation had the curious result of bringing to light the desires of the Indians—of all people in the world—to take gold whenever they could afford to have it, and to give up silver in exchange. Hence, an unusually large excess of importation of gold in 1890-1891, amounting to Rx. 5,636,172.132 The very large excess of exports of merchandise in 1890-1891 and 1891-1892 encouraged the operation, and even permitted the absorption of a great deal of silver in addition. When the collapse in the silver speculation came (beginning as early as October, 1890) the speculative shipments of silver cased. Thus the Indians shrewdly took advantage of the temporary high price to sell silver; and, contrariwise, when the downward movement of silver in 1892 got full headway, and fell below 38d. per ounce, they straightway began to sell gold for silver. Never before in history could one buy so much silver with a given weight of gold. Hence, a practically unknown event in Indian statistics was recorded, the excess of exports of gold in 1892-1893 to the sum of Rx. 2,812,683.

The extraordinary fall in the value of silver since the collapse of the silver speculation in 1890 is unparalleled in the history of the precious metals. From a London quotation of 54 5/8d. per standard ounce in September, 1890, it fell to 27d. in March, 1894. In a period of three years and six months the price of silver fell exactly one-half. Here is a phenomenon compared with which the aberrations of silver in 1876 are insignificant. The imports of silver into India give absolutely no clew to the causes. But the action taken by the Indian Government, June 26, 1893, has had an unmistakable influence on the value of silver. Of course, the closing of the Indian mints to the free coinage of silver in 1893, to which I refer, could not alone have produced so astounding a result. It was only that it was an additional and very significant record of the desire throughout the civilized world to give up the use of silver as a monetary metal. Independent of all abstractions about bimetallism, the simple but overwhelming pressure of facts forcibly compelled the deposition of silver. Against the pressure of this stream of events no country could possibly stand up. It was quite natural and necessary that India should adapt herself to the facts of the situation; but her action, taken in connection with that of Germany in 1873, that of Holland in 1875, the Latin Union (including all the states of France, Belgium, Italy, Switzerland, and Greece) in 1878, that of Austria-Hungary in 1879, that of Italy in 1882, and the failure of the Brussels Conference in 1892, made a great impression upon the imagination of the world. The woodman's axe had been plying on the huge tree-trunk, the chips had been flying, the tree had been shaken; but this last stroke brought the tree crashing down through the forest. It was a tree no longer; in the future it was to be only lumber. The action of India, followed by the repeal of silver purchases by the United States, November 1, 1893, brought silver down from its position as a monetary metal; henceforth it was to be relegated to the class of ordinary non-monetary commodities.

Although the single silver standard was introduced into British East India in 1835, the gold mohur133 was made receivable for 15 rupees on January 13, 1841, thus establishing a bimetallic system on the ratio of 15:1. Alarmed by the great discoveries of gold in Australia and California, the right to pay gold coins at the treasuries was withdrawn on January 1, 1853; thus again the single silver standard was adopted. By 1864 the Chambers of Commerce began an agitation for a gold standard, without results. But the depreciation of silver brought new and overwhelming difficulties both into the budget and into the currency. The Government of India has entered into obligations payable in gold, and its annual charge payable in sterling in England is about £76,000,000.134 As its income is payable in silver, grave difficulties arose in adjusting the budget. These difficulties grew not so much out of the loss, as out of the embarrassing uncertainty, and impossibility of making correct estimates. But more than this, the doing of business on a fluctuating silver standard had placed the Government at the mercy of foreign influences beyond its control: "Our financial situation is dependent on the mercy of the exchanges, and of those in whose power it lies to influence the price of silver."135

The condition of the civil servants in India, who were paid in silver, was alarming. As silver depreciated, of course, prices of articles of daily consumption rose; but, receiving a fixed income in silver, the effect was to lower their salaries by reducing their purchasing power. The operation of rising prices took place early, while the Government were long in even understanding the situation of its employés. This distress led to a pathetic address to the viceroy, on January 31, 1893, a part of which I quote:136 "Since 1886, when the depreciation of silver became acute, there has been a sharp and rapid rise in the price of almost all articles produced in India, including food, in the wages of servants, and in house rent. In the same period the retail price of goods imported from Europe, on which a portion of our salaries is spent, has also risen largely from the same cause; and the prices paid for them increase with each successive fall in exchange."

After many and urgent communications from the Indian Government upon the necessity of adopting measures to regulate the relative values of gold and silver, the failure of the Brussels International Monetary Conference in 1892, and the possible suspension of silver purchases by the United States, led to the decision that the only outcome for India must be the closing of the mints to coinage of silver for private persons.137 October 21, 1892, a committee138 was appointed by the Secretary of State to investigate the conditions of the Indian currency. The memorandum of Sir David Barbour, the Indian Minister of Finance—and himself an advocate of bimetallism—written June 21, 1892, really outlined the policy finally adopted. The Indian Currency Committee began its sessions October 27, 1892, continued them until after the close of the Brussels Conference, and laid its report in secret before the Secretary of State on May 31, 1893. The committee unanimously recommended the closing of the Indian mints to private persons for the coinage of silver; that all further coinage of rupees should be made only by the Government; and that the Government should furnish silver rupees for gold at the rate of 1s. 4d. for a rupee (or 15 rupees to a sovereign). No one having any knowledge of the conclusions of the committee, the acceptance by the British Government of these recommendations was unknown until the decree that the Indian mints were closed to silver was flashed over the world by telegraph, June 26, 1893.

It is to be noted that coinage of rupees has not ended, but that additional coinage is at the discretion of the Government of India. It is an attempt to maintain the rupees at a fixed relation of 1s. 4d. to gold by limiting the quantity coined. Of course, this will not be permanently effective unless there is some definite method of redemption of the rupee at this rate. Such a result will require a reserve of gold (of perhaps $75,000,000), which in the existing conditions of the budget can not now be provided; but it is evident that the action of 1893 is only preliminary to the future establishment of a gold standard, leaving silver as the common medium of exchange, but limited in quantity and redeemable in gold. This refers merely to the use of silver as money.

The action of 1893, however, will have no effect whatever upon the importation of silver for hoarding. The circulating medium of India will, and must remain silver, and the demands of the people for silver will remain unchanged. So far as the action of 1893 goes, it will not perceptibly change the demand of India for silver. The effect of the closure of the Indian mints upon the value of silver is not, therefore, to be traced to any real subtraction of demand. Its importance to the value of silver is due to its being an additional blow to a situation already more than critical. It was a last straw on the camel's back, especially because it indicated the unsentimental attitude of Great Britain toward the future use of silver. Henceforward, schemes for the rehabilitation of silver could hope for nothing from Great Britain.

§ 7. In recounting the events of the last ten years in this chapter, we find surprising confirmation of the reasons for the fall in the value of silver already given in earlier chapters. The continued decline in silver since 1885, in a manner unknown in all its former history, would be inexplicable if we looked solely at the events which have occurred since that date. Nor can any one event be ascribed as a full and satisfactory cause. It is only when we study the enactments connectedly, as all springing from a common source, that the later events become cumulative and decisive out of all proportion to their immediate character. The great production of gold since 1850 has furnished the possibility of provision for gold currencies; and the silver has been discarded, because gold was at hand from which the currencies could be supplied. The withdrawal of silver has had nothing whatever to do with any scarcity of the precious metals. Indeed, silver has been disused as a money metal solely because gold has become so abundant. The continuity of monetary events, beginning with the action of Germany and ending with that of India and the United States in 1893, has coherence only as we see it from this point of view. This series of acts by the governments of Europe has not been undertaken upon any abstract theory, but in many cases only after strenuous opposition, and in reluctant obedience to the stubborn facts of commercial progress. As they have no artificial character, their permanence may be considered as definitive. There can be no swimming up stream against the current which is bearing gold into the currencies of the world.

This is the more certain because of the phenomenal increase in the production of gold in the last few years. If the fall in the value of silver has been a striking, unparalleled event in the history of the precious metals, the production of gold has increased in a manner equally striking and unprecedented. As the abundance of gold has become a self-evident fact since the surprising output of the South African mines, the recovery in the value of silver has become hopeless. If railways become more numerous and do their work still more cheaply, there is less reason to suppose we shall ever return to the stage-coach as a usual means of transportation.

How important the recent increase in the production of gold is may be seen by Chart XV. And when we recall that we have to deal not merely with the annual product but with the total durable mass in existence (indicated by the whole colored area since 1850), we get some true conception of the situation. The total quantity produced since 1850 is the greatest event in monetary history; nothing is in any way comparable with it. The production of silver has also increased extraordinarily (see Chart XVI), but it bears no comparison with that of gold, except since 1876. By grouping the facts of production139 together, we may see this most clearly:

Or, contrasting the periods before and after 1850, the result is:

That is, in the 45 years since 1850 the production of gold has been nearly twice the whole production of the world in the 358 years from 1493 to 1851; while the production of silver in the 45 years has been less than one half of that in the corresponding 358 years. And inasmuch as trustworthy authorities say the gold product will continue on the present great scale for at least 15 years (at an annual output of at least $220,000,000), we may reasonably look forward to an addition of $3,000,000,000 in our stock of gold during these years, or an amount as large as, if not much larger than, the whole gold circulation of the world in 1850. The imagination is challenged to picture the results of this abundance, and it is not too much to say that it takes away whatever force may have been left in the argument of the bimetallists that gold is scarce and insufficient for the "needs of trade."

The present monetary needs of the world140 are given herewith, in order to show that this abundance of gold furnishes an amount far beyond the monetary demand of $4,068,800,000 for the world, and, allowing for the estimated non-monetary consumption in the arts, yet leaves an enormous surplus. Supposing that only $2,000,000,000 of gold existed in 1850, this sum, plus the production in 1850-1895, makes nearly $7,900,000,000 to be accounted for. Taking the annual consumption in the arts for 1895 (which is absurdly high for earlier years) or $60,000,000 as true for all the 45 years since 1850—or $2,700,000,000 in all—the total monetary and non-monetary demand thus amounts to $6,700,000,000, leaving a surplus still unaccounted for of $1,200,000,000.

[1.]Levasseur, "La Question d'Or"; Jevons, "A Serious Fall in the Value of Gold Ascertained"; Chevalier, "On the Probable Fall in the Value of Gold"; Stirling, "Gold Discoveries and their Probable Consequences"; McCulloch, "Precious Metals" in the "Encyclopedia Britannica"; and, above all, Cairnes, "Essays in Political Economy," the first four chapters.

[2.]Some figures hate been given by Mr. Del Mar for this period, in the "Report of the United States Silver Commission, 1877," but they do not inspire confidence.

[3.]Cf. Mill's chapters on Money, and Jevons's "Money and Mechanism of Exchange," chap. iii, for an explanation of the functions of money and the proper qualities possessed by a metal used as a medium of exchange.

[4.]We here pass by the question of its consumption in the arts.

[5.]I have here used Dr. Soetbeer's figures. See Appendix I, Tables A and B.

[6.]"Essays in Political Economy," p. 141.

[7.]Report to H. C. on "Depreciation of Silver," 1876, Appendix, pp. 86, 87, continued since 1875 from the "British Statistical Abstract."

[8.]"Essays in Political Economy," p. 142.

[9.]"Essays in Political Economy," p. 79.

[10.]"H. C. Report of 1876," Q. 1,046.

[11.]Ibid., Q. 947.

[12.]Ibid., Q. 1,010.

[13.]"French Report on Conference of 1881," i, p. 63.

[14.]"H. C. Report of 1876," Q. 1,047.

[15.]Ibid., Q. 1,050. Mr. Cairnes also quotes Mr. Alexander Forbes: "It has often been said that the natives (of India) hoard silver; now my experience is that they do not hoard silver; they hoard gold; and that the silver is actually required for the commerce of the country."—"Essays in Political Economy," p. 94, note.

[16.]Ibid., Q. 938. Gold "is turned into ornament, used in manufactures, and is hoarded."

[17.]Ibid., Q. 913 and 1,041.

[18.]See Appendix VI, and Appendix I, Table B.

[19.]Broke out May 4, 1857, and ended July, 1859.

[20.]Between 1850 and 1873 India, borrowed 164½ millions sterling, which must be repaid in gold. The interest also must be paid in gold. This is the chief difficulty of India,, arising from the fall of silver, since more silver is required to pay the same amount as before in gold.

[21.]The increase in 1868 was due to payments for the Abyssinian war.

[22.]"H. C. Report of 1876," p. 33.

[23.]"H. C. Report of 1876," Q. 1,368.

[24.]Dated September 22, 1876, and issued in the form of a resolution upon the suggestions of the Bengal Chamber of Commerce and the Calcutta Trades Association. See "Report of 1878," pp. 411,412.

[25.]Cairnes, "Essays in Political Economy," p. 133.

[26.]Cairnes, ibid., pp. 127, 128.

[27.]"French Report of Mon. Conf. of 1881," ii, p. 205.

[28.]Writing in 1860, Mr. Cairnes said: "We are aware it has been maintained that the value of silver, so far from having fallen, has really risen during the last few years, in proof of which we are referred to the increased demand for it for Oriental remittance. That silver has risen in its gold-price owing to this circumstance we admit, but we deny that this is a proof of a rise in its value, any more than a rise in the gold-price of any other commodity would prove a rise in its value at a time when the supply of gold was rapidly increasing. During the last two years (1858 and 1859) the demand for silver in the East has been affected a good deal by requirements connected with the Indian Mutiny; but, if we investigate the causes of the extraordinary demand which has characterized the last four or five years, we shall find that they are in a principal degree traceable to the increased production of gold, operating through the expenditure of enlarged money incomes in England and the United States on Oriental productions; and that thus the increased demand for silver, which is alleged as a proof that silver has risen in value, is in reality a consequence of the large amount of gold available, for its purchase."—"Essays," pp. 142, 143. Mr. Cairnes was thus of the opinion that the imports of silver after 1850 were abnormal, and, by inference, would decline gradually with the absorption of the new gold.

[29.]The coinage of silver in India was, in

See speech of Sir Louis Mallet, "French Report of Conf. of 1881," i, p. 173.

[30.]See Léon Say's "Rapport fait au nom de la commission du budget de 1875 sur le payement de l'indemnité de guerre."

[31.]Dr. A. Soetbeer, "Gegenwärtiger Stand der Währungsfrage and die Zukunft des Silbers" (April, 1885), p. 36; also in "Viertjahrs. für Volkswirt.," xxii, Heft ii.

[33.]Chapter xii, § 3.

[34.]For the full text of these laws, as well as for the French law, see Appendix III, C.

[35.]The price of silver in 1871 in London was 60½d., equal to a ratio of 1:15.58.

[36.]By the treaty between Austria and the German States in 1857, a pound of fine silver was coined into 30 thalers.

[37.]"French Report of Mon. Conf. of 1881," i, p. 16. Marks are reduced at the rate of four marks to one dollar.

[38.]1,080,486,138 marks of silver coins were withdrawn; 382,648,841 marks were used in the recoinage; the remainder, 697,797,069 marks, divided by 90 (the number of marks to a pound under the old system), give 7,474,644 pounds. It will be noticed, however, that these figures, taken from the "French Report of Mon. Conf. of 1881," i, p. 16, do not exactly prove. The figures in this "Report," already referred to, are unfortunately marred by many errors.

[39.]"French Report of Mon. Conf. of 1881," i, p. 16; and Dr. Soetbeer's various writings; particularly the one already referred to, "Währungsfrage."

[40.]The amount withdrawn from 1880 to 1885, however, must be added to this sum.

[41.]Mr. G. Pietsch, manager of the sales of silver for Germany in London. See "H. C. Report of 1876," Questions 739-760. The estimate of one third for disappearance on the amount of the original coinage was found in fact to be, on an average, only 21 per cent for three kinds of coin.

[42.]Ibid., p. 37.

[43.]French Report Conf. of 1881," i, p. 15.

[44.]From 1871 to 1876 gold to the amount of $119,930,000 was purchased by the German Government in London ("H. C. Report of 1876," Q. 325}; $50,000,000 of gold came from France in the War Indemnity; and other amounts came from France, Belgium, and Russia.

[45.]See "H. C. Report," p. 30.

[46.]After 1850 "the five-franc silver began first to disappear; and soon the fractional coins were displaced in their turn; so that the necessary quantity of subsidiary coin was thus diminished to the great injury of small transactions."—"Message of the Federal Council of Switzerland," February 2, 1866.

[47.]By the law of May 25, 1864, the coinage of fifty and twenty centimes at a fineness of 835/1000 was authorized to the amount of thirty millions of francs; which was only about one franc per capita of subsidiary coinage. See "Report of 1878," pp. 782, 783.

[48.]See "Report of 1878," pp. 781-789; and also "H. C. Report of 1876," Appendix, pp. 1041-108. The latter reference gives valuable information.

[49.]Dr. Soetbeer, "Währungsfrage," p. 29.

[50.]See Appendix III, D, for the text in full.

[51.]April 10-22, 1867, Greece entered the Union; April 24, 1867, Roumania; June 18, 1866, the States of the Church.

[52.]This last, was the opinion of Mr. Bagehot. See "H. C. Report of 1876," Q. 1,426.

[53.]"When the value of gold relatively to silver increased, the state decreased the weight of gold forming the monetary unit; when it was the value of silver which increased, the state decreased the weight of silver. Thus, in the course of centuries, the weight of the coin was constantly diminished and reduced; it is true, the name remained the same; the monetary unit was always called the livre until the time when its name was changed by law in the year XI to that of franc; but the livre was no longer a pound; it decreased and decreased until it was reduced to a very small part of the original pound. This was profitable to the government who coined the money; it was profitable to debtors who were freed from their debts by a weight of gold or silver less than that which had been agreed upon; but all these profits were made at the expense of the whole people."—M. Burkhardt-Bischoff, "French Report Mon. Conf. of 1881," i, p. 132. For the text of the law of 1803, see Appendix III.

[54.]See Chap. ii, § 5.

[55.]H. C. Burchard, article "Coinage," in Lalor's "Cyclopædia."

[56.]"Journal des Économistes," June, 1876, p. 443.

[57.]Chap. viii, § 6.

[58.]Chevalier says that under Louis Philippe there was coined of gold 216,000,000 francs, of silver 1,757,000,000 francs; but under the Second Empire 6,152,000,000 francs of gold, and only 625,000,000 of silver.

[59.]See "Histoire du système monétaire Français," by L. Pauliat, "Journ. des Économistes," June, 1881, p. 428.

[60.]"Journal des Économistes," June, 1876, p. 444.

[61.]See tables in Appendix II and Chart XIII.

[62.]Annex to the Monetary Convention of January 31, 1874, presented to the French Government.—"Journal des Économistes," July, 1374, p. 108.

[63.]For the text of this document see "Journ. des Écon.," July, 1874, pp. 112, 113.

Italy was also allotted an extra 20,000,000 fr., and certain deposits at the Mint, for which coin warrants had been issued, were also excepted.

[64.]Wolowski held that the slight fall in silver at this time was a "passing circumstance"; and that when the various countries then laboring under heavy issues of paper money began to resume payments in specie, the danger would be that there would not be enough, rather than that there would be too much, of silver.—"Journ. des Écon.," December, 1873, p. 506.

[65.]Annex to Monetary Convention of January 31, 1874.—"Journ. des Écon.;' July, 1874, p. 111.

[66.]

[67.]

Cf. "Journ. des Écon.," March, 1876, p. 443.

[68.]Cf. "Journ. des Écon.," August, 1875, p. 172. This act ran until January 1, 1877, but was at that date continued in force.

[69.]"La fabrication de pièces des 5 francs en argent pourra être limiteé ou suspendue par décrets," was the phrase of the act. A decree in consonance with the law was issued the next day (August 6th) after its passage. For the animus of the law, see the statement of Léon Say, "H. C. Report of 1876," Appendix, p. 92.

[70.]"Report of 1878," p. 735.

[71.]The coinage of gold five-franc pieces was also suspended by this treaty.

[72.]

The following statement is given by Ottomar Haupt:

Dr. A. Soetbeer. "Währungsfrage," p. 32.

[73.]Cf. "London Economist," August 22, 1885. It is stated that $125,000,000 of Belgian silver coins are in circulation in France.

[74.]See Appendix II, D, for London prices since 1833. Monthly quotations in each year since 1833 to 1880, by Pixley and Abell, can be found in the "French Report of the Mon. Conf. of 1881," i, p. 197. The average monthly ratio from 1845 to 1880 is given in Appendix II, F.

[75.]For the computation of the ratio from the price, see Appendix II, G.

[76.]Appendix II, E.

[77.]See the movement of the line in Chart III, which is based on these figures.

[78.]"H. C. Report of 1876," p. iv.

[79.]"H. C. Report of 1876," p. v.

[80.]Ibid.

[81.]"H. C. Report of 1876," p. v.

[82.]Mulhall's "Dictionary of Statistics" states that since 1840 the banking of the world has increased eleven-fold, or three times faster than the increase of commerce, and thirty times faster than population. That in 1863-1870 the precious metals required for the interchange of the sea-borne commerce of the world was 12 per cent of the transactions, and in 1871-1880 only 8 per cent.

[83.]"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 used 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."—W. Bagehot, Q. 1389, Report to H. C. of 1876, on "Depreciation of Silver."

[84.]"In the Low Countries they struck gold ducats which circulated preferably abroad as merchandise without official value. Because of their fineness and the worth of their stamp they were highly regarded in the Orient, and especially in the Balkan peninsula; but these ducats had no circulation in the Low Countries, although their coinage was free. The only standard of the Kingdom of the Netherlands was really a silver standard. Russia, Germany, Austria, likewise struck gold ducats, friedrich d'or, and pistoles for exportation; but, like the Low Countries, they employed at home only silver money. France had, it is true, bimetallic legislation; but its circulation consisted entirely of silver. From 1789 to 1848 she had struck about four thousand millions of francs of silver money, while the amount of gold coined during the same period was only one thousand millions. Generally, in Europe, gold bore a premium; generally, the circulation, both domestic and foreign, was made up of silver."—Dr. O. J. Broch, "French Report of Mon. Conf. of 1881," i, p. 39.

[85.]Cf. also chap. viii, § 6.

[86.]Although the metallic drain to the East is composed principally of silver, the efflux—at least in its present proportions—is not the less certainly the consequence of the increased production of gold, for the silver of which it consists has been displaced from the currencies of Europe and America by the gold of Australia and California, and the drain to the East is only not a golden one, because silver alone is in that region the recognized standard."—Cairnes, "Essays in Political Economy," p. 99.

[87.]"M. Chevalier appears to assume that, when the process now [1860] going on in France is completed, all further substitution of one metal for another will be at an end, and that the action of future supplies, concentrated on gold alone, will tell in the depreciation of this metal with proportionate effect. But we question the correctness of this assumption. We are inclined to think that the substitution of gold for silver in France is only a very striking example of a process which has been in unobserved operation over a much wider area, and which will continue after the French movement has ceased. In India, where there is an immense silver currency the process has already begun, and signs are not wanting that it will soon assume more important dimensions."—Cairnes, "Essays in Political Economy," p. 144.

[88.]The sales of silver by Germany, taken by themselves, can not be said to be the chief cause of the depreciation in silver, because other events must have had greater importance. Between 1871 and 1879 the production of silver amounted to $750,000,000; the sale of India Council Bills to $500,000,000; while the sales by Germany in all only rose to $ 141,000,000.

[89.]For the figures see Appendix II, E and F.

[90.]The amount of $125,000,000 claimed by Mr. Horton as constituting a new demand I do not admit as such; but I insert it in brackets in the table as a matter which has been considered as a new demand. Likewise, in the case of Germany, I insert the whole possible supply of silver in brackets. I need scarcely add that this table does not attempt to do more than approximate to the actual state of things about 1876; but yet I believe it gives the general situation with sufficient exactness to serve our purpose.

[91.]The gold in the Netherlands Bank having seriously declined in amount, in April, 1384, the Government gave the bank permission to sell twenty-five millions of silver gulden at the market price. The power to sell accomplished the purpose, and actual sale has not taken place, the gold reserve of about $25,000,000 remaining intact.

[92.]For the details of the treaty, see Appendix, iv.

[93.]

"Annuario Statistico Italiano," 1878, Parte Prima, pp. 144-147.

[94.]"A forced circulation was given to the notes of the National Bank of the Kingdom of Italy, and to the notes of the Bank of Sicily and of the Bank of Naples, in Sicily and in the Neapolitan provinces respectively. At the same time the National Bank advanced to the Government a loan of 250 million lire for the purpose of carrying on the war. Later in the month the forced circulation was further extended to the notes of the National Bank of Tuscany, and of the Tuscan Bank of Credit within the Tuscan provinces."—A. B. Houghton, "Italian Finances from 1860-1884," Quar. Journ. of Econ., 1889, pp. 245, 246.

[95.]Houghton, ibid., p. 245.

[96.]See also Say, "Dictionnaire des Finances," i, p. 1304.

[97.]Ibid.

[98.]The "consorzio" was made up of the five former banks of issue and the Roman Bank—viz., Banca Nazionale del Regno d'Italia, Banca Nazionale Toscana, Banca Romana, Banca Toscana di Credito, Banca di Napoli, and Banca di Sicilia. Instead of the old state note issues, the "consorzio" would furnish the state one billion lire, of ½, 1, 2, 5, 10, and 20 lire notes, printed on white paper, inconvertible, and having a forced circulation. The banks were jointly responsible for the notes; but the state deposited with them an equivalent value in rentes.

The banks continued to issue notes on their own account, on colored paper, in denominations of 50, 100, 200, 500, and 1,000 lire, redeemable in "consorzio" notes or specie, but limited in amount. See Say, ibid., p. 1305; Kaufmann, ibid., p. 144; Houghton, ibid., p. 375, 376.

[99.]1867, Ferrara; 1869, Cambray-Digny; 1870, Sella; 1877, Depretis; 1878, Seismitt-Doda; 1881, Magliani.

[100.]

Wages had increased from 100 in 1862 to 136.99 in 1814, and to 144.08 in 1878, while prices were much lower in 1878 than in 1865.

[101.]"Annuario," 1892, pp. 866-869.

[102.]The exposé, or report, accompanying this plan is one of the most valuable documents in monetary literature relating to the experiences of a country with a depreciated paper. See "Bulletin de Statistique et de Législation comparée," 1881, pp. 162-167, 251-258, 341-347, and 429-434.

[103.]The ½, 1, 2, and 5 lire notes were to be withdrawn and canceled, making altogether about 315 million lire. After they were retired, notes of other denominations were to be withdrawn in like manner until the amount of 600 was reached. It will be observed that this plan prepared the way for a metallic subsidiary money, while redeemable paper was to form the rest of the circulation.

[104.]It was estimated that about 1880 the treasury held 44 million lire of silver, and private persons held perhaps 127 million, or only about $34,000,000 in all.

[105.]The index numbers of the Aldrich Senate Report, vol. i, p. 99, give United States prices as follows:

[106.]"London Economist," December 10, 1881, p. 1517/

[107.]The gold was obtained as follows from—

[108.]"London Economist," 1883, p. 258.

[109.]Houghton, ibid., p. 402.

[110.]R. Dalla Volta, "Journal of Political Economy," 1893, pp. 1-25.

[111.]F. von Wieser, "Specie Payments in Austria," "Journal of Political Economy," June, 1893, pp. 397, 398.

[112.]For this and other points, see the "Report of the Special Commission of the Upper House on the Bills for regulating the Standard of Value and Conversion Parts of the Public Debt," translated in Quar. Journ. of Econ., January, 1893, p. 225.

[113.]Since 1866, unsecured treasury notes (1, 5, and 50 gulden) exist to the sum of 312,000,000 gulden. An additional amount may be issued provided that this additional issue, together with the "Saltworks Notes "(interest-bearing treasury notes, for short periods), do not exceed 100,000,000 gulden, thus raising the limit to 412,000,000 gulden.

[114.]

[115.]Report to Upper House, etc., ibid., p. 228.

[116.]Cf. Von Wieser's counter opinion that the paper had a value independently of any metallic basis, loc. ante cit., pp. 386, 387.

[117.]The Austrian silver guldens already coined, however, retained their full legal-tender character (like the German silver thalers not withdrawn), and passed current, just as subsidiary coins, irrespective of the lessened market value of the silver metal in them.

[118.]Von Wieser, loc. ante cit., p. 388.

[119.]Ibid., p. 389.

[120.]V. Wieser, ibid., p. 390.

[121.]The bills were introduced in May, 1892, and approved by the Emperor in August, 1892.

[122.]See Appendix IV, F, for the laws.

[123.]The crown is 835/1000 fine.

[124.]The Austro-Hungarian Bank is required to give to the public for a kilogramme of gold 3276 krone in notes, reserving 4 krone as seigniorage, 3280 being the full equivalent of a kilogramme in coin.

[125.]A dollar equals 4.9351 krone.

[126.]Von Wieser, p. 403. This does not include the silver in the hands of the public, nor the subsidiary silver.

[127.]Report to Upper Chamber, ibid., p. 245.

[128.]Report to Upper Chamber, ibid., pp. 399, 400.

[129.]"The later development of the monetary question brought an unbroken chain of events, all indicating the deposition of silver from the position of standard money—the continual sinking of the ratio, the complete cessation of silver coinage in the Latin Union in 1878, the suspension of silver coinage on private account in Austria-Hungary (in 1879), the repeal of the obligation previously incumbent on the Austro-Hungarian Bank to redeem silver, the establishment of the gold standard in the Balkan countries, the policy of Holland in regard to silver. Even India could no longer be counted on as an unfailing purchaser of the superfluous silver of Europe; and Japan, shrewdly perceiving the characteristics of modern commerce, established in 1870 the gold yen as a necessary part of its new civilization.

"The efforts of the silver statesmen of America to counteract this natural course of events, notwithstanding the enormous scale on which they were undertaken, proved on the whole unsuccessful. Gold rules even the trade of America. It has long played a dominant part in the countries of the Latin Union, and even in Austria-Hungary. Gold, even though indirectly, is now the basis of our standard of value."—Report of the Special Commission of the Upper House, etc., p. 227.

[130.]Cf. Elstaetter's "Indian Silver Currency," translated by the writer (University of Chicago Press, 1895). This gives the best account I know of, in compact form, of the currency situation in India.

"The quantity of silver imported in the years 1890-1891 far exceeded the needs of trade, and this silver brought into India for the purposes of speculation is not therefore to be found in circulation, but rests in the bank like capital waiting for investment."—Report of German Consul-General at Calcutta, "Deutsches Handelsarchiv," 1891, vol. ii, p. 619, quoted by Ellstaetter, ibid. p., 7.

[131.]Or perhaps $18,030,000, at present value of the rupee. Rx. is 10 rupees. The traditional use of 1 Rx. = £1, or 1 rupee = 2s., although still appearing, is inexact. At 1s. 4d. the rupee is worth about 32 cents, but its market value is still less than that.

[132.]The gold mohur contained 180 grains troy, gross weight, and 165 grains fine gold. The East India Company silver rupee of 1835, following the type of the Madras rupee of 1818, contained 180 grains troy, gross weight, and 165 grains of fine silver. At this weight the rupee at par is worth 44 cents of the United States silver dollar of 371.25 grains. April 1, 1895 its gold value was 21 cents.

[133.]The total expenditures for 1893-1894 were estimated at Rx. 91,600,800, as against a total income of Rx. 90,005,700, Ellstaetter, ibid., p. 73.

[134.]Sir David Barbour, "Financial Statement for 1893-1894," p. 15, § 31.

[135.]"Minutes of Evidence, Indian Currency Committee," p. 186.

[136.]In the face of such efficient testimony, it is difficult to understand why some extreme advocates of bimetallism keep on asserting that in silver-using countries silver still keeps its value relatively to goods, or that prices have not risen. Cf. Andrews, "An Honest Dollar," p. 801: "Silver prices have not risen. The rupee has not lost in general purchasing power."

[137.]In May, 1892, the Indian Currency Association was founded, and a petition for a gold standard obtained 11,788 signatures.

[138.]The Lord High Chancellor, Lord Herschell, Chairman, Mr. Leonard Courtney, Sir Thomas Farrar, Sir Reginald Welby, Mr. Godley, Lieut.-Gen. Strachey, and Mr. Currie.

[139.]See Appendix I.

[140.]Report of the Director of the U. S. Mint, 1895.