The Online Library of Liberty

A project of Liberty Fund, Inc.

• Translator's Preface
• Section I.: Preliminary Observations.
• Chapter I.: The Question Stated
• Chapter II.: Preliminary Observations On the Rise of Prices Which Has Characterised the Last Few Years.
• Section II.: An Appeal to Some of the Fundamental Notions Upon the Nature and Characteristics of Money.
• Chapter I.: What We Ought to Understand By Value and Price.—twofold Definition of Money.—the Standard Or Fineness of Money.
• Chapter II.: Of the Meaning of the Word Standard.— the Metal-standard Is That From Which Is Derived the Monetary Unit.—the Two Ideas Standard and Monetary Unit Imply Each the Other.
• Chapter III.: Of the Character of Exchanges As Affected By the Invention of Money —how the Rise and Fall of the Precious Metals Are Manifested In the Course of Trade.—phenomena of the Rise and Fall In Commodities.
• Chapter IV.: On the Possibility of Conferring the Quality of Standard Upon Two Metals At Once.
• Chapter V: Of the Meaning of Certain Words Specially Applicable to Money and the Precious Metals.—price, Value, Premium, Dearness, Cheapness
• Section III.: Of the Present Production of Gold and Its Outlet.
• Chapter I.: Of the Increase In the Present Production of Gold As Compared With the Past —the Extended Coinage of Gold Which Has Followed.
• Chapter II.: Diminished Coinage of Silver In France—gold Is Already At a Discount In Comparison With Silver.
• Chapter III.: Extraordinary Exportation of Silver From the Civilised Countries of the Western World Towards India and China —to What Extent It Is Likely to Continue.
• Chapter IV.: France Serves Temporarily As a Parachute to Retard the Fall of Gold.
• Chapter V.: Whether the Extraordinary Production of Gold Ought to Be Considered As an Ephemeral Accident.—the Crushing of the Quartz Veins —mines In Siberia and Elsewhere.
• Section IV.: On the New Outlet That May Be Expected For the Production of the New Gold Mines, and Whether It Will Be In Proportion to the Extent of This Production.
• Chapter I.: Of the Outlet Afforded By Those Countries Which At Present Have Evidently an Insufficient Proportion of Metal In Their Currencies.
• Chapter II.: Of the Increase of Gold Money Which May Arise From the Development of Business, and the Increase of Population.—of Wear and Tear.—of Hoarding.—of Shipwrecks.
• Chapter III.: On the Employment Which Habits of Luxury May Offer to the Gold of the New Mines.
• Chapter IV.: Conclusion of the Preceding Chapters.—the Fall of Gold Very Probable, If Not Inevitable, In Relation to All Other Commodities.
• Section V.
• Chapters I. to V.: On the Part Assigned to Gold In the Monetary Legislation of France.
• Section VI.: Consequences of the Fall In the Value of Gold.
• Chapter I.: A General Distinction Between Those Private Incomes Which Will, and Those Which Will Not Be Affected. of a Certain Collective Loss Which the People of France Will Suffer.
• Chapter II.: Of the Sufferings and Difficulties Which Will Accompany the Transition.
• Chapter III.: On the Gain Which Would Result to Certain Classes of Persons, and to Society, From the Fall In Gold. the Saving to the State From the Payment of the Dividends On the Public Debt.
• Section VII.: Of the Measures to Be Taken to Avert the Evil Effects of the Fall of Gold.
• Chapter I.: Case of a State Like England, Where Gold Is the Standard, and Where There Is No Other Money But Gold.
• Chapter II.: Case of a State Such As France, Where There Is a Silver Standard, But Also a Gold Currency.
• Chapter III.: The Measure Here Recommended Is a Necessary Complement of the Law of Germinal, Year XI.
• Chapter IV.: On Some Inconveniences Inherent In the Combination, Respecting a Gold Currency, Recommended In This Work.
• Chapter V.: Of a Plan Recommended For Maintaining the Parallel Circulation of Silver and Gold.
• Chapter VI.: Of the Resolutions of a Commission Appointed By the Minister of Finance In Mdccclvii.
• Chapter VII.: Of Various Acts Which the Legislation of the Ancient Regime Upon Money Treated As Crimes, and With Regard to Which Some Persons of Our Day Propose to Establish Penalties. —selecting, and Melting; Trade In Coins; Exportation.
• Chapter VIII.: Of a Different Solution Which Has Been Recommended, and Which Would Consist In the Adoption of a Gold Standard.
• Chapter IX.: Appreciation of the System Which Consists In Adjourning Indefinitely the Legislative Solution.

CHAPTER IV.

on the possibility of conferring the quality of standard upon two metals at once.

Inasmuch as money is at the same time a measure of value and an equivalent, common sense would seem to tell us how more than difficult it must be to have two monies, equally invariable, and permanently in use together; for how could it be possible for a given quantity of merchandise to have for equivalent indiscriminately a certain quantity of gold and a certain quantity of silver, which should always bear the same relation to each other, seeing that there is not and cannot be a fixed relation between these two metals? The value of gold and that of silver depend, in fact, to a large extent upon circumstances peculiar to each of them, they being identical in this respect with iron or copper, bread or meat. It would, doubtless, be an exaggeration to say that they are absolutely independent of each other; for whenever two substances have a common use, the value of one exercises a certain influence upon that of the other; but between gold and silver this relation is not closer than that between corn and wine, or between bread and meat. Now, who has ever maintained that so close a connection exists between these two products that the price of one being given, that of the other can thereby be determined? It is now a long time since Locke has said,—” Two metals such as gold and silver cannot serve at the same time, in the same country, for the medium of exchange, because this medium ought to be always the same and retain the same proportionate value. To adopt, as a measure of the exchangeable value of commodities, substances which have not a fixed and invariable relation to each other, is as if we were to choose for a measure of length an object which was subject to the process of distending and contracting itself. In each country there should be but one metal to serve for the money of account, the payment of contracts, and the measure of value.

Even before Locke had thus expressed himself the same idea had presented itself to the intelligence of mankind, and been carried out in practice. At the origin of a metallic currency,* it was only one metal that was endowed with the attribute of money. It was not the more vulgar of the two to which was always reserved the particular appellation of the precious metals. It was here iron, and elsewhere copper. We know that for many centuries, copper constituted the money of Rome.† Afterwards, society having become richer, copper money was no longer sufficient; with the increase of wealth, payments became too cumbrous, and a more valuable metal than copper was found better adapted for the bulk of transactions; it was thus that silver money came into use. This was soon after followed at Rome, and for the same reason, by a gold currency, and thenceforth the two metals continued to coexist.‡ The history of the currencies in the monarchies which were reared upon the ruins of the Roman Empire reveals the same process. The first man of genius who then arose, endowed with a commanding spirit of reorganization, Charlemagne, took for his monetary unit the pound weight of silver. A gold currency made its appearance in France under St. Louis, and from that time the two metals have, whether for good or evil, circulated side by side of each other. In England, William the Conqueror established also for his monetary unit the pound of silver, of the Saxon or Tour weight; and it was only under Edward III. that a gold currency was established. In the extreme East, at least in China, silver has from the first continued to be the sole instrument of exchange for all commercial operations on a great scale. In India, silver is the prevailing money; gold formerly filled a secondary place in the currency throughout the vast territories of the East India Company, in the form of coins, bearing the name of mohur, which had been given them by the ancient Moguls; but at present they have been completely demonetised by the Company.

In itself, the desire to make gold and silver circulate together in the currency of a State is justifiable upon good reasons, an equal value of the one being much more portable than the other; but, on the other hand, being little suited for small sums, owing to the risk of the coins slipping out of sight, a division of their employment seems to be indicated,—for silver the smaller, and for gold the larger payments, especially when they pass from hand to hand. Each metal thus having its special use, the idea of employing both, which has been found to prevail in almost all countries, has really a reasonable origin.

But the question of a simultaneous circulation of the two currencies being decided in the affirmative, others presented themselves:—On what conditions and in what form should this process be carried out? Should the two metals be treated alike, and invested with the same dignity? In a word, should each of them be the standard, or, what comes to the same thing, the monetary unit? The preceding statement shows that this duality of the monetary unit would be opposed to the very nature of things. It might absolutely be possible to have for unity of length simultaneously the metre and the foot, because the relation of one to the other is fixed and invariable. It would be very different, however, with two weights, one of gold and the other of silver, which should have been determined, once for all, as the measures of value. The relation of one metal to the other is variable, and has never ceased to vary, more or less, from the commencement of the world.

Unfortunately, however impracticable it may be to treat money as though each of the two metals constituted equally the monetary unit, that is no reason why it should not have been resolved upon in times of ignorance, or under governments disposed to believe, in their greediness, that this combination would be more favorable to the frauds which it suited them to perpetrate on the currency.

If people had not, wilfully or otherwise, forgotten whence money is derived, and if submitting to the nature of things, which, in such matters, cannot be thwarted with impunity, they had laid down the principle that one of the two metals was the standard, that is to say, the substance constituting the monetary unit, the other would then have been quite obviously a subordinate metal, and this subordination itself would have permitted it to have been devoted in various forms, to uses not necessarily the same for gold as silver, as we shall have occasion to show in the course of this essay. The confusion, real or simulated, which has so long and so often prevailed on the subject of the currency, in official quarters, is the reason why we have departed from that simplicity which would have averted much embarrassment, but which would also have subjected governments to the laws of honesty, a burden which they have found it difficult to bear. In fact, however, governments have incessantly undertaken the task of fixing the relative value of gold and silver, according to the effective value of the two metals compared one with the other. Hence have sprung many changes in the currency. Unfortunately, as these changes have been, in the majority of cases, effected without regard to recognised principles, or rather in contempt of all principle, they have occasioned much disorder and led to many evils.

The plan of a double standard, or the system of placing gold and silver absolutely on the same footing in the currency of a State, would be an injustice as regards all creditors, who would always be paid in that metal which should happen to be at the lowest value at the moment when the payment fell due. As we have already said, the adverse risk to the creditor is from the fall of the material from which money is made, whilst the debtor has, on the other hand, to encounter the chance of a rise. Where there is but one standard, and provision is made that the legal value of the coins of the other metal shall be in conformity with the quotations of its value in the metal market (I here argue upon the assumption, which is true in most countries, that the two metals are used for money), the debtor and creditor have equal chances,* and, whatever happens, neither of them has the right to complain of being the victim of an injustice. But, if, instead of establishing one standard, the law assigns this attribute to two metals, or if, which amounts to the same thing, neither of the metals is invested with the attribute, the equality of chances ceases between the debtor and creditor. The latter has in effect against him all the chances of a fall which one or the other metal may undergo. If it be the national creditor, for example, he will lose, in the first place, by the fall in the value of silver, and he will encounter a second loss when the same process takes place in gold. In order that the debtor should, on the contrary, sustain a loss, it would be necessary that the two metals experienced at the same moment a rise, which is a tolerably improbable occurrence.

However striking may be the inequality established between the situation of the debtor and creditor, by the system of the double standard, which might, I repeat, be more properly described as no standard,—that is not the sole or even the strongest objection to which it is exposed. If the two metals are equal before the law, that is to say, if it be not declared that one is the standard, and the other for subservient uses, the government, having the power, will yield to the temptation, of manæuvring with the one and the other; for, governments being proverbially always more or less needy, they will find the way of relieving themselves of a portion of their engagements, by discharging their debts with whichever of the two metals shall have had the greatest relative fall in value. It will only be necessary, for example, to compare, alternately, the value of gold with that of silver, and the value of silver with that of gold, to diminish successively the burden of the national debt, thereby injuring the public creditor, outraging public morals, and causing great derangements to private interests. Thus, when gold shall have risen in value in comparison with silver, the State will only pay in the latter metal, and private debtors will not fail to follow the example: the law will have authorized them to do so. Fortune changes; rich mines of gold are discovered; gold instead of being worth fifteen-and-a-half times its weight in silver, is worth only fourteen times, afterwards thirteen, and then falls to twelve, and even to ten. Things are left to take their course, and some fine day, under pretext of confirming an established state of things, a law decides that the relation between the two metals, instead of being expressed by the number 15½, shall be expressed by 14 or 13. Some time afterwards this proportion is altered to that of 10. By virtue of these successive combinations, the silver coins, the value of which had remained stable, are melted again and again, and each time greatly diminished. The debtor henceforth acquits himself with one kilogramme of gold, or with ten of silver, whereas the creditor had thought he was to receive fifteen-and-a-half of the latter metal, or an equivalent quantity of gold.

A little later, the silver mines are more productive, the production of that metal begins to increase, and its value to fall; now follows another deviation: from the relation of 1 to 10 there is a rise successively to that of 1 to 12, 13,14, 15, 15½, or even beyond if the comparison between the market value of the two metals warrant it. Then the State and other debtors discharge their debts only in silver; or, if they pay in gold, it is a quantity diminished, compared with what they would have paid during the preceding period, in proportion to the fall in silver. Another oscillation reduces the value of gold; this depreciated metal then becomes the preferable type, and it is made the standard of comparison for silver, the coins of which lose another portion of their weight. These double-dealings are perpetrated by virtue of a law, against which, whatever may be thought by those who regard it from an impartial and equitable point of view, there is really nothing to be said from the moment that we recognise the fallacious principle of a double standard. At each change the creditor is deprived of something, until with sufficient time it ends in his losing nearly everything.

Supposing this scene to be enacted in a country where the franc is in use, this coin, which originally contained five grammes of silver of nine-tenths fineness, is successively reduced till it contains but four, then three, and always less and less. This alternate adjustment, by virtue of which, under the false theory of a double standard, the depreciated metal is always practically the type, would be a new mode of arriving at precisely the same result as was sought and obtained by the ancient princes when, stealthily or boldly, they mixed copper with their silver, or altered, by proclamation, the pound in their established coinage. In this manner, with the principle of a double standard, the franc might be reduced to the seventy-second part of a franc, just as the royal clippers and coiners of olden times degraded the pound to the seventy-second part of a pound by the continual admixture of the baser metals.

We will explain more clearly this result by a hypothetical case. The franc being 5 grammes of silver of the standard of nine-tenths fineness, the equivalent in gold consists actually of 32½- centigrammes of the same fineness. If in consequence of gold falling to ten times its weight in silver, it be decided that the franc shall still remain equal to this quantity of gold, then the silver must be recoined so that the franc shall comprise only 3¼ grammes, of the same fineness of nine-tenths. Suppose that silver in its turn falls; if the fall be such that the relative value rises to 15½ and if in the system of the double standard, 3¼ grammes of silver for the franc is to be preserved, then the gold ought to be recoined, so that there shall not be more in one franc than 21 centigrammes. A fresh fall in gold following, if it be such that to restore the relation of 1 to 10 between the two metals, a similar operation is necessary, the franc will then only contain 2 grammes and one-tenth of silver. Thus it will be seen by how rapid a process the currency of a country may be swallowed up.

Nothing more need be said to induce us in our day to resist all the efforts which, under various pretexts and forms, are made to restore the double standard to favour, or to revive it in practice.

For the very reason that the plan of a double standard leads, by the deduction of an irresistible logic, to consequences so manifestly contrary to an equitable security of contracts, it is right in studying the monetary system of a country to require the clearest and best proofs before deciding that it is avowedly founded on the principle of a double standard. For it is in fact to declare that the legislators of such a country are, in monetary affairs, guilty of ignorance or of injustice and bad faith, and such an imputation ought not to be made excepting on sufficient grounds.

[*]In a great many countries, metals were preceded as instruments of exchange by other objects. Thus, in Rome, we are warranted by the very word pecunia in believing that different articles of merchandise were valued and paid for in heads of cattle.

[†]The foundation of Rome dates from the year 753 b. c. Silver money was not introduced till five centuries later (269 b. c)

[‡]Copper thenceforth performed but a subsidiary part; it did not, properly speaking, constitute money, that is to say, both an equivalent and a measure. With the Romans, as with us, copper coins were thenceforth merely tokens, inasmuch as they had a value in exchange greater than their intrinsic value; but then, as now, they were merely used for the smallest payments.

[*]Excepting, however, the inequality before alluded to, as consequent on the progress of the arts.