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• 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 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.

I come to the second of the outlets which have been indicated, and which I have denominated above; it relates to countries where the coinage is in a different state from that considered in the preceding chapter. According to those who maintain that there will he no excess of supply beyond the demand for this metal, and that consequently a fall in its value is not probable, it is not only in those countries where at present there is little or no specie in circulation, and where there is a desire to escape from the regime of paper money, that a large outlet will be afforded to the new gold for monetary purposes. All civilised countries, those at least where gold is a legal tender, are to acquire a new supply, to he coined into money, for two reasons at least:—in the first place, the progress of commerce,- and the constantly increasing number of transactions; and next the growth of population. Besides which, the coinage must be maintained, that is, the loss from wear and tear must be replaced.

On the first point, the multiplication of money which must take place in consequence of the extension of commerce, it may be well, in order to form a rational opinion on the subject, to take into account the contrivances by which great civilised communities modify the machinery of their exchanges, in proportion as commerce extends its operations and enlarges its sphere. Now, it may be shown that the progress of commercial institutions, such as credit establishments, for instance, with the intelligent employment of the substitutes which they put forth, the written contracts and instruments which they enable the public to keep in active use, allow of a very great increase of commercial transactions with only a small augmentation of the metallic basis to pay the balance of exchanges. The employment of bank notes, the transfer of sums from party to party in accounts current, letters of credit or drafts to order, of cheques such as are in use in England, the creation of establishments similar to the Clearing House of London, the judicious adoption of every possible contrivance for facilitating the transactions between house and house, city and city, state and state—all this tends to put limits to the extension of those metallic wheels which give motion to the machine by which commercial exchanges adjust themselves. This machine has undergone and is undergoing continually great improvements, almost as great as those of the steam engine.

Fifty years ago a steam engine of forty horse-power would have cost 100,000 francs (£4,000): in our day, in France, Farcot, Cave, Cavé, and a dozen others, will produce one at 25,000 (£1,000). It is the same in other countries. This arises from the great improvements made in the steam engine during the half century; it is lighter than heretofore, contains less cast or wrought iron, and yet it is as strong and safe as before, if not more so. It is the same with the instrument of exchanges. Formerly it called into requisition a large quantity of metal, gold or silver. Now, for the same extent of business a much smaller quantity suffices. How is this? Because by a number of ingenious contrivances, like those in existence in England, and which France and other countries are not slow in imitating, the greater part of the operations of commerce are conducted without the intervention of a single crown-piece, or, at least, without calling into requisition any metallic money excepting as a matter of account. Letters of credit, bills, cheques, and other instruments of the same kind, are multiplied in proportion to the extension of commerce, but the specie required for these transactions experiences hardly any increase.

It is well to give prominence to the fact of the nearly stationary character of the metallic currency in countries where the commercial machinery is well organised. Bank notes are, it is known, another species of coin, not metallic it is true, but serving for a direct substitute to metallic money, which alone, however, constitutes money properly so called. It may be considered that they should expand or contract in the circulation, nearly the same as specie, if it were alone in use, according to the necessities of commerce, inasmuch as the mass of these notes minister to the operations* of commerce. This is particularly the case where, as with the notes of the Bank of England, they are invested with the attribute of a legal tender. We know that in England, by virtue of this privilege, the debtor can pay his creditor in these notes, without the latter having the power of refusal, with this reserve, however, that at the same time the Bank of England shall redeem them on demand in specie. Under these conditions nearly all the reasons, drawn from the necessities of commerce, which call for an augmentation of the mass of gold coins in circulation, are also applicable to the bank note, and we are justified in arguing from the sovereign to the bank note, and reciprocally. Now, we know, in the most exact manner, the variations which in England the quantity of paper money necessary for her transactions undergoes; the official returns show periodically the amount of bank notes in circulation. A glance at these returns is sufficient to show that the sum total is almost stationary, in spite of the astonishing rapidity with which her commerce has increased. In ten years, from 1846 to 1856, for Great Britain alone, which is the great seat of the commerce of the United Kingdom, the circulation of bank notes has only increased £75,904 upon £30,925,-123;* or an annual average of the insignificant sum of £7,590 only, or in the proportion of 1 to 4,000; a progression, so to speak, imperceptible alongside of that of its population, and especially of that of its commerce, as it is disclosed to us among other signs by the tables of importations and exportations.

If we confine ourselves to England and Wales, which comprise the most populous, the most industrial, and the richest portion of the United Kingdom, it will be found that from 1846 to 1856 the average circulation instead of increasing had diminished, and that even for the very considerable sum of £1,592,500.

Here is another fact illustrating to what an extent the improvement in commercial institutions permits an increase in transactions, without requiring an addition to the metallic currency, or even to the credit currency, that is to say, to bank notes. The Clearing House of London is, as its name indicates, an establishment to which every day the accounts of individuals, traders, and others come for liquidation, through the intermediation of their bankers. In 1839, this establishment had already attained such efficiency that for the annual liquidation of 950 millions sterling, or three millions daily, it only required, on an average each day, £200,000 in sovereigns, or rather in bank notes. At present, with a mass of transactions amounting to 1,500 millions, or 2,000 millions sterling annually, instead of a proportionate addition to the £200,000 required for the daily balance being necessary, not a shilling is wanted: the Clearing House now dispenses completely with the use of bank notes. All is settled by the transfer of sums from one account to another in the books of the Bank of England.

This is the place to point out the increase that has taken place in the employment of bills of exchange, and to compare it with the stationary state of the amount of bank notes in circulation. An estimate, somewhat conjectural, but still plausible, made by an English banker,* Mr. Leatham, taking for his point of departure the produce of the stamps on commercial bills, makes the mass of bills of exchange drawn in the United Kingdom in 1839 amount to 528 millions sterling. The augmentation was continual; from 1832 it was at the rate of 24 millions per annum. A more interesting fact probably is the amount of bills of exchange at one time in circulation, which it would seem, from the same calculations, amounted at a given date in 1839 to 132 millions sterling; according to this the average annual increase, since 1832, must have been more than 18 millions sterling.

The statistical accounts of Mr. “William Newmarch, the able fellow-labourer of Mr. Thomas Tooke upon the two last volumes of the History of Prices, which appeared in 1857, give the total number of bills of exchange in circulation at a given moment, in the United Kingdom, in 1856, at about 180 millions sterling; or probably, as he adds, nearly 200 millions:* 200 millions of bills of exchange against less than 40 millions of bank notes, what more need be said to prove that in a country where the commercial institutions are in an advanced state, the currency of every kind, whether metallic or paper, fills in respect of quantity but a secondary part?†

It is not denied that everywhere, in proportion as population increases, more money is required for transactions, other than those of commerce strictly so called, as for example those which take place in civil life, for retail purchases, for wages, and a thousand minor payments. This influence of the number of the population upon the amount of the metallic currency, and particularly of gold, may be sensibly felt, especially in countries where, as in England, there are no bank notes for less than £5, or even of 100 francs (£4), as was the case in France until the law which was voted at the end of the session of 1857; but population augments everywhere slowly compared with the increase that has taken place in the production of gold. In Europe it varies in the different States from ½ per cent, per annum to 1½ per cent.† In the United States, by a sole exception, it is 3 per cent, if not more. Let us admit the average increase to be 1½ per cent., which, for the whole, is an exaggeration. Now, what is the mass of gold currency to take for our starting point? It would be very difficult to estimate at more than 6 milliards (£240,000,000) the sum required for the circulation, independently of silver money, of all the nations of Christendom.† Now, 1½per cent. on this sum amounts to 75 million francs, or 22,000 kilogrammes of gold (£3,000,000).

But here it will be said that we ought not to look merely at the growth of population, that the increase of general wealth, as well as the diffusion of comfort among the working-class, must also be taken into account. Again, it will be shown that the retail transactions, which can only be carried on with a metallic currency, are much more extended when people are in prosperous circumstances than when they are suffering from privations. It is true; but is it a gold currency that is wanted for this purpose? It is rather, as it appears to me, silver or copper money that is required for the daily purchases of the greater number of households. Gold is never coined into pieces of less than 5 francs (4s. 2d.), and even the success of these coins of five francs, which have lately issued from the French Mint, remains very doubtful, notwithstanding the pains that have been taken, by giving them the largest surface possible, to prevent their slipping between the fingers: and still the piece of five francs is a large sum for transactions of this kind.

It may here be remarked that the introduction of the bank note of fifty francs (£2) into the circulation of France, which has just been authorised by law, will be calculated considerably to diminish the proportion of gold employed in the currency. This restrictive effort will, in France at least, be a counterpoise to the expansive force which may be imparted to the circulation of gold. It may be said, it is true, that the Bank of France, which has not shown an excess of zeal in giving to the note of 100 francs (£4) all the circulation to which this representative sign might pretend, is far more likely to delay indefinitely the issuing of the note of 50 francs (£2). Nevertheless, the Bank's aversion to novelties has its limits, and its ears are not shut to the voice of reason. In the same way as latterly it has consented to distribute the 100 franc note with a less niggardly hand, it will yield to the demand of the public, if a somewhat strong opinion be pronounced in favour of the note of 50 francs.

By the entire of these considerations, I should perhaps be warranted if I made no addition, on account of the extension of business, to the 22,000 kilogrammes of gold (£3,000,000), which have been indicated above as sufficient to supply the wants of an increased population, —an addition which has been amply sufficient. However, to place my calculations beyond all possible objection, I will double the sum of 22,000 kilogrammes, which will raise to 44,000 (£6,000,000), the extension which will annually be occasioned in the gold currency, as well by the augmentation of business, as by the growth of population. I cannot, however, withhold the remark that I think I have been extremely liberal: 44,000 kilogrammes is more than double the mass of gold which Europe received from 1800 to 1825, for every kind of use.

Let us now inquire into the consumption of gold by the abrasion of money in passing from hand to hand. It amounts in a great State to a very appreciable quantity of metal every year. On this subject some facts of a varied character have been furnished by observation and experiment, the most remarkable being those which have been made at different times in England, but especially in 1798, by a celebrated chemist, Hatchett, and a distinguished physician, Cavendish; and, more recently, in France, by Messrs. Dumas and De Colmont, in the name of the Commission on Coins, of which Thénard was president; and quite lately in Holland, on the occasion of the change made in the currency of that country. It has thus been proved that, taking coins of equal dimensions, those pieces which contain a slight alloy of copper, and especially of silver, suffer much less from usage than those made entirely of silver. It has also been found that, in proportion as we descend to coins of a smaller denomination, the wear increases, even rapidly, perhaps because they pass more frequently than others from hand to hand, or because they present a larger surface in proportion to their weight. There is reason to believe that, in adopting the proportion of 2 to 1000, or of 1 to 500, we shall greatly exaggerate the annual loss by the wear of a gold currency. At this rate, upon the six milliards of francs (£240,000,000), Which would more than suffice to saturate with gold the whole circulation of Europe, and the other States of Christendom, there would be a yearly loss of 12 millions of francs, or, in round numbers, of 3,500 kilogrammes* of metal (£480,000).

Taking into account the whole of the employments to the examination of which this chapter has been devoted, and calculating them with a liberality which must be admitted to be excessive, we arrive at an annual consumption of 47,500 Kilogrammes, (£6,650,000) of gold; for ten years this would be 475,000 kilogrammes (£66,500,000.)

There is yet another possible means for the consumption of gold to be noticed; I allude to the practice of hoarding. To hoard, that is, to hide money in secret places, is a habit belonging to an uncivilised state of society, where riches take refuge underground to escape spoliation, or in which loans on interest are hardly known, either from their being condemned by prejudice, or from the fear that money once parted with, would be given up to rash adventures. It is a habit which for a long time not merely withdrew large sums from circulation, but actually occasioned their loss; because, in the midst of revolutions, invasions, and other public calamities, their place of concealment was forgotten; the secret was lost by the death or exile of its possessor. But in the Europe of our day, the quantity of the precious metals which issue from their hiding-places is, in all likelihood, greater than that which seeks refuge there. The practice, therefore, of hoarding can scarcely be any longer cited as occasioning a void in the circulation, which the mines will have to fill up. However, to avoid absolutely the charge of not having taken sufficient account of all the possible outlets for the metal extracted from the new gold mines, I will suppose that 50 millions (£2,000,000) are abstracted from the circulation by this process; but then it will not be taken amiss if I include in this the quantity of gold which may be lost by a variety of accidents, and particularly through shipwrecks.

There is also a particular outlet, of a transient character, for gold money in certain States, such as France; I mean that portion of the circulation which is carried on the person. Until recently, when silver money circulated almost exclusively in France, people used but very small sums for pocket money; it was really burdensome to find 25 or 30 francs in one's pocket. But since gold has taken the place of silver, a person who unwillingly found on himself four or five 5-franc pieces, carries in his purse at least four or five pieces of 20 francs, or an equal sum in smaller coins. There is no doubt that, for the mass of society in France, the quantity of gold thus carried about the person amounts to a very considerable sum. Nevertheless, it would be probably sufficient to assume that there are a million of persons who, on an average, thus permanently charge themselves with 100 francs each. Let us, however, say double the amount, which will give us 200 millions of francs (£8,000,000). But France is almost the only country where this condition of things applies, for it could only occur in a State where, before the discovery of the new mines, silver, was the current money, and where, owing to legislative provisions, gold could be substituted for a silver currency,—and such countries are very few in number. There are many more communities where, in the same period, gold has been reduced to a subsidiary rank, or even banished from the circulation altogether. Let us, however, double the above sum of 200 millions (£8,000,000), in order to meet the case of similar phenomena which may have occurred elsewhere, and we shall then have 400 millions of gold (£16,000,000). But it must he remarked that the fact in question does not remain to be accomplished, that the operation has already been carried out wherever it is likely to be effected; that it is not, therefore, an employment offered to gold for the future; that it is only an outlet which has absorbed a fraction of the large quantity of gold which, in addition to the old production, has been already yielded by the new mines.

[*]Independently of the operations of commerce, properly so called, the bank note is of use in many payments which may be called civil, as, for instance, the dividends of the public debt, and the salaries of public functionaries.

[*]In 1846, the average circulation of bank notes in Great Britain was £30,925,123; namely:—

[*]The calculations of Mr. Leatham have received the explicit approval of Mr. Tooke, in his publication,—An Inquiry into the Currency Principle, p. 26.

[*]History of Prices, Vol. VI., p. 587.

[†]I refer to the Principles of Political Economy of Mr. J. S. Mill for an explanation concerning the diverse scope of the part which the different mechanisms of credit play with the same nominal power; Book III, Chap. IV.: and to the Inquiry into the Currency Principle, by the same author.

[†]In France, the increase of the population, as measured by the excess of births over the deaths, has only been on an average, during the triennial period from 1st January, 1851, to 31st December, 1853, at the rate of 152,738. To have been ½ per cent., it ought to have exceeded 175,000. The three following years must be considered exceptional, for under various adverse influences they exhibit a decreasing population.

[†]The amount of money, whether gold or silver, which circulated in Europe thirty years ago, was estimated at less than 9 milliards (£360,000,-000.) Baron Humboldt quoted as probable, in 1827, the sum of 8,600 millions (£344,000,000).—Essay on New Spain, Vol. III., p. 469.) The amount must have since increased; but the employment of contrivances for dispensing with the use of money, through, the instrumentality of institutions of credit, or for balancing commercial transactions, has increased in a still greater ratio, and must have largely dispensed with an increase in the amount of metallic money in proportion to the growth of commerce. If it is borne in mind that America has yielded almost constantly, until 1848, much more silver than gold, nearly in the proportion of 3 francs of the former against 1 franc of the latter, the assertion will appear probable that, taking into account the silver money possessed by Europe, and the Christian world generally, and the present improved mechanism for facilitating exchanges, the whole of Christendom would not have had occasion for a circulation of more than 6 milliards (£240,000,000) of gold currency, so long as gold should not have suffered any depreciation in value; it is making a great concession to admit so large a sum. I put the word circulation in italics, because I wish it to be understood that I do not mean to include that which has been concealed or hoarded from any cause whatever.

[*]The facts which we possess, as to the wear of a metallic coinage, are much less precise respecting gold than silver, and even as regards the latter they do not always agree very well. With respect to silver, it has been proved that the French five-franc piece, the weight of which is 25 grammes, loses only four milligrammes per annum; that is 16 parts in 100,000, or 1 in 6,250. In England, according to the experiments of Cavendish and Hatchett, quoted by Mr. Jacob, the loss was, upon the five-shilling piece, 18 in the 100,000, or 1 in 5,555; and on the shilling, which had a much more rapid circulation, 1 in 219. Returns on a much larger scale have been furnished from Holland, obtained a few years ago during the general recoinage of her silver money, and they have been justified in a work which was, by the order of the government, published on the occasion of that vast operation, by M. Vrolic, the president of the Commission on the Coinage of the Low Countries, and subsequently minister of finance. It appears that the wear of silver coins, of a small denomination, is much less in Holland than has been estimated by Mr. Jacob for England Mr. Jacob concludes, from the experiments made at the Mint of London, in 1826, that gold coins lose annually 1 part in 800. The experiments of 1807, according to the quotation given by the same author, would indicate a loss of 1 in 1,050 on guineas, and of 1 in 160 on half-guineas. If, then, we bear in mind that the guineas, or more properly speaking the sovereigns, form the principal part of the gold coins in circulation in England, the average annual wear will be about 1 in 950. In France, where the prevailing gold coin seems destined always to be the 20-franc piece (16s. 8d.), which does not differ considerably in volume or circumference from the English sovereign, but where the silver contained in the ingots, which would add to the hardness of the money, is more carefully extracted before it is coined than in England, the proportion of loss is a little greater; but there is good ground for concluding that it is less than 2 in 1,000, or 200 in 100,000. When we compare 20-franc pieces of a rather old date, but which have not been “sweated,” with five-franc pieces of the same date, they appear less worn. Now, the latter, as has been shown, lose only 1 in 6,250.