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CHAPTER II.: case of a state such as france, where there is a silver standard, but also a gold currency. - Michel Chevalier, On the Probable Fall in the Value of Gold: The Commercial and Social Consequences which may ensue, and the Measures which it invites 
On the Probable Fall in the Value of Gold: The Commercial and Social Consequences which may ensue, and the Measures which it invites. Translated from the French, with preface, by Richard Cobden, Esq. (New York: D. Appleton and Co., 1859).
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case of a state such as france, where there is a silver standard, but also a gold currency.
In States, like France, where the law acknowledges only a silver standard, and where of right gold fills in the monetary system but a subordinate rank, the remedy of the evil is, in a great measure at least, less difficult to discover, and the legislators, in coming to a decision, would have fewer perplexities to surmount than in the case of England. It would suffice if we were to put an end to the toleration, contrary evidently to the spirit of our laws upon the matter, in virtue of which gold will continue indefinitely, unless provided against, to take its place in the circulation on the same conditions as if it always preserved, in comparison with silver, the same value that it had done half a century ago.
In the system of French legislation, if gold instead of being worth, as in the year 11, 15½ times its weight in silver, were only worth the half, that is, 7¾ times, it would be necessary to take such measures with regard to the currency, that that which should be a franc in gold, that is to say, the legal equivalent of the piece of 5 grammes of silver, of nine-tenths fineness, should comprise 58 centigrammes of the precious metal Such is the spirit and even the text of the law. It would be necessary to subject the gold coinage to an analogous change, should gold, instead of falling one-half, only fall to ten times the value of silver, or to twelve, or fourteen, or even to fifteen times. Now, by what mode is this transformation to be arrived at? Would it be by recoining the pieces of 10, 20, or 40 francs, so as to just double the fine metal which they contain, on the hypothesis of a fall of one-half?
So understood, the process of recoining would encounter, in its execution, a difficulty which appears to me insurmountable: to have always coins of a fixed value, of 20 francs for instance, it would be necessary to repeat, indefinitely, the process of melting; it would have to be resorted to whenever gold declined 3 or 4 per cent, in comparison with silver, or, more properly speaking, at even shorter intervals.* Gold coins would have hardly left the scales before it would be necessary to return them there again. Such a fluctuation in the intrinsic value of a gold coinage is repugnant to common sense, and is absolutely inadmissible. Such a process of remelting may have been tolerated when a slight variation in the value of gold was foreseen, and also on the supposition—not a very probable one—that the period of the disturbance would only last, so to say, for a moment, and be followed immediately by an almost mathematical stability. From the moment that there is a prospect of a considerable variation, which, from its very magnitude, cannot be completed until after a considerable lapse of time, and which seems likely to be attended with many fluctuations, this expedient becomes impracticable, nay, let me say, chimerical.
It would be better to recoin the gold once for all, and adapt it to another system, by giving the coins a fixed weight, in relation, simply, with the base of the metrical system, instead of always trying to bring them, by alterations of weight, to a fixed value, such as 40 francs, 20 francs, or 10 francs. Pieces of gold might be coined of 5 grammes or of 10 grammes, like the piece of one franc in silver, which weighs just 5 grammes, and the piece of two francs, which weighs ten. It would be to revert to the plan which was recommended by Mirabeau, by the old authorities of the mint, by the Institute as a body, which was adopted by the legislature in the year 3, and to which, in the year 6, it gave a renewed proof of its adhesion.* It is, also, the idea which was recommended by the section of finance in the Council of State during the discussions of the year 11. The value of these pieces, that is to say, the number of francs and fractions of francs which they would be worth, would vary according to the market value of gold in comparison with silver. To save individuals from the annoyance of bargaining over each payment, this value might be fixed every six or twelve months, by an official regulation which should give, for the basis of the value of the gold coinage, the market value of this metal, in comparison with gold on the principal exchanges of Europe, such as London, Paris, Hamburg, or even the average of the exchange between these different States having different metals for their standards. This would be to adopt the first idea of Prieur, and the Committee of the Five Hundred, perfected by Crétet and the Committee of the Ancients.
Nevertheless, it is a question for consideration, whether the payments from individual to individual, to which this legal quotation of gold applies, should not be limited to a certain maximum, such as, for instance, the sum of 1,000 francs (£40), and whether for larger sums the transactions of individuals ought not to be left to the contract of the parties.
The arrangement which I have just indicated, I mean the recoining of the gold currency into new pieces, containing a round number of grammes, is of all plans the most philosophical, and the most in conformity with the best established views respecting the currency: habit would soon easily accommodate itself to it, and it is that which gives to the future the surest guarantees against such monetary derangements as we are now undergoing. The only fault to be alleged against it, is the necessity not only for a general but an immediate recoinage. With a little reflection, however, it will be found that the inconvenience is not serious, for it will be very easy, and at little expense, to melt and recoin one or two milliards (£40,-000,000 or £80,000,000), and the circulation of France restored to its normal state, will not require two milliards of gold, alongside of the silver money and bank notes.*
Another and more simple expedient might be adopted, provisionally, until the new coinage was determined upon, and which would change the state of things instantly and without expense. A law might be passed declaring that henceforth the piece of 20 francs shall only be worth 19, or 19 francs, 50 centimes; afterwards, when the fall of metal shall have been more decided, a new law might pronounce it to be worth 18 francs, 50 centimes, or 18 francs, and so on. This is what was done in Russia, where the edict of 1810, which offers a great analogy to the French law of Germinal, year 11, had ordered the fabrication of imperials and half imperials, in gold, of 10 and 5 roubles, the rouble being a silver coin serving for the monetary unit. In consequence, many pieces of gold of 5 roubles have been struck, bearing the inscription in letters, of five roubles, as our Napoleons bear that of twenty francs. The edict of the 1st (13) July, 1839, which is the complement of that of 1810, finding the relation of the metals a little altered, gold having risen in value in Russia and throughout the world, enacted that henceforth the half imperials, called pieces of 5 roubles, should pass for 5 roubles and 15 copeks, which was found to work very well, notwithstanding the name of five roubles inscribed on these coins. I do not see why the same process should not be resorted to in France, and in the countries where the monetary legislation is the same; only in an inverse way to that which was practised in 1839; for gold having now fallen in value instead of rising, it should not be by an addition being made to the value of the gold coins, but by subjecting them to a deduction, and this deduction might be more decided at a later period, when occasion arose,—which would be seen by a comparison of the market value of the two metals.
In the same way in Spain, where a succession of edicts changed the relations between the quadruple of gold, and the silver dollar, in conformity with the variations which these two metals had undergone in their respective values. One of these edicts is dated July 17, 1779. There is, however, this difference, that in Spain the quadruple did not bear an inscription declaring it to be equivalent to such or such a number of dollars, the same as under the ancient regime; in France the gold coins, the louis and the double-louis, did not bear an inscription which said that they were worth 24 and 48 livres. The law assigned to them this value in relation to silver coins, which were either the livre or the multiples of the livre; but the law could be modified in this respect without leaving the inscription on the gold coins in contradiction with the new value which had been given them.
In a State where the currency is regulated by laws such as those which subsist in France, this inscription of the words forty francs, twenty francs, or ten francs, on the gold coins, or any similar inscription which might be used in another country, where, moreover, the law should have laid down the principle of a silver standard, is not of a nature to prevent the legislator from assigning to the existing gold coins a successively diminished value, and conformably at each instant to the relation between the value of gold and that of silver.
So far as I understand the monetary legislation of the Empire of Russia, the government of the Czar was perfectly warranted in altering the value of the gold imperial in roubles, in the manner I have just indicated. In the same way with France, in virtue of her monetary constitution, the government would be doing nothing which was not in conformity with reason and justice in modifying the value in francs of her gold coins, of, say, 10, 20, and 40 francs, conformably with the variations in the value of gold in relation to silver, which is the metal of her monetary unit. What is, in fact, the meaning of the words ten francs, twenty francs, or forty francs stamped upon our pieces of gold? Do they mean that these coins shall be necessarily, and forever taken for the sum of 10, or of 20, or of 40 francs? Assuredly not, for this interpretation would be contrary to the spirit and letter of the law. It would, in fact, be to say, that gold, as well as silver, is the standard. The quality of standard implies immutability of value; it reveals itself only by this immutability, and the immutability in its turn implies the quality of standard. The words inscribed on the gold coins struck since 7th Germinal, year 11, have only a restricted and provisional meaning,—they express a material fact, namely, that at the moment when these pieces have been coined, the relation between the two metals was such that the weight of gold contained in the coins called 10, 20, or 40 francs is the equivalent of 10, 20, or 40 francs, that is to say of 10, 20, and 40 times 5 grammes of silver of nine-tenths fineness, or that, if there is a difference, it is so slight that in small transactions, it is not worth notice. I say small transactions, for under the regime of the law of the 7th Germinal, year 11, gold ceased to figure in operations a little considerable, since it acquired an appreciable premium. People carried their gold to the money-changer, in order to pocket the premium, and, as all the world knows, they made their payments exclusively in silver.
The French legislator intended that where the variation in the value should become sufficiently sensible to destroy the equilibrium between the respective weights in gold and silver, represented by the numbers 1 and 15½, the government should not only have the right, but the duty of effecting a recoinage, with a view to protect the interests towards which the legislator contracted a solemn engagement in the year 11, interests perfectly respectable, and in fact, the interest of society in the mass. This obligation is especially binding in the case, which is now imminent, in which the variation of gold has been in the direction of a fall; for, in the opposite case, that of the rise of this metal, no wrong can possibly arise. In fact, no one could then be wronged, unless it were the debtor who discharged his obligations in gold; but it is evident that the debtors would in such a case pay in silver, nothing but silver. How can it be supposed that a debtor would go in search of the dearer metal, and not make his payments in the cheaper? In fine, what payment of any importance was made in gold coins in the twenty years which preceded the discovery of the mines of California and Australia?
Now, if the legislator has the right and duty to recoin the gold currency, in order that in the piece of 20 francs, to speak only of this particular coin, there shall henceforth be a larger quantity of gold, he has equally the right to effect another operation, in substance identically the same, that of enacting that the piece actually called 20 francs shall only be worth 19¼, or 19½, or 19, and afterwards 18, if such is the value which results from the comparison of the market price of the two metals.
Substantially, in all the systems of recoining, as in the case where we might adopt, provisionally, the plan of leaving the present gold coins to circulate, assigning to them a less value than that inscribed on their reverse, the only embarrassing question is to know who shall bear the loss representing the diminished value of the metal. For every particular coin, in the actual state of things, this loss would be very limited; but bearing in mind the enormous amount of coinage which has taken place, the total loss would amount to a very large sum. Whatever was the expense to which it might be necessary to submit, that would be no sufficient reason why the State should shrink from its responsibility and falsify the natural meaning of the law, if it was really in equity bound to support the loss. However, on this point, it seems to me that there are sufficient reasons for maintaining that the diminution of value would fall legitimately on the private holders of the coins, instead of being made a charge upon the State. What are the grounds in virtue of which the State should be made to bear this sacrifice? The persons who maintain this opinion urge that the State in issuing these pieces, having assigned to them the value of 20 francs, that is to say of a hundred grammes of nine-tenths fineness, has made itself responsible, and that it is bound to redeem them on this footing, if it decides that they shall cease to circulate at their present value. This argument has but one fault, that of wanting a foundation, for the fact on which it rests does not exist. It is not the State which has issued the pieces of gold money any more than the pieces of silver; it is by private individuals that the emission has been made. In France, the part of the State, with regard to the coining of money, reduces itself to a simple surveillance. It certifies, with solemn forms, and the solemnity is here well-placed, that the coins which issue from the scales possess the weight and fineness intended by the law. The directors of the mint undertake to work by contract, according to a tariff which the government has settled for private individuals, who, possessing gold and silver, wish to convert those metals into coins. They do not manufacture on account of the State. Under the ancient regime, when Louis le Bel committed scandalous frauds on the currency, the mints worked on account of the king. It may have always been so whilst the sovereign appropriated to himself, under the name of seignorage, or any other name, an exorbitant profit upon the coinage. On the contrary, it is now a settled principle that the State should gain nothing by the mint, and that the charge to be levied on the gold and silver brought to be coined should be as moderate as possible, so as to represent merely the expenses and interest of capital.* So true is this, that we see in France that, in proportion as the process of coining is perfected, the tariff of charges at the mint diminishes. There are even States where, as in England, the public treasury supports the expenses of coining. Under such circumstances, can there be any ground for saying that in France, the State has guaranteed anything to the public, on the subject of the gold coins, beyond the exactness of the weight and fineness decreed by the law? and if it be settled that the law, both in spirit and letter, decides that the gold coins remain the equivalent of 20 or of 40 francs, in payments, only so long as the respective value of the two precious metals shall continue to be defined by the relation of 1 to 15½, would those individuals who should not take advantage of their pretended ignorance of the law, be warranted in showing their astonishment at learning, some fine day, that the disc of gold which they have in their pocket, which had been previously worth 20 francs, was, henceforth, worth only 19¼; or perhaps 19½?
The argument attempted to be drawn from a pretended ignorance of the law, with a view to relieve the holders of coins from the charge which will fall on them in case of the recoinage of which we are speaking, cannot be received; it is a matter of right, well determined; but here there can be no pretext for invoking it, for the law of the year 11 could not be represented as an improvisation, something dispatched privately, without previous warning. Far from it, this law, finally drawn up with much deliberation, in the silence, it is true, in which the legislative mechanism under the Consulate worked, had been preceded, and announced by a great number of discussions, of projects of laws, of laws even, ever since the year 1789. Under the Constituante, the voice of Mirabeau thundered forth the fundamental conditions of this law, and from this moment to the year 11, during fourteen consecutive years, the most remarkable unanimity of opinion was displayed in favour of the general ideas, which were definitively embodied in the law of the year 11. It was difficult to be more thoroughly warned than was the public in this affair.
To this opinion, that the State would not have to indemnify any one in changing the gold currency, two precedents are opposed, drawn from the practice of two governments distinguished for their intelligence, their integrity, and their knowledge of business. Belgium and Holland have modified their legislation on the subject of their gold currency, and, in this operation, the diminution of value which the gold coins have undergone, in consequence of the fall of the metal, has been placed to the charge of the State. In Belgium, and in Holland, the State, in withdrawing from the gold coins the legal tender, offered to the holders the nominal value at which they had previously passed, in silver. We are asked whether this is not a reason why the State should do the same in France.
The example of Belgium, which had a monetary legislation analogous to that of France, cannot, however, have here much weight. Belgium had no gold coinage until 1847. A law then authorised the fabrication of national gold pieces of 25 francs, and of 10 francs; but the issue was expressly limited by the law to 20 million of francs (£800,000), and it only attained to 14,646,025 francs (£585,841).* This money was only in an experimental state in Belgium when it was thought that it might be proper to deprive it of its legal attribute. The administration received, by the law of 28th December, 1850, powers to this effect, which it might use when it should judge the circumstances opportune. It only availed itself of the law in 1854 (royal edict of the 15th August). At this time the depreciation of gold in comparison with silver was very trivial. In engaging to pay the nominal value of the gold pieces in silver currency, the State incurred no risk of any serious loss. In fact, this restitution has cost it nothing. The National Bank and the Société Générale have supported,—each the moiety,—the moderate loss to which the operation has given rise.-† By this proceeding, the Belgian government contrived to parry beforehand, without in the least compromising its finances, the objections which discussions on such matters will raise in a parliament. I do not pretend that Belgium has done wrong; but it does not seem to me that what she has done should be a precedent to bind France.
In Holland, the question of reimbursement in silver presented greater difficulties, for there had been coined a much larger mass of gold money. The pieces of 5 and 10 florins formed a total of 172,583,995 florins, or 370 millions of francs‡ (£14,800,000). In proportion to the population it is as 5 milliards for France (£200,000,000). Nevertheless, the Dutch government did not hesitate to assume the charge for reimbursement in silver. But, was the legislation of Holland the same as our own? Did not the Dutch law admit of the two standards? If it did, the State was bound in honesty by an engagement, tacit at least, to barter the coins made of one of these metals for a value, nominally equal, in coins of the other, whenever it should decide to modify its monetary system, by demonetising its gold currency. There is nothing in that which is applicable to France.
I have said that the legislation of Holland recognised the two standards. The text of the law of the 28th September, 1816, which was the fundamental monetary act of the Netherlands, warrants a doubt on this point, and it may be said that that law did not solve the question of the double or single standard; the question was never mentioned,—but that was itself sufficient to solve it. If it had been intended that there should be only one standard, which would have been regarded as an innovation upon the old usages which they were reviving, the exposé des motifs would have made it known; but there is nothing said, absolutely, either in that document, or in the preamble at the head of the act: moreover, the Dutch legislator himself, of 1816, the period in question, appears always to have thought that the country was under the regime of the double standard. The text of several laws proves it. We may refer, for example, to the preamble of the law of the 26th November, 1847.
Another difference, worthy of being cited, between the monetary legislation of the Dutch and that of France, consists in this, that in Holland the gold pieces of 5 and and of 10 florins, which are those that the government withdrew from circulation, paying for them in silver, florin for florin, had been issued by itself and on its own responsibility. It had expressly reserved to itself the monopoly of this issue, and it was only just that it should support all the risks.* The part played at the mint by the French government is, as we have seen, very different from this.
Upon the point under discussion, that is as to the party on whom should fall the expense of a recoinage, or the loss on the value of a piece of gold, it may be here remarked that the case had been already foreseen in some of those documents which served for a preparation for the law of 7 Germinal, year 11, particularly in the first report of Gaudin to the consuls. Now, on the course to be taken. Gaudin never hesitates; he says in express terms—” The expense shall be borne by private individuals,” It is a passage in his report which I have repeatedly quoted in the course of this work. Nothing occurred to impair the force of the words of Gaudin in the course of the long preparation which the law underwent; and this, if I mistake not, is an argument of some weight.
It must not be supposed that, in the present state of things the loss would be serious for the bulk of individuals, even of the rich. At this moment the depreciation of gold, in comparison with silver, is very small; and consequently for a sum of 1,000 or 2,000 francs, which is as much as a person in easy circumstances has ordinarily in hand, with very few exceptions, the loss, supposing it to be 1 per cent,† would be 10 or 20 francs; let us double it, and still it is insignificant compared with the fortunes of those persons. Besides, to those who complained, there would be the right to reply that the government imposes no sacrifices on them, that it limits itself to the putting an end to a fiction and a confusion prejudicial to the public interest, and that, if they find themselves injured, it arises out of the nature of things exactly the same as when a fall takes place in wheat, wine, cattle, or cotton goods.
But one word more. Even if we should be of opinion that it is the State which ought to bear the diminution of value which the gold coins have now sustained, that would be no reason for not proceeding with the change. Imperious motives, economical and political, command us to take a decided course. We should prepare for ourselves much future regret, if we were longer to delay. The expense of a recoinage, made even at the cost of the State, is as nothing compared with the losses to which we shall subject ourselves if we do not hasten to act in accordance with sound principles, and to the prescriptions of the law faithfully interpreted. Nevertheless, however small may be the chance one has in France, where he sustains the public interest against the interests of individuals, I cannot refrain from repeating that from the terms of the documents which define the sense of the law, and according to the text, reasonably interpreted, of the law itself, the State is not bound to offer any indemnity to the holders of the gold coins.
If the legislator were now to adopt the conservative measures which have been indicated above, and to which he is led by a fair interpretation of existing legislation, we are warranted in believing that everything would pass without shock, and that the instrument of exchanges would remain in the condition of abundance required for the ordinary extent of our transactions. There is, in feet, still a good deal of silver in the departments. At the height of the extraordinary demand for silver which has, of late years, manifested itself for India and China, but which has slackened in 1858, Belgium and Holland, which have now no legal currency but silver, have experienced no want of metallic money, and this is a double experience which is convincing. Then we must not forget that, with the combination which I have quoted from the proposition of the Council of the Five Hundred, modified by the Committee of the Ancients, gold would not cease to circulate in France in large proportions. There is no visible reason why under this regime, much less absolute than that which has been adopted in Belgium and in Holland, gold should retire from the circulation. Everything, on the contrary, leads to the belief that it would remain to the extent to which we should require it. With respect to the precious metals, that which would be thenceforth interrupted, and it would be so to the great advantage of the public, is the current, so violent for several years, which replaces, in the circulation of France, the silver money by a gold currency, and which, if it be not arrested, will overturn the monetary system which the legislature of France, regenerated by the' Revolution, flattered itself it had firmly established upon immutable foundations.
[*]I remember that a change of one and a half per cent. in favour of gold, about 30 or 40 years ago, caused it to disappear entirely from commercial payments.
[*]See Section IV., Chapter III., for what passed on the occasion in the two legislative councils.
[*]The cost would be 6 francs, 70 centimes (7s. 11d.) for a kilogramme of coined gold, that is of the fineness of nine-tenths, making at present 3,100 francs (£129. 3s.) For 325,000 kilogrammes of gold, which would make more than a milliard (£40,000,000), it would be 2,177,300 francs; thus for 2 milliards it would be a little more than 4 millions (£160,000).
[*]In reality, the directors of the mints come to an agreement with the capitalists who carry on the commerce of the precious metals, and their real benefit consists in the profits inherent in this commerce.
[*]When these gold pieces were demonetised, only 11,987,300 francs (£479,692) were presented for payment.
[†]It appears from the published account of the National Bank that its loss by this transaction amounted to 140,032 francs, 67 centimes (£5,601). It found a compensation in the use of the funds which the treasury had left in its charge.
[‡]It is curious that less than a third should hare been presented for reimbursement, exactly 49,790,970 florins. On this subject, however, it must be borne in mind, that of the sum of about 173 millions of florins which had been coined, 96,490,590 had been struck in Brussels.
[*]The article 11 of the fundamental law on the currency of Holland, of the 28th September, 1816, runs thus:—” The coins for the convenience of commerce shall only be fabricated for the account of individuals. The pieces of 1 florin and of 3 florins may also be fabricated on account of individuals; but the pieces of gold of 10 florins, the pieces of fractional parts of the florin, and coins of copper, shall not, absolutely, be fabricated for the account of individuals, but only for the account and by order of the government,” Later, when it was decided to coin pieces of gold of 5 florins, they were subjected to the same regime as those of 10.
[†]In Belgium, where, in consequence of the new legislation on the curency, the phenomenon of the variations of value between the two metals is more apparent than with us, the 20 franc gold pieces have never lost much, in comparison with silver; at the outside ½ per cent: they are received at par in the hotels, and in the large shops. It is probable, however, that if France abolished the legal relation of 1 to 15½ between the two precious metals, the fall in gold would be more decided, because France now plays the part, at her own expense, as I have already shown, of a parachute for gold. So long as she offers to the bullion merchants a market where they can barter their gold for silver on the footing of 1 against 15½, the value of gold in its relation to silver cannot, in Europe, deviate much from this relation. The deviation will only become more decided from the moment when France shall have been exhausted of her silver, unless she shall have previously renounced that fixation, henceforth arbitrary.