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CHAPTER V.: of a plan recommended for maintaining the parallel circulation of silver and gold. - 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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of a plan recommended for maintaining the parallel circulation of silver and gold.
M. GustavedeMolinari, the distinguished professor of political economy, at the Mush Royal de l'Industrie, in Belgium, and at the Institut Superieur du Commerce, at Antwerp, has recommended a monetary mechanism calculated to maintain in France the double circulation of silver and gold, whilst recognising in silver the sole quality of standard. To assure to gold, in all the latitude possible, the function of auxiliary which the law of the year 11 has assigned to it, and to prevent at the same time the possibility of its being surpassed, M. de Molinari would have gold coins containing a quantity of metal sensibly inferior to that which corresponds with the value of gold in its relation to silver. This would, according to him, be giving to gold coins the character of tokens, in the same way as in England is managed with silver. In this system, the French government would reserve to itself the eole right to issue gold coins, as the English government does in the case of silver; and, as the circulation of France is becoming saturated with gold, it would be necessary, provisionally at least, to stop its fabrication. Besides, to give to the holders of the gold currency a guarantee against excessive issues, to assure in some degree the value of this auxiliary money, made from a metal subject in our day to a depreciation, it would be necessary to make it always payable on demand, in silver, like bank notes. These conditions complied with, the value of the gold currency would be as stable as that of the silver on which it was based, and, as gold is more convenient in use than silver in the generality of transactions, it would be resorted to in preference. The gold actually in circulation would not be withdrawn to be exchanged for silver, any more than are the bank notes, and the monetary regime of France would unite the security of the system of Holland and Belgium, which is based on silver, with the convenience of the English system, which rests upon gold.*
This system is certainly somewhat seducing; at first sight, it seems calculated to remove all difficulty; we should have, for example, gold coins of the weight of 5 grammes of nine-tenths fineness, to which would be assigned the value of 25 francs, notably superior to their real value. Owing to the power of converting them at will into pieces of silver of the effective value of 25 francs, there would be a guarantee that they would circulate with the public for the nominal value which the legislature had assigned to them, and for the excess even of that value relatively to the real value, and thus the monetary mechanism in which these coins should figure, would seem to be forever beyond the reach of the perturbations which the fall in gold can occasion.
Let us in the first place offer an observation on the name which M. de Molinari gives to the operation which he recommends. Would it really be the issue of a gold token? In the accurate sense of words which could never escape a person so highly versed in economical questions, the denomination of token is not that which is appropriate in the present case. The function of a token is, in fact, to be admitted into payments only to make up an amount. In France, the token, which is in bronze, is limited to five francs; in England, the silver token is limited to payments of two pounds sterling, or about fifty francs. The pieces of gold of M. de Molinari having no such limit, they could not be considered as tokens. What would they be then? Signs of credit, like bank notes, with this difference, considerable however, that the substance instead of being of paper would consist of the most precious of the metals. But this difference even is not perhaps to the advantage of the system: if we are to have bank notes, it is more simple and advantageous to make them of paper.
M. de Molinari has felt the analogy between his gold counters and the bank note, and he has formally recognised the necessity of giving them the support of a voluntary exchange for silver money. The guarantee is, undoubtedly, valuable, but it is also one of the weak sides of the system, in so far as it would be an expense. It would be aecessary to establish special treasuries, with a reserve of specie in silver sufficient for the purpose, or it would be necessary for certain public establishments to take upon themselves the obligation of holding always for this purpose a considerable sum in five-franc pieces, which would, in point of expense, amount to the same thing, and besides would be contrary to the rules established by the French administration for the good order and security of the finances of the State.
I repeat the opinion just expressed; if it be a question of putting into circulation signs of credit, of twenty-five francs, it were better that they should be in paper. In fact, an instrument of exchange, composed of pieces of silver and of bank notes of 25 francs, would be acceptable, except for the circumstances which I am about to note.
Germany has for forty years carried on its affairs with an instrument of exchanges, composed almost exclusively of pieces of silver, thaler8 or florins, and of bank notes or notes of the State, both of small amount. Gold figures there only as an accessory of small importance and almost accidental.
In France, the law of 1857, which prolonged the privilege of the Bank of France, allows the circulation of notes of 50 francs; with notes of this denomination and with silver money, the instrument of exchanges would be complete without anything else.
It must not be concealed that bank notes of 25 or of 50 francs (£1 or £2) present some inconveniences, and expose the public interest to some errors. Notes under five pounds sterling have been prohibited in the United Kingdom, excepting in Scotland, where the smallest note authorised by law is one pound sterling. What are the grounds on which a great number of men versed in affairs, and familiar with economical science, have pronounced against these small notes? It is primarily the danger of forgery: if these small notes are left to circulate after being soiled and torn, there is reason to fear that they will be imitated. Then, there is also the possibility of a panic which might seize the holders of small notes more easily than the richer and more intelligent classes, to whose use the notes of ½5 are chiefly restricted. The effect of this panic might be to lead a mass of individuals to precipitate themselves upon the banks to obtain the immediate payment of their notes, and then these establishments might be obliged to suspend their payments.
Now, these two dangers would also subsist to a sufficiently marked degree with the gold token of M. de Molinari, at least from the moment that it should offer, very decidedly, one of the distinctive characters of the token, of having a nominal value notably superior to its intrinsic value. If there is a violent temptation to coin paper money, in imitation of the signs generally accepted by the public, such as the real bank notes, we have only to wait until the dishonest speculation of issuing gold pieces passing for 25 francs, and being only worth 15, shall become also profitable. It would be even more easy to fabricate these counters than to forge the bank notes. The imitation of these latter is far from easy, and might be rendered very difficult. On the contrary, the reproduction of gold coins, of which the impression should have been more or less defaced by the circulation, would be a work of great facility. It would be a mere joke for the manufacturers of livery buttons, furnished with such machinery as is now found in workshops of that kind in certain towns like Birmingham.
The danger of a panic, which might lead the mass of the population to come and demand payment for these counters of gold, in their nominal amount in silver, would be almost as great as with the small bank notes, on the hypothesis of which I am speaking of a great divergence between the nominal and the real value.
It is true that we should escape from these two perils by imposing the rule of having, between the nominal and the real value, only a deviation of five, or at the utmost of ten per cent. But then the combination would become burdensome on account of the sum which it would be necessary to keep in hand, in silver money, to meet the demand for payments. Suppose an issue of a milliard of francs (£40,000,000) in gold tokens: if the divergence is 7½ per cent, that will be a saving of 75 millions (£3,000,-000) in the capital required to furnish the instrument of exchanges; but if the public treasuries destined to guarantee the payment on demand absorb for this purpose a reserve of 100 millions in silver money, the operation ends in a loss.
[*]This description is extracted from the Eeonomiste Belge, of the 10th February, 1857, where M. de Molinari has developed his idea.