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THE CONDITIONS WHICH AN INTERNATIONAL COINAGE SHOULD SATISFY, AND THE REASONS WHY NO EXISTING COINAGE FULFILS THEM. - Walter Bagehot, The Works and Life of Walter Bagehot, vol. 5 (Historical & Financial Essays; The English Constitution) 
The Works and Life of Walter Bagehot, ed. Mrs. Russell Barrington. The Works in Nine Volumes. The Life in One Volume. (London: Longmans, Green, and Co., 1915). Vol. 5.
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THE CONDITIONS WHICH AN INTERNATIONAL COINAGE SHOULD SATISFY, AND THE REASONS WHY NO EXISTING COINAGE FULFILS THEM.
In the last two articles we discussed the reasons which were alleged on behalf of an International Currency; we showed that though some of the gains most loudly spoken of were either trifling or unreal, yet that one class of the gains—the gain to trade—was so real and so important that it would be well worth a great sacrifice to obtain it. If prices were quoted in the same terms in every newspaper in every country, trade would be easier and trade would be larger. But what sort of currency must this universal one be, and what are the difficulties that must be conquered before we can possess it?
Such a currency to be fit for the present needs of commerce, and to be on a level with economic theory, must satisfy three conditions.
First,—it must be founded on a single standard, not on a double. This may seem at first an easy condition, but we shall soon see that many existing currencies do not satisfy it. It means that a contract to pay a sum of money shall be satisfied only by the payment of a specified portion of one known metal; if that metal is gold, then by so much gold; if that metal be silver, then by so much silver. Under the contrary system—that of a double standard—the contract may be satisfied in two ways; the debtor has an alternative. He may pay either so much gold or so much silver as he likes, and therefore there are two chances for depreciation. Whichever metal declines in value the debtor is sure to select, and that metal so impaired the creditor must receive. One set of causes reduces, or tends to reduce, the value of gold, and so may injure the creditor; another one reduces, or tends to reduce, that of silver, and thus hurts the creditor also. No change tends to benefit him. If either gold or silver rise in value he will not get it; his debtor has the option—he will pay the metal which has not risen. A kind of mist floats over some minds; they fancy that by using a currency of two metals they evade the danger of the depreciation of either. But they are really injured by the depreciation of both. The impaired metal will always be preferred, because it is cheaper.
Secondly,—the new coinage, to suit present commerce, must have a high gold unit. The sums to be paid are large, and therefore the medium in which they are paid should be costly. Silver is the characteristic currency of early nations and poor nations. By comparison it is plentiful, and therefore cheap; the small amounts which early trade required were best paid in it, and therefore it was used. But now large transactions require a dear paying medium. The more costly the unit the fewer the pieces to be counted, and the easier the use of the currency. The same principle applies to reckoning on paper, which is, though it may not seem so, really more important than paying by coin. The use of arithmetic applies not only to actual business, but to contemplated business. If a merchant begins to think of exporting goods, he reckons what he must buy at and what he must sell at. Whether he in fact export or not is an after matter, depending on the profit he finds and the capital he has. But any way, he counts on paper, and the unit of account is therefore more important than the unit of coinage. The unit of account concerns all possible transactions, whether they are resolved upon or not; coin is only used in actual transactions, and not by any means in all those. A high unit of reckoning is of primary importance, now that people always think of trading largely; and the best way of attaining it is by selecting some costly gold coin and making it our unit.
A few years ago there was such a fear of the sudden depreciation of gold that nations would have hesitated to choose it for their money. Some nations even which already used it in fright abandoned it. But experience shows that the panic was excessive, and that the depreciation which gold is undergoing is too minute and too gradual to be very important. Very possibly if we selected silver new mining discoveries might begin to reduce its value. The notion of a commodity whose cost is constant, and whose relative value to other articles does not alter, is imaginary. Monetary business like all business is rough; we must take the metal that suits best on the whole. The risks of depreciation being only what we see, we had best take gold because we can pay in it most easily and reckon in it most easily.
Thirdly,—the new coinage must be a decimal coinage. Every new coinage probably will be so, and a system which is to include nations already having a decimal coinage must be so. There is of course no kind of superior naturalness in a decimal division; it is only more familiar to us because we have ten fingers; if we had twelve fingers as some persons had (and physiologists say the breed might have been preserved), a duodecimal division would have been equally natural. But we cannot change the human frame or reverse past history. Our arithmetical system is a decimal system, and it is plainly good that our coinage system should be the same. We should then count all money by tens, just as we reckon on paper all things by tens.
Fourthly,—the new system must be one which will do no violence to national jealousies. It will not do for one nation to say to any other, still less to all others—“My coinage is better than yours; my trade is larger, and my coinage better known than yours; therefore do you adopt my coinage and give up your own”. Most nations—all great nations perhaps—are too sensitive and too proud to bear such language. The desire for an international coinage is not an imperious desire. The advantages it promises are substantial and real, but they do not at once strike mankind. The mass of residents in every country will say—“We do not trade abroad; we do not travel abroad; we can use our native currency very well; why should we change it? Why should we learn a new system? We do not care about foreign currencies.” There is a great mass of stagnant selfishness in all nations which will oppose this improvement, as well as all others. We must not reinforce that selfishness by wounded national pride; if we ask the mass of English people to take the French coinage, or the mass of French to take the English, we shall not prevail; the French will say—“We will not yield to England;” the English will say—“We will not yield to France”. Any plan must be based on mutual concession. Every one may hope to gain much, but every one must sacrifice something.
These four conditions taken together altogether forbid the idea of adopting as the international coinage any present coinage. In terms the last condition forbids it for reasons of policy, but the three first equally forbid it for economic and intrinsic reasons. The French coinage, though widely propagated by the immense influence of France, is a bad coinage. It is a decimal coinage, and is so far good; but it is based on a very low unit and uses a double standard, which is absurd. The history of the French coinage is a remarkable example of the rash application of an incomplete theory. The French revolutionary legislators found the old French coinage in a most depreciated condition; it had originally been based on the pound weight of silver. But by continual tampering the livre, representing that pound, had come to be worth only 10d. The old division had been into 20 sous of 12 deniers each, like our own; but as the French pound had come to be so very different from the English, the subordinate coins were utterly diverse in the two countries, and the French ones too small to be of any use. The revolutionary legislators saw one part of the evil and remedied it. They abolished the old confused subsidiary coins, and introduced an easy decimal division. But they did not perceive the rest of the evil. They left the unit of account nearly unaltered; the new franc is substantially the old livre.
They never thought that they were by their improvements entailing a burden on France. If they had introduced no change, it would have been easy to persuade France now to make a complete change. To gain at once both a decimal system and a high unit would have been incontestably worth a great effort. But now that France has, by a great sacrifice, attained one of these conveniences it is hard to ask her to make a second sacrifice to gain the other. The bore of the low unit affects the few more than the many—the rich more than the poor—the cultivated rather than the ignorant; those who by their inertia are hardest to move are, in fact, those who would gain the least.
The American currency is in a condition yet more curious. “On the recognition,” says Mr. Ruggles, the American Commissioner at the Paris Congress, “by England, in 1783, of the political independence of the United States, their then existing political organisation, ‘The Congress of the Confederation,’ deemed it proper, also, to throw off the monetary yoke of pounds, shillings, pence, and farthings. On the 6th of July, 1785, this Continental Congress unanimously passed the memorable monetary ordinance reported by the ‘Grand Committee of Thirteen,’ of which Rufus King, one of the wisest and most far-seeing of the statesmen of America, was a member. Not only did it omit in any way to recognise the pound, but it distinctly brought in and established the dollar, as the permanent monetary unit of the United States. Its precise weight was fixed by a subsequent ordinance, passed on the 8th of August, 1786, which further provided for the issue of a gold coin of ten dollars, to bear the impress of the eagle, which imperial emblem had been selected in 1782, in view of the national sovereignty then clearly discerned in the future. What was far more important, the ordinance expressly provided that the dollar should be decimally divided.”
Considering how many exchange sums have been caused by the difference between the two currencies, this expediency of throwing off the “yoke of the £” is dubious. In order to avoid a fancied subjection, America imposed on herself, and England too, a most real bondage of calculation.
The unit selected—the dollar of 4s. 2d.—is far too low to be selected by other nations as the basis of a currency; and the effect of the sudden American innovation, as of the sudden French, has been to create in the world a currency of half-and-half merit, which has one excellence, that of a decimal division, but which is otherwise unfit for international adoption. As every new coin, as every new international reckoning, at least, is a new evil, the former rashness both of France and America is a difficulty to themselves now. Both created something so good that nations who have it do not like to lose it, but also so bad that those who have it not do not wish to take it.
The English currency is not subject to the same defects, but it is still faulty. Even were it politically possible to ask several great nations to adopt exactly the coinage of any one, the English coinage would not be one which it would be economically advisable to choose. No doubt it contains the great merit which the French and American currencies want; it has a high gold unit. No doubt also it has totally escaped the “besetting sin” of the double standard; the English may claim the discovery of the true principles on that matter. But then the English coinage is not decimal. It contains the old division of the pound, first into 1-20th and then into 1-12th, which belonged to the Middle Ages. You could not propose that any nation which does not possess it should adopt it as it stands. The contrast between the French currencies and the English is perhaps characteristic of the two countries. The French is a symmetrical embodiment of imperfect principles; the English a confused embodiment of the best principles. The French looks quite right till you have to examine and study it; the English looks quite wrong till you see what it really is, and what such things ought to be. The French has a good “manner” and a bad “meaning;” the English an excellent meaning, but a wretched manner. The first sight sees what is good in France; the first sight does not see what is good in England.
The German, the Spanish, and the remaining currencies of the world need not for the present purpose be discussed. They have no claims to be put forward as universal currencies, and no one does so put them forward. The conclusion we come to is that no existing coinage is fit as it stands for international uses. And this is really the conclusion which should have been expected. The conditions of an international currency, as we have stated them, are complex, and are very little likely to have been satisfied in rude ages. The double standard itself, though absurd in theory, is, if we look at history, rather plausible. Silver was the old currency of Europe; gold a mere article of dealing and traffic. Silver is the best currency for early times, because it is cheap, just as gold is the best currency for ripe ages, because it is dear. Gradually there has been a transition from the metal of early times to the metal of late times. But it is not possible to discard the metal of early times; the small transactions in which it is used are as numerous as ever, perhaps more numerous than ever. The two metals must be kept in use together; but the true system, the English system, is in the last degree refined. It makes the dearer metal—gold—the standard,—uses gold alone in considerable payments. But it uses silver as a medium for small payments, and discards all notion of a real comparison of its value with the value of gold. Twenty shillings do not really make a pound. The value is arbitrary, and the quantity coined is arbitrary. Gold coinage circulates at its true value, and an artificial silver coinage circulates at an abnormal value, because of its regulated quantity. Naturally it was long before this nice expedient was detected, and till then both metals circulated together at this equation or at that. The common sense of mankind says we want them both, and we must have them both; the arrangements were left to some few who said they understood them.
The high gold unit, again, is not wanted in early ages. People only want cheap things and small coins. A high “reckoning engine” is useless. Nor would a decimal coinage have been comprehensible. The Arabic numerals which we use have made 10 seem like a law of nature; but in the Middle Ages, and before these numerals were used, people did not think so much of ten. They thought most of halves and quarters; of multiples of 2 and 4. All our present requirements have reference to the modern world, and were not imaginable in the old world. We must not therefore be surprised if we have to invent a new currency, and do not find a fit one ready. What that new one ought to be we shall next discuss.