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• The Works and Life of Walter Bagehot Volume Vi
• Lombard Street.
• Lombard Street In 1910.
• Prefatory Note to Twelfth Edition.
• Advertisement.
• Chapter I.: Introductory.
• Chapter II.: A General View of Lombard Street.
• Chapter III.: How Lombard Street Came to Exist, and Why It Assumed Its Present Form.
• Chapter IV.: The Position of the Chancellor of the Exchequer In the Money Market.
• Chapter V.: The Mode In Which the Value of Money Is Settled In Lombard Street.
• Chapter VI.: Why Lombard Street Is Often Very Dull, and Sometimes Extremely Excited.
• Chapter VII.: A More Exact Account of the Mode In Which the Bank of England Has Discharged Its Duty of Retaining a Good Bank Reserve, and of Administering It Effectually.
• Chapter VIII.: The Government of the Bank of England.
• Chapter IX.: The Joint Stock Banks.
• Chapter X.: The Private Banks.
• Chapter XI.: The Bill Brokers.
• Chapter XII.: The Principles Which Should Regulate the Amount of the Banking Reserve to Be Kept By the Bank of England.
• Chapter XIII.: Conclusion.
• Appendix.
• Note A.: Liabilities and Cash Reserve of the Chief Banking Systems.
• Note B.: Extract From Evidence Given By Mr. Alderman Salomons Before House of Commons Select Committee In 1858.
• Note D.: Meeting of the Proprietors of the Bank of England. 13th September, 1866.
• The Metaphysical Basis of Toleration. (1874.)
• Monsieur Guizot (1874.)
• Professor Cairnes. (1875.)
• The Public Worship Regulation Bill. 1 (1874.)
• The Depreciation of Silver.
• Preface.
• I.: The Low Value of Silver, and Its Effect On India.
• II.: The Remedies For the Fall In Silver.
• III.: Further Suggestions On the Fall In Silver.
• IV.: The Effects of the Resumption of Specie Payments In France On the Price of Silver.
• V.: The Effect of a Depreciation of Silver On Our Foreign, and Especially On Our Eastern Trade.
• VI.: The Extreme Fall In Silver, and the Hasty Remedies Proposed.
• VII.: The Report of the Committee On the Depreciation of Silver.
• VIII.: The Proposal of the Bengal Chamber of Commerce to Suspend the Coinage of Silver In India.
• IX.: The Debate On the Indian Budget.
• X.: The Different Effect On Trade of a Cheapening of the Precious Metals, and of a Depreciation of Inconvertible Paper.
• XI.: The American Commission On the Currency.
• XII.: The Permanent Effect of an Increase of “council Bills” On the Flow of Silver to India and Upon the Indian Exchanges.
• XIII.: The Effect of the “council Bills” On the Indian Exchanges.
• XIV.: The Minute of the Indian Government On the Depreciation of Silver.
• XV.: A Proposed Remedy For the Depreciation of the Silver Coinage of India.
• XVI.: The Transition State of the Silver Market.
• XVII.: Bi-metallism.
• Appendix. Evidence Before the Select Committee On Depreciation of Silver. Monday, 8th May, 1876.

VI.

THE EXTREME FALL IN SILVER, AND THE HASTY REMEDIES PROPOSED.

The report of Mr. Goschen’s Committee on the depreciation of silver has been laid on the table, and will doubtless appear immediately. And it is understood to contain a most full analysis of all the causes which have combined to produce this perplexing event. But in the meantime the fall of the rupee to 1s. 6½d. at the last bidding for Council bills, and of silver to 47d. per oz., have naturally caused the suggestion in various quarters of various hasty remedies, which can be discussed before we get the report, because by the terms of their reference the Committee were debarred from considering remedies, and told to confine themselves to causes.

The main evils of this depreciation are two. First, and most important, that the Government of India receives the whole of its revenue in silver—partly in land-rents fixed for considerable periods, and partly in taxes which it is difficult to increase, and that this Government has also of necessity to find in London a very large amount in gold annually; so that they lose a sum which, taking the rupee at 1s. 8d., Sir William Muir, the Indian Finance Minister, estimated to be of most serious magnitude, and which, now that the rupee has fallen to 1s. 6½d., will be considerably more. So grave a misfortune has seldom happened to any Government so suddenly and so completely from causes out of its control. Secondly, all private persons, such as the holders of rupee paper, who have to receive fixed sums in silver, lose, as is usual when a currency becomes depreciated. Debtors gain and creditors lose in this instance, as in all similar ones. The great peculiarity of the case is the position of the Indian Government, which has so great a burden so rapidly thrown upon it, and is so little able by additional taxation with equal rapidity to find means to bear it.

The remedies suggested are, first, that the Government of India should demonetise silver and substitute gold. But those who make this proposal cannot have considered what in practice it would involve. A Government which abolishes an old money must find a new one. It could not say, “Our law up to the present time has made the silver rupee legal tender, but we now change that, and make a gold coin legal tender, which gold coin you, our subjects, must find for yourselves”. If the Indian Government did so, the losses to its subjects would be enormous. Every holder of the old coinage who wanted to pay a debt would have to sell silver, which is so rapidly going down, and buy gold, which in comparison is rapidly rising, and the loss would be severe. The only way in which such an operation can be effected, is that which the German Government has lately adopted. That Government bought and found the gold which was to form the new currency, and in so far as the operation is complete, has exchanged it for the old one. But no one could now propose this to the Indian Government as a means of relieving itself from financial difficulty, for the cost which it would entail would be enormous. Even with all their resources, they would have great difficulty in getting the immense sum required in gold, and they would hardly be able to sell the silver at any price. The present position of the Indian Exchequer is not good, but it is beyond comparison better than it would be if this expedient were tried.

Secondly, it is suggested that we should adopt a double standard for India both of gold and silver. But this does not meet the difficulty. The effect of a double standard is, at every change in the relative value of the two metals, to fill the country with the metal which is falling. France, in this way, was during the cotton famine cleared of a large part of her silver, and gold was substituted for it. Bullion dealers sent the gold to buy the silver, and made a profit of the transaction. The “bad money” always drives out the “good”; and the Indian Exchequer would gain nothing. The essence of the “double standard” is to create two legal tenders, and give the debtor the choice of paying in which he likes. The Indian ryot would, of course, pay in silver, just as now, and the land revenue would be as much impaired for the purposes for which it is wanted, by the depreciation of silver as it is at present.

Thirdly, it is suggested that the Indian Government should cease to coin rupees, and that, in consequence, though the value of uncoined silver fell, that of the coin would not fall—its supply being restricted. But the effect of such a measure would be to reduce the price of silver far below even its present low amount, because it would stop the greatest natural demand for it, by stopping additions to the silver currency of India. And then the difference in value between the rupee as a coin and the same quantity of the uncoined silver, would be much greater than it would be possible to maintain. Good rupees would be a profitable article of manufacture, and would be imported largely from abroad and illicitly manufactured in India. Many Governments have tried a similar expedient, and have, in the end, always been beaten, and obliged to keep the price of their legal tender-coin near to the cost at which it can be produced. But in no case would the failure be so great as in that of India, because in none has the experiment ever been tried on a coin so important, and of so vast a circulation as the rupee.

The effect also would be that the difficulty of disposing of silver in London, and the consequent lowness of the price, would become worse and worse. The natural cure for the depreciation of silver is that it should be diffused over the globe, and especially over the immense area in the East, and elsewhere, which has a silver currency. If silver is depreciated 2 per cent. in all countries where it is the sole or main currency, 2 per cent. more silver must be required, and as the amount of silver in circulation in such countries is enormous, 2 per cent. upon it would be a very great demand, and take out of this market a very large quantity of silver. As we have shown on a former occasion,1 the laws of trade will infallibly create this demand, though this action is necessarily slow. But the effect of not coining the rupee, in so far as it is successful, would be to suspend them altogether, as far as India is concerned, because it is only by arresting the reduction in the exchange value of the rupee that this step can help the Indian Government, and that reduction is the means by which, as we showed, the new course of trade is created, and the increased quantity of rupees required to do the work of Indian currency after that reduction constitutes the new demand for silver and the new use of it.

The example of the States called the “Latin Union”—that is, of France, Italy, Belgium, Switzerland, and Greece—is appealed to as a precedent for this policy, since they have limited their coinage of silver, as we have often explained. But their circumstances are very different from those of India. In France, which is so much the greatest, and also in Italy, inconvertible paper is really the ruling currency; it is that which settles prices, and everything has to conform to that. And even so the expedient is only regarded as a momentary one; it is acknowledged that the Latin Union must soon either return to the double standard, and coin silver without limit, or must demonetise silver altogether. And if we did not coin rupees, the fall in the price of silver which it would cause would probably determine them to decide on its demonetisation, whereas it is still possible that they may return to the double standard, which would raise the price of silver more than anything else.

This possible effect on the Latin Union is, however, but a minor reason for not thinking of this, or any similar plan. The main reason is that the fall in silver will be greatly lessened if we allow the ordinary action of trade to spread it through the world, so that the depreciation may be everywhere alike, and affect prices everywhere where silver is the currency; and that all plans which impede that action tend to keep the silver in this market, to enhance its depreciation here, and to prevent its diffusion, which is the only cure.

[1 ] 8th July, 1876.