Front Page Titles (by Subject) XVI.: THE TRANSITION STATE OF THE SILVER MARKET. - The Works and Life of Walter Bagehot, vol. 6 (Lombard Street, Essays on Guizot & Cairnes, The Depreciation of Silver)
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XVI.: THE TRANSITION STATE OF THE SILVER MARKET. - Walter Bagehot, The Works and Life of Walter Bagehot, vol. 6 (Lombard Street, Essays on Guizot & Cairnes, The Depreciation of Silver) 
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. 6.
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THE TRANSITION STATE OF THE SILVER MARKET.
The delicacy of the silver market at present is curiously illustrated by the course of the price of silver in the London Market this year. First, there was an immense fall, and now there has been an equivalent rise. The figures are—
Such rapid changes of so great a magnitude could only happen in a very delicate market, where a little extra supply, or even only an apprehension of an extra supply, will at once send down prices, and where a slight extra demand, especially when it seems at all likely to be permanent, will at once send them up. The delicacy in this case has been due to the fact that the silver market is now in an entirely new state, and that until the conditions which regulate that state are discovered, all dealers are fearful of keeping any considerable amount on hand. They sell what comes as it comes, which sends down the price; and in consequence they have none to sell when there is a sudden demand for an extra quantity, and therefore the price rises.
In former times it was not necessary to keep a stock of silver, and there was no motive for it, for the “Latin Union,” being a collection of countries with a double standard, held an immense stock for all the world. If silver showed a tendency to rise in price, gold immediately was sent to purchase it in the country where it could be obtained at a fixed price in gold. And similarly, any stock of silver which accumulated here was carried off to the “Latin Union” as soon as it had the least tendency to depress the price. Much silver could not be kept in stock, and there was no motive for keeping any. But now this peculiar organisation has ceased to act, for the “Latin Union” has practically ceased to be a “double standard” league, because it does not coin, and therefore does not take new silver in indefinite amounts when required.
The silver market will therefore in future, like all other markets, have to secure its stability by keeping a “stock on hand”. Dealers will hold for what they think a good price, which will usually prevent an extreme fall of price, and get rid of more or less of this accumulation when there is an unusual demand, which will commonly prevent an extreme rise. But a great number of causes as yet prevent the dealers from doing so. First, the uncertain quantity which the German Government may at any time sell hangs over the market; the effect of the increase of the “Council bills” on the Indian demand for silver has still to be fully tested in practice—indeed, it will require years so to test it; the American production is still an unknown quantity, though everything seems to show that it will be much less than it was thought to be; the “Latin Union” is still in an “expectant attitude,” and may possibly resume its old policy. Till these causes have ceased to operate as powerfully as they now do, no important stock of silver will be kept, since the future is too uncertain to justify it, and until it is kept the price will probably fluctuate a good deal, though not as much as during the past year, when most of the influences that cause variation have been at a maximum, and most of those which cause stability at a minimum.
The rise in the price of silver which has just taken place is as local as the fall which preceded it. The great mass of prices in the countries using silver as a money are wholly unaffected by it. Indeed, such perturbations as a rise of 20 per cent., and then a fall to the old level, during a single year in the general prices of great countries, would have been economical phenomena such as the world has never seen, and such as would have caused a vast derangement of transactions.
The silver market must settle down into its normal condition before we shall know what will be the normal price of silver in relation to gold or to commodities. The disturbing forces with which we have had so long to deal must first pass away. And until they have so passed, it will be desirable that no Government shall involve itself in a currency change, depending on the mutual relations of silver and gold, which has not begun one already. Unless in case of vital necessity, such currency changes should be made at the time when the circumstances attendant on them can be best foreseen, and that is when the course of trade is most regular, and the chief markets in the matter most in their normal condition.