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Subject Area: Economics
Topic: Money and Banking

Disadvantages of the Double Standard. - William Stanley Jevons, Money and the Mechanism of Exchange [1875]

Edition used:

Money and the Mechanism of Exchange (New York: D. Appleton and Co. 1876).

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Disadvantages of the Double Standard.

While the need for maintaining the system of the double standard is a matter of speculation, the inconveniences of the system are beyond doubt. So long, indeed, as its operation resulted in substituting a beautiful coinage of napoleons, half-napoleons, and five-franc pieces in gold for the old heavy silver écus, there was no complaint, and the French people admired the action of their compensatory system. But when, a year or two ago, it became evident that the heavy silver currency was coming back again, and that the gold coin was likely to form the circulating medium of other nations, the matter assumed a different aspect. The French, in short, have been educated to the use of gold, and they are not likely to wish for the return of a currency 15½ times as heavy and cumbrous. Moreover, the change involves a loss to the community in general, who receive their debts in a metal of lessened value; and a part of the benefit is reaped by bullion-brokers, money-changers, and bankers, for whom a factitious trade in gold and silver money is created by the law of the 7th Germinal, an XI. The statesmen of the countries still maintaining the double standard must have reflected that other nations showed no tendency whatever to adopt the same system. Thus, if France were to continue to act as a great compensatory currency pendulum, she would bear the cost and inconvenience, while other nations would reap equally with herself the advantage of the increased steadiness of value of the precious metals. The founders of the Monetary Convention and the advocates of International Currency never intended to sacrifice themselves to this extent for the benefit of the world. Accordingly they have in effect abandoned the double standard.

When the renewed tendency to coin silver five-franc pieces in large quantities first became apparent, the French government at once suspended the coinage. Subsequently an agreement has been made from year to year between France, Switzerland, Belgium, and Italy, that each country shall coin only a fixed quantity of silver écus proportional to its population. An agreement to the same effect had before existed as regards the silver token currency of two-franc and smaller pieces; but the coinage of écus, which were in theory standard coins and legal tender for unlimited amounts, had been left unrestricted. The result of the limitation of coinage now imposed is to destroy the action of the double standard system. Silver being coined only in limited quantities cannot replace and drive out the gold, and the five-franc pieces, although worth more than five single franc pieces, are worth less than the fourth part of a napoleon or twenty-franc piece in gold. Although, so far as I understand, they remain a legal tender for unlimited amounts, they cannot be had in unlimited quantities, and are thus practically reduced to the rank of token coins. By the least possible legislative change, the French and other governments of the Monetary Convention have thus practically abandoned the double standard, and have adopted one which is hardly distinguishable from the composite legal tender of England and Germany. Ever since 1810 copper or bronze money had only been legal tender in France to the amount of 4 francs 99 centimes, and since the fineness of the smaller silver currency was lowered, this money also was restricted as a legal tender to the amount of 50 francs for any one payment between individuals, or to the amount of 100 francs for any payment to the public treasuries. The silver écu forms the single link by which France holds the double standard, and this link is half severed.

It is remarkable that the changes thus effected in the money of Western Europe are almost the same as those by which the United States had previously abandoned the double standard. Until the year 1853 the silver dollar of the United States mint was a standard coin of unrestricted legal tender, concurrently with the gold coinage of eagles and their fractions. The legal ratio of silver to gold in weight indeed, was 16 to 1, instead of 15½ to 1 as in France. More silver being thus required to make a legal payment in America than elsewhere, gold was naturally preferred for this purpose, and the silver was sent abroad. To remedy this state of things the government of Washington, in 1853, reduced the half-dollar and smaller silver pieces to the condition of token coins, and though the single silver dollar pieces remained of standard weight, they were coined in very small quantities and were practically suppressed. The predominance of an inconvertible paper currency suspended the question of metallic money for a time. The Coinage Act of the United States Congress came into operation on 1st April, 1873, and constituted the gold one-dollar piece the sole unit of value, whilst it restricted the legal tender of the new silver trade dollar, and of the half-dollar and its subdivisions, to an amount not exceeding five dollars in any one payment. Thus the double standard previously existing in theory was finally abolished, and the United States was added to the list of nations adopting the single gold standard.