of regulating the metallic currency was established in England, as it were, accidentally, and deliberately adopted only in 1816. The practical good results which followed made all English economists of that period warm advocates of the composite system. Thus, M‘Culloch and Tooke agree in supporting the English system, as also does J. S. Mill.[1] On the Continent the weight of authority was more divided, and the existence of the French bimetallic system gave support to the advocates of a double standard. The result of the gold discoveries in Australia and California was to greatly increase the supply of that metal, and, under the action of Gresham's law, to change the French currency from silver to gold, while Holland, to avoid the evils which were anticipated from the reduced value of that metal, adopted silver as the standard. The movements in favour of a universal currency described above, combined with the course of events, brought the standard question into greater prominence. The proposal of the Paris conference of 1867 for a single gold standard, and a universal coinage on that basis, raised the question to great prominence. Wolowski and Courcelle Seneuil strongly opposed the recommendation, the former predicting that a disastrous appreciation of gold would follow. This view seems borne out by the result, for, although a universal coinage was not created, yet Germany and the Scandinavian Union both changed from a silver to a gold standard, while Holland and the United States both made movements in the same direction by demonetizing silver and making preparations for adopting gold. The Latin Union at the same time restricted their silver coinage, which had nearly the same effect as the adoption of a gold standard.[2] The result of these extensive changes was to cause much confusion. The more ardent advocates of a double standard, too, attributed most of the continued trade depression to this cause. The altered condition of opinion on the question was seen at the monetary conference held at Paris in 1878, where the universal demonetization of silver was considered to be dangerous. The “Bland Act” of the United States, which theoretically decreed the double standard (1878), was another instance of reaction. The great depreciation of silver, which resulted mainly from its having ceased to be money over a large part of the civilized world, severely affected the Indian finances,[3] and thus the advocates of a double standard were able to command some attention in England. The conference held in Paris in 1881 reflected these changed views. The supporters of the double standard took the initiative and proposed a treaty based on the double standard at a fixed ratio, but no conclusion was arrived at—England, Germany, and the
Scandinavian Union upholding the gold standard.
Such, in brief, has been the recent history of the standard question, and it now becomes desirable to examine more closely the conflicting arguments in the various shapes they have taken. The older English advocates of the gold standard have found their best representatives in Lord Liverpool and Tooke. The former of these adopted the argument used by Petty, Locke, and Harris, that only one metal can be the standard of value at a given time, but he held that the advance of England in wealth rendered gold a more suitable material than silver for the principal money. He added that by law the power lay in the sovereign to settle the standard, and, as a matter of fact, he contended that gold was actually at that time (1805) the English standard in common estimation. These arguments were supported by a mass of historical examples.[4] Tooke, who dealt with the subject in his History of Prices, severely criticizes the double standard. He points out that it would be impossible to keep both metals in circulation, and that it would be the inferior one which would remain. He also indicates a more refined objection, namely, the difficulty of constituting a bank reserve under the double standard. Thus, if silver were the more valuable, and the reserve consisted mainly of it, there would be an inducement to make a run on the reserve, so as to drain out the small quantity of gold and then get the more valuable silver.[5] The silver standard was preferred by Ricardo, who fully accepted the arguments against the double standard as conclusive; his view was, that silver was steadier in value than gold, and was the standard money in other countries, while the objection to it on account of its greater bulk was, he thought, obviated by the use of paper money for circulation.[6] J. S. Mill pronounces no opinion as to the comparative merits of gold and silver, but he objects to the double standard on the usual ground that the cheaper metal is the only one used in payments, and that therefore the fluctuations are more frequent under a double standard régime. The advocates of the concurrent use of the two metals, prominent among whom were Wolowski on the Continent and Seyd in England, contended that these objections were ill-founded, for (1) the double standard, though it produced (i.e., admitting the assumption of their opponents) more frequent fluctuations, still did not vary so widely from the mean, since in each case it was the cheaper metal which determined the value,[7] and (2) the action of Gresham's law would produce a compensatory action. Thus, if silver be undervalued in a double-standard system, a drain sets in to other countries where it is more valuable. The quantity of silver is thus reduced and its value raised, while gold is imported, its quantity increased, and its value lowered. Were gold the under valued metal, the converse process would take place. The soundness of this position is illustrated by the case of the great transformation of the French currency (1849–1860). During the rapid increase of the gold supplies the value of silver only rose about 3 per cent.; in fact the depreciation was spread over the two metals, and not confined to gold.[8] In addition to the above arguments, it was urged by Wolowski that any attempts to establish a universal gold standard as contemplated by the Paris conference of 1867 would cause a great appreciation of gold, which would be disastrous to commercial interests, while silver would lose most of its value. The services which the double-standard countries rendered by acting as intermediaries between gold and silver standard countries was also dwelt on, the ease with which the mass of silver needed for exportation to the East was supplied from France during the years 1853–56 being an instance in point. The monetary difficulties, as indicated above, which followed the adoption of gold by Germany and the Scandinavian Union, as well as the embarrassment of the Indian Government, from the resulting depreciation of silver, revived the double-standard advocates. Cernuschi and De Laveleye came forward as supporters of what the former called bimetallism, that is to say, the establishment of a universal, or at all events a large international, currency, based on the concurrent circulation of the two metals gold and silver at a fixed ratio. This plan has gained many supporters, though the tendency among English economists was at first to decline even to consider it; and not even yet does the question appear to have received that careful examination by monometallists which would be desirable.[9]
The bimetallists start with a discussion as to the causes which determine the value of money. They point out that there are two extreme theories: one that the value of money depends on the will of the sovereign (the fiat theory); the other that the value of money is entirely independent of state control, and determined by economic conditions (the free trade theory). Neither of these is accepted by the bimetallists. They take up a middle ground and hold that, by its power of deciding what substance shall be deemed legal tender and discharge all obligations, the state is able to determine, within limits, what substances shall be money and what the
- ↑ Lord Ashburton was the only person of influence who advocated the double standard.
- ↑ The amounts decreed to be coined each year were as follows:—
Frs. 1874 = 120,000,000 1875 = 150,000,000 1876 = 120,000,000 1877 = 65,000,000 1878 = 9,000,000 } For Italy only. 1879 = 20,000,000 - ↑ See, for a full discussion, W. Bagehot, Depreciation of Silver.
- ↑ Coins of the Realm, pp. 128–165.
- ↑ This objection to the double standard is also urged by Prof. Thorold Rogers and by Bagehot. Actual instances of the difficulty occurred in 1860, and again in 1876, with the Bank of France.
- ↑ “Proposals for an Economical and Secure Currency,” Works (ed. M‘Culloch), p. 403.
- ↑ The superposition of two curves, each representing the variations of one metal, and the formation of a third curve representing the lowest concurrent points of each, will make this clear. See Jevons, Money, p. 138.
- ↑ See J. E. Cairnes, Essays in Pol. Econ., pp. 140–143.
- ↑ Mr A. J. Wilson has collected a series of articles on Reciprocity, Bimetallism, and Land Tenure Reform, and Prof. Bonamy Price dealt with Bimetallism and Fair Trade in his address to the Social Science Congress in 1882. But there is no fair reason for placing É. de Laveleye, Luzzati, Cernuschi, Dana Horton, and other supporters of bimetallism—and we may add Prof. F. A. Walker—in the same category with the advocates of (so-called) “Reciprocity.”
