Skip to main content

Full text of "The joint standard; a plain exposition of monetary principles and of the monetary controversy"

See other formats






. . . * v . 

. .. 

i t o o » 

• , ; '», 

. . . 

> ' t 

• * 

, , I , tit 


• . • .. 






■ ■ 

c * 

H ■ 


n Public interest in the monetary question has for 


"» years past been steadily extending. But the an- 


< nouncement of the Indian Currency experiment last 


3 midsummer, and the subsequent repeal of the United 
States Silver Purchase Act, have raised this subject 
to a position of commanding and even grave concern. 

o Many are reflecting seriously, and seeking light upon 

- it who have before regarded it as of little moment,. 

a or as involving only a transient difficulty which 
would soon pass away. It has now become clear 
that the question is one of the greatest importance, 
upon which no intelligent person can afford to 
remain half-informed. 

An attempt has been made in this book to satisfy 
the needs of inquiring minds by stating, as simply 



and clearly as possible, the principles and the facts 
involved in the monetary controversy. Many very 
able men — economists, statesmen, bankers, merchants, 
manufacturers, and others — have already dealt with 
the subject, and in the evidence given in official 
inquiries a very large amount of information has 
been presented. From these sources, as well as 
from the periodical press, most valuable instruction 
has been drawn. What room, then, is there for 
further treatment ? 

The justification for this essay lies in the wide 
demand for a manual dealing concisely with the 
subject in the light both of economic teaching and 
practical business life, and in the fact, that the 
present writer has had the advantage of combining 
a systematic study of economics with a somewhat 
long commercial experience, during which he has 
followed this controversy with close attention. He 
had the privilege of being a pupil and friend of 
Professor Jevons, whose methods of investigation 
he has never ceased to admire, and, as far as 
possible, to follow. He trusts, therefore, that his 


endeavour to <ln some useful service at an im- 
portant, and perhaps critical, stage of the discussion 
may not be altogether in vain. Ee lias not con- 
cealed his nun views, but his chief aim has been to 
elucidate and inform. 

-M wchester, April 1894. 




Money and its Functions 
The Functions of Money .... 1 


The Constituents of Money 

What THINGS CONSTITUTE .Money ... 8 

The Expansion and Contraction of Credit . . 11 


Single Standards and the Joint Standard 

Sinoee Standards— the .Iuint Standard . H 

European Ratios of Silyer to Gold in 1790 . 16 

Mr. Bagehot on the French .Mint Law 



Rationale of the Joint Standard 


31k. Bagehot on the Efficacy of the French Mint 

Law ....... 24 

Was there any single Gold or Silver Standard from 

1803 to 1873 ? . . . . . .26 

Results of the abandonment of the Joint Standard 29 


Does increased Production of Commodities lower 
General Prices ? 

Report of the Gold and Silver Commission . . 34 

Cheap Bread the cause of dearer Meat and Butter 37 
Advantage of Consumers from increased abundance 39 


Consequences of an Appreciation of Gold 

Sir Robert Peel on the Standard of Value . . 41 
Pkofessor Jevons on a Depreciation of Gold . 43 
Mr. Giffen on an Appreciation of Gold . . 44 
Appreciation of Gold and Public Finance . . 45 
Great Britain a Creditor and gains from Apprecia- 
tion- ....... 47 

Reflex Effect of Loss to Debtor Nations on British 

Trade and Industry ..... 48 




British National and Locax Finance and National ..... .51 


The Metallic Basis of Credit 

Credit and Credit Instruments 

Composition of Bank Receipts in Manchester and 
London ...... 

Amount of Credit Instruments — now determined . 

Effect of Perturbations in Supply of and Demand 
fob Gold upon Credit, Prices, Trade, and In- 
dustry .....-• 





Declarations of Leading Authorities upon the Move- 
m i:\ts of Gold since 1871, and their Effects 

Mr. Giffex in 1879 

Mr. Giffen in 1885 

Professor Thouold Rogers in 1879 

Forecast of the Economist in 1873 

Gold and Silver Commission in 1SSS 




The Appreciation of Gold: Commer* iai. and Industrial 


Intermediate Causes <u- Trmt I>epi:i»h>n 




Forecast of Mr. Ernest Seyd in 1871 . . . 80 

Mr. John Mills on Credit Cycles . . .81 

Mr. Sauerbeck's Index Numbers . . .82 

Other Index Numbers ..... 87 


The Fall of Prices, the Theory of Over-production, 
and Mercantile Mental Moods 

Prevalence of the notion that Low Prices are the 

result of Over-production . . . .88 

Demand and Supply are quantitatively determined 

by Human Thought and Will . . .90 

The virtue of being a Free Seller in a Falling 

Market ...... 91 

The Operation of Mental Moods greatly strength- 

Stocks of Commodities reduced within the last 

twenty years . . . . . .94 


The Fall of Prices and the Growth of Protectionism 


Increased Foreign Import Duties and British Trade 96 

Customs Tariff Changes in Europe since 1872 . 97 
Automatic increase of Duties in consequence of Low 

Prices ....... 98 

The British Free Trade Movement . . . 100 



The Anglo-Frenoh Commercial Treaty op 1860 . 103 
Thf, Reactionary Policy explained by the Fall of 

Prices ....... 10"» 

Taxation, Fixed Charges, and Customary Prices 

The Price of Government has not fallen . . 107 

All Fixed Prices and Charges really increased . 109 
The Question of Railway Rates . . .111 

Wages, Wage-earners, and the Cost of Living 

Distinction between Rates of Wages and Earnings 116 
Loss and Irregularity of Employment . . 117 

Why Rates of Wages have not fallen so much as 

Pricks . . . . . . .119 

Wage- earners will share in the advantage of 

Higher Prices ..... 122 

Wage-earners as Consumers . . . .124 

Estimates of the Benefit from Reduced Prices . 126 


Trade between Gold and Silver Standard Countries 

Report of the Silver Committee of 1876 . . 130 

Change in Methods of Trade between <;old and 

Silver Countries ..... 133 



Why the fall in Exchange with Silver Countries 
has tended to reduce prices of commodities in 
Gold Countries ..... 139 

Competition of Bombay Cotton-spinning Mills with 

those of Lancashire— the Manchester Inquiry 146 


India and the Monetary Question 


The Suspension of Silver Coinage at British. Indian- 
Mints . .■ 

The Indian Government's Debt in London 

Increased absorption of Gold by India 

India's External Transactions . 

How the Finances of India have been affected by 

the Appreciation of Gold .... 175 

Government of India advocates the Restoration of 

the Joint Standard . . . . .176 

Report of Lord Herschell's Committee . 178 

Mr. Leonard Courtney states the Problem . . 180 

Erroneous Statement of Sir William Harcourt . 182 

Lord Herschell's reason for preferring the clos- 
ing of the Indian Mints to an international 
arrangement ..... 



Proposed Conversion of the Indian Rupee Debt into 

Gold Debt 

Reasons for not borrowing in Gold not now ten- 
able ....... 186 


Estimate oe advantage from proposed Conversion . L87 



The Monetary Question in Germany, France, and the 

United States 

Public opinion upon the Question in Germany . 192 

Prince Bismarck on the Prices of Grain . . 195 
Probable increase of interest in the solution of 

this Question ...... 199 

France and the Monetary Question . . . 200 

Sketch of Monetary History in the United States 202 


Summary ...... 

Grounds of opposition to the Joint Standard 
Changes inyolyed in its Restoration . 
Doubts as to its Maintenance . 
The Ratio ...... 

The Joint Standard the only just one 





The first step to be taken by any one who wishes 
to arrive at an intelligent and assured judgment 
concerning the monetary controversy of our day is 
to get a clear and accurate notion of the functions 
and the various forms or kinds of money. He 
must inquire, what are the uses of money, what 
things constitute money, and what particular pur- 
poses each of such things serves ? Answers to 
these questions will appear as we proceed. 

The Functions of Money 

1. Money is an Instrument of Exchange. — The 
primitive and most direct mode of exchange is 
barter, in which the intervention of money is not 
required. But civilised mankind has abandoned 
that method, and, as everybody knows, exchange is 
effected by the correlative operations of sale and 
purchase, in which money plays the part of medium 



or go-between. It follows, therefore, that every- 
thing which plays this part is a medium of exchange 
and must he generically included in the category of 
money. Bank-notes, cheques, postal orders, and bills 
of exchange, as well as coins, must, from the present 
point of view, be regarded as money, because they, 
one and all, perform the function of a medium of 

2. Money provides a Measure of Value. — Before 
proceeding to consider this function of money, it is 
necessary to understand clearly the meaning of the 
word " value " — a word which has perhaps been 
maltreated more than any other in the whole 
ran«:e of economic literature. It is sometimes care- 
lessly employed as if it were synonymous with 
" price," and sometimes as if it signified a quality in 
the thing to which it is applied. Professor Jevons 
has pointed out, however, that " value " merely ex- 
presses the ratio in which anything exchanges for 
some other thing. If a farmer, having two cows of 
whose milk he cannot profitably dispose, takes 
them to the fair, and there sells them to a pur- 
chaser for £40, buying therewith, later in the 
day, from the same person a horse which he very 
much needs, returning the same money, it may 
indeed be said that the value of the cows is, there 
and then, equivalent to the value of the forty 
sovereigns or to that of the horse. But this is not 


the same thing as saying that the value of the cows 
is forty sovereigns or one such horse. Nor is the 
value of either of the three items an inherent 
quality. To the seller of the cows they are worth 
less than the horse or the sovereigns, or else he would 
not make the exchange. On the other hand, to the 
buyer of them they are worth more, and probably 
the seller would have accepted £38 for them, and 
would also have given £42 for the horse if the 
conditions of the market had required these terms, 
rather than fail to effect the exchange. We see 
then that "value" is a term used simply to indi- 
cate the fact that, at a given time and place, a 
certain commodity or a certain quantity of a com- 
modity is exchangeable for some other commodity, 
or so much of it. Now money, regarded from the 
present point of view, merely provides an arith- 
metical means of accurately expressing the ratio of 
exchange. The fact that — in the supposed case 
— forty sovereigns were used is a proof of their 
utility as a medium of exchange, but the whole 
business might have been conducted without them 
by a simple agreement between the two traffickers 
expressed in terms of money. Money in the latter 
case would have been nothing more than a kind of 
language in which the value of the things bought 
and sold was defined. 

3. Money is a Standard of Value. — I have 


shown that money provides a measure of value, but 
it would not be correct to say that money is a 
measure of value. It is probably this distinction 
which many people have unconsciously in mind 
when they erroneously say that gold, as the standard 
of value in this country, cannot alter in value, 
because a sovereign must always be a sovereign 
— neither more nor less. It is doubtless quite 
true that viewed as a theoretical measure of 
value, the sovereign, or the shilling, or the penny 
cannot change. But under any monetary system, 
money, regarded as a standard of value, may and 
does frequently alter in value, that is to say, in the 
ratio in which it exchanges for other things. To 
use a common and well - understood phrase, its 
" purchasing power " may vary from time to time. 
All economists agree that an increase of the amount 
of money in use reduces its value, other circum- 
stances remaining the same. More of it is given 
for a certain amount of other things — that is to say, 
prices rise. Similarly, the quantity of money in 
use remaining the same, but the quantity of other 
things to be exchanged being diminished, its value 
will also be reduced and prices will rise. And, 
conversely, the quantity of money in use being 
lessened, without alteration in the amount of other 
things to be exchanged, its value will rise and 
prices will fall; or, the quantity of money remaining 


the same whilst the amount of other things to be 
exchanged is increased, its value will again rise, 
that is to say, prices will fall. Put into tabular or 
categorical form these propositions may be clearly 
stated thus : — 

Quantity of Money ^^e^" Value of Prices of Com- 
ia use changed Money modities 

Increased Unaltered Falls l!i-.- 

Unchanged Reduced „ „ 

Diminished Unaltered Rises Fall 

Unchanged Increased „ „ 

Illustrations of these statements abound in the 
history of the last fifty years. Everybody knows 
that the vast and sudden increase in the supplies 
of gold from California and Australia, between 1848 
and 1860, caused an important rise of prices. This 
was brought about simply because these great 
additional supplies of metal were mainly employed 
as money, thus increasing the amount of it 
in use relatively to the amount of commodities 
exchanged. Again, when the United States civil 
war compelled the Government to issue enormous 
quantities of paper money, whilst the products of 
industry fell off in consequence of the conversion 
of industrial workers into non-producing fighters, 
prices rose greatly for both reasons, and the changes 
which occurred may be described thus : — 


~ ... r , r Quantity of Com- A r alue of Prices of Com- 

Quantity of Money mo & mea Money modities 

Increased Keduced Fell Rose 

But on the contrary, when, some time after the war 
was ended, the superabundant paper money was 
called in and soldiers had again become producers, 
what happened was this : — 

^ j_-x nvT Quantity of Com- Value of Prices of Corn- 

Quantity of Money modities Money modities 

Reduced Increased Rose Fell 

A caution is here necessary. It is not the 
quantity of money in existence, but the quantity 
in use which determines its value. If all the money 
hoarded in India were in actual employment, it is 
certain that its value would fall, that is to say, 
prices would rise. Being unused, it is, from the 
present point of view, non-existent. Similarly 
there is, during periods of dull trade, in England, 
often a large amount of money lying in banks 
doing nothing, the holders of it desiring, for various 
reasons, to let it lie idle so far as mercantile trans- 
actions are concerned. For the time, therefore, it 
is in the same position as the hoarded money of 
India. It has no effect upon prices, and must not 
be taken into account in estimating the exchange- 
able value of money. It is, consequently, erroneous 
to cite large accumulations of gold in banks as a 
proof that it is, for monetary purposes, abundant, 


and that its value is low. At such periods the 
very contrary is usually true — that is to say, money 
is dear. The correctness of this proposition is 
obvious at once, when it is remembered that large 
accumulations of idle money in banks are always 
coincident with depressed or drooping prices of 

A passing observation of some importance 
should here be made. Whenever the amount of 
unemployed money in banks is and remains for 
some time large, the rate of interest is extremely 
low. It is then said, by a common but exceedingly 
improper and misleading use of language, that 
" money is cheap." Nothing could be more 
erroneous. It would be quite correct at such times 
to say that the charge for loans is low, but that is 
obviously a very different thing from saying that 
" the value of money is low." 



The inquiry now arises, what things constitute 
money ? The thought called up in most minds by 
the word " money " is simply that of coined metal 
— gold or silver. But, whether the function of 
medium of exchange or that of standard of value 
be regarded, the term " money " has a much wider 
signification. It includes anything which serves 
the purpose of such a medium, all instruments of 
credit which are used as substitutes for coin. It 
may be objected that a cheque, for example, is not 
money, but only evidence of a right to demand 
money, and, in a legal sense, that is quite true. 
But we are now considering its economic function, 
the purpose which it actually serves, and, un- 
questionably, a cheque does perform the work of 
money as a medium of exchange. The importance 
of including in the category of money all kinds of 
credit instruments which do duty for money is 
obvious, when we recall to mind the relation be- 


tween the quantity of money in use and its effect 
upon prices described in the preceding chapter. 
An increase or decrease in the number and amount 
of these instruments in use is the same thing, in this 
respect, as an increase or decrease in the amount 
of metallic money in use. Obviously, therefore, 
when considering variations in the standard of 
value, we must take into account not only changes 
in the quantity of metallic money, but also changes 
in the volume of credit instruments. Before 
dealing with this point, however, it will be of 
advantage to state, categorically, the several con- 
stituents of the whole mass of money used in this 
country. These are : — 

1. Gold, silver, and bronze coins. 

2. Bank-notes, secured by an equivalent amount 
of gold coin or bullion. 

3. Bank-notes not so secured. 

4. Cheques, bills of exchange, and other credit 

All these are constituents of money, and an 
increase or decrease in the quantity in use of any 
one of them has the same kind of effect upon 
prices as an increase or decrease in one of the 
others. If, for example, the aggregate amount of 
the credit substitutes for money were augmented 
to the extent of £20,000,000, other conditions 
remaining unaltered, the result would be the same 


in kind, though not quite the same in degree, as if 
an equivalent quantity of gold coin had been put 
into circulation. Clearly, therefore, although it 
is customary and convenient to speak of gold as 
the sole standard of value in this country, the 
statement is not accurate, and accuracy in this 
matter is all-important. In the case supposed, the 
addition of £20,000,000 to the volume of credit 
instruments would cause a rise of prices, that is 
to say, a fall in the value of gold. And in like 
manner, a reduction or contraction of £20,000,000 
in the volume of such instruments would bring 
about a fall of prices, or, in other words, a rise in 
the value of gold. This principle is admitted by 
all disputants on both sides in the present monetary 
controversy, although, as I shall endeavour presently 
to show, due weight is not always allowed to it. 

What, then, is the meaning of the commonly 
accepted statement that gold is the sole standard of 
value in the United Kingdom ? The foundation 
upon which it rests is the undisputable fact that 
every other kind of money is expressed in terms of, 
or passes current at a fixed ratio to, the sovereign — 
the standard unit. The shilling is accepted as a 
twentieth, the penny as the 240th part of a golden 
sovereign, and a cheque or a bank-note for £50 as 
fifty of such coins. But we have just seen that the 
value of the gold in a sovereign is itself largely 


determined by the amount of co-related credit in- 
struments employed. Whilst, then, the standard 
unit remains always the same, its value — its ratio 
of exchange — is determined not alone by the 
quantity of metallic money in use, but by that 
of the whole mass of money of all kinds — paper 
substitutes included. It is, therefore, necessary to 
inquire what are the influences tending to expand 
or contract the quantity of credit substitutes for 
money ? 

The Expansion and Contraction of Credit 

I have hitherto taken no account of open mer- 
cantile credit, simply because, not being represented 
by paper documents, it cannot be classed as money. 
That it is a means of facilitating exchanges and 
multiplying transactions is shown, however, very 
clearly by Mr. J. S. Mill in Book III. chapter xii. 
of his Political Economy. This form of credit does, 
undoubtedly, economise the use of money, and must 
be considered in investigating the causes of varia- 
tion in the employment of credit instruments. 
For a long period prior to 1866, there were 
periodical cycles during each of which a regular 
flow and ebb of credit was observable, each cycle 
being terminated by a crisis marking the culmina- 
tion and collapse of a course of expanding credit. 
Incidents of this kind occurred in 1826, 1836, 


1846, 1857, and 1866. Since the last of these 
occurrences, no such periodic progression of credit 
movement has taken place. There is reason to 
conclude that until 1871-1873, when the free 
coinage of gold and silver was suspended in the 
Latin Union, the credit cycle in this country was 
pursuing its accustomed course, and that a crisis 
would have occurred about 1876 but for the alarm 
and the caution inspired by fears as to the supply 
of cold. Those who can remember, or who have 
read the monetary history of that time, are well 
aware of the constant apprehensions of a drain of 
sold from the Bank of England which existed 
during the German currency reform. The con- 
sequence was a widespread and effectual caution in 
the' giving and acceptance of credit. Later on, 
the resumption of specie payments in the United 
States and in Italy, and the steadily diminishing 
production of gold, tended to keep alive those 
apprehensions. The result has been that the use 
of credit has, within the last twenty years, been 
proportionately much more restricted than it was 
before the unsettlement occasioned by the disturb- 
ance of the relative values of silver and gold began. 
It is well known that the amount of inland com- 
mercial bills created is much less than it was 
twenty years ago, and even ordinary mercantile 
open credit has, in some markets, either wholly dis- 


appeared, or has dwindled almost to the vanishing 
point. In Manchester the vast business in cotton 
yarns and goods is almost entirely a cash business, 
the " long terms " formerly so prevalent having 
nearly ceased to exist. Accounts are now settled 
weekly, sometimes twice a week, instead of being 
allowed to run for one or two months. Generally, 
indeed, it may be said, with perfect accuracy, that 
the internal trade of the United Kingdom is now 
done upon a prompt cash basis to an extent not 
(1 reamed of twenty years ago, and that this change 
has had the same effect as a reduction in the 
amount of money in use, taking this term in the 
wide sense given to it in the preceding chapter. 

It is proper to observe, on the other hand, that 
within the last twenty years the use of cheques 
has much increased. It would be quite impos- 
sible to determine how far the extended employ- 
ment of cheques has tended to counterbalance the 
undoubted contraction in that of mercantile bills 
and open credits. Nor is it necessary even to 
attempt to determine this question, since my present 
purpose is only to bring into prominence the fact 
that, if the substitution of cheques for metallic 
money or for notes secured by gold has become much 
more common, the part formerly played by bills of 
exchange and open credits has greatly diminished. 



Wherever organised industry and exchange of pro- 
ducts exist, the appointment of a fixed legal monetary 
unit of value is essential. The experience of man- 
kind has shown that the precious metals — gold and 
s il ver — ar e immeasurably the best materials for this 
purpose, and there are two ways in which they may 
be employed. The unit may consist of a definite 
quantity of either metal, and according to the selec- 
tion made, the community adopting one or the 
other is said to possess a single gold or a single 
silver standard. But there is another method of 
constructing a monetary unit under which both 
metals may be used, not by amalgamation, but by 
co-ordination. A definite, though different, quantity 
of each is declared to be equally the unit, and the 
proportions by weight borne to each other by these 
is the legal ratio. The name formerly given to this 
system, " the double standard," is suitable enough 
in so far as it indicates that two kinds of material 


are employed. But the term has this serious in- 
convenience that it does not accurately denote — or 
connote, as the logicians would say — the qualities 
and attributes which distinguish a standard thus 
formed from a single standard. It appears to me 
that the term " joint standard " is much more 
appropriate, because it signalises the fact that 
although two metals are employed, the result is not 
two standards, but one, and one differing essentially 
from either of the single standards. 

A distinguishing quality of the joint standard is 
that it is incomparably steadier in value than either 
of the single ones. It is sometimes said that steadi- 
ness of value is a characteristic established by history 
of both gold and silver. But this statement must 
be accepted with the qualification that the steadiness 
has been mainly the result of monetary arrange- 
ments designed to secure it. Such arrangements 
were always imperfect and unsystematic until the 
year 1803, when the French Republic for the first 
time adopted the plan of coining gold and silver in- 
differently, without limit of quantity, for all bringers 
to the mint of either metal. The franc was declared 
the monetary unit, and coins of various denomina- 
tions were struck, the weight of precious metal 
in the silver ones being 15. \ times that contained 
in the corresponding gold coins. This system was 
practically maintained in France for a period of 


nearly seventy years. The adoption of the ratio of 
I5A to 1 was not the result of accident or haphazard, 
but of careful, prolonged, and deliberate inquiry. 
For a long time previously the practice of fixing the 
ratio between gold and silver coins had prevailed 
amongst the European states, but this was frequently 
changed, and no uniformity of ratio was observed or 
aimed at. The report of the French Monetary 
Commission of 1790 gives the following particulars 
of the ratios of silver to gold in various countries at 

that time : — 

In England 

. 15-23 to 1 

In Tuscany 

. 14-51 to 1 

,, Holland 

. 14-44 to 1 

At Geneva 

. 14-71 to 1 

,, Flanders 

. 14-51 to 1 

„ Venice 

. 14-82 to 1 

„ Austria 

14-52 to 1 

,, Genoa 

. 14-91 to 1 

„ Saxony 

14-77 to 1 

In 1785 the French gold money had been re- 
coined at the ratio of 1 5-|. This proportion inten- 
tionally gave to the gold coins a somewhat higher 
value than that prevailing in neighbouring states, 
the object being to prevent the melting and exporta- 
tion of the new coins. The Commission of 1790 
recommended a ratio of 14*87, on the ground that 
the one adopted in 1785 encouraged the export of 
silver. This advice was not followed, and shortly 
afterwards the over-issue of notes (assignats), which 
were first put into circulation in 1789, led to a 
disastrous interlude of inconvertible paper money. 


Then came the law of 180. 'J, which adopted the 
ratio of 1785, but for a different reason, viz. that 
it was at that time about, though still slightly above, 
the proportion existing outside France. This ratio 
was maintained, as already stated, for a period of 
70 years, and the effect of the law of 1803 in its 
influence upon the relative values of silver and 
gold, during this long interval, is one of the most 
remarkable phenomena in monetary history. It is 
carefully and judicially set forth in the following 
extract from the Report of the British Gold and 
Silver Commission of 1886, signed by all the Com- 
missioners. After contrasting the comparative 
steadiness of the price of silver in London before 
the suspension of the French mint law of 1803, 
with the wide and incessant fluctuations since then, 
the Commissioners say : — 

The date which forms the dividing line between an 
epoch of approximate fixity in the relative value of 
silver and gold, and one of marked instability, is the 
year when the bimetallic system, which had previously 
been in force in the Latin Union, ceased to be in full 
operation ; and we are irresistibly led to the conclusion 
that the operation of that system, established as it was 
in countries the population and commerce of which were 
considerable, exerted a material iniluence upon the 
relative value of the two metals. So long as that 
system was in force Ave think that, notwithstanding the 
changes in production and use of the precious metals, it 



kept the market price of silver approximately steady at 
the ratio fixed by law between them, viz. 15^ to 1. 

In summing up their conclusions on this question 
the Commissioners add : — 

The action of the Latin Union in 1873 broke the 
link between silver and gold, which had kept the price 
of the former, as measured by the latter, constant at 
about the legal ratio ; and when this link was broken 
the silver market was open to the influence of all the 
factors which go to affect the price of a commodity. 

The Report from which these extracts are taken 
was signed by Lord Herschell, Mr. C. W. Freemantle, 
Sir John Lubbock, Sir T. H. (now Lord) Farrar, Mr. 
J. W. Birch, Mr. Leonard Courtney, Sir Louis 
Mallet, Mr. A. J. Balfour, Mr. Henry Chaplin, Sir 
W. H. Houldsworth, Mr. (now Sir) David Barbour, 
and Mr. Samuel Montague. The first six gentlemen 
were then mono-metallists, but Mr. Courtney has 
since joined the ranks of the bimetallists, to which 
the last six were, and still remain, attached. 

The experience thus gained of the operation of 
an arrangement under which the joint standard, 
with unlimited coinage of both gold and silver at a 
fixed ratio, was maintained within a comparatively 
narrow sphere for a period of seventy years, has led 
to a proposal that it should be re-established over a 
much wider area. To this proposal the somewhat 
forbidding name of Bimetallism has been given. 


It appears, then, that the system of using Loth 
11 if t;ds concurrently, as the basis of a monetary 
standard, has a history, which is properly divisible 
into two periods. 

First Period. — That prevailing before 1803, 
during which gold and silver money was used by 
many states at fixed though different ratios, which 
were sometimes altered, at intervals more or less 
long. The reasons for these alterations were (1) 
want of uniformity in the several* ratios ; (2) occa- 
sional debasement of one or other of the two kinds 
of coins; and (3) the former prevalence of the 
mercantile theory, according to which it was thought 
that the supreme object of national economy should 
be to accumulate gold and silver. 

Second Period. — That of the French law of 
1803-1873. I have already given the testimony 
of the Gold and Silver Commission to the efficacy 
of this statute in maintaining stability in the 
relative values of the two metals, in spite of ex- 
tremely great variations in the supply of one of 
them. Much other evidence of a like kind might 
be adduced. It may suffice now to quote, in 
addition, the views of Mr. Bagehot, which are very 
instructive. Writing upon the monetary position 
in September 1870, he said : — 

The cardinal present novelty is that silver and gold 
arc. in relation to one another, simply ordinary emu- 


modities. Until now they have not been so. A very 
great part of the world adhered to the bimetallic system 
which made both gold and silver legal tender, and 
which established a fixed ratio between them. In con- 
sequence, whenever the value of the two melals altered, 
these countries acted as equalising machines. They 
took the metal which fell ; they sold the metal which 
rose ; and thus the relative value of the two was kept 
at its old point. But now this curious mechanism is 
broken up. There is no great country now really 
acting on this system. The Latin Union, it is true, 
adhere to the name, but they have abandoned the 
thing. As they do not allow silver to be coined, except 
in limited quantities, they have no equalising action. 
... In former times the fluctuations in the relative 
value of the two metals were few and small, but now 
they are many and large. Particular causes, no doubt, 
aggravate that instability at this moment — especially 
the demonetisation of silver by Germany, and the 
supposed likelihood of great supplies from Nevada. 
But though the instability is aggravated by these 
causes it is not created by them, and it will not cease 
with them. There is no inherent reason why the gold 
price of silver should be uniform, any more than why 
the gold price of platinum should be the same. The 
old notion is one generated by the practice of Govern- 
ments, and which has ceased when the practice ceased, 
and will not revive till it revives. 

The striking and weighty judgment conveyed in 
these concluding words can hardly fail to command 
the assent of all students of monetary history. The 


comparative steadiness in the relative values of gold 
and silver for many hundreds of years, until 1873, 
was unquestionably the result of legal regulation, 
although it was made possible by the circumstance 
that these metals can only be produced in quantities 
extremely small when compared with the whole 
mass in existence. How wide and varying has 
been the divergence in the ratio of exchange 
between them since this ancient "practice of 
Governments " ceased, and how great has been the 
economic disturbance, are matters of common know- 
ledge. A problem has thus arisen, which lies at 
the root of the present controversy, and which one 
of the parties engaged in it proposes to solve by 
re-establishing the joint standard, not with the 
limitations previously existing, but upon a founda- 
tion wide enough to ensure its permanence. The 
first period of its existence was marked by the 
isolated, discordant, and varying action of many 
states ; the second by a small group of them acting 
in concert. It is proposed now to found an inter- 
national monetary system, based upon the unre- 
stricted coinage of both metals at an identical ratio, 
and secured by treaty between the leading com- 
mercial states of the world. Objections to the 
proposal, some of them of an apparently formidable 
character, have been urged by influential persons 
in this and other countries, and these- will be 


examined in later chapters, as well as the argu- 
ments put forward in its favour. Meanwhile it 
will be well to study the operation of the joint 
standard and its effects during the period when it 
was in force in the Latin Union. 

It may, however, be noted here, that, in the 
opinion of Mr. Bagehot, expressed in the words just 
quoted, stability in the relative values of silver and 
gold cannot henceforth be looked for, except through 
the action of Governments. 



It is obvious from what has been said in the last 
chapter, that the scheme put forward by bimetallists 
for the resuscitation of the joint standard by a 
broad international agreement is a new thing in 
the world. Nothing exactly like it has ever yet 
existed. During the period when the French 
monetary law was in operation, there were always 
several outside silver and gold markets, the move- 
ments in which put a severe strain upon it on more 
than one occasion. The enormous increase in the 
production of gold in California and Australia 
brought about one of these movements. Another 
was the extraordinary demand for silver from India 
consequent upon the large investment of British 
capital in the dependency, and the payments which 
had to be made for extended supplies of cotton 
when the imports of that material were cut off by 
the American civil war. A third was the export 
to Europe of the greater part of the United States 


gold currency, when in 1862-1863 this was driven 
out by the over-issue of paper money, which was 
one of the consequences of the civil war. All 
these tests, crucial as they were, the French mint 
law withstood perfectly. 

It has been urged, however, that at last the 
limited bimetallic svstem of the Latin Union broke 
down, that even if France and the other states com- 
posing it had been willing to uphold it, they could 
not have kept it going under the twofold pressure 
which would have been put upon it by the transi- 
tion of Germany from a silver to a gold monetary 
system, involving a greatly increased demand for 
gold, and an enlarged supply of silver. But this is 
not the opinion of Mr. Bagehot, who, writing in 
July 1876, said: — 

The states comprising it [the Latin Union] in 1873 
adhered strictly to the principle of the double standard 
of gold and silver — that is, they allowed any one to 
bring to the mint any quantity of either metal, and 
they coined it for him. In consequence, at every change 
they were always coining the metal of lesser value, and 
that metal when coined was used to buy and take 
away the metal of higher value. In this way during 
the cotton famine France was half emptied of silver, 
which was wanted for export to the East, and was 
rilled with gold which was not so wanted. If these 
states had continued to adhere to this principle, the 
great effect on the general silver market, produced 


by the German operations, would have been much 
diminished and rendered scarcely observable. As soon 
as silver began to fall it would have gone to France, 
and been used to buy gold ■which had risen. Thus 
silver would have been taken from the general market, 
and gold would have been brought to it, till the former 
level of comparative values, or something like it, had 
been reached. But France and the rest of the Latin 
Union could not endure this. Partly from political and 
partly from economical motives, they would not take 
the "cast-off" German silver. They limited the amount 
of silver which they would coin, and thus the silver 
market was at the same moment perturbed by two 
extra-commercial causes : one set of countries sold off 
silver as they had never done before, and another 
refused to take it in a way in which they had never 
done before, and thus diminished the demand. 

Clearly, then, the opinion of Mr. Bageliot, an 
eminent mono-metallist, was that the states of the 
Latin Union would have been able, if they had 
chosen, to have kept their mints open to the un- 
limited coinage of both metals, and to have preserved 
the ratio of 15-J even in outside markets with 
" scarcely observable " variation, notwithstanding the 
great disturbance occasioned by the German sales 
of silver and purchases of gold. And it happens 
that there is positive and substantial evidence in 
support of this view. Two years after it was ex- 
pressed — in August 1878 — M. L^on Say, the French 
Minister of Finance, caused an examination to be 


made of the number of gold and silver coins of each 
denomination held on a particular day by the 
19,511 offices throughout" France of the Adminis- 
tration of Finance. The total number of pieces 
was 2,222,965, of which 1,009,559 were gold, and 
1,213,406 silver. The aggregate value of the gold 
coins was 16,878,740 francs, and that of the silver 
coins only 6,067,030 francs. It thus appears that 
in value no less than 7 3 '5 per cent of the whole 
amount was gold, and only 2 6 *5 per cent silver. In 
communicating the results of his investigation to 
the Monetary Conference of 1878, then sitting in 
Paris, M. Say stated that there was reason to believe 
that they gave a very correct idea of the proportions 
of the various kinds of coin then in circulation in 
France. The inference is irresistible, therefore, that 
the free coinage of silver might have gone on with- 
out interruption and without endangering the ratio. 

And now a question of the highest interest arises. 
If the effect of the maintenance of unrestricted coin- 
age of both metals was to preserve a steady ratio 
not only within the Latin Union, but also outside 
it, was there anywhere, so long as the arrangement 
lasted, any such thing as a single gold or a single 
silver standard ? Obviously there was not. The 
value of gold in relation to commodities was deter- 
mined, not by conditions of demand and supply 


affecting itself alone, but also, and equally, by con- 
ditions of demand and supply affecting silver. And 
the converse of this proposition is true of silver. 
Although, therefore, the standard of value in this 
country was, in name, the single gold standard, it 
was not so in i'act. It was the same as that of 
France, viz. the joint standard. Nor was the 
standard in India the single silver standard. It too 
was the joint standard. A simple illustration, first 
suggested by Professor Jevons, will make this quite 

Let G represent the whole mass of gold existing 
or in use for monetary purposes at any given time, 
and S that of silver so existing or in use — one fed 
from the region of gold on the left, the other from 
that of silver on the right. So long as there is no 
communication between the two reservoirs, it is 
evident that the level of the water in each will vary 
with every variation in the volume of the stream 
supplying it or in the quantity taken from it. Bui 


if a conduit or pipe of adequate dimensions be 
placed between them, then the level of both will 
remain the same, no matter what changes may 
take place in the quantity received or taken from 
either of them. The water cannot rise higher nor 
fall lower in one reservoir than it is in the other. 
But the level actually preserved will not be that 
which either reservoir would have had if the two 
had not been thus joined. It will be a mean, and 
although this will be subject to a certain rise and 
fall, the changes will not be so great in either 
reservoir as they would have been if each had been 
subject to the constant variations of rainfall and 
offtake affecting itself alone. 

The relevancy of this illustration is shown in 
what Professor Jevons called the equilibratory action 
of the French mint law during the great outpouring 
of gold from the Califoruian and Australian mines 
after 1848. The consequences of its action were 
(1) that the depreciation of gold resulting from 
increased supply was greatly mitigated ; (2) that 
silver was also depreciated, although there was no 
considerable increase in the supply of it, but a 
marked increase in the demand ; and (3) that 
practically there was but one standard of value 
throughout the world wherever the circulation was 
not inconvertible paper. Although, therefore, the 
monetary standard of this kingdom was supposed to 




be gold, and that of India silver before 1873, it is 
clear that they, as well as the states embraced in 
the Latin Union, and indeed all countries having a 
metallic circulation, had a common standard, and 
that that was the Joint Standard. 

Eesults of the Abandonment of the Joint 


The most obvious consequence of the abandon- 
ment of the joint standard is that the relative value 
of silver and gold has varied to an extent, and with 
a frequency, never before known. In the following 
table the annual average price of silver in London 
in 1872, and in each subsequent year, is shown: — 

Average Price of Silver in London 

Per Ounce. 
1S74— 58-3125 
1876 — 52-75 

Per Ounce. 

It thus appears that since 1872 the gold price 
of silver has fallen from G0 - 3125d. per ounce to 


35 , 625d., the difference being 24'6875d. per ounce, 
or nearly 41 per cent. In the interval the fluctua- 
tions have been almost incessant. Now it is 
obvious that the descent may be described either as 
a fall in the gold price of silver, or a rise in the 
silver price of gold. It signifies depreciation of the 
one or appreciation of the other, according to the 
point from which the change is viewed. The 
question whether silver has declined in value or gold 
has risen is, therefore, so far indeterminate and 
indeterminable. It is clearly a question which can 
only be settled by comparing the ratio of exchange 
between each metal and a sufficient number of 
other commodities. If it be found that in re- 
lation to these, as well as to gold, the value of 
silver has fallen, then there can be no doubt that 
silver has depreciated. If, on the other hand, it 
should appear that this is not the case, but that, on 
the contrary, the fall in the gold price of silver is 
accompanied by a fall in the gold price of other 
commodities, it will be beyond question that gold 
has appreciated. 

Evidence of a very great decline in the prices of 
commodities, as stated in terms of gold, since 1873 
is so abundant and conclusive that it is practically 
undisputed. The separate report of the six " mono- 
metallist " members of the Eoyal Commission of 
1887-88 says: — 


There can be no question that the gold price of 
many, and probably of most commodities has fallen 
during the last fifteen years. In relation to these 
commodities it may, no doubt without inaccuracy, be 
said that gold has appreciated. That is another mode 
of expressing the fact that their price is lower. 

And after some reference to the now well- 
understood method of ascertaining general move- 
ments of prices by comparison of index numbers, 
the six Commissioners further observe : — 

If we turn from these general index numbers, and 
examine the index numbers of the several commodities 
which have been taken into account in arriving at the 
general index number for the year, it cannot be doubted 
that a fall has taken place, especially in the most recent 
years, in the majority of the commodities in common 
use, and that in some cases the fall has been very heavy. 

Later on they say they do not think that there 
is any " conclusive evidence of a substantial ap- 
preciation of gold " to be derived either from a 
review of the variations in prices or of the circum- 
stances relating to the production and use of that 
metal. At the same time they "are far from 
denying that there may have been, and probably 
has been some appreciation." They add that, in 
their opinion, the sounder view is that the greater 
part of the fall has resulted from causes touching 
the commodities rather than from an appreciation 
of the standard. 


I do not wish to insist too strongly upon the 
want of correspondence between this conclusion and 
the previous one already quoted, viz. that to say 
that gold has appreciated is merely a mode of 
expressing the fact that prices of commodities are 
lower. It is, however, very imjDortant to keep firm 
hold of this undoubted and indeed self-evident 
principle, which is a necessary inference from the 
definition of " value," viz. that it is the expression 
of the ratio in which anything is exchanged for 
another thing. When a lamer amount of com- 
modities is given in exchange for a certain amount 
of gold — that is to say, when prices are lower — 
it is obviously all the same whether the change 
is described as a fall in the prices of commodities, 
or a rise, an appreciation, in the value of gold. 
To affirm, therefore, or to deny that a general 
fall of prices in this country is " due to " an 
appreciation of gold is simply equivalent to affirm- 
ing or denying that an appreciation of gold is " due 
to " gold becoming dearer. In either case the pro- 
position is meaningless. It is, no doubt, an interest- 
ing question how far the decline of prices can in 
any particular case be traced to increased produc- 
tion of commodities, and with this aspect of the sub- 
ject I shall deal presently. But we are considering 
a condition of things in which — to use the words of 
the Commissioners — the prices of " the majority of 


the commodities in common use" have greatly 
fallen, and I think 1 shall be able to adduce strong, 
if not absolutely conclusive, reasons in support of 
the proposition that no changes in the amount, or 
the cost of, production has had, or could have, any 
appreciable influence upon the general level of the 
prices of the great mass of such commodities. 



In an important and interesting section of their 
report, the six mono-metallist Commissioners call 
attention to the fact that the fall of prices has been 
neither universal nor uniform. This is not held to 
be a proof that gold has not risen in value. On the 
contrary it is pointed out that, as Professor Cairnes 
and others have shown, when gold fell in value 
after the great gold discoveries in California and 
Australia, the rise of prices was by no means 
uniform, and the Commissioners might have added 
that it was not universal either. They say, however, 
" A careful survey of the varying prices of com- 
modities at once suggests that, even if there has been 
an appreciation of the standard, some other causes 
must have been at work affecting particular com- 
modities so as to depreciate them in relation to 

Now, it cannot be doubted that the Commis- 


sioners are quite right in affirming that forces have 
been at work within the last twenty years tending 
greatly to increase the production of commodities, 
and in many cases to reduce the cost of production. 
After the Franco-German war was ended a marked 
impetus was given to peaceful and, in particular, to 
manufacturing industry on the Continent and else- 
where, whilst the extension of agriculture in the 
newer countries, and improved means of com- 
munication by land and sea, have augmented the 
supplies of food and raw products. The meaning 
of these changes, so far as they bear upon the 
question immediately before us, is simply that the 
volume of trade has extended enormously, requiring, 
therefore, increased monetary means of exchange. 
For, plainly, to take an extreme case as an illustra- 
tion, the effect upon prices would be just the same 
if the volume of commodities to be exchanged were 


doubled, whilst that of the monetary medium re- 
mained unaltered, as it would be if the volume of 
exchanges continuing unaltered, that of the monetary 
medium were reduced by one-half. A serious fall 
of prices would ensue in either case. In consider- 
ing the effect of the greatly increased production and 
distribution of commodities during the last twenty 
years, it is impossible, therefore, to ignore the 
question whether or not the monetary means of 
exchange have proportionately augmented. 


Secondly, the six Commissioners state, with per- 
fect truth, that in very many cases the cost of produc- 
tion has been much reduced since 1873. But here 
an important and much-neglected discrimination is 
requisite. Cost of production may be reduced either 
by a lessening of the prices of the constituents of 
production, or by greater facility of attainment, 
that is to say, by the expenditure of less labour. 
It is with the latter of these cases only that we 
have here to deal. Now it is undeniable that 
within the period named the progress of invention 
has, in numerous instances, tended greatly to 
facilitate production. It is for this reason that 
wages have not uniformly followed the downward 
course of prices, since, in the long-run, and often 
almost immediately, a part of the advantage of 
greater ease of attainment passes into the hands of 
labourers. But the progress of invention is mani- 
festly, and by a long way, insufficient to account for 
so widespread and so enormous a decline of prices 
as we have witnessed. Moreover, it must be 
remembered that the progress of economy in pro- 
duction was quite as general and as effective, during 
and after the great gold discoveries, as it has been 
since 1873, and yet this did not prevent an im- 
portant rise of prices up to 1857, nor their freedom 
from general decline thereafter until 1873. 

This fact is, at first sight, somewhat paradoxical, 


and it is important enough to require examination. 
That increased facility of attainment does tend to 
lower the price of the article affected by it is un- 
doubted. What follows ? Either a greatly enlarged 
consumption of that article, or a larger expenditure 
upon — that is to say, a larger demand for — other 
articles, and, resulting from this, a rise in the prices 
of these other articles. The usual experience is that 
both these consequences ensue. A familiar example 
of the efficacy of this principle occurred after the 
abolition of the import duties on corn in this country. 
The price of bread was greatly reduced, and con- 
sumers having more money to spend upon other 
things, bought meat and dairy produce more freely 
leading to an advance in their prices. Cheap bread 
was, in short, the cause of dearer meat and butter. 
It appears, then, that the question of the effect upon 
general prices of the progress of invention is simply 
a phase of the question of increased production and 
distribution. And this again is, as already shown, 
a question of the proportion between the volume of 
commodities to be exchanged and that of the mone- 
tary medium. There is, consequently, no real 
difficulty in understanding that there may be a fall 
in the prices of certain commodities, resulting from 
improved methods of production and distribution, 
without a decline in the general level of prices, and 
actual experience, as shown in the concurrent 



testimony of all the systems of index numbers 
indicating the course of prices in England from 
1849 to 1873, proves that the proposition is 

During the whole of this period of twenty-four 
years, the general level of prices was higher, and 
sometimes considerably higher than in 1849. Yet 
within the same period the progress of invention, 
the extension of railways and of steam navigation, 
and the opening up of new lands to the industry 
and commerce of the world, were, to say the least, 
as effective as similar improvements have been 
during the last twenty years. 

Now, the prevalence of higher prices between 
1849 and 1873 in spite of an enormous increase of 
production and of greater economy of production is, 
by universal consent, attributed to the extra supplies 
of gold from the Western North American States 
and Australia, and the substitution, after 1860, of an 
inconvertible paper currency for a metallic currency 
in the United States, which drove out gold in very 
large quantities to Europe. These various new 
supplies of gold caused a rise of prices, notwith- 
standing the existence of forces which, it is held, 
ought to have brought about a lower level. The 
recognition of this fact obviously involves an 
admission of the principle that the question of 
important movements of general prices over long 


periods is a monetary question. It involves also 
agreement with the view that increased production 
of commodities and greater facility of attainment do 
not alter the average level of prices when the 
monetary means of exchange are proportionately 

The answer, therefore, to the question, "Does 
increased production of commodities lower general 
prices ? " appears to me to be that, of itself, it does 
not. What advantage, then, it may be asked, does 
the world of consumers gain from greater abund- 
ance of wealth, and greater ease in attaining it ? 
The advantage is manifest in the power of con- 
sumers to satisfy their wants more fully and 
more variously. It is forcibly illustrated by the 
example already given of the rise in the prices of 
meat and dairy produce consequent upon the 
cheapening of bread. And the principle set forth 
in that example runs through the whole of the 
articles of general consumption. Let any one who 
can carry his mind back to 1849, recall the con- 
dition of the household of an English artisan or 
middle - class citizen, and contrast it with the 
condition of a similar household twenty years later. 
He will find that in the furniture and appointments 
of the household, in the clothing and ornaments of 
its members, in their food and in their enjoyments 
there is a great advance not only in the abundance, 


but also in the variety of their possessions and 
substantial amenities. Yet this was a period in 
which, although the prices of many commodities, 
manufactures included, were reduced, those of others 
were raised ; were raised often because some were 
reduced. In short, just because human wants are 
capable of indefinite expansion, the potential demand 
for commodities is insatiable, and the more easily 
one class of wants is supplied the more abundant 
becomes the volume and variety of the demand for 
commodities not within reach before. 



It is always instructive, in studying current econ- 
omic changes of an important and far-reaching kind, 
to give careful heed to the principles involved in 
them which able men have educed in analogous, 
though not precisely similar circumstances. In his 
preface to the translation of M. Chevalier's work, 
On the probable Fall in the Value of Gold, Mr. Cobden 
states that when Sir Eobert Peel was introducing 
the Bank Act of 1844, he said of it : — 

There is no contract, public or private, no engage- 
ment, national or individual, which is unaffected by it. 
The enterprises of commerce, the profits of trade, the 
arrangements made in all the domestic relations of 
society, the wages of labour, pecuniary transactions of 
the highest amount and the lowest, the payment of the 
national debt, the provision for the national expenditure, 
the command which the coin of the smallest denomi- 
nation has over the necessaries of life, are all affected 
by the decision to which we may come on that great 
question which I am about to submit to the consideration 
of the Committee. 


These words were quoted by Mr. Cobden at the 
beginning of 1859, when the great economic question 
of the day was the vast outpouring of gold from 
California and Australia. This had been going on 
for nearly ten years, and was expected to lead to an 
extraordinary and perhaps disastrous depreciation 
of the standard. In recalling the words of Sir 
Eobert Peel, Mr. Cobden declared that his object 
was to point out their applicability to the conditions 
discussed by M. Chevalier. Mr. Cobden was not 
ignorant of the automatic action of the French mint 
law, which so equalised the effect of the great gold 
supplies in the manner described in a previous 
chapter, that the depreciation of gold was not only 
minimised, but was extended to silver also. Indeed, 
the brilliant French writer had devoted a portion of 
his book to a demonstration of this controlling 
influence. But both he and his translator clearly 
expected that the production of gold at the increased 
rate would continue for an indefinite, though cer- 
tainly a very long period. So impressed was M. 
Chevalier with this idea, that he recommended the 
French Government to abandon the joint standard 
and adopt the single silver standard. We now 
know that a great, continuous, and rapid falling off 
of the production of gold had begun even when Mr. 
Cobden was writing. The significant fact is, how- 
ever, that he fully recognised and endorsed the 


importance of Sir Pobert Peel's comprehensive and 
striking statement of the consequences of wide 
fluctuations in a standard of value. 

Writing in 1862-3 upon the social effects of 
the depreciation of gold, Professor Jevons discussed 
its influence upon the interests of the various classes 
of society and upon national finance, summing up 
his conclusions in the following words : — 

I cannot but agree with M'Culloch (Encydopcedia 
Britarmica, 8th edition, article " Precious Metals ") that, 
putting out of sight individual cases of hardship, if such 
exist, a fall in the value of gold must have, and as I 
should say has already, a most powerfully beneficial 
effect. It loosens the country, as nothing else could, 
from its old bonds of debt and habit. It throws 
increased rewards before all who are making and 
acquiring wealth, somewhat at the expense of those 
who are enjoying acquired wealth. It excites the active 
and skilful classes of the community to new exertions, 
and is, to some extent, like a discharge from his debts 
is to the bankrupt long struggling' against his burdens. 
All this is effected without a breach of national good 
faith which nothing could compensate. 

The change which we have now to consider is 
the reverse of that of which the consequences are 
thus summarised by Professor Jevons. We have 
to deal with an appreciation, not a depreciation of 
gold, and it is instructive to read the observations 
of so careful a writer as Mr. Giffen upon the effects 


of appreciation. In a paper read before the Eoyal 
Statistical Society in January 1879, lie said: — 

If a general downward movement of prices, due to 
a comparative scarcity of gold, has begun, are we not 
on the eve of a reversal of the changes which commenced 
with the Australian and Calif ornian discoveries — changes 
so admirably described in Mr. Jevons' well-known book 1 
These changes were, substantially, a gradual lightening 
of debts, for the benefit of the debtor class, and to the 
immediate loss of annuitants and capitalists, however 
much the latter might be compensated, in the end, by 
an increase in the nominal income of their land, houses, 
and other securities. Now we may witness a gradual 
increase of the burden of debts, to the loss of debtors, 
and for the immediate advantage of creditors, although, 
in the end, the latter may lose by the relatively 
diminished income of their securities, following the ad- 
justment of all prices to the new circumstances. There 
can be no doubt that some such general effect as this 
must follow, if it should, in fact, turn out that a serious 
appreciation of gold has set in, and the circumstances 
of its production and the use of economising expedients 
do not change. 


It would be easy to extend these references to 
recognised economic authorities in support of the 
doctrine, that the attainment and the preservation 
of a standard of value as nearly invariable as 
possible is a matter of supreme concern. Those 
already given are, however, sufficiently impressive, 
and I now proceed to investigate some of the 


prominent and clearly-established consequences of 
appreciation. Such consequences arrange them- 
selves under the following categories, viz. public 
finance, private contracts, customary and retail 
prices, and wages. I deal at present only with the 
first of these. 

Effect of an Appreciation of Gold on 
Public Finance 

It will probably be a surprise to many who have 
never realised the vast and varied changes brought 
about by the increased purchasing power of gold, to 
discover that one effect of it has been the same as 
if an addition of several millions sterling had been 
made to the burden of our taxation. This is un- 
doubtedly true, however, as the mere statement of 
a few elementary propositions will clearly show. 
The whole income of the British nation consists of 
three parts — first, the commodities produced and 
consumed at home ; secondly, those received from 
abroad in exchange for home productions ; and, 
thirdly, those received in payment for services 
rendered to foreign countries. A large proportion 
of this aggregate income is required to defray the 
cost of government — national and local. In primi- 
tive states of society the ruling powers take their 
share of the annual produce in kind. But in fully 


organised communities it is appropriated in the form 
of money, which is afterwards exchanged for such 
things as the Government and its servants and 
creditors may choose. The money collected for 
taxes is, therefore, only an instrument by means of 
which these are enabled to appropriate from the 
general stock of commodities a certain share. Now, 
if, since the appreciation of gold took place, there 
has been no reduction in the amount of taxation — 
and, as a matter of fact, there has not — it is clear 
that, after a heavy general decline of prices, this 
share is greatly augmented in all countries having a 
gold standard, and so much less is left for the use 
of the taxpayers themselves. If the proportion of 
the a"(rregate income used to meet the cost of 
government, national and local, were taken in kind, 
it would be strikingly evident how much greater 
the cost has become in consequence of the rise in 
the value of gold, and therefore how much greater 
is the burden falling upon industry, from the produce 
of which the expense of government is mainly de- 
frayed. Agriculture affords, perhaps, the simplest 
example of the principle under consideration. 
The total amount of taxation, reckoned in money, 
falling upon 1000 acres of land is not now greatly 
different, on an average, from what it was twenty 
years ago. If, however, the share of the whole of 
the produce of such area now appropriated for pur- 


poses of taxation — converting money into kind — be 
compared with that previously devoted to this 
object, it will be found that the remainder left 
for the use of the owner and cultivator is largely 
reduced. But agriculture does not differ essentially 
from other industries in this respect, although, in its 
case, the increased burden is more distinctly seen. 

There is only one important compensation result- 
ing from the appreciation of gold which any part 
of the British nation derives from its effect upon 
general national finance. England is a great 
creditor in relation to other nations. Very large 
amounts of British capital have been lent at fixed 
rates of interest to Governments, national and local, 
and to companies engaged in railway or other enter- 
prises abroad. Now it is obvious that the aggregate 
amount of this indebtedness for principal and 
interest, so far as it stands on a gold basis, has been in 
reality very much enhanced. The nations responsible 
for it have no other means of discharging the obliga- 
tions connected with it but that of the produce of 
their industry ; and, owing to the fall of prices, 
very much more of this produce must be sent than 
before in order to meet the constantly recurring 
liability for interest and sinking fund. This incident 
in the great monetary disturbance was brought 
prominently before the Grold and Silver Commis- 
sion, and the arguments of those who regard it as a 


national advantage are summed up in the following 
extract from the report : — 

As regards the country at large, a clear gain can be 
shown, owing to the large investments of British capital 
made in foreign countries at a time when prices were 
high. "With every fall of prices the real return on this 
capital increases, and the country gains. 

At this point the subject is left by the Commis- 
sioners. But we may with advantage pursue it a 
little further. To whom does this gain accrue ? 
and are there any interests in this country which 
are injured by it ? It is obvious, in the first place, 
that the holders of foreign securities carrying a fixed 
rate of interest, in common with holders of home 
securities of the like kind, participate largely in the 
advantage, even if they do not receive the whole 
of it. 

But to come to the second question. A little 
reflection is sufficient to show that the " debtor 
nations " are the poorer to the extent of the in- 
creased amount of produce which they have to 
remit in discharge of their fixed obligations. To 
them this increase is as real a loss as if it had been 
destroyed by fire or sunk in the ocean Some com- 
pensation they do undoubtedly receive, and at whose 
expense we shall presently see. I shall certainly 
not attempt to estimate, except in the roughest 
manner, the amount of this loss. In 1887 Mr. 


Giffen calculated that the interest on British capital 
invested in foreign and colonial public loans, shares 
of companies, and bank deposits, was £85,318,000 
per annum. No account is here taken of repay- 
ments of capital through sinking funds or otherwise, 
nor, on the other hand, for re-investments abroad of 
interest or repayments of capital not brought home. 
So much of the amount as is actually remitted on 
balance is obviously sent in the shape of the pro- 
ducts of industry of the countries from which it is 
received. If we assume that the net amount re- 
mitted is £60,000,000, and that the prices of such 
products have fallen in value 30 per cent since 
the average date at which the investments were 
made, it will appear that the annual loss sustained 
by the remitting countries, in consequence of the 
fall of prices, is £18,000,000 ; that is to say, about 
nine shillings per head of the population of the 
United Kingdom. Those who think this estimate 
too little or too much may increase or lessen 
it at their pleasure. Whatever the sum may be, 
it is the gross measure of the gain to the creditor 
nation, and the gross measure of the loss to the 
debtor nations. 

But the important point to which I desire 
to draw attention is that the debtor nations are 
buyers of the products of British industry. To 
the extent, therefore, that they are compelled 



to part with their own productions, in increased 
quantity, in discharge of debt — and therefore, 
so to speak, gratuitously — they have less re- 
maining for the purpose of exchange. Their 
" buying power " is by so much diminished, and 
they must either take less of our manufactures or 
must obtain them at lower prices. As a matter 
of fact, there can be no doubt that they have 
obtained them at lower prices. This is the com- 
pensation just referred to, but it is clearly obtained 
at the expense of the British industries engaged in 
producing for foreign markets, and it is one of the 
causes of depression in these industries, and one 
which largely accounts for the lessened prices of 
their products. In short, because of their de- 
pendence upon foreign markets, those who are 
employed in such industries, whether as capitalists 
or workpeople, have a manifest and very close 
interest in the fortunes of the debtor countries. 
That which hurts these hurts the industries engaged 
in ministering to their wants. It thus appears that 
the supposed national advantage occasioned by the 
appreciation of gold, resulting from the fact that a 
certain number of British citizens have large amounts 
of capital invested abroad, is one mainly confined to 
them, and that it brings with it a necessary disad- 
vantage to the industries of this nation. Thus the 
appreciation of gold, regarded as a factor in national 


finance, not only adds to the burden of taxation 
which must be borne by our industries, but tends 
also to damage the markets for their products 
abroad, and to reduce the prices of these pro- 

I have said, just now, that British national ex- 
penditure has not been lessened since the great fall 
of prices began. It has, in truth, very largely 
increased. In 1876-1877 it was £70,329,554; 
in 1802-1893 it reached £90,375,365, and the 
estimates for 1894-1895 put it at £95,458,000. 
The sum to be provided has thus augmented by 
£19,128,446, or more than 25 per cent; and, of 
course, the real increase in the share of the national 
production appropriated by the Government is very 
much greater. Similarly the cost of local adminis- 
tration has been enlarged, even where the amount 
reckoned in money has not changed. 

It may be said that the Government, being a 
great buyer of commodities, must benefit sub- 
stantially by the fall of prices, and this fact makes 
the enlarged expenditure just referred to all the 
more remarkable. This feature in the relation of 
the monetary question to that of national finance 
was discussed at some length by Air. Goschen, at 
Liverpool, in January 1887. He recognised the 
addition to the weight of taxation resulting from 
the augmented purchasing power of gold, and 


declared that reduced expenditure had become 
necessary, and that it was possible, though ad- 
mitting the great difficulty of effecting it in an im- 
portant degree. Summing up his views upon the 
whole matter, he said, however, that in his opinion 
the Treasury had much more to gain from the 
prosperity of industry and trade than from low 
prices. From this conclusion no one, I imagine, 
will dissent. 

But there is a further consideration. The 
Government, as representing the nation, is a great 
debtor. It owes to its creditors, apart from con- 
stantly accruing liabilities for current expenses, no 
less a sum than £671,042,842. Twenty years 
ago the National Debt was £782,404,954. It has, 
therefore, been reduced in figures by £111,362,112. 
But in reality has the debt been reduced at all ? 
Unquestionably it has not. It is, like current 
taxation, a charge upon the whole of the resources 
of the country, and mainly upon the fruits of its 
industry. And if it were to be paid off now, it is 
obvious, in accordance with the principle laid down 
at the beginning of this chapter, that a very much 
larger share of these would have to be appropriated 
for the purpose than that requisite in 1872-73. 
The policy of setting aside each year a portion of 
the revenue for repayment of debt is unquestion- 
ably sound; but it ought to be recognised that 


every hundred pounds thus appropriated represents 
a much greater amount of wealth than it did when 
the debt was contracted, greater even than it did 
twenty years ago. For such increase there is no 
compensation arising from the appreciation of the 
standard unit. 



Credit is trust. When you say to a man, in 
employing him to carry out a particular enter- 
prise, " I give you credit for sufficient ability," 
you express your confidence that he has at his com- 
mand the power and resource required for its 
accomplishment. You do not mean that he has, 
there and then, secured possession of all the instru- 
ments and means necessary for the successful 
execution of your purpose, bitt that he will be able 
to obtain them in due time. Economic credit is 
trust in a man's power to command a definite thing 
— money ; not money in the wide signification given 
to the word in an earlier chapter, for credit itself 
stands in that larger category, but the money which 
is alone legal tender, and which, in this country, is 
ultimately gold. Bank of England notes are legal 
tender, and since their immediate convertibility 
into gold is rigidly secured by statute, it is upon 
the whole stock of such notes and of gold coin 


outside the issue department of the Bank that the 
great fabric of English credit rests. Every one who 
gives credit expects, whether he thinks of it at the 
time or not, to have returned to him in due course 
either in gold, or in that which will command gold, 
the amount of the credit. 

The vast deposits of the banks are credits given 
to them in the firm confidence that these institu- 
tions have it in their power to repay them in gold 
or Bank of England notes if required. But we 
know that if they were called upon simultaneously 
thus to discharge these obligations, they could not 
do so. They would not be able to pay, in fact, 
more than about 4d. in the pound. Such a demand 
is, however, inconceivable, and even if any consider- 
able proportion of the deposits were asked for and 
obtained, the recipients would not know what to do 
with the money withdrawn. The very reason for 
the existence of deposit-banking is that the owners 
of money find it vastly less risky, troublesome, and 
expensive to place it in a bank than to keep it 
themselves. Moreover, banking has become an 
almost universal habit, and a habit long established 
is hard to disturb. Even in periods of wild alarm 
money withdrawn from banks is quickly returned. 
Confidence, too, begets confidence. There is an in- 
structive story, and a true one, of a scared depositor 
taking out her money during a panic, and experi- 


euciug some surprise at its being given to her 
without hesitation. Waiting for a time near the 
bank counter, she at length returned the gold coins 
she had withdrawn, saying, " I see more are paying in 
than drawing out." The safety of deposit-banking is 
confidence, and this is partly the result of habit, and 
partly of the knowledge that anything like wholesale 
and simultaneous withdrawal is impossible. And the 
confidence is maintained, although the fact is per- 
fectly well understood that the amount of money in 
hand or within reach is very small compared with 
the amount of deposits. 

Credit, then, including credit instruments, is the 
main substance of the business of bankers. They 
are credit merchants, and the very purpose for 
which they receive it is that they may employ it 
profitably in giving it to others who can use it more 
profitably still. In order to show how very small 
is the proportion of money dealt in by bankers, I 
quote the following particulars collected by Mr. G. 
H. Pownall, showing the average amount of coin, 
of Bank of England notes, of country bank-notes, 
and of bills and cheques, in every £100 received 
by the Manchester banks in the year 1881 : — 


Receipts of Manchester Banks in 1881 

Coin ..... 6-1 

Bank of England notes . . 13 8 

Country Bank-notes . . . O'l 

Cheques and Bills . . . 80 - 


It thus appears that of every .£100 paid into 
the Manchester banks in 1881, not less than £80, 
2s. (including country bank-notes) consisted of credit 
instruments, and only £6, 2s. was coin. Still more 
remarkable are the particulars of the receipts of the 
London banks in the same year, which were also 
collected and compiled by Mr. Tow-nail. They 
are — 

Receipts of London Banks in 1881 

Coin . . . . . -728 

Bank of England notes . . 2-039 

Cheques and Bills . . . 97 '233 


In London, therefore, of every £100 paid into the 
banks, the amount of credit instruments was £97, 
4s. 8d., whilst only a fraction over 14s. 6d. was 
in the form of coin. The larger proportion of 
credit instruments used in London is not a proof 
that banking is more fully developed there than in 


Manchester. It is simply an indication of the 
difference between the characteristic business of the 
two cities. In Manchester — an industrial centre — 
a relatively larger quantity of coin is needed for 
payment of wages ; in London — a great financial 
centre — the preponderating payments are of a 
wholesale kind, and are made in cheques or bills. 
In the smaller towns, and in country districts, it is 
probable that the proportion of coin to credit instru- 
ments is greater than in Manchester. Even there 
it may safely be affirmed that cheques or bills are 
chiefly used in the settlement of all but compara- 
tively small transactions including the payment of 
wages. I am not aware that any statistics similar 
to these just quoted have been prepared, showing 
the composition of bankers' receipts at other mer- 
cantile and industrial centres, and as my object 
now is not one requiring exactness, it may be taken 
as granted that the Manchester figures represent 
approximately the proportions of coin, Bank of Eng- 
land notes, and credit paper received by banks 
throughout the country outside London. 

Now the practice of keeping a banking account 
may be assumed to have become almost universal 
in the United Kingdom even twelve years ago, 
amongst all classes except those whose incomes 
consist of wages or small salaries, and that there is 
not now much room for its extension, except as an 


incident in the general growth of trade. We have, 
therefore, materials sufficiently definite to present a 
striking picture of the extent to which credit instru- 
ments take the place of gold, or of notes secured by 
gold, in the monetary system of this country. It 
is important, therefore, to inquire, On what basis 
does this huge proportion of from 80 to 97 per 
cent of paper money rest ? 

The aggregate amount of credit instruments 
existing at any given time is determined by three 
considerations. It is enlarged when trade is active, 
abundant, and profitable, and diminished when it is 
slow, contracted, and unprofitable. In the former 
case confidence is strong ; in the latter it is weak. 
Secondly, the amount of these instruments is also 
dependent upon the volume of the gold and Bank 
of England note reserve, and especially by that held 
in the banking department of the Bank. To this 
reserve is added day by day all gold and notes not 
elsewhere needed, and from it is taken whatever may 
be required to supply any extraordinary demand, 
whether for export or for use at home. The periodi- 
cal temporary requirements of the Scotch banks 
always cause a perceptible drop in the quantity of 
gold held at the central store, unless there should 
be at the same time an equally large influx. 
Similarly a momentary increase of demand for coin 
in any part of the country, either because of an im- 


portant local extension of trade, or to provide against 
an actual or apprehended spasm of distrust, is im- 
mediately felt at the Bank of England. And of 
course any considerable demand for gold to be sent 
abroad can be supplied only there. 

But there is a third and a more subtle influence 
tending to determine the amount of credit instru- 
ments in use. During the last twenty-three years 
successive new demands of great importance have 
been made upon the world's supplies of gold, con- 
currently with a diminished production — diminished 
on the whole, though latterly increasing. These 
new demands, which will be specified in a sub- 
sequent chapter, have kept alive an almost con- 
stant apprehension, the effect of which has been 
persistent caution in the giving and taking of 
credit. This dependence of the whole country 
upon the single reserve held by the Bank of England 
might be regarded with complete composure, if it 
were always large enough to meet all likely require- 
ments without falling so low as to create uneasi- 
ness. But the Bank is itself a business institution, 
established, like all others, for the purpose of gain, 
and, no more than they, can it afford to keep 
an undue amount of idle money. The principal 
method used to reduce or prevent an unprofitable 
accumulation is to lower the rate of discount, and 
this process tends to " drive gold out of the 


country." It is not adopted, of course, without 
regard to contingencies which may be foreseen, but 
the main object is to keep as little unemployed 
money as is compatible with the Bank's own safety, 
having in view all possible demands upon its stock. 
And, vice versd, the chief mode of attracting gold 
hither, in order to strengthen the central reserve, 
is to raise the rate. 

But, again and again, during the last twenty 
years serious apprehensions have been aroused by 
the reduction of the reserve towards the danger 
point, and it may even be said that at no time, dur- 
ing that interval, has there been entire freedom from 
uneasiness, tacit or expressed, amongst observant 
monetary authorities. Attention was drawn to the 
assumed inadequacy of the reserve of gold by Mr. 
Bagehot in his Lombard Street, published in 1873. 
The main considerations by which he was induced 
to write this well-known book were the imminent 
disappearance of the reserve in the panics of 1857 
and 18G6,and the heavy demands made upon it by 
Germany during the changes beginning in 1871, 
by which the monetary system of the newly- 
founded empire was established on a gold basis. 
To discuss the remedies proposed by Air. Bagehot, 
and those which have been proposed since 1873, 
including the plan suggested by Mr. Goschen in 
1891, would carry me too far away from my pre- 


seut purpose, and I only allude to them in order to 
emphasise the fact that during the last twenty years 
the conviction has existed in the minds of leading 
authorities that the reserve of gold upon which the 
great volume of British credit is built is too narrow 
to ensure the stability of credit under all circum- 
stances. What has been the consequence ? The 
consequence has been that all persons extensively 
interested in banking, commercial, and industrial 
enterprises, including, of course, the directors of the 
Bank of England, have never ceased to watch, more 
closely and persistently than they ever did before, 
the fluctuations in the reserve, and the inward and 
outward currents of gold to and from the country. 
And well they might. For since 1871 the avail- 
able supply of gold in the world has been subjected 
to new demands on a gigantic scale, the effects of 
which, direct and indirect, upon our own monetary 
system could neither be foreseen nor provided 
against, without constant vigilance and the prompt 
application of remedies. First came the require- 
ments of Germany in 1871-1874, amounting alto- 
gether to about £80,000,000, and following that 
the absorption of a large amount by Holland, 
Scandinavia, and Italy, for the purpose of establish- 
ing monetary systems based on gold. On 1st 
January 1879 the United States abandoned the 
use of inconvertible paper money. In anticipation 


of this event, and after its occurrence, a very 
large amount of gold — certainly not less than 
£120,000,000 — has been retained from the Ameri- 
can mines or imported from abroad. Added to these 
demands are the steadily continuous accumulations 
of France and Russia, which, within the last twenty 
years, have taken off great quantities. India, too, 
has been an important and almost constant absorber 
of gold during this period. 

Enough has now been adduced, I think, to establish 
a good case in favour of the following propositions : — 

(1.) That the monetary system of the United 
Kingdom, characterised as it is by a vast pre- 
ponderance of credit instruments based on gold, is 
peculiarly sensitive to the influences of important 
changes in the demand for, and supply of, that metal 
in other countries. 

(2.) That the extraordinary requirements of gold 
abroad during the last twenty-two years, together 
with the absence of an appreciable increase of 
supply, have, by keeping alive an almost constant 
state of apprehension, powerfully restricted the 
use of credit, including credit instruments. 

(3.) That this restriction has had the same 
effect as a restriction in the volume of money in 
use, viz. to reduce the prices of merchandise and of 
real property, to diminish the profits of industry 
and commerce, and to augment the burdens of the 

64 THE JOINT STANDARD chap, vii 

nation as a whole, and in particular of persons 
engaged in the production and distribution of 

These propositions I now proceed to support by- 
quotations from the writings of economic authorities 
of the highest rank, all of whom are, or were when 
they wrote, in favour of maintaining the present 
monetary system of this country. 



In a paper read before the London Statistical 
Society on 21st January 1879, and entitled "The 
Fall of Prices of Commodities in recent Years," Mr. 
Robert Giffen, after demonstrating that a very great 
fall in the prices of commodities had occurred since 
1873, and that a lower level had been reached 
than that following the crisis of 18G6, proceeded to 
state the causes of the fall. The first, he said, was 
the great failures of 1875, and the collapse of 
credit which followed ; the second was the bad 
home harvests of 1875, 1876, and 1877; and the 
third, Mr. Giffen described in the following terms : — 

A third cause which must he mentioned is the 
extraordinary demand for gold for the new coinage of 
Germany, and for the United States on its resumption 
of specie payments during the last few years. It is a 
little difficult to consider this point except in connection 



with the question of the supply of gold, and any varia- 
tion in that supply which may have occurred ; but what 
I desire to bring out is that, apart from a permanent 
diminution of the supply, whether absolutely or in 
relation to the growing wants of the world, which 
would necessarily have a permanent effect on prices, 
extraordinary demands like those referred to would 
tend to produce a momentarily extreme fall. The 
reason is that a sudden pressure on the stock of the 
precious metals at a given period tends to disturb the 
money markets of the countries using them ; makes 
money dear, or creates a steady apprehension that it 
may at any moment become dear ; and so by weakening 
the speculation in commodities, and making it really 
difficult for merchants and traders to hold the stocks 
they would otherwise hold, contracts business and 
assists a fall in prices. It is conceivable that after such 
a pressure the current supply of the metals may again 
be found sufficient to meet the current demands with 
prices raised to their former level ; but Avhile the 
pressure lasts prices are low. 

Now the extraordinary demands of the last few years 
— I think I may say eight years, the German lock-up 
having commenced in 1871 — having certainly been of 
a kind to produce some momentary effect, even on the 
assumption that the supply of gold, when the pressure 
is removed, remains sufficient for the wants of the 
world with prices at their former level. Altogether, 
during the last six years Germany has coined 84 
millions of gold, very little of this being recoinage. 
The accumulation of gold in the United States, again, 
principally during the last two years, amounts to about 
30 millions sterling, the stock of gold in the country 


above what it bad l»ccn for several years previous 
having been increased by that amount. These two 
sums amount to 114 millions, and if we allow for other 
extraordinary demands, such as that for Holland, which 
has been substituting a gold for a silver money, and at 
the same time make deductions for what Germany may 
have recoined, we may say in round numbers that the 
extraordinary demands for gold during the last eight 
years have amounted to 120 millions, or 15 millions a 
year. As the annual production of gold eight years 
ago was estimated at from 20 to 22 millions only, and 
has since rather fallen off, it is quite plain that these 
extraordinary demands can have left very little for the 
ordinary wants — the wear and tear of coinage, losses, 
use in fine arts, and new coinage to correspond with 
the Avants of populations increasing in numbers and 

"We come then to the question, whether ordinary 
demands have continued the same, to which the answer 
must, of course, be that coincident with the gradually 
declining supply of gold there must have been an 
enormous increase of current demands. The increase 
of population in the gold-using countries alone must 
have been nearly 50 per cent. In the United Kingdom 
alone the annual rate of increase has been for Ions 
nearly 1 per cent per annum, 0S3 per cent between 
1861 and 1871, which gives 28 per cent in thirty years, 
while in the Australian colonies the rate of increase is 
of course much greater. Suppose the world's annual 
supply of gold before 1848, say G millions sterling, 
was quite sufficient to maintain equilibrium then, which 
I doubt, the natural increment of population before 
1848 would make the present usual requirement from 


the gold-using communities in existence before 1848, or 
their descendants, about 9 millions. But the wealth 
per head has increased enormously. In the paper I 
read last year on recent accumulations of capital in the 
United Kingdom, the rate of increase in the ten years 
ending 1875 was estimated at 27 per cent, and this 
rate of increase being deduced from the actual rate of 
increase in the assessments to the income-tax, is not 
subject to the doubts which may be entertained respect- 
ing the totals of the accumulations themselves. What- 
ever the figures may be at the beginning and end of the 
period, such has been the rate of increase. Not only, 
then, must the requirements of gold-using people be 
increased by 50 per cent, to allow for the natural 
increment of population, but another 50 per cent must 
be added for the greater wealth per head. This would 
further raise the usual requirements, according to the 
previous 1848 standard, from the above sum of 9 
millions, which allows for the increase of population 
only, to 13 h millions. ! 

Nor is this all. The extension of the area of gold- 
using countries since 1848, first, by the practical 
inclusion of France, and next, by the more recent 
inclusion of Germany and the United States, has no 
doubt added to the usual demands to an extent it is 
unnecessary to determine exactly, but at least by several 
millions. Thus, while during the last thirty years the 
annual yield of gold has been falling away from its first 
superabundance, the current demands for the metal 
have certainly been growing with marvellous rapidity- 
If there was much need twenty years ago of new channels 
for new gold supplies to prevent an enormous rise in 
prices, it is at least possible that more recently the 


increasing current demands have been sufficient to use 
up the diminishing annual supply. So far as we can 
judge, the point of junction of the two curves must 
have been at some date within the last ten years, though 
in such matters precision is of course impossible. In 
this view the fall of prices in the last ten years has 
been aggravated by a subtler cause than the extra- 
ordinary demands for gold which have existed. These 
demands have come upon a market which apparently 
had no surplus to spare. They have consequently been 
supplied very largely by a continued pressure upon existing 
stocks, till an adjustment has at length been made by a con- 
traction of trade and a fall in values. 

It may be said, perhaps, that the usual requirements 
of gold-using countries have been changed from what 
they were by the extension of the cheque and Clearing- 
house system, by the diminished use of gold in the aits. 
and by similar means. Perhaps there is some diminished 
use of gold in the arts, but, of course, the only really 
important question in this matter is the use of gold in 
coinage, and I should doubt if any great economy in 
the use of gold has been established in the last thirty 
years. Excluding Germany and the United States, 
which have just been added to the number, the prin- 
cipal gold-using countries besides the United Kingdom 
and its colonies, are France, Portugal, Egypt, and the 
South American countries ; but it would be difficult to 
show, I think, that the cheque system, or any other 
system of economising money, has been greatly extended 
in those countries in the period. In the United King- 
dom, again, all the recognised expedients for economising 
money, especially the cheque and Clearing-house system, 
seem to have been as fully operative thirty years ago 


as they are now. The United Kingdom was very fully 
"banked" before 1850, the growth of banks and banking 
business having since been no more than in proportion 
to the increasing wealth of the community. The circum- 
stances are such, however, that a considerable allowance 
may be made for the introduction of economising ex- 
pedients, without altering the fact that the current 
gold requirements of the world have increased enor- 
mously since 1848, while the annual supplies, which 
threatened an incalculable rise of prices, have been 
dwindling away. 

If the scarcity of gold has as yet contributed very 
little to our money troubles or the fall in prices, it 
must, at least, be about to have that effect if no great 
change comes. Whether such a change is likely to 
come in the shape of an increased gold supply it will 
be for geologists and mineralogists to judge ; but it is 
not reassuring to see how little comes practically of the 
recent gold discoveries in India and the rediscovery in 
Midian. "Whether, on the other hand, change may come 
in the shape of economising expedients will be a point 
of no little interest for bankers and all other business 
men, and for legislators. Considering the slowness 
with which such expedients become effective when they 
are first introduced, and the perfection to which they 
have been brought in countries like England where 
they are introduced, I feel great doubts whether such 
relief can come in this way. On the whole, I see no 
other outlet from the situation than in the gradual 
adjustment of prices to the relatively small and smaller 
supply of gold, which must result from the increasing 
numbers and wealth of the populations of 'gold-using 


Mr. Giflfen concludes these observations on the 
question of the supply of and demand for gold, as 
it presented itself to his mind in 1879, by saying: 
" We ought to deprecate any change in silver-using 
countries in the direction of substituting gold for 
any part of the silver in use. It would be nothing 
short of calamitous to business if another demand for 
gold like the recent demands for Germany cud the 
United States were now to spring wp. Even a much 
less demand would prove rather a serious affair before 
many years had elapsed? 

Six years later — in May 1885 — Mr. Giffen 
pointed, with good reason, to the further drafts 
upon the gold supplies by the United States, Italy, 
Holland, and the Scandinavian countries, which 
had occurred within the interval, together with the 
continued fall of prices, as a justification of the 
fears expressed in 1879. His observations upon 
the manner in which these further demands, as well 
as the previous one proceeding from Germany, acted 
upon credit and prices are striking and instructive. 
He writes : — 

The course of the money [loan] market has also been 
such, I believe, as to indicate a strain upon the supplies 
of gold. It is sometimes argued that, if gold had been 
really scarce in the last ten or twelve years, the rate of 
discount and the interest of money would have been 
higher than when gold was relatively more abundant. 


Consequently, it is said that, as the rate of discount and 
the rate of money have been lower than they were, the 
evidence of the money market is that gold has not been 
scarce. Over long periods, however, the rate of dis- 
count and the interest of money do not depend on the 
scarcity or abundance of " money," using the term in 
its strict sense, but on the scarcity or abundance of 
[loanable] capital relative to the demands of borrowers. 
There may be any conceivable rates of discount and rates 
of interest for money at any conceivable range of prices 
for commodities. The way scarcity or abundance of gold 
would tell upon the money market, would be by pro- 
ducing monetary stringencies and periods of temporary 
difficulty and discredit, by which perhaps the tendency 
to inflation in prices at one time would be checked, and 
the tendency to depression at another would be aggra- 
vated. The average rates over the whole period when 
these stringencies were occurring might be lower than 
at times when they were fewer, but the mere fact of 
successive stringencies would help to produce the effect 
described on prices. Now the course of the money 
market since 1871, when the German Government 
began to draw gold from London, has been full of such 
stringencies. The crises of 1873 and 1875 were, no 
doubt, precipitated by them, and since 1876, in almost 
every year except 1879 and 1880, there has been a 
stringency, of greater or less severity, directly traceable 
to or aggravated by the extraordinary demands for 
gold and the difficulty of supplying them. 

Looking at all the facts, therefore, it appears im- 
possible to avoid the conclusion, that the recent course 
of prices, so different from what it was just after the 
Australian and Calif ornian gold discoveries, is the result 


in part of the diminished production and the increased 

extraordinary demands upon the supply of gold. It is 
suggested, indeed, that the increase of banking facilities 
and other economies in the use of gold may have com- 
pensated the security. But the answer clearly is that, 
in the period between 1850 and 18G5, and down to 
1873, the increase of banking facilities and similar 
economies was as great relatively to the arrangements 
existing just before as anything that has taken place 

The same reply may also be made to the suggestion 
that the multiplication of commodities accounts for the 
entire change that has occurred. There is no reason to 
suppose that the multiplication of commodities relatively 
to the previous production has proceeded at a greater 
rate since 1873 than in the twenty years before that. 
Vet before 1873 prices were rising, notwithstanding the 
multiplication of commodities ; and since that date the 
tendency has been to decline. The one thing which 
has changed, therefore, appears to be the supply of gold 
and the demands upon it ; and to that cause largely we 
must, accordingly, ascribe the change in the course of 
prices which has occurred. 

I quote now from another authority, the late 
Professor J. E. Thorold Uogers, who, writing in the 
Princeton Review in 1ST'.), before the later and 
fuller development of the appreciation of gold had 
taken place, said : — 

There is no doubt that prices, profits, and wages are 
falling in very many industries which have hitherto 
been prosperous. We will attempt to enumerate the 


principal causes which have effected this result. Some 
of them are local ; some are shared by other countries. 
The first cause in importance, the most general, and 
in all probability the most enduring, is the rise in the 
economical value of gold. The fact has been commented 
on, with considerable but unequal force, by M. Emile de 
Laveleye, in a recent number of the Revue des Deux 
Blondes, where he alleges, on good grounds, that the 
annual produce of this metal is not more than sufficient 
to cover the annual wear and tear of the currencies. 
But while the area of civilisation is widening, and, there- 
fore, the demand for an adequate currency is being 
extended, the most populous state of Europe has 
abandoned a silver for a gold currency, and has had, 
as a fruit of its successful war with France, an 
exceptional power of attracting gold to itself, with 
singular success indeed, but to the incredible mis- 
fortune of its people. Germany has effected a monetary 
revolution on the grandest scale, and has beggared its 
own industries, for the rise of prices in Germany 
during the four years after the war was over was 
unparalleled. Now, it is perfectly true that when a 
gradual scarcity in the amount of the metallic currency 
circulating in any one country occurs, it is to a certain 
extent possible to resist a general fall in prices by 
substitutes for the precious metals, especially if the 
country in which the scarcity occurs is willing to adopt 
such substitutes with confidence and familiarity. But 
unless we are to assert that the values of gold and 
silver do not depend on the demand which exists for 
them, and the means for supplying that demand, it 
must follow that a large demand brought to bear on a 
limited supply will affect the value of these precious 


metals, and through them lower prices. Nor do 
European countries find themselves generally able to 
circulate the equivalents of a metallic currency to the 
extent which, for example, England docs. The treasure 
held by the Bank of France is enormous, being nearly 
equal to its note circulation. It is understood that 
Germany has a considerable hoard of gold coin and 
bullion, which for all practical purposes is withdrawn 
from circulation. But to the general fact that these 
two countries require a far larger amount of money for 
purposes of trade than England does — France is 
supposed to need three times as much — must be added 
that the political relations of the two countries are so 
far unsatisfactory as to suggest a further strengthening 
of their monetary position. Nations do not keep more 
gold or silver than they need ; but they measure their 
own needs, and sometimes their fears measure their 
needs for them. 

Taking into account the growing intercourse of 
civilised nations, and particularly the sensitiveness 
which they feel at any event which may check the 
activity or derange the machinery of trade and produc- 
tion, it appears that at no time has the drain on the 
existing stock of gold been so sharp and so rapid as at 
present. Nor does the proof of the fact depend solely 
on the phenomenon of lowered prices, or in the fact 
that the demand for gold has been exceptionally great. 
It is proved by the decline in the value of silver as 
compared with gold. The writer has been informed by 
those who are best competent to give an opinion, that no 
traceable rise in prices has occurred in those countries 
which use a silver standard only, and that this is 
particularly the case in India, where the loss which the 


Government incurs arises from the necessity of meeting 
liabilities due to England in a currency which has 
increased in costliness by all the difference between the 
old and the present value of silver as measured by gold. 
But it will be plain that when the dearness of gold is 
manifested by a fall in prices, there must be a loss of 
profits, not only on stocks which have accumulated 
under the agency of higher prices, but on those parts 
of a producer's capital which were called into permanent 
existence while those higher prices ruled, on buildings, 
plant, and machinery. 

It is instructive to notice that the extraordinary 
perturbations in the movements of gold and their 
consequences, so fully described in the preceding 
extracts, were foreseen by so excellent an authority 
as the Economist, which, on 15th February 1873, 
published an article on " The Future Gold Supply," 
the concluding one of a series in which " The Gold 
Question " was discussed at considerable length. 
It was assumed that the future annual production of 
gold would be £20,000,000, and the final paragraph 
of the article runs : — 

Our conclusion therefore is, that the better probability 
of the next few years is an excessive demand for gold 
compared with the current supply. AVe have a regular 
annual demand for £12,000,000, or upwards, leaving 
an excess of £8,000,000 for any extraordinary demands ; 
but one known demand of this sort [the German] seems 
likely to take far more than this excess for several years 


to come, and there are heavy contingent demands which 
it is needful to keep in mind. What the result will be 
it would l)e needless to speculate. Compensation will, 
perhaps, be found in a greater economy of existing 
stocks, as well as in a pressure to produce more, which 
may have some result. But if the demands continue, 
and if little can be made of the last expedients 
suggested, we should rather expect that within the next 
decade gold will rise in value, instead of continuing the 
fall which was arrested in 1862 — in other words, that 
the general range of prices is rather more likely to fall 
during the next ten years than it is to rise. We must 
again repeat, however, that the point is one on which 
we have no pretension to dogmatise. 

In the report of the Gold and Silver Commission, 
published in 1888, the question of the effect of a 
great general fall of prices, which all the Com- 
missioners admit, is dealt with separately by the 
six gentlemen who were, at that time, known as 
mono-metallists. This is signed by Lord Herschell, 
Mr. C. W. Freemantle, Sir John Lubbock, Sir T. H. 
Farrar, Mr. J. W. Birch, and Mr. Leonard Courtney. 
Their conclusion is briefly stated in the following 
extract : — 

So far as the fall in prices can be connected with the 
currency, it cannot be denied that it is attended with 
great inconveniences. 

It must tend to diminish the margin of profit, or 
even to cause it to disappear altogether, and this 
necessarily results in an effort on the part of the manu- 

73 THE JOINT STANDARD chap, viii 

facturer to economise the cost of production by reducing 
the wages of the operatives. 

Even if the manufacturers could succeed in reducing 
wages sufficiently to maintain their former position, this 
could only be done after considerable struggles and an 
amount of friction very undesirable. 

It is true that real wages depend not on their 
nominal amount, but on their purchasing power, and 
that the wage-earning class may be in the same position 
as before, although they receive lower nominal wages. 

But this is not immediately obvious, and does not 
prevent the disturbance of trade and the ill-feeling 
which result from an effort to reduce wages. 

Further, it seems by no means clear that there has 
been a fall in the price of all that the wage -earner 
needs, and upon which his wages are expended, 
equivalent even to the reduction of wages which has, 
in fact, taken place. 



It is a characteristic of deeply-seated and subtle 
original forces that their ultimate consequences are 
wrought out through intermediate agencies, often 
differing widely in kind and in mode of operation. 
These agencies are usually palpable enough, whilst 
the originating cause is, at least for a time, con- 
cealed, and therefore ignored. Naturally, then, it is 
to the intermediate forces that the resulting pheno- 
mena are attributed, and if the phenomena are 
disagreeable or injurious, efforts to remove them 
are directed rather to the secondary than to the 
original source. Accordingly, the commercial and 
industrial effects of the appreciation of gold have 
been ascribed to over-production of commodities, 
to increased and intensified protection abroad, to 
the growth of foreign competition, to the pressure of 
railway rates, taxation, rents, royalties, and other 
fixed charges, and to the high cost of labour. In the 


current literature of the last twenty years all these 
have been alleged as reasons for low prices and un- 
remunerative margins, and they were so cited by 
witnesses before the Eoyal Commission on the 
Depression of Trade, which sat in 1887 and 1888. 
A forecast of these complaints, and of their real 
cause, was made so far back as in 1871, by the 
late Mr. Ernest Seyd, whose clear perception of the 
momentous consequences of the great monetary 
dislocation then about to begin is very remarkable. 
He wrote : — 

It is a great mistake to suppose that the adoption of 
the gold valuation by other states besides England will 
be beneficial. It will only lead to the destruction of 
the monetary equilibrium hitherto existing, and cause a 
fall in the value of silver, from which England's trade 
and the Indian silver valuation will suffer more than 
all other interests, grievous as the general decline of 
prosperity all over the world will be. The strong 
doctrinism existing in England as regards the gold- 
valuation is so blind, that when the time of depression 
sets in there will be this special feature. The econo- 
mical authorities of the country will refuse to listen to 
the cause here foreshadowed, every possible attempt 
will be made to prove that the decline of commerce is 
due to all sorts of causes and irreconcilable matters. 
The workman and his strikes will be the first convenient 
target ; then speculation and over-trading will have 
their turn. Later on, when foreign nations have re- 
course to protection, when a number of other secondary 


causes develop themselves, then many would-be wise 
men will have the opportunity of pointing to specific 
reasons which, in their eyes, account for the falling 
off in every branch of trade. 

Now, of course, periods of declining prices 
occurred before 1873, and they were accompanied 
by complaints such as those which have been 
common enough during the past twenty years. 
They occurred after the commercial crises of 1847, 
1857, and I860, and have been described as "post 
panic periods " by Mr. John Mills, of Manchester, 
who, in papers upon " Credit Cycles," read before 
the Statistical Society of that city in 1867 and 
1871, set forth with great clearness and force the 
course of the decennial credit cycle, which until 
twenty years ago was a constantly recurring feature 
of British commercial history. But the character- 
istic of the general downward movements of prices 
before 1873 was that the course of the decline was 
always arrested within two or three years, and was 
succeeded by a recovery, slow perhaps at first, yet 
sure, and gradually increasing in strength. Within 
the last twenty years, however, we have witnessed 
an almost unbroken, though sometimes slow decline 
of prices, and it is this persistent depreciation, its 
accompaniments, and consequences, which we have 
now to examine. 

But, first, it is necessary to get as clear a notion 





as possible of the extent and the progression of the 
fall. These have been ascertained over a very wide 
field, and, on the whole, with greater exactness by 
Mr. Augustus Sauerbeck than by any other statis- 
tician. Mr. Sauerbeck's " index numbers " are cal- 
culated from the average annual wholesale prices 
of the following forty-five commodities : — 

English wheat 

West India sugar 


American wheat 

Java sugar 

Wool (Merino) 


Coffee (two sorts) 

Wool (English) 


Tea (two sorts) 






Iron bars 







Palm oil 

Prime beef 


Olive oil 

Middling beef 

Coal (London) 

Seed oil 

Prime mutton 

Coal (export) 


Middling mutton 

American cotton 

Soda crystals 


Indian cotton 

Nitrate of soda 







It must be observed that several of these com- 
modities are in the state in which they pass directly 
into consumption, whilst others are in the raw or 
partly manufactured condition. Secondly, they 
represent nearly all the articles which, either in 
their existing or in their manufactured form, con- 
stitute the materials of trade ; and, thirdly, although, 
owing to their variety, complexity, and constantly 


varying character, few manufactures are included, 
the prices of these would follow approximately, 
but not always closely, those of the raw materials 
from which they are made. Finally, some attempt 
is made, though necessarily a somewhat imperfect 
one, to allow for the widely different importance of 
the several commodities, by sometimes taking the 
prices of two — and in the case of bread materials, 
of three — descriptions in the same category. 

The basis of comparison is the prices of the 
eleven years, 1867-77 inclusive. These embrace 
the four years of low prices succeeding the panic of 
I860, the three years of rising prices, 1871-73, 
and the first four years of the great fall which has 
occurred since 1S7"». The average prices of the 
forty-five commodities is represented by the symbol 
100, and the variation from this figure, above or 
below, indicates the average rise or fall from the 
basis, that of the average prices of the eleven years, 

In the following table the first column shows 
the average level of prices of the forty-five commo- 
dities, thus worked out, in each year since 1869. 
The second represents in like manner the average 
prices of silver in London. The third and fourth 
columns, calculated from the first and second, indicate 
the values of gold and silver respectively, as measured 
by the forty-live commodities: — 




Average Value 

in relation to 

Average Value in relation to 




forty-five Commodities of 





60-84 = 100. 






























































































































A careful study of the changes indicated in the 
foregoing table is essential to a thorough under- 
standing of the monetary problem. In the first 
column, showing the course of prices of the forty- 
five commodities as measured by gold, it will be 
noticed that, in 1870, the level was 4 per cent 
below the datum line — the average prices of 1867- 
77. This was the lowest level reached after, and 


mainly as a consequence of, the financial crisis of 
1806. A reaction then began which was greatly 
reinforced by the industrial and commercial activity 
following upon the close of the Franco-German war. 
The re-establishment of peace, together with the 
financial stimulus supplied by the payment of the 
war indemnity, gave an extraordinary impetus to 
manufactures and trade, particularly in Germany, 
and the productive resources of this country were 
called upon for enormous supplies of manufactures 
of all sorts, and in particular of coal, machinery, 
iron, and steel, and other instruments required for 
permanent and reproductive works abroad and at 
home. The years 1872 and 1873 were, conse- 
quently, years of great commercial activity, and in 
the subsequent fall of prices down to 1879, the 
effect of reaction from this abnormal period is 
apparent. But we can only regard this movement 
as a contributory cause of the decline. For there 
occurred in 187.") the abandonment of the joint 
standard, which, by common consent, is regarded as 
the underlying, if not the most efficient cause. It 
can hardly be doubted that the reactionary force, 
whatever may have been its magnitude, had spent 
itself before the end of 1879, since in the next year 
a recovery is apparent, and then the downward 
course is resumed, broken only by the somewhat 
higher levels of 1888-91. 




The fall in the gold price of silver, shown in the 
second column, though not in close correspondence 
with that of commodities, is sufficiently approximate 
to arrest attention, and to warn us against treating 
the fall in the gold price of silver as a phenomenon 
to be explained only by considerations affecting the 
demand for and supply of silver. Still these are 
occasionally apparent, as, for instance, in the higher 
level reached in 1890, after the adoption of the 
United States Silver Purchase Act, which occasioned 
a new and very large demand for the white metal 
from the American Treasury, and induced a strong 
but temporary speculative investment in silver. 
From this movement a reaction occurred in 1892, 
and in 1893 silver again declined upon the repeal 
of the Act of 1890. 

The third and fourth columns are very instructive. 
They represent, respectively, the values of gold and 
silver as reckoned against the forty-five selected 
commodities. The persistent and almost steady 
advance in the value of gold presents a striking 
contrast with the comparatively unimportant, though 
not altogether slight variations in that of silver. 
Unquestionably, however, the inference is justified, 
that during the last twenty years silver has proved 
a much more stable standard of value than gold. 
This conclusion is borne out, too, by statistics of 
the contemporary course of prices in India. 


Other tables of index numbers have been pre- 
pared, the best known of which are those of the 
Economist, the very comprehensive one published in 
Mr. Adolph Soetbeer's Materials for the Illustration 
and Criticism of the Currency Question, published 
in Berlin in 1886, and Mr. Giffen's calculations of 
the prices of imports and exports from the official 
statistics of the foreign trade of the United Kingdom. 
These differ somewhat from the results brought out 
by Mr. Sauerbeck, mainly because they are framed 
upon different bases, but substantially the figures 
are identical, in so far as they show an almost con- 
tinuously downward course of prices of commodities 
during the last twenty years, and the descent to a 
lower level within the last decade than any previ- 
ously reached during the present century. 

There is no means of determining, with equally 
approximate exactness, the fall in the prices of real 
property. This is known, however, to have been 
very great. I now proceed to discuss the connec- 
tion between the fall of prices and its various symp- 
toms and consequences, of which so much has been 
heard for a long time past. 



The notion that low prices are a consequence and a 
symptom of a generally excessive production of 
commodities is not entertained by those who have 
made a careful study of economic movements. Very 
often, however, this notion not unnaturally gains a 
strong hold upon the minds of men who, smarting 
from losses occasioned by the depreciation of the 
commodities which are the subject of their own 
business, can see no deeper into the causes than 
that the supply of them has increased, or the 
demand has fallen off, or that both of these 
changes have happened. In any case, they say, 
there is over-production, and with this conclusion 
they are satisfied, not caring to inquire why the 
relations of supply and demand have altered 
with such disagreeable results to themselves. 
Hearing like complaints and possibly like explana- 
tions from others engaged in businesses out- 


side their own, thuy are confirmed in theii belief 
that over-production is general. The lapse of years 
with a continued downward movement of prices, 
as well as the diffusion of fuller knowledge and 
more accurate thinking, have greatly thinned the 
ranks of those who hold the doctrine of over-pro- 
duction. It is, however, worth while to notice 
briefly two or three considerations which may be 
of service to those who are still inclined to enter- 
tain it. 

In the first place, it must be admitted that in 
any market there may be temporary over-produc- 
tion, ljut whenever this state of things occurs, 
it brings with it the means of correction. The 
fall of prices discourages supply and encourages 
demand, and thus the .glut is cured. Secondly, 
since wealth is the necessary result of production 
and exchange, it follows that the consequence of 
increased production and exchange is increased 
wealth, of which, economically speaking, mankind 
cannot have too much. Temporary over-production 
is, therefore, an indication either that the machinery 
of exchange is for a time out of order, or that there 
has been under-production somewhere of the articles 
for which the over-produced commodities would, 
under normal conditions, have been exchanged. 

Before dismissing this idea that the depreciation 
of commodities has been brought about by in- 


creased or excessive production, it will be useful 
to think out rather more fully the course of events 
in the markets where depreciation has occurred, 
and the manner in which these events act upon the 
minds of the men who are daily engaged in the pro- 
cess of determining prices. For, after all, although 
in any market it is the quantity offered for sale in 
relation to the quantity demanded which fixes 
prices, these quantities are themselves controlled by 
human thought and human will. No one doubts, 
for example, that the greatly extended area over 
which gold is now used for monetary purposes, 
relatively to the supply of it, has had an important 
share, to say the least, in the lowering of prices. 
But even if it were possible to settle arithmetically 
the proportions which the new demands bear to the 
available supply, including the current receipts 
from the mines, no decisive issue could be raised 
until account had been taken of the altered mental 
moods of business men in all markets, induced by 
altered circumstances of demand and supply of gold. 
Amongst these circumstances are the keen disposi- 
tion to accumulate gold shown by the Governments 
of France, Germany, and Russia, the preference 
of Indian hoarders for gold, and the apprehensions 
so well described by Mr. Giffen in the quotation 
given in a preceding chapter, which have restricted 
the use of credit and credit instruments. In this 

x Till: I'AIJ. 01' I'KICES, ETC. 91 

case there is added to the actual requirements of 
gold for monetary purposes a vague, though highly 
potent dread of further requirements of unknown 
proportions, and doubts of insufficient supply. 
These act upon the market with all the force of an 
immediate and imperative demand. In the impres- 
sive words of the late Professor Thorolcl Eogers, 
already quoted, " Nations do not keep more gold 
than they need, but they measure their own needs, 
and sometimes their fears measure their needs for 

But my immediate purpose is to consider the 
influence of mental moods in determining prices in 
falling markets for merchandise. The fact of an 
enormous and practically an almost uninterrupted 
decline of general prices in this country, within 
the last twenty years, is undisputed and indisput- 
able. Now, every man of experience knows that in 
a falling market the disposition to sell is para- 
mount. No one will hold more than he can help, 
unless he is looking for a momentary reaction, and 
when it comes he loses no time in getting rid of 
what he has bought, even witli a very small profit. 
If it does not come, he still sells, pocketing his loss 
lest this should become greater. There still exist 
on the counting-house walls of some old Manchester 
mercantile firms two coloured prims, which by con- 
trast are meant to convey an impressive practical 


lesson. Both are actual portraits of bygone celeb- 
rities. One is that of a portly, jocund, and 
evidently prosperous man, and beneath it is the 
motto — his own — " Sell and repent." The other is 
the likeness of a thin, keen, and unhappy-looking 
man, under which runs the legend, " I'll have my 
price." These eloquent representations are meant to 
inculcate the virtue of being a ready seller in a 
weak market. And they suggest very forcibly the 
prevailing mental mood of dealers in almost every 
kind of commodity during the last twenty years. 

The effect upon prices of this disposition has 
been greatly enhanced by a change in methods of 
business which, though not quite unknown before, is 
practically a development of the last quarter of a 
century. I refer to the practice of dealing in 
contracts for future delivery, which exists in the 
cotton, grain, and some other branches of commerce. 
The system has undoubtedly great advantages, not- 
withstanding the gambling by which it is accom- 
panied. In the cotton industry, for example, it 
affords to the planter a method of insurance against 
a fall of prices whilst his crop is growing, and to 
the spinner a means of securing a prospective 
supply of raw material at a given price, enabling 
him to accept contracts for his production of goods 
without incurring the risk of an intervening rise 
in the price of cotton. But clearly this system 


has had the effect of adding to the actually exist- 
ing supply in every market, where it has been 
adopted, a further indefinite quantity. All who 
have had experience in such markets are aware 
of the powerful influence which the prices of 
" futures " have upon those current for commodities 
actually possessed. And when the long prevailing 
disposition to sell is borne in mind, it must be 
obvious that the addition of a prospective supply 
lias substantially assisted the general downward 
movement of prices. 

It may be said that there cannot be sellers 
without buyers, and that if determined selling has 
been the rule, it must have been accompanied by a 
corresponding aversion to buying. That is quite 
true ; but it must be remembered that in every 
market there are always willing buyers "at a 
price." The only question in their view is whether 
or not the price is sufficiently low to induce them 
to purchase. And since it is the business of manu- 
facturers and merchants to transform and transfer 
the materials of commerce, they are always in the 
position of being both buyers and sellers whenever 
they can see the prospect of a profit. And the 
consequence of the ruling tendency to anticipate a 
downward rather than an upward course of prices 
has been, not to extinguish buyers, but to necessitate 
the creation of sufficient inducement to buy. 


The point of the preceding observations is, that 
the prevailing mental mood in all commercial 
markets in gold standard countries has been that 
of persistent selling, which has greatly accentuated 
the downward tendency of prices, and that this 
tendency has been further strengthened by the 
growth of the system of contracts for future de- 

It must further be noticed that, notwithstand- 
ing the talk which has been heard of over-produc- 
tion and over-supply, the average amount of stocks 
of commodities existing in the principal markets, 
during the last twenty years, has been very much 
less in proportion to the volume of the current trade 
than those held in the previous twenty years. In 
some cases, indeed, stocks have been absolutely less. 
The world's commerce is carried on in a much more 
hand-to-mouth fashion than it used to be. This 
remark applies equally to raw products and to 
manufactures. It is, doubtless, quite true that this 
change is what we should expect, in view of 
quickened means of transport. The large reserves 
of former times are not now necessary. Not the 
less, however, is the absence of great accumulations 
an argument against the theory of over-production. 
At the same time it may be admitted that, so far as 
the effect upon prices is concerned, over-production 
acts in precisely the same way as the habit of per- 


sistent selling. The two forces are, however, dis- 
tinctly different as to their origin. The former 
is a result of mistake ; the latter of deliberate 
calculation, which, when traced to its source, is 
found to rest upon monetary unsettlement, and a 
contraction in the volume of money and monetary 
substitutes in use. 



In the evidence given before the Royal Commission 
on the Depression of Trade and Industry, the 
growth of Protectionism in foreign countries, and 
its outcome in the shape of increased import duties, 
was frequently referred to as a cause of the pre- 
vailing unprofitableness of British industry. British 
manufactures, it was said, being more heavily taxed, 
were increasingly excluded, and competing native 
industries were fostered. The result was restricted 
markets abroad, loss and diversion of trade and 
keener competition amongst home producers. There 
can be no doubt that these complaints were well 
founded, and, so far as I am aware, no competent 
writer or speaker on questions of international 
trade has denied that much injury, more or less 
enduring, has been done to British industrial and 
commercial interests by the reactionary tariff policy 
pursued by several important countries within the 


last eighteen years. In France the beginning of 
the movement may, perhaps, be traced to the 
financial exigencies arising out of the Franco- 
German war, and the heavy indemnity paid by 
France to Germany. In view of the expiration in 
1872 of the Anglo-French commercial treaty of 
18G0, the French Government urged that in 
negotiating a new one, it would be necessary, for 
the purposes of obtaining additional revenue, to 
raise the duties on imports. The Protectionists 
of France, seizing the opportunity, succeeded, with 
the countenance of M. Thiers, in securing higher 
duties. This backward step, though not very great 
in comparison with those since taken, was the 
beginning of a similar movement in other European 
countries which had been previously brought within 
the operation of the treaty system started in 1860. 
The customs tariff of Austria was raised in 1877 
and 1879 ; that of Russia in 1877, 1881, and 
in subsequent years; that of Germany in 1879. 
France further advanced her import duties in 1882 
and in 1892, Spain in 1877, 1882, and again in 
1892, Italy in 1882, Greece in 1884, and Switzer- 
land in 1885. A striking characteristic of these 
strongly Protectionist movements since 1877, is 
that the plea of low prices, especially of agricultural 
produce, furnished a powerful support to them. It 
weighed heavily on the mind of Prince Bismarck 



when he used his influence to establish the German 
tariff of 1879. The argument was that low prices 
were the result of the competition of imported pro- 
duce, and the manufacturing and agricultural interests 
in these countries joined hands in applying what 
they contended was the proper cure, viz. to restrict 
importation by the requirement of higher duties 
from foreign products. In a " Report upon the 
Monetary Question," prepared in 1885, the Bankers' 
Union of Paris and the Provinces expressly states 
that the fall of prices, particularly of grain, was the 
prime cause of the Protectionist cry which led to 
the increase of import duties in the tariff of 1882, 
and blames the French Parliament for having 
yielded to this cry instead of instituting a thorough 
inquiry into the real reason for low prices, viz. the 
abandonment of the joint standard. 

I am aware that the various Governments con- 
cerned had also in view the increasing of their 
respective revenues from customs. Unquestionably, 
however, the idea of raising prices in order to 
correct the depreciation of commodities which 
everybody saw, was an important motive in 
bringing about the retrograde policy. 

But, quite apart from actual changes in foreign 
tariffs, the fall of prices has itself indirectly increased 
their protective effect. This aspect of the question has 
hitherto received singularly little attention. Most 


of the duties prescribed in these tariff's are specific, 
that is to say, they are fixed at so much per article 
or per unit of measurement, weight, or quantity. 
If, for example, the duty upon a given article worth 
say ten shillings in 1871, was the equivalent of 
three shillings in Germany or France, the rate of 
duty was then 30 per cent, But if the price 
has since declined to six shillings, the rate of duty 
has been increased to 50 per cent without any 
alteration in the tariff. Startling as these merely 
illustrative figures are, there can be no doubt that 
actual instances might be adduced, proving that 
they do not exaggerate the increase of duty which 
has thus come about. In any case, it is certain 
that the decline of prices within the last twenty 
years has greatly and automatically augmented the 
ad valorem equivalents of the old duties. 

In two ways, therefore, the fall of prices has 
raised, cumulatively and enormously, the barriers 
to the export of British productions to Protectionist 
countries. And since the manufacturing industries 
of the United Kingdom are, in a degree far exceed- 
ing those of any other nation, employed in producing 
for foreign markets, it is clear that for us the 
depreciation of commodities has a serious and even 
a commanding interest, viewed only as the main 
instigator and support of renewed Protectionism 
amongst the Continental nations. 


This consideration may well claim the thought- 
ful study of the friends of Free Trade in all 
countries. They are often taunted with the fact, 
which cannot be denied, that the sanguine anticipa- 
tions of Eichard Cobden, and even the more 
cautious, though not less confident, predictions 
of Sir Robert Peel have not been justified. The 
Free Trade movement received two great impulses, 
the first beginning with the repeal of the English 
Corn Law, which was quickly followed by the 
removal of all protective duties, and subsequently, 
by a complete simplification of the customs tariff 
under the masterly hand of Mr. Gladstone. How 
imperative was the need for the reform, and how 
clearly this was discerned even before the Anti-Corn 
Law agitation began, may be learnt from a report 
of a Committee of the House of Commons which 
was appointed in 1840, on the motion of Mr. Hume, 
to inquire into the import duties and how far they 
were imposed for revenue purposes. The Committee 
said : — 

The tariff of the United Kingdom presents neither 
congruity nor unity of purpose. No general principles 
seem to have been applied. The tariff often aims at 
incompatible ends ; the duties are sometimes meant to 
be both productive of revenue and for protection, objects 
which are frequently inconsistent with each other. Hence 
they sometimes operate to the complete exclusion of 


foreign produce, and in so far no revenue can of course 
lie received; and sometimes, when the duty is inordin- 
ately high, the amount of revenue is, in consequence, 
trilling. The)- do not make the receipt of revenue the 
main consideration, but allow that primary object of 
fiscal regulations to be thwarted by the attempt to 
protect a great variety of particular interests at the 
expense of revenue, and of the commercial intercourse 
with other countries. Whilst the tariff has been made 
subordinate to many small producing interests at home, 
by the sacrifice of revenue, in order to support their 
interest, the same principle of interference is largely 
applied by the various discriminating duties, to the 
produce of our colonies, by which exclusive advantages 
are given to the colonial interests at the expense of the 
mother country. 

This report was the groundwork of the English 
Free Trade movement, although the precipitating 
force which gave it momentum was the popular 
cry for untaxed bread. A feeble endeavour to 
resuscitate the dead policy of Protection was made 
in 1849 and 1850, but the task was seen to be as 
hopeless as that of an attempt to reanimate a corpse, 
and it has never again been seriously taken up. 
The adoption of Free Trade in this country occurred 
at an exceedingly fortunate time. It was almost 
immediately followed by the great gold discoveries 
in California and Australia, by a rapid growth of 
railways and ocean steam navigation, and by a 
period of international peace. Under the impulse 


of these vitalising forces the commerce of the world 
greatly increased, but our own share of it was un- 
questionably, and pre-eminently, enlarged by the 
freeing of our trade from the shackles of monopoly 
and an antiquated customs tariff. 

But the advantage of the Free Trade policy 
was manifest before the new forces came into being, 
although their advent tended to obscure it. That 
is one reason why the advantage was not quickly 
perceived by other nations. Another was that inter- 
national Free Trade was an entirely novel idea, in 
complete opposition to the then received maxims of 
commercial policy. In the earlier stages of its 
adoption it was an experiment, and it was not put 
into practice until every effort had been exhausted 
to secure the co-operation of other nations. When 
advocating a bold and unconditional continuance in 
the enterprise of tariff reform, Sir Eobert Peel said : 
" I have no guarantee to give you that other countries 
will immediately follow our example. Wearied 
with our long and unavailing efforts to enter into 
satisfactory commercial treaties with other nations, 
we have resolved at length to consult our own 
interests, and not to punish other countries for the 
wrong they do us in continuing their high duties 
upon the importation of our products and manu- 
factures, by continuing high duties ourselves." Sir 
Robert then went on to show how far, and why, the 


steps already taken towards Free Trade had ex- 
tended British commerce and enlarged the prosperity 
of the nation, notwithstanding that, since this course 
had been entered upon, foreign tariffs had been 
raised against British productions. He added:— - 
" Depend upon it your example will ultimately 
prevail. When your example could be quoted 
in favour of restriction, it was quoted largely. 
When your example can be quoted in favour of 
relaxation as conducive to your interest, it may 
perhaps excite in foreign Governments, in foreign 
Boards of Trade, but little interest or feeling ; but 
the sense of the people, of the great body of 
consumers will prevail ; and, in spite of the desires 
of the Governments and Board of Trade to raise 
revenue by restrictive duties, reason and common- 
sense will induce relaxation of high duties. That 
is my firm belief." 

It is remarkable that the second great impulse 
towards Free Trade did not come in precisely the 
way indicated by Sir Eobert Peel. Between 1848 
and 1860 the other forces, to which I have 
alluded, came into operation, and in particular the 
new flow of gold, which not only stimulated com- 
merce and industry in a wonderful manner, but 
lightened also the burden of taxation. It was, 
therefore, not from the people that the next move 
in the direction of untrammelled international trade 


came, but from their Governments. I refer, of 
course, to the initiation of the treaty system by 
the then ruler of France, under the sagacious 
counsel of Mr. Cobden. The Governments of other 
countries quickly followed his lead, and very soon 
Europe was united by treaty bonds which, at one 
time, seemed likely to liberate its commerce entirely 
from the yoke of the Protectionist system. It 
furnished an object lesson which every one could 
understand, and in Germany, France, Switzerland, 
Italy, and other countries, all of which had already 
solitary and able advocates of Free Trade, opinion 
in its favour was gradually being formed. Its 
progress was, however, rudely arrested by the 
outbreak of the Franco - German war, the heavy 
cost of which, and of the armed peace which super- 
vened, furnished the occasion and the excuse for a 
return to a fiscal policy based on Protection. This 
began in France, and other countries quickly followed 
the example. Adam Smith wrote : — " There is no 
art which one Government sooner learns of another 
than that of draining money from the pockets of 
the people." Accordingly, when the Government of 
France, which in 1860 had led the way on the 
European Continent towards Free Trade, sought in 
1872 to increase the revenue by raising the taxes 
on imports, those of Germany and other states were 
not disinclined to follow. But neither in France, 


nor elsewhere, was the retrograde movement easy, 
and there is good ground for the opinion that it 
would not have achieved the success by which it 
has been attended, hut for the enormous and almost 
uninterrupted fall of prices of the last twenty 

I have dwelt upon this aspect of the monetary 
question because its importance has, hitherto, been 
strangely overlooked by most disputants in current 
controversies, and because without it, it is impossible 
to explain the Protectionist reaction in Europe which 
set in about twenty years ago. 

There is a further consideration which must not 
be disregarded. There can be no doubt that the 
protected manufacturing industries of the Continent 
have been exceedingly profitable since the retro- 
grade movement began. Of course, their power of 
competition with our own in neutral markets has 
been greatly weakened, except where, as in France, 
they have been occasionally aided by bounties on 
exports. But in their own home markets they 
have enjoyed, in a large degree, immunity from 
outside competition. These industries have, conse- 
quently, been highly prosperous, and no small 
amount of British capital has found and is still 
finding its way into them. In Italy, France, 
Spain, Portugal, Russia, and even in Germany, the 
extent of British interest in manufacturing industry 

106 THE JOINT STANDARD chap, xi 

is known by those who are conversant with move- 
ments of this kind to be, in the aggregate, very 
considerable, and if a statement could be prepared 
of British investments in such enterprises its pub- 
lication would excite a good deal of surprise. 



The work of investigating the results of an apprecia- 
tion of gold would be very imperfectly performed 
if it were confined to those which proceed directly 
from a fall of prices of commodities and real pro- 
perty. We must take account also of prices which 
have not fallen. Foremost amongst these is the 
price of government, national and local. In a pre- 
vious chapter I have shown that taxation is essenti- 
ally an appropriation of a share of the products of 
industry for the purpose of defraying the expense of 
government, and that the effect of a general and 
great decline in the prices of these products is the 
same as if the money amount of the taxes had been 
greatly increased, even when this remains unaltered. 
An exact analysis of the several items of national 
and municipal taxation would reveal, no doubt, some 
to which this general statement does not apply. But 
such items are either unimportant, or else they are 
affected by circumstances tending to counteract any 


reduction which has taken place. They may con- 
sequently be neglected, so far as my present purpose 
is concerned, which is to elucidate broadly, yet clearly, 
the connection between the appreciation of gold and 
the incidence of taxation upon industry. 

The simplest and most easily intelligible example 
of this connection is presented by the case of an 
agriculturist fanning his own land. Let it be as- 
sumed that the cultivated area is 200 acres, that it 
is entirely employed in wheat growing, and that 
the production is at the rate of 28 bushels per 
acre. The entire amount of taxation, national and 
local, on such a farm would have been in the 
years 1867-77, — the years furnishing the basis of 
Mr. Sauerbeck's index numbers, — about £100, and 
it would be the same now ; for although the income 
tax would at present be somewhat less, the local 
rates would be more. The present price of wheat 
is almost exactly one-half of the average of 1867- 
77. At that time the cultivator could have dis- 
charged all annual claims for taxation by the sale 
of 304 bushels of wheat, leaving 5296 bushels to 
be disposed of to cover the cost of production and 
for other pnrposes. Now, however, the payment 
of taxes requires that he should part with 608 
bushels, and only 4992 bushels would remain. 
The burden of taxation is therefore, without any 
alteration in its amount, actually doubled. 


In this illustrative example I have selected, for 
the sake of distinctness and emphasis, an extreme 
case. But it is not an impossible, nor even an im- 
probable one. And the principle involved in it is 
applicable to every kind of industry in which the 
prices of the product have fallen. It is from the sale 
of these that all the expenses of production are paid; 
and since taxes constitute a part of these expenses, 
the demands of the tax-gatherer, if unaltered dur- 
ing a period when the price of the product has 
diminished, require that a larger quantity than before 
of the whole production must be sold in order to 
satisfy them. It is quite true that by lessening 
the cost of production in some other way the pro- 
prietor of the industry may receive compensation, 
or he may not. With this question I have nothing 
to do at present, since I am only endeavouring to 
bring out the fact, which I think must now be 
quite clear, that an important decline in prices of 
the products of industry enhances greatly the real 
weight of taxation even when, as stated in money, 
this remains unchanged. 

Precisely the same principle applies to all fixed 
and irreducible charges. It is unnecessary, therefore, 
to explain the manner in which these also have 
become enhanced within the last twenty years, though 
remaining nominally unaltered. A mere enumeration 
of the more prominent of them will suffice to show 


how substantial and far-reaching is the effect of 
their practical increase. They include the principle 
of all mortgage and other liabilities contracted before 
or during the fall of prices, and the annual interest, 
where this has not been adequately reduced ; 
ground rents and royalties ; railway and canal 
charges for carriage ; annuities and pensions ; fire 
and life insurance premiums ; dock and harbour 
dues and tolls ; postal and telegraph charges, and 
every kind of fixed payment small or large. 

To this list must be added all fees and charges 
which by custom have acquired the force of legal 
and unalterable payments, such as the fees of pro- 
fessional men, school and college fees, the prices of 
newspapers, and of a multitude of minor articles 
sold by retail in shops, hotels, public-houses, or 

In many of these instances, however, if the 
price has not altered the quality is improved, and 
the compensation thus brought about is, no doubt, 
equivalent to a reduction of price. It must also 
be observed that in a multitude of instances, where 
fees and other payments are fixed, the recipient 
is not necessarily benefited. For the most part 
physicians, lawyers, and other professional men, have 
had to share in the loss of income experienced by 
farmers, manufacturers, and merchants in the way 
of diminished employment. They have had the 


benefit of a fixed or " irreducible minimum wage " 

— to use a phrase well understood in these days — 
but this has not insured them against a reduced 
income. The case of fire and life insurance pre- 
miums is peculiar. It is hardly possible that the 
companies can gain anything by the maintenance of 
premiums, since their old liabilities, constantly matur- 
ing, are contracted in terms of gold. Moreover, to 
the extent that they hold real property, or mortgages 
upon estates which have greatly fallen in value, 
they are likely to have sustained losses by the 
appreciation of gold. 

It is obvious, however, that most of the irre- 
ducible charges which I have named, as well as 
taxation, have become practically heavier in con- 
sequence of the fall of prices, and that they take 
from the whole produce of industry and trade a 
larger share than before. The strong agitation 
for a reduction of railway rates, which has been a 
pronounced and almost constant feature in the 
commercial and industrial history of the past ten 
years, is a proof that the increased burden has, in 
this case, been acutely felt ; and that in the efforts 
to reduce the cost of production and distribution 
these charges have, because of their importance 
and prominence, received an especial degree of 
attention. The railway companies may justly plead 
that they too are sharing some of the increased 


burdens which have fallen upon other industrial 
interests. They are large payers of taxes, they 
have heavy mortgage or other obligations, carrying 
a fixed rate of interest, and their dividends are on 
the whole exceedingly moderate, it may even be said 
small. But there is this marked difference between 
them and the proprietors of ordinary industrial 
enterprises. Their ordinary capital stock upon 
which the dividends are reckoned is never reduced 
or adjusted to the real market value of their 
property, and in not a few cases this has been 
artificially or adventitiously enhanced in past times 
by various means well known to those who are at 
all familiar with railway history. But in a private 
enterprise, the continuance, year by year, over a 
long period of an over -valued property would be 
considered a serious defect. This is, of course, the 
affair of the companies themselves ; but it greatly 
weakens the plea of low dividends as an objection 
to a reduction of railway rates. Moreover, in 
private enterprises competition is perfectly free, 
and if a new competitor can erect a more efficient 
rival establishment at reduced cost alongside an 
old one, he may do so, and cause the old one to 
become practically valueless. But this kind of 
competition would not be allowed in the case of 
railways ; and although it might be possible to put 
down a new line between two given points at less 


cost, and to yield a profit with Lower freight rates 
than those charged by the line already existing, this 
would not be deemed by Parliament a sufficient 
reason for sanctioning the new work. 

The question of railway rates is evidently an 
involved one. It is clear, however, that their 
maintenance at old levels imposes upon the in- 
dustry and commerce of the country a heavier 
burden because of the fall of prices. A simple 
illustration, in continuance of that already used 
with reference to taxation, will make this fact 
quite plain. The wheat grower cultivating 200 
acres, and producing 5600 bushels per annum, 
sends it by rail to a market, the rate of carriage 
being 10s. per ton. At the average prices of 
1867-77, the cost of conveying this produce to 
market would have been £75, equivalent to 231 
bushels. At the present price the equivalent 
would be 462 bushels. I have already shown 
that the practically augmented incidence of taxa- 
tion would, in such a case, in consequence of the 
fall of prices, have compelled the surrender of an 
additional 304 bushels on this account, and we 
have now to put to them 231 bushels more, 
making 535 bushels out of a total product of 5600 
bushels, or nearly 10 per cent of the whole crop, 
due not to increased taxation or increased railway 
charges as reckoned in money, but solely to a fall 


114 THE JOINT STANDARD chap, xii 

iu the price of the commodity, which has in fact 
augmented them. Again I remark that this hypo- 
thetical case is an extreme one, but it is neither 
impossible nor improbable. 

It is perhaps unnecessary to state that not all 
the fixed charges previously enumerated are directly 
applicable to industry. Many of them, however, do 
so apply, and to this extent they operate in exactly 
the same way as taxation and railway rates. 



I approach now an exceedingly intricate part of 
this investigation. How far, and in what ways 
has the fall of prices affected the rates of wages, 
the earners of wages, and the cost of living ? 

It is acknowledged on all sides that, although 
the increased purchasing power of gold has become 
manifest in the wholesale merchandise markets, and 
in the prices of real estate, few very important 
alterations have yet taken place in the rates of 
wages. Anything like a precise statement of these 
changes is unfortunately impossible. In some 
industries, no doubt, rates of wages have fallen 
substantially, in others but slightly, or not at all. 
Hence it has been said that those are not friends 
of the manual labourer who arc looking for a 
restoration of prosperity by means tending to raise 
prices. It is assumed that the cost of living has 
been reduced more than have the earnings of the 
workman. It is argued, therefore, that whatever 


injury the appreciation of gold may have inflicted 
upon certain classes, it has brought more or less of 
advantage for the masses. There is so much that 
is apparently true and forcible in this contention, 
that it cannot be justly disregarded. 

The first point to be noticed is that no adequate 
notion of the effect produced upon wages, by the 
disturbance of the standard, can be formed upon a 
simple consideration of the rates of wages whether 
by piece or by time. These may, on the whole, 
have suffered no very large reduction, and yet the 
effect upon the condition of the whole body of 
workers may be the same as if the rate had fallen 
greatly. What we have to look at is the aggregate 
amount paid to wage-earners now in comparison 
with that paid in more prosperous times, and with 
the aggregate ' number to be supported now as well 
as then. Here, again, the acknowledgment is freely 
made that the number of the unemployed, or but 
partially employed, in town and country, has for a 
long time past been greater than usual, and that 
the demonstrations made by them and on their 
behalf, each winter, are good evidence that large 
numbers of willing labourers can find no profitable 
work to do. It must also be conceded, that in the 
textile manufacturing towns the amount of enforced 
idleness has long been, except pending disputes, 
wonderfully small, and that during no previous 


period of depression of trade and industry has the 
suffering of the workpeople been relatively so bear- 
able. Official returns undoubtedly show that the 
pauper list has for some time past been a very heavy 
one, especially in London, in the purely agricultural 
districts of Southern and Midland England, in 
Wales, and in the mineral districts of the North. 
It is, however, by no means so heavy as in previous 
periods of bad trade. To what, then, do we owe 
this comparatively small decline in the rate of 
wages on the one hand, and, on the other, the 
comparative limitation of extreme and widespread 
misery ? 

To take the latter question first. It must be 
observed, that during the past twenty years 
organisation amongst the wage - earning classes 
for provident purposes has enormously extended. 
Trade unions have largely increased the number of 
their contributors, and it is well known that the 
funds of these institutions have in recent years been 
most severely pressed upon by the great numbers 
of unemployed members who have had to be 
supported. Then again, the personal savings of 
workpeople and their families have stood between 
them and legal poor relief. The increase of 
pauperism affords, therefore, no adequate measure 
of the amount of compulsory idleness and loss of 
earnings. It is obvious, too, that the cheapness of 


the commonest necessaries of life has done much 
to mitigate the poverty resulting from lack of 
employment, All these considerations serve to 
show, however, not that the wage -earners have 
felt lightly the effects of depression of trade, but 
that in one way or another they have had past 
accumulations — personal and associated — to fall 
back upon, and have had also a certain com- 
pensation in the prevailing low cost of bare 

Obviously, moreover, the increased charge upon 
provident funds owing to want of employment is 
equivalent to a reduction of earnings. It would, 
indeed, be exceedingly instructive if some reliable 
statement could be obtained showing the extent to 
which trade unions and other societies for mutual 
aid have been burdened with the cost of maintaining 
those who are out of work from no fault of their 
own. Certain it is, that the regular contributions from 
members of the societies have been substantially 
increased, in some cases by 50 per cent, and that in 
numerous instances special levies have been required. 
It is hardly to be doubted, however, that uncertainty 
of employment, and knowledge that times were bad, 
have driven many who were at work to join these 
societies, and by contributing something from their 
earnings, to ensure themselves a provision in case of 
loss of occupation. Thus, whether by the sacrifice 


of accumulations or by subscriptions to the unions, 
or by extra levies, there can be no doubt that the 
falling off of employment has imposed upon the 
wage-earning classes, as a whole, a loss which is 
equivalent to a reduction of wages, in addition to 
that which has taken place directly. 

To come to the other question — Why has the 
fall in rates of wages been less than that in the 
prices of commodities in the wholesale markets ? 
To say that this retardation is due to the influence 
of trade unions is but to offer a partial explanation. 
The relief of the unemployed afforded by these 
associations does, of course, tend to sustain wages, 
because it diminishes the stress of competition 
amongst labourers. A number of workmen who 
are impelled by actual want may be driven by 
competition to labour for reduced payment, and an 
organisation which prevents them from arriving 
at this extremity does, without doubt, tend very 
effectually to uphold the rate of wages. This is 
from every point of view one of the most useful 
functions of trade societies in times of temporary 
depression, and it cannot be denied that, besides 
saving the public poor funds from a heavy load of 
liability, it has greatly helped to sustain wages in 
recent years. 

But a second influence tending in the same 
direction is the unwillingness of employers to 


abandon the enterprises in which they are engaged 
so long as they can save, by continuing them, even 
a portion of their standing expenses. Nay, further, 
this unwillingness to cease producing grows, through 
stress of circumstances, into a determination to 
secure the largest possible production, in order 
to reduce to the lowest point the cost of production. 
And again, the fall in the prices of machinery and 
plant has of itself stimulated the erection of new 
works, whilst inventive genius has been strained to 
the utmost to devise more rapid and more economical 
modes of manufacture. New cotton spinning-mills, 
for example, have been erected, or old ones extended, 
for no other reason than this. But these efforts 
tending to increase production in unprofitable times 
tend also, for a while, to increase the demand for 
labour, and therefore to maintain wages. Thus the 
very unprofitableness of industrial enterprise, and 
the fall in prices, have hitherto done much to delay 
the fall in the rates of wages. 

One answer, then, to the contention that the 
fall of prices has been beneficial to wage-earners is 
that the partial advantage gained by the latter 
from the appreciation of gold is illusory or transient. 
It is illusory, because, as I have shown, the wage- 
earning classes are in fact suffering indirectly 
through want of employment and the cost of 
maintaining the unemployed. It may be added, 


that although retail prices of a few absolute neces- 
saries have probably fallen in nearly the same 
proportion as have wholesale prices, those of many 
other articles have not, and that, in fact, workmen 
as well as other people are sustaining the incon- 
venience of a diminished income without a cor- 
responding reduction in all the items of household 
and personal expenditure. It may fairly be held, 
too, that even where the fall of prices has brought 
some advantage to those who are steadily employed, 
and whose wages have not been reduced — a com- 
paratively small number — the advantage is not 
certain to be retained. For a time, no doubt, 
wages may withstand the downward tendency, 
through influences previously indicated, and through 
others of a like temporary nature. But it is hardly 
possible that rates of wages can permanently escape 
the consequences of prolonged unprofitable trade and 
the enlarged purchasing power of money. The 
economic principle that labour is in this respect 
like commodities, that its price is subject to the 
law of supply and demand, every one must admit. 
And so long as population is increasing, and trade 
and industry remain unprofitable, it is manifest 
that forces are at work which must be tending to 
reduce the rates of wages. The resource from which 
the earnings of these classes are paid is the whole 
of the wealth accruing from industrial and com- 


mercial enterprise, and although the wage-earners 
are not the first to suffer from a diminution of this 
wealth, they must eventually do so. 

But here a very important consideration arises. 
Within the last quarter of a century great changes 
have taken place in the circumstances and the 
condition of the wage-earning classes. Education 
lias become universal in this country, the premature 
employment in industry of the young has been 
stopped, the sanitary environment has to a large 
extent been improved, and for the most part the 
standard of comfort has risen. These changes have 
tended powerfully to increase the efficiency of 
labour, and consequently to augment its reward. 
The extension of trade unions, too, has gone hand 
in hand with these elevating influences. In any 
case, then, it was to be expected that the position 
of the wage- earner would be much more favourable, 
even in bad times, than that of previous generations 
in similar circumstances. Physically and mentally 
the race has advanced, and it would be a strange 
thing if it had not, for this was the very object of 
the legislative and other means directed to the 
improvement of the poorer ranks. It is a sound, 
and indeed an obvious inference, therefore, that if 
the acknowledged depressing influence of the mone- 
tary dislocation should be removed, and the profits 
of industrial enterprise become larger, the wage- 


earner will secure a full share of the advantage. 
It is more than likely that the leaders of the trade 
unions, who have studied the monetary question, 
are well assured of this principle, since they have, 
in all instances known to me, declared themselves 
in favour of the restoration of the joint standard, 
whenever they have expressed any opinion at all 
upon the question, even although they believe 
— perhaps hecausi they believe — that it will lead 
to a rise in general prices. 

I cannot well leave this part of my subject 
without some reference to the two great labour 
disputes of 1893 — those in the cotton-spinning and 
coal-mining industries. The former began early in 
November 1892, and terminated in March 189:'., 
after dragging on over twenty weeks. The number 
of persons directly affected was 50,000, with the 
families dependent upon them. But many more 
engaged in weaving and other processes were also 
thrown out of work in consequence of the scarcity 
of yarn. The colliery dispute commenced in July 
and ended in November. In this case from 200,000 
to 250,000 men and boys with their families lost 
their earnings, and widespread interruption of work 
took place in the iron and steel, and many other 
industries. In both cases the conflict arose out of 
a proposal to reduce the rates of wages as a measure 
of economy enforced by lessened margins ; in both, 


it was acknowledged that the industry had become 
unprofitable through the fall of prices. In both, 
again, it was contended by the representatives of 
the workpeople that the proper course was to main- 
tain the rate of wages, and to lessen the production 
in order to raise the prices of the product. 

It does not fall within the lines of the present 
treatise to discuss at length the relative merits of 
these opposite methods of dealing with a condition 
of falling prices and unprofitable " margins." These 
conflicts afford, however, a typical and impressive 
illustration of the great difficulty of "adjusting" 
the price of labour to the prices of the commodities 
into which it enters, whenever a great decline in 
these prices has occurred. On the part of the 
workpeople, the contention appears to be that rates 
of wages must be regarded, like all fixed charges, as 
determined, so far at least as that they shall not 
fall beyond a certain limit. If prices fall relatively 
below this limit, they must be raised by lessening 
production. Hence the struggle for the " living wage " 
is essentially a struggle against low prices of com- 

A word must now be said as to the interest in 
low prices of wage-earners and others as consumers. 
Everybody is a consumer, and therefore the fall of 
prices must be regarded, from this point of view, as 
a benefit to all who have come within the range of 


it. In every household where incomes have aot 

diminished and have not been prevented from 
increasing, the advantage is unquestionable, although 
it has not affected all branches of expenditure. 
Even where incomes have been reduced, or where 
their increase has been checked, the greater pur- 
chasing power of money has furnished a certain 
compensation. The advantage has come, however, 
by slow and almost imperceptible degrees. For, in 
the first place, retail prices do not give way so 
rapidly as do those in the wholesale markets, from 
which the index numbers previously quoted are 
compiled ; and, secondly, where the commodity is 
not extensively consumed, or where the retail price 
is " customary," or out of the range of competition, 
or where the expense of retailing is relatively 
heavy, hardly any change has occurred, and possibly 
may never happen. Moreover, the circumstances, 
the habits, and the needs of families are so con- 
stantly varying, that the gain from the fall of prices 
is often difficult to detect and still more difficult to 

Broadly, then, it may be affirmed that, whilst 
the decline of prices has tended to reduce the cost 
of living, the reduction has come about very slowly, 
and is certainly not in proportion to the fall in the 
wholesale markets. And there is good reason why 
it should not be. Retail prices include not only 


the wholesale cost of the commodity, but must 
cover also the remuneration of the retailer, the 
expenses of his business establishment, and of 
carriage ; and, in many cases, these constitute a 
very large share of the price paid by the consumer. 
It must also be observed that the economy has not 
extended to all departments of household and 
personal expenditure. 

I have investigated, with some care, the saving of 
expenditure due to the fall of prices in respect of a 
family spending 30s. per week, and of one spending 
£300 per annum. I take for convenience the year 
1877 as a starting point, and compare the expendi- 
ture then with the expenditure in 1893. The fall 
in the prices of food products in the wholesale 
markets within this interval was 30 per cent. In 
the same interval the decline in the prices of food 
supplied to the Manchester Infirmary was 26*5 
per cent. The food bought by this institution is 
purchased, however, at almost wholesale prices, and 
for reasons already adduced the advantage gained by 
private consumers cannot possibly have been any- 
thing like so great. I assume, then, that the fall 
in the prices of all the food purchased by a family 
of five persons spending 30s. per week is at the rate 
of only 18 per cent, in those of clothing 12 per 
cent, and in rent 7 per cent, and that on other items 
there has been no saving. The result shows that 


such a family has gained upon the whole of its 
expenditure 12 - 43 per cent. In the case of a 
household of five persons and one domestic servant, 
spending £300 a year, the advantage is proportion- 
ately even less. A relatively larger quantity of its 
food consists of articles and descriptions of which 
retail prices have fallen less than those entering 
more extensively into the supplies of an artizan's 
household. I therefore take the reduction in respect 
of food at only 1 5 per cent, and of clothing and 
rent at 10 per cent. In this way the total gain 
from the decline of prices enjoyed by a family 
spending £300 per annum appears to be not more 
than 7"53 per cent. But Mr. Sauerbeck's index 
numbers show that wholesale prices of commodities 
generally were, in 1803, 27'66 per cent lower 
than in 1877, and 32 per cent lower than in the 
eleven years 1867-77. 

There appears to me, then, to be substantial 
ground for the conclusion that the proportion of 
saving in expenditure realised by the great bulk of 
the people in this country is not more than from 
one-third to one-half of the proportion in which 
wholesale prices have declined within the last 
eighteen or twenty years. The reasons for this 
arrest of benefit I have already dwelt upon. The 
investigation does not, indeed, lead to the inference 
that the' masses of the people have no interest in 

128 THE JOINT STANDARD chai\ xiii 

low wholesale prices, but it certainly affords ground 
for something more than doubt as to the extent of 
the benefit, and as to the balance of advantage, 
when all its attendant circumstances are taken into 

I wish to add that I have read this chapter to 
one of the best-informed trade union officials in 
the North of England, who cordially endorses its 
statements, especially those referring to the losses 
incurred by wage-earners from irregular employ- 
ment, and from increased contributions to the funds 
of the unions, consequent upon enlarged claims for 
the support of the disem ployed. He also thinks 
that my estimate of the saving, from lessened cost 
of living, in the expenditure of a workman's family 
is substantially correct. 



It has been shown, in a preceding chapter, that the 
Joint Standard was, in fact, up to 1873, the 
common standard of value throughout the civilised 
world, except where the circulation consisted of 
inconvertible paper money. In some countries the 
legal tender unit was of silver, in others of gold 
and silver, and in others of- gold. Since, however, 
the relative values of the two metals were equalised 
by the action of the mint laws of the Latin Union, 
there was no greater variation in the rates of 
exchange between any two of the three classes of 
countries than those which occurred, or might have 
occurred, between any two of the same class. 
Although, therefore, such variations were constantly 
arising, and wore matters of interest and computa- 
tion amongst international bankers and financiers, 
they attracted little attention outside these groups. 
But soon after the "curious mechanism," the 



" equalising machine," of the Latin Union — as Mr. 
Bagehot called it — was done away with, a new 
page of commercial history was begun. At first no 
one knew what to make of the extraordinary and 
persistent fall in the gold value of silver, and the 
concurrent and proportionate fall in the exchanges 
with the silver standard countries of the East — 
India, China, and the rest. Few persons thought 
of looking anywhere for the cause of the fall except 
to the demonetising of silver in Germany, and the 
increased production of silver in the United States. 
Accordingly, when the subject was brought under 
the notice of the House of Commons early in 1876, 
a Committee was appointed to " consider and report 
upon the causes of the depreciation of the price of 
silver, and the effects of such depreciation upon the 
exchange between India and England." 

The report of the Committee was presented in 
July, the investigation having occupied less than 
four months. During this short interval a large 
amount of information was brought together, but 
this was inconclusive upon several important points. 
Mr. Goschen, the chairman of the Committee, was 
consequently able to do little more than digest and 
put in order the material facts elicited by the 
inquiry. The report attracted, however, marked 
attention everywhere, partly because of its ability 
and the freshness of the intelligence conveyed, and 


partly because of the fact that whilst the Committee 
was Bitting, the fall in the gold price of silver was 
going on at an alarming pace. In 1872, the 
average price of silver in London was 60yVd. per 
ounce; in 1873, 59|d.j in 1874, 58^-d.; and in 
L875, 56|d. From 56d., the quotation at the end 
of 1875, the price fell to 46fd. in July 1876, 
from which there was a rapid and sustained recovery. 
It was evident, indeed, that the extraordinary 
decline of the earlier part of the year was the 
product of uncertainty and groundless fear of a 
deluge of supply, — a fear which the publication of 
Mr. (ioschen's report did much to remove. 

Some wholesome observations of Mr. Bacjehot 
upon the currency question as it presented itself 
when the report appeared, are worth reproducing 
here. He wrote : — 

Now, from full information, we see the nature of the 
evil from which we are suffering. We are not suffering 
from a depreciation of silver as against commodities, in 
the countries where silver is the standard of value, for 
there is no supply sufficient to produce such a deprecia- 
tion, nor time, if there had been such a supply, to 
diffuse it, and there is no such depreciation in fact. 
We are not suffering from a depreciation of silver as 
against gold, caused by a sudden excess in the supply 
of silver, for the m'w supplies of silver have been onlv 
moderate, and none of them have come here. We are 
not suffering from a depreciation of silver as against 


gold, caused by a diminution in the cost of production 
of silver, for there has been no time, nor anything 
approaching to time, to say what the ultimate cost of 
production will be. No doubt certain mines of singular 
fertility have been discovered, but it is not silver 
produced in the best mine which determines the price 
of silver, as a whole, any more than it is the corn 
grown on the best land which determines the price 
of corn as a whole. That which does determine it is 
the cost of production in the worst mine which can 
maintain itself in working. The producer in the least 
favourable circumstances always fixes the price. Those 
in better circumstances take that price and get an extra 
profit. What we are suffering from is the apprehension 
of increased production of silver suddenly supervening 
on a market previously perturbed, upon which one 
Government [Germany] had forced an extra supply, 
from which a union of other Governments [the Latin 
Union] had refused to take, as usual, any supply, and 
in which another Government [Great Britain] by the 
increase of the tribute it requires from a silver import- 
ing country [India] has temporarily, if not permanently 
lessened the demand. 

I have quoted this extract because it shows that 
Mr. Bagehot was very near the discovery, in the 
summer of 1876, that the real change lying at the 
root of the currency disturbance — then only in its 
early stages — was an increase in the purchasing 
power of gold, not a decrease in that of silver. 

But the point to which I wish now to draw 
attention is that the fall in the gold price of silver 


in 1875-76, and the appointment of the Eouse of 
Commons Committee on silver, were the means of 
compelling merchants trading with silver standard 
countries, as well as statesmen, economists, and 
others, to study closely for the first time the 
greatly altered conditions of commerce between 
gold and silver standard countries, as manifested in 
the violent fluctuations of the rates of exchange. 
A new and very embarrassing element of uncertainty 
was brought into the trading relationships between, 
for example, England on the one hand and India 
on the other. Means of removing, to a great 
extent, this new risk, were found after a time 
through the machinery of the Exchange banks. 
The nature of the uncertainty and the method by 
which these institutions were enabled largely to 
correct it, may be best shown by an illustrative 

An English merchant is engaged in exporting 
manufactures to India, either on his own account, 
or for account of a correspondent in the East, or 
for their joint account. Twenty years ago neither 
of them, in making his calculations, would have 
thought any more about the rate of exchange 
between the gold money paid for the goods in 
England, and the silver money for which they were 
destined to be sold in India, than do two merchants 
in England and Germany, both gold standard 


countries, at the present time. But the serious 
fall in the gold price of silver, or, what is the same 
thing, the serious rise in the silver price of gold, 
which became apparent in 1875, was the occasion 
of very heavy losses upon transactions affording at 
the time that they were entered into the prospect 
of profit. Such prospective profit was, however, 
converted into loss, not by alterations in the prices 
at which the goods were sold in India, but by the 
process of exchanging the silver money received 
there for gold money here. These losses were 
ao^ravated, in some instances, in that of the Straits 
Settlements for example, by the fact that imports 
from England were sold upon long credits. The 
importer, or his English correspondent, found 
himself, consequently, after a fall in the rate of 
exchange, a heavy loser, not only upon current 
consignments, but also upon those previously sold 
and not paid for, and thus very large sums were 
swept away by an unexpected monetary change of 
which neither the cause nor the termination could 
be seen. 

One of the first steps taken to prevent the con- 
tinuance of liability to such disasters was to institute 
the system of prompt payment for imports in the 
silver standard countries, and this alteration may be 
noted by the way as a part of that tendency to 
extinguish credit previously dwelt upon, which is a 


product of the greal monetary disturbance. It must 
be observed, too, that another change, resulting partly 
from this cause, and partly from the extension of 
long distance telegraphs, was that the practice of 
exporting goods from this country on account of the 
exporter gave place very extensively to a method by 
which they were bought, out and out, here by 
the importer or the distributor in the markets to 
which they were sent. But the prominent feature 
in this system was that before the goods were 
despatched from England, contracts were entered 
into with the international banks, by which the 
rate of exchange was fixed beforehand. An in- 
surance against a disturbance of calculations by 
future changes in the relative values of silver and 
gold was thus effected. 

In the supposed case, the English merchant sells 
to his Indian correspondent goods of specified descrip- 
t ion, amounting altogether to say £3000, to be shipped 
in three monthly instalments. He immediately 
enters into a contract with an exchange bank, to 
deliver to it drafts on India for £1000 per month 
at specified rates per rupee, thus freeing himself and 
his correspondent in India against the risk of loss 
from a future fall in the rate of exchange. At the 
times specified the bank receives the bills, drawn in 
rupees at the agreed rate, and accompanied, as 
security, by the shipping documents, which give the 


bank a lien upon the goods. The bills are for- 
warded to the branch of the bank at the port of 
destination, where the amounts are collected from 
the importer. But, so far, the risk of fluctuation in 
the rate of exchange is merely transferred from the 
merchant to the banker. How does he get rid of 
it ? By the purchase, at the Indian port, of bills 
drawn on England against shipments of produce. 
These, too, are bought, under contracts, at specified 
rates of exchange, and paid for by means of the 
rupees collected for outward bills. The homeward 
bills, with the shipping papers, are forwarded to 
England, and their amounts in sterling, when received 
from the importers of the produce here, furnish the 
funds employed in buying the outward bills first 
described. Care is taken by the banks that these 
opposite transactions shall approximately balance 
each other, and thus the circuit of insurance is com- 
pleted. The loss resulting from a fall or a rise in 
the rates of exchange on the current of bills inward 
or outward, is thus balanced by the profit, contempo- 
raneously realised, upon those passing in the contrary 

Apart, then, from the very great losses incurred 
before this method of insurance against great 
fluctuations in the rates of exchange between gold 
and silver standard countries came into operation, 
it may be said, with perfect truth, that in so far as 


ii has been possible to maintain it, no very serious 
commercial trouble has arisen from the long-con- 
tinued fall in the gold price of silver. In the trade 

with India the system has, on the whole, worked 
well ; but in that with China, and still more in the 
trade with the smaller silver standard markets, it 
has not been found completely practicable, for 
reasons which T need not now stop to explain. In a 
very great degree, however, the purely mercantile 
derangement and loss occasioned by the monetary 
dislocation have been eliminated in the trade between 
gold and silver standard countries. 

We must now proceed a step further. We must 
inquire, what has been the effect upon the prices of 
commodities in the gold countries of the monetary 
change in question ? This effect is quite separate 
from, and additional to, that described in preceding 
chapters. It is an effect produced through t/ir 
medium of th< exchanges, and since it is held by 
some respected authorities to be of little weight, the 
question must be examined somewhat minutely. 

It is contended, on the one hand, that the fall in 
the gold price of silver has in this way tended 
powerfully to depress the prices of commodities in 
gold standard countries, and consequently in the 
United Kingdom, whilst it has altered very little 
those in the silver standard countries. This is 
especially conspicuous, it is said, in respect of com- 


modities which are the subjects of trade between 
the two classes of markets, although the consequence 
is by no means confined to such commodities. Two 
examples — one drawn from the export and the 
other from the import branch of British commerce 
with India — will suffice to illustrate this influence 
of falling Indian exchanges upon prices at home. 

A Manchester merchant has sold, let us suppose, 
to his correspondent at Calcutta, 5000 pieces of a 
certain description of cotton goods at 5 rupees per 
piece, the rate of exchange being Is. 6d. per rupee. 
The English equivalent is 7s. Gel. per piece. The 
next day he receives from Calcutta a second order for • 
the same description at the same rupee price. Mean- 
while the rate of exchange has dropped to Is. 5 Ad. 
per rupee, and the equivalent now is only 7s. okl. 
Freights and other charges remaining unaltered, he 
finds that he can make another purchase only by 
buying the goods at 2 id. per piece less than before, 
and accordingly he goes into the market with a 
reduced "limit." The manufacturer of the goods, 
seeing no reason why he should accept a lower price, 
refuses the offer. The Calcutta buyer is willing to 
pay exactly the same price in his own money as 
before ; the Manchester manufacturer is willing to 
accept the same in Ms money, but no business can 
be done. The question then is, how is the difference 
to be got rid of? Ts the Calcutta man to pay more 


or the Manchester man to accept Less? Neither 
Bees any reason; in the conditions of liis own busi- 
ness, to give way. This typical case represents the 
circumstances of the whole export trade to silver 
standard countries at such a moment. It represents, 
too, the circumstances of such trade at each stage in 
the downward course of the exchanges with the 
silver countries during the past twenty years. As 
a matter of fact, the prevailing result lias been a 
fall in English prices equivalent to the fall in 
the rate of exchange. The English producer has 
had to bear the consequences of it. 

But it is contended by some that this result is 
mainly due to other causes, and not to the i'all in 
exchange. If the question be asked, Why should 
the " higgling " of the market, after each successive 
drop in tlir rate of exchange, have told almost con- 
stantly against the producer of exports ? two answers 
may be given. One is that the demand has fallen 
below the supply; the other is thai the purchasing 
power of gold has increased, whilst that of silver has 
altered very little. The answers are distinct, but 
they are not contradictory, and both are correct, 
"Supply" and "demand" are always conditional 
by price. In every market there is, at a given 
time, an enlarged potential demand at a lower price, 
or an enlarged potential supply at a higher one, and 
at the actual price, demand and supply are equal. 


Id the supposed case, the price when the first order 
was executed was Vs. 6d. per piece, and the demand 
at that price was just equal to the supply. On the 
next day the demand in Manchester at that price 
had entirely ceased, although the buyer in Calcutta 
was still willing to go on purchasing at the same 
price in rupees as before, and the Manchester 
manufacturer was willing to go on selling at the same 
price in sterling as before. The conditions of de- 
mand in Calcutta have not altered, nor have the 
conditions of supply in Manchester. What has 
happened is an alteration in the relative values of 
the money current in one place and that current in 
the other, and a trial of endurance ensues in order 
to determine who is to bear the loss consequent 
upon the fact that 5 rupees have now become 
equivalent to only 7s. 3 id. instead of 7s. 6d. 
As a matter of fact, we know that the English 
producer has usually had to bear the loss, but what 
we have to ascertain is how it is that he has been 
compelled to do so. 

In considering this question we must go back 
to the general conditions which have attended the 
markets in the gold standard countries since the 
monetary disturbance began, — conditions so well de- 
scribed by Mr. Giffen and Professor Thorold Rogers 
in the passages quoted in a previous chapter. These 
are uncertainty and apprehension as to the supply 


of gold in relation to the requirements of it, perturb- 
ation and unsettlement in the commercial markets, 
caution in the gri ing and receiving of credit, and a 
general lack of confidence in the maintenance of 
prices. These symptoms have necessarily been 
accompanied by a prevailing disposition to sell, and 
an unwillingness to hold stocks of commodities. In 
most markets the persistent seller has come off 
better than the persevering stickler for full prices. 
It is not surprising then that, living in an atmo- 
sphere of this kind, the endurance of the English 
producer in the contest with the Indian buyer over 
the question of who is to bear the brunt of the fall 
in exchange, has generally proved less effective than 
that of the latter. 

Other circumstances supporting this view may 
be named. The frequency with which falling Eastern 
exchanges have been quickly followed by a decline 
in the English prices of goods exported to Eastern 
markets has created a bias of expectancy, powerfully 
reinforcing the determination to sell, and inclining 
manufacturers to anticipate a fall of prices following 
quickly upon a fall in exchange. Again, the change 
in the method- of conducting the export business, 
already described, has strengthened the Indian buyer 
in his resistance to an upward movement of rupee 
prices, in order to compensate a fall in exchange. 
The system of buying imports for future arrival at 


the Indian ports places the importer in the position 
of having always an assured provision in prospect, 
enabling him to hold off for a time. 

We are now taking account of motives acting 
upon the minds, respectively, of the producer in 
England and the buyer for distribution in India. 
Every man of experience in any market knows well 
how powerful, and, at times, how irresistible are 
such influences. Demand and supply are, of course, 
the controlling factors, but no examination of im- 
portant movements of prices can be regarded as 
satisfactory or complete which does not take account 
of the mental moods, the opinions, the expectations, 
the hopes and the fears of those who, as buyers and 
sellers, are the makers of prices, because it is they, 
acting under one or more of these varied moods, 
who determine the volume of the current demand 
and supply. 

I take next an illustration of the effect of a fall 
in Eastern exchange upon the gold prices of com- 
modities which are exported from India to England. 
A London importer receives, by telegraph, from his 
correspondent at Bombay, an offer of 3000 quarters 
of wheat, at a price, in rupees, which will enable 
him to sell them with a profit at 30s. per quarter. 
The wheat market in London 1 icing at that moment 
steady, but not active, he is enabled to dispose of 
only 1000 quarters at that price, although he re- 


ceives bids for the remaining 2000 quarters at 29s. 
per quarter. In the course of the day lie learns 
thai the Indian exchange, that is to say, the gold 
value of the rupee, has fallen sufficiently to enable 
him to accept the offers at 29s. per quarter without 
lessening his profit, and yet to give his Bombay 
correspondent the required price in rupees. lie 
accordingly sells the 2000 quarters at Is. per 
quarter less than the price he had been able to 
obtain a short time before. Other dealers in Indian 
wheat act in like manner. In such a market it is 
exceedingly likely that the prices of all wheats with 
which that of India competes will also fall; but in 
any case they cannot fail to be powerfully affected, 
and the alteration will be the result simply of a 
decrease in the rate of exchange between silver and 
gold money. I have purposely selected the case of 
an inactive market in order to bring out the more 
clearly the effect of falling exchange upon gold 
prices. Markets are not, of course, always in this 
condition, and if, in the supposed instance, there 
had been other tendencies going to strengthen the 
position of sellers, the juice obtained for the 2000 
quarters would not have been so low as 20s. per 
quarter. But the essential fact is that, whatever 
the state of the market, the "supply at a price" is 
increased by a fall of the Indian exchanges. 

It may be said, indeed, that India is not the 


principal source of our supply of foreign wheat, and 
that the circumstances I have been describing cannot 
have a controlling influence over the general course 
of prices. The Indian supply of foreign wheat to 
this country is, however, second in importance only 
to that of the United States. Moreover, in all 
markets which are in an inactive or indeterminate 
condition, it is the keenest sellers — not necessarily 
the largest — who settle the course of prices, and, 
as we have seen, a fall in Eastern exchange tends 
instantly to create keen and energetic sellers of 
Indian wheat. 

The point of the foregoing observations is, not 
that the fall in exchange during the last twenty 
years has been the sole or even a continuously 
operating factor in bringing about a decline in the 
prices of imports from silver standard countries, but 
that at each stage of the fall it lias exercised a 
powerful, and at times an exceedingly effective in- 
fluence in that direction. And the same remark 
applies to the downward movement in the prices of 
commodities exported from the gold to the silver 
standard markets. 

The tendency of the depreciation of silver in 
relation to gold to lower the prices of commodities 
in gold standard countries, through the action of the 
exchanges, is not often denied, and it is admitted 
by the " monometallist " members of the Gold and 


Silver Commission. They do not, indeed, allow its effect has been very great, and make no 
attempt to estimate it. Od the other hand, those 
who have had to bear the brunl of the fall in prices, 
and whose experience has compelled them to study 
closely the course of prices in the markets where 
they are daily engaged, and their connection with 
fluctuations in the exchanges, are, for the most part, 
strongly impressed with the idea that this tendency 
has all along been of momentous importance. The 
undetermined factor in this question is, in short, 
simply the extent to which the fall of exchange has 
depressed prices in gold standard countries, not the 
reality of its influence. That the fall does stimulate 
exports of commodities from, and discourage im- 
ports to, the silver standard countries, is commonly 
believed. Necessarily, therefore, agreement with 
this principle carries with it agreement with the 
principle that the fall in exchange increases the 
supply of commodities in the gold countries, by the 
double operation of augmenting imports of some 
descriptions and lessening exports of others. And, 
of course, the conclusion follows that such increase 
of supply must tend to drive down prices of 
commodities where gold is the standard of value. 

But there is a further question arising out of 
the foregoing observations. If the consequence of 
the monetary disturbance has been to stimulate 



exports from silver standard countries, has it not 
given to producers there — agricultural and manu- 
facturing alike — an advantage over their com- 
petitors amongst the gold standard nations ? This 
point has been much discussed within the last 
ten years, and it was the subject of careful and 
minute examination in the year 1888 by the 
Board of Directors of the Manchester Chamber of 
Commerce. The circumstances then investigated 
referred to the prodigious growth of the cotton 
spinning industry in India since 1873. The in- 
quiry was undertaken in compliance with the 
following resolution, passed at a general meeting of 
the members of the Chamber held on 31st October 

In view of the recent very rapid increase of cotton 
spinning in India, and the exports of yarn therefrom, 
more especially to China and Japan, while at the same 
time there has been a very serious check to the growth 
of Lancashire yarn exports to those countries, the 
Directors are requested to examine and report to a 
special meeting of the Chamber as to the causes and 
circumstances which have thus enabled Bombay spinners 
to supersede those of Lancashire. 

The inquiry began in January 1888, and was 
continued until the beginning of July, by a Com- 
mittee of the whole Board. The Committee being 
unable to arrive at a unanimous conclusion, two 


Reports were prepared, one of which was adopted 
by a majority of 10 votes to 7. The following is 
a copy of this Report: — ■ 

The Committee, having held twenty-three meetings, 
and examined numerous well-informed witnesses, report 
as follows : — 

I. The principal circumstance that has favoured the 
rapid iiii lease of mills in India, and enabled them to 
a great extent to supply China and Japan with yarns 
which formerly were shipped from Lancashire, is their 
geographical position, which to-day gives them an 
advantage of at least §d. per pound on the portion of 
their output that is shipped to China and Japan, and 
J,.;d. to |d. per pound on what is consumed in India 
itself. This is an estimate of the net advantage to the 
Indian spinner over his rival in England, arising from 
his proximity to the cotton-fields on the one hand, and 
to the consuming markets on the other ; after allow- 
ing for his extra outlay for machinery, and consequently 
enhanced interest and depreciation, as well as greater 
expenditure in such items as imported coals, stores, etc. 

II. Superadded to the geographical advantage which 
it enjoys, the Indian spinning industry, it will be 
remembered, was for a long time fostered by the 
import duty of 31 per cent levied on English yarn, 
which equalled about 7 per cent per annum on the 
capital invested in the mills. This so assisted in stimu- 
lating the trade, that more mills were built than could 
profitably be employed, as shown by a fall of nearly 
40 per cent, on the average, in the shares of nineteen 
principal mills in Bombay during the six months end- 
ing March 1 SSf>, and at the end of that year thirty 


five out of fifty-two mills paid no dividend. It cannot 
be doubted that Indian spun yarns, being thus thrown 
on the Eastern markets below cost price, had a further 
powerful influence in the direction of displacing English 
coarse yarns, and the former having practically gained 
a monopoly, the newest and best -appointed mills in 
Bombay are now earning very large profits, and, as 
might be expected, many new mills are in course of 
erection there. 

III. The Committee have further had under con- 
sideration whether amongst the "causes and circum- 
stances" that, as expressed in the resolution, have 
" enabled Bombay spinners to supersede those of Lan- 
cashire," the fall in the value of silver has had any 
important part. The advantage derived from this 
cause cannot extend to the main items of the cost of 
erecting and working mills, namely, machinery, cotton, 
coals, and imported stores, as the outlay on these in 
rupees increases in precise ratio to the fall in the gold 
value of silver ; but wages, local taxation, and perhaps 
other small items, are not immediately affected by that 
fall, and whilst the process of adjustment is incomplete, 
the Bombay spinner is advantaged. The advantage 
thus accruing to him has been represented by one 
witness as -30d. per lb., and by another as -old., that 
is, on the assumption that no adjustment has taken 
place as between wages, etc., paid in silver in Bombay, 
and in gold in Lancashire, since exchange was at 24d., 
viz. in 1872. But then, it is also in evidence before 
the Committee, that at the earlier period just referred 
to, freight and all other charges incidental to the 
transport of cotton and of yarns were much higher, 
viz. 217. r >d. then as against TOGOd. now, or, to put 


the case precisely, the Bombay spinner, after paying 
the then higher rates of freight and other transport 
charges on his machinery, coals, etc., had a greater 
net advantage in such charges on cotton and yarn, in 
competing with Lancashire, than he possesses to-day 
by "99d., which it will be seen is more than double the 
benefit set down above as having accrued to him on 
the items of wages, etc., during the fall in exchange. 

Accordingly, as might be expected, it has been 
shown in evidence that the most important and sudden 
expansion of the new industry took place in Bombay 
when these high transport charges were current, and 
whilsl exchange still remained at about the par of 
24d.; whereas, during many subsequent years almost no 
further extension took place, although exchange the 
while fell rapidly. It may even be added that so 
great were the advantages enjoyed by the Bombay 
spinner over his rival in Lancashire at the time referred 
to, that he was able to initiate, viz. in 1871-5, the 
competition with him which has since proved so for- 
midable in the neutral markets of China and Japan, 
although he had then to pay the Indian Government 
an export duty of 3 per cent, from which the Lanca- 
shire spinner was, of course, exempt. 

The Committee do not overlook the fact that the 
Indian spinner escapes the embarrassment to which his 
English competitor is subject, consequent on sudden 
fluctuations in the gold value of silver; but tiny are 
i if opinion that apart from any benefit he has in flu's 
respect, or may derive from a low value of the rupee, 
the natural advantages that he has all along enjoyed, 
as set forth above, are sufficient to account for his 
having been able to obtain a virtual monopoly of the 


Eastern markets, as far as coarse yarns produced from 
Indian-grown cotton are concerned. 

The Eeport of the minority, signed by nine 
directors, runs as follows : — 

In prosecuting the inquiry prescribed by the resolu- 
tion of the Chamber, the Board deemed it necessary to 
ascertain, in the first place, the present cost of spinning 
No. 20s. bundled mule yarn in Bombay and in Lancashire, 
converting the Bombay figures into sterling at the rate 
of 17d. per rupee. The extent to which the com- 
petition between the Bombay and the Lancashire 
spinner is affected by their respective geographical 
positions was then considered. The next step was to 
determine how far the divergence between the values 
of silver and gold inter se, which has been going on 
during the last fourteen years, has imposed upon the 
Lancashire spinner a relative disadvantage when com- 
peting with the Bombay spinner in the yarn markets 
of India and China. Finally, the history of the Bom- 
bay cotton spinning industry was investigated for the 
purpose of ascertaining the effect of any other changes 
which may have tended to encourage the export of 
Bombay yarn to China. 

The Cod of Spinning. — The evidence presented to the 
Board upon the present cost of spinning in Bombay and 
Lancashire varies considerably. It shows, however, 
when the Bombay figures are converted into sterling, 
at the rate of 1 7d. per rupee, that in Lancashire true 
20s. bundled mule yarn is produced at a cost of from 
'2.")d. to "45d. per lb. less than it is in Bombay, notwith- 
standing that the hours of working in Bombay are 80 per 
week, whilst in Lancashire they are only 5G! per week. 


Geographical Considerations. — The Bombay spinner 
incurs no appreciable expense in the carriage of cotton 
or yarn from or to the local markets for these com- 
modities. His Lancashire competitor is burdened, 
however, with an addition of "54d. per lb. to the cost 
of his raw material — that being the amount required 
to cover the expense, of transmission from- Bombay to 
Liverpool, and the selling charges there. The yarn he 
produces has also to bear a heavier rate of freight to 
China than has that of the Bombay spinner. When 
shipped to Bombay, it is obvious that the whole of the 
cost of conveyance from Manchester to Bombay is an 
extra charge from which the Bombay spinner is exempt. 
These relative disadvantages falling on the Lancashire 
producer are shown in the following tables : — 

On 20s. Yarn shipped to India 

Per lb. 

Cost of bringing cotton from Bombay to Liver- 
pool — say of 1-17 lb. of cotton required 
for 1 lb. of yarn .... -54 

Cost of taking yarn from Manchester to 
Bombay .... •('.) 


On 20s. Yarn shipped to China 

Cost of bringing cotton from Bombay to Liver- 
pool, as above . . . . '54 
Cost of taking yarn from Manchester to China ■"' ,| 

1 Mi 

Less cosl of taking yarn from Bombay to 
China .... "35 



It appears, then, that owing to the greater distance 
of the Lancashire spinner from the Indian cotton 
market, and from the yarn markets of Bombay and 
China, he incurs an expense greater than that borne by 
his Bombay competitor, — reckoning the latter at the 
reduced rate of exchange of 17d. per rupee, — of l'03d. 
per lb. when selling 20s. yarn in the Indian, and of 
•69d. per lb. when selling it in the China market. In 
the year 1872, the cost of bringing cotton from Bombay 
to Liverpool was l\392d. per lb., and of taking yarn 
from Manchester to Bombay ^SSd. per lb., the two 
items added together making 2"377d. per lb. Within 
the last sixteen years, therefore, the disadvantage falling 
upon the Lancashire spinner when competing with the 
Bombay spinner in the Bombay market, and arising 
from geographical considerations, has diminished to the 
extent of L345d. per lb., or upwards of 56 per cent. 

Effect of the Fall in the Value of Silver as measured in 
Gold. — For the purposes of this inquiry it has been 
assumed that the current value of the rupee as measured 
in gold, that is to say, the current rate of Indian ex- 
change, is 17d., and that the normal rate, prior to 
1873, was 24d. In considering the effect of this fall in 
exchange, it is necessary to keep in view the monetary 
conditions under which the Bombay and the Lancashire 
producer respectively carry out their operations. The 
outlay of the former in producing his yarn is made in 
silver money, and he gets his returns for the yarn he 
sells in India or China in the same kind of money. 
The variations of exchange in his case, therefore; make 
no difference to him as regards his returns. In the 
case of the Lancashire producer, however, the outlay 
upon production is all made in gold money, as well as 


the greater part of the cost of transporting cotton and 
yarn, while his returns for yarn sold in India and China 
are in silver money, which on being remitted to him, 

yields a reduced sterling amount at every stage of the 
fall in the gold value of the rupee, and of the silver 
dollar. Momentarily, the whole of the loss thus arising 
from a decline in Eastern exchange constitutes a 
relative disadvantage to the Lancashire spinner. Sub- 
sequently, however, portions of" this relative disadvan- 
tage are removed by an adjustment of the prices of 
cotton and some other requisites of spinning, as between 
India and England. It becomes necessary, therefore, to 
analyse the items of the cost of production, in order to 
determine the ultimate net effect of a fall in exchange 
upon the relative positions of the two competitors. 
After careful examination of these items the following 
subdivision was arrived at: — 

1. Items in which (puck adjustment takes place : — 

a. Cotton. 

b. Coal and imported stores. 

In new transactions, the cost of cotton under the 
altered exchange is equalised to both producers, by an 
adjustment of prices in Bombay and Liverpool. In 
respect of coal and other stores imported into Bombay 
from England, adjustment also very soon takes place, 
though not so rapidly as in the case of cotton. 

2. Items in the cost of spinning, in which no adjust- 
ment takes place, viz. wages, rates, taxes, and land 

'.\. Charges paid in gold in connection with the 
import of cotton and the export of yarn, in which also 
no adjustment takes place. 

i. Items in which adjustment is deferred for a 


considerable time (say till machinery is replaced), viz. de- 
preciation and interest on fixed investment in machinery. 
In view of the fact that — so far as the first of these 
categories is concerned — adjustment comes about quickly, 
no account is taken of the momentary disadvantage 
borne by the Lancashire spinner in respect of the items 
comprised in it, although such momentary advantage 
has tended powerfully to divert the demand from Lanca- 
shire to Bombay. The net relative disadvantage falling 
upon him (with exchange at 17d. per rupee instead of 
24d.) under the remaining heads are: — 

a. When Yarn is shipped to Bombay 

Net disadvantage. 

per lb. 


2. Items in the cost of spinning, not adjusted "51 

3. Transport charges paid in gold, not adjusted -34 

Permanent disadvantage arising from the 
fall in exchange . . . . "85 

4. Items on which adjustment is long deferred -12 

Total disadvantage arising from fall in 
exchange . . . . "97 

b. When Yarn is shipped to China 

2. Items in the cost of spinning, not adjusted -51 

3. Transport charges paid in gold, not adjusted '35 

Permanent disadvantage arising from the 
fall in exchange . . . '86 

4. Itemsou which adjustment is Long deferred -12 

Total disadvantage arising from fall in 
exchange .... '98 


When the Bombay mill industry began, the intention 

was to supply India only. There was a presumptive 
advantage in competing against imported yarn, in view 
of the then heavy transport charges and the import 
duty of 3| per cent then in force, which the hitter had 
to hear. The industry did not, however, increase quickly 
for some time, but in 1873-4-5 rapid extension took 
place, seventeen new mills having heen started in the 
last of these years. After this, owing doubtless to the 
removal of the import duty, to the disappearance of 
profits on cotton spinning everywhere, and to the 
lessened cost of transit between India and England, a 
great collapse of the industry took place, and many of 
the mills were sold at very low prices. Subsequently, 
and no doubt at first under pressure to find a new 
outlet for the production of the existing mills, the 
export trade to China and Japan was rapidly developed, 
and of late years has continued to increase; the ship- 
ments from India, which in 1877 were 7,000,000 lbs., 
having sprung up to 113,000,000 lbs. in 1887. 

Upon consideration of the foregoing statement of 
facts, we are led to the conclusion that the principal 
cause which has enabled Bombay spinners to supersede 
those of Lancashire in exporting yarn to China and 
Japan is the great fall in Eastern exchange since 1873. 
The removal of the export duty of 3 per cent on Indian 
yarns, which was effected in August 1875, was un- 
doubtedly a contributory cause. A further circumstance 
tending to encourage the export of vain from Bombay 
to China and Japan is the decline which has taken 
place in the rates of freight from that port to those 
countries. In view, however, of the fact that the 
geographical advantage in favour of Bombay has been 
reduced since 1872, from 2'37 7d. per lb. to l'03d. per 

156 THE JOINT STANDARD chap, xiv 

lb., and that a great decline has also occurred in the 
rates of freight from Liverpool to China and Japan, it 
appears that this geographical advantage enjoyed by 
the Bombay spinner has been lessening, whilst his 
power to compete with Lancashire has been increasing. 
Therefore, although an important geographical advantage 
still remains to the Bombay spinner, it is actually less 
than it was before Bombay yarns superseded those of 
Lancashire in the markets of the Far East. 

These Reports are of especial interest, because 
they are the outcome of the most thorough and 
detailed investigation ever made into the altered 
conditions under which competing industries are 
carried in gold and silver standard communities 
respectively, since the great monetary disturbance 
began. I leave them to tell, each its own story, 
observing here only, that the attempt of the Indian 
Government to establish a gold standard in India, 
initiated in June 1893, has called forth from many 
friends of Indian industries, and particularly from 
the proprietors of Bombay cotton spinning mills, 
loud protests, on the ground that the exports of 
Indian productions would thereby be discouraged. 
Their complaint is identical with that which formed 
the subject of the Manchester investigation of 

It should be added that, at a general meeting 
of the members of the Chamber, held in December 
1888, the Iieport of the minority of the Board was 
adopted by 64 votes to 52. 



The interest of India in the currency question lias, 
from the first, been one of its most prominent 
features, and the cessation of the coinage of silver 
at the mints of the supreme Government, which 
took place on 2Gth .Time 189.°), is everywhere 
recognised as an event of the highest significance 
in the monetary history of our day. It was then 
announced that the Governor -General in Council 
had, with the approval of the Home Administration, 
ordered the closing of the Indian mints to the free 
coinage of silver. This momentous step was 
avowedly taken with a view to the establishment in 
India of a gold standard, with a currency consisting 
mainly of silver coins circulating at a lixed rate to 
gold. But the precipitating cause was a prevailing 
and well-founded impression that the United States 
Government would very soon put a stop to its large 
purchases of silver under the Windom-Sherman Act 
of 1890, and thus launch the silver market, and 


with it the Indian exchanges, upon a downward 
course which would be most damaging if not 
disastrous for Indian national finance. The Ad- 
ministration of the Dependency desired, while there 
was yet time to avert a crisis, to fix the relative 
values of the rupee and the sovereign, in order that 
its Treasury might be free from the further loss 
which would ensue from having to provide a larger 
number of rupees than were then necessary to dis- 
charge its continually recurring sterling indebtedness 
in London. The course taken for the purpose of pre- 
venting this loss is an experiment of great interest ; 
but before discussing the subject, it will be well to 
consider the way in which the economic interests of 
India, and in particular those of the Indian ex- 
chequer, have been affected by the monetary dis- 
turbance of the last twenty years. 

The external commercial and financial relations 
of India are peculiarly complicated, because the 
standard of value and the monetary circulation of 
the Dependency are silver ; because, also, a very large 
amount, approximately £16,000,000 a year, of debt 
has to be discharged in London by the Government; 
and, further, because the ancient and still surviving 
practice of the people of holding accumulated 
wealth in the form of silver and gold necessitates 
the constant importation of treasure from abroad. 
In no other country do similar conditions exist 


together, and a clear comprehension of their bearing 
upon the foreign trade of the country and the 
finances of its Government is essential to a right 
understanding of the interests of India in the 
monetary question. 

The XI 0,000,000 a year, or thereabout, of debt 
constantly accruing at home is, to some extent, 
simply a current mercantile transaction between the 
India Ollice in London and the Treasury in Calcutta, 
arising out of the exports of military and other 
stores sent to India for the service of the Govern- 
ment. Most of it, however, is for interest on loans 
or for other fixed obligations. The mode by which 
the debt is discharged is this. The Secretary of State 
for India sells, through the agency of the Bank of 
England, in London, his drafts or telegraphic transfer 
orders — called collectively " Council drafts " — on the 
Indian Treasuries, for as high a price per rupee in 
English money as he can get. He is, in fact, selling 
the rupees in the hands of the Indian Governniein 
to English buyers who happen to require money in 
India, and to whom it is convenient to exchange 
English money for it. They require the rupees in 
order to pay for Indian produce exported. It is 
obvious, therefore, that the exported produce thus 
paid for is not exchanged for a corresponding 
amount of imports of merchandise or treasure into 
India, excepting the comparatively small quantity of 


Government stores just mentioned. Hence the 
statistics of Indian foreign trade always show an 
excess of exports of merchandise, and this excess 
represents, roughly, the payment of India's debt to 
England. It follows, further, that the larger the 
amount of this debt the larger must be the pro- 
portion of the exports from India which is not 
counterbalanced by imports. 

But again, India produces no silver, and not 
very much gold, and the inveterate demand for 
these metals for hoarding is met entirely in the one 
case, and largely in the other, by imported supplies 
of these metals. Until the recent closing of the 
mints nearly all the imported silver was coined, 
passing first into the circulation and then into the 
hoards either in the form of coin or through the 
melting-pot. And it is interesting to notice that 
for several years after the appreciation of gold began 
to be strikingly manifest, very large amounts of 
that metal have been taken for this purpose, in 
preference to silver, by the richer natives. 

The Superintendent of Post Offices in the North- 
West Provinces prepared a report, in 1886, upon 
the increased absorption of gold in India, founded 
upon information largely derived from independent 
sources, and by means of somewhat minute inquiries 
instituted by himself. He enjoyed special facilities 
for the pursuit of his investigation, because of his 


knowledge of the amounts of treasure passing through 
the post, under the postal insurance system. His 
conclusion was that the absorption of gold in the 
North -West Provinces had been for some time 
previously, and was still increasing. The causes of 
the increase were — first, a vast improvement in the 
earnings of the working-classes in large towns, and 
their extended use of gold for personal and house- 
hold ornaments: secondly, the greatly enlarged 
production and sale, at Benares and elsewhere, of 
artistic clothing fabrics in the manufacture of which 
gold thread and gold lace are extensively used; 
thirdly, the growing tendency of the agricultural 
classes to keep their savings in gold ; fourthly, the 
scare produced by rumours of a possible Eussian 
invasion; and, lastly, the gradual advance in the 
Indian price of gold, and the consequent inducement 
to purchase a commodity which was thus evidently 
increasing in value. This accentuated tendency to 
hoard gold influenced not only the more ignorant 
portion of the people, but also the more intelligent 
natives — university men and lawyers amongst the 
rest. One example was given of a native prince, 
who had set apart a very large sum in silver to be 
exchanged for gold, and for whom from 40,000 to 
10,000 rupees' worth of -old was being purchased 
every month. Good harvests, internal peace, and 
the employment of native troops in military opera- 


tions outside India, had raised the economic status 
of the towns and the agricultural villages, and with 
that improvement had come a desire to hold gold, — 
a desire which, the writer said, had been much stimu- 
lated by the advancing value of that metal as 
expressed in Indian money. 

It appears, then, that the enormous amount of 
merchandise exported from India is paid for by the 
following various means : — 

1. Merchandise, chiefly manufactures. 

2. Council drafts. 

3. Gold and silver. 

Now the normal and permanent condition of 
Indian foreign trade is that, on balance, the exports 
consist entirely of merchandise. Both gold and 
silver are exported, but, save during one or two 
years in a century, there is always an excess of 
imports of gold, and, without exception, always an 
excess of imports of silver. It is clear, therefore, 
that the imported merchandise, Council drafts, and 
treasure received in exchange, compete with each 
other ; and since the ' Council drafts represent debt 
which must be paid, any increase in their amount, 
except such small portion of it as may arise from 
the Government stores' account, intensifies the 
competition between merchandise and the precious 
metals as means of payment for the commodities 
exported from India. The annexed tables present 




an epitome of the course of Indian trade during the 
last twenty years viewed in the light of these 
observations. The first four lines in each table 
represent quinquennial averages : — 

Exports Hi' Average rate of 
Merchandise. Exchange. 


Per Rupee. 

18/0-/ 1 ^ ~~ A o n .,„„ 
to-,,, .„■ ! o/, 030, ..500 
18/ 1-/ .i | 

Ifrlfo } 62 > 495 ' 500 
\Zt] 82 ' 293 ' 100 

ISSHo} 92 ' 681 ' 000 

1890-91 100,227,000 

1891-92 108,174,000 
1892-!>:; 106,575,700 

s. d. 
1 10-569 

1 S-534 

1 7-644 

1 5-107 

1 6-090 

1 4-733 
1 2-985 

f Annual 
\ average 

> > 

i > 

| Year ended 
\31st March 

» y 

[iuport a "i 

[mpoj ts of 

Net Impoi is 
of Gold. 

Nel I'n] oi i a 

Of Silver. 





1870-71 \ 
1874-75 ) 

1875-76 \ 
1880-81 \ 
1S84-85 j" 
1885-86 1 
1889-90 J 
















1 Ne1 exports \ 

\ 2,812,700 J 



1 1.1 75,100 



The imports of merchandise here shown do not 
include the amount of the stores consigned by the 
India Office to the Government of India, because 
their value is included in the Council drafts, and if 
they had been reckoned amongst the imports of 
merchandise they would have been stated twice. 
Again, the great falling off in the net imports of 
gold in 1875-76 to 1879-80, and the concurrent 
expansion in the imports of silver, is accounted for 
mainly, if not entirely, by the famines which 
occurred within these five years. The distress 
which came over wide districts lessened the power 
to save, and compelled multitudes of families to 
part with their ornaments and hoards, whilst the 
activity of the internal grain trade and the rise in 
prices of food necessitated an extension of the rupee 
circulation. After the effects of the famines had 
passed away, however, the importation of gold was 
a«ain resumed on a full scale, and it was stimulated, 
as already stated, by the advancing value of the 
metaL The very large imports of silver in 1890-91 
and in 1892-93 also claim attention. In the 
earlier of these two years the increase was caused 
by the strong speculation in silver which occurred 
on tin; passing of the Windom- Sherman Silver 
Purchase Act in the United States. In the second, 
it was the result of an anticipation that the Indian 
mints would be closed, in consequence of which 


bankers and merchants desired fco get as much 
silver as possible into the country for the purpo 
of having it coined whilst there was opportunity to 
do so. 

A comparison of the figures for 1870-71 to 
IS 74-7.*» with those of the year L892-93 shows 
the following changes: — 

[ncreased exports of merchandise . 49,545,500 

Increased imports of merchandise . 30,437,300 
Encreased imports of Council drafts 15,398,500 
Increased imports of treasure . 4,656,000 

Total increase of imports . 50,491, son 

It must be noticed that in 1892-93 there was the 
exceedingly rare occurrence of an export, on 
balance, of gold from India. Only once before 
during the last sixty years has a like event happened, 
viz. in L878-79, when a net export occurred of 
Rx. 896,200. The export of Rx. 2,812,700 in 
1892-93 may with some confidence be attributed 
to the high price of gold in India, and the tempta- 
tion offered to native speculators and hoarders to 
realise the profit obtainable upon their purchases 
made in previous years. Gold, in short, became a 
profitable commodity to expert, and the quantity 
actually sent out in L892-93 may properly be 
added to the exports of merchandise, which will 


then amount to Rx. 109,388,700. Adjusting the 
figures accordingly, the summary table last given 
appears in the following amended form :— 


Increased exports of merchandise . 52,358,200 

Increased imports of merchandise . 30,437,300 
Increased imports of Council drafts 15,398,500 
Increased imports of treasure . 7,468,700 

Total increase of imports . 53,304,500 

A comparison of these several increases, with the 
actual amounts of the respective average exports and 
imports in 1870-71 to 1874-75, brings out the 
following proportions : — 

Increase per cent. 

Exports of merchandise . 


Imports of merchandise . 


Imports of Council drafts 

. 122-28 

Imports of treasure 

. 138-44 

Total imports 

. 10636 

The statistics thus brought together furnish the 
means of gaining a broad view of the alterations 
which have taken place in the external trade of 
India within the last twenty years, and the conclu- 
sions to which they point are very instructive. 
They show — 

1. That the whole amount of the trade has 
enormously increased. 


2. Thai the imports of merchandise have increased 
in a ratio greater than the exports of 2*7 per cent. 

.">. That the imports of Council drafts have been 
augmented in a proportion far exceeding that of the 
increase of merchandise imported. 

4. That the imports of treasure have also greatly 
increased, but that in part this is accounted for by 
special and transient circumstances. 

The second of these conclusions calls for particular 
examination, because it appears, at first sight, to 
destroy the contention that the fall in the Indian 
exchange has discouraged imports of merchandise 
into India. A trade which has increased to the 
extent of 94*57 per cent within little more than 
twenty years cannot, it may be said, be in a bad 
way. But it is necessary to look a little further. 
The statistics under consideration are given in 
rupees, the value of which in relation to commodities 
has, by general consent, altered very little within the 
period in question. Converting the rupees into 
sterling at the average rates of exchange current in 
each period, we get the following results :— 

Imports of merchandise, 1892-93 .£39,097,300 
Average annual imports of merchan- 
dise, 1870-71 to 1874-75 . 30,262,301 

Increase . . . £8,835,059 

[ncrease per cent . . 29-1 9 


It is thus clear that, when worked out on the 
basis of goldj the increase of imports of merchandise 
into India within the last twenty years has been at 
the rate, not of 94*57 per cent, but of only 29*19 per 
cent, equivalent to less than 1^ per cent per annum. 
Considering that the railway system of India has 
grown from 5382 miles to 18,042 miles between the 
end of 1872 and the end of 1892, that vast tracts of 
country have, in the interval, been brought within 
the range of external trade, and that the condition 
of the people has substantially improved, this cannot 
certainly be regarded as an important rate of 
increase. Viewed in this way, the apparently large 
augmentation of 98*77 per cent in the exports of 
merchandise also dwindles to very moderate dimen- 

But, in discussing the question of the fall in 
exchange upon the imports into India, and into all 
countries having at once a silver standard of value, 
and a great foreign debt to discharge every year, the 
really important consideration is, not the amount of 
the imports as stated in its own currency, but the 
prices as stated in gold at which these must be 
obtained from the creditor country. Eeverting to 
the summary statement, in tens of rupees, of the 
increase of Indian foreign transactions previously 
given, it is plain that but for the necessity of having 
to provide in 1892-93 Rx. 15,398,500 more to 


discharge her foreign debt than in L870-71 to 
L874-75, [ndia would have been able to take so 
much larger an amount in value of merchandise or 
treasure, or of both. Provision having, however, to 
be made for the additional indebtedness, so much less 
in value of these must be imported., and then the 
question is simply whether the quantity must be 
reduced, or the prices as stated in gold. And the 
question appears to have been solved, not by a 
falling off in the quantity of the imports, but by a 
reduction in their sterling prices. Thus we are 
brought round again by another road to the conclu- 
sion, that the fall in exchange has either not lessened 
the volume of imports into India at all, except so 
far as Council drafts have taken the place of 
merchandise, or at least has had a much smaller 
effect upon its bulk than upon the prices,in gold, at 
which the imports have been obtained. The con- 
sequences of the fall in exchange have, in short, 
taken the form rather of reduced gold prices than of 
diminished quantity. 

It is a warrantable inference from the statistics 
which 1 have been considering, that the economic 
interests of the people of India have probably not 
suffered much in consequence of the fall in exchange, 
except from the necessity which it has imposed of 
supplying a larger amount of the produce of Indian 
labour in order to discharge the constantly accruing 


sterling debt. This is no doubt a very important 
exception, and although the loss involved in it is 
one primarily affecting the Government, it obviously 
falls at last upon the people, who would have bene- 
fited either in the shape of reduced taxation or in 
some other way, if the rulers of the country had 
not been compelled to take many crores of rupees 
from the Treasury in order to meet additional obli- 
gations created simply by a currency disturbance, 
for which rupees no economic equivalent was 

As already shown, the exports of merchandise in 
1892-93, including Ex. 2,812,700 of gold, were 
Ex. 109,388,400. In the five years 1870-71 
to 1874-75, the average annual amount was 
Ex. 57,030,300. The increase in the interval was, 
therefore, Ex. 52,358,100, or at the rate of 91 -8 
per cent. Converting these amounts into sterling 
at the respective rates of exchange, the equivalents 
are : — 

Exports of merchandise in 1892-93 £68,299,382 
Average annual exports of mer- 
chandise 1870-71 to 1874-75 . 53,629,868 

Increase . £14,669,514 

Increase per cent . 27 - 35 

Measured in gold, therefore, the ratio of increase 


of exports appears, like that of imports, very small. 
In quantity it is, of course, more accurately repre- 
sented by 91*8 per cent shown in the comparison 
of the amounts stated in tens of rupees, or at the 
rate of 4*59 per cent per annum. Large as this 
rate of increase undoubtedly is, it falls greatly 
short of the rate at which the export trade of 
India extended in the twenty years preceding. 
In 1850-51 to 1854-55 the average annual 
exports were only Rx. 19,346,100 ; in 1870-71 to 
1874-75 they reached Rx. 57,030,300, showing an 
expansion of Ex. 37,684,200, or at the rate of 
194-81 per cent, equivalent to - 74 per cent per 
annum. This is more than double the rate of pro- 
gress within the last twenty years. 

Now I am well aware of the caution which is 
necessary in comparing the statistics of these two 
periods. In the earlier one, the administration of 
India passed from the East India Company into the 
hands of the British Government, its boundaries 
were greatly enlarged, and railways were introduced. 
But within the later period of twenty years also 
the area of the Dependency has been much extended, 
and the length of the railway system has been 
trebled. The country, moreover, has on the whole 
been peaceful and prosperous. 

The relevancy and importance of the comparison 
thus made of the growth of the Indian export trade 


before and since 1873 are obvious when the 
question is asked, what has been the effect of the 
fall in exchange upon that trade ? There is a 
general agreement that it has tended to encourage 
exports from India. But in what way has it done 
so ? Some say, " By increasing their amount," and 
this answer is usually accepted without question by 
those who have not studied for themselves the some- 
what intricate statistics of the Indian trade. But 
this view does not accord with the conclusion 
arrived at by Lord Herschell's Committee upon the 
Indian Currency, appointed in October 1892. In 
its report, dated 31st May 1893, the Committee, 
referring to the " alleged stimulation of exports " by 
the fall in exchange, says : — 

Although one may be inclined, regarding the matter 
theoretically, to accept the proposition that the sug- 
gested stimulus would be the result of a falling ex- 
change, an examination of the statistics of exported 
produce does not appear to afford any substantial 
foundation for the view that in practice this stimulus, 
assuming it to have existed, has had any prevailing 
influence on the course of trade. 

With this conclusion, the figures which 1 have 
quoted, and the known facts as to the course of 
prices in India and in England during the last 
twenty years, are in entire harmony. It is acknow- 
ledged that prices in India have altered very little 


during this interval, except where railways have 

penetrated new regions, and that there the prices of 
exportable produce have risen because the local 
markets have become accessible to a new demand. 
Surely there is sufficient in this important change, 
together with the natural tendency towards increase 
in Indian foreign trade, to account for its growth at 
the rate of 4*59 percent per annum since 1873, in 
lace of the fact that in the twenty years preceding 
the progress was at the rate of 9 "74 per cent per 

It seems clear, indeed, that the position of the 
Indian producer of exportable merchandise — wheat, 
for example — has not altered by reason of the fall 
in exchange. It is true that where new railways 
have come within his reach he has obtained higher 
prices, but that is not a consequence of the, fall 
in exchange. His sole advantage has been that, 
although his produce has been put upon the 
European markets at an enormous reduction of price, 
he himself has obtained the same price as before in 
his own money. He has been able, in short, with 
every fall in exchange, to undersell his European 
competitors, who could only just make ends meet, 
without hurting himself. And this condition must 
necessarily continue with every further fall in 
Indian exchange. 

( >nce more, then, we are brought to the conclusion 


that the decline in Indian exchange is a potential 
factor in determining prices in the European markets. 
It does not follow, of course, that because the Indian 
producer can afford to undersell his European or 
American competitor he necessarily does so. In a 
normal market, it is the most costly portion of the 
product offered for sale which determines the price. 
And, at intervals, this has been the case in the wheat 
markets of Europe during the last twenty years. But, 
within that period, the prevailing tendency has from 
various causes, already abundantly explained, been 
towards lower prices. In such a condition of tilings the 
desire to sell is general and persistent, and every 
experienced merchant knows that then it is neither 
the largest producer, nor the one whose merchandise 
is most costly to produce, who rules the market, but 
the one who can afford, and who, under the stress 
of competition, is willing to become, the freest seller. 
It is in this way, I conceive, that the fall in Indian 
exchange has influenced prices in the European 
markets, more than by increasing the quantity of 
produce exported hither. 

It also appears to me to be unquestionably true, 
that to whatever extent the fall may have checked 
the increase in the quantity of imports into India, 
its main effect has been to lower the gold prices of 
tl it',m. In short, exchange of commodities with the 
gold standard countries has gone on with probably 


little diminution in volume, but necessarily upon a 
diminished gold valuation. Ii' this view be correct, 
it applies also to the trade of every nation having a 
silver standard, and to every nation, whether its 
standard be silver or not, which during the last 
twenty years has had an external gold debt to 
discharge by means of the produce of its industry. 

I turn now to the finances of India, and inquire 
— In what way and to what extent have these been 
affected by the monetary disturbance between the 
relative values of silver and gold ? 

The mode by which the constantly accruing 
debt of the Indian Government here is discharged 
has already been explained, and the fact has been 
noted that whilst its revenue is received in silver, 
the payments to be made on its behalf by the India 
Office in London must be effected in gold or the 
equivalent of gold. And, further, that the wide 
divergence in the ratio of exchange between the two 
metals has brought upon the Indian Exchequer two 
very grave evils. It has greatly augmented the 
amount of the debt for which the Government has 
to provide, and it has introduced into the Indian 
budget a most serious and embarrassing element of 
uncertainty never known until twenty years ago. 
The table printed on page L63 shows that the 
average amount of the Council drafts by which the 


gold debt was discharged in the five years 1870-71 
to 1874-7.") was Ex. 12,539,300 per annum. In 

1892-93 the amount was Ex. 27,937,800. The 
difference — Ex. 1 5,39 8,50 — is sufficient to swallow 
up three-fourths of the land revenue, the chief 
item of the Indian national income. But this 
difference is not all attributable to the fall in ex- 
change. Yet, after every proper deduction is made, 
there remain at least Ex. 7,500,000 which may fairly 
be put down to that cause. Even this amount is 
more by Ex. 1,1 03,000 than the whole of the excise 
and customs revenue of 1892-9.'!. 

It was for the purpose of diminishing this loss, 
and still more of preventing its further increase, 
that the mints of India were closed to the coinage 
of silver towards the end of June 1893. This 
action, which was avowedly taken as an experiment, 
had for its object the attainment of a rate of ex- 
change, of Is. 4d. per rupee, or 1 5 rupees to the 
sovereign. The average actual rate in 1890-91 
was Is. 6-09d. ; in 1891-92, Is. 4'733d, and in 
1892-93, Is. 2-985d. 

It is right to state that the Government of India 
had, in 18 82, and afterwards, consistently advocated 
the restoration of the joint standard by international 
agreement as the best method of removing the loss, 
and the danger of further loss, from fluctuating ami 
tailing exchange. Appeals to the Home Adminis- 


tration of this nature always met with an unfavour- 
able response, and at last, early in 1892, the Indian 
Government began to consider seriously other means 
of dealing with the difficulty. In a despatch, dated 

Hist dune of that year, the Viceroy — Lord Lans- 
downe — and his colleagues described the position 
of the Government, and proposed that in the absence 
of any other cure for the instability of the relative 
values of <jold and silver, the Indian mints should 
be at once closed to the free coinage of the latter 
with a view to the establishment in India of a gold 
standard. In an earlier part of the despatch ex- 
pression is given to the regretful convictions of the 
Government of India, that the denial of the desired 
remedy would compel resort to another, not of its 
choice, which it evidently regarded as somewhat 
doubtful. The following is an extract from tin's 
document : — 

We tVar that a. refusal on the part of Great Britain 
to adopt the system of double legal tender may be fatal 
to an international agreement for the free coinage of 
both gold and silver on a sufficiently wide basis ; and 
we believe that a limited increase in the quantity of 
silver used as currency will exercise a very trifling in- 
fluence (if any) in raising, or preventing a fall in, the 
gold price of silver, while it will be wholly without 
effect in the far more important matter of preventing 
fluctuations in the relative value of the two metals. 
We greatly regret this state of affairs, both because we 



believe that no other country is so deeply interested in, 
or would benefit so greatly by, a uniform standard of 
value throughout the civilised world as (Jivat Britain, 
with her vast system of trade, and the great extent of 
her finance, and because the final rejection of an inter- 
national agreement for free coinage of both gold and 
silver will leave this country [India] face to face with a 
problem of the greatest difficulty. 

We take this opportunity of again calling your 
Lordships' special attention to the extreme gravity of 
the present position — a position so fraught with danger 
that inaction involves at least as great risk, and as much 
responsibility, as would the undertaking of an enter- 
prise even more hazardous than the introduction of a 
gold standard into India. 

This letter produced so decisive an effect at 
home, that on 30th September a telegram was de- 
spatched to Calcutta by the Secretary of State in 
London, announcing that a Committee would be 
appointed " to advise upon the expediency of 
taking any steps for the modification of the law 
relating to currency in India." 

The Committee was appointed on 21st October, 
and on 30th May 1893 its report was presented to 
the Secretary of State for India. After a full 
examination of the evidence and other information 
placed before it, the Committee submitted the fol- 
lowing recommendations : — 

While conscious of the gravity of the suggestion, 
we cannot, in view of the serious evils with which the 


Government of India may at any time be confronted, if 
matters are left as they are, advise your Lordship to 
overrule the proposals for the closing of the mints, and 
the adoption of a gold standard which thai Govern- 
ment, with their responsibility and dec]) interest in the 
success of the measures suggested, have submitted to 

But we consider that the following modifications 
of these proposals are advisable. The closing of the 
mints against the free coinage of silver should be ac- 
companied by an announcement that, though closed to 
the public, they will be used by the Government for 
the coinage of rupees in exchange for gold at a ratio 
to be then fixed, say Is. 4d. per rupee : and that, at the 
Government treasuries, gold will be received in satisfac 
tion of public dues at the same ratio. 

We do not feel ourselves able to indicate any 
special time or contingency when action should be taken. 
It has been seen that the difficulties to be dealt with 
have become continually greater; that a deficit has 
been already created, and an increase of that deficit 
is threatened; that there are at the present moment 
peculiar grounds for apprehension, and that the appre- 
hended dangers may become real with little notice. It 
may also happen that, if action is delayed until these 
are realised, and if no step is taken by the Indian 
Government to anticipate them, the difficulty of acting 
with effect will be made greater by the delay. It i- 
obvious that nothing should be done prematurely, or 
without full deliberation : but having in view these 
considerations, we think that it should be in the (lis 
cretion of the Government of India, with the approval 
of the Secretary of State in Council, to take the re- 


(|iiisite steps, if and when it appears to them and to 
him necessary to do so. 

These recommendations were signed by all the 
members of the Committee, except its chairman — 
Lord Herschell — who, being a member of the Home 
Administration, in whose hands the final decision 
would rest, thought it right to abstain from attach- 
ing his signature to this final portion of the report. 
In a note appended to the report Mr. Leonard 
Courtney signified his agreement with the recom- 
mendations of his colleagues only on the ground 
that a course which appeared to him preferable, 
viz. the restoration of the joint standard, was not 
then attainable. He added : — 

I am myself drawn to the conclusion that the 
Home Government is the greatest obstacle, perhaps the 
only obstacle, to the establishment of an international 
agreement for the use of silver as money, which, with- 
out attempting to restore the position of twenty years 
since, would relieve India from the anxiety of a further 
depreciation of its revenue in relation to its liabilities. 
The problem may be thus stated : — The Indian 
Government asks permission to adopt a certain course, 
but, as is well understood, not the course it would of 
its own free will first desire to be adopted. In con- 
sidering Avhether the course actually proposed should 
be sanctioned, we cannot refuse to consider Avhether 
there are invincible obstacles to the entertainment of 
the course which would be the first preference of 


The prospect that tin- United States Legislature 
would shortly repeal the Windom-Sherman Silver 
Act of 1890, under which the Treasury had taken 
54,000,000 ounces of silver per annum from the 
current supply, was the predominant motive for the 
recommendation of the Committee. It was foreseen 
that the consequence of the withdrawal of a demand 
for so large an amount would be a heavy fall in the 
sterling price of silver, possibly to a point (.11 '332(1. 
per ounce) at which the equivalent value of the rupee 
would be only Is. So great a fall would involve a 
further charge upon the Indian Exchequer arising 
out of its remittance operations of Rx. 0,162,000 
per annum. The consideration of means of meeting 
so vast an addition to the burdens of the Treasury 
the Committee regarded as beyond its province ; 
but the report shows very clearly that the Com- 
mittee saw no way by which tins new contingent 
liability could be satisfactorily provided for, either 
through increased taxation or reduced expenditure. 

The only question submitted to the Committee 
was whether or not the Indian Government should 
be allowed to stop the free coinage of silver with a 
view to the introduction of a gold standard. The 
answer was affirmative, but the responsibility for 
the adoption of this policy rests with the Eome 
Government, by which it was sanctioned. 

Criticism of the Indian currency experiment 


has ruined thick and fast since it was announced in 
the midsummer of 1893. It has been condemned 
both by monometallists and bimetallists, and even 
Mr. Goschen has ventured to declare that it is a 
" bold step," a " very serious step," a " gigantic 
measure " ; that it would be " an immense task " to 
keep up the gold value of the rupee at a particular 
point, and that the Indian Government must not be 
too impatient in looking for the success of its policy. 
He has, however, expressed the opinion that even 
the most sanguine friends of this policy cannot 
regard it as anything more than " a makeshift and 
a temporary solution of a very great difficulty." 
These views were expressed in the House of Commons 
on 21st September, three months after the mints 
were closed. The Chancellor of the Exchequer 
— Sir William Harcourt — speaking on behalf of 
the Government, said the course decided upon was 
" only an experiment " of which nobody could 
exactly tell how it would result. 

On this occasion the Chancellor of the Exchequer 
made an important misstatement, of which I have 
nowhere seen a correction. Answering a charge 
against the Government, which he put into the 
words, " If you had adopted another system you 
would have done good instead of harm to India," 
Sir William Harcourt replied : "The plan we de- 
clined to adopt was the plan of bimetallism, which, 


in the opinion of the Royal Commission upon that 
subject, would have worked a grievous injury to 
India." lint what the six " monometallist Com- 
missioners " reported was this: — 

We pass on, then, to the next point, namely, assum 
ing such a stable ratio [between gold and silver on the 
basis of approximately the market ratio] to be secured, 
what effect would it have upon the evils with which we 
have to deal? Fluctuations of exchange between countries 
haying a different standard, so far as they depend upon 
the varying relation of silver to gold, would cease, and 
the perplexities and difficulties which now so severely 
beset the Indian Government would be at an end, sub- 
ject to this qualification, that so far as the burden on 
the Indian Exchequer is due to the fall which has taken 
place in the gold price of silver, that burden would 
continue permanently. But it must be remembered that 
in the view of the Indian Government — ami upon this point 
we agree with them — this would involve less danger and evil 
than the continuance of the 'present state of uncertainty with 
the risk of a future fall. 

With this view the six " bimetallist " members of 
the Commission, in their separate report, express 

The correction of this erroneous statement of the 
opinion of the Royal Commission is the more called 
for, because Sir William Harcourt declared that the 
supposed opinion was "one of the principal reasons 
why we [the Government] did not adopt the sugges- 


tion that there should be an attempt to establish 
bimetallism in India, or for India." 

The great experiment of the Government is still 
on its trial. For a brief period after it was initiated 
there was a large demand for Council drafts, be- 
cause there was a momentary expectation that the 
value of the rupee was about to rise. Very soon, 
however, the demand fell off, and the Secretary of 
State practically refused to sell because he could 
not get his price, and because it was hoped that 
when, towards the close of the year, the period 
during which the export of produce from India is 
at the full should begin, higher rates of exchange 
would prevail. The course of events did not justify 
this expectation ; and whilst rupees were accumu- 
lating in the Indian treasury, the debt of the Indian 
Government was also accumulating in London. In 
order to provide for its discharge, and prevent the 
forced sale of Council drafts in lame amounts at 
whatever price might be necessary, the Government 
introduced a bill into Parliament authorising the 
negotiation of an Indian gold loan in London up to 
the limit of £10,000,000. The bill was adopted 
in December 1893, giving rise to very instructive 
debates in both Houses. In both, the policy of the 
Government was defended with considerable force, 
particularly in the House of Lords by the Secretary 
of State and by the Lord Chancellor, but always on 


the ground that it \v;ts an experiment justified by 
the great straits to which the Indian Administration 
was driven, and the greater danger by which it was 
threatened in consequence of the cessation of pur- 
chases of silver by the United States Treasury. 
The Lord Chancellor observed that the choice lay 
between the course actually adopted and that of 
seeking an international arrangement for the estab- 
lishment of the Joint Standard. Both attempts 
were, however, necessarily of the nature of experi- 
ment. Of the two he thought the closing of the 
Indian mints was less open to objection because of 
the difficulty of arriving at an agreement as to a 



In the concluding portion of this book, some 
considerations will be adduced in support of the 
belief that the great nations of the world will ulti- 
mately be driven to co-operate in the re-establish- 
ment of the Joint Standard. In the meantime 
there is one step which the Government of India 
may take with great advantage, whether or not the 
present currency experiment should succeed. 

In recent years the principle has been generally 
accepted that the Indian Government should 
borrow in India rather than in England. Ex- 
cellent reasons may be given in favour of this pre- 
ference so far as past years are concerned ; but I 
venture to think that, on purely financial grounds, 
the time has come when it is most desirable to 
borrow in England, and I am even so bold as to 
believe that it would be profitable to do so, and to 
use the borrowed money in paying off rupee bonds. 


I proceed to show the advantage of adopting 
this course by working out the results in respect of 
each £1,000,000 borrowed in gold in London at 
3 per cent. 1 assume the issue price to be 99, 
but it is by no means impossible that 100 might 
be obtained, the present market price of India 3 per 
cent gold stock being 1.0 0! to 101. 

One million of pounds sterling of India gold 
bonds issued at 09 would produce £990,000, which 
;it the present exchange rate of Is. 2d. per rupee 
would pay off 4 per cent rupee bonds to the extent 
of Us. 10,971,428, and the annexed statement 
shows the gain upon the operation : — 

Interest saved on Rs. 16,971,428 at 4 per cent . 678,857 
But interest must be paid on £1,000,000 at 

3 per cent . . £30,000 

Council drafts required to remit home £30,000 

for interest at Is. 2d. exchange . . 514,286 

Minimum annual saving so long as exchange docs 

not fall below Is. 2d. . . . 164,571 

Council drafts required to remit home £30,000 

.it Is. Id. exchange . . . 553,846 

Council drafts required to remit home £30,000 

at Is. exchange . ■ . . 600,000 

Council drafts required to remit home £30,000 

at 1 Id. exchange .... 65 1,545 
Council drafts required to remit home £30,000 

at LOid. exchange . . . 685,71 I 


It thus appears that even if the rate of exchange 
were to fall further there would still be a net 
advantage in substituting gold for silver debt, until 
the almost inconceivably low rate of 10^-d. per 
rupee should be reached. If, on the other hand, ex- 
change were to rise, the required amount of Council 
drafts would diminish as follows : — 

Council drafts required to remit home £30,000 

at Is. 3d. exchange . . . 480,000 

Council drafts required to remit home £30,000 

at Is. 4d. .... 450,000 

Saving per annum at Is. 3d. exchange . 193,000 
Saving per annum at Is. 4d. exchange . 223,000 
The saving on every £10,000,000 would amount, 

at Is. 3d. exchange, to . . 1,930,000 

The saving on every £10,000,000 would amount, 

at Is. 4d. exchange, to . . 2,230,000 

The existing amount of rupee debt is about 
Ex. 103,000,000. Upon most of this the rate of 
interest is 4 per cent, and the greater part is 
repayable, at the option of the Government, upon 
giving three months' notice. A gold loan of 
£50,000,000 would enable the Indian Govern- 
ment to discharge rupee bonds amounting to 
Ex. 84,857,140, leaving still nearly Ex. 20,000,000 
of rupee debt in existence. The saving of interest 
derived from the conversion would be, at Is. 2d. 


exchange, Rx. 822,855; at Is. 3d., Rx. 005,000; 
and at Is. 4(1., Rx. 1,1 15,000 per annum. 

At present the amount of rupee bonds " enfaced " 
foi payment of interest in London is Rx. 25,757,000. 
1 1 may be assumed, therefore, that to this extent 
they are in the hands of European, mostly British, 

I'p to this amount the new gold loan would 
simply displace rupee paper held in Europe. So 
far, therefore, no increase of Council drafts would be 
required to provide for European interest, whilst 
there would be, as shown above, an appreciable 
savin" in the whole amount needed for interest in 
consequence of the conversion of 4 per cent rupee, 
into 3 per cent sterling securities. 

It is hardly possible that any of the new 3 per 
cent stock would find its way to India, but 
£1 5,300,000 of it would be required to pay off the 
holders of the Ex. 25,757,000 held here. Upon 
the remainder — £34,700,000 — the annual interest 
would be £1,031,000, and this is the extreme limit 
of the increase of Council drafts resulting from the 
conversion upon its completion. This would, how- 
ever, not involve any new charge upon the Indian 
treasury, unless the rate of exchange should fall to 
1 0. Id. per rupee. Oil the contrary there would be 
a clear gain, as already shown, augmenting with 
every upward movement of the rate. 


The proposed conversion has the further recom- 
mendation, that the process of carrying it out would 
powerfully assist the Government in its endeavour 
to raise the value of the rupee to Is. 4d., because the 
£34,700,000 of the new loan remaining over and 
above the sum needed to pay off Ex. 25,757,000 
of " enfaced paper " would become, for the time 
being, a debt due, and to be paid to India. But 
before this would be discharged the hindrances to 
the success of the Indian currency experiment 
would almost certainly have disappeared, if ever 
they are to do so. And if, meanwhile, an inter- 
national arrangement for the restoration of the 
Joint Standard should be concluded, at a ratio of, 
say, 22 to 1, equal to Is. 4 - 27d. per rupee, the 
Indian treasury would have a substantial gain, 
resulting partly from the conversion, and partly 
from the rise of exchange to that point. 

The only possible objection to the suggested 
conversion which occurs to me is a political one. 
It is extremely desirable not to discourage invest- 
ment in Government securities by native Indians. 
To what extent they now hold rupee paper, I do 
not know, but this objection, if good at all, is only 
an argument in favour of limiting the amount to 
be converted, not against conversion itself. 



I.\ no part of the European Continent has the 
monetary question been discussed so widely, or 
with so much earnestness, as in Germany. Eco- 
nomic writers of varied capacity and knowledge 
have put forth their views in favour of or against 
the restoration of the joint standard almost as 
bountifully as have their contemporaries in England. 
The argumentative portion of their dissertations in 
some instances ranks high, hut for the most part it 
is valuable chiefly for its local colouring, for the 
evidence which it affords of the environment — past 
and present — of the writers. This criticism may, 
no doubt, be applied also, in a huge measure, to 
English writers and speakers on t he currency prob- 
lem. But Germany has given us the fullest col- 
lection of facts bearing upon this subject in Herr 
Adolph Soetbeer's Materials for the Illustration and 
Criticism of tin Economic "Relations of the Precious 


Metals, and of the Currency Question, two editions 
of which appeared successively in 1885 and 1886. 
An English translation of the work was published 
in the appendix to the Final Report of the Gold and 
Silver Commission in 1888. 

But it is rather the state of public opinion in 
Germany than the literature of the question which 
is of immediate interest to English readers. In 
Germany, as in England, there are the two camps of 
monometallists and bimetallists dividing the national 
legislature and the mass of intelligent people, whose 
interests, or divergent views upon social and eco- 
nomic subjects incline them to one side or the 
other. It is probable that, hitherto, the balance of 
active and influential opinion has favoured the 
retention of the existing gold standard, and some of 
the reasons for the undoubted strength of mono- 
metallist opinion — whether it be in the ascendant 
or not — are as interesting as they are obvious. 

The currency reform of 1871-78 gave Germany 
for the first time a uniform system of money. 
Before this was introduced, there were in circula- 
tion seventeen varieties of gold coins, sixty-six 
different kinds of silver coins, and forty-six descrip- 
tions of notes. The standard of value was silver, 
and the metallic circulation consisted chiefly of that 
metal. But the confusion arising from the numerous 
sorts of money, and the dissatisfaction due to the 


imperfect condition of some of them, were universal. 
It was necessary that the cashier in a merchant's 
office should be an expert, spending much time in 
discriminating- between, and calculating the re- 
spective values of, the coins presented for payment. 
Bank cheques were all but unknown, and there was 
no clearing-house. Every one, therefore, welcomed 
heartily a change which gave a uniform and accept- 
able currency, and brought in its train the modern 
banking system with its economising and simplify- 
ing expedients. 

It is surely not surprising that these valuable 
and all-pervading reforms became associated in the 
minds of the people, and especially in the minds of 
business men, with the gold standard which was the 
foundation of the new monetary system. There has, 
consequently, long been a strong presumption at the 
root of public opinion in favour of the existing 
monetary arrangement, and a corresponding indis- 
1 m isition to disturb it, When once the benefits of a 
great and sorely needed reform have been brought 
home to the mind of any community, proposals to 
alter it are always looked upon with suspicion. And 
this natural conservatism is especially strong when 
the question is one involving principles and pheno- 
mena so complex and recondite as those of currency. 
Precisely the same aversion to change has been a 
marked feature of English discussions of the currency 



problem. Here and in Germany alike, multitudes 
of intelligent men, even amongst those who have 
suffered severely from the monetary disturbance, 
have found satisfying reasons for avoiding inquiry 
into a perplexing subject in such prudential maxims 
as, " Better endure the ills we have than fly to those 
we know not of." There is much force in the 
observations made years ago by Mr. Bagehot and 
Professor Jevons, to the effect that in nothing are 
the English people so conservative as in questions 
of currency. And certainly this dictum has been 
quite as true in respect of the German people since 
they began to reap the advantages of the great 
monetary reform of 1871-73. 

But there is another reason for the apparent 
absence of wide popular interest in the monetary 
controversy in Germany, in spite of the activity 
with which it has been at times carried on there 
within the last twenty years. The fall of prices — 
especially of agricultural products — which took 
place after 1873 was keenly felt. It was pointedly 
recognised by Prince Bismarck in 1879 and 1885. 
On both occasions he attributed it to the severity of 
foreign competition, and the remedy he advocated 
and applied was Protection. Speaking in the latter 
year, he drew attention to the fact that notwith- 
standing the higher duties imposed upon imports, 
the price of grain was then no more than it was 


before the duties were raised, six years earlier. He 
either did not know, or found it inconvenient to state, 
that in a Free Trad.- market — in England — the 
annual average price of wheat had fallen in the 
interval from 46s. 5d. per quarter to 32s. lOd. ; ami 
that of barley, from 40s. 2d. per quarter to 30s. Id. 
With curious inconsistency, he pointed to the 
absence of any advance of prices in Germany as 
destroying the arguments of those who had predicted 
that the Protectionist policy of 1879 would in- 
crease the cost of living, and at the same time as a 
reason for still further raising the import duties. 
He said, however : — 

I hope that the price of corn may increase. I hold 
its increase to be necessary. There must be a limit at 
which the State must try to raise the price of corn. 
I asked you to imagine the price of rye falling fifty 
pfennig ; or I will name the price which now and again 
really occurs in the inner Russian governments, the 
price of one mark. Is it not quite clear that our agri- 
culture would then be absolutely ruined — that it would 
not be able to exist any longer — and with it all the 
labourers and nil the capitalists dependent upon it? 
< v hute apart from the farmer, who is, of course, a corpus 
vile on which the town-folk can experiment — though it 
must be remembered that the towns would no Longer 
have buyers in the farmers ; the labourers would be 
without employment, and would stream to the towns. 
In short, it is undoubtedly a national calamity when the 
price of corn, the everyday means of subsistence, falls 


below the rate at which it can be cultivated with us. 
I will regard the maxim as admitted, that there is a 
limit below which the price of corn cannot fall without 
the ruin of our entire economic life. 

I have quoted these words of Prince Bismarck 
for the purpose of indicating that, in Germany, the 
fall of prices was not unheeded, but that the con- 
nection between this fall and the monetary disturb- 
ance was obscured by Protectionist legislation. 
This was extended to manufactures as well as to 
agricultural products. Generally prices were not 
advanced by this expedient ; but they were pre- 
vented from falling, and thus another explanation 
of the absence of a very keen popular interest 
in the currency controversy is accounted for 
by the Protectionist tariff policy of 1879 and 

But within the last three years Germany has 
begun to retrace the steps taken in 1879, and sub- 
sequently, on the road of Protectionism. Towards 
the close of 1891, the Emperor and his chancellor 
— Count Caprivi — recognising the growing need of 
the country for extended foreign trade, and the 
seriously narrowing effect of the commercial policy 
of the preceding twelve years, determined to reverse 
it. Treaties of commerce were entered into with 
Austria -Hungary, Italy, Switzerland, and Belgium, 
with reciprocal reductions of import duties, and 


binding each party not to increase these duties for 
a period of ten years. This movement was signi- 
ficant, because it marked the beginning of a 
reaction from the forward march of Protectionism 
on the Continent, started between 1872 and 1878. 
France started it, in 1873, by raising her tariff on 
the plea that the increased internal taxation necessi- 
tated by the Franco- German struggle, the war 
indemnity, and the extended armaments with which 
she resolved to burden herself, had made it requisite 
to impose " compensatory " import duties. Then 
came the great fall of prices and the industrial 
depression of 187G-70, which led to combinations of 
agricultural and manufacturing interests in most 
Continental countries for the purpose of enforcing 
higher protective tariffs. In Germany and France 
the Governments were only too ready to yield to the 
pressure, seeing in it, as they thought, the means of 
drawing a larger revenue from the pockets of the 
people. Further movements in the same direction, 
and prompted by the same motives, followed the 
downward course of prices in the next decade, and 
in France the edifice of Protection was crowned by 
the tariff which came into force in February 1892. 
More than a year before that, however, the German 
Emperor had discerned the folly of this race for 
pre-eminence in the erection of barriers to inter- 
national trade, and had resolved to put an end to it, 


so far as lie could, by reviving the abandoned treaty- 
system of which the Anglo-French Convention of 
1860 was the forerunner. The result was the 
Central European arrangements of 1891-92. To 
these another has just been added, bringing the 
great empire of Eussia within the peaceful bonds of 
a commercial compact of certain duration, and a 
further convention is being prepared which will link 
together Russia and Austria-Hungary. 

The decisive reaction thus clearly manifest in 
Germany has not been allowed to make progress 
without the strenuous and almost fierce opposition 
of the agriculturists (the agrarians) and others 
who had been taught to recognise in Protectionism 
the only cure for the distresses occasioned by 
the great fall of prices from which they had 
suffered most severely. This opposition reached its 
height during the negotiations with Eussia in the 
latter half of 1893. But before the treaty which 
resulted from them had reached the critical stage in 
its passage through the Eeichstag, the heads of the 
Government had succeeded by firmness and tact in 
detaching from the agrarian party a substantial 
contingent, and "the convention at length received 
the approval of the Legislature. 

A probable consequence of the experience gained 
in the course of the Eusso-German treaty negotia- 
tions is that the great and unsolved problem of 


the monetary policy of the leading commercial 

nations will receive much closer consideration than 
has yet been given to it in Germany. An Imperial 
Commission is now investigating the subject, and 
there is reason to believe that in the highest quarters 
it is regarded with the seriousness which its im- 
portance demands. It may be» true, as has beeu 
surmised, that the appointment of the Commission 
has been hastened in order to provide consola- 
tion for the agrarians in their defeat, or possibly to 
induce some of them to withdraw their opposition 
to the treaty. But this is a minor consideration. 
The really important fact is that the last ground of 
hope for those who have looked for the maintenance 
of a policy of high Protection in Germany is gone. 
Their minds will, therefore, now be free to examine 
with the better prospect of success the real cause of 
industrial depression in gold-standard countries, and 
to take their part in discovering and applying the 
proper remedy. The occasion is opportune; for 
assuredly the monetary question has within the last 
six months assumed a new and almost an acute 
phase. The repeal of the Silver Purchase Act in 
the United States and the suspension of the coinage 
of silver*in India have brought fresh confusion into 
the monetary and commercial affairs of the whole 
world, and there is something more than probability 
in the view that an attempt, much more serious and 


earnest than any hitherto made, to settle the ques- 
tion by an international agreement will be brought 
about by the force of circumstances. At previous 
international monetary conferences the apparent 
indifference of Germany and England has always 
been the great stumbling-block. It is at all events 
satisfactory to find that this last defeat of Protec- 
tionism in Germany is likely to prove the occasion 
of a more serious treatment of the currency 
problem in that country than it has so far re- 

In France, as in Germany, the gravity and 
urgency of the monetary problem have been very 
much hidden by the growing power of Protectionism, 
which since 1872 has gained almost unquestioned 
control over the Legislature. This obscuration is 
the more remarkable because of the practical advan- 
tages of the joint standard maintained by the 
French mint law of 1803-1873. Even there, how- 
ever, signs are not wanting of a return to more 
rational methods. At the close of a recent meeting 
of the French Society of Agriculture, an address 
upon the monetary question was delivered by M. 
Allard, formerly Director of the Belgian rifint, and 
an economist of repute throughout Europe and 
America. After the address a Bimetallist League 
for France was founded. M. Cernuschi has been 


elected its president, and MM. Jules Roche and 
Meline, vice-presidents. The Joint Standard was 
the subject of earnest discussion amongst French 
economic writers twenty years ago, and the teach- 
ings of one of them, M. WoloWski, which made a 
strong impression upon the mind of Professor Jevous, 
have done much to establish the soundness of the 
theory upon which the arguments of the bimetallists 
are built. But, since 1873, the glamour of Pro- 
tectionism has all but completely closed the eyes of 
French statesmen and the French public to the fact 
that the fall of prices and the depression of trade 
which it is intended to remedy have a monetary 
origin. It may perhaps be said that the accept- 
ance by M. Meline, the Protectionist parliamentary 
leader, of a prominent position in the Bimetallist 
League is calculated to throw discredit upon the new 
departure. But perhaps a wiser view of the matter, 
which Free Traders will appreciate, is that a pros- 
pect has at length arisen of the French people 
directing their attention to the real source of the 
evils alllicting the industries of their country, in 
common with those of other nations having a gold 
standard. For although France has a very large 
amount of silver in her currency, this has, ever 
since the mints were closed to its free coinage, 
been kept at par with gold, and her standard has 
consequently been exactly the same as our own. 


It may be observed that French Free Traders have 
for a long time past directed attention to the 
monetary origin of the troubles which Protectionists 
were endeavouring to remove by increased import 
duties, and that in the Revue Agricole M. Zolla, a 
Free Trade writer, has discussed very fully the con- 
nection between the appreciation of gold and agri- 
cultural depression. It seems not at all unlikely 
that the new league, supported as it is by both the 
advocates and the opponents of Protection, will do 
much towards disseminating more liberal ideas in 
France with reference to foreign commercial policy, 
and, at the same time, to arouse a much stronger 
interest in the solution of the monetary problem 
than has yet been seen in that country. 

The monetary history of the United States is an 
exceedingly interesting one, full as it is of varied 
and sometimes contrary legislative action. At 
the time of the Declaration of Independence, and 
until 1834, the monetary system was, in law and in 
practice, bimetallic. In that year, the legal ratio, 
which had been 15 to 1, was altered to 16 to 1 by 
Act of Congress. The disproportion between this 
new ratio and that existing in France, led to the dis- 
appearance of silver, which had previously been very 
abundant. Gold having become the solitary metallic 
element in the full legal tender coinage, was by an 


Act of 18;"):; recognised as such. la 1861, however, 

the over-issue of greenbacks brought about the ex- 
pulsion of gold, and when specie payments were 
resumed at the beginning of 1879, the gold standard 
was again established, with the modification arising 
from the passing of the Bland Hill in 1878 over 
the veto of President Hayes. This measure provided 
for the coinage of not less than $2,000,000 nor more 
than $4,000,000 per month of silver money. In 
1890, the Windom-Sherman Act was substituted for 
the Bland Act, and under it the Treasury was re- 
quired to purchase 4,500,000 ounces of silver at the 
market price, giving in exchange Treasury notes, 
which entered into circulation at par with the other 
note issues, and with gold. Since 1878, therefore, 
the circulation of the United States has always em- 
braced a large proportion of silver, either in the 
shape of coin or as bullion reserve, represented by 

It is obvious that to the extent that silver has 
thus taken the place of gold, or rather, has been 
made auxiliary to it, the appreciation of the latter 
metal has been checked. But the standard has all 
along been gold, because the silver coin and silver 
notes have always been kept at par. There can be 
no doubt, however, that the course pursued by the 
United States in the Acts of 1878 and 1890 has 
had two very important results. It has greatly 


mitigated the monetary disturbance of the last 
twenty years, both by making gold less scarce, and 
by absorbing silver which other nations had refused 
to take. But this advantage has probably been 
gained at the expense of prolonging the period of 
disturbance, and of postponing a crisis which has 
begun only since the closing of the Indian 
mints and the repeal of the Windom - Sherman 

The strong support which legislation in favour of 
the use of silver has commanded in the United 
States, since 1878, has in this country been 
erroneously ascribed to the influence of the silver 
mining interests of the Western States. That in- 
fluence is undoubtedly considerable, especially in the 
Senate, but it is utterly insufficient to account for 
such legislation. Public opinion in the United 
States is, and has long been, highly favourable to 
the general adoption amongst the leading commercial 
nations of the Joint Standard. Indeed, most of the 
leading economic, banking, and commercial authori- 
ties steadily opposed the Acts of 1878 and 1890, 
on the ground that they deferred the inevitable 
crisis which in the long-run would, they held, 
compel other countries to join in the re-establishment 
of that standard. It may, therefore, be confidently 
assumed that Congress will be ep:iite ready to take 
part in this enterprise whenever it is seriously 


entered upon by a sufficient number of other nations, 
but there is not the least likelihood that any new 
action tending to restore stability between the 
relative values of silver and gold will be undertaken 
by the United States alone. 



The central and all-important fact, around which 
the monetary controversy ranges, is the extraordin- 
ary fall of prices in gold-standard countries since 
1874, and the comparatively inconsiderable change 
of prices where silver is the standard of value. A 
fall so great, so prolonged, and so slightly inter- 
rupted, has never occurred in any age, or in any 
community, except in association with great mone- 
tary perturbations. In investigating the connection 
between the present decline of prices and the 
abandonment of the Joint Standard, I have dwelt 
especially upon the immense part played by credit 
and credit instruments in modern times, and the 
way in which the employment of these has been 
affected by the monetary dislocation. This phase 
of the question has, I conceive, been too much 
obscured by the great prominence given to statistics 
of the supply of, and the demand for, gold. Such 
statistics I have neglected, as far as possible, not 


because they are unimportant, but because the 
conclusion to which they point is not questioned. 
Kvery one recognises ( 1 ) that the adoption of 
a gold standard by Germany in 1871-7:5, and 
the subsequent stoppage of free silver coinage 
in the Latin Union, have, together with the 
resumption of gold specie payments in the United 
States, created vast new demands for the metal ; 

( 2 ) that the conviction has been forced on 
governments of countries in which gold was not 
previously the standard of value, that they should 
have recourse to it as speedily as possible ; and 

(3) that these new demands, actual and pro- 
spective, have occasioned a disposition to accumulate 
gold — as in France, in Bussia, and elsewhere — as 
a precautionary measure, and, in the opinion of 
respected authorities, with a view to the adoption 
of a gold currency. Even in India the private 
absorption of gold has, as I have shown, been 
stimulated by its growing dearness as a profitable 
mode of investing savings. And now the Indian 
Administration, with the approval of the Home 
Government, has entered upon a currency experi- 
ment, the complete success of which will require it 
to obtain and to keep a substantial store of gold. 
It is further recognised that the consumption of 
gold for other than monetary purposes is large, and 
is rather increasing than diminishing, and that the 


current supply during the last twenty years has 
been by a long way insufficient to satisfy all these 
requirements without increasing its relative scarcity, 
and consequently its purchasing power, that is to 
say its value. 

I have sought to give proper consideration to 
the views of those — a diminishing number — who 
attribute the fall of prices largely if not mainly to 
over-production, or to improvements in methods of 
production and distribution. To what has been 
said upon the first of these supposed causes of low 
prices, it may be added that those who hold it are 
in this difficulty : Increased production means 
increased wealth, and the period which has elapsed 
since 1874 has been distinguished by circumstances 
peculiarly favourable to prosperity. It has been a 
period of international peace, of great progress in 
the arts of peace, and of the efficiency of labour. 
It is incredible, therefore, that the realisation of 
the fruit of these beneficent forces, viz. increased 
abundance, should have produced the diminished 
rewards of industry of which so much has been 
heard during the last twenty years. On one 
ground, and only on one, can the theory of over- 
production as a cause of these diminished rewards 
be made intelligible. It may be said that the fall 
of prices, to which they are attributed, is due to the 
altered proportions between the wonltli to be 


exchanged and the volume of the instruments of 

exchange. But this is obviously a monetary con- 
sideration unconsciously disregarded by the over- 
productionists. It is also the missing link in the 
chain of reasoning by which those who attribute 
the fall of prices to improved methods of produc- 
tion and distribution arrive at their conclusion. 
In Chapter V. I have adduced reasons, which appear 
to me to be adequate, in support of the view that 
such improvements do not of themselves affect the 
level of general prices. 

It must be admitted, indeed, that the monetary 
origin of the fall of prices and all its consequences 
are now widely and prevailingly acknowledged. 
Upon that question there is hardly any dispute. 
But it is held by many respected authorities that 
— although the purchasing power of gold has in- 
creased, the standard of value has altered, the 
burdens upon industry have been greatly aug- 
mented, its rewards lessened, and confusion and 
distress have been brought into commercial and 
industrial life at a time when other conditions were 
eminently favourable to abounding prosperity — no 
practicable remedy can be found. The gold 
countries have no choice but to abandon themselves 
to a condition confessedly unsatisfactory and full 
of uncertainties. 

On the other hand, a large and increasing 



number of persons in all the leading commercial 
states see in the restitution of the Joint Standard a 
sufficient and feasible cure for these evils. It is 
becoming every day more manifest that on one 
side or the other all thoughtful people must stand, 
for no third course is before us. Of the enormous 
public advantage which would follow the attain- 
ment of an approximately stable standard of value 
no one entertains the least doubt. Nor is there 
any question that, during its existence, the Joint 
Standard worked so well that it made every one 
oblivious of the fact that he was enjoying its 
benefits, — just as a man with a sound constitution 
and a healthy life is wholly unconscious that he is 
in possession of heart and lungs until these organs 
begin to fail. 

The proposed remedy has encountered strenuous 
opposition in this country ever since it was sug- 
gested about sixteen years ago. Its opponents 
have in the interval diminished in number very 
greatly, but they are still numerous, and many of 
them are influential. There are, too, multitudes of 
intelligent people who, without distinctly taking a 
side, are tacitly averse to change. Why, they ask, 
should we throw overboard a system which has 
become one of our established institutions, and 
under which British industry and trade made such 
astonishing progress for a long period, in favour of 


a new-fangled scheme of which we have had no 
experience. The question is natural enough, but it 
is sufficiently answered when it is stated that our 
present currency arrangements were made only in 
L819; thai between that year and 18*73, what we 
really possessed was not a gold standard at all, 
and that only since the latter year have we had a 
true gold standard, with such deplorable results as 
are manifest to everybody. The reply to this ob- 
jection is that the advocates of the Joint Standard 
are not innovators. They desire a return to that 
ancient " practice of Governments " to which Mr. 
Bagehot attributed the former steadiness of " the 
gold price of silver," but with conditions and 
guarantees for its permanence suited to the altered 
circumstances of our day. 

But a further question arises. Why, it is 
urged, should England concern herself about the 
consequences of a change — the cessation of the free 
coinage of silver in the Latin Union — for which 
she was not responsible \ To this question it is 
answered, that although we are not responsible for 
the change, we are suffering more, perhaps, than 
any other nation from its consequences, and there- 
fore our own interest bids us concern ourselves in 
removing them. The rise in the value of gold 
has brought after it innumerable and very grave 
troubles, which lie at the rent of the depression of 


trade and of agricultural and manufacturing in- 
dustry. And certainly no one who has realised 
the importance of these troubles and their enduring 
nature, can hold that the restoration of the Joint 
Standard is either a matter of indifference to the 
English people, or one which they can neglect 
without grave further consequences to themselves. 
If you have built your house in such a way that 
it depends for support upon a neighbour's wall, it 
surely becomes to you a very serious business when 
he proceeds to take down the wall. 

Doubts and hesitation as to the wisdom of 
British co-operation in the revival of the Joint 
Standard are entertained because of prevailing- 
misapprehensions as to the changes which it would 
involve in our monetary system. Many people 
imagine that in their business transactions they 
would be liable to be deluged with cumbrous 
masses of silver coin. For this erroneous idea, it 
must be acknowledged, some bimetallists are in 
part responsible. They have acquiesced in the 
notion that the free coinage of both metals at a 
fixed ratio involves the liberty of the debtor " to 
pay in either metal." But, in truth, if the pro- 
posed change were effected, no one ignorant of the 
fact would become aware of it in his own business 
life. At the present moment anybody who has to 
pay £10,000 may, if he chooses, deliver the whole 


sum in <^old coin. But no one would ever dream 
of inflicting upon himself the trouble and risk of 
getting and conveying to his creditor so heavy a 
mass, because he can effect his purpose by simply 
drawing and handing over a checnie. Much less, 
then, would any person incur the greater trouble 
and risk of obtaining silver to pay his debts when 
gold, or notes, or a checpie would accomplish his 
object. The use of coin, therefore, would, under the 
new arrangement, be restricted, as it is now, to the 
payment of small amounts, and for the same reason, 
viz. that we possess more convenient, safer, and 
more expeditious methods than that of carrying 
about and paying coined money. 

What would happen is this. Any one possessed 
of gold bullion may now take to the Bank of 
England any amount of it, demanding and re- 
ceiving in exchange bank-notes at the rate of 
£3:17:9 per ounce. Under the proposed system 
he would be equally entitled to take there any 
amount of silver bullion, receiving in exchange 
bank-notes at a rate based upon the agreed inter- 
national ratio. The sole novelty in our monetary 
system would be that a new item would be added 
to the already composite security on which the 
whole of the Bank's note issue is at present based. 
In order to furnish a picture of the change, I take. 
haphazard, one of the weekly statements of the 




Issue Department of the Bank — that dated 14th 
March 1894 — presenting it first in its actual form, 
and afterwards as it might appear if the Joint 
Standard were re-established: — 

Actual Form 




es issued 


Government debt 1 1,015,100 

Other securities 5,784,900 
Gold coin and 

bullion . 28,227,800 



New Form 


Notes issued . 50,027,800 


Government debt 11,015,100 
Other securities 5,784,900 
Gold coin and 

bullion . 28,227,800 

Silver coin and 




There would be nothing novel in such an account 
as this. Long after our present gold currency was 
established in 1819, the Bank of England was 
accustomed to hold silver bullion as a part of the 
security upon which its notes were issued. Even 
under the Bank Act of 1844, now in force, the 




Bank was and still is empowered to hold in its 
Issue Department silver bullion to the extent of 
one-fourth of the amount of gold coin and bullion 
held there, and to issue notes upon it. The follow- 
ing is a copy of the first statement published 
on 14th September 1884, after the Act came 
into operation : — 





Government debt 1 1,015,100 
Other securities 2,984,900 
Gold coin and 

bullion . 12,657,208 
Silver bullion . 1,694,087 



But the practice of using both silver and gold in this 
manner is not only the practice of our forefathers. 
It is now in operation in Germany, in France, and 
in the United States, — the three principal countries 
which would necessarily be parties to any inter- 
national arrangement entered into by Great Britain. 
Yet no one hears that there private persons are ever 
burdened with more silver than they care to hold. 
The only difference, in short, which the adoption of 
the Joint Standard by this country would bring 
about would be that the Dank of England note 
would have behind it gold, silver, and securities, 
instead of "idy gold and securities. 


Amongst the proposals which have been put 
forward as an alternative to the one I am now 
discussing, for increasing the use of silver as money, 
there is one which has always appeared to me to 
be altogether illusory and puerile. It has been 
suggested that gold should be retained as the sole 
standard, but that the present limit of the amount of 
legal tender in silver coin should be raised from 
40s. to £5. I cannot conceive that such a change 
would in any degree alter the amount of silver in 
use. Certainly the banks would not burden them- 
selves with the extra trouble of using the power 
conferred upon them, and still less would ordinary 
persons do so. It appears to me, therefore, incon- 
ceivable that a reversion to the old standard would 
make the slightest difference in the amount either 
of gold or of silver coin in circulation. The public 
would use just as much of both as might be 
required, and no more. Even in 1832, when the 
proportion of silver in circulation was much greater 
than it now is, the Governor of the Bank of 
England said in his evidence before the Bank- 
Charter Committee of that year : — " The silver now 
in circulation is the exact quantity that is required, 
there is neither scarcity nor superfluity." 

Doubts have been expressed, also, as to the 
possibility of maintaining the Joint Standard by an 
international agreement. Upon this point the 


separate report of the six monometallist members 
of the Gold and Silver Commission of 1887-8 

speaks guardedly, yet clearly. It states that in any 
conditions fairly to be contemplated in the future, a 
stable ratio might, in the opinion of these gentle- 
men, be maintained, if the United Kingdom, Ger- 
many, the United States, and the Latin Union 
were to accept and strictly adhere to bimetallism " 
at a ratio approximating to the then market ratio. 
This conclusion they found upon " a priori reason- 
ing," and upon " the experience of the last half- 

Two questions are thus raised. Is it conceivable any of these nations having once become 
parties to an international agreement, could ever 
gain any advantage by retiring from it ? and, what 
ratio would be most suitable ? 

No one, so far as I am aware, has been able to 
suggest the kind of circumstance in which benefit 
would accrue to any of the parties by abandoning 
the Joint Standard. The self-interest which would 
prompt its adoption would necessarily ensure its 
continuance, because, apart from its present utility, it 
could not be given up in favour of a single standard 
without involving enormous loss and disturbance 
in the country where the change might be attempted. 
Let it be supposed that the Joint Standard 
has been established, and that one of the great 


nations determines to resort to the gold standard. 
This course could not be done by stealth. One of 
the conditions of the arrangement would be that 
each government should receive, either at its 
treasury, or at its mint, or at the state bank, both 
gold and silver without limit of quantity, returning, 
at the option of the tenderer, either coin of the same 
metal or notes. But the very first refusal to accept 
silver would be a public notice furnishing an in- 
centive to hoard or export the very metal it was 
intended to keep, and would inflict immense injury 
upon the commerce and industries of the nation 
whose government should seek to change the estab- 
lished system. Those who imagine that it would 
be easy for one of the parties committed to the 
international Joint Standard to depart from it, may 
reflect, with advantage, upon the fact that neither 
Germany, nor Italy, nor France, nor Austria has yet 
been able to adopt a gold standard with gold 
currency. Nor can any possible conditions be 
pointed out under which it would be advantageous 
for a nation within the compass of the arrangement 
to attempt to return to the single standard. 

The question of the ratio presents, no doubt, 
some important difficulties both of principle and 
of detail. It would be idle to attempt to adjust it 
in accordance with any preconceived notion of the 
future relative production of the two metals. For 


ages this has varied greatly at intervals more or 
less long, the yield, now of one and then of the 
other, having predominated. Since L848 we have 
seen two oscillations, and it is possible that the 
pendulum may now have begun to swing back 
again. Geology can tell us nothing useful upon 
this point as to the future. But history can, and 
its lesson is that, though variable, the production of 
these metals has, over long periods, some approach 
to uniformity of proportion. The settlement of the 
ratio is, however, a matter of convenience and 
adjustment of conflicting interests, and this involves 
conference and mutual concession. 

But the important consideration appears to me 
tn be that whether the ratio be 1 to 15|, 1 to 20, 
or 1 to 22, there will be fixity and assurance. The 
apprehensions and perturbations which have dis- 
tressed the commerce and industries of the world 
for twenty years will be removed, and whichever of 
these ratios may be adopted, the appreciation of 
gold in relation to commodities will cease. If the 
diagnosis of the disorder set out in this book is at 
all accurate, there will ensue a restoration of con- 
fidence, and, consequently, a rise of prices resulting 
from it. Fears of the scarcity of gold will dis- 
appear, and all motive for such meat accumulations, 
in anticipation of unknown contingencies, as those 
held by the state banks and treasury of France 


and Kussia which have between them about 
£150,000,000 of it locked up, will be removed. 

The choice seems to lie between a continuance 
for a long time to come of the present state of 
monetary chaos and hopeless confusion, which is 
forcing nation after nation to look to gold as the 
basis of its currency and its standard of value, and 
the restitution of the Joint Standard by inter- 
national accord. I have presented in these pages 
facts and arguments which appear to me to show 
that all the great trading and industrial races are 
suffering seriously from this condition, and that 
the best interests of all are involved in such 

The attainment of an absolutely unvarying 
standard of value is impossible. But justice and 
reason imperatively require us to choose that which, 
beino; attainable, is least liable to variation. 
History teaches that the co-ordinate employment of 
the two precious metals affords the nearest approach 
to stability which it is possible to reach. De- 
parture from it — only twenty years ago — has 
involved the industries, the commerce, and the 
finances of the civilised world in a maze of con- 
fusion and disorder. It has thrust back Free Trade, 
has increased the burden of taxation, has brought 
British agriculture into dire straits, has reduced the 
rewards of industry, and has artificially changed the 


terms of private contracts. Wisdom and justice, 
alike, then, counsel a return to the old path. And it 
is because the Joint Standard is least liable to varia- 
tion, and is therefore the only just one, and because 
this truth is rapidly gaining acceptance, that its 
restoration may, with confidence, be regarded as 


Printed by R. & R. Clark, Edinburgh 


ii mil 111 mi 1 1 inn ii 

AA 000 590 469 3