Part 2
On the 5th of November, 1871, the Finance Minister of the new German Empire, Herr Delbrück, presented to the Imperial Diet a brief report of the “motives” which had led the Government to propose a measure for the unification of the German coinage. This measure provided for the coinage of gold pieces of ten and twenty marks, and it discontinued the coinage of large silver coins, but did not demonetize those that were in circulation. The report says, first of all, that it may be considered as beyond doubt that the existing silver standard cannot be maintained. The only gold coins authorized by existing law were German crowns and half-crowns, but these had no fixed relation to the standard silver coins of the nation nor to those of any other country. Consequently they were not accepted in the domestic circulation. They had never been an integral part of it, nor had they acquired any standing in international commerce, being melted down as soon as they reached the frontier. Consequently the internal commerce of Germany was confined to the use of bulky and inconvenient silver coins. “The inconvenience of silver coins,” says the report, “led of necessity to a very considerable circulation of paper, which, in ordinary times, is taken as a welcome facility, but in critical times contains the germs of serious dangers. The artificial demand for paper created by the exclusive circulation of silver made it almost impossible to adopt any radical and rational regulation of the banking system through laws common to all Germany.” For these reasons--namely, that silver was bulky and inconvenient, and that it brought about a forced circulation of paper and prevented any wise regulation of bank issues--the single gold standard was recommended, with a silver subsidiary coinage. The measure was supported by very strong speeches by Minister Delbrück and by Dr. Bamberger, and it passed on the 23d of November. This measure was provisional only, a second and more detailed one being enacted two years later.
It is said by some that Germany, by demonetizing silver in 1871 and by selling it in 1873 and later, drove France and the Latin Union into a suspension of silver coinage, and caused the great decline in the price of that metal. If this were true it might possess an academic, but hardly a practical interest. Germany is not answerable to us for her tastes. We cannot call her people to account for liking to have gold in their pockets or sauerkraut on their tables. We cannot go back to 1871 or blot out the intervening years. Nor have we been able to persuade Germany that she has made any mistake in her new monetary system. She declined to take part in the Monetary Conference of 1878. She came with reluctance to that of 1881, and announced at the outset that she could not join in any movement for the free coinage of silver. She repeated this declaration at an early stage of the recent Brussels Conference. So I feel warranted in saying that the question whether Germany has been guilty above others in oppressing or depressing silver is of no practical consequence.
But such a charge cannot be sustained. Germany had completed her new monetary system and stopped selling silver in 1879, and the Latin Union countries had closed their mints to silver three years earlier, whereas silver continued to decline all the same. The London price for 1879 (average) was 51¼d. per ounce. It is now 38d. The decline has been greater since Germany stopped selling than it was before. From 1871 to 1879 the aggregate decline was 9d.; from 1879 to 1893 it has been 13d.
The simple truth is that Germany was driven to the gold standard, just as Great Britain and the United States had been previously, by the _inconveniencies_ of silver money. These inconveniencies manifested themselves with some variations of detail in different countries, but all grew out of the ponderousness of silver, an evil which increased with the growth of commerce. Some persons habitually speak of silver as a twin sister to whom some grievous injustice has been done. All such must admit that she is a very corpulent one.
FRANCE BEFORE THE REVOLUTION.
We will now look at the course of events in France. Here the livre was originally a pound weight of silver. It was debased by royal authority from time to time, as in England, but much more rapidly. M. Béranger, in his report on the French monetary system in 1802, says that the ratio of gold to silver was changed twenty-six times between 1602 and 1773, and that the livre at the time when he wrote had been reduced to the seventy-sixth part of its original weight. The livre is now called the franc. It is impossible to trace any scientific connection between these recoinages and the metal ratios except that the divergencies between the legal and market ratios, whenever they were discovered, were seized upon by the Government as an excuse for further debasement. They “fell back alternately from gold to silver and from silver to gold,” says Béranger, making a profit to the royal treasury each time. M. Calonne, Comptroller-General under Louis XVI., has given us a list of the principal recoinages prior to his time, of which there were four in the reign of Louis XIV. and five in that of Louis XV.
It would be a waste of time to recount them. The ratio existing when Louis XVI. came to the throne was 14⅝ to 1. It had been adopted in 1726. The legal ratio in England at that time, as we have seen, was 15⅐. Both ratios were, or gradually became, divergent from the market ratio. Silver was exported from England and gold was exported from France. A recoinage in the latter country became necessary, and this was undertaken and executed by Calonne in good faith in the year 1785. Calonne chose the ratio of 15½. This ratio was in force when the celebrated law of 1803 was passed, under the Consulate. It was not exactly conformable to the market ratio at the time. It rated gold too highly, but Calonne said that he had observed that gold had an advancing tendency, and he believed that if 15½ was not the true ratio then, it would become so before long. In this he was right, for when the law of 1803 was passed, there was no observable tendency to export either metal, and the Hamburg market ratio, as tabulated by Soëtbeer, was very close to 15½.
FRENCH MONETARY LAW OF 1803.
I have in another place made a study of the documents and debates which preceded and led up to the French Monetary Law of 1803 (see _Political Science Quarterly_, June, 1891). The substance is that these learned and patriotic men, without exception, considered a double standard impossible and any attempt to establish it disastrous. They accordingly determined to establish, and thought that they had established, the single silver standard by a law, the first paragraph of which reads as follows:
“General provision.--Five grams of silver, nine-tenths fine, constitute the monetary unit which retains the name of franc.”
But they were confronted by the fact that gold was an indispensable part of the monetary system. How to retain it in the circulation as a subordinate metal while making silver the sole standard was the great puzzle of the day. No less than eight important papers were drawn up from time to time on this question, and no decision was ever reached except to allow gold to be coined at the French mint at the ratio of 15½ to 1, with the understanding that if the market ratio should change, the gold, but not the silver, should be recoined.
Such was the law of 1803. Although it was the intention of the lawmakers to establish the single silver standard, the clause which they introduced allowing the coinage of gold was the same thing in effect as re-enacting Calonne’s law of 1785. It was in practice, though not in intention, a bimetallic law at the ratio of 15½ to 1.
Almost immediately after its enactment France plunged into wars which lasted till 1815. Of course, the nation had very little time to think about her coinage laws. Gradually the price of gold rose above the legal ratio, and that metal was exported to such an extent that Chevalier tells us that “twenty-five years after that date [1803] the circulation consisted of silver only.” Abundant proofs can be adduced showing that bimetallism did not exist in practice in France between 1820 and 1847. Mr. Griffen has published a table showing the premium on gold in Paris during every month of that period. This premium was at times as high as two per cent. The contention of the bimetallists that the French law of 1803 kept the ratio steady at 15½ till 1873 is not supported by facts.
THE GREAT INRUSH OF GOLD.
From 1850 to 1860 there was an enormous increase in the production of gold in Russia, California and Australia, and scarcely any increase in that of silver. The market ratio declined to 15.46 in the year 1851, so, of course, gold could again circulate in France. The ratio continued to decline till 1859, when it reached its lowest point, viz., 15.19. It remained below 15½ till 1867. During this interval of sixteen years France imported $600,000,000 of gold and exported about half that amount of silver. Her circulation became saturated with the yellow metal to the great delight of her people, who had become tired of carrying sacks of five-franc pieces to and fro in cabs and handcarts.
The exportation of silver from France was so extensive at this time that the country was almost denuded of small money. It became necessary to coin gold pieces as small as five francs. In 1857 the scarcity of silver became so great that the Government appointed a commission to investigate the subject. This commission was bent upon maintaining the silver standard. So, instead of following the example of the United States and making silver coins of light weight and of limited legal tender, it recommended that an export duty be put on silver, that bullion brokers be prosecuted, and that assorting and trading in coins be prohibited by law. In other words, this sapient commission went back for inspiration to the times of Louis XIV. and of James I. and Charles I. of England. Some attempts were actually made to carry out these senseless recommendations, but they were soon abandoned. It was about this time that Chevalier, the French economist, who was a stout champion of the silver standard, proposed to solve the difficulty by providing that French gold coins should have a fixed weight, but a variable value, and that the value should be announced by legislative decree at certain short intervals. M. Levasseur, another economist of renown, but with a keener vision, expressed the opinion that gold had made itself the standard in spite of the law, and he suggested that the wisest thing for France to do was to make the law conform to the fact.
THE LATIN MONETARY UNION.
Nothing was done at that time. Events drifted till 1864, when the lack of small change had become so serious that the Government brought a bill before the Corps Legislatif authorizing the lowering of the fineness of all the silver coins less than five francs to 835 instead of 900 thousandths. This was in effect the same thing that we had done in 1853, when we converted all our silver coins less than one dollar into token money. The proposal was more shocking to the French legislator than to the American, for the reason that the franc was the monetary unit sanctioned by the law of 1803, and this monetary unit was one of the very things to be lowered. The Legislature recoiled, but it sustained the lowering of the pieces smaller than one franc. The difficulty could not be removed by such homœopathic treatment, and as the same difficulty existed in the neighboring countries of Belgium and Switzerland, a convention was called for the purpose of adopting some common steps for relief. Italy also was induced to join, and soon afterwards Greece. France considered it admissible to do by treaty what she had not been willing to do by direct act. By treaty dated December 23, 1865, these four countries adopted their present token coinage of silver and limited its legal-tender faculty to fifty francs. This was the origin of the so-called Latin Monetary Union.
HOW FRANCE CAME TO THE GOLD STANDARD.
In 1867 the price of silver had again declined, so that the French ratio of 15½ was substantially identical with the market ratio. That was the year of the International Monetary Conference, of which mention has already been made, at which France voted in favor of the single gold standard. Nevertheless, the French legislators abandoned the silver standard with extreme reluctance. They were attached to it by custom and tradition. They still desired, like their ancestors of the Revolution, to have the silver standard with gold as a subordinate metal. They allowed events to drift until 1873, when they were startled to find that 154,000,000 francs’ worth of silver had been deposited at the mint for coinage in that year, against only 5,000,000 francs’ worth in 1871–2. The amount of silver so deposited was more than the mint could coin in a year and a half, if it did nothing else. The market ratio of gold had risen nearly to 15.75. There was a profit of 1½ per cent. in sending silver bullion to the mint and using the resulting coin to buy gold for export. The delegates of the Latin Monetary Union were hastily assembled and they determined to limit the coinage of silver to 120,000,000 francs per year for all the countries concerned. This was virtually the adoption of the gold standard.
At the beginning of 1876 the market ratio had reached nearly seventeen to one. The crisis was becoming acute. Switzerland had ceased to coin her allotted share of silver. Belgium had passed a law authorizing the Government to stop coining that metal. M. Leon Say, the French Minister of Finance, sent to the Senate March 21, 1876, a bill of only two lines, in these words, viz.: “The coinage of silver five-franc pieces may be limited or suspended by decree.” The Senate Committee to which it was referred, under the lead of M. de Parieu, reported a more drastic measure absolutely forbidding the coinage of any silver money of full legal tender. The legislative body again showed its aversion to change by rejecting the Senate report and adopting, on the 5th of August, the more moderate measure of the Minister of Finance. But it really made no difference which of the two was adopted. The door of the French mint was closed to silver on the following day, and has not been reopened.
I think it has been shown that the gold standard made its way in France not only without design on the part of individuals, but in spite of the strenuous resistance of almost all the men who busied themselves with the subject at all. I have given a good deal of space to the experience of France, because of the great importance which has always been assigned to that country by the advocates of bimetallism.
EXPERIENCE OF BELGIUM AND HOLLAND.
It is unnecessary to go into details concerning the other members of the Latin Union, but one fact as regards Belgium deserves notice. This country was an integral part of France when the law of 1803 was passed. Her monetary system was accordingly identical with that of France until 1832, when she adopted the single silver standard retaining the franc as the monetary unit. In 1861, when the great influx of gold from California and Australia had made such a change in the monetary conditions of France, the people of Belgium began to taste the luxury of gold in the form of French coins. There was straightway a popular demand that French gold should be made legal tender in Belgium. The Finance Minister, Frère Orban, resisted it. He was impressed with the views of Chevalier in favor of silver, to which allusion has already been made. The popular demand grew apace, and Frère Orban, rather than yield to it, resigned his office. Then the bill was passed, and Belgium obtained what her people wanted, that is, the gold standard.
The experience of Holland is no less instructive. Prior to 1847 this country had the double standard at the ratio of 15.60 to 1. She had become convinced, however, that a double standard was merely an alternate standard, first one thing and then the other. So she decided to have a single standard, and adopted that of silver in 1847.
When Germany adopted the gold standard a commission was appointed by the King of the Netherlands to examine the monetary question. It recommended that the coinage of silver be suspended for six months, and a bill to that effect was passed in May, 1873. This law was renewed twice for periods of six months each. A second report of the Commission was made, recommending a bill for the adoption of the single gold standard, but this bill was rejected by the second Chamber in March, 1874. When the law suspending the coinage of silver expired in May, 1874, immense quantities of silver began to flow to the mint. Silver florins passed in trade at the old ratio of 15.60 because they were limited in quantity, but it was obvious that they would soon fall to the bullion value of silver. So in December, 1874, a new six-months’ suspension of coinage was ordered by the legislative body--the same one that had refused to adopt the single gold standard. Before this period had elapsed the Minister of Finance proposed that the silver coinage be discontinued indefinitely and that gold coinage be allowed. This bill was passed in June, 1875. Here again the gold standard made its way over the heads of the wise men of the time.
THE GOLD STANDARD IN AUSTRIA.
The adoption of the gold standard by Austria is now in progress, and there is every assurance that it will be carried into effect. That country had had the single silver standard since 1857, but was under a suspension of specie payments. When it was ascertained in 1879 that the decline in silver was likely to be permanent the Government gave orders to the mints in both Austria and Hungary to receive no more of that metal from private individuals for coinage. The effect of this order was to make Government paper money the standard, and this paper varied from day to day in comparison with gold, as did our greenbacks before we resumed specie payments. Some silver was coined on Government account, but as a matter of fact that metal was discarded as a standard by the refusal to coin for private persons. Austria had a gold coinage, indeed, but the gold was commercial money only. It had no legal-tender faculty, but passed at its quoted value from day to day. Since 1879 the problem of finance in Austria has been two-fold, namely, to resume specie payments (which must, under the circumstances, be gold payments), and to fix a ratio at which all paper money and paper obligations should be redeemable. The ratio decided upon was that of 119 paper to 100 gold, that being the average ratio prevailing in the market during the thirteen years from 1879 to 1892.
As the question of standard was really settled by Austria in 1879, when she closed her mints to silver, we are concerned to know how she came to take that step. The report of the special commission of the upper house on this subject, submitted last year, says that it had become clear as long ago as the decade 1860–1870, when Europe was becoming saturated with gold, that this was the only metal fitted to be the standard of nations of advanced civilization. “Gold was dominant and the standard of value,” says this report, “in all trade on a great scale as early as the fourteenth and fifteenth centuries, even though silver was then the standard in all domestic exchanges. * * * _In every age there is some metal dominant in the industry of the world which forces its way with elemental strength in the face of any public regulation, and in our day gold is that metal._”
This is as good a statement as can be made of the reasons why not only Austria but all the other nations whose action we have examined, including the United States, have adopted the single gold standard. While Austria has been collecting her supply of the yellow metal we have heard a great deal about the “scramble for gold.” Why is there a scramble for gold? Merely because gold is universally acceptable. All civilized people are willing to exchange their property for it to any extent, and this is the only thing they are willing to accept in that way without limit or reserve. That is a good and sufficient reason why there is a scramble for gold and why there is no similar scramble for silver.
A NATURAL EVOLUTION.
If we find a movement of civilized mankind going on steadily for a hundred years, working out in different countries uniform results which commend themselves to successive generations, the presumptions are all in favor of that movement being beneficial. At all events, the burden of proof is upon those who think differently. I am so well convinced of the benefits of the single gold standard that if all power were placed in my hands I would not introduce anything different from it. I should consider it presumptuous to attempt to interfere with an obviously natural evolution in human affairs. I should know, moreover, that such an attempt would be futile, because the first step to be taken would be to alter the preferences and likings of individual men. Society consists of aggregations of individuals, who in their private business prefer one ounce of gold to sixteen ounces of silver, or twenty-five ounces, as the case may be. Unless I can change this preference and liking I cannot alter the monetary standard of Christendom. It is this preference which paralyzes all the international monetary conferences. The secret thought of the delegates in the Brussels Conference was something like this: “What would happen the day after international bimetallism if the commercial classes should continue to prefer one ounce of gold to sixteen ounces of silver?” Any responsible minister of finance must recoil before that query.
I think that the “scramble for gold” would be worse the day after the bimetallic treaty than it was the day before, because everybody would suspect everybody else of gratifying his secret desire for gold at the expense of his neighbors. It should be remarked that the Brussels Conference, as a body, never touched the question of bimetallism, although some of the members improved the opportunity to make speeches on that subject. The Conference went to pieces on a minor question--that of buying a little more silver. The proposal was that the nations should purchase a certain amount of an article that none of them wanted. When the representatives of France and the Latin Union had the intrepidity to say that they would not recommend that policy to their governments, even if it should be adopted, the bottom dropped out of the Conference altogether. Although Mr. Bland has given his attention to this matter as a humorist, in a magazine article, I think that he has come short of exhausting the subject.
NO STEPS BACKWARD.
If the successive steps that we have described, whereby the nations have arrived one by one at the single gold standard, had been the result of a hundred years’ conspiracy against the “debtor class,” instead of being a natural evolution beneficial to all classes, I should still be unable to see any advantage in changing back. Whatever mischief appertains to this evolution has been done and now belongs to the remote past. Those books are closed. To retrace the steps would merely double the wrong, inflicting it upon a new lot. Those who, according to the hypothesis, suffered in the past are mostly dead. If there be any such victims living in France or Germany, in Holland or Belgium, or Scandinavia, they are very slow in disclosing themselves to the various international conferences held for their benefit. They are very backward in coming forward.