In 1867 the first International Monetary Conference assembled at Paris.

The primary object of the Conference was to secure uniformity of coinage, and it was with reference to this end that the Conference took up and considered the question whether both silver and gold should continue to serve as money of full legal-tender power in the countries represented.

The situation at the assembling of the Conference was as follows :

Of the states represented, two, England and Portugal, had gold in use as the sole money of full power, silver performing the office of subsidiary or token money, in petty transactions.  Turkey, also, nominally had the so-called single gold standard, with a circulation in fact of debased metal and irredeemable paper.

The remaining states were, if we count as one Sweden and Norway, countries under a single crown, evenly divided as states of the so-called single silver standard, or of the so-called double standard :

Single Silver Standard.  Austria, Baden, Bavaria, Denmark, Netherlands, Prussia, Sweden and Norway, Wurtemburg.

Double Standard.  Belgium, France, Greece, Italy, Russia, Spain, Switzerland, United States.

The preponderance, both of population and of commercial importance, is seen at a glance to have been greatly on the side of the double-standard states.  Of the states in this group, France was at the head of a monetary alliance called the Latin Union, under the Convention of 1865, consisting, besides herself, of Italy, Belgium, and Switzerland, all having practical unity of coinage and free inter-circulation of money, gold and silver being rated in the coinage at 15 ½ of silver to 1 of gold.

But it is to be observed that neither within the Latin Union, where this ratio prevailed, nor in the United States, where the ratio of 16 : 1 existed by law, was silver in general circulation as money of full power.  Why was this ?

The favorite explanation of the phenomenon among the writers of a certain class is that the progress of the arts, commerce, and civilization had made silver unfit for the money of such nations as France and the United States.  Professor Cairnes, one of the ablest of recent writers, a defender of the English single gold standard, takes this explanation of the cessation of silver circulation in France and the United States as a choice specimen of fatuity in economical reasoning.  In his «Character and Logical Method of Political Economy» he says : «Such attempts at an explanation of economic phenomena remind us of some of the physical speculations of the schoolmen.  We are told,» continues Professor Cairnes, «that silver goes to Asia, while gold remains in Europe; because Europe is a state of civilization which makes gold the most convenient metal for its coin, while Asia is in a state of civilization which makes silver the most convenient metal for its coin.  Now it is certain that no important change has taken place in the relative civilization of Europe and Asia, and I may add of America, during the past ten years [1]».  If the principle, then, were a good one, silver would have been displaced in Europe long ago, and inasmuch as the civilization of America has been equally in advance of Oriental nations, silver would never have been the chief currency there.  But silver has been the chief currency of both France and America until recently, and might be so still, in spite of their civilization, were their mint regulations framed with a view to retaining it.

The reason for the disappearance of silver as the principal money of France is intimated in the closing clause of the extract just given.  Silver had ceased to circulate in France, not because it was too cheap, but because it was too dear; because 15 ½ ounces of silver were worth more than 1 ounce of gold by 1 or 2 per cent.  As Professor Cairnes remarks, had France framed its mint regulations differently, silver might easily have been retained as the principal money of the country, as it had been up to 1848 or 1850, and as it still remained in Germany.  Had the French law decreed that 15 ounces of silver should pay a debt equally with 1 ounce of gold, silver would have been the money of France, in spite of the specific gravity of silver and of the civilization of France, when the International Conference of 1867 assembled.  Let us, then, rid ourselves at once of the influence of this mock-scientific jargon about «civilization» in connection with the use of silver as between 1848 and 1868.  The nation used silver as money up to 1850, because silver was 1 or 2 per cent cheaper than gold at 15 : 1.  The nation used gold after 1850 because it was 1, 2, or possibly 3 per cent cheaper than silver.  A fortiori, silver could not then have been used as money in the United States, where the law gave to 16 ounces no more debt-paying power than to 1 ounce of gold.  There was, however, an additional reason for the noncirculation of silver here, namely, that the United States had a large mass of irredeemable and fluctuating paper money, which had driven even gold out of the country.

Such was the situation of the chief countries represented at the Conference.

England and Portugal, single gold-standard countries, had an actual circulation of gold and of bank-notes convertible into gold on demand.

France and her allies, except Italy, nominally double standard countries, had an actual circulation of gold, as the cheaper of the two metals at their legal relation in the coinage.

Turkey, of the single gold-standard states; Italy, Russia, and the United States, of the double-standard states; and Austria, of the single silver-standard states, had an actual circulation of irredeemable paper money.

Prussia, with the German and Scandinavian states grouped around her, alone in Europe had a large actual circulation of silver as the principal money of the people, that circulation being as yet but little interfered with by bank-paper issues.

In addition to the silver thus used, however, the gold states had a considerable quantity in circulation as «divisionary money»; while, alike in the states nominally of the double standard which in fact used gold, and in those suffering from inconvertible paper, large amounts of silver still remained at that date – not indeed in circulation, but, to use John Locke’s image, «drained into standing pools», in hoards or reserves.

As this last fact is of great importance, and as American monometallists are too apt to speak of the dearer metal as if it were instantly drawn out of a country of the double standard, it may be well to quote the language used at the Conference of 1867 by the vice-president, M. de Parieu, easily the most eminent gold monometallist living.

«There is always», said M. de Parieu, [2] «a certain quantity of specie in every small place, that always circulates among its inhabitants and never gets out of a certain circle.  Great masses must be operated upon to find a profit in the exchange of metals; and the change of metals takes place slowly, by successive movements.  For these reasons, the general circulation is neither suddenly nor sensibly affected by change in the relative value of metals, for France has always had much silver in circulation, even when that metal was largely exported.»

Pursuing its primary and principal object, unification of coinage, among the nations represented, the Conference adopted, for the purposes of discussion, a series of interrogatories, twelve in number of which those that concern us in our present inquiry are Nos. 2 to 4 inclusive as follows :

«2.  Is there a possibility of establishing at this time identities or partial coincidences of monetary types on a wide scale, on the basis and with the condition of the adoption of the single standard exclusively ?

3.  Is there, on the contrary, a possibility of attaining the result on the basis and with the condition of the gold standard exclusively ?

4.  What of the like result, in proceeding on the basis and with the condition of the adoption of the double standard, with the establishment of an identity of relations in all countries, between the value of gold and the value of silver ?»

It is not necessary to follow in detail the discussion of the several interrogatories thus brought before the Conference.  It suffices to say that on Question 2, proposing the adoption of the silver standard exclusively, the Conference decided unanimously in the negative; that when Question 3, after being amended to allow each state «the liberty to keep its silver standard temporarily», was put to vote, it was adopted, with the dissent only of the Netherlands; and that, thereupon, the president proposed to pass over Question 4, as it had already been decided negatively by the adoption of the affirmative on Question 3.

It is usual to say that the Conference of 1867 decided unanimously in favor of the single standard of gold, or gold monometallism.  The British Commissioners, in their report to their government, say so.  Mr. Ruggles says so in his report to the United States Government.  And it is probably substantially just to say so, since the delegate from the Netherlands explained his dissent as caused by the insertion of the word «temporarily» in the amendment as given above.  «He would have voted with the other members of the Conference, if each state had been left to judge of the time it should keep the double standard.»

Such was the outcome of the Conference of 1867.  The tone in which silver monometallism and gold and silver bimetallism were dealt with may be not unfairly judged by the following extracts from the report of Mr. Ruggles :

«The establishment of the single standard exclusively of gold is, in truth, the cardinal if not the all-important feature of the plan proposed by the Conference, relieving the whole subject by a single stroke of the pen from the perplexity, and indeed the impossibility, of permanently unifying the multiplicity of silver coins scattered through the various nations of Europe.  It is a matter of world-wide congratulation that on this vital point the delegates from the nineteen nations represented in the Conference were unanimous.»

Mr. Ruggles further declared that the reduction in the fineness of the franc piece by the Convention of 1865 «was in fact a distinct and most instructive admission, in the most solemn form known to nations, that any act of mere legislation seeking to fix a double standard is, alike in its nature and in its very terms, fallacious, illogical, and impossible».

Few recommendations of extensive changes in public policy, from whatever source emanating, have been followed so promptly by acceptance and action.  Few learned bodies which have given advice to individual states or to the community of nations, and many learned bodies have presumed so to do, have been called so quickly to receive judgment, in approbation or condemnation, upon the wisdom, the propriety, the timeliness, of that advice.  In general, it is the privilege of congresses, conventions, and conferences to make recommendations without much feeling of responsibility, knowing well that the recommendations will either be disregarded altogether, or will be accepted merely as a contribution to the theory of the subject involved, not as a deciding force in public conduct.

In this respect the Conference of 1867 was unique.  It profoundly affected the public mind of Europe.  The unanimity of its conclusions put every bimetallist, every advocate of the retention of the single silver standard, upon the defensive.  The Conference had stigmatized silver as unfit longer to be the money of civilized countries.  It had stamped the double standard as illogical and impossible in practice; and while it thus gave an overwhelming weight of opinion to the side of gold monometallism, its diplomatic character, notwithstanding that every state had formally reserved full liberty of action, seemed to promise that the unanimous agreement of such a body should not be in vain.  And so in fact it proved.  Earlier than the most sanguine delegate could have anticipated, consequences of tremendous extent followed upon the recommendations of the Conference.  Those recommendations proved, indeed, as M. de Parieu had remarked, «a seed sown, the germination of which could not be foreseen».

In 1871, Germany, now unified as the result of the wars of 1866 and 1870, took the preliminary steps for discarding silver, and passing over to the single standard of gold; and in 1873 that course was definitively adopted.  The Scandinavian states followed, as the natural auxiliaries of Germany.  The causes of this action on the part of Germany were probably somewhat complex.  German Unity had triumphed over German Particularism, and the opportunity was favorable to establish through gold monometallism an imperial coinage.  Moreover, the action was had while the passions of the war were still burning; and bimetallism was French.  In part, also, the motive was doubtless economical, originating in the considerations which had actuated the Conference of 1867, and most probably having a conscious reference to the recommendations of that body.

The consequences of this step were momentous.  Germany had been the greatest consumer of silver in Europe.  She now became the great seller of silver.  At the same time, by an unhappy coincidence, occurred a notable increase in the production of silver in the Western mines of the United States.  The change in the relative supply of the two metals was in itself not large enough to be alarming, but it was exaggerated manifold by report, and produced an immense moral effect.  It seemed to emphasize the condemnation which had been pronounced against silver; to demonstrate the prescience of the Conference of 1867; and to be a sort of proclamation by Nature herself that this metal was becoming too plenty and cheap for the purposes of the civilized nations.  The courage of the advocates of silver for the moment gave way.  Gold had maintained itself against a vastly greater flood of new metal from 1848 to 1858; but gold had never been sentenced to death by a court-monetary of nineteen nations.

And now, as if to crush the last hope, the export of silver to India, which had been from the earliest times an insatiable consumer of that metal, began to fall off.  At another time it would have been admitted that this was mainly the result of the famine of 1873-4; but the public mind was too feverish calmly to estimate the significance of the phenomenon, nor was candor the strong point of the journals which were seeking to degrade silver from its monetary function.  It was loudly proclaimed that at last India was full of silver; that the habits of the people in respect to hoarding had changed; that paper money was coming in to take the place of silver; and that increased facilities for transportation were economizing the use of the existing stock.

Thus the silver panic of 1874-6 began.  France and her allies, in alarm lest all the discarded metal of Germany as well as the increased supplies from the American mines should be poured into the Latin mints, first restricted the coinage of silver and then stopped it altogether [3].

It is wholly a matter of conjecture what would have been the result had the statesmen of France in 1874 and 1875 refused to suspend the act establishing the free coinage of both metals.  In 1857 there was a gold panic, quite as serious and with far better reason.  The new supplies from California and Australia poured in like a flood, and still the French mints remained open.  France took gold and sold silver to an enormous amount without flinching.  M. Chevalier published his book on the «Probable Fall in the Value of Gold», to show that the country would go to destruction unless the coinage of gold were limited or the metal demonetized by law; the greatest consternation pervaded mercantile and banking circles, but the French statesmen stood by the law, took gold, gave silver, and thus brought the commercial world through what threatened to be one of the gravest crises of history.

Had France in 1857 demonetized gold, as she was urged to do, a heavy fall in the value of that metal, would inevitably have ensued, which would have involved an immediate catastrophe and have inflicted lasting injury on trade and production.  But the pluck and faith of the men at the head of affairs kept gold and silver near to their traditional ratio of 15 ½ : 1.  As Professor Jevons states it, the maximum variation never exceeded 4 ½ per cent, and the whole permanent effect of the discharge of the Californian and Australian gold, by hundreds of millions, into the circulation of Europe, was to change the silver price of that metal but 1 ½ per cent.  It does not seem unreasonable to believe, in spite of the fearful blow dealt by Germany to the monetary function of silver, that had the statesmen of 1874-5 met the silver panic of those years with the same patience and resolution; had they encountered the new conditions under which silver threatened to become so cheap as to drive gold, in its turn, out of the country, in the spirit of 1857; taken silver, given gold, just as long as anybody offered the one or asked the other, without flinching, before this the tide would have turned, and the terrific fall in the value of silver, which has done so much mischief and threatens so much more, would have been avoided.

But whatever might have been, the French statesmen bent to the storm; the Latin Union closed its mints to silver, and the catastrophe came.

The mean annual rate of exchange, by weight, of silver had been, to 1 ounce of gold, 15.57 in 1867, 15.60 in 1868, 15.60 in 1869, 15.58 in 1870, 15.58 in 1871, 15.63 in 1872.

In 1873 it fell to 15.92 : 1; in 1874, to 16.17; in 1875, to 16.58; in 1876, to 17.84; while in July of the latter year it fell to 20.17 : 1; that is, an ounce of standard silver (37/40 fine), which, at 15 ½ : 1, sells at close upon 61 d. of British money, sold in this month for 46 ¾ d.

So much for the immediate results of the German demonetization of silver, in conformity with, if not in consequence of, the recommendations of the Conference of 1867.

What have been the effects upon industry and trade ?

The most manifest of the effects of the demonetization of silver by Germany, and the consequent closing of the Latin mints, has been to do away with a normal price of silver, and thus to abolish all par-of-exchange between the silver-using countries and the gold-using countries; between Asia and Europe, the East and the West.

Prior to 1873 there was what may be termed a normal price of silver.  That price was nearly 61 d. per ounce of standard bullion.  From that price it never departed far in the eighty-seven years following 1785, the date when the ratio of 15 ½ to 1 was adopted in France.  This was due to the fact that 15 ounces would pay a debt equally with one ounce of gold.  There being large amounts both of silver and of gold in France, as there has not failed to be for centuries, if silver tended to become cheaper than 15 ½ – that is, if, for instance, silver in the London market was exchanged against gold at 15.60 to 1 – the buyers in London sent it to Paris, since every Parisian merchant or manufacturer could make a good thing by buying silver at any price between 15.50 and 15.60, and paying his notes with it as they fell due.  The gold which the Parisian merchant or manufacturer received in the course of his business he sent to London to pay for the silver.  By this operation the amount of silver in the London market was diminished and the amount of gold increased.  In consequence, the power of silver to purchase gold was increased, the power of gold to purchase silver diminished.

How was it in France ?  The amount of gold was, you say, diminished and the amount of silver increased; hence the power of gold to purchase silver in France must have been increased, the power of silver to purchase gold diminished.  By no means.  Such, indeed, would have been the effect resulting from the changes of supply, had the comparative demand for the two metals remained unaffected.  But under the French law no Frenchman, in the situation assumed, wanted gold to pay debts; all who had debts to pay sought silver for the purpose, as the cheaper metal.  The consequence was that the changes in demand outran the changes in supply; and silver rose in France in spite of its increased amount, gold fell in spite of exportation.  Thus the two metals tended ever to return to the ratio of 15 ½.

If, on the other hand, gold tended to become cheaper, causes were, by the force of the French law, set in operation to bring about the same result through the exportation of silver and the importation of gold.  Now, this system was broken up by the closing of the French mints to silver, consequent on the German demonetization.  It was no longer of use to bring silver, if it tended to become cheapened in comparison with gold, to France, because the mints would not coin it into money, in which form alone would it have been available for the payment of debts.

The philosophy of the situation was correctly set forth in September, 1876, by Mr. Bagehot, the editor of the Economist, and the author of the well-known work, «Lombard Street».  «The cardinal present novelty», he says, «is that silver and gold are, in relation to one another, simply ordinary commodities.  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, which established a fixed relation between them.  In consequence, whenever the values of the two metals altered, these countries acted as equalizing 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.»

This operation of the French law is not to be gainsaid.  It is confessed even by the strongest monometallists of England and France, though some of their American colleagues do not seem aware of it.  Thus Professor Jevons, under the title «The Equivalence of Commodities», writes : «It is upon this principle that we must explain the extraordinary permanence of the ratio of exchange of gold and silver.  That this fixedness of ratio does not depend upon the amount and cost of production is proved by the very slight effect of the Australian and Californian gold discoveries.»

M. Chevalier, the great apostle of monometallism in France, wrote in 1857 : «It follows, whilst this state of things lasts, that it will be impossible, at London, Brussels, Hamburg, or even at New York, or any other great center of commerce, for gold to fall much below 15 ½ times its weight in silver.»

And Professor Cairnes wrote in 1860 : «The crop of gold has been unusually large; the increase in the supply has caused a fall in its value; the fall in its value has led to its being substituted for silver; a mass of silver has thus been disengaged from purposes which it was formerly employed to serve; and the result has been, that both the metals have fallen in value together, the depth of the fall being diminished as the surface over which it has taken place has been enlarged.»

How did the establishment of a normal price of silver affect trade, and by affecting trade influence industry ?

It created a par-of-exchange between the silver countries and the gold countries.  Between the two lay, financially, the countries using both gold and silver, and all the vast body of exchange transactions was mediated therein.

Whenever an English merchant shipped goods to India or China or South America, he was of course bound to take the ordinary risks of business.  There were certain risks from fire and flood; but against these he could insure himself.  There were certain contingencies of loss against which he could not insure himself.  His agents might prove dishonest; his correspondents might fail with his funds in their hands.  There were, moreover, grave mistakes which he might commit, which would impair his profits, endanger his commercial standing, or wreck his fortune.  But these are the ordinary risks of business.  The careful, able, sensible merchant or manufacturer is, in the great majority of cases, able to encounter them and yet achieve success.

But from the moment that the mechanism of the bimetallic system was broken, through the action of Germany, after the doom pronounced by the Conference of 1867, every commercial transaction between the silver countries and the gold countries became involved in liabilities to disaster wholly in addition to the natural risks of business.

The British merchant who to-day sells goods to Calcutta or to Mexico may do all that lies in him perfectly; he may buy the right kind of goods and buy them at a bargain; send them at the proper time, to the best market; sell them to responsible persons at a good price, and deposit the avails in a safe bank; and yet a fall in silver between the sale of the goods and the receipt of the proceeds may strip him of all the profits of his venture, and even seriously impair his stock.  If it chances that he is at the time to receive a payment of a capital sum, he may be completely ruined.

So far as I am aware, the utmost range of the gold price of silver, from the beginning of the century down to 1873, was inside 4 d. per ounce; but in the three years following the German demonetization we saw silver run through a range of 14 d. per ounce.  Prior to 1873 there were periods of two, three, or four years, when the greatest fluctuation did not exceed a penny in the ounce.  Since 1873, fluctuations of greater extent have been of almost monthly occurrence.

Fluctuations like these introduce into trade the elements of gambling.  And this condition of things is certain to be perpetuated in time, if not aggravated in degree, should the system which for nearly one hundred years maintained a par-of-exchange between gold countries and silver countries not be re-established.  Already the result has been to involve the trade between the two great divisions of the world in all the embarrassments which beset the commercial intercourse of specie-paying nations with those having inconvertible paper money.

It has been said that the action of the Conference of 1867 was quickly brought to the bar of public opinion.  England, as the greatest commercial nation of the world, was the first to appreciate the natural effects of the policy of demonetization.  She had gained most largely by the bimetallic system.  She was to suffer first and most heavily by its destruction.

England participated in the Conference of 1867, though with reservation as to her own monetary system of pounds, shillings, and pence.  To the monometallic action of the Conference, however, the English delegates gave their cordial adhesion; the English press greeted the result with the liveliest satisfaction; and the Chancellor of the Exchequer congratulated Parliament and the country on the fact that Europe was at last preparing to follow in the course in which England had taken the lead by adopting the single gold standard in 1816.

How changed the note of England !  Her Indian revenues have experienced an annual reduction of $ 10,000,000 to $15, 000,000; her India and China merchants have suffered great and frequent losses through the fluctuations of exchange with the East, undermining many of the strongest houses, and contributing in no small degree to the recent extensive failures and to the present feeling of general alarm; while for the future England has to face not only the certainty of incessant fluctuations in the price of silver, but the possibility of a decline to 40, or 35, or «30 pence per ounce», or to even a lower point, if only Belgium, Holland, and France «let go», and send their stock to join the discarded metal of Germany.  Such a fall would bring about a social and industrial revolution of India, which no English statesman could contemplate without dismay.

Hence it has that England, having ceased to regard the demonetization of silver as wholly a matter of congratulations appeared at the International Monetary Conference of 1878, through a delegation eminent for character arid economical authority, declaring the consequences of the German demonetization to have been in a high degree mischievous, and earnestly deprecating further progress in that direction, as certain to be followed by great disturbances and even disasters.

A second effect of the recent demonetization of silver has been to produce an enhancement of the purchasing power of gold, which has already added appreciably to the burden of all fixed charges payable in that metal.  This consideration is of especial importance with reference to the existing body of public debts, and concerns not only the states which have gold for their money, but to a great extent, also, the silver states and the states having inconvertible paper money, inasmuch as national loans have been very generally contracted in sterling, on account of the predominant influence of England in the money market.  Even the railway and irrigation loans of India are so payable.  Gold has thus been made the general medium for the payment of public debts; and any cause which increases the weight of those charges must be of very serious consequence : first, fiscally, looking to the interests of the treasury and to the solvency of governments; and, secondly, to the welfare of the people.

That the demonetization of silver will have the effect to enhance the burden of the debts of Europe and America cannot for a moment be questioned.  The full degree to which that enhancement will be carried when the demonetization shall have been completely effected is a matter of conjecture.  Already the Bankers’ Magazine, of London, finds reason to conclude that gold has risen in purchasing power 7 per cent since 1873, while silver has fallen 10 per cent.  The production of gold has for some time been stationary, and is now declining; yet it is out of the stock of this metal that the debts of the civilized world are to be paid.

As bearing upon this point, we make a few quotations from the London Economist, the highest authority in the world in the department of economic statistics.  With a single exception, the paragraphs extracted are supposed to be from the pen of William Newmarch, the worthy coadjutor of Thomas Tooke in his great «History of Prices».

March, 1870 (Financial Review of 1869).  «It is one of the most conspicuous evidences of the profound changes of the last twenty years that the commercial portions of the world now require a total annual supply of thirty millions sterling of gold, in place of the fourteen millions which was the average prior to 1849; and not only absorb the thirty millions, but look anxiously for the discovery of further deposits.»

March, 1874 (Financial Review of 1873).  «1873 has been a year of monetary pressure in Australia, Germany, this country, and the United States.  During 1874 it seems to be likely that the Berlin Mint will coin chiefly silver and copper, and so relieve the strain which it has exercised for two years over the gold markets of Europe.»

March, 1875 (Financial Review of 1874).  «The available annual supplies of gold are steadily diminishing …  The fall here exhibited is from thirty-two millions in 1856 to nineteen millions in 1874.»

January, 1875.  «It is not difficult to trace the signs of pressure which the new great demand for gold from Germany has made upon the diminished supply …  At some point or other, we venture to say, the pressure in the money market must again become severe; or one of the great gold using countries must abandon its standard, or the supply from the mines must be increased; and the chances, we fear, are altogether against the occurrence of either of the two latter alternatives.»

Some of our American monometallists have discovered that it really makes no difference what the volume of money is.  Prices will adjust themselves to any amount; and the circulation will be just as perfect with a small as with a large supply.  European monometallists, however, as near to the great money market of the world and to the centers of financial opinion as the writers of the Economist, do not, it would seem, share these views.  They hold that it is of vital consequence that the money supply should be kept up, and they find with alarm the supply to be decreasing; they see that the German demonetization of silver has already strained the gold market, and they do not hesitate to pronounce further progress in that direction most prejudicial.  Yet the Conference of 1867, apparently without a thought of a practical consideration so momentous, unanimously and «with a light heart» resolved in favor of gold monometallism throughout Europe and America, thus by a «single stroke of the pen», to quote Mr. Ruggles’ jubilant report, striking hundreds of millions of silver out of use as money capable of paying debts.

Moralists and economists rightly visit their severe condemnation upon all schemes for «scaling down debts» by means of paper-money inflation.  Is it any the less reprehensible, morally, is it not even more a blunder, economically, to adopt measures which must seriously aggravate the pressure of all existing obligations, public, corporate, and private, throughout Christendom ?

The public debts of the world, imperial, national, state, and municipal, are probably not less than $ 25,000,000,000.  How much of this is payable in gold I have not the means of ascertaining.  Vastly the greater part of it is either payable in sterling, by the very terms of issue; or was issued under circumstances, as in the case of the public debt of the United States, which seems to make the payment in gold obligatory in honor; or is payable nominally either in silver or gold, by governments like those of France and Italy, which have been compelled by the course of events to stop the coinage of silver.

As gold rises in value it will become harder to get the money in which to pay the taxes out of which the payments of interest and principal of these debts can alone be made.  This is a consideration serious enough for any nation which has a large debt, however exuberant in its energy and abounding in natural resources; but for the states of Europe, bowed down beneath existing fiscal burdens, perhaps struggling, year by year, with a chronic deficit, and distressed, some of them, by the circulation of inconvertible paper, it is a matter of vital consequence.

I am disposed to think that it is the fiscal view of the subject which chiefly prevails in Austria and Italy, and which has influenced the recent action of those governments.  In 1867 the delegates of Austria and Italy joined with enthusiasm in the recommendation of gold monometallism.  In 1878 Austria and Italy appeared at the second International Monetary Conference, defending the monetary role of silver with an intense earnestness begotten of a controlling sense of the evils already experienced and to be apprehended from the measures adopted in 1871-3.

The contemplated reduction of the money supply of Europe and America, through the banishment of silver to the East, has another relation, namely, to current trade and production.

The evils of a paper-money inflation need not be discussed here.  Such an inflation bewilders the economic sense of the community, generates a morbid appetite for further issues, excites speculation, discourages steady industry, and leads ultimately to misery and shame.

The effects of a moderate and gradual metallic inflation are not so condemned by economical writers.

J. R. McCulloch declares that «while, like a fall of rain after a long course of dry weather, it may be prejudicial to certain classes, it is beneficial to an incomparably greater number, including all those who are actively engaged in industrial pursuits, and is, speaking generally, of great public or national advantage.»

Michel Chevalier says : «Such a change will benefit those who live by current labor; it will injure those who live upon the fruits of past labor, whether their fathers’ or their own.  In this it will work in the same direction with most of the developments which are brought about by that great law of civilization to which we give the noble name of progress.»

And David Hume, in tracing the effects of an increased money supply, remarks : «In every kingdom into which money begins to flow in greater abundance than formerly, every thing takes on a new face : labor and industry gain life; the merchant becomes more enterprising, the manufacturer more diligent and skilful; and even the farmer follows his plough with greater alacrity and attention.»

But whatever may be the view taken of the effects of a metallic inflation there cannot be two intelligent opinions concerning the influence of a metallic contraction.

Its immediate effect is to cut deep into the profits of business.  The profits of business are, in the modern organization of industry, the sole motive to the production of wealth.  If the employer does not see his way to make his profits he will neither buy materials nor pay wages.  Contraction of industry thus begins, and proceeds rapidly from trade to trade.  If trade A produces less, it has less with which to enter into exchange for the products of trades B to Z.  These, therefore, produce less, and each in turn has less to exchange for the products of others, and finds the demand for its own products diminished.  Industry falls into a vicious circle; each waits for others to start up first; all initiative in production is lost no risks are taken; goods are produced solely upon orders received, or up to the point where no doubt exists as to the demand.  Still production keeps on shrinking, the stoppage of mills or the shortening of time in one trade becomes a good reason for the same course in others.  The merchant, feeling the demand for his goods falling off, and being determined not to be caught with a stock he cannot sell, exaggerates the necessary effect of this in giving his orders to the manufacturer; he orders rather less than the demand properly interpreted, would justify.  The manufacturer, seeing the marked diminution of demand, in his turn exaggerates the proper effect of this, in his own arrangements for production and in his contracts for labor and material.

I think it was a sense of this, more or less clear, which led to, or perhaps it would be better to say, allowed, the passage of the Silver Bill last winter.  Admitting all that may be fairly claimed for the strength of the inflationists and repudiationists in the House, the Silver Bill could not have commanded the two-thirds vote necessary to pass it over the veto but for the vague apprehension of some and the thorough conviction of others, who were neither weak nor wicked, that the demonetization of silver threatened the most serious mischiefs to production and trade.  Such I believe to have been the influence which – as between those who were resolved on the immediate remonetization of silver and its coinage in unlimited amount as a means of scaling down debts, public and private, and producing a general inflation of prices, on the one hand; and those, on the other, who would hear nothing of silver, not even deigning to treat the silver men with simple ordinary decency – gave shape to the Silver Bill as it passed Congress, providing for a coinage of not less than two nor more than four millions monthly, of the dollar of 412 ½ grains, and, in that immediate connection, inviting an International Conference for the purpose of establishing by general agreement a ratio between the two metals in the coinage.

But what of Germany, the author of all this mischief ?  Germany remains to-day impenitent so far as any outward sign is given.  Whether from complete satisfaction with the result of her action, or from a false pride which would not allow her to join in a discussion of the wisdom and propriety of her course, especially a discussion to be conducted in the capital of her ancient enemy, the head of the bimetallic league, Germany refused to participate in the Conference of 1878, declining first the invitation of the United States, and afterwards that of the Conference itself.

That Germany has entered upon a terrible crisis since 1873 is notorious.  Every sign of distress and prostration is afforded, up to the rampancy of Socialism and attempts on the life of the emperor.  That this is wholly due to the change in the monetary system of Germany it would be absurd to allege.  That this change has been one of the chief causes seems most reasonable.  Even were the revolution to be wrought through the legislation of 1871-3 one that were, in the long view, desirable, it would necessarily be effected at a great cost.  The money function is so vitally important in the social and industrial economy that no total change of «standards» could be accomplished without peril and without actual loss.

We have noted the allusions of the Economist to the strain caused in the money markets of Europe by the German demonetization, and by the apprehensions aroused of continued and increasing pressure.  Strains like this and apprehensions of disturbance always find the weakest part of any industrial and commercial system; and it may be said without fear of contradiction that the trade of Germany has long been on a very narrow foundation.  Germany has not much grip on the markets of the world.  Her production for export is, as a whole, less characteristic, and is carried on with a scantier margin of profit, than that of almost any other principal country of Europe.

Now, to the particular strain which a total change from silver monometallism to gold monometallism in Germany would necessarily involve add Germany’s share of the general strain caused by the tightening of the gold market, and the shock resulting from the sudden destruction of a normal price for silver, and consequently of a par-of-exchange between the gold countries and the silver countries, and it would be wonderful indeed if the least characteristically endowed and least strongly built industrial body of Europe had not been racked and twisted in more than one part.

How with the nations which so long sustained the weight of the arrangement by which a par-of-exchange was maintained between Europe and America ?

The accession of France to the recommendations of the Conference of 1867 is a very strange matter.  There is no reason to believe that France was monometallic, either in the general drift of public sentiment or in the policy of its states men, prior to 1867, or that it has been so at any period since.  In 1865 the question of single or double standard was thoroughly canvassed with reference to the basis of the Latin Union, and France took strong bimetallic ground.  No official action of the French Government at any subsequent date has intimated a wish to abandon that position.  And yet the French delegates in 1867 assented to the decision in favor of a single gold standard for Europe and America.

I can only account for it by assuming that the imperial vanity, exalted to intoxication by the pomp and flattery of the Universal Exposition, then at the height of its success, sought another opportunity to illustrate its leadership of European opinion and European politics, without much consideration of the consequences of the action proposed; or it may be that the empire believed that the recommendations of the Conference would never be carried out, and hence might be safely made for theatric effect.

Nor has the Government of France ever intimated that it found the burden of sustaining the bimetallic system for the benefit of Christendom, and of heathendom too, for that matter, too heavy to be borne.  Some of its economists, as MM. Chevalier, De Parieu, Levasseur, Bonnet, and Leroy-Beaulieu, have insisted that France steadily lost by this policy, and there has been much compassionate admiration of French self sacrifice from English writers; but the French statesmen and the French people themselves, notwithstanding their wonderful sagacity in finance, have apparently never discovered that the policy of a double standard was a foolish one.

Whether France will not now be obliged to abandon the system on account of the defection of Germany and Scandinavia from the ranks of the silver states is altogether a different question.  If France does so, it will not be with any confession that she has been in error in the past, but with the explanation that the gold countries have been so heavily reinforced and the silver group so greatly weakened that she can no longer mediate between them.

This was the attitude assumed by the French Minister of Finance, the President of the Conference of 1878.  M. Say declared the government had, in the recent debates in the Chambers, clearly explained its position.  It had declared most explicitly that in suspending the coinage of silver it did not take a step towards the single gold standard, but placed itself in a position to await events, a position which it would leave till good reasons for action should appear, and then most probably to re-enter on the system of the double standard.

Moreover, France has a particular interest of very great importance in maintaining the price of silver, since she holds between 2500 and 2900 millions of francs of that money-metal.  On this amount the fall has already reached 500 million francs; and were other nations to let silver go, another fall of equal severity would probably follow.

Why, then, did France, so bound by her traditions, her national pride, and her immediate pecuniary interests, not do more, or rather not permit more to be done, at Paris this summer ?

The reason was twofold.  France deemed the time unfavorable for any action whatever looking towards the rehabilitation of silver.  There is reason to believe that the statesmen of France even regarded the Conference itself as premature.  The fear of the German stock, still amounting on the best estimates to 15,000,000, which hangs like an impending avalanche over the silver market, making it unsafe to hold that metal; the uncertainty attending the future production of the American mines; the wayward and capricious character of the East Indian demand since 1873 – all combine to influence the financiers of France to abide in an attitude of expectancy and await developments.  Until the German stock is fairly disposed of, and until it is known that the extraordinary production of the Comstock Lode is not to be kept up indefinitely, no responsible French financier will propose to resume the free coinage of silver.

But France had another reason for reducing the action, and even the discussion, of the Paris Conference to a minimum.  The Latin Union is far from being a unit.  Switzerland, under the able leadership of M. Feer-Herzog, has always strongly urged the adoption of the single gold standard.  Switzerland, however, is a poor, and in the main an uncommercial, country, which counts for but little on this question.  Italy is strenuous for silver, on general bimetallic grounds.  There is no reason to doubt her sincerity in the advocacy of the double standard.  But Italy has also a particular interest.  Having herself an inconvertible paper money, the bulk of her coined silver goes into France, Belgium, and Switzerland, because it is more valuable than paper.  But being also less valuable than gold by 15 to 20 per cent Italy derives a large profit from the exportation, and does this at the expense of her allies.  This state of things has continued so long as to exhaust the patience of France.  Since the restriction in 1874, Italy has always exerted her whole strength in the congresses of the Union to increase the amount which she should be permitted to coin and knowing how strongly France felt the importance of maintaining the Union, has taken advantage of that fact to urge this claim in season and out of season.  France, however, has of late shown a decided disposition to give Italy to understand that she does not value the Latin Union, whether for political or financial reasons, enough to maintain it at the cost of being flooded with Italian silver.

It was therefore the policy of France to make Italy feel that the renewal of the Convention of 1865 was not a certain thing; and to threaten her, in case the Convention were not renewed, on its expiry at the close of 1879, with a demand for the payment in gold of all the Italian silver found in France, amounting to hundreds of millions of lire.

In dealing with Belgium, France had to do with a country in a very different position.  Here is a specie-paying nation of great commercial importance and under nobody’s thumb.  The geographical and commercial relations of Belgium are such as to make it very desirable for France to retain the greatest possible influence over her.  On financial, political, and even military grounds, Belgium is exceedingly important to France.  The assimilation of the French and Belgian money, and the present partial connection, politically, through the Latin Union, afford a certain guaranty to France; she cannot at present look for more; she could not willingly have less.  Scarcely any object could be sufficient to compensate France for the misfortune of having Belgium detach herself from the Latin States, and ally herself in her monetary system with England and Germany.

Nor, till the present year, has there been any special danger of this.  Belgium has been ruled by men who believed thoroughly in bimetallism.  The late minister, M. Malou, is one of the strongest champions of this system.  Had the recent monetary Conference been held a year earlier, Belgium would have been represented by a delegation of active, aggressive bimetallists, among whom probably would have been found the eminent Professor de Laveleye, of Liege.  At the beginning of 1878, however, occurred a political revolution in Belgium.  The Catholic party was driven from power, and M. Frère-Orban came in at the head of the Liberals.  I know of no reason for believing that the revolution was economical in its purposes.  On the contrary, some of the most prominent Liberals are bimetallists : witness Professor de Laveleye.  But M. Frère-Orban is personally a strong and aggressive monometallist.  He has taken an active part in the discussion of the subject hitherto, and he is now in a position to say what Belgium shall do about it.

Hence it happened that Belgium was represented by a monometallic delegation.  The influence on the Conference was immense.  Without Belgium, the monometallic cause proper would have been represented only by Norway and Sweden, and by Switzerland, a state that never coined a ten-franc piece.  The defection of Belgium not only deprived the bimetallic cause of a supporting delegation, but substituted a powerful opposition.  And that opposition was in the very camp of bimetallism.  The French batteries were both commanded and enfiladed.  With Belgium under its present rulers, France had reason to be seriously anxious lest the Treaty of 1865 might be «denounced», and Belgium fly off towards England and Germany.  France, therefore, could allow nothing to be done at the Conference which should alienate that government.

There can be no question made that it was this defection of Belgium – whether temporary or permanent, remains to be seen – which defeated any action by the Conference, or even positive recommendation looking to the rehabilitation of silver.

The future of silver as a money metal is purely a matter of conjecture.  It depends on the action of governments, not on the automatic operation of the laws of trade.  The problem is mainly political, not economical.

The following are three views which may be taken, not irrationally, of the probabilities of the future :

First.  The situation may remain unchanged for a term of years; the German stock may be gradually disposed of; the Indian demand may spring up again; the production of Nevada may sensibly decline; and a rise of silver may take place which will encourage the Latin Union, especially if Belgium comes again under bimetallic leadership, to recommence the free coinage of silver.  This, with the co-operation of the United States, would in the opinion of many be sufficient to place things where they were before 1873, except that the system would have been rendered less stable by the permanent transfer of Germany from the silver to the gold states.

Second.  The present situation may continue till one or another of the states now carrying large amounts of silver, Holland, Belgium, France, shall lose patience and let go, bringing on a panic – a sauve qui peut – in which each nation shall think only of disposing of its own stock before others.  At this point, it is intimated, the Government of India might limit the rupee coinage, in order to save its revenues from loss.  In such a case silver bullion would fall to the bottom, reaching 30 d. or even 20 d. an ounce.  Thus silver would forever disappear from the civilized nations as money of full power, and gold monometallism be realized, whether for good or for evil.

Third.  That after the catastrophe described, or at some stage in the downfall of silver, England and Germany will be so powerfully moved by the mischief they have occasioned – England through her demonetization of silver in 1816, Germany through the like course in 1871-3 –  as to induce a reconsideration and a reversal of their policy : England saving her consistency by declaring that on national grounds she demonetized silver, but that she now remonetizes it on imperial grounds, as the ruler of a vast and increasing Oriental dominion; while Germany, chastised and humbled by her experience, will come back to silver under cover of England.

It is idle to speculate which of these results is most likely to be reached.

A question of more interest and importance at present is, what should be the action of the United States in this situation ?

First.  We may let things drift, continuing, under the present law, to coin silver at the rate of two or four million dollars a month.

Second.  We may stop the coinage of silver, but accumulate silver bullion in the Treasury to an equal or greater value.

Third.  We may drop all concern about silver, repeal the Allison Bill, resume specie payments on a gold basis, and either remain permanently gold monometallic or await the reestablishment of bimetallism in Europe, if those states will take the trouble, expense, and risk involved in setting it up again.

Fourth.  We may remove all restrictions upon the coinage of silver dollars.

Which of these courses the United States should take depends upon the end it wishes to reach.  If we think silver monometallism is desirable, or even tolerable, we can adopt the last course; we can take silver from every source, giving gold for it; and in a very short time we shall be on a solid silver basis, like China and India.  How the public debt should be paid, and what arrangements should be made for the adjustment of private obligations, are subordinate questions under this title.

I shall assume that it is not necessary to discuss the wisdom or propriety of the fourth course indicated.

If we favor gold monometallism, or if we regard bimetallism with indifference, we should adopt the third course.  The present law has no justification, except upon the theory that bimetallism is an object very much to be desired, and that its establishment would be worth a distinct effort and sacrifice on the part of the United States.

If we do hold, as a people, that something should be done to restore silver to the place from which it has been cast down by the action of Germany, the second course appears to me much preferable to the first.  The coinage of 412 ½ grain dollars is idle, because they are not wanted for present circulation, and it is not even pretended that they are wanted for circulation, except by those who favor the fourth course.  The real reason for coining the silver dollar is to forward the cause of silver, i.e., its restoration as money of full power in Europe and America.  But to coin silver in considerable amount, at the ratio of 16 : 1, is not to help but to hurt that cause.  The European states never will come to our ratio.  It is the height of folly to assume that they will.  They will either keep their own, or they will go to one very wide of it, like 17 ½ : 1.

Consider the mass of silver coined at 15 ½ : 1.  The mere mechanical difficulty of its re-coinage would be prodigious, almost insurmountable.  To re-coin the whole, for the sake of moving the ratio from 15 ½ to 16 : 1, would be the very extravagance of absurdity.  If there is any thing at all in the bimetallic theory, the concurrent circulation of the two metals can be kept up at 15 : 1 if it can at 16 : 1.  But if it be true that European nations will not come to our ratio, the fewer dollars we coin at 16 : 1 the better for the cause of silver.  Every ten millions of silver dollars we so coin becomes a powerful argument against going to any other ratio.

On the other hand, all the benefit which could be derived to the cause of silver by coinage in the United States could be equally obtained through the accumulation of silver bullion in the Treasury.  If, indeed, any effort is to be made or sacrifice submitted to for the sake of rehabilitating silver, it would be far better to buy four millions a month and hold it than to coin two millions and send it into circulation.  To continue to coin and issue silver dollars at 16 : 1 for gold, when the market ratio is 17 to 18 ½ : 1, is, if it shall be kept up beyond two years, to subject the circulation of the country to grave possibilities of disaster.  To buy and hold bullion to any amount whatever, be it the whole German stock and all the current production of the Nevada mines, is simply to incur a definite loss of interest upon the amount so held while it is held, and to incur the risk of a loss, greater or less, on the investment when, if ever, the United States shall decide to sell.

Whether it would be worth while to accumulate silver bullion, as suggested, depends, as has been said, upon the conclusion which we reach as to the expediency of taking any measures whatever for the rehabilitation of silver as money.




Francis A. Walker

[1]   Written in 1857.

[2]   I make use of the translation given in Mr. Ruggles’ report to the U. S. Government. 

[3]   Without, however, interfering with the legal-tender power of the five-franc piece.  In France to-day and throughout the Latin Union, notwithstanding the depreciation of silver, you can pay your debts in five-franc pieces, if you can get them.  There is the rub.  The government, by limiting the supply, keeps up the value of the coin, in accordance with a well-known law of finance.  The dollar of 412 ½ grains in the United States occupies a similar position.



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