IV.

THE RATIO BETWEEN GOLD AND SILVER.

A Letter to the Times' and the Economist,' August 17, 1885.

A controversy is being conducted in the columns of the Times and of the Economist regarding the effect of the mint regulations in France before 1873 on the relative value of gold and silver. On the one hand, it is contended by monometallists that the fluctuations in the London quotations for silver show that the so-called Double Standard cannot be anything but an alternative standard. And, on the other hand, it seems to be apologetically suggested by bimetallists that abnormal circumstances prevented the French Double Standard from keeping the par value between gold and silver so steady as it might otherwise have been.

For the period between 1831 and 1873 the fluctuations in the London price of silver are given by both parties as about 58 to 62. As a matter of fact, during that same period gold doubloons were in some important exchange quotations subject to fluctuations between the prices of 64s. and 725., which is a wider fluctuation than that of the gold price of silver.

As only gold is unlimited legal tender in England, the price of silver in London is of necessity chiefly dependent on the requirements for it in the foreign exchanges; and, therefore, before discussing the possibility of any law being able to prevent such fluctuations of the London gold price for silver, precedence might be given to a discussion as to the means of preventing any fluctuations of the gold price for gold in those exchanges.

The fact is, that whilst the mint regulations in question were in force in France they kept the par value of silver in relation to gold fixed at 15 to 1 with just as close an approach to mathematical accuracy as that with which that mint keeps

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the value of each grain of gold in any two French gold coins the same, or with which the English mint keeps the par value of gold in any two sovereigns the same. In neither case is there mathematical accuracy, but the ratio of 15 to 1 between silver and gold was maintained as accurately as the ratio of equality between gold coins.1

As this quasi-theoretical point is evidently regarded as of considerable importance in the discussion of the subject, which is now almost daily becoming more general, I hope you may find it worthy of your attention.

In travelling from Manchester to London in the year 1857, I got into conversation with a fellow-traveller, who must have been at least forty years my senior, and the conversation having turned on the foreign exchanges, I remarked that I had been puzzled by the fact that the exchanges between gold currency countries and silver currency countries fluctuated no more than those between any two gold currencies. As my companion seemed rather amused by the remark, I quickly told him that as far as my knowledge went the facts were so, and named several foreign exchanges in support of the assertion. He then, in very few words, explained to me the action of the French mint regulations as the simple and, when once understood, most obvious cause of the phenomenon. I mention this occurrence as a proof that though not at that time generally understood, the question was nevertheless clearly understood long before the term bimetallic was invented; and that the question as to the facts of the case was not influenced by any theoretical considerations. It is, of course, admitted that there was at times in France a special demand for silver rather than gold, and vice versâ ; but the London quotations for silver show that the value of foreign silver coins, measured by the foreign exchanges in English gold, did not vary more than that of foreign gold coins by the

As shown further on in the above letter, I did not dispute the existence of alternations of premium, but merely pointed out that the par value was absolute.

same measure.

If two grains of gold, one in a sovereign and the other in a doubloon, fluctuated in relative value to the extent of 10 or 15 per cent., according to the requirements of the country in which they happened respectively to be, how can it be for a moment supposed possible that the French mint regulations could have made a grain of silver preserve a fixed ratio to both those grains of gold? All that the French law could do was to prevent the fluctuations between gold and silver coins from being greater than between silver coins themselves, or between gold coins themselves, and the quotations given prove that this was accomplished. The exchanges between silver and gold coins fluctuated about the ratio of 15 to 1, just as those between gold coins fluctuated about the ratio of equality, and that ratio of 15 to I was the absolute par for exchange arbitrations between silver and gold. The French money-dealers, in differences between French coins, always took the premium whichever way the market went, special demands enabling them at times to keep, perhaps, a grain of gold for each 15 grains of silver exported, or to keep 15 grains of silver for each grain of gold exported, they, as exchange-dealers for all comers, retaining the profit on each side of the par of 15 to 1; but when Germany decided to take about 100,000,000l. of gold, the French financiers decided that it was too much to be exchanged, and the mint then refused to coin silver.

This question of fixing the ratio between gold and silver was first successfully managed by Sir Isaac Newton and his colleagues at the English mint, and their policy was abandoned in England only after it had been adopted in France, which latter country then, instead of England, regulated the par value of gold and silver until the year 1873.

'Such premiums in France, sometimes on silver and sometimes on gold, are mentioned by Mr. Barbour and Mr. Fowler in the evidence before the Royal Commission on Gold and Silver, 1888, questions 6825, 8415-8417.

V.

Besides the appointment of the Royal Commission already alluded to, another occurrence of importance since the issue of the last edition of this work has been the disappearance of the International Monetary Standard Association as the advocate for the free coinage of silver, and the appearance of the Bimetallic League in its place. This is an apparent step in the direction of adopting the course advocated in this work,' though that Association has not yet declared in favour of the question being dealt with by Parliament without entering into any international treaties on the subject.

Quicquid delirant reges, plectuntur Achivi.

LONDON: March 26, 1888.

See the latter half of Chapter VI., and references under Index heading, Practica Course.

PREFACE

ΤΟ

THE THIRD EDITION, 1883.

I.

A VERY dangerous argument has been urged against the views contained in the following pages: not exactly to the effect that Parliament can do no wrong-for I do not suppose that any Englishman, however moderately acquainted with the history of his country and the characteristics of its constitutional government, or to whatever political party he may belong, could desire to have such an interpretation as that placed upon his arguments-but to the effect that Parliament can rightfully change the standard of value at its pleasure.

Such a doctrine ought to be rejected, not only on the high ground of its impropriety, but also on the lower ground of its impolicy and indiscretion.

If honour is to be respected by the governing powers of the world, it must be maintained that to borrow money under a given standard of value, and then to change that standard whilst the debt is current, is a breach of faith on the part of the Parliament or the Government by whom such acts may be accomplished, whether such change advantage the national debtor or the national creditor.

Taking a world-wide view of the case: the double standard of gold and silver was practically the standard of value