Chapter III (1)

From the End of the First Cycle of American Influences to the Present
Day, 1660-1894

Up to the close of the eighteenth century the production of silver shows a remarkable steadiness and uniformity--the decrease on the yield of the Potosi mines being compensated by the increased output of Mexican silver. In the condition of the output of gold, however, there is a perceptible alteration, due to the increasing imports of that metal from Brazil. The change in the relative production of the two metals appears from the table on p. 155.

The effect on the ratio of this increased relative and absolute amount of gold was, however, considerably diminished by the increasing favour with which gold came to be regarded for currency purposes, from the end of the seventeenth century onwards. In general terms this process or tendency in favour of gold continued through the first sixty years of the eighteenth century, at which time the proportion of gold to the production of the two metals had risen as high as 40 per cent., whereas in 1600 it had only formed 17.2 per cent. of the total.

[Sidenote: PRODUCTION OF THE PRECIOUS METALS, 1660-1893]

From 1760, however, such relative preponderance of gold was not maintained. It gradually sank back until, by the beginning of the present century, it had come to form only a little over 23 per cent. of the total. From 1820 to 1840 a recovery took place, but it was not until the Californian gold discoveries that the second great disturbance in the relative production of gold and silver took place; such a disturbance, i.e., as can be fitly compared with that which the sixteenth century witnessed.

+-----------+--------------+---------------+-----------+--------------+
| | Annual | Annual |Percentage | Percentage |
| Period. | Production | Production |of Gold to | of Silver to |
| | of Gold. | of Silver. | Total. | Total. |
+-----------+--------------+---------------+-----------+--------------+
| 1661-1680 | L1,291,750 | L3,134,150 | 29.2 | 70.7 |
| 1681-1700 | 1,501,700 | 3,179,650 | 31.1 | 67.9 |
| 1701-1720 | 1,788,400 | 3,253,750 | 35.5 | 64.5 |
| 1721-1740 | 2,661,650 | 3,988,600 | 40.0 | 60.0 |
| 1741-1760 | 3,433,100 | 5,038,200 | 40.5 | 59.5 |
| 1761-1780 | 2,888,350 | 6,201,550 | 31.8 | 68.2 |
| 1781-1800 | 2,481,700 | 8,131,300 | 23.4 | 76.6 |
| 1801-1810 | 2,480,000 | 8,002,650 | 23.7 | 76.3 |
| 1811-1820 | 1,596,100 | 4,966,950 | 24.7 | 75.3 |
| 1821-1830 | 1,983 150 | 4,075,950 | 32.4 | 67.6 |
| 1831-1840 | 2,830,300 | 5,278,600 | 34.5 | 65.5 |
| 1841-1850 | 7,638,800 | 6,867,650 | 52.1 | 47.9 |
| 1851-1855 | 27,815,400 | 8,019,350 | 77.6 | 22.4 |
| 1856-1860 | 28,149,950 | 8,235,950 | 77.4 | 22.6 |
| 1861-1865 | 25,816,300 | 9,965,400 | 72.1 | 27.9 |
| 1866-1870 | 27,256,950 | 11,984,800 | 69.4 | 30.6 |
| 1871-1875 | 24,250,000 | 17,250,000 | 58.5 | 41.5 |
| 1876 | 23,150,000 | 18,250,000 | 55.9 | 44.1 |
| 1877 | 25,050,000 | 19,350,000 | 56.4 | 43.6 |
| 1878 | 25,950,000 | 19,750,000 | 56.8 | 43.2 |
| 1879 | 23,350,000 | 19,050,000 | 55.1 | 44.9 |
| 1880 | 22,800,000 | 19,100,000 | 54.4 | 45.6 |
| 1881 | 22,450,000 | 19,800,000 | 53.1 | 46.9 |
| 1882 | 21,450,000 | 20,900,000 | 50.7 | 49.3 |
| 1883 | 20,750,000 | 20,800,000 | 49.9 | 50.1 |
| 1884 | 21,750,000 | 21,850,000 | 49.9 | 50.1 |
| 1885 | 21,750,000 | 21,850,000 | 49.9 | 50.1 |
| 1886 | 22,450,000 | 20,300,000 | 52.5 | 47.5 |
| 1887 | 22,050,000 | 21,950,000 | 50.1 | 49.9 |
| 1888 | 22,950,000 | 23,850,000 | 49.0 | 51.0 |
| 1889 | 24,600,000 | 26,750,000 | 47.9 | 52.1 |
| 1890 | 24,360,000 | 26,620,000 | 47.8 | 52.2 |
| 1891 | 29,000,000 | 36,567,629 | 42.4 | 57.6 |
| 1892 | 30,164,536 | 40,668,247 | 42.5 | 57.5 |
| 1893 | 32,066,591 | 42,963,027 | 42.7 | 57.3[D] |
+-----------+--------------+---------------+-----------+--------------+

[Footnote D: The figures for the last three years are taken from the Report of the Hon. R.E. Preston, director of the United States Mint, 1893 (_Report on the Production of the Precious Metals_, pp. 274-5). See _ibid_. for a most carefully compiled table of the production of the precious metals from 1493 to 1893, differing from the above in material details.]

As far as this _relative_ production is concerned, the period, 1660-1840, is one of gradual and not abnormal variation, neither small nor inconsiderable in effect, but certainly not revolution-working, as had been the case in the sixteenth century with American silver, and as was to be in the nineteenth century with Californian and Australian gold, and in our own days with American silver for the second time.

With regard to the _absolute_ production--gold shows a rise up to 1760, then a steady decline to 1820, followed by a second rise up to 1840. In the case of silver the decline in the absolute amount was steady from 1600 to 1680, then ensued a steady and strong rise to 1800, followed by an abrupt drop in the second decade of the present century, and then by a strong and steady recovery, commencing from 1830 and continuing until the present.

[Sidenote: WIDE EFFECT OF MINT LAWS]

The larger question of the relative distribution of this mass of precious metals depends for its determination upon a full understanding of the law of the various Mints. Speaking in large, during the eighteenth century the Mint ratio was in favour of silver in France, and her currency was almost entirely silver throughout the century; conversely the Mints favoured gold in England and Spain, and gold was almost the only constituent of the currency of either country for the greater part of the century. There can be little doubt that these simple facts had a great influence in actually determining the great currency legislation which closed the century and finally decided England in favour of gold, and France and the United States in favour of a bimetallism strongly favouring silver.

The statement of the ratio is as follows:--

South-West Germany.
1657-80 15.10

Netherlands.
1663 14.43

England.
1663 14.48
1690 15.39
1715 15.21

France.
1679 14.91

COMMERCIAL STATEMENT OF THE RATIO (FROM 1687-1832, FROM THE HAMBURG
EXCHANGE RATIO; FROM 1833 ONWARDS, FROM THE LONDON BULLION
BROKERS' RATIO).

+----------+---------+
| 1687-8 | 14.94 |
| 1689-90 | 15.02 |
| 1691 | 14.98 |
| 1692 | 14.92 |
| 1693 | 14.83 |
| 1694 | 14.87 |
| 1695 | 15.02 |
| 1696 | 15.00 |
| 1697 | 15.20 |
| 1698 | 15.07 |
| 1699 | 14.94 |
| 1700 | 14.81 |
| 1701 | 15.07 |
| 1702 | 15.52 |
| 1703 | 15.17 |
| 1704 | 15.22 |
| 1705 | 15.11 |
| 1706 | 15.27 |
| 1707 | 15.44 |
| 1708 | 15.41 |
| 1709 | 15.31 |
| 1710 | 15.22 |
| 1711 | 15.29 |
| 1712 | 15.31 |
| 1713 | 15.24 |
| 1714 | 15.13 |
| 1715 | 15.11 |
| 1716 | 15.09 |
| 1717 | 15.13 |
| 1718 | 15.11 |
| 1719 | 15.09 |
| 1720 | 15.04 |
| 1721 | 15.05 |
| 1722 | 15.17 |
| 1723 | 15.20 |
| 1724-25 | 15.11 |
| 1726 | 15.15 |
| 1727 | 15.24 |
| 1728 | 15.11 |
| 1729 | 14.92 |
| 1730 | 14.81 |
| 1731 | 14.94 |
| 1732 | 15.09 |
| 1733 | 15.18 |
| 1734 | 15.39 |
| 1735 | 15.41 |
| 1736 | 15.18 |
| 1737 | 15.02 |
| 1738-9 | 14.91 |
| 1740 | 14.94 |
| 1741 | 14.92 |
| 1742-3 | 14.85 |
| 1744 | 14.87 |
| 1745 | 14.98 |
| 1746 | 15.13 |
| 1747 | 15.26 |
| 1748 | 15.11 |
| 1749 | 14.80 |
| 1750 | 14.55 |
| 1751 | 14.39 |
| 1752-3 | 14.54 |
| 1754 | 14.48 |
| 1755 | 14.68 |
| 1756 | 14.94 |
| 1757 | 14.87 |
| 1758 | 14.85 |
| 1759 | 14.15 |
| 1760 | 14.14 |
| 1761 | 14.54 |
| 1762 | 15.27 |
| 1763 | 14.99 |
| 1764 | 14.70 |
| 1765 | 14.83 |
| 1766 | 14.80 |
| 1767 | 14.85 |
| 1768 | 14.80 |
| 1769 | 14.72 |
| 1770 | 14.62 |
| 1771 | 14.66 |
| 1772 | 14.52 |
| 1773-4 | 14.62 |
| 1775 | 14.72 |
| 1776 | 14.55 |
| 1777 | 14.54 |
| 1778 | 14.68 |
| 1779 | 14.80 |
| 1780 | 14.72 |
| 1781 | 14.78 |
| 1782 | 14.42 |
| 1783 | 14.48 |
| 1784 | 14.70 |
| 1785 | 14.92 |
| 1786 | 14.96 |
| 1787 | 14.92 |
| 1788 | 14.65 |
| 1789 | 14.75 |
| 1790 | 15.04 |
| 1791 | 15.05 |
| 1792 | 15.17 |
| 1793 | 15.00 |
| 1794 | 15.37 |
| 1795 | 15.55 |
| 1796 | 15.65 |
| 1797 | 15.41 |
| 1798 | 15.59 |
| 1799 | 15.74 |
| 1800 | 15.68 |
| 1801 | 15.46 |
| 1802 | 15.26 |
| 1803-4 | 15.41 |
| 1805 | 15.79 |
| 1806 | 15.52 |
| 1807 | 15.43 |
| 1808 | 16.08 |
| 1809 | 15.96 |
| 1810 | 15.77 |
| 1811 | 15.53 |
| 1812 | 16.11 |
| 1813 | 16.25 |
| 1814 | 15.04 |
| 1815 | 15.26 |
| 1816 | 15.28 |
| 1817 | 15.11 |
| 1818 | 15.35 |
| 1819 | 15.33 |
| 1820 | 15.62 |
| 1821 | 15.95 |
| 1822 | 15.80 |
| 1823 | 15.84 |
| 1824 | 15.82 |
| 1825 | 15.70 |
| 1826 | 15.76 |
| 1827 | 15.74 |
| 1828-9 | 15.78 |
| 1830 | 15.82 |
| 1831 | 15.72 |
| 1832 | 15.73 |
+----------+---------+

[Sidenote: STATEMENT OF THE RATIO, 1660-1893]

+---------+------------+--------++---------+------------+--------+
| | Price of | || | Price of | |
| Year. |Silver Pence| Ratio. || Year. |Silver Pence| Ratio. |
| | per Oz. | || | per Oz. | |
+---------+------------+--------++---------+------------+--------+
| 1833 | 59-3/16 | 15.93 || 1864 | 61-3/8 | 15.37 |
| 1834 | 59-15/16 | 15.73 || 1865 | 61-1/16 | 15.44 |
| 1835 | 59-11/16 | 15.80 || 1866 | 61-1/8 | 15.43 |
| 1836 | 60 | 15.72 || 1867 | 60-9/16 | 15.57 |
| 1837 | 59-9/16 | 15.83 || 1868 | 60-1/2 | 15.59 |
| 1838 | 59-1/2 | 15.85 || 1869 | 60-7/16 | 15.60 |
| 1839-40 | 60-3/8 | 15.62 || 1870 | 60-9/16 | 15.57 |
| 1841 | 60-1/16 | 15.70 || 1871 | 60-8/16 | 15.57 |
| 1842 | 59-7/16 | 15.87 || 1872 | 60-1/4 | 15.65 |
| 1843 | 59-3/16 | 15.93 || 1873 | 59-1/4 | 15.92 |
| 1844 | 59-1/2 | 15.85 || 1874 | 58-5/16 | 16.17 |
| 1845 | 59-1/4 | 15.92 || 1875 | 56-3/4 | 16.62 |
| 1846 | 59-5/16 | 15.90 || 1876 | 53-1/16 | 17.77 |
| 1847 | 59-11/16 | 15.80 || 1877 | 54-3/4 | 17.22 |
| 1848 | 59-1/2 | 15.85 || 1878 | 52-5/8 | 17.92 |
| 1849 | 59-3/4 | 15.78 || 1879 | 51-1/4 | 18.39 |
| 1850 | 60-1/16 | 15.70 || 1880 | 52-1/4 | 18.04 |
| 1851 | 61 | 15.46 || 1881 | 51-11/16 | 18.24 |
| 1852 | 60-1/2 | 15.59 || 1882 | 51-5/8 | 18.25 |
| 1853 | 61-1/2 | 15.33 || 1883 | 50-9/16 | 18.65 |
| 1854 | 61-1/2 | 15.33 || 1884 | 50-5/8 | 18.63 |
| 1855 | 61-5/16 | 15.38 || 1885 | 48-5/8 | 19.39 |
| 1856 | 61-5/16 | 15.38 || 1886 | 45-3/8 | 20.73 |
| 1857 | 61-3/4 | 15.27 || 1887 | 44-5/8 | 21.13 |
| 1858 | 61-5/16 | 15.38 || 1888 | 42-7/8 | 21.99 |
| 1859 | 62-1/16 | 15.19 || 1889 | 42-11/16 | 22.09 |
| 1860 | 61-11/16 | 15.29 || 1890 | 47-11/16 | 19.17 |
| 1861 | 60-13/16 | 15.26 || 1891 | 45-1/16 | 20.92 |
| 1862 | 61-7/16 | 15.35 || 1892 | 39-3/4 | 23.74 |
| 1863 | 61-3/8 | 15.37 || 1893 | 35-9/16 | 26.49 |
+---------+------------+--------++---------+------------+--------+
| |
| Up to 1878 this table is derived from Soetbeer, |
| _Edelmetall-Produktion_, pp. 130-2. |
| From 1878-1890 I have calculated simply in accordance with |
| Soetbeer's method. |
| |
| The figures for 1891-3 are taken from the United States Mint |
| Report, 1893, already referred to, p. 251. In the table there |
| printed the director of the Mint gives slightly different |
| figures for several years from 1872 onwards. |
+----------------------------------------------------------------+

As far as the conditions of production of the precious metals are concerned, and the connection between those conditions and the ratio, there is historic and understandable continuity between the period already passed in review and modern times. In the method of expressing that ratio, however, there is a remarkable difference.

[Sidenote: EVOLUTION OF THE MODERN SYSTEM]

With the close of the seventeenth century the advantage of the process of altering the denomination of the coinage, of diminishing the content and reducing the standard of fineness, began to be impugned on theoretic grounds, and in the course of the eighteenth century that process itself fell into disuse. Since that time no Mint or legislative change such as we have hitherto described was made on the expressed value or content of any European coinage. Bearing in mind the twofold importance which was attached to that process of legislative guarding of the currency, this change must be regarded as of vital import. The legislator, from the middle of the fourteenth century, had attempted two things by this mechanism--(1) to follow the general rise of prices, and meet it by reducing the contents of the coins in such proportion as he thought fit; (2) to prevent any disastrous outflow of the precious metals by altering the ratio. The control of the Mint rates of metal-purchase and metal-coinage was, therefore, a matter of importance financially and politically to the nation, and economically to international commerce. In just such measure, therefore, was the entire ceasing of this State control of the mechanism of international exchange and currency a matter of almost incalculable significance in the history of the European monetary system. In the domain of finance it effected a revolution as signal as that produced in the relations of labour to capital by the disuse of the old labour laws. The ceasing of the artificial arbitrary Mint rates made way for a naturally determined or _commercial_ ratio, and the regulation of the international flow of the precious metals was left to the oscillation of trade balances, and to the action of interest rates and discount. The change is one from a mediaeval, State-bound, merely legislative system to the modern system, in which the flow of precious metals is determined by the perfectly natural and automatic action of international trade--is indeed the index and safety-valve of it, and of the whole present commercial world-circle.

This was not merely a change of fact and practice, it was a revolution of theory.

For before the old State belief in the necessity of safeguarding the supply of precious metals at any cost and consideration could go by the board, the whole Mercantile Theory must have lost its force in men's minds.

In the domain of theory the transition from the Mercantile to the modern system was gradual, through the various intermediate steps of Physiocratic and Smithian economics, and the complete abandonment of that system for our own can only be put very late, if indeed its period can at all yet be written, for modern Protectionist ideas are only a lusty survival of it. In the domain of financial practice, however, it--the mercantile system--ceased from the moment that the Governments of Europe left their Mint rates stationary, and gave the flow of the precious metals and the declaration of the ratio to the free unhampered natural action of international trade. The steps of the completed process can hardly be detailed, for there was much fear attending it, and the various Governments frequently retraced their steps in uncertainty. The earliest direct enactment was made by England. By the Act of 15 Charles II., chap. 7, sect. 12 (1663), the statutes forbidding the exportation of bullion were removed at one blow of astounding boldness. "Forasmuch," says this Act, "as several considerable and advantageous trades cannot be conveniently driven and carried on without the species of money or bullion, _and that it is found by experience that they are carried in greatest abundance (as to a common market) to such places as give free liberty for exporting the same_, and the better to keep in and increase the current coin of this kingdom, be it enacted that from and after the 1st day of August 1663 it shall and may be lawful to and for any person or persons whatsoever to export out of any port of England and Wales in which there is a customer or collector, or out of the town of Berwick, all sorts of foreign coin or bullion of gold or silver, first making an entry thereof in such customhouse respectively, without paying any duty, custom, poundage, or fee for the same, any law, statute, or usage to the contrary notwithstanding."

[Sidenote: FREE TRADE IN THE PRECIOUS METALS]

Standing so early and so almost completely alone as it does, this Act evinces an unexampled prescience and boldness. It doubtless reflects the commercial traditions of Holland, but that it should have been at a single stroke transferred to England at a time when she was so economically different and distant from Holland, needs make us pause in admiration. The only parallel to it, if any, would arise if France should suddenly, and by a single enactment, adopt to the full the Free Trade policy of England. As a matter of fact this Act of 1663 proved itself for a long time, and through many oscillations, impossible of execution, and far into the eighteenth century the British Government meddled, by legislation and proclamation, with the export of the precious metals, and with the tariff of the coins, as will be seen immediately. It was not till 1780 that a similar Act was passed for Ireland.

In 1803 the Lords of the Treasury were by statute authorised to grant licences for the exportation of silver bullion without any such certificate or document whatsoever as had been required by the statute of 6 and 7 Wm. III. c. 17, sect. 5.

It was almost a century after this action of England that France followed in the same path. By a proclamation of 7th October 1755, permission was given to the free commerce in precious metals and in foreign monies. But in the case of France, as in that of England, the enactment was not immediately nor fully realisable. The exportation of the national specie was still forbidden, and more than once the State found itself obliged to return to the question of the tariffing of its coinage.

It is this vacillation--a vacillation, however, which must in every instance be attributed to sheer State necessity--which makes it impossible to trace in detail and point by point the fall of so much of the Mercantile System as concerned the regulating of international movements of metals. The _practice_ of the commercial world was doubtless in advance of the legislator's standpoint, as indicated by such detached references, and was effectual in completing the revolution silently and under the surface, whether by the aid or in spite of laws and proclamations. The same had been the case, e.g., with the old usury laws.

When effected there are two highly important results which stand as the outcome of this change in the theory of international commerce.

1. The perception of a right theory of international balances opened the way to the separation of finance or currency phenomena pure and simple, and so prepared the ground for a scientific conception and treatment of them. In one direction this treatment resulted in the evolution of a theory and practice of a monometallic system--one, i.e., in which a single metal was made the legal tender, and a second or third metal bound to it in a hard-and-fast, subordinate relationship, so that they could not by their oscillations injuriously affect the tenderable metal. In another direction the same scientific conception and treatment resulted in the evolution (and after a time the practice) of a bimetallic theory. Modern currency history hinges on the antagonism of these two systems.

[Sidenote: FUNCTION OF DISCOUNTS IN MODERN SYSTEM]

This statement of the case will serve to show the enormous difference between nineteenth-century currency situations and problems and those of mediaeval and seventeenth-century Europe. To-day the point at issue is between definitely and scientifically conceived rival theories, and the _practical_ difficulty before the world is how to provide, not so much a permanent ratio, as a permanent rate of international settlement between countries using different monetary systems, between silver-using and gold-using countries. In the seventeenth century there was no conception of theory at all, and the practical difficulty was how to frustrate the operations of the bullionist and arbitragist and politicians, and the depletion of national treasure due to their activity, and based on a difference of ratio prevailing in different countries.

2. The second practical outcome of the revolution was the development of the modern system of control of the flow of gold balances, viz. by means of the bank rate and the arbitrage transactions depending thereon, and on interest and discount rates generally.

The modern theory of international trade does not say that between two particular countries, or at any one particular point of time there is an equivalence of exchange, but that between a circle of commercially interconnected countries, and over a certain cycle of time or operations, there is an equivalence of exchange of goods and services. Movements of currency in the most elementary form assist the process, as far as immediate settlements are concerned; bills of exchange assist it when there is need of deferred payments, as, for instance, when a country imports steadily all the year round, but has only one export time, say after harvest; and, finally, bank and discount rates assist the process by providing currency media at times and places which would otherwise be unable to attract a supply. Over the whole circle of completed operations there is equilibrium of exchange, and the machinery by which that equilibrium is accomplished is currency in the widest sense. The index or indicator and safety-valve of the whole is the rate of interest. On these bank rates are based the operations of the modern bullion dealers or arbitragists, which serve to equalise or economise the distribution of the precious metals all over the world.

It will be seen at a glance, therefore, that they fulfil, in an automatic and perfectly natural manner, all that was vainly attempted to be accomplished by the repressive savage action of the State, and the interfering unscientific handling of the Mint and coinage rates. It is in this feature that the great distinction between the modern and the seventeenth-century world consists. Such a difference can only be based upon, and have arisen from, a true theory of international trade. But the process of development which alone made it possible--the development of modern banking, the invention of paper currency media, the breaking down of international trade restrictions, all the mechanical and scientific inventions which have resulted in the binding of the world together in one whole as far as commerce is concerned,--all this would comprise in brief the essential features of the complete commercial development of two centuries or more, and how far they are related as cause or effect it would be hard to say.

In this secondary period, therefore, the separate history of each individual state gradually loses its distinct or isolated importance, as far as mere Mint edicts are concerned. As a consequence the bimetallic action which we have hitherto sought in the history of each individual currency must now increasingly be sought in the wider field of the world currency, that congeries or completed whole of currency of which each national system now forms only a part, and that not an independent part.

France.

In this third period the first change which France made in her silver monies was in 1674, when she for a time coined 4-sol. pieces of a quality below that of the _ecus blancs_ by more than a fifth. A great outcry was made by the Mint officers and mercantile community against this money as implying a debasement.

In 1679 there was a noticeable quantity of Spanish _pistoles_ and large _ecus d'or_ in circulation, and as a remedy it was ordered that they should be recoined into _louis d'or_ and _louis d'argent,_ the King offering to forego the seignorage as an inducement to bring them to the Mint. In 1686, however, the louis d'or itself was raised from 10 livres to 11 livres 10 sols., and the ratio thus changed to 15-1/2. This being found greatly in excess, in the following year it was lowered to 11 livres 5 sols. (a ratio of 15-1/4). In 1689 both silver and gold were again raised, the _louis d'or_ to 11 livres 12 sols. and the _louis d'argent_ to 3 livres 2 sols., but almost immediately a general recoinage was resolved upon. In this great operation, effected towards the close of 1689, the weight and standard of the previous coinage was exactly retained, but the louis d'or was issued at 12 livres 10 sols. and the louis d'argent at 3 livres 6 sols. Only two years later again the standard had to be altered, and the value of 1693 somewhat raised. It will give some slight idea of the sapping of the coinage that the pieces which in 1691 were minted at 12 livres 10 sols. were, in 1693, called in at a valuation of 11 livres 14 sols. The new species of 1693 were issued at 13 livres and 3 livres 8 sols. respectively.

[Sidenote: FRANCE: THE REFORM OF 1726]

Ten years later a third recoinage was ordered, the louis d'or being issued at 15 livres, and the louis d'argent at 4 livres. By 1709 these species had sunk in equivalence to 12 livres 15 sols. and 3 livres 8 sols. respectively. In that same year, however, their issue value was raised to 20 livres and 5 livres. This extraordinary and arbitrary action was greatly to the detriment of French commerce, and the idea was entertained of gradually reinducing the standard of 14 livres and 3 livres 10 sols. This was ordered by proclamation of 30th September 1713, which was to continue in force till 1715. In the latter year a reformation of the coinage was again undertaken, the reformed species rising to 20 livres and 5 livres, and the worn species remaining at 16 livres and 4 livres. From this latter date up to 1721 the operations of the financier John Law wrought great disasters in the monies. At the time of the erection of the bank, 2nd May 1716, there were four species of _louis d'or_ and three of _louis d'argent_. By 1720 the former had grown to forty in number and the latter to ten. (For the disorders of the period of John Law, see the account of French monetary system, Appendix VI.) It was to remedy this disorder that the great edict of 1726 was enacted. This edict, which formed the basis of the French currency system almost up to the days of the Revolution, prescribed the minting of louis d'or at a tale of 30 to the mark, and issued at a value of 20 livres; and of silver ecus at 8-3/10 to the mark and issued at 5 livres--divisional coins in proportion. The legal ratio was therefore 14-5/8. All foreign coins and the ancient species of gold and silver were decried, and ordered to be brought in for reminting. All the prohibitive regulations of an old regime against cutting and export, etc., were re-enacted with severest penalties. But as the rate at which the Mint was ordered to take in the old coinage did not represent the commercial value at the moment, the old coins were not brought in, and up to as late as 1749 the recoinage had not been accomplished, although the Mint prices had been at different times advanced on the whole a matter of 30 per cent. or more. In 1759 the want of currency had become so great that the King sent his plate to the Mint, and numbers of private individuals followed his example, receiving in reimbursement part payment at the rate of 861 livres 5 sols. 10 den. for the mark of fine gold, and of 59 livres 5 sols. 10 den. for the mark of fine silver.

This latter tariff underwent no change until 1771, when, under the pretext of the changes which foreign coinage tariffs had undergone, those terms were fixed respectively at 709 livres and 48 livres 9 sols.

In this resume the mention of billon money has been generally avoided, as unduly complicating the subject. But in the legislative action of France in the eighteenth century there is one act which necessitates a momentary departure from this standpoint.

In 1738 the Government of the United Provinces diminished the value of their _sols._ by one-half. The French Government fearing that this diminution would lead to an immense influx of such sols. decided to follow suit. By a decree of August 1st of the same year, 1738, it was ordered that the _Douzains_ and pieces of thirty deniers should have course only for eighteen deniers. The important point to notice in connection with this is that, in order to mitigate the effect of this reduction, the same decree limited the tender of such billon money. It was ordered that in payments up to 400 livres not more than 10 livres should be tenderable in billon, and for payments of more than 400 livres not more than 1/40 of the total. The restriction was ineffectual in preventing either the import of foreign billon specie or the operations of billonage or arbitrage, based on the differentiated value of the various kinds of billon circulating. This is quite evident from the preamble of the edict of the following October, 1738, which attempted the calling in of the 30-denier pieces, in order to put a stop to the process.

[Sidenote: FRANCE: THE REFORM OF 1785]

Such a failure is quite in keeping with all previous experience as recorded in these pages, and deserves no special reference. The point to note is rather the gradual evolution and adoption of the idea of limiting the tender of the lower species, so as to contract their action on the main species of the currency. This idea forms the complement of the idea of an agio, involved in the issue of fractional coins on a lower standard or basis than that of the greater specie. The one idea was--in long, over-long, periods i.e.--impracticable without the other; but together, when finally evolved, thoroughly seized and put in practice, they formed the main basis of the truest modern currency system.

To return to the pure gold and silver species. The basis of 1726 remained at law unaltered until 1785. The edict of the 30th October of that year commanded a recoinage; no change was made in the silver coinage, which remained according to the tariff of May 1773, namely, 52 livres 9 sols. 2 den. to the mark fine. By the alteration of the tariff of gold, however, to 828 livres 12 sols. to the mark fine, the ratio of 14-5/8, which had nominally prevailed since 1726, was altered to the memorable 15-1/2. The reason was explicitly stated to be the increase in the value of gold during several preceding years--an increase which had banished or detained gold from the French Mint and even from France.

Writing in 1785, the minister, Calonne, who proposed and executed the recoinage in that year, spoke thus:--

"In 1726 the legal ratio was fixed in France at 14 marks 5 oz. of silver, to a mark of gold, and that which proves with how much sagacity this point was seized is the fact that during a long course of years France retained in her circulating medium a sufficiently large proportion of each metal. Nevertheless, her gold gradually became less common, and for some years this scarcity has rapidly increased, and this precisely because its legal value has always remained the same, while its metallic value has increased from year to year."

He estimated the amount of livres in _louis d'or_ existing in the country at the time of the recoinage, 1785, as 650 million livres, which amounted to only a half of the total coinage (1300 million livres) of the period 1726-85. What seems to have determined Calonne to adopt 15-1/2 was the fact that Spain had the legal ratio of 16, and that there was a probability that, in future, gold would rise in value. As for the market price, he admits that it was only 15.08-15.12 in 1785. The recoinage, therefore, brought a profit of 7,255,216 livres to the King's purse, and a profit of 21,600,000 livres to the holders of the old _louis d'or_.

[Sidenote: FRANCE: CALONNE'S POLICY IN 1785]

His policy was severely criticised in a report made in 1790 to the National Assembly, which proposed a silver standard, with an authorised circulation of gold coins at the ratio of 14-7/9 and the abolition of seigniorage. It is well known that this was nearer to the market rate. Calonne's ratio, therefore, must be regarded as arbitrary and designing. Practically, the latter recommendation of the committee's paper of 1790 had been conceded in the decree of 30th October 1785, as the seigniorage was by it allowed to be no more than the net cost of reminting.

By this celebrated edict of Calonne's, which also enacted a recoinage, the right of seigniorage was practically finally relinquished for France. Fixity was given to silver as the principal money, and a definite ratio was established at which gold was to circulate by its side. In these, its chief points or characteristics, it formed the exact model for the later Act of Republican France, which is ignorantly looked upon as having created the bimetallic system. The Act of 7 Germinal an XI. did but re-enact and perpetuate the edict of 1785.

It is important to reaffirm and emphasise this point, as quite wild and blind estimates have been formed of the later action of Republican France. In merest fact, that later action created no new order, it instituted no new idea, it did not even promulgate its own theory.

[Sidenote: FRANCE: CURRENCY LEGISLATION AT REVOLUTION]

Republican France began her reform of the currency in a very temporary and opportunist manner by issuing a mass of inferior monies of 15 and 30 sous pieces to form the basis of the assignats, and to replace the gold and silver which had almost entirely disappeared from circulation. In the decree of 16 Vendemiere an II. (7th October 1793), however, the question of standard was approached, and decided in a remarkable manner. The monetary unit was decreed to consist of the hundredth part of a kilogram, named _grave_, represented (1) by a piece of silver 9/10 fine and weighing 10 grms., (2) by a piece of gold of the same weight and standard, to be current at 15 times the value of the silver piece.

This decree remained a dead letter, and two years later the _franc_ was definitively adopted as the base of the French system. As determined by the two laws of 28 Thermidor an III. (15th August 1795), that system was based upon the silver franc (weighing 5 grms. 9/10 fine). A gold coinage was ordained, of the same fineness, in a piece of 10 grms. weight, but the ratio of value of the gold to the unit franc was not fixed. This was exactly the monetary system which Mirabeau had counselled in his memoirs to the Assembly in 1790. The silver _5-franc_ pieces prescribed under this system found acceptance, the bronze pieces were refused and had to be withdrawn, and as to the gold piece, its issue was not even attempted. Two years later the "Directoire" pronounced in favour of maintaining the 10-grm. piece of gold, but demanded the fixation of its value, proposing a ratio of 16:1. In opposition to this scheme, Prieur submitted to the "Council of the Five Hundred" a project adopting the silver and gold coinage, as already determined as above, but leaving the value of the gold piece to fluctuate according to the market, its value being declared twice annually by public announcement. After being materially altered in the "Council of the Five Hundred," this scheme was definitively rejected by the "Council of Senators," and for several years the question of the monetary system of the Republic was allowed to slumber. When, in the year X., the consideration of the subject was resumed, it was at the instigation of the Consuls. At their desire the Minister of Finance, Gaudin, laid before the Council of State a scheme in which he proposed the issue of 20 and 40-franc gold pieces, of a value based on the ratio enunciated in the edict of 1785, namely, 15-1/2. He was, at the same time, careful to explain that silver remained the basis of the currency, and that the gold money could be reissued if a different market compelled a change in the ratio. In his report to the Consuls, Gaudin admits that the commercial ratio had for a long time been under 15. The decisive point which led him to maintain the ratio established in 1785 was, that to change the _status quo_ by the adoption of 15 as a ratio would occasion great loss to the holder of gold coins, and that there was no sufficient reason for so great a change.

The Financial Committee of the Council of State at first rejected the scheme, preferring that of Prieur, already described, but on an inquest, ordered by the First Consul, who insisted on pressing the matter to a conclusion, M. Gaudin carried his propositions through the Council of State, but with the important difference that the reference to any future change in the ratio of gold to the basis of silver was tacitly dropped. These propositions became the foundation of the law of 7-17 Germinal an XI. (28th March 1803), on which the monetary system of Republican France was finally built.

The _expose des motifs_ of this law speaks of the gold coins in these words:--

"The gold pieces up to the present in circulation are the pieces of 24 and 48 livres tournois. Article 6 of this law substitutes in their place pieces of 20 and 40 francs. The adoption of the decimal system necessitates this change, which brings all parts of the system into accord. It is on the same consideration that the standard is fixed at 9/10, like that of silver."

Not a word is said as to the ratio, and much more stress is laid upon the suppression of billon money and on the abolition of seigniorage, as of greater importance and benefit to the nation's interests. By this law of Germinal XI. the monetary unit of the French system was declared to be the silver franc, weighing 5 grms. of 9/10 standard. By the side of this franc and its multiples, were to be issued gold pieces of 20 and 40 francs, valued on a basis ratio of 15-1/2 to the silver.

[Sidenote: FRANCE: THE REFORM OF 1803]

It will be seen at a glance from the course of this previous history that this law instituted no new principle, or theory, or system in French currency. The decimal system was adopted in place of the old system of livres tournois, seigniorage was abolished, and fixation of value given to the unit money, and billon money discontinued. But in matter of standard and system there was not even innovation. The system of Republican France, as established by this law, was no more and no less bimetallic than in 1785, or than in 1610, or in the days of Francis I. Theories as such did not occupy the mind of the legislator, and of any conception of a bimetallic theory or system such as we have learned to know there is no trace. The First Consul found at hand the two metals which had formed the currency of his country for centuries. The problem of their regulation was the same which had been faced by his predecessors for centuries, and he settled it in the same practical untheoretic way.

It was only gradually that in its totality of coins the French monetary system was made to conform to the metric system thus established. The old gold coins of 12, 24, and 48 livres were not suppressed until June 1829, the actual extinction of billon money was only accomplished in 1845, and the recoinage of the inferior monies in 1852-56. But such are mere matters of detail and apart from the subject.

The experience of France under this new regime is, therefore, in no wise different _in kind_ from such experience as has been described for the preceding centuries. It is not until the broaching of a bimetallic theory as such, and until the expression of that theory, as a theory, in the formation of the Latin Union, that anything like a special significance attaches to the monetary system and experience of France in the nineteenth century, any more, e.g., than in the seventeenth. The main difference in the situation was not that France had changed her system, and that her experience was henceforth different and of different signification, but that England had changed hers, and that the brunt of the fluctuations of the precious metals about a fixed ratio was left to be borne by a smaller area. The influence and the instance is, therefore, more telling in degree, but in no way different in kind.

The second idea which is commonly entertained with regard to the action of France during this later period, viz. that her action secured for the world at large a fixed and steady ratio, is equally--indeed, still more--fallacious. At no point of time during the present century has the actual market ratio, dependent on the commercial value of silver, corresponded with the French ratio of 15-1/2, and at no point of time has France been free from the disastrous influence of that want of correspondence between the legal and the commercial ratio. The opposite notion, which prevails and finds expression in the ephemeral bimetallic literature of to-day, is simply due to ignorance. From 1815 England has been withdrawn from this action of a bimetallic law, and the modern insular pamphleteer has before his eyes no sign of its workings in his own country. He therefore assumes an universality of such experience, and attributes it to the French legislative ratio. It is in no polemic spirit, but simply in the interest of science that this particular misapplication of history to the squaring of a theory is to be branded. The plainest facts of history are thereby absolutely misrepresented, and the assumption of cause and effect is so far from being true that the repose of the English currency history in the nineteenth century is to be attributed to the _absence_ of a bimetallic system; to its despite rather than its presence and influence. To instance only by France for the moment.

[Sidenote: FRANCE: COURSE OF THE RATIO]

The course of the actual or market ratio has been already stated in the table (_supra_, pp. 157-59). In the graphic representation of this (_opposite_) the legal ratio of 15-1/2 is represented by the fixed line _x.y._, the actual ratio by the fluctuating black line _z_. At no point do these lines coincide. After three years of fluctuations, 1803-06, now above and now below, the ratio sinks persistently below for seven years, 1807-13, touching the lowest point (a ratio of 16.24) in 1813. For the succeeding five or six years, 1813-19, the ratio was as consistently above the legal rate, though with less violence and width of divergence. From the latter year, 1819, up to 1850, its course was undeviatingly below 15-1/2, then from 1851-67--the period, i.e., of the great gold outputs of Australia and America--as undeviatingly above. From the last-named date until the close of the bimetallic system in France, and, indeed, up to our own days, the course of the commercial ratio has been again unbrokenly below the 15-1/2 ratio, and, as is too well known, with an ever-increasing enormity of divergence.

So much for the claim that the French law has dowered the world with a steady ratio.

_Secondly_, what has been the influence of this divergence of the commercial from the legal ratio upon France's store of precious metals? It has been exactly similar in effect and force with that wielded by similar trains of event and circumstance, in the monetary history of France during the four preceding centuries. The exact official figures of the import and export of gold and silver are not obtainable before 1822, and in a continuous stream not before 1830 (separably for the two metals, that is to say).[15]

[Sidenote: FRANCE: BIMETALLIC EXPERIENCE, 1803-75]

From the latter date, however, the testimony of the figures is as explicit as it is forceful. From 1830 to 1850, while the ratio remained continually below the legal 15-1/2, there was a profit on the import of silver, and a persistent and heavy import took place. In 1830 the (balance of the) silver imported amounted to a matter of 6 millions sterling, in 1831 to 7-1/4 millions, in 1834 to 4 millions, in 1837 to over 5-1/2 millions, in 1838 to nearly 5 millions, in 1841 to nearly 5 millions, in 1843 over 4 millions, in 1848 to over 8-1/2 millions, and in 1849 to nearly 10 millions. There was not a single year that was not accompanied by this import, and over the whole twenty-two years the total of importations reached the enormous figure of, approximately, 92 millions sterling. It must be clearly understood that this sum represents not the gross but the net importation or balance of imports over exports, and that the money passed into the currency of the country, taking its place as such and displacing gold _pari passu_. The movement of gold in the same time is represented by the red line in the accompanying diagram. Within the limits of very considerable exceptions, the correspondence of its fluctuations with those of gold is clearly perceptible. The silver, on whose coinage a profit or premium was offered by the existing French law to individuals, could only be bought or paid for by the export of gold or services and goods. During these years, 1830-50, it was quite apparently by the latter method, namely, by remittance of goods, as on the whole period there is a slight gain of gold, nearly 3 millions, contrary to what bimetallic law would have led to expect. The correspondence, however--a simultaneity--of the two movements, of import of silver and export of gold, is strongly marked in the years 1834-39 and 1841-48, and the failure of correspondence of the totals is to be explained by the statistics of French foreign trade balances during the years named.

With the year 1852, the decisive change in the ratio sets in with the new gold influx. The ratio rises above the 15.5 of the French law, and the profit on the importation and coining of silver vanishes. Its place is taken by a corresponding profit on the importation and coinage of gold. The fourteen years during which the ratio remained above the legal 15-1/2 witnessed the importation into France of a total net (or balance) of gold to the amount of 135 millions sterling, and a total net or balance of exportation of silver of 66-2/3 millions sterling. The coincidence of actual fluctuation will best be seen by the graphic representation of it in the table. With 1865 the final and, so far as the nineteenth century is concerned, the fatal change of the commercial ratio sets in. It sinks persistently and increasingly below the legal 15-1/2, in face and spite of the united mintings of the Latin Union, and at once the premium on the importation and coinage of gold changes into one on silver. From 1865 to 1875, one year before the abandonment of the coinage of the 5-franc piece and the consequent relinquishment by France of the bimetallic system, her net imports of silver amounted to 56 millions sterling.

As far as these figures of import and export are concerned, they show only the _final_ results of the action of bimetallic law. The metal on whose importation and minting a premium was obtainable _was_ imported, and in large quantities. That is the single fact standing out in large. The reciprocal fact--of a corresponding export of the metal over whose head the premium offered--does not emerge so distinctly, simply by reason of the complication of the subject of exports of metals with the wider general movement of trade balances. It also is, however, distinctly perceptible and demonstrable. But this is to speak only in large and of final results. What the intermediate course of events--of see-saw and flux, was, can only be adequately grasped from the records of the mintings, conjoined with the records of net import or export of the two metals.

TABLE OF THE NET IMPORTS OR EXPORTS OF GOLD IN FRANCE UNDER THE
BIMETALLIC LAW, 1822-75.

+------+------------+------------++------+-------------+-------------+
| | Net | Net || | Net | Net |
| Year.| Import | Export || Year.| Import | Export |
| | (Francs). | (Francs). || | (Francs). | (Francs). |
+------+------------+------------++------+-------------+-------------+
| 1822 | 4,000,000 | ... || 1852 | 17,000,000 | ... |
| 1823 | ... | 19,000,000 || 1853 | 289,000,000 | ... |
| 1824 | 37,000,000 | ... || 1854 | 416,000,000 | ... |
| 1830 | 10,000,000 | ... || 1855 | 218,000,000 | ... |
| 1831 | 10,000,000 | ... || 1856 | 375,000,000 | ... |
| 1832 | ... | 39,000,000 || 1857 | 446,000,000 | ... |
| 1833 | 24,000,000 | ... || 1858 | 488,000,000 | ... |
| 1834 | ... | 7,000,000 || 1859 | 539,000,000 | ... |
| 1835 | ... | 20,000,000 || 1860 | 311,000,000 | ... |
| 1836 | ... | 14,000,000 || 1861 | ... | 24,000,000 |
| 1837 | ... | 6,000,000 || 1862 | 165,000,000 | ... |
| 1838 | ... | 4,000,000 || 1863 | 12,000,000 | ... |
| 1839 | 24,000,000 | ... || 1864 | 125,000,000 | ... |
| 1840 | 49,000,000 | ... || 1865 | 150,000,000 | ... |
| 1841 | ... | 5,000,000 || 1866 | 465,000,000 | ... |
| 1842 | ... | 12,000,000 || 1867 | 409,000,000 | ... |
| 1843 | ... | 41,000,000 || 1868 | 212,000,000 | ... |
| 1844 | ... | 6,000,000 || 1869 | 275,000,000 | ... |
| 1845 | ... | 14,000,000 || 1870 | 119,000,000 | ... |
| 1846 | ... | 9,000,000 || 1871 | ... | 214,000,000 |
| 1847 | ... | 13,000,000 || 1872 | ... | 53,000,000 |
| 1848 | 38,000,000 | ... || 1873 | ... | 108,000,000 |
| 1849 | 6,000,000 | ... || 1874 | 431,000,000 | ... |
| 1850 | 17,000,000 | ... || 1875 | 454,000,000 | ... |
| 1851 | 85,000,000 | ... || | ... | ... |
+------+------------+------------++------+-------------+-------------+

TABLE OF THE MOVEMENT OF SILVER DURING THE SAME PERIOD.