On the probable fall in the value of gold: the commercial and social consequences which may ensue, and the measures which it invites

Front matter

ON" THE

PROBABLE FALL

IN THE

Section II

AN APPEAL TO SOME OF THE FUNDAMENTAL NOTIONS UPON THE NATURE AND CHARACTERISTICS OF MONEY.

Chap. I. — What we ought to understand by value and price. — Twofold definition of money. — The standard or fineness of money, . . .24

Chap. II. — Of the meaning of the word standard. — The metal standard is that from which is derived the monetary unit.^-The two ideas standard and monetary unit imply each the other, . . . . .32

Chap. III. — Of the character of exchanges as affected by the invention of money. — How the rise and fall of the precious metals are manifested in the course of trade. — Phenomena of the rise and fall in commodities, 34

Chap. IY. — On the possibility of conferring the quality of standard upon two metals at once, . . . . . . . .38

Chap. V. — Of the meaning of certain words specially applicable to money and the precious metals :— Price, value, premium, clearness, cheapness, 46

Section III. Of The Present Production Of Gold And Its Outlet

Chap. I. — Of the increase in the present production of gold as compared with the past. — The extended coinage of gold which has followed, . 54

Chap. II. — Diminished coinage of silver in France. — Gold is already at a discount in comparison with silver, . . . . .60

Chap. III.— Extraordinary exportation of silver from the civilised countries of the Western World towards India and China, — To what extent it is likely to continue, . . . . . . . .64

Chap. IV. — Prance" serves temporarily as a parachute to retard the fall of gold, ......... 73

Chap. V. — Whether the extraordinary production of gold ought to be considered as an ephemeral accident. — The crushing of the quartz veins. — Mines in Siberia and elsewhere, . . . . . .76

14 CONTENTS.

Section IV

ON THE NEW OUTLET THAT MAY BE EXPECTED FOR THE PRODUCTION OF THE NEW GOLD MINES, AND WHETHER IT WILL BE IN PROPORTION TO THE EXTENT OF THIS PRODUCTION.

PAGE

Chap. I. — Of the outlet afforded by those countries which at present hare evidently an insufficient proportion of metal in their currencies, . 87

Chap. II. — Of the increase of gold money which may arise from the development of business, and the increase of population. — Of wear and tear. — Of hoarding. — Of shipwrecks, . . . . . .94

Chap. III. — On the employment which habits of luxury may offer to the gold of the new mines, . . . . . . . 106

Chap. IV. — Conclusion of the preceding chapters. — The fall of gold very probable, if not inevitable, in relation to all other commodities, . 113

Section V

Chaps. I. to V.— On the part assigned to gold in the monetary legislation of France/ ......... 121

Section VI. Consequences Of The Fall In The Value Of Gold

Chap. I. — A general distinction between those private incomes which will, and those which will not be, affected. — Of a certain collective loss which the people of France will suffer, . . . . . 124

Chap. II. — Of the sufferings and difficulties which will accompany the transition, ......... 128

Chap. III. — On the gain which would result to certain classes of persons, and to society, from the fall in gold. — The saving to the State from the payment of the dividends on the public debt, .... 137

Section VII

OF THE MEASURES TO BE TAKEN TO AVERT THE EVIL EFFECTS OF THE FALL OF GOLD.

Chap. I.— Case of a State like England, where gold is the standard, and where there is no other money but gold, . . . 144

Chap. II. — Case of a State, such as France, where there is a silver standard, but also a gold currency, . . . . . . . 148

Chap. III. — The measure here recommended is a necessary complement of the law of Germinal, year 11, . . . . . . 164

Chap. IV. — On some inconveniences inherent in the combination, respecting a gold currency, recommended in this work, . . . ' l$7

Chap. V. — Of a plan recommended for maintaining the parallel circulation of silver and gold, ....... 170

Chap. VI. — Of the resolutions of a commission appointed by the Minister of Finance in 1857, ....... 175

Chap. VII. — Of various acts which the legislation of the ancient regime upon money treated as crimes, and with regard to which some persons of our day propose to establish penalties. — Selecting and melting ; trade in coins ; exportation, . . . . . . 133

Chap. VIII. — Of a different solution which has been recommended, and which would consist in the adoption of a gold standard, . . 198

Chap._ IX. — Appreciation of the system which consists in adjourning indefinitely the legislative solution, ...... 209

Chapter I. The Question Stated

If we go back in imagination three centuries, and picture to ourselves the most striking characteristic which the aspect of Europe then presented, we shall behold a universal excitement caused by the discovery of .a new continent, which had been, sixty years previously, brought to light by a Genoese navigator, whose genius and persistent daring had been stimulated by a lucky miscalculation of the geographical position of China. In this new world, to which Columbus had traced the path — not merely for Castille and Leon, as is alleged in the inscription placed on his tomb by the tardy gratitude of posterity, but for the whole civilized world — mines of gold and afterwards of silver (especially the latter), of unheard of richness, presented themselves to the cupidity of the conquerors. The most enterprising spirits of the Iberian peninsula hastened across the ocean to possess themselves of treasures, the splendour of which had been exaggerated in their excited imaginations ; and they were followed by a multitude of daring adventurers from all parts of Europe, who precipitated themselves on the coast of America, all in quest of mines of gold and silver.

It was in Peru and Mexico, the provinces containing the richest mines and the greatest supply of labour, that the precious metals were first obtained by an organised system of production. From 1492, the year of the discovery of the New World, to 1500, it is doubtful whether it yielded on an average a prey of more than 1,500,000 francs (£60,000) a year. From 1500 to 1545, if we add to the treasure produced from the mines, the amount of plunder found in the capital of the Montezumas, Tenochtitlan (now the city of Mexico), as well as in the temples and palaces of the kingdom of the Incas, the gold and silver drawn from America did not exceed an average of sixteen million francs (£640,000) a year. From 1545, the scene changes. In one of the gloomiest deserts on the face of the globe, in the midst of the rugged and inhospitable mountain scenery of Upper Peru, chance revealed to a poor Indian, who was guarding a flock of llamas, a mine of silver of incomparable richness. A crowd of miners was instantly attracted by the report of the rich deposits of ore spread over the sides of this mountain of Potocchi—& name which for euphony the European nations have since changed to Potosi. The exportation of the precious metals from America to Europe now rose, rapidly, to an amount which equalled, weight for weight, sixty millions of francs (£2,400,000) of our day, and it afterwards rose even to ^wards of eighty millions. At that time such a mass of gold and silver represented a far greater amount of riches than at present. Under the influence of so extraordinary a supply, the value of these precious metals declined in Europe, in comparison with every other production of human industry, just as would be the case with iron or lead, if mines were discovered which yielded those metals in superabundance, as com-

PBELIMIKAKY OBSERVATIONS. 17

pared with their present consumption, and at a much less cost of labour than previously, just in fact as occurs in the case of manufactures of every kind, whenever, by improved processes, or from natural causes of a novel kind, they can be produced in unusual quantities, and at a great reduction of cost.

This fall in the value of gold and silver, in comparison with all other productions, revealed itself by the increased quantity of coined metal which it was necessary to give in exchange for the generality of other articles. And it was thus that the working of the mines of America had necessarily for effect a general rise of prices, in other words, it made all other commodities dearer.*

The fall in the value of the precious metals, or that which means the same thing, the general rise of prices, does not appear to have been very great, out of Spain, till after the middle of the 16th century. Shortly after the commencement of the 17th century, the effects of the productiveness of the new mines and of the diminished cost of working them were realised in all parts of Europe- For the silver, which had been extracted in greater proportion than the gold, and on more favourable terms, the fall in value had been in the proportion of 1 to 3. In transactions where previously one pound of silver, or a coin containing a given quantity of this metal, had sufficed, henceforth three were required.f At Paris a quantity of

* This phenomenon, sufficiently clear in itself, will be still further explained in Chapter III. of Section II.

f In assigning this proportion, it is hardly necessary to say that I assume other things to be equal ; I mean that other articles were in the same abundance, and produced under the same circumstances as before. For a commodity which might have become relatively more abundant, and of which the process of production should have been improved, there would have been a cause for the reduction of price, and this cause would have to a certain extent counterbalanced the dearness caused by the fall in the value of the metals from which money is coined.

wheat, which we now call a hectolitre, cost, before the voyage of Columbus, from 12 to 15 grammes weight of silver, which is the metal contained in from 2 francs 67 centimes to 3fr. 33c. (2s. 6d. to 2s. 9d.) This quantity was henceforth worth at least from 45 to 50 grammes, or the silver contained in from 10 to 11 francs and upwards (of our money, 8s. 4d. to 9s. 2d.) ; it was even much higher, for some time, at Paris, after the first quarter of the 17th century. The change in gold, although obvious, was not so great as in silver.

After having been arrested for awhile in this downward course, and even after having witnessed for a time a tendency to an upward movement, the fall in the value of the precious metals, and the corresponding rise in prices, resumed their course, under the influence of the same causes, until towards the end of the 18th century, without however manifesting their influence so widely or intensely as had been witnessed after the first development of the great American mines. We find, as the result, that during the first half of the 19th century, the value of silver fell to about the sixth of what it was before the discovery of America, when compared with the price of corn, which people have agreed, somewhat arbitrarily it must be confessed, to take for a fixed measure of value. The hectolitre has sold on an average, during this half century, at Paris, for about 20 francs (16s. 8d.), or 90 grammes of silver.

In our day we seem destined, like our fathers of three centuries ago, and from the same causes, to witness the spectacle., or in other words the shock and crisis, of a universal rise in prices ; — with this difference, however, that up to the present time the new discoveries affect only the production of one of the precious metals, gold, of which vast deposits of immense richness hitherto unknown have been successively discovered and attacked with astonishiwg impetuosity. In California, in the very year when the rule of an industrious people, full of energy and intelligence, superseded the drowsy authority of a handful of monks maintained there by Mexico, splendid mines of gold were opened upon the banks and in the beds of rivers watering the valley in which San Francisco is situated^ and no sooner were they heard of than they were vigorously assailed by crowds of settlers who threw themselves headlong upon the spot from all parts of the world. This was in 1848. In three years more, beyond the great ocean, the continuation of the magnificent mines of California was discovered in Australia. In that remote region, a gold-seeker, who had made his first essays in the neighbourhood of San Francisco, discovered treasures not inferior to those of the vaunted valleys of the Sacramento, and the San Joaquim. But California and Australia do not contain the only rich mines towards which the civilized world of our day have stretched forth an active and greedy hand. It is about thirty years ago that those auriferous slopes, known to the ancients, and revealed to us in a narrative, fabulous though it be, by the father of history, but forgotten by the generations who succeeded him, began to give forth a notable supply of gold in Northern and Eastern Eussia, among the Oural Mountains, and especially in Siberia, where the field of enterprise is almost boundless. The gold regions of the Empire of Eussia, of which Herodotus had given us a description, tinged with the dreams of romance, were only re-discovered by the moderns in 1774. It was in the chain of the Oural that the first discovery was made, and to which the workings were confined till a very recent year. The riches of these mines were, "however, but slightly developed till after 1810. In 1816, the production was only about 96 kilogrammes of metal (£13,440). From 1823 a progressive increase took place. In 1830, the production ac-

20 PEELIMINAKY OBSERVATIONS.

cording to official accounts was 5,779 kilogrammes, or about. 18 millions of francs (£720,000). About this time, the auriferous deposits of Siberia became known, and from 1840 they yielded a far greater mass of gold than that extracted from the mines of the Oural.

Under the influence of this greatly increased and cheapened production of gold, it is reasonable to expect, at least in all those countries where gold circulates in large quantities, and where it is or tends to be the sole medium of exchange, a general disturbance of prices, a deeply felt derangement of interests, and a modification more or less radical in the different relations of society. To examine the causes and consequences of such a revolution, and the good or the evil which, if they have not already commenced, must hereafter spring from it, . can hardly be deemed an unprofitable task. With reference to certain countries, and more especially France, it is well to consider how far this influx of gold into the monetary system is in conformity with existing laws, with the intentions of the legislator, the national honour, and the respect due to engagements contracted by the State. If it were proved that what is taking place is in violation of the spirit and letter of legislation, the best means should be sought for returning as quickly as possible to the scrupulous observance of the law.

The work which I offer to the judgment of the public will naturally divide itself under different heads. In the first place let us try to form an idea of the chances of a rise in prices, of the forces which tend to produce that result, and of those which are calculated to prevent it ; and next let us see in what sense we ought to understand the monetary legislation of France*, and what steps should succeed to the solution of this problem. Afterwards, we will pass to a brief explanation of the principal inconveniences which, in a political and social, as well as in an economical point of view, will attend a general rise of prices, caused by the depreciation of gold, as well as of the advantages wliicli society and the State may derive from such, a depreciation to compensate for the disorganisation it must occasion. We shall conclude with an attempt to decide what arrangements will be proper for preventing or diminishing the evil effects of an extraordinary production of the precious metal.

Simultaneously with these new discoveries of gold, a fact of grave import develops itself with reference to silver. For a few years past this metal has become, in the European market, the object of unusual demand for exportation to the East. This is evidently calculated to make the fall in gold more sensibly felt, especially in comparison with the other precious metal ; for whilst the gold increases rapidly, silver becomes more scarce, and thus the divergence operates from both sides. We could not dispense with a brief investigation of the change going on in the demand for silver, were it only to endeavour to estimate its probable duration, and to form an idea of the influence which it is likely to exercise upon the fall, apparent or real, in the value of gold. The natural course of this work will soon furnish an occasion for this investigation.

Chapter II

PRELIMINARY OBSERVATIONS ON THE RISE OE PRICES WHICH HAS CHARACTERISED THE LAST FEW YEARS.

Before entering upon the consideration of the mode in which the new gold discoveries must be considerd as the probable cause of the general rise of prices, in the countries where gold is by law or practice the monetary standard, it may not be out of place to say a few words in order to avert a possible confusion. This dearness is not a fact appertaining to a future more or less distant ; the present time is characterised by an all but universal rise of prices, at least it has been so up to the reaction which dates from the close of 1857. There are few productions which had not risen in price during the last five or six years. Even after the violent crisis which shook the four quarters of the globe, the high prices of several articles are still sustained. Many persons have not hesitated to attribute this unyielding rise to the influence of the new gold mines. I do not deny that the unusual production of this metal may have been in part the cause ; but other causes may be mentioned which have weighed considerably in the scale.

Speaking of a great number of productions of the first necessity, of the raw materials of industry, and consequently of manufactured articles, especially of those upon which the price of the raw material exercises the greatest influence — they are in general the commonest qualities — • we may trace a rise in price quite distinct from that which could have arisen from an increased production of gold. It arises from the fact that, in the case of these raw materials or manufactures, the relation between the supply and demand in the market, which necessarily decides the price, has undergone a great change. The demand having surpassed the supply, the consumer has found himself placed at the great disadvantage of being obliged to buy in a dearer market. This rise in prices, special and distinct in its origin, must be attributed to causes which in their effects at least, if not in their very nature, are transitory.

In the first place it may be traced to the fact that various classes of society have indulged in an increased consumption, either from their having greater resources, or from their habits of economy having undergone an unfavourable change. In France a great number of persons have been enriched by the immense rise in the value of railway shares, and they have set an example of extravagance which has not wanted imitators. As respects the working classes, the impulse given to public works, and to various industrial undertakings, has caused an extraordinary demand for their labour, and the consequent increase in their wages has enabled them to consume a greater quantity of certain articles of subsistence, and of those manufactured products which are most accessible to the masses of mankind. One of the effects traceable to this cause is the high price of butcher's meat which we have lately witnessed in France.

In the next place the moderate, not to say the inferior harvests, have in later years been a sufficient reason for the high price of many articles. Bread and wine have risen because of the scarcity of corn, and of the disease which has ravaged our vineyards. The rise in bread has produced a similar effect upon other articles of ordinary subsistence. A raw material, in great use among the manufacturers of Europe, silk, is one of the objects which have undergone the greatest advance ; and this also has arisen from a failure of the crop in the Western World. This has been sufficient to account for the high price of the woven fabrics, for the cost of the raw material is a principal, if not the very first element, in the price of silk goods.

Moreover, it cannot be doubted that a spirit of wild speculation has spread itself more or less throughout the commercial world, and that this has not been without its effect upon the prices of some commodities.

I only allude to these circumstances lest we should confound the effects, which must be regarded as accidental and transient, with the results produced by the new discoveries of gold.

In the following pages, I shall generally reason as if these new gold mines had not yet produced any appreciable effect. I trust I shall not be blamed for this reserve. It strikes me that it will not weaken the conclusion to which this work will lead, — but have a contrary effect.

Section II

AN APPEAL TO SOME OF THE FUNDAMENTAL NOTIONS UPON THE NATURE AND CHARAC- TERISTICS OF MONEY.

CHAPTEK I.

WHAT WE OUGHT TO UNDEKSTAND BY VALUE AND PEICE.— TWOFOLD DEFINITION OF MONEY.— THE STAND ABD OE FINENESS OF MONEY.

In order to clear the ground as much as possible, it may be well, before entering further upon our task, to call attention to some fundamental notions upon the subject of money, which may be found more or less ably expounded in almost every treatise upon political economy. I repeat them here, however, that I may spare such of my readers as have not these writings- fresh in their recollection, the trouble of referring to some special work for information.*

* We know that France is of all the countries of Europe, or of Christendom, that in which political economy is the least taught. There are but two professorships : the one public, that of the College of France, and the other restricted to a special class of functionaries attached to the school of the Board of Works. Everywhere else, whether in Europe or America, each university has at least one chair of political economy ; this will be found equally in Kussia and in England, in Prussia and in Spain. The little kingdom of Portugal supports three professors of political economy. In France, instead of extending, we seem to be curtailing this useful branch ot instruction. The chair of industrial economy, which was filled with such success by M. Blanqui, at the Conservatoire des Arts et Metiers, and which.

NATUKE AND CHAKACTEMSTICS OF MONET. 25

Gold and silver are articles of commerce, that is to say, objects having relations to our wants, and which are bought and sold. Like all other commodities, they have their own peculiar value for which they are in request ; and this demand, arising from their utility, combined with the circumstances of their production, and particularly of their quantity, determines their value.

Let it here be observed that value is a word the meaning of which is relative, inasmuch as the attribute to which it relates always implies a comparison. If I say that meat is worth twice as much as bread, I establish a relation between these two articles ; and in thus expressing myself I compare meat with bread.

"When we speak of the value of an object, we ought, for the sake of a rigorous precision in expressing our meaning, to point out the other object with which we compare it. It is true, that very often it is understood that we compare it with the generality of other commodities ;* or pretty frequently, indeed, it is the price that is meant.

The price of a certain thing is its value in relation to a substance specially designated, that is to say, to the material of which money is made. Thus, whilst in ordinary language we often confound these two words, value and price, and use them as synonymous terms, they have in reality a distinct meaning. Both have a relative sense ; but value is a more general and indeterminate ex-

as its title indicates, was devoted to but one branch of political economy, has been suppressed since the death of that brilliant professor. Another chair has been founded in its place, but it has been, by an accident no doubt, filled by a person whose chief claim to public attention consists in the propensity he has shown to throw insults on political economy and those who study it.

* It is this meaning which must be nearly always accepted in the course of the following arguments.

pression, or to use a "better word, more vague ; price is more -special, and has a meaning perfectly precise/'''-*

Money is a certain commodity out of which we create an instrument that serves, in exchanges, as a common measure of value, because it is with it that, in transactions, all other commodities are compared. But it is not merely a measure ; it figures in exchanges in another capacity, that of a material recompense or equivalent. The twenty francs with which a hectolitre of wheat can ordinarily be bought, and which are also at the present moment the price of a hectolitre of common wine in many departments, give me the measure of the value of the wheat and wine, as compared with other commodities of which the price is known ; but they do more, they serve, at the moment of the transaction, and in the market where it takes place, as an equivalent for the hectolitre of wheat or the hectolitre of wine. We must, therefore, guard ourselves from viewing money as simply and purely a representative sign of value, although this meaning is sanctioned by usage in nearly every class of society. Money is not a sign; each piece of money is a certain fixed quantity of a definite fineness, very real and very effective, of the metal of which money is made ; and it is no more true to say that the twenty francs are the sign of the hectolitre of wheat or the hectolitre of wine, than it would be to pretend that the hectolitre of wheat or wine is the sign of the twenty francs. The definition of the word money which I have given, namely, that it is at once a measure and an equivalent, is that which is acknowledged by all modern authorities. It is remarka-

* On the subject of the true meaning to be attached to the word value, I entreat the reader to consult a work of the highest order,, for which we are indebted to one whose premature loss the student of political economy will long deplore ; — I allude to the " Harmonies Economiques" of Frederic Bastiat.

MATURE AKD CHARACTERISTICS OF MONEY. 27

ble that it should agree exactly with that which Aristotle has given us.

" It was agreed/' says he, " to give and to receive a substance which , useful in itself, was easily transferred from hand to hand in the ordinary transactions of life ; it was iron, for instance, or silver, or some other substance of which the size and weight were in the first place determined, and on which, to escape from the inconvenience of continual measurings, a particular stamp was affixed as a sign of its value."*

From the moment that man forms a society — and how can we conceive it otherwise ? — money becomes necessary to him. The division of labour, by which the sociability, as well as the different aptitudes, of mankind is manifested, has existed ever since a few individuals were grouped together, and it has been developed in proportion to the progress of civilisation. It subjects man to the necessity of exchanging, incessantly, the material products of his labour, or the services which he is in a position to render, against the productions and the services of others. If money did not exist, this exchange could only be carriecl on by barter. The man who had harvested his corn, and was in want of a pair of shoes, would be obliged to seek a shoemaker who had not supplied himself with corn, and was willing to deal with him. And even when he had found one, he would have had to bargain with him as to the proportionate value at which the article of clothing

* Aristotle, Politics, Book I., Chap. III. — This definition of the word money is that which Lord Liverpool has given in his treatise " On the Coins of the Realm." He probably derived it from a work by Mr. Harris, Assayer General of the Mint, which appeared in two parts in 1757 and 1758. This valuable pamphlet, entitled "Essay upon Money and Coins," has just been reprinted under the auspices of the London " Political Economy Club" in a volume of old tracts upon money, with a preface by Mr. McCulloch, whose eminent qualifications are known to all political economists. (For the definition of money, by Mr. Harris, see p. 370 of the above volume.)