# The Economic Journal/Volume 1/The Fall in Silver, and the Closing of the French Mint

Printed in The Economic Journal, Volume 1
THE FALL IN SILVER, AND THE CLOSING OF THE FRENCH MINT
The following Paper arose from a statement printed in the Times of February 1st, 1890, that the fall in the price of Silver was the cause and not the effect of the closing of the French Mint to that metal.
I asserted, and I think I show in this Paper, that it was the effect, and that it could not have been the cause; or, to speak more exactly, that Silver could not have fallen as it did but for the suspension of the law under which, until that time, a fixed and definite price of 6·34554 francs had been given for the ounce standard $^2$/$_2$ $^2$/$_4$ $^2$/$_0$ fine, just as 77/10½ was and is given here for the ounce of Gold.
A writer in the Times thought, and it will be seen that M. Sudre, of the Paris Mint, expresses the same view, that the fall of the price of Silver having begun from other causes, the closing of the Mint gave it but a slight help on its downward way; but the point on which I insist in these pages is, that the suspension of the law as to the coinage of Silver was a necessary precursor of the fall in price which took place after September, 1873.
There was indeed a fall of price before the suspension of the law, viz., from 60·25d. in April 1872 to 59·75d. in May 1878—that is to say, a gradual decline over a period of 13 months, to the extent of ½d. per ounce. It is true also that apprehension of what would follow if the Mint were to be closed caused the price to fall nearly another ½d. in the ensuing three months; but when the suspension of the Mint law really began the price fell another 1d. by December 30th, and declined pari passu with the further suspension, and both fluctuated violently and fell rapidly when the Mint was finally closed and the barrier which prevented further fall was broken down.
​I show that as the price of Silver, like that of all other commodities, must fluctuate with the Supply of it and the Demand for it, so the open Mint in France acted as a perpetual demand at a fixed price would act, and that accordingly the price here could never fall below what the seller believed was the equivalent of the frs. 6·34554 which he would get in France.
I show that the grounds of the seller's belief must lie in his estimate of the value in sterling of his draft on Paris if he should send his Silver to the French Mint, and that he would necessarily compare the price so obtainable with the price offering in the English market, and accept no price here that should be lower than he could get by sending his Silver abroad.
Accordingly I give a table (p. 152), showing the English price that should correspond to the fixed price at the Paris Mint according to several quotations of Paris exchange; and another (p. 157), showing the actual quotations of price and exchange; also a chart, showing the lines of price and of exchange where they approximate and where they diverge, and where, on two or three occasions, owing to the uncertainty of exchange and the greater uncertainty of the due-date and consequent amount of discount on the Mint Certificates (bons de monnaie), they appear to have actually crossed.
I show that time after time in former years the price has fluctuated more, and fallen more than it did in the period in question, and that no project of closing the Mint to Silver is known to have been suggested; and that the course which the French Authorities pursued was one which needed no other real inducement than the excessive inflow of Silver from Germany into the Paris Mint.
I desired to know what was precisely the course of action pursued in 1872-3 by the Mint Authorities in France, and how far the material fall in the price of Silver corresponded in its dates with the successive limitations of the accustomed freedom of coinage. Sir Charles Fremantle was so good as to ask at my request for the necessary data from the Paris Mint, and the following letter written by M. Sudre to him on the 10th February was the first response.
Paris, 10 Février 1890.
Mon cher Maître,
Vous trouverez ci-joint une note qui, je l'espère, repondra aux desiderata de M. Gibbs. Dans le cas contraire, vous n'auriez qu'à me faire connaître le supplément d'informations qu'il pourrait désirer et je ferais mon possible pour le satisfaire.
Evidemment les restrictions apportées en France à la ​fabrication de l'argent ont pu participer à la dépréciation de ce métal, mais pour moi ce fait n'a eu qu'une importance secondaire, puisque dejà avant les restrictions, en 1873, le prix de l'argent était en baisse.
La démonétisation Allemande et la découverte des mines d'argent aux États Unis ont été les causes principales des faits qui se sont produits depuis 1872.
Toujours heureux de vous être agréable je termine en vous priant de croire à mes sentiments affectueux et dévoués.
L. Sudre.
Les versements de lingots d'argent provenant surtout d'Allemagne ont commencé dans le courant de l'année 1873, où la fabrication des pièces de 5 francs a attemt en France la somme de 155 millions de francs en chiffres ronds.
En présence de cette situation, les mesures suivantes ont été prises pour arrêter l'affluence des matières d'argent dans les hôtels des monnaies de France.
6 Septembre 1873—Arrêté du Ministre des Finances, qui décide que jusqu'à nouvel ordre les bons de monnaie délivrés par les Monnaies de Paris et de Bordeaux ne représenteront pas une fabrication journalière de pièces de 5 francs d'argent supérieure a 280,000 francs.
Deux mois après, 17 Novembre 1873, nouvel arrêté du Ministre, qui limite à 150,000 francs la fabrication majeure journalière des pièces de 5 francs.
A dater de 1874 et jusqu'au 1876, une conference des délégués de l'Union Latine a fixé le contingent de pièces de 5 francs en argent attribué à chacun des États.
La France s'est trouvée comprise pour,
| 1874 | . . . . . | 60,000,000 |
| 1875 | . . . . . | 75,000 |
| 1876 | . . . . . | 54,000,000 |
| 1877 | . . . . . | 27,000,000 |
mais les apports faits dès le premier semestre 1874 furent si considérables, qu'il arriva qu'au mois de Juillet 1874, les échéances des bons étaient dejà reportées au mois d'Avril 1875.
Au mois de Juin 1875, les échéances atteignaient le 31 Décembre 1876, et alors, des bons furent délivrés sur l'année 1877 à raison de 75,000 francs par jour.
Enfin lors de la fermeture aux versements de matières d'argent des bureaux du change des établissements monétaires, en vertu de ​la loi du 5 Août 1876, les dates des échéances s'échelonnaient jusqu'au 13 Décembre 1878.
This letter gave me, in part, the infomation which I required, but not the whole of it. I wished to know not only what restriction was placed on the quantity of Silver to be coined, but the successive due-dates that had been fixed in 1873 f or the Mint certificates. Restrictions of quantity would impede the immediate turning one's bullion into money (the rule being, I suppose, 'first come, first served') and thus would tend of course to lower the price of bullion. But they are not precisely the same as the postponement of the due-dates of the Mint certificates (échéances des bons de monnaie) though the latter would be a natural concomitant of the former.
We know that the law of the French Mint is analogous to our law (of 1844). Here we receive through the Bank of England vouchers called Bank Notes for the gold brought in, less an allowance representing the interest which would be lost in waiting one's turn at the Mint, and the brokerage which one would have to pay. In France one receives a certificate called a bon de monnaie for the full coin value of the specie brought in, less Mint charges, but payable in coin, normally ten days from the date of import. This bon de monnaie was paid into one's bankers, and was, of course, discountable, the discount at 3 per cent. for ten days amounting to francs ·005215 per ounce, and increasing as the échéances (due-dates) were postponed.
It appeared from M. Sudre's letter that in July 1874 the échéances had already been carried to April 1875,—that is to say, with a nine months' delay. This cannot have been the first of such measures; and what I especially desired to know was, in what month and year the échéances of the bon de monnaie were ​first postponed, and to how distant a date; and by what successive steps (specifying both the date and the length of postponement) the échéances reached the nine months of 1874, and the 19 months of 1875.
It was precisely the data before July 1874 that I wanted rather than those after that date.
In England, a slight decline had begun in April 1872,—no more, however, than had taken place in former years; but the fall became appreciable on the 27th May 1873, and continued gradually down to 58d. in December 1873. I wished to ascertain whether the postponement of the échéances had begun as early as May 1873; and I learned from the letter to he quoted presently that they had not.
It will be seen that M. Sudre attributes the action of the French Government mainly to the fall in the price of Silver, which he says had already taken place before 1873. Where had it fallen, and in what was the fall measured?
Surely not in France, nor measured in francs; for it is inconceivable that in the absence of alterations of the échéances of the bons de monnaie, or of limitations of the quantity to be coined, any man who could by law demand 200 francs from the Mint for his kilogramme of Silver would be content to take 199 or any less quantity from any buyer. Just as it is inconceivable that an English holder of a like quantity of Silver would take less than 60d. an ounce for it, so long as he could send it to Paris for coinage and have 200 francs put to his credit without delay, and as long as the exchange at which he could draw for them in this market would give him that result.
It seemed certain then, that it was in this country, as the central mart for Silver, that the fall is supposed to have taken place; and I have to inquire whether it did fall, and if it did, whether the fall was abnormal, what it was that caused it, and whether it was that, or, if not, what else, that influenced the action of France. I believe that fear was the motive cause; fear, not on the part of the holder of Silver, who had nothing to fear while the law remained intact, but on the part of the Government and Mint authorities, who feared—not without reason—that they would be overwhelmed with the work of coinage. Perhaps also there may have been in some minds a fear that the Gold would depart from the country as it had done before, though no one had then been the worse for it, and though each napoleon that went away left 20 silver francs behind it, plus an agio.
Fear caused certain administrative measures to be taken, and ​these, when taken, made the heavy fall which afterwards occurred possible.
M. Sudre's second letter, addressed, as the former letter was, to Sir Charles Fremantle, was as follows:
Paris, 28 Mars 1890.
Mon cher Maître,
En réponse à votre lettre du 26 courant, j'ai l'honneur de vous transmettre ci-joint une note qui, j'esperè, donnera satisfaction à votre ami M. Gibbs. Je ne vois pas, du reste, autre chose à dire.
Il résulte de cette note qu'avant le mois de Septembre 1873, la France n'a pris aucune mesure restrictive de la fabrication de l'argent, et que, par conséquence, on ne peut pour la période qui precède cette époque lui attribuer aucune part dans la baisse de valeur du mètal argent. Plus tard, elle a cru devoir prendre des précautions contre l'invasion de l'argent et de la est venue la prolongation de l'échéance des bons.
Je ne me rends pas bien compte de la différence que M. Gibbs parait vouloir établir entre cette mesure et la limitation de la fabrication de l'argent. L'une n'est que la conséquence de l'autre. En ce qui concerns les arrêtés ministériels que j'ai cites, qu'il soit question de limitation de la fabrication ou de prolongation de l'échéances des bons, le fait est qu'on a voulu retarder les échéances afin d'éloigner les porteurs de matières jusqu'à ce qu'on en soit arrivé à la suspension complète de la fabrication.
Veuillez croire, mon cher Maitre, à mes sentiments affectueux at dêvoués.
L. Sudre.
Pendant les années 1871 et 1872 les versements de matières d'argent destinés à être convertis en pièces de 5 francs ont été pour ainsi dire nuls. Ce n'est qu'à la suite de la baisse survenue à la fin de 1872 dans le cour de l'argent sur le marché de Londres, que les apports de ce métal ont commence à affluer aux établissements monétaires. Jusqu'à l'arrêté ministériel du 6 Septembre 1873, aucune limitation légale n'a été apportée aux échéances des ​bons et la fabrication s'effectuait en rapport avec les moyens de travail dont disposaient les Directeurs de la fabrication. Le total pour 1873 a été, en chiffres ronds, 155 millions de francs, soit une des plus considérables fabrications depuis le commencement du siècle.
A dater de l'arrêté du 6 Septembre 1873, il n'a plus été souscrit de bons qu'à raison d'une fabrication de 280,000 francs par chaque journée de travail, puis, par l'arrêté du 17 Novembre du même an, ce chiffre a été reduit a 150,000 francs.
C'est donc seulement, en raison de l'application des dispositions contenues dans ces deux arrêtés, que les échéances sont arrivées à être reculées en Juillet 1874, jusqu'à neuf mois, puis ensuite à une date encore plus éloigneé.
Ainsi les restrictions apportées aux époques d'échéance des bons datent seulement de l'arrêté du 6 Septembre 1873, arrêté dont la teneur se trouvait indiquée dans la lettre du 10 Février dernier. Auparavant aucune mesure n'avait été prise dans ce but par l’Administration française.
The foregoing letter sufficiently answered my questions, and enabled me to deal with the allegations of the writer in the Times of February 1st, 1890.
My thesis was that the French law of 1803 necessarily gave approximate stability to the price of Silver in Gold-using countries, and that when the law was suspended the price of Silver fluctuated just as the price of other commodities would do.
The allegation on the other side is, that the French law had nothing to do with it, being wholly without effect, that Silver had fallen long before there was any change in the law, and that its fall was the cause of the change in the law. The Times, commenting on this, said that this statement, if true, was conclusive of the whole controversy.
It will not be difficult to show that, though there is a small portion of apparent truth in the statement, it does not at all dispose of my contention, but on the contrary serves to elucidate its accuracy.
Did Silver fall between April 1872 and September 1873, and to what point did it tall? What caused it to fall? and how did the suspension of the law, which began at this latter period, affect its further fall?
The position of Silver in this country was this: For it, and for no other commodity purchaseable or saleable in this market (I exclude Gold as being itself the measure of value) was there a ​perpetual buyer at a fixed price always at hand. For a kilogramme of Silver 900 fine one could always be sure of 200 francs (less mintage) payable on the nail in bons de monnaie (Mint certificates) due in cash ten days after date of import, discountable at a banker's, and convertible into English sterling by a draft on Paris. Now, a kilogramme of 900 fine is equal to 31·28179 standard ounces ($^2$/$_2$ $^2$/$_4$ $^2$/$_0$ fine)—(a kilogramme=32·150727 oz.).
| One ounce standard, therefore, was coined into | frs. 6·39349 |
| less Mint charges ·75 per cent | ·04795 |
| | frs 6·34554 |
| from this must be deducted ten days' discount on the bon de monnaie (besides a further reduction for agency in Paris) | ·00521 |
| | frs. 6·34033 |
which sum is the most that the remitter of an ounce of silver to Paris would have there in cash at his disposal; and this, at the exchange of 25·2215 (par), would produce in London 60·332d., less transport and insurance charges, say $^1$/$_6$ per cent. on the declared value = about ·100, leaving 60·232d. net. Thus an ounce so coined
| When Exchange is at | Will produce in London. d. | Deduct for Transport, &c. | d. | Net Proceeds. | Net Proceeds. |
| 25·2215 (par) | 60·332 | ·100 | 60·232 | or say | 5/0¼ |
| 25·35 (gold point) | 60·026 | ·100 | 59·926 | | 5/- |
| 25·40 | 59·908 | ·100 | 59·808 | | 4/11¾ |
| 25·45 | 59·790 | ·100 | 59·690 | | 4/11¾ |
| 25·50 | 59·673 | ·100 | 59·573 | | 4/11½ |
| 25·55 | 59·556 | ·100 | 59·456 | | 4/11½ |
| 25·60 | 59·440 | ·100 | 59·340 | | 4/11¼ |
| 25·65 | 59·324 | ·100 | 59·224 | | 4/11¼ |
| 25·70 | 59·209 | ·100 | 59·109 | | 4/11 |
| 25·75 | 59·094 | ·100 | 58·994 | | 4/11 |
| 25·80 | 58·980 | ·100 | 58·880 | | 4/10¾ |
| 25·85 | 58·866 | ·100 | 58·766 | | 4/10¾ |
| 25·90 | 58·752 | ·100 | 58·652 | | 4/10½ |
| 25·95 | 58·639 | ·100 | 58·539 | | 4/10½ |
| 26·— | 58·526 | ·100 | 58·426 | | 4/10½ |
The precise amount of English sterling will of course depend ​upon the exchange (as is the case with all debts due from one country to mother, and payable by draft), and the above table shows what that amount would be as exchange varied. The higher the exchange, i.e. the more of the minted francs each pound sterling absorbed, the less would be the net proceeds. It is obvious, therefore, that the smallest rise in the exchange, unless balanced by special demand for the metal, should operate adversely on the London price of Silver. It was impossible, then, that while the law remained intact, my lessening of demand or increase of supply (from whatever source) could cause my one to be willing to take less for his ounce of Silver than 60·232d. supposing him to count on exchange remaining at par.
While them was Gold in France and no impediment to its transmission, it would be impossible that exchange should rise above 'Gold point' (which is normally 25·35); but if there were no Gold there, and none obtainable elsewhere by way of arbitrage there might be nothing for the moment to prevent the price of Silver here from falling in proportion as the exchange might happen to rise, supposing the balance of trade to continue increasingly adverse to France. It has been said that there were times when there was no Gold in France. This assertion is of course not to be taken literally, but only as a hyperbolical expression of the fact that Gold was not at such times in active circulation in the pockets of the people. But it is not the Gold so circulating and used in the daily purchase of necessaries of life which in that relation affects foreign exchanges, but the Gold which forms a part of the reserves of Banks, or others. That that was both existent in the country and easily obtainable, has been, I think, abundantly demonstrated; but whether the contrary was true or not at other times, it was certainly not true in 1873, for there was an agio on it, and there could not be an agio on a nonexistent or non-available substance. Besides, oue cause of the alarm in France (evinced by that agio) is said to have been that her Gold was leaving and would continue to leave her. It could not leave her if it was not there. Certainly, therefore, it was there, and whether ​in general circulation or not would serve (which is the point I desire to emphasise) to check the rise of the exchange above the Gold point, whatever that might be, and thus prevent the fall of Silver beyond the price corresponding to the exchange on the 6·34033 francs per ounce.
I say 'whatever that might be,' because the 'Gold Point' itself fluctuates slightly in correspondence with the agio (if there is an agio) on the metal.
All that the open Mint in France could do was to give 6·34554 francs for an English ounce Standard, which is reduced, after deducting discount, to 6·34033 francs; and if 6·34033 francs an ounce is worth in this country less than 60·232 pence an ounce, the price may full accordingly to the sum in pence which those francs may be worth, unless the English demand sustains it.
At the period in question, i.e. between April 1872 and September 1873, the demand did so far sustain it, that it never practically fell below the point where the operation of the French Mint would have come into play—never reached the impassable barrier which that Mint had set up.
Well, now, to come to the questions above stated on p. 151: Did Silver fall during that period from the par price of 60·232d.? ​Certainly it did. Natural causes would affect it, as they would all other commodities, whether for rise or fall; but to the fall, inasmuch as the demand was perpetual and at a fixed price, there was a limit formed by that fixed mint price and the exchange at which it (or any larger price obtainable in the market if there was an agio on Silver) could be converted into sterling; and below that limit there could be no material fall.
I have said above that the rise and fall of the money price of Silver in the market must depend on natural causes. These can be stated in three words, 'Supply and Demand.' Nothing else can affect price, whether of commodities in general or of the precious metals in particular. No human laws can affect it except through the medium of those joint forces. Man can regulate supply, and man can check or foster demand. If the supply exceed the demand the price will fall. If the demand exceed the supply the price will rise. lf we may conceive the supply as constant but the demand variable, the price will fluctuate; as it will also do if the demand is constant but the supply variable. If, however, the demand is not only constant but constant at a fixed price, the variation in the price in the case of consumable commodities (supposing such constant demand to be possible) would be unlimited in an upward direction, and only limited in the case of the precious metals by the power of remelting coin into bar when bar is needed; but in a downward direction the price must be absolutely limited by that offered by the creator of a perpetual demand. It is Demand and Supply that govern the price, but in the case of an open Mint the demand is constant.
That word Demand has been a stumbling-block to some inquirers. They have imagined that it meant or implied a demand for Silver coin on the part of the people, who, as they rightly aver, have now, or can have, as much Silver coin as they desire and can pay for. But it is a demand not of the people for coins, but of the State for Silver to be coined. The State says to the people, 'Here is the Mint; its doors are always open. Bring all the Silver you will, it can never have enough.' That is a much more potent kind of demand than the fitful craving prompted by the needs of commerce.
It is not indeed a demand on the part of the public, for no man having a bar of Silver to sell sells it because he has a desire to possess more Silver coins. He sells it in order to convert his ​dead and stagnant capital into a living and active form, to get a better balance at his bankers, whereby he can possess himself of as many of the existing Gold and Silver coins as he wants for his daily needs; and very few does he want. The buyer buys his bar of Silver either to export it to the East or to use it in the arts. I have shown that for whatever purpose he wants it he cannot possibly pay less for it than the equivalent of 200 francs a kilogramme.
It has been said that the reception of Silver by the Mint is no demand at all, because it is not purchase but merely a return in another form of the same ounce of Silver that is brought to it.
That seems to me to be mere logomachy. Whether the action is called purchase or no signifies nothing. Of course it only gives you back the Silver that you bring, but the 'other form' in which it returns it is Money. There is nothing mysterious about Money, but it has the unique quality of discharging debt. The Mint takes all the Silver you can bring, and what can Demand do more? Can it always do as much?
Again, it is alleged that, even if it be a demand it cannot be constant because it must fail in the end, as the 'corner' in copper failed. It is enough to say in answer that any such fictitious demand for a consumable commodity will fail by reason of the difficulty of reselling; but the Mint demand is, as the other objectors rightly say, only a return of the same commodity in a form which comes amiss to none; and the excess of which is only shown by enhancement of general prices.
A time might possibly come (though in real life it never did come while the French law of 1803 was in full operation) when the commercial demand—that is to say the demand for the arts and for export—would slacken; no more Silver plate being needed at the price, and no need existing for export to the East. Then the Mint demand, as being the only other outlet for the Silver would became positively, as it had been negatively, effective; and Silver would flow to silver-coining countries for coinage. The circulating medium, the measure of value, would accordingly increase, prices of all commodities, except Gold and Silver, would tend to rise, in other words the precious metals would tend to become depreciated, the demand for them for manufacturing purposes would tend to increase, and the result would be a cessation of the imports to the Mint.
To return from this excursus to the main question before us.
The following table shows the actual exchanges (short maximum rate) from April 1872 to September 1873, and the actual prices of Silver in London, also, in the last column, the price (calculated ​from the data on page 152) which, excluding the cost of agency, a consignment to the French Mint should be expected, at the given exchange, to secure to an English holder:
| Date. | Date. | Date. | Exchange (From Lutyen's List) | Actual Price in London | Actual Price in London | Price obtainable by sending to the French Mint, exclusive of agency charges | Price obtainable by sending to the French Mint, exclusive of agency charges |
| | | | | s. | d. | s. | d. |
| 1872 | April | 19 | 25·37½ | 5 | 0·25 | 4 | 11·867 |
| | May | 3 | 25·37½ | 5 | 0·125 | 4 | 11·867 |
| | „ | 24 | 25·50 | 5 | 0·125 | 4 | 11·573 |
| | June | 7 | 25·50 | 5 | 0·0625 | 4 | 11·573 |
| | „ | 28 | 25·45 | 5 | 0·125 | 4 | 11·690 |
| | July | 5 | 25·45 | 5 | 0·125 | 4 | 11·690 |
| | „ | 30 | 25·65 | 5 | 0·125 | 4 | 11·224 |
| | Aug. | 2 | 25·85 | 5 | 0·125 | 4 | 10·766 |
| | „ | 20 | 25·70 | 5 | 0·063 | 4 | 11·109 |
| | Sept. | 17 | 25·70 | 5 | 0·375 | 4 | 11·109 |
| | „ | 27 | 25·60 | 5 | 0·438 | 4 | 11·340 |
| | Oct. | 15 | 25·70 | 5 | 0 | 4 | 11·109 |
| | Nov. | 1 | 25·77½ | 4 | 11·813 | 4 | 10·937 |
| | „ | 19 | 25·72½ | 4 | 11·25 | 4 | 11·051 |
| | Dec. | 6 | 25·70 | 4 | 11·625 | 4 | 11·109 |
| | „ | 31 | 25·60 | 4 | 11·75 | 4 | 11·340 |
| 1873 | Jan. | 10 | 25·60 | 4 | 11·813 | 4 | 11·340 |
| | „ | 28 | 25·60 | 4 | 11·875 | 4 | 11·340 |
| | Feb. | 11 | 25·55 | 4 | 11·875 | 4 | 11·456 |
| | „ | 25 | 25·45 | 4 | 11·813 | 4 | 11·690 |
| | Mar. | 11 | 25·50 | 4 | 11·813 | 4 | 11·573 |
| | „ | 25 | 25·47½ | 4 | 11·875 | 4 | 11·631 |
| | Apr. | 8 | 25·50 | 4 | 11·75 | 4 | 11·573 |
| | „ | 29 | 25·50 | 4 | 11·75 | 4 | 11·573 |
| | May | 9 | 25·45 | 4 | 11·75 | 4 | 11·690 |
| | „ | 27 | 25·60 | 4 | 11·438 | 4 | 11·340 |
| | June | 6 | 25·65 | 4 | 11·438 | 4 | 11·224 |
| | „ | 17 | 25·67½ | 4 | 11·25 | 4 | 11·167 |
| | „ | 20 | 25·67½ | 4 | 11·313 | 4 | 11·167 |
| | „ | 27 | 25·60 | 4 | 11·313 | 4 | 11·340 |
| | July | 1 | 25·60 | 4 | 11·313 | 4 | 11·340 |
| | „ | 4 | 25·60 | 4 | 11·313 | 4 | 11·340 |
| | „ | 8 | 25·60 | 4 | 11·313 | 4 | 11·340 |
| | „ | 11 | 25·60 | 4 | 11·313 | 4 | 11·340 |
| | „ | 15 | 25·60 | 4 | 11·313 | 4 | 11·340 |
| | „ | 22 | 25·60 | 4 | 11·375 | 4 | 11·340 |
| | Aug. | 8 | 25·52½ | 4 | 11·188 | 4 | 11·514 |
| | „ | 12 | 25·52½ | 4 | 11 | 4 | 11·514 |
| | „ | 26 | 25·47½ | 4 | 10·813 | 4 | 11·631 |
| | Sept. | 12 | 25·47½ | 4 | 11·125 | 4 | 11·631 |
| | Dec. | 30 | 25·42½ | 4 | 10 | 4 | 11·749 |
​Down to the end of June 1873, then, the price in no case fell below the point indicated by the exchange—did not even fall so low as that point, the demand sufficing to keep it on a somewhat higher level. Had the demand been greater or the supply less, it might of course have risen to any point, and in any case if the exchange had been more favourable the open mint would have maintained the price; but however little the demand and however great the supply, it could not have fallen materially below the exchange point while the Mint remained open.
The fall, such as it was, was much less than had frequently happened before. In the first thirteen months, as shown in the accompanying table, it was but ½d. an ounce, and the total amount of fall from the par value of 60·232d. an ounce was about 1d. in sixteen months; but when once limitations were imposed on the coinage, the further fall was 1d. in three months, and continued almost without intermission as the limitations were made more severe, until the final closing of the Mint.
But the limitations were imposed in September; and how then came it to pass that the fall below exchange point began at the end of June, and that on the 27th the price was a few hundredths lower than the exchange would warrant? This fall in June, which continued until the 15th July, was insignificant, viz. ·027d. in the oz., or less than $^1$/$_{33}$ of a penny, a fraction at which no sale or quotation would be made, and which would be counterbalanced by a rise in the exchange of about 1 centime, the variations in the rate being never less than 2½ centimes. The exchange varies every moment, and it is impossible to say that the quoted prices correspond exactly in point of time with the quoted exchange. The exchange may have been a point higher at the particular moment when the Silver quotation was given or the sale made, so the divergence was more apparent than real, particularly as the inclusion of a charge for agency may probably annihilate it. It was not till the 8th August that the fall, ·326d. below the price which the exchange should indicate, insignificant as that fall was, deserves any notice, inasmuch as it can hardly be accounted for by the above consideration. Coming events cast their shadows before, and there is no doubt that there were rumours in abundance as to the intended action of the French Government, and when those rumours began, no holder of Silver could be certain that ​they would not at once be converted from rumour into facts, or feel sure that he would at once receive coin for his bullion. Such a holder might then well have been willing to abate his pretensions, and take a shade less for his Silver than its shipment to Paris would produce in normal times; and this the holder of a bill of lading for Silver, who could only sell for forward delivery, would be certain to do.
Is it possible, then, that this trifling fall from the par price of 60¼d. should have caused France to close its Mint to Silyer? I add a table of prices from 1827 to 1850 (see Appendix p. 161) by which it will be seen that during that period of twenty-four years there was a fall—
| | | | | d. | |
| in | 1 | year | of | 1½ | beneath the par price. |
| „ | 2 | years | „ | 1⅜ | „ |
| „ | 3 | years | „ | 1¼ | „ |
| „ | 1 | year | „ | 1⅛ | „ |
| „ | 3 | years | „ | 1 | „ |
| „ | 2 | years | „ | ⅞ | „ |
| „ | 4 | years | „ | ¾ | „ |
| „ | 4 | years | „ | ½ | „ |
| „ | 2 | years | „ | ¼ | „ |
| „ | 1 | year | „ | ⅛ | „ |
In the year 1848 the price of Silver, possibly owing to political disturbances, had fallen to 1¾d. below the par price; but neither then nor at any other period when the fall was almost as great did we hear of any project for closing the Mint to Silver.
There was a very sufficient cause for the limitation of the coinage of Silver. The French War Indemnity had been fixed at £200,000,000 sterling to be paid to Germany, and as Germany had determined to demonetise Silver it was to be expected that the greater part of the Silver which the Indemnity would enable her to set free, would come to the Paris Mint for coinage. France had already coined in 1873 five-franc pieces to the amount cf about six millions sterling, an amount only exceeded in 1834 and 1849, and greater by about five millions than the average of the previous ten years. There may well, therefore, have been hesitation to coin the undefined, but unquestionably large amount of Silver which the action of Germany would almost certainly have thrown upon the Paris Mint.
It is clear, then, that the real cause of the suspension of Silver coinage in 1873-5 was not the insignificant fall of the price ​of the metal in London, or any fears of economic disturbance consequent on a supposed diminution of its permanent value in the world, but the in-pouring of Silver from Germany which overtaxed the powers of the French Mint, and compelled it, as might have been expected, to lessen its output. It is abundantly clear, also, that by that suspension and the cessation of the fixed Mint price, the price of Silver in London was driven from its moorings and suffered to drift hither and thither, and finally fall as low as increased supply and diminished demand could send it.
I think I have now disposed of the allegation that the great fall in the price of Silver was the cause and not the effect of the closing of the French Mint, by showing (1) that such fall in Silver as occurred prior to August, 1873, was well within the limits of variation, which a bimetallic money law not only permits, but assumes, where there is substantial alteration in the circumstances of international supply and demand. (2) That if the law of 1803 did nothing to prevent this fall, it was only because the price, notwithstanding the fall, was always above that which the French Mint at the existing exchange could offer to the English holder, and (3) that such fall as did take place was far too insignificant to cause the French Government to contemplate the limitation of their coinage of Silver, whereas they had ample reasons for their act in the unprecedented influx of Silver from Germany, which, under the then condition of the law, was a forced import, onerous to their Mint and profitable to Germany.
I may admit that there is a theoretical possibility that there might be no Gold in France, and that consequently there might be no 'Gold point' at which the rise of the exchange must cease; but practically it is a vain imagination. The only need of Gold is to rectify, from time to time, and instantly, a rising exchange—an exchange unfavourable to France; but the absence of Gold could only have any permanent effect on the value in England of the frs. 6·34033 per ounce on the assumption that there is no ​recuperative force in France, that her land has lost its productive power, and her people their genius for commerce. Surely it is a commonplace of Political Economy, that the effect of an unfavourable exchange, i.e. of an excess of imports over exports, is to stimulate production and export, and bring about a more favourable course of exchange. That the absence of Gold should of necessity prevent the development of wmmerce, and the maintenance of an average equality of exchange is incredible, and contrary to all commercial experience.
Henry Hucks Gibbs
APPENDIX
Lowest Prices of Silver in London from 1827 to 1850
| Year. | Lowest. |
| 1827 ...... 1828 ...... 1829 ...... 1830 ...... 1831 ...... 1832 ...... 1833 ...... 1834 ...... 1835 ...... 1836 ...... 1837 ...... 1838 ...... 1839 ...... 1840 ...... 1841 ...... 1842 ...... 1843 ...... 1844 ...... 1845 ...... 1846 ...... 1847 ...... 1848 ...... 1849 ...... 1850 ...... | ...... 59½ ...... 59¼ ...... 59½ ...... 59¾ ...... 60 ...... 59¾ ...... 58¾ ...... 59¾ ...... 59¼ ...... 59⅜ ...... 59 ...... 59⅜ ...... 60 ...... 60⅛ ...... 59¾ ...... 59⅛ ...... 59 ...... 59¼ ...... 58⅞ ...... 59 ...... 58⅞ ...... 58½ ...... 59½ ...... 59½ |
The Chart
The Exchanges in the second column are those at which the corresponding Prices in the first column might, according to the calculations on page 152, presumably be realized by importing Silver into the French Mint.
The black line indicates the general course of price; the dotted line that of the Exchange.
It will be observed that in a few cases the price of Silver has apparently fallen below that which the existing exchange would indicate as obtainable. For example: at the end of the year 1848, when cash payments were suspended at the Bank of France, and when all commercial matters were in a disturbed state, the price of Silver fell to 4/11½, the exchange being at 25·30; whereas the price corresponding to this exchange is about 5/-. It should be added, however, that in this table the charges of transit are calculated as now current, whereas they were certainly higher forty years ago, diminishing in proportion the net proceeds of a remittance; and I have already remarked that they do not include any commission charged by an agent in Paris for receiving the Silver and forwarding it to the Mint for coinage. ​
* ↑ A passage in a leading article of the Times of 13th August, in describing what the writer thinks are the mischievous follies of the Silver Bill of the United States Congress, which came into operation on that day, gives unconsciously, but with absolute accuracy, the bearing of the Act of 1844, except that the folly of the United States is limited to the purchase of 4,500,000 ounces a month, while our folly, if folly it be, imposes no limits on itself. His words are:— 'These are the principal provisions of this remarkable Act, which compels the United States Government to buy a certain commodity, Silver, and hold it, issuing in the meantime to the sellers Warrants which the public are compelled to receive as money.' Mutatis mutandis they would run thus:— 'These are the principal provisions of this remarkable Act [of 1844] which compels the English Government, through the Bank of England, to buy a certain commodity, Gold, and hold it, issuing in the meantime to the sellers Warrants [Notes] which the public are compelled to receive as money.'
* ↑ There is no intrinsic difference in the effect of the limitation of coinage and the postponement of the due-date of the bons de monnaie; the difference is only in the power of the remitter to make his calculation. The limitation of the quantity to be coined gives him no idea when he or any particular bringer of Silver to the Mint will be served; but the due-date of the bons de monnaie enables him at once to calculate his loss of interest, i.e. the discount he has to pay, and the precise sum in case which will be at his disposal.
* ↑ In England there are no Mint charges on gold, but the discount for payment on the nail, and the agency charge are provided for by the fixed allowance of 1½d. per ounce, the difference between the Mint price and the 77s. 9d. payable by the Bank.
* ↑ Excluding mintage, discount and transport, the ounce standard coined at the Paris Mint would produce in London, exchange being at part, 60·838d., or, so 60⅞d.
* ↑ The first sale of Silver from Germany in London was in October, 1873.
* ↑ When the exchange reaches such a point that it is cheaper to remit gold than to buy bills, it is said to be at 'Gold point.' Thus, suppose it to cost less than fcs. 25·35 to send the equivalent in gold of one sovereign from Paris to London, it is obvious that no one will give 25·35 for a bill of exchange on London. If there were no gold to send there might be no limit to the rise of the exchange. If there were gold to send, but an agio on it, the rise of the exchange above 'Gold point' should be proportionate to that agio.
* ↑ The agio on Gold or Silver in a bimetallic country, where the measure of value is alternatively at the option of the payer a fixed weight of either Gold or Silver, merely represents the premium which the buyer may be willing to pay for a commodity which cannot be legally demanded in discharge of a debt. The quotations of agio on gold and silver bullion and on gold coin for December, 1871 and 1872, and for February, 1873, are as under:—   On Gold.   On Silver.   In Bar.   In Coin.   In Bar.   Highest.   Lowest.   Highest.   Lowest.   Highest.   Lowest. Dec. 1871 — 15 o/oo .. 15 o/oo .. 16 o/oo .. 8½ o/oo .. 36 o/oo .. 36 o/oo Dec. 1872 — 14 o/oo .. 11½ o/oo .. 9¾ o/oo .. 6⅜ o/oo .. 17½ o/oo .. 13½ o/oo Feb. 1873 — 11½ o/oo .. 10½ o/oo .. 6½ o/oo .. 2 o/oo .. 16 o/oo .. 10 o/oo When gold bullion is required for export the agio on bullion may exceed that on coin to the extent of 6·70 per mille, which is the Mint charge for coining gold. The quotation of a considerable agio on both metals at the same time is probably accounted for by the fact that prices were reckoned in inconvertible paper, though it would appear that irrespective of the reckoning in paper there might be a simultaneous agio on both metals in the event of both being required for export to gold and silver using countries at the same moment. It should be further noted that the quotations of silver bullion represent the 'nominal agio,' but as this metal is still quoted at a premium or discount on the basis of the old 'commercial tariff,' as it is called, the real agio should probably be about 7½ o/oo less in each instance.
* ↑ The barrier is impassable, wherever it may stand at any given moment; but it may shift its place (by centimes, as the exchange rises or falls) from hour to hour; I exclude, however, this element of speculation on the part of buyer and seller and say that no man would sell his Silver for a less price than he believed he could or should get by sending it to Paris and drawing for the value in francs at the quoted exchange.
* ↑ E.g., In this country no one would give more for Silver than a price equal to a ratio of 14·2878 to 1, because he could melt new half-crowns more advantageously; while in France he would never give more than the melting value of 5-franc pieces.
* ↑ Thus, between the 8th and 25th April in the present year the price of Silver rose 4d. an oz. on the assumption that some measures might be taken in the United States as to the increased coinage of Silver; whereas a bill dealing with the subject was not framed until June, and did not come into force until the 13th August.
* ↑ Some people seem to suppose that an adjustment between the two money metals is effected without the existence of a commercial motive. Variations and disturbances must occur; but the merit of a free coinage law applied to both metals is that, acting in no mysterious way but through the pressure of ordinary commercial motives, it both limits the extent of the variations and opens the way to their correction. It acts, as has already been said by others, like the governor of a steam-engine. It checks tendencies to irregularity of action, but it cannot check them until they begin to show themselves. In one case as in the other though we do not get absolute uniformity, we get uniformity which for all practical purposes is complete.
* ↑ The fall was but ½d. per ounce, as I have said above, and at no time within that twelvemonth could Silver bought in England have been remitted to France for coinage without incurring a loss, owing to the high exchange.