Money as an International Question
IN his charming address opening the Monetary Conference at Brussels, on the 22d of last November, M. Beernaert, prime minister of Belgium, spoke as follows : —
“That which will in the future be looked upon as the characteristic mark of our century, this century so strange and grand in many respects, will be the prodigious and incessant development in it of international relations. Formerly, one belonged to his village, his province, or, at most, to his country. A man knew only ,his neighborhood. He shared its prejudices and its passions. The foreigner he viewed either with indifference or as an enemy. Today, the horizon of humanity is enlarged. An immense movement is extending life and well-being everywhere. Peoples daily become better acquainted with one another, and mingle more freely with one another. The world itself hardly suffices longer for our activity. Hence the many international understandings for administering with uniformity the common interests of the civilized world. Agreements, which already apply almost universally, regulate telegraph systems, the mails, railroads, weights and measures, the publication of tariff laws, industrial and literary property. Tentatives in the same line are making to unify commercial law in several of its essential elements. Why should it not be the same with money, that instrument which is international par excellence, the one upon which we are all the most dependent ? ”
These words will serve as a text for the following paragraphs.
Every careful student of contemporary tilings must be impressed with the rapidity at which the world is becoming smaller. No two nations on earth are in effect so far apart to-day as were New Hampshire and Georgia when our Union was formed. This is why the growth of great states in territory and in the sweep of the central power in each is found to he, for the most part, safe and healthful as well as inevitable. In the United States, the general government now exercises authority which the stoutest Federalist of 1789 would have shuddered to foresee, yet does this with the approval of all.
It is not usually observed that the same force which shakes so many different nations into one, and consolidates so many individual nations, is compelling greater intimacy oil the part of states Which still remain governmentally separate. Even the mightiest sovereignties on earth cannot resist it. We have here the secret of the extraordinary advance which the science of international law has recently made. It is cultivated more than ever. The law of nations is viewed more than ever before as law proper, and its devotees cherish a project, which will never sleep until realized, of an international commission, a world court, or world congress, for the trial of international disputes. Not only are sections giving way to nations, but nations are becoming one. We are hastening to a veritable “parliament of man,” a “federation of the world.”
The condensation of population upon our globe introduces a new necessity for conscious action by men in the direction of their greatest affairs. As civilization advances, the Power above takes man more and more into his counsel in shaping it. Idle trust in the socalled natural laws of social growth was once not so unsafe; but now the crowding and jostling occasioned by the density of society demand all possible thoughtfulness on men’s part. Grave problems arise that once had no existence. They will not down, nor will they solve themselves.
The formation of an ecumenical postal union, in 1863, 1874, and 1878, was one long and benign step in this development. If we mistake not, the next, equally imperative, and destined, when taken, to be viewed as equally advantageous, will be the practical recognition of money as a matter for international agreement and action.
How splendid an achievement it would be if the nations of Europe and America would provide themselves with a few gold coins for use in common! No one can measure the good which would hence arise, from the extra ease with which accounts, prices, and statistics pertaining to one of these countries would then be understood by the people of other countries who had occasion to examine them. The perplexity which proceeds from the absence of such a common price denominator is a great barrier to international trade, making it a sort of occult science, wherein those specially skilled profit at the cost of the ignorant. Travelers as well as merchants would he saved from much trouble and loss by an international coinage. If it were introduced, a man from one country, journeying in another, would not he put to the necessity of visiting a hank at once on his arrival, in order to supply himself, at much expense, with the special money of the land.
So easy would this reform be, at least in countries using gold as fundamental money, it is surprising how little demand there is that the thing he done. The decimal system has been adopted nearly all over Europe, and, in money, also in the United States. Not merely the Latin Union, namely, France, Belgium, Switzerland, Italy, Greece, and Roumania. but Germany, Austria-Hungary, and Russia as well, have so far introduced the decimal element into their moneys as, with but slight changes, to make possible certain highly convenient monetary unities among them.
The twenty-franc piece is already at home, under one name or another, — so many “francs,” “lire,” “drachmas,’ “lei,” or “florins,” — throughout the Latin Union, in the new State of Congo, and, as a trade coin, in Austria. Just to he odd, one would think, Austria is making her new twenty-crown piece a little heavier than the twenty-franc piece, putting into it 6.09756 grams of flue gold, instead of 5.806 grams. It is a pity that this coin should not have been made to agree at least with Holland’s ten-florin piece, which contains only 6.048 grams fine. The Spanish piece of twenty-five pesetas is precisely equal in value to one and a quarter of the twenty-franc piece. Take about six cents’ worth of gold from the English sovereign, and augment by about the same sum the German twenty-mark piece, and each of these, also, becomes a twenty-five-franc piece, exactly equaling in value one and one fourth of the twenty-franc piece. Our five-dollar gold piece could be reduced to this same value by removing some two and a half per cent of its fine gold. The Scandinavian Union would have to enlarge its twenty-crown piece but a little to make it equal to thirty francs. Can it be that such vexing diversity in the moneys of neighboring peoples will be tolerated much longer, when these trifling changes would introduce practical parity in moneys throughout the gold-using world ? It will perhaps be said that the changes proposed would necessitate corresponding alterations in other gold coins. True, but the main modifications required would relate to the minor coins, of ten marks, ten crowns, etc., —coins which ought in any event to he melted, making way for silver money, to circulate in the form of certificates. This measure, which would strengthen immensely the gold holdings of national banks and treasuries, has everything to recommend it, and not an objection to it would be ottered by any one, provided the change could be made general.
A subject no less important, to which attention has not so frequently been drawn, is that of international gold and silver certificates. How insane it is that whenever exchange between Europe and America, for instance, reaches a certain figure, gold, in quantities more or less immense, must be carted to the wharf, placed in vessels, and, at great expense for freight and insurance, carried across the ocean, only to be returned after a few months in the same expensive way! Not seldom the cost of recoining is added to that of transportation. A million pounds sterling in gold, a sum which the Rothschilds frequently have to send from one nation to another, weighs eight and ninety-three hundredths tons. The same amount in silver would, at the present market value relation between the two metals, weigh a little over one hundred and ninety-six tons. I have never tried to compute the expense of this continual movement of the precious metals, but it certainly is very great.
And it is needless, at least among nations so highly civilized as those of Europe and North America. All of it might be saved by an arrangement on the part of national treasuries or banks parallel with that between the principal banks of New York, by which, in times of crisis, they utter clearinghouse certificates. Such an arrangement, once become fixed and popular, would, I believe, be able to continue even through a war.
The thought at this point, so far as concerns Europe and America, relates mainly to gold certificates, because in these lands gold is now the sole means of ultimate payment; but there is no reason why much use should not be made of silver certificates as well. To be sure, they would not serve in the final settlement of balances, because silver is practically a commodity. Such papers would be like Standard Oil and other certificates used to mobilize heavy goods. But the international traffic to which silver is subject is so very important that the passing of these warrants from one side of the ocean to the other, in lieu of the metal itself, would effect great saving to all.
The necessity for international agreement in the matter of money is further seen in what occurs when, for any reason, a nation gives up the use of metallic money, and goes over to a regime of irredeemable paper, as we did in the civil war. One versed in political economy easily understands that such an act by one nation, liberating nearly all its gold and silver money and sending it abroad, elevates prices and cheats creditors in all the nations receiving it. That this occurs silently, and is always accompanied by certain phenomena in themselves felicitous, such as the lightening of producers’ debts and taxes, does not, after all, make it desirable. It is the less so because the nations relieved enjoy the rise of prices only to suffer the reverse movement, sure to come whenever the nation first concerned resumes specie payment. There can be no doubt that the return to specie by the United States in 1877 and 1878, calling vast sums of gold from Europe, occasioned some part of the industrial distress that was experienced in England, Germany, and France during those years. Since about that time there has been, among the nations using it for money, a struggle for gold such as never occurred before. It has not yet ceased, and, unless some scheme can be devised for the rehabilitation of silver money, will not cease. About a billion dollars of gold money in excess of their previous holdings has been called for by the nations of the West since 1873. The United States required a great part of this. Germany and Italy also had to stock up with the yellow metal. More recently, Russia has been buying it far more copiously than most surmise. That country now has a supply of about $481,000,000. Roumania has purchased largely for several years. For some months Austria has been buying, in order to range herself with the gold monometallic lands. The agency of Austria appears in the exportation of gold from the United States last year and this year, most of which has left us at moments when foreign exchange was below the gold exporting figure, showing the artificiality of this current. Austria has agents in New York, who are, directly or indirectly, securing the exportation of gold by offering for it special inducements of some kind.
The writer views this efflux of gold, not as resulting from the return of American securities held in Europe, but as the cause of that. There may be a few Europeans who doubt the continued gold solvency of the United States. Such persons are very rare, and have sent home but a small proportion of the valuable papers that have reached us since the Baring failure. The secret of both the gold outflow and the paper inflow lies in the determination of the European powers and great hanks to be well supplied with gold, which can be carried into effect only by special measures. Our abnormally large importation of commodities during January of the present year is to he accounted for mostly in the same way.
Still another momentous evil, due to the fact that the world’s monetary arrangements lack all coördination, is the fall in general prices which has been taking place since 1873. As I have elsewhere observed, many writers of great intelligence fall into a curious confusion of cause and effect upon this point, identifying fall of general prices with intrinsic cheapening of commodities. For instance, the Berlin Nation had, some years ago, an editorial on The Decline in Prices an Advance in Civilization, wherein such decline was set forth, not as a sign of economic advance, which, under the world’s present economic system, it often is, but as itself an element in such advance, which it is not. That many manufactured articles have long been decreasing in intrinsic cost is a great blessing, and articles of this class would doubtless have gone down more or less under an ideal system of money. But it was not necessary that general prices should fall; and this fall, I maintain, has been an absolute and unmitigated curse to human civilization. Mark, it is not low prices which I condemn. Low prices, once established, are as desirable as high. That is to say, the words “high ” and “low ” in respect to prices are not absolute, but relative terms. The continual fall of prices, the act of sinking, is the accursed thing. None profit from it but such as are annuitants without being producers ; and we may be sure that no civilized state is going to legislate to keep prices falling, when it is once seen, as it must soon he seen, that the fall injures all but the very few unproductive people who live upon their incomes. Bankers and money-lenders, as such, are not interested to have prices fall and the value of money increase. What enriches bankers is lively business, plentiful trade, demand for capital, high interest, — phenomena which never accompany appreciating money, and in the nature of the case cannot do so. In the absence of wars and all such acute causes narrowing the demand for loanable funds, the present abundance of these in all directions, and the consequent, low rates of discount, ought to be read as indubitable signs of a morbid paucity of money in the general circulation.
All are glad, certainly, to have the costs of things become less and less. This process has been going on since 1873. Had this alone occurred, no one would complain. There are two proofs that this is not the whole of what has been going on. Intrinsic costs were falling between 1848 and 1873, — falling as rapidly as they have done since 1873. But at that time prices were rising rather than falling, and it was a period of extraordinary prosperity everywhere. The other evidence that the fall in the intrinsic costs of things since 1873 has had an occult, baneful accompaniment of some sort is as follows: Falling costs imply prosperity. The signs of a regime of falling costs are, high interest and dividends, good wages and profits, happy merchants, manufacturers, bankers, and workmen, few failures, few strikes and lockouts, rapidly multiplying industrial undertakings, and rapidly increasing wealth. This is not a picture of men’s economic life for the last twenty years. Costs have fallen, doubtless, but the fall in prices has not consisted solely or mainly in reduced costs.
Just so, an advance in prices may mean an advance in costs, as is generally, or often, the case when prices are put up by tariffs; or it may mean merely an increase in the volume of money, without increase, or even with decrease, in costs, as was the case after 1850.
I have nowhere seen these distinctions properly traced ; and because they are not heeded, people of much intelligence often talk absurdly upon this subject. One class hails with joy a rise of prices, whatever its cause; when prices decline, many imagine that it must mean a lessening of the effort necessary to get commodities, and they raise hallelujahs accordingly. How many speeches in the last presidential campaign illustrated this deep confusion!
The dislocation of prices is infinitely tiie most important aspect of the silver question. The trouble is intensely real. It is at once economic and moral in nature, hindering productive investments and exchanges, and necessitating a measure of injustice in a vast proportion of the exchanges which do occur. The malady affects all alike, Europe as well as the United States, Germany and Austria no less than England and France. How long shall we let it continue ?
Still more recondite is another evil from which modern society suffers greatly. I refer to the rupture of the industrial world into monetary hemispheres by the demonetization of silver which began in the year 1873. The result is substantially a new phenomenon in human history. Before 1873, silver as well as gold had practically been for centuries full money in all the important nations. After 1816, to be sure, silver was not full legal tender in England; but for all this, payments could be made to England in silver just the same, because France, near by, would receive this in settling her balances with England, and return gold.
This new state of affairs is a very serious one. Nations in the gold group can no longer trade freely with nations in the silver group. There is between the two worlds no mint par; that is. no stable par of any kind. As to trade, these two sections of humanity stand to each other in precisely the same relation which a nation using irredeemable paper money occupies to other nations. Under such circumstances, it can never be known how much of the money of one country will equal a given sum in that of the other at the moment when the trade is consummated or the goods are delivered. An element of specially distressing and perplexing risk thus enters into all such transactions, rendering them a veritable form of gambling. It is well known how greatly this curse is affecting England’s trade with India, occasioning widespread bankruptcy and strikes without number. Lancashire, usually so prosperous, has become, in consequence of its disturbed commerce with India, the scene of nearly universal distress and complaint. No one denies this, but the remedies which various parties suggest are very diverse.
What has been written and said upon this subject, relating so exclusively to its British phase, causes many to overlook the fact that friction of the same sort is felt all over the world, where countries whose ultimate money is gold seek to trade with countries whose ultimate money is silver. The United States, too, is hampered hy this infelicity. It stands with the tariff as one of the reasons why our trade with Central and South America. Japan and China, is so insignificant.
Perhaps the worst victim of the disease at present is Mexico. The Mexican delegates at the Brussels Conference submitted a long paper, in which they rehearsed the distresses which have come to their country through the loss of their old-time freedom of exchange with the gold-using world. The picture which they drew was very dark. They did not complain of a loss in the purchasing power of silver, for net loss of this kind in the silver-using countries there has been none, but bewailed the uncertainty of the value of silver from day to day in terms of gold, which would, of course, be the all-important consideration in their foreign trade. I transfer to these pages a table which these gentlemen presented to the Conference, showing the number and the sweep of the variations in Mexican exchange on London for the two years 1889—90.
| 1889. | 1890. | |||||||
|---|---|---|---|---|---|---|---|---|
| Month | Maximum. | Minimum. | Variations. | No.of Variations. | Maximum. | Minimum. | Variations. | No.of Variations. |
| January | 35 3/4 | 35 1/4 | 1/2 | 7 | 37 5/8 | 37 3/8 | 1/4 | 8 |
| February | 35 5/8 | 35 | 5/8 | 6 | 37 5/8 | 36 1/2 | 1/8 | 9 |
| March | 35 1/2 | 35 3/8 | 1/8 | 1 | 37 5/8 | 37 1/4 | 3/8 | 15 |
| April | 35 3/8 | 35 1/4 | 1/8 | 1 | 39 | 37 | 1 7/8 | 13 |
| May | 35 9-16 | 35 3/8 | 3-16 | 2 | 39 3/4 | 38 1/4 | 1 1/2 | 8 |
| June | 35 7/8 | 35 1/2 | 3/8 | 2 | 41 1/2 | 39 1/4 | 2 1/4 | 11 |
| July | 35 4/8 | 35 3/8 | 1/2 | 3 | 42 1/2 | 40 3/4 | 1 3/4 | 8 |
| August | 36 11-16 | 35 3/8 | 5-16 | 3 | 45 1/2 | 42 1/4 | 3 1/4 | 9 |
| September | 36 1/8 | 35 3/4 | 3/8 | 6 | 45 5/8 | 44 | 2 5/8 | 10 |
| October | 37 7/8 | 35 7/8 | 2 | 6 | 43 1/4 | 40 3/4 | 2 1/2 | 17 |
| November | 37 3/4 | 37 1/8 | 5/8 | 11 | 41 3/8 | 37 | 4 3/8 | 14 |
| December | 37 7/8 | 37 1/4 | 5/8 | 12 | 41 1/2 | 39 1/4 | 2 1/4 | 13 |
There are those. I know, who fancy that the precise difficulty here under survey must be temporary. They think that silver will “find its level.” and that then it will be possible to forecast the course of exchanges between the different parts of the world, just as before 1873, or as between Europe and America now: the rates of exchange being sometimes higher and sometimes lower, but always oscillating hack and forth past a fixed par. In my judgment, this thought is entirely illusory. If silver is left a commodity, there will never again he a fixed par between it and gold, any more than there now is between iron and gold, or lead and zinc. Not only so, hut. as gold becomes more scarce, the gap between the units of the two moneys, gold and silver, must slowly and irregularly increase. It, is not a pleasing prospect, for one who believes in the progress of human civilization, to see the two great sections of humanity thus held asunder by a gulf in their monetary relations; not impassable, indeed, but passable only through deepening storm and tempest.
The outlook is the darker because the The outlook is the darker because the portions of the earth thus unnaturally forced apart are precisely the ones that ought to be trading together most freely. Many, of course, believe in erecting trade barriers between such different nations as produce the same things, but you must search far to find a man who does not favor closer trade between the nations of the southern world and the nations of the northern world. Now, this classification is almost exactly the monetary classification to which I have referred. Unless something can be done to close the chasm spoken of, it will yawn more and more as the years pass. It will be worse than a Chinese wall between those monetary zones, having more effect to prevent trade and the accompanying influences of civilization than the highest tariffs of which protectionists ever dreamed.
It is obvious that these evils can never be cured while nations continue upon their present laissez-faire monetary basis. So long as each nation acts for and by itself in these matters, society is inevitably a prey to the afflictions which have been enumerated ; while, in respect to the last two of them, the fall of prices and the splitting of the world into diverse monetary camps, things are going from bad to worse.
Two parties make light of all efforts to bring nations together in monetary union. The ultra gold monometallists do this. They pretend that there is gold enough in the world, and deny, or incline to do so, that any such strife for this metal as has been alleged is going on. We notice, however, that at present none among the advocates of gold monometallism have the temerity to demand, as used to be done.ten years ago by a few, that silver should be demonetized universally. But why ought not this to be done, if there is gold enough? Also, I have yet to hear of any gold monometallist who has dared, within the last five years, or would now dare, to recommend the United States, Germany, and the Latin Union to demonetize their full legaltender silver. But again, why not, if there is gold enough ? The most enthusiastic gold monometallists thus virtually admit, as regards the last and worst of the evils of which we have spoken, the powerlessness of what they recommend, to effect a cure. For the monetary chasm which gapes between the industrial world that uses gold and the industrial world that uses silver they provide no bridge.
But it is equally impossible, with the means favored by them, to remedy that other bane which we mentioned, — the bane of the fall in general prices. There is not, within the lands which now use gold, gold money enough to prevent a most serious and distressing fall in general prices. It’ only the exchange function of money be had in view, there is, doubtless, gold enough. There is sufficient to “go round.” You can have gold in plenty for all exchange work, if you take each coin and divide it in two. Then the gold at present with us will go twice as far as now, relieving us of all difficulty in effecting whatever exchanges we wish to effect. But what would be the influence upon prices of such a division of coins? I leave the reader to imagine. Of courses it would be confusing and disastrous in the extreme.
Another class of influential persons who mock all attempts to secure an international monetary agreement, are the ultra silver men, who desire free coinage by the United States alone. Among these are no doubt some who wish this result quite regardless of consequences, desiring only to make money more plentiful in order to render easier the unpleasant business of paying debts ; but it is unfair to charge the whole class with such a motive. Many, if not most of them, sincerely believe that the free coinage of silver by us, independently of other nations, would not lead to the expulsion of our gold. They think that what France accomplished between 1803 and 1873, in maintaining for all Europe the practical concurrence of gold and silver money at a value relation between the metals of fifteen and a half to one, doing this both during the penury of gold before 1850 and during the affluence of gold after that date, the United States could much more easily accomplish to-day. Not only do many thoughtful Americans believe this, but as well several of the ablest European students of monetary science, such as Henry Hacks Gibbs, Moreton Frewen, and Sir Guilford L. Molesworth. It is easier to laugh at this opinion than it is to refute it.
These thinkers make much of the fact that the abundance of money metal, including silver, produced since 1875 bears a much smaller proportion to the quantity in existence at that date than did the new money metal brought to light between 1850 and 1870 to that which existed just previous to 1850. Strong as this consideration is, I cannot, for my part, think these gentlemen right in their conclusion. They seem to overlook three important considerations: first, the hostility and discredit into which silver, rightly or wrongly, has fallen; secondly, the low cost at which silver can now be produced, owing largely to the circumstance that most of it is merely a by-product of lead, copper, and gold ; and thirdly, the intense fight for gold which is now going on. These facts had no parallels at the time when Michel Chevalier wished to demonetize gold, and they are of such moment that neither the United States nor any other nation would be wise in undertaking, alone, to reinstate silver. The result of such an effort would be. I think, that the nation making it would simply bid farewell to the gold-using section of mankind, and go over to the users of silver.
Were we, in our present condition, to institute the free coinage of silver, the first consequence would be the hegira of our gold, leading to dreadful stringency, and a much greater fall in prices than we have thus far seen. This agony being over, as the mints began to turn out great piles of silver dollars, to circulate either directly or by proxy, prices would slowly rise to the Mexican level. We should have left Europe in order to join Mexico, Central and South America, Japan and China. I can see how high-protectionists might earnestly desire such a result, for the wall which the change would erect between Europe and America would be more impassable than any that McKinley tariffs could create. This would be bad enough, but, from the point of view of the advancement of civilization, it would not be the worst effect. The fall of prices in the countries still retaining gold would of course be checked for a time. These countries would receive our gold, affording them great temporary relief. Only temporary, however. After a time, the struggle for gold would be on once more in the gold-using group, just as it is now; for that gold is destined to become more and more scarce, not only relatively, but at last absolutely, seems to the present writer as certain as anything future can be. The distress of falling prices would, in the course of years, lead some other nation, at whatever sacrifice, to incur the distress of changing its basal money from gold to silver. Then another and another would do the same. If this process must be gone through by one nation at a time clear to the bitter end. civilization will be hindered thus more than by the permanent continuance of the militarism which now burdens Europe.
No one nation can solve this serious problem. It requires international action. The only scheme by which the difficulty can be surmounted in anything like a permanent manner is international bimetallism, which I believe to be as perfectly feasible as its theoretical operation is simple.
A great, many admit the troubles enumerated above, which in my judgment bimetallism would cure, but do not wish to go so far in the way of remedy. Hence the innumerable soidisant palliatives short of bimetallism that are offered for those difficulties. It would be tedious to enumerate these, interesting as many of them are from the ingenuity which they display. But it is to be remarked that none of these partial remedies could be carried into effect without international action, and that the concert which most of them would require would be of a much more intricate kind than that called for by out-and-out bimetallism. Compare, for instance, the simple provisions of bimetallism with the complex, minute, diverse, and numerous specifications of the pro-silver scheme put forward last year by the late lamented Professor Soetheer. It were better to adopt at the outset a plan whose operation would be thorough. The best which could come from any superficial measure would be that it would soon reveal its inefficiency, having meantime committed the nations to common action in monetary affairs.
E. Benj. Andrews.