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II

A change in the relative production of the precious metals does not necessarily alter their monetary value. In order to create an alteration in the relative values of gold and silver with the quantities annually produced, the disturbing cause must be of a somewhat permanent nature. Moreover, it is necessary to examine, in connection, either with a greater or less production, the causes which might add to or diminish these results; such as expenses in working, the varied wants of consumption, and the greater or less destruction of coin by wear and tear, &c.

Monsieur de Humboldt remarks, that during the ten years, from 1817 to 1827, there was coined in Great Britain, above ³1,294,000 marcs of gold; that is nearly one milliard of francs, and more than ⁴100,000,000 francs per annum, without any influence having been produced by such extensive purchases on the relation of gold to silver: the proportion, which was as 1 to 14·97, never exceeded 1 to 15·60; or shewing a rise of not more than 4²⁄₁₀ per cent. Such was the case when England, which for above twenty years had had only a paper circulation, re-established a metallic currency, and attracted the coin and the bars of gold dispersed throughout Europe. During these ten years she absorbed, or nearly absorbed, an amount of gold which perhaps equalled the production of the whole world, and certainly exceeded the import of gold, during that period, into all the great commercial depots in the civilized world. It would not enter into our subject to examine at what sacrifices England made this monetary revival; but the equilibrium once restored, and the empire of Britain having placed herself in harmony with the rest of Europe, it does appear wonderful that it did not cost more than a premium of 4 per cent. to have attracted a quantity of gold, probably equal to the half or one-third of that possessed by the whole of Europe. And the wonder increases when we remember, that the Mint of London, which in 1814, 1815, and 1816, had not coined a single sovereign, issued at once, in 1825, £9,520,758 sterling (about 240,000,000 of francs), which must have been consequently abstracted from trade in the course of a few months. Political commotions brought about other variations in the price of the precious metals. It is well known, that on the news of the landing of Napoleon in 1815, gold rose 10 per cent. in London.

To explain how this sudden collection of gold, effected by Great Britain with as much perseverance as vigour, did not bring about a general crisis; it has been said, and not without reason, that the quantity of the precious metals now existing in the shape of money, rendered the oscillations in its production and supply as money, less sensibly felt. It should be recollected, that if the metallic values were so greatly depreciated by the discoveries of America, this state referred to the existing condition of Europe, exhausted both of silver and gold. The difference thus exhibited between the two periods is very evident; but it does not appear to be sufficient to account for the facility with which the circulation may increase in the present day, without affecting the price of silver or gold. It may be as well to add, that this movement, which appears to convey life throughout every artery of commerce, is not fed now solely, as in olden times, and during the middle ages, by the precious metals. Metallic money now forms but a small portion of the total circulation, if we take into account the mass of bank notes, bills of exchange, drafts and bankers’ cheques, which complete the amount of a circulating medium of exchange; this, at the present day, taken as a whole, is something almost indefinite: it appears to defy all calculation; and we might almost say that the excess in the production of gold and silver now need not necessarily produce more influence than the waves of the sea on the permanent level of the ocean.

At the same time that the depreciation of gold and silver under any general form becomes less probable, the increasing facility of communication, and the greater mutual dependence of nations in matters of credit, renders any great local difference in the value of money more improbable. Whenever the precious metals become in excess in one country, the surplus quickly reaches its neighbour. Let a sudden scarcity of food, or any other cause, create a drain of specie, the consequently increased value of money will soon draw back that which has been exported. The cost of transport, and the premium of insurance of gold, are the limits of the variations in the rates of exchange; and the charges are being diminished every day, thanks to railroads and steam communications. Before the wonderful progress in the development of industry from the commencement of the nineteenth century, we have seen the changes occurring at different periods, in the relative production of the precious metals, without any corresponding alteration in their relative values. At the close of the fifteenth century, it is true, that America, furnishing nothing but gold, and this metal having accumulated in Spain, Queen Isabella of Castile was forced to alter the relative standard of gold and silver. After the first half of the 16th century, the production of gold having ceased to preponderate, and silver being imported in great abundance, the value of the inferior metal underwent such a depreciation, that the governments of Europe, yielding to the force of circumstances, changed its relative legal value; but with these two exceptions in the monetary laws, one purely local, and the other European, we observe the production of each metal extend and diminish alternately, without any relative alteration in value of sufficient importance to attract public attention.

“From the year 1645 to the commencement of the 18th century,” says M. Michel Chevalier, “silver took the lead in a most remarkable manner. Then occurred the bright days of the mines in Potosi, and the production of silver exceeded that of gold, weight for weight, in the proportion of 60 to 1; after that, and without any diminution in the produce of silver, came the glorious time for the Brazilian gold mines. Simultaneously appeared the auriferous regions of Chico, Antioguia, and Pepayou. The commercial world received from America 1 kilogramme ⁵of gold for every 30 kilogrammes of silver. Thus passed the middle of the 17th century. Then the silver mines of Mexico put forth all their splendour, and the proportion increased to 40 to 1. The Brazilian mines began to diminish, whilst those of Mexico continued to increase in production; and, at the beginning of the next century, silver exceeded gold in the proportion of 57 to 1. In 1846 the production of silver still continued to predominate, and we are now at the proportion again of about 40 to 1.”

Humboldt’s calculations differ but little from those of M. Michel Chevalier. This great authority considers that the import of gold until the first years in the 18th century, bore the proportion to silver of 1 to 65. Let either of these suppositions be true, there can be little doubt, that the relative weight of supply of the two metals varied by one half, without any serious alteration in their relative price; which surely proves that gold was essentially required, and that the increase of production did but fill up the gap, which, as far as the 18th century, the progress of civilization and of luxury had created, without an adequate means of supply.

In ancient times, the relative value of the two metals appears to have been almost entirely governed by the quantities produced and brought to market. A pound of gold was worth eight or ten pounds of silver, according as the quantity brought to market varied in the like proportion. The simplicity of commercial interests, in a state of society when neither luxurious arts or industry were thought of, offered no inducements for the collection of gold or silver for their use as money, excepting on account of their relative scarcity; but when fighting ceased to be the principal occupation of mankind, and labour began to be held in some estimation, an end was put to this patriarchal state: if the people lost their primitive simplicity, the relation of supply and demand no longer depended exclusively on the proportionate production of the two metals; other causes affecting a rise and fall began to operate on prices.

When the precious metals were nearly absorbed in the supply of money, their commercial value had no other element to influence an alteration than the requirements of circulation; the monetary value governed the commercial price. But, at the present time the contrary is the case: the greater the degree of civilization, and the greater the increase of a taste for luxuries, the more does the demand for the precious metals for other objects exceed the want of them for coin. Mr. Jacob, whose work on the precious metals appeared in 1831, places a value of ⁶149,000,000 francs on the gold and silver annually used for articles of jewellery and plate in Europe and America.

During the last twenty years the progress of luxury amongst the industrious and commercial nations of the world has been enormous. The moveable wealth of France and England has made prodigious accumulations. What family is there so poor as not to have some article of plate? Gilding is no longer confined to the decorations of temples and palaces; it is found in the most humble cottage. To what a length may it not reach if the taste should increase for gilding the dresses of ladies, and for covering the uniforms of our men with gold or silver lace?

On the whole, then, it appears that the demand for gold and silver, as articles of commerce, is likely to exceed the demand for the precious metals solely for use as money. This is a new point; and we must not lose sight of it in endeavouring to appreciate the effect which an increase or diminution in the production of the precious metals may have, both on their price and on their relative value.

Without noting the variations which have occurred from one century to another, in the production and in the importation of gold and silver, in order to recapitulate the quantities of the precious metals which America has poured into the European markets in 318 years, from the discovery of Hispaniola to the revolution in Mexico, M. de Humboldt considers the production of gold to have been ⁷2,381,600 kilogrammes, and that of silver ⁸110,362,222 kilogrammes: making a total value of about ⁹32 “milliards” of francs: the weight of gold imported represents about ¹⁄₄₇th of that of silver. It does not appear probable, that the produce of gold in other parts during these three centuries has materially altered these proportions. Admitting that when first the Mexican revolution retarded the working of their silver mines, the amount of coined money throughout Europe represented a value of ¹⁰8 “milliards” of francs, of which ¹¹6 “milliards” were in silver, and ¹²2 “milliards” in gold, the relative quantity in weight would still have been as 47 to 1; and yet the relative monied value, thirty years since, varied in Europe between 1 to 14½, and 1 to 15¾. Thus, in the value of the precious metals, the difference was three times less than in their weight.

Nothing is more difficult in matters relating to money than to present statistics which may be considered as an approximation to truth. It would appear that as gold and silver are used as the denominators of value, generally, throughout the world, all the phenomena connected with their production and circulation ought to be noted with the greatest precision: they ought to be the points to which the attention of statisticians should be “par excellence” directed. What can be more important, in an economical point of view, than to establish a regular scale, indicating the rapidity of every movement connected with the subject, and acting as a gauge of its extent?

Divers causes appear, however, hitherto to have prevented such a desideratum. In the first place, gold and silver producing countries have generally been in a rude state of civilization; and as unable to apply rules for the public weal, as to employ machinery to aid their industry. Thus, even in the registry in Mexico under the Spanish rule, of all the money coined at their mint, and for ascertaining the amount produced in the mines by the proportion of the tax due to government, which ought to be levied thereon by the hundred-weight, – it is absolutely necessary to take into account all that quantity which escapes the vigilance of the tax-collector, and which is either sent into the interior, or exported clandestinely.

What is the sum of the precious metals really produced at any given time? What is the proportion of such production which, when exported, acts as a regulator of the prices in Europe? How are the channels formed which sometimes direct the stream of commerce towards the east, and sometimes towards the west, in the distribution of the metallic wealth of the world? All such problems, as regards the past, must probably remain unsolved. The enquiry becomes more easy when referring to our own times; but even then large allowances for incorrectness of data must necessarily be made.

At the beginning of this century, according to M. de Humboldt, gold and silver were imported annually into Europe in the relative proportions of about 1 to 55; that is, ¹³15,800 kilogrammes of gold to ¹⁴869,960 kilogrammes of silver. M. Michel Chevalier, stating, not the import but the production, calculates it at ¹⁵23,700 kilogrammes of gold against ¹⁶900,000 kilogrammes of silver, or in the proportion of 1 to 38; but the gold of Africa and Asia, comprised in this statement, never really found its way into European markets except in the smallest quantities, and in such amounts as could have no appreciable influence on the commercial prices of the metals. From 1810 to 1830, according to Mr. Jacob, the produce of America diminished by one half. As the reduction refers principally to silver, that is to say, to those mines which required both capital and labor, it is fair to assume that, at least during the first part of this period, the relative proportion of gold to silver would have increased; but we have no means of verifying figures which appear to justify what would otherwise rest solely on the analogy of the case.

In 1847, when the general working of the auriferous region of the Oural Mountains was at its meridian, M. Chevalier considers the annual production of gold throughout the world to have been ¹⁷63,250 kilogrammes, and that of silver ¹⁸875,000 kilogrammes. This would be ¹⁹25,000 kilogrammes less of silver, and ²⁰30,000 kilogrammes more of gold, than at the beginning of the century. At these figures gold stands in reference to silver as 1 to 14. The return from these gold regions appears to have been greatly over-estimated. I find in a table, published in the “Times” of May, 1852, statements which appear to be founded on correct data, and which bring the production of gold up to 42,800 kilogrammes – that is, to ²¹147,400,000 francs.

This result, then, is remarkable. The 17th century produced 1 lb. of gold to 60 lb. of silver. In the 18th century the production was as 1 lb. to 30 lbs. At the beginning of the 19th century silver was again abundant, and appeared in quantity as 1 to 50. Towards the year 1847 the production of gold again increased, and the relative proportions were as 1 to 20. The development of the Siberian mines, which has so materially changed the relative production of the two metals, has produced no sensible alteration in price. Will it be the same with the wonderful discoveries in California and Australia? To solve this question, it will be desirable to examine accurately the actual state of the production of gold and silver throughout the world.

III

Before entering into this inquiry, it may be worth while to examine a circumstance of late occurrence, relating to monetary statistics, which has given rise to some discussion, but which has not yet been explained; I allude to the fall in the price of gold, and the corresponding rise in that of silver, throughout Europe, towards the end of 1850 and the beginning of 1851.

At that period Russia had rather less gold than usual to exchange against the produce of the West; and since 1847 the working of the Altai mines had been on the decline: at all events, the government did not appear inclined to allow gold to be exchanged; for in 1848 and 1849 its export had been forbidden. In 1850 the state of the exchanges did not admit of an export of gold, and a part of the 4½ per cent. loan, contracted at that period by the Cabinet of St. Petersburg, was remitted to Russia, both in gold and silver, from England. Doubtless, in spite of the prohibition, Russian gold found its way into other parts of Europe; it was calculated that between 1849 and the first few months of 1850, the great commercial towns in Western Europe must have received from ²²60,000,000 to ²³70,000,000 francs from Russia; but this was not equivalent to the large sums paid for grain imported from Odessa and Riga during the famine of 1846-1847. There could have been no real increase in the metallic reserves of Western Europe during that period.

The same remark will hold good towards America. The import of gold thence in 1849 and 1850 could not have done more than replace the gold coin exported to the United States two years earlier, in payment of bread stuffs and salt provisions. A proof of this will be found by examining the official reports of the mints of the United States. These mints, which from the year 1834 – that is, since the working of the gold fields of Carolina, had coined gold at the average rate of 2,500,000 dollars (²⁴13,500,000 francs) per annum, in 1847 put into circulation about 20,000,000 dollars (²⁵104,000,000 francs). At that time Californian gold was unknown: the rich “placers” of that country did not begin to kindle the gold fever, first in America, and subsequently in Europe, until 1848. Californian gold, before it found its way to the Old World, had to supply the wants of the New. It is exported thence in the shape of eagles and double eagles, bearing the stamp of the Republic. In 1848 the coined gold in the United States did not amount to ²⁶4,000,000 dollars, and it did not exceed ²⁷9,000,000 in 1849. With this small supply an export could not be expected. In 1850 the Californian stream began to flow, and the mint of the United States, having received gold dust and bars to the extent of ²⁸40,000,000 dollars, coined ²⁹32,000,000 (about 171,000,000 francs.) Supposing that the bulk of this coin had been exported to Europe, such a supply would but have restored the loss in the circulating medium which had occurred in 1846. We had exchanged our gold against grain; it was returned to us against the silks, wines, and other articles from France. The monetary disturbance of 1850 must not therefore be set down to the score of an excess of imports: the rich supplies from Siberia and California could then only have acted prospectively. The real cause is to be found in the measures hastily and somewhat rashly adopted by various European governments. To prevent future evil they created immediate mischief; and, in order to shelter themselves from the risk of a future depreciation of gold, they directly produced it.

The crisis of 1850, thus examined, explains itself. On the one hand, silver, being annually taken out of the market by circulation, was not to be met with for other demands; on the other hand, gold, excluded by some governments from their circulation, flowed to those countries where it was still used as legal coin, and produced there, at least, a temporary superabundance. Then occurred the fall in the price of gold, and the rise in the price of silver; which together shewed a divergence of 8 per cent. between their former relative prices.

The explanation we have endeavoured to give appears to become clearer as we investigate further into the subject. Let us first examine the facts relating to the scarcity of silver. England, the principal market of Europe for the precious metals, witnessed, in 1850, a reduction of about ³⁰27,000,000 francs in the ordinary import. This applied principally to silver. Remittances from India, generally about ³¹20,000,000 fr., were almost completely stopped; those from Turkey and Spain were materially diminished. At the same time about £1,000,000 sterling was required to be shipped to India, and remittances were made by Messrs. Baring to St. Petersburg of ³²8,000,000 to ³³10,000,000 francs more, in silver. Germany and Holland required more than their usual supply. The Société Maritime of Berlin had imported silver to the extent of ³⁴3,000,000 or ³⁵4,000,000 thalers; so that, altogether, the import into England, having diminished in 1850 to the extent of about £1,000,000 sterling, the export had been in excess by about double that amount; reducing the metallic reserve by about ³⁶75,000,000 francs. In addition to which, Spain and Russia, having prohibited the export of silver, the exchanges with those countries could hardly be operated upon effectively by the transmission of this kind of specie. It is easy, then, to conceive, that where no modification of the monetary laws had taken place, the premium on gold passed to a premium on silver.

This will explain the reason for at least a temporary abundance and depression in the price of gold, especially on the gold market of Paris. There is no ground for imputing the change to California, from whence the supplies were of little moment, until the end of December, 1850. England so far had only received silver from the United States, and the Californian gold, which had found its way by Panama, during the year, did not exceed, according to official returns, £682,000, or 17,050,000 francs. The Mint in London did not coin gold to a greater extent in 1850 than £1,492,000, or 37,300,000 francs, which is conclusive against any very large importation.

The market of Paris might have experienced a superabundance of gold, in consequence of the demonetization of gold coin in Spain and Portugal, and by the influx of Belgian and other foreign gold coin which had been circulating in Belgium; and it should be added, that England imported into France, for the payment of railway shares, probably to the extent of £1,000,000 sterling; but the predominating cause of the depreciation was undoubtedly the demonetization of gold in Holland, for that step had the immediate effect of cancelling at once the value of the gold coin there in circulation, and of throwing simultaneously an amount of gold on the commercial market, almost equal to the whole of the annual quantity of gold produced in California.

From 1816 to 1847 Holland had followed the example of France in admitting a double monetary standard. Gold and silver were both received in legal payment. The law of November 26th, 1847, altered this state of things; one standard only was allowed, and the silver florin of 3 grammes 450 milligrammes fineness, became the monetary unit: this simplification of the national coin, however, was adopted in theory only; the application of the system was postponed.

The article 23 of the law decreed, that before December 31st, 1850, other legislative arrangements should be enacted concerning the gold coins of five and ten florins, but that till these new arrangements were carried out, the gold coin should continue in legal circulation. The Dutch government might, therefore, retain the legal circulation of the gold coin, by applying to the States-General to prolong the period of the law of November 26th, 1847; but it preferred to carry out the system to its fullest extent. On August 6th, 1849, the government laid before the Assembly, the scheme of a law to “demonetize” the pieces of five and ten florins, and leaving to the administration the moment for its execution. At the same time the government demanded authority for the issue of notes to the amount of ³⁷30,000,000 florins, to buy in the gold coin, which although not in legal circulation, might yet continue to serve as payment at its conventional value.

In the “Exposé des Motifs,” the Minister of Finance, M. Van Hall, acknowledged that the depreciation of gold would not be immediate. “We must examine the question,” he said, “in order to know whether the proportionate value of gold and silver has undergone much variation in consequence of the discovery of the Californian mines. The government is of opinion that as yet this is not the case. In fact, a document communicated to the Assembly proves that the proportion between gold and silver of 1 to 15·60 has been found to exist but once. Sixty-eight quotations of the Exchange of Paris mark the price of gold higher, and only four lower than this proportion; at the Exchange at Amsterdam, we find fifty-five quotations above, and fifteen only below. For the present there is no fear of too much gold being imported for the purpose of exporting silver. It should also be observed, that the high price of gold in France has latterly been occasioned by political events.

“It is well known that the price of gold in Holland is regulated by the exchange on London. If England sends more gold to the Continent than she receives from it, then the rate of exchange on London rises, and gold is obtainable only at an agio. On the contrary, if England receives from the Continent more gold than she exports, the exchange on London is low in Holland, and gold is plentiful. Peculiar circumstances may of course modify these general rules; for instance, it is possible that England may have payments to make in Holland greater than Holland has in England, while the case is the reverse between England and the other countries of Europe; then the state of exchange in those countries would naturally react upon ours.

“It often happens that other circumstances occur seeming to contradict these principles. Thus in August last (1849), pieces of ten florins were in demand in Holland for foreign remittances, although the price of bar gold was only at 1¾ per cent. agio. Again, the influence of the state of exchange on the importation of gold may recently have been observed; not long ago, gold was exported from England to the United States at the very moment that gold was supposed to be arriving from America in great quantities.” I have repeated at full length these remarkable admissions, to prove that the Dutch government was not arming itself against a pressing or even nearly approaching danger, and that their precautions were not even taken with foresight. To theoretical errors were added practical faults; the Minister of Finance had not measured the importance of the operation with sufficient accuracy; he estimated the amount of gold coin in Holland at ³⁸96,500,000 florins; it proved to be ³⁹172,000,000 florins.

The law was voted on September 17th, 1849, and the government received the full power they had demanded. A royal command appeared on June 9th, for the execution of the measure. The following are the principal articles: “1st. The pieces of ten and five florins shall cease to be in circulation as legal payment from Sunday, June 23rd, 1850, but they may continue to be employed in commerce: that is to say, that these coins may be accepted in payment at a conventional value. 2nd. These coins shall be received in payment by government, and by the collectors of the revenues of the kingdom, at their nominal value, till July 31st, 1850, inclusive.”