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 [22]60,000,000 to [23]70,000,000 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 ([24]13,500,000 francs) per annum, in 1847 put into circulation
about 20,000,000 dollars ([25]104,000,000 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 [26]4,000,000 dollars, and it did not exceed [27]9,000,000 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 [28]40,000,000
dollars, coined [29]32,000,000 (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 [30]27,000,000 francs in the ordinary import. This
applied principally to silver. Remittances from India, generally about
[31]20,000,000 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 [32]8,000,000 to [33]10,000,000
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 [34]3,000,000 or [35]4,000,000 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
[36]75,000,000 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 [37]30,000,000 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
[38]96,500,000 florins; it proved to be [39]172,000,000 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.”
At the time this notice was published, it appeared that the exchange
of gold for bank-notes would take place under the most favourable
auspices. Gold was at a tolerably high premium in the market of
Amsterdam, bills of exchange on foreign countries were scarce, and
consequently the payments of international commerce could very
advantageously be made in the precious metals. Moreover, the government
treasury was full, and the Netherlands bank declared itself ready to
assist efficiently in the operation. But all these chances of success
were destroyed by the precipitancy of the government. A complete panic
was occasioned by the short period granted to the holders of gold coin:
the people hastened to pour their gold into the state treasury, (which
could not receive it all) or else to send it abroad. The government
had imagined that the sum likely to be exchanged, would no exceed
[40]30,000,000 florins: they had miscalculated by two-fifths; for the
sum amounted to [41]50,000,000 florins. The 30,000,000 of paper money
that they had been authorized to issue, together with the money in the
treasury at their disposal, not being sufficient to pay for the amount
of gold presented, they were obliged to have recourse to the bank of
the Netherlands, and to borrow a sum of [42]6,500,000 florins, at an
interest, moderate it must be admitted, of 2½ per cent. per annum.
The exchange being effected, it was necessary for the government to
find a means of disposing of the gold withdrawn from circulation. It
could be sold only in foreign markets; and there, private industry
had forestalled the government, and the price of gold had fallen in
consequence of the number of Guillaumes brought for sale. At first
the Dutch government suffered only a small loss, owing to a momentary
reaction in favour of gold coin; but the first sales having increased
the depreciation, they were obliged, for fear of greatly adding to
their loss, to stop after having disposed of [43]21,836,000 florins:
the loss then amounted to [44]244,446 florins, being about 1¹²⁄₁₀₀
per cent. By the middle of October, gold had fallen in value 2½ per
cent. below the legal price, and by the middle of December, 4 per
cent. At this period, the pieces of five and ten florins, banished
from Holland, were scattered about in the different markets of Europe:
London had received them to the amount of £600,000; Paris to the amount
of [45]63,000,000 francs; Germany had absorbed the rest: excepting from
[46]28,000,000 to [47]29,000,000 florins, still lying unsold in the
treasury of the Netherlands.
The Guillaumes have continued to be melted and coined, in Paris, into
20 and 40 franc pieces; for I find in an official record furnished me
by the President of the Mint, that Dutch coin was exchanged at Paris in
the last six months of 1850, to the amount of [48]40,934,053 francs;
and in the first six months of 1851, to the amount of [49]70,901,597
francs,--altogether [50]111,835,650 francs.
The gold coinage of Holland, from 1816 to 1847, was 172,583,955
florins, equal to [51]362,000,000 francs. Supposing that of this only
two-thirds was in existence in this shape of coin in 1850, there
would be 115,000,000 florins, or [52]236,000,000 francs, all at once
withdrawn from circulation, and thrown upon the gold market: is it
possible that the price of gold could be otherwise than affected?
The gold thus suddenly demonetized equalled at least twice the annual
produce of the world, previous to the discovery of California. The
Mint of Paris alone, which had not struck above [53]27,000,000 francs
in gold during the year 1849, coined [54]85,000,000 in 1850, and
[55]269,000,000 in 1851.
Fortunately, the crisis was of short duration; the gold coined in Paris
rapidly flowed either towards Piedmont, to pay the first instalment
of their loan, or to Milan to pay for silks bought by Lyons and St.
Etienne. Credit is at a low ebb in Italy, there is little paper
circulation, tending to simplify accounts, and taking the place of
specie in the adjustment of debts; gold is therefore always in demand,
and the supply was speedily absorbed. Certainly, the apprehensions of
the Dutch Government have proved hitherto groundless, and the desired
object has been but partially attained: silver, having become the
sole standard, has found its way (somewhat in excess) throughout the
country, but the loss of gold coin has given rise to a small note
paper-circulation: there is now a paper money of 10 and 5 florins (21
francs and 10½), which, although at first but provisionally issued,
will probably become permanent circulation. Holland is following the
steps of Prussia and Austria. The Dutch Government supposed that,
notwithstanding the demonetization of gold, the coinage might remain
in circulation, and be voluntarily accepted for its _intrinsic_ value.
This was a misconception of the nature of money, which is accepted as
a circulating medium only on account of its _positive_ value. As might
have been anticipated, gold has ceased to circulate in Holland, and
paper has taken its place. It is doubtful whether the nation has gained
by the change.
We think we have sufficiently considered the subject of the fall in
price of gold in 1850. During the last eighteen months the production
of this metal has made immense progress. The crisis, which was then
imaginary, may have taken a more serious turn, and may become hereafter
a reality. This we will now examine.