Vol. 6 · pages 416–420

401 THE SILVER STANDARD AND THE DISLOCATION OF ITS PARITY more.* But whatever the extenuating circumstances, the result was disastrous, for when the resolution came to be acted upon by the different countries assembled, the real end of the Conference, namely uniformity of coinage, was completely lost sight of, and the proposed means eventually became the virtual end. The ball once set rolling, the work of demonetizing silver began to grow apace. First in the field was Germany. Having vanquished France in the war of 1870, she utilized the war indemnity in the reform of her chaotic currency† by hastening to adopt a gold currency for the United Empire of Germany. The law of December 4, 1871, authorized the change, with the mark as the unit of currency. Silver was demonetized by this enactment; but the existing silver coins continued to be legal tender though their further coinage was stopped, along with the new gold coins at the legal ratio of 15 to ½ to 1. This full legal-tender power of the silver coins was taken away from them by the law of June, 9, 1873, which reduced them to the position of a subsidiary currency.‡ This policy was immediately copied by other countries of Germanic culture.§ In 1872 Norway, Sweden, and Denmark formed a Scandinavian Monetary Union, analogous to the Latin Monetary Union, by which they agreed to demonetize silver as was done by Germany. This treaty, which established a gold standard and reduced the existing silver currency to a subsidiary status, was ratified by Sweden and Denmark in 1873 and by Norway in 1875. Holland also followed the same course. Till 1872 she had a pure silver standard. In that year she closed her Mint to the free coinage of silver, although the old silver money continued to be legal tender to any amount. In 1875 she went a step further and opened her Mints to the free coinage of gold. Her policy differed from that of the Germanic countries in that she only suspended the free coinage of silver, while the latter had demonetized it. Even the Latin Union was unable to resist this tide against silver. As a consequence of this exclusion of silver, the Latin Union, *An honourable exception must be made in the case of Dr. Mees, the representative of Holland, who drew attention to the harm likely to result from this resolution. † For a history of the movement for the unification of German currency prior to 1870, cf. H.P. Willis, “ The Vienna Monetary Treaty of 1857,” in the Journal of Political Economy, Vol. IV, p. 187 ett seq . ‡ For the text of the Laws, see Appendix to History of Bimetallism, by Prof. J. L. Laughlin, New York, 1886. § Cf. Report of the Committee on the Depreciation of Silver, 1876, p. xxix.

402 DR. BABASAHEB AMBEDKAR : WRITINGS AND SPEECHES enlarged as it was by additional members, naturally desired to take precautionary measures against being flooded by the influx of this depreciated silver. Nor was this fear unfounded, for the silver tendered for coinage at the Belgian Mint in 1873 was three times greater than what was tendered in 1871. Rather than be embarrassed, Belgium, by the law of December 8, 1873, suspended the free coinage of her silver five-franc pieces. This action of Belgium forced the hands of the other members of the Union to adopt similar measures. The delegates of the Union met in Paris in January, 1874, and “agreed to a treaty supplementary to that originally framed in 1865, and determined on withdrawing from individuals the full power of free coinage by limiting to a moderate sum the silver five-franc pieces which should be coined by each State of the Union during the year 1874.* The respective quotas fixed for 1874 were slightly increased in 1875, but were reduced in 1876.† But the actual coinage did not even reach these small quotas. So greatly was the Union perturbed by the silver situation that during 1877 the coinage of silver five-franc pieces was, with the exception of Italy,‡ entirely suspended. This action was, however, only a preliminary to the treaty of November 5, 1878, by which the Latin Union agreed to close its Mints to the free coinage of silver till further action. Though at first sine die, the closure proved in the end perpetual.§ Simultaneously with the precautionary measures of the Latin Union, Russia suspended, in 1876, the free coinage * Laughlin, op. cit., p. 155. † The quotas fixed at the Conferences for the several members of the Union were :— In Millions of Francs. 1874 1875 1876 France ... ... 60 75 54 Belgium ... ... 12 50 36 Italy ... ... 40 15 10 Switzerland ... ... 8 10 7 Greece ... ... ... ... ... 120 150 110 In 1874 Italy was allotted an extra 20 million francs. Ibid., p. 155. ‡She was allowed to coin 10 millions of them. § Ibid., p. 158.

403 THE SILVER STANDARD AND THE DISLOCATION OF ITS PARITY of silver except to such an amount as was necessary for the purposes of her trade with China,* and the Imperial Decree of November 22, 1878, directed that all customs duties above 5 roubles and 15 copecks should be payble in gold.† Austria in like manner suspended the free coinage of silver in 1879.‡ On the other side of the Atlantic, an important event had taken place in the United States. In 1870 that Government resolved to consolidate the Mint laws, which had not been revised since 1837, in a comprehensive statute. Since the legislation of 1853, the silver dollar was the only coin which the United States Mints coined freely. But in the new consolidated Mint Statute of 1873, the silver dollar was deleted from the list of coins to be issued from the Mint, so that it virtually amounted to suspension of the free coinage of silver in the United States.§ The silver dollars previously coined continued to circulate as full legal tender, but that power was taken away by the law of June, 1874, which declared that “the silver coins of the United States shall be a legal tender at their nominal value for any amount not exceeding five dollars in any one payment.” The other factor appealed to in explanation of the dislocation of the relative values of gold and silver was the great increase in the production of silver as compared to gold. TABLE IX RELATIVE PRODUCTION OF GOLD AND SILVER (Ounces) Period Total Production Annual AverageProduction Index Number for Average Annual Production Gold Silver Gold Silver Gold Silver 1493-1600 24,266,320 734,125,960 224,693 6,797,463 100 100 1601-1700 29,330,445 1,197,073,100 293,304 11,970,731 130,5 176,1 1701-1800 61,088,215 1,833,672,035 610,882 18,336,720 271,8 269,7 1801-1840 20,488,552 801,155,495 512,217 20,028,887 227,9 293,1 1841-1870 143,186,224 931,091,326 4,772,876 31,038,378 2,124,1 456,6 1871-1890 106,950,802 1,715,039,955 5,347,545 85,751,998 2,375,4 1,261,5 *Report of the Directors of the Mint, Washington, 1893, p. 23. † Cf. P. Willis,” Monetary Reform in Russia,” in the Journal of Political Economy, Vol. V, p. 291. ‡ Cf. F. Wieser, “Resumption of Specie Payment in Austria-Hungary,” in Journal of Political Economy, Vol. 1, pp. 380-7. § This measure was the subject of a strange controversy. The gold men argued that it was deliberately adopted, while the silver men decried it as a surreptitious act due to a “combination of rascally contrivance and rascally connivance.” Prof. Laughlin has well cleared the mystery surrounding this Act. He shows by reference to debates in Congress on the legislation of 1853 that Congress knew that by refusing to alter the ratio between gold and silver it was placing the country on a gold standard. Too much consideration, he thinks, has been wasted on the Act of 1873, which merely took legal notice of the consequences of the Act of 1853. Cf. his History of Bimetallism, pp. 80 and 93-95.

404 DR. BABASAHEB AMBEDKAR : WRITINGS AND SPEECHES The history of the production of the precious metals in modern times begins from the year 1493, a date which marks the discovery of the American continent. Reviewing the results of the production from 1493 to 1893, a period in all of 400 years, we find that during the first hundred years the production of gold and silver rises at a uniform rate of progression. Assuming the annual average production of each during the first century (1493-1600) in the modern history of their production to be 100, it will be seen that in the next century (1601-1700) the index number for the production of gold rises to 130 and that of silver to 176. This rate of progression is also kept up in the succeeding century (1700-1800), during which the figure for both gold and silver approximates to 270, and continues without much disturbance up to 1840, when the respective index numbers stood at 228 for gold and 293 for silver. From this point onwards, the relative production of the two metals underwent a complete revolution. During the next thirty years (1841-70) the production of gold reached unprecedented heights, while that of silver lagged behind, relatively speaking. The index number for silver production advanced only to 450, but that for gold went up to 2,124. This revolution was followed by a counter-revolution, as a result of which the position as it stood at the end of 1870 was well-nigh reversed. The production of gold received a sudden check, and though it had increased enormously between 1840-70 it remained stationary between 187093. On the other hand, the production of silver, which was steady between 1841-70, increased threefold between 1870-93, so that the index number for its average annual production during the latter period stood at 1,260. In the controversy which arose over the reasons, which brought about this dislocation and decline in the value of silver in terms of gold, there were parties to whom one of these two factors was a sufficient cause. One side argued that had suspension or demonetization of silver not taken place, its value could never have fallen. This position was vehemently challenged by the other side, which believed in the over-supply of silver as the primary cause of its depreciation. Now, was the

405 THE SILVER STANDARD AND THE DISLOCATION OF ITS PARITY argument from relative over-supply sufficient to account for the fall in the gold value of silver ? On the face of it, the explanation has the plausibility of a simple proposition. It is one of the elementary theorems of political economy that the value of a thing varies inversely with its supply, and if the supply of silver had largely increased, what could be more natural than that its value in terms of gold should fall ? The following were the relevant facts which formed the basis of the argument:— TABLE X GOLD AND SILVER* RELATIVE PRODUCTION AND RELATIVE VALUE Period Ratio of Production (by Weight) of Gold to Silver As 1 Grain to: Ratio of value of Gold to Silver As 1 Grain to Index Number for the Ratio of Production Index Number for the Ratio of Value Correlation between Relative Production and Relative Value Relative Production of Silver Falls — Rises+ Relative Value of Silver Falls — Rises+ 1681-1700 31.8 14.95 100 100 . . . . . . 1701-1720 27.7 15.21 87 101.7 –13 –1.7 1721-1740 22.6 15.10 71 101 – 29 –1.0 1741-1760 21.7 14.70 67 98.3 –33 +1.7 1761-1780 31.5 14.40 99 96.3 – 1 +3.7 1781-1800 49.4 15.08 155.6 100.8 +55.6 –.8 1801-1810 50.3 15.67 158.0 104.8 +58.0 –4.8 1811-1820 47.2 15.68 148.0 104.9 +48.0 –4.9 1821-1830 32.4 15.82 101.9 105.8 +1.9 –5.8 1831-1840 29.4 15.77 92.4 105.4 –7.6 –5.4 1841-1850 14.2 15.81 44.6 105.8 –55.4 –5.8 1851-1855 4.4 15.45 13.8 103.3 –86.2 –3.3 1856-1860 4.5 15.28 14.0 102.2 –86.0 –2.2 1861-1865 5.9 15.42 18.55 103.1 –81.5 –3.1 1866-1870 6.9 15.52 21.7 103.8 –78.3 –3.8 1871-1875 11.3 16,10 35.5 107.6 –64.5 –7.6 1876-1880 13.2 17.79 41.5 119.0 –58.5 –19.0 1881-1886 17.3 18.81 54.4 125.8 –45.6 – 25.8 1886-1890 19.9 20.98 62.6 140.3 –37.4 –40.3 1891-1895 20.0 26.75 62.9 178.9 –37.1 –78.9 * The table is based on figures of M. de Foville of the French Mint, as given by Mr. F. B. Forbes in The Bimetallist of July, 1897, pp. 125-28.