Vol. 6 · pages 446–450

431 THE SILVER STANDARD AND THE EVILS OF ITS INSTABILITY in India, where trade was as free and industry as unprotected as any could have been, and yet the Lancashire cotton-spinner, the Dundee jute manufacturer and the English wheat-grower complained that they could not compete with their rivals in India. The cause, in this case, was supposed to be the falling exchange.* So much were some people impressed by this view that even the extension of the Indian trade to the Far East was attributed to this cause. Already, it was alleged, the dislocation of the par of exchange between gold and silver had produced a kind of segregation of gold-using countries and silver-using countries to the exclusion of each other. In a transaction between two countries using the same metal as standard it was said the element of uncertainty arising from the use of two metals varying in terms of each other was eliminated. Trade between two such countries could be carried on with less risk and less inconvenience than between two countries using different standards, as in the latter case the uncertainty entered into every transaction and added to the expense of the machinery by which trade was carried on. That the Indian trade should have been deflected to other quarters† where, owing to the existence of a common standard the situation trade had to deal with was immune from uncertainties, was readily admitted. But it was contended that there was no reason why, as a part of the segregation of commerce, it should have been possible for the Indian manufacturer to oust his English rival from the Eastern markets to the extent he was able to do (see Table XX, p. 432). The causes which effected such trade disturbances formed the subject of a heated controversy.‡ The point in dispute was whether the changes in international trade, such as they were, were attributable to the monetary disturbances of the time. Those who held to the affirmative explained their position by arguing that the falling exchange gave a bounty to the Indian producer and imposed a penalty on the English producer. The * Cf. The Final Report of the Royal Commission on Gold and Silver Part I, pars. 99-101, for a summary of the argument. † The distribution of Indian trade during this period was as shown on the page 432 footnote. ‡ See the evidence and memoranda by Profs. Marshall and Nicholson before the Royal Commission on Gold and Silver (1886); also Prof. Lexis, “ The Agio on Gold and International Trade,” in the Economic Journal, Vol. V, 1895.

432 DR. BABASAHEB AMBEDKAR : WRITINGS AND SPEECHES TABLE XX EXPORTS OF COTTON GOODS TO EASTERN MARKETS Years Yarn, lbs. 000 omitted Piece-goods, yds., 000 omitted From India From U. K. From India From U. K. 1877 ... 7,927 33,086 15,544 394,489 1878 ... 15,600 36,467 17,545 382,330 1879 ... 21,332 38,951 22,517 523,921 1880 ... 25,862 46,426 25,800 509,099 1881 ... 26,901 47,479 30,424 587,177 1882 ... 30,786 34,370 29,911 454,948 1883 ... 45,378 33,499 41,534 415,956 1884 ... 49,877 38,856 55,565 439,937 1885 ... 65,897 33,061 47,909 562,339 1886 ... 78,242 26,924 51,578 490,451 1887 ... 91,804 35,354 53,406 618,146 1888 ... 113,451 44,643 69,486 652,404 1889 ... 128,907 35,720 70,265 557,004 1890 ... 141,950 37,869 59,496 633,606 1891 ... 169,253 27,971 67,666 595,258 † DISTRIBUTION OF INDIAN TRADE Annual Average for each Quinquennium in Millions of rupees Countries 1875-76 to 1879-80 1880-81 to 1884-85 Imports Exports Total Imports Exports Total United Kingdom ... 323.68 278.15 601.83 434.45 344.22 778.67 China ... 14.05 132.27 146.32 19.23 134.94 154.17 Japan ... .02 .33 .35 .19 2.09 2.28 Ceylon ... 5.74 22.97 28.71 5.35 16.37 21.72 Straits Settlement 10.83 26.11 36.94 15.88 33.65 49.53 Annual Average for each Quinquennium in Millions of rupees Countries 1885-86 to 1989-90 1890-91 to 1894-95 Imports Exports Total Imports Exports Total United Kingdom ... 510.47 360.59 871.06 526.24 338.40 864.64 China ... 21.64 134.54 156.18 28.69 133.30 161.90 Japan ... .25 7.27 7.52 1.51 14.44 15.95 Ceylon ... 5.86 20.56 26.42 6.42 31.18 37.60 Straits Settlement 20.09 42.54 62.63 23.32 52.56 75.88

433 THE SILVER STANDARD AND THE EVILS OF ITS INSTABILITY existence of this bounty, which was said to be responsible for the shifting of the position of established competitors in the field of international commerce, was based on a simple calculation. It was said that if the gold value of silver fell the Indian exporter got more rupees for his produce and was therefore better off, while by reason of the same fact the English producer got fewer sovereigns and was therefore worse off. Put in this naive form, the argument that the falling exchange gave a bounty to the Indian exporters and imposed a penalty on the English exporters had all the finality of a rule of arithmetic. Indeed, so axiomatic was the formula regarded by its authors that some important inferences as to its bearing on the trade and industrial situation of the time were drawn from it. One such inference was that it stimulated exports from and hindered imports into the silver-using countries. The second inference was that the fall of exchange exposed some English producers more than others to competition from their rivals in silver-using countries. Now, can such results be said to follow from the fall of exchange ? If we go behind the bald statement of a fall of exchange and inquire as to what determined the gold price of silver the above inferences appear quite untenable. That the ratio between gold and silver was simply the inverse of the ratio between gold prices and silver prices must be taken to be an unquestionable proposition. If therefore the gold price of silver was falling it was a counterpart of the more general phenomenon of the fall of the English prices which were measured in gold, and the rise of the Indian prices which were measured in silver. Given such an interpretation of the event of the falling exchange, it is difficult to understand how it can help to increase exports and diminish imports. International trade is governed by the relative advantages which one country has over another, and the terms on which it is carried on are regulated by the comparative cost of articles that enter into it. It is, therefore, obvious that there cannot be a change in the real terms of trade between countries except as a result of changes in the comparative cost of these goods. Given a fall in gold prices all round, accompanied by a rise in silver prices all round, there was hardly anything in the monetary disturbance that could be said to have enabled India to increase her exportation of anything except by diminishing her exportation or increasing her importation of something else. From the same view of the question of the falling exchange it follows that such a monetary disturbance

434 DR. BABASAHEB AMBEDKAR : WRITINGS AND SPEECHES could not depress one trade more than another. If the falling or rising exchange was simply an expression of the level of general prices, then the producers of all articles were equally affected. There was no reason why the cotton trade or the wheat trade should have been more affected by the fall of exchange than the cutlery trade. Not only was there nothing in the exchange disturbance to disestablish existing trade relations in general or in respect of particular commodities, but there was nothing in it to cause benefit to the Indian producer and injury to the English producer. Given the fact that the exchange was a ratio of the two price-levels, it is difficult to see in what sense the English producer, who got fewer sovereigns but of high purchasing power, was worse off than the Indian producer, who got more rupees but of low purchasing power. The analogy of Prof. Marshall was very apt. To suppose that a fall of exchange resulted in a loss to the former and a gain to the latter was to suppose that, if a man was in the cabin of a ship only ten feet high, his head would be broken if the ship sank down twelve feet into a trough. The fallacy consisted in isolating the man from the ship when, as a matter of fact, the same force, acting upon the ship and the passenger at one and the same time, produced like movements in both. In like manner, the same force acted upon the Indian producer and the English producer together, for the change in the exchange was itself a part of the more sweeping change in the general price-levels of the two countries. Thus stated, the position of the English and Indian producer was equally good or equally bad, and the only difference was that the former used fewer counters and the latter a larger number in their respective dealings. A bounty to the Indian producer and a penalty to the English producer, it is obvious, could have arisen only if the fall of silver in England in terms of gold was greater than the fall of silver in terms of commodities in India. In that case the Indian producer would have obtained a clear benefit by exchanging his wares for silver in England and thus securing a medium which had a greater command over goods and services in India. But a priori there could be no justification for such an assumption. There was no reason why gold price of silver should have fallen at a different rate from the gold price of commodities in general, or that there should have been a great difference between the silver prices in England and in India. Statistics show that such a priori assumptions were not groundless. (See Table XXI).

435 THE SILVER STANDARD AND THE EVILS OF ITS INSTABILITY TABLE XXI. M OVEMENTS OF PRICES, WAGES AND SILVER BETWEEN INDIA AND ENGLAND * Net Imports of Silver into India. Index No. for Gold Price of Silver. Years. Index No. for Silver Prices of Commodities in India. Index No. for Wages in India. Index No. for Gold Prices of Commodties in England. Index No. for Wages in England.Years. AmountRs. (1) (2) (3) (4) (5) (6) (7) (8) 1871-72 6,587,296 99.7 1871 100 — 100 100 1872-73 739,244 99.2 1872 105 — 109 105.8 1873-74 2,530,824 97.4 1873 107 100 111 112 1874-75 4,674,791 95.8 1874 116 101 102 113 1875-76 1,640,445 93.3 1875 103 97 96 111.6 1876-77 7,286,188 86.4 1876 107 98 95 110 1877-78 14,732,194 90.2 1877 138 97 94 109.8 1878-79 4,057,377 86.4 1878 148 99 87 107 1879-80 7,976,063 84.2 1879 135 100 83 105.8 1880-81 3,923,612 85.9 1880 117 99 88 106.5 1881-82 5,381,410 85.0 1881 106 99 85 106.5 1882-83 7,541,427 84.9 1882 105 100 84 106.5 1883-84 6,433,886 83.1 1883 106 102 82 108 1884-85 7,319,581 83.3 1884 114 101 76 109 1885-86 11,627,028 79.9 1885 113 106 72 108 1886-87 7,191,743 74.6 1886 110 105 69 107 1887-88 9,319,421 73.3 1887 111 114 68 108 1888-89 9,327,529 70.4 1888 119 112 70 109.8 1889-90 11,002,078 70.2 1889 125 112 72 113 1890-91 14,211,408 78.4 1890 125 113 72 118 1891-92 9,165,684 74.3 1891 128 118 72 118 1892-93 12,893,499 65.5 1892 141 110 68 117.4 1893-94 13.759,273 58.5 1893 138 119 68 117.4 * Col. (2) is from Appendix II, Table No. 2 of the I.C.C. of 1898. Cols. (3), (5), (6), and (7) are from Atkinson’s “Silver Pri ces in India,” in the Journal of the Statistical Society, March, 1897. Col. (8) is based on the figures given by W. T. Layton in his Introduction to the Study of Prices (1912), Table I, Col. 1, p. 150, re-scaled to 1871 as 100.