Vol. 6 · pages 516–520

501 FROM A GOLD STANDARD TO A GOLD EXCHANGE STANDARD If there is any force in the line of reasoning adopted above, then it is not easy to agree with the opinion entertained by the Chamberlain Commission of the Exchange Standard. Indeed, it raises a query whether for all that the Commission said there is not somewhere some weakness in the system likely to bring about its breakdown. It therefore becomes incumbent to examine the foundations of that standard from a fresh point of view. zz

CHAPTER VI STABILITY OF THE EXCHANGE STANDARD It will be recalled that at the time the Indian Mints were closed to the free coinage of silver there were two parties in the country, one in favour of and the other opposed to the closure. Being placed in an embarrassing position by the fall of the rupee, the Government of the day was anxious to close the Mints and raise its value with a view to obtaining relief from the burden of its gold payments. On the other hand it was urged, on behalf of the producing interest of the country, that a rise in the exchange value of the rupee would cause a disaster to Indian trade and industry. One of the reasons, it was argued, why Indian industry had advanced by such leaps and bounds as it did during the period of 1873-1893 was to be found in the bounty given to the Indian export trade by the falling exchange. If the fall of the rupee was arrested by the Mint closure, it was feared that such an event was bound to cut Indian trade both ways. It would give the silver-using countries a bounty as over against India, and would deprive India of the bounty which it obtained from the falling exchange as over against gold-using countries. Theory had already scoffed at these fears. It is therefore interesting to see that later history has also confirmed the verdict of theory. Indian trade with a gold-standard country like England or a silver-standard country like China did not suffer a setback, notwithstanding an arrest in the fall of the rupee. The following figures furnish sufficient evidence to support the contrary:—

503 STABILITY OF THE EXCHANGE STANDARD TABLE XXV TRADE OF INDIA WITH UNITED KINGDOM (BEFORE AND AFTER THE MINT CLOSURE) Annual Average. Exports to U.K Imports from U.K. Merchandise. Bullion and Specie. Total. Merchandise. Bullion and Specie. Total. £ £ £ £ £ £ I 1889-93 . . . . 31,569,891 1,180,646 32,750,537 31,837,482 7,694,149 39,531,631 II 1894-98 . . . . 26,329,764 2,215,049 24,544,813 28,963,180 6,750,736 35,713,916 III 1899-1903 . . . . 28,709,819 2,089,656 30,799,475 33,498,480 7,301,172 40,799,652 IV 1903-8 . . . . . 36,784,628 2,232,857 39,017,485 47,294,311 9,586,706 56,881,017 Percentage of Increase (+) or Decrease (—) in— Period II in comparison 1 with Period I —16.598 +87.613 —25,055 —9.028 —12.261 —9.657 Period III in comparison with Period II + 9.039 —5.661 +25.483 + 15.659 + 8.154 + 14.240 Period IV in comparison with Period III +28.126 + 6.853 +26.682 +41.183 +31.304 + 39.415 Period IV in comparison with Period I + 16.518 +89.122 + 19.135 +48.549 +24.597 + 43.887

504 DR. BABASAHEB AMBEDKAR : WRITINGS AND SPEECHES TABLE XXVI TRADE OF INDIA WITH CHINA Annual Average. Exports to China. Imports from China. Merchandise. Treasure. Total. Merchandise. Treasure. Total. £ £ £ £ £ £ I 1889-93 . . . . 9,454,014 20,223 9,474,238 1,666,840 1,992,914 3,659,754 II 1893-98 . . . . 8, 509,284 112,105 8,621,389 1,713,529 503,357 2,216,886 III 1898-1903 . . . . 9, 679,830 183,647 9,863,477 1,309,975 798’,053 2,108,028 IV 1903-8— . . . . . 12,461,535 160,879 12,622,414 1,248,822 919,402 2,168,224 Percentage of Increase (+) or Decrease (—) in— Period II in comparison with Period I —9.993 + 454.333 —9.002 + 2.801 —74.743 —39.425 Period III in comparison with Period II + 13.756 + 63.817 + 14.407 —23.551 +58.546 —4.910 Period IV in comparison with Period III +28.737 —12.398 +27.971 —4.668 + 15.206 + 2.856 Period IV in comparison with Period I +31.812 +695.508 +33.229 —25.078 —53.866 —40.755

505 STABILITY OF THE EXCHANGE STANDARD That the arrest in the fall of the rupee should have lifted the burden from Indian finances was just as was expected to follow from the closure of the Mints. Notwithstanding important reductions in taxation and large expenditure of social utility, the annual budgets since the mint closure have shown few deficits (see p. 506). Now there is a tendency among some writers to interpret these facts as unmistakable proofs of the soundness of the currency system. It is argued that if the trade of the country has not received a setback,* and if the finances of the country have improved,† then the implication is that the currency of which such results can be predicated must be good. It is not necessary to warn students of currency that such easy views on the soundness of the currency system, however plausible, are devoid of the logic necessary to carry conviction. Trade no doubt is dependent on good money, but the growth of trade is not a conclusive proof that the money is good. It should be noted that during the periods of debased coinages so common at one time the social misery and nuisance arising therefrom were intolerable, yet during the same periods it was possible for countries to make great advance in trade. Speaking of seventeenth-century England, when that country was afflicted with debased and constantly changing coinage and when there was, besides, a long period of civil war and confusion, Lord Liverpool, who was above all statemen of his day most alive to the evils of a bad currency, remarks :— “It is certain, however, that during the whole of this period, when our coins were in so great a state of confusion, the commerce of the kingdom was progressively improving, and the balance of trade almost always in favour of this country.”‡ That commerce can increase even when currency is bad is easily supported from the experience of India herself. In no period did Indian trade make such strides as it did between 1873 and 1893. Was the Indian currency of that period good ? On the other hand, it is possible to hold that if trade is good it may be because the currency is bad. The trade of India between 1873 and 1893 flourished because it received a bounty. But the bounty was a mulcting of the Indian labourer, whose wages did not rise as fast as prices, so that the Indian prosperity of that * Keynes, op. cit., p. 3. † Barbour, D., The Standard of Value, p. 224. ‡ A Treatise on the Coins of the Realm (reprint of 1880), p. 135.