Readings in Money and Banking / Selected and Adapted

by Chester Arthur Phillips

On such a point it is evidence of no small value that the French people themselves and the French statesmen, though singularly acute and sagacious in matters of finance, have apparently not doubted that the bimetallic system was for the interest of their country. Certain of the French political economists—MM. Chevalier, Levasseur, Bonnet, Mannequin, Leroy Beaulieu—from their theory of the subject have held that France lost by her policy in this respect; but the financiers of that remarkable nation held firmly to the "double standard" from 1785 to 1874. And though France at the latter date restricted her silver coinage, and two years later stopped it altogether, it was not done as the result of any change of views. Partly it was from deference to her monetary allies, Belgium and Switzerland, but chiefly because the demonetization of silver by Germany and the sale of the discarded metal of that empire brought a sudden strain upon the bimetallic system which threatened to break it violently down. Hence France closed her mints to silver, but not with any confession that her policy had been erroneous under the conditions previously existing; not from any desire to abandon that policy should the future offer conditions which would admit the resumption of bimetallism. It was the declaration of M. Léon Say, the French Minister of Finance, the President of the International Monetary Conference of 1878, that France, in suspending the coinage of silver, had taken no step towards the single gold standard, but had placed herself in a position to await events, a position which she would not leave till good reasons for action should appear, and then most probably to re-enter on the system of the double standard....

The objection that the stock of the dearer metal in the bimetallic States must, if the drain be indefinitely continued, become after a while exhausted, and that the system will then lose all its efficiency in holding the two metals together, is unquestionably valid; but an altogether unreasonable weight has been assigned to it in the discussion of bimetallism as a scheme of practical statesmanship.

If we look at almost any treatise written from the monometallic point of view, we shall find that it is taken as conclusive against that scheme, that conditions of supply and demand can be assumed for the two metals separately which would result in the complete exhaustion of the dearer metal, and the consequent loss of all virtue in the bimetallic scheme. The bimetallist is confronted with a series of adverse conditions, taken each at its maximum and piled one above the other without the least regard to the modesty of nature, or the experience of the past; and is then challenged to say whether the system he proposes could be maintained under such circumstances. If he is candid enough to admit that bimetallism would fail there, it is taken for granted that the whole question is disposed of.

Now, human institutions are not to be judged of, and approved or disapproved, by such methods. The folly of reasoning like this would be seen at once were it applied to ordinary political matters. No government on earth could stand against one-fourth or one-tenth of the elements of hostility which might conceivably be arrayed against it. Mankind do not, therefore, refuse to form governments.

Bimetallism is a political institution for practical ends, and is entitled to be judged with reference to reasonable probabilities. It may claim the benefit of the chance that adverse conditions will be offset by conditions favourable, and that the adverse conditions will not prove so severe at the start as they may be conceived, and that their force will be more quickly spent than might be feared.

It would be perfectly legitimate ground on which to establish European bimetallism, that the French system, with so little of support from other States, passed within a quarter of a century through the three successive shocks of the gold discoveries of Siberia, the gold discoveries of California, and the gold discoveries of Australia, and yet was not brought to the ground.

With Germany, France, and England joined in a monetary union, no changes reasonably to be anticipated in the conditions of supply of the one metal or the other would succeed in moving the market ratio far apart from the mint ratio thus supported by maintaining over so wide a surface a legal equivalence between the two metals in payment of debts.

And, moreover, while bimetallism is entitled to be judged like any other political institution, with reference to the reasonable probabilities of the future, the allowance which requires to be made for error and extraneous force is less than in most political institutions, inasmuch as the failure of bimetallism involves no disaster to industry or society.

When an engineer designs a bridge which is intended to sustain a weight of eighty tons, he introduces a "factor of safety," say three or five, and makes the bridge strong enough to bear two hundred and forty or four hundred tons. The greater the calamity which would result from the breaking down of the bridge—the deeper the chasm which it spans, the swifter the torrent below—the larger the factor of safety. With many political institutions, likewise, the consequences of failure would be so disastrous that the statesman seeks to introduce a high factor of safety; but in the case of bimetallism no catastrophe whatever is to be anticipated, even in the event of failure. At the worst, after the drain of the dearer metal, in consequence of changes in the conditions of supply, is completed, the bimetallic country is simply in the same position with the countries of the single standard using the cheapened metal. While the process of substitution is going on, it sells the dearer metal at a premium; when the process is over, it is no worse off than it would have been had it originally selected as its sole money of full legal-tender power the metal which it has bought at a discount, and which other countries, perhaps its immediate neighbours, are still using. It is not the case of a country seeking to reject the cheapening metal, and to supply its place with the metal which is continually becoming scarcer and dearer.... There is all the difference, in the two cases, between going down hill and going up hill.

Not only is no catastrophe involved in the failure of bimetallism through the exhaustion of the dearer metal, but it is always in the power of the Government to arrest the drain at any point without shock.