No. 66.
Mr. Washburne to Mr. Fish.

No. 1307.]

Sir: The rapid and growing depreciation of silver, which had for some time attracted the attention of the principal economists and financial men of Europe, is now becoming a matter of serious uneasiness to the governments that have the largest proportion of silver currency in the world. I mean France, Germany, and England, the last named for her Indian Empire.

The question is of such vital importance, it threatens to assume such vast proportions, and is, in so many respects, connected with the measures at present under consideration in our country regarding the resumption of specie payments, that I have thought it would not be uninteresting to you to know how it is presented in Europe, and what solutions the most competent French economists propose for a crisis whose consequences might prove disastrous for the whole commercial world.

The European states may be divided into two classes with regard to metallic currency: those which have adopted gold alone for their monetary standard, and those which use both a gold and a silver standard. The first are England, Germany, the latter since the 1st of January only, and Holland. It may be noticed, however, that while England recognizes no other legal standard than gold, her immense Indian Empire has no other currency than silver. The second class comprises France, Italy, Belgium, Switzerland, and Greece. To these we should, temporarily at least, add Germany; for though the German Empire has begun to withdraw its various silver coins, and has decided by law that on and after the 1st of January of the present year the gold mark shall be the only legal tender, it has, nevertheless, authorized for an indeterminate lapse of time the circulation of thalers.

Russia and Austria, which are both doomed to paper currency for a long time to come, need not be taken into consideration.

The bi-metallic or double-standard system can evidently subsist but by the assumption of an unvariable ratio between the value of gold and that of silver. In France, that ratio was determined by a law of the year XI, (1803,) which is the basis of the French monetary system, and which establishes for the relative value of gold and silver the ratio of one to fifteen and a half. This means that to have in silver the equivalent of any given weight of gold, we must multiply that weight by fifteen and a half.

The French ratio was successively adopted by the six above-named states, and during a long time the value thus settled underwent very slight variations. When gold was discovered in California, it was believed in Europe that this metal would suffer a certain depreciation, and various measures were resorted to in order to avoid the impending danger. Holland even went so far as to declare that gold should no more be a legal tender, but after a short perturbation the relative value of the two metals was brought back to its former state, and the ratio of fifteen and a half to one remained unchanged.

It was not until 1867 that this ratio began to experience variations detrimental to silver and favorable to gold. Eighteen hundred and sixty-seven was the year of the Universal Exhibition at Paris. On that occasion an international monetary conference was held here, the great [Page 110] object of which was the investigation of the means of establishing monetary unity. The conference, in which nearly all the civilized countries, the United States among others, were represented, and to which men eminently skilled in financial matters had been called, gave a large majority in favor of the adoption of gold as the sole monetary standard. From that moment the value of silver began to decline. At first the depreciation was very slow and hardly perceptible, but by degrees it went on accelerating. In 1872 it was as yet but 2 per cent.; in 1873 it had become 1 per cent. more. In the course of the latter year the French government, in hopes of preventing, or at least restraining, the further depreciation of silver, determined to restrict the coining of that metal. This measure, which was contrary to the spirit if not to the letter of the law of the year XI, for till then any denizen had a right to send to the mint for coining as much metal as he chose, produced an effect quite the reverse of what was expected; the value of silver continued declining, and in 1874 its depreciation with regard to gold was 4 per cent.

At that time other events took place which seem, also, to have essentially contributed to the depreciation of silver.

Germany, whose metallic currency had, up to 1870, been almost entirely limited to silver, finding herself, after the conclusion of peace, possessed of an immense capital, resolved to unify her monetary system and adopt gold as the sole standard. She therefore ordered that none of the foreign coins, of which a great number were in free circulation throughout the empire, should thereafter be a legal tender, called in the florins and other silver coins of Southern Germany and of the Hanseatic cities, decreed that, on and after the 1st of January, 1876, the sole legal tender should be the gold mark, and coined gold-pieces of ten and twenty marks, to the amount of 1,200,000,000. In order to complete this reformation, it would have been necessary to call in all the thalers then in circulation; but as their total amount is equal to 740,000,000 of francs, and as the sudden withdrawal of so great a mass of metal presents difficulties of all kinds, Germany has decided to accomplish it gradually, and has, therefore, retained the thalers as a legal tender, assimilating them, however, to gold-pieces of three marks, and adopting for their value with regard to gold the ratio of one to fifteen and a half, accepted by the bi-metallic states, so that every thaler, now worth three marks, weighs fifteen and a half times as much as the three-mark gold-piece.

Therefore, though adopting as a principle the monometallic system, and declaring the thaler to be a provisional currency, which is retained but not allowed to be increased, Germany belongs de facto to the class of bi-metallic states, since the thaler, or silver mark, and the gold mark are, in that country, exchangeable at par. The consequences of such a state of things were not slow to appear. As the value of silver abroad was everywhere declining, while it suffered no depreciation at home, the German bankers exported German gold to meet their payments in foreign countries, and kept the German silver for their liabilities at home, so that the government was obliged to buy and import its own gold, with which it paid for the silver called in, and then to sell that same silver at a loss.

Such being the situation, all the bi-metallic states had reason to fear that Germany might send to their mints the silver she withdrew from her own circulation, and which she could dispose of only at a heavy loss in London, the great mart for the precious metals of the world.

In fact, at that time, 1874, silver, which was then and still is a legal [Page 111] tender in France, Belgium, Italy, and Switzerland, could be coined to any amount in those countries. There was no law to prevent a French, a Belgian, an Italian, or a Swiss citizen from carrying to the mint all the silver which he could obtain; the coining of it could in no case be denied him. It would, therefore, have been an easy matter for Germany to have her florins and thalers, which could not be advantageously disposed of in England or in the United States, converted into francs and lires, circulating at a par with gold. France hoped to avert this danger—if there were any danger in the case—by promoting the formation of a monetary league, the object of which was to restrict the liberty of coining. This is what is known as the Latin Monetary Union. It was constituted in 1874 by a convention signed at Paris. These countries bound themselves not to produce during the year 1874 more than 120,000,000 of francs of silver coinage. Such an agreement was in reality nothing else than a step toward the adoption of gold as the sole standard, since this measure of precaution was against silver alone, while leaving the coinage of gold completely free.

The results of this measure, however, did not correspond to what its authors expected. The value of silver still declined, and at the end of 1874 it was 5 per cent. below par. In 1875 a second conference of the Latin Union fixed the limit of the coinage of silver in the four states at 150,000,000 francs for that year. Nevertheless, the decline continued. It had reached 8 per cent. when the conference held its third meeting at the beginning of the present year. No other remedy was sought for than that which had been attempted so far, and the amount of silver coinage was still further reduced for 1876. France was allowed to make five-franc pieces only to the amount of 54,000,000 instead of 75,000,000, which had been authorized in 1875; Italy, 36,000,000 instead of 50,000,000; Belgium, 10,800,000 francs instead of 15,000,000; Switzerland, 7,200,000 francs instead of 10,000,000. Greece, which had recently joined the Union, was authorized to coin 15,600,000 francs, of which 8,400,000 francs were allowed in the place of old silver specie withdrawn.

This determination had scarcely been adopted when silver suffered a new decline, much more rapid this time than previously. In the space of two months it lost 3, even 4 per cent., so that the difference between the commercial and the legal value of the metal reached 12 and 13 per cent.

Such was the state of things when the new Chambers of France met. One of the first acts of the minister of finances was to present a bill empowering the government to restrict the coinage of silver in so far as it might be deemed necessary, or, in other words, not to avail itself to the full extent of the right granted to France by the monetary convention. It must be observed, in fact, that, while the convention established a maximum amount of coinage, it establishes no minimum, and that in 1874 and 1875 France coined the maximum allotted to her only because her laws did not allow her to do otherwise.

The object of the bill introduced by Mr. Leon Say is to alter this state of things; it was brought before the Senate on the 21st of this month, and gave rise to a long and interesting debate, in which Mr. de Parieu, a man eminent by his special knowledge of monetary matters, attacked the principle of the double standard vigorously, while Mr. Rouland, governor of the Bank of France, with marked ability, defended it. The bill will certainly pass, but the question now is whether the new law will produce the result expected from it. When France has completely stopped coining silver, will the depreciation of this metal be prevented thereby or even partially checked? It is, at least, doubtful.

[Page 112]

On this highly important question two essentially distinct doctrines are entertained by the financial men and economists of Europe.

On one side stand the monometallists or champions of gold as the sole monetary standard; on the other, the bi-metallists or supporters of the old system of the double standard. Among the former are Messrs. Louis Bamberger, of Berlin; Max Wirth, of Vienna; Frère Orban, of Brussells; Feer Herzog, of Bern; and in France, Michel Chevalier, de Parieu, Victor Bonnet, Fredk. Passy, and Leroy Beaulieu. Their principal organs are, in London, the Economist; in Paris, the Journal des Debats and the Economiste.

On the other side are Messrs. Malon, minister of finances in Belgium; Laveley and Allard, of Brussells; Count Sclopis, of Turin; Leon Say, Magne, Wolowsky, André, Courcelle-Seneuil, and Henri Cernuschi, of France. The principal organs of this group are the Siècle and the Republique Française.

The theory of the monometallists may be summed up as follows: The first cause of the perturbation now prevailing in the monetary market is the superabundant production of silver. The mines of the new world, by pouring in upon us tons of this metal at the very time when the coinage of silver is restricted in almost every country, have produced such a difference between its value and that of gold that the balance is irretrievably destroyed. Every attempt, moreover, to maintain a constant ratio between the values of the two metals, both of which are subject to so many causes of variation, must always prove utterly useless. There exists but one remedy of real efficacy for the state of things created by the bi-metallic system. We must completely abandon that system and adopt gold as our sole monetary standard. On that condition only we shall be able to extricate ourselves from the dangers and difficulties of two metallic standards, legally exchangeable at par, though one of them is much more abundant than the other, and at the same time very bulky.

To these arguments, which the very able economist of the Journal des Debats, Mr. Leroy Beaulieu, advances with great force, and which Mr. de Pasieu presented in the Senate with all the authority of his long experience in financial matters, the bi-metallists oppose the following answer:

It is not the superabundant production of silver that has caused the perturbation; it is the limitation of the coinage of silver, a measure almost equivalent to total suppression, and the withdrawal of a great part of the silver coin already existing. Silver having lost the principal use to which it had always been applied, remains partly unemployed, and its depreciation increases as the demand for it goes on decreasing. The total adoption of the monometallic system, far from improving the present state of things, would do nothing but aggravate it, and infallibly result in a fearful financial catastrophe. To extricate ourselves from these difficulties, we should, on the contrary, hasten to retrace our steps and restore silver to its natural destination, by repealing all measures restricting its coinage. So soon as the great powers, resuming the bi-metallic system fully, shall decree that the coinage of gold and silver is unlimited, and that the two metals shall always be exchangeable at a rate established once for all—that of fifteen and a half to one, for instance, which is already generally accepted—there will be no more fluctuations in the relative value of gold and silver. As the two metals will constitute but one monetary mass, the greater or less quantity produced by the mines of either of them can then effect only the total mass. The purchasing power of this mass may increase or diminish, according to its greater or less abundance; but gold and silver, [Page 113] whatever may be the quantity of either, will retain their relative value, since the one will always be the representative of the other.

This theory is certainly very attractive, and it has found in Mr. Henri Cernuschi a most ardent, indefatigable, and ever ready advocate. In the daily notes, which he published in the Siècle, as well as in a multitude of pamphlets that are immediately translated into English and German, this bold and original economist defends the old principle of the double metallic standard by arguments which I cannot undertake to reproduce in this summary, but which certainly deserve the serious attention of all who take an interest in the question.

Among the considerations invoked by the bi-metallists two are certainly of special importance: The first is that every measure restricting the coinage of silver has immediately been followed by a decline of the metal. The fact is undeniable; but it may be a mere coincidence and not a consequence. It is possible that silver would have declined, even if its coinage had not been restricted. The bi-metallists here merely invert the argument of the monometallists, who say that the coinage was restricted for the very reason of the decline of silver. The second consideration bears on the enormous perturbations that would infallibly follow the general application of the monometallic system. In order to accomplish it, it would, in fact, be necessary to withdraw from circulation an enormous quantity of metal. What, for example, would be the amount of it for France, Germany, and British India alone?

In France, from 1795 to 1871 inclusive, silver has been coined to the value of 5,122,000,000 francs. Of these 236,000,000 have been withdrawn by government, and it is estimated that of the balance, only 1,200,000,000 to 1,500,000,000 in five-franc pieces still exist in France; of which 495,000,000 are at present in the vaults of the bank. Suppose 400,000,000 to be kept for small payments and as change, from 800,000,000 to 1,100,000,000 will be left for withdrawal.

In Germany, according to official statements published in Berlin, the total amount of the silver coined by the different German States before 1871, was £68,000,000 sterling. The silver still circulating amounts to 21,000,000; thus leaving a balance of £47,000,000. Suppose about 17,000,000 to have disappeared by exportation or melting, there would remain £30,000,000 sterling, or 750,000,000 francs, to be withdrawn.

For India we have no exact statistics. It is generally supposed that the circulation of that country amounts to £150,000,000, which is not at all extraordinary, when we consider that the population of India is seven times that of Great Britain, and that gold coin is unknown in the country. In India alone the sum to be withdrawn would, therefore, be as much as 1,500,000,000 or 2,000,000,000 of francs, so that the total amount to be called in would be at least 3,500,000,000 of francs; that is, $700,000,000 rendered useless as a currency, and of which the governments would have to dispose at an enormous discount. The bare mention of these figures is sufficient to give an idea of the crisis that would take place in the whole world as a consequence of so gigantic an operation as that recommended by the monometallists.

I shall not undertake to discuss, and still less to propose a solution for the great monetary problem now impending over the world. I hope, however, that this summary of the question, perhaps too long extended, may be of some utility in helping you to a clearer understanding of the manner in which it is viewed in France.

I have, &c.,