BIMETALLISM: A REMEDY.

Otago Daily Times, Issue 10267, 26 January 1895, Page 3

BIMETALLISM: A REMEDY.

The following is the first portion of Mr J. F. Grossman's lecture upon the above subject :—

THE OTHER SIDE,—"NO CASE."

I believe that it is usual to start remarks on the subj set of bimetallism with some sort of apology. I shall be ready and willing enough to apologise, when I have done, for treating my oubject inadequately. But so far as my opinions are of importance to my audience, I do not wish that they should be mistaken. I see no reason why one should talk in deprecating tones abont bimetallism. lam glad to be I able to call myself an enthusiastic bimetallist. So far from wishing to apologise for my position, I am glad to have this opportunity of asserting that I hold the bimetallic theory to be one of the few abstract theories of wide practical scope which is logically incontrovertible, and is supported by the unbroken and consistent record of universal history. And I wish to add that if nothing else inclined me to bimetallism I should be driven towards it by the appalling ignorance of the merits of the question displayed by the few eminent monometallists who have written books. 1 have been re-reading Giffen and M'Leod lately, and have been enjoying the inestimable privilege of feeling that I am a "loquacious alarmist" and a " currency faddist," and generally an " amiable lunatic" along with Professor Nicholson and Professor Foxwell and Mr Balfour and Archbishop WaUh and the German Silver Commissioners. To use one of Mr Giffen's pet phrases, lit is to hit mind "a scandal of the first | magnitude" that because he is an eminent j compiler of statistics Mr Giffen's opinions oa financial theory should be assumed to outweigh the combined arguments of all the most accomplished political economists and financial authorities of the day. To anyone doubting as !to choice of faith I would say read Giffen's " Casa against Bimetallism" and M'Leod's "Monometallist Creed" (the latter in last November's " Nineteenth Century"). If you ; can accept these dogmatic series «f errors in | statement and fallacies in logic as convincing I proof of the merits of monometallism I am quite ! willing that you should be a monometallist. You will do more for bimetallism if you are on I the other side. I suppose that I must not wave j the flag too furiously; but when I read monoi metallic "arguments" I am always reminded of the famous lawyer's advice to his junior ; whea his client's fate seemed sealed: "No case; abuse the plaintiff's attorney." Certainly that is what the monometallism mostly does; for if there is a case for monometallism at all it is not made out by Giffen and M'Leod; and if anyone is enough interested in what I say to wish to know how I reached my present condition of opinion I can raply, "I read Giffen's ' Case against Bimetallism.'" ! THE COLLAPSE OF COMMERCE. 1 I should not presume to think that my "Views... on. this nutter, we wortfo airing.

[is this disorder ? How can it be cured ? —that the bimetallist exercises himself, and it is for this reason that I feel justified, however ineffii ciently, in asking your attention for this important and interesting subject te-night. THE CAUSE : U)W PBICES. It is not difficult to go one or two steps backwards towards the cause of these commercial and economic difficulties. The old classification of the factors of wealth production into Land, Labour, and Capital will help us some way in this direction. If we ask what is wrong with land from the point of view of the land holder we will be told "wool is down" or "wheat is down " —that the prices of all agricultural and pastoral products have fallen heavily within the last few years. From capital the same complaint is heard. There is no room for extension of trade, no scope for profitable investment, because prices of manufactured products are low. And labour has to admit that uncertainty of employment, and strikes, and the bitter struggle against any threat of reduced wages, can all be traced to the same radical cause—reduction of the profits of the employer through this eternal monotonous fall in prices. Ido not see that it is possible to avoid these conclusions : that the fall in prices which everybody has learned something about within the last 20 years has thus largely contributed towards the prevailing weakness and unsteadiness of the world's finances and the misery and destitution of the world's labourers at the present time. TRADE IS NOT BARTEB. I know that some critics of the bimetallic theory are ready to raise their voices even at this stage and assert that low prices are not hurtful to the prosperity of any country. "How can low prices harm anybody ?" one is asked ; " the man who gets little for what he sells has to pay on an equally low scale for what he buys." It is therefore argued that the level of prices is of no importance to the world at large. And it is possible that this might be so if all commeroe were conducted by barter and every transaction were ended in a single step. But the basis of all modern commerce is the credit use of capital. All business enterprise is conducted upon a reasonable expectation of some definite return. If that return is not forthcoming—in other words, if the margin of profit is lessened, —the use of capital is restricted —that is to say, the labourer is no longer hired to perform the work which he wishes to do, or is hired at rednced wages, and so all classes alike share in the evil results of the fall in prices. Moreover, the level of prices is not firmly fixed. For 20 years they have been falling, and the prospects of a less and yet less satisfactory return for investment do more to restrict business than an even lower fixed specie level could accomplish. And when two distinct standards, gold and silver, are setting market values, the fall in prices becomes more important still. Modern trade is net barter. Let us ._anQte*aillaflkation^£ tta distinction from Mr

commarca which distinguishes the period of depression and low prices from that of high prices and prosperity. The earlier period (1850-1873) was the great era for the application of invention and scientific discovery te the methods of production. It was the great era of railway construction too. And the later period (1873-1895) cannot claim to have done more than apply and appropriate the advantages that science and art then conferred upon commerce. Yet in the earlier period prices persistently rose, and in the latter they have almost as regularly fallen. A similar line of argument applies to the suggestion that over-production is answerable for low prices. Your organ, the " Southern Economist," in its last issue aptly quotes Professor Nicholson to prove that the rate of increased production was more rapid in the earlier period than in the later—greater, that is, in the days of high prices. According to Sauerbeck, whom it is a pleasure to quote because both sides accept him as an authority, production increased in England (1850-1870) at the rate of 2$ per cent, per annum, yet average prices rose 15 to 20 per cent. In the period 1870-1885, when production was increasing at I the smaller rate of 1 1-6 per cent, per annum, prices actually fell, and fell no less than 30 per cent. Surely this may dispose of the increased rate of production theory. Some people who get past this stage of the argument are brought up all standing when they come to consider the extension of credit. Observing the enormous development of the credit system, with all its facilities for commeroe, within the last few years, they are inclined to suspect that this facilitation of trade must have been sufficient to account for the fall in prices. This is a vast question if one follows it into all its windings; but we are saved that trouble by Mr Giffen, the great high priest of monometallism, who assures us, on the authority of statistics, that the developments of credit were greater and more sweeping, in the years of high prices than in the subsequent period of depression and low prices. We might pursue the investigation a long way on these lines, and we would eventually come to a characteristic of the later period (1873-1893) that does sot occur in the earlier period (1850-1873) at all. We would find on examining the basis of trade in these two periods that there has been within the last 25 years a vast reduction in the amount of fullpowered money with which the commerce of the world is carried on. This feature by the method of differences should be one of the causes, or a part of the cause, of the characteristic in which the second period differs from the first—that is, it should be at loast one of the canses of low prices. Now let us go on to be a little more logical and let us employ the method of concomitant variations; let us observe that in the history of commerce, when a sudden increase of the precious metals used for ceinage takes place, prices rise (as in Australia and California in 1850-1), and that when such. an increase dots not occur for. some length .

if time, or there is a decrease in the amount of ipeeie available for trade, price* fall. Thereore we are justified in arguing that there is a ounection in the way of cause and effect let ween a large supply of specie and high trices, and between a small supply of metallic noney and low prices. And here wo are again laved farther trouble by our inveterate foe Mr liffan, who has admitted io the most sweeping «rms, which most of yon are probably tired of learing, that the fall in prices daring the last !0 years has been most largely caused by a attraction in the mass of specie available or the conduct of the world's trade. MONEY.—THE Q.UAHTITSr THEOM. At this point it is usual to discuss ihe exact meaning of money and price*. [ shall content myself, for the time nt least, vith stating Milt't quantity theory of >rice», which is generally accepted by political iconomisti and financial theorists as universally md irrefutably true; which was accepted by the Royal Commission of 1887—six bimetalKsts md six monometallists—as correct; and which was unquestionably upheld by Mr Giffen and tlis friends until—l feel compelled to say this— until they saw that it led directly to bimetallism. The argument simply is that "an increase ia the volume of money raisen prices rod ft diminution lowers them." In simpler language: If you want to bay four sheep with nil the money you have, and have £12 to spend, your sheep cost £3 a head; if you have £8 to spend, they cost £2 each; and if you have £16 bo spend, they, east £4 eaoh. It seeoia to me that this famous theory is merely a general itatement of the most comprehensive and intelligible of all mathematical axions. Now, let us apply this quantitative theory, unanimously accepted as it is by all the financial and economic experts of the day, to the question we are discussing. If prices are low, and have been persistently falling for the last 20 years, it must be, according to the theory, because there is proportionately a smaller amount of money substance than there was in 1850-1873 to be divided up for the purposes of the world's trade. We are therefore led by this theory, just as we were by logical methods, to look for a reason for low prices in the direction of a contraction of the sum total of full-powered money employed in trade. I will just notice, in pasting, the statement that there is no lack of money for trade, because the banks are choked with money on deposit and the rate of discount is low. The low rate of discount is merely a sign of the collapse of industrial and commercial enterprise, of which the accumulation of deposits in itself is evidence. Capitalists will risk nothing when they dare not promise themselves any adequate return, and under conditions of f.illiug prices which make its impossible to caloulate the effect of any step that they m*y taka. And the money thus withdrawn from tUe ordinary channels of commerce becomes for the purposes of circulation—that is, as to its effect upon prices—absolutely dead. It can have no effect on prices when it ii thai locked up ia inglorious inactivity, and at the same time it is an index of a low level of industrial prosperity. Tha argument from accumulated deposits merely illustrates one of the most disastrous effects of low and falling prices. HISTOBT.—-CONTRACTION OP MONEY. Now let us briefly examine the financial history of this century to see whether we can trace what the arch monometallist Mr Gi&en has described as a contraction of tha monetary basis of trade. I dare say that many of you are tired of hearing about the demonetisation of silver; bat the mattes ii too important to pass over casually. It is laid that in America the school children know only one date—l4B2— the date of the discovery. I believe that if people generally would only learn the two dates 1816 and 1873, and get to understand the | meaning of the changes they represent, I should not have any reason to repeat what I am trying to iay to-night. But I will tare you a* little as I oan with history now. It is usual with our opponsnts to assert or to imply that the present system of monometallism under which European trade is conducted was the original system and the suggested bimetallism is merely an untried experiment. As a matter of fact tha whole world had for unknown ages—ever since the coining of money—been bimetallic—that is, had employed both gold and silver as legal tender to any amount. English monometallism— the employment of gold alone as full-powered money—is an accidental episode in the history of commerce dating only from 1816. In that year the English authorities being unable, for reasons which I will indicate later, to keep their silver in circulation, decided to adopt gold as their sole monetary standard and to use silver only as small change. But France had in 1803 formally declared that she would coin all silver brought to her mints at a fixed ratio of 15£ dto 1 of gold. In 1865 the Latin Union was formed, including France, Belgium, Italy, Switzerland, and Greece, am within the limit of ttaase countries silver could be coined at the fixed ratio, and circulate to any amount. Now, the bimetallism, first of France and later of the Latin Union, saved England from being monometallic in anything but name. For to quote from Hunter's "Monetary Situation ":. V English merchants who had silver, not otherwise wanted could always send it to the French mint to be coined at the bimetallic ratio, and then pay it into their bank account." So that while this condition of things lasted the bimetallism of France prevented the fall in prices and the fluctuation of the exchanges that has since taken place. But after the FrancoPrussian war the new German Umpire, desiring to emulate England in the race fat commercial supremacy, decided to become monometallic also. An enormous amount of silver was thus thrown oat of aae, and was pouring into France, who had to discharge the great war indemnity in gold. France reseated the imposition of this extra burden of the cast-off silver of Germany, and closed her mints to the coinage of silver, so as to be able to refnse the inflowing metal. The influence of the bimetallic ratio, which had kept European exchanges steady for 70 years, was now gone. In the same year America, either through a deliberate official fraud or an accidental omission in drafting a bill, left out the silver dollar from the list of coins, and thus demonetisedsilver. Now,all these great changes meant not omly a vast decrease in the amount of full legal tender money in the world, but a great increase in tbe number of competitors for its use. Ronghly, about half the world's currency—some 800 million pounds —was lost for tbe purposes of international trade when silver was demonetised. And while there were only about 40 million people using gold as their sole standard 20 yeers ago, there are to-day about 300 millions struggling for it. We have here, therefore, both the conditions that, according to the quantitative theory, must lead to a fall in prices. The supply of money has been artificially lessened. The demand for that reduced supply has greatly increased. Therefore gold, the sole international money standard and medium of exchange, has increased in value about 35 per cent., which is the same as saying that the prices of all things measured in gold have, unless for exceptional interferences, fallen in a corresponding degree. Oar contention that gold prices have fallen is, therefore, not a mere deduction from aay abstract axioms. The result was prophesied years before tha event by Seyd, Wolowski, and otner distinguished economists. Jevons, usually quoted as a monometallic, insisted that prioea could not fall so far as they have fallen since his death, because no one could imagine all the nations of the world adopting the gold standard and competing for gold. But, as usual, the j impossible and inconceivable has come to pass. And the subject has now been examined in such detail that, as I have said, the absolute percentage oli the fall has been calculated. By index numbers— that is, by averages of prices ef a large series of commodities extending ever a number of years, it is proved that the other factors in commercial exchange have all fallen relatively j to gold, and silver being in exchange an ordi- ■ nary commodity since its demonetisation, has fallen to the same extent. In silver-using countries such as Icdia silver retains its old i purchasing power, so that the divergence between silver and gold in value cannot be looked upon as a fall in silver but a rise in gold. THE ONLY EEMEDY. Oar argument now runs thus: The constantly increasing depression aad industrial distress of the last 20 years have been brought about most largely by the low prices. These low prices are < due to the increased competition for gold and the decrease of tbe amount of available ipeeie— gold being thus driven up to an artificial height in value. According to the quantitative theory of prices, if we can increase the amount of money to be used in commerce, we can raise prices. We cannot hope for much from unexpected discoveries of this Metal. For the annual production of 25 millions or so bears a very small proportion to the mass of 1000 millions or more now in the hands of geldusing nations. And all authorities, monometallist or otherwise, agree that a constantly increasing proportion of this annual product is required for use in the arts and for ether •onmonetary purposes. This is a fact strongly emphasised for other reasons by Sir Gi&en. So that we cannot expect even an unparalleled increase in gold production to have much effect sn the world's prices. The only alternative means of escape seems to be the bimetallic suggestion—that the amount of legal teider mosey should be increased by the reinstatement of silver to the level at which it stoed in the Latia Union and Germany before 1873/aod in England before 1816—that is, on the same footing as gold. OUS LOSSES. —CAPITAL AKD LABOUR. It is generally conceded that silver if thus re-habilitated would raise prices according to the quantitative theory. Bat the details of the scheme and its ultimate practicability are features that demand very careful examination. So far we have been content to consider only the direct effect of low prices upon the world at large. We will now be compelled to take into consideration several other disadvantages incidental to tbe depreciation of commodities and especially of silver relatively to gold. Let us first consider in greater detail the nature of the. injuries that these colonies in particular sustain through, the appreciation of gold. I will classify them under-three heads—losses freaks) wtanitie

increase of debt, (S) •utomafio depreciation of fixed capital, (c) enforced competition with silver-asmg countries. The first form of loss, important though It Is, is very obvious. We have contracted debts which nust be repaid, principal and interest, ju gold. W« boy toe tovereigns with which bur liabilities ate discharged on the London market with our produce. Within the last 80 yean such produce has fatten somewhere from 30 to 35 per cent, in gold price. W«> .have therefore to find 30 to 35 pet oeot. morn wool and wheat to discharge oar Oabuities noir Han would have been needed to balance the same debt 20 yean ago. Ihe position ef all debtors to gold-using countries—that is, tbe position of all English colonies—is the same. Oar debt! are growing silently, unceasingly, like tha grass, even while we sleep. On this ground alone there is sorely good reason-that we should examine diligently into any scheme that promises with the •tightest show of reason any alleviation of this nojastmd oppressive harden. As to capital invested in land at otherwise "fixed," a simple revaloation of soch properties is sufficient to convince one of the force at the bimetallic argument. "The continuoos appreciation of gold means the absolutely simultaneous and automatic fall in the value of capital previously embarked in industrial enterprise" (Dorrioftan). Mr Herbert/Gibbe, in his " Bimetallic Primer," espenaUyrefera to the eoUapse of Australian banks and land companies as fllostrattag the evils of depreciation id such securities. And no one wBl oootend that tbe effects of such losses are confined to any one class alone. I have already noted tbe necessary extension of losses of capital and the financial embarrassments of the State to every individual citizen, and I would refer just now, thengh very briefly, to the important question of the effect of tbjto appreciation at gold upon wages. In tfie first place, there can be do doubt that wages bjwe not yet fallen, at least in the colonies, in the same proportion as profits. The power of trades' unions goes far to explain this fact. And though it may seem a paradox, the desperate straggle of expiring industries to cany on at all ooste under a reduced or minimum scale of profits means competition for labour and so tends to keep op the rate (A wages. And though the stability of tie wage* rate, contrasted with the fall in prices, must be a direct gain to the wage-earner, yet themaea other facts to be considered here«c weH. In Ibds highly suggestive work," The Joint Standard," Mr Helm analyses the cost of living te fingfc'sh labourers of different classes onihebasis of Sauerbeck's index numbers. He «Hjelud<wtha» ~th« proportion of saving in-expeoditare realised- by the great bulk of the people in England is bos more than one-third to one-half ef tbe proportion in which wholesale prices ham declined daring the last 18 or 20 yean." So that the wage-earner so far gets a very small direct benefit from low prices to balance the enormoa* disadvantages of uncertain and irregular; employment. And on every side there are warnings theoretical and practical from Mr Balfone and Sir Henry Thompson, as well as from Mr Carnegie and Mr Pullman, that if cs pits Matin enterprise is to be carried on at all, wage* must follow profit*, and must speedily eon* down. ■