ANDERSONS'S BAY LITERARY AND DEBATING SOCIETY.

Otago Witness, Issue 2051, 15 June 1893, Page 14

ANDERSONS'S BAY LITERARY AND DEBATING SOCIETY.

PAPEE ON THE CURKENCY QUESTION.

The following paper on the currency question was read by Mr Lee Smith at a meeting of the above society recently :—

Mr Chairman, Ladies, and Gentlemen,— ln pursuance of a promise made some time ago that I would contribute a subject to your society's programme for this season's discussions, I have come here to-night to address you on that very vexed question termed Bimetallism. As was the case when you were good enough to listen to me now two years ago, I am afraid the matter will not be found very interesting. It is a dry and abstruse subject, but as the currency question is now attracting a good deal of attention, and is in the forefront of the economic problems of the time, it may perhaps be of interest to some of your members. I shall endeavour to express what I have to say in as simple language as I can, avoiding technical terms as much as possible for the benefit of those who may not be very familiar with the subject. You will, no doubt, have noticed the word " bimetallism " in some of the papers pretty often during the last few months. Welt, that word signifies the use of two metals as current legal tender money, in contradistinction to "monoaietallism," which implies the use of one metal only for that purpose. There has been, and is now, a great controversy going on with regard to the respective advantages or disadvantages of the two systems. The advocates of bimetallism assert that the fact that silver was demonetised in 1873 by several leading European States has led to grave difficulties, inthatit has caused aheavy fall in prices, created uncertainty or instability of exchange, and generally checked the progress of industrial development through the restriction of the currency. They aver that the world's business has outgrown the supply of available gold, which, since 1873, has become the sole standard of value of the leading commercial nations of Europe. The position thus taken up is supported by many eminent financial and mercantile authorities, and also by a large majority of the landlords and farmers of Great Britain. Their greatest grievance is the fall in the price of all agricultural produce, attributable, as they maintain, to tbe single standard—goldhaving appreciated or increased in valae in comparison with silver to sach an extent as to practically create a subsidy in favour of silver -using grain countries as against Britain. In fact, the fall in prices, and the consequent increased quantities which debtors must realise to repay loans obtained when prices were high, may be regarded as the mam grounds of their charge. They say that silver might easily be remonetised and put on an equality with gold, in fixed proportions, as legal tender, provided all the leading commercial States would join in a treaty for carrying this out ; that thereafter no further difficulty would arise — prices would assume a greater stability, exchange between trading nations become more stable, and a confidence stimulated that would tend to greater industrial prosperity. In order to give a colour of truth to these vague assertions they point to the history of the British currency, and complacently affirm that England's commercial expansion and prosperity first arose under a long-continued double standard system. Later on I shall try to show that this is not correct in two particulars: first, that English industry and commerce became really great after the adoption of the single gold standard ; and, secondly, that before then, although there was nominally a double standard, gold alone was the real exponent of value. You will gather from these remarks that I belong to the monometallist school, and I shall endeavour to show that all these assertions are without good historic and economic foundation. I will try to convince you that a universal State bimetallism is impracticable, inasmuch as confidence in its being permanent would never be sufficiently strong to prevent a preference being given to the metal that might become relatively scarcer, thereby causing a differentiated value in exchange. Th3t, furthermore, the result of a bimetallic league would, in the first instance, be a rapid advance in the price of commodities generally, but more particularly in fixed properties, which would press hardly on the poorer sections of the community, by reason of there not being any corresponding benefit to them. Bat before dealing with these particular aspects of the question, let me commence with the ABO of the matter, and shortly state what the term "money" really means— its nature, origin, and functions as an article of everyday use between individuals, communities, and nations. Of course, in an ordinary way, we all know the advantage of having cash at command, and the disadvantage of not having it, but I suppose few people consider how it came to pass that mere pieces of metal were accepted as representative of exchange value. In the first instance, the scarcity of the precious metals made them, together with their attractive appearance, articles of esteem, and the first use of gold and silver was in the form of personal ornaments ; in fact, long before the date of their being minted, such ornaments were passed from hand to hand in exchange for ali kinds of commodities. As civilisation progressed from the hunting state — when skins were the common measure of value — to the pastoral state — when cattle were so used — and thence to the agricultural state— when corn was mostly employed for exchange purposesthere naturally arose inconvenience in these methods; the occupations of men became more diverse, and consequently the interchange between them, more numerous and complicated, hence the necessity of possessing some representative of exchange that was in general esteem and at the same time capable of being easily subdivided so as to meet the requirements of the minutest transactions. Thus did gold and the other scarce metals come into use, and for many centuries past they have performed the three functions of a medium of exchange, a measure of value, and a store of value. NATURAL INCLINATIONS DETERMINE THE

CHOICE OF CURRENCY.

It will be needless for me to go back to (he early history of metallic money. Its use

dates back to a period many centuries before tbe Christian era. It will be sufficient for my purpose to commence at a pomt — comparatively recent — when- the recognised legal tender in Eogland was silver only. Tnis will enable me to record with historical accuracy the various changes that have since taken place, and illustrate the causes which led to them, with a view of showing that the process of natural selection dominates the whole question of relative value between gold and silver, the same as it does between any other commodities. I am quite aware that this contention wiil be very strongly contested. People have so long been accustomed to regard coined metal as a measure of valae of other commodities only that they lose sight of its other qualities. So long, however, as the precious metals vary in their supply and respective costs of production, go long will they be variously esteemed by mankind, and, consequently, be commodities a3 between themselves. I emphasise this point because I rely upon this natural law to disprove bhe contention of the bimetallists that all that is necessary for establishing a permanent ratio of value between gold and silver is a universal Government decree. Now let U3 trace the history of the currency from, say, the time of William the First, and see how, Government proclamations notwithstanding, this law of natural selection has determined the question of currency in its own way. When I have done this I will give you my speculations as to what would occur were a universal State-decreed bimetallism brought into force. From the Conquest until the year 1257 silver was the only metal coined, and it was also the only legal measure of property. But during this period, notwithstanding that it was illegal, the people introduced foreign gold coins and used them, as also gold by weight, for their internal trauaactions. In fact its convenience was so great that practically tha greater portion of the country's dealings were settled for in gold, although the prices were expressed in terms of silver. So determined was the choice of the people in favour of gold, that in the year before mentioned (1257) it was found necessary to fix by royal proclamation the rate at which gold should be assessed, and thereupon gold coins were minted, bearing certain ratios of value to silver coins. It was thought that by the influence of this authority there would be a constancy of appreciation between the two. Now, bear in mind, this is what the bimetallists assert would take place were there a universal agreement fixing the proportionate value at the present time. Practically, English commerce was then self -confined —at least sufficiently so to make it analogous to what would b3 the position were all nations trading together under a bimetallic currency. Bat mark what took place, and theu judge for yourselves whether, when one people with a common national and commercial interest preferred their own opinion of value to that prescribed by the State, it is likely that several different races would do otherwise. No sooner was the first proclamation of the ratio between the metals issued than there commenced a constant fluctuation in their exchange estimation. Although the gold then circulating in England was chiefly of foreign coinage, it nevertheless became appreciated, and it was customary to express transactions in either legal tender at varying rates. The inconvenience which necessarily arose from this position of the currency was especially felt by those who were not intimately in touch with the market movements of the metals. Not being familiar with the current value of the one compared with the other, there was the risk ,of constant loss in the settlement of their transactions, the exchange and bullion dealers obtaining the advantage due to an exact knowledge of the position. In order to remedy this it was thought to be only necessary to • readjust the proportions by a fresh proclamation, on the supposition that an incorrect estimate had first been fixed. It was concluded that by taking a mean average of the proportionate value of the two metals since the first proclamation a permanent ratio could be arbitrarily fixed by a second attempt. The unsoundness of this view at a time when economic science was unborn can be little wondered at ; but it is regarded as surprising by the best authorities on currency that there should still be people who believed such a thing possible. The second proclamation had no better result than the first, for the variations in respective values still went on, simply because the ratio of values in-the metals failed to correspond with that of the relative weights of the coins. Untaught by thia experience, recourse to State proclamations wa3 still persisted in, and from the date I have mentioned there wascoustant official regulation of thecurrency in the manner indicated. But it proved to be of no avail whatever, and in 1664 all further attempts were abandoned until the year 1717. Daring all this interval, whilst a double legal tender was in force, the exchange proportion of gold and silver was never long in official equilibrium. The value of the gold was allowed to find its own level, and the "laurel" of James the First's time, afterwards reissued as the "guinea" by Charles 11, fluctuated between 20a— its original mint value— and 303. Of course during this time silver remained the single standard, but as a matter of fact gold had largely usurped its place, as it had become the medium of payments. In 1717 the position had become extremely unsatisfactory, and it was then that Sir Isaac Newton, the master of the mint, recommended that the practice of regulating the gold and silver ratio should be reverted to. Consequently - the guinea was fixed at 21s silver, which practically sealed the fate of the silver standard. A double currency was now again in force, but the habit of using gold, added to the fact that it was overrated by Sir Isaac Newton in terms of silver at once brought it into almost universal use ad the measure of value. As time went on Its use became sufficiently established to open the eyes of the Government to the fact that regard must be paid to the customs, habits, and predilections of the people. la 1773, therefore, it was enacted that silver should not be legal tender for more than L 25, except by weight, at the rate of 5s 2d par oz. This was tbe first official step towards giving effect to the determination of public opinion with regard to the ourrency. Some reoent local writers have put forward the claim that it is only

since 1816 that gold has been the ruling metal. I have just shown you that that is not so, even in a legal sense; but on the contrary, it may safely be asserted that in practice silver has been subordinate for some centuries, and that certainly it became partially demonetised in 1773. Continuing the history of the question from this date, the next and final alteration in the terms of the currency took place in 1816. Sicce the limitation of legal tender in silver to L 25, the U3e of gold had become extended over a wider area of transactions, and had firmly embedded itself in public favour as the most appropriate metal on which to base the standard. Proceeding, therefore, on the policy adopted in 1773, the Government set about further demonetising &ilver, and it was decided to limit its legal tender to the sum of forty shillings. At the same time, or a little afterwards, the present sovereign was issued and made the standard of value. The silver shillirg was reduced in weight, and became subsidiary to gold as a mere token. Now, throughout all the period covered by my remarks, you will perceive that there has been a constant battle, as it were, between the two metals, represented by public esteem on the one side and official interference on the other. Three-quarters of a century have elapsed since this settlement of the question was made, and during that time every practical test of its effect goes to show that it was a wise and beneficial measure. We have seen British commerce extend in every direction to dimensions previously undreamed of. The reliance that drafts on Great Britain would under any circumstances be payable at a uniform rate in gold has bestowed upon her commercial interests an immense advantage. It has rendered her the financial pivot around which almost all the world's exchanges revolve. We have seen times of reckless speculation and unreasoning panic, high prices and low prices, times of plenty and scarcity, bat under all thsse conditions confidenc3 was never lost in the stability of the English currency. What then are the grounds for demanding *a- change in a system that has shown such uniformally good results ? The reply of the bimetallists is that gold has become too scarce for the work it has to perform ; that by reason of other nations having adopted gold as their standard and put aside silver there has been brought about a general fall in prices, whereby commercial interests have been prejudiced ; and that more especially have loan contracts, made years ago, become oppre&siveas against the borrower, because of the increased quantity of products that be must realise to make payment. The first of these assertions shows a viciously unsound theory on the matter. The prosperity and welfare of the community as a whole does not depend on the quantity of metal money there may be in the world. Every act of buying and selling merely consists of an exchange in the form of a ratio between two numbers, and the word " value " simp'y expresses this ratio. It can be of no immediate concern whether the medium whereby this exchange is measured is larger or smaller, so long as it possesses the same measuring power in the hands of both buyer and seller. Artificial interferences disturb these proportions. Where the case is one of the settlement of a debt incurred when gold was more abundant and a greater quantity of it required to effect a particular exchange in consequence of higher nominal prices, there appears on the face of it something in the shape of a hardship. Bat on examination this does not prove to be any justification for artificially disorganising all the natural conditions which time and industrial changes have produced. When from 1850 onwards there was a marked and longcontinued depreciation of gold— the reverse of what has since taken place— there was a great advance in prices, whereby those who had lent money for long periods suffered severely, their real incomes being reduced by those high prices. That no one ever suggested that any steps should be taken to recoup them their losses, as is now proposed by the bimetallists to recoup borrowers through the medium of a diluted currency. To do such a thing would be to remedy the misfortunes due to unforeseen changes by the artificial creation of misfortune to others. Now, the very name "Standard" implies unity and simplicity, and has beco.me associated with the idea of permanency. Suppose, then, that this quality was violently interfered with in the manner proposed, it then seems to me that in such a case the very object of a standard would be defeated, inasmuch as thereafter there would be no feeling of security as against some reverse process being adopted were circumstances such as to seem to justify it. A fair retort to the bimetallists would be this: "You have got what you wanted — prices have gone up 50 per cent, through your having saturated the currency with silver. But lam a comparatively poor man, having only got a thousand pounds which I have saved by years of hard work, and this I recently lent at 5 per cent., the interest just being sufficient to keep me. Now that my necessaries are raised 50 per cent, in price, I shall have to do with one-third less, as my interest is only equal to two-thirds of its former purchasing power. Do you not think it ia just as fair for you to do something to put me in the same position as I was, as it was for you to raise prices against me for the benefit of the man who borrowed my money 1 " Or, again, it might be put in this way : " Bimetallism will either rai3e prices, as you assert, or it will not. lam a wage earner, receiving a hundred a year, which i just keeps me and my family in decent comfort, but if prices go up 50 per cent, as you wish, then I must have Ll5O a year to be in the same position as I was. Can you give me any assurance that such will be the case 1 Bat even if I do, I shall be no better off, whereas those who possess the natural means of production will be, a.3 I will show you. My neighbour, Mr Jones, owns an estate which brings him in an income of LIOOO a year obtained ia this way —it produces a gross return of L2OOO a year, the expenses of labour, &c, being LIOOO. If prices go up 50 per cent, the gross returns will equal L3OOO, and his expanse?, going up equally, will then be LISOO a year, so that he will have a clear LISOO instead of LIOOO, the difference being simply an endowment in favour o£ his fixed capital." Now you will easily perceive that an addi-

tion of 50 per cent, to the income of a man already having LIOOO a year is a very different case to that of a man with £100 a year getting the same increase. In the former instance the original income is, at the most liberal estimate, much beyond the amount required for the necessaries of life, whereas in the latter it is not so. Allowing that tbe one spends, say, LSOO on his necessaries, then 50 per cent, increase would make it L 750, leaving him L 750 margin for savings instead of LSOO as formerly. The other gets no such advantage, for at the be3t his whole income is only Ll5O. Therefore, in my view, just so long as prices are artificially raised by bimetallism, so long is it an endowment in favour of tlie oivners of tlie natural means of production. Of course I am aware that several objections will be urged against this. It; will be said that matters will right themselves by reason of the fact that the surplus income I have pointed to will go into distiibution and use, finding its way downwards in the social scale, and thus in time spread itself as evenly as before. Bat can it be claimed that no particular class has gained an advantage in the meantime? I will admit that, as a first resulo of the introduction of bimetallism, prices would advance, that consequent thereon a great stimulus to production would arise, that speculative enterprise would become active, and general employment be increased. For a time there would be the semblance of great prosperity similar to that we experienced a few year 3 age consequent on the large loan expenditure ; but it would be an illusion that sooner or later would vanish amidst heavy clouds of depression, leaving behind but the shadow of what had been vainly hoped for. Now, I will try to show how this would ba brought about. It is an assertion of the bimetallists that the gold supply, in consequence of various causes, has become too scarce, and that therefore prices have had to fall in order to meet the scarcity. In other words, that the measuring power of gold in its relation to property and commodities generally is not sufficiently large to support past values, and that the sovereign has now to represent half as much more property as it formerly did; hence the fall in prices. Now, in order to make this a good argument in support of their contention that, were the currency enlarged by the inclusion of silver, prices would be increased and maintained at former levels, they must show that the supply of gold and silver will be always forthcoming in a sufficient volume to keep in a continuous proportion with the creation of new wealth at these higher values. In view of the difficulty and uncertainty connected with the supply of the precious metals, is there any reasonable probability that such will be tjae case 1 On the other hand, we know that the creation of all that we regard as material wealth is proceeding at an ever-increasing ratio. So that the result must be that, as soon as the price value of all property stands in the same proportion to the currency of gold and silver together as it now does to gold alone, prices on the average must become stationary, and thereafter commence to drop, unless the gold and silver supply, as I have said, are forthcoming in the same proportion as the increase of wealth. It cannot be otherwise on the principles of the bimetallists' arguments, for do they not assert that this is just what has taken place with regard to gold alone in its power to measure value ? Bat to make their case complete they ought to prove that a great fall in prices took place immediately after the withdrawal by France and Germany of silver from their currency, which caused, as they say, the scarcity of gold and a consequent drop in prices. This, however, they cannot do, for prices only gave way but slightly for a long time afterward?, and have really fallen the most in recent years with an increased gold supply. However, now to my point, which is to show that the advance in prices, whatever it might be, would prove disastrous to the general community. Ido not know whether any of you have ever studied the phenomena of market movements. Bat if you look into the subject you will find that prices always go up much quicker than they go down. The fact is peculiar, but, excepting any special and particular causes, it is almost always the case. It is, however, easily explainable.. Sach a feature is simply the expression of the large balance there is on the hopeful side of men's nature— optimism against pessimism. Well, there is a very general belief 'that prices would rush up immediately after the introduction of a double standard. I will not argue the question whether such would be justified by the warrant of sound reasoning; but I am persuaded, and indeed convinced, that it would be the case simply because, if for no other reason, expectation of such a result has laid tbe fuse for an upward speculation of the most determined and hopeful character. Now, it is these sudden inflations that do incalculable injury to the commercial and industrial world. In the first place they disturb the regular course of men's avocations. The spirit of speculation, the and hope of making "money easily, spreads outside the usual circles given to that system of business conduct. Careful calculation, plodding industry, and well devised plans of procedure are set aside in favour of the apparently easy and quick method of •' making money by your wits," which, I need not remind you, often results in people finding out that they are not so clever as they thought they were. In the midst of this excitement there must necessarily be a large amount of misdirected effort go to waste. Things are often done in such a time which, under a normal condition of the industrial system, would have been considered utter madness. This position has been witnessed whenever any great and unusual innovation has been made in the ordinary commercial and industrial routine. All this would be bad enough, but the great, indeed the paramount, objection to theschemeis the bleeding o f the general community which would accompany the rise of prices. It would be squeezed during the advance and very probably never have time to obtain an equivalent. Whilst all necessaries were going up, enormous sums would be transferred to the holders of all fixed wealth and commodities generally before salary and wage earners had their remuneration adjusted to the new conditions. The unemployed in every sphere, from the ofSoe clerk to the crossing sweeper, would have to be brought into aotive oooupatioa

before any effective lever could be used for] obtaining any material advance in their pay so as to be equivalent to the increased cost of living. No doubt, as I have before said, there would be more general employment, but wages and other expenses not having immediately corresponded in advancing with prices, the margin of profits would stimulate an immense production, whereby supply would outrun demand. Thereupon one of two positions would arise — either production would proceed at a rate beyond consumption, thus causing a pressure on markets, meaning a shrinkage in currency value, or it would have to be decreased, meaning a great dislocation of employment. In either case the consequences to the general community would be disastrous. A large profit margin ob* tamed during the interval between the date of the first rise in prices and that when expenses had increased proportionately would be left in the hands of the owners of the means of production. When the time had arrived that producing cost and sals value had adjusted themselves to a normal proportion no such strong inducement would be left to go on over-producing. The general tendency would be to nurse stocks and realise the profits in hand. Hence, large numbers would be thrown out of employment who had only partially obtained any advantage by increased remuneration. Thereafter it is easy to follow the gradual downward course. Pressure of ali labour supply whatever would arise, and as it is the business of a wise manufacturer to " follow the market," and sell at even less than cost provided there is no special reason for speculative holding and that he can at the same moment replace the same goods at a proportunately lower rate than those he sells, you will thus be able to see how everything would gradually shrink. Daring the time of suspension between the throwing out of the excess producers and their reemployment when things had settled down, any fund they had saved would have to be •expended in purchasing their necessaries at the advanced rates. Now, if my contention that fixed property and commodities will increase in bulk and representative valae so that the whole shall ul jmately assume the same proportions to geld and silver currency as present bulk and values do to gold only, what is there to prevent the increase beyond these proportions causing tbe same fall as the bimetallisis asseit with regard to gold alone ? The real complaint against the scheme is its sudden and violent upsetting of natural conditions. la the slow and gradual adjustment of the proportions between currency and property there maybe some partialities of advantage and disadvantage, but their effect is softened by their distribution o.ver a long period of time, and, under any circumstances, they are but the result of natural forces. Bat an artificial interference such as is contemplated has no suoh redeeming qualities. The disturbance created would be unaccompanied by any of the compensating action which slow changes set in motion for the relief of pressure in any particular direction. However, it is comforting to think that there are special considerations which preclude the idea that the efforts of the bimetallists will be successful Chief among these is the contemplation" of the crash which would take place where there any particular date fixed for its introduction. | People who have money deposited at call, ! and which by the law of the land can only be repaid in gold, would not belikely to lopk complacently on and see their gold depreciated by the process of what may be termed the watering of the currency. They would naturally ask for their money beforehand in the expectation that its present purchasing power could be made better use of. Have the bimetallists contemplated thi3 contingency ? I have no time to prosecute the investigation of this matter further. Much more might be advanced in opposition to the proposed change, but I will conclude by observing that in the first place it seems to be impracticable by reason of the difficulty of obtaining a universal agreement on the question. Secondly, that were it adopted, in the course of time it wonld be inoperative and ineffective for the purpose contemplated, whilst in the meantime an inequitable distribution of industrial reward would display the real nature and object of what may be regarded as a one-sided measure of financial " hocus pocus."

LICENSING MEETINGS. Wellington, Jane 9. The Wellington Licensing Bench refused applications for midnight licenses, but granted all licenses up to 11 o'clock, except in "six cases. O£ the latter, the Queen's, Branch, Star, arid Cricketers' Arms were adjourned for a week, the police reporting that the houses were frequented by persons of ill-repute. The Panama Hotel was also adjourned for a week, the applicant not residing on the premises. The bench intimated that they were determined that licensees shonld reside on the premises. The application of the Wellington Hotel was also adjourned for a week owing to the intemperate habits of the licensee. Chkistchuroh, Jane 9. Pour licenses in the North-west waid of the City of Christ church were renewed this morning, and one was adjourned for a report as to the accommodation for boarders. Two further applications for licenses in Sydenham district; were heard to-day— one in respect of a house closed by the late committee. Both were adjourned till Jane 19, when a decision in regard to the whole of the applications will be given. Timaru, June 9. At the Timarn meeting the Rev. W. Gillies (Prohibitionist), who bad become a member of the committee since last sitting, was present in court, but took no part in the proceedings. After a conference in private, all the licences were renewed. Mr Gillies publishes a strong protest, which he handed to the chairman of the committee, against the granting of all licenses without the exercise of "discretion." He says that, not being allowed to speak in public, he expressed his dissent of the pro-ceedings by sitting aloof. OAMAitu, June 9. The granting of a license to the Maheno Hotel was refused to-day. A great amount of evidence was taken. Reoent frosts in Christohurch are said to bo. the most severe experienced for some years.