The History of Bimetallism in the United States
Part II, Chapter IX
India and the East
§ 1. The discarded silver of France found a home in the East. As early as 1860 Mr. Cairnes wrote*9 of the substitution of gold for silver:
"Australia and California have, during the last eight or ten years , sent into general circulation some two hundred millions sterling of gold. Of this vast sum portions have penetrated to the most remote quarters of the world; but the bulk of it has been received into the currencies of Europe and the United States, from which it has largely displaced the silver formerly circulating, the latter metal, as it has become free, flowing off into Asia, where it is permanently absorbed."
France and the United States saved gold from depreciation to a certain extent by absorbing a vast quantity of the new supply; this process, however, displaced a great amount of silver. India, on the other hand, now saved silver from depreciation to a certain extent by its absorption of the heavier metal no longer in use by Europe. This power of India and the East to absorb apparently an unlimited amount of silver is, and has been, one of the chief factors in the question of the relative values of the two precious metals, and requires some further notice.
The demand of Oriental nations for the precious metals, and especially for silver, is a natural consequence of their barbaric taste for ornaments and their want of civilized methods of exchange.
The passion for ornaments seems to be a source of demand for silver which is likely to continue until the race outgrows its barbaric conditions. Once given the passion for ornament, that one of the precious metals will be most in demand which is cheapest, and consequently within the reach of an indigent population. This is the reason why silver is so much desired by Eastern merchants for purchases. Although the people of India are very poor, and are miserably housed, yet they place their little all in the form of ornaments, when the peasantry of England would have added to their stock of utensils or or furniture. The silver rupees coined by the Indian Government and circulated in India suffer from a very considerable melting down by the natives to satisfy this demand for decoration. "In every large village there is a silversmith, or some one who works in silver, and as soon as a man gets a few rupees he employs a silversmith to come to his house and make the ornaments there, who brings his little implements required for manufacturing it, and there the rupees are made into ornaments."*10 "The natives never invest their money in the way in which civilized nations look upon an investment. A native, when he realizes a little money, puts it into the form of ornaments on the females of his family, and in times of scarcity these ornaments are taken to the bankers and sold."*11 "Some of the records of the old Benares Mint show that, in times of scarcity, the greater part of the silver brought to that Mint to be coined was in the shape of ornaments."*12 That this condition of affairs still prevails may be seen by the events of the last few years. During the recent famine in India, from 1877 to 1880, the following amounts*13 of silver ornaments were brought to the mints for coinage:
The desire for decoration is not confined in its effects to silver alone. The poorest can only expect to have brass or clay, but those who can afford it have silver or gold.*14 It is a matter of pride at great festivals that the children should make a display of ornaments, and they vie with each other in showing the greatest number. In this process they have as eager a demand for gold as for silver, provided they can obtain gold. "When a man (in India) gets a considerable amount of silver ornaments, he will sell these for the purpose of converting them into one gold ornament; because it adds to his prestige in the village if one individual of his family has a large gold armlet, or other ornament."*15 Indeed, the demand of India for gold is of considerable importance,*16 as may be seen by the tables giving the imports of both gold and silver into British India in Appendix VI. More than $450,000,000 of gold was retained by India between 1855 and 1880. The demand for gold is only one form of expression of the insatiate passion for ornament, since gold is not a legal tender, and is not used as a medium of exchange in India to any extent. But as silver is the cheaper of the two metals, both of which are desired for this purpose of ornament, the heaviest demand of a population of about 237,000,000 of people, which is by no means rich, falls upon silver.
§ 2. The second cause of a demand for silver in the East, so soon as the need of money is appreciated, is for its use as a medium of exchange. Throughout a large extent of territory in India, transactions are still carried on by barter.*17 In the interior of Bengal, some years ago, exchanges were effected chiefly by copper coins and cowry-shells, while but very little of silver was in circulation, and whatever appeared was either hoarded or manufactured into ornaments. But silver will be the best natural medium of exchange for the greater part of India, because the mass of the people are poor, and consequently the transactions are on a scale so small that they can be settled only by the use of the cheaper metal. There being much value in a small bulk of gold, it is needed only in comparatively large transactions. This is the explanation why silver is the usual currency of semi-civilized countries. India, however, is in a condition to use more silver money. Not only can the scanty circulation in districts where the advantages of a medium of exchange are already recognized be profitably enlarged, but the districts where little, if any, money is in use must, as they come under the influence of civilized habits and business customs, some day feel the need of silver as an escape from the inconveniences of barter. The capacity, therefore, of Eastern nations like India to absorb a very large amount of silver as a medium of exchange is very great. But, coupled with their extraordinary passion for gold and silver ornaments, we can see why it is that it has been generally believed that the East has a practically unlimited demand for silver. (We have already seen how the United States tried to take advantage of this characteristic in the coinage of the trade-dollar.) So that whenever the Eastern demand for silver falls off it is a matter of surprise, and some explanation is to be sought in exceptional causes.
§ 3. As Europe and the United States preferred gold to silver when the former metal could be had, the market for the displaced silver in the East was naturally of essential importance to the relative values of the two precious metals. We have seen that France (Chart XI) had expelled about $345,000,000 of silver by 1804, while there had been exported to the East from Europe no less than $764,000,000 in the same period; and from 1852 to 1875 at least $1,000,000,000 of silver had been shipped from England and Mediterranean ports to India and the East, while the total production of silver in the same years from the mines had not been very much more than that amount.*18 The general movement of silver into British India since 1852 may be seen by consulting Chart XII. Before 1855 the net imports of silver into India averaged only about $9,000,000, while the annual production of silver averaged about $30,000,000 a year.
From 1855 to 1862 the imports of silver increased. During this period occurred the Sepoy mutiny,*19 the transfer of the Indian Government from the East India Company to the Crown, the borrowing*20 of large sums of money for India in England, and the extensive building of public works. These events rendered necessary large remittances to India, and a demand was therefore felt for silver for shipment.
These conditions were materially affected by the "cotton famine" in England, which began after the cessation of cotton shipments to Europe from the United States during our Civil War. India was pushed to supply the demand for cotton in these years, and this created an abnormal excess of payments to India in the international exchanges, which of course led to larger shipments of silver than ever. This effect lasted from 1861 to 1866. Large exports of gold were made from London to the Continent in order to purchase the silver which English merchants needed for Indian remittances; and silver was also shipped directly from France to the East in large sums.
In 1867 a diminution was clearly marked in the flow of silver to the East, which continued at a less sum until 1876.*21 This was due to the use of bills of exchange sold by the India Council, the Government of India residing in London, and called "council bills." India had been borrowing on a large scale. The departments in India were required to raise funds there with which to pay the interest on her debt, on railway loans, pensions, etc., to a sum which in 1876 amounted to about $75,000,000 a year. Now, if this sum was due from India to the India Council in London, the latter would sell their claims to this money in India by going into the London market with bills of exchange drawn on Calcutta or Bombay. Inasmuch as the Indian presidencies collect all their revenues in silver, these bills of exchange were claims only to certain sums of silver, and would naturally be bought by any one wishing to make payments in silver in India for goods brought front that country. It must be apparent, therefore, that just as the expenses of the Indian Government rose, and just in proportion to the number of council bills which were offered for sale in London, would the exportation of silver to India be saved. The amount of silver due from India counterbalanced an equal amount due to India; and the two sums were offset against each other by the use of bills of exchange. The number of council bills rapidly increased about 1872,*22 as may be seen by the following figures:
The fall, therefore, in the line of Chart XII from 1871 to 1876, showing a decline in shipments of silver to India, is due to the increase of payments from India to London as manifested in the form of an increased supply of council bills on the London market. A merchant having a debt to pay in India would buy either silver or a council bill, according as he could buy one or the other cheapest.
The rise in the imports of silver into India in 1876 was thus explained by Mr. Bagehot:*23 "A merchant in London, who is thinking of importing goods from the East, looks at the price-current in Calcutta, and he sees the price quoted in rupees. The merchant in London is in possession of sovereigns in London; therefore he has two operations: first, he has to buy his rupees in India; next, with those rupees he has to buy the article which he saw in the price-current. The question of profit and loss to him is compounded of the result of these two operations; if, therefore, he can buy his rupees in Calcutta on more favorable terms, he will find it to his interest to go into a speculation which would not otherwise be profitable. If he can get rupees at 1s. 8d. instead of 2s., and he can buy his goods in Calcutta with the same number of rupees, that is so much extra gain to him. Conversely, the English exporter of goods to the East will receive payment in rupees, and he will have to sell those rupees; and if he sells them for a less amount of sovereigns, he will suffer a loss, and that is a discouragement to exporting from this country to India. The result of these two operations—of the encouragement of exports from India to this country, and the discouragement of exports hence to India—necessarily is an increase of the balance which this country has to pay to India, and consequently a flow of silver to the East." The increasing exports of silver in 1876, therefore, were a consequence of the fall in silver.
§ 4. The conclusions reached by the Government of India in regard to this movement of silver are as follows:*24
"The large imports of treasure into India since 1850 are due to abnormal circumstances, as follows:
"It would be altogether misleading to treat the great imports of treasure in the last twenty-five years as normal, or to expect that they will or can continue. There is, therefore, no reason to expect that silver will be poured into India, although, of course, if it falls in value a greater weight of it must come to represent the same value."
In an earlier part of the chapter we have seen that two strong reasons existed for the continuance of the Indian demand for silver: the passion for ornament, and the need of an adequate medium of exchange for a population of 237,000,000. With respect to the former it is clear that any change must necessarily be slow, and that the desire for decoration can be subdued only by the gradual progress of the race in civilization.
"The same passion for ornaments [as in savage races] is a powerful instinct amongst the native races of Hindostan, with whom they serve at once as a mode of investment and a means of decoration; but as civilization makes progress, tastes of a different order are developed. Vanity, perhaps, loses nothing of its power, but it exhibits itself under a different guise and is directed to different objects. Luxury, in its modes of display, as in other respects, undergoes refinement, and mankind seeks enjoyment less in the gratification of external sense and more in the cultivation of the higher faculties. The superfluous expenditure of a nation advancing in civilization is accordingly devoted less and less to objects which absorb mere masses of gold and silver and more and more to purposes of a higher order—to the beautifying of its domains, the embellishing of its houses, the general cultivation of its tastes; and parks and mansions, pictures, sculpture, and books take the place of accumulations of plate and collections of jewelry."*25
For a long time to come, however, we must believe that silver and gold will be used by the people of Hindostan for ornaments.
In regard to the second reason—the need of a medium of exchange—all information leads us to suppose that comparatively little silver is in use as money, that conditions of barter still exit over great areas, and that the districts where money is used can employ a much greater amount. Yet even in this matter the economizing expedients of Western nations must aid in preventing the whole demand for money from falling on gold and silver alone.
"In India, though more than a century under British rule, the advantages of credit as a medium of exchange are only beginning to be understood. The circulation of bank-notes is exceedingly limited, and is still confined to some of the Presidency towns. Checks, by which so large a portion of the business of this country is carried on, are but slightly used, and the great mass of transactions is effected by a transfer of rupees bodily in every sale. The magnitude of the transactions conducted in this manner may be estimated by the fact stated by Sir Charles Napier, that the escort of treasure constituted one of the severest duties of the late Bengal army, from 20,000 to 30,000 men being constantly occupied in this manner. The quantity of the precious metals employed in thus carrying on the internal traffic of India has been variously estimated between 150,000,000l., and 300,000,000l., sterling; but this state of things is evidently not destined to be of long continuance. Mr. Wilson's recent minute gives grounds for believing that the Indian Government are alive to this subject, and that India will soon enjoy the advantages of an effective paper system. Such an event can not fail to be attended with important consequences on the trade and industry of that country; and among these consequences we may expect this: that, instead of requiring, as now, continuous large additions to her present enormous stock of metallic money, she will not only be enabled to dispense with these, but will find it for her interest to part with a large portion of what she now employs."*26
A system of paper money was inaugurated March 1, 1862, and it is quite likely that, in proportion as banking accommodations are extended in India, there will be some check to the absorption of silver,—but of that sum only which would have been used as a medium of exchange and not for ornament. The reserve of more than 50 per cent of the circulation is, of course, largely of silver; but the extent to which bank-notes are already in use may be seen from the annexed table.*27
§ 5. If we eliminate the exceptional period of 1861-1866, during the cotton famine, we shall find that there is a probability of continued imports of silver into India so long as the demand for ornaments, and the evident need of a medium of exchange, exists. It would seem to me that for a very considerable time banking devices will not much offset the need of silver for money in common circulation. For some time to come India will require much more silver than she now has for her currency. The progress of banking facilities, moreover, implies also that kind of growth in comprehending the uses of money which is likely to bring with it a change from barter to civilized methods of exchange in remoter districts, and thus to increase the need of silver for circulation, as much or more than credit devices will diminish it.
In addition to all this it must be remembered that at present India is a poor country, and that its vast resources have not yet been advantageously worked. If India begins to grow more wheat for exportation to European markets; if, with the growth of civilization, new methods of production come into vogue, and more products which India can send abroad are brought to market; or if she should furnish herself with substitutes for goods now imported—then India would, in the terms of international exchange, have due to her additional sums of treasure which would be liquidated by silver. But the flow of specie from Europe will, on the other hand, be effectually prevented by any means which will offset this indebtedness of Europe to India. One offset has had an influence already, and drawn considerable attention—it is the debt owed by India to Europe, owing to the increased expenses of government, the sums due England for interest on her debt, and other expenditures. This influence is chiefly apparent by the amounts of India council bills placed on the London market. The following table will show how great this force has been in the past, and the extent of its growth to 1880. The column containing these figures might be otherwise defined as "sums obtained for bills drawn by the Court of Directors, or Secretary of State, on the several governments of India." The column giving the excess of exports of merchandise gives the means of knowing how India pays for her silver, and shows to what extent she has drawn for silver beyond the amounts of the council bills (which serve as an offset to the sum of exports in striking the international balance). Should her exports continue to increase as they have in the past—and they leave increased from an average of about $125,000,000 in 1856 to about $300,000,000 in 1880—India will be enabled to buy more silver and continue her absorption of the cheaper metal. [Sums are given in millions.]
In considering the effects of the Indian demand on the value of silver, an examination of Chart XII reveals the fact that the value of silver relatively to gold did not show any immediate sensitiveness to a falling off in the export of silver to the East. From 1870 to 1875 there had been a marked decline in the net imports of silver into India; but it was not until 1872-1873 that a slight downward movement in the value of silver was apparent, while it was not until 1876 that the very considerable break in the value of silver manifested itself. In looking forward to our object in Part II, which is to study the causes affecting the late fall in the value of silver, I can not think that the decline of the Indian demand has been so strong an influence in depressing the value of silver as it has been supposed to be by many writers. A temporary withdrawal of the usual demand at a critical time for the value of silver no doubt had a greater effect than it could have had at other times. An increased demand from India, to the extent to which it permanently absorbs a greater quantity of silver, would, of course, help to lighten the influences which are weighing down the value of this metal; but I am not inclined to believe that the flow of silver to the East has been the principal factor in our problem.*28 What makes me think that the Indian demand*29 is not a very potent influence in maintaining the general value of silver is the slight influence of its increased demand from 1877-79 in raising the value.
The total production of gold from 1850 to 1876 was about $3,000,000,000; of silver, about $1,200,000,000. Thus far we have seen that France added about $350,000,000 of silver to the supply, and that India took somewhat more than $,1,000,000,000. Of the new gold, France in the same time coined about $1,160,000,000, and India imported $440,000,000, leaving about $1,400,000,000 of gold to be accounted for. Not all the excess of the production of gold over the former average production was absorbed by the action of France and India. Making large allowances for consumption in the arts, and for increase in their currencies by gold-using countries, a very large part of this $1,400,000,000 of gold remains as a potent, and, to my mind, the chief factor in bringing about a disturbance in the relative values of gold and silver. The absorption of gold by France from 1853 to 1865 limited the demand for silver in its function as a medium of exchange. If the still remaining quantity of gold tempts some other country to take advantage of the abundant gold supply to improve its currency by taking the better medium instead of the poorer—that is, the gold instead of the silver (we are speaking of the preference for gold whenever choice between gold and silver is possible)—then we shall see the field for the employment of silver still further contracted, and the demand for silver withdrawn, because the needs of the community are better served by the other metal which the prodigality of nature has poured upon the world since 1850. In the next chapter we shall see how, in consonance with this supposition, the new gold usurped the place of silver in another country, and left the latter to find a sale in a market already somewhat sated by a full supply.
Notes for this chapter
"Essays in Political Economy," p. 79.
"H. C. Report of 1876," Q. 1,046.
Ibid., Q. 947.
Ibid., Q. 1,010.
"French Report on Conference of 1881," i, p. 63.
"H. C. Report of 1876," Q. 1,047.
Ibid., Q. 1,050. Mr. Cairnes also quotes Mr. Alexander Forbes: "It has often been said that the natives (of India) hoard silver; now my experience is that they do not hoard silver; they hoard gold; and that the silver is actually required for the commerce of the country."—"Essays in Political Economy," p. 94, note.
Ibid., Q. 938. Gold "is turned into ornament, used in manufactures, and is hoarded."
Ibid., Q. 913 and 1,041.
See Appendix VI, and Appendix I, Table B.
Broke out May 4, 1857, and ended July, 1859.
Between 1850 and 1873 India, borrowed 164½ millions sterling, which must be repaid in gold. The interest also must be paid in gold. This is the chief difficulty of India,, arising from the fall of silver, since more silver is required to pay the same amount as before in gold.
The increase in 1868 was due to payments for the Abyssinian war.
"H. C. Report of 1876," p. 33.
"H. C. Report of 1876," Q. 1,368.
Dated September 22, 1876, and issued in the form of a resolution upon the suggestions of the Bengal Chamber of Commerce and the Calcutta Trades Association. See "Report of 1878," pp. 411,412.
Cairnes, "Essays in Political Economy," p. 133.
Cairnes, ibid., pp. 127, 128.
"French Report of Mon. Conf. of 1881," ii, p. 205.
Writing in 1860, Mr. Cairnes said: "We are aware it has been maintained that the value of silver, so far from having fallen, has really risen during the last few years, in proof of which we are referred to the increased demand for it for Oriental remittance. That silver has risen in its gold-price owing to this circumstance we admit, but we deny that this is a proof of a rise in its value, any more than a rise in the gold-price of any other commodity would prove a rise in its value at a time when the supply of gold was rapidly increasing. During the last two years (1858 and 1859) the demand for silver in the East has been affected a good deal by requirements connected with the Indian Mutiny; but, if we investigate the causes of the extraordinary demand which has characterized the last four or five years, we shall find that they are in a principal degree traceable to the increased production of gold, operating through the expenditure of enlarged money incomes in England and the United States on Oriental productions; and that thus the increased demand for silver, which is alleged as a proof that silver has risen in value, is in reality a consequence of the large amount of gold available, for its purchase."—"Essays," pp. 142, 143. Mr. Cairnes was thus of the opinion that the imports of silver after 1850 were abnormal, and, by inference, would decline gradually with the absorption of the new gold.
The coinage of silver in India was, in
See speech of Sir Louis Mallet, "French Report of Conf. of 1881," i, p. 173.
Part II, Chapter X
End of Notes
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