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The French Crime of 1873: An Essay on the Emergence of the International Gold Standard, 1870–1880
Abstract
This article attempts to provide a new view of how the bimetallic standard was maintained before 1873 and how it came to change into a monometallic gold standard between 1870 and 1880. The conventional view that the gold standard emerged out of the contradictions of bimetallism is not persuasive. Instead, this article claims that bimetallism might have survived and provides an alternative explanation of the emergence of the gold standard. Political and historical factors proved essential in precipitating the uncoordinated emergence of the international gold standard.
... 227-228). 7 See also Redish, 1990 and1995. 8 See, for example, Flandreau, 1995Flandreau, , 1996 stating that the reform of copper and bronze coinage should be undertaken in accordance with what had already been decided within the Latin Monetary Union. This would imply the minting of a new bronze coin worth twenty reis, with a weight of 25 grams, and coins worth ten and five reis, with weights of 10 and 5 grams, respectively (Aragao, 1877, p. 232). ...
Professor Lawrence H. White is one of the founders of the modern free banking school and a major scholar of monetary theory and history. In Better Money: Gold, Fiat, or Bitcoin? he draws on close to four decades of scholarship to answer the question put in the title: which monetary standard would be better. It should not come as a surprise that Professor White sees the contest mainly between gold and bitcoin. What is a “better” money? Professor White proposes that this must be judged “nonpaternalistically” from the viewpoint of the money-holders themselves. This is surely the correct approach. Two criteria are laid down: a money must serve as a convenient and low-cost medium of exchange, which means non-declining and predictable purchasing power; and the monetary system as a whole should have desirable properties such as avoiding depressions associated with monetary disequilibrium (p. 17). While we find the approach and the first criterion eminently sensible, the second point is much more questionable. Much of the review is therefore devoted to aspects of this second point.
Dans quelle mesure les règles formelles d'une organisation monétaire influencent-elles les comportements, et dans quelle mesure la combinaison de ces comportements définit-elle l'organisation ? Ou encore, est-il possible de qualifier les pratiques des agents et des institutions sans faire référence aux règles du jeu, ou de comprendre ces mêmes règles sans être attentif aux pratiques qu'elles génèrent ou à l'autonomie qu'elles accordent ? Cet essai propose quelques éléments de réponse au travers de l'étude des interactions entre la Banque de France et le marché du métal précieux, et de leurs transformations entre 1848 et 1876.
La littérature considérable sur les « règles du jeu » du système monétaire international au cours du 19 e siècle (Bloomfield, 1959) procède en général en identifiant des principes de fonctionnement supposés universels qui auraient régi les relations monétaires entre les nations. Par rapport à cet idéal type, les particularités nationales, liées à des provisions légales, à des spécificités techniques, ou à une situation géographique donnée sont alors interprétées au moins comme des curiosités, souvent comme des déviations, plus généralement comme des violations des « règles du jeu ».
Widely considered the crowning achievement in the history of international monetary relations, the classical gold standard (1880-1914) has long been treated like a holy relic. Its veneration, however, has done more to obscure than to reveal the actual nature of the era's monetary system. In The Anatomy of an International Monetary Regime, Giulio M. Gallarotti addresses the nature of the classical gold standard in its international context, offering the first comprehensive and systematic treatment of the subject.
Three fundamental questions are essential to the discussion: How did the regime originate? How did it work? Why did it persist? Gallarotti uses an interdisciplinary approach that draws upon politics, economics, and ideology to explain the answers. He challenges traditional assumptions about the period, arguing that cooperation among nations or central banks was not a principal factor in either the origin or stability of the system, and that neither the British state nor the Bank of England were the leaders or managers of the gold standard. Rather, a decentralized process involving the status of gold, industrialization and economic development, the politics of gold, and liberal economic ideology provided converging incentives for starting and maintaining the system.
Gallarotti's study presents the most comprehensive and interdisciplinary examination available of the nature of monetary relations in the four decades before World War I. His important, revisionist view will alter the way we think about a crucial period in the growth of the international monetary system. It will be essential reading for scholars and students of economic history and policy.
Scholars have traditionally argued that the stock of specie in circulation in France in the 19th century was considerable and that this "financial backwardness" accounted for France's slower economic growth in that century. Scholars have also claimed that the French bimetallic system was inherently unstable. It is true that until the 1880's, gold and silver coinage formed the main portion of French monetary stock, perhaps as much as 52% in 1885, but the supposition that this somehow hindered French industrialization requires correction. This is especially true given the fact that no precise figures for the annual monetary stock had existed until recently. As a result of new estimates, two periods of specie can be detected: 1830-52 (predominant silver coinage) and 1853-66 (predominant gold coinage as a result of the depreciation of gold). In general, by the 1850's the stock of specie in circulation was much smaller than conventionally believed and did not exceed by much that in Great Britain. There is no reason to believe that the French bimetallic system adversely affected the French economy.
In 1816 England officially abandoned bimetallism and made silver coins into tokens that were only limited legal tender. Earlier monetary authorities had lacked the ability to manage a subsidiary coinage, a necessary complement to the monometallic gold standard. A successful token coinage must be both costly to counterfeit and credibly backed to ensure that the tokens do not depreciate to their intrinsic value. These problems were solved in the nineteenth century through the introduction of steam-driven stamping presses and with the assistance of the Bank of England.
In this paper, we lay the foundations of bullion points theory in the context of exchange rate analysis between bimetallic and monometallic nations. The theory is then applied to the study of the Paris–London exchange rates between 1846 and 1870. In particular, we show that both the position and spread of bullion points between monometallic and bimetallic nations reacted endogenously to shocks on international gold and silver markets. The distance between the upper and lower specie points tended to shrink when large disequilibria occurred on world bullion markets, and to expand when these disequilibria receded. Second, we show that bullion points constrictions and dilations as well as exchange rate movements triggered specie flows in and out of France, as a way to stabilize initial imbalances. France acted as the arbitrageur of last resort between the gold and silver segments of the international monetary system, and this in turn placed a substantial amount of “endogenous” pressure on its monetary system.
Estimation of metal money in france at the end of the XIXth century
Between 1878 and 1909, six monetary surveys were carried out in France. The dates of mintage of the coins which were in the cash-boxes of the State and of the major banks were taken. Alfred de Foville who initiated these surveys used them to give an estimate of the metal money in France. Later on (1932), Jules Denue computed two yearly metal money series ; the extrapolated de Foville's figures with custom data of coin trade lor the first one, and for the other he applied a constant and arbitrary loss rate to mintings which are perfectly known. These two estimates are quite different in levels (for 1891 the second is more than doubled the first) as well as in variations. The three methods are described with details in this paper. It is shown that custom data cannot be used, and that there remain questions about coin holdings by the Banque de France ; a new estimate of these holdings is given, which is built with archives from the Conseil general of the Bank.
The metal money is then computed (for the six years when there was a survey), using loss rates which are estimated by the maximum likelihood of a multinomial law method, with data from the six surveys. This new estimate turns out to be between those by de Foville and Denuc. It is obvions that Denuc's surestimate cornes from a loss rate smaller than those which are consistent with the surveys. Metal money was, according to our estimate, about eight billion francs in 1878, then it decreased to five and a half billions in 1903, and dramatically increased to seven billions in 1909.
The U.S. Coinage Act of 1873 eliminated provision for the free coinage of silver. That act cast the die for a gold standard. The conventional view is that "the act of 1873 was a piece of good fortune." This paper indicates that it was the opposite--a mistake that had highly adverse consequences. This is a judgment about 1873, not 1896. By 1896, when William Jennings Bryan ran for president on a "free-silver ticket," it was too late to undo the damage. Bryan was trying to close the barn door after the horse had been stolen. Copyright 1990 by University of Chicago Press.