Before entering into this inquiry, it may be worth while to examine a circumstance of late occurrence, relating to monetary statistics, which has given rise to some discussion, but which has not yet been explained; I allude to the fall in the price of gold, and the corresponding rise in that of silver, throughout Europe, towards the end of 1850 and the beginning of 1851.

At that period Russia had rather less gold than usual to exchange against the produce of the West; and since 1847 the working of the Altai mines had been on the decline: at all events, the government did not appear inclined to allow gold to be exchanged; for in 1848 and 1849 its export had been forbidden. In 1850 the state of the exchanges did not admit of an export of gold, and a part of the 4½ per cent. loan, contracted at that period by the Cabinet of St. Petersburg, was remitted to Russia, both in gold and silver, from England. Doubtless, in spite of the prohibition, Russian gold found its way into other parts of Europe; it was calculated that between 1849 and the first few months of 1850, the great commercial towns in Western Europe must have received from [22]60,000,000 to [23]70,000,000 francs from Russia; but this was not equivalent to the large sums paid for grain imported from Odessa and Riga during the famine of 1846-1847. There could have been no real increase in the metallic reserves of Western Europe during that period.

The same remark will hold good towards America. The import of gold thence in 1849 and 1850 could not have done more than replace the gold coin exported to the United States two years earlier, in payment of bread stuffs and salt provisions. A proof of this will be found by examining the official reports of the mints of the United States. These mints, which from the year 1834—that is, since the working of the gold fields of Carolina, had coined gold at the average rate of 2,500,000 dollars ([24]13,500,000 francs) per annum, in 1847 put into circulation about 20,000,000 dollars ([25]104,000,000 francs). At that time Californian gold was unknown: the rich “placers” of that country did not begin to kindle the gold fever, first in America, and subsequently in Europe, until 1848. Californian gold, before it found its way to the Old World, had to supply the wants of the New. It is exported thence in the shape of eagles and double eagles, bearing the stamp of the Republic. In 1848 the coined gold in the United States did not amount to [26]4,000,000 dollars, and it did not exceed [27]9,000,000 in 1849. With this small supply an export could not be expected. In 1850 the Californian stream began to flow, and the mint of the United States, having received gold dust and bars to the extent of [28]40,000,000 dollars, coined [29]32,000,000 (about 171,000,000 francs.) Supposing that the bulk of this coin had been exported to Europe, such a supply would but have restored the loss in the circulating medium which had occurred in 1846. We had exchanged our gold against grain; it was returned to us against the silks, wines, and other articles from France. The monetary disturbance of 1850 must not therefore be set down to the score of an excess of imports: the rich supplies from Siberia and California could then only have acted prospectively. The real cause is to be found in the measures hastily and somewhat rashly adopted by various European governments. To prevent future evil they created immediate mischief; and, in order to shelter themselves from the risk of a future depreciation of gold, they directly produced it.

The crisis of 1850, thus examined, explains itself. On the one hand, silver, being annually taken out of the market by circulation, was not to be met with for other demands; on the other hand, gold, excluded by some governments from their circulation, flowed to those countries where it was still used as legal coin, and produced there, at least, a temporary superabundance. Then occurred the fall in the price of gold, and the rise in the price of silver; which together shewed a divergence of 8 per cent. between their former relative prices.

The explanation we have endeavoured to give appears to become clearer as we investigate further into the subject. Let us first examine the facts relating to the scarcity of silver. England, the principal market of Europe for the precious metals, witnessed, in 1850, a reduction of about [30]27,000,000 francs in the ordinary import. This applied principally to silver. Remittances from India, generally about [31]20,000,000 fr., were almost completely stopped; those from Turkey and Spain were materially diminished. At the same time about £1,000,000 sterling was required to be shipped to India, and remittances were made by Messrs. Baring to St. Petersburg of [32]8,000,000 to [33]10,000,000 francs more, in silver. Germany and Holland required more than their usual supply. The SociÉtÉ Maritime of Berlin had imported silver to the extent of [34]3,000,000 or [35]4,000,000 thalers; so that, altogether, the import into England, having diminished in 1850 to the extent of about £1,000,000 sterling, the export had been in excess by about double that amount; reducing the metallic reserve by about [36]75,000,000 francs. In addition to which, Spain and Russia, having prohibited the export of silver, the exchanges with those countries could hardly be operated upon effectively by the transmission of this kind of specie. It is easy, then, to conceive, that where no modification of the monetary laws had taken place, the premium on gold passed to a premium on silver.

This will explain the reason for at least a temporary abundance and depression in the price of gold, especially on the gold market of Paris. There is no ground for imputing the change to California, from whence the supplies were of little moment, until the end of December, 1850. England so far had only received silver from the United States, and the Californian gold, which had found its way by Panama, during the year, did not exceed, according to official returns, £682,000, or 17,050,000 francs. The Mint in London did not coin gold to a greater extent in 1850 than £1,492,000, or 37,300,000 francs, which is conclusive against any very large importation.

The market of Paris might have experienced a superabundance of gold, in consequence of the demonetization of gold coin in Spain and Portugal, and by the influx of Belgian and other foreign gold coin which had been circulating in Belgium; and it should be added, that England imported into France, for the payment of railway shares, probably to the extent of £1,000,000 sterling; but the predominating cause of the depreciation was undoubtedly the demonetization of gold in Holland, for that step had the immediate effect of cancelling at once the value of the gold coin there in circulation, and of throwing simultaneously an amount of gold on the commercial market, almost equal to the whole of the annual quantity of gold produced in California.

From 1816 to 1847 Holland had followed the example of France in admitting a double monetary standard. Gold and silver were both received in legal payment. The law of November 26th, 1847, altered this state of things; one standard only was allowed, and the silver florin of 3 grammes 450 milligrammes fineness, became the monetary unit: this simplification of the national coin, however, was adopted in theory only; the application of the system was postponed.

The article 23 of the law decreed, that before December 31st, 1850, other legislative arrangements should be enacted concerning the gold coins of five and ten florins, but that till these new arrangements were carried out, the gold coin should continue in legal circulation. The Dutch government might, therefore, retain the legal circulation of the gold coin, by applying to the States-General to prolong the period of the law of November 26th, 1847; but it preferred to carry out the system to its fullest extent. On August 6th, 1849, the government laid before the Assembly, the scheme of a law to “demonetize” the pieces of five and ten florins, and leaving to the administration the moment for its execution. At the same time the government demanded authority for the issue of notes to the amount of [37]30,000,000 florins, to buy in the gold coin, which although not in legal circulation, might yet continue to serve as payment at its conventional value.

In the “ExposÉ des Motifs,” the Minister of Finance, M. Van Hall, acknowledged that the depreciation of gold would not be immediate. “We must examine the question,” he said, “in order to know whether the proportionate value of gold and silver has undergone much variation in consequence of the discovery of the Californian mines. The government is of opinion that as yet this is not the case. In fact, a document communicated to the Assembly proves that the proportion between gold and silver of 1 to 15·60 has been found to exist but once. Sixty-eight quotations of the Exchange of Paris mark the price of gold higher, and only four lower than this proportion; at the Exchange at Amsterdam, we find fifty-five quotations above, and fifteen only below. For the present there is no fear of too much gold being imported for the purpose of exporting silver. It should also be observed, that the high price of gold in France has latterly been occasioned by political events.

“It is well known that the price of gold in Holland is regulated by the exchange on London. If England sends more gold to the Continent than she receives from it, then the rate of exchange on London rises, and gold is obtainable only at an agio. On the contrary, if England receives from the Continent more gold than she exports, the exchange on London is low in Holland, and gold is plentiful. Peculiar circumstances may of course modify these general rules; for instance, it is possible that England may have payments to make in Holland greater than Holland has in England, while the case is the reverse between England and the other countries of Europe; then the state of exchange in those countries would naturally react upon ours.

“It often happens that other circumstances occur seeming to contradict these principles. Thus in August last (1849), pieces of ten florins were in demand in Holland for foreign remittances, although the price of bar gold was only at 1¾ per cent. agio. Again, the influence of the state of exchange on the importation of gold may recently have been observed; not long ago, gold was exported from England to the United States at the very moment that gold was supposed to be arriving from America in great quantities.” I have repeated at full length these remarkable admissions, to prove that the Dutch government was not arming itself against a pressing or even nearly approaching danger, and that their precautions were not even taken with foresight. To theoretical errors were added practical faults; the Minister of Finance had not measured the importance of the operation with sufficient accuracy; he estimated the amount of gold coin in Holland at [38]96,500,000 florins; it proved to be [39]172,000,000 florins.

The law was voted on September 17th, 1849, and the government received the full power they had demanded. A royal command appeared on June 9th, for the execution of the measure. The following are the principal articles: “1st. The pieces of ten and five florins shall cease to be in circulation as legal payment from Sunday, June 23rd, 1850, but they may continue to be employed in commerce: that is to say, that these coins may be accepted in payment at a conventional value. 2nd. These coins shall be received in payment by government, and by the collectors of the revenues of the kingdom, at their nominal value, till July 31st, 1850, inclusive.”

At the time this notice was published, it appeared that the exchange of gold for bank-notes would take place under the most favourable auspices. Gold was at a tolerably high premium in the market of Amsterdam, bills of exchange on foreign countries were scarce, and consequently the payments of international commerce could very advantageously be made in the precious metals. Moreover, the government treasury was full, and the Netherlands bank declared itself ready to assist efficiently in the operation. But all these chances of success were destroyed by the precipitancy of the government. A complete panic was occasioned by the short period granted to the holders of gold coin: the people hastened to pour their gold into the state treasury, (which could not receive it all) or else to send it abroad. The government had imagined that the sum likely to be exchanged, would no exceed [40]30,000,000 florins: they had miscalculated by two-fifths; for the sum amounted to [41]50,000,000 florins. The 30,000,000 of paper money that they had been authorized to issue, together with the money in the treasury at their disposal, not being sufficient to pay for the amount of gold presented, they were obliged to have recourse to the bank of the Netherlands, and to borrow a sum of [42]6,500,000 florins, at an interest, moderate it must be admitted, of 2½ per cent. per annum.

The exchange being effected, it was necessary for the government to find a means of disposing of the gold withdrawn from circulation. It could be sold only in foreign markets; and there, private industry had forestalled the government, and the price of gold had fallen in consequence of the number of Guillaumes brought for sale. At first the Dutch government suffered only a small loss, owing to a momentary reaction in favour of gold coin; but the first sales having increased the depreciation, they were obliged, for fear of greatly adding to their loss, to stop after having disposed of [43]21,836,000 florins: the loss then amounted to [44]244,446 florins, being about 1¹²/100 per cent. By the middle of October, gold had fallen in value 2½ per cent. below the legal price, and by the middle of December, 4 per cent. At this period, the pieces of five and ten florins, banished from Holland, were scattered about in the different markets of Europe: London had received them to the amount of £600,000; Paris to the amount of [45]63,000,000 francs; Germany had absorbed the rest: excepting from [46]28,000,000 to [47]29,000,000 florins, still lying unsold in the treasury of the Netherlands.

The Guillaumes have continued to be melted and coined, in Paris, into 20 and 40 franc pieces; for I find in an official record furnished me by the President of the Mint, that Dutch coin was exchanged at Paris in the last six months of 1850, to the amount of [48]40,934,053 francs; and in the first six months of 1851, to the amount of [49]70,901,597 francs,—altogether [50]111,835,650 francs.

The gold coinage of Holland, from 1816 to 1847, was 172,583,955 florins, equal to [51]362,000,000 francs. Supposing that of this only two-thirds was in existence in this shape of coin in 1850, there would be 115,000,000 florins, or [52]236,000,000 francs, all at once withdrawn from circulation, and thrown upon the gold market: is it possible that the price of gold could be otherwise than affected? The gold thus suddenly demonetized equalled at least twice the annual produce of the world, previous to the discovery of California. The Mint of Paris alone, which had not struck above [53]27,000,000 francs in gold during the year 1849, coined [54]85,000,000 in 1850, and [55]269,000,000 in 1851.

Fortunately, the crisis was of short duration; the gold coined in Paris rapidly flowed either towards Piedmont, to pay the first instalment of their loan, or to Milan to pay for silks bought by Lyons and St. Etienne. Credit is at a low ebb in Italy, there is little paper circulation, tending to simplify accounts, and taking the place of specie in the adjustment of debts; gold is therefore always in demand, and the supply was speedily absorbed. Certainly, the apprehensions of the Dutch Government have proved hitherto groundless, and the desired object has been but partially attained: silver, having become the sole standard, has found its way (somewhat in excess) throughout the country, but the loss of gold coin has given rise to a small note paper-circulation: there is now a paper money of 10 and 5 florins (21 francs and 10½), which, although at first but provisionally issued, will probably become permanent circulation. Holland is following the steps of Prussia and Austria. The Dutch Government supposed that, notwithstanding the demonetization of gold, the coinage might remain in circulation, and be voluntarily accepted for its intrinsic value. This was a misconception of the nature of money, which is accepted as a circulating medium only on account of its positive value. As might have been anticipated, gold has ceased to circulate in Holland, and paper has taken its place. It is doubtful whether the nation has gained by the change.

We think we have sufficiently considered the subject of the fall in price of gold in 1850. During the last eighteen months the production of this metal has made immense progress. The crisis, which was then imaginary, may have taken a more serious turn, and may become hereafter a reality. This we will now examine.

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