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Published by EH.NET (February 2000)
Steven P. Reti, _Silver and Gold: The Political Economy of International
Monetary Conferences, 1867-1892_. Westport, CT: Greenwood Press, 1998. x +
214 pp. $59.95 (cloth), ISBN: 0-313-30409-2.
Reviewed for EH.NET by John H. Wood, Department of Economics, Wake Forest
University. <[log in to unmask]>
Two important sets of economic and political data lay behind and condition
the meetings described in this book: after falling from 15.93 to 15.19
between 1843 and 1859, the market ratio of silver to gold rose to 15.57 in
1867, 23.72 in 1892, and 39.15 in 1902 (Table. 1); and the western world
discontinued the coinage of silver and followed Britain onto the gold
standard.
The book is an interesting account of the international monetary
conferences of 1867, 1878, 1881, and 1892, and is recommended to anyone who
wishes to become informed of diplomatic efforts to resist the dominant
market and political forces reflected in the above data. The first
conference, of representatives of twenty leading commercial nations,
convened in Paris at the invitation of Emperor Louis Napoleon and agreed to
recommend to their governments formal negotiations toward a common gold
coinage. The Conference of 1867 "marked the pinnacle of success for
international coinage advocates" (p. 45), but its recommendations received
little support at home. Governments were reluctant to be seen to tinker
with the contents of their coins, and significant bimetallic sentiment of
the silver interests undermined support for a universal gold coinage.
The other three conferences were convened at the invitation of United
States government under pressure from domestic silver interests to arrest
the decline of silver, primarily by adopting a bimetallic standard with a
fixed silver/gold ratio that greatly overvalued the former. The
Bland-Allison Act of 1878 directed the Treasury to buy and coin $2 million
to $4 million of silver per month and the President to invite such "nations
as he may deem advisable to join the United States in a conference to adopt
a common ratio between gold and silver for the purposes of establishing,
internationally, the use of bimetallic money and securing fixity of
relative value between those metals." None of the conferences rallied
material support for this goal, although there was some brief European
sentiment in that direction after the large gold flow to the United States
in 1879-80.
The story is well told, but the author's efforts to increase its importance
by tying it to various theories of how gold came to dominate world finance
are unconvincing. His purpose is to correct the impressions that the gold
standard regime arose "spontaneously as states responded to silver
depreciation in an uncoordinated but similar fashion" and was "a case of
international cooperation arising without international negotiation" (p.
33). He "examines spontaneous [market?] and [British] hegemonic
explanations and argues that a coordination-game explanation of the
classical gold standard possesses greater validity." Cooperation in the
latter setting "is by no means assured" because the parties may "disagree
about the appropriate conventions, or focal point, to coordinate policies.
The challenge of developing and maintaining a focal point is the central
concern of this book. The monetary conferences under investigation were
concerned about the appropriate point to fix exchange rates" (p. 5).
An alternative approach seems both simpler and more fruitful. Ask the
following questions: Did any of the last three conferences have a chance?
What would have become of the international monetary system if the American
silver interests had gotten their way? The first must be answered in the
negative because important economic and political interests saw chaos in
the second.
Agents desire predictability in the settlement of contracts and are averse
to accepting payment in a depreciating currency. The aversion was not
limited to British lenders. Those wanting credit needed to promise
repayment in sound money. That is as true today as in the nineteenth
century.
The supporters of so-called "bimetallism" were not interested in a workable
bimetallic system with a market-responsive ratio (as in Arthur J. Rolnick
and Warren E. Weber, "Gresham's Law or Gresham's Fallacy?" _Journal of
Political Economy_, Feb. 1986). They wanted support for silver, a
redistribution of wealth to silver producers and to borrowers wanting to
repay gold debts in a depreciating currency. A freely convertible
bimetallic system with a market-violating ratio is bound to fail (as the
United States was reminded in 1893, when President Cleveland called
Congress to repeal the Sherman Silver Purchase Act of 1890). Furthermore,
complaints of a shortage of money were senseless because more money
generates its own demand through higher prices. The Asian crisis of a
hundred years later was a reminder that there may even be a shortage of
money in a fiat paper system when borrowers have promised more than they
can deliver.
All this was known in contemporary private and government circles. The
impression of a system formed by market forces without the benefit of
conferences called to mollify silver interests might be the best one after
all.
John H. Wood is author (with Jac Heckelman) of "Federal Reserve Membership
and the Banking Act of 1935: An Application to the Theory of Clubs," in Jac
Heckelman, John Moorhouse and Robert Whaples, editors, _ Public Choice
Interpretations of American Economic History_ (Kluwer, 1999). His
forthcoming book is titled _"A Company of Merchants:" A History of the
Theories and Ideas That Have Shaped Monetary Policy_.
Copyright (c) 2000 by EH.NET and H-Net. All rights reserved. This work may
be copied for non-profit educational uses if proper credit is given to the
author and the list. For other permission, please contact the EH.NET
Administrator ([log in to unmask]; Telephone: 513-529-2850; Fax:
513-529-3308). Published by EH.NET (February 2000)
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