1In the previous issue of this journal, Claire Silvant (2012) argued that the late 19th century controversy of the monetary standard in France overlapped with several other debates raging at this time. Evidence was presented that bimetallists favoured the note issuance monopoly in the hands of the Banque de France and were supportive of a discretionary approach in economic policy making. Conversely, gold monometallists were identified as advocates of free banking and as supporters of “rules” rather than “discretion”. As a third “correlation”, Silvant adds European (and potentially global) monetary unification as another late 19th century debate, arguing that bimetallists identified themselves more closely with this endeavour than their gold monometallic counterparts. I take issue with this claim; in what follows, I will argue that, if anything, the reverse was true. French gold monometallists were more supportive of European monetary unification. As the French public increasingly realized that such unification was possible only on the basis of gold, French economists and the French government came to favour the gold standard over bimetallism in the late 1860s.
- 1 “We ascertain that bimetallists were genuinely concerned with imposing and extending the French sys (...)
2 The article states (Silvant, 2012, 320):1
Il nous semble possible de soutenir l’idée selon laquelle les bimétallistes ont eu une réelle ambition d’imposer et d’étendre le système français à l’étranger, tandis que les monométallistes ne soutenaient l’étalon-or que dans la perspective ne pas voir la France marginalisée.
- 2 All references to Silvant (2012) are indicated without date, providing the page number in parenthes (...)
3Silvant confines this part of the analysis (section 4) to two authors only, namely de Parieu, as gold monometallist, and Laveleye, as bimetallist, thereby restricting the range of differing opinions within each camp. While de Parieu and Laveleye were prominent economists within their respective camps, it would, as a minimum, have been necessary to explore whether their positions changed over time. Silvant herself argues (319)2 that 1873 constituted a watershed for bimetallism but fails to realise the implications for the intellectual debate.
4 Before 1873, gold and silver traded in bullion markets at approximately the value attributed to them in the French 1803 legislation, i.e., 15.5 : 1. Then, at around 1873, for reasons still debated among economic historians to this day (Morys, 2012), silver depreciated on bullion markets vis-à-vis gold, making French bimetallism difficult to sustain and forcing the French authorities to effectively demonetize silver, as happened with the ending of silver coinage on private account in September 1873. The capacity of France, together with its Latin Monetary Union partners Italy, Belgium and Switzerland, to guarantee some sort of “bimetallic equilibrium” had come to an end. As a result, the ideology of bimetallism had to reinvent itself as “international bimetallism”, as Silvant correctly points out (319). Bimetallists argued that returning to bimetallic equilibrium was still feasible but now depended on many more countries participating; hence the need to convince a large number of countries to sign an internationally binding bimetallic agreement. As will be seen, the shift to international bimetallism had profound implications for how the question monétaire overlapped with European (or global) monetary unification.
5 While agreeing with Silvant on the importance of 1873 as a turning point, I feel that her argument remains problematic for both sub-periods. I shall commence with her view on the question monétaire and its overlap with the project of European monetary unification before 1873. Silvant describes the 1860s controversy on the monetary standard as a choice between the French and the English systems, identified as the bimetallic and the gold monometallic monetary systems, respectively. According to her line of reasoning, bimetallism and European monetary unification overlap in the French case, as French economists wished to promote internationally their own system rather than achieve unification through importing the English gold standard. Such a perspective, however, does not do justice to the intellectual debate of the pre-1873 period. Rather than choosing between the French and the English system, the 1860-1873 period witnessed a pan-European movement in favour of combining the best of both worlds: the French coinage system, which would determine the structure of coins using a set of weights and measures, coupled with the sole reliance on gold as exemplified by the English system (Einaudi, 2000 and 2001). In other words, economists and policy-makers throughout Europe wanted the French monetary system but without its link to bimetallism. Explaining the emergence of such a pan-European movement helps understand why gold monometallic sentiment grew stronger in France in the second half of the 1860s. Adopting the French coinage system across the rest of Europe and beyond seemed possible if the bimetallic link were sacrificed. Consequently, gold monometallism made converts in France especially among those in favour of European monetary unification and the prominent role France would play in this process.
6 Why was the French coinage system so attractive to the rest of Europe; and why was French bimetallism so undesirable? The French coinage system was not only “rational” and “modern” in the sense that it was based on the metric system (as opposed to the English coinage system, its only serious rival), but it was also the most widely used one in Europe. In the 1860s, the four LMU countries combined had a population more than twice as large as the UK and a combined GDP that was some 40% higher than British GDP. Trade patterns suggest the same: most European countries conducted more trade with LMU countries than with the UK, making the adoption of the French system the better choice (Morys, 2012).
7 Understanding the pan-European dislike of bimetallism is more complicated. French bimetallism from its inception in 1803 to its demise in 1873 subdivides neatly into two periods: a first period which lasted until 1848 and was characterised by gold leaving monetary circulation, as its value on bullion markets was higher than the 15.5 : 1 of the 1803 law. This was followed by a second period in which, due to the immense gold findings in California (1848) and Australia (1851), gold drove silver out of circulation in accordance with Gresham’s Law. Judged by its impact on daily life, the 1848-1873 period was far worse: there was a shortage throughout France of small coin (small coin was typically made out of silver), thereby severely handicapping transactions in daily life. Unease over the silver drain gave rise to three French government commissions in the 1850s and early 1860s (1850, 1857, 1861) which discussed at great length the difficulties of bimetallism at the time.
8 Only two solutions were possible to keep silver coin in circulation: either to reduce the fineness of silver coin or to demonetize silver altogether, thereby paving the way to using silver as token coinage. France, along with Italy, Belgium and Switzerland, to whom France had exported its monetary system during the Napoleonic Wars, initially resorted to the first strategy, only to run into problems of a different sort. As coins circulated freely among the bimetallic countries, each of the four countries became increasingly worried about the prospect of being flooded with debased silver coin from the other three. The only solution to stop the ensuing “race to the bottom” (in terms of silver fineness) was to (re-)establish identical coinage. This led to an international agreement which became known as the Latin Monetary Union (1865). Henceforth, all silver coin would be minted at a reduced fineness of 835/1000; only a single coin – the 5 franc / lira piece – was maintained at the old fineness of 900 in order to keep the bimetallic ratio unchanged.
9 If the reader of this comment feels tired of reading about coinage legislation in a journal devoted to the history of economic thought, I have achieved my first goal. The LMU was not, as Silvant claims (318), the beginning of a grand projet to expand bimetallism beyond France’s border; rather, it was a very technical agreement to deal with a very specific problem, i.e., the silver drain. Yet another crucial aspect of the LMU is not sufficiently addressed by Silvant, and that is the strength of gold monometallic sentiment among Italy, Belgium and Switzerland, with all three countries speaking out in favour of gold during the negotiations (Ministère des Affaires Etrangères, 1865, pp. 6, 12, 21-29 (Belgium), 30, 72-73 (Switzerland), 43, 72-73 (Italy)). As switching to gold at a later stage entailed very little cost (Morys, 2012, 26-28), Italy, Belgium and Switzerland valued an agreement with its powerful neighbour as more important than a quick transition to monometallism. But the message was not lost on French negotiators, one of whom was de Parieu. While the French coinage system was highly attractive to foreign countries, the link to bimetallism clearly was not.
10 Events between 1865 and 1873 demonstrated that Italy, Belgium and Switzerland were not unique cases. Wherever a monetary commission was held, it expressed itself in favour of the French coinage system but without its link to bimetallism (Morys, 2012). The monetary commissions of Austria (1867) and Sweden (1869/70) are good examples in this context, as is coinage legislation by Romania (1867) and Denmark, Sweden and Norway (1872). The German Chamber of Commerce meeting of 1868—the best proxy in the absence of a unified political voice—points to the same conclusion. Crucially, there was, to the best of my knowledge, not a single monetary commission in the 1860s outside of France which expressed itself in favour of bimetallism.
11Slowly but surely developments abroad began to influence the debate in France. Political and economic circles began to realise that the pan-European movement to unify the national monetary system could be turned to French advantage. Expanding the French monetary system across Europe and beyond suddenly appeared within reach. The only concession the rest of the world would extract was a transition to gold monometallism. Given the new political agenda, many economists began to shift their allegiance from bimetallism to gold. However, more extreme still is the case of the French foreign ministry. The Quai d’Orsay, for a long time, had no specific interest in the question monétaire; it entered the debate only when the prospect of exporting the French coinage system came on the agenda, and then firmly on the side of gold monometallism (Einaudi, 2000). Not everyone became a gold standard advocate in France, of course. Some, most notably the Finance Ministry, remained committed to bimetallism, leading to a prolonged battle between the Foreign Ministry and the Finance Ministry (Thiemeyer, 2009). The continued support for bimetallism by the Finance Ministry, incidentally, supports the argument: Naturally, the Quai d’Orsay was more interested in European monetary unification than the Finance Ministry, which is why, in my line of reasoning, it was more likely to side with gold monometallism.
12This rapid change in the French position was most evident in the 1st International Monetary Conference, where de Parieu was vice-president and which was held in Paris in 1867 at the invitation of Napoleon III. Countries from all over the world envisaged gold monometallism based on French coinage as the future of the global monetary system (Ministère des Affaires Etrangères, 1867). This outcome was not only a success for French diplomacy but it also reinforced domestically the position of the gold standard advocates. Their ascendancy, as well as the increasing focus on monetary unification with other countries, can be well detected in the questionnaires given to the three domestic monetary commissions held in 1867, 1868/69 and 1869/70. In the 1867 commission, which was held shortly before the 1st International Monetary Conference, the first question addressed purely the domestic monetary system: “Quel est le système préférable, de l’étalon unique ou du double étalon, dans une législation monétaire considérée a priori?” (Ministère des Finances, 1868, 8). The focus changed in subsequent questionnaires, with the first question in the second one, for instance, explicitly addressing the issue of European monetary unification and formulating the choice of the metal in a far less neutral manner: “La question de l’unité de l’étalon et la question de l’unification monétaire internationale sont-elles absolument solidaires, et tellement indivisibles qu’elles ne puissent être résolues l’une sans l’autre, et qu’il soit nécessaire d’adopter l’unité d’étalon pour arriver à l’unification?” (Ministère des Finances, 1869, 1)
13 To sum up, my argument for the period 1860-1873 is this. As an increasing number of foreign countries converged on the idea of gold monometallism based on the French coinage system, France sensed a unique opportunity to expand its monetary system across the whole of Europe and beyond. The only concession it had to make in return was to switch from bimetallism to gold, thereby tipping the domestic debate in favour of gold. For the pre-1873 period it is then difficult to follow Silvant’s claim that bimetallists were, on balance, more in favour of European monetary unification.
14 Is Silvant on safer grounds for the post-1873 period? As the author quotes only one bimetallist in support of her view (Laveleye, whose 1891 contribution falls outside the time frame of the article), the best approach might be to ask whether international bimetallism was more conducive to monetary unification—or the role that France played in such a process—than gold monometallism.
15 Before we can provide a conclusive answer, it is important to note that the concept of “monetary unification” was radically different after 1873 compared to the late 1860s, a distinction which Silvant fails to acknowledge. Before 1873, monetary unification meant harmonizing the metal (gold vs. bimetallism) and the coinage system; after 1873, unifying coinage silently fell off the agenda, as there were now too many potential centres of gravity. Germany had created its own coinage system following political unification, and the US was less willing to compromise on its own system in the 1870s than it had been in the immediate aftermath of the Civil War. Consequently, monetary unification after 1873 became a straightforward choice between gold and bimetallism (Morys, 2012).
16 It is clear that the opportunity to expand the French coinage system beyond its borders was the main reason why France became the protagonist of European monetary unification in the second half of the 1860s. But why France should be concerned with this project—or, at least, be more concerned than others—after 1873 when unifying the coinage system was no longer on the agenda, is unclear. Such scepticism is vindicated by a careful analysis of the 1878, 1881 and 1892 International Monetary Conferences (Reti, 1998, Russell, 1898). In contrast to the 1867 International Monetary Conference, there were no discussions of the coinage system. All three conferences are better understood as discussions between proponents of hard currency and soft currency, an item which was completely absent before 1873. Gold monometallists favoured a strong currency, even if that meant deflation; bimetallists, in contrast, favoured a weaker currency, seeing deflation and depression after 1873 as two sides of the same coin. They wished to increase global money supply by remonetising silver.
17 There certainly were many bimetallists in France after 1873, but there is little reason to assume they were more in favour of monetary unification than gold monometallists. Both sides wanted exchange rate stability between as many countries as possible, which was what remained of monetary unification with identical coinage off the agenda. The main difference was the degree of price stability which either system would guarantee.