TOWARDS A GOLD STANDARD 463
In mitigation of this, the bimetallists had nothing to offer. There were, no doubt, such schemes as the one proposed by Prof. Marshall, consisting of paper based on a linked bar of gold and silver in certain fixed proportions,* having the object of converting this “either-metallism” into double-metallism. But such schemes apart, the free-mintage-cum-fixed-ratio plan of bimetallism gave no guarrantee against alternation in the circulation. Indeed, under that plan the alternation is the very soul of the mechanism which keeps the ratio from being disturbed. The only thing the bimetallists could say in mitigation of this was that† the alternation in currency would confine itself to bank reserves and would not be extended to the pockets of the people. This was only an eyewash,‡ for how could the banks arrange their reserves except in conformity with the prejudices of the people ? Even international agreement to use gold and silver at a fixed ratio was no guarantee that this concurrent circulation would be maintained. Stability of ratio did depend to a large extent upon an international agreement, for, although it could be maintained by the action of one nation, the deviations of the ratio in that case would probably be greater. But mere international agreement has no virtue of itself to prevent one metal driving out the other. To suppose that Gresham’s Law is powerless under international agreement is a gross mistake. Gresham’s Law is governed by the relative production of the two metals to the total currency needs of the movement. Supposing the production of one metal relatively to the other was so enormous as to more than suffice for the currency needs, how could international agreement prevent the former from driving the latter entirely out of circulation ? On the other hand, international agreement, far from discouraging, would encourage the process.
In adopting bimetallism, therefore, the nations had to make a choice between a stable ratio and a concurrent circulation, for there might arise a situation in which there was a stable ratio
- Cf. Contemporary Review for March, 1887. it is interesting to note that essentially the same plan was suggested 115 years before Prof, marshall by James Stewart when his advice was sought by the East India Company as to the method of reforming the then chaotic currency of Bengal. He refrained from pressing it upon the Company because he thought “mankind were not all philosophers.” Cf. his Principles of Money as applied to the Present State of the Coin of Bengal (2nd Edition, 1772), pp. 8-11; cf. also William Ward, On Monetary Derangements, in a Letter addressed to the Proprietors of Bank Stock, London, 1840, p. 8.
† Cf. Prof. Foxwell, Oxford Economic Review, 1893, Vol. III, p. 297.
‡ Cf. the reply by Prof. Cannan, ibid., p. 457.