ABSTRACT

W HEN the eighteenth century opened, most of thecurrencies of Europe were on a metallic basis. Someof the poorer countries like Russia or Sweden had a copper coinage, but the commonest metal used was silver, Shakespeare's 'pale and common drudge 'tween man and man '. 1 Gold was too scarce and costly to be used extensively for monetary purposes. In countries where a gold coinage was issued, as in France and England, the gold coins enjoyed no legal superiority over the silver. Both metals were freely coined at the mints and silver coins as well as gold were legal tender to any amount. A monetary system under which two metals circulate on equal terms is known as bimetallism or the double standard. 2 I t is a difficult system to maintain in practice since there is a constant danger that one of the metals will drive the other out of circulation. This will take place whenever the bullion ratio-the rate at which the metals exchange against each other in the bullion marketdiverges from the mint ratio-the ratio fixed between gold and silver coins by law. An example may make this clearer. Suppose the mint ratio is I : IS. This means that one ounce of coined gold equals 15 ounces of coined silver. If the bullion ratio is also I : 15, the two metals will circulate side by side. But suppose the bullion ratio changes to I : 16, so that one ounce of gold in the metal market exchanges for 16 ounces of silver. Then obviously gold as bullion will exchange for more silver than gold in the shape of coins, and there is a strong inducement to melt down gold coins and trade with them as bullion. This will take place until all the gold coins have disappeared from circulation and the country is left with a single silver standard. If the bullion ratio was to

change once more, but this time to I : 14, then the process would be reversed, and it would be the turn of gold to drive out silver. Only if a Government is prepared to alter its mint ratio with every fluctuation in the bullion ratio, can a bimetallic system be maintained in practice. 1

The monetary history of England in the eighteenth century gives a clear illustration of the working of these principles. In the early years of the century the bullion ratio diverged from the mint ratio, and the gold guineas coined by William III drove the silver shillings out of circulation to the no small inconvenience of traders and shopkeepers, who were forced to supply the deficiency of small change by manufactured tokens of their own. Then in the later years of the century, the bullion ratio moved in the opposite direction and silver began to drive out gold. By this time, however, the British Government had become proud of its gold currency and did not wish to lose it. I t therefore effectually arrested the disappearance of gold by suspending in 1798 the free coinage of silver, and followed this up in 18r6 by definitely adopting a single gold standard, and reducing silver money to the position of a token currency, coined in limited amounts for the purposes of small change.