|Author(s):||Reti, Steven P.|
|Reviewer(s):||Wood, John H.|
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.
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.
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
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”
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
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
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 generate
sits 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.
|Subject(s):||Financial Markets, Financial Institutions, and Monetary History|
|Geographic Area(s):||General, International, or Comparative|
|Time Period(s):||19th Century|