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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.

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 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.