Steven P. Reti. Silver and Gold The Political Economy of International Monetary Conferences, 1867-1892. Westport, Conn.: Greenwood Press, 1998. x + 214 pp. $59.95 (cloth), ISBN 978-0-313-30409-5.
Reviewed by John H. Wood (Department of Economics, Wake Forest University)
Published on EH.Net (February, 2000)
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 ^E 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 generates its 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.
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John H. Wood. Review of Reti, Steven P., Silver and Gold The Political Economy of International Monetary Conferences, 1867-1892.
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